Q3 2020 Mastech Digital Inc Earnings Call
Good morning, ladies and gentlemen, thank you for standing by welcome to the Mastech Digital incorporated third quarter earnings Conference call.
At this time all participants are in listen only mode. A question and answer session will follow the formal presentation should you require operator assistance during the conference. Please press the star zero to signal an operator. Please note. This conference is being recorded.
It is now my pleasure to introduce your host Jennifer Ford Lacey manager of legal affairs for Mastech Digital incorporated Thank you Ms. Ford Lacey you may begin.
Thank you operator, and welcome to Mastech Digital's third quarter 2020 conference call.
If you have not yet received a copy of the earnings announcement. It can be obtained from our website at www Dot Mastech digital dot com.
With me on the call today that that go to Matthew <unk>, Chief Executive Officer, Jack Cronin, Our Chief Financial Officer, and Paul Barton, Our Chief executive of our data and analytics business segment.
I would like to remind everyone that statements made during this call that are not historical facts are forward looking statements.
These forward looking statements include our financial growth and liquidity projections as well as statements about our plans strategies intentions and beliefs concerning our business cash flows costs and the markets in which we operate.
Without limiting the foregoing the words believes anticipates plans expects and similar expressions are intended to identify certain forward looking statements.
These statements are based on information currently available to us and we assume no obligation to update these statements as circumstances change.
There are risks and uncertainties that could cause actual events to differ materially from these forward looking statements, including those listed in the company's 20 nights mean annual report on form 10-K filed with the Securities and Exchange Commission and available on its website at Www Dot <unk>.
He Si dot Gov.
Additionally, management has elected to provide certain non-GAAP financial measures to supplement our financial results presented on a GAAP basis.
Typically we will provide non-GAAP net income and non-GAAP diluted earnings per share data.
We believe will provide greater transparency with respect to the key metrics used by management in operating our business right.
Reconciliations of these non-GAAP financial measures to their comparable.
<unk> GAAP measures are included in our earnings announcement, which can be obtained from our website at www Dot Mastech digital dotcom.
As a reminder, we will not be providing guidance. During this call nor will we provide guidance in any subsequent one on one meetings or calls.
I will now turn the call over to Jack for a review of our third quarter 2020 result.
Thanks, Jen and good morning, everyone.
The COVID-19 pandemic.
Economic downturn.
And you didn't impact our revenue performance in third quarter, two Dollarssix point.
Albeit to a lesser extent when compared to previous two quarters.
And economic uncertainty will continue in Q4 and probably into 2021.
Financial performance will likely be impacted in some fashion.
These challenging.
During this period, we will continue to manage our business for the long term.
<unk> for the short term decisions that are necessary to protect our bottom line.
With that backdrop.
Revenue for the third quarter of 2020 totaled $47.4 million.
And represented a 4% decline compared to $49.5 million.
In the third quarter of 2019.
Quite Julie revenues were essentially flat compared to the previous quarter.
Which we view as a positive in today's environment.
Our data and analytics services segment.
$7.2 million or <unk>, <unk>, Q3, 2020, which exceeded last year's Q3 revenue results by more than one person and.
And more importantly increased our previous order.
Orders revenue performance by 6%.
Activity levels and their segment held up relatively well despite numerous projects being forced to Q4.
Some likely into the first half of 2021.
Notwithstanding these near term revenue challenges our pipeline of opportunities continue to remain strong.
For clients to release new assignment.
Year over year revenue from our staffing services segment was down only 5% in Q3 2020, as we saw traction for our new remote staffing offering Nash remote.
And less earliest timing during the quarter.
Despite low activity levels, we were successful in achieving a positive net growth.
Global consultant base during Q3 after significant global consulting headcount decline in the previous two quarters.
Gross profit for the third quarter 2020 increased to $13.1 million compared to $12.3 million in the same period last year.
Like 4% lower revenues and a 2020 quarter.
Our overall gross margins for the third quarter of 2020 or 27.6% of revenue.
Third or 24.9% in the third quarter of 2019.
It's performing talks our previous record achieved last quarter and it's been one of the notable accomplishments that both of our business segments.
Realized despite the big 19 pandemic.
Our data and analytics services segment had gross margins of 55.9% in Q3 2020 significant increase.
3rd% to 45.7% from a year earlier.
I know you assignment wins better consultant utilization and a much lower level of pass through travel revenues favorably impacting our margin.
And our Iraqi staffing services segment had third quarter 2020, gross margins of 22.6% an increase of 120 basis points from the 2019 third quarter and was our best ever gross margin performance.
Higher margins from new assignment and improved utilization continued to propel our gross margin.
In this segment.
[noise] Sq <unk> expenses were nine or excuse me $8.9 million in the third quarter of 2020 compared to $9.3 million in the third quarter of 2019 and were in line with Q2 2020, Sq DNA spend.
The 400000 dollar reduction in S. G and H expenses in Q3 2020 compared to the previous quarter reflected net investments of $800000 in our guide and analytic services segment, principally in the areas of global sales and delivery.
$1.2 million reduction in our I keep staffing services segment, largely reflecting proactive that <unk>.
So active austerity measures instituted in the first half of the year.
Argus similar approach with respect to S. G and H at each of our business segments reflects that different risk reward profiles related to austerity actions and long term growth opportunities.
GAAP net income for the third quarter of 2020 was $3 million or 25 cents per diluted share compared to $1.9 million or 17 cents.
Earnings per diluted share in the third quarter of 2019.
Non-GAAP net income for Q3, 2020 was $3.8 million or 32 cents per diluted share compared to.
$2.6 million or 23 cents per diluted share in the corresponding quarter of 2019.
Third quarter as DNA expense items not included in non-GAAP financial measures net of tax benefits for the amortization of acquired intangible assets and stock based compensation in both periods and acquisition transaction cost in the 2019 quarter end or decoding.
Our third quarter earnings release, which is available on our website.
Addressing our financial position at September Thirtyth 2020, we had $4.6 million of outstanding Bank debt net of cash balances on hand, and our borrowing availability was approximately $22.5 million under our existing revolving credit.
Uh huh.
During the quarter, we reduced debt by $6.1 million further improving our leverage and capitalization ratios.
Also noteworthy our accounts receivable balances were up high credit quality and our day sales outstanding measurement was a solid 60 days at September Thirtyth.
I'll now turn the call over to <unk> for his comments.
Good morning, everyone. Thank you Jack for a detailed financial review, but already for that.
Third quarter <unk> may 20.
After I make my comments on the quarter I will turn the call or deployed for his comments and views on our recent acquisition Ambling partners.
First let me.
Share my comments on the quarter.
At the outset I'd like to say that I'm very pleased typical of both of our segments in Q3 against the backdrop of uncertain economic conditions globally.
During the quarter, we continued to operate with a mindset of navigating todays challenges from a position of relative strength.
Autohome I've used before in our previous two earnings calls.
Our third quarter 2020 financial results clearly show the benefit of this approach.
To summarize revenue in both segments improved in terms of sequential performance.
Our data and analytics segment achieved 6% revenue growth compared to our Q2 results and I'd staffing segment reported nearly flat sequential revenues after two quarters of decline.
Hi, Jack stated and I want to reiterate our billable consultant base expanded in the third quarter. After declines in Q1, and Q2, which I view as one of the most of it is from a third quarter performance.
Gross margins continue to perform incredibly well setting a new record of 27.6% during the quarter as both business segments expanded gross margins yet again.
Despite year over year revenue declines of 4% in Q3 2020, our gross profit dollars was 6% higher than in the corresponding quarter of 2019.
As Jim had reductions also contributed to our bottom line results in Q3 and are reflective of our focus than discuss of austerity measures.
But not only consider the short term impact on our financial results, but also considered the long term consequences of such actions.
Why did we reduced expenses in many areas also invested in other areas. During this crisis to achieve competitive advantages.
It's in point, we expanded our dude analytics segments globally.
20 Twond.
An initiative for assumed for growth despite the fact living.
I mean are you staffing segment, we launched a new remote staffing service offering branded as mass or more in the second quarter of 2020.
The traction in the marketplace for this new service offering has helped us to reverse a sequential decline in revenues and also contributed to our consultant headcount growth in Q3.
Net income was 54% higher on the GAAP on a GAAP basis, and 51% higher on a non-GAAP basis compared to third quarter of 2019.
Gross margin expansion and effective management of ISG in expenses were major contributors to this net income improved.
Finally cash flows have been strong during this crisis and a cash conversion process has been stellar.
Reducing debt and maintaining a strong liquidity position has been a top priority for us since the outset of the pandemic.
Given our progress in this area, we were able to capitalize on a very exciting acquisition opportunity why the purchase of I believe partners.
Early October.
Well if you go to share his views and comments with you on I'm going to leave so without feeling any of his Thunder I will now turn the call over to Paul.
Good morning, it's a pleasure to speak with you today about the Q3 performance of Mastech infill trellis, our data and analytics business and and belief. The latest addition to our family. We're pleased with Mastec in patrols performance in Q3, especially given market conditions, we continue to see stability.
And some growth in our core business in North America clients continue to renew and extend our contracts as well as award us new business.
North America, However is not representative of the world at large in EMEA. We are seeing significant delays in contract awards for deals I would characterize as well qualified I would say much the same about Asia Pac we're not losing deals in these two geographies rather deal cycles are simply being extended beyond what I would read.
Not as a normal fuel cycle in a pre co bid world given the strength of our deal pipelines. These two geographies I expect improvement its businesses adapt their operations to the current macro environment and additional improvement when the impact of cobot mitigates.
In Q3, we completed due diligence on Amberley partners with an acquisition closing on October Onest Amber leases, a data and analytics business that focuses on providing consulting technology implementation and managed services for the sales marketing and customer service functions.
Importantly, these functions are sold and marketed to buying centers.
That are different than the historical information technology buying centers that mass second patrol assess historically targeted.
Amber leaf extends our reach more broadly and deeply across our clients' business opening new buying centers and providing new opportunity for data engineering and analytic services. This expansion is in line with our vision of providing our clients with a comprehensive view of their operating and competitive environments unrestricted by functional boundary.
These are data silos, we believe that we are approaching this area with the methodology in a theoretical foundation that is distinguishable from our peers as we strive to become the leader in continuous enterprise learning Amber.
Amberley also positions us to move up the value chain to provide industry, leading analytic services around prominent issue areas. The confound our clients like entity resolution and 360 degree view of the client.
We've had significant clients approaches for help in these areas and this reflects the fundamental transition, we're making from being an implementer of technology to an architect of capabilities that use novel technologies and frankly, our thought leadership to deliver client solutions I believed about the future of Mastech inflow trolls is very bright.
It will pass and with the capabilities, we have acquired adults organically, we're very well positioned for the future. Thank you for your attention and I'll now hand, the call back to Vic.
Thanks, Paul I will now open the session for questions.
Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Turning your question from the Q.
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Our first question is from Josh Vogel with Sidoti.
Thank you good morning, guys. Thanks for taking my questions.
I think my first one would be improving back.
Maybe if you could talk a little bit about the.
What was behind the strong margin performance in the I.T. staffing business.
You've talked about mass remote.
I was just wondering and achieving that all time high gross margin was that due to leveraging mazur mode are there other things that play like a better a bill pay spreads and is sustainable going forward.
Okay.
Russia always a pleasure to talk to you.
He mass remote has definitely played an important role in the improvement of the gross margins, but that's not the only one.
But staying with master anymore, I mean, they the amount of traction that we have seen in the last form.
Four months, though has.
I'd been very heartening and encouraging.
And we have found that as a result off that stopped placing people finding the right talent, but in other locations we've been able to.
Get our customers to.
Give us better better pricing I'm in the process, we got better gross margin.
Gross margins have also been them on account of the austerity measures that we took him earlier on in the first quarter itself and you.
You know the.
And to make hit us and we took some pretty decisive and quick actions and.
And those actions have continued right through the second and the third quarter as well so they they have also helped us.
There has been a pricing pressure.
And we've been able to manage that a fairly well.
And it's really a mix of all that plus.
Something that we have been doing for the last Oh.
A few quarters now and maybe a couple of years, which is our emphasis on digital staffing or staffing of digital technology resources.
And that has also been slowly helping us over a period of time.
And so it's really a mix up a bunch of things that you had put into place which have sort of come culminated in battery of east.
Can we sustain this going forward and.
It's very hard to make that prediction, because we still not out of the pandemic yet and there's only so much you can do in terms of Ah austerity measures and its only so much you can push the you know would be the rates up. So we will have to wait and see how that pans out over the next the next few quarters.
Let me ask Jack to do anything I've missed.
I'm sorry.
No Dick I think you said it well.
I appreciate the insights there and I'm not sure if you disclosed this but when we look at the.
The revenue level last quarter.
I'm just curious how much was done through mass remote.
Oh, Okay. So why don't I don't have the exact a revenue number but I can give you an indication of the number of starts that we did.
More than half our starts.
And by starts I mean stuff.
It's on billing.
For staffing services.
More than half have been mass or more.
Now does that mean that that all entirely new and they weren't bad if master mode wasn't there no a lot off the on premise kind of staffing has also moved towards faster more because it's also the need of the hour right now everybody's working from home each other very well timed offering.
And it was embraced very well by the organization not only internal sales marketing that liberty and the customers have been pretty.
Pretty warm to be offering so.
It has I mean gives you an indication of how the changes happening in terms of starts if you want an exact revenue that calculation about I'm sure. It can be done by Jack and can be shared later.
Sounds good thank you and maybe a couple for Paul here, you talked about some project delays in EMEA and Asia Pac and.
Just curious why you think.
You're seeing you're not seeing that as much in North America, maybe just give a little bit more of an overview of why those regions are facing some some pressure versus or in the dialogue versus what you're seeing here.
Yes, so its first specifically in Singapore I can tell you that the entire country is locked down and not allowing people into the country. There's no inter regional travel it's locked down for business Central services only as Americans I don't believe we can even fly to Singapore and much much the rest of southeast Asia and North Ajax.
At least the same Japan for example, so they are just locked down much more tightly than we are in a pack as a result, there's no business travel is harder to build relationships and open up new accounts and to close big deals also because of the lock down and the corresponding impact on.
On on business on my business spending there is a reduction in business spending in that region as well. Similarly in Europe I believe that London. For example, just went into a tier three lockdown and different parts of Europe are locked down more tightly as there's apparently a rebound in co bid so.
Different parts of the world are handling the cobot pandemic much differently than the U.S. is and I think it's reflecting in deal cycles, and you know business transactions I don't think it's any more complicated than that and as I said in my remarks, as cobot mitigates, which will at some point, we expect all of this to turn around because we have.
Very well qualified pipeline in both Asia and Europe.
I appreciate the insight there and maybe shifting to amber leap seemed like a good deal for you I was wondering if.
You could share how their business has held up through the pandemic I know I think that that's not the case at about 11 million in revenue last year and I'm just curious how that looked through the first three quarters of this year.
Yeah, they're slightly they're slightly ahead.
For the first three quarters fourth quarter is an open book right now, but we're not anticipating any deterioration and believe revenues 2020 versus 2019.
Okay, great and.
You mentioned that you know clients come to you asking for help with certain projects or assignments and as we think about the DNA platform are there any other capabilities or services that you think you.
He would like to add whether it's.
With internally or inorganic and can you talk to that and maybe kind of parlay that into acquisition pipeline.
Well the name of the game and data and analytics is to take all of the clients information and be able to aggregate it.
Into one repository, and then leverage that data for different purposes.
That's you know companies businesses have been trying to do this for a year, but they're in many cases hamstrung by their architectures in other words, they're hamstrung by the fact that all their data silos.
And so the capabilities that make sense, which we are involved with and in some cases developing those capabilities organically is this idea of being able to.
Resolve different data sources and bring them together into a coherent datasets a cross functional domain, so integrating marketing data with customer data with operational data with logistics data with open source data when you start bringing all these different sources of data together into a coherent dataset.
To inform you about a particular entity a person product the vendor place.
It becomes very powerful and I can tell you that many of our larger customers are all on this journey of trying to pull this off.
And so those are the types of discussions were it. We're we're involved in we have specific capabilities that we've.
Put together and pursued in those areas and I think there is a tremendous future there.
Alright.
Great. Thank you and just one last one for Jack I noticed the.
Increasing the payroll tax liability.
In the quarter I was wondering if you anticipate any more in Q4, and maybe just talk to any other potential government stimulus plans that you plan to participate or expecting Q4.
No additional stimulus plans, but.
With respect to the payroll tax department will probably enjoy.
Another million or so of the farming in in Q4.
So that liability will increase.
No closer to four and a half million $5 million by the time it closes out.
At the end of December.
Alright, great well always good talking to you guys and I appreciate you taking my questions.
Thank you.
Our next question is from Lisa Thompson with Zacks investment research.
Good morning.
Hi, Lisa good morning.
Oh, Oh, another incredible quarter and.
Of how you're spending it still is down even down sequentially.
You said it was down I think you said down 1.1 billion and then you spent 800000 on.
Good analytics business.
And now with <unk> be adding on Amberley, where do you feel that expenses are going to go next quarter just to understand what the basis.
Hi, Jack would you like to take that question sure sure I mean, they're SGN a.
<unk> spending is is likely to be in the five to $600000 range in a quarter.
But that's sort of the level of debt that where we're looking at.
Okay and.
Are they the same gross margins as you are a data analytics.
The margins right now are lower than our core business margins.
They're they're around 35% right now you know Paul has visions took to move those margins up rapidly but.
I see it it's definitely going to have an impact on our DNA.
DNA segment.
East into short term from from a margin perspective.
Okay.
And just.
Just to understand this austerity say every time I hear you say that I'm afraid that you've got all this pent up spending that's going to get released Sunday and that expenses will pop back up to make up for what you didnt spell it.
Is that something you see or you know Joe and at a level, where a lot of this is gonna be permanent.
I think eventually were going to have to.
You know start to spend.
In both of our segments I think in in DNA Paul has been.
I'm reluctant to make some expenses that are expenditures that he likes to make and eventually as market conditions improve she's going to make those expenditures.
In staffing yeah, we have a we have cut costs pretty dramatically.
Helped or helped our bottom line results, but eventually as as things pick up and and Koby goes away.
You are going to start spending more in SGN I show you know I don't want to say, it's just going to pop up back to normal levels, but there's going to be a trend.
Forward that were going to be spending.
Okay, and you haven't started to release, yes in Q4 right.
No we really haven't started to <unk>.
Kurt to release.
You know depending on activity levels are improving and our head count improving.
We used some of the expenses that just occur.
Because their volume related type expenses, hopefully, we'll increasing in Q4, because that would be a good thing because our activity levels would be moving.
Moving upward.
But I don't see a dramatic increase in in Q4 as Gina.
Okay and do you think business is picking up in North America and that's to start.
Growing revenues sequentially even without.
Camberley.
Paul you want to you want to take that from a DNA perspective [noise].
Yeah, So I'm I'm I'm very sanguine about the future of data and analytics, particularly in North America as I mentioned in my comments a minute ago North America has not seen the same you.
You know.
It's not seen the same slowdown that Europe, and Asia Pac or seen because the just quite frankly the kids.
Mix being handled differently differently here by our political leaders. So North America is strong right now as I mentioned in my remarks were seeing extended contracts new business renewals although.
Albeit at a slightly slower pace, but it continues to come to us. So I'm very confident about North America I would expect on North America to continue to improve.
Going forward.
Okay, and the rest of the business.
On the staffing side I'm betting the activity levels are picking up.
The I'm quite at the same level of they work before the end of it.
But there against a encouraging signs in the last few weeks, but the activity levels are.
Much better than they were what we saw in the previous six month.
But again, we are not out of the bank I mean, we are failing they agreed on how things will spike and what's going to be happening down. The line. So it's hard to predict where the you know in this kind of a uptick will sustain itself, but we are seeing encouraging signs.
Okay that sounds good.
I think that's all my questions. Thank you.
Thanks, Steve Thanks, Nick.
Our next question is from Brian Kinstlinger with Alliance Global partners.
Hi, good morning, Thanks for taking my questions.
Over the trailing six.
Hi.
Over the last trailing six months, you righties staffing businesses held up relatively well compared to the pressure in the industry that it.
Others are experiencing and it's only down modestly, especially when you hire you know when you take into account the highlighted pricing pressure.
We've seen other staffing firms report more significant year over year revenue dropped. So you think this is a result of your customer base, because it's something you're doing differently than your peers. Maybe you can provide some factors of how you've been able to hold that revenue line pretty level, while that pricing pressure and you know route reduce industry demand.
He is going on.
Actually this is again goes back Brian to the earlier question I think Josh it off but.
You mean the points I, probably similar if there's been a bunch of things, it's really not one single item with those helped us.
But have you been able to kind of manage the pipe pricing pressure quite well because of again you know are you you said that.
As well that they're not that type of customer base that we have.
And it's really the quality of skills that we are working with and as I said, a little earlier, we do focus a lot on digital technologies and digital technologies come onto the same kind of pricing in a different kind of Ah margins of him for that five or so.
Our team stayed focused on those.
And then the last one or more to actually helped us tremendously in sort of Backfilling, what would have been otherwise lost as on premise kind of requirements.
So it's it's it's actually a bunch of different actions that we took and if any from that or the beginning in March when do you plan to make it Oh, we started looking at both sides of it one of the austerity measures of cutting cost them, you know pushing out or postponing a mean on a discretionary spend by the sales.
I mean, we started looking at how can we about drop off our topline and gross margins as much as much as possible and are in the mass or more pause in outcome off the you know the innovation the brainstorming, but when you do it and we saw the market going in a certain direction and came out with that I thought I said that I I for one of the market.
So it's it's really hard to one or two things, it's actually a bunch of different things. It's also the last thing I should I do it's a cultural change in the organization that happened and rebrand from on Prem as we call. It on premise staffing to be buying old remote staffing or what else fails bucketing delivering all of them.
Embraced this new.
Yeah, offering so well and they have been able to do a means customers influence their thinking they're planning.
So it's.
It's it's a bunch of bunch of different things that actually led to that.
Well I figured I'd I've always had enough Jack if I've missed something in this family dollar Johnson.
No. The only other thing that I would add to that is one or D. H advantages of focusing on digital technologies is a higher bill rates and in in in 2020 versus 29, King our bill rates, which increased approximately 2% actually.
A little over 2% so.
That has some positive impact on our on our overall revenues.
Great that's helpful.
And then Jack you talked about higher utilization.
And staffing was when factoring in the improved gross margins why staffing utilization compared to where it's been in a historical average and then if the market turns and we see stronger demand do you expect utilization to be brought back down to historical averages.
That's that's that's an interesting question you know I can say that.
From the utilization that we can sort of control or our bench levels, we've been very rigid on reducing bank as much as possible. So in a normal environment would we be.
More willing to keep people one bank you know probably but it's a controllable decision by us.
These two the wildcard is.
You know.
Consultants, taking a P.T. O I and maybe this is tobin related but they have an opportunity to work and they work and are deferring you know Pico and you know how that's going to play out in the future Brian I have no idea.
Right.
The last question I have you mentioned the gross margin of Amberley.
I'm curious why it's much lower than that until it info treliske is it price is it some sort of mix and what are the levers you can pull over the next 612 18 months that can improve those margins.
I, probably about one hot here he can take yes.
[laughter] excuse.
Excuse me I can talk about the absolute gross margin. So there's really four things that go into gross margin. There's consultant utilization. There's pricing itself. There is a pass through of travel expenses, which is typically a zero percent gross margin and then finally, just contractors, which are typically pass through at a lower gross margin than a W. Two employees and so.
If you want to improve gross margin you've got to affect those four triggers.
And so with respect to Amberley, which is a fairly small company relative to.
To us just bringing them on and integrating them into our practices with respect to consult utilization pricing, we expect to end believe pricing to to improve and to converge on what we're seeing at infill Charles.
And with the less use of contractors, it's inevitable inevitable might be a strong word but it seems likely.
That I and that their gross margins will conversion to what were seeing at info trellis and that's my expectation. So I'm not worried about and believe gross margins at this point in time, there will be as they get blended together with in for Charles going forward into future quarters, Obviously, we'll average hours down a little bit but in the medium.
Long term I expect gross margins to converge about where they are right now.
Great. That's helpful. Thanks, so much for your time.
Thanks, Brian.
Once again, if youd like to ask a question. Please press star one on your telephone keypad.
We have a follow up question from Lisa Thompson.
Hi, I just have two quick ones first just catching up the number of consultants for the quarter.
Oh, Yeah, we ended.
Q3 with $1 you know 37.
Good luck in the staffing business.
Okay right right.
And then just when you say you focus on digital technologies compared to competitors can you just expand on what do you mean by that and what they're doing that you're not doing what you're doing up there or not.
Oh somebody so this is something which we saw shift happening around the time I joined the organization in 2016 that a customizable increasingly asking for digital technologies and the mainstream or legacy technologies, what are the requirements were shrinking.
So we defined what a digital for us and in order to have that big data analytics, Citrix cloud mobility, social Oh artificial.
Artificial intelligence.
And then we created centers of excellence within the organization, we have people, who understood technologies and do what.
Training the truth of the sales people to be able to.
Talk that language understand what the customer that claimed to do in that space.
And over a period of time, we've been able to slowly increase the amount of revenue that we are getting from the digital technologies and.
In fact that towards the end of 2016 change the name of the company from Mastic domestic digital which was a message to the outside world that we are going to be increasingly focusing on digital technologies.
And even be acquisition out our foray into data analytics was really an outcome of that of course auto towards digital technologies.
Now fast forward to today almost half in fact exactly half of our revenues are coming from digital technology, and we have a bad me, 18% of our business coming from digital technology.
Technologies in 2016, so that's the improvement we've been able to bring and as.
As Jack said, you know that has given us the advantage of being able to move out of a build rate our gross margins because that'd be the demand for these digital technologies is greta and it does come on but pricing.
In the <unk>.
I don't know if that if those you're going to be so yes that is we could you could you just like ex Blaine are defined what goes on in the non digital or like what's legacy what was things people be doing.
Oh basically everything we tried to reach has had which was not a part of that so they'll never mainframe technology you there could be a lot of yeah fees, which I doubt that the traditional you got EM, which other than on cloud based kind of so so it's actually a a lot of the legacy technologies, which without that.
Still there because customers, especially financial institutions, they have invested heavily in large.
Or applications, which are built around the older technologies I'm, just still need people to keep running them and maintaining them, but increasingly they're building new technologies, which are you.
On the digital side much.
So there is a transition which is happening or whatever period of time.
Okay, so they're kind of maintaining the old stuff, where the other group is building the new stuff.
Oh, yeah, yeah, so anyway, yes, correct [laughter] trying to be simple okay. Thank you so much.
You are welcome.
As a reminder to ask a question. Please press star one.
Ladies and gentlemen, we have reached the end of the question and answer session I like to turn the call back to management for closing remark.
[music].
Thank you operator, if there are no further questions I would like to thank you all for joining our call today stay safe and we look forward to sharing a fourth quarter and full year of 2020 results with you in early February. Thank you.
Thank you. This concludes todays conference you may disconnect. Your lines at this time and have a wonderful day.
[noise].