Mastech Digital Q2 2026 Earnings Call: Complete Transcript

Mastech Digital (AMEX: MHH ) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. This content is powered APIs. 9%.

The company entered a strategic engagement with a major convenience store chain to build AI capabilities, reflecting progress as an AI-first company. Mastech Digital launched a partner program and participated in four major industry events to strengthen relationships and capabilities. The EDGE initiative is driving investments in talent and market growth initiatives, with continued focus on high-margin engagements. 4% year-over-year.

1 million for the quarter. 6 million in cash and no bank debt, planning further investments in AI and data capabilities. Management highlighted a strategic shift in client spending towards AI and business transformation, positioning Mastech Digital as a key partner. Full Transcript Dennis, Operator Hello and thank you for standing by.

My name is Dennis and I will be your conference operator today. At this time, I would like to welcome everyone to the Mastech Digital second quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.

If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Jenna Lacy, General Counsel and Corporate Secretary at Mastech Digital. Please go ahead.

Jenna Lacy, General Counsel and Corporate Secretary Thank you, operator, and welcome to Mastech Digital's second quarter 2026 conference call. If you have not yet received a copy of our earnings announcement, it can be obtained from our Investors section on our website at With me on the call today are Nirav Patel, Mastech Digital's Chief Executive Officer, and Kannan Sugantharaman, our Chief Financial and Operations Officer. I would like to remind everyone that statements made during this call that are not historical facts are forward-looking statements.

These forward-looking statements include our financial, growth, and liquidity projections, as well as statements about our plans, strategies, intentions, and beliefs concerning the business, cash flows, costs, and the markets in which we operate. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify certain forward-looking statements. These statements are based on information currently available to us and we assume no obligation to update these statements as circumstances change.

There are risks and uncertainties that could cause actual events to differ materially from these forward-looking statements, including those listed in the company's 2025 Annual Report on Form 10-K filed with the Securities and Exchange Commission and available on its website at Additionally, management has elected to provide certain non-GAAP financial measures to supplement our financial results presented on a GAAP basis. Specifically, we will provide non-GAAP net income and non-GAAP diluted earnings per share data, which we believe will provide greater transparency with respect to the key metrics used by management in operating the business.

Reconciliations of these non-GAAP financial measures to their comparable GAAP measures are included in our earnings announcement. As a reminder, we will not be providing guidance during this call, nor will we provide guidance in any subsequent one-on-one meetings or calls. I will now turn the call over to Nirav for his comments. Nirav Patel, President and Chief Executive Officer Thanks, Jenna.

Good morning, everyone. We appreciate you joining us as we review our second quarter 2026 results. I'm pleased to share the progress we made during the second quarter. 9%.

2% sequentially, its first quarter of sequential growth since 2024. We believe this growth is a direct reflection of the progress we are making as an AI-first company. During the second quarter, we entered into a strategic engagement with a leading American convenience store chain and e-commerce retailer that operates more than 10,000 stores globally to build the agentic foundation that will power its e-commerce apps and store operations.

We have been entrusted to architect, build, and deploy semantic search for their consumer experiences, a retail knowledge fabric as an ontology layer beneath it, and an agentic foundation for building, orchestrating, and monitoring agents at scale. We view this engagement as an early indicator of the new capabilities we are building specifically to help accelerate AI adoption and grow customer revenues. Deal wins like this engagement have contributed to a positive year-over-year quarter in bookings, which is building further on a strong first quarter, and we are encouraged by our trajectory.

As part of our initiatives under the Growth Office, which I will talk about in a moment, we are pleased to have launched our partner program. During the second quarter we participated in four major industry events: Google Cloud Next, Informatica World, the Snowflake Summit, and the Databricks Data and AI Summit, and we value the connections and relationships that have come out of our participation in these events. This partner program reflects a serious commitment to our partners and a willingness to go deep in the capabilities we build around them.

It is about how we more meaningfully serve our customers by building trust through the value we demonstrate alongside our partners. We look forward to building on this program in the coming quarters. Kannan will provide more color on the segment performances in his remarks. I want to spend a moment on the market environment, because it continues to shape how enterprises are approaching their roadmaps and their investment decisions.

We are seeing frontier labs, companies like Anthropic and OpenAI, continue to push the pace of innovation in AI, and that pace continues to accelerate. Enterprises, especially the Global 2000 customers we work with, are beginning to shift their spending away from what has traditionally been considered standard, expected technology investments and towards innovation and AI. A recent analysis from Zinov suggests that as much as 30% of traditional IT spending could rotate into new, AI-oriented investments. We believe there are two areas where enterprises' acceleration has been most consistent: AI foundation and business transformation.

AI foundation is an important layer where enterprises are doing the groundwork and getting that underlying data clean, structured, and governed enough to actually support AI at scale. This is where we continue to see significant dollars being spent, because without the foundation in place, nothing built on top of it holds up. It is also the layer where questions of trust, safety, and governance ultimately live. Business transformation is the other area of acceleration.

Here, enterprises are developing use cases they can tie directly to top-line or bottom-line results. We are seeing enterprises narrow in on the specific domains and use cases that help them differentiate from their competitors and become a true AI-first enterprise. We believe this area has the most potential to drive business impact and sets the groundwork for us to deliver outcome-based engagements that position us as a trusted partner in their AI journey. We are beginning to see progress in both of these areas.

Let me also highlight some of the progress we have made on our strategic initiatives to meet the acceleration we described earlier in AI foundation and business transformation. We made a deliberate effort during the second quarter to build out our modern data and AI readiness offerings, hiring strong local and international talent to meet the market where the demand is. We are also investing in becoming an autonomous enterprise ourselves, acting as customer zero for our own AI and transformation initiatives. During the second quarter, we assessed all of our enabling functions and their maturity levels with the intention of becoming a fully autonomous, AI-led company.

This is also the quarter where we launched our Growth Office function, investing across four areas that we believe will compound over time. New Logo Sales is focused on opening and developing new client relationships, giving us a dedicated motion for winning first-time business. Performance and Revenue Marketing covers our events, demand generation campaigns, inbound leads, and broader engagement efforts, feeding a stronger pipeline into that motion. Partnership Ecosystem Build is focused on partner-sourced deals and ecosystem development, an area that ties directly into the partner program momentum I mentioned earlier.

And finally, Large Deal Enablement brings cross-functional teams together to synergize best practices in pursuing and winning our largest, most strategic deals. Together, these four investments within the Growth Office are designed to build a more complete commercial engine—one that wins new business, deepens through partners, and competes for the deals that matter most. As I described earlier, we are seeing two forces continue to move together in the market: the pace of AI innovation coming out of the frontier labs and the pace of AI adoption inside enterprises as they rotate their own spending towards AI foundation and business transformation.

To keep up, we believe that is exactly where our opportunity lies. In our view, there is a clear place for partners like us who understand both the depth of enterprise systems and the pace of AI innovation. We view this position as an important place for us to be as we support enterprises in increasing their AI adoption, and we are focused on meeting this moment and driving value for our shareholders. We believe we are entering the second half of the year in a position of strength.

The redeployment of EDGE savings into our strategic initiatives, the investments we have made in our capabilities and our Growth Office, and the early wins we are seeing in Data and AI all give us confidence that our plan is working. Our balance sheet strength, our leadership team, and the alignment across our organization position us well to compete for the opportunities ahead. We are grateful for the trust our clients, our employees, and our shareholders continue to place in us, and we intend to continue earning it going forward. With that, I will hand it over to Kannan, who will walk you through the financials in more detail.

Kannan Sugantharaman, CFO and COO Thanks, Nirav. Good morning, everyone. Nirav touched on the sequential growth we saw in our Data and AI segment during the second quarter and the discipline behind it. I want to start there, because that discipline is best reflected in how we have executed on EDGE.

The EDGE initiative—efficiencies driving growth and expansion—which we launched in Q3 2025, continue to advance through the second quarter of 2026. We have always said EDGE has two parts: an efficiency phase and an investment phase. Last quarter we highlighted that the efficiency phase had delivered. We signaled that redeployment of these efficiencies had begun into our leadership and talent base, our competencies, and our market growth initiatives.

During the second quarter, that redeployment started to accelerate. We are now investing significantly in talent, in competency building, and in overall expansion across our Data and AI space. As we have said before, these investments are a leading indicator. We have made the commitment.

We believe the revenue will now follow. We expect to continue this pace of investment through the second half of 2026. We remain encouraged by what we are seeing take shape, and we continue to believe that the most meaningful growth EDGE enables is still ahead of us. I will now discuss our second quarter financial results.

6% decrease year over year compared to the previous year period. 2% lower than the prior-year period, though our focus on revenue quality continues. 36 a year ago. 3% reduction, consistent with the same two factors we have been highlighting for the past few quarters.

The first of these factors is insourcing activity from one of our top 10 clients, which continued during the second quarter. This single client accounted for almost 90% of our headcount reduction on the talent side in the second quarter. Excluding this client, our year-on-year decline in talent revenue would have been limited to approximately 3%. The second factor is our continued discipline.

We have deliberately exited lower-margin, non-strategic staffing positions in favor of higher-quality, higher-margin engagements. The effect of that discipline is visible in our historically strong bill rates. We anticipate that these dynamics will continue for a few quarters. 2% sequentially, marking our first such quarter of revenue growth since 2024.

6 million on a total contract value, or TCV, basis compared to bookings of $9 million TCV in the prior-year period. We added three new logos across multiple markets as we continue to build momentum in bookings. 2% compared to the prior-year period, though our profits grew by $1 million sequentially and gross margins increased by 90 basis points over the second quarter of 2025. 01 per diluted share, in the prior-year period.

15 per diluted share, in the prior-year period. 11 per diluted share, in the prior-year period. 21 per diluted share. During the second quarter of 2026, our liquidity and overall financial position remained solid.

4 million under our revolving credit facility. Our days sales outstanding on June 30, 2026 totaled 61 days, which is above our DSO measurement a year ago. During the second quarter of 2026, we did not repurchase any shares of Mastech Digital common stock and, as a result, as of June 30, 2026, the entire $5 million remains available under the share repurchase program. Dennis, Operator This concludes our prepared remarks.

We will now open the line for questions. At this time, I would like to remind everyone, in order to ask a question please press star then the number one on your telephone keypad. We will pause for a moment to compile the Q&A roster. And your first question is from the line of Lisa Thompson with Zacks Investment Research.

Please go ahead. Lisa Thompson, Analyst at Zacks Investment Research Good morning. I'm glad to see all the progress. I was wondering if you could talk a little bit about this new partnership program.

How do you define it? Like, what is it actually? Nirav Patel, President and Chief Executive Officer Good morning, Lisa, this is Nirav. I can take that.

You know, I would—so this is, first of all, a very, very strategic program. As you know, a year ago we already announced a partnership with Informatica, but this particular program, I would characterize it as early stage, and I think it is important to be upfront about that. You know, these four events that we really participated in, in terms of Google Next, Informatica World, Snowflake, Databricks, are really about building and deepening relationships with the partners whose platforms our clients are standardizing on. And that is not something that turns into a signed deal overnight.

So it takes time to really build that level of trust. That said, we think that we would not have launched this formally or invested in a dedicated partnership ecosystem-building function within our growth office if we did not see early signals worth building on. So we are seeing the right amount of conversations start to happen and some early relationship momentum, but I would like not to point to hard, measurable pipeline numbers on this as yet.