Mastech Digital Inc (MHH) 2010 Q2 法說會逐字稿

Greetings and welcome to the Mastech Holdings second-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. Lacey, you may now begin.

Thank you, Operator. And welcome to Mastech's 2010 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 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 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 Tom.

Thank you, Jenna, and good morning, everyone. On today's call I will make my opening comments, Jack will then review our financial results for the second quarter of 2010. I'll then rejoin the call for the Q&A.

I'm pleased report that we continue to make progress in positioning Mastech for sustainable growth and long-term value creation. Market conditions continue to show signs of improvement in most of our channels. Our IT operations saw increased demand and continued pricing stabilization during the second quarter.

While economic recovery is likely to be slow, our industry stands to benefit from US organization's reluctance to commit to job creation. Given the uncertainty of the strength of the recovery, many companies are contracting workers rather than making permanent hiring commitments. This bodes well for our industry in the near term.

Market conditions in our healthcare business are still challenging. While we believe that we are close to a cyclical economic bottom, our focus is to position ourselves as favorably as possible to capitalize on market conditions as they improve. We believe that the long-term prospects of this sector are very attractive given the demographics of the US population and political landscape relating to healthcare reform.

With that backdrop let me touch on some of our accomplishments during the quarter. We grew our IT billable headcount for the second consecutive quarter. We achieved 7.7% sequential revenue growth over first quarter of 2010, our first sequential revenue growth since the fourth quarter of 2007. We expanded our gross margins for the third consecutive quarter. We expanded our healthcare service offerings geographically, which should position us favorably when market conditions improve.

We continue to make the necessary investments to sustain long-term growth and shareholder value creation. Operating expenses in the second quarter were approximately $200,000 higher than in first quarter as we continue to invest in our capabilities to serve our existing and prospective clients.

Despite investments in SG&A during the quarter we were able to improve our earnings per share from last quarter's performance. While we still have plenty of work ahead of us I am pleased with the progress to date and excited about the future of Mastech. I'll now turn the call over to Jack to review our second-quarter 2010 results.

Thank, Tom, and good morning, everyone. Revenues during the second quarter of 2010 totaled $16.9 million which were 4.3% lower than second-quarter 2009 revenues, but represented a 7.7% sequential increase over last quarter's performance. Our IT operations continued to see improvements in activity levels during the quarter. Accordingly, we achieved net growth in our billable IT consultant base for the second consecutive quarter.

Gross profit margins in the second quarter of 2010 increased to 19.9% compared to 19.3% achieved during this same period last year. And as Tom mentioned, this marks the third consecutive quarter of gross margin expansion. Our second quarter 2010 gross margin improvement over the 2009 quarter reflected a combination of pricing stabilization throughout most of our sales channels, a favorable channel mix of business and the January 2010 divestiture of our lower margin brokerage operations business.

SG&A expenses during the second quarter of 2010 totaled $3.2 million which were approximately $200,000 higher than both last quarter and the second 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 longer term.

Net income for the quarter was $109,000 or $0.03 per diluted share compared to $256,000 or $0.07 per diluted share in the corresponding period last year. Addressing our financial position, at June 30, 2010 our cash balances totaled $6.1 million, we had no outstanding bank debt, access to approximately $6.7 million of credit under our existing revolving loan facility and a tangible net worth of more than $11 million.

Net cash flow during the second quarter of 2010 was negative $233,000 compared to net cash generation of $1.3 million in the second quarter of 2009. The 2010 cash flow performance reflects a $500,000 increase in operating working capital levels in support of our revenue growth.

In the 2009 quarter, as our business was in decline, decreases in operating working capital levels contributed approximately $900,000 of positive cash flows. And it's important to point out that as we grow our revenues in the future we would expect to make additional investments in our operating working capital.

Addressing our accounts receivable, the quality of our trade receivables remain high. Our accounts receivable DSO measurement improved to 47 days at June 30, 2010 compared to 48 days a quarter ago. Accounts receivable aged in excess of 90 days continue to represent less than 2% of our total outstanding AR balance.

In summary, our sound balance sheet will continue to provide us with the financial flexibility to invest in our businesses both organically as well as through strategic acquisitions. I'll now turn the call back over to Tom for Q&A.

Thanks, Jack. Operator, at this time I'd like to open the call up for any questions.

(Operator Instructions). [Yev Genny].

I had a couple of quick questions. I guess my first question is how many consultants do you guys have now?

Consultants out on billing?

Yes.

Sure, we're roughly -- our IT consultants out on billing is roughly -- for the IT sector roughly around 407 to -- correction, 470. 470 for the quarter.

At the end of the quarter it was 407.

Yes.

Okay. And in the press release you mentioned that -- there was a statement, despite significant or despite considerable SG&A investment. Can you give me an idea of how significant that SG&A investment has been through the quarter?

Yes, as I indicated, we're about $200,000 higher than last quarter. And that was in fact a lot of our investments that we did in the mid to late first quarter didn't start until the end of the first quarter, as I stated. So we experienced more of the investment hires that we'd made throughout the whole second quarter. So it's roughly around then. But I'll turn it over to Jack, if you'd like to elaborate on more of the specifics on the numbers.

That's it, it was about $200,000 and probably where it's at right now is probably a little higher than that. It's probably closer to $300,000 as we ramped up investment in primarily our recruitment engine during the latter half of the second quarter.

Okay, so that's $200,000 of costs that generated very little revenue for the quarter?

I would say that's correct. I mean, it's an investment; it takes a few months to get a little bit of a payback on that investment. And actually more like six months to get full payback.

Correct. And a lot of that is the fact that when we hire them not only do we have to put in some training time, but some of those individuals we put in place are in some of our start-up locations. And so we're still building market share as well and that takes even a little bit longer because we didn't have a presence there in the past.

And the other thing is, $200,000 doesn't seem like a whole lot of money, but I mean, if you look at the impact on earnings per share it's $0.03. So, I mean, it's a pretty -- in the overall scheme of things it's a pretty significant investment where we sit today.

Yes. And my last question is -- how has business trended throughout July so far?

Very -- we're very pleased. So far in July we're trending as strong as we have -- we've been throughout the first -- whole first half of the year. So, so far we're very pleased where July is trending and we hope that continues.

So when you look back at the first six months of this year, I guess seven months almost now, where would you say that the Company hit the bottom?

Well, it's kind of -- we've kind of been up and down a little bit. We actually started a nice trend throughout the quarter; we flattened out a little bit in May, which it seemed to be kind of a tougher month for the whole industry. But at the end of the day that was a little flat. But for the most part we've pretty much grown every month with the exception of May.

I would have to say -- I was probably safe to say our bottom more or less was fourth quarter or December. We're trending higher now than we were in the first quarter in July, let's say. So July is pending so far to keep moving in the right direction from our pattern other than May. So, I'm pretty confident that we'll continue that growth.

Okay, terrific. That's all I had.

Thank you.

Thank you.

There appear to be no further questions at this time.

Thank you, Operator. I would like to thank everybody for joining our call today and we look forward to sharing our third-quarter 2010 results with you in October. Operator, this concludes the call. Thank you.

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