Greetings! Welcome to the Mastech Digital Inc Q2 2023 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. It is now my pleasure to introduce your host, Jennifer Ford Lacey, Manager of Legal Affairs for Mastech Digital, Inc. Thank you, Ms. Ford Lacey. You may begin. Thank you, Operator. W elcome to Mastech Digital's Q2 2023 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 Vivek Gupta, Mastech Digital's Chief Executive Officer; Jack Cronin, our Chief Financial Officer; and Michael Fleishman, our Chief Executive Officer of the company's Data and Analytics Services business segment. I would like to remind everyone that statements made during this call are not historical facts and 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 2022 annual report on Form 10-K, filed with the Securities and Exchange Commission and available on its website at www.sec.gov. Additionally, management has elected to provide certain 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 key metrics used by management in operating the 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 website 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 Q2 2023 results. Thanks, Jenni, and good morning, everyone. Q2 2023 was another challenging quarter for Mastech Digital. Revenues totaled $52.2 million, representing a 16% year-over-year revenue decline. Both of our business segments were impacted by customer concerns regarding slow economic growth, high inflation, and the possibility of a U.S. recession, which has lowered demand for our services in the near term. Our Data and Analytics Services segment contributed revenues of $8.8 million in the Q2 2023, compared to $11.2 million in the 2022 second quarter, as customers reduced resources on existing projects in light of continued economic uncertainty. Order bookings, however, increased to $10.1 million in Q2 2023, compared to $8.4 million in 1Q this year. Additionally, our pipeline of opportunities continued to improve, with the caveat that customers are taking a little longer to actually start new projects once awarded. Q2 2023 revenues in our IT Staffing Services segment totaled $43.4 million, compared to $50.9 million in 2Q 2022. Demand continued to be soft in the current quarter, particularly with respect to financial services clients. Gross margins in Q2 2023 was 26.1%, compared to 27% in 2Q 2022. In our Data and Analytics Services segment, gross margins improved by 200 basis points compared to the second quarter of 2022 gross margins. This favorable margin variance was largely due to higher utilization rates in the 2023 quarter as we continued to drive better efficiency in our delivery processes. In our IT Staffing Services segment, gross margins were down 110 basis points compared to Q2 2022, due to reductions in direct hire revenues and higher than usual medical claims related to our self-insured healthcare program. In the second quarter of 2023, we recorded a pre-tax settlement reserve of $3.1 million on an outstanding employment-related claim. No lawsuit has been filed to date, and we are currently in negotiations to settle this matter. The GAAP net loss for the second quarter of 2023 was $2.2 million, or a loss of $0.19 per diluted share, compared to a $2.4 million net income, or $0.20 per diluted share in the second quarter of 2022. The settlement reserve noted above had the effect of reducing GAAP diluted earnings per share by $0.19 per share. Non-GAAP net income for Q2 2023 was $1.3 million, or $0.11 per diluted share, compared to $3.6 million, or $0.30 per diluted share in the second quarter of 2022. SG&A expense items not included in second quarter non-GAAP financial measures, net of tax benefits, were, one, stock-based compensation, two, the amortization of acquired intangible assets, and three, the 2023 settlement reserve on an outstanding employment-related claim. A description of these items is included in our Q2 2023 earnings release, which is available on our website. Also, it should be noted that both GAAP net income and non-GAAP net income in the second quarter of 2023 included $600,000 of professional service expense related to the outstanding employment claims. Addressing our financial position on June 30, 2023, we had $18.6 million of cash balances on hand. We had no bank debt outstanding and borrowing availability of $23.9 million under our revolving credit facility. Our day sales outstanding measurement was 56 days at quarter end, which is well below our target range of 60-65 days, and we're five days better than our measurement at March 31, 2023. During the second quarter of 2023, we executed on our share repurchase program, purchasing approximately 62,000 shares of Mastech Digital common stock at an average price of $9.15 per share. 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 Q2, 2023. The same macroeconomic headwinds that we experienced during the first quarter of 2023 continued to impact our clients' spending dynamics in the second quarter, resulting in lower demand for our services. Our IT Staffing Services segment continued to see clients taking a more conservative approach with respect to spending on new assignments due to concerns around a potential recession on the horizon. Our financial services clients, in particular, were even more inclined to tighten their purse strings, given the recent regional bank failures and worries about a broader banking crisis. In recent weeks, however, we did see a modest improvement in demand from some of our clients in the financial services space, but I wouldn't call this a trend just yet. Also, during the quarter, we expanded our portfolio of staffing offerings with an entry into Engineering Staffing Services, or ESS, as we call it for short. ESS is an adjacency to IT staffing and will be using the same recruitment engine that our customers depend upon and trust. Since its launch in late May, ESS is gaining traction with both our existing as well as new customers. We are hoping to see in the quarters ahead this new service offering make up some of the recent declines in IT staffing. Our Data and Analytics Services segment's performance was also impacted by clients reducing resources on existing projects as they respond to economic uncertainty. Michael will talk more about the state of affairs in the Data and Analytics Services business in a few minutes. While we are encouraged by improvements in recent inflation data and some signs that the U.S. may dodge a recession, we have and will continue to take prudent actions to reduce our SG&A expenses in an effort to protect our operating profits. I would like to reaffirm with 100% confidence our belief that our businesses remain fundamentally sound, that our financial clients are among the strongest in the industry, and that we have a solid balance sheet and access to ample capital to fund our current business needs and to support the share repurchase program that we announced earlier this year. Let me now turn the call over to Michael for his comments related to the Data and Analytics Services segment. Over to you, Michael. Thanks, Vivek, and good morning, everyone. As Vivek mentioned, uncertain economic conditions are clearly impacting our clients' spending behavior. During the first half of 2023, we have seen clients reducing resources on existing projects as their way of mitigating concerns over economic conditions, and this posture has negatively impacted our revenues. However, beyond the revenue numbers, we believe we are making good progress in our efforts to reposition our organization from a Master Data Management company to a much broader Data and Analytics Services firm that focuses on end-to-end data modernization services. Our progress in this transition can clearly be seen in our increased order bookings and pipeline building performance year to date. In the second quarter of 2023, order bookings increased to $10.1 million, or $1.7 million higher than the first quarter of this year, 2023. Our first quarter bookings were also $1.6 million higher than the previous Q4 2022. Furthermore, during the second quarter, the number of our RFP submittals, as well as our overall pipeline of opportunities, both increased. My expectation is that bookings will continue to expand over the second half of 2023, which should set us up nicely in 2024. Also, in the second quarter of 2023, we made solid improvements in our gross margins. Our second quarter gross margins were 45.6% of revenues, which were 200 basis points higher than the corresponding quarter of 2022. This improvement reflected a higher utilization rate in the 2023 quarter versus the second quarter of 2022. From a sorry, from a strategic point of view, we aim to consistently have gross margins in the upper 40% gross margin range, irrespective of our revenue levels. Simply put, we need to quickly adjust our billable workforce to real-time revenue streams. This ability to adjust is something that is a primary focus of our delivery team. I'll now turn the call back over to Vivek. Thank you, Michael. Operator, this concludes our prepared remarks. We can take questions now. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Lisa Thompson with Zacks Investment Research. Please proceed with your question. Good morning. Hi, Lisa. Hi there. You made your earnings even though you had lower revenues due to those great margins. That's a very encouraging. Thank you. I have a few questions. First off, well, in staffing, you said you had a decline in financial services. Do you know what% CGI was for the quarter? Yes. Jack, would you have the precise number? I think it was close to 24%. Is that right? It was 24%. Okay. Was it across the board, not just them? Yes, actually. As I think we mentioned in the last earnings call, approximately 50% or just less than 50% of our business has been from financial services when we started the year. We've seen that virtually across the board, customers, direct customers that we work with, as well as customers through partners like CGI. Okay. What was the, the billable consultant number for the quarter? Jack, do you have that number in front of you? Yeah, I do. Yeah, it's at the end, at the end of the. Let me get it. At the end of the quarter, our, our billable consultant base was 1,041. Oh, okay, that's up. Good. Let's see. Could you go a little bit more into an example of this ESS offering? Can you give us maybe an example of a customer using it and what they do? Sure. Sure, Lisa. This may, may, maybe I'll add a little bit of color on the ESS beyond what you just asked as well, which is, we, we see ESS as an adjacency, as I mentioned, to the IT staffing, because we are able to use the same recruitment engine, we are able to use the same sales engine. We find on the customer side, the buying centers are also fairly similar, often the same, which is, you know, the procurement processes that they have in place. Now, bill rates, gross margins, all seem to be in line with the IT staffing. Clearly there is room to cross-sell. Now, to come to your question, what kind of customers are we talking about? Actually, we found there is virtually 19 or 20 of our customers are already using engineering services. By engineering services, the, the kind of people, the kind of consultants they're looking for could be mechanical engineers, electrical engineers, test engineers, facilities engineers, industrial engineers, and so on and so forth. It's, it is easy for us in some ways to cross-sell this ESS to customers who have already been our, are our customers for a very long time. I hope that gives you a sense or what you're looking for, Lisa. Yeah. It's basically kind of like a job shop, where you sign up for a 6-month project or something as an engineer. Is that right? Yeah. It, it, it's not very different from IT Staffing, which is the customers have requirements. They, they reach out to us either directly or through, you know, VMS or portals, and we look at those requirements and find appropriate consultants and go through the same process of putting them in front of the customers and, you know, they get interviewed. Customers could be signing up for whatever duration they're looking for, but it does average 6 to 9 months, what we have seen, the, their requirements tend to be in that range. All right, great. Sounds good. I just have one last question about this employment issue. On the balance sheet, you have $6 million for a liability and then $2.2 million for insurance recovery. Can you could explain the mechanics of that? Jack, will you go through the numbers? Yeah, sure. Again, these are estimates. You know, we're, we're in the process of negotiating the settlement. Right. Yeah, so I mean, our, our estimate is that we're going to have a gross claim before insurance and, and other offsets of, of, of $6 million. Our estimate on insurance claim would be $1.1 million or $2.2 million. Then we have some other recoveries that, you know, I don't want to say right now because we're still in negotiations, but would bring down the net claim to $3.1 million. Okay. Why isn't it, and does that, the $6 million include the lawyers and all that sort of stuff? It does not. Okay. All right. That you said that was $600,000 in the quarter for- It, it was. Consultants or whatever. Right. All right, great! Okay, well, should we expect revenues for both businesses to be sequentially up in Q3 and for expenses to be down a little? Is that the general thought? Lisa, I would not want to make a projection there, but, I mean, clearly, we are not out of the economic uncertainties at this point in time, so we need to go through this quarter and see how it pans out. Okay, great. Thank you so much. That's all my questions. Thank you. Our next question comes from the line of Tim Call with Capital Management Corporation. Please proceed with your question. Good morning. Hi, Tim. Hi. With a clean balance sheet, and no debt, and your share repurchase pace, leaving you with $18 million on the balance sheet, are. Is there a way to make it so that earns interest if you put it in a, you know, three or six-month U.S. Treasury bill, you might be making over 5% or $1 million a year on that $18 million cash. Are you able to invest any of that or earn interest on any of that cash balance on your balance sheet? Jack? Yeah, we are. We are. You know, the, the interest income that we earned, in the second quarter, and of course, we didn't have all $18 million, you know, on, on day one of the quarter. We, we probably, we, we had interest income of, I would, I would bet, about $120,000 in Q2. You know what? We have a. We have flexibility. We have an arrangement with our bank, PNC, where, you know, as soon as they sweep the funds, we're earning interest income. You know, the day that we need the funds, you know, to fund working capital and just day-to-day accounts payable and payroll, you know, it comes out. It's efficient with the, the monies that we have. Some of our monies are in foreign subsidiaries. We invest there as well, but, you know, to, to lock something up for, you know, a substantial period of time, we, we haven't really looked at that yet, but, but we will. As our, as our cash balances grow, we will, we will take that approach to, to invest in multiple months rather than on a day-to-day basis. Well, knowing your successful history and having Michael lead DNA and expanding into ESS, it's a very bright outlook. Hopefully, that cash can be put to use with the creative acquisitions, but also the share buybacks. As you move out of this slower period, having those share buybacks continue or accelerate will have very positive long-term results. Congratulations on repurchasing some already. Thank you. Thanks, Tim. Our next question comes from the line of Marc Riddick with Sidoti & Company. Please proceed with your question. Hey, good morning, everyone. Hi, Marc. I wanted to just go over a couple of things. One of the things that you'd made mention to in your press release and prepared remarks were some of the expense reduction efforts. I was wondering if you could dig a little bit into to that a bit more and, and, and sort of how we should think about what those benefits are with, both within the quarter and, and going forward. I, I didn't quite catch. Are you talking about the reduction in the SG&A expenses? Sorry, I think it was within the press release or some of the cost control efforts that took place during the, during the quarter and, and how that plays out going forward. Yeah. So, Marc, the good thing in a way is that we've been through this, just a couple of years ago when 2020, when COVID hit us, we took all the prudent cost control steps at that time. We were able to sort of revisit the same playbook. What we have done is basically pushed out or deferred or canceled all the discretionary expenditure. Things like, you know, if you're having conferences, the internal conferences, we are doing it more virtually rather than in person. We are looking at every single, you know, the kind of relationships that we have with our vendors and seeing how we can improve upon it. We are looking at low-performing staff and seeing if we can reduce our headcount and not have them. We're looking at other expenses which can be brought down. We've deferred compensation increases by a couple of quarters. It's basically looking at every element of the SG&A cost and seeing if there is a way we could either reduce or defer it. That has been something we've done now for a couple of quarters, and we will continue to look at things as we go forward until things start opening up once again. That's the plan. Okay, and then. Marc. I'm sorry, go ahead. No, the, this is Jack. The only other thing that I would point out is, is some of our expenses are, you know, self-correcting, if you will. I mean, they come down on their own, such as, you know, commissions and bonuses, where, you know, if we're in a recessionary-type environment or a low growth environment, you know, we have lower commissions, we have lower bonuses, you know, we have lower background checks. We're gonna get the benefit of, and we have gotten the benefit of, those types of expenses in addition to what Vivek said. Okay, that's helpful. Thank you. Then, where do we finish? Can you, can you give us an update as far as what, where bill rates were during the quarter and, maybe some of the, you know, any thoughts around what you're seeing there? Jack, you have the bill rates? Yeah, yeah. Our bill rates are trending down a bit. It's, it's not like, you know, our gross margin content, for most of our projects is trending down. It's more of the types of resources that we're using on a project. I mean, you know, if, if we have resources that are $80 an hour resources and we make 20%, 25%, you know, now I think we're using resources that are a little lower, but still have the same or close to the same margin content. We're down a few dollars, with respect to the average bill rate. Okay. I think you said that the, I just wanna make sure I heard you correctly, the headcount was 1,041? Yeah. Okay. I, I think, I think Lisa said that's good, it's higher, but it's not higher, it's lower. Okay, I, I was just double-checking on that. The, where was I going with this? There was a commentary in prepared remarks around utilization within DNA, and I was wondering if, if, if Michael could sort of talk about where those benefits occurred and sort of, you know, sort of how they, how they materialized there. Sure. Michael? Vivek, okay, if I take that. Yeah. No, thank you. The utilization was predominantly increased through a couple of different avenues. One, tighter controls and processes over our existing project delivery, so that we have greater visibility into our ramp times, so that when projects were starting to ramp down in resources, we've got right now, controls in place to have a four-month notification on that. We have four months to ensure that those resources are either renewed within the existing clients or placed in net new opportunities within the existing clients, or placed in net new opportunities within other clients, such that when they ramp down, they immediately ramp up into another project, either again, within the same customer or another customer. This is the primary contributor to driving great utilizations, in addition to driving net new bookings, which of course require resources to be, to be leveraged and utilized. We never wanna have a 0% bench, because we always want people training and cross-certifying. Our goal internally is an 80% utilization rate, and we've been really, really good and consistent at hitting that level of utilization internally, which then drives greater levels of, of gross margin, which you've seen in our numbers consistently increasing over the past two quarters. Okay. No, that's very helpful. Thank you. Then I guess, last two questions for me. One, I know you've talked about sort of the, the struggles within financial services. I was wondering if you could talk a little bit about maybe some of the other customer, vertical industries, whether, you know, what you're seeing, whether it's in retail or, or healthcare, and, and the like. Then the second, question is around the, the new Engineering Staffing Services, kind of maybe the, the type of revenue contribution that maybe we're seeing initially and, and what you, you believe that can grow to. Thanks. Sure. Marc Riddick, we've been seeing that cost control from the customer side across the board in all industries. Before the regional bank failures happened, it was evenly balanced, maybe to a lesser extent on the financial services side, and then suddenly that started picking up steam. I wouldn't want to single out any specific industry, but at this point in time, we are seeing it across the board. That's the first part of, you know, first question. The second one on the Engineering Staffing Services side, quite candidly, we just started this, we launched it on May 31st, so we've just had a few weeks there. Right now, at this point in time, we've seen a lot of interest, a lot of traction. We are seeing some recs coming through. We've only had a handful of placements. We really don't have enough data at this point in time to tell you how that is going to is impacting the overall, you know, numbers in terms of bill rates or gross margins. Our research has shown that we, you know, the, the bill rates and gross margins should be comparable to what we are able to get on the IT staffing side. Okay, that's helpful. Thank you very much. Thank you, Marc. Just as a reminder, if anyone has any questions, you may press star one on your telephone keypad to join the question-and-answer queue. We have reached the end of the question-and-answer session. I'll now turn the call back over to Vivek Gupta for closing remarks. Well, 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 third quarter 2023 results with you in early November. Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.