Q4 2022 Perficient Inc Earnings Call
Speaker 1: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again and you'll hear an automated message that your hand is lowered. Please be advised that today's conference is recorded. I would like now to hand the conference over to our speaker today, Jeffrey Davis, chairman and CEO . Please go ahead. Our apologies, everyone. We've been experiencing some technical difficulties with our proficient call. We're just going to wait one second here while we make sure that the call is being heard on the audio portion of the session. Yeah, just to add to that, this is Jeff Davis. We will restart here in just a moment once we confirm that our provider has everything working. It appears that we do, so I'm just going to go ahead and launch back into this. This is Jeff Davis, proficient chairman and CEO with me on the call. Per usual is Paul Martin, our CFO , Tom Hogan, our president and COO. I want to thank you for your time this morning. We have 10 to 15 minutes of prepared comments per usual, but before we proceed, I'm going to ask Paul to read the State Barbers' statement. Again, we apologize for the technical difficulties. Thanks, Jeff, and good morning, everyone. One 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 be truly different from those in these forward-looking statements, and we encourage you to refer the additional information contained in our SEC filings.
Speaker 1: You.
Speaker 2: Conference call. afterat this time all participants are in to listen, only mode after the speaker's presentation, there will be a question and answer session. To ask the question during the session, you ll need to press star 1- one on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Press Star 1- one again.
Speaker 2: And you'llhear an automated message that you'll gave your hand lored, Please be advised of. Today's conference is recorded. I would like now to hand the conference over to our speech today. Jeffrey davvis, Chairman and CEO , Please go ahead.
Day and thank you for standing by. Welcome to the 2022 Q for purposey call: earnings call. Conference call. After this time: all participants are to listen only mode. After the speak your presentation, there will be a question and answer session. To ask the question during the session, you need your P star 1: one on your telephone ll. Then youarre an automated messa advising your hand is raised to withdraw your question. P star 1: one again hearan. Automated message that you'll be hand Lowe, Please be advised of. Today's conference is recorded. Would like now have to hand the conference over to your speak today. jeffy Davis, Chairman and CE. You ASE go ahead.
Speaker 1: force continues. We're delivering more work offshore than ever before and commanding higher rates for that work than ever before. Rates in fact are materially higher than many of our competitors by the way, again reflecting the superiority of our fully integrated model and talent. And our culture and truly integrated model is helping us retain that local talent as well.
Speaker 1: I'll speak to booking specifically in a minute, but large deal wind volume is again stronger and poorer, up meaningly, sequentially and you every year. The pipeline remains strong and while we do not forecast deals not yet closed, we remain in pursuit of several that if one could materially change the trajectory of the year.
Speaker 1: As I mentioned earlier, some clients are taking more time with decisions, though we're confident demand for our services will remain robust and we're poised for another year of solid growth. In fact, although we saw a modest expansion of sales cycles during the quarter, we're actually seeing more urgency in terms of project timelines on large deals, meaning those deals are more compressed.
Speaker 1: than they have been historically. That will actually be a benefit certainly in the near term. Customers are more concerned with their competition than ever before and more ambitious than ever before in terms of moving quickly once commitments have been made. As we mentioned on last quarter's call, whether our clients are investing in growth or seeking to reduce cost by leveraging efficiency.
Speaker 1: Perficient is the answer. A reminder on our strategy, we expect growth everywhere, but continue to believe our non-US presence will scale disproportionately fast and that this mixed shift in the near term will help margins, but also pose a modest headwind to our overall top-line growth. However, as we move forward, our long term, toward our long term goal of a 50-50...
Speaker 2: 228.8 million in the fourth quarter, a 9% increase over the prior year, and your organic services growth was 6%. Gross margin percentage increased 60 basis points to 39.4 in the fourth quarter compared to the prior year. And services growth margin included reverse expenses.
Speaker 2: And stock compensation was 40.8% in the fourth quarter compared to 40.5% in the prior year.
Speaker 2: SG&A expense was $43.7 million in the fourth quarter compared to $41.7 million in the prior year. SG&A expenses and percentage of revenues decreased to 18.8% from 19.4% in the prior year.
Speaker 2: The adjusted EBITDA was $54.3 million or 23.4% of revenues in the fourth quarter compared to $47.7 million or 22.2% of revenues in the prior year. And we're saying the expense was $6.5 million in the fourth quarter compared to $5.8 million in the prior year.
Speaker 2: The increase in amortization expense was primarily due to additional intangibles from our two acquisitions in 2022. The interest expense for the fourth quarter decreased to $0.8 million from $3.9 million in the prior year primarily as a result of adopting the new accounting standard for convertible debt in the first quarter.
Speaker 2: Our effective tax rate was 28% in the fourth quarter compared to 476.5% in the prior year. The decrease in the effective tax rate was primarily due to the convertible debt transactions impact on the prior year. The increase in the effective tax rate was 28% in the prior year.
Speaker 2: that income increased to 26.5 million for the fourth quarter, from 4.5 million to the prior year. Prior to merely due to the loss from the expenditure of that 28.7 million in the prior year, it improved after it performs.
Speaker 2: Allude to gap earnings per share, increase to 74 cents a share for the fourth quarter from 13 cents in the prior year. Adjust earnings per share increase to $1.14 or 14% for the fourth quarter from $1 in the prior year. You can see the press release for a full reconciliation of the gap earnings. I'll now turn to the full year results.
Speaker 2: Services revenue excluding diverse expenses were through 893.1 million per year end in December 31, 2022, a 19% increase over the prior year. Your organic services growth was 13%. Gross margin presented for the year end in December 31, 2022 increased 50 basis points.
Speaker 2: to 38.9% compared to the prior year. Services gross margin and excluded reverse expenses and stock compensation for the year ended December 31, 2022 was 40.2% compared to 40% in the prior year.
Speaker 2: SG&A expense for the year ended December 31, 2022 was $171.1 million compared to $152.4 million in the prior year. SG&A expenses and percentage of revenues decreased to 18.9% from 20% in the prior year.
Speaker 2: Adjusted EBITDA for the year end of December 31, 2022 was 205.8 million, or 22.7% of revenues, compared to 162.9 million, or 21.4% of revenues in the prior year. The year end of December 31, 2022 included amortization of 24.5 million compared to 23.5 million.
Speaker 2: to the year end of December 31, 2022, compared to 16.6% in the prior year. The increase in the effective rate is primarily due to a decrease in stock compensation deductions and a decrease in research part of benefits compared to the prior year.
Speaker 2: That income for the year ended December 31, 2022 was $104.4 million compared to $52.1 million in the prior year. Primarily as a result of higher revenues, lower costs, percent of revenues, low-riches expense, and loss from the establishment of 29 million that was included in the prior year.
Speaker 2: The looted gap earnings per share increased to $2.90 for the year ended December 31, 2022 compared to $1.50 in the prior year. Adjust earnings per share increased to $4.28 for 2022 from $3.50 in the prior year. Our ending bill will head count as of December 31, 2022 for $6,320.
Speaker 2: In addition, we have $30.1 million in cash and cash equivalents as of December 31, 2022 and $199.8 million of unused borrowing capacity on our credit facility. Our bounty continues to leave us very well positioned to continue to execute against our strategic plan. I'll now turn the call over to Tom Hogan. A little more commentary. Tom? Thank you Paul and good morning everybody.
Speaker 1: We booked 56 deals greater than a million dollars during the fourth quarter of 2022, which compares to 43 in the fourth quarter of 2021 and 37 in the third quarter of 2022. Again that's 56 deals greater than a million in the fourth quarter of 2022 compared to 43 in the fourth quarter of 2021 and 37 in the fourth quarter of 2022.
Speaker 3: nearly eight million dollar, excuse me, eight figure engagement to improve their patient data flow. Our unified team of global experts are delivering a custom built clinical data reviewing cleaning environment that provides an accurate real time view of clinical studies which allows the enterprise to holistically monitor progress and drive critical decision making.
Speaker 3: We also expanded our partnership with a leading automotive manufacturer supporting the global CRM rollout for their commercial-focused vehicle services and distribution business.
Speaker 3: As part of the engagement, our team of architects will migrate the manufacturer's legacy platform and develop a global roll-up roadmap that includes their existing commercial and retail instances.
Speaker 3: We also recently launched a new employee website for the state leading auto manufacturer.
Speaker 3: Our global team worked with the automaker to deliver a next-generation employee experience featuring advanced personal innovation optimization options, threaded comments, and an updated search function with more features planned in the coming months.
Speaker 3: The new site now serves more than 180,000 employees including Riots Tirees and receives more than 1 million visits per meet.
Speaker 3: We continue to remain well-diversified from a customer, industry, and platform perspective. Health care and financial services led the way from a revenue and bookings perspective. We're particularly excited about the accelerating momentum we have in the financial services industry, where our revenue has grown materially in recent years. Jeff mentioned some lengthening in sales cycles and the macro uncertainty.
Speaker 3: But let's be clear, digital transformation is going nowhere.
Speaker 3: The work we're delivering for our clients is in many cases imperative, mission critical, and core to their competitive success. And with that, I'll turn things back over to Jeff to discuss first quarter in 2022-2023 Full Europe .
Speaker 1: Thanks, Tom. All right, proficient expects its first quarter 2023 revenue to be in the range of $227 to $233 million. First quarter gap earnings per share is expected to be in the range of 67 to 73 cents. First quarter adjusted earnings per share is expected to be in the range of $1.01 to $1.06.
Speaker 1: Permission expects its full year 2023 revenue to be in the range of $945 to $985 million, 2023 gap earnings for share to be in the range of $3.24 to $3.40, and 2023 adjusted earnings for share to be in the
Speaker 4: And with that operator we can open up the call for questions.
Speaker 1: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your need to be announced.
Speaker 5: To withdraw your question, press star-11 again. Please stand by as we compile the Q&A roster. All right, our first question comes from the line of surrender, then from Jeffries. Go ahead, surrender.
Speaker 3: Thank you. I'd like to start with a high level question of kind of where demand sits at this point in the client decision making process.
Speaker 1: If we were to rewind maybe a year ago, the thought was that there was perhaps a new
Speaker 3: elevated level of demand across the industry. So not just for yourselves, but more broadly including your peers.
Speaker 3: Fast forward to today, it seems like that wasn't quite the case, right? There's obviously long-term demand is still intact, but clients are making more short-term decisions.
Speaker 3: So can you help us understand that disconnect or what you're seeing at clients at this point?
Speaker 3: And their willingness to push off projects and if there is a further deterioration, should we expect.
Speaker 1: You know, can you need witness, I guess, further foreseeable future?
Speaker 4: Yeah, it's a good question. I'll start and ask Tom to add some color as he sees fit. So obviously, yeah, the year didn't end the way it started, to your point. I think that from what we've seen, via the pipeline as well as recent bookings.
Speaker 4: even in this year so far, is that that seems to be moving behind us. In other words, things seem to be improving now from where they were, say, six months ago, in terms of, again, bookings and pipelines. I think there's a number of contributing factors to that. Certainly,
Speaker 4: Again, we were overly optimistic on the macro environment and I do think that sentiment shifted But had a no crystal ball But it seems to be improving and as for proficient Standalone, you know as Tom mentioned and I alluded to on the call
Speaker 4: We actually have quite a number of large new opportunities, some in existing accounts, but maybe more importantly at new accounts that have the potential to be very, very meaningful for us even within the year. So I think the general environment, while it did sort of stall or slope, seems to be improving.
Speaker 4: Now, no crystal balls and I think there's reason for optimism. Tom? I agree and I think also as we've moved to larger deals that also compounds a little bit density, the market is still very rich with opportunity. There is definitely some caution in buying.
Speaker 3: that have a little bit of a headwind for us specifically, not necessarily in the industry.
Speaker 6: That's helpful. Thank you for joining.
Speaker 6: look at the year ahead. Two related questions.
Speaker 6: One is it sounds like the project timelines themselves are compressing. So is each one of you trying to understand that comment correctly?
Speaker 6: Clients are still signing on for work, but they want that amount of work done to be quicker. So that would suggest
Speaker 6: Like, cost take out projects, or is it is this the focus materially shifted in some of the projects that you're working on? And then in terms of just the guide itself is the. Vast majority of the growth.
Speaker 6: It sounds like it's offshore, which it has been in the past or more recently as well. What does the your outlook for? onshore or US growth look like?
Speaker 4: Yeah, good question. So yes, you heard that correctly in terms of the large deals, specifically the large deals in those compressed timelines. I would say the majority of our work is actually not based on cost reduction, it's based more on new products and services in time to market is great both as ever.
Speaker 4: So I think that's what's driving a lot of that. Some of that also is they're catching up now, right? So where they, some of these deals I'm talking about are from clients who were in that slow sales cycle, but then once they got through that, made that commitment, they're like, okay, we're behind now, so what can we do to accelerate this, right? So I think the majority of it is coming from that primarily.
Speaker 4: shore-based resources and a lot of the growth coming, as you pointed out, from offshore.
Speaker 5: Thank you. Our next question comes from Nida Ham. Go ahead.
Speaker 1: I just wanted to first talk about the linearity of the year. Your guidance basically reflects, I think, slightly down revenue sequentially based on the guidance. How should we expect the year to build? Are you looking at maybe more of a second half rebound? Or are you looking at more of a second half rebound?
Speaker 4: should be expected more linear trajectory over the course of 23. Yeah, it's just going to be a little bit heavier in the second half for sure. So I think you're right on the Q1 guide, which by the way seems like pretty common in the industry for the year.
Speaker 4: Everybody sort of sees a stronger back half And I think we see the same thing and I would underscore that with my comments earlier You know on the pipeline of bookings that you know the bookings I think sort of cropped out if you will in q3 And we're experiencing that from a revenue standpoint basically now the cry is correlation factor between
Speaker 4: between bookings and revenue for us and it's not that high because it tends to be somewhat lucky, but the highest correlation is about a five month rolling average. So literally, you know, if you look five months out from a kind of a weaker Q3 bookings, then you're seeing that now. Bookings were stronger in the fourth quarter and they're starting stronger in the first quarter, so again, we would expect to see the benefit of that.
Speaker 4: North or the latter part of Q2 or at the beginning of the second half.
Speaker 1: That's helpful and then just more in terms of housekeeping items. I wanted to ask you on the offshore.
Speaker 1: In terms of the drag on the growth, what have you built in to your expectations? And on the flip side, I'm assuming it's going to help margins. So maybe could you just quantify the benefit on margins and the drag on revenue based on your guidance?
Speaker 4: Yeah, it's probably 3 or 4%. It's hard to predict that it's a 3.5 to 1 ratio. You can back into it from the guidance that we put out there based on historic offshore and nearshore growth. You can back into it from the guidance that we put out there based on historic offshore and nearshore growth. You can back into it from the guidance that we put out there based on historic offshore and nearshore growth.
Speaker 4: is what I would tell you on that. It's from a margin perspective, Mike. Obviously there's a lot of things going on with wages as well. We modeled this modest gross margin improvement and that's another one where hopefully as the demand picks up that could prove to be of concern. Keep in mind that that's our strategy. That the whole point of endeavoring organically can move on to what's important when we look at intolerance plus
Speaker 4: Offshore and nearshore is to bring our rates down to accelerate ultimately top-line growth and be more competitive with the against the digital transformation firms that we run into so You know, we'll be careful about about leveraging all that as margin and actually putting a lot of it into
Speaker 7: questions.
Speaker 1: Jeff, you mentioned a few large deals that if you win could significantly change the revenue trajectory of the company. Is that captured in the high end of a revenue guidance or is this more a 2024 driver given long sales cycles and therefore maybe not contemplated in this year's guidance?
Speaker 4: It's not concentrated because as you mentioned earlier, we really are very cautious about trying to make it anything that's not yet booked. I would say, and this is rare, but if all those deals close...
Speaker 4: I think that would represent upside to the guidance for the year. Again, that's probably an unlikely event, but it's possible. But certainly, even without that, I think you're spot on that it's going to be more of an indicator and a boost to certainly the latter part of this year, but also 24.
Speaker 6: Great. And then healthcare is lower year over year and sequentially. You've talked about stronger demand in the second half of 2023, and I think you've also, at the second half of the year, experienced a large program winding down. So, can you share with us for this vertical, are there any indicators of stronger demand trends in healthcare?
Yeah, we're seeing, at least for us, we're seeing certainly positive there. I don't know if the demand is that much stronger, but we have finally shed that account that we've been talking about. So that account represented over $30 million of revenue in 2021 and was still over $10 million last year. And over an extra $5 million at most, $3 million is back at around $agin' Village. There's credit for this. Now having added a new dollar payment, I will say about $2 million for us right now.
I was going to say, you know, financial services is growing tremendously fast, which of course has a dilutive effect as a percent of revenue on healthcare.
services is growing tremendously fast, which of course has a dilutive effect as a percent of revenue line healthcare.
Thank you. Our next question comes on line of Jonathan Lee from Morgan Stanley . Your line is open, Jonathan.
Hey, thanks for the other questions, guys. Wanted to talk through engagement type of pricing, just given the MACRA. Have there been any notable changes to that in the quarter, just given what we're hearing across MACRA environment or perhaps shifting of delivery?
I'm sorry, you're talking about pricing? Yeah, like where are you seeing, if any, notable changes to engagement type or pricing in the quarter given from the MAC or related concerns?
You know, other than, as we mentioned, some actual compression, which is a positive, pricing is bit silent. We've actually managed to move AVR up, and again, I'd say that's before it wouldn't be cautious about that. There's a whole point of the auctioners to be used to better than the kind of price of control. We've had good pricing power, and I think, as I mentioned, I'm described.
The time alluded to or mentioned as well, you know that speaks I think quite a lot to the value that clients place on our services. That said We need to be doing we've got the same skills same capabilities same strength and experience Offshore that we do onshore and we need to be leveraging that more and more and we are and that's where you're safe to growth differential
Got it. And on the hiring front, can you provide an update on what you're seeing in the hiring market across your geographies? Where are you seeing it easier to hire versus tougher to hire?
You know I'm going to let Tom, I'll just say something real quickly about attrition and I'm going to let Tom take the recruiting question. Even if it's talent acquisition. But you know we mentioned earlier that attrition rates were well within our range so the great resignation seems to have moved behind us.
So that obviously bodes well for talent acquisition, but I'm going to let Tom comment more specifically on that. The talent we're looking for is easy in a number of words that were used, but we definitely have a multi-tenant approach to the way in which we bring talent to the organization. We have robust university hiring programs globally.
drive culture here. We haven't seen any challenges with hiring individuals and with a multi-tenant approach and a multi-geography approach. There is not one specific area where it's quote unquote easier to find talent. Across the board we compete quite nicely against the industry peers for talent.
Thank you. Our next question comes from the line of Phanet Jan from J.P. Morgan.
Hey, thanks for taking my question. I'd like to ask about what does like the EPS guidance imply for a zoom for a bit of margins this year. And what do you expect for utilization and pricing throughout this year?
So EPS, the guidance for EPS as it relates to margins would be potentially a modest increase to EPIDOT. As we discussed earlier, we're looking to keep gross margins flat, not down, but not up materially either so that we can maintain that competitive pricing.
But I do think that adjusted EBITDA as an example will have some expansion this year. Although I think it'll be modest. We've guided it to a little bit lower than normal growth. So until we get back to that higher growth level, I think we'll adjust our EBITDA.
will be modest in terms of expansion, but again, not negative, but expecting modest expansion. And then utilization will maintain and has consistently maintained over the average of the year at about 80%. So that's still our goal and we'll be driving that this year. Again, historically, over the last at least three or four years we've been
to manage where the delivery is done, to offset wage increases with rate increases.
Right, right. And is there a way to estimate the benefit from a higher offshore mix, like the deals of the new business that's coming your way, something that you wouldn't be eligible to compete for a few years ago?
Is there a way to estimate how much that increased offshore mix is helping drive new winds for you? Absolutely, including existing accounts and existing relationships. We've got a number of large, very long-term relationships that just a few years ago, as you pointed out, fascists are behaviorallySL served by national security.
We're only doing a lot of offshore work or near-shore work. We really couldn't pursue because we just have the capacity or even the capability. Now that we do, we're actually taking quite a lot of shares. A lot of the growth that we're enjoying from offshore and near-shore is not only new relationships, due plans, which almost always involve some level of offshore work, right? I don't think I've read it at the beginning, but also actually in existing accounts, relationships that we've had.
Thank you.
Operator.
Operator. All right, our next.
Call comes from the line of Vincent Clichio from Barrington Research. Go ahead Vincent. Yes, Jeff, are there any vendor or solution categories that have significantly weakened since last quarter? You know, I wouldn't say that exactly.
There's no standout, you know, I think it's we saw a kind of slow down across the board that you know our Our revenue tends not to be you know, if each kind of quarter goes on we're less and less coupled to specific technology Certainly, there's a lot of disruption in on the on the software side We pivot around that but I wouldn't say that the last six months or so has been a major
We are, you know, that auto manufacturer that Tom gave a little vignette on in the preparing statements, a long time client, but we're now one of only six Tier 1 global suppliers with them. And that story is repeated over and over and over.
So even when there is a sort of a reconciliation or rationalization, we almost always emerged as a key player.
Thank you. Our next line comes from the line of Kate Cranston from William Blair. Go ahead, Kate. I'm going to start with the line of Kate Cranston from William Blair.
Hi everyone, thanks for taking my question. This is Kay Cronstein on for Mandy Nolan. My first question I wanted to touch on was, can you guys provide the exact percent of revenue right now that is offshore based? And then when do you expect to be able to reach that 50-50 revenue mix that you touched on at the beginning of the call?
So the second part of that and then the first part but you know our goal would be about three years on that 50-50 so that's what we're working hard towards. I don't know if that's going to be aggressive or not but if we maintain the pace of growth that we have I think that's very doable and one thing I want to point out is that...
point where things really shift to a tailwind and accelerate.
And with respect to the percentage of revenues, as I said a little bit before, it was about 13% in the fourth quarter of 20 and it's about double that today. And I think we'll continue to accelerate into 23.
Okay, great. That's all very helpful. Thank you. And then one final question for me. Within the 56 deals that are greater than 1 million, are most of these short-term deals or are these deals that have the potential to grow in a longer term transformational deal?
Definitely have the ability to continue to grow. As Jeff mentioned, the compression as far as the length of the backlog, it is multiple phases within this work, so it should continue to build upon itself in the coming course.
Okay, great. Thank you all. Thank you. Perfect. And our last, our next question comes from David Goyle from Scottie Bank.
Good morning everyone. Jeff, I had a quick question on the broader technological aspect of the company. So given the competition out there, the pace of which technology is changing, what are some of the things that proficient doing in order to stay on top of the pace can be competition, have more deal rents, and then how is your MLA strategy aligned with this?
I'll take a high level, we've got a group of strategists that not only help clients, but also Tom and I rely on, and of course the poll management team, to help us navigate that and pivot around what we think are going to be good opportunities for us. nurses,
the pipeline we consciously kind of put that on hold really for the fourth quarter. We closed one deal in the fourth quarter, you know, and we kind of slowed things down a little bit. We wanted to see what the macro environment was like and also wanted to give the valuations a chance to catch up with the public markets.
because we weren't seeing that then. Things do seem to be improving now, and so we're going to be getting back in the game likely in the second quarter. To take on that a little bit, so our team globally has a bunch of explorers around technology really get the next thing. So as an example, it's dinner day.
collectively on newer technologies around use cases, how clients can utilize them. You're probably familiar with ChatGPT, which is a generative AI tool. We have clients working with us regarding how can they leverage technology, not just for us to play with, but for them to actually gain true ROI. We do that with our collective 7,000 plus consultants around the world. So we have specific interest groups around that domain and technology.
Wonderful. I would like now to turn it back over to Jeff Davis for closing remarks. All right. Well, thank you all for your time and thank you for your patience and sticking around as we work through some of the technical issues at the outset of the call. Thank you and look forward to seeing you again here in about...