Table of Contents
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| |
||
(Address of principal executive offices) |
(Zip Code) |
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| ☒ | Smaller reporting company | |||||
| Emerging growth company | ||||||
Table of Contents
MASTECH DIGITAL, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
2
Table of Contents
ITEM 1. |
FINANCIAL STATEMENTS |
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2024 |
2023 |
2024 |
2023 |
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| Revenues |
$ | $ | $ | $ | ||||||||||||
| Cost of revenues |
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| Gross profit |
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| Selling, general and administrative expenses: |
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| Operating expenses |
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| Employment-related claim, net of recoveries |
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| Total selling, general and administrative expenses |
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| Income (loss) from operations |
( |
) | ( |
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| Interest income (expense), net |
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| Other income (expense), net |
( |
) | ( |
) | ( |
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| Income (loss) before income taxes |
( |
) | ||||||||||||||
| Income tax expense (benefit) |
( |
) | ||||||||||||||
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| Net income (loss) |
$ | $ | $ | $ | ( |
) | ||||||||||
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| Earnings (loss) per share: |
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| Basic |
$ | $ | $ | $ | ( |
) | ||||||||||
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| Diluted |
$ | $ | $ | $ | ( |
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| Weighted average common shares outstanding: |
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| Basic |
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| Diluted |
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2024 |
2023 |
2024 |
2023 |
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| Net income (loss) |
$ | $ | $ | $ | ( |
) | ||||||||||
| Other comprehensive income (loss): |
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| Foreign currency translation adjustments |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
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| Total other comprehensive gain (loss), net of taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
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| Total comprehensive income (loss) |
$ | $ | $ | $ | ( |
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September 30, 2024 |
December 31, 2023 |
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| ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
$ | $ | ||||||
| Accounts receivable, net of allowance for credit losses of $ |
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| Unbilled receivables |
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| Prepaid and other current assets |
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| Total current assets |
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| Equipment, enterprise software, and leasehold improvements, at cost: |
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| Equipment |
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| Enterprise software |
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| Leasehold improvements |
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| Less – accumulated depreciation and amortization |
( |
) | ( |
) | ||||
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| Net equipment, enterprise software, and leasehold improvements |
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| Operating lease right-of-use |
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| Deferred income taxes |
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| Deferred financing costs, net |
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| Non-current deposits |
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| Goodwill, net of impairment |
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| Intangible assets, net of amortization |
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| Total assets |
$ | $ | ||||||
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| LIABILITIES AND SHAREHOLDERS’ EQUITY |
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| Current liabilities: |
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| Accounts payable |
$ | $ | ||||||
| Accrued payroll and related costs |
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| Current portion of operating lease liability |
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| Other accrued liabilities |
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| Deferred revenue |
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| Total current liabilities |
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| Long-term liabilities: |
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| Long-term operating lease liability, less current portion |
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| Long-term accrued income taxes |
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| Total liabilities |
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| Commitments and contingent liabilities (Note 5) |
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| Shareholders’ equity: |
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| Preferred Stock, |
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| Common Stock, par value $ |
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| Additional paid-in-capital |
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| Retained earnings |
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| Accumulated other comprehensive income (loss) |
( |
) | ( |
) | ||||
| Treasury stock, at cost; |
( |
) | ( |
) | ||||
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| Total shareholders’ equity |
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| Total liabilities and shareholders’ equity |
$ | $ | ||||||
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Common Stock |
Additional Paid-in Capital |
Accumulated Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Income (Loss) |
Total Shareholders’ Equity |
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| Balances, December 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||
| Net (loss) |
— | — | ( |
) | — | — | ( |
) | ||||||||||||||||
| Other comprehensive (loss), net of taxes |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Shares repurchased |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
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| Balances, March 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||
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| Net income |
— | — | — | — | ||||||||||||||||||||
| Employee common stock purchases |
— | — | — | — | ||||||||||||||||||||
| Other comprehensive gain, net of taxes |
— | — | — | — | ||||||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Stock options exercised |
1 | — | — | — | ||||||||||||||||||||
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| Balances, June 30, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||
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| Net income |
— | — | — | — | ||||||||||||||||||||
| Other comprehensive (loss), net of taxes |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Stock options exercised |
— | — | — | — | ||||||||||||||||||||
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| Balances, September 30, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||
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Common Stock |
Additional Paid-in Capital |
Accumulated Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Income (Loss) |
Total Shareholders’ Equity |
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| Balances, December 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||
| Net income |
— | — | — | — | ||||||||||||||||||||
| Other comprehensive gain, net of taxes |
— | — | — | — | ||||||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
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| Balances, March 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||
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| Net (loss) |
— | — | ( |
) | — | — | ( |
) | ||||||||||||||||
| Employee common stock purchases |
— | — | — | — | ||||||||||||||||||||
| Other comprehensive (loss), net of taxes |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Shares repurchased |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
| |
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| Balances, June 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||
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| Net income |
— | — | — | — | ||||||||||||||||||||
| Other comprehensive (loss), net of taxes |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
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| Balances, September 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||
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Nine Months Ended September 30, |
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2024 |
2023 |
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| OPERATING ACTIVITIES: |
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| Net income (loss) |
$ | $ | ( |
) | ||||
| Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: |
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| Depreciation and amortization |
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| Bad debt expense |
( |
) | ||||||
| Interest amortization of deferred financing costs |
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| Stock-based compensation expense |
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| Deferred income taxes, net |
( |
) | ||||||
| Operating lease assets and liabilities, net |
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| Loss on disposition of fixed assets |
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| Long term accrued income taxes |
( |
) | ( |
) | ||||
| Working capital items: |
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| Accounts receivable and unbilled receivables |
( |
) | ||||||
| Insurance recovery |
( |
) | ||||||
| Prepaid and other current assets |
( |
) | ( |
) | ||||
| Accounts payable |
( |
) | ||||||
| Accrued payroll and related costs |
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| Other accrued liabilities |
( |
) | ( |
) | ||||
| Deferred revenue |
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| Net cash flows provided by (used in) operating activities |
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| INVESTING ACTIVITIES: |
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| Recovery of (payment for) non-current deposits |
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| Capital expenditures |
( |
) | ( |
) | ||||
| |
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| Net cash flows provided by (used in) investing activities |
( |
) | ( |
) | ||||
| |
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| FINANCING ACTIVITIES: |
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| (Repayments) on term loan facility |
( |
) | ||||||
| Proceeds from the issuance of common shares |
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| Purchase of treasury stock |
( |
) | ( |
) | ||||
| Proceeds from the exercise of stock options |
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| Net cash flows provided by (used in) financing activities |
( |
) | ||||||
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| Effect of exchange rate changes on cash and cash equivalents |
( |
) | ( |
) | ||||
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| Net change in cash and cash equivalents |
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| Cash and cash equivalents, beginning of period |
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| Cash and cash equivalents, end of period |
$ | $ | ||||||
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1. |
Description of Business and Basis of Presentation: |
2. |
Revenue from Contracts with Customers |
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2024 |
2023 |
2024 |
2023 |
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(Amounts in thousands) |
(Amounts in thousands) |
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Data and Analytics Services Segment |
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Time-and-material |
$ | $ | $ | $ | ||||||||||||
Fixed-price Contracts |
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Subtotal Data and Analytics Services |
$ |
$ |
$ |
$ |
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IT Staffing Services Segment |
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Time-and-material |
$ | $ | $ | $ | ||||||||||||
Fixed-price Contracts |
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Subtotal IT Staffing Services |
$ |
$ |
$ |
$ |
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Total Revenues |
$ |
$ |
$ |
$ |
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2024 |
2023 |
2024 |
2023 |
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(Amounts in thousands) |
(Amounts in thousands) |
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United States |
$ | $ | $ | $ | ||||||||||||
Canada |
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India and Other |
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Total revenues |
$ |
$ |
$ |
$ |
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3. |
Goodwill and Other Intangible Assets, net |
Nine Months Ended |
Twelve Months Ended |
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September 30, 2024 |
December 31, 2023 |
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(in thousands) |
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IT Staffing Services: |
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Beginning balance |
$ | $ | ||||||
Goodwill recorded |
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Impairment |
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Ending Balance |
$ | $ | ||||||
Nine Months Ended |
Twelve Months Ended |
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September 30, 2024 |
December 31, 2023 |
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(in thousands) |
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Data and Analytics Services: |
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Beginning balance |
$ | $ | ||||||
Goodwill recorded |
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Impairment |
( |
) | ||||||
Ending Balance |
$ | $ | ||||||
As of September 30, 2024 |
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(Amounts in thousands) |
Amortization Period (In Years) |
Gross Carrying Value |
Accumulative Amortization |
Net Carrying Value |
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IT Staffing Services: |
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Client relationships |
$ | $ | $ | |||||||||||||
Covenant-not-to-compete |
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Trade name |
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Data and Analytics Services: |
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Client relationships |
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Covenant-not-to-compete |
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Trade name |
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Technology |
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Total Intangible Assets |
$ | $ | $ | |||||||||||||
As of December 31, 2023 |
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(Amounts in thousands) |
Amortization Period (In Years) |
Gross Carrying Value |
Accumulative Amortization |
Net Carrying Value |
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IT Staffing Services: |
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Client relationships |
$ | $ | $ | |||||||||||||
Covenant-not-to-compete |
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Trade name |
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Data and Analytics Services: |
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Client relationships |
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Covenant-not-to-compete |
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Trade name |
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Technology |
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Total Intangible Assets |
$ | $ | $ | |||||||||||||
Years Ended December 31, |
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2024 |
2025 |
2026 |
2027 |
2028 |
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(Amounts in thousands) |
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| Amortization expense |
$ | $ | $ | $ | $ | |||||||||||||||
4. |
Leases |
September 30, 2024 |
December 31, 2023 |
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(in thousands) |
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| Assets: |
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| Long-term operating lease right-of-use |
$ | $ | ||||||
| |
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|
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| Liabilities: |
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| Short-term operating lease liability |
$ | $ | ||||||
| Long-term operating lease liability |
||||||||
| |
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|
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| Total liabilities |
$ | $ | ||||||
| |
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|
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Amount as of September 30, 2024 |
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(in thousands) |
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| 2024 (for remainder of year) |
$ | |||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| 2028 |
||||
| Thereafter |
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| |
|
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| Total |
$ | |||
| Less: Imputed interest |
( |
) | ||
| |
|
|||
| Present value of operating lease liabilities |
$ | |||
| |
|
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5. |
Commitments and Contingencies |
6. |
Employee Benefit Plan |
7. |
Stock-Based Compensation |
8. |
Credit Facility |
9. |
Income Taxes |
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2024 |
2023 |
2024 |
2023 |
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(Amounts in thousands) |
(Amounts in thousands) |
|||||||||||||||
Income (loss) before income taxes: |
||||||||||||||||
Domestic |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
Foreign |
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Income (loss) before income taxes |
$ | $ | $ | $ | ( |
) | ||||||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2024 |
2023 |
2024 |
2023 |
|||||||||||||
(Amounts in thousands) |
(Amounts in thousands) |
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Current provision (benefit): |
||||||||||||||||
Federal |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
State |
( |
) | ||||||||||||||
Foreign |
||||||||||||||||
Total current provision (benefit) |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
Deferred provision (benefit): |
||||||||||||||||
Federal |
( |
) | ||||||||||||||
State |
( |
) | ||||||||||||||
Foreign |
||||||||||||||||
Total deferred provision (benefit) |
( |
) | ||||||||||||||
Change in valuation allowance |
( |
) | ||||||||||||||
Total provision (benefit) for income taxes |
$ | $ | $ | $ | ( |
) | ||||||||||
Three Months Ended September 30, 2024 |
Three Months Ended September 30, 2023 |
|||||||||||||||
Income taxes computed at the federal statutory rate |
$ | % | $ | % | ||||||||||||
State income taxes, net of federal tax benefit |
( |
) | ( |
) | ||||||||||||
Excess tax expense (benefit) from stock options/restricted shares |
||||||||||||||||
Worthless stock deduction |
||||||||||||||||
Difference in income tax rate on foreign earnings/other |
||||||||||||||||
Change in valuation allowance |
( |
) | ( |
) | ||||||||||||
| $ | % | $ | % | |||||||||||||
Nine Months Ended September 30, 2024 |
Nine Months Ended September 30, 2023 |
|||||||||||||||
Income taxes computed at the federal statutory rate |
$ | % | $ | ( |
) | ( |
)% | |||||||||
State income taxes, net of federal tax benefit |
( |
) | ( |
) | ||||||||||||
Excess tax expense (benefit) from stock options/restricted shares |
||||||||||||||||
Worthless stock deduction |
( |
) | ( |
) | ||||||||||||
Difference in income tax rate on foreign earnings/other |
||||||||||||||||
Change in valuation allowance |
||||||||||||||||
| $ | % | $ | ( |
) | ( |
)% | ||||||||||
10. |
Shareholders’ Equity |
11. |
Earnings (Loss) Per Share |
12. |
Business Segments and Geographic Information |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2024 |
2023 |
2024 |
2023 |
|||||||||||||
(Amounts in thousands) |
(Amounts in thousands) |
|||||||||||||||
Revenues: |
||||||||||||||||
Data and Analytics Services |
$ | $ | $ | $ | ||||||||||||
IT Staffing Services |
||||||||||||||||
Total revenues |
$ | $ | $ | $ | ||||||||||||
Gross Margin %: |
||||||||||||||||
Data and Analytics Services |
% | % | % | % | ||||||||||||
IT Staffing Services |
% | % | % | % | ||||||||||||
Total gross margin % |
% | % | % | % | ||||||||||||
Segment operating income (loss): |
||||||||||||||||
Data and Analytics Services |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
IT Staffing Services |
||||||||||||||||
Subtotal |
||||||||||||||||
Amortization of acquired intangible assets |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Employment-related claim, net of recoveries |
( |
) | ||||||||||||||
Interest income (expense), FX gains (losses) and other, net |
||||||||||||||||
Income (loss) before income taxes |
$ | $ | $ | $ | ( |
) | ||||||||||
September 30, 2024 |
December 31, 2023 |
|||||||
(Amounts in thousands) |
||||||||
Total assets: |
||||||||
Data and Analytics Services |
$ | $ | ||||||
IT Staffing Services |
||||||||
Total assets |
$ | $ | ||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2024 |
2023 |
2024 |
2023 |
|||||||||||||
(Amounts in thousands) |
(Amounts in thousands) |
|||||||||||||||
United States |
$ | $ | $ | $ | ||||||||||||
Canada |
||||||||||||||||
India and Other |
||||||||||||||||
Total revenues |
$ | $ | $ | $ | ||||||||||||
13. |
Recently Issued Accounting Standards |
Table of Contents
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
You should read the following discussion in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2023, included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 15, 2024.
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about future events, future performance, plans, strategies, expectations, prospects, competitive environment and regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words, “may”, “will”, “expect”, “anticipate”, “believe”, “estimate”, “plan”, “intend” or the negative of these terms or similar expressions in this quarterly report on Form 10-Q. We have based these forward-looking statements on our current views with respect to future events and financial performance. Our actual financial performance could differ materially from those projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections and our financial performance may be better or worse than anticipated. Given these uncertainties, you should not put undue reliance on any forward-looking statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under “Risk Factors”, “Forward-Looking Statements” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2023. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We do not undertake any duty to update forward-looking statements, and the estimates and assumptions associated with them, after the date of this quarterly report on Form 10-Q, except to the extent required by applicable securities laws.
Website Access to SEC Reports:
The Company’s website is www.mastechdigital.com. The Company’s Annual Report on Form 10-K for the year ended December 31, 2023, current reports on Form 8-K and all other reports filed with the SEC, are available free of charge on the Investors page. The website is updated as soon as reasonably practical after such reports are filed electronically with the SEC.
Critical Accounting Policies
Please refer to Note 1 “Summary of Significant Accounting Policies” of the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023 for a more detailed discussion of our significant accounting policies and critical accounting estimates. There were no material changes to these critical accounting policies during the nine months ended September 30, 2024.
2024 Primentor, Inc. Consulting Agreement
On January 12, 2024, we entered into a consulting services agreement with Primentor, Inc., a California corporation; Phaneesh Murthy (“Murthy”), the owner of Primentor; Srinjay Sengupta (“Sengupta”), a consultant of Primentor; and Sunil Wadhwani and Ashok Trivedi (together the “Founders”), each co-founder and directors of the Company. Under the terms of the consulting services agreement, Primentor will provide the Company with strategic advisory and management consulting services, as well as any other business and organizational strategy services as the Board of Directors of Company may reasonably request from time to time.
The initial term of the consulting services agreement is for a three-year period commencing January 12, 2024, and the Company may request to renew the term for additional successive one-year terms, in which case Primentor and the Company will negotiate to agree upon the scope of the additional services and the amount of additional consulting fees.
As compensation to Primentor, Murthy and Sengupta for providing the services requested by the Company, the Company will provide the following compensation:
| 1) | Consulting fees to Primentor of $990,000 in year one; $270,000 in year two; and $120,000 in year three, plus reimbursement for any reasonable and documented out-of-pocket expenses incurred by Primentor’s personnel in rendering the services; |
| 2) | Stock options to purchase up to 192,500 shares of the Company’s common stock to each, Murthy and Sangupta, at an exercise price of $8.34 per share, with vesting occurring equally on an annual basis over a three-year period; and |
19
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| 3) | Murthy and Sangupta will each receive from the Founders, for no additional consideration, an aggregate number of shares of common stock of the Company held by the Founders that is equal to 1.1% of the total number of shares of common stock of the Company outstanding at the time of a triggering event, as defined in the consulting services agreement. |
The foregoing description of the consulting agreement is qualified in its entirety by reference to the full text of the Consulting Agreement (including the form of stock option agreements attached as exhibits thereto), which was filed by the Company as Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on January 19, 2024.
Employment-Related Claims Against the Company
In December 2022, the Company received a demand letter from the attorney of a former employee who resigned from his employment with the Company in November 2022. Among other allegations in the letter, this former employee has asserted various employment-related claims against the Company, including a claim of wrongful termination. For the year ended December 31, 2023, the Company settled this claim for $3.1 million, net of recoveries, under the terms of a confidential settlement agreement. In addition to the settlement amount, we incurred approximately $0.9 million in professional services fees related to this matter during 2023.
For the three and nine months ended September 30, 2023, the Company incurred $225,000 and approximately $1.2 million, respectively, of professional services fees related to this matter. Additionally, the Company recorded a $3.1 million loss reserve, net of recoveries, with respect to a settlement reserve. These expenses are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. For the three and nine months ended September 20, 2024, no expenses related to this matter were incurred.
Overview:
We are a provider of Digital Transformation IT Services to mostly large and medium-sized organizations.
Our portfolio of offerings includes data management and analytics services, other digital transformation services, such as digital learning services, and IT Staffing Services.
We operate in two reporting segments – Data and Analytics Services and IT Staffing Services. Our data and analytics services are marketed on a global basis under the brand “Mastech InfoTrellis” and are delivered largely on a project basis with on-site and off-shore resources. These data and analytics capabilities and expertise were acquired through our acquisition of InfoTrellis and enhanced and expanded subsequent to the acquisition. In October 2020, we acquired AmberLeaf Partners, Inc. (“AmberLeaf”), a Chicago-based customer experience consulting firm. This acquisition enhanced our capabilities in customer experience strategy and managed services offerings for a variety of Cloud-based enterprise applications across sales, marketing and customer services organizations. Our IT staffing business combines technical expertise with business process experience to deliver a broad range of staffing services in digital and mainstream technologies, as well as other digital transformation services.
Both business segments provide their services across various industry verticals, including financial services, government, healthcare, manufacturing, retail, technology telecommunications and transportation. In our Data and Analytics Services segment, we evaluate our revenues and gross profits largely by service line. In our IT Staffing Services segment, we evaluate our revenues and gross profits largely by sales channel responsibility. This analysis within both our reporting segments is multi-purposed and includes technologies employed, client relationships, and geographic locations.
Data and Analytics:
We provide information regarding our new bookings in our Data and Analytics Services segment, which represents the estimated value of client engagements, including those acquired through acquisitions, as well as renewals and extensions to existing contracts, because we believe doing so provides useful trend information regarding changes in the volume of our new business over time. New bookings can vary significantly quarter to quarter, depending, in part, on the timing of the signing of a small number of large engagements. Among other factors, the types of services and solutions to be delivered, the duration of the engagement and the pace and level of client spending impact the timing of the conversion of new bookings to revenues. In addition, substantially all of our contracts are terminable by the client on short notice, with little or no termination penalties. Information regarding our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. New bookings involve estimates and judgments. There are no third-party standards or requirements governing the calculation of bookings. We do not update our new bookings for material subsequent terminations or reductions related to bookings originally provided in prior periods.
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Economic Trends and Outlook:
Generally, our business outlook is highly correlated to general North American economic conditions, particularly with respect to our IT Staffing Services segment. During periods of increasing employment and economic expansion, demand for our services tends to increase. Conversely, during periods of contracting employment and / or a slowing global economy, demand for our services tends to decline. With economic expansion in 2010 through 2019 activity levels improved. However, as economic conditions strengthened, we experienced increased tightness in the supply side (skilled IT professionals) of our businesses. These supply-side challenges pressured resource costs and, to some extent, gross margins. As we entered 2020, we were encouraged by continued growth in the domestic job markets and expanding U.S. and global economies. However, with the COVID-19 pandemic surfacing in the first quarter of 2020, we realized that economic growth would quickly turn into recessionary conditions, which had a material impact on activity levels in both of our business segments. In 2021, we were encouraged by the global rollout of vaccination programs and signs of economic improvement, however, the proliferation of COVID-19 variants had caused some uncertainty and disruption in the global markets. In 2022 and 2023, COVID-19-related concerns seemed to subside; however, increased inflation, challenges in the financial sector related to increasing interest rates, and concerns about a possible recession created much uncertainty and impacted demand for our services in the second half of 2022 and for the entire year of 2023. While economic conditions in North American have shown signs of improvement during 2024, a level of uncertainty remains with respect to inflation and job growth, the potential of escalations of existing conflicts in the Middle East and Ukraine and the impacts of the U.S. presidential election. It is difficult to predict the impact or duration that these market pressures may have on our businesses and results of operations during the remainder of 2024 and beyond.
In addition to tracking general economic conditions in the markets that we service, a large portion of our revenues is generated from a limited number of clients (see Item 1A, the Risk Factor entitled “Our revenues are highly concentrated, and the loss of a significant client would adversely affect our business and revenues” in our Annual Report on Form 10-K for the year ended December 31, 2023). Accordingly, our trends and outlook are additionally impacted by the prospects and well-being of these specific clients. This “account concentration” factor may result in our results of operations deviating from the prevailing economic trends from time to time.
Within our IT Staffing Services segment, a larger portion of our revenues has come from strategic relationships with systems integrators. Additionally, many large end users of IT staffing services are employing MSPs to manage their contractor spending. Both of these dynamics may pressure our IT staffing gross margins in the future.
Recent growth in advanced technologies (social, cloud, analytics, mobility, automation) is providing opportunities within our IT Staffing Services segment. However, supply side challenges have proven to be acute with respect to many of these technologies.
Results of Operations for the Three Months Ended September 30, 2024 as Compared to the Three Months Ended September 30, 2023:
Revenues:
Revenues for the three months ended September 30, 2024 totaled $51.8 million, compared to $47.8 million for the corresponding three-month period in 2023. This 8% year-over-year revenue increase reflected 17% growth in our Data and Analytics Services segment and 7% growth in our IT Staffing Services segment. For the three months ended September 30, 2024, the Company had two clients that each had revenues in excess of 10% of total revenues (CGI = 14.0% and Allegis = 11.7%). For the three months ended September 30, 2023, the Company had one client that had revenues in excess of 10% of total revenues (CGI = 21.1%). The Company’s top ten clients represented approximately 56% and 52% of total revenues for the three months ended September 30, 2024 and 2023, respectively.
Below is a tabular presentation of revenues by reportable segment for the three months ended September 30, 2024 and 2023, respectively:
| Revenues (Amounts in millions) |
Three Months Ended September 30, 2024 |
Three Months 2023 September 30, 2023 |
||||||
| Data and Analytics Services |
$ | 9.4 | $ | 8.0 | ||||
| IT Staffing Services |
42.4 | 39.8 | ||||||
|
|
|
|
|
|||||
| Total revenues |
$ | 51.8 | $ | 47.8 | ||||
|
|
|
|
|
|||||
Revenues from our Data and Analytics Services segment totaled $9.4 million in the quarter ended September 30, 2024, compared to $8.0 million in the corresponding quarter last year. This 17% year-over-year increase reflected higher activity levels and new assignments from existing clients during 2024. New bookings in the third quarter of 2024 totaled $11.1 million, compared to bookings of $5.1 million in the third quarter of 2023.
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Revenues from our IT Staffing Services segment totaled $42.4 million in the three months ended September 30, 2024, compared to $39.8 million during the corresponding 2023 period. This 7% year-over-year increase reflected higher demand for our services in 2024 compared to the corresponding period last year. Billable consultants at September 30, 2024 totaled 1,071-consultants, compared to 992-consultants one year earlier. Our average bill rate during the third quarter of 2024 was $82.80 per hour, compared to $80.96 per hour in the third quarter of last year. This increase in average bill rate was due to higher rates on new assignments during the third quarter of 2024 and was reflective of the types of skill sets that we deployed. Permanent placements / fee revenues were approximately $0.3 million during the third quarter of 2024, compared to $0.2 million in the corresponding quarter of 2023.
Gross Margins:
Gross profits in the third quarter of 2024 totaled $14.8 million, compared to $12.6 million in the third quarter of 2023. Gross profit as a percentage of revenue was 28.5% for the three-month period ended September 30, 2024, which is a new quarterly gross margin percentage record for the Company, and compared to 26.3% during the same period of 2023. This 220-basis point increase related to higher gross margins in both of our business segments during the third quarter of 2024.
Below is a tabular presentation of gross margin by reporting segment for the three months ended September 30, 2024 and 2023, respectively:
| Gross Margin |
Three Months Ended September 30, 2024 |
Three Months Ended September 30, 2023 |
||||||
| Data and Analytics Services |
50.7 | % | 45.8 | % | ||||
| IT Staffing Services |
23.6 | 22.4 | ||||||
|
|
|
|
|
|||||
| Total gross margin |
28.5 | % | 26.3 | % | ||||
|
|
|
|
|
|||||
Gross margins from our Data and Analytics Services segment were 50.7% of revenues during the third quarter of 2024, compared to 45.8% of revenues during the third quarter of 2023. The gross margin increase reflected the continuation of strong delivery performances during 2024, which benefited project margins and our utilization rate in the third quarter of 2024 compared to the corresponding quarter of 2023.
Gross margins from our IT Staffing Services segment were 23.6% in the third quarter of 2024, compared to 22.4% during the corresponding quarter of 2023. This 120-basis point increase reflected higher margins on new contract assignments, higher permanent placement fees and lower benefit costs in the third quarter of 2024.
Selling, General and Administrative (“SG&A”) Expenses:
Below is a tabular presentation of operating expenses by expense category for the three months ended September 30, 2024 and 2023, respectively:
| SG&A Expenses (Amounts in millions) | Three Months Ended September 30, 2024 |
Three Months Ended September 30, 2023 |
||||||
| Data and Analytics Services Segment |
||||||||
| Sales and Marketing |
$ | 1.7 | $ | 1.8 | ||||
| Operations |
0.2 | 0.3 | ||||||
| General & Administrative |
1.7 | 2.4 | ||||||
|
|
|
|
|
|||||
| Subtotal Data and Analytics Services |
$ | 3.6 | $ | 4.5 | ||||
|
|
|
|
|
|||||
| SG&A Expenses (Amounts in millions) | ||||||||
| IT Staffing Services Segment |
||||||||
| Sales and Marketing |
$ | 2.3 | $ | 2.0 | ||||
| Operations |
2.2 | 2.1 | ||||||
| General & Administrative |
3.6 | 3.3 | ||||||
|
|
|
|
|
|||||
| Subtotal IT Staffing Services |
$ | 8.1 | $ | 7.4 | ||||
|
|
|
|
|
|||||
| Amortization of Acquired Intangible Assets |
$ | 0.6 | $ | 0.7 | ||||
|
|
|
|
|
|||||
| Total SG&A Expenses |
$ | 12.3 | $ | 12.6 | ||||
|
|
|
|
|
|||||
22
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SG&A expenses for the three months ended September 30, 2024 totaled $12.3 million or 23.8% of total revenues, compared to $12.6 million or 26.4% of total revenues for the three-months ended September 30, 2023. Excluding the amortization of acquired intangible assets in both periods, SG&A expense as a percentage of total revenues was 22.6% and 25.0%, respectively.
Fluctuations within SG&A expense components during the third quarter of 2024, compared to the third quarter of 2023, included the following:
| • | Sales expenses increased by $0.2 million in the 2024 period compared to the corresponding 2023 period. Sales expenses in our Data and Analytics Services segment decreased $0.1 million due to lower staff headcount in our sales organization. Sales expenses in our IT Staffing Services segment increased by $0.3 million, largely due to higher sales commissions and other variable expenses. |
| • | Operations expenses were flat in the 2024 period compared to the corresponding 2023 period. Operations expenses decreased $0.1 million in our Data and Analytics Services segment due to staff reductions. In our IT Staffing Services segment, operations expenses increased by $0.1 million and reflected an increase in recruitment staff and higher commission expenses. |
| • | General and administrative expenses decreased $0.4 million in the 2024 period compared to the corresponding 2023 period. General and administrative expenses in our Data and Analytics Services segment decreased by $0.7 million due to executive leadership staff reductions, lower stock-based compensation expense and lower professional services fees incurred to address an employment-related claim in the 2023 period. In our IT Staffing Services segment, general and administrative expenses increased $0.3 million due to higher strategic consulting expenses associated with our consulting agreement with Primentor. |
| • | Amortization of acquired intangible assets was $0.6 million in the 2024 period, compared to $0.7 million in the corresponding 2023 period, as a portion of our intangible assets became fully amortized in 2024. |
Other Income / (Expense) Components:
Other Income / (Expense) for the three months ended September 30, 2024 consisted of interest income of $163,000 and foreign exchange losses of ($30,000). For the three months ended September 30, 2023, Other Income / (Expense) consisted of interest income of $148,000 and foreign exchange gains of $55,000. Higher cash balances on hand were responsible for the favorable year-over-year interest income variance, which was partially offset by currency fluctuations.
Income Tax Expense (Benefit):
Income tax expense for the three months ended September 30, 2024 totaled $697,000, representing an effective tax rate on pre-tax income of 27.1%, compared to $29,000 for the three months ended September 30, 2023, which represented a 18.8% effective tax rate on pre-tax income. The higher effective tax rate in the 2024 period was due to a higher state income tax rate and excess income tax expenses related to stock option and restricted shares.
Results of Operations for the Nine Months Ended September 30, 2024 as Compared to the Nine Months Ended September 30, 2023:
Revenues:
Revenues for the nine months ended September 30, 2024 totaled $148.2 million, compared to $155.0 million for the corresponding nine-month period in 2023. This 4% year-over-year revenue decrease reflected a 1% increase in our Data and Analytics Services segment and a 5% decrease in our IT Staffing Services segment. For the nine months ended September 30, 2024, the Company had two clients that each had revenues in excess of 10% of total revenues (CGI = 15.4% and Allegis = 10.6%). For the nine months ended September 30, 2023, the Company had one client that had revenues in excess of 10% of total revenues (CGI = 23.7%). The Company’s top ten clients represented approximately 54% and 54% of total revenues for the nine months ended September 30, 2024 and 2023, respectively.
Below is a tabular presentation of revenues by reportable segment for the nine months ended September 30, 2024 and 2023, respectively:
| Revenues (Amounts in millions) |
Nine Months Ended September 30, 2024 |
Nine Months Ended September 30, 2023 |
||||||
| Data and Analytics Services |
$ | 26.3 | $ | 26.2 | ||||
| IT Staffing Services |
121.9 | 128.8 | ||||||
|
|
|
|
|
|||||
| Total revenues |
$ | 148.2 | $ | 155.0 | ||||
|
|
|
|
|
|||||
23
Table of Contents
Revenues from our Data and Analytics Services segment totaled $26.3 million during the nine months ended September 30, 2024, which was a slight increase over the corresponding nine-month period last year. Revenues have increased on a sequential basis over the last two quarters reflecting improved activity levels and increased order bookings.
Revenues from our IT Staffing Services segment totaled $121.9 million during the nine months ended September 30, 2024, compared to $128.8 million during the corresponding 2023 period. This 5% decrease largely reflected a lower average level of billable consultants during the nine month period ended September 30, 2024. However, at September 30, 2024, our billable consultant-base was 1,071-consultants, which exceeded the 992 billable consultants at September 30, 2023.
Gross Margins:
Gross profits in the nine months ended September 30, 2024 totaled $40.9 million, compared to $39.7 million during the corresponding 2023 period. Gross profit as a percentage of revenue was 27.6% for the nine-month period ended September 30, 2024, compared to 25.6% during the same period of 2023. This 200-basis point increase reflected higher gross margins in both of our business segments.
Below is a tabular presentation of gross margin by reporting segment for the nine months ended September 30, 2024 and 2023, respectively:
| Gross Margin |
Nine Months Ended September 30, 2024 |
Nine Months Ended September 30, 2023 |
||||||
| Data and Analytics Services |
48.9 | % | 43.1 | % | ||||
| IT Staffing Services |
23.0 | % | 22.0 | % | ||||
|
|
|
|
|
|||||
| Total gross margin |
27.6 | % | 25.6 | % | ||||
|
|
|
|
|
|||||
Gross margins from our Data and Analytics Services segment were 48.9% of revenues during the nine-month period ended September 30, 2024, compared to gross margins of 43.1% in the corresponding period of 2023. The margin increase of 580-basis points reflected higher project margins and better utilization rates during the first nine months of 2024.
Gross margins from our IT Staffing Services segment were 23.0% in the nine months ended September 30, 2024, compared to 22.0% during the corresponding period of 2023. This 100-basis point increase was largely due to higher gross margins on new assignments and favorable medical claim experience related to our self-insured healthcare program in the 2024 period compared to 2023.
Selling, General and Administrative (“SG&A”) Expenses:
Below is a tabular presentation of operating expenses by expense category for the nine months ended September 30, 2024 and 2023, respectively:
| SG&A Expenses (Amounts in millions) | Nine Months Ended September 30, 2024 |
Nine Months Ended September 30, 2023 |
||||||
| Data and Analytics Services Segment | ||||||||
| Sales and Marketing |
$ | 6.0 | $ | 5.2 | ||||
| Operations |
0.5 | 1.1 | ||||||
| General & Administrative |
5.0 | 7.4 | ||||||
|
|
|
|
|
|||||
| Subtotal Data and Analytics Services |
$ | 11.5 | $ | 13.7 | ||||
|
|
|
|
|
|||||
| IT Staffing Services Segment | ||||||||
| Sales and Marketing |
$ | 6.7 | $ | 6.4 | ||||
| Operations |
6.4 | 6.7 | ||||||
| General & Administrative |
10.6 | 10.0 | ||||||
|
|
|
|
|
|||||
| Subtotal IT Staffing Services |
$ | 23.7 | $ | 23.1 | ||||
|
|
|
|
|
|||||
| Amortization of Acquired Intangible Assets |
$ | 2.0 | $ | 2.1 | ||||
| Employment-related Claim, net of Recoveries |
— | 3.1 | ||||||
|
|
|
|
|
|||||
| Total SG&A Expenses |
$ | 37.2 | $ | 42.0 | ||||
|
|
|
|
|
|||||
24
Table of Contents
SG&A expenses for the nine months ended September 30, 2024 totaled $37.2 million or 25.1% of total revenues, compared to $42.0 million or 27.1% of total revenues for the nine months ended September 30, 2023. Excluding the employment-related claim in 2023, and the amortization of acquired intangible assets in both periods, SG&A expense as a percentage of total revenues was 23.7% and 23.8%, respectively.
Fluctuations within SG&A expense components during the first nine months of 2024, compared to the first nine months of 2023, included the following:
| • | Sales expense increased by $1.1 million in the 2024 period, compared to the corresponding 2023 period. Sales expenses in our Data and Analytics Services segment increased by $0.8 million in the 2024 period and reflected higher marketing and event costs and higher sales compensation expense. Sales expenses in our IT Staffing Services segment were higher by $0.3 million due to higher sales commissions and other variable expenses. |
| • | Operations expenses decreased by $0.9 million in the 2024 period, compared to the corresponding 2023 period. In our Data and Analytics Services segment, operations expenses decreased by $0.6 million due to staff reductions and lower variable compensation expenses. Operations expenses in our IT Staffing Services segment decreased by $0.3 million and largely related to recruitment staff reductions and lower other variable expenses in the first half of 2024, partially offset by higher commission expenses in the 2024 third quarter. |
| • | General and administrative expenses decreased by $1.8 million in the 2024 period compared to the corresponding 2023 period. General and administrative expenses in our Data and Analytics Services segment decreased by $2.4 million due to executive leadership staff reductions, lower stock-based compensation expense and higher professional services fees in 2023 of $1.2 million related to an employment claim. In our IT Staffing Services segment, general and administrative expenses increased by $0.6 million, largely due to strategic consulting expenses associated with our consulting agreement with Primentor. |
| • | Amortization of acquired intangible assets was $2.0 million in 2024, compared to $2.1 million in the 2023 period, as a portion of our intangible assets become fully amortized in 2024. |
| • | Employment-related claim reserve, net of expected recoveries, totaled $3.1 million in the 2023 period, compared to no expense in the corresponding 2024 period. |
Other Income / (Expense) Components:
Other Income / (Expense) for the nine months ended September 30, 2024 consisted of interest income of $447,000 and foreign exchange losses of ($74,000). For the nine months ended September 30, 2023, Other Income / (Expense) consisted of interest income of $232,000 and foreign exchange losses of ($32,000). The higher interest income reflected higher cash balances on hand in the 2024 period was responsible for the favorable year-over-year variance in Other Income, net and was partially offset by currency fluctuations.
Income Tax Expense:
Income tax expense (benefit) for the nine months ended September 30, 2024 totaled $994,000, representing an effective tax rate on pre-tax income of 24.2% compared to an income tax benefit of ($358,000) for the nine months ended September 30, 2023, which represented a 16.7% effective tax rate on a pre-tax (loss). In 2023, foreign pre-tax income reduced the consolidated tax benefit which included a domestic pre-tax loss. The favorable effective tax rate in the 2024 period was largely due to a worthless stock deduction recognized on the dissolution of our Singapore entity, partially offset by excess tax expense related to stock options/restricted shares.
Liquidity and Capital Resources:
Financial Conditions and Liquidity:
As of September 30, 2024, we had cash balances on hand of $23.9 million, no bank debt outstanding and approximately $25 million of borrowing capacity under our existing credit facility.
Historically, we have funded our organic business needs with cash generated from operating activities. Controlling our operating working capital levels by closely managing our accounts receivable balance is an important element of cash generation. As of September 30, 2024, our accounts receivable “days sales outstanding” (“DSOs”) measurement was 55-days.
We believe that cash provided by operating activities, cash balances on hand and current availability under our credit facility will be adequate to fund our business needs and support our share repurchase program that we announced in February 2023 over the next twelve months, exclusive of any acquisition activity.
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Cash flows provided by (used in) operating activities:
Cash provided by operating activities for the nine months ended September 30, 2024 totaled $3.2 million compared to cash provided by operating activities of $10.5 million during the nine months ended September 30, 2023. Elements of cash flows in the 2024 period were net income of $3.1 million, non-cash charges of $4.4 million, and an increase in operating working capital levels of ($4.3 million). During the nine months ended September 30, 2023, elements of cash flows were a net loss of ($1.8 million), non-cash charges of $5.1 million and a decrease in operating working capital levels of $7.2 million. Operating working capital increased in 2024 due to higher accounts receivable balances resulting from our sequential revenue growth during the first nine months. During the 2023 period, accounts receivable balances decreased due to revenue decreases during the period.
Cash flows (used in) investing activities:
Cash (used in) investing activities for the nine months ended September 30, 2024 was ($0.8 million) compared to ($0.1 million) for the nine months ended September 30, 2023. During the nine months ended September 2024, capital expenditures totaled ($0.8 million). In the 2023 period, capital expenditures totaled ($0.2 million), partially offset by the recovery of non-current deposits of $0.1 million. The increase in capital expenditures during the 2024 period compared to the 2023 period reflected higher expenditures for laptop replacements and other technology enhancements.
Cash flows provided by (used in) financing activities:
Cash provided by financing activities for the nine months ended September 30, 2024 totaled $0.5 million and consisted of proceeds from the exercise of stock options of $440,000 and the issuance of common shares related to our Employee Stock Purchase Plan of $136,000, which was partially offset by the purchase of treasury shares of ($80,000). Cash (used in) financings activities for the nine months ended September 30, 2023, totaled ($1.5 million) and consisted of ($1.1 million) of term loan repayments and the purchase of treasury shares under our share repurchase program of ($572,000), which was partially offset by $150,000 related to proceeds from the issuance of shares of common stock under the Employee Stock Purchase Plan.
Off-Balance Sheet Arrangements:
Other than $324,000 in outstanding letters of credit issued under our Credit Agreement, we do not have any off-balance sheet arrangements. For further details about the outstanding letters of credit, refer to Note 8 — “Credit Facility” in the Notes to Condensed Consolidated Financial Statements included herein.
Inflation:
We do not believe that inflation had a significant impact on our results of operations for the periods presented, although economic uncertainty, including the concerns of our clients and other companies with respect to inflationary conditions in North America and elsewhere, has had and may continue to have an adverse impact on the demand for our services. On an ongoing basis, we attempt to minimize any effects of inflation on our operating results by controlling operating costs and, whenever possible, seek to ensure that billing rates reflect increases in costs due to inflation. However, high levels of inflation may result in higher interest rates which could increase our borrowing costs in the future if we elect to draw on our current or future credit facilities.
In addition, refer to “Item 1A. Risk factors” in our 2023 Annual Report on Form 10-K for a discussion about risks that inflation directly or indirectly may pose to our business.
Seasonality:
Our operations are generally not affected by seasonal fluctuations. However, our consultants’ billable hours are affected by national holidays and vacation policies. Accordingly, we generally have lower utilization rates and higher benefit costs during the fourth quarter. Additionally, assignment completions tend to be higher near the end of the calendar year, which largely impacts our revenue and gross profit performance during the subsequent quarter.
Recently Issued Accounting Standards:
Recent accounting pronouncements are described in Note 13 to the accompanying financial statements.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
In addition to the inherent operational risks, the Company is exposed to certain market risks, primarily related to changes in interest rates and currency fluctuations.
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Interest Rates
As of September 30, 2024, we had no outstanding borrowings under the Credit Agreement — Refer to Note 8 — “Credit Facility” in the Notes to Condensed Consolidated Financial Statements, included herein.
Currency Fluctuations
The reporting currency of the Company and its subsidiaries is the U.S. dollar. The functional currency of the Company’s subsidiary in Canada is the U.S. dollar because the majority of its revenue is denominated in U.S. dollars. The functional currencies of the Company’s Indian and European subsidiaries are the local currency of the location of such subsidiary. The results of operations of the Company’s Indian and European subsidiaries are translated at the monthly average exchange rates prevailing during the period. The financial position of the Company’s Indian and European subsidiaries is translated at the current exchange rates at the end of the period, and the related translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within Shareholders’ Equity. Gains and losses resulting from foreign currency transactions are included as a component of other income (expense), net in the Condensed Consolidated Statements of Operations, and have not been material for all periods presented. A hypothetical 10% increase or decrease in overall foreign currency rates in the first nine months of 2024 would not have had a material impact on our consolidated financial statements.
| ITEM 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of Company management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
In the ordinary course of our business, we are involved in a number of lawsuits and administrative proceedings. While uncertainties are inherent in the final outcome of these matters, 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.
| ITEM 1A. | RISK FACTORS |
There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024.
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| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
A summary of our Common Stock repurchased during the quarter ended September 30, 2024 is set forth in the following table:
| Period |
Total Number of Shares Purchased (1) |
Average Price per Share (1) |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
Maximum Number of Shares that May Yet Be Purchased Under this Plan or Programs (1) |
||||||||||||
| July 1, 2024 — July 31, 2024 |
— | $ | — | — | 423,079 | |||||||||||
| August 1, 2024 — August 31, 2024 |
— | $ | — | — | 423,079 | |||||||||||
| September 1, 2024 — September 30, 2024 |
— | $ | — | — | 423,079 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
— | $ | — | — | 423,079 | |||||||||||
| (1) | On February 8, 2023, the Company announced that the Board of Directors authorized a share repurchase program of up to 500,000 shares of Common Stock over a two-year period. Repurchases under the program may occur from time to time in the open market, through privately negotiated transactions, through block purchases or other purchase techniques, or by any combination of such methods, and the program may be modified, suspended or terminated at any time at the discretion of the Board of Directors. The Company did not repurchase any shares of its Common Stock during the quarter ended September 30, 2024. |
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ITEM 5. |
OTHER INFORMATION |
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| ITEM 6. | EXHIBITS |
(a) Exhibits
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer is filed herewith. | |
| 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer is filed herewith. | |
| 32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Executive Officer is furnished herewith. | |
| 32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Financial Officer is furnished herewith. | |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 13th day of November, 2024.
| MASTECH DIGITAL, INC. | ||||
| November 13, 2024 | /s/ VIVEK GUPTA | |||
| Vivek Gupta Chief Executive Officer | ||||
| /s/ JOHN J. CRONIN, JR. | ||||
| John J. Cronin, Jr. | ||||
| Chief Financial Officer | ||||
| (Principal Financial Officer) | ||||
31
Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer
I, Vivek Gupta, certify that:
| 1. | I have reviewed this report on Form 10-Q of Mastech Digital, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| MASTECH DIGITAL, INC. | ||||||
| Date: November 13, 2024 | /S/ VIVEK GUPTA | |||||
| Vivek Gupta | ||||||
| Chief Executive Officer | ||||||
Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer
I, John J. Cronin, Jr., certify that:
| 1. | I have reviewed this report on Form 10-Q of Mastech Digital, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| MASTECH DIGITAL, INC. | ||||||
| Date: November 13, 2024 | /S/ JOHN J. CRONIN, JR. | |||||
| John J. Cronin, Jr. | ||||||
| Chief Financial Officer | ||||||
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Mastech Digital, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Vivek Gupta, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /S/ VIVEK GUPTA |
| Vivek Gupta |
| Chief Executive Officer |
| Date: November 13, 2024 |
Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Mastech Digital, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John J. Cronin, Jr. Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /S/ JOHN J. CRONIN, JR. |
| John J. Cronin, Jr. |
| Chief Financial Officer |
| Date: November 13, 2024 |