Mastech Digital Inc (MHH) 2012 Q1 法說會逐字稿

Greetings and welcome to the Mastech Holdings, Inc. first quarter 2012 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 and welcome to Mastech's first quarter 2012 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 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 2011 annual report on Form 10-K filed with the Securities and Exchange Commission and available on their website at www.SEC.gov.

As 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 first-quarter 2012 results.

Thanks, Jenn, and good morning, everyone. Revenues for the first quarter of 2012 totaled $24.5 million or approximately 23% higher than first quarter of 2011 revenues and represented a 2.5% improvement over fourth quarter of 2011. Our IT operations continued to see solid activity levels during the quarter. However, we did experience a higher than normal level of project ends in the period.

Market conditions in our healthcare operations remain positive and we were able to grow revenues on a sequential basis for the seventh consecutive quarter. Gross profits for the first quarter of 2012 totaled $4.5 million or 18.2% of revenue compared to $3.8 million or 19.3% of revenue during the same period last year. Our gross profit expansion reflects a significant increase in billable consultants on assignment in the first quarter of 2012 compared to the corresponding 2011 period.

Our gross margin decline was due to a combination of factors. First and foremost, we are starting to see supply-side pressure within certain technologies, which impacted margins during the quarter. These supply-side pressures were responsible for about one half of our margin decline during the 2012 period. The balance of the decline reflected, one, the continued shift in our IT business towards our higher-volume sales channels, which typically carry lower gross margins; and, two, lower direct hire fees in the 2012 quarter compared to the 2011 quarter.

SG&A expenses increased to $3.9 million and represented 15.8% of revenues in the first quarter of 2012 compared to $3.8 million or 19% of revenue in the quarter one year earlier. Despite adding significant recruitment manpower in the latter part of fourth quarter 2011 and during the first quarter of 2012, we have done a pretty good job of containing our overall operating cost increases.

Net income for the first quarter of 2012 was $352,000 or $0.10 per diluted share compared to $37,000 or $0.01 per diluted share in the corresponding period last year. It should be noted that severance charges in both the 2012 and 2011 periods impacted EPS by $0.02 per diluted share.

Addressing our financial position at March 31, 2012, cash on hand totaled $2.7 million. We had no outstanding debt and we had access to approximately $14.1 million of credit under our $19 million facility with PNC Bank. Additionally, the quality of our trade receivables remains high. At March 31, 2012, our accounts receivable DSO measurement was 51 days and receivables aged in excess of 90 days represented less than 1% of our total outstanding AR balance.

During the 2012 quarter, we completed a partial tender offer in which we acquired approximately 12% of outstanding common stock. This $2.5 million corporate transaction was funded entirely with cash balances on hand and will be accretive to earnings per share during 2012. I will now turn the call over to Kevin for his comments.

Thanks, Jack, and good morning to all. While I'm very pleased with our financial results and with many of the accomplishments achieved during the first quarter of 2012, I'm also not totally satisfied with how some elements of our business performed. So let's talk about the good news first.

Number one, I'm pleased that Mastech continued to grow revenues in excess of the industry's growth rate. In the first quarter of 2012, year-over-year revenue growth totaled 23%, which I believe will prove to be in the upper echelon of our industry peer group. Additionally, despite a high level of project ends during the quarter, we were able to increase our consultants on billing for the fifth consecutive quarter. Third, we have also done a very good job of increasing our sales and recruitment production capacity in the quarter while at the same time rationalizing our operating cost structure. This disciplined approach to cost containment should allow us to continue to grow our top line while dropping more dollars to the bottom line. And lastly, as Jack mentioned, we completed a partial tender offer during March in which we repurchased 12% of outstanding shares of common stock.

This transaction provided additional market liquidity to shareholders with a desire to sell their Mastech shares and, and my view more importantly, provided our remaining shareholders with what I believe to be a significant value creation opportunity.

Now let me address some of the areas we will aggressively focus on in the second quarter. First, our gross margin decline is simply unacceptable to me. While direct hire fees vary from quarter to quarter as a byproduct of our contract staffing business and we do expect some margin compression as a result of our focus on high-volume sales channels, there is no excuse for margin deterioration within each of our channels. We need to do a better job of protecting our margins in light of supply-side pressures that are starting to emerge in the market. This includes not only how we price new opportunities, but also the actions that we take to protect margins and, frankly, to protect our customers on existing assignments.

Secondly, as we have discussed in the past two calls, Mastech has been ramping up the recruitment capability over the last 120 to 150 days with a particular emphasis on people, facilities and tools and training. To date, I am impatient with the pace of the payback from these investments. While we are certainly in the early phase of an acceptable payback period, my expectation is we will drive these investments to the bottom line over the next two quarters. After my recent visits to our recruitment facilities in New Delhi and Bangalore, I'm confident that we can drive such productivity gains in the near-term.

Lastly, in March, I felt it necessary to make a change in leadership of our integrator IP channel. I believe we have been missing opportunities within this channel on a number of fronts. Currently, we are in the process of completing a deep dive of the sales and recruitment operations as well as assessing existing personnel and channel prospects. Until this evaluation is complete, I will actively oversee this segment of our business and I hope to have a permanent solution to share with you on our next earnings call.

To summarize, Mastech is off to a very, very good start in 2012. We certainly have some near-term challenges that we need to address during the second quarter. However, we are absolutely confident that we are heading in the right direction with respect to our overall strategy, and I personally am absolutely confident in our team's collective ability to execute the strategy and create additional value for our shareholders.

At this time I would like to open it up for your questions.

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

Very good, thank you, operator. I would like to thank everyone for attending the call today and we look forward to sharing our second quarter 2012 results with you in late July. So thanks for very much, folks. Have a great day.

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