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Mastech Digital Reports a 24% Year-over-Year Revenue Decline in the Third Quarter of 2023

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Mastech Digital, Inc. reported a decline in total consolidated revenues by 24% to $47.8 million in the third quarter of 2023. The Data and Analytics Services segment saw revenues of $8.0 million, a decrease from $10.1 million in the same quarter last year. The IT Staffing Services segment achieved revenues of $39.8 million, compared to $53.1 million in Q3 2022. GAAP diluted earnings per share were $0.01, down from $0.20 in the previous year. Non-GAAP diluted earnings per share were $0.11, compared to $0.33 in Q3 2022. The company had no bank debt and held $15.9 million of cash balances on hand as of September 30, 2023.
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Challenging Economic Conditions Impacted Both Business Segments during the Quarter  

PITTSBURGH, Nov. 1, 2023 /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, 2023.  

Mastech Digital Logo

Third Quarter 2023 Highlights:

  • Total consolidated revenues declined by 24% to $47.8 million, compared to revenues of $63.1 million in the third quarter of 2022;
  • The Company's Data and Analytics Services segment reported revenues of $8.0 million, compared to $10.1 million in the third quarter of 2022, as existing clients curtailed spending in 2023 and third quarter bookings were short of our expectations;
  • The IT Staffing Services segment achieved revenues of $39.8 million, compared to $53.1 million in the third quarter of 2022, with a decrease in billable consultants during the quarter, albeit at a slower rate than what we experienced in the previous two quarters;
  • GAAP diluted earnings per share was $0.01 in the third quarter of 2023 versus $0.20 in the third quarter of 2022;
  • Non-GAAP diluted earnings per share was $0.11 in the third quarter of 2023 versus $0.33 in the third quarter of 2022; and
  • On September 30, 2023, the Company had no bank debt and held $15.9 million of cash balances on hand.

Third Quarter Results: 

Revenues for the third quarter of 2023 totaled $47.8 million, compared to $63.1 million during the corresponding quarter of 2022.  Gross profits in the third quarter of 2023 were $12.6 million, compared to $16.3 million in the same quarter of 2022. GAAP net income for the third quarter of 2023 totaled $125,000 or $0.01 per diluted share, compared to $2.4 million net income, or $0.20 per diluted share, during the same period of 2022.  Non-GAAP net income for the third quarter of 2023 was $1.3 million, or $0.11 per diluted share, compared to $4.0 million, or $0.33 per diluted share, in the third quarter of 2022.

While activity levels at the Company's Data and Analytics Services segment remained elevated in the third quarter of 2023, project award delays resulted in a disappointing bookings performance. Continued spending reductions on several existing projects, coupled with the lower bookings, resulted in a sequential decline in revenues.  Demand for the Company's IT Staffing Services segment, which is largely linked to U.S. economic conditions, also declined during the quarter, as clients continue to respond to uncertainties in the domestic economy.  This pullback in demand was less pronounced than in the previous two quarters, but still had an impact on our third quarter revenue results.

Vivek Gupta, the Company's President and Chief Executive Officer, stated: "The prevalent uncertain economic conditions have continued to impact clients' spending dynamics during the third quarter of 2023. As a result, both of our business segments experienced revenue declines during this period. We are continuing to aggressively pursue measures to reduce our operating cost structure as a mitigating action. We believe that our businesses remain fundamentally sound, and that our balance sheet and liquidity position continue to be solid."

Michael Fleishman, the  Chief Executive Officer of the Company's Data and Analytics Services segment, stated: "While project assignment delays had a significant impact on our third quarter bookings, we continue to feel confident about our ability to win our share of these delayed opportunities. Our 2023 transformation is progressing well from a Master Data Management  services supplier to a Data Modernization services supplier, and we are seeing expanded type of assignments in our bookings during 2023. I am also encouraged to see that our overall pipeline of opportunities continues to strengthen, which we believe is a positive indicator for the coming quarters."

Commenting on the Company's financial position, Jack Cronin, Mastech Digital's Chief Financial Officer, stated: "On September 30, 2023, we had $15.9 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 improved by one day during the quarter to 55 days on September 30, 2023."

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 alleged various employment-related claims against the Company, including a claim of wrongful termination. During the third quarter, we  settled this claim for an amount that was consistent with our prior estimate and, accordingly, we did not record any additional expense related to this claim during the third quarter of 2023.  We have excluded this reserve in our non-GAAP financial measures because we believe it is not indicative of our ongoing operating performance, and the exclusion allows investors to make a 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.

Severance charges:  From time to time, we incur severance expenses 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.

Cyber-security breach:  In July 2022, we experienced a cyber-security breach of a single employee email, which resulted in 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)







September 30,


December 31,



2023


2022






ASSETS





Current assets:





     Cash and cash equivalents 


$                    15,881


$                     7,057

     Accounts receivable, net 


32,278


42,322

     Insurance recovery


2,200


-

     Prepaid and other current assets


5,859


3,795

           Total current assets


56,218


53,174






Equipment, enterprise software and leasehold improvements, net


2,009


2,665






Operating lease right-of-use assets


4,418


3,886






Deferred financing costs, net


238


293

Non-current deposits


456


578






Goodwill, net of impairment


32,510


32,510






Intangible assets, net of amortization


13,694


15,773

           Total  assets


$                  109,543


$                 108,879






LIABILITIES AND SHAREHOLDERS' EQUITY





Current liabilities:





     Current portion of long-term debt


$                           -


$                     1,100

     Current portion of operating lease liability


1,318


1,504

     Accounts payable


4,842


4,475

     Accrued payroll and related costs


12,270


11,085

     Other accrued liabilities


1,274


1,393

           Total current liabilities


19,704


19,557






Long-term liabilities:





    Long-term operating lease liability, less current portion


3,054


2,294

    Long-term accrued income taxes


69


105

    Deferred income taxes


516


920

           Total liabilities


23,343


22,876






Shareholders' equity:





     Common stock, par value $0.01 per share


133


133

     Additional paid-in capital


34,710


32,059

     Retained earnings


57,766


59,553

     Accumulated other comprehensive (loss)


(1,650)


(1,555)

     Treasury stock, at cost


(4,759)


(4,187)

          Total shareholders' equity


86,200


86,003

           Total liabilities and shareholders' equity


$                  109,543


$                 108,879

 

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,


2023


2022


2023


2022









Revenues

$                         47,779


$                        63,150


$                      155,046


$                     185,022









Cost of revenues

35,213


46,863


115,354


136,057









Gross profit

12,566


16,287


39,692


48,965









Selling, general and administrative expenses:








   Operating expenses

12,615


12,930


38,937


38,753

   Employment-related claim, net of recoveries 

-


-


3,100


-

Total selling, general and administrative expenses

12,615


12,930


42,037


38,753

















Income (loss) from  operations 

(49)


3,357


(2,345)


10,212









Other income/(expense), net

203


-


200


8









Income (loss) before income taxes

154


3,357


(2,145)


10,220









Income tax expense (benefit)

29


951


(358)


3,046

Net income (loss)

$                              125


$                          2,406


$                        (1,787)


$                         7,174









Earnings (loss) per share:








Basic

$                             0.01


$                            0.21


$                          (0.15)


$                           0.62

Diluted

$                             0.01


$                            0.20


$                          (0.15)


$                           0.59









Weighted average common shares outstanding:








Basic

11,597


11,616


11,618


11,578

Diluted

11,968


12,084


11,618


12,082

 


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,





2023


2022


2023


2022














GAAP Net Income (Loss)

$                              125


$                          2,406


$                        (1,787)


$                          7,174














Adjustments:











Amortization of acquired intangible assets

693


791


2,079


2,375




Stock-based compensation

824


776


2,501


2,054




Employment-related claim, net of recoveries

-


-


3,100


-




Reserve for cyber-security breach

-


450


-


450




Severance expense

-


120


-


120




Income tax adjustments

(385)


(508)


(1,944)


(1,254)



Non-GAAP Net Income

$                           1,257


$                          4,035


$                          3,949


$                        10,919

























GAAP Diluted Earnings (Loss) Per Share

$                             0.01


$                            0.20


$                          (0.15)


$                            0.59



Non-GAAP Diluted Earnings Per Share

$                             0.11


$                            0.33


$                            0.33


$                            0.90

























Weighted average common shares outstanding:










GAAP Diluted Shares

11,968


12,084


11,618


12,082



Non-GAAP Diluted Shares

11,968


12,084


11,998


12,082


 

MASTECH DIGITAL, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(Amounts in thousands)

(Unaudited)














Three Months ended September 30,


Nine Months ended September 30,




2023


2022


2023


2022











Revenues:









Data and analytics services

$                         8,038


$                   10,076


$                   26,206


$                    31,478


IT staffing services

39,741


53,074


128,840


153,544



Total revenues

$                       47,779


$                   63,150


$                 155,046


$                  185,022











Gross Margin %:









Data and analytics services

45.8 %


39.6 %


43.1 %


42.8 %


IT staffing services

22.4 %


23.2 %


22.0 %


23.1 %



Total gross margin %

26.3 %


25.8 %


25.6 %


26.5 %











Segment Operating Income (Loss):









Data and analytics services

$                           (832)


$                        826


$                   (2,393)


$                      2,615


IT staffing services

1,476


3,892


5,227


10,542



Subtotal

644


4,718


2,834


13,157











Amortization of acquired intangible assets

(693)


(791)


(2,079)


(2,375)

Employment-related claim, net of recoveries

-


-


(3,100)


-

Reserve for cyber-security breach

-


(450)


-


(450)

Severance expense

-


(120)


-


(120)

Interest expense and other, net

203


-


200


8

Income (loss) before income taxes

$                            154


$                     3,357


$                   (2,145)


$                    10,220

 

Logo: https://mma.prnewswire.com/media/1039524/Mastech_Digital_Logo.jpg

Cision View original content:https://www.prnewswire.com/news-releases/mastech-digital-reports-a-24-year-over-year-revenue-decline-in-the-third-quarter-of-2023-301973824.html

SOURCE Mastech Digital, Inc.

FAQ

What were Mastech Digital, Inc.'s total consolidated revenues in Q3 2023?

Mastech Digital, Inc.'s total consolidated revenues in Q3 2023 were $47.8 million.

What were the revenues of Mastech Digital, Inc.'s Data and Analytics Services segment in Q3 2023?

Mastech Digital, Inc.'s Data and Analytics Services segment reported revenues of $8.0 million in Q3 2023.

What were the revenues of Mastech Digital, Inc.'s IT Staffing Services segment in Q3 2023?

Mastech Digital, Inc.'s IT Staffing Services segment achieved revenues of $39.8 million in Q3 2023.

What were Mastech Digital, Inc.'s GAAP diluted earnings per share in Q3 2023?

Mastech Digital, Inc.'s GAAP diluted earnings per share in Q3 2023 were $0.01.

What were Mastech Digital, Inc.'s Non-GAAP diluted earnings per share in Q3 2023?

Mastech Digital, Inc.'s Non-GAAP diluted earnings per share in Q3 2023 were $0.11.

How much cash did Mastech Digital, Inc. have on hand as of September 30, 2023?

Mastech Digital, Inc. had $15.9 million of cash balances on hand as of September 30, 2023.

Mastech Digital, Inc.

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