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Mastech (NYSE:MHH) has progressed further in implementing its EDGE (Efficiencies Driving Growth and Expansion) initiative, and it looks to have already cut approximately $2,500 a quarter in expenses. It plans to reinvest some of that into growth initiatives and higher margin revenue. The macro environment remains challenging as large customers cut and defer decisions. The Data & Analytics segment is moving its offering to be differentiated and is focusing on using data modernization and data consolidation to make its customers ready for an AI-first world. What this means is that corporations need to get their data to be able to work with LLMs to yield useful results. This will require a layer of fabric knowledge to go across all the legacy systems, which are in different locations and using different applications, and pull them into a usable format. Mastech is also doing this internally to drive efficiency and practice what it preaches.
Despite Down Revenues, Gross and Operating Margins Improve as Management Prioritizes Profits
In Q3 2025, Mastech generated total revenues of $48.5 million, down 6.4% from $51.8 million in Q3 2024. The IT staffing business was down 4.4% to $40.6 million versus $42.4 million a year ago, but rose slightly sequentially from $40.5 million in Q2 2025. IT staffing was 84% of revenues, and it ended the quarter with 947 billable consultants compared to 1,071 the year before. As of October, that number is down to 933. On a positive note, billing rates have improved to between $86.60 per hour from $83.60 last year. D&A declined to $7.9 million from $9.4 million in Q3 2024 (-15.8%). Its revenues also declined sequentially. D&A bookings in Q3 were $6.1 million compared to $5.8 million in Q2, which was half of the $11.7 million in Q1 2025; however, some of the Q2 bookings were pulled forward into Q1.
Total gross margin declined to 27.8% from 28.5% last year, below the company record at 29.0% in Q4 2024. Staffing’s gross margin at 24.8% was improved from last year’s quarter at 23.6%. The increase was due to higher billing rates and better execution despite lower headcount. Data & Analytics’ gross margin fell to 46.0% from 50.7% a year ago.
SG&A once again included one-time expenses and was $12.6 million compared to $12.3 million a year ago. One-time expenses in the quarter were $2 million and included severance and finance and accounting transition expenses.
Operating income was almost breakeven at $820,000 versus $2.4 million last year. Taking out this year’s one-time charges, operating income would have been $2.8 million. Other income was $415,000 compared to $133,000 a year ago. Taxes in the quarter were $294,000, compared to $697,000 last year. The tax rate for the full year is expected to be approximately 28%.
GAAP net income was $941,000 compared to $1.9 million last year. On a non-GAAP basis, it was a profit of $3.5 million versus $2.8 million. Fully diluted GAAP earnings per share were $0.08 compared $0.16 a year ago. On a non-GAAP basis, EPS was $0.29 compared to $0.23 a year ago. The diluted share count was 11.9 million, down 66,000 shares from last year.
Balance Sheet
The company ended the quarter with $32.7 million in net cash ($2.74 per share), a quick ratio of 3.1x, working capital of $46.7 million, and no debt. It currently has a borrowing availability of $20.8 million under its revolving credit facility. Cash flow increased significantly in the quarter to $2.4 million (not including changes in working capital). Free cash flow was $2.2 million.
The company has a stock buyback plan for 500,000 shares, of which 214,456 remain. 16,511 shares were bought back in May and June at an average price of $6.90, and 192,112 shares were bought in Q3 for approximately $1.5 million at an average of $7.68 per share. A 138,500 block was bought from one holder, and the rest was through its 10b5 program.
To value MHH, we are using comparable peer companies that staff technology people. The valuation for the group has come down as the industry suffers. Their valuations average 2.0 times EV to estimated 2025 sales. All of these companies, except Kforce, are generating much higher margins than Mastech. If we apply Kforce’s multiple of 0.5 times to Mastech’s forecasted 2025 revenues, the company is worth a market capitalization of $132 million, or approximately $11.40 per share. At 0.5 times, Mastech trades below the lowest comp ratio.
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