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MD

Mastech Digital, Inc. (MHH)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered consolidated revenue of $50.7M (+10.2% YoY) and record total gross margin of 29.0%; GAAP diluted EPS was $0.02 and non-GAAP diluted EPS was $0.23, reflecting material margin expansion and cost actions despite $2.1M severance expense in the quarter .
  • Data & Analytics (D&A) segment accelerated: revenue $10.3M (+26.2% YoY, +9.4% QoQ) with gross margin at 49.5%; IT Staffing revenue was $40.5M (+6.8% YoY) with margin tailwinds from direct hire mix and favorable healthcare claims .
  • Bookings were ~$11M, below expectations due to client caution and elongated sales cycles, and the billable consultant base declined by 63 in Q4 seasonally; management expects some impact on Q1 2025 revenue .
  • Board extended the share repurchase program by one year to February 8, 2026, with 423,000 shares remaining; liquidity strong with $27.7M cash, no bank debt, and $22.6M revolver availability at year-end .

What Went Well and What Went Wrong

What Went Well

  • Record total gross margin of 29.0% (prior record 28.5% in Q3), driven by higher utilization in D&A and improved mix and healthcare claims in IT Staffing; CFO: “our Q4 2024 gross margin percent was a company record 29%” .
  • D&A revenue growth and margin expansion: $10.3M revenue (+26.2% YoY, +9.4% QoQ) and 49.5% gross margin via improved delivery/utilization .
  • Strong balance sheet and capital deployment flexibility: $27.7M cash, zero bank debt, $22.6M availability, plus buyback extension to Feb 2026 (423k shares remaining) .

What Went Wrong

  • Bookings of ~$11M came in below expectations due to perceived macro uncertainty and elongated decision cycles across client verticals; management flagged caution despite a robust pipeline .
  • Seasonal Q4 decline in billable consultant base (-63), which management expects will pressure Q1 2025 revenue .
  • No formal guidance provided; CEO emphasized transition and strategy formulation under new leadership, which may delay near-term visibility on targets .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$46.1 $49.5 $51.8 $50.7
GAAP Diluted EPS ($)($0.46) $0.12 $0.16 $0.02
Non-GAAP Diluted EPS ($)$0.11 $0.19 $0.23 $0.23
Total Gross Margin (%)24.6% 28.2% 28.5% 29.0%
Operating Income ($USD Millions)($6.93) $1.69 $2.44 $0.07
Consensus Revenue ($USD Millions)N/A – S&P Global data unavailableN/A – S&P Global data unavailableN/A – S&P Global data unavailableN/A – S&P Global data unavailable
Consensus EPS ($)N/A – S&P Global data unavailableN/A – S&P Global data unavailableN/A – S&P Global data unavailableN/A – S&P Global data unavailable

Segment breakdown

Segment MetricQ4 2023Q2 2024Q3 2024Q4 2024
D&A Revenue ($USD Millions)$8.15 $8.88 $9.40 $10.28
D&A Gross Margin (%)44.7% 49.2% 50.7% 49.5%
D&A Segment Op. Income ($USD Millions)$0.59 $0.74 $1.15 $1.81
IT Staffing Revenue ($USD Millions)$37.90 $40.66 $42.44 $40.46
IT Staffing Gross Margin (%)20.3% 23.6% 23.6% 23.8%
IT Staffing Segment Op. Income ($USD Millions)$0.83 $1.64 $1.95 $0.99

KPIs

KPIQ2 2024Q3 2024Q4 2024
D&A Bookings ($USD Millions)$9.2 $11.1 ~$11.0
Billable Consultant Base Change (Qtr)+ nearly 10% YTD growth in 1H +13% over first nine months 2024 -63 consultants in Q4 (seasonal)
DSO (Days)53 55 52
Cash & Equivalents ($USD Millions)$20.6 $23.9 $27.7
Revolver Availability ($USD Millions)$23.8 ~$25.0 $22.6
Bank Debt OutstandingNone None None

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal Financial GuidanceFY 2025Not providedNot provided (management reiterated no guidance policy) Maintained (no guidance)
SG&A Expense as % of RevenueFY 2025N/ATarget to maintain FY2024 percentage; likely higher in 1H25 due to growth hires, normalize by year-end New disclosure (operating target)
Capital Expenditures ($)FY 2025N/A“Clearly under $1 million” New disclosure
Tax RateQ4 2024 / FY 2025~28% typical with 123R true-ups Q4 rate “actually lower than 25%” due to equity comp true-ups; forward rate depends on true-ups Updated commentary
Share Repurchase ProgramThrough Feb 2026Expired Feb 8, 2025Extended through Feb 8, 2026; 423k shares remaining Extended

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q2 2024; Q-1: Q3 2024)Current Period (Q4 2024)Trend
AI/technology initiativesFocus on delivery-side upgrades and margin improvements ; macro improvements aiding demand New CEO frames an AI-first transformation; integrating D&A and staffing solutions; urgent, disciplined execution Strengthening strategic emphasis on AI-led offerings
Macro/decision cyclesClients increased willingness to start assignments in 1H ; healthier macro supports bookings in Q3 Bookings below expectations due to client caution and longer cycles; uncertainty across verticals Mixed: momentum with caution entering 2025
Segment performanceD&A up sequentially and YoY; IT Staffing steady with margin improvements D&A acceleration (+26.2% YoY, +9.4% QoQ); IT Staffing up YoY; both segments expanded margins Positive momentum, margin records
Capital allocationNo bank debt; liquidity solid Buyback extended to Feb 2026; plan for fewer blackout periods and more repurchase volume Increased buyback flexibility
Operating disciplineRecord gross margins; cost control improving SG&A % targeted at FY2024 level for FY2025; CapEx < $1M; tax rate driven by equity comp true-ups Continued cost focus, selective investment

Management Commentary

  • CEO (Nirav Patel): “We believe that 2025 will be the year we begin our transformation…transition into AI-first organizations…build a compelling and relevant portfolio of offerings…execute with discipline” .
  • CFO (Jack Cronin): “Q4 2024 gross margin percent was a company record 29%…D&A margins up to 49.5% on higher utilization and better delivery; IT Staffing margins up 350bps on direct hire, favorable medical claims, and higher margins on new assignments” .
  • Liquidity: “No bank debt…$27.7M cash…$22.6M revolver availability…DSO 52 days” .
  • Buyback: “423,000 shares remaining…expect fewer blackout periods and more repurchase volume in 2025” .
  • Strategic posture: New CEO taking structured approach; more specific strategy details in 2H 2025 .

Q&A Highlights

  • Strategy and offerings: CEO is refining a structured long-term plan combining D&A and staffing with AI-first solutions; more specifics in 2H 2025 .
  • Headcount: Total employees ended 2024 at 1,816 vs 1,648 in 2023, indicating growth across segments .
  • Cost and investment: Target FY2025 SG&A % similar to FY2024; CapEx clearly under $1M; tax rate influenced by equity comp true-ups (Q4 rate <25%) .
  • Bookings/macro: ~$11M bookings in Q4 below expectations due to client caution and elongated cycles across verticals .
  • Capital returns and M&A: Buyback extended; M&A remains part of growth strategy, but leadership transition requires clarity on target areas before execution .

Estimates Context

  • Wall Street consensus for Q4 2024 EPS and revenue via S&P Global was unavailable at the time of analysis due to rate limits; as a result, comparison versus consensus cannot be provided. Values would ordinarily be retrieved from S&P Global; unavailable in this instance.
  • Given the lack of formal guidance and consensus benchmarks, near-term estimate revisions may focus on margin durability (29.0% total gross margin), D&A momentum, and the expected Q1 2025 revenue impact from seasonal consultant reductions and softer bookings .

Key Takeaways for Investors

  • Margin-led inflection: Record 29.0% total gross margin with broad-based expansion across both segments suggests structurally improved delivery and mix quality; durability will be the key driver of multiple expansion .
  • D&A growth vector: D&A delivered +26.2% YoY and +9.4% QoQ with 49.5% margins, aligned with management’s AI-first strategy—watch for bookings recovery and new AI-led offerings in 2H 2025 to sustain growth .
  • Bookings/seasonality caution: ~$11M bookings and -63 consultants in Q4 point to near-term revenue pressure in Q1 2025; monitor pipeline conversion and decision cycles as macro uncertainty stabilizes .
  • Balance sheet and buyback: $27.7M cash, no debt, and $22.6M availability underpin buyback extension (423k shares remaining) and optionality for selective M&A once strategic priorities are finalized .
  • Operating discipline: SG&A maintained as % of revenue for FY2025 with selective 1H investments; CapEx under $1M; tax rate variability from equity comp true-ups—supports FCF resilience .
  • Leadership transition as catalyst: New CEO’s strategy articulation in 2H 2025 could be a narrative catalyst, with potential portfolio and go-to-market sharpening around AI/data modernization .
  • Actionable setup: Near-term traders should watch Q1 revenue/booking cadence and repurchase activity; medium-term holders should focus on D&A trajectory, margin sustainability, and strategy clarity under new leadership .