Mastech Digital (MHH) 2 Aug 232023 Q2 Earnings call transcript

Greetings. Welcome to the Mastech Digital, Inc. Q2 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. this being note Please Instructions] conference recorded. is [Operator

to host, Affairs Jen is Mastech now Lacey, your pleasure my Ms. you, Legal It Ford introduce Manager Inc. Thank Digital, for of

Lacey. Ford

may You begin.

welcome you, to Thank and Mastech second conference quarter Digital’s call. XXXX operator,

not have copy a can received announcement, at www.mastechdigital.com. of our obtained from yet website earnings it you If our be

our of Chief With Executive Officer; Chief company’s me Mastech Financial and Analytics segment. Gupta, Officer; Digital’s Services on Officer the Vivek call Chief Michael and Data Fleishman, Cronin, the today our Executive are business Jack

like plans, which I liquidity statements and during facts intentions we the concerning strategies, in include are flows, remind are would call historical our growth financial projections, to and and operate. made beliefs as everyone that not the cash forward-looking markets our business, this well statements forward-looking as costs These statements. about that statements

These those risks annual in Exchange are that actual including cause to the materially, available on are the as information Without similar and uncertainties identify assume There certain limiting believes, and Commission statements, us, www.sec.gov. from to XX-K expects statements, forward-looking company’s at plans, no could statements. differ XXXX filed Form report these the and change. are on the we events foregoing, obligation expressions with update to intended and available anticipates, to statements these based circumstances listed and words forward-looking currently on Securities website its

to presented elected has non-GAAP measures results on management Additionally, basis. financial certain supplement GAAP financial to provide a our

used measures measures which their believe at income can non-GAAP announcement, respect from transparency will website Reconciliations operating share will earnings which in earnings non-GAAP to by we are to www.mastechdigital.com. per financial the in with net our these we business. diluted greater obtained GAAP non-GAAP management be of provide our comparable included Specifically, key metrics and provide data,

or calls. we nor guidance any call, meetings will will providing guidance not in As subsequent a provide we one-on-one reminder, be during this

now of will for XXXX turn a review I to over quarter Jack second our the call results.

Thanks, Jen, everyone. good and morning,

for Revenues and year-over-year revenue concerns U.S. which decline. inflation, for quarter our a customer challenging impacted economic another has the was of growth, Mastech XXXX slow by $XX.X million, a representing possibility regarding in segments high recession, totaled quarter Digital. services our were the Both lowered business of demand Second XX% near-term.

Services quarter resources and of to reduced of second revenues $XX.X Data continued second Our in XXXX million the Analytics in projects the segment in existing XXXX, light $X.X compared economic contributed as million quarter of customers on uncertainty.

quarter compared in bookings, $X.X the Order million to million XXXX, in of second the year. increased to however, quarter $XX.X first of this

Additionally, our little of to taking that pipeline a with are longer improve opportunities to new projects once customers start caveat actually awarded. the continue

revenues in quarter in compared XXXX. be to with totaled continued second financial respect services our to in soft Staffing $XX.X Demand IT $XX.X the XXXX quarter million, Services Second million current to segment the of particularly clients. quarter,

second gross was variance margin processes. due as rates to the quarter efficiency the Gross margins points XXXX, by compared favorable This in largely Services margins was better XXXX the quarter margins. delivery Data gross our improved XXX continued our higher XXXX in to of Analytics drive quarter and compared in XX% of quarter in to XXXX. to segment, XX.X% second In basis the utilization we second

reductions IT claims usual to in compared margins program. to our than our XXXX insured healthcare medical hire basis gross QX In Services points higher Staffing XXX down related revenues were segment, self direct to due

in this outstanding million negotiations In and on settlement to reserve matter. of the an we of XXXX, been $X.X No a are quarter recorded settle lawsuit has claim. date, related we filed employment pre-tax second to currently

effect share net was second of compared $X.XX in per a loss per quarter diluted $X.X the the loss quarter million diluted second net XXXX. of to above The million, settlement noted share, reserve or a for $X.X GAAP $X.XX of QX XXXX million, GAAP or XXXX Non-GAAP income of earnings share. $X.XX income, $X.XX or in per second was diluted for reducing $X.X to share, net share the $X.XX had share of per per XXXX. by quarter per $X.X diluted diluted compared the million, or

included SG&A our service expense included employment XXXX, the which and on second Also, GAAP net not acquired the measures, release, second were: of description both these to should quarter earnings it of claim. quarter benefits XXXX claims. non-GAAP an items noted financial of settlement two, A income of intangible income related quarter one, second is the related is net reserve employment and assets; of professional stock-based compensation; on expense that in be website. items our outstanding outstanding $XXX,XXX in three, net tax in amortization available included non-GAAP XXXX the

our borrowing XX, and outstanding Addressing balances XXXX, we $XX.X facility. cash million of had of June had availability no on million financial We credit hand. under our on revolving bank debt position $XX.X

XX at XXXX. range which end, is days target XX, than days well XX XX was our below Our days to were and X measurement of day measurement March at quarter sales better outstanding our

of shares common executed an at average stock our Mastech purchasing share price of of quarter on program the per Digital During XXXX, second $X.XX repurchase we approximately share. XX,XXX

turn I’ll his over now to call Vivek the comments. for

operating demand quarter the for the our XXXX. clients lower impact XXXX Jack, we that services. first review morning, in QX dynamics same quarter, Good of financial for everyone. second headwinds for our to continued detailed The our resulting you, results the macroeconomic spending during experienced Thank of in

horizon. recession to conservative Services segment on concerns on more taking to respect continued clients Our spending new IT Staffing the a to a with assignments due approach see around potential

particular, were Our failures banking and financial strings bank crisis. in purse regional recent even worries about given tighten their the services broader a to more inclined clients,

Staffing modest Engineering however, Services, into call the of improvement in just we expanded in space, yet. this see Also clients call demand a recent a short. financial weeks, we or staffing wouldn’t during an we some our I In but from of our did with quarter, services as ESS, for the trend offerings it entry portfolio

existing traction using IT our to that be and is our May, as in recent we ahead offering well this with IT adjacency customers, quarters Since new will as the hoping to declines an service its and late engine the of the recruitment in in depend same new is some gaining launch customers see and Staffing. make trust. upon ESS up are Staffing both ESS

in Our about few Data Analytics and more was reducing impacted by Data Analytics clients Services state existing they also resources as will business of uncertainty. Services in Michael to segments and minutes. projects performance economic talk on affairs a the the respond

continue actions to SG&A have signs data our While profits. an operating expenses we are effort reduce take inflation recent that to U.S. a and may to in in prudent our will by some encouraged dodge and the recession, improvements protect we

sound, remain repurchase balance access businesses the ample like I earlier would capital to a confidence sheet with current the are among and to program to year. our to that that belief that business clients this that in financial we our XXX% announced and fund needs strongest have the our solid industry, reaffirm our fundamentally share we and support

Michael. now and turn the call over Michael Analytics you, me the related Over Let to to Data segment. comments for Services his to

Thanks, Vivek, morning, everyone. and good

clearly uncertain impacting mentioned, our spending behavior. Vivek are economic clients’ As conditions

over existing half XXXX, we posture reducing negatively this our projects first economic has impacted concerns have of conditions, of on mitigating the as resources and clients revenues. their way During seen

company organization services. making in However, believe Services a focus data that from beyond Data our end-to-end the data our management much master revenue to on and good modernization reposition firm are a to progress numbers, efforts we we Analytics broader

higher second of Our XXXX. building progress in the of than this quarter performance our In million, year-to-date. seen million transition year bookings XXXX, and in the increased be $XX.X bookings pipeline clearly can to quarter increased this $X.X first order or order

to first our the RFP our quarter, were previous QX overall half submittals nicely the of XXXX, number of both expand in over second which that will the of bookings My also Our than quarter higher expectation as $X.X well us XXXX. bookings Furthermore, the should pipeline opportunities XXXX. during is up increased. second set million as continue

solid Also, the quarter margins. of we gross in in our made improvements second XXXX,

were quarter This XXXX. a improvement the rate revenues, than of versus margins were utilization reflected XX.X% the second higher quarter XXXX. XXXX of basis of quarter points second gross Our corresponding higher the which quarter XXX in

margins From delivery of revenue adjust our we billable XX% This a our upper ability have workforce of adjust that a quickly to revenue to real the to to strategic is aim gross put, need point is margin irrespective view, range consistently our Simply streams. levels. of gross we something focus team. in time primary

I’ll now Vivek. turn to the call back over

this prepared you, We concludes questions Thank Michael. now. Operator, can take remarks. our

will we with your conducting session. Please Instructions] question comes time, be [Operator Investment At Lisa Thompson the line Our question. proceed with of Research. question-and-answer from a Zacks this first

morning. Good

Lisa. Hi,

see to that – Nice – hi, you there.

revenues due margins. earnings your great made though even You to had lower those we

So encouraging. that’s very

Thank you.

I few have a questions. So

for said you a you what services. know quarter? the staffing, you CGI percent in First off, financial in was decline Do had

Is Jack, Yes. the XX%. I precise number? you that to have would right? close it think was

Right, it XX%. was

Okay.

it was the So them? not across just board,

actually, we through as in work the less we as customers customers when virtually than approximately the I call, And XX% board, XX% Yes, or we’ve – customers earnings seen business as financial we just the services like think been of partners that last started well has from that with our mentioned direct year. across CGI.

consultant what for the number And billable quarter? was Okay. the

Jack, front you? do you number in have that of

Yeah, the billable consultant base I quarter, was of our at Yeah, the end X,XXX. do.

Okay.

maybe of go you offering? into this up. it example you a Can us a what Good. Could an example more do? of that’s they So bit using customer little and give ESS an

Sure, Lisa.

color bit see to Staffing, which are engine. just same add because an maybe beyond a little I the this recruitment ESS of as to the well, IT ESS asked mentioned So is as on I’ll use as the adjacency, we you what we able

use fairly side, engine. to is have the place. customer the sales processes that centers they we And buying the are the often procurement find able are also We same in which on similar same, the

with rates, all line Staffing. bill the be in Now, IT seem margins, gross to

to there clearly, sell. So, is room cross

And engineers, engineers, industrial customers, customers the engineering mechanical Now, been virtually question, forth. ESS kind so us sell engineers, of what be we for was ways using facilities to cross very so this have our already customers and is your for easy to to consultants electrical are we coming it time. kind who Actually, looking engineers, in XX a engineers, customers on for people, long about? talking and of XX And by already could are services, the they’re test engineering some there our of services. of or found kind to

gives a what Lisa? hope you’re looking So I sense of for, that you

Yeah.

a project engineer, kind X-month So like job of right? sign shop, for up you an it’s where or as that something a basically is

It’s and Staffing, have of consultants appropriate find the we and which through or to requirements. customers They interviewed, could look to up for process for. them them in same does portals, directly not it requirements through But requirements be or have we very that get go VMS customers is of customers X front reach they’re the range. and either what in looking to from and they average and seen out Yeah. whatever tend us those different IT at duration signing months putting X be the their

All right. Great.

good. Sounds

question just about I employment have So, this issue. one last

you million a $X balance you have explain mechanics million recovery. insurance So, sheet, the that? for Could then for and on of $X.X liability the

go Jack, will numbers? the through you

process And, the negotiating in sure. are these Yeah, settlement. again, the all and we’re estimates of

Right.

Yeah.

So, I before million. a going to claim our mean, other that is offsets and of insurance estimate we’re $X gross have

million. net negotiations, that million. want $X.X right still Our bring would the $X.X some estimate say claim then, on other And recoveries we’re but insurance down to have in would we because be to now, don’t I claim

Okay. that sort of lawyers – $X stuff? all And that and [ph] the million that why is the include

It does not.

And that or in $XXX,XXX was the consultants for right. that All you whatever? said Okay. quarter

Right.

All right. Great.

revenues be for businesses should expenses be so both to the expect down for and sequentially up Well, QX general Okay. thought. a in little? to That’s we

Lisa, time. projection in want this to of are at So, there, the out I I clearly, economic mean, would make but not we uncertainties a not point

we to out. see quarter go how through it need and this pans So

Okay. Great. Thank questions. so my all you That’s much.

Thank you.

proceed the your line question Our Capital Call question. Tim next of Management comes with Please from with Corporation. The

morning. Good

Hi, Tim.

a a that balance sheet if no and X- so and repurchase earns your pace your million million you sheet. share U.S. clean You earn $XX on that any or on cash. that to million Treasury Are X-month to there with interest the Hi. put it or interest might make on way any making that balance sheet? it you Is cash With or of of balance leaving $X $XX bill? be you balance over debt, X% able in on invest a year a

Jack?

bet, had that are. about what? I flexibility. we $XXX,XXX we all interest Yeah, of income quarter interest course, we of, you would million income And on we quarter. But and, We earned the in the the know didn’t of in day second one $XX have And have QX.

capital, funds, And day it’s as arrangement that earning that soon out. and we our bank have it the payroll, just efficient income. monies working with we sweep funds have. the day where PNC, interest we’re need as payable they accounts day comes to and with We an the fund to But the

Some we invest multiple our But We that but of we haven’t our there grow, monies at basis. time, in as balances cash subsidiaries. a yet, something than day will, are up on day invest to to will that take foreign lock of substantial to looked as period for a really we in rather approach months well.

also ESS. share and cash knowing successful Hopefully can DNA Well, your It’s with put acquisitions, the very use but leave that expanding be Michael to into buybacks. a outlook. having bright history and accretive

period, accelerate buybacks having have share positive very So slower as those will long-term of move results. this or you continue out

Thank repurchasing on congratulations So some you. already.

Thanks, Tim.

the question next Riddick question. Sidoti Company. from line our proceed with Please of with Marc comes And your &

morning, everyone. good Hey,

Hi, Marc.

a wanted of So I things. to scope couple

One to in sort a dense remarks going you’ve of were quarter a could that little [ph] how the prepared we the that your you what about dig and reduction into the both benefits should wondering things efforts. of and forward. release those more, was if within are of bit I mentioned bit think press some and

quite reduction catch. the didn’t I you So SG&A talking in expenses? Are about the

think the going just the press how control was of it plays efforts some Sorry, and the I within out took releases, place forward? that that during quarter cost

Yeah.

in thing we’ve of a when that XXXX, COVID good ago couple hit through is took cost Marc, that we control steps us been way, time. in the and just prudent a this So, the years all at

of sort have the And to able or canceled discretionary is all or basically pushed what revisit we playbook. were we deferred same So expenditures. out done

than having person. conferences, it if conferences, things in like are you’re rather we more doing So internal virtually

and kind upon at are of how seeing looking can We every vendors that we have we improve relationships single with our it.

performing We and reduce at have and low are them. headcount looking not can we if seeing staff our

be We’re looking down. at couple which quarters. deferred of brought can compensation expenses, other We’ve a by increases

defer opening is up of something at basically go to SG&A things element reduce looking been it’s And until and So as if a every that for seeing or things it. could done way either couple we’ve cost a we the we look again. forward at we And of there quarters. now continue has will start once

the that’s So plan.

Okay. then, Marc… And

Go ahead. sorry. I’m

as if bonuses, own, thing This down is come have I have that some a bonuses, have they lower we or other will. Yeah. The expenses out low I environment, if we’re are in environment commissions, to Jack. such is and we growth lower want checks. on we type commissions our where a point only lower of you self [ph] recessionary their mean, correcting, background

So in benefit the the we’re expenses we and gotten going to of get types have of addition of what Vivek said. those to benefit

give us around some finish? then bill were during helpful. any Can the seeing maybe what you rates And an quarter there? we of far as where where that’s and thoughts update Thank do Okay, you’re you. as

Jack, So, the… you have

resources, bill and a are bit, mean, gross margin Yeah. a we’re our are we our content that is of It’s $XX hour for XX%. trending we have not it’s rates more of types down. an trending most on XX%, I The resources project. the but down of resources make using if that projects like

the are have respect Now, the or we’re a content, with down using to the little few same still rate. bucks I close same we’re a that but think average resources lower bill margin to but

heard sure headcount I you And to that correctly, was the think want just I then Okay. I X,XXX? you make said

Yeah.

higher, But it’s not said that’s lower. it’s good, Lisa think it’s higher. I

this? was then I that. checking double yes. going where on was And with I just Oh, Okay,

about there remarks commentary occurred So how within if there. was talk Michael where of sort materialize prepared was in utilization they those wondering and I benefits and around DNA, sort of

Michael?

Sure. that? Vivek, Yeah. take okay, if No, thank you. I

avenues. times. processes that One, a and through ramp visibility project of so was over couple greater controls delivery into we our have So increased predominantly the different existing utilization tighter our

now that place we’ve have notification to So in down on starting that. ramp a right when to were got controls resources, in projects X-month

resources to the existing that other or then net within that up new have when project, those opportunities client within we net renewed placed placed another again either they ramp new X in down, clients customer either in are So another months ensure or within the within customer. client opportunities such they ramp immediately existing into or same

is new rate which in have past been we’ve to always training utilization driving certifying. driving we numbers contributor really, hitting require of primary We you’ve at and utilization to to gross goal and is in course, net bench, consistently seen But want margin of never in then which, addition our resources and which people internally, because a This increasing drives be really the utilizations, of an to levels want consistent level internally leveraged quarters. X% bookings the cross utilized. greater our XX% good that over X great

And that’s then, about or of other some struggles for I retail two vertical I the the services. don’t healthcare Thank whether very what bit me. now Okay, One, – you. guess, in talk financial last customer it’s Why you’re you maybe and helpful. within you’ve talked the like? seeing, of whether a some about little industries, know questions

staffing that Thanks. believe maybe you and services second And revenue then we’re kind to? around new of question the the can what initially is seeing type of that the engineering maybe grow contribution

Sure.

suddenly then was customer to across side, the failures extent steam. we’ve it all that lesser on been board up side bank services started the the in picking cost Marc, happened, maybe financial that from and a before seeing control regional the balanced, So, evenly And industries.

any point board. across time are in this wouldn’t single at out the want but specific I we to seeing So it industry,

part first So question. of first that’s the

services we candidly, just on engineering side, on XX. May one second the started we launched the And it this;

seeing So of lot a few we’ve right just lot point now in this of at had a we’re traction. And time, interest, there. weeks a

seeing had are we’ve a We through some and only wrecks handful of coming placements.

you bill impacting enough in So tell margins. be gross or shown to gross to terms that and But IT really Staffing the has is our the this research the rates bill point comparable are margins that going able time to should at numbers don’t to we have data we on how side. in what overall rates get of

very much. you that’s Thank Okay, helpful.

Thank you, Marc.

the end to now Instructions] reached remarks. for session. we [Operator have back the Gupta closing Vivek the And call over of turn I’ll question-and-answer

Thank questions, are November. Thank like for with If you. there And look sharing to you, joining you early operator. in thank no we you would today. third further XXXX I our results to quarter forward call our

concludes participation. you may at your Thank conference. this And And your you lines for today’s disconnect time. this