Perficient Inc (PRFT) 2012 Q4 法說會逐字稿

Welcome to the quarter four 2012 Perficient earnings conference call. My name is Rachel and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. I now would like to turn the call over to Jeffrey Davis, CEO and President. Please proceed, sir.

Thank you very much and with me today is Paul Martin, our CFO. I want to thank you all for your time and for joining us this morning on the call. As is typical, we've got about 10 to 15 minutes of prepared comments after which of course we'll open the call up for questions. Paul, could you please read the Safe Harbor statement?

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

At times during this call we will refer to adjusted EPS. Our earnings press release, including 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, are posted on our website at www.Perficient.com. We've 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 under Investor Relations. Jeff.

Thanks, Paul. Again, good morning, everyone. We appreciate your participation on the call. We are pleased to share our fourth-quarter and full-year 2012 results with you.

The fourth quarter capped another strong and successful year for Perficient. Perficient had revenue growth of 18% in the quarter with net income up 61% and EBITDA net of stock comp up 22%. We continue to demonstrate the ability to incrementally raise rates and have moved our average bill rate for North American employs to an all-time high at $132 per hour. That is up nearly 6% year over year.

We are focused on continuing to drive ABR higher in this year and beyond. I think we've got a good gap there, as I've mentioned before, against a lot of our competitors.

Something else we are focused on internally in 2013 are our plans around land and expand, which involves many things, but at the highest level is a process to ensure our sales, marketing and delivery efforts are focused primarily on the key and strategic accounts that can result in multi-year multimillion dollar long-term relationships.

It's not a new concept for us; those are the type of the relationships that helped carry us through the downturn a few years back. But we are bringing more attention to it and putting some additional levers in place like adjusting incentive compensation plans to drive that strategy.

In 2012 we served 69 clients that were $1 million plus relationships. That compares to 53 in 2011, that is about a 30% increase. We also had our first two $10 million clients during the year. Our top 50 clients averaged $3.2 million each during the year compared to $2.9 million in 2011 and $2.4 million in 2010.

So this is a strategy or a concept we have been executing against for a while. There are some of the results and, again, we are stepping up our efforts around that and expect to drive more of those results moving forward. We're quite pleased in fact with our progress to date landing and growing additional large accounts and I anticipate those trends and numbers will continue to grow in all the right ways again this year and beyond.

Our business has solid momentum right now. The market seems to be steadily improving. Clients continue to demonstrate the increased propensity to consider and commit to larger and longer-term engagements and that is reflected in our pipeline and bookings.

Q4 bookings increased 25% year over year and that trend has carried through the first two months of 2013 which I will touch on a little bit later. That is a function of our growth and our success with the land and expand strategy yielding larger and longer term deals; it helps us build the book of business in months farther out and provides additional visibility and stability for the business.

You may recall that January 2012 represented our strongest bookings month ever. That again was the case this year. Even backing out bookings contributions from the firms we acquired last year January 2013 now represents our most successful booking month.

We sold in the fourth quarter 24 deals greater than $500,000, they averaged $1.3 million each. That compares to 19 in the third quarter that averaged $1.2 million each and 16 in the fourth quarter of 2011 that averaged $950,000. So that is a 50% increase to the number of deals over $500,000 and a 40% increase to the average deal size of those deals year over year.

Notably cash flows from operations increased 174% during 2012. We continue to grow the business and benefit from the flexibly to pursue our acquisition strategy and fund our share repurchase program. We invested nearly $7 million in the fourth quarter buying back our shares and will continue to do so as long as we feel we are trading at a discount.

After Paul shares financial details for the quarter I will be back to share some more insight and provide a little more color on our performance in Q4 as well as our outlook for Q1 and the full-year 2013. Paul?

Thanks, Jeff. Total revenues for the fourth quarter of 2012 were $83.1 million, an 18% increase over the prior year quarter. Services revenue for the fourth quarter of 2012 excluding reimbursable expenses increased 17% to $71.8 million over the comparable prior year period. Quarterly year-over-year organic growth revenue growth was 1%.

Services gross margin for the fourth quarter of 2012, excluding stock compensation and reimbursable expenses increased to 35.5% from 34.7% in the fourth quarter of 2011 which continues our trend of year-over-year margin improvement.

SG&A expense increased to $15.8 million in the fourth quarter of 2012 from $13.4 million in the comparable prior year quarter. SG&A as a percentage of revenues was flat at 19%.

EBITDAS, defined as earnings before interest, taxes, depreciation, amortization and stock compensation expense, for the fourth quarter of 2012 was $12.6 million or 15.1% of revenues compared to $10.3 million or 14.7% of revenues in the fourth quarter of 2011.

The fourth quarter 2012 included amortization of $2.2 million compared to $1.7 million in the comparable prior year quarter. This increase is associated with the 2012 acquisitions.

Net income increased 61% to $4.4 million in the fourth quarter of 2012 from $2.7 million in the fourth quarter of 2011.

Diluted GAAP earnings per share increased to $0.14 a share for the fourth quart of 2012 from $0.09 in the fourth quarter of 2011. Adjusted GAAP earnings per share increased to $0.23 for the fourth quarter of 2012 from $0.21 in the fourth quarter of 2011.

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

Our effective tax rate for the fourth quarter of 2012 was 37.7% compared to 45.5% for the fourth quarter of 2011. The fourth quarter 2011 included certain non-deductible fair value adjustments associated with acquisitions which resulted in the higher 2011 rate.

Our average billable headcount for the fourth quarter was 1,553 which includes 1,378 billable consultants and 175 subcontractors. Average SG&A headcount in the fourth quarter was 289.

Now let me turn to the full-year 2012 results. Revenues for the year ended December 31, 2012 were $327.1 million, a 25% increase over last year. Services revenue for the year ended December 31, 2012 excluding reimbursable expenses increased 23% to $286.5 million compared to the prior year, this represents 6% organic growth for the year.

Services gross margin for the year ended December 31, 2012 excluding stock compensation and reimbursable expenses increased to 35.7% from 34.9% in the prior year period. SG&A expense increased to $64.9 million for the year ended December 31, 2012 from $51.7 million in the prior year.

SG&A as a percentage of revenues was 19.8% for the year ended December 31, 2012 compared to 19.7% for the year ended December 31, 2011.

EBITDAS for 2012 was $48.2 million or 14.7% of revenues compared to $38.7 million or 14.7% of revenues for the prior year.

2012 included amortization of $7.8 million compared to $6.3 million in 2011. The increase is associated with the acquisitions completed in 2011 and 2012. 2012 included acquisition costs of $1.9 million related to three acquisitions completed in 2012 compared to $1.2 million related to two acquisitions completed in 2011.

Net income for the year ended December 31, 2012 increased 50% to $16.1 million from $10.7 million for the year ended December 31, 2011.

Diluted GAAP earnings per share increased to $0.52 a share from $0.37 a share in the prior year. Adjusted GAAP earnings per share for the year ended December 31, 2012 was $0.92 a share, up 19% from $0.77 for 2011.

Our effective tax rate for the year ended December 31, 2012 was 38% compared to 42.4% for the prior year. The decrease in the effective tax rate was due primarily to a research and development tax credit on our 2011 income tax return recorded in the third quarter of 2012 when it became determinable and reasonably estimable. The 2011 tax rate included certain non-deductible fair value adjustments which increased the 2011 rate as well.

The research and development tax credit for 2012 and 2013 was enacted by Congress in January 2013 and the resulting tax benefit for 2012 will be estimated and recorded in the first quarter of 2013. The estimated tax benefit for 2013 will be included in the full-year estimated rate. We are expecting the 2013 benefit to be offset by additional R&D investments primarily related to our healthcare vertical.

We ended the year with $2.8 million in outstanding debt and $5.8 million in cash and cash equivalents. Our balance sheet continues to leave us well-positioned to execute on our strategic plan.

Our days sales outstanding on Accounts Receivable were 75 days at the end of the fourth quarter 2012 which is down from 78 days at the end of the fourth quarter of 2011. We will continue to focus on maintaining DSOs in the 70 to 75 day range. I will now turn the call back over to Jeff for a little more commentary. Jeff.

Thanks, Paul. Well, as I mentioned earlier, we are pleased with our momentum right now. I mentioned bookings during the year had started out well.

We'll be getting together again in just a couple of months to discuss the Q1 results in detail, but I think it's worth noting that through the end of February on a trailing three-month basis bookings are up 25% organically. That strength is pretty broad-based from an industry perspective. Our largest industry, healthcare, continues to do very well with just under a 10% increase there.

A couple of other key areas where we've made investments, financial services and retail, are up as well. We're also seeing meaningful growth in industries like telecom, consumer goods and manufacturing -- each of those are up significantly from the comparable year-over-year period.

I think it's also worth highlighting that our differentiated offshore model continues to resonate well with clients. Revenues from our global development center operations were up 25% in 2012 and we expect those trends to continue and also plan to increase our capabilities in both China and India this year.

On top of the health of existing business we will continue to aggressively execute our M&A -- against our M&A plans. We remain in very active discussions with a handful of firms and remain confident in our goal of adding $50 million or more in run rate revenues this year.

Assuming we achieve that expansion we expect to be entering next year with a revenue run rate north of $400 million annually. And if we are able to drive the margin expansion we expect will come from increasing ABR and fine tuning utilization combined with G&A leverage, we will also see significant increases in earnings. So again, things are going well, we are pleased with the quarter and the year and looking forward to more growth in 2013.

So turning to the future, commenting on Q1, Perficient expects its first-quarter 2013 services and software revenue including reimbursed expenses to be in the range of $81.1 million to $85.4 million, comprised of $76.2 million to $80.2 million of revenue from services including reimbursed expenses and $4.9 million to $5.2 million of revenue from sales of software.

At the midpoint of first-quarter 2013 services revenue guidance represents a growth of about 12% over the first-quarter of 2012 services revenue. The Company is issuing its full-year 2013 revenue guidance range of $345 million to $365 million and a 2013 adjusted GAAP earnings per share guidance range of $0.97 to $1.07. With that we can open the call up for questions. Operator?

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

Just a couple things. First I guess looking into 2013, I wondered if you could maybe expand on the guidance a little bit in terms of margin expansion, what you expect for the year and specifically off of what base are we talking about?

That's a good question. So the base would be the average gross margin for 2012 in total. And I am speaking specifically to services gross margin. So we are looking at 150 to 200 basis points of improvement to services gross margin specifically and overall we think that will drop down to 100 to 150 in both EBITDA and EBITDA net of stock comp, which by the way are tracking pretty closely now.

Okay, and should we expect more of that -- I guess in terms of progression, quarterly progression through the year, is it going to be more of a back-end loaded year do you think? Or I don't know if you can give us any thoughts maybe on seasonality, if there is anything that you see in terms of how that will fall down?

Yes, the margin expansion I think will be pretty consistent throughout the year. We are starting at a good point with rates up year over year nicely. We are actually moving utilization in the right direction. We are focused on getting that up this year.

We ended that last year about 80% for our North America employees and we typically like to run it more in the 82% to 84% range. So we are on a mission to make that happen this year and we're already seeing the results.

So I think it will happen throughout the year. And it is my hope, in fact, that we will end the year on an even higher kind of run rate expanded basis, again driven by ABR and higher utilization, if that answers your question.

Okay, and in terms of the guidance ranges, revenue and EPS, can you talk a little bit more perhaps about the assumptions that are embedded behind the upper end and the lower end? It might be macro; it might be particular client movements. You did mention some investment, R&D investment in healthcare, but just if you can elaborate on what assumptions are behind the ranges?

Sure. I think -- so we, as you can read into the Q1 guidance, I do think the year is going to be a little more back-end loaded, but that is supported by our bookings. I mentioned trailing 12 month bookings, 25% year-over-year organic, that is considerably up over last year.

Last year the bookings were bigger really in the fourth quarter of 2012 and the first quarter of -- I'm sorry, the fourth quarter of 2012 primarily. The first quarter was strong but I think not as strong as we're seeing right now.

And then in addition to that we look forward into the pipeline and do actually bookings projections for 60 days out. So what we are seeing, and it's, by the way, historically been very accurate, we have been running that for about two years now. So March and April both look very strong. We know that we saw bookings begin to slow a little bit into the second quarter last year relative to the first quarter.

So we don't see that at the moment; it is only April that we can see right now. But we are optimistic that the momentum is going to continue the bookings and that will drive a bigger back-end to the year. I think the overall guidance is reasonable if not conservative. And sure there is still uncertainty about the micro environment.

Last year we experienced again some softness primarily around healthcare, but in general, too, and there were a couple of events obviously leading that I think drove that. One was actually the Supreme Court ruling around the Affordable Care Act and we saw things soften up a little in healthcare around that and they continued to stay soft through the election, as we saw, again, some other areas, sectors also kind of softening up around the election.

Post election though things picked right back up and there is a lot of activity now. But again, that did impact our both fourth quarter and I think the first quarter this year. But we are looking to see a pickup in the second quarter and beyond.

And then in terms of the EPS, again, I think it is just driven by the margin expansion that we spoke about. The range there ties pretty nicely to the range we provided on revenue. Of course if we come in at the higher end of that range or even beat it on the revenue side we will be able to drive I'm sure earnings outside the range we provided there.

Okay, and just last thing, just a follow-up and then I will get back in queue. You talked about seeing the softness in 2Q last year. Correct me if I am wrong, but if I recall correctly the softness was sort of more in the back of the second quarter in 2012. So if you are looking at your 60 days out I guess is there any -- can you differentiate at all between say what you are seeing 60 days out here versus what you saw 60 days out at the same time last year -- maybe a little bit too granular of a slice, but just curious.

No that's okay, that's okay. And actually I do want to clarify, the 60 day look is actually projected bookings, that is one deal. We also look at pipeline. And so, the pipeline is substantially larger than it was last year, both and weighted and in gross. So that gives us some validation that we are not going to see the slowdown in Q2 that we saw last year.

And I would also say anecdotally there is more activity, there is more going on even now -- it is still early in the year -- but even now than I think we saw last year. So particularly in healthcare; we, again, are looking at a significant pick-up there primarily on the provider side of that equation.

As I've mentioned before, we are probably 60-40 revenue split payor to provider now and we expect that to even up, not because payors are going to drop up, but because we expect a substantial pick-up with providers. So -- and we've got a pipeline defined for that, I mean specific deals and specific clients that we're targeting, primarily through the premier channel but beyond that as well.

Okay, great. I will turn it over and get back in queue. Thanks very much.

Brian Kintslinger, Sidoti & Company.

I'm just taking a look, with the expected pricing leverage you're talking about, the improving marketplace including your record high bookings, can you just speak to once again the bottom of the revenue guidance? It seems there is limited to no organic revenue growth if I take out the quarters of the couple acquisitions you have that are full-year comparisons. Could you just talk about that low end and what it assumes? Does it assume a slowdown and a worse environment?

Yes, honestly it just reflects the uncertainty that I think still exists for most businesses out there in the macro environment that we are in. And a lot of it is driven by what we did experience last year. And again as I explained with George's question, we don't believe it's going to happen this year, but at the same time we feel like the responsible thing to do is to take it into account and have, again, a reasonable if not conservative guidance number. And I think the bottom end of that range is reflecting that conservatism.

I think Paul had mentioned, I may have got this wrong, that there was a 6% increase in pricing and 6% organic growth by your calculations. Why do you think there has been such little volume growth and why and when might that change?

Yes, that -- I think it's going to change this year because I don't think we will have 6% -- well, let's clarify, that was 6% across the year. We realized within the year probably about 3%. So there was in fact volume growth there in addition to the ABR growth.

But, Brian, a lot of this does come back to the strategy that I explained earlier in land and expand. We are transforming the business gradually, I think cautiously, to one that addresses more large clients, longer-term engagements, longer-term relationships. And some of that, it's -- you can't do everything all at once.

So some of that has to do with driving ABR and some cases it might even affect some of the organic top-line growth, but we are replacing it with higher ABR and, frankly, higher quality opportunities and higher-quality long-term relationships.

Okay. And then just any real pickup in the Premier relationship? And maybe, Jeff, have you at all changed your outlook on the potential of this? Or is it -- it still has the same potential that you thought maybe a year and a half ago when this was brought to you?

No, I think we still have great potential, as much as we thought then. The one thing that has happened with Premier and it's one thing that affected us last year was that the traction has been slower than we initially I guess at least had hoped. Early on it's hard to know exactly what is going to happen and I think both us and Premier thought we would be moving a little faster.

Some of that, again, comes back to we know providers were sort of sitting on their hands hoping that the Supreme Court would strike down some of the stuff and/or the election results would be different, and/or that there will be delays around some of the mandates. I think the writing is on the wall, we are definitely seeing a lot of pickup in activity.

So specifically the Premier opportunity, Premier channel we -- and actually I want to come back to some investment we are making there too. But we added two clients in that channel last year, so we had a total -- or currently we have five active engagements including Premier directly.

But just to give you a sense of where we are at now, we are working on six additional opportunities actively at the moment and anticipate adding between five and 10 new channel accounts this year over the course of the year. I would say the solution or product is more hardened now and more ready. And I think, again, buyers are more anxious to start these activities that we know they are going to be hitting a wall with.

So we're pretty optimistic about it. We remain optimistic about the overall opportunity and actually specifically this year. So we would hope maybe would happen in the second half of last year -- and again, in fact we did at a couple of clients -- we think is going to be happening more this year, even beginning, like I said, in the first half of the year.

Okay, and then just one more on Premier. So what kind of assumption is better than in the second half of the year? Is there a major ramp embedded in your revenue guidance?

You know, it's actually -- well, there is across the board. I wouldn't say a major ramp, but across the board we are expecting better strength in revenue growth in the second half versus the first half. Premier is a part of that. But actually, like I said, we're optimistic that we will begin to see some traction there in the second quarter, if not in fact still this month.

Okay, and then in the fourth quarter it seems SG&A dropped dramatically from the third quarter. I haven't seen that happen in your business model too often where quarter to quarter we've seen that drop and maybe I missed it. Was there any specific reason, is that sustainable? How should we think about SG&A?

It's bonus. It's bonus, Brian. We took a pretty substantial bonus accrual in the third quarter that we didn't repeat in the fourth quarter. So that is primarily what you're seeing there. And so, no, it is going to be lumpy, to answer your sustainability question.

I will say though that G&A is scaling over time and including this year. I expect us to get some benefit from that this year. Again, this year relative to last we also are hoping to hit our goals more effectively this year than we did last year frankly, so we would be recruiting more of a bonus this year than we did last year. So that will offset it some. But again, we are seeing nice scale there.

Just to finish the thought, sales we expect will scale with revenue. We are not going to need to invest more relative to revenue, but we will continue to scale sales and marketing with revenue.

And Brian, that is a bit of a distinction from the 2012 to 2011 comparison. We did make some incremental investments as a percentage of revenue in sales and marketing and we see that flattening out in 2013. So we will see that G&A leverage come through.

Great. Last question I have -- Paul, can you just -- it always confuses me. Can you just give us up pure services in 1Q in the year that is embedded in your guidance not including reimbursable?

Yes, so, excluding reimbursable, roughly the guidance assumes 4% to 8% organic growth, the range of the guidance.

well, and another way to say it too is in that range at the midpoint the $345 million to $365 million is $40 million combined software and reimburse expenses. So it's -- at the midpoint it's --

6%.

Yes.

I'm sorry, $40 million software and reimbursed expenses? Is that what you said?

Combined, yes.

Great, thank you. That's helpful.

That is -- what is that, $315 million or $325 million?

Right. Thank you.

Peter Heckmann, Avondale Partners.

Do you anticipate any change in your offshore resources mix between countries in 2013? And if so, can you talk about some of the dynamics that are driving that?

Yes, it's yes and the dynamics are geopolitical. We will be -- actually we saw great growth in China last year and it continues to be really our premier facility in terms of quality and capabilities. We are investing more in India.

Some clients are reluctant to do business in China. I think those concerns are unfounded, but nevertheless to deal with that and appease that segment, we have been building up India for a while and we will continue to do that.

I don't know that India will necessarily outpace China this year. Our overall offshore growth continues to be good and I think they may keep pace. And given that India is smaller I think as a percentage it might increase a little more.

Okay, and we have seen a couple of larger players acquire. Are you seeing any change in the relative appetite for the acquisitions you target that may change some of the economics that you typically seek out?

No, not really, honestly. We are still in the same -- we've got -- as everyone knows, it has been some time now since we have done an acquisition all for good reason. We run a very disciplined process and while we have the opportunity to buy a couple of companies for a variety of reasons we decided not to -- one of those we will actually revisit later.

But we've got a number of deals in flight now -- actually a very high level of activity. And the multiple range of economics are pretty much the same as we have done over the last two or three years. So, so far we are not seeing a lot of competition out there for the acquisitions that we are targeting.

Okay, okay, so we should still expect some level of accretion from these deals. And do you anticipate the size of the average deal going up or are most of the properties you look at pretty consistent in that regional market with maybe $10 million to $20 million of revenue?

Yes, we do -- yes and no. We would love to do larger deals, there are fewer out there. As a private company it is difficult to get over that say $15 million to $20 million hump. We do have some of that size, by the way, $20 million plus that are in the hopper. But, by the way, I went to temper that with, hey, we might buy a sub $10 million shop too if it's the right strategic skills that we want to add to our portfolio.

So I guess the short of it is probably average about the same as it has historically, but driven more by maybe be a wider range. We've got a couple of things specifically in mind that will be a little bit smaller, but they are early kind of emerging technology companies that we are very interested in.

Great, great. And have you seen any additional requests on the part of clients for you to provide more of a outsourcing solution or provide ongoing maintenance or processing for the solutions that you are working on?

You know, we have picked up -- we do offer a maintenance and support outsourcing offering. And we have seen nice pickup there. We have got a handful of key accounts there and actually a real marquee account with Caterpillar that our relationship started there and actually is now expanding into a substantial relationship both in MSO as well as direct project work now. So we do see that.

I wouldn't say that the appetite has dramatically increased for that, although it has some. And honestly we are pushing that offering more because it obviously lends well to our land and expand strategy and the stickiness that we want to have with these clients. So again, not a dramatic change; we are pushing it more but there is some pickup.

Got it, all right, thank you.

George Price, BB&T Capital Markets.

Just I wondered, Jeff, if you could maybe talk a little bit more about some of the changes in the sales incentives and how you are going to market. How that's changing, what the particular goal is, how you see that kind of helping the business and flowing through the business as we go through the year?

Sure. I think -- I think the traction is gradual. I mentioned before that we have actually been executing on this for a while. We didn't talk about it because we want to actually see some results from it. But I provided those results in terms of the number of clients that we have now over $1 million, et cetera, as we're kind of growing into those capabilities.

So the incentives are -- is quite frankly simply that our sales guys make more money delivering or selling larger deals, longer-term deals that inherently will have higher gross margin typically given the efficiencies that you gain, right, in those longer-term deals. You've got less churn, less turnover that you have to deal with.

So we are passing on a chunk of that to them as an incentive and frankly [disincenting] some of the more opportunistic types of deals that we used to pursue and are pursuing less and less these days. I guess -- I can't provide specific goals, but -- well I could -- but suffice it to say that it has more multimillion dollar relationships, expect more Global 2000, Fortune 1000 type of customers and/or, by the way, smaller customers that have a high dependence on IT and a high IT spend.

So we are targeting our customers more, we are driving relationships that -- driving to relationships that can be ongoing long-term and longer-term engagements again that will keep the churn down, increase the efficiency, help us get back to the utilization goals that we had before. And again, we are providing incentives to the sales guys as well as some of our delivery folks.

We've got a sales conference coming up here in April and the entire conference is dedicated to the processes that we are defining around this strategy. So we are excited about it.

I think we will see accelerated traction, we've already seen some, but I do think we will see accelerated traction coming out of that, probably realized more in the second half of the year. But, by the way our guidance and the commentary I made earlier about a pick-up in the second half of the year is not dependent on this. That is just from where things are today. If this were to actually yield great results coming out of that sales conference I would expect even acceleration to that.

And by the way, George, while I have you, I want to come back to something that I think is important to mention. You asked about it and I neglected to answer -- around the investment with Premier. So we are -- as Paul mentioned, we'll offset the R&D tax credit benefit that we will get this here -- or at least we are planning to.

We are anticipating investing about an equivalent amount this year, and it could vary some, but roughly about an equivalent amount this year in building our own assets associated with the Premier channel, the Premier solution and actually some of the IBM solutions that are entwined in that. So we are working through those -- through that right now, but we are preparing to make that commitment and plan to see that coming.

The assets are related to primarily accountable care organization reporting, not directly mandated but more or less implied or mandated by CMS for Medicare reimbursements and will likely be government healthcare reimbursements as well. So we see this as a substantial opportunity out there. It will be on the Premier platform as well, so it is a perfect I think low-risk investment for us to make.

Okay, and in terms of the tax rates that we should see, Paul, for the first quarter and for the full year, if you provided them I apologize that I missed them. But are we talking kind of low 30s for the first quarter and maybe upper 30s for the full-year given the R&D tax credit stuff? If you can just nail me down on that.

Sure. And predicting tax rates is always a challenge but --

Right, right.

-- the rate in Q1 with a benefit from the 2012 R&D tax credit should be in the low 30s. And the full-year rate, I think it was 38% on a GAAP basis for 2012 and we are expecting it to be 1.5 to 2 points lower than that in 2013.

Okay, all right. So somewhere between 36% and 37%?

Yes, that's reasonable, yes.

Okay, and the fourth-quarter gross services revenue was slightly below the guidance range if I'm looking at it right. And I just wondered, Jeff, if you could kind of elaborate on what you think happened there. Was it -- did things kind of slip out into the first quarter or what drove that?

Yes, it was primarily in fact the late starts. So with guidance in the forecast we had going into guidance -- by the way, I will point out, we I think have almost never missed guidance, I think this is maybe the first time in many, many years. But we -- with the forecast we had counted on some starts that did get pushed out.

Sandy impacted us a little bit. I don't want to use that as an excuse, but there is a few hundred thousand dollars of lost services where we had folks that couldn't travel. We actually had one client that was directly impacted; we also had a lot of people who were stuck in gridlock, travel gridlock for a week or so. And so the impacted it as well.

But honestly I would say it was more probably business pushing beyond what we expected into the first quarter. The good news is those deals were booked and started now and didn't go away. So most of them I think again have not gone away and are starting this quarter.

Okay, and do you have, Paul, the cash from ops, CapEx and software for the quarter?

Yes, so the 10-K is either -- has been filed or will be filed here in the next hour. All that is in there and if you want I can certainly follow up if you have any questions as you look at that.

Okay. All right. All right, great, thanks, guys.

Thank you. I would now like to turn the call over to Jeffrey Davis for closing remarks.

Thank you all again for your time today. As always we look forward to speaking to you again in a couple of months talking about Q1. Thank you.

Thank you. Ladies and gentlemen, that now conclude your conference call for today. You may now disconnect. Good day.