Investment research report for PRFT

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

Perficient, Inc. (PRFT) is a leading digital consultancy that provides end-to-end digital transformation solutions to clients across various industries, including healthcare, financial services, retail, and manufacturing. The company offers a wide range of services, such as digital strategy, data and intelligence solutions, cloud services, cybersecurity, and analytics.

Financial Performance and Outlook

Perficient has demonstrated consistent revenue growth, driven by a combination of organic expansion and strategic acquisitions. The company has maintained healthy profitability metrics, with strong gross profit margins and improving operating income margins. Perficient generates robust operating cash flows, providing ample liquidity to fund growth initiatives, acquisitions, and shareholder-friendly initiatives. The company’s solid balance sheet, with significant cash reserves and available borrowing capacity, provides financial flexibility to pursue growth opportunities.

Competitive Advantages and Growth Strategies

Perficient’s competitive advantages include its diversified business model, global delivery capabilities, and a disciplined acquisition strategy. The company has successfully expanded its geographic reach and service offerings through strategic acquisitions, effectively integrating complementary businesses. Perficient’s focus on emerging technologies, such as artificial intelligence and generative AI, positions it well to capitalize on the growing demand for digital transformation services.

Management and Shareholder Alignment

Perficient’s management team has demonstrated a strong commitment to enhancing shareholder value through active stock repurchase programs and aligning their interests with long-term shareholders. The company’s executives have consistently received significant stock awards and made purchases, indicating their confidence in the company’s future prospects. The substantial ownership stakes held by the executives align their interests with those of long-term investors.

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Valuation Analysis

PE ratio

  • Low: 13.873372853771318
  • Base: 38.3297743308308
  • High: 62.78617580789029

PB ratio

  • Low: 0.19562108475584328
  • Base: 4.30567315928997
  • High: 8.415725233824098

EPS Growth

  • Low: 9.84%
  • Med: 22.48%
  • High: 28.87%

FCF Growth

  • Low: 3.12%
  • Med: 11.95%
  • High: 17.03%

Value forecast by FCF

  • Low: 66.41
  • Med: 112.17
  • High: 153.38

Value forecast by EPS

  • Low: 98.68
  • Med: 214.83
  • High: 318.57

The current price for PRFT is $74.4.

Price target for 18 months from now

  • Low: 74.82
  • Med: 85.20
  • High: 94.51

Price target for 4 years from now

  • Low: 75.51
  • Med: 103.20
  • High: 128.02

Price target for 10 years from now

  • Low: 77.17
  • Med: 146.39
  • High: 208.45

The net present value multiplier discounted at 10.22% gives the value of the stock as:
– Low: 1.04
– Med: 1.97
– High: 2.80

The upside/downside ratio is 2.65, and our rating is Strong Buy.

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Industry and Competitors Analysis

PRFT (Perficient, Inc.) and the IT Services Industry

Based on the information provided, PRFT (Perficient, Inc.) operates in the Information Technology Services industry. Some key points about PRFT and its competitors:

PRFT provides digital consultancy services, data and intelligence solutions, cloud, cybersecurity, analytics, and other IT services across various industries like healthcare, financial services, retail, manufacturing, etc.

Its main competitors in the IT services space seem to be WNS, Genpact (G), ASGN, CACI, ExlService (EXLS), SAIC, Clarivate (CLVT), Leidos (LDOS), Parsons (PSN), The Hackett Group (HCKT), and Grid Dynamics (GDYN).

Competitive Landscape

In terms of market capitalization, the largest competitors are Genpact, CACI, Leidos, followed by SAIC, ASGN, Parsons. PRFT has a relatively smaller market cap compared to these.

Looking at financial metrics like gross margins, EBITDA margins and net income margins, PRFT’s profitability seems to be in the mid-range compared to competitors like WNS, Genpact, EXLS which have higher margins, and CACI, SAIC which have lower margins.

PRFT’s revenue growth in recent years has been moderate compared to some faster growing competitors like EXLS and Grid Dynamics.

Summary

In summary, PRFT is a mid-sized player in the IT services industry, competing with larger firms like Genpact, CACI, Leidos as well as some specialized competitors. Its financial performance positions it in the middle of the pack among its peer group in terms of profitability and growth.

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Chart of Competitors

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Financial Analysis

Financial Strength

The company has a healthy current ratio around 4, indicating good liquidity position to meet short-term obligations. However, the debt/equity ratio has been increasing over the years, currently around 0.7-0.9, which is on the higher side and could impact financial flexibility. Interest coverage ratio has improved from single digits a few years back to over 20 recently, suggesting improved ability to service debt obligations.

Growth Potential

Revenue growth has been modest in the 2-5% range in recent years, though it dipped slightly in 2023. Net income growth has been volatile, with some years of strong growth followed by declines. Analyst estimates suggest expectations of continued revenue and earnings growth over the next few years, though at a decelerating pace.

Competitive Advantages

As a digital consultancy firm, Perficient likely benefits from the growing demand for digital transformation services across industries. The company operates in diverse sectors like healthcare, financial services, retail, manufacturing, etc., providing some diversification benefits. However, the consulting industry is highly competitive, and Perficient’s competitive advantages are not entirely clear from the data provided.

Management Quality

Profitability metrics like return on equity and assets have been relatively stable, suggesting decent operational management. However, the increasing debt levels could be a concern from a risk management perspective.

Shareholder Friendliness

The company does not pay dividends currently, retaining all earnings for growth. Share buybacks or other capital return programs are not evident from the data.

Valuation

The price/earnings ratio has varied significantly over the years, from the low 20s to over 40, suggesting potential volatility in the stock’s valuation. Analyst EPS estimates for future years provide some insight into expected earnings growth, which could impact valuation.

Overall, Perficient appears to be a financially stable company with decent growth prospects, though its competitive advantages and management’s capital allocation priorities are not entirely clear. Investors would need to evaluate the company’s strategic positioning, market opportunities, and management’s execution abilities to make a more informed assessment of its long-term prospects and appropriate valuation.

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Chart of Key Per Share Metrics

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Chart of Absolute Metrics

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Earnings Call Multi-Year Analysis

Diversified Business Model and Global Delivery Capabilities

Perficient has a well-diversified business model across industries and capabilities, with a strong focus on digital transformation services. The company has rapidly expanded its global delivery capabilities, with a significant portion of its workforce now located in offshore and nearshore locations like India, Latin America, and Romania. This global delivery model provides a competitive advantage, enabling Perficient to serve clients more effectively while improving margins.

Strong Demand Environment and Robust Pipeline

Perficient is benefiting from robust demand for digital transformation services, driven by trends such as cloud migration, automation, and the adoption of emerging technologies like AI and generative AI. The company has a strong pipeline of large, multi-million dollar deals and is consistently winning new business, providing solid revenue visibility.

Pricing Power and Margin Expansion

Despite facing wage inflation pressures, Perficient has demonstrated strong pricing power, enabling it to raise bill rates and offset cost increases. The company’s focus on leveraging its global delivery model and operational efficiency initiatives has supported margin expansion, with a target of maintaining adjusted gross margins around 40% and expanding EBITDA margins over time.

Talent Acquisition and Retention

Perficient recognizes the importance of talent acquisition and retention, investing heavily in recruiting, training, and employee experience initiatives. Programs like Bright Paths and campus recruiting are helping the company build a strong pipeline of diverse talent.

Disciplined M&A Strategy

Perficient has an active and disciplined M&A strategy, pursuing acquisitions to expand its capabilities, geographic reach, and delivery capacity. While remaining selective on valuations, the company has successfully integrated several acquisitions, including SMEDIX in Romania, to strengthen its European presence.

Strong Financial Position and Cash Flow

Perficient maintains a strong balance sheet and cash flow position, providing flexibility to execute on its strategic growth plans, including M&A and share buybacks.

Cautious Approach to Guidance

While optimistic about the long-term growth prospects, Perficient has taken a cautious approach to its guidance, acknowledging the potential for macroeconomic uncertainty and delays in client buying decisions.

Overall, Perficient appears well-positioned for long-term growth, leveraging its diversified business model, global delivery capabilities, and strategic initiatives to capitalize on the robust demand for digital transformation services. However, investors should monitor the company’s ability to navigate potential macroeconomic headwinds and maintain its pricing power and margin expansion trajectory.

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Financial Statements Multi Year

Revenue Growth

Perficient has demonstrated consistent revenue growth over the years, driven by a combination of organic growth from its base business and strategic acquisitions that have expanded its service capabilities and geographic reach.

Profitability and Margins

The company has maintained healthy profitability metrics, with strong gross profit margins and improving operating income margins, indicating its ability to effectively manage costs and deliver value to clients.

Cash Flow Generation

Perficient has generated robust operating cash flows, providing ample liquidity to fund growth initiatives, acquisitions, and shareholder-friendly initiatives like stock repurchases.

Strong Balance Sheet

The company has a solid balance sheet with significant cash reserves and available borrowing capacity, providing financial flexibility to pursue growth opportunities.

Acquisition Strategy

Perficient has a disciplined and successful acquisition strategy, effectively identifying, acquiring, and integrating complementary businesses to enhance its service offerings, global delivery capabilities, and geographic diversification.

Convertible Debt Management

The company has effectively managed its convertible debt obligations, simplifying accounting and mitigating potential dilution risks for shareholders.

Shareholder-Friendly Initiatives

Perficient has demonstrated a commitment to enhancing shareholder value through active stock repurchase programs and aligning management’s interests with long-term shareholders.

Diversification

The company has maintained a diversified client base and revenue mix across industries, reducing concentration risk and providing resilience against potential downturns in specific sectors.

Overall, Perficient’s consistent financial performance, strategic acquisitions, strong cash flow generation, and shareholder-friendly initiatives position the company well for continued growth and value creation for long-term investors.

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Insider Trading Analysis

Long-Term Patterns

The CEO (MARTIN PAUL E) and CFO (DAVIS JEFFREY S) have consistently received large stock awards over the years, indicating they are heavily invested in the company’s long-term success. Several other executives like Hogan Thomas J. (COO) and Lundeen David S. (former CFO) have also received significant stock awards and made purchases over time. There have been some instances of executives selling shares, but the overall trend suggests they maintain substantial ownership stakes in the company.

Recent Patterns

In the most recent transactions, the CEO, CFO, COO, and other executives have continued to receive stock awards and make purchases, indicating their confidence in the company’s future. The number of shares owned by the CEO, CFO, and COO after the recent transactions remains very high, suggesting they are heavily invested in the company. There have been some sales by executives, but the amounts sold are relatively small compared to their overall holdings.

Implications for Investors

The consistent pattern of stock awards and purchases by the company’s top executives suggests they have a positive long-term outlook on the business. The executives’ substantial ownership stakes align their interests with those of long-term shareholders, which can be seen as a positive sign. The relatively small number of shares sold by executives compared to their overall holdings indicates they are not cashing out, further supporting the long-term positive view.

Overall, the insider trading patterns for Perficient, Inc. suggest the company’s top executives are heavily invested in the long-term success of the business, which could be a positive signal for both long-term and short-term investors.

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Management Compensation Benchmark Analysis

Executive Compensation Overview

Based on the executive compensation details provided, the key insights for a long-term investor in PRFT are:

  1. The average percentage of base salary out of total compensation for PRFT executives across all years is 32.22%. This is higher than the average for G (20.07%) and ASGN (38.22%), but lower than the average for CACI (25.61%).

  2. The executives at PRFT appear to be compensated more heavily in stock awards compared to cash compensation (salary and bonus). For example, in 2023, the base salary portion of total compensation ranged from 7.08% to 54.39% for the reported executives.

  3. PRFT does not seem to utilize annual cash bonuses as part of the executive compensation structure. None of the reported executives received any bonus payments in the years covered.

  4. The high proportion of stock-based compensation, along with the lack of annual cash bonuses, suggests that the executive compensation at PRFT is designed to align the interests of executives with long-term shareholder value creation. This is a positive sign for long-term investors.

  5. Comparing to the other companies, PRFT’s executive compensation structure appears to be more focused on long-term incentives through stock awards, which is generally considered a better practice for aligning management with shareholders’ interests.

Conclusion

In summary, the executive compensation structure at PRFT seems to be oriented towards long-term value creation, which is favorable for long-term investors. The high proportion of stock-based compensation and lack of annual cash bonuses indicate that the executives’ interests are closely tied to the company’s long-term performance and shareholder returns.

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Proxy Statement Analysis

Fairness Opinion on Merger Consideration

The following analysis is based on the latest proxy statement of PRFT:

Based on the information provided, there are no direct insights regarding how the executives at Perficient are compensated or whether their compensation is aligned with creating long-term shareholder value. The key points focus on the financial fairness opinion provided by BofA Securities related to the proposed merger consideration of $7.60 per share in cash for Perficient stockholders.

Relevant Points for Long-term Investors

  1. BofA Securities evaluated the fairness of the merger consideration based on Perficient’s financial performance, market valuation, internal forecasts, and other factors. Their opinion is that the $7.60 per share cash consideration is fair to Perficient stockholders from a financial point of view.

  2. The fairness opinion explicitly states it does not address the fairness of any compensation to Perficient’s officers, directors or employees relative to the consideration paid to shareholders.

  3. BofA Securities disclosed its investment banking relationships and fees received from Perficient and the acquirer, providing transparency around potential conflicts of interest.

However, there are no specific insights provided about Perficient’s executive compensation plan design, performance metrics used, or whether the incentives are structured to promote long-term value creation for shareholders. A long-term investor would likely need to review Perficient’s past proxy statements and compensation disclosures to assess executive pay practices and alignment.

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News Analysis

Acquisition by EQT

On May 5, 2024, Perficient announced that it will be acquired by EQT for approximately $3.0 billion. This acquisition deal has attracted attention from law firms investigating whether the deal is fair to Perficient shareholders.

Financial Performance

Perficient has been consistently reporting quarterly and annual financial results, with some quarters missing earnings estimates and others beating them. Overall, the company seems to be growing its revenue and bookings, although clients remain cautious.

Business Expansion

Perficient has been actively expanding its global footprint, opening new global delivery centers in India. The company has also been making strategic acquisitions to enhance its capabilities and service offerings.

Industry Recognition

Perficient has received several industry awards and recognitions, such as being named a leader in various analyst reports, winning partner awards from companies like Sitecore, Optimizely, and Red Hat, and being ranked among the top healthcare IT consulting firms.

New Initiatives

Perficient has launched several initiatives, including the Bright Paths Program for STEM education and career opportunities, partnerships with sports teams and organizations, and programs to support collegiate Formula SAE teams.

Debt Offerings

The company has issued convertible senior notes in private offerings to raise capital for general corporate purposes.

Overall, the acquisition by EQT is a significant event that has drawn scrutiny from investors and law firms. Perficient’s financial performance, business expansion, industry recognition, and new initiatives suggest a growing and dynamic company. However, long-term investors should carefully evaluate the acquisition deal’s terms and the company’s future prospects under new ownership.

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Technical Indicators Analysis

Next Week Trading

The recent price action and technical indicators suggest a potential short-term bullish trend. The 20-day TEMA is above the current price, indicating an upward momentum. The 10-day RSI is in the overbought territory, suggesting the stock may be due for a pullback or consolidation in the near term. However, the strong ADX value above 50 indicates a clear trend direction, which could support further upside in the next week.

Resistance and Support Levels

The 20-day, 50-day, and 200-day SMAs provide potential support and resistance levels. The stock is currently trading above all three SMAs, indicating a bullish trend. The 20-day SMA at around $74.14 could act as a support level, while the 50-day SMA at $64.02 and the 200-day SMA at $62.91 could provide resistance levels.

Short-Term Investor

The technical indicators suggest a positive short-term outlook for PRFT. The strong TEMA, ADX, and RSI values indicate a well-established uptrend. Short-term investors may consider taking long positions, with the potential to capitalize on the current momentum. However, the overbought RSI may signal a need for caution and potential profit-taking in the near term.

Long-Term Investor

For long-term investors, the overall technical picture appears favorable. The stock is trading well above the 200-day SMA, indicating a robust long-term uptrend. The consistently rising TEMA, ADX, and RSI values suggest the company’s fundamentals are strong and the stock is likely to continue its upward trajectory in the long run. Long-term investors may consider holding or adding to their positions in PRFT.

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Chart of Valuation History

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Financial Statements Annual

Financial Statements Annual 2024 Q2

Revenue Growth

Perficient’s total revenues increased slightly by 0.2% to $9,065 million in 2023 compared to $9,051 million in 2022. This modest growth was driven by a $264 million increase in revenues from acquired companies, partially offset by a $250 million decrease in revenues from the company’s base business.

Profitability

Perficient’s net income decreased 5.2% to $98.9 million in 2023 from $104.4 million in 2022. The decrease was primarily due to higher cost of revenues, which increased to 63.5% of services revenues in 2023 compared to 61.2% in 2022.

Cash Flow and Liquidity

Perficient generated strong operating cash flow of $142.9 million in 2023, up from $118.1 million in 2022. The company had $128.9 million in cash, cash equivalents and restricted cash as of December 31, 2023, and $3.0 billion in available borrowing capacity under its credit facility.

Acquisitions

Perficient completed two acquisitions in 2022 – Ameex and Inflection Point – which strengthened its global delivery capabilities and expanded its operations in India and Latin America. The company allocated $355 million and $540 million, respectively, in purchase price consideration for these acquisitions.

Convertible Debt

Perficient has $3.97 billion in aggregate principal amount of convertible senior notes outstanding as of December 31, 2023, consisting of $3.80 billion in 0.125% Convertible Senior Notes due 2026 and $233 million in 1.25% Convertible Senior Notes due 2025.

Stock Repurchases

Perficient repurchased $113 million of its common stock in 2023 under its $375 million stock repurchase program. Since the program’s inception in 2008, the company has repurchased approximately $2.91 billion of its outstanding shares.

Overall, Perficient maintained a solid financial position in 2023, with steady revenue growth, strong cash flow generation, and disciplined capital allocation through acquisitions and share repurchases. However, the company faced some profitability headwinds due to higher costs, which will be an area of focus going forward.

Financial Statements Annual 2023 Q2

Strong Revenue Growth

Perficient has demonstrated consistent and robust revenue growth, with total revenues increasing 19% year-over-year in 2022 to $905 million. This growth was driven by both organic expansion of the base business as well as contributions from recent acquisitions.

Profitability and Margins

Perficient has maintained healthy profitability, with operating income margin increasing to 15.9% in 2022 from 13.9% in 2021. The company’s gross profit margin also remained strong at 38.9% in 2022, showcasing its ability to deliver high-value services.

Diversified Client Base

Perficient has a diversified client base, with its largest customer accounting for only 5% of total revenues in 2022. This diversification reduces reliance on any single client and mitigates concentration risk.

Global Delivery Capabilities

Perficient has continued to expand its global delivery capabilities through strategic acquisitions, such as Inflection Point in Mexico and Ameex in India. This enhances the company’s ability to scale and serve clients efficiently across multiple locations.

Strong Cash Flows and Balance Sheet

Perficient generated $118 million in operating cash flow in 2022 and ended the year with $301 million in cash and cash equivalents. The company also has significant available borrowing capacity of $1.998 billion under its credit facility, providing ample financial flexibility.

Convertible Debt Management

Perficient’s adoption of ASU 2020-06 simplifies the accounting for its convertible debt, reducing non-cash interest expense and improving the comparability of its financial results.

Disciplined M&A Strategy

Perficient has demonstrated a track record of successfully integrating acquisitions, which have expanded its service capabilities and geographic reach. The company’s ability to identify, acquire, and integrate complementary businesses is a key strength.

Shareholder-Friendly Capital Allocation

Perficient has an active stock repurchase program, having repurchased $185 million of its shares in 2022. This reflects management’s confidence in the company’s long-term growth prospects and commitment to enhancing shareholder value.

Overall, Perficient’s strong financial performance, diversified business model, global delivery capabilities, and disciplined capital allocation strategy position the company well for continued growth and value creation for long-term investors.

Financial Statements Annual 2022 Q2

Revenue Growth and Diversification

Perficient has demonstrated strong revenue growth, with total revenues increasing 24% in 2021 compared to 2020. This was driven by a 24% increase in services revenues, which make up the majority of the company’s business.

The company has remained relatively diversified, with no single industry or customer accounting for more than 5% of total revenues. This diversification helps mitigate concentration risk.

Perficient has expanded its global delivery capabilities through strategic acquisitions, including Overactive in Latin America and Talos in Colombia, which enhances its nearshore offerings and geographic diversification.

Profitability and Margins

Perficient has maintained healthy profitability, with operating margins of 13.9% in 2021, up from 9.0% in 2020. This demonstrates the company’s ability to effectively manage costs and deliver value to clients.

Gross margins have remained relatively stable, with the cost of services as a percentage of services revenues decreasing to 61.8% in 2021 from 62.5% in 2020, indicating improved operational efficiency.

Cash Flow and Balance Sheet Strength

Perficient generated strong operating cash flow of $84.9 million in 2021, providing ample liquidity to fund growth initiatives and acquisitions.

The company has a robust balance sheet, with $244 million in cash and cash equivalents and $1.998 billion in available borrowing capacity under its credit facility as of December 31, 2021.

Perficient’s financial flexibility is further enhanced by its recent issuance of $380 million in convertible senior notes, which provide additional capital to support its strategic objectives.

Acquisition Integration and Synergies

Perficient has successfully integrated its recent acquisitions of Talos and Overactive, which have expanded its nearshore delivery capabilities and digital modernization solutions.

The company has demonstrated its ability to effectively identify, acquire, and integrate complementary businesses to drive growth and enhance its service offerings.

Shareholder-Friendly Initiatives

Perficient has an active stock repurchase program, having repurchased $21.7 million of its shares in 2021, demonstrating its commitment to enhancing shareholder value.

The company’s management team and board of directors have a significant equity stake, aligning their interests with those of long-term shareholders.

Overall, Perficient’s strong financial performance, diversified business model, robust balance sheet, and strategic acquisitions position the company well for continued growth and value creation for long-term investors.

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Financial Statements Quarterly

Financial Statements Quarterly 2024 Q2

Revenue Decline

Total revenues decreased 7.0% to $2,153 million compared to the prior year quarter, driven by a 6.9% decline in services revenues and a 33.3% decline in software and hardware revenues. The decrease in services revenues was primarily due to reduced demand and a shift to more offshore delivery.

Profitability Pressure

Gross profit margin declined to 30.8% from 33.5% in the prior year quarter, due to higher employee costs as a percentage of services revenues. Selling, general, and administrative (SG&A) expenses increased to 22.8% of revenues, up from 19.0% in the prior year, primarily due to a $56 million increase in stock compensation expense related to the Executive Chairman’s resignation.

Acquisition Activity

The company acquired SMEDIX, a healthcare software engineering firm, for $436 million in January 2024. This acquisition added over 175 professionals and expanded the company’s healthcare industry capabilities and global delivery capacity.

Strong Balance Sheet and Liquidity

The company had $1,182 million in cash, cash equivalents, and restricted cash as of March 31, 2024, with $3,000 million in available borrowing capacity under its credit facility. Working capital, including cash, was $2,353 million.

Convertible Debt

The company has $3,974 million in outstanding convertible senior notes due in 2025 and 2026, which are classified as long-term debt. The fair value of these notes was approximately $3,572 million as of March 31, 2024.

Proposed Merger

On May 5, 2024, the company entered into a merger agreement to be acquired by an affiliate of EQT Asia for $76.00 per share in cash, subject to customary closing conditions.

In summary, while Perficient faced some revenue and profitability challenges in the quarter, the company maintained a strong balance sheet and liquidity position. The proposed merger with EQT Asia represents a significant event for the company and its shareholders.

Financial Statements Quarterly 2024 Q1

Revenue Growth

The company saw a 1.9% year-over-year decrease in total revenues for the three months ended September 30, 2023, driven by a 1.9% decrease in services revenues. However, for the nine months ended September 30, 2023, the company saw a 2.0% year-over-year increase in total revenues, driven by a 2.0% increase in services revenues. The increase in services revenues was primarily attributable to revenues delivered by resources of acquired companies, which offset a decrease in revenues delivered by the base business.

Profitability

The company’s gross profit margin decreased from 31.3% in Q3 2022 to 32.8% in Q3 2023, primarily due to higher cost of services as a percentage of services revenues. However, the company’s operating income margin increased from 14.6% in Q3 2022 to 14.9% in Q3 2023, driven by lower selling, general, and administrative expenses as a percentage of revenues. For the nine months ended September 30, 2023, the company’s gross profit margin decreased from 38.7% to 37.1%, while the operating income margin decreased from 15.9% to 15.3%.

Liquidity and Capital Resources

The company had $801 million in cash and cash equivalents as of September 30, 2023, up from $301 million as of December 31, 2022. The company also had $3.0 billion in available borrowing capacity under its credit facility as of September 30, 2023. The company generated $885 million in net cash from operating activities during the nine months ended September 30, 2023, up from $714 million in the prior-year period.

Debt and Convertible Notes

The company had $413 million in total debt as of September 30, 2023, including $397 million in long-term debt related to its convertible senior notes due in 2025 and 2026. The company has taken steps to manage its debt, including entering into a new $3.0 billion credit facility in March 2023.

Acquisitions and Integration

The company completed two acquisitions in 2022 (Inflection Point and Ameex) that have contributed to its revenue growth. The company continues to focus on integrating these acquisitions and leveraging their capabilities to support its future growth.

Overall, the financial statements indicate that the company is generating strong cash flows, maintaining profitability, and effectively managing its capital structure and liquidity to support its growth initiatives. The company’s focus on strategic acquisitions and integration appears to be a key part of its long-term growth strategy.

Financial Statements Quarterly 2023 Q4

Revenue Growth

The company has seen strong revenue growth, with total revenues increasing 3.8% year-over-year in Q3 2023 and 4.0% year-over-year in the first half of 2023. This growth was primarily driven by an 89% increase in services revenues from acquired companies, indicating successful integration and expansion of the company’s inorganic growth strategy.

Profitability

The company’s profitability metrics remain healthy, with gross profit margin at 35.9% in Q3 2023 and 36.0% in the first half of 2023. Operating income margin was 14.4% in Q3 2023 and 15.7% in the first half of 2023, demonstrating the company’s ability to effectively manage costs. Net income margin was 10.1% in Q3 2023 and 11.5% in the first half of 2023.

Cash Flow and Liquidity

The company generated strong operating cash flow of $233 million in Q3 2023 and $651 million in the first half of 2023. This, combined with $605 million in cash and cash equivalents and $2,999 million in available credit facility capacity as of June 30, 2023, provides ample liquidity to fund ongoing operations, investments, and acquisitions.

Acquisition Integration

The company successfully integrated the acquisitions of Ameex and Inflection Point, which contributed $89 million in incremental services revenues in Q3 2023 and $178 million in the first half of 2023. The company’s ability to effectively integrate and leverage acquired capabilities is a positive indicator for future inorganic growth.

Convertible Debt Management

The company has effectively managed its convertible debt obligations, with the 2025 Notes currently convertible at the option of the holders, while the 2026 Notes remain unconverted. The company’s intent to settle the principal amount of the convertible notes in cash upon conversion helps mitigate dilution risk for shareholders.

Overall, the financial statements demonstrate Perficient’s ability to drive organic and inorganic growth, maintain profitability, generate strong cash flows, and effectively integrate acquisitions – all of which are positive indicators for a long-term investor.

Financial Statements Quarterly 2023 Q3

Strong Revenue Growth

Perficient reported total revenues of $231.1 million for Q2 2023, a 4.1% increase compared to the same period in the prior year. This growth was driven by a 4.2% increase in services revenues, which make up the majority of Perficient’s business.

Healthy Profitability

Perficient’s gross profit margin was 36.8%, and its operating income margin was 15.5%. The company generated $40.4 million in EBITDA, translating to an EBITDA margin of 17.5%. These profitability metrics demonstrate Perficient’s ability to deliver strong bottom-line results.

Efficient Capital Allocation

Perficient generated $21.3 million in free cash flow during the quarter, indicating the company’s ability to convert its earnings into cash. This provides flexibility for investments, acquisitions, and returning capital to shareholders.

Healthy Balance Sheet

Perficient ended the quarter with $60.5 million in cash and cash equivalents and $415.7 million in long-term debt. The company’s net debt position of $355.2 million represents a manageable leverage ratio, allowing for financial flexibility.

Disciplined Acquisition Strategy

Perficient continues to execute on its acquisition strategy, having completed the acquisitions of Ameex Technologies and Inflection Point Systems in 2022. These acquisitions have expanded the company’s global delivery capabilities and digital consulting services.

Overall, Perficient’s Q2 2023 financial results demonstrate the company’s ability to drive organic growth, maintain strong profitability, and effectively allocate capital – positioning it well for continued success as a leading digital transformation consultancy.

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Earnings Call Analysis

Earnings Call Analysis 2024 Q1

Diversification and Global Presence

Perficient has a well-diversified customer base across industries, with healthcare and financial services being the strongest verticals. The company has also expanded its global presence, with nearly 60% of its billable headcount now located outside the U.S., including a growing hub in Romania.

Acquisition Strategy

Perficient has been actively pursuing acquisitions, such as the recent SMEDIX acquisition, to strengthen its capabilities and geographic reach. The company sees Europe as an attractive market for future acquisitions.

Bookings and Revenue Visibility

Perficient experienced strong bookings in Q4 2023, which should drive revenue growth in the second half of 2024. However, the company has limited visibility on the pace of the revenue ramp, as it is dependent on the timing of project starts and client buying decisions.

AI and Generative AI Capabilities

Perficient has been investing in AI and Generative AI capabilities, which are generating significant interest from clients across various industries, particularly in healthcare and life sciences.

Cautious Approach to Guidance

While Perficient is optimistic about the second half of 2024, the company is taking a cautious approach to its guidance, acknowledging the uncertainty in the current market environment and the potential for delays in client buying decisions.

Margin Pressure and Utilization

Perficient is facing some near-term margin pressure, particularly in the first quarter, due to higher benefit costs and the typical seasonal slowdown. However, the company expects to maintain utilization around 80% and gradually improve gross margins throughout the year.

Acquisition Integration and Expansion

The successful integration of the SMEDIX acquisition and the company’s ability to leverage its global delivery model will be crucial for driving growth and profitability in the European market.

Overall, Perficient appears to be well-positioned for long-term growth, with a diversified business model, global delivery capabilities, and a focus on emerging technologies like AI. However, the company’s near-term performance will depend on its ability to navigate the current market challenges and execute on its strategic initiatives.

Earnings Call Analysis 2023 Q4

Demand Environment

Demand is still reserved, with a focus on cost takeout and operational efficiency. Clients are cautious but optimistic about 2024. The company expects some continued slowdown in early 2024 but is hopeful for a turnaround by mid-2024 and into 2025. Strength is seen in healthcare, financial services, automotive, and manufacturing industries.

Profitability and Margins

The company believes Q2 2023 represented a bottom in terms of profitability, and they have taken steps to better align capacity and improve utilization. The goal is to run the business near 40% gross margins, and the company expects to be in the high 30s in Q4 2023 before returning to the 40% target. Offshore/global delivery mix will continue to be a driver for improved margins going forward.

Inorganic Growth and Global Expansion

The pending acquisition of SMEDIX in Romania is expected to serve as a base for larger expansion in EMEA in the coming years. Romania is seen as a potential key hub to build a stronger global presence, similar to India and Latin America.

Branding and Awareness

The company plans to prioritize additional branding investments to increase Perficient’s visibility and competitiveness against larger firms. Tracking of branding efforts and their impact on leads and wins is a focus area.

Generative AI and Automation

Perficient has an active community exploring generative AI use cases across various business areas. While code generation is still a long way off, the company is seeing efficiencies in areas like testing, requirements gathering, and content creation. Significant work in the EV sector, including e-commerce, dealer experience, in-car technology, and supply chain automation.

Overall, the company appears to be taking steps to navigate the current macro environment, improve profitability, and position itself for long-term global growth through both organic and inorganic initiatives. The focus on branding, technology expertise, and industry-specific solutions are key areas to watch.

Earnings Call Analysis 2023 Q3

Demand Slowdown

The company is experiencing a broad-based slowdown in demand, with delayed decision-making and slower project ramp-ups across various industries and verticals. This is not isolated to the company or the industry.

Margin Pressure

Margins were impacted in Q2 due to the demand slowdown, but the company has taken actions on discretionary and fixed costs to improve margins by the end of the year, targeting a return to historical norms around 40% gross margins.

Large Deals

Despite the slowdown, the company continues to win large, multi-year deals, including a record-setting win during the quarter. This suggests the company’s value proposition and expertise remain strong.

Global Delivery

The company’s transformation to a global entity is progressing, with offshore revenue growing nearly 20% and 58% of billable resources now located outside the U.S. This global delivery model is a key competitive advantage.

Emerging Technologies

The company is actively engaged with clients on emerging technologies like generative AI, leveraging its global team and expertise to help clients understand the potential risks and opportunities.

Cautious Guidance

The company has taken a cautious approach to its guidance for the remainder of the year, baking in the current demand environment, but acknowledging the dynamic nature of the market and the potential for further changes.

Leadership Transition

The CEO’s transition to the role of Executive Chairman is a significant event, but the company appears to have a deep and experienced management team to continue driving the business forward.

Overall, the key insights suggest that Perficient is navigating a challenging demand environment, but is leveraging its global delivery model, expertise in emerging technologies, and strong client relationships to position itself for long-term success. The cautious guidance and leadership transition are important factors for investors to consider.

Earnings Call Analysis 2023 Q2

Bookings Strength

Perficient had its strongest bookings quarter in history in Q1 2023, with organic bookings up double digits. This provides optimism for revenue growth acceleration in the second half of the year.

Diversified Business Model

Perficient’s broad range of capabilities across platforms and industries helps insulate it from standard industry ebbs and flows, unlike more narrow providers.

Offshore Expansion

Perficient is rapidly expanding its offshore/nearshore delivery, now comprising over 57% of its billable headcount. This is helping offset revenue headwinds and improve profitability.

Cautious Approach to M&A

Perficient intentionally slowed M&A activity in recent quarters due to high private market valuations, but is now re-engaging as valuations have come down.

Generative AI Opportunities

Perficient is exploring ways to leverage generative AI internally, but is primarily focused on helping clients understand how to utilize the technology, taking a cautious approach.

Macro Resilience

Despite economic uncertainty, Perficient’s pipeline remains robust and sales activity is high, likely due to its broad capabilities across industries and platforms.

Overall, Perficient appears to be navigating the current environment well, with a diversified business model, strong bookings, and strategic initiatives around offshore expansion and cautious M&A. Investors should closely monitor the company’s ability to convert its strong pipeline into revenue growth, especially in the second half of 2023.

Earnings Call Analysis 2023 Q1

Demand environment

The demand environment has seen some softening, with clients taking more time on decisions. However, the pipeline and recent bookings suggest the environment is improving. Perficient sees opportunities for large deals that could materially impact the trajectory if won.

Offshore/global delivery

Perficient is seeing strong growth in its offshore/global delivery capabilities, which is helping margins but posing a modest headwind to overall top-line growth. The company expects the offshore mix to reach 50% in the next 3 years, at which point it will become a tailwind for growth.

Pricing and margins

Perficient has been able to maintain pricing power and increase bill rates, reflecting the value clients place on its services. The company is focused on leveraging its global delivery to remain competitive on pricing while expanding margins.

Guidance

Perficient provided conservative guidance, with revenue growth expected to be stronger in the second half of 2023. The company is not baking in potential upside from large deals that are not yet closed.

M&A

Perficient had slowed M&A activity in Q4 to assess the macro environment, but plans to be more active in M&A again in the second quarter of 2023.

Technology focus

Perficient has teams globally focused on emerging technologies and use cases, aiming to stay ahead of the curve and provide value to clients.

Overall, Perficient appears well-positioned, with a strong global delivery model, pricing power, and a focus on staying ahead of technology trends. The company is navigating the current macro environment cautiously but sees opportunities for growth.

Earnings Call Analysis 2022 Q4

Offshore and nearshore revenue growth

Perficient’s offshore and nearshore revenue grew 72% year-over-year, with organic offshore revenue growing 32%. This shift towards global delivery is expanding margins but posing a modest headwind to overall top-line growth in the near-term. Long-term, this should prove an accelerant to both growth and margins.

Pricing power

Perficient has been able to raise North American bill rates by 4.4% year-over-year, and nearshore and India rates by around 15%. This suggests Perficient has strong pricing power, which could help offset cost pressures.

Macro headwinds impacting sales cycles

While Perficient’s pipeline remains strong, the company is seeing some clients deliberating longer on deals due to macroeconomic uncertainty. This has led to a modest increase in sales cycles, though Perficient is not overly concerned as its work involves mission-critical projects.

Diversified industry exposure

Perficient remains well diversified across industries, with healthcare and financial services being the strongest during the quarter. This diversification helps mitigate risks.

Strong balance sheet and cash flow

Perficient has a strong balance sheet with $394.1 million in outstanding debt and $24.8 million in cash. This provides flexibility for M&A and share buybacks, which the company is actively pursuing.

Overall, Perficient appears to be a well-run, profitable company with a diversified business model and strong global delivery capabilities. However, investors should monitor the impact of macroeconomic headwinds on sales cycles and the company’s ability to maintain its pricing power.

Earnings Call Analysis 2022 Q3

Demand Outlook

Despite some project cancellations and delays, Perficient’s overall demand outlook remains robust. The company’s bookings and pipeline are strong, with Q2 bookings up over 40% year-over-year. The Q3 start has also been very strong, indicating continued momentum.

Offshore Expansion

Perficient is seeing accelerated adoption of its offshore delivery model, which is having a positive impact on margins despite a modest impact on top-line revenue. The company is rapidly scaling its presence in Latin America and India to meet this demand.

Pricing Power

Perficient has been able to pass through cost increases to clients, with North American average bill rates and offshore rates both increasing at a double-digit pace. This suggests the company has strong pricing power.

Operational Efficiency

The company is investing in proprietary tools like “Compass” to improve project management, resource allocation, and profitability tracking, which should enable better operational efficiency as the business scales globally.

Inorganic Growth

Perficient is actively pursuing M&A opportunities, particularly in the digital and nearshore/offshore space, to further enhance its capabilities and geographic reach. The company seems confident it will complete one or more deals in the near future.

Conservative Guidance

While the company reaffirmed its earnings guidance, it has modestly reduced its revenue outlook, citing a few project cancellations and the accelerated shift to offshore delivery. This suggests a prudent, risk-averse approach to guidance.

Overall, Perficient appears to be executing well on its strategic priorities, with strong demand, pricing power, operational improvements, and an active M&A pipeline. The company’s conservative guidance approach and focus on profitability over pure revenue growth could be viewed positively by long-term investors.

Earnings Call Analysis 2022 Q2

Strong Demand and Bookings

Perficient is seeing record bookings, with 124 deals over $500k in Q1 2022, up from 98 in Q4 2021. This indicates robust demand for their digital consulting services.

Pricing Power and Margin Expansion

Perficient is able to raise bill rates, with North American average bill rates reaching an all-time high. Offshore bill rates also increased 13% year-over-year. This pricing power is helping offset wage inflation.

Integrated Global Delivery Model

Perficient’s strategy to build a global delivery model with onshore and offshore capabilities is paying off, enabling them to serve clients more effectively.

Talent Acquisition and Retention

Perficient is rapidly hiring talent to support growth, with the talent acquisition team scaling up. They are also seeing success with initiatives like the Bright Paths program to bring in diverse talent.

Macro Resilience

Despite broader economic uncertainty, Perficient is not seeing any signs of a slowdown in their business. Their pipeline and bookings remain strong across verticals.

Acquisition Strategy

Perficient continues to actively pursue acquisitions, though private market valuations remain high. They are focused on expanding in regions like Latin America and India to add delivery capacity.

Overall, Perficient appears to be executing very well, leveraging its global delivery model and pricing power to drive strong financial performance. The long-term investor should closely monitor the company’s ability to sustain this momentum in the face of potential macro headwinds.

Earnings Call Analysis 2022 Q1

Demand for Perficient’s digital transformation services remains very strong

IDC is projecting a 60.5% annual growth rate in the digital transformation services market over the next 3 years, representing a significant opportunity for Perficient.

Perficient is aggressively scaling its global delivery capabilities

Over 50% of Perficient’s workforce is now located in global delivery centers, particularly in Latin America and India. This allows the company to leverage lower cost talent while maintaining quality.

Perficient is investing heavily in recruiting and retaining top talent

The company is expanding campus recruiting, the Bright Paths program, and employee experience initiatives to proactively address potential talent constraints.

Perficient believes it can offset wage inflation pressures

Through a combination of pricing power, leveraging its global delivery model, and hiring more junior resources, Perficient remains confident in maintaining gross margins around 40% and expanding adjusted EBITDA margins.

Perficient is actively pursuing acquisitions

The company is targeting $50-60 million in acquired revenue per year through 2-3 deals to gain scale in high-demand technologies and capabilities.

Perficient has a strong balance sheet and cash flow

This provides ample flexibility to execute on its strategic growth plans.

Overall, Perficient appears well-positioned to capitalize on the robust digital transformation demand environment through its global delivery model, talent initiatives, and disciplined M&A strategy. The company’s confidence in its ability to manage margin pressures is a positive sign for long-term investors.

Earnings Call Analysis 2021 Q4

Accelerating Momentum and Confidence

Perficient is experiencing accelerating momentum and confidence in its business, with strong performance continuing in Q3 and a positive outlook for Q4 and 2022.

Digital Transformation Driving Demand

Digital transformation is driving significant demand, and Perficient’s transformation into a “next-generation global digital consultancy” has uniquely positioned it for robust and sustainable growth.

Global Footprint Expansion

Perficient is aggressively expanding its global footprint, with recent acquisitions strengthening its nearshore capabilities in Latin America. This has allowed Perficient to now have more delivery talent offshore than onshore.

Competitive Advantage in Global Diversification

Perficient’s global diversification and blended delivery model (onshore, offshore, nearshore) is a key competitive advantage, allowing it to better serve clients and insulate from geopolitical challenges.

Strong Bookings and Revenue Visibility

Bookings remain strong, the pipeline is growing, and Perficient is pursuing a significant number of large, multi-million dollar deals, providing strong revenue visibility.

Talent Acquisition and Retention

Perficient is investing in talent acquisition and retention, with a focus on building a unique and compelling culture to be an employer of choice. This is helping it address the current talent shortage.

Offsetting Wage Inflation

Perficient is seeing some wage inflation but is able to offset it through continued growth in its high-margin offshore/nearshore delivery, as well as modest rate increases with clients.

Outlook for Sustained High-Teens Organic Growth

The company expects to sustain high-teens organic growth in 2022, driven by its sales platform, expanded delivery capabilities, and continued digital transformation demand.

Overall, Perficient appears to be executing well, leveraging its global footprint and strategic positioning to drive strong financial performance and position itself for continued long-term growth.

Earnings Call Analysis 2021 Q3

Offshore and Nearshore Revenue Growth

Offshore and nearshore revenue growth is accelerating, now representing nearly 45% of billable employees. This global delivery model is a key competitive advantage and driver of margin expansion.

Strong Demand Across Industries

Perficient is seeing strong demand across industries, with particular strength in financial services. The company is winning large, multi-million dollar deals and expanding relationships with existing clients.

Talent Acquisition and Retention

Talent acquisition and retention is a focus, with the company investing heavily in recruiting, training, and programs like the Bright Paths initiative to build a strong pipeline of talent. Attrition remains manageable.

Sustained Growth Outlook

Perficient is confident in its ability to sustain mid-to-high teens organic growth going forward, raising its long-term target from 10% previously. The company is more focused on 2022 than the remainder of 2021, indicating strong visibility.

Margin Expansion

While margins may not expand as rapidly as EBITDA, Perficient expects to maintain its ~40% adjusted gross margin and continue expanding EBITDA margins, benefiting from scale and operational leverage.

M&A Activity

The company remains active on the M&A front, though disciplined, and is in advanced stages on a potential acquisition. Valuations and seller expectations have been a challenge, but Perficient is confident it can find the right fit.

Overall, Perficient appears to be executing very well, leveraging its differentiated delivery model to drive strong growth and profitability. The long-term outlook remains quite positive.

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The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.