Mastech Digital Reports Fourth Quarter and Full Year 2020 Results

PITTSBURGH, Feb. 10, 2021 /PRNewswire/ -- Mastech Digital, Inc. (NYSE American: MHH), a leading provider of Digital Transformation IT Services, announced today its financial results for the fourth quarter and full year ended December 31, 2020.

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Fourth Quarter 2020 Highlights:

    --  Total consolidated revenues declined by 3% to $48.7 million, compared to
        revenues of $50.4 million in the 2019 fourth quarter;
    --  The Company's Data and Analytics Services segment reported record
        revenues of $8.9 million on the strength of its AmberLeaf acquisition;
    --  The IT Staffing Services segment had a $3.4 million decline in revenues
        during the fourth quarter of 2020 compared to the fourth of quarter
        2019. However, the segment achieved a 3% increase in
        consultants-on-billing during the quarter, its second consecutive
        quarter of increasing billable consultant headcount after material
        declines in the first half of 2020;
    --  GAAP diluted earnings per share were $0.17 in the fourth quarter of 2020
        versus $0.20 in the 2019 fourth quarter. The fourth quarter of 2020 was
        impacted by transaction expenses related to the AmberLeaf acquisition;
    --  Non-GAAP diluted earnings per share were $0.29 in the fourth quarter of
        2020 versus $0.26 in the 2019 fourth quarter.

Full Year 2020 Highlights:

    --  Total consolidated revenues of $194.1 million were up slightly from 2019
        revenues of $193.6 million. Our Data and Analytics Services segment
        revenues increased year-over-year by 13% (or by 6% excluding the October
        2020 AmberLeaf acquisition), while our IT Staffing Services segment's
        revenues declined by 2%.
    --  Consolidated gross margins grew to a record 26.6% in 2020, an increase
        of 180-basis points from 2019.
    --  GAAP diluted earnings per share were $0.83 in 2020, compared to $0.99 in
        2019. Full year 2019 included a favorable $6.1 million pretax benefit
        from the revaluation of a contingent consideration liability, which
        revaluation had the effect of increasing 2019 diluted earnings per share
        by approximately $0.40 per diluted share;
    --  Non-GAAP diluted earnings per share were $1.16 in 2020 versus $0.82 in
        2019, representing a 41% improvement on a year-over-year basis.

Fourth Quarter Results:

Revenues for the fourth quarter of 2020 totaled $48.7 million, compared to $50.4 million during the corresponding quarter last year. Gross profits in the fourth quarter of 2020 were $13.1 million, compared to $12.8 million in the same quarter of 2019. GAAP net income for the fourth quarter of 2020 totaled $2.0 million or $0.17 per diluted share, compared to $2.3 million or $0.20 per diluted share during the same period last year. Non-GAAP net income for the fourth quarter of 2020 was $3.4 million or $0.29 per diluted share, compared to $2.9 million or $0.26 per diluted share in the fourth quarter of 2019.

Activity levels at the Company's Data and Analytics Services segment showed improvement during the quarter in terms of bookings, backlog and pipeline opportunities. Demand for the Company's IT Staffing Services segment increased during the quarter, expanding its billable-consultant base by three percent.

Full Year Results:

Revenues for the full year of 2020 totaled $194.1 million, compared to $193.6 million in 2019. Gross profits for 2020 totaled $51.5 million or 26.6% of total revenues, compared to $48.0 million or 24.8% of total revenues in 2019. GAAP net income for 2020 was $9.9 million or $0.83 per diluted share, compared to $11.1 million or $0.99 per diluted share in 2019. Non-GAAP net income for 2020 totaled $13.9 million or $1.16 per diluted share, compared to $9.3 million or $0.82 per diluted share in 2019.

"The 2020 calendar year was notable for our Company amid the many challenges of the global pandemic," said Vivek Gupta, the Company's President and Chief Executive Officer. "Despite major disruptions in economic activity during most of 2020, we were able to expand gross margins, increase profitability and, in our view minimize the extent of the impact of the pandemic on our consolidated revenues. Aggressive austerity measures helped drive record non-GAAP net income in 2020. With COVID-19 vaccination programs rolling out globally, we are seeing early signs of an economic expansion in a number of markets that we serve, which gives me confidence that we are well positioned for 2021 and beyond."

Paul Burton, the Chief Executive of the Company's Data & Analytics segment, stated, "2020 revenue growth in the midst of a global pandemic shows just how resilient our Data and Analytics revenues can be. Our ability to grow revenues, achieve record gross margins and deliver strong operating results in this segment during such a difficult macro-economic environment is a testament to the strength of our business model. Given the strength of our performance in 2020, I'm confident about our near-term prospects and opportunities."

Commenting on the Company's financial position, Jack Cronin, Mastech Digital's Chief Financial Officer, stated, "During the quarter, we increased our cash balances on hand by $4 million. For the full year 2020, we lowered bank debt by $8 million, despite securing a $10 million term loan to support our AmberLeaf acquisition. Additionally, cash availability under our revolving loan facility totaled approximately $22 million at December 31, 2020."

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, EMEA, India and ASEAN.

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 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.

Contingent consideration liability revaluation: In connection with the InfoTrellis acquisition, the Company may have been required to pay future consideration that was contingent upon the achievement of specific earnings before interest and tax objectives ("EBIT"). As of the acquisition date, the Company recorded a contingent consideration liability representing the estimated fair value of such contingent consideration that was expected to be paid. In the second quarter of 2019 this contingent consideration liability was reduced by $6.1 million to zero, after a determination was made that the relevant conditions for payment of such liability were unlikely to be satisfied. We believe that providing non-GAAP financial measures that exclude these adjustments to expense 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 $650,000 of transaction expenses during the fourth quarter of 2020 in connection with the acquisition of AmberLeaf Partners. These transaction expenses included investment banking fees, legal expenses, audit charges related to our acquired companies and various advisory costs. In the 2019 period, we recorded a reduction in acquisition-related transaction expense related to our acquisition of InfoTrellis due to revised estimates of investment banking fees associated with contingent consideration payments. These expenses would not have otherwise been incurred in such periods presented as part of our continuing operations, absent M&A activities. Accordingly, we believe that providing non-GAAP financial measures that exclude these expenses / credits 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) statements regarding the expected benefits to the Company from the completion of the AmberLeaf 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 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, 2019.

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)




                                                                                       December 31, December 31,


                                                                                               2020          2019






     
              ASSETS



     Current assets:


           Cash and cash equivalents                                                         $7,677        $2,981



          Accounts receivable, net                                                          32,134        32,352


           Prepaid and other current assets                                                   1,346         1,597



                 Total current assets                                                        41,157        36,930




      Equipment, enterprise software and
       leasehold improvements, net                                                            1,971         2,476




      Operating lease right-of-use assets                                                     3,286         4,617







     Non-current deposits                                                                      396           405



     Deferred income taxes                                                                     796





     Goodwill, net of impairment                                                            32,510        26,106





     Intangible assets, net                                                                 21,930        20,050



                            Total  assets                                                  $102,046       $90,584





                      LIABILITIES AND SHAREHOLDERS' EQUITY



     Current liabilities:


           Current portion of long-term debt                                                 $4,400        $4,575


           Current portion of operating lease
            liability                                                                         1,079         1,396



          Accounts payable                                                                   2,589         4,027


           Accrued payroll and related costs                                                 12,374         7,902


           Other accrued liabilities                                                          1,529         1,191



                 Total current liabilities                                                   21,971        19,091





     Long-term liabilities:


          Long-term debt, less current portion,
           net                                                                               12,875        20,682


          Long-term operating lease liability,
           less current portion                                                               2,325         3,321



         Contingent consideration                                                            2,882


          Long-term accrued income taxes                                                        165           185


          Long-term payroll tax liability                                                     2,295


          Long-term deferred income taxes                                                                  1,025




                Total liabilities                                                           42,513        44,304





     Shareholders' equity:


           Common stock, par value $0.01 per
            share                                                                               130           127


           Additional paid-in capital                                                        25,509        21,939



          Retained earnings                                                                 38,620        28,759


           Accumulated other comprehensive income
            (loss)                                                                            (539)        (358)



          Treasury stock, at cost                                                          (4,187)      (4,187)



                Total shareholders' equity                                                   59,533        46,280



                            Total liabilities and shareholders'
                             equity                                                        $102,046       $90,584


                          
              
                MASTECH DIGITAL, INC.


             
              
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                    
              (Amounts in thousands, except per share data)


                                     
              (Unaudited)




                                                                             Three Months ended               Year ended December
                                                                              December 31,                31,

                                                                                                ---

                                                         2020                  2019                  2020            2019

                                                                                                                   ---




     Revenues                                        $48,710               $50,360              $194,101        $193,574




      Cost of revenues                                 35,636                37,597               142,562         145,593

                                                                                                                   ---



      Gross profit                                     13,074                12,763                51,539          47,981




      Selling, general and administrative
       expenses:


         Operating expenses                             9,978                 9,295                38,136          37,063


         Revaluation of
          contingent
          consideration
          liability                                                                                            (6,069)



      Total selling,
       general and
       administrative
       expenses                                         9,978                 9,295                38,136          30,994






      Income from
       operations                                       3,096                 3,468                13,403          16,987




      Other income/
       (expense), net                                   (196)                (327)                (770)        (1,768)

                                                                                                                   ---



      Income before
       income taxes                                     2,900                 3,141                12,633          15,219




      Income tax expense                                  875                   867                 2,772           4,074

                                                                                                                   ---

      Net income                                       $2,025                $2,274                $9,861         $11,145







                   Earnings per share:



     Basic                                             $0.18                 $0.21                 $0.87           $1.01



     Diluted                                           $0.17                 $0.20                 $0.83           $0.99




                   Weighted average common shares
                    outstanding:



     Basic                                            11,387                11,049                11,292          11,029

                                                                                                                   ---


     Diluted                                          12,011                11,314                11,950          11,232

                                                                                                                   ---


                                                
              
                MASTECH DIGITAL, INC.


                                           
      
              RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES


                                             
            (Amounts in thousands, except per share data)


                                                            
              (Unaudited)




                                                Three Months ended                                     Year ended December
                                                    December 31,                                                31,



                                                              2020                                                     2019      2020       2019





                    GAAP Net Income                         $2,025                                                   $2,274    $9,861    $11,145




                    Adjustments:


       Amortization of acquired intangible
        assets                                                 792                                                      671     2,790      2,688


     
     Stock-based compensation                                491                                                      170     2,021        936


       Acquisition transaction expenses                        650                                                               650      (110)


       Revaluation of contingent
        consideration liability                                                                                                       (6,069)


     
     Income tax adjustments                                (511)                                                   (224)  (1,418)       661


                    Non-GAAP Net
                     Income                                 $3,447                                                   $2,891   $13,904     $9,251







                    GAAP Diluted
                     Earnings Per
                     Share                                   $0.17                                                    $0.20     $0.83      $0.99



                    Non-GAAP Diluted
                     Earnings Per
                     Share                                   $0.29                                                    $0.26     $1.16      $0.82







                    Weighted average
                     common shares
                     outstanding:


       GAAP Diluted
        Shares                                              12,011                                                   11,314    11,950     11,232


       Non-GAAP Diluted
        Shares                                              12,011                                                   11,314    11,950     11,232


                                                                   
             
             MASTECH DIGITAL, INC.


                                                             
              
            SUPPLEMENTAL FINANCIAL INFORMATION


                                                                         
          (Amounts in thousands)


                                                                              
           (Unaudited)




                                                          Three Months ended
                                                              December 31,                                       Year ended December 31,



                                                                        2020                                                         2019        2020         2019






     
                Revenues:


                              Data and
                               analytics
                               services                               $8,918                                                       $7,161     $30,226      $26,663


                              IT staffing
                               services                               39,792                                                       43,199     163,875      166,911


                                           Total revenues            $48,710                                                      $50,360    $194,101     $193,574






     
                Gross Margin %:


                              Data and
                               analytics
                               services                                47.6%                                                       49.1%      50.5%       46.7%


                              IT staffing
                               services                                22.2%                                                       21.4%      22.1%       21.3%


                                     Total gross margin %             26.8%                                                       25.3%      26.6%       24.8%






     
                Segment Operating Income:


                              Data and
                               analytics
                               services                               $1,794                                                       $1,639      $5,455       $5,495


                              IT staffing
                               services                                2,744                                                        2,500      11,388        8,001


                   
              Subtotal                                 4,538                                                        4,139      16,843       13,496




      Amortization of acquired
       intangible assets                                             (792)                                                       (671)    (2,790)     (2,688)


      Revaluation of contingent
       consideration liability                                           -                                                                              6,069


      Acquisition transaction
       expenses                                                      (650)                                                                  (650)         110


      Interest expense and other, net                                (196)                                                       (327)      (770)     (1,768)


                   Income before income taxes                       $2,900                                                       $3,141     $12,633      $15,219

                                                                                                                                                          ---

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SOURCE Mastech Digital, Inc.