The IT Staffing Services Segment Achieved 4%
Sequential Revenue Growth during the Quarter
PITTSBURGH, Nov. 2, 2022
/PRNewswire/ -- Mastech Digital, Inc. (NYSE American: MHH), a
leading provider of Digital Transformation IT Services, announced
today its financial results for the third quarter ending
September 30, 2022.
Third Quarter 2022 Financial Highlights:
- The Company delivered consolidated revenues of $63.2 million in the third quarter of 2022, which
represented organic growth of 6% over revenues of $59.5 million in the 2021 third quarter;
- The Company's Data and Analytics Services segment reported
revenues of $10.1 million, a decline
of $0.4 million over last year's
$10.5 million;
- The IT Staffing Services segment achieved revenues of
$53.1 million, an increase of
$4.1 million or 8% over last year's
$49.0 million;
- GAAP diluted earnings per share was $0.20 in the third quarter of 2022 compared to
$0.28 in the third quarter of 2021;
and
- Non-GAAP diluted earnings per share was $0.33 in the third quarter of 2022 compared to
$0.38 in the 2021 third quarter.
Third Quarter 2022 Results:
Revenues for the third quarter of 2022 totaled $63.2 million compared to $59.5 million during the corresponding quarter of
2021. Gross profits in the third quarter of 2022 declined
year-over-year by $0.3 million to
$16.3 million due to a revenue
shortfall and a fixed price project over-run in the Data and
Analytics Services segment. GAAP net income for the third quarter
of 2022 totaled $2.4 million or
$0.20 per diluted share, compared to
$3.4 million or $0.28 per diluted share during the same period of
2021. Non-GAAP net income for the third quarter of 2022 was
$4.0 million or $0.33 per diluted share, compared to $4.6 million or $0.38 per diluted share in the third quarter of
2021.
Third quarter 2022 GAAP net income was impacted by two pre-tax
charges booked during the quarter which totaled $570,000. First, we experienced a cyber-security
breach of a single employee email account for which we reserved
$450,000 related to the costs of
engaging cyber-security advisors to assist us in properly closing
this matter and for other potential losses associated with the
breach. Also, during the quarter, we made a decision in the Data
and Analytics Services segment to close our underperforming
operations in Singapore and
Ireland and to rationalize our
operating cost structure in the UK. Accordingly, we reserved
$120,000 of severance expense related
to these actions.
Activity levels at the Company's Data and Analytics Services
segment were down from the previous quarter as bookings were light
and new pipeline opportunities were below expectations.
Accordingly, Data and Analytics revenues underperformed and gross
margins declined due to low utilization and a $0.3 million cost over-run on a fixed price
project – our first such over-run since 2018. Demand for the
Company's IT Staffing Services segment showed some weakness in
assignment starts compared to the previous quarter. Additionally,
project ends remained elevated during the quarter, which resulted
in a decline of 30-consultants on billing.
Commenting on third quarter financial results, Vivek Gupta, the Company's President and Chief
Executive Officer stated,
"Both of our business segments came
under a bit of stress during the quarter. Our Data & Analytics
Services segment was unable to fully deploy the second quarter
ramp-up of billable resources, resulting in lower revenues and
sub-par utilization. There was also a project cost over-run that
impacted our gross margin performance in this segment. Our IT
Staffing segment, on the other hand, delivered positive financial
results in third quarter, although we did experience some decline
in staffing demand as we've seen customers controlling their
staffing spend in anticipation of potential recessionary
conditions."
Addressing the cyber-security breach, Mr. Gupta said, "Thankfully our investigation of the matter
revealed that only two clients were impacted by the breach, and the
majority of our pre-tax reserve was for cyber-security expertise
expense to help with containment and compliance action steps."
Addressing the Company's financial position, Jack Cronin, the Company's Chief Financial
Officer, stated, "On September 30, 2022 we had cash balances on hand
of $3.5 million, outstanding bank
debt of approximately $2.2 million,
no borrowings under our revolving credit facility, and cash
availability of $36.4 million,
excluding our term loan accordion feature which can provide us with
additional term-loan capacity of up to another $20 million. During the third quarter 2022, we
elected to early-pay $7.6 million of
our outstanding term loan with excess cash balances."
About Mastech Digital, Inc.:
Mastech Digital, Inc. (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, Europe 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,
our July 2017 acquisition of the
services division of InfoTrellis, Inc. and our October 2020 acquisition of AmberLeaf Partners.
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.
Severance charges: From time to time, we incur severance
expense related to the termination by the Company of leadership and
other key personnel. 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.
Cyber-security breach: In July
2022, we incurred a cyber-security breach of a single
employee email, which resulted in potential damages and the
incurrence of expenses related to the engagement of cyber-security
experts to assist with containment and compliance action steps
associated with appropriate closure of incident. While there are no
guarantees that other security breaches will not occur in the
future, we believe that providing non-GAAP financial measures that
exclude these expenses is useful for investors to understand the
effects of these items on our total operating expenses and
facilitates comparison of our results with other
periods.
Contingent consideration liability revaluation: In
connection with the AmberLeaf acquisition, the Company was required
to pay future consideration contingent upon the achievement of
specific financial objectives. As of the acquisition date, the
Company recorded a contingent consideration liability representing
the estimated fair value of the contingent consideration that was
expected to be paid. In the second quarter of 2021, this contingent
consideration liability was reduced by $2.0
million to $900,000, and in
the fourth quarter of 2021 the liability was reduced to
$0, after the Company determined that
relevant conditions for the payment of such liability were unlikely
to be satisfied. We believe that providing non-GAAP financial
measures that exclude these adjustments to expense is useful for
investors to understand the effects of these items on our total
operating expenses and facilitates 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 projections of and statements regarding the Company's
ability to generate revenues, earnings, and cash flow. 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
forecasted in forward-looking statements due to a variety of
factors, including, without limitation, the level of market demand
for the Company's 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, the
Company's ability to create, acquire and build new lines of
business, to attract and retain qualified personnel, reduce costs
and conserve cash, the extent to which the Company's business is
adversely affected by the impacts of the COVID-19 pandemic and
governmental responses to limit the further spread of COVID-19 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,
2021.
For more information, contact:
Donna Kijowski
Manager, Investor Relations
Mastech Digital, Inc.
888.330.5497
MASTECH DIGITAL,
INC.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Amounts in
thousands)
|
(Unaudited)
|
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
|
2022
|
|
2021
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
3,482
|
|
$
6,622
|
Accounts receivable,
net
|
|
50,440
|
|
43,393
|
Prepaid and other current
assets
|
|
3,833
|
|
3,890
|
Total current assets
|
|
57,755
|
|
53,905
|
|
|
|
|
|
Equipment, enterprise
software and leasehold improvements, net
|
|
2,981
|
|
3,038
|
|
|
|
|
|
Operating lease
right-of-use assets
|
|
4,263
|
|
4,894
|
|
|
|
|
|
Deferred financing
costs, net
|
|
311
|
|
-
|
Non-current
deposits
|
|
571
|
|
595
|
|
|
|
|
|
Goodwill, net of
impairment
|
|
32,510
|
|
32,510
|
|
|
|
|
|
Intangible assets, net
of amortization
|
|
16,385
|
|
18,760
|
Total assets
|
|
$
114,776
|
|
$
113,702
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Current portion of long-term
debt
|
|
$
2,200
|
|
$
4,400
|
Current portion of operating
lease liability
|
|
1,500
|
|
1,479
|
Accounts payable
|
|
5,831
|
|
4,954
|
Accrued payroll and related
costs
|
|
15,628
|
|
14,240
|
Other accrued
liabilities
|
|
1,585
|
|
1,771
|
Total current liabilities
|
|
26,744
|
|
26,844
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
Long-term debt, less current portion, net
|
|
-
|
|
8,334
|
Long-term operating lease liability, less current
portion
|
|
2,699
|
|
3,706
|
Long-term accrued income taxes
|
|
105
|
|
125
|
Deferred income taxes
|
|
761
|
|
265
|
Total liabilities
|
|
30,309
|
|
39,274
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
Common stock, par value
$0.01 per share
|
|
133
|
|
131
|
Additional paid-in
capital
|
|
31,814
|
|
28,250
|
Retained earnings
|
|
58,015
|
|
50,841
|
Accumulated other
comprehensive (loss)
|
|
(1,308)
|
|
(607)
|
Treasury stock, at
cost
|
|
(4,187)
|
|
(4,187)
|
Total shareholders' equity
|
|
84,467
|
|
74,428
|
Total liabilities and shareholders' equity
|
|
$
114,776
|
|
$
113,702
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
|
|
|
|
|
|
|
Revenues
|
$
63,150
|
|
$
59,531
|
|
$
185,022
|
|
$
162,964
|
|
|
|
|
|
|
|
|
Cost of
revenues
|
46,863
|
|
42,911
|
|
136,057
|
|
119,225
|
|
|
|
|
|
|
|
|
Gross profit
|
16,287
|
|
16,620
|
|
48,965
|
|
43,739
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses:
|
|
|
|
|
|
|
|
Operating
expenses
|
12,930
|
|
11,645
|
|
38,753
|
|
33,566
|
Revaluation of contingent consideration liability
|
-
|
|
-
|
|
-
|
|
(1,982)
|
Total selling, general
and administrative expenses
|
12,930
|
|
11,645
|
|
38,753
|
|
31,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
3,357
|
|
4,975
|
|
10,212
|
|
12,155
|
|
|
|
|
|
|
|
|
Other income/(expense),
net
|
-
|
|
(235)
|
|
8
|
|
(611)
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
3,357
|
|
4,740
|
|
10,220
|
|
11,544
|
|
|
|
|
|
|
|
|
Income tax
expense
|
951
|
|
1,334
|
|
3,046
|
|
3,206
|
Net income
|
$
2,406
|
|
$
3,406
|
|
$
7,174
|
|
$
8,338
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
|
$
0.21
|
|
$
0.30
|
|
$
0.62
|
|
$
0.73
|
Diluted
|
$
0.20
|
|
$
0.28
|
|
$
0.59
|
|
$
0.69
|
|
|
|
|
|
|
|
|
Weighted average
common shares
outstanding:
|
|
|
|
|
|
|
|
Basic
|
11,616
|
|
11,441
|
|
11,578
|
|
11,430
|
Diluted
|
12,084
|
|
12,025
|
|
12,082
|
|
12,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net
Income
|
$
2,406
|
|
$
3,406
|
|
$
7,174
|
|
$
8,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
Amortization of
acquired intangible assets
|
791
|
|
792
|
|
2,375
|
|
2,378
|
|
|
|
Stock-based
compensation
|
776
|
|
693
|
|
2,054
|
|
2,071
|
|
|
|
Revaluation of
contingent consideration liability
|
-
|
|
-
|
|
-
|
|
(1,982)
|
|
|
|
Reserve for
cyber-security breach
|
450
|
|
-
|
|
450
|
|
-
|
|
|
|
Severance
expense
|
120
|
|
-
|
|
120
|
|
-
|
|
|
|
Income tax
adjustments
|
(508)
|
|
(323)
|
|
(1,254)
|
|
(567)
|
|
|
Non-GAAP Net
Income
|
$
4,035
|
|
$
4,568
|
|
$
10,919
|
|
$
10,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted
Earnings Per Share
|
$
0.20
|
|
$
0.28
|
|
$
0.59
|
|
$
0.69
|
|
|
Non-GAAP Diluted
Earnings Per Share
|
$
0.33
|
|
$
0.38
|
|
$
0.90
|
|
$
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
GAAP Diluted
Shares
|
12,084
|
|
12,025
|
|
12,082
|
|
12,007
|
|
|
Non-GAAP Diluted
Shares
|
12,084
|
|
12,025
|
|
12,082
|
|
12,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MASTECH DIGITAL,
INC.
|
SUPPLEMENTAL
FINANCIAL INFORMATION
|
(Amounts in
thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
September 30,
|
|
Nine Months ended
September 30,
|
|
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Data and analytics
services
|
$
10,076
|
|
$
10,523
|
|
$
31,478
|
|
$
28,267
|
|
IT staffing
services
|
53,074
|
|
49,008
|
|
153,544
|
|
134,697
|
|
|
Total
revenues
|
$
63,150
|
|
$
59,531
|
|
$
185,022
|
|
$
162,964
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
%:
|
|
|
|
|
|
|
|
|
Data and analytics
services
|
39.6 %
|
|
51.6 %
|
|
42.8 %
|
|
48.2 %
|
|
IT staffing
services
|
23.2 %
|
|
22.8 %
|
|
23.1 %
|
|
22.4 %
|
|
|
Total gross margin
%
|
25.8 %
|
|
27.9 %
|
|
26.5 %
|
|
26.8 %
|
|
|
|
|
|
|
|
|
|
|
Segment Operating
Income:
|
|
|
|
|
|
|
|
|
Data and analytics
services
|
$
826
|
|
$
1,851
|
|
$
2,615
|
|
$
3,014
|
|
IT staffing
services
|
3,892
|
|
3,916
|
|
10,542
|
|
9,537
|
|
|
Subtotal
|
4,718
|
|
5,767
|
|
13,157
|
|
12,551
|
|
|
|
|
|
|
|
|
|
|
Amortization of
acquired intangible assets
|
(791)
|
|
(792)
|
|
(2,375)
|
|
(2,378)
|
Revaluation of
contingent consideration liability
|
-
|
|
-
|
|
-
|
|
1,982
|
Reserve for
cyber-security breach
|
(450)
|
|
-
|
|
(450)
|
|
-
|
Severance
expense
|
(120)
|
|
-
|
|
(120)
|
|
-
|
Interest expense and
other, net
|
-
|
|
(235)
|
|
8
|
|
(611)
|
Income before income
taxes
|
$
3,357
|
|
$
4,740
|
|
$
10,220
|
|
$
11,544
|
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Logo:
https://mma.prnewswire.com/media/1039524/Mastech_Digital_Logo.jpg
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content:https://www.prnewswire.com/news-releases/mastech-digital-reports-6-increase-in-revenues-in-the-third-quarter-2022-301665975.html
SOURCE Mastech Digital, Inc.