10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 March 31, 2021

☐	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 April 30, 2021 was 11,431,052.

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MASTECH DIGITAL, INC.

QUARTERLY REPORT ON FORM

10-Q

FOR THE QUARTER ENDED MARCH 31, 2021

TABLE OF CONTENTS


			Page

PART 1	FINANCIAL INFORMATION			3

Item 1.	Financial Statements:			3

	(a)	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2021 and 2020		3

	(b)	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2021 and 2020		4

	(c)	Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2021 and December 31, 2020		5

	(d)	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) as of March 31, 2021 and March 31, 2020		6

	(e)	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2021 and 2020		7

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

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk			25

Item 4.	Controls and Procedures			25

PART II	OTHER INFORMATION			26

Item 1.	Legal Proceedings			26

Item 1A.	Risk Factors			26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			26

Item 6.	Exhibits			27

	SIGNATURES			28

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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 March 31,
	2021			2020
Revenues	$	49,775		$	50,425
Cost of revenues		36,971			37,706

Gross profit		12,804			12,719
Selling, general and administrative expense		10,935			10,243

Income from operations		1,869			2,476
Interest income (expense), net		(195	)		(279	)
Other income (expense), net		(37	)		53

Income before income taxes		1,637			2,250
Income tax expense		443			381

Net income	$	1,194		$	1,869

Earnings Per Share:
Basic	$	.10		$	.17

Diluted	$	.10		$	.16

Weighted average common shares outstanding:
Basic		11,415			11,127

Diluted		11,997			11,675

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

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MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)


	Three Months Ended March 31,
	2021			2020
Net income	$	1,194		$	1,869
Other comprehensive income (loss):
Net unrealized gain (loss) on interest-rate swap contracts		35			(94	)
Foreign currency translation adjustments		(19	)		(267	)

Total pretax net unrealized gain (loss)		16			(361	)
Income tax expense (benefit)		9			(25	)

Total other comprehensive gain (loss), net of taxes		7			(336	)

Total comprehensive income	$	1,201		$	1,533

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

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MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)


	March 31, 2021			December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	7,242		$	7,677
Accounts receivable, net of allowance for uncollectible accounts of $426 in 2021 and $413 in 2020		23,425			22,036
Unbilled receivables		12,781			10,098
Prepaid and other current assets		1,238			1,346

Total current assets		44,686			41,157
Equipment, enterprise software, and leasehold improvements, at cost:
Equipment		2,055			1,931
Enterprise software		2,730			2,730
Leasehold improvements		563			563

		5,348			5,224
Less – accumulated depreciation and amortization		(3,453	)		(3,253	)

Net equipment, enterprise software, and leasehold improvements		1,895			1,971
Operating lease right-of-use assets		3,199			3,286
Deferred income taxes		804			796
Non-current deposits		459			396
Goodwill, net of impairment		32,510			32,510
Intangible assets, net of amortization		21,137			21,930

Total assets	$	104,690		$	102,046

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	4,400		$	4,400
Accounts payable		3,915			2,589
Accrued payroll and related costs		12,882			12,374
Current portion of operating lease liability		1,056			1,079
Other accrued liabilities		1,166			1,051
Deferred revenue		405			478

Total current liabilities		23,824			21,971

Long-term liabilities:
Long-term debt, less current portion, net		11,795			12,875
Contingent consideration liability		2,882			2,882
Long-term operating lease liability, less current portion		2,273			2,325
Long-term accrued income taxes		165			165
Long-term payroll tax liabilities		2,295			2,295

Total liabilities		43,234			42,513
Commitments and contingent liabilities (Note 6)
Shareholders’ equity:
Preferred Stock, no par value; 20,000,000 shares authorized; none outstanding		—			—
Common Stock, par value $.01; 250,000,000 shares authorized and 13,076,972 shares issued as of March 31, 2021 and 13,039,893 shares issued as of December 31, 2020		130			130
Additional paid-in-capital		26,231			25,509
Retained earnings		39,814			38,620
Accumulated other comprehensive income (loss)		(532	)		(539	)
Treasury stock, at cost; 1,646,420 shares as of March 31, 2021 and as of December 31, 2020		(4,187	)		(4,187	)

Total shareholders’ equity		61,456			59,533

Total liabilities and shareholders’ equity	$	104,690		$	102,046

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

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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, 2020	$	130	$	25,509	$	38,620	$	(4,187	)	$	(539	)	$	59,533
Net income		—		—		1,194		—			—			1,194
Other comprehensive gain, net of taxes		—		—		—		—			7			7
Stock-based compensation expense		—		621		—		—			—			621
Stock options exercised		—		101		—		—			—			101

Balances, March 31, 2021	$	130	$	26,231	$	39,814	$	(4,187	)	$	(532	)	$	61,456


	Common Stock		Additional Paid-in Capital		Accumulated Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balances, December 31, 2019	$	127	$	21,939	$	28,759	$	(4,187	)	$	(358	)	$	46,280
Net income		—		—		1,869		—			—			1,869
Other comprehensive (loss), net of taxes		—		—		—		—			(336	)		(336	)
Stock-based compensation expense		—		456		—		—			—			456
Stock options exercised		1		555		—		—			—			556

Balances, March 31, 2020	$	128	$	22,950	$	30,628	$	(4,187	)	$	(694	)	$	48,825

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

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MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


	Three Months Ended March 31,
	2021			2020
OPERATING ACTIVITIES:
Net income	$	1,194		$	1,869
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization		997			873
Interest amortization of deferred financing costs		20			26
Stock-based compensation expense		621			456
Deferred income taxes, net		(8	)		(182	)
Operating lease assets and liabilities, net		12			(37	)
Loss on disposition of fixed assets		—			2
Working capital items:
Accounts receivable and unbilled receivables		(4,072	)		(1,244	)
Prepaid and other current assets		108			492
Accounts payable		1,326			(587	)
Accrued payroll and related costs		508			1,554
Other accrued liabilities		141			(276	)
Deferred revenue		(73	)		(151	)

Net cash flows provided by operating activities		774			2,795

INVESTING ACTIVITIES:
Recovery of (payment for) non-current deposits		(63	)		17
Capital expenditures		(128	)		(119	)

Net cash flows (used in) investing activities		(191	)		(102	)

FINANCING ACTIVITIES:
(Repayments) borrowings on revolving credit facility, net		—			(2,244	)
(Repayments) on term loan facility		(1,100	)		(1,144	)
Proceeds from exercise of stock options		101			556

Net cash flows (used in) financing activities		(999	)		(2,832	)

Effect of exchange rate changes on cash and cash equivalents		(19	)		(267	)

Net change in cash and cash equivalents		(435	)		(406	)
Cash and cash equivalents, beginning of period		7,677			2,981

Cash and cash equivalents, end of period	$	7,242		$	2,575

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

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MASTECH DIGITAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021 AND 2020

(Unaudited)

1.	Description of Business and Basis of Presentation:

Basis of Presentation

References in this Quarterly Report on Form

10-Q

to “we”, “our”, “Mastech Digital”, “Mastech” or “the Company” refer collectively to Mastech Digital, Inc. and its wholly-owned operating subsidiaries, which are included in these Condensed Consolidated Financial Statements (the “Financial Statements”).

Description of Business

We are a provider of Digital Transformation IT Services to mostly large and

medium-sized

organizations.

Our portfolio of offerings includes data management and analytics services; digital learning services; and IT staffing services.

Reflective of our 2017 acquisition of the services division of Canada-based InfoTrellis, Inc., we have added specialized capabilities in delivering data and analytics services to our customers globally. This business offers project-based consulting services in the areas of data management, data engineering and data science, with such services delivered using

on-site

and offshore resources. In October 2020, we acquired AmberLeaf Partners, Inc. (“AmberLeaf”), a Chicago-based customer experience consulting firm. This acquisition expanded our capabilities in customer experience strategy and managed services offering for a variety of Cloud-based enterprise applications across sales, marketing and customer services organizations.

Our IT staffing business combines technical expertise with business process experience to deliver a broad range of staffing services in digital and mainstream technologies. Our digital technologies include data management, analytics, cloud, mobility, social and artificial intelligence. We work with businesses and institutions with significant IT spending and recurring staffing service needs. We also support smaller organizations with their “project focused” temporary IT staffing requirements.

The

COVID-19

pandemic had a material impact on activity levels in both of our business segments in 2020. During the first quarter of 2021, we are encouraged by the global

roll-out

of vaccination programs and some signs of economic expansion and improving economic conditions as the impact of the pandemic subsides. There is, however, still uncertainty regarding the pace, nature and extent of the recovery of global markets and particular industries from the pandemic.

Accounting Principles

The accompanying Financial Statements have been prepared by management in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting principally of normal recurring adjustments, considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Financial Statements and the accompanying notes. Actual results could differ from these estimates. These Financial Statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the year ended December 31, 2020, included in our Annual Report on Form

10-K

filed with the SEC on March 16, 2021. Additionally, our operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that can be expected for the year ending December 31, 2021 or for any other period.

Principles of Consolidation

The Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

Critical Accounting Policies

Please refer to Note 1 “Summary of Significant Accounting Policies” of the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Critical Accounting Policies and Estimates” in our Annual Report on Form

10-K

for the year ended December 31, 2020 for a more detailed discussion of our significant accounting policies and critical accounting estimates. There were no material changes to these critical accounting policies during the three months ended March 31, 2021.

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Segment Reporting

The Company has two reportable segments, in accordance with Accounting Standards Committee (“ASC”) Topic 280 “Disclosures About Segments of an Enterprise and Related Information”: Data and Analytics Services and IT Staffing Services.

2.	Revenue from Contracts with Customers

The Company recognizes revenue on

time-and-material

contracts over time as services are performed and expenses are incurred.

Time-and-material

contracts typically bill at an agreed-upon hourly rate, plus

out-of-pocket

expense reimbursement.

Out-of-pocket

expense reimbursement amounts vary by assignment, but on average represent less than 2% of total revenues. Revenue is earned on a per transaction or labor hour basis, as that amount directly corresponds to the value of the Company’s performance. Revenue recognition is negatively impacted by holidays and consultant vacation and sick days.

The Company recognizes revenue on fixed price contracts over time as services are rendered and uses a cost-based input method to measure progress. Determining a measure of progress requires management to make judgments that affect the timing of revenue recognized. Under the cost-based input method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. The Company has determined that the cost-based input method provides a faithful depiction of the transfer of goods or services to the customer. Estimated losses are recognized immediately in the period in which current estimates indicate a loss. We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which may be refundable.

The Company’s

time-and-material

and fixed price revenue streams are recognized over time as the customer receives and consumes the benefits of the Company’s performance as the work is performed.

In certain situations related to client direct hire assignments, where the Company’s fee is contingent upon the hired resources continued employment with the client, revenue is not fully recognized until such employment conditions are satisfied.

We do not sell, lease or otherwise market computer software or hardware, and essentially 100% of our revenue is derived from the sale of data and analytics, IT staffing and digital transformation services. We expense sales commissions in the same period in which revenues are realized. These costs are recorded within sales and marketing expenses.

Each contract the Company enters into is assessed to determine the promised services to be performed and includes identification of the performance obligations required by the contract. In substantially all of our contracts, we have identified a single performance obligation for each contract either because the promised services are distinct or the promised services are highly interrelated and interdependent and therefore represent a combined single performance obligation.

Our Data and Analytics Services segment provides specialized capabilities in delivering data management and analytics services to customers globally. This business offers project-based consulting services in the areas of Master Data Management, Enterprise Data Integration, Data Engineering and Analytics, which can be delivered using onsite and offshore resources.

Our IT Staffing Services segment combines technical expertise with business process experience to deliver a broad range of services in digital and mainstream technologies. Our digital technology stack includes data management and analytics, cloud, mobility, social and automation. Our mainstream technologies include business intelligence / data warehousing; web services; enterprise resource planning & customer resource management; and

e-Business

solutions. We work with businesses and institutions with significant IT spend and recurring staffing needs. We also support smaller organizations with their “project focused” temporary IT staffing requirements.

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The following table depicts the disaggregation of our revenues by contract type and operating segment:


	Three Months Ended March 31,
	2021		2020
	(Amounts in thousands)
Data and Analytics Services Segment
Time-and-material Contracts	$	5,854	$	4,127
Fixed-price Contracts		2,940		3,233

Subtotal Data and Analytics Services	$	8,794	$	7,360

IT Staffing Services Segment
Time-and-material Contracts	$	40,981	$	43,065
Fixed-price Contracts		—		—

Subtotal IT Staffing Services	$	40,981	$	43,065

Total Revenues	$	49,775	$	50,425

For the three months ended March 31, 2021, the Company had one client (CGI = 15%) that exceeded 10% of total revenues. For the three months ended March 31, 2020, the Company had the same one client (CGI = 12.7%) that exceeded 10% of total revenues.

The Company’s top ten clients represented approximately 47% and 46% of total revenues for the three months ended March 31, 2021 and 2020, respectively.

The following table presents our revenue from external customers disaggregated by geography, based on the work location of our customers:


	Three Months Ended March 31,
	2021		2020
	(Amounts in thousands)
United States	$	47,942	$	49,350
Canada		1,264		861
India and other		569		214

Total	$	49,775	$	50,425

3.	Business Combinations

On October 1, 2020, Mastech Digital, Inc., through its wholly-owned subsidiary Mastech Digital Data, Inc., acquired all of the outstanding shares of AmberLeaf Partners, Inc. (“AmberLeaf”). Under the terms of the Share Purchase Agreement executed in connection with the AmberLeaf acquisition (the “Purchase Agreement”), the Company paid at the closing of the acquisition approximately $9.7 million in cash. The Purchase Agreement also requires the Company to pay to the former shareholders of AmberLeaf up to $4.5 million in deferred cash payments, which payments are contingent upon the AmberLeaf business achieving specific revenue growth and EBITDA margin targets. The amount of these deferred cash payments, if any, is based upon the revenue growth and EBITDA margins of the AmberLeaf business for the

12-month

period beginning on January 1, 2021 and for the

12-month

period beginning January 1, 2022, as described more fully in the Purchase Agreement.

To fund the acquisition, on October 1, 2020 the Company entered into a Third Amendment (the “Third Amendment”) to its Credit Agreement, as amended and dated April 20, 2018. The Third Amendment amends the Credit Agreement by, among other things, (1) increasing the aggregate commitment amount of the revolving credit facility to $30 million (an increase of $7.5 million); (2) providing for the Term Loan facility in the aggregate amount of $17.5 million (an increase of $10 million); (3) providing for an increase in the total commitment amount to the facility in an aggregate amount not to exceed $15 million, upon the satisfaction of certain conditions; and (4) amending the financial covenant in the Credit Agreement related to the Company’s Fixed Charge Coverage Ratio (as defined in the Credit Agreement) by increasing the minimum permitted Fixed Charge Coverage Ratio for each of the fiscal quarters ending on or after September 30, 2020.

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The acquisition was accounted for using the acquisition method of accounting. The acquisition method of accounting requires that the assets acquired and liabilities assumed be measured at their fair value as of the closing date.

The following table summarizes the fair value of consideration for the acquired business on the October 1, 2020 closing date:


(in thousands)	Amounts
Cash purchase price at closing	$	9,664
Working capital adjustments		—
Estimated payout of contingent consideration (1)		2,882

Total Fair Value of Consideration	$	12,546

(1)	Based on a valuation conducted by an independent third party, the fair value of contingent consideration at the closing date was determined to be $2,882,000.

The cash purchase price at closing was paid with funds obtained from the following sources:


(in thousands)	Amounts
Cash balances on hand	$	—
Increase in term loan debt facility		10,000
Revolving line of credit		(336	)

Cash Paid at Closing	$	9,664

The allocation of the purchase price was based on estimates of the fair value of assets acquired and liabilities assumed as of October 1, 2020, as set forth below. The excess purchase price over the fair values of the net tangible assets and identifiable intangible assets was recorded as goodwill, which includes value associated with the assembled workforce. Goodwill is expected to be largely deductible for tax purposes. The valuation of net assets acquired is as follows:


(in thousands)	Amounts
Cash on hand	$	319
Working capital assets, net of liabilities		1,153
Identifiable intangible assets:
Client relationships		2,970
Covenant not-to-compete		440
Trade name		490
Technology		770

Total identifiable intangible assets		4,670
Goodwill		6,404

Net Assets Acquired	$	12,546

The fair value of identifiable intangible assets has been estimated using the income approach through a discounted cash flow analysis. Specifically, the Company used the income approach through an excess earnings analysis to determine the fair value of client relationships. The value applied to the covenant

not-to-compete

was based on an income approach using a “with or without” analysis of this covenant in place. The trade name and technology were valued using the income approach—relief from royalty method. All identifiable intangibles are considered level 3 inputs under the fair value measurement and disclosure guidance.

The Company incurred $650,000 of transaction expenses related to the acquisition in 2020 inclusive of the

write-off

of $185,000 of deferred finance costs. No transaction costs were incurred for the three months ended March 31, 2021 and 2020.

Included in the Condensed Statement of Operations for the three months ended March 31, 2021 are revenues of $1.9 million and a net loss of approximately $0.1 million applicable to the AmberLeaf operations acquired on October 1, 2020.

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The following reflects the Company’s unaudited pro forma results had the results of AmberLeaf been included for all periods presented:


	Three Months Ended March 31,
	2021 Actual		2020 Pro Forma
(Amounts in thousands, except per share data)
Revenue	$	49,775	$	53,634
Net income	$	1,194	$	2,337
Earnings per share—diluted	$	.10	$	.20

The information above does not reflect all of the operating efficiencies or inefficiencies that may have resulted from the AmberLeaf acquisition in those periods prior to the acquisition. Therefore, the unaudited pro forma information above is not necessarily indicative of results that would have been achieved had the business been combined during all periods presented.

4.	Goodwill and Other Intangible Assets, net

Goodwill related to our June 15, 2015 acquisition of Hudson Global Resources Management’s U.S. IT staffing business (“Hudson IT”) totaled $8.4 million. Goodwill related to our July 13, 2017 acquisition of the services division of InfoTrellis totaled $27.4 million. Goodwill related to our October 1, 2020 acquisition of AmberLeaf totaled $6.4 million.

The Company is amortizing the identifiable intangible assets on a straight-line basis over estimated average lives ranging from 3 to 12 years. Identifiable intangible assets were comprised of the following as of March 31, 2021 and December 31, 2020:


	As of March 31, 2021
(Amounts in thousands)	Amortization Period (In Years)		Gross Carrying Value		Accumulative Amortization		Net Carrying Value
IT Staffing Services:
Client relationships		12	$	7,999	$	3,861	$	4,138
Covenant-not-to-compete		5		319		319		—
Trade name		3		249		249		—
Data and Analytics Services:
Client relationships		12		19,641		5,274		14,367
Covenant-not-to-compete		5		1,201		608		593
Trade name		5		1,711		956		755
Technology		7		1,979		695		1,284

Total Intangible Assets			$	33,099	$	11,962	$	21,137


	As of December 31, 2020
(Amounts in thousands)	Amortization Period (In Years)		Gross Carrying Value		Accumulative Amortization		Net Carrying Value
IT Staffing Services:
Client relationships		12	$	7,999	$	3,694	$	4,305
Covenant-not-to-compete		5		319		319		—
Trade name		3		249		249		—
Data and Analytics Services:
Client relationships		12		19,641		4,866		14,775
Covenant-not-to-compete		5		1,201		548		653
Trade name		5		1,711		869		842
Technology		7		1,979		624		1,355

Total Intangible Assets			$	33,099	$	11,169	$	21,930

Amortization expense for the three months ended March 31, 2021 and 2020 totaled $793,000 and $673,000, respectively and is included in selling, general and administrative expenses in the Condensed Consolidated Statement of Operations.

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The estimated aggregate amortization expense for intangible assets for the years ending December 31, 2021 through 2025 is as follows:


	Years Ended December 31,
	2021		2022		2023		2024		2025
	(Amounts in thousands)
Amortization expense	$	3,168	$	2,987	$	2,772	$	2,693	$	2,553

Leases

The Company rents certain office facilities and equipment under noncancelable operating leases. As of March 31, 2021, approximately 82,000 square feet of office space is utilized for our sales and recruiting offices, delivery centers, and corporate headquarters. All of our leases are classified as operating leases. The average initial lease term is four years. Several leases have an option to renew, at our sole discretion, for an additional term. Our present lease terms range from less than one year to 5.3 years with an average of 2.1 years. Leases with an initial term of twelve months or less are not recorded on the balance sheet.

The following table summarizes the balance sheet classification of the lease assets and related lease liabilities:


	March 31, 2021		December 31, 2020
	( in thousands)
Assets:
Long-term operating lease right-of-use assets	$	3,199	$	3,286


Liabilities:
Short-term operating lease liability	$	1,056	$	1,079
Long-term operating lease liability		2,273		2,325

Total liabilities	$	3,329	$	3,404

Future minimum rental payments for office facilities and equipment under the Company’s noncancelable operating leases are as follows:


	Amount as of March 31, 2021
	(in thousands)
2021 (For remainder of year)	$	888
2022		1,187
2023		1,139
2024		339
2025		52
Thereafter		30


Total		3,635
Less: Imputed interest		(306	)


Present value of operating lease liabilities	$	3,329

The weighted average discount rate used to calculate the present value of future lease payments was 5.2%.

We recognize rent expense for these leases on a straight-line basis over the lease term. Rental expense for the three months ended March 31, 2021 and 2020 totaled $0.4 million and $0.4 million, respectively.

Total cash paid for lease liabilities for the three months ended March 31, 2021 and 2020 totaled $0.4 million and $0.4 million, respectively.

New leases entered into during the three months ended March 31, 2021 and 2020 totaled $0.3 million and $0.2 million, respectively.

Table of Contents

On April 1, 2021, the Company entered into a three year operating lease for 35,356 square feet of office space in Chennai, India. This lease replaces the Company’s existing 19,120 square foot lease. Lease payments over the three year period will approximate $1.4 million in the aggregate. The lease is renewable for two additional three-year terms with a 15% increase in rent.

6.	Commitments and Contingencies

In the ordinary course of our business, the Company is involved in a numbe

SEC Form 10-Q filed by Mastech Digital, Inc