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Perficient, Inc, Inc. (NASDAQ:PRFT)

Q2 2011 Earnings Call

August 4, 2011, 10:00 am ET

Executives

Jeff Davis - CEO & President

Paul Martin - CFO

Analysts

Pete Heckmann - Avondale Partners

George Price - BB&T Capital Markets

Brian Kinstlinger - Sidoti & Company

Matt McCormack - BGB Securities

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2011 Perficient, Inc. earnings conference call. My name is Jeanne and I’ll be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions)

I would now like to turn the presentation over to your host for today, CEO and President. Mr. Jeff Davis. Please go ahead.

Jeff Davis

Thank you. This is Jeff Davis and with me today’s is Paul Martin, our CFO. I want to thank all of you for your time this morning as always. As typical we’ve got a few minutes of prepared comments, after which the operator instructor will open the call up for questions. Before we begin, I will ask Paul to read the Safe Harbor statement.

Paul Martin

Thank, Jeff and good morning, everyone. Some of the things we will discuss in today’s call concerning future company performance will be forward-looking statements within the meanings of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements and we encourage you to refer to the additional information contained in our SEC filings concerning factors that could cause those results to be different than contemplated in today’s discussion.

At time during this call we will refer to non-GAAP or cash EPS. Our earnings press release includes a reconciliation of certain non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles or GAAP. This is also posted on our website at www.perficient.com under news and events.

We’ve also posted reconciliation of certain non-GAAP goals to the most directly comparable financial measures prepared in the accordance with GAAP on our website at www.perficient.com under Investor Relations. Jeff?

Jeff Davis

Okay. Thanks, Paul. Well, thanks again everyone for joining. Pleased to be with you today to share our Q2 results, so a lot of great things really happened with Perficient since our last earnings call. We’ve opened a new and expanded facility in China to accommodate growth there. We extended our $50 million credit facility arrangement and on the first day of the quarter, we announced the acquisition of JCB Partners.

I will speak to all that a little more later, but what we really are most excited about actually is the quarter we just delivered and what are anticipating for the remainder of the year. As I am sure you saw in the press release, an all time record revenue quarter for Perficient with non-GAAP earnings coming in above the consensus estimate and 24% annual services growth.

Services gross margin including stock compensation and EBITDAS margin, EBITDA excluding stock comp were higher than they’ve been since the second quarter of 2007 and third quarter of 2007 respectively. We expect margin expansion to be a key factor to our increased profitability as we continue to scale. We’ve talked about that before and we see that continuing in to the future.

Utilization was up over Q1 at 83% and US employee average bill rate reached an all time of $127 an hour. We continue to believe there is opportunity to incrementally raise those rates as we scale in years ahead as we’ve discussed in the past.

On a bookings perspective, we closed 15 deals north of half a million during the quarter. That compares to 10 in the comparable quarter a year ago, but it is down from 22 in the first quarter of this year. I think it’s important though to point out that the average deal size was much, much higher. So, for deals in that category, over half a million, they were 66% larger than over Q1. Q1 was $866,000 in that category and the second quarter deals in that category were $1.3 million per deal.

Bookings were strong again in the second quarter, substantially higher, both sequentially and on a year-on-year basis. We continue to remain optimistic and encouraged by that. We are selling more project and projects and as I pointed out larger projects and our client count continues to grow. And we don't typically share our active customer counts specifically in numbers but I will tell you that that number of customers was up 28% year-over-year.

And that's reflected not only in the improving market of course, but also I think as how we've positioned ourselves in the market and our growing reputation within the market. So again actually the quarter was a solid balance sheet, no debt. Even after completing the purchase of Exervio and repurchasing stock. As I mentioned earlier, the acquisition of JCB Partners on the first day of Q3 expanded our portfolio, added $15 million of total revenues to the business, strengthened our relationship with IBM and helped us deepen our footprint in a few spots most notably key markets like Chicago and Denver of course really enhanced our skills in the Cognos and particularly in the EPM Cognos TM1 space.

So all of these things, the growth, the M&A, our optimism around the second half and our belief that gross margins will continue to trend higher, afford us another opportunity to raise our full year revenue and the lower end of our earnings guidance range. I am going to turn the call back over to Paul right now to detail the Q2 financials and then close with a few additional comments around the quarter and guidance before we open up for questions. Paul?

Paul Martin

Thanks, Jeff. Total revenues for the second quarter of 2011 were $65.6 million which is an 18% increase over the year-ago quarter. Services revenue for the second quarter excluding reimburse expenses increased 24% to $59.2 million. Services gross margin for the second quarter excluding stock compensation and reimbursable expenses increased to 36.1% from 35.2% in the second quarter of 2010 continuing our trend of year-over-year margin improvement. SG&A expenses increased to %13.2 million in the second quarter of 2011 from $12.4 million in the comparable prior year quarter. SG&A as a percentage of revenue was 20.2% in the second quarter of 2011 compared to 22.4% in the second quarter of 2010.

EBITDAS defined as earnings before interest taxes, depreciation, amortization and stock compensation for the second quarter of 2011 was $10.3 million or 15.7% of revenues compared to $7.1 million or 12.8% of revenues in the second quarter of 2010.

The second quarter of 2011 included amortization expense of 1.5 million compared to 1.1 million in the comparable prior year quarter. This increase is associated with the acquisitions completed in 2010 and 2011. The second quarter 2011 included acquisition cost and the adjustments of the fair value of the contingent consideration related acquisitions of 1.2 million.

Net income increased 35% to 2.8 million for the second quarter 2011 from 2.1 million generated in the second quarter of 2010. Diluted GAAP earnings per share increased to $0.10 a share for the second quarter of 2011 from $0.07 a share for the second quarter of 2010. Non-GAAP earnings per share increased to $0.21 for the second quarter of 2011 from $0.15 in the second quarter of 2010.

Non-GAAP earnings per share is defined as GAAP earnings per share plus amortization expense, non-cash stock compensation expense, transaction costs and fair value adjustments to contingent consideration, net of related taxes divided by average fully diluted outstanding shares for the period.

Our effective tax rate for the second quarter of 2011 was 43.4% compared to 37.9% for the second quarter of 2010 primarily as a result of lower projected foreign source income and certain non-deductible, non-cash acquisition related charges.

Our ending billable headcount at June 30, 2011 was 1,274, which included 1,103 billable consultants and 171 subcontractors. And SG&A headcount at June 30, 2011 was 209. The acquisition of JCB completed on July 1st, added an additional 60 billable consultants and 10 SG&A professionals. Now I am going to turn to the full year results.

Revenue for the six months ended June 30, 2011 were $121.8 million, a 17% over the comparable period last year. Year-to-date services revenue for the six months ended June 30, 2011 excluding reimbursement expenses increased 21% to $109.4 million. Services gross margin for the six months ended June 30, 2011 excluding stock-compensation reimbursement expenses increased to 34.4% from 33.7% in the prior year quarter. Improved average bill rate helped drive the year-to-date improvement.

SG&A expenses increased to $24.5 million for the six months ended June 30, 2011 from 22.8 million in the comparable prior year period. SG&A as a percentage of revenue was 20.1% for the six months ended June 30, 2011 compared to 21.9% for the six months ended June 30, 2011.

EBITDAS for the six months ended June 30, 2011 was 17.4 million or 14.3% of revenue compared to $12.6 million or 12.1% of revenue for the comparable prior year period. The first half of 2011 includes the amortization of 2.7 million compared to 2 million in the comparable prior year period. Again that increase is associated with the acquisitions we’ve completed.

The first half of 2007 included acquisition cost and adjustment to the fair value, of contingent consideration related to acquisitions in 2010 and 2011 of 1.7 million compared to 0.4 million in the first half of 2010.

Net income for the six months ended June 30, 2011 was 4.6 million as compared to 2.9 million for the six months ended June 30, 2010. Diluted GAAP earnings per share increased to $0.16 per share from $0.10 a share in 2010. Non- GAAP earnings per share for the six months ended June 30, 2011 was $0.35 up 35% from $0.26 in 2010.

Our effective tax rate for the six months ended June 30, 2010 was 42.4% compared to 40.2% for the comparable prior year period. The increase in this rate is primarily due to decrease in projected foreign source income and certain non-deductible non-cash acquisition related charges.

During the second quarter of 2011 we spent $3.4 million on repurchasing 305000 shares and as of June 30, 2011 we have spent $48 million on repurchasing 6.6 million shares in our share repurchase plan that started in 2008. We continue to believe that our share repurchase would drive future accretion in shareholder value. We ended the quarter with no debt and 12.5 million cash and cash equivalents, which is then compared to 2010 as a result of paying down accrued liability during the first half of 2011 in the acquisition of Exervio.

Our day sales outstanding or DSO on accounts receivable was 81 days at the end of second quarter of 2011. Our goals to maintain DSO between 70 and 75 days overtime. This range will continue to be an ongoing initiative. We did achieve our 70 to 75 day target in April and May and have a strong collection month in the month of July; we expect that we have brought the DSOs back into our targeted 70 to 75 day range.

I will now turn the call back over to Jeff for little more commentary behind the metrics. Jeff

Jeff Davis

Thanks Paul, well we speak about each quarter about the diversity from a solutions technology platform and client perspective being the strength of the company and Q2 as it is no exception. During the quarter our top five customers combined to represent just 20% of revenues and that compares to 23% in the first quarter. Health care accounted for 24% of revenue in the quarter followed by financial services at 13%. And we continue to make strong progress against our goal by the way of launching a formalized financial services practice group this year modeled after what we have done with healthcare and a couple of other verticals.

Portals and collaboration solutions remain our strongest horizontal discipline. IBM, Microsoft and Oracle remain leaders from a platform perspective, not surprisingly. Earlier, I referenced the expansion of our operations and facility in China we talked about the growth we anticipate there; a new facility that I referenced, doubled in size and affords space for 400 colleagues there 400 billable folks.

In fact China’s Q2 revenue contributions were higher than they have ever been in the past and I think that’s going to continue to grow you know I have the opportunity to visit our new facility there in early June and came away even more confident and impressed by the way with the capabilities we have in China, fantastic folks, great discipline, the CMMI level five on Agile methodology we’re one of 10 in the world to have that and the quality that we are able to produce at that facility is just fantastic. It’s going to remain a key differentiator and a growth contributor I am sure for many years to come.

I also reference the JCB Partners acquisition obviously we are very excited about that. Its extremely well run front with a solid management team that joins us; great operating metrics and a really solid partnership with IBM. As a matter fact, we received several positive notes from our partners at IBM, even some high level executives when we announced that deal. They were equally excited about it. And I think it again strengthens and deepens in our relationship even more there.

On the acquisition front by the way our goal remains to execute another at least one more deal this year that can deliver $10 million to $20 million on run-rate revenues and we’re actively reviewing several quality possibilities now, I mentioned in the last call how strong that acquisition pipeline is and that hasn’t changed. Remain strong with – as I mentioned, as I said quality deals out there.

So in summary, we think a tremendous quarter; we feel very good about our performance, our momentum, opportunities to gain share as we have been and continue to scale. I loved to exit 2011 in the ballpark of $300 million in run-rate revenues; I think we can do that. That would have us on a nice pace by the way a solid pace to achieve our goal of $500 million run-rate by the end of 2013. And that remains our goal and we feel like we are strongly on-track to achieve that.

So lastly, I am going to comment on Q3 and the remainder of 2011. The company expect this third quarter 2011 services and software revenue including reimbursed expenses to be in the range of $66.3 million to $70.7 million, comprised of $64.3 to $67.7 million of revenue from services, including reimbursed expenses and $2 million to $3 million of revenue from software sales.

The midpoint of the third quarter 2011 guidance represents growth of 26% over the third quarter 2010 revenue. Company is raising its full-year 2011 revenue guidance to a range of $255 million to $270 million from the previously provided range of $245 million to $265 million. Company is also raising its full-year non-GAAP earnings per share guidance to a range of $0.76 to $0.83 from the previously provided range of $0.73 to $0.83; a reconciliation to GAAP earnings by the way, as Paul mentioned, can be found on our website.

So with that, we’re going to open the call up for questions. Operator?

Question-And-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Peter Heckmann with Avondale Partners. Please go ahead.

Pete Heckmann - Avondale Partners

What was the utilization ex subcontractors in the quarter; I assume the 83% included subs.

Jeff Davis

No 83% was actually net of subs in China. That's the core business U.S. only, yeah. It’s by the way I want to point out year-over-year that's down, I am actually happy with that. So year-over-year that's down yet margins are all substantially up and by the way that 83% is right, pretty much dead center in our sustainable range.

Pete Heckmann - Avondale Partners

And then so utilization all-in, would that have been a little bit higher?

Jeff Davis

Yeah I think it would, I think the subs actually more than offset the offshore; so it’s a little higher.

Pete Heckmann - Avondale Partners

Okay. And what was ending headcount in China?

Jeff Davis

Paul said its 80-60.

Pete Heckmann - Avondale Partners

What was ending headcount in china?

Jeff Davis

As of right now let's say July 1, we do an internship program there, so we got internship starting in July, so I want to say we are about 175, 180 billable right now in China.

Paul Martin

172, but yeah.

Jeff Davis

172.

Pete Heckmann - Avondale Partners

Got it. Okay and then the change in the bill rate was pretty significant, is that just a product of new projects coming on, that were booked at higher bill rates or is there also a little bit of a change in mix towards kind of higher value projects?

Jeff Davis

I want to say it’s more of a higher value projects. Certainly, as we are continuing to expand in healthcare, we are enjoying nice rates there, but across the board we are able to lift those rates back up and generally a better demand environment and some, little more pricing influence. Acquisitions helped a little bit with that, but actually so we went to 127 all-in, but we actually ended with at 126 net of acquisition. So we are real pleased with the progress we’ve made there and it’s actually kind of outpaced our goal so far this year.

Operator

Your next question comes from the line of George Price with BB&T Capital Markets. Please go ahead.

George Price - BB&T Capital Markets

So just looking at the guidance first, so the 2011 guidance you raised $5 million at the upper end, but that didn't include JCB last quarter, but it does this quarter, right?

Jeff Davis

That’s right.

George Price - BB&T Capital Markets

So JCB $15 million annual probably contributes $7 million to $8 million in the second half in terms of revenue. So I mean net-net 2000 revenue guidance looks like it has narrowed a couple million maybe at the top end. I mean I realize things are always moving around. We're talking about a couple million dollars on a very large revenue base, but is there anything we should take away from that?

Jeff Davis

Honestly, what we did there, we feel like things are on track. I would say we’re not looking at a ton of upside from where we started the year from an organic standpoint. However we’re pleased with where we are and honestly what we did in narrowing the range since we’re halfway through the year and we had a better handle on where it was going to be.

So we narrowed the range and honestly, simple took half of the JCB revenue 7.5 million and added to our prior midpoint. So we actually brought up the bottom by 10 million and the top by only 5, but the midpoint is exactly the 7.5 million from JCB higher than where we were.

George Price - BB&T Capital Markets

And then third quarter was kind of looking a little flattish versus my expectations, less so maybe consensus, but some of this may be reimbursed expenses, some of it may be software, is there anything else to kind of add to that and can you help sort of put the third quarter guidance in perspective with the full year guidance?

Jeff Davis

Yeah, sure. Actually the organic number is 10% year-over-year and actually interestingly it’s 5% quarter-over-quarter. So the macro environment for the core business that we are in is quite positive. The reason that all in, it’s only about 1% is that one of the acquisitions we did at the end of last year is speakTECH but a $16 million business actually had a really nice project. It served them forward in the second quarter. So I am rounding here but let’s say again a $16 million business, they went roughly from four to six in a single quarter and then back to four.

That the single project, our relationship is strong with that client. They have decided to hold off on the subsequent base to that engagement simply to test the viability of the solution. It’s actually a product effectively, in fact it’s a cloud product that they are developing and they are working right now with their customer base to determine how much interest there is and to determine whether they move forward or not.

We are encouraged, we are optimistic that they will, but we thought like the conservative thing to do is completely take it out of our forecast. So right now that’s not anywhere in our guidance or forecast for Q3 of the year. That said, that acquisition still even if that project didn’t ever happen by the way is still going to meet or exceed actually the model that we had for it in terms of both revenue, profitability and accretion.

There was an earnout associated with it. We are certain they are going to achieve that as well. So it was a good deal, it made good sense and we are very happy with it. But again causes the sort of odd appearance in the sequential revenues despite the fact that actually and from a macro perspective, we are encouraged again. Organic numbers leaving all acquisitions out less than a year old, we are actually guiding to the midpoint up 5%. That compares to flat or down a little last year in our sequential guidance and again 10% year-over-year.

George Price - BB&T Capital Markets

Thanks for clarifying that, I think that's important. Going forward, did you expand within the Fortune 1000 client base? Is that going to have any impact on revenue? Is that going to have any impact on revenue items like software, reimbursed expenses? I mean how should we think about those things may be changing going forward?

Jeff Davis

That’s a great question. I will start with the reimbursement expenses and come back to the software. The reimbursed expenses you know a couple of the acquisitions that we have done recently most notably Exervio isn’t really a travel model. That’s primarily a Charlotte Atlanta based business. There was some Dallas also that incorporated into our business.

So we expect basically zero reimbursed expenses to come from that acquisition. We will pick up a little bit from JCB which I would estimate to be the same percentage of revenue and services that we have for the rest of the business. So I think that will vary depending on what kind of acquisitions we do. Obviously from the organic standpoint as we grow it will just continue to scale, but again the difference is probably between Q2 and the period there was that Exervio is not that travel model and not putting up as much reimbursed expense revenue which of course is zero margin anyway.

On the software side and I talked about a couple of things. There is a couple of things going on there. I talked about one on our last call and that we are kind of pushing back or moving away from low margin deals and software . You know I talked about I think in the first quarter we had an opportunity to do a renewal, but the margin was near zero and the distraction associated with that, the opportunity cost and of course the risk in carrying the dollars, it just doesn’t make sense for us.

That’s a little different philosophy than we’ve had in the past, but you can expect that to continue and then I think maybe more importantly than that as you alluded to, as we move up market and most of our resale by the way is with IBM. We do a little bit with our other partners, Oracle and potentially actually some TIBCO now, but those are small.

So it’s mostly IBM and as we moved up market more into the say Fortune 1000 group of customer, these vendors all have enterprise license agreements in place with that size of a customer. If there are big IBM shops, they have got an enterprise license agreement in place. And there is no opportunity to resell in that environment.

So that’s another thing that I expect. Our software, as a percent of revenue, as we continue to move forward, we are going to continued to opportunistic, whether it’s part of our business when we’re going to out and partnering with these guys to close these deals we get services, they get software.

Opportunistically we’ll continue to fulfill where the margins make sense or if it makes sense strategically in terms of relationship with a customer that’s an ongoing customer. But I do expect as a percent of revenue, that will probably continue to decline as we go forward. As I said simply as a function, I think from a positive perspective of us moving up market and having less opportunity to resell where these enterprise agreements are in place.

George Price - BB&T Capital Markets

You mentioned good outlook in terms of the macroenvironment despite all the headlines. You said bookings trends were strong. If I missed it I apologize, but I didn't hear any specific numbers around bookings. Can you give us some of the growth numbers that you tend to give us on bookings either quarter or trailing 90 days?

Jeff Davis

Yeah, I want to say. We have a percentage on that on quarter-over-quarter? It was about 20% up over Q1 bookings and substantially up over last year. If you recall last year our Q2 and Q3 bookings were pretty soft and so we were substantially up over last year of Q2 and even sequentially.

So, as I kind of mentioned, I think in the last call and maybe on some of our subsequent conversations, we are still not seeing. Despite the fact that you get up everyday and see the gloom and doom around you from an economy standpoint. Right now, we are not seeing the impact of our business and again you know, compared to last year we are pretty pleased.

George Price - BB&T Capital Markets

Just a couple of housekeeping things and then I'll get back in the queue. For what -- I'm sorry, I missed the bill rate in the quarter.

Paul Martin

The US bill rate was 127, which is up $4 from 1.23 in Q1?

George Price - BB&T Capital Markets

Can you give us the amortization and the stock comp that you expect, either per quarter in the second half over the second half overall, but just kind of how you expect those two things to change just given the acquisitions and everything else?

Jeff Davis

Yes. So, we are expecting. Obviously we did the acquisition. So, we’re expecting sort of a $300,000 increase in amortization principally as a result of the JCB acquisition and we will see that drop a little bit in Q4 as one of our ‘07 acquisitions becomes fully amortized and we will drop a couple of hundred thousands. And obviously all that as we do other deals, the numbers will change as a result of that and from a stock comp perspective, the answer would be about 100 grand higher in Q3 than it was in Q2. So fairly consistent there.

George Price - BB&T Capital Markets

So, okay. So just to be clear, on the amortization, the plus $300,000 was in 3Q and then you'll see a lot of that drop 4Q, okay. All right. Great. Thanks very much.

Operator

Your next question comes from the line of Brian Kinstlinger with Sidoti & Company. Please go ahead.

Brian Kinstlinger - Sidoti & Company

The first question I had, the $127 bill rate, what was the all inclusive bill rate?

Jeff Davis

With offshore?

Brian Kinstlinger - Sidoti & Company

Yeah.

Jeff Davis

With offshore it was 117 up from 114 in Q1.

Brian Kinstlinger - Sidoti & Company

Okay. One more number I missed, if I could, the 500,000 number of clients, I just didn't write it down fast enough, how many of those deals did you add?

Jeff Davis

I want say we had 15 -- 15 of those deals and as I pointed out the important thing there is those are 15 deals averaging $1.3 million compared to [22 deals] averaging $850,000 in the first quarter.

Brian Kinstlinger - Sidoti & Company

Just want to make sure I understand the bookings, to follow up on one of George's questions, you mentioned that bookings were up 20% from Q1. Now if I recall, Q4 and Q1 were your two best bookings quarters in the history of the Company, is that accurate?

Jeff Davis

Yeah, that's right. Keep in mind that we've got some acquisitions contributing to that to some degree. But even net of those, its still, that's all still true, it wouldn't be 20% netting out the Exervio acquisition but….

Brian Kinstlinger - Sidoti & Company

The core bookings…

Jeff Davis

Bookings. Yes, are substantially higher. The nice thing about that too is and I am not sure if this is weird, but I want to make the point so I will take the opportunity, is that those are longer-term deals. So actually we’re building a bigger backlog into the future than we have for the past, certainly a couple of three years and I would even say historically. These are larger, longer-term deals with bigger customers and so we’re not seeing may be as much immediate impact of that, but overtime we’re building a much base of backlog for the business.

Brian Kinstlinger - Sidoti & Company

Great. The last quarter you mentioned a large GPO that you had put a system in for potential opportunity with its number of firms. I wonder if you could quantify the RFPs that you've already responded to and what the pipeline is looking for and your progress already in winning work with those customers?

Jeff Davis

Yeah, we closed our first one and the total opportunity there we’re estimating to be -- and all these are chunked down into pieces but the total opportunity there is going to be about $4 million and we’re working, it’s a new line, so a little bit less than our RFP process than it is, actually partnering with the GPO. And kind of demo-ing the product etcetera. So we do have ongoing opportunity we’re pursuing now. I think there’s two or three others on the table. I guess the first one’s in the bag, we think it will total around 4 million and the relationship with the GPO continues to be strong. In fact we’re in the process right now of finalizing our next kind of big phase with them directly. So that by the by way will contribute to this nice bookings in August.

Brian Kinstlinger - Sidoti & Company

I'm thinking your first bunch you're looking at are the larger ones that are the multi-million-dollar type or is that accurate?

Jeff Davis

That’s absolutely right. There's a fairly narrow group that we targeted together. But even the 4 million we estimate is going to be kind of the average size opportunity from this.

Brian Kinstlinger - Sidoti & Company

Okay. And that’s not the average of all the 1000s in there or there are still ones that you are going to go after.

Jeff Davis

Yeah. I would say that’s a good point. I would say that the average of the ones that we would likely pursue in the next say, twelve months.

Brian Kinstlinger - Sidoti & Company

Yeah.

Jeff Davis

As we knock out. Assuming this continues to be successful. We are optimistic, it will be. But as we knock out these bigger ones, your point, it would probably will move down channel a little bit and then those will get a little smaller. But I think for the next year, this is the size we are looking at.

Brian Kinstlinger - Sidoti & Company

Now if I look at the P&L or at least a revenue lying on healthcare, it was a great sequential bump on that healthcare line, is that this or is that something else?

Jeff Davis

You know this has been ongoing. So the one opportunity I mentioned, I am sorry, the GPO relationship has been ongoing. So it’s not bad. The one opportunity I mentioned did contribute to it but honestly it’s not the major contributor. Bookings for healthcare were 35%, 34% of our total bookings and it wasn’t just that one GPO opportunities. There is, we continue to win new work, new clients and new extensions in healthcare. It continues to be a really strong business for us.

Brian Kinstlinger - Sidoti & Company

Now given what’s going on in health care for you and secondarily financial services, what are your recruiting plans for I guess, the rest of the year or may be even next year as you think about what seems at least from your discussion, it seems like accelerated demand over the next six months, six quarters or so.

Jeff Davis

Yeah. We are very actively recruiting. I will tell you, our net headcount, you should assume or we can assume is going to be, is going to scale with the growth that we had pointed in our guidance for the year. You can dissect what the second half is and honestly I would apply the headcount growth to that more or less. We will grow a little faster in China because the rates are little lower. And actually some of that growth will come from higher bill rates. So even that scale is going to be slightly behind the revenue scale.

Brian Kinstlinger - Sidoti & Company

And the G&A was a bump I saw it in the last quarter and the second quarter too. Is there something seasonal about the bump and SG&A in the second quarter, ex-stock comp that comes back or is that just adding on the acquisitions and maybe just give me sense of…?

Jeff Davis

So I would say the primary driver there, was that there was a couple of things Brian. One was the Exervio acquisition certainly added some sequential SG&A in Q2 and the other thing is based on the performance relative to our bonus planned, bonus accrued in the second quarter relative to the first quarter and I would expect that the levels on that will continue similar to the first quarter or perhaps a little higher as you look at Q3 and Q4.

Brian Kinstlinger - Sidoti & Company

So the acquisition deals/deal cost in the second quarter like you were in the first quarter. I am sorry second quarter was there any in the third quarter?

Jeff Davis

There should be a minimal amount in the third quarter because most of the cost associated with the JCP I am sorry JCB were incurred in Q2 and those were reflected in our second quarter numbers.

Brian Kinstlinger - Sidoti & Company

Great. Thanks guys, so much.

Jeff Davis

Thanks Brian.

Operator

(Operator instructions) Our next question comes from the line of Matt McCormack with BGB Securities. Please go ahead.

Matt McCormack - BGB Securities

Yes, hi. Good morning. Obviously, your revenue continued to increase, I guess the question is from an operational perspective, now that you're starting to get to the size where you're at, are there any kind of organizational or management changes that you are possibly facilitating?

Jeff Davis

Yeah, that’s a great question. And, yeah, we will continue obviously to the scale executive management team. We will likely add certainly as long as thing continue on this path. We will add another position or two kind of at the executive level not at the officer level but line level VP. I don’t think though that if you look at SG&A as a percent of revenue, I don’t think you are going see a big jump there and then essentially in the first quarter we start a new person you might see a little bit of incremental but I like said a percentage of revenue I think it will be relatively small.

Matt McCormack - BGB Securities

Okay. And then -- sorry if I missed it, but did you talk about social media and how you're seeing that demand for those types of services across your different verticals?

Jeff Davis

It continues to pick up; we’re pursuing a lot of opportunity. As I mentioned I think in the past the acquisition or addition of speakTECH back in December last year really enhanced our capabilities there beyond what we already had and we already had some good skills and we continue to see good strength there, a lot of opportunities. Those tend to start sometimes as smaller opportunities but then can blossom in to something pretty substantial. That deal I mentioned that I referred to earlier that was $2 million by itself in the second quarter.

That began as some social media consulting basically and really blossomed into then a complete solution development and that was the power of course of adding that capability or deeper capability in that space to a firm like ours they can take it full cycle and we’re seeing that certainly begin to pay dividend. So still a hot space to a lot of us, a lot of interest in that. Some companies really moving forward some big plans, some still just testing the waters, but we still see it as a nice opportunity, that by the way and mobility.

Matthew McCormack - BGB Securities

Right, okay. Thank you so much.

Jeff Davis

Thanks Matt.

Operator

You have a follow-up question from the line of George Price, BB&T Capital Markets. Please go ahead.

George Price - BB&T Capital Markets

Hi. Thanks, guys. And a couple of things, first, IBM relationship, I mean IBM has posted several strong quarters of software growth, particularly in the core middleware platforms and it seems like higher-end more discretionary kind of IT investment and obviously one of your areas of expertise. Are you seeing evidence of that software strength given your relationship with IBM in your business, in your pipeline?

Jeff Davis

Yeah, absolutely. IBM is the fastest growing piece of our business from a platform perspective for sure. Particularly, around BI, as I mentioned now with the addition of course of the EPM capability with JCB. We expect strong growth there. In fact, we were already doing the TM1 EPM work and honestly couldn’t hire fast enough. So JCB was a great addition to the team.

So BI, you know EPM as well as business process management work around WebSphere Process Server Lombardi, couple of the acquisitions they made in that space; all those things very, very strong. Portal remains a stalwart, it’s always strong. But I think the biggest growth that we’re seeing in all these areas that IBM has kind of expanded in to over the last two or three years.

George Price - BB&T Capital Markets

Okay, helpful. And then what happened – again apologies if I kind of missed it, but what happened to collections in June. You know with everything going on in terms of the headlines, clients held back a little bit, just curious?

Paul Martin

Yeah so I think in June certainly, June was a slow collection month. I think some of it is attributable to as we've been opening up new accounts; sometimes they pay a little slower towards getting the process, you know nailed down for those accounts and as we have some of these bigger accounts and to be honest with you, the healthcare industry in general is probably not the quickest paying industry so we continue to work with our team and our clients and continue to get those resolved. And its certainly a point of emphasis what the ops team is as well as the corporate team do to continue to keep a close eye on those and work those before they age.

George Price - BB&T Capital Markets

Okay. And, Jeff, I wanted to ask you a little bit about your, not so new anymore I guess, but the relatively new forecasting methodologies and tools, and how that’s kind of tracking in the current environment. The current environment reminds me a hell lot of last year at this time, maybe in some ways worse, at least in terms of the headlines and there was some volatility back last year around now in your visibility as a result of that.

And clearly, you’ve said this year does not look like last year, but just curious how those new tools and methodologies for forecasting or how you feel they’re kind of holding up with the acquisitions that you’ve done with the change in the business mix in just kind of the current environment?

Jeff Davis

Yeah, it has been helpful and has extended our visibility a little bit. Honestly, they are still a little new for us to completely have to simulate everything that we are working with there. But its actually very simple, but its still new enough to worry, you don't want to get too out ahead of yourself until you have a track record of reliability. But it has extended our visibility and its one of the reasons that you know again, despite the environment we can kind of look through the environment and leveraging that tool and some other processes that we’re following now to feel better about what’s going on despite what we’re seeing.

You know concern is always out there, we’re not unique in this you know if this figure gets turn off pretty quickly but for us right now, as I said the four pipeline strong as ever, good strong bookings in the quarter, we expect strong bookings this quarter and again to your point, the visibility of the new tools giving us you know it’s pointing in the right direction. It only takes some months or two to change that but despite everything around us, so far so good.

George Price - BB&T Capital Markets

Okay. And as you continue to get larger both organically and via acquisitions and geographically dispersed and pushing more work to your offshore delivery, all of which I think is positive. But does raise potential challenges in just managing the delivery and execution of that work, I was just curious, WHAT your thoughts are on that and how you're going to kind of tackle that and stay on top of that, as you get to be a bigger company?

Jeff Davis

That’s a great question. We’ve been hiring a lot of high-end talent to deal with that as a matter of fact and actually some of the acquisitions we’ve done are tremendous additions as well. You know Exervio is a management consulting firm, after that firm I think are management type books, you know project management, capability, management consulting, process consulting so that in and itself has got a big help, but like I said we’ve been hiring a substantial amount of high-end talent and no one is ever perfect. We are certainly going to have issues from time-to-time from a delivery perspective.

But honestly, right at the moment, this moment in time and really I would say for the last probably couple of quarters, we’ve had less of those than we’ve had in the past. The relationships that we have as we’re moving up market larger, frankly more sophisticated customers. They are more accustomed to things happen that are always difficult to control. And once you got to establish relationship in continuity in the team, you know it’s much easier to work through issues as they arise.

So you are right. I think that there will always be a challenge and we intent to continue to scale around. We put actually a lot of dedicated effort in the last six months to addressing that specifically, both in kind of herein now and also planning to the future. So it will involve recruiting and it will involve promoting some of our strong people internally to manage more responsibility, to take on more responsibility and so far that’s working. And like I said I can understate some of the capabilities that we are gaining through some of these acquisitions as well.

George Price - BB&T Capital Markets

Okay. Last thing and another quick housekeeping item; Paul, what was the cash from operations and CapEx in the quarter? Thanks.

Paul Martin

Yes. Hold on a second, let me just pull that out of the cash flow. Yes, so the year-to-date cash from operating activities is minus 4.1 million which is an essence most of that is the growth in accounts receivable and CapEx year-to-date is 1.7 million.

George Price - BB&T Capital Markets

It was negative 4.1?

Paul Martin

Yes.

George Price - BB&T Capital Markets

Okay, great. Thank you.

Operator

Ladies and gentlemen, that concludes the question and answer session. I will now turn the call back over to Jeff Davis for closing remarks.

Jeff Davis

Well, thank you operator and again thanks folks for joining. We’re pleased again and optimistic about where things are in the second half of the year and look forward to speaking to you again in the quarter. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today’s call. This concludes the presentation. You may now disconnect. Have a great day.

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