Good afternoon. My name is Puneet Jain from Payment Processing and IT Services team here at JP Morgan. Glad to have here with us, Perficient Systems' President and COO, Tom Hogan. Welcome, Tom. The format of this chat is going to be fireside chat. I'll start with a few questions, and then we'll open the floor for questions from audience. For those who are listening to webcast, feel free to send questions our way through the conference's online portal, and we'll try and ask as many of those live here on the call. With that, thank you, Tom, for joining us and for benefit of investors who may be new to Perficient Systems, if you can introduce the company, talk about your positioning, and how you are differentiated in the market. Sure. Hello, everybody. Perficient is a technology services provider, primarily focused on digital transformation, newer technologies. We're a project-based consultancy, 7,500 colleagues around the world, over half of them outside the United States. Focused on the Global 2000, primarily, major focus on the, as I mentioned, digital transformation, focused on cost generation, looking at revenue recognition, looking at newer technologies, which we'll talk about here a little bit. Differentiation-wise, being a project-based consultancy, we're really focused on partnering, adding value to the organization, so we're not doing a lot of staff augmentation or outsourcing. It is really coming in, understanding where they are in their journey, working with the Global 2000 to really accelerate their growth and/or cut costs on a project-based model. Let's talk about like the current macroenvironment. Like if you can give us, like what are you hearing from your clients, like the state of union on discretionary spend, and that your guidance implies like, a nice sequential growth in second half of this year. What drives that confidence? Sure, the position we have in the marketplace is really driven around newer technologies and helping organizations drive value. When you think about where their technology spend is, it's right in the spot of our portfolio where we can help them along their journey. Looking for somebody that can come with help with strategy, implementation of services, helping them understand where they're going within their industry, and to be a trusted valued partner with them along the way. We've seen nice growth throughout the last number of years. Q1, we saw double-digit organic bookings, which gives us some good confidence in the year. Q2 will really dictate a lot of how the rest of the year has for what has for us. I think we're in a position where we'll continue to see growth if the macroenvironment improves. We'll be well-positioned for double-digit organic growth as well, but that's gonna take a little while. I think with the double-digit bookings in the first quarter, it gives us some confidence in the year, although we're still in Q2, so we'll see how the rest of June goes. Yes. No, of course. As and when macro improves, like talk to us, like which areas, which areas will grow faster, will emerge, faster coming out of this current slowdown? How are you preparing yourself to be ready for that phase? Well, we're still in the midst of. I know there's a lot of newer technologies, and I know generative AI is something that a lot of organizations are talking about right now. We're really in the middle to beginning still on the digital transformation journey. There are a lot of organizations that still have a long way to go to mature their businesses, to look at a lot of legacy applications, legacy experiences, and to make sure that they're really driving true value in their technology portfolio. We have a long way to go there. I think cloud continues to be and product development on the cloud continues to be a very big growth area for us, as well as the data space in general. That is for the foreseeable future, in digital transformation, where we're going. I think generative AI has a lot of interest right now and a lot of things that we can work on and are working on. I think when you think about just digital transformation in general, we're still in the early stages of that, and, it has a long way to go. Generative AI, like that is like a hot topic, I guess. Like it has come up in almost every presentation here. How do you see like the ecosystem evolving, like given like generative AI? There are hyperscalers, then there are software companies, and there are IT services companies. How do you see like the overall ecosystem evolve because of Generative AI? Well, I think right now it's a very fractured environment. There are a lot of early players that are coming in. We're playing with all of those technologies. A lot of them coming to us to help understand how they can make their technology enterprise solution worthy. Microsoft, Google as examples, are coming in and saying: What are the use cases? How can we use this technology? We've set up our own lab working with these organizations to figure out what is the true business case for these. I think there's a lot of interest in, you know, potentially using this for code generation and things like that. I think we're a long way away from that. Right now there's a lot of security risks with that. In the near term, I think it's really going to dictate how we interact with applications. The way in which we typically, from a consumer standpoint, interact with customers and interact with technology online, I think generative AI is going to change the world there first, from a user experience. From there, I think will be some downstream effects. I think we're still a ways away from that right now. It's a very fractured market, and there's a lot of concern about security, especially in the open market. We work with the Fortune 2000. I think there'll be some early adopters in the space. We're already seeing it. We're doing work right now. But I think we have a long way to go to figure out how transformative this is gonna be to the industry. Do you think like, do you have to hire like differently, like a different skill sets, to be ready for this? Like, or can you train your internal employees? Will contract structures have to change as a result? Like most of the companies right now have, T&M, time and material contracts. Is that the right structure, like as you provide more of generative AI, these solutions and services to your customers? From a talent perspective, I don't see the need to change the skill set. Some organizations may have to, but the solution areas we're in, we're in newer technology. If you think about what is generative AI need right now, a lot of it is around data analytics, a lot of it's around data scientists, you know, some Java basic programming, things like that. These are core tenets of the work we already do. It's just taking that evolutionary step. Our team's already working in these technologies. The culture of our organization is newer technology. You know, the need to do generative AI comes from our organization. It doesn't come from myself or the executive team saying, "This is a space we need to get into." It's from, you know, our team really working on newer technology. For us, we don't see a need that we'll have to upskill or go get new individuals. There is no generative AI pool of talent. We'll have to create that as everybody else will. I feel very confident in our ability to do that. As far as contract models, we'll see where that goes. About 85% of our business is Time and Materials. We do project-based or pod-based delivery models as well. Could see where that would go as far as outcome-based delivery models as we get to generative AI. I think that's very still infancy in the conversation. Right now I don't see the need to change that. We're doing more fixed projects just as we would in any sort of new technology and working together in a lab environment. We'll see what happens with the generative AI space. It's still very much in its infancy. Just one more question on the same topic, promise no more questions on generative AI. Talk to us like about client readiness. Like you talked about like some of the security, privacy concerns around this. How ready clients are like in terms of their technology ecosystem, like, do they have to upgrade their core? Do they have to move to cloud? Will it drive like another wave of digital transformation before clients can really start getting benefits of generative AI? Keeping in mind that we're still very much in the digital transformation journey for most organizations, and some are still on the planning, believe it or not, of that in the Fortune 2000, Global 2000 organizations are not very mature when it comes to just digital technologies. There's a lot of debt out there in the environment. There's a lot of applications that still need to move to the cloud and to out of some legacy applications. First and foremost, the industry has a long way to go with digital transformation. Generative AI could help jumpstart a number of those organizations in that it might be a nice way to bring exposure to applications historically that you would have to bring into a cloud-based environment. It could actually accelerate a digital transformation journey. That's yet to be seen. Keeping in mind that a lot of data infrastructures, which is where a lot of this information is coming from, is still locked down. There's a lot of data work going on right now within the industry to just make these systems accessible, so you could use a generative AI tool. I think we'll get there in time. I think it could be an accelerant to digital transformation. It may change the skill set needed a little bit as we look at data structures, as we look at less integration needed because we can put a generative AI engine on top of a data source versus having to integrate together to bring resources together. That being said, I think when we look at generative AI in the journey, digital transformation will continue to be the long pole in the tent for most organizations as we figure out how to utilize generative AI, but it could accelerate in the years coming. Another topic that has gained significant attention here at the conference, specifically as it relates to IT services company, is delivery locations like the nearshore and offshore low-cost delivery locations. You recently built, not recently, in last three, four years, built significant capabilities in Latin America. Talk to us like about your journey, like as you were looking for regions beyond India, beyond U.S. What does Latin America-based delivery provide that's incremental to what you were getting from India and from the U.S.-based delivery? You know, our business has really transformed over the last four years or so. We had a presence, we organically built a nice presence in India. We have close to about 1,800 colleagues in India, in about five different locations. Well, around the same time, we started looking at Latin America, and we looked at a lot of different organizations trying to find the right one to enter into Latin America, something that we could build off of. We kissed a lot of frogs to find a great organization in 2020. Since we've done four acquisitions in Latin America, and it's been really a nice value to our overall portfolio of individuals. Our clients are looking just for the best technologists, no matter where they live in the world. We're a little unique in the way in which we do our delivery is very much a matrixed organization. When you work with Perficient, we're bringing the best technologists to the problem versus the best location. We will have a U.S.-based colleagues working with Latin-based colleagues, working with India-based colleagues all around the same project and the same delivery, which is unique in our space. Typically, you would work with one of those geographical locations. We work with all of them together, which gives us a differentiation of just getting the best talent. That also brings us some beauty regarding cost. We can have some different cost models from the United States, Latin America, and India. It also brings a robustness to our culture. We have the ability now to tap into technology pods around the world and also tap into the cultural excitement that happens in these different geographies. Latin America, we're in Colombia, Argentina, Uruguay, Chile, and now in Monterrey, Mexico, which each one has their own unique technology footprint that we can leverage. We don't try to replicate any individual culture as long as we have a Perficient culture. Bringing those together in the acquisitive environment is what brings together some magic for our technology places. The nice part for us for our clients is historically being a U.S.-based delivery center with some India capabilities, our clients were used to working in a, in a global world internally with their own teams, and liked what we were delivering from a Perficient India perspective. With Latin America, many organizations are looking for a Latin America presence, similar time zone. From a communication standpoint, it's a little easier for some of our clients. In that environment, we're able to now provide a need there. We have close to 1,600 colleagues in Latin America and organically growing at 30+% year-over-year as clients continue to like that option. The important part is we focus on global depth, so things like generative AI, things like Salesforce delivery centers, so things like data in general, we can deliver those solutions anywhere in the world. It's not specific to one local geography. If you're a client in a global organization, you wanna work with Latin America, you don't suffer any capacity or velocity by using just Latin America as you would with India or within the United States, and it's a very unique model to bring to the clients. Let's talk about your overall low cost capabilities. Like, it's about 60% by employees? Mm-hmm. Right now, how high that can go? How does like having like that low cost capabilities help you become more competitive in client accounts? Like, you talked about like winning more large deals. What does those deals entail? Like, is there like a significant low cost component in there that you couldn't have offered before? I think it's two things: one, cost, and then also scalability. As we look at the competitive landscape and where we work with the Global 2000, our competitors are typically the Accentures, Cognizants of the world, hundreds of thousand consultants. Our clients are expecting size and scalability around multiple portfolios. What we bring to the table is that boutique feel of this project's important, we can give you a lot of oversight, and we can bring together individuals that have average 10 years experience in a given domain to solve your most challenging problems, and we can do that at scale. As we work with large Fortune 100 organizations, they're looking for an alternative. They're looking for an alternative to the Accentures and the Cognizants for that $1 million-$2 million project that is of importance to drive value to their organization. And that's where we fit in really nicely to that partner ecosystem, where we are the alternative. There are very few like us, if any like us, in the ecosystem that can step up with a global component. As we've scaled and as we continue to grow, it also provides another avenue that they can see that we can scale. Previously, we might be looking for a team of 10 individuals, you know, eight, nine, 10 years ago, and clients would be concerned about our the ability to scale. We're talking 100,000- 200,000 type projects and programs to really take on more of that development need from our clients, where historically we couldn't do that. We can do it at a cost-competitive perspective. We're not the lowest cost provider. We never will be. We drive value. With that, there's not necessarily a premium, but there is an expectation of a price point above a commoditized player. We're not a staffing company or a staffing capacity player. We're bringing value to the organization from strategy all the way through implementation. With that, we can bring scalability, but we can also bring the ability to bring down that overall ABR by utilizing our talent in Latin America or talent in India without sacrificing margins. You do receive, you know, additional velocity, additional capacity without having to pay a premium price of just a U.S.-based consultancy. At this time, are there any questions from audience? I guess, I'll keep going for now. You talked about like that you are like a premium provider. Like, one thing that we like about Perficient is that You're one of the few companies that have significant management consulting capabilities. Talk to us, like, who do you compete with in that space? Like, how important it is to have that front-end consulting capabilities that can help you differentiate from other firms. Well, we talk about, you know, our strategy is for the everyday world. We're not the strategy for strategy stake. We are not Bain. We come into the organization, we're competing against the PwC, Accenture, you know, the big, the traditional Big Five consultancies, we make it a reality. Where organizations like to work with us from the global perspective is not only can we come in and give real-time strategy, but implement that strategy as well. We do it in a way, in a very pragmatic, iterative approach versus a three-ring binder, you know, 35-year approach to a roadmap. We're coming in day one, having the ability to have velocity right out of the gate, but we're also doing it in a way that we're bringing in the best subject matter experts we can. An example of this would be our financial services. We have the ability, and we had a couple of nice wins, which we talked about in Q1, which were more around regulatory and compliance. Working with the Office of the Comptroller, working with large top five banks in the world, and their requirements around governance and their requirements around not just understanding where their gaps are, and they may have a material weakness, but coming and solving that problem, and then adding technology on top of it. As they're going back to the OCC and showing that they have, they've closed out, maybe a consent decree, we can come back with technology and show how to improve upon that as well, and turn it into an opportunity versus just checking a box back to the SEC or Office of the Comptroller, wherever the issue lies. That's a very unique skill set that we're proud of, and the ability then to back it up with a lot of technology solutions, specifically in financial services. We do the same thing within healthcare, be it from the provider payer or within the life sciences perspective. Working with the consumerism of healthcare and understanding how we can get great outcomes with technology and great outcomes for patients, also be able to work with a large pharmaceutical organization to redo the way in which they're masking data for their clinical trial research, and their ability to bring in true experts in that space around clinical trial research, also have some great data scientists to come in and actually build out the model for their clinical trial, hopefully, ability to then change the industry of clinical trials so that they can be used within the consortium. That's a very different play than I just need talent in Latin America or I need talent in India. We bring in that great combination between great technologists and engineers, but also with industry experience and the experience to come in and guide a client through a challenge. One of the key positives, like from your recent earnings call was that you are still getting price increase even in this macro environment. Talk to us like what's the like-to-like price increase you are getting, like, and how much of that is a function of your increasing offshore mix? It's a couple different things in there. One, once again, we're not a low-cost provider, so we're bringing value to the table. Typically, our conversations are not about ABR, it's about total cost. That situation really provides the ability to bring in our Latin America colleagues or India colleagues to lower the overall ABR on the project or program, without having a conversation on individual ABR for an individual country. It also allows us the ability to make sure we're maximizing margins in countries around the world because we're looking at a blended ABR. We've been at a 40% gross margin as an organization, which is a best of breed within our sector, and we maintain that and will continue to maintain that. We've also seen some nice price increases where we've done some acquisitions. In Latin America, through the acquisitions we've made, we're able to maybe provide a bit of a price premium to their previous work with the clients that we work with versus them, which allowed us then to also increase prices, which, you know, ABR was up about 10% in Latin America, and about 4% in the United States. We still think we have some room. You know, if we're going against, you know, PwC and Deloitte and, you know, they're well into $200 at times, where our average ABR is about $160 in the United States. How much of the headwind to blended ABR is from offshore mix shift? Like, or in other words, like what is like the underlying volume of work increasing that? About half of our team, a little over half of our team is outside the United States, but only about 28% of our revenue. U.S.-based clients being delivered by a global footprint is only about 28% of our revenue. That'll be a headwind to revenue growth as we continue to shift of talent from our U.S. base fully delivery to Latin America and India. That, however, as we get to, you know, a 50/50 mix, we think it'll be a tailwind versus a headwind, that it'd be probably about three to five years for us to fully work through and make that shift. Although that's, you know, money variables that need to come into play to make that happen, where we should see maybe some nice increases as well to margin. We like that 40% margin perspective and the ability to, you know, invest back in the business, around technology and team, to make sure that we're providing the best place for the best people. Can you talk about like the supply challenges? Perficient was one of the few companies which was better able to manage a very tough supply situation over the last few years. Talk to us like how do you attract people? How do you motivate and retain people? What do you see right now in the current environment as it relates to hiring talent? Well, with consulting in general, but technology for sure, people have a lot of choices of where to work. If you're one of the best or brightest in your given domain or within the space, you really have your choice of where to work. Quite honestly, it's not about money at that point. You could probably make whatever you want wherever you work. It's more important to be surrounded by people of talent, be surrounded by individuals that have the same passion as yourself, be surrounded by those that are doing great work, learning new technologies, and we provide that environment. We really believe there's something more to work, than just the work and billable hours, and it has to be something greater than yourself, and we provide that environment, and we back it up through our give back programs. More importantly, it's about working together, and we provide that environment. Our best recruiting is our culture, where people wanna be a part of it. From a traction standpoint, we've done a nice job of building out a TA, a global TA perspective that allows us to have a true competitive advantage. Our marketing dollars in Latin America, India, are primarily focused just on talent, so letting people know about the option that we have. Our India turnover has been best in industry for. Well, since we've really had India, we've been in the low teens for our turnover in India, which is better than anybody. Put that against any of our peers, and even the big folks out there. You know, when you, when you have, you know, high, close to 2,000 colleagues, that maintains. Obviously, the macro environment has helped us a little bit, retain, and we've seen our retention, you know, be at a very healthy, maybe even the low end of what we would like for a retention standpoint. We're, you know, mid-teens around the world, independent of where you are globally. We also provide a lot of career paths. We promote very much from within. We treat our U.S. colleagues similarly to our Latin colleagues, similarly to our India colleagues. We have the ability to lead client engagements as well as technology portfolio engagements no matter where you are in the world. From a cultural perspective, that's really important. From a TA perspective, that's really important. Then, you know, most importantly, as we're gonna continue to grow, our clients expect individuals that wanna grow with them. That's really important. As clients work with us, they know their team is invested with them. They know their team is not gonna be flipping over every two years, and that actually helps us procure new business, where clients are sick of these large firms that have, you know, 20%, 30% attrition, and, you know, they don't know who's on their project anymore. They're looking for somebody that has longevity with their team, and we're really proud of the longevity that we've built with our team. People have a destination. We've always, you know, been very intentional about that and I think the results speak for themselves. One question we often get from investors, around your long-term growth is, like, how can we be confident that you can do, grow at double digits over the next few years? Before COVID, the growth rate was lower, but coming out of COVID, like, you grew 20%, even higher rates a few quarters. What drives the confidence that, like, over the next three years, five years, you can grow top line at least double-digit rates? Well, a couple things. First of all, we've done it, so that gives you a lot of confidence when you've produced a 20% year-over-year organic growth. When you look at like for like for our peer group, for those organizations that have heavy India-based and/or Latin America-based consultancies, you know, our India-based colleagues and Latin America-based colleagues have been growing, you know, 20%, 30%, 50% organically year-over-year. We're keeping up from a like for like delivery standpoint. That's a big part of it. Also our pipeline. Our message continues to resonate in the marketplace. The conversation we're having with clients is when, not if. That is creating a little bit of a headwind to getting back to double-digit organic growth is more the macro environment than it is our portfolio. You know, our pipeline is larger than ever. The number of deals we're winning is larger than ever. The size of deals are larger than ever. The number of eight-figure deals that we have in pipeline is larger than ever. We are seeing, though, those eight-figure deals break into $2 million, $3 million deals as clients are looking at the macro environment and taking a project phase at a time versus signing up for the overall project and program, which provides a little bit of that lumpiness that happens with our project-based consultancy. That's kind of the name of the game a little bit. We don't have outstanding long commoditized-based staffing agreements that are 3 years in length at a lower cost point. That is a difference for us compared to the market. You know, between the client demand, the client conversations we're having, the investments we're making in sales, we've increased our sales velocity and sales spend, and the investments we're making in our portfolio, those all lead to our belief that we will be back in that double-digit environment of growth, and with some help with the macro environment, you know, sooner than later. Let's quickly talk about margins. You already generate by far, like, the highest EBITDA per employee in the industry. What drives the confidence that you can further expand margins from where you are right now, and how high EBITDA margins can go, and what will be the drivers? It's a question for Paul. I'm sorry, but No, no. Gross margin, we're happy with the 40%. We're not looking to expand margin there. We'll get some efficiencies as we continue to grow into Latin America and India and continue to drive growth there. We are seeing some short-term, costs come back into the business that we had pre-COVID, as, you know, travel has picked up, as going to see clients have come back. As we look at, just sales spend in general, what used to be a virtual conference is now in person, we're seeing some of those incremental spends come back in, from a margin perspective. We've done some nice things from a market perspective, with sponsorships to just get the Perficient name out there, and we'll continue to do that from a marketing angle to make sure that our name is present, and I think we'll continue to do that, as we continue to expand those margins. We're looking to grow organic growth versus expand margins. We're pretty happy where we are in that 20%. We'll get some incremental growth as we continue to grow, but we're looking more at the organic top line, and that's really more of a focus for us than it is margin improvements. Where to your point, I think best in breed when it comes to margin improvements. We know how to run a consulting company very successfully, and now it's really showing that we continue to grow it and scale it. We have three minutes left. Any questions from audience? I think the... Richard? Sorry. I'll quickly ask about your capital allocation strategy. You have been doing acquisitions, building offshore capabilities, nearshore capabilities through M&A. Talk to us like with generative AI, like the new tools and, do you need to shift, like change your M&A strategy in the near term? Maybe focus more on building capabilities in these new areas versus at offshore. How should we think about your M&A focus right now? Well, we were very intentional about Latin America. That was something we knew we wanted to grow. We feel very comfortable where we are with Latin America and India. As I previously mentioned, we're looking for the best talent no matter where it is in the world. It doesn't preclude us from adding in Latin America or India. That would not be specific for a geographical play. It would be more for a technology and skill set. As we look at M&A strategy, we did openly talk about we've been always acquisitive. We've done over 30 deals when it comes to M&A. We slowed that down a little bit in 2022, specifically based on, you know, just the market and the enterprise value of some of these organizations were a little out of touch, we felt. We slowed down intentionally. We will not get a deal done in the first half, but we are optimistic we'll be able to get one or two maybe done the second half of the year. Depends on what we where we come with some of our targets that we have out there. We target about $50 million in acquisition, which we use for capital, specifically cash. We used to do a 2/3, 1/3 type of a split when it comes to acquisitions. About two-third in cash. Business kind of cash flows that as we throw off a lot to pay for that through the capital acquisitions. The question regarding do the change our M&A strategy about generative AI? Not yet. Those skill sets, you know, we are looking for some great data talent at all times, so that's not unique to generative AI. It is something that we're conscious, always looking at as great skill set. Generative AI is still too new. There is no generative AI team out there to go after from an acquisition standpoint. We'll be doing that organically. We're making some smart investments along the way as we build out our own labs around technology, as we always do. No, generative AI is not influencing our M&A strategy right now. Do you think you'll have to focus more on on-site based delivery as you try and build this capability in-house? Can you build this capability at offshore locations right now? We can. We can, and we are. We have generative AI as part of our labs that we're building out in Latin America as well as India. We have global depth independent of geographical location. We don't look at that as just a U.S. unique skill set. We're looking for great talent no matter where they are in the world, and we can do that in Latin America or India or in the United States. Geographic will not come into that right now when it comes to the geographical footprint for generative AI, no. That's great. On that note, thanks a lot. Thank you. Thanks for your time. Wonderful.