Greetings and welcome to the Mastech Digital, Inc. Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. Thank you. You may begin.

Thank you, operator, and welcome to Mastech Digital's fourth quarter 2023 earnings conference call. If you have not yet received a copy of our earnings announcement, it can be obtained on 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 posted in the company's 2022 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 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 2023 results.

Thanks, Jen, and good morning everyone. Our fourth quarter 2023 financial results were impacted by economic uncertainty and our current and prospective clients' responses to these challenging market conditions. Fourth quarter revenues totaled $46.1 million, representing a 20% year-over-year revenue decline. Both of our business segments contributed to this decline. Our Data and Analytics Services segment reported revenues of $8.2 million in Q4 2023 compared to $9.1 million in the 2022 fourth quarter as customers continued to reduce resources on existing projects, albeit at a lower rate in Q4 when compared to Q2 and Q3 of 2023. Also, Q4 order bookings totaled $19 million, which was one of our best performances since we acquired the Data and Analytics Services segment. Accordingly, we achieved a modest tick up in revenues on a sequential basis over the third quarter of 2023. Fourth quarter 2023 revenues in our IT Staffing Services segment totaled $37.9 million compared to $48.1 million in the fourth quarter of 2022. During the quarter, our billable consultant base declined, again, at a slower rate when compared to Q2 and Q3 of 2023 and in a quarter where consultant headcount declines are the norm in the industry as clients historically seek to complete existing projects and resources prior to the start of the new year. Consolidated gross profits as a percent of revenues in Q4 2023 totaled 24.6% compared to 24.8% in Q4 2022. In our Data and Analytics Services segment, gross margins improved materially to 44.7% compared to 37% in the fourth quarter of 2022. This improvement reflects higher utilizations in the 2023 quarter and reduced margins on several significant assignments in the fourth quarter of 2022. In our IT Staffing Services segment, gross margins were down compared to Q4 of 2022, largely due to a year-over-year reduction in direct hire revenues and unusually high medical claim expenses related to our self-insured healthcare program. GAAP net income for Q4 2023 totaled a loss of $5.4 million or negative $0.46 per diluted share compared to a profit of $1.5 million or $0.13 per diluted share in Q4 2022. These GAAP numbers do include a $5.3 million goodwill impairment charge. Non-GAAP net income for Q4 2023 was $1.3 million profit or $0.11 per diluted share compared to $2.8 million or $0.23 per diluted share in the fourth quarter of 2022. SG&A expense items not included in non-GAAP financial measures net of tax benefits are detailed in our fourth quarter 2023 earnings release, for all periods presented, which is available on our website. Addressing our full year 2023 results, revenues were $201.1 million, which were down 17% on a year-over-year basis. Again, both business segments contributed to this decline. Gross margins for the full year 2023 totaled 25.4% compared to 26.1% in 2022. Our Data and Analytics Services segment gross margin percent increased by 200 basis points year-over-year on improved utilization and our IT Staffing Services segment gross margin percent declined by 140 basis points due to lower direct hire revenues and higher healthcare expenses. GAAP diluted earnings per share was a loss of $0.61 in 2023 compared to a profit of $0.72 in 2022. Non-GAAP diluted earnings per share totaled a profit of $0.44 in 2023 compared to a profit of $1.13 in 2022. Throughout 2023, our liquidity and overall financial position remain solid. Today, we're 100% debt-free with no borrowings outstanding under our PNC facility. Also, we have $21.1 million of cash balances on hand and have cash availability of another $22.5 million under our revolving credit facility. I should also point out that our day sales outstanding measurement on December 31st, 2023, improved to 53 days from 59 days a year earlier. Thus, despite challenging economic conditions, we prudently managed our accounts receivable credit risk and incurred no bad debt expense in 2023. 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 2023 operating results. In 2023, macroeconomic headwinds clearly had a significant impact on our financial performance. Concerns over a possible recession, high inflation, increased interest rates, as well as geopolitical events, led many of our clients to take a conservative posture with respect to spending on new projects and on new IT initiatives. While the US economy seems to be entering a recovery mode with positive data points in job growth and GDP expansion, concerns still exist with respect to inflation, high interest rates, and the possible escalation of a wider conflict in the Middle East. Notwithstanding these potential economic issues, we are starting to see some signs of increased customer demand in both of our business segments. In our Data and Analytics Services segment, Q4 order bookings totaled approximately $19 million, which was one of our best performances on record. Additionally, we had a modest revenue increase on a sequential basis over Q3 of 2023. In our IT Staffing Services segment, we saw positive billable headcount growth for the first time in October and November after 15 consecutive months of declines. In December, we did see high year-end project ends, but they were largely in line with the seasonal decreases we experienced at year-end. Overall, the Q4 billable headcount decline was less than the declines we experienced in the fourth quarter of the prior two years. We are encouraged by these positive indicators as we enter 2024. During the quarter, Michael Fleishman resigned from his position as the Chief Executive Officer of the Data and Analytics Services segment. We thank Michael for his service, and we wish him success in his future endeavors. Until his successor is appointed, the functional heads of this segment are directly reporting to me. Also, during January 2024, we engaged Pimenta, Inc. as a strategic advisory consultant. Pimenta is a firm with deep experience and knowledge of the broad IT services industry and an impressive track record of strategy and business process improvements for a number of notable clients. We are excited about this engagement and the opportunities that it presents for Mastech Digital. Finally, despite 2023's difficulties, we believe that our businesses remain fundamentally sound, both operationally and financially, and we are optimistic that we are positioning our businesses for improved financial performance in 2024. And that concludes our prepared remarks. Operator, we can take questions now.

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from the line of Tim Call with Capital Management Corporation. Please proceed with your question.

Well, it's great to hear that some forward-looking indications are positive. One year ago, the Board authorized a share buyback program, and it's not too big. You have over $20 million of cash on your balance sheet and no debt. So, the net cash position is about 22% of your stock market capitalization. So, it seems to be a no-brainer to put $20 million to share buybacks. The Board was very modest and improved $500,000 share buyback. What's the status of that? And why is it taking a year to make accretive share buybacks when your long-term prospects are so positive?

Yes, Tim, this is Jack. Yes, we are 100% committed to the share buyback program. I think we believe our stock is undervalued compared to the intrinsic value that it presents, and we have bought back, I think, right now to date, we bought back around 60-some thousand shares in Q4. We only bought back 5,000, and the reason for that is we were in an extended blackout period with respect to some of these corporate events. But we are 100% committed to the share buyback program. And I think you will see us purchase more shares in first quarter of 2024.

There are some bigger companies that are buying back stock on a more regular basis. And maybe the person advising you for blackout periods is a little too conservative, and maybe you need a new advisor in that area.

Yes, I think we would generally be cautious on the conservative side.

And if you're not expecting any near-term acquisitions, should the Board authorize a larger share buyback authorization? If you have over $20 million cash, it's 22% of your stock market capitalization. If the stock is such a good deal, hopefully, the Board will consider increasing the authorization. I understand you want to get through this first one, but hopefully, that can accelerate now?

Yes, the Board could—once this one has been completed, the Board has the ability to immediately do another buyback. So, it's not like once this is over, all bets are off. We have the ability to be flexible and do more if the Board so desires. But again, the other thing is, Tim, our volume is relatively low. So, that's another headwind where we'd like to buy, but we're limited based on our volume, the number of shares that we can buy. But again, management is committed to take advantage of our stock position and buy back shares.

Terrific. And thanks for your hard work. It's great to see the indications that business can improve next year.

Thanks, Tim.

Thanks, Tim.

Thank you. Our next question comes from the line of Lisa Thompson with Zacks Investment Research. Please proceed with your question.

Good morning. Again, you had a very busy fourth quarter.

Yes, indeed, Lisa.

So, could you just go through the events that led to the CEO resigning and then your hiring of the consultants and exactly what the consultants are hired for? Are the two related or completely unrelated?

They are unrelated, Lisa. So let me pick the first one first. The Board of Directors and Michael had a series of discussions around the goals and strategies for Mastech and for the Data and Analytics Services segment. Once it was clear that our long-term goals would not align, Michael felt it was best to resign, and the Board accepted Michael's resignation. So, that is what led to Michael's exit. As regards the consultant Pimenta coming in, Pimenta has deep experience across the global technology and business services industry, and its principles have helped create business value and drive transformational change for a number of large-scale organizations in our industry. The Board felt it would be good to engage Pimenta to positively impact the organization and provide strategic direction towards significantly improving our business performance and growth.

Okay. So, as I read through the documents, I first thought the consultants were kind of turnaround improvement guys, and then I got a little concerned that maybe they were hired to sell the company. Can you discuss that?

Well, I can say that emphatically that we have not engaged Pimenta for selling the company. They have been engaged to make a positive impact as I spoke about earlier and provide the strategic direction that would help us with improved performance and growth. That is really the main objective.

Okay. Just checking. And can you talk a little bit about how business is going? Are you feeling these different reactions in different verticals of your base? And I always worry about CGI when I read about banks. Can you talk about that?

So, yes, as I said in my prepared remarks that there are some signs that the business is picking up. Last time when we spoke a quarter ago, we had just completed October and seen some positive signs. Now, if we exclude December, we've had two months of positive activity. Overall, the Q4 billable headcount decline was less than the declines we experienced in the fourth quarter of the prior two years. We are encouraged by these positive indicators as we enter 2024.

Okay. So, given those signs, do you feel that Q1 will have higher revenues compared to Q4?

Yes, I think it should be sequentially higher. I don't want to say how much better it would be, but yes, it should be.

All right, that's great. Okay, I think that’s all my questions. Thank you so much.

Thank you, Lisa.

Our next question comes from the line of Ross Davidson with an undisclosed Capital. Please proceed with your question.

Hi Jack, hi Vivek. Thanks for taking the question. Actually, both questions I want to ask were already asked. But the third one I want to ask is just around the goals of the Data and Analytics Services, you alluded to that that was sort of the cause of Michael deciding to resign. I'm curious if you could articulate what the Board's and your goal for that direction was that led to that separation?

I think we will start getting into the weeds a little bit over there. But I think suffice it to say that the Board expects or wants the organization to scale quickly to a much larger size and become a bigger portion of the Mastech Digital portfolio. When we were looking at the goals and strategies that were being discussed, there was clearly some misalignment between the two, and we did see a clear path in being able to get to where we were hoping to. It just led to that conclusion where Michael felt that it was best to resign.

Would it be fair to say that the goals weren't too different? The intention was to grow quickly, and I'm sure Michael didn't want to downsize; perhaps the growth rates varied and were more about the methods used to achieve that. Was there a different approach?

I would say, yes, it's a mix of both. It's the goals, the strategies, and the means to get there. And now that we have Pimenta on board, we are looking forward to getting some useful strategic direction about what we could take, what the industry is doing, what our peers are doing, and find the right actionable initiatives, which will take us there.

Our next question comes from the line of Marc Riddick with Sidoti. Please proceed with your question.

Hey, good morning everyone.

Hey, Marc.

I was wondering if you could give us an update on the engineering staffing services, the launch from last year, and maybe what we're seeing there thus far and maybe some early indications, early reads of what you're getting there?

Good question, Marc. That's one of the initiatives that we are really giving a lot of emphasis on, focus, and investment as well. We've seen virtually quarter-on-quarter or even month-on-month increase in the headcount for Engineering Staffing Services. It hasn't quite reached significant growth yet, but the conversations that we've initiated with our customers are showing good traction. Essentially, Marc, there are three groups or buckets in which we have our opportunities. The first bucket contains customers who are already doing some Engineering Staffing with us. The question over there is how do we scale that up. The second bucket is customers where we are doing IT Staffing, but we haven't yet done Engineering Staffing services, ensuring our message is understood. The third one is to seek new customers who have never worked with us before or even in the IT Staffing segment and focus on Engineering Staffing Services. Right now, our sales engine is focusing on all these three buckets and making sure our message is understood, hoping that the requirement volume will start picking up as the year unfolds, allowing us to reach our set goals.

Thank you for that. I would like to know more about the new order wins at $19 million. Could you share some insights about the catalysts that led to those opportunities, while keeping in mind the time frames and multiyear deals, and whether there may be continued potential in the coming months?

Marc, it's basically the relationships we've been able to establish with our client accounts and the stellar delivery that our team has had, alongside the new offerings under data modernization that we have rolled out. This has led customers to feel comfortable enough to sign multiyear commitments rather than short-term extensions or standalone new contracts. So, I can't really point to any single factor; it's actually a mix of all of that.

Yes. And as for major clients, it was a combination of orders from existing clients. As Vivek said, not short-term orders with six-month commitments, but longer-term orders. The other thing that was encouraging was some major bookings from new clients, which is very encouraging.

Great. And then the last one for me. I was wondering if you could give us an update on what you're seeing as far as overall bill rates and if there's much pushback as far as rate increases. Can you provide a little on the pricing environment?

So, Marc, it's interesting. In 2023, we saw constant price pressures as customers attempted to reduce project costs. And yes, we did lose headcount as a result of that. However, we have also been able to increase our bill rates over the year, which reflects the quality of relationships we have and the quality of deliveries we have made. I expect the pricing pressure to continue in 2024, but the higher value services we are providing enable us to maintain or even increase bill rates.

Thank you very much. No, that’s exactly where I was going.

Thank you, Marc.

It appears we have no further questions at this time. I would like to turn the floor back over to you for closing comments.

Thank you, operator. If there are no further questions, I would like to thank you for joining our call today, and we look forward to sharing our first quarter 2024 results with you in early May. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.