Q4 2019 Earnings Call
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[music]. Thank you very much with me on the call.
Well, thank you for your time.
<unk>, obviously, we have about.
Prepared comments after which we'll open the call for questions. Before we proceed quality you read the safe Harbor statement. Please.
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[music] baseball once again, thanks for joining we're pleased to be much of this morning to discuss our fourth quarter and full year 2019 results as well as provided initial outlook on 2020 in many ways 2019, which represented the twentyth anniversary of listening as a public company was a milestone year parkervision.
Brought expansion of several major client relationships and our success in large new customers drove double digit revenue growth and strong margin expansion that resulted in earnings that exceeded the high end of our original expectations by 17%.
Our strategic focus on the continued rapid build on leveraging of our global delivery teams contributed to our performance.
Widely aware, we more than tripled their space in India during the year in our hiring great talent aggressively there.
To meet that demand in fact, our offshore revenue materially in every quarter during the year on both an annual sequential basis during the year offshore revenue increased more than 20% and the fourth quarter was up greater than 30%. That's okay. That's a base matching or exceeding most of our more offering competitors.
Tom will talk a little bit later about her success during the quarter, winning large deals, but all share now the December represented our largest bookings month ever.
And then in January we exceeded the December.
So obviously, we're off to a great started in terms of bookings were proud of the warmest and all of you accomplished in 2019.
And the 2020 with lot of momentum and optimism.
Because the world's largest enterprises the biggest brands are embracing provision in the digital consultancy. They can depend on to imagine create engineer and grow their businesses, our agility nibbled flexibility differentiate us from competitors and our pragmatic and practical approach delivers value.
And that my feeling enables us to expand with clients, we think big started smart and new Baskin customers Love.
All of examples I want to share with you. We continue work with a leading financial services provider by customers with the more connected investment experience.
Been involved in several innovative projects, including enabling conversational commerce development across platform integration of Chatbots, which provides customers with timely information at their fingertips across multiple devices.
We also recently extended our multiyear multimillion dollar agreement with a private health insurance company to transform their mobile admit member oral experience.
Multifaceted project includes about redesign a new mobile app and the integration of a sophisticated home delivery medication service that simplifies the process of ordering purchasing tracking and refilling medications.
We also continue our debt was partnership with a leading global automotive manufacturer to develop and deliver innovative digital solutions across the business that has multiple that most recently, we redesigned replatform their global dealer portal, incorporating an enhanced search capability that improves the ability for dealer.
To find the information that they.
Well, we continue to gain and grow relationships with the biggest invest enterprises on planet true economic engines of our domestic and global economies were also focused on expanding and enhancing our portfolio to support them on that note. We're excited to have one acquisition late this year that attach a great group highly regarded one already helping us.
When additional work and we're in later stage discussions with a couple of other firms that are can pull some things will be a pretty excited about will come together here. The first half a point of 20 with that I'll turn the call over to Paul will ensure that financial results details for the fourth quarter for your call.
Thanks Show services revenues were 143.8 million for the fourth were all 2019, an 11% increase over the comparable prior year period services gross margin percentage for the fourth quarter of 2019, excluding reimbursable expenses and stock compensation increased 40 basis points to 39.9% compared to the price.
I agree I see that expense, excluding stock compensation increased to 30.9 million in the fourth quarter 2019 from 29.9 million a comparable prior period, that's DNA, excluding stock compensation as a percentage of revenue decreased to 21.3% from 22.7% in the fourth quarter of 20 team.
Adjusted EBITDA for the fourth quarter. It's one of the team was 26.5 million or 18.3% of revenues compared to 21.7 billion or 16.40 revenues in the fourth quarter of 2084th quarter included amortization expense of 4 million compared to 4.3 million. The prior period that interest expense for the fourth when I was wondering right.
Teen increased to 1.9 million from 1.8.
The tax rate for the fourth quarter, 2019 was 14.2% compared to 22% for the fourth quarter 2080, decreasing the effective tax rate was primarily due to the interest and tax benefits recognize what did a share based compensation deductions from the prior year period net income increased 58% to 11.8 million for the fourth quarter.
One of 97.5 million into fourth quarter. I was wondering 80 noted you have always for share increased to 36 cents a share for the fourth quarter. I was wondering 19 from 23 cents in the fourth quarter its wanting anything.
Adjusted earnings per share increased to 58 cents a share for the fourth quarters when energy from 47 cents in the fourth quarter 28 to see the press release for a full reconciliation to GAAP or I'll now turn to the full year results services revenues were 561.9 million for the year ended December 31 2019.
40% increase over the prior year services gross margin percentage for the year ended December 31, 2019, excluding reimbursed expenses the stock compensation increased 170 basis points to 39.2%.
<unk> expenses, excluding stock compensation increased 122.9 billion for the year ended.
December 31, 2019 from 108.3 in the prior year.
I see you next that's excluding stock compensation as a percentage of revenues was 21.7 billion, which is consistent with the card.
Adjusted EBITDA for the year ended December 31, 2019 was 95 million or 16.8% of revenues compared to 76.5 million or 15.3% of revenues in the prior year.
The year ended December 31, it was 16.2 million of amortization compared to 16.4 in the prior year net interest expense for the year ended December 31, 2019 increased to 7.4 million 3.61 in the prior year, primarily due to non cash amortization of debt just got an issuance costs related to the company's convertible senior notes.
Were issued in September of 2018, our effective tax rate for the years, 22.6% compared to 24.1% in the prior.
Net income increased 51% to 37.1 million.
For 2019 from 24.6 million in 2018.
The GAAP earnings per share increased to $1.15 for the early December 31, 2018 from 73 cents in 2018.
Adjusted earnings per share increased.
The 2007 cents, 30% increase.
Compared to the dollar 59 in 2018 already billable headcount at December 31, 2019 was 3138, losing including 2900 informal consultants and 234 subcontractors and investing in I guess, how was 550, our outstanding debt net of him amortize that just got.
Wanted to furnish most cost as of December 31, 2019 was 124.7 billion. We also had an additional 70.7 million a cash and cash bonus as of December 31, 2019, our balance sheet. Its initially was very well positioned to execute on our strategic plan.
Day sales outstanding on accounts receivable was 71 days at the end of the fourth quarter, which is consistent with the fourth quarter of 2018, I'll now turn the call over to Tom Hogan for a lot more concert Tom. Thanks, Paul Good morning, everybody as Jeff mentioned earlier, great bookings recently on top of that our pipeline remains strong as quickly as we're winning work we're fighting and pursue.
The new opportunities in fact, right now we're tracking more that doesn't opportunity is larger than $5 million, where the fewer those haven't $10 million plus potential and again that's on the heels of a strong fourth quarter bookings integrate January bookings.
We booked 65 deals greater than $500000 during the first quarter 2018.
That compares to 49 deals 500, 500, a greater during the fourth quarter 28.
Additionally deal sizes, the guidance was up year over year, some more wins and larger ones.
North American KBR was 149 for the fourth quarter, consistent with third quarter results above $3 or 2% or Nagel business as you routinely mentioned on this call.
We believe auctioneer means for us to continue to increase ranged gradually overtime closing the gap that exists between perficient somewhere larger competitors.
Utilization during the quarter was 78%.
A bit lower than we would like but it was something we anticipate given the Christmas holiday fell at Wednesday last year, which of course influence is not only our colleagues play decisions, but often times our clients availability as well.
As you know are very active monitoring that metric and we seek to manage the business closer to 80% utilization.
Well the diversification across the industry suspense Puget contributor or success as mitigating concentration risk over the years, our deep strain and help <unk>, which represents 32% of revenue during the quarter as routinely certainly enabled us to build deep roots and stronger irritation in that vertical and while we technically acute.
120, 29, as Jeff mentioned, we're thrilled to add our capability with their early January initiative.
That's a great from focused on Asian acquisition customer experience, HM acquisition, and loyalty and physician market.
As Jeff mentioned integration began immediately collectively we have already won significant work we might otherwise not.
Vince has tremendous them right now thinking Oh, hustling outperforming others in space, and we're gaining share and with that I'll turn things back to Jeff for the first quarter and full year 2020 up.
Thanks, Tom So in summary, we continue to buy on maybe owners and succeed on several fronts as we've highlighted we're running new logos and each year and systematically building a much larger and more powerful business, we feel great about future energy projector.
Efficient expects its first quarter 2020 revenue to be in the range of $143 million to $149 million first quarter GAAP earnings per share as expected. We in the range of 25 to 28 cents first quarter adjusted earnings per share as expected in the range of 49 to 52 cents Perficient is issuing all 2024 years 2020.
Revenue guidance range of 610 $640 million.
Full year 2020, GAAP earnings per share guidance range of $1.36 to $1.51 and a full year 2020 adjusted earnings per share guidance range of $2.30 to $2.45, but with that we can open up the call for questions operator.
Thank you as a reminder to ask a question you will need to press star 100 telephone.
To address your question press the pound <unk>. Please standby, we compile the county roster. Our first question comes from Maggie Nolan with William Blair. You May proceed with your question.
Hi, Thank you.
So I wanted to understand how you came at the year. Freddie initial 2020 guidance is there any level of conservatism baked into the guidance related to macro events or any broader slowdown or any change and kind of how you put that together for says 2019, and then what is the organic at.
Embedded within that expectation as well.
Sure. So you know some of the basis for it is.
Yeah, the breakdown the we experienced last year so.
And we expect that that growth trajectory is going to continue throughout the year the guidance implies that.
The good the organic range on this guidance is for Q1 is Greta.
For Q1 is related to date and hybrid said for the year.
So.
We are I would say, there's a little bit baked in there as well or what we're seeing as it relates to corona, but really not much we're not really that impacted by so for the most part it's just seasonality a lot of clients did delay their started stood a year. So that's reflected here as well.
Okay. Thank you and that on the margin side of things and you've talked about the various levers that you have we'd always talked about kind of that normalized utilization range that we should be expecting.
What are you expecting in a way of a expansion at the adjusted EBITDA level I'm kind of on a go forward basis, and whereas I really coming from in the business. When you look at you know gross margin versus what you can do it yesterday and I level.
Yes, I think gave guidance implies like 100 to 200 basis points managing this year EBITDA.
And some that'll come from rate improvement as we had last year, where our goal is going to be similar.
2% to 3% rate increase we we did manage to achieve 2% across the year last year, but the other major factor that I do want to talk about highlights offshore and as I mentioned in the earlier part of the the call our offshore grew over 20%.
Last year, 21% across the year and actually grew over 30% in the fourth quarter.
We enjoy over 50% gross margin in that work and we're going to continue to emphasize that growth, even though it may represent a little bit of a headwind to topline revenue. It's the right thing to do for the business and we've added you'd be engineer and that we've been digital offshore I think actually ahead of a lot of our competition. That's why again you can.
Yes, growing that that piece of our business at a pace at or above most of our competition there that drives offer.
Mhm.
Thank you.
Thank you.
Thank you. Our next question comes from Mayank Tandon with Needham You May proceed with your question.
Hey, good morning, it's actually how Peterson on from my own. Thanks for taking my questions and just talk a little bit on M&A I guess close met touch already you guys mentioned that you have some stuff kinda in.
In the op or here in discussion I'm is there anything, particularly you guys are looking for whether it's additional capabilities I think the pass you guys talked a little about a potentially pursuing near shoring options just kind of want to see.
What you guys are looking at and prioritizing from M&A.
Yes, good question I.
I think I think everything that we target in terms of acquisitions going to have some digital element to it.
So so that's thing one but you touched on another area that we're really excited about it had been working for some time on finding a good fit and that's near shore.
So we do have some things in the hopper in both digital and and near shore.
That hopefully we'll get.
A lot here in the next couple of months, it's very possible that by.
By the end of the first half we could have already achieved our goal for the year, which is about $50 million a run rate revenue.
Great. That's that's helpful. And then just one quick follow up and you know you guys have been scaling and digital and your offshoring efforts I'm just want to see how the talent acquisition and retention is trending.
Are you seeing any increased competition.
Changes in attrition rates are it's our things pretty stable on that front.
You know it's a it's we enjoyed great retention overall for the company I think we're in a high teens, which is about where we'd like to be we'd like it below 20, but frankly, a 15 I think is a is actually a healthy number so somewhere in 15 to 20 range, but I'll tell you off shore our retention rates are phenomenal.
Far better than our competitors our offshore attrition is about 15%, which is I think.
Half roughly or at least the competitions in the mid Twentys.
So we're.
We're having great success, both in terms of attracting talent and retaining it and all of our locations in India.
All right that's color thanks, guys.
Thank you.
Thank you. Our next question comes from Sir Anderson with Jefferies. You May proceed with your question.
Hi, good morning I.
I would just like to revisit the guidance for roughly that 5% to 10% organic growth.
I can you provide a little bit more color on the bottom into that range versus the high end in the sense that when I look back over previous commentary my impression was that.
The from would be able to generally consistently generate closer to the high end at that range.
Yeah, that's our goal and I. Just contrast, this against last year's guidance initial guidance as well, where I believe the midpoint of our organic growth was around 6%.
We ended up delivering almost 11 or right around 11% so.
First and foremost I'd say the guidance reflects our typical approach of a working hard to under promise and over deliver and again, the 10% attempt to simplify sustainably remains our goal.
But if we wanted to be a judicious in and how we got it.
Understood and then you mentioned that potentially there's some consideration of.
Their global events, or perhaps or any other considerations as well in that guidance. For example, maybe an evolution that make a domestic political landscape.
And now can you talk after the year.
Now that's a great question, Ed and I think it's you know again other than the Stephen I just made about our general Conservative approach the guidance I went oh sort of encompasses any risk there, but I'll tell you we mentioned bookings in a in December and really the for fourth quarter in zone.
And how bookings have started this year and we're not seeing any issue as it relates to demand I mean, our our pipeline continues to refill our current weighted pipeline right now is as large as it's ever been in spite of the fact that we just had two back to back months of record bookings. So.
So we'd be climate that we're in right now we're seeing is actually quite positive.
We were affected very middle when they minimally by Corona here, the first quarter, primarily in January where we actually had some some of our books quarantine in their houses.
But that's pretty much path is now and other back in the office and so we see claims fairly normal.
Outside of these we obviously can't predict.
That's helpful. And then one quick follow up on the quarter.
When I kind of look at the number of subcontractors that you guys are using its been steadily declining as the years progressed any shift in strategy or is it specific to maybe certain projects that the or types of projects that the contractors were being used for any color there would be appreciated.
Yeah absolutely.
We continue head to head of strategy of leveraging.
Subcontractors, but added at the end has picked up a frankly, we're more comfortable bringing people on an as employees. So we don't we're feeling less reliance sort of on that flexible capacity it doesn't work.
And it essentially kind of driving that down to the margins that we get on subs, obviously are a little lower than we get with employees and we'd rather have them as employees anyway. So so yeah. We're probably reduce like are we certainly are reducing that down a little bit.
But it'll still be a factor as we move forward.
Understood.
And then just one final question on the M&A you provided some good color on the pipeline and the targets. It you're pursuing a is there consideration around the timing itself in that sense your capacity to take on multiple acquisitions at the same time or or is the idea that train space things out.
Okay.
Yeah, you know that's really not as much of it back your given the size of the acquisitions that we tend to target.
Now, there's some larger ones out there if you do the math, but that I alluded to but you know these the these smaller acquisitions in the United States into 15, or even 10 to 20 range.
Our integrated relatively quickly we've got a a great team in place great management infrastructure.
Prepare to scale, the business $2 billion or beyond.
Usually organically and through acquisition, so we've got capacity and ability to manage and integrate.
Acquisitions simultaneously actual.
Okay.
Thank you for the color I appreciate that.
Thank you.
Thank you. Our next question comes from Brian Kinstlinger with lines Global Partners. You May proceed with your question.
Hey, guys. Thanks for taking my question.
Sure having.
Really everyone's talking about going up I have someone a follow up on that it may not have been in parent and has talked about in January when your bookings were a record. So I'm curious if you've seen a slowdown in bookings in February clearly you want a record signing meaningful impact have customers tone has changed in conversation.
And as enterprises getting nervous about the global impacted their business related to what's going on in China.
No I mean weve bookings so far in February our I think going to be up again pretty nicely then another record but.
It should be a strong month in our projected bookings grew a through at least April and into the second order.
Our very strong as well as I mentioned on the weighted a pipeline we're not hearing any feedback anecdotally from really any of our clients in terms of of the corona virus impacting their decisions.
To move forward were delaying anything.
Directly we've heard we've heard nothing to that effect.
And of course, you know we've actually got clients you know one of our major clients, we're doing a big project or actually in China and its full steam ahead on that again.
Eight interesting so you touched on something I wanted to ask about how long can be made an acquisition. We haven't talked about that was China based delivery what percentage of your offshore delivery is China first as India versus other countries. It can you remind us where you are located in China.
We're in lung Joe.
Which is about a couple of hours south west of Shanghai.
Again, we've got about an 80 or 80 employees there compared to 700 total offshore so it's a little more than 10%.
Great. That's helpful and then the for Q bookings and as well as January that was so strong does that make the mix of your business in terms of verticals or are there any outlier verticals that are seeing <unk> that may see share gains in your bidding instead of course the.
No it's consistent with the current breakdown so a health sciences lead the way followed by financial services automotive retail et cetera is pretty much the same breakdown so tight lifting all boats from a vertical standpoint.
Last question I have is it appeared demand from your Adobe related services is outpacing other platforms do you see that continuing and if so what did the driving factors for that.
I do and I think it's a adobe share I also because the expansion of software that they've already sold.
As a very robust the marketing manager component of their business is what I'm talking primarily about.
And I think it's a testament to that'd be a very robust tool.
With lots of different modules in capabilities that not everybody at less initially so I would say one they continue to take rate share in that space.
But to there's also a lot of our clients that are now that coming back around for a sort of around two or three to drive further enhancements and implement brother and you happens around those installations.
Great. Thanks, so much.
Thanks, Brian.
Thank you. Our next question comes from Vincent Colicchio with Barrington Research you May proceed with your partner [laughter].
Yeah, Jeff you had mentioned that you don't they do off shore growth is a very robust should we expect to see double digit growth this year, as well, where we'll be a slowing and nothing that growth.
Well I believe I believe we will I think it'll be a year similar to last year might even be stronger and recall that last year was about 21%.
So you continue to add a you know a large number of a relatively large.
Piece of new business. So I'm curious is your top 10 concentration changing what does that look like a year over year in sequentially.
Oh, I'm, sorry, it's probably flat as a component fall is going to double check and specific number but I think it's flat as a on a relative basis right. So as a percent of revenues probably we stayed about the same yeah. Yeah. So some into was a 32% our top 10 were 32% of revenues.
2019 in the fourth quarter was 31 and then in 2018, so essentially students I.
Okay, and then I missed that would you said the terms of an EBITDA margin expansion the expected for this year.
What was that yeah, I think 100 200 beds, if you look at our guidance.
That's implied in there and I feel good about that we've got a lot of levers still we achieved about 2% rate increase last year across the year against the backdrop by the way of net.
Cost increases for employees with only about seven tenths of a percent. So it's obviously some expansion driven there as well as the substantial mix shift to offshore where gross margins are north of 50%.
Okay. Thanks for answering my questions.
Thanks that's.
Thank you. Our next question comes from Jack Bender, Our day with Maxim Group You May proceed with your question.
Hey, guys.
Terrible total billable headcount was up about almost a percent Q over Q North American head count there was flat curate Q.
I don't know keeps provide any additional color around that dynamic is there a reason for this.
I, just looking into too much and where do you see this trending I guess throughout 2020, well well continue to increase.
Yeah your questions related to the difference between offshore and onshore so offshore onshore flat offshore drilling.
That's right North American head count seems to have been flat from last quarter.
However in basis.
Yeah, and that's by design.
Managing the seasonality of Q4 and working to maintain a solid level and utilization and we always try to slow down on hiring, particularly domestically and I would say during a normal period, we might even slow down a little bit offshore. However, given the demand that we're seeing there and the growth the base.
Is that we're enjoying there we are actually hiring quite a lot there and in fact hiring a little bit is an advantage where costs are lower and were able to do that we saw accelerated growth offshore in the fourth quarter was actually our strongest year over year quarter offshore and what if we get into the first quarter 2020, Oh with the acquisition that that's causing potentially another.
In one you'll you'll see Oh lifted up North American headcount.
Got it Okay. That's helpful. And then so with a number of the number all the NT dollar value the large deals being pretty strong this quarter for kind of dipping a little bit last quarter, although last quarter. So up year over year I'm, just wondering if you're seeing any changes with regard to the largest competitors of yours in terms of their pricing.
<unk> are they doing any changes there and then is there any impact on your win rates and where you see when rates going in future.
Actually I would say no yes, the competitors, our R&D, adding head at the same way they always have and their formidable and they're happy to go compete on price. So it's not just a price differential it really comes down to a skills as well so I think that's.
That's going to continue going forward.
I'm not concerned about the you know anything news sort of on the competitive right. What was the same party question.
Ah where do you see those win rates going forward, but it sounds like you answered that.
Yes, great. Yeah. When rates are are as strong as they've ever been mid sixtys and interestingly enough because I expected them to go down as Weve increased our sales capacity, we're getting worse bass and you can see the results of that you reveal that our sales I actually thought our win rates were maybe come down a little bit is again is we're out there.
When anymore, but the reality is pretty solid in the mid sixtys. So another good good indicator.
Okay excellent. Thank you that's it for me.
Thanks, Jeff.
Thank you and as a reminder to ask a question you'll need to press star one on your telephone. Our next question comes from Allen Klee with National Securities. You May proceed with your question.
Yes, Hi, I'm not sure. If you have just at this moment, but can you tell us for fourth quarter, what operating cash flow in Capex were.
Oh, yes accuse should are starting to can you should be out.
Later today.
Oh so.
So you have some battle beyond the next hour to work.
We'd be happy to provide.
Okay, and then follow.
Is it reasonable to assume that working capital will will not have a material impact on.
Based on what you know today on on 2020 operating cash flow.
Yeah. So.
The biggest driver or working capital Ross is they are we expect a day sales outstanding let's just say relatively aligned with the 71 days, we had in the fourth quarter. So it working capital needs will essentially scale with growth.
So the cash flow provided by operating activities.
78 million in a.
The combination of a PPD and capitalization internally developed software cost and second is about 9.29.
Yes.
Okay, Great and then I might have missed this but did you say whats your organic growth rate was in the fourth quarter.
Yes fourth quarter was about 9%.
Great all right. Thank you so much.
Thank you.
Thank you and I'm not showing any further questions. At this time I would now like turn the call back over to Jeff Davis for any further remarks.
All right well. Thank you all for your time today, we appreciate it and look forward to talking to you again in a couple of months.
<unk>.
Thank you ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
[music].