管理層發言
Good day, and thank you for standing by. Welcome to the Mastech Digital First Quarter 26 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press *1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Ford Lacey, General Counsel and Corporate Secretary. Please go ahead.
Thank you, operator, and welcome to Mastech Digital's First Quarter 26 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, Mastech Digital's Chief Executive Officer, and Kannan Sugantharaman, 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 10-K 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 the 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 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.
Thanks. Good morning, everyone. And thank you for joining us as we review our first quarter 26 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 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, strengthens our position as a full service provider, and creates a stronger foundation for long-term value creation. Kannan 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 being deliberate, not panicked, but deliberate about where they commit budget. Discretionary and nonstrategic 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 am 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 deal 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 performance 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 bill 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 on the previous earnings call, continue to weigh on revenue in 2026. What matters more is the momentum building. Our first quarter saw us win a multiyear, multimillion-dollar strategic engagement.
We secured a partnership with a leading health care payer working to transform its member experience through a more integrated care journey. We are partnering with this organization to build the next 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 Reltio; and our AI engineering capabilities where proprietary tools, accelerators, and industry solutions are tailored to the verticals we sell.
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.
Thanks, Nirav. Good morning, everyone. As Nirav 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 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 clients, 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, 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 at $90.91, up from $87.82 a year ago. Available consultant base declined by 163 consultants since 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, nonstrategic 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 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 TCV, 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 points over 2025. GAAP net income was $300 thousand, 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 2025 with no comparable costs in the current quarter.
Non-GAAP net income was $1.3 million, or $0.11 per diluted share compared to $800 thousand, or $0.06 per diluted share in the prior year period. The EDGE initiative efficiencies driving growth and expansion, which we launched in Q3 25, continued to advance through 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 26 marked 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 2026, our liquidity and overall financial position remained solid. On March 31, 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 days sales outstanding on March 31, 2026 totaled 60 days, which is within our targeted range, though it was above our DSO measurement of a year ago. In 2026, the Board of Directors authorized a new share repurchase program pursuant to which the company may repurchase up to $5 million of 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 2026, we did not repurchase any shares of Mastech 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.
分析師問答
As a reminder to ask a question, please press *1 on your telephone. And wait for your name to be announced. Our first question comes from Marc Riddick with Sidoti. Your line is open.
Hey, good morning. Good morning. I wanted to start with some of the thoughts around the resegmentation, and some of the initial findings. Maybe you could talk a little bit about it—might be early for this—but can you sort of discuss how that client feedback has been received as of yet or if that was part of the process? And sort of how that has been received up to this point?
Marc, 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 the 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 the client decision makers, especially on their strategic priorities. So taken together, Marc, 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, and in terms of how some of these conversations are panning out with our customers. It is resonating very well, Marc.
And if I can just add one comment to this, Marc— you asked this question about clients' initial feedback. I should say that the process from the beginning actually involved many of our top clients engaging in a feedback loop process, and I think they were core as part of making sure that anything and everything we do actually aligns to serve them better. So I would say that they have been involved from the beginning of that process well before we effectively executed on that realignment, and I think some levels of our performance and results in our Q1, especially on the bookings and so forth, is somewhat of a reflection of that.
Okay. Thank you very much for that.
Was wondering if you could talk a little bit about the commentary on where we are with average bill rate at a company high and the commentary around foregoing maybe lower quality opportunities. Maybe you could talk a little bit about where you are in that journey—like, ending year-end as far as that process of going through and finding the—I think in your presentation, it is sort of a quality versus quantity commentary. Maybe talk a little bit about where you are in that process and how that plays into the business?
So, Marc, you were in and out, but I suppose you are referring to the bill rate. The realignment of the business naturally resulted in realignment of our headcount and some of our key operating and reporting metrics. What you will see is that we have provided financials and outcomes of our realigned business segments 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 and the equivalent was $87.82 a year ago, which obviously shows continuous growth and trajectory for that matter. In terms of the revenue itself, and one of the two reasons that we have stated for our reduction in revenues—especially in the Talent business—is, one, certainly the revenue associated with some of the nonstrategic positions we chose to exit, and that actually declined approximately 22% year on year, which is higher than the overall business segment decline.
That tells you that our deliberate pruning of low-margin business was a meaningful contributor to the headline number. And, of course, there was one other reason for the overall revenue reduction in Talent, which is insourcing by one of our clients—one of our top-10 clients—which had a significant impact on a single client relationship. Those are the two reasons. So I would say the bill rate journey at this point in time is a lot more focused on the quality of revenue that we concentrate on and prune over. I would say it is 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 bill rates over the last four quarters.
Okay. Great. And then last one for me. I was sort of curious—seems as though 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 quarter? It just seems that the tax rate was kind of high there.
Yeah. It is a one-time effect. You will see that in our 10-Q as well. On average, we will trend at about a 24% to 25% mark, and you will see that catch up for the rest of the period. But it is certainly a one-timer that is sitting in Q1.
Okay. Thank you very much.
Thank you. Our next question comes from Lisa Thompson with Zacks Investment Research. Your line is open.
Hi. I have a number of questions. Starting with the realignment segments. First off, can you tell me—are all the billable consultants in the Talent segment?
Yeah. Our Talent headcount as of March 2026 was 619, Lisa, down from 782 a year ago. That is a 163-consultant reduction, and it was 671 a quarter ago. We had headwinds in Q1 owing to the customer issue I mentioned in the prepared remarks. But those are the numbers: 619 in March as against 782 a year ago.
Oh, okay. Alright. So now that you have the lowest number you have ever had of billable consultants—I look back to 2018—how is that 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?
As you know, we do not provide a forecast, but note that the headcount has not changed in April; April continues to stand at 619. On an overall headcount at an organizational level, we were at 1.42 thousand at March 31; a year ago it was 1.75 thousand. The two factors resulting in that are, one, billable headcount itself going down as we discussed; the other is our ability to optimize from an SG&A standpoint. There was a reduction in SG&A of about 53 people year over year. In April, we have landed making investments; in April the headcount stands at 1.46 thousand as against 1.42 thousand at the end of March, largely on account of the investments that we are making both in terms of capabilities as well as to frame for growth for the future.
Okay. Interesting. That leads me to the question about OpEx. The number was really low this quarter; it is very impressive. How do we think about your spending going forward for the next three quarters?
I am glad you asked that question. It is an important question. If you look at our financials, our overall SG&A spend on a non-GAAP basis has reduced by approximately $2 million year over year, and our intention is to invest substantially all of those annualized savings back into our strategic priorities. The efficiency gains and the investment envelope that we are trying to create are directly linked to EDGE, which is what helped us get here. We are now in the deployment zone. In terms of how we are allocating these investments, it is threefold: one, strengthening our go-to-market organization—the sales and solutions engine—which is driving the booking momentum you are seeing; two, investing in our people and leadership, particularly domain expertise in our targeted verticals; but the largest and 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.
This is where we are leaning in most heavily because we believe it is the area that creates a more durable competitive advantage over time. From a modeling standpoint, I would expect SG&A 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 being redeployed disproportionately towards investments. So to simply think about it: does that translate to Q4 OpEx being $2 million higher than where it is now? Vaguely, yes. That is where we are headed right now; that is effectively our investment thesis.
Okay. Alright. Let's see. So that health care contract— is that large enough that we are going to notice it, and does it start immediately?
I can take that question on that deal. First of all, let me share some color on it. This is a very strategic win for us in the healthcare space. We are supporting a top-10 player 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 multiyear deal particularly meaningful is how the relationship evolved. It started in the early days with our master data management work. Historically, we were in a strong position with MDM, and that remains the core of our business in the past. Over time, we were able to elevate that conversation into a much broader data modernization engagement on a Microsoft platform. This is the cross-sell and integration story we really want to replicate across our entire customer base. It was a very competitive bid process. We won it by demonstrating our capabilities and depth of what we can deliver. We are now partnering with this client to build a next-generation AI-ready data platform that will serve as a foundation for their broad, long-term advanced analytics and AI use cases as they modernize their systems. To me, this is just a new beginning of a long-term engagement. We hope not only to grow meaningfully this particular relationship, but also expand to other customers as we see more quarters go by.
Okay. And is that number in the backlog—the bookings number you gave us?
That is right, Lisa. It is part of the bookings that we gave you.
And last question—this is kind of important—you are trying to position 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?
Sure, Lisa. Thank you for noting that we are pivoting. Over the last many quarters, we have talked about the idea that we want to play into the AI supercycle and be relevant to our clients. 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. We are really in the early days of that supercycle as enterprises move from pilot to scale. They are past pilot phases but are trying to find a way to fast scale their adoptions enterprise-wide. As part of that exercise, the model has changed in terms of how you deliver to those adoption curves. The more you are a legacy traditional IT services company, the more you need to rewire yourself to serve these needs. We believe that we have somewhat of an unfair advantage given our relative size and our strong customer base, that we can make that pivot much faster. We see new players emerging every single day. The competition is not yet crystal clear, but every new competitor is focused on increasing enterprise adoption at clients. We are playing right in front of that position, and we believe we can meaningfully serve our current customer base while adding new customers as we scale.
Okay. Great. Thank you. That is all my questions.
Thank you.
This concludes the question and answer session. I would now like to turn it back to Nirav Patel for closing remarks.
Thank you. 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 26 results with you in August. Thank you. This concludes today's conference call.
Thank you for participating. You may now disconnect.