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 September 30, 2022

☐	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 October 31, 2022 was 11,617,709.

MASTECH DIGITAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2022

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 Nine Months Ended September 30, 2022 and 2021		3

	(b)	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021		4

	(c)	Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2022 and December 31, 2021		5

	(d)	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021		6

	(e)	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2022 and 2021		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			26

Item 4.	Controls and Procedures			27

PART II	OTHER INFORMATION			27

Item 1.	Legal Proceedings			27

Item 1A.	Risk Factors			27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			27

Item 6.	Exhibits			28

	SIGNATURES			29

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 September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

Revenues	$	63,150		$	59,531		$	185,022		$	162,964
Cost of revenues		46,863			42,911			136,057			119,225

Gross profit		16,287			16,620			48,965			43,739
Selling, general and administrative expenses:
Operating expenses		12,930			11,645			38,753			33,566
Revaluation of contingent consideration liability		—			—			—			(1,982	)

Total selling, general and administrative expenses		12,930			11,645			38,753			31,584

Income from operations		3,357			4,975			10,212			12,155
Interest income (expense), net		(85	)		(169	)		(326	)		(523	)
Other income (expense), net		85			(66	)		334			(88	)

Income before income taxes		3,357			4,740			10,220			11,544
Income tax expense		951			1,334			3,046			3,206

Net income	$	2,406		$	3,406		$	7,174		$	8,338

Earnings per share:
Basic	$	.21		$	.30		$	.62		$	.73

Diluted	$	.20		$	.28		$	.59		$	.69

Weighted average common shares outstanding:
Basic		11,616			11,441			11,578			11,430

Diluted		12,084			12,025			12,082			12,007

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

Table of Contents

MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022			2021		2022			2021
Net income	$	2,406		$	3,406	$	7,174		$	8,338
Other comprehensive income (loss):
Net unrealized gain on interest-rate swap contracts		—			—		—			35
Foreign currency translation adjustments		(235	)		31		(701	)		(83	)

Total pretax net unrealized gain (loss)		(235	)		31		(701	)		(48	)
Income tax expense		—			—		—			9

Total other comprehensive gain (loss), net of taxes		(235	)		31		(701	)		(57	)

Total comprehensive income	$	2,171		$	3,437	$	6,473		$	8,281

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

Table of Contents

MASTECH DIGITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)


	September 30, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	3,482		$	6,622
Accounts receivable, net of allowance for uncollectible accounts of $444 in 2022 and $375 in 2021		37,257			34,153
Unbilled receivables		13,183			9,240
Prepaid and other current assets		3,833			3,890

Total current assets		57,755			53,905
Equipment, enterprise software, and leasehold improvements, at cost:
Equipment		2,821			2,356
Enterprise software		4,146			3,753
Leasehold improvements		737			842

		7,704			6,951
Less – accumulated depreciation and amortization		(4,723	)		(3,913	)

Net equipment, enterprise software, and leasehold improvements		2,981			3,038
Operating lease right-of-use assets		4,263			4,894
Deferred financing costs, net		311			—
Non-current deposits		571			595
Goodwill, net of impairment		32,510			32,510
Intangible assets, net of amortization		16,385			18,760

Total assets	$	114,776		$	113,702

LIABILITIES AND SHAREHOLDERS’ EQUITY		<

SEC Form 10-Q filed by Mastech Digital Inc