Perficient Inc (PRFT) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Perficient Inc. Earnings Conference Call. My name is Stephanie, and I'll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of today's call.

(Operator Instructions)

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

Thank you very much. This is Jeff Davis. With me on the call this morning is, Paul Martin, our CFO. I'd like to thank you all for your time this morning. As is typical, we've got about 10 to 15 minutes of prepared comments, after which we'll open the call for questions.

Paul, would you please read the Safe Harbor statement.

Sure. 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 meeting of the securities loss. 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 general accepted accounting principles or GAAP, is posted on our website at www.perficient.com under News & Events.

We have also posted a reconciliation of certain non-GAAP goals, with the most directly-comparable financial measures prepared in accordance with GAAP, on our website at www.perficient.com under Investor Relations. Jeff.

Thanks, Paul. Well again, thank you everyone for joining. We are pleased to be with you today to share our Q1 results. Two thousand eleven started well for Perficient. We delivered revenues within our previously-issued guidance range, and actually slightly above the mid-point of the services guidance range.

Total revenues were up 15% year-over-year. And services revenues were up 18% year-over-year. Strong average bill rates resulted in higher gross margins and we posted GAAP earnings per share and net income that were up 100% over a year ago.

Utilization was consistent with Q4 at 79% in total, but that was due specifically to lower utilization of resources in China where we're investing for growth, through the recent addition of about 40 interns. Excluding subcontractors in China, utilization actually rose from 79% to 82% in the quarter.

I mentioned ABR, which for US employees was $123.00 an hour, the highest it's been for quite some time. That's evidence to us of a recovery market. As we've talked about in previous calls, we believe we still have room for incremental improvement to ABR as the year unfolds, as well as down the road. I think this can be $135.00 an hour business within a couple years, so long as the macro environment remains stable.

From a bookings perspective, we closed 22 deals north of $500,000 during the quarter, which is more than any quarter during 2010. We mentioned on the year-end call that clients have been more willing in late 2010 to commit to projects before year end than they were in 2009.

So Q4 bookings were strong and so it was great to see that momentum continue in Q1. And in fact, our bookings for Q1 were again, an increase to our Q4 bookings. And we don't typically talk about the number of active accounts or number of active clients we have in terms of disclosing a specific number, meaning, you know, customers that we're serving in any given quarters. But those numbers in Q1 were also higher than in any quarter during 2010.

That's a testament to something we spoke about on the year-end call, which is our increasing number of new clients. So, it's pleasing to see that we're adding new customers, which should lead to growth down the road. So, it's clear to us that recovery remains under way. And we again exited the quarter with plenty of cash and no debt.

And notably, while it wasn't a first-quarter transaction, we did announce the acquisition of Exervio on the first day of the second quarter, so on April 1st. And that transaction expanded our capability portfolio, added over $13 million of run rate revenues to the business, and built our footprint through the addition offices and local presence in Charlotte and Atlanta, two key markets we've targeted for some time.

But finally, as we mentioned in the press release, the board recently approved our request to expand the share re-purchase program. And we're raising both our full-year revenue and earnings guidance. I'll provide a little more color around the results, as well as talk to the guidance raises after Paul details our Q1 financial performance. Paul.

Thanks, Jeff. Total revenues for the first quarter of 2011 were $56.2 million, a 15% increase over the year ago. Services revenue for the first quarter, excluding reimbursable expenses, increased 18%, to $50.2 million over the comparable prior-year period.

Services gross margin for the first quarter of 2011, excluding stock compensation reimbursable expenses, increased to 32.4%, compared to 32% in the first quarter of 2010, continuing our trend of year-over-year margin improvement.

SG&A expenses increased to $11.3 million in the first quarter of 2011, from $10.4 million in the comparable prior-year quarter. Excluding non-cash stock compensation, SG&A expenses were $9.7 million, compared to $8.5 million in the first quarter of 2010. SG&A, excluding stock compensation as a percentage of revenue, was 17.3% in the first quarter of 2011, compared to 17.4% in the first quarter of 2010.

Stock compensation expense was $1.5 million in the first quarter, which is down $400,000, compared to the $9.1 million in the first quarter of 2010. EBITDA, is defined as earnings before interest, taxes, depreciation, amortization, and stock compensation for the first quarter of 2011 was $7.1 million or 12.6% of revenues, compared to $5.5 million or 11.3% of revenues in the first quarter of 2010.

Net income was $1.8 million for the first quarter of 2011, doubled $900,000 generated in the first quarter of 2010. Diluted GAAP earnings per share increased to $0.06 a share for the first quarter of 2011, from $0.03 a share for the first quarter of 2010.

Non-GAAP earnings per share increased to $.15 per share for the first quarter of 2011, from $.12 for the first quarter of 2010. Non-GAAP EPS is defined as GAAP earnings per share, plus amortization expense, non-cash stock compensation, and transactions costs, net of related taxes, divided by average fully-diluted outstanding shares for the period.

Our effective tax rate for the first quarter of 2011 was 40.9%, compared to 44.9% for the first quarter of 2010, primarily as a result of lower non-deductible compensation.

Our ending billable head count at March 31, 2011, was 1,155, which included 997 billable consultants and 158 subcontractors. Ending SG&A head count at March 31, 2011, was 183, and this includes 10 SG&A employees related to the speakTECH acquisition we completed in December.

During the first quarter of 2011, we spent $2.4 million on re-purchasing 195,000 shares. And as of March 31, 2011, we have spent $44.6 million on re-purchasing 6.3 million shares, since the plan's inception in 2008.

As Jeff mentioned on May 3rd, our board of directors authorized the re-purchase of up to an additional 10 million of our common stock, for a total authorization of 60 million. In addition, we extended the program through June 30, 2012. We continue to believe that our share re-purchase program will drive future accretion and shareholder value.

We ended the quarter with no debt and $20.8 million in cash, cash equivalents, and investments, which was down slightly compared to December 31, 2010, and as a result of paying down accrued liabilities during the first quarter of 2011.

Our day sales outstanding on accounts receivable was 76 days at the end of the first quarter of 2011. Our goal is to maintain DSOs between 70 and 75 days over time. This range will be a key ongoing initiative. We believe the collection efforts made in April have brought the DSOs back into our target range of 70 to 75 days.

As Jeff mentioned, on April 1st we acquired substantially all the assets of Exervia, pursuant to the terms of the asset purchase agreement, for approximately $13.6 million. We expect this transaction to be accretive in 2011 and beyond.

I will turn the call back to Jeff, for a little more commentary behind these metrics. Jeff.

Thanks, Paul. Well again, a solid quarter. Perficient's diversity from a solutions technology platform and client perspective continued in Q1. During the quarter, our top five customers combined to represent just 23% of revenue.

Health care industry accounted for 23% of revenues in the quarter, followed by financial services at 13%. And as I think I mentioned previously, we continue to view financial services as an area of opportunity and are actively investing in building out a more formalized industry practice group there, much like we did with health care.

From a solutions perspective, portals, performance management, business integration, and CRM remain our strongest disciplines. And from a platform perspective, IBM continues to be very strong, and our investments around the Microsoft platform are also yielding results. And based on our success there, and our late 2010 acquisition of speakTECH, Microsoft has moved ahead of Oracle in terms of our revenue platform concentration.

Earlier I mentioned the Exervio acquisition, as Paul did as well, at the beginning of Q2. Our goal remains to execute another two to three deals this year, adding another $30 million to $35 million in acquired run rate revenues.

We're actively reviewing several possibilities now and I remain optimistic that we'll be able to achieve those targets. In fact, our acquisition pipeline is the strongest it's ever been.

As each day progresses, I grow more confident that the challenges of 2008 and 2009 are behind us. We persevered through those times, maintained our market share and client relationships, and made some key investments that positioned us to capitalize, now that things are improving.

We're operating today at the highest revenue and earnings run rate in Perficient's history. And the company's position is stronger than ever before. I don't our path to $500 million run rate revenues will be absolutely linear or void of challenges of course, but I'm increasingly confident we'll get there, at our previously-stated goal timeline of the end of 2013.

So lastly, I'll comment on Q2 and the remainder of 2011 in terms of guidance. The company expects its second quarter 2011 services and software revenue, including reimbursed expenses, to be in the range of $62.6 million to $66.7 million. Comprised of $59.6 million to $62.7 million of revenue from services, including reimbursed expenses, and $3 million to $4 million from software sales.

The mid-point of second quarter 2011 guidance represents growth of 17% over the second quarter 2010 revenue. The company is raising its full-year revenue guidance range to $245 million to $265 million, from the previously provided range of $235 million to $255 million. And, we're raising our full-year cash earnings per share guidance range to $0.73 to $0.83, from the previously provided range of $0.70 to $0.80.

With that, we can open the call up from your questions. Operator.

(Operator Instructions). Your first question comes from the line of Brian Kinstlinger with Sidoti & Company. Please proceed.

Hi guys. How are you?

Good morning, Bryan.

Good morning, Bryan.

I was curious. The 22 deals about $500,000, you know, was a pretty high number? Is that indicative of how strong overall bookings are? And if so, should we expect the same ramp that you mentioned last quarter? It takes about two quarters. And so in two quarters, we'll see a nice surge in services revenue? Is that how we should think about it?

You know, I wouldn't describe it as a surge. I would describe it as a steady improvement, though. We are, you know - our guidance clearly is guiding to growth for the year. And some of that growth is going to come from the bookings in Q4 and Q1.

The lag that you mentioned is about right. Like I said, I'm not sure I'd call it a surge, but continued steady growth. I think the mid-point of our guidance for the year for organic growth has been and remains, you know, 8% to 10%. So again, that's a number that we're targeting and still feel comfortable with for the year.

Great. And um, for the year, the top-line mid-point - how much do you expect to come from pricing increases versus increased work, increased effort?

That's a good question. You know, I had mentioned - I think I mentioned on the last call - about a 2% increase to pricing this year. We were hoping to end the year, you know - we ended the year at about $120.00 an hour. We're hoping to yes, make maybe $122.00/$123.00 for the year, and end at $125.00. We're obviously seeing some better results than that early on. It remains to see if that continues.

But - so I would stick with my original commentary of probably 2% to 3% improvement on rates. We're still optimistic though about the 200 to 300 basis point or 2% to 3% -- well, 200 to 300 basis point improvement on both gross margins and EBITDA stock comp this year, for the year.

Okay. And then, maybe you can just touch on the financial services piece -- maybe even health care too - but financial services. I think, last quarter you talked about building a practice, I think if I recall, where you are - you know, not that you don't have one - but you know, I think that's something that you're focused on, capturing the growth opportunity out there. You know, how that's playing out.

And then also, looking forward on the health care side. You've made a lot of progress there. How penetrated are you into some of those, if at all, into some of those health care records opportunities out there that you're seeing in the pipeline.

Yes. Good questions. Starting with health care. Yes, we - we're doing a lot of work around electronic health records, in a number of accounts. And, we've got - we're with six Blue Cross/Blue Shields now in the country. We're working with one of the country's largest GPOs, and actually being introduced by them to their - their member firms, and winning work there.

Some of that's got to do with electronic health records. Some of it is ancillary to, but contributory to EHR. The nice thing about that is that, this is an industry that's been, I would say, under-spending for a long time in technology. And EHR, I think, is certainly spurring them on to - to begin to change that. And as we get into these deals, we find that there's a lot of work to do. You know, not necessarily related to EHR.

The other thing I'll tell you is that these institutions, both providers and payers, are going to leverage the same data that they have to collect and aggregate for EHR for their own business. So, we're seeing a lot of BI opportunity, a lot of consumer facing opportunities, by far you know, above and beyond anything that the mandates have to do with.

I would say to use a baseball metaphor, you know, I think we're maybe in the second or third inning on the health care opportunity. I think it does nothing but grow for the foreseeable future for us.

In terms of financial services, we're early. Early stages on developing that practice, to be sure. I would say, you know, we're comparable there to where we were with health care, in terms of the evolution of the practice to, you know, maybe a couple of year ago with health care. Or a year-and-a-half, something like that.

I think that's good news also, inasmuch as despite that we've still seen health care - I'm sorry - financial services move from below 10% of revenue to 13% now. And certainly seeing a nice pickup there. And, we'll have our team completely assembled here this year and be off and running with that. And, I think, that's another opportunity that will be ongoing.

You know, we had a healthy financial services business pre-recession. And I expect that just a normal environment, the kind of services we provide are well received, and there's a decent spin in financial services. But, I do think there's pent-up demand as well, that'll accelerate that growth there for the next couple of years.

Great. Thanks so much.

Thanks, Bryan.

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

Morning, guys. Paul, could you go over some of those numbers again? All in utilization, all in bill rate.

Sure. So, the employee - the US employee utilization rate was 82%, compared to 79% in the fourth quarter. I'm sorry, are you looking for the all-in rate?

The all-in was 79, right?

The all-in coming in, including -

And that was drawn down a little bit by the addition of 40 employees in China. That's exactly right.

That's right. So, that was actually flab with the fourth quarter. And the US piece was up from 79 to 82. And then on the bill rate side, the all-in bill rate was - or the US bill rate -- was $123.00 an hour. And the all-in rate is $110.00, up from $104.00.

One-hundred ten. OK. But, so we're seeing - we're seeing the increases on both sides. OK. And then, could you give me total billable head count, head count in China, and the subs again. I apologize. I just - I missed them all.

Yes. So, the - the ending head count, yes. So, we have 814 North American billable head count and 183 in China. And in the subs, we're 158. And that totals the total billable head count of 1,155.

Okay. And then, remind me about how many billables came on with Exervio.

Somewhere between 80 and 85.

Okay. Stated 85. All right. And, you know, we had a lot of economic noise here the last six weeks or so. Can you - can you provide any preliminary commentary on - on how April looked? Was there any real change in terms of - of, you know, decision cycles, decision - you know, decisions made? Did anybody pull back on - on the higher energy prices and some of the other issues?

You know honestly, we're not seeing anything tangible yet, you know. April was actually a pretty strong month for us in booking. So, you know, we're continuing to see good momentum there. I do think that might slow a little bit here in the summer. It's a natural, you know, natural cyclic event or seasonal event anyway.

But, we're not seeing some - any of that come home to roost yet. I'm concerned about it, like everyone else is. But in terms of, you know, asking our GMs and our sales folks out there, anecdotally they're not hearing feedback from clients. We've not seen sales cycles really extend appreciably or measurably yet.

And, we've not heard of any, you know, delays or cancellations that have been attributed to, you know, to the economy. And in fact, right now, we're not experiencing mini-delays or cancellations at all. I would say it's about normal.

OK. And - and - and I'm inferring from your guidance, both for the quarter and the year. Well, not so much for the quarter, but definitely for the year, is that given some higher bill rates ramping on, giving some utilization moving the right direction, we've got a number of things working in our favor for margins in the second quarter. So, we should see a fairly material step-up, both sequentially and your year, in operating margins here in the second quarter?

Yes. As we've talked before, we expect to continue to see improvement on the margins as the top line grows. We've right - got to your point - the utilization at the right level sustainably. And - and expanding rates.

And actually, you know, marginally, gradually bringing costs down, as we're bringing more junior resources or less experienced resources into the company. That's something that's going to take a little longer. But, the answer is yes. We're certainly seeing some - some improvement there.

And again, I would reflect back or point back to my comment to Bryan. You know, 200 to 300 basis points is what we're shooting for on gross margin expansion for the year.

Got it. Got it. All right. Thanks a lot.

Thank you.

(Operator Instructions). Your next question comes from the line of George Price with BB&T Capital Markets. Please proceed.

Hi. Thanks very much. Good morning, guys. My apologies. I had some issues kind of getting on the call, so may have missed some of the things about which I'll ask. But high level Jeff, it sounds like you were - you were kind of already commenting around this.

Actually, let me start with one other thing. The - the rise in - guidance that basically guidance for the year in terms of revenue, basically went up by Exervio right?

Yes. Pretty much.

Okay, is - I guess given that, but also given, you know, the commentary that I saw on the press release and that I've heard from you regarding the business, can you maybe kind of comment on your - on your level of confidence, you know, at this point versus maybe a few months ago, in terms of the guidance and where you think you could come out within the guidance range?

You know, we always shoot for the mid-point. And , I always shoot to beat the mid-point, but you know, we believe we're going to come out at the mid-point. And the range is, you know, is our up and down side. So honestly, I'd be very clear on that. That mid-point is what we have high degree of confidence in.

Obviously, above and beyond that, we're working very hard to beat that - that mid-point and be at the higher end of the range. But, I would say that's true for both Q2 and for the

Okay. All right. Very good. And it doesn't sound like this, but you know, you said you haven't seen any delays, cancellations, anything like that. Maybe just asking a different way, in terms of budget timing, on release of budget and starts, and anything like that, are you seeing - you seeing any delays, anything moving around, maybe even in terms of types of services that, you know, clients are prioritizing?

You know again, I would say nothing that we can - that we could really say is appreciable or really tangible right now. I would - you know, to be honest with you, if that's going to happen, I think it's something we're going to see over the next month or two. That's typical.

You know, we're coming into the half of the calendar year and a lot of clients plan around that - around the mid-point of the calendar year. And - and a lot of projects, you know, wrap up then. So, we'll know better, the answer to that question honestly, in the kind of, you know, June time frame. Excuse me.

So right now, again, we're not hearing that or seeing it. That doesn't mean that it's not there. And, we just - we won't see it - I wouldn't expect to see it normally til maybe May/June.

Okay, okay. What - what acquisition costs will you have for Exervio in the second quarter?

The acquisition costs, George, are mostly booked in the first quarter since we were committed (inaudible) it happened right at the end - end of the quarter and they were around $500,000. You'll see that in - yes, there's a transaction cost number in there.

Yes. Now, but there's not going to be anything in the second quarter, Paul?

Yes. Obviously, if we do another deal there would be something. And if there's anything, it will be minimal to probably none.

Okay. All right. And, the software revenues in - in the quarter and, I guess, even guidance may be a little light than I expected. You know, any color around that?

Yes. There's a deal - well, you know, I'd say overall the health care - not health care - the software environment - they rhyme - is still pretty healthy. We've got some good opportunities here in this quarter.

But you know, software is super lumpy. You know, we closed two deals within the first, you know, literally 48 hours in the second quarter that were deals that we, you know, we thought we were going to have both in first and didn't get in the first, but they came in the second.

But, our guidance still isn't, you know, huge in the second as you can see. And that's really more a testament probably just to the lumpiness and the difficulty in forecasting that, than it is, you know, a reflection of our confidence about what this offer is going to be.

There was one deal that we were - we've been the re-seller of record for a client that we do services with. As I think you know, we do software primarily opportunistically and honestly in a lot of ways, as a service to our customers.

So, one of the customers that we had done traditionally a renewal with every year, literally ran an online auction process this year and drove the margin down to the point where it wasn't worth it to us. That was about an $800,000 deal that, frankly, we opted not to do. That - I'm sure we could have won. But, it didn't make sense for the business.

Okay. All right. That's helpful.

That's a deal we've had in our - in our numbers every year for probably the last six or seven years.

Okay.

And, we opted not to take it this year.

What was CapEx in the quarter, Paul?

Give me a second. It was a few hundred thousand, but I'll get you an exact number.

Okay. And then, I guess kind of keeping along those lines. DSOs - and I look at just the simple sort of end of quarter, end of period method, but - DSOs, you know, seemed kind of flattish quarter-over-quarter. I guess, higher than expected in the sense that seasonally it looks like, you know, you typically get a, you know, a seasonal drop in one Q versus, you know, the 4Q of the prior year.

Was there anything going on, you know, with collections or just, you know, anything to note on that?

Yes. So, let me come back. The CapEx number was $630,000. It's in the 10Q, which is filed.

Okay. Sorry.

And, in the increases, as we've talked about - yes, we're doing the expansion in China, and yes, we'll be moving into our new facility there here in the second quarter and, you know, so you'll see CapEx in the first couple quarters will be higher than - than they've been historically.

With respect to - to your second question on - on DSOs. You know, there was a couple of, you know, large accounts that had some of their own administrative problems. The number went up. You know, we had a lot of focus on that in March, trying to bring that back down. Sort of similar to some of these software deals, some of that money came in early in April. So, we think we're going to be back in range in the second quarter.

Some of that has to do with the challenge - the good news is - is that some of that has to do with the challenge of establishing new relationships with customers. It does take some time - in some cases - to get that - that process down on both sides of the equation. So, some it is attributable to that, which like I said, is good news, even though we don't like high DSOs. When you can say it's because of new customer relationships, I'm OK with it.

Right. The last thing I'd ask is just, did you give margin assumptions. I know, you know, you've talked about growth for the mid-point of 2011 guidance. Can you give us any sense on, you know, what the margin assumptions are for the mid-point?

For the year - yes. I mean, you can look at the - you know, we're at 70. What is it, the mid-point for - 73 to 83, you know. So, we're at $0.78 at the mid-point on $255 million in revenue.

No, but do you - can you comment, I mean, what sort of - what are the underlying margin assumptions? You know, there at the mid-point.

Well, sure. Without getting too specific by quarter, for the year, I've mentioned we finished last year with gross margin net of stock comp at about 34% -- and - yes, 34%. And I mentioned that I expect this year - we're shooting for this year to raise that to between 36% and 37% for the year, okay.

So, you've got the Q1 numbers. We still expect it to be in that range for the year, so long as, you know, all things remain equal in terms of the top line guidance, et cetera. Same with EBITDA, net of stock comp. We finished last year at 13% for the year. We expect 15% to 16% for this year. That's what we're shooting for.

Okay. Great. Thanks very much, guys, for taking the time.

Thanks, George.

Thanks, George.

The next question comes from the line of Brian Gaines with Springhouse Capital. Please proceed.

Hey guys. Can you give bookings for the first quarter. And then, I think on the last call you gave a 90-day trailing number. So, if you have that as well that would be great. Thanks.

Yes. You know, we don't disclose specific dollars on bookings. I can tell you that, again, it was higher than the fourth quarter, in reflected growth. So, it was higher than revenue. We don't actually disclose a specific number. It's too - too lumpy and, I think, subject to misinterpretation. They were good enough for us to be, you know, reasonably optimistic going forward. And, I think, it reflected somewhat in our Q2 and overall year guidance, if that helps.

Yes. Can you give percentage guidance - not guidance - percentage increase?

It was probably up - you know - I'll give you an estimate. It was - I would say - Q1 bookings were up probably 5% plus over Q4, for a single quarter.

Thanks.

Thank you.

(Operator Instructions). With no further question in cue, I would now like to turn the call over to Mr. Jeff Davis, for any closing remarks. Please proceed.

All right. Well, thank you all for your time this morning. Again, we're pleased with the results for Q1 and more excited even about the guidance that we're able to - to provide for Q2, as well as the year. So, it's going to be a record quarter for Perficient and a record year for us and we're excited about that. Thank you all.

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