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Perficient Inc (NASDAQ:PRFT)
Q2 2020 Earnings Call
Jul 30, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2020 Perficient Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Jeff Davis, Chairman and CEO. Thank you. Please go ahead, sir.

Jeff Davis -- Chairman and Chief Executive Officer

Thank you, and good morning, everyone. With me on the call today is Paul Martin, our CFO; and Tom Hogan, our COO. I'd like to thank you for your time this morning. As typical, we'll 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?

Paul Martin -- Chief Financial Officer

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 meanings 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 discussions.

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, are posted on our website at www.com.

Jeff?

Jeff Davis -- Chairman and Chief Executive Officer

Thanks, Paul. Once again, 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 at Perficient right now.

But as we did on the first call -- first quarter call, I want to begin by thanking both our colleagues and our customers for their perseverance and professionalism throughout 2020. Our colleagues have actually been extraordinary. And as you can see from our results, our people are more determined and dedicated than ever to continuing to build a world-class global digital consultancy. Our clients have been great as well. They've demonstrated grit and steady resolve keeping plans and projects on track and, in many instances, making new and substantial investments. More about that later.

When we gathered in early May to discuss Q1, we were cautiously optimistic that Q2 would continue well and we'll have some of the clarity on the second half of the year that we have now. With the benefit of several additional weeks behind us, it's more apparent to us that the COVID-19 pandemic is now going to prevent Perficient from having a strong year. In fact, some reductions on the cost side of the business is a direct result of the virus that we've realized from reduced travel and marketing events coupled with bill rate improvements and solid utilization are powering profitability in a challenging environment. So, a good result overall, as you can see.

Paul will speak to the details shortly, but North American bill rates reached $154 during the quarter, which is an all-time high and up about 4% year-over-year North American utilization was 80%, which is up 4% sequentially and 2% year-over-year. And again, in the environment that we're in, I think that's a heck of a feet. So, thanks to our employees for that.

As I mentioned earlier, there is a lot to be excited about here. And later in 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, both of which are impressive. The most exciting development in the quarter, of course, was the acquisition of PSL based in Columbia, South America. We looked for a long time to find the right mutual firm to turbocharge our global ambitions. And we could not be happier having expanded our team by more than 600 colleagues with this announcement, really wonderful leadership team, and you'll hear [Phonetic] more about that as well.

Our global billable headcount now accounts for nearly 40% of our delivery capacity. We worked for several months to complete this acquisition. It's one of the larger ones that we've completed. And so we took our time, made sure we were careful. But the integration began day one, and we're already making great progress having discussions with our customers so they can begin to benefit from this additional service. It's hard to overstate how meaningful we expect this to be. The additional [Phonetic] team with great technical talent, strong communication skills and working from the same time zones immediately enhances our ability to offer our clients fully flexible and customized delivery models. I'm confident we'll look back on this development as a true and powerful inflection point for the business and a real catalyst of our long-term growth.

Lastly, before I turn the call over to Paul for the financial results in detail, I want to welcome Nancy Pechloff to the Board of Directors. Adding Nancy's experience and expertise to our Board is one more thing that we're excited about as we continue to scale our business in the second half of 2020 and beyond.

So with that, I'll turn the call back over to Paul for details on the financial results. Paul?

Paul Martin -- Chief Financial Officer

Thanks, Jeff. We'll start with the second quarter. Services revenues, excluding reimbursable expenses, were $144.3 million for the second quarter of 2020, a 5.5% increase over the comparable prior year period. Services gross margin percentage for the second quarter ended June 30, 2020, excluding reimbursable expenses and stock compensation, increased 20 basis points to 39.3% compared to the prior year period.

SG&A expense, excluding stock compensation, increased slightly to $30.8 million in the second quarter of 2020 from $30.5 million in the comparable prior year period. SG&A expense, excluding stock compensation, as a percentage of revenue decreased to 21.1% from 21.5% in the second quarter of 2019. Adjusted EBITDA for the second quarter of 2020 was $26.4 million or 18% of revenues compared to $23.6 million or 16% of revenues in the second quarter of 2019. 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 of 2020 increased to $2.1 million from $1.9 million in the comparable prior year period. Our effective tax rate for the second quarter of 2020 was 31.8% compared to 26% in the second quarter of 2019. The increase in the effective tax rate was primarily due to the non-deductible acquisition costs incurred during the three months ended June 30, 2020. Net income decreased 23% to $6.6 million for the second quarter of 2020 from $8.5 million in the second quarter of 2019, primarily as a result of increased acquisition-related costs.

Diluted GAAP earnings per share decreased to $0.20 a share for the second quarter of 2020 from $0.27 in the second quarter of 2019. Adjusted earnings per share increased 10% to $0.57 a share for the second quarter of 2020 from $0.52 a share in the second quarter of 2019. Please see the press release for a full reconciliation 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, 2020, a 7.3% increase over the comparable prior year period. Services gross margin percentage for the six months ended June 30, 2020, excluding reimbursable expenses and stock compensation, increased 40 basis points to 38.8% compared to the prior year period.

SG&A expense, excluding stock compensation, increased to $61.1 million for the six months ended June 30, 2020 from $60.3 million in the comparable prior year period. SG&A expense, excluding stock compensation, as a percentage of revenue decreased to 20.9% for the six months ended June 30, 2020 from 21.9% in 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 or 15.7% 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 million in the comparable prior year period.

Net interest expense for the six months ended June 30, 2020 increased to $4 million from $3.7 million in the prior year. Our effective tax rate for the six months ended June 30, 2020 was 22.8% compared to 23.4% in the comparable prior year period. The decrease in the effective tax rate was primarily due to the increase in tax benefits recognized related to share-based compensation during the six-month period. Net income for the six months ended June 30, 2020 and June 30, 2019 was $15.6 million.

Diluted GAAP earnings per share remained flat at $0.48 per share for the six months ended June 30, 2020 when compared to the prior year period. Adjusted earnings per share increased 14% to $1.07 for the six months ended June 30, 2020 compared to $0.94 in the prior-year period.

Our earning billable headcount at June 30, 2020 was 3,687, including 3,464 billable consultants and 233 subcontractors, and the SG&A headcount was 536.

Finally, our outstanding debt net of unamortized debt discount and deferred 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 and cash equivalents as of June 30, 2020 and $112.7 million of unused borrowing capacity under our credit facility. Our balance sheet continues to leave us well positioned 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 of 2019.

I'll now turn the call over to Tom Hogan for a little more commentary behind the metrics. Tom?

Tom Hogan -- Chief Operating Officer

Thanks, Paul. As Jeff mentioned earlier, we had another solid quarter for bookings. And most importantly, the pipeline remains extremely strong. In fact, on a weighted basis, it's larger than it's ever been. We booked 66 deals greater than $500,000 during the second quarter of 2020. That compares to 62 the year-ago period. We've had good deal volume. As Jeff mentioned earlier, we are particularly pleased to be competing for a winning work with net new customers right now.

As we reacted earlier this year, the emergence of the pandemic, we didn't know if or how it might impact our ability to win opportunities that accounts we previously hadn't worked with. But to-date, we're having great success winning new work. And the entire organization has been energized by our progress gaining important new clients. And we're also proud to be involved with enterprise that's doing great work to combat the current challenges. For example, one of the world's largest and most well-recognized pharmaceutical firms is using clinical trial management solution that's delivered by our life sciences group to run testing for their COVID-19 therapy trials.

On the new client front, we won seven -- we won a seven-plus-figure project with a Fortune 100 global food and drink conglomerate, we're building an AI-enabled data platform for one of their subsidiaries, which produces and markets pet food and operates the largest pet adoption website in the world. The platform will enable animal shelters and rescue organizations to better match and place pets with the right prospective adopters.

Also during the quarter, we began partnering with a diversified healthcare services company that's pursuing a major cloud modernization effort across their entire organization or migrating the legacy application use for their records management and workflow systems. The client anticipate substantial cost savings and improved employee experiences based on this initiative, and this is another seven-plus-figure project. And we anticipate that to lead to more opportunity. And we're even competing for several eight-figure deals right now. All-in-all, a great quarter. We have a strong pipeline and we have a lot of momentum as we head into the second half of the year.

And with that, I'll turn things back over to Jeff to discuss the remainder of 2020.

Jeff Davis -- Chairman and Chief Executive Officer

Well, thanks, Tom. We can discuss our perspective really on the second half of the year sort of anecdotally in the Q&A. But as we mentioned in the news release, given the uncertain duration and scope and the pandemic and its impact on economic and financial markets, we can't really reliably predict that on our business operations or financial results. Accordingly, we're going to continue to withhold guidance at this time.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Maggie Nolan with William Blair.

Ted Starck-King -- William Blair -- Analyst

Hey, this is Ted on for Maggie. Hope everybody doing well. Jeff, I guess, to that point, maybe just looking across your verticals, do you feel that demand has maybe bottomed here in the second quarter? And that this maybe sequential growth across all your verticals, and then are there maybe some areas in the business that are facing a little bit more headwinds, just any kind of commentary there regarding forward-looking from your verticals?

Jeff Davis -- Chairman and Chief Executive Officer

Yeah. I would say, 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 is online. So, in fact some of that's driving, as you all know. So, I would say, it's fairly consistent across the board. No big standouts. And yeah, I'm optimistic that we've seen the bottom, barring any other macro events and very interesting time. Who knows? But barring any of that, I'm optimistic that we've seen the bottom, and that we hopefully will see some at least modest growth going forward. But I think the idea that we would decline is probably behind us.

Ted Starck-King -- William Blair -- Analyst

Okay. That's very helpful. And then, Jeff or Tom, this might be a question for you. So, great to hear about the success with new clients. I'm curious what you would attribute that to.

Jeff Davis -- Chairman and Chief Executive Officer

Go ahead, Tom.

Tom Hogan -- Chief Operating Officer

Great. I think, a lot of it, the termination of our team, our portfolio and the space we play in is well positioned. And a lot of these clients are turning toward digital transformation, especially with COVID, and our ability to credentialize ourselves with the portfolio. And our team is doing a nice job of being proactive at engaging these customers. And as we work and we show up and demonstrate the power of Perficient, our customers and, more importantly, the new customers are really responding. And we're also connecting new customers with existing customers, that's been quite beneficial. As we turn to credentialize ourselves with some of these newer clients, really point them back to organizations where he worked with and our current clients have been great, and really speaking to a great Perficient has been to work with.

So, I mean, all in all, we positioned our legacy business and these new customers, and also these customers are willing to invest. As Jeff mentioned earlier, I don't want, if you remiss not to mention, that there are a number of organizations that continue to invest. And obviously we appreciate that, their employees appreciate that, and it's really transforming their organizations as well.

Ted Starck-King -- William Blair -- Analyst

Okay, thanks. And then, I guess, last question here for me. So, uptick in adjusted EBITDA margin this quarter was fairly healthy. Given the strong growth of the offshore business, the utilization and acquisition of PSL, do you think you'll be able to maintain, maybe if not even expand adjusted EBITDA margin for the remainder of the year? And then real quickly, maybe just a housekeeping item. What was the organic growth this quarter? Thanks.

Paul Martin -- Chief Financial Officer

Yeah. Organic growth was just about 1% -- somewhere about 0.5% to 1%. And yeah, actually I think we've seen good evidence 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 unforeseen event, I do expect that we'll have decent adjusted EBITDA expansion for the year, somewhere around 100, 200 -- 200 basis points is even possible, but I think we'll be over 100 at least for the year.

Ted Starck-King -- William Blair -- Analyst

All right. Thank you very much.

Operator

Your next question comes from the line of Surinder Thind with Jefferies.

Surinder Thind -- Jefferies -- Analyst

Good morning, gentlemen. I'd like to start with a question about guidance. I was, I guess, a bit surprised that 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 reimplement guidance at this point? Given that we're a third of the way through the quarter, what is the source of uncertainty at this point?

Jeff Davis -- Chairman and Chief Executive Officer

It's just the macro environment. If you were to tell me that something bizarre wasn't going to happen in two weeks, we would have guidance out there. I just think the environment that we're in, and obviously we are 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 turbulent that it's the wiser course.

Surinder Thind -- Jefferies -- Analyst

So, I guess, as a follow-on. When I kind of think about -- can you maybe provide a little bit of color on the types of conversations you're having with clients? It sounds like things are looking up, things are maybe not as bad as they were feared three months ago. But at the same time, it seems like -- 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?

Jeff Davis -- Chairman and Chief Executive Officer

Yeah. 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. It's -- I don't think it's so much go-no-go, it's more win. And our pipeline reflects that. The deals that are getting a little extended out are still there. We know the clients still need to work. It's a matter of when they're going to get it started. And quite honestly, I think there -- I can't get in their head per se, but what we're hearing from them on this very similar what I mentioned to you is, I think, just the general uncertainty in the environment has been more cautious than normal, although we are seeing improvement in that. So, we did see bookings come around in Q2 that had slipped from Q1. And we're seeing that environment right now as it relates to picking up some of these projects that maybe were slated to close a month or two ago. They're still there and they're looking now to move ahead with many of those. We got a number of things on the table right now that fit that category.

Surinder Thind -- Jefferies -- Analyst

That's actually quite helpful. And then, following up on the question about the organic growth, I noticed that your offshore organic revenue growth was mid-teens-plus. 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 are cost conscious as part of that equation at this point, is that how we should be thinking about things on a go-forward basis?

Jeff Davis -- Chairman and Chief Executive Officer

That's right. And I think that's part of it. But actually I would tell you that we've built up a very formidable digital capability offshore that I -- what I argue is fairly unique, and I'll back that up with the fact that our Indian bill rates are $35 an hour on average, right. So that's the average bill rate. And that's 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 in a more cost effective rate to the client, they've really embraced it.

So, I would actually say, we're selling it more. We get 50% gross margin there. It's a -- but it's a hybrid. We are -- I think one of the things that's a unique differentiators 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 iterative high touch customer journeys that really require on-site or at least onshore capability, but they can be backed up, particularly in the development cycles with offshore. But again, these are digital skills. These are not sort of run of the mill commoditized skills. So, I think we've got a unique offering. It's an offering that we are highlighting and marketing more and more. And those are the reasons, I think, that offshore is growing at a pace above onshore. Of course, clients always want to bargain, so that's part of it as well.

Surinder Thind -- Jefferies -- Analyst

Fair enough. And then, maybe one last question on head count. It looks like there was like a modest quarter-over-quarter reduction in your North America head count, and it looked like it was across the board, so whether it was billable employees, contractors or even support staff. So, how much of this was voluntary, and then maybe how much was attributable to maybe managing costs?

Jeff Davis -- Chairman and Chief Executive Officer

The vast majority of it is voluntary. And in some cases, this is performance based. We've tried to manage that in this environment the same way that we always do. So, when there are performance issues, we deal with them. And as we've had voluntary attrition, given that we're sort of flattish right now, we've not gone out and hired back or backfilled. So most of it's coming from that. There has been, like I said, some other performance-based reductions.

Surinder Thind -- Jefferies -- Analyst

Fair enough. And then, just related to that, it looks like on the offshore headcount adjusting for the acquisition that the head count was relatively unchanged quarter-over-quarter. Given the growth that you're experiencing there, should we expect that headcount to tick up or is your capacity there at this point that you can tap into, how should we think about that?

Jeff Davis -- Chairman and Chief Executive Officer

Yeah. 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 lower so that we can ramp projects quickly offshore, that's the nature. It has to be the nature of their engagement. So, I do think we'll be doing some hiring. At least I hope we do. So I do believe we're going to continue to see that mix shift. But I can give you a combination of the two. We'll certainly have -- let utilization rise a little, but also do some hiring judiciously.

Surinder Thind -- Jefferies -- Analyst

Okay, that's it from me. Thank you so much.

Jeff Davis -- Chairman and Chief Executive Officer

Thanks, Surinder. Your next question comes from the line of Mayank Tandon with Needham.

Mayank Tandon -- Needham -- Analyst

Thank you. Good morning. Jeff and Paul, I just wanted to not belabor the point on the guidance issue, but could you talk about the contribution from M&A that we're expecting for the full year. Obviously you get the benefit from the recent Columbia acquisition. And then, on that note, could we maybe assume a modest uptick in sequential revenue growth based on your comments and then layering the M&A of that, we have a good way to sort of think about the numbers for the back half of the year?

Jeff Davis -- Chairman and Chief Executive Officer

Yeah, I think that's fair. As I mentioned, I think stable here is kind of where we see ourselves now. So, I think, yes. And then, by the way on PSL, as we advertise, it's about a $33 million business. So, I think we're looking at $8 million to $9 million a quarter for that. Is there anything else [Phonetic]?

Mayank Tandon -- Needham -- Analyst

You got it.

Jeff Davis -- Chairman and Chief Executive Officer

Yeah.

Mayank Tandon -- Needham -- Analyst

Right.

Paul Martin -- Chief Financial Officer

Mayank, sorry, one clarification. We had about $1 million of revenue from PSL for the stub period from an acquisition close through the end of Q2. Just a factor than you're thinking.

Mayank Tandon -- Needham -- Analyst

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 that growing over time? I would think that's the area that seemed acceleration at least in terms of client conversations today and probably that's going to transit into deals over time. So if you could just help us sort of frame the digital piece and then what's the balance and what do you think the growth profile for that piece of the business vis-a-vis the digital segment?

Jeff Davis -- Chairman and Chief Executive Officer

Yeah. So, we tend to go with the Ultrameter Group [Phonetic] definition, social, mobile, analytics, cloud, SMAC. And I think the cloud is maybe more debatable one. And if you have a liberal definition of cloud, we do a lot in the financial area in terms of OneStream, Hyperion, things like 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 our digital-based business is likely 70% to 80% of our business today. We've been working on shifting that. Well, I would actually say 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 over the last five years, so 70%, 80% of the business today following that definition.

Mayank Tandon -- Needham -- Analyst

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 $0.5 million plus, could you remind us what that number was? I think we missed that. And then also, just on pricing, what you're hearing from clients, it sounds like pricing actually is holding well or even maybe up ticking a bit. Could you provide some clarity around that?

Jeff Davis -- Chairman and Chief Executive Officer

Yeah, it was 66 deals above $0.5 million. And I believe it's the right term.

Tom Hogan -- Chief Operating Officer

That's correct. Compared to 62 a year ago.

Jeff Davis -- Chairman and Chief Executive Officer

There you go. Thank you. And -- yeah ABR up 3.6% year-over-year, which is impressive. Obviously that ABR is coming from -- mostly from deals, not that we're closing, that's revenue based, right. So, these are deals that we closed in the past. But we're maintaining a good pace on ABR, which I do think, again, validates our positioning. And in terms of growth overall, some of this is being driven by offshore, of course, well, much of it is. But I do want to mention that our organic billed hours were up 5% year-over-year. Again, most of that's driven by the increase in offshore relative to onshore.

Mayank Tandon -- Needham -- Analyst

Right. That's very helpful. Congrats on the results. Thanks.

Jeff Davis -- Chairman and Chief Executive Officer

Thanks, Mayank.

Operator

Your next question comes from the line of Brian Kinstlinger with Alliance Global Partners.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

I just wanted to touch quickly on demand. It sounds like I want to make sure from May to June to July, I guess as businesses are reopening, are you seeing demand slowly recover in each month or are we seeing more stable kind of demand?

Jeff Davis -- Chairman and Chief Executive Officer

I'd say, slowly it's -- it's stable with pretty modest growth is what we're seeing right now. But it appears to us that at least, again, barring any other shoe dropping that from a revenue standpoint, April was probably the bottom. So we've seen an uptick on a normalized basis if you factor out holidays and vacations and things like that. We have seen an uptick sequentially month over month, April to May and May to June, and June to July.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Great. And then, is there any way 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 or when they might?

Jeff Davis -- Chairman and Chief Executive Officer

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, we've got an impact of -- in excess of $20 million as a result of projects that were either put on hold, outright canceled, which we didn't see much of by the way. And we saw very little of things that were in flight, meaning work that was implied that we were in the middle of a project. We didn't see many cancellations of those nature at all, with the exception of one kind of significant client that declared bankruptcy. But in the overall scheme of things, not a huge impact, about $3 million for the year. And even there, I think we'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 it all will or not, it's hard to say.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

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?

Jeff Davis -- Chairman and Chief Executive Officer

Well, that's a good question. I think -- like I said, I think it's pretty universal where we've seen good demand. For us, it's hard to trying to dissect a single quarter of bookings because they tend to be very lumpy. So, I would point more to a trend, and I would say it's hard to discern. And there is some surprises I can share with you, which are automotive and manufacturing and industries that they pretty impacted, but there were forging ahead. And in fact, in a couple of cases, our relationship is actually expanding. So, we were very happy with that. I think the one industry that we have a fair amount of exposure to but I'm probably most cautious about is healthcare. But even there, and the hospital systems, obviously have been impacted by elective surgeries and things like that. We've got a big relationship, as you know, in that space and then several others.

That resiliency seems to be the order of the day. And in fact, in some cases, we've actually seen -- some of these hospital systems in this environment actually shift their focus more to sort of accelerating and moving ahead with some of the things that they needed down strategically and from an ROI standpoint, because frankly they have a little more time to do it. So, so far, we've not seen any impact there. If anything we've seen, maybe the opposite. And Tom mentioned a life sciences client earlier that we've been working with for a while, where we've actually helped them build a complete custom clinical management system that is open source. They're going to be sharing with other other peers. I mean, they're specifically using that for COVID-19 trials. So, we are seeing some incremental revenue as a result helping to offset obviously some of those delays.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Great. And then, your response to Mayank's question on price suggested that we're seeing the bill rates of six months ago or nine months ago is bookings. Can you talk about during this pandemic, has pricing held to those levels so that we'll see bill rate sustained here or even marginally higher or should we expect you've had to see marginally lower bill rates to win work during the pandemic?

Jeff Davis -- Chairman and Chief Executive Officer

Yeah. We've been more aggressive -- it's not -- I wouldn't say it's competitively so much certainly candidly there is 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 fear that with some clients who train [Phonetic] variety of reasons, we're hesitant to move forward maybe. In some cases, those are just terms, maybe some deferred payments, things like that as we might see DSOs go up slightly. These are obviously all creditworthy valuable clients where we've done that. And in some cases, we've gotten more aggressive on rates. But where we've done that, it's been on a temporary basis. Where we've agreed that, hey, this is "during COVID environment". And we're going to be revisiting in six months whether the COVID rates still apply as it were. So we might see maybe a leveling. I don't think we would see a drop probably, and maybe a slight drop. But of course, with the 3.6 increase, we've got some real naturally [Phonetic] maintain utilization 80%. We've got really strong gross margins, and the mix shift of course helps with that.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Great. Last question, and thanks for answering them all. You mentioned you think you have a specialty skill set in India. So what do you need to do to ensure that the employee churn, which is pretty high in India, remains -- was controlled as possible for your company?

Jeff Davis -- Chairman and Chief Executive Officer

We do a lot of things culturally. We also involve a number of our folks in India and phantom stock plan, which is unique there by the way. So they get to participate in some of the equity as well virtually, if you will, again phantom wise [Phonetic] but I would attribute to culture, and actually they enjoy the work. The work that we're doing relative to what most people are doing in India centers is more -- maybe not cutting-edge, but leading edge, it's more interesting, it's more challenging. The projects are quicker, so they're just sitting around for two years, doing the same mundane job over and over. So, I'll tell you, pre-COVID and certainly now our attrition rates in India have been phenomenal, lower certainly than our peers and lower in many cases than even our onshore attrition rates. We run below 15% in India and right now it's even lower than that. So, we've also had great success there. And again, I attribute those things.

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Thanks so much, guys.

Jeff Davis -- Chairman and Chief Executive Officer

Thanks, Brian.

Operator

[Operator Instructions] Your next question comes from the line of Vincent Colicchio with Barrington Research.

Vincent Colicchio -- Barrington Research -- Analyst

Yeah. Nice quarter, Jeff. I'm curious, some other players out there are benefiting from other vendors that have struggled with transitions. Are you seeing any of that?

Jeff Davis -- Chairman and Chief Executive Officer

Yeah, absolutely. 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 those that struggle

Vincent Colicchio -- Barrington Research -- Analyst

And with the PSL acquisition, I know it sounds like you guys are optimistic that there's going to be a good amount of interest from your existing client base. I'm curious sort of what your vision is longer term in the capacity to be a lot larger than it is today in Colombia, and in the more near-term, could you rapidly expand capacity in response to demand?

Jeff Davis -- Chairman and Chief Executive Officer

Yeah, absolutely. I think both near and long-term, that was one of the things we absolutely vetted as part of our -- first our search and then our diligence. So great university systems there, the locations that we are near universities. The universities have shifted very much to a stem focus. 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 business is mature. It's been around for 20-plus years. And a lot of the leaders there have been there, and 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.

I don't want to get too technical, but Carnegie Mellon SEI, Software Engineering Institutes, CMMI Level 5 Certification, one of the very first. I think that we're one of the first eight in the world to achieve that. So they're highly disciplined, which makes the quality phenomenal. So, I think all those things combined make it very scalable.

Vincent Colicchio -- Barrington Research -- Analyst

In recent quarters, you've talked about your newer salespeople sort of coming along. Are you feeling the same way recognizing this tough environment?

Jeff Davis -- Chairman and Chief Executive Officer

I am -- I still think that that thesis is very intact a little stunted by the current environment, as you pointed out. But absolutely, I feel really good as things continue to improve -- that we're going to continue to see dividends from that.

Operator

Okay. Thanks, Jeff. Nice, job.

Jeff Davis -- Chairman and Chief Executive Officer

Thanks, Vince.

Operator

Your next question comes from the line of Jack Vander Arde with Maxim Group.

Jack Vander Aarde -- Maxim Group -- Analyst

Hey, guys. Great quarter. Thanks for taking my questions as well. So, I'll start with just services gross margin was a positive surprise, at least relative to my expectations. Given the three acquisitions closed during the first half of '20, all of which I believe the prior margin profiles than the core business. Just a couple of things. Would you expect services gross margin then to further improve in 3Q and 4Q just because PSL kind of came toward 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 to improve sequentially?

Jeff Davis -- Chairman and Chief Executive Officer

It does. Can PSL definitely be a contributor? No doubt, very accretive to your point, I think they run about 50%-plus gross margin. We're approaching about 40% adjusted gross margin. So, that's going to help. But also clearly 3.6% increase in bill rate and a 2-point increase in utilization is going to help drive higher gross margins as well. So, I mentioned earlier, 100 to 200 on EBITDA, there is obviously adjusted EBITDA, there is obviously some scale down there. So, I think a 100 to 150 maybe on gross margin is a reasonable expectation, again barring anything unforeseen.

Jack Vander Aarde -- Maxim Group -- Analyst

Got you. That's helpful. And then, you also -- a lot of comments and questions have been referencing the increase in ABR for North America. And maybe I missed it, but just to be clear, is -- was there any, is this a structural price like across the board increasing your rates or is this just kind of more of a increase in mix of projects that are more premium priced historically for maybe the more complicated projects or something? Was it a structural intentional increase or was it just more of a mix?

Jeff Davis -- Chairman and Chief Executive Officer

It was definitely intentional. And to your point, I do think we've got higher value solutions out there. They are also helping to drive higher bill rates. But this is definitely structural, it's something Tom became COO about a year-and-a-half ago to almost two years ago almost. And it's some process and discipline that he put in place that's had an impact right away. And that's what you're seeing.

Jack Vander Aarde -- Maxim Group -- Analyst

Okay, great. And then, just kind of lastly, sticking on the ABR subject. So outside of North America, I'm not sure if I can find it in any of the materials yet but did your offshore or just non-North America ABR increase in what factors contributed to that if it changed at all.

Jeff Davis -- Chairman and Chief Executive Officer

I want to say, and I have it right in front of me, but I want to say it was about flat. I know it was within $1 or $2 of $35. So, we're not driving as much increase there. Our concept there is more volume. We don't want to drop the rates, we want to maintain. We're already getting 50% to 55% gross margin, right. So that's great margin. We just want to focus on driving as much volume there as we can. And frankly, again, that's both tactical and strategic. And we want to do that as a first-mover advantage, where I really believe we've got some unique offshore skills that a lot of our competition hasn't figured out and billed yet. So, we want to stay ahead of them. We want to leverage those great margins, but we're happy to keep the rates there flattish. And that's what helps us drive higher North American rates, getting a blended rate on an engagement, leveraging the offshore that brings down the overall rate to decline but still delivers good margins to us.

Jack Vander Aarde -- Maxim Group -- Analyst

Got you. And then, just lastly, organic growth, I think you mentioned was less than 1%, some around 0.5%, 1% or something for this quarter. I guess, as we look, do you expect a linear increase? I know you're not playing guidance, but are you reasonably confident that you will see organic revenue growth on a year-over-year basis uptick, pretty linearly in 3Q and then again in 4Q. And does that also -- would that also assume the North American ABR increase that we saw this quarter to kind of be maintained or increased further?

Jeff Davis -- Chairman and Chief Executive Officer

Yeah. We talked about ABR a little bit very low. I think it will be maintained. We might see it drop slightly where we've been creative with some clients and offer some discounts where we needed to get them to move forward at all. So that's the comment on ABR. And in terms of growth, there's not a lot I can say there. I think, 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, I refer back to what I said earlier about just delayed decisions are slower sales cycles. So I think we need to see that improve before you can really see substantial growth. I'll go back to what I said earlier is, I don't see us going backwards from here in terms of year-over-year growth. I mean, I know that that was modest in Q2. We're hoping for some upside in Q3 and we feel pretty good about it, again, barring any unforeseen events. But if we're real confident, we would have the guidance out.

Jack Vander Aarde -- Maxim Group -- Analyst

Understood, understood. Fantastic. That's it for me. I appreciate the time.

Jeff Davis -- Chairman and Chief Executive Officer

Absolutely. Thanks, Jack.

Operator

And there are no further questions at this time. Mr. Davis, I will turn the call back over to you for any closing remarks.

Jeff Davis -- Chairman and Chief Executive Officer

All right. Well, thank you for your time and thank you for your patience. I'm excited about where things are at, and I think these are actually we're looking up. We're looking forward to a strong Q3 and the opportunity to report that back to you in about 90 days. Thanks for your time. Take care. [Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Jeff Davis -- Chairman and Chief Executive Officer

Paul Martin -- Chief Financial Officer

Tom Hogan -- Chief Operating Officer

Ted Starck-King -- William Blair -- Analyst

Surinder Thind -- Jefferies -- Analyst

Mayank Tandon -- Needham -- Analyst

Brian Kinstlinger -- Alliance Global Partners -- Analyst

Vincent Colicchio -- Barrington Research -- Analyst

Jack Vander Aarde -- Maxim Group -- Analyst

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