Perficient, Inc.
Q1 2013 Earnings Call Transcript

Published: 9 May 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Quarter One 2013 Perficient Earnings Conference Call. My name is Angela and I’ll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. I now would like to turn the call over to Jeff Davis, CEO and President. Please proceed, sir.

[Jeff Davis:]

Thank you and thanks everyone for joining. With me on the call today is Paul Martin, our CFO. Again, I want to thank you for your time this morning. As usual, we’ve got about 10 or 15 minutes of prepared comments, and then of course we’ll open the call up for questions. Paul, will you please read the Safe Harbor statement?

[Paul Martin:]

Thanks, Jeff and 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 on 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. Again, thanks everyone for your time this morning. We’re pleased to share our first quarter 2013 results with you. We’re off to a solid start for the year and we reported a quarter that came in near the high end of our previously guided range and one where Perficient delivered revenue growth of 14% with net income growth of 38%. Average bill rate was $132 an hour for North American employees which remains an all-time high and is up 4% year-over-year. As we mentioned before, I have mentioned in the past, I still feel like there’s a gap there that we’re going to continue close relative to our competitors. Q1 bookings increased 10% year-over-year and 28% sequentially. We closed 35 deals over $0.5 million each on average during the quarter – during the first quarter averaging $1.4 million each. That compares to 24 in the fourth quarter at $1.3 million and 28 in the first quarter of 2012 at $1.2 million, so a nice improvement there as well. Also notable during the quarter were software sales of nearly $8 million, that’s a relatively small piece of our business but an important one for client and partner relationships and we anticipate more success there in Q2 and throughout 2013. The Q1 numbers of course don’t include any contributions from the acquisition of TriTek Solutions that we announced just last week. I’ll talk more about that addition later as we obviously are very excited to add them to the team. It deepens our portfolio and we gained important intellectual property assets and maybe most importantly or as importantly significant expansion into the northeastern U.S. with that transaction. So on the topic of intellectual property assets; I’m also going to comment on the news release we issued yesterday around the solutions we’re developing in the healthcare industry after Paul shares the financial details for the quarter, of course I’ll also comment on the outlook for Q2 and the second of half of 2013. Paul?

[Paul Martin:]

Thanks, Jeff. Total revenues for the first quarter of 2013 were $84.9 million, a 14% increase over the year-ago quarter. Services revenue for the first quarter 2013 excluding reimbursable expenses increased 11% to $73.6 million. Services gross margin for the first quarter of 2013 excluding stock compensation and reimbursable expenses increased to 35% from 34.1% in the first quarter of 2012. SG&A expenses increased to $17.9 million in the first quarter of 2013 from $14.8 million in the comparable prior year quarter. SG&A as percentage of revenue has increased to 21% from 19.8% in the first quarter of 2012. EBITDAS defined as earnings before interest, taxes, depreciation, amortization and stock compensation for the first quarter of 2013 was $10.3 million or 12.1% of revenues compared to $10.1 million or 13.5% of revenues in the first quarter of 2012. The first quarter 2013 included an amortization of $1.8 million compared to $1.6 million in the comparable prior year quarter. The increase is associated with the 2012 acquisitions. Our effective tax rate for the first quarter 2013 was 21.5% compared to 40.1% for the first quarter 2012. The decrease in the effective tax rate was primarily due to the research and development tax credit for 2012, which was approved in January 13 and factored into our first quarter provision as a discrete item. In estimate, for the 2013, credit was also included in our first quarter provision. Net income increased 38% to $4.1 million for the first quarter 2013 from $3 million in the first quarter of 2012. Diluted GAAP earnings per share increased to $0.13 a share for the first quarter of 2013 from $0.10 a share in the first quarter of 2012. Adjusted GAAP earnings per share increased to $0.22 a share for the first quarter of 2013 from $0.20 in the first quarter of 2012. Adjusted GAAP EPS is defined as GAAP earnings per share plus amortization expense plus non-cash stock compensation, transactions costs, fair value adjustments to contingent consideration, net of related taxes divided by average fully diluted shares outstanding for the relevant period. Our ending billable head count at March 31, 2013 was 1,539 including 1,359 billable consultants and 180 subcontractors. Ending SG&A head count of March 31, 2013 was 272. We ended the quarter with $6 million in outstanding debt and $4.1 million in cash and cash equivalents. Our balance sheet continues to leave us well positioned to execute our strategic plan. Our day sales outstanding on account receivable were 75 days at the end of the first quarter of 2013 which is down from 78 days at the end of the first quarter of 2012. We continue to focus on keeping DSOs between 75 and 80 days. I’ll now turn the call back over to Jeff, for a little more commentary. Jeff?

[Jeff Davis:]

Thanks, Paul. As I mentioned earlier, nice quarter for both revenue and bookings. I commented on the sequential and annual bookings improvements earlier and I think it’s worth noting that our April performance has also helped Q2 bookings get off to an impressive start as well, in fact, on a trailing four-month basis, so basically year-to-date to the end of April, 2013 bookings are up 14% over 2012. So I add to that the contributions we received from TriTek’s book of business and you can see why we remain very optimistic to the second quarter and the second half of 2013. I’m going to provide a little more detail now on the TriTek as well. So, operationally, it’s a great business with impressive bill rates and margins. But what we’re really excited about is as I mentioned before is the opportunity going forward. We’ve really long-looked for a way to gain some critical mass in the northeast and adding obviously a 100 people or more than 100 people actually in D.C., Boston, and New York helps us significantly in that regard. So, we’re excited about that expansion. In addition, TriTek’s focus on the financial services and insurance market is another compelling aspect to the deal. As you know, we’ve been building a financial services vertical modeled after our success in the healthcare industry and this is obviously going to accelerate our traction in that space as well with the – again, a good book business and targets that are right in our sweet spot, right in our wheelhouse there, customers that are good size for us and we believe we can execute our land and expand strategy with. The IBM, Pegasystems and EMC partnerships are obviously other important factors. It’s great to move meaningfully. And to the Pega space, we already had a small Pega business, small Pega practice and this obviously gets us some critical mass there and also supplements are existing partnership with EMC but really TriTek’s IBM portfolio and reputation was a key catalyst and our work around IBM technologies and that partnership is as important today as it was 15 years ago when Perficient was just getting started and any time we have an opportunity to add a firm that deepens our IBM capabilities and enjoy a stellar reputation within IBM as TriTek does, we’re going to explore it so we’re excited about in getting them into the Perficient group. Finally, we’re excited about the intellectual property assets TriTek brings to Perficient also. They built about a dozen BPM, business process management, and ECM, enterprise content management, products to supplement revenues but also accelerate solution delivery and service key differentiators in the marketplace. Throughout the years, we’ve built and acquired a small collection of IP assets around various technologies but the acquisition of TriTek along with the announcement that we made yesterday signals our more serious intent to expand in this area. So referring to yesterday, I’m talking about the joint announcement that we made with the Premier healthcare alliance where we’ll be developing several tools that we’ll offer to the Premier channel for those members to integrate more quickly and as well as provide mandated reporting with PremierConnect. That’s the platform that we’ve been developing with Premier and IBM for some time now. It’s only because of our long-standing relationship and partnership with Premier that we have the proper visibility to be able to develop tools like this. It’s a significant investment I discussed on the last call but we’re confident that there’ll be significant interest for them in the marketplace. In fact, we’ve already got interest from a number of customers and in fact one of these solutions in bundled in a deal that we’re working on right now that we expect will close in the next couple of weeks. So we’re not going to provide any specific revenue projections yet around these assets nor are they included in any of our guidance, but we do expect that they will generate meaningful ROI. And that they’ll help further distinguish Perficient in the marketplace. So before we get to the Q2 outlook, just a quick word to reiterate our plans around M&A. We talked about TriTek obviously and I want to point out that it remains our goal to pursue deals that would add somewhere around $50 million in revenues in 2013 and again next year in 2014. TriTek was a $90 million so that has us looking for another $30 million or so this year possibly more if we find the right opportunities. As you know by now, we run a very disciplined process so we don’t do deals for deal’s sake. No guarantees of course but the pipeline is full and we’re actually in due diligence with one firm right now and detailed discussions with a couple of more. So again, things are going well. We’re pleased with the start of 2013 and feel very optimistic around regarding the remainder of the year. And commenting on Q2 and the full year, Perficient expects its second quarter 2013 services and software revenue including reimbursed expenses to be in the range of $87.5 million to $93.7 million comprised of $82.5 million to $86.7 million of revenue from services, including reimbursed expenses and $5 million to $7 million of revenue from software – for sales of software. The midpoint of the second quarter 2013 services revenue guidance represents growth of 10% over the second quarter 2012 services revenue. The company is reaffirming its full-year 2013 revenue guidance range of $358 million to $378 million and raising 2013 adjusted earnings per share guidance to a range of $0.98 to $1.08. So with that, operator, we’ll open the call for questions, please.

[Operator:]

Thank you. (Operator Instructions). The first question we have comes from George Price from BB&T Capital Markets. Please go ahead.

[George Price:]

Hi, good morning. Thanks very much. Jeff the first thing I want to focus on this morning is on the margin side. So the top line, the headline numbers in terms of revenue and adjusted EPS seems fine but kind of looking that the – from the margin perspective, the margins were a little disappointing, I guess made up for by the tax rate. Operating margin was down year-over-year, you noted the EBITDAS margin was down year-over-year. Can you kind of go into that a little bit, was there anything unusual there? Did you, perhaps, used the low, did you see the low tax rate coming? Did you made some of your investments in the quarter, knowing you could offset that? If you could give a little bit more color on that?

[Jeff Davis:]

Yes, actually one of the biggest standouts on a year-over-year basis is bonus accrual. We did accrue about $750,000 of bonus in the quarter. We began an effort to kind of smooth that throughout the year by the way. So we do still anticipate the margin expansion that I’ve talked about before somewhere between 100 to 200 bps on gross margin and probably around 100 to 150 on EBITDA net of stock comp, so EBITDAS and then obviously better than that actually on GAAP-to-EBITDA as well as net income so, it’s primarily bonus accrual. We did have some investment in R&D as well and anything else Paul that you want to add in?

[Paul Martin:]

Yes, the other thing with the higher software compared year-over-year with the lower margins on software that also affected the EBITDAS margins.

[George Price:]

Okay. So do you, I guess, do you expect to see year-over-year increases on a margin basis for the rest of the year?

[Jeff Davis:]

Yes, absolutely and for the year in total.

[George Price:]

Okay. Second thing then would be, Paul, were there any unusual or one-time expenses or anything you’d call out in the quarter? I didn’t see anything in the release but just figured I’d ask.

[Paul Martin:]

Yes. On the SG&A side, certainly, as you saw the R&D credit, we did the work and had the professional fees associated with that that were probably an aggregate $300,000 or $400,000 that are mostly one-time.

[George Price:]

So that’s for the R&D tax credit?

[Paul Martin:]

Yes, sir.

[George Price:]

Okay. And then services revenue of $77.1 million was, I guess, maybe a little below versus my estimate kind of in the lower portion of the guidance range. Jeff, maybe you could comment on that and maybe in the broader context of how you see – I mean, demand environment looks great from a bookings perspective, but did the year kind of start off a little more sluggish perhaps than you thought it might or any comments there?

[Jeff Davis:]

Yes, it has. I think we were hoping for a little better start to the year in both the first quarter and this quarter, but still feel good about the year overall. As you pointed out, the bookings were strong. So we’re real optimistic still for the year in total and particularly the second half. So it was a little slower and I think other folks in the industry saw similar things. I’m not sure they’re seeing the same pickup now, but we certainly are. And so again, that has us optimistic. But yes, it’s a little slower, a little slower start as you noted. I think we’re just a little below the midpoint for Q1 on guidance.

[George Price:]

Yes.

[Jeff Davis:]

The actual, but yes, we were hoping for some upside.

[George Price:]

Okay, last thing and then I’ll turn it over. I noticed you added some Blues, Blue Shield of California, Florida Blue. Are those new Blue relationships?

[Jeff Davis:]

The Blue Shield of California is fairly new. I think it actually initiated last year in a small way, but it’s actually blossoming into a very, very sizeable relationship now. Florida has been a customer and actually did slow down, there’s been for probably a year or so and then we reinitiated that relationship with a good sized project and again hopefully we’ll broaden the relationship from there and expand that account as well. We’re in a multimillion – a million-plus engagement with them right now.

[George Price:]

And how many Blues now and I guess are there any incremental opportunities I guess from a scale perspective? Maybe that’s not the right way to look at it, but if you could comment on that and then I’ll get back in queue. Thanks.

[Jeff Davis:]

Yes. No, I think it’s a good question. I think we’ve got 10 total entities or flavors of Blues right now, maybe it’s even 11. And I do think – I don’t know that there’s a scale opportunity as much as we’re not – they do operate all independently. But we do actually have a dedicated team that is built with a charter of basically establishing these relationships, leveraging the relationships we have to open new doors and other Blues. Because while they’re independent, they do talk and obviously a reference from one Blue to another is meaningful. So we’re pursuing that.

[George Price:]

Great, thanks.

[Jeff Davis:]

Thank you.

[Operator:]

Thank you. Next question comes from Brian Kinstlinger from Sidoti & Company. Please go ahead.

[Brian Kinstlinger:]

Hey, close enough.

[Jeff Davis:]

Good morning, Brian.

[Paul Martin:]

Good morning, Brian Kinstlinger.

[Brian Kinstlinger:]

How are you?

[Jeff Davis:]

I’m well. How are you?

[Brian Kinstlinger:]

So just to look at it and make sure I have it correct, actually if I look at the services gross margin, I calculated at 36.3% versus 35.5% last year so it seems to me on the gross margin line, at least, it was all the mix of increased software. Is that not accurate?

[Jeff Davis:]

No, I think that’s right, that’s right. It’s the EBITDA that took a little bit of hit for those things that we talked about.

[Brian Kinstlinger:]

Right, right. Exactly.

[Jeff Davis:]

Yes.

[Brian Kinstlinger:]

Okay. In the recent press release, you just mentioned here the Premier project that you’re starting up. I’m curious, it sounds like that’s separate from what you were already doing in Premier and selling into the hospital base and maybe I’m wrong. First, confirm that. But then second, is this going to help speed up the new customer wins with Premier members?

[Jeff Davis:]

Yes. I think the answer is it is actually part of the same platform. So we built this platform Premier Connect and that was this data model and reporting engine that we’ve been talking about for a couple of years now and that’s basically ready for primetime now. We’ve implemented it with a couple of customers and are ramping up with a couple more. And when I say ramping up, by the way, there’s a follow-on opportunities for us in terms of revenue but in terms of the installing, getting us up and running. And yes, I do believe these assets that we’re building will help accelerate traction for both of us and Premier with this platform. Basically, the platform replace some of Premier’s existing toolsets but really hadn’t done a lot in terms of meeting the mandates and some of these other things that are required for hospitals to provide reporting on. So the assets that we’re building and we do that in a couple of very key areas. So we do believe it will get traction, help them get traction, help us a partnership get traction. By the way, I do want to mention on that channel since you brought it up, we talked about this just two months ago. I think in the Q1 call and we’ve added two customers since then I’m not going to name them but we’ve added two since then. I think I mentioned them that we believe we are going to begin to get some traction around us and in fact we’re seeing that now. And that’s one of the things that has us, one of the many things that we’re optimistic about the second half of the year. We’ve added two customers just initial stages right now so not a ton of revenue but they’ll grow quickly into a sizeable revenue. We actually have two verbals; two more verbals. And as I mentioned one of those verbals and by the way those are in the multi-million dollar range. One of those by the way will actually be leveraging the assets that we’re building at least the portion of the assets that we’re building.

[Brian Kinstlinger:]

And so how many of you have now? I think you had five before including Premier. And where do you think you will end the year?

[Jeff Davis:]

We have six now. So I think it was four before plus two and we maybe we had closed one of those when we spoke last. Anyway we’ve got six now, two more verbals and by the – in pipeline we’ve got 2, 4, 6, 8, 10, 12 – 12 new names in pipeline. I would expect there’s a good chance that half of those are closed before the end of the year. So we could end the year with 12.

[Brian Kinstlinger:]

And just give us a sense because the hospital and the members there are in varying sizes and some are small doctors, some are big hospitals. So would you think the average annual contract value for those are all multi-million because I take it you’re not doing the small doctors’ offices? So just give us a sense of what an average, I don’t need a high or the low, but what do you generally think that’s going to play out?

[Jeff Davis:]

Great question, it’s – the average is probably a $1.5 million to $2 million.

[Brian Kinstlinger:]

Okay.

[Jeff Davis:]

I would say for the first year and again I think there’s a long tail on this.

[Brian Kinstlinger:]

Now. I haven’t gone to all the numbers, but healthcare revenue two years ago ramped aggressively. Last year, it moderated for a couple of reasons, I think that we’ve discussed in past calls. What’s your expectation this year given the regulatory changes and your partnerships that is trying to gain traction, will we see acceleration?

[Jeff Davis:]

Yes, I think we’re definitely see acceleration on an absolute basis as well as probably a relative basis, of course, the acquisitions, kind of have a diluted effect there, unless we buy something in the healthcare space which we look to do but that’s probably unlikely given where values are right now so our evaluations are. I would say, definitely it going to grow in total dollars, absolute dollars and I think also relatively probably as a percent of revenue. I think we finished last year around 24. If we didn’t do any other acquisitions, I wouldn’t be surprised if it was closing back in on 30% again. It was 33% of bookings by the way in the first quarter.

[Brian Kinstlinger:]

And without looking in acquisitions or percentage of revenue, just specific growth rates of, organic growth rates of the verticals, which ones might you all, so think you see strengthen and which ones are you looking at? There’s a little bit of weakness and that won’t be main focus for the company for this year.

[Jeff Davis:]

I think the ones that are on focus, and for us, we do see strength are certainly healthcare. We still see good opportunity in the strength in financial services and we just bolstered that with TriTek obviously and have a lot of confidence in that space, really unique offerings there. And retail actually is another strong sector for us as well as telecom. We got significant relationships both in telecommunications as well as cable or cable companies that are in telecommunications. So for us, that’s a strength. In terms of weakening, nothing that I would say atypical, I mean manufacturing never a big spender. Probably, maybe if anything I would say, maybe I think for us again and I think we’re kind of a microcosm as maybe in the energy sector. But actually, we’ve got decent bookings there and long term commitments as well. So that’s one that probably I would say maybe plateaus. It doesn’t contract or maybe plateaus.

[Brian Kinstlinger:]

Great. And the last question, I missed it; you may have said it, kind of typing as fast, but Paul, did you give the breakdown of the verticals as a percentage of revenue?

[Paul Martin:]

Sure. And we actually have that on the website as well...

[Brian Kinstlinger:]

Okay, I can grab it there.

[Paul Martin:]

But it’s only 24% health – 24% healthcare and financial services 13% are the two largest.

[Brian Kinstlinger:]

Great. Thanks so much.

[Paul Martin:]

Sure.

[Jeff Davis:]

Thanks, Brian.

[Operator:]

Thank you. Next question comes from Peter Heckmann from Avondale. Please go ahead.

[Pete Heckmann:]

Hey, good morning, guys.

[Jeff Davis:]

Good morning, Pete.

[Paul Martin:]

Good morning, Pete.

[Pete Heckmann:]

Hey, I think it might have been my phone but I was – had a little bit of a breakup there when you’re talking about the bookings. It sounds like real strong bookings. Could you go over some of that if you would and talk a little bit more about kind of the trend that you’ve seen over the last couple quarters in terms of bookings and if you can kind of correlate that with any external shocks, it seems like we’ll have a good month and then maybe an off month or a good month, and then comment a little bit how the second quarter is starting out?

[Jeff Davis:]

Yes, I think – so we had a solid Q4. Q1 was good. It was 10% year-over-year and actually year-to-date though April was quite strong, certainly on a relative basis both sequentially as well as year-over-year. So with April, our year-to-date, we’re up 14% year-over-year at bookings and looking forward into the rest of Q2, I expect that’s going to continue. I think I’ve mentioned to you before that I’ve got some different tools and analysis that we’re using and that’s a pretty good predictor of both May and June. So, I’m actually very excited about what that’s telling us about what the likely May and June bookings are going to be and we should have a very strong Q2. Counter by the way to what happened last year. So, we weren’t sure if that was some kind of new seasonality or not, you may recall that in Q2 last year, bookings were actually down on a year-over-year basis. I’m very confident that’s not going to happen again this year, so we’re excited about that and again that’s why we remain optimistic for the second half and the balance of the year.

[Pete Heckmann:]

Got it. That’s really helpful. And then with regard to the offshore head count, would we expect that to grow this year by any significant amount or is the mix about right at current level?

[Jeff Davis:]

It’s probably in terms of mix, it will outpace the U.S. No, I wouldn’t say dramatically. I think last year the growth there was 20% or so I think in revenue – offshore revenue last year and head count didn’t follow in kind because we actually intentionally drove utilization up a little bit, but we’ve got utilization more or less where we want it now. So, head count growth would probably be linear with revenue growth there. And again, I would expect that the growth offshore will outpace the U.S. – I don’t know if they’ll be double again or not, but it would be something ahead of the U.S. So, we’ll be doing some head count addition there.

[Pete Heckmann:]

Okay, okay. And then we’ve seen solutions related to TIBCO tail off a bit as Oracle has gained strength. Can you talk about bookings within TIBCO? Just curious it seems like there’s some interesting things going on there.

[Jeff Davis:]

Yes. We’re actually kind of renewing our relationship again as we often do with TIBCO. They’re an interesting partnership, I’ll say it that way. But we’re seeing good strength there and we’ve got – I think I’ve talked about this before, we’ve got Leap Wireless Cricket. Cricket was a big TIBCO customer of ours and that relationship is winding down, winding down naturally, by the way. So on par, we’ll probably be flattish with TIBCO but we’re certainly seeing some good opportunity and some traction out there.

[Pete Heckmann:]

Okay, that’s helpful. I’ll get back in the queue.

[Jeff Davis:]

Thanks.

[Operator:]

Thank you. Our next question comes from George Price, BB&T Capital Markets. Please go ahead.

[George Price:]

Hi. Thanks, guys. So Paul, just to kind of close out on the tax rate, what do you expect for the full year and what should we kind of think about I guess on a go-forward basis, on a quarterly basis given that we have the 2012 R&D catch-up out of the way but we have each quarter, you’re going to take – and improve for 2013.

[Paul Martin:]

So it ought to be right and they’re going to be pretty closely adjusted in the GAAP rate. It should be around 36% for the second through fourth quarters.

[George Price:]

Okay, all right and so whatever that – what is that in your mind pan out for the year roughly around?

[Paul Martin:]

It will pan out in the year, I think, roughly around 35 or so because there’s more income in the last three quarters.

[George Price:]

Okay. And you said that the adjusted in the GAAP will be pretty close?

[Paul Martin:]

Yes.

[George Price:]

Okay.

[Paul Martin:]

I mean obviously we’ll be – the GAAP was lower than the adjusted in Q1 because of that discrete item over a smaller base. So that piece will carry over, but the rates for the second through fourth quarter should be pretty similar.

[George Price:]

Got you, okay. Jeff, on bookings, you gave us some metrics, talk a little bit about confidence looking into the second quarter. Can you maybe talk a little bit about trends within the bookings kind of what you’re seeing deal size perhaps mix, pricing. How are the clients maybe putting together the work in terms of phases anything to sort of better understand what’s on the minds of those who are – your clients who are buying?

[Jeff Davis:]

Yes, they are larger longer term deals, in fact. So, we’re going to talk about the average deal size of $1.4 million for the 30 deals we closed – 35 deals we closed in the first quarter. $1.4 million that’s up from $1.3 million in the fourth quarter and up from $1.2 million a year ago. So they’re larger and longer term. Another good metric there – I guess in short, we’re seeing good strength among the customer set that we are pursuing. So, I mentioned this on the last call, but we are – we have a concerted effort and this has been underway for a number of years, but I think we’re accelerating or stepping up the efforts to move our focus to more of a large customer base, that Fortune 1000 base, and with that comes these larger, longer term deals, more stability and the ability to develop relationship that lasts multi-years and is multi-million dollars per year. So a good metric there is on our top 50 customers, last year, we did $3.2 million on average with those top 50, up from $2.9 million the year before. So again, growth that’s outpacing the company’s growth and I think as we build a bigger base there and that becomes a larger percentage of our revenue, I think it’s going to help accelerate growth as well. In the first quarter of this year, we had in the top 50, the run rate, the annualize run rate in of course this will be that’s dynamic, so there will be some shift. But the annualized run rate with this top 50 is $3.5 million, so again, already up another 10% over last year.

[George Price:]

Okay. That’s helpful. Pricing, I guess, I know you’ve talked about still upside opportunity relative to what you’re seeing in the market from competitors. How much more upside do you think you could get in the current environment? What do you expect to pull down on an average basis, I guess, this year?

[Jeff Davis:]

Yes, a good question. So we started the year where we finished the year and the first quarter was consistent at $132 an hour in the U.S. and actually up a little bit more in offshore, so 4% year-over-year. I think I mentioned in the last call, I’m not necessarily – we’re not necessarily planning, so it’s not baked into by the way those margin expansion projections I’ve mentioned earlier that we’ll get another 4% this year. So I do think that acceleration or that velocity slows a bit as we closed that gap more and more. So to answer your question, I’d like to see 1% or 2% realized in the year, so that our average for the year is maybe 135 something like that. And in terms of how far that can go before I think it really starts to slow or plateau, I honestly think it’s in the mid-140s in the current climate. And of course as the market continues to heal or improve in terms of the macro environment in the economy I think we’ll see demand pickup and I think they will actually reaccelerate and again move beyond 145 with inflation and cost of living and especially if the IT market tightens.

[George Price:]

Okay. Going back to the strategy of pursuing the larger clients, Fortune 1000 kind of clients, do you – maybe you haven’t picked up on this yet, maybe it’s not happening, but just I guess a potential scenario. Obviously, the macro situation in Europe is pretty weak, probably a little weaker even perhaps people thought it would get. I know you don’t have any direct exposure there, but certainly some of these larger clients that you’re talking about do business on a global basis and probably many of them have some business there. Have you picked up on any potential for customers like that to try and do anything to their spend or their investment here in the U.S. or with providers like you here in the U.S. to sort of offset maybe things getting weaker than expected in Europe.

[Jeff Davis:]

Yes. It’s a good question. I would say that I don’t think we’ve seen any trend there. I mean, there’s certainly pockets of companies that are facing challenges for whatever reason. I don’t think that we could isolate it to – in any of those instances that I think of – one that come to my mind I could say that, I don’t know that any of them has said, yes, specifically global economy-driven or European-driven pretty much as the generalization that sales are off or revenue is off or costs are too high. But again, I would say no more than normal. It’s what I observed there. And actually, let me quality or clarify my comment about Fortune 1000 also, we have a lot of customers that are mid-market customers that have complex IT needs and sizeable budgets because IT is a significant part of their business. We obviously – and that’s the Blue Cross’ and a lot of those customers in the healthcare space obviously, those are meaningful targets of ours as well. So it will be a balance of those as we go forward.

[George Price:]

Right, okay. All right. Thanks very much.

[Jeff Davis:]

Thank you.

[Operator:]

Thank you. (Operator Instructions).

[Jeff Davis:]

It sounds like none. Hello.

[Operator:]

Yes. There is one more. It comes from George Price from BB&T Capital Markets. Please go ahead.

[George Price:]

Hi. I just had one more. On the offshore side, any update on the strategy for expansion in India, the head count there, kind of how you see that playing out and I don’t think this is the case at all but do you see any potential impact from some of the more restrictive terms that have been thrown around in the pending proposed senate immigration legislation. Thanks.

[Jeff Davis:]

Yes, good question. Actually, our growth in India will probably outpace China. Simply again, we introduced that sort of as a geopolitical hedge. We were able to amass some solid talent there. Our attrition experience there is really quite good, so it’s been very stable for us. And I think it’s going to continue. We’re kind of a small, but new player in the space down there and we seem to be able to attract good talent and the folks seem to enjoy working for us. And some customers will choose India over China based on a lot of the media reporting on IP risks. So, I do think it allowed pace. In terms of the immigration legislation that they’re kicking around, I don’t think we’re going to be impacted by that. We have less than 15% of our employees that are on H1Bs or L1s. So I think we would, out of the gate, far below any threshold that I’ve heard being debated about right now. And we don’t really tend to rely on that too much. We know we do seek those folks out, very talented people and when we can we’ll sponsor an H1B, but it hasn’t been a key to our hiring strategy, so if we have to do less of it, I don’t think it’s going to impact us directly too much. The one concern that I think everybody should have would be we’ve already got, I think, a shortage in this country on talented IT skilled people. And obviously that’s just going to tighten more, so it’s going to drive costs up and probably make it harder to hold on to talent.

[George Price:]

Right. Just on India, what’s the head count there now? What do you think – do you have any thoughts on what you’d end the year at?

[Jeff Davis:]

We’re about 55 or so.

[Paul Martin:]

We entered the quarter with billable, it was 32, but 35 of 50.

[Jeff Davis:]

Okay. All right. So 32 and then, yes, by the end of the year 50 or better? I would say.

[Paul Martin:]

Yes.

[George Price:]

Great. All right. Thanks, guys.

[Jeff Davis:]

Thank you.

[Operator:]

Thank you. There are no further questions. I would now like to turn the call back over to Jeff Davis. Thank you.

[Jeff Davis:]

Okay. Thank you all for your time today. We appreciate it and look forward to talking to you in another quarter.

[Operator:]

Thank you for your participation in today’s conference. This concludes your presentation. You may now disconnect.