Jennifer Lacey - Manager of Legal Affairs Vivek Gupta - CEO Jack Cronin - CFO

Greetings, and welcome to the Mastech's Digital Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Jenny Lacey, Manager of Legal Affairs Thank you, Ms. Lacey. You may now begin.

Thank you, operator and welcome to Mastech Digital’s fourth quarter 2016 conference call. If you have not yet received a copy of our earnings announcement, it can be obtained from our Web site 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 our 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 2015 annual report on Form 10-K filed with the Securities and Exchange Commission, and available on their Web site at www.sec.gov. Additionally, management has elected to provide 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 our 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 Web site 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 2016 results.

Thanks Jenny and good morning everyone. Revenues for the fourth quarter of 2016 totaled $32.4 million, and were essentially flat when compared to $32.5 million in the fourth quarter of 2015. Activity levels were solid and in line with the previous quarter. Historically, we experienced high assignment ends in the fourth quarter, which generally results in a material contraction in our billable consultant base. In Q4 2016, we had a contraction of just three consultants, which is a significant improvement over the 47 consultant declines experienced in the fourth quarter of 2015. This performance should bode well next well, first quarter of 2017. Gross profit for the fourth quarter 2016 totaled $6.4 million compared to $6.7 million in the same period last year. Our gross margins for the fourth quarter of 2016 were 19.7% of revenues and represented 90 basis point decrease compared to corresponding period of 2015. The year-over-year gross margin decline was largely due to two factors. One significantly higher client furloughs in the 2016 period compared to 2015. And these are situations where we pay our consultants their wage for hours not billable to the clients. And the second reason was higher benefit costs in 2016 compared to 2015. And this was due to less favorable medical claim experience associated with our self insured healthcare programs in 2016. And it's not that our 2016 healthcare experience was bad, it was that fourth quarter of 2016 was just very, very good. SG&A expenses were $5.3 million in the fourth quarter of 2016 and represented 16.3% of total revenues compared to $4.5 million or 13.8% of revenues in the fourth quarter of 2015. It should be noted that SG&A expenses in the 2015 period included $400,000 of one-time favorable adjustments related to variable and stock-based compensation expense. Additionally, we’ve…

Thank you, Jack. Good morning everyone. Let me supplement that narrative is comments about some of our most noteworthy accomplishments in 2016. After that, I would like to share with you my perspective on where I see Mastech Digital is headed in 2017. Our full year 2016 results validate a number of important improvements that we were able to make to the business during the year; first and foremost, COB growth. We grew our consultants on billing or COB by approximately 4% during the year. While I'm not overly delighted with the 4% growth, this does represent the first year of growing our consultant base since 2013. Action steps implemented during the year that influenced this return to growth included; A, the restructuring of our offshore recruitment organization, including the closure of an underperforming satellite center in Bangalore, India; B, investing and strengthening our management team, training programs and recruitment processes, which better aligns with our focus on digital technologies; and C, upgrading our sales force to resources who have experience in selling advance technologies and IT service beyond pure staffing. Second, after COB growth was margin and bill rate expansion. During 2016, we were able to materially expand our gross margin percentage and increase our average bill rates. In fact, both of these measurements are at their highest levels since 2008, and are attributable to; A, a shift in our revenue mix to more retail clients versus wholesale clients; and B, a more disciplined posture with respect to the pricing of our services; and C, our focus on digital technologies. And thirdly, investment for the future. During the year, we continued to invest in our business, which muted some of the positive impacts of the improvements to our bottom line results, but which were necessary for us to accelerate…

Okay, thank you. If there are no questions, I would like to thank you for joining our call today. And we look forward to sharing our first quarter 2017 results with you in late-April. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation.