Q4 2024 Mastech Digital Inc Earnings Call
Greetings and welcome to the Mastech Digital Q4 2024 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host Jenny Lacey manager of legal affairs for Mastech digital. Thank you Ms. Lacey you may begin.
Speaker Change: Thank you operator, and welcome to Mastech Digital's fourth quarter 2024 conference call. If you have not yet received a copy of our earnings announcement. It can be obtained from our website www Dot Mastech digital dot com with me on the call today are near at scale, Mastech Digital's, Chief Executive Officer and Dan.
Dan Brown: Brown, and our Chief Financial Officer.
Dan Brown: 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 the business cash flows costs and the markets in which we offer.
Dan Brown: Alright.
Dan Brown: 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 or circumstances change there are statements there are risks.
Dan Brown: 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 dotcom.
Dan Brown: 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, which we believe will provide greater transparency with respect to key metrics used by many.
Dan Brown: It's been an operating business 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 dotcom.
Speaker Change: As a reminder, we will not be providing guidance. During this call nor will we provide any guidance in any subsequent one on one meetings or calls I will now turn the call over to Nate near off for his comments.
Nate Nearoff: Thanks, Gina and good morning, everyone.
Nate Nearoff: Today is my 45th day with Mastech digital and it's a privilege to address you today as Mastech Digital's Chief Executive Officer.
Nate Nearoff: Let me start by giving you a bit of my background and experience.
Nate Nearoff: I have well over 25 years of experience as a technology executive with a track record of scaling large and midsize organizations.
Nate Nearoff: I have held several prominent leadership roles throughout my carrier.
Speaker Change: Prior to joining Mastech digital I sold for over four years, as president and CEO of Brazil, corn and AI powered pure play supply chain transformation company.
Speaker Change: And before that I spent over 19 years at cognizant, playing many executive role is scaling multibillion dollar businesses across its key industry segments, and serving enterprise clients globally.
Speaker Change: It's been an incredible and busy first 45 days since stepping into my role at Mastech digital.
Speaker Change: I'm about halfway through my first hundred days and in addition to focusing on the execution of our plans I have spent a considerable amount of time listening to our customers partners employees and investors.
It is important for me to hear their perspectives and understand their expectations. They have all of us for the future.
What is clear to me is that we have a strong foundation and culture that is deeply rooted in customer focus.
Speaker Change: But what's also clear to me is that we are.
Speaker Change: At an inflection point both in terms of speed of change brought by the AI Revolution across our enterprise customers and the changing landscape of technology service providers in this rapidly evolving AI first of all.
Speaker Change: I believe that winning in the future will require organization like ours to have a sharper execution focus and the founders mindset for unlocking growth.
Speaker Change: We cannot ignore the evolving landscape shaping our industry. We are seeing the uncertainties created from a changing macro environment, leading to greater caution in slower decision, making.
Speaker Change: Companies are carefully assessing interest rates liquidity and market conditions to ensure their technology investments are both strategic and sustainable.
Speaker Change: That being said I have no doubt that the AI Revolution is real across industries.
Speaker Change: Automation and data driven decision, making are no longer just concepts they are being actively embraced and in turn the lights.
Speaker Change: Organizations are moving beyond exploration building proof of concepts integrating AI into core processes and in many cases rapidly scaling these capabilities to drive competitive advantage.
Speaker Change: While the path forward may not be linear the appetite for AI driven solutions remained strong.
Speaker Change: <unk> AI models like open AI, Claude Lama and deep sea reinforcing the fact that AI is reshaping how enterprises work optimize and you know it well.
While Jack will provide a detailed update.
Speaker Change: Wanted to share a few thoughts on our performance in the fourth quarter of 'twenty 'twenty four.
Speaker Change: We have made meaningful progress delivering revenue and margin growth with data and analytics seeing particularly strong acceleration.
Speaker Change: This performance reinforces our conviction that AI driven digital modernization is the next frontier and that we are well positioned to capture this momentum.
Speaker Change: I some of the fourth quarter in two words execution and transition we believe that when you're 25 will be the year. We begin our transformation one that helps enterprises re imagined themselves and transition into AI first organizations.
Speaker Change: This is just the beginning of that journey looking ahead, we believe our long term success will be driven by three principles that define who we are and where we are going.
Speaker Change: First we believe we must lead with a sense of urgency the window to establish ourselves as a leading technology provider that helps enterprises re imagine and transform into AI enterprises will not stay open forever.
Speaker Change: In this space speed is not just an advantage you do so.
Speaker Change: Friends between leading and lagging.
Speaker Change: Second we believe we must build a compelling and relevant portfolio of offerings.
Speaker Change: Differentiation will be key we are not just creating innovative solutions, but solutions that are essential to how businesses operate in the AI era, we believe our data modernization and staffing solutions must work together to drive deeper client engagement, it's not enough to participate we believe we must integrate our strengths into a seamless high value.
Speaker Change: Offering that sets us apart.
Speaker Change: We believe we must execute with discipline.
Speaker Change: Growth is only meaningful when it is sustainable and profitable we intend to drive efficiency across the organization operate with accountability and ensure that every investment we make in every position, we take create lasting value for our customers employees and shareholders.
Speaker Change: I recognize that building confidence in the leadership takes time and that it must be earned through clear execution and transparency.
Speaker Change: My commitment to you is simple I plan to be direct about where we are clear about where do we need to go and decisive about how we get there.
Speaker Change: Mastech Digital's is not starting from scratch.
Speaker Change: We believe we have the right foundation, the right talent and the right market opportunity.
Speaker Change: What we need is a runway to refine our strategy sharpen our execution and create the growth story that is truly our own.
Jack: Thank you for your time and trust I will now hand, it over to Jack.
Jack: Thanks, Neera and good morning, everyone.
Jack: Our fourth quarter 2024 financial results reflected the positive momentum that we experienced over the last nine months of 2024.
Jack: Consolidated revenues during the fourth quarter totaled $57 million a year over year increase of 10, 2% compared to the corresponding quarter of 2023.
Jack: Our data and analytics services segment reported revenues of $10 $3 million in Q4, 2024, which were $26, 2% higher on a year over year basis and nine 4%.
Jack: Essentially higher than our revenue performance in the previous quarter.
Jack: Order bookings in Q4, 2024 totaled $11 million, which was somewhat below our expectation.
Jack: In the fourth quarter of 2020 for our it staffing services segment had revenues of $45 million achieving year over year revenue growth of six 8%.
Jack: During the quarter, our global consultant base declined by 63 consultants, which is generally in line with previous years due to seasonal high assignment ends as expected. This will have some impact on our Q1 2025 revenue results.
Jack: Consolidated gross profit dollars totaled $14 $7 million in Q4, which exceeded the corresponding quarter of 2023 by $3 $4 million or a 30% increase driven by higher revenue volumes.
Jack: As well as increasing gross margin percent.
Jack: Our Q4 2020 for gross margin percent was a company record 29% as both of our business segment had significant margin expansion from the previous year.
Jack: And our data and analytics services segment gross margins as a percent of revenue increased by 480 basis points to 49, 5% in Q4 22024 compared to 44, 7% in the fourth quarter of 2020.
Jack: Three.
Jack: This increase reflected higher utilization and better project delivery.
Jack: In our it staffing services segment gross margins were up 350 basis points.
Jack: In Q4 compared to Q4 2023 due to an increase in direct hire revenues a favorable medical claim it.
Jack: Theory in our self insured healthcare program and higher margins on new assignments.
Jack: GAAP net income for the fourth quarter of 2024 totaled <unk> 3 million or two cents per diluted share compared to a net loss of $5 4 million or negative <unk> 46 cents per share in Q4 of 2023.
Jack: non-GAAP net income for Q4 of 24 was $2 $8 million or 23 cents per diluted share compared to $1 $3 million or 11 cents per diluted share in the 23 fourth quarter.
Jack: Yes.
Jack: SG&A expense items not included in non-GAAP financial measures net of tax benefits are detailed in our fourth quarter earnings release for all periods presented and are available on our website.
Jack: Highlights of our full year 2024 results included the following two.
Jack: 2024 revenues were $198 $9 million, which was largely in line with our full year 2023 revenues.
Jack: Gross margins in 'twenty four total.
Jack: 27, 9% compared to 25, 4% in 2023.
Jack: Our data and analytics services.
Jack: Gross margin percent increased by 560 basis points on a year over year basis and in our it staffing services segment, where our gross margin percent increased by 160 basis points.
Jack: Okay.
Jack: GAAP diluted earnings per share in 2024 was a profit of 28 versus a loss of 61 cents in 2023.
Jack: non-GAAP diluted earnings per share in 'twenty four totaled a profit of 71 cents compared to a profit of 44 and.
Jack: In 2023, a increase and improvement of 61%.
Jack: At December 31, 2024, our liquidity and overall financial position remains solid.
Jack: We have no bank debt outstanding we have $27 $7 million of cash balances on hand, we.
Jack: We have cash availability of $22 $6 million under our revolving credit facility and our day sales outstanding measurement at December 31, 2024 totaled 52 days, which was well within our targeted range.
Jack: Kevin that completes our.
Jack: Our prepared comments, we'd like to open it up for questions now.
Speaker Change: Thank you we will now be conducting a question and answer session. If you 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 for participants using speaker equipment. It may be necessary to pick up the hill.
Speaker Change: As said 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 Thompson: Good morning.
Speaker Change: Okay.
Speaker Change: Good morning, because we're all we're all looking forward to an exciting 2025, I know, there's a lot of possibilities out there.
Speaker Change: Could you talk a little bit about.
Speaker Change: What your thinking is with how you are going to approach.
Speaker Change: Increasing staffing and DNA is there going to be any strategy changes. Besides the obvious of trying to incorporate AI into your whole service offerings, how is that going to work.
Lisa Thompson: Sure Lisa Thank you for the question.
Speaker Change: Neither of your I'll take that one.
Speaker Change: Look I'm up I'm, taking a very structured approach to defining our long term strategy and I sort of I've just stepped into my role and my immediate priority is to deeply learn about our business and engage with our teams customers and partners and to really have a chance to assess.
Speaker Change: Yes.
Speaker Change: Our starting point in terms of our challenges and opportunities you know what I can say with confidence that our you know mastec has a very very strong foundation, our focus will be on accelerating growth.
Speaker Change: <unk> excellence and enhancing our offerings.
Speaker Change: But I am going to take a little bit of a structured approach in defining the strategy and I look forward to be sharing more specific details. Sometimes later half of this year as we refine our plans and execution roadmap.
Speaker Change: Okay. I'm also curious that Theres a lot of talk about government efficiency now do you see any opportunities when they're there.
Speaker Change: It was an entity that needs data modernization I think that would be the one.
Speaker Change: You clearly.
Speaker Change: You know government opportunities or something that.
Speaker Change: Especially in DNA that we look at for sure. So I guess the answer to your question is yes.
Speaker Change: Okay Alright.
Speaker Change: Alright, okay.
Speaker Change: Could you do you happen to have offhand, how many employees you ended the year with.
Speaker Change: Yes, I do we ended we ended the year with a total employees of both segments are 1816.
Speaker Change: And just as a point of reference last year. We had we ended the year 2023 with 1648.
Speaker Change: Okay. So that's a pretty big increase.
Speaker Change: Yeah, not bad right.
Speaker Change: Yeah, Yeah, and do you have any thoughts about spending this year and he's going to be pretty much steady ore.
Speaker Change: Was there any investment you need to do.
Speaker Change: Spending on SG&A cost were spending on Capex.
Speaker Change: Well, either but mostly SG&A.
Speaker Change: Okay SG&A.
Speaker Change: Yeah, our objective in SG&A is to continue to maintain.
Speaker Change: Or SG&A expense.
Speaker Change: And at the same percentage that we had in 2024 for 2025, so that's the objective and.
Speaker Change: It's gonna be a it's going to be a little bit by quarter to quarter I would say probably in the first half of 2025, we're going to probably not reach that goal.
Speaker Change: Because I think we are going to be hiring some of the missing pieces related to our new growth strategy, but by the end of the year with what we believe would be increases in revenue as well as maybe some.
Speaker Change: Cost savings initiatives, we should come in.
Speaker Change: At that objective.
Speaker Change: Okay.
Speaker Change: Yeah from a capex standpoint.
Speaker Change: We don't have a whole lot of capital expenditures I mean were right.
Speaker Change: Maybe it's certainly under $1 million so.
Speaker Change: That that will still hold.
Speaker Change: Clearly understood.
Speaker Change: Still thinking 28% tax rate.
Speaker Change:
Speaker Change: Well, the 28% tax rate.
Speaker Change: It encompasses.
Speaker Change: Like a <unk>.
Speaker Change: 123, our expense true up based on.
Speaker Change: The gains state our employees enjoy from exercising their shares versus the company expense related to those shares so.
Speaker Change: In the last year, well, let's say the last year and a half.
Speaker Change: Our true up was negative which negatively impacts the.
Speaker Change: The tax rate, that's why we were 28%.
Speaker Change: In fourth quarter, our stock price was a little bit higher and a lot of the exercises came in at gains that were greater than the 123, our expense the compensation expense and actually our tax rate was actually low.
Speaker Change: Then, 25%. So you know a lot of that depends on some of these unusual true ups that we have to make from a tax perspective.
Speaker Change: Okay, great. Thank you that's all my questions.
Speaker Change: Thanks Lee.
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. Our next question comes from the line of Marc Riddick with Sidoti <unk> Company. Please proceed with your question.
Marc Riddick: Hey, good morning.
Marc Riddick: Good morning, good morning.
Speaker Change: I wanted to touch a little bit on some of the commentary around the bookings during the quarter and maybe if you could spend.
Speaker Change: Maybe a little bit of time sort of giving us a picture on sort of how that progressed from either whether it was whether by monthly or you know where there you know changes in the demand.
Speaker Change: Pre post election.
Speaker Change: Well you know was you know where the did the bookings look different based on client verticals.
Speaker Change: You're saying that you can sort of share there as to maybe what you were seeing during the fourth quarter and then maybe any thoughts as to maybe how the how the years begun as far as.
Speaker Change: You know client activity would be really helpful.
Mark: Sure Mark I'll take a stab at that.
Speaker Change:
Yeah.
Speaker Change: We looked at our pipeline at the beginning of Q4 and looking at our pipeline. We we had a range of where we thought we would land in in total bookings and the $11 million came shortly and we had some project delays.
Speaker Change: There is a little bit in particular in DNA. There's there is a little bit of uncertainty in the marketplace. I mean, we saw a few clients, where we thought they were going to give us bookings in Q4 and they delayed does and so there is we clearly see some uncertainty in the marketplace.
Speaker Change: <unk>.
Speaker Change: What's the driver of that uncertainty.
Speaker Change: I mean, we can guess is it a tick up in <unk>.
Speaker Change: And inflation is it.
Speaker Change: Political concerns unknowns.
Speaker Change: But.
Speaker Change: Whatever the reason our clients seem to be.
Speaker Change: Less eager too.
Speaker Change: Give booking.
Speaker Change: Deals.
Speaker Change: They seem to have a longer cycle sales cycle on that before they let up day letter.
Speaker Change: Pay booking.
Speaker Change: Transpire.
Speaker Change: Okay and is there and I know this is a bit granular, but I'm just sort of curious is it.
Speaker Change: Is there anywhere.
Speaker Change: In particular, whether it's certain types of clients or do you think that's sort of more broadly across the board kind of situation right now.
Okay.
Speaker Change: I would say across the board.
Speaker Change: I would say across the board.
Speaker Change: That's right.
Speaker Change: Financial service clients, we've had Q4 bookings on you know.
Speaker Change: Health care clients.
Speaker Change: It's just that we didn't get the amount that we expected given the robust pipeline that we that we had.
Speaker Change: Okay.
Speaker Change: And then one of the things I didn't I just highlighted in your.
Speaker Change: In the press releases around the extension of the share repurchase program, which was initially.
Speaker Change: Initially scheduled to go to.
Speaker Change: And earlier this month, and then and has not been extended to.
Speaker Change: As of February 26, I was just wondering if you could share any thoughts there I can understand that.
Speaker Change: [laughter] for like 45 days I can understand that you you you got to have some time to sort of work through some of the prioritization, but I was just sort of wondering if you could journey thoughts on that.
Speaker Change: On that share repurchase extension there.
Speaker Change: Yeah, I mean, the board made that decision right and.
Speaker Change: We had this program for two years prior and during those that two year period, we experienced a number of extended blackout periods, where we weren't able to repurchase our shares they were like corporate related transactions and events.
Speaker Change: We think most of that is behind us and we have 423000 shares remaining in the share buyback program.
We would like to capitalize on some of those so I do think that youre going to see less blackout periods.
Speaker Change: And more buyout volume in 2025 compared to last year.
Speaker Change: Yeah.
Speaker Change: Okay, Great and then the last thing for me as far as potential uses of cash obviously, a very strong balance sheet to work with it but I was wondering if you could talk about any thoughts on <unk>.
Speaker Change: Potential acquisitions and maybe what.
Speaker Change: Maybe what that pipeline may look like now whether evaluations.
Speaker Change: Changed.
Speaker Change: In the last few months or that we've.
Speaker Change: We've seen a few small deals in the space with maybe you could sort of comment on maybe what you're seeing out there.
Mark: Sure Mark this is the era of here I'll take that.
Speaker Change: First.
Speaker Change: So mark I think look a like I said that are you know.
Speaker Change: We are we are certainly in the phase, where we are sort of starting to ting.
Speaker Change: <unk> through our our go forward strategy and we are sort of trying to really get a little bit more clarity on that and I think like I said earlier right.
Speaker Change: Just stepped in on my role and and you know in terms of my go forward strategy and my immediate priority is really to do listen and learn and I think I am taking a fairly structured approach of thinking through our long term long term approach strategy, which kind of would include elements of organic and inorganic play.
And so forth but.
Speaker Change: To me I think they're getting getting the the direction for the company in terms of where we are headed.
Ladies and important emphasis.
Speaker Change: Before we would sort of.
Speaker Change: Activator execute on any of those oh transactions, but.
Jackie: Please feel free to chime in to Jackie if you wanted to.
Mark: The only thing the only thing that I would say mark is.
Jackie: M&A is part of or.
Jackie: Our growth strategy for sure.
Jackie: It always has been.
Jackie: It's your stake.
Jackie: You know when you're changing leadership, it's hard to.
Jackie: You know decided exactly what you want to purchase so I think no. That's that's hereof.
Jackie: Yeah.
Well I think once new raws right and we'll get there.
Mark: No go ahead Mark.
Mark: Oh no.
Mark: I'd say, we're certainly looking forward to working with you and you have going forward and are looking forward to your to your vision for the company going forward.
Mark: That's about it for me today.
Mark: Yes. Thank you Mark I know I'm I'm I'm equally excited and looking forward to working with you.
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. One moment. Please while we re poll for questions.
Speaker Change: There appear to be no further questions at this time I'd like to turn the floor back over to Mr. Patel for closing remarks.
Speaker Change: Thank you Devin.
Speaker Change: There are no additional questions.
Speaker Change: Thank you for your time and I look forward to talking with you in early May for our Q1 2025 earnings call.
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.
Speaker Change: Okay.
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Speaker Change: Okay.
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