PITTSBURGH, Oct. 29, 2019 /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,
2019.
Third Quarter 2019 Highlights:
- Total revenues increased 12% to $49.5
million, compared to revenues of $44.3 million in the 2018 third quarter;
- The Company's data and analytics services segment reported
record quarterly revenues for the second consecutive quarter;
Revenues of $7.1 million, represented
22% growth over the same quarter last year and a 6% sequential
increase over Q-2 2019;
- The IT staffing segment achieved revenue growth of 10% compared
to the third quarter of 2018; Consultant headcount increased by 84
consultants, the Company's largest quarterly increase since going
public in 2008;
- GAAP diluted earnings per share were $0.17 in the third quarter of 2019 versus
$0.14 in the 2018 third quarter;
- Non-GAAP diluted earnings per share were $0.23 in the third quarter of 2019 versus
$0.20 in the 2018 third quarter;
- Bank debt was reduced by $5.8
million during the quarter.
Third Quarter Results:
Revenues for the third quarter of 2019 totaled $49.5 million compared to $44.3 million during the corresponding quarter
last year. Gross profits in the third quarter of 2019 were
$12.3 million, compared to
$10.7 million in the same quarter of
2018. GAAP net income for the third quarter of 2019 totaled
$1.9 million or $0.17 per diluted share, compared to $1.6 million or $0.14 per diluted share during the same period
last year. Non-GAAP net income for the third quarter of 2019
was $2.6 million or $0.23 per diluted share, compared to $2.2 million or $0.20 per diluted share in the third quarter of
2018. Activity levels at both of the Company's business
segments were strong during the quarter.
Commenting on the quarterly performance, Vivek Gupta, President and CEO, Mastech Digital,
said, "This clearly has been our best quarter in many ways. I am
pleased with the performance of both our business units. Our data
and analytics segment reported record revenues, with an expanded
pipeline and strong gross margins of 46%. Despite investments made
to our operating cost structure, we saw a 15% improvement in our
year-on-year operating profits. We continue to grow faster than the
industry average in our IT staffing business, with a revenue growth
of 10%, operating profit growing at 13% and with expanded gross
margins, on a year-on-year basis."
Commenting on the Company's financial position, Jack Cronin, Mastech Digital's Chief Financial
Officer, stated, "During the quarter, we reduced bank debt by
$5.8 million. For the nine
months ended September 30, 2019, we
lowered bank debt by $11.7 million
with cash flows generated from operations. At quarter-end, we had
approximately $17.2 million of
borrowing capacity available to us under our revolving credit
line."
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, 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 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 and 2019 periods, we recorded
reductions in acquisition-related transaction expense due to
revised estimates 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 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 and 2018, this contingent
consideration liability was reduced by $6.1
million and $9.1 million,
respectively, after determining that relevant conditions for
payment of such liability were unlikely to be fully satisfied. We
believe that providing non-GAAP financial measures that exclude
these adjustments 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 is 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 reductions to contingent
consideration related to the InfoTrellis acquisition, we performed
a quantitative impairment tests on June 30,
2019 and June 30, 2018.
The results of this testing indicated no impairment of goodwill in
2019 and a $7.7 million impairment
associated with the carrying value of goodwill in 2018. 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,
2018.
MASTECH DIGITAL,
INC.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Amounts in
thousands)
|
(Unaudited)
|
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
1,963
|
|
$
1,294
|
Accounts receivable,
net
|
|
34,960
|
|
38,080
|
Prepaid and other current
assets
|
|
1,392
|
|
1,321
|
Total current assets
|
|
38,315
|
|
40,695
|
|
|
|
|
|
Equipment, enterprise
software and leasehold improvements, net
|
|
2,534
|
|
2,208
|
|
|
|
|
|
Operating lease
right-of-use assets
|
|
4,993
|
|
-
|
|
|
|
|
|
Deferred income
taxes
|
|
-
|
|
297
|
|
|
|
|
|
Non-current
deposits
|
|
410
|
|
540
|
|
|
|
|
|
Goodwill, net of
impairment
|
|
26,106
|
|
26,106
|
|
|
|
|
|
Intangible assets,
net
|
|
20,721
|
|
22,738
|
Total assets
|
|
$
93,079
|
|
$
92,584
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Current portion of long-term
debt
|
|
$
4,575
|
|
$
4,575
|
Current portion of operating
lease liability
|
|
1,407
|
|
-
|
Accounts payable
|
|
4,359
|
|
4,127
|
Accrued payroll and related
costs
|
|
9,828
|
|
7,728
|
Other accrued
liabilities
|
|
1,575
|
|
1,476
|
Total current liabilities
|
|
21,744
|
|
17,906
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
Long-term debt, less current portion, net
|
|
22,547
|
|
34,129
|
Contingent consideration liability
|
|
-
|
|
6,069
|
Long-term operating lease liability, less current
portion
|
|
3,686
|
|
-
|
Long-term accrued income taxes
|
|
204
|
|
204
|
Deferred income taxes
|
|
1,082
|
|
-
|
Total liabilities
|
|
49,263
|
|
58,308
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
Common stock, par value
$0.01 per share
|
|
127
|
|
126
|
Additional paid-in
capital
|
|
21,700
|
|
20,829
|
Retained earnings
|
|
26,485
|
|
17,614
|
Accumulated other
comprehensive income (loss)
|
|
(309)
|
|
(119)
|
Treasury stock, at
cost
|
|
(4,187)
|
|
(4,174)
|
Total shareholders' equity
|
|
43,816
|
|
34,276
|
Total liabilities and shareholders' equity
|
|
$
93,079
|
|
$
92,584
|
|
|
|
|
|
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,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Revenues
|
$
49,543
|
|
$
44,292
|
|
$
143,214
|
|
$
132,519
|
|
|
|
|
|
|
|
|
Cost of
revenues
|
37,214
|
|
33,582
|
|
107,996
|
|
100,656
|
|
|
|
|
|
|
|
|
Gross
profit
|
12,329
|
|
10,710
|
|
35,218
|
|
31,863
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
9,259
|
|
8,204
|
|
21,699
|
|
22,462
|
|
|
|
|
|
|
|
|
Income from
operations
|
3,070
|
|
2,506
|
|
13,519
|
|
9,401
|
|
|
|
|
|
|
|
|
Other
income/(expense), net
|
(380)
|
|
(427)
|
|
(1,441)
|
|
(1,546)
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
2,690
|
|
2,079
|
|
12,078
|
|
7,855
|
|
|
|
|
|
|
|
|
Income tax
expense
|
741
|
|
459
|
|
3,207
|
|
2,038
|
Net income
|
$
1,949
|
|
$
1,620
|
|
$
8,871
|
|
$
5,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
|
|
|
|
Basic
|
$
0.18
|
|
$
0.15
|
|
$
0.80
|
|
$
0.53
|
Diluted
|
$
0.17
|
|
$
0.14
|
|
$
0.79
|
|
$
0.52
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
11,039
|
|
10,966
|
|
11,022
|
|
10,938
|
Diluted
|
11,205
|
|
11,217
|
|
11,198
|
|
11,153
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net
Income
|
$
1,949
|
|
$
1,620
|
|
$
8,871
|
|
$
5,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
Amortization of
acquired intangible assets
|
673
|
|
673
|
|
2,017
|
|
2,055
|
|
|
|
Stock-based
compensation
|
263
|
|
116
|
|
766
|
|
341
|
|
|
|
Reduction of
acquisition transaction expenses
|
(110)
|
|
-
|
|
(110)
|
|
(140)
|
|
|
|
Goodwill
impairment
|
-
|
|
-
|
|
-
|
|
7,738
|
|
|
|
Revaluation of
contingent consideration liability
|
-
|
|
-
|
|
(6,069)
|
|
(9,106)
|
|
|
|
Income taxes
adjustments
|
(225)
|
|
(208)
|
|
885
|
|
(235)
|
|
|
Non-GAAP Net
Income
|
$
2,550
|
|
$
2,201
|
|
$
6,360
|
|
$
6,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted
Earnings Per Share
|
$
0.17
|
|
$
0.14
|
|
$
0.79
|
|
$
0.52
|
|
|
Non-GAAP Diluted
Earnings Per Share
|
$
0.23
|
|
$
0.20
|
|
$
0.57
|
|
$
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
GAAP Diluted
Shares
|
11,205
|
|
11,217
|
|
11,198
|
|
11,153
|
|
|
Non-GAAP Diluted
Shares
|
11,205
|
|
11,217
|
|
11,198
|
|
11,153
|
|
|
|
|
|
|
|
|
|
|
|
|
MASTECH DIGITAL,
INC.
|
SUPPLEMENTAL
FINANCIAL INFORMATION
|
(Amounts in
thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
September 30,
|
|
Nine Months ended
September 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Data and analytics
services
|
$
7,080
|
|
$
5,787
|
|
$
19,502
|
|
$
18,442
|
|
IT staffing
services
|
42,463
|
|
38,505
|
|
123,712
|
|
114,077
|
|
|
Total
revenues
|
$
49,543
|
|
$
44,292
|
|
$
143,214
|
|
$
132,519
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
%:
|
|
|
|
|
|
|
|
|
Data and analytics
services
|
45.7%
|
|
44.5%
|
|
45.8%
|
|
43.7%
|
|
IT staffing
services
|
21.4%
|
|
21.1%
|
|
21.3%
|
|
20.9%
|
|
|
Total gross margin
%
|
24.9%
|
|
24.2%
|
|
24.6%
|
|
24.0%
|
|
|
|
|
|
|
|
|
|
|
Segment Operating
Income:
|
|
|
|
|
|
|
|
|
Data and analytics
services
|
$
1,530
|
|
$
1,325
|
|
$
3,856
|
|
$
4,511
|
|
IT staffing
services
|
2,103
|
|
1,854
|
|
5,501
|
|
5,437
|
|
|
Subtotal
|
3,633
|
|
3,179
|
|
9,357
|
|
9,948
|
|
|
|
|
|
|
|
|
|
|
Reduction of
acquisition transaction expenses
|
110
|
|
-
|
|
110
|
|
140
|
Amortization of
acquired intangible assets
|
(673)
|
|
(673)
|
|
(2,017)
|
|
(2,055)
|
Goodwill
impairment
|
-
|
|
-
|
|
-
|
|
(7,738)
|
Revaluation of
contingent consideration liability
|
-
|
|
-
|
|
6,069
|
|
9,106
|
Interest expense and
other, net
|
(380)
|
|
(427)
|
|
(1,441)
|
|
(1,546)
|
Income before
income taxes
|
$
2,690
|
|
$
2,079
|
|
$
12,078
|
|
$
7,855
|
|
|
|
|
|
|
|
|
|
|
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-12-organic-revenue-growth-in-third-quarter-2019-300946952.html
SOURCE Mastech Digital, Inc.