Perficient, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2021 Proficient Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker for today. Jeff Davis, Chairman and CEO. You may begin.

Thank you, and thank you, everyone, for your time this morning. This is Jeff Davis. With me on the call is Paul Martin, our CFO, and Tom Hogan, our President and COO. I want to thank you again for your time. As is typical, we've got about 10 to 15 minutes of prepared material, after which we'll open up the call for questions. Before we proceed, Paul, would you please read the safe harbor?

Thanks, Jeff, and good morning, everyone. Some of the things we will discuss in today's call concerning future company performance will be forward-looking statements within the meaning of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements, and we encourage you to refer to the additional information contained in our SEC filings concerning factors that could cause those results to be different than contemplated in today's discussion. At times during this call, we will refer to adjusted EPS and adjusted EBITDA or earnings press release including a reconciliation of certain non-GAAP financial measures to the most directly comparable financial measure prepared in accordance with generally accepted accounting principles or GAAP is posted on our website at www.proficient.com. We have also posted a slide deck which includes a reconciliation of certain non-GAAP guidance to the most directly comparable financial measure prepared in accordance with GAAP on our website under investor relations. Jeff?

Thanks, Paul, and once again, good morning, and thanks, everyone, for joining. We're excited to be with you this morning to discuss our first quarter and an updated outlook for the remainder of 2021. Just more than two months ago, we issued a full-year forecast that called for accelerating revenue growth and increasing profitability. Since then, the velocity and intensity of our momentum has only grown. Perficient's business and our optimism regarding the future is as strong as it has ever been right now. As you know, for several years, we've been working to transform Proficient from a primarily U.S.-based firm to a true global digital consulting leader. And as you can see from our results and the revised outlook, we're well on our way. Organic offshore revenue growth during the quarter was 42%. Let me repeat that. Organic offshore revenue growth was 42% in the first quarter, and total offshore revenue growth was 130% year over year. New and existing customers are aggressively embracing our differentiated delivery model, which couples a strong and high-touch domestic presence with the nearshore and global delivery capabilities enterprises require today. Demand for our services has never been more robust, and the same can be said for candidate and colleague interest in building careers at Perficient. Our talent acquisition remains a core competency and another key differentiator for us, and while we've built that team and functioned out substantially in recent years, we're continually enhancing our capabilities through improved tools and processes, along with increased capacity so that we can identify and onboard talent to support our growth. We continue to win Best Places to Work awards in several markets and have emerged as an employer of choice in many regards. We're assessing talent and hiring at an extraordinary pace right now. Tom will share the full details regarding large wins shortly, but already this year we've closed two eight-figure deals and a few dozen, actually, seven-figure deals. What's most exciting is that our pipeline shows little sign of abating. As quickly as we close these large deals, more appear, and again, it's really unprecedented demand. Some of that, of course, we can attribute to a general client confidence as the economy improves alongside vaccination rates and consumer optimism. But the success we're realizing right now is also the result of some very specific decisions and investment we've made along with advantages that are unique to Perficient. We continue to scale our sales organization. Our brand is growing stronger and more relevant each day, and our clients continue to refer to us as a breath of fresh air. They appreciate our pragmatism and the benefit of a true strategic partner and the full breadth and depth of our capabilities. As I mentioned earlier, customers are gravitating to our collaborative approach and compelling blend of domestic and global delivery talent. The nearshore capabilities we added in 2020 have proven to be an even bigger game changer than we anticipated. In fact, we've introduced more than a dozen legacy proficient accounts there and have many, many more in the pipelines. Across industries, platforms, and solution disciplines, we are succeeding, and we continue to collaborate routinely with key technology partners, and our strong channel relationships remain an important factor in our business. Just this month, we were named the Red Hat North American Application Platform Success Partner of the Year, as well as the Talend U.S. Partner of the Year. Paul will speak to the financial results shortly. But we were again pleased with the key performance metrics, particularly North American utilization, which we've sustained at or above our goal of 80% for the past four quarters. Our business leaders are collaborating constantly and proactively managing our entire talent pool across the spectrum of accounts and opportunities. That's a key input to our quickly accelerating profitability. The business really is firing on all cylinders right now. Nothing has slowed us down in the second quarter so far. And at the moment, I can't see anything that prevents 2021 from becoming the strongest year in proficiency history, as the increased guidance, which we'll discuss shortly, reflects. With that, I'll turn the call over to Paul, who will share the financial results details for the first quarter. Paul?

Thanks, Steve. This is revenue. The university expenses were $166.5 million in the first quarter, an 18.1% increase over the comparable prior year period. Gross margins for the quarter ended March 31 increased 140 basis points to 37.4 percent compared to the prior period. SG&A expense was 34 million compared to 33.2 million in the comparable prior year period. And SG&A expense as a percentage of revenue decreased to 20.1 percent from 22.8 percent in the first quarter of 2020. Adjusted EBITDA for the first quarter of 2021 was 34.6 million are 20.4 percent of revenues compared to 23.8 million or 16.3 percent of revenues in the first quarter of 2020. First quarter of 2021 included amortization expense of 7.1 million compared to 3.9 million in the comparable prior year period. The increase is primarily associated with the acquisitions completed in 2020. Net interest expense for the first quarter of 2021 increased to $3.3 million from $1.9 million in the comparable prior year period primarily as a result of the August 2020 convertible debt offering. Our effective tax rate for the first quarter of 2021 was 19 percent compared to 14.6 percent in the first quarter of 2020. The increase in the effective rate was primarily due to the relative decrease in tax benefits recognized related to share-based compensation deductions during the three months ended March 31, 2020. Net income increased 51% to 13.6 million for the first quarter of 2021 from 9 million in the first quarter of 2020, primarily as a result of the improved EBITDA. Diluted gap earnings per share increased to 41 cents a share for the first quarter of 2021 from 27 cents a share in the first quarter of 2020. Adjusted earnings per share increased to 75 cents for the first quarter of 2021 from 51 cents in the first quarter of 2020. See the press release for a full reconciliation to GAAP earnings. Our ending billable headcount at March 31st, 2021 was 4,164, including 3,882 billable consultants and 282 subcontractors. Ending SG&A headcount was 664. Our outstanding debt, net of unamortized debt discount and deferred issuance cost as of March 31, 2020, was $186.1 million. We also have $72.1 million in cash and cash equivalents as of March 31, 2021, and $124.8 million of unused borrowing capacity on our credit facility. Our balance sheet continues to leave us very well positioned to execute against our strategic clients. Finally, day sales outstanding on accounts receivable decreased to 66 days at the end of the first quarter of 2021 compared to 71 days at the end of the first quarter of 2020. I'll now turn the call over to Tom for a little more commentary behind these metrics. Tom?

Thank you, Paul, and good morning, everybody. Bookings in 2021 have really gotten off to an incredible start for the quarter. We booked 92 deals greater than $500,000 during the first quarter of 2021 and But that's far and away. It's a record in terms of large deals, volume, books. Those 92 wins compare to 71 in a year-ago period and 70 during the fourth quarter of 2020. As I mentioned, a couple of quarters now, and it's really the type of success that really underscores the traction we have in the market and how well we're executing right now. We still cannot travel to meet our customers and prospects. and we're not working outside anywhere, yet we have won more large deals than ever before during Q1. Jeff talked about our work in transforming to be a true global firm. More than 40% of our delivery resources are now offshore, and our global talent is embedded into virtually every single large deal we win and deliver. As an example, we recently partnered with a nonprofit health insurance provider to overhaul its legacy website, mobile experience, and customer portals. all of which required modernization. We beat out several competitors for a broad customer experience engagement due to our full scope of services and solution expertise. Our global team is engaged in this eight-figure engagement that will improve processes across the provider's digital platforms to enhance the customer experience and increase their competitive advantage. That's just one of the many examples of our continued success in healthcare, where we continue to be a recognized, for our technology and industry expertise. In fact, just last week, we announced that Modern Healthcare ranked us the fourth largest healthcare IT consulting firm. Our momentum in this space is significant, and as we work with our clients to enhance healthcare delivery and improve the patient experience. Financial services is another industry where we continue to shine. As an example, we recently entered the next phase of a project with an investment banking services holding company. We previously supported the company's strategic initiative to change how they treat and use data by creating a centralized location that allows stakeholders from across the organization to interact with information they need. During the second phase of the project, our initial delivery team will expand to include more than 130 onshore and offshore subject matter experts, providing expertise on data platforms and core development solutions. So, again, just a fantastic quarter, a lot of momentum, and what appears to be a great 2021 ahead of us. And with that, I'll turn things back over to Jeff to discuss the second quarter remainder of the year.

Thanks, Tom. So Perficient expects our second quarter 2021 revenue to be in the range of $173 to $179 million. Second quarter gap earnings per share is expected to be in the range of $0.41 to $0.44. And second quarter adjusted earnings per share is expected to be in the range of $0.77 to $0.80. Proficient is raising its full-year 2021 guidance to a range of $685 million to $710 million, raising 2021 GAAP earnings per share guidance to a range of $1.72 to $1.87, and raising 2021 adjusted earnings per share guidance to a range of $3 to $3.15. With that, operator, we can open up the call for questions.

Thank you. As a reminder, ladies and gentlemen, that's star 1 to ask the questions. To withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of NIAC Tandem with Needleman Company. Your line is open.

Thank you. Good morning, Jeff. Congrats on the strong start to fiscal 21. I wanted to first ask you, as you look at the guidance for the remainder of the year,

recruiting versus uh additional pricing leverage i know you've talked about abr increases in the past and then is there still room for utilization expansion or should we look at headcount expansion and pricing leverage to be the main catalyst for the revenue growth this year yeah i think it's going to be primarily through hiring we're running as i mentioned the utilization at or above 80 percent which we think is the long-term sustainable level obviously we can we can uh Let that creep up a little bit for a quarter or two, but for the most part, that's, I think, a great sustainable goal. ABR, I think as I mentioned in the last call, we're not pushing for a lot of rate increase. We might see a little bit this year. Our goal primarily is to gain margin expansion through that mixed shift to offshore, which actually is up to 14% of our revenue now. I think that's nearly double about a year ago when we were roughly $8.

Got it. And then for my follow-up, I just wanted to, given how strong demand is, I wanted to turn to the supply side. So given how much there is a war for talent, are you finding the people to fulfill demand? And then if you could maybe also speak to some of the headwinds one may see in a strong demand climate, such as the wage pressures and attrition rates that could potentially crimp on margins, if that is the case. So any perspective on that would be helpful.

Sure, absolutely. I'll start at your last point there, a comment regarding attrition. Attrition throughout COVID was quite low, not surprising. But even in the quarter annualized, it was about 17%, 18%, which is right in the middle of our 15% to 20% goal. So attrition is, from our perspective, quite favorable relative to the market at large. Certainly the market's tightening, but I'm going to let Tom comment Tom leads talent acquisition or reports to him. And I'm going to let him comment on what we were able to accomplish in the first quarter in terms of hiring and a little commentary maybe on why we are a preferred employer. Tom?

Definitely. You know, we really have a differentiated solution. As far as what we're adding for North American individuals, we've added – Hundreds in the United States, 300 plus in North America alone. That's on top of the hundreds we had in India as well as Colombia. Demand is quite high, as Jeff mentioned, as we're showing in our results. I will say we have a differentiated approach. We are not getting into bidding wars with talent. We have a location and a demand that people want to join Perficient as well. We've added to the way in which we're driving talent acquisition and giving an employer a choice. I think Jeff mentioned the awards of best places to work. We're really looking at a holistic approach to talent acquisition versus getting into bidding wars, and that's working. People want to be part of a winning team. They want to be part of a growing team. They want to be part of great technology and digital transformation, and that's where Perficient really comes to play. So We were competing for talent quite successfully, and, you know, we don't have to overpay for it, which is a big advantage for us.

Got it. And then just, sorry, one housekeeping item. What was your organic growth in one Q&A or expectations for organic growth in two Q&A for the full year? Thank you.

Yeah, it was about 10% in the first quarter. If you look at the midpoint of the second quarter, I want to say we're right around – 14, 15, I'm sorry, 15, 16%, and a total growth of 20. And for the year, the midpoint is roughly about 13% year over year.

Thanks, Jeff.

Thank you. Our next question comes from the line of Maggie Nolan with William Blair. Your line is open.

Good morning. Congrats on the results. I wanted to talk a little bit more about that offshore delivery and kind of the mix into offshore. What is the balance of moving existing work offshore that was previously being delivered onshore versus new engagements being delivered from offshore from the start?

It's a blend of the two, but predominantly it's new business. So we're not In some cases, you know, we're helping clients maximize their budget potential by transitioning some work to offshore. And by that, I want to be clear, the budget remains the same. So the outcome is a win-win for both the client and us. We get better margins and they get more work done for the same budget. So where we're shifting, that's primarily the model. But I would say, and I'm estimating here, but I would say 70%, What we're driving offshore is new business, might be new business and existing accounts where we weren't pursuing or weren't considered offshore. That's changing very rapidly, as you can see, or completely new relationships where we're introducing offshore into the mix on pretty much every deal we propose.

Okay, great. Thanks. When you think about the kind of near-term plan to be moving more work offshore, you know, are you looking at offshore and nearshore differently for 2021 than you maybe were in the past, just given the kind of resurgence of COVID in some key geographies like India?

You know, we're faring extremely well from a business perspective. I know that, you know, it's sort of a human tragedy or a challenge what's happening in not only India but several other countries. But so far, we've really not been negatively impacted by that. So our decisions are based pretty much exclusively on what we feel like is mapped best to the customer's needs. In some cases, they have their own requirements or requests offshore versus nearshore. But often where we're in control of that, again, we assess what their needs are and what our capacity and skill sets are in the various locations and make decisions pretty much exclusively based on that.

Okay, thank you.

Thank you.

Thank you. Our next question comes from the line of Puneet Jain with JP Morgan. Your line is open.

Hey, thanks for taking my question and good performance in the quarter. As you emerge from the pandemic, obviously with a more robust, low cost mix, how is your competitive performance? set changing? Are you seeing new competitors competing more with digital pure plays or more with offshore names now than before?

It's interesting. I wouldn't say we're seeing any new competition. I would say that some of the stalwarts that we compete with day in and day out and have for many, many years now are improving their capabilities from a digital standpoint offshore. But I'm convinced, and the evidence shows, that we're still ahead of the curve. And we've been pretty much, because we built our offshore as digital was emerging as a big surge, we focused on digital. So all of our offshore is digital capable. I think that's not true of probably any of our competitors. Those competitors who claim that, we don't actually see, interestingly enough. We don't compete with them. So we're competing primarily, again, with the majors, and I'm confident that we're ahead of them and we'll stay there.

Got you. And as obviously in India, COVID cases have significantly increased this quarter. Could you talk about how that rising caseload might impact your ability to hire and ramp up in that location in 2Q and potentially in 3Q?

Yeah, it's a good question. And some of that, I guess, remains to be seen. But I'll tell you, even as we speak, literally in the month of April, we've had phenomenal success, obviously, you know, growing it at greater than 40% for the last two quarters in terms of headcount. So we've had great success adding resources, even in the COVID environment. Again, I think as Tom pointed out earlier, you know, the comments and the differentiators that he mentioned don't apply just to the U.S. They apply to India as well, maybe even more so India, because the alternatives in India, frankly, are not as interesting. They're not as exciting. And as Tom pointed out, we're winning. And we have a lot of people very interested in coming to work for Perficient, both in India, Colombia, all of our locations, as in the U.S. So, We've had great success. The pandemic doesn't seem to be driving any sort of reluctance on the part of targets. And, you know, the demographic that we hire, frankly, is, you know, a little below the threshold for where people are mostly susceptible to COVID. So I think that's a benefit as well.

Got you. Thank you.

Thank you.

Thank you. Our next question comes from the line of Sarinda Thand with Jeffrey.

Hi, Jeff. I'd like to start with a question on just the bookings number. Obviously, the 92 large deal wins, as Tom mentioned, that's one of the biggest numbers you've seen. Can you provide any additional color in terms of the client's willingness to commit at this point? Are they simply just opening up the spigots and how should we think about that, the ability to win kind of future business on a go-forward basis? Obviously, 1Q is seasonally strongest, but is there still a lot left to tap in that pipeline at this point?

Yeah, absolutely. Good question. So, year-to-date, we don't disclose specifics, but year-to-date, our bookings are probably a record year-over-year. I don't know that for a fact, but I'm pretty sure they are. We're multiple double digits year-over-year organic, normalized organic in our bookings. Along with that, I'll comment that our weighted pipeline in particular, when we look at that, those are deals at 50% or better, 85% historically, of which typically close, is substantially up year-over-year as well. So the outlook as well as the year-to-date results have been very, very strong.

Got it. That's helpful. And then in terms of the actual mix that you're seeing, any color in terms of relative to historical, the new logo wins versus wins of existing clients?

Yeah, good question. And, you know, I commented earlier or alluded to the investments that we've made in sales in terms of – processes, compensation structure, management structure, being more prescriptive and adding capacity, much of that is geared towards new logos. That said, it's a combination of the two, but certainly shifting more towards the new. And I don't have the numbers sliced between new logos versus, say, legacy accounts, but we're seeing strength in both. And part of the strength that we're seeing in the existing accounts, I think it's worth pointing out, is not just that their spending is increased. I mean, a lot of our clients are Fortune 1000 customers who really didn't drop a lot. And if you recall last year, given the backdrop, it wasn't a terrible year for us. We didn't contract in any given quarter. And a lot of that was because of our sort of stalwart existing customers. So we're seeing increased spend there or increased share is what I should say. The spend is up a little, you know, as you would expect. I think Gartner's, whoever's got it at, you know, mid-single digits, upper single digits for digital, and or low double digits perhaps. And we're seeing more than that out of our existing relationships. But again, new logos making up a significant percentage of the bookings we're enjoying right now. And a lot of those new logos are We've identified as enterprise accounts, which we define as accounts that we believe we've got a good shot at getting to $5 million annually or more, in many cases more, where we're just beginning those relationships. So I think the stage is set very well for the future beyond 2021 going into 2022 and beyond. Good to hear.

And then I guess one related to the bookings number in terms of obviously the earlier commentary about the strength of the consulting practice with respect to the healthcare business. Any color on maybe the mix that you're seeing in terms of the bookings wins? I believe last quarter a bit more than your revenue mix was within the healthcare segment. Any change over there?

Yep. No, health care is up substantially. I want to say the bookings are up about 24% year over year. But financial services is improving dramatically. You know, we had a very robust management consulting practice. We have a very robust management consulting practice in FinServ where we work with clients on regulatory issues, et cetera, pretty high-end stuff, you know, bill rates in the high hundreds or two hundreds dollars an hour. But in the last year or two, back to that kind of prescriptive comment I made earlier, we've really focused on driving more technology business there, and that's getting a lot of traction and taking off. So that was up about 17% year over year, and those are our top two verticals that represent probably about half of our revenue between the two.

Got it. I'll get back in the queue for additional questions. Thank you. Thank you.

Thank you. Our next question comes from the line of Vincent Colicchio with Barrington Research. Your line is open.

Yeah, Jeff, you sound excited about the Nearshore business. I'm curious, is that helping you? Is that part of the strength of new deal signings in the quarter?

It absolutely helps. Again, I think, you know, we've improved our messaging, we've improved our strategy for offshore collective, but Nearshore is just a hot place right now. Customers like it. You know, the time zone is an example. You know, our proficient Latin America is in the mountain time zone, right? So time zone is perfect, and English is good. Skills are strong, and clients really embrace that. And the pricing, you know, is a little higher, obviously, than India, but valuable, and the clients see the value in it. So it's certainly helping win new deals, absolutely, and expand some of those existing relationships that I mentioned a minute ago.

And can you give us an update on the sales force? You've been expanding it in recent years. Are you seeing a broadening of productivity that you are looking for?

We are, absolutely. What's exciting is I think certainly, as I mentioned earlier, we can attribute some of the improvement to the climate. But I think a lot of it has to do with us really coming into our own relative to those investments we've made. You've probably heard me talk about this before, that we had dry powder. What I mean by that is newer salespeople that aren't quite hitting their stride yet, going back a couple of years, many of those have become more seasoned now, and the productivity increases substantially. It's really kind of an exponential curve as they get that second, third year under their belt. So we're seeing some of that, and we're continuing to expand and hiring really Our goal is to hire ahead of organic growth and continue to help fuel that growth.

Thank you. Nice quarter. Thanks, Vince.

Thank you. Our next question comes from the line of Jack VanderRud with Maxima Group. Your line is open.

Great. Thank you. Good morning, guys. Congrats on the solid quarter and strong guidance. I guess just a couple of questions. Let me start with a question for Jeff. Clearly, the organic growth of the business has been solved in terms of returning back to growth. So maybe I just want to touch on the acquisition front of the business. You closed three acquisitions during the first half of 2020, and just wondering if we can expect any more acquisitions I don't know, in the near term, without providing too much details, but just given your acquisitive strategy, wondering any thoughts on that.

Sure. Yeah, good question. Yep, we're very active in the program still and have a number of things in the pipeline. I would say nothing sort of impending. So we're hoping to get maybe something done this quarter. Could be more Q3 updates. As I mentioned before, it really ebbs and flows quite a lot, as you can see. Last year, as you pointed out, we closed three in the first half, but we're very, very selective, and that's really the reason I think we've had great success with our acquisition program. We've got a few things in the works, very attractive, and hopefully we'll get something done here again in the near future. I'm still optimistic we can get a couple or three deals done this year. but it'll see what we can find.

That's helpful. Maybe just to follow up to that, I think before previously or historically you've targeted kind of a certain revenue level from acquisitions. I'm not sure if that's a rough ballpark, but somewhere between maybe 5% and 10% of your overall revenue, which is not baked into the guidance, obviously, but is that still how you think about it?

Yeah, I think last year was a great year for, I think we did about $60 million of acquired run rate revenue. And, you know, our goal, our stated goal has always been around 50. To your point, as we're growing, I'd like to, you know, see that move up. And we'd love to repeat last year, even add more. So, you know, that deal we did with PSL was really kind of a poster child in many ways, including the size, you know, plus 30 million plus revenue run rate. So, Um, we've got an appetite for that at the same time, you know, a lot of emerging technology, very dynamic, uh, industry right now. And well, really as always, I think maybe now more than in recent years. So, uh, you know, as we're pivoting to, uh, to these new hot skills acquisitions make sense. And some of them may well be smaller if they've got that, that right equation.

That's helpful color. And then maybe just one more question, uh, maybe for Tom, um, Tom, large deals, obviously, everyone's kind of touched on this, but 92, the score, it's just, you know, it's exceptionally strong. Just wondering, like, the delta of that relative to last year and every quarter last year, basically, in history, is that sort of, is that level of the delta an outlier here, or is that kind of what you expect going forward as proficient, you know, as clearly being more recognized on a global scale? Just wondering about the delta.

Yeah. I'd love to say, yep, we could promise that going forward, but I tell you the pipeline's strong. The deal size continues to grow as far as what we're going after. I don't think it's an outlier. I don't know if they'll always be as strong as far as incremental growth from a year-over-year basis or even sequentially, but I don't think it's an outlier. The deal volume is up, but I'll tell you the size of deal is up as well. and that's indicative also of the pipeline. We'll see a large increase pipeline. The deal volume size is quite significant. So I don't think it's an outlier. I can't say it's going to be that high of a year-over-year compare every single quarter, but it's definitely trending in that direction, and we have really good velocity right now.

Great. Well, that's very encouraging to hear, and congrats on a strong quarter again, guys. Thanks. Thank you.

Thanks. Thank you. As a reminder, ladies and gentlemen, that's star one to ask a question. Our next question comes from the line of Brian Kinslinger, APG. The line is open.

Yeah, hi, guys. Nice to talk to you. And sorry, I hopefully don't repeat a question. I got knocked off for 10 minutes. But 40% of your consultants are either offshore or nearshore. I want to dig into your expectations of delivery mix over the next year or two. The Indian outsource is traditionally targeted 70-30 in the offshore on-site mix. What's your long-term goal, and where do you think you'll be in, say, 18 or 24 months?

That's a good question. We expect to continue to drive the pace that we are. We're actually exploring additional acquisitions, in fact, in Latin America. But organically alone, you know, I think that's going to quickly move from 40 to 50, you know, perhaps by the end of this year given the pace of growth that we have certainly into next year. In terms of our mix on a project basis, of course, it really depends on the engagement. But I'll tell you, I don't think we're going to get to that high ratio that some of our competitors, you know, pursue. Frankly, I don't think digital implementation lends itself to those really, really high ratios. We use more of a hybrid approach where the folks that are offshore are peers in terms of tenure, experience level, and skill set to the folks that are onshore, and it's a blend. And digital is high touch, so I don't know that it's going to be a 30-70 on to off for us you know, anytime in the near future. And like I said, depending what happens in the industry in general, a lot of the demand of these clients, it's really about business. It's about change management. It's about their customer understanding it, understanding their business, understanding the business culture in the United States are all relevant factors. So I think that's an advantage that we have. It's a differentiator that we're going to protect.

Great. I have one follow-up on that, and then I'll ask one more question. Can you just talk about the differences between the gross margin of nearshore versus offshore? Is it significant? Is it close?

Oh, it's close. Yeah, it's basically the same. It's in the 50s. Yep.

Yep. So nearshore is obviously better given the higher bill rate and similar margin.

Yes.

Yeah. Okay. Lastly, I wanted to touch on two sectors we don't talk about much, auto as well as retail and CPG. They posted kind of a breakout. sequential uptick in revenue. Granted, they're smaller than healthcare and financial services, but maybe if you can put some context into any commonalities that were driving the growth in these two sectors, and should we continue to expect a ramp in these sectors? Thank you.

I think so. Without naming names, we've got some really significant accounts in each of those sectors, particularly in automotive, and a relationship that we've had for many, many years where we've actually moved to a Tier 1 supplier, which is very unique. There's only a handful globally, and that's going to yield us quite a bit more work just in that one account, but that's happening across the board, and I do expect that those sectors are going to grow pretty nicely in They're just being, you know, well outpaced with the 24 and 17 respectively in health care and financial services. So on a relative basis, they're maybe not growing quite as fast, but they're still growing absolutely.

Great. Thanks so much.

Thanks, Brian.

Thank you. I'm sure no further questions in the queue. I would now like to turn the call back over to Mr. Jeff Davis for closing comments.

Great. Well, thank you all for your time today. As you can see, we're really excited about where the business is at, what Q1 reflected, and what the rest of the guidance for the year, Q2, and the rest of the year reflects. I think the stage is set for another year in 2022, and obviously we'll be talking more and more about that as the year progresses. But again, thank you for your time, and I look forward to speaking to you in about 90 days. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.