Mastech Digital(US:MHH)2020-05-03 15:56Financial Data and Key Metrics Changes - Revenue for Q1 2020 totaled $50.4 million, a 12% increase from $45.2 million in Q1 2019 [13] - GAAP net income for Q1 2020 was $1.9 million or $0.16 per diluted share, compared to $1 million or $0.09 per diluted share in Q1 2019 [19] - Non-GAAP net income for Q1 2020 was $2.7 million or $0.23 per diluted share, up from $1.6 million or $0.15 per diluted share in Q1 2019 [20] - Gross profit for Q1 2020 was $12.7 million, compared to $10.8 million in the same period last year, with gross margins at 25.2% [16] Business Line Data and Key Metrics Changes - Data and Analytics Services segment revenue was $7.4 million in Q1 2020, a 28% increase year-over-year [14] - IT Staffing Services segment revenue grew by 9% year-over-year in Q1 2020 [15] - Gross margins for Data and Analytics Services were 47.1%, an increase of 160 basis points from the previous year, while IT Staffing Services had gross margins of 21.5%, up 70 basis points [17] Market Data and Key Metrics Changes - The company noted lower demand for Staffing Services, particularly from clients in hard-hit industries such as travel, energy, and manufacturing [15] - The pipeline for Data and Analytics remains strong, but some clients are delaying projects into the second half of the year [15][26] Company Strategy and Development Direction - The company plans to delay investments in both business segments until a meaningful economic recovery is observed [19] - Management is focused on maintaining top talent and avoiding short-term decisions that could hinder recovery [27] - The company is well-positioned to withstand economic headwinds and expects demand for services to return as the global economy recovers [26] Management Comments on Operating Environment and Future Outlook - Management acknowledged the profound impact of the COVID-19 pandemic on the global economy and the company's operations [11] - There is confidence in the company's fundamentals and the expectation that demand will return as conditions improve [26] - Management is adjusting the cost structure to retain key talent while minimizing essential expenditures [61] Other Important Information - The company had $19.6 million of outstanding debt as of March 31, 2020, with a debt-to-equity ratio of 0.45, down from 1.1 a year ago [21] - The company has access to over $15 million under its existing revolving credit line and a $10 million accordion feature [35] Q&A Session Summary Question: Tax rate in Q1 was significantly lower than previous quarters - Management explained that the lower tax rate was due to excess tax benefits from stock exercises, and the expected rate going forward is around 26% [31][32] Question: Changes in interest expense and effective interest rate - The effective interest rate on the term loan is a little over 4%, and the average interest rate is around 3.5%, down from 5.5% in Q1 2019 due to debt repayments and Fed cuts [34] Question: Liquidity position and government programs - The company has sufficient liquidity and has taken advantage of a provision to defer the employer portion of FICA taxes, which will provide cash savings [38] Question: Planned investments on hold - Management indicated that significant planned investments are on hold, focusing on protecting key talent while minimizing discretionary spending [41] Question: Revenue cadence and recovery expectations - Management expects demand for Data and Analytics to remain strong, but decisions are being delayed, while IT Staffing demand has decreased [44] Question: Clarity on Data Analytics contracts and IT Staffing demand - Management confirmed that Data Analytics contracts are performing well, but scaling is delayed, while IT Staffing has seen early terminations from clients in hard-hit industries [50][52] Question: Changes in recruiting and visa situation - The company is hiring locally and has not seen changes in the visa situation for current employees, but immigration for new hires is on hold [75][87] Question: Impact of recent legislation on H1B visa holders - Current legislation does not impact existing H1B holders, but fresh immigration is on hold, which does not affect current hiring practices [76][88] Question: Market valuations and M&A appetite - The company is open-minded about M&A but will not aggressively pursue deals until the economic crisis subsides [80] Question: Revenue contribution from hard-hit industries - The company has limited exposure to hard-hit industries, with only 2-3% of revenue from transportation and a bit more from manufacturing [81]