Mastech finds right approach to reverse slumping business

| Tuesday, Aug. 2, 2011

Three years ago, Mastech Holdings Inc. experienced a rough startup -- its second in 20 years.

The Findlay-based company returned to its roots as an independent, publicly owned information technology and health care staffing supplier for U.S. businesses -- this time, as a spinoff from parent iGate Corp.

Since then, Mastech has experienced strong growth, with sales jumping 31 percent in the past year, said Steve Wolfe, senior vice president of branch services.

"It was the highest single growth of any publicly traded IT staffing firm in our entire industry," he said. "The expectation, according to industry analysts, was about 12 percent."

CEO Thomas Moran, who joined the company in July 2009, is responsible for the turnaround. He has more than 20 years of experience in the staffing industry, including leading another company through a transition similar to Mastech's.

Moran previously served as CEO of Hudson Highland Group of New York, where he took the helm just after it spun off from its parent company in 2002. Hudson's revenue grew from $824 million in 2003 to $1.17 billion in 2007, and profit increased from $309 million to $507 million during that period, according to Hudson's annual reports.

Moran's expertise with spinoffs made him a top choice to head Mastech, which experienced multiple quarters of declining revenue after it was spun off in October 2008 from iGate, which co-founders Sunil Wadhwani and Ashok Trivedi moved to California. They restructured Mastech as iGate in 2000.

Wadhwani and Trivedi could not be reached for this story. They retain a strong interest in Mastech, with each owning a 27.7 percent ownership stake, securities filings show.

When Moran came on board, Mastech's revenue was down more than 17 percent. A year later, sales increased in two straight three-month periods for the first time since late 2007.

"The most important thing we needed to look at was what we do for a living, and that we are a sales organization," Moran said. "I added policies and procedures that focus on accountability and teamwork around growth. We (also) needed to put in compensation plans to reward people for growth."

Mastech's sales and recruiting employees now are on monthly commission plans.

The changes are paying off, and Moran said he's happy with Mastech's growth. Last week, the company reported an 11 percent jump in revenue in the April-June quarter compared to the January-March period, and a 31 percent increase over the same quarter last year.

"We are well-positioned to drop more revenue dollars to our bottom line," Moran said during a conference call. "All the investments that we made throughout 2010, we are starting to see those gain traction."

Mastech recently caught the attention of Illinois-based Oberwise Asset Management, which bought 19,400 shares in March.

"We invest in small companies that are falling below the radar screen of larger firms," President Jim Oberwise said. "Those are the types of companies we like to see, they're profitable. IT staffing services, we understand, has been on the rebound."

Since its founding in 1986, Mastech has gone through several transformations that altered its business focus.

When Wadhwani and Trivedi started Mastech, the company helped place foreign workers in IT and health care jobs in the United States. After its first 10 years in business, in 1998, Mastech reached sales of more than $500 million, said Kevin Pochapin, Pittsburgh market manager. He joined the company that year.

In 2000 came the restructuring as iGate, and the focus changed to helping American companies move entire departments, such as IT and accounting, overseas where it was cheaper to operate.

IGate Global Solutions was the off-shore focus, while iGate Mastech was the on-shore focus. Eventually, management realized the two needed to separate, Pochapin said.

"I think the offshore component was cannibalizing the onshore piece," he said. "(Off-shoring is) such a different business model ... it just made sense to have separate companies."

IGate, now based in Fremont, Calif., continues to provide off-shoring and outsourcing services. IT staffing is about 95 percent of Mastech's business.

Mastech provides temporary and permanent staffing in the IT and health care fields, which was its original focus. It maintains a database of more than 200,000 potential employees, which it supplies to customers as needed. The company places several hundred people a year.

The company maintains two recruiting centers in India and recruits Americans, as well, Wolfe said.

One branch of Mastech serves companies that frequently use outside staff. It is one of 30 to 40 staffing companies to which large companies send requests for workers. Whoever responds the fastest with candidates that match requirements wins the right to fill the position.

Another branch provides services to companies and government offices need temporary staff for a large project, perhaps to fulfill a new contract.

A third branch works with smaller local businesses at its seven U.S. locations.

"We've historically neglected the Pittsburgh market," Pochapin said. "I run the Pittsburgh branch, and our focus is driving local client business and leveraging local talent."

Federal Home Loan Bank, Downtown, has been working with Mastech for 10 years, said John Cassidy, director of information technology.

"Most recently, Mastech has been helpful in filling two of my management positions," Cassidy said.

He said one of the company's strengths is that the employees they recommend fit requirements.

"They don't waste my time; the candidates they present fall within the qualification range," Cassidy said. "That's in contrast to other firms, where it's a body shop, and they'll just flood you with resumes and hope that one of them sticks."

Additional Information:

Mastech Holdings Inc.


• Headquarters: Park Place Corporate Center, Findlay.

• Business: Information technology and health care staffing services.

• History:

1986: Founded by Sunil Wadhwani and Ashok Trivedi.

2000: Restructured as iGate Corp. with a focus on moving companies information services overseas.

2008: Mastech spun off from iGate to return focus to staffing businesses.

• CEO: Thomas B. Moran.

• Locations: Washington; Houston and Dallas; Chicago; Phoenix; Fremont, Calif.

• International locations: Noida, Bangelore and Chennai, India.

• Six-month 2011 revenue: $42 million.

• Stock price October 2008: $7.60.

• Stock price Aug. 1: $4.35.

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