Mastech Digital Inc (MHH) 2009 Q2 法說會逐字稿

Greetings and welcome to the Mastech Holdings, Inc. Q2 2009 earnings quarterly conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Jennifer Ford Lacey, Manager of Legal Affairs for Mastech Holdings, Inc. Thank you. Ms. Ford Lacey, you may now begin.

Thank you, operator, and welcome to Mastech's 2009 second-quarter conference call. If you have not yet received a copy of our earnings announcement, it can be obtained from our website at www.mastech.com. With me on the call today are Thomas Moran, Mastech's recently appointed Chief Executive Officer; Sunil Wadhwani, our Co-Chairman; and Jack Cronin, our Chief Financial Officer.

I would like to remind everyone that statements made during this call that are not historical facts are forward-looking statements. These forward-looking statements include our financial, growth, and liquidity projections, as well as statements about our plans, strategies, intentions, and beliefs concerning our business, cash flows, costs, and the markets in which we operate. Without limiting the foregoing, the words believe, anticipates, plans, expects, and similar expressions are intended to identify certain forward-looking statements. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change.

There are risks and uncertainties that could cause actual events to differ materially from these forward-looking statements, including those listed in the Company's 2008 annual report on Form 10-K filed with the Securities and Exchange Commission and available on their website at www.sec.gov.

As a reminder, we will not be providing guidance during this call, nor will we provide guidance in any subsequent one-on-one meetings or calls. I will now turn the call over to Sunil.

Thanks, Jenna, and good morning, everyone. As you may recall, during our first-quarter earnings call in early May, I stated that I was hopeful that we would complete our executive search and have a permanent CEO on board within 90 days.

I also shared with you at that time some of the qualifications that our board was looking for in a new CEO. Firstly, experience in driving a sizable P&L in the professional services industry; second, a proven track record of growing revenues and earnings; third, a keen knowledge of the professional services industry beyond IT; and fourth, someone with a proven track record in formulating and executing an effective acquisition strategy.

I am very happy to tell you that with Tom Moran, we have found an individual that exceeds even those lofty expectations. In addition to Tom's very impressive background, his contagious can-do attitude, and his high energy level makes him the right executive to take Mastech into the next phase of its evolution. After I address our second-quarter results and Jack reviews our financial position, I'll turn the call over to Tom to say a few words and to address any questions that you may have of him.

Now, addressing our second-quarter results. Revenues during the second quarter of 2009 declined to $17.7 million compared to $24.4 million in the same period last year, due largely to reduced demand for our services. During the second quarter of '09, our billable consultant days declined by approximately 3% as compared to the number of consultants employed at the start of the quarter. This decline was considerably less than what we have experienced over the last several quarters, as activity levels during the quarter showed some modest signs of improvement.

Gross profit margins in the second quarter of 2009 were 19.3% or just slightly below the 19.5% achieved during the same period last year. This gross margin performance is an improvement when compared to the past three quarters, and reflects the combination of favorable mix of business and the impact of initiatives that we have taken with respect to margin protection, including walking away from low-margin opportunities.

Second-quarter '09 SG&A expenses totaled $3 million and represented 16.8% of total revenues compared to $3.4 million or 13.8% of revenues in the same period of 2008. Excluding severance expense related to the Company's leadership change, SG&A expenses would have represented 14.8% percent of total revenues.

During these challenging and uncertain times, we have consistently adhered to a disciplined cost management approach. However, as we see more signs of economic stabilization, our focus will shift towards making the prudent investments necessary to capitalize on future market opportunities.

Net income for the quarter was $256,000 or $0.07 per diluted share, compared to $1.1 million or $0.30 per diluted share in the corresponding period last year. Two points to note with respect to these numbers. Number one, severance expense included in the 2009 quarter negatively impacted net income by $208,000 or $0.06 per diluted share. And secondly, the 2008 quarter included certain income tax benefits derived from the Company's participation in its former parent's consolidated US income tax return, which would not have been available to us as a stand-alone organization. The impact of these tax benefits on net income for the second-quarter 2008 totaled $242,000 or approximately $0.07 per diluted share.

In summary, market conditions remain challenging, but we're starting to see some encouraging signs that the worst is behind us. Pricing pressures are likely to persist in the near term, and we will continue to take the necessary actions to adjust our resource costs as appropriate. As the economic recovery advances, we stand ready to make the investments that are required to improve our competitiveness in the marketplace.

I will now turn the call over to Jack for an overview of our financial position as of June 30, 2009.

Thanks, Sunil, and good morning, everyone. Despite the challenging economy, our balance sheet remains strong. At June 30, 2009, our cash balances increased to $6.9 million, and our tangible net worth increased to $10.3 million. We ended the quarter with no outstanding long-term debt, and access to approximately $7 million of credit under our existing revolving loan facility.

The quality of our trade receivables continues to be in good shape. Our accounts receivable DSO measurement of June 30, 2009 was 42 days, compared to 44 days a quarter ago. Additionally, less than 2% of our receivable balance was aged beyond 90 days as of June 30.

During the first six months of 2009, we generated $2.7 million of operating cash flows compared to $3.9 million in the corresponding period last year. Net income and non-cash charges contributed $1.3 million of cash flow in 2009, with an additional $1.4 million generated from reductions in working capital levels. During the 2008 period, net income and non-cash charges generated $2.3 million, with an additional $1.6 million of cash flows coming from working capital reductions.

Cash used in investing activities, principally capital expenditures, totaled $106,000 during the first six months of 2009. This compares to about $93,000 in the 2008 period. For the balance of '09, we expect capital expenditures be less than $100,000.

With that, I'll turn the call back over to Sunil.

Thanks, Jack. And at this time, I would like to give Tom Moran an opportunity to say a few words, and then we'll open it up for your questions. Tom?

Great. Thank you, Sunil. Good morning, everyone. First off, I'm very excited to be a part of the Mastech team. I look forward to partnering with the Mastech management team to take Mastech to the next phase in its evolution.

Mastech has a rich history in the professional services industry. That coupled with my background and experience makes for an exciting future. In my opinion, we have a terrific opportunity in front of us, even though we had to navigate through some difficult economic times. I look forward to working with the group to navigate through those times and focus on capitalizing as the market tends to change in the near future.

With that, I would like to turn it back over to the operator to open it up for questions.

(Operator Instructions) Yev Neginsky, Springdale Capital.

Good morning, guys. Tom, welcome to Mastech. Good morning, Sunil and Jack.

Thank you.

I just had one quick question. I was just wondering if you could talk about how the business has developed throughout the quarter and then subsequently? I'm curious whether things are kind of getting less bad, or are they genuinely bottomed out and are improving? Then if you could comment sort of what you are seeing now and what you saw in July, that would be great as well. Thank you.

Exactly as you put it, yes, things do seem to be getting less bad. And as we said in the early part of this call, the severe headcount decline that we and other staffing companies have been seeing for the last several quarters, that seems to be definitely slowing down. As we said, our headcount decline in Q2 was 3% from the beginning of the quarter to the end, which is substantially lower than what we've had in several prior quarters.

What happens going forward is a function of what happens with the economy. Staffing, as you know, is a highly cyclical industry and as -- once the economy starts growing, which is what most economists expect it will do starting over the next couple of quarters, once that starts growing that typically drives demand for all kinds of staffing, including IT staffing.

So I think there's a sense within the industry that, yes, the bottom has been reached, but the extent to which our industry grows will be a function of how quickly the economy grows. And if that growth is slow and sluggish, well, then I think the staffing industry will also grow in the same fashion. If the recovery is a little more vigorous, then I think you will see the IT staffing industry growing much faster.

Okay, thank you.

There are no further questions at this time. I would like to turn the floor back over to management for any additional closing comments you may have.

Well, we would like to thank you all for joining us, and we look forward to speaking with you again in roughly 90 days. Thanks, and have a wonderful day, everyone.

Ladies and gentlemen, this does conclude our conference. You may disconnect your lines at this time, and we thank you for your participation. Have a wonderful day.