Mastech Digital, Inc

And welcome to the MadTech Digital second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, 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, Jenna Lacey, Manager of White Rule Affairs. Thank you. You may begin.

Thank you, Operator, and welcome to MagTech Digital's second 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.magtechdigital.com. With me on the call today are Neera Patel, MagTech Digital's Chief Executive Officer, and Connors Disenvironment, our Chief Financial 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 beliefs, 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 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 2024 annual report on Form 10-K, Bob was a 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 for share data which we believe will provide greater transparency with respect to the key metrics used by management in operating business. Reconciliations of these non-GAAP financial measures to the comparable GAAP measures are included in our earnings announcement, which can be obtained from our website at www.masstechdigital.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 called. I will now turn the call over to Rob for his comments.

Thanks, Jenna, and good morning, everyone. We entered the second quarter in a market that remained cautious but are now beginning to see early signs of stabilization, particularly in North America, where trade-related uncertainties appear to have become the new normal. Across industries, we are seeing clients continue to remain cautious, prioritizing investments, that deliver clear business value while managing budgets prudently. Hiring decisions and project commitments also remain measured. Against an uncertain macroeconomic environment, I am pleased with our performance in the first half of the year, masked by continued year-over-year growth across both our IT staffing and data and analytics business segments. We believe this performance demonstrates the strength of our portfolio and our disciplined execution. In our IT staffing services segment, we saw steady demand for high-value work as clients focused on flexible cost-efficient and value-generating workforce strategies. While activity levels were lower than the prior year, we are seeing encouraging signs as macroeconomic conditions improve. I am particularly pleased with our gross margin performance, We achieved our highest growth margin to date in second quarter through our focus on revenue quality, particularly among our financial services clients. Our data and analytics services segment also showed positive year-over-year growth, while our bookings came in lower than expected, driven primarily by slower decisions on capital programs by our top customers. Beyond our financial performance, we have made good progress this quarter on our strategic initiatives and have been methodical in preparing the organization for internal alignment and execution readiness. As part of this process, we have mobilized teams and started organizing our structure to help position the company for the future. We have also focused on driving initiatives designed to unlock efficiency across the organization, starting with the recent transition of our finance and accounting function to India. We believe this implementation of our strategic initiatives will energize our teams, deepen fine relationships, and reinforce our position as a trusted partner for enterprises navigating an AI-first world. In summary, we believe we delivered a solid quarter in a measured and cautious market, demonstrating the resilience of our business and the relevance of our offerings. We remain focused on executing against our priorities and preparing the companies to seize future opportunities. I would like to thank our employees, clients and partners for their continued trust and support as we move forward with the implementation of our new strategic initiatives. With that, I will hand it over to Kannan for a deeper look at the quarter's results. Thank you and good morning everyone. Our second quarter results reflect disciplined execution in a cautious but stabilizing market Here to date, we have delivered revenue growth across both segments. IT staffing services remain stable on a year-on-year basis, supported by continued demand for high-value, flexible workforce solutions. In our data and analytics services segment, we saw a modest decline this year, consistent with the more measured decisions on capital programs that Nirav highlighted earlier. Order booking in our data and analytics segments were lower, reflecting the slower decision-making environment. We remain confident in our ability to deliver value as we move forward with implementing our strategic initiatives. Consolidated revenue during the second quarter of 2025 totaled 49.1 million, a year-over-year decrease of 0.9% compared to the corresponding quarter of 2024. Our data and analytic services segment reported revenue of 8.6 million in Q2 of 2025, which was 3.2% lower than Q2 2024. Additionally, second quarter 2025 order booking totaled 5.8 million, which was below last year's Q2 performance of 9.2 million. Second quarter 2025 revenue in our IT staffing services segment totaled 40.5 million or 0.4% lower than revenue achieved during the second quarter of 2024. Our focus on revenue quality resulted in higher bill rates and higher growth margins in this segment, though our billable consultant base declined by 11 consultants. Consolidated gross profit dollars decreased by 1.1% in Q1 of 2025 compared to the corresponding quarter of 2024. Consolidated gross margins dropped by 7 basis points over the second quarter of 2024, largely driven by the disease in our data and analytics services segment. Gap net income for the second quarter of 2025 totaled 0.1 million or 1 cent per diluted shack. compared to a net income of 1.4 million or 12 cents per diluted share in the second quarter of 2024. Non-GAAP net income for Q2 2025 was 1.8 million or 15 cents per diluted share compared to 2.2 million or 19 cents per diluted share in 2024 second quarter. However, our Q2 2025 performance was an improvement from Q1 2025. where non-GAAP net income was 0.8 million or 6 pence per diameter. As G&A expense items not included in non-GAAP financial measures, net of tax benefits are detailed in our second quarter 2025 earnings release for all periods presented which are available on our website. On the financial position during the second quarter of 2025, Our liquidity and overall financial position remains solid. On June 30, 2025, we had 27.9 million cash balance on hand, low bank debt outstanding, and cash availability of 22.2 million under our revolving credit facility. Our DHA's outstanding measurement on June 30, 2025, totaled to 53 days, which is well within our target range. and in line with ideas of measurement a year ago. Operator, this concludes our prepared remarks. You can take questions now.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. In confirmation tone, we can indicate your lines in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Lisa Thompson with Zacks Investment Research. Please proceed with your questions. Good morning. I have a number of questions because we've got so much action going on. My first question is... Are financial accounting fully moved? Are there any more one-time expenses there?

Hello, Lisa. This is Kanan here. Thanks for that question. Yes, we are on track with the transition of our financial accounting functions to India, and we are facing well against the target outlined in our prior disclosure. We will be completing most of it. by sometime by the fourth quarter of this year. We are seeing early gains, which have been encouraging, and not just from a cost standpoint, but also in terms of process agility, turnaround time, and better alignment across teams. So that is how we see this. It's going as per the plan, and we hope that by the 4th of 2025, we should be complete with our transition.

So are there any more one-time expenses gonna be booked?

we don't expect any other than that which has already been disclosed, Lisa.

Okay, great. And as far as Informatica, what's the progress on that and what's happening there?

Lisa, if I can understand the question, you're just asking the partnership on Informatica that we announced a few months ago?

Yes.

Yeah, so I think, look, we are continuing to accelerate our position on trying to build what I call a very differentiated offering in our portfolio. And among the many partnerships that we have been pursuing, one that we announced recently was with Informatica. And I'm very pleased with the initial project that we have made. We have really started to create joint solution offerings where we are creating what we call an impact offering that really allows us to set up a lab that we are actually building our core capabilities around and sort of bringing the sense of our current capabilities and market leading positioning for Informatica to join with our clients. And I think we see pretty good with the progress that we have made And we are continuing to really broadly assess many more such partnerships that we think are going to really allow us to build what I call a truly differentiated opt-in and a portfolio for our clients.

Okay. Interesting. So I want to compliment you. I'm so excited to be able to get 10 Qs the same time you report. And in that, I saw that CGI is down another $2 million in revenues from last year. Is that number going to go to zero or is there going to be some base that they still are going to do with you?

Lisa, we do not expect a drastic change to that position. We are still working with that client. There is good client interaction that continues to happen and our client engagement has been good with that particular client of ours. So at this point in time, we do not expect that any major diminution to the current position that we are trying with CBA from a relationship standpoint.

Great. Thank you. That's my questions for now. Thank you.

Thank you.

As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Mark Riddick with Stability. Please proceed with your question.

Thank you. Good morning. Hey, Mark. Good morning. I wanted to touch a little bit on the commentary around the revenue mix and average bill rate. Maybe you could talk a little bit about the new assignments and the revenue mix there and maybe how that may differentiate from prior year and how that affects your views going forward.

Sure, Mark. I'll take that. This is Kannan here. As you would have seen, as of 2025, our bill rates have increased to approximately $85 to $86, which is up from last quarter of 84 to 85, but way above the same time last year at about 81 to 82. This is because, and it does reflect a combination of factors, including more deliberate efforts that we have put towards improvement in the quality of revenues across our portfolio. It is also supported by the clients who are prioritizing on specialized talent for long-term transformation projects. And we do believe that this trend is a positive indicator of our positioning and is being valued in the current environment by our customers. Ma?

Okay, great. And then the, I believe the consultant count, so where we are currently, should any thoughts or views as to where that may come to now in the end of the year, or do you expect it will be relatively flat from end of quarter levels?

Yeah, so at end of June, we were at 980. In July, we were at 982. So, we do expect it to be about the same level. By the end of the year, we are hoping that that will continue showing a trend which is going to be a little bit better.

And then, maybe we could switch gears and talk a little bit about cash build approaching about $28 million, I guess, at the end of the quarter with, you know, with with a very clear look at that. Now, I was wondering if you could talk a little bit about cash issues prioritization and maybe, you know, some of the things that you might be thinking as far as priorities, but not only that, if there are any thoughts as to potential for acquisitions and maybe what that pipeline might look like.

Sure, Mark. And the fact that we had... a very good cash position was also because of the efficiencies we are driving overall with respect to cash management and BSO. But we are evaluating potential uses of the 28 million in cash right now. One part is, of course, the buyback program. But beyond that, we are very open to making targeted investments that align with the long-term growth priorities whether that is in capabilities, in talent, or adjacent service areas. We do believe that strong balancing gives us that flexibility, and we do intend to deploy the capital in ways that accelerate our strategic thinking. We continue to be thoughtful and deliberate in how we allocate these reserves, and we'll continue doing so. being very programmatic about the way we approach these opportunities, Mark, and as we build these initiators, we do believe that that will be a good usage for the cash in the days to come.

Okay. And then I guess sort of similar or kind of general, I guess, CapEx, through the first half of the year is down from the prior year. Maybe you can talk a little bit about where you might see that shooting up by the end of the year and is there any projects or capex needs that we should be thinking about shooting up by the end of the year?

We do not expect a significant increase with respect to capex at this point in time. We do have plans to have these investments eventually coming in when it comes to, you know, supporting the growth and supporting the initiatives that we are putting together. But by the end of the year, we do not expect it to be significantly higher. And, you know, pretty much would be in line with what we have seen in the past. And that's the view that we are taking right now, Mark. Okay, Chris. Thank you very much. Thank you, Mark.

Thank you. We have reached the end of the question and answer session. Mr. Patel, I'd like to turn the call back over to you for closing comments.

Thank you, operator. If there are no further questions, I would like to thank you for joining our call today, and we look forward to sharing our third quarter 2025 results with you in early November.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.