Perficient Reports Fourth Quarter and Full Year 2018 Results

~Reports Record Services Revenue; Q4 GAAP EPS increases 21%; Q4
Adjusted EPS increases 27%; 2018 Net Income up 32%~

ST. LOUIS–(BUSINESS WIRE)–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 and year ended December 31, 2018.

Financial Highlights

For the quarter ended December 31, 2018:

  • Services revenue increased 11% to $130.0 million from $117.4 million
    in the fourth quarter of 2017;
  • Total revenue decreased to $131.7 million from $133.5 million in the
    fourth quarter of 2017 primarily as a result of the net presentation
    of third party software and hardware sales upon adoption of Accounting
    Standards Codification Topic 606, Revenue from Contracts with
    Customers
    in 2018;
  • Net income increased 16% to $7.5 million from $6.4 million in the
    fourth quarter of 2017;
  • GAAP earnings per share results on a fully diluted basis increased 21%
    to $0.23 from $0.19 in the fourth quarter of 2017;
  • 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 27% to $0.47 from $0.37 in the fourth quarter
    of 2017; and
  • EBITDAS(a non-GAAP measure; see attached schedule, which
    reconciles to GAAP net income) increased to $21.7 million from $20.7
    million in the fourth quarter of 2017.

For the year ended December 31, 2018:

  • Services revenue increased 11% to $494.0 million from $446.6 million
    for 2017;
  • Total revenue increased to $498.4 million from $485.3 million for 2017;
  • Net income increased 32% to $24.6 million from $18.6 million for 2017;
  • GAAP earnings per share results on a fully diluted basis increased 33%
    to $0.73 from $0.55 for 2017;
  • 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 29% to $1.59 from $1.23 for 2017; and
  • EBITDAS(a non-GAAP measure; see attached schedule, which
    reconciles to GAAP net income) increased to $76.5 million from $70.8
    million for 2017.

“Perficient fired on all cylinders during the fourth quarter, delivering
strong margins and profitability that exceeded our forecast,” said
Jeffrey Davis, chairman and CEO. “That momentum has carried into the
first quarter of 2019. Bookings are solid, the pipeline is the largest
it has ever been and the key performance indicators we monitor are all
trending in the right direction. I’ve never been more excited about what
we’re building at Perficient.”

Other Highlights

Among other recent achievements, Perficient:

  • Was named IBM’s 2019 Watson Commerce Business Partner of the Year,
    which recognizes Perficient’s ongoing growth and relationships with
    key customers, and thought leadership around the IBM Watson Customer
    Engagement Commerce platform;
  • Was named North America Partner of the Year by MicroStrategy®
    Incorporated, recognizing Perficient for its demonstrated
    collaboration and investment within its MicroStrategy solution
    partnership;
  • Announced that its agency Perficient Digital was cited as a “large,
    established player” in Forrester Research’s report “B2B Marketing
    Agencies, North America, Q1 2019,” which recognized Perficient Digital
    for its eCommerce, customer experience design, martech management, and
    operations capabilities, as well as expertise across 11 emerging
    technologies; and
  • Added new customer relationships and follow-on projects with such
    leading companies as Ameren, AutoWeb, Bunzl, DTE Energy,
    Express-Scripts, Florida Blue, Fluor, Ford Motor Company, Graybar,
    Guitar Center, Mastercard, Meridian Health, NRG/Reliant Energy, Owens
    Corning, Prosource, Sally Beauty, and Symantec.

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 first quarter 2019 revenue to be in the range of
$129 million to $133 million. First quarter GAAP earnings per share is
expected to be in the range of $0.15 to $0.18. First 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 $0.38 to $0.41.

Perficient is issuing its full year 2019 revenue guidance range of $515
million to $545 million, its 2019 GAAP earnings per share guidance of
$0.74 to $0.86 and 2019 adjusted earnings per share (a non-GAAP measure;
see attached schedule which reconciles to GAAP earnings per share
guidance) range of $1.65 to $1.77.

Conference Call Details

Perficient will host a conference call regarding fourth quarter 2018
financial results today at 11 a.m. Eastern.

WHAT: Perficient Reports Fourth Quarter and Full-Year 2018 Results
WHEN:
Tuesday, February 26, 2019, at 11 a.m. Eastern
CONFERENCE
CALL NUMBERS:
855-246-0403 (U.S. and Canada); 414-238-9806
(International)
PARTICIPANT PASSCODE: 6796879
REPLAY
TIMES
: Tuesday, February 26, 2019, at 2 p.m. Eastern, through
Tuesday, March 5, 2019, at 2 p.m. Eastern
REPLAY NUMBER:
855-859-2056 (U.S. and Canada); 404-537-3406 (International)
REPLAY
PASSCODE
: 6796879

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 Premier 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.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share data)

 
 

Three Months Ended
December 31,

Year Ended
December 31,

2018     2017 2018     2017
Revenues
Services $ 130,015 $ 117,427 $ 494,001 $ 446,619
Software and hardware 1,687   16,051   4,374   38,642  
Total revenues 131,702   133,478   498,375   485,261  
 
Cost of revenues (exclusive of depreciation and amortization, shown
separately below)
Cost of services 80,175 74,222 313,602 285,034
Software and hardware costs 14,435 33,295
Stock compensation 1,651   1,373   6,229   5,419  
Total cost of revenues 81,826   90,030   319,831   323,748  
 
Selling, general and administrative 29,876 26,907 108,294 98,885
Stock compensation 2,663   2,401   10,190   9,307  
Total selling, general and administrative 32,539 29,308 118,484 108,192
 
Depreciation 1,015 1,135 4,072 4,722
Amortization 4,327 3,927 16,356 15,025
Acquisition costs 535 76 1,872 1,359
Adjustment to fair value of contingent consideration 59   4,063   1,816   3,235  
Income from operations 11,401   4,939   35,944   28,980  
 
Net interest expense 1,842 394 3,560 1,838
Net other (income) expense (32 ) 83   12   (1 )
Income before income taxes 9,591 4,462 32,372 27,143
Income tax provision (benefit) 2,114   (1,974 ) 7,813   8,562  
Net income $ 7,477   $ 6,436   $ 24,559   $ 18,581  
 
Basic net income per share $ 0.24 $ 0.20 $ 0.76 $ 0.56
Diluted net income per share $ 0.23 $ 0.19 $ 0.73 $ 0.55
 
Shares used in computing basic net income per share 31,498 32,777 32,415 33,016
Shares used in computing diluted net income per share 32,402 33,923 33,502 34,066
 
       

PERFICIENT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

 
 
December 31, 2018 December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents $ 44,984 $ 6,307
Accounts receivable, net 122,446 112,194
Prepaid expenses 4,663 4,470
Other current assets 5,711   6,237  
Total current assets 177,804 129,208
Property and equipment, net 6,677 7,145
Goodwill 327,992 305,238
Intangible assets, net 48,092 51,066
Other non-current assets 9,979   6,403  
Total assets $ 570,544   $ 499,060  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 24,437 $ 23,196
Other current liabilities 50,386   38,077  
Total current liabilities 74,823 61,273
Long-term debt, net 120,067 55,000
Other non-current liabilities 21,970   16,436  
Total liabilities 216,860 132,709
Stockholders’ equity:
Preferred stock
Common stock 48 47
Additional paid-in capital 437,250 403,906
Accumulated other comprehensive loss (2,588 ) (1,822 )
Treasury stock (233,676 ) (163,871 )
Retained earnings 152,650   128,091  
Total stockholders’ equity 353,684   366,351  
Total liabilities and stockholders’ equity $ 570,544   $ 499,060  
 

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 EBITDAS (earnings
before interest, income taxes, depreciation, amortization, stock
compensation, acquisition costs, adjustment to fair value of contingent
consideration and tax-related bonus), 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 EBITDAS 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 EBITDAS, 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 EBITDAS, 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 EBITDAS, 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 EBITDAS, 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.

Write-off of Unamortized Credit Facility Fees

Perficient entered into a new credit agreement during the second quarter
of 2017. In connection with the new agreement, Perficient wrote off
unamortized credit facility fees associated with the former credit
agreement. Perficient believes that excluding this non-cash write-off
from its non-GAAP financial measures is useful to investors because the
expense is infrequent and 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
EBITDAS, 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.

2017 Tax Act

The Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was signed into
law on December 22, 2017. The law included significant changes to the
U.S. corporate income tax system, including a federal corporate rate
reduction from 35% to 21%, limitations on the deductibility of interest
expense and executive compensation, and the transition of U.S.
international taxation from a worldwide tax system to a territorial tax
system. The majority of the provisions had an impact on Perficient
beginning in fiscal year 2018. However, there were certain transitional
impacts of the 2017 Tax Act which affected Perficient’s tax provision
during the fourth quarter of 2017, including a one-time repatriation tax
on deemed repatriation of historical earnings of foreign subsidiaries,
an adjustment of U.S. deferred tax assets and liabilities to the lower
federal base rate of 21%, and changes to the net tax cost of certain
China dividends repatriated during 2017. Perficient believes that
excluding this transitional adjustment from its non-GAAP financial
measures is useful to investors because this adjustment is infrequent
and can cause comparison of current and historical financial results to
be difficult.

Tax-Related Bonus

During the fourth quarter of 2017, Perficient’s Compensation Committee
of the Board of Directors approved the payment of supplemental bonuses
in the aggregate amount of $2.8 million to employees of Perficient that
were eligible to participate under Perficient’s Discretionary Bonus Plan
as a result of the one-time benefit Perficient received under the 2017
Tax Act. Perficient believes that excluding this expense from its
non-GAAP financial measures is useful to investors because this
incremental bonus is directly related to the favorable transitional
adjustment under the 2017 Tax Act rather than Perficient’s business
performance.

       

PERFICIENT, INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(unaudited)

(in thousands, except per share data)

 
 

Three Months Ended
December 31,

Year Ended
December 31,

2018     2017 2018     2017
GAAP Net Income $ 7,477 $ 6,436 $ 24,559 $ 18,581
Adjustments:
Income tax provision (benefit) 2,114 (1,974 ) 7,813 8,562
Amortization 4,327 3,927 16,356 15,025
Acquisition costs 535 76 1,872 1,359
Adjustment to fair value of contingent consideration 59 4,063 1,816 3,235
Amortization of debt discounts and issuance costs 1,135 1,435
Write-off of unamortized credit facility fees 246
Stock compensation 4,314 3,774 16,419 14,726
Tax-related bonus   2,800     2,800
Adjusted Net Income Before Tax 19,961 19,102 70,270 64,534
Adjusted income tax (1) 4,851   6,552   17,005   22,651
Adjusted Net Income $ 15,110   $ 12,550   $ 53,265   $ 41,883
 
GAAP Earnings Per Share (diluted) $ 0.23 $ 0.19 $ 0.73 $ 0.55
Adjusted Earnings Per Share (diluted) $ 0.47 $ 0.37 $ 1.59 $ 1.23
Shares used in computing GAAP and Adjusted Earnings Per Share
(diluted)
32,402 33,923 33,502 34,066
 

Contacts

Bill Davis, Perficient, 314-529-3555
[email protected]

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