Perficient Inc (PRFT) 2009 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Perficient first-quarter 2009 earnings conference call. My name is Onika and I will be your operator for today. At this time, all participants are on a listen-only mode. We will have a question and answer session towards the end of the conference but if at any time during the call you need assistance (Operator instructions). As a reminder, this conference is being recorded for replay purposes. At this time, I would now like to turn the call over to Jack McDonald, Chairman and CEO. Please proceed.

This is Jack McDonald. With me on the phone today are Jeff Davis, our President and COO, and Paul Martin, our CFO. So I'd like to thank everyone for their time this morning. As is the usual case, we'll have about ten or fifteen minutes of prepared comments, after which we'll open the call up for questions. Paul, would you please read the Safe Harbor statement.

Sure. Thanks, Jack and good morning. Some of the things we will discuss in today's call concerning future company performance will be forward-looking statements within the meaning 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.

In addition, our earnings press release, including a reconciliation of certain non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with generally accepted accounting principals, or GAAP, is posted on our website at www.perficient.com under "News and Events."

We have also posted a reconciliation of certain non-GAAP goals to the most directly comparable financial measures prepared in accordance with GAAP on our website at www.perficient.com under investor relations. Jack.

Perficient had a very solid first quarter, particularly if you consider the environment that we're operating in. While revenues for the quarter were down, about 11% year over year, they did come in above analyst's consensus estimates. So we beat estimates on revenues and came in at the high end of our initial guidance range.

We're also continuing to generate strong cash flow. If you notice we built our balance sheet further during the quarter, even while repurchasing shares. So generating strong cash flow and beating estimates, we feel very good about the first quarter. Now, as we look out to the rest of 2009, we're feeling good about the guidance that we put out of $180 million to $200 million of total revenues for the year. And in addition to that, we're taking prudent action, as is always the case, to reduce costs. So we should be in good shape on that front as well.

Jeff's going to talk about this a little bit more later. Obviously the market remains challenging and clearly there is an influence from macroeconomic conditions on purchasing patterns by clients. But as we discussed on our last call, there are some positive signs.

First off, we're still winning business and we're not seeing any kind of wholesale project cancellations, not seeing a diminishing pipeline. This current environment is not at all like what we saw after the Dot.Com crash in the early part of the decade where you saw a real hit to the pipeline and massive project cancellations. It's not like that.

One sign that has us cautiously optimistic is if you look at our last forecast, our weighted pipeline and closed deals totals have turned higher for the first time this year. So essentially, a 90-day compare when you look at what's actually in the backlog, look at weighted pipeline, the tip of the plane is really turning up now. And that should be a sign, of course no guarantees, but it should be a sign that we've seen a leveling off and potentially an uptick in demand and revenue levels. So we'll continue to monitor that, but it is a positive sign. It means we've got more deals in the pipeline, with a reasonable closure expectancy, that are moving through those various sales stages.

So our balance sheet continues to strengthen each quarter. We've never been in a better financial position from a balance sheet perspective. The company has no debt; we're got nearly $25 million in cash at the end of the quarter, $25 million in cash. And that's after repurchasing another, roughly, $3 million of stock during the quarter.

And of course, that's in addition to our $50 million credit facility. That's zero drawn under that, but we do have access to that capital as we need it and it puts us in a strong position to continue to execute on behalf of the business. So, in this environment, that means repurchasing shares at the appropriate time. That could mean getting back out into the market and doing some acquisitions.

Of course our 10b5 plan for stock repurchases remains in place. We announced the $10 million plan that we fully executed on last year. Then we announced a second $10 million plan and we are a few million dollars into that. So still some substantial buying to be done under that second $10 million plan, a good $6 million, $7 million of additional buying to be done and we will continue to aggressively purchase under that plan.

So as I mentioned earlier, we continue to make adjustments to cost to ensure that we'll be able to continue to deliver cash flow and profits. And we've proven time and time again that we will take the steps that are appropriate for the long term health of the business and continue to feel very good about our flexibility and our capability to handle any challenges that the economy might present.

We have a very flexible cost structure, built the business that way. Low fixed costs; variable compensation structure; use of subcontractors that can also be a shock absorber in a challenging market environment; very low CapEx requirements for this business and of course ultimately a culture that's entrepreneurial. This is a business that we've built on net invested equity of less than $16 million--actually less than $10 million if you consider dollars returned to shareholders through repurchases. This is an entrepreneurial lean business and we have proven time and time again our ability to survive a tough environment and come out stronger on the other side.

We mentioned in the press release and I put out an announcement a couple weeks back and are happy to say that we've got two new appointments to our Board of Directors, John Hanlon and David May. And John and David both bring meaningful industry and financial markets expertise to the team. And I'm certain they'll make substantial contributions to Perficient, and so very happy to have them on board.

So we continue to focus on customers and cash flow, building our balance sheet. We continue to monitor the acquisition market. Like I say, I don't see us jumping back into that right now. Given that are shares are such a value, we will continue to buy back those shares and do what makes sense for building long-term value.

So with that I'm now going to turn the call over to Paul Martin, our CFO. And Paul, if you could take us through the quarter's results in detail. Thanks.

Thanks, Jack. Total revenues for the first quarter of 2009 were $51.3 million, an 11% decrease over the year ago quarter. Services revenue, including reimbursable expenses, were $45 million, with organic growth of negative 13.4% on a trailing four quarter average annualized basis, including businesses owned at least two quarters.

The sequential revenue growth in the first quarter of 2009 compared to the fourth quarter of 2008 was minus 8.6%. Gross margins for services excluding stock compensation and reimbursable expenses for the first quarter was 30.5% which is down from 34.7% in the first quarter of 2008. The decline in gross margins is primarily a result of lower utilization resulting from softness in services demand.

We are actively adjusting our labor costs to match expected demand. SG&A expense was $10.5 million in the first quarter, including $1.8 million of non-cash stock compensation expense. Excluding non-cash stock compensation, SG&A expense was $8.7 million, down $500,000 compared to $9.2 million in the comparable 2008 quarter.

SG&A excluding stock compensation as a percentage of revenues was 17% in the first quarter of 2009, compared to 16% in the first quarter of 2008. EBITDAS, defined as earnings before interest, taxes, depreciation, amortization and stock compensation, for the first quarter of 2009 was $5.3 million or 10.3% of revenues, compared to $9.1 million or 15.9% of revenues for the first quarter of 2008.

Net income decreased to $915,000 compared to $3.1 million for the first quarter of 2008. This is our 23rd consecutive quarter of positive net income. Diluted GAAP earnings per share decreased to $0.03 a share from $0.10 a share in the first quarter of 2008. Non-GAAP earnings per share was down 35% to $0.11 a share for the first quarter of 2009, compared to $0.17 per share in the year ago quarter.

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

Our average billable head count for the first quarter of 2009 was 1,078, including 968 billable consultants and 110 subcontractors. In addition to the billable headcount at March 31st, 2009, we had an average of 170 SG&A personnel which resulted in a total average colleague headcount of 1,248 as of March 31, 2009.

We have reduced our average billable US headcount by approximately 7% in the first quarter and have reduced it an additional 6% in April as we continue to adjust our cost structure based on changes in customer demand. During the first quarter, we spent $2.8 million and we repurchased 625,000 shares. We have spent $11.9 million on repurchasing 2,473,000 shares since the plan's inception last year. We continue to believe our shares are undervalued and that repurchases will drive future accretion in shareholder value.

As Jack mentioned, we continue to generate strong operating cash flow. Our operating cash flow for the first quarter was up 3% over the comparable prior year period, even with lower EBITDA. We entered the quarter with no debt and $24.9 million of cash on hand. Our day sales outstanding on accounts receivable was 73 days at the end of the first quarter, compared to 74 days at the end of the comparable prior year period, even considering the impact of this tough environment.

Our goal is to maintain our DSOs between 70 and 75 days over time. Maintaining DSOs within this range will be a key, ongoing operating focus. With that I will turn the call over to Jeff for some commentary behind the metrics. Jeff.

Thanks, Paul. You know, as Jack mentioned earlier, in spite of the economy, I think Perficient really delivered what I consider to be pretty solid results in the first quarter. We continue to manage the business profitably. Utilization was just under our target range of 80% at 78% including subcontractors. And we continue to win new business closing 11 deals north of $0.5 million, and a few multi-million dollar deals from existing and new accounts. So even in this climate we are opening up new accounts and building new relationships.

We also continue to benefit from, and I believe it helps us mitigate risk through this downturn, serving a diversified client and industry base with a broad horizontal solutions and technology platform mix. In fact, during the quarter, our top 5 customers combined represented just 21% of revenues and no single industry accounted for more than 18% of revenues.

On the cost side, we took steps during the first quarter to ensure Perficient continues to generate strong cash flow. As Paul referenced, we've reduced variable costs by about 10% since the beginning of the year as we adjust to demand. You know, obviously these are never easy decisions and we really hope that this necessity is stemming, but we'll continue to make these reductions as the market dictates it necessary.

As we mentioned on the year-end call, we continue to feel this market environment really represents solid opportunity for growth at our offshore facility in China. The company, obviously, remains under significant pressure to continue to implement the types of solutions that we deliver but to do so at a reduced cost. Of course, that's true now more than ever in the environment that we're in.

Through the actions that we've taken to drive the off-shore growth that I'm referring to is a more intense sales focus. All the Perficient sales professionals are now carrying offshore quotas. We also are conducting regular offshore planning sessions as I mentioned on our last call. I'm personally involved in many of those.

Broader focus and skills mix in the global development center; we've introduced and recently closed recurring revenue deals involving ongoing application maintenance and support. And obviously we're training the folks there in the offshore facility on new technologies so we've got a broader portfolio to offer there.

As the market recovers, I'm confident that we'll resume our strong growth path. When we emerged from tech bubble, if you look back at that, with 18% organic growth, compound annual growth rate from 2003 to 2007, I think despite the fact that we're a much larger firm now, that double-digit growth rates are not only possible but are likely. The investments we've made and the infrastructure we've built over the past few years have us even better positioned to take advantage of a recovery as it begins.

I think we've mentioned this before and we alluded to it in the release, but we're seeing customers really backlogging projects. These projects that aren't being done right now, aren't going away. They're going into a backlog that are going to have to be done. That's the message and that's the information we're getting back from our conversations with CIOs and line of business folks is that these projects will need to be done. And we're hearing, you know, maybe the end of 2009, maybe 2010 is the timeframe where I expect some of that to really pick up.

And lastly, I'll comment a little bit on what we're currently seeing in the market. Q2 looks to be a pretty challenging quarter but I think there's some potential positive indicators as we look at the forecast and look out a ways. It's too early to know if this is sustainable but we've seen improvement in the pipeline, both gross and weighted pipeline, over the past month. We run forecast every two weeks. So for the last two cycles over the past month, we've seen improvement on both gross and weighted pipeline in each of those cycles for the first time this year. So I think that's reason to be somewhat encouraged.

In addition to that, the Q3 forecast is showing some improvement over the Q2 forecast at this equivalent stage 90 days ago. In other words, as you look at the Q3 forecasts today, it actually looks better than the Q2 forecasts did 90 days ago. Again, we'll see if that's sustained or not, but if it is, it means we should be seeing some improvement in the third quarter.

As I said, you know, it's too soon to know if this is the bottom and if it is, how soon we'll see meaningful improvement. Like any other business, it's a function of the economy but it's still encouraging to see some of these potentially positive signs.

With that I'm going to turn the call back to Jack for the Q2 outlook.

Thanks. The following statements are based on current expectations and these statements are obviously forward-looking and actual results can differ materially. Our expectation for the second quarter is pretty solid. The company expects second quarter 2009 service and software revenue, including reimbursed expenses, to be in the range of $43 million to $46 million and that's comprised of $41.8 million to $43.9 million of revenue from services, including reimbursed expenses, and $1.2 million to $2.1 million of revenue from sales of software.

So the top end of that range, $46 million, is about $1 million short, I think, of consensus, but again, given the environment we feel pretty good about that. And as I mentioned earlier, we are also feeling good about our guidance range for the year of $180 million to $200 million in total revenue. And as Jeff was indicating and I mentioned earlier, we've taken aggressive actions on cost so we should be in good shape there as well.

So with that, let me ask the operator to open up the call for questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, (Operator Instructions). Your first question comes from the line of Jon Maietta with Needham & Company. Please proceed.

Thanks a lot. Jeff, I was wondering what you're seeing in terms of close rates as you look across the quarter right through today, sort of the linearity. I know close rates are down year over year, but you know, any change in trends there?

Close rates in terms of our success, in terms of closing deals or you mean just the overall pace of closes?

The overall pace of closes.

Yeah, it's actually trending up, that was what I was referring to. When I talk about weighted pipeline, we look at weighted pipeline in closed deals and again, I would be very cautious in talking about this because it's only been two cycles. So, for the last four weeks, we've seen it actually trending up. It had trended down. Wet started the year okay. It did begin to trend down at the end of the first quarter and then really probably mid-February through March, but we actually saw it trending up again in April. Hence, the reason for some optimism here.

But we've seen a dip and again we're rising up a bit. Whether that's a blip or sustainable or not remains to be seen.

Okay. And then with regard to moving work offshore to China, is there a certain -- I know it's early days, but is there a certain industry where you've been doing the majority of the work or certain types of software development?

Yeah, I would say it's pretty much across the board, certainly from an industry perspective. You know, mostly it's obviously software development. We do it around really all the platforms, IBM, BEA. We're training folks, as I mentioned, on more technologies including TIBCO and even Oracle CRM. Right now, the concentration is probably mostly around IBM and the Oracle technology.

Got it. Okay.

But again, industry-wise, it's pretty diverse.

Okay. And is that mostly testing type stuff or what specifically?

No, it's development. And now, as I said earlier, we're beginning to do application support and maintenance as well. It's actually an offering I'm pretty excited about. But most of it today is development. And we do -- we've got a couple of clients -- a few clients where we do significant outsource development for the systems that are necessary to drive their business. We've got a healthcare payor client that manages or outsources state Medicare/Medicaid programs and CHIP -- and now the CHIP program. And we've built with them the underlying software that supports that process. And we've got a number of clients that have similar stories, different industries but similar types of solutions.

Perfect. Thanks a lot.

Thank you.

Our next question comes from the line of Jeff Martin with Roth Capital Partners. Please proceed.

Thanks. Good morning, hi guys.

Good morning.

Could you give a little more color into what gives you the conclusion that Q3 is showing improvement over Q2? You mentioned that at this stage a quarter ago, Q2 was looking a little worse than Q3 is looking now. Could you give a little more insight into that please?

Sure. And again, I want to emphasize caution around this. It's early, but we did want to share with you what we're seeing. We run -- one of the key things that we look at when we run the forecast is what we call the 90-day compare. When times are good, our visibility can extend beyond 90 days and this climate's probably even a little short of 90 days. So one of the key things we look at is hey, what was the forecast 90 days ago. And of course, for an equivalent look at that right now, we're looking at Q3 obviously or we're on to Q3 as of today.

And in looking at the Q3 forecast, comparing it to the Q2 forecast 90 days ago, we are showing some, what I call modest improvement. I actually think that there's a chance that it'll even get better because of the other thing that we mentioned which is that we've seen the gross and weighted pipeline. And weighted pipeline is the really -- probably the key metric there. Weighted pipeline is taking the probability of a close, which is assigned by the business developer to any particular deal and applying it to the value of that deal.

So we've seen that trend-up pretty significantly as well over the last two forecast cycles, which is over a month. We run it every two weeks. Does that answer your question?

Yes, it does, thanks. And then --

And hope knock on wood. But it's at least an encouraging sign right now.

Sure, sure. And then could you also give a little more insight into what your thought process is on whether or not you'd make acquisitions at this point? You haven't done one in, I think, a year and a half now.

I think I'm going to let Jack comment on this as well. I'll throw my two cents on and let him comment too. But I think it's early to get serious about that. As Jack mentioned earlier on the call, we are certainly staying active in the market. You know, we want to be visible out there. We've actually had some folks that we had talked to over the past year or two, or two or three even, come to us now seeking to be acquired. But it's really a mixed bag out there. There are a lot of businesses we talked to in the past who are really, really not doing well and we don't want to buy a fixer-upper. It's sort of not what we do anyway and certainly I think now is not the time for that. So it's the falling knife thing we need to avoid.

And obviously we need to see that there's some stability, I think, in the sector and just in general. But again, we're staying active out in the market and we'd like to get back in the acquisition game as soon as we feel like those things are in place. My opinion is that's probably not this year but I'm hopeful that we'll have a couple of deals teed up as soon as that recovery seems like it's sustained and that maybe it's early next year. But I'll let Jack comment as I said.

I completely agree with that. The only thing I'd add is we've got a great [piece of] capital right now and repurchasing our shares which we need to believe are significantly undervalued. So we'll do that. Jeff is just exactly right. That's what we're doing. We'll see that uptick. And Jeff mentioned earlier the potential for double-digit organic growth coming out of a recession like this one. You add that opportunity to our ability to get back into the M&A market once the economy turns and you could see some significant growth from the combination of the two as we head out into 2010. Obviously no guarantees on anything of that but we're optimistic.

Okay. And then Paul what -- I missed it and you probably said it, but what was the cash flow from operations number for the quarter?

Oh yeah, I said it was up 3% and the cash flow from operations numbers was about $4.8 million.

$4.8 million?

Yeah. And we filed the Q this morning so all of that is out there.

I will just look there. Thanks guys.

Thank you.

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

Thank you, good morning guys.

Hey, Brian.

The first question I had and I joined late so I'm sorry if you have answered this, but what is the linearity in revenue, maybe even more importantly, from the second quarter in April and early in May, have we seen a slight down-tick? Is that what we've seen so far?

Yeah, we started -- let me remind I guess everybody a little bit about what we talked about on the last call and we've got the guidance out there for the year of $180 million to $200 million. And I think we spoke about the fact that we thought that would be sort of an L or maybe even a soft U with a small tail on the end there. And we were actually pretty pleased with the Q1 results. They're a little better than we had, I think, anticipated.

However, the revenue did trend down, not dramatically but it did trend down through the quarter. We've seen that slow, if not stabilize now, and April and May looks to be the same. June is probably the wild card where by the way there's upside. I mean, the forecast that we put out there, the guidance we put out there, reflects the forecast so there is maybe some upside in June.

Visibility, like I said before, in this climate is pretty dim but we've seen some trending down, we're seeing that trend slow and we're actually seeing pipeline, weighted pipeline in particular, pick up. So, again, cautiously I would say that we're hopeful we're seeing reversal in that trend.

We haven't heard about a weighted pipeline too often. So is the weighted pipeline basically opportunities your clients have either RFP'd or are discussing out there and awaiting your opportunity to win them versus the competition?

Yeah, it's a good question. The weighted pipeline I'm referring to is just, as I mentioned before, is simply taking the probability of a win there, assigned by the business developer to the value of that deal. So you then get a dollarized view of the pipeline. So you get the gross pipeline and then you've got that same pipeline with those probabilities applied to it to get you the weighted pipeline.

I will tell you that the odds, or the percentages, are very, very, very low until we're in a proposal stage. So the answer to your question is the majority, the vast majority, probably 80% to 90% of that weighted pipeline is made up of deals where we have a proposal on the table.

And I guess how do you come to a conclusion, probabilities are so obviously arbitrary, so is it based on the clients and what your history is with them versus a new client? I mean, how do you guys come up with the percentages?

Yeah, to be fair it's subjective but we've been at this for ten years as Perficient and most of our, if not all of our business developers have been in this industry for at least that long or longer. So we don't have any sales folks right now, or a very, very small percentage of our team that hasn't been around for a number of years. So it's a process that we've developed over the years.

True, it's somewhat subjective; we do drive through stages. Like I said, if it's just an opportunity identified, we limit the amount of percentage they can put on that, okay? And then as we progress through to the proposed stage, there's another bracket that they can go into. And in fact, when we've got a verbal but still not inked, it's still in pipeline. We don't put anything in backlog until we got a signed deal. So then there's yet another bracket.

What we tend to find is we're usually working hard to get them to actually increase their percentages because everybody always wants to hedge their bets. But it is, I'd say it's probably a little more art than science, but with all the history and the analysis that we do, it's driven more towards the science.

I would just add one thing there which is we also triple net that. So if you have got stuff with less than 50% probability it drops out from a forecast perspective in terms of putting a quarterly number out there. And if you look at the company's history over the past 35, 40 quarters it is really -- I can't remember, it's been so long now, I can't remember the last time we actually missed. So we've I think proven through time that we've got a fairly conservative and reliable forecasting mechanism. Nothing's perfect but it's a pretty strong track record.

Have you guys, in the past you've shied away from it and maybe you still will but I'm just curious, can you quantify either the backlog or the pipeline at all or are you reluctant to do that?

You know, if you look at the midpoint of our guidance range, that's about it. That's the combination of the two. I don't want to break them out. But I will tell you the percentage of each that makes it up is the same -- is consistent. So there's not a situation, if you look at Q2 or what I referred to in Q3, where the pipeline component is abnormally the larger component. It's very consistent.

And can you talk also about pricing in the US and as well as in any of your offshore locations such as China? I mean, the India guys, which I don't know if you are competing head on always, or usually even, are seeing some pricing pressure. So give us a sense for your different markets and where you may or may not be seeing pricing pressure.

We certainly are seeing some. It's not, as I mentioned before, it's not wholesale. I would say we're seeing more today than maybe six months ago. But it's not wholesale price pressure. Our rates, it ticked up a little bit in the first quarter. That was mainly due to wrapping up some lower rate deals and it was somewhat offset by some pricing pressure.

We do go head to head with offshore occasionally. We actually compete with them pretty well. What we're finding, by the way, on offshore, at the size of the projects that we play, these are these high touch, highly iterative engagements, not the massive, massive eight figure offshore outsourcing. But what we're seeing there is that even the offshore guys, the ones that we're competing against, tend to be like a Cognizant that has a significant US base. And the rates that they use in the US are easily the same, in some cases, higher than ours.

So we compete well there. We're seeing a little pricing pressure but so far it isn't dramatic. What we're seeing more of right now is just am I going to spend this money now or not? And not so much clients taking advantage of the current climate and driving prices down, but more just am I going to do this project right now. Again, there is some of that but right now it's not a super factor in how we're pricing in the market.

I missed it, I'm sorry, what was the average rate for the quarter, the bonded rate?

Total including our China resources is 108. When you exclude China it's 118. Is that right, Paul?

That's right. And they're up about $2 from Q4 but for the reasons Jeff just mentioned.

And in terms of utilization, you've obviously taken some measures last quarter and already in this quarter. Give us a sense, the margin was down 32%, where will utilization and margin bounce back if you guys it plays out, like, you suggest, in the second quarter (inaudible)?

I think it will be fairly consistent. We hit -- as I mentioned, we hit 78% in the first quarter. There's a little room there that our target in this environment is 80%. Our normal target in a healthy environment is 82% to 84%, right around 83%. So we're targeting 80%. We hit 78% in the first quarter. We might be able to get to 80% this quarter.

I'm pleased actually that we're managing to the high 70s, 78%, 80%. We're pushing to get to that 80% level; managing utilization to that level in a contracting climate is very difficult. So again, from an outlook or modeling standpoint, there might be some room there but I think it's going to be probably pretty similar to what our results were in Q1.

In Q1 it was about 33% of utilization. It wasn't that weak. What was that a function of? And maybe I have it wrong, it is almost 33%. Do I have that right?

Yes, I think that's right. That is stock comp, Paul. Is that correct?

Yeah.

And the drop -- and if utilization wasn't because you've been so quick to change your employee base; what is the function then of the drop in the margin?

Well, actually every about 1% of utilization does affect the margin by about 1.25 or so. So we did -- we were at 78% versus 80%. So I think a couple -- 2 of those point deltas, in other words, maybe we would be at 35% or 36% if we were hitting 80% utilization instead of 78%. So that's one thing.

And then we have had some cost increases relative to some embedded costs in projects. We're making some investments now and so there's some more travel costs. We're actually bringing some China consultants over for training in the US. Some things like that that are driving up costs a little bit. Paul, do you have anything that you want to add?

No, I think those are the big drivers. And I guess you have the mix a little bit on, we have our billable bonus and we've had probably a little higher proportion of our cost reductions or headcount reductions have come in the local business units, so that sort of brings up the blended travel cost and bonus cost.

(multiple speakers). And you have also got -- for the first quarter sometimes you've got a little bit higher (inaudible -- technical difficulty)?

That's right.

One more question and then I'll get back in the queue. Have you guys planned on giving salary increases this quarter and if so on a blended rate, what do you think they will go up and if not?

We're only doing merit increases on a very exception basis right now. So I don't think you'll see a material change there.

Okay, thanks.

Your next question comes from the line of Richard Baldry who is with Canaccord Adams. Please proceed.

Thanks. I think last quarter you said that roughly 20% of your deliverables were from offshore, so I'm wondering if your mix has stayed roughly the same, maybe where you see that heading over the balance of the year and then long term?

Right now, the mix is about the same. It's about 20% of our delivery capacity is in offshore, obviously because the rate differential and revenue that's substantially lower is somewhere in the mid single digits there. I expect that that will increase. In this climate, with contraction, etc., I don't know that we'll see a dramatic difference there.

But as I mentioned before, we've got a lot of levers in place and it's an area that we're really focusing on driving more business. So I think over time and perhaps even by the end of the year, we would see a relative increase to that. I don't know that it'll be dramatic. Maybe it goes from 20% to somewhere between 20% and 25% by the end of the year. But we're certainly working in that direction.

I think on the last call you said if you'd come in somewhere in the upper end of your guidance, closer to the $200 million range that the year would have the potential to do something around $25 million in EBITDAS. I was just wondering if the second half does start to turn up like you're seeing some early signs, do you think that's still an achievable range?

Yeah, I think that's still in our model. Paul, do you want to comment on that?

Yeah. That's absolutely, if we see the turn-up in the second half that we think is possible, that's definitely a doable number.

And just quickly touch on quality of receivables. It looks like DSOs have actually been very good so it doesn't seem that could be a problem. But how tough that's been scrubbed lately? Thanks.

As we talked about our goal, the 70, 75 days, I think certainly we've been keeping a nervous eye on this, really since, even more so than normal starting about third quarter of last year and put some additional process improvement in, so I think we feel pretty good about it. We actively manage it and that being said, there's always a possibility some accounts will go bad but there's not a lot of old stuff and we're looking at credit quality and we feel pretty good about it at this point.

One thing I would add there is we went through the process in both the third and fourth quarter of doing a full scrub of our accounts receivable, and pushing as hard as we could with the auditor to reserve anything that we had any issues on. And it was a relatively small number and so we've really just gone through a full scrub process (technical difficulty).

And I think you also said last quarter that while the revenues were down year over year, you still actually serviced only one less customer as a total unit number so slightly smaller deal sizes on average. Can you maybe talk qualitatively about that in Q1 as well, whether that's really still the same trend that you're seeing, that the breadth of customer is still holding up, maybe simply slighter smaller projects as people try to hold out for a rebound in the macro. Thanks.

Yeah, that's accurate. Our customer count has gone down some. You know, as we've wrapped up projects at some existing accounts or relationships, and by the way, we've got great referenceable relationships. We expect that there will be other projects at some of those accounts that I'm referring to. But certainly we've completed some projects there so those customers fall out of the customer current -- active customer account.

And we have added new customers but the pace of adding new customers in this climate isn't enough and isn't what it typically would be -- it isn't enough to keep the overall customer count from dropping a bit. However, the diversity from an industry standpoint and from a solution, the work that we're doing on the services standpoint, is still quite good. And we've got really a very strong customer base certainly doing smaller projects.

Thanks.

Sure.

The next question comes from the line of Colin Gillis with Brigantine Advisors. Please proceed.

Hey everybody.

Hi Colin.

Could you talk about, what are customers telling you about their budgets for the full year? Obviously, a lot of these projects need to be done but are they going to get slotted for 2009 or does it sound like there's the potential for things to get pushed out into '10.

We're seeing -- it's a mixed bag. We're hearing both things. I kind of alluded to this on the call. We've got some customers that are saying, hey, the budget's there but on hold, and especially the line of business folks are pushing to go ahead and move forward with some of these engagements. We've had some deals come that were on hold and that we thought were going to stay on hold probably until 2010 and actually got started up this year or will be starting up.

So we're seeing some of that. I would say, so it's a mixed bag but probably the predominance is more towards the end of this year or really more 2010. We're hearing a lot of 2010 and so as I mentioned on the call, I'm expecting that there's a good chance we could see some very nice pickup either late this year or early next year. And again, we're seeing maybe the potential for some modest pickup even as early as the third quarter.

And if you could focus in on the type of work that is your sweet spot, there's got to be a certain degree of build, of pent-up demand that's going to get unleashed once the CIO has comfort in spending the budget.

Oh yeah, that's -- I feel that's absolutely true. That's why I said before that I think the possibility is, in my mind, more of a likelihood of double digit organic growth on the heels of this. The question is, what are those heels. So in 2010 or late 2009, as some of that begins to get released, what is the pace that it's being released. So what you're saying is exactly right. That's exactly what we're hearing from our customers.

It's not that they're finding other ways to do these projects. They're just living without them for now but will be doing them somewhere down the road. And I think as that demand gets more and more pent up and line of business gets more and more frustrated, that's going to have to break lose at some point. I'm optimistic that it'll be sooner rather than later but still could be as late as we talked about, as late as later this year or late this year or early next. And even then, I think, it would be kind of a bell-curve.

What about -- Jeff, what are you see specifically on the pricing trends from the regional product competitors? Are we getting more fear-based pricing happening at that level?

We're not -- to be honest, we're not seeing a lot of those guys right now. Some of them have actually gone by the wayside already. And we're not seeing a lot of competition with them right now. Those that we are competing with are such niche oriented firms around BI or Oracle CRM, solutions like that. We're not seeing a tremendous amount of pricing pressure or price change there, fear-based pricing. There is some though. There is, I want to reemphasize, we are seeing pricing pressure overall in the market. I will say that I'm a bit surprised that it's not more dramatic than it is. But it's having an impact.

You gave a little bit of color on the sequential trends for the months in the quarter and then also for April. Can you walk us through that process again, how did January, February, March stack up versus April and when do you see [it loosen]?

I don't know that I'm going to give more detail than I already provided but certainly we did see a down-trend, more actually in March. January, February was pretty solid and March trended down a bit. April, May -- April flattish with March and May right now is actually showing a slight uptick. And June, as I said, I think it's really too soon to know although I've got some optimism that we may see some upside there but again, that optimism is very cautious.

And just one last one. Are you leading with the offshore facility for maintenance work with new customers or is this all just mostly adjunct for existing clients?

Yeah, it's mostly new clients but total solutions. So it's actually something we're pushing hardest, I would say, with new clients in the total solution delivery, development through maintenance and support. However, we certainly are going back to existing clients as well, existing customers as well and offering that up and pushing that through them as well. And that's actually where we've had some good success early on is with a couple of existing accounts that I've mentioned before, we've actually locked in some long term what I refer to as recurring revenue deals around application maintenance and support.

That's good. Would you say that's also one of the drivers in the ability to chase down some of these large multi-million dollar wins or at least north of $500,000?

Yeah, I think that's why I'm excited about building that capability and having some early success with it. And this isn't going to happen over night. But I think over time it does really improve our ability to go compete even more with the bigger guys than we already are. And we are to a great degree now and have a great win rate now. But I think this just really improves that capability and now we've got this sort of one-stop shop capability that some of those guys have.

Thank you for taking my questions.

Thank you.

As a reminder, ladies and gentlemen, if you would like to ask a question (Operator Instructions). Your next question is a follow-up from the line of Brian Kinstlinger with Sidoti & Company. Please proceed.

Thanks. I may have missed a few, as I said I joined late. Can you just provide the revenue by industry and by platform?

Sure. We didn't cover that but Paul's got it.

Sure. Yeah, so largest is our healthcare at about 18%, energy 16%, telecom 13%, are the largest three on the industry. From a platform perspective IBM is about 21%; Oracle 20% and TIBCO 15% are the top three.

And what about financial services and maybe insurance?

Financial services and insurance together are about 8% down from 9% last quarter.

Great, thanks.

At this time there are no additional questions. I would now like to turn the call back over to Jack McDonald for closing remarks.

Okay. Well thanks very much. I appreciate your time this morning and we look forward to speaking to you again next quarter. Thank you.

Ladies and gentlemen, this concludes the presentation. You may now disconnect. Thank you and have a good day.