MHH: Q3 2021 Sets a New High for Quarterly Revenues and Margins Continue to Improve

By Lisa Thompson

NYSE:MHH

READ THE FULL MHH RESEARCH REPORT

Both of Mastech's MHH business segments showed growth sequentially and year over year. It reached record quarterly revenues of $60 million and the company expects a similar Q4 because of the seasonally slower Q4 for staffing. In IT staffing, the company hired 63 net new billable consultants in the quarter compared to 89 in Q2, and 99 in Q1 and hopes for net new hires to continue to increase despite the seasonality because demand is high. It is becoming even harder to retain consultants as they have ever increasing opportunities due to a hot labor market and churn is higher than ever. The MAS Remote offering has increasing interest and had been solely remote US-based workers. Now the company is getting better reception from clients entertaining the idea of India-based hires as they become more comfortable with remote workers in general and may be able to find consultants with obscure skills (which the company dubbed "purple squirrels") who may be difficult to source in the US. Clients would also get better rates for these overseas workers although Mastech may be able to take a bigger mark up on the labor.

Data and Analytics had a big sequential jump in revenues, increasing $1.6 million from Q2 2021. 19% of the year over year grow was organic, which means AmberLeaf added almost $2 million of the $3.3 million increase over Q3 2020. AmberLeaf was bought on October 1, 2020; so any growth in Q4 will be organic. The company claimed the Data and Analytics market is having a recovery and the pipeline is stronger than ever. Bookings were $10 million, lower in Q3 than Q2 or Q1, mostly because two major contracts expected to be signed, slid into Q4, as they required further signoffs up the chain. Neither of these two has closed to date, but are expected to by quarter end. In this business the company is "very very optimistic about 2022."

As the US continues to be affected by The Great Resignation and huge employee churn more than double a normal year, we expect a benefit to Mastech's businesses. People are both moving from state to state to escape regulations as well as resigning or being fired over vaccine mandates. Coupled with a general dissatisfaction over their current jobs and a lack of workers, the job openings have never been higher in history.

In addition to organic growth, the company plans to also grow through acquisition and has an unused line of credit of $30 million as well as further borrowing capacity at rates between 3% and 3.5%. In the meantime the company continues to pay down debt through cash flow.

We are tweaking estimates upward slightly for 2021 and 2022. For 2021 we are now looking for revenues $224 million and a non-GAAP EPS of $1.26 and for 2022, $252 million and $1.60 respectively. With a valuation well below its peers at 1.0 times EV to 2021 estimated revenues, this growth should propel the stock closer to parity with its peers at 3.0xs.

SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR. 

DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives quarterly payments totaling a maximum fee of up to $40,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.