Q1 2024 Mastech Digital Inc Earnings Call
Greetings and welcome to the Mastech Digital's first quarter 2024 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being.
Recorded and it's now my pleasure to introduce your host Jenny Lacey manager of legal affairs for Mastech digital. Thank you Ms. Lacey you may begin.
Jennifer Ford Lacey: Thank you operator, and welcome to Mastech Digital's first quarter 2024 conference call. If you have not yet received a copy of our earnings announcement. It can be obtained from our website at www Dot Mastech digital dot com.
Jennifer Ford Lacey: With me on the call today are they go to Mastech Digital's, Chief Executive Officer, and Jack Cronin, Our Chief Financial Officer.
Jennifer Ford Lacey: 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 business cash flows costs and the market.
Jennifer Ford Lacey: 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.
Jennifer Ford Lacey: This change.
Jennifer Ford Lacey: 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 2023 annual report on Form 10-K filed with the Securities and Exchange Commission and available on its website at Www Dot SEC Dot Gov.
Jennifer Ford Lacey: Additionally, management has elected to provide certain non-GAAP financial measures to supplement our financial results presented on a GAAP basis, specifically, we will provide non-GAAP net income and non-GAAP diluted earnings per share data, which we believe will provide greater transparency with key with respect to the key metrics.
Jennifer Ford Lacey: Used by management in operating the business.
Jennifer Ford Lacey: Reconciliations of these non-GAAP financial measures to their comparable GAAP measures are included in our earnings announcement, which can be obtained from our website at www Dot Mastech digital dot com.
Jennifer Ford Lacey: 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.
Jennifer Ford Lacey: I will now turn the call over to Jack for a review of our first quarter 2024 results.
John J. Cronin: During the first quarter of 2023 activity levels client spending patterns and economic conditions have all shown promise for the first time since mid 2022, particularly in our it staffing services segment.
John J. Cronin: There was some uncertainty still exists in the marketplace with respect to inflation and economic forecast in general we're encouraged by our clients more optimistic views about their prospects and opportunities in todays environment.
Speaker Change: With that backdrop, let me address our first quarter 2024 financial results.
Speaker Change: Yeah.
Speaker Change: Q1 revenues totalled $46.8 million compared to first quarter 2023 revenues of $55 $1 million, representing up 15% year over year declines, which is a marked improvement over our Q4 2023 year over year.
Speaker Change: Our revenue decline of 20%.
Speaker Change: Additionally, on a sequential basis, we achieved revenue growth over Q4, 2023 up 2%.
Speaker Change: Our data and analytics services segment reported revenue of $8 $1 million in Q1, 2024 compared to $9 $4 million into 2023 first quarter.
Speaker Change: On a sequential basis revenues were essentially flat in Q1 24 versus Q4 of 23.
Speaker Change: Coming off a record bookings performance.
Speaker Change: Last quarter.
Speaker Change: Our Q1 2024 bookings results.
Speaker Change: Total $9 $6 million, which surpassed last year's Q1 bookings by $1.2 million.
Speaker Change: While the dollar value of Q1 bookings isn't overly exciting. The fact that many of these new orders came from existing clients, who have significantly reduced spending throughout 2023 is very positive.
Speaker Change: First quarter 2024 revenues in our it staffing services segment totaled $38 $8 million compared to $45 $7 million in the first quarter of 2023.
Speaker Change: On a sequential basis revenues grew by 2% and our global consultant head count increased during the quarter by 6%.
Speaker Change: Consolidated margins as a percent of revenues in Q1, 'twenty four improved to 25, 9% compared to 24, 5% in the first quarter of last year and was sequentially better than Q4 2023 gross.
Speaker Change: Margins of 24, 6%.
Speaker Change: And our data and analytics services segment margins improved to 46, 4% compared to 38, 5% in Q1, 'twenty three and was sequentially better than Q4 of 2023 gross margins of 44, 7%.
Speaker Change: This improvement reflected higher project gross margins and improved utilization in the 'twenty 'twenty four first quarter.
Speaker Change: Our it staffing services segment gross margins were flat compared to Q1 of last year, and 130 basis points better than the 2023 fourth quarter.
Speaker Change: GAAP net income for Q1, 'twenty four was a loss of $161000 or a one cent loss per diluted share compared to net income of $261000 or two cents per diluted share in Q1 of last year.
Speaker Change: Okay.
Speaker Change: non-GAAP net income for Q1, 'twenty, four was $800000 or six cents per diluted share compared to $1 $4 million or 12 cents per diluted share in the first quarter last year.
Speaker Change: SG&A expense items not included in non-GAAP financial measures net of tax benefits were stock based compensation and the amortization of acquired intangible assets and are detailed in our Q1 24 earnings release, which is available on our website.
Speaker Change: Lastly, addressing our financial position.
Speaker Change: On March 31, 2024, we had $19 $4 million of cash balances on hand.
Speaker Change: No bank debt outstanding and borrowing availability of $24 $2 million under our revolving credit facility.
Speaker Change: Our day sales outstanding measurement was 56 days at quarter end, which soundly was favorable to our target range of 60 to 65 days.
Speaker Change: I'll now turn the call over to Vivek for his comments.
Vivek: Good morning, everyone. Thank you Jack for the detailed financial review of our operating results for Q1, 'twenty 'twenty four.
Vivek: Gallium to Jack's point, we are feeling more positive about the macroeconomic environment today than we were at the end of 2023.
Vivek: During the first quarter of 2024, our clients have shown more comfort with starting new assignments and tackling some of the pent up I D needs after more than four quarters of reduced spending over economic concerns.
Vivek: While one quarter doesn't make a trend I'm feeling much better about where the domestic economies likely headed than I was three to six months ago.
Vivek: In our data and.
Vivek: Analytics services segment Q1 bookings were largely from existing clients, who had been very conservative in releasing new orders over the last four to six quarters and most of these bookings should translate into revenues over the next 12 months.
Vivek: Additionally, I should mention that data and analytics gross margin strengthened in Q1, as we continue to focus on improving our delivery performance and utilization rates.
Vivek: In March we participated in God knows data and analytics summit as a sponsor which resulted in meaningful new client introductions and gave us a good platform to showcase our data and analytics capabilities and go to market strategy to a wide audience.
Vivek: This event appears to have favorably impacted our current pipeline of opportunities and he's a confidence that we will likely participate in again in 2025.
Vivek: Our it staffing services segment also experienced an increase in demand for its services in the first quarter of 2020 for his.
Vivek: Historically, the it staffing industry has been somewhat of a lead indicator in both the start of economic downturns as well as the start of economic recoveries during Q1 of 2024.
Vivek: Increased billing consultant head count by 6% and were able to achieve sequential revenue growth of 2%.
Vivek: I'm optimistic that our Q1 performance is a good lead indicator of better times ahead.
Speaker Change: Operator. This concludes our prepared remarks, we can take questions now.
Speaker Change: Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Our first question comes from the line of Lisa Thompson with Zacks Investment Research. Please proceed with your question.
Lisa R. Thompson: Good morning, it's great to hear some optimism for a change.
Lisa R. Thompson: Oh.
Lisa R. Thompson: I was my first question is about the staffing increase you said you increased the consultants by 6% does that.
Speaker Change: Uh huh.
Lisa R. Thompson: I mean that Q2 might be up 6% sequentially.
Lisa: Oh, Hi, Lisa.
Speaker Change: While as you know, we don't give guidance am I, what I can say is that the revenue in Q2 should be better than the revenue off of Q1 as a result of this increased head count.
Lisa R. Thompson: And how has the head count trended.
Lisa R. Thompson: This quarter.
Lisa R. Thompson: Well so far we've just finished the first month in a game that I can say that it has been positive we've had some net growth in April.
Lisa: So it's a it's a good sign.
Lisa: Right.
Lisa: Oh C.
Lisa: As far as expenses go I had thought they would be down a little bit but that didn't seem to come down that much can you talk about what to expect going forward.
Lisa: Yeah.
Speaker Change: Yeah, They came down they came down 3% Lisa.
C: But again our activity levels are increasing in Q1 over Q4.
Lisa: You know, where we're being very conservative about increasing our expenses. So even if market conditions continue to get better and there's more opportunity out there, we're still going to be conservative would be in adding SG&A cost but.
Lisa: No I think they would trend up a bit.
Lisa: Okay, so kind of in line with revenues.
Speaker Change: Yeah kind of in line with revenues yeah.
Speaker Change: Oh, okay.
Speaker Change: Yeah.
Speaker Change: So looking at where you're going and sequentially. It looks like you should be back profits by at least Q3, if not Q2.
Speaker Change: Does that make sense.
Speaker Change: That makes sense.
Speaker Change: Okay is there anything else, we should know about what's going on in DNA.
Speaker Change: As far as the types of projects you are booking.
Speaker Change: Oh sure Lisa what I can say is that our traditionally as you know we were doing the D&A business was born in a M. D. M. B, a master data management technologies, and we were doing a lot of that and.
Speaker Change: Over a period of time over the last couple of years, we've started greatest fitting into the broader data modernization areas.
Speaker Change: And I'm happy to say that the more and more of new business is coming in that data modernization space. So we are able to then.
Speaker Change: Saturday and deliver the full spectrum of our offerings in the data analytics space and I think that's also the reason why we've been able to do better on order bookings because these are all data modernization story.
Speaker Change: He is thinking well with both.
Speaker Change: Both existing customers and prospects.
Speaker Change: Okay and I guess my final question is you didn't mention anything about stock buybacks, what's the thinking there and what was the activity.
Speaker Change: Oh.
Speaker Change: Yeah, we we were in the market.
Speaker Change: You know for just about every day that we could've been in the market or our volume our share volume has been very low and in Q1, which materially impacted you know the.
Speaker Change: Amount of purchases that we can make.
Speaker Change: We ended up repurchasing a little over 9000 shares at an average price of $8 70 set.
Speaker Change:
Speaker Change: We plan would be in the market in.
Speaker Change: You know once we get out of the earnings blackout period.
Speaker Change: To work with great. Thank you.
Speaker Change: Okay.
Speaker Change: The share buyback program.
Speaker Change: And you know the other thing that I would say is we're not opposed to.
Speaker Change: Facilitating a block.
Speaker Change: Perfect.
Speaker Change: You know if that opportunity presents itself.
Speaker Change: We're keen on the the share buyback program for sure.
Speaker Change: Great. Thank you so much that's all my questions.
Speaker Change: Thank you Alicia.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Tim call with capital Management. Please proceed with your question.
Timothy Colin Call: I was hoping you could give us an example of how client interactions and sentiment has changed this year.
Alicia: Hi, Tim could you repeat the question.
Timothy Colin Call: So hoping you can provide an example of how your client interactions.
Speaker Change: When you're talking to clients about.
Speaker Change: Logging new business.
Timothy Colin Call: How how that their their sentiment has changed how the.
Speaker Change: Conversations have changed this year versus last year.
Speaker Change: Sure sure.
Speaker Change: So last year.
Speaker Change: We saw that the customers, who are holding back and Oh, they were not willing to give large projects out there we're not willing to spend large amounts of money.
Speaker Change: The money was being devoted towards keeping the lights on rather than building the business that we see.
Speaker Change: And we've seen that towards the end of 2023 and more in the beginning of 2024.
Speaker Change: Customers are now beginning to open up their wallets and they are willing to sign projects much larger projects are the ones that they were holding up for a long time.
Speaker Change: And also you see when you have $4 six school four to six quarters of holding back there is that pent up demand. It doesn't go away just stays there and just because with larger and larger so we have seen that they are now beginning to release funds towards that so the conversations are eight.
Speaker Change: The bookings that we've had but I guess the conversations that we're having with our customers are pointing towards them wanting to now get back onto data plans.
Speaker Change: And it's not floodgates, yet, but it's looking much more positive there looking customers seem to be much more comfortable.
Speaker Change: So.
Speaker Change: Projects typically tend to happen on the data analytics side on the staffing side again, the same thing we have seen that the customer of that and I believe are willing to hire contract staff as well as permanent stuff and.
Speaker Change: The pace and the quantum is picking up.
Speaker Change: Yeah, I think that's what we've seen in Q1 and right into the last month of April.
Speaker Change: Does that answer your question Tim.
Timothy Colin Call: Yes. Thank you.
Timothy Colin Call: With with no debt.
Speaker Change: Cash on the balance sheet being close to 20% of the.
Speaker Change: Stock market calculations.
Speaker Change: Our stock market capitalization.
Speaker Change:
Speaker Change: I just want to congratulate you on getting through the down cycle with a such a clean balance sheet and lots of financial capacity.
Speaker Change: We're looking forward to the multiyear rebound so it's great to hear your comments. Thank you.
Speaker Change: Thank you, Dan and thanks to them.
Speaker Change: Yeah.
Speaker Change: Thank you as a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Question comes from the line of Marc Riddick with Sidoti and company. Please proceed with your question.
Marc Frye Riddick: Hey, good morning.
Marc Frye Riddick: Hi, Mark.
Marc Frye Riddick: So I was curious as to I, just wanted to sort of follow up on that thread.
Marc Frye Riddick: The types of projects that folks are beginning to act on is there any particular type that you are seeing as far as what those first initial kind of sort of no.
Marc Frye Riddick: Loosening of funds is being put toward and.
Marc Frye Riddick: And then if maybe if you could share whether that's seemingly coming from any particular customer or industry vertical that stands out to you as far as being more willing to put money to work now.
Marc Frye Riddick: Mark.
Marc Frye Riddick: What we are seeing is more generic in general across all industries and I don't think it's that you know some industries more than the other banking of course as you know it was a hit quite badly a banking industry.
Marc Frye Riddick: They were really holding back quite a bit in the previous year 2023 and that they've now started spending.
Marc Frye Riddick: On it services.
Marc Frye Riddick: What kind of projects they are there.
Marc Frye Riddick: They had all kinds out there, but I think I'd really like to use the same distinction that I made a minute ago, which is you know you have to keep the lights on so you are maintaining what you already have that never stopped that didn't stop in 2023, either it was really building the bank building the company we're building the enterprise for the future.
Marc Frye Riddick: So the new initiatives, the new developments for competitive advantage and growth. Some of those were being held back and it was beginning to I guess impact that businesses. So customers are now beginning to look at the build the business side of Ah I D. I don't know if that answer.
Speaker Change: So is your question.
Speaker Change: No. That's helpful. And then I wanted to sort of make sure I got this right you mentioned as far as the pick up in consultant Count where did you end the quarter on consultant count.
Speaker Change: Jack you have done.
Speaker Change: It gives me a set.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: For for total consultants for total head count.
Speaker Change: For the company.
Speaker Change: We were a little over 1700 <unk>.
Speaker Change: Our our billable consultants.
Speaker Change: In our it staffing services was 1000, Oh poor up 58 consultants from.
Speaker Change: The previous quarter.
Speaker Change: Okay.
Speaker Change: Okay. That's helpful. And then you seem to signal and are in the earlier one of one of leases questions that it's maybe a little bit higher since the end of the quarter correct.
Speaker Change: Yeah, Yeah, I mean April was positive yes.
Speaker Change: Okay, Great and then I was wondering if could talk a little bit about the pricing dynamic that youre seeing out there.
Speaker Change: Our bill rates and alike.
Speaker Change: Is there much in the way of meaningful pushback as far as pricing or what are you experiencing now and has that changed since two years ago.
Speaker Change: So the pricing pressures are always there and I guess, they got intensified in 2023.
Speaker Change: They haven't gone away, but as spending has started customers do realize that you know unique if youre looking for a better consultants or better services and the price point in the market place as you know because of inflation and otherwise the rates are going up and biologic <unk>.
Speaker Change: Tumors are receptive to looking at that for the right candidates I mean, I'm talking more on the it staffing side.
Speaker Change: So the pricing pressures out there but.
Speaker Change: They are they are not oh, what's the word I'm looking for they're not unduly.
Speaker Change: Impacting our business right.
Speaker Change: Okay and then the last one for me.
Speaker Change:
Speaker Change: The pickup in gross margin and in data and analytics year over year, Oh, that's about 800 basis points. There I just wanted to talk a little bit about that gross margin pick up is that right.
Speaker Change: How much of that maybe are we talking about and I would imagine there's a little bit of everything but you.
Speaker Change: You know how much of that is increased utilization how much of that is revenue mix like what what should we be looking at there as far as the gross margin pick up and in data and whether that has an opportunity to continue going forward. Thanks.
Speaker Change: So my level basically two reasons why our gross margins improved as compared to the same quarter last year. The first one was the.
Speaker Change: The actual project execution. So you know what I said, we can continue our focus on the delivery performance it's looking at.
Speaker Change: How do we deliver the projects to our customers with better.
Speaker Change: Gross margins and that obviously means better utilization.
Speaker Change: Also the secondly thing, which impacted us last year. It was a we had a large bench. So we are doing a very tight.
Speaker Change: Tight bench management, which obviously it doesn't mean that you know you bring the bench down to zero.
Speaker Change: All of us have to be a little ahead of the needs of the people because people have to be brought on board they have to be trained and ready for when the projects actually start. So I think we're doing a much better job off the bench punishment much better job of utilization and much better job of doing a better or getting better gross margins out of the <unk>.
Speaker Change: It's a.
Speaker Change: In execution.
Speaker Change: So it's a bit of many of these things I don't know if that answers your question Jack.
Speaker Change: Jack is there any anything else that you'd like to comment on this.
Speaker Change:
John J. Cronin: Yes, our margins are right now are about 46.5%.
Speaker Change: You know Q1 of last year was a disaster. It was $38 five I wouldn't even use that as a benchmark.
John J. Cronin: We always target, 45%, so we're 140 basis points better than our benchmark target and I would say.
Speaker Change: But if I had to split it between utilization improvement and I'm just.
John J. Cronin: Better margins and better delivery.
John J. Cronin: I would say, it's one third utilization in two thirds project margins.
Speaker Change: That's helpful. Thank you very much.
Speaker Change: Thank you Mark.
Speaker Change: Thank you as a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: There appear to be no further questions at this time I'd like to turn the floor back over to Vivek for closing comments.
Vivek: Thank you operator.
Vivek: If there are no further questions I would like to thank you for joining our call today and we look forward to sharing our second quarter 2024 results with you in early August.
Vivek: <unk>.
Speaker Change: This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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Vivek: Yes.
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Vivek: Okay.
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Vivek: Okay.
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Vivek: Okay.
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Vivek: Okay.
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Vivek: Okay.
Vivek: Mhm.
Vivek: Okay.
Vivek: Okay.
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Vivek: Yeah.
Vivek: Okay.
Vivek: Yeah.
Vivek: Sure.