Perficient Inc (PRFT) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Q3 2011 Perficient, Inc. Earnings Conference Call. My name is Maurice, 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).

I would now turn the conference over to Jeff Davis, CEO and President of Perficient. Please go ahead, sir.

Thank you very much. This is Jeff. Glad to be with you this morning. Thank you for your time. With me today is Paul Martin, our CFO. We've got, as typical, about 10 to 15 minutes of prepared comments, after which we'll open the call up for questions.

Paul, would you please read the Safe Harbor statement?

Sure. Thanks, Jeff, and good morning, everyone. Some of the things we will discuss in today's call concerning future Company performance will be forward-looking statements within the meaning of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements and we encourage you to refer to the additional information contained in our SEC filings concerning factors that could cause those results to be different than contemplated in today's discussion.

At times during this call, we will refer to adjusted 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 posted on our website at www.perficient.com under News & 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?

All right. Thanks, Paul. Well, again, we're pleased to be with you today to share our third quarter results, which we're pretty pleased with and in fact excited about the look forward as well and, of course, we'll cover guidance for the fourth quarter also. I'm sure you saw in the press release the second consecutive quarter of record revenue growth for Perficient, 31% annual services revenue growth for the quarter. Key performance indicators were higher as well, margins, EBITDA, net income, as well as earnings per share all up.

US employee bill rates remained strong at $126 an hour, and the utilization dipped slightly and that was the result of us hiring more aggressively into the increased demand environment that we see. We continue to believe there's an opportunity to incrementally raise the bill rates, as well as -- or I'm sorry as we scale in the years ahead, as well as maintain utilization as we've discussed before in that range of 82% to 84%. The result of which I believe will ultimately yield services gross margins of around 40% or more.

In the quarter, we closed 13 deals north of $0.5 million, which compares to 11 in the year-ago quarter. Now that's down a little bit from 15 we sold in Q2, but I think it's very important to point out that the average deal size, their average size for these deals in that category again continue to increase. You may recall last quarter, we highlighted that average deal size for large deals in the second quarter increased 66% over the first quarter and the sequential increase this quarter was not quite as dramatic, but still average deal size did increase and remains at an all-time high.

Bookings remained strong in the quarter, up 75% year-over-year in bookings. So, we're not seeing that kind of weakness that we saw this time a year ago at all. So, as was the case in Q2, we're selling more projects and larger projects. Our client count also continues to grow. We don't typically talk about active customer counts specifically in any given quarter, but I'll tell you that year-over-year that number was up 23%.

A meaningful amount of that, of course, was due to the clients that we gained through the acquisitions of speakTECH, Exervio and JCB Partners. But a good chunk of it also was purely organic growth and I think it's indicative of the improving market and our position in it, as I mentioned before.

So, again, we exited the quarter with cash on the balance sheet, no debt and that's after completing the purchase of JCB Partners and also doing some significant stock repurchase.

I'm going to turn the call back over to Paul now for details on the Q3 financial results and then I'll close with a few more comments around the quarter and guidance, as I mentioned before, before we open up for questions. Paul?

Thanks, Jeff. We'll start with the third quarter results. Total revenues for the third quarter were $70.2 million, which is a 26% increase over the year-ago quarter. Our services revenue for the third quarter, excluding reimbursable expenses, increased 31% to $62.5 million.

Services gross margin for the third quarter 2011, excluding stock comp and reimbursable expenses, increased to 35.9% from 34.3% in the third quarter of 2010. This is continuing our trend of year-over-year margin improvement. This is also in spite of third quarter 2011 margins being impacted by an increase in our benefit cost and the payroll tax implication of certain long-term travel assignments.

SG&A expenses increased to $13.8 million in the third quarter 2011 from $11.7 million in the comparable prior-year quarter. SG&A, as a percentage of revenues, was 19.7% in the third quarter 2011 to 21.4% in the third quarter 2010.

EBITDAS, which is defined as earnings before interest, taxes, depreciation, amortization and stock compensation, for the third quarter of 2011 was $11 million or 15.6% of revenues, compared to $7.2 million or 13.2% of revenues for the third quarter of 2010.

The third quarter 2011 included amortization of $2 million compared to $1 million in the comparable prior-year quarter. The increase is associated with the acquisitions we've completed in 2010 and 2011. The third quarter 2011 included acquisition costs and accretion of the fair value of contingent consideration related to acquisitions of $0.3 million.

Net income increased 54% to $3.5 million for the third quarter 2011 from $2.3 million generated in the third quarter of 2010. Diluted GAAP earnings per share increased to $0.12 a share for the third quarter of 2011 from $0.08 a share for the third quarter of 2010. Adjusted GAAP earnings per share increased to $0.22 for the third quarter 2011 from $0.16 in the third quarter of 2010.

Adjusted GAAP EPS is defined as GAAP earnings per share, plus amortization expense, non-cash stock compensation, transaction costs and fair value adjustments of contingent consideration, net of related taxes divided by an average fully diluted shares outstanding for the period.

Our effective tax rate for the third quarter 2011 was 39.5%, compared to 37.4% for the third quarter 2010, primarily as a result of lower projected foreign source income and certain non-deductible, non-cash acquisition-related charges.

Our ending billable headcount at September 30, 2011 was 1,436, comprised of 1,265 billable consultants and 171 subcontractors. Ending SG&A headcount at September 30, 2011 was 231. The acquisition of JCB Partners completed on July 1 added an additional 56 billable consultants and 11 SG&A professionals.

Now, let me turn to the nine-month or full-year results. Revenues for the nine months ended September 30, 2011 were $192 million, a 21% increase over the comparable period last year. Year-to-date services revenue for the nine months ended September 30, 2011, excluding reimbursable expenses, increased 24% to $171.9 million.

Services gross margin for the nine months ended September 30, 2011, excluding stock comp and reimbursable expenses, increased to 35% from 33.9% in the prior-year period. Improved ABR helped drive the year-to-date improvement.

SG&A expenses increased to $38.3 million for the nine months ended September 30, 2011 from $34.5 million in the comparable prior-year period. SG&A, as a percentage of revenues, was 19.9% for the nine months ended September 30, 2011, compared to 21.7% for the nine months ended September 30, 2010.

EBITDAS for the nine months ended September 30, 2011 was $28.3 million or 14.8% of revenues, compared to $19.8 million or 12.5% of revenues for the comparable prior-year period. Amortization for the nine months ended September 30, 2011 was $4.7 million, compared to $3 million in the comparable prior-year period. Again, the increase is associated with our acquisition activity.

The nine months ended September 30, 2011 included acquisition cost and accretion of fair value of contingent consideration related to acquisitions of $2.1 million, compared to $0.4 million in the comparable prior-year period.

Net income for the nine months ended September 30, 2011 was $8 million, compared to $5.2 million in 2010. Diluted GAAP earnings per share increased to $0.28 a share from $0.18 a share for the nine months ended September 30, 2010. And finally, adjusted GAAP earnings per share for the nine months ended September 30, 2011 was $0.57, up 36% from $0.42 a share for 2010.

Our effective tax rate for the nine months ended September 30, 2011 was 41.2%, compared to 39% in the comparable prior-year period. This increase in the effective rate is primarily due to increased projected -- I'm sorry, a decrease in projected foreign source income and certain non-deductible, non-cash acquisition-related cost.

During the third quarter of 2011, we spent $3.7 million on repurchasing 500,000 shares. And as of September 30, 2011, we have spent $51.7 million on repurchasing 7.1 million shares since the plan's inception in 2008. We continue to believe that our share repurchases will drive future accretion and shareholder value.

As Jeff mentioned, we ended the quarter with no debt and $2 million of cash on hand and we continue to have full access to our $50 million credit facility.

Our days sales outstanding on accounts receivable were 81 days at the end of the third quarter. The increase over our historical levels is primarily related to our additional business in our healthcare vertical. We believe that our ongoing joint operations and finance collection efforts in this area will bring DSOs back below 80 days over time. We will continue to aggressively pursue this initiative.

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

Thanks, Paul. We talk each quarter about diversity in our solutions platforms and client relationships being a real strength of the Company. And the third quarter was no exception. During the quarter, our top five customers combined represent just 19% of revenues. Healthcare accounted for 29% of revenues in the quarter continuing to grow substantially both absolutely and relatively, followed by another fast grower, financial services at 15%. Our financial services practice is now up and running. As we witnessed with healthcare, we expect growth there to accelerate going forward in financial services.

From a platform standpoint, IBM, Microsoft and Oracle remain leaders. We have tremendous traction with each of those organizations right now. IBM, in particular, this quarter was a stand-out and a strong year. As a matter of fact, we were pleased to recently be recognized by IBM with two awards at their Information On Demand 2011 conference, which is really their premier annual information management brand event.

I'm particularly excited about being the sole recipient of the Solution Excellence Award, which we earned for the collaborative work we're doing with IBM and our partnering client Premier. Premier is the country's largest healthcare group purchasing organization by the way.

And together, we developed the integrated performance platform offering that enables healthcare providers member firms of Premier, which represents 40% of the market in this country, to reduce cost through aggregated purchasing and the ability to access Premier's contract management systems via the cloud.

We continue to grow our reputation as the healthcare industry consulting provider of choice, by helping our clients with challenges, including systems integration. The notable industry shift toward consumer-driven healthcare, we're seeing a lot of demand in areas like business intelligence and a 360-degree customer views being a patient as customer there, as well as meeting regulatory requirements such as Meaningful Use, ICD-10 and Accountable Care.

Our success is evidenced not only by the results, but by the growing pipeline of opportunities and discussions with net new prospects in that industry. And as I mentioned earlier, financial services is the next industry where we've built a dedicated national practice. Using our healthcare practice success as the model, we're putting infrastructure in place right now to drive meaningful growth there in 2012, and we expect that to happen.

So, in summary, another great quarter, we feel very good about it. And we continue to gain share and believe we have significant momentum as we close out 2011. On the M&A front by the way, we're in active discussions with several firms and we still expect to finalize one more deal, hopefully by year-end and if not year-end by early next year. So, I think, we remain pretty well on track with our M&A goals.

So, for a look forward for the fourth quarter, Perficient expects its fourth quarter 2011 services and software revenue, including reimbursed expenses, to be in the range of $67.5 million to $72 million, comprised of $63.7 million to $67 million of revenue from services, including reimbursed expenses, and $3.8 million to $5 million of revenue from sales of software. The midpoint of that fourth quarter 2011 services revenue guidance by the way represents growth of 32% over fourth quarter 2010, so 32% year-over-year. 13% of which is organic and the rest is a result of the acquisitions we completed this year.

The Company is narrowing its full-year 2011 revenue guidance to a range of $260 million and $264 million from the previously provided range of $255 million to $270 million. And we're also narrowing our adjusted earnings per share guidance to a range of $0.76 to $0.80 from the previously provided range of $0.76 to $0.83.

So with that, operator, we can open the call up for questions, please. Operator?

(Operator Instructions) Matt McCormack, BGB Securities.

Yes, good morning. In your release -- you didn't actually mention it on the call, but in your release you talked about taking market share from competitors. I was wondering if you could elaborate on that, and what -- which verticals you're doing that in and how many of these 13 deals were competitive takeaways?

All of our deals are competitive. I would say, we continue to unseat incumbents and that's where I see us gaining more share. Our win rate, when we compete against the big guys, including Cognizant, Infosys, offshore, in terms of offshore, as well as Accenture, Deloitte and the like, is actually increasing, it's been 65%, historically it was 70% plus in the third quarter. So, that's one example and those are probably newer deals, but we've unseated a number of those guys and I won't name names in a number of accounts and I would say that's in several industries although certainly we see it in healthcare as well.

We have moved into a number of situations with several of our clients recently, where we started in a competitive environment where we had ourselves and one or more of those other firms that I mentioned involved and invariably in the vast majority of those accounts, we've taken over most, if not all of the work from those accounts where they struggled to deliver. They really -- in particular, the offshore guys, but even the larger domestic firms that really rely a lot on outsourcing and offshore struggle to deliver in a highly iterative project like these tend to be.

Okay. And I believe last quarter you gave out your average deal size, I think it was like $1.3 million or something like that. Are you going to continue to -- can you provide that this quarter or is that a metric here?

Yes. Average deal size over $0.5 million is what we talk about typically and this quarter it was about $1.37 million, I believe.

That's right.

$1.37 million, okay. And then healthcare, obviously largest vertical and you did mention a few drivers there EMR, ICD-10 codes and ACO. I would imagine ACO is still kind of far off, but what specifically are you doing right now within those three areas?

Well, we've helped clients -- a number of clients with 5010 migrations. We are beginning to do a fair amount of ICD-10 preparation, I would say. As you could imagine, a lot of these clients have a system environment that's not conducive to coming in and getting up to speed very quickly. So, a lot of it is, I'd almost describe it as kind of remediation or the starting point, which therefore I would gladly describe the opportunity here still and maybe the first or second inning to use a baseball metaphor. We are actually looking by the way and we announced Health BI, an offering that we've got that does help with ACO and Meaningful Use. And it's actually a kind of a bundled solution that's turnkey obviously with some services.

We're going to continue to develop more assets in this space. We see a good opportunity there to do things like developing integration interfaces into legacy systems like Epic and Cerner, McKesson, et cetera for some of these new products that we're helping to develop and some of these new solutions. So, it runs the gamut of all those and you're right, ACO is a little further off, but we've got clients again that are preparing for that and anticipating it. Very few customers that we see are up and running on even a 5010 yet and there is a substantial percentage, over 50% by our own estimation that haven't even begun the work.

Okay, okay. And then just in terms of your guidance, you've I guess shaved a little bit the high end on both revenue and EPS. What -- I guess, I mean obviously you're reiterating essentially, but what changed for you to kind of lower the range?

Well, obviously, on the revenue side, we have clarity now on the fourth quarter. So on that, I would point out that we actually brought up the bottom and down the top and really the midpoint stayed essentially the same. The difference on earnings is we have had some higher cost and I'll let Paul speak to that this year that are more one-time over the last couple of quarters and we expect that to continue in the fourth quarter, but again are more a this year event. We believe some of it's got a little bit of uncertainty. I'll let Paul elaborate on it.

Yes, Matt, certainly we do have some one-time on what we believe are going to be one-time costs relative to benefits. You were self-insured and as a result of that, our claims -- we had more large claims this year than we've had in the past and we think that should turn back to -- more to a typical number in 2012. And then similarly, we've had a number of assignments that require long-term travel that require some additional payroll taxes and I -- we're putting some initiatives in place to manage and reduce those on a go-forward basis.

Okay. And then last question, you bought back shares and does that mean that you're less likely to execute on an acquisition over the coming quarter or how are you kind of balancing those two?

Yes, no, not at all. We intend to continue to do both. We've got an active 10b5 plan in place with some modest levels at various price targets and we intend to continue to also take advantage of opportunistic buyback like we did this quarter in conjunction with the acquisitions.

We don't intend to back off of acquisitions. In fact, I mentioned on the call, it's still my hope to get one more done this year, which is our original goal and if we don't have it done by literally the end of the calendar year, it will be very early next year, and our goal is still to acquire about $50 million of run rate revenue each year. But we again through our cash calculations and projections and the amount of cash that the business is able to throw off -- and DSOs have eaten a little bit of that, but we think those are going to come down, as Paul mentioned earlier. We're confident that we can do both and that's our plan.

Matt, one thing I'd add to that, as we talked [about], we have a $50 million credit line and we actually borrowed a little bit in conjunction with the JCB transaction. So, I think we feel comfortable with the cash generation of the business. We can run with a little less cash than we have historically and execute on both the share repurchase plan and the acquisition plan. We feel good that we have the balance sheet to execute against the plans that we have out there.

All right. Thank you so much.

Thanks, Matt.

Brian Kintslinger, Sidoti and Company.

Hi, good morning guys.

Hi, Brian.

Hi, Brian.

The first question, did I hear right and I don't think so, healthcare was 29% of revenue or was that right?

That's right.

29%, okay. So, I guess when I take a look at and last quarter healthcare was 24%, right?

That's right.

That's right.

So, when I look at healthcare increasing $4 million sequentially and financial services up about $1.5 million sequentially, that is significantly more than you grew sequentially overall. We haven't in a couple of quarters gotten the telecom, energy utilities and any other sectors. Is there weakness actually in those sectors that we've seen a pullback or contracts that are ending? Are the customers not starting new projects? Maybe gives us a sense for the rest of the business, which is more than half the business?

Yes, it's -- I would say they are contracting relatively. Specific weakness, we've seen maybe telecom slow down a little bit. I don't think that's -- I don't think any of it's in macro. Honestly, I think a lot of it is, we're shifting more of our focus and attention to these other verticals.

And by the way, I want to point out that organically we did grow 5% quarter-over-quarter from Q2 to Q3. So, we are seeing again just an increased strength, I would say, more relatively in the two sectors that we focused on. But the others are actually, there's not one in particular that's sort of dipping if that makes sense.

And then, if I dip into healthcare just a tiny bit, you've talked about the GPO, you didn't mention it I think today. And maybe where are we with the number of member firms that signed on, was that part of the $4 million sequential increase and maybe what's the pipeline for more of these numbers to come on right now?

Yes, hard to quantify the pipeline although it's substantial. Again, these guys have 40% of the market in the country as members of the organization. So, that's the entire market just for this one product and of course, we're doing work elsewhere as well.

So, we've got one client that's actively engaged and we're actively doing a build-out, but we've also engaged along with Premier and IBM a consortium of five of the major firms where we're evolving the products to be more of a turnkey solution that these guys will then engage in purchase. The opportunity there, I'd kind of hesitate to quantify it too much. But it's in excess of $10 million, probably closer to $20 million, all in for those -- just those five member firms. And then there's many, many more beyond that obviously.

So, we're still in the stages of finalizing the solution, the product and exactly how we're going to take it to market. But we're now doing that in conjunction with again these member firms and in some ways, in fact, we're getting paid for it. In some ways, we're investing in it. We'll actually come out of this owning some intellectual property that we'll be able to leverage in other ways.

Let me just make sure I understand for this consortium of five major, whether it's hospitals or healthcare organizations, you're not recognizing revenue yet; right now you're building the product for them, they'll have to accept it, implementation will happen when that happens, that's when you'll start to recognize revenue if that all occurs.

I would say we're not even building it. We're just doing design. We built one piece of it. And that's what we're implementing at the one client that I mentioned, the one that we are actively building, actively engaged with, and the next phase is the way I would describe it. We are defining at a high level, the requirements to size up exactly what we want to do and that we're going to move into the billable phase of it, which should come early next year.

And then, the last question related to this piece. Would you say the macro environment is slowing this at all or maybe just characterize the timing of how things are playing out versus your expectations?

Oh no, it's the timing. It's a matter of -- it's actually a matter of, no one has a product like this. So, it's actually, I would say, the natural early stages of product development. And we've changed and I'd say, we -- Premier and their customers are largely the driver -- have changed a little bit the focus and how they want to take it to market and that's been the delay. It's got nothing to do with macro at all.

Okay. And then when I look at -- last question on the guidance, just a little bit of a follow-up. You made an acquisition that added what seems to me, I don't know, maybe $6 million, $7 million of revenue in the second half of the year.

You still took down your -- the high end of your revenue guidance. I guess what does this suggest about the user acceptance on that large application you've talked about in social media that may or may not add revenue at the end of the year with that Fortune 50 company or maybe what it implies about the rest of your broader client base in terms of where we are and how deal flow is moving compared to expectations?

The guidance that we had out there included the acquisition that you're referring to. The guidance was updated when we did the JCB acquisition, so --

Okay.

In anticipation of it.

[The one we did] in August.

We cleared the deal in July and the guidance came out in August, okay. So, it did include the $6 million, $7 million. Again, I would say we're more narrowing it than bringing it down and literally the midpoint has stayed exactly where it was. And I think we're into the point we have two months left in the year and the opportunity for upside is not what it was before. The risk of downside is also not what it was before. So again, we brought up the bottom, brought down the top just to narrow back to the same midpoint we've been at since August.

I think there was an opportunity for more accelerated growth than maybe the third quarter that we realized although I think we had a good quarter. And I want to point out in the fourth quarter by the way, the midpoint of our fourth quarter guidance is flat. Keep in mind that the fourth quarter is typically a seasonal -- well, it is a seasonally down quarter, 2% to 3% from holidays alone.

And let me point out also, is something we don't normally get into the nuance of, but in this quarter, we happen to have 63 billable days. In each of the prior three quarters this year, there were 64. That difference alone is another 1.5%. So, effectively, we're seeing enough growth in the fourth quarter here to offset what would have otherwise been a 3% or 4% or 3.5% to 5% decline just from pure seasonality. And again, point out that we're up 13% year-over-year this quarter.

So, we feel very bullish about the results and where we're headed. We just felt it was appropriate to narrow the range given that we can see where we are now, two, three months later after we put out that range initially or reaffirmed that range initially. We probably could have tightened it some then.

Any feedback from that customer on that social media application you highlighted in the last conference call?

We continue to do some work with them, it's moving slow, and I'd say they haven't gotten the traction that they had anticipated getting from the market, and are still again back to the product development commentary I made earlier, I think it applies here as well, is that they're shifting their focus and trying to decide exactly what they're going to do.

At this point, we're not counting on that coming back to us in a big way, but we're often doing other work and replacing it with new accounts. So, I'm not concerned about it. However, we're still in the loop and still working with them, and we've still got people actually billing and working with them on that solution.

Great. Last question I have is related to some relationships you've built recently on cloud computing that you're working to integrate. Maybe give us a sense for the early successes or how things are moving very early on in early stages and how long before maybe this becomes something integral in your business?

We've got something -- I couldn't quantify it for you, but we've got probably half a dozen opportunities in pipeline right now that we're pursing jointly with Rackspace. I expect that in fact, we just created a company-wide practice role within the Company and filled it, specifically around cloud and who initially by the way will be working to foster and work the Rackspace partnership. So, we're excited about that. I've had conversations with Lanham Napier, the CEO of Rackspace. They need a partner, a partner like us that knows how to operate in the mid-market that can help their clients with migration and data integration to the cloud and to their environment.

So, we have seen -- again, I wouldn't say we've closed work yet, but we've got a number of deals in the pipeline that we're actively working with them. And I expect that that will grow. We'll continue to track that and be happy to report to you next quarter, what kind of closes we've made or not. But we again have got -- we're confident enough in it and optimistic enough about it that we've got dedicated resources focused on not only cloud and cloud solutions around similar types of offerings, but specifically also to the Rackspace relationship.

Great. Thank you so much.

Thanks, Brian.

George Price, BB&T Capital Markets.

Thanks, good morning guys. First thing on the -- just going back to the healthcare product development, just a clarification, if you're not in development yet, is that going to be more of a factor from a cost perspective, I don't know, over the next two to four quarters? What time frame is -- how much of that's going to be operational versus CapEx, that sort of thing?

Yes, let me clarify if I didn't make it clear enough before. We have done development to the tune of eight figures worth of work that we have been paid for. So, Phase I is done. It's a matter of fine-tuning, I would say right now as where we are, is okay, we've taken this out, we've shown it to the customers, they've said, gosh, it would be great if it had this or had that. So, that's where we're at right now is more fine-tuning it. And then also by the way, it needs to be integrated, right. So, we've got to build those interfaces, as I mentioned before, to some of those information management systems like Epic and Cerner.

So, that's actually -- I would view all that as actually the smaller piece of work on the product and a lot more work on the integration into their environments, which is payable work. We will be doing, again, some investment on this, but the most obvious one we see, as I mentioned before, is the interfaces and that would be some CapEx.

I don't think it'll be a huge amount of money. We'll probably use our China facility to do the development where the costs are lower. In fact, I'm sure that's what we'll do. And I think we'll be doing that in parallel with the work that we're getting paid to do, if that makes sense. So, we're going to leverage, we're going to make our own investment, but leverage the domain expertise and the expertise and knowledge on these interfaces that we're gaining while we're doing billable work and doing the product development in parallel.

Okay. So that I guess it doesn't sound like that should be something that should be too material to the results. Is that fair?

I think that's right. I don't anticipate it. If I had and this would just be a wild guess. I would imagine our investment would be, and I'm guessing here, on magnitude of maybe $0.5 million over the course of the year, which is CapEx and then would be obviously amortized over the life of that asset, a couple or three years.

Yes, okay. All right, fair enough. And then going back to the question on the EPS guidance being narrowed and you talked about some factors impacting it, can you quantify those at all and just I guess talk about maybe a little bit more specifically about time frames and when those rolled on and how we should expect them to roll off?

Yes. So, I think in a broad perspective, I think some of those costs have been hitting us to a lesser degree in the second quarter, probably a little bit more in the third quarter on the benefit side. And then the long-term travel kind of the same -- some in the second quarter and some additional projects went over the year into the third quarter.

So, it's really probably a generally a third and fourth quarter phenomenon. I think on the medical benefits, I think we're hoping for some improvement on some of those large claims and things in 2012. And so from a quantification standpoint, a rough number would be about $0.01 on the third and fourth quarter.

$1 million in total.

Right.

Right. $0.02 for the year.

Okay, okay. All right. Very good. And then on the DSOs, can you -- you mentioned part of it, one of the drivers of the DSOs not coming down quarter-over-quarter was in healthcare. Just so that I'm clear in understanding and I apologize if you mentioned it, I must have missed it. But what exactly is driving that in healthcare and what time frame do you expect DSOs to come down over?

I'll comment on that, and I'll let Paul add to it as well. Some of that is a result of establishing new relationships and new accounts, and we've done a lot of that this year and which is a good thing, but you have to kind of get the process nailed down and know honestly what buttons to push and who to call, what levers to pull to get cash freed up. Very few of our clients actually want to pay quickly.

So, it's always some kind of an effort to collect. We've offered by the way, as part of the services we're providing to these healthcare guys to help them with their accounts payable process, but none of them has taken us up on that so far. But I would say it's more of that. It's just a slow-paying industry, but I think we've got it. We've figured out what we need to do and we're attacking the problem, but I'll let Paul speak to it.

Yes. So I think Jeff hit the main points. As we get into some of these new accounts basically sort of figuring out how you push stuff through their payable system and what the approvals are in getting stuff through. It tends to be a challenge and so some of these new accounts as the first, probably two or three quarters, you run into some of those issues. And I think in general, the process in sort of the larger the account to some degree and healthcare maybe in particular the larger the accounts, the more complex the environment is to sort of push stuff through.

So, we have active calls with the finance team and the ops team of -- and frequent updates on who they're talking to in an escalation process. So, we think we're going to be able to bring that down in the fourth quarter and on into next year and get it back closer to our traditional levels.

And I guess sort of a good problem with that is we continue to add other new accounts that are a little bit slow out of the gate. So, there's a sort of a fresh set of opportunities to get the process honed down, but I would expect we'll see improvement. I wouldn't say dramatic, but we'll continue to see improvement over the next two or three quarters.

I think another point worth noting is that at least so far we haven't had any kind of abnormal or higher than average or typical bad debt experience with that industry. And in fact, where we have had kind of the run-of-the-mill bad debt, there's been no spikes.

But even in those instances, it's been more not necessarily an aging where you can say, if it gets to this age it's definitely going to go to bad debt. We've had things that weren't aged that much that went to bad debt, because the client went bankrupt. But there is not any correlation we can see yet between necessarily DSOs and an increase in bad debt experience.

Okay, okay. Looking into 2012 to the extent that you can -- well, actually let me first start with this, what was maybe the monthly progression through the third quarter in terms of demand bookings, ramp up of work that sort of thing. I mean, I guess was it -- how did it look? Was it at all unusual relative to what you typically see in the third quarter or was there any discernible impact from all the uncertainty and volatility that was going on?

Yes, it's a great question. And interestingly and maybe even a little surprising to me, it followed month-to-month, correlated really well to last year. July was low, which I really think had to do with the holidays and the start-up of the -- and in fact the first month of every quarter is often slow with the exception of January from a bookings perspective. But then we saw a very nice pickup in August and that was our largest month for bookings in the quarter same as last year. And then a little bit off of that, but still pretty strong in September.

So, we continue to ask our clients just anecdotally, and by the way, any time we lose a deal and of course you don't win them all, as we've talked about, our win rate is good, but it's not 100%. And any time that happens we reach out to the client and ask the question about macro or dig into those reasons. One, can we obviously do something better or different next time. But specifically now we're hypersensitive to the macro concern that's out there.

And I've got to tell you honestly, the answers we've been getting back are no and we're not right now seeing any softness at all. In fact, again, if I -- we've made very clear, year-over-year and our positioning going into next year, we've obviously -- with the bookings that we've talked about and the size of the growth of the bookings on a year-over-year basis relative to our revenue growth, you can see that we've kicked a lot of backlog into 2012 much more than we had coming into 2011.

So, I'm optimistic that that should be a platform for growth. Of course, the bookings experience we've had needs to continue, but we're not seeing anything yet that it's going to slow. We opened up -- I think one of our biggest bookings months this year was in June. And right before June we opened a substantial number of new deals in our Siebel tracking system and we've done the same thing here now.

So, I expect like we had last year a substantial decent bookings for the fourth quarter and decent bookings in December if the pattern continues. I mean I can't guarantee anything, of course, but as I look at all the signs and the indicators, it looks like it's stacking up to be very similar to what we had last year. So, another good bookings quarter in the fourth quarter, and hopefully rolling into 2012 with better momentum given that we've got better backlog.

So just to be clear so I understand, so you're seeing a pickup, I guess this would be in pursuits or progressing work moving through the pipeline in October then?

Yes. Yes, we have a larger pipeline, let me say it that way. We have a larger pipeline and a greater increase in new deals, the largest we've had since May of this year.

And also had a very solid bookings month in October as well.

That's right.

Okay. What about -- into 2012 what are you kind of seeing and hearing from clients and could the year kind of start slowly since everybody is pretty jittery about what's going on or any thoughts or indications in that regard?

We saw the year start a little slow this year, slower than we would have liked. I don't know that that was -- I honestly don't think that was as much macro as a little bit of a shift. As a result of the macro environment that really began back in '08, it's a shift in behavior and pattern. Before the recession we saw clients kind of kick off the year guns a-blazing by the middle of January. And ever since the recession, we've always seen a slow start to the year.

So, I would say we're not back to the point quite where we were pre-recession, but I do anticipate that this year -- at least I'm optimistic that this year will be a little better start than what we had last year. Things started slower than we'd liked again in the kind of January to mid-February time frame and then picked up nicely, and we had a strong March.

I'm hoping or optimistic, as I said, that given the backlog we pushed forward and the fact that, I think there is a, believe it or not, I'd say call it more resolve I guess on the part of our clients. I wouldn't say there is not more uncertainty in the economy. I believe there is, with everything that's going on around us at least that's what you hear. But it seems like our clients are looking through that and trying to continue to get back to business as usual.

And we've had early discussions this year or earlier -- definitely earlier than last year about budget commitments for 2012. In fact, we've got two or three clients that have already made the commitment and inked contracts that take us well into 2012, already this year and much sooner than we saw last year.

So remains to be seen. We've got a lot of work to do to close those deals that I talked about in the next two months. But I'm more optimistic now then I was at this time last year for sure. And I think even if we start slow in that January time frame, I still expect next year to be a strong year.

Okay, great. Appreciate the time. I'll turn it over. Thanks.

Thanks, George.

Thanks, George.

Peter Heckmann, Avondale Partners.

Good morning, guys.

Good morning, Pete.

Good morning, Pete.

Hey. Talk a little bit more about the bookings number in the quarter, that sounded like a great uptick. Remind me, I think a little bit of it was maybe a relatively easier comp with the September quarter last year. But talk a little bit about that number. And then if you could remind us what that bookings growth looks like year-to-date?

Yes, the year-to-date, well, actually could somebody find the year-to-date for me? But yes, you're right, year-over-year was 75%, and that was because it was -- a chunk of that was because it was soft last year, but that went far above and beyond just the softness last year. It was a good strong bookings quarter, and I would say, we talk about I think the second quarter being a record quarter, the third quarter was about at that level. I mean slightly down from that, but about at that level, whereas we saw a substantial dip in the prior year. Year-to-date I want to say we were about 25%, I believe, is the number.

Okay.

(inaudible).

And we're going to end up doing, the mid part of our guidance organic has us about, what 8.5% -- 8%, 8.5% year-over-year for the year. So, if our bookings can stay at 20%, 25% and the revenue is in the -- whatever 8% to 10% frame like I said, we're moving a lot of backlog into 2012, which again should give us a good platform for growth next year.

Yes, that seems great. I mean it seems in direct opposition to all the headlines about macro concerns and the potential for a slowdown in IT spending to have that type of bookings quarter I think is great. I would assume given the growth in healthcare, the bookings was a little bit disproportionately weighted to healthcare, but some of those, it appears that the demand drivers in healthcare, those timelines are kind of one, two, three years out as well. So, those types of things should continue.

Yes, I think that's right. The healthcare was a little above the actual revenue in the quarter, but for the year, it's been -- the bookings in healthcare have been materially above the bookings in revenue year-to-date. So, we're definitely seeing strong growth there, and I do think that that's pretty well fairly insulated, if not very insulated from the macro environment.

I think, I've mentioned this before in financial services, I think I've talked about this on the call. What we're seeing in financial services is that, they have concluded a lot of the consolidation work that they needed to do, the ERP, back office systems work that they needed to do, that frankly needs to be done really before we can do what we do, which I would describe as more customer-focused work, more fine-tuning of the business, more streamlining of the business, and that's where we're seeing the pickup right now.

The work that we're doing, and in particularly in retail banking has a lot to do with taking what is now an amalgamated, can produce consolidated financial statements to something that really needs improvement in a more finite way within the business process and how they deal with customers and the products and things that they can offer, services they can offer the customers. I think that's been and continues too. Even if the overall spend in financial services were to decrease, I still believe our opportunity there increases.

Okay. Okay. That's helpful. And then within the disciplines, BPM seems like it was having some strength, are there some certain areas that you would call out within the disciplines that seem to be gaining some momentum?

Yes, definitely BPM and EPM as well, of course, we added some capability there with the JCB acquisition.

Okay.

So, enterprise performance management is strong, business intelligence remains strong. I would categorize the work that we're doing with Premier ultimately really business intelligence, I mean it's custom app development as well. But it's really about BI.

Right.

And making -- they're helping these guys to be smarter about what they're buying and how they're buying, et cetera. So, those are very strong areas. But yes, as you say, BPM is good. Portal work -- portal and collaboration for us continues to be a strength area. As people are adopting more and more portal platforms, to use in a variety of ways. I mean a good chunk of the work that we do on portal, of course, is custom app dev also. Those things aren't out-of-the-box tools, but decent work there as well. So, I expect BPM to be probably, continue to be a pretty fast grower for us.

Okay, sounds great. Thanks for the feedback.

Thank you, Pete.

Thanks, Pete.

Michael Martin, The Small Cap Report.

Hi, and congratulations. Just one question, on the average bill rate, I believe you said it was $126, what was that versus the prior quarter and could you give us a little more, a sense of where you see it going and why?

Sure, absolutely. It was $127 in the prior quarter.

Okay.

And there is always going to be some variability in that by the way related to fixed-fee engagements or how much over time. We report very transparently our ABR and to calculate ABR, we use every hour that somebody worked on a project, whether we could build that hour or not, in some cases, we can't, so -- and that's up from $119, I think.

Year-over-year, correct.

Year-over-year, so good strength there. We believe we've got good pricing power going forward, that we're not seeing a very, very minimal number of deals if any that we're losing "on price." So, we're going to continue to drive that up. I think the trend moving up continues, it may not be 6% year-over-year ongoing like it was for this quarter. But I believe we'll continue to drive it up. And our goal again, to get the Company ultimately to a $500 million run rate by the end of 2013, I could see those rates in the $135 range to $140.

Okay, thank you very much.

Thank you.

Thank you.

George Price.

Hi. Thanks. Paul, I just wanted to see if we could go through a couple metrics. First of all, I apologize if I missed it, but did you go through the cash flow metrics in the quarter, cash from ops, D&A, CapEx?

No. We filed the 10-Q this morning concurrently so that information (multiple speakers)--

You did, okay.

If there is any specifics, I'd be happy to either go through them now or we could talk later.

No, no. no. That's fine. I can check that. Can you just review some of the other revenue items, the ABR, excluding subcontractors and just the all-in ABR, for example?

Yes. So, as we mentioned, the North American employee ABR is $126 an hour.

Yes.

The all-in is $112, compared to $113. So, the trends were the same on the -- all as they are on the North American number.

Okay. And then what was the utilization again, excluding subcontractors in China?

Yes. So, the utilization again, the nomenclature of North American employees was 81% and that compares to 84% in Q2.

Okay, okay, very good. All right. Thanks very much.

Thanks, George.

Thanks, George.

I have no further questions. I hand the conference back to you, Jeff Davis. Please go ahead.

All right. Well, thanks everyone again. We look forward to speaking to you in another quarter.

Thank you. Ladies and gentlemen, this concludes your conference call for today. You may now disconnect. Thank you for joining. Have a very good day.