Earnings call transcript Q1 2023

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Operator

Greetings. And welcome to the Mastech Digital First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

conference recorded. this reminder, a is being As

It Jen Digital. Lacey, my pleasure Thank your host, to introduce General begin. Ms. you is Lacey, now you, may Counsel for Mastech

Jennifer Lacey

Digital's you, first Thank welcome And to quarter conference call. operator. XXXX Mastech

a If of announcement, from website our obtained copy at you be yet www.mastechdigital.com. can earnings not our have received it

recently Officer me the call Officer, Digital's the Jack Officer, Executive Chief and on business today Financial Mastech Analytics Executive With segment. Cronin, Michael and appointed company's Data our Fleishman, Chief of are Vivek Chief our Services Gupta,

statements I markets historical would and beliefs like our in made These financial to the during business, forward-looking as the are concerning liquidity call remind forward-looking not about flows, everyone well are and strategies, include costs statements and our that which growth plans, that intentions statements. cash operate. statements this we facts projections, as

anticipates, company's statements, cause those risks these intended and Commission uncertainties these website from www.sec.gov. These to listed and its Form based at and limiting circumstances words expects available forward-looking to filed report update no similar the annual we are statements. There differ Securities change. and in materially, events actual and Exchange forward-looking as on could that the plans, XX-K XXXX the including certain us, assume are with believes, available obligation expressions statements information on identify currently to the foregoing, statements, on Without are to

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

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

guidance provide this guidance we we nor meetings or calls. one-on-one not call, be will in reminder, will any providing a during subsequent As

first will results. I Jack to our quarter XXXX call review of the turn now over for a

Jack Cronin

Thanks, Jen. morning, good everyone. And

was quarter of Digital. customer $XX.X impacted revenue clearly Mastech business and for in XXXX. uncertainty, by a Both decline, segments recession. conditions totaled XXXX million, quarter an economic First were concerns regarding $XX.X a X% compared QX to our million representing disappointing reported Revenues inflationary possible including

XXXX to Data Our in impact compared the segment expectations, an Services order of first XXXX of short QX had in million $XX.X of quarter XXXX and revenues the second $X.X which Analytics results. contributed bookings half as were our on million

revenues during XX of million resulted first Services For XXXX. quarter, our first $XX.X billable quarter of Demand million consultants. totaled Staffing the XXXX, in segment IT $XX.X in a which the of the compared declined to quarter in reduction

hire long-term in financial revenues Data utilization to due on the Gross $XX.X XXXX was compared in Staffing in Services segment profit first Gross direct a XXXX compared reduction and XXXX Services totaled first margin and lower our project in quarter and first Analytics largely margins the and the in to percent assignments $XX.X XX.X%, a revenue several to quarter. several was on quarter of million margins of as XXXX. variance This million of IT our segment. in QX clients XX.X% in lower utilization lower rates

or net diluted $X.XX $X.XX GAAP was or million XXXX XXXX. diluted net $X.X to income for $X.X share or million Non-GAAP XXXX first the in per million the QX or diluted income share compared share first diluted compared QX quarter in per for share quarter was per of $XXX,XXX of to $X.XX per $X.XX XXXX. $X.X

website. two, which one, detailed the of and acquired net first release, in on XXXX stock-based and, items non-GAAP SG&A QX in tax they're quarter compensation our our intangible included earnings expense were, not of measures, amortization financial benefits, is assets, available

outstanding be should $XXX,XXX net Services in asserted pretax to that and for expense employee. QX by an a impacted noted claim Professional GAAP a related net income XXXX non-GAAP both employment were income by It former

our of balances availability bank and our no had of hand, million at $XX.X million cash Addressing XX, debt outstanding March $X.X on credit XXXX, financial we under revolving facility. borrowing position,

sales days was which days XX at our within Our quarter-end, measurement target days. XX to is range of outstanding well XX

repurchase on first didn't the an execute we extended trading to During quarter, share our program period. blackout due

expect to the share in near term. execute to ability on repurchase have the We program the

to over comments. I'll Vivek for now turn the call his

Vivek Gupta

you, operating for the for detailed Thank of review QX Jack, results financial everyone. morning, our Good XXXX.

first the least. quarter a say The of XXXX challenging quarter, to was

as notable decline saw a Our clients' QX, of heavily spending on Services IT a to be during possibility in weighing demand Staffing the segment appears recession dynamics.

financial of half an services the also our recent consultants industry, IT had business. billing approximately have failures our impact in adverse Staffing employed on bank With

with quarter. building of Analytics shortfalls a respect and Our minutes. will segment talk performance about first during largely affairs impacted, and in due booking opportunities occurred of that of Data the Data robust the more XXXX. the were Analytics was Michael state the pipeline in also of Activity business in to levels, however, a the half to the few order Services more second

to this among cannot repurchase economic program remain industry and outlook our business a our have the solid strongest and access when improve, that will the support sheet needs say we businesses year. capital say earlier ample fundamentally current sound, we the financial fund clients and we in to we announced our While can balance are the share

Data to now segment. the to Services his Michael for me to call turn the related you, Michael. Let comments Over and Analytics over

Michael Fleishman

Thanks, Vivek. good everyone. morning, And

businesses As Vivek mentioned, current economic headwinds most conditions are strong for today.

IT as economic they not and Analytics are are the Data conditions Staffing are However, in to as industry. impactful notable, they while space, the

across joined needs four, that various of are, since the the opportunities; the emphasis the been improving have efficiency company; expanding of we that engine/pipeline talent; the pipeline three, Mastech enhancing of leadership communication of one, I've Digital Areas filling I in addressing two, and engine facets the organization. across sales

delivery, been our messaging and develop and upgrade to to existing I organization. sales say to able entire to gaining well technology, have prospects leadership time, expand talent as and marketing, we engine, across sales, traction. short the clients improve that be very new appears a happy our across In in client am communication as

While is well noteworthy QX utilization rates that bookings, improved from our out fourth quarter and revenues, it were all point XXXX. the to XXXX sequentially results margins expectations, gross below of

Additionally, our pipeline which for believe bodes notably well the quarters. we us few increased in next QX, for

build While we believe will of and the do of to be not that, pipeline that the to confident well I a opportunities. in portion pipeline enhanced going quarter we forward, continue give win XXXX, positioned specific I am fair guidance, will second our we of

over back Vivek. call the turn now I'll to

Vivek Gupta

our remarks. We take questions concludes this Operator, now. can Michael. prepared you, Thank

Operator

[Operator Instructions].

the comes Thompson first from Lisa Investment question Zacks Our of with line Research.

Lisa Thompson

is I about most start of I'll questions quarter. wondering. have a probably the since the everyone important number with

of your type financial half that that services said of I consultants on assume companies. includes the are You right? CGI, XX%

Vivek Gupta

Yes, it does.

Lisa Thompson

how just little of describe generically? lot There's these second-tier a about bit for do bit deposits what financial a you you about pull little customers banks the Talk concern people them. maybe a who. as are, Can from

Vivek Gupta

we working through with a lot our of the systems banks that is lot lower. mid-level are exposure directly a banks, to regional-level as We banks, CGI banks or or such level And premier integrators mentioned. first either

few in by Bank, PNC a the is far. banks. – in have premier And that, the banks top our top-level of others then, we after One

been banking that feel confident although in and the be are unfold, this customers terms we doing that be pretty we to what crisis settles customers. back our we've So, strong all financial we that and we we down, that will comment servicing earlier little these watching are I are not affected, that is crisis made a of will pretty this

Jack Cronin

by the services those as government are have were we Lisa, companies struggling, over segment that exposure the financial problems as have were in and we solid. and no some insurance And had taken they're and included that severe to clients. companies the far

Lisa Thompson

many the did end How quarter consultants you with?

Vivek Gupta

final have number, you what the was? was exact do Jack, number the

Jack Cronin

of end the At the quarter?

Vivek Gupta

Yes.

Jack Cronin

Sure.

X,XXX. in consultants Global IT here. the segment, it grab me Staffing Services Let

Lisa Thompson

you with quarter? that? tax the What's Can what happened up with rate explain this

Vivek Gupta

tax The rate.

Jack Cronin

those our what, by that because know means we the income allowances in made. And don't quarter, what of had low losses valuation very valuation pretax we got exaggerated of effective with the tax allowances some of accounting provided benefit calls we losses. You them, some Lisa, the for subsidiaries. rate our foreign recognize this percentage which associated we those some was And

Lisa Thompson

Do out like, to, comes still the you XX.X%? year think

Jack Cronin

think more the with a what XX%. may It XX%. bit year had XX%, is in which out line but comes be past, I it's we've more, to in little be the going not

the full Lisa. For year,

For the full year.

Lisa Thompson

expense, said guess. I settled? SG&A, have case same it level legal continue until little Does high, the was quarter the and that of a for in expense $XXX,XXX is you you

Jack Cronin

it continues it's going while. know think But be going I $XXX,XXX. it's don't while. a continue for to to a I for

QX. this professional of services should employment we So, some claim in expense matter, with the expect matter associated level

Lisa Thompson

all, the any level? have pulling did like you you Do plans on at back like during expenses pandemic

Jack Cronin

pulling are back we now. Staffing, right IT In

is sort don't with and insurances like increases at of we was If it's operating Staffing corporate-related The only you crazy, our that and The IT that have $XXX,XXX, the negative and programs is hit in revenues, or the higher got experienced is Staffing. recruiting costs. expenses expenses, on look IT sales X% insurance which cost, we in control was cybersecurity largely over. decline about public and full revenue and that reduced we some of expenses, in by operating we rise had

SG&A to expenses are Staffing. So our we making reduce an attempt in IT

quarter year-over-year, we segment, and but had related was services the an Data the increase expense of the $XXX,XXX claim. On the in Services to $XXX,XXX Analytics employment professional

to And SG&A. invest going is forward, D&A in going

bringing in of to had next some going because were we're identified couple Michael. QX by and and that over in of leadership gaps an least at increase new talent that quarters there's we the filling So, or the be QX,

where investments going we now. these be we forward, make have get to So, to to want

Lisa Thompson

the in way, margins results Hopefully, higher that along gross too.

Lisa Thompson

hope would I so.

Operator

comes of Marc Riddick question next with Sidoti. Our the from line

Marc Riddick

bit. about and potential the if I you what was the about looked thinking near to have I doing and given wondering certainly, look to boost the in maybe acquisitions in your – is understandable opportunities. now little certainly right away and was environment pipeline what may a could for like little bit at maybe the for the something maybe But from future it’s wondering appetite this shy what you're talk term. you the past, a

Vivek Gupta

course, are very Staffing just point demand. the time, of on IT in organization and we a there That hasn't this we with. we decline our decline that in things the One the that It's seeing is changed. part are our are at at that of carefully spoke couple acquisition very the we and we is, as Marc, looking much address realign of , costs working plan. how side, about

time a and On that initiatives of we side, he the for months ourselves been are side, Michael think board going process come bit now, the more has about. he's but a one before it. put more not a spoke it's it's time. we few we a other I bit number place back the before Analytics the little to But question the on time on think really back get Data to a off just in little acquisitions table, to give of I more And of

Marc Riddick

talked wondering I there cadence any if could the maybe through talk talk – the if you wondering that read-throughs bit there? could little bit about little we about thinking a you I should Is about improvement was the was sequentially. you a be about quarter.

Vivek Gupta

Marc. your question. Sorry, didn't fully understand I

Marc Riddick

The it worse I through it February you month, when the improve? get it January, cadence of by Did quarter. from guess, flattish? like activity, went March? through Did Was

Vivek Gupta

bookings? you're this order buying I if talking the pattern about question, the our from think customers,

Marc Riddick

Yes.

Vivek Gupta

with I'm move touch the the That's QX. how side. enough upon previous the me to there to and Analytics IT in not the it's has demand needle. on Data let been from side, and But then the been Staffing I pickup Let when some seeing Staffing Michael IT he's QX to last, going but quarter, compare the respond significant

one hoping as ball. see we crystal no forward. So, go we'll But, we are that a again, more has

So, still than demand where at is a way we was the what a point year the demand lower are ago.

far as situation the IT the that's as So Staffing.

And, Michael, the about can talk D&A side? you

Michael Fleishman

we're as of and a transformation specifically data Analytics overall. on modernization piece perspective, digital From a focused Data

we're not Forbes the logo is within not demand, Within impact targeting. light potential opportunity Forbes even our we customers, recession, the that modernization going in only front even space, data of us, of have within that prospects existing a new across potential XXXX the but amount to the amount XXXX, of also also of the or in

drive net that So potential no. new that to your within demand ability segment, the drive if decline would in foreseeing any opportunity that question, impact also growth simple answers Marc. and Analytics answer, net our will Not new Data

Marc Riddick

are sort of shifting Or Are if could too from are It's Or more the seeing that give you assignments, me sort see are of of customers way posture? I good cost to and maybe of types to is on you you a have sense or shipping? the a of savings defensive you nature? – focusing call that for to on was things they an the offensive much welcome. efforts wondering actually that? beginning maybe it early of in

Michael Fleishman

Marc, for specifically specifically IT or for Data Staffing…? and Analytics

Marc Riddick

Yes, within I about. Analytics, was Data and thinking

Michael Fleishman

coin, and When got have and applications at you've once foremost, application share you data aspect. a sides the focusing modernization got of right? have is you look on modernization digital then then working application around basically transformation, and the the two both, they but on their modernization, first modernized. lion's You've Customers are data modernization

invest to the cost in their ability money. modernizing able now from perspectives. or unlock very And continue make about it’s they from to defense, don't about overall their ability is to cost savings if now, but through they’re to it than to then savings, if modernize so modernization is they that to to their about not trying and modernization, investment initiatives, make proactive more going to data they're decisioning solutions competitive modernization to own on answer are requires they Because and will your which their grow first. impact trying the don't save be be their so they marketplace, much and question about, money It in be offense are

were the all the market. or modernize faster to That's little and chicken, have the have modernize to. before across is challenges because they that it’s didn't your the by modernized have a legacy fairly that either up you situation modernize. industries. those have egg And place don't and before bit or they It's So, need They taken in chicken the survive egg the first applicable new situation or had. but business to entrants in of that

Marc Riddick

for me. one Last

thought of as mention as or your period there there. made Could the to is generally You sort as a are? repurchase, Certainly, blackout and in seen would big if we've what was you wondering price with, expectations sort maybe maybe you there. process sort a of share far of talk picture of to as had as talk maybe sort opportunities maybe pullback work thought you but to about authorization share goals I as far the

Jack Cronin

a two-year by share the Board, shares XXX,XXX We buyback had approved the program period. over

to long is feels the term, price as think there's that we at up board, shares bargain stock is think I pick management, our and I depressed over what opportunity a an the believe price. share

us moving on scaring that. conditions and with plan intention. we forward So, Current market our aren’t that's off,

Operator

comes question Banneton Ross the next Capital. Our line of from Davisson with

Ross Davisson

negative was bookings through the or of, sort quarter. with cadence trend segment Anything April noticed of feeling positive in changing bookings you that? in sort Have – question building revenue revenue cadence? just on the either each the of or in First like, of or terms

Vivek Gupta

the about again IT me Staffing, talk let Ross, first.

in or previous the On we saw the we change a much three seen previous quarter. have what Staffing, from not IT of actually months

are in where are terms we we bookings. of So,

side and would Michael, as to to color is the want give As concerned, that? Data you some Analytics far

Michael Fleishman

the try I into slope would direction. QX get direction. quarter, And and the maintain ball make right little trying slope in steeper without to that to trending specifics, the going and also the slope only in customers also not but continue a to the same. QX It's our existing that to our the of net is into say in new with maintaining that in bookings, focus it rest upper to keeping is eye from on and the April, the

Ross Davisson

or like are said they any but but, Michael, economy? to of think it's do of D&A, like, had People terms the sales I just anything specifically anything of lengthened sort you seeing need that? are modernization, on data in cycles improving, about, you something because delaying decisioning that

Michael Fleishman

maybe in What no, would the I on on concerns potentially, decisioning. is I in the of or we're kind tell certainly of back the priority say, pre-COVID still are any lowest holding sure. lowest economy, they're they're we've that's project you, they COVID. moving the priority XX if even not that them the eight in because but their is multiple through uncertainty will impacting and be table, two seeing, seen their have to delaying forward. expected projects, times, But And other economy. for That, projects

itself, no the the as about still far It's to cycle. As same. sales sales no, change cycle the

Ross Davisson

Vivek, was March bank? in terms Were you in in services. IT or services and of SVB challenges Staffing, actual services challenges the turmoil especially constitution crisis you given the financial referenced ahead seeing problem banking a all the sort other of about of the as financial that financial being, in activity with anything of Most in particular March. of

Vivek Gupta

Well, financial kind saw And cautious, April services February, March. in anyway. worse just of not I was But being heightened And got it too. saw very has we but then that And ways, and sector QX that January than. think seen continued. I in in been, some the we in guess, it we've

lot yes, tightening So, belt a things then running, the than There of bit, April. was the banks being building intensified And the March happening. back terminology use. in happening. of keeping A were little the on continued was in and was the they Focus on rather changed as put bank, burner. projects became was the it

Ross Davisson

little lower that Analytics. margin? But on exactly? engagements, some there? up you and down, those year-over-year, a little sequentially. you about about one that. had engagements? at are Is utilization, engagements changing was you this, more a build are there Like, just margin also something It I I bit in What those think was just said the is new and explain latter long-term mentioned and and lower can just to about margin Data long-term that just gross think lot in down question a talked It last The but I was was on a bit it we

Michael Fleishman

it's What automating we're the projects a actually improving better, longer-term maniacal and project efficiently, being a Utilization is long-term those I internally. focus accelerators, we’re doing immediate on for would able faster, on board, we've those both. and hand, the increasing. efficiently on say has across right? both, our And a and gross direct focus on is right, that engagements utilization we're better margin, And heavy – cheaper, of So, is, to a to word, focus more internally automation, actually right? utilization so, improving It's driving ensuring an direct got on also impact one engagements. to which and maniacal margins more lack doing ensure that do – engagements driving better, a

So, heavy better as focus as new we're heavy, margins. on a ensure well winning also helps heavy that, right, business and not all drive that on business on value a which price, to on net focus

Jack Cronin

Let me that. add to

with XX%. margins And respect QX, to our in of gross in gross our XX.X%. QX were Specifically, margins our were XXXX, gross margins,

you So, look – ended we our March the we sequential bit we a were where even where were close pretty margins improved at if little February, over But gross – from to March quarter. ended XX%. and March we

that there. it's QX in margin specifically financials, a but it's So, you see really can't improvement

as a we as the refer far was that of Projects. Center as And have long-term assignments multiple-year about, we assignments I Excellence talking of handful to that

the these don't. escalation couple rate. some have we're Some through some of higher a escalation and we bill don't of recover that can't And seeing that clauses, have increase projects cost clauses them

norm. margins so, not it's And somewhat, gross but overall our impacting the it's

Ross Davisson

cadence gross could bookings Like, a what's the I is utilization, that Anyway, driving through of you That's guess? improvement driving anything that And guess that? lot coming on around Like, because just Jack, improvement? are margin from specific that really That quarter, improving. improvement of say makes the – I it sense. anything helpful.

Jack Cronin

driver, and Michael, think Utilization as I were a up statement? was well. is margins a fair our project that definitely

Michael Fleishman

is. It

Operator

are time. like closing comments. at floor There to back you. no this Thank further to I'd turn the over questions for Vivek

Vivek Gupta

Thank thank to quarter Okay. results thank there August. further look sharing today. our no would second with are If And you. you, XXXX operator. joining forward our like to for questions, in I call we you early you

Operator

This concludes teleconference. today's

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

Mastech Digital (MHH) 3 May 232023 Q1 Earnings call transcript