Perficient Inc (PRFT) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Perficient Incorporated Earnings Conference Call. My name is Gina, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

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

Thank you. This is Jeff Davis. With me today is Paul Martin, our CFO. I want to thank you all for your time this morning, as always. As is typical, we've got a few minutes of prepared comments, after which, as the operator instructed, we'll open the call up for questions.

Before we begin, I'll ask Paul to read the Safe Harbor statement.

Thank you, 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 meanings 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.

At time during this call, we will refer to non-GAAP or cash EPS. 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 also 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. Jeff?

Okay. Thanks, Paul. Well, thanks again everyone for joining. Pleased to be with you today to share our Q2 results. A lot of great things really happened with Perficient since our last earnings call. We've opened a new and expanded facility in China to accommodate growth there. We extended our $50 million credit facility arrangement and on the first day of the quarter, we announced the acquisition of JCB Partners.

I'll speak to all that a little more later, but really what we're really most excited about actually is the quarter we just delivered and what we're anticipating for the remainder of the year.

As I'm sure you saw on the press release, an all-time record revenue quarter for Perficient with non-GAAP earnings coming in above the consensus estimate and 24% annual services growth.

Services gross margin, excluding stock compensation and EBITDAS margin, EBITDA excluding stock comp, were higher than they've been since the second quarter of 2007 and third quarter of 2007 respectively. We expect margin expansion to be a key factor to our increased profitability, as we continue to scale, we've talked about that before and we see that continuing into the future.

Utilization was up over Q1 at 83%, and US employee average bill rate reached an all-time high of $127 an hour. We continue to believe there's opportunity [to incrementally] raise those rates as we scale on the years ahead, as we've discussed in the past.

On a bookings perspective, we closed 15 deals north of $0.5 million during the quarter. That compares to 10 in the comparable quarter a year ago, but it's down from 22 in the first quarter of this year. I think it's important though to point out that the average deal size was much, much higher. So for deals in that category over $0.5 million, they were 66% larger than over Q1. Q1 was $866,000 in that category and in the second quarter, deals in that category were $1.3 million per deal.

Bookings were strong again in the second quarter, substantially higher both sequentially and on a year-over-year basis. We continue to remain optimistic and encouraged by that. We're selling more projects and as I pointed out, larger projects and our client count continues to grow. We don't typically share our active customer accounts specifically in numbers, but I'll tell you that that number of customers was up 28% year-over-year. And that's reflective not only of the improving market, of course, but also I think it's how we've positioned ourselves in the market and our growing reputation within the market.

So, we again exited the quarter with a solid balance sheet, no debt even after completing the purchase of Exervio and repurchasing stock. As I mentioned earlier, the acquisition of JCB Partners on the first day of Q3 expanded our portfolio, added $15 million of total revenues to the business, strengthened our relationship with IBM and helped us deepen our footprint in a few spots, most notably key markets like Chicago and Denver, and of course, really enhanced our skills in the Cognos and particularly in the EPM Cognos TM1 space.

So all of these things, the growth, the M&A, our optimism around the second half and our belief that gross margins will continue to trend higher afford us another opportunity to raise our full-year revenue and the lower end of our earnings guidance range.

I'm going to turn the call back over to Paul right now to detail the Q2 financials and then I'll close with a few additional comments around the quarter and guidance before we open up for questions. Paul?

Thanks, Jeff. Total revenues for the second quarter of 2011 were $65.6 million, which is an 18% increase over the year-ago quarter. Services revenue for the second quarter, excluding reimbursed expenses, increased 24%, to $59.2 million.

Services gross margin for the second quarter, excluding stock compensation and reimbursable expenses, increased to 36.1% from 35.2% in the second quarter of 2010, continuing our trend of year-over-year margin improvement.

SG&A expenses increased to $13.2 million in the second quarter of 2011 from $12.4 million in the comparable prior-year quarter. SG&A, as a percentage of revenue, was 20.2% in the second quarter of 2011, compared to 22.4% in the second quarter of 2010.

EBITDAS, defined as earnings before interest, taxes, depreciation, amortization, and stock compensation, for the second quarter of 2011 was $10.3 million or 15.7% of revenues, compared to $7.1 million or 12.8% of revenues for the second quarter of 2010.

The second quarter 2011 included amortization expense of $1.5 million compared to $1.1 million in the comparable prior-year quarter. This increase is associated with the acquisitions completed in 2010 and 2011. The second quarter 2011 included acquisition costs and adjustments at a fair value of the contingent consideration related to acquisitions of $1.2 million.

Net income increased 35% to $2.8 million for the second quarter of 2011 from $2.1 million generated in the second quarter of 2010. Diluted GAAP earnings per share increased to $0.10 a share for the second quarter of 2011 from $0.07 a share for the second quarter of 2010.

Non-GAAP earnings per share increased to $0.21 for the second quarter of 2011 from $0.15 in the second quarter of 2010. Non-GAAP earnings per share is defined as GAAP earnings per share, plus amortization expense, non-cash stock compensation expense, transaction cost and fair value adjustments to contingent consideration net of related taxes, divided by average fully diluted shares outstanding for the period.

Our effective tax rate for the second quarter of 2011 was 43.4%, compared to 37.9% for the second quarter of 2010, primarily as a result of lower projected foreign-source income and certain non-deductible, non-cash acquisition-related charges.

Our ending billable head count at June 30, 2011 was 1,274, which includes 1,103 billable consultants and 171 subcontractors. Ending SG&A head count at June 30, 2011 was 209. The acquisition of JCB completed on July 1 added an additional 60 billable consultants and 10 SG&A professionals.

Now, I'm going to turn to the full-year results. Revenue for the six months ended June 30, 2011 were $121.8 million, a 17% increase over the comparable period last year. Year-to-date services revenue for the six months ended June 30, 2011, excluding reimbursable expenses, increased 21% to $109.4 million.

Services gross margin for the six months ended June 30, 2011, excluding stock compensation and reimbursable expenses, increased to 34.4% from 33.7% in the prior-year quarter. An improved average bill rate helped drive the year-to-date improvement.

SG&A expenses increased to $24.5 million for the six months ended June 30, 2011 from $22.8 million in the comparable prior-year period. SG&A, as a percentage of revenue, was 20.1% for the six months ended June 30, 2011 compared to 21.9% for the six months ended June 30, 2010.

EBITDAS for the six months ended June 30, 2011 was $17.4 million or 14.3% of revenues, compared to $12.6 million or 12.1% of revenues for the comparable prior-year period. The first half of 2011 includes amortization of $2.7 million compared to $2 million in the comparable prior-year period, again that increase is associated with the acquisitions we've completed.

The first half of [2007] include acquisition cost and adjustment to the fair value of contingent consideration related to acquisitions in 2010 and 2011 of $1.7 million compared to $0.4 million in the first half of 2010.

Net income for the six months ended June 30, 2011 was $4.6 million, compared to $2.9 million for the six months ended June 30, 2010. Diluted GAAP earnings per share increased to $0.16 a share from $0.10 a share in 2010. Non-GAAP earnings per share for the six months ended June 30, 2011 was $0.35, up 35% from $0.26 in 2010.

Our effective tax rate for the six months ended June 30, [2010] was 42.4% compared to 40.2% for the comparable prior-year period. The increase in this rate is due primarily to a decrease in projected foreign-source income and certain non-deductible, non-cash acquisition-related charges.

During the second quarter of 2011, we spent $3.4 million on repurchasing 305,000 shares and as of June 30, 2011, we have spent $48 million on repurchasing 6.6 million shares in our share repurchase plan that started in 2008. We continue to believe that our share repurchases will drive future accretion in shareholder value.

We ended the quarter with no debt and $12.5 million in cash and cash equivalents, which is down compared to 2010 as a result of paying down accrued liability during the first half of 2011 and the acquisition of Exervio.

Our days sales outstanding, or DSOs, on accounts receivable were 81 days at the end of the second quarter 2011. Our goal is to maintain DSOs between 70 and 75 days over time. This range will continue to be an ongoing initiative.

We did achieve our 70 to 75-day target in April and May and had a strong collection month in the month of July and we expect we have brought the DSOs back into our targeted 70 to 75-day range.

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

Thanks, Paul. Well, we speak about each quarter the diversity from the solutions technology platform and client perspective being a strength of the Company in Q2 is really no exception.

During the quarter, our top five customers combined represent just 20% of revenues and that compares to 23% in the first quarter. Healthcare accounted for 24% of revenues in the quarter followed by financial services at 13%. We continue to make strong progress against our goal by the way of launching a formalized financial services practice group this year modeled after what we've done with healthcare and a couple of other verticals.

Portals and collaboration solutions remain our strongest horizontal discipline. IBM, Microsoft and Oracle remain the leaders from the platform perspective not surprisingly. Earlier I referenced the expansion of our operations and facility in China. We talked about the growth we anticipate there, a new facility that I referenced is doubled in size and affords space for 400 colleagues there, 400 billable folks.

In fact, China's Q2 revenue contributions were higher than they've ever been in the past and I think that's going to continue to grow. I had the opportunity to visit our new facility there in early June and came away even more confident impressed by the way with the capabilities we have in China, fantastic folks, great discipline, a CMMI Level 5 on Agile methodology, we're one of 10 in the world to have that. And the quality that we're able to produce at that facility is just fantastic. It's going to remain a key differentiator and a growth contributor, I'm sure, for many years to come.

I also referenced the JCB Partners acquisition, obviously, we're very excited about that. It's extremely well-run firm with a solid management team that joins us. Great operating metrics and a really solid partnership with IBM. As a matter of fact, we received several positive notes from our partners at IBM, even some high-level executives when we announced that deal, they were equally excited about it. And I think again, strengths and deepens our relationship even more there.

On the acquisition front, by the way, our goal remains to execute another, at least one more deal this year that could deliver $10 million to $20 million on run rate revenues, and we're actively reviewing several quality possibilities now. I mentioned in the last call, how strong that acquisition pipeline is and that hasn't changed. It remains strong with, as I said, quality deals out there.

So in summary, we think a tremendous quarter. We feel very good about our performance, our momentum, the opportunities to gain share as we have been and continue to scale. I'd love to exit 2011 in the ballpark of $300 million in run rate revenues, I think we can do that, that would have us on a nice pace by the way, a solid pace to achieve our goal of $500 million run rate by the end of 2013, and that remains our goal and we feel like we're strongly on track to achieve that.

So lastly, I'm going to comment on Q3 and the remainder of 2011. The Company expects its third quarter 2011 services and software revenue, including reimbursed expenses, to be in the range of $66.3 million to $70.7 million, comprised of $64.3 million to $67.7 million of revenue from services, including reimbursed expenses and $2 million to $3 million of revenue from software sales. The midpoint of the third quarter 2011 guidance represents growth of 26% over the third quarter 2010 revenue.

Company is raising its full-year 2011 revenue guidance to a range of $255 million to $270 million from the previously provided range of $245 million to $265 million. Company is also raising its full-year non-GAAP earnings per share guidance to a range of $0.76 to $0.83 from the previously provided range of $0.73 to $0.83. Our reconciliation to GAAP earnings by the way, as Paul mentioned, can be found on our website.

So with that, we're going to open the call up for questions. Operator?

(Operator Instructions) Peter Heckmann, Avondale Partners.

Good morning, gentlemen. Nice quarter.

Good morning, Pete. Thank you.

Thanks, Pete.

What was the utilization ex subcontractors in the quarter? I assume the 83% included subs.

No, 83% was actually net of subs and China, so that's their core business US.

US, yes.

By the way I want to point out if you -- year-over-year that's down, I'm actually happy with that. So year-over-year that's down, yet margins are all substantially up and by the way, 83% is right pretty much dead center in our sustainable range.

Right. Right. Okay. And then so utilization all in with that have been little bit higher.

Yes, I think it would. I think the subs actually more than offset the offshore. So it's a little higher.

Okay. And what was ending head count in China?

Paul said it's [80-60].

Okay. What was the ending head count in China?

As of right now, let's say July 1, we do an internship program there, so we got internships starting in July. So I want to say we're about 175, 180 billable right now in China.

172, but yes.

172.

Yes.

Got it. Got it. Okay. And then the change in the bill rate was pretty significant. Is that just a product of new projects coming on that were booked at higher bill rates or is there a little -- is there also a little bit of a change in mix towards kind of higher-value projects.

I want to say it's more of the higher-value projects. Certainly as we're continuing to expand in healthcare, we're enjoying nice rates there. But across the board, we're able to lift those rates back up and generally a better demand environment and some -- little more pricing influence.

Acquisitions helped a little bit with that, but actually -- so we were at 127 all in, but we actually were or ended with -- at 126 net of acquisitions. So we're real pleased with the progress we've made there and it's actually kind of outpaced our goal so far this year.

Great. All right. I appreciate it.

Thanks.

Thanks, Pete.

George Price, BB&T Capital Markets.

Thanks. Good morning, guys. Nice quarter.

Thanks, George. Thank you.

Hi, George.

So just looking at the guidance first, so the 2011 guidance you raised $5 million at the upper end, but that didn't include JCB last quarter, but it does this quarter, right?

That's right.

So JCB $15 million annual probably contributes $7 million to $8 million in the second half in terms of revenue. So I mean net-net [2000] revenue guidance looks like it was narrowed a couple million maybe at the top end. I mean I realize things are always moving around. We're talking about a couple million dollars on a very large revenue base. But is there anything we should take away from that?

Honestly what we did there, we feel like things are on track. I would say we're not looking at a ton of upside from where we started the year from, from a guidance standpoint, however, we're pleased with where we are. And honestly what we did in narrowing the range since we're halfway through the year and we had a better handle on where it was going to be.

So we narrowed the range and honestly simply took half of the JCB revenue $7.5 million and added it to our prior midpoints. So we actually brought up the bottom by $10 million and the top by only $5 million, but the midpoint is exactly to $7.5 million from JCB higher than where we were.

Okay. All right. That's helpful. And then third quarter was kind of looking a little flattish versus my expectations, less so maybe consensus, but some of this may be reimbursed expenses, some of it may be softwares, is there anything else to kind of add to that, can you help sort of put the third quarter guidance in perspective with the full-year guidance?

Yes, sure. Actually, we're -- the organic number on that is 10% year-over-year. And actually it's -- interestingly it's 5% quarter-over-quarter. So macro environment for the core business that we're in is quite positive. The reason that all in it's only about 1% is that one of the acquisitions we did at the end of last year, speakTECH about a $16 million business, actually had a really nice project that surged them forward in the second quarter.

So I'm rounding here, but let's say again a $16 million business, they went roughly from four to six in a single quarter and then back to four. That's a single project. The relationship is strong with that client. They have decided to hold off on the subsequent phase to that engagement, simply to test the viability of the solution.

It's actually a product effectively, in fact it's a cloud product that they are developing and they're working right now with their customer base to determine how much interest there is and it to determine whether they move forward or not. We're encouraged or optimistic that they will, but we thought like the conservative thing to do is completely take it out of our forecast. So right now that's not anywhere in our guidance or forecast for Q3 or the year.

That said, that acquisition still, even if that project didn't ever happen by the way, is still going to meet or exceed actually the model that we had for it in terms of both revenue, profitability and accretion. There was an earn-out associated with it that, we're certain they're going to achieve that as well.

So it was a good deal, made good sense and we're very happy with it, but again causes this sort of odd appearance in those sequential revenues despite the fact that actually from a macro perspective, we're encouraged again, organic numbers, leaving all acquisitions out less than a year old, we're actually guiding to the midpoint up 5%, that compares to flat or down a little last year and our sequential guidance and again 10% year-over-year.

Great. Okay. Thanks for clarifying that, I think that's important. Going forward, did you expand within the Fortune 1000 client base, is that going to have any impact on revenue -- is that going to have impact on -- any impact on revenue items like software, reimbursed expenses, I mean how should we think about those things may be changing going forward?

Yes, that's a great question. Some of the -- I'll start with reimbursed expenses and come back to software. The reimbursed expense, as you know, couple of the acquisitions that we've done recently, most notably Exervio, isn't really a travel model, that's primarily a Charlotte-Atlanta based business. There was some Dallas also that incorporated into our business. So we expect basically zero reimbursed expenses to come from that acquisition.

We will pick up a little bit from JCB, which I would estimate to be the same percentage of revenue of services that we have for the rest of the business. So I think that'll vary depending on what kind of acquisitions we do. Obviously, from the organic standpoint, as we grow, it'll just continue to scale. But again, the difference probably between Q2 and Q3 there was that Exervio is not that travel model and not putting up as much reimbursed expense revenue, which of course is zero margin anyway.

On the software side, I talked about couple of things. There's couple of things going on there. I talked about one on our last call in that we are kind of pushing back or moving away from low-margin deals in software. I talked about I think in the first quarter we had an opportunity to do a renewal, but the margin was near zero and the distraction associated with that, the opportunity cost and of course the risk in carrying the dollars, it just doesn't make sense for us. That's a little different philosophy than we've had in the past, but I mean you can expect that to continue.

And then I think maybe more importantly than that as you alluded to, as we move up market and most of our resale by the way is with IBM, we do a little bit with our other partners, Oracle and potentially actually some TIBCO now, but those are small.

So it's mostly IBM and as we moved up market more into the say Fortune 1000 group of customer, these vendors all have enterprise license agreements in place with that size of a customer. If there are big IBM shops, they've got an enterprise license agreement in place and there is no opportunity to resell in that environment.

So that's another thing that I expect our software, as a percent of revenue, as we continue to move forward, we're going to continue to be opportunistic with it. It's part of our business when we're going out and partnering with these guys to close these deals, we get the services, they get the software.

Opportunistically, we'll continue to fulfill it where the margins make sense or if it makes sense strategically in terms of relationship with a customer that's an ongoing customer. But I do expect, as a percent of revenue, that will probably continue to decline as we go forward. And I said simply as a function, I think from a positive perspective of us moving up market and having less opportunity to resell where these enterprise agreements are in place.

Okay. Okay. You mentioned good outlook in terms of the macro environment despite all the headlines. You said bookings trends were strong. If I missed it I apologize, but I didn't hear any specific numbers around bookings. Can you give us some of the growth numbers that you tend to give us on bookings either quarter or trailing 90 days?

Yes. I want to say -- do we have a percentage on that on quarter-over-quarter? It was --

About 20%.

About 20% up over Q1 bookings and substantially up over last year. If you recall last year, our Q2 and Q3 bookings were pretty soft and so we're substantially up over last year Q2 and even sequentially. So as I kind of mentioned I think on the last call and maybe in some of our subsequent conservations, we're still not seeing -- despite the fact that you get up every day and see the gloom and doom around you from an economy standpoint, right now we're not seeing the impact to our business. And again compared to last year, we're pretty pleased.

Okay. Just a couple of housekeeping things and then I'll get back in the queue. For what -- I'm sorry, I missed the bill rate in the quarter.

Yes, the US bill rate was $127, which is up $4 from $123 in Q1.

Okay. And then, the -- can you give us the amortization and the stock comp that you expect either per quarter in the second half over the second half overall, but just kind of how you expect those two things to change just given the acquisitions and everything else? Thanks.

Yes. So, yes, so we're expecting -- obviously, we did the acquisition, so we're expecting sort of a $300,000 increase in amortization as a result of -- principally as a result of the JCB acquisition and we'll see that drop a little bit in Q4 as one of our '07 acquisitions becomes fully amortized, that number will drop a couple of hundred thousand. And obviously, all that if we do other deals and numbers will change as a result of that. And from a stock comp perspective, the estimate would be, it'd be about $100,000 higher in Q3 than it was in Q2. So fairly consistent there.

So, okay. So just -- I'm sorry, just to be clear, on the amortization, the plus $300,000 was in 3Q and then you'll see a lot of that drop 4Q, okay. All right. Great. Thanks very much.

Thanks, George.

Brian Kinstlinger, Sidoti & Company.

Great. Thanks. Good morning.

Good morning.

The first question I had, the $127 bill rate, what was the all-inclusive bill rate?

With offshore?

Yes.

With offshore, it was $117, up from $114 in Q1.

Okay. One more number I missed, if I could, the 500,000 number of clients, I just didn't write it down fast enough, how many of those deals did you add?

I want to assume we had 15.

15.

15 deals and as I pointed out, the important thing there is those are 15 deals averaging $1.3 million, compared to 22 deals averaging $850,000 in the first quarter.

Just want to make sure I understand the bookings, to follow up on one of George's questions, you mentioned that bookings were up 20% from Q1, now if I recall, Q4 and Q1 were your two best bookings quarters in the history of the Company, is that accurate?

Yes, that's right. That's right.

So, this is at least --

Keep in mind that we've got some acquisitions contributing to that, to some degree, but even none of those, it's still -- that's all still true, it wouldn't be 20% netting out the Exervio acquisition. But --

The core bookings.

I think bookings, it's substantial higher and the nice thing about that too is and I'm not sure if this is where you're going, but I want to make the points to take the opportunity, is that -- those are longer-term deals, so actually we're building a bigger backlog into the future than we have -- for the past certainly couple or three years and I'll even say historically, these are larger longer-term deals with bigger customers and so, we're not seeing maybe as much immediate impact of that, which -- but over time we're building a much bigger base of backlog for the business.

Great. The last quarter you mentioned a large GPO that you had put a system in for potential opportunity with its number of firms. I wonder if you could quantify the RFPs that you've already responded to and what the pipeline is looking for and your progress already in wining work with those customers?

We closed our first one and the total opportunity there we're estimating to be and all these things are chunk down into pieces, but this whole opportunity there is going to be about $4 million and we are working -- it's less -- little bit -- well, it's a nuance, it's little bit less of an RFP process than it is us actually partnering with the GPO and kind of demoing this product, et cetera.

So we do have ongoing opportunities we're pursuing now. I think there's two or three others on the table. Like I said, the first one's in the bag, we think it'll total around $4 million and the relationship with the GPO continues to be strong. In fact, we're in the process right now of finalizing our next kind of big phase with them directly. So that by the way will contribute to some nice bookings in August.

I'm thinking your first bunch you're looking at are the larger ones that are the multi-million-dollar type or is that accurate?

That's absolutely right. There's a fairly narrow group that we've targeted together, but even the $4 million we estimate is going to be kind of the average size opportunity from us.

Okay. And that's not the average of all the thousands of -- there're still ones that you're going to go after.

Yes, I would say -- that's a good point. I would say that's the average, the ones that we would likely pursue in the next say 12 months. As we knock out, assuming this continues to be successful and we're optimistic it will be, but as we knock out these bigger ones, to your point we probably will move down channel a little bit and then those will get a little smaller. But I think for the next year this is the size we're looking at.

Now if I look at P&L or at least the revenue line on healthcare, it was a great sequential bump on that healthcare line. Is that this or is that something else?

This has been ongoing. So, the one opportunity I mentioned -- I'm sorry, yes, the GPO relation has been ongoing. So it's not bad. The one opportunity I mentioned did contribute to it, but honestly it's not the major contributor. Bookings for healthcare were 35%, 34% of our total bookings. And it wasn't just that one GPO opportunity, there is -- we continue to win new work, new clients and new extensions in healthcare, it continues to be a really strong business for us.

Now, given what's going on in healthcare for you and secondarily financial services, what are your recruiting plans for I guess the rest of the year and maybe even next year as you think about what seems, at least from your discussion, seems like accelerated demand over the next six quarters or so?

Yes. We're very actively recruiting. I'll tell you the net -- our net head count you should assume or we can assume is going to be -- is going to scale with the growth that we've pointed to in our guidance for the year. So you can dissect what the second half is and honestly I would apply the head count growth to that more or less, will grow a little faster in China because the rates there are little lower. And actually some of that growth will come from higher bill rates, so even that scale is going to be slightly behind the revenue scale.

Okay. And the G&A, there was a bump and I saw that last quarter, in the second quarter too. Is there something [seasonable] about the bump in SG&A in the second quarter ex stock comp that comes back or is that just adding on the acquisitions and -- so just maybe give us a --

So I would say the primary driver there -- well, there's a couple of things, Brian. One, with the Exervio acquisition, that certainly added some sequential SG&A in Q2 and then the other thing is based on the performance relative to our bonus plan, there is more bonus accrued in the second quarter relative to the first quarter and I would expect that the levels on that will continue similar to the second quarter or perhaps a little higher as you look at Q3 and Q4.

So are there acquisition/deal costs in the second quarter like there were in the first quarter -- I'm sorry, in the second quarter, are there any in the third quarter?

There should be a minimal amount in the third quarter because most of the costs associated with JCB were incurred in Q2 and those are reflected in our second quarter numbers.

Great. Thanks guys so much.

Thanks, Brian.

(Operator Instructions) Matt McCormack, BGB Securities.

Yes, hi. Good morning. Obviously, your revenue continued to increase, I guess the question is from an operational perspective, now that you're starting to get to the size where you're at, are there any kind of organizational or management changes that you are possibly facilitating?

It's a great question. And we will continue obviously to scale the executive management team. We will likely add certainly, as long as things continue on this path, we will add another position or two kind of at the executive level, not at the officer level, but line level VP.

I don't think though as -- if you look at SG&A as a percent of revenue, I don't think you're going to see a big jump there and potentially in the first quarter when we start a new person, you might see a little bit of incremental, but like I said as a percentage of revenue, I think it will be relatively small.

Okay. And then -- sorry if I missed it, but did you talk about social media and how you're seeing that demand for those types of services across your different verticals?

It continues to pick up. We're pursuing a lot of opportunities. As I mentioned I think in the past, the acquisition, the addition of speakTECH back in December last year really enhanced our capabilities there beyond what we already had and we already had some good skills, and we continue to see good strength there. Lots of opportunities, those tend to start sometimes smaller opportunities, but then can blossom into something pretty substantial.

That deal I mentioned, I referred to earlier, that was $2 million by itself in the second quarter. That began as some social media consulting basically and really blossomed into then a complete solution development and that was the power, of course, of adding that capability or deeper capability in that space to a firm like ours that can take it full cycle. And we're seeing that certainly begin to pay dividend. So still a hot space, still a lot of interest in that, some companies really moving forward with some big plans, some still just testing the waters, but we still see it as a nice opportunity, that by the way and mobility.

Right. Okay, thank you so much.

Thanks, Matt.

George Price, BB&T Capital Markets.

Hi. Thanks, guys. Couple of things. The first, IBM relationship, I mean IBM has posted several strong quarters of software growth, particularly in the core middleware platforms and it seems like higher-end more discretionary kind of IT investment and obviously one of your areas of expertise. Are you seeing evidence of that software strength given your relationship with IBM in your business, in your pipeline?

Yes, absolutely. IBM is the fastest growing piece of our business from a platform perspective for sure. Particularly around BI and as I mentioned now with the addition, of course, of the EPM capability with JCB, we expect strong growth there. In fact, we were already doing the TM1 EPM work. And honestly couldn't hire fast enough.

So JCB was a great addition to the team. So BI, EPM, as well as business process management work around WebSphere Process Server Lombardi, couple of the acquisitions they made in that space. All of those things are very, very strong. Portal remains a stalwart. It's always strong, but I think the biggest growth that we're seeing in all these areas that IBM's kind of expanded into over the last two or three years.

Okay. Helpful. And then what happened -- again apologies if I kind of missed it, but what happened to collections in June. Is it just -- is everything going on in terms of the headlines, clients held back a little bit, just curious.

Yes. So, I think in June -- certainly June was a slow collection month, I think some of it is attributable to as we're -- we've been opening up new accounts. Sometimes they pay a little slower as you're getting the process nailed down for those accounts and as we have some of these bigger accounts and to be honest with you, the healthcare industry, in general, is probably not the quickest paying industry. So we continue to work with our team and the clients and continue to get those resolved and it's certainly a point of emphasis with the ops team, as well as the corporate team to continue to keep a close eye on those and work those before they age.

Okay. Okay. And, Jeff, I wanted to ask you a little bit about your -- there is nothing new anymore I guess, but the relatively new forecasting methodologies and tools, and how that's kind of tracking in the current environment. The current environment reminds me a hell lot of last year at this time, maybe in some ways worse, at least in terms of the headlines and there was some volatility back last year around now in your visibility as a result of that.

And clearly you've said this year does not look like last year, but just curious how those new tools and methodologies for forecasting or how you feel they're kind of holding up with the acquisitions that you've done with the change in the business mix in just kind of the current environment.

Yes, it has been helpful and it has extended our visibility a little bit. Honestly they're still a little new for us to completely have assimilated everything that we're working with there. And it's actually fairly simple, but it's still new enough to where you don't want to get too ahead of yourself until you've had a good track record of reliability. But it has extended our visibility.

And it's one of the reasons that again despite the environment, we can kind of look through the environment and leveraging that tool and some other processes that we're following now to feel better about what's going on despite what we're seeing. Concerned that's always out there, it's -- we're not unique in this, [those figures] can get turned off pretty quickly. But for us right now, as I said before, pipeline strong as ever, good strong bookings in the quarter. We expect strong bookings this quarter and again, to your point the visibility, the new tools giving us is pointing in the right direction. It only takes a month or two to change that, but despite everything around us, so far so good.

Okay, okay. And as you may -- as you continue to get larger and -- both organically and via acquisitions and geographically dispersed and pushing more work to your offshore delivery, all of which I think is positive. But [there's] potential challenges in just managing the delivery and execution of that work, I'm just curious. What your thoughts are on that, how you're going to kind of tackle that and stay on top of that, as you get to be a bigger company?

That's a great question. We've been hiring a lot of high-end talent to deal with that as a matter of fact and actually some of the acquisitions we've done are a tremendous addition as well. Exervio is a management consulting firm, after that firm I think are management type folks, project management, capability, management consulting and process consulting. So that in and of itself has been a big help. But like I said, we've been hiring a substantial amount of high-end talent and no one is ever perfect.

We're certainly going to have issues from time to time from a delivery perspective. But honestly, right at the moment, at this moment in time and really I'd say for the last probably couple of quarters, we've had less of those than we've had in the past. The relationships that we have as we're moving up market larger, frankly more sophisticated customers are more accustomed to, things happen that are always difficult to control, and once you've got an established relationship and continuity in the team, it's much easier to work through issues as they arise.

So you're right, I think that will always be a challenge and we intend to continue to scale around. We put actually a lot of dedicated effort in the last six months to addressing that specifically, both in kind of the here and now and also planning for the future. So, it will involve recruiting and it will involve promoting some of our strong people internally to manage more responsibility -- to take on more responsibility and so far that's working. And like I said, I can't understate some of the capabilities that we're gaining through some of these acquisitions as well.

Okay. Last thing, another quick housekeeping item. Paul, what was the cash from operations and CapEx in the quarter? Thanks.

Hold on a second. I'll just pull that out of the cash flow. Yes, so the year-to-date cash from operating activities is minus $4.1 million, which is in essence most of that is the growth in accounts receivable and CapEx for the quarter -- I'm sorry, year-to-date is $1.7 million.

It was negative $4.1 million.

Yes.

Okay, great. Thank you.

Ladies and gentlemen, that concludes the question-and-answer session. I will now turn the call back over to Jeff Davis for closing remarks.

Well, thank you, operator and again thanks folks for joining. We're pleased again and optimistic about where things are in the second half of the year and look forward to speaking to you again in a quarter. Thank you.

Ladies and gentlemen, thank you for your participation in today's call. This concludes the presentation. You may now disconnect. Have a great day.