Q3 2019 Earnings Call
Presentation, there will be a question and answer session.
The question during the session you will need to press, one or as far one on the telephone.
Advised at the these conferences being recorded I would know like to hand, the conference overdue or speaker today, Mr. Jeff Davis tournament and C.O. This go ahead Sir.
Hey.
With me on the call today as far.
Hello.
Thank you for your time this morning.
They're all we've got about 10 15 minutes are prepared time is after which we will all requests.
Before we proceed forward.
<unk>.
Based Jones morning, everyone.
We were discussing today.
Yeah. This will be forward looking statements, but then the meaning of the securities laws as a result in the Shirley Jones, who knows.
In these forward looking statements and we encourage you to refer to the additional information contained.
And sort of factors that could cause.
Three different kinds of pointed into his discussion.
During this whole we refer to adjust the D.V.S. earnings press release, including a reconciliation of certain non gaffe an answer measures to the most roughly comparable from it financial measured from prepared in accordance with generally accepted accounting principles are dead just posted on our website is W.W.W.W. efficient dot com. The also posted a slide deficit.
Which includes the reconciliation a certain nonjet guys to the most directly comparable financial matters prepared accordance with gap on a website under Investor Relations.
Jokes.
<unk>.
Once again, thanks for joining we're pleased to be with you. This morning to discuss our third quarter results.
In a year, we communicated expectations that 29 team will be a strong year and that certainly been the case for the through the first three quarters.
We're building our momentum and we're confident the fourth quarter, we'll put an exclamation point on a milestone year for for vision.
As you saw the release where in raising guidance.
There are a variety of factors powering our performance some external but many of which are in our control that we believe sustainable.
Obviously, there are some benefit from a macro winded or Max and of course, there's a long term force of digital transformation at play something I'd argue is a permanent reality now for enterprise is not a trendy or anything cyclical.
The new normal to thrive in in many instances survive as a state of constant investment.
However, overconfidence, we're well positioned to outperform in any market environment, because the D.N.A. of our firm.
Music decisions, we made in recent years in the investments were continuing to big now.
<unk> flexible lewitt involve anabolic always bouncing our focus on what's now in what's next.
Great example of that is our Adobe business, which is now approaching 100 million dollar business that practice didn't even exists a few years ago and we saw the market evolving greenlit investment or again at Liebelt most of what exists today from the ground up we we did a couple of acquisitions, along the way to build wrapped in depth.
Just a week or two ago, we Ernest a platinum partner status with the duty.
We've talked a lot.
On recent calls about the capacity we've added from his nails perspective.
Oh, absolutely feeling our success and there's more drypowder there as our newer members of the team continue to gain experience and knowledge.
Really important and something I want to share a bit more context on as the expansion enhancement of our digital offerings in business in recent years.
Despite the fact that we'd always been delivered but always delivered with digital oriented work and had great shops around user experience in the front end design several years ago, we were perceived primarily as a systems integrator. We certainly have deep roots. There. So that reputation was understandable, but we weren't able to truly capitalize on all that was possible because.
Fully understand or digital capabilities. So we set out to change that first being the introduction of provision digital and then through a rap and build of skills and marketing and sales messaging.
And of course, we strengthen the portfolio building breath adept organically and via acquisitions in areas like mobile application development and search engine optimization.
Marketing automation, E. commerce and more.
And now we're pursuing far more opportunity and winning much more customer experience business than ever before we are routinely selling to cheat marketing officers and cheap digital officers and we're taking share because they now realize profession. Unlike many of our competitors genuinely possesses the true in capabilities are all in dire need them.
We're not an agency trying to become a consulting firm worn integrator trying to pull it on a creative I want it where the provider capable of integrating it all seamlessly and designing amazing digital customer experience is that actually work, we're talking about big work for big brands.
Recently extended our agreement with the world's largest vehicle fleet operator to continue optimizing their digital properties for the next three years, delivering Q.A. testing and establishing a system of government governance for more than 70 digital properties across that business rebuilding the e. commerce platform for the electric vehicle subsidiary of one of the world's leading.
Automobile manufacturers using integrate a platform electric vehicle owners cannot purchase charging products for their home as well as subscriptions to use the manufacturers network charging stations throughout North America.
We also just one work with a luxury luxury department store chain, helping them digitally transfer or on how they communicate with their customers not only with the retailer be able to provide a better customer experience across all major communication channels, but villi they'll game he ability to make more than four business decisions based on those interactions and I want.
Underscore that while we're having all this success, there's a tremendous internal effort and energy around operational excellence in ensuring we're doing and things necessary to support the rabbit scale of our business time's going to provide a bit more color in there.
And a few other notable details after cultures financial results for the quarter to wrap up provide our outlook for the fourth quarter to pull year and then we'll take questions tall.
Jeff Services revenues were 144.1 million for the third quarter of 20, 19% to 17% increase over the comparable.
Services gross margin percentage for the three months in September 32019, excluding reimbursable expenses inside compensation increase 240 basis points to 40.2% compared to the prior period.
<unk>, excluding start compensation intrusive 31.7 million thirdquarter swimming 19 from 26, when Sevenmillion comparable prior your period.
Inexpensive excluding stock of his percentage of revenue increase at 21.9% from 21.5%.
2002.
Adjusted Eva's off into third quarter, 2019 was 25.3 million or 17.5% of revenues compared to 19.5 billion or 15.8% of resonance and the third quarter of 20 team.
Third quarter included 4 million.
Amortization expense, which is consistent with the prior year period that interest expense for the third quarter 2900 increase to 1.9 million Pro point 8 million in the kind of who will probably revere period, primarily due to noncash humanization of does discount and issuance costs associated with the company's convertible senior notes offering completed in September 28.
Are effective tax rates were the third quarter 2019, 29.7% compared to 25.3% and the third or 2018, increasing the effect of sanctuary was primarily due to one time items in the court that income increased 55% to 9.8 million for the third quarter of 2019 from 6.3 million units.
Quarter 2018.
Gap earnings per share increased.
Since the third quarter of 2900 from 19 cents and the third quarter 2080.
Just starting procedure increase to 56 censorship for the third quarter 2019 from 41 sense and the third quarter of 2018 see the press release were full reconciliation two jeopardy allow turn.
You're the day results through September services revenues were 418.2 million.
Months ended September 32019, 15% increase over the comparable prior year period services gross margin percentage for the nine months ended September 32000, or 19, excluding reimburse expenses and sock application increase 220 basis points to 39%.
Because she makes sense excluding start compensation increase the 92 million for the name was in September 32019 from 78.4 million and the Commonwealth longer period.
She may express excluding start kind of as a percentage of revenue increase to 20, 149%.
Set for nine months ended September 32900 from 21.4% apparel prior to appear.
Adjusted he was after the nine months out of September 30th 2019, 68.5 million or 16.3% of revenues compared to 54.8 million or 15% of revenues into comparable Friday or period.
Since September 30th 2019, any team included amortization expense of 12 million.
Manager six mesh with the nine months ended September 32900 increase to 5.6 million from 1.7 million in the comparable prior year period, primarily due to nod cash in position does this condition, which costs related to the company's convertible cnos issue in September of 2018.
Type of tax rates with the nine months in in September 32019.
25.9% compared to 25.
Present, excuse me in a comparable prior period.
That income increased 48% to 25.3 million for the nine months into September 32019 from 17.1 million and a comparable prior period.
Diluted galleries for sheer increase the 79 cents a share for the nine months ended September 32950 cents a share in the comparable prior to your period.
Adjusted earnings per share increase to $1.49 for the nine months in September 32019 from a number 13 and the counter will period of 32% year over year or any build will headcount at September 32019 was 3111, including 2846 global consultants and 265.
Subcontractors.
You may headcount was 513.
Standings and out of unamortized discounted differ issuance causes September 32000, a team of 123.5 million compared to 120.1 million at December 31, 2018. We also have 36.4 million occasions units equivalent says September 32019 in our balance sheet.
Opinion continuously was very well positioned to execute against our strategic claim finally, our day sales outstanding own accounts receivable was 74 days at the end of the third quarter to prepare to 77.
The third quarter of putting it into on altering the Cold War to Tom Hogan for a little more commentary Tom.
<unk>. That's just mentioned earlier, we have really been focused on proactive identifying up changes Neil operationally.
And these efforts are translating the for improved A.B.R. and utilization, you're seeing the context large into meaningful way.
Purpose senior executives and leaner spearheading a broader range not that phase multifaceted initiatives designed to even further and further operations and simplify our colleagues lives. So collectively we can all focused more on gain growing our customer relationships.
Fundamentally what we're doing a simple are planning for our future.
We recognize as we grow up or fish revenue $2 billion and beyond the organizational requires some different technologies tools and processes than we do today.
There is inherent difference and running a business for say 10000 employees and there is but we have today.
We're looking across the board technologies and the business across these beasts front organization and how we can furnish the fire Ali lives to ensure our overwhelming focus remains at our customers and advancing their businesses. For example are driving improve utilization right now with the fingers focus on resource management and will continue to do that but we also appreciate.
Balancing supply and demand.
Modeling with wife scenarios and align talent with opportunity will be inherently more complex when our global workforce doubles or triples, one size start planning for the complexity.
As we continue to grow our foot friendly years ahead that these very large house there are additional complexities, we're trying to address now as well.
Example, how do we recruit the philosophy and scale will need to as each penetrate more browsing at these very large accounts, how do we need shirt different workstreams across multiple apartments in light of business or off coordinated the fashion that tries mutual success for our customers and profession.
The business going into charity larger in years to add we're just investing <unk> to make sure that we are scaling the combination practice. So we give ourselves the best option address that the same double digit growth that we're seeing now in the future.
Turning our attention back to the quarter, we put 49 deals greater than $500000. During the quarter that compares to 45 yield traded a $5000 during the third quarter 20 team, notably if we put the meaningfully large number of deals and ensure just below that we get at the prior year quarter.
Health Sciences remains in industry driving meaningful growth for us and one where we continue to build a strong reputation and client roster help scientists represents 32% revenue during the quarter, followed by financial services at 16% and automotive and manufacturing each representing 10% of revenue.
Also worth noting in terms of intent that sector and profitability success for having with our differentiated afresh to global delivering.
Rapidly accelerating integration of our goal for delivery teams and much of our work.
You might have seen the release, we issued earlier in the quarter around the investments we've made collectively triple r. spaced in Chennai not far at Bangalore, India.
And third quarter offshore revenue and hours volume were higher than they've ever that hours volume in particular, where's the 23% versus the prior year period.
As we talked about before offshore could be a slight headway to top line, but we also see as critically important to competitively and also make Shirley Eric you drive her to March expansion.
To note the expansion of India spaces of course, because we continue to participate rapid growth of our ashworth teams in their contributions and with that I'll try and think back over at yet for our fourth quarter outlook and update full year guidance like Sam. So in summary, we continue to fire on many Saunders and succeed on several friends we're winning.
New logos, gaining Sharon systematically building a much larger and more powerful business, we're growing bigger and better for our customers are colleague Tanner shareholders, and we feel great about the future in our trajectory.
Expect to end 29 teams strongly and carry that won't let him into the new year and get off to rate started 2020, which we expect will be another very solid year growth.
Now returning to guidance Perficient Expectance fourth quarter 2019 revenue to be in the range of 142 $248 million or quarter gap earnings per share is expected to be in the range of 30 437 cents worth quarter adjusted earnings per share is expected to be in the range of 55 658 cents purpose.
One is narrowing and raising its full year 2019 revenue Guy in this range to 562 $568 million from that previously provider range of $553 million to $568 million.
Raising it's 20 maintain gap earnings per share guidance range to $1.12 dollars 16 from a dollar to to dollar 12, and raising 2019 adjusted earnings per share games range to to four to seven from $1.94 to two oh poor with that operator, we've been opened up the call questions.
Yeah.
Thank you.
My guess would probably get classic question, you will get depressed prior one on the telephone again that would be star one and the <unk>. If you would like to tell you a question.
Okay.
Of course questioned come from to line up several different from Jeffrey feel like its opening them off good question.
Good afternoon gentlemen.
Another really good quarter, congratulations on that I would like to start with.
A question about.
Kind of the the longer term outlook for the type top line.
Some of the trends that you guys are singing within your clients in industry.
Talk a little bit about white.
Would be not necessarily next quarter or maybe next year, but what you actually think the.
Longer term potential <unk> organic growth perspective for that purpose.
Yeah, that's a great question AD we've.
Talk for a long time of the cheating that that it all at 10%.
I don't think that the limit I firmly believe that we can grow the business beyond that.
As I mentioned several times, we've made a lot of investments in sales, but at least will get us there and as I also mentioned in the the prepared statements. We've got a lot of Drypowder here. So we got investment has yet to yield result is we'd get proof of that.
So I you know I believe beyond 10% probably won't go further than that in terms of.
Predictions, but I think.
Should be the bottom and there's no reason, we couldn't go up substantially above that.
<unk> and then related to that in terms of just the.
The investments that you guys have made with respect to salesforce, how far into that cycle should we think about where you guys are getting closer to.
Say that run rate so.
Should we expect to kind of D.B. towards the end of next year and then maybe you're after redacted before you feel like you might be.
Bit of an equilibrium point that.
You're seeing the full benefit of let's say the the investments that you've made over the past.
24 months or so forth, yeah, it's always going to be a little bit of a continued investment. It just kind of understanding where we are not cycle by Kate.
Yeah, exactly I mean, I didn't get any all the had it's going to be an ongoing process and ongoing investment. However.
I think we're seeing meaningful results now and.
There are bookings had been very very solid and we're seeing an incredible pipeline look forward. So I think we're seeing results now, but each 12 months go by again at team continues to gain momentum and on a per person basis that productivity increases. So I do think we'll see meaningful results.
That next year.
So your point probably over the next year to to put will be more of a steady state, but it will continue to be an ongoing investment an ongoing process.
Got it and then.
One additional question just related to.
<unk>.
You guys can spoke about the strength of the operations and the ability to to move more business over there.
It's from there given the higher margin profiles.
I've also talked in the past about kind of 100 basis point.
Goal for March and improvement on the year over year basis, obviously, there's there's some had been flow to that number.
How about that a little bit about this spring.
How you are able to ramp up operations, there or how quickly. It just seems like things have been going we're moving faster than I would it be too okay.
Yeah, I think that's great is.
It is growing ahead of the rest of business and that's by design and in many cases in some cases is driven by better to factors.
Obviously budgets by our clients, but we're also.
You know aggressively moving into that space.
I think we've got a very unique offering in the hybrid approach that we take which again affords us the opportunity to get raised a command about 30.
5% gross margin offshore.
Our ability to scale there has been very good as you noted and I think that's only going to continue I think where the rights locations and the rights cities and we have the right.
Sort of attractive opportunities for people, who want to get out of these.
These massive sort of commodities.
Offshore centers and work on current technology.
Franklin more interesting and more exciting to be engage and obviously better for their career. So great success with recruiting there and building that HM.
Angry quality coming out of that organization along the way.
Okay, I think you guys.
Thank you.
From here next question comes from the line up <unk> from your him day.
<unk>.
Good morning, I want to take entity strengthened the corridor was that driven by new or existing clients.
And then how have your top account performed this year compared to non top accounts, whether that be non top 20 or not top cat.
Yeah, that's a great questions. So we definitely have added a number of Newlove isn't this year, it's a big emphasis in focus off for us on the on the sales price. So it's been a combination of both however, our top accounts have performed very well also.
Historically I think the Cagar in Arab last several years, it's been 10% to 12% organic.
Looks like right now are running above that team for the year, obviously, we'll see how it closes, but we're really able to expand in those account obviously, they're not increasing their spend that those levels. We are definitely taking share away from competitors.
Below are stored that top 50, or even top 100, you know there is still a chair and as we've talked before executing our land and expand strategy. It's our goal.
Two on a on a go forward basis to continue to kind of rationalize the number of accounts that we sir and focus on building.
So it's a combination of both.
They knew logos as well as as an increasing the the work that we had that existing against.
Okay, and then you have done a nice job increasing our utilization here are you comfortable operating a kind of these elevated levels that you've seen this year or d. think utilization and 20 Chinese needs to come back out close to that kind of 2018 level.
Oh, it's not going into that.
No I think are utilization.
We have some nice room in the business summer or hire some are lower but I think we're investing in the right areas to enable us to help with pre sales than to grow the business I think the utilization around that 80%.
Silicon number as we look at 2020.
Right then one more for me the organic growth rates in the quarter. Thank you.
It was about 13%.
I want to point out there was an extra day in the quarter certificate to normalize add on your your basis by the way.
Kind of normalize ads around 11 in our guide for acute worries I think and then points around nine.
Thank you.
Yep.
Thank you question come from though I think mine Panda for the medium incorporated <unk>.
Thank you a good morning, Jeff from Paul Congrats on a quarter of once again.
Wanted to go back to the organic growth. So based on what you just said, 11% for the third quarter or 9% and the fourth quarter. So so let's call it you're going to end up somewhere that what 10% number for the full year.
That is the K., so why should we.
Go ahead sorry.
I was going to say the guide is actually nine to 10 for the area.
Right.
You know a tremendous acceleration from prior years, it's a great to see so just in terms of 2020 thinking about trajectory of growth could you may provide some insight so based on the budgets that I know, it's still early in the game, but the feedback from clients the spending levels within your core a client base now what's your confidence level at this point that you could <unk>.
A 19th organic growth in 2020.
Exactly I think we can I think we can exceed 2019 actually the way things live right now.
Both the pipeline.
Hard and fast dollars as well as anecdotal.
Your point that we're getting back from our appliances, no slowing down at all anywhere.
I mean, we're seeing more and more opportunity I think you're <unk>. There's a couple reasons for that as I mentioned the beginning.
I think the macro environment is pretty good but I think the other factor is the additional sales capacity that I keep emphasizing but I think it's it's really important.
New logos that we that we've added a number of what we consider the enterprise accounts. This year that the enterprise accounts have the potential to be 10 million plus annual accounts for us. So so that's what we're going after that the portfolio rebuilding.
I think we're at early stages in many of those relationships, where they're going to yield more and more.
Growth and probably accelerated growth. If you think about the initial relationship surrogate you know say 250000 million dollars and by the way many of them actually started multi million, but a lot of those start you know a half a million dollars something like that and we didn't turn those accounts into a 5 million dollar economy year.
You can you can begin to just sort of size up the kind of growth imply there. So I feel very good about next year I feel very good about you know that 9% to 10% we put up this year and I believe we can beat that here.
No. One final question our margins I think in the past you've said 100 Beps on Ah services gross margin 100, 150 on <unk>. That's still the model going forward you look into 2020, Yeah, I think yeah. So our guide right. Good question. So our guide here if you back into it right around the midpoint purchase at about 150 actually on.
Both of those for this year going into next year I think another hundred is very doable.
I mentioned utilization is probably <unk>.
Sustainable, but probably about lever now, but we've got a lot of leverage both within the.
The delivery organization, we've done offer delivering very high margin and we have economies in S.G.N.A. So another hundred the gross margin 50 to 100, maybe next year yields 100 to 150 again in the but I believe.
Right that's great to see thank you.
Thanks My.
Okay. Next question comes from the line up for Vincent College here from buying some basic skills like okay.
Yeah, you have you had a nice increasing the contribution from health care I'm wondering is that the ramp up your large project are you seeing broad based group there.
It's both we continue to gain share those large accounts of their inner medium size accounts I guess, turning the middle large counts within the health Sciences space, but we've added a number of very meaningful new lawyers. There this year as well that some of which actually started off with a pretty Mardi Gras multimillion as I said.
Some of which are are starting off a little slower than we think will accelerate going into.
Probably the the second quarter. So next year. The the one thing I'd had on health care is that we've we've gotten certified in India and are doing work with the number of health care providers and as we've got the first couple of those completed that snowballing, we're getting additional accounts in there and we're seeing that escalate.
And what a word verticals and solution categories. We're strong mixed in terms of broke his growth in the quarter.
You know health care to continue to lead the way I think we were 30% revenue despite 35% and begins.
And really I indicated it continues to be sorted the same profile as health care.
It's financial services, and we continue to do really well in automotive in manufacturing.
During manufacturing, which I think is an underserved market with art within our industry, we've really been a nice job penetrating and growing.
So I think all of those.
Group nicely or contributed nicely to bookings, but then the corridor.
I want to say, they're each of those bookings was probably a little ahead of the rabbit. So we're seeing growth.
Continuing on a relevant pieces and those top for her.
The head count girls <unk> celebrating it <unk> it off shore in recent quarters <unk> that press release I'm sure. We expect a double digit kind of your your wrote to continue into the foreseeable future on the off shore side.
Yeah definitely Dar expectation is we're getting things.
Better visibility I would see a little more crystallized, then again being proactive and driving that.
I would expect offshore to continue to grow probably a salad five points or more ahead of the rest of it so.
If we're putting up 10, plus next year as a business.
Backed off shore to be 50, plus maybe more.
Okay.
<unk> nice nice quarter guys. Thanks.
<unk>.
Thank you have questions come from the last album clean from National Security, So I know from.
Yes, hi pricing represented what percent of the year over year increase.
If you are was up time about 2% I believe you're you're right yeah right 2%.
Okay and How's your sales people have been working with clients and potential clients have you heard any feedback of changing of the time of how long it takes to close deals.
You know I would say she'll cycles remain sort of consistent I don't think they've extended to work attracted appreciably you know over the last year or so it's on a year over year basis, it's been pretty consistent 60 to 90 days I think is aren't typical cycle.
Great and how do you feel about.
The health of your emanate pipeline.
You know the pipeline is quite good.
We've had we've been to the altar a couple of times, where we had to take a past you know, we're very selective and very strategic.
How we go about acquisition. So we certainly could have done some ordeals this year by now.
But again, we're we're very choosy so.
That said, we do have a number of high quality opportunities in the pipeline unlikely that will actually close something before the end of the year, but it's not impossible, but I would expect us to get a dealer to done at the first quarter of next year.
Okay. Thank you so much.
Thank you.
Next question <unk> <unk> that give I.D. from Mexico your line of coping.
Hey, guys think stigma question, it's in following up with not a great quarter performance.
I could use a quickly clarify for me again on your mid point organic growth guidance for on 9%. I believe you mentioned was it was that for for Q. or is that for the full year.
That's for cute and the the you know the number very tied on the year, which is like nine academy, so literally nine and a half at the midpoint for the year.
Got it. Thank you and then if I just pull up I'm not sure if you're able to provide this or not but how how is <unk> perform from a revenue contribution perspective relative to I think your initial outlook was for Runrate about 14 million.
Yeah, I don't know that I can give you this specific numbers, but certainly anecdotally I will say is one of the best performing acquisitions. We've done you know they had a focus on on manufacturing that I alluded to earlier, they're really go to partner for sales force in manufacturing and we already have manufacturing.
Points that we were able to.
To bring them into and vice versa. Some eight half that they brought to the table. We're running a portfolio represented there as well so it's not very very well I would say it certainly on that road rage. There's no doubt my mind is that it's above that but I just don't have a number of price.
No problem and then my last question is a as relates to large steals just real quickly what was the total large deal count I think it's over 500 K. is how you track that what was that <unk>.
It was 49 <unk> compared to 45 years ago.
And then now you pointed out.
Oh, but it'd be pointed out that it's here below that.
It was substantially higher than last year I can't give you a person I don't have the percentages they.
Deals that fell just under the by 100 K. were up in some way as well you're here.
Got it and did you have any large deals in this quarter that you know, we're maybe unexpected from any particular industry vertical that it's kind of nope.
Oh, it's time to to comment on this.
No I don't think we Ain't thing out of the ordinary there can be in a strong quarter.
I think we're excited about queue for it so nice deals there lining up for q. floor, but nothing on the ordinary now.
Okay, I know better for me.
<unk>.
Thank you.
Yeah.
No question, that's at the moment I would like to kind of <unk>.
Alright, well. Thank you all for your time today.
I hope you'll agree it was a great quarter for for efficient you expect another great quarter add another great year next year, we'll look forward to speaking to you then thanks.
[noise], ladies and gentlemen, discomfited based upon friends'. Thank you for like disappear participation and have a wonderful days you mean, all the school.