PITTSBURGH, Pennsylvania,
Feb. 12, 2019 /PRNewswire/ -- Mastech
Digital, Inc. (NYSE American: MHH), a leading provider of Digital
Transformation IT Services, announced today its financial results
for the fourth quarter and full year ended December 31, 2018.
Fourth Quarter 2018 Highlights:
- Revenues increased 10% to $44.6
million, compared to revenues of $40.5 million in the 2017 fourth quarter;
- The Company's data and analytics services segment, acquired on
July 13, 2017, reported revenues of
$5.4 million, compared to revenues of
$5.1 million in the corresponding
quarter of 2017;
- The IT staffing segment achieved organic revenue growth of 11%
during the fourth quarter of 2018, compared to the fourth quarter
of 2017;
- The number of billable consultants at year-end 2018 grew to
1,100 in the Company's IT staffing services segment - 12% higher
than year-end 2017;
- GAAP diluted earnings per share were $0.08 versus $0.08
in the 2017 fourth quarter;
- Non-GAAP diluted earnings per share were $0.16 versus $0.16
in the 2017 fourth quarter.
Fourth Quarter Results:
Revenues for the fourth quarter of 2018 totaled $44.6 million, compared to $40.5 million during the corresponding quarter
last year. Gross profit in the fourth quarter of 2018 was
$10.7 million, compared to
$9.5 million in the same quarter of
2017. GAAP net income for the fourth quarter of 2018 totaled
$874,000 or $0.08 per diluted share, compared to $865,000 or $0.08
per diluted share during the same period last year. Non-GAAP
net income for the fourth quarter of 2018 was $1.8 million or $0.16 per diluted share, compared to $1.7 million or $0.16 per diluted share in the fourth quarter of
2017.
Activity levels at the Company's data and analytics services
segment were up from the previous quarter, and revenues for the
fourth quarter of 2018 improved by $245,000 over revenues reported in the fourth
quarter of 2017. Demand for the Company's IT staffing services
remained strong during the quarter and more than offset the
expected higher level of seasonal assignment ends that the Company
experiences during the fourth quarter.
Full Year Results:
Revenues for the full year 2018 totaled $177.2 million, compared to $147.9 million in 2017. Top-line growth
reflected the July 2017 acquisition
of the services division of Canada-based InfoTrellis, Inc and 11% organic
growth in our IT staffing segment. Gross profit for 2018 totaled
$42.5 million or 24.0% of total
revenues, compared to $31.6 million
or 21.4% of total revenues in 2017. GAAP net income for 2018
totaled $6.7 million or $0.60 per diluted share, compared to $1.6 million or $0.16 per diluted share in 2017. Non-GAAP
net income for 2018 totaled $8.2
million or $0.74 per diluted
share, compared to $4.6 million or
$0.46 per diluted share one year
earlier. Segment operating income for the full year 2018 totaled
$5.7 million in the Company's data
and analytics services segment and $7.2
million in the Company's IT staffing services segment,
compared to $2.5 million and
$5.3 million in those respective
segments in 2017.
"I am very pleased with Mastech Digital's performance in the
fourth quarter as well as the full year 2018," commented
Vivek Gupta, Mastech Digital's
President and Chief Executive Officer. "We continue to make good
progress in our mission of becoming a leading provider of digital
transformation services. Our data and analytics services segment
did well during the fourth quarter in terms of both pipeline growth
and project wins. Investments made in our sales organization during
the year are starting to bear fruit when we look at fourth quarter
activity levels. Our IT staffing services segment delivered great
results in the fourth quarter - as revenues grew by 11%; gross
margins expanded by 60 basis points; and profitability improved
largely as a result of our focus on digital technologies," he
added.
Commenting on the Company's financial position, Jack Cronin, Mastech Digital's Chief Financial
Officer, stated, "At December 31,
2018 we had bank debt, net of cash balances on hand, of
$37.8 million and approximately
$9 million of borrowing capacity
available to us under our revolving credit line. During the
quarter, debt levels declined by $3.6
million, as we made progress on cash conversion matters
related to the implementation of our new Cloud-based ERP
platform."
Key Recognitions during the Fourth Quarter 2018:
Mastech Digital was awarded the TechServe Alliance Excellence
Award for excellence in IT staffing services. The Company won this
award for the second year in a row. Additionally, Mastech Digital's
President and Chief Executive Officer, Vivek Gupta was honored with the 2018 Pittsburgh
Smart 50 Award. He was recognized by Smart Business and
Gallagher as a top innovator and
leader in the region.
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 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. 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.
Contingent consideration liability write-down: 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
2018, this contingent consideration liability was reduced by
$11.1 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 and again on December 31, 2018. The results of these
tests indicated $9.7 million of
impairments associated with the carrying value of
goodwill. 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.
Estimated charge related to U.S. tax reform: We incurred an
estimated one-time, non-cash charge of $372,000 in the fourth quarter of 2017 related to
the enactment of the Tax Cut and Jobs Act of 2017 (U. S. Tax
Reform). This charge is related to the re-measurement of the
Company's deferred tax assets arising from a lower U.S. corporate
tax rate and a one-time transition tax applicable to the new
dividend-exemption system related to foreign earnings. In the
fourth quarter of 2018, we finalized our 2017 estimated charge for
this tax enactment, which required us to recognize an additional
charge of $251,000.
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.
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)
|
|
|
|
|
|
|
December
31,
|
|
December
31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
1,294
|
|
$
2,478
|
Accounts receivable,
net
|
|
38,080
|
|
30,662
|
Prepaid and other current
assets
|
|
1,529
|
|
1,533
|
Total current assets
|
|
40,903
|
|
34,673
|
|
|
|
|
|
Equipment, enterprise
software and leasehold improvements, net
|
|
2,208
|
|
1,899
|
|
|
|
|
|
Deferred income
taxes
|
|
89
|
|
468
|
|
|
|
|
|
Non-current
deposits
|
|
540
|
|
255
|
|
|
|
|
|
Goodwill
|
|
26,106
|
|
35,844
|
|
|
|
|
|
Intangible assets,
net
|
|
22,738
|
|
25,465
|
Total assets
|
|
$
92,584
|
|
$
98,604
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Current portion of long-term
debt
|
|
$
4,575
|
|
$
4,003
|
Accounts payable
|
|
4,127
|
|
5,028
|
Accrued payroll and related
costs
|
|
7,728
|
|
8,969
|
Other accrued
liabilities
|
|
1,476
|
|
2,109
|
Total current liabilities
|
|
17,906
|
|
20,109
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
Long-term debt, less current portion, net
|
|
34,129
|
|
34,149
|
Contingent consideration liability
|
|
6,069
|
|
17,125
|
Long-term accrued income taxes
|
|
204
|
|
68
|
Total liabilities
|
|
58,308
|
|
71,451
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
Common stock, par value
$0.01 per share
|
|
126
|
|
126
|
Additional paid-in
capital
|
|
20,829
|
|
20,241
|
Retained earnings
|
|
17,614
|
|
10,923
|
Accumulated other
comprehensive income (loss)
|
|
(119)
|
|
17
|
Treasury stock, at
cost
|
|
(4,174)
|
|
(4,154)
|
Total shareholders' equity
|
|
34,276
|
|
27,153
|
Total liabilities and shareholders' equity
|
|
$
92,584
|
|
$
98,604
|
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,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
Revenues
|
$
44,645
|
|
$
40,468
|
|
$
177,164
|
|
$
147,882
|
|
|
|
|
|
|
|
|
Cost of
revenues
|
33,980
|
|
30,943
|
|
134,636
|
|
116,253
|
|
|
|
|
|
|
|
|
Gross
profit
|
10,665
|
|
9,525
|
|
42,528
|
|
31,629
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
8,441
|
|
7,044
|
|
30,903
|
|
27,548
|
|
|
|
|
|
|
|
|
Income from
operations
|
2,224
|
|
2,481
|
|
11,625
|
|
4,081
|
|
|
|
|
|
|
|
|
Other
income/(expense), net
|
(665)
|
|
(496)
|
|
(2,211)
|
|
(1,133)
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
1,559
|
|
1,985
|
|
9,414
|
|
2,948
|
|
|
|
|
|
|
|
|
Income tax
expense
|
685
|
|
1,120
|
|
2,723
|
|
1,322
|
Net
income
|
$
874
|
|
$
865
|
|
$
6,691
|
|
$
1,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
|
|
|
|
Basic
|
$
0.08
|
|
$
0.08
|
|
$
0.61
|
|
$
0.16
|
Diluted
|
$
0.08
|
|
$
0.08
|
|
$
0.60
|
|
$
0.16
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
10,989
|
|
10,918
|
|
10,950
|
|
9,924
|
Diluted
|
11,187
|
|
11,022
|
|
11,161
|
|
9,998
|
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,
|
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net
Income
|
$
874
|
|
$
865
|
|
$
6,691
|
|
$
1,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
Amortization of
acquired intangible assets
|
672
|
|
693
|
|
2,727
|
|
1,711
|
|
|
|
Stock-based
compensation
|
129
|
|
96
|
|
470
|
|
381
|
|
|
|
Acquisition
transaction expenses
|
-
|
|
-
|
|
(140)
|
|
2,019
|
|
|
|
Goodwill
impairment
|
2,000
|
|
-
|
|
9,738
|
|
-
|
|
|
|
Revaluation of
contingent consideration liability
|
(1,950)
|
|
-
|
|
(11,056)
|
|
-
|
|
|
|
Income taxes
adjustments
|
(197)
|
|
(288)
|
|
(432)
|
|
(1,499)
|
|
|
|
Charge related to
U.S. Tax Reform
|
251
|
|
372
|
|
251
|
|
372
|
|
|
Non-GAAP Net
Income
|
$
1,779
|
|
$
1,738
|
|
$
,249
|
|
$
4,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted
Earnings Per Share
|
$
0.08
|
|
$
0.08
|
|
$
0.60
|
|
$
0.16
|
|
|
Non-GAAP Diluted
Earnings Per Share
|
$
0.16
|
|
$
0.16
|
|
$
0.74
|
|
$
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
GAAP Diluted
Shares
|
11,187
|
|
11,022
|
|
11,161
|
|
9,998
|
|
|
Non-GAAP Diluted
Shares
|
11,187
|
|
11,022
|
|
11,161
|
|
9,998
|
|
MASTECH DIGITAL, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Amounts in
thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
December 31,
|
|
Year ended
December 31,
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
IT staffing
services
|
$
39,284
|
|
$
35,352
|
|
$
153,361
|
|
$
138,697
|
|
Data and analytics
services
|
5,361
|
|
5,116
|
|
23,803
|
|
9,185
|
|
|
Total
revenues
|
$
44,645
|
|
$
40,468
|
|
$
177,164
|
|
$
147,882
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
%:
|
|
|
|
|
|
|
|
|
IT staffing
services
|
21.0%
|
|
20.4%
|
|
20.9%
|
|
19.8%
|
|
Data and analytics
services
|
45.2%
|
|
45.3%
|
|
44.0%
|
|
44.8%
|
|
|
Total gross margin
%
|
23.9%
|
|
23.5%
|
|
24.0%
|
|
21.4%
|
|
|
|
|
|
|
|
|
|
|
Segment Operating
Income:
|
|
|
|
|
|
|
|
|
IT staffing
services
|
$
1,747
|
|
$
1,703
|
|
$
7,184
|
|
$
5,280
|
|
Data and analytics
services
|
1,199
|
|
1,471
|
|
5,710
|
|
2,531
|
|
|
Subtotal
|
2,946
|
|
3,174
|
|
12,894
|
|
7,811
|
|
|
|
|
|
|
|
|
|
|
Acquisition
transaction expenses
|
-
|
|
-
|
|
140
|
|
(2,019)
|
Amortization of
acquired intangible assets
|
(672)
|
|
(693)
|
|
(2,727)
|
|
(1,711)
|
Goodwill
impairment
|
(2,000)
|
|
-
|
|
(9,738)
|
|
-
|
Revaluation of
contingent consideration liability
|
1,950
|
|
-
|
|
11,056
|
|
-
|
Interest expense and
other, net
|
(665)
|
|
(496)
|
|
(2,211)
|
|
(1,133)
|
Income
(loss) before income taxes
|
$
1,559
|
|
$
1,985
|
|
$
9,414
|
|
$
2,948
|
View original
content:http://www.prnewswire.com/news-releases/mastech-digital-reports-double-digit-growth-in-fourth-quarter-and-full-year-2018-300793955.html
SOURCE Mastech Digital, Inc.