Mastech Digital Reports Strong Second Quarter 2020 Results, Despite COVID-19
Mastech Digital (NYSE American: MHH) reported its Q2 2020 financial results, revealing a 2% decline in total revenues to $47.6 million compared to Q2 2019. The Data and Analytics Services segment increased revenues by 2% to $6.8 million, while the IT Staffing Services segment saw a 2% decline to $40.8 million. Notably, gross margins reached a record 26.6%, up 170 basis points from the previous year. GAAP diluted EPS fell to $0.25 from $0.53 due to a prior year's benefit. However, non-GAAP EPS improved to $0.33 from $0.20. Mastech also reduced bank debt by $7.4 million and launched a new Remote Staffing service.
- Gross margins grew to a record 26.6%, a 170 basis points improvement year-over-year.
- Non-GAAP diluted earnings per share increased to $0.33, up from $0.20 in the prior year.
- Reduced bank debt by $7.4 million, improving financial leverage.
- Launched a new Remote Staffing service, expanding service offerings.
- Total revenues declined 2% to $47.6 million year-over-year.
- GAAP diluted earnings per share decreased to $0.25 from $0.53, partially due to a $6.1 million benefit in the prior year.
PITTSBURGH, July 29, 2020 /PRNewswire/ -- Mastech Digital, Inc. (NYSE American: MHH), a leading provider of Digital Transformation IT Services, announced today its financial results for the second quarter ended June 30, 2020.
Second Quarter 2020 Highlights:
- Total revenues declined
2% to$47.6 million , compared to revenues of$48.5 million in the 2019 second quarter, reflecting the impact of COVID-19; - The Company's Data and Analytics Services segment reported
$6.8 million of revenues, which represented a2% increase compared to the second quarter of 2019; - The IT Staffing Services segment achieved revenue of
$40.8 million , which represented a decline of approximately2% compared to a year earlier; - Gross margins grew to a record
26.6% , which was 170 basis points higher than the second quarter of 2019; - GAAP diluted earnings per share were
$0.25 in the second quarter of 2020 versus$0.53 in the 2019 second quarter. The 2019 second quarter included a favorable$6.1 million pretax benefit for the revaluation of a contingent consideration liability which favorably impacted GAAP diluted earnings per share by$0.40 ; and - Non-GAAP diluted earnings per share were
$0.33 in the second quarter of 2020 versus$0.20 in the 2019 second quarter.
Mastech's Response to COVID-19:
Vivek Gupta, the Company's President and Chief Executive Officer, stated, "I am pleased to say that the revenue decline was smaller than anticipated; and that our proactive actions, such as moving our entire workforce to a work-from-home model, instituting balanced austerity measures, and resisting temporary pricing pressures, allowed us to largely eliminate any negative impact on our gross margins and operating profits during the second quarter of 2020. Additionally, I believe our approach to date in responding to the crisis will serve us well in preparation for a future economic recovery."
Second Quarter Results:
Revenues for the second quarter of 2020 totaled
Activity levels at the Company's Data and Analytics Services segment held up well during the quarter despite some project delays. This segment did have a strong quarter of new bookings, which gives some indication that clients are willing to move forward with high-priority projects. Demand for the Company's IT Staffing Services segment was certainly below levels experienced a year ago. However, as the second quarter progressed, the demand did pick-up, albeit at a somewhat slower pace.
Commenting on the Company's financial position, Jack Cronin, Mastech Digital's Chief Financial Officer, stated, "During the second quarter, we reduced bank debt by
Lastly, the quarter saw the launch of a new Remote Staffing service offering branded as MAS-REMOTE. This service allows Mastech Digital to offer to its customers the best technology talent in the U.S. - which is often not available within their geographic locations, but can be found elsewhere in the country.
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, EMEA, India and ASEAN.
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 and our July 2017 acquisition of the services division of InfoTrellis, Inc. 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 expense 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.
Contingent consideration liability revaluation: In connection with the InfoTrellis acquisition, the Company may have been required to pay future consideration that was contingent upon the achievement of specific earnings before interest and tax objectives ("EBIT"). As of the acquisition date, the Company recorded a contingent consideration liability representing the estimated fair value of such contingent consideration that was expected to be paid. In the second quarter of 2019 this contingent consideration liability was reduced by
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 (i) projections of revenues, earnings, and cash flow, and (ii) the effects of the COVID-19 pandemic and the regulatory, social and business responses thereto. 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 forecast in forward-looking statements due to a variety of factors, including, without limitation, the level of market demand for its 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, and the Company's ability to create, acquire and build new lines of business, to attract and retain qualified personnel, reduce costs and conserve cash, 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, 2019.
For more information, contact:
Donna Kijowski
Manager, Investor Relations
Mastech Digital, Inc.
+1-888-330-5497
MASTECH DIGITAL, INC. | ||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||
(Amounts in thousands) | ||||
(Unaudited) | ||||
June 30, | December 31, | |||
2020 | 2019 | |||
ASSETS | ||||
Current assets: | ||||
Cash and cash equivalents | $ 4,743 | $ 2,981 | ||
Accounts receivable, net | 31,208 | 32,352 | ||
Prepaid and other current assets | 1,224 | 1,597 | ||
Total current assets | 37,175 | 36,930 | ||
Equipment, enterprise software and leasehold improvements, net | 2,230 | 2,476 | ||
Operating lease right-of-use assets | 3,978 | 4,617 | ||
Non-current deposits | 385 | 405 | ||
Goodwill, net of impairment | 26,106 | 26,106 | ||
Intangible assets, net | 18,708 | 20,050 | ||
Total assets | $ 88,582 | $ 90,584 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
Current liabilities: | ||||
Current portion of long-term debt | $ 4,575 | $ 4,575 | ||
Current portion of operating lease liability | 1,295 | 1,396 | ||
Accounts payable | 3,073 | 4,027 | ||
Accrued payroll and related costs | 9,616 | 7,902 | ||
Other accrued liabilities | 1,554 | 1,191 | ||
Total current liabilities | 20,113 | 19,091 | ||
Long-term liabilities: | ||||
Long-term debt, less current portion, net | 9,933 | 20,682 | ||
Long-term operating lease liability, less current portion | 2,760 | 3,321 | ||
Long-term accrued income taxes | 185 | 185 | ||
Long-term payroll tax liability | 1,495 | - | ||
Long-term deferred income taxes | 837 | 1,025 | ||
Total liabilities | 35,323 | 44,304 | ||
Shareholders' equity: | ||||
Common stock, par value | 130 | 127 | ||
Additional paid-in capital | 24,432 | 21,939 | ||
Retained earnings | 33,597 | 28,759 | ||
Accumulated other comprehensive income (loss) | (713) | (358) | ||
Treasury stock, at cost | (4,187) | (4,187) | ||
Total shareholders' equity | 53,259 | 46,280 | ||
Total liabilities and shareholders' equity | $ 88,582 | $ 90,584 | ||
MASTECH DIGITAL, INC. | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
(Amounts in thousands, except per share data) | |||||||
(Unaudited) | |||||||
Three Months ended June 30, | Six Months ended June 30, | ||||||
2020 | 2019 | 2020 | 2019 | ||||
Revenues | $ 47,583 | $ 48,472 | $ 98,008 | $ 93,671 | |||
Cost of revenues | 34,927 | 36,418 | 72,633 | 70,782 | |||
Gross profit | 12,656 | 12,054 | 25,375 | 22,889 | |||
Selling, general and administrative expenses: | |||||||
Operating Expenses | 9,042 | 9,544 | 19,285 | 18,509 | |||
Revaluation of contingent consideration liability | - | (6,069) | - | (6,069) | |||
Total selling,general and administrative expenses | 9,042 | 3,475 | 19,285 | 12,440 | |||
Income from operations | 3,614 | 8,579 | 6,090 | 10,449 | |||
Other income/(expense), net | (157) | (507) | (383) | (1,061) | |||
Income before income taxes | 3,457 | 8,072 | 5,707 | 9,388 | |||
Income tax expense | 488 | 2,114 | 869 | 2,466 | |||
Net income | $ 2,969 | $ 5,958 | $ 4,838 | $ 6,922 | |||
Earnings per share: | |||||||
Basic | $ 0.26 | $ 0.54 | $ 0.43 | $ 0.63 | |||
Diluted | $ 0.25 | $ 0.53 | $ 0.41 | $ 0.62 | |||
Weighted average common shares outstanding: | |||||||
Basic | 11,271 | 11,022 | 11,199 | 11,013 | |||
Diluted | 11,948 | 11,164 | 11,849 | 11,183 | |||
MASTECH DIGITAL, INC. | ||||||||||
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES | ||||||||||
(Amounts in thousands, except per share data) | ||||||||||
(Unaudited) | ||||||||||
Three Months ended June 30, | Six Months ended June 30, | |||||||||
2020 | 2019 | 2020 | 2019 | |||||||
GAAP Net Income | ||||||||||
Adjustments: | ||||||||||
Amortization of acquired intangible assets | 669 | 672 | 1,342 | 1,344 | ||||||
Stock-based compensation | 612 | 267 | 1,068 | 503 | ||||||
Revaluation of contingent consideration liability | - | (6,069) | - | (6,069) | ||||||
Income taxes adjustments | (341) | 1,351 | (637) | 1,110 | ||||||
Non-GAAP Net Income | ||||||||||
GAAP Diluted Earnings Per Share | ||||||||||
Non-GAAP Diluted Earnings Per Share | ||||||||||
Weighted average common shares outstanding: | ||||||||||
GAAP Diluted Shares | 11,948 | 11,164 | 11,849 | 11,183 | ||||||
Non-GAAP Diluted Shares | 11,948 | 11,164 | 11,849 | 11,183 | ||||||
MASTECH DIGITAL, INC. | |||||||||
SUPPLEMENTAL FINANCIAL INFORMATION | |||||||||
(Amounts in thousands) | |||||||||
(Unaudited) | |||||||||
Three Months ended June 30, | Six Months ended June 30, | ||||||||
2020 | 2019 | 2020 | 2019 | ||||||
Revenues: | |||||||||
Data and analytics services | $ 6,772 | $ 6,654 | $ 14,132 | $ 12,422 | |||||
IT staffing services | 40,811 | 41,818 | 83,876 | 81,249 | |||||
Total revenues | $ 47,583 | $ 48,472 | $ 98,008 | $ 93,671 | |||||
Gross Margin %: | |||||||||
Data and analytics services | |||||||||
IT staffing services | |||||||||
Total gross margin % | |||||||||
Segment Operating Income: | |||||||||
Data and analytics services | $ 1,173 | $ 1,285 | $ 2,082 | $ 2,326 | |||||
IT staffing services | 3,110 | 1,897 | 5,350 | 3,398 | |||||
Subtotal | 4,283 | 3,182 | 7,432 | 5,724 | |||||
Amortization of acquired intangible assets | (669) | (672) | (1,342) | (1,344) | |||||
Revaluation of contingent consideration liability | - | 6,069 | - | 6,069 | |||||
Interest expense and other, net | (157) | (507) | (383) | (1,061) | |||||
Income before income taxes | $ 3,457 | $ 8,072 | $ 5,707 | $ 9,388 | |||||
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SOURCE Mastech Digital, Inc.
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