Q3 2023 Mastech Digital Inc Earnings Call

Greetings and welcome to the Mastic Digital Q3 2023 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

Any one shall require operator assistance during the conference. Please press star one on your telephone keypad.

As a reminder, this conference is being recorded and is now my pleasure to introduce your host Jennifer Ford Lacey manager of legal affairs for mass type digital. Thank you Ms. Lacey for it you may begin.

[noise]. Thank you operator, and welcome to Mazatec digital third quarter of 2023 conference call. If you have not yet received a copy of our earnings announcement. It can be obtained from our website at www Dot Mastec digital dotcom.

With me on the call today off of that Goethe Mazatec digital as Chief Executive Officer, Jack Cronin, Our Chief Financial Officer, and Michael Fleischman, Our Chief Executive Officer of the company's data and analytics services business segment.

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 or strategies intentions and beliefs concerning the business cashflows costs and the markets in which we operate.

Without limiting the foregoing the words believes anticipate plans expects and similar expressions are intended to identify certain forward looking statements.

Eight minutes are based on information currently available to us and we assume no obligation to update these statements are 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 Dot F E C Dot Gov.

Additionally, management has elected to provide certain non-GAAP financial measures to supplement our financial results presented on a gap 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 and operating the.

Business wreck.

Reconciliation 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 Dot NASDAQ digital dotcom.

As a reminder, we will not be providing guidance. During this call normal we provide guidance and any subsequent one on one meetings or calls I will now turn the call over to Jack for a review of our third quarter 20 twenty-three results.

Thanks, Jenn and Demoing.

Everyone.

Or third quarter 2023 financial results continued to be impacted by economic uncertainty and our current and prospective clients responses to these challenging mortgage conditions there.

Quarter revenues totaled $47.8 million, representing a 24% year over year revenue decline.

Both aboard business segments contribute to this decline.

Or data and analytics services segment reported revenues of $8 million in Q3, 2023 compared to $10.1 million.

2022 third quarter.

Customers continues to reduce resources or an existing projects and order bookings.

<unk> delayed and signing new projects during the quarter.

232000, twenty-three revenues and our I T stopping services segment totaled $39.8 million compared to $53.1 billion in the third quarter of 2022.

The man continued to be soft in Q3 2023.

Global consultants declined during the quarter O.

That'll be it at a slower rate than experienced in the previous two quarters.

Consolidated gross profits as a percent of revenue in Q3 20 twenty-three.

Prove to 26.3% compared to 25.8% in the third quarter of 2022.

Noting in or best gross profit performance over the last five quarters.

And our data and analytics services segment gross profits as a percent of revenue improved significantly over Q3 of 2022.

This improvement reflected higher utilization and the 2023 quarter and the impact of the 300000 dollar.

Project cost overruns in the third quarter of 2022.

And our I T staffing services stagnate gross margins were down 80 basis points compared to the third quarter of 2022, largely due to year over year.

Reductions in our direct higher revenues.

Generally contract gross margins hold up well when compared to last year, despite challenging market conditions.

Yeah. The idea income for Q3, 2023 was $125000 or one cents per diluted share compared to $2.4 million or 20 cents per diluted share in few 320 22.

No one GAAP net income for the third quarter of 2023.

It was $1.3 million or 11 cents per diluted share compared to $4 million or 33 cents per diluted share in the third quarter of 2022.

Or third quarter and don't want gas 20 twenty-three net income.

Earnings per diluted share results were in line with the last quarter's numbers despite lower revenues.

S G and a expense items not included in Q3, 2023 non-GAAP financial measures.

Net of tax benefits or stock based compensation and the amortization of acquired intangible assets.

A description of non-GAAP items for all period presented there is included in our third quarter of 2020 to where your earnings release, which is available on our website.

Addressing more financial position on September 30th 2023, we had approximately $16 million of cash balances on hand.

No bank debt outstanding and borrowing availability of $25 million under a revolving credit facility.

Our days sales outstanding Major me with 55 days at <unk>.

Which is much better dental target range of 60 to 65 days and one day better than our D. S O a major Maine a quarter ago.

I will now turn the call over there for his comments.

Thank you Jack good morning, everyone.

The same macroeconomic headwinds got to be experienced during the first half of 2023 continue to impact our clients spending dynamics in the third quarter.

I'm thinking of lower demand for our services.

I T stuffing services segment continued to see clients, taking a more conservative approach with respect to spending on new projects and new initiatives.

<unk> services technicals also impacted by clients are using resources on existing projects handling project starts on new orders.

Go to discuss an order bookings performance and prospect in his prepared remarks.

Well I've read some girls in domestic GDP positive data point for the U S economy.

Some conflict in the middle East cause yet another geopolitical event that has created additional uncertainty in the global economy.

We have continued to aggressively pursue steps to reduce our expenses as a mitigating action in these uncertain economic conditions.

Our operating expenses, daughter $12.6 million in the third quarter of 2023, which is a reduction of approximately $800000 from the previous quarter.

Let me reiterate that we believe that accompany remains on a sound financial footing with a solid balance sheet.

Access to a 25 million of capital under a credit facility and long standing relationships with several top companies in the world.

I'm confident that both of our businesses boot strongly to cuddle and the market conditions improve.

Let me tell them to call over to Michael photos comments related to our data and analytics services segment over to you Michael.

Thanks, Civic and good morning, everybody.

The ZIP mentioned uncertain economic conditions are clearly impacting our clients spending behavior as we continue to see clients reducing resources on existing projects.

While activity levels in our pipeline of opportunities remained elevated during the third quarter Project Award delays resulted in a disappointing bookings performance of 5.1 million in the third quarter as clients and prospects implemented tighter expense controls there is a bit of good news. However.

Two sides of a projects that were scheduled to commence in Q3 2023.

Well as various additional smaller two three projects.

All of which totaled approximately $3.5 million have been awarded in October of 2023. This past October.

Behind our financial numbers, we believe we are making good progress in transforming our organization from a master data management firm to a much broader data and analytics company with capabilities around the entire suite of data modernization services. In this regard our pipeline of opportunities continues to broaden with data modernization assignment nonsense.

Shooting a higher percentage of our 2023 bookings and pipeline versus master data management, when compared year over year.

Also in the third quarter of 2023, we continued to expand our gross margins to 45.8%, which increased 620 basis points over to 320 22 gross margins. We believe are predictable utilization rate is a key component to our gross margin improvement in 2023, and as a point of emphasis by our delivery.

Teams.

This emphasis coupled with cider execution processes on our delivery are giving rise to increase margins year over year <unk>.

In closing I would like to say that I agree 100 per cent with vicks belief that our financial foundation is strong and that both of our business segments are poised for growth once more clarity in the global economy occurs.

Now turn the call back over to <unk>.

Thank you Michael.

Operator, this concludes our prepared remarks.

Well, we can take questions now.

Thank you we will now be conducting a question and answer session cause he would like to ask a question. Please press star one on your telephone keypad.

Mason tunnel indicate your line is in the question queue. You May press start to if you would like to remove your question from the kids for participants using speaker equipment. It may be necessary to pick up your handset before pressing the start is one moment. Please while we poll for questions.

Our first question comes from the line of Lisa Thompson with Saks Investment Research. Please proceed with your question.

Good morning.

Thank you Sir.

So alright, so I have a few questions first off did you do spy back any stock this quarter.

We did not <unk> can you comment on this.

Sure sure.

In the <unk>, we we extended our blackout period for for Q3, and the reason behind that is <unk>.

We had a.

Standing appointment claim that was settled in Q3, and we didn't we didn't five shares.

During got negotiation period.

But you know clearly we think are our share price is is a great value.

Relative to where the business is in transit potential and you're likely to see a spy shares in the in the fourth quarter.

Alright sounds good which leads to the second question what was what happened with the claim and why is it still in the balance sheet and you're gonna get paid for that or.

How does that work.

Yeah. It's the claim is settled.

It's a confidential settlement it was scheduled at the economic terms and conditions that we reported in the second quarter.

You'll see if you looked at the balance sheet, you would see that we still have you know.

$2.2 million of insurance recovery.

That you would expect it to happen within the next 30 days so that will.

Generate some some additional cash flow for us.

But the agreement is finalized and it settled.

Okay, good and what in the quarter what <unk>.

Expenses did you have for that besides the actual payment.

Click lawyers.

<unk> for the claim we were fully reserved and second quarter. We did have a couple of hundred thousand dollars of you know legal expense uhm.

But as far as the claim.

That was all reserved and and Q2 2023.

Okay. So that maybe I could take 200000 off next quarter's expenses because of the lawyers.

Yes, yes.

Okay Alright.

That's good stuff and then as far as to the contracts that you signed in.

Data and analytics, you said 3.5 million.

Guesstimate, that's a one year contract is that additional revenue gonna just replace what you're losing or is that gonna be adding to revenue sequentially.

They they cause that's okay with you I'll I'll take that one yeah.

Yeah, I was going to pass that onto you're ready go ahead [laughter]. Thanks, Please say great questions. So.

It's a it's a combination of someone years there are a couple of multiyear contracts and there there's multiple contracts and that 3.5 million over over five two of them were were decent size as in a million dollars plus and one of those was a multiyear contract.

So one of the large ones was from a new logo I can't disclose the the name of the account, but it was a new logo and it was north of the million dollars that is a one year and so we will see all of that revenue in 2024, and it's a new logo. So it's it's net new revenue for the business not just a continuous and carry over one of the.

Other larger sizeable ones was a renewal, but a multiyear renewal and that revenue will continue but that account has.

We feel has growth potential and then the other accounts were were all net new or expansion on existing account does that answer your question.

Except for the part where I ask would that mean that you'll have sequentially increasing revenues net.

<unk> all that out.

With all of them, except for one for those deals that closed because one of them was a a a a linear renewal. So the revenue will will be flat year on year for that one opportunity that closed all of the other opportunities that closed in October or or sequential growth.

Four 2024, Okay for 2023.

And they would compensate for anything you might have lost.

Yes, yes that that is that is correct, yes that is a correct statement okay.

Alright, good that's a great sign. Thank you that's all the questions I have.

Thank you Lisa.

Thank you as a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.

Our next question comes from the line of Mark Radick with Snowdon Company. Please proceed with your question.

Hi, Good morning, everyone. I wanted to just start maybe you could bring us up to date on just a couple of things to billing on where do we finish on the quarter on the head count and maybe you can give us a utilization of date.

Sure sure Mark again for that number I'll ask Jack to.

Until the headcount.

<unk>.

<unk> the staffing billable consultant and that's the number that we publish in in the queue every quarter. It was it was 992 global concerns.

And that was that was down 49 consultant from the previous quarter.

Well I want I don't Wanna say, the previous quarter from the beginning of the third quarter.

But.

But that loss was.

Materially better than what were you experienced in Q1 and Q2 of 2023 so.

You know there is.

You know some hope an improvement.

In in that number.

Okay, and then could you sure anything on utilization and and then maybe bill rates as well.

Yeah or artwork in stamping or bill right was relatively flat for from the last quarter was.

A little over 24 $80.

$880 per hour.

A little over that and and it was pretty pretty close to being flat from.

The second quarter number.

Uhm utilization was utilization is you know a number that's very very important data and analytics.

As far as.

You know the utilization on the staffing business.

Which generally a pay an hour bill one hour.

And right. So irritation is less important in that business, but.

You know our our margins have improved dramatically in.

The D N a business and a lot of that has been improved utilization. So I think our utilization Michael you can correct me if I'm wrong, we're approaching 80 per cent, we approached gaggy per se in in Q3 of 2023.

So yes that is that is correct or utilization has continued to be a very heavy focus for us in 2023 are utilization has improved.

Mmm right around 17% since since January of this year through October 10th we have a forecast target for the year of about 75% utilization for the year.

<unk>, because our current target with with pretty decent level of confidence.

Okay that that's that's helpful. Thank you and I was wondering if you can talk a little bit and and prepared remarks that was commentary around efforts to look to reduce SG&A and and I was wondering if you could provide a little greater commentary around around those efforts and Ah maybe potential time that we could <unk>.

We might end up seeing that thank you.

Sure Mark [noise].

So actually you know controlling <unk> is really the back to the basics looking at every line item and the <unk> to see if we can eliminate <unk> and the obvious target is the description of you spend in this.

So we've looked at that and we'd be doing this every quarter. In fact that this is probably the third quarter in a row, so you'd be looking at that and see how we can sharpen. It then we have done a pretty decent job that <unk>.

Before the <unk> the increases your frozen.

Almost all hiring <unk> be exceptional one which is needed from time to time, we have actually eliminated notified nonperformers our local farmers.

Controlled travel renegotiated contracts with some of our suppliers.

Eliminated in <unk> company vans, and then a bonus and commission on the cruise. It also come down so it's a lot of that and diligently looking at every element on a continuous basis and we we've come to this point as a result of that for us.

Mmk. Thank God I was wondering if you could share if you had any thoughts on any particular call outs. Among your your customer base, whether there's any particular industry verticals that or maybe showing better signs of improvement than others or are there. Any particular, you know things that we should be thinking about as far as.

Like any differentiated behavior among customer basis. Thank you.

So yeah. That's a that's a very good question Mark and we are constantly looking at all the industry. What it goes to see <unk> picking up any signs in any one of them and obviously that will be the focus to see how we can.

Capitalize on that but unfortunately, right now almost all industry where to go to seem to be evenly balanced the financial services of course was much more impact than the others.

And as a result of that I guess concentration of revenue from the advil industry has shrunk a little bit which is good and bad which is so close <unk> anything that's been able to shrinks as bad news, but it's good because it started using that concentration as well. So that's where we are but but if you're looking for.

Positive signs the only thing that I can tell you is that after 15 months of virtually losing headcount available headcount month after month we've.

We've had a decent October and for the first month.

We've had actually no net loss, we've actually not lost any billable consultant and we've added a marginal increase.

We all know that one month does not make a trend, but that'll be hanging onto this positive mmm news, we can see a slight uptick on in in the <unk>.

Let's see how the rest of the quarter turns out but.

That's that's that's a positive things out for Ya.

Yeah, and thanks for <unk> I'm, sorry go ahead [laughter].

Yeah, and another plastic as in Q3 in the first half of the year.

A lot of our.

Head count declined global head done.

Global headcount decline happened in financial services, I mean, we had.

A lot of financial.

Services clients.

Ending projects and delaying started so another projects and you know maybe it was because of.

You know some of the banking issues that happened in the first half of the year, but in third quarter. While we did have financial services as a net decline in and head count. It wasn't nearly guys pronounced. So that was that was something that was positive in one of the reasons that we made a a signature.

Get improved and and.

In third quarter with respect to our head count loss compared to the the last two quarters for the previous two quarters.

Alright, thank you.

Thank you <unk>.

Sure.

Thank you.

As a reminder, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Froth Davidson with Baton Capital. Please proceed with your question.

Hi, Good morning, I had a question probably from Michael the bookings in Q3 was down you know quite a bit from Q2, and and even with the three and a half million. If I have that right that was sort of post the corner and I think you're still down sequentially and I was hoping you could just speak to a little.

Operator: Greetings, and welcome to the Mastech Digital Q3 2023 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: Anyone who require operator assistance during the conference, please pass star 1 on your telephone keypad. As a reminder, this conference is being recorded.

Date of kind of what you're seeing in and <unk>.

Why do you think or you know anything you can tell you about why you're seeing a decline in kind of what gives you confidence about going forward.

Jennifer Lacey: It is now my pleasure to introduce your host, Jennifer Ford Lacey, Manager of Legal Affairs for Mastech Digital. Thank you, operator, and welcome to Mastech Digital's third quarter 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.

Sure Thanks for off.

[laughter].

We're as we're making this transformation this year into focusing on more data modernization services versus a very siloed Indian business, which is traditionally what we what we have been focusing on we are building and creating pipeline.

Jennifer Lacey: 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 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.

Almost from scratch.

<unk> and our business for the nine months cell cycle. It takes average nine to 12 months to build that pipeline. The weakness that we saw in our bookings was for two primary reasons, one as I mentioned before do do some increased economic constraints the customers have applied to there.

Google processes internally on contract signatures on deals that are in excess of 500 K. We had several deals slip not all of which closed in October.

Jennifer Lacey: Without limiting the foregoing, the words believe, anticipate, 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.

The other reason is to be perfectly blunt with you as we didn't have enough pipeline because we're still building that pipeline from a data modernization perspective.

Which is why when the deal slipped out we had weakness or you saw weakness in our two three bookings performance.

Jennifer Lacey: 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 10K, filed with the Securities and Exchange Commission and available on its website at www.sec.gov. Additionally, management has elected to provide certain non-gap financial measures to supplement our financial results presented on a gap basis. Specifically, we will provide non-gap net income and non-gap diluted earnings per share data, which we believe will provide greater transparency with respect to the key metrics used by management and operating the business. Reconciliation of these non-gap financial measures to their comparable gap measures are included in our earnings announcement, which can be obtained from our website at www.nasticdigital.com.

The good news is as I mentioned before.

Approximately three and a half million have already closed in October.

That is that does not represent all of the deals that slipped into Q4 from two three and.

And we continue to see growth in our pipeline around data modernization services as I also mentioned in my prepared remarks.

Does that answer your thanks, Michael S <unk>.

Yeah Super helpful. And then I guess, you know with respect to M. D. M is that is that business declining in the sense that I mean, I understand you're you're you're broadening your focus which which makes a lotta sense.

And then with with the existing business that you had is it falling off at any is it finally got fed up more precipitous rate and I guess is that just mostly in your view just the the the reality of the economic situation or do you think that there is another day at work.

Jennifer Lacey: 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.

Yeah. So no I don't feel that it's falling off at his precipitous rate at all as a matter of fact, I I don't really feel that it's falling off the the the problem with only focusing on M. T M and one of the major reasons why we're transforming into a much broader date of modernization services company.

Jack Cronin: I will now turn the call over to Jack for a review of our third quarter 2023 results. Thanks, Jen and good morning, everyone. Our third quarter 2023 financial results continued to be impacted by economic uncertainty and our current and prospective clients' responses to these challenging market conditions.

Because you're.

Your cap that M. D. M. If you look at the total digital transformation space and the total digital transformation spend that's forecasted now through 2026, which far exceed three trillion dollars by the way by 2026 when.

Jack Cronin: Third quarter revenues total $47.8 million, representing the 24% year-over-year revenue decline. Both of our business segments contributed to this decline. Our data and analytics services segment reported revenues of $8 million in Q3 2023 compared to $10.1 million in 2022 third quarter. As customers continue to reduce resources on existing projects and order bookings, experience delays in signing new projects during the quarter.

When you look at that the percentage of it that is M. T. M. It's a very very very small sliver of spend versus a much larger sliver of spend around digital transformation, which is at <unk> and data modernization and so it's not that M. T. M is is falling offer declining or or or even decrease in any way shape or form.

It's more that we're basically saturated in M D a market for our existing customer base. The other thing that we were doing that I didn't mention that they're prepared remarks is we're expanding our partnership base within the Indian space traditionally we've been incredibly strong with I B M. We continue to remain very good IBM partners, but we're <unk> broadening out into other partnerships with an M T.

Jack Cronin: Q3 2023 revenues in our IT staff and services statement total $39.8 million compared to $53.1 million in the third quarter of 2022. The man continued to be soft in Q3 2023 as our global consultants declined during the quarter, albeit at a slower rate than experienced in the previous two quarters.

M. A strong partnership with Informatica, we just make platinum status this year as well as <unk> and a few others. In addition to broaden out our capabilities across state of modernization. So not only are we focusing on doing more than data modernization, we're not giving up on M. D. M. Either we are continuing to focus on growing that area too.

Got it okay. Thanks, Michael I appreciate it.

Jack Cronin: Consolidated gross profit as a percent of revenues in Q3 2023 improved to 26.3 percent compared to 25.8 percent in the third quarter of 2022, resulting in our best gross profit performance over the last five quarters. In our data and analytics services statement, gross profits as a percent of revenue improved significantly over Q3 of 2022. This improvement reflected higher utilization in the 2023 quarter and the impact of a $300,000 project cost overrun in the third quarter of 2022.

No worries.

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

Thank you all <unk> <unk>.

So if there are no further questions I would like to thank you for joining a call today and we look forward to sharing a fourth quarter 2023 results with you in early February.

<unk>.

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

Yeah.

Jack Cronin: In our IT staff and services statement, gross margins were down 80 basis points compared to the third quarter of 2022 largely due to year-over-year reductions in our direct higher revenues. Generally contract gross margins held up well when compared to last year despite challenging market conditions.

Jack Cronin: Gap net income for Q3 2023 was $125,000 or one cent per diluted share compared to $2.4 million or 20 cents per diluted share in Q3 2022. Non-gap net income for the third quarter of 2023 was $1.3 million or 11 cents per diluted share compared to $4 million or 33 cents per diluted share in the third quarter of 2022. Our third quarter non-gap 2023 net income and earnings per diluted share results were in line with last quarters numbers despite lower revenues. ST&A expense items not included in Q3 2023 non-gap financial measures, net of tax benefits, or stock based compensation, and the amortization of acquired intangible assets.

Jack Cronin: A description of non-gap items for all periods presented is included in our third quarter 2023 earnings release which is available on our website.

Jack Cronin: Addressing our financial position on September 30, 2023, we had approximately $16 million of cash balances on hand, no bank debt outstanding, and borrowing the availability of $25 million under our revolving credit facility. Our day sales outstanding measurement was 55 days at quarter which is much better than our targeted range of 60 to 65 days and one day better than our DSO measurement a quarter ago.

Vivek Gupta: I'll now turn the call over to Vivek for his comments. Thank you, Jack.

Vivek Gupta: Good morning, everyone. The same macroeconomic headwinds that we experienced during the first half of 2023 continued to impact our client spending dynamics in the third quarter, resulting in a 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 projects and new initiatives. Our data analytics services segment was also impacted by clients reducing resources on existing projects and delaying project starts on new orders.

Michael Fleishman: Michael will discuss our order booking performance and prospect in his prepared remarks.

Vivek Gupta: While recent growth in domestic GDP is a positive data point for the US economy, the recent conflict in the Middle East is yet another geopolitical event that has created additional uncertainty in the global economy. We are continuing to aggressively pursue steps to reduce our S.G.N, expenses as a mitigating action in these uncertain economic conditions. Our operating expenses totaled $12.6 million in the third quarter of 2023, which is a reduction of approximately $800,000 from the previous quarter.

Vivek Gupta: Let me reiterate that we believe that our company remains on a sound financial footing with a solid balance sheet access to 25 million of capital under our credit facility and long-standing relationships with several top companies in the world. I'm confident that both of our businesses will strongly recover when the market conditions improve.

Michael Fleishman: Let me now turn the call over to Michael for his comments related to our data and analytics services segment over to you, Michael. Thanks, Eric. And good morning, everybody. As Eric mentioned, uncertain economic conditions are clearly impacting our client spending behavior as we continue to see clients reducing resources on existing projects. While activity levels in our pipeline of opportunities remained elevated during the third quarter, project award delays resulted in a disappointing bookings performance of $5.1 million in the third quarter as clients and prospects implemented tighter expense controls.

Michael Fleishman: There is a bit of good news, however, since two sizable projects that were scheduled to commence in Q3 2023, as well as various additional smaller Q3 projects, all of which total approximately $3.5 million have been awarded in October of 2023, this past October. Behind our financial numbers, we believe we are making good progress in transforming our organization from a master data management firm to a much broader data and analytics company with capabilities around the entire suite of data modernization services.

Michael Fleishman: In this regard, our pipeline of opportunities continues to broaden with data modernization assignments constituting a higher percentage of our 2023 bookings and pipeline versus master data management when compared year-over-year. Also, in the third quarter of 2023, we continue to expand our gross margins to 45.8%, which increased 620 basis points over Q3 2022 gross margins. We believe a predictable utilization rate is a key component to our gross margin improvement in 2023 and is a point of emphasis by our delivery teams. This emphasis couple with tighter execution processes on our delivery are giving rise to increased margins year over year.

Michael Fleishman: In closing, I would like to say that I agree 100% with Vivek's belief that our financial foundation is strong, and that both of our business segments are poised for growth once more clarity in the global economy occurs.

Vivek Gupta: I'll now turn the call back over to Vivek. Thank you, Michael.

Vivek Gupta: Operator, this concludes our prepared remarks. We can take questions now. Thank you.

Operator: We will now 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.

Lisa Thompson: One moment please Our first question comes from the line of Lisa Thompson with SAC's investment research. Please proceed with your question.

Vivek Gupta: Good morning. Hi Lisa. All right, so I have a few questions. First off, did you do Vivek any stock with quarter? We did not. Jack didn't comment on this. Sure, sure. We extended our blackout period for Q3 and the reason behind that is we had a outstanding employment claim that was settled in Q3 and we didn't buy shares during that negotiation period. But clearly we think our share price is a great value relative to the businesses and domestic potential and you are likely to see us five shares in the fourth quarter.

Vivek Gupta: All right, sounds good. Which leads to the second question, what happened with the claim and why is it still in the balance sheet? Are you going to get paid for that or how's that working? Yeah, the claim is settled. It's a confidential settlement. It was settled at the economic terms and conditions that we reported in the second quarter. If you looked at the balance sheet, you would see that we still have $2.2 million of insurance recovery that is expected to happen within the next 30 days. So that will generate some additional cash flow for us. But the agreement is finalized and it's settled.

Michael Fleishman: Okay, good. And what in the quarter, what expenses did you have for that besides the actual payment for lawyers? For the claim, we were fully reserved in second quarter. We did have a couple hundred thousand dollars of, you know, legal expense. But as far as the claim, that was all reserved in Q2 2023. Okay, so that maybe I could take 200,000 off next quarter's expenses because of the lawyers? Yes, yes. Okay.

Michael Fleishman: All right. That's good stuff. And then as far as the contracts that you signed in data analytics, it's a 3.5 million. I guess to make that's a one year contract. Is that additional revenue going to just replace what you're losing or is that going to be adding to revenues substantially? Vivek, is this okay with you? I'll take that one. Yeah, I was going to pass it on to you anyway. Yeah, go ahead.

Michael Fleishman: Thanks. Lisa, great questions. So it's a combination of some one years. There are a couple of multi year contracts in there. There's multiple contracts in that 3.5 million over over five. Two of them were decent sized as an a million dollars plus. And one of those was a multi year contract. One of the large ones was from a new logo. I can't disclose the name of the account, but it was a new logo and it was north of the million dollars.

Michael Fleishman: That is a one year. And so we will see all of that revenue in 2024 and it's a new logo. So it's it's net new revenue to the business, not just continuance and carryover. One of the other larger sizeable ones was a renewal, but a multi year renewal. And that revenue will continue, but that account has we feel has growth potential. And then the other accounts were were all net new or expansion on existing accounts.

Michael Fleishman: Does that answer your question? Except for the part where I ask, would that mean that you'll have sequentially increasing revenues netting all that out? With all of them except for one for those deals that closed because one of them was a linear renewal. So the revenue will be flat year on year for that one opportunity that closed. All of the opportunities that closed in October were sequential growth for 2024 for 2023. And they would compensate for anything you might have lost. Yes, yes, that is that is correct. Yes, that is the correct state.

Lisa Thompson: Okay. All right. Good. That's a great sign. Thank you.

Lisa Thompson: That's all the questions I have. Thank you, Lisa. Thank you.

Operator: As a reminder, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad.

Marc Riddick: Our next question comes from the line of mark red equity and company. Please proceed with your question. Thank you.

Jack Cronin: Good morning, everyone. I wanted to just start maybe you can bring us up to date on a couple of things to fill in on. Where did we finish on the quarter and head count and maybe you can give us a utilization of base? and sure, Marc, again, for that number, I'll ask Jack to answer the head count. Yeah, the staffing bill will consultant, and that's a number that we publish in the queue every quarter.

Jack Cronin: It was 992 billable consultants. And that was down 49 consultants from the previous quarter. Well, I want to say the previous quarter from the beginning of the third quarter. But that loss was materially better than what we experienced in Q1 and Q2 of 2023. So, you know, there is some hope and improvement in that number. Okay, and then could you share anything on utilization and maybe bill rates as well? Yeah, well, in staffing or bill rate was relatively flat from the last quarter.

Jack Cronin: It was a little over 20 or $80 per hour, a little over that. And it was pretty close to being flat from the second quarter number. Utilization was, utilization is, you know, a number that's very, very important to data analytics, you know, as far as, you know, the utilization on the staffing business, you know, it's generally a, you know, pay an hour, bill, an hour. And so, utilization is less important in that business, but, you know, our margins have improved dramatically in the DNA business.

Jack Cronin: And a lot of that has been improved utilization. So, I think our utilization and Michael, you can correct me if I'm wrong. We're approaching 80%. We approach 80% in, in Q3 of 2023. So, yes, that is correct. Our utilization has continued to be a very heavy focus for us in 2023. Our utilization has improved right around 17% since January of this year through October end. We have a forecast target for the year of about 75% utilization for the year. Is there, is our current target with, with pretty decent level of confidence? Okay, that's, that's a, that's helpful. Thank you.

Vivek Gupta: I was wondering if you talk a little bit in, in prepare remarks, there was commentary around efforts to reduce this, you know, and I was wondering if we could provide a little greater commentary around, around those efforts and, and maybe potential time that we could, that we might end up seeing that. Sure, Mark. So, actually, you know, controlling the SGA is really the back to the basics, looking at every line item in the SGA to see if we can eliminate or defer spend.

Vivek Gupta: And the obvious target is the discretionary spend in this. So, we've looked at that, and we've been doing this every quarter. In fact, that this is probably the third quarter in a row that we've been looking at that and seeing how we can sharpen it and we have done a pretty decent job there. We've, we've deferred the merit increases, we've frozen almost all hiring, barring the exceptional one, which is needed from time to time.

Vivek Gupta: We have actually eliminated a lot of our non-performers or local farmers, is a controlled travel, a renegotiated contract with some of our suppliers, eliminated internal company events, and then bonus and commissioner rules have also come down. So it's a lot of that and diligently looking at every element on a continuous basis and we've come to this point as a result of that focus.

Vivek Gupta: Okay, thanks. And I was wondering if you could share if you had any thoughts on any particular callouts among your customer base, whether there's any particular industry verticals that are maybe showing better signs of improvement than others, or are there any particular things that we should be thinking about as far as like any differentiated behavior among customer bases. Thank you. So yeah, that's a that's a very good question, Marc, and we are constantly looking at all the industry verticals to see if we are picking up any signs in any one of them.

Vivek Gupta: And obviously that would be the focus to see how we can capitalize on that. But unfortunately right now almost all industry verticals seem to be evenly balanced financial services, of course, was much more impacted than the others. And as a result of that, I guess our concentration of revenues from that were industry vertical has shrunk a little bit, which is good and bad, which is of course bad news is anything with whenever it shrinks is bad news, but it's good because it's reducing the concentration as well.

Vivek Gupta: So that's where we are. But but if you look for positive signs, the only thing I can tell you is that after 15 months of virtually losing head count, billable head count month after month, we've had a decent October. And for the first month, we've had actually no net loss. We've actually not lost any billable consultant and we've had a marginal increase. Now, we all know that one month does not make a trend, but we are hanging on to this positive news. We can see a slight uptick on in the demand. And let's see how the rest of the quarter turns out, but that's that's that's the positive thing that we have seen.

Marc Riddick: Yeah, and thanks for dick and I'm sorry guys. Yeah, another positive in Q3 in the first half of the year. A lot of our head count decline, double head done, double head count decline happened in financial services. I mean, we had, you know, a lot of financial services clients, you know, ending projects and delaying starts on other projects and, you know, maybe it was, you know, because of, you know, some of the banking issues that happened in the first half of the year.

Marc Riddick: But in third quarter, while we did have financial services as a net decline in, in head counts, it wasn't nearly as pronounced. So that was, that was something that was positive and one of the reasons that we made a significant improvement in third quarter with respect to our head count loss, compared to the last two quarters for the previous two quarters. All right, thank you. Thank you, Marc. Thank you.

Operator: As a reminder, ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad.

Ross Davison: Our next question comes from the line of Ross Davison with Batonton Capital. Please proceed with your question. Hi, good morning. I had a question probably from Michael. The booking in Q3 was down quite a bit from Q2, and even with the three and a half million of other rights that was booked sort of post-beak quarter-end, I think you're still down sequentially. And I was hoping you could just speak to a little bit of what you're seeing and why you think, or anything you can say about why you're seeing it decline and kind of what gives you confidence about going forward.

Ross Davison: Sure, thanks, Ross. As we're making this transformation this year into focusing on more data modernization services versus a very siloed MDM business, which is traditionally what we've been focusing on. We are building and creating pipeline almost from scratch. And in our business with a nine-month fail cycle, it takes average nine to 12 months to build up that pipeline. The weakness that we saw in our bookings was for two primary reasons. One, as I mentioned before, due to some increased economic constraints, the customers have applied to their Google processes internally on contracts and measures on deals that are in excess of 500K.

Ross Davison: We had several deals slip, not all of which closed in October. The other reason is to be perfectly blunt with you is we didn't have enough pipeline because we're still building that pipeline from a data modernization perspective, which is why when the deal slipped out, we had weakness or you saw weakness in our Q3 bookings performance. The good news is, as I mentioned before, approximately three and a half million have already closed in October.

Ross Davison: That is not represent all of the deals that slipped into Q4 from Q3. And we continue to see growth in our pipeline around data modernization services, as I also mentioned, that my prepared remarks. Did that answer slide? Thanks, fabulous. Yeah, it's super helpful. And then I guess with respect to EM, is that business declining in the sense that, I mean, I understand you're broadening your focus, which makes a lot of sense.

Ross Davison: And then with the existing business that you had, is it falling off at any, is it falling off at a more precipitous rate? And I guess is that just mostly in your view, just the reality of economic situation, or do you think that there's another data that might work? Yeah, so no, I don't feel that it's falling off at a precipitous rate at all. As a matter of fact, I don't really feel that it's falling off.

Ross Davison: The problem with only focusing on MDM, and one of the major reasons why we're transforming it to a much broader data modernization services company, is because your cap at MDM, if you look at the total digital transformation space and the total digital transformation spend, that's forecasted now through 2026, which far exceed $3 trillion by the way, by 2026. When you look at that, the percentage of it, that is MDM, it's a very, very, very small flipper of spend versus a much larger sliver of spend around digital transformation, which is AppMod and data modernization.

Ross Davison: And so it's not that MDM is falling off or declining or even decreasing in any way, shape or form. It's more that we're basically saturated in the MDM market for our existing customer base. The other thing that we were doing that I didn't mention in the prepared marks is we're expanding our partnership base within the MDM space. Traditionally, we've been incredibly strong with IBM. We continue to remain very good IBM partners, but we're also broadening out into other partnerships within MDM, strong partnership with Informatica.

Ross Davison: We just made platform status this year, as well as RELTSIO and a few others, in addition to broadening out our capabilities across data modernization. So not only are we focusing on doing more in data modernization, but we're not giving up on MDM either. We aren't continuing to focus on growing that area too. Got it. Okay. Thanks, Michael. Appreciate it. No worries. There are no further questions at this time. I'd like to turn the floor back over to Mr. Gupta for closing comments.

Ross Davison: Thank you, operator. So if there are no further questions, I would like to thank you for joining our call today. And we look forward to sharing our fourth quarter of 2023 results with you in early February. 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.