Billable consultant utilization decreased to 73.1% and 72.0% in the three- and
six-month
periods ended June 30, 2018 compared to 73.7% and 74.0% in the three- and
six-month
periods ended June 30, 2017. Billable consultant utilization has
decreased and the billable headcount base has also decreased by 30, to 307 (excluding contractors) compared to 337 (excluding contractors) at June 30, 2017.
On a sequential quarterly basis, service revenue remained consistent (despite one additional billing day). This further illustrates the
temporary disruption in the marketplace as our customer base considers the adoption of cloud based solutions. The Company remains uniquely positioned to serve customers in both the cloud based as well as on premise solutions.
Annualized service revenue per billable consultant, as adjusted for utilization, was $370 thousand and $372 thousand during the
three-month periods ended June 30, 2018 and 2017, respectively. Annualized service revenue per billable consultant, as adjusted for utilization, was $369 thousand and $368 thousand during the
six-month
periods ended June 30, 2018 and 2017, respectively. The periodic fluctuations in our annualized service revenue per billable consultant metric continue to reflect the changes in the mix of our
service offering revenue generated by our current engagements.
During the three- and
six-month
periods ended June 30, 2018, software revenue totaled $2.0 million and $3.3 million, or 7.4% and 6.4% of total revenue, respectively, compared to software revenue of $4.4 million and $7.0 million, or 14.6% and 11.7%,
respectively, in the three- and
six-month
periods ended June 30, 2017. Our software revenue is primarily related to our resale of Microsoft Dynamics software, cloud-based licenses and maintenance.
Software revenue is expected to fluctuate on a
period-to-period
basis dependent upon our customers demand for such third-party
off-the-shelf
software. We anticipate that software revenue will continue to represent a meaningful portion of revenues in future years. Because of this, we believe that periodic fluctuations in the amount of
software revenue recognized by the Company may have a material impact upon our gross margins.
Generally, we are reimbursed for our
out-of-pocket
expenses incurred in connection with our customers consulting projects. Reimbursed expense revenue was $1.5 million and $1.4 million for the
three-month periods ended June 30, 2018 and 2017, respectively. Reimbursed expense revenue was $2.8 million and $2.9 million for each of the
six-month
periods ended June 30, 2018 and 2017,
respectively. The aggregate amount of reimbursed expenses will fluctuate from
period-to-period
depending on the number of billable consultants as well the location of
our customers, the general fluctuation of travel costs, such as airfare, and the number of our projects that require travel.
The number
of customers the Company served during the
six-month
period ended June 30, 2018 totaled 525, as compared to 530 customers during the
six-month
period ended
June 30, 2017. During the first six months of 2018, we secured first-time engagements with a total of 51 new customers, compared to 55 new customer engagements during the first six months of 2017.
Cost of Revenue
.
Cost of revenue primarily consists of project personnel costs principally related to salaries, payroll
taxes, employee benefits, software costs and travel expenses for personnel dedicated to customer projects. These costs represent the most significant expense we incur in providing our services. In total, cost of revenue decreased by $(2.2) million,
or (11.5)%, to $16.6 million for the three-month period ended June 30, 2018, compared to $18.8 million in the comparative 2017 quarterly period. Cost of revenue decreased by $(4.5) million, or (11.7)%, to $33.5 million during the
year-to-date
period ended June 30, 2018 compared to $37.9 million in the comparative 2017
year-to-date
period.
The primary drivers of the 2018
year-over-year decrease in total cost of revenue during the three- and
six-month
periods ended June 30, 2018, on an absolute dollar basis, were related to decreases in salary and salary-related expenses,
inclusive of incentive compensation (primarily associated with the decrease in billable consultant headcount). The Company maintained 307 billable consultants (excluding contractors) as of the quarter ended June 30, 2018, compared to 337
billable consultants (excluding contractors) at the end of the second quarter of 2017.
Project and personnel costs represented 57.6% and
59.6% of total revenue during the three- and
six-month
periods ended June 30, 2018, respectively, as compared to 49.8% and 52.8% of total revenue during the three- and
six-month
periods ended June 30, 2017, respectively.
The decrease in project and personnel
costs for both the three- and
six-month
periods ended June 30, 2018, as a percentage of total revenue, is the result of decreased salary and salary related expenses (inclusive of incentive compensation)
combined with a decrease reliance on third party contractors. The decrease in salary and related expenses is a direct result of the decrease in billable headcount in the comparative periods.
Reimbursable expenses were $1.5 million and $2.8 million for the three- and
six-month
periods ended June 30, 2018, respectively, compared to $1.4 million and $2.9 million in the comparative periods of 2017, respectively.
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