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8-K - FORM 8-K - Mastech Digital, Inc.d273884d8k.htm

Exhibit 99.1

 

LOGO

FOR IMMEDIATE RELEASE:

Mastech Digital, Inc. Reports Third Quarter 2016 Results

PITTSBURGH, PA – October 26, 2016 - Mastech Digital, Inc. (NYSE MKT: MHH), a national provider of Information Technology staffing and Digital Transformation services, announced today its financial results for the third quarter ended September 30, 2016.

Third Quarter 2016 Highlights:

 

    Revenues totaled $34.3 million, which represented a 2% sequential increase over second quarter 2016 and were essentially flat compared to the 2015 third quarter.

 

    Gross profit margins increased to 20.1% from 19.9% in the third quarter of 2015;

 

    GAAP diluted earnings per share were $0.21 versus $0.20 per diluted share in the 2015 third quarter; and

 

    Non-GAAP diluted earnings per share were $0.25 versus $0.25 per diluted share in the 2015 third quarter.

Third Quarter Results:

Revenues for the third quarter of 2016 totaled $34.3 million compared to $34.6 million during the corresponding quarter last year. Gross profit in the third quarter of 2016 was $6.9 million compared to $6.9 million in the third quarter of 2015. GAAP net income for the third quarter of 2016 totaled $924,000, compared to $887,000 during the same period last year. Non-GAAP net income for the third quarter of 2016 was $1.1 million, compared to $1.1 million in the third quarter of 2015. GAAP diluted earnings per share were $0.21 in the third quarter of 2016 compared to $0.20 in the third quarter of 2015. Non-GAAP diluted earnings per share were $0.25 in the third quarter of 2016 compared to $0.25 for the corresponding period in 2015.

Demand for the Company’s staffing services was in-line with the previous quarter; however, a higher level of assignment ends resulted in a decline to our consultant-base of approximately 3% during the quarter. Gross margins in the third quarter of 2016 were 20.1%, representing a slight improvement from the 19.9% gross margins that were reported in third quarter 2015.

Commenting on the Company’s third quarter 2016, Vivek Gupta, Mastech Digital’s Chief Executive Officer, stated, “During the quarter we were able to grow our revenues by 2% from the previous quarter and deliver solid bottom-line results. Additionally, we rebranded the Company, which included our name change to Mastech Digital, a new logo and the launch of a refreshed


corporate website - all reflective of our ongoing transformation into a digital technologies company. As our digital services gain further traction over the next several quarters, we expect that the pace at which we grow our business will accelerate as well.”

Jack Cronin, Mastech Digital’s Chief Financial Officer, stated, “Our financial position at September 30, 2016 remains strong with access to approximately $8 million of unused borrowing capacity. During the quarter, we were able to improve our accounts receivable “days sales outstanding” measurement by one-day to 58 days.”

In conjunction with its third quarter earnings release, Mastech Digital will host a conference call at 9:00 A. M. ET on October 26, 2016 to discuss these results and to answer questions. A live webcast of this conference call will be available on the Company’s website, www.mastechdigital.com. Simply click on the Investor Relations section and follow the links to the live webcast. The webcast will remain available for replay through November 2, 2016.

About Mastech Digital, Inc.:

Mastech Digital (NYSE MKT: MHH) is a national provider of IT staffing and digital transformation services focused on solving its customers’ digital transformation challenges. The Company’s IT staffing services span across digital and mainstream technologies while its digital transformation services include Salesforce.com, SAP HANA and digital learning services. A minority-owned enterprise, Mastech Digital is headquartered in Pittsburgh, PA with offices across the U.S. and India. For more information, visit www.mastechdigital.com.

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. 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.

Acquisition related transaction expenses: We incurred significant expenses in connection with our acquisition of Hudson IT which we generally would not have otherwise incurred in the periods presented as part of our continuing operations. These transaction expenses consist of


investment banking fees, legal expenses, audit charges related to our acquired companies and various advisor costs. 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 a helpful comparison of our results with other periods.

Stock-based compensation expenses: We incur material recurring expense related to non-cash, stock-based compensation. We exclude these expenses in our non-GAAP financial measures because we believe that it provides investors with meaningful supplemental information regarding operational performance. In particular, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under ASC 718, we believe that providing non-GAAP financial measures that exclude these expenses allows investors to make more meaningful comparisons between our operating results and those of other companies within our industry and facilitates comparison of our results with other periods.

Severance charges: From time to time, we incur severance expense related to the termination by the Company of leadership personnel. While it is probable that these expenses will occur in the future, we believe that providing non-GAAP financial measures that exclude these expenses are useful for investors to understand the effects of these items on our total operating expenses and facilitate comparison of our results with other periods.

Forward-Looking Statements:

Certain statements contained in this release are forward-looking statements based on management’s expectations, estimates, projections and assumptions. Words such as “expects,” “anticipates,” “plans,” “believes,” “scheduled,” “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements, which include but are not limited to (i) projections of revenues, earnings, and cash flow, and (ii) the expected benefits to Mastech Digital from completing the acquisition of Hudson IT and the expected performance of Mastech Digital following completion of the acquisition. These statements are based on information currently available to the Company and it assumes no obligation to update the forward-looking statements as circumstances change. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, including, without limitation, the level of market demand for its services, the highly competitive market for the types of services offered by the Company, the impact of competitive factors on profit margins, market conditions that could cause the Company’s customers to reduce their spending for its services, and the Company’s ability to create, acquire and build new lines of business, to attract and retain qualified personnel, reduce costs and conserve cash, and other risks that are described in more detail in the Company’s filings with the Securities and Exchange Commission including its Form 10-K for the year ended December 31, 2015.

# # #

For more information, contact:

Donna Kijowski

Manager, Investor Relations

Mastech Digital, Inc.

888.330.5497


MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

 

     September 30,     December 31,  
     2016     2015  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 738      $ 848   

Accounts receivable, net

     24,389        19,190   

Prepaid and other current assets

     828        587   

Deferred income taxes

     175        217   
  

 

 

   

 

 

 

Total current assets

     26,130        20,842   

Equipment, enterprise software and leasehold improvements, net

     576        656   

Deferred income taxes

     26        92   

Deferred financing costs, net

     68        97   

Non-current deposits

     231        237   

Goodwill

     8,427        8,427   

Intangible assets, net

     7,516        8,126   
  

 

 

   

 

 

 

Total assets

   $ 42,974      $ 38,477   
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Current liabilities:

    

Current portion of long-term debt

   $ 1,800      $ 1,800   

Accounts payable

     2,073        2,213   

Accrued payroll and related costs

     5,957        5,965   

Deferred revenue and other liabilities

     766        1,958   
  

 

 

   

 

 

 

Total current liabilities

     10,596        11,936   

Long-term liabilities:

    

Long-term debt, less current portion

     14,262        10,738   
  

 

 

   

 

 

 

Total liabilities

     24,858        22,674   

Shareholders’ equity:

    

Common stock, par value $0.01 per share

     53        52   

Additional paid-in capital

     13,564        13,114   

Retained earnings

     8,657        6,777   

Accumulated other comprehensive (loss)

     (29     (19

Treasury stock, at cost

     (4,129     (4,121
  

 

 

   

 

 

 

Total shareholders’ equity

     18,116        15,803   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 42,974      $ 38,477   
  

 

 

   

 

 

 


MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

 

     Three Months ended September 30,     Nine Months ended September 30,  
     2016     2015     2016     2015  

Revenues

   $ 34,263      $ 34,565      $ 99,606      $ 90,930   

Cost of revenues

     27,366        27,686        79,707        73,849   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     6,897        6,879        19,899        17,081   

Selling, general and administrative expenses

     5,303        5,356        16,506        14,611   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     1,594        1,523        3,393        2,470   

Other income/(expense), net

     (120     (124     (377     (139
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     1,474        1,399        3,016        2,331   

Income tax expense

     550        512        1,136        867   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 924      $ 887      $ 1,880      $ 1,464   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

        

Basic

   $ 0.21      $ 0.20      $ 0.43      $ 0.34   

Diluted

   $ 0.21      $ 0.20      $ 0.42      $ 0.33   

Weighted average common shares outstanding:

        

Basic

     4,405        4,341        4,371        4,334   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     4,493        4,438        4,469        4,438   
  

 

 

   

 

 

   

 

 

   

 

 

 


MASTECH DIGITAL, INC.

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

(Amounts in thousands, except per share data)

(Unaudited)

 

     Three Months ended September 30,     Nine Months ended September 30,  
     2016     2015     2016     2015  

GAAP Net Income

   $ 924      $ 887      $ 1,880      $ 1,464   

Adjustments:

        

Amortization of acquired intangible assets

     204        202        610        237   

Stock-based compensation

     114        106        299        299   

Acquisition transaction expenses

     —          25        —          624   

Severance expenses

     —          —          780        305   

Income taxes adjustments

     (115     (122     (636     (553
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Net Income

   $ 1,127      $ 1,098      $ 2,933      $ 2,376   
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Diluted Earnings Per Share

   $ 0.21      $ 0.20      $ 0.42      $ 0.33   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Diluted Earnings Per Share

   $ 0.25      $ 0.25      $ 0.66      $ 0.54   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

        

GAAP Diluted Shares

     4,493        4,438        4,469        4,438   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non GAAP Diluted Shares

     4,493        4,438        4,469        4,438