Perficient, Inc.
Q2 2013 Earnings Call Transcript

Published: 1 Aug 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Quarter Two 2013 Perficient Earnings Conference Call. My name is Michelle and I will 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 Jeffrey Davis, President and CEO. Please proceed, sir.

[Jeff Davis:]

Thank you and thank you all for joining us today. With me is Paul Martin, our CFO. We’ve got as typical 10 or 15 minutes of prepared comments, after which of course we’ll open the call up for questions. Before we continue, 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 earnings per share. 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 and this 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. Well, good morning again and thank you all for joining once again. We’re excited to discuss our second quarter results with you. We’re pleased with the performance and our momentum heading into the second half of the year, in fact our confidence in the business and our ability to drive additional margin. Going forward, reported, as I’m sure you’ve noticed already, an opportunity to materially raise our full year earnings guidance range. I’ll discuss that in more detail a little bit later. This morning we reported a quarter that came in above the high-end of our previously guided range and one where Perficient delivered revenue growth of 15% with net income growth of 27%. Average bill rates increased to $133 for North American employees as an all-time high and up 4% year-over-year. We continue to see an opportunity to grow ABR in the next several quarters, toward near-term goal in the range of mid 140s. That’s going to be a key contributor obviously to achieving our goals of realizing 40% plus gross margins on our services business. Bookings success that we referenced on the first quarter call carried through into the second quarter. Our Q2 bookings increased 22% year-over-year with total year-to-date bookings up about 15% year-over-year. A key metric we used amounted to the business is our success in booking larger deals, and we talked about this before in our land our expand strategy. So, we had 22 deals over $500,000 closed during the quarter that averaged $1.1 million each. That compares to 15 in the year ago period that averaged $860,000 each. Year-to-date we’ve booked 57 deals north of $0.5 million that average $1.3 million each, compared to 43 deals averaging $1.1 million in the first half of 2012. So, we continue to focus on growing large accounts that were capable of sustaining multi-million dollar annual relationships with. In 2012, we served $69 million plus accounts and we’re currently on track to serve 77 this year and actually have a goal to reach 85 still this year. We had another very solid quarter in software sales, I had mentioned in the last call, is not the core focus of our business, which will always be services. But providing this service to our clients and driving these sales for our partners create several downstream benefits, we discussed these before. We’re getting more sophisticated and structured here with the growing focus on an inside sales capacity to help drive these deals to closure and of course each of these deals have significant services attached to it. Software is always lumpy and hard to project in any given quarter but we’re optimistic that we’ll see year-over-year growth again in the second half of 2013, despite the fact that we had a strong second half in 2012. The second quarter results of course include only a – partial quarters contribution from the two acquisitions we completed in May, integration of each of those is going very well and early performance is positive, I’m going to talk a little bit more about that also a little bit later. And I’ll be also back to comment on the outlook for the second half of 2013 after Paul shares the financial details for the quarter. Paul?

[Paul Martin:]

Thanks again Jeff. Total revenues for the second quarter of 2013 were $94.2 million, which is a 15% increase over the year-ago quarter. Services revenue for the second quarter of 2013 excluding reimbursable expenses increased 11% to $80.4 million over the comparable prior year period. Services gross margin for the second quarter of 2013 excluding stock compensation and reimbursable expenses increased to 37.3% from 36.7% in the second quarter of 2012. SG&A expenses increased to $18.9 million in the second quarter of 2013 from $16.6 million in the comparable prior year quarter. SG&A as a percentage of revenue decreased to 20% from 20.2% in the second quarter of 2012. EBITDAs, for the second quarter of 2013 was $14.5 million or 15.4% of revenues compared to $12.5 million or 15.2% of revenues for the second quarter of 2012. The second quarter 2013 included amortization expense of $2 million compared to $1.8 million in second quarter of 2012. This increase is associated with the 2012 and 2013 acquisitions. As Jeff mentioned, net income increased 27% to $4.6 million for the second quarter from $3.6 million in the second quarter of 2012. Diluted GAAP earnings per share increased to $0.14 a share for the second quarter of 2013 from $0.12 a share in the second quarter of 2012. Adjusted GAAP earnings per share increased to $0.28 a share for the second quarter of 2013 from $0.24 a share for the second quarter of 2012. As a reminder, adjusted GAAP EPS is defined as GAAP earnings per share plus amortization expense, non-cash stock compensation, transactions costs and fair value adjustments of contingent consideration, net of related taxes divided by average fully diluted shares outstanding. Our effective tax rate for the second quarter of 2013 was 38.4% compared to 44.8% in the second quarter of 2012. The decrease in the effective tax rate was primarily due to the research and development tax credit for 2013, which has been estimated and included in the second quarter provision. Our ending billable head count at June 30, 2013 was 1,681 including 1,518 billable consultants and 163 subcontractors. Ending SG&A head count at June 30, 2013 was 281. Now, let me turn to the six-month results. Revenue for the six months ended June 30, 2013 were $179.1 million, a 14% increase over the last year. Year-to-date services revenue for the six months ended June 30, 2013 excluding reimbursable expenses was $154 million, an increase of 11% over the comparable prior year period. Services gross margin for the six months ended June 30, 2013 excluding stock compensation and reimbursable expenses increased to 36.2% from 35.4% in the prior year period. SG&A expense increased to $36.7 million for the six months ended June 30, 2013 from $31.3 million for the comparable prior year period. SG&A as a percentage of revenue was 20.5% for the six months ended June 30, 2013 compared with 20% for the six months ended June 30, 2012 and increased primarily due to increased office cost, investment in research and development and associated professional fees. EBITDAs for the six months ended June 30, 2013 was $24.8 million or 13.8% of revenues compared to $22.5 million or 14.4% of revenues for the comparable prior year period. 2013 has included amortization expense of $3.8 million compared to $3.4 million in the comparable prior year period. 2013 has included acquisition cost of $1.4 million primarily related to the acquisition of TriTek and Clear Task, compared to $1.8 million related to the acquisition of PointBridge, Nason and Northridge in 2012. Net income for the six months ended June 30, 2013 increased 32% to $8.7 million. Diluted GAAP earnings per share increased to $0.27 from $0.22. Adjusted GAAP earnings per share for the six months ended June 30, 2013 was $0.50 a share up 16% from $0.43 a share for 2012. Our effective tax rate for the six months ended June 30, 2013 was 31.3% compared to 42.8% for the comparable prior year period. The decrease in the effective rate is primarily due to the research and development tax credit for 2012, which was approved in January 2013 and factored into the first quarter as a discreet item. An estimate of the 2013 credit was included in both the first and second quarter provision. We ended the first half of 2013 with $23 million in outstanding debt and $4.7 million in cash and cash equivalents. Our balance sheet continues to leave us well positioned to execute against our strategic plan. Our day sales outstanding on accounts receivable were 80 days at the end of the second quarter of 2013, which is down from 81 days at the end of the second quarter of 2012. We will continue to focus on keeping DSOs in the range of 75 to 80 days. We also announced today that on July 31, we expanded our credit facility from $50 million to $75 million while extending the term by more than two years to July 2017 and reducing interest rate charge under the facility. The new credit facility is a testament to our strong balance sheet and demonstrates our lender owners to support our growth. I’ll now turn the call back over to Jeff, for a little more commentary. Jeff?

[Jeff Davis:]

Thanks, Paul. As I said, a nice quarter for both revenue and bookings, I mentioned the annual bookings improvement earlier. But I think it’s also worth noting that July bookings were up nearly 50% year-over-year so Q3 bookings are off to a strong start as well. I mentioned the ongoing integration of our two most recent acquisitions. In the last quarter we discussed TriTek, which was an acquisition we announced just a few days before the Q1 call. A week or so after the call we announced the acquisition of Clear Task, a deal on the small side of what we typically looked for but really very important strategically for a couple of reasons. So, I want to bring them up here. First, all enterprises today as you know are recessing the impact, SAS and cloud computing solutions can have on their business. Sales force clearly is a key vendor in that space. Some of those deals have quicker sales cycles by the way and are great foot in the door opportunities for us to broaden our delivery within that client and leverage our lend and expand model. Second, our intent is deep and able to deliver solutions across all leading platforms is clearly a key differentiator for Perficient. Our clients are increasingly realizing that our breadth and depth is unique and valuable and the lack of a meaningful SFDC practice was a gap in our portfolio. And we began to address through this addition, obviously we’ve been doing some things organically as well, we continue to do that and combining that with this acquisition I think puts us in a good position. In Clear Task, we found a firm with a great reputation within SFDC itself and a very strong partnership between the two. In fact, Andrew O’Driscoll, Clear Task’s CEO and our new GM came from same sales force. And our new office is just a few blocks away from the SFDC headquarters in fact. So, we’re really excited about the addition and our broader sales team is already winning deals based on these new capabilities in our portfolio. And now for some time, we’ve been looking for this opportunity and in fact we had many clients that were looking at and/or implementing SFDC and asking if we could help. So, we can answer yes now to that and have already begun to do so. As speaking part, I mention to mention the great recognition we’ve received from our partner Microsoft this quarter. In addition to being named the Healthcare Provider Partner of the Year and 2013 U.S. Partner of the Year, Perficient also recently received awards from Microsoft including the east region NSI Partner of the Year, the central region, Enterprise Cloud Partner of the Year, and the North East are Cloud Partner of the Year. These awards highlight Perficient’s capabilities and successful implementations of Microsoft Technology Solutions, including Cloud Computing technologies. That’s been a big chunk of what we’ve done with Microsoft. Hence the one cloud – the two cloud awards that we received. But these include technologies like Office 365, as you link, the SharePoint Online, Intern and Dynamic CRM. So, before we get on to the Q4 outlook, just a quick work to reiterate our plans around M&A. It remains our intent, we’ve discussed it before to pursue deals that would add somewhere around $50 million in revenues in 2013 and 2014. TriTek and Clear Task combined represented nearly $30 million in revenues so that has us looking for another $20 million or so this year. More, if we can find the right opportunities and get those deals closed. No guarantees of course but the pipeline is strong and we’re in discussions with several firms right now. We remain disciplined so again, no guarantees. However, we’ve been able to find some really solid opportunities and execute on those recently and hopefully that will continue. So, again, things are going well. We’re pleased with the start of 2013. We feel even more optimistic about the remainder of the year. Commenting by the way, on Q3 2013, Perficient expects its third quarter 2013 services and software revenue including reimburse expenses to be in the range of $91.8 million to $98.3 million, comprised of $86.8 million to $91.3 million of revenue from services including reimburse expenses and $5 million to $7 million of revenue from sales of software. The mid-point of the third quarter 2013 services revenue guidance represents growth of about 12% over the third quarter 2012 services revenue. The company is reaffirming its full year 2013 revenue guidance range of $362 million to $382 million and raising 2013 adjusted GAAP earnings per share guidance to a range of $1.3 to $1.9 from the previously provided range of $0.98 to $1.8. With that, we can open the call up for questions. Michelle?

[Operator:]

Thank you. (Operator Instructions). The first question comes from the line of Brian Kinstlinger. Please go ahead sir. Your line is now live.

[Jeff Davis:]

Hello.

[Operator:]

Yes, I’m just trying to put Brian through. He’s just come through now. Please go ahead sir. Your line is now live. He’s from Sidoti & Company.

[Brian Kinstlinger:]

Hello, can you hear me now?

[Jeff Davis:]

Yes, hi, Brian.

[Paul Martin:]

Hi, Brain.

[Brian Kinstlinger:]

Sorry, well, I have to begin, no one except me. The first question I had was related to Premier unless I missed it. Maybe you can give a number of customers, number of providers maybe in the pipeline. And I’m wondering if you’re able to give revenue from the collection of customers versus where you a year ago?

[Jeff Davis:]

Yeah, sure, absolutely. So, we spoke I think of the actually the 2012 year-end conference call about pursuing additional plans. There I think at the time we had seven in the chain, and including Premier so it was Premier Plus, or I’m sorry, I think it was four and we’re adding two at the time. So, we were getting to six at that point and we’re actually at eight today. So, we’re moving toward, I think what we said is a possibility of about 12 by the end of the year. So, we’re seeing that come to fruition. Again, we have eight today, and we’re in final selection stages with more than we expected was before the end of the year. And actually there is got potential that we’ll have more than the 12 that we had originally projected. In terms of dollars year-over-year, I can’t give you the backlog, because I don’t have in front of me for these clients. But it’s clearly a substantial increase when you include these most recent wins. So, I would estimate, literally these are fairly one year, for its size. So, literally doubling the number of accounts, probably does double the revenue run-rate as things get fully up to speed. So, looking at the second half of the year, particularly maybe this quarter or end of the fourth quarter, we’re probably doubling our revenue related to that channel on a services basis. In addition to that I wanted to highlight that in our asset development that we spoke about a couple of times has gone well, is going well. We’ve gone live, we’re in the process of going live with one of the first products there if you will. And have a handful or more behind that, three identified today, two more in the wings. It’s being very well received by the market. In fact, it’s been a key differentiator and a couple of the deals that I mentioned, we’ve actually got in addition to those four others, again, the eight current and four more, we’ve got about 20 other deals in pipeline with identified customers that would be customers both of our services and in some cases assets as well. So, the current pipeline Brian is about $24 million. Looking forward again that does not include the deals that I’ve already mentioned. And in that $24 million there is a little over $4 million of our assets that would be resold. And of course that’s not services – that’s software, so that would be pretty much 100% gross margin and of course there is some compensation that comes out of that in the form of commission but it’s mostly profit for us.

[Brian Kinstlinger:]

Great, that’s really helpful. Maybe, can you – since this is mostly providers’ maybe you talk about how much revenue under healthcare is provider base? And then, I saw the financial services revenue really kicked up from the last quarter. Is that a function of acquisitions, is that regulatory, is it M&A integration work, maybe highlight what’s driving financial services?

[Jeff Davis:]

Sure. So, on your question on the provider payer side, I would tell you, right now as of today we’re still probably 60% payer 40% provider, maybe 55% – 45% somewhere in there but that is rapidly shifting. So, as you – as I mentioned this pipeline here and the deals that we have closed recently, the providers are catching up. However, our opportunity with payers remains strong as well. So I’d be perfectly happy to see that balance at 50-50, I suspect providers will move ahead though but given just the number of – large number of opportunities we have there and the momentum we’re seeing. But still good momentum in the provider side and in the payer side as well. Again, particularly in those blues, so, great relationship with Blue Shield California, that’s beginning to really take off and a handful of others that are expanding from where we were a few months ago. And financial services, yeah, a big chunk of that was through from acquisitions. TriTek, in fact, that I think we talked about this on the last call. One of the things we liked about TriTek was that they’ve got a good presence in financial services including insurance. And in fact, geographically, they’ve got offices and now we have offices in New York and Boston which we’re excited about. So, yes, it was somewhat that but we also have had organic growth as well. I think we’re 15% of revenues now for our financial services and I would tell you that we got to move that up, 50 or 100 bps organically but the rest of it was through that acquisition.

[Brian Kinstlinger:]

Great. Two more related, the first, maybe I would get confused on the guidance. If you could just break-out in third quarter, how much you’re assuming from actual services revenue excluding reimbursement and software? And then related to that I assume, because obviously you integrate the companies, revenue was flat from the acquisitions you made and maybe you generated $7 million-ish. And so there was minimal services growth year-over-year. If you exclude those acquisitions, I guess, you’ve had exceptional bookings in the first half of the year. At what point do you think UT acceleration and where is the organic revenue growth? Do you expect to peak at over the next few quarters?

[Jeff Davis:]

Yeah, good question. So, let me take your first question. I don’t have the specific break-out, but I can tell you that our reimburse expenses. So, of the 86.8 to 91.3 revenue from services including reimburse expenses, about $4 million of that, the mid-point of that, the mid-point and there is $4 million from reimburse expenses roughly, $4.2 million something like that.

[Brian Kinstlinger:]

Great.

[Jeff Davis:]

Okay. And that runs pretty consistent, I mean, some of these acquisitions do a fair amount of trial of it, I would say, some of them don’t at all so, as we’ve acquired them that balance is kind of remained the same. And then, what was your second question?

[Brian Kinstlinger:]

It was, I mean, if I take a look at the three acquisitions you made and what you added for revenue. I currently assume that they were about flat, obviously we don’t know. But, if I take away the $7 million around services and maybe you can adjust that number for me, you’ve got a little bit of revenue growth year-over-year. And so, maybe I’m wondering with the strong bookings, will that accelerate in the second half of the year?

[Jeff Davis:]

Sorry, yeah, no, absolutely, good question. And actually, in fact, they were roughly flat. It’s not unusual even for in the first quarter to acquire an acquisition to have the revenue actually be down a little in sequential quarters for a quarter or two. Because frankly we’ve kind of distracted their management team with due diligence etcetera. They always bounce back or typically and then, in our experience, nearly always bounce back. So, but that is a phenomenon associated with the acquisitions. So you’re spot on, on the organic growth. We are expecting expansion. And I think we’ve talked about this all year in kind of a hockey-stick year, which is – obviously a little bit nerve-racking to predict and talk about. But in fact, I think we’re seeing come to fruition. So, the mid-point of our guidance range for Q3 is roughly 3%, a little below 3% organic year-over-year. And then, with the new guidance we put out there for the year, that implies 5%, 6% organic year-over-year in the fourth quarter as well.

[Brian Kinstlinger:]

Great, I got…

[Jeff Davis:]

So, with – to your point, with the strong bookings that we’ve had and continue to have and a number of other factors, things that we’ve put in place, the strength that we’re seeing pick-up in the verticals etcetera. We do believe and I believe and I’ve talked about this for a while that while things have been flattish for a bit, I do believe and we are in fact guiding to moving into a growth period that I believe will stay beyond the second half of the year. I think we’ll be well positioned, I think very well positioned actually based on the bookings and what we’re seeing in pipeline going into 2014 as well.

[Brian Kinstlinger:]

Thanks very much.

[Jeff Davis:]

Thanks Brian.

[Operator:]

Thank you for your question. The next question we have comes from the line of Peter Heckmann from Avondale. Please go ahead sir. Your line is now live.

[Peter Heckmann:]

Good morning guys, nice quarter.

[Jeff Davis:]

Hi, Peter. Thanks.

[Peter Heckmann:]

I missed, right in the beginning, I don’t want you to repeat everything, but could you just highlight, the bookings sounded very strong, much stronger than I would have expected. Can you just go across the highlights again that the growth the bookings in for the quarter as well as your early commentary for July? And then just talk a little bit about if you could the composition of that work, where strength specifically came from, I think I missed a good part of that?

[Jeff Davis:]

Yeah, sure. So, the bookings for the quarter were up 25% year-over-year, is that right, about 25%. And actually, we kicked on – and so for the first half Pete, they were up 15% year-over-year and very strong lot of that in the second quarter, so very strong second quarter. And then, as we completed July here yesterday, those were some phenomenal bookings, we’re actually up 50%, nearly 50% year-over-year for July. So, obviously Q3 bookings are off to a good start. Now, I’m going to – I’ll tell you right now, I don’t expect the same results for August and September but I do expect growth there. And so, when you combine all that together, it should be another solid bookings quarter for the third quarter.

[Peter Heckmann:]

Okay, and then.

[Jeff Davis:]

And again, I’ll caution, I’m sorry Pete. I just caution again, real quickly. We’ve spoken a lot about our lend and expand strategy and our lend and expand model. I mentioned earlier the number of million dollar accounts increasing, acceleration there, our top 50 accounts and the growth that we’re experiencing there. So, do keep in mind that while these bookings I think are really exciting and phenomenal, I obviously don’t expect them to translate one for one directly into revenue growth because these bookings are larger, longer term deals so putting backlog further into the future. Of course it’s a great foundation for growth and I do expect us to have nice organic growth beginning now and going into 2014 and hopefully beyond. But again, they won’t translate one to one.

[Peter Heckmann:]

Okay, okay, that’s great. And the composition, it sounds like healthcare is going quite well and you feel optimistic about financial services. Any other verticals, that are worth calling out there in terms of increasing or decreasing in the back half?

[Jeff Davis:]

Well, healthcare certainly led in the second quarter. Our bookings in healthcare in the second half of last year weren’t that great as we discussed before and the reasons for it being macro. But we’ve seen a tremendous pick-up there at the very end of last year and all year so far, this year. So, that’s leading the way. However, we are seeing nice pick-ups across the board, it varies from quarter to quarter of course because the business – the bookings would be lumpy. But we’re seeing solid growth in bookings and retail as well as energy and utilities. Automotive continues to be a good spot for us, I wouldn’t – I don’t necessarily look for it to be a huge growth sector for us but it’s been a great stable sector for us, and at least a modest growth so, the things that I would say kind of across the board and we’re optimistic. The other thing I’ll point out to and I think is driving some of this and I think it speaks to the sustainability of this. And we talked about this about a year ago and I’ve been kind of a little quieter about it because we want to see how the results came out. But we’ve increased our sales capacity pretty substantially and as well as sales and marketing and inside sales. And we’ve increased by about 10% and the folks that we’ve put in those roles are getting some sense here, in the beginning they get some traction. And we’re pretty optimistic that that’s going to help us drive growth in addition to I think our unique position in healthcare and in retail.

[Peter Heckmann:]

Okay, okay, great. And then, utilization at 80 in the quarter, it looked like it dipped a bit. But did that put you in a good position in terms of meeting demand for some of these new bookings, I mean, do you feel you’re in a good position with your branch and what’s the outlook for organic hiring here?

[Jeff Davis:]

Yeah, now that’s a good point. And I think you’re exactly right. I mean, with the kind of bookings that we’ve had, obviously there is a fair amount of pre-sales work that needs to be done with those, isn’t just the sales folks doing it by themselves. So, they’re soaking up some of the billable team’s time which is a good thing, it’s a necessary thing and certainly that speaks to it. I think we’ve probably could have been a little higher in spite of that but I’m satisfied with where we were given the bookings. So if we’d not had the bookings we would talk about yield being too low. That said to your point, I do think we’ve got good capability, adequate bench and capability, we always try to run that pretty lean as you know. And we feel very good about it. Our attrition rates are down, our recruiting team is producing great results. We’re not concerned about overall meeting demand. It’s always hard to find great people, I’ll always say that, even in depths of recession it’s true. But right now, we’re able to meet demand without any issues.

[Peter Heckmann:]

Great, great, okay. And then last question, I’ll get back in the queue, actually one for Paul. It looked like you stepped up the buyback pretty nicely in the quarter. Do you happen to have shares outstanding at the end of the period?

[Paul Martin:]

There was a fully diluted shares, hold on one second, I can find that. So, shares outstanding I think on the fully diluted was 31,768, that’s the weighted average. And we expect that to trend down slightly in the third quarter obviously as we get the full quarter benefit buyback that we did in the second quarter and there will be some additional buyback in Q3.

[Jeff Davis:]

And the buyback in the second quarter was a little back in load.

[Peter Heckmann:]

Yeah, I mean, we can go to the next question. But if you could come back, I’m just looking for the average diluted at June 30.

[Jeff Davis:]

Yeah.

[Paul Martin:]

Yeah, 31,768.

[Peter Heckmann:]

All right, thanks a lot.

[Operator:]

Thank you for your question. Are you ready for the next question?

[Jeff Davis:]

Yes.

[Operator:]

Yes. That comes from the line of Michael Martin from the Small Cap Report. Please go ahead.

[Michael Martin:]

Good morning and congratulations. Just, two questions, what is your win rate running when you get to the final stages?

[Jeff Davis:]

Yeah, it’s still up there where we’ve kind of traditionally been, particularly against the people we see most often, about 70%. We actually are putting proposals head-to-head against competition – it’s about 65% to 70%.

[Michael Martin:]

Yeah. And the other question, are there any either pluses or minuses for Perficient in terms of changes in immigration reform about farm workers?

[Jeff Davis:]

Yeah, that’s a great question. We’ve looked very closely at what’s out there right now, who knows what actually will come out of the house if anything. But for what’s there right now in the big picture, I think it’s helpful to Perficient. We are not and H1B dependent employer. So, less than 15% of our staff are H1B or R1 seen on a combined basis, they’re below 15%. So, I think the it’ll impact the market overall but it will probably drive some rate increases, probably drive some wage inflation but I think we’re pretty good at responding to that but.

[Michael Martin:]

Theoretically, if others are more effected it could be a plus for Perficient?

[Jeff Davis:]

Oh yeah. I think in the big picture, it’s absolutely a plus for us. We’re a U.S. based company with primarily U.S. based employees. Of course we love our H1B folks as well. But we don’t have – we’re not going to have the encumbrances that those are the guys we’re going to have.

[Michael Martin:]

Thanks so much.

[Jeff Davis:]

Thank you.

[Operator:]

Okay, thank you for your question. The next question we have, comes again from Brian Kinstlinger. Please go ahead sir. Please proceed.

[Brian Kinstlinger:]

Great, thanks so much. I just want to touch on the bookings and then the expenses a little bit. If I look at bookings throughout in the first half of the year and then maybe in July, how much of it – I know it’s going to be very hard to look at, but comes organically, right, you’re a bigger company with three acquisitions. Is there any way to look at it organically bookings?

[Jeff Davis:]

Yeah, yeah, now bookings in the first half of the year, year-over-year organically were about 9%.We’re up about 9% for the second quarter particularly, we are up 15%. And the number that I gave you in July, 50% year-over-year about 30% of that was organic.

[Brian Kinstlinger:]

Great, that’s really helpful for me to just write the accounts. I’m going to ask you again. The other question I wanted to ask in July, 50% is a big number. So, I guess, I’m wondering, I don’t have month to month with July, a weak comparison, was it a very strong comparison. Maybe give us some in textbook understanding?

[Jeff Davis:]

Yeah, and that’s a good question. And I would say it was not a weak comparison. We did have, it’s kind of interesting, we obviously thread very closely, I’ve got a model that I use. June came in, materially below where I thought it would be, now keep in mind, we still were up 15% year-over-year for the quarter but 14% year-over-year for the quarter organically. So, despite the fact that June came in a little lighter than I expected. So, some of those deals built into July that’s not unusual. Again when you try to measure things on a quarterly basis, you’re – you can kind of confuse the results a little bit. So, some of that was a spill-over from June, it was not an easy comp. I think it is what it looks like and that has continued strong bookings. I did say, and I’ll reiterate that I don’t necessarily expect that kind of acceleration or that kind of velocity to continue in August and September. However, I do expect good bookings in those two months and I in fact expect some growth in those two. And then when you combine it with really strong growth in July, I think we’re looking at another solid Q3. And again, when you put it all together, I think you’re looking at a very, very solid, trailing six months, trailing nine months, trialing 12 months.

[Brian Kinstlinger:]

Great. I want to touch quickly on something we don’t talk a lot about. But the other project related expenses, if I think back a couple of year ago, I thought it was a very small percentage of services revenue, normally close to fixed percentage. And over the last two years, while you’ve made acquisitions, it’s come down substantially and now remain pretty flat. So, can you just remind us the moving parts in there, what those expenses are and will they remain flat like we had for the last six quarters or so or will they still increase with revenue?

[Jeff Davis:]

Yeah, no, I hope that they remain flat. What those are, are situations where we end up paying expenses for people who travel the client site. As you well know typically that expense we’re able to pass on to our clients. We have some legacy accounts that are good accounts for us, good margin accounts that we made that agreement. Honestly in some cases years ago, in fact, some of them probably during the recession, we felt like we needed to and have not kind of broken that cycle maybe with a couple of those clients. Eventually those will wind down. But with new clients we work very hard to justify those expenses and show the client the value and why it’s worth them paying us for that, so we typically get reimbursed. So I would say, it’s a little bit of a shift in strategy, a shift in the market, I mean, we’re getting better rates now and the market I think is more tolerant of paying those expenses than they were literally three or four years ago and the depths are around heels of recession.

[Brian Kinstlinger:]

Great, thank you, yeah.

[Paul Martin:]

Yeah, I think we’re internally modeling that relatively flat and there certainly initiatives working with the Ops team. As Jeff described to make sure in the strong majority of cases we’re able to pass those expenses on and it’s not in the slide.

[Brian Kinstlinger:]

Great, thanks guys so much.

[Jeff Davis:]

Thank you, Brain.

[Operator:]

Thank you for your question. The next question we have comes from the line of Mayank Tandon of Needham. Sir, please go ahead.

[Mayank Tandon:]

Thank you. Good morning, Jeff, couple of quick questions, on housekeeping ones first. Did you give the global delivery revenue the headcount and the utilization?

[Jeff Davis:]

For offshore or camp company?

[Mayank Tandon:]

Yes, for offshore.

[Jeff Davis:]

Yeah, we’ve got that somewhere, Paul, can you find that?

[Paul Martin:]

Yes, we have, there was a 100, yeah, it’s actually in our website we have some of these operating metrics, and if there is 186 average offshore for Q2 and 196 in this.

[Mayank Tandon:]

Okay.

[Paul Martin:]

Number of offshore employees.

[Mayank Tandon:]

And utilization.

[Paul Martin:]

Average is 186 and aiming was 196.

[Jeff Davis:]

And the utilization 70%.

[Paul Martin:]

Yeah, utilization is about 70% Mayank.

[Mayank Tandon:]

Okay. And the revenue percentage would be about the same as last quarter roughly on 4%?

[Paul Martin:]

Yeah, up a couple of tenths of a percent but up modestly.

[Mayank Tandon:]

Okay, great. And just a broader demand question, in terms of healthcare, if you could just speak the opportunity for you around some of the regulatory changes in healthcare and then also maybe if you’re tied to any of the changes that are going on within the banking vertical, that would be helpful?

[Jeff Davis:]

Sure. Yes, so for healthcare, certainly, again I’m going to – excuse me, anytime I get this question I like to give some context in terms of what we do. So, most of what we’re doing with our healthcare customers, be it payers or providers, it is business analytics. Helping them understand the costs related to their business, the performance related to their business. So, if that’s a payer, they’re now scrutinizing in a much greater way, the provider’s performance down to the doctor level, the cost that they’re paying, the re-admittance, quality of care, all those things you’ve heard the buzz words around. Those begin with mandates, I would say those were the – it was the catalyst for that. And of course the providers, likewise, they’re on notice now, right. The quality has to be good, the cost has to be reasonably, after demonstrate year effectively, attempting to manage those costs down rather than just passing on to the patient and the payer. So, it’s all those things. And again, I would say for us mandates in legislation with a catalyst for that. But we are really participating and I’ve had the pleasure of working with a number of these interacting with some of these CIOs in the industry. And the reality is, the train has left the station, it’s got it’s – it’s on its own fuel now, it’s on its own momentum, mandates aside, the writings on the wall, these guys get it. And they’re all right now in a sort of classic prisoner’s dilemma of who’s going to survive and who’s going to get it right. So, they’re spending a lot of time and energy and effort from both a process standpoint, but of course also from a system’s standpoint to again get a better handle on all those things I mentioned, quality of care effectively in a nutshell that means a whole lot of things. And also, cost of that same care, wellness and a lot of different things. So, that all takes data. Most of these firms were operating on fairly and equated under-invested systems that some cases date back 20, 30 years. We’re replacing Cobol and mainframe in some instances. That’s what we’re doing in healthcare. So, it’s kind of a broad response but honestly that’s why when people say gosh, due to mandates or ObamaCare and things like that if they’re repealed as how much is it effective. I’m not going to say it doesn’t at all, and we did – as I said before see a little bit of a slowdown last year, the Supreme Court was visiting ObamaCare etcetera and the election. But 99% of what we’re doing really has nothing to do with ObamaCare yet. Now, because we’re doing a lot of holistic updates, replacements etcetera, certainly, we and our customers are taking into account that the fact ObamaCare is around the corner and these new systems will have to adapt and accommodate what’s required there as well. But again, I would say that wasn’t the original driver, the original driver is a transition, a paradigm shift in the industry, does that help on the healthcare question?

[Mayank Tandon:]

That’s very helpful. Thank you. Then on the banking side, do you also benefit from some of the pending stages?

[Jeff Davis:]

It’s interesting, I’m not as up to speed on the banking side, our financial services guys could address this better than I could. A lot of the work that we’ve been doing has actually been focused on retail banking. I can tell you, it’s a lot around workflow automation, business process automation, and meeting rates or requirements, there is obviously reporting requirements there, there is a number of things are more rigorous, there is more lock-stock reporting that’s required now. And so, we help them put that in place but I would say a lot of the motivation for those customers as well is ways they used to make money, they can’t anymore. They’ve been regulated away. So, a lot of them have become even more cost conscious I would say than they were before and trying to find ways to deliver – the services that they deliver more effectively, more efficiently and at lower cost to them so they can actually improve their profit. Again, in an environment where revenues are far streams of profit don’t exist anymore that were there a few years ago. So, that has certainly helped us on the retail banking side. In terms of, we’re not much in capital markets, we’re more retail banking and insurance. And again, those things have all helped us but I see a long tail on that also despite the fact that maybe some of the deadlines have already been met. There are still that long tail there on how can do what we do more efficiently and cheaper but also differentiable faster. A good example is one of the larger banks that we work with, we really help them streamline their mortgage underwriting process so that they could provide a letter of intent or for a home buyer faster than the competition and be able to kind of advertise that as a differentiator. Back in the day of course where people were doing that in a matter of seconds but you can’t do that these days. So, it became a more rigorous process as it used to be and now they wanted to find a way to compress that. So, those are the kinds of activities that we’re doing – potential projects that we’re doing there.

[Mayank Tandon:]

Great. Thank you very much.

[Jeff Davis:]

Thank you.

[Operator:]

Thank you for your question. That was the last question. I would now like to turn the call over to Jeffrey Davis for closing remarks. Please proceed.

[Jeff Davis:]

Well, thank you all for your time today and your ongoing interest in Perficient. We appreciate it. And we’ll see you back in the quarter.

[Operator:]

Thank you ladies and gentlemen. That concludes your conference call for today. You may now disconnect. Thank you for joining. And enjoy the rest of your day.