form10_k2007.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
one)
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x
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Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December
31, 2007
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o
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Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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Commission
file number 001-15169
PERFICIENT,
INC.
(Exact
Name of Registrant as Specified in Its Charter)
(State or other jurisdiction
of
incorporation
or organization)
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No.
74-2853258
(I.R.S.
Employer Identification No.)
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1120
South Capital of Texas Highway, Building 3, Suite 220
Austin,
Texas 78746
(Address
of principal executive offices)
(512)
531-6000
(Registrant's
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each
class:
Common
Stock, $0.001 par value
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Name of each exchange
on which registered:
The
NASDAQ Stock Market LLC
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Sec.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
o
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Accelerated
filer
þ
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Non-accelerated filer
o
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Smaller reporting
company
o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes
o No
þ
The
aggregate market value of the voting stock held by non-affiliates of the Company
was approximately $568.0 million on June 30, 2007 based on the last
reported sale price of the Company's common stock on The NASDAQ Stock Market LLC
on June 30, 2007.
As of
February 27, 2008, there were 31,908,566 shares of Common Stock
outstanding.
Portions
of the definitive proxy statement in connection with the 2008 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission no
later than April 30, 2008, are incorporated by reference in Part III of this
Form 10-K.
PART
I
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Item
1.
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Business.
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1 |
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Item
1A.
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Risk
Factors.
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9 |
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Item
1B.
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Unresolved
Staff Comments.
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15 |
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Item
2.
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Properties.
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16 |
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Item
3.
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Legal
Proceedings.
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16 |
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Item
4.
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Submission
of Matters to a Vote of Security Holders.
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16 |
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PART
II
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Item
5.
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Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
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17 |
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Item
6.
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Selected
Financial Data.
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18 |
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Item
7.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
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19 |
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk.
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29 |
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Item
8.
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Financial
Statements and Supplementary Data.
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30 |
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Item
9.
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Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure.
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55 |
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Item
9A.
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Controls
and Procedures.
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55 |
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Item
9B.
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Other
Information.
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56 |
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance.
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57 |
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Item
11.
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Executive
Compensation.
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59 |
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
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59 |
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence.
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59 |
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Item
14.
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Principal
Accounting Fees and Services.
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59 |
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules.
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60 |
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Overview
We are an
information technology consulting firm serving Forbes Global 2000 (“Global
2000”) and other large enterprise companies with a primary focus on the United
States. We help our clients gain competitive advantage by using Internet-based
technologies to make their businesses more responsive to market opportunities
and threats, strengthen relationships with their customers, suppliers and
partners, improve productivity and reduce information technology costs. We
design, build and deliver business-driven technology solutions using third party
software products developed by our partners. Our solutions include custom
applications, portals and collaboration, eCommerce, online customer management,
enterprise content management, business intelligence, business integration,
mobile technology, technology platform implementations and service oriented
architectures. Our solutions enable clients to meet the changing demands of an
increasingly global, Internet-driven and competitive marketplace.
Through
our experience in developing and delivering business-driven technology solutions
for a large number of Global 2000 clients, we have acquired significant domain
expertise that we believe differentiates our firm. We use expert project teams
that we believe deliver high-value, measurable results by working
collaboratively with clients and their partners through a user-centered,
technology-based and business-driven solutions methodology. We believe this
approach enhances return-on-investment for our clients by significantly reducing
the time and risk associated with designing and implementing business-driven
technology solutions.
We are
expanding through a combination of organic growth and acquisitions. We believe
that information technology consulting is a fragmented industry and that there
are a substantial number of privately held information technology consulting
firms in our target markets that, if acquired, can be strategically beneficial
and accretive to earnings over time. We have a track record of successfully
identifying, executing and integrating acquisitions that add strategic value to
our business. Since April 2004, we have acquired and integrated 12 information
technology consulting firms, four of which were acquired in 2007. We believe
that we can achieve significantly faster growth in revenues and profitability
through a combination of organic growth and acquisitions than we could through
organic growth alone.
We
believe we have built one of the leading independent information technology
consulting firms in the United States. We serve our customers from our network
of 18 offices throughout North America. In addition, we have over 500 colleagues
who are part of “national” business units, who travel extensively to serve
clients throughout North America and Europe. Our future growth plan includes
expanding our business with a primary focus on the United States, both through
expansion of our national travel practices and through opening new offices, both
organically and through acquisitions. In 2007, 2006 and 2005, 99% of our
revenues were derived from clients in the United States while 1% of our revenues
were derived from clients in Canada and Europe. Over 98% of our total assets
were located in the United States in 2007 with the remainder located in Canada,
China, and India. During 2006, over 99% of our total assets were located in the
United States with the remainder located in Canada.
We place
strong emphasis on building lasting relationships with clients. Over the past
three years ending December 31, 2007, an average of 78% of revenues was derived
from clients who continued to utilize our services from the prior year,
excluding from the calculation for any single period revenues from acquisitions
completed in that year. We have also built meaningful partnerships with software
providers, most notably IBM, whose products we use to design and implement
solutions for our clients. These partnerships enable us to reduce our cost of
sales and sales cycle times and increase success rates through leveraging our
partners' marketing efforts and endorsements.
Industry
Background
A number
of factors are shaping the information technology industry and, in particular,
the market for our information technology consulting services:
United States Economic
Recovery. The years 2001 and 2002 saw a protracted downturn in
information technology spending as a result of an economic recession in the
United States and the collapse of the Internet “bubble.” The information
technology consulting industry began to experience a recovery in the second half
of 2003, which continued through the first half of 2007. As we enter
2008, it appears that the United States economy is beginning to experience a
slowdown in growth. It is clear that the slowdown will have an effect
on the information technology consulting industry in general and on demand for
our services in particular, but the amount of that impact is uncertain.
According to the most recent forecast from independent market research firm
Forrester Research, total information technology services spending in North
America is expected to rise 5.2% in 2008.
Need to Rationalize Complex,
Heterogeneous Enterprise Technology Environments. Over the past 15 years,
the information systems of many Global 2000 and large enterprise companies have
evolved from traditional mainframe-based systems to include distributed
computing environments. This evolution has been driven by the benefits offered
by distributed computing, including lower incremental technology costs, faster
application development and deployment, increased flexibility and improved
access to business information. Organizations have also widely installed
enterprise resource planning (ERP), supply chain management (SCM), and customer
relationship management (CRM), applications in order to streamline internal
processes and enable communication and collaboration.
As a
result of investment in these different technologies, organizations now have
complex enterprise technology environments with incompatible technologies and
high costs of integration. These increases in complexity, cost and risk,
combined with the business and technology transformation caused by the
commercialization of the Internet, have created demand for information
technology consultants with experience in enabling the integration of disparate
platforms and leveraging Internet-based technologies to support business and
technology goals.
Increased Competitive
Pressures. The marketplace continues to become increasingly global,
Internet-driven and competitive. To gain and maintain a competitive advantage in
this environment, Global 2000 and large enterprise companies seek real-time
access to critical business applications and information that enables quality
business decisions based on the latest possible information, flexible business
processes and systems that respond quickly to market opportunities, improved
quality and lower cost customer care through online customer self-service and
provisioning, reduced supply chain costs and improved logistics through
processes and systems integrated online to suppliers, partners and distributors
and increased employee productivity through better information flow and
collaboration.
Enabling
these business goals requires integrating, automating and extending business
processes, technology infrastructure and software applications end-to-end within
an organization and with key partners, suppliers and customers. This requires
the ability not only to integrate the disparate information resource types,
databases, legacy mainframe applications, packaged application software, custom
applications, trading partners, people and Web services, but also to manage the
business processes that govern the interactions between these resources so that
organizations can engage in “real-time business.” Real-time business refers to
the use of current information in business to execute critical business
processes.
These
factors are driving increased spending on software and related consulting
services in the areas of application integration, middleware and portals (AIMP),
as these segments play critical roles in the integration between new and
existing systems and the extension of those systems to customers, suppliers and
partners via the Internet. Companies are expected to increase software spending
on integration broker suites, enterprise portal services, application platform
suites and message-oriented middleware. As companies increase spending on
software, their overall spending on services will also increase, often by a
multiplier of each dollar spent on software.
Quarterly Fluctuations. Our
quarterly operating results are subject to seasonal fluctuations. The first and
fourth quarters are impacted by professional staff vacation and holidays, as
well as the timing of buying decisions by clients. Our results will also
fluctuate, in part, based on whether we succeed in counterbalancing periodic
declines in services revenues when a project or engagement is completed or
cancelled by entering into arrangements to provide additional services to the
same or other clients. Software sales are seasonal as well, with generally
higher software demand during the third and fourth quarter. These and other
seasonal factors may contribute to fluctuations in our operating results from
quarter-to-quarter.
Competitive
Strengths
We
believe our competitive strengths include:
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Domain Expertise. We
have acquired significant domain expertise in a core set of
business-driven technology solutions and software platforms. These
solutions include custom applications, portals and collaboration,
eCommerce, customer relationship management, enterprise content
management, business intelligence, business integration, mobile technology
solutions, technology platform implementations and service oriented
architectures and enterprise service bus. The platforms in which we have
significant domain expertise and on which these solutions are built
include IBM WebSphere, TIBCO BusinessWorks, Microsoft.NET, Oracle-Seibel,
BEA (acquired by Oracle), Cognos (acquired by IBM) and Documentum, among
others.
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Delivery Model and
Methodology. We believe our significant domain expertise enables us
to provide high-value solutions through expert project teams that deliver
measurable results by working collaboratively with clients through a
user-centered, technology-based and business-driven solutions methodology.
Our eNable Methodology, a unique and proven execution process map we
developed, allows for repeatable, high quality services delivery. The
eNable Methodology leverages the thought leadership of our senior
strategists and practitioners to support the client project team and
focuses on transforming our clients' business processes to provide
enhanced customer value and operating efficiency, enabled by Web
technology. As a result, we believe we are able to offer our clients the
dedicated attention that small firms usually provide and the delivery and
project management that larger firms usually
offer.
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Client Relationships.
We have built a track record of quality solutions and client satisfaction
through the timely, efficient and successful completion of numerous
projects for our clients. As a result, we have established long-term
relationships with many of our clients who continue to engage us for
additional projects and serve as references for us. Over the past three
years ending December 31, 2007, an average of 78% of revenues was derived
from clients who continued to utilize our services from the prior year,
excluding from the calculation for any revenues from acquisitions
completed in that year.
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Vendor Partnerships and
Endorsements. We have built meaningful partnerships with software
providers, including IBM, whose products we use to design and implement
solutions for our clients. These partnerships enable us to reduce our cost
of sales and sales cycle times and increase win rates by leveraging our
partners' marketing efforts and endorsements. We also serve as a sales
channel for our partners, helping them market and sell their software
products. We are a Premier IBM business partner, a TeamTIBCO partner, a
Microsoft Gold Certified Partner, a Certified Oracle Partner, and an EMC
Documentum Select Services Team Partner. Our partners have
recognized our partnership with several awards. Most recently,
the Company was honored with IBM’s Information Management 2007 Most
Distinguished Partner (North America) Award and IBM’s Lotus 2008 Most
Distinguished Partner (North America)
Award.
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Geographic Focus. We
believe we have built one of the leading independent information
technology consulting firms in the United States. We serve our clients
from our network of 18 offices throughout North America. In addition, we
have over 500 colleagues who are part of “national” business units, who
travel extensively to serve clients primarily in the United States. Our
future growth plan includes expanding our business throughout the United
States through expansion of our national travel practices, both
organically and through acquisition. We believe our network provides a
competitive platform from which to expand
nationally.
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Offshore Capability. We
own a CMMI Level 4 certified global development center in Hangzhou, China
that was acquired in September 2007. This facility is staffed with
Perficient colleagues who provide offshore custom application development,
quality assurance and testing services. Additionally, we have a
relationship with an offshore development facility in Bitola, Macedonia.
Through this facility we contract with a team of professionals with
expertise in IBM, TIBCO and Microsoft technologies and with
specializations that include application development, adapter and
interface development, quality assurance and testing, monitoring and
support, product development, platform migration, and portal development.
In addition to our offshore capabilities, we employ a substantial number
of foreign nationals in the United States on H1-B visas. Also
in 2007, we acquired a recruiting facility in Chennai, India, to continue
to grow our base of H1-B foreign national
colleagues.
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Our Solutions
We help
clients gain competitive advantage by using Internet-based technologies to make
their businesses more responsive to market opportunities and threats, strengthen
relationships with customers, suppliers and partners, improve productivity and
reduce information technology costs. Our business-driven technology solutions
enable these benefits by developing, integrating, automating and extending
business processes, technology infrastructure and software applications
end-to-end within an organization and with key partners, suppliers and
customers. This provides real-time access to critical business applications and
information and a scalable, reliable, secure and cost-effective technology
infrastructure that enables clients to:
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give
managers and executives the information they need to make quality business
decisions and dynamically adapt their business processes and systems to
respond to client demands, market opportunities or business
problems;
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improve
the quality and lower the cost of customer acquisition and care through
Web-based customer self-service and
provisioning;
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reduce
supply chain costs and improve logistics by flexibly and quickly
integrating processes and systems and making relevant real-time
information and applications available online to suppliers, partners and
distributors;
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increase
the effectiveness and value of legacy enterprise technology infrastructure
investments by enabling faster application development and deployment,
increased flexibility and lower management costs;
and
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increase
employee productivity through better information flow and collaboration
capabilities and by automating routine processes to enable focus on unique
problems and opportunities.
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Our
business-driven technology solutions include the following:
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Custom applications. We
design, develop, implement and integrate custom application solutions that
deliver enterprise-specific functionality to meet the unique requirements
and needs of our clients. Perficient's substantial experience with
platforms including J2EE, .Net and open-source - plus our flexible
delivery structure - enables enterprises of all types to leverage
cutting-edge technologies to meet business-driven
needs.
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Enterprise portals and
collaboration. We design, develop, implement and integrate secure
and scalable enterprise portals for our clients and their customers,
suppliers and partners that include searchable data systems, collaborative
systems for process improvement, transaction processing, unified and
extended reporting and content management and
personalization.
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eCommerce. We design,
develop and implement secure and reliable ecommerce infrastructures that
dynamically integrate with back-end systems and complementary applications
that provide for transaction volume scalability and sophisticated content
management.
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Customer relationship
management (CRM). We design, develop and implement advanced CRM
solutions that facilitate customer acquisition, service and support,
sales, and marketing by understanding our customers' needs through
interviews, facilitated requirements gathering sessions and call center
analysis, developing an iterative, prototype driven solution and
integrating the solution to legacy processes and
applications.
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Enterprise content management
(ECM). We design, develop and implement ECM solutions that enable
the management of all unstructured information regardless of file type or
format. Our ECM solutions can facilitate the creation of new content
and/or provide easy access and retrieval of existing digital assets from
other enterprise tools such as enterprise resource planning (ERP),
customer relationship management or legacy applications. Perficient's ECM
solutions include Enterprise Imaging and Document Management, Web Content
Management, Digital Asset Management, Enterprise Records Management,
Compliance and Control, Business Process Management and Collaboration and
Enterprise Search.
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Business intelligence.
We design, develop and implement business intelligence solutions that
allow companies to interpret and act upon accurate, timely and integrated
information. By classifying, aggregating and correlating data into
meaningful business information, business intelligence solutions help our
clients make more informed business decisions. Our business intelligence
solutions allow our clients to transform data into knowledge for quick and
effective decision making and can include information strategy, data
warehousing and business analytics and
reporting.
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Business integration.
We design, develop and implement business integration solutions that allow
our clients to integrate all of their business processes end-to-end and
across the enterprise. Truly innovative companies are extending those
processes, and eliminating functional friction, between the enterprise and
core customers and partners. Our business integration solutions can extend
and extract core applications, reduce infrastructure strains and cost,
Web-enable legacy applications, provide real-time insight into business
metrics and introduce efficiencies for customers, suppliers and
partners.
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Mobile technology
solutions. We design, develop and implement mobile technology
solutions that deliver wireless capabilities to carriers, Mobile Virtual
Network Operators (MVNO), Mobile Virtual Network Enablers (MVNE), and the
enterprise. Perficient's expertise with wireless technologies such as SIP,
MMS, WAP, and GPRS are coupled with our deep expertise in mobile content
delivery. Our secure and scalable solutions can include mobile content
delivery systems; wireless value-added services including SIP, IMS, SMS,
MMS and Push-to-Talk; custom developed applications to pervasive devices
including Symbian, WML, J2ME, MIDP, Linux; and customer care solutions
including provisioning, mediation, rating and billing.
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Technology platform
implementations. We design, develop and implement technology
platform implementations that allow our clients to establish a robust,
reliable Internet-based infrastructure for integrated business
applications which extend enterprise technology assets to employees,
customers, suppliers and partners. Our Platform Services include
application server selection, architecture planning, installation and
configuration, clustering for availability, performance assessment and
issue remediation, security services and technology
migrations.
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Service oriented architectures
and enterprise service bus. We design, develop and implement
service oriented architecture and enterprise service bus solutions that
allow our clients to quickly adapt their business processes to respond to
new market opportunities or competitive threats by taking advantage of
business strategies supported by flexible business applications and IT
infrastructures.
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We
conceive, build and implement these solutions through a comprehensive set of
services including business strategy, user-centered design, systems
architecture, custom application development, technology integration, package
implementation and managed services.
In
addition to our business-driven technology solution services, we offer education
and mentoring services to our clients. We operate an IBM-certified advanced
training facility in Chicago, Illinois, where we provide our clients both
customized and established curriculum of courses and other education services in
areas including object-oriented analysis and design immersion, J2EE, user
experience, and an IBM Course Suite with over 20 distinct courses covering the
IBM WebSphere product suite. We also leverage our education practice and
training facility to provide continuing education and professional development
opportunities for our colleagues.
Our
Solutions Methodology
Our
approach to solutions design and delivery is user-centered, technology-based and
business-driven and is:
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iterative
and results oriented;
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centered
around a flexible and repeatable
framework;
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collaborative
and customer-centered in that we work with not only our clients but with
our clients' customers in developing our
solutions;
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focused
on delivering high value, measurable results;
and
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grounded
by industry leading project
management.
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The
eNable Methodology allows for repeatable, high quality services delivery through
a unique and proven execution process map. Our methodology is grounded in a
thorough understanding of our clients' overall business strategy and competitive
environment. The eNable Methodology leverages the thought leadership of our
senior strategists and practitioners and focuses on transforming our clients'
business processes, applications and technology infrastructure. The eNable
Methodology focuses on business value or return-on-investment, with specific
objectives and benchmarks established at the outset.
Our
Strategy
Our goal
is to be the premier technology management consulting firm primarily focused on
the United States. To achieve our goal, our strategy is:
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Grow Relationships with
Existing and New Clients. We intend to continue to solidify and
expand enduring relationships with our existing clients and to develop
long-term relationships with new clients by providing them with solutions
that generate a demonstrable, positive return-on-investment. Our incentive
plan rewards our project managers to work in conjunction with our sales
people to expand the nature and scope of our engagements with existing
clients.
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Continue Making Disciplined
Acquisitions. The information technology consulting market is a
fragmented industry and we believe there are a substantial number of
smaller privately held information technology consulting firms that can be
acquired and be immediately accretive to our financial results. We have a
track record of successfully identifying, executing and integrating
acquisitions that add strategic value to our business. Our established
culture and infrastructure positions us to successfully integrate each
acquired company, while continuing to offer effective solutions to our
clients. Since April 2004, we have acquired and integrated 12 information
technology consulting firms, four of which were acquired in 2007. We
continue to actively look for attractive acquisitions that leverage our
core expertise and look to expand our capabilities and geographic
presence.
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Expand Geographic Base. We
believe we have built one of the leading independent information
technology consulting firms in the United States. We serve our customers
from our network of 18 offices throughout North America. In addition, we
have over 500 colleagues who are part of “national” business units, who
travel extensively to serve clients primarily in the United States. Our
future growth plan includes expanding our business throughout the United
States through expansion of our national travel practices, both
organically and through acquisition. We believe our network provides a
competitive platform from which to expand
nationally.
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Enhance Brand
Visibility. Our focus on a core set of business-driven technology
solutions, applications and software platforms and a targeted customer and
geographic market has given us significant market visibility. In addition,
we believe we have achieved critical mass in size, which has significantly
enhanced our visibility among prospective clients, employees and software
vendors. As we continue to grow our business, we intend to highlight to
customers and prospective customers our thought leadership in
business-driven technology solutions and infrastructure software
technology platforms.
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Invest in Our People and
Culture. We have developed a culture built on teamwork, a passion
for technology and client service, and a focus on cost control and the
bottom line. As a people-based business, we continue to invest in the
development of our professionals and to provide them with entrepreneurial
opportunities and career development and advancement. Our technology,
business consulting and project management ensure that client team best
practices are being developed across the company and our recognition
program rewards teams for implementing those practices. We believe this
results in a team of motivated professionals with the ability to deliver
high-quality and high-value services for our
clients.
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Leverage Existing and Pursue
New Strategic Alliances. We intend to continue to develop alliances
that complement our core competencies. Our alliance strategy is targeted
at leading business advisory companies and technology providers and allows
us to take advantage of compelling technologies in a mutually beneficial
and cost-competitive manner. Many of these relationships, and in
particular IBM, result in our partners, or their clients, utilizing us as
the services firm of choice.
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Use Offshore Services When
Appropriate. Our solutions and services are primarily delivered at
the customer site and require a significant degree of customer
participation, interaction and specialized technology expertise, which we
can use lower cost offshore technology professionals to perform less
specialized roles on our solution engagements, enabling us to fully
leverage our United States colleagues while offering our clients a highly
competitive blended average rate. We own a CMMI Level 4 certified global
development center in Hangzhou, China that is staffed with Perficient
colleagues who provide offshore custom application development, quality
assurance and testing services and we maintain an arrangement with an
offshore development and delivery firm in Macedonia. In addition to our
offshore capabilities, we employ a substantial number of H1-B foreign
nationals in the United States. In 2007, we acquired a
recruiting facility in Chennai, India, to continue to grow our base of
H1-B foreign national colleagues.
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Sales
and Marketing
As of
December 31, 2007, we had a 49 person direct solutions-oriented sales force. Our
sales team is experienced and connected through a common services portfolio,
sales process and performance management system. Our sales process utilizes
project pursuit teams that include those of our information technology
professionals best suited to address a particular prospective client's needs. We
reward our sales force for developing and maintaining relationships with our
clients and seeking out follow-on engagements as well as leveraging those
relationships to forge new ones in different areas of the business and with our
clients' business partners. More than 90% of our sales are executed
by our direct sales force.
Our
target client base includes companies in North America with annual revenues in
excess of $500 million. We believe this market segment can generate the repeat
business that is a fundamental part of our growth plan. We pursue only solutions
opportunities where our domain expertise and delivery track record give us a
competitive advantage. We also typically target engagements of up to $3 million
in fees, which we believe to be below the target project range of most large
systems integrators and beyond the delivery capabilities of most local
boutiques.
We have
sales and marketing partnerships with software vendors including IBM
Corporation, TIBCO Software, Inc., Microsoft Corporation, ECM Documentum,
Oracle-Siebel, BEA, and webMethods, Inc. These companies are key vendors of open
standards based software commonly referred to as middleware application servers,
enterprise application integration platforms, business process management,
business activity monitoring and business intelligence applications and
enterprise portal server software. Our direct sales force works in tandem with
the sales and marketing groups of our partners to identify potential new clients
and projects. Our partnerships with these companies enable us to reduce our cost
of sales and sales cycle times and increase win rates by leveraging our
partners' marketing efforts and endorsements. In particular, the IBM software
sales channel provides us with significant sales lead flow and joint selling
opportunities.
As we
continue to grow our business, we intend to highlight our thought leadership in
solutions and infrastructure software technology platforms. Our efforts will
include technology white papers, by-lined articles by our colleagues in
technology and trade publications, media and industry analyst events,
sponsorship of and participation in targeted industry conferences and trade
shows.
Clients
During
the year ended December 31, 2007, we provided services to more
than 470 customers. No one customer provided more than 10% of our total
revenues in 2007, 2006 or 2005.
Competition
The
market for the information technology consulting services we provide is
competitive and has low barriers to entry. We believe that our competitors fall
into several categories, including:
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small
local consulting firms that operate in no more than one or two geographic
regions;
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regional
consulting firms such as Brulant, MSI Systems Integrators and
Prolifics;
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national
consulting firms, such as Answerthink, Inc., Accenture, BearingPoint,
Inc., Ciber, Inc., Electronic Data Systems Corporation and Sapient
Corporation;
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in-house
professional services organizations of software companies;
and
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to
a limited extent, offshore providers such as Cognizant Technology
Solutions Corporation, Infosys Technologies Limited, Satyam Computer
Services Limited and Wipro Limited.
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We
believe that the principal competitive factors affecting our market include
domain expertise, track record and customer references, quality of proposed
solutions, service quality and performance, reliability, scalability and
features of the software platforms upon which the solutions are based, and the
ability to implement solutions quickly and respond on a timely basis to customer
needs. In addition, because of the relatively low barriers to entry into this
market, we expect to face additional competition from new entrants. We expect
competition from offshore outsourcing and development companies to
continue.
Some of
our competitors have longer operating histories, larger client bases and greater
name recognition and possess significantly greater financial, technical and
marketing resources than we do. As a result, these competitors may be better
able to attract customers to which we market our services and adapt more quickly
to new technologies or evolving customer or industry requirements.
Employees
As of
December 31, 2007, we had 1,427 employees, 1,260 of which were billable
professionals, including 185 subcontractors, and 167 of which were involved in
sales, general administration and marketing. None of our employees are
represented by a collective bargaining agreement and we have never experienced a
strike or similar work stoppage. We consider our relations with our employees to
be good.
Recruiting. We are dedicated
to hiring, developing and retaining experienced, motivated technology
professionals who combine a depth of understanding of current Internet and
legacy technologies with the ability to implement complex and cutting-edge
solutions.
Our
recruiting efforts are an important element of our continuing operations and
future growth. We generally target technology professionals with extensive
experience and demonstrated expertise. To attract technology professionals, we
use a broad range of sources including on-staff recruiters, outside recruiting
firms, internal referrals, other technology companies and technical
associations, the Internet and advertising in technical periodicals. After
initially identifying qualified candidates, we conduct an extensive screening
and interview process.
Retention. We believe that
our rapid growth, focus on a core set of business-driven technology solutions,
applications and software platforms and our commitment to career development
through continued training and advancement opportunities make us an attractive
career choice for experienced professionals. Because our strategic partners are
established and emerging market leaders, our technology professionals have an
opportunity to work with cutting-edge information technology. We foster
professional development by training our technology professionals in the skills
critical to successful consulting engagements such as implementation methodology
and project management. We believe in promoting from within whenever possible.
In addition to an annual review process that identifies near-term and
longer-term career goals, we make a professional development plan available to
assist our professionals with assessing their skills and developing a detailed
action plan for guiding their career development. For the year ended December
31, 2007, our voluntary attrition rate was approximately 19%.
Training. To ensure continued
development of our technical staff, we place a high priority on training. We
offer extensive training for our professionals around industry-leading
technologies. We utilize our education practice and IBM-certified advanced
training facility in Chicago, Illinois to provide continuing education and
professional development opportunities for our colleagues. Additionally, most
newly-hired Perficient colleagues attend Perficient 101, an orientation training
course held frequently at our operational headquarters location in St. Louis
where they learn general company procedures and protocols and benefit from a
role-based curriculum.
Compensation. Our employees
have a compensation model that includes a base salary and an incentive
compensation component. Our tiered incentive compensation plans help us reach
our overall goals by rewarding individuals for their influence on key
performance factors. Key performance metrics include client satisfaction,
revenues generated, utilization, profit and personal skills growth.
Leadership Councils. Our
technology leadership council performs a critical role in maintaining our
technology leadership. Consisting of key employees from each of our practice
areas, the council frames our new strategic partner strategies and conducts
regular Internet webcasts with our technology professionals on specific partner
and general technology issues and trends. The council also coordinates thought
leadership activities, including white paper authorship and publication and
speaking engagements by our professionals. Finally, the council identifies
services opportunities between and among our strategic partners' products,
oversees our quality assurance programs and assists in acquisition-related
technology due diligence.
Culture
The Perficient Promise. We
have developed the “Perficient Promise,” which consists of the following six
simple commitments our colleagues make to each other:
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we
believe in long-term client and partner relationships built on investment
in innovative solutions, delivering more value than the competition and a
commitment to excellence;
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we
believe in growth and profitability and building meaningful
scale;
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we
believe each of us is ultimately responsible for our own career
development and has a commitment to mentor
others;
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we
believe that Perficient has an obligation to invest in our consultants'
training and education;
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we
believe the best career development comes on the job;
and
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we
love challenging new work
opportunities.
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We take
these commitments extremely seriously because we believe that we can succeed
only if the Perficient Promise is kept.
Knowledge
Management
MyPerficient.com--The Corporate
Portal. To ensure easy access to a wide range of information and tools,
we have created a corporate portal, MyPerficient.com. It is a secure,
centralized communications tool. It allows each of our colleagues unlimited
access to information, productivity tools, time and expense entry, benefits
administration, corporate policies and forms and quality management information
directories and documentation.
Professional Services Automation
Technology. We maintain a Professional Services application as the
enabling technology for many of our business processes, including knowledge
management. We possess and continue to aggregate significant knowledge including
marketing collateral, solution proposals, work product and client deliverables.
Primavera's technology allows us to store this knowledge in a logical manner and
provides full-text search capability allowing our colleagues to deliver
solutions more efficiently and competitively.
General
Information
Our stock
is traded on the Nasdaq Global Select Market, a tier of The NASDAQ Stock Market
LLC, under the symbol “PRFT.” Our website can be visited at www.perficient.com.
We make available free of charge through our website our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) as soon as
reasonably practicable after we electronically file such material, or furnish it
to, the Securities and Exchange Commission. The information contained or
incorporated in our website is not part of this document.
You
should carefully consider the following risk factors together with the other
information contained in or incorporated by reference into this annual report
before you decide to buy our common stock. If any of these risks actually occur,
our business, financial condition, operating results or cash flows could be
materially and adversely affected. This could cause the trading price of our
common stock to decline and you may lose part or all of your
investment.
Risks
Related to Our Business
Prolonged
economic weakness, particularly in the middleware, software and services market,
could adversely affect our business, financial condition and results of
operations.
Our
results of operations are affected by the levels of business activities of our
clients, which can be affected by economic conditions in the U.S. and
globally. During periods of economic downturns, our clients may
decrease their demand for information technology services. Our
business is particularly influenced by the market for middleware, software and
services which has changed rapidly and experienced volatility over the last
eight years. The market for middleware and software and services expanded
dramatically during 1999 and most of 2000, but declined significantly in 2001
and 2002. Market demand for software and services began to stabilize and improve
from 2003 through the first half of 2007. As we enter 2008, it appears that the
United States economy is beginning to experience a slowdown in
growth. It is clear that the slowdown will have an effect on the
information technology consulting industry in general and on demand for our
services in particular, but the amount of that impact is uncertain. Our future
growth is dependent upon the demand for software and services, and, in
particular, the information technology consulting services we provide. Demand
and market acceptance for services are subject to a high level of uncertainty.
Prolonged weakness in the middleware, software and services industry has caused
in the past, and may cause in the future, business enterprises to delay or
cancel information technology projects, reduce their overall information
technology budgets and/or reduce or cancel orders for our services. This, in
turn, may lead to longer sales cycles, delays in purchase decisions, payment and
collection issues, and may also result in price pressures, causing us to realize
lower revenues and operating margins. Additionally, if our clients cancel or
delay their business and technology initiatives or choose to move these
initiatives in-house, our business, financial condition and results of
operations could be materially and adversely affected.
Pursuing
and completing potential acquisitions could divert management's attention and
financial resources and may not produce the desired business
results.
If we
pursue any acquisition, our management could spend a significant amount of time
and financial resources to pursue and integrate the acquired business with our
existing business. To pay for an acquisition, we might use capital stock, cash
or a combination of both. Alternatively, we may borrow money from a bank or
other lender. If we use capital stock, our stockholders will experience
dilution. If we use cash or debt financing, our financial liquidity may be
reduced and the interest on any debt financing could adversely affect our
results of operations. From an accounting perspective, an acquisition that does
not perform as well as originally anticipated may involve amortization or the
write-off of significant amounts of intangible assets that could adversely
affect our results of operations.
Despite
the investment of these management and financial resources, and completion of
due diligence with respect to these efforts, an acquisition may not produce the
anticipated revenues, earnings or business synergies for a variety of reasons,
including:
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difficulties
in the integration of services and personnel of the acquired
business;
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the
failure of management and acquired services personnel to perform as
expected;
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the
risks of entering markets in which we have no, or limited, prior
experience, including offshore operations in countries in which we have no
prior experience;
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the
failure to identify or adequately assess any undisclosed or potential
liabilities or problems of the acquired business including legal
liabilities;
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the
failure of the acquired business to achieve the forecasts we used to
determine the purchase price;
or
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the
potential loss of key personnel of the acquired
business.
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These
difficulties could disrupt our ongoing business, distract our management and
colleagues, increase our expenses and materially and adversely affect our
results of operations.
If
we do not effectively manage our growth, our results of operations and cash
flows could be adversely affected.
Our
ability to operate profitably with positive cash flows depends partially on how
effectively we manage our growth. In order to create the additional capacity
necessary to accommodate the demand for our services, we may need to implement
new or upgraded operational and financial systems, procedures and controls, open
new offices and hire additional colleagues. Implementation of these new or
upgraded systems, procedures and controls may require substantial management
efforts and our efforts to do so may not be successful. The opening of new
offices (including international locations) or the hiring of additional
colleagues may result in idle or underutilized capacity. We continually assess
the expected capacity and utilization of our offices and professionals. We may
not be able to achieve or maintain optimal utilization of our offices and
professionals. If demand for our services does not meet our expectations, our
revenues and cash flows may not be sufficient to offset these expenses and our
results of operations and cash flows could be adversely affected.
We
may not be able to attract and retain information technology consulting
professionals, which could affect our ability to compete
effectively.
Our
business is labor intensive. Accordingly, our success depends in large part upon
our ability to attract, train, retain, motivate, manage and effectively utilize
highly skilled information technology consulting professionals. There is often
considerable competition for qualified personnel in the information technology
services industry. Additionally, our technology professionals are primarily
at-will employees. We also use independent subcontractors where appropriate to
supplement our employee capacity. Failure to retain highly skilled technology
professionals or hire qualified independent subcontractors would impair our
ability to adequately manage staff and implement our existing projects and to
bid for or obtain new projects, which in turn would adversely affect our
operating results.
Our
success depends on attracting and retaining senior management and key
personnel.
The
information technology services industry is highly specialized and the
competition for qualified management and key personnel is intense. We believe
that our success depends on retaining our senior management team and key
technical and business consulting personnel. Retention is particularly important
in our business as personal relationships are a critical element of obtaining
and maintaining strong relationships with our clients. In addition, as we
continue to grow our business, our need for senior experienced management and
implementation personnel increases. If a significant number of these individuals
depart the Company, or if we are unable to attract top talent, our level of
management, technical, marketing and sales expertise could diminish or otherwise
be insufficient for our growth. We may be unable to achieve our revenues and
operating performance objectives unless we can attract and retain technically
qualified and highly skilled sales, technical, business consulting, marketing
and management personnel. These individuals would be difficult to replace, and
losing them could seriously harm our business.
We
may have difficulty in identifying and competing for strategic acquisition and
partnership opportunities.
Our
business strategy includes the pursuit of strategic acquisitions. We may acquire
or make strategic investments in complementary businesses, technologies,
services or products, or enter into strategic partnerships or alliances with
third parties in the future in order to expand our business. We may be unable to
identify suitable acquisition, strategic investment or strategic partnership
candidates, or if we do identify suitable candidates, we may not complete those
transactions on terms commercially favorable to us, or at all. We have
historically paid a portion of the purchase price for acquisitions with shares
of our common stock. Volatility in our stock prices, or a sustained
price decline, could adversely affect our ability to attract acquisition
candidates. If we fail to identify and successfully complete these transactions,
our competitive position and our growth prospects could be adversely affected.
In addition, we may face competition from other companies with significantly
greater resources for acquisition candidates, making it more difficult for us to
acquire suitable companies on favorable terms.
The
market for the information technology consulting services we provide is
competitive, has low barriers to entry and is becoming increasingly
consolidated, which may adversely affect our market position.
The
market for the information technology consulting services we provide is
competitive, rapidly evolving and subject to rapid technological change. In
addition, there are relatively low barriers to entry into this market and
therefore new entrants may compete with us in the future. For example, due to
the rapid changes and volatility in our market, many well-capitalized companies,
including some of our partners, that have focused on sectors of the software and
services industry that are not competitive with our business may refocus their
activities and deploy their resources to be competitive with us.
An
increasing amount of information technology services are being provided by
lower-cost non-domestic resources. The increased utilization of these resources
for US-based projects could result in lower revenues and margins for US-based
information technology companies. Our ability to compete utilizing higher-cost
domestic resources and/or our ability to procure comparably priced off-shore
resources could adversely impact our results of operations and financial
condition.
Our
future financial performance will depend, in large part, on our ability to
establish and maintain an advantageous market position. We currently compete
with regional and national information technology consulting firms, and, to a
limited extent, offshore service providers and in-house information technology
departments. Many of the larger regional and national information technology
consulting firms have substantially longer operating histories, more established
reputations and potential partner relationships, greater financial resources,
sales and marketing organizations, market penetration and research and
development capabilities, as well as broader product offerings and greater
market presence and name recognition. We may face increasing competitive
pressures from these competitors as the market for software and services
continues to grow. This may place us at a disadvantage to our competitors, which
may harm our ability to grow, maintain revenues or generate net
income.
In recent
years, there has been substantial consolidation in our industry, and we expect
that there will be significant additional consolidation in the future. As a
result of this increasing consolidation, we expect that we will increasingly
compete with larger firms that have broader product offerings and greater
financial resources than we have. We believe that this competition could have a
significant negative effect on our marketing, distribution and reselling
relationships, pricing of services and products and our product development
budget and capabilities. One or more of our competitors may develop and
implement methodologies that result in superior productivity and price
reductions without adversely affecting their profit margins. In addition,
competitors may win client engagements by significantly discounting their
services in exchange for a client’s promise to purchase other goods and services
from the competitor, either concurrently or in the future. These activities may
potentially force us to lower our prices and suffer reduced operating margins.
Any of these negative effects could significantly impair our results of
operations and financial condition. We may not be able to compete successfully
against new or existing competitors.
Our
business will suffer if we do not keep up with rapid technological change,
evolving industry standards or changing customer requirements.
Rapidly
changing technology, evolving industry standards and changing customer needs are
common in the software and services market. We expect technological developments
to continue at a rapid pace in our industry. Technological developments,
evolving industry standards and changing customer needs could cause our business
to be rendered obsolete or non-competitive, especially if the market for the
core set of business-driven technology solutions and software platforms in which
we have expertise does not grow or if such growth is delayed due to market
acceptance, economic uncertainty or other conditions. Accordingly, our success
will depend, in part, on our ability to:
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continue
to develop our technology
expertise;
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enhance
our current
services;
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develop
new services that meet changing customer
needs;
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advertise
and market our services;
and
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influence
and respond to emerging industry standards and other technological
changes.
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We must
accomplish all of these tasks in a timely and cost-effective manner. We might
not succeed in effectively doing any of these tasks, and our failure to succeed
could have a material and adverse effect on our business, financial condition or
results of operations, including materially reducing our revenues and operating
results.
We may
also incur substantial costs to keep up with changes surrounding the Internet.
Unresolved critical issues concerning the commercial use and government
regulation of the Internet include the following:
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intellectual
property
ownership;
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Any costs
we incur because of these factors could materially and adversely affect our
business, financial condition and results of operations, including reduced net
income.
A
significant portion of our revenue is dependent upon building long-term
relationships with our clients and our operating results could suffer if we fail
to maintain these relationships.
Our
professional services agreements with clients are in most cases terminable on 10
to 30 days' notice. A client may choose at any time to use another consulting
firm or choose to perform services we provide through their own internal
resources. A sustained decrease in a client’s business activity could cause the
cancellation of projects. Accordingly, we rely on our clients' interests in
maintaining the continuity of our services rather than on contractual
requirements. Termination of a relationship with a significant client or with a
group of clients that account for a significant portion of our revenues could
adversely affect our revenues and results of operations.
If
we fail to meet our clients' performance expectations, our reputation may be
harmed.
As a
services provider, our ability to attract and retain clients depends to a large
extent on our relationships with our clients and our reputation for high quality
services and integrity. We also believe that the importance of reputation and
name recognition is increasing and will continue to increase due to the number
of providers of information technology services. As a result, if a client is not
satisfied with our services or does not perceive our solutions to be effective
or of high quality, our reputation may be damaged and we may be unable to
attract new, or retain existing, clients and colleagues.
We
may face potential liability to customers if our customers' systems
fail.
Our
business-driven technology solutions are often critical to the operation of our
customers' businesses and provide benefits that may be difficult to quantify. If
one of our customers' systems fails, the customer could make a claim for
substantial damages against us, regardless of our responsibility for that
failure. The limitations of liability set forth in our contracts may not be
enforceable in all instances and may not otherwise protect us from liability for
damages. Our insurance coverage may not continue to be available on reasonable
terms or in sufficient amounts to cover one or more large claims. In addition, a
given insurer might disclaim coverage as to any future claims. In addition, due
to the nature of our business, it is possible that we will be sued in the
future. If we experience one or more large claims against us that exceed
available insurance coverage or result in changes in our insurance policies,
including premium increases or the imposition of large deductible or
co-insurance requirements, our business and financial results could
suffer.
The
loss of one or more of our significant software business partners would have a
material and adverse effect on our business and results of
operations.
Our
business relationships with software vendors enable us to reduce our cost of
sales and increase win rates through leveraging our partners’ marketing efforts
and strong vendor endorsements. The loss of one or more of these relationships
and endorsements could increase our sales and marketing costs, lead to longer
sales cycles, harm our reputation and brand recognition, reduce our revenues and
adversely affect our results of operations.
In
particular, a substantial portion of our solutions are built on IBM WebSphere
platforms and a significant number of our clients are identified through joint
selling opportunities conducted with IBM and through sales leads obtained from
our relationship with IBM. The loss of our relationship with, or a
significant reduction in the services we perform for IBM, would have a material
adverse effect on our business and results of operations.
Our
quarterly operating results may be volatile and may cause our stock price to
fluctuate.
Our
quarterly revenues, expenses and operating results have varied in the past and
are likely to vary significantly in the future, which could lead to volatility
in our stock price. In addition, many factors affecting our operating results
are outside of our control, such as:
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demand
for software and services;
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customer
budget cycles;
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changes
in our customers' desire for our partners' products and our
services;
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pricing
changes in our industry; and
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government
regulation and legal developments regarding the use of the
Internet.
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As a
result, if we experience unanticipated changes in the number or nature of our
projects or in our employee utilization rates, we could experience large
variations in quarterly operating results in any particular
quarter.
Our
services revenues may fluctuate quarterly due to seasonality or timing of
completion of projects.
We may
experience seasonal fluctuations in our services revenues. We expect that
services revenues in the fourth quarter of a given year may typically be lower
than in other quarters in that year as there are fewer billable days in this
quarter as a result of vacations and holidays. In addition, we generally perform
services on a project basis. While we seek wherever possible to counterbalance
periodic declines in revenues on completion of large projects with new
arrangements to provide services to the same client or others, we may not be
able to avoid declines in revenues when large projects are completed. Our
inability to obtain sufficient new projects to counterbalance any decreases in
work upon completion of large projects could adversely affect our revenues and
results of operations.
Our
software revenues may fluctuate quarterly, leading to volatility in our results
of operations.
Our
software revenues may fluctuate quarterly and be higher in the fourth quarter of
a given year as procurement policies of our clients may result in higher
technology spending towards the end of budget cycles. This seasonal trend may
materially affect our quarter-to-quarter revenues, margins and operating
results.
Our
overall gross margin fluctuates quarterly based on our services and software
revenues mix, impacting our results of operations.
The gross
margin on our services revenues is, in most instances, greater than the gross
margin on our software revenues. As a result, our gross margin will be higher in
quarters where our services revenues, as a percentage of total revenues, has
increased, and will be lower in quarters where our software revenues, as a
percentage of total revenues, has increased. In addition, gross margin on
software revenues may fluctuate as a result of variances in gross margin on
individual software products. Our stock price may be negatively affected in
quarters in which our gross margin decreases.
Our
services gross margins are subject to fluctuations as a result of variances in
utilization rates and billing rates.
Our
services gross margins are affected by trends in the utilization rate of our
professionals, defined as the percentage of our professionals' time billed to
customers divided by the total available hours in a period, and in the billing
rates we charge our clients. Our operating expenses, including employee
salaries, rent and administrative expenses, are relatively fixed and cannot be
reduced on short notice to compensate for unanticipated variations in the number
or size of projects in process. If a project ends earlier than scheduled, we may
need to redeploy our project personnel. Any resulting non-billable time may
adversely affect our gross margins.
The
average billing rates for our services may decline due to rate pressures from
significant customers and other market factors, including innovations and
average billing rates charged by our competitors. If there is a sustained
downturn in the U.S. economy or in the information technology services industry,
rate pressure may increase. Also, our average billing rates will decline if we
acquire companies with lower average billing rates than ours. To sell our
products and services at higher prices, we must continue to develop and
introduce new services and products that incorporate new technologies or
high-performance features. If we experience pricing pressures or fail to develop
new services, our revenues and gross margins could decline, which could harm our
business, financial condition and results of operations.
If
we fail to complete fixed-fee contracts within budget and on time, our results
of operations could be adversely affected.
In 2007,
approximately 13% of our projects were performed on a fixed-fee basis, rather
than on a time-and-materials basis. Under these contractual arrangements, we
bear the risk of cost overruns, completion delays, wage inflation and other cost
increases. If we fail to estimate accurately the resources and time required to
complete a project or fail to complete our contractual obligations within the
scheduled timeframe, our results of operations could be adversely affected. We
cannot guarantee that in the future we will not price these contracts
inappropriately, which may result in losses.
We
may not be able to maintain our level of profitability.
Although
we have been profitable for the past four years, we may not be able to sustain
or increase profitability on a quarterly or annual basis in the future and in
fact could experience decreased profitability. If we fail to meet public market
analysts' and investors' expectations, the price of our common stock will likely
fall.
Our
services may infringe upon the intellectual property rights of
others.
We cannot be sure that our services do
not infringe on the intellectual property rights of third parties, and we may
have infringement claims asserted against us. These claims may harm
our reputation, cause our management to expend significant time in connection
with any defense and cost us money. We may be required to indemnify
clients for any expense or liabilities they incur resulting from claimed
infringement and these expenses could exceed the amounts paid to us by the
client for services we have performed. Any claims in this area, even
if won by us, can be costly, time-consuming and harmful to our
reputation.
International operations subject us
to additional political and economic risks that could have an adverse impact on
our business.
In
connection with our acquisition of BoldTech Systems, Inc. (“BoldTech”) in 2007,
we acquired a global development center in Hangzhou, China. In
connection with our acquisition of ePairs, Inc. (“ePairs”), we acquired an 80%
equity interest in ePairs India Private Limited, which operates a technology
consulting recruiting office in Chennai, India. We also have an agreement with a
third party offshore facility in Eastern Europe to provide the Company offshore
resources on an exclusive basis. Because of our limited experience
with facilities outside of the United States, we are subject to certain risks
related to expanding our presence into non-U.S. regions, including risks related
to complying with a wide variety of national and local laws, restrictions on the
import and export of certain technologies and multiple and possibly overlapping
tax structures. In addition, we may face competition from companies that may
have more experience with operations in such countries or with international
operations generally. We may also face difficulties integrating new facilities
in different countries into our existing operations, as well as integrating
employees that we hire in different countries into our existing corporate
culture.
Furthermore,
there are risks inherent in operating in and expanding into
non-U.S. regions, including, but not limited to:
|
§
|
political
and economic instability;
|
|
§
|
global
health conditions and potential natural
disasters;
|
|
§
|
unexpected
changes in regulatory requirements;
|
|
§
|
international
currency controls and exchange rate
fluctuations;
|
|
§
|
reduced
protection for intellectual property rights in some countries;
and
|
|
§
|
additional
vulnerability from terrorist groups targeting American interests
abroad.
|
Any one
or more of the factors set forth above could have a material adverse effect on
our international operations, and, consequently, on our business, financial
condition and operating results.
Immigration
restrictions related to H-1B visas could hinder our growth and adversely affect
our business, financial condition and results of operations.
Approximately
25% of our work force is comprised of skilled foreigners holding H-1B
visas. In 2007, we acquired a recruiting facility in Chennai, India,
to continue to grow our base of H-1B foreign national colleagues. The
H-1B visa classification enables us to hire qualified foreign workers in
positions that require the equivalent of at least a bachelor’s degree in the
U.S. in a specialty occupation such as technology systems engineering and
analysis. The H-1B visa generally permits an individual to work and
live in the U.S. for a period of three to six years, with some extensions
available. The number of new H-1B petitions approved in any federal
fiscal year is limited, making the H-1B visas necessary to bring foreign
employees to the U.S. unobtainable in years in which the limit is
reached. If we are unable to obtain all of the H-1B visas for which
we apply, our growth may be hindered.
There are
strict labor regulations associated with the H-1B visa classification and users
of the H-1B visa program are subject to investigations by the Wage and Hour
Division of the United States Department of Labor. If we are
investigated, a finding by the United States Department of Labor of willful or
substantial failure by us to comply with existing regulations on the H-1B
classification could result in back-pay liability, substantial fines, or a ban
on future use of the H-1B program and other immigration benefits, any of which
could materially and adversely affect our business, financial condition and
results of operations.
We
have recorded deferred offering costs in connection with a shelf registration
statement, and our inability to offset these costs against the proceeds of
future offerings from our shelf registration statement could result in a
non-cash expense in our Statement of Income in a future period.
We
initially filed a registration statement with the Securities and Exchange
Commission in March 2005 to register the offer and sale by the Company and
certain selling stockholders of shares of our common stock. Due to overall
market conditions in 2006, we converted our registration statement into a shelf
registration statement to allow for offers and sales of common stock from time
to time as market conditions permit. As of December 31, 2007, we have recorded
approximately $943,000 of deferred offering costs (approximately $579,000 after
tax, if ever expensed) in connection with the offering and have classified these
costs as prepaid expenses in other non-current assets on our balance
sheet.
If we
sell shares of common stock from our shelf registration statement, we will
offset these accumulated deferred offering costs against the proceeds of the
offering. If we do not raise funds through an equity offering from the shelf
registration statement or fail to maintain the effectiveness of the shelf
registration statement, the currently capitalized deferred offering costs will
be expensed. Such expense would be a non-cash accounting charge as all of these
expenses have already been paid.
Risks Related to
Ownership of Our Common Stock
Our
stock price has been volatile and may continue to fluctuate widely.
Our
common stock is traded on the Nasdaq Global Select Market, a tier of The NASDAQ
Stock Market LLC, under the symbol “PRFT.” Our common stock price has been
volatile. Our stock price may continue to fluctuate widely as a result of
announcements of new services and products by us or our competitors, quarterly
variations in operating results, the gain or loss of significant customers,
changes in public market analysts' estimates and market conditions for
information technology consulting firms and other technology stocks in
general.
We
periodically review and consider possible acquisitions of companies that we
believe will contribute to our long-term objectives. In addition, depending on
market conditions, liquidity requirements and other factors, from time to time
we consider accessing the capital markets. These events may also affect the
market price of our common stock.
Our
officers, directors, and 5% and greater stockholders own a large percentage of
our voting securities and their interests may differ from other
stockholders.
Our
executive officers, directors and 5% and greater stockholders beneficially own
or control approximately 18% of the voting power of our common stock. This
concentration of voting power of our common stock may make it difficult for our
other stockholders to successfully approve or defeat matters that may be
submitted for action by our stockholders. It may also have the effect of
delaying, deterring or preventing a change in control of our
company.
We
may need additional capital in the future, which may not be available to us. The
raising of any additional capital may dilute your ownership percentage in our
stock.
We intend
to continue to make investments to support our business growth and may require
additional funds to pursue business opportunities and respond to business
challenges. Accordingly, we may need to engage in equity or debt financings to
secure additional funds. If we raise additional funds through further issuances
of equity or convertible debt securities, our existing stockholders could suffer
dilution, and any new equity securities we issue could have rights, preferences
and privileges superior to those of holders of our common stock. Any debt
financing secured by us in the future could involve restrictive covenants
relating to our capital raising activities and other financial and operational
matters, which may make it more difficult for us to obtain additional capital
and to pursue business opportunities, including potential acquisitions. In
addition, we may not be able to obtain additional financing on terms favorable
to us, if at all. If we are unable to obtain adequate financing or financing on
terms satisfactory to us, when we require it, our ability to continue to support
our business growth and to respond to business challenges could be significantly
limited.
It
may be difficult for another company to acquire us, and this could depress our
stock price.
In
addition to the large percentage of our voting securities held by our officers,
directors and 5% and greater stockholders, provisions contained in our
certificate of incorporation, bylaws and Delaware law could make it difficult
for a third party to acquire us, even if doing so would be beneficial to our
stockholders. Our certificate of incorporation and bylaws may discourage, delay
or prevent a merger or acquisition that a stockholder may consider favorable by
authorizing the issuance of “blank check” preferred stock. In addition,
provisions of the Delaware General Corporation Law also restrict some business
combinations with interested stockholders. These provisions are intended to
encourage potential acquirers to negotiate with us and allow the board of
directors the opportunity to consider alternative proposals in the interest of
maximizing stockholder value. However, these provisions may also discourage
acquisition proposals or delay or prevent a change in control, which could harm
our stock price.
Item
1B.
|
Unresolved
Staff Comments.
|
None.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of
the statements contained in this annual report that are not purely historical
statements discuss future expectations, contain projections of results of
operations or financial condition or state other forward-looking information.
Those statements are subject to known and unknown risks, uncertainties and other
factors that could cause the actual results to differ materially from those
contemplated by the statements. The “forward-looking” information is based on
various factors and was derived using numerous assumptions. In some cases, you
can identify these so-called forward-looking statements by words like “may,”
“will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential” or “continue” or the negative of those words and other
comparable words. You should be aware that those statements only reflect our
predictions. Actual events or results may differ substantially. Important
factors that could cause our actual results to be materially different from the
forward-looking statements are disclosed under the heading “Risk Factors” in
this annual report.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We are under no duty to update any of the forward-looking
statements after the date of this annual report to conform such statements to
actual results.
All
forward-looking statements, express or implied, included in this report and the
documents we incorporate by reference and attributable to Perficient are
expressly qualified in their entirety by this cautionary
statement. This cautionary statement should also be considered in
connection with any subsequent written or oral forward-looking statements that
Perficient or any persons acting on our behalf may issue.
Our
principal executive, administrative, finance and marketing operations are
located in St. Louis, Missouri, where we have leased approximately 20,594 square
feet of office space, and Austin, TX, where we have leased approximately 2,700
square feet of office space. We lease 18 offices in major cities across North
America and China. We do not own any real property. We believe our facilities
are adequate to meet our needs in the near future.
Item 3.
|
Legal
Proceedings.
|
Although
we may become a party to litigation and claims arising in the course of our
business, management currently does not believe the results of these actions
will have a material adverse effect on our business or financial
condition.
Item 4.
|
Submission
of Matters to a Vote of Security
Holders.
|
No
matters were submitted to a shareholder vote during the quarter ended December
31, 2007.
PART
II
Item 5.
|
Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
|
Our
common stock is quoted on the Nasdaq Global Select Market, a tier of The NASDAQ
Stock Market LLC, under the symbol “PRFT.” The following table sets forth, for
the periods indicated, the high and low sale prices per share of our common
stock as reported on the Nasdaq Global Select Market, a tier of The NASDAQ Stock
Market LLC, since January 1, 2006.
|
|
High
|
|
|
Low
|
|
Year
Ending December 31, 2007:
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
21.50 |
|
|
$ |
16.31 |
|
Second
Quarter
|
|
|
23.03 |
|
|
|
18.62 |
|
Third
Quarter
|
|
|
24.61 |
|
|
|
19.35 |
|
Fourth
Quarter
|
|
|
24.19 |
|
|
|
15.09 |
|
|
|
|
|
|
|
|
|
|
Year
Ending December 31, 2006:
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
12.01 |
|
|
$ |
8.76 |
|
Second
Quarter
|
|
|
14.29 |
|
|
|
11.52 |
|
Third
Quarter
|
|
|
15.68 |
|
|
|
11.55 |
|
Fourth
Quarter
|
|
|
19.16 |
|
|
|
15.31 |
|
On
February 27, 2008, the last reported sale price of our common stock on the
Nasdaq Global Select Market, a tier of The NASDAQ Stock Market LLC, was $8.44
per share. There were approximately 190 stockholders of record of our common
stock as of February 27, 2008.
We have
never declared or paid any cash dividends on our common stock and do not
anticipate paying cash dividends in the foreseeable future. Our credit facility
currently prohibits the payment of cash dividends without the prior written
consent of the lenders.
Information
on our Equity Compensation Plan has been included at Part III, Item 12, of the
consolidated financial statements.
Item 6.
|
Selected
Financial Data.
|
The
selected financial data presented for, and as of the end of, each of the years
in the five-year period ended December 31, 2007, has been prepared in accordance
with United States generally accepted accounting principles. All amounts shown
are in thousands. The financial data presented is not directly comparable
between periods as a result of the adoption of Statement of Financial Accounting
Standards No. 123R (As Amended), Share Based Payment (“SFAS
123R”) in 2006, and four acquisitions in 2007, three acquisitions in 2006, two
acquisitions in 2005, and three acquisitions in 2004.
The
following data should be read in conjunction with the Consolidated Financial
Statements and the Notes to Consolidated Financial Statements appearing in Part
II, Item 8, and Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing in Part II, Item 7.
|
|
|
|
|
Year Ended December
31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Income
Statement Data:
|
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
218,148 |
|
|
$ |
160,926 |
|
|
$ |
96,997 |
|
|
$ |
58,848 |
|
|
$ |
30,192 |
|
Gross
margin
|
|
$ |
75,690 |
|
|
$ |
53,756 |
|
|
$ |
32,418 |
|
|
$ |
18,820 |
|
|
$ |
11,375 |
|
Selling,
general and administrative
|
|
$ |
41,963 |
|
|
$ |
32,268 |
|
|
$ |
17,917 |
|
|
$ |
11,068 |
|
|
$ |
7,993 |
|
Depreciation and
intangibles amortization
|
|
$ |
6,265 |
|
|
$ |
4,406 |
|
|
$ |
2,226 |
|
|
$ |
1,209 |
|
|
$ |
1,281 |
|
Income
from operations
|
|
$ |
27,462 |
|
|
$ |
17,082 |
|
|
$ |
12,275 |
|
|
$ |
6,543 |
|
|
$ |
2,102 |
|
Interest
income (expense)
|
|
$ |
172 |
|
|
$ |
(407 |
) |
|
$ |
(643 |
) |
|
$ |
(134 |
) |
|
$ |
(283 |
) |
Other
income (expense)
|
|
$ |
20 |
|
|
$ |
174 |
|
|
$ |
43 |
|
|
$ |
32 |
|
|
$ |
(13 |
) |
Income
before income taxes
|
|
$ |
27,654 |
|
|
$ |
16,849 |
|
|
$ |
11,675 |
|
|
$ |
6,441 |
|
|
$ |
1,805 |
|
Net
income
|
|
$ |
16,230 |
|
|
$ |
9,567 |
|
|
$ |
7,177 |
|
|
$ |
3,913 |
|
|
$ |
1,050 |
|
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Balance
Sheet Data:
|
|
(In
thousands)
|
|
Cash
and cash equivalents
|
|
$ |
8,070 |
|
|
$ |
4,549 |
|
|
$ |
5,096 |
|
|
$ |
3,905 |
|
|
$ |
1,989 |
|
Working
capital
|
|
$ |
41,368 |
|
|
$ |
24,859 |
|
|
$ |
17,078 |
|
|
$ |
9,234 |
|
|
$ |
4,013 |
|
Property
and equipment, net
|
|
$ |
3,226 |
|
|
$ |
1,806 |
|
|
$ |
960 |
|
|
$ |
806 |
|
|
$ |
699 |
|
Goodwill
and intangible assets, net
|
|
$ |
121,339 |
|
|
$ |
81,056 |
|
|
$ |
52,031 |
|
|
$ |
37,340 |
|
|
$ |
11,694 |
|
Total
assets
|
|
$ |
189,992 |
|
|
$ |
131,000 |
|
|
$ |
84,935 |
|
|
$ |
62,582 |
|
|
$ |
20,260 |
|
Current
portion of long term debt and line of credit
|
|
$ |
-- |
|
|
$ |
1,201 |
|
|
$ |
1,581 |
|
|
$ |
1,379 |
|
|
$ |
367 |
|
Long-term
debt and line of credit, less current portion
|
|
$ |
-- |
|
|
$ |
137 |
|
|
$ |
5,338 |
|
|
$ |
2,902 |
|
|
$ |
436 |
|
Total
stockholders' equity
|
|
$ |
165,562 |
|
|
$ |
107,352 |
|
|
$ |
65,911 |
|
|
$ |
44,622 |
|
|
$ |
16,016 |
|
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
|
You
should read the following summary together with the more detailed business
information and consolidated financial statements and related notes that appear
elsewhere in this annual report and in the documents that we incorporate by
reference into this annual report. This annual report may contain certain
“forward-looking” information within the meaning of the Private Securities
Litigation Reform Act of 1995. This information involves risks and
uncertainties. Our actual results may differ materially from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in “Risk
Factors.”
Overview
We are an
information technology consulting firm serving Forbes Global 2000 (“Global
2000”) and large enterprise companies primarily in the United States. We help
clients gain competitive advantage by using Internet-based technologies to make
their businesses more responsive to market opportunities and threats, strengthen
relationships with customers, suppliers and partners, improve productivity and
reduce information technology costs. Our solutions enable these benefits by
integrating, automating and extending business processes, technology
infrastructure and software applications end-to-end within an organization and
with key partners, suppliers and customers. This provides real-time access to
critical business applications and information and a scalable, reliable, secure
and cost-effective technology infrastructure.
Services
Revenues
Services
revenues are derived from professional services performed developing,
implementing, integrating, automating and extending business processes,
technology infrastructure and software applications. Most of our projects are
performed on a time and materials basis, and a smaller amount of revenues is
derived from projects performed on a fixed fee basis. Fixed fee engagements
represented approximately 13% of our services revenues for the year ended
December 31, 2007. For time and material projects, revenues are recognized and
billed by multiplying the number of hours our professionals expend in the
performance of the project by the established billing rates. For fixed fee
projects, revenues are generally recognized using the proportionate performance
method. Revenues on uncompleted projects are recognized on a
contract-by-contract basis in the period in which the portion of the fixed fee
is complete. Amounts invoiced to clients in excess of revenues recognized are
classified as deferred revenues. The Company’s average bill rates increased
slightly from $109 per hour in 2006 to $114 per hour in 2007. The Company is
anticipating modest increases in billing rates in 2008. On most projects, we are
also reimbursed for out-of-pocket expenses such as airfare, lodging and meals.
These reimbursements are included as a component of revenues. The aggregate
amount of reimbursed expenses will fluctuate depending on the location of our
customers, the total number of our projects that require travel, and whether our
arrangements with our clients provide for the reimbursement of travel and other
project related expenses.
Software
Revenues
Software
revenues are derived from sales of third-party software. Revenues from sales of
third-party software are recorded on a gross basis provided we act as a
principal in the transaction. In the event we do not meet the requirements to be
considered a principal in the software sale transaction and act as an agent, the
revenues are recorded on a net basis. Software revenues are expected to
fluctuate from quarter-to-quarter depending on our customers' demand for
software products.
If we
enter into contracts for the sale of services and software, Company management
evaluates whether the services are essential to the functionality of the
software and whether the Company has objective fair value evidence for each
deliverable in the transaction. If management concludes the services to be
provided are not essential to the functionality of the software and can
determine objective fair value evidence for each deliverable of the transaction,
then we account for each deliverable in the transaction separately, based on the
relevant revenue recognition policies. Generally, all deliverables of our
multiple element arrangements meet these criteria.
Cost
of revenues
Cost of
revenues consists primarily of cash and non-cash compensation and benefits
associated with our technology professionals and subcontractors. Non-cash
compensation includes stock compensation expenses arising from restricted stock
and option grants to employees. Cost of revenues also includes third-party
software costs, reimbursable expenses and other unreimbursed project related
expenses. Project related expenses will fluctuate generally depending on outside
factors including the cost and frequency of travel and the location of our
customers. Cost of revenues does not include depreciation of assets used in the
production of revenues which are primarily personal computers, servers and other
IT related equipment.
Gross
Margins
Our gross
margins for services are affected by the utilization rates of our professionals,
defined as the percentage of our professionals' time billed to customers divided
by the total available hours in the respective period, the salaries we pay our
consulting professionals and the average billing rate we receive from our
customers. If a project ends earlier than scheduled or we retain professionals
in advance of receiving project assignments, or if demand for our services
declines, our utilization rate will decline and adversely affect our gross
margins. Subject to fluctuations resulting from our acquisitions, we expect
these key metrics of our services business to remain relatively constant for the
foreseeable future assuming there are no further declines in the demand for
information technology software and services. Gross margin percentages of third
party software sales are typically lower than gross margin percentages for
services, and the mix of services and software for a particular period can
significantly impact total combined gross margin percentage for such period. In
addition, gross margin for software sales can fluctuate due to pricing and other
competitive pressures.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses (“SG&A”) consist of salaries, benefits,
bonuses, non-cash compensation, office costs, recruiting, professional fees,
sales and marketing activities, training, and other miscellaneous expenses.
Non-cash compensation includes stock compensation expenses related to restricted
stock and option grants to employees and non-employee directors. We work to
minimize selling costs by focusing on repeat business with existing customers
and by accessing sales leads generated by our software business partners, most
notably IBM, whose products we use to design and implement solutions for our
clients. These partnerships enable us to reduce our selling costs and sales
cycle times and increase win rates through leveraging our partners' marketing
efforts and endorsements. A substantial portion of our SG&A costs are
relatively fixed.
Plans
for Growth and Acquisitions
Our goal
is to continue to build one of the leading independent information technology
consulting firms in North America by expanding our relationships with existing
and new clients, leveraging our operations to expand nationally and continuing
to make disciplined acquisitions. We believe the United States represents an
attractive market for growth, primarily through acquisitions. As demand for our
services grows, we believe we will attempt to increase the number of
professionals in our 18 North American offices and to add new offices throughout
the United States, both organically and through acquisitions. We also intend to
continue to leverage our existing ‘offshore’ capabilities to support our growth
and provide our clients flexible options for project delivery. In addition, we
believe our track record for identifying acquisitions and our ability to
integrate acquired businesses helps us complete acquisitions efficiently and
productively, while continuing to offer quality services to our clients,
including new clients resulting from the acquisitions.
Consistent
with our strategy of growth through disciplined acquisitions, we consummated
nine acquisitions since January 1, 2005, including four in 2007.
Results
of Operations
The
following table summarizes our results of operations as a percentage of total
revenues:
Revenues:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Services
revenues
|
|
|
87.8
|
% |
|
|
85.6
|
% |
|
|
86.3
|
% |
Software
revenues
|
|
|
6.5 |
|
|
|
9.0 |
|
|
|
9.7 |
|
Reimbursable
expenses
|
|
|
5.7 |
|
|
|
5.4 |
|
|
|
4.0 |
|
Total
revenues
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Cost
of revenues (exclusive of depreciation and amortization, shown separately
below):
|
|
|
|
|
|
|
|
|
|
|
|
|
Project
personnel costs
|
|
|
52.6 |
|
|
|
52.3 |
|
|
|
52.7 |
|
Software
costs
|
|
|
5.5 |
|
|
|
7.5 |
|
|
|
8.0 |
|
Reimbursable
expenses
|
|
|
5.7 |
|
|
|
5.4 |
|
|
|
4.0 |
|
Other
project related expenses
|
|
|
1.5 |
|
|
|
1.3 |
|
|
|
1.9 |
|
Total
cost of revenues
|
|
|
65.3 |
|
|
|
66.5 |
|
|
|
66.6 |
|
Services
gross margin
|
|
|
38.4 |
|
|
|
37.4 |
|
|
|
36.7 |
|
Software
gross margin
|
|
|
15.9 |
|
|
|
16.1 |
|
|
|
17.8 |
|
Total
gross margin
|
|
|
34.7 |
|
|
|
33.5 |
|
|
|
33.4 |
|
Selling,
general and administrative
|
|
|
19.2 |
|
|
|
20.1 |
|
|
|
18.5 |
|
Depreciation
and amortization
|
|
|
2.9 |
|
|
|
2.7 |
|
|
|
2.3 |
|
Income
from operations
|
|
|
12.6 |
|
|
|
10.6 |
|
|
|
12.6 |
|
Interest
income (expense), net
|
|
|
0.1 |
|
|
|
(0.2
|
) |
|
|
(0.7
|
) |
Income
before income taxes
|
|
|
12.7 |
|
|
|
10.5 |
|
|
|
11.9 |
|
Provision
for income taxes
|
|
|
5.2 |
|
|
|
4.5 |
|
|
|
4.6 |
|
Net
income
|
|
|
7.5
|
% |
|
|
6.0
|
% |
|
|
7.3
|
% |
Year
Ended December 31, 2007 Compared to Year Ended December 31, 2006
Revenues. Total revenues
increased 36% to $218.1 million for the year ended December 31, 2007 from $160.9
million for the year ended December 31, 2006.
|
|
Financial
Results
|
|
|
Explanation
for Increases Over Prior Year Period
|
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
|
For
the Year Ended December 31, 2007
|
|
|
For
the Year Ended December 31, 2006
|
|
|
Total
Increase Over Prior Year Period
|
|
|
Increase
Attributable to Acquired Companies*
|
|
|
Increase
Attributable to Base Business**
|
|
|
%
Increase in Total Revenue Attributable to Base Business
|
|
Services
Revenues
|
|
$ |
191,395 |
|
|
$ |
137,722 |
|
|
$ |
53,673 |
|
|
$ |
43,437 |
|
|
$ |
10,236 |
|
|
|
19 |
% |
Software
Revenues
|
|
|
14,243 |
|
|
|
14,435 |
|
|
|
(192 |
) |
|
|
1,570 |
|
|
|
(1,762 |
) |
|
|
921 |
% |
Reimbursable
Expenses
|
|
|
12,510 |
|
|
|
8,769 |
|
|
|
3,741 |
|
|
|
2,578 |
|
|
|
1,163 |
|
|
|
31 |
% |
Total
Revenues
|
|
$ |
218,148 |
|
|
$ |
160,926 |
|
|
$ |
57,222 |
|
|
$ |
47,585 |
|
|
$ |
9,637 |
|
|
|
17 |
% |
*Defined
as companies acquired during 2006 and 2007.
**Defined
as businesses owned as of January 1, 2006.
Services revenues increased 39% to
$191.4 million for the year ended December 31, 2007 from $137.7 million for the
year ended December 31, 2006. Base business accounted for 19% of the increase in
services revenues for the year ended December 31, 2007 compared to the year
ended December 31, 2006. The remaining 81% of the increase is attributable
to revenues generated from the companies acquired during 2006 and
2007.
Software
revenues decreased 1% to $14.2 million in 2007 from $14.4 million in
2006. Software revenues attributable to our base business decreased $1.8
million while software revenues attributable to acquired companies increased
$1.6 million, resulting in a net decrease of $192,000. Reimbursable expenses
increased 43% to $12.5 million in 2007 from $8.8 million in 2006 due to
acquisitions and an increased number of projects requiring consultant travel. We
do not realize any profit on reimbursable expenses.
Cost of revenues. Cost of
revenues increased 33% to $142.5 million for the year ended December 31, 2007
from $107.2 million for the year ended December 31, 2006. Base business
accounted for 14% of the $35.3 million increase in cost of revenues for the year
ended December 31, 2007 compared to the year ended December 31, 2006. The
remaining increase in cost of revenues is attributable to the acquired
companies. The average number of professionals performing services, including
subcontractors, increased to 1,026 for the year ended December 31, 2007 from 686
for the year ended December 31, 2006.
Costs
associated with software sales decreased 1% to $12.0 million for year
ended December 31, 2007 from $12.1 million for the year ended December 31,
2006 due to an increase in sales of our higher margin internally developed
software. Costs associated with software sales attributable to our base business
decreased $1.4 million, while costs associated with software sales attributable
to acquired companies increased $1.3 million, resulting in a net decrease of
$135,000.
Gross Margin. Gross margin
increased 41% to $75.7 million for the year ended December 31, 2007 from $53.8
million for the year ended December 31, 2006. Gross margin as a percentage of
revenues increased to 34.7% for the year ended December 31, 2007 from 33.4% for
the year ended December 31, 2006 due primarily to an increase in services gross
margin offset by a slight decrease in margin from software. Services gross
margin, excluding reimbursable expenses, increased to 38.4% in 2007 from 37.4%
in 2006 primarily due to lower bonus as a percent of revenues and lower direct
labor cost as a percent of revenues driven by improved billing rates. The
average utilization rate of our professionals, excluding subcontractors,
decreased slightly to 81% for the year ended December 31, 2007 from 83%
for the year ended December 31, 2006. Average billing rates were $114 for
2007 and $109 for 2006. Software gross margin decreased to 15.9% in 2007 from
16.1% in 2006 primarily as a result of fluctuations in vendor and competitive
pricing based on market conditions at the time of the sales.
Selling, General and
Administrative. Selling, general and administrative expenses increased
30% to $42.0 million for the year ended December 31, 2007 from $32.3 million for
the year ended December 31, 2006 due primarily to fluctuations in expenses
as detailed in the following table:
|
|
Increase
/ (Decrease)
|
|
Selling,
General, and Administrative Expense
|
|
(in
millions)
|
|
Sales
related costs
|
|
$ |
3.4 |
|
Stock
compensation expense
|
|
|
2.5 |
|
Salary
expense
|
|
|
1.9 |
|
Bad
debts
|
|
|
0.8 |
|
Office
and technology-related costs
|
|
|
1.6 |
|
Recruiting
and training-related costs
|
|
|
0.8 |
|
Other
|
|
|
0.5 |
|
Bonus
expense
|
|
|
(1.8 |
) |
Net
increase
|
|
$ |
9.7 |
|
Selling,
general and administrative expenses as a percentage of revenues decreased
to 19% for the year ended December 31, 2007 from 20% for the year ended December
31, 2006, primarily driven by lower bonus costs as a percent of revenue and the
Company leveraging its infrastructure. Bonus costs, as a percentage of
service revenues, excluding reimbursable expenses, decreased to 1.6% for the
year ended December 31, 2007 compared to 3.5% for the year ended December 31,
2006 due to increasingly challenging growth and profitability targets in 2007.
Stock compensation expense, as a percentage of services revenues, excluding
reimbursed expenses, increased to 2.4% for the year ended December 31, 2007
compared to 1.6% for the year ended December 31, 2006.
Depreciation. Depreciation
expense increased 64% to $1.6 million during 2007 from approximately $0.9
million during 2006. The increase in depreciation expense is due to the addition
of software programs, servers, and other computer equipment to enhance our
technology infrastructure and support our growth, both organic and
acquisition-related. Depreciation expense as a percentage of services revenue,
excluding reimbursable expenses, was 0.8% and 0.7% for the years ended December
31, 2007 and 2006, respectively.
Intangible Amortization.
Intangible amortization expense increased 36% to $4.7 million for the year ended
December 31, 2007 from approximately $3.5 million for the year ended December
31, 2006. The increase in amortization expense reflects the acquisition of
intangibles acquired in 2006 and 2007, as well as the amortization of
capitalized costs associated with internal use software. The
valuations and estimated useful lives of acquired identifiable intangible assets
are outlined in Note 13,
Business Combinations, of our consolidated financial
statements.
Net Interest Income or
Expense. We had interest income, net of interest expense, of
$172,000 for the year ended December 31, 2007 compared to interest
expense, net of interest income, of $407,000 during the year ended December
31, 2006. We repaid all outstanding debt in May 2007 and incurred no debt or
interest expense during the rest of the fiscal year.
Provision for Income Taxes. We provided for
federal, state and foreign income taxes at the applicable statutory rates
adjusted for non-deductible expenses. Our effective tax rate decreased to 41.3%
for the year ended December 31, 2007 from 43.2% for the year ended December 31,
2006. The effective income tax rate decreased as a result of the increased
tax benefit of certain dispositions of incentive stock options by holders and a
decrease in the state income taxes, net of the federal benefit.
Year
Ended December 31, 2006 Compared to Year Ended December 31, 2005
Revenues. Total revenues
increased 66% to $160.9 million for the year ended December 31, 2006 from $97.0
million for the year ended December 31, 2005.
|
|
Financial
Results
|
|
|
Explanation
for Increases Over Prior Year Period
|
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
|
For
the Year Ended December 31, 2006
|
|
|
For
the Year Ended December 31, 2005
|
|
|
Total
Increase Over Prior Year Period
|
|
|
Increase
Attributable to Acquired Companies*
|
|
|
Increase
Attributable to Base Business**
|
|
|
%
Increase in Total Revenue Attributable to Base Business
|
|
Services
Revenues
|
|
$ |
137,722 |
|
|
$ |
83,740 |
|
|
$ |
53,982 |
|
|
$ |
38,715 |
|
|
$ |
15,267 |
|
|
|
28 |
% |
Software
Revenues
|
|
|
14,435 |
|
|
|
9,387 |
|
|
|
5,048 |
|
|
|
1,201 |
|
|
|
3,847 |
|
|
|
76 |
% |
Reimbursable
Expenses
|
|
|
8,769 |
|
|
|
3,870 |
|
|
|
4,899 |
|
|
|
2,735 |
|
|
|
2,164 |
|
|
|
44 |
% |
Total
Revenues
|
|
$ |
160,926 |
|
|
$ |
96,997 |
|
|
$ |
63,929 |
|
|
$ |
42,651 |
|
|
$ |
21,278 |
|
|
|
33 |
% |
*Defined
as companies acquired during 2005 and 2006.
**Defined
as businesses owned as of January 1, 2005.
Services
revenues increased 65% to $137.7 million for the year ended December 31, 2006
from $83.7 million for the year ended December 31, 2005. Base business
accounted for 28% of the increase in services revenues for the year ended
December 31, 2006 compared to the year ended December 31, 2005. The remaining
72% of the increase is attributable to revenues generated from the
companies acquired during 2005 and 2006.
Software
revenues increased 54% to $14.4 million in 2006 from $9.4 million in
2005. Base business accounted for 76% of the increase in software revenues
for the year ended December 31, 2006 compared to the year ended December 31,
2005. The remaining 24% of the increase is attributable to revenues
generated from the companies acquired during 2005
and 2006. Reimbursable expenses increased 127% to $8.8 million in 2006
from $3.9 million in 2005 due to acquisitions and an increased number of
projects requiring consultant travel. We do not realize any profit on
reimbursable expenses.
Cost of revenues. Cost of
revenues increased 66% to $107.2 million for the year ended December 31, 2006
from $64.6 million for the year ended December 31, 2005. Base business accounted
for 40% of the $42.6 million increase in cost of revenues for the year ended
December 31, 2006 compared to the year ended December 31, 2005. The
remaining increase in cost of revenues is attributable to the acquired
companies. The average number of professionals performing services, including
subcontractors, increased to 686 for the year ended December 31, 2006 from 431
for the year ended December 31, 2005. Stock compensation expense included in
cost of revenues for the year ended December 31, 2006 was nearly $1 million. No
stock compensation expense was recognized in cost of revenues prior to January
1, 2006. The increase in stock compensation expense is the result of our
adoption of Statement of Financial Accounting Standards No. 123 (revised) (“SFAS
123R”), Share Based
Payment, on January 1, 2006.
Costs
associated with software sales increased 57% to $12.1 million for year
ended December 31, 2006 from $7.7 million for the year ended December 31,
2005 in connection with the increased software revenues in 2006 compared to
2005. Base business accounted for 76% of the $4.4 million increase in
costs associated with software sales for the year ended December 31, 2006
compared to the year ended December 31, 2005. The remaining 24%
increase in costs associated with software sales is attributable to acquired
companies.
Gross Margin. Gross margin
increased 66% to $53.8 million for the year ended December 31, 2006 from $32.4
million for the year ended December 31, 2005. Gross margin as a percentage of
revenues remained consistent at 33.4% for the years ended December 31,
2006 and 2005. Services gross margin, excluding reimbursable expenses,
increased to 37.4% in 2006 from 36.7% in 2005 primarily due to an increase in
average billing rates and improved project pricing. This increase is
partially offset by $1.0 million of stock compensation expense recognized in
cost of revenues during the year ended December 31, 2006, as discussed
above. The average utilization rate of our professionals, excluding
subcontractors, remained consistent at 83% for the years ended December 31, 2006
and 2005. Average billing rates were $109 for 2006 and $110 for 2005. Software
gross margin decreased to 16.1% in 2006 from 17.7% in 2005, primarily as a
result of fluctuations in vendor and competitive pricing based on market
conditions at the time of the sales.
Selling, General and
Administrative. Selling, general and administrative expenses increased
80% to $32.3 million for the year ended December 31, 2006 from $17.9 million for
the year ended December 31, 2005 due primarily to fluctuations in
expenses as detailed in the following table:
|
|
Increase
/(Decrease)
|
|
Selling,
General, and Administrative Expense
|
|
(in
millions)
|
|
Bonus
expense
|
|
$ |
3.5 |
|
Sales
related costs
|
|
|
3.2 |
|
Salary
expense
|
|
|
1.9 |
|
Stock
compensation expense
|
|
|
1.9 |
|
Recruiting
and training-related costs
|
|
|
1.4 |
|
Office
and technology-related costs
|
|
|
1.2 |
|
Other
|
|
|
0.9 |
|
Bad
debts
|
|
|
0.4 |
|
Net
increase
|
|
$ |
14.4 |
|
Selling,
general and administrative expenses as a percentage of revenues increased
to 20% for the year ended December 31, 2006 from 19% for the year ended December
31, 2005, primarily due to higher bonus and recruiting, partially offset by
lower office costs, salaries, and professional fees. Bonus costs, as a
percentage of service revenues, excluding reimbursable expenses, increased to
3.5% for the year ended December 31, 2006 compared to 1.6% for the year ended
December 31, 2005 due to strong operating performance. Stock compensation
expense, as a percentage of services revenues, excluding reimbursed expenses,
increased to 1.6% for the year ended December 31, 2006 compared to 0.3% for the
year ended December 31, 2005.
Depreciation. Depreciation
expense increased 54% to $948,000 during 2006 from approximately $615,000 during
2005. The increase in depreciation expense is due to the addition of software
programs, servers, and other computer equipment to enhance our technology
infrastructure and support our growth, both organic and acquisition-related.
Depreciation expense as a percentage of services revenue, excluding reimbursable
expenses, was 0.6% for the years ended December 31, 2006 and 2005.
Intangible Amortization.
Intangible amortization expense increased 115% to $3.5 million for the year
ended December 31, 2006 from approximately $1.6 million for the year ended
December 31, 2005. The increase in amortization expense reflects the acquisition
of intangibles acquired in 2005 and 2006.
Interest Expense. Interest
expense decreased 23% to $509,000 for the year ended December 31, 2006 compared
to approximately $658,000 during the year ended December 31, 2005. This decrease
is primarily due to a lower average amount of debt outstanding during 2006
compared to 2005. As of December 31, 2006, there was approximately $1.3 million
outstanding on the acquisition line of credit and no amounts outstanding on the
accounts receivable line of credit. Our outstanding borrowings on the
acquisition line of credit had an average interest rate of 7.0% for the year
ended December 31, 2006 while the average interest rate on our accounts
receivable line of credit borrowings for the year ended December 31, 2006 was
7.96%. During 2006, we drew down $34.9 million on the accounts receivable line
of credit and repaid $38.9 million.
Provision for Income Taxes. We provided for
federal, state and foreign income taxes at the applicable statutory rates
adjusted for non-deductible expenses. Our effective tax rate increased to 43.2%
for the year ended December 31, 2006 from 38.5% for the year ended December 31,
2005 as a result of non-deductible stock compensation related to incentive
stock options included in our statement of operations in 2006 as a result of the
adoption of SFAS 123R on January 1, 2006 and certain non-deductible compensation
related to Section 162(m) of the Internal Revenue Code, which imposes a
limitation on the deductibility of certain compensation in excess of $1 million
paid to covered employees.
Liquidity
and Capital Resources
Selected
measures of liquidity and capital resources are as follows (in
millions):
|
|
As
of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Cash
and cash equivalents
|
|
$ |
8.1 |
|
|
$ |
4.5 |
|
Working
capital
|
|
$ |
41.4 |
|
|
$ |
24.9 |
|
Amounts
available under credit facilities
|
|
$ |
49.8 |
|
|
$ |
49.5 |
|
Net
Cash Provided By Operating Activities
We expect
to fund our operations from cash generated from operations and short-term
borrowings as necessary from our credit facilities. We believe that these
capital resources will be sufficient to meet our needs for at least the next
twelve months. Net cash provided by operations for the year ended December 31,
2007 was $23.1 million compared to $13.1 million for the year ended December 31,
2006. For the year ended December 31, 2007, net income of $16.2 million plus
non-cash charges of $12.0 million were offset by investments in working capital
of $5.1 million. The primary components of operating cash flows for
the year ended December 31, 2006 were net income of $9.6 million plus non-cash
expenses of $8.9 million offset by investments in working capital of $5.4
million. The Company’s days sales outstanding as of December 31, 2007
increased to 73 days from 70 days at December 31, 2006.
Net
Cash Used in Investing Activities
For the
year ended December 31, 2007, we used approximately $26.8 million in cash, net
of cash acquired, to acquire E Tech, Tier1, BoldTech, and ePairs. In addition,
we used approximately $2.2 million during 2007 to purchase equipment and develop
certain software. For the year ended December 31, 2006, we used approximately
$17.2 million in cash, net of cash acquired, to acquire Bay Street, Insolexen,
and EGG. In addition, during 2006 we used approximately $1.7 million to purchase
equipment and develop certain software, and $250,000 to repay the promissory
notes related to the Javelin acquisition.
Net
Cash Provided By Financing Activities
During
the year ended December 31, 2007 our financing activities consisted of $1.3
million of payments on long-term debt. Also, we received $3.9 million primarily
from proceeds related to exercises of stock options and purchases under our
Employee Stock Purchase Plan and we realized tax benefits related to stock
option exercises and restricted stock vesting of $6.9 million during 2007.
During the year ended December 31, 2006 our financing activities consisted of
net payments totaling $4.0 million on our accounts receivable line of credit and
$1.3 million of payments on long-term debt. We received $4.2 million primarily
from proceeds related to exercises of stock options and warrants, and purchases
under our Employee Stock Purchase Plan, and we realized tax benefits related to
stock option exercises of $6.6 million during 2006.
Availability
of Funds from Bank Line of Credit Facilities
We have a
$50 million credit facility with Silicon Valley Bank and Key Bank National
Association (“Key Bank”) comprising a $25 million accounts receivable line
of credit and a $25 million acquisition line of credit. Borrowings under
the accounts receivable line of credit bear interest at the bank's prime
rate (7.25% on December 31, 2007). As of December 31, 2007, there was no
outstanding balance under the accounts receivable line of credit and
$24.8 million of available borrowing capacity due to an outstanding letter
of credit to secure an office lease. Additionally, the line of credit
bears an annual commitment fee of 0.12% on the unused portion of the line of
credit.
Our $25 million term acquisition line of credit with Silicon Valley Bank
and Key Bank provides an additional source of financing for certain qualified
acquisitions. As of December 31, 2007, there was no balance outstanding under
this acquisition line of credit. Borrowings under this acquisition line of
credit bear interest equal to the four year U.S. Treasury note yield plus 3%
based on the spot rate on the day the draw is processed (6.29% on December 31,
2007). Draws under this acquisition line may be made through June 2008. We
currently have $25 million of available borrowing capacity under this
acquisition line of credit. Additionally, the line of credit bears an
annual commitment fee of 0.12% on the unused portion of the line of
credit.
As of
December 31, 2007, we were in compliance with all covenants under our credit
facility and we expect to be in compliance during the next twelve months.
Substantially all of our assets are pledged to secure the credit
facility.
Lease
Obligations
There
were no material changes outside the ordinary course of our business in lease
obligations or other contractual obligations in 2007. We believe that the
current available funds, access to capital from our credit facilities, possible
capital from registered placements of equity through the shelf registration, and
cash flows generated from operations will be sufficient to meet our working
capital requirements and meet our capital needs to finance acquisitions for the
next twelve months.
Shelf
Registration Statement
We have
filed a shelf registration statement with the Securities and Exchange Commission
to allow for offers and sales of our common stock from time to time.
Approximately 5 million shares of common stock may be sold under this
registration statement if we choose to do so.
Contractual
Obligations
In
connection with an acquisition, we were required to establish a letter
of credit totaling $150,000 to serve as collateral to secure a facility
lease. The letter of credit reduces the borrowings available under our accounts
receivable line of credit.
We have
incurred commitments to make future payments under contracts such as leases.
Maturities under these contracts are set forth in the following table as of
December 31, 2007 (in thousands):
|
Payments Due by
Period
|
|
Contractual Obligations
|
Total
|
|
Less
Than
1
Year
|
|
1-3
Years
|
|
3-5
Years
|
|
More
Than
5
Years
|
|
Operating
lease obligations
|
$ |
8,268 |
|
$ |
2,363 |
|
$ |
3,832 |
|
$ |
1,853 |
|
$ |
220 |
|
Total
|
$ |
8,268 |
|
$ |
2,363 |
|
$ |
3,832 |
|
$ |
1,853 |
|
$ |
220 |
|
See Note
9, Income
Taxes, in Notes
to Consolidated Financial Statements for information related to the Company's
obligations for taxes.
If our
capital is insufficient to fund our activities in either the short or long term,
we may need to raise additional funds. In the ordinary course of business, we
may engage in discussions with various persons in connection with additional
financing. If we raise additional funds through the issuance of equity
securities, our existing stockholders' percentage ownership will be diluted.
These equity securities may also have rights superior to our common stock.
Additional debt or equity financing may not be available when needed or on
satisfactory terms. If adequate funds are not available on acceptable terms, we
may be unable to expand our services, respond to competition, pursue acquisition
opportunities or continue our operations.
Critical
Accounting Policies
The
Company's accounting policies are described in Note 2, Summary of Significant Accounting
Policies, in Notes to Consolidated Financial Statements. The Company
believes its most critical accounting policies include revenue recognition,
estimating the allowance for doubtful accounts, accounting for goodwill and
intangible assets, purchase accounting allocation, accounting for stock-based
compensation, deferred income taxes and estimating the related valuation
allowance.
Revenue
Recognition and Allowance for Doubtful Accounts
Revenues
are primarily derived from professional services provided on a time and
materials basis. For time and material contracts, revenues are recognized
and billed by multiplying the number of hours expended in the performance of the
contract by the established billing rates. For fixed fee projects,
revenues are generally recognized using the proportionate performance
method based on the ratio of hours expended to total estimated hours. Billings
in excess of costs plus earnings are classified as deferred revenues. On many
projects the Company is also reimbursed for out-of-pocket expenses such as
airfare, lodging and meals. These reimbursements are included as a
component of revenues. Revenues from software sales are recorded on a gross
basis based on the Company's role as principal in the transaction.
Revenues
are recognized when the following criteria are met: (1) persuasive evidence
of the customer arrangement exists, (2) fees are fixed and determinable,
(3) delivery and acceptance have occurred, and (4) collectibility is
deemed probable. The Company's policy for revenue recognition in instances where
multiple deliverables are sold contemporaneously to the same counterparty is in
accordance with American Institute of Certified Public Accountants (“AICPA”)
Statement of Position 97-2,
Software Revenue Recognition, Emerging Issues Task Force ("EITF") Issue
No. 00-21, Revenue
Arrangements with Multiple Deliverables, and SEC Staff Accounting
Bulletin No. 104, Revenue
Recognition. Specifically, if the Company enters into contracts for the
sale of services and software, then the Company evaluates whether the services
are essential to the functionality of the software and whether it has objective
fair value evidence for each deliverable in the transaction. If the Company has
concluded that the services to be provided are not essential to the
functionality of the software and it can determine objective fair value evidence
for each deliverable of the transaction, then it accounts for each deliverable
in the transaction separately, based on the relevant revenue recognition
policies. Generally, all deliverables of the Company's multiple element
arrangements meet these criteria. The Company follows the guidelines
discussed above in determining revenues; however, certain judgments and
estimates are made and used to determine revenues recognized in any accounting
period. Material differences may result in the amount and timing of revenues
recognized for any period if different conditions were to
prevail.
Our
allowance for doubtful accounts is based upon specific identification of likely
and probable losses. Each accounting period, we evaluate accounts receivable for
risk associated with a client's inability to make contractual payments or
unresolved issues with the adequacy of our services. Billed and unbilled
receivables that are specifically identified as being at risk are provided for
with a charge to revenue or bad debts as appropriate in the period the risk is
identified. We use considerable judgment in assessing the ultimate realization
of these receivables, including reviewing the financial stability of the client,
evaluating the successful mitigation of service delivery disputes, and gauging
current market conditions. If our evaluation of service delivery issues or a
client's ability to pay is incorrect, we may incur future reductions to revenue
or bad debt expense.
Goodwill,
Other Intangible Assets and Impairment of Long-Lived Assets
Goodwill
represents the excess purchase price over the fair value of net assets acquired,
or net liabilities assumed, in a business combination. In accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”), the Company performs an annual impairment test of
goodwill. The Company evaluates goodwill at the enterprise level as of October 1
each year or more frequently if events or changes in circumstances indicate that
goodwill might be impaired. As required by SFAS 142, the impairment test is
accomplished using a two-stepped approach. The first step screens for
impairment and, when impairment is indicated, a second step is employed to
measure the impairment. The Company also reviewed other factors to determine the
likelihood of impairment. No impairment was indicated using data as of October
1, 2007.
Other
intangible assets include customer relationships, non-compete arrangements and
internally developed software, and are being amortized over the assets'
estimated useful lives using the straight-line method. Estimated useful lives
range from three to eight years. Amortization of customer relationships,
non-compete arrangements and internally developed software are considered
operating expenses and are included in “Amortization of intangible assets” in
the accompanying consolidated Statements of Income. The Company periodically
reviews the estimated useful lives of its identifiable intangible assets, taking
into consideration any events or circumstances that might result in a lack of
recoverability or revised useful life.
Purchase
Price Allocation
We
allocate the purchase price of our acquisitions to the assets and liabilities
acquired, including identifiable intangible assets, based on their respective
fair values at the date of acquisition. Some of the items, including accounts
receivable, property and equipment, other intangible assets, certain accrued
liabilities, and other reserves require a high degree of management judgment.
Certain estimates may change as additional information becomes available.
Goodwill is assigned at the enterprise level and is deductible for tax purposes
for certain types of acquisitions. The purchase price is allocated to
intangibles based on management's estimate and an independent valuation.
Management finalizes the purchase price allocation within twelve months of the
acquisition date as certain initial accounting estimates are
resolved.
Accounting
for Stock-Based Compensation
We
adopted SFAS No. 123R, Share-Based Payment (“SFAS No. 123R”), on
January 1, 2006, using the modified prospective application transition method.
SFAS No. 123R requires that the costs of employee share-based payments be
measured at fair value on the awards' grant date and recognized in the financial
statements over the requisite service period.
The
Company estimates the fair value of stock option awards on the date of grant
utilizing a modified Black-Scholes option pricing model. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
short-term traded options that have no vesting restrictions and are fully
transferable. However, certain assumptions used in the Black-Scholes model, such
as expected term, can be adjusted to incorporate the unique characteristics of
the Company’s stock option awards. Option valuation models require the input of
somewhat subjective assumptions including expected stock price volatility and
expected term. The Company believes it is unlikely that materially different
estimates for the assumptions used in estimating the fair value of stock options
granted would be made based on the conditions suggested by actual historical
experience and other data available at the time estimates were made. Restricted
stock awards are valued at the price of our common stock on the date of the
grant.
Prior to
January 1, 2006, the Company accounted for share-based compensation using
the intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25, Accounting
for Stock Issued to Employees (“APB No. 25”), and related interpretations
and elected the disclosure option of SFAS No. 123 (“SFAS No. 123”) as amended by
SFAS No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure (“SFAS No. 148”). SFAS
No. 123 required that companies either recognize compensation expense for grants
of stock, stock options and other equity instruments based on fair value, or
provide pro-forma disclosure of net income and earnings per share in the notes
to the financial statements. Accordingly, the Company measured compensation
expense for stock options as the excess, if any, of the estimated fair market
value of the Company's stock at the date of grant over the exercise price. The
Company provided pro-forma effects of this measurement in a footnote to its
financial statements for the year ended December 31, 2005.
Income
Taxes
To record
income tax expense, we are required to estimate our income taxes in each of the
jurisdictions in which we operate. In addition, income tax expense at interim
reporting dates requires us to estimate our expected effective tax rate for the
entire year. This involves estimating our actual current tax liability together
with assessing temporary differences that result in deferred tax assets and
liabilities and expected future tax rates.
Recent
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141 (revised 2007), Business
Combinations (“SFAS 141R”), which is a revision of SFAS No. 141, Business
Combinations. SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in the acquiree, recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase, and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 141R applies prospectively to business combinations
for which the acquisition date is on or after January 1, 2009. The
revised statement will require that transaction costs be expensed instead of
recognized as purchase price. The Company is currently evaluating the impact of
SFAS 141R on its consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, Including an amendment of SFAS
No. 115 (“SFAS 159”). SFAS 159 permits companies to choose
to measure many financial instruments and certain other items at fair value.
SFAS 159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. The Company does not expect that the
pronouncement will have a material impact on its consolidated financial
statements.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. SFAS 157 will be applied prospectively and will
be effective for periods beginning after November 15, 2007. The FASB
issued Staff Position No. 157-2 (“FSP 157-2”) in February 2008, which delayed
the effective date of SFAS 157 for certain nonfinancial assets and liabilities
to fiscal years beginning after November 15, 2008. The Company is currently
evaluating the effect, if any, of SFAS 157 and does not expect that the
pronouncement will have a material impact on its consolidated financial
statements.
In June
2006, the FASB issued Financial Accounting Standards Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes – an
interpretation of FASB Statement No. 109 (“FIN 48”), which prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
treatment of interest and penalties, and disclosure of such positions. The
Company adopted the provisions of FIN 48 on January 1, 2007 as required and such
adoption did not have a material impact to the consolidated financial
statements.
In June
2006, the EITF ratified EITF Issue No. 06-3, How Taxes Collected From Customers
and Remitted to Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation) (“EITF
06-3”). A consensus was reached that entities may adopt a policy of
presenting taxes in the income statement on either a gross or net basis. An
entity should disclose its policy of presenting taxes and the amount of any
taxes presented on a gross basis should be disclosed, if significant. The
Company adopted EITF 06-3 on January 1, 2007. There was no effect of
the adoption on the consolidated financial statements as of December 31,
2007. The Company presents revenues net of taxes as disclosed in Note 2,
Summary of Significant
Accounting Policies.
Off-Balance
Sheet Arrangements
The
Company currently has no off-balance sheet arrangements, except operating lease
commitments as disclosed in Note 10, Commitments and
Contingencies.
|
Quantitative and Qualitative
Disclosures About Market
Risk.
|
We are
exposed to market risks related to changes in foreign currency exchange rates
and interest rates. We believe our exposure to market risks is
immaterial.
Exchange
Rate Sensitivity
During
the year ended December 31, 2007, $1.0 million and $0.6 million of our total
revenues were attributable to our Canadian operations and revenues
generated in Europe, respectively. Our exposure to changes in foreign currency
rates primarily arises from short-term intercompany transactions with our
Canadian, Chinese, and India subsidiaries and from client receivables
denominated in other than our functional currency. Our foreign
subsidiaries incur a significant portion of their expenses in their applicable
currency as well, which helps minimize our risk of exchange rate
fluctuations. Based on the amount of revenues attributed to clients
in Canada, and Europe during the year ended December 31, 2007, this
exchange rate risk will not have a material impact on our financial position or
results of operations.
Interest
Rate Sensitivity
We had
unrestricted cash and cash equivalents totaling $8.1 million and
$4.5 million at December 31, 2007 and December 31, 2006,
respectively. These amounts were invested primarily in money market
funds. The unrestricted cash and cash equivalents are held for working capital
purposes. We do not enter into investments for trading or speculative purposes.
Due to the short-term nature of these investments, we believe that we do not
have any material exposure to changes in the fair value of our investment
portfolio as a result of changes in interest rates. Declines in interest rates,
however, will reduce future investment income.
|
Financial Statements and
Supplementary Data.
|
PERFICIENT,
INC.
CONSOLIDATED
BALANCE SHEETS
AS
OF DECEMBER 31, 2007 AND 2006
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
ASSETS
|
|
(In
thousands, except share data)
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
8,070 |
|
|
$ |
4,549 |
|
Accounts
receivable, net of allowance for doubtful accounts of $1,475 in 2007 and
$707 in 2006
|
|
|
50,855 |
|
|
|
38,600 |
|
Prepaid
expenses
|
|
|
1,182 |
|
|
|
1,171 |
|
Other
current assets
|
|
|
4,142 |
|
|
|
2,799 |
|
Total
current assets
|
|
|
64,249 |
|
|
|
47,119 |
|
Property
and equipment, net
|
|
|
3,226 |
|
|
|
1,806 |
|
Goodwill
|
|
|
103,686 |
|
|
|
69,170 |
|
Intangible
assets, net
|
|
|
17,653 |
|
|
|
11,886 |
|
Other
non-current assets
|
|
|
1,178 |
|
|
|
1,019 |
|
Total
assets
|
|
$ |
189,992 |
|
|
$ |
131,000 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
4,160 |
|
|
$ |
5,025 |
|
Current
portion of long-term debt
|
|
|
-- |
|
|
|
1,201 |
|
Other
current liabilities
|
|
|
18,721 |
|
|
|
16,034 |
|
Total
current liabilities
|
|
|
22,881 |
|
|
|
22,260 |
|
Long-term
debt, less current portion
|
|
|
-- |
|
|
|
137 |
|
Deferred
income taxes
|
|
|
1,549 |
|
|
|
1,251 |
|
Total
liabilities
|
|
$ |
24,430 |
|
|
$ |
23,648 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (see Note 4 and 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Common
stock ($0.001 par value per share; 50,000,000 shares authorized and
29,423,296 shares issued and outstanding as of December 31, 2007;
26,699,974 shares issued and outstanding as of December 31, 2006)
|
|
$ |
29 |
|
|
$ |
27 |
|
Additional
paid-in capital
|
|
|
188,998 |
|
|
|
147,028 |
|
Accumulated
other comprehensive loss
|
|
|
(117
|
) |
|
|
(125
|
) |
Accumulated
deficit
|
|
|
(23,348
|
) |
|
|
(39,578
|
) |
Total
stockholders' equity
|
|
|
165,562 |
|
|
|
107,352 |
|
Total
liabilities and stockholders' equity
|
|
$ |
189,992 |
|
|
$ |
131,000 |
|
See
accompanying notes to consolidated financial statements.
PERFICIENT, INC.
CONSOLIDATED
STATEMENTS OF INCOME
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Revenues:
|
|
(In
thousands, except share data)
|
|
Services
|
|
$ |
191,395 |
|
|
$ |
137,722 |
|
|
$ |
83,740 |
|
Software
|
|
|
14,243 |
|
|
|
14,435 |
|
|
|
9,387 |
|
Reimbursable
expenses
|
|
|
12,510 |
|
|
|
8,769 |
|
|
|
3,870 |
|
Total
revenues
|
|
|
218,148 |
|
|
|
160,926 |
|
|
|
96,997 |
|
Cost
of revenues (exclusive of depreciation and amortization, shown separately
below):
|
|
|
|
|
|
|
|
|
|
|
|
|
Project
personnel costs
|
|
|
114,692 |
|
|
|
84,161 |
|
|
|
51,140 |
|
Software
costs
|
|
|
11,982 |
|
|
|
12,118 |
|
|
|
7,723 |
|
Reimbursable
expenses
|
|
|
12,510 |
|
|
|
8,769 |
|
|
|
3,870 |
|
Other
project related expenses
|
|
|
3,274 |
|
|
|
2,122 |
|
|
|
1,846 |
|
Total
cost of revenues
|
|
|
142,458 |
|
|
|
107,170 |
|
|
|
64,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
75,690 |
|
|
|
53,756 |
|
|
|
32,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
41,963 |
|
|
|
32,268 |
|
|
|
17,917 |
|
Depreciation
|
|
|
1,553 |
|
|
|
948 |
|
|
|
615 |
|
Amortization
of intangible assets
|
|
|
4,712 |
|
|
|
3,458 |
|
|
|
1,611 |
|
Income
from operations
|
|
|
27,462 |
|
|
|
17,082 |
|
|
|
12,275 |
|
Interest
income
|
|
|
239 |
|
|
|
102 |
|
|
|
15 |
|
Interest
expense
|
|
|
(67
|
) |
|
|
(509
|
) |
|
|
(658
|
) |
Other
income
|
|
|
20 |
|
|
|
174 |
|
|
|
43 |
|
Income
before income taxes
|
|
|
27,654 |
|
|
|
16,849 |
|
|
|
11,675 |
|
Provision
for income taxes
|
|
|
11,424 |
|
|
|
7,282 |
|
|
|
4,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
16,230 |
|
|
$ |
9,567 |
|
|
$ |
7,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$ |
0.58 |
|
|
$ |
0.38 |
|
|
$ |
0.33 |
|
Diluted
net income per share
|
|
$ |
0.54 |
|
|
$ |
0.35 |
|
|
$ |
0.28 |
|
Shares
used in computing basic net income per share
|
|
|
27,998,093 |
|
|
|
25,033,337 |
|
|
|
22,005,154 |
|
Shares
used in computing diluted net income per share
|
|
|
30,121,962 |
|
|
|
27,587,449 |
|
|
|
25,242,496 |
|
See
accompanying notes to consolidated financial statements.
PERFICIENT, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(In
thousands)
|
|
Common
Stock
Shares
|
|
|
Common
Stock
Amount
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders'
Equity
|
|
Balance
at January 1, 2005
|
|
|
20,657 |
|
|
$ |
21 |
|
|
$ |
100,982 |
|
|
$ |
(58 |
) |
|
$ |
(56,322 |
) |
|
$ |
44,623 |
|
Warrants
exercised
|
|
|
88 |
|
|
|
-- |
|
|
|
157 |
|
|
|
-- |
|
|
|
-- |
|
|
|
157 |
|
Stock
options exercised
|
|
|
1,354 |
|
|
|
1 |
|
|
|
2,703 |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,704 |
|
iPath
and Vivare acquisitions
|
|
|
1,196 |
|
|
|
1 |
|
|
|
8,708 |
|
|
|
-- |
|
|
|
-- |
|
|
|
8,709 |
|
Tax
benefit of stock option exercises
|
|
|
-- |
|
|
|
-- |
|
|
|
2,306 |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,306 |
|
Stock
compensation
|
|
|
-- |
|
|
|
-- |
|
|
|
264 |
|
|
|
-- |
|
|
|
-- |
|
|
|
264 |
|
Foreign
currency translation adjustment
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(29
|
) |
|
|
-- |
|
|
|
(29
|
) |
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
7,177 |
|
|
|
7,177 |
|
Total
comprehensive income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
7,148 |
|
Balance
at December 31, 2005
|
|
|
23,295 |
|
|
$ |
23 |
|
|
$ |
115,120 |
|
|
$ |
(87
|
) |
|
$ |
(49,145
|
) |
|
$ |
65,911 |
|
Bay
Street, Insolexen, and EGG acquisitions
|
|
|
1,499 |
|
|
|
2 |
|
|
|
17,989 |
|
|
|
-- |
|
|
|
-- |
|
|
|
17,991 |
|
Warrants
exercised
|
|
|
145 |
|
|
|
-- |
|
|
|
146 |
|
|
|
-- |
|
|
|
-- |
|
|
|
146 |
|
Stock
options exercised
|
|
|
1,672 |
|
|
|
2 |
|
|
|
4,001 |
|
|
|
-- |
|
|
|
-- |
|
|
|
4,003 |
|
Purchases
of stock from Employee Stock Purchase
Plan
|
|
|
6 |
|
|
|
-- |
|
|
|
86 |
|
|
|
-- |
|
|
|
-- |
|
|
|
86 |
|
Tax
benefit of stock option exercises and restricted stock
vesting
|
|
|
-- |
|
|
|
-- |
|
|
|
6,554 |
|
|
|
-- |
|
|
|
-- |
|
|
|
6,554 |
|
Stock
compensation
|
|
|
83 |
|
|
|
-- |
|
|
|
3,132 |
|
|
|
-- |
|
|
|
-- |
|
|
|
3,132 |
|
Foreign
currency translation adjustment
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(38
|
) |
|
|
-- |
|
|
|
(38
|
) |
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
9,567 |
|
|
|
9,567 |
|
Total
comprehensive income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
9,529 |
|
Balance
at December 31, 2006
|
|
|
26,700 |
|
|
$ |
27 |
|
|
$ |
147,028 |
|
|
$ |
(125 |
) |
|
$ |
(39,578 |
) |
|
$ |
107,352 |
|
E-Tech,
Tier1, BoldTech, and ePairs acquisitions
|
|
|
1,250 |
|
|
|
1 |
|
|
|
24,975 |
|
|
|
-- |
|
|
|
-- |
|
|
|
24,976 |
|
Stock
options exercised
|
|
|
1,160 |
|
|
|
1 |
|
|
|
3,696 |
|
|
|
-- |
|
|
|
-- |
|
|
|
3,697 |
|
Purchases
of stock from Employee Stock Purchase
Plan
|
|
|
11 |
|
|
|
-- |
|
|
|
206 |
|
|
|
-- |
|
|
|
-- |
|
|
|
206 |
|
Tax
benefit of stock option exercises and restricted stock
vesting
|
|
|
-- |
|
|
|
-- |
|
|
|
6,889 |
|
|
|
-- |
|
|
|
-- |
|
|
|
6,889 |
|
Stock
compensation
|
|
|
302 |
|
|
|
-- |
|
|
|
6,204 |
|
|
|
-- |
|
|
|
-- |
|
|
|
6,204 |
|
Foreign
currency translation adjustment
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
8 |
|
|
|
-- |
|
|
|
8 |
|
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
16,230 |
|
|
|
16,230 |
|
Total
comprehensive income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
16,238 |
|
Balance
at December 31, 2007
|
|
|
29,423 |
|
|
$ |
29 |
|
|
$ |
188,998 |
|
|
$ |
(117 |
) |
|
$ |
(23,348 |
) |
|
$ |
165,562 |
|
See accompanying notes to
consolidated financial statements.
PERFICIENT, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
(In
thousands)
|
|
|
|
|
Net
income
|
|
$ |
16,230 |
|
|
$ |
9,567 |
|
|
$ |
7,177 |
|
Adjustments
to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,553 |
|
|
|
948 |
|
|
|
615 |
|
Amortization
of intangibles
|
|
|
4,712 |
|
|
|
3,458 |
|
|
|
1,611 |
|
Deferred
income taxes
|
|
|
(495
|
) |
|
|
1,393 |
|
|
|
(219
|
) |
Non-cash
stock compensation
|
|
|
6,204 |
|
|
|
3,132 |
|
|
|
264 |
|
Non-cash
interest expense
|
|
|
-- |
|
|
|
6 |
|
|
|
24 |
|
Tax
benefit on stock options
|
|
|
-- |
|
|
|
-- |
|
|
|
2,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,589
|
) |
|
|
(5,771
|
) |
|
|
148 |
|
Other
assets
|
|
|
3,256 |
|
|
|
(294
|
) |
|
|
(1,714
|
) |
Accounts
payable
|
|
|
(1,694
|
) |
|
|
1,251 |
|
|
|
(3,155
|
) |
Other
liabilities
|
|
|
(5,126
|
) |
|
|
(543
|
) |
|
|
2,157 |
|
Net
cash provided by operating activities
|
|
|
23,051 |
|
|
|
13,147 |
|
|
|
9,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(2,035
|
) |
|
|
(1,518
|
) |
|
|
(691
|
) |
Capitalization
of software developed for internal use
|
|
|
(181
|
) |
|
|
(136
|
) |
|
|
(599
|
) |
Purchase
of businesses, net of cash acquired
|
|
|
(26,774
|
) |
|
|
(17,210
|
) |
|
|
(11,231
|
) |
Payments
on Javelin notes
|
|
|
-- |
|
|
|
(250
|
) |
|
|
(250
|
) |
Net
cash used in investing activities
|
|
|
(28,990
|
) |
|
|
(19,114
|
) |
|
|
(12,771
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from short-term borrowings
|
|
|
11,900 |
|
|
|
34,900 |
|
|
|
12,000 |
|
Payments
on short-term borrowings
|
|
|
(11,900
|
) |
|
|
(38,900
|
) |
|
|
(8,000
|
) |
Payments
on long-term debt
|
|
|
(1,338
|
) |
|
|
(1,338
|
) |
|
|
(1,135
|
) |
Deferred
offering costs
|
|
|
-- |
|
|
|
-- |
|
|
|
(942
|
) |
Tax
benefit on stock options and restricted stock vesting
|
|
|
6,889 |
|
|
|
6,554 |
|
|
|
-- |
|
Proceeds
from the exercise of stock options and Employee Stock Purchase
Plan
|
|
|
3,903 |
|
|
|
4,089 |
|
|
|
2,704 |
|
Proceeds
from the exercise of warrants
|
|
|
-- |
|
|
|
146 |
|
|
|
157 |
|
Net
cash provided by financing activities
|
|
|
9,454 |
|
|
|
5,451 |
|
|
|
4,784 |
|
Effect
of exchange rate on cash and cash equivalents
|
|
|
6 |
|
|
|
(31
|
) |
|
|
(37
|
) |
Change
in cash and cash equivalents
|
|
|
3,521 |
|
|
|
(547
|
) |
|
|
1,190 |
|
Cash
and cash equivalents at beginning of period
|
|
|
4,549 |
|
|
|
5,096 |
|
|
|
3,906 |
|
Cash
and cash equivalents at end of period
|
|
$ |
8,070 |
|
|
$ |
4,549 |
|
|
$ |
5,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
40 |
|
|
$ |
540 |
|
|
$ |
594 |
|
Cash
paid for income taxes
|
|
$ |
3,680 |
|
|
$ |
3,156 |
|
|
$ |
3,684 |
|
Non-cash
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued for purchase of businesses
|
|
$ |
24,976 |
|
|
$ |
17,991 |
|
|
$ |
8,709 |
|
Change
in goodwill
|
|
$ |
(1,957 |
) |
|
$ |
318 |
|
|
$ |
670 |
|
See
accompanying notes to consolidated financial statements.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Description of Business and Principles of Consolidation
Perficient, Inc.
(the “Company”) is an information technology consulting firm. The Company helps
its clients use Internet-based technologies to make their businesses more
responsive to market opportunities and threats, strengthen relationships with
customers, suppliers and partners, improve productivity and reduce information
technology costs. The Company designs, builds and delivers solutions using a
core set of middleware software products developed by third party vendors. The
Company's solutions enable its clients to meet the changing demands of an
increasingly global, Internet-driven and competitive marketplace.
The
Company is incorporated in Delaware. The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
2.
Summary of Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates, and such
differences could be material to the financial statements.
Reclassification
The Company has reclassified the
presentation of certain prior period information to conform to the current year
presentation.
Revenue
Recognition
Revenues
are primarily derived from professional services provided on a time and
materials basis. For time and material contracts, revenues are recognized
and billed by multiplying the number of hours expended in the performance of the
contract by the established billing rates. For fixed fee projects,
revenues are generally recognized using the proportionate performance
method based on the ratio of hours expended to total estimated hours. Billings
in excess of costs plus earnings are classified as deferred revenues. On many
projects the Company is also reimbursed for out-of-pocket expenses such as
airfare, lodging and meals. These reimbursements are included as a
component of revenues. Revenues from software sales are recorded on a gross
basis based on the Company's role as principal in the transaction.
Revenues
are recognized when the following criteria are met: (1) persuasive evidence
of the customer arrangement exists, (2) fees are fixed and determinable,
(3) delivery and acceptance have occurred, and (4) collectibility is
deemed probable. The Company's policy for revenue recognition in instances where
multiple deliverables are sold contemporaneously to the same counterparty is in
accordance with American Institute of Certified Public Accountants (“AICPA”)
Statement of Position 97-2,
Software Revenue Recognition, Emerging Issues Task Force ("EITF") Issue
No. 00-21, Revenue
Arrangements with Multiple Deliverables, and SEC Staff Accounting
Bulletin No. 104, Revenue
Recognition. Specifically, if the Company enters into contracts for the
sale of services and software, then the Company evaluates whether the services
are essential to the functionality of the software and whether it has objective
fair value evidence for each deliverable in the transaction. If the Company has
concluded that the services to be provided are not essential to the
functionality of the software and it can determine objective fair value evidence
for each deliverable of the transaction, then it accounts for each deliverable
in the transaction separately, based on the relevant revenue recognition
policies. Generally, all deliverables of the Company's multiple element
arrangements meet these criteria. The Company follows the guidelines
discussed above in determining revenues; however, certain judgments and
estimates are made and used to determine revenues recognized in any accounting
period. Material differences may result in the amount and timing of revenues
recognized for any period if different conditions were to prevail.
Revenues
are presented net of taxes assessed by governmental
authorities. Sales taxes are generally collected and subsequently
remitted on all software sales and certain services transactions as
appropriate.
Cash
and Cash Equivalents
Cash
equivalents consist primarily of cash deposits and investments with original
maturities of ninety days or less when purchased.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are recorded at the invoiced amount. The allowance for doubtful
accounts is the Company’s best estimate of the amount of uncollectible amounts
in its existing accounts receivable. Management analyzes historical collection
trends and changes in its customer payment patterns, customer concentration, and
credit worthiness when evaluating the adequacy of its allowance for doubtful
accounts. The Company includes any receivables balances that are determined to
be uncollectible in its overall allowance for doubtful accounts. The Company
reviews its allowance for doubtful accounts monthly.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation of property and equipment is
computed using the straight-line method over the useful lives of the assets
(generally one to five years). Leasehold improvements are amortized over
the shorter of the life of the lease or the estimated useful life of the
assets.
Intangible
Assets
Goodwill
represents the excess purchase price over the fair value of net assets acquired,
or net liabilities assumed, in a business combination. In accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”), the Company performs an annual impairment test of
goodwill. The Company evaluates goodwill at the enterprise level as of October 1
each year or more frequently if events or changes in circumstances indicate that
goodwill might be impaired. As required by SFAS 142, the impairment test is
accomplished using a two-stepped approach. The first step screens for
impairment and, when impairment is indicated, a second step is employed to
measure the impairment. The Company also reviewed other factors to determine the
likelihood of impairment. No impairment was indicated using data as of October
1, 2007.
Other
intangible assets include customer relationships, non-compete arrangements and
internally developed software, and are being amortized over the assets'
estimated useful lives using the straight-line method. Estimated useful lives
range from three to eight years. Amortization of customer relationships,
non-compete arrangements and internally developed software are considered
operating expenses and are included in “Amortization of intangible assets” in
the accompanying consolidated Statements of Income. The Company periodically
reviews the estimated useful lives of its identifiable intangible assets, taking
into consideration any events or circumstances that might result in a lack of
recoverability or revised useful life.
Deferred
Offering Costs
Costs
incurred related to equity offerings under effective registration statements are
deferred until the offering occurs or management does not intend to complete the
offering. At the time that the issuance of new equity occurs, these costs are
netted against the proceeds received. These costs are expensed if the offering
does not occur. Approximately $943,000 of these costs were recorded as part of
Other Non-Current Assets on the Balance Sheet as of December 31, 2007 and
2006.
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes
(“SFAS 109”), and Financial Accounting Standards Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes – an interpretation of SFAS 109 (“FIN 48”). SFAS 109
prescribes the use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Deferred tax assets are subject to tests of recoverability.
A valuation allowance is provided for such deferred tax assets to the extent
realization is not judged to be more likely than not. FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, treatment of interest and penalties, and disclosure of such
positions. The Company adopted the provisions of FIN 48 on January 1, 2007 as
required and such adoption did not have a material impact to the consolidated
financial statements.
Earnings
Per Share
Basic
earnings per share is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share includes the weighted average number of
common shares outstanding and the number of equivalent shares which would be
issued related to the stock options and warrants using the treasury method,
contingently issuance shares, and convertible preferred stock using the
if-converted method, unless such additional equivalent shares are
anti-dilutive.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock-Based
Compensation
Effective
January 1, 2006, the Company adopted the provisions of SFAS No. 123R
(As Amended), Share Based
Payment (“SFAS 123R”), using the modified prospective application
transition method. Under this method, compensation cost for the portion of
awards for which the requisite service has not yet been rendered that are
outstanding as of the adoption date is recognized over the remaining service
period. The compensation cost for that portion of awards is based on the
grant-date fair value of those awards as calculated for pro-forma disclosures
under SFAS No. 123. All new awards and awards that are modified,
repurchased, or cancelled after the adoption date are accounted for under the
provisions of SFAS 123R. Prior periods are not restated under this transition
method. The Company recognizes share-based compensation ratably using the
straight-line attribution method over the requisite service period. In addition,
pursuant to SFAS 123R, the Company is required to estimate the amount of
expected forfeitures when calculating share-based compensation, instead of
accounting for forfeitures as they occur, which was the Company's practice prior
to the adoption of SFAS 123R.
Deferred
Rent
Certain of the Company’s operating
leases contain predetermined fixed escalations of minimum rentals during the
original lease terms. For these leases, the Company recognizes the related
rental expense on a straight-line basis over the life of the lease and records
the difference between the amounts charged to operations and amounts paid as
accrued rent expense.
Fair
Value of Financial Instruments
Cash
equivalents, accounts receivable, accounts payable, other accrued liabilities,
and debt are stated at amounts which approximate fair value due to the near term
maturities of these instruments.
Recently
Issued Accounting Standards
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141 (revised 2007), Business
Combinations (“SFAS 141R”), which is a revision of SFAS No. 141, Business
Combinations. SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in the acquiree, recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase, and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 141R applies prospectively to business combinations
for which the acquisition date is on or after January 1, 2009. The revised
statement will require that transaction costs be expensed instead of recognized
as purchase price. The Company is currently evaluating the impact of SFAS 141R
on its consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, Including an amendment of SFAS
No. 115 (“SFAS 159”). SFAS 159 permits companies to choose
to measure many financial instruments and certain other items at fair value.
SFAS 159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. The Company does not expect that the
pronouncement will have a material impact on its consolidated financial
statements.
In September 2006, the FASB issued SFAS
No. 157, Fair Value
Measurements (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures about fair value
measurements. SFAS 157 will be applied prospectively and will be
effective for periods beginning after November 15, 2007. The FASB
issued Staff Position No. 157-2 (“FSP 157-2”) in February 2008, which delayed
the effective date of SFAS 157 for certain nonfinancial assets and liabilities
to fiscal years beginning after November 15, 2008. The Company is currently
evaluating the effect, if any, of SFAS 157 and does not expect that the
pronouncement will have a material impact on its consolidated financial
statements.
In June
2006, the FASB issued Financial Accounting Standards Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes – an
interpretation of FASB Statement No. 109 (“FIN 48”), which prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
treatment of interest and penalties, and disclosure of such positions. The
Company adopted the provisions of FIN 48 on January 1, 2007 as required and such
adoption did not have a material impact to the consolidated financial
statements.
In June
2006, the EITF ratified EITF Issue No. 06-3, How Taxes Collected From Customers
and Remitted to Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation) (“EITF
06-3”). A consensus was reached that entities may adopt a policy of
presenting taxes in the income statement on either a gross or net basis. An
entity should disclose its policy of presenting taxes and the amount of any
taxes presented on a gross basis should be disclosed, if significant. The
Company adopted EITF 06-3 on January 1, 2007. There was no effect of
the adoption on the consolidated financial statements as of December 31,
2007. The Company presents revenues net of taxes as disclosed in Note 2,
Summary of Significant
Accounting Policies.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3.
Net Income Per Share
The
following table presents the calculation of basic and diluted net income per
share (in thousands, except per share information):
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net
income
|
|
$ |
16,230 |
|
|
$ |
9,567 |
|
|
$ |
7,177 |
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares of common stock outstanding
|
|
|
27,442 |
|
|
|
23,783 |
|
|
|
20,868 |
|
Weighted-average
shares of common stock subject to contingency (i.e., restricted
stock)
|
|
|
556 |
|
|
|
1,250 |
|
|
|
1,137 |
|
Shares
used in computing basic net income per share
|
|
|
27,998 |
|
|
|
25,033 |
|
|
|
22,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
1,707 |
|
|
|
2,281 |
|
|
|
3,088 |
|
Warrants
|
|
|
8 |
|
|
|
74 |
|
|
|
149 |
|
Restricted
stock subject to vesting
|
|
|
409 |
|
|
|
199 |
|
|
|
-- |
|
Shares
used in computing diluted net income per share
|
|
|
30,122 |
|
|
|
27,587 |
|
|
|
25,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$ |
0.58 |
|
|
$ |
0.38 |
|
|
$ |
0.33 |
|
Diluted
net income per share
|
|
$ |
0.54 |
|
|
$ |
0.35 |
|
|
$ |
0.28 |
|
4.
Concentration of Credit Risk and Significant Customers
Cash and
accounts receivable potentially expose the Company to concentrations of credit
risk. Cash is placed with highly rated financial institutions. The Company
provides credit, in the normal course of business, to its customers. The Company
generally does not require collateral or up-front payments. The Company performs
periodic credit evaluations of its customers and maintains allowances for
potential credit losses. Customers can be denied access to services in the event
of non-payment. A substantial portion of the services the Company provides are
built on IBM WebSphere (R) platforms
and a significant number of its clients are identified through joint selling
opportunities conducted with IBM and through sales leads obtained from the
relationship with IBM. Revenues from IBM accounted for approximately 8%, 8%, and
9% of total revenues for 2007, 2006 and 2005, respectively, and accounts
receivable from IBM accounted for approximately 4% of total accounts receivable
as of December 31, 2007 and approximately 9% of total accounts receivable
as of December 31, 2006 and 2005. While the dollar amount of revenues from
IBM has remained relatively constant over the past three years, the percentage
of total revenues from IBM has decreased as a result of the Company's growth and
corresponding customer diversification. The loss of the Company's relationship
with IBM or a significant reduction in the services the Company provides for IBM
would result in significantly decreased revenues. Due to the Company's
significant fixed operating expenses, the loss of sales to IBM or any
significant customer could result in the Company's inability to generate net
income or positive cash flow from operations for some time in the
future.
5.
Employee Benefit Plan
The
Company has a qualified 401(k) profit sharing plan available to full-time
employees who meet the plan's eligibility requirements. This defined
contribution plan permits employees to make contributions up to maximum limits
allowed by the Internal Revenue Code. The Company, at its discretion, matches a
portion of the employee's contribution under a predetermined formula based on
the level of contribution and years of vesting services. The Company made
matching contributions equal to 25% of the first 6% of employee contributions
totaling approximately $0.8 million, $0.5 million, and $0.5 million during 2007,
2006 and 2005, respectively, which vest over a three year period of
service.
In 2007,
the Company initiated a deferred compensation plan for officers, directors, and
certain sales personnel. The plan is designed to allow eligible
participants to accumulate additional income through a nonqualified
deferred compensation plan that enables them to make elective deferrals of
compensation to which they will become entitled in the future. As of December
31, 2007, the deferred compensation liability balance was $0.2
million.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6.
Intangible Assets
Goodwill
The
changes in the carrying amount of goodwill for the year ended December 31, 2007
and 2006 are as follows (in thousands):
|
|
Goodwill
|
|
Balance
at December 31, 2005
|
|
$
|
46,263
|
|
Acquisitions
consummated during 2006 (Note 13)
|
|
|
22,589
|
|
Utilization
of net operating loss carryforwards and adjustment to goodwill related to
deferred taxes associated with acquisitions
|
|
|
318
|
|
Balance
at December 31, 2006
|
|
|
69,170
|
|
Acquisitions
consummated during 2007 (Note 13)
|
|
|
36,473
|
|
Utilization
of net operating loss carryforwards and adjustment to goodwill related to
deferred taxes associated with acquisitions (Note 9)
|
|
|
(1,957
|
)
|
Balance
at December 31, 2007
|
|
$
|
103,686
|
|
Intangible
Assets with Definite Lives
Following
is a summary of the Company's intangible assets that are subject to amortization
(in thousands):
|
Year
ended December 31,
|
|
|
2007
|
|
2006
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$ |
21,130 |
|
|
$ |
(5,285 |
) |
|
$ |
15,845 |
|
|
$ |
12,860 |
|
|
$ |
(2,808 |
) |
|
$ |
10,052 |
|
Non-compete
agreements
|
|
|
2,633 |
|
|
|
(1,550 |
) |
|
|
1,083 |
|
|
|
2,393 |
|
|
|
(1,094 |
) |
|
|
1,299 |
|
Internally
developed software
|
|
|
1,173 |
|
|
|
(448 |
) |
|
|
725 |
|
|
|
755 |
|
|
|
(220 |
) |
|
|
535 |
|
Total
|
|
$ |
24,936 |
|
|
$ |
(7,283 |
) |
|
$ |
17,653 |
|
|
$ |
16,008 |
|
|
$ |
(4,122 |
) |
|
$ |
11,886 |
|
The
estimated useful lives of acquired identifiable intangible assets are as
follows:
Customer
relationships
|
3
- 8 years
|
Non-compete
agreements
|
3
- 5 years
|
Internally
developed software
|
3
- 5 years
|
The
weighted average amortization periods for customer relationships and non-compete
agreements are 6 years and 5 years, respectively. Total amortization expense for
the years ended December 31, 2007, 2006, and 2005 was approximately $4.7
million, $3.5 million, and $1.6 million respectively.
Estimated
annual amortization expense for the next five years ended December 31 is as
follows (in thousands):
2008
|
|
$
|
4,732
|
|
2009
|
|
$
|
4,348
|
|
2010
|
|
$
|
3,581
|
|
2011
|
|
$
|
2,959
|
|
2012
|
|
$
|
1,233
|
|
Thereafter
|
|
$
|
801
|
|
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7.
Stock-Based Compensation
Stock
Option Plans
In
May 1999, the Company's Board of Directors and stockholders approved the
1999 Stock Option/Stock Issuance Plan (the “1999 Plan”). The 1999 Plan contains
programs for (i) the discretionary granting of stock options to employees,
non-employee board members and consultants for the purchase of shares of the
Company's commons stock, (ii) the discretionary issuance of common stock
directly to eligible individuals, and (iii) the automatic issuance of stock
options to non-employee board members. The Compensation Committee of the Board
of Directors administers the 1999 Plan, and determines the exercise price and
vesting period for each grant. Options granted under the 1999 Plan have a
maximum term of 10 years. In the event that the Company is acquired,
whether by merger or asset sale or board-approved sale by the stockholders of
more than 50% of the Company's voting stock, each outstanding option under the
discretionary option grant program which is not to be assumed by the successor
corporation or otherwise continued will automatically accelerate in full, and
all unvested shares under the discretionary option grant and stock issuance
programs will immediately vest, except to the extent the Company's repurchase
rights with respect to those shares are to be assigned to the successor
corporation or otherwise continued in effect. The Compensation Committee may
grant options under the discretionary option grant program that will accelerate
in the event of an acquisition even if the options are assumed or that will
accelerate if the optionee's service is subsequently terminated.
The
Compensation Committee may grant options and issue shares that accelerate in
connection with a hostile change in control effected through a successful tender
offer for more than 50% of the Company's outstanding voting stock or by proxy
contest for the election of board members, or the options and shares may
accelerate upon a subsequent termination of the individual's
service.
On
December 4, 2007, the Company granted restricted stock awards of approximately
892,000 shares of common stock under the 1999 Stock Option/Stock Issuance Plan.
This equity grant vests ratably over five years. On December 21, 2006, the
Company granted restricted stock awards of approximately 843,000 shares of
common stock under the 1999 Stock Option/Stock Issuance Plan. This equity grant
vests ratably over five years. On December 28, 2005, the Company granted
restricted stock awards of approximately 323,000 shares of common stock under
the 1999 Stock Option/Stock Issuance Plan. A portion of this equity grant vests
over six years, with an original vesting schedule that was back-end loaded but
in 2007 was converted to pro-rata or straight-line vesting over the six year
period due to the achievement of certain performance targets and compensation
committee approval. The other portion of this equity grant vests ratably over
five years.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary
of changes in common stock options during 2007, 2006 and 2005 is as follows (in
thousands, except exercise price information):
|
|
Shares
|
|
|
Range
of Exercise Prices
|
|
|
Weighted-Average
Exercise
Price
|
|
|
Aggregate
Intrinsic Value
|
|
Options
outstanding at January 1, 2005
|
|
|
6,439 |
|
|
$ |
0.02
- 26.00 |
|
|
$ |
2.97 |
|
|
|
|
Options
granted
|
|
|
415 |
|
|
$ |
7.34
- 9.19 |
|
|
$ |
7.81 |
|
|
|
|
Options
exercised
|
|
|
(1,354
|
) |
|
$ |
0.03
- 8.10 |
|
|
$ |
2.00 |
|
|
|
|
Options
canceled
|
|
|
(232
|
) |
|
$ |
0.03
- 16.00 |
|
|
$ |
5.37 |
|
|
|
|
Options
outstanding at December 31, 2005
|
|
|
5,268 |
|
|
$ |
0.02
- 16.94 |
|
|
$ |
3.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
Options
exercised
|
|
|
(1,672
|
) |
|
$ |
0.02
- 12.13 |
|
|
$ |
2.40 |
|
|
|
|
Options
canceled
|
|
|
(44
|
) |
|
$ |
1.01
- 13.25 |
|
|
$ |
5.41 |
|
|
|
|
Options
outstanding at December 31, 2006
|
|
|
3,552 |
|
|
$ |
0.02
- 16.94 |
|
|
$ |
4.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
9 |
|
|
$ |
3.00
- 3.00 |
|
|
$ |
3.00 |
|
|
|
|
Options
exercised
|
|
|
(1,160 |
) |
|
$ |
0.02
- 16.94 |
|
|
$ |
3.18 |
|
|
|
|
Options
canceled
|
|
|
(22 |
) |
|
$ |
2.28
- 7.48 |
|
|
$ |
3.36 |
|
|
|
|
Options
outstanding at December 31, 2007
|
|
|
2,379 |
|
|
$ |
0.02
- 16.94 |
|
|
$ |
4.44 |
|
|
$ |
26,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
vested, December 31, 2005
|
|
|
3,305 |
|
|
$ |
0.02
- 16.94 |
|
|
$ |
3.00 |
|
|
|
|
|
Options
vested, December 31, 2006
|
|
|
2,347 |
|
|
$ |
0.02
- 16.94 |
|
|
$ |
3.62 |
|
|
|
|
|
Options
vested, December 31, 2007
|
|
|
1,887 |
|
|
$ |
0.02
- 16.94 |
|
|
$ |
4.03 |
|
|
$ |
22,116 |
|
The total
aggregate intrinsic value of options exercised during the years ended
December 31, 2007, 2006, and 2005, was $21.1 million, $18.6 million,
and $8.4 million, respectively.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Restricted
stock activity for the year ended December 31, 2007 was as follows (in
thousands, except fair value information):
|
Shares
|
|
Weighted-Average
Grant
Date Fair
Value
|
|
Restricted
stock awards outstanding at January 1, 2007
|
1,429
|
|
$
|
12.74
|
|
Awards
granted
|
973
|
|
$
|
15.97
|
|
Awards
vested
|
(303)
|
|
$
|
12.29
|
|
Awards
canceled or forfeited
|
(46)
|
|
$
|
13.00
|
|
Restricted
stock awards outstanding at December 31, 2007
|
2,053
|
|
$
|
14.33
|
|
The total
fair value of restricted shares vesting during the year ended December 31,
2007, 2006, and 2005 was $5.2 million, $1.4 million, and $0,
respectively.
The
following is additional information related to stock options outstanding at
December 31, 2007 (in thousands, except exercise price
information):
|
|
Options
Outstanding
|
|
Options
Exercisable
|
Range
of Exercise
Prices
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Options
|
Weighted
Average
Exercise
Price
|
$0.02
- $1.15
|
|
280
|
|
$0.58
|
|
3.65
|
|
280
|
|
$0.58
|
$1.21
- $2.28
|
|
615
|
|
$2.10
|
|
5.41
|
|
615
|
|
$2.10
|
$2.77
- $3.75
|
|
528
|
|
$3.49
|
|
4.19
|
|
462
|
|
$3.55
|
$4.40
- $6.31
|
|
645
|
|
$6.12
|
|
6.73
|
|
289
|
|
$5.94
|
$7.48
- $16.94
|
|
311
|
|
$10.70
|
|
4.74
|
|
241
|
|
$11.64
|
$0.02
- $16.94
|
|
2,379
|
|
$4.44
|
|
5.20
|
|
1,887
|
|
$4.03
|
For years
in which stock options were granted, the fair value of options was calculated at
the date of grant using the Black-Scholes pricing model with the following
weighted-average assumptions:
Year
End
December
31,
|
|
Risk-Free
Interest
Rate
|
|
Dividend
Yield
|
|
Volatility
Factor
|
2007
|
|
4.73%
|
|
0%
|
|
0.4195
|
2005
|
|
3.72%
|
|
0%
|
|
1.4050
|
There
were no stock options granted in 2006. A weighted-average life of 0.25 years was
used for stock options granted during 2007 and 5 years was used for stock
options granted during 2005.
At
December 31, 2007, 2006 and 2005, the weighted-average remaining
contractual life of outstanding options was 5.20, 6.27, and 7.17 years,
respectively. The weighted-average grant-date fair value per share of options
granted during 2007 was $16.96. No option grants occurred in
2006. The weighted-average grant-date fair value per share of options
granted during 2005 was $7.81. There were no option grants at below or above
market prices during 2007 or 2005.
The
Company recognized $6.1 million, $3.1 million, and $0.3 million of stock
compensation expense during 2007, 2006, and 2005, respectively. The associated
current and future income tax benefit recognized during 2007, 2006, and 2005 was
$2.1 million, $0.8 million and $0.2 million, respectively. As of December 31,
2007, there was $30.0 million of total unrecognized compensation cost related to
non-vested share-based awards. This cost is expected to be recognized over a
weighted-average period of 4.2 years. Our estimated forfeiture rate for the year
ended December 31, 2007 of approximately 7% for share based awards was
calculated using our historical forfeiture experience to anticipate actual
forfeitures in the future.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Prior to
the adoption of SFAS No. 123R, the Company accounted for employee stock-based
compensation using the intrinsic value method prescribed by APB 25. As presented
below, the Company applied the disclosure provisions of SFAS 123, as amended by
SFAS 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, as if the fair
value method had been applied. If this method had been used, the Company’s net
income and net income per share for the year ended December 31, 2005 would have
been adjusted to the pro-forma amounts below (in thousands except per share
data):
|
|
Year ended December
31,
|
|
|
|
2005
|
|
Net
income -- as reported
|
|
$ |
7,177 |
|
Total
stock-based compensation costs, net of tax, included in the determination
of net income as reported
|
|
|
162 |
|
The
stock-based employee compensation cost, net of tax, that would have been
included in the determination of net income if the fair value based method
had been applied to all awards
|
|
|
(2,609 |
) |
Pro-forma
net income
|
|
$ |
4,730 |
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
Basic
- as reported
|
|
$ |
0.33 |
|
Basic
- pro-forma
|
|
$ |
0.23 |
|
|
|
|
|
|
Diluted
- as reported
|
|
$ |
0.28 |
|
Diluted
- pro-forma
|
|
$ |
0.20 |
|
At
December 31, 2007, 2.4 million shares were reserved for future issuance
upon exercise of outstanding options and 8,075 shares were reserved for future
issuance upon exercise of outstanding warrants. The majority of the outstanding
warrants expire in December 2011. At December 31, 2007, there were 2.1
million shares of restricted stock outstanding under the 1999 Plan and
classified as equity.
Employee
Stock Purchase Plan
In 2005,
the Compensation Committee approved the Employee Stock Purchase Plan (the
“ESPP”) to be available to employees starting January 1, 2006. The ESPP is a
broadly-based stock purchase plan in which any eligible employee may elect to
participate by authorizing the Company to make payroll deductions in a specific
amount or designated percentage to pay the exercise price of an option. In no
event will an employee be granted an option under the ESPP that would permit the
purchase of Common Stock with a fair market value in excess of $25,000 in any
calendar year and the Compensation Committee of the Company has set the current
annual participation limit at $12,500. During the year ended December 31, 2007,
approximately 11,000 shares were purchased under the ESPP.
There are
four three-month offering periods in each calendar year beginning on January 1,
April 1, July 1, and October 1, respectively. The exercise price of options
granted under the ESPP is an amount equal to 95% of the fair market value of the
Common Stock on the date of exercise (occurring on, respectively, March 31, June
30, September 30, and December 31). The ESPP is designed to comply with Section
423 of the Code and thus is eligible for the favorable tax treatment afforded by
Section 423.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8.
Line of Credit and Long Term Debt
In
June 2006, the Company entered into an Amended and Restated Loan and
Security Agreement with Silicon Valley Bank and KeyBank National Association.
The amended agreement is a senior bank credit facility of $50 million which
includes a line of credit of $25 million and an acquisition term line of
credit of $25 million.
The
accounts receivable line of credit, which expires in June 2009, provides
for a borrowing capacity equal to all eligible accounts receivable, including
80% of unbilled revenues, subject to certain borrowing base calculations as
defined in the agreement, but in no event more than $25 million. Borrowings
under this line of credit bear interest at the bank's prime rate (7.25% on
December 31, 2007). As of December 31, 2007, there were no amounts outstanding
under the accounts receivable line of credit and $24.8 million of available
borrowing capacity due to an outstanding letter of credit to secure an office
lease. Additionally, the line of credit bears an annual commitment
fee of 0.12% on the unused portion of the line of credit.
The
Company's $25 million term acquisition line of credit provides an additional
source of financing for certain qualified acquisitions. As of December 31, 2007,
there were no amounts outstanding under the acquisition line of credit.
Borrowings under this acquisition line of credit bear interest equal to the four
year U.S. Treasury note yield plus 3% based on the spot rate on the day the draw
is processed (6.29% on December 31, 2007). Draws under this acquisition line may
be made through June 2008. The Company currently has $25 million of
available borrowing capacity under this acquisition line of
credit. Additionally, the line of credit bears an annual commitment
fee of 0.12% on the unused portion of the line of credit.
The
Company is required to comply with various financial covenants under the $50
million credit facility. Specifically, the Company is required to maintain a
ratio of after tax earnings before interest, depreciation and amortization, and
other non-cash charges, including but not limited to stock and stock option
compensation expense on trailing three months annualized, to current maturities
of long-term debt and capital leases plus interest of at least 1.50 to 1.00, a
ratio of cash plus eligible accounts receivable including 80% of unbilled
revenues less principal amount of all outstanding advances on accounts
receivable line of credit to advances under the term acquisition line of credit
of at least 0.75 to 1.00, and a maximum ratio of all outstanding advances under
the entire credit facility to earnings before taxes, interest, depreciation,
amortization and other non-cash charges, including but not limited to, stock and
stock option compensation expense, including pro-forma adjustments for
acquisitions on a trailing twelve month basis of no more than 2.50 to 1.00. As
of December 31, 2007, the Company was in compliance with all covenants under
this facility. This credit facility is secured by substantially all assets of
the Company.
9.
Income Taxes
The
Company files income tax returns in the U.S. federal jurisdiction, and various
states and foreign jurisdictions. With few exceptions, the Company is no longer
subject to U.S. federal, state and local, or non-U.S. income tax examinations by
tax authorities for years before 2005. The Internal Revenue Service (IRS) has
completed examinations of the Company’s U.S. income tax returns for 2002, 2003
and 2004. As of December 31, 2007, the IRS has proposed no significant
adjustments to any of the Company’s tax positions.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, on January 1, 2007. As a result of the implementation of
Interpretation 48, the Company recognized no increases or decreases in the total
amounts of previously unrecognized tax benefits. The Company had no
unrecognized tax benefits as of January 1, 2007 or December 31,
2007.
As of
December 31, 2007, the Company had U.S. Federal tax net operating loss
carry forwards of approximately $6.7 million that will begin to expire in
2020 if not utilized. Utilization of net operating losses may be subject to an
annual limitation due to the “change in ownership” provisions of the Internal
Revenues Code of 1986. The annual limitation may result in the expiration of net
operating losses before utilization.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Significant
components of the provision for income taxes are as follows (in
thousands):
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
4,110 |
|
|
$ |
1,138 |
|
|
$ |
1,148 |
|
State
|
|
|
752 |
|
|
|
260 |
|
|
|
241 |
|
Foreign
|
|
|
26 |
|
|
|
102 |
|
|
|
223 |
|
Total
current
|
|
|
4,888 |
|
|
|
1,500 |
|
|
|
1,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
benefit on acquired net operating loss carryforward
|
|
|
385 |
|
|
|
246 |
|
|
|
353 |
|
Tax
benefit from stock options
|
|
|
6,889 |
|
|
|
6,554 |
|
|
|
2,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(668
|
) |
|
|
(902
|
) |
|
|
201 |
|
State
|
|
|
(70
|
) |
|
|
(116
|
) |
|
|
26 |
|
Total
deferred
|
|
|
(738
|
) |
|
|
(1,018
|
) |
|
|
227 |
|
Total
provision for income taxes
|
|
$ |
11,424 |
|
|
$ |
7,282 |
|
|
$ |
4,498 |
|
The
components of pretax income for the years ended December 31, 2007, 2006 and 2005
are as follows (in thousands):
|
Year
Ended December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
Domestic
|
$ |
27,640 |
|
$ |
16,565 |
|
$ |
11,267 |
|
Foreign
|
|
14 |
|
|
284 |
|
|
408 |
|
Total
|
$ |
27,654 |
|
$ |
16,849 |
|
$ |
11,675 |
|
Foreign
operations include Canada and the United Kingdom for the year ended December 31,
2005. In 2006, foreign operations only included Canada. For the year
ended December 31, 2007, foreign operations included Canada, China, and
India.
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred taxes as of December 31, 2007 and 2006 are as
follows:
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Deferred
tax assets:
|
|
(In
thousands)
|
|
Current
deferred tax assets:
|
|
|
|
|
|
|
Accrued
liabilities
|
|
$ |
384 |
|
|
$ |
298 |
|
Net
operating losses
|
|
|
273 |
|
|
|
243 |
|
Bad
debt reserve
|
|
|
511 |
|
|
|
268 |
|
|
|
|
1,168 |
|
|
|
809 |
|
Valuation
allowance
|
|
|
(24
|
) |
|
|
(457
|
) |
Net
current deferred tax assets
|
|
$ |
1,144 |
|
|
$ |
352 |
|
Non-current
deferred tax assets:
|
|
|
|
|
|
|
|
|
Net
operating losses
|
|
$ |
2,380 |
|
|
$ |
2,339 |
|
Fixed
assets
|
|
|
169 |
|
|
|
53 |
|
Deferred
compensation
|
|
|
1,031 |
|
|
|
435 |
|
|
|
|
3,580 |
|
|
|
2,827 |
|
Valuation
allowance
|
|
|
(106
|
) |
|
|
(1,599
|
) |
Net
non-current deferred tax assets
|
|
$ |
3,474 |
|
|
$ |
1,228 |
|
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Deferred
tax liabilities:
|
|
(In
thousands)
|
|
Current
deferred tax liabilities:
|
|
|
|
|
|
|
Deferred
income
|
|
$ |
307 |
|
|
$ |
308 |
|
Net
current deferred tax liabilities
|
|
$ |
307 |
|
|
$ |
308 |
|
Non-current
deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred
income
|
|
$ |
402 |
|
|
$ |
431 |
|
Deferred
compensation
|
|
|
214 |
|
|
|
-- |
|
Foreign
withholding tax on undistributed earnings
|
|
|
-- |
|
|
|
65 |
|
Intangibles
|
|
|
4,407 |
|
|
|
1,983 |
|
Total
non-current deferred tax liabilities
|
|
$ |
5,023 |
|
|
$ |
2,479 |
|
|
|
|
|
|
|
|
|
|
Net
current deferred tax asset
|
|
$ |
837 |
|
|
$ |
44 |
|
Net
non-current deferred tax liability
|
|
$ |
(1,549 |
) |
|
$ |
(1,251 |
) |
The
Company established a valuation allowance in 2005 to offset a portion of the
Company's deferred tax assets due to uncertainties regarding the realization of
deferred tax assets based on the Company's earnings history and limitations on
the utilization of acquired net operating losses. The valuation
allowance decreased by approximately $0.3 million during 2006 and decreased by
approximately $0.7 million during 2005. These decreases were primarily due to
the benefit of acquired net operating loss carryforwards.
During
2007, the Company released approximately $1.9 million of its valuation allowance
after determining that the acquired net operating losses would be realized. As
the valuation allowance related to acquired net operating losses, the release of
the valuation allowance resulted in a decrease in goodwill of $1.9 million. As
of December 31, 2007, the remaining valuation allowance relates mainly to a
capital loss carryforward from an acquired entity, and as such, if realized,
will reduce goodwill or other non-current assets prior to resulting in an income
tax benefit.
Changes
to the valuation allowance are summarized as follows for the years presented (in
thousands):
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Balance,
beginning of year
|
|
$ |
2,056 |
|
|
$ |
2,345 |
|
|
$ |
3,027 |
|
Additions
|
|
|
31 |
|
|
|
-- |
|
|
|
-- |
|
Additions/(Reductions)
from purchase accounting
|
|
|
(1,957
|
) |
|
|
(289
|
) |
|
|
(446
|
) |
Write-offs
|
|
|
-- |
|
|
|
-- |
|
|
|
(236
|
) |
Balance,
end of year
|
|
$ |
130 |
|
|
$ |
2,056 |
|
|
$ |
2,345 |
|
Management
regularly assesses the likelihood that deferred tax assets will be recovered
from future taxable income. To the extent management believes that it
is more likely than not that a deferred tax asset will not be realized, a
valuation allowance is established.
The
federal corporate statutory rate is reconciled to the Company’s effective income
tax rate as follows:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Federal
corporate statutory rate
|
|
|
34.3
|
% |
|
|
34.3
|
% |
|
|
34.0
|
% |
State
taxes, net of federal benefit
|
|
|
4.2 |
|
|
|
4.6 |
|
|
|
4.3 |
|
Effect
of foreign operations
|
|
|
0.1 |
|
|
|
-- |
|
|
|
0.1 |
|
Stock
compensation
|
|
|
1.9 |
|
|
|
3.6 |
|
|
|
-- |
|
Other
|
|
|
0.8 |
|
|
|
0.7 |
|
|
|
0.1 |
|
Effective
income tax rate
|
|
|
41.3
|
% |
|
|
43.2
|
% |
|
|
38.5
|
% |
The
effective income tax rate decreased to 41.3% for the year ended December 31,
2007 from 43.2% for the year ended December 31, 2006 as a result of the
increased tax benefit of certain dispositions of incentive stock options by
holders and a decrease in the state income taxes, net of the federal
benefit.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10.
Commitments and Contingencies
The
Company leases its office facilities and certain equipment under various
operating lease agreements. The Company has the option to extend the term of
certain of its office facilities leases. Future minimum commitments under these
lease agreements as of December 31, 2007 are as follows (in
thousands):
|
|
Operating
Leases
|
|
2008
|
|
$
|
2,363
|
|
2009
|
|
|
2,077
|
|
2010
|
|
|
1,755
|
|
2011
|
|
|
1,377
|
|
2012
|
|
|
476
|
|
Thereafter
|
|
|
220
|
|
Total
minimum lease payments
|
|
$
|
8,268
|
|
Rent
expense for the years ended December 31, 2007, 2006 and 2005 was
approximately $2.3 million, $1.7 million and $1.5 million
respectively.
As of
December 31, 2007, the Company had one letter of credit outstanding for $150,000
to serve as collateral to secure an office lease. This letter of
credit expires in October 2009 and reduces the borrowings available under the
Company’s account receivable line of credit.
11.
Balance Sheet Components
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
Accounts
receivable:
|
|
|
|
|
|
|
Accounts
receivable
|
|
$ |
36,894 |
|
|
$ |
29,461 |
|
Unbilled
revenues
|
|
|
15,436 |
|
|
|
9,846 |
|
Allowance
for doubtful accounts
|
|
|
(1,475 |
) |
|
|
(707 |
) |
Total
|
|
$ |
50,855 |
|
|
$ |
38,600 |
|
|
|
|
|
|
|
|
|
|
Other
current assets:
|
|
|
|
|
|
|
|
|
Income
tax receivable
|
|
$ |
1,174 |
|
|
$ |
2,150 |
|
Deferred
current tax asset
|
|
|
837 |
|
|
|
44 |
|
Other
current assets
|
|
|
2,131 |
|
|
|
605 |
|
Total
|
|
$ |
4,142 |
|
|
$ |
2,799 |
|
|
|
|
|
|
|
|
|
|
Other
current liabilities:
|
|
|
|
|
|
|
|
|
Accrued
bonus
|
|
$ |
9,378 |
|
|
$ |
9,851 |
|
Payroll
related costs
|
|
|
1,862 |
|
|
|
1,258 |
|
Accrued
subcontractor fees
|
|
|
2,399 |
|
|
|
1,803 |
|
Deferred
revenues
|
|
|
1,439 |
|
|
|
1,318 |
|
Accrued
medical claims expense
|
|
|
850 |
|
|
|
-- |
|
Other
accrued expenses
|
|
|
2,793 |
|
|
|
1,804 |
|
Total
|
|
$ |
18,721 |
|
|
$ |
16,034 |
|
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
Property
and Equipment:
|
|
|
|
|
|
|
Computer
hardware (useful life of 2 years)
|
|
$ |
5,805 |
|
|
$ |
3,933 |
|
Furniture
and fixtures (useful life of 5 years)
|
|
|
1,248 |
|
|
|
980 |
|
Leasehold
improvements (useful life of 5 years)
|
|
|
884 |
|
|
|
275 |
|
Software (useful
life of 1 year)
|
|
|
920 |
|
|
|
702 |
|
Less:
Accumulated depreciation
|
|
|
(5,631 |
) |
|
|
(4,084 |
) |
Total
|
|
$ |
3,226 |
|
|
$ |
1,806 |
|
12.
Allowance for Doubtful Accounts
Activity
in the allowance for doubtful accounts is summarized as follows for the years
presented (in thousands):
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Balance,
beginning of year
|
|
$ |
707 |
|
|
$ |
367 |
|
|
$ |
654 |
|
Charged
to expense
|
|
|
1,060 |
|
|
|
264 |
|
|
|
32 |
|
Additions
resulting from purchase accounting
|
|
|
153 |
|
|
|
371 |
|
|
|
24 |
|
Uncollected
balances written off, net of recoveries
|
|
|
(445
|
) |
|
|
(295
|
) |
|
|
(343
|
) |
Balance,
end of year
|
|
$ |
1,475 |
|
|
$ |
707 |
|
|
$ |
367 |
|
13.
Business Combinations
Acquisition of Bay Street
Solutions, Inc.
On April
7, 2006, the Company acquired Bay Street Solutions, Inc. (“Bay Street”), a
national customer relationship management consulting firm, for approximately
$9.8 million. The purchase price consists of approximately $4.1 million in
cash, transaction costs of $636,000, and 464,569 shares of the Company's common
stock valued at approximately $12.18 per share (approximately $5.7 million worth
of the Company's common stock) less the value of those shares subject to a lapse
acceleration right of approximately $630,000, as determined by a third party
valuation firm. The total purchase price has been allocated to the assets
acquired, including identifiable intangible assets, based on their respective
fair values at the date of acquisition. The purchase price was allocated to
intangibles based on management's estimate and an independent valuation. The
results of Bay Street's operations have been included in the Company's
consolidated financial statements since April 7, 2006.
The
purchase price allocation is as follows (in millions):
Intangibles:
|
|
|
|
Customer
relationships
|
|
$
|
1.6
|
|
Customer
backlog
|
|
|
0.2
|
|
Non-compete
agreements
|
|
|
0.1
|
|
|
|
|
|
|
Goodwill
|
|
|
6.4
|
|
|
|
|
|
|
Tangible
assets acquired:
|
|
|
|
|
Accounts
receivable
|
|
|
2.4
|
|
Other
assets
|
|
|
0.6
|
|
Property
and equipment
|
|
|
0.1
|
|
Accrued
expenses
|
|
|
(1.6
|
)
|
Net
assets acquired
|
|
$
|
9.8
|
|
The
Company estimates that the intangible assets acquired have useful lives of four
months to six years.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Acquisition of Insolexen,
Corp.
On May
31, 2006, the Company acquired Insolexen, Corp. (“Insolexen”), a business
integration consulting firm, for approximately $15.0 million. The purchase price
consists of approximately $7.7 million in cash, transaction costs of
$657,000, and 522,944 shares of the Company's common stock valued at
approximately $13.72 per share (approximately $7.2 million worth of the
Company's common stock) less the value of those shares subject to a lapse
acceleration right of approximately $613,000, as determined by a third party
valuation firm. The total purchase price has been allocated to the assets
acquired, including identifiable intangible assets, based on their respective
fair values at the date of acquisition. The purchase price was allocated to
intangibles based on management's estimate and an independent valuation. The
results of Insolexen's operations have been included in the Company's
consolidated financial statements since May 31, 2006.
The
purchase price allocation is as follows (in millions):
Intangibles:
|
|
|
|
Customer
relationships
|
|
$
|
2.8
|
|
Customer
backlog
|
|
|
0.4
|
|
Non-compete
agreements
|
|
|
0.1
|
|
|
|
|
|
|
Goodwill
|
|
|
10.4
|
|
|
|
|
|
|
Tangible
assets and liabilities acquired:
|
|
|
|
|
Accounts
receivable
|
|
|
3.9
|
|
Other
assets
|
|
|
2.1
|
|
Accrued
expenses
|
|
|
(4.7
|
)
|
Net
assets acquired
|
|
$
|
15.0
|
|
The
Company estimates that the intangible assets acquired have useful lives of seven
months to six years.
Acquisition of the Energy,
Government and General Business (EGG) division of Digital Consulting &
Software Services, Inc.
On July
21, 2006, the Company acquired the Energy, Government and General Business
(“EGG”) division of Digital Consulting & Software Services, Inc., a systems
integration consulting business, for approximately $13.1 million. The purchase
price consists of approximately $6.4 million in cash, transaction costs of
approximately $275,000, and 511,382 shares of the Company's common stock valued
at approximately $12.71 per share (approximately $6.5 million worth of the
Company's common stock) less the value of those shares subject to a lapse
acceleration right of approximately $92,000, as determined by a third party
valuation firm. The total purchase price has been allocated to the assets
acquired, including identifiable intangible assets, based on their respective
fair values at the date of acquisition. The purchase price was allocated to
intangibles based on management's estimate and an independent valuation. The
results of EGG's operations have been included in the Company's consolidated
financial statements since July 21, 2006.
The
purchase price allocation is as follows (in millions):
Intangibles:
|
|
|
|
Customer
relationships
|
|
$
|
3.7
|
|
Customer
backlog
|
|
|
0.5
|
|
Non-compete
agreements
|
|
|
0.1
|
|
|
|
|
|
|
Goodwill
|
|
|
6.2
|
|
|
|
|
|
|
Tangible
assets and liabilities acquired:
|
|
|
|
|
Accounts
receivable
|
|
|
3.8
|
|
Other
assets
|
|
|
0.4
|
|
Accrued
expenses
|
|
|
(1.6
|
)
|
Net
assets acquired
|
|
$
|
13.1
|
|
The
Company estimates that the intangible assets acquired have useful lives of five
months to six years.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Acquisition of e tech
solutions, Inc.
On
February 20, 2007, the Company acquired e tech solutions, Inc. (“E Tech”), a
solutions-oriented IT consulting firm, for approximately $12.3 million. The
purchase price consists of approximately $5.9 million in cash, transaction
costs of approximately $663,000, and 306,247 shares of the Company's common
stock valued at approximately $20.34 per share (approximately $6.2 million
worth of the Company's common stock) less the value of those shares subject to a
lapse acceleration right of approximately $474,000, as determined by a third
party valuation firm. The total purchase price has been allocated to the assets
acquired, including identifiable intangible assets, based on their respective
fair values at the date of acquisition. The purchase price was allocated
to intangibles based on management's estimate and an independent valuation.
Management expects to finalize the purchase price allocation within twelve
months of the acquisition date as certain initial accounting estimates are
resolved. The results of E Tech's operations have been included in the Company's
consolidated financial statements since February 20, 2007.
The
preliminary purchase price allocation is as follows (in millions):
Intangibles:
|
|
|
|
Customer
relationships
|
|
$
|
3.0
|
|
Customer
backlog
|
|
|
0.5
|
|
Non-compete
agreements
|
|
|
0.1
|
|
|
|
|
|
|
Goodwill
|
|
|
8.9
|
|
|
|
|
|
|
Tangible
assets and liabilities acquired:
|
|
|
|
|
Accounts
receivable
|
|
|
2.1
|
|
Property
and equipment
|
|
|
0.1
|
|
Other
assets
|
|
|
0.1
|
|
Accrued
expenses
|
|
|
(2.5
|
)
|
Net
assets acquired
|
|
$
|
12.3
|
|
The
Company estimates that the intangible assets acquired have useful lives of ten
months to eight years.
Acquisition of Tier1
Innovation, LLC
On June
25, 2007, the Company acquired Tier1 Innovation, LLC (“Tier1”), a national
customer relationship management consulting firm, for approximately $15.1
million. The purchase price consists of approximately $7.1 million in cash,
transaction costs of approximately $762,500, and 355,633 shares of the Company's
common stock valued at approximately $20.69 per share (approximately
$7.4 million worth of the Company's common stock) less the value of those
shares subject to a lapse acceleration right of approximately $144,000 as
determined by a third party valuation firm. The total purchase price has been
allocated to the assets acquired, including identifiable intangible assets,
based on their respective fair values at the date of acquisition. The
purchase price was allocated to intangibles based on management's estimate and
an independent valuation. Management expects to finalize the purchase price
allocation within twelve months of the acquisition date as certain initial
accounting estimates are resolved. The results of Tier1's operations have been
included in the Company's consolidated financial statements since June 25,
2007.
The
preliminary purchase price allocation is as follows (in millions):
Intangibles:
|
|
|
|
Customer
relationships
|
|
$
|
0.9
|
|
Customer
backlog
|
|
|
0.4
|
|
Non-compete
agreements
|
|
|
0.1
|
|
Internally
developed software
|
|
|
0.2
|
|
|
|
|
|
|
Goodwill
|
|
|
11.9
|
|
|
|
|
|
|
Tangible
assets and liabilities acquired:
|
|
|
|
|
Accounts
receivable
|
|
|
2.3
|
|
Property
and equipment
|
|
|
0.1
|
|
Accrued
expenses
|
|
|
(0.8
|
)
|
Net
assets acquired
|
|
$
|
15.1
|
|
The
Company estimates that the intangible assets acquired have useful lives of six
months to five years.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Acquisition of BoldTech
Systems, Inc.
On
September 20, 2007, the Company acquired BoldTech Systems, Inc. (“BoldTech”), an
information technology consulting firm, for approximately $20.9 million. The
purchase price consists of approximately $10.0 million in cash, transaction
costs of $1.0 million, and 449,683 shares of the Company's common stock valued
at approximately $23.69 per share (approximately $10.6 million worth of the
Company's common stock) less the value of those shares subject to a lapse
acceleration right of approximately $723,000 as determined by a third party
valuation firm. The total purchase price has been allocated to the assets
acquired, including identifiable intangible assets, based on their respective
fair values at the date of acquisition. The purchase price was allocated
to intangibles based on management's estimate and an independent
valuation. Management expects to finalize the purchase price
allocation within twelve months of the acquisition date as certain initial
accounting estimates are resolved. The results of BoldTech's operations have
been included in the Company's consolidated financial statements since September
20, 2007.
The
preliminary purchase price allocation is as follows (in millions):
Intangibles:
|
|
|
|
Customer
relationships
|
|
$
|
3.8
|
|
Customer
backlog
|
|
|
0.1
|
|
Non-compete
agreements
|
|
|
0.1
|
|
|
|
|
|
|
Goodwill
|
|
|
13.0
|
|
|
|
|
|
|
Tangible
assets and liabilities acquired:
|
|
|
|
|
Cash
|
|
|
4.3
|
|
Accounts
receivable
|
|
|
5.2
|
|
Property
and equipment
|
|
|
0.7
|
|
Other
assets
|
|
|
2.4
|
|
Accrued
expenses
|
|
|
(8.7)
|
|
Net
assets acquired
|
|
$
|
20.9
|
|
The
Company estimates that the intangible assets acquired have useful lives of three
months to four years.
Acquisition of ePairs,
Inc.
On
November 21, 2007, the Company acquired ePairs, Inc. (“ePairs”), a
California-based consulting firm focused on Oracle-Siebel with a recruiting
center in Chennai, India, for approximately $5.0 million. The purchase price
consists of approximately $2.5 million in cash, transaction costs of
$500,000, and 138,604 shares of the Company's common stock valued at
approximately $16.25 per share (approximately $2.2 million worth of the
Company's common stock) less the value of those shares subject to a lapse
acceleration right of approximately $174,000 as determined by a third party
valuation firm. The total purchase price has been allocated to the assets
acquired, including identifiable intangible assets, based on their respective
fair values at the date of acquisition. The purchase price was allocated
to intangibles based on management's estimate and an independent
valuation. Management expects to finalize the purchase price
allocation within twelve months of the acquisition date as certain initial
accounting estimates are resolved. The results of ePairs' operations have been
included in the Company's consolidated financial statements since November 21,
2007.
The
preliminary purchase price allocation is as follows (in millions):
Intangibles:
|
|
|
|
Customer
relationships
|
|
$
|
1.2
|
|
|
|
|
|
|
Goodwill
|
|
|
2.7
|
|
|
|
|
|
|
Tangible
assets and liabilities acquired:
|
|
|
|
|
Accounts
receivable
|
|
|
1.0
|
|
Other
assets
|
|
|
0.6
|
|
Accrued
expenses
|
|
|
(0.5
|
)
|
Net
assets acquired
|
|
$
|
5.0
|
|
The
Company estimates that the intangible asset acquired has a useful life of five
years.
PERFICIENT,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pro-forma Results of
Operations (Unaudited)
The
following presents the unaudited pro-forma combined results of operations of the
Company with Bay Street, Insolexen, EGG, E Tech, Tier1, BoldTech, and ePairs for
the years ended December 31, 2007 and 2006, after giving effect to certain
pro-forma adjustments related to the amortization of acquired intangible assets
and assuming these companies were acquired as of the beginning of each period
presented. These unaudited pro-forma results are not necessarily indicative of
the actual consolidated results of operations had the acquisitions actually
occurred on January 1, 2006 and January 1, 2007 or of future results of
operations of the consolidated entities (in thousands, except per share
information):
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Revenues
|
|
$ |
249,439 |
|
|
$ |
225,639 |
|
Net
income
|
|
$ |
18,223 |
|
|
$ |
10,837 |
|
Basic
income per share
|
|
$ |
0.64 |
|
|
$ |
0.40 |
|
Diluted
income per share
|
|
$ |
0.59 |
|
|
$ |
0.37 |
|
14.
Quarterly Financial Results (Unaudited)
The
following tables set forth certain unaudited supplemental quarterly financial
information for the years ended December 31, 2007 and 2006. The quarterly
operating results are not necessarily indicative of future results of
operations. The financial data presented is not directly comparable between
periods as a result of the four acquisitions in 2007 and three acquisitions in
2006 (in thousands, except per share data):
|
|
Three
Months Ended,
|
|
|
|
March
31,
|
|
|
June
30,
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$ |
43,297 |
|
|
$ |
45,961 |
|
|
$ |
48,387 |
|
|
$ |
53,750 |
|
Software
|
|
|
4,192 |
|
|
|
3,696 |
|
|
|
1,582 |
|
|
|
4,773 |
|
Reimbursable
expenses
|
|
|
2,560 |
|
|
|
2,938 |
|
|
|
3,115 |
|
|
|
3,897 |
|
Total
revenues
|
|
$ |
50,049 |
|
|
$ |
52,595 |
|
|
$ |
53,084 |
|
|
$ |
62,420 |
|
Gross
margin
|
|
$ |
17,052 |
|
|
$ |
18,185 |
|
|
$ |
19,046 |
|
|
$ |
21,407 |
|
Income
from operations
|
|
$ |
5,570 |
|
|
$ |
6,907 |
|
|
$ |
7,569 |
|
|
$ |
7,416 |
|
Income
before income taxes
|
|
$ |
5,575 |
|
|
$ |
6,958 |
|
|
$ |
7,649 |
|
|
$ |
7,472 |
|
Net
income
|
|
$ |
3,160 |
|
|
$ |
4,014 |
|
|
$ |
4,541 |
|
|
$ |
4,515 |
|
Basic
net income per share
|
|
$ |
0.12 |
|
|
$ |
0.15 |
|
|
$ |
0.16 |
|
|
$ |
0.15 |
|
Diluted
net income per share
|
|
$ |
0.11 |
|
|
$ |
0.13 |
|
|
$ |
0.15 |
|
|
$ |
0.15 |
|
|
|
Three Months
Ended,
|
|
|
|
March
31,
2006
|
|
|
June
30,
2006
|
|
|
September
30,
2006
|
|
|
December
31,
2006
|
|
|
|
(Unaudited)
|
|
Revenues:
|
|
|
|
Services
|
|
$ |
25,606 |
|
|
$ |
32,751 |
|
|
$ |
40,219 |
|
|
$ |
39,145 |
|
Software
|
|
|
2,682 |
|
|
|
2,587 |
|
|
|
1,532 |
|
|
|
7,635 |
|
Reimbursable
expenses
|
|
|
1,356 |
|
|
|
2,172 |
|
|
|
2,543 |
|
|
|
2,698 |
|
Total
revenues
|
|
$ |
29,644 |
|
|
$ |
37,510 |
|
|
$ |
44,294 |
|
|
$ |
49,478 |
|
Gross
margin
|
|
$ |
9,288 |
|
|
$ |
13,178 |
|
|
$ |
15,854 |
|
|
|
15,437 |
|
Income
from operations
|
|
$ |
3,057 |
|
|
$ |
4,027 |
|
|
$ |
4,840 |
|
|
$ |
5,159 |
|
Income
before income taxes
|
|
$ |
3,034 |
|
|
$ |
3,900 |
|
|
$ |
4,675 |
|
|
$ |
5,241 |
|
Net
income
|
|
$ |
1,705 |
|
|
$ |
2,255 |
|
|
$ |
2,834 |
|
|
$ |
2,774 |
|
Basic
net income per share
|
|
$ |
0.07 |
|
|
$ |
0.09 |
|
|
$ |
0.11 |
|
|
$ |
0.10 |
|
Diluted
net income per share
|
|
$ |
0.07 |
|
|
$ |
0.08 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board
of Directors and Stockholders
Perficient,
Inc.:
We have
audited the accompanying consolidated balance sheet of Perficient, Inc. and
subsidiaries (the Company) as of December 31, 2007, and the related consolidated
statement of income, stockholders’ equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. The
accompanying financial statements of the Company as of December 31, 2006, and
for each of the years in the two year period then ended, were audited by other
auditors whose report thereon dated March 1, 2007, except Note 2 as to which
date is August 13, 2007, expressed an unqualified opinion on those
statements.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our
opinion, the 2007 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Perficient, Inc. and
subsidiaries as of December 31, 2007, and the results of their operations and
their cash flows for the year then ended, in conformity with U.S. generally
accepted accounting principles.
As
discussed in Note 2 to the consolidated financial statements, effective January
1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123
(Revised 2004), Share-Based
Payment.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Perficient, Inc.’s internal control over
financial reporting as of December 31, 2007, based on criteria established
in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated March 3, 2008 expressed
an unqualified opinion on the effectiveness of the Company’s internal control
over financial reporting.
/s/ KPMG
LLP
St.
Louis, Missouri
March 3,
2008
The Board
of Directors and Stockholders
Perficient,
Inc.:
We have
audited Perficient, Inc.’s (the Company) internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Perficient, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
The
Company acquired e tech solutions, Inc. (E Tech), Tier1 Innovation, LLC (Tier
1), BoldTech Systems, Inc. (BoldTech), and ePairs, Inc. (ePairs) during 2007,
and management excluded from its assessment of the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2007, E
Tech, Tier 1, BoldTech, and ePairs’ internal control over financial reporting
associated with 25% and 10% of the Company’s total assets and total revenues,
respectively, as of and for the year ended December 31, 2007. Our
audit of internal control over financial reporting of Perficient, Inc. as of
December 31, 2007 also excluded an evaluation of the internal control over
financial reporting of E Tech, Tier 1, BoldTech, and ePairs.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Perficient,
Inc. as of December 31, 2007, and the related consolidated statement of income,
stockholders’ equity, and cash flows for the year then ended, and our report
dated March 3, 2008 expressed an unqualified opinion on those consolidated
financial statements.
/s/ KPMG
LLP
St.
Louis, Missouri
March 3,
2008
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Stockholders
Perficient,
Inc.
Austin,
Texas
We have
audited the accompanying consolidated balance sheet of Perficient, Inc. as of
December 31, 2006 and the related consolidated statements of income,
stockholders’ equity and comprehensive income, and cash flows for each of the
two years in the period ended December 31, 2006. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Perficient, Inc. at December
31, 2006, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 2006, in conformity with
accounting principles generally accepted in the United States of
America.
As
discussed in Note 1 to the consolidated financial statements, effective
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), Share-Based
Payment.
/s/ BDO
Seidman, LLP
Houston,
Texas
March 1,
2007, except Note 2 to the 2006 financial
statements
as to which date is August 13, 2007
|
Changes In and Disagreements
With Accountants on Accounting and Financial
Disclosure.
|
None.
Evaluation
of Disclosure Controls and Procedures
We have
established disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to the officers who certify the Company's financial reports and to
other members of senior management and the Board of Directors.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Company's reports under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to management, including the principal executive officer and
principal financial officer of the Company, as appropriate, to allow timely
decisions regarding required disclosure. The Company's management, with the
participation of the Company's principal executive officer and principal
financial officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures as of the end of the fiscal year covered by this Annual
Report on Form 10-K. As described below under Management's Annual Report on
Internal Control Over Financial Reporting, the Company’s principal executive and
principal financial officers have determined that the Company’s disclosure
controls and procedures were effective.
Prior to
the issuance of the Company’s Quarterly Report on Form 10-Q for the period ended
June 30, 2007, the Company determined that its Consolidated Statements of Cash
Flows included in its Annual Report on Form 10-K for the year ended December 31,
2006 and Unaudited Condensed Consolidated Statements of Cash Flows included in
its Quarterly Report on Form 10-Q for the period ended March 31, 2007 should be
restated. The restatement resulted from an error regarding certain
previously reported payments associated with acquisitions that were incorrectly
included as a component of cash flows provided by operating activities in the
Company's Consolidated Statements of Cash Flows. These errors
resulted from a significant deficiency in the procedures and controls to
reconcile and review the impact of acquisitions on the Consolidated Statements
of Cash Flows. Such deficiency did not result in a material weakness in the
design or operation of the internal control. The controls in place regarding
reconciliation and review of cash flows related to acquisition activity
represent a very narrow subset of the Company's financial disclosure controls
and an even narrower element of the Company's overall financial control
structure. The Company does not believe that this restatement
resulted from a breakdown in its general controls; rather this was an isolated
error for specific types of acquisition payments.
In
connection with implementing the Company’s remediation plan to address this
internal control deficiency, the Company has instituted controls and procedures
to ensure the proper reconciliation and review of the impact of certain
acquisition payments on the Consolidated Statements of Cash
Flows. The Company plans to continue to enhance its controls in the
area and monitor the effectiveness of these controls.
Management's
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f). In fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and related costs of
control procedures. The objectives of internal control include providing
management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition, and that
transactions are executed in accordance with management's authorization and
recorded properly to permit the preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United States
of America. Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our assessment under those criteria, management concluded
that the Company’s internal control over financial reporting was effective as of
December 31, 2007.
The
Company acquired e tech solutions, Inc. (“E Tech”), Tier1 Innovation,
LLC (“Tier1”), BoldTech Systems, Inc. (“BoldTech”), and ePairs, Inc.
(“ePairs”) in February, June, September, and November of 2007, respectively. As
permitted by SEC guidance, management excluded these acquired companies from its
assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2007. In total, E Tech, Tier1, BoldTech, and ePairs
represented 25% and 10% of the Company's total assets and total revenues,
respectively, as of and for the year ended December 31, 2007. Excluding
identifiable intangible assets and goodwill recorded in the business
combination, E Tech, Tier1, BoldTech, and ePairs represented 1% of the Company's
total assets as of December 31, 2007.
KPMG LLP,
our independent registered public accounting firm, has audited our financial
statements for the year ended December 31, 2007 included in this Form 10-K, and
has issued its report on the effectiveness of internal control over financial
reporting as of December 31, 2007, which is included herein.
Changes
in Internal Control Over Financial Reporting
During
the quarter ended December 31, 2007, we continued our remediation efforts from
the prior quarters in order to fully remediate our previously reported
significant deficiency related to the classification of certain acquisition
payments on the Consolidated Statements of Cash Flows. This included enhancement
of our detailed cash flow statement review and the addition of executive
review.
Management
obtained sufficient evidence of the operating effectiveness of such additional
controls during the year ended December 31, 2007 and concluded that our
previously reported significant deficiency has been remediated.
None.
PART
III
|
Directors, Executive Officers
and Corporate
Governance.
|
Executive
Officers
Our
executive officers and directors, including their ages as of the date of this
filing are as follows:
Name
|
|
Age
|
|
Position
|
John
T. McDonald
|
|
44
|
|
Chairman
of the Board and Chief Executive Officer
|
Jeffrey
S. Davis
|
|
43
|
|
President
and Chief Operating Officer
|
Paul
E. Martin
|
|
47
|
|
Chief
Financial Officer, Treasurer and Secretary
|
Richard
T. Kalbfleish
|
|
52
|
|
Controller
and Vice President of Finance and Administration
|
Ralph
C. Derrickson
|
|
49
|
|
Director
|
Max
D. Hopper
|
|
73
|
|
Director
|
Kenneth
R. Johnsen
|
|
54
|
|
Director
|
David
S. Lundeen
|
|
46
|
|
Director
|
John T. McDonald joined us in
April 1999 as Chief Executive Officer and was elected Chairman of the Board in
March 2001. From April 1996 to October 1998, Mr. McDonald was president of
VideoSite, Inc., a multimedia software company that was acquired by GTECH
Corporation in October 1997, 18 months after Mr. McDonald became
VideoSite's president. From May 1995 to April 1996, Mr. McDonald was a
Principal with Zilkha & Co., a New York-based merchant banking firm.
From June 1993 to April 1996, Mr. McDonald served in various positions at
Blockbuster Entertainment Group, including Director of Corporate Development and
Vice President, Strategic Planning and Corporate Development of NewLeaf
Entertainment Corporation, a joint venture between Blockbuster and IBM. From
1987 to 1993, Mr. McDonald was an attorney with Skadden, Arps, Slate,
Meagher & Flom in New York, focusing on mergers and acquisitions and
corporate finance. Mr. McDonald currently serves as a member of the board
of directors of a number of privately held companies and nonprofit
organizations. Mr. McDonald received a B.A. in Economics from Fordham
University and a J.D. from Fordham Law School.
Jeffrey S. Davis became our
Chief Operating Officer upon the closing of the acquisition of Vertecon in April
2002 and was named our President in 2004. He previously served the same role
since October 1999 at Vertecon prior to its acquisition by Perficient.
Mr. Davis has 14 years of experience in technology management and
consulting. Prior to Vertecon, Mr. Davis was a Senior Manager and member of
the leadership team in Arthur Andersen's Business Consulting Practice starting
in January 1999 where he was responsible for defining and managing internal
processes, while managing business development and delivery of products,
services and solutions to a number of large accounts. Prior to Arthur Andersen,
Mr. Davis worked at Ernst & Young LLP for two years, Mallinckrodt,
Inc. for two years, and spent five years at McDonnell Douglas in many different
technical and managerial positions. Mr. Davis has a M.B.A. from Washington
University and a B.S. degree in Electrical Engineering from the University of
Missouri.
Paul E. Martin joined us in
August 2006 as Chief Financial Officer, Treasurer and Secretary. From August
2004 until February 2006, Mr. Martin was the Interim co-Chief Financial Officer
and Interim Chief Financial Officer of Charter Communications, Inc. ("Charter"),
a publicly traded multi-billion dollar in revenue domestic cable television
multi-system operator. From April 2002 through April 2006, Mr. Martin was the
Senior Vice President, Principal Accounting Officer and Corporate Controller of
Charter and was Charter's Vice President and Corporate Controller from March
2000 to April 2002. Prior to Charter, Mr. Martin was Vice President and
Controller for Operations and Logistics for Fort James Corporation, a
manufacturer of paper products with multi-billion dollar revenues. From 1995 to
February 1999, Mr. Martin was Chief Financial Officer of Rawlings Sporting Goods
Company, Inc., a publicly traded multi-million dollar revenue sporting goods
manufacturer and distributor. Mr. Martin received a B.S. degree with honors in
accounting from the University of Missouri - St. Louis. Mr. Martin is
also a member of the University of Missouri – St. Louis School of Business
Leadership Council.
Richard T. Kalbfleish joined
us as Controller in November 2004 and became Vice President of Finance &
Administration and Assistant Treasurer in May 2005. Prior to joining Perficient,
Mr. Kalbfleish served as Vice President of Finance & Administration
with IntelliMark/Technisource, a national IT staffing company, for
11 years. Mr. Kalbfleish has over 22 years of experience at the
Controller level and above in a number of service industries with an emphasis on
acquisition integration and accounting, human resources and administrative
support. Mr. Kalbfleish has a B.S.B.A. in Accountancy from the University
of Missouri at Columbia.
Ralph C. Derrickson became a
member of our board of directors in July 2004. Mr. Derrickson has more than
26 years of technology management experience in a wide range of settings
including start-up, interim management and restructuring situations. Currently
Mr. Derrickson is President and CEO of Carena, Inc. Prior to joining Carena,
Inc., Mr. Derrickson was managing director of venture investments at Vulcan
Inc., an investment management firm with headquarters in Seattle, Washington
from October 2001 to July 2004. Mr. Derrickson is a founding partner of
Watershed Capital, an early-stage venture capital firm, and is the managing
member of RCollins Group, LLC, a management advisory firm. He served as a board
member of Metricom, Inc., a publicly traded company, from April 1997 to November
2001 and as Interim CEO of Metricom from February 2001 to August 2001. Metricom,
Inc. voluntarily filed a bankruptcy petition in US Bankruptcy Court for the
Northern District of California in July of 2001. He served as vice president of
product development at Starwave Corporation, one of the pioneers of the
Internet. Earlier, Mr. Derrickson held senior management positions at NeXT
Computer, Inc. and Sun Microsystems, Inc. He has served on the boards of
numerous start-up technology companies. Mr. Derrickson is on the faculty of
the Michael G Foster School of Business at the University of Washington, and
serves on the Executive Advisory Board of the Center for Entrepreneurship and
Innovation at the University of Washington, as well as a member of the
President’s Circle of the National Academy of Sciences, The National Academy of
Engineering and the Institute of Medicine. Mr. Derrickson holds a
bachelor’s degree in systems software from the Rochester Institute of
Technology.
Max D. Hopper became a member
of our board of directors in September 2002. Mr. Hopper began his
information systems career in 1960 at Shell Oil and served with EDS, United
Airlines and Bank of America prior to joining American Airlines. During
Mr. Hopper's twenty-year tenure at American Airlines he served as CIO, and
as CEO of several business units. Most recently, he founded Max D. Hopper
Associates, Inc., a consulting firm that specializes in the strategic use of
information technology and business-driven technology. Mr. Hopper currently
serves on the board of directors for several companies such as Gartner Group,
and several other private corporations.
Kenneth R. Johnsen became a
member of our board of directors in July 2004. Mr. Johnsen is currently the CEO
and Chairman of the Board of HG Food, LLC. He also serves as a
Director on the Board of BooKoo Beverages, Inc. Prior to joining HG
Food, LLC, Mr. Johnsen was a partner with Aspen Advisors, LP. From January 1999
to October 2006, Mr. Johnsen served as President, CEO and Chairman of the Board
of Parago Inc., a marketing services transaction processor. Before joining
Parago Inc. in 1999, he served as President, Chief Operating Officer and Board
Member of Metamor Worldwide Inc., an $850 million public technology
services company specializing in information technology consulting and
implementation. Metamor was later acquired by PSINet for $1.7 billion. At
Metamor, Mr. Johnsen grew the IT Solutions Group revenues from
$20 million to over $300 million within two years. His experience also
includes 22 years at IBM where he held general management positions,
including Vice President of Business Services for IBM Global Services and
General Manager of IBM China/Hong Kong Operations. He achieved record revenues,
profit and customer satisfaction levels in both business units.
David S. Lundeen became a
member of our board of directors in April 1998. From March 1999
through 2002, Mr. Lundeen was a partner with Watershed Capital, a private
equity firm based in Mountain View, California. From June 1997 to
February 1999, Mr. Lundeen was self-employed, managed his personal
investments and acted as a consultant and advisor to various businesses. From
June 1995 to June 1997, he served as the Chief Financial Officer and Chief
Operating Officer of BSG. From January 1990 until June 1995,
Mr. Lundeen served as President of Blockbuster Technology and as Vice
President of Finance of Blockbuster Entertainment Corporation. Prior to that
time, Mr. Lundeen was an investment banker with Drexel Burnham Lambert in
New York City. Mr. Lundeen currently serves as a member of the board of
directors of Parago, Inc., and as Chairman of the Board of Interstate
Connections, Inc. Mr. Lundeen received a B.S. in Engineering from the
University of Michigan in 1984 and an M.B.A. from the University of Chicago in
1988. The board of directors has determined that Mr. Lundeen is an audit
committee financial expert, as such term is defined in the rules and regulations
promulgated by the Securities and Exchange Commission.
Codes
of Conduct and Ethics
The
Company has adopted a Corporate Code of Business Conduct and Ethics that applies
to all employees and directors of the Company while acting on the Company's
behalf and has adopted a Financial Code of Ethics applicable to the chief
executive officer, the chief financial officer, and other senior financial
officials.
Audit
Committee of the Board of Directors
The board
of directors has created an audit committee. Each committee member is
independent as defined by Nasdaq Global Select Market listing
standards.
The audit
committee has the sole authority to appoint, retain and terminate our
independent accountants and is directly responsible for the compensation,
oversight and evaluation of the work of the independent accountants. The
independent accountants report directly to the audit committee. The audit
committee also has the sole authority to approve all audit engagement fees and
terms and all non-audit engagements with our independent accountants and must
pre-approve all auditing and permitted non-audit services to be performed for us
by the independent accountants, subject to certain exceptions provided by the
Securities Exchange Act of 1934. The members of the audit committee are Max D.
Hopper, David S. Lundeen and Ralph C. Derrickson. Mr. Lundeen serves as
chairman of the audit committee. The board of directors has determined that
Mr. Lundeen is qualified as our audit committee financial expert within the
meaning of Securities and Exchange Commission regulations and that he has
accounting and related financial management expertise within the meaning of the
listing standards of the Nasdaq Global Select Market. The board of directors has
affirmatively determined that Mr. Lundeen qualified as an independent
director as defined by the Nasdaq Global Select Market listing
standards.
Additional
information with respect to Directors and Executive Officers of the Company is
incorporated by reference to the Proxy Statement under the captions "Nominees
and Continuing Directors", "Composition and Meetings of the Board of Directors
and Committees", and "Section 16(a) Beneficial Ownership Reporting Compliance."
The Proxy Statement will be filed pursuant to Regulation 14A within 120 days of
the end of the Company's fiscal year.
Information
on this subject is found in the Proxy Statement under the captions "Compensation
of Directors and Executive Officers” and "Nominees and Continuing Directors" and
is incorporated herein by reference. The proxy Statement will be filed pursuant
to Regulation 14A within 120 days of the end of the Company's fiscal
year.
|
Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters.
|
Information
on this subject is found in the Proxy Statement under the captions "Security
Ownership of Certain Beneficial Owners and Management ", "Nominees and
Continuing Directors", and "Equity Compensation Plan Information" and is
incorporated herein by reference. The Proxy Statement will be filed pursuant to
Regulations 14A within 120 days of the end of the Company's fiscal
year.
|
Certain Relationships and
Related Transactions, and Director
Independence.
|
Information
on this subject is found in the Proxy Statement under the caption "Certain
Relationships and Related Transactions" and incorporated herein by reference.
The Proxy Statement will be filed pursuant to Regulation 14A within 120 days of
the end of the Company's fiscal year.
|
Principal Accounting Fees and
Services.
|
Information
on this subject is found in the Proxy Statement under the caption "Principal
Accounting Firm Fees and Services" and incorporated herein by reference. The
Proxy Statement will be filed pursuant to Regulation 14A within 120 days of the
end of the Company's fiscal year.
PART
IV
|
Exhibits, Financial Statement
Schedules.
|
(a)
1.
|
Financial
Statements
|
The
following consolidated statements are included within Item 8 under the following
captions:
Index
|
|
|
Page(s)
|
|
Consolidated
Balance Sheets
|
|
|
30
|
|
Consolidated
Statements of Income
|
|
|
31
|
|
Consolidated
Statements of Changes in Stockholders' Equity
|
|
|
32
|
|
Consolidated
Statements of Cash Flows
|
|
|
33
|
|
Notes
to Consolidated Financial Statements
|
|
|
34
|
|
Reports
of Independent Registered Public Accounting Firms
|
|
|
52-54
|
|
2.
|
Financial
Statement Schedules
|
No
financial statement schedules are required to be filed by Items 8 and 15(d)
because they are not required or are not applicable, or the required information
is set forth in the applicable financial statements or notes
thereto.
See Index
to Exhibits starting on page 62.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
|
|
PERFICIENT,
INC.
|
|
|
|
|
By:
|
/s/
John T. McDonald
|
Date:
March 4, 2008
|
John
T. McDonald
|
|
Chief
Executive Officer
(Principal Executive
Officer)
|
|
|
|
|
By:
|
/s/
Paul E. Martin
|
Date:
March 4, 2008
|
Paul
E. Martin
|
|
Chief
Financial Officer
(Principal Financial
Officer)
|
|
By:
|
/s/
Richard T. Kalbfleish
|
Date:
March 4, 2008
|
Richard
T. Kalbfleish
|
|
Vice
President of Finance and Administration (Principal Accounting
Officer)
|
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints John T. McDonald and Paul E. Martin, and each of them
(with full power to each of them to act alone), his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign on his or her behalf individually and in each capacity
stated below any and all amendments (including post-effective amendments) to
this annual report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents and either of them, or
their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
John T. McDonald
|
|
Chief
Executive Officer and
|
|
March
4, 2008
|
|
John
T. McDonald
|
|
Chairman
of the Board (Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
/s/
Ralph C. Derrickson
|
|
Director
|
|
March
4, 2008
|
|
Ralph
C. Derrickson
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Max D. Hopper
|
|
Director
|
|
March
4, 2008
|
|
Max
D. Hopper
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Kenneth R. Johnsen
|
|
Director
|
|
March
4, 2008
|
|
Kenneth
R. Johnsen
|
|
|
|
|
|
|
|
|
|
|
|
/s/
David S. Lundeen
|
|
Director
|
|
March
4, 2008
|
|
David
S. Lundeen
|
|
|
|
|
|
INDEX
TO EXHIBITS
Exhibit
Number
|
Description
|
2.1
|
Agreement
and Plan of Merger, dated as of April 6, 2006, by and among Perficient,
Inc., PFT MergeCo, Inc., Bay Street Solutions, Inc. and the other
signatories thereto, previously filed with the Securities and Exchange
Commission as an Exhibit to our Current Report on Form 8-K filed on April
12, 2006 and incorporated herein by reference
|
|
|
2.2
|
Agreement
and Plan of Merger, dated as of May 31, 2006, by and among Perficient,
Inc., PFT MergeCo II, Inc., Insolexen, Corp., HSU Investors, LLC, Hari
Madamalla, Steve Haglund and Uday Yallapragada, previously filed with the
Securities and Exchange Commission as an Exhibit to our Current Report on
Form 8-K filed on June 5, 2006 and incorporated herein by
reference
|
|
|
2.3
|
Asset
Purchase Agreement, dated as of July 20, 2006, by and among Perficient,
Inc., Perficient DCSS, Inc. and Digital Consulting & Software
Services, Inc., previously filed with the Securities and Exchange
Commission as an Exhibit to our Current Report on Form 8-K filed on July
26, 2006 and incorporated herein by reference
|
|
|
2.4
|
Agreement
and Plan of Merger, dated as of February 20, 2007, by and among
Perficient, Inc., PFT MergeCo III, Inc., e tech solutions, Inc., each of
the Principals of e tech solutions, Inc., and Gary Rawding, as
Representative, previously filed with the Securities and Exchange
Commission as an Exhibit to our Current Report on Form 8-K filed on
February 23, 2007 and incorporated herein by reference
|
|
|
2.5
|
Asset
Purchase Agreement, dated as of June 25, 2007, by and among Perficient,
Inc., Tier1 Innovation, LLC, and Mark Johnston and Jay Johnson, previously
filed with the Securities and Exchange Commission as an Exhibit to our
Current Report on Form 8-K filed on June 28, 2007 and incorporated herein
by reference
|
|
|
2.6
|
Agreement
and Plan of Merger, dated as of September 20, 2007, by and among
Perficient, Inc., PFT MergeCo IV, Inc., BoldTech Systems, Inc., a Colorado
corporation, BoldTech Systems, Inc., a Delaware corporation, each of the
Principals (as defined therein) and the Representative (as defined
therein), previously filed with the Securities and Exchange Commission as
an Exhibit to our Current Report on Form 8-K filed September 21, 2007 and
incorporated herein by reference
|
|
|
2.7
|
Asset
Purchase Agreement, dated as of November 21, 2007, by and among
Perficient, Inc., ePairs, Inc., the Principal (as defined therein)
and the Seller Shareholders (as defined therein), previously
filed with the Securities and Exchange Commission as an Exhibit to our
Current Report on Form 8-K filed November 27,2007 and incorporated herein
by reference
|
|
|
3.1
|
Certificate
of Incorporation of Perficient, Inc., previously filed with the Securities
and Exchange Commission as an Exhibit to our Registration Statement on
Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by the
Securities and Exchange Commission and incorporated herein by
reference
|
|
|
3.2
|
Certificate
of Amendment to Certificate of Incorporation of Perficient, Inc.,
previously filed with the Securities and Exchange Commission as an Exhibit
to our Form 8-A filed with the Securities and Exchange Commission pursuant
to Section 12(g) of the Securities Exchange Act of 1934 on February 15,
2005 and incorporated herein by reference
|
|
|
3.3
|
Certificate
of Amendment to Certificate of Incorporation of Perficient, Inc.,
previously filed with the Securities and Exchange Commission as an Exhibit
to our Registration Statement on Form S-8 (File No. 333-130624) filed on
December 22, 2005 and incorporated herein by reference
|
|
|
3.4
|
Bylaws
of Perficient, Inc., previously filed with the Securities and Exchange
Commission as an Exhibit to our Current Report on Form 8-K filed November
9, 2007 and incorporated herein by reference
|
|
|
4.1
|
Specimen
Certificate for shares of common stock, previously filed with the
Securities and Exchange Commission as an Exhibit to our Registration
Statement on Form SB-2 (File No. 333-78337) declared effective on July 28,
1999 by the Securities and Exchange Commission and incorporated herein by
reference
|
|
|
4.2
|
Warrant
granted to Gilford Securities Incorporated, previously filed with the
Securities and Exchange Commission as an Exhibit to our Registration
Statement on Form SB-2 (File No. 333-78337) declared effective on July 28,
1999 by the Securities and Exchange Commission and incorporated herein by
reference
|
Exhibit
Number
|
Description
|
4.3
|
Form
of Common Stock Purchase Warrant, previously filed with the Securities and
Exchange Commission as an Exhibit to our Current Report on Form 8-K (File
No.001-15169) filed on January 17, 2002 and incorporated herein by
reference
|
|
|
4.4
|
Form
of Warrant, previously filed with the Securities and Exchange Commission
as an Exhibit to our Registration Statement on Form S-3 (File No.
333-117216) and incorporated by reference herein
|
|
|
10.1
|
Perficient,
Inc. Amended and Restated 1999 Stock Option/Stock Issuance Plan,
previously filed with the Securities and Exchange Commission as an Exhibit
to our annual report on Form 10-K for the year ended December 31, 2005 and
incorporated by reference herein
|
|
|
10.2
|
Form
of Stock Option Agreement, previously filed with the Securities and
Exchange Commission as an Exhibit to our Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2004 and incorporated herein by
reference
|
|
|
10.3
|
Perficient,
Inc. Employee Stock Purchase Plan, previously filed with the Securities
and Exchange Commission as Appendix A to the Registrant's Schedule 14A
(File No. 001-15169) on October 13, 2005 and incorporated herein by
reference
|
|
|
10.4
|
Form
of Restricted Stock Agreement, previously filed with the Securities and
Exchange Commission as an Exhibit to our annual report on Form 10-K for
the year ended December 31, 2005 and incorporated by reference
herein
|
|
|
10.5
|
Form
of Indemnity Agreement between Perficient, Inc. and each of our directors
and officers, previously filed with the Securities and Exchange Commission
as an Exhibit to our Registration Statement on Form SB-2 (File No.
333-78337) declared effective on July 28, 1999 by the Securities and
Exchange Commission and incorporated herein by
reference
|
|
|
10.6
|
Offer
Letter, dated July 20, 2006, by and between Perficient, Inc. and Mr. Paul
E. Martin, previously filed with the Securities and Exchange Commission as
an Exhibit to our Current Report on Form 8-K filed on July 26, 2006 and
incorporated herein by reference
|
|
|
10.7
|
Offer
Letter Amendment, dated August 31, 2006, by and between Perficient, Inc.
and Mr. Paul E. Martin, previously filed with the Securities and Exchange
Commission as an Exhibit to our Current Report on Form 8-K filed on
September 1, 2006 and incorporated herein by reference
|
|
|
10.8†
|
Employment
Agreement between Perficient, Inc. and John T. McDonald dated April 20,
2007, and effective as of January 1, 2007, previously filed with the
Securities and Exchange Commission as an Exhibit to our annual report on
Form 10-K for the year ended December 31, 2005 and incorporated by
reference herein
|
|
|
10.9†
|
Employment
Agreement between Perficient, Inc. and Jeffrey Davis dated August 3, 2006,
and effective as of July 1, 2006 filed with the Securities and Exchange
Commission as an Exhibit to our Quarterly Report on Form 10-Q filed on
August 9, 2006 and incorporated herein by reference
|
|
|
10.10
|
Amended
and Restated Loan and Security Agreement by and among Silicon Valley Bank,
KeyBank National Association, Perficient, Inc., Perficient Canada Corp.,
Perficient Genisys, Inc., Perficient Meritage, Inc. and Perficient
Zettaworks, Inc. dated effective as of June 3, 2005, previously filed with
the Securities and Exchange Commission as an Exhibit to our annual report
on Form 10-K for the year ended December 31, 2005 and incorporated herein
by reference
|
|
|
10.11
|
Amendment
to Amended and Restated Loan and Security Agreement, dated as of June 29,
2006, by and among Silicon Valley Bank, KeyBank National Association,
Perficient, Inc., Perficient Genisys, Inc., Perficient Canada Corp.,
Perficient Meritage, Inc., Perficient Zettaworks, Inc., Perficient iPath,
Inc., Perficient Vivare, Inc., Perficient Bay Street, LLC and Perficient
Insolexen, LLC, previously filed with the Securities and Exchange
Commission as an Exhibit to our Current Report on Form 8-K filed on July
5, 2006 and incorporated herein by
reference
|
Exhibit
Number
|
Description
|
10.12
|
Lease
by and between Cornerstone Opportunity Ventures, LLC and Perficient, Inc.,
previously filed with the Securities and Exchange Commission as an Exhibit
to our annual report on Form 10-K for the year ended December 31, 2005 and
incorporated by reference herein
|
|
|
10.13
|
First
Amended and Restated Investor Rights Agreements dated as of June 26, 2002
by and between Perficient, Inc. and the Investors listed on Exhibits A and
B thereto, previously filed with the Securities and Exchange Commission as
an Exhibit to our Current Report on Form 8-K (File No. 001-15169) filed on
July 18, 2002 and incorporated by reference herein
|
|
|
10.14
|
Securities
Purchase Agreement, dated as of June 16, 2004, by and among Perficient,
Inc., Tate Capital Partners Fund, LLC, Pandora Select Partners, LP, and
Sigma Opportunity Fund, LLC, previously filed with the Securities and
Exchange Commission as an Exhibit to our Current Report on Form 8-K filed
on June 23, 2004 and incorporated by reference herein
|
|
|
14.1
|
Corporate
Code of Business Conduct and Ethics, previously filed with the Securities
and Exchange Commission on Form 10-KSB/A for the year ended December 31,
2003 and incorporated by reference herein
|
|
|
14.2
|
Financial
Code of Ethics, previously filed with the Securities and Exchange
Commission on Form 10-KSB/A for the year ended December 31, 2003 and
incorporated by reference herein
|
|
|
21.1*
|
Subsidiaries
|
|
|
23.1*
|
Consent
of BDO Seidman, LLP
|
|
|
23.2*
|
Consent
of KPMG LLP
|
|
|
24.1
|
Power
of Attorney (included on the signature page hereto)
|
|
|
31.1*
|
Certification
by the Chief Executive Officer of Perficient, Inc. as required by Section
302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2*
|
Certification
by the Chief Financial Officer of Perficient, Inc. as required by Section
302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1*
|
Certification
by the Chief Executive Officer and Chief Financial Officer of Perficient,
Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of
2002
|
†
|
Identifies
an Exhibit that consists of or includes a management contract or
compensatory plan or arrangement.
|