Earnings Labs

Mastech Digital, Inc. (MHH)

Q4 2017 Earnings Call· Wed, Feb 7, 2018

$6.71

+0.00%

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Transcript

Operator

Operator

Greetings and welcome to the Mastech Digital, Inc. Fourth Quarter Earnings call. At this time, all participants are in a listen-only mode. A 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 Digital Inc. Thank you, you may begin.

Jennifer Ford-Lacey

Analyst

Thank you, operator, and welcome to Mastech Digital’s fourth quarter 2017 conference call. If you have not yet received a copy of our earnings announcement, it can be obtained from our website at www.mastechdigital.com. With me on the call today are Vivek Gupta, Mastech Digital’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 2016 annual report on Form 10-K filed with the Securities and Exchange Commission and available on its website at www.sec.gov. Additionally, management has elected to provide certain non-GAAP financial measures to supplement our financial results presented on a GAAP basis. Specifically, we will provide non-GAAP net income and non-GAAP diluted earnings per share data which we believe will provide greater transparency with respect to key metrics used by management in operating our business. Reconciliations of these non-GAAP financial measures to their comparable GAAP measures are included in our earnings announcement, which can be obtained from our website at www.mastechdigital.com. 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 fourth quarter and full year 2017 results.

Jack Cronin

Analyst · Maverick. Please proceed with your question

Thanks, Jen, and good morning everyone. Revenues for the fourth quarter of 2017 totaled $40.5 million and represented a 25% increase compared to revenues of $32.4 million in the fourth quarter of 2016. While data and analytics services segment which was acquired on July 13, 2017 contributed $5.1 million of revenues during Q4 or approximately $1 million higher than revenues reported from this segment in the previous quarters. This sequential revenue increase was due to higher project wins in Q4 versus Q3 and is reflective of a full year of operations -- full quarter of operations by this segment in the fourth quarter of '17. Organic year-over-year revenue growth from our IT staffing services segment was 9% in Q4 as our global consultant base increased by 12% during the year. Demand for our IT staffing services remain robust during the fourth quarter and improved efficiencies at our offshore recruitment center resulted in a higher assignment win ratio in 2017. Gross profit for the fourth quarter of '17 totaled $9.5 million compared to $6.4 million in the same period last year. Our gross margins for Q4 of '17 were 23.5% of revenues compared to 19.7% of revenues in the fourth quarter 2016 and 22.5% of revenues in Q3 of 2017. Our data and analytics services segment had gross margins of 45.3% in Q4 of 2017 compared to 44.2% in Q3 of 2017. Our IT staffing services segment in Q4 -- our gross margins were 20.4% compared to 19.7% in the 2016 fourth quarter and 20% in the third quarter of 2017. Lower bench cost in the data and analytics segment and higher direct, higher revenues in our IT staffing segment favorably impacted our gross margin in 2017 quarter. SG&A expenses were $7 million in the fourth quarter of 2017 and represented…

Vivek Gupta

Analyst · Maverick. Please proceed with your question

Good morning everyone. Thank you, Jack, for the detailed financial review of our operating results for 2017. Let me start by saying that 2017 was a watershed year for Mastech Digital. Since joining the Mastech in March 2016, it's been my stated objective to transition the Company from a pure play IT staffing company into a leading player in digital transformation IT services. With the acquisition of the services division of input service and operating investments and other parts of our business intended to enhance our capabilities and focus on digital technologies, I'm pleased to say we are well on course in this journey. Having said that 2017 was also bared a great change for our organization and on dedicated employees rose to the challenges. Our corporate team did an excellent job in completing the acquisition of InfoTrellis from the due diligence phase to its integration as well as in dealing with the disruption of upgrading our IT systems. Our sales and delivery organizations dealt admittedly with changed management during the year as we redefined our services portfolio and go-to-market strategies and how these organizations execute upon them. Let me take a moment to acknowledge all the hard work and tenacious efforts of our associates during an extremely demanding year. It is to thanks to their efforts that today we have a project based data and analytics services segment. This capability is to deliver a wide portfolio of digital transformation services from multiple geographies. And our IT staffing services segment has several promising practice areas and a clear focus on staffing digital technologies in addition to mainstream technology skills. It's been quite a ride and I am confident that the best is yet to come. Now let me share with you my expectations for 2018 for our two operating segments.…

Operator

Operator

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Thank you. We do have a question coming from the line of Louis Moser with Maverick. Please proceed with your question.

Louis Moser

Analyst · Maverick. Please proceed with your question

I was just wondering the stock price doing what it is around, on the 10 somewhere, and I know you have the real small capitalization. Do you have any interest in trying to get some analyst coverage because of the apparent momentum that you are achieving now, it was seemed to me that you might be able to get a little bit higher price for you stock, if you've had some coverage, and I don’t know if you go to various meeting with executives or tradeshows etcetera. But I think it's undervalued and I think that it would help so? That's my question.

Jack Cronin

Analyst · Maverick. Please proceed with your question

It's Jack Cronin. We've been just starting to attend some investor conferences and so we're going to continue to do that. As far as a complete IR list, I mean we really need to talk to our board about when that's appropriate.

Louis Moser

Analyst · Maverick. Please proceed with your question

You do however assume -- feel that the momentum of what you've created in your recently announced quarter today will continue on course?

Vivek Gupta

Analyst · Maverick. Please proceed with your question

Yes, we are hoping that we will be able to maintain the momentum that we have gained.

Louis Moser

Analyst · Maverick. Please proceed with your question

Is there anything coming up than the new product that would add to the appeal of the Company?

Vivek Gupta

Analyst · Maverick. Please proceed with your question

Are you asking are we introducing any new service line in the Company?

Louis Moser

Analyst · Maverick. Please proceed with your question

Yes, yes.

Vivek Gupta

Analyst · Maverick. Please proceed with your question

Well, at the moment as I mentioned in my piece, we planned to strengthen the service offerings in our defined areas in the digital transformation services. So, we will look at -- if there are any missing bids or anything in investment areas in this space of big data, analytics, master data management and data governance. On this IT staffing side, I think we've come a long way in the last two years by introducing practices specifically focused towards servicing the digital technologies. And as a result of that in the last seven quarters also or eight quarters, we have been able to almost double the percentage of our revenues that are coming from the digital space. So I'm giving a long answer to your question, I mean there is nothing very -- I wouldn’t say something very radically different which is going to come out, but we will just strengthen what we have and see that our portfolio become more complete.

Louis Moser

Analyst · Maverick. Please proceed with your question

Yes, I guess that would -- there is something else in my mind, but I can't quite come up with it now. So, I appreciate your answers and good luck.

Vivek Gupta

Analyst · Maverick. Please proceed with your question

Thank you.

Operator

Operator

[Operator Instructions] It appears there are no further questions at this time. So, I would like to pass the floor back over to the Vivek Gupta for any additional concluding comments.

Vivek Gupta

Analyst · Maverick. Please proceed with your question

Thank you. So, if there are no further questions, I would like to thank you for joining our call today. And we look forward to sharing our first quarter 2018 results with you in late April.

Operator

Operator

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.