Perficient Inc (PRFT) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter two 2013 Perficient earnings conference call. My name is Michelle and I will be your operator for the day. 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 would now like to turn the call over to Jeffrey Davis, President and CEO. Please proceed, sir.

Thank you and thank you all for joining us today. With me is Paul Martin, our CFO. We have got, as is typical, 10 to 15 minutes of prepared comments after which of course we'll open the call up for questions. Before we continue, Paul, will 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 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 earnings per share. 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've also posted a slide deck which includes a reconciliation of certain non-GAAP goals to the most directly comparable financial measures prepared with accordance with GAAP on our website under Investor Relations. Jeff?

Thanks, Paul. Well, good morning again and thank you all for joining once again. We are excited to discuss our second-quarter results with you. We are pleased with the performance and our momentum heading into the second half of the year. In fact, our confidence in the business and our ability to drive additional margin expansion going forward affords us, as I'm sure you have noticed already, an opportunity to materially raise our full-year earnings guidance range. I will discuss that in more detail a little bit later.

This morning we reported a quarter that came in above the high end of our previously guided range and one where Perficient delivered revenue growth of 15% with net income growth of 27%. Average bill rates increased to $133 for our North America employees, that is an all-time high and up 4% year over year. We continue to see an opportunity to grow ABR in the next several quarters toward a near-term goal in the range of mid-$140s. That's going to be a key contributor obviously to achieving our goals of realizing 40% plus gross margins on our services business.

Booking success that we referenced on the first-quarter call carried through into the second quarter. Our Q2 bookings increased 22% year over year with total year-to-date bookings up about 15% year over year. A key metric we use to monitor the business is our success in booking larger deals and we talked about this before in our land and expand strategy.

So we had 22 deals over $500,000 close during the quarter that averaged $1.1 million each, and that compares to 15 in the year-ago period that averaged $860,000 each. Year to date we have booked 57 deals north of $500,000 that averaged $1.3 million each compared to 43 deals averaging $1.1 million in the first half of 2012.

So we continue to focus on growing large accounts that we're capable of sustaining multimillion dollar annual relationships with. In 2012 we served 69 $1-million-plus accounts and we're currently on track to serve 77 this year and actually have a goal to reach 85 still this year.

We had another very solid quarter in software sales. I mentioned on the last call it is not the core focus of our business, which will always be services, but providing this service to our clients and driving these sales for our partners creates several downstream benefits; we have discussed these before. We are getting more sophisticated and structured here with a growing focus on an inside sales capacity to help drive these deals to closure. And of course each of these deals has significant services attached to it.

Software is always lumpy and hard to project in any given quarter, but we're optimistic that we will see year-over-year growth again in the second half of 2013, despite the fact that we had a strong second half of 2012.

The second-quarter results of course include only a partial quarter's contribution from the two acquisitions we completed in May, integration of each of those is going very well and early performance is positive. I'm going to talk a little bit more about that also a little bit later. And I will be also back to comment on the outlook for the second half of 2013 after Paul shares the financial details for the quarter. Paul?

Thanks again, Jeff. Total revenues for the second quarter of 2013 were $94.2 million which is a 15% increase over the year-ago quarter. Services revenue for the second quarter of 2013, excluding reimbursable expenses, increased 11% to $80.4 million over the comparable prior year period. Services gross margin for the second quarter of 2013, excluding stock compensation and reimbursable expenses, increased to 37.3% from 36.7% in the second quarter of 2012.

SG&A expenses increased to $18.9 million in the second quarter of 2013 from $16.6 million in the comparable prior year quarter. SG&A as a percentage of revenue decreased to 20% from 20.2% in the second quarter of 2012.

EBITDAS for the second quarter of 2013 was $14.5 million or 15.4% of revenues compared to $12.5 million or 15.2% of revenues for the second quarter of 2012.

The second quarter 2013 included amortization expense of $2 million compared to $1.8 million in the second quarter of 2012. This increase is associated with the 2012 and 2013 acquisitions.

As Jeff mentioned, net income increased 27% to $4.6 million for the second quarter from $3.6 million in the second quarter 2012.

Diluted GAAP earnings per share increased to $0.14 a share for the second quarter of 2013 from $0.12 a share in the second quarter of 2012. Adjusted GAAP earnings per share increased to $0.28 per share for the second quarter of 2013 from $0.24 a share for the second quarter of 2012. As a reminder, adjusted GAAP EPS is defined as GAAP earnings per share plus amortization expense, non-cash stock compensation transaction costs and fair value adjustments of contingent consideration net of related taxes divided by average fully diluted shares outstanding.

Our effective tax rate for the second quarter of 2013 was 38.4% compared to 44.8% in the second quarter of 2012. The decrease in the effective tax rate is primarily due to the research and development tax credit for 2013 which has been estimated and included in the second quarter provision.

Our ending billable headcount at June 30, 2013 was 1,681 including 1,518 billable consultants and 163 subcontractors. And the SG&A headcount at June 30, 2013 was 281.

Now let me turn to the six-month results. Revenue for the six months ended June 30, 2013 were $179.1 million, a 14% increase over last year. Year-to-date services revenue for the six months ended June 30, 2013, excluding reimbursable expenses, was $154 million, an increase of 11% over the comparable prior year period. Services gross margin for the six months ended June 30, 2013, excluding stock compensation and reimbursable expenses, increased to 36.2% from 35.4% in the prior year period.

SG&A expense increased to $36.7 million for the six months ended June 30, 2013 from $31.3 million in the comparable prior year period. SG&A as a percentage of revenues was 20.5% for the six months ended June 30, 2013 compared to 20% for the six months ended June 30, 2012, an increase primarily due to increased office costs, investment in research and development and associated professional fees.

EBITDAS for the six months ended June 30, 2013 was $24.8 million or 13.8% of revenues compared to $22.5 million or 14.4% of revenues for the comparable prior year period. 2013 has included amortization expense of $3.8 million compared to $3.4 million in the comparable prior year period.

2013 has included acquisition cost of $1.4 million primarily related to the acquisition of TriTek and Clear Task compared to $1.8 million related to the acquisition of PointBridge, Nascent and Northridge in 2012. Net income for the six-months ended June 30, 2013 increased 32% to $8.7 million.

Diluted GAAP earnings per share increased to $0.27 from $0.22. Adjusted GAAP earnings per share for the six months ended June 30, 2013 was $0.50 a share, up 16% from $0.43 a share for 2012.

Our effective tax rate for the six months ended June 30, 2013 was 31.3% compared to 42.8% for the comparable prior year period. The decrease in the effective rate is primarily due to the research and development tax credit for 2012 which was approved in January 2013 and factored into the first quarter as a discrete item. An estimate of the 2013 credit was included in both the first- and second-quarter provision.

We ended the first half of 2013 with $23 million in outstanding debt and $4.7 million in cash and cash equivalents. Our balance sheet continues to leave us well-positioned to execute against our strategic plan.

Our days sales outstanding on accounts receivable were 80 days at the end of the second quarter of 2013, which is down from 81 days at the end of the second quarter of 2012. We will continue to focus on keeping DSOs in the range of 75 to 80 days.

We also announced today that on July 31 we expanded our credit facility from $50 million to $75 million while extending the term by more than two years to July 2017 and reducing interest rates charged under the facility. The new credit facility is a testament to our strong balance sheet and demonstrates our lender's willingness to support our growth. I will now turn the call back over to Jeff for a little more commentary. Jeff?

Thanks, Paul. As I said, a (technical difficulty) quarter for both revenue and bookings. I mentioned the annual bookings improvements earlier, but I think it's also worth noting that July bookings were up nearly 50% year over year. So Q3 bookings are off to a strong start as well.

I mentioned the ongoing integration of our two most recent acquisitions. On the last call we discussed TriTek which was an acquisition we announced just a few days before the Q1 call. A week or so after the call we announced the acquisition of Clear Task, a deal on the smaller side of what we typically look for, but really very important strategically for a couple reasons. So I want to bring them up here.

First, all enterprises today, as you know, are assessing the impact SaaS and cloud computing solutions can have on their business. Salesforce clearly is a key vendor in that space. Some of those deals have quicker sales cycles, by the way, and are great foot-in-the-door opportunities for us to broaden our delivery within that client and leverage our land and expand model.

Second, being technically deep and able to deliver solutions across all leading platforms is clearly a key differentiator for Perficient. Our clients are increasingly realizing that our breadth and depth is unique and valuable. The lack of a meaningful SFDC practice was a gap in our portfolio that we have begun to address through this addition. Obviously we've been doing some things organically as well, we continue to do that, and combining that with this acquisition I think puts us in a good position.

In Clear Task we found a firm with a great reputation within SFDC itself and a very strong partnership between the two. In fact, Andrew O'Driscoll, Clear Task's CEO and our new GM, came from Salesforce and our new office is just a few blocks away from the SFDC headquarters, in fact.

So we're really excited about that addition and our broader sales team is already winning deals based on these new capabilities in our portfolio. I know for some time we've been looking for this opportunity and in fact we had many clients that were looking at and/or implementing SFDC and asking if we could help. So we can answer yes now to that and have already begun to do so.

Speaking of cloud I want to mention the great recognition we received from our partner Microsoft this quarter. In addition to being named the Healthcare Provider Partner of the Year and 2013 US Partner of the Year, Perficient also recently received awards from Microsoft including the East Region NSI Partner of the Year, the Central Region Enterprise Cloud Partner of the Year and the Northeast Area Cloud Partner of the Year.

These awards highlight Perficient's capabilities in and successful implementations of Microsoft technology solutions including cloud computing technologies. That has been a big chunk of what we have done with Microsoft, hence the one cloud -- with the two cloud awards that we received. These include technologies like Office 365, Azure, Lync, Yammer, SharePoint Online, InTune and Dynamic CRM.

So before we get onto the Q4 outlook, just a quick word to reiterate our plans around M&A. It remains our intent, we've discussed it before, to pursue deals that would add somewhere around $50 million in revenues in both 2013 and 2014. TriTek and Clear Task combined represented nearly $30 million in revenue so that has us looking for another $20 million or so this year. More if we can find the right opportunities and get those deals closed.

No guarantees of course but the pipeline is strong and we are in discussions with several firms right now. We remain disciplined, so again no guarantees. However, we have been able to find some really solid opportunities and execute on those recently and hopefully that will continue.

So again, things are going well. We are pleased with the start of 2013 and feel even more optimistic about the remainder of the year. Commenting by the way on Q3 2013 Perficient expects its third-quarter 2013 services and software revenue including reimbursed expenses to be in the range of $91.8 million to $98.3 million comprised of $86.8 million to $91.3 million of revenue from services including reimbursed expenses and $5 million to $7 million of revenue from sales of software.

The midpoint of the third-quarter 2013 services revenue guidance represents growth of about 12% over the third-quarter 2012 services revenue. The Company is reaffirming its full-year 2013 revenue guidance range of $362 million to $382 million and raising 2013 adjusted GAAP earnings per share guidance to a range of $1.03 to $1.09 from the previously provided range of $0.98 to $1.08. With that we can open the call up for questions. Michelle?

(Operator Instructions). Brian Kintslinger, Sidoti & Company.

The first question I had was related to Premier, unless I missed it, maybe you can give a number of customers, number of providers maybe in the pipeline. And I'm wondering if you're able to give revenue from the collection of customers versus where you were a year ago.

Yes, sure, absolutely. So we spoke I think at the -- actually the 2012 year-end conference call about pursuing additional clients there. I think at the time we had seven in the channel including Premier. So it was Premier plus -- or I'm sorry, actually think it was four and we were adding two at the time. So we got -- we were getting to six at that point and we are actually at eight today.

So we are moving toward -- I think what we said is a possibility of about 12 by the end of the year. So we are seeing that come to fruition. Again, we had eight today and we are in final selection stages with (technical difficulty) more that we expect to close before the end of the year. And actually there is good potential that we will have more than the 12 that we had originally projected.

In terms of dollars year over year, I can't give you the backlog, I just don't have it in front of me for these clients, but it is clearly a substantial increase when you include these most recent wins. So I would estimate literally these are fairly linear in size, so literally doubling the number of accounts probably does double the revenue run rate as things get fully up to speed.

So looking at the second half of the year, particularly maybe this quarter into the fourth quarter, we are probably doubling our revenue related to that channel on a services basis. In addition to that I wanted to highlight that our asset development that we have spoken about a couple of times has gone well, is going well. We have gone live or in the process of going live with one of the first products there, if you will, and have a handful more behind that, three identified today, two more in the wings. It is being very well received by the market.

In fact, it has been a key differentiator in a couple of the deals that I mentioned. We've actually got, in addition to those four others, again the eight current and four more, we have got about 20 other deals in pipeline with identified customers that would be customers both of our services and in some cases (technical difficulty) assets as well.

So the current pipeline, Brian, is about $24 million looking forward -- again, that does not include the deals that I've already mentioned. And in that $24 million there is a little over $4 million of our assets that would be resold. And of course that is not services, that's software, so that would be pretty much 100% gross margin and of course there is some compensation that comes out of that in the form of commission. But it is mostly profit for us.

Great, that is really helpful. Maybe can you -- since this is mostly providers, maybe talk about how much revenue under healthcare's provider base? And then I saw the financial services revenue really kick up from the last quarter. Is that a function of acquisitions? Is that regulatory, is it M&A, integration work? Maybe highlight what is driving financial services.

Sure. On your question on the provider payor side, I would tell you -- right now as of today we are still probably 60% payor, 40% provider, maybe 55/45, somewhere in there. But that is rapidly shifting. So as I mentioned, this pipeline here, the deals that we've closed recently, the providers are catching up. However our opportunity with payors remains strong as well.

So I would be perfectly happy to see that balance at 50/50, I suspect providers will move ahead though given just the number of -- large number of opportunities that we have there and the momentum we are seeing. But still good momentum in the provider side -- on the payor side as well, again particularly in those Blues. A great relationship with Blue Shield California, that's beginning to really take off, and a handful of others that are expanding from where we were a few months ago.

In financial services, yes, a big chunk of that was through -- from acquisitions. TriTek, in fact I think we talked about this on the last call; one of the things we liked about TriTek was that they have got a good presence in financial services including insurance. And in fact geographically they have got offices in -- or now we have offices in New York and Boston, which we were excited about.

So, yes, it was somewhat that, but we also have had organic growth as well. I think we are 15% of revenues now for financial services and I would tell you that we may move that up 50 or 100 bps organically but the rest of it was through that acquisition.

Great. Two more and they are related. The first, maybe -- and I always get confused on the guidance. If you could just break out in third quarter how much you are assuming from actual services revenue including reimbursement and software. And then related to that, I assume, because obviously you integrate the companies, revenue is flat from the acquisitions you made and maybe you generated $7 million-ish.

And so there was minimal services growth year-over-year if you exclude those acquisitions I guess you have had exceptional bookings in the first half of the year. At what point do you think you would see acceleration and where is the organic revenue growth do expect to peak at over the next few quarters?

Yes, good question. So let me take your first question. I don't have the specific breakout, but I can tell you that our reimbursed expenses -- so of the $86.8 million to $91.3 million revenue from services including reimbursed expenses, about $4 million of that, the midpoint of that -- the midpoint in there is $4 million from reimbursed expenses, roughly. $4.2 million, something like that. Okay. And that runs pretty consistent.

I mean some of these acquisitions do a fair amount of travel, but I would say some of them don't at all. So as we have acquired them that balance has kind of remained the same. And then what was your second question?

It was -- I mean if I take a look at the three acquisitions you made and what they added to revenue I can only assume that they were about flat, obviously we don't know. But if I take away the $7 million around services, and maybe you can adjust that number for me, you've got a little bit of revenue growth year over year. And so maybe I'm wondering with the strong bookings will that accelerate in the second half of the year?

Sorry, yes, no, absolutely. Good question. And actually in fact they were roughly flat. It is not unusual even for in the first quarter to -- after an acquisition to have their revenue actually be down a little in sequential quarters for a quarter or two because frankly we have kind of distracted the management team with due diligence, etc. They always bounce back or typically and in our experience nearly always bounce back. So, but that is a phenomena associated with the acquisitions.

So you are spot on on the organic growth, we are expecting expansion I think we've talked about this all year kind of a hockey stick year, which is obviously a little bit nerve-racking to predict and talk about, but in fact I think we are seeing it come to fruition. So the midpoint of our guidance range for Q3 is roughly 3%, a little below 3% organic year over year. And then with the new guidance we put out there for the year, that implies 5%, 6% organic year over year in the fourth quarter as well.

Great, (multiple speakers).

So to your point, with the strong bookings that we've had and continue to have and a number of other factors, the things that we put in place, the strength that we're seeing pick up in the verticals, etc., we do believe and I believe and I've talked about this for a while, that while things have been flattish for a bit I do believe -- and we are in fact guiding to moving into a growth period that I believe we will extend beyond the second half of the year. I think we will be well-positioned -- I think very well-positioned actually based on the bookings and what we are seeing in pipeline going into 2014 as well.

Thanks very much.

Peter Heckmann, Avondale.

I missed right at the beginning -- I don't want you to repeat everything, but could you just -- the bookings sounded very strong, much stronger than I would have expected. Can you just go [over] the highlights again, the growth in bookings for the quarter as well as your early commentary for July? And then just talk a little bit about, if you could, the composition of that, where the strength specifically came from it, I think I missed a good part of that.

Yes, sure. So the bookings for the quarter were up 25% year over year, is that right? About 25%? And actually we kicked off -- and so for the first half, Pete, they are up 15% year over year. And very strong -- a lot of that in the second quarter, so very strong second quarter. And then as we completed July here yesterday, those were some phenomenal bookings; we were actually up 50%, 5-0%, nearly 50% year over year for July. So obviously Q3 bookings off to a good start.

Now, I am going to -- I will tell you right now I don't expect the same results for August and September, but I do expect growth there. And so, when you combine all that together it should be another solid bookings quarter for the third quarter.

Okay. And then --.

And again, I want to -- I'm sorry, Pete, I'll just caution again real quickly. We have spoken a lot about our land and expand strategy and our land and expand model, I mentioned earlier the number of million dollar accounts increasing acceleration there, our top 50 accounts and the growth that we are experiencing there.

So do keep in mind that while these bookings I think are really exciting and phenomenal, I obviously don't expect them to translate 1-for-1 directly into revenue growth because these bookings are larger longer-term deals. So putting backlog further into the future. Of course, that creates a great foundation for growth and I do expect us to have nice organic growth beginning now and going into 2014 and hopefully beyond. But again, they won't translate one for one.

Okay, okay, that is great. And the composition, it sounds like healthcare is going quite well and you feel optimistic about financial services. Any other verticals that are worth calling out there in terms of increasing or decreasing in the back half?

Well, healthcare certainly led in the second quarter. Our bookings in healthcare in the second half of last year weren't that great as we discussed before and the reasons for it being macro. But we have seen a tremendous pick up there at the very end of last year and all year so far this year. So they are leading the way.

However, we are seeing nice pickups across the board; it varies from quarter to quarter of course because the business -- those bookings can be lumpy. But we are seeing solid growth and bookings in retail, as well as energy and utilities. Automotive continues to be a good spot for us. I don't necessarily look for it to be a huge growth sector for us, but it has been a great stable sector for us, and at least a modest growth. So things -- I would say kind of across the board and we are optimistic.

The other thing I will point out too that I think is driving some of this and I think it speaks to the sustainability of it is and we have talked about this about a year ago, and I've been kind of a little quieter about it because we wanted to see how the results came out. But we have increased our sales capacity pretty substantially as well as sales and marketing and inside sales. We have increased that about 10%.

And the folks that we have put in those roles are getting some tenure, they're beginning to get some traction and we are pretty optimistic that that is going to help us drive growth in addition to I think our unique position in healthcare and in retail.

Okay, okay, great. And then utilization at 80% in the quarter, it looked like it dipped a bit, but does that put you in a good position in terms of meeting demand for some of these new bookings? I mean do you feel you are in a good position with your bench and what is the outlook for organic hiring here over the next (multiple speakers)?

Yes. No, that's a good point. And I think you are exactly right, I mean with the kind of bookings that we've had obviously there is a fair amount of presales work that needs to be done with those, it isn't just the sales folks doing it by themselves. So they are soaking up some of the billable team's time which is a good thing, it is a necessary thing. And certainly that speaks to it.

I think we probably could have been a little higher in spite of that, but I am satisfied with where we were given the bookings. If we had not had the bookings we would talk about utilization being too low.

That said, to your point, I do think we have got good capability, adequate bench and capability. We always try to run that pretty lean, as you know. And we feel very good about it. Our attrition rates are down, our recruiting team is producing great results, we are not concerned about overall meeting demand. It is always hard to find great people -- I will always say that, even in the depths of recession, it is true. But right now we are able to meet the demand without any issues.

Great, great. Okay and the last question I will get back in the queue, actually one for Paul. It looked like you stepped up the buyback pretty nicely in the quarter; did you happen to have shares outstanding at the end of the period?

There is the fully diluted shares -- hold on one second I can find that in here. So, shares outstanding I think on the fully diluted was 31,768, that is the weighted average. And we expect that to trend down slightly in the third quarter obviously as we get the full quarter benefit of the buyback that we did in the second quarter and there will be some additional buyback in Q3.

The buyback in the second quarter was a little back end loaded.

Yes, I mean we can go to the next question. But if you could come back, I'm just looking for the average diluted at June 30, so the average --.

Yes, 31,768.

All right, thanks, much.

Michael Martin, The Small Cap Report.

Good morning and congratulations. Just two questions. What is your win rate running when you get to the final stages?

Yes, it is still up there where we have kind of traditionally been, particularly against the people we see most often, about 70%. When we actually are putting proposals head-to-head against competition it is about 70 -- 65% to 70%.

And the other question, are there any either pluses or minuses for Perficient in terms of (technical difficulty) changes in immigration reform about foreign workers?

Yes, that is a great question. We have looked very closely at what is out there right now, who knows what actually will come out of the house, if anything. But for what is there right now and the big picture I think it is helpful to Perficient. We are not an H1b dependent employer, so less than 15% of our staff are H1b or L1 even on a combined basis they are below 15%. So I think that it will impact the market overall, but it will probably drive some rate increases, probably drive some wage inflation, but I think we are pretty good at responding to that quickly.

Theoretically if it -- others are more affected it could be a plus for Perficient.

Oh, yes, I think in the big picture it is absolutely a plus for us. We are a US-based company with primarily US-based employees; of course we love our H1b folks as well. But we don't have -- we are not going to have the encumbrances that those other guys are going to have.

Thanks a bunch.

Brian Kintslinger.

I just want to touch on the bookings and then the expenses a little bit. If I look at bookings growth in the first half of the year and then maybe in July, how much of it -- I know it is going to be very hard to look at, but it comes organically, right? You are a bigger company with three acquisitions. Is there any way to look at it organically, bookings?

Yes, yes. Now bookings in the first half of the year, year-over-year organically were about 9% -- were up about 9%; for the second quarter particularly they were up 15%. And the number that I gave you in July of 50% year over year, about 30% of that was organic.

Great, that is really helpful. Let me just write that down so I don't ask you that again. The other question I wanted to ask, in July -- 50% is a big number. So I guess I'm wondering -- I don't have month-to-month -- was July a weak comparison, was it a very strong comparison? Maybe give us some contextual understanding.

Yes. No, it's a good question and I would say it was not a weak comparison. We did have -- it's kind of interesting, we obviously track all of those very closely, I have got a model that I use. June came in materially below where I thought it would be. Now keep in mind, we still were up 15% year-over-year for the quarter, about 14% year-over-year for the quarter organically. So despite the fact that June came in a little lighter than I expected. So some of those deals spilled into July, that is not unusual.

Again, when you try to measure things on a quarterly basis you can kind of confuse the results a little bit. So some of that was a spillover from June, it was not an easy comp. I think it is what it looks like and that is continued strong bookings.

I did say and I will reiterate that I don't necessarily expect that kind of acceleration or that kind of velocity to continue in August and September. However, I do expect good bookings in those two months and I in fact expect some growth in those two. And then when you combine it with that really strong growth in July I think we're looking at another solid Q3. And again, when you put it all together I think you are looking at a very, very solid trailing six months, trailing nine months, trailing 12 months.

Great. I want to touch quickly on something we don't talk a lot about, but the other project-related expenses. If I think back a couple of years ago I thought it was a very small percentage of services revenue, normally close to a fixed percentage. And over the last two years while you have made acquisitions it has come down substantially and now remain pretty flat. So could you just remind us the moving parts in there, what those expenses are? And will they remain flat like they have for the last six quarters or so or will they still increase with revenue?

Yes, no, I hope that they remain flat. What those are are situations where we end up paying expenses for people to travel to client sites. As you well know, typically that's an expense we are able to pass on to our clients. We have some legacy accounts that are good accounts for us, good margin accounts that we made that agreement, honestly, in some cases years ago. In fact, some of them probably during the recession and we felt like we needed to. And have not kind of broken that cycle maybe with a couple of those clients. Eventually those will wind down.

But with new clients we work very hard to justify those expenses and show the client the value and why it is worth them paying us for those. So we typically get reimbursed. So I would say it's a little bit of a shift in strategy, a shift in the market, I mean we are getting better rates now and the market I think is more tolerant I think this expenses than they were literally three, four years ago in the depths of or on the heels of the recession.

Great.

I think we are internally modeling that relatively flat. And there are certainly initiatives working with the ops team, as Jeff described, to make sure in the strong majority of cases we are able to pass those expenses on and it is not in this (inaudible).

Great. Thanks, guys, so much.

Mayank Tandon, Needham.

Jeff, a couple of quick questions on housekeeping ones first. Did you give the global delivery revenue, the headcount and the utilization?

For the -- for offshore or total Company?

Yes. Yes, for offshore.

Yes, we have got that somewhere. Paul, can you find that?

Yes, we have -- there are 100 -- yes; it's actually on our website. We have a summary of some operating metrics and there are 186 average offshore for Q2 and 196 (technical difficulty).

Okay.

Number of offshore employees.

And the utilization --.

Averages 186 and the (inaudible) it was 196.

And the utilization, 70%?

Yes.

Utilization is about 70%, Mayank.

Okay. And the revenue percentage would be about the same as last quarter roughly, around 4%?

Up a couple of tenths of a percent, but up modestly.

Yes.

Okay. great, then just a broader demand question in terms of healthcare. If you could just speak to the opportunity for you around some of the regulatory changes in healthcare. Then also maybe if you are tied to any of the changes that are going on within the banking vertical, that would be helpful.

Sure, yes, for healthcare certainly -- again, I'm going to -- excuse me. Any time I get this question I like to give it some context in terms of what we do. So most of what we are doing with our healthcare customers, be they payors or providers, is business analytics. Helping them understand the costs related to their business, their performance related to their business.

So if that is a payor they are now scrutinizing in a much greater way the provider's performance down to the doctor level, the cost that they're paying, their re-admittance, quality of care -- all those things that you have heard the buzz words around. Those began with mandates, I would say those were the -- it was the catalyst for that. And of course the providers likewise. They are on notice now, right. The quality has to be good.

The cost has to be reasonable -- you have to demonstrate that you are effectively attempting to manage those costs down rather than just passing on to the patient and the payor. So it is all of those things.

And again, I would say for us mandates and legislation were the catalysts for that. But we are really participating in and I've had the pleasure of working with a number of these -- interacting with a number of these CIOs in the industry. And the reality is the train has left the station. It has got its -- it's on its own fuel now, it's on its own momentum. Mandates aside, the writing is on the wall, these guys get it. And they are all right now in the sort of classic prisoner's dilemma of who is going to survive and who's going to get it right.

So they are spending a lot of time and energy and effort from both a process standpoint but of course also from a system standpoint to again get a better handle on all those things I mentioned. Quality of care effectively in a nutshell, that means a whole lot of things. And also cost of that same compare. Wellness and a lot of different things.

So that all takes data (technical difficulty). Most of these firms were operating on fairly antiquated and underinvested systems in some cases date back 20, 30 years. We are replacing cobalt and mainframe in some instances. That is what we are doing in healthcare. So it is kind of a broad response.

But honestly that is why when people say, gosh, do the mandates on Obama Care and things like that, if they are repealed how much does it affect you? I'm not going to say it doesn't at all and we did, as I said before, see a little bit of a slow down last year as the Supreme Court was visiting Obama Care, etc., in the election. But you know, 99% of what we're doing really has nothing to do with Obama Care yet.

Now because we're doing a lot of holistic updates, replacements, etc., certainly we and our customers are taking into account the fact that Obama care is around the corner and these new systems will have to adopt and accommodate what is required there as well. But again, I would say that wasn't the original driver. The original driver is a transition -- a paradigm shift in the industry. Does that help on the healthcare question?

That is very helpful, thank you. Then on the banking side, do you also benefit from some of the pending changes?

You know, it is interesting, I am not as up to speed on the banking so our financial services guys could address this better than I could. A lot of the work that we've been doing has actually been focused on retail banking. I can tell you it is a lot around workflow automation, business process automation and meeting regulatory requirements. There is obviously reporting requirements there, there is a number of -- things are more rigorous, there is more watchdog reporting that is required now.

And so we helped them put that in place. But I would say a lot of the motivation for those for those customers as well is ways they used to make money they can't anymore, they have been regulated away. So a lot of them have become even more cost-conscious I would say than they were before and trying to find ways to deliver the services that they deliver more effectively, more efficiently and at lower cost to them so they can actually improve their profit. Again and an environment where revenues of prior -- streams of profit don't exist anymore that were there a few years ago. So that has certainly helped us on the retail banking side.

In terms of -- we are not much in capital markets, we are more retail banking and insurance. And again, those things have all helped us, but I see a long tail on that also despite the fact that maybe some of the deadlines have already been met. There is still that long tail there on how can we do what we do more efficiently and cheaper but also differentially faster.

A good example is one of the large banks that we work with, we really help them streamline their mortgage underwriting process so that they could provide a letter of intent for a homebuyer faster than the competition and be able to kind of advertise it as a differentiator. Back in the day, of course, people were doing that in a matter of seconds. But you can't do that these days.

So it became a more rigorous process as it used to be. And now they wanted to find a way to compress that pretty so those are the kinds of activities that we are doing kind of projects that we are doing there.

Great. Thank you very much.

Thank you for your question. That was the last question. I would now like to turn the call over to Jeffrey Davis for closing remarks. Please proceed.

Well, thank you all for your time today and your ongoing interest in Perficient. We appreciate it and we will see you back in a quarter.

Thank you, ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.