Q4 2021 Perficient Inc Earnings Call

February 24, 2022

Okay.

Hello, and thank you for standing by and welcome to the Q4 2021 per patient earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that today's conference is being.

Recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Chairman and CEO , Jeff Davis. Please go ahead Sir.

Thank you. Good morning. This is Jeff with me on the telephone today is Paul Martin, our CFO and Tom Hogan, our president and COO.

As typical we have about 10 to 15 minutes of prepared comments after which we'll open up the call for questions. Before we proceed Paul would you. Please read the safe Harbor statement.

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 factor.

Or is 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 and adjusted EBITDA, 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.

It is posted on our website at Www Dot <unk> Dot Com. We've also posted a slide deck, which includes a reconciliation of certain non-GAAP guidance to the most directly comparable financial measures prepared in accordance with GAAP on our website under Investor Relations Jeff.

Thanks, Paul I appreciate your time today and are excited to discuss our fourth quarter performance with you.

And of course share our outlook and guidance for 2022 in the fourth quarter put an exclamation point on a truly remarkable year for proficient.

Revenue and adjusted earnings were up 32% during the period.

<unk> North American Bill rates were up utilization was strong and we set a quarterly record for large deal wins.

And as you saw from our guidance in the release, we're confident that our momentum will continue if not accelerate in 2022 <unk>.

Demand remains vigorous I shared this sentiment on our last call, but proficient business and our potential has never been stronger digital transformation is driving tremendous spend and it is now imperative than enterprises expedite investment to innovate more quickly and operate more efficiently and with pace of progress advancing and competitive pressures growing each day.

The speed at which verdicts are rendered and winners are separated from losers is getting faster and faster.

In fact, IDC recently increased their compound annual growth rate projection for digital transformation spend by a full percentage point to 16, 5% annually, which represents an additional trillion dollars over the course of the next three years alone.

I share all that because it highlights the immense opportunity ahead for proficient.

Everyday we are winning work with a growing number of global enterprises seeking exactly what we provide strategy execution and support and all of it rooted in a pragmatism then understand value must be created quite quickly.

Organic offshore revenue grew 54% during the fourth quarter, and we repeat that organic offshore revenue, which includes near shore.

Marilee in South America grew 54% during the fourth quarter and nearly 125% overall, our global teams are strong contributors to virtually every large engagement we deliver now.

In fact, just last week the International Association of outsourcing professionals named proficient a global outsourcing leader.

For the second consecutive year based on quality and performance excellence as a reminder, we now have more delivery talent outside of the United States them within it I expect our offshore and near shore head Count will continue to grow at a faster pace than it does domestically, but across the board, we're hiring at a faster pace and higher volume than ever before.

We're having great success scaling our team a number of the things that are contributing to that success in recruiting and retaining the top talent includes several investments. We've made in recent years to cultivate a truly exceptional employee experience for our colleagues a few of which Tom will speak to shortly but one key input is that we saw this coming.

In anticipation of the demand ramping and the labor market tightening we more than doubled our recruiting capacity over the course of the last year. We now have nearly 100 colleagues around the globe dedicated to talent acquisition.

And candidates as well as clients are increasingly drawn to our differentiation. The combination of our strong U S presence with a deep and geographically dispersed global footprint truly sets proficient apart in fact, its interesting to watch some others in this space, who lack of domestic footprint and strong client relationships.

Tempt to reverse engineer themselves into that position.

Our strategy is working enterprises want to work with a vendor, that's local and global but well integrated nimble and agile.

And they want a partner that can deliver the strategy execution and support they need seamlessly that's proficient and thats why our future is so bright.

Finally, I want to welcome core wireless Chief executive role mobile to the board of directors were almost appointment was confirmed earlier this week and we're excited to have him join.

We're almost had significant experience in meaningful expertise in the technology service sector.

Across industries and his perspective will be beneficial as we continue to scale the business.

With that I'll turn it over to Paul who will share the financial resorts results for the fourth quarter and full year Paul.

Thanks, Jeff services revenue, excluding Reimbursable expenses were $210 3 million in the fourth quarter of 32, 3% increase over the prior year services gross margin, excluding reimbursable expenses and stock comp increased 20 basis points to 45% SG&A was $41 7 million in the <unk>.

Fourth quarter of 'twenty, one compared to $2 $33 million in the fourth quarter of the prior year SG&A expense as a percentage of revenues decreased to 19, 4% from 23% in the fourth quarter of 2000 and adjusted.

Adjusted EBITDA for the fourth quarter 'twenty, one was $47 7 million or 22, 2% of revenues compared to $35 million and 21, 5% of revenues in the fourth quarter of 'twenty.

Fourth quarter 'twenty, one included amortization expense of $5 8 million compared to 7.3.

<unk> 3 million in the prior year period. The decrease in amortization expense was primarily due to certain intangibles from PSL acquisitions, becoming fully amortized earlier in 'twenty, one and the fourth quarter of 'twenty, one the company repurchased a portion of the 2025 notes, which resulted in a loss on extinguishment of $28 7 million net.

<unk> expense for the fourth quarter of 2001 increased to $3 9 million from $3 3 million in the prior year, primarily as a result of the issuance of the 'twenty six notes 2026 notes, partially offset by the repurchase of the 2025 notes, we will be adopting the new accounting standard for convertible debt in the first quarter of 2022, which will substantially reduce interest expense.

Net income decreased 46% to $4 5 million for the fourth quarter of 'twenty, one from $8 4 million in the fourth quarter of 2020, primarily as a result of the loss on extinguishment of debt.

GAAP earnings per share decreased to 13 cents per share for the fourth quarter of 2021 from <unk> 26 cents in the fourth quarter of 2020 again, primarily as a result of the loss on extinguishment of debt adjusted earnings per share increased to $1 a share for the first quarter of 'twenty one from <unk>.

76 cents a share in the fourth quarter of 2000 and see the press release for a full reconciliation to GAAP.

I'll now turn to the full year results services revenue, excluding reimburse expenses for the full year were $748 million.

24, 8% increase over the prior year services gross margin, excluding reimbursable expenses and stock compensation increased 50 basis points to 40% SG&A expense was $152 4 million compared to $134 7 million in the prior year SG&A expense as a percentage of revenues decreased to 20%.

<unk> from 22% in 2020.

Adjusted EBITDA for the year ended December 31, 2021 was $162 9 million or 21, 4% of revenues compared to $116 3 million or 19% of revenues in the prior year.

The December 31, 2021 included $23 5 million of amortization expense compared to $22 nine in the prior year the company repurchased the remainder of the outstanding 2023 notes and repurchase a portion of the 2025 notes, which resulted in a full year loss on.

Extinguishment of $29 million.

Net interest expense for the year ended December 31, 2021 increased to $14 1 million from $10 1 million in the prior year and again, we will be adopting the new accounting standard for convertible debt in the first quarter of 2022, which will substantially reduce interest expense our effective tax rate decreased to 16, 6% for the year.

As of December 31, 2021 from 25, 2% and year.

The year ended December 2020, the decrease was primarily due to an increase in stock compensation deductions and a decrease in non deductible transaction costs compared to the prior year net income for the full year was $52 1 million compared to $30 2 million in the prior year diluted GAAP earnings per share increased to $1 50 compared to.

<unk> 93 in the prior year adjusted earnings per share increased to $3 50 for the year ended December 31, 2021 compared to $2 50 in the prior year.

Are any billable head count.

31, 2021 was 5613, including 5213 global consultants and 400 subcontractors for the first time more than half of our global resources are located in our global delivery centers and the SG&A head Count was 866, our outstanding debt net of unamortized debt just.

<unk> and deferred issuance costs as of December 31, 2021 was $326 1 million. We also have about $25 million in cash and cash equivalents.

And $199 8 million of unused borrowing capacity on our credit facility. Our balance sheet continues to leave us very well positioned to execute against our strategic plan.

Finally days sales outstanding on accounts receivable remained constant at 67 days I'll now turn the call over to Tom Hogan for a little more commentary Tom.

Thanks, Paul as Jeff mentioned bookings were historically strong in the fourth quarter, we booked 98 deals greater than $500000 during the third quarter of 2021.

There is still 80 in the third quarter 2000, <unk> fourth quarter excuse me in 2021, <unk> in the fourth quarter and 70 in the year ago period, So again 98 deals greater than $500000.

Compares to 80% in the third quarter and 70 in the year ago period, and as a reminder, global deliveries embedded in virtually every one of those wins couple.

A couple of examples we closed an eight figure deal during the quarter, helping one of the world's leading manufacturer of the construction and mining equipment delivering its <unk> and BDC sites, we're laser focused on driving results for our clients and we work with this client to take advantage of some new customer experience features resulting in an increased investment in the platform we quickly.

Pivoted to help this client and secure additional predominantly Latin America based scrum teams to develop the solutions. In addition, we're also providing business analytics and eating and UI design. Our global team will also lead the development of the manufacturers large scale industry, leading agile development framework.

We also closed a near eight figure deal and a multinational financial services company that we've been working with for over a decade.

We're providing ongoing support for the company's mobile and online retail trading platform.

It supports as many as 9 million transactions per day. We're also building micro services for both their trading platform and accompanied online application processing platform.

Including its web and mobile chat experiences to enhance their ability to provide premium level customer service to our customers.

As we continue to win more and larger deals it's key them compete for talent to deliver.

That only not only includes the recruiting success, Jeff mentioned earlier, but also means we're focused on the amazing talent already at proficient.

Our team is focused everyday on improving the employee experience a proficient.

No. The employee experience is not just about providing competitive employee benefits people want to be part of an amazing culture and organization truly investing in training their career growth philanthropy and even the tools to make their jobs less stressful and their days more productive.

Everybody are proficient once the entirety of our efforts focused on thrilling our customers with innovation and impact.

A great example of enabling our team to be more productive with the recent launch of our internally developed custom proprietary tool called Compass Compass provides our business leaders and project managers with incredibly detailed project performance metrics, including real time project profitability data as granular as the margins associated with them.

Individuals contributions on a specific work streams.

Compass also leverages, an internally built business logic engine to provider leaders with real time action steps based on specific project data such as client insights like burn et cetera. Additionally.

Additionally, <unk> provides resource management and talent availability information sharing.

Shares were maximizing utilization across the world.

We're growing faster than ever before and as our brand grows globally and has tended to fully understand the compelling employee proposition proficient offers we're making investments around the world and our colleagues and just as important opportunities.

At proficient we strive to do well and do good.

And as we scale, we're excited about the additional opportunities it creates for us to change the world.

One effort, we're extremely proud of and that is making change happen is our bright pass program, where recently we graduated and then hired an additional 50 employees.

As a reminder, this is a program where proficient find ambitious and capable candidates from underserved and under representative communities.

We then fully funded an extensive training program on their behalf. It helps them grow the skills they need to successfully earn an entry level consulting position at proficient.

We've hired 67 people into the proficient into proficient via our bypass and it's a program we continue to expand.

We're growing our teams and changing lives and our existing colleagues love celebrating the bright path students achievements and welcome them to the proficient team.

Beyond bright path, we have hundreds of colleagues participating in employee resource group designed to help advance women in technology as well as hundreds more involved in our EOG, specifically around global philanthropy and giving.

As we scale and continue to increase our influence and impact on behalf of the world's biggest enterprises. We also remain focused on growing the positive change we can make on the world around us.

With that I'll turn things back over to Jeff to discuss the first quarter and full year outlook.

Thanks, Tom Great stuff so.

So proficient expects its first quarter 2022 revenue to be in the range of 218% to $221 million first quarter GAAP earnings per share is expected to be in the range of <unk> 64 to 67.

First quarter adjusted earnings per share is expected to be in the range of <unk> 92 to 95.

Proficient is providing full year 2022 guidance in the range of $900 million to $940 million in revenue.

And 2022 GAAP earnings per share guidance in the range of $292 94 to $3 nine and finally 2022 adjusted earnings per share guidance in the range of $4 18 to $4 33.

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

As a reminder to ask a question you will need to press star one on your telephone.

Your question press the pound key.

First question comes from my antenna with Needham You May proceed with your question.

Thank you good morning, Congrats Jeff Paul and Tom on the strong quarter.

I wanted to just start with given the strong demand backdrop could you talk a little bit more about your talent acquisition strategy.

Should we think about maybe the company expanding delivery hubs to be able to source the talent to meet the demand requirements.

Sure absolutely I'm going to ask Tom to add some color to this as well, but we've done that.

Ed.

In place a number of the.

Locations, including our Lafayette.

Development Center in Lafayette, Louisiana.

Obviously, our global development centers, and we're going to continue to look at other opportunities to scale, but you know.

We touched on bypass.

I'll ask Tom to comment on campus recruiting that's another area.

Dramatically stepped up our efforts.

Both in United States as well as outside the country.

And as I mentioned in terms of the.

Increasing.

Our recruiting we also put some new management in place and changed the structure a bit there.

To really step up the efficiency of their team. So it's a combination of added resources as well as increased efficiency and as Tom mentioned things are going very very well so far.

Knock on wood I would say that.

Acquiring talent is not presented any kind of.

A hindrance to the business, but I'm going to ask Tom to add some color to that.

Yes, a great question, Mike and in addition to bypass Jeff mentioned College recruiting we've added more college recruiting hires here in January and we're actually tripling the number of hires will have in June .

When you do bring in a diverse set of talent.

Also say globally, we continue to.

Best to gain additional opportunity in Latin America organically.

And in India.

Just looking at that we've taken some great opportunity during the pandemic, where some folks are working remotely we are actually opening three new hubs here in 2022 based on additional growth in certain cities. So we continue to expand our footprint globally organically and theirs.

There's a great team that's been joining us along the way.

That's helpful. And then just a quick follow up maybe for Paul.

Or Jeff in terms of the margins do you.

Get the sense that maybe the pricing leverage that is there in the market right now given the strong demand climate can offset the wage inflation pressures or would you need to maybe.

Other levers to be able to manage margins and in that context, what is your margin expectations for fiscal 2022.

Yes, I'll take that.

<unk>.

We mentioned that ABR was up I think it was about two points year over year in the fourth quarter.

Do think that there is increasing.

Pricing leverage right.

Becoming a little bit of a seller's market and we're certainly.

Taking advantage of that in a judicious way.

We're focused very focused on growth. So we want to remain competitive of course in our rates.

However in short to answer your question is yes, I do think that.

Rate increases can largely offset merit increases.

As well as the other the other levers that we have there.

Or are both bright pallets and campus recruits and I'd also say that as we continue to scale the business theres more and more opportunities for the base of the pyramid. So a lot of the folks that we're hiring right now are actually below the average comp.

They're more junior resources. So they will help to offset obviously the merit increases for that more more tenured team and then the last thing I'll say about margins.

The margins as it relates to gross margins as we certainly leverage our offshore and nearshore teams.

And the pricing the cost advantages there.

Of course, theres wages wage inflation, there as well, but again, it's I would say its.

Theres other factors still apply.

But our goal on gross margins is to maintain 40% plus gross margins.

And really focus shift our margin focus or prior margin focused more too.

Adjusted EBITDA.

And I would say that we will see some expansion with adjusted EBITDA. This year maybe.

Maybe not quite as much as last year, but I think 100 basis points is reasonable but in terms of expectations for gross margin adjusted gross margin I would say.

Round, the 40%, maybe a little bit over that.

Range and.

There is potential upside to that but at this stage.

There's so much churn going on in terms of.

The demand in the market.

I don't want to get over our skis I think theres an opportunity for us to beat that but I also am very confident that we'll be able to sustain at 40%, 40% plus range and again, probably at 100 points or so 100 basis points or so to us to adjusted EBITDA.

Thanks, Jeff Congrats again.

Thank you.

Thank you. Our next question comes from Maggie Nolan with William Blair. You May proceed with your question.

Hey, this is Ted on for Maggie Thanks for taking our question.

So I wanted to start with just kind of the mix of solutions and how thats changed over the last several years. So I guess, how has the mix of custom application.

Solutions versus consulting versus analytics work and some of the other solutions how is that overall mix change versus kind of historical levels.

I would say that.

All of those areas are up.

Data is huge not surprisingly.

So as customers have to have seen.

Environment. We're in there is a tremendous dynamic I don't have to tell you.

Within the technology platforms out there, there's always something new to.

To take advantage of so there is sort of that continuous pivoting basically to where the demand is and where the demand is going to be as we interpreted so.

I would say across the larger higher level landscape there.

There haven't been tremendous changes other than I would say certainly data stands out as a big one.

What.

The changes are probably a little more below that layer, where again the platforms change.

And Theres, a lot of new generation or next generation technology that.

We're engaged in delivering.

Okay, Great and then just as a follow up I wanted to.

Ask about the competitive environment for talent here.

Particularly in Latin America and India.

Do you anticipate just given what's going on in the geopolitical environment in eastern Central and Eastern Europe do you anticipate the competitive environment for talent changing in Latin America and India.

I think thats an interesting question.

The folks I don't want to get too deep into this.

The geopolitical aspect, but I think the folks that are more reliant on on where the disruption is right now don't have a big presence in.

In Latin America certainly.

And.

Not even a great presence in India.

Will they try to increase that I'm sure they will but I can tell you the competition for talent there now.

It was pretty steep and I think the differentiations that are.

Our differentiators that Tom mentioned earlier become really significant factors and there's a few things even.

Even things that I won't even disclose on this call that we do that are differentiated.

In those countries even.

From from a lot of our competitors, which.

Reveals itself or manifest itself and actually lower attrition and both of those areas than our competition. So.

Well.

Will there be increased competition for resources absolutely.

Do I think that.

What's going on right now in eastern Europe is going to make a market change to that.

I think possibly but I think modestly it's hard to predict.

Okay, Great and then I think I just missed it what was the organic growth rate implied in the full year guidance. Thank you.

The range is 15% to 20% organic.

Great. Thank you very much.

Yes.

Thank you. Our next question comes from Puneet Jain with Jpmorgan you May proceed with your question.

Hi, Thanks for taking my question and nice quarter.

Let me ask about revenue guidance.

Organic guidance of 13% to 19% give or take.

What needs to happen to demand environment for you to end up by 13% this year.

Given that youre going to start that you had a 20% plus.

Oh, yes, absolutely I think.

If you followed the company for a while I know opinion as well.

We always try to be.

Reasonably conservative or cautious.

Particularly at the beginning of the year, particularly in the environment that we're in.

So.

I'm optimistic that we won't see 13 in fact, I'm optimistic that will you'll even beat our high end.

And I am pretty bullish, but it's more about the unknown.

Baked into that is how I'd respond to that.

No that's fair.

And then on the supply side.

Can you talk about like the wage inflation.

It's good on any differences in wage inflation rates across different regions like Latin America, India and the U S.

Sure.

Absolutely.

Tom I'm going to ask you to comment on this as well.

And maybe a little more detail, but we certainly are seeing wage inflation across the board.

Actually not as much in the U S from our perspective than it is in Latin America.

And in India, I would say is.

Similar to what it has been there's always been significant wage inflation there.

But as I said.

Through attrition.

We were able to hire and lower cost resources and through expansion of course, we were able to hire and lower advisory services to help offset that.

And again as I mentioned before our attrition rates in those areas are better than our peers. So I'm optimistic that that again, we'll be able to manage against that and as I said before.

We've already moved rates up really in a single couple of quarters, we really weren't focused terribly on rate increases in the first half of last year.

As we began to turn our attention to that as we saw wage inflation, Tommy we were able to already move the meter a couple of points in the second half of the year on year over year basis, and I'm optimistic we're going to see more of that coming to fruition now theres a lot of deals that we've closed here.

The bookings are a backend loaded backend and front end loaded so Q4 and Q1.

Represent the largest quarters for bookings and in those bookings we have rate increases. There. We've also managed in some of our larger contracts or many of our largest contracts in our larger relationships to get clients to agree to coal as a cost of living adjustments upfront.

In revised Msas and also in statements of work so.

I think we're hitting it on all fronts.

Again, it's obviously.

It's obviously, there it's real but so far we feel pretty confident we're going to be able to stay even or ahead of it Tom anything you'd like to help.

I think that sums it up I think condition.

We're also selling a holistic proposition to individuals coming into proficient we don't get into.

Yes.

<unk>.

The complete buying of talent.

We see from some competitors out there.

But candidly we have individuals that are accepting.

A competitive wage, but maybe less than someplace else because they see the upside at proficient in the career growth and the true opportunity within the organization, which is a competitive advantage in.

And we stand by the value that we bring to both our clients, which is also helping with the rates as Jeff mentioned, but also providing an environment that team is going to be a part of and we don't have to.

Play.

Aggressive wage game that some others do.

Sure.

Stan drew and the ability to provide a phenomenal opportunity for people to join the organization and.

Appropriate rate, but not excessive.

<unk>.

Bringing great talent into the organization for the right reasons.

I appreciate the color. Thank you.

Thank you.

Thank you. Our next question comes from Vincent Colicchio with Barrington Research you May proceed with your question.

Yes.

Jeff.

The health care and the mix is down year over year I think the same as last quarter.

And.

Just curious if.

The.

The variance was.

He has had an impact on that.

And if.

Youll see things recover here going forward.

And it's a good question so some of that is dilution.

From acquisitions, and the fact that actually we're growing some other sectors, even faster than we were before but absolutely even on an absolute basis I think the bookings are down a little I do think some of that's due to COVID-19 , which has put some budget constraints primarily on the providers.

The payer market. It just continues to be strong and really I would say the whole industry continues to be strong in demand.

We do have a large client there that we are gradually winding down the relationship with which is fully baked into everything you've seen here and in fact, we wound a lot of it done last year. So.

A factor as well, but I think all those things combined.

Me that it is temporary and that we will see a pickup there in fact.

Bookings that we saw in Q4 were up year over year in health care. So.

I think we will.

We will transition that relationship.

And I think we'll see a pick up here as COVID-19 .

Subsides a bit.

I can tell you that though within that industry.

The demand and the need for digital transformation remains a very very strong on our board.

But local just a local regional hospital and I can tell you that digital transformation has risen to the top of their small and they don't have a lot of money, but it's still at the top of their priority list. So I still think we're in early innings there to use the baseball metaphor and yes, I do think we'll see a bounce back to your question.

Hey.

To what extent do you think youre currently benefiting on the demand side from from clients.

Suffering from the tight labor market in terms of their ability the ability to do things internally.

And I think it's a great question and a great observation.

And I do think there is definitely a benefit to us for that.

When times are good like this I've been in this industry longer than I care to mention but when times are good like this everybody loves to be in consulting.

Because it's more it's more nimble, it's more challenging to get to see more things and do more things in.

And probably I would probably make a little more money.

So yes, we are.

I think the industry at large and certainly we've argued that proficient specifically.

As a preferred employer for these folks and so I think that does make it tougher for what we call industry to hire it professionals, which I think is again a benefit for all of consulting are all it outsourcing.

And Tom I missed what you said in the bookings for large deals.

The number that were added this quarter versus the year ago period.

So at <unk> 98 in this quarter.

Baird to 80 in Q3, and then 70 year ago.

Thank you for that good quarter, guys and thanks for answering my questions.

Thanks Vince.

Yes.

Thank you. Our next question comes from Surinder <unk> with Jefferies. You May proceed with your question.

Hello. This is <unk> Han dialing in for <unk> and congratulations on a strong quarter since offshore delivery typically carries a higher margin relative to onshore I was wondering how much of a benefit you guys. We see from the overactive acquisition.

Gross margin for that business high density per cent.

Yes, I would say I'll, let Paul comment on this as well I would say that that there was a.

It's a great acquisition and it's growing fast.

I wouldn't see that it necessarily by itself move the meter much as the as much as the collective offshore and near shore.

But again I'll say that it's our goal to continue that topline growth that accelerated and so we want to stay competitive as possible. We're obviously got our finger on the pulse of the market. We look at every competitive deal as best we can understand the pricing and frankly, we do have access to a fair amount of that in terms of the pricing on any deals that we lose.

We rarely lose on price I don't want to keep it that way.

So in terms of in terms of.

Margin expansion again, it's going to be primarily at the EBITDA line and we're going to try to keep pricing as competitive as we can and frankly, if we could even have a price advantage.

I would take that over over trying to expand gross margin.

Beyond where it's out at the moment.

That might change that strategy might change, but that's the current thinking Paul anything you want to add.

Yes, so I think the acquisition.

Similar margins to our other.

Our Latin American business. So it didn't have a big impact overall really the organic growth offshore probably had a bigger impact on improving margins and it was really an acquisition.

Build out capabilities expand our global delivery center capacity that will that will help us grow that high margin offshore business over time.

Got it Super helpful. And then just another housekeeping question.

As expected net interest expense.

For 2022.

Yes, so interest expense.

It will be down.

In 2022.

Maybe Jeff can take the next question.

You can look that up.

So interest expense.

Interest expense.

Should be in 2022.

Somewhere around.

$2 million to $3 million.

Got it Super helpful. Thank you.

Thank you.

Thank you. Our next question comes from Brian singer with Alliance Global Partners. You May proceed with your question.

Hi, This is Matt in for Brian .

Just a quick question on the employee turnover do you have any metrics as far as that goes like I.

I know you guys are putting in a lot of.

Mission is to retain employees and to attract.

Confidence talent, but do you have any metrics on that.

Turnover so far.

Yes.

And the kind of low to mid twenties.

Which is higher than our 15% to 20% goal and of course higher than during the throes of the initial part of the pandemic, which was below <unk>, but I think a really important factor and again I'm going to come in and buy time to add anything to it as we'd like but a really important factor to note there and I think it's particularly fascinating and sort of underscores.

Kind of my theory on it which I'll share.

Is that.

One of the really important metrics, we track on attrition is for our two year hires so people that have been with us for two years or less.

Where we believe that's a more vulnerable group.

Obviously, a very important group right.

As they represent many of them they represent the future some of them are experienced but many of them are more junior.

And thats actually been only 19%. So we're really encouraged by that and I think it underscores what I believe to be the case and that is so we have 15%.

In 2020.

We have 24 something in 2021.

That tells me.

You had some pent up demand or pent up desire. This great resignation right, we're not alone it's happening across the.

The globe effectively and I believe that is temporary.

Cycles, and I'm, not saying, it's going to get better even this year.

But theres no question that a lot of it is because people didnt have the mobility.

Over the last year or two that they normally would and now that things have improved we are seeing that.

Peak up.

Whether we have seen the absolute peak or not I don't know.

But again I'm encouraged by the fact that people joined us during the pandemic.

Aren't aren't leaving Theres still here and the ones that are leaving our people that had been around that probably would've left have they had the opportunity.

Tom anything you want to add.

Covered it well.

Alright.

Great. Thank you.

Thank you and as a reminder.

To ask a question you will need to press star one on your telephone. Our next question comes from Jack <unk> with Maxim Group. You May proceed with your question.

Great Hi, guys great quarter, Thanks for taking my questions.

Jeff You mentioned IDC I think recently bumped up their growth forecast for digital transformation spending that 16, 5% CAGR. So.

Obviously, you guys provided.

Strong guidance for 2022, with I think 21% growth at the midpoint.

But can you maybe just share your perspective or any thoughts on that IDC growth CAGR relative to what you think proficient revenue can grow at.

And the next.

Three years or so.

Yes, I think it to me.

We're not only benefiting of course from the spend in the areas that we're primarily focused on I mean, 90% of our portfolio sits squarely in the middle of what IDC is referring to so we're going to benefit and continue to benefit from that I think for the foreseeable future certainly the three year mark that they that they pointed.

Pointed out.

Of course, we're taking share as well so I remain optimistic that we'll be able to continue the performance that we are and frankly as.

Our offshore and nearshore component continues to grow at that pace.

Roughly the pace that it has again I'll remind you guys. It was 54% for the year last year organic as well as the quarter.

I think that's going to continue and as that.

Changes to become a larger and larger component of our business I think it will eventually accelerate growth right now because of the rate differential it's not contributing as much to the growth as it could be but once the business is.

More towards the 50% Mark in terms of revenue offshore onshore.

I think we'll see growth accelerate even more so so I think thats, 16% 16, 5% is very encouraging and makes me confident that between that and again the mix shift and.

<unk> is taking share away and the reason I bring up the mix shift is because that's where a lot of the share is coming from is is our stalwart long term trusted clients or clients that trust us.

Now, giving us new incremental business around offshore and nearshore, which has been issued we really couldnt have pursued a couple of years ago. So.

I think it is very encouraging and by the way I'll note that I think that's the first time.

That I can recall.

As long as I put in the industry that IDC has ever adjusted anything up so.

Sure.

It is good news for the industry at large and I think it's great news for provision.

Okay excellent that's great great color there.

You mentioned, maybe the revenue mix from offshore longer term when you hit 50% of our breaks that just can you help me out with what is that today the revenue mix from offshore.

I want to say, it's about Hey, Paul can you give me a crisp number on that I want to say, it's between 15 and 20.

Yes, so actually with the acquisition and were just a hair over that.

It should run in the low <unk> in the first half of the year and obviously accelerating as we go.

Perfect.

So if we got say great and they are we could see $50 50 potentially within three years.

By the way.

Okay Fantastic color, there and just one more from me just on the acquisition strategy potential timing pipeline targets looking at 2022 and longer term any change to your general strategy for acquisitions that you've previously outlined.

Wind in past quarters.

No not really we've got a recipe that's working well we're going to stick with it our strategy around acquisitions is going to be clearly to to try to skate where the puck is going and find those either new to newer technologies.

<unk> technologies that are just in high demand that.

We can gain quick scale around through acquisitions.

So, yes $50 million to $60 million of run rate revenue acquired.

Haps more if we can find deals of the size that can bring that I think we could we could easily digest, probably four or maybe even five acquisitions in a given year. If we can find the right ones.

So it could exceed that but our goal remains still roughly the 50% to $60 million two to three deals.

Okay, Great. That's it for me again, congrats on the quarter. Thanks.

Thanks very much.

Thank you and I'm not showing any further questions at this time.

Or I'd like to turn the call back over to Jeff Davis for any further remarks.

Very good well. Thank you all very much for your time today and your interest always.

I think we've demonstrated here.

A great run that were on that I think we would say as I said before is going to continue for as far as I can see so we're very excited about it. Thanks for your time today look forward to speaking with you in a couple of months with more great news.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

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Hello, and thank you for standing by and welcome to the Q4 2021 proficient earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that todays call.

And is being recorded.

Any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Chairman and CEO , Jeff Davis. Please go ahead Sir.

Thank you. Good morning. This is Jeff are with me on the telephone today is Paul Martin, our CFO and Tom Hogan, our president and COO.

As typical we have about 10 to 15 minutes of prepared comments after which we'll open up the call for questions. Before we proceed Paul would you. Please read the safe Harbor statement.

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 discussions at times. During this call. We will refer to adjusted EPS and adjusted EBITDA, 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.

Posted on our website at Www Dot <unk> Dot Com. We've also posted a slide deck, which includes a reconciliation of certain non-GAAP guidance to the most directly comparable financial measures prepared in accordance with GAAP on our website under Investor Relations Jeff.

Thanks, Paul and we appreciate your time today and are excited to discuss our fourth quarter performance with you and of course share our outlook and guidance for 2022 in the fourth quarter put an exclamation point on a truly remarkable year for proficient revenue and adjusted earnings were up 32% during the period American North American Bill rates were.

Utilization was strong and we set a quarterly record for large deal wins.

And as you saw from our guidance in the release, we're confident that our momentum will continue if not accelerate in 2022.

Demand remains vigorous I share the sentiment on our last call, but proficient business and our potential has never been stronger digital transformation is driving tremendous spend and it is now imperative than enterprises expedite investment to innovate more quickly and operate more efficiently and with pace of progress advancing and competitive pressures growing each.

The speed at which verdicts are rendered and winners are separated from losers is getting faster and faster.

Sure all that because it highlights the immense opportunity ahead for proficient.

Everyday we're winning work with a growing number of global enterprises seeking exactly what we provide strategy execution and support and all of it rooted in a pragmatism that understands value must be created quite quickly.

Organic offshore revenue grew 54% during the fourth quarter, and we repeat that organic offshore revenue, which includes near shore.

Primarily in South America grew 54% during the fourth quarter and nearly 125% overall, our global teams are strong contributors to virtually every large engagement we deliver now.

In fact, just last week the International Association of outsourcing professionals named proficient a global outsourcing leader for.

For the second consecutive year based on quality and performance excellence as a reminder, we now have more delivery talent outside of the United States then within it I expect our offshore and nearshore head count will continue to grow at a faster pace than it does domestically, but across the board, we're hiring at a faster pace and higher volume than ever before.

And candidates as well as clients are increasingly drawn to our differentiation.

Combination of our strong U S presence with a deep and geographically dispersed global footprint truly sets proficient apart in fact, it's interesting to watch some others in this space, who lack of domestic footprint and strong client relationships at 10 attempt to reverse engineer themselves into that position.

Our strategy is working enterprises want to work with a vendor that's local and global well integrated nimble and agile.

And they want a partner that can deliver the strategy execution and support they need seamlessly that's proficient and thats why our future is so bright.

Finally, I want to welcome core wireless Chief Executive Romo ball to the board of directors were almost appointment was confirmed earlier this week and we're excited to have him join we're almost had significant experience in meaningful expertise in the technology service sector.

Across industries and his perspective will be beneficial as we continue to scale the business.

With that I'll turn it over to Paul who will share the financial resorts results for the fourth quarter and full year pop.

Adjusted EBITDA for the fourth quarter 'twenty, one was $47 7 million or 22, 2% of revenues compared to $35 million and 21, 5% of revenues in the fourth quarter of 'twenty.

<unk> fourth quarter 2001 included amortization expense of $5 8 million compared to seven three.

<unk> 3 million in the prior year period, a decrease in amortization expense was primarily due to certain intangibles from DSO acquisitions, becoming fully amortized earlier in 'twenty, one and the fourth quarter of 'twenty, one the company repurchased a portion of the 2025 notes, which resulted in a loss on extinguishment of $28 7 million net.

<unk> expense for the fourth quarter of 'twenty, one increased to $3 9 million from $3 3 million in the prior year, primarily as a result of the issuance of the 'twenty six notes 2026 notes, partially offset by the repurchase of the 2025 notes, we will be adopting the new accounting standard for our convertible debt in the first quarter of 2022, which will substantially reduce interest expense.

Net income decreased 46% to $4 5 million for the fourth quarter of 'twenty, one from $8 4 million in the fourth quarter of 2020, primarily as a result of the loss on extinguishment of debt.

GAAP earnings per share decreased to 13 cents a share for the fourth quarter of 2021 from 26 in the.

Fourth quarter of 2020 again, primarily as a result of the loss on extinguishment of debt adjusted earnings per share increased to $1 a share for the first quarter of 'twenty one from <unk>.

76 cents a share in the fourth quarter of 'twenty see the press release for a full reconciliation to GAAP.

I'll now turn to the full year results services revenue, excluding reimburse expenses for the full year were $748 million.

<unk> from 22% in 2020.

Adjusted EBITDA for the year ended December 31, 2021 was $162 9 million or 21, 4% of revenues compared to $116 3 million or 19% of revenues in the prior year.

The year ended December 31, 2021 included $23 5 million of amortization expense compared to $22 nine in the prior year the company repurchased the remainder of the outstanding 2023 nodes and repurchase a portion of the 2025 notes, which resulted in a full year loss on.

Extinguishment of $29 million.

As of December 31, 2021 from 25, 2% in year ended December 2020. The decrease was primarily due to an increase in stock compensation deductions and a decrease in non deductible transaction costs compared to the prior year.

Net income for the full year was $52 1 million compared to $30 2 million in the prior year diluted GAAP earnings per share increase of $1 50, compared to <unk> 93 in the prior year adjusted earnings per share increased to $3 54 for the year ended December 31, 2021 compared to $2 50 in the prior year.

Our ending billable headcount at December 31, 2021 was 5613, including 5213 global consultants and 400 subcontractors for the first time more than half of our global resources are located in our global delivery centers and the SG&A head count was 866.

Our outstanding debt net of unamortized debt discount and deferred issuance costs as of December 31, 2021 was $326 1 million. We also have about $25 million in cash and cash equivalents.

$199 8 million of unused borrowing capacity on our credit facility, our balance sheet continues to leave us very well positioned to execute against our strategic plan.

Finally days sales outstanding on accounts receivable remained constant at 67 days I'll now turn the call over to Tom Hogan for a little more commentary Tom. Thanks.

Thanks, Paul.

Jeff mentioned bookings were historically strong in the fourth quarter, we booked 98 deals greater than $500000.

During the third quarter of 2021 comparison 80 in the third quarter.

<unk> fourth quarter excuse me in 2021, <unk> in the fourth quarter and <unk> 70 in the year ago period, So again 98 deals greater than $500000.

That compares to 80 in the third quarter and 70 in the year ago period, and as a reminder, global deliveries embedded in virtually every one of those wins.

Couple of examples we closed an eight figure deal during the quarter, helping one of the world's leading manufacturer of the construction and mining equipment delivering its <unk> and BDC sites, we're laser focused on driving results for our clients and we work with this client to take advantage of some new customer experience features resulting in an increased investment in the platform we quickly.

Pivoted to help this client and secure additional predominantly Latin America based scrum teams to develop the solutions. In addition, we're also refining business analytics and aiding in UI design. Our global team will also lead the development of the manufacturers large scale industry, leading agile development framework.

We also closed a near eight figure deal and a multinational financial services company that we've been working with for over a decade.

We're providing ongoing support for the company's mobile and online retail trading platform.

And that supports as many as 9 million transactions per day. We're also building micro services for both their trading platform and the company's online application processing platform include.

Including its web and mobile chat experiences to enhance their ability to provide premium level customer service to their customers.

As we continue to win more and larger deals it's heat them compete for talent to deliver.

That only not only includes the recruiting success, Jeff mentioned earlier, but also means we're focused on the amazing talent already at proficient.

Our team is focused everyday on improving the employee experience at proficient we know the employee experience is not just about providing competitive employee benefits people want to be part of an amazing culture and organization truly investing in training their career growth philanthropy and even the tools to make their jobs less stressful and their days more productive.

Everybody are proficient once the entirety of our efforts focused on thrilling our customers with innovation and impacts.

Individuals' contributions on a specific work stream.

<unk> also leverages, an internally built business logic engine to provide our leaders with real time action steps based on specific project data such as client insights like burn et cetera. Additionally.

Additionally, <unk> provides resource management and talent availability information that it shares we're maximizing utilization across the world.

We're growing faster than ever before and as our brand grows globally and as Ken It's fully understand the compelling employee proposition proficient offers we're making investments around the world and our colleagues and just as important opportunities.

At proficient we strive to do well and do good.

And as we scale, we're excited about the additional opportunities it creates for us to change the world.

Whenever we're extremely proud of and is making change happen is our bright pass program, where recently we graduated and then hired an additional 50 employees.

As a reminder, this is a program where proficient find ambitious and capable candidates from underserved and under representative communities.

We then fully fund an extensive training program on their behalf that helps them grow the skills they need to successfully earn an entry level consulting position at proficient.

We've hired 67 people into the proficient into proficient via our bypass and it's a program we continue to expand.

Growing our team and changing lives and our existing colleagues low celebrating the bright students achievements and welcome them to the proficient team.

As we scale and continue to increase our influence and impact on behalf of the world's biggest enterprises. We also remain focused on growing the positive change we can make on the world around us.

With that I'll turn things back over to Jeff to discuss the first quarter and full year outlook.

Thanks, Tom Great stuff so.

Proficient expects its first quarter 2022 revenue to be in the range of 218% to $221 million first quarter GAAP earnings per share is expected to be in the range of <unk> 64 to 67.

First quarter adjusted earnings per share is expected to be in the range of 92 to 95.

Proficient is providing full year 2022 guidance in the range of $900 million to $940 million in revenue.

And 2022 GAAP earnings per share guidance in the range of $292 94 to $3 nine and finally 2022 adjusted earnings per share guidance in the range of $4 18 to $4 33.

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

Thank you as a reminder to ask a question you will need to press star one on your telephone.

Your question press the pound key.

First question comes from my own Tandon Needham You May proceed with your question.

Thank you good morning, Congrats Jeff Paul and Tom on the strong quarter.

I wanted to just start with given the strong demand backdrop could you talk a little bit more about your talent acquisition strategy and should we think about maybe the company expanding delivery hubs to be able to source the talent to meet the demand requirements.

Sure absolutely I'm going to ask Tom to add some color to this as well, but we've done that.

He had put in place a number of locations.

<unk> locations, including our Lafayette.

Development Center in Lafayette, Louisiana.

Obviously, our global development centers, and we're going to continue to look at other upper changed to scale, but you know.

We touched on bypass.

I'll ask Tom to comment on campus recruiting that's another area, where we've been.

Dramatically stepped up our efforts.

In United States as well as outside the country.

And as I mentioned in terms of the.

Increasing.

Our recruiting we also put some new management in place and changed the structure a bit there.

To really step up the efficiency of their team. So it's a combination of added resources as well as increased efficiency and you know as Tom mentioned things are going very very well so far.

Knock on wood I would say that.

Acquiring talent is not presented any kind of.

A hindrance to the business, but I'm going to ask Tom to add some color to that.

When you do bring in a diverse set of talent.

Also say globally, we continue to.

Estimated share opportunity in Latin America organically.

And in India.

We're looking at we've taken some great opportunity during the pandemic, where some folks are working remotely we are actually opening three new hubs here in 2022 based on additional growth in certain cities. So we continue to expand our footprint globally organically and theirs.

There's a great team that's been joining us along the way.

That's helpful. And then just a quick follow up maybe for Paul.

Or Jeff in terms of the margins do.

Get the sense that maybe the pricing leverage that is there in the market right now given the strong demand climate can offset the wage inflation pressures or would you need to maybe.

Other levers to be able to manage margins and in that context, what is your margin expectations for fiscal 2022.

Yes, I'll take that.

<unk>.

We mentioned that ABR was up I think it was about two points year over year in the fourth quarter.

Do think that there is increasing.

Pricing leverage right.

Becoming a little bit of a seller's market and we're certainly.

Taking advantage of that in a judicious way.

We're focused very focused on growth. So we want to remain competitive of course in our rates.

However in short to answer your question is yes, I do think that the rate increases tend to largely offset merit increases.

As well as the other the other levers that we have there.

Or are both bright pads and campus recruits and I'd also say that as we continue to scale the business theres more and more opportunities for the base of the pyramid. So a lot of the folks that we're hiring right now are actually below the average comp.

They're more junior resources. So they will help to offset obviously the merit increases for that more more tenured team and then the last thing I'll say about.

Margins as it relates to gross margins as we certainly leverage our offshore and nearshore teams and.

And the pricing the cost advantages there.

Theres wages wage inflation, there as well, but again, it's I would say its theres other factors still apply.

But our goal on gross margins is to maintain 40% plus gross margins.

And really focus shift our margin focus or fire margin focused more too.

Adjusted EBITDA.

And I would say that we'll see some expansion with adjusted EBITDA This year.

Maybe not quite as much as last year, but I think a 100 basis points is reasonable in terms of expectations for gross margin adjusted gross margin I would say.

The 40%, maybe a little bit over that.

<unk>.

I think there is potential upside to that but at this stage.

There's so much churn going on in terms of.

The demand in the market.

Don't want to get over our skis I think there is an opportunity for us to beat that but I also I'm very confident we'll be able to sustain that 40%, 40% plus range and again, probably at 100 points or so 100 basis points or so two to our adjusted EBITDA.

Thanks, Jeff Congrats again.

Thank you.

Thank you. Our next question comes from Maggie Nolan with William Blair. You May proceed with your question.

Hey, this is cut on for Maggie Thanks for taking our question.

So I wanted to start with just kind of the mix of solutions and how thats changed over the last several years. So I guess, how has the mix of custom application.

Solutions versus consulting work with analytics work and some of the other solutions I was that overall mix change versus kind of historical levels.

I would say that.

All of those areas are up.

Data is huge not surprisingly.

But so as customers have to have.

That's the environment. We're in there is a tremendous dynamic I don't have to tell you.

Within the technology platforms out there, there's always something new.

To take advantage of so there's a sort of a continuous pivoting basically to where the demand is and where the demand is going to be as we interpret it so.

I would say across the larger higher level landscape there.

There haven't been tremendous changes other than I would say certainly data stands out as a big one.

What what the changes are probably a little more below that layer, where again the platforms change.

And Theres, a lot of new generation or next generation technology that.

We're engaged in delivering.

Okay, Great and then just as a follow up I wanted to.

Asked about the competitive environment for talent here.

Particularly in Latin America and India.

I think that's an interesting question.

The folks I don't want to get too deep into this.

The geopolitical aspect, but I think the folks that are more reliant on on where the disruption is right now don't have a big presence in <unk> and.

In Latin America certainly.

<unk>.

Not even a great presence in India.

Will they try to increase that I'm sure they will but I can tell you the competition for talent there now.

It was pretty steep and I think the differentiation that our.

Our differentiators that Tom mentioned earlier become really significant factors and there's a few things even.

Even things that I won't even disclose on this call that we do that are differentiated.

In those countries even.

From from a lot of our competitors, which.

<unk> revealed itself or manifest itself and actually lower attrition and both of those areas than our competition. So.

Well.

Will there be increased competition for resources absolutely.

Do I think that.

What's going on right now in eastern Europe is going to make a market change to that.

I think possibly but I think modestly it's hard to predict.

Yeah.

Okay, Great and then I think I just missed it what was the organic growth rate implied in the full year guidance. Thank you.

The range is 15% to 20% organic.

Great. Thank you very much.

Yes.

Thank you. Our next question comes from Puneet Jain with Jpmorgan you May proceed with your question.

Hi, Thanks for taking my question and nice quarter.

Okay, Let me ask about revenue guidance.

Organic guidance of 13% to 19% give or take.

What needs to happen to demand environment for you to end up like 13% this year.

Yes.

Given that youre going to start that you had a 20% plus.

Oh, yes, absolutely I think.

If you followed the company for a while I know opinion as well.

We always try to be.

Reasonably conservative or cautious.

Particularly at the beginning of the year, particularly in the environment that we're in.

So.

Im optimistic that we won't see 13 in fact, I'm optimistic that will you'll even beat our high end.

And I am pretty bullish, but it's more about the unknown.

Baked into that is how I'd respond to that.

That's fair.

On the supply side.

Can you talk about like the wage inflation.

That's good on any differences in wage inflation rates across different regions like Latin America, India and the U S.

Absolutely.

Tom I'm going to ask you to comment on this as well.

Maybe in a little more detail, but we certainly are seeing wage inflation across the board.

Actually not as much in the U S from our perspective than it is in Latin America.

And in India, I would say is.

Similar to what it has been there's always been significant wage inflation there.

But as I said.

Through attrition.

We were able to hire and lower cost resources and through expansion of course, we were able to hire and lower advisory services to help offset that.

And again as I mentioned before our attrition rates in those areas or are better than our peers. So I'm optimistic that that again, we'll be able to manage against that and as I said before.

We've already moved rates up really in a single or couple of quarters. They really weren't focused terribly on rate increases in the first half of last year.

As we began to turn our attention to that as we saw wage inflation, Tommy we were able to already move the meter a couple of points in the second half of the year on year over year basis.

And I'm optimistic we're going to see more of that.

Coming to fruition now theres a lot of deals that we've closed here.

The bookings are a backend loaded backend and front end loaded so Q4 and Q1.

Represent the largest quarters for bookings and in those bookings we have rate increases. There. We've also managed in some of our larger contracts or many of our largest contracts in our larger relationships to take our clients to agree to coal as a cost of living adjustments upfront.

In our revised Msas and also in statements of work so.

I think we're hitting it on all fronts.

Again, it's obviously.

It's obviously, there it's real but so far we feel pretty confident we're going to be able to stay even or ahead of it Tom anything you'd like to have.

I think that well some of it up and condition.

We're also selling a holistic proposition two individuals coming into proficient we don't get into.

No.

The complete buying of talent.

We see from some competitors out there.

But candidly we have individuals that are accepting.

Play.

Aggressive wage game that some others do and we stand through and the ability to provide a phenomenal opportunity for people to join the organization and.

Appropriate rate, but not excessive.

As you know.

Bring great talent to the organization for the right reasons.

Appreciate the color. Thank you.

Thank you.

Thank you. Our next question comes from Vincent Colicchio with Barrington Research you May proceed with your question.

Yes.

Jeff.

Health care, the health care and the mix is down year over year I think the same as last quarter.

And.

Just curious if.

The.

The variance was.

He has had an impact on that.

And if youll.

Youll see things recover here going forward.

It's a good question so some of that is dilution.

From acquisitions, and the fact that actually we are growing some other sectors, even faster than we were before but absolutely even on an absolute basis I think the bookings are down a little I do think some of that's due to COVID-19 , which has put some budget constraints primarily on the providers.

The payer market. It just continues to be strong and really I would say the whole industry continues to be strong in demand.

We do have a large client there that we are gradually winding down the relationship with which is fully baked into everything you've seen here and in fact, we wound a lot of it down last year. So.

A factor as well, but I think all those things combined.

Tell me that it is temporary and that we will see a pickup there in fact.

Bookings that we saw in Q4 were up year over year in health care. So.

I think we will.

We'll transition that relationship.

And I think we'll see a pickup here as COVID-19 .

Subsides a bit.

I can tell you that though within that industry.

The demand and the need for digital transformation remains very very strong I'm on the board.

But local just a local regional hospital and I can tell you that digital transformation has risen to the top of their small and they don't have a lot of money, but it is still the top of their priority list. So I still think we're in early innings there to use the baseball metaphor and yes, I do think we'll see a bounce back to your question.

Okay.

To what extent do you think you are currently benefiting on the demand side from from clients.

Suffering from the tight labor market in terms of their ability the ability to do things internally.

I think it's a great question and it's a great observation.

And I do think there is definitely a benefit to us for that.

When times are good like this I've been in this industry longer than I care to mention but when times are good like this everybody loves to be in consulting.

Because it's more it's more nimble, it's more challenging to get to see more things and do more things in.

And probably I, probably make a little more money.

And so yes, we are.

I think the industry at large and certainly we've argued that proficient specifically is.

As a preferred employer for these folks and so I think that does make it tougher for what we call industry to hire professionals, which I think is again a benefit for all of consulting are all it outsourcing.

And Tom I missed what you said in the bookings for large deals.

The number that were added this quarter versus the year ago period.

So at <unk> 98 in this quarter as compared to 80.

Q3.

And then 70 year ago.

Thank you for that good quarter, guys and thanks for answering my questions.

Thanks Vince.

Yes.

Thank you. Our next question comes from Surinder <unk> with Jefferies. You May proceed with your question.

Hello. This is <unk> Han dialing in for <unk> and congratulation on a strong quarter since offshore delivery typically carries a higher margin relative to onshore.

Was wondering how much of a benefit you guys, we see from the overactive acquisition the gross.

Gross margin for that business high density per cent.

Yes, I would say I'll, let Paul comment on this as well I would say that that there was a.

It's a great acquisition and it's growing fast.

I wouldn't see that it necessarily by itself to move the meter much as the as much as the collective offshore and near shore.

But again I'll say that it's our goal to continue that topline growth and accelerated and so we want to stay competitive as possible. We're obviously got our finger on the pulse of the market. We look at every competitive deal as best we can understand the pricing and frankly, we do have access to a fair amount of that in terms of the pricing on any deals that we lose.

We rarely lose on price I don't want to keep it that way.

So in terms of the in terms of.

Margin expansion again, it's going to be primarily at the EBITDA line and we're going to try to keep pricing as competitive as we can and frankly, if we could even have a price advantage.

I would take that over over trying to expand gross margin.

Beyond where it's out at the moment.

That might change that strategy might change, but that's the general thinking Paul anything you want to add.

Yes, so I think the acquisition they are raw.

Similar margins to our other.

Our Latin American business. So it didn't have a big impact overall really the organic growth offshore probably had a bigger impact on improving margins and it was really an acquisition.

Our capabilities expand our global delivery center capacity that will help us grow that high margin offshore business overtime.

Yeah, that's super helpful. And then just another housekeeping question.

Sort of expected net interest expense is.

For 2022.

Yeah, so interest expense.

It will be down in.

In 2022.

Jeff can you take the next question.

When we looked out.

Yes, the interest expense.

Through interest expense.

Should be in 2022.

Somewhere around.

Two to $2 million to $3 million.

Got it Super helpful. Thank you.

Thank you.

Thank you. Our next question comes from Brian Kinsinger with Alliance Global Partners. You May proceed with your question.

Hi, This is Matt in for Brian .

Just a quick question on the employee turnover do you have any metrics as far as that goes.

I know you guys are putting in a lot of it.

Initiatives to retain employees and to attract.

Competent talent, but do you have any metrics on that.

Turnover so far.

Yes.

And the kind of low to mid twenties.

Which is higher than our 15% to 20% goal and of course higher than during the throes of the initial part of the pandemic, which was below <unk>, but I think a really important factor and again I'm going to invite Tom to add anything to it as we'd like but a really important factor to note there and I think it's particularly fascinating and sort of underscores.

Kind of my theory on it which I will share.

Is that.

For our one of the really important metrics. We track on attrition is for our two year hires so people that have been with us for two years or less.

Where we believe thats a more vulnerable group.

And obviously, a very important group right.

As they represent many of them they represent the future some of them are experienced but many of them are more junior.

And that's actually been only 19%. So we're really encouraged by that and I think it underscores what I believe to be the case and that is so we have 15%.

In 2020, we have 24 or something in 2021.

That tells me.

We had some pent up demand or pent up desire indiscreet resignation right, we're not alone it's happening across the.

The globe effectively and I believe that is temporary everything cycles, and I'm, not saying, it's going to get better even this year.

But theres no question that a lot of it is because people didnt have the mobility.

Over the last year or two that they normally would and now that things have improved we're seeing that pick up.

Whether we've seen the absolute peak or not I don't know.

But again I am encouraged by the fact that people joined us during the pandemic.

Aren't aren't leaving Theres still here and the ones that are leaving our people that had been around that probably would've left have they had the opportunity.

Tom anything you want to add.

Covered it well.

Alright.

Great. Thank you.

Yes.

Thank you and as a reminder.

To ask a question you will need to press star one on your telephone. Our next question comes from Jack <unk> with Maxim Group. You May proceed with your question.

Yeah.

Great Hi, guys great quarter, Thanks for taking my questions.

Jeff You mentioned IDC I think recently bumped up their growth forecast for digital transformation spending that 16, 5% CAGR. So.

And obviously you guys provided.

Strong guidance for 2022, with I think 21% growth at the midpoint.

But can you maybe just share your perspective or any thoughts on that IDC growth CAGR relative to what you think proficient revenue can grow at.

And the next.

Three years or so.

Yes, I think it to me.

We're taking share as well so I remain optimistic that we will be able to continue the performance that we are and frankly as as.

Our offshore and nearshore component continues to grow at that pace or roughly the pace that it has again I'll remind you guys. It was 54% for the year last year organic as well as the quarter and I think that's going to continue and as that continues.

Continues to become a larger and larger component of our business I think it will eventually accelerate growth right now.

Because of the rate differential it's not contributing as much to the growth as it could be but once the business is more towards the 50% Mark in terms of revenue offshore onshore.

I think we'll see growth accelerate even more so so I think that 16% 16, 5% is very encouraging makes me confident that between that and again the mix shift and.

<unk> is taking share away and the reason I bring up the mixed shift is because that's where a lot of the share is coming from is is.

Our stalwart long term trusted clients or clients that trust us now.

Now, giving us new incremental business around offshore and nearshore, which has been issued we really couldnt have pursued a couple of years ago. So.

I think it's very encouraging and by the way I'll note that I think just the first time.

That I can recall.

As long as I put in the industry that IDC has ever adjusted anything up so so.

I think it is good news for the industry at large and I think it's great news for proficient.

Okay excellent that's great great color there.

You mentioned, maybe the revenue mix from offshore longer term when it hit 50% of our breaks that just can you.

Help me out with that what is that today the revenue mix from offshore.

I want to say, it's about Hey, Paul can you give me a crisp number on that I want to say, it's between 15 and 20.

Yes.

With the acquisition and were just a hair over that.

It should run.

The low twenty's in the first half of the year and obviously, you're accelerating as we go.

Perfect.

So if we don't see any of the great and they are we could see $50 50 potentially within three years.

By the way.

No not really we've got a recipe that's working well we're going to stick with it our strategy around acquisitions is going to be clearly to to try to skate where the box going and find those either new to newer technologies.

<unk> technologies that are just in high demand.

That we can gain quick scale around through acquisitions, so, yes, $50 million to $60 million of run rate revenue acquired.

Perhaps more if we can find deals of the size that can bring that I think we could we could easily digest, probably four or maybe even five acquisitions in a given year. If we can find the right ones.

So it could exceed that but our goal remains still roughly the $50 to $60 two to three deals.

Okay, Great. That's it for me again, congrats on the quarter. Thanks, Thanks very much.

Thank you and I'm not showing any further questions at this time.

I'd like to turn the call back over to Jeff Davis for any further remarks.

Very good well. Thank you all very much for your time today and your interest always.

I think it's we've demonstrated here.

Great run that were on that I think we would say as I said before is going to continue for as far as I can see so we're very excited about it. Thanks for your time today look forward to speaking with you in a couple of months with more great news.

Yeah.

Okay.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2021 Perficient Inc Earnings Call

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