Perficient(US:PRFT)2023-10-31 13:50Financial Data and Key Metrics - Adjusted EBITDA for Q3 2023 was $45.8 million, or 20.5% of revenues, compared to $53 million, or 23.3% of revenues in the prior year [12] - Net income for Q3 2023 was $22.6 million, compared to $23 million in the prior year, with diluted GAAP earnings per share decreasing to $0.63 from $0.64 [42] - Adjusted earnings per share for Q3 2023 decreased to $0.92 from $1.11 in the prior year [42] - SG&A expense for Q3 2023 was $42.1 million, or 18.9% of revenues, compared to $44.3 million, or 19.5% in the prior year [30] - Operating cash flows for the nine months ended September 30, 2023, increased to $88.5 million from $71.4 million in the prior year [32] Business Line Data and Key Metrics - The company booked 37 deals greater than $1 million in Q3 2023, flat year-over-year and down negligibly from 38 deals in Q2 2023 [25] - Healthcare and financial services remain the strongest verticals, with momentum also seen in manufacturing and automotive [26] - The company is collaborating with several large brands on their EV go-to-market initiatives and seeing interest from new automakers [8] - The company has delivered multiple AI solutions to clients, with dozens of additional POCs underway [9] Market Data and Key Metrics - Nearly 30% of the company's revenue in Q3 2023 was delivered by teams outside the United States, the highest mark in its history [90] - The company is leveraging its acquisition of SMEDIX to expand its presence in the healthcare space and introduce its capabilities to SMEDIX's legacy customer base [6] - The company is focusing on building a stronger presence in EMEA, with Romania serving as a key hub for expansion [91] Company Strategy and Industry Competition - The company aims to run the business near 40% gross margins and has taken steps to improve utilization across all regions [5] - The company is prioritizing branding investments to increase awareness and compete more effectively with larger firms [10] - The company is leveraging its partnerships with leading technology innovators like Microsoft, Adobe, and Salesforce to provide clients with class-leading digital technologies [4][89] - The company is exploring over 30 potential applications for generative AI and working with clients to identify new AI use cases [27] Management Commentary on Operating Environment and Future Outlook - Management is confident that Q2 2023 represented a bottom in terms of profitability and expects demand to improve in 2024, with potential growth in large programs [5][17] - The company expects Q4 2023 revenue to be in the range of $221 million to $226 million, with adjusted earnings per share expected to be between $0.98 and $1.03 [33] - Full-year 2023 revenue is expected to be in the range of $907 million to $912 million, with adjusted earnings per share between $3.94 and $3.99 [33] - Management is optimistic about the potential for generative AI to create efficiencies in areas like software testing and content development, though code generation is still a ways off [76] Other Important Information - The company recently completed a project to help a utility company implement an in-house supply chain function to reduce costs and installation time for EV charging sites [93] - The company has promoted seven executives to senior vice president roles and will operate without a COO going forward [94] - The company has been named a top workplace in 11 different markets and received high participation and positive feedback in its annual colleagues feedback program [23] Summary of Q&A Session Question: Demand trends and inflection point for growth - Management noted that demand is currently reserved, with many clients looking toward 2024 for potential growth. The company is chasing several large programs expected to ramp up in mid-2024 and into 2025 [17][45] Question: Utilization and gross margins - Utilization improved in Q3 2023, particularly offshore, and the company aims to run at 80% utilization. Gross margins are expected to be in the high 30s for Q4 2023, with a goal of returning to 40% [39][48] Question: Bill rates and pricing - Bill rates increased by 1.4% in Q3 2023, with higher increases offshore. Management expects moderate growth in bill rates going forward but does not anticipate substantial increases [40][75] Question: Generative AI impact - Management believes generative AI will create efficiencies in areas like software testing and content development but does not expect meaningful impact from code generation for several years [76] Question: Cloud migration trends - The company is seeing more work focused on cloud optimization and new product development in the cloud rather than on-premise migrations [61][69] Question: EV and automation sector work - The company is involved in various projects in the EV sector, including e-commerce, dealer experience, in-car technology, and infrastructure for EV networks [72]