Mastech Digital (MHH) 8-K Mastech Digital Reports 8% Revenue Growth in Second Quarter 2019

Exhibit 99.1

FOR IMMEDIATE RELEASE:

Mastech Digital Reports 8% Revenue Growth in Second Quarter 2019

Data & Analytics Segment Generates Record Revenues

PITTSBURGH, PA – July 31, 2019 -Mastech Digital, Inc. (NYSE American: MHH), a leading provider of Digital Transformation IT Services, announced today its financial results for the second quarter ended June 30, 2019.

Second Quarter 2019 Highlights:

● Total revenues increased 8% to $48.5 million, compared to revenues of $44.9 million in the 2018 second quarter;

● The Company’s data and analytics services segment reported record quarterly revenues of $6.7 million, representing 9% growth over the same quarter last year and a 15% sequential increase over our last quarter;

● The IT staffing segment achieved organic revenue growth of 8% during the second quarter of 2019 compared to the second quarter of 2018 and a 6% sequential increase over our last quarter;

● GAAP diluted earnings per share were $0.53 in the second quarter of 2019 versus $0.25 in the 2018 second quarter; the current quarter benefited by a $6.1 million pretax revaluation of a contingent consideration liability;

● Non-GAAP diluted earnings per share were $0.20 in the second quarter of 2019 compared to $0.21 in the 2018 second quarter;

● Bank debt, less cash balances on hand, was reduced by $7.6 million during the quarter, as cash conversion issues related to system implementation disruptions materially improved.

Second Quarter Results:

Revenues for the second quarter of 2019 totaled $48.5 million compared to $44.9 million during the corresponding quarter last year. Gross profit in the second quarter of 2019 was $12.1 million, compared to $10.9 million in the same quarter of 2018. GAAP net income for the second quarter of 2019 totaled $6.0 million or $0.53 per diluted share, compared to $2.8 million or $0.25 per diluted share during the same period last year. Non-GAAP net income for the second quarter of 2019 was $2.2 million or $0.20 per diluted share, compared to $2.3 million or $0.21 per diluted share in the second quarter of 2018. Activity levels at the Company’s data and analytics services segment continued to strengthen from the previous quarter and revenues in the second quarter of 2019 increased by approximately $0.9 million over revenues reported in the first quarter of 2019. This 15% sequential growth reflected an increase in activity levels for the third consecutive quarter. Demand for the Company’s IT staffing services also remained strong during the quarter.

“I am extremely pleased with the performance of our data and analytics segment, which once again showed healthy sequential growth on the strength of continued pipeline expansion and project wins,” commented Vivek Gupta, Mastech Digital’s Chief Executive Officer. “During the quarter, we significantly enlarged our services stack and hired several key executives, and I am happy to say that we are already seeing payback from these investments. Going forward, we will continue to invest, in a disciplined manner, to capitalize on the bullish conditions that we are seeing in the marketplace. Our IT staffing segment continued to deliver above industry average growth, at higher gross margins, as we continue our focus on digital technologies,” Mr. Gupta added.

Commenting on the Company’s financial position, Jack Cronin, Mastech Digital’s Chief Financial Officer, stated, “At June 30, 2019 we had bank debt, net of cash balances on hand, of $29.4 million and approximately $12.5 million of borrowing capacity available to us under our revolving credit line. During the quarter, debt levels, net of cash, declined by $7.6 million, as our cash conversion issues related to the implementation of our new Cloud-based ERP platform are largely behind us.”

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 services; other digital transformation services that include Salesforce.com, and Digital Learning services; and IT staffing services. A minority-owned enterprise, Mastech Digital is headquartered in Pittsburgh, PA with offices across the U.S. and India. For more information, visit www.mastechdigital.com.

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 and our July 2017 acquisition of the services division of InfoTrellis, Inc. 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 tonon-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.

Acquisition-related transaction expenses: We incurred significant expenses in connection with our July 2017 acquisition of InfoTrellis, Inc. which we would not have otherwise incurred in the periods presented as part of our continuing operations. These transaction expenses consisted of investment banking fees, legal expenses, audit charges related to our acquired companies and various advisor costs. In the 2018 period, we recorded a reduction in acquisition-related transaction expense due to a revised estimate of investment banking fees associated with contingent consideration payments. No transaction expenses were incurred in 2019. 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.

Contingent consideration liability revaluation: In connection with the InfoTrellis acquisition, the Company was required to pay future consideration that was contingent upon the achievement of specific earnings before interest and tax objectives. 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 and 2018, this contingent consideration liability was reduced by $6.1 million and $9.1 million, respectively, after determining that 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.

Goodwill impairment: The Company accounts for acquisitions in accordance with guidance found in ASC 805,Business Combinations. Accordingly, excess purchase price over the fair value of net tangible assets and identifiable intangible assets are recorded as goodwill. Goodwill is not amortized but is tested for impairment at least on an annual basis. If impairment is indicated, a write-down to fair value is recorded based on the excess of the carrying value of the asset over its fair market value. As a result of the reductions to contingent consideration related to the July 2017 InfoTrellis acquisition, we performed quantitative impairment tests on June 30, 2019 and June 30, 2018. The results of these tests indicated no impairment of goodwill in 2019 and a $7.7 million impairment associated with the carrying value of goodwill in 2018. While it is possible that goodwill impairment could occur in the future, we believe that providing non-GAAP financial measures that exclude impairment 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.

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) the expected benefits to Mastech Digital from completing the acquisition of the services division of InfoTrellis, Inc. and the PNC credit facility and the expected performance of Mastech Digital following completion of these transactions. 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 its 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, and the Company’s ability to create, acquire and build new lines of business, to attract and retain qualified personnel, reduce costs and conserve cash, and other risks that are described in more detail in the Company’s filings with the Securities and Exchange Commission including its Form10-K for the year ended December 31, 2018.

# # #

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)

	June 30,			December 31,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	3,869		$	1,294
Accounts receivable, net		35,791			38,080
Prepaid and other current assets		1,349			1,321
Total current assets		41,009			40,695
Equipment, enterprise software and leasehold improvements, net		2,438			2,208
Operating leaseright-of-use assets		4,980			-
Deferred income taxes		-			297
Non-current deposits		447			540
Goodwill, net of impairment		26,106			26,106
Intangible assets, net		21,394			22,738
Total assets	$	96,374		$	92,584
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	4,575		$	4,575
Current portion of operating lease liability		1,339			-
Accounts payable		3,909			4,127
Accrued payroll and related costs		10,088			7,728
Other accrued liabilities		1,271			1,476
Total current liabilities		21,182			17,906
Long-term liabilities:
Long-term debt, less current portion, net		28,366			34,129
Contingent consideration liability		-			6,069
Long-term operating lease liability, less current portion		3,736			-
Long-term accrued income taxes		204			204
Deferred income taxes		1,157			-
Total liabilities		54,645			58,308
Shareholders’ equity:
Common stock, par value $0.01 per share		127			126
Additionalpaid-in capital		21,437			20,829
Retained earnings		24,536			17,614
Accumulated other comprehensive income (loss)		(184	)		(119	)
Treasury stock, at cost		(4,187	)		(4,174	)
Total shareholders’ equity		41,729			34,276
Total liabilities and shareholders’ equity	$	96,374		$	92,584

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,
	2019			2018			2019			2018
Revenues	$	48,472		$	44,894		$	93,671		$	88,227
Cost of revenues		36,418			34,002			70,782			67,074
Gross profit		12,054			10,892			22,889			21,153
Selling, general and administrative expenses		3,475			6,435			12,440			14,258
Income from operations		8,579			4,457			10,449			6,895
Other income/(expense), net		(507	)		(607	)		(1,061	)		(1,119	)
Income before income taxes		8,072			3,850			9,388			5,776
Income tax expense		2,114			1,033			2,466			1,579
Net income	$	5,958		$	2,817		$	6,922		$	4,197
Earnings per share:
Basic	$	0.54		$	0.26		$	0.63		$	0.38
Diluted	$	0.53		$	0.25		$	0.62		$	0.38
Weighted average common shares outstanding:
Basic		11,022			10,926			11,013			10,924
Diluted		11,164			11,142			11,183			11,106

MASTECH DIGITAL, INC.

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

(Amounts in thousands, except per share data)

(Unaudited)

	Three Months ended June 30,						Six Months ended June 30,
	2019			2018			2019			2018
GAAP Net Income	$	5,958		$	2,817		$	6,922		$	4,197
Adjustments:
Amortization of acquired intangible assets		672			689			1,344			1,382
Stock-based compensation		267			120			503			225
Acquisition transaction expenses/(credits)		-			(140	)		-			(140	)
Goodwill impairment		-			7,738			-			7,738
Revaluation of contingent consideration liability		(6,069	)		(9,106	)		(6,069	)		(9,106	)
Income tax effect of pretax adjustments		1,351			187			1,110			(27	)
Non-GAAP Net Income	$	2,179		$	2,305		$	3,810		$	4,269
GAAP Diluted Earnings Per Share	$	0.53		$	0.25		$	0.62		$	0.38
Non-GAAP Diluted Earnings Per Share	$	0.20		$	0.21		$	0.34		$	0.38
Weighted average common shares outstanding:
GAAP Diluted Shares		11,164			11,142			11,183			11,106
Non-GAAP Diluted Shares		11,164			11,142			11,183			11,106

MASTECH DIGITAL, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(Amounts in thousands)

(Unaudited)

	Three Months ended June 30,				Six Months ended June 30,
	2019		2018		2019		2018
Revenues:
Data and analytics services	$	6,654	$	6,083	$	12,422	$	12,655
IT staffing services		41,818		38,811		81,249		75,572
Total revenues	$	48,472	$	44,894	$	93,671	$	88,227
Gross Margin %:
Data and analytics services		46.1%		42.2%		45.8%		43.3%
IT staffing services		21.5%		21.4%		21.2%		20.7%
Total gross margin %		24.9%		24.3%		24.4%		24.0%
Segment Operating Income:
Data and analytics services	$	1,285	$	1,411	$	2,326	$	3,186
IT staffing services		1,897		2,227		3,398		3,583
Subtotal		3,182		3,638		5,724		6,769
Acquisition transaction expenses		-		140		-		140
Amortization of acquired intangible assets		(672)		(689)		(1,344)		(1,382)
Goodwill impairment		-		(7,738)		-		(7,738)
Revaluation of contingent consideration liability		6,069		9,106		6,069		9,106
Interest expense and other, net		(507)		(607)		(1,061)		(1,119)
Income before income taxes	$	8,072	$	3,850	$	9,388	$	5,776