On Friday, Mastech Digital (AMEX:MHH) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Mastech Digital Inc reported a 15% decrease in consolidated revenue for Q1 2026, totaling $41.1 million, reflecting declines in both the Talent and Data and AI segments.
The company has realigned its business structure into two segments: Talent and Data and AI, to better serve client needs and drive long-term value creation.
Despite revenue declines, the Data and AI segment showed a 90% increase in new bookings compared to the previous year, indicating strong market demand for AI and data services.
Mastech Digital Inc is focusing on strategic investments in AI engineering and data platform capabilities, with plans to increase spending on talent and go-to-market strategies.
Management highlighted the success of the EDGE initiative in driving efficiency, with savings being reinvested into strategic priorities to position the company as an AI-first leader.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the Mastech Digital Inc first quarter 2026 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lacy, General Counsel and Corporate Secretary. Please go ahead.
Lacy
Thank you Operator and Welcome to Mastek Digital's first quarter 2026 conference call. If you have not yet received a copy of our earnings announcement, it can be obtained from our website at www.mastechdigital.com. with me on the call today are Nirav Patel, Mastek Digital's Chief Executive Officer and Kannan Sudantharman, our Chief Financial and Operations Officer. 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 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 2025 Annual Report on Form 10K filed with the securities and Exchange Commission and available on its website at www.sec.gov. 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 respect to the key metrics used by management in operating. The 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.mastechdigital.com. 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 NIRAV for his comments.
Nirav Patel (Chief Executive Officer)
Thanks Jenna Good morning everyone and thank you for joining us. As we review our first quarter 2026 results. This was a quarter of proof points. Not all of them are visible in the top line and I want to explain why that matters before Kannan walks you through the financials. We have continued to make meaningful progress on our transformation plan in the first quarter of 2026. Edge is executing exactly as we anticipated. We are starting to see traction both in our offerings and across our business segments and new opportunities are beginning to materialize. We also made a structural change this quarter, realigning our business into two new reportable segments, Talent and Data and AI. We believe this will prove to be one of the most consequential decisions we make this year as a key enabler of what we do. As part of that realignment, we moved certain client relationships directly into our data and AI segment where we believe our integrated capabilities create more durable differentiated value aligned with our clients business outcomes. We believe this realignment better reflects how we serve our clients, strengthen our position as a full service provider and creates a stronger foundation for long term value creation. Canon will provide more details on this realignment and our new segment structure in his remarks. Let me take a moment to address the market environment as it continues to shape how enterprises are making decisions. Geopolitical events and ongoing conflicts created an environment of compounding uncertainty throughout the first quarter. We are seeing enterprises be deliberate, not panicked, but deliberate about where they commit budget, discretionary and non strategic technology spends have seen meaningful pullback, decision cycles are longer, procurement is more rigorous and yet organizations have continued to make strategic investments in data infrastructure and AI readiness. These are not seen as discretionary, they are on the critical path for these organizations. Clients are not asking whether to invest in becoming AI ready. They are asking who the right partner in data and AI for them is to help them do it. And we are confident that we are positioning ourselves to be that partner. We expect conditions to remain fluid in the near term and we are factoring that into how we operate and plan. Despite the current environment, I'm pleased to share that we have made meaningful progress in generating net new demand. Our data and AI segment delivered meaningful new bookings momentum, a nearly 90% increase compared to the same quarter last year. We believe this reflects the growing relevance of our capabilities in the market and the conviction clients have in our ability to deliver while the revenue recovery remains in progress. What is evident to us is that the model is working. We are seeing clients engage with us differently than they were 18 months ago. The conversations are more strategic, the deed structures are more durable and the pipeline is more qualified Edge efficiency driving growth and expansion has been at the center of how we have navigated this environment. When we launched Edge, we were clear that savings had to come ahead of our investments. We are pleased that Edge has continued to execute as anticipated. The efficiency gains we committed to have started to materialize and we have now created the capacity to pivot towards our AI first vision. As we move through the remainder of 2026, we intend to invest disproportionately in the capabilities that will define us, expanding our AI engineering and modern data platform capabilities, building proprietary tools and accelerators and deepening partnerships across the platform ecosystems with our clients on their journey to becoming AI First Enterprises. Let me now walk through performances at the segment level. In our talent segment, the story is one of deliberate quality improvements. We have been methodically exiting lower margin nonstrategic positions as part of a focused effort to improve revenue quality. Our average win rates remain at historically strong levels and we believe the margin profile of the business has held up well as a consequence. We believe the revenue performance reflects the market reality as enterprises continue to manage their discretionary spends more tightly in a measured hiring environment. In our data and AI segment, I want to acknowledge the headwinds directly and then tell you where we are seeing momentum build because those are two very different stories. The headwinds from 2025, including the backlog reversal we highlighted in the previous earnings call, continued to weigh on revenue in the first quarter of 2026. What matters more is the momentum building. Our first quarter saw us win a multi year, multimillion dollar strategic engagement. We secured a partnership with a leading healthcare payer working to transform its member experience through a more integrated care journey. We are partnering with this organization to build a next generation AI ready data platform to serve as the foundation for advanced analytics and AI use cases as it modernizes its core systems. We view this engagement as a perfect example of how we are competing and winning with our industry led data platform modernization offerings. We remain confident in the long term demand drivers of our data and AI segment enterprises need their data to be ready for modernization, AI and transformation. We are building capabilities on two fronts to serve them. Our modern data platform capabilities anchored by ecosystem partnerships with the likes of Google, Microsoft, Snowflake, Databricks, Informatica and Reltheo and our AI engineering capabilities where proprietary tools, accelerators and industry solutions are tailored to the verticals we serve. We believe the bookings trajectory we are seeing today is an early and encouraging indicator of what that can look like at scale. We believe the market will remain volatile through 2026, but we have shown our determination to navigate uncertainty without losing focus. We said 2026 would be a year of execution and we believe the results we are sharing today are the early proof points of that commitment. We are confident we have shown the discipline to operate through uncertainty, the momentum to win new business in a difficult market, and the clarity of purpose to build for what is next. We believe we have the balance sheet strength, the leadership team and the organizational alignment to compete for the opportunities ahead. We are grateful for the trust our clients, our employees and our shareholders continue to place in us and we intend to earn it every quarter. With that, let me turn it over to Canon to walk through the financials.
Kannan Sudantharman (Chief Financial and Operations Officer)
Thanks Neerav Good morning everyone. As Neerav highlighted in his opening remarks, we have now realigned the company to be in a position to capitalize on opportunities across our businesses, customers and offerings. Going forward, we plan on presenting our financials under two new reportable segments, Talent and Data and AI. The Talent segment provides staffing solutions that enable clients to access skilled technology professionals across a broad range of digital and mainstream IT disciplines. These engagements include intermediated arrangements through managed service providers and system integrators as well as certain direct client relationships. We believe this segment allows clients to scale their technology teams efficiently while maintaining flexibility in response to changing business conditions. The Data and AI segment consists solely of the direct client engagements, including certain clients from the former IT Staffing Services division where we believe the company has the potential to cross sell services and increase market share. The offerings in this segment include data management and analytics, digital transformation consulting, AI and industry solutions staffing to direct lines, data engineering and IT services and managed services. I will now discuss our first quarter financial results. During the first quarter we delivered consolidated revenue of 41.1 million, a 15% decrease year over year compared to the prior year period. Our Talent segment delivered revenue of 28.5 million and 11.8% lower than the prior year period. Our focus on revenue quality continued to yield results. Bill rates reached an all time high for Mastech Digital Inc at $90.91 up from $87.82 a year ago. Our billable consultant base declined by 163 consultants since the first quarter of 2025, a 20.8% reduction driven by the same two factors we highlighted last quarter. First, insourcing activity from one of our top 10 clients. Second, our own deliberate decision to exit lower margin non strategic staffing positions in favor of higher quality higher margin engagements. Both dynamics remained present in Q1 consistent with what we communicated on our last call and we expect them to continue through first half of 2026. Our Data and AI segment reported revenue of 12.6 million, a decrease of 21.3% compared to the prior year period. First quarter bookings totaled 13.6 million on a total contract value or PCV basis compared to bookings of 15.3 million TCV in the prior year period. However, our new bookings from the quarter were at a historic high of $7 million TCV compared to $3.7 million TCV a year prior. Gross profit of $11 million was a decrease of 14.5% compared to the prior year period, though our gross margins increased by 10 basis point over the first quarter of 2025. GAAP net income was 0.3 million or $0.02 per diluted share compared to a net loss of 1.4 million or negative $0.12 per diluted share in the prior year period. The year over year improvement was primarily driven by $1.4 million of severance costs incurred in the first quarter of 2025 which with no comparable costs in the current quarter, non GAAP net income was 1.3 million or $0.11 per diluted share compared to 0.8 million or $0.06 per diluted share in the prior year period. The EDGE initiative efficiencies driving growth and expansion which we launched in Q3 2025 continued to advance through the the first quarter of 2026. Edge has always had two parts, an efficiency phase and an investment phase. We believe the efficiency phase has delivered. We are seeing the efficiencies generated through EDGE now being redeployed to strengthen our leadership and our talent base, expand our competencies and accelerate market growth initiatives. As we signaled on Our Last Call Q1 2026 mark the beginning of that redeployment into our solutions, our go to market capabilities and the talent required to compete as an AI first organization. We do plan to invest disproportionately in talent, competency building and overall market expansion in the data and AI space. We enter the coming quarters with that investment posture firmly in place and we remain confident that the most meaningful growth EDGE enables is still ahead of us. During the first quarter of 2026, our liquidity and overall financial position remained solid. On 31 March 2026 we had $33.6 million in cash on hand, no bank debt outstanding and cash availability of 21.3 million under our Revolving credit facility. Our day sales outstanding on 31st March 2026 totaled 60 days, which is within our targeted range, though it was above our DSO measurement a year ago. In the first quarter of 2026, the Board of Directors authorized the new Sharp Repurchase program, pursuant to which the Company may repurchase up to $5 million on its common stock. Repurchases under the program may occur from time to time in the open market, through privately negotiated transactions, through block purchases, or by any combination of such methods. The program may be modified, suspended or terminated at any time at the discretion of the Board of Directors. The authorization became effective on February 16, 2026. During the first quarter of 2026, we did not repurchase any shares of Mastech Digital Inc common stock and as a result, as of March 31, 2026, the entire $5 million remains available under the share repurchase program. Operator. This concludes our prepared remarks. We will now open the line for questions.
OPERATOR
As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from Mark Riddick with Sidoti. Your line is open.
Kannan Sudantharman (Chief Financial and Operations Officer)
Hey, good morning. Good morning. So I wanted to start with some of the thoughts around the resegmentation and some of the initial findings. Maybe you talk a little bit about it might be early for this, but can you sort of discuss how if this client feedback has been received as of yet or if that was part of the process and sort of how you're how that's been received up to this point? Mark, good morning, this is Kannan here. Let me take that. The rationale behind realigning the segments into the NOW talent and data and AI was fundamentally about how we believe those relationships are best served and grown. The decision to realign certain client relationships into data and AI segment was driven by three clear objectives. First, it creates the opportunity to cross sell our broader services portfolio in a more natural way. Second, it allows us to deliver more integrated offerings, bringing together our data platform capabilities, AI engineering expertise and the talent in a cohesive manner. And third, it positions us to deepen those relationships over time by engaging more directly with client decision makers, especially on their strategic priorities. So taken together, Mark, these three objectives reflect our belief that the most valuable client relationships are built on breadth and depth. And this realignment is designed to create exactly that. And we are seeing that resonating in our client conversations that we are having today in terms of the way we are managing our pipeline in Terms of how some of these conversations are panning out with our customers is resonating very well, Mark.
Nirav Patel (Chief Executive Officer)
And if I can just add one comment to this. Mark, you know you asked this question about clients initial feedback. I should say that the process from the beginning actually involved many of our top clients actually engage in a feedback loop process. And I think that was core as part of making sure that anything and everything we do is actually aligned to serve them better. So I would say that they have been involved from the beginning of that process well before we even effectively executed on that realignment. And you know, I think some, some levels of our performance and results in our Q1, especially on the bookings and so forth, is somewhat of a reflection of that.
Mark Riddick (Analyst at Sidoti)
Okay, thank you very much for that. I was wondering if you talk a little bit about the commentary on where we are with average bill rate at a company high and the commentary around sort of foregoing maybe lower quality opportunities and maybe you could talk a little bit of sort of where you are in that journey, what inning you're in as far as that process of sort of going through and sort of finding the I think in your presentation sort of a quality versus quantity commentary. Maybe talk a little bit about sort of where you are in that process.
Kannan Sudantharman (Chief Financial and Operations Officer)
No. And Mark, you were in and out, but I suppose you are referring to the build rate and the question about how we are business. Right. So I think the realignment of the business naturally resulted in realignment of our headcount and some of our key operating and reporting metrics. So what you will see is that we have provided financial outcomes of our realigned business segment in the supplemental information on our website for the last five quarters. So what we are reporting now from a parameter on bill rate is that we are at 90.91 cents and equivalent of that was 87.82 cents a year ago, which obviously shows a continuous growth and trajectory for that matter. And in terms of the revenue itself. And one of the two reasons that we have stated in terms of our reduction in revenues, especially in the talent business is one certainly which is self director, which is the revenue associated with some of the non strategic positions we chose to exit and that actually declined approximately 22% on a year on year basis and which is actually higher than the overall business segment decline for that matter. And that tells you that our deliberate pruning of low margin business was a meaningful contributor to the headline number. But of course there was one other reason for the overall revenue reduction in talent which is on the insourcing of one of our clients, one of our top 10 clients for that matter, which had a significant impact on a single client relationship. And those are the two reasons. So I would say the build red journey at this point in time is a lot more focus on the quality of revenue that we concentrate and prune over the. I would say it's a significant factor in terms of how we look at the business and it is turning out to be a good story for us. If you look at our trend of build rates over the last four quarters. Mark. Okay, great. And then last one for me, I was sort of curious. It seemed as though the, the tax rate was a little higher than I would have thought. Was there anything in there in particular that we should be aware of or is that sort of a one time situation in the border? It just seems though the tax rate was kind of high there. Yeah, it is a one time effect out there. You will see that in our 10Q as well. On an average we will Trend at about 24 to 25% mark. And you will see that catch up over the rest of the period. But it is certainly a one timer that's sitting in Q1.
Mark Riddick (Analyst at Sidoti)
Okay, thank you very much.
OPERATOR
Thank you. Our next question comes from Lisa Thompson with Zachs Investment Research. Your line is open.
Lisa Thompson (Analyst at Zachs Investment Research)
Hi. I have a number of questions starting with the realignment segments. First off, could you tell are all the available consultants in the talent segment?
Kannan Sudantharman (Chief Financial and Operations Officer)
Sure. Our talent headcount as of March 26th was 619. 619, Lisa, down from 782 a year ago. That's a 163 reduction. And 671 a quarter ago. As I said, we had headwinds in Q1 owing to the customer issue I mentioned on the prepared remarks. Right. So, but those are the numbers. So it is 619 in March as against 782 a year ago.
Lisa Thompson (Analyst at Zachs Investment Research)
Oh, okay. All right. So now that you have the lowest number you've ever had of billable consultants, I look back to 2018. What does that mean going since the end of the quarter to now? Are you hiring or is it going to be a lower number? And does that mean that the revenues in talent are going to be lower in Q2? How does that work?
Kannan Sudantharman (Chief Financial and Operations Officer)
Yeah. So Lisa, as you know, we don't provide a forecast, but note that our headcount hasn't changed in April. So April continues to stand at 619, but on an overall headcount. To address your other point is our overall headcount, which is at an organizational level, was at 1424. At the end of March, 1424. A year ago it was 1748. 1748. And two factors resulting in it. One is the billable headcount itself going down as we discussed. The other is our ability to kind of optimize from an SGA standpoint. So there was a reduction in sgna by about 53 people on a year, on year basis. And in April, actually we have landed making investments where in April headcount stands at 1461 and as against 1424 at the end of March, largely on account of the investments that we are making both in terms of capabilities as well as to fend for growth for the future.
Lisa Thompson (Analyst at Zachs Investment Research)
Okay, interesting. So that leads me to the question about opex. The number was really low this quarter. It was very impressive. How do we think about your spending going forward for the next three quarters?
Kannan Sudantharman (Chief Financial and Operations Officer)
I'm glad that you asked that question and it's an important question. I want to give some helpful framework on thinking about it while being mindful that we are not providing specific guidance. If you look at our financials as you did Lisa, our overall SGA spend has, on a non GAAP basis has reduced by approximately $2 million on a year. On year basis. And our intention is to invest substantially all of those annualized savings back into our strategic priorities. So the efficiency gains and the investment envelope that we are trying to create are directly linked and edge, which is what helped us get here, created the Runway and we are now in the deployment zone, so to say. So in terms of how we are allocating these investments, it's threefold. One, we are strengthening our go to market organization, the sales and solutions engine that is actually driving the booking momentum you're seeing. We are investing in our people and leadership, particularly domain expertise, in our targeted verticals. But the largest and the most disproportionate share of that investment is going into AI engineering and modern data platform capabilities. Basically building the proprietary tools, accelerators and the technical depth that we believe will define our AI first transformation agenda. So this is where we are leaning in most heavily because we believe it's the area that creates a more durable competitive advantage over time. So from a modeling standpoint, I would expect SGNA to begin stepping up from Q2 onwards. As that investment activity accelerates, the efficiency gains are largely captured. What you are seeing going forward is those gains are being redeployed disproportionately towards investments.
Lisa Thompson (Analyst at Zachs Investment Research)
So to think about it simply, does that translate to Q4? OPEX should be $2,000,000 higher than where it is now vaguely is where we are headed right now. Effectively our investment thesis is all around that. Okay, all right, let's see, what else did I have here? So that healthcare contract, is that large enough that we're going to notice it and does it start immediately?
Nirav Patel (Chief Executive Officer)
Good morning Lisa. Nirav here. I can take that question on that deal. Look, first of all, let me share some color on it. This is a very strategic win for us in the healthcare phase. We are supporting a top 10 payer in the country on their data modernization journey which is exactly the type of integrated high value engagement we have been building towards. What makes this multi year deal particularly meaningful is how the relationship is evolved. It started through early days with our master data management work. As you know that historically we were on a strong position with our MDM and that remains our core of our business in the past, but where we have deep expertise on and over time we were able to elevate that conversation into a much broader data modernization engagements on a Microsoft platform. And this is the cross sell and integration story we really want to replicate across our entire customer base. It was a very, very competitive bid process. We won it by demonstrating our capabilities and depth of what we can deliver. We're now partnering with this client to build a next generation AI ready data platform that will serve as the foundation of their broad long term advanced analytics and AI use cases as they modernize their system. So to me this is just a new beginning of a long term engagement and we hope that not only that we grow meaningfully, this particular relationship would also expand more to other customers as we see more quarters go by.
Lisa Thompson (Analyst at Zachs Investment Research)
Okay, and is that number in the backlog? I mean the bookings number you gave us?
Nirav Patel (Chief Executive Officer)
That is right, Lisa. It is part of the booking that we gave.
Lisa Thompson (Analyst at Zachs Investment Research)
Okay, and last question. I think what's important is you're trying to position kind of the company differently than the way we used to think about it. Can you talk about how your new focus on AI first has changed the competitors that you run into now?
Nirav Patel (Chief Executive Officer)
Yeah, sure Lisa, I can take that question. Look, I think first of all I'll say that thank you for taking the notice that we are pivoting ourselves to be a very different company in the future. You know, right from the outset, over the last many quarters we've talked about this idea that we want to play into the AI super cycle. We want to really be relevant to our clients and we think we have a meaningful starting point with everything that we have done, both with our talent business as well as our core data and AI work in the past. So we think we have a very good starting point now as relates to your specific question around where's the market? And I think I just want to really lay down the premise that we are really, really in the early days of that super cycle. And as market moves meaningfully in different directions, the views that the AI hyperscalers derive sometimes hurts the services ecosystems. Sometimes it's very encouraging on the services ecosystems because they are themselves now starting to form large scale services businesses that we think is actually the right thing because we have said three things. One is that it's a very, very new market that is getting built up and we are still in very early days of that build out. As enterprises continue to go from pilot to scale, they're right now well past the pilot phases, but they are really trying to find a way to to fast scale their adoptions into the entire enterprises. And as part of that exercise, the model has changed in terms of how you deliver to those new adoption curves. And so the more you are a legacy traditional IT services company, the more you need to rewire yourself to really be able to serve. And we believe that we have somewhat of an unfair advantage given our size, relative size and strong customer base, that we actually can make that pivot much more faster. So we do see new players emerging every single day. The competition, I don't think there is a crystal clear clarity on who the competition is. But I think I can tell you for sure that every new competitor is only focused on a single minded mission to increase the enterprise adoption at our clients. And so we are playing right in front center of that position. And I think we love the idea that we could very, very meaningfully serve our customer base that we have today with us while adding the new customers as we scale.
Lisa Thompson (Analyst at Zachs Investment Research)
Great. Thank you. That's all my question.
OPERATOR
Thank you. This concludes the question and answer session. I would now like to turn it back to Nirav Fattel for closing remarks.
Nirav Patel (Chief Executive Officer)
Thank you. Thank you operator. If there are no further questions, I would like to thank you all for joining our call today. We look forward to sharing our second quarter 2026 results with you in August.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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