Mastech Digital Inc.

11/06/2024 | Press release | Distributed by Public on 11/06/2024 06:04

Mastech Digital Reports 8% Year over Year Revenue Growth and 5% Sequential Revenue Growth for the Third Quarter 2024

Consolidated Gross Margins of 28.5% Set a New Mastech Digital Record for the Quarter

PITTSBURGH, Nov. 6, 2024/PRNewswire/ -- Mastech Digital, Inc. (NYSE AMERICAN: MHH), a leading provider of Digital Transformation IT Services, announced today its financial results for the third quarter ended September 30, 2024.

Third Quarter 2024 Highlights:

  • Total consolidated revenues increased by $4.1 million on a year-over-year basis and by $2.3 million on a sequential quarterly basis to $51.8 million and represented our third consecutive quarter of revenue growth;
  • The Company's Data and Analytics Services segment reported revenues of $9.4 million, which were 17% higher than revenues in the third quarter of 2023 and 6% higher on a sequential basis from the second quarter of 2024;
  • The IT Staffing Services segment delivered revenues of $42.4 million, achieving year-over-year growth of 7% and sequential quarterly growth of 4% when compared to revenues reported in the second quarter of 2024;
  • Gross margins achieved during the third quarter of 2024 were a Company performance record 28.5%, surpassing our previous gross margin record from the previous quarter;
  • GAAP diluted earnings per share was $0.16 in the third quarter of 2024, versus $0.01 in the third quarter of 2023 and $0.12 in the second quarter of 2024; and
  • Non-GAAP diluted earnings per share was $0.23 in the third quarter of 2024, versus $0.11 in the third quarter of 2023 and $0.19 in the second quarter of 2024.

Third Quarter Results:

Revenues for the third quarter of 2024 totaled $51.8 million, compared to $47.8 million during the corresponding quarter of 2023. Gross profits in the third quarter of 2024 were $14.8 million, compared to $12.6 million in the same quarter of 2023. Gross margins improved to a Company performance record 28.5% in the 2024 third quarter, versus 26.3% in the 2023 third quarter. GAAP net income for the third quarter of 2024 totaled $1.9 million or $0.16 per diluted share, compared to $125,000 or $0.01 per diluted share, during the same period of 2023. Non-GAAP net income for the third quarter of 2024 totaled $2.8 million or $0.23 per diluted share compared to $1.3 million, or $0.11 per diluted share, in the third quarter of 2023.

Activity levels at the Company's Data and Analytics Services segment continued to be solid in the third quarter of 2024. Order bookings totaled $11.1 million during the quarter, as the Company saw numerous existing clients increase spending due to an improved economic outlook. This bookings performance exceeded our 2023 third quarter bookings by $6 million. Our IT Staffing Services clients have also shown a willingness to start new assignments during 2024 compared to the previous year, as we grew our billable consultant base by 13% over the first nine months of 2024.

Vivek Gupta, the Company's President and Chief Executive Officer, stated: "The third quarter of 2024 was a continuation of the positive momentum that we experienced during the first half of the year. A healthier macro-economic outlook and increased operational efficiencies within both of our business segments have elevated our demand trajectory in 2024. Additionally, our higher gross margin performance has highlighted several upgrades we made to the delivery-side of our organization during the year. In summary, I'm excited about our third quarter 2024 financial performance and the opportunities that we have in front of us."

Commenting on the Company's financial position, Jack Cronin, Mastech Digital's Chief Financial Officer, stated: "On September 30, 2024, we had $23.9 million of cash balances on hand, no bank debt, and borrowing availability of approximately $25 million under our revolving credit facility. Our Days Sales Outstanding (DSO) measurement was a healthy 55 days on September 30, 2024. Our free cash flow for the first nine months of 2024 totaled $2.3 million and included $4.3 million of funding investments in operating working capital levels to support revenue growth."

About Mastech Digital, Inc.:

Mastech Digital (NYSE American: MHH) is a leading provider of Digital Transformation IT Services. The Company offers Data Management and Analytics Solutions, Digital Learning, and IT Staffing Services with a Digital First approach. A minority-owned enterprise, Mastech Digital is headquartered in Pittsburgh, PA, with offices across the U.S., Canada, Europe, and India.

Use of Non-GAAP Measures:

This press release contains non-GAAP financial measures to supplement our financial results presented on a GAAP basis. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Reconciliations of these non-GAAP measures to their comparable GAAP measures are included in the attached financial tables.

We believe that providing non-GAAP net income and non-GAAP diluted earnings per share offers investors useful supplemental information about the financial performance of our business, enables comparison of financial results between periods where certain items may vary independent of business performance, and allows for greater transparency with respect to key metrics used by management in operating our business. Additionally, management uses these non-GAAP financial measures in evaluating the Company's performance.

Specifically, the non-GAAP financial measures contained herein exclude the following expense items:

Amortization of acquired intangible assets: We amortize intangible assets acquired in connection with our June 2015 acquisition of Hudson IT, our July 2017 acquisition of the services division of InfoTrellis, Inc. and our October 2020 acquisition of AmberLeaf Partners. We exclude these amortization expenses in our non-GAAP financial measures because we believe it allows investors to make more meaningful comparisons between our operating results and those of other companies within our industry and facilitates a helpful comparison of our results with other periods.

Stock-based compensation expenses: We incur material recurring expenses related to non-cash, stock-based compensation. We exclude these expenses in our non-GAAP financial measures because we believe that it provides investors with meaningful supplemental information regarding operational performance. In particular, because of varying available valuation methodologies, subjective assumptions, and the variety of award types that companies can use under ASC 718, we believe that providing non-GAAP financial measures that exclude these expenses allows investors to make more meaningful comparisons between our operating results and those of other companies within our industry and facilitates comparison of our results with other periods.

Settlement reserve on employment-related claim, net of recoveries: In the second quarter of 2023, we recognized a pre-tax reserve of $3.1 million related to an employment claim asserted by a former employee who allegedvarious employment-related claims against the Company, including a claim of wrongful termination. During the third quarter of 2023, we formally settled this claim in accordance with the economic terms and conditions that were reflected in our second quarter 2023 financial statements. We have excluded this reserve in our non-GAAP financial measures because we believe it is not indicative of our ongoing operating performance and thus its exclusion allows investors to make more meaningful comparison between our operating results and those of other companies within our industry and facilitates a helpful comparison of our results with other periods.

Forward-Looking Statements:

Certain statements contained in this release are forward-looking statements based on management's expectations, estimates, projections, and assumptions. Words such as "expects," "anticipates," "plans," "believes," "scheduled," "estimates" and variations of these words and similar expressions are intended to identify forward-looking statements, which include but are not limited to projections of and statements regarding the Company's ability to generate revenues, earnings, and cash flow. These statements are based on information currently available to the Company and it assumes no obligation to update the forward-looking statements as circumstances change. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecasted in forward-looking statements due to a variety of factors, including, without limitation, the level of market demand for the Company's services, the highly competitive market for the types of services offered by the Company, the impact of competitive factors on profit margins, market and general economic conditions that could cause the Company's customers to reduce their spending for its services, the Company's ability to create, acquire and build new lines of business, to attract and retain qualified personnel, reduce costs and conserve cash, the extent to which the Company's business is adversely affected by the impacts of the COVID-19 pandemic or any other pandemics or outbreaks disrupting day-to-day activities and other risks that are described in more detail in the Company's filings with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2023.

MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)







September 30,


December 31,



2024


2023






ASSETS





Current assets:





Cash and cash equivalents


$ 23,885


$ 21,147

Accounts receivable, net


34,054


29,815

Prepaid and other current assets


7,876


5,501

Total current assets


65,815


56,463






Equipment, enterprise software and leasehold improvements, net


2,083


1,913






Operating lease right-of-use assets, net


4,147


5,106






Deferred income taxes


607


793






Deferred financing costs, net


213


284






Non-current deposits


452


457






Goodwill, net of impairment


27,210


27,210






Intangible assets, net of amortization


10,958


13,001

Total assets


$ 1,11,485


$ 1,05,227






LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:





Accounts payable


$ 4,636


$ 4,659

Current portion of operating lease liability


1,257


1,236

Accrued payroll and related costs


14,717


12,354

Other accrued liabilities


1,491


1,622

Total current liabilities


22,101


19,871






Long-term liabilities:





Long-term operating lease liability, less current portion


2,857


3,843

Long-term accrued income taxes


-


69

Total liabilities


24,958


23,783






Shareholders' equity:





Common stock, par value $0.01 per share


134


133

Additional paid-in capital


37,473


35,345

Retained earnings


55,520


52,415

Accumulated other comprehensive income (loss)


(1,715)


(1,644)

Treasury stock, at cost


(4,885)


(4,805)

Total shareholders' equity


86,527


81,444

Total liabilities and shareholders' equity


$ 1,11,485


$ 1,05,227

MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)










Three Months ended September 30,


Nine Months ended September 30,


2024


2023


2024


2023









Revenues

$ 51,839


$ 47,779


$ 1,48,196


$ 1,55,046









Cost of revenues

37,068


35,213


1,07,314


1,15,354









Gross profit

14,771


12,566


40,882


39,692









Selling, general and administrative expenses:








Operating expenses

12,332


12,615


37,156


38,937

Employment-related claim, net of recoveries

-


-


-


3,100

Total selling, general and administrative expenses

12,332


12,615


37,156


42,037

















Income (loss) from operations

2,439


(49)


3,726

#

(2,345)









Other income/(expense), net

133


203


373


200









Income (loss) before income taxes

2,572


154


4,099


(2,145)









Income tax expense (benefit)

697


29


994


(358)

Net income (loss)

$ 1,875


$ 125


$ 3,105


$ (1,787)









Earnings (loss) per share:








Basic

$ 0.16


$ 0.01


$ 0.27


$ (0.15)

Diluted

$ 0.16


$ 0.01


$ 0.26


$ (0.15)









Weighted average common shares outstanding:








Basic

11,695


11,597


11,654


11,618

Diluted

12,011


11,968


11,949


11,618

MASTECH DIGITAL, INC.

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

(Amounts in thousands, except per share data)

(Unaudited)















Three Months ended September 30,


Nine Months ended September 30,





2024


2023


2024


2023














GAAP Net Income (Loss)

$ 1,875


$ 125


$ 3,105

#

$ (1,787)














Adjustments:











Amortization of acquired intangible assets

657


693


2,043


2,079




Stock-based compensation

542


824


1,553


2,501




Employment-related claim, net of recoveries

-


-


-


3,100




Income tax adjustments

(305)


(385)


(920)


(1,944)



Non-GAAP Net Income

$ 2,769


$ 1,257


$ 5,781


$ 3,949

























GAAP Diluted Earnings (Loss) Per Share

$ 0.16


$ 0.01


$ 0.26


$ (0.15)



Non-GAAP Diluted Earnings Per Share

$ 0.23


$ 0.11


$ 0.48


$ 0.33

























Weighted average common shares outstanding:










GAAP Diluted Shares

12,011


11,968


11,949


11,618



Non-GAAP Diluted Shares

12,011


11,968


11,949

#

11,998


MASTECH DIGITAL, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(Amounts in thousands)

(Unaudited)














Three Months ended September 30,


Nine Months ended September 30,




2024


2023


2024


2023











Revenues:









Data and analytics services

$ 9,398


$ 8,038


$ 26,341


$ 26,206


IT staffing services

42,441


39,741


1,21,855


1,28,840



Total revenues

$ 51,839


$ 47,779


$ 1,48,196


$ 1,55,046











Gross Margin %:









Data and analytics services

50.7 %


45.8 %


48.9 %


43.1 %


IT staffing services

23.6 %


22.4 %


23.0 %


22.0 %



Total gross margin %

28.5 %


26.3 %


27.6 %


25.6 %











Segment Operating Income:









Data and analytics services

$ 1,145


$ (832)


$ 1,435


$ (2,393)


IT staffing services

1,951


1,476


4,334


5,227



Subtotal

3,096


644


5,769


2,834











Amortization of acquired intangible assets

(657)


(693)


(2,043)


(2,079)

Employment-related claim, net of recoveries

-


-


-


(3,100)

Interest income (expense) and other, net

133


203


373


200

Income before income taxes

$ 2,572


$ 154


$ 4,099


$ (2,145)

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SOURCE Mastech Digital, Inc.

For more information, contact: Donna Kijowski, Manager, Investor Relations, Mastech Digital, Inc., 888.330.5497