Perficient: Services Growth, Stone Temple Buy Fuel Future Opportunities

A couple of delays in signing contracts was not enough to hold back solution provider Perficient, which saw a huge jump in its services business in the last quarter.

Perficient saw its third consecutive quarter of double-digit services growth, and delivered adjusted earnings above consensus and near the top of the company's previous guidance range, said Jeffrey Davis, chairman and CEO of the St. Louis-based company.

Perficient had a couple of instances of business ramp-downs and delays in signing contracts, Davis told financial analysts during the company's second fiscal quarter 2018 earnings call Thursday.

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"Despite those challenges, we did manage to drive the business to more than doubling of net income and GAAP earnings over the prior-year quarter," he said.

A big change for Perficient during the quarter was its July acquisition of Stone Temple Consulting, a Boston-based digital marketing agency focused on search engine optimization and content marketing services, Davis said.

"[Stone Temple] will play an important role as we continue to deliver the end-to-end customer experience solutions that our clients and clients-to-be are looking for," he said.

Davis said Perficient signed 59 deals valued at $500,000 or more during the second quarter, which ended June 30. That compared with 54 such deals in the prior quarter and 46 such deals in the second fiscal quarter of 2017.

Last week, Perficient closed its single largest deal, a multiyear commitment from a major health-care organization worth well into "eight figures" of revenue annually, Davis said.

"Those types of deals, we're able to compete for and win now that we couldn't have just a few years ago. That win, plus several other multimillion-dollar deals during July, have Q3 off to a great start," he said.

Davis said Perficient is especially excited about San Jose, Calif.-based Adobe's May acquisition of Magento Commerce, a provider of a cloud-based commerce platform expected to be integrated into the Adobe Experience Cloud.

"We're an Adobe Premier partner and an award-winning Magento enterprise partner," he said. "We're one of the few firms with deep expertise in both platforms. In fact, we have more than 100 colleagues dedicated to each, and have launched more than 400 projects on these platforms in the last few years. As those two organizations come together, we're incredibly well positioned to offer a technology stack that allows enterprises to manage content and commerce in one place in an integrated fashion."

In response to an analyst's question, Davis said the delays Perficient experienced in the quarter were isolated to just a couple of customers. "It means we have the opportunity to make it up in the second half," he said.

Organically, the delays resulted in about a $10 million change on an annual basis, Davis said. "Our guidance reflects we can make up about half of that in the year," he said.

When asked about the large health-care deal signed in the quarter, Davis said Perficient has had a 10-year relationship with that company, which has been its largest customer for the past four to five years.

Perficient's average deal size in the second fiscal quarter, excluding that one large customer, was just under $300,000, compared with about $265,000 in the first fiscal quarter, said Paul Martin, CFO of the solution provider.

For the second fiscal quarter of 2018, Perficient reported revenue of $121.80 million, up about 4 percent from the $117.03 million for its second fiscal quarter of 2017. That figure included services revenue of $120.91 million, up 12 percent over last year, which was slightly offset by fast-declining software and hardware revenue of $886,000.

On a GAAP basis, Perficient reported net income of $5.85 million, or 17 cents per share, up significantly from last year's $2.41 million, or 7 cents per share. On a non-GAAP basis, the company reported net income of $12.78 million, or 38 cents per share, up from last year's $9.80 million, or 29 cents per share.

Looking forward, Perficient expects third-quarter revenue in the $122 million to $127 million range, with GAAP earnings per share of 18 cents to 21 cents and non-GAAP earnings per share of 38 cents to 41 cents. That compares with third-quarter 2017 revenue of $123.7 million and GAAP earnings per share of 21 cents.

For full fiscal year 2018, the company expects revenue of $490 million to $505 million, with GAAP earnings per share of 65 cents to 75 cents and non-GAAP earnings per share of $1.45 to $1.55.