Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Jeffrey Davis - CEO and President

Paul Martin - Chief Financial Officer

Analysts

George Price - BB&T Capital

Brian Kintslinger - Sidoti & Company

Matthew McCormack - BGB Securities

Perficient, Inc. (PRFT) Q2 2012 Earnings Call August 2, 2012 10:00 AM ET

Operator

Good day, ladies and gentlemen. Welcome to the Second Quarter 2012 Perficient Earnings Conference Call. My name is Tony, 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 this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Jeffrey Davis, CEO and President of Perficient. Please proceed, sir.

Jeff Davis

Good morning, everyone. This is Jeff Davis. With me today is Paul Martin, our CFO. I'd like to thank you for your time this morning and for being with us on the call. As is typical, we've got about ten minutes or so of prepared comments, after which we'll open the call up for questions. Before we proceed, Paul would you please review 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 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 also 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 the accordance with GAAP on our website at www.perficient.com under Investor Relations. Jeff?

Jeff Davis

Thanks, Paul. Thanks again everyone for joining. We're glad to be with you here today to share our second quarter 2012 results, and the second quarter wrapped up a solid first half of the year 2012 for Perficient, our fifth consecutive record revenue quarter and revenue growth of about 25% year-over-year.

EBITDA net of stock comp was up 21%, net income was actually up 30%, GAAP earnings per share and adjusted earnings also, both increased. Utilization for North American employees was 83% during the quarter and our average bill rate remained steady at $127 an hour for North American employees, which as I mentioned on the last call is the highest (Inaudible) solid quarter from delivery perspective. We're also busy on the acquisition front as I am sure you noticed. We acquired Nascent Systems and Northridge Systems in the last few weeks.

Nascent, we're excited particularly about getting into the ERP business, and scenario that we long identified as a gap in the portfolio. It's been on our target list for a long time, so we're pleased about that. Also, Northridge, great group of folks, great team, further deepens our portal and collaboration capabilities and help strengthen our position as one of the largest, I think, one of the top two I believe, Microsoft national systems integrators in the country.

After our substantial Q1 bookings performance, things did normalize it in the second quarter as we expected, but through the first half of 2012 (Inaudible) remain up 36% year-over-year. We sold 15 deals during the quarter north of $1.5 million, and they averaged just under $900,000 each. That compares to 28 in the first quarter. As you recall, we had a substantial bookings quarter in the first quarter. Those 28 averaged about $1.3 million, and it also compares to 15 in the second quarter of last year that averaged about $1.3 million as well.

Q3 bookings have start out well and the pipeline is strong. Our July bookings were up better than 10% year-over-year, I want to say maybe 15%. All in all, we are pleased with our growth and are very active first half of 2012 and determined to continue to execute against our long-term goals.

After Paul shares financial details for the quarter, I will be back to share some more insight into our performance in Q2 and outlook for Q3 and then of course we've got Q&A at the end. Paul?

Paul Martin

Thanks, Jeff. Total revenues for the second quarter of 2012 were $81.8 million, a 25% increase over the year ago quarter. Services revenue for the second quarter of 2012, excluding reimbursed expenses increased 23% to $72.2 million over the comparable prior year period. Year-over-year organic growth was 8%.

Services gross margin for the second quarter of 2012, excluding stock compensation and reimbursable expenses increased to 36.7% from 36.1% in the second quarter of 2011, which continues our trend of year-over-year margin improvement. SG&A expenses increased to $16.6 million in the second quarter of 2011 from $13.2 million in the comparable prior year quarter. SG&A as a percentage of revenue was 20.2% for both, the second quarter of 2012 and 2012.

EBITDAS defined as earnings before interest taxes, depreciation, amortization and stock compensation for the second quarter of 2012 was $12.5 million, or 15.2% of revenues compared to $10.3 million or 15.7% of revenues for the second quarter of 2011.

The second quarter 2012 included amortization expense of $1.8 million compared to $1.5 million a year ago. This increase is associated with the acquisitions we have completed in 2011 and 2012. The second quarter 2012 included acquisition cost of 1.1 million related to the acquisition of Nascent, which closed in early June and Northridge, which closed July1st.

Net income increased 30% to $3.6 million for the second quarter 2012 from $2.8 million generated in the second quarter of 2011. Diluted GAAP earnings per share increased to $0.12 a share for the second quarter of 2012 from $0.10 a share for the second quarter of 2011. Adjusted GAAP earnings per share increased to $0.24 for the second quarter of 2012 from $0.21 in 2011.

Effective tax rate for the second quarter of 2012 was 44.8% compared to 43.4% for the second quarter of 2011. The increase in the effective rate is primarily due to certain non-deductible transaction costs associated with the Northridge acquisition.

Our ending billable headcount at June 30, 2011 was 1,541, including 1,335 billable consultants and 206 subcontractors. This is includes the addition of 39 billable consultants and 7 subcontractors acquired as part of the Nascent acquisition. SG&A headcount at June 30, 2011 was 271, which seven employees acquired with Nascent.

Now let me turn to the six-month results year results. Revenue for the six months ended June 30, 2012 were $156.5 million, a 29% increase over the prior year. Year-to-date services revenue for the six months ended June 30, 2012 excluding reimbursable expenses increased 27% to $138.8 million. This represents 10% year-over-year growth for the six-month period. Services gross margin for the six months ended June 30, 2012 excluding stock comp and reimbursable expenses increased to 35.4% from 34.4% in the prior year period.

SG&A expenses increased to $31.4 million for the six months ended June 30, 2011 from $24.5 million in the comparable prior year period. SG&A as a percentage of revenue was 20% for the six months ended June 30, 2012 compared to 20.1% for the six months ended June 30, 2011.

EBITDAS for the six months ended June 30, 2012 was $22.5 million or 14.4% of revenue compared to $17.4 million or 14.3% of revenues in the comparable prior year period. The first half of 2012 included amortization expense of $3.4 million compared to $2.7 million in the prior year period. The first half of 2012, included acquisition cost of $1.8 million related to the acquisitions of PointBridge, Nascent and Northridge, compared to $1.2 million related to the acquisitions of Exervio and JCB in the first half of 2011.

Net income for the six months ended June 30, 2012 was $6.6 million compared to $4.6 million in the comparable prior year period. Diluted GAAP earnings per share increased to $0.22 from $0.16 in the prior year period. Non-GAAP earnings per share for the six months ended June 30, 2012 were $0.43 a share, up from $0.35 a share or up 23%. Our effective tax rate for the six months ended June 30, 2010 was 42.8%, compared to 42.5% in the comparable prior year period. As I mentioned in the three months result, the increase in the rate is primarily due to certain non-deductible transaction cost associated with the 2012 Northridge acquisition.

During the second quarter of 2012, we bought back 42,000 shares for cost of just under $500,000. As of June 30, we have spent $56.1 million and repurchased 7.6 million shares since the share repurchase program inception in 2008. We continue to believe that our share repurchase program will drive future accretion and shareholder value. We ended the quarter with $12.5 million in outstanding debt and $4.2 million in cash and cash equivalents. Our balance sheet continues to leave us well positioned to execute against our strategic plan.

Finally, our day sales outstanding on accounts receivable were 81 days at the end of second quarter of 2012, which is consistent with the second quarter of 2011. We also saw our collection month ever in July with over $30 million in collections, which we expect to reduce DSOs as we move into the third quarter. We continue to focus on reducing DSOs over time.

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

Jeff Davis

Thanks, Paul. Just a few things I want to cover before we go into Q&A. Highlighting healthcare as it remains our largest industry. The pipeline there remains very strong as well. We've talked about our opportunities with the Blue Cross Blue Shield organizations as well as the Premier channel on previous call, so when they offer little highlights their update rather on those.

Each of those relationships continues to improve and grow. You may have noticed we issued a joint press release earlier this week with NASCO around the partnership there and we continue to pursue additional opportunities and business with Premier as well. In fact, our pipeline with Premier is about three times larger than what we've closed so far in business with the Premier channel. We've got about $22 million in pipeline there, and those are early-stage deal, so those will be multi-phase engagements for the most part. Some of those are latter stages of projects we already underway, but a lot of us those are new business and again will have a long tail, so we're excited about that and expect that only to continue to grow.

The solution that we developed with Premier has been received well in the market, where we've got some initial implementations underway and we're excited about the opportunity there and how that's going to grow down the road. You may also have seen the announcement we made just yesterday regarding Microsoft announcing Perficient as its 2012 Healthcare Partner of the Year, again along the healthcare theme, we continue to be excited about that vertical for us as well as our position within the vertical. I think, we've done a great job of getting a nice foothold in that vertical and continue to expand there. It's the type of recognition that we got from Microsoft. Obviously, that benefits us as we go in and sell to those new accounts really credentializes the business.

I mentioned Nascent and Northridge earlier, both impressive business and strategic additions to our firm. We see a substantial cross-selling opportunities, particularly with the ERPs goals, which are mostly focused around Oracle, so we already had this Oracle enterprise performance management business, very strong business for us around the iPierian as well as of course our Oracle CRM or Siebel, and business intelligence businesses. A lot of good synergies, if you will, and cross-selling opportunities with Oracle ERP, in addition to the fact that we see an opportunity around Oracle ERP with a wave of migration to the latest versions of Oracle and Fusion, so we are excited about that addition actually.

Northridge helps us build out our footprint in the Southeast, substantial presence in Atlanta, where it's a growing market for us as well as Charlotte, already had a presence, but this certainly underscore that and enhances it. Of course not to mention, as I covered a little bit earlier the relationship with Microsoft certainly moves us up to food chain to again as I said before the number one or two, NSI in the country.

Regarding M&A, our goal remains to execute at least one additional deal before year and they add as I mentioned before the $450 or perhaps more in revenues in 2013, so we remain in active discussion. The pipeline for acquisition remained strong. Again, top and bottom line results continue to grow nicely. We're pleased with our progress and remain optimistic about the business going forward.

Regarding our outlook for the third quarter and the full year, we expect third quarter 2012 services in software revenue including reimbursed expenses to be in the range of $81.8 million to $86.2 million, comprised of $78 million to $82 million of revenue from services including reimbursed expenses and $3.8 million to $4.2 million of from sales of software. The mid-point of third quarter 2012 services revenue guidance represents growth of 21% over third quarter 2011 services revenue.

The company is raising its full year 2012 revenue guidance to a range of $317 million to $332 million from the previously provided range of $300 million to $320 million. The company is adjusting its full year Adjusted GAAP earnings per share guidance to a range of $0.90 to $0.96 from the previously provided range of $0.88 to $0.98.

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

Question-and-Answer Session

Operator

(Operator Instructions).

Your first question comes from the line of George Price of BB&T Capital. Please Proceed.

George Price - BB&T Capital

I just wanted to kind of focus around some things around guidance, Jeff and Paul. First of all, so I am clear. What is the Nascent, and if you mentioned and I missed it I apologize but what was the Nascent revenue in 2Q, and what are your revenue assumptions for Nascent and Northridge in 3Q?

Jeff Davis

Well, we did Nascent for much of Q2, so I think that's about $900,000 in Q2.

Paul Martin

We owned it for one month in the Q. Yes, and as we indicated in our press release, it's $17 million [business].

Jeff Davis

Keep in mind that they also sold software, so it's about $15 million of services.

George Price - BB&T Capital

If I look at the gross services revenue guidance for 3Q, if I factor Northridge and a full quarter of Nascent, I don't know. What is that about? $5 million to $6 million?

Jeff Davis

Yes. Something like that.

George Price - BB&T Capital

On an incremental basis over 2Q, right? If you take that out of the revenue guidance, revenues are largely down quarter-over-quarter, and I was wondering if you would maybe give a little bit more color around what's happening there.

Jeff Davis

Our organic revenue is going to be around flat to down slightly, and we were expecting a better result than that or better guidance than that. Honestly, we are trying to take a more cautious outlook going forward both, in the third quarter and for the rest of the year based on the macro environment and what we are seeing from other peers in the industry and also what we are witnessing. We're seeing sales cycles extend. The good news is, we are not hearing from clients, contributing it to macro, we're not seeing wholesale cancellations. We have seen some delays, but I think those are more isolated, however we have seen the sales cycles extend.

Pipeline, strong. We expected a little better bookings in the second quarter than we ended up with. The quarter is always back end loaded, so we expected a bigger June than we had in bookings. To be sure, the Q3, our organic number is not what we had hoped for, but it's still a solid number and we are still guiding I think overall for the year to about 8% to 9% organic growth year-over-year, which is similar to what we had last year.

George Price - BB&T Capital

In terms of the 3Q revenue range, it's pretty wide. Is that again just attributable to some of the uncertainty you are noting?

Jeff Davis

I think it's a typical kind of plus or minus 2.5%, roughly.

Paul Martin

The rate should be consistent percentage wise with what we have done in the past.

George Price - BB&T Capital

Okay. All right. You mentioned that you are not seeing cancellations, you are seeing some delays. The clients aren't citing the macro environment. What are they citing? I mean, I guess, maybe a little bit more color on what they are doing. What they are pushing out versus what they are not pushing out if there are any trends there, what they are citing, the reason for that if they are not citing macro?

Jeff Davis

There's a handful and they're more material and so we looked into this. Obviously, we are trying to be vigilant. The one is actually experiencing business issues, business problems themselves. They are not saying that's macro. I couldn't say that they really have told us definitively what it is, but they've got a budget issue, but the others are more actually citing that they've taken on a lot of work or maybe too much work even and they've got to work out some of the backlog before they can begin some of the new projects.

I think those are legitimate arguments on their part, so we ask and I encourage our sales people to explore as much as possible obviously for our own benefit to understand anecdotally what people are saying and we are not hearing again any resounding commentary on the macro environment, however our assessment is that there is a shift in sentiment. Since our sales cycles have expanded that's our assessment of it.

Again, what we are seeing based on what we are hearing from again our competitors in this industry as well as in general, I think the European issue combined actually with an upcoming election that's right now showing a lot of uncertainty, I do think has shifted the sentiment, and as a result in a longer sale cycles for us.

George Price - BB&T Capital

Maybe if you could just talk about profitability a little bit. Can you talk about what you expect in 3Q versus 2Q? On the cash side, cash EPS was narrowed despite healthy revenue raise, so if you could talk about that and GAAP EPS, the guidance was lowered. I assume some of this is from acquisition-related cost, but maybe if you can help flush out that versus anything else, that would be great. Thank you.

Jeff Davis

Yes. I am going to let Paul comment on that in a second, but I'll start with your last question. We had already included PointBridge, the first acquisition we did this year in our 2012 guidance. We have updated 2012 guidance now to reflect Nascent and Northridge. We did say that those would be modestly accretive this year to the tune of a $0.01 or $0.02 in total. We basically have adjusted earnings guidance to be the same, narrow the range, but it's the same as it was at the beginning of the year. As I think, we've indicated that we originally had a guidance range that showed organic growth this year of 10%.

The new range is more in the 8% to 9% at the mid-point, and it's that difference is that dropping from 10% to 9% or 8%, that takes away the $0.01 or $0.02 that we would have gotten in the accretion if that make sense, so we are holding the same mid-point on adjusted earnings per share as we started the year with. Meaning, we are not going to realize the $0.01 or $0.02 that we would have gotten to the deals. Again, that's a function of brining the mid-point of our total guidance down by 1% or so.

In terms of this quarter, actually on a sequential basis, we are expecting EBITDA and other stock comp and as well as gross margin and all of the metrics to be up. I'll let Paul comment on that.

Paul Martin

With your question on the GAAP EPS side, we don't in our guidance. As historical, we don't assume any future acquisitions, so as we do these acquisitions and we have transaction cost that in fact lowers our GAAP guidance as well as there is amortization cost associated with the acquired businesses, so the combination of those is what's driving the difference in GAAP as compared to adjusted EPS.

George Price - BB&T Capital

Okay. Then I guess last thing, and then I'll get in the queue. Nascent and Northridge acquisition revenue assumptions for 2012, do you have numbers or have a ballpark figure you can give us for them? Thanks.

Jeff Davis

Yes. We have baked into our numbers basically we've assumed flat throughout. We don't begin to include them in our organic numbers anyway until we've on them for a year. So, basically, we've taken the $12 million run rate from Northridge, the $15 million on services from Nascent. It's a $17 million trailing 12-month run rate, but that's in, so on services it's $15 million, so literally, we've owned Nascent for one more month, seven months compared to six, but basically we've taken half of that and put into our numbers. I think that comes true.

That's about $14.5 million. I think the mid-point of our new range right now is about $325 million, which is literally taking our old mid-point $310 million, adding $15 million to it and coming up with that. We do expect a little more software revenue, so software is contributing to that to some degree, so that's why you are not seeing, maybe the 1% or 2% in the top line that I mentioned earlier.

George Price - BB&T Capital

Got it. Okay. Thanks very much, guys.

Operator

The next question comes from the line of Brian Kintslinger of Sidoti & Company. Please proceed, sir.

Brian Kintslinger - Sidoti & Company

First question I had, I wanted to touch on some of the verticals. First of all, healthcare. Tell me if there were any delays given the Supreme Court decision that was pending at the time for ACA, and maybe specifically if you can address the $1 million step down in revenue from healthcare, sequentially. I haven't seen that for six quarters. Any step downs, maybe if you could discuss that vertical?

Jeff Davis

Let me answer your first question, but I don't think there was a step down. I'll let Paul talk about that. I think that what we disclosed it's on the website is flat. Right?

Paul Martin

It's close to percentage.

Jeff Davis

Okay. Excuse me. We'll talk about that in a second. In terms of the Supreme Court and upholding Obamacare, so called Obamacare, we've not seen any impact of that. That doesn't me surprise me. We really weren't doing or beginning to do any work that I am aware of. Certainly, if we were it wasn't material. To help people or not prepare for Obamacare.

The fact that it was upheld, actually only helps us. I would say we are not seeing any benefit from it yet, and we weren't before, so I would say was it bunion or net neutral or impact for us on that.

Paul Martin

Brian, it went from 32% to 27% from our industry data.

Jeff Davis

Hold on. What's that, Brian?

Brian Kintslinger - Sidoti & Company

I just plugged that in as a percentage of revenue you would earn a $1 million. Specifically, I would like joint earning for healthcare, but I guess we were hearing that some customers were just scared in general about spending new money. Just because of that decision, not necessary related to work for that. That's what I was referring to.

Jeff Davis

No. Again, I am going to say we are not seeing that.

Paul Martin

Yes, so in rough numbers, Brian, what we are seeing is the healthcare sequentially was about flat and up 25 plus percent year-over-year.

Brian Kintslinger - Sidoti & Company

Those numbers in our industry, should we take those in multiple item by the services revenue or revenue?

Jeff Davis

That's services.

Brian Kintslinger - Sidoti & Company

Services? Okay, so maybe the numbers will change when I do that. Then maybe talk about financial services. Are there announcers having a tough time there or some other companies, even domestically are having some tough times there and maybe talk about what you are seeing today and what you expect to see in financial services in the next couple of quarters in terms of demand trends?

Jeff Davis

I would say it is down slightly for us as a percent of revenue, but I actually attribute and in fact healthcare shows the same thing, by the way. 32 to 27. That's on a relative basis. There are actually financial service is actually up slightly on an absolute basis. The dilution is coming from the acquisitions that we've done that don't have clients in either healthcare or financial services. Neither Northridge, nor Nascent had any material revenue there, so that's why you are seeing this sort of relative decline.

Financial services for us remain solid. We're not seeing it grow any dramatic fashion, but it's grown modestly here in this quarter, but that's following quarter what was down a little bit. I think it's flat is the way I would describe it. I think that that outlook remains the same. Where we are sort of entrenched in the relationships that we have with a lot of these banks, particular in the retail side we're doing a lot them streamline those businesses and to try to restore their business to better profitability. They're pretty mission-critical projects, so right now I feel good about our position within the industry despite the fact that they may be cutting some spending.

I would argue that they are continuing to spend or maybe even shifting some of the focus in spending to the kind of work that we do, which is helping them streamline, again, their processes and systems.

Brian Kintslinger - Sidoti & Company

If you looked at the sales cycles' line, I think they're very specific to financial services or any other industry or if looked at the handful of clients that's happening is it really no trend?

Jeff Davis

It's really more across the board. In fact I would say health care sales cycles probably haven't changed too much. They probably have not extended as much as others and the others are more across the board.

I will also note, again, based on everything that we are seeing and hearing, we're impacted by that in terms of our sentiment as well. As I said before, we are taking a cautious outlook, however I also point out that we saw sales cycles extending in the summer isn't that unusual, and at least in our observation, we do lot of research around this. It happened again this year, and look back at '11 and '10 and cite there.

I think, again, our macro environment for the last two years or so has been very unique and very unusual compared to the history of the company, so it's hard to pin down a pattern, but we did saw a little bit of extend in the sale cycle in the summer, literally I think attributable to vacations and also I think attributable to the mid-year mark, right? As a lot of companies' budget around quarter's end or semesters, so that's the part of it as well. Again, having said all that, sale cycles have extended the macro environment has certainly eroded, so we want to be cautious.

Brian Kintslinger - Sidoti & Company

If we look at the acquisitions you've made this year, I'm wondering how are the bill rates, where there are services compared to yours? Traditionally, the small acquisitions are irresistible. You rates could have been so low, and then maybe talk about pricing. You've traditionally at 2% to 3%, I think, increase you will like to install, is that going to be on hold right now? Is that still feasible? Maybe talk about by two-part question.

Jeff Davis

Yes. I'm sorry. What was the second question?

Brian Kintslinger - Sidoti & Company

You traditionally have raised prices, or you've ended to 2% to 3%, I think. Is that still feasible right now?

Jeff Davis

Okay. The most recent acquisition, I think, Northridge is roughly in our existing range, so really won't impact one way or the other. Nascent ran a bill rate a little higher on average than ours. I want to say it was in the 135, 130s range. On a relative basis, it's not going to have a ton of impact either, so the 127 is primarily the organic business. If you want to take those guys out, then you'd still have 127.

Do we expect the opportunity to increase rates there? I think so over time, I think, probably for both businesses. Actually as I said before, I actually believe that Oracle EBS, or Oracle's ERP solution demand is only going to pick up as a lot of clients will be moving off their legacy systems, and of course just around new license sales. I think there's an opportunity, particularly with Nascent, but also Northridge was well, little below our average. I think we can move that up to our average.

Again, on a relative basis probably that have tremendous impact given their relative size, but still I believe we can do that. In terms of our rates? Yes, we do intend to continue to raise rates. Pricing is rarely an issue in these deals. They view the factors that cause a client to choose us over someone else or not choose us over someone else, typically doesn't come down to price. We've strategically refocused our efforts around the sales in go-to-market and the kind of clients we go to and the kind of work that we do, how we position ourselves with those clients where they are little less price-sensitive.

I am not going to say that's never a factor. There's always a negotiation, but I still believe there's a substantial amount of gap between us and firms that have the kind of quality and capability that we do, which were typically larger better known firms to close that gap to some degree, so I expect that we'll see some modest improvement even in the third quarter in rates, and hopefully through the end of the year such that by the end of the year we will have moved rates up a couple of percent.

Brian Kintslinger - Sidoti & Company

Okay. Last couple of question, then I'll get into the queue, is on Premier. I'm curious how many hospitals you have signed up to-date? And then I'm curious, how many times those were represented by the $22 million pipeline then I have one more question on Premier after.

Jeff Davis

We've got three underway right now aside from Premier itself.

Brian Kintslinger - Sidoti & Company

Right.

Jeff Davis

Presuming Premier is a revenue stream directly, so you we got three hospitals signed in that pipeline there are I believe five net new hospitals, so there's follow-on work at the three, but there's five, I believe, entities in that pipeline.

Brian Kintslinger - Sidoti & Company

When you look at the hospitals you've already done, is the first on that didn't go on for a little bit. Is it completed, so that you can reference that? I am just curious what point you are with that, and then how are you selling into the customer base? Are you targeting the top-5 to top-10 to top-20 largest ones and having a couple of sales guys directly call into them? Do you already have relationships there? Maybe talk about how their process is working.

Jeff Davis

Sure. The answer is yes. There is referenceability. The nice thing is, like I said, these things have a long tail, so the work continues in those other engagements. However, we've progressed far enough in those engagements, where they are referenced for us, and they can see the benefits of the solution.

To go back to the Premier relationship. This is a partnership, so the relationships with these hospitals, we get the intro through Premier, so a warm relationship (Inaudible) licensing and referenceability is still important, but we get a lot of that credential or cash if you will just from Premier, and these guys are already members of the Premier GPO and are reliant on Premier for a very important strategic component of their business.

I guess, for me I would say Premier is word carries a lot of weight, so when we go sell a new client in the Premier channel, we're doing it in partnership with Premier. I mean Premiers, they are with us. dandling the solution and working with that perspective member on this new solution to handle their side of the contract, because there's an ongoing, there's a fee-based service, so it's an ongoing relationship obviously that Premier has, so we are doing it in a partnership.

Brian Kintslinger - Sidoti & Company

Basically premier, is saying here's what's available to you and here the benefits for it and you should talk to perfection about it? Is that generally how it's going?

Paul Martin

Actually they are with Premier.

Jeff Davis

We're both saying. Yes. We work as a team. We're literally talking literally talking to the client, literally as a team, but yes. That's correct.

Brian Kintslinger - Sidoti & Company

Great. Thanks.

Operator

Your next question comes from the line of Matt McCormack of BGB Securities. Please proceed.

Matthew McCormack - BGB Securities

Hi. Good morning. My question relates to visibility into your outlook. If that has changed materially since the '08, '09 period based off of longevity with clients, new service offering. I guess could you just kind of speak generally on your visibility currently.

Jeff Davis

Yes. Sure. Thanks, Matt. Yes. Certainly better than '08 and '09, and there's no doubt about it. I described those two years as being sort of on the dark side of the moon, where we lost our communications. So, '10, '11 and '12 here are remarkably better. I would say '11 was solid.

Again, we experienced the same sort of period here in the middle of the year, where things did get a little cloudier, but there then we had a fantastic bookings in the fourth quarter last year that carried into the first quarter of this year, so we could see the same thing, or we could see some prolonged cloudiness. That's why we're trying to be cautious here, but I would say the outlook as it stands little less visibility today than there was a quarter ago, but it's like it was in '08 and '09.

Matthew McCormack - BGB Securities

Could you talk about your comfort level in your forecast? I think you've had a lot of these clients for a lot longer. Is that acquisitions that has been part of the overall company a lot longer, so is what you do the exact same thing that you did three years ago, and very project-based and sensitive, or do you have much more relationship with your clients now?

Jeff Davis

Yeah. It's a different relationship. It's a different business that it was three, four years ago, and we specifically moved to what we are referred to as a land and expand model, where we've gone after and won larger client relationships. It's about 60% to 65% of our revenue today is coming from Fortune 1000 businesses, and those are businesses where a long tenure or expect to have a long tenure in the new relationships, and they are multi-million dollar, multi-year relationships, where in relationships, where we are often engaged even in the budgeting process and the planning process for the subsequent budget cycle or year, so it is better.

Forecasting is I would be more reliable now than it was back in that timeframe for that reason. The bookings have still been again, Year-to-date very solid, so we've got substantially up year-over-year, so we've got a nice backlog moving forward. That's something else we didn't have in the '08, '09 timeframe. While we're still doing project based work, I would say a lot more of it is in a recurring relationship than it was four years ago. Does that answer your question?

Matthew McCormack - BGB Securities

Yes. Now that's helpful. Thank you. In terms of acquisitions, I guess you've got the two recent ones. I guess your outlook for the rest of the year and have you seen given the macro environment have you seen valuations on potential target start to come down?

Jeff Davis

I would say not yet to the second question. Although that maybe happen as we move forward. As I said before, the pipeline remains strong. There are quality businesses out there that we are interested and that are interested in becoming part of Perficient, but valuation I wouldn't have changed materially. I will qualify that though that we've got this 5 to 7 range that we have talked about for a long time. Five to seven time is generally 12 months EBITDA, and we've not paid over six with the exception of maybe one deal since we started the program back up in 2010.

I would say multiples have been depressed somewhat from the 2007 timeframe, we shut the program down in '08-'09, and as we started up again we have not been paying the premium since we started the program back up, then we were paying in the '07 timeframe. They've kind of stayed depressed.

Matthew McCormack - BGB Securities

Okay. Great. Thank you.

Jeff Davis

Thank you.

Operator

Your next question comes from the line of George Price of BB&T Capital. Please Proceed.

George Price - BB&T Capital

Hi. Thanks. I just want to circle back around on a couple of other things. I was curious if you would talk a little bit about how you saw the second quarter play out on a monthly basis, and maybe tack onto that what you've seen thus far in July in terms of some of the demand trends that you've called out?

Jeff Davis

Yes. Bookings slowed in June relative to the rest of the quarter. Again, we expected that with the monster quarter that we had in Q1 in bookings, that Q2 would be a more normalized quarter, if you will. That was a little more than we expected. June bookings were not what we expected. June typically is a pretty big month. It signals the end of the first semester. There is typically some budget flush there et cetera. The deals were there in the pipeline with good weighted odds. They simply didn't close, and that's where I am referring to those extended sales cycle that's kind of a fairly recent phenomenon.

However, on year-over-year basis, July picked back up and again we've got a solid year-over-year performance in July. We'll see how August and September play out. The good news is that the deals that did close and some still haven't that we would have expected to see more in the June or has built into to July timeframe are still on our pipeline and are still viable and our business developers, our sales folks still believe that they will close.

Again, they are just delayed based on our audit book what we are hearing as I described earlier to I think it was Brian, is that they've taken a lot already. They've got a lot of projects underway and it's not a matter of not having budget. We think we are hearing probably most prevalently is not a matter of budget. It's a matter of getting the time and getting their people freed up to take on the work.

George Price - BB&T Capital

As you said, just to be clear, Jeff, the deals that were pushed out of June into the third quarter to a larger extent, you haven't seen those close yet in July. Those are still in the pipeline, but have not closed. Is that fair?

Jeff Davis

Yes. That's fair. Number of them did close in July, but there's still a number of them that are still out there. That's correct. Again, we're anticipating a very solid august, but we'll see how it plays out, and because of all that here again that's why we are taking a more cautious position going forward.

George Price - BB&T Capital

Maybe competitively if you could know maybe what trends you are seeing? If you are seeing some of the larger players that you go up against changed tactic, or are you seeing any tactical changes from some of the smaller mid-sized competitors and maybe talk about where your win rate stand versus the larger guys. I know you've turned out. Correct me if I am wrong, but I think win rate is 60 plus percent or so against sort of sort of larger competitors like the Accentures Cognizants of the world. How has that been trending?

Jeff Davis

Win rates are still strong. Actually there are about 75% year-to-date this year against that group of competitors. I would say we are not seeing much tactical change. The big guys are still chasing the big outsourcing gigs. In fact, if you saw I am sure obviously you noted Accenture's recent earnings call and release, and they noted solid outsourcing or growth in outsourcing, but flat in consulting, and I think it's kind of what we see in the market. I think they certainly are pursuing the consulting deals, but they are only going after big deals and really are more interested in the outsourcing gigs, which obviously is great for us.

This is the gap that we've planning in here for a number of years now continues to exist. If anything maybe widen this at least in certain areas. Then smaller competitors not much really. I would say, the competitive landscape for the smaller guys is probably a little less than pre-recession. I think the recession knocked a few of those folks out. The ones that tucked it through are still out there and formidable, but I would say no different than in the past. We do occasionally lose to that boutique. That's an IBM-only shop or a Microsoft-only show maybe that maybe is local to the client occasionally. Usually, and again as we have changed our go-to-market strategy to more of a large client land and expand model, we're seeing those guys less often I would say.

George Price - BB&T Capital

Then I guess just some housekeeping issues. Paul you mentioned the acquisition related cost in the quarter, the $1.1 million. Then addition to that, right? There was an non-adjust then of about $167,000?

Paul Martin

Right.

George Price - BB&T Capital

Okay. You may have mentioned this. I didn't get at all I apologize, but could you go through the ending of billable and total headcount and breakout what was organic versus what was added from acquisitions?

Paul Martin

Yes. Sure. The ending headcounts were 1,335 of billable consultants and 206 subcontractors, and I am looking here, we had 39 billable our employees with Nascent and about seven subcontractors.

George Price - BB&T Capital

Okay. Great. Thanks very much.

Operator

(Operator Instructions). Your next question comes from the line of Brian Kintslinger of Sidoti & Company. Please proceed, sir.

Brian Kintslinger - Sidoti & Company

Great. Just wanted to follow-up a little bit on the Blue Cross Blue Shield partnership in the press release you put up. Maybe just talk about how you are going to market in their partnership and then take while back when what was in the ICD-10 assessment or at least initial work that it's looking into it for them and maybe where they are with that and how soon given the delay they are into awarding maybe a modification for that?

Jeff Davis

Yes. I think the ICD-10 remediation you are referring to was probably NASCO, so we waited unit our initial engagement there was complete and they were satisfied and were, so we're able to issue this joint release, so we're moving onto the next phase, and hopefully subsequent phases with NASCO on that. We'll have an opportunity. They served 20-some odd blues, so we'll have an opportunity we believe. It's their intent to pursue those as well to develop the other side of the ICD-10 interface that they need to connect through NASCO with.

In general, the Blue's spending remains strong, but I would still say it's probably a second or third inning to use a baseball analogy opportunity in terms of the overall work that needs to be done there. I don't think I'm telling tales at a school that are all these payers in the Blue's that are no exception have largely antiquated systems from a technology standpoint. The systems were adequate for what they needed, but the world changed so I think there's a substantial opportunity out there again in the payer environment period, but specifically with the Blue the nice thing is again, we got this great foothold reputation with the Blue and Blues represent about we've estimated about 35%, 40% of the payer market.

The way we are going to market, good question. These guys aren't really even affiliated, right? They do talk, but there is no central Blue. These are all independent, so we formed our own sort of Blue, a tiger team, if you will, that we leverage all the work that we are doing, the case studies, we're keeping the group intact, so they've got the knowledge, the domain expertise to go and sell to other Blues as well, and that's our strategy and we've got I want to say nine Blue entities including NASCO current has clients and progress well. We expect those to continue and they continue to grow in some cases substantially, because we've just won those relationships and started small and I still think got an opportunity to go to many more Blue clients beyond that again leveraging our experience there, but that's a different scenario than Premier.

Again Premier has these relationships. They are already customers of Premier. This is very different, as we do have to go independently to each of these blue and sell ourselves. The good news is we've got this again foothold and reputation and referenceability within the community and there is reliance on that.

Brian Kintslinger - Sidoti & Company

Just to be clear, this is completely separate, because I didn't even the word. ICD-10 and with the NASCO that struck me. Is it completely separately from that? Is that right or is that not right?

Jeff Davis

I am not sure what you are saying. The work that we are doing for NASCO is the claims process like Clearinghouse or about 20 Blues, so ICD-10 is the main barrier work that we are doing for them. For the other Blues it's a variety of projects. Some of it's really ICD-10, some of it's not. With one of the Blues, one of our largest customers, we are doing 12 different projects right now. 12 different engagements, all related to updating and improving processes as well as systems as they are entering into this new environment, this new period with different regulations as well as different kinds of competition. Does that answer your question?

Brian Kintslinger - Sidoti & Company

That helps. Just, I missed it, and I'm sure your Q comes out right away, but can you just give me the cash flow from ops and CapEx again this quarter?

Paul Martin

The cash flow from ops was up year-over-year. Cash flow from ops was $9.5 million, compared to $4.1 million last year, and your other question was CapEx?

Brian Kintslinger - Sidoti & Company

Yes.

Jeff Davis

CapEx number was about combination of that and the cap on software development cost is right around $900,000.

Brian Kintslinger - Sidoti & Company

Great. Thank you guys.

Jeff Davis

Thank you.

Operator

There are no further questions from the listening audience, Mr. Davis.

Jeff Davis

All right. Well, thank you all for your time. If you joined the call today or if you are listening to a replay, I appreciate that as well. We look forward to speaking to you in a quarter.

Operator

Thank you for your participation in today's conference. This concludes your presentation. You may now all disconnect and have a great week.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Perficient CEO Discusses Q2 Results - Earnings Call Transcript
This Transcript
All Transcripts