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Perficient, Inc. (NASDAQ:PRFT)

Q4 2011 Earnings Call

March 1, 2012; 10:00 am ET

Executives

Jeff Davis - President & Chief Executive Officer

Paul Martin - Chief Financial Officer

Analysts

George Price - BB&T Capital Markets

Brian Kinstlinger - Sidoti & Co.

Peter Heckmann - Avondale Partners

Matthew Mccormack - BGB Securities, Inc.

Presentation

Operator

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

I would now like to turn the call over to your host for today, Mr. Jeff Davis, President and CEO; please proceed.

Jeff Davis

Thank you and good morning everyone. With me on the call today is Paul Martin, our CFO. As typical, we’ve got a brief section of prepared comments, after which we’ll open the call up for questions. Before we proceed Paul, would you please ready the Safe Harbor Statements.

Paul Martin

Thanks Jeff and good morning everyone. Some of the things we will discuss in today’s call concerning future company performance will be forward-looking statements within the 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 times during this call we will refer to adjusted 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 posted on our website at www.perficient.com.

We have also posted a slide deck which includes a reconciliation of certain non-GAAP goals to the most directly comparable financial measures prepared in accordance with GAAP, along with additional operating metrics and revenue analysis by solution industry and platform on our website at www.perficient.com under Investor Relations. Jeff.

Jeff Davis

Thanks Paul. Well, again thanks everyone for joining, we are glad to be with you. This morning I am pleased to share our Q4 and full year 2011 results, as well as Q1 and 2012 guidance a little later in the presentation.

So the fourth quarter was a strong close for what we view as a great year for the company. Very consecutive revenue, record quarter with services revenue up 31%. EBITDA net of stock comp was up 25% and net income more than doubled. GAAP earnings per share doubled and adjusted earnings per share was up 19%.

Services gross margins excluding stock comp improved 70 basis points and during the quarter billing rates for U.S. employees were at $125 an hour, that’s up about $5 from the year ago quarter. So running in that $125 range we expect that will improve again this year.

Utilization as always is impacted due to seasonality. In the fourth quarter it was 78%. This year it was down about 1% from the prior year, but we expect it will again rebound back into the 80’s in the first quarter and we actually expect utilization overall to be higher for the year than it was in 2011 by a couple of points.

Investments in industry solutions and focus on key verticals continue to make a material impact. You’ve heard me talk about this before. We are very excited and please actually with the results we’ve gotten around those investments, particularly in healthcare. Another strong quarter for healthcare, represented 33% of revenues in the fourth quarter.

Financial services are coming at a strong second for us and another area as you know we are investing in. 14% of revenues in the quarter, with automotive, energy and telecom, each representing 7% and then a smattering of others, obviously making up the difference.

In addition to the solid delivery performance, bookings during the quarter were very strong, our highest ever in fact. We sold 16 deals north of $0.5 million during the quarter and you know that we don’t typically report specific booking at any given month, but January by the way was another record bookings month for Perficient, that’s both organic and of course with the acquisitions, but even net of acquisitions it was a record. So on a trailing 12-month basis through January, we are running about 20% year-over-year on bookings. So a strong backlog moving into the year here.

We exited the quarter and the year with cash on hand and no debt. The cash we generated was put to use in the recent acquisition of PointBridge, which I’ll speak to in more detail in a few minutes. Client base, as well as the size of many of those relationships continues to grow. About 60% to 65% of our revenue now is coming from Fortune 1000 companies. That’s where we tend to focus our efforts. It’s an opportunity to build a relationship that can last and yield many years of multi-million dollar revenue.

So during the year 2011 we had 53 clients at $1 million plus for the year. Half of those were actually north of $2 million and nine of those were north of $5 million, the largest being just under $10 million and I expect that will continue to increase in 2012 and it’s likely that we’ll have at least a couple if not a hand full of $10 million plus clients this year.

So after Paul shares financial details for the quarter and the year, I’ll be back to discuss our plans for 2012, but as you can see from our guidance, we are optimistic and expecting continued growth this year. Paul.

Paul Martin

Thanks Jeff. Total revenues for the fourth quarter of 2011 were $70.4 million, a 26% increase over the year ago quarter. Services revenue for the fourth quarter 2011, excluding reimbursable expenses increased 31% to $61.3 million over the comparable prior year period. This resulted in year-over-year organic growth of 14%.

Services gross margin for the fourth quarter 2011, excluding stock compensation and reimbursable expenses increased to 34.7% from 33.4% in the fourth quarter of 2010, continuing our trend of year-over-year margin improvement. This is in spite the fourth quarter of 2011 margins being impacted by an increase in benefit cost and the tax implication of long-term travel of some of our colleagues.

SG&A expenses increased to $13.4 million in the fourth quarter of 2011 from $11 million in the comparable prior year quarter. SG&A as a percentage of revenue was 19% in the fourth quarter of 2011, compared to 19.6% in the fourth quarter of 2010.

EBITDAS, defined as Earnings Before Interest, Taxes, Depreciation, Amortization and Stock Compensation for the fourth quarter of 2011 was $10.3 million or 14.7% of revenues, compared to $8.3 million or 14.8% of revenue for the fourth quarter of 2010.

The fourth quarter 2011 included amortization of $1.7 million compared to $1 million in the comparable prior year quarter. The increase is associated with the acquisitions completed in 2010 and 2011. The fourth quarter 2011 included acquisition costs and accretion of the fair value of contingent consideration related to acquisitions of $800,000 compared to $600,000 in the fourth quarter of 2010.

Net income more than doubled to $2.7 million for the fourth quarter 2011 from $1.3 million in the fourth quarter of 2010. Diluted GAAP earnings per share increased to $0.09 a share for the fourth quarter 2011 from $0.05 a share for the fourth quarter of 2010.

Adjusted GAAP earnings per share increased to $0.21 a share for the fourth quarter of 2011 from $0.17 a share for the fourth quarter of 2010. Adjusted GAAP earnings per share is defined as GAAP earnings per share, plus amortization expense, non-cash stock compensation, transaction costs and fair value adjustments of contingent consideration, net of related taxes, divided by average fully diluted shares outstanding for the period.

Turning to headcount, our ending billable headcount at December 31, 2011 was 1,411, including 1,240 billable consultants and 171 subcontractors. Ending SG&A headcount at December 31, 2011 was 244.

Now I’ll turn to the full year 2011 results. Revenue for the year ended December 31, 2011 were $262.4 million, a 22% increase over the comparable period last year. Services revenue for the year ended December 31, 2011, excluding reimbursed expenses increased 26% to $233.2 million over the comparable prior year period with full year organic growth of 8% in 2011.

Services gross margin for the year ended December 31, 2011, excluding stock-compensation and reimbursable expenses increased to 34.9% from 33.8% in the prior year period. Improved AVR helped drive the year-to-date improvement.

SG&A expenses increased to $51.7 million for the year ended December 31, 2011, from $45.5 million in the comparable prior year period. SG&A as a percentage of revenues was 19.7% for the year ended December 31, 2011, compared to 21.2% for the year ended December 31, 2010.

EBITDAS for the year ended December 31, 2011 was $38.7 million or 14.7% of revenues, compared to $28.1 million or 13.1% of revenues in 2010. Amortization for the year ended December 31, 2011 was $6.3 million, compared to $4 million in the comparable prior. This increase again was driven by acquisitions completed in 2010 and 2011.

Year ended December 31, 2011 included acquisition cost and accretion of the fair value of contingent consideration related to certain acquisitions of $2.8 million compared to $1 million in 2010.

Net income for 2011 was $10.7 million, compared to $6.5 million in 2010. Diluted GAAP earnings per share increased to $0.37 from $0.23 in 2010. Adjusted GAAP earnings per share for the full year was $0.77 a share, up from $0.59 or 31% increase from 2010.

Our effective tax rates for the year ended December 31, 2010 was 42.4% compared to 44.8% for the comparable prior year period. The decrease in the effective tax rate is primarily due to a decrease in the limitation of the deductibility of certain compensation costs, partially offset by the impact of non-deductible, non-cash, acquisition related charges.

During the fourth quarter of 2011 we spent $2.3 million on repurchasing 270,000 shares and as of December 31, 2011, we have spent $54 million on $7.30 per share on repurchasing 7.4 million shares since the plants inception in 2008. We continue to believe that our share repurchases will drive future accretion and shareholder value. We ended the quarter with no debt and $9.7 million in cash and cash equivalents and we continue to have full access to our $15 million credit facility.

Finally, our day sales outstanding on accounts receivable were 78 days in the fourth quarter of 2011; this is down from 81 days in the third quarter. The increase in our healthcare vertical has contributed to the increase in DSOs. We believe our ongoing joint operations and finance collection efforts will continue to keep DSOs below 80 days. This will be a key ongoing initiative.

I’ll now turn the call back to Jeff for a little more commentary behind the metrics. Jeff.

Jeffrey Davis

All right, thanks Paul. Again, great quarter and a great year. Anticipating more of the same in 2012, even better in fact. I mentioned our excitement about the recent PointBridge acquisition earlier in the call. It’s really an impressive business, great customer set, without too much concentration, very nice bill rates, great management team, great group of folks all the way around. It really accelerates our momentum with Microsoft by the way.

Like Perficient, PointBridge was a Microsoft, National Systems Integrator Partner and NSI categorization as a Microsoft category, which is a pretty exclusive club. There are fewer than 40 NSIs in the entire country and the combination of Perficient and PointBridge creates what we are pretty convinced, it must be the largest NSI in the country. In fact one of the trade magazines, trade blogs refers to us now as a mega NSI.

Regarding M&A our goal is another two to three deals this year to add approximately $50 million in run rate revenues to 2012, that’s in addition to PointBridge. Our goal to 2013 is similar as I stated before, about $50 million in each year and I’m kind of considering PointBridge a 2011 deal.

We remain in active discussions with several firms and I do expect that we’ll be able to get those deals done. No guarantees as we saw last year, but we’ve got I think good momentum going now and we got a different process in place that should help us to close doors in fairly rapid succession, maybe every three or four months.

So that combined with organic growth will have us pretty much on track I should say for our target of $500 million run rate by the end of 2013, adding almost $200 million in revenues in just under two years of courses, a pretty aggressive goal or a tall order. But we think we are well positioned to do just that and actually are on track as I said before to get close to that goal if not hit it.

The acquisitions bring with them material cross selling opportunities, one of the exciting things about them. We are realizing those synergies much earlier than we have in the past with deals that we’ve done and they are coming in all industries, so we are excited about that.

So these deals we’ve done recently, including even PointBridge only a couple of weeks ago, but certainly going back to JCB and Exervio last year, already seeing a lot of cross selling opportunities. I’m already getting engaged in meeting with Fortune 500 CIOs that these guys had as clients and we are already selling new business to them from our existing portfolio. Outside of the capabilities these acquisitions have when we brought them into the company.

So we talked about the success in healthcare and our optimism around the financial services vertical as I mentioned, but we are also seeing general improvement in the market and opportunity picking up in pretty much all verticals. Not everyone, but for the most part, generally we’re seeing a tight lifting on those.

So in summary, we are pleased with both the quarter and the year and the opportunities we see in front of Perficient for not only 2012 but beyond of course. And on to Q1 and 2012 as a whole, Perficient expects it’s first quarter 2012 services and software revenue including reimbursed expenses to be in the range of $70.6 million to $74.3 million, comprised of $67.7 million to $71.2 million of revenue from services, including reimbursed expenses and $2.9 million to $3.1 million of revenue from sales of software, and the mid point of this first quarter 2012 services revenue guidance represents a growth of 24% over the first quarter 2011 services revenue.

I think it’s important to note that our backlog by the way, because of that high level of bookings I mentioned, trailing 12 months from January back, up about 20% year-over-year, so a pretty high book-to-bill rate and the result of that is that our backlog as a percent of our guidance is higher than it’s been since at least 2006, which is a great sign. Obviously that has us optimistic, not just for the first quarter, but for the first half of the year and likely the entire year.

Again, we are hopeful that we are going to have a nice growth here this year that will materially surpass last year. So additionally the company is issuing a full year revenue guidance range of $300 million to $320 million and 2012 adjusted earnings per share guidance range of $0.88 to $0.90.

With that, we can open the call up for questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of George Price from BB&T Capital Markets. Please proceed.

George Price - BB&T Capital Markets

Hi, thanks very much for taking my questions. Nice job guys and outlook looks good. I wonder Jeff and Paul, if one thing you could provide maybe is the net revenue in the guidance that you’ve given, both for the first quarter and the full year 2012. Can you pull apart reimbursable from the net revenue, the services revenue, excuse me.

Jeff Davis

Yes, no I’m with it. We projected reimburse expenses pretty much off the run rate we are on. I think Q4 was a little bit of a blip, so we might be slightly below that, but the numbers are roughly $4 million; pretty close to $4 million in the first quarter and about $16 million for the year.

George Price - BB&T Capital Markets

Okay great. And then, your still only giving EPS guidance annually Jeff, not on a quarterly basis?

Jeff Davis

Right. That’s right.

George Price - BB&T Capital Markets

Okay. Any acquisition related costs expected in the first quarter?

Paul Martin

Yes. So George, this is Paul. With closing the PointBridge deal in February, there’s going to be roughly a $0.5 million, the $600,000 of cost associated with that transaction. That will hit in the first quarter. You’re required to expense those costs as you incur them.

In addition to that, we’ve had costs both in the fourth quarter and the third quarter, a number of quarters last year, relative to the accretion of the fair value of some of these earn outs, so it’s a non-cash charge, but under GAAP your required to accrete the liability for the earn out to the full value over the period of the earn out. So we’ll have some of that I think going in through the third quarter related to the Exervio earn out. And then we are roughly going to be about $200,000 to $300,000 a quarter.

George Price - BB&T Capital Markets

Okay. All right, great. And Jeff, you mentioned in the fourth quarter, margins, or maybe it was Paul, I’m sorry, margins being impacted by some of the benefit costs and travel related impacts. Can you quantify that? I know you talked about it back in the third quarter, but can you quantify that to the fourth quarter and what’s kind of the outlook of that. Going into 2012 I know you talked about last quarter I believe some initiative to start to try and mitigate some of that stuff.

Paul Martin

Yes, so certainly we saw some additional costs in the fourth quarter that incrementally year-over-year, probably a little bit over $1 million in that. We have some ongoing efforts as you mentioned, as we get into 2012. As we are doing some of these bigger projects we have people on for longer, but there’s a process and procedure to see if we can rotate resources or pull people out of the field for a period of time that we are managing and we would expect that number to be more like $300,000 or $400,000 in Q1. So you will see a $0.5 million plus reduction in those costs sequentially between Q4 and Q1.

George Price - BB&T Capital Markets

Okay, and the 14% organic growth, can you take us through that calculation?

Paul Martin

Sure. So that is basically all businesses that we owned prior to speakTECH. So excluding speakTECH, Exervio and JCB, they are services revenue for Q4 2011 compared to Q4 2010.

George Price - BB&T Capital Markets

Okay.

Jeff Davis

It’s everything we owned in Q4 2010 to everything we owned in Q4.

Paul Martin

So that measure is, if we’ve owned it for four full quarters and we have it in on an apples and apples basis, that’s how we calculate it.

George Price - BB&T Capital Markets

Okay. Last thing is, just on the kind of demand and outlook, particularly in healthcare, can you maybe comment at all on the ICD-10 deadline. I think it’s being pushed out. Do you see that as having any impact to healthcare demand or any of the initiatives that your working on and maybe you could update us on what’s going on with that large healthcare purchase alliance client? Thanks.

Jeff Davis

Sure. I think it’s a good question on ICD-10 and I’ve actually of course asked our guys about the impact they are seeing, what they are hearing from clients and right now we don’t feel like it’s going to have much if any impact to us in the near term. I think in the long term it will actually be a benefit to us. It allows us more time to scale and build brand and get traction within the industry.

So a lot of the work that I mentioned before, you can argue is related in ancillary or a gentle way to ICD-10, but not directly and thankfully that’s true. They are on a lot of clients that we’ve been doing, a lot of direct mandate work for it. In fact ICD-10 opportunities were just beginning to heat up. So we think there’s plenty of opportunity out there that it won’t materially impact us in the near term and like I said, in the long term should actually help us. We’ll see if that bears out or not, but so far we are not seeing any clients pull back on anything they are doing, again, largely because most of what they are doing wasn’t directly developing ICD delivery.

And in terms of the GPO, things continue to be on track there. I expect that we’ll actually – I may have mentioned before that we are continuing to work directly for them, as well as one of the larger top five member firms and actually we’ve got, we are working now with the other four to put plans in place, to begin to implement the solution with them as well. I expect traction around that to be probably more, at least on a tier basis more in the second half of the year, but we may see some of the pick up begin as early as the second quarter.

George Price - BB&T Capital Markets

Great, thank you.

Jeff Davis

Thank you.

Paul Martin

Thanks George.

Operator

Your next question comes from the line of Brian Kinstlinger from Sidoti & Co; please proceed.

Brian Kinstlinger - Sidoti & Co.

Great, thanks. Good morning guys.

Jeff Davis

Hey Brian.

Paul Martin

Hi Brian.

Brian Kinstlinger - Sidoti & Co.

One follow-up on that answer on the GPO, Jeff if you could, I just want to be clear. So the consortium of the roughly four hospitals or member firms that you actually have a signed deal that your working with and you expect to ramp in the second half of the year or your still working through the mechanics of the contract terms.

Jeff Davis

We are still working to the mechanics of the contracts. There’s five and as you know we have one already signed, but the other four are getting closer. So we are working through the mechanics of the contracts and how much of that we are going to do within the consortium versus how much we are going to do independently, directly with the four. So we’re getting close, but I expect like I said, those contracts probably on us not before the second quarter. Might be sooner than that, but I would say conservatively or reasonably the second quarter and then again impact the revenue probably more in the second half.

But all things are positive, all indications are very positive. We feel supportive of the solution and anticipating eagerly in implementing it. So I don’t think there’s any issue there. It’s just a matter of timing and getting everything sequenced right.

Brian Kinstlinger - Sidoti & Co.

Now, it hasn’t impacted your guidance and the business is doing great, but I think that you would have liked to have that consortium signed much earlier or at least it sounds like it might have happened and it’s been dragging in a little bit longer than you thought. What would be the reason that it’s dragged on? Is it budgetary? Is it just a lot of red tape around getting this done? What’s sort of driving on their end to keep the…

Jeff Davis

Yes, that’s fair. I’d always like to have things signed sooner rather than later and I think when we spoke before, I was careful to say that all this was very difficult to predict. That we are optimistic that we did sign in the latter part of last year and that didn’t happen, but again, I’m not terribly surprised by it. But it’s far more a result of the latter that you referred to.

It’s kind of like herding cats and again, the way they were trying to do this is to make it more efficient for everyone involved, strapped in as much with the consortium as possible versus all these independent contracts. So that’s caused some delay, the complexity around that. But it’s not budgetary though; it’s the good news. I think the guys have the money and are ready to spend it and it will be there in time like I said. Everything is still a green light. It’s just a matter of getting it ducks in a row.

Brian Kinstlinger - Sidoti & Co.

And what’s the pipeline after that for that opportunity. Is it the rest of the larger member firms are waiting to see how that consortium plays out or is there already an active pipeline discussions with others?

Jeff Davis

There’s active discussion, there’s not a quantifiable pipeline yet. But I think it’s without any doubt, premier has made a ton investment in this. We’ve invested in it as well to some degree as is the consortium and the expectation on everyone’s part there is that the next class of large members will follow suite and anecdotally the verbal indications are that they absolutely intend to and plan to leverage this as well. Not 100% of them by the way, but a good majority of them.

Brian Kinstlinger - Sidoti & Co.

Great. And you know if I look at healthcare specifically, but I guess also financial services, you made a number of acquisitions. When you look at the healthcare revenue, it’s up 60% year-over-year. How do we take a look at it on an organic basis, how that might be growing healthcare and then besides the number of the organic growth, would you say that healthcare still is accelerating? Is it remaining stable at a high growth rate or is it decelerating the growth rate?

Jeff Davis

I would say the growth rate is probably maintaining the same velocity, but not accelerating beyond what it was, which is a pretty good clip if that makes sense. But I still expect it to grow relatively for us, as well as absolutely, okay.

And then you can see that in the fourth quarter. We went from 27% of revenue in the third quarter to 33% in the fourth quarter. That kind of velocity, like I said, that velocity I think continues. However, we’ve also got the rest of the business I would say speeding up, actually gaining momentum or gaining some, accelerating growth, so that may slow the relative down a little bit if that makes sense. But all in all I expect the growth to continue there.

From an organic perspective honestly, it gets pretty difficult to slice and dice the business through the verticals, organic versus acquisition, but I can tell you the majority of the growth in healthcare has been through organic. We haven’t acquired many, if any health care customers through the acquisition program. We have certainly acquired some skill sets that we put to use in our existing healthcare or even new healthcare client base if that makes senses.

So as an example we leveraged Exervio extensively to work with Premier there and Charlotte. That was one of the reasons we wanted to an acquisition and Charlotte was to service that client, so, but they didn’t bring again the healthcare clients with them. Those are pretty much legacy Perficient.

Paul Martin

And Brian to give you an idea on the velocity, if you look at the percentage over the last four quarters, it went 23, 24, 29, 33, so that’s pretty strong velocity.

Brian Kinstlinger – Sidoti and Co.

Right. Just some clarifications; I want to make I understood. When you said January was a record bookings month, is that a record January or is that a record for any month?

Jeff Davis

It’s a record for any month.

Brian Kinstlinger – Sidoti and Co.

Okay, and when you said trailing 12 months or bookings are 20%, were you saying 20% growth year-over-year, is that what you were saying?

Jeff Davis

Yes, including January; from January back to February. We compare that on a year-over-year basis to the same 12-month period or year prior is 20% up, actually about 21% up.

Paul Martin

And I would say January is typically one of the bigger months of the year as clients get their budgets approved etcetera.

Brian Kinstlinger – Sidoti and Co.

And then you said backlog is the highest percentage of and I missed it, I’m sorry, the highest percentage of guidance since 2006. Is that the mid point or low point or was it not of guidance. What was that statement? I apologize.

Jeff Davis

Yes. No of our revenue guidance for 2012, there is more in backlog, less in pipeline, so higher percentage of that already signed than we’ve had probably since 2006.

Brian Kinstlinger – Sidoti and Co.

Great. And then the last question I have is on the tax rates. Jump around may be for a GAAP and adjusted, what kind of tax assumptions should we be thinking about?

Paul Martin

Yes, as you said there’s a lot of factors that impact that, so it’s a little bit of a difficult one to estimate. But from an adjusted basis it show be 39 to 40 and probably a couple of points higher than that on a GAAP basis.

Brian Kinstlinger – Sidoti and Co.

Great, thank you guys.

Paul Martin

Thank you.

Operator

Your next question comes from the line of Peter Heckmann from Avondale Partners. Please proceed.

Peter Heckmann – Avondale Partners

Good morning guys, nice outlook.

Jeff Davis

Thanks Pete. Good morning.

Peter Heckmann – Avondale Partners

Good morning. When we look at the makeup of the organic revenue growth, should we assume that if we were to break it up, maybe 60% of it comes from headcount, 20% from utilization and 20% from bill rate or maybe a little bit more headcount and utilization.

Jeff Davis

I just think that’s broken down pretty well. I mean it might be 70, 12,18, but I like the breakout, its fine, its pretty close. We are expecting a utilization of about 200 basis points, so about 2% higher utilization this year. I do expect or at least our goal is to get rates up another 2% as well and the rest would be through headcount. You know that would imply 10% organic growth, which is roughly where are mid point is. I’m optimistic that there is some up side to that, but again, the breakdown is fare.

Peter Heckmann – Avondale Partners

Okay and then as regards to the attracting consultants, the ability to bring them up to speed quickly, are you seeing any incremental difficulty due to some of these mandates in healthcare or are you still pretty comfortable with your ability to staff for your growth needs?

Jeff Davis

Yes, it’s interesting, but I think we are fine. I would say for the skills that are being leveraged in healthcare right now, there’s always a pretty good demand. I mean a lot of this is data management, information management and so even including data warehousing and intelligence, as well as of course integration being the biggest component. But those folks are always in good demand.

We are satisfied that we are meeting the demand well now. In fact what I meant, one of the things I was thinking about when I said that the ICD-10 delay, if in fact it happens would probably be good for us, is that if it doesn’t, there are many, many, I can tell you payers and hospitals alike that haven’t started or haven’t got much done and they were going to be many of them falling short of the goal. They would have been on compliance.

So I’m sure the government’s going to kick the can on the road, because they knew they have a big problem on their hands, that’s no surprise to any one. It would have defiantly created a crunch of resources and the short term would have been a nice boom for us in terms of higher rates probably. But I like actually a little slower phase. Again, I think we’ve got a good position of the market and there will be a little more barrier of entry on a slower pace than there would be on that faster pace clip I think.

I’ve seen it, it’s interesting. I did see yesterday. I think it was somebody commenting on another, somebody else in the market, I guess a competitor but not something we see often, commenting on struggling to higher ICD-10 scope people and I found that interesting that from my view those people don’t exist, they literally don’t exist, so they will never be able to hire. So you’ve got to build your own and the reality is most of the guys that are doing the heavy lifting on this don’t have to be ICD-10 experts. Again, its standard information management, business integration skills that isn’t right in our wheelhouse.

Peter Heckmann – Avondale Partners

Okay.

Paul Martin

Yes Pete, one thing I’d also add on that is, this is a third quarter in a row that we’ve seen attrition coming down, so both hiring and also loosing people, we’ve improved on that and I think we’ve also make some investments both on the recruiting side and the HR side, to help on the attrition perspective, which will also help us address this issue.

Peter Heckmann – Avondale Partners

Okay, okay, and then last, can you updated us on a couple of relatively newer areas, management consulting and cloud projects?

Jeff Davis

Yes, management consulting is doing well actually. We’ve got kind of virally expanding that. In addition of course Exervio was primarily that, that acquisition we did last year and I want to say it was April of last year, so that’s got a lot of traction. That was what I was referring to. Actually we are leveraging a lot of the management consulting skills at Premier, but also a lot and lot of our other engagements as well. Change management by the way is one of the things they brought to the table.

We are doing a lot within banking. They brought (BOA) as a customer by the way, we had Wells Fargo and jointly we’ve attacked that, so expanded. What we are doing there beyond technology, doing a lot of business process managements, some of which by the way was legacy skills that we already had, some of which we supplemented with Exervio.

You continue to see clearly this conversion of technology in management consulting or business consulting as the technology becomes more main stream, I wanted to say easy to implement, its not, its complicated, but there’s defiantly a mirage, especially when you’ve got things like business rules engines sitting on top of the underlying technology etcetera, you’ve got to have both skills and we are rapidly building the business consulting and management capability. I would its outpacing the technical growth, but all of it moving together.

Peter Heckmann – Avondale Partners

That’s helpful, I appreciate it.

Operator

(Operator Instructions) Your next question comes from the line of Matthew Mccormack from BGB Securities; please proceed.

Matthew Mccormack - BGB Securities, Inc.

Yes hi. You mentioned that the revenue guidance range for ’12 is roughly 10% and the mid point on the organic basis. Besides the conversion or the timing of the conversion of backlog, are there any other major factors that would get you to the high end versus the low end of that organic range?

Jeff Davis

I think continued macro improvement clearly. Honestly we see that opportunity now. It’s just early to – we always like to, I think try to be conservative in our guidance. I’d rather under promise and over deliver. So if things continue on the pace they are at right now Matt, I would say we’ve got a shot at seeing some upside.

What we don’t know is what happens in the summer months in terms of the bookings converting to revenue to your point. But if they continue in the pace they are now, which is substantially above last year, you can see its pretty transparent right. We did 13.5% in the fourth quarter year-over-year, we did 10% in the third quarter year-over-year and to have the mid point of our guidance at 10% I think is fairly conservative, given the momentum we have.

The reason again being, we are pretty confident that momentum is going to continue at least to the second quarter. What we don’t know is what’s going to happen in the third and the fourth. We have no reason to believe it will decline, but again we are trying to take a conservative wrap.

Matthew Mccormack - BGB Securities, Inc.

Okay, and then in terms of pricing, I guess could you talk about – I mean obviously back in 2008, 2009 pricing came down or comes down quick and then it comes back, it’s a lot slower. So as you recovered and pricing continued to improve over the last few years, are you seeing that rate of pricing increase as you’re able to pass long. Is that accelerating or has that been fairly steady since the recovery began?

Jeff Davis

I’d say it was pretty good last year. We raised rates about 4%. That was honestly more than I thought we’d be able to. Our goal was 2% to 3%, so we are pleased clearly with those results, but our goal this year is still 2% to 3%, so relative to last year, we are planning for decreased velocity and improved rates, but its possible that we can get another 4%, but again, our plans are built around 2%.

No, I don’t think that two goes to one in 2013 by the way. I think 2 could last for quite a while. You probably heard me mentioned before, I feel like we’ve got a pretty decent gap between our average domestic rate of 125 and that of our competitors and I actually think this business, in this current client, all things be equal, it could be $135 an hour, if we do get some demand pick up around things in healthcare, the mandates in healthcare and/or the macro environment, I actually think we can potentially move those rates beyond that and of course it would help with the accelerated improvement that you’re alluding to.

Matthew Mccormack - BGB Securities, Inc.

Okay and obviously focused on domestic labor, could you kind of talk about your offshore delivery capability and the demand there. I know you talked about bookings been at record highs. Is that primarily being driven by North America or are you seeing greater demand for your recourses in China?

Jeff Davis

Its, I’d say Chain and offshore in general is sort of keeping pace. Over the years we’ve – of course, that’s been accelerated. I mean we’ve grown from 50 employees to about 200 billable in China along in the last four plus years, so it’s been solid. But I would say its kind of moving along with the rest of the business.

Most of the business right now is being driven by North America. A lot of the work that we are doing is on-shore. A lot of these engagements that we’ve won recently though, or say the last three to six months are strategic planning, maybe initial architecture and soon maybe some initial build-out, but it does move into a bigger build phase, it will pick up on the offshore as well.

So lot of the healthcare business that we are talking about, not leveraging offshore today, I think will be before the end of the year. So we’ll probably see a pick up there as that naturally progresses through the development cycle.

Paul Martin

Yes, we also saw a real increase in 2011 in the number of accounts using offshore. We had some bigger accounts, we’ve diversified that and I think we will see that continue into 2012.

Matthew Mccormack - BGB Securities, Inc.

Okay and then just lastly, I don’t know if you said the tax rate expectations for ’12, I might have missed it, if you could remind us of that?

Paul Martin

Sure. So for the adjusted EPS it would be in the 39 to 40 range and a couple points higher than that on a GAAP basis.

Matthew Mccormack - BGB Securities, Inc.

Okay and then in terms of the adjusted margin, its roughly 100 to 150 basis points of margin improvement that’s implied.

Paul Martin

Yes, that’s our goal in 2012, yes.

Matthew Mccormack - BGB Securities, Inc.

Okay, thank you.

Jeff Davis

Thank you.

Operator

Your next question is a follow up question from George Price; please proceed.

George Price - BB&T Capital Markets

Hi, thanks very much guys. Just picking up on that prior thing around offshore, I think based on what I hear and see, pretty clear trend in the market, particularly going into this year, that we are going to see more work going offshore and not withstanding China, India seems to remain the major hub. I was wondering if you would kind of update us on your thoughts there on if and how you are wrapping your presence in India.

As I recall Jeff, may be you expanded that a little bit from just kind of a more of a recruiting point to actually starting to develop more or a presence there. If you could maybe give us an update on that?

Jeff Davis

Yes sure, absolutely and you’re right, India seems clearly seems to the place to be. However there are a number actually of China, pure China, China based offshore firms that are helping commerce income pretty well. But as king of a geopolitical hedge if you and also in response to our government clamping down on the H1B quotas, we have in fact begun to do some development and hire employees, permanent employees in our India facility, which used to be mainly a H1B recruiting facility.

So we’ve got about 20 FTEs there now, actively engaged in a number of areas and we are intending to continue to invest and grow that as well. So untimely I don’t know that it will ever be quite the size that our China facility is, given the head start that we have there, but we will be doing a fair amount of investing and trying to drive business into India and kind of balance the two as we move forward.

George Price - BB&T Capital Markets

Okay. Is that something that’s on your, high on your list of things from an M&A perspective to help accelerate that or not so much?

Jeff Davis

Yes, it’s on the radar for sure, high on our filet list and we’ve actually got a couple of firms out there that are interesting to us. As you might imagine, there are some complexities that come along with doing an offshore type of acquisition. So it might be a little further down the road, but we are interested in that and we always have been. We were interested in it before we ended up China and just couldn’t find anything that we could make work. I would say that there’s been a lot of shake out thankfully and the dust has settled to some degree and there are some firms that I think might make senses for us.

George Price - BB&T Capital Markets

Okay, fare enough. On the competitive environment you alluded a little bit to it, but I was wondering if maybe you could update a little bit more on how the competitive environment is days against larger players. You talked about pretty high win rates in past, do those continue to hold up. Talk about maybe your ability to get to the table more often, which as I recall was one of the main gating factors in terms of you doing even better.

Jeff Davis

Yes, I know, that’s right. Our win rates actually have only improved. So the competitors we see repeatedly most often are the large global firms as you might imagine, Accenture, Cognizant, IBM Global Business Services, Emphasis, etcetera, and our win rate now is running more in the – it used to 65% we talked about, now we are in the kind of low 70s. And again, that’s where we have the opportunity propose head to head with them.

So you are right, our mission still is to get to that stage more often against those players, because again, with those run rates we’ll fare well and we were doing that. We’ve actually increased our sales capacity with specifically that in mind and driving some campaigns.

Actually, also beginning to work on qualifying opportunities and move again more toward that Fortune 1000 customer base, where we know we’ll have the opportunity to compete with those guys if we can penetrate those accounts and some good success there. So that’s still defiantly part of the strategy and the mission for this year and we got some specific goals around that.

George Price - BB&T Capital Markets

Have you I guess seen any incremental opportunity for yourselves as a result of maybe these guys not being able to execute quite as well. I guess just steeping back there’s certainly been, I think an increase in discussion around the mid tier client base or the middle market client base. And even some of the larger firms have started to talk about this and it seems like maybe they are kind of coming down the market a little bit.

But obviously, those are going to at least initially be smaller engagements. They may not attract the A-Team from the large guys. Are you seeing them maybe not do as well as you might think in that kind of client basis, and is that creating any opportunity for you.

Jeff Davis

Yes, I would say even in – I mentioned before, 60%, 65% of our revenue is Fortune 1000 now. Even there, where they try to compete for the type of work that we are going after, I mean that’s were we are beating them 70% of the time. I think the reason is twofold; one, we are very focused in the depth and the skills that our folks have in the areas that we focus on, in business integration, information management, analytics, portal collaboration. Honestly, outshine those guys in most instances.

We have that depth. They are distracted by multi-million dollar, $50 million outsourcing opportunity etcetera, etcetera, that’s where their focus is. So they are not even, I don’t think even interested in gaining necessarily the kind of skills that we have in a meaningful way and I would argue that they haven’t. In fact they often try to subcontract us as evidence of that.

But then certainly your point is true as well, that the A-Team isn’t going to be brought to the table for a $5 million opportunity at Accenture or even a $10 million opportunity with Accenture, but it certainly is a provision and of course all we have is A-Team, so that’s easy for us.

George Price - BB&T Capital Markets

Very good. Just on 2012, could you maybe give us a little bit more around metrics like cash flow. I don’t know if you have any ranges Paul for D&A, intangible amortization, stock compensation. Just to kind of help us get the numbers straight and particularly between GAAP and adjusted.

Paul Martin

Yes, so hold on a sec, let me pull some of those numbers out. So amortization obviously, we just talked about it. We did the transaction, so we’ll have additional amortization associated with the PointBridge acquisition and so rough numbers we’re looking at, Q1 of 1.6, 1.7 in Q2 and around $6 million for the year.

Depreciation will be on the $500,000 or $600,000 range per quarter. I’m assuming to find stock comp in here. Stock comp will be coming down. As some of these burn off from prior years, it should be somewhere around $2.4 million a quarter or so.

George Price - BB&T Capital Markets

Okay, okay.

Paul Martin

Did I cover all the ones you were looking for?

George Price - BB&T Capital Markets

Cash flow, any thoughts on cash flow for the year?

Paul Martin

Yes, so cash flow should roughly – the operating cash flows will roughly follow EBITDA. So I think we see probably some slight improvement in DSOs, which will help us on that. The cash taxes will offset that a little bit, so I would say its generally going to trend with EBITDAS.

George Price - BB&T Capital Markets

Okay, okay, and just a couple of housekeeping items. Did you and if you laid these out, I apologize if I missed them, but cash from Ops, D&A, CapEx for the quarter.

Paul Martin

Yes, the Q or the K will be filed here today.

George Price - BB&T Capital Markets

Okay.

Paul Martin

So all those numbers are in there, maybe easier I can just go though them with you off line, but they will be the K filed today.

George Price - BB&T Capital Markets

That’s fine, that’s fine. Last thing Jeff, any update on potential relationships with some other major companies out there. I know on the infrastructure side you had talked about some things becoming sort of a preferred provider. Can you give us an updated on what’s happening there? Thanks.

Jeff Davis

Yes we’ve got some of the smaller players, Splunk and some other that I think have some really interesting products that fit well into our portfolio. They tend to work – their products tend to support the products of the larger vendors we are already working with. But a couple that has been the category that you are talking about, we entered into this relationship with Rackspace a few moths back and actually Pete asked the question earlier, but I didn’t get to it about cloud.

When you say generally, there’s a lot of work that we are doing leverages cloud technology, a lot of it’s internal clouds and we are not still seeing a lot of external, cloud opportunity in terms of applications. What we do see though, are really hosting applications and you can call it cloud if you will. Its very similar to what the old hosted environment, it hasn’t changed a lot, with the exception of I think the connectivity is a lot more stable than it used to be.

So Rackspace is one of those that does a lot of cloud hosting, primarily data migration, data in the cloud and some application in the cloud and we actually added a company wide practice. We’ve got a number of these agnostic company wide practice leaders, relatively small groups, who’s mission in life is to provide thought leadership, speaking engagements and primarily pre sales and assistance is some of our higher end more complex projects. So we added a cloud CWP and planned to be expanding that and see some opportunity there.

One of the interesting partners beyond Rackspace also of course is Google. We are Google’s go to partner for North America, for their embedded search engine. So if you want to use their, if you want to OEM their search engine you can and they’ll send you to us to implement it. But the other thing I think is interesting about Google is, I know they are going to be player in cloud and particularly a cloud development platform.

So it will be beyond, I think what Amazon and Forest.com are doing and more of a mainstream kind of enterprise development platform that might compete with some of the bigger guys. So we want to stay close to that and see how that emerges. Nothing yet, I would say other than we know they are working on some things, but we should be well positioned to work with them on that as they begin to roll it out.

George Price - BB&T Capital Markets

Okay, great. Thanks very much.

Jeff Davis

Thank you.

Operator

And there are no further questions at this time. We will now turn the call back over to Jeff Davis for closing remarks.

Jeff Davis

All right. Well thank you all again for your time. Again, we are excited about the outlook, as well as the results and we look forward to speaking to you all here in a couple of months. Thank you.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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