Mastech Digital Reports a 20% Year-over-Year Revenue Decline in the Fourth Quarter of 2023
- None.
- Total consolidated revenues declined by 20% to $46.1 million
- The Data and Analytics Services segment reported revenues of $8.2 million, compared to $9.1 million in the fourth quarter of 2022
- The IT Staffing Services segment achieved revenues of $37.9 million, compared to $48.1 million in the fourth quarter of 2022
- GAAP diluted earnings (loss) per share was ($0.46) in the fourth quarter of 2023 versus $0.13 in the fourth quarter of 2022
Insights
The reported decline in Mastech Digital's total consolidated revenues by 20% is a significant indicator of the company's performance challenges in the face of economic headwinds. This downturn is reflective of broader market trends where IT services and staffing companies have been impacted by clients' reduced spending. The seasonal decline in billable consultants is not unusual; however, the extent of the reduction may signal a deeper issue in client engagement or market demand.
From a market perspective, the uptick in order bookings for the Data and Analytics segment is a positive sign, suggesting potential recovery or growth areas. It could indicate a strategic shift or a successful pivot towards more in-demand services, which may be crucial for Mastech Digital's performance in the upcoming fiscal year. Investors should monitor whether this uptick translates into sustained revenue growth in 2024.
The GAAP net loss of ($5.4 million) and the goodwill impairment of $5.3 million are critical elements for financial scrutiny. Goodwill impairment often reflects a reassessment of the company's future earning potential and could indicate that past acquisitions have not performed as expected. The non-GAAP net income figure, while still positive, has decreased year-over-year, which might raise concerns about the company's underlying profitability and operational efficiency.
The absence of bank debt and a strong cash balance are positive indicators of financial health, potentially providing Mastech Digital with a buffer against ongoing economic challenges. However, stakeholders should consider the impact of severance expenses on future earnings and whether they hint at a restructuring that could either lead to cost savings or further disruptions.
Mastech Digital's experience is emblematic of the broader IT industry's response to economic downturns. Companies often curtail spending on IT services and staffing during uncertain times, which can lead to revenue declines for service providers like Mastech Digital. The company's gross profit margin decrease from 26.1% to 25.4% might seem marginal but is a key indicator of profitability pressures in the IT services sector.
Investors should consider the company's strategic initiatives to counteract these pressures, such as diversifying service offerings or enhancing operational efficiencies. The reported Days Sales Outstanding (DSO) of 53 days indicates the company's effectiveness in collecting receivables, which is essential for maintaining cash flow during economic contractions.
Its Data and Analytics Segment Reported Strong Order Bookings during the Quarter
Fourth Quarter 2023 Highlights:
- Total consolidated revenues declined by
20% to$46.1 million $57.2 million - The Company's Data and Analytics Services segment reported revenues of
$8.2 million $9.1 million - The IT Staffing Services segment achieved revenues of
$37.9 million $48.1 million - GAAP diluted earnings (loss) per share was (
$0.46 $0.13 $2.4 million $5.3 million - Non-GAAP diluted earnings per share was
$0.11 $0.23 - On December 31, 2023, the Company had no bank debt and had over
$21 million
Fourth Quarter Results:
Revenues for the fourth quarter of 2023 totaled
Activity levels at the Company's Data and Analytics Services segment remained elevated in the fourth quarter of 2023, as order bookings approximated
Full Year Results:
Revenues for the full year of 2023 totaled
Vivek Gupta, the Company's President and Chief Executive Officer stated: "Challenging economic conditions weighed on clients' spending practices for most of 2023. As a result, both of our business segments experienced revenue declines during the year. However, during the fourth quarter 2023, our Data and Analytics segment saw a notable uptick in order bookings, and our IT Staffing segment achieved billable consultant headcount growth in October and November, before experiencing the seasonally high project ends of December. We are encouraged by both indicators as we enter the new year. Despite 2023's difficulties, we believe that our businesses remain fundamentally sound and that we are well positioned for a successful year in 2024."
Commenting on the Company's financial position, Jack Cronin, Mastech Digital's Chief Financial Officer stated: "On December 31, 2023, we had
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
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. 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
Severance charges: From time to time, we incur severance expense related to the termination by the Company of leadership and other key personnel. 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.
Impairment of goodwill: The Company accounts for acquisitions in accordance with guidance found in ASC 805, Business Combinations. Accordingly, excess purchase price over the fair value of net tangible assets and identifiable intangible assets are recorded as goodwill. Goodwill is not amortized but is tested for impairment at least on an annual basis. If impairment is indicated, a write-down to fair value is recorded based on the excess of the carrying value of the asset over its fair market value. As a result of the reductions in revenues related to our Data and Analytics segment during 2023, we performed a quantitative impairment test on December 31, 2023. The results of this testing indicated an impairment of goodwill of
Cyber security breach: In July 2022, we incurred a cyber security breach of a single employee email which resulted in potential damages and the incurrence of expenses related to the engagement of cyber security experts to assist with containment and compliance action steps associated with appropriate closure of incident. While there are no guarantees that other security breaches will not occur in the future, we believe that providing non-GAAP financial measures that exclude these expenses is useful for investors to understand the effects of these items on our total operating expenses and facilitates 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, and statements regarding the Company's share repurchase program. 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 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 and governmental responses to limit the further spread of COVID-19 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, 2022.
MASTECH DIGITAL, INC. | ||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||
(Amounts in thousands) | ||||
(Unaudited) | ||||
December 31, | December 31, | |||
2023 | 2022 | |||
ASSETS | ||||
Current assets: | ||||
Cash and cash equivalents | $ 21,147 | $ 7,057 | ||
Accounts receivable, net | 29,815 | 42,322 | ||
Prepaid and other current assets | 5,501 | 3,795 | ||
Total current assets | 56,463 | 53,174 | ||
Equipment, enterprise software and leasehold improvements, net | 1,913 | 2,665 | ||
Operating lease right-of-use assets | 5,106 | 3,886 | ||
Deferred income taxes | 793 | - | ||
Deferred financing costs, net | 284 | 293 | ||
Non-current deposits | 457 | 578 | ||
Goodwill, net of impairment | 27,210 | 32,510 | ||
Intangible assets, net | 13,001 | 15,773 | ||
Total assets | $ 1,05,227 | $ 1,08,879 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
Current liabilities: | ||||
Current portion of long-term debt | $ - | $ 1,100 | ||
Current portion of operating lease liability | 1,236 | 1,504 | ||
Accounts payable | 4,659 | 4,475 | ||
Accrued payroll and related costs | 12,354 | 11,085 | ||
Other accrued liabilities | 1,622 | 1,393 | ||
Total current liabilities | 19,871 | 19,557 | ||
Long-term liabilities: | ||||
Long-term operating lease liability, less current portion | 3,843 | 2,294 | ||
Long-term accrued income taxes | 69 | 105 | ||
Deferred income taxes | - | 920 | ||
Total liabilities | 23,783 | 22,876 | ||
Shareholders' equity: | ||||
Common stock, par value | 133 | 133 | ||
Additional paid-in capital | 35,345 | 32,059 | ||
Retained earnings | 52,415 | 59,553 | ||
Accumulated other comprehensive income (loss) | (1,644) | (1,555) | ||
Treasury stock, at cost | (4,805) | (4,187) | ||
Total shareholders' equity | 81,444 | 86,003 | ||
Total liabilities and shareholders' equity | $ 1,05,227 | $ 1,08,879 | ||
MASTECH DIGITAL, INC. | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
(Amounts in thousands, except per share data) | |||||||
(Unaudited) | |||||||
Three Months ended December 31, | Year ended December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Revenues | |||||||
Cost of revenues | 34,708 | 42,998 | 1,50,062 | 1,79,055 | |||
Gross profit | 11,344 | 14,218 | 51,036 | 63,183 | |||
Selling, general and administrative expenses: | |||||||
Operating expenses | 12,974 | 12,231 | 51,911 | 50,984 | |||
Impairment of goodwill | 5,300 | - | 5,300 | - | |||
Employment-related claim, net of recoveries | - | - | 3,100 | - | |||
Total selling, general and administrative expenses | 18,274 | 12,231 | 60,311 | 50,984 | |||
Income (loss) from operations | (6,930) | 1,987 | (9,275) | 12,199 | |||
Other income/(expense), net | 44 | 284 | 244 | 292 | |||
Income (loss) before income taxes | (6,886) | 2,271 | (9,031) | 12,491 | |||
Income tax expense (benefit) | (1,535) | 733 | (1,893) | 3,779 | |||
Net income (loss) | $ 1,538 | $ (7,138) | $ 8,712 | ||||
Earnings (loss) per share: | |||||||
Basic | $ (0.46) | $ 0.13 | $ (0.61) | $ 0.75 | |||
Diluted | $ (0.46) | $ 0.13 | $ (0.61) | $ 0.72 | |||
Weighted average common shares outstanding: | |||||||
Basic | 11,598 | 11,620 | 11,613 | 11,588 | |||
Diluted | 11,598 | 12,063 | 11,613 | 12,077 | |||
MASTECH DIGITAL, INC. | ||||||||||
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES | ||||||||||
(Amounts in thousands, except per share data) | ||||||||||
(Unaudited) | ||||||||||
Three Months ended December 31, | Year ended December 31, | |||||||||
2023 | 2022 | 2023 | 2022 | |||||||
GAAP Net Income (Loss) | $ (5,351) | $ 1,538 | $ (7,138) | $ 8,712 | ||||||
Adjustments: | ||||||||||
Amortization of acquired intangible assets | 693 | 612 | 2,772 | 2,987 | ||||||
Stock-based compensation | 581 | 171 | 3,082 | 2,225 | ||||||
Severance expense | 2,350 | 870 | 2,350 | 990 | ||||||
Impairment of goodwill | 5,300 | - | 5,300 | - | ||||||
Employment-related claim, net of recoveries | - | - | 3,100 | - | ||||||
Cyber-security breach | - | - | - | 450 | ||||||
Income tax adjustments | (2,247) | (423) | (4,191) | (1,677) | ||||||
Non-GAAP Net Income | $ 1,326 | $ 2,768 | $ 5,275 | $ 13,687 | ||||||
GAAP Diluted Earnings (Loss) Per Share | $ (0.46) | $ 0.13 | $ (0.61) | $ 0.72 | ||||||
Non-GAAP Diluted Earnings Per Share | $ 0.11 | $ 0.23 | $ 0.44 | $ 1.13 | ||||||
Weighted average common shares outstanding: | ||||||||||
GAAP Diluted Shares | 11,598 | 12,063 | 11,613 | 12,077 | ||||||
Non-GAAP Diluted Shares | 11,900 | 12,063 | 11,978 | 12,077 | ||||||
MASTECH DIGITAL, INC. | |||||||
SUPPLEMENTAL FINANCIAL INFORMATION | |||||||
(Amounts in thousands) | |||||||
(Unaudited) | |||||||
Three Months ended December 31, | Year ended December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Revenues: | |||||||
Data and analytics services | $ 8,152 | $ 9,116 | $ 34,358 | $ 40,594 | |||
IT staffing services | 37,900 | 48,100 | 1,66,740 | 2,01,644 | |||
Total revenues | $ 46,052 | $ 57,216 | $ 2,01,098 | $ 2,42,238 | |||
Gross Margin %: | |||||||
Data and analytics services | 44.7 % | 37.0 % | 43.5 % | 41.5 % | |||
IT staffing services | 20.3 % | 22.5 % | 21.6 % | 23.0 % | |||
Total gross margin % | 24.6 % | 24.8 % | 25.4 % | 26.1 % | |||
Segment Operating Income (Loss): | |||||||
Data and analytics services | $ 586 | $ 714 | $ (1,807) | $ 3,329 | |||
IT staffing services | 827 | 2,755 | 6,054 | 13,297 | |||
Subtotal | 1,413 | 3,469 | 4,247 | 16,626 | |||
Amortization of acquired intangible assets | (693) | (612) | (2,772) | (2,987) | |||
Reserve for cyber-security breach | - | - | - | (450) | |||
Severance expense | (2,350) | (870) | (2,350) | (990) | |||
Impairment of goodwill | (5,300) | - | (5,300) | - | |||
Employment-related claim, net of recoveries | - | - | (3,100) | - | |||
Interest expense and other, net | 44 | 284 | 244 | 292 | |||
Income (loss) before income taxes | $ (6,886) | $ 2,271 | $ (9,031) | $ 12,491 | |||
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SOURCE Mastech Digital, Inc.
FAQ
What were the total consolidated revenues for the fourth quarter of 2023?
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What was the revenue of the IT Staffing Services segment in the fourth quarter of 2023?
What was the GAAP diluted earnings (loss) per share in the fourth quarter of 2023?
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