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spk09: Thank you for standing by, and welcome to the second quarter 2021 Proficient Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. It is now my pleasure to introduce Chairman and CEO Jeff Davis.
spk08: Thank you, and good morning, everyone. With me on the phone today are Paul Martin, our CFO, and Tom Hogan, our President and COO. I want to thank you for your time this morning. We have a great call ahead. As usual, we'll have about 10 to 15 minutes of prepared comments, after which we'll open up the call for questions. Before we proceed, Paul, would you please read the Safe Harbor Statement?
spk03: 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 meanings of the securities laws. Action 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. Our earnings release, including a reconciliation of certain non-GAAP financial measures to the most directly comparable financial measures 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 measures prepared in accordance with GAAP, on our website under Investor Relations. Jeff?
spk08: Thanks, Paul. And once again, good morning, everyone. Thanks for your time this morning. We're excited to be with you this morning to discuss our second quarter results and provide an updated outlook for the remainder of 2021 that reflects our accelerating momentum and ongoing optimism. During the quarter, we built on our Q1 success and continue to gain new customers, expand existing relationships, and take share. As we head into the second half of the year, the business has never been stronger. On the heels of 42% organic growth in the first quarter, our offshore revenue grew organically 75% during the second quarter, with total offshore revenue growth of 124% during the quarter. Our aggressive global expansion is paying dividends. Not only does it continue to enhance our ability to win larger deals, but it's enabling us to scale more rapidly with existing clients and expand margins along the way. New and existing customers continue to embrace our differentiated delivery model, which I think is really key within the industry. Couples a strong and high-touch domestic presence with the near-shore and global delivery capabilities enterprises require today. During the quarter, we recognized the one-year anniversary of our expansion into Columbia, South America. Our acquisition of the team, now known as Proficient Latin America, has become a meaningful catalyst of growth. In fact, we've added nearly 100 billable resources in Columbia since acquisition and expect this group, like our entire global delivery footprint, to continue to expand even faster on a relative basis than our domestic delivery talent, which we're also scaling more rapidly than ever before. As a matter of fact, in the first quarter of 2021, the first half of 2021, North American billable headcount grew nearly 10%. And as the second quarter came to a close, we set a record, hiring more talent in June than Perficient ever has in a single month before, resulting in over 16% year-over-year growth for the quarter. Tom will share the full details regarding large wins during the quarter shortly, but bookings obviously remain strong. Like Q1, we closed several seven-figure deals across industries, as well as an eight-figure deal in the financial services industry, which is a vertical deal. where we're seeing strong investment interest and intent in 2021. The pipeline, as I mentioned earlier, remains robust, and importantly, it's comprised not only of opportunities to expand within existing accounts, but we're also in meaningful discussions with net new logos around large and long-term seven and eight-figure work streams. In fact, net new client acquisition in 2021 is another success worth highlighting. Among the dozens of net new clients we've added this year, There are nine we consider very substantial large enterprise accounts where we believe the potential exists for us to build long-term relationships worth many millions of dollars apiece per year. Our strong channel relationships and key partnerships remain a significant differentiator. In recent weeks, Perficient was named the 2021 America's recipient of Sitecore's Partner Award for Excellence in Solution Delivery, as well as an optimizely premier platinum partner, one of just three partners in North America with this distinction, by the way, and a global finalist for the Microsoft Healthcare Partner of the Year Award. Paul will speak to the financial results shortly. We were again pleased with the key performance metrics, including utilization, which was up two basis points domestically and eight points in our global development centers. I should say two points domestically and eight points in our global development centers. Our global teams are fully integrated and collaborating constantly, and our leaders are proactively managing our quickly growing talent pool across the spectrum of accounts and opportunities. So with that, I'll turn the call over to Paul, who will share the financial results for the second quarter and first half. Paul?
spk03: Thanks, Jeff. Let me start with the second quarter results. Services revenues, excluding reimbursable expenses, were $181.2 million for the second quarter. a 25.6 percent increase over the comparable prior year period. Gross margins for the quarter end of June 2021 increased 80 basis points to 38.5 percent compared to the prior year period. SG&A expense was 37.4 million compared to 33.9 million in the comparable prior year period. SG&A expense as a percentage of revenue decreased to 20.3 percent from 23.1 percent in the second quarter of 2020. Adjusted EBITDA for the second quarter of 2021 was $39 million or 21.2 percent of revenues compared to $26.4 million or 18 percent of revenues in the second quarter of 2020. The second quarter of 2021 included amortization expense of $6.3 million compared to $4.4 million in the prior year period. The increase is primarily associated with the PSL acquisition. Net interest expense for the second quarter of 2021 increased to $3.4 million from 2.1 million in the comparable prior year period, primarily as a result of the August 2020 convertible debt offering. Our effective tax rate for the second quarter of 2021 was 27 percent compared to 31.8 percent in the second quarter of 2020. The decrease in the effective tax rate was primarily due to lower non-deductible acquisition costs, partially offset by lower tax benefits recognized related to research and development as compared to the three months ended June 30, 2020. Net income increased 151 percent to $16.6 million for the second quarter of 2021 from $6.6 million in the second quarter of 2020, primarily as a result of higher gross margins, lower SG&A as a percentage of revenue, lower acquisition costs, and lower adjustments to fair value of contingent consideration. Diluted gap earnings per share increased to 49 cents a share for the second quarter of 2021 from 20 cents a share in the second quarter of 2020. Adjusted earnings per share increased to 84 cents a share for the second quarter of 2021 from 57 cents a share in the second quarter of 2020. Please see the press release for a full reconciliation to GAAP earnings. I'll now turn to the year-to-date results through June. Services revenue excluding reimbursable expenses were $347.7 million for the six months ended June 30, 2021, a 21.9 percent increase over the comparable prior year period. Gross margin, Percentage for the six months into June 30, 2021 increased 120 basis points to 38 percent compared to the prior year period. SG&A expense was 71.4 million compared to 67.1 million in the comparable prior year period. SG&A expense as a percentage of revenues decreased to 20.2 percent from 23 percent in the six months into June 30, 2020. Adjusted EBITDA, for the six months ended June 30, 2021 was 73.6 million or 20.8 percent of revenues compared to 50.1 million or 17.2 percent of revenues in the comparable prior year period. The six months ended June 30, 2021 included amortization expense of 13.4 million compared to 8.3 million in the comparable prior year period. Net interest expense for the six months ended June 30, 2021 increased to 6.7 million from $4 million in the comparable prior year period, primarily as a result of the August 2020 convertible debt offering. Our effective tax rate for the six months ended June 30, 2021 was 23.6 percent compared to 22.8 percent in the comparable prior year period. The increase in the effective tax rate was primarily due to relative decrease in tax benefits recognized related to share based compensation deductions, partially offset by lower non-deductible acquisition costs compared to the prior year period. Net income for the six months into June 30, 2020 was $30.2 million compared to $15.6 million in the comparable prior year period. Diluted gap earnings per share was $0.90 a share for the six months into June 30, 2021 compared to $0.48 in the prior year period. Adjusted earnings per share increased to $1.58 for the six months ended June 30, 2021 from $1.07 in the comparable prior year period. Our ending billable headcount in June 30, 2021 was 4,443, including 4,108 billable consultants and 335 subcontractors. In addition, we had ending SG&A headcount of 680. Our outstanding debt, net of unamortized debt discount and deferred issuance costs as of June 30, 2021 was $188.7 million. We also had 86.7 million in cash equivalents as of June 30, 2021, and 199.8 million of unused borrowing capacity on our credit facility. Again, our balance sheet continues to leave us well-positioned to execute against our strategic plan. Day sales outstanding on accounts receivable decreased to 69 days at the end of the second quarter compared to 71 days at the end of the second quarter of 2020. I'll now turn the call over to Tom Hogan for a little more commentary. Tom?
spk06: Thank you, Paul. Good morning, everybody. As Jeff mentioned, bookings remain strong in the second quarter. We booked 89 deals greater than $500,000 during the second quarter of 2021, which compares to 66 in the year-ago period. And you may recall in the first quarter, we booked 92 deals greater than $500,000 compared to 71 in the first quarter of 2020. So combined, 181 deals greater than $500,000 during the first half of the year compared to 137 in the prior year period. I expect we'll see similar gains, by the way, throughout the remainder of the year. Nearly 45% of our billable employees are now offshore, and that global talent is embedded into virtually every single large deal we win and deliver. One example of this is a recent multimillion-dollar win in account expansion at a state-licensed private health insurance company, They wanted to consolidate the ongoing development of their membership experience platform under a single vendor and selected Perficient as their primary partner. Our global team of experts will be responsible for digital experience development, including new development, enhancements, and testing for the provider's member portal deployment. Jeff also mentioned strength in our financial services vertical. We also recently expanded our relationship with a global FinTech leader and their strategic partnership with a leading wealth management company to create a next-generation wealth management industry platform. Our team has been instrumental to developing, delivering, supporting, and managing the program, which has resulted in improved financial advisor productivity, enriched our client experience, and completely digitizing their enterprise-wide operations. That success has now led to our involvement with data management and did integration, and increased offshore support. Finally, I want to take a minute to congratulate the 22 women who recently graduated from our inaugural Bright Pass program, which is designed to advance STEM education and opportunities for underrepresented constituencies and communities. We were floored with the level of progress these students made in the fully funded 14-week program, and we're even more excited that the majority of them subsequently accepted offers to join our team full-time. This pilot program was so successful, we're planning on announcing two more by the end of the year. So, again, a great first half, and we're focused on even more of the same in H2. And with that, we'll turn things back over to Jeff to discuss third quarter, the remainder of the year.
spk08: Thanks, Tom. Proficient expects its third quarter 2021 revenue to be in the range of $186 to $191 million. Third quarter gap earnings per share is expected to be in the range of $49 to $52 cents. Third quarter adjusted earnings per share is expected to be in the range of 83 to 86 cents, and Proficient now expects its full year 2021 revenue to be in the range of 723 to $738 million. 2021 GAAP earnings per share to be in the range of $1.93 to 205, and 2021 adjusted earnings per share to be in the range of $3.20 to $3.30. So with that, operator, we can open up the call for questions.
spk09: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Our first question comes from the line of Maggie Nolan with William Blair.
spk04: Maggie Nolan Thank you. Tom or Jeff, I'm wondering if you can provide a little bit more detail on the growth of the offshore revenue. Is there any pattern there in terms of, you know, what type of client or tenure and then what type of project work that may be driving the growth here?
spk08: Yeah, I'll start and let Tom add any color he may want to. But it's really a combination of a number of sources, not the least of which is existing accounts where we're expanding and taking share more into the offshore and nearshore space. So we've gained this scale in critical mass now where we're able to readily scale, as you can see, and take on more of that work at existing accounts. That said, there are many, many new accounts, most of which actually are opening up with some element of offshore or nearshore as a component of even those initial engagements. So I think it's driven from both sources. I think that continues. It's a strategic focus of ours. You know, we're really leading with it now from a marketing and sales standpoint. So I think we'll continue to see that outpacing North America. Tom, anything to add?
spk06: No, I concur. Nothing to add.
spk04: Okay, thanks. And then on the talent side of things, you know, you're obviously – adding a lot of talent. Are there any difficult geographies where you're running into trouble, you know, attracting talent or any, you know, areas where you're seeing spiked attrition? And then your kind of updated thoughts on, you know, how willing you are to use subcontractors. Thanks.
spk08: Yeah, once again, I'll kick it off here. And, again, Tom, if you want anything, you may or may not be aware that talent acquisition, along with HR, actually reports to Tom now and has for some time. Obviously, talent acquisition is a key focus of ours. We've invested a lot in the talent acquisition team proper, including leadership and certainly at the recruiter level as well. Nothing stands out specific to your question. I say this all the time because it's true. Even when times are not as good as they are now, it's always tough to find good talent. So sure, in some of the really hot areas that we focus on in the digital space, it's a little harder to find folks. And we invest a lot organically in training and sort of growing our own. We're doing a fair amount of campus recruiting. as well to supplement that. Attrition has picked up some, as you might imagine. I think we had sort of pent-up demand, if you will, and enjoyed some very low attrition during the COVID timeframe or the peak of COVID, I should say. But that's, I think, a temporary thing. And really, it's only returned to kind of normal industry levels of, you know, around 20% high teens So I don't think any geography stands out particularly. As you can tell by the results, we're having great success recruiting in India, in Latin America, as well as North America. And I think we're very optimistic that we'll be able to meet the demand that we're seeing. I probably didn't leave you much, Tom, but if you want anything, go right ahead.
spk06: I think that's right. And, Maggie, you also asked about subcontractors, and we continue to utilize subcontractors where it makes sense for certain skills. But we're competing quite nicely for talent. Although attrition has, as Jeff mentioned, ticked up a little bit, we continue to be a destination that people want to join. Our projects are exciting. Our team is great. Our value is great. And people really want to join an organization with the value proposition that we have. So I'm feeling good about that right now.
spk04: Thank you. Nice quarter.
spk09: Thank you. Our next question comes from the line of Mayank Pandin with Needham & Company.
spk10: Thank you. Good morning. Let me also echo my congratulations, Jeff, and the team. Strong quarter. I wanted to start, Jeff, with your thoughts around the book to bill. I don't know if you are giving specific metrics around bookings, but if you could provide any sort of qualitative color, if not quantitative, around how that's been trending. maybe more by vertical if you're seeing strength across the board, or are you seeing any sort of pockets of weakness that might end up picking up the slack, and then that could be a potential upside catalyst as you move through the back half of 2021 into 2022?
spk08: Yeah, I think it's really kind of a tide lifting all boats. And I'll tell you, Mike, I think a lot of it has to do, you know, I think there's a little bit of kind of pent-up demand, if you will, from, again, from the peak of COVID, although I think it's far less that. than it is the sort of culmination or coming into fruition. All the investments that you've heard me talk about for some time now around our sales team, as well as our marketing lead generation, all those things have matured very nicely over the last couple of years. And I think we were beginning to see some of that in 19. COVID was a little bit of a setback, but I think it's driving a lot of it now. In terms of industry growth, I mentioned during the prepared statements that financial services is really picking up nicely for us. You know, we've got a very strong management consulting capability within that space, and I've always felt like we've been underrepresented on the technology side, and that's changing. You know, we mentioned an eight-figure deal there. We're seeing a lot of nice pickup there. I would say I feel pretty good about our representation across industries and, you and don't really feel like there's any that necessarily represent any big opportunity or any big catalyst down the road outside of financial services. In terms of bookings, yeah, we don't provide specifics, but I can certainly provide some color. We are, in the last about trailing five months, is about the thing that we focus on most. And I can tell you that the bookings certainly reflect what we're seeing in the revenue, and there's more to come. We've had very, very strong bookings this quarter, and particularly if you look at that trailing five-month metric, it looks very, very strong. I will tell you our backlog as we sit here today and even looking forward into 2022, particularly into the first quarter, because a lot of the bookings that we're realizing now will be, again, the highest correlation to revenue will be in the beginning of next year. is very, very strong. The backlog is the largest it's ever been, of course, in absolute dollars, no surprise there. But it's also the largest as a percent of our look forward forecast. So we're very excited. We're very confident in the sustainability of what we're seeing right now based on the bookings we're enjoying right now. And the pipeline behind that just continues to rebuild. So we've got a very, very great amount of confidence around Again, the go-forward and the bookings are certainly supporting that.
spk10: That's a very helpful color, Jeff. And then a really quick one around margins. Given some of the headwinds around wage inflation, given the strength of demand, you mentioned the attrition rates, et cetera, is pricing starting to uptick given the demand backdrop to help maybe offset some of those headwinds along with the offshore mixture drive? the margin expansion that you've typically targeted, or are you seeing any sort of changes on that front as you move forward?
spk08: Yeah, I think our margin expansion, and I mentioned this at the beginning of the year, so at the beginning of the year I said, you know, we're expecting maybe 50 to 100 bps in gross margin, but 150 to 200 in EBITDA, the big difference there being scale. And I think we're going to continue to see that. You know, we're running about 40% adjusted gross margin right now, And we like that. I think it's a healthy number for us. So we're not pressing to drive rates up too much. We're much more focused on that top-line growth. That said, we do intend to maintain and possibly expand modestly that 40%. But, again, I think we'll end up right in that sort of 50 to 100 range for the year. Next year, you know, I would expect something similar. Again, it's too early to really say. But, yeah, I do think you're right. I think even in order to maintain the 40, you know, the industry in general is tightening, and we'll see some price upticks, and we certainly are right now. At the same time, you know, we're winning these really large deals that, you know, do require or I should say are more competitive and require a little more aggressive pricing. At the same time, you have less turnover on those deals, right? So even though the rates may not be as high, the margin is still good because you've got higher utilization. and you have less churn of the folks, you know, hitting the bench in between projects. So, you know, again, I feel very good about keeping that 40, 40-plus intact. And likewise, I think we'll continue to see solid expansion of the EBITD line.
spk10: Great. Thank you so much for taking my questions.
spk08: Thanks, Mike.
spk09: Thank you. And our next question comes from the line of Surrender Thin with Jeffries.
spk07: Good morning, guys. One of the things that I kind of wanted to get a little bit more color on is just understanding the visibility that you have in the quarter and how that progresses. So can you walk me through when you last provided guidance and then kind of where we ended up in terms of coming in above the top end of that guidance? Is that a case of where just there's so much client demand and the reservation or the conservatism comes from being able to find enough people to fill that demand? Or how should we think about how demand is evolving and how that could potentially evolve on a go-forward basis?
spk08: Yeah, I think literally, as you noted, it's a pretty dynamic forecast driven largely by a dynamic market, of course. And I think we always try to build in some level of conservatism, assuming that maybe not all these deals are going to close or that we're not going to be hitting necessarily on all cylinders. And I think things came together even better, obviously, than we expected. And we've tried to get a little more, I'd say, a little less conservative going forward, a little more aggressive. um, in terms of what we put out there for this quarter and the rest of the year. Um, but that's at the same time, we feel very, very comfortable in terms of visibility, which you, you opened with, um, you know, that tends to vary as well. But as I said earlier, we've got a bigger backlog, both absolutely. And as a percent of our overall look forward than we've had before. So that's given us the confidence, um, to, uh, sort of raise guidance, obviously, and feel very good about very confident, uh, and what we've put out there. So, uh, You know, we do try to be conservative. We were probably overly conservative with the benefit of hindsight in the second quarter. That's a good thing, I think. And, again, we've tried to get a little more aggressive or a little less conservative going forward because things are going that well. The pipeline is that strong. Bookings continue to perform, you know, at a level above historical. And at the same time, I think that's sustainable.
spk07: That's helpful. And then maybe as a follow-on, it sounds like perhaps the win rates were maybe a little bit better than they have been historically. Is that the right way to think about some of the commentary you just made about things coming out really good in terms of some of the deal wins and stuff? Or how should we think about things competitively at this point versus maybe where things were historically?
spk08: Yep. I think our win rates are... in line with historical, I expect that that will continue. I expect that they may even tick down. And what I mean by that is, I alluded to it earlier, but we've added a ton of capacity in sales. And keep in mind that we've been adding that every year, really every quarter, every month. And a lot of those folks that we've added are coming into their own. I mean, they're maturing, right? So if you go back, people that we hired two years ago, are really beginning to hit their stride. And so I think that's a part of what we're seeing right now. And I mentioned this earlier, is that we've gotten a lot more effective at recruiting, onboarding, and supporting our sales team and their success. And that's another factor in all this that is relatively new. Again, I think we would have seen it last year if not for COVID. We saw a little bit of it at 19. But I think that's another major factor going forward. So In fact, win rates are great. We are still better than 50% against the competition in the even playing field, actually closer to 60, around 60. But, again, I wouldn't be shocked if that actually came down a little as we're getting more attacks.
spk07: Got it. And then related to just kind of the demand environment, Can you talk a little bit about utilization? One of the things that I was looking at was the headcount growth. Obviously, you're adding at a very fast pace at this point. How sustainable is some of that as you kind of look further out? Obviously, you're trying to balance or use a crystal ball to figure out demand longer term. But at the same time, is there any are you also addressing perhaps elevated utilization levels at this point, or how should we think about that dynamic?
spk08: You know, we actually really feel good about utilization. We've talked about kind of 80-81 as a sustainable goal across the year, right? And that's seasonal to some degree. So first quarter, fourth quarter are going to be a little bit lower end of that, or maybe even in the high 70s, although I think this year it will be in the low 80s. And then, you know, it does peak up, tends to peak up in Q2 and Q3. So we're running 82.5, I think, or something like that in the first quarter in North America and similarly offshore. Interestingly, most of our competitors run higher utilization offshore than we do simply because we're recruiting as much as we are and hiring ahead so that we're prepared for that, have that capacity to be prepared for that additional demand. So I think we're comfortable, very comfortable with where utilization is right now. As I mentioned before, the recruiting arm is, talent acquisition arm is working extremely well, both in North America and elsewhere. We're having great success. Tom mentioned it. You know, people are excited about the proficient story. So we're, you know, taking employees away from competitors. And at the same time, as Tom mentioned, with Bright Paths, I mentioned with college recruiting, we're also bringing in, you know, new sources, right, new sources of supply and doing training on our own. And we're really ramping up the capacity and scalability of that as well. So, excuse me, I think things have gone really well. I think that will continue going forward. And I think, honestly, we just continue to tune that and get better and better at it. Now, like I said, I think that, as Tom mentioned earlier, I think the proficient story from a recruiting standpoint is super strong.
spk07: That's very helpful. Thank you, Jeff, and congratulations on the quarter.
spk09: Thank you. Thank you. And our next question comes from the line of Brian Kinslinger with Alliance Global Partners.
spk11: Hi, guys. Thanks for taking my questions. As you continue to shift your mix of delivery, I guess I'm curious – And you mentioned, you know, you're not going to get much higher than 40% margins, maybe at short term. I don't know if it's long term. I'm curious what the long-term adjusted operating margin, EBITDA margin, however you're looking at it, is. And where do you think long-term offshore on-site delivery mix can mature to for your company?
spk08: Yeah, it's a great question. You know, I – I mentioned during the prepared statements that onshore is growing extremely well, and I think this is really important for people to understand. Something that's extremely unique about us compared to our competition onshore, offshore, nearshore, is that we have the combination of all three. We've got a phenomenal onshore capability that's high-touch, strategic, helps clients drive their business goals and understand that and how to support those through systems and technology. and then we've got this great delivery development capability of super bright, intelligent, great folks offshore and nearshore. So if I had to guess, I'd like to see us getting to about a 50-50 mix in terms of revenue, but on a positive note, onshore keeps growing too. So I think it's the combination. It's that model that continues to grow together. Now, of course, offshore is and nearshore are outpacing. So I do think that it'll be a while, you know, maybe before we got to kind of the 50-50 mix. But it's a really powerful combination, and it's really resonating very well. I was just with one of our largest clients the other day, and they commented that, you know, and this is them comparing us to Accenture and larger competitors that, that no one else has presented us with the sort of global capability of offshore or nearshore or onshore and the strength that they've witnessed in each of those in terms of our delivery capability and the skill set. So I think that's a very differentiated model, and it's something that's working extremely well. If you look at us compared to offshore or nearshore competitors, I won't name. We all know who they are. you know, we're growing 75%. And they're doing great. They're growing at 25%. But if you look at the like-for-like, right, that $35 to $40 an hour range of services, you know, we're growing three times as fast as they are. And I think that's because of that combination.
spk11: So does that suggest that you can sustain roughly 100 basis points plus or minus in a given year, margin expansion as long as you grow double digits?
spk08: Yeah, and so, yeah, I'm sorry, back to your EBITDA question. I think so. I do think we continue to expand EBITDA. Now, keep in mind that we will want to, and we already are, but we're going to want to continue to reinvest in the business. But I do think adjusted EBITDA continues to expand. I think we'll end the year around 20%, maybe above 20%. literally in the year above 20%, but have for the total year 20 or so plus. I think that's implied in our guidance. And I think we can add to that next year. I think 100 BIPs is a real reasonable expectation for next year. And again, it's the power of the economies of that scale as we continue to grow the business at the pace we are, I think absolutely can deliver that kind of expansion.
spk11: Great. My other question is, it's been quite some time by proficient standards since you've completed an acquisition. Is that because there's so much organic opportunity? Are valuations too high right now? Or maybe some other reason. So if you could just maybe help us or walk us through what you're thinking today about M&A.
spk08: Yeah, absolutely. No, we've been very active on the M&A front, and I think it's a combination of all those things that you mentioned. Not except the organic. Like I said, we're still as active and aggressive on M&A as we've always been. Valuations, in some cases, have gotten a little nutty. And I think if you follow Perficient for very long, you know that we've got a very disciplined program. And we're happy to wait for things to come around if we need to, if we feel like a deal is that overvalued. However, that's not necessarily the issue. I think a lot of these entrepreneurs are looking around at a very healthy environment and, you know, are feeling like they're going to hold on to their businesses. So we're seeing a combination of all those things. Frankly, I think the cap gains rate uncertainty is a factor as well. And, you know, the threat of that being retroactive I think has impacted us some. All that said, We are actually in advanced stages right now with an acquisition. So I do think we'll get another deal or two, perhaps even three, done before the end of the year. It's just been a matter of, again, you know, those things aligning to our standard, to be honest.
spk11: Great.
spk09: Thanks so much. Thanks, Brian. Thank you. Our next question comes from the line of Puneet Jain with J.P. Morgan.
spk01: Hey, very good quarter, guys. Jeff, how do we reconcile strong pipeline and bookings and the comments around improved win rates with sequentially flattish to modestly up revenue growth implied in the guidance? From Q1 to Q2, you grew 10% on sequential basis and do not expect as much growth in the second half. Is it just like the normal seasonality? or is there some conservatism baked in the guidance?
spk08: Well, excuse me, I think on a year-over-year basis, the guidance implies basically the same growth for the second half that we enjoyed in Q2, which is actually higher than the first half, which would imply better growth than the first half. Comps pick up a little bit, particularly in Q4, so I think the comps weigh into that. And, you know, I think we're trying to be reasonably conservative. As I said before, we got a little more aggressive than perhaps we've been in the past. But I think we're still, you know, trying to be conservative and make sure that we, you know, deliver what we say we're going to deliver.
spk01: Got you. And I'm sorry you might have addressed this before, but What are you seeing for wage inflation? Like a lot of your peers, specifically in India, are talking about seeing a spike in attrition rates, spike in wage inflation. Are you also seeing increased inflation rates among your employee base?
spk08: Not really, actually. I think that speaks again to the uniqueness of the opportunity that we have here. Firstly, I'll say that... I think we already pay a competitive wage. I think that's one of the reasons that we're able to attract the talent that we attract from some of our competitors, and that is that I think we've got a better compensation and benefits package than they do anyway. So I think we've already got that advantage. And so right now we're not seeing sort of runaway wage inflation. You know, we're anticipating sort of standard merit increase levels that we've basically applied over the last, couple or three years, you know, maybe a half point more. But for the most part, and the attrition, by the way, both in Latin America and India have been, you know, quite similar to here. And really our experience, I think, is far better than our competitors. And, again, I think it's all those things we talked about before. I think it's culture. I think it's already paying a competitive wage to begin with. And, you know, quite honestly, I assume they've got some catching up to do.
spk01: Understood. Thank you.
spk08: Thank you.
spk09: Thank you. And our next question comes from the line of Vincent Colicchio with Barrington Research.
spk05: Yeah, Jeff, I'm curious, with the nice growth in larger deals, are you seeing a flattening of the pyramid benefit margin?
spk08: Yes, I think so. Now, of course, the base of that pyramid you know, is shifting more to offshore, nearshore. I want to be careful about that. They have their own pyramid as well. Those folks are, you know, similarly or equivalently talented, skilled, experienced as onshore. But yes, obviously there's some scale there with these larger deals. At the same time, those deals do tend to be a little more price competitive. So, you know, I think it's a balance or balances there. I do think, you know, we made some some temporary discounts to some of our larger accounts that we're seeing kind of roll off now. So, again, I think it's quite possible we'll see rates pick up a little bit in the second half. But I'll tell you, our primary focus right now is preserve margins, expand modestly gross margin. You heard me say that before. And focus on top-line revenue growth.
spk05: And my understanding is the pandemic has been fairly rough in Colombia. Has that caused any challenges in terms of employees getting sick and needing to, you know, increase, you know, a cushion of, you know, lower utilization rates to kind of protect yourself there?
spk08: Yeah, it's been, you know, our experience has been pretty positive. You know, the demographic, right, of our employees is a little different than probably the average in both India and Colombia. And so without getting into anything geopolitical, our experience has been pretty good. I mean, obviously, the whole pandemic's a travesty and made up of a lot of personal tragedies. But our folks are younger. They tend to be healthy. And the biggest disruption, sadly, tends to be, you know, a family member falling ill or worse and them needing to take some time to deal with that. But in spite of that, utilization has, you know, has maintained or even ticked up. So, you know, knock on wood, so far, I would say that our teams have been resilient and done an amazing job of dealing with, you know, a terrible situation, and really the impact to provision has been minimal.
spk05: And what was your organic growth in the quarter? I missed that.
spk08: Twenty-one and a half.
spk05: Okay. That's it for me. Nice quarter.
spk08: Thanks, Vince.
spk09: Thank you. Our next question comes from the line of Jack Vander Arday with Maxim Group.
spk02: Great. Thank you. Good morning, guys. Congrats on another solid quarter, another strong guide. A couple questions. Maybe for Jeff, you know, clearly organic growth has been solid. It's really rebounded. Sounds like, from another analyst question, there's a lot of activity going on behind the scenes still for acquisitions. That's good to hear. And I know you guys are very thoughtful in finding the right fit, so that's all fine. I guess I want to revisit your bigger picture kind of multi-year outlook for you. for organic growth. I think prior to COVID, you guys were targeting like, you know, maybe like a general rule of thumb, like a 10% or so organic growth, kind of like a sustainable target. You're far outpacing that for this year now in 2021, obviously. But just is there any change in terms of when you look at like the next three years, four years out, any reason you'd expect changes to your kind of target organic growth outlook of say 10% or whatever it is?
spk08: Yeah, I think that's right. I mean, I think it's sort of a stair-step function, right? Once you get to one level, then you raise the bar and move to the next level. So I feel like 10% is probably in the rear view. And, yeah, we feel really good about moving that target up to probably mid-teens or better, sustainably. And, again, I'll go right back to what I said before about the maturity aspect and the effectiveness of our marketing, everything from the whole sales cycle, right, everything from marketing, lead gen, our partnerships, and probably most importantly, the capacity and the management team that we've added around sales and that we continue to build on. So we continue to add capacity ahead of growth. so that we're fueling that, you know, that next level. So, yeah, I would say that, again, hopefully the 10% is behind us and we're moving on to 15 plus.
spk02: Fantastic. And then question for Paul, maybe more of a clarification or definition kind of question on organic growth. So when we're looking at the third quarter revenue guidance, I guess first question is, Is there an underlying organic revenue growth in your third quarter revenue guidance?
spk03: Yeah, so the guidance is, I think, 18 to 21 percent in Q3. And, you know, because of the timing of acquisitions, essentially everything will be organic effective for Q3. So, you know, because we haven't closed any acquisitions since June of last year.
spk02: Okay, great. So that was the question I was kind of walking towards, is the denominator in your organic growth, formula now is much more simple. When I see your organic and your total revenue growth for the third quarter, we've passed the one-year mark now from the last acquisition. So organic is synonymous now with total revenue growth.
spk03: Right. And then, of course, if we close another deal, then that will change a bit. But, yes, for now, that's where we are.
spk02: Great. And then just a follow-up question on revenue. The revenue beat for the second quarter and then the full-year revenue guidance raised, I think the second quarter revenue beat the mid-2021 guidance by about $8 million or so. But the full year 2021 revenue guidance was significantly increased, but well above that beat, which tells me you have a lot of confidence. Obviously, your comments about the pipeline and the backlog is strong. Everything seems very solid here. But just because of the size of the full year raise of revenue, would you attribute this – Can you split this between organic growth outperformance offshore and onshore? And then I guess that's really the only way to split it at this point now. So how much of that raise is offshore and onshore outperformance?
spk08: Well, keep in mind that offshore is still, even though it's growing very, very quickly, still only about 15% of revenue. So, you know, I would say that, you know, let's call it 20%. And the lion's share of that is still going to be onshore just by the 4X rate differential. So probably something around 15 and 5, somewhere in that range. I mentioned, at least from a headcount standpoint, we grew onshore 16% organic in the second quarter. So I think we're seeing that demand and that mix of demand continuing. I think offshore will still be above 50. I don't know that it will hit 75. It could well do that. But I would say the breakdown is probably something along those lines, 15 and 5.
spk02: Okay. Very helpful. Well, thank you. That's all my questions. Again, solid results, guys. Excellent quarter. Thanks, Jack.
spk03: Thanks, Jack.
spk09: Thank you. I'll now turn the call back over to Chairman and CEO Jeff Davis for any closing remarks.
spk08: Well, once again, everyone, thank you for your time today. Obviously, you can see and hopefully hear our excitement and what I think is another sort of era for proficients. And you can also tell, I think, that we're very bullish and confident. In fact, I'll leave you with this thought. Our focus and attention is more on 2022 right now than it is the rest of 2021, which given that we're only halfway through the year, that's kind of a unique statement for us. But that will give you some idea, again, about our confidence and our outlook. So thank you for your time today. I look forward to talking again in another 90 days. Take care.
spk09: This concludes today's conference call. Thank you for participating, and you may now disconnect.
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