MHH: Mastech Digital Posts Stellar Q1 and Has Had Few Cancellations So Far
NYSE:MHH
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Mastech (NYSE:MHH) just reported a stellar Q1 growing revenues 12% year over year and up slightly sequentially. Any hit to business it has had from the coronavirus worldwide shut down certainly didn’t show up in Q1 numbers. To date the company has experienced some customer cancellations and premature contract ends in IT staffing, but Mastech InfoTrellis (data and analytics) continues relatively unscathed except for the delay some potential customers have put on signing contracts. It is too early in the quarter to predict the total effect on revenues going forward but to date only about 50-60 billable employees in IT staffing have been sent home, which is about 5% of the total. Data and analytics continues strong, and signed yet another multi-million dollar long term contract with a financial services company. At this point we would be hard pressed to predict this business to decline in 2020.
The outbreak of coronavirus worldwide has effected Mastech’s operations in both the US and India in Q1. Both employees of Mastech, and most employees in the staffing business working at client locations, have been ordered to work from home, but given the nature of the business this move has had little impact on operations or current revenues. IT staff had been in short supply anyway and the company has not reduced its staffing recruiting efforts. Most staffing projects are about nine months, but customers are allowed to cancel at any time. Recruiting continues from India, where employees have been working from home.
While business at Mastech InfoTrellis (aka D&A) continues on track with no cancellations so far, some potential customers that were expected to sign on this quarter have delayed going forward, particularly in Europe. The company has little exposure to the hardest hit industries such as travel and oil. It had only a handful of staffing employees working for an airline and a cruise line and none in oil. Much of what Mastech does for clients is mission critical. Certainly only those clients that are cash strapped or doing tangential projects would cancel current projects that relate to business improvements.
What mostly will be affected will be sales efforts, particularly in Europe, but certainly everywhere. In 2019, 99% of revenues came from the US and Canada. We are cutting estimates based on a reduction in the growth of new business, which we expect in Q2 through Q4, and a reduction in the need for IT staffing evidenced so far.
Total revenues increased 11.6% and total gross margin was 25.2% versus 24.0% a year ago and 24.5% in Q4 2019.
Looking at the two segments, IT staffing grew 9% to $43 million and was 85% of revenues. It had 1,100 billable consultants compared to 1,116 the year before and 1,167 in the fourth quarter of 2019. Gross margin for this segment improved to 21.5% from 20.8% last year and 21.4% in Q4 2019. New contracts are being signed at higher rates than last year.
Data and analytics grew 28% to $7.4 million or 15% of sales compared to 13% of sales last year. Gross margins also improved in this segment to 47.1% from 45.5% a year ago. As a result gross margin dollars increased 32.1%.
GAAP net income was $1.9 million, up 94% from a year ago. On a non-GAAP basis it was $2.7 million up 66%. GAAP EPS was $0.16 diluted compared to $0.09 a year ago and $0.20 in Q4 2019. On a non-GAAP basis it was $0.23 versus $0.15. The fully diluted share count was 11.7 million up 4.7%.
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