Mastech Digital, Inc.: Form 10-Q for the period ended Jun 30, 2026

You should read the following discussion in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2025, included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 18, 2026.

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about future events, future performance, plans, strategies, expectations, prospects, competitive environment and regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words, “may”, “will”, “expect”, “anticipate”, “believe”, “estimate”, “plan”, “intend” or the negative of these terms or similar expressions in this quarterly report on Form 10-Q. We have based these forward-looking statements on our current views with respect to future events and financial performance. Our actual financial performance could differ materially from those projected in the forward-looking statements due to the inherent uncertainty of estimates, forecasts and projections and our financial performance may be better or worse than anticipated. Given these uncertainties, you should not put undue reliance on any forward-looking statements. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under “Risk Factors”, “Forward-Looking Statements” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2025. Forward-looking statements represent our estimates and assumptions only as of the date that they were made. We do not undertake any duty to update forward-looking statements and the estimates and assumptions associated with them, after the date of this quarterly report on Form 10-Q, except to the extent required by applicable securities laws.

Website Access to SEC Reports:

The Company’s website is www.mastechdigital.com (http://www.mastechdigital.com). The Company’s Annual Report on Form 10-K for the year ended December 31, 2025, current reports on Form 8-K and all other reports filed with the SEC, are available free of charge on the Investors page. The website is updated as soon as reasonably practical after such reports are filed electronically with the SEC.

Critical Accounting Policies

Please refer to Note 1 “Summary of Significant Accounting Policies” of the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2025 for a more detailed discussion of our significant accounting policies and critical accounting estimates. There were no material changes to these critical accounting policies during the six months ended June 30, 2026.

2024 Primentor, Inc. Consulting Agreement

On January 12, 2024, the Company entered into a consulting services agreement with Primentor, Inc. (“Primentor”) under which Primentor provides to the Company strategic advisory and management consulting services, as well as other business and organizational strategy services as requested by the Company’s Board of Directors. The initial term of the agreement is three years, commencing on January 12, 2024. The Company may elect to renew the agreement for successive one-year terms, subject to mutual agreement with Primentor regarding the scope of services and related fees.

During 2024 and 2025, the Company incurred consulting expenses of approximately $1.1 million and $0.3 million, respectively. The Company expects to incur approximately $0.2 million in consulting expenses during 2026, plus reimbursement of reasonable and documented out-of-pocket expenses incurred by Primentor in rendering such services.

Transition of the Company’s finance and accounting functions to India:

During the first quarter of 2025, the Company’s Board of Directors made the decision to implement a long-term cost-cutting initiative to transition the Company’s finance and accounting functions to India. During 2025, the Company incurred $1.2 million of severance costs and $0.7 million of costs related to the duplication of resources and travel expenses during the training and knowledge transfer process. The transition was completed as of December 31, 2025.

Overview:

We are a provider of digital transformation IT services to primarily large and medium-sized organizations. Our portfolio combines project-based professional services with flexible staffing solutions to support our clients’ evolving digital and technology needs.

Effective January 1, 2026, we realigned our reporting structure and now operate through two reportable segments: Talent and Data & AI. This change reflects how management evaluates performance and allocates resources across our core offerings. Prior-period information has been recast to conform to the current presentation.

Our Data & AI segment is focused on delivering consulting and managed services engagements that help clients design, build, and optimize their data and digital platforms. These offerings are typically delivered on a project or managed services basis and leverage a combination of on-site and offshore delivery capabilities. Our Data & AI capabilities have been developed both organically and through acquisitions, including InfoTrellis in 2017, which expanded our data and analytics expertise, and AmberLeaf in 2020, which strengthened our customer experience and managed services offerings.

Our 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 both direct client relationships and intermediated arrangements through managed service providers and systems integrators. This segment allows clients to scale their technology teams efficiently while maintaining flexibility in response to changing business conditions.

Across both segments, we serve a diversified set of industries, including financial services, government, healthcare, manufacturing, retail, technology, telecommunications, and transportation. Our client base includes organizations with ongoing technology investment needs, as well as those undertaking discrete digital transformation initiatives.

Data & AI Segment:

We provide information regarding new bookings within our Data & AI segment, which represents the estimated value of client engagements, including renewals and extensions of existing contracts. We believe this metric provides useful insight into trends in the volume of new business over time. New bookings can vary significantly from period to period due to the timing of contract awards, particularly for larger engagements. The conversion of bookings into revenue is influenced by several factors, including the nature and scope of services, contract duration, and the pace of client spending. Additionally, substantially all of our client contracts are terminable by the client on short notice, with little or no termination penalties. New bookings involve estimates and judgments, and there are no third-party standards governing their calculation. Accordingly, bookings should not be considered a substitute for, or comparable to, revenue measures. We do not update previously reported bookings for subsequent contract modifications, terminations, or reductions.

Economic Trends and Outlook:

Our business outlook is influenced by general economic conditions in North America and globally. Demand for our services, particularly within the Talent segment, is closely tied to employment levels, corporate spending, and overall economic activity. Periods of economic expansion typically lead to increased demand for our services, while periods of economic uncertainty or contraction may result in reduced client spending. In recent periods, economic conditions have been characterized by ongoing uncertainty, including inflationary pressures, interest rate volatility, and evolving trade and immigration policies. These dynamics have contributed to longer client decision-making cycles and more cautious spending patterns.

A significant portion of our revenues is generated from a limited number of clients. As a result, our operating results may be impacted by the financial condition and spending patterns of these clients, which may cause our performance to differ from broader market trends.

Within the Talent segment, a meaningful portion of revenues is generated through relationships with systems integrators and managed service providers (“MSPs”). These arrangements may exert pressure on pricing and margins over time.

Results of Operations for the Three Months Ended June 30, 2026 as Compared to the Three Months Ended June 30, 2025:

Revenues:

Revenues for the three months ended June 30, 2026 totaled $41.4 million, compared to $49.1 million for the corresponding three-month period in 2025. This 15.6% year-over-year revenue decrease reflected a 16.2% revenue decrease in our Talent segment and a 14.3% decline in our Data & AI segment. For the three months ended June 30, 2026, the Company had one client that had revenues in excess of 10% of total revenues (Fidelity 26.7%). For the three months ended June 30, 2025, the Company had three clients that each had revenues in excess of 10% of total revenues (Fidelity = 15.0%, Populus = 12.4% and CGI = 11.0%). The

Company’s top ten clients represented approximately 61% and 58% of total revenues for the three months ended June 30, 2026 and 2025, respectively.

Below is a tabular presentation of revenues by reportable segment for the three months ended June 30, 2026 and 2025, respectively:

Revenues from our Data & AI segment totaled $13.5 million in the three months ended June 30, 2026, which decreased compared to $15.7 million in the corresponding period last year. The year-over-year decrease in revenues primarily reflects lower bookings during the second half of 2025, which resulted in a smaller pipeline of revenue generating engagements entering 2026. New bookings in the second quarter of 2026 totaled approximately $13.6 million, compared to bookings of $9.0 million in the second quarter of 2025, reflecting stronger demand for Data & AI services.

Revenues from our Talent segment totaled $28.0 million in the three months ended June 30, 2026, compared to $33.4 million during the corresponding 2025 period. The year-over-year decline in revenue primarily reflects lower billable consultants in 2026. Billable consultants at June 30, 2026 totaled 594-consultants compared to 764-consultants one year earlier. Our average bill rate during the second quarter of 2026 was $92.17 per hour compared to $88.36 per hour in the corresponding 2025 quarter. The increase in average bill rate was due to higher value assignments during the second quarter of 2026 and was reflective of the types of skill sets that we deployed to clients.

Gross Margins:

Gross profits in the second quarter of 2026 totaled $12.0 million, which was $1.8 million lower than the second quarter of 2025 gross profits. Gross profit as a percentage of revenue increased 90-basis points to 29.0% for the three-month period ended June 30, 2026, compared to 28.1% during the same period of 2025, driven by higher margins in both the Talent and Data & AI segments.

Below is a tabular presentation of gross margin by reporting segment for the three months ended June 30, 2026 and 2025, respectively:

Gross margins from our Data & AI segment were 40.4% of revenues during the second quarter of 2026, which represented an increase of 140-basis points compared to 39.0% of revenues during the second quarter of 2025. The increase primarily reflected the one-time recognition of previously deferred revenue associated with the completion of a project milestone.

Gross margins from our Talent segment were 23.4% in the second quarter of 2026 compared to 23.0% during the corresponding quarter of 2025. This 40-basis point increase was due to higher quality placements and better pricing on new assignments in 2026.

Selling, General and Administrative (“SG&A”) Expenses:

Below is a tabular presentation of operating expenses by expense category for the three months ended June 30, 2026 and 2025, respectively:

SG&A expenses for the three months ended June 30, 2026, totaled $12.3 million or 29.7% of total revenues, compared to $13.8 million or 28.1% of total revenues for the three months ended June 30, 2025. When excluding the amortization of acquired intangible assets in 2026 and the amortization of acquired intangible assets, severance expense and finance and accounting transition expense in 2025, SG&A expense as a percentage of total revenues was 28.3% and 24.8%, respectively.

Fluctuations within SG&A expense components during the second quarter of 2026, compared to the second quarter of 2025, included the following:

• Sales and marketing expense decreased by $0.8 million from the corresponding 2025 period. Sales and marketing expense in our Data & AI segment increased by $0.2 million, primarily reflecting higher marketing travel costs. Sales and marketing expense in our Talent segment decreased by $1.0 million, primarily due to lower payroll and related costs and reduced marketing expenditures.
• Operations expenses increased by $0.3 million in the 2026 period compared to the corresponding 2025 period. Operations expense increased by $0.5 million in our Data & AI segment due to AI-related personnel investments and decreased by $0.2 million in our Talent segment due to lower payroll costs, partially offset by higher legal expense.
• General and administrative expenses decreased by $0.1 million in the 2026 period compared to the corresponding 2025 period. General and administrative expenses in the Data & AI segment remained unchanged compared with the prior-year period. General and administrative expense in the Talent segment decreased by $0.1 million, primarily reflecting lower consulting costs.
• Amortization of acquired intangible assets remained consistent with the prior-year period at $0.6 million.
• Finance and accounting transition expense was $0.7 million and severance expense was $0.2 million in the 2025 period, compared to no expense in the second quarter of 2026. These costs related to the Company's transition of its finance and accounting function to India and consisted primarily of severance, duplicate personnel costs during the transition period, and travel associated with training and knowledge transfer.

Other Income / (Expense) Components:

Other Income / (Expense) for the three months ended June 30, 2026, consisted of interest income of $260,000 and foreign exchange gains of $63,000. For the three months ended June 30, 2025, Other Income / (Expense) consisted of interest income of $190,000 and foreign exchange losses of ($7,000). The higher level of interest income primarily reflected higher average cash balances during the current-year period.

Income Tax Expense:

Income tax expense for the three months ended June 30, 2026, totaled $98,000, compared with income tax expense of $75,000 for the three months ended June 30, 2025. The 2026 effective tax rate was significantly greater than (100%) due to non-deductible executive compensation and excess tax expense arising from stock-based compensation, combined with a near break-even pre-tax loss. By comparison, the effective tax rate for the three months ended June 30, 2025 was 35.7%.

Results of Operations for the Six Months Ended June 30, 2026 as Compared to the Six Months Ended June 30, 2025:

Revenues:

Revenues for the six months ended June 30, 2026 totaled $82.5 million, compared to $97.4 million for the corresponding six-month period in 2025. This 15.3% year-over-year revenue decrease reflected a 14.0% revenue decrease in our Talent segment and a 17.9% decline in our Data & AI segment. For the six months ended June 30, 2026 the Company had one client that had revenues in excess of 10% of total revenues (Fidelity 25.6%). For the six months ended June 30, 2025, the Company had three clients that each had revenues in excess of 10% of total revenues (Fidelity = 14.0%, Populus = 12.1% and CGI = 11.5%). The Company’s top ten clients represented approximately 60% and 58% of total revenues for the six months ended June 30, 2026 and 2025, respectively.

Below is a tabular presentation of revenues by reportable segment for the six months ended June 30, 2026 and 2025, respectively:

Revenues from our Data & AI segment totaled $26.1 million for the six months ended June 30, 2026, which decreased compared to $31.7 million in the corresponding period in 2025. The year-over-year decrease in revenues primarily reflects lower bookings during the second half of 2025, which resulted in a smaller pipeline of revenue-generating engagements entering 2026. Order bookings for the first six months of 2026 totaled approximately $27.2 million, compared with $24.3 million for the corresponding period in 2025, reflecting stronger demand for Data & AI services.

Revenues from our Talent segment totaled $56.5 million in the six months ended June 30, 2026, compared to $65.7 million during the corresponding 2025 period. The year-over-year decline in revenue primarily reflects lower billable consultants in 2026. Billable consultants at June 30, 2026 totaled 594-consultants compared to 764-consultants one year earlier.

Gross Margins:

Gross profits in the six months ended June 30, 2026 totaled $23.0 million compared to $26.7 million in the corresponding period last year. Gross profit as a percentage of revenue was 27.9% for the six months ended June 30, 2026, compared to 27.4% during the same period of 2025. This 50-basis point increase in gross margins was driven by higher margins in both the Talent and Data & AI segments.

Below is a tabular presentation of gross margin by reporting segment for the six months ended June 30, 2026 and 2025, respectively:

Gross margins from our Data & AI segment were 38.9% of revenues during the six months ended June 30, 2026, which represented an increase of 50-basis points compared to 38.4% of revenues during corresponding period of 2025. The increase primarily reflected normal fluctuations in project mix and engagement profitability.

Gross margins from our Talent segment were 22.8% in the six months ended June 30, 2026, compared to 22.1% during the corresponding period of 2025. This 70-basis point increase was due to higher quality placements and better pricing on new assignments in 2026.

Selling, General and Administrative (“SG&A”) Expenses:

Below is a tabular presentation of operating expenses by expense category for the six months ended June 30, 2026 and 2025, respectively:

SG&A expenses for the six months ended June 30, 2026, totaled $23.3 million or 28.2% of total revenues, compared to $28.5 million or 29.3% of total revenues for the six months ended June 30, 2025. When excluding the amortization of acquired intangible assets in 2026 and the amortization of acquired intangible assets, severance expense and finance and accounting transition expense in 2025, SG&A expense as a percentage of total revenues was 26.8% and 25.6%, respectively.

Fluctuations within SG&A expense components during the first six months of 2026, compared to the first six months of 2025, included the following:

• Sales and marketing expense was $2.2 million lower in the 2026 period compared to the corresponding 2025 period. Sales and marketing expense in our Data & AI segment decreased by $0.3 million, primarily due to lower payroll and related costs, partially offset by higher marketing and consulting costs. Sales and marketing expense in our Talent segment decreased by $1.9 million, resulting from lower payroll and related costs, as well as reduced marketing spend.
• Operations expenses decreased by $0.1 million in the 2026 period compared to the corresponding 2025 period. Operations expense in the Data & AI segment increased by $0.8 million, primarily due to AI-related personnel investments. Operations expense in the Talent segment decreased by $0.9 million, primarily due to workforce reductions, partially offset by higher legal expenses.
• General and administrative expenses decreased by $0.5 million in the 2026 period compared to the corresponding 2025 period. General and administrative expenses in our Data & AI segment decreased by $0.4 million primarily due to lower recruiting costs and the absence of bad debt expense incurred in the prior-year period. In our Talent segment, general and administrative expenses decreased by $0.1 million as a result of several individually immaterial items.
• Amortization of acquired intangible assets decreased by $0.1 million compared with the corresponding period in 2025, as a portion of our intangible assets became fully amortized.
• SG&A included severance expense and finance and accounting transition expense of $1.6 million and $0.7 million in the 2025 period, respectively, compared to no similar expenses in the 2026 period. The expenses related to the departure of the Company's former Chief Financial Officer and the Company's transition of its finance and accounting function to India which consisted primarily of severance, duplicate personnel costs during the transition period, and travel associated with training and knowledge transfer.

Other Income / (Expense) Components:

Other Income / (Expense) for the six months ended June 30, 2026, consisted of interest income of $548,000 and foreign exchange gains of $381,000. For the six months ended June 30, 2025, Other Income / (Expense) consisted of interest income of $305,000 and foreign exchange losses of ($31,000). The higher level of interest income primarily reflected higher average cash balances during the current six month period.

Income Tax Expense:

Income tax expense for the six months ended June 30, 2026, totaled $491,000, representing an effective tax rate on pre-tax income of 75.0%, compared to an income tax benefit of ($248,000) for the six months ended June 30, 2025, which represented an effective tax rate on a pre-tax loss of (16.0%). The higher effective tax rate in the 2026 period primarily reflected non-deductible executive compensation and unfavorable tax effects associated with stock-based compensation.

Liquidity and Capital Resources:

Financial Conditions and Liquidity:

As of June 30, 2026, we had no bank debt, cash balances on hand of $35.6 million and approximately $20.4 million of borrowing capacity under our existing credit facility.

Historically, we have funded our organic business needs with cash generated from operating activities. Controlling our operating working capital levels by closely managing our accounts receivable balance is an important element of cash generation. As of June 30, 2026, our accounts receivable “days sales outstanding” (“DSOs”) increased to 61-days, compared to 53-days reported at June 30, 2025.

We believe that cash provided by operating activities, cash balances on hand and current availability under our credit facility will be adequate to fund our business needs and support our share repurchase program that we announced in February 2026 over the next twelve months, absent any acquisition-related activities.

Cash flows provided by (used in) operating activities:

Cash (used in) operating activities for the six months ended June 30, 2026, totaled ($0.9) million compared to $0.4 million provided by operating activities during the six months ended June 30, 2025. Operating cash flows for the 2026 period were driven by net income of $0.2 million, non-cash charges of $4.2 million, and a ($5.3) million use of cash from changes in operating working capital. The use of cash from working capital was primarily attributable to a decrease in accrued payroll and related costs, reflecting the timing of annual bonus payments, as well as an increase in accounts receivable, and to a lesser extent decreases in accounts payable and other accrued liabilities and an increase in prepaid and other current assets

In the prior year period, cash provided by operating activities reflected a net loss of ($1.3) million, non-cash charges of $3.3 million, and and a ($1.7) million use of cash from changes in operating working capital, primarily attributable to a decrease in accounts payable and accrued payroll and related costs, partially offset by a decrease in accounts receivable and prepaid and other current assets and an increase in other accrued liabilities.

Cash flows (used in) investing activities:

Cash (used in) investing activities was ($0.1) million and ($0.2) million the six months ended June 30, 2026 and 2025. Investing activities in both periods consisted primarily of capital expenditures and changes in non-current deposits.

Cash flows provided by (used in) financing activities:

Cash provided by financing activities for the six months ended June 30, 2026 totaled $0.8 million and consisted primarily of proceeds from the exercise of stock options of $0.8 million, and a small amount from the issuance of common shares related to our Employee Stock Purchase Plan. Cash provided by financing activities for the six months ended June 30, 2025, totaled $0.1 million and consisted of proceeds from the exercise of stock options and the issuance of common shares related to our Employee Stock Purchase Plan, partially offset by a small purchase of treasury shares.

Off-Balance Sheet Arrangements:

The Company does not have any off-balance sheet arrangements.

Inflation:

We do not believe that inflation had a significant impact on our results of operations for the periods presented, although economic uncertainty, including the concerns of our clients and other companies with respect to inflationary conditions in North America and elsewhere, has had and may continue to have an adverse impact on the demand for our services. On an ongoing basis, we attempt to minimize any effects of inflation on our operating results by controlling operating costs and, whenever possible, seek to ensure that billing rates reflect increases in costs due to inflation. However, high levels of inflation may result in higher interest rates which could increase our borrowing costs in the future if we elect to draw on our current or future credit facilities.

In addition, refer to “Item 1A. Risk factors” in our 2025 Annual Report on Form 10-K for a discussion about risks that inflation directly or indirectly may pose to our business.

Seasonality:

Our consultants’ billable hours are affected by national holidays and vacation policies. Accordingly, we generally have lower utilization rates and higher benefit costs during the fourth quarter. Additionally, assignment completions tend to be higher near the end of the calendar year, which largely impacts our revenue and gross profit performance during the subsequent quarter.

Recently Issued Accounting Standards:

Recent accounting pronouncements are described in Note 13 to the accompanying financial statements.

In addition to the inherent operational risks, the Company is exposed to certain market risks, primarily related to changes in interest rates and currency fluctuations.

Interest Rates

As of June 30, 2026, we had no outstanding borrowings under the Credit Agreements — Refer to Note 8 — “Credit Facility” in the Notes to Condensed Consolidated Financial Statements, included herein.

Currency Fluctuations

The reporting currency of the Company and its subsidiaries is the U.S. dollar. The functional currency of the Company’s subsidiary in Canada is the U.S. dollar because the majority of its revenue is denominated in U.S. dollars. The functional currencies of the Company’s Indian and European subsidiaries are the local currency of the location of such subsidiary. The results of operations of the Company’s Indian and European subsidiaries are translated at the monthly average exchange rates prevailing during the period. The financial position of the Company’s Indian and European subsidiaries is translated at the current exchange rates at the end of the period, and the related translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within Shareholders’ Equity. Gains and losses resulting from foreign currency transactions are included as a component of other income (expense), net in the Condensed Consolidated Statements of Operations, and have not been material for all periods presented. A hypothetical 10% increase or decrease in overall foreign currency rates in the first six months of 2026 would not have had a material impact on our consolidated financial statements.

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of Company management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2026 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 18, 2026.