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

David Polonitza – AB Value Management Howard Rosencrans – Value Advisory

Thank you, Operator, and welcome to Mastech's second quarter 2013 conference call. If you have not yet received a copy of our earnings announcement, it can be obtained from our website at www.Mastech.com.

With me on the call today are Kevin Horner, Mastech's Chief Executive Officer; and Jack Cronin, our Chief Financial Officer. I would like to remind everyone that statements made during this call that are not historical facts are forward-looking statements.

These forward-looking statements, include our financial, growth and liquidity projections, as well as statements about our plans, strategies, intentions and beliefs concerning our business, cash flows, costs and the markets in which we operate. Without limiting the foregoing, the words believes, anticipates, plans, expects, and other 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 2012 annual report on Form 10-K, filed with the Securities and Exchange Commission and available on their website at www.SEC.gov.

As a reminder, we will not be providing guidance during this call, nor will we provide guidance in any subsequent one-on-one meetings or calls. I will now turn the call over to Jack for a review of our second quarter 2013 results.

Thanks, Jen, and good morning, everyone. Revenues for the second quarter of 2013 totaled $28.9 million, or approximately 14% higher than second quarter 2012 revenues, and represented a 7% improvement over the first quarter of 2013.

Our IT operations continued to see solid activity levels during the quarter as we grew our consultants on billing by 9% in Q2. Market conditions in our healthcare operations were in line with last quarter from an activity standpoint.

However, higher assignment ends in our travel nursing business negatively impacted revenues during the quarter. Gross profits for the second quarter of 2013 totaled $5.5 million or 18.9% of revenues, compared to $4.8 million or 19.1% of revenues during the same period last year.

Despite being down 20 basis points from last year's margin performance, it's important to note that we were 80 basis points higher than the previously reported quarter. Our gross profit expansion reflects an increase in billable consultants on assignment in the second quarter of 2013, compared to the corresponding 2012 period.

Our slight gross margin erosion was due to declines in our healthcare business largely the result of an unfavorable service offering mix of revenues. SG&A expenses were $4.2 million in the second quarter of 2013, which was slightly higher than last year's $4.1 million.

SG&A expenses represented 14.5% of total revenues in the second quarter of 2013, compared to 16% of revenues in the corresponding 2012 period. While we prudently added productive capacity to both our sales and recruitment organizations during the quarter, we continued to rationalize every aspect of our SG&A expense.

Accordingly, net income for the second quarter of 2013 was $789,000 or $0.23 per diluted share, compared to $458,000 or $0.14 per diluted share in the second quarter of 2012. Addressing our financial position, at June 30, 2013, we had outstanding borrowings, net of cash balances on hand, of $2.9 million, and had borrowing capacity of approximately $14 million under our existing credit facility.

During the quarter, our primary source or our primary use of cash was for investments and operating working capital to support our revenue expansion. In our view, that's a very healthy use of cash.

I'll now turn the call over to Kevin for his comments.

Thanks, Jack, and good morning all. I am pleased to report another quarter of impressive year-over-year top line and bottom line growth at Mastech.

As Jack had said on a year-over-year basis, we grew revenues by over 14% and increased diluted earnings per share by 64%. More impressively, sequentially, our performance was equally inspiring with revenue growth of 7% and an earnings per share improvement of 35%.

Additionally, we expanded the number of our IT billable consultants by 9% for the quarter, which is one of our best performances over the last five years that the Company's been public. I'd like to offer a well-done to the team at Mastech and, importantly, a thank you to our clients.

Operationally, we continue to see steady incremental improvements from both our sales and recruiting organizations. Our activity levels during Q2 were largely in line with the previous quarter, yet all of our key operational metrics, including assignment wins were materially up during the quarter.

Clearly, we're starting to see payback from our focused investments to our offshore recruiting organization. Having recently returned from visits to both our Bangalore and New Delhi recruitment centers, I can tell you that I'm excited about the quality and the passion of our staff and the high energy environment that I saw while I was there.

As I said in last quarter's call, it's been very satisfying for me to see this transformation occurring in the organization. I believe this upbeat attitude will continue to drive quality financial results and will enhance the value proposition that we offer our clients.

To that end, we intend to continue to invest. We will invest in our recruiting team and we will invest in our sales team.

Our teams have proven to me that they take our investment strategies seriously and are willing to drive return on that investment. Once again, thanks to the Mastech team, to our customers and to all of our stakeholders for a great quarter.

At this point in time, I'd like to open it up for questions.

Hi, guys. It’s actually Brian Warner with Howard.

I got three quick questions for you. One, could you sort of flesh out the assignment end on the nursing side and sort of what impact that had maybe on your top line?

Second real quick question – were you guys in the market at all to repurchase any stock? And third question – you made a reference in your press release to – you're sort of seeing the potential for a more disciplined bidding on assignments and that might – seems it sounds like tweaked the gross margin higher.

Could you just give us a little color on that?

Sure. Let me try to do the easy one first.

We have not been in the market repurchasing anything.

In June, we repurchased a few thousand shares. But that's…

But that was early in June.

Yes, yes.

So…

Got you.

Yes. So, your gross margin question…

Yes.

Yes. Let's try that one.

I think this is really simply the impact of our organization changes taking hold. The changes that we made at the beginning of the year with our new COO.

And fundamentally, he's brought some discipline into our sales processes, specifically, around gross margin dollars and gross margin dollars – or gross margin percentages. And it's not rocket science in our business, right?

It's a much more disciplined execution than it is a rocket science question. So, really, I think what we're doing is we're taking a much closer look at every single deal we do.

And we're working those deals to get best opportunity for three basic stakeholders – for our customers, for our consultants and for our company, so, you know, we're focusing on those three. And I think we've done a much better job in our second quarter than we did earlier in the year.

Got you.

Yes. To the – Yes, the travel nursing and – you want to take that Jack.

Yes. It was, the higher level event, it probably cost us about $200,000 of revenue.

Got you.

For the quarter

Got it. Thanks very much, guys.

Congratulations.

Thanks.

Hey, guys. Good morning.

Wanted to ask on the revenue growth numbers, very strong numbers, is – was that coming from most of the existing contracts or clients? Or do you guys bring on some new business recently?

Yes. Principally, Dave, that's working our strategy of growing inside of our large scale existing customers, so that's been principally about continuing to work our large customer base with, again – with a bunch of more discipline.

Okay. And I know in the past – you might have addressed this – but do you have any comments about the whole visa and immigration situation maybe for people, who haven't heard how that might affect Mastech in both a positive or a negative way?

Yes. I'll take a shot.

The – so, let me set context from the perspective of the sweeping immigration change bill that has passed the Senate, right, and is sitting in front of the House – and I don't want to talk politics, I just want to make sure that we set context around what will bounce up against is Mastech's business against that Senate bill. You know at the end of the day, we like it and we like it pretty significantly simply because the definitions in that bill align well to our business.

So, let me talk a little bit about the fact that our business – we have roughly 725 consultants on billing today and about 80% to 85% of those are our own employees, about – roughly 100 of those are either corp to corp or 1099 vendors. Inside of that employee base, we split about 55-45 between the US citizens and H-1B visa holders.

Those H-1B visa holder portion of our population, we are generally speaking not an importer of talent, we are working with H-1Bs that are currently on the ground in the US, and we have a great reputation for – as an employer. So, generally speaking, we end up with people coming to us wanting us to employ them.

And part of that employment contract – when we employ an H-1B is we actually file for the Green Card generally speaking at the same time. And our theory on that is what we want to create is a long-term path to citizenship.

That's really the way we play the game and it's a – we're looking for a long-term citizen/voter/a home owner/tax payer. That's really what our strategy has been.

And that's not a Kevin strategy; that's not something different. That's been here for a long time, inside of our organization.

So, when you look at the Senate bill, with us approaching that visa marketplace that way, we're actually advantaged. And so we like it.

So, our standard business practice fits very nicely into that bill. Does that help you, Dave?

Yes. No, that definitely does.

And the only other question I had you know you mentioned the Company has increased assignment wins during this quarter. What are some of the reasons for the Company being able to improve in that metric?

A personal belief is the investments that we have made principally on the recruiting side of our organization and those investments go to both our own internal talent acquisition processes and the fact that we've actually done a much better job over the last 12 months of acquiring recruiting talent. And then, secondly, the investments we’ve made in training, in development, and education for that recruiting population of folks.

We've spent a lot of time and money helping to develop that team, with both on-the-ground leadership in our recruiting centers in Bangalore and in Noida and with some recruiting expertise out of our Pittsburgh office that has over the last 12 months spent a lot of time on planes and trains and automobiles between Pittsburgh and India.

And what type of capacity in the past – you know, in the quarters that have been reported already, do you guys add to the recruitment organization?

Boy, that's a tough question. Dave, I can't answer that exactly.

I just don't have the number in front of me.

Sure.

But I can get it. My suspicion is we're probably close to flat Q2 to Q1; I don't think it's appreciably different.

I think the key for us in the second quarter has been all about the development of the talent that's on the ground. And that's where we're getting the wins; we're getting wins based on productivity and effectiveness.

Great. Well, congratulations, guys, and I appreciate all the good work you did.

Thanks.

Hi, guys. Congrats on a great quarter.

Thanks.

This is Howard Rosencrans. The – three questions.

The SG&A leverage you got in the quarter, is that sustainable? I mean you picked up 150 bps, that's pretty incredible.

Do we have to have this sort of top – if we can do this sort of top line growth to where we add 9% on billings and 14% on top line, is that sort of a level of SG&A we can look at going forward?

Yes. Howard, without giving guidance, I think you may recall from our presentation in June – that's a of Sidoti conference – that's – probably, it gets out on our website and so on and so forth.

I think what we told folks, as part of our goals would be we intend to drive SG&A as a percent of revenue down to the 13% to 14% range over the next couple of years. And I believe that what you see in the second quarter is just an outcome of that focus around how we want to spend our SG&A dollar.

Now, what I don't want is to drive anybody to think that we are over managing our cost structure because, frankly speaking, we're not. We are really focused on growing the top line.

And as I said in my remarks, we will continue to invest in both our sales team and in our recruiting team. So, we absolutely have evolved to grow the top line with our existing customer base at least one and a half times the way our publicly traded peers are growing.

So, that's our goal.

And then, a couple of follow-ons there. Your gross margins – and I guess could you give us a little more color on your – on the revenue growth, in terms of – I mean you have the consultants on bill of 9%.

Is your margin being driven by – is it pricing on the same sort of contracts? Or is it a better mix?

Is it more on mix? And is it more on mix and that's driving your gross margin?

You know in the IT, it's really not – it's all about your gross margins on the new starts versus your gross margins on the projects that you win. And you know in second quarter our gross margin percentage on our new wins – coming into the Company – has been greater than what has been going out than projects in.

Okay. Okay.

And can you give us any – a little bit more on the buybacks? You have the big authorized buybacks.

Why are you holding back?

Well, but part of the – but part of – interestingly enough, part of the buyback process is the amount we can buy is governed, right, by the – by what's been traded, right?

Yes.

And as you know we're fairly (fittedly) traded. Now, what we are always willing to do is buyback in a block.

So, if any of our shareholders or investors would like to sell something in a block, we are more than happy to do that. And there are mechanisms – in twice to be able to do that and to our agents.

So, we're more than happy to do that in a block but we'll leave the market at, I guess – we will come out of a – out of this quiet period – in this non-trading period in a couple of days and we will continue to examine, whether it makes any sense to buyback or not. Yes.

At this point in time, it's – I – we will continue to examine it, right. And it's a question about do we use cash to drive growth?

Or do we use cash to buy back.

Yes.

Last question – any thoughts on the pipeline that you have now? I mean you sort of alluded to it but I'm not sure if pipeline or backlog – whatever you want to – I guess, that was backlog per se.

Yes. So, again, I wanted to be careful that we're – what we say is a (inaudible) guidance.

I think there are couple of things you can take away from our – from the information that we've – that we've got publicly out there. Number one – a 9% sequential grow rate on consultants on billing is – number one – it's an impressive number.

Number two – it does begin to allow people to do some analysis on what you might think that means from a forward fair point. I can't do that analysis, you'll have to do that analysis.

But you know you can do that analysis with that might means – forward looking.

Okay.

Secondly, we've – as I've been saying now for several quarters...

Yes.

And as I said at the Sidoti Conference, we have really large-scale customers who are large-scale consumers of IT services. And we will continue to work that customer base.

And our intent is to get – to win share; we expect to win share in that space. And that – if you want to think about that as pipeline, but we've got the largest consumers of IT services – of IT contingent labor in the US are all customers.

And so, frankly speaking, we've got more demand than we can shake a (stick) at from our existing customer base. Doesn't mean we don't want new customers because we'll be focusing there at the second half of the year but we – you know – we – our focus has been to grow that engine on the recruitment side, so that we can handle the demand that we already have.

And I feel pretty comfortable that we've been successful with that over the last several quarters.

Thank you very much, and congrats again.

Thanks, Howard.

Well, assuming there are no more questions, I'd like to thank everyone for joining the call today. We'd look forward to sharing our third quarter 2013 results with you on late October and everyone have a great way.

Thanks much.