Greetings and welcome to the Mastech Digital Third Quarter 2024 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, Jenna Lacey, Manager of Legal Affairs for Mastech Digital. Thank you. You may begin.

Thank you, operator, and welcome to Mastech Digital's third quarter 2024 conference call. If you have not yet received a copy of our earnings announcement, it can be obtained from our website. 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 2023 annual report. Additionally, management has elected to provide certain non-GAAP financial measures to supplement our financial results presented on a GAAP basis. I will now turn the call over to Jack for a review of our third quarter 2024 results.

Thanks, Jen, and good morning, everyone. Our third quarter 2024 financial results reflected the positive momentum that we experienced during the first half of 2024. Factors that contributed to our strong Q3 2024 results included higher demand for our services in both of our business segments, record consolidated gross margins, effective SG&A cost containment efforts, a strong debt-free balance sheet, and an improved economic outlook around inflation and job growth. With that backdrop, let me address the specifics of our third quarter 2024 financial results. Revenues for Q3 2024 totaled $51.8 million, compared to $47.8 million in the 2023 third quarter. This revenue performance represented year-over-year growth of 8% and on a sequential quarterly basis an increase of 5% over the second quarter of 2024. Our Data and Analytics Services segment reported revenues of $9.4 million in Q3 2024, compared to $8 million in the 2023 third quarter, a 17% year-over-year increase. On a sequential quarterly basis, revenues were 6% higher than the $8.9 million that we reported in the second quarter of 2024. Third quarter of 2024 revenues in our IT Staffing Services segment totaled $42.4 million, achieving year-over-year growth of 7% and growth of 4% when compared to the previous quarter. Consolidated gross profit dollars totaled $14.8 million in Q3 2024, which exceeded the corresponding quarter of 2023 by $2.2 million, an 18% improvement. Gross profit as a percent of revenue in Q3 2024 was a company record 28.5%, exceeding our previous record established last quarter. In our Data and Analytics Services segment, gross margins increased to 50.7%, which was significantly higher than the corresponding quarter of 2023. In our IT Staffing Services segment, Q3 2024 margins equaled a company record of 23.6%, a record that was achieved last quarter as well. GAAP net income for the third quarter of 2024 was $1.9 million or $0.16 per diluted share compared to $125,000 or $0.01 per diluted share in Q3 2023. Non-GAAP net income for the third quarter of 2024 was $2.8 million or $0.23 per diluted share compared to $1.3 million or $0.11 per diluted share in Q3 2023. Addressing our financial position, on September 30, 2024, we had $23.9 million in cash on hand, no outstanding bank debt, and borrowing availability of approximately $25 million under our revolving credit facility. Our days sales outstanding measurement was 55 days at quarter end, which is soundly favorable to our targeted range of 60 to 65 days. 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 Q3 2024. Let me start by telling you how happy I am with the performance of Mastech Digital and both of its business segments in the third quarter of 2024. It is a testament to the tireless efforts put in by every member of the Mastech family to achieve this level of performance. Sure, the macroeconomic headwinds we experienced in 2023 have subsided somewhat, with market participants showing more confidence about the future. We believe the operational improvements the company made in 2024 have played a key role in our overall performance. Drilling down into our Data and Analytics Services segment, both revenues and gross margin increased on a sequential basis over the last several quarters, and activity levels have risen over the last 12 months. In Q3 2024, the year-over-year revenue growth of 17% and gross margin increase of 490 basis points from the corresponding quarter of 2023 are indeed impressive. Today, our sales and delivery teams are structured to function as one seamless cohesive organization, from introducing our services to clients to crafting effective, state-of-the-art solutions for the needs of clients, and finally delivering on our commitments to clients. In our IT Staffing Services segment, we continue to grow our billable consultant headcount for the third consecutive quarter, achieving a 13% year-to-date increase over our billable headcount on December 31, 2023. Additionally, we increased our gross margin during the first nine months of 2024 by 100 basis points over the corresponding quarter of 2023. Furthermore, in Q3, our revenues increased year-over-year by 7%, we grew our billable consultant headcount by 4%, our average bill rate was higher than in 2023 by approximately 2%, and gross margin stood at a company record high of 23.6%. Our revenue growth rate is currently in line to exceed the industry growth rate published by Staffing Industry Analysts of negative 7% for 2024. Operationally, both our sales and recruitment organizations have generated productivity gains in 2024 compared to 2023. Overall, during Q3 2024, we continued to closely manage our SG&A expenses, which as a percentage of revenues decreased to 23.8% compared to 26.4% in Q3 of 2023 and were well below the 24.8% reported in the last quarter of 2024. In closing, I would like to mention the strength of our financial position. We believe our balance sheet has improved during the third quarter of 2024 as cash balances increased by $3.3 million to $23.9 million. We continue to operate our businesses debt-free, our borrowing availability under our credit facility is roughly $25 million, and our largest asset, accounts receivables, is strong. We believe our balance sheet and access to financial resources give us the flexibility to capitalize on M&A opportunities in the future, which in our view continues to be a key component of our growth strategy. In summary, I’m quite bullish about the future of Mastech Digital. Operator, this concludes our prepared remarks. 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 Lisa Thompson with Zacks Investment Research. Please proceed with your question.

Good morning and welcome back to revenue growth. Very exciting.

Thank you, Lisa.

Okay. I have a couple of questions. One is, I noticed that you pointed out your free cash flow in the press release. Is that a measurement that you track?

We track it, but it’s not a key measurement like some of the capital-intensive industries use, which is a very key measurement for that type of industry. We track it, and the reason we mentioned it in the press release is because in our cash flow statement that’s going to be in our third quarter 10-Q, our operating cash flows look like they had a major decline in the nine months of 2024 versus the nine months of 2023. What’s distorting that is working capital. In 2024, we’re growing our business and we’re investing in working capital. In 2023, we were de-growing our business, and we generated cash by unwinding working capital. The delta on that is about $9 million. It’s a big number, so that’s why we put it in this quarter. But we do measure it.

Okay. That makes sense. And I can’t help but notice that you have about $2 a share in cash now and no debt. Is ROI something you track? How do you look at that?

We do track return on equity. The methodology that we use is we make a calculation every quarter, annualizing net income and dividing it by shareholders' equity. For Q3, it’s 13%. It’s not knocking the ball out of the park, but the one thing to remember is that we have no financial leverage. If there were an acquisition that was accretive and made sense for the company, financing it with debt and cash on the balance sheet would likely raise our return on equity significantly, potentially nearing 20%. So we’re cognizant of the return on equity. We just don’t publish it to the outside world.

Okay. Great. And I guess just one question about what to think about going forward. You’ve obviously gotten some better bookings and things are starting to grow again. And I know the fourth quarter is typically kind of flat sequentially because of the holidays. What are you thinking about? Do bookings push that to growth sequentially or is that not something to consider right now?

Lisa, it’s hard to give a precise answer. As you know, we don’t give guidance, but there are a couple of things to keep in mind. Q4 tends to have fewer working days due to holidays, and it tends to be a quarter with some forced furloughs by staffing customers. So those factors may balance out, but predicting the exact outlook for the quarter at this point is challenging.

Okay, I guess. And my last question, just due to the timing of your earnings call, now that we're past the election, do you think that customers will be making decisions that they've been putting off, or is that not a factor in their thinking?

No, actually that's a conversation we've been having the last few weeks. Businesses dislike uncertainty, and we've been noticing that in the last few weeks, customers were waiting for the next big decision. Now that the election is behind us, I think the macroeconomic environment will only improve, and I've also been hearing from other CEOs in our industry that we should get some tailwinds, and the industry overall should start picking up some speed.

Great. Thank you so much. That's all my questions.

Thank you, Lisa.

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

Hey, good morning.

Hey, Marc.

So I wanted to start with a couple of things. Maybe if we could start with where do we end up as far as consultant, I'm sorry, for the consultant count for the end of the quarter?

The overall consultant headcount, we added 38 in the quarter. So, Jack, do you have the final end of quarter number for the staffing side?

For the staffing side, the billable consultant headcount was 1,071.

Okay, great. And then can you – so where do we end up as far as bill rate?

The bill rate for staffing was $82.80. The comparable quarter last year was a little less than $81, so it's improving slightly.

Okay. And then certainly, it's positive to see the signs of client activity picking up. Is there any trends that you could share as to the types of projects that are being prioritized and maybe industry verticals that are leading the way?

Actually, let me touch on your second one first. There isn’t any one industry or a couple of industries that are outperforming others. We've acquired various new customers in Q3 that are in retail, healthcare, music publishing, and manufacturing. The work we are doing on the data analytics side is increasingly focused on intelligent data foundations and GenAI, which are new and exciting ventures. Our service portfolio has sharpened in 2024 and resonates well with customers. Our sales and marketing teams have done an excellent job articulating our offerings and projects, which are indeed interesting and exciting in the realm of data analytics and beyond.

Okay, great. And then I guess, maybe the last one for me, I was sort of thinking about as we – I'm not sure if there was any particular catalyst, but maybe you could talk a little bit about the cadence through the quarter. Certainly, again, the numbers were very positive. I was sort of curious as to what that monthly cadence looked like.

The growth was fairly steady in Q3. It wasn't front-loaded or back-loaded; it spread fairly evenly over the three months in both businesses.

Right. That’s very encouraging. Thank you very much.

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 fourth quarter 2024 results with you in early February. Thank you all.

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.