Perficient Inc

NASDAQ:PRFT

Earnings Call Transcript 2019-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to the Perficient First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Chairman and CEO, Jeff Davis. Sir, you may begin.

[Jeffrey Davis, executive]

Thank you. Good morning, everyone. With me on the call today is Paul Martin, our CFO. I want to thank you all for your time. As typical, we've got about 10 to 15 minutes of prepared comments, after which we'll open the call for questions. Before we proceed, Paul, would you please read the safe harbor statement?

[Paul Martin, executive]

Thanks, Jeff, and good morning, everyone. Some of the things we will discuss in today's call concerning future company performance will be forward-looking statements within the 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 on our website at www.perficient.com. We have also posted a slide deck, which includes a reconciliation of certain non-GAAP goals to the most directly comparable financial measures prepared in accordance with GAAP on our website under Investor Relations. Jeff?

[Jeffrey Davis, executive]

Thanks, Paul. Once again, thanks, everyone, for joining. We're pleased to be with you this morning to reflect on the strong first quarter and share an updated outlook for the rest of 2019. So the year is off to a great start as you can infer from our revised earnings and revenue guidance. We expect that momentum to continue and potentially even accelerate as we progress through the year.

Paul will speak to the specifics shortly, but we are increasingly confident that the unique and compelling business we're building at Perficient is beginning to really hit its stride. As we crossed the threshold of $500 million of revenue and set our sights on $1 billion and beyond, we've reached an inflection point with the Fortune 1000, and the Fortune 100 are increasingly willing to partner with us on multiyear, multiphase and multifaceted digital transformation initiatives to impact and improve the most core and critical aspects of their business. We're doing big important work for many of the world's largest enterprises. For example, one of our large health care customers has been partnering with us on numerous digital transformation projects over the last past decade. Through our long-standing relationship, we help them transform how they create personalized, empowered and seamless customer experiences for their more than 10 million members.

Most recently, we engaged in a multiyear, multiworkload program, upgrading their analytics foundation. Our team is bringing an array of technical and industry resources with expertise in big data, data visualization, BI and analytics. This is on top of another key cloud migration multiyear road map project that is underway with that client.

We work closely with one of the largest automobile manufacturers in the world for over a decade, helping them with their wide range of digital transformation initiatives. We delivered solutions at this client, leveraging a broad set of technologies, including Adobe Marketing Cloud, WebSphere, Magento, Azure, Oracle Hyperion and Pivotal Cloud Foundry. The client recently engaged us to redesign and replatform its enterprise dealer portal to improve the user experience.

Collectively, this work has provided the client greater flexibility, faster speed-to-market, improved customer satisfaction and application development efficiencies.

The client has such confidence in our team that they've come to us -- come to see us not just as an implementation partner, but as a trusted adviser that has earned the seat at the executive table. Many of our financial services clients are focused on improving operational efficiency, dealing with complex regulatory reform and meeting the ever-increasing customer experience demands. We partnered with a leading international bank for a number of years in each of these areas, delivering solutions for ensuring data security and forcing sales practices compliance, workflow automation and more. We recently implemented Appian and an Appian Center of Excellence and are helping to build applications that streamline operations, deliver consistent customer experiences and of course, regulatory compliance controls.

One last example of the mission critical work we're delivering is at a Fortune 100 heavy equipment manufacturing company. We've worked with this client for over a decade on more than 175 engagements, including digital transformation, work focused on modernizing customer-facing systems in order to keep up with market demand, generate leads and remain competitive. Most recently, we helped the client improve its rental business for the transformation of its rental website, which is used to provide equipment and tool rentals to customers ranging from contractors and fleet managers, to private individuals. And the client was so impressed with this work, which, by the way, is increasing lead volume, 35% since its launch, that it had mentioned the new site in its most recent earnings call.

Of course, I'm proud of all that work. And I'm equally impressed with the fiscal discipline our leadership team is bringing to the business, focused intently on growing both our top and bottom line and strategy for best-in-class results. Everyone managing this business understands our commitment to excellence, and excellence extends not only to our customers and colleagues, but to our investor community as well. And we talked last quarter about the market's growing awareness of our traction and high-growth areas, like cloud and digital. Just last month, Perficient Digital received 3 interactive marketing awards, including Search Agency of the Year, Large Interactive Marketing Agency of the Year and Best Interactive Marketing Campaign.

Additionally, industry analysts, like Forrester, continue to include Perficient in various reports recommending consultant providers.

Recently, Forrester cited Perficient as a key service provider around application modernization and migration and also named us a strong performer in their API Strategy and Delivery Service Providers Wave report. In the Wave report, Forrester cited Perficient as having a stronger current offering than firms like EPAM and Mphasis and stated that Perficient is a good shortlist vendor for buyers that need a partner with well-rounded API strategy and delivery capabilities. So a really great external validation of our work coming from a lot of places, customers as well as influential industry voices.

The world's largest enterprises are asking us for more assistance and providing us more opportunity to help their businesses thrive because the end-to-end capabilities we bring are indispensable in a competitive environment where technology and customer experience are inexplicably connected. And all of that is material as in any of the additional market share for Perficient, strong and top line results, as you can see, for the quarter and what we're providing for the outlook for the rest of the year.

With that, I'm going to turn the call over to Paul to cover the financial results before I touch on a few additional items of note in our outlook for the second quarter and our updated earnings and revenue guidance for the rest of the year. Paul?

[Paul Martin, executive]

Thanks, Jeff. Services revenues were $132.9 million for the first quarter of 2019, an 11% increase over the comparable prior year period.

Services gross margin for the 3 months ended March 31, 2019, excluding reimbursable expenses and stock compensation, increased 130 basis points to 37.6%.

SG&A expenses, excluding stock compensation, increased to $29.8 million in the first quarter of 2019 from $26.4 million in the comparable prior year period. SG&A expense, excluding stock compensation as a percentage of revenue, increased to 22.3% from 21.8% in the first quarter of 2018.

EBITDAS for the first quarter of 2019 was $19.7 million or 14.7% of revenues compared to $16.9 million or 14% of revenues for the first quarter of 2018.

The first quarter included amortization expense of $4.1 million compared to $3.9 million last year. Interest expense for the first quarter of 2019 increased to $1.8 million from $400,000 in the comparable prior year period primarily due to noncash amortization of debt discount and issuance cost related to the company's convertible senior notes, which were issued in September of 2018.

Our effective tax rate for the first quarter of 2019 was 19.9% compared to 23.2% in the first quarter of 2018. The decrease in the effective tax rate was primarily due to the increase in the tax benefits, recognizable into the share-based compensation deductions, during the first quarter of 2019 compared to the prior year quarter.

Net income increased 43% to $7 million for the first quarter of 2019 from $4.9 million in the first quarter of 2018. Diluted earnings per share increased to $0.22 a share from $0.15 a year -- a share in the prior year quarter. Adjusted earnings per share increased to $0.43 a share for the first quarter of 2019 from $0.35 in the prior year quarter.

See the press release for a full reconciliation to GAAP earnings.

Adjusted EPS, as a reminder, is defined as GAAP earnings per share plus amortization expense, noncash stock compensation, acquisition costs, amortization of debt discounts and issuance costs and fair value adjustment to consideration and the impact of other infrequent or unusual transactions, net of related tax, is divided by average fully diluted shares outstanding for the period.

Our earning billable headcount at March 31, 2019 was 2,956, including 2,667 billable consultants and 289 subcontractors. Ending SG&A headcount at March 31 was 525.

Our outstanding debt, net of unamortized debt discount and deferred issuance cost as of March 31 was $121.2 million compared to $120.1 million at year-end. We also had $27.7 million in cash and cash equivalents as of March 31. Our balance sheet continues to leave us very well-positioned to execute on our strategic plans.

Finally, our day sales outstanding on accounts receivable were 70 days at the end of the first quarter compared to 75 at the end of the first quarter of 2018.

I'll now turn the call back over to Jeff. Jeff?

[Jeffrey Davis, executive]

Thanks, Paul. We booked 70 deals, over $0.5 million during the quarter compared to 49 in the fourth quarter of '18 and 54 in the first quarter of '18. So I'm going to repeat that, 70 deals, north of $0.5 million compared to 49 in the fourth quarter last year and 54 in the first quarter of last year. So obviously, a material increase in large deal signings, both sequentially and annually.

During the quarter, the health sciences, financial services, retail consumer goods, automotive and manufacturing verticals combined to represent 75% of revenue. Health sciences was 30%; financial services, 17%; automotive at 10%; and retail consumer goods and manufacturing each representing 9% of value.

We saw strong year-over-year bookings growth in several verticals during the quarter as well, with health sciences, financial services, automotive and telecom particularly strong. Bookings in each of those verticals were up substantially over the prior year period.

There are several factors behind that bookings growth. The excellent job of our delivery teams day-to-day to deliver value and grow reputation and mindshare within accounts is key, obviously. A solid economy, growing brand awareness and increased marketing investments are absolutely creating more conversations and more advanced. But one thing that can't be overstated is the ongoing expansion and maturation of our sales organization. We've invested in management infrastructure, developed new compensation plans and onboarding tools and processes that have laid the foundation for us to scale the sales organization and expand capacity more rapidly and effectively. So while we continue to benefit from the production of our most senior sellers, professionals selling $10 million, $20 million, $30 million, even $40 million a year in business, we're constantly growing and bringing the next class of professionals. Colleagues, for example, who may have booked $3 million last year are on pace for $6 million this year and are destined to keep building their books of business as Perficient scales and our -- their relationships grow.

One final note before we open the call for questions. The midpoint of the revised guidance I'll speak to momentarily implies 7% organic growth. And of course, we continue to look to supplement that with strategic and accretive M&A. No guarantees on that front, but we are in advanced stages with a couple of firms and that remains a key component of our strategy.

So again, things are going very well, and I'm very excited to share our outlook for the second quarter and an update to our full year 2019 guidance. Perficient expects second quarter 2019 revenue to be in the range of $132 million to $138 million. Second quarter GAAP earnings per share is expected to be in the range of $0.22 to $0.25. And adjusted earnings per share is expected to be in the range of $0.46 to $0.49.

Perficient is raising our previously provided full year 2019 revenue guidance range from $515 million to $545 million, to a range of $535 million to $560 million, raising our previously provided 2019 GAAP earnings per share guidance range of $0.74 to $0.86, to $0.90 to $1.02, and raising our previously provided 2019 adjusted earnings per share guidance range of $1.65 to $1.77, to a new range of $1.80 to $1.92.

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

[Operator]

[Operator Instructions] Our first question comes from Surinder Thind with Jefferies.

[Surinder Thind, analyst]

I just wanted to touch base on a couple of different items here. Let's start with the change in the revenue guide. Can you walk us through -- I'm seeing a lot of operating leverage there. Can you walk us through that in terms of what's driving that? Is that just expectations of sustained higher utilization? Is there maybe increased expectations of more work being done offshore? Any color would be helpful.

[Jeffrey Davis, executive]

Yes. I would say it's a little bit of improved utilization year-over-year. I think we're up a point or so. But no, mostly, it's related to the bookings. We had very, very strong bookings. In the fourth quarter, we spoke about that. And what we weren't sure of, obviously, only a month or so into the year, was whether that would continue. And in fact, we've seen that continue. So we've got a very nice backlog right now. So most of growth that we're seeing, that was really coming from our sales team. I mentioned that in the prepared statements, that we really got an expanded sales team that's continuing to come online and help accelerate that growth. I should note that Q1 this year had 1 less billable day than the prior year, so on kind of a normalized basis, our growth for Q1 would have been about 5.5%. And of course, the guide for the rest of the year at the midpoint has it at 7%, but I'm optimistic that we can top that.

[Surinder Thind, analyst]

Understood. And then in terms of the record number of large projects that you won this quarter, did everything sort of just kind of come together at the same time? And then maybe within that figure, was there just a lot of follow-on work that was won at existing clients? Or were there a lot of -- or a number of new clients in that mix as well?

[Jeffrey Davis, executive]

Yes. The lion's share of our business does tend to come from existing clients, probably 90-plus percent repeat business. However, we've also added new logos and new strategic accounts. Those tend to start a little smaller and build over time, although we've had some nice wins here in this first quarter, new logos as well. So yes, I would say, kind of hitting on all cylinders, if you want to use that analogy, is a good way to say it. But I can't underemphasize, as I mentioned before, again, the effectiveness of the sales team and what they are beginning to put up, I would say, just beginning to hit their stride as well. There's a lot of dry powder there.

[Surinder Thind, analyst]

Understood. And then one final follow-on related to that. Given that you guys do seem to be hitting on all cylinders, any color that you can provide on the business environment itself? In the sense of maybe the sentiment of the clients, is it a little bit more positive? Are they willing to maybe increase their investment spend on consulting services at this point relative to maybe what you were seeing in the back half of last year?

[Jeffrey Davis, executive]

Yes. That's interesting. I would say we haven't seen a significantly notable change. But again, recall that when others in the industry last year were talking about maybe some softness, we didn't see it. So I would say it's more of the same. The pipeline continues to build. Even as we land and close major deals, we immediately rebuild the pipeline, again a testament to, I think, the fact that this task is healthy. But from a macro standpoint, I would say the economy from our perspective is healthy or at least the macro environment that we see is healthy, but I wouldn't say it's necessarily accelerated notably. It's just us, honestly, penetrating more and getting more advanced and taking more share.

[Operator]

Our next question comes from Mayank Tandon with Needham & Company.

[Mayank Tandon, analyst]

Jeff, just to drill on the revenue side a little bit further. Obviously, good bookings, and I can see why you're raising guidance. But you're raising the guidance by significantly more than the beat. So I just want to get a little bit better handle on the visibility you have towards the new range. Is it higher than historical levels? Is it pretty much in line with what you see typically at the end of the first quarter? Just some clarity on that would be helpful.

[Jeffrey Davis, executive]

Yes. No, the backlog is definitely higher than historical. And better -- the best I can remember or actually better. And in terms of the raise, it's really just an extrapolation, and I would tell you a fairly conservative extrapolation, off of kind of where we ended Q1 and where we know Q2 is going to be. Obviously, we've got April under our belt, and we've got great visibility clearly into Q3. So I would tell you that our guide update is reflective of even just modest growth in the second half of the year, which, again, I'm optimistic we can get to the top end of that and possibly even have upside.

[Mayank Tandon, analyst]

Okay. Got it. And then you mentioned 7% as a midpoint for the organic growth going forward. What is the range? I think the previous range was 1% to 7%. So you're clearly running at the high end in terms of your guide. But what is the new range, just to be clear?

[Jeffrey Davis, executive]

It's 5% to 10%. Yes. So that gives technically the midpoint, like 7.5%.

[Mayank Tandon, analyst]

Right. Okay. And then how you are thinking about pricing as being a potential tailwind? And I know, in the past, you've made the point that there's a lot of headroom for you on the ABR side. What are the trend lines you're seeing in terms of improving pricing over time to drive that revenue growth?

[Jeffrey Davis, executive]

I think we're going to begin to see some improvement there. We continue to be very focused on gaining share and remaining extremely competitive on all fronts, including pricing. However, we did see a, I think, about a 1% or so increase sequentially, Q1 over Q4. And I do think that's going to continue. We've got a renewed focus on gross margins and just assuring that we're gradually moving those rates up sort of along with wage inflation. So I'm optimistic we'll see some improvement there. It's not going to be wildly high increases, 5% to 8%. I think that's -- that will be a setback in volume. So 2% to 3% over the course of the year would be, I think, perfect.

[Mayank Tandon, analyst]

Okay. So if I'm hearing you right, it's obviously headcount growth, and then you got a little bit of uptick from both the ABR and from utilization for the rest of the year to drive that, call it, 7.5% midpoint organic growth. Is that fair?

[Jeffrey Davis, executive]

Yes.

[Mayank Tandon, analyst]

Okay. One final question on margins. I just want to get clarity in terms of your expectations for margin expansion in fiscal '19, in terms of how did that break down between gross margin and EBITDA margin improvement.

[Jeffrey Davis, executive]

Yes. In the -- kind of at the midpoint of our model, and I mentioned this, I think, on the last call. I still think it's going to be 100 to 150 bp improvement year-over-year. I think that's the right range. I don't think it will be below 100. Could be above 150. But that's where I think we'll be.

[Operator]

Our next question comes from Brian Kinstlinger with Alliance Global Partners.

[Brian Kinstlinger, analyst]

Some of the best quarters I've seen in a decade covering the stock.

[Jeffrey Davis, executive]

Thanks, Brian.

[Brian Kinstlinger, analyst]

Yes. Billable headcount sequentially was the strongest increase I've seen in many years with no acquisition made. And you've kind of talked about why. Obviously, in utilization, it was so high in the first quarter. Can you talk about how these new resources, how quickly they can be deployed? And are they generally experienced hires with skills already driving growth? Or do they need to be trained on some of the driving factors of your growth?

[Jeffrey Davis, executive]

We are making some investments as we've discussed in the past, things like with the Pivotal Cloud Foundry, where we are hiring people basically into training. But that's a very small portion of what you see here. The vast majority, more than 90% of the resources that we added, went pretty much straight into billable roles, billing immediately. Most of them are experienced, and as I said, went straight into projects.

[Brian Kinstlinger, analyst]

Now the gross margin has been pretty solid, but when you're making all those hires, I take it you've got to pay up for some of those experienced hires. How do you manage that with the gross margin and pricing?

[Jeffrey Davis, executive]

Well, again, we do have a little bit of improvement coming in rates. We saw that in the first quarter. I think it's going to continue at least modestly. Utilization helps offset that, to your point earlier. But the other factor that we've managed to achieve, and last year's a great example, the average base salary for our employee, in spite of that -- employees, in spite of using a kind of an industry-standard merit increase, call it, 3.5%, the average base count for our billable employees actually went down 0.5 point. And the reason for that is that on these larger longer-term engagements, we're able to hire more to the base of the pyramid and less experienced resources. So as people leave, there's attrition or we're just growing, we're adding more junior resources as we pretty much have that management infrastructure and the more senior people in place. So there's actually some economies on the billable side of the business.

[Brian Kinstlinger, analyst]

Great. Last question I've got. For a couple of quarters now, you've been talking about Pivotal and Marketo, and if you look at the data sheet, it's finally really playing out in terms of meaningful solid numbers to your revenue. How hard is it there to attract talents in these highly coveted platforms?

[Jeffrey Davis, executive]

You can't. So that -- those are -- Marketo is different. I think we can do that. But that's mostly grow your own, and certainly, the Pivotal Cloud Foundry, for the most part, is grow your own but they just don't exist in the market. So as you might recall, we started that investment beginning of last year, where we actually licensed the certification curriculum from Pivotal and are running our own sessions to train people and have them certified. So that's the approach really kind of on both of those. It's very difficult to find experienced resources, but we do have a great plan in place that we've already been executing, scalable to grow our own as it were.

[Paul Martin, executive]

One thing I'd add on that, Brian, is with the Elixiter acquisition that we did in the fourth quarter, we picked up some additional skills in the Marketo area, and that's really going to be a beachhead to help us grow that platform. And we'll work with Adobe as they work that out.

[Brian Kinstlinger, analyst]

But on the Pivotal side -- sorry, I have one more. On the Pivotal side, I take it utilization's close to 100% and that, therefore, those are some of the hires that you need to train, like you're talking about. Is that right?

[Jeffrey Davis, executive]

Yes, yes. And I think we're going to continue to see that, and like I said, it's sort of a perfect equation for us. We're able to find the people that have the base skills around Java Spring that they need to adapt to Pivotal and then train them pretty quickly.

[Operator]

Our next question comes from Vincent Colicchio with Barrington Research.

[Vincent Colicchio, analyst]

Nice quarter, Jeff. What portion of revenue was related to digital transformation? Do you have that breakdown?

[Jeffrey Davis, executive]

It's easily -- I wouldn't say this is definitively precise, but it's easily 70%, 75% now. I mean everything, even if you look at, "the more traditional side of the business," it's all cloud now anyway. But easily, 75% fits perfectly in the SMAC definition.

[Vincent Colicchio, analyst]

And you were -- the call cut off when you were talking about the number of $0.5 million projects you added in the quarter. What was the year ago number and sequential number? I missed that.

[Jeffrey Davis, executive]

Yes. It was 70% this quarter, and then year ago, it was 54%. And last quarter, it was 49%.

[Vincent Colicchio, analyst]

Okay. And then on the bill rates increase embedded in your expectations for the year, is that -- could you break that down in terms of where it's coming from, existing clients, where you're making up for low rates in the past [indiscernible] that would be helpful.

[Jeffrey Davis, executive]

It's a combination, actually. Certainly, you have kind of a clean slate with new clients. But we've had success with the existing clients, just getting them to agree to even something as simple as sort of cost of living increases. And/or we rotate more senior people out as they've gotten more experienced or maybe gotten promoted and again backfilling them with the more junior experienced person that's appropriate for that role. But I would say it's coming from all fronts. Obviously, we've got some major clients that are more or less locked in, where it's difficult to raise rates. But we take good success pretty much everywhere else, gradually.

[Operator]

[Operator Instructions] Our next question comes from Allen Klee with Maxim Group.

[Allen Klee, analyst]

Can you talk about how you think about the growth of your offshore consultants versus onshore will be?

[Jeffrey Davis, executive]

Yes. Historically, offshore has grown, certainly, organically, outpacing onshore. I think that's -- and it does somewhat ebb and flow as we tend to engage offshore in some of our very large engagements. But for the most part, that washes, and there's, overall, an organic growth there that's outpacing onshore. We've seen periods where it's double digit, and we've seen other periods where it's maybe mid-single digit, but it's always ahead of onshore. And I think that's going to continue. We're actually continuing to scale and train some pretty unique skills in those centers, including things that we've talked about that are really hot, like Pivotal, as an example. I think we're going to be pretty early into the game with some of those skills and capabilities offshore. And of course, offshore is always and still is widely recognized as a good value. We've had great, great success there. We're CMI Level 5-certified, so our quality is impeccable. The clients are recognizing that and giving us more and more opportunity. And of course, I don't have to remind you that our gross margins offshore are about 55%.

[Allen Klee, analyst]

And then as analytics has grown as a percent of your total sales, could you maybe give us an example or 2 of the type of business that you're doing there?

[Jeffrey Davis, executive]

Yes. I mean I mentioned an example in a health care payer that were actually payer and provider. But we're doing analytics almost everywhere. And on the retail side, of course, it's customer 360 and customer analytics and how do you profile all the customers that you're trying to attract. So it's everything from that. And then using that information, by the way, back in Perficient Digital to target digital marketing and target solutions that we're developing, it all kind of goes hand in glove. But I would say, probably the biggest surge that we've seen recently has been in health care, both payer and provider. But I'd say, payers, in particularly -- or in particular, are keen to get better information for themselves in terms of managing the caseload and managing outcomes. But also, many of those same payers are setting up Data as a Service to provide back to the providers in their network. So they are actually setting up a profit center around some of this data, this claims data, they have access to. So we're seeing as kind of adding in that industry, but analytics is part of everything we do.

[Allen Klee, analyst]

Okay. And lastly, you talked about one of the reasons of raising guidance was the improved efficiency of your sales team. Could you maybe point to kind of what actions you've taken that have -- that you believe have gotten you that improved effectiveness?

[Jeffrey Davis, executive]

Yes. Absolutely. We've been talking about this for a couple of years and beginning really probably 3 years ago. I'll try to keep this brief. We really started revamping the organization structure and put management infrastructure in place to make those investments. And we also revised the compensation plan. The outcome of all that was intended to, one, have a sales organization that was scalable, that we knew we could add capacity to and get immediate results from, but also, a much more prescriptive and strategic model. 3 years ago, we allowed everybody to be pretty much just opportunistic. Again now, it's a much more prescriptive model. We assign the accounts. We tell the folks what we want them to sell, where we want them to sell it, based obviously on our judgment of the best odds of success. And that's really beginning to produce results. And one thing I'll point out, that I mentioned to investors over the last several months, is that we got about 100 salespeople now. We had 65 or so 2 years ago. And I think the intent there is just to accelerate growth, and I think we're really starting to see that. But I still think it's early stages. I would describe it to you this way, that about 1/3 of our salespeople have been with us a long time, and they're up there putting up big numbers, often double digits, et cetera. Kind of the next 1/3 is in the maybe 2-year experience level with us or tenure level with us. And the average sales there may be $3 million a year, something like that. So we're getting about 60% of our sales from the top 1/3, probably another 30% or so from that second 1/3 and only about 10% from that last 1/3, but that's great news. It's essentially a sum cost. We're seeing these people come online, we're working with them and mentoring them and bringing them on. Of course, if they don't cut it, we replace them with somebody else. But that is where we're beginning to see some of the increased sales here. And the good news is that should continue because we've got a lot of dry powder there.

[Operator]

This concludes the question-and-answer session. I would now like to turn the conference back over to Jeff Davis for closing remarks.

[Jeffrey Davis, executive]

All right. Well, thank you all for your time today. I appreciate it. And I look forward to speaking to you in about a quarter. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.