Greetings, and welcome to the Mastech Digital Q2 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jenna Lacey, Manager of Legal Affairs. Thank you, Ms. Lacey, you may begin.

Thank you, operator, and welcome to Mastech Digital's Second 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 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 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 2023 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 the 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 – probably 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 second quarter 2024 results.

Thanks, Jen, and good morning, everyone. Our second quarter 2024 financial results benefited from the continuation of positive market indicators that we were seeing in Q1. Higher activity levels, favorable client spending patterns and improvements in economic data around inflation and job growth. During the second quarter, we were able to add some positive company-specific factors to the mix. Namely a strong delivery performance and high resource utilization at our Data and Analytics operations, increased gross margins in our IT Staffing Services business, as well as a slight reduction in SG&A expenses during a quarter in which sequential revenues grew by 6%. Addressing our second quarter 2024 financial results. Consolidated revenues totaled $49.5 million compared to $52.2 million in the 2023 second quarter. While we continue to report negative revenue growth on a year-over-year basis, the percent of decline has consistently and progressively been reduced over the last several quarters. I'm happy to say that in Q3 2024, our year-over-year revenue growth will be positive. Our Data and Analytics Services segment reported revenue of $8.9 million in the second quarter of 2024 compared to $8.8 million in the 2023 second quarter. On a sequential quarterly basis, D&A revenues grew by 10%. Second quarter 2024 revenues in our IT Staffing Services segment totaled $40.7 million compared to $43.4 million in the second quarter of 2023. On a sequential quarterly basis, IT Staffing revenues grew by 5%. Consolidated gross profit dollars totaled $14 million in Q2 of 2024, which exceeded the corresponding quarter of 2023, despite 2024 revenues being lower. It's the result of higher overall gross margins. Consolidated gross margins in Q2 2024 improved to 28.2% compared to 26.1% in the second quarter of 2023, as both of our business segments contributed to the improvement. This gross margin performance of 28.2%…

Good morning, everyone. Thank you, Jack, for the detailed financial review of our operating results for Q2 2024. In last quarter's earnings call, I had said that we are feeling more positive about the macroeconomic environment, coupled with our clients showing more comfort with starting new assignments and addressing some of their pent-up IT needs after more than four quarters of reduced IT spending. As I speak to you today, one quarter later, my views have only strengthened even with the recent market jitters around job growth. During Q2 of 2024, we saw the continued positive economic environment, encouraging our customers in both business segments to increase their IT spending. In addition, we also achieved numerous organizational improvements such as improved project delivery, better resource utilization, tighter bench management and control of SG&A spend, all of which positively impacted our financial results for the quarter. Overall, I'm happy with the sequential revenue growth achieved by both the business segments, resulting in a 6% quarter-on-quarter growth over consolidated revenues in Q1 2024. The 10% sequential increase in revenue delivered by our Data and Analytics Services segment was a result of an expanded footprint in our existing client accounts, as well as from signing new logos. In our IT Staffing Services segment, the 5% sequential quarter-on-quarter revenue growth, which Jack referred to, came mostly from existing large clients increasing their contract spending. The pace of increase in our billable consultant headcount by two of our largest financial services clients has been a much needed shot in the arm for the company. After a billing consultant headcount increase of 58 in Q1, we were able to add another 31 billing consultants in IT Staffing Services segment during Q2, making it approximately a 10% total increase from our headcount at the end of 2023.…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Lisa Thompson with Zacks Investment Research. Please proceed with your question.

Good morning, and great quarter. Nice to see profits coming back.

Thank you, Lisa.

I didn't quite scribble fast enough. What is the number of consultants you end the quarter with was what?

So we added 31 consultants in the quarter. And as we speak, Jack is looking at what that total number is now, after adding 31. So just give us a second.

1,035.

Yes. For our Staffing business, it's 1,035.

Yes, you're right, Lisa.

Okay. Good. And how is the trend going this quarter?

We've only – we are barely, I guess, one week into the second month, but July was good. We had an increase in headcount.

Okay. And you seemed to really tighten up spending. I don't know if it was a fluke in the quarter or it's something permanent that you've done. How much have these – of your new consultants done to change any operations? Or are they working on other things?

I didn't quite get the last part of what you just – what you asked, Lisa, can you elaborate on that?

Yes. So no, I was wondering if your consultants have anything to do with streamlining the business? Or are they working on other things?

No. See, the SG&A expense is really not related to the consultants. This is more our sales, marketing, G&A. And we've looked at all elements of that. And as I mentioned, there was a higher percentage – SG&A as a percentage of revenue in Q1, and we felt that we needed to tighten that. So we've looked at all aspects of SG&A, and eliminated the ones which are not needed. We will add back SG&A as we grow, but our intention is not to grow at the same pace as revenue, which means that over a period of time, we like to show – we'd like to have the SG&A expense as a percentage of revenue coming down rather than going up.

Okay. That sounds good. What's your feeling about gross margins going forward? Do they stay up here? Do they go back to historical highs?

So our intention is to keep the gross margins at a level – at least the 28% level. There are two elements in that; one which we can't control as in the point that both, Jack and I touched upon, which is the medical claim experience. Now that varies from quarter-to-quarter, and you don't have control over that. And we've had a couple of bad quarters and this quarter has been a good quarter. So that part, you can't control. But what we can control – on that part, we are leaving no stone unturned. So our intention is to stay at that level, at the 28% level. And hopefully, a little bit of luck will also be on our side.

You think D&A can get back over the 50% gross margin this year?

Again, that's always the intention to get to that side of 50%. But I don't know, it's hard to predict that. We are pretty close right now at 49.2% is not too far away from 50%.

Great. That’s all my questions. Keep up the good work.

Thank you, Lisa.

Thank you. Our next question comes from the line of Marc Riddick with Sidoti. Please proceed with your question.

Sorry, I was muted there. Hi, good morning.

Hey, Marc, how are you doing?

Very good, very good. I wanted to sort of piggyback on the gross margin questions. I was sort of curious if you could talk a little bit about maybe the utilization rate improvement, that was mentioned in the press release, as well as maybe if you could talk about the revenue mix benefit and where that might be coming from?

So Marc, the resource utilization is really all the people that we have billable on the Data Analytics side, trying to make sure that we have just the right number of resources needed to service those projects in that quarter. In the past, a year ago or two years ago, we ended up having a scenario where we had a large number of people on the bench, and there wasn't enough work in the immediate future to keep them busy. This time, I think we've been able to kind of change our processes and sharp them in a way that we have sort of resources ready when we need them, a better understanding of what's coming down the pipe and then having – preparing and training resources in time for that. And I think that has played an important role in this. And also how we are executing the projects, I talked about better project delivery and making the gross margins out of the projects which are under execution, are making sure that they are as high as we can take them. So it's bench management, resource utilization, better delivery, all of them kind of helped us in having a better gross margin outcome from the Data and Analytics business.

That's very encouraging. And then I was wondering if you could talk a little bit about maybe what you're seeing as far as client activity change? Are we seeing much in the way of differentiation and industry verticals or geographic footprint?

Yes. Two aspects. One is how the clients are behaving at the moment. I mean, I think they are becoming more comfortable with the economic environment and they're beginning to losen their pulled strings, which is a great thing. In terms of differentiation, yes, definitely, we haven't formally verticalized our organization, but our solutions are fairly, what shall I say – industry focused. So if we've done a good job for one bank, then we have – we take the learnings from that to the next one. If we are working with one health care organization, we are able to take the learnings forward to the other one. So there is a bit of that differentiation, which our customers are beginning to see. They like the fact that we have progressed from being a very strong MDM-only company, master data management company into a broader data management – data modernization company. And I think that story is again being appreciated by customers. And there's a lot of AI, which is coming into our solutions and our offerings. We are also using it internally. That is also factoring in and the customers like the kind of the solutions with AI embedded in those solutions. So it's a bit of, I guess, all of the above, which have led to the customers feeling more comfortable with our offerings.

Okay. Great. And then the last one for me. The – you finished with a nice solid cash balance, as always, a very clean balance sheet. I was wondering if you could talk a little bit about – this will obviously be in the Q, but was there much in the way of share repurchase activity during the quarter and maybe what your thoughts are on uses of cash going forward? Thank you.

I'll pass this question to Jack to answer. So Jack?

Yes, sure. Yes, our cash balances at the end of the quarter were $20.6 million. It's slightly up from where we were at the end of first quarter. Unfortunately, in the second quarter, we bought back zero shares. We had an extended blackout period, actually still in a blackout period on a number of corporate matters that are confidential. So no repurchases in Q2.

Okay. And maybe just thoughts on going forward, as far as potential uses of cash?

I think we're very keen on the share repurchase program. It's just a matter of when we can start it, once we get through some of these confidential issues. But when we're out of a blackout period, we're hoping to take advantage of the current stock price and repurchase some shares.

Great. Thank you very much.

Thank you, Marc.

There are no further questions at this time. I'd like to turn the floor back over to management for closing remarks.

Okay. Thank you, operator. If there are no further questions, I'd like to thank you for joining our call today, and we look forward to sharing our third quarter 2024 results with you in early November. Thank you.

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