READ THE FULL MHH RESEARCH REPORT
Mastech Digital (NYSE: MHH) is still investing in its transformation to an AI-Focused shop in order to increase margins and profits. It is investing in talent, training, and tools as well as marketing to achieve this. We are seeing green shoots as gross margins tick up as the company targets higher-margin projects and higher-priced talent. It is slow going, but improved bookings portend higher revenues ahead. The stock is now trading at an enterprise value of $61 million with a revenue run rate of $166 million and profits. Its peers trade at 2.2 times EV/2026 estimated sales while it is trading at 0.3 times. When margins move up, we believe so will the stock price.
The Company Moves from Cost Cutting to Investment While Moving to Higher Margin Business
In Q2 2026, Mastech generated total revenues of $41.4 million, down 16% from $49.1 million in Q2 2025. The Talent business was down 16% to $28.0 million from $33.4 million a year ago and sequentially from $28.5 million in Q1 2026. The good news is that consultant billing rates keep going up. The rates rose by $1.26 per hour sequentially, reaching another company record as management pursues higher-margin and more sophisticated projects. The average bill rate was $92.17 per hour, compared with $88.36 per hour in the corresponding quarter of 2025. The company has restated billable client information, so past numbers are not comparable. Business with Fidelity grew as it spent $3.7 million more than last year. Talent accounted for 68% of revenue, and it ended the quarter with 594 billable consultants, down from 764 one year earlier, with approximately 90% of the reduction coming from PNC bringing its IT in-house.
D&AI declined to $13.5 million from $15.7 million in Q2 2025 (-14%) as contracts were completed. Its revenues increased sequentially, and we expect them to also increase sequentially in Q3. New bookings in Q2 2026 totaled approximately $13.6 million, compared to bookings of $15.3 million in the first quarter of 2025.
Total gross margin increased to 29.0% from 28.1% last year. Talent’s gross margin at 23.4% improved from last year’s quarter of 23.1%. The increase was due to higher billing rates and better execution despite lower headcount. D&AI’s gross margin increased to 40.4% from 39.0% a year ago, as cost-cutting and the pursuit of higher-margin business bear fruit.
SG&A was $12.3 million compared to $13.8 million a year ago. It is up $1.4 million sequentially as the company puts money into AI-literate engineers and training, as well as AI tools and marketing.
The operating loss was $325,000 versus a profit of $27,000 last year. Other income was $606,000 compared to $97,000 a year ago. Taxes in the quarter were $98,000 versus $75,000 last year. The tax rate for the full year of 2026 is expected to be approximately 23-24%.
GAAP net income was $323,000 compared to $183,000 last year. On a non-GAAP basis, there was a profit of $976,000 versus $1.8 million. Fully diluted GAAP earnings per share were -$0.01 compared to $0.01 a year ago. On a non-GAAP basis, EPS was $0.08 compared to $0.15 a year ago. The diluted share count was 12.1 million, up 122,000 shares from last year due to stock buybacks.
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