Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

You should read the following discussion in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2024, included in our Annual Report on Form 10-K,filed with the Securities and Exchange Commission ("SEC") on March 14, 2025.

This quarterly report on Form 10-Qcontains 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-Kfor the year ended December 31, 2024. 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. The Company's Annual Report on Form 10-Kfor the year ended December 31, 2024, current reports on Form 8-Kand 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-Kfor the year ended December 31, 2024 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, 2025.

2024 Primentor, Inc. Consulting Agreement

On January 12, 2024, we entered into a consulting services agreement with Primentor, Inc. ("Primentor") to provide the Company with strategic advisory and management consulting services, as well as any other business and organizational strategy services as the Board of Directors of the Company may reasonably request from time to time. The initial term of the consulting services agreement is for a three-year period that commenced on January 12, 2024, and the Company may request to renew the term for additional successive one-yearterms, in which case Primentor and the Company will negotiate to agree upon the scope of the additional services and the amount of additional consulting fees. During 2024, the Company incurred consulting expenses of approximately $1.1 million related to these services. In 2025 and 2026, the Company expects to pay Primentor approximately $270,000 and $120,000, respectively, plus reimbursement of any reasonable and documented out-of-pocketexpenses 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 expects to incur additional costs related to the duplication of resources and travel expenses during the training and knowledge transfer process. As of June 30, 2025, the Company has incurred approximately $200,000 of additional costs and estimates total expenses to range from $500,000 to $750,000 for the transition period.

Additionally, the Company expects to pay approximately $1.3 million of severance expense related to this initiative. As of June 30, 2025, the Company has incurred approximately $500,000 in severance. Post-transition cost savings are expected to approximate $1.2 million per annum.

Overview:

We are a provider of Digital Transformation IT Services to mostly large and medium-sizedorganizations.

Our portfolio of offerings includes data management and analytics services, other digital transformation services, such as digital learning services, and IT Staffing Services.

We operate in two reporting segments - Data and Analytics Services and IT Staffing Services. Our data and analytics services are marketed on a global basis under the brand "Mastech InfoTrellis" and are delivered largely on a project basis with on-siteand off-shoreresources. These data and analytics capabilities and expertise were acquired through our acquisition of InfoTrellis and enhanced and expanded subsequent to the acquisition. In October 2020, we acquired AmberLeaf Partners, Inc. ("AmberLeaf"), a Chicago-based customer experience consulting firm. This acquisition enhanced our capabilities in customer experience strategy and managed services offerings for a variety of Cloud-based enterprise applications across sales, marketing and customer services organizations. Our IT staffing business combines technical expertise with business process experience to deliver a broad range of staffing services in digital and mainstream technologies, as well as other digital transformation services.

Both business segments provide their services across various industry verticals, including financial services, government, healthcare, manufacturing, retail, technology telecommunications and transportation. In our Data and Analytics Services segment, we evaluate our revenues and gross profits largely by service line. In our IT Staffing Services segment, we evaluate our revenues and gross profits largely by sales channel responsibility. This analysis within both our reporting segments is multi-purposed and includes technologies employed, client relationships, and geographic locations.

Data and Analytics:

We provide information regarding our new bookings in our Data and Analytics Services segment, which represents the estimated value of client engagements, including those acquired through acquisitions, as well as renewals and extensions to existing contracts, because we believe doing so provides useful trend information regarding changes in the volume of our new business over time. New bookings can vary significantly quarter to quarter, depending, in part, on the timing of the signing of a small number of large engagements. Among other factors, the types of services and solutions to be delivered, the duration of the engagement and the pace and level of client spending impact the timing of the conversion of new bookings to revenues. In addition, substantially all of our contracts are terminable by the client on short notice, with little or no termination penalties. Information regarding our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. New bookings involve estimates and judgments. There are no third-party standards or requirements governing the calculation of bookings. We do not update our new bookings for material subsequent terminations or reductions related to bookings originally provided in prior periods.

Economic Trends and Outlook:

Generally, our business outlook is highly correlated to general North American economic conditions, particularly with respect to our IT Staffing Services segment. During periods of increasing employment and economic expansion, demand for our services tends to increase. Conversely, during periods of contracting employment and / or a slowing global economy, demand for our services tends to decline. With economic expansion in 2010 through 2019 activity levels improved. However, as economic conditions strengthened, we experienced increased tightness in the supply side (skilled IT professionals) of our businesses. These supply-side challenges pressured resource costs and, to some extent, gross margins. As we entered 2020, we were encouraged by continued growth in the domestic job markets and expanding U.S. and global economies. However, with the COVID-19pandemic surfacing in the first quarter of 2020, we realized that economic growth would quickly turn into recessionary conditions, which had a material impact on activity levels in both of our business segments. In 2021, we were encouraged by the global rollout of vaccination programs and signs of economic improvement, however, the proliferation of COVID-19variants had caused some uncertainty and disruption in the global markets. In 2022 and 2023, COVID-19-relatedconcerns seemed to subside; however, increased inflation, challenges in the financial sector related to increasing interest rates, and concerns about a possible recession created much uncertainty and impacted demand for our services in the second half of 2022 and for the entire year of 2023. In 2024, economic conditions in North American improved over the course of the year as job growth and inflationary outlooks showed positive signs of improvement. However, as we move into the second half of 2025, uncertainty and caution continues to persist in the marketplace, driven in part by lingering questions around the direction and implementation of immigration, trade and other policies under the new administration (including the implementation of tariffs and other trade measures). These evolving dynamics have contributed to extended decision-making cycles and conservative spending behavior among clients. Given these and other factors, it remains difficult to reliably forecast how market conditions will develop for the remainder of 2025 or during 2026 and beyond.

In addition to tracking general economic conditions in the markets that we service, a large portion of our revenues is generated from a limited number of clients (see Item 1A, the Risk Factor entitled "Our revenues are highly concentrated, and the loss of a significant client would adversely affect our business and revenues" in our Annual Report on Form 10-Kfor the year ended December 31, 2024). Accordingly, our trends and outlook are additionally impacted by the prospects and well-being of these specific clients. This "account concentration" factor may result in our results of operations deviating from the prevailing economic trends from time to time.

Within our IT Staffing Services segment, a larger portion of our revenues has come from strategic relationships with systems integrators. Additionally, many large end users of IT staffing services are employing MSP's to manage their contractor spending. Both of these dynamics may pressure our IT staffing gross margins in the future.

Results of Operations for the Three Months Ended June 30, 2025 as Compared to the Three Months Ended June 30, 2024:

Revenues:

Revenues for the three months ended June 30, 2025 totaled $49.1 million, compared to $49.5 million for the corresponding three-month period in 2024. This 1% year-over-year revenue decrease reflected a modest revenue decrease in our IT Staffing Services segment and a 3% decline in our Data and Analytics Services segment. 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%). For the three months ended June 30, 2024, the Company had two clients that each had revenues in excess of 10% of total revenues (CGI = 14.9% and Populus = 10.7%). The Company's top ten clients represented approximately 58% and 53% of total revenues for the three months ended June 30, 2025 and 2024, respectively.

Below is a tabular presentation of revenues by reportable segment for the three months ended June 30, 2025 and 2024, respectively:

Revenues from our Data and Analytics Services segment totaled $8.6 million in the second quarter ended June 30, 2025, which is slightly lower compared to $8.9 million in the corresponding period last year. While activity levels remained relatively flat to slightly down, we continue to see strong engagement from existing clients. New bookings in the second quarter of 2025 totaled approximately $5.8 million, compared to bookings of $9.2 million in the second quarter of 2024

Revenues from our IT Staffing Services segment totaled $40.5 million in the three months ended June 30, 2025, compared to $40.6 million during the corresponding 2024 period. Revenue was essentially flat year-over-year as lower demand for our services in 2025 was largely offset by higher bill rates. Billable consultants at June 30, 2025 totaled 980-consultantscompared to 1,035-consultantsone year earlier. During the first half of 2025, our billable consultant-base reduced by 26-consultants.Our average bill rate during the second quarter of 2025 was $85.32 per hour compared to $81.94 per hour in the corresponding 2024 quarter. The increase in average bill rate was due to higher quality of revenues in the new assignments during the first half of 2025 and was reflective of the types of skill sets that we deployed. Permanent placement / fee revenues were approximately $0.3 million during the 2025 second quarter, which were up $0.1 million from the corresponding 2024 quarter.

Gross Margins:

Gross profits in the second quarter of 2025 totaled $13.8 million, which was $0.2 million lower than the second quarter of 2024 gross profits. Gross profit as a percentage of revenue was 28.1% for the three-month period ended June 30, 2025, compared to 28.2% during the same period of 2024. This 10-basispoint reduction in gross margins reflected higher margins in our IT Staffing Services business segments, offset by lower margins from our Data and Analytics Services segment during the current quarter.

Below is a tabular presentation of gross margin by reporting segment for the three months ended June 30, 2025 and 2024, respectively:

Gross margins from our Data and Analytics Services segment were 45.2% of revenues during the second quarter of 2025, which represented a decrease of 400-basispoints compared to 49.2% of revenues during the second quarter of 2024. The margin reduction was primarily the result of a lower utilization rate in the 2025 quarter compared to the second quarter of 2024.

Gross margins from our IT Staffing Services segment were 24.5% in the second quarter of 2025 compared to 23.6% during the corresponding quarter of 2024. This 90-basispoint increase was due to higher quality placements on new assignments in 2025.

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, 2025 and 2024, respectively:

SG&A expenses for the three months ended June 30, 2025, totaled $13.8 million or 28.1% of total revenues, compared to $12.3 million or 24.8% of total revenues for the three months ended June 30, 2024. Excluding the severance expense and finance and accounting transition expense in the 2025 period and the amortization of acquired intangible assets in both periods, SG&A expense as a percentage of total revenues would have been 24.8% and 23.4%, respectively.

Fluctuations within SG&A expense components during the second quarter of 2025, compared to the second quarter of 2024, included the following:

Other Income / (Expense) Components:

Other Income / (Expense) for the three months ended June 30, 2025, consisted of interest income of $190,000 and foreign exchange losses of ($7,000). For the three months ended June 30, 2024, Other Income / (Expense) consisted of interest income of $130,000 and foreign exchange losses of ($14,000). The higher level of interest income was reflective of higher cash balances in the 2025 period. 

Income Tax Expense (Benefit):

Income tax expense (benefit) for the three months ended June 30, 2025, totaled $75,000, representing an effective tax rate on pre-taxincome of 35.7%, compared to $418,000 expense for the three months ended June 30, 2024, which represented an effective tax rate on pre-taxincome of 23.1%. In the 2024 period our effective tax rate was favorably impacted by a partial reversal of our tax valuation allowance due to profit generation in two of our foreign subsidiaries during the second quarter.

Results of Operations for the Six Months Ended June 30, 2025 as Compared to the Six Months Ended June 30, 2024:

Revenues:

Revenues for the six months ended June 30, 2025, totaled $97.4 million, compared to $96.4 million for the corresponding six-month period in 2024. This 1% year-over-year revenue increase reflected a 4% increase in our Data and Analytics Services segment and a 1% increase in our IT Staffing Services segment. 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%). For the six months ended June 30, 2024, the Company had two clients that each had revenues in excess of 10% of total revenues (CGI = 16.1% and Populus = 10.1%). The Company's top ten clients represented approximately 58% and 52% of total revenues for the six months ended June 30, 2025 and 2024, respectively.

Below is a tabular presentation of revenues by reportable segment for the six months ended June 30, 2025 and 2024, respectively:

Revenues from our Data and Analytics Services segment totaled $17.5 million during the six months ended June 30, 2025, compared to $17.0 million in the corresponding six-monthperiod last year. The 4% year-over-year increase largely reflected strong revenues during the first quarter of 2025 compared to the corresponding quarter of 2024. Order bookings for the first six months of 2025 totaled approximately $17.4 million, compared to bookings of $19 million for the first six months of 2024.

Revenues from our IT Staffing Services segment totaled $79.9 million in the six months ended June 30, 2025, compared to $79.4 million during the corresponding 2024 period. This 1% increase largely reflected an increase in average bill rate due to higher quality of placements, offset by a lower level of billable consultants. At June 30, 2025 billable consultants totaled 980-consultantscompared to 1,035-consultantsat June 30, 2024.

Gross Margins:

Gross profits in the six months ended June 30, 2025 totaled $26.7 million compared to $26.1 million in the corresponding period last year. Gross profit as a percentage of revenue was 27.4% for the six-monthperiod ended June 30, 2025, compared to 27.1% during the same period of 2024. This 30-basispoint increase largely reflected improvements in our IT Staffing Services segment, offset by lower margins in our Data and Analytics Services segment.

Below is a tabular presentation of gross margin by reporting segment for the six months ended June 30, 2025 and 2024, respectively:

Gross margins from our Data and Analytics Services segment were 44.6% of revenues during the six-monthperiod ended June 30, 2025, compared to 47.9% in the corresponding period of 2024. This gross margin decrease reflected lower utilization rates during the first six months of 2025.

Gross margins from our IT Staffing Services segment were 23.6% in the six months ended June 30, 2025, compared to 22.7% during the corresponding period of 2024. This 90-basispoint increase was due to higher margins and bill rates on new assignments in 2025.

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, 2025, and 2024, respectively:

SG&A expenses for the six months ended June 30, 2025, totaled $28.5 million or 29.3% of total revenues, compared to $24.8 million or 25.8% of total revenues for the six months ended June 30, 2024. Excluding the severance expense and finance and accounting transition expense in the 2025 period and the amortization of acquired intangible assets in both periods, SG&A expense as a percentage of total revenues would have been 25.6% and 24.3%, respectively.

Fluctuations within SG&A expense components during the first six months of 2025, compared to the first six months of 2024, included the following:

Other Income / (Expense) Components:

Other Income / (Expense) for the six months ended June 30, 2025, consisted of net interest income of $305,000 and foreign exchange losses of ($31,000). For the six months ended June 30, 2024, Other Income / (Expense) consisted of interest income of $284,000 and foreign exchange losses of ($44,000). The interest income was reflective of higher cash balances on hand in the 2025 period.

Income Tax Expense:

Income tax expense (benefit) for the six months ended June 30, 2025 totaled $(248,000) representing an effective tax rate on pre-taxincome of 16.0% compared to $297,000 for the six months ended June 30, 2024, which represented a 19.4% effective tax rate on pre-taxincome. The 2025 period tax rate compared to the 2024 period reflected a favorable adjustment to our tax valuation allowance due to the utilization of Singapore tax benefits offset by shortfalls in the expected tax benefits of option exercised in 2024.

Liquidity and Capital Resources:

Financial Conditions and Liquidity:

As of June 30, 2025, we had no bank debt, cash balances on hand of $27.9 million and approximately $22.2 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, 2025, our accounts receivable "days sales outstanding" ("DSOs") measurement remained steady at 53-days,which was the level reported at June 30, 2024.

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 2023 over the next twelve months, absent any acquisition-related activities.

Cash flows provided by (used in) operating activities:

Cash provided by operating activities for the six months ended June 30, 2025, totaled $0.3 million compared to cash (used in) operating activities of ($0.1 million) during the six months ended June 30, 2024. Elements of cash flow during the 2025 period were a net (loss) of ($1.3) million, non-cashcharges of $1.3 million and a decrease in operating working capital levels of $0.3 million. Elements of cash flow during the corresponding 2024 period were a net income of $1.2 million, non-cashcharges of $2.9 million and an increase in operating working capital levels of ($4.2 million). Operating working capital decreased in 2025 due to lower accounts receivable and an increase in other accrued liabilities.

Cash flows (used in) investing activities:

Cash (used in) investing activities for the six months ended June 30, 2025, was ($188,000) compared to ($751,000) for the six months ended June 30, 2024. In 2025 investing activities included capital expenditures of ($169,000), and office lease deposits of ($19,000). In 2024, investing activities consisted of capital expenditures.

Cash flows provided by (used in) financing activities:

Cash provided by financing activities for the six months ended June 30, 2025, totaled $64,000 and consisted of proceeds from the exercise of stock options of $108,000, the issuance of common shares related to our Employee Stock Purchase Plan of $70,000, partially offset by the purchase of treasury shares of ($114,000). Cash provided by financing activities for the six months ended June 30, 2024, totaled $378,000 and consisted of proceeds from the exercise of stock options of $322,000, the issuance of common shares related to our Employee Stock Purchase Plan of $136,000, partially offset by the purchase of treasury shares of ($80,000).

Off-BalanceSheet Arrangements:

Other than $324,000 in outstanding letters of credit issued under our Credit Agreement, we do not have any off-balancesheet arrangements. For further details about the outstanding letters of credit, refer to Note 8 - "Credit Facility" in the Notes to Condensed Consolidated Financial Statements included herein.

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 2024 Annual Report on Form 10-Kfor 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.