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Perficient Reports Third Quarter 2019 Results
[November 07, 2019]

Perficient Reports Third Quarter 2019 Results


Perficient, Inc. (NASDAQ: PRFT) ("Perficient"), the leading digital transformation consulting firm serving Global 2000® and other large enterprise customers throughout North America, today reported its financial results for the quarter ended September 30, 2019.

Financial Highlights

For the quarter ended September 30, 2019:

  • Services revenues increased 17% to $144.1 million from $122.9 million in the third quarter of 2018;
  • Total revenues increased 17% to $144.7 million from $123.9 million in the third quarter of 2018;
  • Net income increased 55% to $9.8 million from $6.3 million in the third quarter of 2018;
  • GAAP earnings per share results on a fully diluted basis increased 58% to $0.30 from $0.19 in the third quarter of 2018;
  • Adjusted earnings per share results (a non-GAAP measure; see attached schedule, which reconciles to GAAP earnings per share) on a fully diluted basis increased 37% to $0.56 from $0.41 in the third quarter of 2018; and
  • Adjusted EBITDA (a non-GAAP measure; see attached schedule, which reconciles to GAAP net income) increased 29% to $25.3 million from $19.5 million in the third quarter of 2018.

"Operational excellence, including strong utilization and growth in average bill rate, resulted in increased margins and profitability during the third quarter," said Jeffrey Davis, chairman and CEO. "Our accelerating performance stems from many things - an unparalleled breadth and depth of skill, a differentiated and superior global delivery model, as well as deep and substantive partnerships. Ultimately, however, it is our people powering our ascent - the value they deliver each day to the world's biggest brands expands and enhances our relationships, continuously earning us larger and longer-term opportunities."

Other Highlights

Among other recent achievements, Perficient:

  • Was the first Adobe Solution Partner in the world to earn the Marketo Engage Specialization, which recognizes Perficient for its technical expertise and proven track record of successful Adobe customer implementations;
  • Expanded its three global delivery center locations in India to further support its capacity to deploy innovative solutions on behalf of clients and their digital transformation needs;
  • Was named the 2019 Pivotal Global Systems Integrator Partner of the Year for Cloud Native Advocacy, which recognizes Perficient's strategic efforts to educate enterprises about the benefits of cloud-native solutions;
  • Added new customer relationships and follow-on projects with leading companies including Blue Cross Blue Shield of Michigan, Bunzl Distribution, CCA Global Partners, Enterprise Holdings, Honeywell, Juniper Networks, MasterCard, NGL Energy Partners, Novant Health, Sally Beauty Supply LLC, and Toro; and
  • Expanded Perficient's stock repurchase program on October 29, 2019, by authorizing the repurchase of up to an additional $30.0 million of our common stock for a total repurchase program of $265.0 million since the program's inception in 2008, and extended the expiration date of the program to June 30, 2021 (as of September 30, 2019, Perficient has repurchased a total of 15.4 million shares at a cost of $219.2 million).

Business Outlook

The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially. See "Safe Harbor Statement" below.

Perficient expects its fourth quarter 2019 revenue to be in the range of $142 million to $148 million. Fourth quarter GAAP earnings per share is expected to be in the range of $0.34 to $0.37. Fourth quarter adjusted earnings per share (a non-GAAP measure; see attached schedule which reconciles to GAAP earnings per share guidance) is expected to be in the range of $0.55 to $0.58.

Perficient is narrowing and raising its full year 2019 revenue guidance range to $562 million to $568 million from the previously provided range of $553 million to $568 million, raising its 2019 GAAP earnings per share guidance range to $1.12 to $1.16 from $1.02 to $1.12 and raising its 2019 adjusted earnings per share (a non-GAAP measure; see attached schedule which reconciles to GAAP earnings per share guidance) guidance range to $2.04 to $2.07 from $1.94 to $2.04.

Conference Call Details

Perficient will host a conference call regarding third quarter 2019 financial results today at 11 a.m. Eastern.

WHAT: Perficient Reports Third Quarter 2019 Results
WHEN: Thursday, November 7, 2019 at 11 a.m. Eastern
CONFERENCE CALL NUMBERS: 855-246-0403 (U.S. and Canada); 414-238-9806 (International)
PARTICIPANT PASSCODE: 9175249
REPLAY TIMES: Thursday, November 7, 2019, at 2 p.m. Eastern, through Thursday, November 14, 2019, at 2 p.m. Eastern
REPLAY NUMBER: 855-859-2056 (U.S. and Canada); 404-537-3406 (International)
REPLAY PASSCODE: 9175249

About Perficient

Perficient is the leading digital transformation consulting firm serving Global 2000® and enterprise customers throughout North America. With unparalleled information technology, management consulting, and creative capabilities, Perficient and its Perficient Digital agency deliver vision, execution, and value with outstanding digital experience, business optimization, and industry solutions. Our work enables clients to improve productivity and competitiveness; grow and strengthen relationships with customers, suppliers, and partners; and reduce costs. Perficient's professionals serve clients from a network of offices across North America and offshore locations in India and China. Traded on the Nasdaq Global Select Market, Perficient is a member of the Russell 2000 index and the S&P SmallCap 600 index. Perficient is an award-winning Adobe Platinum Partner, Platinum Level IBM business partner, a Microsoft National Service Provider and Gold Certified Partner, an Oracle Platinum Partner, an Advanced Pivotal Ready Partner, a Gold Salesforce Consulting Partner, and a Sitecore Platinum Partner. For more information, visit www.perficient.com.

Safe Harbor Statement

Some of the statements contained in this news release that are not purely historical statements discuss future expectations or state other forward-looking information related to financial results and business outlook for 2019. Those statements are subject to known and unknown risks, uncertainties, and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on management's current intent, belief, expectations, estimates, and projections regarding our company and our industry. You should be aware that those statements only reflect our predictions. Actual events or results may differ substantially. Important factors that could cause our actual results to be materially different from the forward-looking statements include (but are not limited to) those disclosed under the heading "Risk Factors" in our most recently filed annual report on Form 10-K, and the following:

(1) the possibility that our actual results do not meet the projections and guidance contained in this news release;

(2) the impact of the general economy and economic and political uncertainty on our business;

(3) risks associated with potential changes to federal, state, local and foreign laws, regulations and policies;

(4) risks associated with the operation of our business generally, including:

a) client demand for our services and solutions;

b) maintaining a balance of our supply of skills and resources with client demand;

c) effectively competing in a highly competitive market;

d) protecting our clients' and our data and information;

e) risks from international operations including fluctuations in exchange rates;

f) changes to immigration policies;

g) obtaining favorable pricing to reflect services provided;

h) adapting to changes in technologies and offerings;

i) risk of loss of one or more significant software vendors;

j) making appropriate estimates and assumptions in connection with preparing our consolidated financial statements;

k) maintaining effective internal controls; and

l) changes to tax levels, audits, investigations, tax laws or their interpretation;

(5) risks associated with managing growth organically and through acquisitions;

(6) risks associated with servicing our debt, the potential impact on the value of our common stock from the conditional conversion features of our debt and the associated convertible note hedge transactions;

(7) legal liabilities, including intellectual property protection and infringement or the disclosure of personally identifiable information; and

(8) the risks detailed from time to time within our filings with the Securities and Exchange Commission.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. This cautionary statement is provided pursuant to Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements in this release are made only as of the date hereof and we undertake no obligation to update publicly any forward-looking statement for any reason, even if new information becomes available or other events occur in the future.





 

Perficient, Inc.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share information)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2019

 

2018

 

2019

 

2018

Revenues

 

 

 

 

 

 

 

 

Services

 

$

144,060

 

 

$

122,879

 

 

$

418,160

 

 

$

363,986

 

Software and hardware

 

624

 

 

1,054

 

 

2,208

 

 

2,686

 

Total revenues

 

144,684

 

 

123,933

 

 

420,368

 

 

366,672

 

 

 

 

 

 

 

 

 

 

Cost of revenues (exclusive of depreciation and amortization, shown separately below)

 

 

 

 

 

 

 

 

Cost of services

 

87,716

 

 

77,688

 

 

259,858

 

 

233,427

 

Stock compensation

 

1,519

 

 

1,495

 

 

4,963

 

 

4,577

 

Total cost of revenues

 

89,235

 

 

79,183

 

 

264,821

 

 

238,004

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

31,709

 

 

26,706

 

 

91,982

 

 

78,418

 

Stock compensation

 

2,825

 

 

2,616

 

 

8,236

 

 

7,527

 

Total selling, general and administrative

 

34,534

 

 

29,322

 

 

100,218

 

 

85,945

 

 

 

 

 

 

 

 

 

 

Depreciation

 

1,095

 

 

995

 

 

3,181

 

 

3,057

 

Amortization

 

3,997

 

 

4,009

 

 

12,144

 

 

12,029

 

Acquisition costs

 

17

 

 

497

 

 

595

 

 

1,337

 

Adjustment to fair value of contingent consideration

 

(2

)

 

666

 

 

(310

)

 

1,757

 

Income from operations

 

15,808

 

 

9,261

 

 

39,719

 

 

24,543

 

 

 

 

 

 

 

 

 

 

Net interest expense

 

1,895

 

 

831

 

 

5,551

 

 

1,718

 

Net other expense (income)

 

10

 

 

(6

)

 

(34

)

 

43

 

Income before income taxes

 

13,903

 

 

8,436

 

 

34,202

 

 

22,782

 

Provision for income taxes

 

4,124

 

 

2,131

 

 

8,869

 

 

5,699

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,779

 

 

$

6,305

 

 

$

25,333

 

 

$

17,083

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

0.31

 

 

$

0.19

 

 

$

0.81

 

 

$

0.52

 

Diluted net income per share

 

$

0.30

 

 

$

0.19

 

 

$

0.79

 

 

$

0.50

 

Shares used in computing basic net income per share

 

31,246

 

 

32,648

 

 

31,321

 

 

32,724

 

Shares used in computing diluted net income per share

 

32,159

 

 

33,645

 

 

32,197

 

 

33,846

 


Perficient, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

 

 

 

September 30, 2019
(unaudited)

 

December 31, 2018

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

36,420

 

 

$

44,984

 

Accounts receivable, net

 

126,304

 

 

122,446

 

Prepaid expenses

 

6,027

 

 

4,663

 

Other current assets

 

5,973

 

 

5,711

 

Total current assets

 

174,724

 

 

177,804

 

Property and equipment, net

 

12,391

 

 

6,677

 

Operating lease right-of-use assets

 

27,491

 

 

-

 

Goodwill

 

335,588

 

 

327,992

 

Intangible assets, net

 

41,654

 

 

48,092

 

Other non-current assets

 

14,856

 

 

9,979

 

Total assets

 

$

606,704

 

 

$

570,544

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

14,473

 

 

$

24,437

 

Other current liabilities

 

50,427

 

 

50,386

 

Total current liabilities

 

64,900

 

 

74,823

 

Long-term debt, net

 

123,494

 

 

120,067

 

Operating lease liabilities

 

19,674

 

 

-

 

Other non-current liabilities

 

29,388

 

 

21,970

 

Total liabilities

 

237,456

 

 

216,860

 

Stockholders' equity:

 

 

 

 

Preferred stock

 

-

 

 

-

 

Common stock

 

49

 

 

48

 

Additional paid-in capital

 

451,287

 

 

437,250

 

Accumulated other comprehensive loss

 

(2,636

)

 

(2,588

)

Treasury stock

 

(257,435

)

 

(233,676

)

Retained earnings

 

177,983

 

 

152,650

 

Total stockholders' equity

 

369,248

 

 

353,684

 

Total liabilities and stockholders' equity

 

$

606,704

 

 

$

570,544

 

About Non-GAAP Financial Information

This news release includes non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), please see the section entitled "About Non-GAAP Financial Measures" and the accompanying tables entitled "Reconciliation of GAAP to Non-GAAP Measures."

About Non-GAAP Financial Measures

Perficient provides non-GAAP financial measures for adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization, stock compensation, acquisition costs and adjustment to fair value of contingent consideration), adjusted net income, and adjusted earnings per share data as supplemental information regarding Perficient's business performance. Perficient believes that these non-GAAP financial measures are useful to investors because they provide investors with a better understanding of Perficient's past financial performance and future results. Perficient's management uses these non-GAAP financial measures when it internally evaluates the performance of Perficient's business and makes operating decisions, including internal operating budgeting, performance measurement, and the calculation of bonuses and discretionary compensation. Management excludes stock-based compensation related to restricted stock awards, the amortization of intangible assets, amortization of debt discounts and issuance costs related to convertible senior notes, acquisition costs, adjustments to the fair value of contingent consideration, net other income and expense, the impact of other infrequent or unusual transactions, and income tax effects of the foregoing, when making operational decisions.

Perficient believes that providing the non-GAAP financial measures to its investors is useful because it allows investors to evaluate Perficient's performance using the same methodology and information used by Perficient's management. Specifically, adjusted net income is used by management primarily to review business performance and determine performance-based incentive compensation for executives and other employees. Management uses adjusted EBITDA to measure operating profitability, evaluate trends, and make strategic business decisions.

Non-GAAP financial measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of discretionary judgment as to which charges are excluded from the non-GAAP financial measure. However, Perficient's management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of adjusted EBITDA, adjusted net income, and adjusted earnings per share. In addition, some items that are excluded from adjusted net income and adjusted earnings per share can have a material impact on cash. Management compensates for these limitations by evaluating the non-GAAP measure together with the most directly comparable GAAP measure. Perficient has historically provided non-GAAP financial measures to the investment community as a supplement to its GAAP results to enable investors to evaluate Perficient's business performance in the way that management does. Perficient's definition may be different from similar non-GAAP financial measures used by other companies and/or analysts.

The non-GAAP adjustments, and the basis for excluding them, are outlined below:

Amortization
Perficient has incurred expense on amortization of intangible assets primarily related to various acquisitions. Management excludes these items for the purposes of calculating adjusted EBITDA, adjusted net income, and adjusted earnings per share. Perficient believes that eliminating this expense from its non-GAAP financial measures is useful to investors because the amortization of intangible assets can be inconsistent in amount and frequency, and is significantly impacted by the timing and magnitude of Perficient's acquisition transactions, which also vary substantially in frequency from period to period.

Acquisition Costs
Perficient incurs transaction costs related to merger and acquisition-related activities which are expensed in its GAAP financial statements. Management excludes these items for the purposes of calculating adjusted EBITDA, adjusted net income, and adjusted earnings per share. Perficient believes that excluding these expenses from its non-GAAP financial measures is useful to investors because these are expenses associated with each transaction and are inconsistent in amount and frequency causing comparison of current and historical financial results to be difficult.

Adjustment to Fair Value of Contingent Consideration
Perficient is required to remeasure its contingent consideration liability related to acquisitions each reporting period until the contingency is settled. Any changes in fair value are recognized in earnings. Management excludes these items for the purposes of calculating adjusted EBITDA, adjusted net income, and adjusted earnings per share. Perficient believes that excluding these adjustments from its non-GAAP financial measures is useful to investors because they are related to acquisitions and are inconsistent in amount and frequency from period to period.

Amortization of Debt Discount and Debt Issuance Costs
On September 11, 2018, Perficient issued $143.8 million aggregate principal amount of 2.375% Convertible Senior Notes due 2023 (the "Notes") in a private placement to qualified institutional purchasers. In accordance with accounting for debt with conversions and other options, Perficient bifurcated the principal amount of the Notes into liability and equity components. The resulting debt discount is being amortized to interest expense over the period from the issuance date through the contractual maturity date of September 15, 2023. Issuance costs related to the Notes were allocated pro rata based on the relative fair values of the liability and equity components. Issuance costs attributable to the liability component of the Notes, in addition to issuance costs related to Perficient's credit agreement, are being amortized to interest expense over their respective terms. Perficient believes that excluding these non-cash expenses from its non-GAAP financial measures is useful to investors because the expenses are not reflective of the company's business performance.

Stock Compensation
Perficient incurs stock-based compensation expense under Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation - Stock Compensation. Perficient excludes stock-based compensation expense and the related tax effects for the purposes of calculating adjusted EBITDA, adjusted net income, and adjusted earnings per share because stock-based compensation is a non-cash expense, which Perficient believes is not reflective of its business performance. The nature of stock-based compensation expense also makes it very difficult to estimate prospectively, since the expense will vary with changes in the stock price and market conditions at the time of new grants, varying valuation methodologies, subjective assumptions, and different award types, making the comparison of current results with forward-looking guidance potentially difficult for investors to interpret. The tax effects of stock-based compensation expense may also vary significantly from period to period, without any change in underlying operational performance, thereby obscuring the underlying profitability of operations relative to prior periods. Perficient believes that non-GAAP measures of profitability, which exclude stock-based compensation are widely used by analysts and investors.

 

Perficient, Inc.

Reconciliation of GAAP to Non-GAAP Measures

(unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2019

 

2018

 

2019

 

2018

GAAP Net Income

 

$

9,779

 

 

$

6,305

 

 

$

25,333

 

 

$

17,083

 

Adjustments:

 

 

 

 

 

 

 

 

Provision for income taxes

 

4,124

 

 

2,131

 

 

8,869

 

 

5,699

 

Amortization

 

3,997

 

 

4,009

 

 

12,144

 

 

12,029

 

Acquisition costs

 

17

 

 

497

 

 

595

 

 

1,337

 

Adjustment to fair value of contingent consideration

 

(2

)

 

666

 

 

(310

)

 

1,757

 

Amortization of debt discount and issuance costs

 

1,173

 

 

265

 

 

3,480

 

 

300

 

Stock compensation

 

4,344

 

 

4,111

 

 

13,199

 

 

12,104

 

Adjusted Net Income Before Tax

 

23,432

 

 

17,984

 

 

63,310

 

 

50,309

 

Adjusted income tax (1)

 

5,553

 

 

4,334

 

 

15,194

 

 

12,175

 

Adjusted Net Income

 

$

17,879

 

 

$

13,650

 

 

$

48,116

 

 

$

38,134

 

 

 

 

 

 

 

 

 

 

GAAP Earnings Per Share (diluted)

 

$

0.30

 

 

$

0.19

 

 

$

0.79

 

 

$

0.50

 

Adjusted Earnings Per Share (diluted)

 

$

0.56

 

 

$

0.41

 

 

$

1.49

 

 

$

1.13

 

Shares used in computing GAAP and Adjusted Earnings Per Share (diluted)

 

32,159

 

 

33,645

 

 

32,197

 

 

33,846

 

 

(1) The estimated adjusted effective tax rate of 23.7% and 24.0% for the three months ended September 30, 2019 and 2018, respectively, and 24.0% and 24.2% for the nine months ended September 30, 2019 and 2018, respectively, has been used to calculate the provision for income taxes for non-GAAP purposes.

Perficient, Inc.

Reconciliation of GAAP to Non-GAAP Measures

(unaudited)

(in thousands)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2019

 

2018

 

2019

 

2018

GAAP Net Income

 

$

9,779

 

 

$

6,305

 

 

$

25,333

 

 

$

17,083

 

Adjustments:

 

 

 

 

 

 

 

 

Provision for income taxes

 

4,124

 

 

2,131

 

 

8,869

 

 

5,699

 

Net interest expense

 

1,895

 

 

831

 

 

5,551

 

 

1,718

 

Net other expense (income)

 

10

 

 

(6

)

 

(34

)

 

43

 

Depreciation

 

1,095

 

 

995

 

 

3,181

 

 

3,057

 

Amortization

 

3,997

 

 

4,009

 

 

12,144

 

 

12,029

 

Acquisition costs

 

17

 

 

497

 

 

595

 

 

1,337

 

Adjustment to fair value of contingent consideration

 

(2

)

 

666

 

 

(310

)

 

1,757

 

Stock compensation

 

4,344

 

 

4,111

 

 

13,199

 

 

12,104

 

Adjusted EBITDA (1)

 

$

25,259

 

 

$

19,539

 

 

$

68,528

 

 

$

54,827

 

 

(1) Adjusted EBITDA is a non-GAAP performance measure and is not intended to be a performance measure that should be regarded as an alternative to or more meaningful than either GAAP operating income or GAAP net income. Adjusted EBITDA measures presented may not be comparable to similarly titled measures presented by other companies.

Perficient, Inc.

Reconciliation of GAAP to Non-GAAP Measures

(unaudited)

 

 

 

Q4 2019

 

Full Year 2019

 

 

Low end of
adjusted
goal

 

High end of
adjusted
goal

 

Low end of
adjusted
goal

 

High end of
adjusted
goal

GAAP EPS

 

$

0.34

 

 

$

0.37

 

 

$

1.12

 

 

$

1.16

 

Non-GAAP adjustment (1):

 

 

 

 

 

 

 

 

Non-GAAP reconciling items

 

0.34

 

 

0.34

 

 

1.24

 

 

1.24

 

Tax effect of reconciling items

 

(0.13

)

 

(0.13

)

 

(0.32

)

 

(0.33

)

Adjusted EPS

 

$

0.55

 

 

$

0.58

 

 

$

2.04

 

 

$

2.07

 

 
(1) Non-GAAP adjustment represents the impact of amortization expense, stock compensation, amortization of debt discount and issuance costs, acquisition costs, and adjustments to fair value of contingent consideration, net of the tax effect of these adjustments, divided by adjusted fully diluted shares. Perficient currently expects its Q4 2019 and full year 2019 GAAP effective income tax rate to be approximately 10% and 22%, respectively. The Company's estimates of GAAP and adjusted fully diluted shares for 2019 are included in the following table. These estimates could be affected by share repurchases, shares issued in conjunction with future acquisitions and the potential impact from the conditional conversion features of our debt.
 

(in millions)

 

Q4 2019

 

Full Year 2019

GAAP Fully Diluted Shares

 

32.4

 

 

32.2

 

Non-GAAP adjustment (2):

 

 

 

 

Dilution offset from convertible note hedge transactions

 

(0.2

)

 

-

 

Adjusted Fully Diluted Shares

 

32.2

 

 

32.2

 

 

(2) Non-GAAP adjustment represents the exclusion of shares that are issuable upon conversion of our convertible notes due to the expectation that such shares will be offset by the convertible note hedge transactions entered into in September 2018.

 


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