10-Q

Table of Contents

Table of Contents

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number

001-34099

MASTECH DIGITAL, INC.

(Exact name of registrant as specified in its charter)


PENNSYLVANIA		26-2753540
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


1305 Cherrington Parkway, Building 210, Suite 400 Moon Township, Pennsylvania		15108
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(412) 787-2100

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in

Rule 12b-2

of the Exchange Act.

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in

Rule 12b-2

of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s

Common

Stock, par value $.01 per share, outstanding as of July 31, 2024 was 11,682,480.

MASTECH DIGITAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2024

TABLE OF CONTENTS


			Page
PART 1	FINANCIAL INFORMATION			3

Item 1.	Financial Statements:			3

	(a)	Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023		3

	(b)	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023		4

	(c)	Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2024 and December 31, 2023		5

	(d)	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023		6

	(e)	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2024 and 2023		7

	(f)	Notes to Condensed Consolidated Financial Statements (Unaudited)		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk			27

Item 4.	Controls and Procedures			27

PART II	OTHER INFORMATION			28

Item 1.	Legal Proceedings			28

Item 1A.	Risk Factors			28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			28

Item 5.	Other Information			29

Item 6.	Exhibits			30

	SIGNATURES			31

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Revenues	$	49,534		$	52,204		$	96,357		$	107,267
Cost of revenues		35,554			38,560			70,246			80,141

Gross profit		13,980			13,644			26,111			27,126
Selling, general and administrative expenses:
Operating expenses		12,287			13,372			24,824			26,322
Employment-related claim, net of recoveries		—			3,100			—			3,100

Total selling, general and administrative expenses		12,287			16,472			24,824			29,422

Income (loss) from operations		1,693			(2,828	)		1,287			(2,296	)
Interest income (expense), net		130			80			284			84
Other income (expense), net		(14	)		(30	)		(44	)		(87	)

Income (loss) before income taxes		1,809			(2,778	)		1,527			(2,299	)
Income tax expense (benefit)		418			(605	)		297			(387	)

Net income (loss)	$	1,391		$	(2,173	)	$	1,230		$	(1,912	)

Earnings (loss) per share:
Basic	$	.12		$	(.19	)	$	.11		$	(.16	)

Diluted	$	.12		$	(.19	)	$	.10		$	(.16	)

Weighted average common shares outstanding:
Basic		11,652			11,620			11,633			11,629

Diluted		11,922			11,620			11,915			11,629

The

accompanying

notes are an integral part of these Condensed Consolidated Financial Statements.

MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands)

(Unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,
	2024		2023			2024			2023
Net income (loss)	$	1,391	$	(2,173	)	$	1,230		$	(1,912	)
Other comprehensive income (loss):
Foreign currency translation adjustments		1		(12	)		(27	)		(7	)

Total other comprehensive income (loss), net of taxes		1		(12	)		(27	)		(7	)

Total comprehensive income (loss)	$	1,392	$	(2,185	)	$	1,203		$	(1,919	)

The

accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)

(Unaudited)


	June 30, 2024			December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	20,587		$	21,147
Accounts receivable, net of allowance for credit losses of $ 436 in 2024 and $528 in 2023		24,649			22,556
Unbilled receivables		7,994			7,259
Prepaid and other current assets		7,385			5,501

Total current assets		60,615			56,463
Equipment, enterprise software, and leasehold improvements, at cost:
Equipment		3,679			3,012
Enterprise software		4,185			4,185
Leasehold improvements		751			753

		8,615			7,950
Less – accumulated depreciation and amortization		(6,373	)		(6,037	)

Net equipment, enterprise software, and leasehold improvements		2,242			1,913
Operating lease right-of-use assets, net		4,471			5,106
Deferred income taxes		660			793
Deferred financing costs, net		236			284
Non-current deposits		454			457
Goodwill, net of impairment		27,210			27,210
Intangible assets, net of amortization		11,615			13,001

Total assets	$	107,503		$	105,227

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,790		$	4,659
Accrued payroll and related costs		11,347			12,354
Current portion of operating lease liability		1,250			1,236
Other accrued liabilities		936			938
Deferred revenue		953			684

Total current liabilities		20,276			19,871

Long-term liabilities:
Long-term operating lease liability, less current portion		3,191			3,843
Long-term accrued income taxes		—			69

Total liabilities		23,467			23,783
Commitments and contingent liabilities (Note 5)
Shareholders’ equity:
Preferred Stock, no par value; 20,000,000 shares authorized; none outstanding		—			—
Common Stock, par value $.01; 100,000,000 shares authorized and 13,404,540 shares issued as of June 30, 2024 and 13,312,568 shares issued as of December 31, 2023		134			133
Additional paid-in-capital		36,813			35,345
Retained earnings		53,645			52,415
Accumulated other comprehensive income (loss)		(1,671	)		(1,644	)
Treasury stock, at cost; 1,723,341 shares as of June 30, 2024 and 1,714,119 shares as of December 31, 2023		(4,885	)		(4,805	)

Total shareholders’ equity		84,036			81,444

Total liabilities and shareholders’ equity	$	107,503		$	105,227

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Amounts in thousands)

(Unaudited)


	Common Stock		Additional Paid-in Capital		Accumulated Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balances, December 31, 2023	$	133	$	35,345	$	52,415		$	(4,805	)	$	(1,644	)	$	81,444
Net (loss)		—		—		(161	)		—			—			(161	)
Other comprehensive (loss), net of taxes		—		—		—			—			(28	)		(28	)
Stock-based compensation expense		—		550		—			—			—			550
Shares repurchased		—		—		—			(80	)		—			(80	)

Balances, March 31, 2024	$	133	$	35,895	$	52,254		$	(4,885	)	$	(1,672	)	$	81,725

Net income		—		—		1,391			—			—			1,391
Employee common stock purchases		—		136		—			—			—			136
Other comprehensive gain, net of taxes		—		—		—			—			1			1
Stock-based compensation expense		—		461		—			—			—			461
Stock options exercised		1		321		—			—			—			322

Balances, June 30, 2024	$	134	$	36,813	$	53,645		$	(4,885	)	$	(1,671	)	$	84,036

Common
Stock

Additional

Paid-in

Capital

Accumulated
Retained
Earnings

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

SEC Form 10-Q filed by Mastech Digital Inc