Ciber's (CBR) CEO Michael Boustridge on Q2 2016 Results - Earnings Call Transcript

| About: CIBER, Inc. (CBR)
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Ciber, Inc. (NYSE:CBR) Q2 2016 Results Earnings Conference Call August 4, 2016 8:30 AM ET


Scott Kozak - Vice President of Global Communications, Investor and Industry Relations

Michael Boustridge - President and Chief Executive Officer

Christian Mezger - Executive Vice President, Chief Financial Officer


Brian Kinstlinger - Maxim Group

Juan Molta - B. Riley


Greetings and welcome to Ciber's Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Scott Kozak. Thank you. You may begin.

Scott Kozak

Thank you, operator. Good morning, everyone. My name is Scott Kozak, Vice President of Global Communications, Investor and Industry Relations at Ciber. Welcome to Ciber’s second quarter 2016 earnings conference call. With me today are Michael Boustridge, our President and Chief Executive Officer, and Christian Mezger, our Chief Financial Officer.

Before turning the call over to Michael, I will remind you that some of our prepared comments and responses to your questions will constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to those factors set forth in today’s news release and discussed under the risk factors section of our Annual Report on Form 10-K and Quarterly Report on Form 10-Q, as well as other SEC filings.

Also during this call, we will reference certain non-GAAP financial measures that we believe provide useful information for investors. We have included reconciliations of those measures to GAAP measures in our news release and on the Investor Relations section of our Web site, Today’s discussion will be on a continuing operations basis. Please refer to our SEC filings on Form 10-K, Form 10-Q and 8-K for a recap of historical comparisons.

With that, it is my pleasure to turn the call over to Ciber’s President and CEO, Michael Boustridge. Michael?

Michael Boustridge

Thank you, Scott. Good morning, everybody and welcome to the call. We appreciate your time and your interest.

The company's second quarter results continued to reflect the steps we are taking to bring about the transformation of Ciber. Chris and I will take you through our successes during the quarter as well as our progress against key issue and I will lay out the improvements we anticipate as we move into the second half of 2016.

Corporate recoveries of this scale are really achieved in less than two years. And as I have told you in the previous call, my leadership team and I performed a complete analysis of every aspect of Ciber's business when I became CEO in the summer of 2014. We have to find the company’s five colors focused on high quality engagements that drive increased returns with less risk and determine what businesses should be divested.

Most are tuned to growth and profitability, albeit painfully slow, reflects our efforts to offset many years of underinvestment in key businesses and new offering. We also inherited ongoing litigation that is being both costly and distracting. We will prefer to direct all of our time and effort to provide an excellent performance to our client and expanding Ciber's business in the growing market.

My leadership team and I created a course of action to move beyond these issues and we are executing that plan. As of last two years, we have put better deal approval processes and procedures in place and increased our focus on cash generation to support the high quality of revenue and earnings that I have spoken about before. We continue to focus on four areas. One, exiting non-strategic businesses. Two, lowering GA cost. Three, using targeted funding to reignite revenue growth in both established and emerging businesses, and four, generating positive operating cash flow to strengthen our financial position.

Some of the important steps we have taken are already beginning to produce positive results and we should see progress on many other dimensions as we continue the second half of the year. We are taking these actions in a measured fashion with our intention to make sure we do not cut deeply into our growth infrastructure or oversight procedures. In fact, I think it's important to note that even with our restructuring efforts over the last two years, we continue to see strong client retention driven by our talented, committed employees.

As indicated last quarter, Ciber achieved book to bill ratios of 1.0 in both North America and international operations during the first half of 2016. I am excluding our Netherlands operations from these results since the business was sold prior to the conclusion of the second quarter. Bookings were down in the most recent period. Approximately 20 million of North American deals that we anticipated in the second quarter, should be booked in the third quarter and we expect bookings growth in North America to resume in the third quarter.

In our international segment, I am pleased to note that the U.K., which we believe is well on the way to recovery, had the largest local currency bookings quarter in more than two years. We have launched a successful Oracle business in Europe and we are enjoying particular successes in wining Oracle implementations in British higher education sector. Our U.K. talent services business is also expanding and our partnership with Microsoft is strong across a number of important verticals.

In fact, Ciber was recently named to the 2016 President's Club, a prestigious group representing the top 5% of Microsoft's dynamic partners worldwide. As we look into the second half of 2016, we expect to see growth from a range of businesses and geographies. Because a significant amount of bookings was pushed from the first half into the third quarter, some sales growth may not be fully evident until the beginning of fiscal 2017.

In North America, our Info business has a robust pipeline and a good margin profile. Talent services revenues rose sequentially in the second quarter and we still increased gross profit and margins for this business on a both year-over-year and sequential basis. We believe this business has stabilized and is clearly benefitting from the investments we have made in sales and recruiting over the last four quarters. ADM revenues and gross profits rose sequentially at a double digit rate during the most recent period. We have remarkably changed the trajectory of this business by employing a more comprehensive approach that integrates our business consulting, talent service and ADM operations.

We believe bookings for North America will be strong sequentially in the third quarter. We also continue to generate a solid pipeline of Ciber Momentum proof of concept or POC, in both North America and Europe. And we are seeing good successes converting a number of these into standard revenue contract. I will talk more about Ciber Momentum in a few minutes.

As we have discussed in recent quarters, Oracle remains our primary area of weakness in North America. As Christian will explain in his remarks, we experienced issues with several oldest Oracle engagements who have hence triggered a reassessment of the project's timing. These issues lead to higher cost and a non-cash charge in the second quarter. We expect these Oracle revenues to be recognized in future periods.

In our international business, we successfully divested our Netherlands operation so we are seeing a temporary negative impact on our remaining European operations stemming from employee uncertainty regarding our future plans in the region. We are working through the attrition issues that we discussed last quarter and are having success in affecting new talent. We also continue to work towards lowering our overall operational cost.

On the widely discussed Brexit question, like the rest of the industry in the world, we are in wait and watch mode. To date, we have not seen any slowdown or changes in client's behavior in the EU market in general or within the U.K. specifically, although currency fluctuations could affect our reported results.

As I outlined in our first quarter call, we have streamlined our operations and moved to customer-orientated organization and delivery model that more closely aligns our cost with our revenue. With many of these difficult transitions behind us, I can now say we are very confident that we expect to exceed the $5 million reduction in 2016 GA cost, I announced at the beginning of the fiscal year, excluding the impact of litigation. In fact, we anticipate a 2016 end of year run rate, $8 million to $9 million below 2015 level.

A key aspect of streamlining effort involves the divestiture of operations that is not core to Ciber's long-term mission to accelerate growth, drive sustained profitability and increase the value of our company to our stockholders. To that end, we recently announced the sale of our business in the Netherland to the ManpowerGroup. Our Dutch operations generated approximately $80 of revenues in 2015 and then the divestiture will reduce our global headcount by more than 400 full time employees. We received approximately $20 in cash for our Dutch operation with an additional $5 million in escrow. And the transition of clients and employees is proceeding smoothly.

At this point, we have decided not to continue with our plans to sell our Australia operations to local management team. We continue to evaluate the potential for additional business divestitures through the remaining of 2016. While divesting non-core assets is an important piece of our near-term strategy, we also understand the importance of investing to generate growth. In fact, we spent close to $2.5 million in the second quarter and $4.5 million year to date to support product development, marketing expenditure, POCs and start-up cost behind our key offering.

We expect to continue investing selectively to accelerate growth in that core business while driving additional efficiencies in our operation to deliver sustained profitability. Ciber Momentum spending remains on track to reach approximately $5 million in 2016, up from $1.5 million last year. We believe these investments are critical to generate revenue streams beyond Ciber's legacy staffing, implementation and managed services business. We are encouraged with the progression of Ciber Momentum. This offering continues to open doors for us, strengthening Ciber's reputation as a partner that can help solve complex problems across the business [silo] [ph].

Let me explain you on a couple of projects. We told you in April about Ciber Momentum engagement that we signed earlier this year with a large diversified industrial company. And we recently finished working the initial stages of that project. The client expects to see significant savings from or effort and has formally extended our agreement based on these results.

On the international, the paid proof-of-concept with a European bank we announced last quarter has officially been completed. In addition, we won an important project with a European insurance company and were recently awarded a multimillion dollar modernization contract with a third European client.

Another project I would like to discuss is our first paid POC in an AS400 or iSeries market. While this project has a relatively short duration, AS400 system modernization represents a large opportunity supported by loyal and experienced IT professional. We expect this to be a good market for us as the value proposition for iSeries modernization relies less on reducing infrastructure cost and more on [reacting] [ph] in current solution, an area which Ciber we Momentum excel.

Going forward, we see particular promise in Ciber Momentum on financial and industrial companies where conversions are increasingly conducted at a portfolio level rather than specific to a single application. We are also positioning ourselves to have state and local governments initiate their organization wide journey to the cloud. Importantly, we are also succeeding in raising Ciber Momentum's profile on the IT market. In addition to our team agreements with CA and [indiscernible] we recently signed our first strategic partnership agreement with a global systems integrator. The agreement with this partner create market opportunities to start the Momentum, a strategy I have previously outlined, offer you an important conduit to start the Momentum to reach new customers by providing engineering and presales services.

As a relatively new delivery offering, we expect Ciber Momentum's 2016 financial contributions to be modest. Although we currently have signed contracts with a total value of more than $3 million. Going forward into the fourth quarter, I will be in a better position to discuss 2017 Ciber Momentum revenue expectation.

Looking forward, we believe our second half results would show improvement over the first two quarters of 2016. We do not expect to be profitable in the third quarter due to ongoing challenges in Europe. We believe we will return to positive cash from operations in the fourth quarter, excluding the impact of litigation and currency, driven by improved performance in North America and a keen focus on cost containment. I am confident that a leaner, more focused Ciber is our best path to success, the resumption of profitable growth and increased shareholder value.

I will now hand the call over to Christian.

Christian Mezger

Thank you, Michael and good morning everyone. I will begin by providing key points from the second quarter.

Reported revenue of $166 million was down $9 million sequentially and $32 million below the year ago level. North America segment revenue was $95 million. However, if you adjust for the revenue impact of the $5 million Oracle charge, revenue for North America was $100 million or about $90 million below the second quarter of 2015.

Sequentially, adjusted revenue for the second quarter was flat compared to the first quarter. In the international segment, the sale of the Netherlands business was completed in mid-Q. If you remove the Netherlands revenue from all periods, second quarter 2016 revenues were $68 million compared to $66 million in the first quarter of this year and $70 million in the year ago quarter.

Our book to bill ratio for the first half of 2016 was 1.0 when adjusted for the Netherlands divestiture and the Oracle charge. This metric reflects the booking of new business at a rate roughly equal to our current rate of revenue generation. As Michael mentioned, we are confidence that our third quarter North America bookings will be very strong compared to the second quarter.

SG&A was $56 million in the quarter including an adjustment of more than $2 million for the bad debt allowance. For the G&A portion of that expense, a Michael mentioned, we expect to achieve end of year annual run rate savings of $8 million to $9 million, excluding the impact of litigation due to lower compensation expense. We believe the combination of strong bookings, targeted investment and cost reductions will result in gradual improvement in top line and bottom line results.

We believe that cash from operations will be positive by the fourth quarter of 2016. As announced in June, we sold our Netherlands business to ManpowerGroup for $20 million in cash at closing with a $5 million escrow. Earlier this year, we had reached an agreement in principle to sell our Australian operations to its management. However, we were not able to finalize the agreement. Instead, we are considering alternatives for Australia which has limited synergies with the rest of Ciber. We continue to evaluate the potential for additional divestitures of non-core businesses through the remainder of 2016.

With operating cash uses of $36 million during the first half of 2016, which is roughly flat with usage during the year ago period. The company had a cash balance at mid-year of $11 million and a credit facility balance of $41 million. We recorded a non-cash goodwill impairment charge of $30 million for our international segment during the second quarter. It is our standard practice to conduct a impairment testing during the second quarter of this year. It's the same decrease in stock price, lower earnings and a sale of the Netherlands business were triggering factors that resulted in the goodwill impairment. The analysis concluded that the fair value of our international segment was below its carrying value. After this charge, no goodwill for our international business remains on the balance sheet.

Turning to our company's consolidated results. Revenue in the second quarter of 2016 was $166 million, down 5% sequentially and 16% lower year-over-year when measured in U.S. dollar. On a constant currency basis, revenues were down 7% sequentially and 17% year-over-year. As I mentioned previously, revenue was negatively impacted by both the sale of the Netherlands and the Oracle charge. Currency had a minimal impact on our quarterly results.

Gross margin in the second quarter was 20.5%, down from 26.1% in the prior year, primarily due to lower revenues and the Oracle charge. Gross margin was 23.3% in the first quarter of 2016. Adjusting for the Oracle charge, second quarter 2016 gross margin was 22.8%. SG&A expense was $56 million for the quarter, up 16% year-over-year and up 14% sequentially. The year-over-year increase was driven by higher sales and G&A expenses as well as the bad debt allowance.

We are working to improve our overall G&A outlook mainly through reductions in corporate G&A. Second quarter corporate G&A was $13.8 million versus $14.1 million in the first quarter. We expect sequential declines in corporate G&A in both the third and fourth quarters, excluding any significant increases in litigation expense.

We continue to deal with a number of legal actions related to contested contracts that have raised legal expenses significantly in recent period. As we mentioned in past calls, cost to fight these claims contributed to increasing legal expense from approximately $6 million in 2014 to more than $8 million last year and we currently expect that legal expenditures could exceed $12 million for 2016. We will continue to explore reasonable dispute settlement opportunities on selected cases. If we can reduce future risk and uncertainty at a reasonable cost, we will do so.

Adjusted operating loss from continuing operations totaled $20 million in the quarter. The adjusted number excludes the goodwill impairment charge, the bad debt allowance adjustment, amortization and restructuring charges. Lower operating margins reflect reduced revenue. Adjusted net loss from continuing operations in the second quarter was $22 million or $0.27 per share. The adjusted net loss excludes the goodwill impairment, bad debt allowance, adjustment, amortization, and restructuring charges and a gain on the sale of the Netherlands business. On a GAAP basis, net loss from continuing operations was $52 million or $0.64 per share.

Turning to our North America segment. Revenue performance in the second quarter was mostly impacted by Oracle charge. The charge related to a small number of older projects. In each place, project schedules were changes as a result of delivery charges and project end dates were extended. These delays required that previously recognized revenues had to be reversed. We expect this revenue will be recognized in future periods.

North American revenue was $95 million, down 13% year to year and down 5% sequentially. After assessing for the impact of the Oracle charge, North American revenues were down 8% year-over-year and flat sequentially. Year-over-year revenue decline in ADM, Oracle and SAP, were partially offset by new business in transformation services. Sequentially, Info revenues were flat and current service revenues have improved.

On the new business front, we expect strong third quarter bookings in North America. As Michael mentioned, approximately $20 million of new business signings were delays from the second quarter into the third quarter. Mostly, in our talent services, Info and Oracle practices. We expect all $20 million to be booked by the end of the third quarter. If we achieve these bookings, our book to bill ratio in the third quarter should be greater than 1:1 for North America.

In North America we recorded gross profit margin of 21.6%, down from 26.8% in last year's second quarter and down from 25.1% in the first quarter. Adjusting for the Oracle charge, North America's gross margin was 25.4% in the second quarter of this year. Declines in the second quarter North American gross margin year over year were driven by lower profitability in our Oracle business not related to the charge, partially offset by improvement in talent services.

North American SG&A expense was $19.6 million, up year-over-year and sequentially. Year-over-year results reflect cost reduction of certain investments in Ciber Momentum, Ciber Transformation services and Talent services. North America operating margin of 0.9% was down year-over-year, mainly due to the Oracle charge. Adjusting for the Oracle charge, operating margin of 5.8% compared to 9.5% in the year ago period and 6.6% in the first quarter.

I will now discuss the international segment. Second quarter revenues were $71 million, down 21% in both U.S. dollars and constant currency compared to the year ago period. Excluding Netherlands business, sequential international revenues rose 4% while year-over-year revenues were down 17% on a constant currency basis. As we look towards the third quarter, bear in mind that currency rates have been impacted by Brexit. Approximately 16% to 20% of our international segment revenue is denominated in British Pound and the Pound is currently down 10% to 15% from pre-Brexit levels.

The international gross profit margin of 18.8% in the second quarter, down both year-over-year and sequentially. Excluding the divestiture from all relevant quarters, gross margin was in the second quarter of 2016, 18.7% compared to 25.7% in the year ago period and 20.5% in the first quarter. International SG&A was $22.4 million during the second quarter, up $5.3 million year-over-year and $5.8 million sequentially due to the timing of compensation and the bad debt allowance. However, over the last two months, we have used non-operational resources in our international headquarters.

During the third and fourth quarters, we expect SG&A to return to first quarter 2016 levels minus the Netherlands SG&A and the reductions in non-operational resources that I just discussed. We had an operating loss from continuing operations of $9 million in our international segment. To restore international operations to acceptable levels of profitability, we must have more bookings, increase revenue and gross profit and we must also reduce our cost structure in the segment. Our subscale size in certain geographic markets is the driving force behind our divestitures.

I will now discuss cash and our balance sheet. We ended the quarter with a cash balance of $11 million compared to $18 million at the end of the first quarter. Cash used in operating activities from continuing operations was $36 million in the first half of 2016 compared to $37 million usage during the first half of 2015. The operating loss and working capital changes negatively impacted cash flow in the first half of 2016, although working capital result improved from the year ago period.

Total DSO was 71 days at the end of the second quarter, compared to 68 days in the year ago period and 71 days at the end of first quarter. We are in the process of implementing client specific collection plan since to improve this metric going forward. The outstanding balance on the credit facility was $41 million at the end of June 2016, compared to $33 million at year-end. Capital expenditures were $3 million in the second quarter and $5 million in the first quarter. The first half total of $8 million was higher than the $4 million ended first six months 2015, due to the implementation of our new ERP and HRM systems, and to a lesser extent, spending for Ciber Momentum.

We expect capital expenditure during the last two quarter of 2016 will be close to our normal run rate of $2 million per quarter.

In summary, while it was a difficult quarter, we are spending considerable time and effort to improve bookings and reduce our cost structure in order to achieve future revenue and profit growth. We believe we will return to positive cash from operations in the fourth quarter, excluding litigation cost. We continue to execute our plans to divest non-strategic businesses. With that, I would like to open it up for Q&A. Operator, please give the instructions.

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of Brian Kinstlinger with Maxim Group. Please proceed with your question.

Brian Kinstlinger

Could you please start with the covenants and maybe an update, if you have a new agreement. You know you mentioned in your last Q and how this quarter, which was difficult, and it sounds like another difficult quarter in the third quarter related to that, and where you stand with the covenants?

Christian Mezger

Sure. So in terms of the covenants, obviously we have [tripped] [ph] that [covenants] [ph] at the end of the first quarter but, Brian, I can tell you that we are have very active discussions with our bank and banking partner, I would say, to have here in the next couple of weeks, progress that topic. So I am actually quite pleased on how those discussions progress and we need to go from here. At this point I have nothing to announce.

Brian Kinstlinger

Okay. And then if we can talk about some of the margins. First of all, you talked about SG&A and even like if you exclude the $5 million of cost overruns and the $2 million of bed debt, seems a little bit high. So maybe talk about the driving factors and then in addition, as you talk about $8 million to $9 million lower, as you exit the year, maybe give us a sense of what SG&A is going to look like in a total cost in the third and fourth quarter as you have divested a business, cutting costs. Maybe help us out of what you know?

Christian Mezger

Sure. So let me first address SG&A in the quarter. As I said in the remarks as well, some of the SG&A in the quarter is related to compensation expense but we also had, obviously on a year-over-year basis, more cost in terms of sales as we invest that in supporting or creating more revenue stream for our talent services, transformation services. And obviously we continue to, as Michael mentioned in his part, the investment in Ciber Momentum. As you move forward, right, so I think, let's tackle this on a segment by segment basis, right.

It's very much that North America is quite efficient in terms of SG&A levels. On a international level I would say that I really expect, when you anchor yourself from a Q1 level and you take Netherlands out which is about $2 million to $3 million SG&A cost, then you get some more savings of reductions in workforce. And that is your level in the third and fourth quarter, mainly fourth quarter. On the cost side...

Brian Kinstlinger

Well, I guess when you put those numbers together, are we talking $45 million, are we talking $43 million?

Christian Mezger

Yes. I think in that range of around $45ish million. I think that’s a reasonable range.

Brian Kinstlinger

Okay. Now you mentioned the lower revenue was a cause for the gross margin. Is that because you had lots of bench people? I mean I am kind of confused about that and then are we going to sit here for a little bit as revenue remains low in the second half of the year or do you think that when does that begin the rebound?

Christian Mezger

Yes. Let me take the first part of your question. We will talk revenue in the second part. Particularly in Europe, as you know, it's not that I can adjust my growth towards, or my deliveries of course to fluctuations in revenue. So what I would naturally get is a cost that’s relatively steady with a pressure point on the top line. So it is not quite as, for example in the North American business, where the adjustment of the workforce is a little easier. So that influences the remarks on compression on margin. If you then go and you look at the revenue, and we have said this, the book to bill is 1, right, which is good. You get as much bookings and you have on a continued basis, revenue generation. And so you start then to see second half to build up on that and I think there is no difference in what we mentioned before that revenues has that potential to increase but as you heard Michael say, you have the bookings remaining constant in Q3.

On the last point, on expenses, don’t forget about corporate SG&A. We have taken decisive actions in terms of reductions to our cost base there and so this will also reflect itself in that $45 million.

Brian Kinstlinger

Well, let's talk about [indiscernible]. We are talking about next year. It sounds like you guys are thinking about cutting more, maybe you can help us magnitude, when you get a little bit more aggressive than past cuts, how do you sort of think of it? Maybe get if ahead of it, so you would want to do another one 69 months from now? Give us some magnitude of what you are planning?

Michael Boustridge

Brian, Michael here. I think there is a couple of ways to think about that question. First of all, as we have talked about, we continue to explore and evaluate potential for additional business divestiture throughout 2016. And clearly, if we divest more businesses that’s going to drive the ability for us to drive out more costs. I mean that’s an important factor to think about in terms of this last question. Just think in those -- I think that Christian highlighted the reduction in corporate. Last year we kicked corporate at a higher amount because we couldn’t, we didn’t know what to cut because we didn’t know what we would break. And now we have a fairly build upon a strategy. We have laid out the five pillars. We have laid out investment and we are realigning now the core cost because we won't break.

And I think the most important think then is to think about going forward is, without making sure we get them to any more problem areas in the company where we drive litigation, we need to align the cost structure to that support structure to that output. And I think going into 2017, you will see pretty much the exit rate of our 2016 will probably be that pace. And I think that’s sort of what Christian was trying to highlight.

Brian Kinstlinger

Okay. If I heard correctly, you said $8 million of legal cost last year. You are on pace for $20 million this year, unless I am wrong. Can you talk about what, is there a common theme in -- what is it that you are questioning. How it was delivered? The timing of delivery? What is the common theme of these litigations?

Christian Mezger

Yes. It's Christian. First of all, I think in my remarks I indicated the $12 million number.

Brian Kinstlinger

12. 12, okay.

Christian Mezger

As the potential. And if you look at these cases and I think we talked about this before, they are cases that basically we delivered a project to a certain point, you get to the point where you had to make decisions around full [wide] [ph] scope and at that point there was not alignment with the site. And I think right now we are sitting at that stage on each of these cases of discovery and how to move those through the [indiscernible] here and solve each of these cases.

Michael Boustridge

Yes. I think, Brian, none of us believes litigation is a great outcome to a result. The litigated purchase get to a point after discovery where you typically tend to look at a more moderate way the parties will want to settle this. These litigations have been ongoing, all of these, for significant periods of time and I think the catch up on the need to spend this money is the reason why this year we had such an increase because we have been pushing up litigations instances for the last three or four years.


Thank you. Our next question comes from the line of Juan Molta with B. Riley. Please proceed with your question.

Juan Molta

From a high level, could you at this point provide a range at least of what your cash flow could be for the total year? You already mentioned what fourth quarter you expect but can you provide at least a range of what cash flow could beat for the full year?

Christian Mezger

So we said, in the fourth quarter we expect the operating cash flow at positive. So far, year-to-date, I think we have about $36 million negative cash flow. I think in your model if you assume a challenging third quarter given the seasonality, that would get you to the total. Right.

Juan Molta

Okay. Next question. You touched, again, on this, but if you could provide more color on employee turnover and maybe segment that between North America and international would be great.

Michael Boustridge

So let me take international. Well, there are two digits of attrition in international that we have been isolated. One is general course business and the other one is unrest and uncertainty around the risk of the exit in Europe based on our decision to sell the Nederland. The first one was at particularly high attrition in Germany and I think there were a couple of reasons. Number one, last year was the payout year of a company we acquired in Germany and after that payout we anticipated and got high attrition. The attrition going forward, I think has now normalized and we are backfilling that attrition. And in Europe, of course, when you have an attrition, there is a lot of cost to that attrition because you have the -- as an employee resigns nine months into the year, you have to pay the employee not only the salary cost but also the bonus accrual up to that time that they left the company and they take bonus accrual with them as well.

So attrition in Europe is a lot more expensive for the company than attrition in the U.S. In the U.S. specifically, I think attrition actually flow to very small amounts and I think we manage our attrition and manage our bench globally now. From a bench position, back to a point that Brian made, we manage our bench very acutely and make sure that we don’t get into a situation that we had before we were carrying 20% to 30% bench.

Juan Molta

Okay. And I guess in your comments you mentioned that client retention is very high. So despite the attrition, you are keeping a client.

Michael Boustridge

Yes. Actually all of the top 25 clients we have had since I started, are still with us. The only ones that would left are ones that we have competed projects for. So we have had greater than 95% customer attrition -- sorry, customer retention. And that’s due to our employees and due to our great service we provide our customers. And we provide that service in great support to our customers.

Juan Molta

Okay. And could you address pricing pressure regarding your talent services. I guess more importantly North America but also Europe. What you are seeing there?

Michael Boustridge

Sure. I think, as Christian and I both remarked, talent services in the U.S. has been an area that I have been the believer that we have invested heavily last year after we have taken three or four years of under investing in that area. What we are seeing is we are seeing growth in that area and the first time sequential growth in that area. We are seeing, depending what part of it someone's services business you are looking at, different competitive pressures. On some of the very very large customers, some of the very large customers, we have mentioned this in our previous call, have gone through and executed significant rounds of renegotiation and asking for significant discount. We reported one of those in the Q1. We haven't seen as much of that activity in Q2 but we are still seeing pressures. We have recently been awarded one of our renewals with one of our large customers, of which margins are pretty much the same. I think, when I think about international, we get significant pressure. again, in some of the international businesses. Christian, I don’t know if you want to add anymore comment to that?

Christian Mezger

Yes. I think this is the very natural pricing behaviors that we see in the European market. You see consideration of vendor set times in larger clients. You see that people are more budget focused, i.e. they look for more return on the dollar. But I wouldn’t describe this as any different than what we have seen in previous quarters.


As there are no further questions at this time, I would like to turn the call back over to Mr. Christian Mezger for any closing comments.

Christian Mezger

Thank you. Thank you for all your interest into Ciber and I look forward to talking to you soon. Thank you.


This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

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