Participants

Jenna Lacey; General Counsel and Manager of Legal Affairs; Mastech Digital Inc

Nirav Patel; President and Chief Executive Officer; Mastech Digital Inc

Jack Cronin; Chief Financial Officer; Mastech Digital Inc

Lisa Thompson; Analyst; Zacks Small Cap Research

Marc Riddick; Analyst; Sidoti & Company, LLC

Presentation

Operator

Greetings and welcome to the Mass Tech Digital Q4 2024 earnings call. (operator Instructions). 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.

Jenna Lacey

Thank you, operator.
And welcome to Mastech Digital's 4th quarter 2024 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 Nirav Patel, 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 statements. 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 on Form 10k filed with the Securities and Exchange Commission and available on its website at www.sec.gov.
Additionally, management has elected to provide certain non-gap financial measures to supplement our financial results presented on a GAAP basis. Specifically, we will provide non-gap net income and non-gap diluted earnings per share, which we believe will provide greater transparency with respect to the key metrics used by management in operating the business.
Reconciliations of these non-gap financial measures to their com comparable GAAP measures are included in our earnings announcement, which can be obtained from our website atwww.mastechdigital.com.
As a reminder, we will not be providing guidance during this call, nor will we provide any guidance in any subsequent one on one meetings or calls. I will now turn the call over to Nirav for his comments.

Nirav Patel

Thanks, Jenna, and good morning, everyone.
Today is my forty-fifth 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 mid-size 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 purely supply chain transformation company.
And before that I spent over 19 years at cognizant playing many executive roles, scaling multi-billion dollar businesses across its key industry segments and serving enterprise clients globally. It's been an incredible and busy 1st 45 days since stepping into my role at Mastech Digital.
I'm about halfway through my 1st 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 a 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 that 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 Open AI, Cloud, Llama, and Deep Sea 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 4th 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 3 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 a runway to refine our strategy, sharpen our execution, and create a growth story that is truly our own.

Jack Cronin

Thanks and good morning, everyone.
Our fourth quarter, 2024 financial results reflected the positive momentum that we experienced over the last nine months of 2024. Consolidated revenues during the fourth quarter totalled $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 totalled $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 global 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 totalled $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 analytic 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 or compared to Q4 2023 due to an increase in direct high revenues, a favourable 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 totalled $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-gap net income for Q424 was $2.8 million or $0.23 per diluted share compared to $1.3 million or $0.11 per diluted share in the 23 4th quarter.
SGNA expense items not included in non-gap financial measures, net of tax benefits are detailed in our 4th 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 24 totalled 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, and in our IT staffing services segment, our growth margin percent increased by 160 basis points.
GA diluted earnings per share in 2024 was a profit of $0.28 versus a loss of $0.61 in 2023.
Non-gap diluted earnings per share in 24 totalled a profit of $0.71 compared to a profit of $0.44 in 2023, an increase, an improvement of 61%.
At December 31, 2024, our liquidity and overall financial position remains 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 day sells outstanding measurement at December 31, 2024 totalled 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.

Question and Answer Session

Operator

(operator Instructions).
Lisa Thompson with Zacks's Investment Research.

Lisa Thompson

Good morning. .
So 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 you're thinking is how you're going to approach.
Increasing staffing and DNA, 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?

Nirav Patel

Sure, Lisa, thank you for the question, Nirav here, I'll take that one.
Look, I'm taking a very, structured approach, Lisa, to defining our long term strategy, and I sort of, I've just stepped into my role and my immediate priority is to deeply learn about our business and, engage with our teams, customers and partners. And to really have a chance to assess our starting point in terms of our challenges and opportunities. what I can say with confidence that, Mastech has a very strong foundation.
Our focus will be on accelerating growth, driving excellence and enhancing our offerings, but I am going to take a little bit of a structured approach in defining this strategy, and I look forward to be sharing more specific details. Sometime later half of this year as we refine our plans and execution roadmap.

Lisa Thompson

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.

Jack Cronin

You're clearly, government opportunities are something that that especially in DNA that we look at for sure.
So I guess the answer to your question is yes.

Lisa Thompson

Okay. Alright, could you, do you happen to have offhand how many employees you ended the year with?

Jack Cronin

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

Lisa Thompson

Okay, so that's a pretty big increase.

Jack Cronin

Yes not bad.

Lisa Thompson

Right, 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?

Jenna Lacey

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

Lisa Thompson

Well, either, but mostly SG&A.

Jack Cronin

Okay, SG&A. Yes, our objective in SG&A is to continue to maintain our SG&A expense.
As at the same percentage that we had in 2024 for 2025, so that's the objective, and you know it's going to be a little bit by quarter to quarter.
I would say that probably in the first half of 2025 we're going to probably not reach that goal because I think we are going to be hiring some of the missing pieces related to a new growth strategy. But by the end of the year, with what we believe would be increases in in revenue as well as maybe some, cost savings initiatives, we should come in at that objective.

Lisa Thompson

Okay. And just (inaudible).

Jack Cronin

Yeah, I know, from a cap at standpoint, we don't have a whole lot of capital expenditures. I mean, we're, maybe it's certainly under a million dollars, so, that will still hold.

Lisa Thompson

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

Jack Cronin

Well the 28% tax rate, it encompasses, like a 123 our 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 year and a half 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 $123 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.

Lisa Thompson

Okay, great. Thank you. That's all my questions right now.

Jack Cronin

Thanks.

Operator

(operator Instructions)
Marc Riddick, Sidoti & Company.
Hey good morning.

Jack Cronin

Morning.

Nirav Patel

Morning.

Marc Riddick

I wanted to touch a little bit on some of the commentary around the bookings during the quarter and maybe if you could spend maybe a little bit of time sort of giving us a picture on sort of how that progressed either whether it was whether by monthly or you know were there, changes in the in the demand Pre-post selection.
Was, were, did the bookings look different based on client verticals, anything that you can sort of share there as to maybe what you were seeing during the 4th quarter and then maybe any thoughts as to maybe how the how the how the year begun as far as client activity would be really helpful.

Jack Cronin

Sure, Marc, I'll take a stab at that.
You, when we looked at our pipeline at the beginning of Q4 and looking at our pipeline, we had a range of where we thought we would land in total bookings and The $11 million came short of that, and you know we had some project delays because there is a little bit in particular in DNA there's a little bit of uncertainty in the marketplace.
I mean we saw a few clients where we thought they were going to give us bookings in in Q4 and they delayed those and so there is, we clearly see some uncertainty in the marketplace, what's the driver of that uncertainty?
I mean, we can guess, is it a tick up in in in inflation? Is it, political concerns, unknowns, but whatever the reason, our clients seem to be, less eager to, give booking. Deals immediately. They seem to have a longer, cycle, sales cycle on that before they let up, they let a booking Transpire.

Marc Riddick

Okay, and is there, and I know this is a bit granular, but I was just sort of curious, is it, is there anywhere, in particular, whether it's certain types of clients or do you think that's sort of more of across the board kind of situation right now?

Jack Cronin

I would say across the board. I mean we had some bookings on, financial service clients we've had Q4 bookings on, healthcare clients, it's just that we didn't get the amount that we expected given the robust pipeline that we that we had.

Marc Riddick

Okay. And then one of the things I didn't, I did want to highlight it in your in the press release was around the extension of the share repurchase program which was initially scheduled to end earlier this month and then and has now been extended to February of 26.
I just wondered if you could share any thoughts there. I can understand that. But now you, you've been there for like 45 days. I can understand that you get to have some time to sort of work through some of the prioritizations, but I was just sort of wondering if you could share any thoughts on that, share or purchase extension there.

Jack Cronin

Yes, I mean, the board made that decision, right, and we had this program for 2 years prior and during those that 2 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.

Marc Riddick

Okay, 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 wonder if you could talk about any thoughts on potential acquisitions and maybe what 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.

Nirav Patel

Sure, Mark, this is Nirav here. I'll take that, first, so Marc, I think, look, like I said that, we are certainly in the phase where we are sort of starting to, think through our go-forward strategy and we're 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 you know in 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 strategy which kind of will include elements of organic and inorganic plays and so forth, but to me I think 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.

Jack Cronin

The only thing that I would say, Marc, is, M&A is part of our growth strategy for sure. It always has been.
It's just that when you're changing leadership, it's hard to decide exactly what you want to want to purchase. So I think, no, that's here. Yes Well I think once you get. No, go ahead.

Marc Riddick

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

Nirav Patel

Yeah, thank you, Mark. I know I'm equally excited and looking forward to working with you.

Operator

Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press one on your telephone keypad. One moment please while we repull for questions.
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.

Nirav Patel

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.

Operator

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