Mastech Digital, Inc

First quarter 2025 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. It is now my pleasure to introduce your host, Dana Lacy, Manager of Legal Affairs for MadTech Digital. Thank you, Ms. Lacy. You may begin.

Thank you, Operator, and welcome to Mad Tech Digital's first quarter 2025 conference call. If you have not yet received a copy of our earnings announcement, it can be obtained from our website at www.madtechdigital.com. With me on the call today are New York State Health, Mad Tech Digital's Chief Executive Officer, and Conestoga Garmin, our Chief Financial and Operations Officer. I would like to remind everyone The 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 core billing, the words believe, anticipate, plan, expect, 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 at circumstances changed. There are risks and uncertainties that could cause actual events to differ materially from those forward-looking statements, including those purchased in the company's 2024 annual report of Form 10-K filed with the Securities and Exchange Commission and available on its website at www.sbc.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 key metrics used by management in operating the business. Reconciliations of these non-GAAP financial measures to their comparable GAAP measures are included in our earnings announcements, which can be obtained from our website at www.mattexdigitals.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 Kira for her comments.

Thanks, Jenna, and good morning, everyone. I am very pleased with the progress made over my first 100 days. and I'm energized by the meaningful conversations I continue to have throughout the business with our customers, employees, and stakeholders. The insights I have gathered have only reinforced what I said last quarter. I believe we are standing at an inflection point, and how we choose to act in the near term will shape our strategy for years to come. Let me start with a summary of our Q1 performance before handing it over to Canon to share more details. We picked off 2025 on a strong note, delivering solid results in the first quarter. I'm pleased to report that we achieved year-over-year revenue growth across both of our key operating segments. Notably, our data and analytics segments delivered double-digit growth compared to the same period last year. I believe this performance underscores the growth demand for AI-driven digital modernization and highlights our continued relevance to enterprise customers. validating our strategic focus on data-driven solutions. A key example of this focus is the recent announcement of our expanded partnership with Informatica, a leader in enterprise data management services, which we believe will enable us to accelerate AI-led transformation initiatives for clients globally. This collaboration not only enhances our data modernization capability, but also reinforces our commitment to delivering differentiated, high-impact solutions in an AI-first world. It deepens our industry focus and establishes a joint AI and data innovation platform that we expect will accelerate outcomes for our clients. Our IT staffing segment has also delivered resilience and growth, supported by strategic client engagements and disciplined execution, despite a decline in overall business activity levels. These results reflect our continued commitment to our teams of leading with a sense of urgency to meet client needs building a truly differentiated portfolio, and executing with financial discipline while laying a strong foundation for our ongoing transformation journey. Central to this journey are the transformation initiatives we have set in motion. I am pleased to share that these efforts are beginning to show early signs of progress in our quarterly performance. We remain on track with our commitment of unveiling a go-forward strategy later this year, one that we believe will position MapTek Digital as a leading partner to some of the largest Global 2000 enterprise customers that are transitioning into AI-focused organizations. Our focus remains on synergizing our data modernization and IT staffing solutions to offer cohesive, high-value services that meet the evolving needs of our clients. We are investing in talent, technology, and processes to enhance our capabilities and drive sustainable growth. While transformation is a complex endeavor, we believe our disciplined approach and clear vision will continue moving us in the right direction and build on our strong foundation to unlock new opportunities. At the same time, we are mindful of the prevailing macroeconomic market conditions, which continues to shape how and when our clients choose to accelerate their technology spending. We have observed a cautious approach across the board with decision-making becoming more deliberate. As noted by my industry peers, this period is characterized by considerable turbulence. Companies are reassessing strategies and in some cases, causing major decisions in light of ongoing volatility, a trend we are seeing reflected in our customer conversations as well. Despite these headwinds, we believe the long-term outlook for AI-driven solutions remain promising. Organizations continue to recognize the transformative potential of AI and are investing in technologies that drive efficiency and innovation at scale. At MassTech Digital, we remain committed to supporting our clients through this shift to an AI-first world. That said, we recognize that the near-term volatility may continue to bring uncertainty. While we are optimistic about the future, we are approaching the months ahead with measured caution. We plan to stay focused on delivering for our clients and executing strategy against our clients. I will now hand it over to our Chief Financial and Operations Officer, Cameron Susan Brown. Thanks, Peter, and good morning, everyone. Today marks a little over a month since I joined Maxic Digital, and it's a privilege to introduce myself as the company's Chief Financial and Operations Officer. Let me start with my background. I bring in over 25 years of experience in finance and operations across global technology and services organizations. Prior to joining Maastricht Digital, I served as the Chief Financial Officer of Omega Healthcare, where I helped drive enterprise-wide transformation, strengthen execution discipline, and deliver strong financial outcomes. Earlier in my career, I held senior leadership roles in finance, operations, and transformation at Cognizant, It has been a fast paced and energizing few first weeks since I joined Matic Rigido. A key part of my initial focus has been to ensure a smooth transition from my predecessor, Jack Cronin, and thankfully that was a solid foundation he has helped build, one that we can now leverage as we gear up for the next phase of growth. Partnering closely with leaders, I am committed to driving agility, discipline, and scale across our financial and operational functions, ensuring we execute with precision today while laying the groundwork for long-term valuation. We are aligning our teams, our systems, our processes to not only keep pace with change, but to position ourselves as a more responsive and resilient organization in an AI-first world. I firmly believe that operational excellence, financial success, and cross-functional collaboration be the key enablers in unlocking our future. It's a privilege to share the journey alongside a deeply committed leadership team with a shared ambition to scale and create impact. Now, onto the first quarter financial results. Our first quarter 2025 financial results reflected a cautionary macroeconomic environment. We saw blind trending patterns impacted by the level of economic uncertainty that we are seeing today. Despite these events, Our sharp focus on key client relationships resulted in an year-on-year revenue growth in both our business segments and an order booking performance in our data and analytics segment which was in line with our expectations during the first quarter of 2025. Consolidated revenues during the first quarter of 2025 totaled approximately 18.3 million, a year-over-year increase of 3.2% compared to the corresponding quarter of 2024. A data analytics services segment reported revenues of 9 million in Q1 of 2025, which were 11.1% higher than Q1 2024 revenues. Additionally, first quarter 2025 order bookings totaled 11.7 million, which exceeded last year's Q1 performance of 9.6 million. First quarter 2025 revenues in our IT staffing services segment totaled 39.4 million, 1.6% higher revenues than what was achieved during the first quarter of 2024. Despite some growth in Q1 2025, demand in our IT staffing segment was somewhat muted during the quarter as our billable consultant pay declined by 15 consultants. Consolidated gross profits Dollars increased by 6.3% in Q1 2025 compared to the corresponding quarter of 2024. Consolidated gross margins improved 80 basis points over the first quarter of 2024, largely driven by increases in our IT staffing business. Gap net income for the first quarter of 2025 totaled a net loss of 1.4 million 12 cents per daily fixture compared to a net loss of 0.2 million or 1 cent per daily fixture in the first quarter of 2024. Non-GAAP net income for Q1 2025 was 0.8 million or 6 cents per diluted share, compared to 0.8 million or 6 cents diluted share in the 2024 first quarter as well. As any expense items not included in non-GAAP financial measures, net of tax benefits are detailed in our first quarter 2025 earnings release for all periods presented which are available in our website. During the first quarter of 2025, our liquidity and overall financial position remained solid. On March 31, 2025, we had 24.7 million cash balance on hand, low bank debt outstanding, and cash availability of 23.7 million under our revolving credit facility. Our day sales outstanding BSO measurement on March 31, 2025 total 56 days. which is well within our targeted range and is in line with our TFO measurement a year ago. Operator, we will now open the call for questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. and for participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment while we pull for questions. Our first question is from Lisa Thompson with Vax Investment Research. Please proceed.

Good morning. It's great talking to you two. First, I have a few questions about first data and analytics. It looks like it dropped off sequentially quite a bit, and the margin was quite a bit lower compared to last year throughout the quarter. Can you tell us a little bit about what's going on there?

Sure.

In terms of gross margins in the DMA, it has been impacted by lower utilization and a one-time reserve adjustment on a six-week project. during 2-1-2025. That is a one-timer and the reduction has been roughly about two percentage points and we do see it as a one-time.

Okay, that's good to hear. Could you go a little bit into your relationship with Informatica? You said that you had one before. What was it before compared to what it is now? And in practice, how does this work? Do you just have salesmen that are working together now?

Yeah, hi.

I'll take that question. So, you know, we've always had a long-standing relationship with Informatica, where we continue to work with them as a strategic partner for us, as we thought about it in the past. I think what the expanded partnership with Informatica now really takes our relationship at an even more strategic level for both in terms of growth and I think what we can do jointly together with our customers. We are not just embedding the tools going forward. I think what we are going to think about it is co-develop industry specific accelerators and possibly also launch an outcomes lab where many of our clients could actually come together with us in building up a joint solution as they think about modernizing their estate to an AI first world. I think we see this really translating into both higher quality reuse flows and stronger differentiation in our competitive pursuits going forward. So I think we feel very, very great about the fact that we were able to further strengthen our partnership that we already had prior to this announcement.

So are you, as a project, going to have people from each company?

Yeah, the way I think, Lisa, just to comment on it, I think we are still working through the details of the specifics of the partnerships, but the way we have visualized this whole partnership is the fact that we will commit, you know, resources from both sides, but more importantly, we will actually join people through the solution building with our clients. So think about that as you are going forward in the market and expanding and making realizing their whole AI core stream comes real, we now have together with us Informatica as a partnership that we think we can build 20 solutions and go forward. Both our organizations already have a tremendous amount of differentiation and depth in the market for what we do for our clients. I think bringing us together just makes it even more stronger as we approach the client for more integrated, unified solutions that they look forward for in the future.

Great. Thank you for that. So, my last question is, did you get a chance to do any stock buybacks this quarter?

Yeah. So, as you know, in February 19, 2035, the board did authorize an extension of the program by an additional year to February 8, 2026. We still have 123,000 shares that are available for repurchase. Nothing has been done in the last quarter. But you will notice that in the initial period when it was launched, we experienced a number of extended blackout periods which we weren't able to repurchase our shares. And these were mostly corporate-related transactions and events. and now that should be behind us. So I don't think that you're going to see such blackout periods in the future, and so we will get active on the buyback.

Okay, great. Thank you for clarifying that. That's all my questions. Thank you.

As a reminder, this is Star 1 on your telephone keypad.

If you would like to ask a question, our next question is from Mark Riddick with Sidoti & Company. Please proceed.

Good morning. The morning came up.

So I was wondering, actually, first, where did we finish on consultant count for the quarter?

Yeah. So our digital accountant staffing landed up at 991. Okay.

Okay. Great. And then I was wondering if you could talk a little bit about as far as maybe what you saw through the quarter with client demand and feedback trends. And maybe you could talk a little bit about the pacing through the quarter by month. Maybe we can show you get a sense of what impact headlines had on clients and then throughout the quarter.

We do not see lumpiness in that sense between the month, March, but the kind of projects we are willing, we continue to remain very active in engaging with our clients and we are seeing growth in demand in the AI-driven digital modernization. These kind of highlights are continued relevance for the enterprise customers. And with the informatica conversation that we have been having, we only believe that it would be a catalyst and enable us to accelerate our air-led agri-transformation in that sense. But in terms of just the month-on-month, we haven't seen any lumpiness.

Okay, great. And can you speak to whether or not you've seen much in the way of any particular customer industry verticals that have been more active than others in any particular stand-up that we should be aware of?

It's been broad-based, Mark, but we do see a large fraction in our healthcare licenses practice. But other than that, it has been largely broad-based.

Okay. And then, so I think, though, it's been a few months now, and trying to run monsters as far as the macro, I suppose. But maybe to talk a little bit about maybe your initial thoughts in leading the company. and if there are any areas that either have been surprising on a positive or negative light, or maybe just initial views that would provide insights as to sort of your views as to the company and where it can go.

Most definitely, Mark.

This is Nira here. So, look, we remain, I would say, from a market condition standpoint, we remain very cautiously optimistic, right? We think I mean, there are no questions that the macro environment continues to present uncertainty, right? But that said, you know, the long-term demand drivers for AI-driven transformations and data modernization remain very strong. You know, clients might be, I would call, reprioritizing spend, but they're not necessarily pausing their transformation agendas altogether. So we are continuing to stay very, very close to their evolving needs and focusing on sort of what I call delivering high-impact ROI-aligned solutions and increasingly so as we look in the near term, I think each of these initiatives will need to be backed with a very strong set of ROIs that the CFOs of these customer organizations are very carefully assessing and approving. So we think we are in a great place in terms of where our offerings have that relevancy to really be kind of first in line to craft both sets of offerings. If you think about it, you know, we operate in our talent business, which usually tends to pick up pretty well as soon as the spends open up. And equally important on what I call long-term transformation initiatives are AI data and analytics capabilities really fit beautifully well as well. So we think we are going with what I call cautious optimism as we approach the next few months.

Great. And then last one for me, it seems as though we've had a pickup in bill rate. I think both, it seems that it would be both sequentially and a year over year, but maybe you can talk a little bit about that and what you're seeing there.

Sure, yes. Our average bill rate is right now trending between $84.5 and $89.5, which is up from $83.5 last quarter and up actually from $79 last year at the same time. I do see the bill rate has primarily been on account of the higher rates on new assignments and pretty much reflective of the type of skills that we have employed in the recent past. Mark, that's the topic that you're seeing.

Excellent. Thank you very much.

With no further questions in the queue, I would like to hand the conference back over to management for closing remarks.

It is, for us, this has been an exciting time with me coming in about 30 days back and NeuroVirginia for the, I would say, 100 days. It's been an exciting journey and we are so looking forward to making an impression when it comes to the market and looking at our strategy going forward. Thanks for that. Thank you. Thank you, guys. I appreciate your support through the process, and we look forward to seeing you all in the next quarter.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.