Perficient Inc (PRFT) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2010 Perficient earnings conference call. My name is Katie and I'll be your coordinator for today. At this time, all participants will be in a listen-only mode. We will be conducting a question-and-answer session towards the end of the call. (Operator Instructions).

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

Thank you very much. This is Jeff Davis. Thank you all for your time this morning. With me on the call is Paul Martin, our CFO. As usual, we've got about 10 to 15 minutes of prepared comments, after which we'll open up the call for questions. Before we begin, Paul, would you please read the Safe Harbor statement?

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 from than contemplated in today's discussion.

In addition, our earnings press release includes a reconciliation of certain non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles or GAAP. This is posted on our website at www.perficient.com 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. Thanks again everyone for joining. We are so glad to be with you this morning. I'm pleased to say that our momentum from a really strong start to the first half of 2010 carried into the third quarter and help us deliver another set of results we feel really good about.

Revenues were up 23% year-over-year, coupled with margin expansion of 600 basis points, drove significant increases in both EBITDAS, that's EBITDA, net of stock comp and cash earnings per share, both up 100% year-over-year. In addition to the very solid services revenue, we had our third straight quarter of strong software sales as well.

Our strong Q3 performance and the visibility we now have into Q4 affords us the ability to adjust, as I'm sure you saw in the press release, our full year revenue and cash earnings per share guidance. As we indicated in the release, we are tightening full year revenue guidance from a range of $200 million to $220 million to the new range of $210 million to $214 million and our full year cash earnings per share guidance from a range of $0.50 to $0.60 to the new range of $0.58 to $0.60.

And as I said before, while the recovery remains choppy, I remain confident that Perficient's next wave of growth is already underway. We are performing well in an economic atmosphere that's still infused with a fair amount of uncertainty. We just posted four quarter sequential organic revenue growth of 14.7% in an environment of very modest GDP growth and high unemployment.

When the broader economy really starts to demonstrate consistent strength, I have no doubt Perficient will shine. I certainly think double-digit CAGR is possible organic only; in fact that's what we're modeling internally and establishing our goals around going forward.

During the third quarter, we are able to maintain billing rates for U.S. employees near $120 an hour, which was consistent with Q2 and up about $10 year-over-year. Utilization ticked slightly lower, but at 86% it's still very healthy and actually a little above the high-end of our target range that we've spoken before, 82% to 84% even 85% is what we'd like to be. So, we sold 11 deals over $0.5 million during the quarter compared to 10 in the previous quarter. We are optimistic that many of our Q4 sales opportunities, very very strong pipeline right now and a very strong weighted pipeline, will come to close as year-end budgets are flushed and early 2011 commitments are made.

We are seeing a similar cycle of what we saw last year, with improved bookings in December last year, followed by record bookings in the first quarter of this year. And I think we're going to see a similar cycle as we move forward.

Our balance sheet remains strong. The company remains debt free and we have $28 million in cash on hand. That's down a little bit sequentially, but that's really due primarily to the more aggressive stock buyback during the third quarter where we repurchased $7.2 million worth of our stock.

The balance sheet strength obviously allows us to simultaneously invest for growth, repurchase those shares and continue our M&A exploration. As I said before, our goal is actually is still to complete one more deal by the end of the year or very early in 2011. I said at the beginning of this year, we're going to try to do two to three deals. M&A has moved a little slower this year as we've been cautious about what we found in some of the companies that need a little more history to restrengthen their income statements. But I'm optimistic that that pace is going to pick up moving into next year, and obviously M&A remains a substantial piece of our plan over the course of the next few years. And we'll be executing the deals that makes sense for the company that are both strategic and healthy.

And finally, I wanted to briefly comment on the press release. We provided earlier this week announcing the resignation of Jack McDonald as Board Chairman. And that's a transition that's been planned for quite some time. I think I may have mentioned that to some of you and Jack himself has in the past. Before my appointment as CEO really, that was in the works. And I just wanted to reiterate that we don't expect any material impact on the business as a result of that. In fact, our search for additional directors was underway prior to the announcement. And I expect we'll be sharing news on that subject before year-end.

With that, I'm going to turn the call back over to Paul to discuss the quarterly financial details. And then, I'll follow backup with some more color on the quarter before we open up for Q&A. Paul?

Thanks, Jeff. Total revenues for the third quarter of 2010 were $54.6 million, which represents 23% increase over the year ago quarter. Services revenue for the third quarter of 2010, excluding reimbursable expenses increased 21% to $47.7 million over the comparable prior year period. Sequential organic services revenue growth was essentially flat at minus 0.2% in the third quarter.

Services gross margin for the third quarter of 2010 excluding stock compensation and reimbursable expenses was 34.3%, up 6 points from 28.3% in the third quarter of 2009. Improved utilization and higher domestic billing rates help drive this improvement.

SG&A expense increased to $11.7 million in the third quarter of 2010 from $9.8 million in the comparable prior year quarter. Excluding non-cash stock compensation SG&A expense was $9.7 million compared to $7.9 million in the third quarter of 2009. The increase in SG&A expense was primarily driven by higher bonus and sales-related costs. SG&A excluding stock compensation as a percentage of revenue was 17.8% in the third quarter of 2010, compared to 17.9% in the third quarter of 2009.

EBITDAS, which is defined as Earnings before Interest, Taxes, Depreciation, Amortization and Stock comp for the third quarter of 2010 was $7.2 million or 13.2% of revenues compared to $3.6 million or 8.1% of revenues for the third quarter of 2009. We reported net income of $2.3 million for the third quarter of 2010 compared to only $100,000 for the third quarter of 2009.

Diluted GAAP earnings per share increased to $0.08 a share for the third quarter of 2010 from $0.00 for the third quarter of 2009. Non-GAAP earnings per share increased to $0.16 for the third quarter of 2010 from $0.08 for the third quarter of 2009, an increase sequentially from $0.15 earned in the second quarter of 2010. Our effective tax rate for the third quarter of 2010 was 37.4%, compared to an effective tax rate of 140.8% for the third quarter of 2009.

Our average global headcount for the third quarter of 2010 was 1,084, which include 907 billable consultants and 177 subcontractors. Total average SG&A headcount for the third quarter of 2010 was 167. We will continue to adjust our cost structure based on changes in our customer demand.

Now, turning to the nine months results. Revenues for the nine months ended September 30, 2010 were $159 million, a 13% increase over the comparable period last year. Year-to-date services revenue for the nine months ended September 30, 2010, excluding reimbursable expenses were $138.3 million, an increase of 11% over the comparable prior year period. As Jeff mentioned, organic services revenue growth was 14.7% on a trailing four quarters average annualized basis.

Services gross margin for the nine months ended September 30, 2010, excluding stock comp and reimbursable expenses increased to 33.9% from 29.6% in the comparable prior year period. Again, improved utilization and higher domestic average billing rates helped drive the year-to-date improvements.

SG&A expense for the nine months ended September 30, 2010, was $34.5 million, compared to $30.4 million in the comparable prior year period. Excluding non-cash stock compensation, SG&A expenses were $28.7 million compared to $25.1 million in the comparable prior year period. The increase in SG&A was primarily driven by higher bonus sales related cost and recruiting expenses.

SG&A excluding stock compensation as a percentage of revenue was 18% for the nine months ended September 30, 2010, compared to 17.8% for the nine months ended September 30, 2009.

EBITDAS for the nine months ended September 30, 2010 was $19.8 million or 12.5% of revenues compared to $12.9 million or 9.2% of revenues for the comparable prior year period.

Net income for the nine months ended September 30, 2010, was $5.2 million, compared to $800,000 for the nine months ended September 30, 2009.

Diluted GAAP earnings per share increased to $0.18 from $0.03 for the nine months ended September 30, 2009. Non-GAAP earnings per share for the nine months ended September 30, 2010 was $0.42, up 62% from the $0.26 we delivered in 2009. Our effective tax rate for the nine months ended September 30, 2010 was 39% compared to 43% for the comparable prior year period. The decrease in the effective tax rate is due primarily to a larger benefit from certain non-taxable foreign income and the effect of state taxes and permanent items over a larger income base.

As Jeff mentioned during the third quarter, we spent $7.3 million and we've repurchased 842,000 shares, and as of September 30, 2010, we have spent $40.8 million on repurchasing 6 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 flows. For the nine months ended September 30, 2010, we had operating cash flow of $14.8 million, compared to $17.8 million for the nine months ended September 30, 2009. The decrease is primarily result of an increase in accounts receivable associated with our growth. We ended the quarter with no debt and $28.1 million in cash and cash equivalents, which was essentially flat with year-end 2009.

Finally, our days sales outstanding on accounts receivable was 73 days at the end of the third quarter, compared to 75 days at the end of the third quarter 2009, and 73 days at the end of the fourth quarter of 2009. As we've stated in the past, our goal is to maintain DSOs between 70 and 75 days over time. Managing our DSOs within this range will be a key ongoing initiative as we move forward.

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

Thanks Paul. Again, as Paul detailed a very solid financial quarter. Perficient's diversity from a solutions, technology platform and client perspective remains a strong suit. During the quarter, our top five customers again combined to represent just 23% of revenues. Healthcare was our largest industry at 22% of revenues. Telecom remained a close second at 16%. And from a solutions' perspective, portals, business integration and CRM were again our strongest disciplines.

And as we head into 2011 and prepare for the extended period of growth that we've really already entered, a key internal initiative that I wanted to share is focused toward orienting the entire organization around the sales process and driving a further sales-centric culture within Perficient. We are further aligning incentives and developing programs to ensure that all colleagues here at Perficient are playing a role in the sales support effort and as well as driving sales. And sales obviously aren't everyone's primary role, but everyone is going to understand that going forward, winning new business is as important as delivering excellent value and satisfaction to our current clients.

We've got a great repeat business rate, 85% plus each year, meaning that each year our revenue comes from clients we served in the prior year, 85% of it does. We'd like to see that shrink a little not because obviously want to lose any of those clients and I'm sure we won't, but we want to expand the new client horizon as well. So that's really what this is driven to do and I believe that moving our culture in this direction is what's going to really help drive the organic growth component of getting our company into $500 million run rate over the next three years or by the end of 2013 as I've mentioned before as our goal.

So, to summarize, Q3 was an excellent quarter for Perficient. 23% revenue growth year-over-year, margin expansion, expansion driving strong bottom-line results, which is a trend that we expect to continue as we've mentioned before, as we could scale the business, we've got still a lot of leverage left.

M&A diligence and activity remains ongoing. I believe next year will be a more productive year from an M&A standpoint. A lot of the businesses that we talked to in the early part of 2010 have gotten healthier and have a better income statement now. We're revisiting a lot of those, whether it's mutual interest. And I think, again we'll have more productive year next year in closing some M&A deals.

Our long-term plan, as I just mentioned to build $500 million firm remains intact, and we've raised the lower-end, of course as you know of our full year revenue and earnings guidance.

So, lastly just commenting on the fourth quarter here of 2010, the company expects fourth quarter 2010 services and software revenue including reimbursed expenses to be in the range of $51.3 million to $55 million, comprised of $47.6 million to $50 million of revenue for services including reimbursed expenses, and $3.7 to $5.0 million of revenue from software sales.

The mid-point of the fourth quarter 2010 guidance represents growth of 12% over the fourth quarter of 2009 revenue. And I think there is just probably some upside there, but we always try to shoot for a reasonable, achievable number and then try to beat that.

So, with that operator would you please open the call up for questions?

(Operator Instructions). Your first question is going to come from the line of Brian Kintslinger from Sidoti & Company.

Sorry, it seems like that star-one is having trouble.

Yes. Looks like we have got some technical difficulties. Good morning, Brian.

Good morning. How are you?

Good.

First question I wanted to ask, maybe I will ask you, of course I didn't miss it. Did you say how much financial services and healthcare were? I think you did.

I got that. We didn't mention it. Well, healthcare was 22% of revenues.

Yes, Brian, so healthcare was 22% for the quarter, financial services was 12%, up from 11% in Q2 and telecom was actually our second largest at 16%, energy was fourth at 10%.

And quickly, if I see any fluctuation -- especially downward such as telecom in terms of revenue dollars, is that just a timing of projects coming off before the new ones come back on?

Yes, absolutely. We're seeing some recent nice bookings in telecom, in fact early part of this quarter. So, you always going to have some fluctuation.

Okay. And then, in the bookings, I think last quarter you said the first half of the year bookings were up 44%. I know you haven't given an exact number. But can you give us, maybe what percentage they were up or down in the third quarter and maybe also for the first nine months of year?

Yes. For the quarter, I think they were down year-over-year. I don't have an exact number, but I can tell you year-to-date we are just over 20% above last year, so for the nine months just over 20%.

And bookings were roughly flat, Brian between Q2 and Q3.

And how do you see, right now the fourth quarter started off relatively strong or relatively weaker than the third quarter?

I would say stronger. And I expect, I alluded to this on the call, I expect it will be stronger year-over-year as well. Our fourth quarter last year really didn't start to pick up steam until December. And then, we had kind of a huge record first quarter, and we're seeing a similar pattern here.

Certainly we began we're engaged with clients much earlier than we were last year in talking about 2011 planning and budgeting and some large projects that they are kicking off. And we expect a significant number of those will close actually in this calendar year, which really didn't happen as much last year. So, I expect we'll have a strong -- pretty strong bookings fourth quarter as my expectation, and probably a pretty strong start at least to the first quarter from a booking standpoint.

Yes, Brian just to clarify the third quarter was actually down slightly from the second quarter, but we're seeing improvement here in October compared to last year.

Brian?

Hello.

Hey, can you hear us? Sorry, folks. I think we seem to be having problems with our call service. Operator?

Hello?

Brian?

Sorry, Brian your line is open.

I'm trying, hello. Can you hear me?

Can you hear us, Brian?

I can hear you.

Okay. Yes, now we can hear you. I mean, I apologize. Obviously our call service is having problems this morning.

Yes. No problem. I'm here. The gross margin I wanted to talk about, you had direct labor increase, looks that you got raised some subcontractors' bid out of direct labor, then your utilization came down. That caused 100 basis points roughly of gross margin contraction on the services line. It sounds like when they continue both of those trends, they are going to come down a little bit on utilization. And my guess is, you're going to keep increasing direct labor with visibility. So, can you talk about what those two factors will do to the margins as we look to next year on the services line, is there a room for growth in the gross margin or will that start to contract a little bit?

I think, we are stable here. I don't think we're going to go backwards from here. So, I don't think we'll see contraction, in fact I think we will see a continued expansion.

We are doing a couple of things that are going drive that. One, I don't believe we are anywhere near stalled out on rates. So, I believe we'll continue to drive higher rates going forward. I do believe we've got room there to run. But, I think a more -- another impact, maybe not as immediate, but as we are experiencing some attrition both voluntary and involuntary, the folks that we are hiring to replace the people who are leaving are coming in at lower costs. So, we are actually offsetting some of the things that are creating some cost increase on direct labor side and actually overall bringing direct labor cost down on a relative basis.

Okay. And then, finally, can you talk about maybe that push on the headcount?

Just a quick follow-up to that. It's still our goal. We achieved about 40% net of stock comp gross margins in 2007. I believe it was in the third or second quarter of 2007. It's still our goal to get back to those levels. We don't see any reason why we can't as the economy continues to improve. And I'm sorry, what's your next question?

I don't even know if I'm still on the call. Can you hear me still? Hello?

Yes. I can hear you. Can you hear me?

Okay. Yes, it keeps beeping like I keeping hitting star one or something. So my last question and then I'll get in the queue. Can you just talk about maybe your direct labor headcount plans to add people?

Yes. I mean, we're going to continue to add -- as you mentioned before or pointed out directly that our utilization is about at the level we want to run it. So, we are going to continue to add people as we see demand increases. And I mentioned during the scripted part of the call that we're anticipating double-digit growth. We are modeling that for next year. So, call it 10%, I would expect just to add 10% in labor next year. I think that number could be a little lower domestically, literally not much and there maybe 9% and higher frankly in China where it all looks -- I think we're going to continue to see accelerated growth there.

Great. Thank you very much.

Thanks Brian. Sorry about the troubles.

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

Yes. Hi, good morning.

Good morning.

Good morning Matt.

So, you mentioned 11 deals north of $500,000, could you just talk about the trend of average deal sizes and obviously there is a lot of room that can go a higher than if it's just above $500,000, but could you just kind of talk about generally, as you look at the pipeline and as you bring in new deals, are you seeing a trend to higher average deal sizes?

Yes, absolutely. Yes, we are. Keep in mind too when we describe deals, those are literally single sort of statement of work in contracts. So, a lot of those deals are part of a larger engagement. Many of those are initial deals that will end up being a multi-million dollar engagement and some of those might be mid-stream. But, typically the initial deals are smaller and then they grow from there on subsequent phases of that same engagement. So, that's one sort of phenomenon that keeps that number a little lower. Then if you look at our engagement basis, I'm sure it would be quite higher.

And the other part of your question is, are we seeing a trend continue? And the answer is, yes. In fact, I mentioned or alluded to earlier the large pipeline we've got now as -- when this planning cycle with a lot of our clients with 2011, those are substantial size deals. My expectation, no guarantees, but my expectation is that when we talk about our bookings, for the fourth quarter and part of the first quarter, again I think there is going to be some overlap here where we began a little earlier than last year. Most of it was in the first quarter last year. This year I think we'll see more in the fourth quarter, perhaps a little less in the first quarter, but a lot in the early part of the first quarter. So, when we look at those bookings over the next say, four or five months, I expect that we're going to see as an increase in the number of deals over $0.5 million and an increase in the size of those deals as well.

Okay. And then, in terms of the acquisition strategy, you mentioned maybe one by at the end of the year and that you kind of holding off to seeing stabilization of those possible targets, couldn't you get a cheaper price, if you kind of pull the trigger now versus wait until you continue to see improvement?

Yes, I mean, I think that's a fair point. And, in fact that we get out first earnout with the first deal we did this year to go ahead and assume some of that risk but mitigate it through the earnout structure. And, that by the way turned out very well, excellent addition, great group of folks, and performance has been phenomenal from a financial standpoint.

But, I think the challenge with that is you're still sort of taking a risk. We want to make sure that anything we're taking a risk on it is mitigated or a good bet as we can make. So, we don't buy kind of fixer-uppers and we wanted to see some more than history. I can tell you we probably would have gotten a little more aggressive had we known -- with some of those deals earlier on, had we known that we're going get into a process with one that we had to cancel.

So, I think the situation has changed a lot now. I think that sort of holding period that I referred to is mostly behind us. And we've got a very, I think robust pipeline of companies we believe have those healthy income statements now and the healthy history that we will be aggressively pursuing as we roll into next year. So, in hindsight we've gotten more aggressive perhaps. You never want to inherit a business that's headed downhill. And so, I think we've done the right thing by shareholders -- by holding-off on some of those and we'll kick it up now.

Okay. And then, just on the pipeline, just to go back to that, is it broad-based across verticals or are there a few key verticals that's kind of driving your optimism into next year?

I'd say it's broad-based, which makes me more optimistic obviously. It's not pockets. But, we certainly have our blueprint, if you will, and the shopping list and things that were quite higher priorities for us. Those are the areas that we're focused on. And I'm pleased that we are finding things in those areas, the things that we want to be pursuing we are finding available and actually again seeing some good health restored those businesses.

Okay. Nice quarter. Thank you so much.

Thanks Matt.

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

Good morning guys, nice quarter.

Thanks Pete. Good morning.

Thanks, Pete.

I was pleased with the sequential headcount adds. Can you talk a little about what disciplines or which disciplines you're hiring in and kind of the split there between offshore and domestic resources?

Yes. I'll speak to you about the disciplines, and I'll let Paul to give you the specifics on the numbers between offshore, China specifically, and here. But, disciplines from a technology standpoint certainly doing a lot hiring in the IBM space and really a lot across the board though too. But, IBM has performed extremely well for us. Our IBM business group which is now gosh, $45 million business, $40 million, $45 million and it's on its own has done extremely well with BPM systems, BI, and portal, a number of disciplines around IBM. So, we're doing a lot of hiring from central standpoint in that space, but also, I would say across the board.

The other area that we're doing a fair amount of hiring is in the healthcare sector. We are growing that vertical and have expanded that a fair amount and have a number of (inaudible) opportunities out for that space as it's continued to grow well for us. But again, beyond that, I would say more across the board, which is I think is the most encouraging sign that we are seeing the tide sort of lifting all boats for the most part. Paul, can you go?

Yes. Some of the growth broken down geographically, we are up about 9 people on average in the U.S. and we are up about 13 people in China this quarter. And I think we'll continue to see those growth patterns as Jeff described. And we are up from about 40 people in China year-to-date as that piece continues to grow.

Okay. That's great. And, as regards to healthcare, is that vertical still leading the bookings growth?

Yes. It's back. I think we saw a little bit of a shift. From month-to-month obviously it's going to be lumpy. But some really solid bookings in October around healthcare, so it's back in the front. And then, I'm sure that going forward, I'm aware of, I mentioned anecdotally all the planning that we are doing with clients and the budgets that we're discussing a lot of it is in the healthcare space. So, I think healthcare is going to continue to be a frontrunner over time on the booking side.

And, Pete if you look at healthcare in Q4 of last year, it was 16% of revenues, 19% in Q1, 20% in Q2, now 22% in Q3, so you can see that's been a big engine for us.

Got it. And then, just one additional question and basically I came back into it given your annual guidance. But typically we see utilization fall off a bit in the fourth quarter seasonally, and based on your guidance it appears that you expect kind of above trend utilization this fourth quarter similar to last year?

Yes, I think so. Last year was, I think more of an anomaly because the third quarter was so poor, we had so much contraction in the third quarter, so it was a real easy comp on a sequential basis. But, yes the mid-point of our services range is actually down about 2.5% sequentially. Historically that number would be more around 4% down, because of the utilization to your point. So, I think what that says is, we are continuing to see enough improvement in growth to kind of swim upstream against the down utilization. So, 2.5% versus 4% I think is encouraging. And as I mentioned before, I'm optimistic, as always there is going to be upside to that as well.

Great, I appreciate it.

Thanks, Pete.

Your next question comes from the line of Jon Maietta from Needham and Company.

Hi, thanks very much. I just wanted to touch on, Jeff, you had mentioned kind of a focus on new client wins, and does that imply you're sort of satisfied in terms of the guys farming the existing accounts?

Yes, I think we do an excellent job there. And I'm satisfied overall with 15% for quarter sequential organic in a what, 2% GDP environment. I think we've done an excellent job.

But, I guess I'd say on the flip side, I'm never satisfied. I think we can always do better. We can always drive more growth and honestly, Jon, one of the things I know I've spoken with you about before that's really kind of inspired the shift and this focus is our win rate against our competition. When we go up against Accenture, Infosys, Cognizant and IBM Global Business Services, we beat those guys when we get the proposal stage, the opportunity to propose against them, better than 65% of time. We need to get to the table more often and continue to take more share. And I'm convinced that we're doing that now, 15% growth is above I'm sure what our industry has grown at. So, we're obviously taking some share. I believe we can do a lot more of that and that's really the motivation behind driving more focus around getting us to the table more.

Yes, in terms of existing accounts, our teams do a great job. The repeat business rate is huge. We get like a 97% quality grading rate in terms of whether our clients would refer us to their colleagues, 97% of them would. So we're doing a great job on delivery. We just need to get our folks to the table more and take more share and drive that growth number even higher

Okay. Then, just last question from me. Kerdock, how is that tracking versus your initial plan?

Very well, actually. They will have achieved the earnout target already with the early part of this quarter. So, and of course that's a financial side of it. But, as I alluded to earlier strategically, great folks, great additions to the team, and I think great positioning in terms of, we had this gap there where we weren't serving the financial analytics demand and were so much in the CFO office of a lot of our clients, and obviously that's where the purse strings are controlled in many companies. This gave us the opportunity to establish that customer, that CFO customer. And I think we're going to see more work. We're already seeing more work being driven just by that.

That's a hot area by the way. So, I think Pete asked about hiring in the area, we're hiring and that's an area where we're doing a lot of hiring right now. We could use many as people as we can get in that space, it's doing very very well. That is the Oracle Enterprise performance management.

And just to add one thing to that is, that earnout target was a 12-month target and in essence they achieved that in about two quarters.

Got it, okay. Okay. Thanks, Jeff. Thanks, Paul.

Thank you.

Your next question comes from the line of [Colin Geller] from [UCD Financial].

Did we lose you, Colin?

No, I'm here. Can you hear me?

Okay, great. How are you?

Great. You're losing a lot of like both mid-size and tuck-in acquisitions among your solution partners. Do you think the landscape is starting to overlap a bit, could you just talk a little bit about what the demand is for the various solutions and then, what technologies do you think you're going to have the hot hand looking forward?

I think BPM is probably going to be the hottest space, and that's where I think you're seeing a lot of those sort of tuck-ins and mid-size acquisitions. Obviously the Oracle acquisition of ATG was interesting. There wasn't a lot of new license going on with ATG that I could see, but they have continued to enhance the product. I think there is a lot of replacement or upgrades going on in that space. I assume that's part of the reason it was interesting. I think Oracle really needed a more formidable commerce platform to compete with IBM.

So, commerce has heated up a lot over the last two or three years. It was a technology that, I would have thought was going to be more commoditized, but they really pumped some -- a lot of enhancements into those products all the way around, ATG, IBM and Microsoft. And so, that's really back. And we are doing a fair amount of work there where we were doing none say, three years ago, we've actually got a strong commerce team as it growing as well, so that's a good spot.

But I think BPM-Business Process Management, Business Process Management systems are going to be kind of the hot spot. You saw that Accenture acquisition of the firm that does back-end systems implementation. And I think that's going to be a hot spot for sometime to come. Obviously, that's where we are doing a lot of work now. A lot of our IBM business is fueled by that we are branching up more in the Oracle along those lines and doing a lot of our own hiring in that same space.

So when you are looking out and talking to your clients is sort of the lower cost to capital situation you are in right now, is that something that helps drive their spending decision, I mean even with so much cash on the balance sheet or is it really the technology needs?

Yes, I think it should, but I don't think we are seeing that come to fruition. I think people are still, there is still enough uncertainty and enough just cautious atmosphere, where we are not seeing that as a driver. If you did, we certainly are seeing some pent-up demand as a driver and some of that being released and even just a return, I would say we are not even back to return to sort of normalcy. Part of it is there, just getting back to normal environment. Then you've got pent-up demand on top of it, and you would think the cost of capital would play in there somewhere. I wouldn't say it's the key driver, I'm sure it's a consideration.

And then, do you see as the US dollar whips around, that probably doesn't really impact your competitors and how they are bidding for some of these jobs?

I don't think so, right now, as I mentioned before I think we've got room to run as I mentioned right now that the competitors that we see most often and probably for the highest dollar projects or are those that I mentioned the Accentures, et cetera. And, we are seeing them be pretty aggressive, but we are beating them as much as I mentioned 65% better of the time. It's not always on price, so that weighs into some degree, but it's usually not on prices, it's usually on credibility, references, quality, and that's why I think as I said before we've got room to move our rates up.

Great. Great quarter.

Thanks, Colin.

Your next question comes from the line of Ryan Hunter from Wedge Partners.

Good morning. Thanks for taking my question, do you guys hear me okay?

Yes. We can, Ryan. Thanks.

Great, I think most of my questions have already been answered. A couple of things here through, I was wondering if could comment on the average billing rates for the quarter and where you see that trending?

Yes, $120 domestic US is the one we focused most on, we're going to strip out the offshore and some contractor. And of course, they all work together and they are all trending in the same direction. But I think we were at about $120 back in 2007 pre-recession for this same metric this US domestic employee and headed north, and I believe that that's direction we're headed in now.

I don't see any reason why as we continue to scale this business, build a stronger brand, deliver more successful engagements and build more references, we can't get that rate to north of $130 an hour, say in the next 24 months, maybe even north of that. I am not satisfied at $120. I think our -- the quality of our folks and the quality of the work that we're doing and the value isn't reflected at $120, I think it needs to be higher.

Okay, great. And then maybe just to go back to one your comments on Colin's question there at the end around the surface of demand in the industry. It seems like a lot of what we saw so far in 2010 was based on some pent-up demand, but in the conversations that you're having going forward, the types of projects that you're looking at, do these seem like projects that have been pilling up, or are you starting to see, I guess what's the mix between net new projects or projects that have been on the back burner going into 2011 here?

Yes. It's an excellent question and obviously I think it's impossible to give you a really definitive number on that. I gave you my best estimate based on what we're hearing and honestly, I think it's encouraging. I really think that it's fairly low on the pent-up demand side. I still think there is a ton of pent-up demand out there. Lot of the firms or companies would be clients that put those things off frankly still haven't stepped up to the table on them. There is still -- again there is still a lot of cautiousness and uncertainty out there and a lot of the firms haven't bitten the bullet on moving off the dime on a lot of those projects.

What we're seeing more of right now, I think is a little bit more of the return to normalcy and some other drivers. If we talk about healthcare, obviously the healthcare mandates --nothing to do with the Obama care -- but the healthcare mandates that were legislated prior to that around electronic medical records and health information exchanges is driving a fair amount of the spend in the healthcare industry and by the way an industry notorious for under-spending for years. So, we're seeing that pickup and that's a driver. But I honestly think there is a lot of pent-up demand still out here. I don't think that we've seen much of that come to fruition yet. But we're seeing it's just more kind of a return as I said to a little bit more of a normal spend and I think there are still under-spending.

All right, thanks Jeff. Congrats on the quarter guys.

Thank you very much.

(Operator Instructions). At this time, we're sure we have no further questions. I'd like to hand the call back over to Jeff Davis for closing remarks.

All right, well excellent. Thank you all again very much for your interest and your time today. We'll look forward to speaking to you on our year-end call. Take care.

Ladies and gentlemen, thank you for your participation in today's conference call. You may now disconnect. Have a wonderful day.