Mastech Digital, Inc.

Previous wording

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 three months ended March 31, 2026.

Current wording

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.

Previous wording

Revenues from our Data & AI segment totaled $12.6 million in the three months ended March 31, 2026, which decreased compared to $16.0 million in the corresponding period last year. The year-over-year decrease in revenues primarily reflects softer demand and slower client decision-making cycles for new projects in 2026. New bookings in the first quarter of 2026 totaled approximately $13.6 million, compared to bookings of $15.3 million in the first quarter of 2025, reflecting continued caution among clients with respect to discretionary spending amid macroeconomic uncertainty.

Current wording

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.

Previous wording

Revenues from our Talent segment totaled $28.5 million in the three months ended March 31, 2026, compared to $32.3 million during the corresponding 2025 period. The year-over-year decline in revenue primarily reflects lower billable consultants in 2026. Billable consultants at March 31, 2026 totaled 619-consultants compared to 782-consultants one year earlier. Our average bill rate during the first quarter of 2026 was $90.91 per hour compared to $87.82 per hour in the corresponding 2025 quarter. The increase in average bill rate was due to higher value assignments during the first quarter of 2026 and was reflective of the types of skill sets that we deployed to clients.

Current wording

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.

Previous wording

Gross profits in the first quarter of 2026 totaled $11.0 million, which was $1.9 million lower than the first quarter of 2025 gross profits. Gross profit as a percentage of revenue was 26.8% for the three-month period ended March 31, 2026, compared to 26.7% during the same period of 2025. This 10-basis point reduction in gross margins reflected higher margins in our Talent segment, offset by lower margins from our Data & AI segment during the current quarter.

Current wording

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.

Previous wording

Gross margins from our Talent segment were 22.2% in the first quarter of 2026 compared to 21.2% during the corresponding quarter of 2025. This 100-basis point increase was due to higher quality placements and better pricing on new assignments in 2026.

Current wording

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.

Previous wording

SG&A expenses for the three months ended March 31, 2026, totaled $11.0 million or 26.8% of total revenues, compared to $14.7 million or 30.4% of total revenues for the three months ended March 31, 2025. Excluding the severance 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 25.3% and 26.3%, respectively.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Operations expenses decreased by $0.4 million in the 2026 period compared to the corresponding 2025 period. Operations expense increased by $0.3 million in our Data & AI segment due to AI related personnel investments and decreased by $0.7 million in our Talent segment due to staff reductions.

Current wording

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.

Previous wording

Other Income / (Expense) for the three months ended March 31, 2026, consisted of interest income of $288,000 and foreign exchange gains of $319,000. For the three months ended March 31, 2025, Other Income / (Expense) consisted of interest income of $115,000 and foreign exchange losses of ($24,000). The higher level of interest income was reflective of higher cash balances in the 2026 period.

Current wording

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.

Previous wording

Revenues for the three months ended March 31, 2026 totaled $41.1 million, compared to $48.3 million for the corresponding three-month period in 2025. This 15% year-over-year revenue decrease reflected a 12% revenue decrease in our Talent segment and a 21% decline in our Data & AI segment. For the three months ended March 31, 2026, the Company had one client that had revenues in excess of 10% of total revenues (Fidelity 24.5%). For the three months ended March 31, 2025, the Company had three clients that each had revenues in excess of 10% of total revenues (Fidelity = 12.9%, CGI = 11.9% and Populus = 11.7%). The Company’s top ten clients represented approximately 60% and 56% of total revenues for the three months ended March 31, 2026 and 2025, respectively.

Current wording

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.

Previous wording

Sales and marketing expense was $1.5 million lower in the 2026 period compared to the corresponding 2025 period. Sales and marketing expense in our Data & AI segment decreased by $0.6 million, driven primarily by lower payroll and related costs. Sales and marketing expense in our Talent segment decreased by $0.9 million, resulting from lower payroll and related costs, as well as reduced marketing spend.

Current wording

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.

Previous wording

General and administrative expenses decreased by $0.4 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 payroll and related costs in the 2026 period. In our Talent segment, general and administrative expenses remained flat.

Current wording

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.

Previous wording

Income tax expense for the three months ended March 31, 2026, totaled $393,000, representing an effective tax rate on pre-tax income of 59.8%, compared to ($323,000) benefit for the three months ended March 31, 2025, which represented an effective tax rate on a pre-tax loss of 18.3%. The main driver for the higher tax rate in the 2026 period is the shortfall in the expected benefit from stock options, and disallowed executive compensation.

Current wording

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.

Previous wording

As of March 31, 2026, we had no bank debt, cash balances on hand of $33.6 million and approximately $21.3 million of borrowing capacity under our existing credit facility.

Current wording

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.

Previous wording

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 March 31, 2026, our accounts receivable “days sales outstanding” (“DSOs”) increased to 60-days, compared to 56-days reported at March 31, 2025.

Current wording

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.

Previous wording

Cash (used in) operating activities for the three months ended March 31, 2026, totaled ($3.2) million compared to ($2.9) million during the three months ended March 31, 2025. Operating cash flows for the 2026 period were driven by net income of $0.3 million, non-cash charges of $2.3 million, and a ($5.7) 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. In the prior year period, cash (used in) operating activities reflected a net loss of ($1.4) million, non-cash charges of $2.0 million, and a ($3.5) million use of cash from changes in operating working capital. Working capital changes in 2025 were similarly driven by higher accounts receivable and the timing of compensation-related payments.

Current wording

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

Previous wording

Cash (used in) investing activities was ($0.1) million in both the three months ended March 31, 2026 and 2025. Investing activities in both periods consisted primarily of capital expenditures and changes in non-current deposits.

Current wording

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.

Previous wording

Cash provided by financing activities for the three months ended March 31, 2026 totaled $0.7 million and consisted primarily of proceeds from the exercise of stock options. Cash provided by financing activities for the three months ended March 31, 2025, was minimal and consisted of proceeds from the issuance of common shares.

Current wording

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.

Previous wording

Other than $324,000 in outstanding letters of credit issued under our Credit Agreement, we do not have any off-balance sheet 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.

Current wording

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