Perficient 10Q 2023 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-15169

PERFICIENT, INC.

(Exact name of registrant as specified in its charter)

Delaware

No.

74-2853258

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

555 Maryville University Drive

Suite 600

Saint Louis, Missouri 63141

(Address of principal executive offices)

(314) 529-3600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	PRFT	The Nasdaq Global Select Market

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 during the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	þ	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of October 23, 2023, there were 34,771,617 shares of Common Stock outstanding.

TABLE OF CONTENTS


Part I.	Financial Information	1

Item 1.	Financial Statements	2

	Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022	2

	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022	3

	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022	4

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	7

	Notes to Interim Unaudited Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31

Item 4.	Controls and Procedures	31

Part II.	Other Information	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

	Signatures	34

PART I. FINANCIAL INFORMATION

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on this Form 10-Q (“Form 10-Q”) 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 and are subject to risks and uncertainties. Actual events or results may differ substantially. Important factors that could cause our actual results to be materially different from the forward-looking statements include (but are not limited to) the following:

(1)the impact of the general economy and economic and political uncertainty on our business;

(2)risks associated with potential changes to U.S. and foreign laws, regulations, and policies;

(3)risks associated with the operation of our business generally, including:

a. client demand for our services and solutions;

b. effectively competing in a highly competitive market;

c. risks from international operations including fluctuations in exchange rates;

d. adapting to changes in technologies and offerings;

e. the ongoing transition of our executive leadership team;

f. obtaining favorable pricing to reflect services provided;

g. risk of loss of one or more significant software vendors;

h. maintaining a balance of our supply of skills and resources with client demand;

i. changes to immigration policies;

j. protecting our clients’ and our data and information;

k. changes to tax levels, audits, investigations, tax laws or their interpretation;

l. making appropriate estimates and assumptions in connection with preparing our consolidated financial statements; and

m. maintaining effective internal controls;

(4)risks associated with managing growth organically and through acquisitions;

(5)risks associated with servicing our debt, the potential impact on the value of our common stock from the conditional conversion features of our debt and the associated convertible note hedge transactions;

(6)legal liabilities, including intellectual property protection and infringement or the disclosure of personally identifiable information; and

(7)the risks detailed from time to time within our filings with the Securities and Exchange Commission (the “SEC”).

This discussion is not exhaustive, but is designed to highlight important factors that may impact our forward-looking statements. Because the factors referred to above, as well as the statements included under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, including documents incorporated by reference therein and herein, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement made by us or on our behalf, you should not place undue reliance on any forward-looking statements.

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 Form 10-Q 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 that are attributable to Perficient, Inc. and its subsidiaries (collectively, “we,” “us,” “Perficient,” or the “Company”) 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 the Company or any persons acting on our behalf may issue.

Item 1. Financial Statements

Perficient, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share information)


	September 30, 2023 (unaudited)		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	80,087	$	30,130
Accounts receivable, net	185,140		202,298
Prepaid expenses	6,840		6,432
Other current assets	19,148		16,756
Total current assets	291,215		255,616
Property and equipment, net	13,918		17,970
Operating lease right-of-use assets	23,588		27,088
Goodwill	577,628		565,161
Intangible assets, net	74,882		88,937
Other non-current assets	47,266		41,116
Total assets	$	1,028,497	$	995,888

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	15,307	$	24,351
Other current liabilities	54,992		104,780
Total current liabilities	70,299		129,131
Long-term debt, net	396,303		394,587
Operating lease liabilities	18,052		18,528
Other non-current liabilities	41,154		43,515
Total liabilities	$	525,808	$	585,761
Stockholders’ equity:
Preferred stock (par value $0.001 per share; 8,000,000 authorized; no shares issued or outstanding as of September 30, 2023 and December 31, 2022)	$	—	$	—
Common stock (par value $0.001 per share; 100,000,000 authorized; 53,317,130 shares issued and 34,122,836 shares outstanding as of September 30, 2023; 53,082,010 shares issued and 34,071,750 shares outstanding as of December 31, 2022)	53		53
Additional paid-in capital	424,989		403,866
Accumulated other comprehensive loss	(8,705)		(17,519)
Treasury stock, at cost (19,194,294 shares as of September 30, 2023; 19,010,260 shares as of December 31, 2022)	(367,669)		(354,536)
Retained earnings	454,021		378,263
Total stockholders’ equity	502,689		410,127
Total liabilities and stockholders’ equity	$	1,028,497	$	995,888

See accompanying notes to interim unaudited condensed consolidated financial statements.

Perficient, Inc.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share information)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

Revenues	$	223,238	$	227,614	$	685,751	$	672,463


Cost of revenues (cost of services, exclusive of depreciation and amortization, shown separately below)	142,979		136,416		433,359		411,696
Selling, general and administrative	42,109		44,273		130,206		127,384
Depreciation	2,194		2,355		6,723		6,233
Amortization	5,032		6,087		16,372		18,064
Acquisition costs	456		2,148		464		2,508
Adjustment to fair value of contingent consideration	(1,748)		3,115		(6,475)		(351)
Income from operations	32,216		33,220		105,102		106,929

Net interest (income) expense	(7)		616		794		2,308

Net other expense	236		20		698		406
Income before income taxes	31,987		32,584		103,610		104,215
Provision for income taxes	9,391		9,569		27,852		26,282

Net income	$	22,596	$	23,015	$	75,758	$	77,933

Basic net income per share	$	0.66	$	0.68	$	2.23	$	2.30
Diluted net income per share	$	0.63	$	0.64	$	2.11	$	2.17
Shares used in computing basic net income per share	33,989		33,861		33,964		33,873
Shares used in computing diluted net income per share	36,713		36,663		36,709		36,763

See accompanying notes to interim unaudited condensed consolidated financial statements.

Perficient, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

Net income	$	22,596	$	23,015	$	75,758	$	77,933
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax	1,437		(5,356)		8,814		(8,374)
Comprehensive income	$	24,033	$	17,659	$	84,572	$	69,559

See accompanying notes to interim unaudited condensed consolidated financial statements.

Perficient, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)


		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2023		2022		2023		2022


Common Stock
Beginning of period		$	53	$	53	$	53	$	53
	Stock compensation related to restricted stock vesting and retirement savings plan contributions	—		—		—		—
End of period		53		53		53		53
Additional Paid-in Capital
Beginning of period		418,123		383,987		403,866		423,235
	Proceeds from the sales of stock through the Employee Stock Purchase Plan	247		257		765		832
	Stock compensation related to restricted stock vesting and retirement savings plan contributions	6,619		5,715		20,358		17,399
	Issuance of stock in conjunction with acquisition including stock attributed to future compensation	—		3,142		—		3,142







	Cumulative effect of accounting changes (See Note 3)	—		—		—		(51,507)
End of period		424,989		393,101		424,989		393,101
Accumulated Other Comprehensive Loss
Beginning of period		(10,142)		(8,861)		(17,519)		(5,843)
	Foreign currency translation adjustment	1,437		(5,356)		8,814		(8,374)
End of period		(8,705)		(14,217)		(8,705)		(14,217)
Treasury Stock
Beginning of period		(364,768)		(337,237)		(354,536)		(324,412)
	Purchases of treasury stock and buyback of shares for taxes	(2,640)		(9,234)		(12,708)		(22,059)

	Stock reacquired for escrow claim	(261)		—		(425)		—
End of period		(367,669)		(346,471)		(367,669)		(346,471)
Retained Earnings
Beginning of period		431,425		328,789		378,263		271,732
	Cumulative effect of accounting changes (See Note 3)	—		—		—		2,139
	Net income	22,596		23,015		75,758		77,933
End of period		454,021		351,804		454,021		351,804
Total Stockholders’ Equity		$	502,689	$	384,270	$	502,689	$	384,270

See accompanying notes to interim unaudited condensed consolidated financial statements.








		Three Months Ended		Nine Months Ended
		September 30,		September 30,
Common Stock, shares		2023	2022	2023	2022
Beginning of period		34,145	33,993	34,072	33,881
	Sales of stock through the Employee Stock Purchase Plan	3	3	11	8
	Stock compensation related to restricted stock vesting and retirement savings plan contributions	21	14	229	246
	Purchases of treasury stock and buyback of shares for taxes	(43)	(111)	(184)	(236)
	Issuance of stock in conjunction with acquisition including stock attributed to future compensation	—	49	—	49
	Stock reacquired for escrow claim	(3)	—	(5)	—
End of period		34,123	33,948	34,123	33,948

See accompanying notes to interim unaudited condensed consolidated financial statements.

Perficient, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Nine Months Ended September 30,
	2023		2022
Operating Activities
Net income	$	75,758	$	77,933
Adjustments to reconcile net income to net cash provided by operations:
Depreciation	6,723		6,233
Amortization	16,372		18,064

Deferred income taxes	(4,896)		(7,353)
Non-cash stock compensation and retirement savings plan contributions	20,574		17,733
Amortization of debt issuance costs	1,870		1,822
Adjustment to fair value of contingent consideration for purchase of businesses	(6,475)		(351)

Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable	17,388		(12,642)
Other assets	(7,530)		(2,153)
Accounts payable	(9,116)		(7,288)
Other liabilities	(22,184)		(20,557)
Net cash provided by operating activities	88,484		71,441

Investing Activities
Purchase of property and equipment	(4,209)		(7,019)
Capitalization of internally developed software costs	(856)		(678)
Purchase of businesses, net of cash acquired	254		(44,716)
Net cash used in investing activities	(4,811)		(52,413)

Financing Activities



Payment for credit facility financing fees	(750)		—
Proceeds from line of credit	—		10,000
Payments on line of credit	—		(10,000)
Payment of contingent consideration for purchase of business	(21,530)		—
Proceeds from the sale of stock through the Employee Stock Purchase Plan	765		832
Purchases of treasury stock	(7,601)		(13,052)
Remittance of taxes withheld as part of a net share settlement of restricted stock vesting	(5,107)		(9,007)
Net cash used in financing activities	(34,223)		(21,227)
Effect of exchange rate on cash and cash equivalents	507		(1,366)
Change in cash and cash equivalents	49,957		(3,565)
Cash and cash equivalents at beginning of period	30,130		24,410
Cash and cash equivalents at end of period	$	80,087	$	20,845

See accompanying notes to interim unaudited condensed consolidated financial statements.


	Nine Months Ended September 30,
	2023		2022
Supplemental Disclosures:
Cash paid for income taxes	$	41,469	$	25,912
Cash paid for interest	$	555	$	697

Non-Cash Investing Activity:
Stock issued for purchase of businesses (stock reacquired for escrow claim)	$	(425)	$	2,556
Liability incurred for purchase of property and equipment	$	190	$	3,765

See accompanying notes to interim unaudited condensed consolidated financial statements.

PERFICIENT, INC.

NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

1. Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements of Perficient, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and are presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Accordingly, certain note disclosures have been condensed or omitted. In the opinion of management, the interim unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Certain prior period financial statement amounts have been reclassified to conform to current period presentation.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP 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.

There have been no changes to significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2022 that have had a material impact on the Company’s condensed consolidated financial statements and related notes.

3. Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative or for convertible debt issued at a substantial premium. The ASU removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception, permitting more contracts to qualify for the exception. In addition, the guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The ASU is effective for annual reporting periods beginning after December 15, 2021, including interim reporting periods within those annual periods. The ASU allows entities to use a modified or full retrospective transition method. Under the modified approach, entities will apply the guidance to all financial instruments that are outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. Under the full retrospective method, entities will apply the guidance to all outstanding financial instruments for each prior reporting period presented. The Company adopted this ASU on January 1, 2022 under the modified retrospective method of transition. Upon adoption, the Company recorded a $2.1 million cumulative-effect adjustment that increased the opening balance of retained earnings on the consolidated balance sheet, largely due to the reduction in non-cash interest expense associated with the historical separation of debt and equity components for the Company's convertible senior notes (the “Notes”) described in Note 11, Long-Term Debt. The Company also recorded an increase to long-term debt, net of $66.2 million, a net change in the deferred tax balance of $16.8 million, and a decrease to additional paid-in capital of $51.5 million due to no longer separating the embedded conversion feature of the Notes. Upon adoption, the Company's interest expense recognized has been reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost. This adoption did not have a material impact on the consolidated statement of cash flows. Upon adoption, the Company prospectively utilized the if-converted method to calculate the impact of convertible instruments on diluted earnings per share.

4. Revenue

The Company’s revenues consist of services and software and hardware sales. In accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, revenues are recognized when control of services or goods are transferred to clients, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or goods.

Services Revenues

Services revenues are primarily comprised of professional services that include developing, implementing, automating and extending business processes, technology infrastructure, and software applications. The Company’s professional services span multiple industries, platforms and solutions; however, the Company has remained relatively diversified and does not believe that it has significant revenue concentration within any single industry, platform or solution.

Professional services revenues are recognized over time as services are rendered. Most projects are performed on a time and materials basis, while a portion of revenues is derived from projects performed on a fixed fee or fixed fee percent complete basis. For time and material contracts, revenues are generally recognized and invoiced by multiplying the number of hours expended in the performance of the contract by the hourly rates. For fixed fee contracts, revenues are generally recognized and invoiced by multiplying the fixed rate per time period established in the contract by the number of time periods elapsed. For fixed fee percent complete contracts, revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours, and the client is invoiced according to the agreed-upon schedule detailing the amount and timing of payments in the contract.

Clients are typically billed monthly for services provided during that month but can be billed on a more or less frequent basis as determined by the contract. If the time is worked and approved at the end of a fiscal period and the invoice has not yet been sent to the client, the amount is recorded as revenue once the Company verifies all other revenue recognition criteria have been met, and the amount is classified as a receivable as the right to consideration is unconditional at that point. Amounts invoiced in excess of revenues recognized are contract liabilities, which are classified as deferred revenues in the Unaudited Condensed Consolidated Balance Sheet. The term between invoicing and payment due date is not significant. Contracts for professional services provide for a general right, to the client or the Company, to cancel or terminate the contract within a given period of time (generally 10 to 30 days’ notice is required). The client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract. Certain contracts may include volume discounts or holdbacks, which are accounted for as variable consideration, but are not typically significant. The Company estimates variable consideration based on historical experience and forecasted sales and includes the variable consideration in the transaction price.

Other services revenues are comprised of hosting fees, partner referral fees, maintenance agreements, training and internally developed software-as-a-service (“SaaS”) sales. Revenues from hosting fees, maintenance agreements, training and internally developed SaaS sales are generally recognized over time using a time-based measure of progress as services are rendered. Partner referral fees are recorded at a point in time upon meeting specified requirements to earn the respective fee.

On many professional service projects, the Company is also reimbursed for out-of-pocket expenses including travel and other project-related expenses. These reimbursements are included as a component of the transaction price of the respective professional services contract and are invoiced as the expenses are incurred. The Company structures its professional services arrangements to recover the cost of reimbursable expenses without a markup.

Software and Hardware Revenues

Software and hardware revenues are comprised of third-party software and hardware resales, in which the Company is considered the agent, and sales of internally developed software, in which the Company is considered the principal. Third-party software and hardware revenues are recognized and invoiced when the Company fulfills its obligation to arrange the sale, which occurs when the purchase order with the vendor is executed and the customer has access to the software or the hardware has been shipped to the customer. Internally developed software revenues are recognized and invoiced when control is transferred to the customer, which occurs when the software has been made available to the customer and the license term has commenced. Revenues from third-party software and hardware sales are recorded on a net basis, while revenues from internally developed software sales are recorded on a gross basis. There are no significant cancellation or termination-type provisions for the Company’s software and hardware sales, and the term between invoicing and payment due date is not significant.

Revenues are presented net of taxes assessed by governmental authorities. Sales taxes are generally collected and subsequently remitted on all software and hardware sales and certain services transactions as appropriate.

Arrangements with Multiple Performance Obligations

Arrangements with clients may contain multiple promises such as delivery of software, hardware, professional services or post-contract support services. These promises are accounted for as separate performance obligations if they are distinct. For arrangements with clients that contain multiple performance obligations, the transaction price is allocated to the separate performance obligations based on estimated relative standalone selling price, which is estimated by the expected cost plus a margin approach, taking into consideration market conditions and competitive factors. Because contracts that contain multiple performance obligations are typically short term due to the contract cancellation provisions, the allocation of the transaction price to the separate performance obligations is not considered a significant estimate.

Contract Costs

In accordance with the terms of the Company’s sales commission plan, commissions are not earned until the related revenue is recognized. Therefore, sales commissions are expensed as they are earned. Certain sales incentives are accrued based on achievement of specified bookings goals. For these incentives, the Company applies the practical expedient that allows the Company to expense the incentives as incurred because the amortization period would have been one year or less.

Deferred Revenue

The Company’s deferred revenue balance as of September 30, 2023 and December 31, 2022 was $5.3 million and $12.7 million, respectively. Substantially all of the December 31, 2022 deferred revenue balance was recognized in revenue during the nine months ended September 30, 2023.

Transaction Price Allocated to Remaining Performance Obligations

Due to the ability of the client or the Company to cancel or terminate the contract within a given period of time (generally 10 to 30 days’ notice is required), the majority of the Company’s contracts have a term of less than one year. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original maturity date of one year or less or time and materials contracts for which the Company has the right to invoice for services performed. Revenue related to unsatisfied performance obligations for remaining contracts as of September 30, 2023 was immaterial.

Disaggregation of Revenue

The following tables present revenue disaggregated by revenue source and pattern of revenue recognition (in millions):


	Three Months Ended September 30,
	2023						2022
	Over Time		Point In Time		Total Revenues		Over Time		Point In Time		Total Revenues
Time and materials contracts	$	162.8	$	—	$	162.8	$	176.3	$	—	$	176.3
Fixed fee percent complete contracts	14.5		—		14.5		11.3		—		11.3
Fixed fee contracts	40.4		—		40.4		35.0		—		35.0
Reimbursable expenses	3.2		—		3.2		2.1		—		2.1
Total professional services fees	220.9		—		220.9		224.7		—		224.7
Other services revenue*	1.5		0.3		1.8		1.9		0.4		2.3
Total services	222.4		0.3		222.7		226.6		0.4		227.0
Software and hardware	—		0.5		0.5		—		0.6		0.6
Total revenues	$	222.4	$	0.8	$	223.2	$	226.6	$	1.0	$	227.6

*Other services revenue primarily consists of hosting fees, maintenance, training, internally developed SaaS revenue and partner referral fees.


	Nine Months Ended September 30,
	2023						2022
	Over Time		Point In Time		Total Revenues		Over Time		Point In Time		Total Revenues
Time and materials contracts	$	508.9	$	—	$	508.9	$	518.5	$	—	$	518.5
Fixed fee percent complete contracts	45.5		—		45.5		39.2		—		39.2
Fixed fee contracts	116.3		—		116.3		99.3		—		99.3
Reimbursable expenses	7.8		—		7.8		6.5		—		6.5
Total professional services fees	678.5		—		678.5		663.5		—		663.5
Other services revenue*	4.4		1.3		5.7		5.8		1.4		7.2
Total services	682.9		1.3		684.2		669.3		1.4		670.7
Software and hardware	—		1.6		1.6		—		1.8		1.8
Total revenues	$	682.9	$	2.9	$	685.8	$	669.3	$	3.2	$	672.5

*Other services revenue primarily consists of hosting fees, maintenance, training, internally developed SaaS revenue and partner referral fees.

The following table presents revenue disaggregated by geographic area, as determined by the billing address of customers (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
United States	$	214.4	$	219.9	$	661.0	$	650.3
Other countries	8.8		7.7		24.8		22.2
Total revenues	$	223.2	$	227.6	$	685.8	$	672.5

5. Stock-Based Compensation

Stock-based compensation is accounted for in accordance with ASC Topic 718, Compensation – Stock Compensation. Under this guidance, the Company recognizes share-based compensation ratably using the straight-line attribution method over the requisite service period, which is generally three years. The fair value of restricted stock awards is based on the value of the Company’s common stock on the date of the grant.

The Company’s Third Amended and Restated 2012 Long Term Incentive Plan (as amended, the “Incentive Plan”) allows for the granting of various types of stock awards, not to exceed a total of 8.5 million shares, to eligible individuals. The Compensation Committee of the Board of Directors administers the Incentive Plan and determines the terms of all stock awards made under the Incentive Plan. The Incentive Plan was increased by 1.5 million shares on June 7, 2023 upon the approval of the Company’s stockholders at the 2023 annual meeting. As of September 30, 2023, there were 2.2 million shares of common stock available for issuance under the Incentive Plan.

Stock-based compensation cost recognized for the three and nine months ended September 30, 2023 was $6.7 million and $20.9 million, respectively, which included $1.1 million and $3.5 million, respectively, of expense for retirement savings plan contributions. The associated current and future income tax benefit recognized was $2.0 million and $5.6 million for the three and nine months ended September 30, 2023, respectively. Stock-based compensation cost recognized for the three and nine months ended September 30, 2022 was $6.1 million and $18.1 million, respectively, which included $1.1 million and $3.3 million, respectively, of expense for retirement savings plan contributions. The associated current and future income tax benefit recognized was $1.8 million and $4.6 million for the three and nine months ended September 30, 2022, respectively.

Restricted Stock Awards (“RSAs”)

Restricted stock activity for the nine months ended September 30, 2023 was as follows (shares in thousands):


	RSAs (Shares)	Weighted-Average Grant Date Fair Value
Restricted stock awards outstanding at December 31, 2022	616	$	72.02
Awards granted	240	73.50
Awards vested	(179)	64.77
Awards forfeited	(34)	72.46
Restricted stock awards outstanding at September 30, 2023	643	$	74.57

As of September 30, 2023, there was $31.9 million of total unrecognized compensation cost related to non-vested RSAs with a weighted-average remaining life of two years.

Performance Stock Awards (“PSAs”)

The Company also grants PSAs under the Incentive Plan with terms determined at the discretion of the compensation committee of the Company’s board of directors. The actual number of PSAs that will be eligible to vest is based on the achievement of a relative total shareholder return (“TSR”) target as compared to the TSR realized by each of the companies comprising the Nasdaq Composite Index over a three-year period. The PSAs vest at the end of the TSR measurement period, and up to 100% of the target number of shares subject to each PSA are eligible to be earned. During the three months ended September 30, 2023, the Company awarded 10,842 PSAs with a fair market value of $80.90 per share. PSA related stock-based compensation cost recognized for both the three and nine months ended September 30, 2023 was immaterial.

The Company estimated the grant date fair value of the PSAs using a Monte Carlo simulation model that included the following assumptions:


	Nine Months Ended September 30, 2023
Valuation assumptions:
Expected dividend yield	—
Expected volatility	52.37	%
Expected term (years)	3.44
Risk-free interest rate	4.45	%

As of September 30, 2023, there was $0.8 million of total unrecognized compensation cost related to unvested PSAs, expected to be recognized over a period of three years.

6. Net Income per Share

The following table presents the calculation of basic and diluted net income per share (in thousands, except per share information):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income, basic	$	22,596	$	23,015	$	75,758	$	77,933
Add back interest expense on convertible notes, net of tax	539		539		1,674		1,712
Net income, diluted	$	23,135	$	23,554	$	77,432	$	79,645

Basic:
Weighted-average shares of common stock outstanding	33,989		33,861		33,964		33,873
Shares used in computing basic net income per share	33,989		33,861		33,964		33,873
Effect of dilutive securities:
Restricted stock and performance stock awards subject to vesting	154		255		147		298
Shares issuable for acquisition consideration (1)	140		13		168		66
Shares issuable for conversion of convertible senior notes	2,430		2,431		2,430		2,431
Shares issuable for exercise of warrants	—		103		—		95
Shares used in computing diluted net income per share	36,713		36,663		36,709		36,763

Basic net income per share	$	0.66	$	0.68	$	2.23	$	2.30
Diluted net income per share	$	0.63	$	0.64	$	2.11	$	2.17

(1)For the three and nine months ended September 30, 2023, this represents the shares held in escrow pursuant to: (i) the Asset Purchase Agreement with Zeon Solutions Incorporated and certain related entities (collectively, “Zeon”); (ii) the Asset Purchase Agreement with Catalyst Networks, Inc. (“Brainjocks”); (iii) the Stock Purchase Agreement with the shareholders of Productora de Software S.A.S. (“PSL”); (iv) the Purchase Agreement with Talos LLC, Talos Digital LLC, Talos Digital SAS and TCOMM SAS (“Talos”); (v) the Stock Purchase Agreement with the shareholders of Izmul S.A. (“Overactive”); (vi) the Stock Purchase Agreement with the shareholders of Inflection Point Systems, Inc. (“Inflection Point”); and (vii) the Purchase Agreement with Ameex Technologies Corporation (“Ameex”), as part of the consideration. For the three and nine months ended September 30, 2022, this represents the shares held in escrow pursuant to: (i) the Asset Purchase Agreement with Zeon; (ii) the Asset Purchase Agreement with Brainjocks; (iii) the Stock Purchase Agreement with the shareholders of PSL; (iv) the Purchase Agreement with Talos; (v) the Stock Purchase Agreement with the shareholders of Overactive; and (vi) the Stock Purchase Agreement with the shareholders of Inflection Point, as part of the consideration.

The number of anti-dilutive securities not included in the calculation of diluted net income per share were as follows (in thousands):


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2023	2022	2023	2022
Restricted stock and performance stock awards subject to vesting	153	76	191	78

Warrants related to the issuance of convertible senior notes	2,431	1,980	2,431	1,980
Total anti-dilutive securities	2,584	2,056	2,622	2,058

See Note 11, Long-term Debt for further information on the convertible senior notes and warrants related to the issuance of convertible notes.

The Company’s Board of Directors authorized the repurchase of up to $375.0 million of Company common stock through a stock repurchase program expiring December 31, 2024. The program could be suspended or discontinued at any time, based on market, economic, or business conditions. The timing and amount of repurchase transactions will be determined by management based on its evaluation of market conditions, share price, and other factors. Since the program’s inception on August 11, 2008, the Company has repurchased approximately $287.4 million (16.5 million shares) of outstanding common stock through September 30, 2023.

7. Balance Sheet Components


	September 30, 2023 (unaudited)		December 31, 2022
Accounts receivable:	(in millions)
Billed accounts receivable, net	$	107.7	$	134.5
Unbilled revenues, net	77.4		67.8
Total	$	185.1	$	202.3


Other current assets:
Miscellaneous receivables	$	4.4	$	2.9
Contractual commitment asset	1.8		0.9
Federal/state income tax receivable	9.9		9.2
Other current assets	3.0		3.8
Total	$	19.1	$	16.8


Property and equipment:
Computer hardware (useful life of 3 years)	$	26.4	$	26.3
Software (useful life of 1 to 7 years)	9.1		11.9
Furniture and fixtures (useful life of 5 years)	4.5		4.7
Leasehold improvements (useful life of 5 years)	7.7		7.7
Less: Accumulated depreciation	(33.8)		(32.6)
Total	$	13.9	$	18.0



Other non-current assets:
Non-current unbilled revenue	$	1.9	$	1.6
Company owned life insurance (“COLI”) asset	11.5		10.5
Long term deposits	1.8		1.9
Credit facility deferred finance fees, net	1.1		0.5
Other non-current assets	12.7		8.5
Deferred income taxes	18.3		18.1
Total	$	47.3	$	41.1


Other current liabilities:
Estimated fair value of contingent consideration liability (Note 9)	$	4.5	$	32.7
Accrued variable compensation	11.4		21.1
Current operating lease liabilities	7.3		10.3
Payroll related costs	11.6		8.9
Deferred revenues	5.3		12.7
Other current liabilities	4.5		9.7
Accrued medical claims expense	3.4		2.9
Professional fees	1.6		2.2
Accrued IT expenses	5.4		4.3
Total	$	55.0	$	104.8


	September 30, 2023 (unaudited)		December 31, 2022
Other non-current liabilities:	(in millions)
Deferred income taxes	$	7.5	$	8.7
Reserve for uncertain tax positions	17.8		17.5
Deferred compensation liability	10.0		9.3
Other non-current liabilities	3.6		5.9
Non-current software accrual	2.3		2.1
Total	$	41.2	$	43.5

8. Allowance for Credit Losses

In accordance with ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the Company evaluates its allowance based on expected losses rather than incurred losses, which is known as the current expected credit loss model. The allowance is determined using the loss rate approach and is measured on a collective (pool) basis when similar risk characteristics exist. Where financial instruments do not share risk characteristics, they are evaluated on an individual basis. The allowance is based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Activity in the allowance for credit losses is summarized as follows (in millions):


	Nine Months Ended September 30,
	2023		2022


Opening balance at January 1	$	5.8	$	2.9
Charges to expense, net of recoveries	(0.4)		3.2
Other (1)	(2.0)		(0.4)
Balance at September 30	$	3.4	$	5.7

(1) Other is primarily related to uncollected balances written off, business acquisitions, and currency translation adjustments.

9. Business Combinations

2022 Acquisitions

On October 11, 2022, the Company acquired all of the outstanding capital stock of Ameex. Ameex is a digital experience consultancy headquartered in Schaumburg, Illinois, with offshore operations located in Chennai, India. The acquisition of Ameex strengthened the Company’s global delivery capabilities, enhanced agile software design, and further expanded our operations in India. Ameex added more than 400 professionals and strategic client relationships across several industries. The Company’s total allocable purchase price consideration was $36.1 million, net of cash acquired. The Company incurred approximately $1.7 million in transaction costs, which were expensed when incurred. The goodwill is non-deductible for tax purposes.

On September 7, 2022, the Company acquired all of the outstanding capital stock of Inflection Point. Inflection Point is a software consulting and product development firm with nearshore operations based in Monterrey, Mexico, and headquarters in Columbia, Maryland. The acquisition of Inflection Point strengthened the Company’s nearshore delivery capacity, enhanced our digital capabilities, and further expanded our operations across Latin America. Inflection Point added more than 200 professionals and strategic client relationships with customers across several industries. The Company’s total allocable purchase price consideration was $54.0 million, net of cash acquired. The Company incurred approximately $1.6 million in transaction costs, which were expensed when incurred. The goodwill is non-deductible for tax purposes.

The acquisition date fair value of the consideration transferred for the 2022 acquisitions consisted of the following (in millions):


	Ameex			Inflection Point
Cash, net of cash acquired	$	26.1		$	44.6
Company common stock issued at closing	4.2			3.0
Contingent consideration (1)	4.3		(2)	6.6		(3)
Net working capital adjustment due to the seller(s)	1.5			(0.2)
Total allocable purchase price consideration	$	36.1		$	54.0

(1)Represents the initial fair value estimate of additional revenue and earnings-based contingent consideration, which may be realized by the sellers 12 months after the closing date of the acquisition.

(2)The maximum cash payout that may be realized by the sellers in the Ameex acquisition is $5.7 million. As of September 30, 2023, the fair value of the contingent consideration was $4.0 million. The Company recorded a pre-tax adjustment to reduce the liability in “Adjustment to fair value of contingent consideration” on the Unaudited Condensed Consolidated Statements of Operations of $0.4 million during both the three and nine months ended September 30, 2023.

(3)The maximum cash payout that may be realized by the sellers in the Inflection Point acquisition is $13.0 million. As of September 30, 2023, the fair value of the contingent consideration was $0.5 million. The Company recorded a pre-tax adjustment to reduce the liability in “Adjustment to fair value of contingent consideration” on the Unaudited Condensed Consolidated Statements of Operations of $1.3 million and $6.2 million during the three and nine months ended September 30, 2023, respectively.

The Company has estimated the preliminary allocation of the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):


	Ameex		Inflection Point
Acquired tangible assets	$	6.8	$	3.3
Identified intangible assets	13.2		20.1
Liabilities assumed	(5.6)		(10.5)
Goodwill	21.7		41.1
Total allocable purchase price consideration	$	36.1	$	54.0

The following table presents details as of September 30, 2023 of the intangible assets acquired during the year ended December 31, 2022 (dollars in millions).

Weighted Average Useful Life

Estimated Useful Life

Aggregate Acquisitions

Customer relationships

10 years

29.9

Customer backlog

1 year

2.8

Non-compete agreements

5 years

0.3

Trade name

1 year

0.3

Total acquired intangible assets

33.3

As the Company completed its evaluation of the acquired assets and assumed liabilities of Inflection Point, the Company recorded certain adjustments during the measurement period based on facts and circumstances that existed as of acquisition date. The measurement period adjustments for Inflection Point were not material.

The above purchase price accounting estimates for Ameex are pending finalization of certain acquired tangible and intangible assets, contingent consideration valuation, and a net working capital settlement that is subject to final adjustment as the Company evaluates information during the measurement period. As the Company continues its evaluation of the acquired assets and assumed liabilities of Ameex, the Company recorded certain adjustments during the measurement period based on facts and circumstances that existed as of acquisition date. The measurement period adjustments for Ameex were not material.

Pro-forma Results of Operations

Pro-forma results of operations have not been presented for Inflection Point or Ameex because the effect of these acquisitions on the Company's condensed consolidated financial statements were not material individually or in the aggregate.

10. Goodwill and 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 ASC Topic 350, Intangibles – Goodwill and Other, the Company performs an annual impairment review in the fourth quarter and more frequently if events or changes in circumstances indicate that goodwill might be impaired. There was no indication that goodwill became impaired for the three and nine months ended September 30, 2023.

Other intangible assets include customer relationships, non-compete arrangements, trade names, customer backlog, and developed software, which are being amortized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives range from less than one year to ten years. Amortization of customer relationships, non-compete arrangements, trade names, customer backlog, and developed software is considered an operating expense and is included in “Amortization” in the accompanying Unaudited Condensed Consolidated Statements of Operations. 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. There was no indication that other intangible assets became impaired for the three and nine months ended September 30, 2023.

Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2023 are as follows (in millions):


Balance at December 31, 2022	$	565.2
Measurement period adjustments for acquisitions	3.0
Effect of foreign currency translation adjustments	9.4
Balance at September 30, 2023	$	577.6

Intangible Assets with Definite Lives

The following table presents a summary of the Company’s intangible assets that are subject to amortization (in millions):


	September 30, 2023 (unaudited)						December 31, 2022
	Gross Carrying Amounts		Accumulated Amortization		Net Carrying Amounts		Gross Carrying Amounts		Accumulated Amortization		Net Carrying Amounts
Customer relationships	$	119.0	$	(46.9)	$	72.1	$	151.9	$	(68.4)	$	83.5
Non-compete agreements	1.1		(0.5)		0.6		1.7		(1.0)		0.7
Customer backlog	0.9		(0.9)		—		2.7		(0.7)		2.0
Trade name	0.7		(0.7)		—		0.9		(0.7)		0.2
Developed software	8.4		(6.2)		2.2		7.8		(5.3)		2.5
Total	$	130.1	$	(55.2)	$	74.9	$	165.0	$	(76.1)	$	88.9

The estimated useful lives of identifiable intangible assets are as follows:


Customer relationships			5 - 10 years
Non-compete agreements			4 - 5 years
Customer backlog			1 year
Trade name			1 year
Developed software			1 - 7 years

Estimated annual amortization expense for the next five years ended December 31 and thereafter is as follows (in millions):


2023 remaining	$	4.2
2024	$	15.4
2025	$	12.0
2026	$	9.6
2027	$	7.3
Thereafter	$	26.4

11. Long-term Debt

Revolving Credit Facility

On March 29, 2023, the Company amended and restated its existing credit agreement by entering into a Second Amended and Restated Credit Agreement (the “2023 Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent and the other lenders parties thereto. The 2023 Credit Agreement provides for revolving credit borrowings up to a maximum principal amount of $300.0 million, subject to a commitment increase of $75.0 million. All outstanding amounts owed under the 2023 Credit Agreement become due and payable no later than the final maturity date of March 29, 2028. As of September 30, 2023, there was no outstanding balance under the 2023 Credit Agreement. The Company incurred $0.8 million of additional deferred finance fees during the nine months ended September 30, 2023.

The 2023 Credit Agreement also allows for the issuance of letters of credit in the aggregate amount of up to $10.0 million at any one time; outstanding letters of credit reduce the credit available for revolving credit borrowings. As of September 30, 2023, there were no outstanding letters of credit. Substantially all of the Company’s assets are pledged to secure the credit facility.

Borrowings under the 2023 Credit Agreement bear interest at the Company’s option of the prime rate (8.50% on September 30, 2023) plus a margin ranging from 0.00% to 1.00% or one month Secured Overnight Financing Rate (“SOFR”) (5.31% on September 30, 2023) plus a margin ranging from 1.00% to 2.00%. The Company incurs an annual commitment fee of 0.15% to 0.20% on the unused portion of the line of credit. The additional margin amount and annual commitment fee are dependent on the level of outstanding borrowings. As of September 30, 2023, the Company had $300.0 million of unused borrowing capacity.

The Company is required to comply with various financial covenants under the 2023 Credit Agreement. At September 30, 2023, the Company was in compliance with all covenants under the 2023 Credit Agreement.

Convertible Senior Notes due 2026

On November 9, 2021, the Company issued $380.0 million aggregate principal amount of 0.125% Convertible Senior Notes Due 2026 (the “2026 Notes”) in a private placement to qualified institutional buyers pursuant to an exemption from registration provided by Section 4(a)(2) and Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The 2026 Notes bear interest at a rate of 0.125% per year. Interest is payable in cash on May 15 and November 15 of each year, with the first payment made on May 15, 2022. The 2026 Notes mature on November 15, 2026 unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. The initial conversion rate is 5.2100 shares of the Company’s common stock per $1,000 principal amount of 2026 Notes, which is equivalent to an initial conversion price of approximately $191.94 per share of common stock. After consideration of the 2026 Notes Hedges and 2026 Notes Warrants (as defined and described below), the conversion rate is effectively hedged to a price of $295.29 per share of common stock. The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the indenture

governing the 2026 Notes (the “2026 Indenture”). The Company may settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate(s). If a “make-whole fundamental change” (as defined in the 2026 Indenture) occurs, then the Company will in certain circumstances increase the conversion rate for a specified period of time. The Company’s intent is to settle the principal amount of the 2026 Notes in cash upon conversion.

Convertible Senior Notes due 2025

On August 14, 2020, the Company issued $230.0 million aggregate principal amount of 1.250% Convertible Senior Notes Due 2025 (the “2025 Notes”) in a private placement to qualified institutional purchasers pursuant to an exemption from registration provided by Section 4(a)(2) and Rule 144A under the Securities Act. The 2025 Notes bear interest at a rate of 1.250% per year. Interest is payable in cash on February 1 and August 1 of each year. The 2025 Notes mature on August 1, 2025 unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. The initial conversion rate is 19.3538 shares of the Company’s common stock per $1,000 principal amount of 2025 Notes, which is equivalent to an initial conversion price of approximately $51.67 per share of common stock. After consideration of the 2025 Notes Hedges and 2025 Notes Warrants (as defined and described below), the conversion rate is effectively hedged to a price of $81.05 per share of common stock. The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the indenture governing the 2025 Notes (the “2025 Indenture”). The Company may settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate(s). If a “make-whole fundamental change” (as defined in the 2025 Indenture) occurs, then the Company will in certain circumstances increase the conversion rate for a specified period of time. The Company’s intent is to settle the principal amount of the 2025 Notes in cash upon conversion.

Other Terms of the Notes

The 2025 Notes and 2026 Notes may be converted at the holder’s option prior to the close of business on the business day immediately preceding August 1, 2025 for the 2025 Notes and November 15, 2026 for the 2026 Notes, but only under the following circumstances:

•during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 for the 2025 Notes and December 31, 2021 for the 2026 Notes, if the last reported sale price per share of the Company’s common stock exceeds 130% of the applicable conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

•during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the applicable conversion rate on such trading day;

•upon the occurrence of certain corporate events or distributions on the Company’s common stock described in the 2025 Indenture and 2026 Indenture; and

•at any time from, and including, February 3, 2025 for 2025 Notes and May 15, 2026 for 2026 Notes, until the close of business on the second scheduled trading day immediately before the maturity date for the 2025 Notes and 2026 Notes.

The Company may not redeem the 2025 Notes and 2026 Notes at its option before maturity. If a “fundamental change” (as defined in the 2025 Indenture and 2026 Indenture) occurs, then, except as described in the 2025 Indenture and 2026 Indenture, noteholders may require the Company to repurchase their 2025 Notes and 2026 Notes at a cash repurchase price equal to the principal amount of the 2025 Notes and 2026 Notes to be repurchased, plus accrued and unpaid interest, if any.

As of September 30, 2023, none of the conditions permitting holders to convert their 2025 Notes and 2026 Notes had been satisfied and no shares of the Company’s common stock had been issued in connection with any conversions of the 2025 Notes and 2026 Notes during the nine months ended September 30, 2023. Based on the closing price of the Company's common stock of $57.86 per share on September 30, 2023, the conversion value of the 2026 Notes was less than the principal amount of the 2026 Notes outstanding on a per note basis, and the conversion value of the 2025 Notes was greater than the principal amount of the 2025 Notes outstanding on a per note basis.

The 2025 Notes and 2026 Notes consisted of the following (in millions):


	September 30, 2023 (unaudited)
Long-term debt:	2026 Notes		2025 Notes
Principal	$	380.0	$	23.3
Less: Unamortized debt issuance costs	(6.7)		(0.3)
Net carrying amount	$	373.3	$	23.0


	December 31, 2022
Long-term debt:	2026 Notes		2025 Notes
Principal	$	380.0	$	23.3

Less: Unamortized debt issuance costs	(8.3)		(0.4)
Net carrying amount	$	371.7	$	22.9

Interest expense for the three and nine months ended September 30, 2023 and 2022 related to the 2026 Notes and 2025 Notes consisted of the following (in millions):

2026 Notes


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Coupon interest	$	0.1	$	0.1	$	0.4	$	0.4

Amortization of debt issuance costs	0.6		0.6		1.6		1.6
Total interest expense recognized	$	0.7	$	0.7	$	2.0	$	2.0

2025 Notes


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Coupon interest	$	0.1	$	0.1	$	0.2	$	0.2

Amortization of debt issuance costs	—		—		0.1		0.1
Total interest expense recognized	$	0.1	$	0.1	$	0.3	$	0.3

Convertible Notes Hedges

In connection with the issuance of the 2026 Notes and 2025 Notes, the Company entered into privately negotiated convertible note hedge transactions (the “2026 Notes Hedges” and the “2025 Notes Hedges”), and together, the “Notes Hedges”) with certain of the initial purchasers or their respective affiliates and/or other financial institutions (the “Option Counterparties”). As of September 30, 2023, the 2026 Notes Hedges provide the Company with the option to acquire, on a net settlement basis, approximately 2.0 million shares of common stock at a strike price of $191.94, which is equal to the number of shares of common stock that notionally underlie the 2026 Notes and correspond to the conversion price of the 2026 Notes. As of September 30, 2023, the 2025 Notes Hedges provided the Company with the option to acquire, on a net settlement basis, approximately 0.5 million shares of common stock at a strike price of $51.67, which is equal to the number of shares of common stock that notionally underlie the 2025 Notes and correspond to the conversion price of the 2025 Notes. If the Company elects cash settlement and exercises the Notes Hedges, the aggregate amount of cash received from the Option Counterparties will cover the aggregate amount of cash that the Company would be required to pay to the holders of the Notes, less the principal amount thereof. The Notes Hedges do not meet the criteria for separate accounting as a derivative as they are indexed to the Company’s stock and are accounted for as freestanding financial instruments.

Convertible Notes Warrants

In connection with the issuance of the 2026 Notes and 2025 Notes, the Company also sold net-share-settled warrants (the “2026 Notes Warrants”, and the “2025 Notes Warrants,” respectively, and together, the “Notes Warrants”) in privately negotiated transactions with the Option Counterparties. The strike price of the 2026 Notes Warrants and 2025 Notes Warrants was approximately $295.29 and $81.05 per share, respectively, and is subject to certain adjustments under the terms of their respective Notes Warrants. As a result of the 2026 Notes Warrants and 2025 Notes Warrants and related transactions, the Company is required to recognize incremental dilution of earnings per share to the extent the average share price for any fiscal quarter is over $295.29 for the 2026 Notes Warrants and $81.05 for the 2025 Notes Warrants. The 2026 Notes Warrants and the 2025 Notes Warrants expire over a period of 80 trading days commencing on February 15, 2027 and over a period of 100 trading days commencing on November 1, 2025, respectively, and may be settled in net shares of common stock or net cash at the Company’s election. As of September 30, 2023, 2.0 million warrant shares and 0.5 million warrant shares were outstanding for the 2026 Notes Warrants and 2025 Notes Warrants, respectively.

12. Income Taxes

The Company's effective tax rate was 29.4% and 26.9% for the three and nine months ended September 30, 2023, respectively. The effective tax rate for the three months ended September 30, 2023 was higher than the U.S. statutory rate of 21.0% primarily due to state taxes, Section 162(m) compensation limitations, foreign operations and the prior year true-up of research credits, partially offset by a change in the Company’s permanent reinvestment assertion in one jurisdiction and acquisition adjustments. The effective rate for the nine months ended September 30, 2023 was higher than the U.S. statutory rate of 21.0% primarily due to state taxes, Section 162(m) compensation limitations and foreign operations, partially offset by tax benefits for acquisition adjustments.

The Company’s effective tax rate was 29.4% and 25.2% for the three and nine months ended September 30, 2022, respectively. The effective tax rates for the three and nine months ended September 30, 2022 were higher than the U.S. statutory rate of 21.0% primarily due to state taxes, Section 162(m) compensation limitations and foreign operations, partially offset by tax benefits for share based compensation deductions and research credits.

The undistributed earnings of our foreign subsidiaries are indefinitely reinvested, except in China. In the current quarter, the Company determined that the foreign earnings of its Colombia operations are now permanently reinvested.

13. Derivatives

In the normal course of business, the Company uses derivative financial instruments to manage foreign currency exchange rate risk. Currency exposure is monitored and managed by the Company as part of its risk management program which seeks to reduce the potentially adverse effects that market volatility could have on operating results. The Company’s derivative financial instruments consist of non-deliverable and deliverable foreign currency forward contracts. Derivative financial instruments are neither held nor issued by the Company for trading purposes.

Derivatives Not Designated as Hedging Instruments

Both the gain or loss on the derivatives not designated as hedging instruments and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. Realized gains or losses and changes in the estimated fair value of foreign currency forward contracts that have not been designated as hedges were a net gain of $0.2 million and net gain of $1.8 million during the three and nine months ended September 30, 2023, respectively. Realized gains or losses and changes in the estimated fair value of foreign currency forward contracts that have not been designated as hedges were a net loss of $1.0 million and net loss of $0.9 million during the three and nine months ended September 30, 2022, respectively. Gains and losses on these contracts are recorded in net other expense (income) and net interest expense in the Unaudited Condensed Consolidated Statements of Operations and are offset by losses and gains on the related hedged items.

The notional amounts of the Company’s derivative instruments outstanding were as follows (in millions):


	September 30, 2023 (unaudited)		December 31, 2022
Derivatives not designated as hedges
Foreign exchange contracts	$	28.7	$	31.0
Total derivatives not designated as hedges	$	28.7	$	31.0

14. Fair Value Measurements

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions.

The fair value hierarchy consists of the following three levels:

•Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.

•Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.

•Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, current liabilities and the revolving line of credit approximate fair value because of the short maturity of these instruments.

All highly liquid investments with maturities at date of purchase of three months or less are considered to be cash equivalents. Based on their short-term nature, the carrying value of cash equivalents approximate their fair value. As of September 30, 2023 and December 31, 2022, $39.0 million and $8.4 million, respectively, of the Company’s cash and cash equivalents balance related to money-market fund investments. These short-term money-market funds are considered Level 1 investments.

The Company has a deferred compensation plan, which is funded through COLI policies. The COLI asset is carried at fair value derived from quoted market prices of investments within the COLI policies, which are considered Level 2 inputs. The fair value of the COLI asset was $11.5 million and $10.5 million as of September 30, 2023 and December 31, 2022, respectively.

The Company estimates the fair value of each foreign exchange forward contract by using the present value of expected cash flows. The estimate takes into account the difference between the current market forward price and contracted forward price for each foreign exchange contract and applies the difference in the rates to each outstanding contract. Valuations for all derivatives fall within Level 2 of the GAAP valuation hierarchy. The fair values of the Company’s derivative instruments outstanding as of September 30, 2023 and December 31, 2022 were immaterial.

The Company has contingent consideration liabilities related to acquisitions which are measured on a recurring basis and recorded at fair value, determined using the discounted cash flow method. The inputs used to calculate the fair value of the contingent consideration liabilities are considered to be Level 3 inputs due to the lack of relevant market activity and significant management judgment. An increase in future cash flows may result in a higher estimated fair value while a decrease in future cash flows may result in a lower estimated fair value of the contingent consideration liabilities. Remeasurements to fair value are recorded in adjustment to fair value of contingent consideration in the Unaudited Condensed Consolidated Statements of Operations. Refer to Note 7, Balance Sheet Components, for the estimated fair value of the contingent consideration liabilities as of September 30, 2023 and December 31, 2022.

The fair value of the Notes is measured using quoted price inputs. The Notes are not actively traded, and thus the price inputs represent a Level 2 measurement. As the quoted price inputs are highly variable from day to day, the fair value estimates could significantly increase or decrease.

The Notes are carried at their principal amount less unamortized issuance costs, and are not carried at fair value at each period end. The approximate fair value of the 2026 Notes as of September 30, 2023 and December 31, 2022 was $305.9 million and $295.5 million, respectively. The approximate fair value of the 2025 Notes as of September 30, 2023 and December 31, 2022 was $29.0 million and $33.8 million, respectively. The fair values were estimated on the basis of inputs that are observable in the market and are considered Level 2 fair value measurements.

15. Leases

The Company leases office space under various operating lease agreements, which have remaining lease terms of less than one year to seven years. Operating leases are included in operating lease right-of-use assets, other current liabilities, and operating lease liabilities on the consolidated balance sheet. Operating lease expense for the three and nine months ended September 30, 2023 was $3.1 million and $9.7 million, respectively, and $3.2 million and $9.6 million for the three and nine months ended September 30, 2022.

Supplemental balance sheet information related to leases was as follows (in millions):


	September 30, 2023 (unaudited)		December 31, 2022
Other current liabilities	$	7.3	$	10.3
Operating lease liabilities	18.1		18.5
Total	$	25.4	$	28.8

Future minimum lease payments as of September 30, 2023 were as follows (in millions):


	September 30, 2023 (unaudited)
2023 remaining	$	1.2
2024	8.9
2025	6.3
2026	3.9
2027	3.6
Thereafter	3.5
Total future lease payments	27.4
Less implied interest	(2.0)
Total	$	25.4

16. Commitments and Contingencies

From time to time the Company is involved in legal proceedings, claims and litigation related to employee claims, contractual disputes and taxes in the ordinary course of business. Although the Company cannot predict the outcome of such matters, currently the Company has no reason to believe the disposition of any current matter could reasonably be expected to have a material adverse impact on the Company’s financial position, results of operations or the ability to carry on any of its business activities.

17. Subsequent Event

On October 20, 2023, the Company entered into a Stock Purchase Agreement (the “SMEDIX Agreement”), by and among the Company, SMEDIX Inc. (“SMEDIX”), the sole shareholder of SMEDIX (the “Shareholder”), and certain other parties thereto. Pursuant to and subject to customary closing conditions contained in the SMEDIX Agreement, the Company will acquire all of the outstanding capital stock of SMEDIX. The SMEDIX Agreement includes customary representations, warranties, covenants and termination rights by the parties.

Subject to its closing, this transaction will be accounted for as a business combination under the acquisition method of accounting. The Company will record the assets acquired and liabilities assumed at their fair values as of the acquisition date. The valuation efforts and related acquisition accounting will be completed following the closing of the transaction.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statements made in this Form 10-Q, including without limitation this Management’s Discussion and Analysis of Financial Condition and Results of Operations, other than statements of historical information, are forward looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements may sometimes be identified by such words as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of those words and other comparable words. We believe that it is important to communicate our future expectations to investors. However, these forward-looking statements involve many risks and uncertainties. Our actual results could differ materially from those indicated in such forward-looking statements as a result of certain factors, including but not limited to, those set forth under “Risk Factors” in our Annual Report on Form 10-K previously filed with the SEC and elsewhere in this Form 10-Q. We are under no duty to update any of the forward-looking statements after the date of this Form 10-Q to conform these statements to actual results. For additional information, see the “Special Note Regarding Forward-Looking Statements” contained in this Form 10-Q.

Overview

Perficient is a global digital consultancy transforming how the world’s biggest brands connect with customers and grow their businesses. We help clients, primarily focused in North America, gain competitive advantage by using digital technology to: make their businesses more responsive to market opportunities; strengthen relationships with customers, suppliers, and partners; improve productivity; and reduce information technology costs. With unparalleled strategy, creative and technology capabilities, across industries, our end-to-end digital consulting services help our clients drive faster speed-to-market capabilities and stronger, more compelling experiences for consumers. We go to market with six primary service categories – strategy and transformation, data and intelligence, platforms and technology, customer experience and digital marketing, innovation and product development, and optimized global delivery. Within each service category, and collectively, we deliver a deep and broad portfolio of solutions that enable our clients to operate a real-time enterprise that dynamically adapts business processes and the systems that support them to meet the changing demands of a global and competitive marketplace.

Services Revenues

Services revenues are derived from professional services that include developing, implementing, integrating, automating and extending business processes, technology infrastructure, and software applications. Professional services revenues are recognized over time as services are rendered. Most of our projects are performed on a time and materials basis, while a portion of our revenues is derived from projects performed on a fixed fee or fixed fee percent complete basis. 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 hourly rates. For fixed fee contracts, revenues are recognized and billed by multiplying the established fixed rate per time period by the number of time periods elapsed. For fixed fee percent complete projects, revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours. Fixed fee percent complete engagements represented 7% of our services revenues for each of the three and nine months ended September 30, 2023, and 5% and 6% for the three and nine months ended September 30, 2022, respectively. On most projects, we are reimbursed for out-of-pocket expenses including travel and other project-related expenses. These reimbursements are included as a component of the transaction price of the respective professional services contract. The aggregate amount of reimbursed expenses will fluctuate depending on the location of our clients, the total number of our projects that require travel, the impact of travel restrictions imposed as a result of health emergencies and pandemics, and whether our arrangements with our clients provide for the reimbursement of such expenses. In conjunction with services provided, we occasionally receive referral fees under partner programs. These referral fees are recognized at a point in time when earned and recorded within services revenues.

Software and Hardware Revenues

Software and hardware revenues are derived from sales of third-party software and hardware resales, in which we are considered the agent, and sales of internally developed software, in which we are considered the principal. Revenues from sales of third-party software and hardware are recorded on a net basis, while revenues from internally developed software sales are recorded on a gross basis. Software and hardware revenues are expected to fluctuate depending on our clients’ demand for these products.

There are no significant cancellation or termination-type provisions for our software and hardware sales. Contracts for our professional services provide for a general right, to the client or us, to cancel or terminate the contract within a given period of time (generally 10 to 30 days’ notice is required). The client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract.

Cost of Revenues

Cost of revenues consists of cost of services, primarily related to cash and non-cash compensation and benefits (including bonuses and non-cash compensation related to equity awards), costs associated with subcontractors, reimbursable expenses and other project-related expenses. Cost of revenues does not include depreciation of assets used in the production of revenues which are primarily personal computers, servers, and other information technology related equipment. In accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, sales of third-party software and hardware are presented on a net basis, and as such, third-party software and hardware costs are not presented within cost of revenues.

Our cost of services as a percentage of services revenues is affected by the utilization rates of our professionals (defined as the percentage of our professionals’ time billed to clients divided by the total available hours in the respective period), the salaries we pay our professionals, and the average billing rate we receive from our clients. If a project ends earlier than scheduled, we retain professionals in advance of receiving project assignments, or demand for our services declines, our utilization rate will decline and adversely affect our cost of services as a percentage of services revenues.

Selling, General, and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses are primarily composed of sales-related costs, general and administrative salaries, stock compensation expense, office costs, recruiting expense, variable compensation costs, marketing costs and other miscellaneous expenses.

Plans for Growth and Acquisitions

Our goal is to continue to build one of the leading information technology consulting firms by expanding our relationships with existing and new clients and through the continuation of our disciplined acquisition strategy. Our future growth plan includes expanding our business with a primary focus on customers in the United States, both organically and through acquisitions. We also intend to further leverage our existing offshore and nearshore capabilities to support our future growth and provide our clients flexible options for project delivery.

When analyzing revenue growth by base business compared to acquired companies in the Results of Operations section below, revenue attributable to base business includes revenue from an acquired company that has been owned for a full four quarters after the date of acquisition.

Results of Operations

Three months ended September 30, 2023 compared to three months ended September 30, 2022

Revenues. Total revenues decreased 1.9% to $223.2 million for the three months ended September 30, 2023 from $227.6 million for the three months ended September 30, 2022.


	Financial Results (in millions)						Explanation for Increases (Decreases) Over Prior Year Period (in millions)
	Three Months Ended September 30,				Total Decrease Over Prior Year Period		Increase Attributable to Revenue Delivered by Resources of Acquired Companies		Decrease Attributable to Revenue Delivered by Base Business Resources
	2023		2022
Services revenues	$	222.7	$	227.0	$	(4.3)	$	8.2	$	(12.5)
Software and hardware revenues	0.5		0.6		(0.1)		—		(0.1)
Total revenues	$	223.2	$	227.6	$	(4.4)	$	8.2	$	(12.6)

Services revenues decreased 1.9% to $222.7 million for the three months ended September 30, 2023 from $227.0 million for the three months ended September 30, 2022. The decrease in services revenues is primarily attributable to services revenues delivered by base business resources, which decreased $12.5 million, partially offset by an increase of $8.2 million in

services revenues delivered by resources of acquired companies. Services revenues delivered by base business resources decreased primarily due to one less billable day in the current quarter, reduced demand and mix shift to offshore, partially offset by improved bill rates.

Software and hardware revenues decreased to $0.5 million for the three months ended September 30, 2023 from $0.6 million for the three months ended September 30, 2022.

Cost of Revenues (exclusive of depreciation and amortization, discussed separately below). Cost of revenues increased 4.8% to $143.0 million for the three months ended September 30, 2023 from $136.4 million for the three months ended September 30, 2022 primarily due to higher average headcount and higher benefit costs. Services costs as a percentage of services revenues increased to 64.2% for the three months ended September 30, 2023 from 60.1% for the three months ended September 30, 2022 primarily due to the impact of lower revenues and higher benefit costs.

Selling, General and Administrative. SG&A expenses decreased to $42.1 million for the three months ended September 30, 2023 from $44.3 million for the three months ended September 30, 2022. SG&A expenses as a percentage of revenues were 18.9% and 19.5% for the three months ended September 30, 2023 and September 30, 2022. The decrease in SG&A expenses as a percentage of revenues was primarily related to decreases in bonus and bad debt expense, partially offset by increases in sales headcount and benefits costs.

Depreciation. Depreciation expense decreased 6.8% to $2.2 million for the three months ended September 30, 2023 from $2.4 million for the three months ended September 30, 2022. Depreciation expense as a percentage of revenues was 1.0% for each of the three months ended September 30, 2023 and September 30, 2022.

Amortization. Amortization expense decreased 17.3% to $5.0 million for the three months ended September 30, 2023 from $6.1 million for the three months ended September 30, 2022. Amortization expense as a percentage of revenues was 2.2% for the three months ended September 30, 2023 and 2.7% for the three months ended September 30, 2022. Amortization expense decreased primarily due to certain intangibles from previous periods becoming fully amortized.

Acquisition Costs. Acquisition-related costs decreased to $0.5 million for the three months ended September 30, 2023 from $2.1 million for the three months ended September 30, 2022. Costs were incurred for legal, accounting, tax, investment bank and advisor fees, and valuation services performed by third parties in connection with merger and acquisition-related activities. Acquisition costs decreased primarily due to the acquisitions that closed during 2022.

Adjustment to Fair Value of Contingent Consideration. An adjustment of $1.7 million was recorded to decrease the liability during the three months ended September 30, 2023 which represents the net fair market value adjustment to Inflection Point Systems, Inc. (“Inflection Point”) and Ameex Technologies Corporation (“Ameex”) revenue and earnings-based contingent consideration liabilities, net of accretion for Inflection Point and Ameex. An adjustment of $3.1 million was recorded to increase the liability during the three months ended September 30, 2022 which represents the net fair market adjustment to the revenue and earnings-based contingent consideration liabilities for Talos LLC, Talos Digital LLC, Talos Digital SAS and TCOMM SAS (“Talos”) and Izmul S.A. (“Overactive”), in addition to accretion.

Net Interest (Income) Expense. Net interest income was immaterial for the three months ended September 30, 2023. Net interest expense was $0.6 million for the three months ended September 30, 2022. The decrease in net interest expense was primarily due to a $0.6 million increase in interest income.

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022

Revenues. Total revenues increased 2.0% to $685.8 million for the nine months ended September 30, 2023 from $672.5 million for the nine months ended September 30, 2022.


	Financial Results (in millions)						Explanation for Increases (Decreases) Over Prior Year Period (in millions)
	Nine Months Ended September 30,				Total Increase (Decrease) Over Prior Year Period		Increase Attributable to Revenue Delivered by Resources of Acquired Companies		Decrease Attributable to Revenue Delivered by Base Business Resources
	2023		2022
Services revenues	$	684.2	$	670.7	$	13.5	$	26.0	$	(12.5)
Software and hardware revenues	1.6		1.8		(0.2)		—		(0.2)
Total revenues	$	685.8	$	672.5	$	13.3	$	26.0	$	(12.7)

Services revenues increased 2.0% to $684.2 million for the nine months ended September 30, 2023 from $670.7 million for the nine months ended September 30, 2022. The increase in services revenues is primarily attributable to services revenues delivered by resources of acquired companies, which increased $26.0 million, partially offset by a decrease of $12.5 million in services revenues delivered by base business resources. Services revenues delivered by base business resources decreased primarily due to reduced demand and mix shift to offshore, partially offset by improved bill rates.

Software and hardware revenues decreased to $1.6 million for the nine months ended September 30, 2023 from $1.8 million for the nine months ended September 30, 2022.

Cost of Revenues (exclusive of depreciation and amortization, discussed separately below). Cost of revenues increased 5.3% to $433.4 million for the nine months ended September 30, 2023 from $411.7 million for the nine months ended September 30, 2022 primarily due to higher average headcount and higher benefit costs. Services costs as a percentage of services revenues increased to 63.3% for the nine months ended September 30, 2023 from 61.4% for the nine months ended September 30, 2022 primarily due to lower utilization and higher benefit costs.

Selling, General and Administrative. SG&A expenses increased to $130.2 million for the nine months ended September 30, 2023 from $127.4 million for the nine months ended September 30, 2022. SG&A expenses as a percentage of revenues was 19.0% for the nine months ended September 30, 2023 and 18.9% for the nine months ended September 30, 2022. The increase in SG&A expenses as a percentage of revenues was primarily related to increases in sales headcount, benefits costs, and travel and entertainment, partially offset by lower bonus and bad debt expense.

Depreciation. Depreciation expense increased 7.9% to $6.7 million for the nine months ended September 30, 2023 from $6.2 million for the nine months ended September 30, 2022. Depreciation expense as a percentage of revenues was 1.0% for the nine months ended September 30, 2023 and 0.9% for the nine months ended September 30, 2022.

Amortization. Amortization expense decreased 9.4% to $16.4 million for the nine months ended September 30, 2023 from $18.1 million for the nine months ended September 30, 2022. Amortization expense as a percentage of revenues was 2.4% for the nine months ended September 30, 2023 and 2.7% for the nine months ended September 30, 2022. Amortization expense decreased primarily due to certain intangibles from previous periods becoming fully amortized.

Acquisition Costs. Acquisition-related costs were $0.5 million for the nine months ended September 30, 2023 and $2.5 million for the nine months ended September 30, 2022. Costs were incurred for legal, accounting, tax, investment bank and advisor fees, and valuation services performed by third parties in connection with merger and acquisition-related activities. Acquisition costs decreased primarily due to the acquisitions that closed during 2022.

Adjustment to Fair Value of Contingent Consideration. An adjustment of $6.5 million was recorded to decrease the liability during the nine months ended September 30, 2023 which represents the net fair market value adjustment to Inflection Point and Ameex revenue and earnings-based contingent consideration liabilities, net of accretion for Inflection Point and Ameex. An adjustment of $0.4 million was recorded to decrease the liability during the nine months ended September 30, 2022 which represents the net fair market adjustment to the revenue and earnings-based contingent consideration liabilities for Talos and Overactive, net of accretion for Talos and Overactive.

Net Interest Expense. Net interest expense decreased to $0.8 million for the nine months ended September 30, 2023 from $2.3 million for the nine months ended September 30, 2022. The decrease in net interest expense was primarily due to a $1.5 million increase in interest income.

Provision for Income Taxes. We provide for federal, state and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses. Our effective tax rate increased to 26.9% for the nine months ended September 30, 2023 from 25.2% for the nine months ended September 30, 2022. The increase in effective tax rate was primarily due to a decrease in tax benefits related to share-based compensation deductions and research credits partially offset by a decrease in the Section 162(m) compensation limitation and an increase in the tax benefits for acquisition adjustments compared to the prior year period.

Liquidity and Capital Resources

Selected measures of liquidity and capital resources are as follows (in millions):


	September 30, 2023		December 31, 2022
Cash and cash equivalents (1)	$	80.1	$	30.1
Working capital (including cash and cash equivalents) (2)	$	220.9	$	126.5
Amounts available under credit facility (3)	$	300.0	$	199.8

(1) The balance at September 30, 2023 and December 31, 2022 includes $22.4 million and $7.9 million, respectively, held by certain foreign subsidiaries which is not available to fund domestic operations unless deemed repatriated. We currently do not plan or foresee a need to repatriate such funds. The balance at September 30, 2023 also includes $2.4 million in cash held by our Chinese subsidiary. The balance at December 31, 2022 includes $5.9 million and $1.9 million held by our Colombian and Chinese subsidiaries, respectively.

(2) Working capital is total current assets less total current liabilities.

(3) On March 29, 2023, the Company amended and restated its existing credit agreement by entering into a Second Amended and Restated Credit Agreement (the “2023 Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent and the other lenders parties thereto.

Net Cash Provided by Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2023 was $88.5 million compared to net cash provided by operating activities of $71.4 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, the primary components of operating cash flows were net income of $75.8 million, non-cash charges of $34.1 million and net operating asset investments of $21.4 million. For the nine months ended September 30, 2022, the primary components of operating cash flows were net income of $77.9 million, non-cash charges of $36.1 million and net operating asset investments of $42.6 million.

Net Cash Used in Investing Activities

During the nine months ended September 30, 2023, we used $5.1 million to purchase property and equipment and to develop software and received proceeds of $0.3 million primarily for a net working capital settlement related to an acquisition. During the nine months ended September 30, 2022, we used $7.7 million to purchase property and equipment and to develop software and $44.6 million for the acquisition of Inflection Point, and $0.1 million for a net working capital settlement related to an acquisition.

Net Cash Used in Financing Activities

During the nine months ended September 30, 2023, we used $7.6 million to repurchase shares of our common stock through the stock repurchase program and $5.1 million to remit taxes withheld as part of a net share settlement of restricted stock vesting. We also used $0.8 million for credit facility financing fees, used $21.5 million to settle contingent consideration for the purchase of Talos and Overactive and received proceeds from sales of stock through the Employee Stock Purchase Plan of $0.8 million. During the nine months ended September 30, 2022, we used $13.0 million to repurchase shares of our common stock through the stock repurchase program and $9.0 million to remit taxes withheld as part of a net share settlement of restricted stock vesting. We also drew down $10.0 million for our line of credit, repaid $10.0 million on our line of credit and received proceeds from sales of stock through the Employee Stock Purchase Plan of $0.8 million.

Availability of Funds from Bank Line of Credit Facility

On March 29, 2023, the Company entered into the 2023 Credit Agreement with Wells Fargo Bank, National Association, as administrative agent and the other lenders parties thereto. The 2023 Credit Agreement provides for revolving credit borrowings up to a maximum principal amount of $300.0 million, subject to a commitment increase of $75.0 million. All outstanding amounts owed under the 2023 Credit Agreement become due and payable no later than the final maturity date of March 29, 2028. As of September 30, 2023, there was no outstanding balance under the 2023 Credit Agreement. The Company incurred $0.8 million of additional deferred finance fees during the nine months ended September 30, 2023.

At September 30, 2023, the Company was in compliance with all covenants under the 2023 Credit Agreement.

Stock Repurchase Program

The Company’s Board of Directors authorized the repurchase of up to $375.0 million of Company common stock through a stock repurchase program expiring December 31, 2024. The program could be suspended or discontinued at any time based on market, economic, or business conditions. The timing and amount of repurchase transactions will be determined by management based on its evaluation of market conditions, share price, and other factors. Since the program’s inception on August 11, 2008, the Company has repurchased approximately $287.4 million (16.5 million shares) of outstanding common stock through September 30, 2023.

From time to time, the Company establishes a written trading plan in accordance with Rule 10b5-1 of the Exchange Act, pursuant to which the Company makes a portion of its stock repurchases. Additional repurchases will be at times and in amounts as the Company deems appropriate and will be made through open market transactions in compliance with Rule 10b-18 of the Exchange Act, subject to market conditions, applicable legal requirements, and other factors.

Cash Requirements from Contractual Obligations

For the nine months ended September 30, 2023, there were no material changes outside the ordinary course of business in lease obligations or contractual obligations. See Note 15, Leases, in the Notes to Interim Condensed Consolidated Financial Statements for further description of our contractual obligations.

As of September 30, 2023 (unaudited) and December 31, 2022, there were no balances outstanding under the 2023 Credit Agreement. Any balances outstanding under the 2023 Credit Agreement would be classified as “Long-term debt” within the Condensed Consolidated Balance Sheet and become due and payable no later than the final maturity date of March 29, 2028. As of September 30, 2023, there were $396.3 million of outstanding 2026 Notes and 2025 Notes, net of unamortized issuance costs, compared to $394.6 million as of December 31, 2022. See Note 3, Recent Accounting Pronouncements, in the Notes to Interim Unaudited Condensed Consolidated Financial Statements for further description of the ASU 2020-06 adoption. The amounts are classified as “Long-term debt” within the Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022. The 2026 Notes will become due and payable no later than the final maturity date of November 15, 2026. The 2025 Notes will become due and payable no later than the final maturity date of August 1, 2025.

Conclusion

Of the total cash and cash equivalents reported on the Condensed Consolidated Balance Sheet as of September 30, 2023 (unaudited) of $80.1 million, $22.4 million was held by certain foreign subsidiaries and is considered to be indefinitely reinvested in those operations. The Company is able to fund its liquidity needs outside of these subsidiaries, primarily through cash flows generated by domestic operations and our credit facility. Therefore, the Company has no current plans to repatriate cash from these foreign subsidiaries in the foreseeable future. As of September 30, 2023, $2.4 million of the total cash and cash

equivalents was held by the Company’s Chinese subsidiary, the earnings of which are not considered to be permanently reinvested and may be repatriated from time to time.

We believe that the currently available funds, access to capital from our credit facility, and cash flows generated from operations will be sufficient to meet our working capital requirements and other capital needs for the next 12 months.

Critical Accounting Policies

Our accounting policies are fully described in Note 2, Summary of Significant Accounting Policies, to our Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022. We believe our most critical accounting policies include revenue recognition, purchase accounting and related fair value measurements, convertible debt, and income taxes. Refer to Note 3, Recent Accounting Pronouncements, in the Notes to Interim Unaudited Condensed Consolidated Financial Statements for further discussion regarding the adoption of ASU No. 2020-06, Debt—Debt with Conversion.

Item 3. 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

We are exposed to market risks associated with changes in foreign currency exchange rates because we generate a portion of our revenues and incur a portion of our expenses in currencies other than the U.S. dollar. As of September 30, 2023, we were exposed to changes in exchange rates between the U.S. dollar and eleven other currencies. We hedge material foreign currency exchange rate exposures when feasible using forward contracts. These instruments are subject to fluctuations in foreign currency exchange rates and credit risk. Credit risk is managed through careful selection and ongoing evaluation of the financial institutions utilized as counterparties. Refer to Note 13, Derivatives, in the Notes to Interim Unaudited Condensed Consolidated Financial Statements for further discussion.

Interest Rate Sensitivity

As of September 30, 2023, there was no outstanding balance and $300.0 million of available borrowing capacity under our credit facility. To the extent we have outstanding borrowings under the credit facility, our interest expense will fluctuate as the interest rate for the line of credit floats based, at our option, on the prime rate plus a margin or the one-month SOFR rate plus a margin.

During the third quarter of 2020 and the fourth quarter of 2021, we issued the 2025 Notes and the 2026 Notes, respectively, which have a fixed interest rate of 1.250% and 0.125%, respectively. The fair value of the Notes may increase or decrease for various reasons, including fluctuations in the market price of our common stock, fluctuations in market interest rates and fluctuations in general economic conditions. Based upon the quoted market price as of September 30, 2023, the fair value of the 2025 Notes and 2026 Notes was approximately $29.0 million and $305.9 million, respectively.

We had unrestricted cash and cash equivalents totaling $80.1 million at September 30, 2023 and $30.1 million at December 31, 2022. The unrestricted cash and cash equivalents are primarily held for working capital purposes and acquisitions. We do not enter into investments for trading or speculative purposes.

Item 4. Controls and Procedures

The Company maintains 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 period covered by this Form 10-Q. Based on that evaluation, the Company’s principal executive and principal financial officers have determined that the Company’s disclosure controls and procedures were effective.

There were no significant changes in the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the three months ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors

In evaluating all forward-looking statements, you should specifically consider various risk factors that may cause actual results to vary from those contained in the forward-looking statements. Our risk factors are described in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 28, 2023 and available at www.sec.gov.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Stock Repurchase Program

The Company’s Board of Directors authorized the repurchase of up to $375.0 million of Company common stock through a stock repurchase program expiring December 31, 2024. The program could be suspended or discontinued at any time based on market, economic, or business conditions. The timing and amount of repurchase transactions will be determined by management based on its evaluation of market conditions, share price, and other factors.

From the program’s inception on August 11, 2008, the Company has repurchased approximately $287.4 million (16.5 million shares) of outstanding common stock through September 30, 2023.


Period	Total Number of Shares Purchased	Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)
Beginning balance as of June 30, 2023	16,413,294	$	17.35	16,413,294	$	90.2
July 1-31, 2023	10,000	$	64.93	10,000	$	89.6
August 1-31, 2023	32,500	$	60.06	32,500	$	87.6
September 1-30, 2023	—	$	—	—	$	87.6
Ending balance as of September 30, 2023	16,455,794	$	17.46	16,455,794

(1)Average price paid per share includes commission.

Item 5. Other Information

None.

Item 6. Exhibits

See Exhibits Index.

EXHIBITS INDEX


Exhibit Number			Description
3.1			Amended and Restated Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Quarterly Report on Form 10-Q filed July 27, 2023 and incorporated herein by reference
3.2			Second Amended and Restated Bylaws of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on July 27, 2023 (File No. 001-15169) and incorporated herein by reference
4.1			Specimen Certificate for shares of Perficient, Inc. common stock, previously filed with the Securities and Exchange Commission as an Exhibit to our Quarterly Report on Form 10-Q (File No. 001-15169) filed May 7, 2009 and incorporated herein by reference
4.2			Indenture, dated August 14, 2020, between Perficient, Inc. and U.S. Bank National Association, as trustee, relating to the Company’s 1.250% Convertible Senior Notes due 2025, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K (File No. 001-15169) filed August 18, 2020 and incorporated herein by reference
4.3			Form of 1.250% Convertible Senior Notes due 2025, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed August 18, 2020 and incorporated herein by reference
4.4			Indenture, dated November 9, 2021, between Perficient, Inc. and U.S. Bank National Associate, as trustee, relating to the Company's 0.125% Convertible Senior Notes due 2026, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed November 9, 2021 and incorporated herein by reference
4.5			Form of 0.125% Convertible Senior Notes due 2026, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed November 9, 2021 and incorporated herein by reference
10.1†			Fifth Amended and Restated Employment and Transition Agreement between Perficient, Inc. and Jeffrey S. Davis, effective as of October 1, 2023, previously filed with the Securities and Exchange Commission as an Exhibit to our Quarterly Report on Form 10-Q filed July 27, 2023 and incorporated herein by reference
10.2†			Third Amended and Restated Employment Agreement between Perficient, Inc. and Thomas J. Hogan, effective as of October 1, 2023, previously filed with the Securities and Exchange Commission as an Exhibit to our Quarterly Report on Form 10-Q filed July 27, 2023 and incorporated herein by reference
10.3†			Fourth Amended and Restated Employment Agreement between Perficient, Inc. and Paul E. Martin, effective as of October 1, 2023, previously filed with the Securities and Exchange Commission as an Exhibit to our Quarterly Report on Form 10-Q filed July 27, 2023 and incorporated herein by reference
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
101*			The following financial information from Perficient, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 formatted in iXBRL (inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022, (ii) Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022, (iv) Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022, (v) Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022, and (vi) the Notes to Interim Unaudited Condensed Consolidated Financial Statements
104			Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)

†			Identifies an Exhibit that consists of or includes a management contract or compensatory plan or arrangement.
*			Filed herewith.
**			Included but not to be considered “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.

SIGNATURES

Pursuant to the requirements 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.

Date:	October 31, 2023	By:	/s/ Thomas J. Hogan
			Thomas J. Hogan
			Chief Executive Officer (Principal Executive Officer)


Date:	October 31, 2023	By:	/s/ Paul E. Martin
			Paul E. Martin
			Chief Financial Officer (Principal Financial Officer)

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Perficient (PRFT) 10-Q2023 Q3 Quarterly report

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