Perficient, Inc.

Hello, and thank you for standing by, and welcome to the Q4 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'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Chairman and CEO, Jeff Davis. Please go ahead, sir.

Thank you. Good morning. This is Jeff. With me on the telephone today is Paul Martin, our CFO, and Tom Hogan, our President and COO. As typical, we 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?

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. 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 discussions. At times during this call, we will refer to adjusted EPS and adjusted EBITDA, our earnings press 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.perficient.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?

Thanks, Paul. We appreciate your time today and are excited to discuss our fourth quarter performance with you and, of course, share our outlook and guidance for 2022. The fourth quarter put an exclamation point on a truly remarkable year for Perficient. Revenue and adjusted earnings were up 32% during the period. North American bill rates were up, utilization was strong, and we set a quarterly record for large deal wins. As you saw from our guidance in the release, we're confident and that our momentum will continue, if not accelerate, in 2022. Demand remains vigorous. I shared this sentiment on our last call, but Perficient's business and our potential has never been stronger. Digital transformation is driving tremendous spend, and it's now imperative that enterprises expedite investment to innovate more quickly and operate more efficiently. And with pace of progress advancing and competitive pressures growing each day, the speed at which verdicts are rendered and winners are separated from losers is getting faster and faster. In fact, IDC recently increased their compound annual growth rate projection for digital transformation spend by a full percentage point to 16.5% annually, which represents an additional trillion dollars over the course of the next three years alone. I share all that because it highlights the immense opportunity ahead for Perficient. Every day we're winning work with a growing number of global enterprises seeking exactly what we provide, strategy, execution, and support. and all of it rooted in a pragmatism that understands value must be created quickly. Organic offshore revenue grew 54% during the fourth quarter. Let me repeat that. Organic offshore revenue, which includes nearshore, primarily in South America, grew 54% during the fourth quarter and nearly 125% overall. Our global teams are strong contributors to virtually every large engagement we deliver now. In fact, just last week, the International Association of Outsourcing Professionals named Perficient a global outsourcing leader for the second consecutive year based on quality and performance excellence. As a reminder, we now have more delivery talent outside of the United States than within it. I expect our offshore and nearshore headcount will continue to grow at a faster pace than it does domestically, but across the board, we're hiring at a faster pace and higher volume than ever before. In fact, we're having great success scaling our teams. A number of the things that are contributing to that success in recruiting and retaining the top talent include several investments we've made in recent years to cultivate a truly exceptional employee experience for our colleagues, a few of which Tom will speak to shortly. But one key input is that we saw all of this coming. In anticipation of the demand ramping and the labor market tightening, we more than doubled our recruiting capacity over the course of the last year. We now have nearly 100 colleagues around the globe dedicated to talent acquisitions. and candidates as well as clients are increasingly drawn to our differentiation. The combination of our strong U.S. presence with a deep and geographically dispersed global footprint truly sets Perficient apart. In fact, it's interesting to watch some others in this space who lack a domestic footprint and strong client relationships attempt to reverse engineer themselves into that position. Our strategy is working. Enterprises want to work with a vendor that's local and global but well-integrated, nimble, and agile. And they want a partner that can deliver the strategy, execution, and support they need seamlessly. That's proficient, and that's why our future is so bright. Finally, I want to welcome Core Wireless Chief Executive Romo Ball to the Board of Directors. Romo's appointment was confirmed earlier this week, and we're excited to have him join. Romo has significant experience and meaningful expertise in the technology service sector across industries and industry. his perspective will be beneficial as we continue to scale the business. With that, I'll turn it over to Paul, who will share the financial results for the fourth quarter and full year. Paul?

Thanks, Jeff. Services revenue, excluding reimbursable expenses, were $210.3 million in the fourth quarter, a 32.3% increase over the prior year. Services gross margin, excluding reimbursable expenses and stock count, increased 20 basis points to 40.5%. SG&A was $41.7 million in the fourth quarter of 21 compared to $33 million in the fourth quarter of the prior year. SG&A expense as a percentage of revenues decreased to 19.4 percent from 20.3 percent in the fourth quarter of 20. Adjusted EBITDA for the fourth quarter of 21 was $47.7 million or 22.2 percent of revenues compared to $35 million and 21.5 percent of revenues in the fourth quarter of 20. Fourth quarter of 21 included amortization expense of $5.8 million compared to $7.3 million in the prior year period. The decrease in amortization expense was primarily due to certain intangibles from PSL acquisition becoming fully amortized earlier in 21. In the fourth quarter of 21, the company repurchased a portion of the 2025 notes, which resulted in a loss on extinguishment of $28.7 million. Net interest expense for the fourth quarter of 21 increased to 3.9 million from 3.3 million in the prior year, primarily as a result of the issuance of the 26 notes, 2026 notes, partially offset by the repurchase of the 2025 notes. We will be adopting the new accounting standard for convertible debt in the first quarter of 2022, which will substantially reduce interest expense. Net income decreased 46 percent to $4.5 million for the fourth quarter of 2021 from $8.4 million in the fourth quarter of 2020, primarily as a result of the loss on extinguishment of debt. Deleted GAAP earnings per share decreased to 13 cents a share for the fourth quarter of 2021 from 26 cents in the fourth quarter of 2020, again, primarily as a result of the loss on extinguishment of debt. Adjusted earnings per share increased to $1 a share for the fourth quarter of 2021 from 76 cents a share in the fourth quarter of 20. See the press release for a full reconciliation to GAAP earnings. I'll now turn to the full year results. Services revenue excluding reimburse expenses for the full year were $748 million, a 24.8 percent increase over the prior year. Services gross margin excluding reimbursable expenses and stock compensation increased 50 basis points to 40 percent. SG&A expense was 152.4 million compared to 134.7 million in the prior year. SG&A expense as a percentage of revenue decreased to 20 percent from 22 percent in 2020. Adjusted EVTA for the year ended December 31, 2021 was 162.9 million or 21.4 percent of revenues compared to 116.3 million or 19 percent of revenues in the prior year. The unit of December 31, 2021 included $23.5 million of amortization expense compared to $22.9 in the prior year. The company repurchased the remainder of the outstanding 2023 notes and repurchased a portion of the 2025 notes, which resulted in a full-year loss and extinguishment of $29 million. Net interest expense for the year ended December 31, 2021 increased to 14.1 million from 10.1 million in the prior year. And again, we will be adopting the new accounting standard for convertible debt in the first quarter of 2022, which will substantially reduce interest expense. Our effective tax rate decreased to 16.6 percent for the year ended December 31, 2021 from 25.2 percent in year-end of December 2020. The decrease is primarily due to an increase in stock compensation deductions and a decrease in non-deductible transaction costs compared to the prior year. Net income for the full year was $52.1 million compared to $30.2 million in the prior year. Diluted gap earnings per share increased $1.50 compared to $0.93 in the prior year. Adjusted earnings per share increased to $3.50 for the year-end of December 31, 2021 compared to $2.50 in the prior year. Our ending billable headcount December 31, 2021 was 5,613, including 5,213 billable consultants and 400 subcontractors. For the first time, more than half of our billable resources are located in our global delivery centers. Ending SG&A headcount was 866. Our outstanding debt and net of unamortized debt discount and deferred issuance costs as of December 31, 2021 was $326.1 million. We also have about $25 million in cash and cash equivalents and $199.8 million of unused borrowing capacity on our credit facility. Our balance sheet continues to leave us very well positioned to execute against our strategic plan. Finally, day sales outstanding on accounts receivable remain constant at 67 days. I'll now turn the call over to Tom Hogan for a little more commentary. Tom?

Thanks, Paul. As Jeff mentioned, bookings were historically strong in the fourth quarter. We booked 98 deals greater than $500,000 during the third quarter of 2021. Comparison, 80 in the fourth quarter in 2021 and 80 in the fourth quarter and 70 in the year-ago period. So, again, that's 98 deals greater than $500,000. and that compares to 80 in the third quarter and 70 in the year-ago period. And as a reminder, global delivery is embedded in virtually every one of those wins. A couple of examples. We closed an eight-figure deal during the quarter, helping one of the world's leading manufacturers of construction and mining equipment, delivering its B2B and B2C sites. We're laser-focused on driving results for our clients, and we work with this client to take advantage of some new customer experience features, resulting in increased investment in the platform. We quickly pivoted to help this client and secure additional predominantly Latin America-based scrum teams to develop the solutions. In addition, we're also providing business analytics and aiding in UI design. Our global team will also lead the development of the manufacturer's large-scale industry-leading agile development framework. We also closed a near eight-figure deal in a multinational financial services company that we've been working with for over a decade. We're providing ongoing support for the company's mobile and online retail trading platform. That supports as many as 9 million transactions per day. We're also building microservices for both their trading platform and the company's online application processing platform, including its web and mobile chat experiences to enhance their ability to provide premium level customer service to their customers. As we continue to win more and larger deals, it's key to compete for the talent to deliver. That not only includes the recruiting success Jeff mentioned earlier, but also means we're focused on the amazing talent already at Perficient. Our team is focused every day on improving the employee experience at Perficient. We know the employee experience is not just about providing competitive employee benefits. People want to be part of an amazing culture, an organization truly investing in training, their career growth, philanthropy, and even the tools to make their jobs less stressful and their days more productive. Everybody at Perficient wants the entirety of our efforts focused on thrilling our customers with innovation and impact. A great example of enabling our team to be more productive was the recent launch of our internally developed custom proprietary tool called Compass. Compass provides our business leaders and project managers with incredibly detailed project performance metrics, including real-time project profitability data as granular as the margins associated with with an individual's contributions on a specific work stream. Compass also leverages an internally built business logic engine to provide our leaders with real-time action steps based on specific project data, such as client insights, budget burn, et cetera. Additionally, Compass provides resource management and talent availability information that ensures we're maximizing utilization across the world. We're growing faster than ever before. And as our brand grows globally, and as candidates fully understand the compelling employee proposition Proficient offers, we're making investments around the world in our colleagues, and just as important, our communities. At Proficient, we strive to do well and do good. And as we scale, we're excited about the additional opportunities it creates for us to change the world. One effort we're extremely proud of, and that is making change happen, is our Bright Paths program. We're recently re-graduated and then hired an additional 50 employees. As a reminder, this is a program where Perficient finds ambitious and capable candidates from underserved and under-representative communities. We then fully fund an extensive training program on their behalf that helps them grow the skills they need to successfully earn an entry-level consulting position at Perficient. Today, we've hired 67 people into Perficient via our Bright Paths. And it's a program we continue to expand. We're growing our team and changing lives. And our existing colleagues love celebrating the Bright Path students' achievements and in welcoming them to the proficient team. Beyond Bright Paths, we have hundreds of colleagues participating in an employee resource group designed to help advance women in technology, as well as hundreds more involved in our ERG specifically around global philanthropy and giving. As we scale and continue to increase our influence and impact on behalf of the world's biggest enterprises, We also remain focused on growing the positive change we can make on the world around us. And with that, I'll turn things back over to Jeff to discuss the first quarter and full year outlook.

Thanks, Tom. Great stuff. So, Proficient expects its first quarter 2022 revenue to be in the range of $218 to $221 million. First quarter gap earnings per share is expected to be in the range of $0.64 to $0.67. First quarter adjusted earnings per share is expected to be in the range of $0.92 to $0.95. Proficient is providing full-year 2022 guidance in the range of $900 to $940 million in revenue and 2022 GAAP earnings per share guidance in the range of $2.94 to $3.09. And finally, 2022 adjusted earnings per share guidance in the range of $4.18 to $4.33. So with that, operator, we can open up the call for questions.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Our first question comes from . You may proceed with your question.

Thank you. Good morning. Congrats, Jeff, Paul, and Tom on the strong quarter. Jeff, I wanted to just start with, given the strong demand backdrop, could you talk a little bit more about your talent acquisition strategy? and should we think about maybe the company expanding delivery hubs to be able to source the talent to meet the demand requirements?

Sure, absolutely. I'm going to ask Tom to add some color to this as well. But, you know, we've done that and had put in place a number of locations, including our Lafayette Development Center in Lafayette, Louisiana, obviously our global development centers, And, you know, we're going to continue to look at other opportunities to scale. But, you know, we touched on Bright Path. I'll ask Tom to comment on campus recruiting. That's another area where we've dramatically stepped up our efforts, both in the United States as well as outside the country. And as I mentioned in terms of, you know, increasing our recruiting, we've also put some new management in place and changed the structure a bit there. to really step up the efficiency of that team. So it's a combination of added resources as well as increased efficiency. And, you know, as Tom mentioned, things are going very, very well. So far, knock on wood, I would say that acquiring talent has not presented any kind of a hindrance to the business. But I'm going to ask Tom to add some color to that.

Yes, great question, Mike. And in addition to BrightPass, Jeff mentioned college recruiting. We've added more college recruiting hires here in January, and we're actually tripling the number of hires we'll have in June. So continue to bring in a diverse set of talent. I'll also say globally, we continue to investigate additional opportunity in Latin America organically. And in India, we are looking at, we've taken some great opportunity during the pandemic where some folks were working remotely, We're actually opening three new hubs here in 2022 based on additional growth in certain cities. So we continue to expand our footprint globally, organically, and there's a great team that's been joining us along the way.

That's helpful. And then just a quick follow-up maybe for Paul or Jeff in terms of the margins. Do you get the sense that maybe the pricing leverage that is there in the market right now, given the strong demand climate, can offset the wage inflation pressures? Or would you need to maybe use other levers to be able to manage margins? And in that context, what is your margin expectations for fiscal 2022?

Yeah, I'll take that. We mentioned that ABR was up, I think it was about two points year over year in the fourth quarter. I do think that there's increasing pricing leverage. It's becoming a little bit of a seller's market, and we're certainly taking advantage of that in a judicious way. We're very focused on growth, so we want to remain competitive, of course, in our rates. However, in short, the answer to the question is yes, I do think that rate increases can largely offset merit increases as well as the other levers that we have there are both Bright Paths and Campus Recruits. And I'd also say that as we continue to scale the business, there's more and more opportunity for the base of the pyramid. So a lot of the folks that we're hiring right now are actually below the average comp because they're more junior resources. So that helps offset, obviously, the merit increases for that more tenured team. And then the last thing I'll say about as it relates to gross margins is we certainly leverage our offshore and nearshore teams and the pricing, the cost advantages there. Of course, there's wage inflation there as well, but again, I would say those other factors still apply. But our goal on gross margins is to maintain 40% plus gross margins and really shift our margin focus or apply our margin focus more to adjusted EBITDA And I would say that we'll see some expansion with adjusted EBITDA this year. You know, maybe not quite as much as last year, but I think 100 basis points is reasonable. But in terms of expectations for gross margin, adjusted gross margin, I would say, you know, around the 40%, maybe a little bit over that range. And, you know, I think there's potential upside to that, but at this stage, you know, there's so much churn going on in terms of the demand in the markets. I don't want to get over our skis. I think there's an opportunity for us to beat that, but I also am very confident we'll be able to sustain that 40, 40% plus range, and again, probably at 100 basis points or so to just at EBITDA.

Thanks, Jeff. Congrats again.

Thank you. Thank you. Our next question comes from Maggie Nolan with William Blair. You may proceed with your question.

Hey, this is Ted on for Maggie. Thanks for taking our question. So I wanted to start with just kind of the mix of solutions and how that's changed over the last several years. So I guess how has the mix of the customer application solutions versus consulting versus analytics work and some of the other solutions, how has that overall mix changed versus kind of historical levels?

You know, I would say that all of those areas are up. Data is huge, not surprisingly. But so is custom app dev. You know, it's the environment we're in. There's a tremendous dynamic. I don't have to tell you. Within the technology platforms out there, there's always something new to take advantage of. So there's sort of that continuous pivoting basically to where the demand is or where the demand is going to be as we interpret it. So, you know, I would say across the larger, higher-level landscape, there haven't been tremendous changes. other than I would say certainly data stands out as a big one. What the changes are are probably a little more below that layer where, again, the platforms change, and there's a lot of new generation or next generation technology that we're engaged in delivering.

Okay, great. And then just as a follow-up, I wanted to ask about the competitive environment for talent here. particularly in Latin America and India. Do you anticipate, just given what's going on in the geopolitical environment in Central and Eastern Europe, do you anticipate the competitive environment for talent changing in Latin America and in India?

I think that's an interesting question. The folks, I don't want to get too deep into this, the geopolitical aspect, but I think the folks that are more reliant on where the disruption is right now don't have a big presence in Latin America, certainly, and not even a great presence in India. Will they try to increase that? I'm sure they will. But I can tell you the competition for talent there now is pretty steep. And I think the differentiators that Tom mentioned earlier become really significant factors. And there's a few things, even... even things that I won't even disclose on this call, that we do that are differentiated in those countries even from a lot of our competitors, which reveals itself or manifests itself in actually lower attrition in both of those areas than our competition. So will there be increased competition for resources? Absolutely. Do I think that what's going on right now in Eastern Europe, is going to make a market change to that. You know, I think possibly, but I think modestly. It's hard to predict.

Okay, great. And I think I just missed it. What was the organic growth rate implied in the full year guidance? Thank you.

The range is 15% to 20% organic. Great. Thank you very much. Yep.

Thank you. Our next question comes from Puneet Jain with JP Morgan. You may proceed with your question.

Hey, thanks for taking my question and nice quarter. Let me ask about revenue guidance, the range, organic guidance, 13 to 19%, give or take. What needs to happen to demand environment for you to end up at 13% for this year, given that you're going to start the year at 20% plus?

Oh, yeah, absolutely. I think, you know, if you follow the company for a while, I know, Penny, you know as well, we always try to be reasonably conservative or cautious, particularly at the beginning of the year, particularly in the environment that we're in. So I'm optimistic that we won't see 13. In fact, I'm optimistic that we'll even beat our high end. And I'm pretty bullish. But it's more about the unknown that's kind of baked into that is how I'd respond to that.

No, that's fair. And then on the supply side, can you talk about the wage inflation, if there are any differences in wage inflation rates across different regions like in Latin America and India and the U.S.?

Absolutely. And, Tom, I'm going to ask you to comment on this as well. maybe in a little more detail, but we certainly are seeing wage inflation across the board. It's actually not as much in the U.S. from our perspective than it is in Latin America. And India, I would say, is similar to what it has been. There's always been significant wage inflation there. But as I said, through attrition, we're able to hire in lower-cost resources. And through expansion, of course, we're able to hire in lower-cost resources to offset that. And again, as I mentioned before, attrition rates in those areas are better than our peers. So I'm optimistic that, again, we'll be able to manage against that. And as I said before, we've already moved rates up really in a single – a couple of quarters. We really weren't focused terribly on rate increases in the first half of last year. As we began to turn attention to that, as we saw wage inflation coming, we were able to already move the meter a couple of points in the second half of the year on a year-over-year basis. And I'm optimistic we're going to see more of that coming to fruition now. There's a lot of deals that we've closed here. The bookings are back-end loaded, back-end and front-end loaded, so Q4 and Q1. represent the largest quarters for bookings. And in those bookings, we have rate increases there. We've also managed in some of our larger contracts or many of our larger contracts and our larger relationships to get clients to agree to COLAs or cost of living adjustments up front in revised MSAs and also in statements of work. So, you know, I think we're hitting it on all fronts. Again, you know, it's obviously there. It's real. But so far, we feel pretty confident we're going to be able to stay even or ahead of it. Tom, anything you'd like to add?

I think that well sums it up. I think in addition, you know, we're also selling a holistic proposition to individuals coming into proficient. You know, we don't get into, you know, the complete buying of talent that we see from some competitors out there. Quite candidly, we have individuals that are accepting positions a competitive wage, but maybe less than someplace else because they see the upside of proficient and the career growth and the true opportunity within the organization, which is a competitive advantage. And we stand by the value that we bring to both our clients, which is also helping with the rates, as Jeff mentioned, but also providing an environment that teams want to be a part of. And we don't have to play the aggressive wage game that some others do. And we stand true in the ability to provide a phenomenal opportunity for people to join the organization and pay an appropriate rate, but not excessive. And that's bringing great talent into the organization for the right reasons.

Appreciate that, Kala. Thank you.

Thank you. Thank you. Our next question comes from Vincent Colicchio with Barrington Research. You may proceed with your question.

Yes. Jeff, the health care in the mix is down year over year, I think the same as last quarter. And I'm just curious if the variant has had an impact on that and if you'll see things recover here going forward.

It's a good question. So some of that is dilution from acquisitions and the fact that actually we're growing some other sectors even faster than we were before. But absolutely, even on an absolute basis, I think the bookings are down a little. I do think some of that's due to COVID, which has put some budget constraints primarily on the providers. The payer market continues to be strong. And really, I would say that the whole industry continues to be strong in demand. We do have a large client there that we are gradually winding down the relationship with, which is fully baked into everything you've seen here. And, in fact, we wound a lot of it down last year. So that's a factor as well. But I think all those things combined tell me that it is temporary and that we'll see a pickup there. In fact, the bookings that we saw in Q4 were up year over year in health care. So, again, I think we'll transition that relationship. and I think we'll see a pickup here as COVID subsides a bit. I can tell you that, though, within that industry, the demand and the need for digital transformation remains very, very strong. I'm on a board of a local, just a local regional hospital, and I can tell you that digital transformation has, you know, risen to the top of, and they're small, and they don't have a lot of money, but it's still the top of their priority list. So, I still think we're in early innings there, to use the baseball metaphor. And, yeah, I do think we'll see a bounce back to your question.

Okay. And to what extent do you think you're currently benefiting on the demand side from clients, you know, suffering from the tight labor market in terms of their ability to do things internally?

I think it's a great question or a great observation. And I do think there's definitely a benefit to us for that. You know, when times are good like this, I've been in this industry longer than I care to mention, but when times are good like this, everybody loves to be in consulting because it's more nimble, it's more challenging, you get to see more things and do more things and, you know, probably make a little more money. And so, yeah, I think the industry at large, and certainly we've argued that Perficient specifically, is a pervert employer industry. for these folks. And so I think that does make it tougher for what we call industry to hire IT professionals, which I think is, again, a benefit for all of consulting or all of outsourcing.

And, Tom, I missed what you said in the bookings for large deals, the number that were added this quarter versus the year-ago period.

So 98 in this quarter as compared to 80 in Q3. and then 70 a year ago.

Thank you for that. Good quarter, guys, and thanks for answering my questions.

Thanks, Vince. Thank you. Our next question comes from Surrender Thin with Jeff Rees. You may proceed with your question.

Hello, this is Benjamin Hong, down in for Surrender, and congratulations on a strong quarter. Since offshore delivery typically carries a higher margin relative to onshore, I was wondering how much of a benefit do you guys receive from the overactive acquisition? Is the gross margin for that business higher than 50%?

Yeah, I would say – I'll let Paul comment on this as well. I would say that it's a great acquisition and it's growing fast. I wouldn't say that it necessarily by itself moved the meter as much as the collective offshore and nearshore acquisition. But again, I'll say that it's our goal to continue that top-line growth and accelerate it, and so we want to stay competitive as possible. We're obviously got our finger on the pulse of the market. We look at every competitive deal as best we can, understand the pricing, and frankly, we do have access to a fair amount of that. In terms of the pricing on any deals that we lose, we rarely lose on price, and I want to keep it that way. So in terms of pricing, You know, margin expansion, again, it's going to be primarily at the EBITDA line, and we're going to try to keep pricing as competitive as we can. And, frankly, if we could even have a price advantage, I would take that over trying to expand gross margin beyond where it's at at the moment. That might change. That strategy might change, but that's the current thinking. Paul, anything you want to add?

Yeah, so I think the acquisition, they have roughly similar margins to our other Latin American business, so it didn't have a big impact overall. Really, the organic growth offshore probably had a bigger impact on improving margins, and it was really an acquisition to build out capabilities, expand our global delivery center capacity that will help us grow that high-margin offshore business over time.

Yeah, that's super helpful. And then just another housekeeping question. What is the sort of expected net interest expense is for 2022?

Yeah, so interest expense will be down in 2022. Maybe Jeff, you take the next question. Let me look that up. Yeah, so interest expense, Here we go. Interest expense should be in 2022 somewhere around $2 to $3 million. Got it.

Super helpful. Thank you.

Thank you. Thank you. Our next question comes from Brian Kitzlinger with Alliance Global Partners. You may proceed with your question.

Hi, this is Matt in for Brian. Just a quick question on the employee turnover. Do you have any metrics as far as that goes? I know you guys have put in a lot of initiatives to retain employees and to attract competent talent, but do you have any metrics on the turnover so far?

Yeah, it's running in the kind of low to mid-20s. which is higher than our 15% to 20% goal, and, of course, higher than during the throes of the initial part of the pandemic, which was below 15%. But I think a really important factor, and, again, I'm going to invite Tom to add anything to this that he'd like, but a really important factor to note there, and I think it's particularly fascinating and sort of underscores kind of my theory on it, which I'll share, is that one of the really important metrics we track on attrition is for our two-year hires, so people that have been with us for two years or less, where we believe that's a more vulnerable group and obviously a very important group, right, as they represent, you know, many of them represent the future. Some of them are experienced, but many of them are more junior. And that's actually been only 19%. So we're really encouraged by that, and I think it underscores what I believe to be the case, and that is so we have 15% in 2020, We have 24-something in 2021. That tells me, you know, that we had some pent-up demand or pent-up desire in this great resignation, right? We're not alone. It's happening across the globe effectively. And, you know, I believe that is temporary. You know, everything cycles. And I'm not saying it's going to get better even this year. But there's no question that a lot of it is because people didn't have the mobility over the last year or two that they normally would. And now that things have improved, you know, we're seeing that peak up. Whether we've seen the absolute peak or not, I don't know. But, again, I'm encouraged by the fact that people joined us during the pandemic aren't, you know, aren't leaving. They're still here. And the ones that are leaving are people that had been around that probably would have left had they had the opportunity. Tom, anything you want to add?

Everything well?

All righty.

Great. Thank you.

Thank you. And as a reminder, to ask a question, you'll need to press star 1 on your telephone. Our next question comes from Jack Benderard with Maxim Group. You may proceed with your question.

Great. Hi, guys. Great quarter. Thanks for taking my questions. Jeff, you mentioned IDC, I think, recently bumped up their growth forecast for digital transformation spending. to 16 and a half percent CAGR or so. Um, and obviously you guys provided a strong guidance for, for 2022 with, I think 21% growth at the midpoint. Um, but can you maybe just share your perspective or any thoughts on, on that IDC growth CAGR relative to what you think proficient revenue can grow at, um, the next, you know, three years or so?

Yeah, I think it, uh, to me, you know, we, we, uh, We're not only benefiting, of course, from the spend in the areas that we're primarily focused on. I mean, 90% of our portfolio sits squarely in the middle of what IDC is referring to. So we're going to benefit and continue to benefit from that, I think, for the foreseeable future, certainly the three-year mark that they pointed out. And, of course, we're taking share as well. So I remain optimistic that we'll be able to continue the performance that we are. And, frankly, as our offshore and nearshore component continues to grow at the pace or roughly the pace that it has, again, I'll remind you guys it was 54% for the year last year organic as well as the quarter. And I think that's going to continue. And as that continues to become a larger and larger component of our business, I think it will eventually accelerate growth. Right now, because of the rate differential, it's not contributing as much to the growth as it could be. But once the business, you know, is more towards the 50% mark in terms of revenue offshore or onshore, I think we'll see growth accelerate even more. So I think that 16%, 16.5% is very encouraging. It makes me confident that between that and, again, the mixed shift and us taking share away. And the reason I bring up the mixed shift is because that's where a lot of the share is coming from. is our stalwart long-term trusted clients or clients that trust us now giving us new incremental business around offshore and nearshore, which is a business issue we really couldn't have pursued a couple of years ago. So I think it's very encouraging. And by the way, I'll note that I think it's the first time that I can recall, as long as I've been in the industry, that IDC has ever adjusted anything up. So I think it's good news for the industry at large, and I think it's great news for proficient.

Okay, excellent. That's great color there. You mentioned maybe the revenue mix from offshore longer term when it hits 50% or breaks that. Can you help me out with what is that today, the revenue mix from offshore?

I want to say it's about – hey, Paul, can you give me a crisp number on that? I want to say it's between 15 and 20.

So actually with the acquisition, it went just a hair over that, and it should run – in the low 20s in the first half of the year and obviously accelerating as we go.

Yeah, perfect. So if we continue the pace we are, you know, we could see 50-50 potentially within three years, by the way.

Okay, fantastic. Oh, there's just one more for me. Just on the acquisition strategy, potential timing, pipeline of targets, looking at 2022 and longer term, any change to your general strategy for acquisitions that you've, you know, previously outlined in past quarters? Yeah.

No, not really. We've got a recipe that's working well. We're going to stick with it. Our strategy around acquisitions is going to be clearly to try to skate where the buck's going and find those either newer technologies and or technologies that are just in high demand that we can gain quick scale around through acquisitions. So, yeah, $50 million to $60 million of run rate revenue acquired is You know, perhaps more if we can find deals of the size that can bring that. I think we could easily digest probably four or maybe even five acquisitions in a given year if we can find the right ones. So it could exceed that. But our goal remains still roughly the $50 million to $60 million, two to three deals.

Okay, great. That's it for me. Again, congrats on the quarter. Thanks.

Thanks very much.

Thank you. And I'm not showing any further questions at this time. All right. I'd like to turn the call back over to Jeff Davis for any further remarks.

Very good. Well, thank you all very much for your time today and your interest always. Um, I think it's, uh, we've demonstrated here, uh, you know, a great run that we're on that I think is, as I said before, is going to continue for as far as I can see. So, uh, We're very excited about it. Thanks for your time today. Look forward to speaking with you in a couple months with more great news.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.