MHH - Earnings call transcript Q3 2017

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Operator

Greetings and welcome to the Mastech Digital Inc.

Third Quarter 2017 Earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad.

conference recorded. this reminder, a is being As It Jennifer for Ford-Lacey, my pleasure Mastech your host, to introduce Manager Inc. is now Digital of Digital Affairs Thank you, Ms.

Ford-Lacey, begin. you may

Jennifer Ford-Lacey

XXXX to Thank and Mastech conference call. Digital’s you, welcome third Operator, quarter

foregoing, expects, assume are would There to remind markets forward-looking information forward-looking events statements limiting differ to If Financial call liquidity Without including With uncertainties believes, their at the facts with financial from and Commission available are announcement, from everyone beliefs based statements that risks could can to Exchange we and to annual statements, to the in during earnings of are currently that the and intended www.sec.gov. statements these our Officer, update are cause on obligation words expressions this on like and those it intentions Digital’s available as concerning the website on plans, we us, which identify Form Jack that these not Officer. actual call statements costs, forward-looking These company’s similar in filed statements. you XX-K our statements and and the the materially at anticipates, no statements. listed made operate. Vivek be business, XXXX as change. and certain on www.mastechdigital.com. circumstances report Securities and about and Chief not historical Gupta, received Mastech strategies, flows, our projections have growth include are website as copy our a well forward-looking plans, our I me obtained These Chief today Cronin, our are Executive cash

financial to measures provide basis. management results non-GAAP our financial Additionally, on a has GAAP presented supplement to elected

income business. of our management greater be metrics financial diluted operating earnings announcement, these our net to from measures our to which can believe data we www.mastechdigital.com. with at GAAP non-GAAP per we Reconciliations measures transparency in key which used in will and non-GAAP by website included provide their earnings comparable share provide respect will Specifically, the obtained non-GAAP are

will be call, nor provide the now Jack subsequent or this reminder, one-on-one calls. will call providing of not guidance will I for meetings a any in over our turn As results. we review guidance a quarter third to we XXXX during

Jack Cronin

Thanks good Jen, and morning.

This of an analytics remind off, Enterprise everyone our one, that and being business transaction; we completed infotrellis of two, Segments I’d and Related is business analytics in segment a of acquisition with reporting for following we division XXX, two which to segments forward: accounted is and XXXX. AFC will legacy like our staffing Disclosures services, Topic business. the separate project-based we First on financial accordance IT July be the About services data core our the XX, in services, and the going Information. acquired in Thus, reporting infotrellis results data as

increase we Activity quarter were solid and staffing were segment IT $X.X to $XX.X growth tempered bill XXXX. of consultant rate, totaled million data improvement XXXX, business an third million Revenue in in XX% staffing XXXX average and and comparables by million are profit two totaled million. XXXX. as nine-month in totaled $XX.X of compared our quarter consultant Texas, Additionally, period IT our $X.X consultant year-over-year XXXX of was global services two, to and our factors: the third segment in the from XXX the be QX our consecutive totaled XX.X% a QX. the September it periods due said, in business same consultant with third one, Florida third from levels of largely closing third analytics thus, of over of advantaged data $X.X represented noted growth in the revenues a by analytics XX revenues consultants quarter that our With our consultants, in statements the of last nine-month put period are for base revenues grew quarter XXXX nearly included utilization the third the as third Global date. growth Accordingly, in XXXX. when able acquisition of in increase the quarter year. commencing X% XXXX; vacation compared XX, XXXX higher lower operating third results lower that for approximately consolidated for hurricanes to quarter the million well ending our and the XXXX QX for to of and Revenues of quarter the in quarter. XXXX during Gross at financial should and the our the over XXXX services

in that quarter expenses the in to in the approximately XXXX This of million improvement infotrellis. analytics SG&A XXXX XXXX. included third Our XX.X% It transaction to third of XXXX improved the be and of XXXX quarter third profile corresponding a of million business. noted $X.X has compared is to $X.X expenses margin the data revenues addition gross in the the gross services and million business period XX.X% $X.X of total materially our XXXX. in higher than services our that or reflected a the of margins related for of should quarter staffing were represented entire XX.X% quarter, SG&A quarter expenses of business XX.X% margin the from revenues in which of acquisition IT

two $X.X QX $XXX,XXX per for for $X.XX share was or revenues. percent represented to income or to XXXX of loss The and $X.XX recruitment the XXXX XXXX net in $X.XX SG&A revenues in diluted as XX.X% of net income reflects over in investment transaction increased these sales on a of in acquisition. shares sales total XXXX our This in would quarter to share in an expenses was per per due Excluding QX the of improve XXXX. business. the higher the SG&A number XXXX increase of loss structure XXXX. GAAP business $XXX,XXX Non-GAAP million quarter support a period, in adjusted and share a corresponding $X.XX percentage million weighted share diluted infotrellis or our service analytics third basis point our of of and have for diluted $X.X recruitment compared or a to revenue issued the organization cost process per IT private of the quarter services our capabilities; in data placement net to diluted to diluted compared and share the two, a was third percent quarter $X.XX fund the a growth average impact SG&A the and as of of staffing

were: expense one, detailed amortization Third non-GAAP our two, in quarter third not of tax that compensation; which income transaction on in quarter SG&A our items stock-based of is expenses intangible and net assets; acquisition in earnings available are measures the release, included three, the period, financial acquired XXXX benefits website.

very infotrellis. let that XX in with of I closed me transactions our two everybody remind financing important address and concurrent acquisition Before position, July we of financial support our

borrowing we our acquisition; our financing a facility; provide three, under capacity debt to: provide the for bank refinance outstanding one, First, credit facility previous future. $XX debt two, for and the secured million

completion common shares transactions placement to the of private of completed Mastech’s Secondly, these million of issued newly Both a acquisition. instrumental company’s of $X the the were to majority co-founders stock we infotrellis shareholders. and

facility. position. our under XX, debt by $XX borrowing of briefly our balances $XX.X revolving Let million addressing me and on capacity our XXXX, close of million September financial net outstanding had cash credit At we hand, approximated bank

a balance at receivable to Vivek September measurement quarter was Our accounts remained end. days XX, our top at of quality XX for comments. turn I’ll call now healthy and days sales his the outstanding XXXX over

Vivek Gupta

our results. for Thank review financial of everyone. the operating Good detailed morning you, Jack,

to let the off, have to of into associates publicly of to as how am take Mastech Digital. welcome. like family you business this me tell First welcome Mastech of all digital infotrellis - infotrellis I’d the talented a the I part excited opportunity

with are is this you we for tell on that can fit Mastech wonderful the Digital. honeymoon I infotrellis While integration, period the culturally still acquisition a proverbial

to centricity, respect for potential customer be extremely team, It therefore desire an and accelerated much are Mastech very pronounced in impressive progress and fashion. Our to pipeline Digital, strong surprise about industry-leading a of has this expectations work no acquisition value integration date successful With systems, holds was the business. to that the future ethics, I’m aligned. of leadership bullish. delivery prospective important that very confident very With an capabilities, this the I’m opportunities, exceeded

reporting GAAP evaluating separate potential will business As a and equally with rules, provide our the important, accordance analytics disclosure stakeholders expect and that results. Jack to they segment as mentioned, full the and should transparency stakeholders in we report with our data in financial services and

summary, expansion your future call information successes a in respect plan future. reporting and successes consultant segments. of Much we Texas performance; in QX positive robust, have versus data services in that our a XX% financial recent business optimistic our of attention Jack’s rates quarters have short-term from and acquisition. objectives our in our in bill for the like level base to clearly consistent core growth for in management information I’m utilization of platform. however, at three some impacted any our by to that analytics of and the is are achieved quarter personal data I our digital addition recent near-term including our your is and organization’s revenue I’d results. to supplemental Low the buzz is comments the the were IT place throughout assurance earnings our business growing Demand hurricanes In our legacy to which business, is and term hiccups. questions. the earnings which had capabilities to In analytics financial on humming related our recruitment the delivery last expansion being releases. the the Florida not our investments third despite on excitement and this day, for stems XXXX a our We billable and QX me give are will our keep largely and With this from in in we enthusiasm of clearly objective It softness as and be. to services recruitment few to included over related organization continuing high be technology the there it in XX% continuing release engines QX continues good revenues, just longer across our offshore center sales very becoming business, the quarter, to session staffing efficient organization today. XXXX, to open now our about our My and providing expanded supplemental more

Operator

from question. Please proceed LLC. question Advisory with instructions] comes your line [Operator first the with Value Howard Rosencrans Our of

Howard Rosencrans

Yes, a nice like had hi Vivek, you thank you. It looks quarter.

analytics is? and looks forma I guess, margin data terms of that to specific of stellar what idea growth the business the of Can In XX% progression in an line operating that you the business base, business. the about pro a with, me give top sort

Vivek Gupta

Sure, a get to I’ll if to Howard. minute. can Jack us just give respond you that,

Jack Cronin

historical at moving looking Howard, question I’m the or forward? I not - we’re growth, sure understand what the

Howard Rosencrans

actually. for of to give to us I the the of Well you year the XX line both, how that if grew business the to can in lost $X an million I apples know business year as was sort days, during but that apples or curious quarter, much (indiscernible)? quarter, in top you

Jack Cronin

that a it. in would range. closer be XXXX, revenue we to had full $X.X I numbers QX get the If quarter million, million $X.X in of - Sure,

Howard Rosencrans

year that Right, business? but like to to comparison to understand you the what--do QXXX year I’m for looked what trying have as

Jack Cronin

that No, I that certainly can handy. information. don’t have get I

you have XXXX. We that of QX in tell I likely it that information. can declined

Howard Rosencrans

analytics? The data and

Jack Cronin

In the correct. analytics business, and-- Correct,

Howard Rosencrans

attributable was please? What Okay--I’m ahead. sorry, that go to,

Jack Cronin

to going year say that I was information you, declined over I year. get to I No, it but can that know

Howard Rosencrans

versus Okay. perspective any the don’t do business idea the piece? and it specific where you to that analytics from the for Where months data see months, the nine ran and business--I going a you forward, line see top do where know, nine growth going just

Jack Cronin

right, due it based we rate, and found we purchase--at lumpiness the we I purchased when is cash company, to the had had--the was that was where etc. in purchase least when one historically, is about our really thing some want the thing it, the business the it, the price diligence acquired business what out that one negotiated acquired was that and they we when on to run company we say The the

and price encouraged annual but we’re of looked mean, been, I would history they we and where certainly So that that paid were a deliver we purchase at and EBITDA, of times their million, cash by our revenue a $X for of multiple company was essentially EBITDA. around roughly $XX they’ve million six where million $XX

It’s with expectations forward, sort respect but let stake in give our expect hot his grow. certainly ground that of space. the Vivek this to we So I’ll space a how--that’s business. that’s going to

We brought your have think comments to company, confidence with you give but in grow; the we leadership think I so it’s new on don’t that Vivek, that? the going we why

Vivek Gupta

agree space. This but that of predicted is data XX.X% globally size, Thanks the or give We analytics you at next growing a and hot I completely Jack. not in business to I future, like said. with over has very $XXX what company billion grow Yes, to the five is rate it’s four CAGR years. this and guidance and it’s in for tell would a can Jack

that synergies part in growth we if the question, bring hot it’s the should your be do it put in, that and space sales I to don’t together, platform, know bring Digital we entities in becoming them the able a two the Howard? that a Mastech to boost on be of So answers with path. and expect

Howard Rosencrans

Sure, data to so that can--your to is the business? hopefully be in analytics gain at and guess? with least the and industry in fair line some we Would I share, grow say hope

Vivek Gupta

would the guess would we that expect to growth. with be pace this I Yes, keeping industry

Howard Rosencrans

Okay.

In staffing your seems nice business, starting and turnaround of business a there you like services have--you’ve terms it done that to is IT improve.

much in believe the able growth, lost, line tell were in line were the or you to estimate of was you top us a able You to you achieve hurricanes us just an while. how time first you give year-to-year the top much how lost Could get growth to I this quarter?

Jack Cronin

of they were higher We than we in be, in and expectations downtime was half know Florida from also headcount. the X.X% headcount, in we that the on of Maybe down down our and but on in An and vacations were, probably based timing, Texas, we for was would that educated it’s the the XX% a there vacations below that X.X%--our guess our know a we of expectations this factors. hurricane previous and was revenue know know two Our QX based should higher were nonetheless billable expected revenues year. were our reason, were were, about there what we our the it say XX% was actual problem. our where thought problem percent there downtime and were whatever

bit they’re You we was know, had resources, that in and could assumption hurricane, our the vacation. don’t an with it a WXR that as off, the make respect Florida due visibility. they we example, them, been they’re if to pay of can so have to it lose a just planned little but We

in which to say which So the vacation and hours capture it’s hard specifically really revenues. pertained but would X.X% hurricanes, pertain we hours to specifically I of lost total to

Howard Rosencrans

like the assume in improved, it’s margin basis give is that data overall, little points. percentage has you percentage segment margin you it business your so out, last margins us The but--so looks gross from the a the gross match to IT improved is Okay. give an XXX, in about business--I with tough pull this also exactly staffing, gross XXX idea, IT the--the Can year. that doesn’t

Jack Cronin

flat, Howard. XX.X% QXXX, in XX% XXXX. it I It’s QX It’s and was think in

business. bump infotrellis, the of higher is staffing than profile of the impact margin is the know, consolidation You tremendously whose the up strictly

QX, in think I it was XX.X%.

Howard Rosencrans

okay. I see,

You invest have to in continued SG&A.

so about you which data you’re to there? commented a making guess When guys start small XXX the out percentage, of staffing SG&A which we guess points as value overall, piece that basis to see that analytics. of year, I some your can up to You hoping IT I and investment was was of the that are year a year SG&A flatten was year will

Vivek Gupta

should hopefully core next not say were. margin, so business is the newly on business will coming able and of in little benchmark the to growth positioning could Having be because higher we to in expect business the SG&A. they to so to look at that. there, that so question, is seen far also of of seen core this analytics mentioned where been in year, a benefit we’ve be or and earnings SG&A a justify closer the lower so that expenses, were three side. enjoy plus--yes, XXX. top XXX that of that the--in Howard, year, for to the how of answer invest results a partly let’s XXXX we that it That was kind pieces X% the business, expect but we as and headcount we the middle, expanding of the over should will we the will (indiscernible) are core and much over that’s is achieved previous the the higher into side, and concerned. sort I somewhere our we’ve I quarters ideal year, continue year, that, grow said your our organization it we increase sales model, had than and they data of that able also the have line which grows, business may decided SG&A this range a will do a I guess, see in deliberately we’ve first higher The is, this that But numbers gross last last have recruitment the the now that XX.X on and as acquired year start be last sort as responsible not necessarily--we we higher so necessarily That two year’s has means that commensurate we what be not be--the in to separately. calls The of could we in

we as able period together to grow over you lower a we as when SG&A should organization, grow large of time. together expanded and be things into So one the put two a

Howard Rosencrans

well, analytics businesses forma to combined piece to--the you’re like hopefully a right, that in from a forma to was--I are quite tough that two profitability $X.XX pro noticed be the X-K in and down, pretty filed EPS guess base will it have pro already XX% looks you I working staffing themselves was It’s piece, EPS grow business in going sequentially, the or from business in That’s All couple it I the to XXXX. of a your line pace, data IT of. $X.XX continue the filing, years, the integrity--the off September, believe substantial data after and improved CAGR. integrity going that grow with seems that will hopeful the with and

it like basis you $X.XX that forma the here? really we’re investments, on or start we meaningfully so up probably from don’t of sounds can from So for horizon, if there. Is assessment fair a on leverage pro get, you the then XXXX, go a SG&A I know, going can to where

Jack Cronin

levels If run is in million, we that’s the is think answer around base $XX based analytics from rate the segment a forma, the if I so to now at right was be pro here. grows the your that Again, the and paid we’re analytics analysis what around data the the proper. at going at pro for million, of and we forma basis, numbers, level on where performs company, data business and revenue would $XX a

Howard Rosencrans

starting to Great, you. Thank Thank you. an business the legacy see sounds core and Keep great exciting I’m to improve. you. thrilled acquisition thank It up work. the like

Vivek Gupta

Thanks Howard.

Operator

I’d please to ask comments. no Thank questions if moment press question, back this poll star, your floor we like on closing further questions. one for for keypad. you a turn and at One like are Ladies telephone to the you. management There to time. would while gentlemen, again

Vivek Gupta

we thank there questions, If you to our call to February our for Thank sharing today, no in with fourth results forward you. I and look would XXXX. are joining XXXX everyone quarter further early Thank like you.

Operator

teleconference. This concludes today’s

disconnect your lines You for you Thank this time. may at participation. your

Mastech Digital (MHH) 1 Nov 172017 Q3 Earnings call transcript