The discount rate used to calculate the present value of future lease payments was 5.4%.
We recognize rent expense for these leases on a straight-line basis over the lease term. Rental expense for the three months ended
March 31, 2019 and 2018 totaled $0.4 million and $0.3 million, respectively.
5.
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Commitments and Contingencies
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In the ordinary course of our business, the Company is involved in a number of lawsuits and administrative proceedings. While uncertainties are
inherent in the final outcome of these matters, the Companys management believes, after consultation with legal counsel, that the disposition of these proceedings should not have a material adverse effect on our financial position, results of
operations or cash flows.
The Company provides an Employee Retirement Savings Plan (the Retirement Plan) under Section 401(k) of the Internal Revenue
Code of 1986, as amended (the Code), that covers substantially all U.S. based salaried employees. Concurrent with the 2015 acquisition of Hudson IT, the Company expanded employee eligibility under the Retirement Plan to include all U.S.
based
W-2
hourly employees. Employees may contribute a percentage of eligible compensation to the Retirement Plan, subject to certain limits under the Code. For Hudson IT employees enrolled in the Hudson
Employee Retirement Savings Plan under the Code at the acquisition date, the Company provides a matching contribution of 50% of the first 6% of the participants contributed pay, subject to vesting based on the combined tenure with Hudson and
Mastech Digital. For all other employees, the Company did not provide for any matching contributions for the three months ended March 31, 2019 and 2018. Mastech Digitals total contributions to the Retirement Plan for the three months
ended March 31, 2019 and 2018 related to the former Hudson IT employees totaled approximately $19,000 and $21,000, respectively.
7.
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Stock-Based Compensation
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In 2008, the Company adopted a Stock Incentive Plan (the Plan) which, as amended, provides that up to 3,600,000 shares of the
Companys Common Stock shall be allocated for issuance to directors, officers and key personnel. Grants under the Plan can be made in the form of stock options, stock appreciation rights, performance shares or stock awards. During the three
months ended March 31, 2019, the Company granted restricted share units of 16,365 and 498,000 stock option grants at an average strike price of $6.66. Additionally, the Company granted another 55,000 stock options at a strike price of $6.79,
which are contingent upon shareholder approval to increase the number of shares of Common Stock of the Company that may be issued pursuant to the Plan by 300,000 shares, to a total of 3,900,000. Shareholders will vote on this matter at the
Companys Annual Meeting of Shareholders on May 15, 2019. During the three months ended March 31, 2018, the Company granted 25,380 restricted share units and 180,000 stock options at a strike price of $7.46 under the Plan. Exclusive
of the contingent grant referenced above, at March 31, 2019, there were 25,000 shares available for grants under the Plan.
Stock-based compensation expense for the three months ended March 31, 2019 and 2018 was $236,000 and $105,000, respectively, and is
included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.
During the three months
ended March 31, 2019 and 2018, the Company issued 8,460 and 2,226 shares, respectively, related to the vesting of restricted shares and the exercising of stock options.
In October 2018, the Board of Directors of the Company approved the Mastech Digital, Inc. 2019 Employee Stock Purchase Plan (the Stock
Purchase Plan). The Stock Purchase Plan is intended to meet the requirements of Section 423 of the Code and must be approved by the Companys shareholders to be qualified. Under the Stock Purchase Plan, 600,000 shares of Common Stock
(subject to adjustment upon certain changes in the Companys capitalization) are available for purchase by eligible employees who become participants in the Stock Purchase Plan. The purchase price per share is 85% of the lesser of (i) the fair
market value per share of Common Stock on the first day of the offering period, or (ii) the fair market value per share of Common Stock on the last day of the offering period.
The first offering period under the Stock Purchase Plan commenced on January 1, 2019, subject to the approval of the Companys
shareholders. If the Stock Purchase Plan has not been approved by the Companys shareholders at the Companys 2019 Annual Shareholder Meeting (the 2019 Annual Meeting), the Stock Purchase Plan will be treated as having
terminated, and all payroll deductions withheld from the compensation of participants by payroll deduction will be distributed to those participants as soon as reasonably practicable following the 2019 Annual Meeting.
The Company has not issued any shares to participants under the Stock Purchase Plan as of March 31, 2019, and Stock Purchase Plan expense was
immaterial for the three months ended March 31, 2019.
On July 13, 2017, the Company entered into a Credit Agreement (as amended, the Credit Agreement) with PNC Bank, as
administrative agent, swing loan lender and issuing lender, PNC Capital Markets LLC, as sole lead arranger and sole book-runner, and certain financial institution parties thereto as lenders (the Lenders). The Credit Agreement provides
for a total aggregate commitment of $60 million, consisting of (i) a revolving credit facility (the Revolver) in an aggregate principal amount not to exceed $22.5 million (subject to increase by up to an additional
$10 million upon satisfaction of certain conditions); (ii) a $30.5 million term loan facility (the Term Loan); and a (iii) $7.0 million delayed draw term loan facility (the Delayed Draw Term Loan), as more
fully described in the Companys Forms
8-K,
filed with the SEC on July 19, 2017 and April 25, 2018.
The Revolver expires in July 2022 and includes swing loan and letter of credit
sub-limits
in the
aggregate amount not to exceed $5.0 million for swing loans and $5.0 million for letters of credit. Borrowings under the Revolver may be denominated in U.S. dollars or Canadian dollars. The maximum borrowings in U.S. dollars may not exceed
the sum of 85% of eligible U.S. accounts receivable and 60% of eligible U.S. unbilled receivables, less a reserve amount established by the administrative agent. The maximum borrowings in Canadian dollars may not exceed the lesser of (i)
$10.0 million; and (ii) the sum of 85% of eligible Canadian receivables, plus 60% of eligible Canadian unbilled receivables, less a reserve amount established by the administrative agent.
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