Q1 2023 Perficient Inc. Earnings Call
Speaker 1: in the first quarter of 2023, which compares to 53 in the first quarter of 2022, and 56 in the fourth quarter of 2022. As Jeff mentioned, the first quarter was the strongest booking quarter in our history. And the pipeline, both weighted and unweighted, remains strong. We continue to remain well-diversified from a customer, industry, and platform perspective. Healthcare and financial services led the way from a revenue and bookings perspective. We're particularly encouraged about the accelerating momentum we have in the financial services industry, where our revenue has grown materially in recent years. One example of our ongoing industry success is a recent eight-figure win with a leading global financial group where we are supporting their customer remediation and loan administration reconciliation.
Speaker 1: market, and companies is informed by real-life execution and proven results. Enterprises can quickly understand where they stand relative to competitors, determine their gaps, and how to quickly address them. Envision Online is a suite of tools, but to give you a sense of the tool's depth, one individual component, the platform selection tool, helps customers understand the relative value of more than 300 vendors based on their client priorities across more than 5,000 potential requirements. Beyond our market momentum, we also remain excited about and committed to the impact we're having in communities around the world.
Speaker 1: We recently published our first annual Community Impact Report, a 42-page compilation of just some of the philanthropy, community involvement, and environmental and society activities, proficient and its colleagues invest in and support across the globe. It's available within the investor relations section of our website, and I encourage you to take a look.
Speaker 1: Within it, you'll find reference to investments like our Bright Pass program, where we continue to expand in the training and hiring of underserved constituencies and communities. 125 students have already graduated from that program in various markets, and this year we've opened the program up on a national basis.
Speaker 1: We intend to enroll 70 students into this fully funded program in just the first half of this year.
Speaker 1: You'll also find information about our partnership with the Mark Cuban Foundation and our hosting of artificial intelligence boot camps in several cities.
Speaker 1: We're continuing to expand this program as well, which serves to educate high school students on the fundamentals of AI, build their technology literacy, and to encourage them to consider a career in technology.
Speaker 1: And finally, our existing employee resource groups are thriving. Thousands of colleagues are participating in various capacities in events, discussions, and activities with our Women in Technology in giving ERGs. And we're excited to soon add more groups, which will celebrate the diversity and courage in our global workforce.
Speaker 1: These investments we're making in our colleagues, our culture, and our communities are important to our employees. And it's certainly helping us recruit and retain great people so we can deliver value for our customers. And with that, I'll turn things back over to Jeff to discuss the second quarter.
Speaker 1: Thanks, Tom. Great stuff. So Perficient expects its second quarter 2023 revenue to be in the range of $231 to $237 million. Second quarter gap earnings per share is expected to be in the range of 74 to 78 cents. And second quarter adjusted earnings per share is expected to be in the range of $1.08 to $1.13.
Speaker 2: And I show our first question comes from the line of Mayank Tandon from Needham. Please go ahead.
Speaker 3: Thank you. Good morning. Jeff, I wanted to get one thing out of the way in terms of the guide. Are you still confirming the guidance for the folio? I think you've given guidance last quarter on revenue and earnings. I just want to reconfirm that guidance still holds true.
Speaker 4: given what you're seeing in the margin? Absolutely. We won't typically reaffirm guidance unless it changes. There was no change to the outlook, so we didn't feel the need to reaffirm it.
Speaker 3: And then just based on your comments in the press release and what you said earlier in terms of maybe given the bookings trends you're seeing and the solid delectivity, could you maybe help us understand the linearity of the quarters, especially in the back half, or do you expect a big step up in growth to get to that type of...
Speaker 3: the 4% organic growth that you'd guided to last quarter, or what is sort of the makeup of the growth, given some of the uncertainty on the macro front.
Speaker 4: Yeah, absolutely. So it is an expectation of an increase in the second half. And the reason we have some optimism around that, obviously we'll keep an eye on it as we march forward. But one of the key things is the bookings that I and Tom mentioned during the script.
Speaker 4: is we've had a really, really nice bookings quarter here in the first quarter. Actually, bookings improved in the fourth quarter. So if you look at the trend of bookings over, say, the last four quarters, the bottom, which was still a little better than flat, was Q3 of last year.
Speaker 4: So by the end of this quarter, we'll be mostly through that and enjoying some of the improved bookings that we had in Q4. And then as we move into the second half of the year, we'll see some of the bookings that we've had from Q1 kick in. Bookings for Q2 look pretty solid. Again, we'll be monitoring all this closely.
Speaker 4: update the market if anything changes.
Speaker 3: Got it. That's all I have. Thank you so much. Good job on the quarter.
Speaker 3: Thanks so much. Good job on the quarter. Thanks, Mike.
Speaker 2: Thank you. And our next question comes from the line of Jonathan Lee from Morgan Stanley . Please go ahead. Hi – this is Jonathan Lee and this is Panel 1 of the Joint Justice Mavericks.
Speaker 5: Hey guys, thanks for taking our question. You've certainly talked about things of cancellation that seem to accelerate through last year. Have you seen any this past quarter? Or is there anything embedded from a cancellation perspective in your outlook?
Speaker 4: I missed your question, the very first part of it. What are you asking? What are we seeing?
Speaker 5: Historically, you've talked about seeing some of the cancellations that seem to accelerate through last year. Is there anything to call out this past quarter or is there anything embedded from a cancellation perspective in your outlook?
Speaker 4: I gotcha. Yeah, I would say I would say the outlook is More conservative than you know, it would have been a couple of years ago just based on that uncertainty However, I'll also say that you know knock on wood Well, we had kind of a span of that in the early part of last year or the first half
Speaker 4: We haven't seen much since then. Outside of what I would describe as the norm. In this industry, there are always cancellations and there's always new work to fill that in and that's how we operate it. That got a little bit out of kilter again in the first half of last year. It seems to be more aligned right now and again something we'll have to keep an eye on, close eye on.
Speaker 4: that we seem to have moved past that and not seen any more than usual right now.
Speaker 5: Got it, that's helpful color. And I want to build on a prior question around bookings. I mean, last quarter you talked about this idea of urgency in bookings, despite some of the elongation and decision cycles. Are you still seeing that persist? And then what are you seeing in terms of demand for different types of projects? Yeah, we are seeing the number of, or the duration of prior...
Speaker 1: continue. And then Tom, would you like to comment on the sort of body of work that we're seeing out there and the type of projects? Sure, definitely around revenue growth. We see a still heavy demand for our services as clients continue to maximize their revenue. We also see some additional demand regarding operational efficiency.
Speaker 1: So, that larger program, I was mentioning a lot of that was around operational efficiency and cost take-out of businesses, which is where we play really well as well as we think about digital transformation and cost improvement. So, we are seeing a little bit more uptick there, which is all greatness for us as well as we continue to improve the bottom line for our customers.
Speaker 1: large program, I was mentioning a lot of that was around operational efficiency and cost takeout of businesses, which is where we play really well as well as we think about digital transformation and cost improvement. So we are seeing a little bit more uptick there, which is all greatness for us as well as we continue to improve the bottom line for our customers.
Speaker 6: Thank you.
Speaker 6: Thank you. Thank you.
Speaker 2: And I sure our next question comes from the line of surrender thin from Jeffries. Please go ahead.
Speaker 5: Thank you. Just following up on the bookings question, Jeff, a point of clarification here is the idea that it takes about two quarters for you to begin to realize some of the bookings numbers in terms of revenues. It's just you've had two consecutive.
Speaker 7: record quarters at this point and yet revenues have been been flattish at this point.
Speaker 4: Well, actually, keep in mind that from a record standpoint, a lot of that is because the company is larger than it's ever been. Revenue technically is actually a record as well. We're not contracted. We were flat in Q1. I think we've guided to a little bit better than that in the midpoint of Q2. Again, our guide for the year is better than that.
Speaker 4: The correlation factor to bookings tends to be about a five or six month rolling average. Now, this is the highest correlation point. Most of these bookings, the projects behind them will begin immediately. But the revenue curve on a project or an engagement tends to be a bit of a bell curve, right? That's all it is.
Speaker 7: understand the cadence there or verify that. So moving on from there in terms of just obviously a lot of discussion around generative AI, how have you kind of evaluated the technology at this point in terms of internal deployment plans? Yesterday there was a piece in the media about IBM and their
Speaker 7: thoughts on productivity gains. Any thoughts there for yourselves?
Speaker 4: Well, we're actually already leveraging it to some degree. If you look at the tool that Tom spoke to earlier, we're leveraging some of the technology, or similar technology. It used to be big data, now it's AI, now it's generative AI.
Speaker 4: So yeah, it's going to be very fascinating to see how it unfolds. We're approaching it cautiously, but also with an open mind. I think there's a lot of ways you can probably get yourself in trouble as a service provider over leveraging it, at least early on. So we'll be sorting that out. I don't know, Tom, do you have anything you want to add in terms of the actions we're currently...
Speaker 1: our clients understand how they're going to leverage generative AI. We've done a number of speaking engagements. You can see some information on Perficient.com regarding our perspective on generative AI. And a lot of our clients are turning to us to figure out how they can leverage it. We're a bit cautious on that and giving some understanding. There's a number of tools out there that we're working with our partners as well as they try to figure
Speaker 7: nutrition rates fall in probably dramatically. Any color there on how that might be impacting some of the inflationary pressures that you were seeing earlier in the year or you know last year and then are there any geographic differences that we should be aware of about let's say India versus Domino Alley.
Speaker 7: And then I guess on the utilization, just what level of bench maybe you're currently maintaining and how does that compare historically?
Speaker 4: Yeah, utilization has been pretty consistent. Our goal continues to be 80% overall. We're hovering right around that. We actually intentionally manage offshore a little lower so that they have a capability of ramping quickly, as well as we tend to engage in more training there than we do here in the US.
Speaker 4: So that's kind of the story on utilization. In terms of attrition, yeah, the last couple of quarters has been down pretty dramatically compared to what it was before. I think a lot of that, some of that might have to do with macro and obviously you see the layoffs from big tech. There's not a lot of overlap there in my opinion. A lot of the skills that some of the big tech...
Speaker 4: of that. People can only change jobs so many times in two or three years. So actually, again, I think it's a benefit. I think there's a little bit of a macro read in it, but it's certainly helpful to us that we're not distracted with having to replace people and instead we can focus on hiring new folks and new additions.
Speaker 7: Got it. And just the final point on any geographic differences we should be aware of?
Speaker 4: Sorry, no, actually it's kind of remarkably consistent. I think we probably have the lowest attrition of most firms in India, including Indian firms, and in fact, certainly Indian firms. So, yeah, we were enjoying about the same level, which is quite low, really at the low end of our goal range, and all three major GES.
Speaker 8: Got it. Thank you.
Speaker 6: Thank you.
Speaker 2: And I sure our next question comes from the line of Brian Kitzlinger from Alliance Global Partners. Please go ahead.
Speaker 9: Great, thanks so much. You touched on financial services. In terms of business development, can you talk specifically about the trends you're seeing in your other large vertical being healthcare? Are you seeing signs of improvement in this vertical based on bookings or general discussions around projects and pipeline? Or is this vertical facing pressure in terms of business development?
Speaker 1: There's a number of opportunities we're actually chasing right now within the healthcare vertical. Even in Q4, we talked about a large eight-figure deal or close to eight-figure deal in the healthcare industry. We're chasing actually a couple other eight-figure deals in the healthcare industry as well. We've seen a little bit of a shift in the healthcare industry. We're trying to make sure that we're not wasting a lot of time and that we're not wasting a lot of time in the healthcare industry. We're trying to make sure that we're not wasting a lot of time in the healthcare industry.
Speaker 1: We're seeing a lot of great tales in financial services, but keep an eye on health care. There's some great things coming that way as well.
Speaker 1: We're seeing a lot of great tales in your financial services, but you know, keep an eye on health care. There's there's some great things coming that way as well.
Speaker 4: Sorry, one thing to add, Ryan. Keep in mind, as we've made it very public, you know this, some of the healthcare shift has to do with Kaiser, you know, and winding Kaiser down over the last two years.
Speaker 4: So, of course, you know, but not as that that's completely out of the picture now and are more almost completely There's a little bit of a tail from last year, but I think that alone will you know? Will help us or see an improvement or take a uptick in health care as a person Yep
Speaker 9: Of course, just one more question, but in terms of the discussion on project or pipeline, are we talking pipeline or bookings have also been followed? And then my follow-up question is, I saw the reversal of contingent consideration. Within the environment, should we…
Speaker 9: expect structure of acquisitions to have less consideration, more how does the environment change the structure of how you plan to finance companies.
Speaker 10: I'll start on the continued consideration one. Obviously we closed on a couple deals in September and October . Some perform until business is not up to the original estimates so we made those adjustments. But from the overall deal structure we're going to continue with the structure that has made us successful to this point and we've done whatever 20, 30 deals.
Speaker 1: with that structure we're likely to continue with that. And then from the second part of that was around bookings versus revenue. It's both. The bookings continue to be strong and the pipeline continues to be just as strong. That man had a wife in the lord.
Speaker 9: Great, thanks so much guys. Thanks Brad. Thank you.
Speaker 11: And our next question comes from the line of Puneet Jain from JP Morgan. Please go ahead. Hi. Thanks for taking my question. Was there any impact on client behavior in the financial services vertical or maybe more broadly in your overall business?
Speaker 11: post financial crisis in March. Was there any change in the trends before and after those events in the month of March?
Speaker 4: I'm going to let Tom comment on this, but just real quick, I will tell you that there's an underlying factor here for Perficient that probably muddles that question a little bit, and it's a good thing actually. So we've been pretty underrepresented on the technology side in financial services.
Speaker 4: For some time, we've been primarily—have been primarily focused on management consulting, but in the last two years, we've had great success beginning to penetrate more on the technology side, some in new accounts and some in existing accounts, but I'll let Tom provide some more color on that.
Speaker 1: Specific to our client base, we're dealing with the largest banks in the world. So those organizations actually saw more of an uptick as individuals looked for an alternative to those regional providers. So if anything, we saw increased demand in certain areas based on that. We don't really work at the regional banking level. We have a couple of examples, but...
Speaker 11: M&A areas, like which areas you will look at to add skills, like will it continue to be to increase offshore mix or could there be shift in that strategy given like the new tools around generating AI and whatnot.
Speaker 4: might become more interesting and could be more onsite focused. Yes, we're always looking to add skills, whether that's, you know, emerging newer technology that we want to ramp up quickly, or in some cases it might even be just to add capacity and momentum.
Speaker 4: yet because it's so new in terms of, you know, certainly in terms of a service to clients. And then in terms of offshore, whether it's near shore or offshore in India, yes, we're going to remain open to that. If we find good targets,.
Speaker 4: has gelled extremely well and has done a great job of rising to the added demand that we've provided them. So we don't feel that we've got to do anything there, but again we'll look for tuck-ins opportunistically in those areas and then we'll continue to focus on skill gaps.
Speaker 2: Thank you. Thank you. Thank you. And I show our next question comes from the line of Vincent Calico from Barrington Research. Please go ahead.
Speaker 12: Yeah, Jeff, could you give a little bit more color on the increased discussions you're having around taking business away from others?
Speaker 12: Is it consolidation to save costs? Is it unhappy with the deliveries of others? What is it?
Speaker 4: You know, it's a combination. It's probably, well, ultimately it's more likely the latter, right? Most of the time. Because clients are always looking to, and particularly our Fortune 1000 base that we focus on, have sophisticated procurement departments, they're always looking to rationalize the partner list, right? Their vendor list.
Speaker 4: So we continue to emerge, in some cases as one of the smaller players, but not always, we're one of the larger players in some cases, but we continue to emerge on the top or top tier of those lists across both existing and new customers. So when that happens, typically somebody's losing out.
Speaker 4: So we've been taking share away quite a lot. It is a satisfaction issue that ends up resulting in a rationalization or reconciliation of the vendors that are being used. So it's a combination of both. We are certainly seeing some dissatisfaction.
Speaker 4: I won't name the names, but I think some some firms out there are a little overstretched and then obviously there's you know There's one that has other unique challenges. So we've definitely seen some pick up there
Are you seeing an incremental increase in demand for offshore given cost sensitivities in the current environment? And also I think I missed the organic growth offshore for the quarter.
Yeah, the last quarter it was about 10%, this quarter, the Q1, I'm sorry, it was about 10%. In terms of, what was the first part of your question? Are you seeing acceleration and demand for doing more work offshore given the cost?
Yeah, absolutely, no doubt about it. I think that's going to continue and if anything only accelerate. Right now we're running, as I mentioned, about 10% versus onshore was flat, flat score. That ratio is what we expect now as we...
see revenue picking up and growth picking up, then we'll also expect that ratio, that kind of ratio, to continue. So it's been about 3 to 4 to 1 in terms of the organic growth offshore slash nearshore versus onshore. And to the heart of your question, absolutely, I think that's continuing now and I think it's going to continue into the future and only accelerate.
Thanks, Jeff. Thanks, Jason. Thank you. I'm sure our next question comes from the line of Jack Van Der Aard from Maxin Group. Please go ahead....
Okay, great. Good morning, guys. Thanks for the update. I only have a couple of questions. Jeff, can you touch on the average billable rates in pricing power for both the onshore and offshore business? Jeff, what did you guys do as the total activity was? J f t t Just do
Maybe just how do your billable rates compare relative to the largest competitors today versus how your rates compared to a few years ago?
I would say our rates are higher relative to offshore, as it relates to offshore, relative to the big guys. They're still operating in a kind of 25 to 30 range because of their mix of business.
They've been late to the game in digital. I think they're still struggling. And that's where you're going to get better bill rates. So if you compare us to more of the self-proclaimed digital, native digital firms, we're actually getting a little bit better rate, or maybe materially better rate than they are. And I think that's...
Because in fact we are more of a full service company. We have more end-to-end capability including the upfront strategy component which tends to bring higher bill rates than they do. So I would say, you know, in terms of the digital realm, we're at the higher end but faring very well.
And in terms of the big picture, we're definitely above the big guys. That's all offshore. Onshore our rates are still probably a little, or I'd say maybe nearly lower than the really big guys like at Accenture, etc. But again, you've really got to look at the mix of business that they're providing. And then that's what's behind a lot of that.
In terms of the ABR increase, by the way, I think we mentioned this on the call, but it's out there in the stats. But it was about 4% in the US and around 10% in both India and nearshore. So that's a pretty healthy robust improvement in ABR. It helps to offset.
I would say completely, wage inflation and all those geos. Okay, great. Appreciate the color there. And maybe just to follow up for Jeff or maybe Paul as well, but on the organic piece of the business, just giving your comments on the pipeline strength.
Tom was indicating the number of seven and eight figure deals continues to grow. It seems like this would set up an organic growth rebound in 2024. Is it too early to touch on that? Just any color on how you see organic growth and maybe as we get into 2024. Thanks.
Yeah, absolutely. So our guide for this year is out there pretty modest for the year, which I think is judicious given the backdrop. And who knows, maybe there's some upside surprise, but I feel pretty good about the numbers being out there now. In terms of 20.4 and looking beyond...
Look, if the macro holds out to the least status quo, if not maybe some improvement, God willing, then I think our growth rate long term has to be a double business.
You know, I've talked about this before, one of the real important pivot points for the business, and we touched on this in the last question, is the growth of the offshore component. And once that offshore component gets beyond the 27% of revenue there it is today, so closer to 50. And this won't be a stair-step function, it's going to be linear.
But it'll become more and more of a tailwind to top-line revenue growth. Again, some of the challenge right now is that we're still shifting and of course the null rate ratio is about three and a half to one. So that's a little bit of a hindrance or a little bit of a challenge to growth. Long term growth prospects, double digits.
2024, you know, same macro environment. I actually think we can be close to that level, if not beyond it. And to peck to your question, we'll know more as the year unfolds. It's a little early to talk about 2024, but that's, you know, at least philosophically or generally speaking, that's exactly where we would expect revenue growth to be. Okay, great. I appreciate the color. Thanks, guys. Thanks, guys.
Thank you. Thank you.
Thank you. Thank you.
I'm sure our next question comes from the line of Divya Goyal from Scotiabank. Please go ahead. Good morning, everyone. So, great color on the pipeline and the bookings here. Just wanted to understand, I know your financial services and healthcare are two of your key segments. Are there any other industries where you're seeing that material uptick in that bookings and pipeline?
sectors up as far as pipeline. Quite honestly, the solutions we provide really do cut across industry and our client base is very well diversified. So the reasons really vary by industry, but the macro is definitely between...
driving revenue growth for them and their clients and or Operational efficiency and that cuts across all industries those two digital transformation trends are really industry agnostic
Yeah, no, that's helpful. Just on that question, like, just a follow up to that is, could you elaborate on what exactly is the kind of work that you do for the financial services client, including the banking sector or the insurance because, you know, from a digital consultancy standpoint, it's slightly different from what the cloud service provider.
So, it really depends on how you're preparing. That being said, as I mentioned, a great example would be the one I mentioned during the prepared remarks. In that situation, we're working with the risk management arm of a fortune, very large organization, helping them with their ops of the com controller, working with regulatory and audit milestones.
to make that more efficient.
Okay, that's good color. Maybe I'll follow up later if I need to. Just one last question. I noticed that your software and hardware revenue went down, but the services went up. It was not materially down, slightly down, but it's just kind of curious if there was a trend that you noticed this quarter in the hardware software spend.
You know, I would say that we are not exposed enough really to that market. So that's very opportunistic for us. It's good profit because we're already doing the work, right, to help the vendor partners sell the software. So we might as well take that margin. But it's not a strategic focus for us. So I wouldn't say that what we experience on that.
is really reflective of the broader market. Yeah, I guess the thing I'd add on that too is it's relatively lumpy, but it's a small piece of the world.
is really reflective of the broader market. Yeah, I guess the thing I'd add on that too is it's relatively lumpy, but it's a small piece of the world. That's great color. Thanks everyone.
Thank you. Thank you. Thank you. And I sure our last question comes from the line of Maggie Nolan from William Blair. Please go ahead. It's your turn to record. Thanks.
Hi, thank you. I heard your earlier commentary around utilization and attrition and just kind of balancing that with your thoughts around the back half of the year growth starting to pick up a little bit. Can you talk about your expectations for hiring in the coming quarter and the back half of the year, whether or not we'll see net additions on a quarterly basis again?
Yeah, I think you will as things begin to pick up. Obviously, we're going to make sure that the utilization is running where we want it to. So we'll focus on that first and make sure we don't have any unnecessary bench. But certainly, I would expect us, if we feel the way we expect, that we will be hiring primarily.
hiring at that level, but in terms of just hiring into revenue, again, I think we'll see some of that in the second half making sure that we get utilization or maintain utilization where we want it.
Okay, and then you gave some commentary as well around the bill rates that you're seeing. Um, and the kind of annual increases there, can you comment a little bit on client receptiveness to continued increases in bill rates just given this environment and given kind of their shift in focus to maybe some different types.
by race. You know, I think we're judicious in our approach, typically with the shift to a mixed global approach. You know, we're able to see the cost savings on the macro, and it's not necessarily at the individual DVR perspective that we receive pushback. So, I think we have a good game plan as far as pricing strategy, and I don't see any...
to Mr. Jeff Davis, Chairman and CEO , for closing remarks.
Well once again thank you all for your time today. Obviously you see that we've got some good momentum going in spite of the backdrop and we're looking forward to recording how this next quarter comes a little long here in 90 days. Thank you again.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.