Perficient, Inc.
Q3 2018 Earnings Call Transcript

Published: 3 Nov 2018

[Operator:]

Good morning and afternoon, ladies and gentlemen. And welcome to the Q3 2018 Perficient Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Chairman and CEO, Jeff Davis.

[Jeff Davis:]

Good morning. This is Jeff. Thank you all for your time this morning. With me on the call as usual is Paul Martin, our CFO. As typical, we will have 10 minutes, 15 minutes of prepared comments, after which we will open the call for questions. Paul, would you please read the Safe Harbor statement?

[Paul Martin:]

Thanks, Jeff. Good morning, everyone. Some of the things we will discuss in today’s call concerning future company performance will be forward-looking statements within the meaning of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements, and we encourage you to refer to the additional information contained in our SEC filings concerning factors that could cause those results to be different than contemplated in today’s discussion. At times during this call, we will refer to adjusted EPS, our earnings press release, including a reconciliation of certain non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles or GAAP, is posted at our website at www.perficient.com. We have also posted a slide deck, which includes a reconciliation of certain non-GAAP goals to the most directly comparable financial measures prepared in accordance with GAAP on our website under Investor Relations. Jeff?

[Jeff Davis:]

Thanks, Paul. Once again good morning and thank you for joining. We are excited to share our third quarter results and update with you our expectations for the remainder of the year. There’s really a lot going on right now in the market, all of its very positive for Perficient, and we are going to discuss some of that. Services revenue was up 5% versus a year ago, and you may recall, our third and fourth quarters last year were quite strong. So that’s growth over a tough comparison. Services revenue for the year through the end of Q3 is now up 11%. Most exciting about Q3 was the profitability we were able to deliver, improved utilization and strong fiscal discipline drove increased services gross margin and adjusted EPS of $0.41, which is at the very top end of our guidance. That all transpired during our quarter, where we also grew by acquisition, were recognized by several partners with high profile awards and saw market development that bodes well for our business and all of that is continuing beyond Q3 and Q -- into Q4 and beyond. During the quarter, we added to our digital capabilities with the acquisition of Stone Temple Consulting, a highly regarded and award winning digital consultancy, focused on search engine optimization and content marketing services. And as I am sure you also saw, earlier this week, we announced the acquisition of Elixiter, a marketing automation firm that helps us continue to enhance the capabilities. We are able to bring to CMOs and marketing organizations who are tasked with driving digital transformation and improving the customer experience, both of these groups will play an important role as we continue to deliver the end-to-end digital experience solutions to our clients, though they must deliver to their customers. Interestingly enough, in the midst of our pursuit of Elixiter, a firm we like specifically because of its expertise in the Marketo stat, Adobe announced its intention to acquire Marketo. We talked for several quarters about the success we had growing a deep partnership and strong business around the Adobe platform and how excited we were when they acquired Magento, another key partner of ours. And now as we bring Elixiter into our portfolio, Adobe looks to do the same with Marketo. In recent weeks, partners like Red Hat, Sitecore and Pivotal have recognized Perficient with awards and similar to the Adobe, Magento and Adobe, Marketo deals, we were very excited early this week to learn IBM since we did acquisition of Red Hat. When two of our key partners join forces, it creates meaningful opportunity and momentum for us and we expect great things going forward as IBM and Red Hat provides. In addition to the awards received, Perficient continued support relationships with industry analysts, influencing opinion and gaining visibility. This quarter, Forrester Research named Perficient one of the 11 providers that matter most in a report covering digital process automation. Specifically, within the report, Forrester called out our ability to maintain long-term relationships with prominent clients and referred to us as a trusted partner. Normalized bookings during the quarter were great up double digits, one of the strongest performances, as I can recall, and certainly, the strongest in the last couple of years. That should help us close the year solidly and get 2019 off to a great start. So sum of all that, we completed a convertible debt offering during the quarter, where we raised more than $140 million, which was then used to pay off our existing credit facility and execute a large buyback, leaving us with $45 million cash on balance sheet and full access to the original $125 million credit facility. That, coupled with strong cash flow we are generating each quarter leaves us very well-positioned to grow the company and execute on our strategic plans for years to come. So, with that, I am going to turn the call back over to Paul to cover the financial results before I touch on a few additional items of note and our outlook for the fourth quarter and updated guidance for the full year. Paul?

[Paul Martin:]

Thanks, Jeff. Services revenues were $122.9 million for the third quarter of 2018, a 5% increase compared to the comparable prior year period. Services gross margin for the third -- three months ended September 30, 2018, excluding stock compensation and reimbursable expenses increased 40 basis points to 37.8%. SG&A expense excluding stock compensation increased to $26.7 million in the third quarter of 2018 from $24.7 million in the comparable prior year period. SG&A expense excluding stock compensation as a percentage of revenue increased to 21.5% from 20% in the third quarter, primarily due to change in recognition of software and hardware revenues on a net versus gross basis. EBITDAS for the third quarter of 2018 was $19.5 million or 15.8% of revenues, compared to $19.2 million or 15.5% of revenues in the third quarter of 2017. Third quarter included amortization of $4 million, compared to $3.9 million in the prior year period. During the third quarter of 2018, we recorded expense of $0.7 million through adjusted fair value of contingent consideration liability, primarily related to our Southport acquisition as a result of favorable performance compared to original assets. Interest expense of $0.8 million increased from $0.4 million, primarily as a result of cash interest and non-cash amortization that includes discounts and issuance costs related to the convertible debt issued in September. Our effective tax rate for the third quarter of 2018 was 25.3%, compared to 33.3% for the third quarter of 2017. The lower effective rate for the three months ended September 30, 2018 was primarily due to the lowering of the U.S. tax rate from 31% to 21%. Net income decreased 10% to $6.3 million for the third quarter of 2018 from $7 million in the third quarter of 2017. Diluted GAAP earnings per share decreased to $0.19 for the third quarter of 2018 from $0.21 in the third quarter of 2017. Adjusted earnings per share increased to $0.41 during the third quarter of 2018 from $0.34 in the third quarter of 2017. You can see the press release for a full reconciliation of -- to GAAP earnings. And as a reminder, adjusted EPS is defined as GAAP earnings per share plus amortization expense, non-cash stock compensation, transaction cost, amortization of debt discount, issuance cost, fair value of adjustment of the contingent consideration and the impact of infrequent or unusual transactions net of taxes divided by average fully diluted shares outstanding for the period. I will now turn to the nine-month results. Services revenues were $364 million for the nine months ended September 30, 2018, an increase of 11% over the comparable prior year period. Services gross margin for the nine months ended September 30, 2018 excluding stock compensation and reimbursable expenses decreased approximately to 36.8% from 37% in the comparable prior year period. SG&A expenses excluding stock compensation increased to $78.4 million for the nine months ended September 30, 2018 from $72 million in the comparable prior year period. SG&A expenses excluding stock compensation as a percentage of revenues increased to 21.4% from 20.5%, primarily due to the change in recognition of software and hardware revenues on a net versus gross basis. EBITDAS for the nine months ended September 30, 2018 was $54.8 million or 15% of revenues, compared to $50.1 million or 14.3% of revenues in the nine months ended September 30, 2017. The nine months ended September 30, 2018 included amortization of $12 million, compared to $11.1 million in the prior year comparable period. During the nine months ended September 30, 2018 we recorded expense of $1.8 million to adjust a fair value of our contingent consideration liabilities, primarily related to our Clarity and Southport acquisitions as a result of favorable performance compared to original assets. Our effective tax rate for the nine months ended September 30, 2018 was 25%, compared to 46.4% for the nine months ended September 30, 2017. The lower effective tax rate for the nine months ended September 30, 2018 was primarily due to the lowering of the U.S. tax rate. Net income increased 41% to $17.1 million for nine months ended at September 30, 2018, from $12.1 million in the comparable period. Diluted GAAP earnings per share increased to $0.50 for the nine months ended September 30, 2018 from $0.36 for the nine months ended, September 30, 2017. Adjusted earnings per share increased to $1.13 for the nine months ended September 30, 2018 from $0.86 in the comparable period. Our ending global headcount at September 30, 2018 was 2,676, which included 2,448 billable colleagues and 228 subcontractors, and the SG&A headcount at September 30, 2018 was 458. As Jeff mentioned, our convertible debt issuance during the quarter increased our outstanding debt, net of unamortized discounted and deferred issuance costs to $119 million, compared to $55 million at year end. We also ended the third quarter with $44.9 million in cash and cash equivalents and our balance sheet continues to leave us very well-positioned to execute against our strategic plan. Our day sales outstanding on accounts receivable were 77 days for the third quarter of 2018, compared to 79 days in the comparable prior year period. I will now turn the call back over to Jeff for a little more commentary behind the metrics Jeff?

[Jeff Davis:]

Well, thanks, Paul. We sold 43 deals north of $500,000 during the quarter that compares to 59 in the second quarter of this year and 32 in the third quarter of 2017, so nice growth and large deal volume versus the prior year. As I mentioned earlier, those bookings were up substantially year-over-year as there were a number of very large deals embedded with this -- within these statistics. During the quarter, the health sciences, financial services, retail and consumer goods, and manufacturing verticals combined to represent 66% of revenue with healthcare at 30%, financial services at 14%, retail and consumer goods at 12%, manufacturing at 10%. More and more the market is realizing we have the strength and scale to deliver the same work that majors do, but at higher quality, more efficiently and with quicker time to value. We are as good as and most of the times better than the biggest names and our approach is not only more thoughtful and collaborative but more comprehensive. And finally, I would be remiss if I haven’t mentioned the news included in our release regarding the retirement of Chief Operating Officer, Kathy Henely. All of Perficient owes Kathy tremendous thanks for contributions over the course of nearly two decades. She’s been a dedicated leader and executive partner in helping us build this business. One of the many legacies she leaves and her assistance in structuring and building out very deep and experienced extended leadership team. Hence we are fortunate and excited to announce the promotion of Vice President, Tom Hogan, into the role of COO. Tom’s been a strong leader for more than a decade at Perficient, has great understanding of the business, a strong sales background and a solid operational acumen. He is going to be an excellent COO. So, again, many thanks to Kathy and congratulations to Tom, it was a great third quarter. We have good momentum heading into Q4 and we are very optimistic about the potential for 2019. We are excited to issue our fourth quarter guidance and raise our full year earnings estimate. Perficient expects its fourth quarter 2018 revenue to be in the range of $125 million to $131 million. Fourth quarter GAAP earnings per share is expected to be in the range of $0.15 to $0.18. Fourth quarter adjusted earnings per share is expected to be in the range of $0.39 to $0.42. Perficient is narrowing its previously provided full year 2018 revenue guidance to $492 million to $498 million, adjusting its 2018 GAAP earnings per share guidance range to $0.66 to $0.69, and raising its 2018 adjusted earnings per share range to $1.52 to $1.55. With that, Operator, can we open up the call for questions please?

[Operator:]

Certainly. [Operator Instructions] Your first question comes from Mayank Tandon with Needham and Company. Your line is open.

[Mayank Tandon:]

Thank you. Good morning, Jeff and Paul. Few questions on the revenue line, I think, looking at 3Q, its maybe at the lower end of expectations and also for 4Q guidance, and you tightened the revenue range a touch lower for the full year. Could you comment on what may have been the factor behind that and maybe in the context of what you are seeing in terms of key verticals like healthcare, retail and maybe financial services as well?

[Jeff Davis:]

Yeah. Absolutely. First, let me point out that we are about $600,000 below the midpoint of our guidance, so really about 0.5% off of the midpoint of our guidance. But, yeah, it’s -- I would say, all-in-all the macro environment is still strong. We see a good -- we have a very good pipeline. We have great bookings. That’s more the carryover of the cancellations that we talked about in the second quarter. Totaling, I want to say about $50 million impact to the year. So we had to work to come up from under that, probably, didn’t get quite far long as we would have liked to in Q3, but, again, pretty close to our guidance.

[Mayank Tandon:]

Jeff, could you provide some color in terms of what you are seeing on the key vertical front and I also wanted to get your thoughts around your expectations for margins. This year looks like a good year in terms of margin performance. Maybe if you could talk about expectations longer term, as you go into ‘19, maybe not getting into specific but just in terms of the trend on the margin line as well along with some of the details around the vertical exposure in revenue. That would be helpful. Thank you.

[Jeff Davis:]

Yeah. Absolutely. So those four verticals I mentioned in the script. We are strong performers in the quarter. From a bookings standpoint healthcare is continues to be head and shoulders above the rest. I want to say healthcare represented almost half of our bookings in the quarter. So continued strength there, but, again, financial services holding its own, probably not growing as fast as some others, but retail, automotive performing very well, manufacturing performing well for us, we have got some key accounts there. So, all-in-all, like I said, I would say we are seeing improvement or at least solid performance and strength pretty much across the Board. The one exception might be financial services for us. But, again, it’s holding its own and the rest seem to be performing well, particularly from a bookings standpoint. So macro to us looks good. In terms of trends on margins, we were planning and I have talked about this before, I had a goal of 2% to 3% rate increases this year. We have not been able to get there. I do think they are trending up now. Although, it’s early to tell here in these most recent bookings, but we believe that we are seeing that trend improve. And I expect to continue to see good margin expansion or solid margin expansion, probably, of at least 100 basis points next year, and to your point, we won’t be putting anything out on that specifically for a while, but that’s certainly be my goal. I would still like to see us getting to 40% gross margin, net of stock comp on services. I think we hit 38%, 37.8% this quarter, so we are close, and like I said, I would like to see us move more towards that next year with at least 100 basis point improvement.

[Mayank Tandon:]

That’s helpful. And just finally on organic growth, I think, when you came into this year, I think, the target was high single digits? What is the goal today, based on what you have seen so far in the nine months the organic growth for the year? That’s it for me.

[Jeff Davis:]

Yeah. I think we are going to end up next month. I think we are going to end up in the 2% to 3% range. The higher end of our guidance I think would be at 3% and we feel pretty comfortable with this guidance, I think, there’s some upside there. So around 3%, and then, I think, if you went back and added back those cancellations. Unfortunately, that’s not how the world works. But that would put us at about 6%. So it’s still be a little below. Again, where we thought we could be at the beginning of the year, I think, combination of those cancellations along with not being able to push ABR as quickly as we hoped combine to kind of keep it in that range. One thing I should note though is, offshore continues to grow outpacing our onshore business. So billed hours are a 1 point or 2-point differential to the positive of the organic revenue growth. So 3% organic revenue, 4%, 5% billed hours, and again, the difference between that and the high-single digits really is those cancellations.

[Mayank Tandon:]

Thank you.

[Jeff Davis:]

Thank you.

[Operator:]

Your next question comes from Frank Atkins with Sun Trust. Your line is open.

[Frank Atkins:]

Thanks for taking my questions. I wanted to ask a little bit more around the impact of IBM and Red Hat. What client feedback have you gotten so far and can you kind of walk through why this is a positive and what typically happens in these situations?

[Jeff Davis:]

Yeah. Absolutely. I can’t tell you what the client feedback is yet. It’s just simply too early. I haven’t had a chance to catch up with our bill books. Although, I expect it will be positive just from my perspective. I think it’s -- it was a pricey deal for IBM. But I think it really enhances their portfolio. So if you are an IBM guy [ph], I think, you would be happy with that and even from a Red Hat shop perspective, I think, you would be happy with the stability and the broader portfolio now available to them. We have been through a number of acquisitions with IBM over the years. It’s our longest standing partnership and still I would say one of the largest -- from a platform standpoint, one of the largest revenue generators of the business. Although, that’s obviously been changing, as others have grown faster, it’s become relatively smaller, but it’s still large. We have a very, very good relationship with IBM. Any time they do an acquisition, one this large is unusual, they come into an acquisition, we are one of the partners that they enable first and in this case they don’t need to enable us, because we already have a really strong relationship with Red Hat. So for us, it’s two great partnerships joining forces. We know and are thought highly of by everybody on both sides, and in fact, both sides have been already reached out and expressed an interest in us being a key partner and help them bring together out in the field. So we are excited about that. I think if nothing else, like I said, it should drive a lot of leads our way. In fact, I am confident as well from both sides of that, like I said, we know all the salespeople have a good relationship with them.

[Frank Atkins:]

Okay. Great. That’s helpful. Just a quick numbers question, could I get organic revenue in the quarter, just the percentage?

[Paul Martin:]

Yeah. It was down roughly 0.5% in the quarter.

[Frank Atkins:]

Okay. And then, I noticed that the -- in the revenue by platform, the other technology segment increased a little bit and is now a significant part of the base in terms of the technologies. Could you give us some examples or some granular color on what’s included in that other technologies by platform?

[Jeff Davis:]

Yeah. Absolutely. You have heard us talk about Pivotal throughout the year. So Pivotal falls in there. Red Hat, as I just mentioned, falls in there. Sitecore is another meaningful or material component of that. And that is likely as those continue to grow that we will be breaking that back out again. But right now they are rising to the threshold of a separate breakdown. A couple of others that are in there, by the way are Magento and MicroStrategy and I think all of these are hovering around, sort of $15 million or so level, and like I said, we are probably breaking them out pretty quick.

[Frank Atkins:]

Okay. And then, what do you think it will take to drive ABR improvement going forward. It’s been a little bit of a challenge this year and what are the levers you think you can pull to drive that higher in that kind of 2% to 3% goal range?

[Jeff Davis:]

Well, we are certainly providing additional incentive focus on that for both our sales folks and for our delivery folks, as well as just simply awareness. But one of the things that as is kind of good and bad in that and I didn’t touch on earlier is that, as we talk about those bookings that we have been doing, the reality is some of those are very, very large multiyear deals and in those deals, you found a little pricing power. And so this will make a little difficult to raise ABR and also we have got these long-term relationships makes it a little bit difficult to raise rates along the way. However, what we have done instead is drive utilization up and utilization’s up year-over-year by about a point or so, which obviously, is really on profit, so that helps to offset it. And actually, our average base salary is also down 1% year-over-year. So we have managed -- the team has done -- management team has done an excellent job of effectively managing that consulting pyramid and introducing us, particularly on these larger engagements, more people at the base of the pyramid and keeping the top of the pyramid from getting too far ahead of the rest. So, and the net result of that is in spite of a significant rates pull this year in the 3% to 4% range, average salary is actually down 1%. So those are the numbers we got. I still want to see ABR come up. I think we can do that, and again, we are focused on putting incentives in place to make it happen.

[Frank Atkins:]

Okay. Great. Thank you very much.

[Jeff Davis:]

Thanks, Frank.

[Operator:]

Your next question comes from Brian Kinstlinger with Alliance Global. Your line is open.

[Brian Kinstlinger:]

Hi, guys. Thanks for taking my questions. You mentioned growth from revenue, well, we can see that in line item that healthcare was a big driver. It’s also, you have discussed the main driver to the quarter is bookings. Can you comment on the common trends that are driving that demand? And then, is a bunch of that coming from acquisitions, is there -- or is there a big -- a large organic growth perspective from healthcare?

[Jeff Davis:]

No. It’s primarily all organic. I would say virtually none coming from acquisitions. There are some small pieces, but de minimis compared to the growth that we are enjoying there. And the answer to your question is the theme is digital transformation. It’s all that. It’s about patient journey, patient as consumer, so digitization, digitalization in the industry, the paradigm shift, and like I said, it’s all about the patient journey whether we are working with healthcare providers or pairs. And the split between those two is still about, I want to say, 40-60 something like that, but everything that we are doing, a lot of analytics, a lot of patient facing, customer facing applications as well, and complete redesigns, redeployment of portals, but, like I said, suffice it to say it all fits squarely under the digital transformation umbrella.

[Brian Kinstlinger:]

And would you say that answer’s the same for the retail and consumer space, albeit on a smaller base, is that digital transformation driving that accelerated growth as well?

[Jeff Davis:]

It is. You might be surprised most of them we are doing or might not be actually, most of what we are doing in automotive and actually manufacturing is -- fits under the digital transformation there…

[Brian Kinstlinger:]

And then you can…

[Jeff Davis:]

I would say 60% plus of our revenue now, maybe more fits under that.

[Brian Kinstlinger:]

And then when you look at your customer base, where are you, maybe using baseball, what inning are you within your customer base of that digital transformation? Are you early in the process with them, are you late in the process, are you somewhere in the middle, how do you think about that?

[Jeff Davis:]

Yeah. Honestly, it’s early for sure and using the baseball metaphor, I would hazard, honestly, second or third inning. Particularly if you look at healthcare, that’s just going to continue on at the tail. The bar is going continually be rising and competitors are going have to continue to sharpen their game as well. So there could be a long tail in my view on digital transformation in general and some of these industries in particular, they have a lot of catching up to do and health care is one of them. So second or third inning.

[Brian Kinstlinger:]

And then one question on the IBM, Red Hat, I know people have asked. But what I am not -- if you could articulate how it changes your business? I mean, you said that would increase business lead volume, you are already a top partner for IBM, you are already a top partner for Red Hat. What changes that you get more business leads?

[Jeff Davis:]

Well, with all these changes when IBM makes acquisition is once they turn their substantial sales force onto those new solutions and services, growth happens pretty quickly, which again should increase lead flow to us. We are going to be automatically a go to partner because of the relationship that we have with Red Hat already. And I would tell you that it’s no secret that IBM’s portfolio is a little behind. So I think this is transformational for IBM. I think it will be right in the center seat to take advantage of that. They are betting the farm on this, quite obviously, to go full cloud and we are seeing a lot of demand around cloud development, platform as a service with Red Hat OpenShift is going to be an incredible component to IBM’s portfolio now. But I am sure they are going to drive a lot of business at and spaces they were behind in cloud and this catches them up.

[Brian Kinstlinger:]

Got it. One more and then I have two numbers questions. When you look at pricing, which is up about 1%, maybe a little less this year, what was the reason that you were not able to increase prices, is it your sales folks thought they had to be more competitive on price doing deals or they couldn’t get as many increase as they wanted, I mean, what do you think led to that in such a strong economy?

[Jeff Davis:]

Yeah. As I commented on earlier, I think, honestly, it’s profits, primarily, a lot of the top areas we are growing ahead, and we don’t want to hamper the growth, so it’s a balance between the two. But I would say the major reason is that 85%, 90% of our revenue is coming from clients that they have been clients for a long time. It’s a little more difficult to raise rates in that kind of a scenario. But also, again, these large, large engagements that, frankly, we can accept a lower rate in exchange for the deployment of a lot of consultants with high utilization. So the gross margin calculations on those projects are still intact and still hit the goal even though the rate might actually be 1 point or 2-point or 3-point below what we want to drive forward as an average. Does that make sense?

[Brian Kinstlinger:]

Yeah. Yeah. Sure. Last question on the share buybacks, what do you expect the company to exit the year on a share count basis and will it be an accelerated buyback, is that over time? Just remind me the details behind that.

[Jeff Davis:]

Well, we are going to continue to buyback. We always had a 10b5-1 plan in place when the -- we are out of an open window. But in the open windows, we certainly take advantage of opportunities to buy and now is no different. I happen to think that the stock is very attractive to buy right now so we will be -- once we are out of blackout, we will be coming out and trying to pick some up, but the answer to your question...

[Paul Martin:]

Yeah. So, Brian, there’s a thing called Q3 2018 financial results on our website and it shows our estimate is $32.5 million for the fourth quarter.

[Brian Kinstlinger:]

Great. Thank you so much.

[Paul Martin:]

Which is now $1.1 million from…

[Brian Kinstlinger:]

Yeah.

[Paul Martin:]

… what are the average share count for Q3.

[Brian Kinstlinger:]

Right. Right. Thank you.

[Jeff Davis:]

Thank you.

[Operator:]

Your next question comes from Vincent Colicchio with Barrington Research. Your line is open.

[Vincent Colicchio:]

Yes Jeff, I am curious your strong bookings, is there any concentration with a handful of clients in any verticals or is it broad based?

[Jeff Davis:]

No. It’s pretty broad based. When I refer to that, I am referring, what we call normalized organic, so, obviously, we are taking out any acquisitions that we haven’t had for over a year. But also from a normalized standpoint, when we do win a large deal, like we did in July, as an example. It was a three-year multi-eight figure contract. So we compressed that to 12 months and trunked it off to get the two years and come back around and be added it next year. So it’s a solid good number. No more than 12 months out, even though a lot of contracts run more than 12, and like I said, substantial double digits year-over-year.

[Vincent Colicchio:]

And then, what needs to happen to hit the high end of your revenue guidance range, is there any, probability really is there any possibility that some of the canceled deals come back?

[Jeff Davis:]

To that, I would say, no. Those deals from Q2, I think, are gone, well, I shouldn’t say that, actually, one of them went with a competitor that we don’t think is going to end well, so they may come back. But the reality is if everything goes our way in terms of the deals that we had out there for bookings and the timing on those, in this business, particularly in our business, the issue -- the big challenge is we came in the quarter with 90 some odd percent in backlog, right. The big challenge is we got those deals. We know they are going to close. When we know which ones are going to close for the most part, they are kind of good odds leading system. The issue is when will they close? So two-week slip, two-week slip on somebody’s key deals can make a big difference, so to answer your question. If think it’s going to fall our way. There could be upsides that we have put out here and I hope there is, again, I think, we have put out there a very reasonable and achievable midpoint, but there’s upside potentially to that.

[Vincent Colicchio:]

And then a follow-up on pricing, are you seeing better pricing with clients that you have added in the past, say year or two?

[Jeff Davis:]

Yes. And I would say probably even more specifically in the last quarter or two. One of the focuses we have with the sales team right now, is to bring in new logos and new accounts. I mentioned that we keep business number a minute ago, I would actually like that to be a little lower, not in the form of losing any of that, but by adding more growth in the form of new logos. So we, obviously, have better control in a new relationship and in the new logos, obviously, they are competitive, but we can drive $1 or $2 or $3 more in those deals. So I would say the trend is good, again, we have got these large, large deals, there might be a little bit of a drag on it. But I actually think we will be able to drive ABR up. I still feel there is a pretty substantial gap between us and our core billable competitors.

[Vincent Colicchio:]

Thank you for answering my questions.

[Jeff Davis:]

Thanks, Vincent.

[Operator:]

[Operator Instructions] Your next question comes from Allen Klee with Maxim Group. Your line is open.

[JoshGoltry:]

This is Josh in for Allen. So for the acquisition of Elixiter. Can you be more specific about how much it is accretive to earnings and what is there profitability like and their margins?

[Paul Martin:]

Yeah. So their profitability is fairly comfortable, slightly better than our overall average. So it will be accretive, yeah, very modestly to adjusted EPS here in Q4 because we have two months, but it will be probably $0.02 to $0.04 in 2019.

[Josh Goltry:]

Okay. Nice. And your bill rate has been trending down, I think, you sort of already touched upon it. But do you anticipate the bill rate to expand any time soon or are you expecting that to remain pretty much in line from where it is now?

[Jeff Davis:]

Yes. Josh, I think, we are about flat year-to-date and that’s not where we wanted to be. Our goal for the year was to raise it 2 points to 3 points and we are still working on that. So my -- actually my goal again next year in fact it’s likely to be our goal every year. I think we are in a climate, labor markets tightened up so we should have some good pricing power. Our win rates are great. Our delivery capability is the best in the business. So, again, there’s a pretty substantial gap between us and the panel and our best competitors, and we are going to go after that, again, 2 points to 3 points. As I mentioned earlier though one of the challenges, which has a silver lining is that, we are winning larger longer term deals and in exchange for that we are -- probably we are offering a little bit more discount. But, again, we offset that from a margin standpoint with longer term deployments higher utilization.

[Josh Goltry:]

Okay. And you highlighted in the press release some new customers, are those as a result of the acquisition or are those customers that you have actually engaged with or is it both?

[Jeff Davis:]

No. I think those were primarily if not all organic.

[Josh Goltry:]

Okay.

[Jeff Davis:]

And I would -- yeah, chalk them up to, as I mentioned earlier, we have got a focus and incentives on that for our sales team to bring in new logos and we are having success with it. So we are on track with our goals on new logos this year.

[Josh Goltry:]

Okay. Got it. Yeah. And most of my questions were answered. So thank you. That’s it guys.

[Jeff Davis:]

Okay. Thank you.

[Josh Goltry:]

Yeah.

[Operator:]

There are no further questions at this time. I would now like to turn the call back over to Jeff Davis.

[Jeff Davis:]

Okay. Well, thank you, everyone. As you can see, we are happy about the Q3 results. We are excited about Q4 and excited about the potential in 2019 with the bookings that we are enjoying, bookings in October were stronger again. So we will look forward to talking to you again in a few months about those results. Thanks.

[Operator:]

This concludes today’s conference call. You may now disconnect.