Mastech Digital, Inc. (MHH) – 10-K Filing Analysis – Fiscal Year 2024
Executive Summary
This report analyzes Mastech Digital, Inc.’s 2024 10-K filing. The company experienced a slight revenue decrease overall, but with growth in the Data and Analytics segment. Gross margins improved significantly, particularly in Data and Analytics. Operating expenses decreased, but strategic shifts and economic uncertainties present risks. Overall, a HOLD recommendation is appropriate, pending further observation of the impact of strategic changes and the evolving economic landscape.
Company Overview
Mastech Digital, Inc. is a Digital Transformation IT Services provider, operating through two segments: Data and Analytics Services and IT Staffing Services. The company offers data and analytics solutions, digital learning, and IT staffing services. The company’s headquarters are located near Pittsburgh, Pennsylvania.
Detailed Analysis
Revenue and Gross Profit Analysis
Total revenue decreased slightly by 1.1% from $201.1 million in 2023 to $198.9 million in 2024. However, the Data and Analytics Services segment saw a 6.6% increase in revenue, while the IT Staffing Services segment experienced a 2.6% decrease.
| Segment |
2024 Revenue (Millions) |
2023 Revenue (Millions) |
Change (%) |
| Data and Analytics Services |
$36.6 |
$34.4 |
6.6% |
| IT Staffing Services |
$162.3 |
$166.7 |
-2.6% |
| Total |
$198.9 |
$201.1 |
-1.1% |
Gross profit increased by 8.9% to $55.6 million in 2024, compared to $51.0 million in 2023. The overall gross margin improved from 25.4% to 27.9%.
| Segment |
2024 Gross Margin (%) |
2023 Gross Margin (%) |
Change (Basis Points) |
| Data and Analytics Services |
49.1% |
43.5% |
560 |
| IT Staffing Services |
23.2% |
21.6% |
160 |
| Total |
27.9% |
25.4% |
250 |
Insight: The Data and Analytics segment’s revenue growth and margin expansion are positive signals. The IT Staffing segment’s revenue decline is a concern, but margin improvement suggests better efficiency. The overall margin improvement is a key positive development.
Operating Expense Analysis
Selling, General, and Administrative (SG&A) expenses decreased from $60.3 million in 2023 to $51.8 million in 2024. As a percentage of revenue, SG&A decreased from 30.0% to 26.0%.
| Expense Category |
2024 (Millions) |
2023 (Millions) |
Change (Millions) |
| Sales and Marketing |
$16.4 |
$14.8 |
$1.6 |
| Operations |
$9.4 |
$9.9 |
-$0.5 |
| General and Administrative |
$21.2 |
$22.1 |
-$0.9 |
| Amortization of Acquired Intangibles |
$2.7 |
$2.8 |
-$0.1 |
| Severance Expense |
$2.1 |
$2.4 |
-$0.3 |
| Employment-related Claim, net of Recoveries |
$0.0 |
$3.1 |
-$3.1 |
| Goodwill Impairment |
$0.0 |
$5.3 |
-$5.3 |
| Cybersecurity Breach |
$0.0 |
$0.0 |
$0.0 |
| Total SG&A |
$51.8 |
$60.3 |
-$8.5 |
Insight: The decrease in SG&A expenses is primarily due to the absence of significant one-time charges like the employment-related claim and goodwill impairment that impacted 2023. Increased sales expenses in both segments are a concern, but may be justified if they lead to future revenue growth.
Financial Condition and Liquidity
The company’s cash position increased to $27.7 million at the end of 2024, compared to $21.1 million at the end of 2023. The company has no bank debt outstanding and $22.6 million of borrowing capacity under its credit facility. DSO (Days Sales Outstanding) improved slightly to 52 days.
Insight: Strong liquidity provides financial flexibility for strategic initiatives, including acquisitions and share repurchases. The improved DSO indicates better management of accounts receivable.
Risk Factors
The 10-K highlights several risk factors, including:
- Recruitment and retention of IT professionals
- Dependence on Indian operations
- Concentration of revenues among a few clients
- Competition in the IT staffing and data analytics industries
- Government regulation of H1-B visas
- Cybersecurity threats
- Economic conditions in North America
- Climate change
- Use of AI and machine learning technologies
Insight: The company acknowledges the competitive landscape and the importance of skilled labor. The reliance on H1-B visas and Indian operations introduces regulatory and economic risks. Cybersecurity remains a significant concern, as highlighted by the 2022 breach.
Management’s Discussion and Analysis (MD&A)
Management expresses optimism about the Data and Analytics segment and its ability to capitalize on Digital Transformation trends. They acknowledge the economic uncertainties and their potential impact on the IT Staffing segment. The discussion of the Primentor consulting agreement and the transition of finance and accounting functions to India indicates a focus on strategic cost management.
Critical Accounting Policies
The critical accounting policies include revenue recognition, allowance for credit losses, goodwill and intangible assets, leases, business combinations, stock-based compensation, and income taxes. These policies involve significant management judgment and could materially affect the financial statements.
Conclusion and Actionable Insights
Mastech Digital’s 2024 performance shows a mixed picture. The Data and Analytics segment is performing well, but the IT Staffing segment faces challenges. Improved gross margins and reduced operating expenses are positive signs, but economic uncertainties and specific risks need to be monitored.
Recommendation: HOLD. While the company is showing improvements in profitability and has a strong cash position, the revenue decline in the IT Staffing segment and the economic uncertainties warrant a cautious approach. Monitor the company’s ability to grow revenue in the IT Staffing segment, manage costs effectively, and mitigate risks related to H1-B visas and cybersecurity. Observe the impact of the strategic changes, including the Primentor consulting agreement and the transition of finance and accounting functions to India, on future performance.