8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): May 3, 2023

MASTECH DIGITAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania	001-34099	26-2753540
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1305 Cherrington Parkway, Suite 400

Moon Township, PA 15108

(Address of Principal Executive Offices) (Zip Code)

(412) 787-2100

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	MHH	NYSE American

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Item 2.02 Results of Operations and Financial Condition.

On May 3, 2023, Mastech Digital, Inc. (the “Company”) issued a press release (the “Press Release”) announcing its financial results for the first quarter ended March 31, 2023. A copy of the Press Release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

The information contained in this Item 2.02 and in Exhibit 99.1 shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Description
99.1	Press Release issued by Mastech Digital, Inc. on May 3, 2023.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

-1-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

MASTECH DIGITAL, INC.
By:	/s/ John J. Cronin, Jr.
Name:	John J. Cronin, Jr.
Title:	Chief Financial Officer

May 3, 2023

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE:

Mastech Digital Reports an 8% Year-over-Year Revenue Decline in a Challenging First Quarter of 2023

PITTSBURGH, PA – May 3, 2023- Mastech Digital, Inc. (NYSE American: MHH), a leading provider of Digital Transformation IT Services, announced today its financial results for the first quarter ended March 31, 2023.

First Quarter 2023 Highlights:

• Total consolidated revenues declined by 8% to $55.1 million, compared to revenues of $59.8 million in the first quarter of 2022;

• The Company’s Data and Analytics Services segment reported revenues of $9.4 million, compared to $10.2 million in the first quarter of 2022, which represented a sequential increase of 3% over 2022 fourth quarter revenues in this segment;

• The IT Staffing Services segment achieved revenues of $45.7 million, compared to $49.6 million in the first quarter of 2022, as its consultants-on-billing headcount declined during the quarter;

• GAAP diluted earnings per share were $0.02 in the first quarter of 2023 versus $0.19 in the first quarter of 2022;

• Non-GAAP diluted earnings per share were $0.12 in the first quarter of 2023 versus $0.28 in the first quarter of 2022; and

• At March 31, 2023, the Company had no bank debt and held $9.1 million of cash balances on hand.

First Quarter Results:

Revenues for the first quarter of 2023 totaled $55.1 million, compared to $59.8 million during the corresponding quarter of 2022. Gross profits in the first quarter of 2023 were $13.5 million, compared to $15.9 million in the same quarter of 2022. GAAP net income for the first quarter of 2023 totaled $261,000, or $0.02 per diluted share, compared to $2.3 million, or $0.19 per diluted share, during the same period of 2022. Non-GAAP net income for the first quarter of 2023 was $1.4 million, or $0.12 per diluted share, compared to $3.3 million, or $0.28 per diluted share, in the first quarter of 2022.

Activity levels at the Company’s Data and Analytics Services segment improved during the first quarter of 2023, with bookings of $8.4 million and a notable improvement in RFP submittals and pipeline opportunities. Demand for the Company’s IT Staffing Services segment, which is largely linked to U.S. economic conditions, declined during the quarter as clients responded to uncertainties in the domestic economy. This pullback in demand was more pronounced in the financial services markets due to several bank failures and concerns over a global bank crisis. Financial services represented approximately 50% of our billable consultant base as we entered 2023.

Vivek Gupta, the Company’s President and Chief Executive Officer stated: “Clearly, the possibility of a recession is weighing-in on clients’ spending dynamics – particularly in the financial services industry. However, demand in our Data and Analytics Services segment improved over the course of the quarter in terms of the pipeline of new opportunities. While it is anyone’s guess as to when the economic outlook will improve, it’s important to note that our businesses remain fundamentally sound, and our balance sheet is solid – with no bank debt and access to over $40 million of borrowing availability and cash on hand.”

Michael Fleishman, the Company’s newly-appointed Chief Executive Officer of the Data and Analytics Services segment, stated: “We continue to make good progress at positioning the D&A Services segment for sustainable future growth. We have upgraded leadership talent in sales, marketing, technology and delivery; improved communication lines within the organization; and we believe our messaging to existing clients and new prospects is gaining traction—as evidenced by an increase in our pipeline of opportunities. Gross margins and utilization improved from the fourth quarter of 2022 and significantly improved in March when compared to the start of 2023.”    

Commenting on the Company’s financial position, Jack Cronin, Mastech Digital’s Chief Financial Officer, stated: “At March 31, 2023, we had $9.1 million of cash balances on hand, no bank debt, and borrowing availability of $31.5 million under our revolving credit facility. Our Days Sales Outstanding (DSO) measurement was 61 days at March 31, 2023. We believe our cash on hand, credit availability and free cash flow expectations for 2023 provide us with adequate resources to fund the business and support our share repurchase program.”

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, Europe, and India.

Use of Non-GAAP Measures:

This press release contains non-GAAP financial measures to supplement our financial results presented on a GAAP basis. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Reconciliations of these non-GAAP measures to their comparable GAAP measures are included in the attached financial tables.

We believe that providing non-GAAP net income and non-GAAP diluted earnings per share offers investors useful supplemental information about the financial performance of our business, enables comparison of financial results between periods where certain items may vary independent of business performance, and allows for greater transparency with respect to key metrics used by management in operating our business. Additionally, management uses these non-GAAP financial measures in evaluating the Company’s performance.

Specifically, the non-GAAP financial measures contained herein exclude the following expense items:

Amortization of acquired intangible assets: We amortize intangible assets acquired in connection with our June 2015 acquisition of Hudson IT, our July 2017 acquisition of the services division of InfoTrellis, Inc. and our October 2020 acquisition of AmberLeaf Partners. We exclude these amortization expenses in our non-GAAP financial measures because we believe it allows investors to make more meaningful comparisons between our operating results and those of other companies within our industry and facilitates a helpful comparison of our results with other periods.

Stock-based compensation expenses: We incur material recurring expenses 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.

Forward-Looking Statements:

Certain statements contained in this release are forward-looking statements based on management’s expectations, estimates, projections and assumptions. Words such as “expects,” “anticipates,” “plans,” “believes,” “scheduled,” “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements, which include but are not limited to projections of and statements regarding the Company’s ability to generate revenues, earnings, and cash flow, and statements regarding the Company’s share repurchase program. 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, 2022.

# # #

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)

	March 31,			December 31,
	2023			2022
ASSETS
Current assets:
Cash and cash equivalents	$	9,097		$	7,057
Accounts receivable, net		42,078			42,322
Prepaid and other current assets		3,353			3,795
Total current assets		54,528			53,174
Equipment, enterprise software and leasehold improvements, net		2,446			2,665
Operating lease right-of-use assets, net		3,504			3,886
Deferred financing costs, net		275			293
Non-current deposits		491			578
Goodwill, net of impairment		32,510			32,510
Intangible assets, net of amortization		15,080			15,773
Total assets	$	108,834		$	108,879
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	—		$	1,100
Current portion of operating lease liability		1,470			1,504
Accounts payable		4,688			4,475
Accrued payroll and related costs		11,481			11,085
Other accrued liabilities		1,338			1,393
Total current liabilities		18,977			19,557
Long-term liabilities:
Long-term operating lease liability, less current portion		1,974			2,294
Long-term accrued income taxes		105			105
Deferred income taxes		674			920
Total liabilities		21,730			22,876
Shareholders’ equity:
Common stock, par value $0.01 per share		133			133
Additional paid-in capital		32,894			32,059
Retained earnings		59,814			59,553
Accumulated other comprehensive income (loss)		(1,550	)		(1,555	)
Treasury stock, at cost		(4,187	)		(4,187	)
Total shareholders’ equity		87,104			86,003
Total liabilities and shareholders’ equity	$	108,834		$	108,879

MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

	Three Months ended March 31,
	2023			2022
Revenues	$	55,063		$	59,755
Cost of revenues		41,581			43,823
Gross profit		13,482			15,932
Selling, general and administrative expenses		12,950			12,625
Income from operations		532			3,307
Other income/(expense), net		(53	)		(60	)
Income before income taxes		479			3,247
Income tax expense		218			915
Net income	$	261		$	2,332
Earnings per share:
Basic	$	0.02		$	0.20
Diluted	$	0.02		$	0.19
Weighted average common shares outstanding:
Basic		11,638			11,509
Diluted		12,054			12,035

MASTECH DIGITAL, INC.

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

(Amounts in thousands, except per share data)

(Unaudited)

	Three Months ended March 31,
	2023			2022
GAAP Net Income	$	261		$	2,332
Adjustments:
Amortization of acquired intangible assets		693			792
Stock-based compensation		835			526
Income taxes adjustments		(388	)		(340	)
Non-GAAP Net Income	$	1,401		$	3,310
GAAP Diluted Earnings Per Share	$	0.02		$	0.19
Non-GAAP Diluted Earnings Per Share	$	0.12		$	0.28
Weighted average common shares outstanding:
GAAP Diluted Shares		12,054			12,035
Non-GAAP Diluted Shares		12,054			12,035

MASTECH DIGITAL, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(Amounts in thousands)

(Unaudited)

	Three Months ended March 31,
	2023			2022
Revenues:
Data and analytics services	$	9,395		$	10,152
IT staffing services		45,668			49,603
Total revenues	$	55,063		$	59,755
Gross Margin %:
Data and analytics services		38.5	%		45.2	%
IT staffing services		21.6	%		22.9	%
Total gross margin %		24.5	%		26.7	%
Segment Operating Income:
Data and analytics services	$	(680	)	$	972
IT staffing services		1,905			3,127
Subtotal		1,225			4,099
Amortization of acquired intangible assets		(693	)		(792	)
Interest expense and other, net		(53	)		(60	)
Income before income taxes	$	479		$	3,247

XML

Document and Entity Information	May 03, 2023
Cover [Abstract]
Amendment Flag	false
Entity Central Index Key	0001437226
Document Type	8-K
Document Period End Date	May 03, 2023
Entity Registrant Name	MASTECH DIGITAL, INC.
Entity Incorporation State Country Code	PA
Entity File Number	001-34099
Entity Tax Identification Number	26-2753540
Entity Address, Address Line One	1305 Cherrington Parkway
Entity Address, Address Line Two	Suite 400
Entity Address, City or Town	Moon Township
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	15108
City Area Code	(412)
Local Phone Number	787-2100
Written Communications	false
Soliciting Material	false
Pre Commencement Tender Offer	false
Pre Commencement Issuer Tender Offer	false
Security 12b Title	Common Stock, par value $.01 per share
Trading Symbol	MHH
Security Exchange Name	NYSEAMER
Entity Emerging Growth Company	false