Perficient Inc (PRFT) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2011 Perficient earnings conference call. My name is Jennifer and I will be your coordinator for today.

At this time all participants are in listen only mode. Later we will conduct a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

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

Thank you and good morning everyone. With me on the call today is Paul Martin, our CFO. As typical, we have got a brief section of prepared comments, after which we will open the call up for questions. Before we proceed, Paul, would you please read the Safe Harbor statement?

Thanks, Jeff, and good morning everyone. Some of the things we will discuss in today's call concerning future Company performance will be forward-looking statements within the meaning of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements, but 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.

We have also posted a slide deck, which includes a reconciliation of certain non-GAAP goals to the most directly comparable financial measures prepared in accordance with GAAP, along with additional operating metrics and revenue analysis by solution, industry and platform on our website at www.perficient.com under Investor Relations.

Thanks, Paul. Well, again, thanks everyone for joining. We are glad to be with you this morning. I am pleased to share our Q4 and full-year 2011 results, as well as Q1 and 2012 guidance a little later in the presentation.

The fourth quarter was a strong close for what we view as a great year for the Company. Third consecutive revenue, a record quarter with services revenue up 31%. EBITDAS net of stock comp was up 25% and net income more than doubled. GAAP earnings per share doubled, and adjusted earnings per share was up 19%.

Services gross margins including -- I'm sorry, excluding stock comp improved 170 basis points. And during the quarter billing rates for US employees were at $125 an hour. That is up about $5 from the year-ago quarter. So running in that $125 range. We expect that will improve again this year.

Utilization, as always, is impacted due to seasonality and the fourth quarter was 78% this year. It was down about 1% from the prior year, but we expect it will again rebound back into the 80%s in the first quarter. And we actually expect utilization overall to be higher for the year than it was in 2011 by a couple of points.

Investments in industry solutions and focus on key verticals continued to make a material impact. You have heard me talk about this before. We are very excited and pleased actually with the results we have gotten around those investments, particularly in health care. Another strong quarter for health care; it represented 33% of revenues in the fourth quarter.

Financial services coming in as a strong second for us, and another area as you know that we are investing in -- 14% of revenues in the quarter, with automotive, energy and telecom each representing 7%, and then a smattering of others obviously making up the difference.

In addition to this solid delivery performance, bookings during the quarter were very strong, our highest ever in fact. We sold 16 deals north of $0.5 million during the quarter. And you know that we don't typically report specific bookings in any given month but January, by the way, was another record bookings month for Perficient.

That is both organic and, of course, with the acquisitions. But even net of acquisitions it was a record. So on a trailing 12-month basis through January we are running about 20% year-over-year on bookings. So a strong backlog moving into the year here.

So we exited the quarter and the year with cash on hand and no debt. The cash we generated was put to use in the recent acquisition of PointBridge, which I will speak to in more detail in a few minutes.

Client base, as well as the size of many of those relationships continues to grow. About 60% to 65% of our revenue now is coming from Fortune 1000 companies. That is where we tend to focus our efforts. It is an opportunity to build a relationship that can last and yield many years of multimillion dollar revenue.

So during the year 2011 we had 53 clients at $1 million plus for the year. Half of those were actually north of $2 million, and nine of those were north of $5 million, the largest being just under $10 million. And I expect that will continue to increase in 2012, and it is likely that we will have at least a couple, if not a handful, of $10 million plus clients this year.

So after Paul shares financial details for the quarter and the year I will be back to discuss our plans for 2012. But as you can see from our guidance, we were optimistic and expecting continued growth this year.

Thanks, Jeff. Total revenues for the fourth quarter of 2011 were $70.4 million, a 26% increase over the year-ago quarter. Services revenue for the fourth quarter of 2011, excluding reimbursable expenses, increased 31% to $61.3 million over the comparable prior-year period. This resulted in year-over-year organic growth of 14%.

Services gross margins for the fourth quarter 2011 excluding stock compensation and reimbursable expenses increased to 34.7% from 33.4% in the fourth quarter of 2010, continuing our trend of year-over-year margin improvement. This is in spite of the fourth quarter of 2011 margins being impacted by an increase in benefit costs and the tax implications of long-term travel of some of our colleagues.

SG&A expenses increased to $13.4 million in the fourth quarter of 2011 from $11 million in the comparable prior-year quarter. SG&A as a percentage of revenue was 19% in the fourth quarter of 2011 compared to 19.6% in the fourth quarter of 2010.

EBITDAS, defined as earnings before interest, taxes, depreciation, amortization and stock compensation for the fourth quarter of 2011 was $10.3 million or 14.7% of revenues compared to $8.3 million or 14.8% of revenue for the fourth quarter of 2010.

The fourth quarter 2011 included amortization of $1.7 million compared to $1 million in the comparable prior-year quarter. This increases associated with the acquisitions completed in 2010 and 2011.

The fourth quarter of 2011 included acquisition costs and accretion of the fair value of contingent consideration related to acquisitions of $800,000 compared to $600,000 in the fourth quarter of 2010. Net income more than doubled to $2.7 million for the fourth quarter of 2011 from $1.3 million in the fourth quarter of 2010.

Diluted GAAP earnings per share increased to $0.09 a share for the fourth quarter of 2011 from $0.05 a share for the fourth quarter of 2010. Adjusted GAAP earnings per share increased to $0.21 a share for the fourth quarter of 2011 from $0.17 a share for the fourth quarter of 2010.

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

Turning to headcount, our ending billable headcount at December 31, 2011 was 1,411, including 1,240 billable consultants and 171 subcontractors. Ending SG&A headcount at December 31, 2011 was 244.

Now I will turn to the full-year 2011 results. Revenue for the year ended December 31, 2011 were $262.4 million, a 22% increase over the comparable period last year. Services revenue for the year ended December 31, 2011, excluding reimbursed expenses, increased 26% to $233.2 million over the comparable prior-year period with full-year organic growth of 8% in 2011.

Services gross margin for the year ended December 31, 2011, excluding stock compensation reimbursable expenses, increased to 34.9% from 33.8% in the prior-year period. Improved ABR helped drive the year-to-date improvement.

SG&A expenses increased to $51.7 million for the year ended December 31, 2011 from $45.5 million in the comparable prior-year period. SG&A as a percentage of revenues was 19.7% for the year ended December 31, 2011, compared to 21.2% for the year ended December 31, 2010.

EBITDAS for the year ended December 31, 2011, was $38.7 million or 14.7% of revenues compared to $28.1 million or 13.1% of revenues in 2010. Amortization for the year ended December 31, 2011 was $6.3 million compared to $4 million in the comparable period. This increase again was driven by acquisitions completed in 2010 and 2011.

The year ended December 31, 2011 included acquisition costs and accretion of the fair value of contingent consideration related to certain acquisitions of $2.8 million compared to $1 million in 2010.

Net income for 2011 was $10.7 million compared to $6.5 million in 2010. Diluted GAAP earnings per share increased to $0.37 from $0.23 in 2010. Adjusted GAAP earnings per share for the full year was $0.77 a share, up from $0.59 or a 31% increase from 2010.

Our effective tax rate for the year ended December 31, 2010 was 42.4% compared to 44.8% for the comparable prior-year period. The decrease in the effective tax rate is primarily due to a decrease in the limitation of the deductibility of certain compensation costs, partially offset by the impact of nondeductible, non-cash acquisition-related charges.

During the fourth quarter of 2011 we spent $2.3 million on repurchasing 270,000 shares. And as of December 31, 2011, we have spent $54 million or $7.30 per share on repurchasing 7.4 million shares since the plan's inception in 2008. We continue to believe that our share repurchases will drive future accretion and shareholder value.

We ended the quarter with no debt and $9.7 million in cash and cash equivalents, and we continue to have full access to our $50 million credit facility.

Finally, our days sales outstanding on accounts receivable were 78 days in the fourth quarter of 2011. This is down from 81 days in the third quarter.

The increase in our health care vertical has contributed to the increase in DSOs. We believe our ongoing operating -- joint operations and finance collection efforts will continue to keep DSOs below 80 days. This will be a key ongoing initiative.

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

Thanks, Paul. Again, great quarter and a great year. Anticipating more of the same in 2012, even better in fact. I mentioned our excitement about the recent PointBridge acquisition earlier in the call. It is really an impressive business, great customer set without too much concentration. Very nice bill rates, great management team, great group of folks all the way around. It really accelerates our momentum with Microsoft, by the way.

Like Perficient, PointBridge was a Microsoft National Systems Integrator Partner, an NSI categorization. It is a Microsoft category, which is a pretty exclusive club. There are fewer than 40 NSIs in the entire country, and the combination of Perficient and PointBridge creates what we're pretty convinced must be the largest NSI in the country. In fact, one of the trade magazines, trade blogs refers to us now as a mega-NSI.

Regarding M&A, our goal is another two to three deals this year to add approximately $50 million in run rate revenues to 2012. That is in addition to PointBridge. Our goal for 2013 is similar, as I've stated before, about $50 million in each year. And I am kind of considering PointBridge a 2011 deal.

We remain in active discussions with several firms, and I do expect that we will be able to get those deals done. No guarantees, as we saw last year, but we have got, I think, good momentum going now. And we have got a different process in place that should help us to close those in fairly rapid succession, maybe every three or four months.

So that combined with organic growth will have us very -- or pretty much on track, I should say, for our target of $500 million run rate by the end of 2013. Adding almost $200 million in revenues in just under two years, of course, is a pretty aggressive goal or a tall order, but we think we are well-positioned to do just that. And actually are on track, as I said before, to get close to that goal, if not hit it.

Acquisitions bring with them material cross-selling opportunities, one of the exciting things about them. And we're realizing those synergies much earlier than we have in the past with deals that we have done, and they're coming in all industries, so we are excited about that.

So these deals we have done recently, including even PointBridge only a couple of weeks ago, but certainly going back to JCB and Exervio last year are already seeing a lot of cross-selling opportunities.

I am already getting engaged and meeting with Fortune 500 CIOs that these guys had as clients, and we're ready selling new business to them from our existing portfolio outside of the capabilities these acquisitions had when we brought them into the Company.

So we talk about the success in health care and our optimism around financial services vertical, as I mentioned, but we're also seeing general improvement in the market and opportunity picking up in pretty much all verticals. Not everyone, but for the most part generally we are seeing a tide lifting all boats.

So in summary, we are pleased with both the quarter and the year and the opportunities we see in front of Perficient for not only 2012 but beyond, of course, and onto Q1 and 2012 as a whole. Perficient expects its first-quarter 2012 services and software revenue, including reimbursed expenses, to be in the range of $70.6 million to $74.3 million, comprised of $67.7 million to $71.2 million of revenue from services, including reimbursed expenses, and $2.9 million to $3.1 million of revenue from sales of software.

The midpoint of this first quarter of 2012 services revenue guidance represents growth of 24% over the first quarter of 2011 services revenue.

I think it is important to note that our backlog, by the way, because of that high level of bookings I mentioned, trailing 12 months from January back, up about 20% year-over-year. So a pretty high book to bill rate. And the result of that is that our backlog as a percent of our guidance is higher than it has been since at least 2006, which is a great sign.

Obviously, that has us optimistic not just for the first quarter, but for the first half of the year and likely the entire year. Again, we are hopeful that we are going to have a nice growth year this year that will materially surpass last year.

So additionally, the Company is issuing a full-year revenue guidance range of $300 million to $320 million and 2012 adjusted earnings per share guidance range of $0.88 to $0.98.

With that we can open the call up for questions. Operator.

(Operator Instructions). George Price, BB&T Capital Markets.

Thanks very much for keep taking my questions. Nice job, guys, and the outlook looks good. I wondered, Jeff and Paul, if one thing you could provide maybe is the net revenue in the guidance that you've given both for the first quarter and the full year 2012, can you pull apart reimbursables from the net revenue?

Yes, we have projected --.

Or the services revenue, I meant, excuse me.

I am with you. We projected reimbursed expenses pretty much off the run rate we were on. I think Q4 was a little bit of a blip, so we might be slightly below that. But the numbers are roughly $4 million -- pretty close to $4 million in the first quarter and about $16 million for the year.

Great. And then no -- you're still only giving EPS guidance annually, Jeff, not on a quarterly basis?

Right. That's right.

Any acquisition-related costs expected in the first quarter?

This is Paul. With closing the PointBridge deal in February there is going to be roughly $0.5 million to $600,000 of costs associated with that transaction that will hit in the first quarter. You are required to expense those cost as you incur them.

In addition to that, we have had costs both in the fourth quarter and the third quarter and a number of quarters last year relative to the accretion of the fair value of some of these earnouts, so it is a non-cash charge, but under GAAP you are required to accrete the liability for the earnout to the full value over the period of the earnout. So we will have some of that, I think, going into the -- through the third quarter related to the Exervio earnout. And then we are roughly going to be about $200,000 to $300,000 a quarter.

Great. And the -- Jeff, you mentioned in the fourth-quarter margins -- or maybe it was Paul, I am sorry -- margins being impacted by some of the benefit costs and travel-related impacts. Can you quantify that? I know you talked about it back in the third quarter, but can you quantify that for the fourth quarter? And what is the outlook of that? I know -- in going into 2012 I know you talked about last quarter, I believe, some initiatives to start to try and mitigate some of that stuff.

So certainly we saw some additional cost in the fourth quarter that incrementally year-over-year probably a little bit over $1 million in that. We have some ongoing efforts, as you mentioned, as we get into 2012 as we are doing some of these bigger projects we have people on for longer, but there is the process and procedure to see if we can rotate resources or pull people out of the field for a period of time that we are managing.

We would expect that number to be more like $300,000 or $400,000 in Q1. So you will see a $0.5 million plus reduction in those costs sequentially between Q4 and Q1.

And the 14% organic growth, can you take us through that calculation?

Sure. So that is basically all businesses that we owned prior to speakTECH, so excluding speakTECH, Exervio and JCB, their services revenue for Q4 of 2011 compared to Q4 2010.

Okay.

It is everything. It is everything we owned in Q4 2010 compared to everything we owned in Q4 2011.

So on that measure, if we have owned it for four full quarters and we have it in on an apples-and-apples basis, that is how we calculate it.

The last thing is just on the demand and outlook, particularly in health care, can you maybe comment at all on the ICD-10 deadline, I think, is being pushed out. Do you see that as having an impact to health care demand or any of the initiatives that you're working? And maybe you could update us on what is going on with that large health care purchase alliance client. Thanks.

It is a good question on ICD-10, and I have actually, of course, asked our guys about the impact they are seeing and what they're hearing from clients, and right now we don't feel like it is going to have much if any impact to us in the near term. I think in the long term it will actually be a benefit to us. It allows us more time to scale and build brand and get traction within the industry.

So a lot of the work, as I have mentioned before, is -- you can argue is related in an ancillary or tangential way to ICD-10 but not directly, and thankfully that is true. There aren't a lot of clients that we been doing a lot of direct mandate work for. In fact, ICD-10 opportunities were just beginning to heat up. So we think there is plenty of opportunity out there that it won't materially impact us in the near term, and like I said, in the long term should actually help us.

We will see if that bears out or not, but so far we are not seeing any clients pull back anything they're doing, again, largely because most of what they're doing wasn't directly developing ICD delivery.

And in terms of the GPO, things continue to be on track there. I expect that we will actually -- I may have mentioned before that we are continuing to work directly for them, as well as one of their large -- their top five member firms. And actually we have got -- we're working now with the other four to put plans in place to begin to implement the solution with them as well.

I expect traction around that to be probably more -- at least on a material basis, more in the second half of the year, but we may see some of the pickup begin as early as the second quarter.

Great, thank you.

Brian Kinstlinger, Sidoti & Company.

One follow-up on that answer on the GPO, Jeff, if you could. I just want to be clear, so the consortium of the roughly four hospitals or member firms, you actually have a signed deal that you're working with, and you expect to ramp in the second half of the year or you still working through the mechanics of the contract terms?

We're still working through the mechanics of the contracts. We have one -- there is five, and as you know, we have one already signed, but the other four are getting closer. So we're working through the mechanics of the contracts and how much of that we are going to do within the consortium versus how much we're going to do independently directly with the four.

So we're getting close, but I expect, like I said, those contracts probably getting -- probably honest, not before the second quarter. It might be sooner than that, but I would say conservatively or reasonably the second quarter, and then again the impact to revenue probably more in the second half. But all things are -- all indications are very positive.

They are still supportive of the solution and anticipating eagerly implementing it. So I don't think there is any issue there. It is just a matter of timing and getting everything sequenced right.

Now, it hasn't impacted your guidance, and the business is doing great, but I think that you would've liked to have that consortium signed much earlier, or at least it sounds like it might have happened and it has been dragging on a little bit longer than you thought. What would be the reason that it has dragged on, is it budgetary? Is it just a lot of red tape around getting this done? What is driving on their end to keep it a little bit slower there?

That is fair. I would always like to have things signed sooner rather than later. I think when we spoke before I was careful to say that it was -- all this was very difficult to predict. That we were optimistic that we would get signed in the latter part of last year. And that didn't happen, but again I am not terribly surprised by it.

But it is far more a result of the latter that you refer to. It is kind of like herding cats. And, again, the way that we are trying to do this is to make it more efficient for everyone involved, to try to do as much with the consortium as possible versus all these independent contracts. So that has caused some delay, the complexity around that.

But it is not budgetary though is the good news. I think the guys have the money and are ready to spend it. And it will be there in time, like I said. Everything is still a green light. It is just a matter of getting the ducks in a row.

And what is the pipeline after that for that opportunity? Is it the rest of the larger member firms are waiting to see how that consortium plays out or is there already an active pipeline discussions with others?

There is active discussion. There is not a quantifiable pipeline yet. But I think it is -- without any doubt Premiere has made a ton of investment in this. We have invested in it as well to some degree, as has the consortium, and the expectation on everyone's part there is that the next class of large members will follow suit. And the -- anecdotally the verbal indications are that they absolutely intend to and plan to make -- to leverage this as well. Not 100% of them, by the way, but a good majority of them.

Great. If I look at health care specifically, but I guess also financial services, you made a number of acquisitions. When you look at the health care revenue it is up 60% year-over-year. How do we take a look at it on an organic basis how that might be growing health care?

And then besides a number of the organic growth, would you say that health care still is accelerating? Is it remaining stable at a high growth rate or is it decelerating the growth rate?

I would say the growth rate is probably maintaining the same velocity, but not accelerating beyond what it was, which is a pretty good clip, if that makes sense. I still expect it to grow relatively for us as well as absolutely.

And you could see that in the third quarter -- on the fourth quarter -- we went from 27% of revenue in the third quarter to 33% in the fourth quarter. That kind of velocity -- like I said, that velocity I think continues. However, we have also got the rest of the business, I would say speeding up, actually gaining momentum or gaining some -- accelerating growth. So that may slow the relative down a little bit, if that makes sense.

But all in all I expect the growth to continue there. From an organic perspective, honestly, it gets pretty difficult to slice and dice the business through the verticals organic versus acquisitions. But I can tell you that the majority of the growth in health care has been through organic.

We haven't acquired many, if any, health care customers through the acquisition program. We have certainly acquired some skill sets that we have put to use in our existing health care or even new health care client base, if that makes sense.

So as, an example, we leveraged Exervio extensively to work with Premier there in Charlotte. That was one of the reasons we wanted to do an acquisition in Charlotte was to service that client. But they didn't bring, again, the health care clients with them, those are pretty much legacy Perficient.

Brian, to give you an idea on the velocity, if you look at the percentage over the last four quarters it went 23%, 24%, 29%, 33%. So that is a pretty strong velocity.

Just some clarifications. I want to make sure I understood. When you said January was a record bookings month, is that a record January or is that a record for any month?

It is a record for any month.

And when you said trailing 12 months -- bookings are 20% -- were you saying 20% growth year-over-year, is that what you were saying?

Yes, including January, from January back to February (multiple speakers).

Bookings are up 20%.

Compare that on a year-over-year basis to the prior -- that same 12-month period a year prior, it is 20% up, actually about 21% up.

And I would say January is typically one of the bigger months of the year as clients get their budgets approved, et cetera.

Then you said backlog is the highest percentage -- and I missed it, I am sorry. The highest percentage of guidance since 2006? Is that the midpoint, the low point, or was it not of guidance? What was that statement, I apologize?

Of our revenue guidance for 2012 there is more in backlog, less in pipeline. So a higher percentage of that already signed then we have had probably since 2006.

Great. And then the last question I had is on the tax rates that have jumped around -- maybe for a GAAP and adjusted what kind of tax assumption should we be thinking about?

As you said, there are a lot of factors that impact that, so it is a little bit of a difficult one to estimate. But from an adjusted basis it should be 39% to 40% and probably a couple of points higher than that on a GAAP basis.

Great, thank you, guys.

Peter Heckmann, Avondale Partners.

Nice outlook. When we look at the makeup of the organic revenue growth, should we assume that if we were to break it up maybe 60% of it comes from headcount, 20% from utilization and 20% from bill rate or maybe a little bit more headcount utilization?

Actually, I think that is broken down pretty well. It might be 70%, 12%, 18%. But I like the breakout, it is fine. It is pretty close. We're expecting the utilization up about 200 basis points, so about 2% higher utilization this year. I do expect, or a least our goal is to get rates up another 2% as well, and the rest would be through headcount. That would imply 10% organic growth, which is roughly where our midpoint is.

I am optimistic that there is some upside to that. But, again, the breakdown is fair.

Then as regards the -- attracting consultants, the ability to bring them up to speed quickly, are you seeing any incremental difficulty due to some of these mandates in health care or are you still pretty comfortable with your ability to staff for your growth needs?

It is interesting, I think we are fine. There is always -- I would say for the skills that are being leveraged in health care right now, there is always a pretty good demand. A lot of this is data management, information management, and so even including data warehousing and business intelligence, as well of as, of course, integration being maybe the biggest component.

But those folks are always in good demand. We are satisfied that we meeting the demand well now. In fact, what I meant -- one of the things I was thinking about when I said that the ICD-10 delay, if in fact it happens, would probably be good for us is that if it doesn't there are many, many, I can tell you, payers and hospitals alike that haven't started or haven't gotten much done, and they are going to be many of them falling short of the goal that would have been noncompliant. So that is why I'm sure the government is going to kick the can down the road, because they knew they would have a big problem on their hands. That is no surprise to anyone.

It would have definitely created a crunch of resources. In the short term it would have been a nice boon for us in terms of higher rates probably. But I like actually a little slower pace where, again, I think we've got a good position in the market. And there will be a little more barrier to entry on a slower pace than there would be on that faster pace clip, I think.

I have seen -- it is interesting, I did see yesterday, I think it was somebody commenting on another -- somebody else in the market -- I guess a competitor, but not somebody we see often, commenting on struggling to hire ICD-10 skilled people. And I found that interesting that from my view those people don't exist, they literally don't exist. So they will never be able to hire them.

So you have got to build your own. And the reality is most of the guys that are doing the heavy lifting on this don't have to be ICD-10 experts. Again, it is standard information management, business integration skills that is right in our wheelhouse.

Peter, one thing I would also add on that is that this is the third quarter in a row that we have seen attrition coming down, so both hiring and also losing people. We have improved on that, and I think we've also made some investments both on the recruiting side and the HR side to help on attrition perspective, which will also help us address this issue.

Then, last, can you update us on a couple of relatively newer areas, management consulting and cloud projects?

Management consulting is doing well actually. We have got -- kind of virally expanding that. In addition, of course, Exervio was primarily that, the acquisition we did last year. And I want to say it was April of last year. So that has gotten a lot of traction. That is what I was referring to. Actually, we're leveraging a lot of the management consulting skills at Premier, but also a lot of our other engagements as well. Change management, by the way, is one of the things they brought to the table.

But we are doing a lot within banking. They brought BofA as a customer, by the way. We had Wells Fargo, and jointly we have attacked that, so expanded what we're doing there beyond technology, doing a lot of business process management. Some of which, by the way was legacy skills that we already had and some of which we supplemented with Exervio.

But you continue to see clearly this convergence of technology and management consulting or business consulting. As the technology becomes more mainstream, I won't say easy to implement, it is not, it is complicated. But there is definitely a marriage, especially when you have got things like business rules engines sitting on top of the underlying technology, et cetera, you've got to have those skills.

And we're rapidly building the business consulting and management consulting capability. I would say it is outpacing the technical growth, but all of it moving together.

Good, that is helpful. I appreciate it.

(Operator Instructions). Matt McCormack, BGB Securities.

You mentioned that the revenue guidance range for 2012 is roughly 10% on the midpoint on an organic basis. Besides the conversion of -- or the timing of the conversion of the backlog, are there any other major factors that would get you to the high end versus the low end of that organic range?

I think continued macro improvement clearly. Honestly, we see that opportunity now, it is just early to -- we always like to, I think, try to be conservative in our guidance. I would rather underpromise and overdeliver. So if things continue on the pace they are at right now, I would say we have got a shot at seeing some upside.

What we don't know is what happens in the summer months in terms of the bookings converting to revenue to your point. But if they continue on the pace they are now, which is substantially above last year, it is -- you can see it is pretty transparent. We did 13.5% in the fourth quarter year-over-year. We did 10% in the third quarter year-over-year. And to have the midpoint of our guidance at 10%, I think, is fairly conservative, given the momentum we have.

The reason, again, being we're pretty confident that momentum is going to continue at least through the second quarter. What we don't know is what is going to happen in the third and the fourth. We have no reason to believe it will decline, but again, we're trying to take a conservative route.

Then in terms of pricing, I guess, could you talk about -- obviously, back in 2008, 2009 pricing came down -- it comes down quick and it comes back it is a lot slower. So as you have recovered and pricing has continued to improve over the last few years, are you seeing that rate of pricing increase as you're able to pass along, is that accelerating or is has been fairly steady since the recovery began?

You know, it -- I would say it is pretty good last year. We raised rates at about 4%. That was honestly more than I thought we would be able to. Our goal was 2% to 3%. So we are please clearly with those results. But our goal this year is still 2% to 3%. So relative to last year we are planning for decreased velocity and improved rates. But it is possible that we could get another 4%, but again, our plans are built around 2%.

Now I don't think that 2% goes to 1% in 2013, by the way. I think 2% could last for quite a while. You have probably heard me mention before, I feel like we have got a pretty decent gap between our average domestic rate of 125 and that of our competitors. And I actually think this business in this current climate, all things being equal, could be $135 an hour if we do get some demand pickup around things in health care and the mandates in health care and/or the macro environment, I actually think we could potentially move those rates beyond that. And of course it would help with the accelerated improvement that you're alluding to.

And, obviously, focus on domestic labor. Can you talk about your offshore delivery capability and the demand there? I know you talked about bookings being at record highs. Is that primarily being driven by North America or are you seeing a greater demand for your resources in China?

I would say China and offshore in general is keeping pace. Over the years we have, of course -- that has been accelerated. We have grown from 50 employees to about 200 billable in China alone in the last four plus years. So it has been solid.

But I would say it is moving along with the rest of the business. Most of the business right now is being driven by North America. A lot of the work that we're doing is onshore. A lot of these engagements that we have won recently though, I would or say the last three to six months, are strategic planning, maybe initial architecture, maybe some initial buildout. But as those move into a bigger build phase, it will pick up on the offshore as well.

So a lot of that health care business that we're talking about not leveraging offshore today, I think will be before the end of the year. So we will probably see a pickup there as that naturally progresses through the development cycle.

We also saw a real increase in 2011 in the number of accounts using offshore. We had some bigger accounts. We have diversified that and I think we will see that continue into 2012.

Then just lastly, I don't know if you said the tax rate expectations for 2012. I might have missed it. If you could remind us of that.

So for the adjusted EPS it would be in the 39% to 40% range, and a couple points higher than that on a GAAP basis.

And in terms of the adjusted margin, it is roughly 100, 150 basis points of margin improvement that is implied?

Yes, that is our goal in 2012, yes.

Thank you.

George Price.

Just picking up on that prior theme around offshore. I think based on what I hear and see, a pretty clear trend in the market, particularly going into this year, that we're going to see more work going offshore. And notwithstanding China, India seems to remain a major hub.

I was wondering if you would update us on your thoughts there on how -- if and how you are ramping your presence in India. As I recall, Jeff, maybe you expanded that a little bit from just more of a recruiting point to actually starting to develop more of a presence there. If you could maybe give us an update on that.

Yes, sure, absolutely. And you are right, India clearly seems to be the place to be. However, there are a number actually of China -- pure China -- China-based offshore firms that are up and comers. They are doing pretty well.

But as a geopolitical hedge, if you will, and also in response to our government clamping down on the H1B quotas, we have in fact begun to do some development and hire employees -- permanent employees in our India facility, which used to be mainly an H1B recruiting facility. So we've got about 20 FTEs there now actively engaged in a number of areas. And we're intending to and continue to invest and grow that as well.

So ultimately I don't know that it will be ever be quite the size that our China facility is, given the head start that we have there, but we will be doing a fair amount of investing and trying to drive business into India and balance the two as we move forward.

Is that something that is on your -- high on your list of things from an M&A perspective to help accelerate that or not so much?

Yes, it is on the radar for sure -- high on our filter list. And we have actually got a couple of firms out there that are interesting to us. As you might imagine, there are some complexities that come along with doing an offshore type of acquisition, so it might be a little further down the road.

But we are interested in that, and we always have been. We were interested in it before we ended up with China, and just couldn't find anything that we could make work. I would say that there has been a lot of shakeout, thankfully, and the dust has settled to some degree and there are some firms that I think might make sense for us.

Fair enough. On the competitive environment, you talked -- you alluded a little bit to it, but I was wondering if maybe you could update a little bit more on how the competitive environment is for you these days against the larger players. You have talked about pretty high win rates in the past. Are those -- do those continue to hold up? Talk about maybe your ability to get to the table more often which, as I recall, was one of the main gating factors in terms of you doing even better.

That is right. Our win rates actually have only improved. So the competitors we see most repeatedly, most often are the large global firms, as you might imagine -- Accenture, Cognizant, IBM Global Business Services, Infosys, et cetera. And our win rates now is running more in the -- it used to be 65%, we talked about; now we're in the the low 70s. And, again, that is where we have the opportunity to propose head-to-head with them.

So you are right. Our mission still is to get to that stage more often against those players. Because, again, with those win rates we will fare well. And we're doing that. We have actually increased our sales capacity with specifically that in mind, and driving some campaigns. Actually also beginning to work on qualifying opportunities and move again more toward that Fortune 1000 customer base where we know we will have the opportunity to compete with those guys, if we can penetrate those accounts.

And some good success there. So that is still definitely part of the strategy, and the mission for this year and we have got some specific goals around that.

Have you, I guess, seen any incremental opportunity for yourselves as a result of maybe these guys not being able to execute quite as well? I guess, just stepping back, there has certainly been, I think, an increasing discussion around the mid tier client base or the middle-market client base. And even some of the larger firms have started to talk about this, and it seems like maybe they are coming down market a little bit.

But, obviously, those are going to, at least initially, be smaller engagements. They may not attract the A team from the large guys. Are you seeing them maybe not do as well as you might think in that kind of client base, and is that creating any opportunity for you?

I would say even in -- I mentioned before 60%, 65% of our revenue is Fortune 1000 now. Even there where they try to compete for the type of work that we're going after, I mean, that is where we are beating them 70% of the time and I think the reason is twofold.

One, we are very focused in the depth, the skills that our folks have in the areas that we focus on in business integration, information management, analytics, portal collaboration -- honestly, outshine those guys in most instances.

We have that depth. We're not -- they are distracted by multimillion dollar, $50 million outsourcing opportunities, et cetera, et cetera. That is where their focus is. So they're not even -- I don't think even interested in gaining, necessarily the kind of skills that we have in any meaningful way. I would argue that they haven't. In fact, they often try to subcontract us as evidence of that.

But then, certainly, your point is true as well. That the A team isn't going to be brought to the table for a $5 million opportunity at Accenture, or even a $10 million opportunity at Accenture, but it certainly is at Perficient. And, of course, all we have is A team, so that is easy for us.

(laughter) very good. Just on 2012, could you maybe give us a little bit more around metrics like cash flow? I don't know if you have any ranges, Paul, for D&A, tangible amortization, stock compensation, just to help us get the numbers straight, and particularly between GAAP and adjusted.

Yes. So hold on a second, let me pull some of those numbers out. So amortization, obviously, we just talked about. We did the transaction so we will have additional amortization associated with the PointBridge acquisition, and so rough numbers we're looking at Q1 of $1.6 million, $1.7 million in Q2, and around $6 million for the year. Depreciation will be in the $500,000 to $600,000 range per quarter.

Let me see if I can find stock comp in here. Stock comp will be coming down some as some of these burn off from prior years, but should be somewhere around $2.4 million a quarter or so.

Okay.

Did I cover all the ones you were looking for?

Cash flow, any thoughts on cash flow for the year?

So cash flow should roughly -- the operating cash flows will roughly follow EBITDAS, and so I think we see probably some slight improvement in DSOs, which will help us on that. The cash taxes will offset that a little bit, so I would say it is generally going to trend with EBITDAS.

And just a couple of housekeeping items. Did you -- and if you laid they out, I apologize if I missed them -- cash from ops, D&A, CapEx for the quarter?

So the Q or the K will be filed here today, so all those numbers are in there. It may be easier, I could just go through them with you off-line, but they will be in the K filed today.

That is fine. Last thing, Jeff, any update on potential relationships with some other major companies out there? I know on the infrastructure side you had talked about some things becoming a preferred provider. Can you give us an update on what is happening there? Thanks.

We have got -- some of the smaller players, Splunk and some others that I think had some really interesting products that fit well into our portfolio. They tend to work -- their products tend to support the products of the larger vendors we are already working with, but a couple that fit the category that you're talking about.

We entered into this relationship with Rackspace a few months back. And actually, Pete asked the question earlier, I didn't get to it, about cloud. Let me say generally that a lot of the work that we're doing leverages cloud technology. A lot of it is internal clouds. We're not still seeing a lot of external cloud opportunity in terms of applications.

What we do see though are really hosting applications, and you can call a cloud if you will. It is very similar to what was the old hosted environment. That hasn't changed a lot with the exception of, I think, that the connectivity is a lot more stable than it used to be.

So Rackspace is one of those that does a lot of cloud hosting, primarily data migration, data in the cloud, and some application in the cloud. And we actually added a Companywide practice. We have got a number of these agnostic companywide practice leaders, relatively small groups whose mission in life is to provide thought leadership, speaking engagements and primarily presales and assistance in some of our higher end more complex projects.

So we added a cloud CWP and plan to be expanding that and see some opportunity. One of the interesting partners beyond Rackspace also, of course, is Google. We are Google's go-to partner for North America for their embedded search engine. So if you want to use their -- if you want to OEM their search engine, you can, and they will send you to us to implement it.

But the other thing I think is interesting about Google is I know that they're going to be a player in cloud, and particularly cloud development platform. So it will be beyond, I think, what Amazon and force.com are doing and more of a mainstream kind of enterprise development platform that might compete with some of the bigger guys. So we want to stay close to that and see how that emerges.

Nothing yet, I would say, other than we know they are working on some things. But we should be well-positioned to work with them on that as they begin to roll it out.

Great, thanks very much.

There are no further questions at this time. We will now turn the call back over to Jeff Davis for closing remarks.

All right, well, thank you all again for your time. Again, we are excited about the outlook, as well as the results. And we will look forward to speaking to you all here in a couple of months. Thank you.

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