Mastech Digital Inc (MHH) 2010 Q1 法說會逐字稿

Greetings and welcome to the Mastech Holdings Inc. first quarter 2010 earnings 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, Jennifer Ford Lacey, Manager of Legal Affairs for Mastech Holdings Inc. Thank you. Ms. Ford Lacey, you may begin.

Thank you, operator, and welcome to Mastech's 2010 first 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 Tom Moran, Mastech's Chief Executive Officer, 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 'believes', '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 2009 annual report on Form 10K 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 Tom.

Thank you, and good morning, everyone. On today's call, I will make my opening comments about recent activities and our progress and positioning Mastech for sustainable growth in 2010 and beyond. Jack will then review our financial results for the first quarter of 2010 and I will rejoin the call for the Q&A.

I'm pleased to report that we have made some good progress on a number of fronts during the quarter in positioning Mastech for a sustainable growth and long-term value creation. We completed the divestiture of our low margin brokerage operation business in January of 2010.

This action was in line with our stated objective of focusing on core service offerings and disposing of nonperforming assets. We took several actions to diversify beyond IT staffing.

Moving forward, Mastech will be known not only as a premier provider of IT staffing services, but as a quality provider of specialized healthcare professionals, as well. I believe that the specialized healthcare staffing space provides a number of high-growth opportunities for the future.

During the quarter, we have launched Mastech healthcare through the acquisitions of Arizona-based Curastat Inc., and through the hiring of Tim Bosse, a proven industry executive. I have confidence in Tim's ability to further develop our strategy from Mastech healthcare.

We also continued to invest in our IT organizations during the quarter. Much of this investment was aimed at expanding our branch sales model and enhancing our recruiting capabilities via expansion of both our domestic and offshore recruitment centers.

I am pleased to tell you that we are starting to see some payback for these recent investments. During the quarter we achieved positive growth in billable, IT consultant base for the first time since mid-2006.

Additionally, we continue to expand our overall gross margins during the quarter.

In summary, I am pleased with our progress to date; and we are committed to continue to focus on the strategy that we have set forth from Mastech -- a strategy of sustainable growth through a combination of organic expansion and strategic acquisitions in the information technology and healthcare staffing sectors.

I will now turn the call over to Jack to review our first quarter 2010 results.

Thanks, Tom, and good morning, everyone. Revenues during the first quarter of 2010 declined to $15.7 million compared to $20.6 million in the same period last year, largely due to reduced demand for IT services and the divestiture of our brokerage operations unit in early January 2010.

This divestiture was responsible for $3 million of our revenue variance from first quarter 2009. Partially offsetting this variance was $1.5 million of incremental revenues generated from our newly formed healthcare unit, Mastech healthcare.

Our core IT operations continued to see improvement in activity levels during the quarter. And as Tom mentioned, we achieved headcount growth in our billable IT consultant base for the first time in more than three years.

Gross profit margins in the first quarter of 2010 increased to 19.6% compared to 18.7% achieved during the same period last year. This marks the second consecutive quarter of gross margin expansion.

And while I can tell you we are seeing margin stabilization throughout most channels and technologies, our margin improvement during the quarter was largely the result of a favorable channel mix of business.

SG&A expenses during the first quarter of 2010 totaled $3 million, which were approximately $300,000 higher than last quarter and equal to SG&A levels experienced in the first quarter of 2009. And as Tom pointed out, we continue to make the necessary investments in the short term to better position Mastech for sustainable growth in the long term.

Net income for the quarter was $63,000 or $0.02 per diluted share compared to $495,000 or $0.14 per diluted share in the corresponding period last year. It should be noted that our newly formed Mastec Healthcare unit generated a net loss during the 2010 quarter of $0.02 per diluted share. Additionally, during the 2009 quarter, our brokerage operations business, which was divested of in early 2010, generated net income equal to $0.03 per diluted share.

So both of these items that I just mentioned contributed to our $0.12 per diluted share variance, on a year over year basis.

Addressing our financial position, at March 31, 2010, our cash balances totaled $6.3 million and we ended the quarter with no outstanding bank debt and access to approximately $6.2 million of credit under our existing revolving loan facility.

The Company had a negative net cash flow during the quarter of approximately $800,000 compared to net cash generation of $1.3 million in the first quarter of 2009. And our 2010 cash flow performance reflects the $1.3 million acquisition of Arizona-based Curastat Inc., a specialized healthcare staffing company.

Addressing our AR, the quality of our trade receivables remained in good shape at quarter-end. However, our DSO measurement increased to 48 days at March 31, 2010 compared to 46 days a quarter ago. And I want to point out that most of this increase reflects the change in client mix and the payment terms offered such clients rather than a deterioration of underlying credit quality.

In summary, we believe that our sound balance sheet will continue to provide us with the financial flexibility to invest in our businesses, both organically as well as through additional strategic acquisition opportunities. I will now turn the call back to Tom for Q&A.

Thank you, Jack. Operator, at this time, I would like to open up the call for questions.

(Operator Instructions). Jacques Soenens with Great Gables.

Just a little more color on your healthcare acquisition. Can you give us some color into the revenue base as well as the margin profile of the business relative to your current business?

Sure. Jack, do you want to handle that question?

Sure. The acquisition of Curastat is really a very small acquisition for us. Their run rate revenues are about, on an annual basis, about $6 million and their margins are about 17.5%.

Do you think you can increase the margins based on other synergistic activity?

Yes. That's -- I will take that part of it. One of the things we like about the business is and when we look at acquisitions the people are very strong and we want to expand the business throughout the country. And we believe that how that expansion will come through not only in revenue growth but margin growth as well. And with the people matched up with Mastech, we believe we can do that efficiently.

How many -- what kind of healthcare staffing is it?

It is mainly focused on travel, specialized travel nursing with some per diem mixed in that base. When we see specialized, it is more into the specialized fields of surgical, get into more of the [low compendums] in that area rather than basic travel nursing side of it. That is why we liked the business.

As I said earlier, we knew some of the management players before and we believe there is a big opportunity to expand that space.

When you say expand, it seems like geographically you have a base in the Southwest or there's a plan to expand nationwide. Is that the idea?

Through our existing office, yes. We want to continue to build in the Southwest, especially in the Phoenix area. We feel there's more markets we can penetrate there. As well as we feel we can penetrate in some of our existing offices that we have already such as Dallas and throughout the country eventually, down the road.

So there is opportunity to expand that and that is one of the reasons why, by bringing in Tim, that gives him the ability to expand that market share of that service.

Any color on the immediate accretiveness of the business and also what kind of multiple you might have paid for the business?

Jack.

I really don't want to get into the multiple that we paid for the business. We paid $1.3 million all [in]. That is with the work in capital, etc., you know, for a company that was marginally profitable.

And again, we are making investments. We are making investments in leadership as well as some other people that we are bringing in. You know, not for an immediate payback, but looking to position the Company for growth for the future.

And one last question on your healthcare initiatives. Can you envision more near-term M&A activity in that front, or will you first absorb this and work on this acquisition?

We are going to do both. As I stated in my comments, we believe in a buy and build model. We definitely want to expand and put the investments in Curastat to get our healthcare -- Mastech healthcare business off the ground.

However, we do want to continue to focus on the specialized healthcare area. And if we do come across another healthcare business that fits exactly into our model of how we want to stand geographically, as well as this offering, we will take a look at it. And we will look into that very aggressively.

As of right now, we are focusing on just organic growth on this business. But things change quarterly. We want to make sure that we find the right business that fits to what we're trying to accomplish.

And actually, one last question, if I may? Was this business growing and if not, what kind of growth could you envision for the healthcare space?

The business at -- when it was purchasing was pretty much running flat. Maybe a little bit down as you can experience, in most of the travel per diem organizations throughout the country in 2009, they were down. So it held its own, was trending down in 2009.

We are looking to stabilize that in the future and grow it. That is why we bought it. And we believe there is an opportunity for that.

Great. It looks like a nice purchase. Thank you.

(Operator Instructions). Mr. Moran, there are no questions in queue at this time. I'd like to turn the floor back over to you for closing comments.

Great. I would like to thank everyone for joining us on the call today and we look forward to sharing our second quarter 2010 results in early -- in late July. Everybody have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.