Release Details

Mastech Digital Reports Record Third Quarter 2021 Results

October 27, 2021

Achieved 26% Year-over-Year Revenue growth and Sequential Revenue growth of 11%

PITTSBURGH, Oct. 27, 2021 /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, 2021.

Mastech_Digital_Logo

Third Quarter 2021 Highlights:

  • Consolidated revenues totaled a record $59.5 million, a 26% increase over the third quarter 2020, with sequential growth of 11% when compared to the second quarter of 2021;
  • The Company's Data and Analytics Services segment reported record revenues of $10.5 million, representing year-over-year organic growth of 19% and sequential growth of 18% over second quarter 2021, reflecting healthy pipeline activities during the first nine months of 2021;
  • The IT Staffing Services segment reported record revenues of $49 million, an increase of 22% over third quarter of 2020 and representing sequential growth of 10% over second quarter 2021, largely due to a 24% increase in consultants-on-billing achieved during the first nine months of 2021;
  • Consolidated gross margins increased 30 basis points on a year-over-year basis and were 120 basis points higher than in the second quarter of 2021;
  • GAAP diluted earnings per share were $0.28 in the third quarter of 2021 versus $0.25 in the third quarter of 2020;
  • Non-GAAP diluted earnings per share were $0.38 in the third quarter of 2021 versus $0.32 in the third quarter of 2020, and represented an improvement of $0.09 over the second quarter of 2021.

Third Quarter Results: 

Revenues for the third quarter of 2021 totaled $59.5 million, compared to $47.4 million during the corresponding quarter last year.  Gross profits in the third quarter of 2021 were $16.6 million, compared to $13.1 million in the third quarter of 2020. GAAP net income for the third quarter of 2021 totaled $3.4 million or $0.28 per diluted share, compared to $3.0 million or $0.25 per diluted share during the same period last year.  Non-GAAP net income for the third quarter of 2021 was $4.6 million or $0.38 per diluted share, compared to $3.8 million or $0.32 per diluted share in the third quarter of 2020.

Activity levels at the Company's Data and Analytics Services segment remained strong during the quarter and are reflected in our record revenue performance during the quarter.  Demand for the Company's IT Staffing Services segment continued to be strong, resulting in record revenues of $49.0 million in this segment during the quarter.  

Vivek Gupta, the Company's President and Chief Executive Officer stated "The financial results for the third quarter reflect one of the Company's strongest quarters since going public in 2008.  I am very pleased with the performance of both of our business units. Our data and analytics segment reported record revenues, with an expanded pipeline and strong gross margins of 51.6%. In our IT staffing business, we continued to grow faster than the industry average with a billing headcount increase of 5% in the quarter and revenue growth of 22% on a year-on-year basis.  I'm confident that both of our segments will enter 2022 with strong momentum."

Further commenting on the Data & Analytics segment, Paul Burton, the Chief Executive of the Company's Data & Analytics Services segment, said "I'm excited about our record revenue performance in the third quarter and the opportunities that we see for the business in the fourth quarter and during 2022.   In addition to strong organic growth, having the financial capacity to execute on potential inorganic opportunities in the marketplace is an important aspect of our overall business strategy for the future." 

Commenting on the Company's financial position, Jack Cronin, Mastech Digital's Chief Financial Officer, stated, "At September 30, 2021, we had cash balances on hand of $5.4 million, outstanding bank debt of approximately $14 million, no borrowings under our revolving credit facility, and cash availability of $30 million."

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, EMEA, India and ASEAN.

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.

Contingent consideration liability revaluation: In connection with the AmberLeaf acquisition, the Company may be required to pay future consideration that is 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 such 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, after the Company determined that relevant conditions for the 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.

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) statements regarding the expected benefits to the Company from the completion of the AmberLeaf acquisition and the expected performance of Mastech Digital following completion of this transaction.  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, 2020.

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,

  

2021

 

2020

     

ASSETS

    

Current assets:

    

     Cash and cash equivalents 

 

$                        5,447

 

$                       7,677

     Accounts receivable, net 

 

45,375

 

32,134

     Prepaid and other current assets

 

4,171

 

1,346

           Total current assets

 

54,993

 

41,157

     

Equipment, enterprise software and leasehold improvements, net

 

2,201

 

1,971

Operating lease right-of-use assets

 

5,229

 

3,286

Non-current deposits

 

597

 

396

Deferred income taxes

 

-

 

796

Goodwill, net of impairment

 

32,510

 

32,510

Intangible assets, net

 

19,552

 

21,930

           Total  assets

 

$                 115,082

 

$                102,046

     

LIABILITIES AND SHAREHOLDERS' EQUITY

    

Current liabilities:

    

     Current portion of long-term debt

 

$                        4,400

 

$                       4,400

     Current portion of operating lease liability

 

1,494

 

1,079

     Accounts payable

 

4,942

 

2,589

     Accrued payroll and related costs

 

15,552

 

12,374

     Other accrued liabilities

 

1,458

 

1,529

           Total current liabilities

 

27,846

 

21,971

     

Long-term liabilities:

    

    Long-term debt, less current portion, net

 

9,636

 

12,875

    Contingent consideration liability 

 

900

 

2,882

    Long-term operating lease liability, less current portion

 

4,052

 

2,325

    Long-term accrued income taxes

 

165

 

165

    Long-term payroll tax liability

 

2,295

 

2,295

    Deferred income taxes

 

17

 

-

           Total liabilities

 

44,911

 

42,513

     

Shareholders' equity:

    

     Common stock, par value $0.01 per share

 

131

 

130

     Additional paid-in capital

 

27,865

 

25,509

     Retained earnings

 

46,958

 

38,620

     Accumulated other comprehensive (loss)

 

(596)

 

(539)

     Treasury stock, at cost

 

(4,187)

 

(4,187)

          Total shareholders' equity

 

70,171

 

59,533

           Total liabilities and shareholders' equity

 

$                 115,082

 

$                102,046

     

 

 

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,

 

2021

 

2020

 

2021

 

2020

        

Revenues

$       59,531

 

$       47,383

 

$        162,964

 

$         145,391

        

Cost of revenues

42,911

 

34,293

 

119,225

 

106,926

        

Gross profit

16,620

 

13,090

 

43,739

 

38,465

        

Selling, general and administrative expenses:

       

   Operating expenses

11,645

 

8,873

 

33,566

 

28,158

   Revaluation of contingent consideration liability 

-

 

-

 

(1,982)

 

-

Total selling, general and administrative expenses

11,645

 

8,873

 

31,584

 

28,158

        
        

Income from operations 

4,975

 

4,217

 

12,155

 

10,307

        

Other income/(expense), net

(235)

 

(191)

 

(611)

 

(574)

        

Income before income taxes

4,740

 

4,026

 

11,544

 

9,733

        

Income tax expense 

1,334

 

1,028

 

3,206

 

1,897

Net income

$       3,406

 

$        2,998

 

$           8,338

 

$           7,836

        
        

Earnings per share:

       

Basic

$         0.30

 

$         0.26

 

$             0.73

 

$             0.70

Diluted

$         0.28

 

$         0.25

 

$             0.69

 

$             0.66

        

Weighted average common shares outstanding:

       

Basic

11,441

 

11,381

 

11,430

 

11,260

Diluted

12,025

 

12,042

 

12,007

 

11,911

        

 

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,

 
   

2021

 

2020

 

2021

 

2020

 
           
 

GAAP Net Income 

$           3,406

 

$           2,998

 

$              8,338

 

$             7,836

 
           
 

Adjustments:

        
  

Amortization of acquired intangible assets

792

 

656

 

2,378

 

1,998

 
  

Stock-based compensation

693

 

462

 

2,071

 

1,530

 
  

Revaluation of contingent consideration liability

-

 

-

 

(1,982)

 

-

 
  

Income tax adjustments

(323)

 

(270)

 

(567)

 

(907)

 
 

Non-GAAP Net Income

$           4,568

 

$           3,846

 

$            10,238

 

$           10,457

 
           
           
 

GAAP Diluted Earnings Per Share

$             0.28

 

$             0.25

 

$                0.69

 

$               0.66

 
 

Non-GAAP Diluted Earnings Per Share

$             0.38

 

$             0.32

 

$              0.853

 

$               0.88

 
           
           
 

Weighted average common shares outstanding:

        
 

GAAP Diluted Shares

12,025

 

12,042

 

12,007

 

11,911

 
 

Non-GAAP Diluted Shares

12,025

 

12,042

 

12,007

 

11,911

 
           

 

 

MASTECH DIGITAL, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(Amounts in thousands)

(Unaudited)

          
   

Three Months ended September 30,

 

Nine Months ended September 30,

   

2021

 

2020

 

2021

 

2020

          

Revenues:

       
 

Data and analytics services

$             10,523

 

$               7,176

 

$              28,267

 

$             21,308

 

IT staffing services

49,008

 

40,207

 

134,697

 

124,083

  

Total revenues

$             59,531

 

$             47,383

 

$            162,964

 

$           145,391

          

Gross Margin %:

       
 

Data and analytics services

51.6%

 

55.9%

 

48.2%

 

51.7%

 

IT staffing services

22.8%

 

22.6%

 

22.4%

 

22.1%

  

Total gross margin %

27.9%

 

27.6%

 

26.8%

 

26.5%

          

Segment Operating Income:

       
 

Data and analytics services

$               1,851

 

$              1,579

 

$               3,014

 

$               3,661

 

IT staffing services

3,916

 

3,294

 

9,537

 

8,644

  

Subtotal

5,767

 

4,873

 

12,551

 

12,305

          

Amortization of acquired intangible assets

(792)

 

(656)

 

(2,378)

 

(1,998)

Revaluation of contingent consideration liability

-

 

-

 

1,982

 

-

Interest expense and other, net

(235)

 

(191)

 

(611)

 

(574)

Income before income taxes

$               4,740

 

$             4,026

 

$            11,544

 

$              9,733

          

 

 

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SOURCE Mastech Digital, Inc.