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CIBER, Inc. (NYSE:CBR)

Q3 2013 Earnings Call

October 29, 2013 08:30 am ET

Executives

Dave Peterschmidt – Chief Executive Officer

Michael Lehman – Interim Chief Financial Officer

Christian Mezger – Senior Vice President Corporate Finance

Analysts

Brian Kinstlinger – Sidoti & Company

Vincent Colicchio – Noble Financial

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2013 Ciber Earnings Conference Call. My name’s Annette and I will be your coordinator for today. (Operator instructions.) Please be advised this conference is being recorded for replay purposes. I will now turn the conference over to Christian Mezger, Senior Vice President Corporate Finance. Please proceed, sir.

Christian Mezger

Thank you, Annette. Good morning, everyone. My name is Christian Mezger, Senior Vice President Corporate Finance. Welcome to our Q3 Earnings Conference Call. With me today are Dave Peterschmidt, our Chief Executive Officer; and Michael Lehman, 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 risks 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 respective 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 in the Investor Relations section of our website at www.ciber.com.

Today’s discussion will be on a continuing operations basis. Please refer to our SEC filings on Forms 10(q) and 8(k) for a recap of historical comparisons. With that it’s my pleasure to turn the call over to Dave Peterschmidt. Dave?

Dave Peterschmidt

Thank you, Christian. Good morning, everyone. Q3 results reflected a continuation of the trends we discussed in Q2. We made steady progress on the shift in our business mix to more ISV and managed services projects. As a result we clearly believe in our ability to grow the business in a consistent and profitable way. While we still have some challenges, particularly in selected areas of our ADM business, today we are a company with a more stable platform yielding more predictable performance than three years ago when we started our transformation.

Our significantly improved balance sheet is delivering solid below-the-line improvements and driving higher profitability and positive cash flow. Year-over-year revenue grew despite economic headwinds and we are beginning to see more clearly how we can realize the operational leverage in our business. Adjusting for one-time CFO transition and restructuring costs we delivered results essentially in line with our internal expectation.

Our strategy hasn’t changed. It centers on three opportunities for growth: first, to continue to invest in and maintain our core ADM business; second, to expand higher growth, higher value ISV practices; and third, to build on our momentum in the rapidly growing managed and cloud services market.

We are making good progress on our strategy in North America. Similar to what we said last quarter, traction in our high-growth ISV and Managed Services practice was offset by some softness in our ADM business that is isolated to certain accounts. We believe this softness is at least in part attributable to current macro trends causing some clients to hold back on spending. While we fully anticipated that these pressures would carry into the second half overall revenues are beginning to stabilize.

Our ISV business is becoming a significant part of total revenue and growth in North America. In Q3 our ISV revenues was approximately 33% of our total and grew by 10% sequentially. And growth in our ISV practices is also driving growth in Managed Services. Managed Services revenues increased 7% sequentially in Q3.

In our international segment, proactive plans to improve the consistency and predictability of this operation are beginning to take hold. Our focus continues to be on The Netherlands where our business is stabilizing; and we are encouraged that the UK, Germany and Norway posted another solid quarter. Q3 international results included strong year-over-year revenue growth and stable EBITDA margins in this seasonally soft quarter. We expect the business to improve gradually as additional restructuring enhances the profitability, consistency and predictability of overall international results.

Before I get to specific client wins, our book-to-bill ratio continues to be more than 1:1 and we generated bookings of nearly $20 million from new customers in the quarter.

Wins in the marketplace are a cornerstone of our success. Here are some specifics of a few key deals from Q3: a world leader in automobile and equipment rental selected Ciber to implement Infor’s M3 equipment service management and rental software worldwide. Ciber will assist with replacing the company’s existing equipment rental management systems with a comprehensive solution for managing assets, projects, rentals, and sales.

One of the world’s largest online retailers of book and media extended its contract with Ciber for support of SAP software in the organization’s business warehouse. He engagement will be staffed with employees from Ciber’s SAP Center of Excellence in Germany.

One of the largest municipal electric utilities in the US selected Ciber to implement SuccessFactors, an SAP-owned cloud-based solution for talent management. The engagement will support strategic human resources and safety for this supplier of electricity to more than 1 million customers.

And finally, a world-renowned resort operator expanded its Managed Services contract with Ciber. In addition to an ongoing business analysis managed services engagement Ciber now is providing managed services for program and project management. These multi-million dollar contracts are scheduled to run for three years.

We have completed the actions related to our 2012 restructuring as planned and have captured the expected savings. We are on track with the implementation of our 2013 plan. Looking ahead, we expect to see run rate savings from the 2013 plan in the second half of 2014. The combination of efficiencies we are realizing from our restructuring and improvements we continue to make in our delivery capability positions Ciber for gross margin expansion and further SG&A leverage as we move into 2014.

In summary, we are addressing the few remaining challenges in the business which have been offsetting the good progress we’ve made in ISV Practices and Managed Services, the strategic growth areas of the business. We are focused on improving the international business model through a combination of the 2013 restructuring program and the continuing mix shift to managed services.

The important steps we took last year to improve our balance sheet and ongoing disciplined capital allocation allow us to maximize cash flow from operations and value creation. The efforts we have made over the past three years to improve our processes and apply best practices and structure are paying off as we benefit from the greater consistency, predictability, and the potential operating leverage from our revenue growth.

Before I turn the call over to Mike let me make a brief introduction. Mike joined us as Executive Vice President and CFO last month and will oversee the financial operations on an interim basis while the company conducts a formal search for a permanent replacement. Mike is an experienced leader and seasoned CFO with a great deal of knowledge in this sector. He brings more than 35 years of senior-level financial management experience with public technology companies including CFO at Sun Microsystems; and CFO at Palo Alto Networks where he guided the company through the process of becoming IPO-ready, overseeing its finance, accounting, human resources, IT, and manufacturing functions at a time of rapid growth.

Not surprisingly, Mike has hit the ground running. With that, Mike?

Michael Lehman

Thanks, Dave, and good morning everyone. Ciber’s Q3 financial results reflected progress in a number of areas of the business and some challenges we are working through, but in general were consistent with the trends discussed in our Q2 call.

Revenue of $215 million increased 2% year-over-year and was essentially flat in constant currency. Adjusting for restructuring charges as well as one-time costs related to the CFO transition, operating income EBITDA totaled $3.1 million and operating margins were 1.5%. Net income from continuing operations totaled $1.4 million or $0.02 per share before restructuring charges and CFO transition costs compared to breakeven a year ago.

Net cash at quarter-end was $15 million. Our cash balance was $33 million at the end of the quarter and operating cash flow from continuing operations totaled $13 million in the quarter. Before I get into the details of the quarter I’ll provide a brief update on our restructuring.

We took $14 million in restructuring charges in Q3, $2 million associated with the 2012 restructuring and $12 million for the 2013 plan. As a reminder, for the 2012 plan we had previously recorded $9 million in restructuring charges since inception of the program. With the $2 million Q3 charge we have completed the charges associated with the 2012 plan at $11 million, below our previous estimate.

Of the previously-announced $13 million in charges associated with the 2013 restructuring, we expect the remaining $1 million charge to be booked in Q4. We continue to expect run rate annual savings form our 2013 plan of approximately $12 million beginning in the second half of 2014.

Turning to the results of our segments, in North America segment revenues decreased by approximately 4% year-over-year and around 2% sequentially. This reflects the macro trends Dave mentioned earlier. The ADM business will continue to be an important piece of our portfolio for the long term. We believe we have not captured our fair share of the opportunities available to us in this space. We intend to invest in additional account managers to deepen our relationships with existing and potential customers and to identify further opportunities to add more value for our clients.

Gross margins increased to 27.6%, a 100 basis point increase from a year ago and up 30 basis points sequentially. Efforts to improve utilization, ongoing monitoring of project performance, and increased focus on optimal use of our offshore global delivery centers are continuing. We also managed our SG&A at the segment level effectively, as evidenced by the increase of nearly 4% in absolute levels from a year ago. This is principally due to capturing benefits from the 2012 restructuring plan.

The North America segment operating margin of 8.1% was up nicely from 7.2% a year ago. This also represents the fifth quarter in a row for segment operating margins above the 7.0% mark. As an aside, while CFO of Sun Microsystems I oversaw the finances and operations of a highly-profitable multi-billion dollar revenue professional services organization. I can tell you that this team in North America is focused on all the right actions in terms of managing near-term profitability.

Our international operation is growing. Segment revenues of $111 million were up nearly 9% from a year ago and up 5% in constant currency. Our results continue to be driven by solid performance in our large markets especially in the UK and Germany, with particular success in our Managed Services offerings. Sequentially, strong growth in Managed Services in our SAP practice as well as stability in The Netherlands were offset by typical Q3 seasonal softness.

Gross margins dipped from last quarter and year-ago levels due to normal seasonal factors as well as utilization levels that primarily reflected our use of outside subcontractors as we continue recruiting efforts in our growth markets. As we bring on and ramp up these new resources and increase our efforts to utilize our global delivery teams in Poland and India, we would expect to see gross margins improve.

Operating margins above 4% in the quarter reflected the benefits of restructuring and cost management. We expect further benefits to accrue to both gross margins and SG&A from the 2013 restructuring efforts now underway.

Finally, at the corporate level we continued to improve our financial flexibility and have made significant progress. Interest expense totaled $0.5 million in the quarter, reflecting a lower interest rate on our credit facility and reduced average borrowings. We expect interest expense for the remainder of the year to remain at this quarterly level.

Q3 income tax benefit was $0.5 million compared with $2.5 million expense in the year-ago Q3. 2013 tax expense is estimated at $8.0 million versus $11.0 million in 2012. The year-over-year reduction in income tax expense reflected the consequence of the restructuring charges and some immaterial prior period true-ups.

Operating cash flow from continuing operations was $13 million for the quarter, benefiting from improved management of our working capital. For the year-to-date, cash flows used in operating activities totaled $4 million, and improvement of nearly $28 million from the prior year. We currently expect operating cash flows from continuing operations to be positive for all of 2013. DSOs of 63 days improved slightly year-over-year and was unchanged sequentially. We continue to move towards our goal of 60 days.

I’m confident there are numerous opportunities to improve our overall business model. I would summarize my observations 45 days into the role as follows: as mentioned earlier, I believe the in-quarter operational disciplines and processes within North America are quite solid. The focus is now squarely on investing in and maintaining our core ADM business and the opportunity discussed earlier.

We also have room to expand gross margins in our ISV and Managed Services offerings. As we continue to deliver and complete projects we can learn more ways to optimize utilization, global delivery and how to improve bid management and specification – the latter aimed at improving our ability to monitor ongoing performance. This is quite typical at this stage of growth in the ISV practices. I am optimistic about the gross margin expansion opportunities there.

On the international front there are multiple opportunities for margin expansion. As part of the restructuring and transformation, I am encouraged by the increased adoption of certain best practices currently being used in North America for such areas as bid management and ongoing project monitoring, and a renewed focus on utilization and use of global delivery resources. We are implementing shared services in Poland which can also provide further operating leverage.

All transitions take time but I am encouraged by the energy and focus I see here. With that we would like to open the floor to your questions. Christian?

Christian Mezger

Operator, may we have the first question please?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. (Operator instructions.) The first question comes from the line of Brian Kinstlinger of Sidoti & Company. Please go ahead and ask your question.

Brian Kinstlinger – Sidoti & Company

Thanks, good morning. Excluding restructuring and severance for Claude your operating profit is just under $2 million I think which is the lowest in years. And I’m wondering first why did SG&A go up faster than revenue, in fact even go up in total when you should be beginning to see the benefits of your first restructuring which you announced in November, 2012? And then is the company getting even more serious about a significant restructuring of the business especially in Europe given the lack of profitability there?

Michael Lehman

So it’s Mike Lehman, I’ll answer the SG&A question. As noted the segment SG&A especially in North America went down and that does reflect some of the results of the 2012 restructuring. The principal reasons for the SG&A increase sequentially are as you mentioned primarily related to CFO severance costs which include cash out of pocket and certain stock-based compensation non-cash related charges. The other piece of the increase sequentially was also related to stock-based compensation which reflects the timing of grants that are authorized and the associated non-cash expense that goes with it. So you sift out the non-cash stock-based comp and the CFO severance and essentially SG&A in total was about flat, down in North America and up slightly sequentially in Europe.

Brian Kinstlinger – Sidoti & Company

And then I guess if I take a look at the corporate expenses have gone from $7 million to $12 million again, you talked to segment and I’m sure that $1.4 million for Claude is there, but what’s going on in the corporate expenses and is that a new run rate of $12 million? I mean it’s up substantially quarter-to-quarter and year-over-year.

Christian Mezger

Brian, this is Christian. So transition costs and stock compensation are both held in our corporate segment, so both of them you see as part of corporate and that’s the major cause of that increase.

Brian Kinstlinger – Sidoti & Company

So that suggests about $4 million more of stock-based compensation this quarter compared to last quarter?

Christian Mezger

No, you have $2.6 million as we outlined in our GAAP earnings earlier related to costs of transition and the remainder is stock compensation.

Brian Kinstlinger – Sidoti & Company

And then has the company thought about divesting any of its businesses? Dave, you talked about some of your businesses are offsetting the progress you’re making in say ISVs and Managed Services. So if that’s been going on for a while what’s the Board and you thinking about in terms of those businesses going forward?

Dave Peterschmidt

Well, I think we’ve been pretty clear, Brian, for three years that one, we’re not going to divest of any further businesses. We divested of federal and the ITO business because it wasn’t core and we settled in on the fact that ADM has been a large part of this company’s core business for a lot of years but we’re adding the high-value capability of the ISVs and Managed Services. And that continues to grow as I indicated. I mean in North America that’s now 33% of the revenue and that portion of the business is growing 10% sequentially quarter-to-quarter with managed services growing at 7%.

So the strategy is truly a well-founded strategy and we continue to invest in it and go forward in it. So no, there’s no further business units that we would do any divestiture. We now have international and North America aligned as how they go to market and what the emphasis is.

Brian Kinstlinger – Sidoti & Company

And then I guess going back to one of my original questions, is the company thinking about any more significant restructuring in Europe? It seems you’re not getting the leverage there and so I guess I’m wondering what can be done to change that.

Michael Lehman

Yeah, so it’s Mike Lehman again, Brian. We’ll spend some more time together to make these conversations deeper but a large part of the restructuring, the 2013 plan is aimed squarely at transformation in Europe. And again, we just announced it; we have just taken the first, largest part of the charge. We will begin to see the benefits of that but there’s really restructuring and transformation and I want to make sure we understand there are both things going on.

Transformation is part of what Dave alluded to as well – ensuring that the best practices and disciplines that we see working pretty well in North America are being applied on a pan-European basis. So it’s not just about taking out headcount and costs; it’s about improving some of that coordination, project management, operational discipline, utilization of resources. So all those things are part of the change that’s now going to be going on in Europe going forward.

Dave Peterschmidt

Yeah, Brian, let me add to Mike’s comments. Specific to the transformation are two things that are very important. Remember that we talked about the fact that Ciber’s trying to do two things simultaneously. One is pull together all of the entities of Ciber into a unified global enterprise to create leverage globally, and the second is to go up the value chain. We’ve talked about the value chain, so Europe also is focusing on ISV practices and going forward in that direction.

But the second transformation piece that’s in progress right now, and we’ll talk about this in more detail after the first of the year, is we’re going to a unified back office platform in Poland where we are consolidating our finance, our IT, our HR functions so that the country management teams can focus on the forward part of the business; i.e., generating the revenue and new customers and extending our brand. So yes, there is quite a bit going on there. What Mike was describing is there’s significant financial leverage that comes about as we do this.

Brian Kinstlinger – Sidoti & Company

Okay, the last two I’ve got and then I’ll get back in the queue is I’m curious, your headcount in total and then what percentage is India/offshore?

Christian Mezger

Brian, this is Christian. It’s about 6800 on a total company headcount and with the offshore component of about 1500 headcount.

Brian Kinstlinger – Sidoti & Company

And 1200 of that is in India still?

Christian Mezger

Yes.

Brian Kinstlinger – Sidoti & Company

Okay, so I guess my last question is about two or three years ago you had 1200 people in India and talked about tripling that in a couple of years. So is there going to be a different focus? Is there going to be an increase focusing on offshore? What’s gone wrong and maybe what are you changing to change the focus to increase your delivery offshore?

Dave Peterschmidt

So Brian, what we’re doing there – you’re right about that because we were thinking about dramatically increasing headcount in India to help leverage gross margin. But as we move into the ISV practices and Managed Services we now see that the opportunity for leverage in India is that in Managed Services we can do a lot more of the delivery from India, but not just India – also Poland to get us European support. So we’re now looking at delivery efficiencies and economies of scale not just in India alone but also in other markets, and right now for us Poland’s becoming the secondary market for offshore delivery.

Brian Kinstlinger – Sidoti & Company

And should we see 1500 go to where over any period of time you want to give us?

Dave Peterschmidt

Not yet. We’ll talk more about that as we move in to complete the transformation projects in Europe.

Brian Kinstlinger – Sidoti & Company

Okay, thanks.

Operator

Thank you for your question. The next line of questions comes from the line of Vincent Colicchio with Noble Financial. Please proceed, sir.

Vincent Colicchio – Noble Financial

Yeah, good morning, Dave. On the ADM side, to what extent are your losses related to losing out to low-cost providers such as the India-centric firms?

Dave Peterschmidt

Yeah, it’s not that, Vince. Let me tell you, we haven’t gone into it. I mentioned it in the script that the pressure on ADM quite frankly is related to not more than two or three clients that we’ve got, and they’ve impacted revenue rather than the incoming rate of new business. As I’ve mentioned our book-to-bill is still above 1:1, and what’s put the downward pressure – and this is primarily North America – has simply been two or three clients. And we’re about a quarter away from lapping through that and then you’ll start to see the growth start to come forward again.

Vincent Colicchio – Noble Financial

And that same sort of low-cost concern thinking about Europe, what verticals are you most optimistic about and to what extent are they insulated from low-cost competition?

Dave Peterschmidt

Yeah, the verticals that we see there primarily are retail and manufacturing and utilities. And we have some very strong footprints especially when you look at utilities. I mentioned also in North America – one of the major electric utilities here in North America just signed a major contract with us. We’re not seeing pressure from the low-cost providers in those verticals especially with the ISV relationships. The ISV business is not subject to the same type of price pressure that ADM is.

Vincent Colicchio – Noble Financial

So the retail, manufacturing and utilities, those verticals apply to both North America and Europe?

Dave Peterschmidt

Right, absolutely.

Vincent Colicchio – Noble Financial

Okay. And then what did pricing look like in the quarter?

Dave Peterschmidt

We haven’t seen much change in the pricing pressure out there in the marketplace. I mean it’s a competitive marketplace but I would tell you we’re not seeing any change in the dynamic associated with that.

And one other thing, Vince, that I would mention here for a second, as we look at both verticals and ISVs one of the things that’s starting to pay off in our strategy is that for the first time since I’ve been here we’re now seeing that two different ISV practices are bidding in the same project in a vertical. Now that’s the first time that Ciber’s had a situation where they actually are getting two bites of the apple if you will – that one ISV practice is bidding in a utility environment or a healthcare environment while the other ISV practice is bidding. And obviously that gives us a much stronger position to go after these types of verticals.

Vincent Colicchio – Noble Financial

Okay, thanks. Most of my other ones were asked, thanks.

Operator

Okay, thank you for your question. The next line of questions comes from Brian Kinstlinger of Sidoti & Company. Please go ahead, Brian, and ask your questions.

Brian Kinstlinger – Sidoti & Company

Great, thanks for taking my follow-ups. I guess first you’ve announced $23 million in cost savings from restructurings as part of your two plans, and I think that you said in your prepared remarks in the second half of ’14 is when you’re going to start to realize the second piece from The Netherlands and some of the others. So I guess I’m wondering should we expect the operating margin to increase by that 260 basis points especially with the increased operating leverage you’ll have? I guess why or why not?

Michael Lehman

So Brian, it’s Mike Lehman – I’ll take the first crack at that. Clearly the impact of the restructuring as mentioned, of the 2013 plan, won’t be felt until the second half of 2014. We still expect that there’ll be $12 million of annual run rate savings available by that time and that’s a number that we’re going to capture, look at and then decide how much of that we need to invest to grow the business and how much we would bring to the bottom line. We’re not at the point where we’re just going to say it’s all going to come down.

There’s a lot of choices that we need to make and as we go through the planning process here in the next month or so looking at 2014 there are some other choices that we’re going to be considering; and as we get into the next year we’ll give you a better signal as to what we’re thinking about on that front. But I wouldn’t just automatically expect it to come down to the bottom line in the second half of the year. It’s available; we’re going to capture it, measure it, make sure we know what we’re doing with it. But at this point it’s prudent to assume that we may invest some of it.

Brian Kinstlinger – Sidoti & Company

Okay. And you mentioned the stock options – what prompts the higher expenses? Was there a huge grant that was given out? I mean the stock price has gone down so it’s not the existing options [that have changed] so maybe take us through why the options expense is so much higher.

Dave Peterschmidt

Yeah, Brian, this is Dave. The way that we run our stock incentive program and obviously it’s a key part of incentive compensation for all of management in this company, is one, we have stock grants that are given when a new person joins the company at a senior level position. Now, that can go on throughout the year so a little bit of that is there. But a big chunk that comes in is after the first of every year we do compensation review and we do annual stock refresh grants so that we are continuing to maintain a stable if you will “vesting schedule” for key executives for retention purposes.

So if you go back and look at the financials of this company since I’ve been here every year in February is when we make the annual grant. The reason why that didn’t come in February of 2013 is that we had to wait for our shareholder meeting in May to approve some modifications to our stock program; and hence the grant that normally was done in February was done in June of this year.

Brian Kinstlinger – Sidoti & Company

Okay.

Dave Peterschmidt

But it’s pretty consistent. We haven’t done anything different, it’s just that it came in June this year rather than February.

Brian Kinstlinger – Sidoti & Company

Right, it just seems that quarter-to-quarter the huge jump is unusual even for last year or the year before in any given quarter. That’s why I think it creates that flag and that’s why I was asking the questions. We’ve seen a general pickup in demand in the broader market in the US and Europe. I think my first question is what’s driving the growth in Europe? Is it ISVs, is it a specific ISV? Is it a vertical? And then if you look at the US we’ve seen strengthening from the other IT innovators for the most part, not all of them. So I guess why do you think maybe you’re not benefiting and when do you expect to return to growth in that business?

Dave Peterschmidt

Well, I think we are benefiting, it’s just not of sufficient scale yet. So as we go to Europe, Managed Services in SAP is where the growth is coming from in Europe; and as we move more and more into Managed Services that’ll start to reflect as a growth factor for us. And that’s why I said if we think about North America we’re really pleased with the way we are really moving forward with the ISVs in North America and Managed Services and also with SAP… And one of the things we’re doing for international is we’re starting to move Oracle into the mix in international where it hasn’t been. So I see good things for us. We’re starting to spread if you will the opportunity base rather than be narrowly focused on one platform only.

Michael Lehman

And Brian, it’s Mike Lehman just to punctuate Dave’s comment on scale. We introduced some new data for you in the remarks that said in North America these ISV practices were approximately a third of the revenues and grew at 10% sequentially. You get that number to 50% of the revenues growing at an interesting rate then that sort of is where the tipping point becomes. So we’re on that path. It’s a matter of scale; it’s a matter of time and they’re going nicely. So you can probably begin to think about modeling that yourself but that’s interesting new data that is definitely going in the right direction.

Brian Kinstlinger – Sidoti & Company

And so when do you think maybe the US will return to growth? Is it the first half of next year; is it the second half of next year, year-over-year of course?

Michael Lehman

So it’s Mike. I can claim that I’m new in the job and I’m not ready to give out guidance yet, but I do think that when we get to next year and we talk about the Q4 conference call we can give you a better sense of what we’re thinking about for 2014. But clearly that trend is what we’re looking at to help fuel the overall growth of the company.

Dave Peterschmidt

Brian, this is Dave just to add to Mike’s comments. We’re right in the middle of 2014 planning right now and the only thing I would say to that is we clearly understand where the growth elements are. And 2014 isn’t going to be just about if you will “run harder.” It’s going to be an intelligent approach to take advantage now of the leverage points that have been created in the business model. So it’s a little premature for us to start talking about 2014 but give us till after the first of the year, let us do what every company does which is look at all the good things that are happening; look at the things that are holding us back and then we’ll come with a comprehensive approach for you. But we won’t change the fundamental strategy which is focus on the ISV and Managed Services while maintaining the ADM business.

Brian Kinstlinger – Sidoti & Company

And so then you gave us a new percentage of what percentage ISV is. I’m curious what that grew year-over-year?

Dave Peterschmidt

I don’t know, it’s fairly dramatic. I don’t have that number in front of me. We can take a look at that for you, Brian.

Brian Kinstlinger – Sidoti & Company

And what percentage of revenue is Managed Services as well as ADM so we can size the magnitude of the weaknesses and strengths of your business?

Dave Peterschmidt

Yeah, we’ll start to look at some of those numbers and see what we can provide you that will be helpful.

Brian Kinstlinger – Sidoti & Company

Okay. The last question I’ve got, well two more – the first one is international utilization?

Dave Peterschmidt

We really haven’t gone into that. I would say it’s in the 80%’s, mid-80%s.

Brian Kinstlinger – Sidoti & Company

And then the final question is vendor consolidation. I’ve heard a little bit about that. You talked about some slowness in clients and I know Vincent asked that question but has there been any customers that have changed and shifted more towards offshore outsourcing? Is that something you see impacting you going forward, similar to the largest clients you had in Europe that had some weakness a while back?

Dave Peterschmidt

Well I don’t think there’s any doubt about that. I mean it’s only in ADM that the vendor consolidation is going on and hence where pricing pressure is. Our impact though we clearly can cite has only been two or three clients. One we’ve already talked extensively about which was in Europe and we really have not seen a big pickup yet in vendor consolidation in North America. And we definitely are not seeing the offshore phenomenon in North America beyond what it historically always has been; that is, we’re not seeing a big push beyond what the normal run rate has been in North America.

Brian Kinstlinger – Sidoti & Company

Great, thank you so much.

Operator

Thank you.

Dave Peterschmidt

Thank you, Operator. In closing let me just say that our efforts to drive growth in our strategic practice areas are paying off as a significant portion of our revenue is now coming from these high-growth, high-value businesses. At the same time we’ve had some challenges and we know what to do, and are implementing those initiatives to improve revenues and profitability. Overall we are really starting to see light now at the end of the tunnel and we’re encouraged by the progress we’re making in our transformation that includes a uniform approach of application of best practices and moving up the value chain across our operational, globally-focused practices.

Our teams remain motivated and enthusiastic about our opportunities. I want to thank everybody for your continued interest in Ciber and we look forward to talking with you after next quarter. Thanks, everybody.

Operator

Thank you. Thank you for your participation in today’s conference. This concludes the presentation, you may now disconnect. Good day.

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Source: Ciber's CEO Discusses Q3 2013 Results - Earnings Call Transcript

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