- Earnings call transcript Q3 2022

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Operator

Greetings and welcome to the Mastech Digital Inc.

Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jennifer Lacey, Manager of Legal Affairs for Mastech Digital Inc. you. Thank

begin. may You

Jennifer Lacey

and Mastech operator XXXX third conference call. welcome you, Digital's to quarter Thank

events which to and are limiting operate. expects, There actual that Securities statements. as at similar report call in and on include Form company's that foregoing, statements. remind not a Jack financial are annual expressions to the historical website believes, yet and certain these differ update words on earnings and and have Chief would during today you materially intended everyone costs If based received circumstances statements, no Without like that Mastech information projections, These forward-looking and Gupta, Chief can statements statements change. me the statements uncertainties the us beliefs Digital's obtained forward-looking Financial anticipates, are With I those Vivek the to flows, announcement, facts Officer; statements www.sec.gov. plans, could liquidity we These its available the and XXXX cause this identify forward-looking as copy assume be these about our made from plans, are obligation and listed growth with our filed Exchange are the are concerning XX-K on including from well Commission strategies, to risks statements we www.mastechdigital.com. our cash markets and website at Executive not on in forward-looking as call Cronin, it business, our our the of Officer. currently available intentions to

to provide financial certain Additionally, a presented our management supplement GAAP results basis. has non-GAAP financial on to measures elected

www.mastechdigital.com. included with share their business. financial be non-GAAP in to which announcement, non-GAAP are Specifically, the respect in operating management GAAP can provide net data, at the Reconciliations transparency our greater income comparable per non-GAAP obtained measures of and we we to metrics our key by believe earnings from will used will which measures earnings website diluted provide these

not call, on noteworthy subsequent As guidance meetings comments will we turn for we Vivek this his recent providing in to any I or provide now calls. over a several will the during one-on-one reminder, call will events. be nor guidance

Vivek Gupta

Good morning, everyone. Jennifer. Thanks,

First, press that related to Segment. the change Data issued Services the let analytics last business our was segment. me CEO leadership the address yesterday company Ganeshan data resigned the release Analytics in Venkateshwaran, night services a in as and from and of

business Executive is his immediate I DNA the resignation Services Ganeshan’s Board of the Our with until in effect. successor Chief accepted serve place. will as

in mentioned two as which Secondly, this earnings single morning's Info email and employee Trellis impacted cybersecurity release, we involving a a Mastech clients. account quarter third experienced breach indirectly

identified changed steps. passcodes team practice, engaged we and this findings be our account. IT and to action the sure To doubly validate decommissioned affected email point logins address, also the external laptop and of Our and as email entry, remedial and for good business advisors

as forensic a part this experts any us whether As compromised PII this information analysis personally also with to as result assisting engagement, of are these identifiable was known determine of breach.

these such to have with required PII PII data. any compliance appropriate advisers been data determined the assisting steps compromised, to determining in respect be For us will

advisers, the of the third relating an other We related event, costs pre-tax as to $XXX,XXX includes losses loss have as reserve accrued potential of this engaging estimate which well of a breach. in reserve to the quarter external XXXX our

these expense and to cost underperforming third quarter decision Ireland of related Finally, actions. in $XXX,XXX close to we reserved the operating Singapore our a operations structure in in rationalize made and U.K. we severance XXXX, to our Accordingly,

a over third XXXX quarter financial to call detailed turn now me results. review our Let Jack the for of

Jack Cronin

good everyone. Thanks, morning, Vivek, and

IT $XX.X on quarter, third corresponding $XX.X This decrease in reflects a quarter quarter. to million, compared gross fully average decline deploy compared the X% comes the XXXX third bill XXXX we services quarter an utilization improvement largely and resources. in largely XX.X% in in million, X% data percent quarter during available as higher consultants third services margins third XXXX, The level and X% a $XX.X the in increase billing to the improvement X% in and due were XX.X% corresponding analytics in quarter The in X% XX% rate increase a our during in reflected of a in quarter to to analytics XXXX. of revenues XXXX. higher year-over-year and QX data second totaled profits compared a revenue QX and global and staffing the the the workable revenues to million the the of decline staffing quarter segment in to XXXX third ago. the XXXX. a IT XXXX up orders unable million the Gross data During of segment of quarter services timing of compared quarter lower year-over-year ramp totaled versus XXXX was after year analytics the previous the revenue of QX of reflected Gross The $XX.X as in segment. was profit second

$X.X SG&A Net tax QX items are included million quarter $X XXXX detailed $XXX,XXX non-GAAP measures. available structure $X.XX. third in of had had $X.X an our Non-GAAP a cybersecurity we share share income compared was balances year-end. earnings release, XXXX net $XX.X approximately Additionally, term earnings the a on the the $X.XX third position, feature. per approximately our of at million term third financial or closure project cash our XXXX. expense on well credit diluted should XXXX, million, to our million $X.XX of million compared per on in addition XX, that was $X.XX not diluted website. of for quarter incurred September $X.X to with the additional be cost reserves Addressing in net XXXX. credit $X.X of we million, a for in a per for borrowings diluted expense million scheduled associated Ireland QX impact loan GAAP or per GAAP loan of and benefits capacity noted up revolving availability diluted $X.XX million $XX hand to UK in negative and which overrun per severance is share, to of QX of or It or accordion fixed our cash on complete assignment facility's share on income facility, the our share, Singapore as our diluted to under as and no in XXXX $X.X outstanding of under quarter million revolving financial of price breach rationalization operations,

on-hand. During quarter, third pay our the debt outstanding cash of early $X.X we elected excess with million to term balances

schedule, loan we to comments. Vivek for his debt expect to XXXX. term other our in the January free of be early I'll now Given repayment over back call turn

Vivek Gupta

happy gross Thank performance revenues are unacceptable. not with third you, shortfalls margin and our services we decline the analytics in of and Clearly, data year-over-year and Jack. segment as sizable quarter view business

price believe utilization need forward, secured billing and focus activities, Moving workforce proactively all on existing fixed in-turn strengthen improve align which to orders, with we more with assignments. our we will clients, new workable development relationships monitor our business

such We in to will in an future. endeavor avoid issues effort the to focus occurrences these immediately on

at demand staffing did We higher improved in in billable decline. XX bill gross quarter, of headcount services grow and continued in the rates. some Our consultant margins which IT the a to segment during weakness at however see third XXXX resulted quarter

market monitor We activity dynamics. of the or QX to shift will in was continue levels a assess this if to beginning in aberration an

rates, expense mention to XXX,XXX environment. we like deleverage loan in July. Operator, now. would our balance increase to to interest in XXXX action quarter that Bank today's early questions prepared We I Lastly, Central with decision continue This third this during can by million lower sheet pay quarterly outstanding will our made uncertain X.X we the the continuing of to our concludes take as remarks. the term approximately interest

Operator

you. Instructions] you. Thank Thank [Operator

Our your first with Thompson line from question. Lisa comes Please question with the proceed Zacks. of

Lisa Thompson

morning. Good

Vivek Gupta

Lisa. Hi,

Lisa Thompson

Hi there.

have busy certainly folks quarter. a had You

Vivek Gupta

sure. Sure,

Lisa Thompson

Okay.

at you what business a could You in in to recession of more? might So, more is, acquisition. little or D&A? their elaborate would interested do current on have certainly and I a think, make a clarity think you is something reigning lot that be the do a be to Can to just then that you getting Is little happening do an bit the due in people that plans weakness run possibly your there bring business? you And that think missteps? cash

Vivek Gupta

didn't Can get you the last of just the part? repeat question. part that I quite

Lisa Thompson

the drying where due say back is own or missteps pipeline up are think a you recession that is whatever plans? their from pulling that or to customers Do your

Vivek Gupta

Okay.

answer the second one me let and Lisa, So try first.

side. staffing the bit, the the second – The it's a more is, demand reducing when about on IT one think mentioned I I

of side may not so but far. doesn't it have be far. not data that so We It of and the seen on haven't we evidence analytics there, mean seen evidence that

Now, first analytics there coming the done of on piece. to data question, be the to clearly is some the part work

mentioned then to that maximize our from We including that were sure again then of that need to have development, with up we the to happened we relationships had can sure focus that we fully existing in on, bit not business our making I in bunch to we existing clients. project we able coincidentally a there things As align overrun which that of did one, the And with able that QX, orders. identified a And but them. actual are workforce building what the resources making we new of are last we D&A. utilize

have really analytics of a but a confident pretty delivered and team QX, that current of that out our the we the as the are data company a So, contributed quarter we growth of will confident, And prospects solutions and long-term better confident we things in effectively so segment, the the efforts. to our remain beat will be I'm we to confident, emerge turned we as mean, good I in these challenges customers. for these value what result not to are

So, answer question, does Lisa? that your

Lisa Thompson

any that you. new quarter? Did orders [ph] business last this XX in [Needed] Yes. book million Yes. quarter. Thank you

Vivek Gupta

numbers? it order. Yes, have for was similar you the I think a Jack,

Jack Cronin

X Yes, I little bit over a million. think was it

Lisa Thompson

going Okay, can And I know for because holidays, you QX QX? expect feel a of great. to weaker in on the typically what us that give is

Vivek Gupta

to put seasonally indeed specifically. staffing also lots always because for there folks holidays and impacts on some this tendency of QX customers is there IT quarter our and furloughs is So, actually a are lower

the is can but that's do in the staffing then also happen of side, is depression we last else that anything the QX, amount the quarter, seasonal of forward carry the there ends [indiscernible]? bit of a assignment expect and lot on in Jack, And a or week seasonal. QX, decline, So, last into some which impact day little or of virtually I typically say, this have view. IT

Jack Cronin

were want just XX.X to I just we second third one million. There's year, the no a on for, well in what disappointing. to bit comment first our make remember that million in about to this that we to were revenues but million, I you revenues D&A. got averaging and hoping were XX was – denying We below of the XX.X make half the want of quarter, quarter get

So, of cliff. the yes. third was but not [flowing] quarter business it's like off disappointment, is a [ph]

Lisa Thompson

it quarter grow expect you not? or do So, this sequentially to

Jack Cronin

I it flat would up would I that say in slightly think to be QX.

Lisa Thompson

rodeo [ph]. far I take any And start there recessions if quite as you you gone, seeing this Is know in you [That's up] as up. a here, know while coming actions weakness been Okay. globally? you've

Vivek Gupta

Yes.

of as beginning already uncertain conditions all side they that the in the [ph] current to and we more cautious [belts] extra So, say, and I'm on are talking because a clients seeing the almost are we tighten staffing IT being Lisa, our recession. possibility are likely our

pushing shrinking scale large cost customers projects projects, not reductions they the or or canceling projects. are scale our and and are partners definitely or being large structure tightening some even while Now, happening, some headcount IT are not cut are their out

– of we started looking drastic So, our that's in costs, terms already happening tightening are is of some be that, what of anticipation steps. at happening that. that in customers ways in we but our of and anything the belts doing terms seeing, and can of taking are deferred We've of really sort recession,

Lisa Thompson

you. Great. all my That's Thank questions.

Vivek Gupta

Lisa. Thanks

Operator

Sidoti. with [Operator question your Marc proceed question. Instructions] Our comes the with Riddick next from line of Please

Marc Riddick

good morning. Hi,

Vivek Gupta

Marc. Hi,

Marc Riddick

to the the of So, we some far the if of I as that and was the decision? need and about address Singapore a some could of details wondering or bit financials little as talk closing with Ireland that might you decision

Vivek Gupta

Sure, driving initiative. Marc. Jack that has been personally

I'm talk about to So, let going to Jack you this.

Jack Cronin

client. underperform. major some partnership but the never entities years with a we about global business expected. off Singapore, Marc, we Ireland, that continued Sure. XXXX, two shortly on a In the strength gains of UK expected in plus two hit we and ago, to made and And established as had took we other the really COVID the subsidiaries thereafter, UK,

Singapore couldn't and the that's some the UK decision of date. grow We XXXX, in in go that Ireland expected. has And as the XXXX recently, cost The been a the a to at rationalize XXXX So, we loss. spend really was operations we it entered gained profits to why grow. than UK we really we and cut turning we couple the made just that we operations structure money but into decided traction sort the had to to, continue our to our and that subsidiaries we U.S. trying other areas of time rather in both And operate XXXX. haven't

the of sort that's of short the it. – So,

Marc Riddick

of Okay. summer. of far a the There quarter where you staffing, end And headcount sort as us, we going you on sort headcount where we as into could ramp the to was as so be was, sort staff? the and are and third bring so growing us remind the might of then, at can up of

Vivek Gupta

Marc. Sure,

is seven consultant the in that to So, I we to this top continue very is quarters say point had QX, noted in it I since, a six, starts five high. headcount I QX, last XX the would even decline six of our probably billable be assignment as or one guess, years. be mentioned that

I we've ends. ago, do ends at themselves projects a exceptionally but the of it's are little been still doing in to of continue? what the have based is not asking are that this customers think equation the number The of were high bells, And record couple that starts of need high. earlier as question, they of a level minus really the I high. ends in an pretty quarters the the assignment to just some mentioned So, sort some tighten their of on are is assignments are, The they're we the trying of when of you problem net it they So, growth, assignment number quarter. the number had

which a very sort of now we And of into closely one kind up kind is, sort starts, be so, number. high-ends, see the going something, a market thing or high off to very watching dynamics but ended pattern there's are of of But making XX, going this negative of to this it a if a is forward?

Marc Riddick

prepared either you out the rates Okay. and through both maybe that, And in then made been little comments quarter? seeing rates, the of – it might release sort you're to on what how can and sort there the have around more a bill bill remarks you press played of put

Vivek Gupta

that. the been So, increase bill able of again, It's and the the of quarters the demand benefit we're a three, that When versus the rates, we've pay got these rates for consultants higher Marc as to bill much to happy over steadily been that customers our supply. the last has result price we four we've resources what input in demand or that we the the pay willing turn pay are limited well. what was price, supply and drives up

far, So that it's sort some, benefit to function the over positive but versus quarters. price really It's next we've pressure, how kind has been That advantage. we, it. again so few dynamically this bring of very may supply got our been of changes all a of and the of demand

Marc Riddick

implementation of sort technology to and where – correctly, there? place earlier we the of And of, I could some up us in bring up of might be spending speed of timing expecting And the sort took bring are what year Okay. remember to be, sort you you can for the you then us the remainder on sort that in of if year?

Jack Cronin

the – analytics our services in data we we in and segment, Yes, earlier implemented year.

bugs quarter, to much [indiscernible] that's out completed did we get right and the cloud and end money April. bit but the a an now. concluded second of pretty spend of Our little at We in system that implementation

Marc Riddick

Okay.

looking what for sorry, we be at so, CapEx year? the And yes, might for – CapEx

Jack Cronin

first to what the of go CapEx over is the going to to down. last compared spent we CapEx year, is mean I go, going half

Marc Riddick

Okay. Alright.

year less a it'll year? the this So, for or last about [indiscernible] be little than same as

Jack Cronin

look real the here. me Let at statements quick

months the CapEx we In XXXX, So, nine about first about months same XXXX thing, for had the about XXX,XXX. of it's XXX,XXX. of nine it's

So, I that about expect probably the X.X would we X year end up million, million. million, X

Marc Riddick

negative back customer are And looking you're seeing, on to, as there environment in the sort areas bit, in active as of the [indiscernible] are demand as you. And Got I are down Okay. you're their or any are activity? as verticals? folks could that seeing on are far that that go understand your if sort – by a so but or bring we you're particular seeing there stand out positive sort maybe as staffing, that vice IT slowing can far at you're what versa as just mean, there of noticeable? you us far I general any, of that behavior more

Vivek Gupta

the Sure, in saying really I've that really verticals. all It's across the it board. is a belt Marc. the drop demand drop all virtually of is virtually we board, is are tightening customers, what it's seeing been the the across Actually, or

large customer now. lot at and we're is other, one emerging than so is are clear it's such I a cautious major that as no or that projects, XXXX or these being we smaller And although right conditions is the smaller, that that the vertical time. more one And sort sort large pattern more something size extra in of So, out projects Services, of we having is lot only far seen projects them, every being up of in canceling pushing cutting a into or space. shrinking committing in no but that breaking there conversations in actions being terms not the showing specifically at projects the a more saying huge then phases. reduction, phase headcount mentioned scale of that Financial saw as canceled, a concern But to

cancellation they few time. halfway at point been they in have to process. there in That's IT between. So, sort are projects, have the whole need if pulling those And some of, the been of some far or has through option and seeing the but plug we what this of

everybody based I It So, there's every should really see has conversation, plans happens, clear the what are on is that will but their can things almost to no organization actually they pattern. see waiting sort is steps what take? of get made bad, contingency

Marc Riddick

the know Okay. And far then this last to the thinking the as up sort us about what side there? acquisition bring at of pipeline, can, me earlier and the sort as the sort benefit is are with of of as you maybe sort at looking of the speed maybe of priorities to, And something fresh, thoughts that or obviously leadership, thoughts desirability was things. where is, data I the your and if as and on of you with pipeline what the one and looking very for potential are to analytics, were, sort new you're year you for in give health maybe thoughts your acquisition what it maybe, us news are maybe, some speed and but pricing of

Vivek Gupta

in mean plan. Marc. our acquisition is definitely Sure, I

on doing we would We be data I've the before, the said side. analytics will, acquisition as

aligns ways board the now new will in strategies some want wait leader the Specifically, the sure on for for what criteria to leader. selection is of be that make that acquisition to areas the something with are we the and that new the

of first want to will for leader So, quarters reactivate put back we to we burner that the of this then for our settles this, I go to couple us, the would and what once plan a down, new at sort opportunity think back on the have is means really it. we and

little changed, bit. So, extended has has the much timeline just not got a it's

Marc Riddick

Thank Got you. you.

Vivek Gupta

Thanks Marc.

Operator

your from [ph] next [Ross] of line the question proceed question. comes Capital. with Bennington [indiscernible] Our with Please

Unidentified Analyst

Hi, good morning and Vivek Jack.

Vivek Gupta

Hey, [Ross] [ph].

Unidentified Analyst

about it Hey, I'm happened a shortfall I'm correctly you elaborate sort if data or, curious little you you if you it if underutilization had QX seems increase to, in more bit could a and changed expectations some was some if like quarter this bit with more you seemed for the I and that maybe I changed seems results, alluded analytics curious just what specifically? And of more to of through were specifically led up it recall quarter. like QX I you that that will? because like you robust ramped what correctly, understood And so sort staff, maybe if curious headcount that Thanks. on could how of demand the little expected imbalance in maybe growth. talk

Vivek Gupta

[Ross] Sure, [ph].

QX, that. that we that to got simple rather are we this with we wrapped in to as had sure we aligns point QX, or with It's onwards have of what situation and excess and we against signed anticipation quite that resources have we And orders used And it's could the engine a projects than the we get workable in in started the running make projects time. from booking So orders. up all that had really expecting. align resources make resources where didn't keep some order be we in as had to – be the have, we the

that working and on misstep So, something are guess, is I already correcting. we that

revenues a make this utilization don't come So in that which the do the we is in again result drop. sure revenue and don't that lumpiness, also drop the have we has as how

bit a analytics. contributed data I are it's multiple guess, these where things that we happen, to So, of which with

Unidentified Analyst

always judgment up, sounds of of could that's That's maybe in of – there's to to fair you better have terms sounds in like as like do that it? you you takeaway helpful. make like like but where it would going hindsight retrospect some there about Is a characterize how a calls it mean, to done feel like anticipation. characterized feel risk course staffing that you you you're I you some is do – going have be misstep, Fair. idiosyncratic XXXX, feel but it

Vivek Gupta

the correct. robust our we at time, or Maybe, to would enough much. ramped that. book sustain should up say shouldn't that that's we And pipeline to have able I same order have actually had be

an had And addressing issue we've already working are that on we those. and both identified So, we sides. on

Unidentified Analyst

price Thanks that. wanted the just Great. to then overrun. about I on ask And fixed

to Just overrun? – is end of expected the said leads high to then that you to Any of year. to sort And understand, that you was expect to that kind like that you what to watching Is to the it level, of related of at kind going something recur? be continue – end systemic thing you're overrun?

Vivek Gupta

Ross, news overrun is that over. the So, that have carrying We to don't good is the forward. want

Jack Cronin

Yeah. correct. That's

Vivek Gupta

into the other end since project. Info overrun. where I actually is project] [ph] is the years fix if was has on we any up which resources stress, thing the you underestimated other And which second have Trellis, acquired really one bit projects, an spending you last we or in organization projects, always that project price And many [grief] One want years given little gives I a five point fixed you say [ph], – really ago. does of us, some the to gone that we price there's when more the which last this do important is which would reason [odd that

in two organization. the overrun, into just the it's about say, having would I not last going had five have volumes years good while any we speaks the have this So, quality to delivery of in that project

will course, look at closely. this we Of

closely are projects all see already fixed price very that. at to We looking

is any and to other able project, potential are identify but problem we are. way where spot We this earlier,

Unidentified Analyst

I That's Great. That's Appreciate had. Thanks. it. helpful. all

Vivek Gupta

Thank you, Ross.

Operator

you. Thank

this time. over for now closing We have to would floor I questions to management comments. no back turn further at like the

Vivek Gupta

you questions, today, call fourth and in results are our If to sharing joining thank Thank quarter to look our early for February. would you, with you. Thank further we forward there operator. I no like all you XXXX

Operator

conclude teleconference. and Ladies today's does this gentlemen,

disconnect a this for You wonderful time. you Thank and your at day. may lines have your participation

Mastech Digital (MHH) 5 Nov 222022 Q3 Earnings call transcript