Greetings, and welcome to Mastech Digital Inc. Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Jennifer Ford Lacey, Manager of Legal Affairs for Mastech Digital Inc. Thank you Ms. Ford Lacey, you may begin.

Thank you, operator, and welcome to Mastech Digital's fourth quarter 2021 conference call. If you have not yet received a copy of our earnings announcement, it can be obtained from our website at www.mastechdigital.com. With me on the call today are Vivek Gupta, Mastech Digital's Chief Executive Officer; and Jack Cronin, our Chief Financial 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 2020 annual report on Form 10-K filed with the Securities and Exchange Commission and available on its website at www.sec.gov. 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, which can be obtained from our website at www.mastechdigital.com. 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 Jack for a review of our fourth quarter and full-year 2021 results.

Thanks, Jennie, and good morning everyone. I’m pleased to say that fourth quarter 2021 was a continuation of our strong financial performance. While we came up slightly short of exceeding our third quarter 2021 record results, we believe we are well positioned to continue our growth trajectory in 2022. A major assumption of course is that the global markets remain resilient to developments around COVID-19. Addressing fourth quarter of 2021 financial results, consolidated revenues totaled $59 million, representing an organic increase of 21%, compared to $48.7 million in Q4 2020. This revenue performance was $0.5 million lower than our record revenues in Q3 2021, largely due to lower utilization reflective of seasonal holiday and vacation schedules in Q4. Our Data and Analytic services segment contributed revenues of $10.1 million, our second consecutive quarter where revenues exceeded the $10 million threshold, and represent an organic growth of 13% over last year's revenues. During Q4, we generated order bookings of $14.4 million in our Data and Analytic services segment, which included two significant multi-year multi-million dollar assignments in the healthcare space. Both of these new orders were expected in Q3, but didn’t close until late Q4, which did impact our fourth quarter revenues. Additionally, pipeline opportunity continues to show promise as we enter 2022. In our IT staffing services segment, revenues of $49 million, essentially matched our record revenues in Q3 2021 and represented a year-over-year increase of 23%. Activity levels remained elevated in Q4, despite seasonal holiday and vacation disruptions, as well as normal high levels of December assignments. Gross profit in the fourth quarter of 2021 totaled $15.7 million, compared to $13.1 million in the fourth quarter of 2020, an increase of 20%. Gross margins as a percent of revenue in Q4 2021 was 26.6%, compared to 26.8% in the 2020 fourth quarter. This slight margin variance was primarily the result of Q4 2021 having fewer business days in December than Q4 2020 due to the timing of the December holiday. GAAP net income for the fourth quarter of 2021 was $3.9 million or $0.32 per diluted share compared to $2 million or $0.17 per diluted share in Q4 2020. Non-GAAP net income for the fourth quarter of 2021 was $4 million or $0.34 per diluted share, compared to $3.4 million or $0.29 per diluted share in the fourth quarter of 2020. SG&A expense items not included in non-GAAP financial measures. Net of cash benefits are detailed in our fourth quarter 2021 earnings release, which is available on our website. Highlighting our full-year 2021 results, revenues were a record $222 million, which were up 14% on a year-over-year basis as both of our business segments achieved double-digit growth. Consolidated gross margins grew to a record 26.8% for the full-year 2021. GAAP diluted earnings per share was $1.02, compared to $0.83 in 2020, and non-GAAP diluted EPS was a record $1.19. Lastly, I want to say a few words about our financial condition, after closing a very successful 2021. During the year, we continued to pay down debt and improve our leverage ratios. This occurred even while we invested nearly $12 million in operating working capital to support our revenue growth and to repay $2.3 million related to the COVID-19 payroll tax deferral program of 2020. Our days sales outstanding measurement at December 31, 2021 was 61 days versus 60 days a year ago, which we believe is a good position for us given the increase in project business in 2021, which generally carries a higher DSO measurement. In the fourth quarter, we amended our credit facility with PNC Bank, extending our facility term date through 2026, increasing our credit capacity and lowering our cost to borrow. We believe this amendment gives us further flexibility to support our business both on an organic and inorganic basis. At December 31, 2021, we had outstanding bank debt net of cash balances on hand of $6.5 million, no borrowings under our revolving credit facility and cash availability of $32.4 million. Our new credit facility also includes a term loan accordion feature, which can provide us with additional term loan capacity of up to another $20 million. Doing the math, we are potentially sitting with access to over $50 million of capital resources today. I'll now turn the call over to Vivek for his comments.

Good morning, everyone. Thank you, Jack, for the detailed financial review of our operating results for 2021. Let me start by saying that I'm very pleased with both our Q4 and full-year 2021 financial performance. 2021 was a pivotal year for both of our business segments as we recovered from the effects of the onset of the pandemic in 2020. During the year, we continued to execute on our strategic priorities by deepening new and existing relationships in the markets that we serve. We continue to invest in both SG&A and capital expenditures to expand capabilities and take advantage of the positive trends that we are seeing in both of our business segments. Notwithstanding some disruptions in economic activity from COVID-19 variants throughout the year, our financial results for 2021 included the achievement of record revenues, record gross margins, and solid earnings performance. Additionally, we believe a strong 2021 order backlog in our Data and Analytics segment and record billing headcount in our IT staffing segment position us well for growth as we enter 2022. Now let me share a few of our 2021 operational highlights. First, our data and analytics services segment. Bookings totaled a record $55 million in 2021, despite experiencing some order delays during the year. Our multi-year multi-million dollar center of excellence service offering recovered nicely in 2021 after a down year in the pandemic impacted 2020. Additionally, order backlog at December 31, 2021 was at an all-time high and our pipeline of opportunities continues to show promise. The proliferation of COVID-19 variants continues to be a global macroeconomic concern, but currently these concerns have not appeared to materially impact our clients' willingness to start new assignments. We are looking for improving conditions on the COVID front in 2022. Our global partnership with IBM showed revenue improvement in 2021 from depressed global activity levels of 2020. Our pipeline of opportunities in the second half of 2021 strongly suggests that this improvement should continue in 2022 at our international subsidiaries. Our cloud services and customer experience services are ripe with potential as we enter 2022. We are finding good acceptance of these innovative new offerings in the marketplace. Our objective for 2022 is not only to accelerate revenue growth, but also to strengthen gross margins in both of these offerings. Lastly, during 2021, we entered into a new operating lease in Chennai, India. This new lease expands our office capacity to nearly double our prior capacity with upgraded amenities and modernizes the look and feel of this key D&A delivery center. Now, looking at our IT staffing services segment. Our record 2021 financial performance in revenues, gross margin, and profitability is the result of some very exciting achievements during the year. We expanded relationships with most of our key clients. We had one of our best years with respect to capturing new logos, and our offshore recruitment center in Noida, India, strategically expanded staff ahead of the growing demand, and at the same time improved significantly on its productivity metric by fully embracing the work from home model. This is a pivotal accomplishment for the recruitment center and one that we believe will improve our business model for years to come. Our MAS-REMOTE service offering continued to gain traction in 2021 and we have begun expanding this offering to include India-based offshore consultants. We believe customers who have become comfortable with the work from home model are now ready to enjoy material cost savings by embracing this offshore staffing model. We are excited about this offering's growth potential in 2022 and beyond. On a final note, as most of you know, Paul Burton, our Chief Executive of the Data and Analytics segment decided to leave Mastech Digital in December. During Paul’s tenure with our company, he did an amazing job of taking our D&A business to the next level in terms of our ability to compete in today's global marketplace. For that, we thank Paul wholeheartedly and wish him the best in his new endeavors. With respect to our search for Paul’s successor, I can tell you that the candidates that we have looked at have been very, very impressive. I feel comfortable saying that we should have a new Chief Executive for the Data and Analytics services business on board in the not-so-distant future. This concludes our prepared remarks. Operator, we can take the questions now.

Thank you. Our first question comes from Josh Vogel with Sidoti. Please proceed.

Thank you. Good morning, Vivek and Jack. Thanks for taking my questions. And congratulations on a very impressive 2021. I have a couple here for you. Can you start with what expectations should we have for staffing and D&A mix this year, as well as what kind of gross margin expansion we can expect just the overall gross margin profile of the business going forward from here?

Hi, Josh. It's always nice to hear your voice. As you know, we don't give guidance. So, I wouldn't want to go into specifics, but our plan for the year is to keep the momentum going in both the businesses. There is clearly demand for staffing services, and we are trying to maximize what we can in terms of exploiting that demand to the fullest. As I said in my earlier comments, customers are now more open to signing up for new assignments on the D&A side. So, both businesses should grow. How will the mix change? It's hard to say at this stage, but we are obviously always looking at ways of improving the gross margins, every year, every quarter. So, again, there should be some improvement, but I wouldn't want to be very specific on that since we don't give guidance.

When we look at your bookings number in Q4, how much came from those two significant healthcare assignments that were pushed into the quarter?

Those two, and Jack correct me if I get my number wrong. I think a little more than $8 million came from those two orders. Would that be right, Jack?

Yes. I think it was a little softer than $8 million.

Okay, great. Then you mentioned that those are pushed late into the quarter and saw a little seasonality in D&A from Q3 to Q4. I was just curious about how I should think about that business going forward, given the demand in the bookings pipeline. Is it going to be something like a steady build quarter-to-quarter with some seasonal decline in Q4? And given that there were the later bookings of those healthcare assignments, should we expect to see revenue in the segment, and I know you're not giving guidance, but directionally should revenue pick up in Q1 versus Q4?

So, Josh, yes, with the healthy order backlog that we have and having signed some new deals, we do expect some sequential improvement in the current quarter, the Q1 quarter. But of course, the intent is to see how we can continue to keep growing and improving quarter-on-quarter. So, yes, that's I guess the best I can say at this point in time. Yes, those deals that came in, in Q4 will definitely be helpful in the future quarters.

Great. And you've obviously done a great job protecting pricing throughout the pandemic, and today, I was just wondering if you can share any comments regarding pricing and the bill pay rates that you're seeing in staffing?

On the staffing side, yes, pricing is something that we have been able to manage quite nicely. On the other hand, the market is very hot. The demand is far more than supply. As a result, the prices or the bill rates are going up across the board anyway to some extent. So, the trick is not to succumb to downward pricing pressures and at the same time to see how you can benefit from the upward pricing pressure, which is coming in the industry in general. So, yes, it should all be, I guess, it should result in positive outcomes as a result of that.

Alright, great. And just the last one, and I'll let some others ask. Jack, you mentioned a lot of potential dry powder, can you talk about capital allocation or deployment strategy for 2022? Also, are acquisitions on the table and if so, where would it be geographic? Would it be capability? Any thoughts there? Thank you.

Acquisitions are a part of our overall strategic strategy for sure. If you notice in our press release, we had some non-GAAP expenses around acquisition transaction expenses. That was for an acquisition candidate that we are looking at, and we spent some due diligence money and back to us. Clearly, in 2022, we're looking for the right candidate with respect to acquisitions. Based on the acquisitions that we've done in the past, earn-out is a big component of our ability to find an attractive acquisition. So, if we're sitting there with roughly $15 million of dry powder, that bodes well for the type of acquisition that we can take on?

That's helpful. Are you seeing, in candidates that you're looking at, are valuations still really inflated or are they starting to come down a little bit?

You know what, Josh, I really can’t look at the history of some of these spaces that we're exploring right now, but the valuations are on the high end.

Understood. Well, thanks for taking my questions. And again, congrats on a great 2021.

Thanks, Josh.

Our next question is from Lisa Thompson with Zacks Investment Research. Please proceed.

Good morning. Glad to see things are going so well. First minor question, how many billable consultants did you end the year with?

Jack, do you have the number handy?

I guess, I do have the number handy. It's around 1,261.

Well, you said it was record, so I thought you'd want to brag about it.

We broke a lot of records in 2021, so we did a lot of bragging.

Lisa, if I may just add to that – we added 199 consultants in the year, starting the year with around 1,060, so that’s almost a 19% increase in billable headcount.

Do you plan that again for this year, or do you want to try to beat that? What's the objective?

We do want to obviously keep the momentum going, but I'm not sure whether 19% kind of growth can happen again in another year because we shouldn't forget that 2020 we lost a lot of headcount and then we were building back. But what's happening is, as the whole year has gone by, a lot of those assignments are coming to an end. So, now it's getting more into a business-as-usual kind of mode where you're going to constantly backfill the ones that are ending and trying to scale at the same time. So, I think it should still be good. We should still do much better than the industry as we've done for the last several years, but I don't know whether 19% kind of headcount growth is going to be practical.

Has anything changed recently? You said business is getting back to normal and staffing? Is the churn going down to back to where things usually are, or is it still crazy attempts to hire?

I think 'crazy' is the right word. Right now, the ends, as we call them, are at record levels. But then we are doing a great job of having starts, which are even greater than the ends. So, even starts are at record levels as well. The equation always is, starts minus ends is equal to net growth. To achieve a net growth of 199, we've had unprecedented numbers of starts, while also facing record numbers of ends. I think that kind of environment will continue so we are constantly trying to gear up our team in terms of numbers, productivity, etc. to be ahead of the curve. That's the only way we will be able to keep growing. So, these ends are not going to come down. The market is still hot. The trick really is to see that our starts far exceed the ends.

And are there any externalities that will change this? Is it just there's more job openings for IT people than there are IT people? Or is there anything else going on out there?

Well, it's primarily that. It's also that businesses are willing to spend more. A lot of the projects that they had put on hold in 2020 and were a little cautious early part of 2021 are beginning to spend, and these projects require more people. So, one is the shortage of people which we know is there in the country. On top of that, constantly customers are wanting to do more and there aren’t enough people available, and they need help from companies like ours, which is why they're also more open to mass remote. As I’ve mentioned in my comments, even working out of India, offshore staffing is becoming more of a reality for customers because it's very difficult for them to find people.

Okay. So, they're kind of making up for lost time in addition to business as usual. Alright. So, you talked about having $50 million in dry powder. AmberLeaf, I guess, didn't quite live up to its high expectations of what they thought they could do. Are you more gun-shy, or are you still willing to go after big acquisitions? What’s your thinking now?

No, we are not gun-shy. We are looking at acquisitions that are in our range, both big and small. We’ve also been waiting for the new Chief Executive to come on board because, at the end of the day, any acquisition we do this year will be sort of owned and managed by the new leadership. So, I'm just answering your question by saying that we are keeping the powder dry; we definitely want to go down that path, but we're going to wait a bit more for the new leader to come in and then take a directional call on where we are going. Data and analytics is definitely the focus area for any acquisition.

Hey Lisa, I just want to make one comment on AmberLeaf. Clearly, their revenues haven’t performed to expectations, but they're profitable. We like their service offerings; we’re still keen on customer experience. So, I wouldn't perceive it as a bad acquisition. The fact that when they don't meet their revenue numbers, even though they still contribute positively on the bottom line, essentially benefits us a bit because they're not going to make their earn-out. But we’re still enjoying some nice bottom line profitability, and again, we're keen on the service offering.

Yes, of course, great. That's why that earnout is so wise to put into the full acquisition. Great. So, and one other thing, on the healthcare customers that you just signed, are they already generating revenues? Does that happen in the day they sign? How does that work?

Yes. They've already started bringing revenue, and I think one of them was already an existing customer. So, we've kind of signed a large deal with an existing one, and the other one is a new customer, and both have started billing.

Alright, great. So, one other thing, you've kept talking about improving margins in data analytics and getting AmberLeaf margins up. Are you there now at steady state where you pretty much got them to where they're going to go?

No. I mean they still had improvement potential. I mean they've improved from where they were when we took them over, but they're not close to our core D&A margins. There's still some upside that we see.

Thank you, Lisa.

Thanks, Lisa.

Our next question is from Timothy Call with The Capital Management Corporation. Please proceed.

Congratulations on such strong bookings. Seasonally, is it hard to experience such strong bookings in the fourth quarter?

Sorry, your voice broke up. Could you repeat the last sentence?

Is it odd to experience strong bookings in the fourth quarter from a seasonal standpoint?

Well, it's not odd, but yeah, it's happy news. Yes, seasonally bookings tend to be a little less in Q4 and then pick up in Q1. But yes, probably the sign of the sales engine firing well.

Did having fewer days in the fourth quarter negatively affect revenue versus last year?

Yes, it affected revenue and it also affected gross margins. That extra holiday, if you will, in 2021 was the recognition of the New Year holiday because the New Year holiday is generally in January. This year, because the holiday was on a weekend, the celebration was on December 31. So, there was a higher benefit load in December 2021, compared to 2020, and the good news is, in Q1, it will just be the reverse. We'll have one less holiday in Q1 that we normally have. Did that make sense?

Yes, yes, it does. Given the strong global demand for new product offerings, including cloud services, are you in a position to handle continued large increases in customer signings?

Yes. We've spent a lot of time, effort, and money last year in building our capabilities in the various areas of our portfolio of offerings, and cloud services is definitely one of them. Yes, we are able, willing, and actively marketing those offerings. So, yes, the answer is yes.

Well, congratulations on the strong orders and being prepared to take advantage of what you've built. Good job.

Thank you.

Thank you.

Thank you. Ladies and gentlemen, there are no further questions at this time. I would like to turn the call back to Vivek Gupta for any closing remarks.

Thank you, operator. If there are no further questions, I would like to thank everyone for joining our call today. We look forward to sharing our first quarter 2022 results with you in late April. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.