Q1 did show growth, but management notes a hesitancy among clients to commit to projects, and its staffing business is showing weakness. It seems to be focused on opportunities in D&A and AI in particular, as customers begin to think about how to incorporate AI into their businesses and IT in particular. Mastech’s (NASDAQ:MHH) new improved relationship with Informatica will address this opportunity going forward. This is a huge opportunity as every company in the world thinks about how AI can improve their operations. The company is also taking steps to reduce costs by moving parts of finance and accounting to India; it had one-time charges in the quarter for severance. With only 100 days of a new CEO and one month with a new CFO, management is still in the beginning stage of moving Mastech forward. With its low valuation, investors could profit if management can grow the company and improve margins, but given the current environment, it might take a few quarters to see results. At and enterprise value to sales ratio of only 0.4 times, the stock trades well below its peer group.
Mastech to Cut $1.2 million in annual expenses By Moving Finance and Accounting to India
During the first quarter of 2025, the board decided to cut costs by moving the company’s finance and accounting functions to India. During 2025, Mastech expects to incur additional costs from the duplication of resources and travel expenses during the training and knowledge transfer process, which is estimated to cost from $500,000-$750,000. It booked $1.4 million in severance expense in Q1 2025. Ultimately, this should save the company about $1.2 million a year.
To help facilitate this move, Kannan Sugantharaman was hired as Mastech’s Chief Financial Officer and Chief Operations Officer on March 31st. He will be based in India. From July 2020 to April 2025, Mr. Sugantharaman was the CFO for Omega Health Management Services. Before joining Omega Healthcare Management Services, he was the CFO of Global Delivery Operations at Cognizant Technology Solutions (from December 2019 to June 2020) and COO for Global Delivery Operations at Cognizant Technology Solutions (from August 2017 to December 2019). Mr. Sugantharaman started his career at KPMG and also previously held leadership positions at Sutherland Global Services.
On January 6th, Nirav Patel became President, Chief Executive Officer, and a member of the company’s Board of Directors. He succeeds Vivek Gupta, who has led the company since 2016. Nirav brings over 20 years of experience as a technology executive with a proven track record of scaling multibillion-dollar businesses. Most recently, he was President and CEO of Bristlecone, a Mahindra Group company specializing in digital supply chain transformation. There, he transformed Bristlecone into the industry’s largest pure-play supply chain services provider and expanded its global workforce to over 3,000. He was also Senior Vice President and Global Markets Leader at Cognizant, where he grew the Communications, Media, and Technology business to over $2 billion in revenue. Nirav earned a BS in computer science from BIST, Madras University, and attended Harvard Business School’s Advanced Management Program.
On May 13th, Mastech announced an expanded strategic partnership with Informatica to deliver industry- and process-level AI-led solutions for clients worldwide. This collaboration leverages Mastech's deep expertise in data modernization and Informatica's advanced data and AI capabilities. The two will offer clients:
-- Solutions for verticals such as healthcare (compliance and AI diagnostics), BFSI (fraud detection, KYC modernization), and manufacturing (digital twin, supply chain AI). These solutions will come with pre-configured metadata, rules, and dashboards for rapid deployment.
-- A co-branded joint AI and Data outcomes lab offering clients hands-on workshops, co-innovation spaces, and value realization blueprints.
Despite Weak Demand, Mastech Grows Revenues Year Over Year
In Q1 2025, Mastech generated total revenues of $48.3 million, up 3.2% from $46.1 million in Q1 2024. The IT staffing business rose to $39.4 million from $37.9 million a year ago (1.6%) but declined sequentially from $40.5 million in Q4 2024. IT staffing was 81% of revenues and ended the quarter with 991 billable consultants compared to 1,004 the year before. D&A grew year over year to $9.0 million from $8.1 million in Q1 2024 (11.1%). Its revenues declined by $1.3 million sequentially. D&A bookings in Q1 were $11.7 million, up from $9.6 million last year.
Total gross margin improved 6.3% year over year but was down significantly from the company record at 29.0% in Q4 2024. Staffing’s gross margin at 22.7% was improved from last year’s quarter at 21.6%. The increase was due to higher utilization, higher billing rates, and better execution. Sales and operations in staffing have become more aligned, leading to better forecasting, customer satisfaction, and more efficiency. Data & Analytics’ gross margin fell to 44.1% from 46.4% a year ago, and a meaningful drop from 49.5% in Q4 2024. Two percentage points of that drop was due to one-time reserves taken in the quarter, and the rest was primarily due to utilization.
SG&A once again included one-time expenses and was $14.7 million compared to $12.5 million a year ago. One-time expense for severance added $1.4 million to the total. The company hopes to keep SG&A steady as a percentage of revenues.
The operating loss was $1.9 million versus a loss of $406,000 last year. Taking out this year’s one-time charges, the operating loss would have been $444,000. Other income was $91,000 compared to $124,000 a year ago. Taxes in the quarter were a tax benefit of $323,000, compared to a tax benefit of $282,000 last year. The tax rate for the full year is expected to be approximately 28%.
GAAP loss was $1.4 million compared to a loss of $161,000 last year. On a non-GAAP basis, it was a profit of $756,000 versus $763,000. Fully diluted GAAP loss per share was $0.12 compared to a loss per share of $0.01 a year ago. On a non-GAAP basis, EPS was flat with last year at $0.06. The diluted share count was 12.1 million, up 187,000 shares from last year.
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