Greetings and welcome to the Mastech Digital Q4 2024 Earnings Call. 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, Ms. Lacey, you may begin.

Thank you, and welcome to Mastech Digital's Fourth Quarter 2024 Conference Call. If you haven't received a copy of our earnings announcement, it is available on our website at www.mastechdigital.com. Joining me today are Nirav Patel, our Chief Executive Officer, and Jack Cronin, our Chief Financial Officer. I want to remind everyone that the statements made during this call that are not historical facts are forward-looking. These include our financial growth and liquidity projections, as well as our plans, strategies, intentions, and beliefs about the business, cash flows, costs, and the markets in which we operate. Terms like believes, anticipates, plans, and expects are meant to indicate forward-looking statements. These statements are based on currently available information, and we do not take any responsibility to update them as circumstances evolve. There are risks and uncertainties that could cause actual events to differ materially from these forward-looking statements, including those outlined in our 2023 annual report on Form 10-K, which is filed with the Securities and Exchange Commission and is available at www.sec.gov. Furthermore, management has chosen to provide certain non-GAAP financial measures to enhance our financial results presented on a GAAP basis. Specifically, we will discuss non-GAAP net income and non-GAAP diluted earnings per share, which we believe will offer better clarity regarding the key metrics used by management in running the business. Reconciliations of these non-GAAP financial measures to their corresponding GAAP measures can be found in our earnings announcement on our website at www.mastechdigital.com. Please note that we will not be giving guidance during this call or in any follow-up meetings or calls. I will now hand the call over to Nirav for his comments.

Thanks, Jenna, and good morning, everyone. Today is my 45th day with Mastech Digital, and it's a privilege to address you today as Mastech Digital's Chief Executive Officer. Let me start by giving you a bit of my background and experience. I have well over 25 years of experience as a technology executive with a track record of scaling large and midsized organizations. I have held several prominent leadership roles throughout my career. Prior to joining Mastech Digital, I served for over 4 years as President and CEO of Bristlecone, an AI-powered pure-play supply chain transformation company. And before that, I spent over 19 years at Cognizant, playing many executive roles, scaling multibillion-dollar businesses across its key industry segments and servicing enterprise clients globally. It's been an incredible and busy first 45 days since stepping into my role at Mastech Digital. I'm about halfway through my first 100 days. And in addition to focusing on the execution of our plans, I have spent a considerable amount of time listening to our customers, partners, employees, and investors. It is important for me to hear their perspectives and understand the expectations they have of us for the future. What is clear to me is that we have a strong foundation and culture that is deeply rooted in customer focus. But what's also clear to me is that we are at an inflection point, both in terms of speed of change brought by the AI revolution across our enterprise customers and the changing landscape of technology service providers in this rapidly evolving AI-first world. I believe that winning in the future will require organizations like ours to have a sharper execution focus and the founder's mindset for unlocking growth. We cannot ignore the evolving landscape shaping our industry. We are seeing the uncertainties created from a changing macro environment leading to greater caution and slower decision-making. Companies are carefully assessing interest rates, liquidity, and market conditions to ensure their technology investments are both strategic and sustainable. That being said, I have no doubt that the AI revolution is real. Across industries, AI, automation, and data-driven decision-making are no longer just concepts. They are being actively embraced and internalized. Organizations are moving beyond exploration, building proof of concepts, integrating AI into core processes and in many cases, rapidly scaling these capabilities to drive competitive advantage. While the path forward may not be linear, the appetite for AI-driven solutions remains strong. Emerging AI models like OpenAI, Cloud, Lama, and DeepSeek are reinforcing the fact that AI is reshaping how enterprises work, optimize, and innovate. While Jack will provide a detailed update, I wanted to share a few thoughts on our performance in the fourth quarter of 2024. We have made meaningful progress delivering revenue and margin growth with data and analytics seeing particularly strong acceleration. This performance reinforces our conviction that AI-driven digital modernization is the next frontier and that we are well-positioned to capture this momentum. I sum up the fourth quarter in two words: execution and transition. We believe that 2025 will be the year we begin our transformation, one that helps enterprises reimagine themselves and transition into AI-first organizations. This is just the beginning of that journey. Looking ahead, we believe our long-term success will be driven by three principles that define who we are and where we are going. First, we believe we must lead with a sense of urgency. The window to establish ourselves as a leading technology provider that helps enterprises reimagine and transform into AI enterprises will not stay open forever. In this space, speed is not just an advantage; it is the difference between leading and lagging. Second, we believe we must build a compelling and relevant portfolio of offerings. Differentiation will be key. We are not just creating innovative solutions, but solutions that are essential to how businesses operate in the AI era. We believe our data modernization and staffing solutions must work together to drive deeper client engagement. It's not enough to participate. We believe we must integrate our strengths into a seamless high-value offering that sets us apart. Third, we believe we must execute with discipline. Growth is only meaningful when it is sustainable and profitable. We intend to drive efficiency across the organization, operate with accountability, and ensure that every investment we make and every position we take creates lasting value for our customers, employees, and shareholders. I recognize that building confidence in the leadership takes time and that it must be earned through clear execution and transparency. My commitment to you is simple. I plan to be direct about where we are, clear about where we need to go, and decisive about how we get there. Mastech Digital is not starting from scratch. We believe we have the right foundation, the right talent, and the right market opportunity. What we need is the runway to refine our strategy, sharpen our execution, and create a growth story that is truly our own. Thank you for your time and trust. I will now hand it over to Jack.

Thanks, Nirav, and good morning, everyone. Our fourth quarter 2024 financial results reflected the positive momentum that we experienced over the last 9 months of 2024. Consolidated revenues during the fourth quarter totaled $50.7 million, a year-over-year increase of 10.2% compared to the corresponding quarter of 2023. Our Data and Analytics Services segment reported revenues of $10.3 million in Q4 2024, which were 26.2% higher on a year-over-year basis and 9.4% sequentially higher than our revenue performance in the previous quarter. Order bookings in Q4 2024 totaled $11 million, which was somewhat below our expectations. In the fourth quarter of 2024, our IT Staffing Services segment had revenues of $40.5 million, achieving year-over-year revenue growth of 6.8%. During the quarter, our billable consultant base declined by 63 consultants, which is generally in line with previous years due to seasonal high assignment ends. As expected, this will have some impact on our Q1 2025 revenue results. Consolidated gross profit dollars totaled $14.7 million in Q4, which exceeded the corresponding quarter of 2023 by $3.4 million or a 30% increase, driven by higher revenue volumes as well as increasing gross margin percent. Our Q4 2024 gross margin percent was a company record 29% as both of our business segments had significant margin expansion from the previous year. In our Data and Analytics Services segment, gross margins as a percent of revenue increased by 480 basis points to 49.5% in Q4 2024 compared to 44.7% in the fourth quarter of 2023. This increase reflected higher utilization and better project delivery. In our IT Staffing Services segment, gross margins were up 350 basis points in Q4 compared to Q4 2023 due to an increase in direct hire revenues, a favorable medical claim experience in our self-insured health care program, and higher margins on new assignments. GAAP net income for the fourth quarter of 2024 totaled $0.3 million or $0.02 per diluted share compared to a net loss of $5.4 million or a negative $0.46 per share in Q4 of 2023. Non-GAAP net income for Q4 of 2024 was $2.8 million or $0.23 per diluted share compared to $1.3 million or $0.11 per diluted share in the fourth quarter of 2023. SG&A expense items not included in non-GAAP financial measures, net of tax benefits are detailed in our fourth quarter earnings release for all periods presented and are available on our website. Highlights of our full year 2024 results included the following: 2024 revenues were $198.9 million, which was largely in line with our full year 2023 revenues. Gross margins in 2024 totaled 27.9% compared to 25.4% in 2023. Our Data and Analytics Services gross margin percent increased by 560 basis points on a year-over-year basis. In our IT Staffing Services segment, our gross margin percent increased by 160 basis points. GAAP diluted earnings per share in 2024 was a profit of $0.28 versus a loss of $0.61 in 2023. Non-GAAP diluted earnings per share in 2024 totaled a profit of $0.71 compared to a profit of $0.44 in 2023, an improvement of 61%. At December 31, 2024, our liquidity and overall financial position remain solid. Today, we have no bank debt outstanding. We have $27.7 million of cash balances on hand. We have cash availability of $22.6 million under our revolving credit facility and our days sales outstanding measurement at December 31, 2024, totaled 52 days, which was well within our targeted range. Devin, that completes our prepared comments. We'd like to open it up for questions now.

Our first question comes from the line of Lisa Thompson with Zacks Investment Research.

We're all looking forward to an exciting 2025. I know there's a lot of possibilities out there. Could you talk a little bit about what your thinking is of how you're going to approach increasing staffing and D&A? Is there going to be any strategy changes besides the obvious of trying to incorporate AI into your whole service offerings? How is that going to work?

Sure, Lisa. Thank you for the question. This is Nirav. I’ll address that. I am taking a very structured approach to defining our long-term strategy. I’ve recently stepped into my role, and my immediate focus is to learn about our business and engage with our teams, customers, and partners to assess our starting point in terms of challenges and opportunities. I can confidently say that Mastech has a strong foundation. Our focus will be on accelerating growth, driving excellence, and enhancing our offerings. I will maintain a structured approach in defining this strategy, and I look forward to sharing more specific details in the latter half of this year as we refine our plans and execution road map.

Okay. I'm also curious that there's a lot of talk about government efficiency now. Do you see any opportunities in there? If there ever is an entity that needs data modernization, I think that would be the one.

Clearly, government opportunities are something we are definitely considering, especially in Data and Analytics. So, to answer your question, yes.

Okay. All right. Could you do happen to have offhand how many employees you ended the year with?

Yes, I do. We ended the year with total employees of both segments 1,816. And just as a point of reference, last year, we ended the year 2023 with 1,648.

Okay. So that's a pretty big increase.

Yes, not bad.

All right. Yes, yes. And do you have any thoughts about spending this year? Is it going to be pretty much steady? Or is there any investment you need to do?

Spending like on SG&A cost or spending on CapEx?

Well, either, but mostly SG&A.

Our goal for SG&A is to keep our expenses at the same percentage as in 2024 for 2025. This will vary by quarter. We may not meet this goal in the first half of 2025 as we plan to hire some key roles to support a new growth strategy. However, by the end of the year, we expect revenue increases and potential cost-saving initiatives to help us achieve our objective. Regarding capital expenditures, we anticipate minimal spending, likely under $1 million.

Okay. And you're still thinking 28% tax rate?

Well, the 28% tax rate encompasses like a 123R expense true-up based on the gains that our employees enjoy from exercising their shares versus the company expense related to those shares. So in the last year – well, let’s say, the last 1.5 years, our true-up was negative, which negatively impacts the tax rate. That’s why we were 28%. In the fourth quarter, our stock price was a little bit higher and a lot of the exercises came in at gains that were greater than the 123R expense, the compensation expense. And actually, our tax rate was actually lower than 25%. So a lot of that depends on some of these unusual true-ups that we have to make from a tax perspective.

Our next question comes from the line of Marc Riddick with Sidoti & Company.

I wanted to discuss some of the commentary regarding the bookings during the quarter. Could you provide an overview of how that progressed, such as whether it was by month or if there were any changes in demand before and after the election? Did the bookings vary across different client verticals? Any insights you can share about what you observed during the fourth quarter would be appreciated. Additionally, any thoughts on how the year has started in terms of client activity would be very helpful.

Sure, Marc. I'll address that. At the start of Q4, we assessed our pipeline and had expectations for our total bookings, but the $11 million fell short. We experienced some project delays, particularly in D&A, due to uncertainty in the marketplace. We anticipated bookings from a few clients in Q4, but those were postponed. There is evident uncertainty in the market. The cause of this uncertainty could be attributed to various factors such as rising inflation or political concerns. Regardless of the reasons, our clients appear to be less inclined to finalize booking deals quickly and seem to have extended sales cycles before completing any bookings.

Okay. I'm curious if there are specific types of clients involved, or if this situation is more widespread across the board right now.

I would say across the board. I would say across the board. I mean we have some bookings on financial service clients. We've had Q4 bookings on health care clients. It's just that we didn't get the amount that we expected given the robust pipeline that we had.

I wanted to point out the extension of the share repurchase program, which was originally set to conclude earlier this month but has now been extended to February 2026. Could you share your thoughts on this? I know you’ve only been in the role for about 45 days and need time to assess priorities, but I’m curious about your perspective on the share repurchase extension.

Yes. I mean the Board made that decision, right? And we had this program for two years prior. And during that two-year period, we experienced a number of extended blackout periods where we weren't able to repurchase our shares. They were like corporate-related transactions and events. We think most of that is behind us, and we have 423,000 shares remaining in the share buyback program, we would like to capitalize on some of those. So I do think that you're going to see less blackout periods and more buyout volume in 2025 compared to last year.

Great. And then the last thing for me as far as potential uses of cash, obviously, a very strong balance sheet to work with at the moment. I was wondering if you could talk about any thoughts on potential acquisitions and maybe what that pipeline may look like now, whether valuations have changed in the last few months or we've seen a few small deals in the space, but maybe sort of comment on maybe what you're seeing out there.

Sure, Marc. This is Nirav here. I'll take that first. So Marc, I think, look, like I said, we are certainly in the phase where we are sort of starting to think through our go-forward strategy, and we are sort of trying to really get a little bit more clarity on that. And I think, like I said earlier, right, I just stepped in on my role. And in terms of my go-forward strategy, my immediate priority is really to listen and learn. And I think I am taking a fairly structured approach of thinking through our long-term approach strategy, which kind of will include elements of organic and inorganic plays and so forth. But to me, I think we're getting the direction for the company in terms of where we are headed lays an important emphasis before we would sort of activate or execute on any of those transactions. But please feel free to chime in, Jack, if you want to share your thoughts.

The only thing I would add, Marc, is that mergers and acquisitions are indeed part of our growth strategy. This has always been the case. However, when leadership is changing, it can be challenging to determine what exactly we want to acquire. I believe that once we've settled in for a year, we will be in a better position to make those decisions. Go ahead, Marc?

No, I was just going to say we're certainly looking forward to working with you going forward and looking forward to your vision for the company going forward. And that's about it for me today.

Thank you, Marc. I’m equally excited and looking forward to working with you.

There appear to be no further questions at this time. I'd like to turn the floor back over to Mr. Patel for closing remarks.

Thank you, Devin. If there are no additional questions, I thank you for your time, and I look forward to talking with you in early May for our Q1 2025 earnings call.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.