Perficient Inc (PRFT) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter three 2013 Perficient earnings conference call. My name is Sue and I will be your operator for today.

(Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Jeff Davis, President and CEO. Please proceed, sir.

Thank you and good morning, everyone. With me today, as always, is Paul Martin, our CFO. I want to thank you for your time this morning. We have, I think, some great results to talk about in a couple of minutes.

As is typical, we have got a few minutes of prepared comments and then we will open the call up for questions. But before we proceed, 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 meanings 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 under Investor Relations. Jeff?

Thanks, Paul. We are definitely excited to discuss our third-quarter results with you. On previous calls throughout this year we have referenced a cautious confidence around the second half of the year, and I think the results that we announced this morning, combined with our fourth-quarter guidance, really reflect the realization of that optimism.

During the third quarter, services revenue was up 14% year over year, net income was up 41%, and earnings per share on a fully diluted basis were up 44%. ABR, our average bill rate, increased $137 an hour for North American employees, and that is an all-time high, which is also up 5% year over year.

That pricing power helped us grow service margins by 270 basis points to 39.2% and I continue to believe that we have an opportunity to incrementally grow bill rates, contain costs, and possibly even drive a little more utilization that will help us continue to move toward our long-term goal of 40%-plus services gross margins. I think we are getting close to that and might see it sometime next year.

We continue to realize solid bookings during the quarter as well and more good news there. So closing in September particularly strong was a big month for us. Bookings in total were up 21% year over year and year-to-date remained up 17% year over year.

A key metric we use to monitor the business is our success in booking larger deals. You have heard me talk about this before.

We closed 25 deals in the quarter that were over $0.5 million. They average $1.4 million a piece and that compares to 19 a year ago, averaging $1.2 million. So more large deals and larger deals. Year-to-date we have booked 82 deals north of $0.5 million that average $1.3 million a piece, and that compares to 61 the prior year at $1.1 million average per deal last year.

So delivering larger deals and maintaining larger relationships is a core component of our ongoing strategy and we are really seeing it pay off. You have heard me talk before about our land and expand strategy, which we are executing now in earnest. And, again, we are really seeing dividends from that.

I think it is going to help us not only drive additional stability into the business, where I feel we already are quite stable, but also help us drive those growth numbers to a higher level as we discussed in the past.

So we now serve 38 unique $2 million-plus a year clients and 10 of those clients are actually running annual billings greater than $5 million. The third-quarter results, of course, include no contribution from the CoreMatrix acquisition we announced in mid-October. I will speak more to our strategy there about that acquisition.

Obviously, we are quite excited about the transaction and we are seeing some benefits already. Again, I'm going to talk more about that in a minute. And I will share some more notable details on the quarter and comment on our outlook for Q4 and the rest of the year after Paul shares the financial details for the quarter. Paul?

Thanks, Jeff. Total revenues for the third quarter were $96.8 million, an 11% increase over the year-ago quarter. Services revenue for the third quarter of 2013, excluding reimbursable expenses, increased 14% to $86.6 million compared to the comparable prior-year quarter.

Services gross margin for the third quarter of 2013, excluding stock compensation and reimbursable expenses, increased to 39.2% from 36.5% in the third quarter of 2012. SG&A expenses increased to $20.5 million in the third quarter 2013 from $17.7 million in the comparable prior-year quarter. And SG&A, as a percentage of revenue, increased to 21.2% from 20.3% in the third quarter of 2012.

EBITDAS for the third quarter of 2013 was $16.2 million, or 16.7% of revenues, compared to $13.1 million, or 14.9% of revenues, in the third quarter of 2012.

The third quarter of 2013 included amortization of $2 million compared to $2.3 million in the comparable prior-year quarter. Net income increased 41% to $7.2 million for the third quarter of 2013 from $5.1 million in the third quarter of 2012.

Diluted GAAP earnings per share increased to $0.23 for the third quarter 2013 from $0.16 in the third quarter of 2012. Adjusted GAAP earnings per share increased to $0.32 for the third quarter of 2013 from $0.26 in the third 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 for the relevant period.

Our effective tax rate for the third quarter of 2013 was 29.5% compared to 31% for the third quarter of 2012. The decrease in the effective rate was primarily due to a tax deduction for US domestic production activities related to the 2013 tax year from the last three tax years which was recorded in the third quarter of 2013.

Our ending billable headcount at September 30, 2013, was 1,751, including 1,571 billable consultants and 180 subcontractors. Ending SG&A headcount at September 30 was 296.

Now let me turn to the full-year results. Revenue for the nine months ended September 30, 2013, were $275.9 million, a 13% increase over the comparable period last year. Year-to-date services revenues for the nine months ended September 30, 2013, excluding reimbursable expenses, were $240.5 million, an increase of 12% over the comparable prior-year period.

Services gross margin for the nine months ended September 30, 2013, excluding stock compensation and reimbursable expenses, increased to 37.3% from 35.8% in the prior-year period. SG&A expense increased to $57.3 million for the nine months ended September 30, 2013, from $49.1 million in the comparable prior-year period.

SG&A as a percentage of revenues was 20.8% for the nine months ended September 30, 2013, compared to 20.1% for the nine months ended September 30, 2012, primarily due to increased investments in research and development and sales related costs. EBITDAS for the nine months ended September 30, 2013, was $41 million, or 14.8% of revenues, compared to $35.6 million, or 14.6% of revenues, in the comparable prior-year period.

2013 has included $5.8 million of amortization compared to $5.7 million in the comparable prior-year period. 2013 has included acquisition costs of $1.5 million -- I'm sorry, $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 nine months ended September 30, 2013, increased 36% to $15.9 million from $11.7 million for the nine months ended September 30, 2012. Diluted GAAP earnings per share increased to $0.50 a share from $0.38 for the nine months ended September 30, 2012. Adjusted GAAP earnings per share for the nine months ended September 30, 2013, was $0.81, up 18% from $0.69 for 2012.

Our effective tax rate for the nine months ended September 30, 2013, was 30.5% compared to 38.1% for the comparable prior-year period. The decrease in the effective tax rate was primarily due to the research and development tax credit for 2012, which was recorded in the first quarter when the law was enacted, the research and development tax credit for 2013, and a tax deduction for US domestic production activities related to 2013 and the last three years which was recorded in the third quarter 2013.

We ended the third quarter of 2013 with $16 million in outstanding debt and $5.4 million in cash and cash equivalents. Our balance sheet continues to leave us very well positioned to execute against our strategic plan.

Our days sales outstanding on accounts receivable were 78 days at the end of the third quarter of 2013, which is down from 81 days at the end of the third quarter of 2012. We will continue to focus on keeping DSOs in the 75- to 80-day range.

I will turn the call back over to Jeff for a little more commentary. Jeff?

Thanks, Paul. As I mentioned, we are very pleased with the quarter. I've been having a lot of conversations with our leadership team. In fact, we had our annual planning meeting here just a couple of weeks ago talking about both the end of this year, but also going into next year.

And I can tell you that there is solid confidence in the pipeline on an ongoing basis, certainly solid confidence in November and December rounding out or finishing out this year, as you will see in the guidance. But I would like to also share that anecdotally everyone is communicating a strong sense of momentum headed into next year. I think that is an important point to make.

We are better positioned than we have been in recent memory. And in terms of how we are ending this year and the platform that it represents going into next year and the growth opportunities around that.

I mentioned CoreMatrix earlier. We talked a little bit last quarter about the strategic importance of growing a Salesforce practice at Perficient. Obviously everyone is aware cloud computing is big and only getting bigger, and virtually every one of our clients is assessing the opportunity in one fashion or another.

Of course, we have been delivering cloud-based solutions for years with other partners -- chiefly Microsoft, but others as well -- and certainly building a lot of cloud architected platforms and solutions for our customers. But by acquiring Clear Task in May and now CoreMatrix we have become a very capable Salesforce consulting partner with comprehensive sales and delivery capacity across the entire country. And our broader sales team is thrilled to be able to offer these services to our existing client base.

We have had a lot of clients asking specifically about Salesforce and now we have got that capability.

We are already winning deals today at existing clients that we simply couldn't have pursued at the beginning of the year. It is our goal to become the top SFDC consulting partner in the country, much like we have done with our partners Microsoft and IBM.

Speaking of IBM, business is booming for us around their entire product stack and we continue to be recognized by that organization for our work. Just yesterday we issued a news release highlighting two awards we received this week at IBM Information on Demand Conference in Las Vegas. We were the sole recipient of IBM's 2013 Worldwide Performance Management Business Partner Award and also received an Enterprise Content Management Business Partner Award.

Also worth highlighting is our ongoing success with and the growth at our GDCs, our global development centers. Our ending offshore billable headcount for the quarter was up 29% year over year with our headcount in India more than doubling. We have talked about Perficient being well positioned regardless of any integration and reform legislation that may occur, and we will continue to focus on structuring our delivery teams so that we can provide a comprehensive range of options to our clients.

So before we get to the Q4 outlook and the balance of 2013, just a quick word to reiterate our plans around M&A. It remains our intent to pursue deals that would add somewhere around $50 million or more in run rate revenues in 2014. There is no guarantees, of course, but the pipeline is full.

In fact, there is very robust activity there and discussions with several firms right now so I wouldn't be surprised if we were able to announce something very early next year. It is not even out of the question that we get another deal done this year, although more likely early next year.

So, finally, commenting on Q4 2013 and the balance of the year, Perficient expects its fourth-quarter 2013 services and software revenue, including reimbursed expenses, to be in the range of $95.6 million to $100.6 million comprised of $88.3 million to $92.9 million of revenue from services, including reimbursed expenses, and $7.3 million to $7.7 million of revenue from sales of software.

The midpoint of the fourth-quarter 2013 services revenue guidance represents growth of about 21%, 20.6% to be precise, over the fourth quarter of 2012 services revenue. We are also nearing our full-year 2013 revenue guidance range and moving it up a bit to a range of $372 million to $377 million. And raising 2013 adjusted earnings per share guidance to a range of $1.08 to $1.12 from the previously provided range of $1.03 to $1.09.

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

(Operator Instructions) Manyank Tandon, Needham.

Thank you. Good morning, Jeff and Paul. Good job on the quarter.

Wanted to dig into the guidance a little bit more for the fourth quarter. If I look at the midpoint of the new guidance range, it is about $2.5 million higher than what you had provided previously, but I would imagine that the contribution from CoreMatrix would be a little bit more. So maybe you could just walk us through how much is CoreMatrix adding to the fourth quarter, what is organic in 4Q, and then how much of the growth is from the acquisition?

Yes, so we only have a [stem] from CoreMatrix; it is about $2.5 million. The organic growth for the quarter, the midpoint of our services guidance, is actually 8% year over year. Just under 8%; I think it is 7.6% organic.

That is obviously up from -- we were at 4.6%, 5% this quarter and flattish in the first half of the year. I mentioned early on that we expected a better second half and certainly we have got that momentum moving in the right direction.

Okay, that makes sense. To be clear, the organic growth guidance for 4Q has not changed, the addition to revenue is really from the CoreMatrix deal?

That is right.

Okay, that makes sense. I wanted to get a sense from you in terms of what are you hearing for next year from your clients? You mentioned they you are upbeat going into next year, but maybe just some specifics around what are client priorities for 2014. How would that be different from what you saw in 2013 and what that could mean in terms of organic growth trends in 2014 versus 2013?

Well, we continue to see, and I mentioned earlier obviously, the movement among cloud applications. Some of which, as I alluded, are custom-developed applications that we build an internal cloud, or in fact external, but also Salesforce. Obviously more Office 365. So more cloud initiatives to be sure; more investments being made there. I think we are well positioned to capture that.

In addition to that, we continue to see great opportunities around analytics, both standard BI, business intelligence reporting, dashboarding, but also enterprise performance management. So financial analytics, both on the IBM and Oracle stack. Hyperion and TM1 are both getting some good traction. And TM1, particularly with IBM, gaining good traction and we are seeing good demand there. Like I said, across the board really for BI.

Primarily among the retail set a lot of interest in customer applications -- customer intelligence applications, omnichannel initiatives that some of our retail customers are launching. We are seeing some new revenue being driven there. And also in commerce. Commerce is a foundational component to omnichannel, so we are seeing good pick up both in IDM commerce platform as well as the Sterling commerce platform.

I would say generally it is across the board and the appetite for spend is solid. I wouldn't say it has returned to what we were enjoying in the industry in, say, 2006 or 2007. But still I would say stable, continuing, steady increase in demand and we are feeling very confident about the year.

I know you are not giving specific guidance on organic growth for next year, but is it safe to say that given the momentum you are seeing that organic growth could continue to accelerate into fiscal 2014 from where you are finishing in fiscal 2013?

That is certainly what we are hoping to see and that is what we are driving to. I mention the planning meeting we had a couple of weeks ago. The consensus among the executive team -- myself, Kathy, Paul, as well as our nine Vice Presidents -- was that 10% was a very doable number. So that is our goal and that is the goal that a lot of our variable compensation will be tied to for a great number of people here.

I think there is even potential upside to that, but it is very early to be talking about that. But I mentioned earlier, and I believe this to be true and I want to reiterate, that we are better positioned than we have been, I would say, probably since 2006 or 2007 as we are heading into the next year. We are very optimistic. No guarantees; it is still early, but bookings as well as anecdotal, pipeline, total, etc., all indicate we have got a good shot at double-digit growth next year.

And then finally just some housekeeping items. Maybe, Paul, could you could give us what the percent of revenue was from global delivery? What the average bill rate was for offshore and also the utilization levels? I didn't see that in the presentation so I just wanted to get that.

So about 4% of revenues is coming from offshore. North American employee utilization was 80% in the quarter. And on the bill rates, give me a second and I can dig out the bill rates here.

It would high 30%s. At least around 37%, 38%, Manyank.

Okay. And utilization for the global delivery was also around 70% (multiple speakers)?

Yes. And that is about where we try to maintain, not a lot higher than that. It is a different model. They need to be there and ready, so we carry more bench there by design.

Great, thank you. Congrats again.

Brian Kinstlinger, Sidoti.

Good morning, Jeff and Paul. So healthcare looks like it has been a big top-line driver and so the questions I like to ask are around Premier. I'm just wondering if you can just update us on some of the statistics at Premier, maybe the customer totals, revenue contributions, and maybe the number of hospitals that are in the pipeline from that channel, if you will.

The revenue contribution remains, I would say, steady. It really hasn't changed.

I view that, by the way, as quite good news, because despite that fact -- and by the way, I should mention that a lot of the work that we did and even the assets that we have developed around Premier we are actually taking to market in other channels, primarily with IBM. I had mentioned early on that we were exploring that and we are heading headlong down that path. So we will continue to work with Premier, but we are also broadening that channel or that market.

That said we do still have, I want to say, it looks like about 15 opportunities in that pipeline totaling, as of now, about $16 million in the pipeline. We did close some opportunities. I believe we have 11 accounts now, so I think we have closed one or two more in the quarter. Two more, sorry, in the third quarter.

So we do continue to make progress there that we are pleased with, but like I said, I think the story is growing beyond Premier.

Great. I am curious; at the beginning of that relationship when you started working with the hospital they seemed to, in a year two and beyond, take more services or demanded more service from you. So maybe talk about what an existing customer looks like in your experience so far in year one, year two, and maybe even year three.

It is a good point, and it does certainly vary by customer and how we are positioned going in. In some cases I think we will probably just implement the solution that we developed around that space and likely be done. But to your point, in many cases -- and this is true particularly of the larger hospitals where we are doing the private or on-premise flavor of that solution -- we do have the opportunity to stay on.

Some of the clients that we started with about three years ago, to your point, we are still working with today and still on a $1-million-plus run rate. Some of that is customization and continued development around the solution, around the data analytics solution, but some of that also has branched out from that. As we have established the relationship and helped educate the customer on other services that we can provide, they do expand from there.

So I would say it is difficult to put a number on it. A couple million dollars a year at a relationship that is running well, and we have got that with a couple of these guys, a couple or three of them. About $2 million a year on average for the first three years and I would say an ongoing opportunity there around that land-and-expand model I described earlier.

But as we move forward, we are actually seeing more opportunity outside that channel, both for the assets as well as for services and deals that we are landing independent completely of Premier. In some cases, by the way, even with Premier members but still independent of Premier.

And then also on the payer side. Our payer experience continues to expand and improve, not only among the blues but also now more into what we refer to as kind of the private sector. So we are excited about that.

34% of those bookings by the way, which were up 15% organically year over year, third-quarter bookings, I am pretty sure that is a record for us or darn close to it. And 34% of those bookings were in healthcare, which continues to be about 24% or so of revenue. But that delta between revenue and bookings is mostly attributed to the acquisitions that we have done this year and the fact that they are diluting the healthcare component. Not in a bad way, but just that they didn't bring healthcare clients.

Great. And last quarter, I think we talked about before, but a little bit more so we talked about what is going to be a new offering from this. You have developed a software app basically that is much more easily installable at the hospital from these Premier assets.

Maybe you could update us; was there any sales of that software app in the third quarter? And if you look at the fourth-quarter software guidance is going up substantially sequentially, but it's kind of the same year over year. So just maybe give us your expectations when you will start to see, while lumpy, some of those sales take place.

We are optimistic -- and none of that is reflected in our software numbers. We are still optimistic that we will see some opportunities close this quarter in the fourth quarter, but I still think it is probably more next year. The traction is slower just, I would say, across the board. Clients more sitting on their hands and mulling over these decisions.

The good news, I think, on the asset front and healthcare in general for us again is that IBM has some keen interest in partnering with us. And specifically partnering with us around those assets. We have begun to explore things; that is as far as I can go with it. But we have been exploring some things with them that I think will help drive additional demand and again both the assets, as well as potentially some services around it.

So I still feel good about the opportunity there. We did have some revenue from those this quarter, but it was pretty de minimus or modest. We actually licensed it sort of a conference room pilot or proof-of-concept stage at a very modest price. And then the expectation, of course, is that that will go well and then we will be able to sell the assets at their full value or a more reasonable price.

Just one last question on the modeling of that. Suppose you book a software license, you said some of them could be as much as $500,000 I think last quarter. Maybe I am remembering incorrectly.

But whatever the number is how long -- how do you recognize that revenue? Is it a lump sum right away? Does it take a couple of quarters once it is installed to lump it? Just give a sense of how that runs through the P&L.

We are expecting it will be upfront, that we will be able to recognize it up front. But as you know, that will be driven by the specific license agreements that we enter into, which may well vary from customer to customer. But it is our desire, and we believe that it is the appropriate accounting as well. And, of course, we will have to support that through the contract.

But it is an asset. It stands alone, doesn't require the services, so we will likely be able to recognize it upfront.

There may be a component, 10% or 15%, that is made and that would be recognized over time, but most of it would be recognized upfront.

Great. I will get back in the queue. Thanks so much.

(Operator Instructions) Peter Heckmann, Avondale Partners.

Good morning, gentlemen. Nice results. Wanted to follow up on services gross margins, which looked very, very strong; up significantly year over year. Can you talk about the components that went into that year-over-year increase, whether it be mix, domestic versus offshore, bill rates?

I don't see that there was a real significant (technical difficulty) in utilization and certainly -- so if you talk about that. But as well your guidance for the fourth quarter seems to suggest that maybe we won't see quite as much seasonal downturn in services gross margin, or perhaps maybe we see more operating leverage in the fourth quarter? But a little bit about how you see margin shaking out for the fourth quarter as well.

Sure. I think it is actually accommodation of those things. I think you are right that utilization wasn't a big factor, which again I actually see as a positive because we have got some room to improve there. But it is a combination really of the mix of offshore.

Offshore this past quarter grew 29% year over year, so obviously the offshore work that we are delivering is at about 60%, 65 gross margin so that is helping to drive that margin up, as well as the bill rate increase. So bill rates up 5% year over year, pretty well ahead, actually, of our goal around bill rates.

So where we expected to drive more gross margin from utilization this year it has worked out that we are driving more of it through the bill rate increase than utilization, which like I said, actually still gives us room for improvement on the utilization side. However, we are not seeing any headwind on increasing bill rates either.

I think the value of what we are delivering, the quality, and our reputation stands up against competitors that are charging still much more than we do based on our brand differential. And I think that is kind of an artificial gap that we can continue to fill.

In terms of gross margins in the fourth quarter overall, yes, thankfully we don't expect the seasonal impact that we had last year or that we have had in the past. And I think that is mostly attributable to our growth momentum. The fact is we are able to offset some of what we would see in that normal seasonality because we have got some pretty strong organic growth underlying there so that is offsetting it.

We did do a little bit of modification to our PTO policy, our vacation policy that might be influencing it, but I think it is mostly the growth. Again, that is one of the reasons that I am optimistic that we are on that growth curve. We don't see right now any reason to believe that is going to stop and so we should be really well positioned going into January in 2015.

Okay, that makes sense. Then I missed just the first minutes of the call. On software reselling, remind me, was there a change there in terms of the way that you are recognizing or the mix? What is accounting for the year-over-year decrease besides normal lumpiness?

I am assuming there may be something more, given some of the guidance you gave us of the fourth quarter for that line item.

No, it is not. Honestly, it is the same -- there's no difference in recognition. It is just lumpy, quite definitely.

Clients are pretty savvy when it comes to buying software. They have been well-trained by the vendors and so a lot of them will delay until the end of the year if they can because I know everybody is trying to make their number. Oracle has an off fiscal year; it is not even the same as the calendar year. So we see some lumpiness in that and that is all I would attribute it to.

And even this quarter -- the typical fourth-quarter experience would be a large software sale. I think our number out there could be a little conservative. That is the way we like to run the business, as you know, and there is likely upside in the software number. But it is one of those deals where a $2 million software opportunity is sort of like a one or a zero, whether it happens or not, you don't want to mess up your guidance by missing that.

Fair enough, okay. Then, as regards the organic hiring outlook with utilization running around 80%, do you anticipate ramping up the net domestic headcount additions the next couple of quarters?

You know, I do. We have got some room on utilization, but not a lot actually. Of course, 100 basis points there can make a huge difference in margins, but we are going to continue to drive that number up some. But I do expect us to be ramping up next year.

Again, if my optimism, based on some facts obviously, comes to fruition and we are seeing the kind of growth numbers or growth expectations that I have shared, I think we will be doing some significant ramp up in the US on hiring. I think we are well positioned to do that.

The recruiting team is running very nicely -- talent acquisition I should say; we have rebranded that -- and made a lot of efforts around unique types of recruiting where you can really find the people that are not necessarily looking for a job, which are often the ones that you want most. We have got no concerns about being able to do that, but we do expect some ramp up or I would expect some ramp up into the kind of growth curve that we have been talking about.

Great. I appreciate it.

Brian Kinstlinger, Sidoti.

Brian? Operator, we seem to have maybe a technical issue with Brian.

I will just try it again for you, sorry.

Okay, well, I think we have lost Brian, at least temporarily. I think maybe Manyank is back in queue?

Brian is now in the call, thank you.

Thanks. One of the things we haven't talked about a lot for you is international in Europe. Maybe you can update us on how much revenue comes from international customers and obviously your divisions from international customers.

What we have been hearing a lot from most of the system integrators reporting is Europe is picking up substantially, so I am wondering if you are thinking about in any way, shape, or form improving your market position to take advantage of that? Or is there enough opportunity in the US that will remain your core focus?

I think for the time being the US does remain our core focus. Even at $400 million we are really relatively small in what is an $80 billion market here. So I think there is plenty of opportunity for us to continue to play here.

I think Forrester is calling for a 7%, 8% increase in spending this year in IT services, and along the way I think we can gain share as well. So we have got the opportunity of general growth plus the opportunity to continue to gain share. And with our goal of double-digit growth I think we can realize that in the US and not take on the additional management risk necessarily expanding outside the US right now.

Now that isn't to say that we are not discussing that and looking at other opportunities be it Europe, Latin America, or Asia, and we will probably be on addressing that in the not-too-distant future. But there is nothing imminent on the doorstep right now.

Two more questions. First, on acquisitions have you at all changed your plan of how you will pay for them in terms of the composition of cash versus stock? I think recently it has changed a little bit, so I'm just curious. Maybe you could articulate where you are right now with that?

Sure, so generally, no, but your observation is correct. The last two deals really, and particularly this last larger Salesforce deal, we did use a higher cash component on the upfront piece. That was to be competitive. Frankly, the Salesforce shops are hard to come by and it is typically competitive environment to do those acquisitions.

So we believe right now, by the way, that we are satisfied with this platform for growing our SFDC practice going forward. So as of right now, and never say never, but as of right now we don't have any immediate plans to go out and acquire another Salesforce shop.

I think that phenomenon, my point is, unique to the Salesforce right now. Maybe if you went and bought a Workday shop you would find the same thing, but for the most part we will stick to our knitting and our typical model of about 60% cash, 40% stock.

One thing I would add is even in these deals, as Jeff mentioned, there is more cash up front, but in the earnouts there is probably a bigger proportion of that stock. So over the term of the deal if they achieve a full earnout it is really consistent with our overall structure.

Before you made that acquisition for the Salesforce shop, did you have any Salesforce revenue or what percentage was it?

Very small. We have done two Salesforce acquisitions this year, one in May and one in October. Prior to the one in May, we did have a small Salesforce capability but it was small; half a dozen, 10 people. So minimal revenue, a few hundred thousand dollars.

I guess another way to ask; when you end the year and you have all these businesses integrated what percentage of revenue is Salesforce 3%? Is it 5%?

Probably 5% or 6% is what we expect.

That is great. Then the last question I have got -- and I ask this every quarter just to be sure -- the fourth-quarter guidance, pure services excluding reimbursables, just wanted to get a sense of maybe how much reimbursable is included in that number?

I think it is just about $4.25 million.

Of reimbursables?

Yes, and then like I said, you will get -- the math on that, as I mentioned earlier, is 7.6% organic on the net services.

Great. Thanks so much, guys.

Manyank Tandon, Needham.

Thank you. Jeff, just a few follow ups. So on the margins, as we look into next year is it still the plan to expand gross margins 100 to 200 basis points and that we should get about 50 to 100 basis points in EBITDA market expansion over the course of the year, assuming that the environment stays fairly resilient?

Yes, I think those are reasonable expectations and those are exactly what I have in mind. We would be running close to about 100 bps on EBITDA right now if not for the investment we have made in the assets that we talked about earlier in the year. So net of that new investment this year, it is close to about 100 bps improvement and I do expect similar results next year.

By the way, I will say that if we are able to achieve the double-digit growth that we are shooting for I think that there is an upside to that. Margins always expand more rapidly. Again, margin expansion is easier when you are growing at a good clip, say 8% to 10% organic.

In that environment utilization will definitely tick up, even if you try to keep it down. And that all means that, like I said, gross margins will accelerate even beyond I think the levels that we are talking about.

And did I hear you right on the call earlier that you don't expect the usual seasonality in the fourth quarter this year and maybe that also transfers into next year, where there will be more -- the growth will be more even spread across the year?

Yes, I think this year in particular -- what I said was that the growth momentum, the organic growth momentum that we have or had and still have coming into the fourth quarter is offsetting. So if we were growing at the same pace we were in the first half of this year, flat to slightly up, I think you would see more impact from the seasonality. I think we are offsetting some of that seasonal impact given the accelerated growth curve that we are on right now.

Whether that repeats next year or not remains to be seen since it is so far off, but I would be optimistic that we could maintain this for some time to come.

Okay. Two more quick ones. The tax rate; Paul, did you say the tax rate holds at 36%? I'm not sure I heard any comments around that, just wanted to be clear.

Yes, so the tax rate -- there was some one-time supplemental for this domestic production credit in the third quarter and we are looking at roughly an adjusted tax rate of around 37% in Q4.

37%, okay. In terms of share buybacks, does that slow down now that you probably are closer to doing another deal, as you mentioned, later this year, early next year? Or should we expect the continued share buybacks?

We are going to continue to be pretty aggressive on it in dollars. I think you are spot on; as cash applied to acquisitions ticks up we will probably back off a little bit. But acquisitions are lumpy, so we will get more aggressive in between them.

We have got, what, $12 million left on the authorization and that authorization goes through next year. It is my expectation actually to exhaust that and potentially go back for more afterwards, although the stock is obviously coming into a little more fair value, although I still think it is a bargain.

But we need to continue to buyback, I think, to offset the shares that we are issuing through acquisitions to help with the accretion there and as well the restricted stock awards that we issued to management.

Great. Thank you for the color.

Thank you for your questions, ladies and gentlemen. I would now like to turn the call over to Jeff Davis for closing statements.

Thank you all again for joining today. You can see things are very well on track and we are optimistic about Perficient today and in the future. We will look forward to talking again to deliver our year-end results and our 2014 guidance in a few months. Thank you.

Thank you for your participation in today's conference. That concludes the presentation. You may now disconnect. Good day.