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CIBER, Inc. (NYSE:CBR)

Q1 2013 Earnings Call

April 30, 2013 08:30 AM ET

Executives

Dave Peterschmidt - President and CEO

Claude Pumilia - EVP and CFO

Analysts

George Price - BB&T Capital Markets

Brian Kinstlinger - Sidoti & Company

Vincent Colicchio - Noble Financial

Operator

Good day, ladies and gentlemen. And welcome to the Q1 2013 CIBER Earnings Conference Call. My name is Alex, and I’ll be your operator for today. At this time, all participants are in a 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. And now, I would now like hand the call over to Christian Mezger, Senior Vice President of Corporate Finance. Go ahead please.

Christian Mezger

Thank you, Alex. Good morning, everyone. My name is Christian Mezger, Senior Vice President, Corporate Finance. Welcome to our first quarter 2013 earnings conference call. With me today are Dave Peterschmidt, our Chief Executive Officer; and Claude Pumilia, our Chief Financial Officer.

Before turning the call over to Dave, I will remind you that some of our prepared comments and responses to your questions will constitute forward-looking statements. These forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Such risks and uncertainties include, but are not limited to those factors set forth in today’s news release and discussed under the Risk Factors section of our quarterly reports on Form 10-Q and our Annual Report on Form 10-K, as well as other SEC filings.

Also during this call, we will reference certain non-GAAP financial measures, that we believe provide useful information for investors. We have included reconciliations of those measures to GAAP measures in our News Release and on the Investor Relations section of our website ciber.com.

With that, it is my pleasure to turn the call over to Dave Peterschmidt. Dave?

Dave Peterschmidt

Thank you, Christian. Good morning, everyone. CIBER delivered steady performance in the first quarter, continuing to build on the momentum of 2012. It is significant that many of the internal challenges we faced last year are successfully behind us. And while there is still work to be done, especially in our international business we increasingly focused on continued operating improvements in 2013.

We are dedicated to balancing revenue growth and margin expansion, by further streamlining CIBER in aligning our resources with the most promising opportunities. Our strategy is to grow the business and build a well balanced forward looking portfolio. While the two key pieces of our business North America and International are at different stages, the majority of our revenue base is stable and recurring in nature. Our progress in North America demonstrates that we have the right strategy, giving us confidence in the opportunity for profitable growth in the future.

As a reminder our strategy centers on three areas of opportunity, first to continue to successfully execute our important core ADM business. This segment is low risk and stable with moderate growth and strong margins and provides a solid foundation for our business.

Second accelerate migration into high growth, higher value services, intelligently partnering with ISVs to compliment CIBER. Practice areas of focus are Oracle, SAP, Infor and Saleforce.com. Our ISV practices allow CIBER to solve our clients' most challenging strategic issues including cloud, mobility, big data and social media. Partnerships improve our top line growth and margins in an extremely efficient manner.

And third expand our position in managed services and cloud, as a leader in high growth, high margin CIBER managed services offerings. Managed services and cloud represent a potential annuity revenue stream with margins that are accretive to our core business. This is an area of expertise for CIBER and a natural extension of our client relationships.

Continued wins demonstrate that our strategy is resonating with the marketplace. In the past quarter we won a number of important deals. The Washington State Board for Community and Technical Colleges, a system of 34 colleges that serve nearly 470,000 students annually selected CIBER to unite all the colleges in a common ERP system that will provide improved services in student administration, human resources and payroll and financial management. CIBER will provide application implementation and hosting and managed services for the five year project.

One of the leading do-it-yourself retailers in Germany selected CIBER to implement SAP merchandising and mobility solutions, merchandising for retail and SAP offline mobile store solutions to optimize the merchandizing process.

Xerox Corporation a leading global, technology and services company and a long term CIBER client extended our agreement to provide application support services for roughly 100 databases and 8 applications supporting back office operations.

In addition Xerox selected CIBER to provide project management, business systems analysis and application architecture services for marketing and sales strategic IP investment projects, a new area of work for CIBER with this leading global manufacturer.

One of the UKs largest social housing providers selected CIBER to implement the first phase of its ERP program that will assist with real estate management CRM, mobility, and asset management. These wins which include new customers and expanded relationships in our key practice areas of managed services and ISV are aligned with our goal coupling margin improvement with revenue expansion, resulting in higher value for the customer, CIBER, and its shareholders.

Claude will walk you through the details of our first quarter results. First, I want to highlight some areas of progress in the quarter as well as the areas of opportunity, where we still have work to do. We continue to make solid advances in North America where our team delivered the fifth consecutive quarter of margin expansion. Growth in our ISV practice drove improvement in the first quarter as well as the benefits of our restructuring initiatives.

This continued solid progress in North America is a strong validation that our strategy has taken hold and is working. As we have said, our visibility in the international operations continues to be limited. Improvement in this segment is not necessarily going to be linear. Europe continues to face macroeconomic uncertainty and each country faces its own unique opportunities and operational challenges.

After delivering solid results in the fourth quarter of 2012, international revenue was flat in the first quarter and margins declined both sequentially and year-over-year, driven largely by issues in the Netherlands where softness in the economy and corporate streamlining are adversely affecting the IT services market.

That being said we’re experiencing success upon which we can build, across our top four markets the UK, Germany, Norway, and the Netherlands, which represent over 75% of our international business, revenue and U.S. dollars grew 4% sequentially.

In the UK and Germany, we added several new clients in our higher margin manage service offerings and posted strong performance in our SAP business overall. At the same time, we continue to expand our business with existing clients building upon our already strong relationships.

Importantly with the exception of the Netherlands the first quarter came in about where we thought it would in the international segment. We remain committed to streamlining our international operations while growing our top line.

This includes advancing our strategy to grow global ISV and maintaining services practices while continuously optimizing our operating structure. This work will take time and is underway. And finally, we have taken the necessary steps to improve our balance sheet, deliver ongoing disciplined capital allocation and create value for our shareholders.

Summarizing, we are making good progress and are focused on our remaining key challenges and strategic areas of opportunity. We are poised to move ahead. We will do so by orienting our offerings to meet the key trends affecting our clients today and for years to come.

Our strategy is working as our North American segment is making solid progress and is positioned for continued improvement. Our international results, particularly in our top four markets were in line with our expectations with the exception of the Netherland, and there is nothing to suggest that we can't bring our international segment to the same level of predictability and consistency as North America over the course of 2013. These efforts are underway.

With that, I will turn it over to Claude.

Claude Pumilia

Thank you Dave and good morning everyone. First quarter of financial highlights demonstrate our steady progress. Revenue totaled $225 million and 1% year-over-year increase both in U.S. dollars and constant currency. Sequentially revenue held steady in U.S. dollars down 1% in constant currency.

First quarter operating income before restructuring charges totaled $5.5 million and operating margins of 2.5% were consistent with fourth quarter margins and a decline from 3.4% in the prior year. Restructuring benefits and improvement in North America were offset in the quarter by pressure in some of our International markets. Net income from continuing operations of $2.1 million before restructuring or $0.03 per share was up 36% from $1.5 million or $0.02 per share a year ago.

During the quarter, we repaid our term loan using our revolver, reducing our cost of borrowing and eliminating our previous financial covenants. In the quarter we had a positive net cash position of $3.7 million and cash used in continuing operations of $28.1 million was consistent with normal seasonality.

Before I get into the details of the results, I would like to update you on where we stand with the restructuring initiatives announced at the end of the third quarter. As a reminder, fourth quarter 2012 we took $8 million of the total $13 million in announced restructuring charges, and expect to take the remaining $5 million in the third and fourth quarters of 2013.

The restructuring charge in Q1 of 2013 was minimal at $300,000. We continue to expect savings of $7 million in 2013 and $11 million annually thereafter. As you recall, the restructuring is part of our commitment to deliver a more streamlined efficient CIBER.

The restructuring includes consolidation of office space, as well as organizational changes designed to simplify business processes, move decision-making closer to the marketplace and create operating efficiencies. Approximately two-thirds of the impact and future benefit affects our International business, with the balance in North America.

For the first quarter revenue in the International division totaled $118.1 million, flat sequentially and year-over-year. We posted year-over-year revenue improvement in key international markets led by the UK. Our International markets benefitted from several new clients and were further reinforce by strong performance in our SAP business and managed services.

International segment operating margins were 4.5% in the quarter, down, both sequentially and year-over-year. The benefit of lower SG&A was more than offset by gross margin pressure and contributed to the overall sequential operating margin decline. Year-over-year higher SG&A offset the benefit of stable gross margins.

Gross margins in the first quarter were in line with a year ago at 22.5%, but declined 190 basis points from the fourth quarter as lower utilization, particularly in the Netherlands more than offset margin improvement in the UK, where we gained several new clients.

SG&A as a percent of revenue came in at 18% in the quarter compared to 18.5% in the fourth quarter. Our sequential SG&A improvement reflected the benefit of restructuring initiatives taken last year. As Dave mentioned in his remarks, as we gained greater visibility in our International operations, combined with the benefits of restructuring and improved utilization, we have the opportunity to drive further margin expansion.

As you would expect, this may not necessarily be linear, and will take some time to accomplish. Our North America segment is significantly healthier today than it was a year ago and demonstrates that we can effectively execute the changes necessary to successfully achieve our goals.

North America revenues totaled $107.2 million in the quarter, up 1.6% year-over-year and flat sequentially. Expanded relationships with existing clients, as well as new clients contributed to the positive trend year-over-year, while the sequential results reflect normal seasonality.

Performance was enhanced by expansion of our ISV partnerships, which are off to a strong start. We've improved utilization and benefited from better project oversight in North America. As a result gross margins increased 20 basis points sequentially to a solid 27.8% in the quarter. We ended the first quarter with operating margins of 7.6%, compared to 6.7% a year ago, marking five consecutive quarters of margin expansion.

Operating margins continue to benefit from improvements we have made in our delivery capability, which contributed to higher gross margins as well as our SG&A initiatives. We reduced SG&A in the quarter to 20.2% of revenue, down 20 basis points sequentially and 90 basis points from a year ago. We anticipate further margin improvement as we continue to implement our plan.

Looking at the below the line items, we continue to broaden our financial flexibility. We reduced quarterly interest expense by $800,000 from a year ago due to more favorable terms in the new debt facility and lower average borrowings.

Our average cost of debt outstanding at 2.6% is down significantly from over 6% a year ago. During the quarter we repaid the remaining $5.4 million balance on our term loan replacing debt costing 12% with approximately 2% to 3% rates on our revolver. We expect interest expense for the remainder of 2013 to remain stable at about $1 million per quarter.

First quarter income tax expense was $2.8 million. Our 2013 income tax expense is now expected to be at the low end of the $13 million $14 million range, we estimated in our fourth quarter call, versus $11.4 million in 2012, and $32.5 million in 2011.

Operating cash used and continuing operations was $28 million in the quarter, compared to a $23 million use of cash in the year ago quarter. Given our minimal CapEx requirements and normal seasonality, free cash flow used to continuing operations of $28 million was consistent with operating cash flow used in the quarter.

DSOs were 63 compared to 61 last quarter and 59 a year ago. We are successfully driving towards our 60 day goal as the sequential increase reflected normal seasonality. Notably the sequential increase in the first quarter was smaller than the sequential increase a year ago, driven by a decrease in unbilled accounts receivable and better collections.

As a reminder, we historically have experienced seasonality with cash flows. They are typically negative in the early part of the year, improving as the year progresses. We expect the same trend in 2013. We are committed to ongoing disciplined capital allocation and asset utilization to maximize cash flow from operations and to creating shareholder value.

Over the past year, we have improved our financial flexibility, lowering average burrowing to $31 million from $58 million, reducing interest expense by approximately $4 million on an annualized basis and significantly lowering the average cost of our debt outstanding. As we grow our cash flow overtime, we remain focused on allocating capital to the lengths of optimizing shareholder value.

In summary, our first quarter results were evidence of our continued progress. We were making solid advances in North America and we expect this to continue. Marginal pressure in International specifically the Netherlands offset margin improvement; we are realizing from increased attraction in our ISV and managed services practices. The restructuring plan we announced in the third quarter of 2012 is well underway and on track and the efficiencies we are realizing position us for further margin improvement in 2013 and the years to come.

We continue to implement strategies to improve our financial flexibility, as we further reduced our cost of capital in corresponding interest expense, which will benefit our cash flow, and we are commuted to efficiently allocating capital to drive shareholder value.

Operator lets go ahead and open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from George Price from BB&T Capital Markets

George Price - BB&T Capital Markets

I wanted to start off if I could with maybe just a commentary on demand trends in your two segments. North America and International which is basically Europe and particularly are things at all getting worse in Europe. Could you talk about the impact in the Netherlands and what you saw driving that?

Dave Peterschmidt

Yes, George, this is Dave. First of all, demand; we are not seeing any change in the demand curve, either in North America or in International, which for us obviously is primarily Western Europe. In fact bookings continue to come in at a solid pace is they have over the last couple of quarters, so no change there.

If we look at the Netherlands. Although there is some macro pressure on the marketplace in the Netherlands, and at the end of the day, what we are seeing is a lot of these issues are our issues internally. Now we know what this looks like. We saw some of these types of issues in North America, a year ago. We know exactly the programs that we got to put in place.

Some of this has been quite frankly is bench management, and not having excessive bench capacity and better anticipation of what’s in the pipeline, and the closure rate. So I would tell you that yes, the Netherlands presented our challenge this quarter, but the challenges we face here are really opportunities as we see it. We really believe that’s manageable on our part.

George Price - BB&T Capital Markets

So the impact in the Netherlands, wasn’t at all related to the large client that you have discussed in the past, right? Does that client remain stable?

Dave Peterschmidt

Yes, that client remains stable. That client had no impact at all on the Netherlands. This was totally internal management of all of the assets in the Netherlands, not an external factor.

George Price - BB&T Capital Markets

Okay, and the biggest I guess, based on your comments, the biggest margin headwind that you’re experiencing in international be on the volume side, rather than the pricing side, or maybe comment on what you are seeing in pricing internationally and even in North America for that matter?

Dave Peterschmidt

Yes, I mean we are always going to see competitive price pressure. Remember that, today, greater than 50% of our business comes from our ADM business which is, if you will, a commodity type business; there is always competitive pricing there. That’s why the bench management becomes so important in forward-looking capability of what’s coming down the pipe.

George Price - BB&T Capital Markets

And I guess last thing on Europe and then just a question on the margin side, but last thing on Europe. Where do you think we stand with the changes you are making to the European operations, relative to how you initially thought of Europe when you began really focusing on it last year, maybe relative to how you went through North America and what you saw there and how you made progress there and what should we kind of expect there over the next couple of quarters?

Dave Peterschmidt

Yes, I think that, as I mentioned, if you think about our business, George, those four big countries; Germany, UK, Norway and Netherlands represent 75% of the business. I would tell you we are pleased with the progress that’s been made in three of those four countries and that the Netherlands will be a high level of focus for us. It’s a substantial business and it’s going to take us couple of quarters to get the Netherlands business squared away.

George Price - BB&T Capital Markets

Okay and then if I could. Just a couple on cost savings and margin expansions. So the timing of the restructuring charges changed to the back half. Could you give some more color on why?

Dave Peterschmidt

George, I think even in the last call, indicated that a the majority of that would be in the second half and some of the relates to real estate consolidation and the ability to kind of move people and coordinate lease changes with the variety of parties that we have to negotiate with. So again we want to reaffirm that it no way impacts are viewed that we will realize the full amount of savings for the years but some of that did shift little bit out in terms of the latter quarter.

George Price - BB&T Capital Markets

Okay my apologies on that. And lastly the profile of margin expansion in 2013, I guess, can you talk at all about how you expect that to progress we move through the rest of the year, then I’ll turn it over? Thank you.

Dave Peterschmidt

I think, George, margin expansion is pretty much what we said. We’re working both sides of the equation. We want to see gross margin expansion and we think there is opportunity for that especially in our international business, while at the same time we’re going to continue to streamline the overhead operations and work the SG&A equation, that will never cease to be one of our challenges and focus points, but we clearly can see the margin expansion opportunity in our International business.

Claude Pumilia

George, I'd add, in terms of our view of the profile, to Dave’s point, we’ll continue to balance SG&A reductions with need to expand growth profit and drive down direct cost. We feel like we’ve got the actions underway. We like how they are proceeding and are confident kind of about how those initiatives are going to play out through the course of the year.

So we still feel good about how these initiatives are working, particularly the ISV strategy and how it’s gaining traction and kind of showing us the strategy is paying off. We feel like that will begin the payoff in Europe then too.

Dave Peterschmidt

And George let me just finish off the comment there. I know there has been a lot in the press and some of the larger firms in our segment have been talking about macroeconomic issues they face and so forth.

I would tell you that we continue to be convinced that 90% of all the challenges we have are inside of our control, that we’re not seeing nearly the external impact that some of the larger companies and quite frankly I think that’s because there is plenty of available market to us and we’re very focused on implementing the strategy with ISVs and managed services. So going forward we believe this margin expansion is in our control and not at the mercy of external factors.

Operator

Our next question comes from Brian Kinstlinger from Sidoti & Company.

Brian Kinstlinger - Sidoti & Company

First question I had Dave, I’m wondering what’s inning you think the Company is in, in terms of getting the sales engine where you want it to be performing and what I mean is, growth in North America is modest and in Europe it’s been flat, albeit some headwinds. So giving you are a small company I think there is obviously room for growth and you’ve even mentioned some of the problems you are having are internal. So I’m wondering how much of the limited growth is a result of the macro versus changes you still need to make?

Dave Peterschmidt

Well, I think Brian, think about it this way; remember that we’re shifting more and more of our business to the ISV and as we do that and builds scale, that would start to flow into show revenue growth because what you can’t see that we can see as what’s happening to the bookings line.

So that’s number one and that takes, there is light factor they’re getting into it and then the other thing is that as we see more and more of the transition to the ISV, those deals tend to start out a little smaller in size but will grow overtime but they add significant margin.

If I were to talk about this in terms of the sales engine itself, I think sales engine in North America is doing really well in that the sales engine in International is a couple of quarters behind getting up on growth curve, but that’s what we have always believed what’s going to happen.

Brian Kinstlinger - Sidoti & Company

Great and then I’m curious which industry you think you see the most opportunity even with the ISVs and why, is it regulation, is it underinvested in IT, is it some other factor?

Dave Peterschmidt

Well, look let’s go with the ISVs and understand this. The ISVs obviously with SAP; there is a lot in discrete process manufacturing and retail. When we look at obviously salesforce.com that’s cloud, Infor is the third largest ERP provider in the world and they have some really good systems, especially back and front office and financial and higher Ed and then the other thing I tell you is Oracle, state and local government and higher education is very strong for us in those areas.

Now the other thing though to go with this is, okay, there are some verticals here that we're focused on but we were also focused on secular trends that are reflecting in all industries and that’s cloud and big data and business intelligence. These are all things that are secular trends that are; if you will, the front edge of where the marketplace is going. So we are well positioned, not just starting with the verticals, but looking at secular trends to launch off of.

Brian Kinstlinger - Sidoti & Company

Great, and then Dave, a while ago, at the analyst day, this is maybe two and a half years ago, you laid out a strategic plan, talked about a committee to look at gross margins on each project of around 30%. The company still way off of that and I am wondering again, that still hold that 30% mark? Can you still achieve that? If so, what’s the timeline for that and why have we not seen as much progress as maybe we may thought we have to that mark?

Dave Peterschmidt

Yes, I would tell you for sure that we are still committed to getting 30% gross margin across the board, and 8% operating profit for this company. Now if you look at North America, they are not that far off the 30% mark.

And we are seeing some more things in International. Here is the deal that’s going to drive that gross margin expansion, and that is scale in the ISV practices. We are starting to now see the direct correlation of scale in margin improvement, in North America, in one of the major ISV relationships.

We are now seeing that scale start to occur in the second of the ISVs and that’s putting significant margin expansion into the operation. So the path is, quite frankly, from 2.5 years ago, the strategy of how we get there is identical to what we said 2.5 years ago. We are going to continue to optimize ADM. It’s at scale, it is generating those types of margins, and now the ISVs are starting to show us that as we get them up to scale, they exceed that 30% gross margin.

Brian Kinstlinger - Sidoti & Company

Why is it that they’re so much more profitable?

Dave Peterschmidt

Well, because it’s higher value. When you go into ADM, you are basically doing staffing and outsourcing of people where when we go in, and an example I would give you is what we talked about in the call, the State of Washington win, which is a combination of both application implementation as well as managed services for five years. Those are the types of deals that really bring our strategy to life, because they not only give us higher margin because it takes more expertise and by the way we won that deal, that's a significant deal. We won that against one of the largest competitors in the industry and the reason we did is because of our expertise and higher education with Oracle.

And then the second thing is, its managed services, it’s a five year contract. It gives us that annuity revenue stream which also we don’t get the benefit of an ADM. So, the competition for expertise in these high value systems is totally different than just a commodity business where every small player and every large player can compete.

Brian Kinstlinger - Sidoti & Company

And can you tell us that Washington begin; did it begin already or does it begin in the second quarter?

Dave Peterschmidt

We are already; it began at February.

Brian Kinstlinger - Sidoti & Company

Okay and then on the International side, you mentioned Netherlands utilization was one of the main reasons profitability is down. First of all, why didn't utilization where revenue offset that; offset the margin as well and then when do you think that margin issue in the Netherlands, how long will it take to clean that up?

Dave Peterschmidt

Well like I said, I think first you got to remember the Netherlands is one of our largest operating divisions in International. So, when it drags the organization, it has a heavy drag effect on the entire performance of International.

The second thing is as I mentioned; it is going to take us two quarters to get that squared away. We have seen this story before, we know exactly what the corrective action plan is and we've got a pretty clear understanding how long that takes to bring into focus.

Brian Kinstlinger - Sidoti & Company

Last question I have is on the International side, generally we see the second quarter is seasonally weak than the first quarter, I think for five at the last six years. Is there something that billing days, more vacation, some trend we should think about and then you mentioned non-linear recoveries? Is that something we should be thinking about in the second quarter that makes that non-linear?

Dave Peterschmidt

Yes, I think primarily what happens to us in the second quarter in International is we get a big effective vacations in the June time period. Some of International as you know, if you go to Paris in July you can shoot a cannon off (inaudible) because nobody is there but in our Nordic regions, it's June. That's one of the big vacation months. So that's a seasonal impact.

Operator

Our next question comes from Vincent Colicchio from Noble Financial.

Vincent Colicchio - Noble Financial

Yes just couple. Most of mine were answered. Dave, do you have any large contracts expiring once you need to replace in next couple of quarters?

Dave Peterschmidt

In fact that’s the good news right and we continue to add new logos, which has been a real focus point for us. So we have not had a lot of worry about roll off like we used and again, our data points pretty solid. 95% of our contracts renew and we’re continuing to see that be the case and there is nothing of any major consequence in front us, as far as a large contract coming up for renewal.

Vincent Colicchio - Noble Financial

Can you talk and give some color in terms of the risk of vendor consolidation. Has that stabilized in Europe for example?

Dave Peterschmidt

I think we’re going to continue see that and by the way I think we’ll continue to see that, not just in Europe. I think in North America as well and quite frankly where that’s occurring, that’s becoming more an opportunity than a liability for us. So we are not concerned about vendor consolidation. We actually right now have pretty specific plans that we’ve executed on, that when that occurs we know exactly what steps we want to take and we’re finding that helps us.

Operator

Our next question comes from George Price from BB&T Capital Markets.

George Price - BB&T Capital Markets

Just want to follow up on a couple of things. First, I’m not sure how much you can comment on this but wanted to least ask the question, what can you tell us about, you’ve seen in news recently some things going on around in Pennsylvania around the PA turnpike project. What can you tell us about that where that stands, how to think about that in terms of potential risk or exposure and it looks small on the surface but and if some of what happened I guess maybe in New Orleans, is that a good comparison or good way to sort of think about this?

Dave Peterschmidt

Well, I think, George, look its early and we know as much as you know of what’s in the press and the only thing that’s out there is I think Harrisburg is going through the trauma of what we do about our turnpike authority. It appears that they have indicted a number of turnpike authority officials, as well as some elected officials in the state of Pennsylvania, it's getting a lot of press played locally.

One of our former employees was named in the indictment, but in this process of our legal system, we got to continue to assume that people are innocent until proven otherwise and for us we continue to win business in Pennsylvania. We got a solid presence in Pennsylvania. We have got over 400 people there and we just recently won another contract in Pennsylvania within the government. So it's hard for me to quantify anything right now. This just has to play out and it'll probably play out in the press bigger than it does in reality.

George Price - BB&T Capital Markets

Yes, I mean that's the downside right of the state and local market. You often times see this sort of thing. You just mentioned that you won another contract there, I know, at least in the press that there was something that you'd won recently that I guess went out for rebid. Are those two different contracts and just your comment Dave, it doesn't sound like it's impacted your ability to pursue and win business in PA, just to confirm that and are there any other residual impacts?

Dave Peterschmidt

Yes, first off, the piece of business we won was not that piece business that they talked about going out to rebid. So this was a different piece of business. That's why I say, we've got a pretty big focus George on new logo as part of our key strategy, both in North America and international, and it's why we have also got a diversified portfolio that we're not just dependent upon government agencies. We've got a big commercial market footprint, and we continue to go after commercial customers as well. In fact I was just there on sales calls for new logo companies that have nothing to do with state government business. They're big ERP implementations for manufacturing.

George Price - BB&T Capital Markets

And then, I guess with the new wins you talked about in Washington with Xerox, some of the stuff in Europe, so that sounds like the more higher valued, discretionary, more growth orientated kinds of work that you're increasingly trying to pursue, indicating those are starting to gain some traction there. I was wondering if you could talk maybe a little more about how either you see your competitive positioning in the market, pursuing this kind of work, changing as a result of your efforts, we have you executed on, what do you still have to execute on, in that respect?

And can you tell us anything more maybe about client perception? You’ve been focused a lot on trying to change the perception or at least that’s my impression, change your change your perception with CIBER in the market and how’s that going?

Dave Peterschmidt

Let’s take a couple of pieces at a time here and break this down. If we take a look at the ISVs, there’s two things going on there that we’re very encouraged about. One is we’re winning new logos. Two is the ISV work we’re doing is of a higher value added nature and State of Washington is a good example of that. Xerox is another example of that. We're doing higher value added capability.

To give you an idea, what I refer to is our brand permission extension that is our brand has been around ADM and we’re now truly getting permission from our install base to be more than just an ADM provider. And the example I would give you is I was just with the CIO and his staff, one of the large telecommunications companies here in North America, and they’ve been a client of ours for ADM for quite a while.

In a three hour session, our intent with the CIO was to talk about our capability and mobility applications, in big data and quite frankly in SAP managed services. And I can tell you that when we finished the three hour session, the CIO turned to me and said, I get it now, I’m ready to now start looking at projects with you in all three of these areas. So, that’s the type of thing that's going on anecdotally. We’ve got to now win business that why but we’re clearly now getting the look and the opportunity to bid and go to places where we previously were permitted to go.

George Price - BB&T Capital Markets

And I guess maybe competitively, any comments in terms of how, what competitors you’re seeing, is that changing at all, how are you able to kind of go up against them?

Dave Peterschmidt

Yes. Here is what interesting about our competitive environment that we’re facing today. It used to be when we were just ADM only, the competitive environment was more or long everybody who out there can possibly throw a bid over the trends and withdraw a bid over the trends, what is really happening to us now with the ISVs is that, and I do not use the word lightly we have genuine strategic partnerships with SAP and N4 and Oracle and Salesforce and they are actually partnering with us so that when we now go in, we are not quote competing with another SAP provider, we are partnering with SAP and our competition now is SAP’s competitor.

So it is a different competitive environment that we find ourselves operating in. And what that means is you are not operating on a price issue, you are operating on a skill set issue and a competency issue, either within a vertical or within one of these macros that I talked about like Mobility and Big Data and BI. Different way for this company to compete now and it's a good way for it to compete.

George Price - BB&T Capital Markets

Okay. I guess just segue from that in terms of maybe give us an update on the progress in your efforts to, I guess sort of unify CIBER’s capabilities on a global basis right. For example you have talked about enhancing SAP capabilities in the U.S. where they were very strong in Europe. How are efforts like that going?

Dave Peterschmidt

They are coming along very well. We are very pleased with the global practice approach in that we now have developed a global skills database. So for example we know where every Oracle qualified skill set is, no matter if that's somebody in international or somebody at North America.

The other thing that’s happening is the cross-selling across lines is a good example of this. I sat in a meeting a few months ago in the Netherlands for an Infor project, which we won and it was the U.S. team that was actually delivering the opportunity and the proposal coupled with delivery resources in Europe and that's the way it should work and we are starting to see that more.

The other thing I will tell you is we now also share the IP that we have developed within these practices globally. So between the skills data set and the inventory of IP being shared globally, that's what starts to gives us leverage and by the way this company has never had that before…

Operator

We have no further questions at this time. I'd now like to hand it back to Dave for closing remarks.

Dave Peterschmidt

Thank you. In closing, let me point out, our first quarter results represent a good start to the year as we continue to improve our performance and implement our growth strategy. Now we remain encouraged by the tangible evidence that the plans we put in place are transforming CIBER into a company that can deliver a balance between targeted top line growth and margin expansions.

We're focused on continuing the very solid progress we made in North America and working to deliver the same level of predictability and consistency in our international segment, and as I said before, we believe those challenges are inside our wheel house and not a function of the external environment. Our vision is unchanged from 2.5 years ago as Bryan asked a question and we believe our strategy is very sound and the strategic partnerships are solid and starting to yield positive results.

With that I thank you for the interest in CIBER and we'll look forward to talking to you after this quarter's results. Thanks everybody.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Thank you for joining. Good day.

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