Mastech Holdings, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; filed March 21, 2014. The filing identifies the registrant as Mastech Holdings, Inc. (not Mastech Digital, Inc.). Unless noted, amounts below are for continuing operations, primarily IT staffing; healthcare staffing was sold in August 2013 and is reported as discontinued operations.
Business context and results
Mastech provides U.S.-based contract IT staffing, with recruiting operations in the U.S. and India. Wholesale IT staffing supplied 78% of 2013 revenue and retail IT staffing 22%. Accenture was the largest client at 11.4% of revenue; the top ten clients accounted for 57%.
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $106.9 million | $90.8 million |
| Gross profit / margin | $20.1 million / 18.8% | $17.2 million / 18.9% |
| Operating income | $5.3 million | $3.4 million |
| Continuing-operations net income | $3.3 million | $2.1 million |
| Total net income, including discontinued operations | $3.8 million | $2.1 million |
| EPS, continuing operations (basic / diluted) | $0.78 / $0.75 | $0.51 / $0.49 |
FY2013 revenue rose 18%, supported by higher demand, billable consultant headcount growth to 742 from 632, and a higher average bill rate ($74.25 versus $73.58). Wholesale revenue rose 29%; retail revenue fell 10%. Operating expenses increased in dollars but declined to 13.9% of revenue from 15.2%. Total gross margin edged down 10 basis points, as a lower wholesale margin and reduced permanent-placement revenue offset improved retail margins.
Fourth-quarter continuing operations: Revenue was $28.5 million versus $23.5 million in Q4 2012; gross profit was $5.4 million versus $4.5 million; net income was $961,000 versus $744,000. Basic/diluted EPS was $0.23/$0.22, compared with $0.18/$0.18.
Cash flow, balance sheet, and capital
- Cash from continuing operations was $1.9 million, up from $0.9 million; growth in receivables and other working capital absorbed cash. Total operating cash flow, including discontinued operations, was $3.2 million.
- Year-end cash and equivalents were $424,000. Operating working capital was $8.4 million; receivables days outstanding were 48, versus 47 a year earlier.
- Short-term borrowings were $12,000, down from $2.6 million. The company reported $15.4 million of available borrowing capacity under its PNC facility and compliance with its covenants. It was discussing an extension of the facility.
- Shareholders’ equity was $9.5 million; total liabilities were $7.6 million. The company paid a one-time $2.1 million dividend and repaid $2.6 million of debt during 2013. No recurring dividend program was anticipated.
Material changes, outlook, risks, and unusual items
- The August 2013 sale of healthcare staffing shifted the company’s focus exclusively to IT staffing. The sale price was $1.15 million; the reported after-tax gain was $442,000. Annual comparisons present healthcare results as discontinued operations.
- Management described contract staffing activity as steady and viewed a strengthening U.S. job market as positive, but provided no specific revenue or earnings guidance. It expected working capital to rise if revenue continued growing, DSO to remain around 48–52 days, and 2014 capital spending and lease deposits to approximate $0.3 million. Management expected cash, operating cash flow, and facility availability to fund needs for the next 12 months.
- Key risks include client concentration and terminable contracts, competition and pricing pressure, MSP-related margin compression, recruiting and retention of skilled staff, and U.S. immigration rules. About 45% of the U.S. IT workforce worked under company-sponsored H-1B permits. Rupee appreciation and Indian wage inflation could raise costs.
- Other considerations include seasonal fourth-quarter utilization effects, foreign-exchange exposure partly hedged with forward contracts, and ordinary-course litigation that management did not expect to materially affect financial position, results, or cash flows.
- The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness.
Investor verification priorities
- Confirm the issuer identity and security: the filing is for Mastech Holdings, Inc., NYSE MKT symbol MHH.
- Separate continuing IT results from healthcare discontinued operations, including the $442,000 after-tax sale gain, when assessing earnings growth.
- Track whether wholesale growth, retail performance, client concentration, and MSP exposure affect margins and revenue durability.
- Verify the PNC facility extension, available borrowing capacity, covenant compliance, and the cash impact of working-capital growth.
- Review H-1B workforce exposure, India-related cost and currency risks, and the absence of formal quantified guidance.