Sapient's (SAPE) CEO Alan Herrick on Q2 2014 Results - Earnings Call Transcript

Aug. 6.14 | About: Sapient Corporation (SAPE)

Sapient (NASDAQ:SAPE)

Q2 2014 Earnings Call

August 06, 2014 4:30 pm ET

Executives

Dean Ridlon - Investor Relations Director

Alan J. Herrick - Co-Chairman, Chief Executive Officer and President

Joseph S. Tibbetts - Chief Financial Officer, Chief Accounting Officer, Senior Vice President and Treasurer

Analysts

David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division

Edward S. Caso - Wells Fargo Securities, LLC, Research Division

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

Todd Van Fleet - First Analysis Securities Corporation, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Sapient Corporation Second Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Dean Ridlon. Please go ahead.

Dean Ridlon

Thank you. And thank you, all, for joining us today. I'm Dean Ridlon, Sapient's Director of Investor Relations.

Our press release announcing this quarter's results is currently available in the Investors section of our website, www.sapient.com. And apologies for the late getting over the Wire. We had some issues at Business Wire, but the release is out.

Before we do begin the call, I would like to remind everyone that some of the matters discussed during today's call, in particular, financial guidance information and the effect of certain items, including estimated costs and investments in the company's global mobility, compliance and operating controls, as well as estimated foreign currency rate exposures on the company's potential future results and the company's positioning, market share and expected growth are considered to be forward-looking statements as defined by the U.S. Securities and Exchange Commission. These forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ from those expressed or implied by such statements. We've described some of those known risks and uncertainties in today's press release and in our annual and quarterly SEC filings, which we strongly urge you to read. The forward-looking statements included in this call represent the company's views on August 6, 2014. Sapient disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect future events or circumstances.

During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. The most directly comparable financial measures, calculated in accordance with GAAP, and the reconciliation of those GAAP measures to those non-GAAP measures, are contained in the press release announcing this quarter's results.

I would now like to turn the call over to our CEO, Alan Herrick.

Alan J. Herrick

Thanks, Dean. Welcome, everybody. I appreciate you joining the call today. I'll go through the highlights for the quarter. I'm going to talk about guidance for the quarter and the year. And then I'm going to tell you -- I'll spend some time talking about the overall demand environment that we're seeing at the moment and for the year.

So let me start with press release highlights. Service revenues were $362.2 million, up 15% year-over-year and 14% in constant currency, up 6% sequentially and 6% sequentially in constant currency.

Non-GAAP income from operations was $49.2 million or 13.6% operating margin for Q2 '14, and GAAP income from operations was $35.3 million or 9.8% operating margin.

Non-GAAP diluted income per share was $0.23. GAAP diluted income per share for the quarter was $0.16.

Cash generated from operations was $25.5 million for the quarter.

If we take a look at our segment performance, operating segment performance for Q2. SapientNitro represented 66.7% of service revenues or $241.5 million. Service revenues were up 14% year-over-year and 12% in constant currency, and they were up 6% sequentially and the same in constant currency.

Global Markets represented 27.2% of our service revenues in Q2 or $98.5 million. And service revenues were up 13% year-over-year, 12% in constant currency. They were up 5% sequentially and the same in constant currency.

Government Services represented 6.1% of our service revenues in Q2 or $22.2 million. Service revenues were up 57% year-over-year, same in constant currency, and up 11% sequentially and the same in constant currency.

So overall, a solid quarter for us. We continue to be well differentiated, take share in the market. I'm pleased and I think we're all pleased with both our top line growth and our strong performance as well. On the profit, we're at $49.2 million. We're at the high end of our range. Went a little over our revenue range, partially aided by the help of another success fee we were able to earn. And then if you look at year-to-date non-GAAP operating profit, we're up $13.7 million over last year, up 20% year-over-year. And Q2 performance was strong throughout all 3 businesses.

If you look at Q3 guidance, we expect non-GAAP operating profit to be $44 million to $50 million. Revenue is expected to be $350 million to $360 million. We don't expect any significant success fees in Q3, and again that helped Q2 a bit.

If you then move to the full year and to give you an update on where we stand. We guided the full year at 11% to 15% revenue growth and we expect to be solidly in that range.

As it relates to our core operating performance, we would also be solidly in the guided profit range, however, due to increased expenses related to FX and continuing remediation of our global mobility issue, we're absorbing additional expenses that will take our reported profit to the low end of our guided range or as much as $6 million below our guided range.

And let me take a minute to explain in detail what's happening and what's changed since our February guide and conversation. So let me illustrate by taking the midpoint of our guide to help you understand how the math works is that, at the midpoint of our guide -- of our guided range, we were $194.5 million in profit. We have changes in currency rates since the February call that's created a $5.5 million FX headwind in the year. We have additional costs and investments of $7 million, above what we guided, in remediating our global mobility practices and processes. The additional $7 million of expense in global mobility is related to longer transition time of travelers to the new program and additional fees to advisors. The investments in mobility will strengthen our overall control environment and it'll allow us to continue to add growth and profits in coming years. And the large majority of the additional mobility expense is not expected to recur in 2015.

Finally, our core business is operating substantially close to the midpoint of our guide and quite well. Well, we could be off by $2 million again from the midpoint, but we'll be strongly within our guided range if you look at just core operating performance before you look at the unplanned expenses that we're now absorbing.

So if you look -- again, if you look at the midpoint and summarize the midpoint, we've got about $14.5 million of additional expense that would take us at the low end of where we would think we would be and that breaks down to -- the business could be a couple of million short at the midpoint and then $12.5 million split across $5.5 million for FX, $7 million in additional expense related to the global mobility issue and the remediation that we're taking, which, again, as I said up front, will take us from a position of being able to do the low end of our range to -- down to $6 million below the low end of our range. Now, again, we have 5 months left in the year to execute and we hope we can make up some of that shortfall as we go forward.

I'd take a step back and talk a little bit about big picture, what we're seeing with demand, and then I'm going to drop down into what we're seeing right now in Q2 and Q3.

So first, I want to take a minute to just remind you of some of the core themes or opportunities that we're focused on as a company and how they're resonating. So 4 different ideas. The first is really changing and increasingly digital consumer. The convergence of marketing and technology continues to resonate as clients really look to place investments to gain better engagements with their consumers. This theme and many parts of it, social, mobile, analytics, brand, technology opportunities continue to drive the SapientNitro business. So we've talked about on previous calls our Global Markets business continues to see opportunities really created from a broadly changing regulatory landscape and developments we're seeing in the world energy supply. And our Government business sees opportunities, as we talked about, in both health -- consumer health, security and other consumer-related initiatives. And we're also seeing early opportunities, as I mentioned on the last call, where we're seeing SapientNitro and Global Markets actually coming together to pitch some opportunities and assignments. And all those opportunity areas that we see that we've been focused on remain strong for us, and interest and relevance with our clients also remain strong. And we feel like we're well positioned to continue to grow across those opportunities over the next several years. Differentiation is strong. As you know, our client list is strong, our win rates are very strong and we continue to take share in the marketplace.

So if I drop down and get into the details of Q2 and Q3 and start with maybe just a couple of comments on the economy, and I think there is some correlation there. But if you look at the -- the macro environment, as you all know, continues to be challenging. There's renewed concerns in Europe. U.S. GDP in Q1 was quite off. Q2 was actually quite a nice bounce back, and I do think that played a role in what we're seeing, and I'll mention that in a minute. And generally speaking, there's more geopolitical concern than the world had 6 months ago.

So when you get into really what we saw in Q2, and I'll tell you a little bit of what we're seeing in Q3, we saw, obviously, very strong demand in Q2, showing up at $362 million and change. However, in the latter half of Q2, we did see an increase in delays and budget reductions across several of our clients. And we also saw a lot of our new wins not starting or starting smaller than planned. And again, this is not, unfortunately, not atypical with a little bit of the up and back we've seen over the last 3 and 4 years. So we did see some pullback at the end of Q2.

I'd say that, with the exception of retail, it was fairly balanced that we saw some of the stalls and delays and reductions, generally speaking, across all sectors, all industries. It was more pronounced in retail.

If you now kind of work ahead to what we've seen in the beginning few weeks of Q3, at least up till today, we have seen sales activity pick back up, we've seen clients beginning to get moving again and we've seen our funnel begin to strengthen again.

So one thought I have is that I think that the negative U.S. GDP growth, the concerns with retail and some of the issues are the blame on weather definitely concerned some clients and I think that flowed through into some of their decision making that caused some delays, caused some reductions that we saw materialize towards the back half of Q2.

Now Q2 GDP was obviously much better and growth in Q2, and that may improve or continue to improve the flow of decision making, but we are now seeing activity in decision making tick up. So I do think there may be some broad correlations of sentiment and just how clients are feeling about their own growth and their own profitability in this environment.

So I guess to wrap before I hand it over to Joe. On the top line, we expect to have a strong year despite the fact that the environment is challenging and remains a little bumpy. It appears the growth is coming a little differently than we have expected with a stronger first half and a potentially flatter Q3.

On the profit side, our core business is performing well and performing well within our guide, but we're not pleased with the additional expenses that are going to affect our current year performance, as I mentioned. FX is going to affect us and the increased expense in global mobility and compliance will also affect us and work against us this year. And as I also mentioned, we do not expect that to recur next year, but we do have to deal with that to get our processes and practices in place to represent the scale and the growth that we have had over -- and that we will have to make sure we're in the right position to avoid any issues in the future.

We feel the demand environment is stable here, and we're watching client decision making very closely. We're watching starts very closely to see if we get a better flow of confidence now that we've got a little better outcome in U.S. growth.

So if you look at and summarize where 2014 is now for us on the profit growth side, including the impact of the additional expenses, we're more likely to be up 7% to 13% on profit growth. And for the rest of '14, we're really focused on making as much improvement as we can in profit and then really continuing on our growth and profit expansion path as we move into '15 and '16 and get back on our game plan.

So with that, let me turn it over to Joe to walk you through the financials.

Joseph S. Tibbetts

Sure. Thanks, Alan. Hello, everyone. I'm going to spend a few minutes walking through the details of our second quarter results and sharing our outlook for the third quarter of 2014.

As usual, the full details of these results can be found in today's press release, the Financial Statistics page in our Investors section of our website and also in the SEC Form 10-Q, which we expect to file later today.

Consolidated service revenues for Q2 were 30 -- $362.2 million, a sequential increase from the first quarter of 2014 of 6% on an as-reported basis and an increase of 5.6% on a constant currency basis. And compared to Q2 of last year, revenues were up 15.2% as reported and 13.8% on a constant currency basis.

Looking at service revenues broken down by industry. Consumer, Travel and Automotive was 44% of company revenue in the quarter compared to 43% last quarter. Financial Services was 30% in Q2 compared to 31% in Q1. Government, Health & Education was 12% in Q2, unchanged from Q1. Energy Services was 9% in Q2, unchanged from Q1. And Technology & Communication was 5% in Q2, also unchanged from Q1.

Long Term and Retainer Revenues were 47% in the quarter, that's also unchanged from Q1. 38% of Q2 revenue came from T&M contracts and 62% came from retainers, fixed price contracts and other contracts.

The percentage of our service revenues coming from our Top 5 Clients in the second quarter was 15% down from 17% in Q1. And the revenue from our Top 10 Clients totaled 27%, down from 29% in Q1.

Turning to gross margin and operating margin. As usual, I'm going to refer to the non-GAAP numbers that we consider a meaningful picture of the company's comparative performance.

Overall second quarter gross margin, including the non-GAAP items, was 33.3% for the quarter compared to the gross margin of the second quarter of 2013, which was 34.1%.

Breaking down the contribution margin and profit by reportable segment. SapientNitro reported $241.5 million in service revenues compared to $227.8 million in Q1, an increase of 13.5% over $212.7 million in Q2 of last year. In terms of profit, SapientNitro generated $81.8 million in profit, that's a 17% increase over the $69.9 million in profit a year ago. The related contribution margin was 33.9%, up from 32.9% in Q2 of last year.

Global Markets recorded -- reported $98.5 million in service revenues compared to $93.8 million in Q1, an increase of 12.6% over the $87.5 million in Q2 of last year. Sapient Global Markets generated $28.7 million in profit for a contribution margin of 29.1%. That compares to $27.6 million in profit and a contribution margin of 31.5% in Q2 of last year.

Sapient Government Services reported $22.2 million in service revenues compared to $20.0 million in Q1 and an increase of 57.4% from the $14.1 million reported in Q2 of last year. Sapient Government Services generated $4.1 million in profit for a contribution margin of 18.5% compared to $3.9 million in profit and a contribution margin of 27.6% in Q2 of last year. The Government Services contribution margin was affected again this quarter by the inclusion of OnPoint Consulting, for which the transition to public company revenue recognition policies included some expected deferrals out of the period with full inclusion of the related costs.

With respect to other operating expenses. Selling and marketing expenses were 4.1% of revenues, up from 4.0% of revenues a year ago. General and administrative expenses were 15.6% of revenues, down from 16.3% of revenues in the same quarter a year ago. Total stock-based compensation expense was $8.1 million for the quarter.

And then in restructuring and other related benefits or charges. We recorded a charge of $1.9 million in Q2 compared to a restructuring benefit of just under $100,000 in Q2 of last year. The restructuring charge this quarter related to the reduction of approximately 40 people across multiple functions and geographies as we better aligned our talent with expected demand for our services.

Amortization of purchased intangible assets for Q2 was $3.8 million. That's up from $3.3 million in the second quarter of last year. Acquisition costs and other related charges totaled less than $100,000 in the quarter. This compares to a benefit of $1.3 million in the second quarter a year ago. The Q2 -- this quarter's charge relates to third-party due diligence costs, partially offset by recorded changes in the fair value of earnouts from past acquisitions.

Turning to gross margin and operating margin -- sorry. I'm sorry about that, flipped to the wrong page. Income from operations -- GAAP income from operations was $35.3 million, which was 9.8% of service revenues. This is up 5.4% from last year's Q2 reported income from operations of $33.5 million or 10.7% of service revenues. On a non-GAAP basis, income from operations was $49.2 million, which was 13.6% of service revenues, an increase of 13.6% from last year's Q2 non-GAAP profit of $43.3 million, which was 38% of that quarter's revenues -- 13.8%, if I didn't say that right.

In the quarter, we had a foreign currency translation loss of $1.4 million as compared sequentially to Q1. We recorded a net transaction loss of $600,000 including -- included in G&A expenses. And we also had a net hedging loss of $200,000, which was included in our G&A expense line.

Interest and other income, net, totaled $1.3 million, a decrease from $1.7 million in Q1 and an increase from $1.2 million a year ago. The income tax provision for Q2 was $13.4 million for an effective rate of 36.6%. This quarter's rate continued to be affected favorably by the increase in percentage of worldwide profits earned offshore and the release of certain tax reserves.

On an non-GAAP's basis, net income attributable to Sapient Corporation was $23.3 million or $0.16 per diluted share, up 2.2% compared to $22.8 million, or again, $0.16 per share a year ago and sequentially up 71.3% from the $13.6 million in last quarter, which was 9% -- sorry, $0.09 per diluted share.

On a non-GAAP basis, net income was $32.5 million or $0.23 per diluted share, up 10.5% compared to $29.4 million, or $0.21 per diluted share a year ago.

Weighted average common shares for the second quarter were 144.1 million shares on a fully diluted basis.

Turning now to the financial outlook. As Alan mentioned, for the third quarter of 2014, service revenues are expected to be in the range of $350 million to $360 million. And third quarter non-GAAP operating income is expected to be in the range of $44 million to $50 million.

And as usual, I have a few other items of guidance for the next quarter and the year. Our book basis effective tax rate for the full year 2014 is expected to be in approximately a range of 35% to 37% and the rate for the third quarter is expected to be a little lower than that at approximately 32% to 35% due to the expected releases of certain tax reserves anticipated in Q3.

Capital expenditures for Q3 are expected to be between $13 million and $14 million.

Stock-based compensation expense is expected to be approximately $8.7 million.

Restructuring and other charges is expected to be approximately about $500,000 in Q3 and the charge primarily relates to facilities restructuring. In addition, we expect to incur an additional $500,000 for the acceleration of depreciation of certain leasehold improvements associated with certain facility restructurings. That second charge will be recorded in normal operating expenses.

Amortization of purchased intangibles for Q3 is expected to be $3.4 million.

Acquisition costs and other related charges is expected to be $800,000.

Weighted average basic share count -- sorry, weighted average diluted share count is expected to be in the neighborhood of 143.9 million for the third quarter and approximately 143.8 million for the year. Weighted average diluted share count is expected to be slightly lower than Q2, primarily due to the impact of the share buyback program.

So I must have missed a section here, and I apologize. I'm going to go back. Sorry, flipping pages was difficult for me today for some reason. So I'm going to go back a bit. I want to talk about the repurchase program.

So on May 12, 2014, the board authorized a new stock repurchase program of up to $150 million of our common stock. During the 3 months ended June 30, 2014, under the program, we repurchased just under 240,000 shares of common stock that was at an average price of $16.35 per share at an aggregate purchase price of $3.9 million.

Through today, we have repurchased 503,900 shares with an aggregate purchase price of just under $8 million at an average price of $15.86 per share.

Our cash at the end of the quarter was $289.2 million, a net increase of $11.7 million, largely due to cash provided from operations, which was $25.5 million in the quarter. Accounts receivable increased to $210.1 million at the end of Q2 compared to $191.2 million at the end of Q1. Deferred revenues totaled $28.2 million at the end of Q2 compared to $25.3 million at the end of Q1. And unbilled revenues at quarter end increased to $116.4 million compared to $114.2 million at the end of Q1. The consequence of that is the DSO was 71 days, that's unchanged from the 71 days at the end of last quarter, but it is up 9 days from 62 days a year ago. Collections were, again, challenging towards the end of the quarter. That kept accounts receivable and our DSO a little above our target range of 60 to 69 days. This was not due to client issues or any one client in particular, but just generally slower paperwork, signatures, other client delays.

And then lastly, our people count at the end of the quarter was 12,857. And of those, 11,540 were in delivery.

With that, Alan, I'll pass it over to you.

Alan J. Herrick

All right. Thanks, Joe. So overall, we're very pleased with Q2 results, strong for us on the top and the bottom. Pleased with where we expect the year to wind up on revenue and also pleased with our core operating performance, however, displeased with the additional expenses that we're going to pick up in both FX and global mobility. But as it relates to global mobility, it's also an issue that we've examined obviously as we've gone through this over the last several months and it's a place that we want to remediate and get it in the right position to handle both the compliance issues and the scale and growth that we intend to add on the company over the next few years. So we do think it's a good, good choice and a wise investment for us to move forward.

So with that, operator, if we could hand it over for questions?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from the line of David Grossman from Stifel Financial.

David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division

I'm wondering if I could just go back to the guidance just for the year. So just to be clear, I think, Alan, you said that you wanted -- you're going to maintain your revenue guide for the year, which, I think, is up 11% to 15%. Is that correct?

Alan J. Herrick

Correct.

David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division

All right. So that, I think, at the midpoint, would be about $1.4 billion in revenue, a little over that. I think you also said that you would be at, let's say -- I think you had guided to 13.8% adjusted operating margins previously, right? Up 100 basis points year-over-year. Is that -- or not 100 -- is that -- that may have been flat, sorry. Or 13.8% was the number, right?

Alan J. Herrick

Yes. I think that might have been the number at the top. We guided to profit dollars. We guided to $186 million to $203 million profit dollars. So you have to do that at the top end and the low end of the range. Do we have...

Joseph S. Tibbetts

Yes.

David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division

That's okay. So that's $186 million to $203 million?

Alan J. Herrick

Yes.

Joseph S. Tibbetts

Yes.

David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division

Right. So is --- are you effectively telling us to take out $12.5 million for the 2 issues, right, which would have been the incremental expenses for the employee mobility plus FX and then another $2 million of just other operational issues? So you're really reducing that by $14.5 million, that $186 million to $203 million range?

Alan J. Herrick

Relative to the midpoint. And said differently, David, I said I think we could be -- we could still make the bottom of the guided profit range. We could be off by as much as $6 million to the bottom of that range.

David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. All right. So just maybe a quick comment on the incremental costs. Where is the FX showing up? Is that showing up above the line or below the operating income line? It sounds like it's showing up above, right?

Joseph S. Tibbetts

Yes. Yes, it is. Yes. It's largely driven -- all the currencies are impacted, but the large impact is coming from the rupee, which would be in our expense structure. We don't have very much rupee-based revenue. Whereas the other currencies, we have a natural hedge with respect to revenue and expenses moving around with currencies.

David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division

So there's -- obviously, there's no hedging against the rupee right now?

Joseph S. Tibbetts

No. We do hedging against the rupee, but unfortunately, from a book basis standpoint, you don't get the -- first of all, we don't hedge 100%. it's not a good practice of what we expect to incur. And then secondly, you don't get good matching, unfortunately, under GAAP, of the impact of the currency on the quarter largely because you have to mark-to-market your open contracts at the end of the quarter. And so that, together with what you really incur in the quarter can move the numbers around. But for the whole year, we're looking at what we've incurred, thus far. And what we expect to incur in currency, if it were to stay where it is today, relative to our plan and our guide, the bulk of that is -- the bulk of the $5.5 million that we speak about is going to occur in the second half of the year.

David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And then getting back to your comment, I guess, about revenue. It sounds like things kind of dropped off a little bit at the end of the quarter, but you saw some pick-up in August. How much of the lower revenue guide really reflects what you saw at the end of June versus what you've seen so far, I guess, in the first month or so of the third quarter?

Alan J. Herrick

Yes, so I think -- yes, great -- it's a great thought and something that we've been thinking about. And I think that if you look at our forecasting system, we saw some deterioration at the end of Q2. We've seen that restabilize in Q3 and we're seeing good signs of activity. But I guess, our best guess is, just based on a lot of the up and back and the economic environment in conversations with clients about what their own issues are. We're not -- we think it's going to be more of the same. So you could get some improvement in the environment, but we don't expect a rapid turn. So we think the forecast is restabilized, we've got good signs of activity. My guess is there's still going to be some stutter steps, there's still going to be some delays, just -- it's a mixed bag on the client situation. But I think it's a little bit too early to read, to the core of your question, on how much the increased activity in Q3 will actually convert into additional revenue.

David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And then, I guess, just on the utilization rate. Can you help me understand the movement in the utilization rate sequentially?

Alan J. Herrick

Sure, probably 2 factors. Our economic utilization actually improved quarter-over-quarter. Our utilization, as far as just people deployed over total people, actually reduced largely because, in Q2, we brought in a large -- that's when we bring in a large contingent of junior people, especially in India, to train and get ready for future demand. So you've got to get the base expand or the denominator expanding, but on junior basis. So lower on a compensation or cost structure basis impact, and then obviously, more utilization in the higher-rate roles that actually drove the economic improvement up that you'll see in the gross margin expansion quarter-over-quarter.

David M. Grossman - Stifel, Nicolaus & Company, Incorporated, Research Division

I see. Okay, good. And then just one last question. Can you help quantify the success fees that you've got in the March and the June quarter just so we can get a sense of normalized growth as it relates to the back half of the year?

Alan J. Herrick

Yes, I guess, probably not much more that we want to say about that. As I said, we always get some of those. We just got a little more in Q2 associated with a particular client. We also, in our model, often put some fees at risk so we run at some lower margins in order to play for more fees. There's a lot mixed into the economics. But I guess, the best I could do to help you is to say, at the higher side of our range, clear -- we'll be showing some growth, at the lower end of our range we wouldn't, right? So it helped us get up and over the top end of our range, but -- to give you some sense, but probably can't size it any more precisely.

Operator

Our next question will come from the line of Edward Caso from Wells Fargo.

Edward S. Caso - Wells Fargo Securities, LLC, Research Division

I was wondering if you could talk a little bit more about the retail vertical and what you're seeing as far as, one, their current buying intentions, investing intentions; and two, sort of what areas may be that they're changing? What are sort of the latest focus?

Alan J. Herrick

Yes. So a great -- good question, and it's really a mixed set of things based on clients. So generally, you're seeing continued desire to invest in omni-channel and to try to drive success and to deal with declining foot traffic in their stores. So generally speaking, you're seeing a lot of investment, a lot of discussion and a lot of strategy around that. Simultaneously, you're seeing people do exactly the opposite, which is reduce all levels of current investment in all things, right? And it depends a little bit by -- you can kind of go through all the different retail clients and it really seems to be very indexed to what kind of quarter they had. So everybody's got a long-term mark in retail about what they're going to do over the next 2 or 3 years. So that continues to drive demand, but then there's a lot of up and back on just their confidence in their own performance and what's happening in a given quarter. And they tend to act almost like we've talk about over the years. Retail is tending to act a little more like investment acts, right -- investment banks act with very quick turn-ons and turnoffs or expansions and reductions. So I think we're seeing a mix of things based on the client. Generally, you're seeing pressure in retail to reduce investments, simultaneously offset by the fact that they will not reduce their long-term strategic investments around omni-channel and dealing with kind of reduction of foot traffic in the stores. However, they will reduce them. They just won't cancel them. They'll reduce, they'll shift. So you're seeing them trying to get by with less and continue their strategic investments, but under quite a bit of pressure. And then you've got some others that have actually had quite good performance. And they're really trying to amp up out their investments around what they're trying to do on an omni-channel basis and what they're trying to do around really transformation of how the physical space works -- works and then interacts with those digital experiences. So it's quite a range, to be honest.

Edward S. Caso - Wells Fargo Securities, LLC, Research Division

So my sense is that no one has really figured out your unique model, that omni-channel model? But there are lots of players who have very strong client list who are dabbling, to different degrees, into the space that you guys are focused on, the Nitro space. And I was wondering what you were seeing as far as competition was concerned? I mean, obviously, Accenture has been making a big push, and some of the others. And has that impacted your ability -- your win rate, pricing, et cetera?

Alan J. Herrick

No, win rates have stayed pretty consistent and they've been pretty good for years now relative to our history, right? So we feel good about win rates because that's one of the most demonstrable metrics we can look at as it relates to our relevance to any competitive set. So that remains strong. And I think that when you look at -- there's a lot of players, obviously, as you said, coming into the mix. But I don't think a lot's changed yet. We're still seeing a lot of the same competitive set. So I do think there's desire. More and more people have tried to position their business in the marketing and technology space. But when you really get into a lot of the strategic assignments, we haven't really seen a change in the playing field. It seems to be the same cast of characters. So again, I think, we've got a great reputation, we're in a good position there and we haven't seen -- really haven't seen a change. We follow everything that you're probably following, but really haven't seen a change on the ground in the competitive environment.

Edward S. Caso - Wells Fargo Securities, LLC, Research Division

Last question around cash deployment. I assume it remains focused on share repurchase. You used to have like a $200 million base level of cash, you're nicely above that now. And $8 million in share repurchase to date is not a terribly large amount. And I was curious to sort of what the intent is. Is there a desire to keep the share count level, in other words, offset the option dilution? Or is there some target or framework in which you're approaching your share repurchase?

Joseph S. Tibbetts

Yes, I mean, I think the overall theme is the same as it had been, which is to be patient and careful in terms of moving forward, giving ourselves the option of what to do with the cash, obviously. We have started to get into some buybacks, so we've shown some traction. As you say, $8 million isn't a whole lot, but we just started in May so -- and the -- so I think we haven't announced any particular matching to specifics on a quarter-by-quarter basis around share count or anything like that. I think, obviously, over time, we have -- we'd love to see the benefit of offsetting share count with the buyback, but that's a longer-term kind of consideration as opposed to exactly matching as we go forward. So I don't have any real thematic way for you to think about it other than we're just being careful and patient about it and making sure that we leave ourselves optionality around both in M&A -- an M&A need and/or an operations need.

Operator

Our next question will come from the line of Frank Atkins from SunTrust.

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

Wanted to ask a little bit about the global capital markets business in terms of regulatory changes and what's driving some of the success there.

Alan J. Herrick

Yes, sure. So I think that it's a lot of the broad themes that we've talked about, but I think the regulatory changes that we've talked about, they continue to effect clients in global markets, in not just their ability to cope and implement those, but also in how they think about the business model, how do they think about expansion of their business model given the regulatory climate, how do they think about what kinds of functions they want in their business versus what kind of functions they want outsourced to drive both cost structure advantage, which, as you know, is a big driver right now and clearly in the financial services business, as well as how they affect competitive advantage. So I think you've got this broad trend of a changing regulatory climate that we can obviously play behind because of our deep expertise. And then you've got how that really affects their business models and how that affects how they think about our competitive advantage, but how that affects their cost structure and what they choose to outsource and in what way. So I do think you're kind of getting a broad reconfiguration of their business models as they look at what the next generation of those companies look like. So it leads to both opportunities to help them with just regulatory consulting, to opportunities to help them take costs out of the business where they feel like they have costs in the business that doesn't provide competitive advantage, to opportunities where they're really starting to think, well, how do we grow this business over the next 10 years and what markets or businesses are we going to be in? So I think it's created a spider of changes across financial services that financial services leaders are looking to cope with or figure out what the next era is. So I think there's a variety of opportunities there that look very different, depending on which bucket you dip into. And then as we've talked about, you're getting fairly significant changes in the world energy supply, in the U.S. energy supply and that's a broad and an important change, right? And that's not going to happen just over the next couple of years. But that's led to our ability to do both consulting and optimization work, as well as pipeline work around as they're putting new physical assets into the ground, how do you put the tools and the technologies around those assets to operate them more efficiently, how do you connect those assets with other storage or pipeline or scheduling and bidding and logistics, assets issues or companies and create that network that you need to actually move product efficiently across the world or across the U.S. So again, when you configure the U.S. energy supply or the world energy supply, you then see those knock-on changes around technology, systems and operations that need to happen, which, again, we can be the absolute front player in. So it spiders into, again, quite a set of good opportunities for us.

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

Great, that's helpful. And if I could ask a little bit about the hiring, attrition and kind of wage environment in your global delivery. We saw attrition go up a little bit. But if you could just speak to the hiring environment and kind of what your view is there.

Alan J. Herrick

Yes, so I think -- yes, attrition, it depends. It continues to be a highly competitive market. I think, to some of Ed's comments on competition, where, although we haven't seen a lot of the new competition, what we have seen and now that you've asked that question is we've seen some of the people that have announced that they're getting in the space to try to come after our people. And obviously, our repetition is stellar. Our people are the best in the world and competitors know that, right? So they definitely come in that way. So we've seen that pressure over the years. We continue to see it. In particular quarters, it's higher or lower, but it is a constant. But it has been a little higher in Q2. And obviously, we have our own measures to combat that. On the other side, to the hiring point, we continue to be a place that's committed to really make a difference for our clients and really make a difference for our people and we've done very well in our ability to attract and hire people, right? So that continues to not be -- we offer a fundamentally different choice than the competitive sets that we've talked about over the years and I think people see that as unique. And if you're passionate about what we're doing around technology in global markets about the fusion of technology and marketing, this is a great place to be, right? So I think we've been able to do very well in hiring, as witnessed by our growth numbers in people, if you track us over any period of time. So I think we feel confident there. We definitely see an increased pressure on people trying to come in and poach some of our people and obviously we'll take measures to make sure that we're on the right side of that. But our expectation is, to Ed's point, as people are more interested in this space, you'll get more demand for talent.

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And lastly, if I could sneak one more in. Can you talk a little bit about selling and marketing expenses kind of baked in the guidance for the remainder of the year and maybe remind us a little bit about the seasonality of that.

Joseph S. Tibbetts

Yes. It's not so much seasonality. It's very program-specific what we happen to be doing in a quarter relative to marketing events and things like that. Selling tends to be a little flatter, but impacted by the amount of activity. That usually runs about 4% of our total revenue as a benchmark and it varies a little bit up, a little bit down from quarter-to-quarter, depending on those items.

Operator

[Operator Instructions] Our next question comes from the line of Todd Van Fleet from First Analysts (sic) [ Analysis ].

Todd Van Fleet - First Analysis Securities Corporation, Research Division

I was hoping to revisit, perhaps, what I knew at one point, but no longer remember about the global mobility initiative and the remediation and so forth and the costs that you're incurring this year. I'm hoping, one, you could just kind of quantify the totality of your costs that you expect to incur related to this initiative this year. And then two, just maybe help refresh me on what the organization's objectives are with this initiative. What do you expect the outcome to be?

Joseph S. Tibbetts

Sure. Sure, Todd, yes. The global mobility initiative is really around the issue that we had that led to our restatement earlier in the year, which was that we had people moving around and we didn't have the right processes in place to capture the tax impact as a result of that activity, some of which was corporate tax, some of which was the personal tax impact on those individuals. We've obviously tightened that up, both from a practice standpoint in terms of how we move people around the world, but secondly, how we capture the information when we do. And so we had originally talked about a $4 million impact in this year of the process of winding down or assimilating the right practices without client disruption as we went through the year. So that's in there. As we thought about it and as we started to do that, we felt it was important to make sure that the clients weren't disrupted, which was originally our intent. But as we got into the details of that, we basically elected to spend up to another $3 million to make sure that, that process wasn't disruptive to clients, and therefore, elongating the pain, if you will, from the $4 million to $7 million. Over and above that, what we've captured in that category is the activities that we have to put in place the right compliance around mobility in terms of professional help from advisors putting in the right process and controls, putting the right people in place, readdressing all of that. So all of that area is an area that we felt, as Alan said, it's important to get it right and it's important to make the investment now so that we don't have a future problem. And so as we got into it, that's what's in there. So the objective is clearly to get that in a spot where we can have people moving around and we have good control over it, we're capturing the right tax impacts and we're obviously making the right accounting entries to record all of that.

Todd Van Fleet - First Analysis Securities Corporation, Research Division

Okay. The totality of the expenses there, I guess, is $7 million then, is that right?

Joseph S. Tibbetts

Well, no. It's more like $11 million because it was $4 million originally guided and now we're looking at -- so the $4 million was contemplated in the original guidance. And now the $7 million that Alan spoke about is an additional $7 million, which is the last 2 pieces that I just spoke about.

Todd Van Fleet - First Analysis Securities Corporation, Research Division

Right, right. Okay, that's helpful. Then you talked a little bit about the undercurrents, I guess, in the retail sector. Any other -- within Nitro, I'm referring. Any other undercurrents in the Nitro business that are worth calling out apart from the global macroeconomic environment. And maybe a more cautious approach for a period of time on the part of customers and what's going on in retail. I'm just kind of searching for any other thoughts that you might have on any other relevant items that maybe you haven't talked about?

Alan J. Herrick

Yes, I think retail was a little more pronounced, as I mentioned. But I think the dynamic was broadly confidence in their spending. So you can pick a variety of industries and we saw little bit of kind of the stops, the pushes, reductions in most sectors. So I take it as kind of, to your point, as a little more broad-based of just kind of confidence in their spending based on what was unfolding on the year and some pullbacks, some "Let's start a little later until we're sure," and those kind of comments. Now being countered a little bit in Q3 is we're starting to see some of that activity reverse as clients are seeming to reengage in that pickup. So I think, generally, the trend is similar and industry-agnostic, although more pronounced in retail probably for obvious reasons based on what we've seen from their collective earnings and strategic issues that they face. But nothing more than that, Todd.

Operator

And at this time, I'm not showing any further questions. I would now like to turn the call back over to Alan Herrick for any closing remarks.

Alan J. Herrick

All right. Thank you. Well, we appreciate everybody joining the call. We'll wrap here, and look forward to updating you on the next call. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.

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