Perficient Inc (PRFT) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2012 Perficient earnings conference call. My name is Tony, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Jeffrey Davis, CEO and President of Perficient. Please proceed, sir.

Good morning, everyone. This is Jeff Davis. With me today is Paul Martin, our CFO. I'd like to thank you for your time this morning, and for being with us on the call. As is typical, we've got about 10 minutes or so of prepared comments, after which we'll open the call up for questions.

Before we proceed, Paul, would you please review the Safe Harbor statement?

Thanks, Jeff, good morning, everyone. Some of the things that 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, and 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, on our website at www.perficient.com under Investor Relations. Jeff?

All right. Thanks, Bob. Thanks again, everyone, for joining. Glad to be with you here today to share our second-quarter 2012 results. I think the second quarter wrapped up a solid first half of the year, 2012, for Perficient; our fifth consecutive record revenue quarter, and revenue growth of about 25% year over year. EBITDA, net of stock comp, was up 21%; and net income was actually up 30%. GAAP earnings per share and adjusted earnings per share also both increased.

Utilization for North American employees was 83% during the quarter. And our average bill rate remained steady, at $127 an hour for North America employees; which, as I mentioned on the last call, is the highest (technical difficulty) solid quarter from a delivery perspective.

We're also busy on the acquisition front, as I'm sure you've noticed. We acquired both Nascent Systems and Northridge Systems in the last few weeks. Nascent, we're excited, particularly, about getting into the ERP business. It's an area that we've long identified as a gap in the portfolio; it's been on our target list for a long time. So we're pleased about that. Also, Northridge, great group of folks, great team; further deepens our portal and collaboration capabilities, and helps strengthen our position as one of the largest -- I think, one of the top two, I believe -- Microsoft National Systems Integrators in the country.

After our substantial Q1 bookings performance, things did normalize a bit in the second quarter, as we expected. But through the first half of 2012, bookings remain up 36% year-over-year. We sold 15 deals during the quarter, north of $0.5 million, and they averaged just under $900,000 each. That compares to 28 in the first quarter. As you recall, we had that substantial bookings quarter in the first quarter. Those 28 averaged about $1.3 million. And it also compares to 15 in the second quarter of last year that averaged about $1.3 million as well.

So, Q3 bookings have started out well, and the pipeline is strong. Our July bookings were up, I think, better than 10%, year over year; I want to say, maybe, 15%. All in all, we are pleased with our growth and our very active first half of 2012, and determined to continue to execute against our long-term goals.

After Paul shares financial details for the quarter, I'll be back to share some more insight into our performance in Q2 and our outlook for Q3. And then, of course, we've got Q&A at the end.

Paul?

Thanks, Jeff. Total revenues for the second quarter of 2012 were $81.8 million, a 25% increase over the year-ago quarter. Services revenue for the second quarter of 2012, excluding reimbursed expenses, increased 23% to $72.7 million over the comparable prior-year period. Year-over-year organic growth was 8%.

Services gross margin for the second quarter of 2012, excluding stock compensation and reimbursable expenses, increased to 36.7% from 36.1% in the second quarter of 2011, which continues our trend of year-over-year margin improvement. SG&A expenses increased to $16.6 million in the second quarter of 2012 from $13.2 million in the comparable prior-year quarter. SG&A as a percentage of revenue was 20.2% for both the second quarter of 2012 and 2011.

EBITDAS -- defined as earnings before interest, taxes, depreciation, amortization and stock compensation -- for the second quarter of 2012, was $12.5 million or 15.2% of revenues, compared to $10.3 million or 15.7% of revenues for the second quarter of 2011. The second quarter of 2012 included amortization expense of $1.8 million, compared to $1.5 million a year ago. This increase is associated with the acquisitions we've completed in 2011 and 2012.

The second quarter of 2012 included acquisition costs of $1.1 million related to the acquisition of Nascent, which closed in early June; and Northridge, which closed July 1. Net income increased 30% to $3.6 million for the second quarter of 2012, from $2.8 million generated in the second quarter of 2011.

Diluted GAAP earnings per share increased to $0.12 a share for the second quarter of 2012, from $0.10 a share for the second quarter of 2011. Adjusted GAAP earnings per share increased to $0.24 for the second quarter of 2012, from $0.21 in 2011.

Our effective tax rate for the second quarter of 2012 was 44.8%, compared to 43.4% for the second quarter of 2011. The increase in the effective rate is primarily due to certain non-deductible transaction costs associated with the Northridge acquisition.

Our ending billable headcount at June 30, 2012, was 1541, including 1335 billable consultants and 206 subcontractors. This includes the addition of 39 billable consultants and seven subcontractors acquired as part of the Nascent acquisition. Ending SG&A headcount at June 30, 2012, was 271, which includes seven employees acquired with Nascent.

Now let me turn to the six-month results. Revenue for the six months ended June 30, 2012, were $156.5 million, a 29% increase over the prior year. Year-to-date services revenues for the six months ended June 30, 2012, excluding reimbursable expenses, increased 27% to $138.8 million. This represents 10% year-over-year growth for the six-month period.

Services gross margin for the six months ended June 30, 2012, excluding stock comp and reimbursable expenses, increase to 35.4% from 34.4% in the prior-year period. SG&A expenses increased to $31.4 million for the six months ended June 30, 2012, from $24.5 million in the comparable prior-year period. SG&A a percentage of revenue was 20% for the six months ended June 30, 2012, compared to 20.1% for the six months ended June 30, 2011.

EBITDAS for the six months ended June 30, 2012, was $22.5 million or 14.4% of revenues, compared to $17.4 million or 14.3% of revenues in the comparable prior-year period. The first half of 2012 included amortization expense of $3.4 million, compared to $2.7 million in the prior-year period.

The first half of 2012 included acquisition costs of $1.8 million related to the acquisitions of PointBridge, Nascent and Northridge, compared to $1.2 million related to the acquisitions of Exervio and JCB in the first half of 2011.

Net income for the six months ended June 30, 2012, was $6.6 million compared to $4.6 million in the comparable prior-year period. Diluted GAAP earnings per share increased to $0.22 from $0.16 in the prior-year period.

Non-GAAP earnings per share for the six months ended June 30, 2012, were $0.43 a share, up from $0.35 a share; or up 23%. Our effective tax rate for the six months ended June 30, 2012, was 42.8% compared to 42.5% in the comparable prior-year period.

As I mentioned, in the three-month result, the increase in the effective rate is primarily due to certain non-deductible transaction costs associated with the 2012 Northridge acquisition.

During the second quarter of 2012, we bought back 42,000 shares, for a cost of just under $500,000. As of June 30, we have spent $56.1 million and have repurchased 7.6 million shares since the share repurchase program inception in 2008. We continue to believe that our share repurchase program will drive future accretion in shareholder value.

We ended the quarter with $12.5 million in outstanding debt and $4.2 million in cash and cash equivalents. Our balance sheet continues to leave us well-positioned to execute against our strategic plan. Finally, our days sales outstanding on accounts receivable were 81 days at the end of the second quarter of 2012, which is consistent with the second quarter of 2011.

We also saw our largest collection month ever in July, with over $30 million in collections, which we expect to reduce DSOs as we move into the third quarter. We continue to focus on reducing DSOs over time.

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

Thanks, Paul. Just a few things I want to cover before we go into Q&A. Highlighting healthcare, it remains our largest industry. The pipeline there remains very strong, as well. We talked about our opportunities with the Blue Cross Blue Shield organizations, as well as the Premier channel, on previous calls. So I wanted to offer a little highlight, or update rather, on those. Each of those relationships continues to improve and grow. You may have noticed, we issued a joint press release earlier this week with NASCO around the partnership there. And we continue to pursue additional opportunities and business with Premier as well.

In fact, our pipeline with Premier is about three times larger than what we've closed so far in business with the Premier channel. We've got about $22 million in pipeline there. And those are early-stage deals, so those will be multiphase engagements for the most part. Some of those are latter stages of projects we already had underway. But a lot of those are new business; and, again, will have long tail. So we're excited about that, and expect that only to continue to grow. The solution that we developed with Premier has been received well in the market, where we've got some initial implementations underway. And we are excited about the opportunity there, and how that's going to grow down the road.

You may have also seen the announcement we made just yesterday, regarding Microsoft announcing Perficient as its 2012 Healthcare Partner of the Year. Again, along the healthcare theme, we continue to be excited about that vertical for us, as well as our position within the vertical. I think we've done a great job of getting a nice foothold in that vertical, and continue to expand there. It's the type of recognition that we got from Microsoft, obviously, that benefits us as we go in and sell to those new accounts; really credentializes the business.

I mentioned Nascent and Northridge earlier; both impressive businesses, and strategic additions to our firm. We see substantial cross-selling opportunities, particularly with the ERP skills, which are mostly focused around Oracle. So we already had this Oracle Enterprise Performance Management business, very strong business growth, around the Hyperion product; as well as, of course, our Oracle CRM or Siebel and Business Intelligence businesses.

A lot of good synergies, if you will, and cross-selling opportunities with Oracle ERP; in addition to the fact that we see an opportunity around Oracle ERP, with a wave of migration to the latest versions of Oracle Infusion.

So we're excited about that addition, actually. Northridge helps us build out our footprint in the Southeast; substantial presence in Atlanta, where it's a growing market for us; as well as Charlotte, where we already had a presence, but this certainly underscores that and enhances it.

And of course, not to mention, as I covered a little bit earlier, the relationship with Microsoft certainly moves us up the food chain there to, again, as I said before, the number-one or two NSI in the country.

Regarding M&A, our goal remains to execute at least one additional deal before year end. And then to add, as I mentioned before, $50 million or perhaps more in revenues in 2013. So we remain in active discussions and the pipeline for acquisitions remains strong.

So again, top- and bottom-line results continue to grow nicely. We're pleased with our progress, and remain optimistic about the business going forward. Regarding our outlook for the third quarter and the full year, we expect third-quarter 2012 services and software revenue, including reimbursed expenses, to be in the range of $81.8 million to $86.2 million, comprised of $78 million to $82 million of revenue from services, including reimbursed expenses, and $3.8 million to $4.2 million on software from sales -- I'm sorry, from sales of software.

The midpoint of the third-quarter 2012 services revenue guidance represents growth of 21% over the third-quarter of 2011 services revenue. The Company is raising its full-year 2012 revenue guidance to a range of $317 million to $332 million, from the previously provided range of $300 million to $320 million.

The Company is adjusting its full-year adjusted GAAP earnings per share guidance to a range of $0.90 to $0.96 from the previously provided range of $0.88 to $0.98.

So with that, we can open the call up questions.

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

Hi. Thanks very much. Good morning, guys. I wanted to focus around some things around guidance, Jeff and Paul. First of all, just so I'm clear, what was the Nascent -- and if you mentioned this and I missed it, I apologize -- but what was the Nascent revenue in 2Q? And what are your revenue assumptions for Nascent and Northridge in 3Q?

Well, we didn't have Nascent for much of 2Q. So I think it was about $900,000 in Q2.

Well, we owned it for one month in the Q. So, yes, as we indicated in our press release, it's a $17 million run rate business.

Keep in mind that they also sell software, so it's about $15 million of services.

Okay. But I guess if I look at the gross services revenue guidance for 3Q, if I factor Northridge and a full quarter of Nascent, I don't know, what is that, about $5 million, $6 million?

Yes, something like that.

On an incremental basis over 2Q, right? If you take that out of the revenue guidance, revenues are largely down quarter over quarter. And I was wondering if you could maybe give a little bit more color around what's happening there.

The organic revenue is going to be around flat to down slightly. And we were expecting a better result than that, or better guidance than that. Honestly, we're trying to take a more cautious outlook going forward, both in the third quarter and for the rest of the year, based on the macro environment and what we're seeing from other peers in the industry, and also what we're witnessing. We are seeing sales cycles extend.

The good news is, we're not hearing from clients attributing it to macro. We're not seeing wholesale cancellations. We have seen some delays, but I think those are more isolated. However, we have seen the sales cycles extend. Pipeline is strong. We expected a little better bookings in the second quarter than we ended up with. The quarter is always back-end loaded, so we expected a bigger June than we had in bookings. So to be sure, the Q3 organic number is not what we had hopeful hoped for. But it's still a solid number. And we're still guiding, I think, overall for the year, to about 8% to 9% organic growth year over year, which is similar to what we had last year.

Okay. Let me see. In terms of the 3Q revenue range, it's pretty wide. Is that, again, attributable to some of the uncertainty you're noting?

I think it's our typical plus or minus 2.5%, roughly.

Yes, the range should be consistent, percentage-wise, with what we've done in the past.

Yes.

Okay. All right. And then, you mentioned that you're not seeing cancellations. You're seeing some delays. The clients aren't citing the macro environment. What are they citing? Maybe a little bit more color on what they're doing? What they're pushing out, versus what they're not pushing out, if there are any trends there. What they're citing as the reason for that, if they're not citing macro?

Yes, the more material ones we've got -- there's a handful -- and the more material ones -- so we looked into this, obviously, we're trying to be vigilant -- one is actually experiencing business issues, business problems themselves. They're not saying that it's macro. But I couldn't say they really have told us definitively what it is. They've got a budget issue. But the others are more actually citing that they've taken on a lot of work, or maybe too much work even, and they've got to work off some of the backlog before they can begin some of the new projects. I think those are legitimate arguments on their part.

We asked, and I encourage our salespeople to explore as much as possible, obviously, for our own benefit to understand anecdotally what people are saying. And we're not hearing, again, any resounding commentary on the macro environment. However, our assessment is that there is a shift in sentiment. Since our sales cycles have extended, that's our assessment of it. And again, based on what we're seeing, based on what we're hearing from, again, our competitors in this industry as well as in general, I think the European issue, I think combined actually with an upcoming election that right now showing a lot of uncertainty, I do think has shifted the sentiment and has resulted in longer sales cycles for us.

Okay. Maybe if you could talk about profitability a little bit. Can you talk about what you expect in 3Q versus 2Q? And then EPS on the cash side -- cash EPS has narrowed despite a healthy revenue raise. So if you could talk about that. And GAAP EPS, the guidance was lowered, and I assume some of this is from acquisition-related costs. But maybe if you can help flush out that versus anything else, that would be great. Thank you.

Yes, I'm going to let Paul comment on that in a second. But I'll start with your last question. We had already in included PointBridge, the first acquisition we did this year, in our 2012 guidance. We've updated 2012 guidance now to reflect Nascent and Northridge. We did say that those would be modestly accretive this year, to the tune of a penny or two in total. We basically have adjusted earnings guidance to be the same, narrow the range, but it's the same as it was at the beginning of the year. So as I think we've indicated that we originally had a guidance range that showed our organic growth this year of 10%. The new range is more in the 8% to 9% range at the midpoint. And it's that difference, it's that dropping from 10% to 9% or 8% that takes away the penny or two that we would have gotten in the accretion, if that makes sense.

So we're holding the same midpoint on adjusted earnings per share as we started the year with, meaning we're not going to realize the $0.01 or $0.02 that we would have gotten through the deals. And then again that's a function of bringing the midpoint of our total guidance down by 1% or so. And in terms of this quarter, actually on a sequential basis, we are expecting EBITDA, net of stock comp, and as well as gross margin and all other metrics, to be up. I'll let Paul comment on that.

Yes, so with your question on the GAAP EPS side, we don't -- in our guidance, historically, we don't assume any future acquisitions. So as we do these acquisitions and we have transaction costs that, in effect, lowers our GAAP guidance, as well as there is amortization costs associated with the acquired businesses. And so the combination of those is what's driving the difference in GAAP as compared to adjusted EPS.

Okay. And then I guess last thing, and then I'll get in the queue. The Nascent and Northridge acquisition revenue assumptions for 2012, do you have numbers or kind of a ballpark figure you can give us for them? Thanks.

Yes, we've baked into our numbers basically -- we've assumed flat throughout -- we don't begin to include them in our organic numbers anyway until we've owned them for a year. So, basically, we've taken the $12 million run rate from Northridge, the $15 million on services from Nascent; it's a $17 million trailing 12 month run rate. But that's all-in. So, on services it's $15 million. So literally, we owned Nascent for one more month, seven months instead of six, but basically we've taken half of that and put it into our numbers. And I think that comes through. That's about $14.5 million. And I think the midpoint of our new range right now is about $325 million, which is literally taking our old midpoint, $310 million, adding $15 million to it, and coming up with that. We do expect a little more software revenue. So software is contributing to some degree, so that's why you're not seeing maybe that 1% or 2% in the top line that I mentioned earlier.

Got it. Okay. Thanks very much, guys.

Brian Kinstlinger, Sidoti & Company.

Hi. Good morning, guys. First question I had, I wanted to touch on some of the verticals -- first of all, healthcare. I'm curious if there were any delays, given the Supreme Court decision that was pending at the time for ACA. And maybe, specifically, you can address the $1 million step-down in revenue from healthcare, sequentially. I haven't seen that since, for six quarters, any step down. So maybe you could discuss that vertical.

Okay, let me answer your first question. But I don't think there was a step down. I'll let Paul talk about that. And I think what we disclosed, it's on the website, is flat, right?

Well, we disclose the percentage, which --

Okay, well, we'll talk about that in a second. In terms of the Supreme Court and upholding Obamacare, so-called Obamacare, I don't really -- we've not seen any impact of that. That doesn't surprise me. We really weren't doing, or beginning to do any work that I'm aware of, and certainly if we were, it wasn't material, to help people or not, prepare for Obamacare. The fact that it was upheld actually only helps us. But we weren't -- I'd say we're not seeing any benefit from it yet, and we weren't before. So I would say it was a benign, or a net neutral impact for us on that. And then we had 32% of revenue --

So, Brian, it went from 32% to 27% --

Right, I just plugged that in.

-- our industry data.

Hold on. What's that, Brian?

Yes, so I just plugged that in. And as a percentage of revenue, you go down $1 million. And specifically, I realize you won't do anything for healthcare. But we were hearing that some customers were just scared in general about spending new money, just because of that decision, not necessarily related to work for that. That's what I was referring to.

No. Again, I'm going to say we're not seeing that.

Yes, so in rough numbers, Brian, what we're seeing is, is the healthcare sequentially was about flat, and up 25%-plus year over year.

Those numbers on -- by industry, should we take those and multiply them by the services revenue or total revenue?

Yes, that's services.

Services, okay. So maybe the numbers will change when I do that. All right, so then maybe talk about financial services. Obviously, the [indie announcers] are having a tough time there; some other companies, even domestically, are having some tough times there. Maybe talk about what you're seeing today; and what you expect to see in financial services in the next couple of quarters, in terms of demand trends?

I would say it is down slightly for us, as a percent of revenue. But I actually attribute -- and, in fact, healthcare shows the same thing, by the way, 32% to 27% -- but that's on a relative basis. There are actually -- financial services is actually up slightly on an absolute basis. The dilution is coming from the acquisitions that we've done that don't have clients in either healthcare or financial services. Neither Northridge nor Nascent had any material revenue there. So that's why you're seeing this sort of relative decline.

Financial services, for us, remains solid. We're not seeing it grow in any dramatic fashion. It's grown modestly here in this quarter, but that's following a quarter where it was down a little bit. So I think it's flat, is the way I would describe it. And I think that outlook remains the same, where we are sort of entrenched in the relationships that we have with a lot of these banks, particularly on the retail side. We're doing a lot to help them streamline those businesses and to try to restore their business to better profitability. They are pretty mission-critical projects. So right, now I feel good about our position within the industry, despite the fact that they may be cutting some spending. I would argue that they're continuing to spend, or maybe even shifting some of the focus on spending to the kind of work that we do, which is helping them streamline, again, their processes and systems.

And if you look at the sales cycles lengthening, are they specific to financial services or any other industry? Or if you look at the handful of clients that it's happening, it is really no trend?

It's really more across-the-board. In fact, I would say healthcare sales cycles probably haven't changed too much. They probably have not extended as much as others. And the others are more across-the-board. I'll also note, again, based on everything that we are seeing and hearing, we are impacted by that, in terms of our sentiment as well. So, as I said before, we're taking a cautious outlook. However, I'll also point out that we saw sales cycles extending in the summer isn't that unusual, at least in our observation. We did a lot of research around this, as it happened again this year, and looked back at 2011 and 2010 and saw it there. Again, our macro environment for the last two years or so has been very unique and very unusual, compared to the history of the Company. So it's hard to pin down a pattern.

But we did see things slow a little bit, or extend in the sales cycle in the summer. Literally, I think attributable to vacations; and also, I think, attributable to the midyear mark. As a lot of companies budget, they'll budget around quarters and/or semesters, so that's a part of it as well. Again, having said all that, sales cycles have extended; the macro environment has certainly eroded; so we want to be cautious.

If we look at the acquisitions you've made this year, I'm wondering how their bill rates, whether our services compared to yours, traditionally the smaller acquisitions are areas where you raised rates, given they've been so low. And then maybe talk about pricing. You've traditionally had 2% to 3%, I think, increase you would like to install. Is that going to be on hold right now? Is that still feasible? Maybe talk about that two-part question.

Yes, I'm sorry, what was the second question?

You traditionally have raised prices; or you've intended to, 2% to 3%, I think. Is that still feasible right now?

Yes, okay. So yes, the most recent acquisition -- I think Northridge is roughly in our existing range, so it really won't impact one way or the other. Nascent ran a bill rate a little higher on average than ours. I want to say it was in the $135, $130s range. But on a relative basis, it's not going to have a ton of impact, either. So the $127 is primarily the organic business. If you want to take those guys out, you'd still have $127.

Do we expect the opportunity to increase rates there? I think so, over time; I think, probably, for both businesses. And actually, as I said before, I actually believe that Oracle EBS or Oracle's ERP solution demand is only going to pick up, as a lot of clients are going to be moving off their legacy systems; and, of course, just around new license sales. So I think there is an opportunity, particularly with Nascent, but also Northridge as well. Little below our average; I think we can move that up to our average. Again, on a relative basis, probably not a tremendous impact, given their relative size. But still, I believe we can do that.

In terms of our own rates, yes, we do intend to continue to raise rates. Pricing is rarely an issue in these deals. The factors that cause a client to choose us over someone else, or not choose us over someone else, typically doesn't come down to price. We've strategically refocused our efforts around the sales and go-to-market, and the kind of clients we go to, and the kind of work that we do, how we position ourselves with those clients, where they are a little less price-sensitive.

I'm not going to say that's never a factor -- there's always a negotiation. But I still believe there is a substantial enough gap between us and firms that have the kind of quality and capability than we do, which are typically larger, better-known firms, to move that gap -- to close that gap to some degree. So I expect that we'll see some modest improvement, even in the third quarter, in rates, and hopefully through the end of the year; such that, by the end of the year, we will have moved rates up a couple of percent.

Okay, last couple of questions -- and then I'll get in the queue -- is on Premier. Curious how many hospitals you have signed up to date; and then, I'm curious how many hospitals were represented by the $22 million pipeline? And then I'll have one more question on Premier after.

We've got three underway right now. And aside from Premier itself, Premier is a meaningful revenue stream directly. So we've got three hospitals signed. In that pipeline, there are I believe, five net new hospitals. So there is follow-on work at the three. But there's five, I believe, new entities in that pipeline.

Now, when you look at that hospital -- when you look at the hospitals you've already done, is the first one -- that's been going on for a little bit -- is it completed, so that that you can reference that? I'm just curious what point you are with that? And then, how are you selling into the customer base? Are you targeting the top five, the 10, the 20 largest ones, and having a couple of sales guys directly call into them? Do you already have relationships there? Maybe talk about how that process is working.

Sure. So the answer is yes, there is referenceability. And the nice thing is, like I said, these things have long tail. So the work continues in those other engagements. However, we've progressed far enough in those engagements where they are a reference for us. And they can see the benefits of the solution.

To go back to the Premier relationship, this is a partnership. So the relationships with these hospitals, we get the intro through Premier, and so a warm relationship already. The credentializing and referenceability is still important, but we get a lot of that credential, or cachet if you will, just from Premier. These guys are already members of the Premier GPO, and are reliant on Premier for a very important strategic component of their business, so they obviously -- I would say, Premier's word carries a lot of weight. So when we go sell a new client in the Premier channel, we're doing it in partnership with Premier. And Premier is there with us, demoing the solution and working with that prospective member on this new solution, to handle their side of the contract. Because there's an ongoing -- this is a fee-based service -- so it's an ongoing relationship, obviously, that Premier has. So we're doing it in a partnership.

So, basically, Premier is saying, here's what's available to you. You're the guys for it, here are the benefits for it, and you should talk to Perficient about it -- is that generally how it's going?

We are actually there with Premier. We're both saying -- yes, we work as a team.

Great, thank you.

We're literally talking to the client literally as a team, but yes, that's correct.

Matt McCormack, BGB Securities.

Good morning. I guess my question relates to visibility into your outlook. If that has changed materially since the 2008-2009 period based off of longevity with clients, new service offerings, I guess if you could just kind of speak generally on your visibility currently.

Yes, sure, thanks Matt. Certainly better than 2008 2009. There's no doubt about it. I described those two years as being sort of on the dark side of the Moon where we lost all communications. So, 2010 and 2011 here -- 2010, 2011 and 2012 here are markedly better. I would say 2011 was solid, but we had -- again, we experienced this same sort of period here in the middle of the year things did get a little cloudier, but then we had a fantastic bookings in the fourth quarter, you know, last year that carried into the first quarter of this year. So we could see the same thing or we could see some prolonged cloudiness. That's why we're trying to be cautious here. But I would say the outlook as it stands today is a little less visibility today than there was a quarter ago, but it's not -- it isn't like it was in 2008, and 2009.

I guess could you talk about I guess your comfort level in your forecast? I think you've had a lot of these clients for a lot longer. You've had acquisitions that have been part of the overall Company a lot longer. So, I mean, is what you do the exact same thing that you did three years ago and very project-based insensitive, or do you have longer -- or do you have much more deeper relationship with your clients now?

Sorry. Yes. It's a different relationship. It's a different business than it was three or four years ago. We specifically moved to what we refer to as a land and expand model, where we have gone after and won larger client relationships. About 60% to 65% of our revenue today is coming from Fortune 1000 businesses. And those are businesses where we have a long tenure or expect to have a long tenure in the new relationships. And they are multimillion dollar multi-year relationships where -- and relationships where we are often engaged even in the budgeting process in the planning process for the subsequent budget cycle or year. So it is better. Forecasting is, I would say, more reliable now than it was back in that time frame for that reason. We've got -- the bookings have still been -- again, year to date very solid, so we've got substantially up year-over-year so, we've got a nice backlog moving forward. That's something else we didn't have in the 2008, 2009 time frame. So, it's -- while we are still doing project-based work, I would say a lot more of it is in a recurring relationship than it was four years ago. Does that answer your question?

Yes, that's helpful, thank you. So in terms of acquisitions, I guess you've got the two recent ones, I guess your outlook for the rest of the year. And have you seen -- given the macro environment, have you seen valuations on potential targets start to come down?

You know, I would say not yet to the second question, although that may happen as we move forward. As I said before, the pipeline remains strong. There are quality businesses out there that we are interested in that are interested in becoming part of Perficient. But valuations I wouldn't say have changed materially. I'll qualify that, though, that we've got this 5 to 7 range that we've talked about for a long time -- 5 to 7 times trailing months 12 months EBITDA -- and we've not paid over 6 with the exception of maybe one deal since we started the program back up in 2010. So, I would say multiples have been depressed somewhat from the 2007 time frame. We shut the program down in 2008 and 2009 and as we started up again, we have not been paying the premium since we started the program back up that we were paying in the 2007 time frame.

Okay great thank you.

They've kind of stayed depressed.

George Price, BB&T Capital.

Thanks. I just wanted to circle back around on a couple of other things. I was curious if you would talk a little bit about how you saw the second quarter play out on a monthly basis, and maybe tack onto that you know what you've seen thus far in July in terms of some of the demand trends that you've called out?

Yes, June -- bookings slowed in June relative to the rest of the quarter, you know, and again, we expected that with the monster quarter that we had in Q1 in bookings that Q2 would be a more normalized quarter, if you will. But it was a little more than we expected. June bookings were not what we expected. June typically is a pretty big month. It signals the end of the first semester. There is typically some budget flush there, etc. The deals were there in the pipeline with good weighted odds. They simply didn't close. And that's where I'm referring to this extended sales cycle that's kind of a fairly recent phenomenon. However, on a year-over-year basis, July picked back up and again, we've got a solid year-over-year performance in July. We'll see how August and September play out. The good news is that the deals that didn't close and some still haven't that we would've expected to see more in the June-July -- June or have spilled into July time frame are still in our pipeline and are still viable and our business developers, our sales folks still believe that they will close. And again, they are just delayed based on a lot of what we are hearing as I described earlier to I think it was Brian is that they've taken on a lot already. They've got a lot of projects underway and it's not a matter of not having budget. We think we are hearing probably most prevalently -- it is not a matter of budget. It's a matter of getting the time and getting their people freed up to take on the work.

So just to be clear there, Jeff, the deals that were pushed out of June into the third quarter, you know to a large extent, you haven't seen those close yet in July. Those are still in the pipeline but have not closed -- is that fair?

Yes, that's fair. None of them did close in July, but there is still a number of them that are still out there. That's correct. You know, again, we are anticipating a very solid August. But we'll see how it plays out. And because of all of that, here again, that's why we're taking a more cautious position going forward.

Okay. Maybe competitively if you could note maybe what trends you're seeing, if you are seeing some of the larger players that you go up against change tactic. And are you seeing any tactical changes from some of the small or mid-sized competitors and maybe talk about where your win rates stand versus the larger guys. I know you've thrown out -- correct me if I'm wrong, but I think win rates 60% plus or so against sort of larger competitors, like the Accentures and Cognizants of the world. How has that been trending?

Win rates are still strong. Actually, they're about 75% year to date this year against that group of competitors. I would say we are not seeing much tactical change -- you know, the big guys are still chasing the big outsourcing gigs. In fact, if you saw, I'm sure obviously you noted Accenture's recent earnings call and release and they noted solid outsourcing or growth in outsourcing, but flat in consulting. And I think it's kind of what we see in the market. I think they certainly are pursuing the consulting deals, but they are only going after big deals and really are more interested in the outsourcing gigs, which obviously is great for us because the gap that we've been playing in here for a number of years now continues to exist if anything maybe widens, at least in certain areas.

And then smaller competitors, you know not much, really. I would say the competitive landscape for the smaller guys is probably a little less than it was pre-recession. I think the recession knocked a few of those folks out. The ones that toughed it through are still out there and formidable, but I would say no different than in the past. We do occasionally lose to that boutique that's an IBM-only shop or a Microsoft-only shop that maybe is local to the client occasionally. But usually, and again as we have changed our go-to-market strategy to more of a large client land and expand model, we -- we're seeing those guys less often, I would say.

Okay and I guess just kind of some -- just some housekeeping issues. Paul, you mentioned the acquisition-related costs in the quarter, the $1.1 million and then in addition to that, right, there was an earn-out adjustment of about $167,000?

Right.

Okay. And the -- you may have mentioned this. I didn't get it all; I apologize. But could you go through the ending billable and total headcount and break out what was organic versus what was added by from acquisitions?

Yes sure. So the ending headcounts was 1335 billable consultants and 206 subcontractors. And I'm looking here that we had a 39 billable some kind -- our employees with Nascent and about seven of contractors.

Okay. Great thanks very much.

(Operator instructions). Brian Kinstlinger, Sidoti & Co.

Great, just wanting to follow a little bit on the Blue Cross-Blue Shield partnership, the press release you put out. Maybe just talk about how you're going to market in that partnership. And then I think a while back, you won that -- what was it, an ICD-10 assessment or at least initial work that's looking into it for them, and maybe where they are with that and how soon given the delay they are into awarding maybe a modification for that?

Yes, so I think the ICD-10 remediation you're referring to was probably NASCO. So we waited until our initial engagement there was complete and they were satisfied and we were, so we were able to issue this joint release. So we're moving onto the next phase and hopefully subsequent phases with NASCO on that. We'll have an opportunity. They serve 20 some-odd Blues. So we'll have an opportunity, we believe -- it's our intent to pursue those as well to develop the other side of the ICD-10 interface that they need to connect through NASCO with.

In general, the Blues' spending remains strong, but I would still say it's probably a second or third inning to use a baseball analogy -- opportunity in terms of the overall work that needs to be done there. I don't think I'm telling tales out of school that all these payers, and the Blues are no exception, have largely antiquated systems from a technology standpoint. I think the systems were adequate for what they needed, but the world has changed. So I think there is a substantial opportunity out there, again, in the payer environment period, but specifically with the Blues. The nice thing is, again, we've got this great foothold reputation with the Blues, and the Blues represent about, we have estimated, about 35%-40% of the payer market.

So, the way we are going to market, good question, there -- these guys aren't really even affiliated. They do talk, but they are not -- there is no central Blue. These are all independent. So we've formed our own sort of Blue tiger team if you will that we leverage all the work that we're doing, the case studies, we are keeping the group intact so they've got the knowledge, the domain expertise to go and sell to other Blues as well. And that's our strategy.

We've got -- I want to say nine Blue entities, including NASCO, currently as clients and progressing well. We expect those to continue and to continue to grow in some cases substantially, because we've just won those relationships and started small. And, I still think we've got an opportunity to grow to many more Blue clients beyond that, again, leveraging our experience there.

But that's a different scenario than Premier. And again, Premier has these relationships. They are already customers of Premier. This is very different. We do have to go independently to each of these Blues and sell ourselves. The good news is, we have got this, again, foothold and reputation and reference ability within the community. And there is a reliance on that.

So just to be clear, this is completely separate from -- because I didn't see even see the word ICD 10, and just was the NASCO that struck me -- this is completely separate from that. Is that right, or is that not right?

I'm not sure what you're saying. The work that we're doing -- NASCO is a claims processing clearinghouse for about 20 Blues. So ICD-10 is the main body of work that we're doing for them. For the other Blues, it's a variety of projects. Some of it is related to ICD-10, some of it is not. With one of the Blues, one of our largest customers, we're doing 12 different projects right now, 12 different engagements, all related to updating and improving processes as well as systems as they are entering into this new environment and this new period with different regulations, as well as different kinds of competition. Does that answer your question?

That helps. And just I missed it and I'm sure your Q comes out right away, but can you just give me the cash flow from ops and CapEx again this quarter?

Yes, hold on one second. The cash flow from ops was up year-over-year. Just bear with me a second. It was -- cash flow from ops was $9.5 million compared to a use of $4.1 million last year. And your other question was CapEx?

Yes.

And the CapEx number was about -- a combination of that and the capitalized software development cost was right around $900,000.

Thank you guys.

There are no further questions from the listening audience, Mr. Davis.

Alright, well thank you all for your time if you joined the call today; or if you are listening to a replay, appreciate that as well. Look forward to speaking to you in a quarter.

Thank you for your participation in today's conference. This concludes your presentation. You may now all disconnect and have a great week.