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, 2023

☐	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, 2023 was 11,599,138.

MASTECH DIGITAL, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2023

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, 2023 and 2022		3

	(b)	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three and Nine Months Ended September 30, 2023 and 2022		4

	(c)	Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2023 and December 31, 2022		5

	(d)	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2023 and 2022		6

	(e)	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2023 and 2022		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 6.	Exhibits			29

	SIGNATURES			30

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,
	2023			2022			2023			2022
Revenues	$	47,779		$	63,150		$	155,046		$	185,022
Cost of revenues		35,213			46,863			115,354			136,057

Gross profit		12,566			16,287			39,692			48,965
Selling, general and administrative expenses:
Operating expenses		12,615			12,930			38,937			38,753
Employment-related claim, net of recoveries		—			—			3,100			—

Total selling, general and administrative expenses		12,615			12,930			42,037			38,753

Income (loss) from operations		(49	)		3,357			(2,345	)		10,212
Interest income (expense), net		148			(85	)		232			(326	)
Other income (expense), net		55			85			(32	)		334

Income (loss) before income taxes		154			3,357			(2,145	)		10,220
Income tax expense (benefit)		29			951			(358	)		3,046

Net income (loss)	$	125		$	2,406		$	(1,787	)	$	7,174

Earnings (loss) per share:
Basic	$	.01		$	.21		$	(.15	)	$	.62

Diluted	$	.01		$	.20		$	(.15	)	$	.59

Weighted average common shares outstanding:
Basic		11,597			11,616			11,618			11,578

Diluted		11,968			12,084			11,618			12,082

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 (LOSS)

(Amounts in thousands)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Net income (loss)	$	125		$	2,406		$	(1,787	)	$	7,174
Other comprehensive income (loss):
Foreign currency translation adjustments		(88	)		(235	)		(95	)		(701	)

Total other comprehensive gain (loss), net of taxes		(88	)		(235	)		(95	)		(701	)

Total comprehensive income (loss)	$	37		$	2,171		$	(1,882	)	$	6,473

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, 2023			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	15,881		$	7,057
Accounts receivable, net of allowance for uncollectible accounts of $515 in 2023 and $444 in 2022		24,841			33,603
Unbilled receivables		7,437			8,719
Insurance recovery		2,200			—
Prepaid and other current assets		5,859			3,795

Total current assets		56,218			53,174
Equipment, enterprise software, and leasehold improvements, at cost:
Equipment		2,896			2,790
Enterprise software		4,185			4,185
Leasehold improvements		752			732

		7,833			7,707
Less – accumulated depreciation and amortization		(5,824	)		(5,042	)

Net equipment, enterprise software, and leasehold improvements		2,009			2,665
Operating lease right-of-use assets, net		4,418			3,886
Deferred financing costs, net		238			293
Non-current deposits		456			578
Goodwill, net of impairment		32,510			32,510
Intangible assets, net of amortization		13,694			15,773

Total assets	$	109,543		$	108,879

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	—		$	1,100
Accounts payable		4,842			4,475
Accrued payroll and related costs		12,270			11,085
Current portion of operating lease liability		1,318			1,504
Other accrued liabilities		864			1,186
Deferred revenue		410			207

Total current liabilities		19,704			19,557

Long-term liabilities:
Long-term operating lease liability, less current portion		3,054			2,294
Long-term accrued income taxes		69			105
Deferred income taxes		516			920

Total liabilities		23,343			22,876
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 13,307,919 shares issued as of September 30, 2023 and 13,269,118 shares issued as of December 31, 2022		133			133
Additional paid-in-capital		34,710			32,059
Retained earnings		57,766			59,553
Accumulated other comprehensive income (loss)		(1,650	)		(1,555	)
Treasury stock, at cost; 1,708,781 shares as of September 30, 2023 and 1,646,420 shares as of December 31, 2022		(4,759	)		(4,187	)

Total shareholders’ equity		86,200			86,003

Total liabilities and shareholders’ equity	$	109,543		$	108,879

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

Table of Contents

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, 2022	$	133	$	32,059	$	59,553		$	(4,187	)	$	(1,555	)	$	86,003
Net income		—		—		261			—			—			261
Other comprehensive gain, net of taxes		—		—		—			—			5			5
Stock-based compensation expense		—		835		—			—			—			835

Balances, March 31, 2023	$	133	$	32,894	$	59,814		$	(4,187	)	$	(1,550	)	$	87,104

Net (loss)		—		—		(2,173	)		—			—			(2,173	)
Employee common stock purchases		—		150		—			—			—			150
Other comprehensive (loss), net of taxes		—		—		—			—			(12	)		(12	)
Stock-based compensation expense		—		842		—			—			—			842
Shares repurchased		—		—		—			(572	)		—			(572	)

Balances, June 30, 2023	$	133	$	33,886	$	57,641		$	(4,759	)	$	(1,562	)	$	85,339

Net income		—		—		125			—			—			125
Other comprehensive (loss), net of taxes		—		—		—			—			(88	)		(88	)
Stock-based compensation expense		—		824		—			—			—			824

Balances, September 30, 2023	$	133	$	34,710	$	57,766		$	(4,759	)	$	(1,650	)	$	86,200


	Common Stock		Additional Paid-in Capital		Accumulated Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balances, December 31, 2021	$	131	$	28,250	$	50,841	$	(4,187	)	$	(607	)	$	74,428
Net income		—		—		2,332		—			—			2,332
Other comprehensive (loss), net of taxes		—		—		—		—			(147	)		(147	)
Stock-based compensation expense		—		526		—		—			—			526
Stock options exercised		2		891		—		—			—			893

SEC Form 10-Q filed by Mastech Digital Inc