form10k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2011
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Commission file number 001-15169
PERFICIENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
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(State or other jurisdiction of incorporation or organization)
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No. 74-2853258
(I.R.S. Employer Identification No.)
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520 Maryville Centre Drive, Suite 400
Saint Louis, Missouri 63141
(Address of principal executive offices)
(314) 529-3600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class:
Common Stock, $0.001 par value
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Name of each exchange on which registered:
The Nasdaq Global Select Market
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filero
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Accelerated filerþ
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Non-accelerated filero
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Smaller reporting companyo
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of the voting stock held by non-affiliates of the Company was approximately $294.5 million based on the last reported sale price of the Company's common stock on The Nasdaq Global Select Market on June 30, 2011.
As of February 27, 2012, there were 31,269,447 shares of Common Stock outstanding.
Portions of the definitive proxy statement in connection with the 2012 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission no later than April 30, 2012, are incorporated by reference in Part III of this Form 10-K.
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PART I
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Item 1.
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Business.
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1
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Item 1A.
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Risk Factors.
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5
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Item 1B.
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Unresolved Staff Comments.
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13
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Item 2.
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Properties.
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13
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Item 3.
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Legal Proceedings.
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13
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Item 4.
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Reserved.
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13
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PART II
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
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14
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Item 6.
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Selected Financial Data.
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15
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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15
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk.
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25
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Item 8.
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Financial Statements and Supplementary Data.
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26
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Item 9.
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Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
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47
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Item 9A.
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Controls and Procedures.
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47
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Item 9B.
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Other Information.
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47
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PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance.
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48
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Item 11.
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Executive Compensation.
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49
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
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49
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence.
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49
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Item 14.
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Principal Accounting Fees and Services.
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49
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PART IV
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Item 15.
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Exhibits, Financial Statement Schedules.
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50
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this annual report that are not purely historical statements discuss future expectations, contain projections of results of operations or financial condition, or state other forward-looking information. 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 various factors and was derived using numerous assumptions. In some cases, you can identify these so-called forward-looking statements by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of those words and other comparable words. 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 are disclosed under the heading “Risk Factors” in this annual report.
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. We are under no duty to update any of the forward-looking statements after the date of this annual report to conform such statements to actual results.
All forward-looking statements, express or implied, included in this report and the documents we incorporate by reference and that are attributable to Perficient, Inc. are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Perficient, Inc. or any persons acting on our behalf may issue.
We are an information technology consulting firm serving Forbes Global 2000 (“Global 2000”) and other large enterprise companies with a primary focus on the United States. We help our clients gain competitive advantage by using Internet-based technologies to make their businesses more responsive to market opportunities and threats, strengthen relationships with their customers, suppliers and partners, improve productivity, and reduce information technology costs. We design, build, and deliver business-driven technology solutions using third party software products. Our solutions include business integration, portals and collaboration, custom applications, technology platform implementations, customer relationship management, enterprise performance management, enterprise content management, and business intelligence, among others. Our solutions enable our clients to operate a real-time enterprise that dynamically adapts business processes and the systems that support them to meet the changing demands of an increasingly global, Internet-driven and competitive marketplace.
Through our experience in developing and delivering business-driven technology solutions for our clients, we have acquired domain expertise that differentiates our firm. We use project teams that deliver high-value, measurable results by working collaboratively with clients and their partners through a user-centered, technology-based and business-driven solutions methodology. We believe this approach enhances return-on-investment for our clients by reducing the time and risk associated with designing and implementing technology solutions.
We serve our clients from locations in 20 markets throughout North America by leveraging a sales team that is experienced and connected through a common service portfolio, sales process, and performance management system. Our sales process utilizes project pursuit teams that include those of our information technology colleagues best suited to address a particular prospective client’s needs. Our primary target client base includes companies in North America with annual revenues in excess of $500 million. We believe this market segment can generate the repeat business that is a fundamental part of our growth plan. We primarily pursue solutions opportunities where our domain expertise and delivery track record give us a competitive advantage. We also typically target engagements of up to $5 million in fees, which we believe to be below the target project range of most large systems integrators and beyond the delivery capabilities of most local boutique consulting firms.
During 2011, we continued to implement a strategy focused on: expanding our relationships with existing and new clients; continuing to make disciplined acquisitions by acquiring Exervio Consulting, Inc. (“Exervio”) in April 2011 and JCB Partners, LLC (“JCB”) in July 2011; expanding our technical skill and geographic base by expanding our business both organically and through acquisitions, with a primary focus on the United States; expanding our brand visibility among prospective clients, employees, and software vendors; leveraging our offshore capabilities in Canada, Europe, China, and India; and leveraging our existing and pursuing new strategic alliances by targeting leading business advisory companies and technology providers.
We help clients gain competitive advantage by using technology to make their businesses more responsive to market opportunities; strengthen relationships with customers, suppliers, and partners; improve productivity; and reduce information technology costs. Our business-driven technology solutions enable these benefits by developing, integrating, automating, and extending business processes, technology infrastructure and software applications end-to-end within an organization and with key partners, suppliers, and customers. This provides real-time access to critical business applications and information and a scalable, reliable, secure, and cost-effective technology infrastructure that enables clients to:
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give managers and executives the information they need to make quality business decisions and dynamically adapt their business processes and systems to respond to client demands, market opportunities, or business problems;
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improve the quality and lower the cost of customer acquisition and care through web-based customer self-service and provisioning;
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reduce supply chain costs and improve logistics by flexibly and quickly integrating processes and systems and making relevant real-time information and applications available online to suppliers, partners, and distributors;
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increase the effectiveness and value of legacy enterprise technology infrastructure investments by enabling faster application development and deployment, increased flexibility, and lower management costs; and
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increase employee productivity through better information flow and collaboration capabilities and by automating routine processes to enable focus on unique problems and opportunities.
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Our business-driven technology solutions include the following:
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Business integration and service oriented architectures (SOA). We design, develop, and implement business integration and SOA solutions that allow our clients to integrate all of their business processes end-to-end and across the enterprise. Truly innovative companies are extending those processes and eliminating functional friction between the enterprise, core customers, and partners. Our business integration solutions can extend and extract core applications, reduce infrastructure strains and cost, web-enable legacy applications, provide real-time insight into business metrics, and introduce efficiencies for customers, suppliers, and partners.
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Enterprise portals and collaboration. We design, develop, implement, and integrate secure and scalable enterprise portals and collaboration solutions for our clients and their customers, suppliers, and partners that include searchable data systems, collaborative systems for process improvement, transaction processing, unified and extended reporting, content management, social media/networking tools, and personalization.
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Custom applications. We design, develop, implement, and integrate custom application solutions that deliver enterprise-specific functionality to meet the unique requirements and needs of our clients. Our substantial experience with platforms including J2EE, .Net, and Open-source enables enterprises of all types to leverage cutting-edge technologies to meet business-driven needs.
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Technology platform implementations. We design, develop, and implement technology platform implementations that allow our clients to establish a robust, reliable Internet-based infrastructure for integrated business applications which extend enterprise technology assets to employees, customers, suppliers, and partners. Our platform services include application server selection, architecture planning, installation and configuration, clustering for availability, performance assessment and issue remediation, security services, and technology migrations.
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Customer relationship management (CRM). We design, develop, and implement advanced CRM solutions that facilitate customer acquisition, service and support, and sales and marketing by understanding our customers’ needs through interviews, requirement gathering sessions, call center analysis, developing an iterative prototype driven solution, and integrating the solution to legacy processes and applications.
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Enterprise performance management (EPM). We design, develop, and implement EPM solutions that allow our clients to quickly adapt their business processes to respond to new market opportunities or competitive threats by taking advantage of business strategies supported by flexible business applications and IT infrastructures.
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Enterprise content management (ECM). We design, develop, and implement ECM solutions that enable the management of all unstructured information regardless of file type or format. Our ECM solutions can facilitate the creation of new content and/or provide easy access and retrieval of existing digital assets from other enterprise tools such as enterprise resource planning (ERP), customer relationship management, or legacy applications. Our ECM solutions include Enterprise Imaging and Document Management, Web Content Management, Digital Asset Management, Enterprise Records Management, Compliance and Control, Business Process Management and Collaboration, and Enterprise Search.
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Business intelligence. We design, develop, and implement business intelligence solutions that allow companies to interpret and act upon accurate, timely, and integrated information. Business intelligence solutions help our clients make more informed business decisions by classifying, aggregating, and correlating data into meaningful business information. Our business intelligence solutions allow our clients to transform data into knowledge for quick and effective decision making and can include information strategy, data warehousing, and business analytics and reporting.
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We conceive, build, and implement these solutions through a comprehensive set of services including business strategy, user-centered design, systems architecture, custom application development, technology integration, package implementation, and managed services.
In addition to our technology solution services, we offer education and mentoring services to our clients. We conduct IBM- and Oracle-certified training, where we provide our clients both a customized and established curriculum of courses and other education services.
We believe our competitive strengths include:
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Domain Expertise. We have acquired significant domain expertise in a core set of technology solutions and software platforms. These solutions include business integration, portals and collaboration, custom applications, technology platform implementations, customer relationship management, enterprise performance management, enterprise content management, and business intelligence, among others. The platforms in which we have significant domain expertise and on which these solutions are built include IBM, Oracle and Microsoft, among others.
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Industry Expertise. We serve many of the world’s largest and most respected companies with deep business process experience across a variety of industries. These industries include healthcare, financial services and banking, telecommunications, automotive, and energy, among others.
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Delivery Model and Methodology. We believe our significant domain expertise enables us to provide high-value solutions through expert project teams that deliver measurable results by working collaboratively with clients through a user-centered, technology-based, and business-driven solutions methodology. Our methodology includes a proven execution process map we developed, which allows for repeatable, high quality services delivery. The methodology leverages the thought leadership of our senior strategists and practitioners to support the client project team and focuses on transforming our clients’ business processes to provide enhanced customer value and operating efficiency, enabled by web technology. As a result, we believe we are able to offer our clients the dedicated attention that small firms usually provide and the delivery and project management that larger firms usually offer.
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Client Relationships. We have built a track record of quality solutions and client satisfaction through the timely, efficient and successful completion of numerous projects for our clients. As a result, we have established long-term relationships with many of our clients who continue to engage us for additional projects and serve as references for us. For the years ending December 31, 2011, 2010 and 2009, 81%, 84% and 92%, respectively, of services revenues were derived from clients who continued to utilize our services from the prior year, excluding any revenues from acquisitions completed in that year.
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Vendor Relationship and Endorsements. We have built meaningful relationships with software providers, whose products we use to design and implement solutions for our clients. These relationships enable us to reduce our cost of sales and sales cycle times and increase win rates by leveraging our partners’ marketing efforts and endorsements. We also serve as a sales channel for our partners, helping them market and sell their software products. We are an IBM Premier Business Partner, an Oracle Platinum Partner, a Microsoft Gold Certified Partner and National Systems Integrator, a TeamTIBCO Partner, and an EMC Consulting Preferred Partner. Our vendors have recognized our relationships with several awards. In 2011 we were named IBM’s Lotus North America Distinguished Partner, making us a three-time winner of this award. We also received the IBM Information Management Solution Excellence Award and the IBM Information Management Business Analytics Solution Provider Achievement Award.
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Offshore Capability. We serve our clients from locations in 20 markets throughout North America and, in addition, we operate global development centers in Hangzhou, China and Chennai, India. These facilities are staffed with colleagues who have specializations that include application development, adapter and interface development, quality assurance and testing, monitoring and support, product development, platform migration, and portal development with expertise in IBM, Oracle and Microsoft technologies. In addition to our offshore capabilities, we employ a number of foreign nationals in the United States on H1-B visas. The facility in Chennai, India is also a recruiting and development facility used to continue to grow our base of H1-B foreign national colleagues. As of December 31, 2011, we had 204 colleagues at the Hangzhou, China facility and 205 colleagues with H1-B visas. We intend to continue to leverage our existing offshore capabilities to support our growth and provide our clients flexible options for project delivery.
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The market for the services we provide is competitive and has low barriers to entry. We believe that our competitors fall into several categories, including:
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small local consulting firms that operate in no more than one or two geographic regions;
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boutique consulting firms, such as Prolifics and Avanade;
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national consulting firms, such as Accenture, Deloitte Consulting and Sapient;
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in-house professional services organizations of software companies; and
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offshore providers, such as Infosys Technologies Limited and Wipro Limited.
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We believe that the principal competitive factors affecting our market include domain expertise, track record and customer references, quality of proposed solutions, service quality and performance, efficiency, reliability, scalability and features of the software platforms upon which the solutions are based, and the ability to implement solutions quickly and respond on a timely basis to customer needs. In addition, because of the relatively low barriers to entry into this market, we expect to face additional competition from new entrants. We expect competition from offshore outsourcing and development companies to continue.
Some of our competitors have longer operating histories, larger client bases, and greater name recognition; and possess significantly greater financial, technical, and marketing resources than we do. As a result, these competitors may be able to attract customers to which we market our services and adapt more quickly to new technologies or evolving customer or industry requirements.
During the year ended December 31, 2011, we provided services to 597 customers. No one customer provided more than 10% of our total revenues for the years ended 2011, 2010 or 2009.
As of December 31, 2011, we had 1,484 colleagues, 1,240 of which were billable (excludes 171 billable subcontractors) and 244 which were involved in sales, administration, and marketing. None of our colleagues are represented by a collective bargaining agreement and we have never experienced a strike or similar work stoppage. We are committed to the continued development of our colleagues.
Sales and Marketing. As of December 31, 2011, we had a 57 person direct solutions-oriented sales force. We reward our sales force for developing and maintaining relationships with our clients and seeking out follow-up engagements as well as leveraging those relationships to forge new relationships in different areas of the business and with our clients’ business partners. Approximately 85% of our sales are executed by our direct sales force. In addition to our direct sales team, we also have 28 dedicated sales support employees, 19 general managers and three vice-presidents who are engaged in the sales and marketing efforts.
We have sales and marketing partnerships with software vendors including IBM, Oracle and Microsoft, among others. These companies are key vendors of open standards-based software commonly referred to as middleware application servers, enterprise application integration platforms, business process management, business activity monitoring and business intelligence applications, and enterprise portal server software. Our direct sales force works in tandem with the sales and marketing groups of our partners to identify potential new clients and projects. Our partnerships with these companies enable us to reduce our cost of sales and sales cycle times and increase win rates by leveraging our partners’ marketing efforts and endorsements.
Recruiting. We are dedicated to hiring, developing, and retaining experienced, motivated technology professionals who combine a depth of understanding of current Internet and legacy technologies with the ability to implement complex and cutting-edge solutions.
Our recruiting efforts are an important element of our continuing operations and future growth. We generally target technology professionals with extensive experience and demonstrated expertise. To attract technology professionals, we use a broad range of sources including on-staff recruiters, outside recruiting firms, internal referrals, other technology companies and technical associations, and the Internet. After initially identifying qualified candidates, we conduct an extensive screening and interview process.
Retention. We believe that our focus on a core set of business-driven technology solutions, applications, and software platforms and our commitment to career development through continued training and advancement opportunities makes us an attractive career choice for experienced professionals. Because our strategic partners are established and emerging market leaders, our technology colleagues have an opportunity to work with cutting-edge information technology. We foster professional development by training our technology colleagues in the skills critical to successful consulting engagements such as implementation methodology and project management. We believe in promoting from within whenever possible. In addition to an annual review process that identifies near-term and longer-term career goals, we make a professional development plan available to assist our colleagues with assessing their skills and developing a detailed action plan for guiding their career development.
Training. To ensure continued development of our technical staff, we place a priority on training. We offer extensive training for our colleagues around industry-leading technologies. We utilize our education practice to provide continuing education and professional development opportunities for our colleagues.
Compensation. Our employees have a compensation model that includes base salary and an incentive compensation component. Our tiered incentive compensation plans help us reach our overall goals by rewarding individuals for their influence on key performance factors. Key performance metrics include client satisfaction, revenues generated, utilization, profit, and personal skills growth. Senior level employees are eligible to receive restricted stock awards, which generally vest ratably over a minimum three year period.
Company Wide Practice (CWP) Leaders. Our CWP leadership performs a critical role in maintaining our technology leadership. Consisting of key employees from several practice areas, the CWP leadership assesses new technologies, partnership opportunities, and serves as lead internal subject matter experts for their respective domain. The CWP leaders also coordinate thought leadership activities, including white paper authorship and publication and speaking engagements by our colleagues. Finally, the CWP team identifies services opportunities between and among our strategic partners’ products, oversees our quality assurance programs, and assists in acquisition-related technology due diligence.
The Perficient Promise. We have developed the “Perficient Promise,” which consists of the following six simple commitments our colleagues make to each other:
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we believe in long-term client and vendor relationships built on investment in innovative solutions, delivering more value than the competition, and a commitment to excellence;
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we believe in growth and profitability and building meaningful scale;
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we believe each of us is ultimately responsible for our own career development and has a commitment to mentor others;
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we believe that Perficient has an obligation to invest in our consultants’ training and education;
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we believe the best career development comes on the job; and
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we love challenging new work opportunities.
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We take these commitments seriously because we believe that we can succeed only if the Perficient Promise is kept.
Our stock is traded on The Nasdaq Global Select Market under the symbol “PRFT.” Our website can be visited at www.perficient.com. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) as soon as reasonably practicable after we electronically file such material, or furnish it to, the Securities and Exchange Commission. The information contained or incorporated in our website is not part of this document.
You should carefully consider the following risk factors together with the other information contained in or incorporated by reference into this annual report before you decide to buy our common stock. If any of these risks actually occur, our business, financial condition, operating results, or cash flows could be materially and adversely affected. This could cause the trading price of our common stock to decline and you may lose part or all of your investment.
Risks Related to Our Business
Our results of operations could be adversely affected by volatile, negative or uncertain economic conditions and the effects of these conditions on our clients’ businesses and levels of business activity.
Our results of operations are affected by the levels of business activities of our clients, which can be affected by economic conditions in the United States and worldwide. Volatile, negative or uncertain economic conditions in our significant markets could undermine business confidence, both in those markets and other markets and cause our clients to reduce or defer their spending on new technologies or initiatives or terminate existing contracts, which would negatively affect our business. Growth in markets we serve could be at a slow rate, or could stagnate, for an extended period of time. Differing economic conditions and patterns of economic growth and contraction in the geographical regions in which we operate and the industries we serve may affect demand for our services. A material portion of our revenues and profitability is derived from our clients in North America. Weakening in this market as a result of high government deficits, credit downgrades or otherwise, could have a material adverse effect on our results of operations. Ongoing economic volatility and uncertainty affects our business in a number of other ways, including making it more difficult to accurately forecast client demand beyond the short term and effectively build our revenue and resource plans, particularly in consulting. This could result, for example, in us not having the level of appropriate personnel where they are needed, and could have a significant negative impact on our results of operations.
A significant portion of our revenue is dependent upon building long-term relationships with our clients and our operating results could suffer if we fail to maintain these relationships.
Our professional services agreements with clients are, in most cases, terminable on 10 to 30 days’ notice. A client may choose at any time to use another consulting firm, choose to perform services we provide through their own internal resources, choose not to retain us for additional stages of a project that involves multiple stages, or try to renegotiate the terms of its contract or cancel or delay additional planned work. Terminations, cancellations, or delays could result from factors that are beyond our control and unrelated to our work product or the progress of the project, including the business or financial conditions of the client, changes in ownership or management at our clients, and changes in client strategies, the economy, or markets generally. When contracts are terminated, we lose the anticipated revenues and might not be able to replace, or it may take significant time to replace, the lost revenue with other work or eliminated associated costs. Consequently, our results of operations in subsequent periods could be materially lower than expected. Additionally, termination of a relationship with a significant client or with a group of clients that account for a significant portion of our revenues could adversely affect our revenues and results of operations.
We may not be able to attract and retain information technology consulting professionals, which could affect our ability to compete effectively.
Our success depends, in large part, upon our ability to attract, train, retain, motivate, manage, and effectively utilize highly skilled information technology consulting professionals. There is often considerable competition for qualified personnel in the information technology services industry. Additionally, our technology colleagues are primarily at-will employees. We also use independent subcontractors where appropriate to supplement our employee capacity. Failure to retain highly skilled technology professionals or hire qualified independent subcontractors would impair our ability to adequately manage staff and implement our existing projects and to bid for or obtain new projects, which in turn would adversely affect our operating results.
Our success depends on attracting and retaining senior management and key personnel.
The information technology services industry is highly specialized and the competition for qualified management and key personnel is intense. We believe that our success depends on retaining our senior management team and key technical and business consulting personnel. Retention is particularly important in our business as personal relationships are a critical element of obtaining and maintaining strong relationships with our clients. In addition, as we grow our business, our need for senior experienced management and implementation personnel increases. If a significant number of these individuals resign, or if we are unable to attract top talent, our level of management, technical, marketing, and sales expertise could diminish or otherwise be insufficient for our growth. We may be unable to achieve our revenues and operating performance objectives unless we can attract and retain technically qualified and highly skilled sales, technical, business consulting, marketing, and management personnel. These individuals would be difficult to replace, and losing them could seriously harm our business.
The market for the information technology consulting services we provide is competitive, has low barriers to entry, and is becoming increasingly consolidated, which may adversely affect our market position.
The market for the information technology consulting services we provide is competitive, rapidly evolving, and subject to rapid technological change. In addition, there are relatively low barriers to entry into this market and therefore new entrants may compete with us in the future. For example, due to the rapid changes and volatility in our market, many well-capitalized companies, including some of our partners, that have focused on sectors of the software and services industry that are not competitive with our business may refocus their activities and deploy their resources to be competitive with us.
A significant amount of information technology services are being provided by lower-cost non-domestic resources. The increased utilization of these resources for U.S.-based projects could result in lower revenues and margins for U.S.-based information technology companies. Our ability to compete utilizing higher-cost domestic resources and/or our ability to procure comparably priced offshore resources could adversely impact our results of operations and financial condition.
Our future financial performance will depend, in large part, on our ability to establish and maintain an advantageous market position. We currently compete with regional and national information technology consulting firms and, to a limited extent, offshore service providers and in-house information technology departments. Many of the larger regional and national information technology consulting firms have substantially longer operating histories, more established reputations and potential vendor relationships, greater financial resources, sales and marketing organizations, market penetration, and research and development capabilities, as well as broader product offerings, greater market presence, and name recognition. We may face increasing competitive pressures from these competitors. This may place us at a disadvantage to our competitors, which may harm our ability to grow, maintain revenues, or generate net income.
In recent years, there has been consolidation in our industry and we expect that there will be additional consolidation in the future. As a result of this consolidation, we expect that we will increasingly compete with larger firms that have broader product offerings and greater financial resources than we have. We believe that this competition could have a negative effect on our marketing, distribution and reselling relationships, pricing of services and products, and our product development budget and capabilities. One or more of our competitors may develop and implement methodologies that result in superior productivity and price reductions without adversely affecting their profit margins. In addition, competitors may win client engagements by significantly discounting their services in exchange for a client’s promise to purchase other goods and services from the competitor, either concurrently or in the future. These activities may potentially force us to lower our prices and suffer reduced operating margins. Any of these negative effects could significantly impair our results of operations and financial condition. We may not be able to compete successfully against new or existing competitors.
We could have liability or our reputation could be damaged if we do not protect client data or information systems or if our information systems are breached.
We are dependent on information technology networks and systems to process, transmit, and store electronic information and to communicate among our locations and with our partners and clients. Security breaches of this infrastructure could lead to shutdowns or disruptions of our systems and potential unauthorized disclosure of confidential information. We are also required at times to manage, utilize, and store sensitive or confidential client or employee data. As a result, we are subject to numerous U.S. and foreign jurisdiction laws and regulations designed to protect this information, such as various U.S. federal and state laws governing the protection of individually identifiable information. If any person, including any of our employees, negligently disregards or intentionally breaches our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be subject to monetary damages, fines, and/or criminal prosecution. Unauthorized disclosure of sensitive or confidential client or employee data, whether through systems failure, employee negligence, fraud or misappropriation could damage our reputation and cause us to lose clients. Similarly, unauthorized access to or through our information systems or those we develop for our clients, whether by our employees or third parties, could result in negative publicity, legal liability, and damage to our reputation.
International operations subject us to additional political and economic risks that could have an adverse impact on our business.
We maintain a global development center in Hangzhou, China and a technology consulting recruiting and development facility in Chennai, India. We are subject to certain risks related to expanding our presence into non-U.S. regions, including risks related to complying with a wide variety of national and local laws, restrictions on the import and export of certain technologies, and multiple and possibly overlapping tax structures. In addition, we may face competition from companies that may have more experience with operations in such countries or with international operations generally. We may also face difficulties integrating new facilities in different countries into our existing operations, as well as integrating employees that we hire in different countries into our existing corporate culture.
Furthermore, there are risks inherent in operating in and expanding into non-U.S. regions, including, but not limited to:
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political and economic instability;
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global health conditions and potential natural disasters;
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unexpected changes in regulatory requirements;
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international currency controls and exchange rate fluctuations;
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reduced protection for intellectual property rights in some countries; and
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additional vulnerability from terrorist groups targeting American interests abroad.
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Any one or more of the factors set forth above could have a material adverse effect on our international operations and, consequently, on our business, financial condition, and operating results.
Immigration restrictions related to H1-B visas could hinder our growth and adversely affect our business, financial condition and results of operations.
Approximately 16% of our billable workforce is comprised of skilled foreign nationals holding H1-B visas. We also own a recruiting and development facility in Chennai, India to continue to grow our base of H1-B foreign national colleagues. The H1-B visa classification enables us to hire qualified foreign workers in positions that require the equivalent of at least a bachelor’s degree in the U.S. in a specialty occupation such as technology systems engineering and analysis. The H1-B visa generally permits an individual to work and live in the U.S. for a period of three to six years, with some extensions available. The number of new H1-B petitions approved in any federal fiscal year is limited, making the H1-B visas necessary to bring foreign employees to the U.S. unobtainable in years in which the limit is reached. If we are unable to obtain all of the H1-B visas for which we apply, our growth may be hindered.
Our results of operations could materially suffer if we are not able to obtain favorable pricing.
If we are not able to obtain favorable pricing for our services, our revenues and profitability could materially suffer. The rates we are able to charge for our services are affected by a number of factors, including:
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general economic and political conditions;
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our ability to differentiate, and/or clearly convey the value of, our services;
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the pricing practices of our competitors, including the aggressive use by our competitors of offshore resources to provide lower-cost service delivery capabilities, or the introduction of new services or products by our competitors;
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our clients’ desire to reduce their costs;
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our ability to charge higher prices where market demand or the value of our services justifies it;
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our ability to accurately estimate, attain, and sustain contract revenues, margins, and cash flows over long contract periods; and
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procurement practices of clients and their use of third-party advisors.
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If our negotiated fees do not accurately anticipate the cost and complexity of performing our work, then our contracts could be unprofitable.
We negotiate fees with our clients utilizing a range of pricing structures and conditions, including time and materials and fixed fee contracts. Our fees are highly dependent on our internal forecasts and predictions about our projects and the marketplace, which might be based on limited data and could turn out to be inaccurate. If we do not accurately estimate the costs and timing for completing projects, our contracts could prove unprofitable for us or yield lower profit margins than anticipated. We could face greater risk when negotiating fees for our contracts that involve the coordination of operations and workforces in multiple locations and/or utilizing workforces with different skillsets and competencies. There is a risk that we will underprice our contracts, fail to accurately estimate the costs of performing the work, or fail to accurately assess the risks associated with potential contracts. In particular, any increased or unexpected costs, delays or failures to achieve anticipated cost savings, or unexpected risks we encounter in connection with the performance of this work, including those caused by factors outside our control, could make these contracts less profitable or unprofitable, which could have an adverse effect on our profit margin.
We may face potential liability to customers if our customers’ systems fail.
Our technology solutions are often critical to the operation of our customers’ businesses and provide benefits that may be difficult to quantify. If one of our customers’ systems fails, the customer could make a claim for substantial damages against us, regardless of our responsibility for that failure. The limitations of liability set forth in our contracts may not be enforceable in all instances and may not otherwise protect us from liability for damages. Our insurance coverage may not continue to be available on reasonable terms or in sufficient amounts to cover one or more large claims. In addition, a given insurer might disclaim coverage as to any future claims. Due to the nature of our business, it is possible that we will be sued in the future. If we experience one or more large claims against us that exceed available insurance coverage or result in changes in our insurance policies, including premium increases, the imposition of large deductible, or co-insurance requirements, our business and financial results could suffer.
Our results of operations and ability to grow could be materially negatively affected if we cannot adapt and expand our services and solutions in response to ongoing changes in technology and offerings by new entrants.
Our success depends on our ability to continue to develop and implement services and solutions that anticipate and respond to rapid and continuing changes in technology and industry developments and offerings by new entrants to serve the evolving needs of our clients. Current areas of significant change include mobility, cloud-based computing and the processing and analyzing of large amounts of data. Technological developments such as these may materially affect the cost and use of technology by our clients. Our growth strategy focuses on responding to these types of developments by driving innovation for our core business as well as through new business initiatives beyond our core business that will enable us to differentiate our services and solutions. If we do not sufficiently invest in new technology and industry developments, or if we do not make the right strategic investments to respond to these developments and successfully drive innovation, our services and solutions, our results of operations, and our ability to develop and maintain a competitive advantage and continue to grow could be negatively affected.
In addition, we operate in a quickly evolving environment, in which there currently are, and we expect will continue to be, new technology entrants. New services or technologies offered by competitors or new entrants may make our offerings less differentiated or less competitive, when compared to other alternatives, which may adversely affect our results of operations.
Our services may infringe upon the intellectual property rights of others.
We cannot be sure that our services do not infringe on the intellectual property rights of third parties, and we may have infringement claims asserted against us. These claims may harm our reputation, cause our management to expend significant time in connection with any defense, and cost us money. We may be required to indemnify clients for any expense or liabilities they incur resulting from claimed infringement and these expenses could exceed the amounts paid to us by the client for services we have performed. Any claims in this area, even if won by us, can be costly, time-consuming, and harmful to our reputation.
We have only a limited ability to protect our intellectual property rights, which are important to our success.
Our success depends, in part, upon our ability to protect our proprietary methodologies and other intellectual property. Existing laws of some countries in which we provide services or solutions might offer only limited protection of our intellectual property rights. We rely upon a combination of trade secrets, confidentiality policies, nondisclosure, and other contractual arrangements to protect our intellectual property rights. The steps we take in this regard might not be adequate to prevent or deter infringement or other misappropriation of our intellectual property, and we might not be able to detect unauthorized use of, or take appropriate and timely steps to enforce, our intellectual property rights.
Depending on the circumstances, we might need to grant a specific client greater rights in intellectual property developed in connection with a contract than we otherwise generally do. In certain situations, we might forego all rights to the use of intellectual property we help create, which would limit our ability to reuse that intellectual property for other clients. Any limitation on our ability to provide a service or solution could cause us to lose revenue-generating opportunities and require us to incur additional expenses to develop new or modified solutions for future projects.
Our ability to attract and retain business may depend on our reputation in the marketplace.
Our services are marketed to clients and prospective clients based on a number of factors. Our corporate reputation is a significant factor in our clients’ evaluation of whether to engage our services. We believe the Perficient brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and also contribute to our efforts to recruit and retain talented employees. However, our corporate reputation is potentially susceptible to material damage by events such as disputes with clients, information technology security breaches or service outages, or other delivery failures. Similarly, our reputation could be damaged by actions or statements of current or former clients, competitors, vendors, as well as members of the investment community and the media. There is a risk that negative information could adversely affect our business. Damage to our reputation could be difficult and time-consuming to repair, could make potential or existing clients reluctant to select us for new engagements, resulting in a loss of business, and could adversely affect our efforts with regard to the recruitment and retention of employees and subcontractors. Damage to our reputation could also reduce the value and effectiveness of the Perficient brand name and could reduce investor confidence in us, materially adversely affecting our share price.
The loss of one or more of our significant software vendors would have a material and adverse effect on our business and results of operations.
Our business relationships with software vendors enable us to reduce our cost of sales and increase win rates through leveraging our vendors’ marketing efforts and strong vendor endorsements. The loss of one or more of these relationships and endorsements could increase our sales and marketing costs, lead to longer sales cycles, harm our reputation and brand recognition, reduce our revenues, and adversely affect our results of operations.
Pursuing and completing potential acquisitions could divert management's attention and financial resources and may not produce the desired business results.
If we pursue any acquisition, our management could spend a significant amount of time and financial resources to pursue the potential acquisition. To pay for an acquisition, we might use capital stock, cash, or a combination of both. Alternatively, we may borrow money from a bank or other lender. If we use capital stock, our stockholders will experience dilution. If we use cash or debt financing, our financial liquidity may be reduced and the interest on any debt financing could adversely affect our results of operations. From an accounting perspective, an acquisition that does not perform as well as originally anticipated may involve amortization or the impairment of significant amounts of intangible assets that could adversely affect our results of operations.
Despite the investment of these management and financial resources, and completion of due diligence with respect to these efforts, an acquisition may not produce the anticipated revenues, earnings, or business synergies for a variety of reasons, including:
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the failure of management and acquired services personnel to perform as expected;
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the acquisition of fixed fee customer agreements that require more effort than anticipated to complete;
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the risks of entering markets in which we have no, or limited, prior experience, including offshore operations in countries in which we have no prior experience;
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the failure to identify or adequately assess any undisclosed or potential liabilities or problems of the acquired business including legal liabilities;
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the failure of the acquired business to achieve the forecasts we used to determine the purchase price; or
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the potential loss of key personnel of the acquired business.
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These difficulties could disrupt our ongoing business, distract our management and colleagues, increase our expenses, and materially and adversely affect our results of operations.
We may not be successful at identifying, acquiring, or integrating other businesses.
We have continued our disciplined acquisition strategy designed to enhance our capabilities, expand in emerging markets or develop new services and solutions. We may not successfully identify suitable acquisition candidates, succeed in completing targeted transactions, or achieve desired results of operations. Furthermore, we face risks in successfully integrating any businesses we acquire. We might need to dedicate additional management and other resources, and our organizational structure could make it difficult for us to efficiently integrate acquired businesses into our ongoing operations and assimilate employees of those businesses into our culture and operations. Accordingly, we might fail to realize the expected benefits or strategic objectives of any acquisition we make. We might not achieve our expected return on investment, or may lose money. If we are unable to complete the number and kind of acquisitions for which we plan, or if we are inefficient or unsuccessful at integrating any acquired businesses into our operations, we may not be able to achieve our planned rates of growth or improve our market share, profitability, or competitive position in specific markets or services.
Our profitability could suffer if we are not able to control our costs.
Our ability to control our costs and improve our efficiency affects our profitability. Since the continuation of pricing pressures could result in permanent changes in pricing policies and delivery capabilities, we must continuously improve our management of costs. Our short-term cost reduction initiatives, which focus primarily on reducing variable costs, might not be sufficient to deal with all pressures on our pricing. Our long-term cost-reduction initiatives, which focus on reductions in costs for service delivery and infrastructure, rely upon our successful introduction and coordination of multiple geographic and competency workforces and a growing focus on our offshore capabilities. As we increase the number of our colleagues and execute our strategies for growth, we might not be able to manage significantly larger and more diverse workforces, control our costs or improve our efficiency, and our profitability could be negatively affected.
Many of our contracts include performance payments that link some of our fees to the attainment of performance or business targets. This could increase the variability of our revenues and margins.
Many of our contracts include performance clauses that require us to achieve agreed-upon performance standards or milestones. If we fail to satisfy these measures, it could reduce our fees under the contracts, increase the cost to us of meeting performance standards or milestones, delay expected payments or subject us to potential damage claims under the contract terms. These provisions could increase the variability in revenues and margins earned on those contracts.
Changes in our level of taxes, and tax audits, investigations and proceedings could have a material adverse effect on our results of operations and financial condition.
We are subject to income taxes in numerous jurisdictions. We calculate and provide for income taxes in each tax jurisdiction in which we operate. Tax accounting often involves complex matters and judgment is required in determining our corporate provision for income taxes and other tax liabilities. We are subject to ongoing tax audits in various jurisdictions. Tax authorities may disagree with our judgments. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax liabilities. However, our judgments might not be sustained as a result of these audits, and the amounts ultimately paid could be different from the amounts previously recorded. In addition, our effective tax rate in the future could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws. Furthermore, changes in tax laws, treaties, or regulations, or their interpretation or enforcement, may be unpredictable and could materially adversely affect our tax position. Any of these occurrences could have a material adverse effect on our results of operations and financial condition.
If we do not effectively manage expected future growth, our results of operations and cash flows could be adversely affected.
Our ability to operate profitably with positive cash flows depends partially on how effectively we manage our expected future growth. In order to create the additional capacity necessary to accommodate an increase in demand for our services, we may need to implement new or upgraded operational and financial systems, procedures and controls, open new offices, and hire additional colleagues. Implementation of these new or upgraded systems, procedures, and controls may require substantial management efforts and our efforts to do so may not be successful. The opening of new offices (including international locations) or the hiring of additional colleagues may result in idle or underutilized capacity. We continually assess the expected capacity and utilization of our offices and colleagues. We may not be able to achieve or maintain optimal utilization of our offices and colleagues. If demand for our services does not meet our expectations, our revenues and cash flows may not be sufficient to offset these expenses and our results of operations and cash flows could be adversely affected.
If we are unable to collect our receivables or unbilled services, our results of operations, financial condition, and cash flows could be adversely affected.
Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed. We evaluate the financial condition of our clients and usually bill and collect on relatively short cycles. In limited circumstances, we also extend financing to our clients. We maintain allowances against receivables and unbilled services. Actual losses on client balances could differ from those that we currently anticipate and as a result we might need to adjust our allowances. There is no guarantee that we will accurately assess the creditworthiness of our clients. Macroeconomic conditions could also result in financial difficulties for our clients, and as a result could cause clients to delay payments to us, request modifications to their payment arrangements that could increase our receivables balance, or default on their payment obligations to us. Recovery of client financing and timely collection of client balances also depends on our ability to complete our contractual commitments and bill and collect our contracted revenues. If we are unable to meet our contractual requirements, we might experience delays in collection of and/or be unable to collect our client balances, and if this occurs, our results of operations, financial condition, and cash flows could be adversely affected. In addition, if we experience an increase in the time to bill and collect for our services, our cash flows could be adversely affected.
Our quarterly operating results may be volatile and may cause our stock price to fluctuate.
Our quarterly revenues, expenses, and operating results have varied in the past and could vary in the future, which could lead to volatility in our stock price. In addition, many factors affecting our operating results are outside of our control, such as:
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demand for software and services;
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customer budget cycles;
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changes in our customers’ desire for our partners’ products and our services;
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pricing changes in our industry; and
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government regulation and legal developments regarding the use of the Internet.
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As a result, if we experience unanticipated changes in the number or nature of our projects or in our employee utilization rates, we could experience large variations in quarterly operating results.
Our revenues may fluctuate quarterly due to seasonality or timing of completion of projects.
We may experience seasonal fluctuations in our services and software revenues. We expect that services revenues in the fourth quarter of a given year may typically be lower as there are fewer billable days as a result of vacations and holidays. Our software revenues may be higher in the fourth quarter of a given year as procurement policies of our clients may result in higher technology spending towards the end of budget cycles. While we seek to counterbalance periodic fluctuations in revenues, we may not be able to avoid declines in services revenues or increases in software revenues. Our inability to counterbalance these seasonal trends may materially affect our quarter-to-quarter revenues, margins and operating results.
Our services gross margins are subject to fluctuations as a result of variances in utilization and billing rates.
Our services gross margins are affected by trends in the utilization rate of our colleagues, defined as the percentage of our colleagues’ time billed to customers divided by the total available hours in a period, and in the billing rates we charge our clients. Our operating expenses, including salary, rent, and administrative expenses, are relatively fixed and cannot be reduced on short notice to compensate for unanticipated variations in the number or size of projects in process. If a project ends earlier than scheduled, we may need to redeploy our project personnel. Any resulting non-billable time may adversely affect our gross margins.
The average billing rates for our services may decline due to rate pressures from significant customers and other market factors, including innovations and average billing rates charged by our competitors. If there is a sustained downturn in the U.S. economy or in the information technology services industry, rate pressure may increase. Also, our average billing rates will decline if we acquire companies with lower average billing rates than ours. To sell our products and services at higher prices, we must continue to develop and introduce new services and products that incorporate new technologies or high-performance features. If we experience pricing pressures or fail to develop new services, our revenues and gross margins could decline, which could harm our business, financial condition, and results of operations.
We may not be able to maintain profitability.
Although we have been profitable for the past eight years, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future and in fact could experience decreased profitability. If we fail to meet public market analysts’ and investors’ expectations, the price of our common stock will likely fall.
Risks Related to Ownership of Our Common Stock
Our stock price has been volatile and may continue to fluctuate widely.
Our common stock is traded on The Nasdaq Global Select Market under the symbol “PRFT.” Our common stock price has been volatile and may continue to fluctuate widely as a result of announcements of new services and products by us or our competitors, quarterly variations in operating results, the gain or loss of significant customers, and changes in public market analysts’ estimates and market conditions for information technology consulting firms and other technology stocks in general.
We periodically review and consider possible acquisitions of companies that we believe will contribute to our long-term objectives. In addition, depending on market conditions, liquidity requirements, and other factors, from time to time we consider accessing the capital markets. These events may also affect the market price of our common stock.
Our officers, directors, and 5% and greater stockholders own a large percentage of our voting securities and their interests may differ from other stockholders.
Our executive officers, directors, and 5% and greater stockholders beneficially own or control approximately 24% of the voting power of our common stock. This concentration of voting power of our common stock may make it difficult for our other stockholders to successfully approve or defeat matters that may be submitted for action by our stockholders. It may also have the effect of delaying, deterring, or preventing a change in control of our company.
We may need additional capital in the future, which may not be available to us. The raising of any additional capital may dilute your ownership percentage in our stock.
We had unrestricted cash, cash equivalents, and investments totaling $9.7 million and a borrowing capacity of $50 million, and a commitment to increase our borrowing capacity by $25 million, at December 31, 2011. We intend to continue to make investments to support our business growth and may require additional funds if our capital is insufficient to pursue business opportunities and respond to business challenges. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us our ability to continue to support our business growth and to respond to business challenges could be significantly limited.
It may be difficult for another company to acquire us, and this could depress our stock price.
In addition to the voting securities held by our officers, directors, and 5% and greater stockholders, provisions contained in our certificate of incorporation, bylaws, and Delaware law could make it difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. Our certificate of incorporation and bylaws may discourage, delay, or prevent a merger or acquisition that a stockholder may consider favorable by authorizing the issuance of “blank check” preferred stock. In addition, provisions of the Delaware General Corporation Law also restrict some business combinations with interested stockholders. These provisions are intended to encourage potential acquirers to negotiate with us and allow the Board of Directors the opportunity to consider alternative proposals in the interest of maximizing stockholder value. However, these provisions may also discourage acquisition proposals, or delay or prevent a change in control, which could harm our stock price.
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Item 1B.
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Unresolved Staff Comments.
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Our principal executive operations are located in St. Louis, Missouri where we have leased approximately 5,100 square feet for these functions. We lease 26 offices in major markets throughout North America, China, and India. We do not own any real property. We believe our facilities are adequate to meet our needs in the near future.
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Item 3.
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Legal Proceedings.
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We are involved from time to time in various legal proceedings arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect any currently pending matters to have a material adverse effect on the financial position, results of operations, or cash flows of our company.
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
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Our common stock is quoted on The Nasdaq Global Select Market under the symbol “PRFT.” The following table sets forth, for the periods indicated, the high and low sale prices per share of our common stock as reported on The Nasdaq Global Select Market since January 1, 2010.
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High
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Low
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Year Ending December 31, 2011:
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First Quarter
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$
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13.16
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$
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10.68
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Second Quarter
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12.76
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9.22
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Third Quarter
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11.32
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7.09
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Fourth Quarter
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10.32
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6.41
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Year Ending December 31, 2010:
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First Quarter
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$
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12.01
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$
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8.50
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Second Quarter
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12.99
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8.91
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Third Quarter
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9.71
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8.21
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Fourth Quarter
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13.00
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9.17
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On February 27, 2012, the last reported sale price of our common stock on The Nasdaq Global Select Market was $12.06 per share. There were approximately 323 stockholders of record of our common stock as of February 27, 2012, including 205 restricted account holders.
We have never declared or paid any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. Our credit facility currently prohibits the payment of cash dividends without the prior written consent of the lenders.
Information on our Equity Compensation Plan has been included at Part III, Item 11 of this Form 10-K.
Unregistered Sales of Securities
Our acquisition of speakTECH in December 2010 included an earnings-based contingency, pursuant to which additional consideration could be realized by speakTECH if certain earnings-based requirements were met. This contingency was achieved during 2011 and, as such, we paid the additional consideration on December 10, 2011. In connection with this payment, we issued 383,101 unregistered shares of our common stock to speakTECH. We relied on Section 4(2) and Regulation D of the Securities Act of 1933, as amended, as the basis for exemption from registration. These shares were issued to speakTECH in a privately negotiated transaction and not pursuant to a public solicitation.
Issuer Purchases of Equity Securities
Prior to 2011, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock. In 2011, the Board of Directors authorized the repurchase of up to an additional $10.0 million of our common stock for a total repurchase program of $60.0 million at December 31, 2011. The repurchase program expires June 30, 2012. The program could be suspended or discontinued at any time, based on market, economic, or business conditions. The timing and amount of repurchase transactions will be determined by our management based on its evaluation of market conditions, share price, and other factors.
Since the program’s inception in 2008, we have repurchased approximately $54.0 million of our outstanding common stock through December 31, 2011.
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Period
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Total Number of Shares Purchased
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Average Price Paid Per
Share (1)
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Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
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Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
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Beginning Balance as of October 1, 2011
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7,097,567
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$ |
7.29
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7,097,567
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$
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8,271,213
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October 1-31, 2011
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--
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--
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--
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$
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8,271,213
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November 1-30, 2011
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55,000
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9.36
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55,000
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$
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7,756,483
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December 1-31, 2011
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215,000
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8.15
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215,000
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$
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6,004,112
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Ending Balance as of December 31, 2011
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7,367,567
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$ |
7.33
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7,367,567
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| (1) Average price paid per share includes commission. |
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Item 6.
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Selected Financial Data.
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The selected financial data presented for, and as of the end of, each of the years in the five-year period ended December 31, 2011, has been prepared in accordance with accounting principles generally accepted in the United States. The financial data presented is not directly comparable between periods as a result of two acquisitions in each of 2011 and in 2010 and four acquisitions in 2007.
The following data should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements appearing in Part II, Item 8, and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Part II, Item 7.
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Year Ended December 31,
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2011
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2010
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2009
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2008
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2007
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Income Statement Data:
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(In thousands)
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|
|
|
|
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Revenues
|
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$
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262,439
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|
|
$
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214,952
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|
|
$
|
188,150
|
|
|
$
|
231,488
|
|
|
$
|
218,148
|
|
|
Gross margin
|
|
$
|
81,134
|
|
|
$
|
62,767
|
|
|
$
|
48,333
|
|
|
$
|
73,502
|
|
|
$
|
75,690
|
|
|
Selling, general and administrative
|
|
$
|
51,672
|
|
|
$
|
45,477
|
|
|
$
|
40,042
|
|
|
$
|
47,242
|
|
|
$
|
41,963
|
|
|
Depreciation and amortization
|
|
$
|
8,095
|
|
|
$
|
4,784
|
|
|
$
|
5,750
|
|
|
$
|
6,949
|
|
|
$
|
6,265
|
|
|
Acquisition costs
|
|
$
|
1,249
|
|
|
$
|
993
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
Adjustment to fair value of contingent consideration
|
|
$
|
1,586
|
|
|
$
|
(4
|
)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
Impairment of intangible assets
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
1,633
|
|
|
$
|
--
|
|
|
Income from operations
|
|
$
|
18,532
|
|
|
$
|
11,517
|
|
|
$
|
2,541
|
|
|
$
|
17,678
|
|
|
$
|
27,462
|
|
|
Net interest income
|
|
$
|
68
|
|
|
$
|
163
|
|
|
$
|
209
|
|
|
$
|
528
|
|
|
$
|
172
|
|
|
Net other income (expense)
|
|
$
|
45
|
|
|
$
|
68
|
|
|
$
|
260
|
|
|
$
|
(915
|
)
|
|
$
|
20
|
|
|
Income before income taxes
|
|
$
|
18,645
|
|
|
$
|
11,748
|
|
|
$
|
3,010
|
|
|
$
|
17,291
|
|
|
$
|
27,654
|
|
|
Net income
|
|
$
|
10,747
|
|
|
$
|
6,480
|
|
|
$
|
1,463
|
|
|
$
|
10,000
|
|
|
$
|
16,230
|
|
| |
|
As of December 31,
|
|
| |
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance Sheet Data:
|
|
(In thousands)
|
|
|
Cash, cash equivalents, and short-term investments
|
|
$
|
9,732
|
|
|
$
|
24,008
|
|
|
$
|
24,302
|
|
|
$
|
22,909
|
|
|
$
|
8,070
|
|
|
Working capital
|
|
$
|
51,476
|
|
|
$
|
47,632
|
|
|
$
|
50,205
|
|
|
$
|
56,176
|
|
|
$
|
41,368
|
|
|
Long-term investments
|
|
$
|
--
|
|
|
$
|
2,254
|
|
|
$
|
3,652
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
Property and equipment, net
|
|
$
|
3,490
|
|
|
$
|
2,355
|
|
|
$
|
1,278
|
|
|
$
|
2,345
|
|
|
$
|
3,226
|
|
|
Goodwill and intangible assets, net
|
|
$
|
142,166
|
|
|
$
|
124,056
|
|
|
$
|
111,773
|
|
|
$
|
115,634
|
|
|
$
|
121,339
|
|
|
Total assets
|
|
$
|
223,932
|
|
|
$
|
207,678
|
|
|
$
|
184,810
|
|
|
$
|
194,247
|
|
|
$
|
189,992
|
|
|
Total stockholders' equity
|
|
$
|
198,959
|
|
|
$
|
177,164
|
|
|
$
|
168,348
|
|
|
$
|
174,818
|
|
|
$
|
165,562
|
|
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
You should read the following summary together with the more detailed business information and consolidated financial statements and related notes that appear elsewhere in this annual report and in the documents that we incorporate by reference into this annual report. This annual report may contain certain “forward-looking” information within the meaning of the Private Securities Litigation Reform Act of 1995. This information involves risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in “Risk Factors.”
We are an information technology consulting firm serving Forbes Global 2000 and other large enterprise companies with a primary focus on the United States. We help our clients gain competitive advantage by using Internet-based technologies to make their businesses more responsive to market opportunities and threats, strengthen relationships with their customers, suppliers and partners, improve productivity, and reduce information technology costs. We design, build, and deliver business-driven technology solutions using third party software products. Our solutions include business analysis, portals and collaboration, business integration, user experience, enterprise content management, customer relationship management, interactive design, enterprise performance management, business process management, business intelligence, eCommerce, mobile platforms, custom applications, and technology platform implementations, among others. Our solutions enable our clients to operate a real-time enterprise that dynamically adapts business processes and the systems that support them to meet the changing demands of an increasingly global, Internet-driven, and competitive marketplace.
Services revenues are derived from professional services that include developing, implementing, integrating, automating and extending business processes, technology infrastructure, and software applications. Most of our projects are performed on a time and materials basis, while a smaller portion of our revenues is derived from projects performed on a fixed fee basis. Fixed fee engagements represented approximately 11% of our services revenues for the year ended December 31, 2011 compared to 13% and 11% for the years ended December 31, 2010 and 2009, respectively. For time and material projects, revenues are recognized and billed by multiplying the number of hours our professionals expend in the performance of the project by the established billing rates. For fixed fee projects, revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours. Amounts invoiced and collected in excess of revenues recognized are classified as deferred revenues. On most projects, we are also reimbursed for out-of-pocket expenses such as airfare, lodging, and meals. These reimbursements are included as a component of revenues. The aggregate amount of reimbursed expenses will fluctuate depending on the location of our clients, the total number of our projects that require travel, and whether our arrangements with our clients provide for the reimbursement of travel and other project related expenses.
Software and Hardware Revenues
Software and hardware revenues are derived from sales of third-party software and hardware. Revenues from sales of third-party software and hardware are generally recorded on a gross basis provided we act as a principal in the transaction. On rare occasions, we do not meet the requirements to be considered a principal in the transaction and act as an agent. In these cases, revenues are recorded on a net basis. Software and hardware revenues are expected to fluctuate depending on our clients’ demand for these products.
If we enter into contracts for the sale of services and software or hardware, management evaluates whether each element should be accounted for separately by considering the following criteria: (1) whether the deliverables have value to the client on a stand-alone basis; and (2) whether delivery or performance of the undelivered item or items is considered probable and substantially in our control (only if the arrangement includes a general right of return related to the delivered item). Further, for sales of software and services, management also evaluates whether the services are essential to the functionality of the software and has fair value evidence for each deliverable. If management concluded that the separation criteria are met, then it accounts for each deliverable in the transaction separately, based on the relevant revenue recognition policies. Generally, all deliverables of our multiple element arrangements meet these criteria and are accounted for separately, with the arrangement consideration allocated among the deliverables using vendor specific objective evidence of the selling price. As a result, we generally recognize software and hardware sales upon delivery to the customer and services consistent with the policies described herein.
Further, delivery of software and hardware sales, when sold contemporaneously with services, can generally occur at varying times depending on the specific client project arrangement. Delivery of services generally occurs over a period of time consistent with the timeline as outlined in the client contract.
There are no significant cancellation or termination-type provisions for our software and hardware sales. Contracts for professional services provide for a general right, to the client or us, to cancel or terminate the contract within a given period of time (generally a 10 to 30 day notice is required). The client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract.
Cost of revenues consists primarily of cash and non-cash compensation and benefits, including bonuses and non-cash compensation related to equity awards. Cost of revenues also includes the costs associated with subcontractors. Third-party software and hardware costs, reimbursable expenses, and other unreimbursed project related expenses are also included in cost of revenues. Project related expenses will fluctuate generally depending on outside factors including the cost and frequency of travel and the location of our clients. Cost of revenues does not include depreciation of assets used in the production of revenues which are primarily personal computers, servers, and other information technology related equipment.
Our gross margins for services are affected by the utilization rates of our professionals (defined as the percentage of our professionals’ time billed to clients divided by the total available hours in the respective period), the salaries we pay our professionals, and the average billing rate we receive from our clients. If a project ends earlier than scheduled, we retain professionals in advance of receiving project assignments, or if demand for our services declines, our utilization rate will decline and adversely affect our gross margins. Gross margin percentages of third-party software and hardware sales are typically lower than gross margin percentages for services, and the mix of services and software and hardware for a particular period can significantly impact our total combined gross margin percentage for such period. In addition, gross margin for software and hardware sales can fluctuate due to pricing and other competitive pressures.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses (“SG&A”) are primarily composed of sales-related costs, general and administrative salaries, stock compensation expense, recruiting expense, office costs, bad debts, variable compensation cost, and other miscellaneous expenses. We work to minimize selling costs by focusing on repeat business with existing clients and by accessing sales leads generated by our software vendors, most notably IBM, Oracle, and Microsoft, whose products we use to design and implement solutions for our clients. These relationships enable us to reduce our selling costs and sales cycle times and increase win rates through leveraging our partners’ marketing efforts and endorsements.
Plans for Growth and Acquisitions
Our goal is to continue to build one of the leading independent information technology consulting firms by expanding our relationships with existing and new clients and through the continuation of our disciplined acquisition strategy. Our future growth plan includes expanding our business with a primary focus on customers in the United States, both organically and through acquisitions. Given the economic conditions during 2008 and 2009 we suspended acquisition activity pending improved visibility into the health of the economy. With the return to growth in 2010 we have resumed our disciplined acquisition strategy as evidenced by our acquisition of Kerdock Consulting, LLC (“Kerdock”) in March 2010, speakTECH in December 2010, Exervio Consulting, Inc. (“Exervio”) in April 2011, JCB Partners, LLC (“JCB”) in July 2011 and PointBridge Solutions, LLC in February 2012. We also intend to further leverage our existing offshore capabilities to support our future growth and provide our clients flexible options for project delivery.
The following table summarizes our results of operations as a percentage of total revenues:
|
Revenues:
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Services revenues
|
|
|
88.8
|
%
|
|
|
86.1
|
%
|
|
|
88.4
|
%
|
|
Software and hardware revenues
|
|
|
6.0
|
|
|
|
9.6
|
|
|
|
6.9
|
|
|
Reimbursable expenses
|
|
|
5.2
|
|
|
|
4.3
|
|
|
|
4.7
|
|
|
Total revenues
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
Cost of revenues (depreciation and amortization, shown separately below):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project personnel costs
|
|
|
56.9
|
|
|
|
55.5
|
|
|
|
61.0
|
|
|
Software and hardware costs
|
|
|
5.2
|
|
|
|
8.4
|
|
|
|
6.2
|
|
|
Reimbursable expenses
|
|
|
5.2
|
|
|
|
4.3
|
|
|
|
4.7
|
|
|
Other project related expenses
|
|
|
1.8
|
|
|
|
2.6
|
|
|
|
2.4
|
|
|
Total cost of revenues
|
|
|
69.1
|
|
|
|
70.8
|
|
|
|
74.3
|
|
|
Services gross margin
|
|
|
33.9
|
|
|
|
32.6
|
|
|
|
28.2
|
|
|
Software and hardware gross margin
|
|
|
13.5
|
|
|
|
11.9
|
|
|
|
10.2
|
|
|
Total gross margin
|
|
|
30.9
|
|
|
|
29.2
|
|
|
|
25.7
|
|
|
Selling, general and administrative
|
|
|
19.7
|
|
|
|
21.2
|
|
|
|
21.3
|
|
|
Depreciation and amortization
|
|
|
3.1
|
|
|
|
2.2
|
|
|
|
3.0
|
|
|
Acquisition costs
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.0
|
|
|
Adjustment to fair value of contingent consideration
|
|
|
0.5
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
Income from operations
|
|
|
7.1
|
|
|
|
5.3
|
|
|
|
1.4
|
|
|
Net interest income
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
Net other income
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.1
|
|
|
Income before income taxes
|
|
|
7.1
|
|
|
|
5.4
|
|
|
|
1.6
|
|
|
Provision for income taxes
|
|
|
3.0
|
|
|
|
2.5
|
|
|
|
0.8
|
|
|
Net income
|
|
|
4.1
|
%
|
|
|
2.9
|
%
|
|
|
0.8
|
%
|
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Revenues. Total revenues increased 22% to $262.4 million for the year ended December 31, 2011 from $215.0 million for the year ended December 31, 2010.
| |
Financial Results
|
|
Explanation for Increases Over Prior Year Period
|
|
| |
(in thousands)
|
|
(in thousands)
|
|
| |
For the Year Ended December
31, 2011
|
|
For the Year Ended December
31, 2010
|
|
Total Increase/ (Decrease) Over Prior Year Period
|
|
Increase Attributable to Acquired Companies*
|
|
Increase/ (Decrease) Attributable to Base Business**
|
|
|
Services Revenues
|
|
$
|
233,166
|
|
|
$
|
185,173
|
|
|
$
|
47,993
|
|
|
$
|
38,014
|
|
|
$
|
9,979
|
|
|
Software and Hardware Revenues
|
|
|
15,624
|
|
|
|
20,556
|
|
|
|
(4,932
|
)
|
|
|
26
|
|
|
|
(4,958
|
)
|
|
Reimbursable Expenses
|
|
|
13,649
|
|
|
|
9,223
|
|
|
|
4,426
|
|
|
|
931
|
|
|
|
3,495
|
|
|
Total Revenues
|
|
$
|
262,439
|
|
|
$
|
214,952
|
|
|
$
|
47,487
|
|
|
$
|
38,971
|
|
|
$
|
8,516
|
|
* Defined as revenues generated by professionals from companies acquired during 2010 and 2011.
**Defined as businesses owned as of January 1, 2010.
Services revenues increased 26% to $233.2 million for the year ended December 31, 2011 from $185.2 million for the year ended December 31, 2010. The increase in services revenues is primarily due to acquisitions during 2010 and 2011. Services revenues attributable to our base business increased $10.0 million while services revenues attributable to acquired companies increased $38.0 million, resulting in a total increase of $48.0 million.
Software and hardware revenues decreased 24% to $15.6 million for the year ended December 31, 2011 from $20.6 million for the year ended December 31, 2010 due to the decrease in the volume and magnitude of software renewals as compared to 2010. Reimbursable expenses increased 48% to $13.6 million for the year ended December 31, 2011 from $9.2 million for the year ended December 31, 2010 primarily as a result of the increase in services revenue. We did not realize any profit on reimbursable expenses.
Cost of Revenues. Cost of revenues increased 19% to $181.3 million for the year ended December 31, 2011 from $152.2 million for the year ended December 31, 2010. The increase in cost of revenues was directly related to the increase in revenues, specifically the increase in headcount to support the Company’s ongoing revenue-producing projects. The average number of colleagues performing services, including subcontractors, increased to 1,317 for the year ended December 31, 2011 from 1,065 for the year ended December 31, 2010.
Gross Margin. Gross margin increased 29% to $81.1 million for the year ended December 31, 2011 from $62.8 million for the year ended December 31, 2010. Gross margin as a percentage of revenues increased to 30.9% for the year ended December 31, 2011 from 29.2% for the year ended December 31, 2010, primarily due to an increase in services gross margin. Services gross margin, excluding reimbursable expenses, increased to 33.9% or $79.0 million for the year ended December 31, 2011 from 32.6% or $60.3 million for the year ended December 31, 2010. The increase in services gross margin was primarily a result of a higher average bill rate. The average bill rate for our professionals, excluding subcontractors, increased to $116 per hour for the year ended December 31, 2011 from $106 per hour for the year ended December 31, 2010, primarily due to the improved pricing opportunities as the market for our services continues to improve. The average bill rate for the year ended December 31, 2011, excluding China, was $125 per hour compared to $119 per hour for the year ended December 31, 2010.
Selling, General and Administrative. SG&A expenses increased 14% to $51.7 million for the year ended December 31, 2011 from $45.5 million for the year ended December 31, 2010 due primarily to fluctuations in expenses as detailed in the following table:
| |
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
Increase
|
|
|
Selling, General and Administrative Expense (in millions)
|
|
December 31, 2011
|
|
|
December 31, 2010
|
|
|
/ (Decrease)
|
|
|
Sales-related costs
|
|
$ |
14.9 |
|
|
$ |
11.9 |
|
|
$ |
3.0 |
|
|
Salary expense
|
|
|
11.3 |
|
|
|
9.2 |
|
|
|
2.1 |
|
|
Stock compensation expense
|
|
|
6.9 |
|
|
|
8.6 |
|
|
|
(1.7 |
) |
|
Recruiting expense
|
|
|
3.9 |
|
|
|
2.3 |
|
|
|
1.6 |
|
|
Bad debt expense
|
|
|
1.0 |
|
|
|
-- |
|
|
|
1.0 |
|
|
Variable compensation expense
|
|
|
0.7 |
|
|
|
2.3 |
|
|
|
(1.6 |
) |
|
Other
|
|
|
13.0 |
|
|
|
11.2 |
|
|
|
1.8 |
|
|
Total
|
|
$ |
51.7 |
|
|
$ |
45.5 |
|
|
$ |
6.2 |
|
SG&A expenses, as a percentage of revenues, decreased slightly to 19.7% for the year ended December 31, 2011 from 21.2% for the year ended December 31, 2010. Bonus expense decreased as a percentage of revenues compared to the prior year period as a result of more aggressive bonus targets in 2011. Stock compensation expense decreased as a percentage of revenues due to less expense recorded in 2011 as a result of the separation of our former Chairman of the Board of Directors in the fourth quarter 2010. These decreases were offset by an increase in recruiting and bad debt expense as a percentage of revenues, which were directly related to the increase in headcount and sales, respectively.
Depreciation. Depreciation expense increased 111% to $1.8 million for the year ended December 31, 2011 from $0.8 million for the year ended December 31, 2010. The increase in depreciation expense was mainly attributable to increased capital expenditures during 2010 and 2011 and the increase in leasehold improvements related to the expansion of our facility in China. Depreciation expense as a percentage of services revenue, excluding reimbursable expenses, was 0.8% and 0.4% for the year ended December 31, 2011 and 2010, respectively.
Amortization. Amortization expense increased 60% to $6.3 million for the year ended December 31, 2011 from $4.0 million for the year ended December 31, 2010. The increase in amortization expense was due to the addition of intangible assets acquired as a result of the Company’s acquisition activity during 2010 and 2011.
Acquisition Costs. Acquisition-related costs of $1.2 million were incurred during 2011 related to the acquisition of Exervio and JCB compared to $1.0 million during 2010 related to the acquisition of Kerdock and speakTECH. Acquisition-related costs were incurred for legal, accounting and valuation services performed by third parties.
Adjustment to Fair Value of Contingent Consideration. An adjustment of $1.6 million was made during the year ended December 31, 2011 for the accretion of the fair value estimate for the earnings-based contingent consideration related to the speakTECH and Exervio acquisitions.
Provision for Income Taxes. We provide for federal, state, and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses. Our effective tax rate decreased to 42.4% for the year ended December 31, 2011 from 44.8% for the year ended December 31, 2010. The decrease in the effective rate was due primarily to the effect of state taxes and permanent items over a larger income base and lower non-deductible stock compensation.
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Revenues. Total revenues increased 14% to $215.0 million for the year ended December 31, 2010 from $188.2 million for the year ended December 31, 2009.
| |
Financial Results
|
|
Explanation for Increases Over Prior Year Period
|
|
| |
(in thousands)
|
|
(in thousands)
|
|
| |
For the Year Ended December
31, 2010
|
|
For the Year Ended December
31, 2009
|
|
Total Increase Over Prior Year Period
|
|
Increase Attributable to Acquired Companies*
|
|
Increase Attributable to Base Business**
|
|
|
Services Revenues
|
|
$
|
185,173
|
|
|
$
|
166,397
|
|
|
$
|
18,776
|
|
|
$
|
7,956
|
|
|
$
|
10,820
|
|
|
Software and Hardware Revenues
|
|
|
20,556
|
|
|
|
12,968
|
|
|
|
7,588
|
|
|
|
1,667
|
|
|
|
5,921
|
|
|
Reimbursable Expenses
|
|
|
9,223
|
|
|
|
8,785
|
|
|
|
438
|
|
|
|
470
|
|
|
|
(32
|
)
|
|
Total Revenues
|
|
$
|
214,952
|
|
|
$
|
188,150
|
|
|
$
|
26,802
|
|
|
$
|
10,093
|
|
|
$
|
16,709
|
|
*Defined as companies acquired during 2010; no companies were acquired in 2009.
**Defined as businesses owned as of January 1, 2010.
Services revenues increased 11% to $185.2 million for the year ended December 31, 2010 from $166.4 million for the year ended December 31, 2009. The increase in services revenues was due to an increase in demand for our services and the acquisition of Kerdock and speakTECH. Services revenues attributable to our base business increased $10.8 million while services revenues attributable to acquired companies increased $8.0 million, resulting in a total increase of $18.8 million.
Software and hardware revenues increased 59% to $20.6 million for the year ended December 31, 2010 from $13.0 million for the year ended December 31, 2009 due to an increase in the sale of new software licenses and renewals of software licenses. Reimbursable expenses increased 5% to $9.2 million for the year ended December 31, 2010 from $8.8 million for the year ended December 31, 2009 as a result of the increase in services revenue. We did not realize any profit on reimbursable expenses.
Cost of Revenues. Cost of revenues increased 9% to $152.2 million for the year ended December 31, 2010 from $139.8 million for the year ended December 31, 2009. The increase in cost of revenues was directly related to the increase in revenues, specifically the increase in services revenues. The average number of colleagues performing services, including subcontractors, increased to 1,065 for the year ended December 31, 2010 from 1,028 for the year ended December 31, 2009. Management will continue to manage the cost structure to match demand.
Gross Margin. Gross margin increased 30% to $62.8 million for the year ended December 31, 2010 from $48.3 million for the year ended December 31, 2009. Gross margin as a percentage of revenues increased to 29.2% for the year ended December 31, 2010 from 25.7% for the year ended December 31, 2009 primarily due to an increase in services gross margin. Services gross margin, excluding reimbursable expenses, increased to 32.6% or $60.3 million for the year ended December 31, 2010 from 28.2% or $47.0 million for the year ended December 31, 2009. The increase in services gross margin was primarily a result of higher utilization and management’s continued efforts to manage the cost structure. The average utilization rate of our colleagues, excluding subcontractors, increased to 81% for the year ended December 31, 2010 compared to 75% for the year ended December 31, 2009. The average bill rate for our colleagues, excluding subcontractors, remained flat at $106 per hour for the year ended December 31, 2010 compared to the year ended December 31, 2009. The average bill rate for our colleagues, excluding subcontractors and offshore employees, increased to $119 for the year ended December 31, 2010 from $114 for the year ended December 31, 2009. Software and hardware gross margin increased to 11.9% or $2.4 million for the year ended December 31, 2010 from 10.2% or $1.3 million for the year ended December 31, 2009. The increase in software and hardware margin was directly related to the increase in higher margin software and hardware sales during 2010.
Selling, General and Administrative. SG&A expenses increased 14% to $45.5 million for the year ended December 31, 2010 from $40.0 million for the year ended December 31, 2009 due primarily to fluctuations in expenses as detailed in the following table:
| |
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
|
|
|
Selling, General and Administrative Expense (in millions)
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Increase
|
|
|
Sales-related costs
|
|
$ |
11.9 |
|
|
$ |
11.6 |
|
|
$ |
0.3 |
|
|
Salary expense
|
|
|
9.2 |
|
|
|
8.8 |
|
|
|
0.4 |
|
|
Stock compensation expense
|
|
|
8.6 |
|
|
|
7.1 |
|
|
|
1.5 |
|
|
Recruiting expense
|
|
|
2.3 |
|
|
|
1.8 |
|
|
|
0.5 |
|
|
Variable compensation expense
|
|
|
2.3 |
|
|
|
0.4 |
|
|
|
1.9 |
|
|
Bad debt expense
|
|
|
-- |
|
|
|
(0.5 |
) |
|
|
0.5 |
|
|
Other
|
|
|
11.2 |
|
|
|
10.8 |
|
|
|
0.4 |
|
|
Total
|
|
$ |
45.5 |
|
|
$ |
40.0 |
|
|
$ |
5.5 |
|
SG&A expenses, as a percentage of revenues, decreased slightly to 21.2% for the year ended December 31, 2010 from 21.3% for the year ended December 31, 2009. Bonus and stock compensation expense increased as a percentage of revenues compared to the prior year period as a result of achieving the company-wide performance goals and the separation of the Chairman of the Board, respectively. These increases were offset by a decrease in sales-related costs and salary expenses as a percentage of revenues. These decreases were primarily related to management’s continued efforts to manage the cost structure.
Depreciation. Depreciation expense decreased 44% to $0.8 million for the year ended December 31, 2010 from $1.5 million for the year ended December 31, 2009. The decrease in depreciation expense was mainly attributable to various assets becoming fully depreciated and the modification of the estimated useful life of computer hardware from two to three years in first quarter of 2010. Depreciation expense as a percentage of services revenue, excluding reimbursable expenses, was 0.4% and 0.9% for the year ended December 31, 2010 and 2009, respectively.
Amortization. Amortization expense decreased 7% to $4.0 million for the year ended December 31, 2010 from $4.3 million for the year ended December 31, 2009 due to the completion of amortization of certain acquired intangible assets during 2009 and 2010, partially offset by the addition of amortization related to acquired intangible assets.
Acquisition Costs. Acquisition-related costs of $1.0 million were incurred during 2010 related to the acquisition of Kerdock and speakTECH. Acquisition-related costs were incurred for legal, accounting, and valuation services performed by third parties.
Net Interest Income. We had interest income of $163,000, net of interest expense, for the year ended December 31, 2010, compared to interest income of $209,000, net of interest expense, for the year ended December 31, 2009. Net interest income in 2009 included interest received on the outstanding balance of a client note receivable.
Net Other Income or Expense. We had other income of $72,000, net of other expense, for the year ended December 31, 2010 compared to other income of $260,000, net of other expense, for the year ended December 31, 2009. Net other income during 2009 was primarily related to government incentives received by our China operations.
Provision for Income Taxes. We provide for federal, state, and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses. Our effective tax rate decreased to 44.8% for the year ended December 31, 2010 from 51.4% for the year ended December 31, 2009. The decrease in the effective rate was due primarily to the effect of state taxes and permanent items over a larger income base and larger earnings in certain nontaxable foreign jurisdictions.
Liquidity and Capital Resources
Selected measures of liquidity and capital resources are as follows (in millions):
| |
|
As of December 31,
|
|
| |
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Cash, cash equivalents, and investments
|
|
$
|
9.7
|
|
|
$
|
26.3
|
|
|
$
|
28.0
|
|
|
Working capital (including cash and cash equivalents)
|
|
$
|
51.5
|
|
|
$
|
47.6
|
|
|
$
|
50.2
|
|
|
Amounts available under credit facilities
|
|
$
|
50.0
|
|
|
$
|
50.0
|
|
|
$
|
50.0
|
|
Net Cash Provided By Operating Activities
Net cash provided by operating activities for the year ended December 31, 2011 was $14.3 million compared to $18.7 million and $22.6 million for the years ended December 31, 2010 and 2009, respectively. For the year ended December 31, 2011, the components of operating cash flows were net income of $10.7 million plus non-cash charges of $17.6 million, partially offset by investments in working capital of $14.0 million. The primary components of operating cash flow for the year ended December 31, 2010 were net income of $6.5 million plus non-cash charges of $14.3 million, partially offset by investments in working capital of $2.1 million. The primary components of operating cash flows for the year ended December 31, 2009 were net income of $1.5 million plus non-cash charges of $15.0 million and net working capital reductions of $6.1 million. The decrease in cash resulting from operating activities as of December 31, 2011 is primarily related to the decrease in accounts payable and other liabilities and the increase in accounts receivable. Accounts payable and other liabilities decreased due to paying down higher accrued software costs and variable compensation liabilities during 2011. Our days sales outstanding as of December 31, 2011 increased to 78 days compared to 73 days at December 31, 2010 and 2009. Days sales outstanding have increased as of December 31, 2011 due to slower paying customers, partially related to new customers both from existing lines of business and acquisitions made during 2010 and 2011.
Net Cash Used in Investing Activities
For the year ended December 31, 2011, we used $19.4 million for the purchase of businesses and acquisition-related costs, $3.0 million primarily on leasehold improvements and to develop certain software, offset by $13.6 million in proceeds received from the sale and maturity of our investments. For the year ended December 31, 2010, we used $4.3 million in cash to purchase investments, $4.9 million for the purchase of Kerdock and speakTECH, and $1.3 million in cash to purchase equipment and develop software. For the year ended December 31, 2009, we used $10.0 million in cash to purchase investments and $0.7 million in cash to purchase equipment and develop software.
Net Cash Provided By Financing Activities
During the year ended December 31, 2011, we received proceeds of $3.7 million from exercises of stock options and sales of stock through our Employee Stock Purchase Plan and we realized an excess tax benefit of $1.8 million related to vesting of stock awards and stock option exercises. We used $1.2 million to settle the contingent consideration for the purchase of speakTECH, $11.8 million to repurchase shares of our common stock through the stock repurchase program, $0.8 million to remit taxes withheld as part of a net share settlement of restricted stock vesting, and $0.3 million in fees related to our credit facility. During the year ended December 31, 2010, we received proceeds of $1.5 million from exercises of stock options and sales of stock through our Employee Stock Purchase Plan and we realized an excess tax benefit of $1.5 million related to vesting of stock awards and stock option exercises. We used $1.9 million to settle the contingent consideration for the purchase of Kerdock and $14.7 million to repurchase shares of our common stock through the stock repurchase program. For the year ended December 31, 2009, we received proceeds of $1.0 million from exercises of stock options and sales of stock through our Employee Stock Purchase Plan and we realized an excess tax benefit of $0.6 million related to vesting of stock awards and stock option exercises. We used $18.4 million to repurchase shares of our common stock through the stock repurchase program.
Availability of Funds from Bank Line of Credit Facilities
On May 23, 2011, we renewed and extended the term of our Credit Agreement (the “Credit Agreement”) with Silicon Valley Bank (“SVB”), U.S. Bank National Association, and Bank of America, N.A. The Credit Agreement provides for revolving credit borrowings up to a maximum principal amount of $50.0 million, subject to a commitment increase of $25.0 million. The Credit Agreement also allows for the issuance of letters of credit in the aggregate amount of up to $500,000 at any one time; outstanding letters of credit reduce the credit available for revolving credit borrowings. Substantially all of our assets are pledged to secure the credit facility.
All outstanding amounts owed under the Credit Agreement become due and payable no later than the final maturity date of May 23, 2015. Borrowings under the credit facility bear interest at our option of SVB’s prime rate (4.00% on December 31, 2011) plus a margin ranging from 0.00% to 0.50% or one-month LIBOR (0.295% on December 31, 2011) plus a margin ranging from 2.50% to 3.00%. The additional margin amount is dependent on the level of outstanding borrowings. As of December 31, 2011, we had $50.0 million of maximum borrowing capacity. We incur an annual commitment fee of 0.30% on the unused portion of the line of credit.
As of December 31, 2011, we were in compliance with all covenants under our credit facility and we expect to be in compliance during the next twelve months.
Prior to 2011, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock. In 2011, the Board of Directors authorized the repurchase of up to an additional $10.0 million of our common stock for a total repurchase program of $60.0 million at December 31, 2011. The repurchase program expires June 30, 2012.
We established written trading plans in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the “Exchange Act”), under which we made a portion of our stock repurchases. Additional repurchases will be at times and in amounts as the Company deems appropriate and will be made through open market transactions in compliance with Rule 10b-18 of the Exchange Act, subject to market conditions, applicable legal requirements, and other factors.
Since the program’s inception on August 11, 2008, we have repurchased approximately $54.0 million of our outstanding common stock through December 31, 2011.
There were no material changes outside the ordinary course of business in lease obligations or other contractual obligations in 2011 as disclosed in Note 12, Commitments and Contingencies, in the Notes to Consolidated Financial Statements.
We have incurred commitments to make future payments under contracts such as leases. Maturities under these contracts are set forth in the following table as of December 31, 2011 (in thousands):
| |
|
Payments Due by Period
|
|
|
Contractual Obligations
|
|
Total
|
|
|
Less Than
1 Year
|
|
|
1-3
Years
|
|
|
3-5
Years
|
|
|
More
Than 5
Years
|
|
|
Operating lease obligations
|
|
$
|
10,254
|
|
|
$
|
2,458
|
|
|
$
|
4,387
|
|
|
$
|
2,851
|
|
|
$
|
558
|
|
|
Total
|
|
$
|
10,254
|
|
|
$
|
2,458
|
|
|
$
|
4,387
|
|
|
$
|
2,851
|
|
|
$
|
558
|
|
If our capital is insufficient to fund our activities in either the short- or long-term, we may need to raise additional funds. In the ordinary course of business, we may engage in discussions with various persons in connection with additional financing. If we raise additional funds through the issuance of equity securities, our existing stockholders’ percentage ownership will be diluted. These equity securities may also have rights superior to our common stock. Additional debt or equity financing may not be available when needed or on satisfactory terms. If adequate funds are not available on acceptable terms, we may be unable to expand our services, respond to competition, pursue acquisition opportunities, or continue our operations.
We believe that the currently available funds, access to capital from our credit facility, and cash flows generated from operations will be sufficient to meet our working capital requirements and other capital needs for the next twelve months.
Critical Accounting Policies
Our accounting policies are described in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements. We believe our most critical accounting policies include revenue recognition, accounting for goodwill and intangible assets, purchase accounting, accounting for stock-based compensation, and income taxes.
Revenue Recognition and Allowance for Doubtful Accounts
Revenues are primarily derived from professional services provided on a time and materials basis. For time and material contracts, revenues are recognized and billed by multiplying the number of hours expended in the performance of the contract by the established billing rates. For fixed fee projects, revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours. Amounts invoiced and collected in excess of revenues recognized are classified as deferred revenues. On many projects we are also reimbursed for out-of-pocket expenses such as airfare, lodging, and meals. These reimbursements are included as a component of revenues. Revenues from software and hardware sales are generally recorded on a gross basis considering our role as a principal in the transaction. On rare occasions, we enter into a transaction where we are not the principal. In these cases, revenue is recorded on a net basis.
Unbilled revenues represent the project time and expenses that have been incurred, but not yet billed to the client, prior to the end of the fiscal period. For time and materials projects, the client is invoiced for the amount of hours worked multiplied by the billing rates as stated in the contract. For fixed fee arrangements, the client is invoiced according to the agreed-upon schedule detailing the amount and timing of payments in the contract. Clients are typically billed monthly for services provided during that month, but can be billed on a more or less frequent basis as determined by the contract. If the time and expenses are worked/incurred and approved at the end of a fiscal period and the invoice has not yet been sent to the client, the amount is recorded as unbilled revenue once we verify all other revenue recognition criteria have been met.
Revenues are recognized when the following criteria are met: (1) persuasive evidence of the customer arrangement exists; (2) fees are fixed and determinable; (3) delivery and acceptance have occurred; and (4) collectability is deemed probable. Our policy for revenue recognition in instances where multiple deliverables are sold contemporaneously to the same customer is in accordance with ASC Subtopic 985-605, Software – Revenue Recognition (“ASC Subtopic 985-605”), ASC Subtopic 605-25, Revenue Recognition – Multiple-Element Arrangements, and ASC Section 605-10-S99 (Staff Accounting Bulletin Topic 13, Revenue Recognition). Specifically, if we enter into contracts for the sale of services and software or hardware, then we evaluate whether each element should be accounted for separately by considering the following criteria: (1) whether the deliverables have value to the client on a stand-alone basis; and (2) whether delivery or performance of the undelivered item or items is considered probable and substantially in our control (only if the arrangement includes a general right of return related to the delivered item). Further, for sales of software and services, we also evaluate whether the services are essential to the functionality of the software and we have fair value evidence for each deliverable. If we have concluded that the separation criteria are met, then we account for each deliverable in the transaction separately, based on the relevant revenue recognition policies. Generally, all deliverables of our multiple element arrangements meet these criteria and are accounted for separately, with the arrangement consideration allocated among the deliverables using vendor specific objective evidence of the selling price. As a result, we generally recognize software and hardware sales upon delivery to the customer and services consistent with the policies described herein.
Further, delivery of software and hardware sales, when sold contemporaneously with services, can generally occur at varying times depending on the specific client project arrangement. Delivery of services generally occurs over a period of time consistent with the timeline as outlined in the client contract.
There are no significant cancellation or termination-type provisions for our software and hardware sales. Contracts for professional services provide for a general right, to the client or to us, to cancel or terminate the contract within a given period of time (generally a 10 to 30 day notice is required). The client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract.
We may provide multiple services under the terms of an arrangement and we are required to assess whether one or more units of accounting are present. Service fees are typically accounted for as one unit of accounting, as fair value evidence for individual tasks or milestones is not available. We follow the guidelines discussed above in determining revenues; however, certain judgments and estimates are made and used to determine revenues recognized in any accounting period. If estimates are revised, material differences may result in the amount and timing of revenues recognized for a given period.
Revenues are presented net of taxes assessed by governmental authorities. Sales taxes are generally collected and subsequently remitted on all software and hardware sales and certain services transactions as appropriate.
Allowance for doubtful accounts is based upon specific identification of likely and probable losses. Each accounting period, accounts receivable is evaluated for risk associated with a client’s inability to make contractual payments, historical experience and other currently available information. Billed and unbilled receivables that are specifically identified as being at risk are provided for with a charge to revenue or bad debts as appropriate in the period the risk is identified. Considerable judgment is used in assessing the ultimate realization of these receivables, including reviewing the financial stability of the client, evaluating the successful mitigation of service delivery disputes, and gauging current market conditions. If the evaluation of service delivery issues or a client’s ability to pay is incorrect, future reductions to revenue or bad debt expense may be incurred.
Goodwill, Other Intangible Assets, and Impairment of Long-Lived Assets
Goodwill represents the excess purchase price over the fair value of net assets acquired, or net liabilities assumed, in a business combination. In accordance with ASC Topic 350, Intangibles – Goodwill and Other (“ASC Topic 350”), we perform an annual impairment test of goodwill. We evaluate goodwill as of October 1 each year and more frequently if events or changes in circumstances indicate that goodwill might be impaired. As required by ASC Topic 350, the impairment test is accomplished using a two-step approach. The first step screens for impairment and, when impairment is indicated, a second step is employed to measure the impairment.
Our annual goodwill impairment test was performed as of October 1, 2011. Our fair value as of the annual testing date exceeded our book value and consequently, no impairment was indicated.
Our fair value was determined by weighting the results of two valuation methods: 1) market capitalization based on the average price of our common stock, including a control premium, for a reasonable period of time prior to the evaluation date (generally 15 days) and 2) a discounted cash flow model. The fair value calculated using our average common stock price (including a control premium) was weighted 40% while the value calculated by the discounted cash flow model was weighted 60% in our determination of our overall fair value. While the use of our average common stock price, plus a control premium, may be considered the best evidence of fair value in ASC Topic 350, we believe the volatility in our stock price, and in the market overall, are not always consistently aligned with our financial results or outlook. The discounted cash flow approach allows us to calculate our fair value based on operating performance and meaningful financial metrics.
A key assumption used in the calculation of our fair value using our average common stock price was the consideration of a control premium. We reviewed industry premium data and determined an appropriate control premium for the analysis based on the low end of any premium received in transactions over the past several years.
Significant estimates used in the discounted cash flow model included projections of revenue growth, net income margins, discount rate, and terminal business value. The forecasts of revenue growth and net income margins are based upon our long-term view of the business and are used by senior management and the Board of Directors to evaluate operating performance. The discount rate utilized was estimated using the weighted average cost of capital for our industry. The terminal business value was determined by applying a growth factor to the latest year for which a forecast exists.
Other intangible assets include customer relationships, non-compete arrangements, trade name, and internally developed software, which are being amortized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives range from one to eight years. Amortization of customer relationships, non-compete arrangements, trade name, and internally developed software is considered an operating expense and is included in “Amortization” in the accompanying Condensed Consolidated Statements of Operations. The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in a lack of recoverability or revised useful life.
We allocate the purchase price of our acquisitions to the assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Such fair market value assessments require significant judgments and estimates that can change materially as additional information becomes available. The purchase price is allocated to intangibles based on our estimate and an independent valuation. We finalize the purchase price allocation within twelve months of the acquisition date as certain initial accounting valuation estimates are finalized.
Accounting for Stock-Based Compensation
We estimate the fair value of stock option awards on the date of grant utilizing a modified Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of short-term traded options that have no vesting restrictions and are fully transferable. However, certain assumptions used in the Black-Scholes model, such as expected term, can be adjusted to incorporate the unique characteristics of our stock option awards. Option valuation models require the input of somewhat subjective assumptions including expected stock price volatility and expected term. We believe it is unlikely that materially different estimates for the assumptions used in estimating the fair value of stock options granted would be made based on the conditions suggested by actual historical experience and other data available at the time estimates were made. Restricted stock awards are valued at the price of our common stock on the date of the grant.
To record income tax expense, we are required to estimate our income taxes in each of the jurisdictions in which we operate. In addition, income tax expense at interim reporting dates requires us to estimate our expected effective tax rate for the entire year. This involves estimating our actual current tax liability together with assessing temporary differences that result in deferred tax assets and liabilities and expected future tax rates.
Recent Accounting Pronouncements
Our recent accounting pronouncements are fully described in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, except operating lease commitments as disclosed in Note 12, Commitments and Contingencies, in the Notes to Consolidated Financial Statements.
|
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
We are exposed to market risks related to changes in foreign currency exchange rates and interest rates. We believe our exposure to market risks is immaterial.
Exchange Rate Sensitivity
We are exposed to market risks associated with changes in foreign currency exchange rates because we generate a portion of our revenues and incur a portion of our expenses in currencies other than the U.S. dollar. As of December 31, 2011, we were exposed to changes in exchange rates between the U.S. dollar and the Canadian dollar, between the U.S. dollar and the Chinese Yuan, and between the U.S. dollar and the Indian Rupee. We have not hedged foreign currency exposures related to transactions denominated in currencies other than U.S. dollars. Our exposure to foreign currency risk is not significant.
Interest Rate Sensitivity
We had unrestricted cash, cash equivalents, and investments totaling $9.7 million at December 31, 2011 and $26.3 million at December 31, 2010. The unrestricted cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, will reduce future interest income.
|
Item 8.
|
Financial Statements and Supplementary Data.
|
PERFICIENT, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2011 AND 2010
| |
|
December 31,
|
|
| |
|
2011
|
|
|
2010
|
|
|
ASSETS
|
|
(In thousands, except share information)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,732
|
|
|
$
|
12,707
|
|
|
Short-term investments
|
|
|
--
|
|
|
|
11,301
|
|
|
Total cash, cash equivalents, and short-term investments
|
|
|
9,732
|
|
|
|
24,008
|
|
|
Accounts receivable, net of allowance for doubtful accounts of $1,057 in 2011 and $228 in 2010
|
|
|
60,892
|
|
|
|
48,496
|
|
|
Prepaid expenses
|
|
|
1,246
|
|
|
|
1,270
|
|
|
Other current assets
|
|
|
3,118
|
|
|
|
2,584
|
|
|
Total current assets
|
|
|
74,988
|
|
|
|
76,358
|
|
|
Long-term investments
|
|
|
--
|
|
|
|
2,254
|
|
|
Property and equipment, net
|
|
|
3,490
|
|
|
|
2,355
|
|
|
Goodwill
|
|
|
132,038
|
|
|
|
115,227
|
|
|
Intangible assets, net
|
|
|
10,128
|
|
|
|
8,829
|
|
|
Other non-current assets
|
|
|
3,288
|
|
|
|
2,655
|
|
|
Total assets
|
|
$
|
223,932
|
|
|
$
|
207,678
|
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,029
|
|
|
$
|
6,072
|
|
|
Other current liabilities
|
|
|
18,483
|
|
|
|
22,654
|
|
|
Total current liabilities
|
|
|
23,512
|
|
|
|
28,726
|
|
|
Other non-current liabilities
|
|
|
1,461
|
|
|
|
1,788
|
|
|
Total liabilities
|
|
$
|
24,973
|
|
|
$
|
30,514
|
|
| |
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Note 12)
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Common stock ($0.001 par value per share; 50,000,000 shares authorized and 36,217,914 shares issued and 28,742,906 shares outstanding as of December 31, 2011; 33,373,410 shares issued and 27,275,936 shares outstanding as of December 31, 2010)
|
|
$
|
36
|
|
|
$
|
33
|
|
|
Additional paid-in capital
|
|
|
248,855
|
|
|
|
224,966
|
|
|
Accumulated other comprehensive loss
|
|
|
(279
|
)
|
|
|
(225
|
)
|
|
Treasury stock, at cost (7,475,008 shares as of December 31, 2011; 6,097,474 shares as of December 31, 2010)
|
|
|
(54,995
|
)
|
|
|
(42,205
|
)
|
|
Retained earnings (deficit)
|
|
|
5,342
|
|
|
|
(5,405
|
)
|
|
Total stockholders’ equity
|
|
|
198,959
|
|
|
|
177,164
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
223,932
|
|
|
$
|
207,678
|
|
See accompanying notes to consolidated financial statements.
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
| |
|
Year Ended December 31,
|
|
| |
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Revenues:
|
|
(In thousands, except share and per share information)
|
|
|
Services
|
|
$
|
233,166
|
|
|
$
|
185,173
|
|
|
$
|
166,397
|
|
|
Software and hardware
|
|
|
15,624
|
|
|
|
20,556
|
|
|
|
12,968
|
|
|
Reimbursable expenses
|
|
|
13,649
|
|
|
|
9,223
|
|
|
|
8,785
|
|
|
Total revenues
|
|
|
262,439
|
|
|
|
214,952
|
|
|
|
188,150
|
|
|
Cost of revenues (exclusive of depreciation and amortization, shown separately below):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project personnel costs
|
|
|
149,243
|
|
|
|
119,304
|
|
|
|
114,877
|
|
|
Software and hardware costs
|
|
|
13,521
|
|
|
|
18,108
|
|
|
|
11,641
|
|
|
Reimbursable expenses
|
|
|
13,649
|
|
|
|
9,223
|
|
|
|
8,785
|
|
|
Other project related expenses
|
|
|
4,892
|
|
|
|
5,550
|
|
|
|
4,514
|
|
|
Total cost of revenues
|
|
|
181,305
|
|
|
|
152,185
|
|
|
|
139,817
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
81,134
|
|
|
|
62,767
|
|
|
|
48,333
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
51,672
|
|
|
|
45,477
|
|
|
|
40,042
|
|
|
Depreciation
|
|
|
1,754
|
|
|
|
830
|
|
|
|
1,483
|
|
|
Amortization
|
|
|
6,341
|
|
|
|
3,954
|
|
|
|
4,267
|
|
|
Acquisition costs
|
|
|
1,249
|
|
|
|
993
|
|
|
|
--
|
|
|
Adjustment to fair value of contingent consideration
|
|
|
1,586
|
|
|
|
(4
|
)
|
|
|
--
|
|
|
Income from operations
|
|
|
18,532
|
|
|
|
11,517
|
|
|
|
2,541
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
68
|
|
|
|
163
|
|
|
|
209
|
|
|
Net other income
|
|
|
45
|
|
|
|
68
|
|
|
|
260
|
|
|
Income before income taxes
|
|
|
18,645
|
|
|
|
11,748
|
|
|
|
3,010
|
|
|
Provision for income taxes
|
|
|
7,898
|
|
|
|
5,268
|
|
|
|
1,547
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,747
|
|
|
$
|
6,480
|
|
|
$
|
1,463
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.39
|
|
|
$
|
0.24
|
|
|
$
|
0.05
|
|
|
Diluted net income per share
|
|
$
|
0.37
|
|
|
$
|
0.23
|
|
|
$
|
0.05
|
|
|
Shares used in computing basic net income per share
|
|
|
27,745,312
|
|
|
|
26,856,481
|
|
|
|
27,538,300
|
|
|
Shares used in computing diluted net income per share
|
|
|
29,184,286
|
|
|
|
28,303,547
|
|
|
|
28,558,160
|
|
See accompanying notes to consolidated financial statements.
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common
|
|
|
Common
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Retained
|
|
|
Total
|
|
| |
|
Stock
|
|
|
Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Earnings
|
|
|
Stockholders'
|
|
| |
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Stock
|
|
|
(Deficit)
|
|
|
Equity
|
|
|
Balance at December 31, 2008
|
|
|
28,502 |
|
|
$ |
30 |
|
|
$ |
197,653 |
|
|
$ |
(338 |
) |
|
$ |
(9,179 |
) |
|
$ |
(13,348 |
) |
|
$ |
174,818 |
|
|
Proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan
|
|
|
298 |
|
|
|
1 |
|
|
|
974 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
975 |
|
|
Net tax shortfall from stock option exercises and restricted stock vesting
|
|
|
-- |
|
|
|
-- |
|
|
|
(459 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(459 |
) |
|
Stock compensation related to restricted stock vesting and retirement savings plan contributions
|
|
|
973 |
|
|
|
1 |
|
|
|
9,835 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
9,836 |
|
|
Purchases of treasury stock
|
|
|
(2,690 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(18,350 |
) |
|
|
-- |
|
|
|
(18,350 |
) |
|
Net unrealized loss on investments
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(5 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(5 |
) |
|
Foreign currency translation adjustment
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
70 |
|
|
|
-- |
|
|
|
-- |
|
|
|
70 |
|
|
Net income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,463 |
|
|
|
1,463 |
|
|
Total comprehensive income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,528 |
|
|
Balance at December 31, 2009
|
|
|
27,083 |
|
|
$ |
32 |
|
|
$ |
208,003 |
|
|
$ |
(273 |
) |
|
$ |
(27,529 |
) |
|
$ |
(11,885 |
) |
|
$ |
168,348 |
|
|
Proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan
|
|
|
381 |
|
|
|
-- |
|
|
|
1,468 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,468 |
|
|
Net tax benefit from stock option exercises and restricted stock vesting
|
|
|
-- |
|
|
|
-- |
|
|
|
1,038 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,038 |
|
|
Stock compensation related to restricted stock vesting and retirement savings plan contributions
|
|
|
920 |
|
|
|
1 |
|
|
|
10,830 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
10,831 |
|
|
Purchases of treasury stock
|
|
|
(1,559 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(14,676 |
) |
|
|
-- |
|
|
|
(14,676 |
) |
|
Issuance of stock for acquisitions
|
|
|
451 |
|
|
|
-- |
|
|
|
3,627 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
3,627 |
|
|
Net unrealized gain on investments
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
25 |
|
|
|
-- |
|
|
|
-- |
|
|
|
25 |
|
|
Foreign currency translation adjustment
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
23 |
|
|
|
-- |
|
|
|
-- |
|
|
|
23 |
|
|
Net income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
6,480 |
|
|
|
6,480 |
|
|
Total comprehensive income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
6,528 |
|
|
Balance at December 31, 2010
|
|
|
27,276 |
|
|
$ |
33 |
|
|
$ |
224,966 |
|
|
$ |
(225 |
) |
|
$ |
(42,205 |
) |
|
$ |
(5,405 |
) |
|
$ |
177,164 |
|
|
Proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan
|
|
|
814 |
|
|
|
1 |
|
|
|
3,711 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
3,712 |
|
|
Net tax benefit from stock option exercises and restricted stock vesting
|
|
|
-- |
|
|
|
-- |
|
|
|
1,219 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,219 |
|
|
Stock compensation related to restricted stock vesting and retirement savings plan contributions
|
|
|
929 |
|
|
|
1 |
|
|
|
9,177 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
9,178 |
|
|
Purchases of treasury stock
|
|
|
(1,378 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(12,790 |
) |
|
|
-- |
|
|
|
(12,790 |
) |
|
Issuance of stock for acquisitions
|
|
|
1,102 |
|
|
|
1 |
|
|
|
9,782 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
9,783 |
|
|
Net unrealized loss on investments
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(19 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(19 |
) |
|
Foreign currency translation adjustment
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(35 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(35 |
) |
|
Net income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
10,747 |
|
|
|
10,747 |
|
|
Total comprehensive income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
10,693 |
|
|
Balance at December 31, 2011
|
|
|
28,743 |
|
|
$ |
36 |
|
|
$ |
248,855 |
|
|
$ |
(279 |
) |
|
$ |
(54,995 |
) |
|
$ |
5,342 |
|
|
$ |
198,959 |
|
See accompanying notes to consolidated financial statements.
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
| |
|
Year Ended December 31,
|
|
| |
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net income
|
|
$
|
10,747
|
|
|
$
|
6,480
|
|
|
$
|
1,463
|
|
|
Adjustments to reconcile net income to net cash provided by operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,754
|
|
|
|
830
|
|
|
|
1,483
|
|
|
Amortization
|
|
|
6,341
|
|
|
|
3,954
|
|
|
|
4,267
|
|
|
Deferred income taxes
|
|
|
531
|
|
|
|
205
|
|
|
|
(18
|
)
|
|
Non-cash stock compensation and retirement savings plan contributions
|
|
|
9,178
|
|
|
|
10,831
|
|
|
|
9,836
|
|
|
Tax benefit from stock option exercises and restricted stock vesting
|
|
|
(1,838
|
)
|
|
|
(1,531
|
)
|
|
|
(583
|
)
|
|
Adjustment to fair value of contingent consideration for purchase of business
|
|
|
1,586
|
|
|
|
(4
|
)
|
|
|
--
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and note receivable
|
|
|
(7,587
|
)
|
|
|
(5,491
|
)
|
|
|
9,427
|
|
|
Other assets
|
|
|
(320
|
) |
|
|
1,626
|
|
|
|
(342
|
)
|
|
Accounts payable
|
|
|
(1,522
|
)
|
|
|
642
|
|
|
|
(884
|
)
|
|
Other liabilities
|
|
|
(4,550
|
)
|
|
|
1,189
|
|
|
|
(2,086
|
)
|
|
Net cash provided by operating activities
|
|
|
14,320
|
|
|
|
18,731
|
|
|
|
22,563
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales and maturity of investments
|
|
|
13,555
|
|
|
|
--
|
|
|
|
--
|
|
|
Purchase of investments
|
|
|
--
|
|
|
|
(4,252
|
)
|
|
|
(9,984
|
)
|
|
Purchase of property and equipment
|
|
|
(2,776
|
)
|
|
|
(1,161
|
)
|
|
|
(415
|
)
|
|
Capitalization of software developed for internal use
|
|
|
(179
|
)
|
|
|
(160
|
)
|
|
|
(311
|
)
|
|
Purchase of businesses
|
|
|
(19,385
|
)
|
|
|
(4,941
|
)
|
|
|
--
|
|
|
Net cash used in investing activities
|
|
|
(8,785
|
)
|
|
|
(10,514
|
)
|
|
|
(10,710
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings
|
|
|
14,000
|
|
|
|
--
|
|
|
|
--
|