Mastech Digital, Inc. (MHH) on Q1 2022 Results - Earnings Call Transcript
Operator: Greetings. Welcome to Mastech Digital Incorporated First Quarter 2022 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] Please note 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. Ms. Ford Lacey, you may begin.
Jennifer Ford Lacey: Thank you, operator. And welcome to Mastech Digital's First Quarter 2022 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. Jack Cronin, our Chief Financial Officer, and Ganesh Venkateshwaran our new Chief Executive Officer of the Data and Analytics services segment. 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 the business, cash flow, costs, and the markets in which we operate without limiting the foregoing, the words believe, 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 2021 annual report on Form 10-K, filed with the Securities and Exchange Commission(SEC) 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 the key metrics used by management in operating the business. Reconciliations of these non-GAAP financial measures to the 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 first quarter 2022 results.
Jack Cronin: Thanks, Jen. And good morning, everyone. I'm happy to say that first quarter of 2022 was a continuation of our strong financial performance achieved in 2021, considering the one has historically been a challenging quarter for us. Reflective of typical, high project completions at the end of the previous year and high benefit costs through the repay gain of payroll taxes. At the start of the new here for Q1, 2022, financial results were very satisfying. Revenues for the first quarter of 2022 totaled $59.8 million and represented an organic increase of 20% over Q1, 2021 revenues. This revenue performance was a new record for our company as both business segments showed sequential revenue growth during the quarters. Our Data and Analytic services segment contributed revenues of $10.2 million, which represented organic growth of 15% over last year's one revenues. Order bookings totaled $11.8 million. Backlog increased from last year. And our pipeline of opportunities continues to show promise. In our IT staffing services segment, revenues of $49.6 million represented a record performance and a year-over-year increase of 21% over Q1 2021 revenues. Activity levels continued to remain elevated during the first quarter as we increased our billable consultant headcount by 3%. Gross profits in the first quarter of 2022 totaled $15.9 million or 24% higher than in the corresponding quarter of 2021. Gross profits as a percent of revenue in Q1 2022 was 26.7% compared to 25.7% in the 2021 first quarter. GAAP net income for Q1 2022 with $2.3 million or $0.19 per diluted share compared to $1.2 million or $0.10 per diluted share in Q1 2021, a year-over-year improvement of approximately 90%. Non-GAAP net income for Q1 2022 was $3.3 million or $0.28 per diluted share compared to $2.2 million or $0.19 per diluted share in Q1 2021, a year-over-year improvement of approximately 48% SG&A expense items not included in non-GAAP financial measures, net of tax benefits, or the amortization of acquired intangible assets and stock-based compensation. These non-GAAP items are detailed in our First Quarter 2022 earnings release, which is available on our website. Addressing more financial position. On March 31, 2022, we had outstanding bank debt, net of cash balances on hand of $4.8 million, no borrowings under our revolving credit facility and cash availability of $35.5 million, which excludes $20 million of additional term loan capacity under our current credit facility according feature. I'll now turn the call over to Vivek for his comments.
Vivek Gupta: Good morning, everyone and thank you, Jack for the detailed financial review of our operating results for the first quarter of 2022. Let me start by saying that I'm very pleased with our Q1 2022 financial performance. As Jack mentioned, first quarters historically and seasonally, a tough quarter for both of our business segments from a financial perspective. However, this quarter was different. Both of our business segments were able to execute at a high level during the quarter. Despite several external challenges IT staffing services segment achieved record results in both revenues and gross margins and our data analytics services segments achieved solid revenues and bottom line results. I'm particularly proud of our data analytics team, who collectively kept the ship sailing smoothly without the benefit of having Chief Executive oversight in this business segment during the quarter. I have a couple of comments to make around the workforce environment that we're facing and about an exciting new service offering that we recently rolled out to the market in our IT staffing services segment. On a macroeconomic basis, we continue to deal with the great resignation and the challenges it presents to all businesses around the globe. At Mastech Digital, we have made it a priority to not only retain our top talent, but also to opportunistically seek out new talent that is currently in the market today. Like most services companies, we are squarely in the people business. We see the potential of adding and upgrading our talent base as a positive side of the great resignation and we will continue to treat this challenge as an opportunity at Mastech Digital. Next, I want to give you an update on our new service offering, offshore staffing. At our last earnings call in February 2022, I said a few words about this new service offering that we introduced to the market in the latter part of Q4 2021. Offshore staffing is largely a step-up variant of our very successful mass remote offering. As you're all aware, COVID-19 forced companies to rethink the advantages of having employees, including their contingent workforce working remotely and by doing so, gaining access to the best talent available beyond self-imposed limitations around geographic locations. The adoption rate of the work from anywhere model has been stupendous and we believe the market is now ready to embrace our offshore staffing model that continues to deliver topnotch talent but at price points that will generate material cost savings for our customers over the domestic model. The rollout of this new service offering in late Q4 went very well and the offering was one of the contributors to the record gross margin performance of our IT staffing services segment in the first quarter of 2022. We believe this model is both scalable and will provide our customers with an enhanced value proposition. And now it gives me the immense pleasure to introduce to you our new Chief Executive Officer of the Data and Analytics Services segment, Ganeshan Venkateshwaran. I can tell you that our Board conducted an exhaustive search for this critical role, leaving no stone unturned to find the right leader to take Mastech Info Trellis to the next level in its lifecycle. As our search progressed, it became clear to me and our Board that Ganeshan was the ideal leader to take our Data and Analytics business on its next journey. Generally, our organization is excited to have onboard Ganeshan, who is already hit the ground running in his first month with the company. So without further ado, I will now turn the mic over to Ganeshan Venkateshwaran, our new CEO of Mastech Info Trellis.
Ganesh Venkateshwaran: Thank you, Vivek and good morning, everyone. It's a pleasure to be here today talking to you on my first Mastech Digital Earnings Call as you are aware, I joined domestic in footwear is as the Chief Executive Officer on March 28, some quickly approaching my first full month with the company somehow it seems a lot longer than that. Let me start by giving you a bit of my background and experience. Prior to accepting the CEO position at domestic InfoTech, I held executive leadership roles at the trends and activity technologies from an academic background. I called an engineering degree and business management to programs from the Indian Institute of Science and the Wharton School of Business. Throughout my carrier, I have been involved with advanced technologies and enabling digital transformation [Indiscernible] enterprise clients. The pandemic has only accelerated the need for digital enablement, forcing CXOs across enterprises to think of cross functional and the connected experience value chain for a dreaming enterprise success. I'm a hands-on leader and bring a strong blend of technology, execution, and management experience to drive a strong team collaboration while delivering growth and profitable outcomes. I was attracted towards Mastech, given the background and the capabilities that the Mastech Info Trellis has built around the data and analytics practice covering good aspects of end-to-end data, which includes data management, data engineering, and data science, combined with a layer of enabling customer experience, which came as a part of the AmberLeaf acquisition that Mastech Info Trellis made. These positions, Mastech Info Trellis to engage with both technology stakeholders, as well as the business stakeholders, which is a very strong position to be in. Also, I see the variety in experience that the Board Brex starting from scaling larger businesses, depth in technology, making successful large acquisitions in the past as an advantage, as well as, as a leverage for me as it go after opportunities to support hyper scaling. I believe I have a solid opportunity to make a profound difference at the Mastech Info Trellis. Next, I would like to share my views on some of my first impressions of the company. It's almost one month in. You know, when joining a new organization, particularly in a senior leadership role, your first instinct is to find out if anything is broken and needs to be turned around. I'm pleasantly surprised that is not the case at Mastech Info Trellis. I have been very impressed with the people that are have met, the strong work culture and work ethic that they demonstrate. And more importantly, the burning desire to be successful. I found the culture to be very collaborative, open to change, and focused on success and innovation. Also, I've found the competencies of our delivery center in Chennai, India to be outstanding, which explains the company's track record of near 100% customer retention. However, what needs to be done to bring together an integrated and holistic view of driving enterprise customer experience. Starting with digital strategy and roadmap, to enabling technology solutions and providing managed services. I will be working closely with my teams to ship this go-to-market approach. What this will essentially mean is the premium positioning at upstream end of the enterprise value chain and being able to command a premium pricing. In summary, the digital transformation services is an exciting space that I know well and have been hands firm. I'm looking forward to leading Mastech Info Trellis in its journey ahead by enabling industry-leading learning experience for our employees, chaptering the growth rate and the creating substantial value for our shareholders. Thank you. And back to you, Vivek.
Vivek Gupta: Thanks, Ganeshan. Operator, this concludes our prepared remarks. We can take questions now.
Operator: Thank you. [Operator Instructions] Our first question is from Lisa Thompson with Zacks Investment, please proceed.
Operator: Our next question is from Timothy Call with The Capital Management Corp, please proceed.
Operator: Our next question is from Marc Riddick with Sidoti & Company. Please proceed.
Operator: As a reminder, [Operator Instructions]. Our next question is from Brian Kinstlinger with Alliance Global Partners. Please proceed.
Operator: Our next question is from Rob Stevenson with Bennington Capital. Please proceed.
Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to Vivek for closing comments.
Vivek Gupta: Thank you, Operator. 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 second quarter 2022 results with you in early August. Thank you, all.
Jack Cronin: Have a wonderful day.
Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
