PITTSBURGH, Pennsylvania,
Oct. 31, 2018 /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, 2018.
Third Quarter 2018 Highlights:
- Revenues increased 13% to a total of $44.3 million, compared to revenues of
$39.2 million in the 2017 third
quarter
- The Company's data and analytics services segment, acquired on
July 13, 2017, contributed
$5.8 million of revenues during the
quarter with gross margins of 44.5%
- Organic revenues in the Company's IT staffing services segment
increased by 10% compared to the third quarter of 2017. The number
of billable consultants at September 30,
2018 in this segment totaled 1,089, an increase of 11
consultants during the quarter
- GAAP diluted earnings per share were $0.14 versus a $0.01 loss in the 2017 third quarter
- Non-GAAP diluted earnings per share were $0.20 versus $0.13
in the 2017 third quarter
- All earnings per share numbers have been adjusted for the
Company's 2-for-1 stock split announced in July 2018
Third Quarter Results:
Revenues for the third quarter of 2018 totaled $44.3 million, compared to $39.2 million during the corresponding quarter
last year. Gross profit in the third quarter of 2018 was
$10.7 million, compared to
$8.8 million in the third quarter of
2017. GAAP net income for the third quarter of 2018 totaled
$1.6 million or $0.14 per diluted share, compared to a loss of
($136,000) or ($0.01) per diluted share during the same period
last year. Non-GAAP net income for the third quarter of 2018 was
$2.2 million or $0.20 per diluted share, compared to $1.4 million or $0.13 per diluted share in the third quarter of
2017.
Activity levels remained healthy in our data and analytics
business segment and we continue to secure new assignments.
However, revenue growth was impacted again in the third
quarter due to the inherent lumpiness in this project-based
business, as several project start dates were pushed out into the
fourth quarter. Demand for the Company's IT staffing services
also remained strong during the third quarter, and our billable
consultant-base expanded by 11 consultants, despite a material
increase in project ends. Additionally, gross margins in the
IT staffing services segment increased by 110 basis points in the
2018 third quarter, when compared to the same period last year.
"I am pleased with Mastech Digital's performance in the third
quarter of 2018," said Vivek Gupta,
President and CEO, Mastech Digital. "Our overall revenue and gross
profit grew by 13% and 22%, respectively, as compared to the third
quarter of 2017. The revenue from our Data and Analytics segment
was impacted during the third quarter due to several project starts
getting pushed out into the fourth quarter, but gross margins have
shown a nice improvement over those in the second quarter of 2018.
Productivity in our IT Staffing segment continues to remain very
high and the revenues were almost flat sequentially despite high
seasonal vacations by billable consultants."
Commenting on the Company's financial position, Jack Cronin, Mastech Digital's Chief Financial
Officer, stated, "At September 30,
2018, we had bank debt, net of cash balances on hand, of
approximately $40 million and $6.5
million of borrowing capacity available to us under our
revolving credit line. Our cash flows and debt levels have been
impacted by temporary inefficiencies related to the implementation
of our new Cloud based ERP platform during third quarter of
2018. We are hopeful to return to normal functionalities
related to our sales-to-cash conversion processes by year end.
"
Mastech Digital will host a conference call at 9:00 A.M. ET on October
31, 2018 to discuss these results and to answer
questions. A live webcast of this conference call will be
available on the Company's website, www.mastechdigital.com.
Simply click on the Investors section and follow the links to the
live webcast. The webcast will remain available for replay through
November 7, 2018.
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 services; other digital transformation
services that include Salesforce.com, SAP HANA, and Digital
Learning services; and IT staffing services. A minority-owned
enterprise, Mastech Digital is headquartered in Pittsburgh, PA with offices across the U.S.,
Canada and India. For more information,
visit www.mastechdigital.com.
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.
Acquisition-related transaction expenses: We incurred
significant expenses in connection with our acquisition of
InfoTrellis, Inc. which we would not have otherwise incurred in the
periods presented as part of our continuing operations. These
transaction expenses consisted of investment banking fees, legal
expenses, audit charges related to our acquired companies and
various advisor costs. In the 2018 period, we recorded a reduction
in acquisition-related transaction expense due to a revised
estimate of investment banking fees associated with contingent
consideration payments. We believe that providing non-GAAP
financial measures that exclude these expenses / credits 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.
Revaluation of contingent consideration liability: In connection
with the InfoTrellis acquisition, the Company may be required to
pay future consideration that is 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 2018, this contingent consideration liability was
reduced by $9.1 million after the
Company determined that relevant conditions for payment of such
liability were unlikely to be fully satisfied. While it is probable
that adjustments to the contingent consideration liability will
occur in the future, we believe that providing non-GAAP financial
measures that exclude this reduction to expense are useful for
investors to understand the effects of these items on our total
operating expenses and facilitate comparison of our results with
other periods.
Goodwill impairment: 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 reduction to contingent
consideration liability related to the InfoTrellis acquisition, we
performed a quantitative impairment test on June 30, 2018. Based on the results of this
testing, the Company recorded a $7.7
million impairment associated with the carrying value of
goodwill related to the InfoTrellis acquisition. While it is
possible that goodwill impairment could occur in the future, we
believe that providing non-GAAP financial measures that exclude
impairment expense are useful for investors to understand the
effects of these items on our total operating expenses and
facilitate 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 (i) projections of revenues, earnings, and cash flow,
and (ii) the expected benefits to Mastech Digital from
completing the acquisition of the services division of InfoTrellis,
Inc. and the PNC credit facility and the expected performance of
Mastech Digital following completion of these transactions. 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,
2017.
MASTECH DIGITAL,
INC.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Amounts in
thousands)
|
(Unaudited)
|
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
2,188
|
|
$
2,478
|
Accounts receivable,
net
|
|
38,173
|
|
30,662
|
Prepaid and other current
assets
|
|
1,609
|
|
1,533
|
Total current assets
|
|
41,970
|
|
34,673
|
|
|
|
|
|
Equipment, enterprise
software and leasehold improvements, net
|
|
2,141
|
|
1,899
|
|
|
|
|
|
Deferred income
taxes
|
|
-
|
|
468
|
|
|
|
|
|
Non-current
deposits
|
|
519
|
|
255
|
|
|
|
|
|
Goodwill
|
|
28,106
|
|
35,844
|
|
|
|
|
|
Intangible assets,
net
|
|
23,410
|
|
25,465
|
Total assets
|
|
$
96,146
|
|
$
98,604
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Current portion of long-term
debt
|
|
$
4,575
|
|
$
4,003
|
Accounts payable
|
|
2,724
|
|
5,028
|
Accrued payroll and related
costs
|
|
8,050
|
|
8,969
|
Other accrued
liabilities
|
|
1,738
|
|
2,109
|
Total current liabilities
|
|
17,087
|
|
20,109
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
Long-term debt, less current portion, net
|
|
37,720
|
|
34,149
|
Contingent consideration liability
|
|
8,019
|
|
17,125
|
Long-term accrued income taxes
|
|
68
|
|
68
|
Deferred income taxes
|
|
81
|
|
-
|
Total liabilities
|
|
62,975
|
|
71,451
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
Common stock, par value
$0.01 per share
|
|
126
|
|
126
|
Additional paid-in
capital
|
|
20,692
|
|
20,241
|
Retained earnings
|
|
16,740
|
|
10,923
|
Accumulated other
comprehensive income (loss)
|
|
(213)
|
|
17
|
Treasury stock, at
cost
|
|
(4,174)
|
|
(4,154)
|
Total shareholders' equity
|
|
33,171
|
|
27,153
|
Total liabilities and shareholders' equity
|
|
$
96,146
|
|
$
98,604
|
|
|
|
|
|
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,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
Revenues
|
$
44,292
|
|
$
39,228
|
|
$
132,519
|
|
$
107,414
|
|
|
|
|
|
|
|
|
Cost of
revenues
|
33,582
|
|
30,410
|
|
100,656
|
|
85,310
|
|
|
|
|
|
|
|
|
Gross
profit
|
10,710
|
|
8,818
|
|
31,863
|
|
22,104
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
8,204
|
|
8,603
|
|
22,462
|
|
20,504
|
|
|
|
|
|
|
|
|
Income from
operations
|
2,506
|
|
215
|
|
9,401
|
|
1,600
|
|
|
|
|
|
|
|
|
Other
income/(expense), net
|
(427)
|
|
(450)
|
|
(1,546)
|
|
(637)
|
|
|
|
|
|
|
|
|
Income (loss)
before income taxes
|
2,079
|
|
(235)
|
|
7,855
|
|
963
|
|
|
|
|
|
|
|
|
Income tax expense
(benefit)
|
459
|
|
(99)
|
|
2,038
|
|
202
|
Net income
(loss)
|
$
1,620
|
|
$
(136)
|
|
$
5,817
|
|
$
761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
|
|
|
|
Basic
|
$
0.15
|
|
$
(0.01)
|
|
$
0.53
|
|
$
0.08
|
Diluted
|
$
0.14
|
|
$
(0.01)
|
|
$
0.52
|
|
$
0.08
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
10,966
|
|
10,684
|
|
10,938
|
|
9,590
|
Diluted
|
11,217
|
|
10,730
|
|
11,153
|
|
9,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net Income
(Loss)
|
$
1,620
|
|
$
(136)
|
|
$
5,817
|
|
$
761
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Amortization of
acquired intangible assets
|
673
|
|
611
|
|
2,055
|
|
1,018
|
|
|
Stock-based
compensation
|
116
|
|
70
|
|
341
|
|
285
|
|
|
Acquisition
transaction expenses
|
-
|
|
1,754
|
|
(140)
|
|
2,019
|
|
|
Goodwill
impairment
|
-
|
|
-
|
|
7,738
|
|
-
|
|
|
Revaluation of
contingent consideration liability
|
-
|
|
-
|
|
(9,106)
|
|
-
|
|
|
Income taxes
adjustments
|
(208)
|
|
(874)
|
|
(235)
|
|
(1,211)
|
|
Non-GAAP Net
Income
|
$
2,201
|
|
$
1,425
|
|
$
6,470
|
|
$
2,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted
Earnings Per Share
|
$
0.14
|
|
$
(0.01)
|
|
$
0.52
|
|
$
0.08
|
|
Non-GAAP Diluted
Earnings Per Share
|
$
0.20
|
|
$
0.13
|
|
$
0.58
|
|
$
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
GAAP Diluted
Shares
|
11,217
|
|
10,730
|
|
11,153
|
|
9,670
|
|
Non-GAAP Diluted
Shares
|
11,217
|
|
10,730
|
|
11,153
|
|
9,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MASTECH DIGITAL,
INC.
|
SUPPLEMENTAL
FINANCIAL INFORMATION
|
(Amounts in
thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
September 30,
|
|
Nine Months ended
September 30,
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
IT staffing
services
|
$
38,505
|
|
$
35,159
|
|
$
114,077
|
|
$
103,345
|
|
Data and analytics
services
|
5,787
|
|
4,069
|
|
18,442
|
|
4,069
|
|
|
Total
revenues
|
$
44,292
|
|
$
39,228
|
|
$
132,519
|
|
$
107,414
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
%:
|
|
|
|
|
|
|
|
|
IT staffing
services
|
21.1%
|
|
20.0%
|
|
20.9%
|
|
19.6%
|
|
Data and analytics
services
|
44.5%
|
|
44.2%
|
|
43.7%
|
|
44.2%
|
|
|
Total gross margin
%
|
24.2%
|
|
22.5%
|
|
24.0%
|
|
20.6%
|
|
|
|
|
|
|
|
|
|
|
Segment Operating
Income:
|
|
|
|
|
|
|
|
|
IT staffing
services
|
$
1,854
|
|
$
1,520
|
|
$
5,437
|
|
$
3,577
|
|
Data and analytics
services
|
1,325
|
|
1,060
|
|
4,511
|
|
1,060
|
|
|
Subtotal
|
3,179
|
|
2,580
|
|
9,948
|
|
4,637
|
|
|
|
|
|
|
|
|
|
|
Acquisition
transaction expenses
|
-
|
|
(1,754)
|
|
140
|
|
(2,019)
|
Amortization of
acquired intangible assets
|
(673)
|
|
(611)
|
|
(2,055)
|
|
(1,018)
|
Goodwill
impairment
|
-
|
|
-
|
|
(7,738)
|
|
-
|
Revaluation of
contingent consideration liability
|
-
|
|
-
|
|
9,106
|
|
-
|
Interest expense and
other, net
|
(427)
|
|
(450)
|
|
(1,546)
|
|
(637)
|
Income (loss)
before income taxes
|
$
2,079
|
|
$
(235)
|
|
$
7,855
|
|
$
963
|
|
|
|
|
|
|
|
|
|
|
For more information, contact:
Donna Kijowski
Manager, Investor Relations
Mastech Digital, Inc.
+1-888-330-5497
View original
content:http://www.prnewswire.com/news-releases/mastech-digital-reports-13-revenue-growth-in-third-quarter-2018-300741122.html
SOURCE Mastech Digital, Inc.