Q2 2023 Perficient Inc Earnings Call

July 27, 2023

Okay.

Thank you for standing by and welcome to proficient second quarter 'twenty to 'twenty three earnings call.

At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

Can I ask a question during the session you will need to press star one one on your telephone.

I would now like to hand, the call over to Jeff Davis, Chairman and CEO . Please go ahead.

Thank you. Good morning, everyone. This is Jeff Davis with me on the call is Paul Martin, our CFO and Tom Hogan our <unk>.

Residents.

Thank you for your time. This morning, we've got about 10 to 15 minutes of prepared comments per usual after which we'll open up the call for questions. Before we proceed or would you. Please read the safe Harbor statement.

Thanks, Jeff and good morning, everyone. Some of 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. We encourage you to refer to the additional information contained in our SEC filings concerning factors that could cause those results to be different in kind.

To put it in today's discussion 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 is posted on our website at www.

Dr proficient dot com.

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. Thank.

Thank you Paul and once again, thanks for your time. This morning, as we discuss proficient second quarter and our revised expectations for the remainder of the year.

Before we close I want to comment on my opinion transitioned to the role of executive chairman as well.

Q1 revenue was up 4% during the quarter margins were impacted by the extension of sales cycles clients, suggesting budget to in some instances projects ramping more slowly than we had anticipated. However, we've long prided ourselves on maintaining best of breed margins and have already taken appropriate action on discretionary and fixed cost to it.

Sure we've returned to our historical norms by the end of the year.

We can't turn the ship on a dime, but.

Back to exit Q3, much closer to 39% gross margins and exit the year closer to 40% gross margins and works peering as well as most in the industry, but the market has certainly slowed more quickly than we'd anticipated and with.

All that said, we're continuing to pursue and win larger deals than ever before.

Tom will speak to the specifics later, but during the quarter, we signed the largest single statement of work in the company's history.

The win is a multi year extension of it.

That started in 2017 as a program worth about $1 million and $5 per year in revenue and we are now delivering more than $30 million annually to this client on vaccine work stream as well as many others.

Bill rates remained solid during the quarter in fact onshore bill rates were actually up 4% year over year, our customers continue to be comfortable accepting modest rate increases because we are delivering value.

Our transformation to a truly global entity remains underway offshore revenue grew nearly 20% during the quarter, 6% of that was organic.

The 8% of our global resources are now located outside the U S.

Our technology and channel partners continue to recognize our contributions in importance to their businesses with various local and regional awards. In fact in recent weeks, we've earned prestigious recognition from the likes of Microsoft Adobe and St for a.

While clients are clearly preceding a bit more cautiously right now we remain engaged in many seven figure.

Tom will talk in more detail shortly about the momentum across industries and our excitement around emerging technologies like generative AI as we've mentioned before our digital transformation is morphing into a digital business and is here to stay.

Today enterprises have no choice, a must consistently invest and deploy technology to grow or reduce cost is a competitive bid areas with that I'll turn things over to Paul.

Thanks, Jeff services revenue, excluding reimburse Reimbursable expenses were $228 6 million in the second quarter, a 4% increase over the prior year year over year organic services organic excuse me organic services revenue growth was 8% software gross margins, excluding reimbursable expenses and stock compensation was.

<unk> 38, 1% in the second quarter compared to 40% in the prior year.

G&A expense was $44 2 million in the second quarter compared to $40 9 million in the prior year SG&A expense as a percentage of revenue increased to 19, 1% from 18, 3% in the prior year the increase in SG&A expenses as a percentage of revenue was primarily related to increases in sales related costs.

Adjusted EBITDA was $48 2 million or 28% of revenues in the second quarter compared to 51.2 or 23% of revenues in the prior year amortization.

Amortization was $5 5 million in the second quarter compared to $6 million in the prior year.

Net interest expense for the second quarter decreased to <unk> 3 million from $8 billion in the prior year, primarily due to a 500000 increase in interest income our effective tax rate was 24, 9% for the second quarter compared to 28% in the prior year net income decreased five 1% to $26 4 million for the second.

<unk> from $27 8 million in the prior year.

Diluted GAAP earnings per share decreased to 73 cents a share compared to 77.

In the prior year adjusted earnings per share decreased to $1 for the second quarter from $1 six in the prior year you can see the press release for a full reconciliation to GAAP earnings I'll now turn to the year to date results services revenue, excluding Reimbursable expenses were $457 million for the six months ended June 32023, 4%.

The increase over the prior year year over year organic services growth was 6% services gross margin, excluding reimbursable expenses and stock up was 38.

6% for the six months ended June 32023, compared to 39 four in the prior year.

SG&A expense was $88 1 million for the six months ended June 32023, compared to $83 1 million in the prior year period SG&A expense as a percentage of revenue increased to 19% compared to 18, 7% in the prior year again the increase in SG&A expense was primarily related to increases in sales related costs.

Adjusted EBITDA for the six months ended June 32023 was $98 3 million or 21, 2% of revenues compared to $98 5 billion or 22, 1% of revenues in the prior period amortization was $11 3 million compared to $12 million in the prior year period net interest expense for the six months ended June 30.

2023 decreased 800000 for $1 7 million in the prior year period, primarily due to 800000 of increased interest income our effective tax rate was $25 eight for the six months ended June 32023, compared to 23, 3% in the prior year period net income for the six months ended June 32023 was.

$53 2 million compared to $54 9 million in the comparable prior year period diluted GAAP earnings per share decreased to $1 48 for the six months ended June 32023, compared to $1 52 for the prior year period adjusted earnings per share increased to $2 four for the six months ended.

Q3, 2023 from two or three in the comparable prior year period, our ending billable headcount at June 32023 was 6320, including 5936 billable consultants and 384 contractors ending SG&A headcount at June 30 was 989 or <unk>.

Ending debt net of deferred issuance costs as of June 32023 was $395 7 million. We also had $60 $5 million in cash and cash equivalents as of the end of the quarter and $299 9 million of unused borrowing capacity on our credit facility. Our balance sheet continues to leave us very well positioned to execute against our.

<unk> plan.

Finally, operating cash flow increased to $65 1 million for the six months ended June 32023 from $34 million of the comparable prior year period, primarily due to reduction in accounts receivables I'll now turn the call over to Tom Hogan for a little more commentary behind the metrics.

Thanks, Paul Good morning, everybody, we booked 38 deals greater than $1 million during the second quarter of 2023 compares to <unk> 45 in the second quarter of 2022, and <unk> 63 in the first quarter of 2023.

While volume gets slow during the quarter, it's worth pointing out a few very large deals, including the record setting when Jeff referenced earlier, our average deal size is larger than ever before in the quarter.

Net pipeline weighted unweighted remains very solid.

Key to remain well diversified from a customer industry and platform perspective.

Health care financial services remain the strongest verticals, but we're also excited about our momentum in both the manufacturing and automotive.

We're already working with May largest entities in each of those industries and others are beginning to understand the deep domain expertise experience and strategic insights we can bring to their business. For example in the coming weeks, we will release, a proprietary electronic or electric vehicle market study in which we surveyed more than a thousand EV and non.

And never EV owners interviewed consumers dealers and Oems to better understand the barriers and rationale for purchasing evs.

Market insights are a significant focus area for Oems.

To prepare for the continued growth of the <unk> segment and need to build lifetime relationships with owners, we look forward to sharing our industry research and further assisting Oems <unk> journey.

Jeff mentioned, a substantial eight figure win in the manufacturing space earlier, that's a project delivered globally with proficient colleagues from the U S Latin America and India.

Another example of our seamlessly integrated global delivery leveraging talent from our three primary regions enjoy we're assisting a privately held global producer and distributor of architectural products and creating modern cloud native and user friendly web application, our global team modernized and consolidated several legacy applications into one application.

Analyzing several product variables to help the distributor and create optimal product for its buyers. After initially launching in Poland. A subsequent launch in Italy planned for later this year, we will kick off the applications rollout to all distributors to their global plans.

Year over year payout recall on last quarter's call. We discussed the launch of emission online are comprehensive and unparalleled digital transformation platform that provides a suite of proprietary strategy tools.

Oracle industry data and best practices quickly deliver actionable insights. This data collected across industries marketing companies is informed by real life of execution improving results enterprises can quickly understand where they stand relative to competitors determine where gap exists and how to address them.

Since launching in April .

<unk> to mature platform, which now defined more than 500 capabilities across 13 key business areas, such as marketing sales AI customer service commerce loan origination and servicing automation and data just to name a few the platform selection component now includes more than 500 vendors and 6700 requirements across more than <unk>.

70 platforms, including digital experience Commerce marketing AI.

We currently have five projects leveraging the tools with large customers to have discussions assessment that several more and meaningful inbound interest beyond that.

Obviously, there's a lot of discussion around generative AI and its near and long term impacts on enterprises industries and sadly AI in general space, we've been in for many years going all the way back to our work with IBM around Watson among other tools, we have launched countless AI chatbot eight are customer centric and machine learning platforms and products for our clients today, we have.

<unk> dialogue and engagement around generative AI with customers.

What's the next step in this technology means for them in terms of risk and opportunity for the organization and their clients I don't think a day goes by that we are engaged with clients agenda of AI and most importantly, we are actively doing billable work implementing solutions with clients and talking with many more.

Companies in transformation of the partner to help them understand the potential and leveraging generate AI.

Im also excited to share that we have launched the first of its kind global innovation group at proficient around generative App, we have hundreds of our colleagues around the world collaborating sharing knowledge and developing use cases for our customers specifically leveraging <unk> our customers have always appreciate our pragmatism experience and expertise when working to tackle new areas.

Opportunity like terabyte, leveraging a global team, where our clients can tap into the best talent any industry independent of physical location around the world to solve challenges. This is exactly why organizations trying to proficient.

Finally, it's worth noting proficient was recently recognized as the number 12 top employer in the United States.

And our gauges.

The top 100 employers and our engaged survey with more than 70000 organization annually. So to be ranked number 12 in the entire country is something we're very very proud of particularly because the recognition comes directly from feedback of our colleagues in the call and feedback they provided.

The best and brightest individuals or industry want to be part of our journey and proficient and it shows and with that I'll turn things back over to Jeff well. Thanks, Tom as I mentioned earlier I was going to comment a little bit on my my pending transition.

This is somewhere near by 90% to earnings call at proficient is kind of hard to think about.

But I did want to thank the analysts here on the call and those who can't joint line.

Really appreciate your coverage and feedback over the years, it's really been invaluable as we grow.

I also want to point out and reiterate as <unk> stated in the release that I'll be remaining as executive chairman.

Indefinitely, and so I will still be a part of the team and thrilled about that but beyond that I have tremendous amount of confidence full confidence in Tom and the extended executive team as well as all the rest are proficient really.

Our extended executive team represents folks.

<unk> been here on an average a 10 year.

Well over 10 years and experience in the industry approaching 20 on average so we've got a deep bench and I'm very confident in their ability to take this very special company forward.

Very talented and dedicated colleagues across the world work and proficient I appreciate all of them and I think again, we've got something really special here are very proud of it and very proud with where the company is headed now I'll turn my attention to our attention too.

The outlook proficient expects its third quarter 2023 revenue to be in the range of $220 million to $226 million.

Third quarter GAAP earnings per share is expected to be in the range of 56% to 60.

Third quarter adjusted earnings per share is expected to be in the range of 89 to 94.

And we expect our full year 2023 revenue to be in the range of $900 million to $960 million.

2023, GAAP earnings per share to be in the range of $2 73 to $2 84, and adjusted earnings per share to be in the range of $3 93 to $4 <unk> 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 one on your telephone please standby, while we compile the Q&A roster.

Our first question.

It comes from the line of Kyle Peterson of Needham.

Hey, good.

Good morning, guys.

Peterson on for <unk>, Thanks for taking the questions.

Just wanted to touch on.

Book.

Particularly some of the weaker demand.

And was there any concentration in verticals or types of projects that were hit particularly harder.

And then others or with some of the softness.

Great broad base.

Yes, it was pretty broad based and again I want to reiterate that.

The source is most.

Made decisions or slower starts a little bit of a slower spending.

But really it's kind of a gap.

The bookings as it relates to some of these closed is now.

We are seeing some signs of improvement.

To be very conservative here obviously.

And guide to a number of them were comparable with.

And hey, if we if things are better than we expected and that's great.

But we don't want it to be worse than we expect so I would describe our outlook in that way.

Makes sense and then just a quick follow up on the cost side of things you guys mentioned that you had taken some actions on that and again the discretionary spending.

How should we think about the margin trajectory as long as the demand environment remains a little bit softer here <unk>.

Dropped and then we start to get an improvement in margins.

The fourth quarter.

Or do some of the cost actions take a little bit longer.

To flow through the P&L.

Actually we're going to see some modest benefit from those actions in the third quarter.

And I think the bigger.

Gross margin gross margin in Q2 was around 38.

And.

We're looking at about 39% for Q Q3, so about 70% 70, Bip improvement 70, 80 bps improvement there and then actually 40.

Q4, obviously thats all dependent on the macro environment, but.

I think we've got things well.

At hand in terms of the.

Reductions that we've made and any further with a bitter necessary.

Makes sense.

Thanks, guys.

Thanks Kyle.

Thank you.

Our next question comes from the line of Brian Kingston Inger of Alliance Global partners.

Congrats Jack Great working with you for over two decades.

Yes.

Likewise, Brian there's a lot of has lot of history. There I think you are pretty much the longest.

Okay.

I remember when your company was acquired in.

No.

You mentioned.

I wanted to follow up on the margin question in the press release about getting back to industry leading margins.

With the delays.

I assume that.

Youre cutting billable staff to improve utilization or is it more on the overhead side.

It's both.

Fortunately on the on the billable side attrition is a natural element of the.

The industry is in the business.

So we are going to allow that to drive as much as we can.

Before we take more aggressive steps, but.

We'll do what we need to I think we've got a long track record of doing that but it'll be a combination of both.

Great My follow up.

I think this quarter as well as last quarter, you mentioned, New York excitement around automotive.

The numbers suggest the segment is down.

About 50% year over year, So I'm curious what <unk> within that and then what makes you so excited about the trends.

It's an opportunity for us.

Patient within automotive.

Hey, Brian This is Tom I think part of that also is to reclassify some clients differently year over year.

It's not a fair compare year over year.

As we looked at manufacturing and the Oems It Ryan.

Segment that was a little more indicative of more manufacturing versus automotive.

Year over year that true automotive is still up but that's what you are seeing in the year over year compares just need some clients from one or the other.

Thanks, Tom and so, particularly within automotive or is it.

What excites you sound much as it did relate to adopt digital transformation is there something going on with the industry.

Clearly, we all know the push to <unk>, but what is what is what does it all mean to propitiate and what's the opportunity for you.

Candidly, we've had so much success with only a select few number of the Oems and now we're seeing more breadth and additional Oems coming on board. So thats really where the excitement is bring in new Oems into our family that we can bring our core patient <unk> 32.

Early in the industry.

Specifically, it's really more on bringing more clients than what we're already doing in that space and that's what's driving the growth and why I'm excited about it.

Great. Thank you so much.

Thanks, Brian .

Thank you.

Our next question.

It comes from the line of Maggie Nolan of William Blair.

Hi, Thank you.

The demand side or the slower start fairly widespread where there in particular or any large.

Any particular clients or large deals that were slow to start didn't materialize in the way that you expected more so than others or maybe by vertical any color you can share there.

So it's pretty broad based but if you dive into it certainly.

As you would expect there was more impact from some of the larger engagements.

Do we expect them to start sooner than they have.

I will then I'll ask Tom to comment on this actually because we've had some recent discussions about.

Some some modest improvement or some signs of some positive signs I think there was a large.

Large engagement as an example that we've been working on getting off the ground for a number of months now that's been delayed delayed.

But now is kicking off.

This this quarter, even as we speak so we are seeing again I think it's good to note and a positive sign.

That is more delay its been out out halt or cancellations some budget cuts, but I'd say, it's broad based.

I agree.

Broadband.

Additional piece in there Matt you know we're seeing at some of these larger deals, which I'm excited about the larger deals, we're seeing and getting in front of their incrementally starting whereas we thought they were going to ramp up a lot faster than they were so were seeing it may be.

A six digit type of statement of work.

Our CB eight figure statement of work trying to get to a seven statement or 70 to statement of work and incrementally kind of getting going to start and then making decisions in future quarters of lender ramp up the project and we have a handful of those that's what's really bringing into the delay.

Necessarily projects part starting it's a matter of their biting off smaller features and smaller products, which we're getting going which then we're driving momentum, which then brings that the bigger buying down the line.

Okay. That's helpful. Thanks.

And then you talked a little bit about where you expect.

Gross margins to be by the end of the year.

Fourth quarter, and you mentioned, perhaps there's maybe some effort to drive some operating leverage as well what should we expect in terms of SG&A as a percentage of revenue.

And your ability to kind of protect EBITA margin.

Yes. So we are actively as we've talked about looking at some some some cost reductions in SG&A and we're looking to be able to.

To get those back close to lapping last year's levels or maybe even a little better because bonus is going to be less than 23 than it was in 'twenty two.

Okay, Great that's helpful. Thanks, and congrats.

Tom Mcgough and thanks Paul.

Thanks, Max Thank you Maggie.

Thank you.

Our next question comes from the line of Puneet.

James.

J P Morgan.

Hi, Thanks for taking my question and congrats to Bruce Jackson Tom.

Excuse me if I quickly.

Quickly I wanted to just talk with like the overall.

Hey man macro environment.

So what needs to happen for clients gone on project based spending.

What I would like to indicate that the returns that you bought.

Thanks, Tim.

Cool.

Well it'll be accelerated bookings reaccelerate bookings.

So we've talked about the fact that obviously bookings slowed which is what caused the.

Yeah.

Mrs.

Or at least the low end of the guidance in Q2, and what caused the guidance adjustment for the rest of the year.

Do you think there is a broad based issue here, that's quite obviously youre.

Youre not attrition is way down in the industry, that's a key indicator.

And in a broad based indicator as well and so there is something a foot here and it is an isolated to us and I would say, it's been even isolated to the industry. So.

Is it a short answer and this is just speculation on my part is that it.

I think the sentiment and the outlook.

And the C suites basically has to improve.

There's a lot of.

Uncertainty I would say in the in fact, the macro environment right now and I think thats exactly whats driving some of this caution.

Got it.

Just to be clear so you are asking.

Clients.

You see the.

Large deals in the pipeline, but the clients are delaying final close.

That's exactly right.

It's really both.

Bigger impact comes from the delayed signings.

But the delay in ramp up and as Tom pointed out it's not necessarily a delayed start but it's a slower start than would be typical.

Because they want to kind of mirror out that cash a little slower so.

So it's really those two things.

Right and quickly I burden currency FX impact Colombian pesos.

Please disconnect.

So is there any FX impact to margins that we should think about.

Yes. So so there has been a little more FX effect in Q3, primarily with Latam.

With what currencies have done there.

We had part of it but there is some exposure to those.

The Colombian peso strengthens against the dollar debt that increases our cost.

Okay. Thank you.

Thank you.

Our next question.

Comes from the line of Vincent Colicchio.

Barrington research.

Yes.

Yes, Congrats Jeff and Tom.

Yes, I think this may have been asked but what.

It wasn't clear to me.

Has there been a shift towards cost reduction this quarter versus last quarter.

Yes, yes, I mean last quarter you keep in mind the experience, we had last quarter vis vis the bookings was double digit organic growth and we've seen and that was in the third incrementally incremental growth quarter in bookings, so third quarter improved fourth quarter improved in the first quarter approved.

Difficultly.

So we didn't really see at that time that we were going to have a need for cost reduction obviously that became apparent to us.

About the middle of this quarter as things started to shift pretty pretty dramatically. So.

So we begin to take those steps as I mentioned in the script. It takes a little time, obviously for that to sink in and that we do expect to see benefits from those steps that we've already taken within this quarter.

That was helpful. But I was I was referring to cost reduction projects.

Are you seeing a shift in demand towards sorry.

No worries that's correct.

Our own cost reduction projects.

Yes, and I'll ask Tom to comment on that but yes, I think I don't know if we've seen an uptick in that that's always an important part of what we deliver to our clients.

But I don't know if we've seen an uptick in that are now I'll, let Tom comment on the debt.

I would say not materially.

So when we look at the project.

Definitely and cost improvements and optimization projects in the digital transformation journey. We've been on there has definitely been a focus to that and reallocation of dollars to take dollars out absolutely has happened, but there is still a very healthy pipeline of clients trying to bring revenue in decline.

Client engagement, using new technologies engaging customers differently.

Yes.

I would go back a year actually it was more on revenue generation versus cost takeout. So yes, it's been an increase in year over year projects and cost takeout, but they've always been there.

And has there been.

To date any meaningful cancellations and do you expect any potential is coming here in the next quarter.

No there hasn't been any meaningful cancellations, we've had a couple of individual or anything to slow down a little bit.

They've shifted some project.

<unk>.

Less U S employees more of our team in India or in Latin America, but not cancellations and I don't see any cancellations.

But here within the quarter, although the conversations we're having.

One last one I assume it's early to ask but any thoughts on how coding efficiencies may impact your business from general generative AI overtime.

Yes.

It's early as you mentioned.

Right now the conversation is really more around interacting differently, particularly with customers interact differently with our applications. There are some things we're using internally to look at what we can do on the software development lifecycle to use generate AI tools not necessarily on coding, but more on testing.

And things of that nature or playing with all of it to see where it goes but to your point I think it's early and.

If nothing else right now we see a lot of the conversation about how do we interact differently with our customers is really more of the conversation versus having to use this technology to generate.

Thanks, Jeff.

Thank you.

Thank you our next question.

Comes from the line of PV.

<unk> of Scotiabank.

Good morning, everyone.

Congratulations Jeff Congratulations Tom.

Im.

Talking about the demand here.

To understand what is the level of visibility that you have in your client demand.

It can be is it fair to assume that any sort of cancellation or delays have already been baked into this new guidance or can be potentially see more coming in the quarter ahead.

Yes, im going to answer the first part of that and then I'll, let Tom address the second part of it.

This is a dynamic business proficient dynamic.

Maybe.

Within an industry that is a very dynamic with an economy. That's very dynamic right now as I mentioned earlier, so things can change pretty rapidly.

And then we're not the only one seeing that of course, so I'd say, it's broad based.

Answer.

We certainly believes that.

<unk> got some caution baked in.

It's not impossible.

And it's more than we think.

It's also possible, but it's better than we think.

Tom has more specifics specific to the second half or anything else he wants to add I'll, let topic.

I think Joe if you look at the year end.

And as Jeff was mentioning last sequential quarters regarding booking results, we are using that for our decision, making on what the future quarter would look like.

Using the same information that we know about Q2 and what we're seeing in current conversations with our customers. We think that we have the right.

Level of guidance for Q3, as Jeff mentioned dynamic, but at all the data we know now and the conversations we're having we think this directionally correct for the quarter, but as Jeff mentioned this dynamic.

Change one way or another but I think it takes into effect everything we've learned in the last couple of months as we look to the second half of the year.

I hope that's helpful. So just one thing if I heard it right I wanted to confirm you did mention that the customers have been okay with the rate increases when we look at the broader sector.

The pricing pressure.

Increasing so it just seems the two thoughts seem a little contra contradictory I'd. Appreciate if you could provide some more color on these rate increases versus the pricing pressure on the business.

Yes, I think Thats, a testament to the value of the work that we're delivering.

Really shifted the portfolio over the last several years to lead to those items that are high value high demand high ROI.

So clients tolerance level, because they understand that to deliver these things that are critical in terms of the timeframe that they are trying to deliver them the meeting market goals and so it's critical that we be things deliver things on time and.

Also with high quality. So we've got a proven track record of demonstrating the ability to do both of those things and so clients come to us and rely on us to do that and I don't mind paying a little more to get it.

That's great color just one last question for me I was trying to understand if you're seeing any change in dynamics when it comes to the onshore versus the nearshore and offshore business are you seeing.

Are you seeing reassuring picking up at all or are you seeing that cost saving.

Initiated enhancements towards the near shore offshore demand continue to pick up.

I will let Tom respond to that I think we've got a great dynamic going there, but I'll, let Tom answer that we continue to see.

The organization is lightning, our Latin America, and India story also to the pricing.

Pricing pressure. That's also the relief that we have as we built out global depth around the world not sacrificing quality of talent as you ship delivery to Latin America or to India. It's also how we're able to maintain avionics. So as we're looking to reduce ABR for our client we leverage our team in Latin America.

Our India versus having to sacrifice ABR on our U S team as far as re shoring.

I would say that that the pendulum that goes back and forth, but right now definitely not a situation that we're seeing a couple of clients have always been interested in that always will be but for the majority of our organizations are looking for that global dynamic organization that we continue to see.

Just to add one more thing there.

As Tom highlighted Latam, India North America.

We we had clients on a fairly regular basis and I'm talking March sophisticated fortune 100 companies talk about the fact that we've got a more cohesive integrated strategy to deliver from any one of those geos and bring together the best team the best value.

That we can for the customer and the feedback that we're getting from at least some of those and then we've got a better capability there and even some of your household brand names in the industry.

That's good to know thanks, a lot for your answer.

Thank you.

Our next question.

Comes from the line of.

Jack Vander Ark.

Maxim Group.

Okay, Great. Good morning, guys, Congrats Jeff and Tom on your next leadership roles.

I'll just start with a question on the M&A front.

That's been addressed yet during this call.

Any update.

On M&A and potential acquisitions.

As we head into the second half of 2023.

And just any changes to the overall acquisition strategy.

You mentioned in the past thanks.

Yes, we're planning a fairly slow game there.

These valuations are really high obviously.

Some uncertainty in the industry. So we want to make sure we're thinking carefully vet.

We do have a couple of.

Firms that we're looking at that we're in.

Early stages, but moving along moving the ball on.

And we'll see how those play out still intended to use M&A as a part of our overall strategy.

But yes, probably playing a little bit of a slower game right now either.

Okay, Great I appreciate the color there and then just back.

Back to the overall pipeline.

I'll send some customer contracts larger contracts.

All cycles.

How would you compare maybe your level of visibility and comfort levels with forecasting there you are.

Deal pipeline and conversions and potential risk of cancellations.

Maybe what you are looking at a year or two ago during the pandemic and most risk of cancellations.

And contract.

How would you compare.

Where we are today versus your outlook, maybe a couple of years ago.

Yes, I would say that the pipeline remains strong.

We'd like to see the gross pipeline even larger than it is.

Obviously, we're working on that and actually seeing some improvement there it's still up by the way pretty pretty substantially it's a matter again of getting those deals closed and getting them close in a timely manner. So visibility I think is similar to what it's always been.

In terms of outlook.

What what has obviously muddied the waters here a little bit is that what's shifted as we mentioned before has been some of these delayed start some of these slower starts are really just hard to predict.

They are atypical of our experience.

So it's difficult to.

Predict those again as we mentioned earlier.

We've done a pretty good job of baking in as much of that as we can as a cautionary measure for the second half, but again, it's it's.

Things can change pretty quickly.

Okay, Great I appreciate the color there and again congrats on your guidance growth. Thank you.

Thanks Jack.

Thank you I would now like to turn the conference back to Jeff Davis for closing remarks, Sir.

Yes. Thank you all for your time today and thank you all for the last 20 years that I've had in this role 22 years.

And as I said, I will still be around but not necessarily in this forum anymore. So thank.

Thank you all so it's been fun.

I'm sure Tom and Paul look forward to speaking to you in about 90 minutes.

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

[music].

Yes.

[music].

Okay.

[music].

Yes.

[music].

Okay.

Yes.

Okay.

Sure.

[music].

Hum.

[music].

Okay.

Sure.

Okay.

[music].

Okay.

Sure.

[music].

Sure.

Okay.

[music].

Sure.

[music].

Yes.

[music].

Okay.

[music].

Yes.

[music].

Yes.

[music].

Yeah.

[music].

Okay.

[music].

Yes.

[music].

Okay.

[music].

Yes.

Okay.

[music].

Okay.

Great.

[music].

Yes.

Okay.

[music].

Yes.

[music].

Yes.

[music].

Yes.

[music].

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

[music].

Okay.

Yes.

Okay.

[music].

Okay.

[music].

Thank you for standing by and welcome to <unk> second quarter 2023 earnings call. At this time, all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one one on your telephone.

I would now like to hand, the call over to Jeff Davis, Chairman and CEO . Please go ahead.

Thank you. Good morning, everyone. This is Jeff Davis with me on the call is Paul Martin, our CFO and Tom Hogan, our president and COO I want to thank you for your time. This morning, we've got about 10 to 15 minutes of prepared comments per usual 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. We encourage you to refer to the additional information contained in our SEC filings concerning factors that could cause those results to be different and kind of.

Put it in today's discussion 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 is posted on our website at www.

Dr proficient dot com.

Thank you Paul and once again, thanks for your time this morning.

<unk> provision second quarter, and our revised expectations for the remainder of the year.

Before we close I'll comment on my opinion transitioned to the role of executive Chairman as well.

<unk> Q1 revenue was up 4% during the quarter margins were impacted by the extension of sales cycles clients adjusting budget to in some instances projects ramping more slowly than we had anticipated. However, we've long prided ourselves on maintaining best of breed margins and have already taken appropriate action on discretionary and fixed costs too.

Ensure we return to our historical norms by the end of the year.

We can't turn the ship on a dime, but do you expect to exit Q3, much closer to 39% gross margins and exit the year closer to 40% gross margins and we're hearing as well as most in the industry, but the market has certainly slowed more quickly than we'd anticipated and with.

All of that said, we're continuing to pursue and win larger deals than ever before in fact, Tom will speak to the specifics later, but during the quarter. We signed the largest single statement of work in the company's history.

When is a multi year extension of an <unk> of an inch.

Our transformation to a truly global entity remains underway offshore revenue grew nearly 20% during the quarter, 6% of that was organic.

8% of our billable resources are now located outside the U S.

Our technology and channel partners continue to recognize our contributions in importance to their businesses with various local and regional awards. In fact in recent weeks, we've earned a prestigious recognition from the likes of Microsoft Adobe and safer.

While clients are clearly preceding a bit more cautiously right now we remain engaged in many seven figure.

Sure.

Today enterprises have no choice a must consistently invest in deploying technology to grow over reduce cost is a competitive area with that I'll turn things over to Paul.

Thanks, Jeff services revenue, excluding reimburse Reimbursable expenses were $228 6 million in the second quarter, a 4% increase over the prior year year over year organic services organic.

Organic services revenue growth was 8% software gross margins, excluding reimbursable expenses and stock compensation was 38, 1% in the second quarter compared to 40% in the prior year.

SG&A expense was $44 2 million in the second quarter compared to $40 9 million in the prior year SG&A expense as a percentage of revenue increased to 19, 1% from 18, 3% in the prior year the increase in SG&A expenses as a percentage of revenue was primarily related to increases in sales related costs adjusted EBITDA was.

<unk> $48 2 million or 28% of revenues in the second quarter compared to 51.2 or 23% of revenues in the prior year.

Amortization was $5 5 million in the second quarter compared to $6 million in the prior year net interest expense for the second quarter decreased $1 3 million from $8 million in the prior year, primarily due to a $500 increase in interest income our effective tax rate was 24, 9% for the second quarter compared to 28% in the prior.

Net income decreased five 1% to $26 4 million for the second quarter from $27 8 million in the prior year diluted GAAP earnings per share decreased to 73 cents a share compared to 77.

In the prior year adjusted earnings per share decreased to $1 for the second quarter from $1 six in the prior year you can see the press release for a full reconciliation to GAAP earnings I'll now turn to the year to date results services revenue, excluding Reimbursable expenses were $467 million for the six months ended June 32023, 4%.

The increase over the prior year year over year organic services growth was 6% services gross margin, excluding reimbursable expenses and stock comp was 38.

6% for the six months ended June 32023, compared to 39 four in the prior year.

SG&A expense was $88 1 million for the six months ended June 32023, compared to $83 1 million in the prior year periods SG&A expense as a percentage of revenue increased to 19% compared to 18, 7% in the prior year again the increase in SG&A expense was primarily related to increases in sales related costs.

Adjusted EBITDA for the six months ended June 32023 was $98 3 million or 21, 2% of revenues compared to $98 5 million or 22, 1% of revenues in the prior period amortization was $11 3 million compared to $12 million in the prior year period net interest expense for the six months ended June 30.

Q3, 2023 from two or three in the comparable prior year period, earning billable headcount at June 32023 was 6320, including 5936 billable consultants and 384 contractors ending SG&A headcount at June 30 was 989 or outside.

<unk> plan.

Finally, operating cash flow increased to $65 1 million for the six months ended June 32023 from $34 million a comparable prior year period, primarily due to reduction in accounts receivable I'll now turn the call over to Tom will give us a little more commentary behind the metrics.

Thanks, Paul and good morning, everybody, we booked 38 deals greater than $1 million. During the second quarter of 2023 compares to <unk> 45 in the second quarter of 2022 and 63 in the first quarter of 2023.

While volume did slow during the quarter, it's worth pointing out. Thank you very large deals, including the record setting when Jeff referenced earlier, our average deal size is larger than ever before in the quarter.

Net pipeline weighted unweighted remains very solid.

Key to remain well diversified from a customer industry and platform perspective.

Health care financial services remain the strongest verticals, but we're also excited about our momentum in both the manufacturing and automotive.

We're already working with many of largest entities in each of those industries and others are beginning to understand the deep domain expertise experience and strategic insights we can bring to their business. For example in the coming weeks, we will release, a proprietary electronic arts <unk>.

Vehicle market study in which we surveyed more than a thousand EV and non endeavor EV owners interviewed consumers dealers and Oems to better understand the barriers and rationale for purchasing evs.

Market insights are a significant focus area for Oems.

<unk> continued growth in <unk> segment and need to build lifetime relationships with owners, we look forward to sharing our industry research and further assisting Oems under EEV journey.

Jeff mentioned, a substantial eight figure win in the manufacturing space earlier, that's a project delivered globally with proficient colleagues from the U S Latin America and India.

Another example of our seamlessly integrated global delivery leveraging talent from our three primary regions, where we're assisting a privately held global producer and distributor of architectural products and creating a modern cloud native and user friendly web application, our global team modernizing Saudi several legacy applications into one application.

That analyze the several product variables to help the distributor and create optimal product for its buyers. After initially launching in Poland. A subsequent launch in Italy planned for later this year, we'll kick off the applications rollout to all distributors to their global plants.

<unk> Calgary call on last quarters call. We discussed the launch of Division online are comprehensive and unparalleled digital transformation platform that provides a suite of proprietary strategy tools to Oracle industry data and best practices quickly deliver actionable insights. This data collected across industries marketing companies is in <unk>.

Or by real life of execution, improving results enterprises can quickly understand where they stand relative to competitors determine where gap exists and how to address them.

Launching in April we've continued to mature platform, which now defined more than 500 capabilities across 13 key business areas, such as marketing sales AI customer service commerce loan origination and servicing automation and data just to name a few the platform selection component now includes more than 500 vendors and 6700.

Requirements across more than 70 platforms, including digital experience commerce marketing AI.

We currently have five projects leveraging the tool with large customers to have discussions assessment that several more and meaningful inbound interest beyond that.

Obviously, there's a lot of discussion around AI and its near and long term impacts on enterprises industries and society in.

In general the space, we've been in for many years going all the way back to our work with IBM around Washington, among other tools, we have launched countless AI chatbot data customer centric and machine learning platforms and products for our clients today, we have significant dialogue and engagement around generative AI with customers.

Most importantly, we are actively doing billable work implementing solutions with clients and talking with many more companies in transformation of the partner to help them understand the potential and leveraging generally.

I'm also excited to share that we have launched the first of its kind global innovation group a proficient around generic.

We have hundreds of our colleagues around the world collaborating sharing knowledge and developing use cases for our customers specifically leveraging generative AI our customers have always appreciate our pragmatism experience and expertise when working to tackle new areas of opportunity like Jeremy leveraging a global team, where our clients can tap into the best talent any industry independent of physical location.

Around the world to solve challenges this is exactly why organizations trying to provision.

Finally, it's worth noting proficient with recently recognized as the number 12 top employer in the United States.

And our gauges list of top 100 employers enter engaged surveys as more than 70000 organization annually. So to be ranked number 12 in the entire country is something we're very very proud of particularly because the recognition of stems directly from feedback of our colleagues in the call and feedback they provided the best and brightest individuals orange.

We want to be part of our journey and proficient and it shows and with that I'll turn things back over to Jeff well. Thanks, Tom as I mentioned earlier I was going to comment a little bit on my my pending transition.

This is somewhere near by 90% to earnings call at proficient is kind of hard to think about.

But I did want to thank the analysts here on the call and those who can't join Lion.

And really appreciate your coverage and feedback over the years, it's really been invaluable as we grow.

I also want to point out and reiterate as stated in the release that I'll be remaining as executive chairman.

Definitely and so I will still be a part of the team and thrilled about that but beyond that I have tremendous amount of confidence full confidence in Tom any extended executive team as well as all the rest of the proficient really are.

Our extended executive team represents folks.

I've been here on an average a 10 year.

Well over 10 years and experience in the industry.

Protein 20 on average so we've got a deep bench and I'm very confident in their ability to take this very special company forward.

Very talented and dedicated colleagues across the world, Rick and proficient I appreciate all of them and I think again, we've got something really special here are very proud of it and very proud of where the company is headed now I'll turn my attention our attention too.

The outlook proficient expects its third quarter 2023 revenue to be in the range of $220 million to $226 million third quarter GAAP earnings per share is expected to be in the range of 56% to 60.

Third quarter adjusted earnings per share is expected to be in the range of 89 to 94.

And we expect our full year 2020 revenue to be in the range of $900 million to $916 million.

2023, GAAP earnings per share to be in the range of $2 73 to $2 84, and adjusted earnings per share to be in the range of $3 93 to $4 <unk>.

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 one on your telephone please standby, while we compile the Q&A roster.

Our first question.

Comes from the line of Kyle Peterson of Needham.

Okay.

Hey, good.

Good morning, guys.

Peterson on for Mark Thanks for taking the questions.

Just wanted to touch on.

Our book.

Particularly some of the weaker demand.

And was there any concentration in verticals or types of projects that were hit.

Particularly harder.

And then others or with some of the softness.

Pretty broad base.

Yes, it was pretty broad based and again I want to reiterate that.

The source is mostly delayed decisions or slower starts a little bit of slower spending.

But really it's kind of a gap in there.

Bookings as it relates to some of these closed is now.

We are seeing some signs of improvement, but we were trying to be very conservative here obviously.

And guide to a number of them were comparable with.

And hey, if we if things are better than we expected and thats great.

But we don't want it to be worse than we expect so I would describe our outlook.

Makes sense and then just a quick follow up on the cost side of things you guys mentioned that you had taken some actions on that and again the discretionary spending.

How should we think about the margin trajectory as long as the demand environment remains a little bit softer here <unk>.

The trough and then we start to get an improvement in margins in the fourth quarter.

Or do some of the cost actions take a little bit longer.

Flow through the P&L.

Actually if youre going to see some modest benefit from those actions in the third quarter.

I think the bigger.

Gross margin gross margin in Q2 was around 38.

<unk> and <unk>, we're looking at about 39% for Q Q3, So about 70% 70, Bip improvement 70, 80 bps improvement there and then actually 40.

Where Q4, obviously thats all dependent on the macro environment.

I think we've got things well at hand in terms of the reductions that we've made and any further ones that are necessary.

Makes sense.

Thanks, guys.

Thanks Kyle.

Thank you.

Our next question comes from the line of Brian <unk> of Alliance Global partners.

Congrats Jack right been great working with you for over two decades.

Yes.

Likewise, Brian there's a lot of history there.

You are pretty much the longest.

Okay.

I remember when your company was acquired.

So you.

You mentioned.

Wanted to follow up on the margin question in the press release about getting back to industry leading margins.

With the delays should we assume that you are cutting billable staff to improve utilization or is it more on the overhead side.

It's both.

Fortunately on the on the billable side attrition is a natural element of the of the industry in the business. So.

So we are going to allow that to drive as much as we can.

Before we take more aggressive steps.

We will do what we need to I think we've got a long track record of doing that but it'll be a combination of both.

Great My follow up.

I think this quarter as well as last quarter, you mentioned your excitement around automotive.

The numbers suggest that the segment is down.

About 50% year over year, So I'm curious what Kai what within the trial and then what makes you. So excited about the trends that creates an opportunity for patient within automotive.

Thanks.

Hey, Brian It's Tom I think part of that also is to reclassify some clients differently year over year. So it's not a fair compare year over year as we looked at manufacturing and the Oems where Brian .

A segment that was little more indicative of more manufacturing versus automotive.

So year over year that true automotive, it's still up but that's what you are seeing in the year over year areas just need some clients from one or the other.

Thanks, Tom and so, particularly within automotive or is it.

What excites you feel much better of late to adopt digital transformation is there something going on with the industry. I mean, clearly we all know the push to easy, but what is what is what does it all mean to proficiency and what's the opportunity for you.

Early in the industry.

<unk>.

It's really more on bringing more clients that what we're already doing in that space and that's what's driving the growth of Atlantic day Goodbye.

Great. Thank you so much.

Thanks, Brian .

Thank you.

Our next question.

It comes from the line of Maggie Nolan of William Blair.

Hi, Thank you.

The demand side or the slower start fairly widespread where there in particular or any large.

Any particular clients or large deals that were slow to start didn't materialize in the way that you expected more so than others or maybe by vertical.

A color you can share there.

So it's pretty broad based but if you dive into it certainly.

As you would expect there was more impact from some of the larger engagements.

Net debt and we expect them to start sooner than they have.

We'll then I'll ask Tom to comment on this actually because we've had some recent discussions about.

Some some modest improvement or some signs of some positive signs I think there was a large.

A large engagement as an example that we've been working on getting off the ground for a number of months now that's been delayed delayed.

But now is kicking off.

This this quarter or even as we speak. So we are seeing again I think it's good to note and a positive sign.

That is more delay its been out out halt or cancellations some budget cuts, but I'd say its broad based.

I agree.

Pretty broad based.

Additionally, keeping their menus, we're seeing at some of these larger deals, which I'm excited about the larger deals, we're seeing and getting in front of their incrementally starting whereas we thought they were going to ramp up a lot faster than they were what were seeing is maybe.

A six digit type of statement of work.

Our CB eight figure statement of work trying to get to a 7% vacant or subject to statement of work and incrementally kind of getting going to start and then making decisions in future quarters. When you ramp up the project and we have a handful of those that's what's really bringing into the delay.

Necessarily project part starting it's a matter of their biting off smaller features and smaller products, which we're getting going which then we're driving momentum, which then brings down the bigger buying down the line.

Okay. That's helpful. Thanks.

And then you talked a little bit about where you expect.

Gross margins to be by the end of the year.

Fourth quarter, and you mentioned, perhaps there's maybe some effort to drive some operating leverage as well what should we expect in terms of SG&A as a percentage of revenue.

And your ability to kind of protect the EBITA margin.

Yes.

We are actively as we've talked about looking at some some some cost reductions of SG&A and we're looking to be able to.

Yeah.

Those back close to last year's levels, or maybe even a little better because bonus is going to be less than 23 than it was in 'twenty two.

Okay, Great that's helpful. Thanks, and congrats.

Tom Mcgough and thanks Paul.

Thanks, Max Thank you.

Okay.

Thank you.

Our next question comes from the line of Puneet Jain of J P. Morgan.

Hi, Thanks for taking my question and congrats to Bruce Jackson Tom.

Excuse me.

Wanted to start with like the overall.

Hey man macro environment.

What needs to happen for clients gone on project spending.

What are the early indicators that you bought.

I would suggest that things have begun to improve.

Well it'll be accelerated bookings re accelerated bookings.

So we've talked about the fact that obviously bookings slowed which is what caused the.

The Mrs and <unk>.

Or at least the low end of the guidance in Q2, and what caused the guidance adjustment for the rest of the year.

I do think there is a broad based issue here that's quite quite obviously.

Attrition is way down in the industry, that's a key indicator.

And in a broad based indicator.

As well and so there is something a foot here and it is an isolated to us and I would say, it's been even isolated to the industry. So.

Is it a short answer and this is just speculation on my part.

Is that.

I think the sentiment and the outlook.

And the C suites, basically has to improve and I think.

There's a lot of.

Uncertainty I'd say in the back of the macro environment right now and I think thats exactly whats driving some of this caution.

Got it.

Just to be clear for us.

Clients.

You see large deals in the pipeline, but declines are delaying signing wroclaw.

That's exactly right.

Book.

It's really both.

The bigger impact comes from the delayed signings.

The leap ramp up and as Tom pointed out it's not necessarily a delayed start but at a slower start than would be typical.

Because they want to kind of a year out that cash on a slower so.

So it's really those two things.

Right and quickly.

Got it and see Ericsson back Colombian peso it seems like I appreciate good questions Jonathan.

Is there any FX impact to margins that we should think about.

Yes. So so there has been a little more FX effect in Q3, primarily with Latam.

With what currencies have done there, but we had part of it but there is some exposures results.

The Colombian peso strengthens against the dollar debt that increases our cost.

Okay. Thank you.

Thank you.

Our next question comes.

From the line of Vincent Colicchio Bear.

Barrington research.

Yes.

Yes, Congrats Jeff and Tom.

Geoff I think this may have been asked but.

It wasn't clear to me.

Is it has it.

There been a shift towards cost reduction this quarter versus last quarter.

Third quarter improved fourth quarter improved in the first quarter improved significantly so.

So we didn't really see at that time that we were going to have a need for cost reduction obviously that became apparent to us probably.

Probably about the middle of this quarter as things started to shift pretty pretty dramatically.

So we begin to take those that's been as I mentioned in the script. It takes a long time, obviously for that the same thing that we do expect to see benefits from those steps that we've already taken within this quarter.

That was helpful. But I was I was referring to cost reduction projects.

Are you seeing a shift in demand towards sorry.

No no worries.

Those are our own cost reduction projects.

Yes, and I'll ask Tom to comment on that but yes, I think I don't know if we've seen an uptick in that that's always an important part of what we deliver to our clients but.

I don't know if we've seen an uptick in that are now I'll, let Tom comment on the debt.

I'd say not materially.

So when we look at the project around guidance definitely cost improvements and optimization projects and the digital transformation journey, we've been on there has.

And our focus to that reallocation of dollars to take dollars out absolutely. It's happened, but there is still a very healthy pipeline up by trying to bring revenue in <unk>.

Client engagement, using new technology and engaging customers differently.

Go back a year, absolutely was more on revenue generation versus cost takeout and yes, there's been an increase in year over year projects and cost takeout, but it's better.

And has there been.

To date any meaningful cancellations and do you expect any potential is coming here in the next quarter.

No there hasn't been any meaningful cancellations, we've got a couple of individual or anything thats slowed down a little bit.

<unk> shifted some project.

<unk>.

<unk> U S employees more of our team in India, or Latin America, but not cancellations.

Cancellations.

Good.

Within the quarter, although the conversations we're having.

One last one I assume it's early to ask but any thoughts on how coding efficiencies may impact your business from gender generative AI overtime.

Yes.

It's early as you mentioned.

Right now the conversation is really more around interacting differently with customers interact differently with our applications.

There are some things we are using internally to look at what we can do on the software development lifecycle to use generate AI tools.

Coding, but more on testing.

And things of that nature or playing with all of it to see where it goes but to your point I think its early and if nothing else right now we see a lot of the conversation about how do we interact differently with our customers is really more of the conversation versus how to use this technology to generate.

Thanks, Jeff.

Thank you.

Thank you our next question.

Comes from the line of <unk> <unk> of Scotiabank.

Good morning, everyone.

Congratulations Jeff Congratulations Tom.

Talking about the demand here I wanted to understand what is the level of visibility that you have in your client demand and can be is it fair to his view that any sort of cancellation or delays have already been baked into this new guidance or can be prevention Lucy.

More coming in the quarter ahead.

Yes, im going to answer the first part of that and then I'll, let Tom address the second part but.

This is a dynamic business proficient as dynamic and maybe.

Within an industry that is a very dynamic with an economy that is very dynamic right now as I mentioned earlier, so things can change pretty rapidly.

And then we're not the only one seeing that of course.

A broad based answer.

We certainly believe that.

We've got some caution baked in.

It's not impossible.

But it's more than we think.

It is also possible, but it's better than we think it's.

Tom has more specifics specific to the second half or anything else. He wants to add I'll, let Tom take it.

I think Joe if you look at the year end.

And as Jeff was mentioning last sequential quarters regarding bookings results, we are using that for our decision, making on what the future quarter would look like.

Using the same information that we know about Q2 and what we're seeing in current conversations with our customers. We think that we have the right.

Level of guidance for Q3, as Jeff mentioned, the dynamic but at all the data we know now and the conversations we're having we think this directionally correct for the quarter, but as Jeff mentioned this dynamic.

Change one way or another but I think it takes into effect everything we've learned in the last couple of months as we look to the second half of the year.

That's helpful. So just one thing if I heard it right I wanted to confirm you did mention that the customers have been okay with the rate increases when we look at the broader sector.

The pricing pressure.

Increasing so it just seems the two thoughts seem a little contra contradictory.

I'd appreciate if you could provide some more color on these rate increases versus the pricing pressure on the business.

Yes, I think Thats, a testament to the value of the work that we're delivering.

Really shifted the portfolio over the last several years to lead to those items that are high value high demand high ROI.

So clients tolerance level, because they understand that to deliver these things that are critical in terms of the timeframe that they are trying to deliver them in a meeting market goals and so it's critical that we meet things deliver things on time.

And also with high quality, so we've got a proven.

<unk> track record.

Demonstrating the ability to do both of those things and so clients come to us and rely on us to do that and we don't mind paying a little morning Ed.

Initiated enhancements towards the near shore offshore demand continue to pick up.

I will let Tom respond to that I think we've got a great dynamic going there, but I'll, let Tom answer that we continue to see.

The organization is lightning, our Latin America, and India story also to the pricing pressure. That's also the relief that we have as we built out global depth around the world.

Sacrificing quality of talent as you ship delivery to Latin America or to India is also are able to maintain a beyond so as we're looking to reduce AVR for our client we leverage our team in Latin America, or India versus having sacrifice ABR on our U S team as far as re shoring.

I would say that that the pendulum that goes back and forth, but right now definitely not a situation that we're seeing a couple of clients have always been interested in that always will be but the majority of our organizations are looking for that global dynamic organization that we continue to see.

To add one more thing there.

Yes.

Tom highlighted Latam, India North America.

We are.

We had clients on a fairly regular basis and I am talking March sophisticated fortune 100 companies talk about the fact that we've got a more cohesive integrated strategy to deliver from any one of those geos and bring together the best team the best value.

That we can for the customer and the feedback that we're getting from that at least some of those and then we've got a better capability there and even some of your household brand names in the industry.

That's good to know thanks, a lot for your answer.

Thank you.

Our next question.

It comes from the line of Jack Vander Ark.

Maxim Group.

Yeah.

Okay, Great. Good morning, guys, Congrats Jeff and Tom on your next leadership roles.

I'll just start with a question on the M&A front I think that's been addressed yet during this call.

Any update on M&A and potential acquisitions.

As we head into <unk>.

Half of 2023.

And if any changes to the overall acquisition strategy.

You mentioned in the past thanks.

Yes, we're planning a fairly slow game there due.

Due to that the valuations are really high obviously.

There's some uncertainty in the industry. So we want to make sure. We're thinking carefully that said, we do have a couple of.

Firms that we're looking at that we're in.

Early stages, but moving along moving the ball along.

And we'll see how those play out still intended to use M&A as a part of our overall strategy.

But yes, probably play a little bit of a slower game right now either.

Okay, Great I appreciate the color there and then just back to the overall pipeline and just kind of general sense of customer contracts larger contracts.

Cycles.

How would you compare maybe your level of visibility and comfort levels with forecasting there.

Your deal pipeline and conversions and potential risk of cancellations, maybe what you are looking at a year or two ago during the pandemic and most risk of cancellations.

Contract just what's your level how would you compare.

Where we are today versus your outlook, maybe a couple of years ago.

Yes, I would say that the pipeline remains strong.

I would like to see the gross pipeline even larger than it is in <unk>.

Obviously, we're working on that and actually seeing some improvement there it's still up by the way pretty pretty substantially it's a matter again of getting those deals closed and getting them closed at a timely manner. So visibility I think is similar to what it's always been.

In terms of the outlook.

What it.

It has obviously muddied the waters here a little bit is that what's shifted as we mentioned before is that some of these delayed start some of these slower starts are really just hard to predict.

They are atypical.

Our experience.

So it's difficult to predict those again as we mentioned earlier.

We've done a pretty good job of baking in as much of that as we can as a cautionary measure in the second half, but again, it's it's.

Things can change pretty quickly.

Okay, Great I appreciate the color there and again congrats on your new role. Thank.

Thank you.

Thanks Jack.

Thank you I would now like to turn the conference back to Jeff Davis for closing remarks, Sir.

Yes. Thank you all for your time today and thank you all for the last 20 years that I've had in this role 22 years.

And as I said, I will still be around but not necessarily in this forum anymore. So.

You all know it's been fun.

Im sure Tom and Paul look forward to speaking to you in about 90 minutes.

Sure.

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

Q2 2023 Perficient Inc Earnings Call

Request a DemoDemo

PRFT

Perficient

Earnings