Q2 2020 Perficient Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q2 Twentytwenty Perficient earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.
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I would know like behind the conference over to your Speaker today, Mr., Jeff Davis, Chairman and CEO. Thank you. Please go ahead Sir.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Q2 Twentytwenty Perficient earnings Conference call. At this time all participants are in eight listen only mode. After the speaker presentation, there will be a question and answer session.
To ask a question during his section you will need to press star one on your telephone.
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I would now like to have the conference over to your Speaker today, Jeff Davis, Chairman and CEO. Thank you. Please go ahead Sir.
Thank you and good morning, everyone with me on the call today, It's Paul Martin, our CFO and <unk>.
Thank you for your time. This morning is typical will have 10 to 15 minutes of prepared comments after which we'll open up the call for questions. Before we proceed Paul could you. Please read the safe Harbor.
Thanks, and good morning, everyone someone who will discuss in today's call concerning future company performance well be looking statements because the main so the securities laws actual results may materially differ from those discussed. These forward looking statements. We encourage you to refer to the additional information contained in order.
She she problems concerning factors that could cause results to be different been contemplated in todays discussions the time. During this call. We will refer to adjusted <unk> earnings press release, including a reconciliation certain non-GAAP financial measures to the most directly comparable.
Financial measures prepared in accordance with generally accepted accounting principles are down are posted on our website at www dot com gel.
Thanks, Paul I'd once you get a good morning. Thanks for joining we're pleased to be with you. This morning to discuss our second quarter 2020 results.
There's a lot to be excited about it perficient right now, but as we did on the first call.
First quarter call I want to began by thinking both her colleagues calculation for their perseverance and professionalism throughout 2020.
Polyjet actually been extraordinarily and you can see from our results or people are more determined dedicated than ever.
To continuing to build a world class global digital consultancy appliance had been growing as well they've demonstrated great and steady resolved keeping claims in projects on trial and in many instances, making newman substantial investments you'll hear more about that way.
Well the gathering in early thinking skills Q1, we were cautiously optimistic acute you would continue well we watch some of the clarity in the second half of your that we have now with the benefit in several additional weeks behind this it's more parentage wells that the corporate 19 pandemic is not going to present publication from having a strong year.
In fact, some reductions going across all the business as a direct result of the virus.
Wise from reduce twaddle marketing events, coupled with bill rate improvements and solid utilization or pauling profitability.
Challenging environment show. Good results. There will always you can see <unk> did you kill slowly, but north American Bill rates reached $154 during the quarter, which is an all time high end up about 4% year over year, North American utilization was 80%, which is up 4% sequentially and 2% year over year.
And again.
But they weren't I think that's a heck of a feat so thanks to our employees for that.
I mentioned earlier, there's a lot to be upside that you later on the call Tom will speak to our booking success in the quarter, including some details around wins at net new accounts and the overall strength of the pipeline.
What's your question most exciting development the corner of course was to be acquisition of Pizza Toppings, and Columbia South America.
We look we look for a long time to find the right near choice for him to turbocharge, our global ambitions.
And we did that help you're having expanded or team by more than 600 colleagues with this announcement.
Wonderful leadership team and they really more about that as well.
Global billable headcount now accounts for nearly 40% <unk> Watson.
We work for several months to complete this acquisition, that's where the larger ones that we've completed and actually we took I can make sure we're careful but the integration began they want.
Already making great progress, having discussions with our customers how they can begin to benefit from.
From this additional service.
Overstate, how meaningful we expect this could be detrimental team with great technical talent strong communication skills and working from the same time zones immediately enhances our ability to offer clients fully flexible and customize delivery models I'm confident we'll look back on this new owners, excluding powerful inflection point for the business.
First of all long term growth.
Well see before I turn the call over to fall for the financial results detail I want to welcome things you parallel to the board of directors and the Nazis experience and expertise to our board has one more thing that we're excited about as we continue to scale our business in the second half between 20 and beyond.
Now I'll turn the call back over to fall for details on the financial results Paul.
Thanks, John.
Well start with the second quarter services revenues, excluding Reimbursable expenses were 144.3 million for the second quarter of 20, 25.5% increase over the comparable prior year period services gross margin percentage for the second quarter ended June 30, 2020, excluding reimbursable expenses and compensation.
<unk> increased 20 basis points to 39.3 person.
Compared to the prior year period, I see an expense excluding stock compensation increased slightly to 30.8 million in the second quarter 2020 from 30.5 million in the comparable prior period teenage <unk> expense, excluding stock compensation as a percentage of revenue decreased to 21.11st person from 21.5%.
In the second quarter of 29 thing.
Adjusted EBITDA for the second quarter of 2021, 26.4 million or 18% of revenues compared to 23.6 million or 16% of the revenues in the second quarter of 29 T. The second quarter included amortization expense of 4.4 million compared to 4 million in the comparable prior year period net interest expense for the.
Second quarter 2020 increased to 2.1 million from 1.9 million in the comparable prior year occurred our effective tax rate for the second quarter 2020 was 31.8% compared to 26% in the second quarter 2019, the increasingly effective tax rate was primarily due to the nondeductible acquisition costs incurred during the three.
Months ended June 30, 2020, net income decreased 23% to 66 million for the second quarter 2020 from 8.5 during the second quarter 2019, primarily as a result of increase acquisition related costs.
Diluted GAAP earnings per share decreased to 20 cents to share for the second quarter of 2020 from 27 cents in the second quarter of 2019 adjusted earnings per share increased 10% to 57 cents a share for the second quarter of 2020 from 52 cents a share in the second quarter I'm 2019, Please see the press release for adoption.
Please turn to GAAP earnings I'll now turn to the six month results services revenue, including Reimbursable expenses were 285.3 million for the six months ended June 30, 20, 27.3% increase over the comparable prior year period [laughter] services gross margin percentage for the six months ended June 30 22.
Excluding reimbursable expense incentive compensation increased 40 basis points to 38.8% compare to the prior year period I see an expense excluding stock compensation increased to 61.1 million for the six months ended June 32020 from 60.3 billion in the comparable prior year period, that's you know expense.
Excluding stock compensation as a percentage of revenue decreased to 20.9% for the six months ended June 30, 2020 from 21.9% the comparable prior year period.
Adjusted EBITDA for the six months ended June 30, 2020 was 50.1 million or 17.2% of revenues compared to 43.3 million, our 50.7% of revenues in the comparable prior year period.
The six months ended June 30, 2020 included 8.3 million of amortization expense compared to 8.1 under comparable prior year period net interest expense for the six months into January 2020 increase of 4 million from 3.7 million in the prior year, our effective tax rate for the six months into January 2021 was 22.
20% compared to 23.4% of the comparable prior year period, the decreasing the effective tax rate was primarily due to the increase in tax benefits recognized related to share based compensation during the six month cured.
Net income for the six months into June 32020, and June 30, 2019 was 15.6 million.
The GAAP earnings per share remained flat at 48 cents per share for the six months ended June 30, 2020, we compare to the prior year period adjusted earnings per share increased 14% to a dollar seven for the six months ended June 30, 2020, compared to 94 cents in the prior year period.
Or any global headcount at June 30, 2020 was 3687, including 3464 billable consultants and 233 subcontractors ending SNA headcount was 536.
Finally, our outstanding debt net of unamortized discount into for issuance costs as of June 30, 2020 was 139 million, which included 12 million outstanding under our credit agreement.
We also had 19.5 million in cash cash equivalents and as of June 30, 2020 in a 112.7 million of unused borrowing capacity.
Under our credit facility, our balance sheet continues to leave us well position to execute against our strategic plan and objectives.
Days sales outstanding on accounts receivable increased to 71 days at the end of the second quarter compared to 69 days at the end of the second quarter 2019, I'll now turn the call over to kind of hoping for a little more commentary behind the method huh.
Paul.
Jeff mentioned earlier, we had another solid quarter for bookings and most importantly, the pipeline remains extremely strong in fact, our weighted basis, that's larger than it's ever been we book 66 deals greater than $500000. During the second quarter of 2020 that compares to 62 a year ago period.
We've got good deal volume as Jeff mentioned earlier, we particularly pleased to be competing farm, winning more net new customers right now.
We reacted earlier this year the emergence of and we didn't know if or how it might impact our ability to win opportunities at accounts. We previously had and worked with but today, we're having great success Wayne New work and the entire organization has been energized by our progress getting important new clients.
And we're also proud to be involved with enterprise is doing great work to combat. The current challenges for example, one of the world's largest and most well recognized pharmaceutical plans terms is using clinical trial management solutions delivered by our life Sciences group to run testing for their coded 19.
Therapy trials on the new client front, we won seven we want to seven plus figure project with a fortune 100, global food and drink conglomerate or building now I enabled data platform for one of their subsidiaries, which produces in markets pet food and operates the largest pet adoption website in the world the platform.
Enable animal shelters rescue organizations to better match in place pets.
Right perspective adopters.
Also during the quarter B, we began partnering with a diversified healthcare services company, that's pursuing a major cloud modernization effort across their entire organization are migrating the legacy application used for their records management and workflow systems.
Client anticipate substantial cost savings and improved employee experience is based on this initiative and this is another seven plus figure projects and we anticipate that lead to more opportunity.
We're even competing for several eat figure deals right now all in all great quarter, we have a strong pipeline and we have a lot momentum as we head into the second half a year and with that I'll turn things back over to Jeff discussed are made her 2020.
Well. Thanks, Tom you know, we we can discuss our perspective really on the second half of the year sort of anecdotally and the QNX, but as we mentioned in the news release, given the uncertain duration and scope it depends on it and its impact on economic and financial markets, We can't really reliably.
Oh predicts that on our business operations or financial results Accordingly.
We're going to continue to withhold guidance at this time with that.
Later, we can open up the call for questions.
Thank you as a reminder to asking question you will need to press star one on your telephone to withdraw your question first the pound or Heskey. Please standby, while we've compiled the Q1 day roster.
Your first question comes on the line of Maggie Nolan with William Blair.
Hey, this is tied on for Maggie.
Well, just I guess side to that point, maybe just looking across your verticals you feel that the man, who maybe bottom here in the second quarter.
There may be some sequential growth across all your vertical sprint and are there maybe some areas.
And the business that are facing a little bit more I'd once it's any commentary there regarding forward looking from your verticals.
Yeah, you know I would say, it's it's fairly consistent across the verticals. We don't have a lot of exposure to the most impacted verticals, we have some but most even our retail was is online. So I'd say some of that is thriving as you all know.
So I would say, it's it's fairly fairly consistent across the board no bid stand outs and yeah, I'm optimistic that that we've seen the bottom barring any other.
Macro events and very interesting time.
But barring any of that I'm optimistic that we've seen the bottom and that.
Hopefully, we'll see some at least modest growth going forward.
But I think the idea that we would decline is probably be behind us.
Okay. That's very helpful and then.
Jeff Jeff for time this might be a question for you so great to hear about the successful with new client I'm curious, what you would attribute that to.
Oh go ahead Tom.
Great.
I think a lot of is the termination of our team our portfolio speech be playing.
It is well positioned and a lot of these clients returning towards digital transformation, especially with co that and our ability to create analyze ourselves with the portfolio and our team is doing a nice job being proactive engaging these customers and and as we.
Work, and we show up and demonstrate the power perficient or our customers and more importantly, the new customers are really respond and we're also connecting new customers with existing customers. That's been quite beneficial as we turn to credentials as ourselves with some of these newer clients.
Really point them back to organizations varied worked with in our current clients have been great and really speaking to a great fishnet spend to work with so I mean, all in all we positioned our legacy business and these new customers and also these customers willing to invest as Jeff mentioned earlier.
I want to have your best not to mention that are there a number of organizations I continue to invest.
Obviously, we appreciate that their employees appreciate that and it's really transforming their organizations as well.
Okay. Thanks.
I guess last question here for me so uptake in adjusted EBITDA margin this quarter was fairly healthy.
Given the strong growth of the offshore business the utilization in Africa listener PS Sal I do you think you'll be able to maintain maybe it's not even expand adjusted EBITDA margin front for the remainder of the year and then real quickly maybe just a housekeeping item on what was the organic growth this quarter. Thanks.
Yes, or get a growth was just about 1% somewhere about a half to one.
And yet a actually.
I think that we've seen a good evidenced that we're going to be able to sustain that utilization level and again I have to caveat everything I say with barring any other and unforeseen event I do expect that we'll have a decent adjusted EBITDA expansion for the year somewhere around 100, 200, but 200 basis points is even possible.
I think will be over 100 at least for the year.
Alright, Thank you very much.
Your next question comes from the line of surrendered stand with Jefferies.
Good morning, gentlemen, let's start with a question about guidance.
I was I guess a bit surprised that you did you didn't provide guidance for at least for the third quarter.
Can you maybe talk about the level of confidence that you need to see to be able to re implement guidance at this point.
Given that we're a third of the waits for the quarter or what is the source of uncertainty at this point.
It's just the macro environment. If if you were to tell me that.
[laughter] something bizarre wasn't going to happen in two weeks, we would have guidance out there I just think the environment that were added and obviously we're in good company most of our peers and competitors are following the same course and I can't speak for them, but I would imagine. It's the same reason they have the same outlook. We do the same two months to your point.
But I think in this environment. It's just so I'm a turbulent that it's the wiser course.
So I guess is follow on when it when I kind of think about.
Can you maybe provide a little bit of color, but the types of conversations you're having with clients. It sounds like things are looking up things or maybe not as bad as they were feared three months ago, but at the same time it seems like.
He is it fair to say that clients are still making kind of last minute decisions in terms of go no go when it comes to projects at this point and that's kind of the source of uncertainty.
Yeah, I I wouldn't say, it's like that as much as sales cycles are extended so I think it's more just a cautious taking a little longer to make the decision. Its you don't think it. So much go no go it's more when ano and our pipeline reflects that the the deals that you know are are getting a little extended.
That are still there we know the clients don't need to work its a matter of when they're going to get started and and quite honestly I think the there and I can't get in their head per se, but what we're hearing from them as much very somebody what I. What I mentioned to you is just the general uncertainty in the environment has been more cautious than normal although we are.
We are seeing improvement in that so we did see you know bookings come around in Q2 that slipped from Q1.
And we're seeing that that environment right now as it relates to a to picking up some of these projects that maybe we are slated to close a month or two ago.
They are still there and they're looking now to to move ahead with many of those we Gotta love a number of things on the table right now that that fit that category.
Oh, that's actually quite helpful. And then following up on the the question about the organic growth.
I noticed that your offshore organic revenue growth was was mid teens Pos.
So.
And while your overall growth rate was slightly positive. So is the idea that clients are at this point in time.
Heavily favoring offshore solutions or or cost conscious as part of that equation that this pointing this out how should be thinking about things on a go forward basis.
That's right and I I think that's part of it but I actually I would tell you that we've built up a very formidable.
Digital capability offshore that I would argue is fairly unique and I'll back that up with the fact that that our Indian bill rates or $35, an hour I'm going to average right. So thats the average bill rates and that substantially above our offshore competitors in India.
And the reason for that is different skill set.
More experienced and deeper skills, specifically around digital so as we're able to deliver that obviously the more cost effective rate to the client.
They really embraced it so I actually say, we're selling it more.
We get 50% gross margin there.
It's a but it's a hybrid we're we're I think one of the things that you unique differentiator for US is we've got an incredibly deep.
And capable onshore component, which is very critical on digital delivery. There's a lot of highly interactive high touch customer journeys that really require on side or at least a onshore capability, but there can be backed up.
Particularly in the development cycles with offshore but again these are digital skills vision that sort of run of the mill.
Commoditize skills. So I think we've got a unique offering it's the offering that we are highlighting and marketing will more and more and those are the reasons I think that offshore is is growing at a pace above onshore course clients always the one a bargain so thats part of it as well.
Fair enough.
And then maybe one last question on head count.
It looks like there was like a modest quarter over quarter reduction here in North America head count and it looks like it was across the board. So whether it was billable employees contractors or even support stuff. So how much of this is voluntary and then maybe how much was attributable to maybe managing costs.
You know a the vast majority of it as voluntary and in some cases this performance based.
We've tried to manage that in this environment. The same way that we always do so when their performance issues, we deal with them.
And as we've had voluntary attrition you know given that we're sort of flattish right now we've met.
And higher back or better.
Most of it's coming from that there's been like I said, some other at the French based reductions.
Fair enough and then just related to that it looks like on the offshore head count adjusting for the acquisition that the headcount was relatively unchanged quarter over quarter.
Given the growth that you're experiencing or should we expect that headcount to pick up or is your capacity. There at this point that you can tap into how should we think about that.
Yep, it's both I think we do have capacity there, we can let utilization come up a little bit from where it's at now we intentionally keep it lowers so that we can ramp projects quickly offshore is that's the nature tends to be the nature of their engagement. So I do think we'll be doing some hiring at least I hope we do say I do believe we're going to continue to see that mix shift.
But you can do a combination of two we'll certainly have let utilization rise a little.
But also do some hiring judiciously.
Okay. That's it from you think you so much thanks Rhonda.
Your next question comes from the line of my.
And then with Needham.
Thank you a good morning up, but Jeff and Paul I, just wanted to not not delivered the point on the guidance issue but.
Could you.
Could you talk about the.
A contribution from M&A that you're expecting for the for the full year, obviously, you get the benefit from the recent Columbia acquisition and then on that note could be maybe assume a modest uptick in sequential revenue growth based on your comments and then layered on the M&A of that'd be a good way to sort of think about the numbers for the back half of the year.
Yeah, I think that's fair.
You know as I mentioned I think stable here, you know is kind of where we see ourselves now so.
I think they I guess and then by the way I know DSL as we advertise that's about a $33 million business. So I think we're looking at you know $8 million to $9 million accordingly.
For that.
If it does things you've got it.
Yeah, right that's helping.
And Mike Sorry, one clarification, we had about a million of revenue from P. ourselves for the stub period from acquisition close through the end of Q2, just to factor that into your thinking.
Okay.
That makes sense and then I wanted to just every company defines a digital differently, but wanted to get your take on what do you think is truly digital for you and how do you see Dod growing over time, one would think that's the end of that seem to acceleration just in terms of client conversations today, and hopefully that kind of crap it into deals overtime.
Time, so if you could just help us sort of frame that digital piece and then what's the balance and what do you think of the growth profile for dot piece of the business because of either digital segment.
Yes, so we tend to go with the Altimeter group definition, social mobile analytics cloud Smac and I think the cloud is that may be more debatable, one and if you do you have a liberal definition of cloud.
We do a lot in the financial area in terms of the one stream Hyperion things like that that are cloud based now. So you could include them or not we don't actually I think we have a conservative view, but I would tell you that all Clos are all digital base business is widely used 70% to 80% of our business today.
We've been working on shifting that well I would actually see that we started there before digital was a thing. So we had a lot of it to begin with but we've been shifting our focus there was five years, so 70, 80% of the business today.
Following that definition.
Okay.
That makes sense and then finally, a couple of housekeeping items.
I think maybe Tom or Jeff you talked about the number of deals that were half a million plus could you.
Minus what that number one I think we missed that and then also just on pricing what you're hearing from classes sounds like pricing actually is holding well or even maybe upticking, but yes as I had some clarity around that.
It was 66 deals above a half a million.
And Ah I believe is that right.
That's correct compared to 62 years ago.
Thank you.
And yeah, maybe are up 3.6% year over year, which.
Is impressive.
Obviously that he'd be ours coming from mostly from deals you know not now that we're closing that that's revenue base straight. So those are deals that we close in the past.
But we're maintaining a good pace on HDR, which I do think again validates our positioning.
And in terms of growth overall, you know some of this is being driven by officer of course, well much of it is.
But I do want to mention that that our organic.
Build a hours were up 5% year over year.
Again, most of that driven by the increase in offshore relative to onshore.
Right that's very helpful. Congrats on the results. Thanks.
Thanks, Mike.
Your next question comes from the line of Brian, Brian Kinstlinger with Alan Alliance Global partners.
I just wanted to touch quickly on demand.
Sounds like they want to make sure from May to June or July.
I guess, it's businesses are reopening are you seeing demand slowed a little cover slowly recover in each month or are we seeing more stable.
Kind of demand.
I'd say.
Slowly it's a its stable with pretty modest growth is what we're seeing right now, but it appears to us they at least again barring any other shoe dropping.
But from a revenue standpoint April was probably the bottom. So we've seen an uptick you know.
Wise basis, if you factor holidays, and vacations and things like that.
We have seen an uptick sequentially month over month.
Able to May to June June into July.
Great and then you anyway to quantify whether it's a number of projects or dollar value that you think projects were delayed and discuss how those projects are moving forward when they might.
Okay. So the latter is difficult to tie back, but we have yeah, we've estimated that.
I think conservatively so far for the year you know, we've got it impacted excessive $20 million.
As a result of projects that were either put on hold.
Outright cancelled, which we didn't see much up by the way when.
We saw very little of things they were in flight, meaning you know work that was in flight that we were in the middle of the project we didn't see.
Many cancellations like those nature at all with the exception of one kind of significant client that declared bankruptcy, but.
But in the overall scheme of things not a huge impact about 3 million for the year.
And even Danny I think they're going to come back and restructuring they've already reached out to us to begin some work. There. So generally it's been just delayed starts if that makes sense and we're seeing fewer anecdotally I can tell you that we are seeing some of those come back around now definitely whether we'll all will are now it's right it's hard to say.
Are you able to talk it sounds like bookings were pretty strong.
Are you able to discuss the one or two industries, where you saw demand the strongest and then maybe can you talk about the one or two industries, where you're seeing the most caution.
Well, it's a good question I think a I like I said I think it's pretty universal where we've seen good demand you know for us and it's hard to try to dissect the single quarter bookings goods and they tend to be very lumpy. So I would point more to a trend and I would say it is.
Hard to discern and.
There's some surprises I can assure you, what's your automotive and manufacturing and and industries that did a pretty impacted.
But then we're forging ahead and in fact in couple of cases, our relationships actually expanding so we were very happy with that I think being the one that you know industry that we have a fair amount of exposure to but I'm, probably much cautious about as health care, but even there in the hospital systems, obviously have been impacted by elective surgeries and things like that.
You know we've got a big relationship as you know in that space and then several others, but resiliency seems to be the order of the day and in fact in some cases, we've actually seen somebody's hospital systems in this environment actually shift their focus more to sort of accelerating and moving it all but some of the things that they needed demonstrates.
Particularly in from an ROI standpoint, because frankly, they had a little more time to do it. So so far I'm you know we've not seen any impact there if anything we've seen maybe the opposite and Tom mentioned, Oh life Sciences client earlier that that we've we've been working with for a while where we've actually helped and build a complete.
Custom clinical management system that that is open source there can be sharing with other other peers and are you there specifically using that for cobot 19 trials. So.
We aren't seeing some incremental revenue as a result, helping to offset obviously some of those delays.
Great and then.
Your response to Dan's question on price.
You know suggested that we're seeing the bill rates.
You know six months ago were nine months ago bookings can you talk about during this pandemic has pacing hell do those levels to so that we will see bill rate sustained here, even marginally higher or should we expect that you've had do you see marginally lower build rates can win work during <unk> and again.
Yeah, there we've been more aggressive its nuts I wouldn't say its competitively so much certainly.
Candidly there are some desperate players out there, but I think we've got great differentiation on skills as I mentioned earlier, and we're seeing that bear out, but we've gotten creative with some clients who.
Friendly variety of reasons, we're hasn't into move forward maybe on in some cases those are just Charles you know, maybe some deferred payments things like that that's we might see deal sales go up slightly. These are obviously all credit worthy gullible plans, where we've done that and in some cases, we've gotten more aggressive on rates, but where we.
Hi, Matt it's been a temporary basis, where we've agreed that hey. This is do you know quote unquote during quote coping environment, we're gonna be revisiting in six months, whether whether the corporate rate still apply as it works. So well so we might see maybe a leveling I don't think would see it dropped probably maybe a slight paul but of course with the.
3.6 increase.
Got it certainly natural maintaining utilization, 80%, we've got really strong gross margins and the mix shift of course ultra thin.
Great last question. Thanks for answering them. All you mentioned you can do you have a specialty skill set in India.
So what do you need to do to ensure that they employ a churn which is pretty high in India.
Remains you know is controlled as possible for your company.
You know, we do a lot of things culturally. We also involve a number of our folks in Indiana Phantom stock plan, which is unique there by the way.
So they get to participate and some of the equity as well virtually if you will again Phantom wise.
But I wasn't you'll be able to culture and actually they enjoy the work all the work that we're doing relative to what most people are doing an Indian centers.
It was more [noise].
Maybe not cutting edge, but leading edge, it's more interesting it's more challenging the projects are quicker I'm sort of good year I'll just sitting around for two years during the same mundane job over and over so I'll tell you pre Cove and certainly now our attrition rates in India had been phenomenal lower.
Leaving our peers and lower in many cases, they've even onshore attrition rates, we run below 15% in India and right now, it's even lower than that so we've always had great success, they Wanna get I attribute those things.
Thanks, so much guys.
Thanks, Brian.
And once again to ask a question you would need to press star one from your telephone. Your next question comes from the line of Vincent Colicchio with Barrington Research.
[noise], Yeah nice quarter Jeff.
I'm curious does something some other players out there are benefiting from a other vendors that have.
Shrunk a little transitions are you seeing any of that.
Yeah, absolutely a yeah I wouldn't say, it's huge but it's part of the reason that our offshore grew 16%.
In the quarter, we picked up some work from a from those that struggled.
And.
With the P to sell acquisition I know a sounds like you guys are optimistic that there's going to be you know a good amount of interest from your existing client base I'm curious sort of a would your vision is longer term can the capacity to be a lot larger than it is today in Colombia, and and then more near term could you rapidly expand capacity.
In response to demand.
Yeah, absolutely I think both near and long term that was one of the things we absolutely that is part of our first our search and then our our diligence. So a great University systems, there, they're they're locations that we that we picked up our near universities. The universities have shifted very much to a stem.
Focus I'm, so I think there's plenty of capacity, both near term and long term and as importantly.
It's a phenomenal leadership team there the businesses mature it's been around for a you know 20 plus years and a lot of the leaders there have been there any of the key folks have been there 10, plus years or even the 20 years and so I think they've got an infrastructure both in terms of management as well as systems as well as methodology.
You know I don't want to get to due to a technical but.
I'm, sorry, Carnegie Mellon, a sci suffering training institute seeing them I level five.
Certification one of the very first I think there are one of the first aid in the world to achieve that so they're highly disciplined which makes a.
Makes the quality you know phenomenal so I think all those things combined make it very scalable.
[noise] in recent quarters, you've you've talked about your newer salespeople sort of you know coming along or you feel the same way recognize this is a tough environment.
I am I still think that thesis is very intact, a little stunted by the current environment as you point out.
But but absolutely I feel really good as things continue to improve that we're going to continue to see dividends from that.
Okay.
Thanks, Jeff Mezger.
Thanks Vince.
Your next question comes from the line of Jack vendor hard with Maxim Group.
Hey, guys.
Great quarter, Thanks for taking my questions as well so I'll start with just you know services gross margin was with a positive surprise at least relative to my expectations.
You know given the three acquisitions closed during first half the 20, all of which I believe of higher margin profiles than the core business. Just a couple of things would you expect services gross margin then to to further improve in Threeq and Fourq you just because PS l. kind of came towards the end of the quarter and that was.
The largest and I think most accretive acquisition so does that support a.
Fairly confident outlook for gross margin improved sequentially.
It does get MPS will definitely be a contributor no doubt very accretive to your point I think they run about 50 plus percent gross margin.
We are approaching about 40, you know adjusted gross margin. So that's going to help at all but also clearly you know, 3.6% increase and bill rate and that two point increase in utilization is going to help drive.
Gross margins as well so.
I mentioned earlier 100 to 200 on EBITDA, there's obviously adjusted EBITDA. There's obviously some some scale down there. So I think 100 250, maybe.
On gross margin is a reasonable expectation again barring anything unforeseen.
Got you that's helpful. And then you also a lot of comments and questions have been referencing the increase in Hbr for North America.
And maybe I missed it but just just to declare it was there any I mean, if its structural price like across the board increasing your rates or is this just kind of more of a.
Increasing mix of projects that are more premium priced historically for maybe there are more complicated projects or something.
It is structural intentional increase or was it just more of a mix.
It was definitely intentional and to your point I do think we've got higher value.
Solutions out there, they're also helping to drive higher bill rates, but this is definitely structural and it's something you know time, Oh, I became CEO about a year and a half ago, almost two years ago, almost and it's something some process and discipline that he put in place that's had an impact right away and that's what you're saying.
Okay, Great and then just kinda lastly.
Speaking on the are subject to outside of North America.
I'm not sure if I can find in any the materials, yet, but how did your offshore or just non North America hbr, increasing what what factors contributed to the data to change at all.
Hey, I want to say and I haven't right in front of me, but I want to say it was about flat I know it was within a dollar or to a $35 I'm. So we're not driving as much increase there.
Our our ER our concept there is more volume.
We don't want to drop the rates, we want to maintain your were already getting 50% to 55% gross margin right. So thats great margin.
We just want to focus on driving as much as much volume there as we can.
And Ah and frankly again, that's both tactical and strategic we want to do that as a first mover advantage, where I really believe we've got some unique all skill outdoor skills that a lot of our competition hasn't figured out how to build yet so as we want to stay ahead of them. We want to leverage does a great margins, but were happy to keep the rates there you know.
And that's what helps us drawls powered north American rates is getting a blended rate on an engagement leveraging the offshore that brings down the overall rate to decline, but still there was good margins to us.
Got you and then just lastly, organic growth I think you mentioned woods was less than 1% some around 0.51% or something for this quarter I guess as we look do you expect a linear in Korea I know you are not playing guidance, but.
Are you reasonably confident that that you'll see organic revenue growth kind of year over year basis uptick pretty linearly in Threeq, you and then again for Q.
It does that also would that also assume.
The North American he BR increase that we saw this quarter to kind of be maintained or increased further.
Yeah, we talked about he'd be are a little bit that it will I think it'd be maintained we might see it dropped slightly where we've been creative with some clients and offer some discounts where we needed to to get them to move forward at all so so thats the comments on Hbr, yes in terms of growth you know, there's not a lot I can say there.
Thank God.
We've got some work to do in terms of getting some of this we've got a fantastic. We did pipeline that we need to get close and again that I refer back to what I said earlier about just delayed decisions are slower sales cycles.
So I think we need to see that improved before we didn't really see substantial growth.
Go back to what I said earlier is I don't see us going backwards from here in terms of you know year over year growth I know that's that that was modest in Q2.
We're hoping for some outside in Q3, and we feel pretty good about it again barring any unforeseen event, but if we were real confident we would've put guidance out.
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[laughter] understood understood Fantastic <unk>, that's it for me I appreciate the time.
Absolutely Thanks Jack.
And there are no further questions at this time Mr. Davis I will turn the call back over to you for any closing remarks.
All right all well. Thank you for your time and thank you for your patience I I'm excited about where things are at and a and I think things are actually looking up we're looking forward to a strong Q3 and the there we haven't seen report that back to you at about 90 days. Thanks for your time take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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