Perficient, Inc.

Thank you for standing by and welcome to Perficient's second quarter 2023 earnings 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 1-1 on your telephone. I would now like to hand the call over to Jeff Davis, Chairman and CEO. Please go ahead.

Thank you. Good morning, everyone. 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 for your time this morning. We've got about 10 to 15 minutes of prepared comments per usual, after which we'll open up the call for questions. Before we proceed, Paul, would you please read the Safe Harbor State

Thank you, 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. 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 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.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? Thank you, Paul.

Once again, thank you for your time this morning. As we discussed, proficient second quarter and our revised expectations for the remainder of the year. Before we close, I'll comment on my pending transition to the role of Executive Chairman as well. Like Q1, revenue was up 4% during the quarter. Margins were impacted by the extension of sales cycles, clients suggesting budgets in some instances, projects ramping more slowly than we anticipated. However, we've long prided ourselves on maintaining best-of-breed margins and have already taken appropriate action on discretionary and fixed costs to ensure we return to our historical norms by the end of the year. We can't turn the ship on a dime, but do expect to exit Q3 much closer to 39% gross margins and exit the year closer to 40% gross margins. And we're fearing as well as most in the industry, but the market has certainly slowed more quickly than we'd anticipated it would. All that said, we're continuing to pursue and win larger deals than ever before. In fact, Tom will speak to the specifics later, but during the quarter, we signed the largest single statement of work in the company's history. The win is a multi-year extension of an initiative that started in 2017. It's a program worth about $1.5 million per year in revenue, and we're now delivering more than $30 million annually to this client on that same work stream, as well as many others. Bill rates remained solid during the quarter. In fact, onshore bill rates were actually up 4% year over year. Our customers continue to be comfortable accepting modest rate increases because we're delivering value. Our transformation to a truly global entity remains underway. Offshore revenue grew nearly 20% during the quarter. 6% of that was organic. 58% of our billable resources are now located outside the U.S., Our technology and channel partners continue to recognize our contributions and importance to their businesses with various global and regional awards. In fact, in recent weeks, we've earned prestigious recognition from the likes of Microsoft, Adobe, and Sitecore. While clients are clearly proceeding a bit more cautiously right now, we remain engaged in many seven- and eight-figure pursuits. Todd will talk in more detail shortly about the momentum across industries and our excitement around emerging technologies like generative AI. As we mentioned before, digital transformation is morphing into a digital business, and it's here to stay. Today, enterprises have no choice. They must consistently invest and deploy technology to grow or reduce costs. It's a competitive imperative. With that, I'll turn things over to Paul.

Thanks, Jeff. Services revenue excluding reimbursable expenses were $228.6 million in the second quarter, a 4% increase over the prior year. Your organic services are organic. excuse me, organic services revenue growth was 0.8%. Software gross margins, excluding reimbursable expenses and stock compensation was 38.1% in the second quarter compared to 40% in the prior year. SG&A expense was 44.2 million in the second quarter compared to 40.9 million in the prior year. SG&A expense as a percentage of revenue increased to 19.1% from 18.3% in the prior year. The increase in SG&A expenses as a percentage of revenue was primarily related to increases in sales-related costs. Adjusted EBITDA was $48.2 million, or 20.8% of revenues in the second quarter compared to 51.2, or 23% of revenues in the prior year. Amortization was $5.5 million in the second quarter compared to $6 million in the prior year. Net interest expense for the second quarter decreased to $0.3 million from $0.8 million in the prior year, primarily due to a $500,000 increase increase in interest income. Our effective tax rate was 24.9% for the second quarter compared to 28% in the prior year. Net income decreased 5.1% to $26.4 million for the second quarter from $27.8 million in the prior year. Diluted gap earnings per share decreased to $0.73 a share compared to $0.77 in the prior year. Adjusted earnings per share decreased to $1 for the second quarter from $1.06 in the prior year. You can see the press release for a full reconciliation to GAAP earnings. I'll now turn to the year-to-date results. Services revenue, excluding reimbursable expenses, were $457 million for the six months ended June 30, 2023, a 4% increase over the prior year. Year-over-year organic services growth was 0.6%. Services gross margin, excluding reimbursable expenses and stock, was 38.6% for the six months ended June 30, 2023, compared to 39.4% in the prior year. SG&A expense was $88.1 million for the six months ended June 30, 2023, compared to $83.1 million in the prior year period. SG&A expense as a percentage of revenue increased to 19% compared to 18.7% in the prior year. Again, the increase in SG&A expense was primarily related to increases in sales-related costs. Just the EBITDA for the six months ended June 30, 2023 was $98.3 million, or 21.2% of revenues, compared to 98.5 million, or 22.1% of revenues in the prior period. Amortization was 11.3 million, compared to 12 million in the prior year period. That interest expense for the six months ended June 30, 2023 decreased to 800,000 for 1.7 million in the prior year period, primarily due to 800,000 of increased interest income. Our effective tax rate was 25.8 for the six months ended June 30, 2023, compared to 23.3%, in the prior year period. That income for the six months into June 30, 2023 was $53.2 million compared to $54.9 million in the comparable prior year period. Diluted gap earnings per share decreased to $1.48 for the six months ended June 30, 2023 compared to $1.52 for the prior year period. Adjusted earnings per share increased to $2.04 for the six months ended June 30, 2023 from $2.03 in the comparable prior year period. Our ending billable headcount in June 30, 2023 was $6,320, including 5,936 billable consultants and 384 contractors. Ending SG&A headcount in June 30 was $989. Our outstanding debt net of deferred issuance costs as of June 30, 2023 was $395.7 million. We also had $60.5 million in cash in cash equivalents. as of the end of the quarter, and $299.9 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, operating cash flow increased to $65.1 million for the six months ended June 30, 2023, from $34 million in the comparable prior year period, primarily due to a reduction in account receivables. I'll now turn the call over to Tom Wogan for a little more commentary behind the measures.

Tom? Thank you, Paul. Good morning, everybody. We booked 38 deals greater than a million dollars during the second quarter of 2023, compared to 45 in the second quarter of 2022, and 63 in the first quarter of 2023. While volume did slow during the quarter, it's worth pointing out, thanks to a few very large deals, including the record setting when Jeff referenced earlier, our average deal size was larger than ever before in the quarter. Our net pipeline, weighted, unweighted, remains very solid. We continue to remain well-diversified from a customer, industry, and platform perspective. Healthcare and financial services remain the strongest verticals, but we're also excited about our momentum in both manufacturing and automotive. We're already working with many of the largest entities in each of those industries, and others are beginning to understand the deep domain expertise, experience, and strategic insights we can bring to their business. For example, in the coming weeks, we'll release a proprietary electric vehicle market study in which we surveyed more than 1,000 EV and never EV owners and interviewed consumers, dealers, and OEMs to better understand the barriers and rationale for purchasing EVs. Market insights are a significant focus area for OEMs as they prepare for the continued growth of the EV segment. and need to build lifetime relationships with owners. We look forward to sharing our industry research and further assisting OEMs on their EV journey. Jeff mentioned the substantial eight-figure win in the manufacturing space earlier. That's a project delivered globally with proficient colleagues from the U.S., Latin America, and India. Another example of our seamlessly integrated global delivery leveraging talent from our three primary regions is where we're assisting a privately held global producer and distributor of architectural products, in creating modern, cloud-native, and user-friendly web applications. Our global team modernized and consolidated several legacy applications into one application that analyzes several product variables to help the distributor create optimal product for its buyers. After initially launching in Poland, a subsequent launch in Italy, planned for later this year, will kick off the application's rollout to all distributors to their global plans. Your other payout recall on last quarter is called We discussed the launch of the Vision Online, our comprehensive and unparalleled digital transformation platform that provides a suite of proprietary strategy tools, historical industry data, and best practices to quickly deliver actionable insights. This data, collected across industries, markets, and companies, is informed by real-life execution and proven results. Enterprises can quickly understand where they stand relative to competitors, determine where gaps exist, and how to address them. Since launching in April, we've continued to mature the platform, which now defines more than 500 capabilities across 13 key business areas, such as marketing, sales, AI, customer service, commerce, loan origination and servicing, automation, and data, just to name a few. The platform selection component now includes more than 500 vendors and 6,700 requirements across more than 70 platforms, including digital experience, commerce, marketing, and AI. We currently have five projects leveraging the tool with large customers and have discussions, assessments, and several more and meaningful imbalance interest beyond that. Obviously, there's a lot of discussion around generative AI and its near and long-term impacts on enterprises, industries, and society. AI in general is a space we've been in for many years, going all the way back to our work with IBM around Watson, among other tools. We have launched countless AI, chatbot, data, customer-centric, and machine learning platforms and products for our clients. Today, we have significant dialogue and engagement around generative AI with customers as they assess what the next step in this technology means for them in terms of risk and opportunity for their organization and their clients. I don't think a day goes by that we aren't engaged with clients on generative AI, and most importantly, we're actively doing billable work, implementing solutions with clients, and talking with many more. Companies are turning provision to the partner to help them understand the potential in leveraging generative AI. I'm also excited to share that we have launched the first of its kind global innovation group at Perficient around generative AI. We have hundreds of our colleagues around the world collaborating, sharing knowledge, and developing use cases for our customers, specifically leveraging generative AI. Our customers have always appreciated our pragmatism, experience, and expertise. When working to tackle new areas of opportunity like generative AI, leveraging a global team where our clients can tap into the best talent in the industry Independent of physical location around the world to solve challenges, this is exactly why organizations turn to Perficient. Finally, it's worth noting Perficient was recently recognized as the number 12 top employer in the United States on EnergyAge's list of top 100 employers. EnerGage surveys with more than 70,000 organizations annually, so to be ranked number 12 in the entire country is something we're very, very proud of, particularly because the recognition stems directly from feedback of our colleagues and feedback they provide. The best and brightest individuals in our industry want to be part of our journey of provision, and it shows. And with that, I'll turn things back over to Jeff. Well, thanks, Tom.

As I mentioned earlier, I was going to comment a little bit on my pending transition. This is somewhere near my 90th earnings call at Perficient. It's kind of hard to think about. But I did want to thank the analysts here on the call and those who can't join live and really appreciate your coverage and feedback over the years. It's really been invaluable as we've grown. I also want to point out or reiterate, as stated in the release, that I'll be remaining as executive chairman indefinitely. And so I will still be a part of the team. and thrilled about that. But beyond that, I have a tremendous amount of confidence, full confidence in Tom and the extended executive team, as well as all the rest of Perficient, really. Our extended executive team represents folks that have been here on average a 10 year, well over 10 years in experience in the industry, approaching 20 on average. So we've got a deep bench and I'm very confident in their ability to take this very special company forward. Very talented and dedicated colleagues across the world working for Perficient. I appreciate all of them, and I think, again, we've got something really special here. I'm very proud of it, and very proud of where the company has headed now. I'll turn my attention, or our attention, to the outlook. Perficient expects its third quarter 2023 revenue to be in the range of $220 to $226 million. Third quarter GAAP earnings per share is expected to be in the range of $0.56 to $0.60. Third quarter adjusted earnings per share is expected to be in the range of $0.89 to $0.94. And we expect our full year 2023 revenue to be in the range of $900 to $916 million. 2023 GAAP earnings per share to be in the range of $273 to $284. And adjusted earnings per share to be in the range of $3.93 to $4.05. With that operator, we can open up the call for questions.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Kyle Peterson of NEDA.

Hey, good morning, guys. This is Kyle Peterson. I'm for Myonk. Thanks for taking the questions. I just wanted to touch on the outlook, particularly some of the weaker demand. Was there any concentration in verticals or types of projects that were hit particularly harder than others, or was some of the softness just pretty broad-based?

Yeah, it was pretty broad-based, and again, I want to reiterate that the sources mostly delayed decisions or slower starts. A little bit of slower spending, but really it's kind of a gap in the bookings as it relates to some of these closes. Now, we are seeing some signs of improvement, but we're trying to be very conservative here, obviously, and guide to a number that we're comfortable with. And, hey, if things are better than we expected, then that's great, but we don't want them to be worse than we expect. So I would describe our outlook that way.

Makes sense. And then just a quick follow-up on the cost side of things. I know you guys mentioned that you had taken some actions on that to get on the discretionary spending. How should we think about the margin trajectory as long as the domain environment remains a little bit softer here. Should 3Q be the trough, and then we start to get an improvement in margins in the fourth quarter, or do some of the cost actions take a little bit longer to flow through the P&L?

Actually, we're going to see some modest benefit from those actions in the third quarter. I think the gross margin in Q2 was around 38% change, and we're looking at about 39% for Q3, so about a 70 BIP improvement, 70, 80 BIP improvement there, and then actually 40 for Q4. dependent on the macro environment, but I think we've got things well at hand in terms of the reductions that we've made and any further ones that are necessary.

Thanks, guys. Thanks, Kyle. Thank you.

Our next question comes from the line of Brian Kinslinger of Alliance Global Partners.

Congrats, Jack. It's been great working with you for over two decades.

Likewise, Brian. There's a lot of history there. I think you're pretty much the longest.

I remember when your company was acquired in. So you mentioned, I want to follow up on the margin question and the press release about getting back to industry-leading margins. With the delays, should we assume that You're cutting billable staff to improve utilization, or is it more on the overhead side?

You know, it's both. Fortunately, on the billable side, attrition is a natural element of the industry and the business. So we're going to allow that to drive as much as we can before we take, you know, more aggressive steps. But we'll do what we need to. I think we've got a long track record of doing that. But it'll be a combination of both.

great. My follow-up, I think this quarter as well as last quarter, you mentioned your excitement around automotive. The numbers suggest the segment is down about 50% year over year. So I'm curious what caused that and then what makes you so excited about the trends that creates an opportunity for proficient within automotive?

I think Hey Brian, this is Tom. I think part of that also is we classify some clients differently year over year, so it's not a fair compare year over year. As we looked at manufacturing in the OEMs, we were willing to get a segment that was a little more indicative of more manufacturing versus automotive. So year over year, the true automotive is still up, but that's what you're seeing in the year over year compare is just move some clients from one to the other.

And thanks, Tom. And so Particularly within automotive, what excites you so much? Is it that they're late to adopt digital transformation? Is there something going on with the industry? I mean, clearly we all know the push to EV, but what does it all mean to proficient? What's the opportunity for you?

You know, candidly, we've had so much success with only a select few number of the OEMs. and now we're seeing more breadth and additional OEMs coming on board. So that's really where I see the excitement is bringing new OEMs into our family that we can bring our proficient story to. So it's not necessarily in the industry specifically. It's really more on bringing more clients of what we're already doing in that space, and that's what's driving the growth and why I'm excited about it.

Great. Thank you so much.

Thanks, Brian. Thank you. Our next question comes from the line of Maggie Nolan of William Blair.

Hi, thank you. On the demand side, are the slower starts fairly widespread? Were there in particular any large, any particular clients or large deals that were slow to start, didn't materialize in the way that you expected more so than others, or maybe by vertical? Any color you can share there.

It's pretty broad-based, but if you dive into it, certainly, as you would expect, there was more impact from some of the larger engagements that we expected to start sooner than they have. I will, and I'll ask Tom to comment on this, actually, because we had some recent discussions about some modest improvement or some positive signs. I think there was a large... A large engagement is an example that we've been working on getting off the ground for a number of months now that's been delayed, delayed, but now is kicking off, you know, this quarter or even as we speak. So we are seeing, again, I think it's good to note and a positive sign that it's more delays than out-out halts or cancellations. Some budget cuts. But I'd say it's broad-based.

I agree. It's definitely broad-based. The additional piece in there, Maggie, is what we're seeing is some of these larger deals, which I'm excited about the larger deals we're seeing and getting in front of. They're incrementally starting, whereas we thought they were going to ramp up a lot faster than they were. So what we're seeing is maybe a six-digit type of statement of work, or excuse me, eight-figure statement of work turning into a seven-digit statement of work, and incrementally kind of getting going to start, and then making decisions in future quarters of when to ramp up the project. And we have a handful of those. That's what's really bringing into the delay. So it's not necessarily projects aren't starting. It's a matter of they're biting off smaller features and smaller products, which we're getting going, which then we're driving momentum, which then brings in the bigger buys down the line.

Okay, that's helpful. Thanks. And then you talked a little bit about where you expect gross margins to be by the end of the year in that fourth quarter. And you mentioned perhaps there's maybe some effort to drive some operating leverage as well. what should we expect in terms of SG&A as percentage of revenue and your ability to kind of protect EBITDA margin?

Yeah, so we're, you know, we're active as we talked about looking at some cost reductions in SG&A and, you know, and we're looking to be able to, you know, to get those back close to last year's levels or maybe even a little better because bonus is going to be less in 23 than it was in 22.

Okay, great. That's helpful. Thanks. And congrats to you both, Tom and Jeff. And thanks, Paul.

Thanks, Maggie. Thank you, Maggie.

Thank you. Our next question comes from the line of Puneet Jain of J.P. Morgan.

Hey, thanks for taking my question, and congrats to both Jeff and Tom. Excuse me. I quickly wanted to start with the overall demand macro environment. So what needs to happen for clients to turn on project-based spending? What are the early indicators or trends that you watch that would suggest that things have begun to improve?

Well, it'll be accelerated bookings, re-accelerated bookings. So, you know, we talked about the fact that obviously booking slowed, which is, you know, what caused the miss in, or at least the low end of the guidance in Q2, and what caused the guidance adjustment for the rest of the year. You know, I do think there's a broad-based issue here that, well, quite obviously. You're not, you know, attrition's way down in the industry. That's a key indicator and a broad-based indicator as well. And so there's something afoot here that isn't isolated to us, and I would say it's not even isolated to the industry. So the short answer, and this is just speculation on my part, is that I think the sentiment and the outlook and the C-suites basically has to improve. And I think there's a lot of uncertainty, I'd say, in affecting the macro environment right now, and I think that's exactly what's driving some of this caution.

Got it. And just to be clear, so you are seeing like the clients are, you see like large deals in the pipeline, but the clients are delaying signing of those deals or they are delaying ramps of signed work?

It's really both. The bigger impact comes from the delayed signings, but the delayed ramp up, and as Tom pointed out, it's not necessarily a delayed startup. but it's a slower start than would be typical because they want to kind of meter out that cash a little slower. So it's really those two things.

And quickly, are there any currency effects impact Colombian peso it seems like had appreciated versus the dollar? So is there any effects impact to margins that we should think about?

Yeah, so there has been a little more effects effect in Q3, you know, primarily with LATAM. you know, with what currencies have done there. But, you know, we had part of it, but there is some exposures as those, you know, as the Colombian pesos strengthens against the dollar, that increases our costs.

Got it. Thank you.

Thank you. Thank you. Our next question comes from the line of Vincent Colicchio of Barrington Research.

Yes, congrats, Jeff and Tom. Jeff, I think this may have been asked, but it wasn't clear to me. Has there been a shift towards cost reduction this quarter versus last quarter?

Yes. Yeah, I mean, last quarter, keep in mind, you know, the experience we had last quarter vis-a-vis the bookings was double-digit organic growth. And that was the third incremental growth quarter in bookings. So third quarter improved, fourth quarter improved, and the first quarter improved significantly. So we didn't really see at that time that we were going to have a need for cost reduction. Obviously, that became apparent to us probably about the middle of this quarter as things started to shift pretty dramatically. So we began to take those steps, but as I mentioned in the script, it takes a little time, obviously, for that to sink in, and we do expect to see benefits from those steps that we've already taken within this quarter.

That was helpful, but I was referring to cost reduction projects. Is your signature in demand towards that type of thing? No worries.

Those are our own cost reduction projects. Yes, and I'll ask Tom to comment on that. But, yeah, I don't know if we've seen an uptick in that. That's always an important part of what we deliver to our clients. But I don't know if we've seen an uptick in that or not. I'll let Tom comment.

I would say not materially. When we look at the project we're working on, there's definitely cost improvements and optimization projects in the digital transformation journey we've been on. There's definitely been a focus to that reallocation of dollars to take dollars out. Absolutely, it's happened, but there's still a very healthy pipeline of clients trying to bring revenue in. Client engagement, using new technologies, engaging customers differently. Go back a year, absolutely, it was more on revenue generation versus cost takeout. Yes, there's been an increase in year-over-year projects in cost takeout, but they've always been there.

And has there been, to date, any meaningful cancellations, and do you expect any potentials coming here in the next quarter?

No, there hasn't been any meaningful cancellations. We've had a couple of individual organizations have slowed down a little bit. So they've shifted some project to less U.S. employees, more of our team in India or Latin America, but not cancellations. And I don't see any cancellations, you know, knocking on wood. Those are conversations we're having.

One last one. I assume it's early to ask, but any thoughts on how coding efficiencies may impact your business from generative AI over time?

It's early, as you mentioned. Right now, the conversation is really more around interacting differently with customers, interacting differently with applications. You know, there are some things we're using internally to look at what we can do on the software development lifecycle to use generative AI tools, not necessarily on coding, but more on testing and things of that nature. But we're playing with all of it to see where it goes. But to your point, I think it's early. And, you know, if nothing else, right now we see a lot of the conversation about how do we interact differently with our customers is really more the conversation versus how do we use this technology to generate code.

Thanks, Jeff.

Thank you.

Thank you. Our next question comes from the line of Divya Goyal of Scotiabank.

Good morning, everyone. Congratulations, Jeff. Congratulations, Tom. Talking about this demand here, I wanted to understand what is the level of visibility that you have in your client demand and Is it fair to assume that any sort of cancellation or delays have already been baked into this new guidance, or can we potentially see more coming in the quarter ahead?

Yeah, I'm going to answer the first part of that, and then I'll let Tom address the second part. But, you know, this is a dynamic business, proficiency dynamic, maybe, you know, within an industry that's very dynamic. with an economy that's very dynamic right now, as I mentioned earlier. So things can change pretty rapidly, and we're not the only ones seeing that, of course. So I'd say a broad-based answer, we certainly believe that we've got some caution baked in. It's not impossible that it's more than we think. It's also possible that it's better than we think. If Tom has more specifics specific to the second half or anything else you want to add, I'll let Tom take it.

I think, Joe, if we look at the year, and as Jeff was mentioning for the last sequential quarters regarding booking results, we're using that for our decision-making on what the future quarter would look like. Using the same information that we know about Q2 and what we're seeing in current conversations with our customers, we think that we have the right level of guidance for Q3. As Jeff mentioned, it's dynamic. But all the data we know now and the conversations we're having, we think this is directionally correct for the quarter. But as Jeff mentioned, it's dynamic and could change one way or another. But I think it takes into effect everything we've learned in the last couple of months as we look to the second half of the year.

I know. That's helpful. So, Jeff, one thing, if I heard it right, I wanted to reconfirm. You did mention that the customers have been okay with the rate increases. When we look at the broader sector, we hear about the pricing pressure increasing. So it just seems the two thoughts seem a little contradictory here. I'd appreciate if you could provide some more color on these rate increases versus the pricing pressure on the business.

Yeah, you know, I think that's a testament to the value of the work that we're delivering. You know, we've really shifted the portfolio over the last several years to those items that are high value, high demand, high ROI. So clients' tolerance level, because they understand that to deliver these things that are critical in terms of the timeframe that they're trying to deliver them, the meeting market goals, and so it's critical that we deliver things on time, and also with high quality. So we've got a proven track record of demonstrating the ability to do both of those things. And so clients come to us and rely on us to do that, and they don't mind paying a little more to get it.

That's great, Connor. Just one last question for me. I was trying to understand if you're seeing any change in dynamics when it comes to the onshore versus the nearshore and the offshore business. Are you seeing Are you seeing reshoring picking up at all, or are you seeing that cost-saving initiatives and enhancements towards the near-shore, offshore demand to continue to pick up?

I'll let Tom respond to that. I think we've got a great dynamic going there, but I'll let Tom answer.

We consider to see individual organizations liking our Latin America and India story. Also, too, the pricing pressure, that's also the release valve we have. As we've built up global depth around the world, is not sacrificing quality of talent as you ship delivery to Latin America or to India is also how we're able to maintain ABR. So as we're looking to reduce ABR for our client, we leverage our teams in Latin America or India versus having to sacrifice ABR on our US team. As far as reshoring, You know, I'd say that that's a pendulum that goes back and forth, but right now definitely not a situation that we're seeing. A couple clients have always been interested in that, always will be, but for the majority of our organizations, they're looking for that global dynamic organization that we continue to see.

You know, just to add one more thing there, as Tom highlighted, LATAM, India, North America, we've had clients on a fairly regular basis, and I'm talking large, sophisticated Fortune 100 companies talk about the fact that we've got a more cohesive, integrated strategy to deliver from any one of those geos and bring together the best team with the best value that we can for the customer. And the feedback that we're getting from at least some of those is that we've got a better capability there than even some of your household brand names in the industry.

That's good to know. Thanks a lot for your answers, everyone.

Thank you. Our next question comes from the line of Jack Vanderaard of Maxim Group.

Okay, great. Good morning, guys. Congrats, Jeff and Tom, on your next leadership roles. I'll just start with a question on the M&A front. I don't think that's been addressed yet during this call. So, any updates on M&A and potential acquisitions as we head into the second half of 2023, and just any changes to the overall acquisition strategy that you've mentioned in the past. Thanks.

Yeah, we're playing a fairly slow game there due to the evaluations are really high. Obviously, there's some uncertainty in the industry, so we want to make sure we're picking carefully. That said, we do have a couple of firms that we're looking at that we're in, you know, early stages, but moving along, moving the ball along, we'll see how those play out. Still intended to use M&A as a part of our overall strategy, but yeah, probably playing a little bit of a slow game right now there.

Okay, great. I appreciate the color there. And then just back to the overall pipeline and just kind of general sense of customer contracts, larger contracts, sales cycles. Just how would you compare maybe your level of visibility and comfort levels with forecasting your deal pipeline and conversions and potential risk of cancellations to maybe what you were looking at a year or two ago during the pandemic and those risk of cancellations in contract delays? Just what's your level? How would you compare where we are today versus your outlook maybe a couple years ago?

Yeah, I would say that the pipeline remains strong. I would like to see the gross pipeline even larger than it is. Obviously, we're working on that and actually seeing some improvement there. It's still up, by the way, pretty substantially. It's a matter, again, of getting those deals closed and getting them closed in a timely manner. Visibility, I think, is similar to what it's always been. In terms of outlook, what has obviously muddied the waters here a little bit is that what's shifted, as we mentioned before, is that some of these delayed starts, some of these slower starts are really just hard to predict. They are atypical of our experience. So it's difficult to predict those. Again, as we mentioned earlier, I think we've done a pretty good job of baking in as much of that as we can as a cautionary measure for the second half. But again, things can change pretty quickly.

Okay, great. I appreciate the color there. And again, congrats on your roles. Thank you. Thanks, Jack.

Thank you. I would now like to turn the conference back to Jeff Davis for closing remarks. Sir?

Yes, thank you all for your time today, and thank you all for the last 20 years that I've had in this role, 22 years. And as I said, I will still be around, but not necessarily in this forum anymore. So thank you all. It's been fun. I'm sure Tom and Paul look forward to speaking to you in about 90 days.

this concludes today's conference call thank you for participating you may now disconnect