Greetings. And welcome to Mastech Digital Q2 2020 Earnings 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. It is now my pleasure to turn the conference over to your host Jennifer Ford Lacey, Manager of Legal Affairs. Thank you. You may begin.

Thank you operator and welcome to Mastech Digital's second quarter 2020 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 Paul Burton, Chief Executive of our Data and Analytics business segment. 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 2019 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 not 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 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 second quarter 2020 results.

Thanks Jen and good morning everyone. Like most companies, the COVID-19 pandemic and the resulting economic downturn had an impact on our revenue performance in the second quarter of 2020. However, faced with the harsh reality of declining market conditions we took a series of proactive steps to mitigate the negative impact on our gross margins and operating profits which can clearly be seen throughout our financial results. Thus revenues for the second quarter of 2020 totaled $47.6 million and represented a 2% decrease from $48.5 million in the second quarter of 2019. Our Data and Analytics Services segment contributed $6.8 million of revenue during Q2 2020, which exceeded last year's second quarter revenue results by approximately $100,000. Activity levels in this segment held up relatively well despite numerous projects being pushed to the second half of the year and some existing clients reducing overall spend. Notwithstanding these near-term revenue issues, our pipeline of opportunities continued to remain strong and we booked over $10 million of new orders in Q2 2020. Year-over-year revenues from our IT Staffing Services segment was down 2% in the second quarter of 2020 as we saw early assignment end and a much lower level of activity from our existing client base. Gross profits for the second quarter of 2020 increased to $12.7 million compared to $12.1 million in the same period last year, despite 2% lower revenues in the 2020 quarter. Overall, gross margins for Q2 2020 were 26.6% of revenues compared to 24.9% in the second quarter of 2019, making it our third consecutive quarter of breaking the 25% gross margin barrier. Our Data and Analytics Services segment had gross margins of 52.2% in Q2 2020, an increase of 610 basis points from a year earlier. High valued assignment wins, better consultant utilization, and…

Good morning everyone. Thank you, Jack for the detailed financial review of our operating results for the second quarter of 2020. After I make my comments on the quarter, I will turn the call over to Paul Burton for his comments and views on our Data and Analytics business segment. It has been over 18 months since Paul came aboard as Chief Executive of our Data and Analytics business. It seemed like an appropriate time to have Paul join us today to share with you his accomplishments, his view of the competitive landscape and why he believes we are very well positioned to excel in a market which is full of opportunities. I think you will find Paul's comments both interesting and insightful. But first, let me comment on the quarter. During our last quarterly earnings call, I had stated that Mastech Digital will navigate today's challenges from a position of relative strength. I think our ability to protect and even strengthen our bottom line in the midst of severe market turmoil is a testament to our unique and flexible business model and exemplifies my relative strength comment. Despite a decline in revenues which was actually less than I feared it would be we generated record gross margins and one of our best net income and earnings per share performances. During the quarter, we continued to focus on transformational projects in our Data and Analytics segment and digital technology skillsets in our IT Staffing segment. We resisted pricing pressures and protected gross margin successfully as we continued to deliver higher value for money to our global customers. With respect to austerity measures. We acted early and decisively implementing actions that were quite effective in reducing SG&A expenses in Q2 by $1.2 million from our previous quarter. We also believe that…

Thank you, Vivek and good morning to everybody. It's a pleasure to speak with you today about something as exciting as data and analytics. By way of background. I've been involved with technology for over 20 years and with data and analytics for a great majority of that time. I've spent considerable time with Hewlett-Packard, IBM and Genpact. With both IBM and Genpact I led global data and analytics businesses and in both roles had the opportunity to live and travel extensively in developed and developing markets. This experience has given me a perspective on technology, data and analytics that I believe is valuable and that serves me well in my work here at Mastech. And in the next couple minutes I want to talk about the journey we've been on as Mastech with the Data and Analytics business. I will briefly remark on our view of the data and analytics marketplace. The team, we've put in place to go after this market, lines of business we go to market with, the importance of alliances, our competitive positioning and some thoughts on the pandemic currently gripping the world economy. So let's get started. Today the data and analytics marketplace is vibrant. The data and analytics market is estimated by IDC to be $275 billion by 2023 growing at a 12% CAGR. Gartner offers a similar estimate. Every day we see businesses waking up to the need to leverage the entire corpus of their enterprise data. And in many cases some desire to go even further by integrating open source and syndicated data with their enterprise data. We believe that data is the blood of the modern enterprise. Because increasingly, it's data that carries oxygen and nutrients throughout the enterprise that allows the enterprise to perform at peak fitness. We are…

Thanks, Paul. I hope Paul's comments have given you a feel for why I'm so excited about our Data and Analytics business. I will now open the session for your questions.

Thank you. At this time, we’ll conduct a question-and-answer session. [Operator Instructions] Our first question comes from Josh Vogel with Sidoti & Company. Please proceed.

Thank you. Good morning, everyone and thanks for that extensive background on the Data and Analytics segment. It's very helpful. My first question is looking at the gross margin performance in the quarter, I was just curious was there any one-off or short-term projects or anything that helped the performance there? And can you also maybe talk to the bill pay spread in the IT Staffing business and if that widened if it's sustainable? And then also, maybe a sense of the margin profile of these businesses over the balance of the year?

Hi, Josh. I didn't quite get the second question. Can you just repeat that please?

Sure. I was asking about in the IT Staffing bill pay spread, if you saw a widening there. And also just a sense of the margin profile of the two segments over the balance of the year? Any directional commentary there would be helpful.

Okay. Jack would you like to take this? And maybe I'll add to it at the end?

Sure. Sure. Yeah, the margins for the quarter, they didn't have any material one-time items included in it. So that's sort of the first question. With respect to the bill rate pay spread in Staffing it did go up. And that was part of the reason, why our margin strengthened in Q2. We did have a benefit of a better utilization. Utilization was very good. And that helped as well. In Data and Analytics, 52.2% is clearly a really nice number for us. We generally – I think Paul generally talks about 50% gross margin. So we're probably a little high on what we would consider as more normal margins of 50%. One of the – sort of one-time shots that we got – one-time shot that we got in the D&A margin area was we have billable travel that consultants do for clients. And that's basically pass-through revenue there's no margin content on that. So because of COVID, we did practically no travel whatsoever. So that helped our margins a bit not a crazy amount maybe 20 to 30 basis points. But it also hurt our revenues, because we lost about $300,000 $400,000 of revenue because of no travel. So if you factor those into the second half of the year, and I'll pass it over to Paul to verify, but I would expect, our margins to be around 50% in D&A and relatively flat maybe a little down from what we posted in Q2 of 2020, just because there's no guarantee that the utilization rates are going to be as healthy in the second half of the year. Does that answer your question?

Yes, that is extremely helpful. It is really good to see how well the Data and Analytics business is holding up in the face of the project delays. And I was wondering, if you can talk about those projects that have been or are being pushed off. Do they appear to be moving forward? Or do you at least have a targeted start date over the second half?

Josh, I'll pass this question over to Paul.

So in the first half particularly in the March time frame, we had a number – as I alluded to in my remarks, we had a number of clients that paused. Every one of those clients has come back to us and restarted since that point in time. So we expect no deterioration from those particular clients in second half.

Great. And maybe this one is for you Vivek. The launch of MAS-REMOTE maybe talk about, how it's being received? And does it suggest that you can move a meaningful portion of this business to a remote platform long-term? And then a second part of that – in light of the recent events and seeing how work can get done today are you planning other such launches or changes to the platform?

Yeah. Actually that's a topic really very close to my heart. We are so excited about the launch of this remote staffing offering MAS-REMOTE. So the reaction from the customers is very positive. If we had launched this six months ago, I don't know how much – what kind of reaction we would've got in general. Because a lot of customers were averse to the idea of having people work from remote locations. But this forced global experiment of working from home as proof to everybody and especially our customers that this is workable. In fact many of them have actually said that, the productivity actually went up in this when people were working from home. We saw that as a great opportunity for us to launch this new service offering. And we test marketed this with our customers first. We did a lot of brainstorming internally. And then after our launch as we started talking to prospects and customers, we've only had positive reaction from them. Of course, customers are still cautious about the overall spend not necessarily for remote or for on-prem. So as they start loosening their purse strings and investing more and more and hiring more we see there will be an uptick in remote staffing. But this is early days. We launched this only last month. And we will see how things pan out over the next few quarters. But we are pretty bullish about it. And as regards do we have anything else being planned, we're always looking at new ideas. And we have a great team, which is constantly coming up with innovative suggestions. So there maybe others in the pipeline. But do we have something which is ready for announcement right now? No.

Okay. Great. And just last one, and I'll hop back in the queue. You did have comments around potential M&A activity capitalize, when the opportunities present themselves. And I'm just wondering, if you could talk about the M&A pipeline and then if there's assuming it would be more on the Data and Analytics side, if there's any gaps in the platform that you want to fill? And is it possible to do that organically or does it have to be inorganic? Thank you.

So on the M&A front, Josh, I've been saying for many quarters now that yes we will be looking at appropriate targets in the data and analytics space. And that still holds true. We're always looking at opportunities in that area. And as Paul explained, we have a pretty full stack of offerings. And we're constantly looking at, if we find a suitable kind of a match would that have – would that increase our capability in terms of delivery, technology or help us open up new sales what shall we say opportunities. So, definitely we are open to this. We would look at targets. But do we have anything which is at a stage where we are ready to announce it? No. The answer is no.

Okay. Thank you for taking my questions.

Our next question comes from Brian Kinstlinger with Alliance Global. Please proceed with your questions.

Hi, good morning, guys. Thanks for taking my questions.

Hi, Brian.

Related to Paul's comments on the recovery, can you talk about the revenue trends in July compared to June maybe compared to May in both your Staffing and Data and Analytics business? I'm curious, how these businesses are trending as the economy is slowly opening up?

Hi, Brian. Brian, actually we do not break things down on a monthly fashion. And we treat the whole quarter as a whole. So it's hard for me to tell you. And right now, we haven't even finished July as yet or closed as yet. So it's difficult to give what is the -- directionally where things are going. The only thing I can say is that as we were going through the second quarter, we found that the reduction in the IT Staffing side started slowing down. So it was a lot more in the beginning than it was towards the end. But I don't know what more I can share with you at the moment.

Okay. In terms of the Data and Analytics business, can you describe the sales process? Was it pre-COVID more a face-to-face sale for a new customer win? And how has COVID changed that process and the sales cycle?

A great question. And I think Paul and his team have done a stellar job of managing that. So I'm again going to ask Paul to answer this.

Pre-COVID, our salespeople spent a lot of time face-to-face with clients talking about data and analytics capabilities and how data and analytics could be used to deliver specific business outcomes. With COVID and the shutdown in travel, almost all of that activity has transitioned to video conferencing and phone conferencing. We still continue to open up new logos and close new business. But the way we're doing that, quite frankly -- we've adapted to the environment -- the way we're doing that is through video conferencing and phone calls. And we continue to get leads from partners and leads from other sources as well. And we're simply pursuing that via telephone and video conferencing. But we are having success. So COVID's definitely changed things. But the process itself hasn't changed it's just now being done over a different venue.

Great. Thanks. And then, Paul, you talked about $10 million of bookings -- I think it was you -- during the second quarter. How does that compare to the first quarter of 2020 and then maybe a year-ago period? And then for that $10 million over what duration are those bookings? Are those two years of revenue that goes into kind of backlog? Is it three years, is it one year? Thank you.

Yes. So second quarter bookings were down slightly from first quarter bookings, but they're up significantly from same quarter previous year. Our bookings for the half are up significantly from first half last year. In terms of down slightly and how it translates into future years, most of our bookings are for projects that are many months in duration. I don't want to say many years. But certainly ,our bookings range from six to 18 months in duration many times because they're large projects. So it's a bit of a -- there's many different types of projects we do. But generally, they're multi-month projects some extending over a year.

Great. And then finally, what verticals are you seeing the strongest demand today for Data and Analytics, I guess as you look at the first half bookings?

Retail, distribution, health care, financial services are all very strong. So we're seeing a lot of work in Data and Analytics in those particular verticals. I wouldn't say because those verticals are stronger or not stronger than other verticals. That tends to be where we're most embedded at this particular point in time. But we are seeing demand in other verticals as well.

Great. Thanks so much for your time.

[Operator Instructions] Our next question comes from Lisa Thompson with Zacks Investment. Please proceed with your question.

Hi, good morning.

Good morning.

Right. So my first question is a quick easy one. What was the number of billable consultants for this quarter?

Sorry I didn't quite get your question. What was -- could you repeat that?

What was the number of billable consultants for the quarter?

Okay. Jack do you have that figure handy?

Yes, I do. On Staffing, it was 1,035.

Okay. So I'd like you to describe a little bit, what your remote product is versus just somebody working from home. Like how is that marketed? And how is that different from people just not going to an office?

Okay. That's a good question, Lisa. So working from home right now is more of a temporary phenomenon where people could be in the same city. And let's pick one Pittsburg where we are headquartered. People were working out of their offices or customer locations. And they've been told that you have to work from home until for a period of time. Now that's temporary work from home. What this MAS-REMOTE offering is remote staffing. It could be that people are working from home in the same location or they could be in a completely different city altogether. So until now, the staffing has been on-premise staffing, so on-prem, as we use the short term for it. In the on-prem world, you would be looking for people who are in the same vicinity where the client location is. Or you may entice people to move from another location to be close to where the client location is. But in this MAS-REMOTE situation, the entire country is open to you. Because the customers are okay for people to be sitting in -- again, let me pick a name, location Miami. We find the right person who has the right skills, one of the best in the country maybe, but in a different city altogether. That was never part of our search earlier on, because the customers wanted that person to be in Pittsburgh. But today that option suddenly opens up. So, now what this means is, that the customers have much larger pool to choose from. We, as an organization, have a much larger pool to fish from in terms of finding the right talent. And the talent is, in a lot of ways, we find happier, because they are where they are. They don't have to travel, et cetera, et cetera. So this is more of a permanent working from a different location, which could very well still be home. And in most cases it is. But it is, by design, expected to be more permanent and out of a different location. I don't know whether I've been able to clearly explain to you the difference between the temporary work from home and the MAS-REMOTE.

Yes. And does that change your economics any, or is it exactly the same?

Well, when you say economics, it's what kind of gross margins we can make on that. I would think that it would follow a similar kind of profile. But the input costs could be different. As an example, if we pick a expensive location, such as, maybe, New York or the Bay Area and if you're able to find talent in some of the cheaper locations or smaller locations elsewhere, you may actually be able to see a significant price difference in terms of what's the input prices and what you can charge the customers.

And then, to carry that theory through there, I know, there's been a lot of talk about changing Visas and how many people they're going to let in on HB1 or whatever. How does the remote working and that possibility change how you go about recruiting? Or I don't see why these remote offerings couldn't apply to anyone in the world rather than just U.S. based. Can you talk about that and versus your competitors maybe, how things might change?

So, you're right. Remote staffing can very well be done out of one of our offshore locations or any -- actually location anywhere in the world. Although, we are trying to keep it limited to within the U.S., when customers want somebody locally. But very much offshore staffing is very much a variant of that and it is part of our offering as well. So we do that. About the Visa situation that you touched upon, I don't think it really affects us very much directly, because we are not bringing people in from overseas. We are actually looking within the U.S. And if there are people -- H1B people available within the U.S., we help them find better jobs. But we are looking within the country. So it's not that we are affected by people not being able to come from overseas. So the pool for us is very much within the U.S. How are other competitors doing? I guess, in a lot of ways our model is unique. There are some competitive advantages that we have, which may be there with others. But if you combine all the various things that we have to offer, I think, we have a compelling proposition. We have a low-cost model; we have a very large number, 200-plus recruiters who are working out of India, the center in India in Noida, which is near Delhi. And that allows us to actually have a much better ratio of recruiters to each salesperson. So, just as an example, in the industry you will find typically one to two recruiters per salesperson. That's the kind of combination which can be created, whereas we are able to bring almost five recruiters to a salesperson. So that is one. The second thing is our ability to be able to work with H1B people and to be able to find them better jobs. I think that not a lot of our competitors are doing that. And then we have stellar reputation. We've been around for a long time. And we are a listed company. We are all very transparent, visible to people what we are doing. If you put a lot of these things together, then I think we come across as a preferred sort of a partner, as compared to a lot of our competitors. I don't know if I've answered your questions?

Yes, definitely. All right and just on the near-term outlook -- do you feel that Q3 will be up sequentially, in revenues, in both segments? And do the margins stay where they are, because travel really hasn't come back yet? What are your thoughts about what's happening right now?

Lisa, I would shy away from giving guidance on that, because we don't give guidance, as to how Q3 will turn out. And also we are -- it's early days. We haven't just yet finished the first month. But I don't know what else I can share in this. Jack, is there anything else that we can talk about? Hey Jack, are you there?

Yeah. I don't think we can talk about, the direction of revenues. We just don't give guidance. I did make some remark about our gross margins. And what we believe would be normal moving forward. But beyond that, we don't feel comfortable giving guidance, Lisa.

Okay. I guess, my last question is on SG&A. SG&A came way down from last quarter. Are you still in that same austerity mode? Or have you started spending again?

No. We are very much still in the austerity mode. We want to see positive indications that things are beginning to pick up significantly. And that's when we will go back and start kind of pulling back on the measures. But currently we are very much keeping the SG&A in a very tight control.

Okay, great. That's all, my question. Thank you.

Thank you.

[Operator Instructions] We have a follow-up from Josh Vogel. Please proceed.

Thank you. Just a quick one for Paul, going back to December, when Data and Analytics -- you signed those orders -- were $23 million. Given that it was pre-COVID I'm just curious has the scope of those projects changed since? And is it still estimated to be around $23 million, when all's said and done? And then, just kind of building off your comments earlier on that six-to-18-month duration of the project, I'm just curious what the time line initially was on those specific deals. Thank you.

Yeah. So the $23 million in bookings that you referenced for Q4, I can simply say that we've de-booked $0 from that. All of those bookings are still in effect. And they will continue as they were contracted. I said in my prepared remarks that, we had a pause with some clients and we did. But I also indicated that, that pause has ended. And we're now, back on track. I think when COVID broke out in March there was a lot of uncertainty as to everything basically. And so clients had a knee-jerk reaction to pause and understand what was going on and plot a course of action that seemed to make sense to them. What I'm seeing now is that, clients are -- the pause is over our clients are moving forward. And we've seen no deterioration in previous bookings meaning no de-bookings. And I have no reason to believe that, the contracts won't be fulfilled as written.

All right, great. Thanks again for taking my questions.

Thank you. At this time, I would like to turn the call back over to, management for closing comments.

Thank you, Operator. If there are no further questions, I would like to thank you for joining our call today. Stay safe. And we look forward to sharing our third quarter 2020 results with you, in late October. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines, at this time. And thank you for your participation.