Jennifer Ford Lacey – Manager, Legal Affairs Jack Cronin – CFO Kevin Horner – President and CEO

Howard Rosencrans – Value Advisory Brian Warner – Performance Capital Dave Polonitza – AB Value Management

Thank you, operator, and welcome to Mastech’s third quarter 2014 conference call. If you have not yet received a copy of our earnings announcement it can be obtained from our website at www.Mastech.com.

With me on the call today are Kevin Horner, Mastech’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 2013 Annual Report on Form 10-K, filed with the Securities and Exchange Commission available on their website at www.sec.gov.

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 third quarter 2014 results.

Thanks Jen and good morning everyone. Revenues for the third quarter of 2014 totaled $28.6 million, which represented a 4% sequential increase from second quarter 2014 revenues and were modestly higher than the corresponding 2013 period.

While activity levels were in-line with second quarter 2014 our new assignment win rates improved from last quarter and we were able to achieve a 4% increase in our global consultant base during the quarter. For the first nine months of 2014 our revenue growth on a year-over-year basis approximated 8% which is in-line with industry average growth as reported by staffing industry analysts but below our previously stated objectives of growing revenues at 1.5 times the industry’s growth rates.

The previously disclosed early project termination of a sizeable integrator assignment in the second quarter of 2014 had an adverse impact on our growth performance for the first nine months. Gross profits for third quarter of 2014 totaled $5.2 million or 18.3% of revenues compared to $5.3 million or 18.9% of revenues during the same period last year.

Our gross profit dollar performance was slightly lower than the corresponding quarter of 2013 and reflected a 60 basis points decline in our gross margin percentage. This margin compression was due to a combination of lower margins on new assignments in our wholesale channel and increases in consultant compensation on existing projects during the last several quarters that have outpaced the rate increases.

SG&A expenses were $3.8 million in the third quarter of 2014 compared to $3.7 million in the third quarter, a year earlier. SG&A expenses represented 13.2% of total revenues in the third quarter of 2014 compared to 12.9% of revenues in the corresponding quarter of 2013.

Net income from continuing operations for the third quarter of 2014 was $879,000 or $0.20 per diluted share which was in line with last quarter’s performance and compared to $999,000 or $0.23 per diluted share in the third quarter of 2013. Addressing our financial position at September 30, 2014 we had no outstanding debt, cash balances on hand of $2.5 million and approximately $17.4 million of borrowing capacity under our existing credit facility.

Our day sales outstanding measurement at September 30, 2014 was 51 days and our accounts receivable balance aged in excess of 90 days were less than 1% of our total outstanding balance. Thus we view our receivable position as a very healthy one.

Lastly I would like to mention that during the third quarter of 2014 we purchased approximately 32,000 shares of Mastech stock at an average price of $12.14. I will now turn the call over to Kevin for his comments.

Thank you, Jack and good morning. Our third quarter performance was akin to the glass half full or glass half empty debate.

While looking purely at our year-over-year comparisons one could have an argument that the glass is half empty. However when I look through the year-over-year third quarter comparables I see a third quarter recovery and I see third quarter performance which was both strong and necessary for the business.

Let me explain my rationale for calling out both strong and necessary. Number one we quickly got our new assignment win rate back on track after a disappointing performance in the second quarter of 2014.

This enabled us to essentially recover all of the billable consultants we lost in the early project termination in Q2. As Jack already has mentioned this recovery amounts to a 4% sequential increase in our billable consultant base and also contributed to the 4% sequential growth in top-line revenue during the quarter.

I would like to take a moment and thank the organization for a job well done in driving this recovery in consultant base in the third quarter. Number two we aggressively ramped up our recruitment organization during the quarter to better service the demand side of our business.

As many of you understand normal recruiter productivity generally occurs 60 to 90 days after hire. We have conservative performance expectations for this investment in Q4 of 2014 and we feel that we will be in a very good position to hit the ground running as we enter 2015.

Additionally we expanded our sales team during the quarter in an effort to improve our performance in both new business development and existing client penetration. As I have mentioned on previous calls the new business development initiative is yielding results that are below my expectations.

Therefore we have implemented a slight modification in our strategy to include further penetration in existing accounts in addition to developing new clients for new sales associates. We believe that the combination of new client development and current client penetration will enable our new sales associates to improve their success rates and to drive additional revenues faster.

As you might expect ramping recruiting and sales impacted our cost structure and our bottom line results in the third quarter. We expect results from these investments in Q4 and more notably in 2015.

Number three, gross margins continue to be a work in progress. I can tell you that our margins on new assignments seem to have strengthened in September and into October which is a very positive condition.

However we are yet to crack the code at getting bill rate increases from our clients on existing projects that keep pace with compensation increases for our consultants. We continue to promote to our clients the need for a collaborative approach in addressing consultant compensation.

Additionally we have recently adopted an internal practice where all consultant compensation increases which do not have a corresponding bill rate increase require formal approval from either me or Jack prior to the effective date. Well I am not going to suggest this is a silver bullet solution to a challenging issue I can tell you I am 100% certain that this new level of attention will reinforce to our organization that we must link our pay side decisions to client side decisions on bill rate increases.

Number four, during the quarter we started to execute on our stated objective of building niche technology focused practices that are opportunistic for staffing businesses. To this end we hired a senior technologist, Denis Deet, who will drive this initiative and who’ll also have oversight responsibility for our internal systems environment.

Number five, the last comment I would like to make dovetails into our purchases of Mastech stock during the quarter. As Jack mentioned we’ve purchased roughly 32,000 shares of our common stock in Q3.

As many of you know our Board has a multi-year history of using corporate finance transactions to create value for our shareholders. Going forward we intend to continue to evaluate all opportunities to use our capital for value creation.

At this time I would like to open it up for your questions.

Hi Kevin, hi Jack.

Hey, Howard.

Moving in the right direction.

Thank you.

Just wanted to get a little – I just wanted to get better understanding of the progression on the CLB, the consultants ongoing, how it went, if we can go back like six months and I just, I mean you had – you ended March strong and then I guess some point, was it in April you had a big fall off with the contract cancellation. So where we have gone on the CLB over the past five, six months and how much of that ascension is seasonality?

Because I know you made the comparison Q3 versus Q2, I believe we are up 4%, so I just want to understand how much of that ascension is normal seasonality over the course of the year and how much is really a pick-up in your contract wins?

Yes I think Jack, I will take whatever help you want to offer on this one as well. So Howard we look at the third quarter as a recovery and that’s our theme for Q3 as we recovered essentially all of the consultants that we lost in that early project termination.

And…

And you lost about 30, Kevin is that what it was, I am trying to remember?

Yes it was between 30 and 35 and we’ve recovered essentially all of that in the quarter. I think it was 30 altogether Jack, I think that number is correct.

Yes so we’ve recovered that in the quarter.

Would there normally be a seasonality that – would you have normal seasonality where there is increased – where the CLB would continue to go up the end of Q2 and the end of Q3 so this would more be normal seasonality than anything different or…?

I wouldn’t call it seasonality. I don’t see that.

I think it was a lot of hard work and lot of hard slog and with our team and our client base to actually win business and that I don’t see it the seasonality at all.

What was the CLB year-to-year at the end of the third quarter?

It was probably up by 35 consultants, from third quarter of ‘13 to third quarter of ‘14.

You have 35 more consultants at the end of September this year than the end of last year?

Yes that’s correct. Again we were growing and then we had the hit in Q2 and we’re heading back up again.

Okay. And that’s out of a base of 700 something I believe?

That’s correct.

Okay. You referenced the price pressure or maybe it’s a mix issue but when you have the wholesale mix you make up for it on the lower SG&A so it all works out or when you are doing wholesale business is it impacting your margins overall?

Well out SG&A model functions for both the wholesale and retail side of our business right so the majority of our recruiters, 95% plus of our recruiters are actually located as you well know offshore in one of two offshore centers and that allows us to drive a significantly lower SG&A cost. So I am not certain I am answering your question though.

I was contrasting wholesale business with retail business, when you get wholesale orders contrasting with a retailer, I think you commented that one of the reasons your gross margin were down to 60 bps year-to-year one wage pressure and the other I think you indicated was the mix being more wholesale, but I thought if the mix was more wholesale maybe you had lower SG&A or maybe I am just mistaken about that.

It’s not the mix it is just within that channel. Our margins have declined a bit as of late and that’s something that that we are working on.

Yeah, I think both of us have said the marketplace right now from a jobs perspective continues to grow. So IT jobs nationally continue to grow, supply is extremely tight.

So we have actually had to – we have had some pricing pressure from the perspective of actually making compensation increases for our consultant base to keep up with the market and we are still working hard with our client base because in some respect our clients haven’t yet recognized and particularly our wholesale clients haven’t recognized that the tightness in the market and the necessity the compensation increases and those are – as you can well guess Howard, those are really tough discussion. We are having them every day and we instituted in a new process that says absent a bill rate increase there will not be comp increases that don’t get my signature or Jack’s.

Because we just [inaudible].

Yeah I want the organization to get focused on the fact that we need to sell the fact and it’s the sales activity right we need to sale the fact that the market is tighter and we are going to need bill rate increases.

Hi, guys, I have two question, you actually answered most of my first one which kind of relates to the squeeze between sort of finding talented employees and the fact that the large corporation don’t want to pay price increases. I guess the only thing I would add on that in terms of I know you are looking to hold the line on wages because it’s very difficult to get any rate.

Are you seeing pick-up in employee turnover, or are people still sticking it out, I mean wondering what your competitors are calling up your guys and saying [inaudible] or that’s kind of not really been a big factor at this point?

I will answer that in a couple of different ways Brian. We definitely see on at sale time right when we have gotten a potential candidate to nod his or her head, yes I’d like this job and we get the corresponding clients to nod his or her head, yes we’d like that candidate, that time lag that happens between those heads all nodding in the same direction until you can get that person started, there is a massive pressure inside of that time lag, that candidate has got one or two or three or more job offers in that time lag and we are constantly going back and renegotiating deals after they have been done.

So it takes two weeks to get through this standard background check process and so on and so forth that all of our clients run. That two week period is a really tough pressure.

We see pressure in there at a much higher rate than we have seen in 2012 or 2013, that’s number one. Number two, yes, I am not sure our consultants call us every time they get a call with a potential offer for money that might be better than what they are making in their current assignment.

So I can’t estimate how many times that’s happening today versus what was it like six months ago. My sense is that’s happening in the market quite a bit more today, just by the nature of the tightness of the marketplace.

So I think there is definitely pressure on the front end and we can see that pressure. I think there is also pressure in the field and while people are on assignment and frankly that’s part of the reason why if you have been working with us on an assignment you have been here for a year, we are actually doing pay increases for folks, yeah, so hopefully that’s answering your question, Brian but we are getting pressure.

That is I appreciate. I have one last quick question, can you give us any color on the buyback, I think you have authorized half of million shares and you announced sort of, as of, I think end of June, you bought maybe 30,000 or 35,000 shares.

Have been in the market subsequently?

We were in the market in the third quarter. As you know the trading window for us opened basically the Monday after our July earnings call and stayed opened until Jack I think it was September 4 through September 5.

Yes.

And we were in the market those five weeks and purchased 32,000 at an average price of over $12.

Okay, terrific, thanks. That’s all I have, I appreciate it.

Good luck with everything.

Thanks.

Hi, guys, good morning. Just a few questions here.

Can you quantify what you did to expand the sales and recruiting for restoring the quarter? What actually took place?

Dave, I am not sure I understood the question. Can you try that again for me?

Sure. You mentioned in the press release you are getting aggressive with – in the quarter, you had some expenses on the SG&A line.

Yes.

Yes. So what actually are you guys doing?

Okay. So let me start on the recruiting side.

We – the Vegas expression would be we are doubling down. We grew our consultant base so our quote carrying consultant base, those are the people we expect productivity from right, they are not in training or whatever those are people that are actively working reps and working candidates.

Our consultant population from July 1 to September 30 increased 20%. So we added 20% to our recruiting base, right.

We added as well on the sales side both the sale side in our organization in India that phases off in that wholesale channel. So we added sales reps there and we also added sales reps in our U.S.

sales organization. So in total probably a 10% increase in sales just kind of doing the quick math in my head.

Is that what you asked?

Yeah, that was I was looking for and then just kind of commenting of course more than a little bit or some actions that you guys took to – lessons learned from the second quarter and also measures to prevent activities like that from happening and also looking forward you’re pretty open about saying Mastech can grow at 1.5 times revenue – the industry obviously with the second quarter you can do that for 2014. So is that still attainable and is Mastech’s competitive advantage still on track?

Yeah so let me say we were – the organization worked like crazy into the third quarter to recover the blip we had in the second quarter and we felt very, very good with being able to look at a 4% sequential growth in consultant heads. As you guys well know that’s probably the single biggest predictor of future success in the business is growing consultants on billing.

And you said it very well Dave that we had problem in the second quarter where we lost a huge project and we did two things, we lost a huge project and our assignment wins weren’t performing at the same rate that our assignment wins had historically performed at. So two lessons learned, number one, when we do get really large scale projects with large scale clients, I personally have internalized that I have to get personally linked to the project and to the project manager because we were totally blind sided on that and I own it.

It’s mine and I feel absolutely accountable from the perspective of I wasn’t tightly linked to the program manager on my client and to really understand what was going on between them and their end client right. So lesson learned, any larger scale project will create those relationships immediately and I’ll own that.

And between Scott and I generally we’ll make sure that we’re in the middle of those kind of projects every month, right and frankly speaking guys we weren’t, we weren’t between loading those projects up in the fourth quarter and getting all the resources ramped in and at the end we just didn’t do it in either of the fourth quarter or the first quarter and it cost us so that’s my single biggest personal lesson learned. Secondly, the 4% sequential growth pretty straight forward you roll every quarter you have that 4% you can feel really pretty good about is that going to drive industry growth, is that going to drive Mastech growth that’s at least 1.5 times the industry I feel very, very comfortable I can say yes it will.

And just to comment on that the 4% growth we would expect the 4% growth in during the fourth quarter, right John fourth quarter so that gives you around 12%, it gives you 12% really quick.

Yeah.

So the fourth quarter obviously the seasonality comes in with the high end et cetera and we’re pretty happy with a breakeven from a growth COB standpoint in Q4.

Yeah our Q4, 2012 was a breakeven net growth quarter. Our Q4 2013 was a 1% growth quarter, that’s actually reasonable fourth quarter performance.

But the point is if we’re looking at annual growth rate of 12% we’re looking at it over three quarters.

We look at it over three quarters.

And the reality is we hit that growth rate in Q1. We hit that growth rate in Q3 and frankly guys we dropped the bomb in Q2 and I own it and I just thank the organization for getting back on it and recovering in Q3.

And if you don’t mind guys just one question really for Jack, do you know the wholesale and retail breakdown dollar wise and how many shares outstanding were there at the end of the quarter?

Sure the shares outstanding were 4.3 million, 4.307 million and the breakdown in the channels for the third quarter was the wholesale channel was $22.5 million and the retail was $6 million.

Great, thank you guys.

Sure.

Thanks Dave.

Hi guys, I have a follow-up here. You had discussed new directions, new business directions on – can you remind us exactly what’s in that, is it new area you’re going to be addressing and you’re hopeful it was going to grow and the second question is regarding acquisitions, are you still actively seeking or where we stand on that front?

And the third question is do you envision being more aggressive on the buyback fund in terms of return of capital or dividends or anything in that regard or we wait until the fruits of the higher COV starts to pay off?

Yeah so Howard, let me try to give you a shot at all three of those. We have spent considerable time and energy in Q3 evaluating acquisitions and we have not found and actually come to agreement with the appropriate target yet.

My personal view is between us and our bankers what we’re continually – we’re looking at things that make sense and we haven’t found the right target and been able to close that yet. But we’ve seen a number of things and we’ve seen some things we liked.

We haven’t been able to get to a place where we all liked the deal yet. But we’re absolutely actively pursuing an acquisition strategy for growth purposes.

So yeah we said early on one of ways we intended to use our capital in 2014 was acquisitively and that is absolutely still intact, we still intent and are still focused on it day in and day out. So that’s number one.

The new business item I’ll address it two ways. I’d say the slight tweak that we’ve made to our new business thinking is we’ve brought some new sales folks into the organization.

In addition to hunting new clients, newer talents we’ve also hired some of our newer sales folks to existing accounts as well, and I’ll give you a prime example. We’ve opened a sales location in 2014 in Denver.

We didn’t have a facility there and we’ve added, we have three people there now and the lead salesperson that we’ve added there actually has two pieces to his job. He’s actually calling on one of our larger customers who also has recently opened a facility in Denver and is also hunting new client business as well.

And that model we think will enable us to actually grow those new sales associates a little bit faster by tying them to, as you guys know we have some really large scale customers right. So driving penetration in some of those large scale customers is part of our strategy.

So that’s one piece of the new business direction. Second piece is we’re actually looking at building a couple of technology practices, right.

That’s what I was referring to.

Yeah so I’m pleased to say that in the third quarter we have become a registered Salesforce.com partner. So we’re now on their partner list, we’re now exposed to their business and we’ve brought in a gentleman who has through his life has built technology teams.

so Denis’ job is to actually – his first step is to build a technology focused practice inside the sales force and that’s both developers in Salesforce for the major new Salesforce platform and secondly it’s functional capability to help new Salesforce customers implement or existing Salesforce customers modify or grow their Salesforce platform. And we made that hire in the middle of the quarter so I think Denis shown up somewhere around the 15th or 20th of August and we were a Salesforce partner by about 10th of September so he’s kind of hit the ground running.

And my last question was on buybacks or dividends?

Yeah, so I would suggest that as I said in my remarks I think our Board has had a multi-year history of using our capital to create shareholder value and I know that you all know that there are a handful of ways that we can actually help generate shareholder values with our capital. One of them is to use it to acquire and to grow the top line and the bottom line.

And the Board is still to the best of my knowledge pushing in that space and really wanting us to grow acquisitively as well as organically. And second, the Board has historically looked at other opportunities to use our capital to grow shareholder value and I’m sure the Board will continue to evaluate the use of capital in that manner.

Jack you probably, you were going to caution me right now right.

No.

I think, Jack and I’ve had this discussion many-many times, at the end of the day our balance sheet is what it is. It’s healthy.

It’s extremely healthy. We want to keep it that way, exactly so we don’t want to get overly leveraged trying to do too many things at one time.

I guess is probably the right way to say that. So guys I think it was really healthy that we were in the market and we were in the market pretty actively through the five weeks that we could be trading.

We bought 32,000 shares which may or may not feel like a lot to you, it’s a lot for us because of Safe Harbor rules and how lightly traded we can be at times, so that we’re buying up to as much as we were permitted to by the SEC and I don’t want to say craze guys but we were buyers as well and I’m very, very confident as well. We were buyers.

Great, thank you so much.

Hopefully that helps Howard.

It does. Much appreciated.

Thank you. Assuming there are no further questions I’d like to thank everybody for joining the call today and we look forward to sharing our fourth quarter 2014 results with you in late January of 2015.

Yeah thanks guys, we really appreciate it. Recovery, recovery is the watch word for Q3 and we’re positioning the organization to move forward Q4 and 2015, we’re investing in our future.

Thanks.