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8-K - 8-K - Mastech Digital, Inc.d485418d8k.htm

Exhibit 99.1

 

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FOR IMMEDIATE RELEASE:

Mastech Digital, Inc. Reports Third Quarter 2017 Results – Revenues grow by 14.5% year-over-year and 12% sequentially

The Company’s recent acquisition positively impacts results

PITTSBURGH, PA – November 1, 2017 - Mastech Digital, Inc. (NYSE American: MHH), a leading provider of Digital Transformation IT services, announced today its financial results for the third quarter of 2017.

Third Quarter 2017 Financial Highlights:

 

    Revenues totaled $39.2 million, an increase of $5.0 million over last year’s top-line results and $4.1 million over second quarter 2017’s results;

 

    The Company’s data and analytics services segment, which was acquired in July 2017, contributed $4.1 million of revenues.

 

    The IT staffing services segment organically grew its billable consultant headcount by 27, or by approximately 3 percent during the quarter. The billable associate base totaled 995 consultants at September 30, 2017 compared to 884 consultants at September 30, 2016 – an increase of 111 consultants.

 

    Non-GAAP diluted earnings per share were $0.27 versus $0.25 in the 2016 third quarter and $0.23 in the preceding second 2017 quarter; and

 

    GAAP diluted earnings (loss) per share were ($0.03) versus $0.21 in the 2016 third quarter. The GAAP diluted loss per share in the 2017 quarter was impacted by $1.7 million of acquisition transaction expenses.

Third Quarter Results:

Revenues for the third quarter of 2017 totaled $39.2 million compared to $34.3 million during the corresponding quarter last year. Gross profit in the third quarter of 2017 was $8.8 million, compared to $6.9 million in the third quarter of 2016. GAAP net income (loss) for the third quarter of 2017 totaled $(136,000) or $(0.03) per diluted share, compared to $924,000 or $0.21 per diluted share during the same period last year. Non-GAAP net income for the third quarter of 2017 was $1.4 million or $0.27 per diluted share, compared to $1.1 million or $0.25 per diluted share in the third quarter of 2016.

The Company’s data and analytics services segment, which was acquired on July 13, 2017, contributed $4.1 million of revenues and was operationally accretive to earnings as reflected in our Non-GAAP diluted earnings per share results.

Demand for the Company’s IT staffing services remained robust during the third quarter of 2017. Accordingly, during the quarter, the Company was able to expand its billable associate headcount in this segment by approximately 3 percent. However, revenues were adversely impacted by a lower utilization rate due to downtime associated with the hurricane-related disruptions in Florida and Texas.


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Commenting on the Company’s 2017 third quarter results, Vivek Gupta, Mastech Digital’s Chief Executive Officer stated, “In July 2017, we completed our acquisition of InfoTrellis’ consulting business, which specializes in data management and analytics services. I am pleased to say that this business was operationally accretive to earnings right out of the gate. With an impressive management team and a strong pipeline of prospective opportunities, I feel confident that entering this high-value space will prove to be a pivotal moment in the evolution of Mastech.”

Commenting on the other business segment Gupta added, “Our IT staffing services business continued to grow its billable associate-base for the third consecutive quarter. And we continued to see tangible returns from the investments made in our sales and recruitment organizations since the beginning of 2017. While our revenues were adversely impacted by the disruptions caused by the hurricanes in the states of Florida and Texas, I believe we did an admirable job of performing well with elements of our business that we could control. “

Commenting on the Company’s financial position, Jack Cronin, Mastech Digital’s Chief Financial Officer, stated, “During the quarter we were able to secure a new $65 million credit facility and complete a $6 million private placement transaction for the sale of the Company’s common stock, both in support of the InfoTrellis acquisition and to provide the Company with adequate liquidity for the future. At September 30, 2017, we had bank debt, and net of cash balances on hand, of $40.3 million, and had borrowing capacity of approximately $10 million under our revolving credit facility.”

Other Highlights during the Quarter:

 

    Mastech Digital was awarded the TechServe Alliance Excellence Award 2017 under the Large Enterprise category. The award recognizes and honors technology staffing and solutions companies that deliver outstanding performance, productivity and commitment to continuous improvement.

In conjunction with its third quarter earnings release, Mastech Digital will host a conference call at 9:00 A.M. ET on November 1, 2017 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 8, 2017.

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 services; other digital transformation services that include Salesforce.com, SAP HANA, and Digital Learning services; and IT staffing 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.


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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 and our July 2017 acquisition of the services division of InfoTrellis, Inc. We exclude these amortization expenses in our non-GAAP financial measures because we believe it allows investors to make more meaningful comparisons between our operating results and those of other companies within our industry and facilitates a helpful comparison of our results with other periods.

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

Severance charges: From time to time, we incur severance expense related to the termination by the Company of leadership 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.

Acquisition related transaction expenses: We incurred significant expenses in connection with our acquisition of InfoTrellis, Inc. which we would not have otherwise incurred in the periods presented as part of our continuing operations. These transaction expenses consisted 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.

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 the services division of InfoTrellis, Inc. and the PNC credit facility and the expected performance of Mastech Digital following completion of these transactions. 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


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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, 2016.

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For more information, contact:

Donna Kijowski

Manager, Investor Relations

Mastech Digitial, Inc.

888.330.5497

experience@mastechdigital.com


MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

 

     September 30,     December 31,  
     2017     2016  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 3,162     $ 829  

Accounts receivable, net

     30,165       21,102  

Prepaid and other current assets

     1,900       753  
  

 

 

   

 

 

 

Total current assets

     35,227       22,684  

Equipment, enterprise software and leasehold improvements, net

     1,428       558  

Deferred income taxes

     132       254  

Non-current deposits

     258       170  

Goodwill

     35,772       8,427  

Intangible assets, net

     26,157       7,313  
  

 

 

   

 

 

 

Total assets

   $ 98,974     $ 39,406  
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Current liabilities:

    

Current portion of long-term debt

   $ 3,813     $ 1,800  

Accounts payable

     3,239       1,963  

Accrued payroll and related costs

     7,375       7,645  

Deferred revenue and other liabilities

     1,715       849  
  

 

 

   

 

 

 

Total current liabilities

     16,142       12,257  

Long-term liabilities:

    

Long-term debt, less current portion, net

     39,600       8,077  

Contingent consideration liability

     17,125       —    
  

 

 

   

 

 

 

Total liabilities

     72,867       20,334  

Shareholders’ equity:

    

Common stock, par value $0.01 per share

     63       53  

Additional paid-in capital

     20,208       13,863  

Retained earnings

     10,058       9,297  

Accumulated other comprehensive (loss)

     (80     (7

Treasury stock, at cost

     (4,142     (4,134
  

 

 

   

 

 

 

Total shareholders’ equity

     26,107       19,072  
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 98,974     $ 39,406  
  

 

 

   

 

 

 


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,  
     2017     2016     2017     2016  

Revenues

   $ 39,228     $ 34,263     $ 107,414     $ 99,606  

Cost of revenues

     30,410       27,366       85,310       79,707  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     8,818       6,897       22,104       19,899  

Selling, general and administrative expenses

     8,603       5,303       20,504       16,506  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     215       1,594       1,600       3,393  

Other income/(expense), net

     (450     (120     (637     (377
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (235     1,474       963       3,016  

Income tax expense (benefit)

     (99     550       202       1,136  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (136   $ 924     $ 761     $ 1,880  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

        

Basic

   $ (0.03   $ 0.21     $ 0.16     $ 0.43  

Diluted

   $ (0.03   $ 0.21     $ 0.16     $ 0.42  

Weighted average common shares outstanding:

        

Basic

     5,342       4,405       4,795       4,371  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     5,365       4,493       4,835       4,469  
  

 

 

   

 

 

   

 

 

   

 

 

 


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,  
     2017     2016     2017     2016  

GAAP Net Income (Loss)

   $ (136   $ 924     $ 761     $ 1,880  

Adjustments:

        

Amortization of acquired intangible assets

     611       204       1,018       610  

Stock-based compensation

     70       114       285       299  

Acquisition transaction expenses

     1,754       —         2,019       —    

Severance expenses

     —         —         —         780  

Income taxes adjustments

     (874     (115     (1,211     (636
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Net Income

   $ 1,425     $ 1,127     $ 2,872     $ 2,933  
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Diluted Earnings Per Share

   $ (0.03   $ 0.21     $ 0.16     $ 0.42  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Diluted Earnings Per Share

   $ 0.27     $ 0.25     $ 0.59     $ 0.66  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

        

GAAP Diluted Shares

     5,365       4,493       4,835       4,469  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Diluted Shares

     5,365       4,493       4,835       4,469  
  

 

 

   

 

 

   

 

 

   

 

 

 


MASTECH DIGITAL, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(Amounts in thousands)

(Unaudited)

 

     Three Months ended September 30,     Nine Months ended September 30,  
     2017     2016     2017     2016  

Revenues:

        

IT staffing services

   $ 35,159     $ 34,263     $ 103,345     $ 99,606  

Data and analytics services

     4,069       —         4,069       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 39,228     $ 34,263     $ 107,414     $ 99,606  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income:

        

IT staffing services

   $ 1,520     $ 1,798     $ 3,577     $ 4,003  

Data and analytics services

     1,060       —         1,060       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

     2,580       1,798       4,637       4,003  

Amortization of acquired intangible assets

     (611     (204     (1,018     (610

Acquisition transaction expenses

     (1,754     —         (2,019     —    

Interest expenses and other, net

     (450     (120     (637     (377
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

   $ (235   $ 1,474     $ 963     $ 3,016