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Edited Transcript of PRFT earnings conference call or presentation 1-Nov-18 2:00pm GMT

Q3 2018 Perficient Inc Earnings Call

ST. LOUIS Nov 2, 2018 (Thomson StreetEvents) -- Edited Transcript of Perficient Inc earnings conference call or presentation Thursday, November 1, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey S. Davis

Perficient, Inc. - President, CEO & Chairman

* Paul E. Martin

Perficient, Inc. - CFO, Treasurer & Secretary

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Conference Call Participants

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* Brian David Kinstlinger

Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst

* Francis Carl Atkins

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Joshua Goltry

Maxim Group LLC, Research Division - Equity Research Associate

* Mayank Tandon

Needham & Company, LLC, Research Division - Senior Analyst

* Vincent Alexander Colicchio

Barrington Research Associates, Inc., Research Division - MD

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Presentation

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Operator [1]

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Good morning and afternoon, ladies and gentlemen, and welcome to the Q3 2018 Perficient Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Chairman and CEO, Jeff Davis.

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [2]

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Good morning. This is Jeff. Thank you all for your time this morning. With me on the call, as usual, is Paul Martin, our CFO. As typical, we'll have 10, 15 minutes of prepared comments, after which, we will open the call for questions.

Paul, will you please read the safe harbor statement?

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Paul E. Martin, Perficient, Inc. - CFO, Treasurer & Secretary [3]

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Thanks, Jeff, good morning, everyone. Some of the things we will discuss in today's call concerning future company performance will be forward-looking statements within the meaning of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements, and we encourage you to refer to the additional information contained in our SEC filings concerning factors that could cause those results to be different than contemplated in today's discussion.

At times during this call, we will refer to adjusted EPS, our earnings press release, including a reconciliation of certain non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles, or GAAP, is posted at our website at www.perficient.com. We have also posted a slide deck, which includes a reconciliation of certain non-GAAP goals to the most directly comparable financial measures prepared in accordance with GAAP on our website under Investor Relations. Jeff?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [4]

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Thanks, Paul. Once again, good morning and thank you for joining. We're excited to share our third quarter results and update you with our expectations for the remainder of the year. There's really a lot going on right now in the market. All of it's very positive for Perficient, and we're going to discuss some of that.

Services revenue was up 5% versus a year ago. And you may recall, our third and fourth quarters last year were quite strong. So that's growth over a tough comparison. Services revenue for the year, through the end of Q3, is now up 11%. Most exciting about Q3 was the profitability we were able to deliver, improved utilization and strong fiscal discipline drove increased services gross margin and adjusted EPS of $0.41, which is at the very top end of our guidance. That [all] transpired during our quarter, where we also grew by acquisition, were recognized by several partners with high-profile awards and saw market development that bodes well for our business. And all of that is continuing beyond Q3 and -- into Q4 and beyond. During the quarter, we added to our digital capabilities with the acquisition of Stone Temple Consulting, a highly regarded and award-winning digital consultancy, focused on search engine optimization and content marketing services. And as I'm sure you also saw, earlier this week, we announced the acquisition of Elixiter, a marketing automation firm that helps us continue to enhance the capabilities.

We're able to bring to CMOs and marketing organizations who are tasked with driving digital transformation and improving the customer experience. Both of these groups will play an important role as we continue to deliver the end-to-end digital experience solutions to our clients and [though] they must deliver to their customers.

Interestingly enough, in the midst of our pursuit of Elixiter, a firm we like specifically because of its expertise in the Marketo [stack] , Adobe announced its intention to acquire Marketo. We talked for several quarters about the success we've had growing a deep partnership and strong business around the Adobe platform, and how excited we were when they acquired Magento, another key partner of ours.

And now as we bring Elixiter into our portfolio, Adobe looks to do the same with Marketo. In recent weeks, partners like Red Hat, Sitecore and Pivotal have recognized Perficient with awards. And similar to the Adobe, Magento, and Adobe, Marketo deals, we were very excited early this week to learn [that] IBM [as it] did an acquisition of Red Hat. When 2 of our key partners join forces, it creates meaningful opportunity and momentum for us and we expect great things going forward, as IBM and Red Hat provides.

In addition to the awards received, Perficient continued support relationships with industry analysts, influencing opinion and gaining visibility. This quarter, Forrester Research named Perficient, one of the 11 providers that matter most in a report covering digital process automation. Specifically, within the report, Forrester called out our ability to maintain long-term relationships with prominent clients and referred to us as a trusted partner.

Normalized bookings during the quarter were great, up double digits, one of the strongest performances as I can recall, and certainly, the strongest in the last couple of years. That should help us close the year solidly and get 2019 off to a great start.

So on top of all that, we completed a convertible debt offering during the quarter, where we raised more than $140 million, which was then used to pay off our existing credit facility and execute a large buyback. Leaving us with $45 million cash on balance sheet and full access to the original $125 million credit facility. That, coupled with strong cash flow we're generating each quarter, leaves us very well positioned to grow the company and execute on our strategic plans for years to come.

So with that, I'm going to turn the call back over to Paul to cover the financial results before I touch on a few additional items to note and our outlook for the fourth quarter and updated guidance for the full year. Paul?

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Paul E. Martin, Perficient, Inc. - CFO, Treasurer & Secretary [5]

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Thanks, Jeff. Services revenues were $122.9 million for the third quarter of 2018, a 5% increase compared to the comparable prior year period. Services gross margin for the third -- 3 months ended September 30, 2018, excluding stock compensation and reimbursable expenses, increased 40 basis points to 37.8%.

SG&A expense, excluding stock compensation, increased to $26.7 million in the third quarter of 2018 from $24.7 million in the comparable prior year period. SG&A expense, excluding stock compensation as a percentage of revenue, increased to 21.5% from 20% in the third quarter, primarily due to change in recognition of software and hardware revenues on a net versus gross basis.

EBITDAS for the third quarter of 2018 was $19.5 million or 15.8% of revenues compared to $19.2 million or 15.5% of revenues in the third quarter of 2017. Third quarter included amortization of $4 million compared to $3.9 million in the prior year period.

During the third quarter of 2018, we recorded expense of $0.7 million through adjusted fair value of contingent consideration [liability] , primarily related to our Southport acquisition as a result of favorable performance compared to original assets.

Interest expense of $0.8 million increased from $0.4 million, primarily as a result of cash interest and noncash amortization that includes discounts and issuance costs related to the convertible debt issued in September. Our effective tax rate for the third quarter of 2018 was 25.3% compared to 33.3% for the third quarter of 2017.

The lower effective rate for the 3 months ended September 30, 2018, was primarily due to the lowering of the U.S. tax rate from 31% to 21%. Net income decreased 10% to $6.3 million for the third quarter of 2018 from $7 million in the third quarter of 2017.

Diluted GAAP earnings per share decreased to $0.19 for the third quarter of 2018 from $0.21 in the third quarter of 2017. Adjusted earnings per share increased to $0.41 during the third quarter of 2018 from $0.34 in the third quarter of 2017.

You can see the press release for a full reconciliation of -- to GAAP earnings. And as a reminder, adjusted EPS is defined as GAAP earnings per share plus amortization expense, noncash stock compensation, transaction cost, amortization of [discount cost, issuance cost, the fair value of adjustment of the contingent consideration and the impact of infrequent or unusual transactions out of taxes] , divided by average fully diluted shares outstanding for the period.

I'll now turn to the 9-month results. Services revenues were $364 million for the 9 months ended September 30, 2018, an increase of 11% over the comparable prior year period. Services gross margin for the 9 months ended September 30, 2018, excluding stock compensation and reimbursable expenses decreased approximately to 36.8% from 37% in the comparable prior year period.

SG&A expenses, excluding stock compensation, increased to $78.4 million for the 9 months ended September 30, 2018, from $72 million in the comparable prior year period. SG&A expenses, excluding stock compensation as a percentage of revenues, increased to 21.4% from 20.5%, primarily due to the change in recognition of software and hardware revenues on a net versus gross basis.

EBITDAS for the 9 months ended September 30, 2018, was $54.8 million or 15% of revenues compared to $50.1 million or 14.3% of revenues in the 9 months ended September 30, 2017. The 9 months ended September 30, 2018, included amortization of $12 million compared to $11.1 million in the prior year comparable period.

During the 9 months ended, September 30, 2018, we recorded expense of $1.8 million to adjust a fair value of our contingent consideration liabilities, primarily related to our Clarity and Southport acquisitions as a result of favorable performance compared to original assets.

Our effective tax rate for the 9 months ended September 30, 2018, was 25% compared to 46.4% for the 9 months ended September 30, 2017.

The lower effective tax rate for the 9 months ended September 30, 2018, was primarily due to the lowering of the U.S. tax rate. Net income increased 41% to $17.1 million for 9 months ended at September 30, 2018, from $12.1 million in the comparable period.

Diluted GAAP earnings per share increased to $0.50 for the 9 months ended September 30, 2018, from $0.36 for the 9 months ended, September 30, 2017. Adjusted earnings per share increased to $1.13 for the 9 months ended September 30, 2018, from $0.86 in the comparable period.

[Our earning] billable headcount at September 30, 2018, was 2,676, which included 2,448 billable [colleagues] and 228 subcontractors. And the SG&A headcount at September 30, 2018, was 458.

As Jeff mentioned, our convertible debt issuance during the quarter increased our outstanding debt, net of unamortized discounted and deferred issuance costs to $119 million compared to $55 million at year-end. We also ended the third quarter with $44.9 million in cash and cash equivalents, and our balance sheet continues to leave us very well positioned to execute against our strategic plan.

Our day sales outstanding on accounts receivable were 77 days for the third quarter of 2018 compared to 79 days in the comparable prior year period.

I'll now turn the call back over to Jeff for a little more commentary behind the metrics Jeff?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [6]

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Well, thanks, Paul. We sold 43 deals north of $500,000 during the quarter that compares to 59 in the second quarter of this year and 32 in the third quarter of 2017. So nice growth and large deal volume versus the prior year.

As I mentioned earlier, those bookings were up substantially year-over-year, as there were a number of very large deals embedded with this -- within those statistics. During the quarter, the health sciences, financial services, retail/consumer goods and manufacturing verticals combined to represent 66% of revenue with health care at 30%, financial services at 14%, retail/consumer goods at 12%, manufacturing at 10%.

More and more the market is realizing, we have the strength and scale to deliver the same work that majors do with a higher quality, more efficiently, and with quicker time to value. We are as good as, and most of the times, better than the biggest names, and our approach is not only more thoughtful and collaborative but more comprehensive.

And finally, I would be remiss if I haven't mentioned a news included in our release regarding the retirement of Chief Operating Officer, Kathy Henely. All of Perficient owes Kathy tremendous thanks for contributions over the course of nearly 2 decades. She's been a dedicated leader and executive partner in helping us build this business. One of the many legacies she leaves and her assistance in structuring and building out very deep and experienced extended leadership team. Hence, we're fortunate and excited to announce the promotion of Vice President, Tom Hogan, into the role of COO.

Tom's been a strong leader for more than a decade at Perficient, has great understanding of the business, a strong sales background and a solid operational acumen. He's going to be an excellent COO. So again, many thanks to Kathy and congratulations to Tom.

It was a great third quarter. We have good momentum heading into Q4, and we're very optimistic about the potential for 2019. We're excited to issue our fourth quarter guidance and raise our full year earnings estimate.

Perficient expects its fourth quarter 2018 revenue to be in the range of $125 million to $131 million. Fourth quarter GAAP earnings per share is expected to be in the range of $0.15 to $0.18. Fourth quarter adjusted earnings per share is expected to be in the range of $0.39 to $0.42. Perficient is narrowing its previously provided full year 2018 revenue guidance to $492 million to $498 million. Adjusting its 2018 GAAP earnings per share guidance range to $0.66 to $0.69, and raising its 2018 adjusted earnings per share range to $1.52 to $1.55.

With that, operator, can we open up the call for questions?

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Operator [7]

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(Operator Instructions) Your first question comes from Mayank Tandon with Needham & Company.

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Mayank Tandon, Needham & Company, LLC, Research Division - Senior Analyst [8]

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Few questions on a revenue line. I think looking at 3Q, it's maybe at the lower end of expectations, and also, for 4Q guidance, and you tightened the revenue range a touch lower for the full year. Could you comment on what may have been the factor behind that? And maybe in the context of what you're seeing in terms of key verticals like health care, retail and maybe financial services as well?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [9]

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Yes, absolutely. First, let me point out that we're about $600,000 below the midpoint of our guidance. So really about 0.5% off of the midpoint of our guidance. But yes, it's -- I would say all in all, the macro environment is still strong. We see a good -- we have a very good pipeline. We have great bookings. That's more the carryover of the cancellations that we talked about in the second quarter, [formulating] , I want to say about $50 million impact to the year. So we had to work to come up from under that. Probably not quite as [well] as we would have liked to in Q3. But again, pretty close to our guidance.

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Mayank Tandon, Needham & Company, LLC, Research Division - Senior Analyst [10]

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Jeff, could you provide some color in terms of what you're seeing on the key vertical front? And I also wanted to get your thoughts around your expectations for margins. This year looks like a good year in terms of margin performance. Maybe if you could talk about expectations longer term, as you go into '19? Maybe not getting into specific, but just in terms of the trend on the margin line as well along with some of the details around the vertical exposure in revenue. That would be helpful.

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [11]

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Yes. Absolutely. So those 4 verticals I mentioned in the script. We're strong performers in the quarter. From a bookings standpoint here, this continues to be head and shoulders above the rest. I want to say health care represented almost half of our bookings in the quarter. So continued strength there. But again, financial services holding its own, probably not growing as fast as some others. But retail, automotive performing very well. Manufacturing performing well for us. We've got some key accounts there. So all in all, like I said, I would say we're seeing improvement or at least solid performance and strength pretty much across the board. The one exception might be financial services for us. But again, it's holding its own and the rest seem to be performing well, particularly from a bookings standpoint. So macro to us looks good. In terms of trends on margins, we were planning and I've talked about this before, I had a goal of 2% to 3% rate increases this year. We've not been able to get there, I do think they are trending up now, although, it's early to tell here in these most recent bookings. But we believe that we're seeing that trend improve. And I expect to continue to see good margin expansion or solid margin expansion probably of at least 100 basis points next year. And to your point, we won't be putting anything out on that specifically for a while, but that's certainly be my goal. I'd still like to see us getting to 40% gross margin, net of stock comp on services. And I think we hit 38%, 37.8% this quarter, so we're close. And like I said, I'd like to see us move more towards that next year with at least 100 basis point improvement.

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Mayank Tandon, Needham & Company, LLC, Research Division - Senior Analyst [12]

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That's helpful. And just finally on organic growth. I think, when you came into this year, I think the target was high single digits. What is the goal today, based on what you've seen so far in the 9 months, the organic growth for the year? That's it for me.

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [13]

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Yes, I think we're going to end up in the 2% to 3% range. The higher end of our guidance, I think, would be at 3%. And we feel pretty comfortable with this guidance. I think, there's some upside there. So around 3% and then I think if you went back and added back those cancellations, unfortunately, that's not how the world works. But that would put us at about 6%. So it's still be a little below, again, where we thought we could be at the beginning of the year, I think, combination of those cancellations along with not being able to push ABR as quickly as we hoped combine to kind of keep it in that range. One thing I should note though was offshore continues to grow outpacing our onshore business. So [billed] hours are a 1 or 2 point differential to the positive of the organic revenue growth. So 3% organic revenue, 4%, 5% billed hours. And again, the difference between that and the high single digits really is those cancellations.

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Operator [14]

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Your next question comes from Frank Atkins with SunTrust.

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Francis Carl Atkins, SunTrust Robinson Humphrey, Inc., Research Division - Associate [15]

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I wanted to ask a little bit more around the impact of IBM and Red Hat. What client feedback have you gotten so far? And can you kind of walk through why this is a positive and what typically happens in these situations?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [16]

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Yes, absolutely. I can't tell you what the client feedback is yet. It's just simply too early. I haven't had a chance to catch up with our bill books. Although, I expect it will be positive, just from my perspective. I think, it's -- it was a pricey deal for IBM, but I think it really enhances their portfolio. So if you're an IBM [house] , I think you'd be happy with that. And even from a Red Hat shop perspective, I think, you'd be happy with the stability and the broader portfolio now available to them. We've been through a number of acquisitions with IBM over the years. It's our longest-standing partnership. And still I'd say one of the largest -- from a platform standpoint, one of the largest revenue generators of the business. Although, that's obviously been changing, as others have grown faster, it's become relatively smaller, but it's still large. We have a very, very good relationship with IBM. Any time [they] do an acquisition, one this large is unusual, they come into an acquisition we are one of the partners that they enable first. And in this case, they don't need to enable us because we already have a really strong relationship with Red Hat. So for us, it's 2 great partnerships joining forces. We know and are -- thought highly of -- by everybody on both sides. And in fact, both sides have been already reached out and expressed an interest in us being a key partner and help them bring together out in the field. So we're excited about that. I think, if nothing else, like I said, it should drive a lot of leads our way. In fact, I'm confident as well from both sides of that. Like I said, we know all the salespeople, have a good relationship with them.

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Francis Carl Atkins, SunTrust Robinson Humphrey, Inc., Research Division - Associate [17]

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Okay, great. That's helpful. Just a quick numbers question. Could I get organic revenue in the quarter? Just the percentage?

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Paul E. Martin, Perficient, Inc. - CFO, Treasurer & Secretary [18]

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Yes, it was down roughly 0.5% in the quarter.

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Francis Carl Atkins, SunTrust Robinson Humphrey, Inc., Research Division - Associate [19]

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Okay. And then I noticed that the -- in the revenue by platform, the other technology segment increased a little bit and is now a significant part of the base in terms of the technologies. Could you give us some examples or some granular color on what's included in that other technologies by platform?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [20]

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Yes, absolutely. You've heard us talk about Pivotal throughout the year. So Pivotal falls in there. Red Hat, as I just mentioned, falls in there. Sitecore is another meaningful or material component of that. And that is likely as those continue to grow that we will be breaking that back out again. But right now, they are rising to the threshold of a separate breakdown a couple of others that are in there, by the way, are Magento and MicroStrategy. And I think all of these are hovering around, sort of, $15 million or so level. And like I said, we're probably breaking them out pretty quick.

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Francis Carl Atkins, SunTrust Robinson Humphrey, Inc., Research Division - Associate [21]

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Okay. And then what do you think it will take to drive ABR improvement going forward? It's been a little bit of a challenge this year and what are the levers you think you can pull to drive that higher in that kind of 2% to 3% goal range?

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Paul E. Martin, Perficient, Inc. - CFO, Treasurer & Secretary [22]

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Well, we're certainly providing additional incentive focus on that for both our sales folks and for our delivery folks as well as just simply awareness. But one of the things that as is kind of good and bad in that and I [didn't] touch on earlier is that -- as we talk about those bookings that we've been doing, the reality is some of those are very, very large multiyear deals. And in those deals, you found a little pricing power. And so this will make a little difficult to raise ABR and also we've got these long-term relationships makes it a little bit difficult to raise rates along the way. However, what we've done instead is drive utilization up and utilization's up year-over-year by about a point or so, which obviously, is really on profit. So that helps to offset it. And actually, our average base salary is also down 1% year-over-year. So we've managed -- the team has done -- management team has done an excellent job of effectively managing that consulting pyramid and introducing us, particularly on these larger engagements, more people at the base of the pyramid and keeping the top of the pyramid from getting too far ahead of the rest. So -- and the net result of that is in spite of a significant rates pull this year in the 3% to 4% range, average salary is actually down 1%. So those are the numbers we got. I still want to see ABR come up. I think we can do that. And again, we're focused on putting incentives in place to make it happen.

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Operator [23]

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Your next question comes from Brian Kinstlinger with Alliance Global.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [24]

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You mentioned growth from revenue -- well, we can see that in line item that health care was a big driver. It's also, you've discussed, the main driver to the quarter is bookings. Can you comment on the common trends that are driving that demand? And then, is a bunch of that coming from acquisitions? Is there -- or is there a large organic growth perspective from health care?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [25]

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No, it's primarily all organic. I would say, virtually none coming from acquisitions. There are some small pieces, but de minimis compared to the growth that we're enjoying there. And the answer to your question is the theme is digital transformation. It's all that. It's about patient journey, patient as consumer, so digitization, digitalization in the industry, the paradigm shift. And like I said, it's all about the patient journey whether we're working with health care providers or pairs and the split between those 2 is still about, I want to say, 40-60, something like that. But everything that we're doing, a lot of analytics, a lot of patient-facing, customer-facing applications as well. And complete redesigns, redeployment of portals. But, like I said, suffice it to say it all fits squarely under the digital transformation umbrella.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [26]

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And would you say that answer's the same for the retail and consumer space, albeit on a smaller base? Is that digital transformation driving that accelerated growth as well?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [27]

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It is. And you might be surprised, most of them we're doing -- or might not be actually, most of what we're doing in automotive and actually manufacturing is -- fits under the digital transformation banner. And I would say 60-plus percent of our revenue now, maybe more, fits under that.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [28]

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And then when you look at your customer base, where are you, maybe -- using baseball, what inning are you within your customer base of that digital transformation? Are you early in the process with them? Are you late in the process? Are you somewhere in the middle? How do you think about that?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [29]

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Yes, honestly, it's early, for sure. And using the baseball metaphor, I would hazard, honestly, second or third inning. Particularly if you look at health care, that's just going to continue on at the tail. The bar is going continually be rising and competitors are going have to continue to sharpen their game as well. So there could be a long tail, in my view, on digital transformation in general. And some of these industries in particular. They have a lot of catching up to do and health care is one of them. So second or third inning.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [30]

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And then one question on the IBM, Red Hat. I know people have asked, but what I'm not -- if you could articulate how it changes your business? I mean, you said that would increase business lead volume. You're already a top partner for IBM. You're already a top partner for Red Hat. What changes that you get more business leads?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [31]

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Well, with all these changes when IBM makes acquisition is once they turn their substantial sales force onto those new solutions and services, growth happens pretty quickly. Which again, should increase lead flow to us. We're going to be automatically a go-to partner because of the relationship that we have with Red Hat already. And I would tell you that it's no secret that IBM's portfolio is a little behind. So I think this is transformational for IBM. I think, we'll be right at the (inaudible) seat to take advantage of that. They're betting the farm on this, quite obviously, to go full cloud, and we're seeing a lot of demand around cloud velvet, platform as a service with Red Hat [open shift] is going to be an incredible component to IBM's portfolio now. And I'm sure they're going to drive a lot of business [depth] on spaces they were behind in cloud and this catches them up.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [32]

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Got it. One more and then I have 2 numbers questions. When you look at pricing, which is up about 1%, maybe a little less this year, what was the reason that you were not able to increase prices, is it your sales folks thought they had to be more competitive on price doing deals? Or they couldn't get as many increase as they wanted? What do you think led to that in such a strong economy?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [33]

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Yes, as I commented on earlier, I think, honestly, it's profits, primarily. A lot of the top areas we're growing ahead, and we don't want to hamper the growth. So it's a balance between the 2, but I would say the major reason is that 85%, 90% of our revenue is coming from clients that -- they've been clients for a long time. It's a little more difficult to raise rates in that kind of a scenario. But also, again, these large, large engagements that, frankly, we can accept a lower rate in exchange for the deployment of a lot of consultants with high utilization. So the gross margin calculations on those projects are still intact and still hit the goal, even though the rate might actually be a point or 2 or 3 below what we want to drive forward as an average. Does that make sense?

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [34]

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Yes, for sure. Last question on the share buybacks. What do you expect the company to exit the year on a share count basis? And will it be an accelerated buyback? Is that over time? Just remind me the details behind that.

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [35]

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Well, we're going to continue to buyback. We always had a 10b5-1 plan in place when the -- we're out of an open window. But in the open windows, we certainly take advantage of opportunities to buy, and now is no different. I happen to think that the stock is very attractive to buy right now. So it won't be -- once we're out of blackout, we'll be coming out and trying to pick some up. But the answer to your question...

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Paul E. Martin, Perficient, Inc. - CFO, Treasurer & Secretary [36]

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Yes, so Brian, there's a thing called Q3 2018 financial results on our website and it shows our estimate is $32.5 million for the fourth quarter, which is now $1.1 million from what are the average share count for Q3.

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Operator [37]

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Your next question comes from Vincent Colicchio with Barrington Research.

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Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [38]

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Yes, Jeff, I'm curious your strong bookings, is there any concentration with a handful of clients in any verticals or is it broad-based?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [39]

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No, it's pretty broad-based. When I refer to that, I'm referring, what we call, normalized organic. So obviously, we're taking out any acquisitions that we haven't had for over a year. But also from a normalized standpoint, when we do win a large deal, like we did in July, as an example. It was a 3-year multi-8 figure contract. So we compressed that to 12 months and [trunked it off together] 2 years, then come back around and be added it next year. So it's a solid good number, no more than 12 months out, even though a lot of contracts run more than 12. And like I said, substantial double digits year-over-year.

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Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [40]

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And then, what needs to happen to hit the high end of your revenue guidance range? Is there any probability, really, is there any possibility that some of the canceled deals come back?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [41]

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To that, I would say, no. Those deals from Q2, I think are gone -- well, I shouldn't say that. Actually, one of them went with a competitor that we don't think is going to end well, so they may come back. But the reality is if everything goes our way in terms of the deals that we had out there for bookings and the timing on those, in this business -- particularly in our business, the issue -- the big challenge is we came in the quarter with 90-some-odd percent in backlog, right? The big challenge is we got those deals. We know they are going to close, we know which ones are going to close for the most part. They're kind of good odds leading system. The issue is when will they close? So 2-week slip, 4-week slip on somebody's key deals can make a big difference. So to answer your question if think it's going to fall our way. There could be upsides that we've put out here. And I hope there is, again, I think we've put out there a very reasonable and achievable midpoint. But there's upside potentially to that.

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Vincent Alexander Colicchio, Barrington Research Associates, Inc., Research Division - MD [42]

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And then a follow-up on pricing. Are you seeing better pricing with clients that you've added in the past, say year or 2?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [43]

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Yes. And I would say probably even more specifically in the last quarter or 2. One of the focus we have with the sales team right now, is to bring in new logos and new accounts. I mentioned that [the peak business number] a minute ago, I'd actually like that to be a little lower, not in the form of losing any of that but by adding more growth in the form of new logos. So we, obviously, have better control in a new relationship and in the new logos. Obviously, they're competitive, but we can drive $1 or $2 or $3 more in those deals. So I would say the trend is good. Again, we've got these large, large deals, there might be a little bit of a drag on it. But I actually think we'll be able to drive ABR up. I still feel there is a pretty substantial gap between us and our core billable competitors.

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Operator [44]

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(Operator Instructions) Your next question comes from Allen Klee with Maxim Group.

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Joshua Goltry, Maxim Group LLC, Research Division - Equity Research Associate [45]

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This is Josh in for Allen. So for the acquisition of Elixiter, can you be more specific about how much it is accretive to earnings? And what is there profitability like and their margins?

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Paul E. Martin, Perficient, Inc. - CFO, Treasurer & Secretary [46]

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Yes. So their profitability is fairly comfortable, slightly better, than our overall average. So it will be accretive, yes, very modestly to adjusted EPS here in Q4 because we have 2 months. But it will be probably $0.02 to $0.04 in 2019.

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Joshua Goltry, Maxim Group LLC, Research Division - Equity Research Associate [47]

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Okay. Nice. And your bill rate has been trending down, I think, you sort of already touched upon it. But do you anticipate the bill rate to expand any time soon? Or are you expecting that to remain pretty much in line from where it is now?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [48]

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Yes, Josh. I think we're about flat year-to-date and that's not where we wanted to be. Our goal for the year was to raise it 2 to 3 points, and we're still working on that. [So my estimate in my] goal again next year in fact it's likely to be our goal every year. I think we will [acquire] it. Labor markets tightened up so we should have some good pricing power. Our win rates are great. Our delivery capability is the best in the business. So again, there's a pretty substantial gap between us and the panel and our best competitors. And we're going to go after that, again, 2 to 3 points. As I mentioned earlier, though, one of the challenges, which has a silver lining is that, we are winning larger, longer-term deals, and in exchange for that, we're probably -- we are offering a little bit more discount. But again, we offset that from a margin standpoint with longer-term deployments, higher utilization.

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Joshua Goltry, Maxim Group LLC, Research Division - Equity Research Associate [49]

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Okay. And you highlighted in the press release some new customers. Are those as a result of the acquisition? Or are those customers that you've actually engaged with? Or is it both?

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [50]

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No, I think those were primarily, if not all, organic. And I would chalk them up to, as I mentioned earlier, we've got a focus and incentives on that for our sales team to bring in new logos and we're having success with it. So we're on track with our goals on new logos this year.

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Operator [51]

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There are no further questions at this time. I would now like to turn the call back over to Jeff Davis.

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Jeffrey S. Davis, Perficient, Inc. - President, CEO & Chairman [52]

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Okay. Well, thank you, everyone. As you can see, we're happy about the Q3 results. We're excited about Q4 and excited about the potential in 2019 with the bookings that we're enjoying. Bookings in October were stronger again. So we'll look forward to talking to you again in a few months about those results. Thanks.

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Operator [53]

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This concludes today's conference call. You may now disconnect.