Perficient Inc (PRFT) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2010 Perficient Earnings Conference Call. My name is Jasmine and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, to Mr. Jeff Davis, CEO and President. Mr. Davis, you may begin.

Thank you. Well, this is Jeff Davis. With me on the call today is Paul Martin, our CFO. I would like to thank all of you for your time this morning. As typical, we'll have about 10 or 15 minutes of prepared comments; after which, we'll open the call up for questions. Before we begin, Paul will you please read the Safe Harbor statement?

Sure. Thanks, Jeff, and good morning, everyone. Some of the things we will discuss in today's call concerning future company performance will be forward-looking statements within the 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 the reconciliation of certain non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles, 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.

I'll now turn the call back over to Jeff. Jeff?

Thanks, Paul, and thanks again everyone for joining. We are glad to be with you today. Well, 2010 is off to an excellent start for Perficient. We realized our second consecutive quarter of sequential revenue growth, Q4 of '09 and the first quarter of this year. Revenues came in above consensus and cash earnings matched the consensus estimates.

We actually met also the GAAP expectations when you account for the one-time charge associated with our acquisition of Kerdock Consulting, an acquisition we're obviously very excited about and that I'll discuss more a little bit later on the call.

While our delivery performance was very strong in Q1, it's the sales performance that we are most excited about. We mentioned this in the press release, but the first quarter of 2010 was Perficient's strongest sales quarter ever in the history of the company. So we are seeing a very nice rebound on the demand side of the business.

And we've talked for a couple of quarters about the business bottoming and getting back to growth in 2010, so we are expecting some incremental improvements as the year unfolds and as we go forward we are expecting the same thing. But the current strength of the recovery is actually pacing a little above our expectations to be honest, so we are excited about that and looking for some sustainability there which we are seeing so far.

Many of the deals we signed in Q1 were very large larger long-term deals which enables us to adequately build staff as we support -- to support those projects as we ramp them up. It also creates a nice base of backlog as we move through 2010 and gives us a platform for additional growth. We sold 21 deals north of $500,000 in the first quarter of 2010, which is not only 50% more than we sold in our strongest quarter last year in 2009, which by the way was the third quarter with 14 deals above $0.5 million, but it's also actually more than we sold in the third quarter and the fourth quarter of '09 combined. Those were 20 deals above $0.5 million. So, 21 deals in the first quarter of this year, so a very, very strong start again on the sales front as well as on the delivery side.

Our balance sheet remained strong. The company has no debt and more than $30 million in cash and liquid investments and that's after continuing to execute against our repurchase program and completing the acquisition of Kerdock Consulting during the quarter. When we talk about this -- we talk about this every quarter, but our cash and credit facility combined with strong cash flow generation each quarter really provides us a lot of flexibility as we grow the business and obviously provides us with the cash we need to do additional acquisitions, an important part of our growth plan.

I think it's fair to say that as we emerge from the great recession that Perficient is stronger than it's ever been from both a balance sheet perspective as well as a market competition perspective. So we are again very excited, very optimistic about where things stand today.

As you know, we restarted our acquisition program this quarter and our intent as I said before is to execute one to two more deals this year. I said I thought we'd try to get two to three done, we've got one and so we are looking to do one to two more this year. We are in active discussion with a number of firms and advanced discussions with a handful. As before and as always, we will of course be disciplined and only execute strategic transactions that are going to positively impact our bottom line as well as be a strategic fit for the business and be a good healthy business going forward.

I think finally it's notable that our strong Q1 sales performance allowed us to issue Q2 revenue guidance that reflects a third consecutive quarter of sequential revenue growth. As the press release indicated, we are also raising our full year 2010 revenue guidance range and I'll touch on that later when I talk about Q2 and the rest of the year.

So with that I'll turn the call back to Paul, our CFO to discuss some of the quarterly financial details, and then I'll be back with some more color on some of these metrics and some of the events of Q1, and then we'll open the call up for Q&A. Paul?

Thanks, Jeff. Total revenues for the first quarter were $48.9 million, a 5% decrease over the year ago quarter. Services revenue for the first quarter excluding reimbursed expenses were $42.7 million with sequential revenue growth of 3% compared to the negative 8.6% in the first quarter of 2009. As Jeff mentioned, this is the second consecutive quarter of sequential revenue growth after five consecutive quarters of revenue contraction.

Gross margin for services for the first quarter excluding stock compensation reimbursed expenses was 32%, up 1.5 points from 30.5% in the first quarter of 2009. SG&A expense decreased slightly to $10.4 million in the first quarter of 2010 from $10.5 million in the comparable prior year quarter.

Excluding non-cash stock compensation, SG&A expense was $8.5 million compared to $8.7 million in the comparable 2009 quarter. SG&A excluding stock compensation as a percentage of revenue was 17.4% in the first quarter of 2010 compared to 17% in the first quarter of 2009.

EBITDA, defined as earnings before interest, taxes, depreciation, amortization and stock comp for the first quarter of 2010 was $5.5 million or 11.3% of revenues compared to $5.3 million or 10.3% of revenues for the first quarter of 2009. We reported net income of $868,000 for the first quarter of 2010 compared to $915,000 for the first quarter of 2009.

Diluted GAAP earnings per share was flat at $0.03 for the first quarter of 2010 compared to 2009. The first quarter of 2010 however includes a charge of $0.4 million or $0.01 per share of transaction costs related to the Kerdock Consulting acquisition we completed in late March.

Non-GAAP earnings per share increased to $0.12 for the first quarter of 2010 from $0.11 in the first quarter of 2009 and increased sequentially from $0.10 earned in the fourth quarter of 2009.

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

Our effective tax rate for the first quarter was 44.9% compared to 39.6% for the comparable prior year period. The increase in the effective rate is due primarily to projected non-deductible compensation.

Our average billable headcount for the first quarter of 2010 was 1,010, including 844 billable consultants and 166 subcontractors. We have reduced the average billable headcount by approximately 6% from the first quarter of 2009.

Total average SG&A headcount for the first quarter of 2010 was 164 full-time employees compared to 170 in the first quarter of 2009. We will continue to adjust our cost structure based on changes in customer demand.

During the first quarter, we spent $1 million on repurchasing 116,000 shares and as of March 31, 2010, we have spent $28.5 million on repurchasing 4.7 million shares since the plan's inception in 2008. We continue to believe that our share repurchases will drive future accretion and shareholder value.

We also continue to generate strong operating cash flow. We had operating cash flow for the first quarter of 2010 of $4.6 million compared to $4.4 million for the comparable prior year quarter. We ended the quarter with no debt and $30.3 million in cash and liquid investments compared to $28 million at December 31, 2009.

Our days sales outstanding on accounts receivable was 65 days at the end of the first quarter of 2010 compared to 73 days at the end of the first quarter of 2009, and at the end of the calendar year 2009. So this is below our goal of 70 to 75 days and we're confident we can continue to manage our working capital within this range.

I'll now turn the call back over to Jeff for a little more commentary behind the numbers.

Thanks, Paul. Again, Q1 was a very strong start for the year on all fronts really, not just sales and top-line revenue, but also on some of our key operating metrics as well.

Utilization during the quarter for employees excluding our offshore was 85%, which is actually a little bit above our long-term sustainable goal range of 82% to 84%. So I've talked about that before and our intent was to run utilization up a little higher as demand improved and we're going to continue do that for a while. So I expect utilization to be roughly in this range -- at the higher end of our 82% to 84% goal range.

Average bill rate ticked down overall, but the good news there is that that was due mainly to the increase in utilization and headcount of our offshore resources primarily at our facility in China. Excluding China and subs, the average bill rate actually increased sequentially from $115 to $116 an hour and we are confident that we can continue to improve ABR incrementally this year and we are emphasizing that expectation with our sales team. So we are communicating with the folks that are out in the field that it's time to push rates back up and we've begun that, a lot of the new sales that we closed in fact in the first quarter do yield higher rates than our current rates. So we will see that come into fruition here in the second, third and fourth quarter of this year.

I spoke earlier about the strength of Q1 sales and the fact that we saw a sharp increase in the number of large deal signings and we also saw an increase in the number of smaller and medium size deals as compared to a year ago. One of the strengths I think of Perficient is that we are able to do deals of all sizes and all ranges. And those smaller deals of course are typically a strategic deal that we think will expand in something larger, an opportunity to get the foot in the door if you will. But the good news is, I think we are seeing improvement pretty much across the Board at all size deals and with pretty much mid-market through the larger enterprise customers that we serve.

During the quarter, our top five customers combined to represent 25% of revenues, so we continue to have good diversity in the customer base. Healthcare was our largest industry at 19% of revenues and telecom was a close second at 18%. You may recall that sometime ago I talked about the fact that we are making investments in building out some verticals. Two of those key investments and where we probably invested the most is with healthcare and telecom. CPG is another and we're seeing that come online as well. But I think this is a result of those investments paying some dividends now.

From a solution's perspective, we are seeing portals, business integration and customer relationship management as our strongest disciplines in the first quarter. And by the way regarding solutions, I want to talk a little about that acquisition of Kerdock. We're obviously very excited to have added enterprise performance management skills to our portfolio in Q1 with the acquisition of Kerdock Consulting. We've been doing BI work for some time, dashboarding, data marts, et cetera. But enterprise performance management was a skill that we had identified for quite some time as an addition we were looking for. And this really not only strengthens our relevance to Oracle, but gives us an opportunity to move up the food chain in terms of selling to CFOs, a group obviously of key decision makers that control the pursestrings in most companies or certainly have a lot of influence that we really hadn't been able to target before. We were typically more with IT and somewhat in the line of business side. So we've got I think more bases now covered in the decision-maker offices.

We're already seeing cross-selling and joint pursuit activity with existing Perficient business units and the new Kerdock business unit, our EPM business unit. Kerdock by the way was a very well run company and a growing business that we are feeling very good about that investment and our first step back into the acquisition program.

So with that I'm going to summarize Q1 and then we'll move on to looking forward to Q2 and the balance of 2010. Again, I can't emphasize enough. I think that Q1 was a great quarter, a great start to the year. It marked the second quarter of sequential revenue growth for us. It also represented our strongest quarterly sales performance in the history of the company. We have our acquisition program back underway with the acquisition of Kerdock. Our long-term plan to build a $500 million firm is progressing again. And as a matter of fact, if you look at our run rate level, it's getting close to our peak run rate, which is about $240 million back in 2008 and we are about 10 or so percent away from that now. So we are recovering nicely. Obviously that includes the Kerdock acquisition and we'll anticipate more acquisitions by the end of the year. So again, progressing nicely against that plan. And of course as I've said before, we are feeling more confident that 2010 is going to be a great year of growth for Perficient.

So I'll move on to Q2 outlook as well as the balance of 2010. The company expects second quarter 2010 services and software revenue including reimbursed expenses to be in the range of $50.6 million to $54.2 million comprised of $48.1 million to $50.7 million of revenue from services including reimbursed expenses and $2.5 million to $3.5 million of revenue from sales to software.

We're also raising our 2010 full year revenue guidance range to $200 million to $220 million from the previous range of $190 million to $210 million and additionally the company is reiterating its 2010 full year cash earnings per share guidance range of $0.50 to $0.60.

So with that we will open the call up for questions. Operator?

(Operator Instructions). And your first question comes from the line of Jon Maietta with Needham & Company. You may proceed.

Hi, thanks very much. Jeff, I was wondering if you could talk a little bit about sales cycles, specifically the duration of the sales cycles changed at all and maybe put that in the context with regard to the fact that deal sizes have increased. So, I'd expect as business improves a little bit, the sales cycles may shorten, but you are doing larger deals, so maybe net-net they haven't moved much? And then if you could also talk about Kerdock, how do those sales cycles given it's a little bit of a different sale compared to what you've done historically?

Sure. So, it's probably a little early to really reflect much on how dramatically or how materially the sales cycles have changed or not and the reason I say that is, a lot of the deals that we closed in Q1 are deals that we sort of had in the funnel or in the pipeline for several months. And I think -- again I think it was this pent-up demand, people waiting for budgets to be released. I think the good news is, so we certainly saw sales cycles compressed compared to what they were a year or two years ago. Again, I think some of that -- a fact, they are reflection of budgets getting unleashed, so whether that's a sustainable change remains to be seen. I am certainly seeing anecdotally a lot of improvement in the market and much better demand and I think a couple of things to point out by the way.

So far in April, we are sustaining that same level of sales, so we booked about $60 million in sales in the first quarter and we are just under $20 million in April at about $18 million. It's too early to tell what May and June hold in store, but that was good news. I was concerned whether or not we would see this flow through into the second quarter or whether it was going to be kind of a one-time event and certainly we are seeing it flow through. Also we got good news in terms of the pipeline rebuilding. So, as we are closing these deals and that's a substantial bookings in that first quarter, the pipeline really didn't dip much and in fact now it's rebuilt to the same level it was when we entered into the quarter.

So, on cycles I'd say we are seeing some compression both in fact and anecdotally, remains to be seen how sustainable that is although I am optimistic it will be and then again the pipeline remaining flat or even growing a little bit in the face of all the bookings we've got is very good news.

And then Kerdock, I think had very similar sales cycles to us. Obviously it's a little more of a higher end sale where you are actually doing a lot of management consulting and impacting people's businesses, so it's a little more involved, maybe even more complicated sale. But the sales cycles themselves are actually about the same as what we are seeing, if not a little better. I can tell you that's a very hot space right now. So Kerdock is doing very well or as a part of Perficient, our EPM business unit I should say is doing very well right now.

Got it, okay. And then just my last question Jeff just to follow-up. Does the full year top-line guidance assume that this level of pent-up demand sustains itself throughout the year or is there a certain level of conservatism built in there?

It's a good question. I think it's right in the middle honestly. I don't think it's overly conservative, I don't think it's overly optimistic. I think at this level it sustains itself, we could certainly be at the higher end of that, let me say that.

Got it. Thanks very much.

Thank you.

(Operator Instructions). Your next question comes from the line of George Price with Stifel Nicolaus. You may proceed.

Hi, good morning guys, some nice numbers. Wanted to just Jeff ask about for the guidance, you are raising 2010 and you got good guidance in the second quarter. But raising 2010, but the cash per share guidance range is still the same and if you can kind of given that it seems pricings coming back a little bit, utilization is good, you've talked about SG&A leverage before and obviously have quite an optimistic tone, what's kind of holding back the EPS guidance relative to the revenue?

Sure. Well, keep in mind that a good chunk of that increase comes from Kerdock and while that deal is accretive, it's not a material impact to that original $0.50 to $0.60 guidance, okay. So that's part of it right there, and part of the answer, but probably the most material part.

The other reason I think on the cash earnings per share, we are seeing good top-line improvement and I want to make sure that that's sustainable before we get too ahead of ourselves on the earnings side. And also the ABR, the utilization and those factors that I talked about are real, but we're very early in the stages of those as well. So, again I think we need to see some sustainability there and we need to continue to see improvement there.

More revenue without marked improvement in margins isn't going to drive a lot more earnings. So, outside of that range, it's a pretty broad range by the way, $0.50 to $0.60. So, that's really the answer. I think we might have an opportunity to increase that later in the year, but we want to see more of these things unfold.

So, would it be fair to say I guess that relative to when you gave the range, you have relatively more confidence in the EPS range at this point maybe and like in the upper half or something or just....?

Yeah, and certainly more confidence. I don't want to get too specific and like I said get over my skis on saying what is going to be $0.55 to$0.60, it's still $0.50 to $0.60. But, yes definitely more confident. Clearly basically all the things that we said or our most optimistic view say a quarter ago or a few months ago right now we are playing out. So, right now the stars are all aligning, but after what we've been through the last two years, I want to see that continue for a little more than four months before we start ringing the bell too much.

Is some of what's going on beyond just conservatism, are there costs associated with what you're seeing in terms of the deals, or the increase in revenue that maybe you are trying to take advantage of the higher revenue to make some investments or anything else going on there beyond just kind of more conservatism?

Well, it's nothing we hadn't already modeled. We are making ongoing investments in the verticals and building out the verticals organically. We are also going to be building out some other practice areas that I don't want to get into now, and so we've -- those are further evolved and the others were already baked in.

The other factor to keep in mind is that the bonus plan, the variable compensation for management and by management I am talking about our director level and up in our company, it's about 150 people, is profit dependant. So, as you know, we will be funding some of that bonus as we move along here. Now, the plan isn't set up to take all the money, all the additional profit into the bonus, but there is some of it going into that too. Again, that was all modeled in from our perspective. And, we only moving the guidance up by $10 million, again the biggest chunk of that is from Kerdock, it's cash accretive, it's not massively cash accretive based on the cost associated with it. It would be more so next year. But, I think those are probably the best answers I can give you on that.

Okay. And how do you see margins progressing through the rest of 2010?

I would like to see us in the run rate. I think our peak margin -- gross margin net of stock comp was about 39% maybe back in '07 and I don't know that we'll see that on a run rate basis this year. I like to see it maybe in 12 months. So we're certainly working hard towards moving those margins north of 35% let's say that on the gross margin side and I'd like to be exiting the year on that level, that sort of sustainable run rate level and like I said progressing towards back towards the high 30s where we were a couple of years ago. And likewise on EBITDAS -- EBITDA net stock comp, the same thing. I would like to see us progressing towards something on a run rate basis 15% or north of 15% and again moving towards from a goal standpoint into the high teens approaching 20%, let's say in 12 months. Again, all things being equal and we continue to see the momentum we are now.

Okay. And just last question, couple of things for Paul if you wouldn't mind repeating the billable headcount, the average billable headcount in the billable versus subs and then what was the average bill rate all in? Thanks.

Yes, give me one second to pull that out here. So the average headcount on billable headcount was 1,010 and we ended with around 1,047, so it's up at the end of the quarter and obviously part of that is we added about 29 people from Kerdock right at the end of the quarter. What was the other part of your question?

ABR and I think it's 99.

Yes, it's 99 down from 102 in Q4 '09 and again as Jeff mentioned in his prepared comments as the increase in the mix of the use of China, that's probably the primary driver.

And how many subs?

I believe it is 166.

Okay. Great, thank you.

That's the ending headcount, right?

Yes, 166 is the average, [in the ending results]. About the same number.

Okay, all right.

Great. Thanks guys.

Thanks, George.

(Operator Instructions). And at this time there are no further questions. I will turn the call back to Mr. Jeff Davis for closing remarks.

All right. Well, very good, thank you all for your time this morning. Like I said, I think it was a great quarter for the company. I think we have got a great year ahead and I'd like to think several years, it looks best like. So, thank you and we'll talk again in a quarter.

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