Mastech Digital Inc (MHH) 2011 Q3 法說會逐字稿

Greetings, and welcome to the Mastech Holdings, Incorporated third-quarter 2011 earnings 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, Incorporated. Thank you, Ms. Ford Lacey. You may begin.

Thank you, Operator, and welcome to Mastech's third-quarter 2011 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 Kevin Horner, Mastech's Chief Executive Officer, and Jack Cronin, our 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 2010 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 Jack for a review of our third-quarter results.

Thanks, Jen, and good morning, everyone. Revenues during the third quarter of 2011 totaled $23.5 million or approximately 24% higher than third quarter 2010 revenues, and represented a 6.2% sequential improvement over last quarter's performance. Despite much economic uncertainty and media negativity during the quarter, our business activity levels held up well.

Gross profits for the third quarter of 2011 totaled $4.6 million or 19.8% of revenues compared to $3.6 million or 19.3% of revenues during the same period last year. Our gross profit expansion reflects a significant increase in billable consultants on assignment in the third quarter of 2011, compared to the corresponding 2010 period. The gross margin increase was largely due to improvements in our healthcare business and higher IT direct hire fees during the 2011 period, compared to 2010.

SG&A expenses increased only slightly during the third quarter of 2011 when compared to the previous quarter, and represented 16.7% of total revenues. In the second quarter of 2011, SG&A expenses represented 17.3% of total revenues. We would expect the rate of investment in SG&A expenses as a percent of total revenues to decline a bit further during the balance of the year.

Net income for the third quarter of 2011 was $441,000, or $0.12 per diluted share compared to $187,000 or $0.05 per diluted share in the corresponding period last year. This earnings per share performance is $0.02 per diluted share better than second-quarter 2011 results.

Addressing our financial position, at September 30, 2011, cash on hand totaled $5.6 million; we had no outstanding debt; and we had access to approximately $13.8 million of credit under our amended credit facility with PNC Bank. During the quarter, our cash balances increased by approximately $300,000 despite a $700,000 increase in our accounts receivable balances to support revenue growth. Our accounts receivable days sales outstanding measurement remained at 50 days as of September 30, and the underlying credit quality of our accounts receivable balance continues to be very high.

With that, I'd like to turn the call over to Kevin for his comments.

Thank you, Jack, and good morning. I'm delighted to be hosting my first earnings call as Mastech's President and Chief Executive Officer. I've only been in this position for a few weeks. I've had the pleasure of serving on the Company's Board of Directors since October of 2008. As an active member of the Board, I've had the opportunity to work with the management team to develop a strategic road map for the Company. I can unequivocally say that I believe in the Company's strategic direction, and I'm extremely excited about its future prospects and opportunities to profitably grow. So while I don't envision many major directional shifts, I do believe there will be some adjustments as to how we execute.

As you can see by our financial trends, much progress has been made at Mastech over the past several years. The management team has executed an impressive turnaround and has positioned the Company well for growth. My mission is to continue that path of progress but at an accelerated pace. My focus in the coming months will be to assess our execution effectiveness throughout the Organization to enable that profitable growth. Do we have the right people in the right positions; do we have the right processes in place to facilitate repeatable successes; and are we creating satisfied customers and engaged employees? I'm excited about the Company, and I look forward to the challenges and the opportunities that lay ahead.

At this time, I'd like to open it up for your questions.

(Operator Instructions). Dan Zeff, Zeff Capital.

Thanks for another good quarter. Can you discuss your M&A strategy? Your stock still appears to be pretty absurdly undervalued. So M&A and buybacks and financing sort of is the question.

Let me make a comment and then I'll turn it over to Kevin. But we've been at this for quite some time with respect to looking at the right acquisition, and we've stressed the right acquisition. We just don't want to do an acquisition that doesn't make a material difference to our future prospects. We want something that's a good fit and something that's going to allow us to grow. We just haven't found that Company right now, but we're actively looking.

With respect to the buyback program, we continue to buy back our shares. And as we stated numerous times, we have two objectives with respect to the buyback program -- we want to take advantage of what we believe is a tremendous opportunity with respect to our stock value; and the other objective is to provide our existing shareholders and potential shareholders with more liquidity, when they take a position with our stock or unwind a position with our stock. So, that's -- those objectives have not changed.

Dan, the only add I would put to that on the M&A side is, as Jack said, we have evaluated numerous opportunities. And given our size and our scale, we cannot afford to miss one of these, right? And so the opportunity has to be right; the post-merger acquisition integration process has to be in great shape; and we need to see something that can be accretive almost immediately. And to date, we haven't found that. So I would re-echo everything that Jack said.

I, as a shareholder, thank you very much for not making an ill-advised acquisition for growth's sake. And I'm happy if you can grow organically just as well. Can you grow organically?

And also, back to the M&A, do you have a limit or how much money would you be willing to spend on an acquisition? Would you double the size of the Company? Would you only spend $5 million or $10 million? Is that part of the parameter?

Yes. I'd love Jack's thoughts on this too, but my immediate thinking is, you guys have a very clear understanding of what we've done in the quarter to expand our financial position through our creditability with PNC. And so you understand that.

We will not do something that will highly leverage the Company. That's where I sit. And that would have been my position as a Board member. It's my position as the CEO after eight working days. And so my sense is, this has to be something that's manageable and it has to be something that's accretive right away. We personally are not looking at something that would be classified as a distressed asset.

Great. And finally, can you talk about some of the innovations that the previous management had put in place, or whoever put it in place, which this industry clearly desperately needs? And whether or not you can continue to, if you are now, take share from competitors through these assets?

That's an interesting question. Jack, I'll need a little bit of help on this one just because, guys, I haven't -- I'm not in enough detail right now to adequately answer that question. And Dan, if you would do me a favor on this one, I would love to answer that question in the next one of these calls, if you wouldn't mind. Because I'm -- listen, guys, I'm eight days in -- I would love -- and I'm not trying to duck the question; I just can't adequately answer it right now.

That's fine. It is a morphus, but I will follow up with you later. Thank you.

I would be happy to talk about -- yes -- I would be happy to talk about where we're headed. And I am -- eight days in, I am very encouraged.

Great.

(Operator Instructions). We have a follow-up question coming from Dan Zeff of Zeff Capital.

Okay. Can I ask one more question about the ownership? And the question is this -- is everyone on the same page now concerning the two large shareholders? And what is that page? What is the long-term goal of this Company? Do they want to merge it and sell it eventually? Do you want to simply grow it? Is there a revenue target? And is there a stated three- to five-year internal or external goal?

Yes. So without giving guidance, because you know it's our policy not to do that, what I can say is the objective of the Company over the next three years is to grow. And we do have an internal target and we are not to date prepared to make that an external target, but we will be discussing, within the management team and the Board, this fourth quarter, as to when it's appropriate to make that target external.

I will tell you that my personal thinking is I absolutely want Mastech to be one of the best companies in the staffing space. I don't walk into this job to not be the best; so that's my intent. And you guys understand the businesses that we are in. We are in a high-volume staffing business, and I expect us to be mentioned in the same breath as the top two or three people in that game. We are in the healthcare staffing business, and I expect to be mentioned in the same breath as the top people in that game.

And then we have a relationship side of our business that really is driven by really strong relationships in the end-user market and the integrator market. And I expect to be one of the top two or three providers in that space, too.

So that's where we'll start. We have an internal number. I'm not prepared at this point in time to talk externally, absent some discussion with my Board.

Would you also discuss with your Board and with the shareholders on the phone your own internal visibility? And if and when that ever becomes clear enough to provide guidance, which might help with the stock price?

I think the decision to provide guidance is not 100% related to visibility. I just think it's a preference by management and the Board. And there's -- obviously, there's companies that -- they like to provide guidance on a quarterly basis. There's other companies that like to provide annual guidance and pretty much that's it. And then there's companies like Mastech that the philosophy, at least right now, is we're just not going to play that quarterly game and we're not going to provide guidance.

Dan, let me make you -- I will make this comment and we actually have a Board meeting next week. I'll put the question straight on the agenda at the Board meeting. So, number one, I'll put the question of guidance on the Board meeting's agenda next week.

Secondly, I'll also put the question of -- is it, and when, appropriate for Mastech to organize something akin to an Investors Day, so that we can actually sit down and talk about what our longer-term three-year plan is with our investor base? And I'll put both of those questions on the agenda for the Board, and then I'll be prepared to answer both of those on our next call. So, please feel free to hold those and come right back at us in our fourth-quarter review. And if that -- I think that's a fair approach, and hopefully, you do too.

I'd rather you just make more money than give me guidance.

(laughter) Boy, we are incredibly aligned, Dan.

(laughter) Thank you very much.

Thank you.

Thank you. At this time, there are no further questions. I'd like to hand the floor back over to management for any closing comments.

Well, listen, thank you very much for today. I really appreciate the time and the effort you put in. And if there are no further questions, thanks again for joining the call, and we look forward to sharing our fourth-quarter 2011 results with you in early February.

Thank you.

Cheers.

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