FORM 10-K
PERFICIENT INC - PRFT
Filed: March 04, 2008 (period: December 31, 2007)
Annual report which provides a comprehensive overview of the company for the past year
Table of Contents
10-K - FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007
PART I
Item 1.
Business. 1
PART I
Business.
Item 1.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2.
Item 3.
Item 4.
Properties.
Legal Proceedings.
Submission of Matters to a Vote of Security Holders.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
Selected Financial Data.
Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Item 8.
Changes In and Disagreements With Accountants on Accounting and
Item 9.
Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director
Independence.
Item 14. Principal Accounting Fees and Services.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
SIGNATURES
INDEX TO EXHIBITS
EX-21.1 (SUBSIDIARIES)
EX-23.1 (CONSENT OF BDO SEIDMAN)
EX-23.2 (CONSENT OF KPMG LLP)
EX-31.1 (CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER)
EX-31.2 (CERTIFICATION BY THE CHIEF FINANCIAL OFFICER)
EX-32.1 (CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER CHIEF
FINANCIAL OFFICER)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
x
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2007
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 001-15169
PERFICIENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
No. 74-2853258
(I.R.S. Employer Identification No.)
1120 South Capital of Texas Highway, Building 3, Suite 220
Austin, Texas 78746
(Address of principal executive offices)
(512) 531-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, $0.001 par value
Name of each exchange on which registered:
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o
No(cid:160)(cid:160)(cid:254)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o
No(cid:160)(cid:160)(cid:254)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:254) No(cid:160)(cid:160)o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec.229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:160)(cid:160)¤
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer o
Non-accelerated filer o
Accelerated filer (cid:254)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No (cid:254)
The aggregate market value of the voting stock held by non-affiliates of the Company was approximately $568.0 million on June 30,
2007 based on the last reported sale price of the Company's common stock on The NASDAQ Stock Market LLC on June 30, 2007.
As of February 27, 2008, there were 31,908,566 shares of Common Stock outstanding.
Portions of the definitive proxy statement in connection with the 2008 Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission no later than April 30, 2008, are incorporated by reference in Part III of this Form 10-K.
Source: PERFICIENT INC, 10-K, March 04, 2008
Source: PERFICIENT INC, 10-K, March 04, 2008
TABLE OF CONTENTS
PART I
Business.
Risk Factors.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Submission of Matters to a Vote of Security Holders.
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Selected Financial Data.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
PART III
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accounting Fees and Services.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Exhibits and Financial Statement Schedules.
PART IV
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Source: PERFICIENT INC, 10-K, March 04, 2008
Item 1. Business.
Overview
PART I
We are an information technology consulting firm serving Forbes Global 2000 (“Global 2000”) and other large enterprise
companies with a primary focus on the United States. We help our clients gain competitive advantage by using Internet-based
technologies to make their businesses more responsive to market opportunities and threats, strengthen relationships with their
customers, suppliers and partners, improve productivity and reduce information technology costs. We design, build and deliver
business-driven technology solutions using third party software products developed by our partners. Our solutions include custom
applications, portals and collaboration, eCommerce, online customer management, enterprise content management, business
intelligence, business integration, mobile technology, technology platform implementations and service oriented architectures. Our
solutions enable clients to meet the changing demands of an increasingly global, Internet-driven and competitive marketplace.
Through our experience in developing and delivering business-driven technology solutions for a large number of Global 2000
clients, we have acquired significant domain expertise that we believe differentiates our firm. We use expert project teams that we
believe deliver high-value, measurable results by working collaboratively with clients and their partners through a user-centered,
technology-based and business-driven solutions methodology. We believe this approach enhances return-on-investment for our clients
by significantly reducing the time and risk associated with designing and implementing business-driven technology solutions.
We are expanding through a combination of organic growth and acquisitions. We believe that information technology
consulting is a fragmented industry and that there are a substantial number of privately held information technology consulting firms
in our target markets that, if acquired, can be strategically beneficial and accretive to earnings over time. We have a track record of
successfully identifying, executing and integrating acquisitions that add strategic value to our business. Since April 2004, we have
acquired and integrated 12 information technology consulting firms, four of which were acquired in 2007. We believe that we can
achieve significantly faster growth in revenues and profitability through a combination of organic growth and acquisitions than we
could through organic growth alone.
We believe we have built one of the leading independent information technology consulting firms in the United States. We
serve our customers from our network of 18 offices throughout North America. In addition, we have over 500 colleagues who are part
of “national” business units, who travel extensively to serve clients throughout North America and Europe. Our future growth plan
includes expanding our business with a primary focus on the United States, both through expansion of our national travel practices and
through opening new offices, both organically and through acquisitions. In 2007, 2006 and 2005, 99% of our revenues were derived
from clients in the United States while 1% of our revenues were derived from clients in Canada and Europe. Over 98% of our total
assets were located in the United States in 2007 with the remainder located in Canada, China, and India. During 2006, over 99% of
our total assets were located in the United States with the remainder located in Canada.
We place strong emphasis on building lasting relationships with clients. Over the past three years ending December 31, 2007,
an average of 78% of revenues was derived from clients who continued to utilize our services from the prior year, excluding from the
calculation for any single period revenues from acquisitions completed in that year. We have also built meaningful partnerships with
software providers, most notably IBM, whose products we use to design and implement solutions for our clients. These partnerships
enable us to reduce our cost of sales and sales cycle times and increase success rates through leveraging our partners' marketing efforts
and endorsements.
Industry Background
A number of factors are shaping the information technology industry and, in particular, the market for our information
technology consulting services:
United States Economic Recovery. The years 2001 and 2002 saw a protracted downturn in information technology spending
as a result of an economic recession in the United States and the collapse of the Internet “bubble.” The information technology
consulting industry began to experience a recovery in the second half of 2003, which continued through the first half of 2007. As we
enter 2008, it appears that the United States economy is beginning to experience a slowdown in growth. It is clear that the slowdown
will have an effect on the information technology consulting industry in general and on demand for our services in particular, but the
amount of that impact is uncertain. According to the most recent forecast from independent market research firm Forrester Research,
total information technology services spending in North America is expected to rise 5.2% in 2008.
Source: PERFICIENT INC, 10-K, March 04, 2008
1
Need to Rationalize Complex, Heterogeneous Enterprise Technology Environments. Over the past 15 years, the information
systems of many Global 2000 and large enterprise companies have evolved from traditional mainframe-based systems to include
distributed computing environments. This evolution has been driven by the benefits offered by distributed computing, including lower
incremental technology costs, faster application development and deployment, increased flexibility and improved access to business
information. Organizations have also widely installed enterprise resource planning (ERP), supply chain management (SCM), and
customer relationship management (CRM), applications in order to streamline internal processes and enable communication and
collaboration.
As a result of investment in these different technologies, organizations now have complex enterprise technology
environments with incompatible technologies and high costs of integration. These increases in complexity, cost and risk, combined
with the business and technology transformation caused by the commercialization of the Internet, have created demand for
information technology consultants with experience in enabling the integration of disparate platforms and leveraging Internet-based
technologies to support business and technology goals.
Increased Competitive Pressures. The marketplace continues to become increasingly global, Internet-driven and competitive.
To gain and maintain a competitive advantage in this environment, Global 2000 and large enterprise companies seek real-time access
to critical business applications and information that enables quality business decisions based on the latest possible information,
flexible business processes and systems that respond quickly to market opportunities, improved quality and lower cost customer care
through online customer self-service and provisioning, reduced supply chain costs and improved logistics through processes and
systems integrated online to suppliers, partners and distributors and increased employee productivity through better information flow
and collaboration.
Enabling these business goals requires integrating, automating and extending business processes, technology infrastructure
and software applications end-to-end within an organization and with key partners, suppliers and customers. This requires the ability
not only to integrate the disparate information resource types, databases, legacy mainframe applications, packaged application
software, custom applications, trading partners, people and Web services, but also to manage the business processes that govern the
interactions between these resources so that organizations can engage in “real-time business.” Real-time business refers to the use of
current information in business to execute critical business processes.
These factors are driving increased spending on software and related consulting services in the areas of application
integration, middleware and portals (AIMP), as these segments play critical roles in the integration between new and existing systems
and the extension of those systems to customers, suppliers and partners via the Internet. Companies are expected to increase software
spending on integration broker suites, enterprise portal services, application platform suites and message-oriented middleware. As
companies increase spending on software, their overall spending on services will also increase, often by a multiplier of each dollar
spent on software.
Quarterly Fluctuations. Our quarterly operating results are subject to seasonal fluctuations. The first and fourth quarters are
impacted by professional staff vacation and holidays, as well as the timing of buying decisions by clients. Our results will also
fluctuate, in part, based on whether we succeed in counterbalancing periodic declines in services revenues when a project or
engagement is completed or cancelled by entering into arrangements to provide additional services to the same or other clients.
Software sales are seasonal as well, with generally higher software demand during the third and fourth quarter. These and other
seasonal factors may contribute to fluctuations in our operating results from quarter-to-quarter.
Competitive Strengths
We believe our competitive strengths include:
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Domain Expertise. We have acquired significant domain expertise in a core set of business-driven technology
solutions and software platforms. These solutions include custom applications, portals and collaboration,
eCommerce, customer relationship management, enterprise content management, business intelligence, business
integration, mobile technology solutions, technology platform implementations and service oriented architectures
and enterprise service bus. The platforms in which we have significant domain expertise and on which these
solutions are built include IBM WebSphere, TIBCO BusinessWorks, Microsoft.NET, Oracle-Seibel, BEA
(acquired by Oracle), Cognos (acquired by IBM) and Documentum, among others.
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Source: PERFICIENT INC, 10-K, March 04, 2008
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Delivery Model and Methodology. We believe our significant domain expertise enables us to provide high-value
solutions through expert project teams that deliver measurable results by working collaboratively with clients
through a user-centered, technology-based and business-driven solutions methodology. Our eNable Methodology,
a unique and proven execution process map we developed, allows for repeatable, high quality services delivery.
The eNable Methodology leverages the thought leadership of our senior strategists and practitioners to support the
client project team and focuses on transforming our clients' business processes to provide enhanced customer
value and operating efficiency, enabled by Web technology. As a result, we believe we are able to offer our clients
the dedicated attention that small firms usually provide and the delivery and project management that larger firms
usually offer.
Client Relationships. We have built a track record of quality solutions and client satisfaction through the timely,
efficient and successful completion of numerous projects for our clients. As a result, we have established
long-term relationships with many of our clients who continue to engage us for additional projects and serve as
references for us. Over the past three years ending December 31, 2007, an average of 78% of revenues was
derived from clients who continued to utilize our services from the prior year, excluding from the calculation for
any revenues from acquisitions completed in that year.
Vendor Partnerships and Endorsements. We have built meaningful partnerships with software providers,
including IBM, whose products we use to design and implement solutions for our clients. These partnerships
enable us to reduce our cost of sales and sales cycle times and increase win rates by leveraging our partners'
marketing efforts and endorsements. We also serve as a sales channel for our partners, helping them market and
sell their software products. We are a Premier IBM business partner, a TeamTIBCO partner, a Microsoft Gold
Certified Partner, a Certified Oracle Partner, and an EMC Documentum Select Services Team Partner. Our
partners have recognized our partnership with several awards. Most recently, the Company was honored with
IBM’s Information Management 2007 Most Distinguished Partner (North America) Award and IBM’s Lotus 2008
Most Distinguished Partner (North America) Award.
Geographic Focus. We believe we have built one of the leading independent information technology consulting
firms in the United States. We serve our clients from our network of 18 offices throughout North America. In
addition, we have over 500 colleagues who are part of “national” business units, who travel extensively to serve
clients primarily in the United States. Our future growth plan includes expanding our business throughout the
United States through expansion of our national travel practices, both organically and through acquisition. We
believe our network provides a competitive platform from which to expand nationally.
Offshore Capability. We own a CMMI Level 4 certified global development center in Hangzhou, China that was
acquired in September 2007. This facility is staffed with Perficient colleagues who provide offshore custom
application development, quality assurance and testing services. Additionally, we have a relationship with an
offshore development facility in Bitola, Macedonia. Through this facility we contract with a team of professionals
with expertise in IBM, TIBCO and Microsoft technologies and with specializations that include application
development, adapter and interface development, quality assurance and testing, monitoring and support, product
development, platform migration, and portal development. In addition to our offshore capabilities, we employ a
substantial number of foreign nationals in the United States on H1-B visas. Also in 2007, we acquired a recruiting
facility in Chennai, India, to continue to grow our base of H1-B foreign national colleagues.
Our Solutions
We help clients gain competitive advantage by using Internet-based technologies to make their businesses more responsive to
market opportunities and threats, strengthen relationships with customers, suppliers and partners, improve productivity and reduce
information technology costs. Our business-driven technology solutions enable these benefits by developing, integrating, automating
and extending business processes, technology infrastructure and software applications end-to-end within an organization and with key
partners, suppliers and customers. This provides real-time access to critical business applications and information and a scalable,
reliable, secure and cost-effective technology infrastructure that enables clients to:
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give managers and executives the information they need to make quality business decisions and dynamically adapt
their business processes and systems to respond to client demands, market opportunities or business problems;
improve the quality and lower the cost of customer acquisition and care through Web-based customer self-service
and provisioning;
reduce supply chain costs and improve logistics by flexibly and quickly integrating processes and systems and
making relevant real-time information and applications available online to suppliers, partners and distributors;
increase the effectiveness and value of legacy enterprise technology infrastructure investments by enabling faster
application development and deployment, increased flexibility and lower management costs; and
Source: PERFICIENT INC, 10-K, March 04, 2008
3
Source: PERFICIENT INC, 10-K, March 04, 2008
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increase employee productivity through better information flow and collaboration capabilities and by automating
routine processes to enable focus on unique problems and opportunities.
Our business-driven technology solutions include the following:
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Custom applications. We design, develop, implement and integrate custom application solutions that deliver
enterprise-specific functionality to meet the unique requirements and needs of our clients. Perficient's substantial
experience with platforms including J2EE, .Net and open-source - plus our flexible delivery structure - enables
enterprises of all types to leverage cutting-edge technologies to meet business-driven needs.
Enterprise portals and collaboration. We design, develop, implement and integrate secure and scalable enterprise
portals for our clients and their customers, suppliers and partners that include searchable data systems,
collaborative systems for process improvement, transaction processing, unified and extended reporting and content
management and personalization.
eCommerce. We design, develop and implement secure and reliable ecommerce infrastructures that dynamically
integrate with back-end systems and complementary applications that provide for transaction volume scalability
and sophisticated content management.
Customer relationship management (CRM). We design, develop and implement advanced CRM solutions that
facilitate customer acquisition, service and support, sales, and marketing by understanding our customers' needs
through interviews, facilitated requirements gathering sessions and call center analysis, developing an iterative,
prototype driven solution and integrating the solution to legacy processes and applications.
Enterprise content management (ECM). We design, develop and implement ECM solutions that enable the
management of all unstructured information regardless of file type or format. Our ECM solutions can facilitate the
creation of new content and/or provide easy access and retrieval of existing digital assets from other enterprise
tools such as enterprise resource planning (ERP), customer relationship management or legacy applications.
Perficient's ECM solutions include Enterprise Imaging and Document Management, Web Content Management,
Digital Asset Management, Enterprise Records Management, Compliance and Control, Business Process
Management and Collaboration and Enterprise Search.
Business intelligence. We design, develop and implement business intelligence solutions that allow companies to
interpret and act upon accurate, timely and integrated information. By classifying, aggregating and correlating data
into meaningful business information, business intelligence solutions help our clients make more informed
business decisions. Our business intelligence solutions allow our clients to transform data into knowledge for
quick and effective decision making and can include information strategy, data warehousing and business analytics
and reporting.
Business integration. We design, develop and implement business integration solutions that allow our clients to
integrate all of their business processes end-to-end and across the enterprise. Truly innovative companies are
extending those processes, and eliminating functional friction, between the enterprise and core customers and
partners. Our business integration solutions can extend and extract core applications, reduce infrastructure strains
and cost, Web-enable legacy applications, provide real-time insight into business metrics and introduce
efficiencies for customers, suppliers and partners.
Mobile technology solutions. We design, develop and implement mobile technology solutions that deliver wireless
capabilities to carriers, Mobile Virtual Network Operators (MVNO), Mobile Virtual Network Enablers (MVNE),
and the enterprise. Perficient's expertise with wireless technologies such as SIP, MMS, WAP, and GPRS are
coupled with our deep expertise in mobile content delivery. Our secure and scalable solutions can include mobile
content delivery systems; wireless value-added services including SIP, IMS, SMS, MMS and Push-to-Talk;
custom developed applications to pervasive devices including Symbian, WML, J2ME, MIDP, Linux; and
customer care solutions including provisioning, mediation, rating and billing.
Technology platform implementations. We design, develop and implement technology platform implementations
that allow our clients to establish a robust, reliable Internet-based infrastructure for integrated business
applications which extend enterprise technology assets to employees, customers, suppliers and partners. Our
Platform Services include application server selection, architecture planning, installation and configuration,
clustering for availability, performance assessment and issue remediation, security services and technology
migrations.
Source: PERFICIENT INC, 10-K, March 04, 2008
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Source: PERFICIENT INC, 10-K, March 04, 2008
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Service oriented architectures and enterprise service bus. We design, develop and implement service oriented
architecture and enterprise service bus solutions that allow our clients to quickly adapt their business processes to
respond to new market opportunities or competitive threats by taking advantage of business strategies supported
by flexible business applications and IT infrastructures.
We conceive, build and implement these solutions through a comprehensive set of services including business strategy,
user-centered design, systems architecture, custom application development, technology integration, package implementation and
managed services.
In addition to our business-driven technology solution services, we offer education and mentoring services to our clients. We
operate an IBM-certified advanced training facility in Chicago, Illinois, where we provide our clients both customized and established
curriculum of courses and other education services in areas including object-oriented analysis and design immersion, J2EE, user
experience, and an IBM Course Suite with over 20 distinct courses covering the IBM WebSphere product suite. We also leverage our
education practice and training facility to provide continuing education and professional development opportunities for our colleagues.
Our Solutions Methodology
Our approach to solutions design and delivery is user-centered, technology-based and business-driven and is:
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iterative and results oriented;
centered around a flexible and repeatable framework;
collaborative and customer-centered in that we work with not only our clients but with our clients' customers in
developing our solutions;
focused on delivering high value, measurable results; and
grounded by industry leading project management.
The eNable Methodology allows for repeatable, high quality services delivery through a unique and proven execution process
map. Our methodology is grounded in a thorough understanding of our clients' overall business strategy and competitive environment.
The eNable Methodology leverages the thought leadership of our senior strategists and practitioners and focuses on transforming our
clients' business processes, applications and technology infrastructure. The eNable Methodology focuses on business value or
return-on-investment, with specific objectives and benchmarks established at the outset.
Our Strategy
Our goal is to be the premier technology management consulting firm primarily focused on the United States. To achieve our
goal, our strategy is:
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Grow Relationships with Existing and New Clients. We intend to continue to solidify and expand enduring
relationships with our existing clients and to develop long-term relationships with new clients by providing them
with solutions that generate a demonstrable, positive return-on-investment. Our incentive plan rewards our project
managers to work in conjunction with our sales people to expand the nature and scope of our engagements with
existing clients.
Continue Making Disciplined Acquisitions. The information technology consulting market is a fragmented
industry and we believe there are a substantial number of smaller privately held information technology consulting
firms that can be acquired and be immediately accretive to our financial results. We have a track record of
successfully identifying, executing and integrating acquisitions that add strategic value to our business. Our
established culture and infrastructure positions us to successfully integrate each acquired company, while
continuing to offer effective solutions to our clients. Since April 2004, we have acquired and integrated 12
information technology consulting firms, four of which were acquired in 2007. We continue to actively look for
attractive acquisitions that leverage our core expertise and look to expand our capabilities and geographic
presence.
Expand Geographic Base. We believe we have built one of the leading independent information technology
consulting firms in the United States. We serve our customers from our network of 18 offices throughout North
America. In addition, we have over 500 colleagues who are part of “national” business units, who travel
extensively to serve clients primarily in the United States. Our future growth plan includes expanding our business
throughout the United States through expansion of our national travel practices, both organically and through
acquisition. We believe our network provides a competitive platform from which to expand nationally.
Source: PERFICIENT INC, 10-K, March 04, 2008
5
Source: PERFICIENT INC, 10-K, March 04, 2008
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Enhance Brand Visibility. Our focus on a core set of business-driven technology solutions, applications and
software platforms and a targeted customer and geographic market has given us significant market visibility. In
addition, we believe we have achieved critical mass in size, which has significantly enhanced our visibility among
prospective clients, employees and software vendors. As we continue to grow our business, we intend to highlight
to customers and prospective customers our thought leadership in business-driven technology solutions and
infrastructure software technology platforms.
Invest in Our People and Culture. We have developed a culture built on teamwork, a passion for technology and
client service, and a focus on cost control and the bottom line. As a people-based business, we continue to invest in
the development of our professionals and to provide them with entrepreneurial opportunities and career
development and advancement. Our technology, business consulting and project management ensure that client
team best practices are being developed across the company and our recognition program rewards teams for
implementing those practices. We believe this results in a team of motivated professionals with the ability to
deliver high-quality and high-value services for our clients.
Leverage Existing and Pursue New Strategic Alliances. We intend to continue to develop alliances that
complement our core competencies. Our alliance strategy is targeted at leading business advisory companies and
technology providers and allows us to take advantage of compelling technologies in a mutually beneficial and
cost-competitive manner. Many of these relationships, and in particular IBM, result in our partners, or their clients,
utilizing us as the services firm of choice.
Use Offshore Services When Appropriate. Our solutions and services are primarily delivered at the customer site
and require a significant degree of customer participation, interaction and specialized technology expertise, which
we can use lower cost offshore technology professionals to perform less specialized roles on our solution
engagements, enabling us to fully leverage our United States colleagues while offering our clients a highly
competitive blended average rate. We own a CMMI Level 4 certified global development center in Hangzhou,
China that is staffed with Perficient colleagues who provide offshore custom application development, quality
assurance and testing services and we maintain an arrangement with an offshore development and delivery firm in
Macedonia. In addition to our offshore capabilities, we employ a substantial number of H1-B foreign nationals in
the United States. In 2007, we acquired a recruiting facility in Chennai, India, to continue to grow our base of
H1-B foreign national colleagues.
Sales and Marketing
As of December 31, 2007, we had a 49 person direct solutions-oriented sales force. Our sales team is experienced and
connected through a common services portfolio, sales process and performance management system. Our sales process utilizes project
pursuit teams that include those of our information technology professionals best suited to address a particular prospective client's
needs. We reward our sales force for developing and maintaining relationships with our clients and seeking out follow-on
engagements as well as leveraging those relationships to forge new ones in different areas of the business and with our clients'
business partners. More than 90% of our sales are executed by our direct sales force.
Our target client base includes companies in North America with annual revenues in excess of $500 million. We believe this
market segment can generate the repeat business that is a fundamental part of our growth plan. We pursue only solutions opportunities
where our domain expertise and delivery track record give us a competitive advantage. We also typically target engagements of up to
$3 million in fees, which we believe to be below the target project range of most large systems integrators and beyond the delivery
capabilities of most local boutiques.
We have sales and marketing partnerships with software vendors including IBM Corporation, TIBCO Software, Inc.,
Microsoft Corporation, ECM Documentum, Oracle-Siebel, BEA, and webMethods, Inc. These companies are key vendors of open
standards based software commonly referred to as middleware application servers, enterprise application integration platforms,
business process management, business activity monitoring and business intelligence applications and enterprise portal server
software. Our direct sales force works in tandem with the sales and marketing groups of our partners to identify potential new clients
and projects. Our partnerships with these companies enable us to reduce our cost of sales and sales cycle times and increase win rates
by leveraging our partners' marketing efforts and endorsements. In particular, the IBM software sales channel provides us with
significant sales lead flow and joint selling opportunities.
As we continue to grow our business, we intend to highlight our thought leadership in solutions and infrastructure software
technology platforms. Our efforts will include technology white papers, by-lined articles by our colleagues in technology and trade
publications, media and industry analyst events, sponsorship of and participation in targeted industry conferences and trade shows.
Source: PERFICIENT INC, 10-K, March 04, 2008
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Clients
During the year ended December 31, 2007, we provided services to more than 470 customers. No one customer provided
more than 10% of our total revenues in 2007, 2006 or 2005.
Competition
The market for the information technology consulting services we provide is competitive and has low barriers to entry. We
believe that our competitors fall into several categories, including:
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small local consulting firms that operate in no more than one or two geographic regions;
regional consulting firms such as Brulant, MSI Systems Integrators and Prolifics;
national consulting firms, such as Answerthink, Inc., Accenture, BearingPoint, Inc., Ciber, Inc., Electronic Data
Systems Corporation and Sapient Corporation;
in-house professional services organizations of software companies; and
to a limited extent, offshore providers such as Cognizant Technology Solutions Corporation, Infosys Technologies
Limited, Satyam Computer Services Limited and Wipro Limited.
We believe that the principal competitive factors affecting our market include domain expertise, track record and customer
references, quality of proposed solutions, service quality and performance, reliability, scalability and features of the software
platforms upon which the solutions are based, and the ability to implement solutions quickly and respond on a timely basis to
customer needs. In addition, because of the relatively low barriers to entry into this market, we expect to face additional competition
from new entrants. We expect competition from offshore outsourcing and development companies to continue.
Some of our competitors have longer operating histories, larger client bases and greater name recognition and possess
significantly greater financial, technical and marketing resources than we do. As a result, these competitors may be better able to
attract customers to which we market our services and adapt more quickly to new technologies or evolving customer or industry
requirements.
Employees
As of December 31, 2007, we had 1,427 employees, 1,260 of which were billable professionals, including 185
subcontractors, and 167 of which were involved in sales, general administration and marketing. None of our employees are
represented by a collective bargaining agreement and we have never experienced a strike or similar work stoppage. We consider our
relations with our employees to be good.
Recruiting. We are dedicated to hiring, developing and retaining experienced, motivated technology professionals who
combine a depth of understanding of current Internet and legacy technologies with the ability to implement complex and cutting-edge
solutions.
Our recruiting efforts are an important element of our continuing operations and future growth. We generally target
technology professionals with extensive experience and demonstrated expertise. To attract technology professionals, we use a broad
range of sources including on-staff recruiters, outside recruiting firms, internal referrals, other technology companies and technical
associations, the Internet and advertising in technical periodicals. After initially identifying qualified candidates, we conduct an
extensive screening and interview process.
Retention. We believe that our rapid growth, focus on a core set of business-driven technology solutions, applications and
software platforms and our commitment to career development through continued training and advancement opportunities make us an
attractive career choice for experienced professionals. Because our strategic partners are established and emerging market leaders, our
technology professionals have an opportunity to work with cutting-edge information technology. We foster professional development
by training our technology professionals in the skills critical to successful consulting engagements such as implementation
methodology and project management. We believe in promoting from within whenever possible. In addition to an annual review
process that identifies near-term and longer-term career goals, we make a professional development plan available to assist our
professionals with assessing their skills and developing a detailed action plan for guiding their career development. For the year ended
December 31, 2007, our voluntary attrition rate was approximately 19%.
Source: PERFICIENT INC, 10-K, March 04, 2008
7
Training. To ensure continued development of our technical staff, we place a high priority on training. We offer extensive
training for our professionals around industry-leading technologies. We utilize our education practice and IBM-certified advanced
training facility in Chicago, Illinois to provide continuing education and professional development opportunities for our colleagues.
Additionally, most newly-hired Perficient colleagues attend Perficient 101, an orientation training course held frequently at our
operational headquarters location in St. Louis where they learn general company procedures and protocols and benefit from a
role-based curriculum.
Compensation. Our employees have a compensation model that includes a base salary and an incentive compensation
component. Our tiered incentive compensation plans help us reach our overall goals by rewarding individuals for their influence on
key performance factors. Key performance metrics include client satisfaction, revenues generated, utilization, profit and personal
skills growth.
Leadership Councils. Our technology leadership council performs a critical role in maintaining our technology leadership.
Consisting of key employees from each of our practice areas, the council frames our new strategic partner strategies and conducts
regular Internet webcasts with our technology professionals on specific partner and general technology issues and trends. The council
also coordinates thought leadership activities, including white paper authorship and publication and speaking engagements by our
professionals. Finally, the council identifies services opportunities between and among our strategic partners' products, oversees our
quality assurance programs and assists in acquisition-related technology due diligence.
Culture
The Perficient Promise. We have developed the “Perficient Promise,” which consists of the following six simple
commitments our colleagues make to each other:
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we believe in long-term client and partner relationships built on investment in innovative solutions, delivering
more value than the competition and a commitment to excellence;
we believe in growth and profitability and building meaningful scale;
we believe each of us is ultimately responsible for our own career development and has a commitment to mentor
others;
we believe that Perficient has an obligation to invest in our consultants' training and education;
we believe the best career development comes on the job; and
we love challenging new work opportunities.
We take these commitments extremely seriously because we believe that we can succeed only if the Perficient Promise is
kept.
Knowledge Management
MyPerficient.com--The Corporate Portal. To ensure easy access to a wide range of information and tools, we have created a
corporate portal, MyPerficient.com. It is a secure, centralized communications tool. It allows each of our colleagues unlimited access
to information, productivity tools, time and expense entry, benefits administration, corporate policies and forms and quality
management information directories and documentation.
Professional Services Automation Technology. We maintain a Professional Services application as the enabling technology
for many of our business processes, including knowledge management. We possess and continue to aggregate significant knowledge
including marketing collateral, solution proposals, work product and client deliverables. Primavera's technology allows us to store this
knowledge in a logical manner and provides full-text search capability allowing our colleagues to deliver solutions more efficiently
and competitively.
General Information
Our stock is traded on the Nasdaq Global Select Market, a tier of The NASDAQ Stock Market LLC, under the symbol
“PRFT.” Our website can be visited at www.perficient.com. We make available free of charge through our website our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) as soon as reasonably practicable after
we electronically file such material, or furnish it to, the Securities and Exchange Commission. The information contained or
incorporated in our website is not part of this document.
Source: PERFICIENT INC, 10-K, March 04, 2008
8
Source: PERFICIENT INC, 10-K, March 04, 2008
Item 1A. Risk Factors.
You should carefully consider the following risk factors together with the other information contained in or incorporated by
reference into this annual report before you decide to buy our common stock. If any of these risks actually occur, our business,
financial condition, operating results or cash flows could be materially and adversely affected. This could cause the trading price of
our common stock to decline and you may lose part or all of your investment.
Risks Related to Our Business
Prolonged economic weakness, particularly in the middleware, software and services market, could adversely affect our
business, financial condition and results of operations.
Our results of operations are affected by the levels of business activities of our clients, which can be affected by economic
conditions in the U.S. and globally. During periods of economic downturns, our clients may decrease their demand for information
technology services. Our business is particularly influenced by the market for middleware, software and services which has changed
rapidly and experienced volatility over the last eight years. The market for middleware and software and services expanded
dramatically during 1999 and most of 2000, but declined significantly in 2001 and 2002. Market demand for software and services
began to stabilize and improve from 2003 through the first half of 2007. As we enter 2008, it appears that the United States economy
is beginning to experience a slowdown in growth. It is clear that the slowdown will have an effect on the information technology
consulting industry in general and on demand for our services in particular, but the amount of that impact is uncertain. Our future
growth is dependent upon the demand for software and services, and, in particular, the information technology consulting services we
provide. Demand and market acceptance for services are subject to a high level of uncertainty. Prolonged weakness in the middleware,
software and services industry has caused in the past, and may cause in the future, business enterprises to delay or cancel information
technology projects, reduce their overall information technology budgets and/or reduce or cancel orders for our services. This, in turn,
may lead to longer sales cycles, delays in purchase decisions, payment and collection issues, and may also result in price pressures,
causing us to realize lower revenues and operating margins. Additionally, if our clients cancel or delay their business and technology
initiatives or choose to move these initiatives in-house, our business, financial condition and results of operations could be materially
and adversely affected.
Pursuing and completing potential acquisitions could divert management's attention and financial resources and may not
produce the desired business results.
If we pursue any acquisition, our management could spend a significant amount of time and financial resources to pursue and
integrate the acquired business with our existing business. To pay for an acquisition, we might use capital stock, cash or a combination
of both. Alternatively, we may borrow money from a bank or other lender. If we use capital stock, our stockholders will experience
dilution. If we use cash or debt financing, our financial liquidity may be reduced and the interest on any debt financing could
adversely affect our results of operations. From an accounting perspective, an acquisition that does not perform as well as originally
anticipated may involve amortization or the write-off of significant amounts of intangible assets that could adversely affect our results
of operations.
Despite the investment of these management and financial resources, and completion of due diligence with respect to these
efforts, an acquisition may not produce the anticipated revenues, earnings or business synergies for a variety of reasons, including:
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difficulties in the integration of services and personnel of the acquired business;
the failure of management and acquired services personnel to perform as expected;
the risks of entering markets in which we have no, or limited, prior experience, including offshore operations in
countries in which we have no prior experience;
the failure to identify or adequately assess any undisclosed or potential liabilities or problems of the acquired
business including legal liabilities;
the failure of the acquired business to achieve the forecasts we used to determine the purchase price; or
the potential loss of key personnel of the acquired business.
These difficulties could disrupt our ongoing business, distract our management and colleagues, increase our expenses and
materially and adversely affect our results of operations.
Source: PERFICIENT INC, 10-K, March 04, 2008
9
Source: PERFICIENT INC, 10-K, March 04, 2008
If we do not effectively manage our growth, our results of operations and cash flows could be adversely affected.
Our ability to operate profitably with positive cash flows depends partially on how effectively we manage our growth. In
order to create the additional capacity necessary to accommodate the demand for our services, we may need to implement new or
upgraded operational and financial systems, procedures and controls, open new offices and hire additional colleagues. Implementation
of these new or upgraded systems, procedures and controls may require substantial management efforts and our efforts to do so may
not be successful. The opening of new offices (including international locations) or the hiring of additional colleagues may result in
idle or underutilized capacity. We continually assess the expected capacity and utilization of our offices and professionals. We may
not be able to achieve or maintain optimal utilization of our offices and professionals. If demand for our services does not meet our
expectations, our revenues and cash flows may not be sufficient to offset these expenses and our results of operations and cash flows
could be adversely affected.
We may not be able to attract and retain information technology consulting professionals, which could affect our ability to
compete effectively.
Our business is labor intensive. Accordingly, our success depends in large part upon our ability to attract, train, retain,
motivate, manage and effectively utilize highly skilled information technology consulting professionals. There is often considerable
competition for qualified personnel in the information technology services industry. Additionally, our technology professionals are
primarily at-will employees. We also use independent subcontractors where appropriate to supplement our employee capacity. Failure
to retain highly skilled technology professionals or hire qualified independent subcontractors would impair our ability to adequately
manage staff and implement our existing projects and to bid for or obtain new projects, which in turn would adversely affect our
operating results.
Our success depends on attracting and retaining senior management and key personnel.
The information technology services industry is highly specialized and the competition for qualified management and key
personnel is intense. We believe that our success depends on retaining our senior management team and key technical and business
consulting personnel. Retention is particularly important in our business as personal relationships are a critical element of obtaining
and maintaining strong relationships with our clients. In addition, as we continue to grow our business, our need for senior
experienced management and implementation personnel increases. If a significant number of these individuals depart the Company, or
if we are unable to attract top talent, our level of management, technical, marketing and sales expertise could diminish or otherwise be
insufficient for our growth. We may be unable to achieve our revenues and operating performance objectives unless we can attract and
retain technically qualified and highly skilled sales, technical, business consulting, marketing and management personnel. These
individuals would be difficult to replace, and losing them could seriously harm our business.
We may have difficulty in identifying and competing for strategic acquisition and partnership opportunities.
Our business strategy includes the pursuit of strategic acquisitions. We may acquire or make strategic investments in
complementary businesses, technologies, services or products, or enter into strategic partnerships or alliances with third parties in the
future in order to expand our business. We may be unable to identify suitable acquisition, strategic investment or strategic partnership
candidates, or if we do identify suitable candidates, we may not complete those transactions on terms commercially favorable to us, or
at all. We have historically paid a portion of the purchase price for acquisitions with shares of our common stock. Volatility in our
stock prices, or a sustained price decline, could adversely affect our ability to attract acquisition candidates. If we fail to identify and
successfully complete these transactions, our competitive position and our growth prospects could be adversely affected. In addition,
we may face competition from other companies with significantly greater resources for acquisition candidates, making it more
difficult for us to acquire suitable companies on favorable terms.
The market for the information technology consulting services we provide is competitive, has low barriers to entry and is
becoming increasingly consolidated, which may adversely affect our market position.
The market for the information technology consulting services we provide is competitive, rapidly evolving and subject to
rapid technological change. In addition, there are relatively low barriers to entry into this market and therefore new entrants may
compete with us in the future. For example, due to the rapid changes and volatility in our market, many well-capitalized companies,
including some of our partners, that have focused on sectors of the software and services industry that are not competitive with our
business may refocus their activities and deploy their resources to be competitive with us.
An increasing amount of information technology services are being provided by lower-cost non-domestic resources. The
increased utilization of these resources for US-based projects could result in lower revenues and margins for US-based information
technology companies. Our ability to compete utilizing higher-cost domestic resources and/or our ability to procure comparably priced
off-shore resources could adversely impact our results of operations and financial condition.
Source: PERFICIENT INC, 10-K, March 04, 2008
10
Source: PERFICIENT INC, 10-K, March 04, 2008
Our future financial performance will depend, in large part, on our ability to establish and maintain an advantageous market
position. We currently compete with regional and national information technology consulting firms, and, to a limited extent, offshore
service providers and in-house information technology departments. Many of the larger regional and national information technology
consulting firms have substantially longer operating histories, more established reputations and potential partner relationships, greater
financial resources, sales and marketing organizations, market penetration and research and development capabilities, as well as
broader product offerings and greater market presence and name recognition. We may face increasing competitive pressures from
these competitors as the market for software and services continues to grow. This may place us at a disadvantage to our competitors,
which may harm our ability to grow, maintain revenues or generate net income.
In recent years, there has been substantial consolidation in our industry, and we expect that there will be significant additional
consolidation in the future. As a result of this increasing consolidation, we expect that we will increasingly compete with larger firms
that have broader product offerings and greater financial resources than we have. We believe that this competition could have a
significant negative effect on our marketing, distribution and reselling relationships, pricing of services and products and our product
development budget and capabilities. One or more of our competitors may develop and implement methodologies that result in
superior productivity and price reductions without adversely affecting their profit margins. In addition, competitors may win client
engagements by significantly discounting their services in exchange for a client’s promise to purchase other goods and services from
the competitor, either concurrently or in the future. These activities may potentially force us to lower our prices and suffer reduced
operating margins. Any of these negative effects could significantly impair our results of operations and financial condition. We may
not be able to compete successfully against new or existing competitors.
Our business will suffer if we do not keep up with rapid technological change, evolving industry standards or changing
customer requirements.
Rapidly changing technology, evolving industry standards and changing customer needs are common in the software and
services market. We expect technological developments to continue at a rapid pace in our industry. Technological developments,
evolving industry standards and changing customer needs could cause our business to be rendered obsolete or non-competitive,
especially if the market for the core set of business-driven technology solutions and software platforms in which we have expertise
does not grow or if such growth is delayed due to market acceptance, economic uncertainty or other conditions. Accordingly, our
success will depend, in part, on our ability to:
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continue to develop our technology expertise;
enhance our current services;
develop new services that meet changing customer needs;
advertise and market our services; and
influence and respond to emerging industry standards and other technological changes.
We must accomplish all of these tasks in a timely and cost-effective manner. We might not succeed in effectively doing any
of these tasks, and our failure to succeed could have a material and adverse effect on our business, financial condition or results of
operations, including materially reducing our revenues and operating results.
We may also incur substantial costs to keep up with changes surrounding the Internet. Unresolved critical issues concerning
the commercial use and government regulation of the Internet include the following:
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security;
intellectual property ownership;
privacy;
taxation; and
liability issues.
Any costs we incur because of these factors could materially and adversely affect our business, financial condition and results
of operations, including reduced net income.
Source: PERFICIENT INC, 10-K, March 04, 2008
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Source: PERFICIENT INC, 10-K, March 04, 2008
A significant portion of our revenue is dependent upon building long-term relationships with our clients and our operating
results could suffer if we fail to maintain these relationships.
Our professional services agreements with clients are in most cases terminable on 10 to 30 days' notice. A client may choose
at any time to use another consulting firm or choose to perform services we provide through their own internal resources. A sustained
decrease in a client’s business activity could cause the cancellation of projects. Accordingly, we rely on our clients' interests in
maintaining the continuity of our services rather than on contractual requirements. Termination of a relationship with a significant
client or with a group of clients that account for a significant portion of our revenues could adversely affect our revenues and results of
operations.
If we fail to meet our clients' performance expectations, our reputation may be harmed.
As a services provider, our ability to attract and retain clients depends to a large extent on our relationships with our clients
and our reputation for high quality services and integrity. We also believe that the importance of reputation and name recognition is
increasing and will continue to increase due to the number of providers of information technology services. As a result, if a client is
not satisfied with our services or does not perceive our solutions to be effective or of high quality, our reputation may be damaged and
we may be unable to attract new, or retain existing, clients and colleagues.
We may face potential liability to customers if our customers' systems fail.
Our business-driven technology solutions are often critical to the operation of our customers' businesses and provide benefits
that may be difficult to quantify. If one of our customers' systems fails, the customer could make a claim for substantial damages
against us, regardless of our responsibility for that failure. The limitations of liability set forth in our contracts may not be enforceable
in all instances and may not otherwise protect us from liability for damages. Our insurance coverage may not continue to be available
on reasonable terms or in sufficient amounts to cover one or more large claims. In addition, a given insurer might disclaim coverage as
to any future claims. In addition, due to the nature of our business, it is possible that we will be sued in the future. If we experience
one or more large claims against us that exceed available insurance coverage or result in changes in our insurance policies, including
premium increases or the imposition of large deductible or co-insurance requirements, our business and financial results could suffer.
The loss of one or more of our significant software business partners would have a material and adverse effect on our business
and results of operations.
Our business relationships with software vendors enable us to reduce our cost of sales and increase win rates through
leveraging our partners’ marketing efforts and strong vendor endorsements. The loss of one or more of these relationships and
endorsements could increase our sales and marketing costs, lead to longer sales cycles, harm our reputation and brand recognition,
reduce our revenues and adversely affect our results of operations.
In particular, a substantial portion of our solutions are built on IBM WebSphere platforms and a significant number of our
clients are identified through joint selling opportunities conducted with IBM and through sales leads obtained from our relationship
with IBM. The loss of our relationship with, or a significant reduction in the services we perform for IBM, would have a material
adverse effect on our business and results of operations.
Our quarterly operating results may be volatile and may cause our stock price to fluctuate.
Our quarterly revenues, expenses and operating results have varied in the past and are likely to vary significantly in the
future, which could lead to volatility in our stock price. In addition, many factors affecting our operating results are outside of our
control, such as:
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demand for software and services;
customer budget cycles;
changes in our customers' desire for our partners' products and our services;
pricing changes in our industry; and
government regulation and legal developments regarding the use of the Internet.
As a result, if we experience unanticipated changes in the number or nature of our projects or in our employee utilization
rates, we could experience large variations in quarterly operating results in any particular quarter.
Source: PERFICIENT INC, 10-K, March 04, 2008
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Source: PERFICIENT INC, 10-K, March 04, 2008
Our services revenues may fluctuate quarterly due to seasonality or timing of completion of projects.
We may experience seasonal fluctuations in our services revenues. We expect that services revenues in the fourth quarter of a
given year may typically be lower than in other quarters in that year as there are fewer billable days in this quarter as a result of
vacations and holidays. In addition, we generally perform services on a project basis. While we seek wherever possible to
counterbalance periodic declines in revenues on completion of large projects with new arrangements to provide services to the same
client or others, we may not be able to avoid declines in revenues when large projects are completed. Our inability to obtain sufficient
new projects to counterbalance any decreases in work upon completion of large projects could adversely affect our revenues and
results of operations.
Our software revenues may fluctuate quarterly, leading to volatility in our results of operations.
Our software revenues may fluctuate quarterly and be higher in the fourth quarter of a given year as procurement policies of
our clients may result in higher technology spending towards the end of budget cycles. This seasonal trend may materially affect our
quarter-to-quarter revenues, margins and operating results.
Our overall gross margin fluctuates quarterly based on our services and software revenues mix, impacting our results of
operations.
The gross margin on our services revenues is, in most instances, greater than the gross margin on our software revenues. As a
result, our gross margin will be higher in quarters where our services revenues, as a percentage of total revenues, has increased, and
will be lower in quarters where our software revenues, as a percentage of total revenues, has increased. In addition, gross margin on
software revenues may fluctuate as a result of variances in gross margin on individual software products. Our stock price may be
negatively affected in quarters in which our gross margin decreases.
Our services gross margins are subject to fluctuations as a result of variances in utilization rates and billing rates.
Our services gross margins are affected by trends in the utilization rate of our professionals, defined as the percentage of our
professionals' time billed to customers divided by the total available hours in a period, and in the billing rates we charge our clients.
Our operating expenses, including employee salaries, rent and administrative expenses, are relatively fixed and cannot be reduced on
short notice to compensate for unanticipated variations in the number or size of projects in process. If a project ends earlier than
scheduled, we may need to redeploy our project personnel. Any resulting non-billable time may adversely affect our gross margins.
The average billing rates for our services may decline due to rate pressures from significant customers and other market
factors, including innovations and average billing rates charged by our competitors. If there is a sustained downturn in the U.S.
economy or in the information technology services industry, rate pressure may increase. Also, our average billing rates will decline if
we acquire companies with lower average billing rates than ours. To sell our products and services at higher prices, we must continue
to develop and introduce new services and products that incorporate new technologies or high-performance features. If we experience
pricing pressures or fail to develop new services, our revenues and gross margins could decline, which could harm our business,
financial condition and results of operations.
If we fail to complete fixed-fee contracts within budget and on time, our results of operations could be adversely affected.
In 2007, approximately 13% of our projects were performed on a fixed-fee basis, rather than on a time-and-materials basis.
Under these contractual arrangements, we bear the risk of cost overruns, completion delays, wage inflation and other cost increases. If
we fail to estimate accurately the resources and time required to complete a project or fail to complete our contractual obligations
within the scheduled timeframe, our results of operations could be adversely affected. We cannot guarantee that in the future we will
not price these contracts inappropriately, which may result in losses.
We may not be able to maintain our level of profitability.
Although we have been profitable for the past four years, we may not be able to sustain or increase profitability on a
quarterly or annual basis in the future and in fact could experience decreased profitability. If we fail to meet public market analysts'
and investors' expectations, the price of our common stock will likely fall.
Our services may infringe upon the intellectual property rights of others.
We cannot be sure that our services do not infringe on the intellectual property rights of third parties, and we may have infringement
claims asserted against us. These claims may harm our reputation, cause our management to expend significant time in connection
with any defense and cost us money. We may be required to indemnify clients for any expense or liabilities they incur resulting from
claimed infringement and these expenses could exceed the amounts paid to us by the client for services we have performed. Any
claims in this area, even if won by us, can be costly, time-consuming and harmful to our reputation.
Source: PERFICIENT INC, 10-K, March 04, 2008
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Source: PERFICIENT INC, 10-K, March 04, 2008
International operations subject us to additional political and economic risks that could have an adverse impact on our
business.
In connection with our acquisition of BoldTech Systems, Inc. (“BoldTech”) in 2007, we acquired a global development
center in Hangzhou, China. In connection with our acquisition of ePairs, Inc. (“ePairs”), we acquired an 80% equity interest in ePairs
India Private Limited, which operates a technology consulting recruiting office in Chennai, India. We also have an agreement with a
third party offshore facility in Eastern Europe to provide the Company offshore resources on an exclusive basis. Because of our
limited experience with facilities outside of the United States, we are subject to certain risks related to expanding our presence into
non-U.S. regions, including risks related to complying with a wide variety of national and local laws, restrictions on the import and
export of certain technologies and multiple and possibly overlapping tax structures. In addition, we may face competition from
companies that may have more experience with operations in such countries or with international operations generally. We may also
face difficulties integrating new facilities in different countries into our existing operations, as well as integrating employees that we
hire in different countries into our existing corporate culture.
Furthermore, there are risks inherent in operating in and expanding into non-U.S. regions, including, but not limited to:
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political and economic instability;
global health conditions and potential natural disasters;
unexpected changes in regulatory requirements;
international currency controls and exchange rate fluctuations;
reduced protection for intellectual property rights in some countries; and
additional vulnerability from terrorist groups targeting American interests abroad.
Any one or more of the factors set forth above could have a material adverse effect on our international operations, and,
consequently, on our business, financial condition and operating results.
Immigration restrictions related to H-1B visas could hinder our growth and adversely affect our business, financial condition
and results of operations.
Approximately 25% of our work force is comprised of skilled foreigners holding H-1B visas. In 2007, we acquired a
recruiting facility in Chennai, India, to continue to grow our base of H-1B foreign national colleagues. The H-1B visa classification
enables us to hire qualified foreign workers in positions that require the equivalent of at least a bachelor’s degree in the U.S. in a
specialty occupation such as technology systems engineering and analysis. The H-1B visa generally permits an individual to work and
live in the U.S. for a period of three to six years, with some extensions available. The number of new H-1B petitions approved in any
federal fiscal year is limited, making the H-1B visas necessary to bring foreign employees to the U.S. unobtainable in years in which
the limit is reached. If we are unable to obtain all of the H-1B visas for which we apply, our growth may be hindered.
There are strict labor regulations associated with the H-1B visa classification and users of the H-1B visa program are subject
to investigations by the Wage and Hour Division of the United States Department of Labor. If we are investigated, a finding by the
United States Department of Labor of willful or substantial failure by us to comply with existing regulations on the H-1B
classification could result in back-pay liability, substantial fines, or a ban on future use of the H-1B program and other immigration
benefits, any of which could materially and adversely affect our business, financial condition and results of operations.
We have recorded deferred offering costs in connection with a shelf registration statement, and our inability to offset these
costs against the proceeds of future offerings from our shelf registration statement could result in a non-cash expense in our
Statement of Income in a future period.
We initially filed a registration statement with the Securities and Exchange Commission in March 2005 to register the offer
and sale by the Company and certain selling stockholders of shares of our common stock. Due to overall market conditions in 2006,
we converted our registration statement into a shelf registration statement to allow for offers and sales of common stock from time to
time as market conditions permit. As of December 31, 2007, we have recorded approximately $943,000 of deferred offering costs
(approximately $579,000 after tax, if ever expensed) in connection with the offering and have classified these costs as prepaid
expenses in other non-current assets on our balance sheet.
If we sell shares of common stock from our shelf registration statement, we will offset these accumulated deferred offering
costs against the proceeds of the offering. If we do not raise funds through an equity offering from the shelf registration statement or
fail to maintain the effectiveness of the shelf registration statement, the currently capitalized deferred offering costs will be expensed.
Such expense would be a non-cash accounting charge as all of these expenses have already been paid.
Source: PERFICIENT INC, 10-K, March 04, 2008
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Source: PERFICIENT INC, 10-K, March 04, 2008
Risks Related to Ownership of Our Common Stock
Our stock price has been volatile and may continue to fluctuate widely.
Our common stock is traded on the Nasdaq Global Select Market, a tier of The NASDAQ Stock Market LLC, under the
symbol “PRFT.” Our common stock price has been volatile. Our stock price may continue to fluctuate widely as a result of
announcements of new services and products by us or our competitors, quarterly variations in operating results, the gain or loss of
significant customers, changes in public market analysts' estimates and market conditions for information technology consulting firms
and other technology stocks in general.
We periodically review and consider possible acquisitions of companies that we believe will contribute to our long-term
objectives. In addition, depending on market conditions, liquidity requirements and other factors, from time to time we consider
accessing the capital markets. These events may also affect the market price of our common stock.
Our officers, directors, and 5% and greater stockholders own a large percentage of our voting securities and their interests
may differ from other stockholders.
Our executive officers, directors and 5% and greater stockholders beneficially own or control approximately 18% of the
voting power of our common stock. This concentration of voting power of our common stock may make it difficult for our other
stockholders to successfully approve or defeat matters that may be submitted for action by our stockholders. It may also have the
effect of delaying, deterring or preventing a change in control of our company.
We may need additional capital in the future, which may not be available to us. The raising of any additional capital may
dilute your ownership percentage in our stock.
We intend to continue to make investments to support our business growth and may require additional funds to pursue
business opportunities and respond to business challenges. Accordingly, we may need to engage in equity or debt financings to secure
additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing
stockholders could suffer dilution, and any new equity securities we issue could have rights, preferences and privileges superior to
those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to
our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional
capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional
financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us,
when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly
limited.
It may be difficult for another company to acquire us, and this could depress our stock price.
In addition to the large percentage of our voting securities held by our officers, directors and 5% and greater stockholders,
provisions contained in our certificate of incorporation, bylaws and Delaware law could make it difficult for a third party to acquire
us, even if doing so would be beneficial to our stockholders. Our certificate of incorporation and bylaws may discourage, delay or
prevent a merger or acquisition that a stockholder may consider favorable by authorizing the issuance of “blank check” preferred
stock. In addition, provisions of the Delaware General Corporation Law also restrict some business combinations with interested
stockholders. These provisions are intended to encourage potential acquirers to negotiate with us and allow the board of directors the
opportunity to consider alternative proposals in the interest of maximizing stockholder value. However, these provisions may also
discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price.
Unresolved Staff Comments.
Item
1B.
None.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this annual report that are not purely historical statements discuss future expectations,
contain projections of results of operations or financial condition or state other forward-looking information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those
contemplated by the statements. The “forward-looking” information is based on various factors and was derived using numerous
assumptions. In some cases, you can identify these so-called forward-looking statements by words like “may,” “will,” “should,”
“expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of those words and
other comparable words. You should be aware that those statements only reflect our predictions. Actual events or results may differ
substantially. Important factors that could cause our actual results to be materially different from the forward-looking statements are
disclosed under the heading “Risk Factors” in this annual report.
Source: PERFICIENT INC, 10-K, March 04, 2008
15
Source: PERFICIENT INC, 10-K, March 04, 2008
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements
after the date of this annual report to conform such statements to actual results.
All forward-looking statements, express or implied, included in this report and the documents we incorporate by reference
and attributable to Perficient are expressly qualified in their entirety by this cautionary statement. This cautionary statement should
also be considered in connection with any subsequent written or oral forward-looking statements that Perficient or any persons acting
on our behalf may issue.
Item 2. Properties.
Our principal executive, administrative, finance and marketing operations are located in St. Louis, Missouri, where we have
leased approximately 20,594 square feet of office space, and Austin, TX, where we have leased approximately 2,700 square feet of
office space. We lease 18 offices in major cities across North America and China. We do not own any real property. We believe our
facilities are adequate to meet our needs in the near future.
Item 3.Legal Proceedings.
Although we may become a party to litigation and claims arising in the course of our business, management currently does
not believe the results of these actions will have a material adverse effect on our business or financial condition.
Item 4.Submission of Matters to a Vote of Security Holders.
No matters were submitted to a shareholder vote during the quarter ended December 31, 2007.
16
Source: PERFICIENT INC, 10-K, March 04, 2008
PART II
Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is quoted on the Nasdaq Global Select Market, a tier of The NASDAQ Stock Market LLC, under the
symbol “PRFT.” The following table sets forth, for the periods indicated, the high and low sale prices per share of our common stock
as reported on the Nasdaq Global Select Market, a tier of The NASDAQ Stock Market LLC, since January 1, 2006.
Year Ending December 31, 2007:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ending December 31, 2006:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$
$
$
$
21.50
23.03
24.61
24.19
12.01
14.29
15.68
19.16
16.31
18.62
19.35
15.09
8.76
11.52
11.55
15.31
On February 27, 2008, the last reported sale price of our common stock on the Nasdaq Global Select Market, a tier of The
NASDAQ Stock Market LLC, was $8.44 per share. There were approximately 190 stockholders of record of our common stock as of
February 27, 2008.
We have never declared or paid any cash dividends on our common stock and do not anticipate paying cash dividends in the
foreseeable future. Our credit facility currently prohibits the payment of cash dividends without the prior written consent of the
lenders.
Information on our Equity Compensation Plan has been included at Part III, Item 12, of the consolidated financial statements.
17
Source: PERFICIENT INC, 10-K, March 04, 2008
Item 6.Selected Financial Data.
The selected financial data presented for, and as of the end of, each of the years in the five-year period ended December 31,
2007, has been prepared in accordance with United States generally accepted accounting principles. All amounts shown are in
thousands. The financial data presented is not directly comparable between periods as a result of the adoption of Statement of
Financial Accounting Standards No. 123R (As Amended), Share Based Payment (“SFAS 123R”) in 2006, and four acquisitions in
2007, three acquisitions in 2006, two acquisitions in 2005, and three acquisitions in 2004.
The following data should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated
Financial Statements appearing in Part II, Item 8, and Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing in Part II, Item 7.
2007
Year Ended December 31,
2005
2006
2004
2003
$
58,848
$
18,820
$
11,068
$
1,209
$
6,543
(134) $
$
32
$
6,441
$
3,913
30,192
11,375
7,993
1,281
2,102
(283)
(13)
1,805
1,050
2004
2003
3,905
9,234
806
37,340
62,582
1,379
2,902
44,622
$
$
$
$
$
$
$
$
1,989
4,013
699
11,694
20,260
367
436
16,016
Income Statement Data:
Revenues
Gross margin
Selling, general and administrative
Depreciation and intangibles amortization
Income from operations
Interest income (expense)
Other income (expense)
Income before income taxes
Net income
$
$
$
$
$
$
$
$
$
218,148
75,690
41,963
6,265
27,462
172
20
27,654
16,230
$
$
$
$
$
$
$
$
$
(In thousands)
96,997
32,418
17,917
2,226
12,275
$
$
$
$
$
(643) $
$
43
$
11,675
$
7,177
160,926
53,756
32,268
4,406
17,082
$
$
$
$
$
(407) $
$
174
$
16,849
$
9,567
2007
2006
As of December 31,
2005
(In thousands)
5,096
$
17,078
$
960
$
52,031
$
84,935
$
1,581
$
5,338
$
65,911
$
$
$
$
$
$
$
$
$
4,549
24,859
1,806
81,056
131,000
1,201
137
107,352
Balance Sheet Data:
Cash and cash equivalents
Working capital
Property and equipment, net
Goodwill and intangible assets, net
Total assets
Current portion of long term debt and line of credit
Long-term debt and line of credit, less current portion
Total stockholders' equity
$
$
$
$
$
$
$
$
8,070
41,368
3,226
121,339
189,992
--
--
165,562
$
$
$
$
$
$
$
$
18
Source: PERFICIENT INC, 10-K, March 04, 2008
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item
7.
You should read the following summary together with the more detailed business information and consolidated financial
statements and related notes that appear elsewhere in this annual report and in the documents that we incorporate by reference into
this annual report. This annual report may contain certain “forward-looking” information within the meaning of the Private
Securities Litigation Reform Act of 1995. This information involves risks and uncertainties. Our actual results may differ materially
from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited
to, those discussed in “Risk Factors.”
Overview
We are an information technology consulting firm serving Forbes Global 2000 (“Global 2000”) and large enterprise
companies primarily in the United States. We help clients gain competitive advantage by using Internet-based technologies to make
their businesses more responsive to market opportunities and threats, strengthen relationships with customers, suppliers and partners,
improve productivity and reduce information technology costs. Our solutions enable these benefits by integrating, automating and
extending business processes, technology infrastructure and software applications end-to-end within an organization and with key
partners, suppliers and customers. This provides real-time access to critical business applications and information and a scalable,
reliable, secure and cost-effective technology infrastructure.
Services Revenues
Services revenues are derived from professional services performed developing, implementing, integrating, automating and
extending business processes, technology infrastructure and software applications. Most of our projects are performed on a time and
materials basis, and a smaller amount of revenues is derived from projects performed on a fixed fee basis. Fixed fee engagements
represented approximately 13% of our services revenues for the year ended December 31, 2007. For time and material projects,
revenues are recognized and billed by multiplying the number of hours our professionals expend in the performance of the project by
the established billing rates. For fixed fee projects, revenues are generally recognized using the proportionate performance method.
Revenues on uncompleted projects are recognized on a contract-by-contract basis in the period in which the portion of the fixed fee is
complete. Amounts invoiced to clients in excess of revenues recognized are classified as deferred revenues. The Company’s average
bill rates increased slightly from $109 per hour in 2006 to $114 per hour in 2007. The Company is anticipating modest increases in
billing rates in 2008. On most projects, we are also reimbursed for out-of-pocket expenses such as airfare, lodging and meals. These
reimbursements are included as a component of revenues. The aggregate amount of reimbursed expenses will fluctuate depending on
the location of our customers, the total number of our projects that require travel, and whether our arrangements with our clients
provide for the reimbursement of travel and other project related expenses.
Software Revenues
Software revenues are derived from sales of third-party software. Revenues from sales of third-party software are recorded on
a gross basis provided we act as a principal in the transaction. In the event we do not meet the requirements to be considered a
principal in the software sale transaction and act as an agent, the revenues are recorded on a net basis. Software revenues are expected
to fluctuate from quarter-to-quarter depending on our customers' demand for software products.
If we enter into contracts for the sale of services and software, Company management evaluates whether the services are
essential to the functionality of the software and whether the Company has objective fair value evidence for each deliverable in the
transaction. If management concludes the services to be provided are not essential to the functionality of the software and can
determine objective fair value evidence for each deliverable of the transaction, then we account for each deliverable in the transaction
separately, based on the relevant revenue recognition policies. Generally, all deliverables of our multiple element arrangements meet
these criteria.
Cost of revenues
Cost of revenues consists primarily of cash and non-cash compensation and benefits associated with our technology
professionals and subcontractors. Non-cash compensation includes stock compensation expenses arising from restricted stock and
option grants to employees. Cost of revenues also includes third-party software costs, reimbursable expenses and other unreimbursed
project related expenses. Project related expenses will fluctuate generally depending on outside factors including the cost and
frequency of travel and the location of our customers. Cost of revenues does not include depreciation of assets used in the production
of revenues which are primarily personal computers, servers and other IT related equipment.
Source: PERFICIENT INC, 10-K, March 04, 2008
19
Gross Margins
Our gross margins for services are affected by the utilization rates of our professionals, defined as the percentage of our
professionals' time billed to customers divided by the total available hours in the respective period, the salaries we pay our consulting
professionals and the average billing rate we receive from our customers. If a project ends earlier than scheduled or we retain
professionals in advance of receiving project assignments, or if demand for our services declines, our utilization rate will decline and
adversely affect our gross margins. Subject to fluctuations resulting from our acquisitions, we expect these key metrics of our services
business to remain relatively constant for the foreseeable future assuming there are no further declines in the demand for information
technology software and services. Gross margin percentages of third party software sales are typically lower than gross margin
percentages for services, and the mix of services and software for a particular period can significantly impact total combined gross
margin percentage for such period. In addition, gross margin for software sales can fluctuate due to pricing and other competitive
pressures.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) consist of salaries, benefits, bonuses, non-cash compensation, office
costs, recruiting, professional fees, sales and marketing activities, training, and other miscellaneous expenses. Non-cash compensation
includes stock compensation expenses related to restricted stock and option grants to employees and non-employee directors. We
work to minimize selling costs by focusing on repeat business with existing customers and by accessing sales leads generated by our
software business partners, most notably IBM, whose products we use to design and implement solutions for our clients. These
partnerships enable us to reduce our selling costs and sales cycle times and increase win rates through leveraging our partners'
marketing efforts and endorsements. A substantial portion of our SG&A costs are relatively fixed.
Plans for Growth and Acquisitions
Our goal is to continue to build one of the leading independent information technology consulting firms in North America by
expanding our relationships with existing and new clients, leveraging our operations to expand nationally and continuing to make
disciplined acquisitions. We believe the United States represents an attractive market for growth, primarily through acquisitions. As
demand for our services grows, we believe we will attempt to increase the number of professionals in our 18 North American offices
and to add new offices throughout the United States, both organically and through acquisitions. We also intend to continue to leverage
our existing ‘offshore’ capabilities to support our growth and provide our clients flexible options for project delivery. In addition, we
believe our track record for identifying acquisitions and our ability to integrate acquired businesses helps us complete acquisitions
efficiently and productively, while continuing to offer quality services to our clients, including new clients resulting from the
acquisitions.
Consistent with our strategy of growth through disciplined acquisitions, we consummated nine acquisitions since January 1,
2005, including four in 2007.
Results of Operations
The following table summarizes our results of operations as a percentage of total revenues:
Revenues:
Services revenues
Software revenues
Reimbursable expenses
Total revenues
Cost of revenues (exclusive of depreciation and amortization, shown separately
2007
2006
2005
87.8%
6.5
5.7
100.0
85.6%
9.0
5.4
100.0
86.3%
9.7
4.0
100.0
below):
Project personnel costs
Software costs
Reimbursable expenses
Other project related expenses
Total cost of revenues
Services gross margin
Software gross margin
Total gross margin
Selling, general and administrative
Depreciation and amortization
Income from operations
Interest income (expense), net
Income before income taxes
Provision for income taxes
Net income
Source: PERFICIENT INC, 10-K, March 04, 2008
52.6
5.5
5.7
1.5
65.3
38.4
15.9
34.7
19.2
2.9
12.6
0.1
12.7
5.2
7.5%
52.3
7.5
5.4
1.3
66.5
37.4
16.1
33.5
20.1
2.7
10.6
(0.2)
10.5
4.5
6.0%
52.7
8.0
4.0
1.9
66.6
36.7
17.8
33.4
18.5
2.3
12.6
(0.7)
11.9
4.6
7.3%
20
Source: PERFICIENT INC, 10-K, March 04, 2008
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Revenues. Total revenues increased 36% to $218.1 million for the year ended December 31, 2007 from $160.9 million for the
year ended December 31, 2006.
For the Year
Ended
December 31,
2007
Financial Results
(in thousands)
For the Year
Ended
December
31, 2006
137,722
14,435
8,769
160,926
$
$
$
Total
Increase
Over Prior
Year Period
$
53,673 $
(192)
3,741
57,222 $
Explanation for Increases Over Prior Year Period
(in thousands)
Increase
Attributable to
Base
Increase
Attributable to
Acquired
% Increase in
Total Revenue
Attributable to
Base Business
Companies*
Business**
43,437
1,570
2,578
47,585
$
$
10,236
(1,762)
1,163
9,637
19%
921%
31%
17%
Services Revenues
Software Revenues
Reimbursable Expenses
Total Revenues
$
$
191,395
14,243
12,510
218,148
*Defined as companies acquired during 2006 and 2007.
**Defined as businesses owned as of January 1, 2006.
Services revenues increased 39% to $191.4 million for the year ended December 31, 2007 from $137.7 million for the year ended
December 31, 2006. Base business accounted for 19% of the increase in services revenues for the year ended December 31, 2007
compared to the year ended December 31, 2006. The remaining 81% of the increase is attributable to revenues generated from the
companies acquired during 2006 and 2007.
Software revenues decreased 1% to $14.2 million in 2007 from $14.4 million in 2006. Software revenues attributable to our
base business decreased $1.8 million while software revenues attributable to acquired companies increased $1.6 million, resulting in a
net decrease of $192,000. Reimbursable expenses increased 43% to $12.5 million in 2007 from $8.8 million in 2006 due to
acquisitions and an increased number of projects requiring consultant travel. We do not realize any profit on reimbursable expenses.
Cost of revenues. Cost of revenues increased 33% to $142.5 million for the year ended December 31, 2007 from $107.2
million for the year ended December 31, 2006. Base business accounted for 14% of the $35.3 million increase in cost of revenues for
the year ended December 31, 2007 compared to the year ended December 31, 2006. The remaining increase in cost of revenues is
attributable to the acquired companies. The average number of professionals performing services, including subcontractors, increased
to 1,026 for the year ended December 31, 2007 from 686 for the year ended December 31, 2006.
Costs associated with software sales decreased 1% to $12.0 million for year ended December 31, 2007 from $12.1 million for
the year ended December 31, 2006 due to an increase in sales of our higher margin internally developed software. Costs associated
with software sales attributable to our base business decreased $1.4 million, while costs associated with software sales attributable to
acquired companies increased $1.3 million, resulting in a net decrease of $135,000.
Gross Margin. Gross margin increased 41% to $75.7 million for the year ended December 31, 2007 from $53.8 million for
the year ended December 31, 2006. Gross margin as a percentage of revenues increased to 34.7% for the year ended December 31,
2007 from 33.4% for the year ended December 31, 2006 due primarily to an increase in services gross margin offset by a slight
decrease in margin from software. Services gross margin, excluding reimbursable expenses, increased to 38.4% in 2007 from 37.4%
in 2006 primarily due to lower bonus as a percent of revenues and lower direct labor cost as a percent of revenues driven by improved
billing rates. The average utilization rate of our professionals, excluding subcontractors, decreased slightly to 81% for the year ended
December 31, 2007 from 83% for the year ended December 31, 2006. Average billing rates were $114 for 2007 and $109 for 2006.
Software gross margin decreased to 15.9% in 2007 from 16.1% in 2006 primarily as a result of fluctuations in vendor and competitive
pricing based on market conditions at the time of the sales.
21
Source: PERFICIENT INC, 10-K, March 04, 2008
Selling, General and Administrative. Selling, general and administrative expenses increased 30% to $42.0 million for the
year ended December 31, 2007 from $32.3 million for the year ended December 31, 2006 due primarily to fluctuations in expenses as
detailed in the following table:
Selling, General, and Administrative Expense
Sales related costs
Stock compensation expense
Salary expense
Bad debts
Office and technology-related costs
Recruiting and training-related costs
Other
Bonus expense
Net increase
Increase /
(Decrease)
(in millions)
$
$
3.4
2.5
1.9
0.8
1.6
0.8
0.5
(1.8)
9.7
Selling, general and administrative expenses as a percentage of revenues decreased to 19% for the year ended December 31,
2007 from 20% for the year ended December 31, 2006, primarily driven by lower bonus costs as a percent of revenue and the
Company leveraging its infrastructure. Bonus costs, as a percentage of service revenues, excluding reimbursable expenses, decreased
to 1.6% for the year ended December 31, 2007 compared to 3.5% for the year ended December 31, 2006 due to increasingly
challenging growth and profitability targets in 2007. Stock compensation expense, as a percentage of services revenues, excluding
reimbursed expenses, increased to 2.4% for the year ended December 31, 2007 compared to 1.6% for the year ended December 31,
2006.
Depreciation. Depreciation expense increased 64% to $1.6 million during 2007 from approximately $0.9 million during
2006. The increase in depreciation expense is due to the addition of software programs, servers, and other computer equipment to
enhance our technology infrastructure and support our growth, both organic and acquisition-related. Depreciation expense as a
percentage of services revenue, excluding reimbursable expenses, was 0.8% and 0.7% for the years ended December 31, 2007 and
2006, respectively.
Intangible Amortization. Intangible amortization expense increased 36% to $4.7 million for the year ended December 31,
2007 from approximately $3.5 million for the year ended December 31, 2006. The increase in amortization expense reflects the
acquisition of intangibles acquired in 2006 and 2007, as well as the amortization of capitalized costs associated with internal use
software. The valuations and estimated useful lives of acquired identifiable intangible assets are outlined in Note 13, Business
Combinations, of our consolidated financial statements.
Net Interest Income or Expense. We had interest income, net of interest expense, of $172,000 for the year ended December
31, 2007 compared to interest expense, net of interest income, of $407,000 during the year ended December 31, 2006. We repaid all
outstanding debt in May 2007 and incurred no debt or interest expense during the rest of the fiscal year.
Provision for Income Taxes. We provided for federal, state and foreign income taxes at the applicable statutory rates adjusted
for non-deductible expenses. Our effective tax rate decreased to 41.3% for the year ended December 31, 2007 from 43.2% for the year
ended December 31, 2006. The effective income tax rate decreased as a result of the increased tax benefit of certain dispositions of
incentive stock options by holders and a decrease in the state income taxes, net of the federal benefit.
22
Source: PERFICIENT INC, 10-K, March 04, 2008
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Revenues. Total revenues increased 66% to $160.9 million for the year ended December 31, 2006 from $97.0 million for the
year ended December 31, 2005.
Financial Results
(in thousands)
For the Year
Ended
December
31, 2005
For the Year
Ended
December 31,
2006
Services Revenues
Software Revenues
Reimbursable Expenses
Total Revenues
$
$
137,722
14,435
8,769
160,926
$
$
83,740
9,387
3,870
96,997
*Defined as companies acquired during 2005 and 2006.
**Defined as businesses owned as of January 1, 2005.
$
Total
Increase
Over Prior
Year Period
$
Explanation for Increases Over Prior Year Period
(in thousands)
Increase
Attributable to
Base
Increase
Attributable to
Acquired
% Increase in
Total Revenue
Attributable to
Base Business
53,982 $
5,048
4,899
63,929 $
Companies*
38,715 $
1,201
2,735
42,651 $
Business**
15,267
3,847
2,164
21,278
28%
76%
44%
33%
Services revenues increased 65% to $137.7 million for the year ended December 31, 2006 from $83.7 million for the year
ended December 31, 2005. Base business accounted for 28% of the increase in services revenues for the year ended December 31,
2006 compared to the year ended December 31, 2005. The remaining 72% of the increase is attributable to revenues generated from
the companies acquired during 2005 and 2006.
Software revenues increased 54% to $14.4 million in 2006 from $9.4 million in 2005. Base business accounted for 76% of
the increase in software revenues for the year ended December 31, 2006 compared to the year ended December 31, 2005. The
remaining 24% of the increase is attributable to revenues generated from the companies acquired during 2005 and 2006. Reimbursable
expenses increased 127% to $8.8 million in 2006 from $3.9 million in 2005 due to acquisitions and an increased number of projects
requiring consultant travel. We do not realize any profit on reimbursable expenses.
Cost of revenues. Cost of revenues increased 66% to $107.2 million for the year ended December 31, 2006 from $64.6
million for the year ended December 31, 2005. Base business accounted for 40% of the $42.6 million increase in cost of revenues for
the year ended December 31, 2006 compared to the year ended December 31, 2005. The remaining increase in cost of revenues is
attributable to the acquired companies. The average number of professionals performing services, including subcontractors, increased
to 686 for the year ended December 31, 2006 from 431 for the year ended December 31, 2005. Stock compensation expense included
in cost of revenues for the year ended December 31, 2006 was nearly $1 million. No stock compensation expense was recognized in
cost of revenues prior to January 1, 2006. The increase in stock compensation expense is the result of our adoption of Statement of
Financial Accounting Standards No. 123 (revised) (“SFAS 123R”), Share Based Payment, on January 1, 2006.
Costs associated with software sales increased 57% to $12.1 million for year ended December 31, 2006 from $7.7 million for
the year ended December 31, 2005 in connection with the increased software revenues in 2006 compared to 2005. Base business
accounted for 76% of the $4.4 million increase in costs associated with software sales for the year ended December 31, 2006
compared to the year ended December 31, 2005. The remaining 24% increase in costs associated with software sales is attributable to
acquired companies.
Gross Margin. Gross margin increased 66% to $53.8 million for the year ended December 31, 2006 from $32.4 million for
the year ended December 31, 2005. Gross margin as a percentage of revenues remained consistent at 33.4% for the years ended
December 31, 2006 and 2005. Services gross margin, excluding reimbursable expenses, increased to 37.4% in 2006 from 36.7% in
2005 primarily due to an increase in average billing rates and improved project pricing. This increase is partially offset by $1.0
million of stock compensation expense recognized in cost of revenues during the year ended December 31, 2006, as discussed
above. The average utilization rate of our professionals, excluding subcontractors, remained consistent at 83% for the years ended
December 31, 2006 and 2005. Average billing rates were $109 for 2006 and $110 for 2005. Software gross margin decreased to
16.1% in 2006 from 17.7% in 2005, primarily as a result of fluctuations in vendor and competitive pricing based on market conditions
at the time of the sales.
23
Source: PERFICIENT INC, 10-K, March 04, 2008
Selling, General and Administrative. Selling, general and administrative expenses increased 80% to $32.3 million for the
year ended December 31, 2006 from $17.9 million for the year ended December 31, 2005 due primarily to fluctuations in expenses as
detailed in the following table:
Selling, General, and Administrative Expense
Bonus expense
Sales related costs
Salary expense
Stock compensation expense
Recruiting and training-related costs
Office and technology-related costs
Other
Bad debts
Net increase
Increase
/(Decrease)
(in millions)
$
$
3.5
3.2
1.9
1.9
1.4
1.2
0.9
0.4
14.4
Selling, general and administrative expenses as a percentage of revenues increased to 20% for the year ended December 31,
2006 from 19% for the year ended December 31, 2005, primarily due to higher bonus and recruiting, partially offset by lower office
costs, salaries, and professional fees. Bonus costs, as a percentage of service revenues, excluding reimbursable expenses, increased to
3.5% for the year ended December 31, 2006 compared to 1.6% for the year ended December 31, 2005 due to strong operating
performance. Stock compensation expense, as a percentage of services revenues, excluding reimbursed expenses, increased to 1.6%
for the year ended December 31, 2006 compared to 0.3% for the year ended December 31, 2005.
Depreciation. Depreciation expense increased 54% to $948,000 during 2006 from approximately $615,000 during 2005. The
increase in depreciation expense is due to the addition of software programs, servers, and other computer equipment to enhance our
technology infrastructure and support our growth, both organic and acquisition-related. Depreciation expense as a percentage of
services revenue, excluding reimbursable expenses, was 0.6% for the years ended December 31, 2006 and 2005.
Intangible Amortization. Intangible amortization expense increased 115% to $3.5 million for the year ended December 31,
2006 from approximately $1.6 million for the year ended December 31, 2005. The increase in amortization expense reflects the
acquisition of intangibles acquired in 2005 and 2006.
Interest Expense. Interest expense decreased 23% to $509,000 for the year ended December 31, 2006 compared to
approximately $658,000 during the year ended December 31, 2005. This decrease is primarily due to a lower average amount of debt
outstanding during 2006 compared to 2005. As of December 31, 2006, there was approximately $1.3 million outstanding on the
acquisition line of credit and no amounts outstanding on the accounts receivable line of credit. Our outstanding borrowings on the
acquisition line of credit had an average interest rate of 7.0% for the year ended December 31, 2006 while the average interest rate on
our accounts receivable line of credit borrowings for the year ended December 31, 2006 was 7.96%. During 2006, we drew down
$34.9 million on the accounts receivable line of credit and repaid $38.9 million.
Provision for Income Taxes. We provided for federal, state and foreign income taxes at the applicable statutory rates adjusted
for non-deductible expenses. Our effective tax rate increased to 43.2% for the year ended December 31, 2006 from 38.5% for the year
ended December 31, 2005 as a result of non-deductible stock compensation related to incentive stock options included in our
statement of operations in 2006 as a result of the adoption of SFAS 123R on January 1, 2006 and certain non-deductible compensation
related to Section 162(m) of the Internal Revenue Code, which imposes a limitation on the deductibility of certain compensation in
excess of $1 million paid to covered employees.
Liquidity and Capital Resources
Selected measures of liquidity and capital resources are as follows (in millions):
Cash and cash equivalents
Working capital
Amounts available under credit facilities
Source: PERFICIENT INC, 10-K, March 04, 2008
24
As of December 31,
2006
2007
$
$
$
8.1
41.4
49.8
$
$
$
4.5
24.9
49.5
Net Cash Provided By Operating Activities
We expect to fund our operations from cash generated from operations and short-term borrowings as necessary from our
credit facilities. We believe that these capital resources will be sufficient to meet our needs for at least the next twelve months. Net
cash provided by operations for the year ended December 31, 2007 was $23.1 million compared to $13.1 million for the year ended
December 31, 2006. For the year ended December 31, 2007, net income of $16.2 million plus non-cash charges of $12.0 million were
offset by investments in working capital of $5.1 million. The primary components of operating cash flows for the year ended
December 31, 2006 were net income of $9.6 million plus non-cash expenses of $8.9 million offset by investments in working capital
of $5.4 million. The Company’s days sales outstanding as of December 31, 2007 increased to 73 days from 70 days at December 31,
2006.
Net Cash Used in Investing Activities
For the year ended December 31, 2007, we used approximately $26.8 million in cash, net of cash acquired, to acquire E
Tech, Tier1, BoldTech, and ePairs. In addition, we used approximately $2.2 million during 2007 to purchase equipment and develop
certain software. For the year ended December 31, 2006, we used approximately $17.2 million in cash, net of cash acquired, to acquire
Bay Street, Insolexen, and EGG. In addition, during 2006 we used approximately $1.7 million to purchase equipment and develop
certain software, and $250,000 to repay the promissory notes related to the Javelin acquisition.
Net Cash Provided By Financing Activities
During the year ended December 31, 2007 our financing activities consisted of $1.3 million of payments on long-term debt.
Also, we received $3.9 million primarily from proceeds related to exercises of stock options and purchases under our Employee Stock
Purchase Plan and we realized tax benefits related to stock option exercises and restricted stock vesting of $6.9 million during 2007.
During the year ended December 31, 2006 our financing activities consisted of net payments totaling $4.0 million on our accounts
receivable line of credit and $1.3 million of payments on long-term debt. We received $4.2 million primarily from proceeds related to
exercises of stock options and warrants, and purchases under our Employee Stock Purchase Plan, and we realized tax benefits related
to stock option exercises of $6.6 million during 2006.
Availability of Funds from Bank Line of Credit Facilities
We have a $50 million credit facility with Silicon Valley Bank and Key Bank National Association (“Key Bank”)
comprising a $25 million accounts receivable line of credit and a $25 million acquisition line of credit. Borrowings under the accounts
receivable line of credit bear interest at the bank's prime rate (7.25% on December 31, 2007). As of December 31, 2007, there was no
outstanding balance under the accounts receivable line of credit and $24.8 million of available borrowing capacity due to an
outstanding letter of credit to secure an office lease. Additionally, the line of credit bears an annual commitment fee of 0.12% on the
unused portion of the line of credit.
Our $25 million term acquisition line of credit with Silicon Valley Bank and Key Bank provides an additional source of
financing for certain qualified acquisitions. As of December 31, 2007, there was no balance outstanding under this acquisition line of
credit. Borrowings under this acquisition line of credit bear interest equal to the four year U.S. Treasury note yield plus 3% based on
the spot rate on the day the draw is processed (6.29% on December 31, 2007). Draws under this acquisition line may be made through
June 2008. We currently have $25 million of available borrowing capacity under this acquisition line of credit. Additionally, the line
of credit bears an annual commitment fee of 0.12% on the unused portion of the line of credit.
As of December 31, 2007, we were in compliance with all covenants under our credit facility and we expect to be
in compliance during the next twelve months. Substantially all of our assets are pledged to secure the credit facility.
Lease Obligations
There were no material changes outside the ordinary course of our business in lease obligations or other contractual
obligations in 2007. We believe that the current available funds, access to capital from our credit facilities, possible capital from
registered placements of equity through the shelf registration, and cash flows generated from operations will be sufficient to meet our
working capital requirements and meet our capital needs to finance acquisitions for the next twelve months.
Shelf Registration Statement
We have filed a shelf registration statement with the Securities and Exchange Commission to allow for offers and sales of our
common stock from time to time. Approximately 5 million shares of common stock may be sold under this registration statement if we
choose to do so.
Source: PERFICIENT INC, 10-K, March 04, 2008
25
Source: PERFICIENT INC, 10-K, March 04, 2008
Contractual Obligations
In connection with an acquisition, we were required to establish a letter of credit totaling $150,000 to serve as collateral to
secure a facility lease. The letter of credit reduces the borrowings available under our accounts receivable line of credit.
We have incurred commitments to make future payments under contracts such as leases. Maturities under these contracts are
set forth in the following table as of December 31, 2007 (in thousands):
Contractual Obligations
Operating lease obligations
Total
Payments Due by Period
Total
Less Than
1 Year
1-3
Years
3-5
Years
More
Than 5
Years
$
$
8,268 $
8,268 $
2,363 $
2,363 $
3,832 $
3,832 $
1,853 $
1,853 $
220
220
See Note 9, Income Taxes, in Notes to Consolidated Financial Statements for information related to the Company's
obligations for taxes.
If our capital is insufficient to fund our activities in either the short or long term, we may need to raise additional funds. In the
ordinary course of business, we may engage in discussions with various persons in connection with additional financing. If we raise
additional funds through the issuance of equity securities, our existing stockholders' percentage ownership will be diluted. These
equity securities may also have rights superior to our common stock. Additional debt or equity financing may not be available when
needed or on satisfactory terms. If adequate funds are not available on acceptable terms, we may be unable to expand our services,
respond to competition, pursue acquisition opportunities or continue our operations.
Critical Accounting Policies
The Company's accounting policies are described in Note 2, Summary of Significant Accounting Policies, in Notes to
Consolidated Financial Statements. The Company believes its most critical accounting policies include revenue recognition,
estimating the allowance for doubtful accounts, accounting for goodwill and intangible assets, purchase accounting allocation,
accounting for stock-based compensation, deferred income taxes and estimating the related valuation allowance.
Revenue Recognition and Allowance for Doubtful Accounts
Revenues are primarily derived from professional services provided on a time and materials basis. For time and material
contracts, revenues are recognized and billed by multiplying the number of hours expended in the performance of the contract by the
established billing rates. For fixed fee projects, revenues are generally recognized using the proportionate performance method based
on the ratio of hours expended to total estimated hours. Billings in excess of costs plus earnings are classified as deferred revenues. On
many projects the Company is also reimbursed for out-of-pocket expenses such as airfare, lodging and meals. These reimbursements
are included as a component of revenues. Revenues from software sales are recorded on a gross basis based on the Company's role as
principal in the transaction.
Revenues are recognized when the following criteria are met: (1) persuasive evidence of the customer arrangement exists,
(2) fees are fixed and determinable, (3) delivery and acceptance have occurred, and (4) collectibility is deemed probable. The
Company's policy for revenue recognition in instances where multiple deliverables are sold contemporaneously to the same
counterparty is in accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position 97-2,
Software Revenue Recognition, Emerging Issues Task Force ("EITF") Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables, and SEC Staff Accounting Bulletin No. 104, Revenue Recognition. Specifically, if the Company enters into contracts for
the sale of services and software, then the Company evaluates whether the services are essential to the functionality of the software
and whether it has objective fair value evidence for each deliverable in the transaction. If the Company has concluded that the services
to be provided are not essential to the functionality of the software and it can determine objective fair value evidence for each
deliverable of the transaction, then it accounts for each deliverable in the transaction separately, based on the relevant revenue
recognition policies. Generally, all deliverables of the Company's multiple element arrangements meet these criteria. The Company
follows the guidelines discussed above in determining revenues; however, certain judgments and estimates are made and used to
determine revenues recognized in any accounting period. Material differences may result in the amount and timing of revenues
recognized for any period if different conditions were to prevail.
26
Source: PERFICIENT INC, 10-K, March 04, 2008
Our allowance for doubtful accounts is based upon specific identification of likely and probable losses. Each accounting
period, we evaluate accounts receivable for risk associated with a client's inability to make contractual payments or unresolved issues
with the adequacy of our services. Billed and unbilled receivables that are specifically identified as being at risk are provided for with
a charge to revenue or bad debts as appropriate in the period the risk is identified. We use considerable judgment in assessing the
ultimate realization of these receivables, including reviewing the financial stability of the client, evaluating the successful mitigation
of service delivery disputes, and gauging current market conditions. If our evaluation of service delivery issues or a client's ability to
pay is incorrect, we may incur future reductions to revenue or bad debt expense.
Goodwill, Other Intangible Assets and Impairment of Long-Lived Assets
Goodwill represents the excess purchase price over the fair value of net assets acquired, or net liabilities assumed, in a
business combination. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other
Intangible Assets (“SFAS 142”), the Company performs an annual impairment test of goodwill. The Company evaluates goodwill at
the enterprise level as of October 1 each year or more frequently if events or changes in circumstances indicate that goodwill might be
impaired. As required by SFAS 142, the impairment test is accomplished using a two-stepped approach. The first step screens for
impairment and, when impairment is indicated, a second step is employed to measure the impairment. The Company also reviewed
other factors to determine the likelihood of impairment. No impairment was indicated using data as of October 1, 2007.
Other intangible assets include customer relationships, non-compete arrangements and internally developed software, and are
being amortized over the assets' estimated useful lives using the straight-line method. Estimated useful lives range from three to eight
years. Amortization of customer relationships, non-compete arrangements and internally developed software are considered operating
expenses and are included in “Amortization of intangible assets” in the accompanying consolidated Statements of Income. The
Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or
circumstances that might result in a lack of recoverability or revised useful life.
Purchase Price Allocation
We allocate the purchase price of our acquisitions to the assets and liabilities acquired, including identifiable intangible
assets, based on their respective fair values at the date of acquisition. Some of the items, including accounts receivable, property and
equipment, other intangible assets, certain accrued liabilities, and other reserves require a high degree of management judgment.
Certain estimates may change as additional information becomes available. Goodwill is assigned at the enterprise level and is
deductible for tax purposes for certain types of acquisitions. The purchase price is allocated to intangibles based on management's
estimate and an independent valuation. Management finalizes the purchase price allocation within twelve months of the acquisition
date as certain initial accounting estimates are resolved.
Accounting for Stock-Based Compensation
We adopted SFAS No. 123R, Share-Based Payment (“SFAS No. 123R”), on January 1, 2006, using the modified prospective
application transition method. SFAS No. 123R requires that the costs of employee share-based payments be measured at fair value on
the awards' grant date and recognized in the financial statements over the requisite service period.
The Company estimates the fair value of stock option awards on the date of grant utilizing a modified Black-Scholes option
pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of short-term traded
options that have no vesting restrictions and are fully transferable. However, certain assumptions used in the Black-Scholes model,
such as expected term, can be adjusted to incorporate the unique characteristics of the Company’s stock option awards. Option
valuation models require the input of somewhat subjective assumptions including expected stock price volatility and expected term.
The Company believes it is unlikely that materially different estimates for the assumptions used in estimating the fair value of stock
options granted would be made based on the conditions suggested by actual historical experience and other data available at the time
estimates were made. Restricted stock awards are valued at the price of our common stock on the date of the grant.
Prior to January 1, 2006, the Company accounted for share-based compensation using the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and related
interpretations and elected the disclosure option of SFAS No. 123 (“SFAS No. 123”) as amended by SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure (“SFAS No. 148”). SFAS No. 123 required that companies either recognize
compensation expense for grants of stock, stock options and other equity instruments based on fair value, or provide pro-forma
disclosure of net income and earnings per share in the notes to the financial statements. Accordingly, the Company measured
compensation expense for stock options as the excess, if any, of the estimated fair market value of the Company's stock at the date of
grant over the exercise price. The Company provided pro-forma effects of this measurement in a footnote to its financial statements
for the year ended December 31, 2005.
Source: PERFICIENT INC, 10-K, March 04, 2008
27
Income Taxes
To record income tax expense, we are required to estimate our income taxes in each of the jurisdictions in which we operate.
In addition, income tax expense at interim reporting dates requires us to estimate our expected effective tax rate for the entire year.
This involves estimating our actual current tax liability together with assessing temporary differences that result in deferred tax assets
and liabilities and expected future tax rates.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (revised 2007), Business
Combinations (“SFAS 141R”), which is a revision of SFAS No. 141, Business Combinations. SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities
assumed and any noncontrolling interest in the acquiree, recognizes and measures the goodwill acquired in the business combination
or a gain from a bargain purchase, and determines what information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the
acquisition date is on or after January 1, 2009. The revised statement will require that transaction costs be expensed instead of
recognized as purchase price. The Company is currently evaluating the impact of SFAS 141R on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities,
Including an amendment of SFAS No. 115 (“SFAS 159”). SFAS 159 permits companies to choose to measure many financial
instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after
November 15, 2007. The Company does not expect that the pronouncement will have a material impact on its consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value,
establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 will
be applied prospectively and will be effective for periods beginning after November 15, 2007. The FASB issued Staff Position No.
157-2 (“FSP 157-2”) in February 2008, which delayed the effective date of SFAS 157 for certain nonfinancial assets and liabilities to
fiscal years beginning after November 15, 2008. The Company is currently evaluating the effect, if any, of SFAS 157 and does not
expect that the pronouncement will have a material impact on its consolidated financial statements.
In June 2006, the FASB issued Financial Accounting Standards Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”), which prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. The Company
adopted the provisions of FIN 48 on January 1, 2007 as required and such adoption did not have a material impact to the consolidated
financial statements.
In June 2006, the EITF ratified EITF Issue No. 06-3, How Taxes Collected From Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). A consensus was
reached that entities may adopt a policy of presenting taxes in the income statement on either a gross or net basis. An entity should
disclose its policy of presenting taxes and the amount of any taxes presented on a gross basis should be disclosed, if significant. The
Company adopted EITF 06-3 on January 1, 2007. There was no effect of the adoption on the consolidated financial statements as of
December 31, 2007. The Company presents revenues net of taxes as disclosed in Note 2, Summary of Significant Accounting Policies.
Off-Balance Sheet Arrangements
The Company currently has no off-balance sheet arrangements, except operating lease commitments as disclosed in Note 10,
Commitments and Contingencies.
28
Source: PERFICIENT INC, 10-K, March 04, 2008
Quantitative and Qualitative Disclosures About Market Risk.
Item
7A.
We are exposed to market risks related to changes in foreign currency exchange rates and interest rates. We believe our
exposure to market risks is immaterial.
Exchange Rate Sensitivity
During the year ended December 31, 2007, $1.0 million and $0.6 million of our total revenues were attributable to our
Canadian operations and revenues generated in Europe, respectively. Our exposure to changes in foreign currency rates primarily
arises from short-term intercompany transactions with our Canadian, Chinese, and India subsidiaries and from client receivables
denominated in other than our functional currency. Our foreign subsidiaries incur a significant portion of their expenses in their
applicable currency as well, which helps minimize our risk of exchange rate fluctuations. Based on the amount of revenues attributed
to clients in Canada, and Europe during the year ended December 31, 2007, this exchange rate risk will not have a material impact on
our financial position or results of operations.
Interest Rate Sensitivity
We had unrestricted cash and cash equivalents totaling $8.1 million and $4.5 million at December 31, 2007 and December
31, 2006, respectively. These amounts were invested primarily in money market funds. The unrestricted cash and cash equivalents are
held for working capital purposes. We do not enter into investments for trading or speculative purposes. Due to the short-term nature
of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as
a result of changes in interest rates. Declines in interest rates, however, will reduce future investment income.
29
Source: PERFICIENT INC, 10-K, March 04, 2008
December 31,
2007
2006
(In thousands, except share
data)
$
$
$
$
8,070
50,855
1,182
4,142
64,249
3,226
103,686
17,653
1,178
189,992
4,160
--
18,721
22,881
--
1,549
24,430
$
$
$
$
$
$
4,549
38,600
1,171
2,799
47,119
1,806
69,170
11,886
1,019
131,000
5,025
1,201
16,034
22,260
137
1,251
23,648
27
147,028
(125)
(39,578)
107,352
131,000
Financial Statements and Supplementary Data.
Item
8.
PERFICIENT, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND 2006
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $1,475 in 2007 and $707 in 2006
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Goodwill
Intangible assets, net
Other non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt, less current portion
Deferred income taxes
Total liabilities
Commitments and contingencies (see Note 4 and 10)
Stockholders' equity:
Common stock ($0.001 par value per share; 50,000,000 shares authorized and 29,423,296 shares
issued and outstanding as of December 31, 2007; 26,699,974 shares issued and outstanding as of
December 31, 2006)
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
29
188,998
(117)
(23,348)
165,562
189,992
See accompanying notes to consolidated financial statements.
30
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
Revenues:
Services
Software
Reimbursable expenses
Total revenues
Cost of revenues (exclusive of depreciation and amortization, shown separately
below):
Project personnel costs
Software costs
Reimbursable expenses
Other project related expenses
Total cost of revenues
Gross margin
Selling, general and administrative
Depreciation
Amortization of intangible assets
Income from operations
Interest income
Interest expense
Other income
Income before income taxes
Provision for income taxes
Net income
Basic net income per share
Diluted net income per share
Shares used in computing basic net income per share
Shares used in computing diluted net income per share
2007
Year Ended December 31,
2006
(In thousands, except share data)
2005
$
$
191,395
14,243
12,510
218,148
$
137,722
14,435
8,769
160,926
114,692
11,982
12,510
3,274
142,458
84,161
12,118
8,769
2,122
107,170
83,740
9,387
3,870
96,997
51,140
7,723
3,870
1,846
64,579
75,690
53,756
32,418
41,963
1,553
4,712
27,462
239
(67)
20
27,654
11,424
32,268
948
3,458
17,082
102
(509)
174
16,849
7,282
17,917
615
1,611
12,275
15
(658)
43
11,675
4,498
$
16,230
$
9,567
$
7,177
0.58
$
0.54
$
27,998,093
30,121,962
0.38
$
0.35
$
25,033,337
27,587,449
0.33
$
0.28
$
22,005,154
25,242,496
See accompanying notes to consolidated financial statements.
31
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(In thousands)
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders'
Equity
Balance at January 1, 2005
Warrants exercised
Stock options exercised
iPath and Vivare acquisitions
Tax benefit of stock option exercises
Stock compensation
Foreign currency translation
adjustment
Net income
Total comprehensive income
Balance at December 31, 2005
Bay Street, Insolexen, and EGG
acquisitions
Warrants exercised
Stock options exercised
Purchases of stock from Employee
Stock Purchase Plan
Tax benefit of stock option exercises
and restricted stock vesting
Stock compensation
Foreign currency translation
adjustment
Net income
Total comprehensive income
Balance at December 31, 2006
E-Tech, Tier1, BoldTech, and ePairs
acquisitions
Stock options exercised
Purchases of stock from Employee
Stock Purchase Plan
Tax benefit of stock option exercises
and restricted stock vesting
Stock compensation
Foreign currency translation
adjustment
Net income
Total comprehensive income
Balance at December 31, 2007
20,657 $
88
1,354
1,196
--
--
--
--
--
23,295 $
1,499
145
1,672
6
--
83
--
--
--
26,700 $
1,250
1,160
11
--
302
--
--
--
29,423 $
21 $
--
1
1
--
--
--
--
--
23 $
2
--
2
--
--
--
100,982 $
157
2,703
8,708
2,306
264
--
--
--
115,120 $
17,989
146
4,001
86
6,554
3,132
--
--
--
27 $
--
--
--
147,028 $
1
1
--
--
--
24,975
3,696
206
6,889
6,204
--
--
--
29 $
--
--
--
188,998 $
(58) $
--
--
--
--
--
(29)
--
--
(87) $
--
--
--
--
--
--
(56,322) $
--
--
--
--
--
--
7,177
--
(49,145) $
--
--
--
--
--
--
(38)
--
--
(125) $
--
9,567
--
(39,578) $
--
--
--
--
--
--
--
--
--
--
8
--
--
(117) $
--
16,230
(23,348) $
44,623
157
2,704
8,709
2,306
264
(29)
7,177
7,148
65,911
17,991
146
4,003
86
6,554
3,132
(38)
9,567
9,529
107,352
24,976
3,697
206
6,889
6,204
8
16,230
16,238
165,562
See accompanying notes to consolidated financial statements.
32
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
Year Ended December 31,
2006
2007
2005
(In thousands)
9,567
$
16,230
$
7,177
948
3,458
1,393
3,132
6
--
(5,771)
(294)
1,251
(543)
13,147
615
1,611
(219)
264
24
2,306
148
(1,714)
(3,155)
2,157
9,214
(1,518)
(136)
(17,210)
(250)
(19,114)
(691)
(599)
(11,231)
(250)
(12,771)
34,900
(38,900)
(1,338)
--
6,554
4,089
146
5,451
(31)
(547)
5,096
4,549
$
12,000
(8,000)
(1,135)
(942)
--
2,704
157
4,784
(37)
1,190
3,906
5,096
594
3,684
8,709
670
40
3,680
$
$
$
24,976
(1,957) $
540
3,156
17,991
318
$
$
$
$
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operations:
$
Depreciation
Amortization of intangibles
Deferred income taxes
Non-cash stock compensation
Non-cash interest expense
Tax benefit on stock options
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
Other assets
Accounts payable
Other liabilities
Net cash provided by operating activities
INVESTING ACTIVITIES
Purchase of property and equipment
Capitalization of software developed for internal use
Purchase of businesses, net of cash acquired
Payments on Javelin notes
Net cash used in investing activities
FINANCING ACTIVITIES
Proceeds from short-term borrowings
Payments on short-term borrowings
Payments on long-term debt
Deferred offering costs
Tax benefit on stock options and restricted stock vesting
Proceeds from the exercise of stock options and Employee Stock Purchase Plan
Proceeds from the exercise of warrants
Net cash provided by financing activities
Effect of exchange rate on cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures:
Cash paid for interest
Cash paid for income taxes
Non-cash activities:
Stock issued for purchase of businesses
Change in goodwill
$
$
$
$
$
1,553
4,712
(495)
6,204
--
--
(1,589)
3,256
(1,694)
(5,126)
23,051
(2,035)
(181)
(26,774)
--
(28,990)
11,900
(11,900)
(1,338)
--
6,889
3,903
--
9,454
6
3,521
4,549
8,070
$
See accompanying notes to consolidated financial statements.
33
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Principles of Consolidation
Perficient, Inc. (the “Company”) is an information technology consulting firm. The Company helps its clients use
Internet-based technologies to make their businesses more responsive to market opportunities and threats, strengthen relationships
with customers, suppliers and partners, improve productivity and reduce information technology costs. The Company designs, builds
and delivers solutions using a core set of middleware software products developed by third party vendors. The Company's solutions
enable its clients to meet the changing demands of an increasingly global, Internet-driven and competitive marketplace.
The Company is incorporated in Delaware. The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates, and such differences could be material to the financial statements.
Reclassification
The Company has reclassified the presentation of certain prior period information to conform to the current year presentation.
Revenue Recognition
Revenues are primarily derived from professional services provided on a time and materials basis. For time and material
contracts, revenues are recognized and billed by multiplying the number of hours expended in the performance of the contract by the
established billing rates. For fixed fee projects, revenues are generally recognized using the proportionate performance method based
on the ratio of hours expended to total estimated hours. Billings in excess of costs plus earnings are classified as deferred revenues. On
many projects the Company is also reimbursed for out-of-pocket expenses such as airfare, lodging and meals. These reimbursements
are included as a component of revenues. Revenues from software sales are recorded on a gross basis based on the Company's role as
principal in the transaction.
Revenues are recognized when the following criteria are met: (1) persuasive evidence of the customer arrangement exists,
(2) fees are fixed and determinable, (3) delivery and acceptance have occurred, and (4) collectibility is deemed probable. The
Company's policy for revenue recognition in instances where multiple deliverables are sold contemporaneously to the same
counterparty is in accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position 97-2,
Software Revenue Recognition, Emerging Issues Task Force ("EITF") Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables, and SEC Staff Accounting Bulletin No. 104, Revenue Recognition. Specifically, if the Company enters into contracts for
the sale of services and software, then the Company evaluates whether the services are essential to the functionality of the software
and whether it has objective fair value evidence for each deliverable in the transaction. If the Company has concluded that the services
to be provided are not essential to the functionality of the software and it can determine objective fair value evidence for each
deliverable of the transaction, then it accounts for each deliverable in the transaction separately, based on the relevant revenue
recognition policies. Generally, all deliverables of the Company's multiple element arrangements meet these criteria. The Company
follows the guidelines discussed above in determining revenues; however, certain judgments and estimates are made and used to
determine revenues recognized in any accounting period. Material differences may result in the amount and timing of revenues
recognized for any period if different conditions were to prevail.
Revenues are presented net of taxes assessed by governmental authorities. Sales taxes are generally collected and
subsequently remitted on all software sales and certain services transactions as appropriate.
Cash and Cash Equivalents
Cash equivalents consist primarily of cash deposits and investments with original maturities of ninety days or less when
purchased.
Source: PERFICIENT INC, 10-K, March 04, 2008
34
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s best
estimate of the amount of uncollectible amounts in its existing accounts receivable. Management analyzes historical collection trends
and changes in its customer payment patterns, customer concentration, and credit worthiness when evaluating the adequacy of its
allowance for doubtful accounts. The Company includes any receivables balances that are determined to be uncollectible in its overall
allowance for doubtful accounts. The Company reviews its allowance for doubtful accounts monthly.
Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and equipment is computed using the straight-line
method over the useful lives of the assets (generally one to five years). Leasehold improvements are amortized over the shorter of the
life of the lease or the estimated useful life of the assets.
Intangible Assets
Goodwill represents the excess purchase price over the fair value of net assets acquired, or net liabilities assumed, in a
business combination. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other
Intangible Assets (“SFAS 142”), the Company performs an annual impairment test of goodwill. The Company evaluates goodwill at
the enterprise level as of October 1 each year or more frequently if events or changes in circumstances indicate that goodwill might be
impaired. As required by SFAS 142, the impairment test is accomplished using a two-stepped approach. The first step screens for
impairment and, when impairment is indicated, a second step is employed to measure the impairment. The Company also reviewed
other factors to determine the likelihood of impairment. No impairment was indicated using data as of October 1, 2007.
Other intangible assets include customer relationships, non-compete arrangements and internally developed software, and are
being amortized over the assets' estimated useful lives using the straight-line method. Estimated useful lives range from three to eight
years. Amortization of customer relationships, non-compete arrangements and internally developed software are considered operating
expenses and are included in “Amortization of intangible assets” in the accompanying consolidated Statements of Income. The
Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or
circumstances that might result in a lack of recoverability or revised useful life.
Deferred Offering Costs
Costs incurred related to equity offerings under effective registration statements are deferred until the offering occurs or
management does not intend to complete the offering. At the time that the issuance of new equity occurs, these costs are netted against
the proceeds received. These costs are expensed if the offering does not occur. Approximately $943,000 of these costs were recorded
as part of Other Non-Current Assets on the Balance Sheet as of December 31, 2007 and 2006.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS 109”),
and Financial Accounting Standards Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of SFAS
109 (“FIN 48”). SFAS 109 prescribes the use of the liability method whereby deferred tax asset and liability account balances are
determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are subject to tests of
recoverability. A valuation allowance is provided for such deferred tax assets to the extent realization is not judged to be more likely
than not. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, treatment of interest and penalties, and disclosure of such positions. The Company adopted the provisions of FIN 48 on
January 1, 2007 as required and such adoption did not have a material impact to the consolidated financial statements.
Earnings Per Share
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average
number of common shares outstanding during the period. Diluted earnings per share includes the weighted average number of
common shares outstanding and the number of equivalent shares which would be issued related to the stock options and warrants
using the treasury method, contingently issuance shares, and convertible preferred stock using the if-converted method, unless such
additional equivalent shares are anti-dilutive.
Source: PERFICIENT INC, 10-K, March 04, 2008
35
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock-Based Compensation
Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123R (As Amended), Share Based Payment
(“SFAS 123R”), using the modified prospective application transition method. Under this method, compensation cost for the portion
of awards for which the requisite service has not yet been rendered that are outstanding as of the adoption date is recognized over the
remaining service period. The compensation cost for that portion of awards is based on the grant-date fair value of those awards as
calculated for pro-forma disclosures under SFAS No. 123. All new awards and awards that are modified, repurchased, or cancelled
after the adoption date are accounted for under the provisions of SFAS 123R. Prior periods are not restated under this transition
method. The Company recognizes share-based compensation ratably using the straight-line attribution method over the requisite
service period. In addition, pursuant to SFAS 123R, the Company is required to estimate the amount of expected forfeitures when
calculating share-based compensation, instead of accounting for forfeitures as they occur, which was the Company's practice prior to
the adoption of SFAS 123R.
Deferred Rent
Certain of the Company’s operating leases contain predetermined fixed escalations of minimum rentals during the original lease terms.
For these leases, the Company recognizes the related rental expense on a straight-line basis over the life of the lease and records the
difference between the amounts charged to operations and amounts paid as accrued rent expense.
Fair Value of Financial Instruments
Cash equivalents, accounts receivable, accounts payable, other accrued liabilities, and debt are stated at amounts which
approximate fair value due to the near term maturities of these instruments.
Recently Issued Accounting Standards
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (revised 2007), Business
Combinations (“SFAS 141R”), which is a revision of SFAS No. 141, Business Combinations. SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities
assumed and any noncontrolling interest in the acquiree, recognizes and measures the goodwill acquired in the business combination
or a gain from a bargain purchase, and determines what information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the
acquisition date is on or after January 1, 2009. The revised statement will require that transaction costs be expensed instead of
recognized as purchase price. The Company is currently evaluating the impact of SFAS 141R on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities,
Including an amendment of SFAS No. 115 (“SFAS 159”). SFAS 159 permits companies to choose to measure many financial
instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after
November 15, 2007. The Company does not expect that the pronouncement will have a material impact on its consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value,
establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 will
be applied prospectively and will be effective for periods beginning after November 15, 2007. The FASB issued Staff Position No.
157-2 (“FSP 157-2”) in February 2008, which delayed the effective date of SFAS 157 for certain nonfinancial assets and liabilities to
fiscal years beginning after November 15, 2008. The Company is currently evaluating the effect, if any, of SFAS 157 and does not
expect that the pronouncement will have a material impact on its consolidated financial statements.
In June 2006, the FASB issued Financial Accounting Standards Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”), which prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. The Company
adopted the provisions of FIN 48 on January 1, 2007 as required and such adoption did not have a material impact to the consolidated
financial statements.
In June 2006, the EITF ratified EITF Issue No. 06-3, How Taxes Collected From Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). A consensus was
reached that entities may adopt a policy of presenting taxes in the income statement on either a gross or net basis. An entity should
disclose its policy of presenting taxes and the amount of any taxes presented on a gross basis should be disclosed, if significant. The
Company adopted EITF 06-3 on January 1, 2007. There was no effect of the adoption on the consolidated financial statements as of
December 31, 2007. The Company presents revenues net of taxes as disclosed in Note 2, Summary of Significant Accounting Policies.
Source: PERFICIENT INC, 10-K, March 04, 2008
36
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Net Income Per Share
The following table presents the calculation of basic and diluted net income per share (in thousands, except per share
information):
Year Ended December 31,
2006
2007
2005
$
16,230
$
9,567
$
7,177
Net income
Basic:
Weighted-average shares of common stock outstanding
Weighted-average shares of common stock subject to contingency (i.e., restricted
stock)
Shares used in computing basic net income per share
Effect of dilutive securities:
Stock options
Warrants
Restricted stock subject to vesting
Shares used in computing diluted net income per share
27,442
556
27,998
1,707
8
409
30,122
23,783
1,250
25,033
2,281
74
199
27,587
Basic net income per share
Diluted net income per share
$
$
0.58
0.54
$
$
0.38
0.35
$
$
4. Concentration of Credit Risk and Significant Customers
20,868
1,137
22,005
3,088
149
--
25,242
0.33
0.28
Cash and accounts receivable potentially expose the Company to concentrations of credit risk. Cash is placed with highly
rated financial institutions. The Company provides credit, in the normal course of business, to its customers. The Company generally
does not require collateral or up-front payments. The Company performs periodic credit evaluations of its customers and maintains
allowances for potential credit losses. Customers can be denied access to services in the event of non-payment. A substantial portion
of the services the Company provides are built on IBM WebSphere (R) platforms and a significant number of its clients are identified
through joint selling opportunities conducted with IBM and through sales leads obtained from the relationship with IBM. Revenues
from IBM accounted for approximately 8%, 8%, and 9% of total revenues for 2007, 2006 and 2005, respectively, and accounts
receivable from IBM accounted for approximately 4% of total accounts receivable as of December 31, 2007 and approximately 9% of
total accounts receivable as of December 31, 2006 and 2005. While the dollar amount of revenues from IBM has remained relatively
constant over the past three years, the percentage of total revenues from IBM has decreased as a result of the Company's growth and
corresponding customer diversification. The loss of the Company's relationship with IBM or a significant reduction in the services the
Company provides for IBM would result in significantly decreased revenues. Due to the Company's significant fixed operating
expenses, the loss of sales to IBM or any significant customer could result in the Company's inability to generate net income or
positive cash flow from operations for some time in the future.
5. Employee Benefit Plan
The Company has a qualified 401(k) profit sharing plan available to full-time employees who meet the plan's eligibility
requirements. This defined contribution plan permits employees to make contributions up to maximum limits allowed by the Internal
Revenue Code. The Company, at its discretion, matches a portion of the employee's contribution under a predetermined formula based
on the level of contribution and years of vesting services. The Company made matching contributions equal to 25% of the first 6% of
employee contributions totaling approximately $0.8 million, $0.5 million, and $0.5 million during 2007, 2006 and 2005, respectively,
which vest over a three year period of service.
In 2007, the Company initiated a deferred compensation plan for officers, directors, and certain sales personnel. The plan is
designed to allow eligible participants to accumulate additional income through a nonqualified deferred compensation plan that
enables them to make elective deferrals of compensation to which they will become entitled in the future. As of December 31, 2007,
the deferred compensation liability balance was $0.2 million.
37
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the year ended December 31, 2007 and 2006 are as follows (in thousands):
Balance at December 31, 2005
Acquisitions consummated during 2006 (Note 13)
Utilization of net operating loss carryforwards and adjustment to goodwill related to deferred taxes associated with
acquisitions
Balance at December 31, 2006
Acquisitions consummated during 2007 (Note 13)
Utilization of net operating loss carryforwards and adjustment to goodwill related to deferred taxes associated with
acquisitions (Note 9)
Balance at December 31, 2007
$
Goodwill
46,263
22,589
318
69,170
36,473
$
)
(1,957
103,686
Intangible Assets with Definite Lives
Following is a summary of the Company's intangible assets that are subject to amortization (in thousands):
Year ended December 31,
2007
2006
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Customer relationships
Non-compete agreements
Internally developed software
Total
$
$
21,130
2,633
1,173
24,936
$
$
(5,285) $
(1,550)
(448)
(7,283) $
15,845
1,083
725
17,653
$
$
12,860
2,393
755
16,008
$
$
(2,808) $
(1,094)
(220)
(4,122) $
10,052
1,299
535
11,886
The estimated useful lives of acquired identifiable intangible assets are as follows:
Customer relationships
Non-compete agreements
Internally developed software
3 - 8 years
3 - 5 years
3 - 5 years
The weighted average amortization periods for customer relationships and non-compete agreements are 6 years and 5 years,
respectively. Total amortization expense for the years ended December 31, 2007, 2006, and 2005 was approximately $4.7 million,
$3.5 million, and $1.6 million respectively.
Estimated annual amortization expense for the next five years ended December 31 is as follows (in thousands):
2008
2009
2010
2011
2012
Thereafter
38
Source: PERFICIENT INC, 10-K, March 04, 2008
$
$
$
$
$
$
4,732
4,348
3,581
2,959
1,233
801
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Stock-Based Compensation
Stock Option Plans
In May 1999, the Company's Board of Directors and stockholders approved the 1999 Stock Option/Stock Issuance Plan (the
“1999 Plan”). The 1999 Plan contains programs for (i) the discretionary granting of stock options to employees, non-employee board
members and consultants for the purchase of shares of the Company's commons stock, (ii) the discretionary issuance of common stock
directly to eligible individuals, and (iii) the automatic issuance of stock options to non-employee board members. The Compensation
Committee of the Board of Directors administers the 1999 Plan, and determines the exercise price and vesting period for each grant.
Options granted under the 1999 Plan have a maximum term of 10 years. In the event that the Company is acquired, whether by merger
or asset sale or board-approved sale by the stockholders of more than 50% of the Company's voting stock, each outstanding option
under the discretionary option grant program which is not to be assumed by the successor corporation or otherwise continued will
automatically accelerate in full, and all unvested shares under the discretionary option grant and stock issuance programs will
immediately vest, except to the extent the Company's repurchase rights with respect to those shares are to be assigned to the successor
corporation or otherwise continued in effect. The Compensation Committee may grant options under the discretionary option grant
program that will accelerate in the event of an acquisition even if the options are assumed or that will accelerate if the optionee's
service is subsequently terminated.
The Compensation Committee may grant options and issue shares that accelerate in connection with a hostile change in
control effected through a successful tender offer for more than 50% of the Company's outstanding voting stock or by proxy contest
for the election of board members, or the options and shares may accelerate upon a subsequent termination of the individual's service.
On December 4, 2007, the Company granted restricted stock awards of approximately 892,000 shares of common stock
under the 1999 Stock Option/Stock Issuance Plan. This equity grant vests ratably over five years. On December 21, 2006, the
Company granted restricted stock awards of approximately 843,000 shares of common stock under the 1999 Stock Option/Stock
Issuance Plan. This equity grant vests ratably over five years. On December 28, 2005, the Company granted restricted stock awards of
approximately 323,000 shares of common stock under the 1999 Stock Option/Stock Issuance Plan. A portion of this equity grant vests
over six years, with an original vesting schedule that was back-end loaded but in 2007 was converted to pro-rata or straight-line
vesting over the six year period due to the achievement of certain performance targets and compensation committee approval. The
other portion of this equity grant vests ratably over five years.
39
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of changes in common stock options during 2007, 2006 and 2005 is as follows (in thousands, except exercise
price information):
Shares
Range of
Exercise
Prices
Weighted-Average
Exercise Price
Aggregate
Intrinsic
Value
Options outstanding at January 1, 2005
Options granted
Options exercised
Options canceled
Options outstanding at December 31, 2005
Options granted
Options exercised
Options canceled
Options outstanding at December 31, 2006
Options granted
Options exercised
Options canceled
Options outstanding at December 31, 2007
Options vested, December 31, 2005
Options vested, December 31, 2006
Options vested, December 31, 2007
6,439 $
415 $
(1,354) $
(232) $
5,268 $
--
(1,672) $
(44) $
3,552 $
9 $
(1,160) $
(22) $
2,379 $
3,305 $
2,347 $
1,887 $
0.02 -
26.00 $
7.34 - 9.19 $
0.03 - 8.10 $
0.03 -
16.00 $
0.02 -
16.94 $
--
0.02 -
12.13 $
1.01 -
13.25 $
0.02 -
16.94 $
3.00 - 3.00 $
0.02 -
16.94 $
2.28 - 7.48 $
0.02 -
16.94 $
0.02 -
16.94 $
0.02 -
16.94 $
0.02 -
16.94 $
2.97
7.81
2.00
5.37
3.53
--
2.40
5.41
4.03
3.00
3.18
3.36
4.44 $
26,908
3.00
3.62
4.03 $
22,116
The total aggregate intrinsic value of options exercised during the years ended December 31, 2007, 2006, and 2005, was
$21.1 million, $18.6 million, and $8.4 million, respectively.
40
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Restricted stock activity for the year ended December 31, 2007 was as follows (in thousands, except fair value information):
Restricted stock awards outstanding at January 1, 2007
Awards granted
Awards vested
Awards canceled or forfeited
Restricted stock awards outstanding at December 31, 2007
Weighted-Average
Grant Date Fair
Value
Shares
1,429 $
973 $
(303) $
(46) $
2,053 $
12.74
15.97
12.29
13.00
14.33
The total fair value of restricted shares vesting during the year ended December 31, 2007, 2006, and 2005 was $5.2 million,
$1.4 million, and $0, respectively.
The following is additional information related to stock options outstanding at December 31, 2007 (in thousands, except
exercise price information):
Range of Exercise
Prices
$0.02 - $1.15
$1.21 - $2.28
$2.77 - $3.75
$4.40 - $6.31
$7.48 - $16.94
$0.02 - $16.94
Options Outstanding
Options Exercisable
Weighted
Average
Exercise
Price
$0.58
$2.10
$3.49
$6.12
$10.70
$4.44
Weighted
Average
Remaining
Contractual
Life (Years)
3.65
5.41
4.19
6.73
4.74
5.20
Options
280
615
528
645
311
2,379
Weighted
Average
Exercise
Price
$0.58
$2.10
$3.55
$5.94
$11.64
$4.03
Options
280
615
462
289
241
1,887
For years in which stock options were granted, the fair value of options was calculated at the date of grant using the
Black-Scholes pricing model with the following weighted-average assumptions:
Year End
December 31,
2007
2005
Risk-Free
Interest Rate
4.73%
3.72%
Dividend
Yield
0%
0%
Volatility
Factor
0.4195
1.4050
There were no stock options granted in 2006. A weighted-average life of 0.25 years was used for stock options granted
during 2007 and 5 years was used for stock options granted during 2005.
At December 31, 2007, 2006 and 2005, the weighted-average remaining contractual life of outstanding options was 5.20,
6.27, and 7.17 years, respectively. The weighted-average grant-date fair value per share of options granted during 2007 was
$16.96. No option grants occurred in 2006. The weighted-average grant-date fair value per share of options granted during 2005 was
$7.81. There were no option grants at below or above market prices during 2007 or 2005.
The Company recognized $6.1 million, $3.1 million, and $0.3 million of stock compensation expense during 2007, 2006, and
2005, respectively. The associated current and future income tax benefit recognized during 2007, 2006, and 2005 was $2.1 million,
$0.8 million and $0.2 million, respectively. As of December 31, 2007, there was $30.0 million of total unrecognized compensation
cost related to non-vested share-based awards. This cost is expected to be recognized over a weighted-average period of 4.2 years. Our
estimated forfeiture rate for the year ended December 31, 2007 of approximately 7% for share based awards was calculated using our
historical forfeiture experience to anticipate actual forfeitures in the future.
41
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Prior to the adoption of SFAS No. 123R, the Company accounted for employee stock-based compensation using the intrinsic
value method prescribed by APB 25. As presented below, the Company applied the disclosure provisions of SFAS 123, as amended
by SFAS 148, Accounting for Stock-Based Compensation - Transition and Disclosure, as if the fair value method had been applied. If
this method had been used, the Company’s net income and net income per share for the year ended December 31, 2005 would have
been adjusted to the pro-forma amounts below (in thousands except per share data):
Net income -- as reported
Total stock-based compensation costs, net of tax, included in the determination of net income as reported
The stock-based employee compensation cost, net of tax, that would have been included in the determination of
net income if the fair value based method had been applied to all awards
Pro-forma net income
Earnings per share
Basic - as reported
Basic - pro-forma
Diluted - as reported
Diluted - pro-forma
Year ended
December 31,
2005
7,177
162
(2,609)
4,730
0.33
0.23
0.28
0.20
$
$
$
$
$
$
At December 31, 2007, 2.4 million shares were reserved for future issuance upon exercise of outstanding options and 8,075
shares were reserved for future issuance upon exercise of outstanding warrants. The majority of the outstanding warrants expire in
December 2011. At December 31, 2007, there were 2.1 million shares of restricted stock outstanding under the 1999 Plan and
classified as equity.
Employee Stock Purchase Plan
In 2005, the Compensation Committee approved the Employee Stock Purchase Plan (the “ESPP”) to be available to
employees starting January 1, 2006. The ESPP is a broadly-based stock purchase plan in which any eligible employee may elect to
participate by authorizing the Company to make payroll deductions in a specific amount or designated percentage to pay the exercise
price of an option. In no event will an employee be granted an option under the ESPP that would permit the purchase of Common
Stock with a fair market value in excess of $25,000 in any calendar year and the Compensation Committee of the Company has set the
current annual participation limit at $12,500. During the year ended December 31, 2007, approximately 11,000 shares were purchased
under the ESPP.
There are four three-month offering periods in each calendar year beginning on January 1, April 1, July 1, and October 1,
respectively. The exercise price of options granted under the ESPP is an amount equal to 95% of the fair market value of the Common
Stock on the date of exercise (occurring on, respectively, March 31, June 30, September 30, and December 31). The ESPP is designed
to comply with Section 423 of the Code and thus is eligible for the favorable tax treatment afforded by Section 423.
42
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Line of Credit and Long Term Debt
In June 2006, the Company entered into an Amended and Restated Loan and Security Agreement with Silicon Valley Bank
and KeyBank National Association. The amended agreement is a senior bank credit facility of $50 million which includes a line of
credit of $25 million and an acquisition term line of credit of $25 million.
The accounts receivable line of credit, which expires in June 2009, provides for a borrowing capacity equal to all eligible
accounts receivable, including 80% of unbilled revenues, subject to certain borrowing base calculations as defined in the agreement,
but in no event more than $25 million. Borrowings under this line of credit bear interest at the bank's prime rate (7.25% on December
31, 2007). As of December 31, 2007, there were no amounts outstanding under the accounts receivable line of credit and $24.8 million
of available borrowing capacity due to an outstanding letter of credit to secure an office lease. Additionally, the line of credit bears an
annual commitment fee of 0.12% on the unused portion of the line of credit.
The Company's $25 million term acquisition line of credit provides an additional source of financing for certain qualified
acquisitions. As of December 31, 2007, there were no amounts outstanding under the acquisition line of credit. Borrowings under this
acquisition line of credit bear interest equal to the four year U.S. Treasury note yield plus 3% based on the spot rate on the day the
draw is processed (6.29% on December 31, 2007). Draws under this acquisition line may be made through June 2008. The
Company currently has $25 million of available borrowing capacity under this acquisition line of credit. Additionally, the line of
credit bears an annual commitment fee of 0.12% on the unused portion of the line of credit.
The Company is required to comply with various financial covenants under the $50 million credit facility. Specifically, the
Company is required to maintain a ratio of after tax earnings before interest, depreciation and amortization, and other non-cash
charges, including but not limited to stock and stock option compensation expense on trailing three months annualized, to current
maturities of long-term debt and capital leases plus interest of at least 1.50 to 1.00, a ratio of cash plus eligible accounts receivable
including 80% of unbilled revenues less principal amount of all outstanding advances on accounts receivable line of credit to advances
under the term acquisition line of credit of at least 0.75 to 1.00, and a maximum ratio of all outstanding advances under the entire
credit facility to earnings before taxes, interest, depreciation, amortization and other non-cash charges, including but not limited to,
stock and stock option compensation expense, including pro-forma adjustments for acquisitions on a trailing twelve month basis of no
more than 2.50 to 1.00. As of December 31, 2007, the Company was in compliance with all covenants under this facility. This credit
facility is secured by substantially all assets of the Company.
9. Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few
exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities
for years before 2005. The Internal Revenue Service (IRS) has completed examinations of the Company’s U.S. income tax returns for
2002, 2003 and 2004. As of December 31, 2007, the IRS has proposed no significant adjustments to any of the Company’s tax
positions.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on
January 1, 2007. As a result of the implementation of Interpretation 48, the Company recognized no increases or decreases in the total
amounts of previously unrecognized tax benefits. The Company had no unrecognized tax benefits as of January 1, 2007 or December
31, 2007.
As of December 31, 2007, the Company had U.S. Federal tax net operating loss carry forwards of approximately $6.7 million
that will begin to expire in 2020 if not utilized. Utilization of net operating losses may be subject to an annual limitation due to the
“change in ownership” provisions of the Internal Revenues Code of 1986. The annual limitation may result in the expiration of net
operating losses before utilization.
43
Source: PERFICIENT INC, 10-K, March 04, 2008
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
PERFICIENT, INC.
Significant components of the provision for income taxes are as follows (in thousands):
Current:
Federal
State
Foreign
Total current
Tax benefit on acquired net operating loss carryforward
Tax benefit from stock options
Deferred:
Federal
State
Total deferred
Total provision for income taxes
Year Ended December 31,
2006
2007
2005
$
$
$
4,110
752
26
4,888
385
6,889
$
1,138
260
102
1,500
246
6,554
(668)
(70)
(738)
$
11,424
(902)
(116)
(1,018)
$
7,282
1,148
241
223
1,612
353
2,306
201
26
227
4,498
The components of pretax income for the years ended December 31, 2007, 2006 and 2005 are as follows (in thousands):
Domestic
Foreign
Total
Year Ended December 31,
2006
2007
2005
$
$
27,640 $
14
27,654 $
16,565 $
284
16,849 $
11,267
408
11,675
Foreign operations include Canada and the United Kingdom for the year ended December 31, 2005. In 2006, foreign
operations only included Canada. For the year ended December 31, 2007, foreign operations included Canada, China, and India.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's
deferred taxes as of December 31, 2007 and 2006 are as follows:
December 31,
2007
2006
(In thousands)
$
$
$
$
384
273
511
1,168
(24)
1,144
2,380
169
1,031
3,580
(106)
3,474
$
$
$
$
298
243
268
809
(457)
352
2,339
53
435
2,827
(1,599)
1,228
Deferred tax assets:
Current deferred tax assets:
Accrued liabilities
Net operating losses
Bad debt reserve
Valuation allowance
Net current deferred tax assets
Non-current deferred tax assets:
Net operating losses
Fixed assets
Deferred compensation
Valuation allowance
Net non-current deferred tax assets
44
Source: PERFICIENT INC, 10-K, March 04, 2008
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
PERFICIENT, INC.
Deferred tax liabilities:
Current deferred tax liabilities:
Deferred income
Net current deferred tax liabilities
Non-current deferred tax liabilities:
Deferred income
Deferred compensation
Foreign withholding tax on undistributed earnings
Intangibles
Total non-current deferred tax liabilities
Net current deferred tax asset
Net non-current deferred tax liability
December 31,
2007
2006
(In thousands)
$
$
$
$
$
$
307
307
402
214
--
4,407
5,023
837
(1,549)
$
$
$
$
$
$
308
308
431
--
65
1,983
2,479
44
(1,251)
The Company established a valuation allowance in 2005 to offset a portion of the Company's deferred tax assets due to
uncertainties regarding the realization of deferred tax assets based on the Company's earnings history and limitations on the utilization
of acquired net operating losses. The valuation allowance decreased by approximately $0.3 million during 2006 and decreased by
approximately $0.7 million during 2005. These decreases were primarily due to the benefit of acquired net operating loss
carryforwards.
During 2007, the Company released approximately $1.9 million of its valuation allowance after determining that the acquired
net operating losses would be realized. As the valuation allowance related to acquired net operating losses, the release of the valuation
allowance resulted in a decrease in goodwill of $1.9 million. As of December 31, 2007, the remaining valuation allowance relates
mainly to a capital loss carryforward from an acquired entity, and as such, if realized, will reduce goodwill or other non-current assets
prior to resulting in an income tax benefit.
Changes to the valuation allowance are summarized as follows for the years presented (in thousands):
Year ended December 31,
2006
2007
2005
Balance, beginning of year
Additions
Additions/(Reductions) from purchase accounting
Write-offs
Balance, end of year
$
$
$
2,056
31
(1,957)
--
130
$
$
2,345
--
(289)
--
2,056
$
3,027
--
(446)
(236)
2,345
Management regularly assesses the likelihood that deferred tax assets will be recovered from future taxable income. To the
extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is
established.
The federal corporate statutory rate is reconciled to the Company’s effective income tax rate as follows:
Federal corporate statutory rate
State taxes, net of federal benefit
Effect of foreign operations
Stock compensation
Other
Effective income tax rate
Year Ended December 31,
2006
2007
2005
34.3%
4.2
0.1
1.9
0.8
41.3%
34.3%
4.6
--
3.6
0.7
43.2%
34.0%
4.3
0.1
--
0.1
38.5%
The effective income tax rate decreased to 41.3% for the year ended December 31, 2007 from 43.2% for the year ended
December 31, 2006 as a result of the increased tax benefit of certain dispositions of incentive stock options by holders and a decrease
in the state income taxes, net of the federal benefit.
Source: PERFICIENT INC, 10-K, March 04, 2008
45
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Commitments and Contingencies
The Company leases its office facilities and certain equipment under various operating lease agreements. The Company has
the option to extend the term of certain of its office facilities leases. Future minimum commitments under these lease agreements as of
December 31, 2007 are as follows (in thousands):
2008
2009
2010
2011
2012
Thereafter
Total minimum lease payments
Operating
Leases
$
$
2,363
2,077
1,755
1,377
476
220
8,268
Rent expense for the years ended December 31, 2007, 2006 and 2005 was approximately $2.3 million, $1.7 million and $1.5
million respectively.
As of December 31, 2007, the Company had one letter of credit outstanding for $150,000 to serve as collateral to secure an
office lease. This letter of credit expires in October 2009 and reduces the borrowings available under the Company’s account
receivable line of credit.
11. Balance Sheet Components
Accounts receivable:
Accounts receivable
Unbilled revenues
Allowance for doubtful accounts
Total
Other current assets:
Income tax receivable
Deferred current tax asset
Other current assets
Total
Other current liabilities:
Accrued bonus
Payroll related costs
Accrued subcontractor fees
Deferred revenues
Accrued medical claims expense
Other accrued expenses
Total
46
Source: PERFICIENT INC, 10-K, March 04, 2008
December 31,
2007
2006
(In thousands)
$
$
$
$
$
$
36,894
15,436
(1,475)
50,855
1,174
837
2,131
4,142
9,378
1,862
2,399
1,439
850
2,793
18,721
$
$
$
$
$
$
29,461
9,846
(707)
38,600
2,150
44
605
2,799
9,851
1,258
1,803
1,318
--
1,804
16,034
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property and Equipment:
Computer hardware (useful life of 2 years)
Furniture and fixtures (useful life of 5 years)
Leasehold improvements (useful life of 5 years)
Software (useful life of 1 year)
Less: Accumulated depreciation
Total
12. Allowance for Doubtful Accounts
December 31,
2007
2006
(In thousands)
$
$
5,805
1,248
884
920
(5,631)
3,226
$
$
3,933
980
275
702
(4,084)
1,806
Activity in the allowance for doubtful accounts is summarized as follows for the years presented (in thousands):
Balance, beginning of year
Charged to expense
Additions resulting from purchase accounting
Uncollected balances written off, net of recoveries
Balance, end of year
13. Business Combinations
Acquisition of Bay Street Solutions, Inc.
Year ended December 31,
2006
2007
2005
$
$
$
707
1,060
153
(445)
$
1,475
$
367
264
371
(295)
$
707
654
32
24
(343)
367
On April 7, 2006, the Company acquired Bay Street Solutions, Inc. (“Bay Street”), a national customer relationship
management consulting firm, for approximately $9.8 million. The purchase price consists of approximately $4.1 million in cash,
transaction costs of $636,000, and 464,569 shares of the Company's common stock valued at approximately $12.18 per share
(approximately $5.7 million worth of the Company's common stock) less the value of those shares subject to a lapse acceleration right
of approximately $630,000, as determined by a third party valuation firm. The total purchase price has been allocated to the assets
acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. The purchase price
was allocated to intangibles based on management's estimate and an independent valuation. The results of Bay Street's operations have
been included in the Company's consolidated financial statements since April 7, 2006.
The purchase price allocation is as follows (in millions):
Intangibles:
Customer relationships
Customer backlog
Non-compete agreements
Goodwill
Tangible assets acquired:
Accounts receivable
Other assets
Property and equipment
Accrued expenses
Net assets acquired
$
$
1.6
0.2
0.1
6.4
2.4
0.6
0.1
(1.6)
9.8
The Company estimates that the intangible assets acquired have useful lives of four months to six years.
Source: PERFICIENT INC, 10-K, March 04, 2008
47
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Acquisition of Insolexen, Corp.
On May 31, 2006, the Company acquired Insolexen, Corp. (“Insolexen”), a business integration consulting firm, for
approximately $15.0 million. The purchase price consists of approximately $7.7 million in cash, transaction costs of $657,000, and
522,944 shares of the Company's common stock valued at approximately $13.72 per share (approximately $7.2 million worth of the
Company's common stock) less the value of those shares subject to a lapse acceleration right of approximately $613,000, as
determined by a third party valuation firm. The total purchase price has been allocated to the assets acquired, including identifiable
intangible assets, based on their respective fair values at the date of acquisition. The purchase price was allocated to intangibles based
on management's estimate and an independent valuation. The results of Insolexen's operations have been included in the Company's
consolidated financial statements since May 31, 2006.
The purchase price allocation is as follows (in millions):
Intangibles:
Customer relationships
Customer backlog
Non-compete agreements
Goodwill
Tangible assets and liabilities acquired:
Accounts receivable
Other assets
Accrued expenses
Net assets acquired
$
$
2.8
0.4
0.1
10.4
3.9
2.1
(4.7)
15.0
The Company estimates that the intangible assets acquired have useful lives of seven months to six years.
Acquisition of the Energy, Government and General Business (EGG) division of Digital Consulting & Software Services, Inc.
On July 21, 2006, the Company acquired the Energy, Government and General Business (“EGG”) division of Digital
Consulting & Software Services, Inc., a systems integration consulting business, for approximately $13.1 million. The purchase price
consists of approximately $6.4 million in cash, transaction costs of approximately $275,000, and 511,382 shares of the Company's
common stock valued at approximately $12.71 per share (approximately $6.5 million worth of the Company's common stock) less the
value of those shares subject to a lapse acceleration right of approximately $92,000, as determined by a third party valuation firm. The
total purchase price has been allocated to the assets acquired, including identifiable intangible assets, based on their respective fair
values at the date of acquisition. The purchase price was allocated to intangibles based on management's estimate and an independent
valuation. The results of EGG's operations have been included in the Company's consolidated financial statements since July 21, 2006.
The purchase price allocation is as follows (in millions):
Intangibles:
Customer relationships
Customer backlog
Non-compete agreements
Goodwill
Tangible assets and liabilities acquired:
Accounts receivable
Other assets
Accrued expenses
Net assets acquired
$
$
3.7
0.5
0.1
6.2
3.8
0.4
(1.6)
13.1
The Company estimates that the intangible assets acquired have useful lives of five months to six years.
Source: PERFICIENT INC, 10-K, March 04, 2008
48
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Acquisition of e tech solutions, Inc.
On February 20, 2007, the Company acquired e tech solutions, Inc. (“E Tech”), a solutions-oriented IT consulting firm, for
approximately $12.3 million. The purchase price consists of approximately $5.9 million in cash, transaction costs of approximately
$663,000, and 306,247 shares of the Company's common stock valued at approximately $20.34 per share (approximately $6.2 million
worth of the Company's common stock) less the value of those shares subject to a lapse acceleration right of approximately $474,000,
as determined by a third party valuation firm. The total purchase price has been allocated to the assets acquired, including identifiable
intangible assets, based on their respective fair values at the date of acquisition. The purchase price was allocated to intangibles based
on management's estimate and an independent valuation. Management expects to finalize the purchase price allocation within twelve
months of the acquisition date as certain initial accounting estimates are resolved. The results of E Tech's operations have been
included in the Company's consolidated financial statements since February 20, 2007.
The preliminary purchase price allocation is as follows (in millions):
Intangibles:
Customer relationships
Customer backlog
Non-compete agreements
Goodwill
Tangible assets and liabilities acquired:
Accounts receivable
Property and equipment
Other assets
Accrued expenses
Net assets acquired
$
$
3.0
0.5
0.1
8.9
2.1
0.1
0.1
(2.5)
12.3
The Company estimates that the intangible assets acquired have useful lives of ten months to eight years.
Acquisition of Tier1 Innovation, LLC
On June 25, 2007, the Company acquired Tier1 Innovation, LLC (“Tier1”), a national customer relationship management
consulting firm, for approximately $15.1 million. The purchase price consists of approximately $7.1 million in cash, transaction costs
of approximately $762,500, and 355,633 shares of the Company's common stock valued at approximately $20.69 per share
(approximately $7.4 million worth of the Company's common stock) less the value of those shares subject to a lapse acceleration right
of approximately $144,000 as determined by a third party valuation firm. The total purchase price has been allocated to the assets
acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. The purchase price
was allocated to intangibles based on management's estimate and an independent valuation. Management expects to finalize the
purchase price allocation within twelve months of the acquisition date as certain initial accounting estimates are resolved. The results
of Tier1's operations have been included in the Company's consolidated financial statements since June 25, 2007.
The preliminary purchase price allocation is as follows (in millions):
Intangibles:
Customer relationships
Customer backlog
Non-compete agreements
Internally developed software
Goodwill
Tangible assets and liabilities acquired:
Accounts receivable
Property and equipment
Accrued expenses
Net assets acquired
$
$
0.9
0.4
0.1
0.2
11.9
2.3
0.1
(0.8)
15.1
The Company estimates that the intangible assets acquired have useful lives of six months to five years.
Source: PERFICIENT INC, 10-K, March 04, 2008
49
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Acquisition of BoldTech Systems, Inc.
On September 20, 2007, the Company acquired BoldTech Systems, Inc. (“BoldTech”), an information technology
consulting firm, for approximately $20.9 million. The purchase price consists of approximately $10.0 million in cash, transaction costs
of $1.0 million, and 449,683 shares of the Company's common stock valued at approximately $23.69 per share (approximately
$10.6 million worth of the Company's common stock) less the value of those shares subject to a lapse acceleration right of
approximately $723,000 as determined by a third party valuation firm. The total purchase price has been allocated to the assets
acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. The purchase price
was allocated to intangibles based on management's estimate and an independent valuation. Management expects to finalize the
purchase price allocation within twelve months of the acquisition date as certain initial accounting estimates are resolved. The results
of BoldTech's operations have been included in the Company's consolidated financial statements since September 20, 2007.
The preliminary purchase price allocation is as follows (in millions):
Intangibles:
Customer relationships
Customer backlog
Non-compete agreements
Goodwill
Tangible assets and liabilities acquired:
Cash
Accounts receivable
Property and equipment
Other assets
Accrued expenses
Net assets acquired
$
$
3.8
0.1
0.1
13.0
4.3
5.2
0.7
2.4
(8.7)
20.9
The Company estimates that the intangible assets acquired have useful lives of three months to four years.
Acquisition of ePairs, Inc.
On November 21, 2007, the Company acquired ePairs, Inc. (“ePairs”), a California-based consulting firm focused on
Oracle-Siebel with a recruiting center in Chennai, India, for approximately $5.0 million. The purchase price consists of approximately
$2.5 million in cash, transaction costs of $500,000, and 138,604 shares of the Company's common stock valued at approximately
$16.25 per share (approximately $2.2 million worth of the Company's common stock) less the value of those shares subject to a lapse
acceleration right of approximately $174,000 as determined by a third party valuation firm. The total purchase price has been allocated
to the assets acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. The
purchase price was allocated to intangibles based on management's estimate and an independent valuation. Management expects to
finalize the purchase price allocation within twelve months of the acquisition date as certain initial accounting estimates are resolved.
The results of ePairs' operations have been included in the Company's consolidated financial statements since November 21, 2007.
The preliminary purchase price allocation is as follows (in millions):
Intangibles:
Customer relationships
Goodwill
Tangible assets and liabilities acquired:
Accounts receivable
Other assets
Accrued expenses
Net assets acquired
The Company estimates that the intangible asset acquired has a useful life of five years.
Source: PERFICIENT INC, 10-K, March 04, 2008
50
$
$
1.2
2.7
1.0
0.6
(0.5)
5.0
Source: PERFICIENT INC, 10-K, March 04, 2008
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pro-forma Results of Operations (Unaudited)
The following presents the unaudited pro-forma combined results of operations of the Company with Bay Street, Insolexen,
EGG, E Tech, Tier1, BoldTech, and ePairs for the years ended December 31, 2007 and 2006, after giving effect to certain pro-forma
adjustments related to the amortization of acquired intangible assets and assuming these companies were acquired as of the beginning
of each period presented. These unaudited pro-forma results are not necessarily indicative of the actual consolidated results of
operations had the acquisitions actually occurred on January 1, 2006 and January 1, 2007 or of future results of operations of the
consolidated entities (in thousands, except per share information):
Revenues
Net income
Basic income per share
Diluted income per share
14. Quarterly Financial Results (Unaudited)
December 31,
2007
2006
$
$
$
$
249,439
18,223
0.64
0.59
$
$
$
$
225,639
10,837
0.40
0.37
The following tables set forth certain unaudited supplemental quarterly financial information for the years ended December
31, 2007 and 2006. The quarterly operating results are not necessarily indicative of future results of operations. The financial data
presented is not directly comparable between periods as a result of the four acquisitions in 2007 and three acquisitions in 2006 (in
thousands, except per share data):
Three Months Ended,
March 31,
2007
June 30,
2007
September
30,
2007
December 31,
2007
(Unaudited)
$
$
$
$
$
$
$
$
43,297
4,192
2,560
50,049
17,052
5,570
5,575
3,160
0.12
0.11
$
$
$
$
$
$
$
$
45,961
3,696
2,938
52,595
18,185
6,907
6,958
4,014
0.15
0.13
$
$
$
$
$
$
$
$
48,387
1,582
3,115
53,084
19,046
7,569
7,649
4,541
0.16
0.15
$
$
$
$
$
$
$
$
53,750
4,773
3,897
62,420
21,407
7,416
7,472
4,515
0.15
0.15
Three Months Ended,
March 31,
2006
June 30,
2006
September
30,
2006
December 31,
2006
(Unaudited)
$
$
$
$
$
$
$
$
25,606
2,682
1,356
29,644
9,288
3,057
3,034
1,705
0.07
0.07
$
$
$
$
$
$
$
$
32,751
2,587
2,172
37,510
13,178
4,027
3,900
2,255
0.09
0.08
$
$
$
$
$
$
$
$
40,219
1,532
2,543
44,294
15,854
4,840
4,675
2,834
0.11
0.10
$
$
$
$
$
$
$
39,145
7,635
2,698
49,478
15,437
5,159
5,241
2,774
0.10
0.10
Revenues:
Services
Software
Reimbursable expenses
Total revenues
Gross margin
Income from operations
Income before income taxes
Net income
Basic net income per share
Diluted net income per share
Revenues:
Services
Software
Reimbursable expenses
Total revenues
Gross margin
Income from operations
Income before income taxes
Net income
Basic net income per share
Diluted net income per share
Source: PERFICIENT INC, 10-K, March 04, 2008
51
Source: PERFICIENT INC, 10-K, March 04, 2008
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Perficient, Inc.:
We have audited the accompanying consolidated balance sheet of Perficient, Inc. and subsidiaries (the Company) as of December 31,
2007, and the related consolidated statement of income, stockholders’ equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit. The accompanying financial statements of the Company as of December
31, 2006, and for each of the years in the two year period then ended, were audited by other auditors whose report thereon dated
March 1, 2007, except Note 2 as to which date is August 13, 2007, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2007 consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Perficient, Inc. and subsidiaries as of December 31, 2007, and the results of their operations and their cash flows for the
year then ended, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Perficient, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report
dated March 3, 2008 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
St. Louis, Missouri
March 3, 2008
52
Source: PERFICIENT INC, 10-K, March 04, 2008
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Perficient, Inc.:
We have audited Perficient, Inc.’s (the Company) internal control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Perficient, Inc. maintained, in all material respects, effective internal control over financial reporting as of December
31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
The Company acquired e tech solutions, Inc. (E Tech), Tier1 Innovation, LLC (Tier 1), BoldTech Systems, Inc. (BoldTech), and
ePairs, Inc. (ePairs) during 2007, and management excluded from its assessment of the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2007, E Tech, Tier 1, BoldTech, and ePairs’ internal control over financial
reporting associated with 25% and 10% of the Company’s total assets and total revenues, respectively, as of and for the year ended
December 31, 2007. Our audit of internal control over financial reporting of Perficient, Inc. as of December 31, 2007 also excluded
an evaluation of the internal control over financial reporting of E Tech, Tier 1, BoldTech, and ePairs.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Perficient, Inc. as of December 31, 2007, and the related consolidated statement of income,
stockholders’ equity, and cash flows for the year then ended, and our report dated March 3, 2008 expressed an unqualified opinion on
those consolidated financial statements.
/s/ KPMG LLP
St. Louis, Missouri
March 3, 2008
53
Source: PERFICIENT INC, 10-K, March 04, 2008
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Perficient, Inc.
Austin, Texas
We have audited the accompanying consolidated balance sheet of Perficient, Inc. as of December 31, 2006 and the related
consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the two years in the
period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Perficient, Inc. at December 31, 2006, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123(R), Share-Based Payment.
/s/ BDO Seidman, LLP
Houston, Texas
March 1, 2007, except Note 2 to the 2006 financial
statements as to which date is August 13, 2007
54
Source: PERFICIENT INC, 10-K, March 04, 2008
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Controls and Procedures.
Item
9.
Item
9A.
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to the Company,
including its consolidated subsidiaries, is made known to the officers who certify the Company's financial reports and to other
members of senior management and the Board of Directors.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the
Company's reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated to management, including the principal executive
officer and principal financial officer of the Company, as appropriate, to allow timely decisions regarding required disclosure. The
Company's management, with the participation of the Company's principal executive officer and principal financial officer, has
evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the fiscal year covered by this Annual
Report on Form 10-K. As described below under Management's Annual Report on Internal Control Over Financial Reporting, the
Company’s principal executive and principal financial officers have determined that the Company’s disclosure controls and
procedures were effective.
Prior to the issuance of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007, the Company
determined that its Consolidated Statements of Cash Flows included in its Annual Report on Form 10-K for the year ended December
31, 2006 and Unaudited Condensed Consolidated Statements of Cash Flows included in its Quarterly Report on Form 10-Q for the
period ended March 31, 2007 should be restated. The restatement resulted from an error regarding certain previously reported
payments associated with acquisitions that were incorrectly included as a component of cash flows provided by operating activities in
the Company's Consolidated Statements of Cash Flows. These errors resulted from a significant deficiency in the procedures and
controls to reconcile and review the impact of acquisitions on the Consolidated Statements of Cash Flows. Such deficiency did not
result in a material weakness in the design or operation of the internal control. The controls in place regarding reconciliation and
review of cash flows related to acquisition activity represent a very narrow subset of the Company's financial disclosure controls and
an even narrower element of the Company's overall financial control structure. The Company does not believe that this restatement
resulted from a breakdown in its general controls; rather this was an isolated error for specific types of acquisition payments.
In connection with implementing the Company’s remediation plan to address this internal control deficiency, the Company
has instituted controls and procedures to ensure the proper reconciliation and review of the impact of certain acquisition payments on
the Consolidated Statements of Cash Flows. The Company plans to continue to enhance its controls in the area and monitor the
effectiveness of these controls.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f). In fulfilling this responsibility, estimates and judgments by management are required
to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing
management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition,
and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of
consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Under
the supervision and with the participation of our management, including our principal executive officer and principal financial officer,
we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal
Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
assessment under those criteria, management concluded that the Company’s internal control over financial reporting was effective as
of December 31, 2007.
The Company acquired e tech solutions, Inc. (“E Tech”), Tier1 Innovation, LLC (“Tier1”), BoldTech Systems, Inc.
(“BoldTech”), and ePairs, Inc. (“ePairs”) in February, June, September, and November of 2007, respectively. As permitted by SEC
guidance, management excluded these acquired companies from its assessment of the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2007. In total, E Tech, Tier1, BoldTech, and ePairs represented 25% and 10% of the
Company's total assets and total revenues, respectively, as of and for the year ended December 31, 2007. Excluding identifiable
intangible assets and goodwill recorded in the business combination, E Tech, Tier1, BoldTech, and ePairs represented 1% of the
Company's total assets as of December 31, 2007.
Source: PERFICIENT INC, 10-K, March 04, 2008
KPMG LLP, our independent registered public accounting firm, has audited our financial statements for the year ended
December 31, 2007 included in this Form 10-K, and has issued its report on the effectiveness of internal control over financial
reporting as of December 31, 2007, which is included herein.
55
Source: PERFICIENT INC, 10-K, March 04, 2008
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2007, we continued our remediation efforts from the prior quarters in order to fully
remediate our previously reported significant deficiency related to the classification of certain acquisition payments on the
Consolidated Statements of Cash Flows. This included enhancement of our detailed cash flow statement review and the addition of
executive review.
Except as described above, there have not been any significant changes in the Company’s internal control over financial
reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended December 31, 2007, that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management obtained sufficient evidence of the operating effectiveness of such additional controls during the year ended
December 31, 2007 and concluded that our previously reported significant deficiency has been remediated.
Other Information.
Item
9B.
None.
56
Source: PERFICIENT INC, 10-K, March 04, 2008
Directors, Executive Officers and Corporate Governance.
PART III
Item
10.
Executive Officers
Our executive officers and directors, including their ages as of the date of this filing are as follows:
Name
John T. McDonald
Jeffrey S. Davis
Paul E. Martin
Richard T. Kalbfleish
Ralph C. Derrickson
Max D. Hopper
Kenneth R. Johnsen
David S. Lundeen
Age
44
43
47
52
49
73
54
46
Position
Chairman of the Board and Chief Executive Officer
President and Chief Operating Officer
Chief Financial Officer, Treasurer and Secretary
Controller and Vice President of Finance and Administration
Director
Director
Director
Director
John T. McDonald joined us in April 1999 as Chief Executive Officer and was elected Chairman of the Board in March
2001. From April 1996 to October 1998, Mr. McDonald was president of VideoSite, Inc., a multimedia software company that was
acquired by GTECH Corporation in October 1997, 18 months after Mr. McDonald became VideoSite's president. From May 1995 to
April 1996, Mr. McDonald was a Principal with Zilkha & Co., a New York-based merchant banking firm. From June 1993 to April
1996, Mr. McDonald served in various positions at Blockbuster Entertainment Group, including Director of Corporate Development
and Vice President, Strategic Planning and Corporate Development of NewLeaf Entertainment Corporation, a joint venture between
Blockbuster and IBM. From 1987 to 1993, Mr. McDonald was an attorney with Skadden, Arps, Slate, Meagher & Flom in New York,
focusing on mergers and acquisitions and corporate finance. Mr. McDonald currently serves as a member of the board of directors of a
number of privately held companies and nonprofit organizations. Mr. McDonald received a B.A. in Economics from Fordham
University and a J.D. from Fordham Law School.
Jeffrey S. Davis became our Chief Operating Officer upon the closing of the acquisition of Vertecon in April 2002 and was
named our President in 2004. He previously served the same role since October 1999 at Vertecon prior to its acquisition by Perficient.
Mr. Davis has 14 years of experience in technology management and consulting. Prior to Vertecon, Mr. Davis was a Senior Manager
and member of the leadership team in Arthur Andersen's Business Consulting Practice starting in January 1999 where he was
responsible for defining and managing internal processes, while managing business development and delivery of products, services
and solutions to a number of large accounts. Prior to Arthur Andersen, Mr. Davis worked at Ernst & Young LLP for two years,
Mallinckrodt, Inc. for two years, and spent five years at McDonnell Douglas in many different technical and managerial positions.
Mr. Davis has a M.B.A. from Washington University and a B.S. degree in Electrical Engineering from the University of Missouri.
Paul E. Martin joined us in August 2006 as Chief Financial Officer, Treasurer and Secretary. From August 2004 until
February 2006, Mr. Martin was the Interim co-Chief Financial Officer and Interim Chief Financial Officer of Charter
Communications, Inc. ("Charter"), a publicly traded multi-billion dollar in revenue domestic cable television multi-system operator.
From April 2002 through April 2006, Mr. Martin was the Senior Vice President, Principal Accounting Officer and Corporate
Controller of Charter and was Charter's Vice President and Corporate Controller from March 2000 to April 2002. Prior to Charter, Mr.
Martin was Vice President and Controller for Operations and Logistics for Fort James Corporation, a manufacturer of paper products
with multi-billion dollar revenues. From 1995 to February 1999, Mr. Martin was Chief Financial Officer of Rawlings Sporting Goods
Company, Inc., a publicly traded multi-million dollar revenue sporting goods manufacturer and distributor. Mr. Martin received a B.S.
degree with honors in accounting from the University of Missouri - St. Louis. Mr. Martin is also a member of the University of
Missouri – St. Louis School of Business Leadership Council.
Richard T. Kalbfleish joined us as Controller in November 2004 and became Vice President of Finance & Administration
and Assistant Treasurer in May 2005. Prior to joining Perficient, Mr. Kalbfleish served as Vice President of Finance & Administration
with IntelliMark/Technisource, a national IT staffing company, for 11 years. Mr. Kalbfleish has over 22 years of experience at the
Controller level and above in a number of service industries with an emphasis on acquisition integration and accounting, human
resources and administrative support. Mr. Kalbfleish has a B.S.B.A. in Accountancy from the University of Missouri at Columbia.
57
Source: PERFICIENT INC, 10-K, March 04, 2008
Ralph C. Derrickson became a member of our board of directors in July 2004. Mr. Derrickson has more than 26 years of
technology management experience in a wide range of settings including start-up, interim management and restructuring situations.
Currently Mr. Derrickson is President and CEO of Carena, Inc. Prior to joining Carena, Inc., Mr. Derrickson was managing director of
venture investments at Vulcan Inc., an investment management firm with headquarters in Seattle, Washington from October 2001 to
July 2004. Mr. Derrickson is a founding partner of Watershed Capital, an early-stage venture capital firm, and is the managing
member of RCollins Group, LLC, a management advisory firm. He served as a board member of Metricom, Inc., a publicly traded
company, from April 1997 to November 2001 and as Interim CEO of Metricom from February 2001 to August 2001. Metricom, Inc.
voluntarily filed a bankruptcy petition in US Bankruptcy Court for the Northern District of California in July of 2001. He served as
vice president of product development at Starwave Corporation, one of the pioneers of the Internet. Earlier, Mr. Derrickson held
senior management positions at NeXT Computer, Inc. and Sun Microsystems, Inc. He has served on the boards of numerous start-up
technology companies. Mr. Derrickson is on the faculty of the Michael G Foster School of Business at the University of Washington,
and serves on the Executive Advisory Board of the Center for Entrepreneurship and Innovation at the University of Washington, as
well as a member of the President’s Circle of the National Academy of Sciences, The National Academy of Engineering and the
Institute of Medicine. Mr. Derrickson holds a bachelor’s degree in systems software from the Rochester Institute of Technology.
Max D. Hopper became a member of our board of directors in September 2002. Mr. Hopper began his information systems
career in 1960 at Shell Oil and served with EDS, United Airlines and Bank of America prior to joining American Airlines. During
Mr. Hopper's twenty-year tenure at American Airlines he served as CIO, and as CEO of several business units. Most recently, he
founded Max D. Hopper Associates, Inc., a consulting firm that specializes in the strategic use of information technology and
business-driven technology. Mr. Hopper currently serves on the board of directors for several companies such as Gartner Group, and
several other private corporations.
Kenneth R. Johnsen became a member of our board of directors in July 2004. Mr. Johnsen is currently the CEO and
Chairman of the Board of HG Food, LLC. He also serves as a Director on the Board of BooKoo Beverages, Inc. Prior to joining HG
Food, LLC, Mr. Johnsen was a partner with Aspen Advisors, LP. From January 1999 to October 2006, Mr. Johnsen served as
President, CEO and Chairman of the Board of Parago Inc., a marketing services transaction processor. Before joining Parago Inc. in
1999, he served as President, Chief Operating Officer and Board Member of Metamor Worldwide Inc., an $850 million public
technology services company specializing in information technology consulting and implementation. Metamor was later acquired by
PSINet for $1.7 billion. At Metamor, Mr. Johnsen grew the IT Solutions Group revenues from $20 million to over $300 million within
two years. His experience also includes 22 years at IBM where he held general management positions, including Vice President of
Business Services for IBM Global Services and General Manager of IBM China/Hong Kong Operations. He achieved record
revenues, profit and customer satisfaction levels in both business units.
David S. Lundeen became a member of our board of directors in April 1998. From March 1999 through 2002, Mr. Lundeen
was a partner with Watershed Capital, a private equity firm based in Mountain View, California. From June 1997 to February 1999,
Mr. Lundeen was self-employed, managed his personal investments and acted as a consultant and advisor to various businesses. From
June 1995 to June 1997, he served as the Chief Financial Officer and Chief Operating Officer of BSG. From January 1990 until
June 1995, Mr. Lundeen served as President of Blockbuster Technology and as Vice President of Finance of Blockbuster
Entertainment Corporation. Prior to that time, Mr. Lundeen was an investment banker with Drexel Burnham Lambert in New York
City. Mr. Lundeen currently serves as a member of the board of directors of Parago, Inc., and as Chairman of the Board of Interstate
Connections, Inc. Mr. Lundeen received a B.S. in Engineering from the University of Michigan in 1984 and an M.B.A. from the
University of Chicago in 1988. The board of directors has determined that Mr. Lundeen is an audit committee financial expert, as such
term is defined in the rules and regulations promulgated by the Securities and Exchange Commission.
Codes of Conduct and Ethics
The Company has adopted a Corporate Code of Business Conduct and Ethics that applies to all employees and directors of
the Company while acting on the Company's behalf and has adopted a Financial Code of Ethics applicable to the chief executive
officer, the chief financial officer, and other senior financial officials.
58
Source: PERFICIENT INC, 10-K, March 04, 2008
Audit Committee of the Board of Directors
The board of directors has created an audit committee. Each committee member is independent as defined by Nasdaq Global
Select Market listing standards.
The audit committee has the sole authority to appoint, retain and terminate our independent accountants and is directly
responsible for the compensation, oversight and evaluation of the work of the independent accountants. The independent accountants
report directly to the audit committee. The audit committee also has the sole authority to approve all audit engagement fees and terms
and all non-audit engagements with our independent accountants and must pre-approve all auditing and permitted non-audit services
to be performed for us by the independent accountants, subject to certain exceptions provided by the Securities Exchange Act of 1934.
The members of the audit committee are Max D. Hopper, David S. Lundeen and Ralph C. Derrickson. Mr. Lundeen serves as
chairman of the audit committee. The board of directors has determined that Mr. Lundeen is qualified as our audit committee financial
expert within the meaning of Securities and Exchange Commission regulations and that he has accounting and related financial
management expertise within the meaning of the listing standards of the Nasdaq Global Select Market. The board of directors has
affirmatively determined that Mr. Lundeen qualified as an independent director as defined by the Nasdaq Global Select Market listing
standards.
Additional information with respect to Directors and Executive Officers of the Company is incorporated by reference to the
Proxy Statement under the captions "Nominees and Continuing Directors", "Composition and Meetings of the Board of Directors and
Committees", and "Section 16(a) Beneficial Ownership Reporting Compliance." The Proxy Statement will be filed pursuant to
Regulation 14A within 120 days of the end of the Company's fiscal year.
Executive Compensation.
Item
11.
Information on this subject is found in the Proxy Statement under the captions "Compensation of Directors and Executive
Officers” and "Nominees and Continuing Directors" and is incorporated herein by reference. The proxy Statement will be filed
pursuant to Regulation 14A within 120 days of the end of the Company's fiscal year.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item
12.
Information on this subject is found in the Proxy Statement under the captions "Security Ownership of Certain Beneficial
Owners and Management ", "Nominees and Continuing Directors", and "Equity Compensation Plan Information" and is incorporated
herein by reference. The Proxy Statement will be filed pursuant to Regulations 14A within 120 days of the end of the Company's
fiscal year.
Certain Relationships and Related Transactions, and Director Independence.
Item
13.
Information on this subject is found in the Proxy Statement under the caption "Certain Relationships and Related
Transactions" and incorporated herein by reference. The Proxy Statement will be filed pursuant to Regulation 14A within 120 days of
the end of the Company's fiscal year.
Principal Accounting Fees and Services.
Item
14.
Information on this subject is found in the Proxy Statement under the caption "Principal Accounting Firm Fees and Services"
and incorporated herein by reference. The Proxy Statement will be filed pursuant to Regulation 14A within 120 days of the end of the
Company's fiscal year.
59
Source: PERFICIENT INC, 10-K, March 04, 2008
PART IV
Exhibits, Financial Statement Schedules.
Item
15.
(a)
Financial Statements
1.
The following consolidated statements are included within Item 8 under the following captions:
Index
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
2.
Financial Statement Schedules
Page(s)
30
31
32
33
34
52-54
No financial statement schedules are required to be filed by Items 8 and 15(d) because they are not required or are not
applicable, or the required information is set forth in the applicable financial statements or notes thereto.
3.
Exhibits
See Index to Exhibits starting on page 62.
60
Source: PERFICIENT INC, 10-K, March 04, 2008
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 4, 2008
Date: March 4, 2008
Date: March 4, 2008
PERFICIENT, INC.
By: /s/ John T. McDonald
John T. McDonald
Chief Executive Officer (Principal Executive Officer)
By: /s/ Paul E. Martin
Paul E. Martin
Chief Financial Officer (Principal Financial Officer)
By: /s/ Richard T. Kalbfleish
Richard T. Kalbfleish
Vice President of Finance and Administration (Principal
Accounting Officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John
T. McDonald and Paul E. Martin, and each of them (with full power to each of them to act alone), his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign on his or her behalf individually and in each capacity stated below any and all amendments (including
post-effective amendments) to this annual report, and to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents and either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ John T. McDonald
John T. McDonald
/s/ Ralph C. Derrickson
Ralph C. Derrickson
/s/ Max D. Hopper
Max D. Hopper
/s/ Kenneth R. Johnsen
Kenneth R. Johnsen
/s/ David S. Lundeen
David S. Lundeen
Title
Chief Executive Officer and
Chairman of the Board (Principal Executive
Officer)
Director
Director
Director
Director
61
Date
March 4, 2008
March 4, 2008
March 4, 2008
March 4, 2008
March 4, 2008
Source: PERFICIENT INC, 10-K, March 04, 2008
Exhibit
Number Description
INDEX TO EXHIBITS
2.1
2.2
2.3
2.4
2.5
2.6
2.7
3.1
3.2
3.3
3.4
4.1
4.2
Agreement and Plan of Merger, dated as of April 6, 2006, by and among Perficient, Inc., PFT MergeCo, Inc., Bay Street
Solutions, Inc. and the other signatories thereto, previously filed with the Securities and Exchange Commission as an
Exhibit to our Current Report on Form 8-K filed on April 12, 2006 and incorporated herein by reference
Agreement and Plan of Merger, dated as of May 31, 2006, by and among Perficient, Inc., PFT MergeCo II, Inc.,
Insolexen, Corp., HSU Investors, LLC, Hari Madamalla, Steve Haglund and Uday Yallapragada, previously filed with the
Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on June 5, 2006 and
incorporated herein by reference
Asset Purchase Agreement, dated as of July 20, 2006, by and among Perficient, Inc., Perficient DCSS, Inc. and Digital
Consulting & Software Services, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our
Current Report on Form 8-K filed on July 26, 2006 and incorporated herein by reference
Agreement and Plan of Merger, dated as of February 20, 2007, by and among Perficient, Inc., PFT MergeCo III, Inc., e
tech solutions, Inc., each of the Principals of e tech solutions, Inc., and Gary Rawding, as Representative, previously filed
with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on February 23,
2007 and incorporated herein by reference
Asset Purchase Agreement, dated as of June 25, 2007, by and among Perficient, Inc., Tier1 Innovation, LLC, and Mark
Johnston and Jay Johnson, previously filed with the Securities and Exchange Commission as an Exhibit to our Current
Report on Form 8-K filed on June 28, 2007 and incorporated herein by reference
Agreement and Plan of Merger, dated as of September 20, 2007, by and among Perficient, Inc., PFT MergeCo IV, Inc.,
BoldTech Systems, Inc., a Colorado corporation, BoldTech Systems, Inc., a Delaware corporation, each of the Principals
(as defined therein) and the Representative (as defined therein), previously filed with the Securities and Exchange
Commission as an Exhibit to our Current Report on Form 8-K filed September 21, 2007 and incorporated herein by
reference
Asset Purchase Agreement, dated as of November 21, 2007, by and among Perficient, Inc., ePairs, Inc., the Principal (as
defined therein) and the Seller Shareholders (as defined therein), previously filed with the Securities and Exchange
Commission as an Exhibit to our Current Report on Form 8-K filed November 27,2007 and incorporated herein by
reference
Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and Exchange Commission as an
Exhibit to our Registration Statement on Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by the
Securities and Exchange Commission and incorporated herein by reference
Certificate of Amendment to Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and
Exchange Commission as an Exhibit to our Form 8-A filed with the Securities and Exchange Commission pursuant to
Section 12(g) of the Securities Exchange Act of 1934 on February 15, 2005 and incorporated herein by reference
Certificate of Amendment to Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and
Exchange Commission as an Exhibit to our Registration Statement on Form S-8 (File No. 333-130624) filed on December
22, 2005 and incorporated herein by reference
Bylaws of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Current
Report on Form 8-K filed November 9, 2007 and incorporated herein by reference
Specimen Certificate for shares of common stock, previously filed with the Securities and Exchange Commission as an
Exhibit to our Registration Statement on Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by the
Securities and Exchange Commission and incorporated herein by reference
Warrant granted to Gilford Securities Incorporated, previously filed with the Securities and Exchange Commission as an
Exhibit to our Registration Statement on Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by the
Securities and Exchange Commission and incorporated herein by reference
Source: PERFICIENT INC, 10-K, March 04, 2008
62
Source: PERFICIENT INC, 10-K, March 04, 2008
Exhibit
Number
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8†
10.9†
Description
Form of Common Stock Purchase Warrant, previously filed with the Securities and Exchange Commission as an Exhibit
to our Current Report on Form 8-K (File No.001-15169) filed on January 17, 2002 and incorporated herein by reference
Form of Warrant, previously filed with the Securities and Exchange Commission as an Exhibit to our Registration
Statement on Form S-3 (File No. 333-117216) and incorporated by reference herein
Perficient, Inc. Amended and Restated 1999 Stock Option/Stock Issuance Plan, previously filed with the Securities and
Exchange Commission as an Exhibit to our annual report on Form 10-K for the year ended December 31, 2005 and
incorporated by reference herein
Form of Stock Option Agreement, previously filed with the Securities and Exchange Commission as an Exhibit to our
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004 and incorporated herein by reference
Perficient, Inc. Employee Stock Purchase Plan, previously filed with the Securities and Exchange Commission as
Appendix A to the Registrant's Schedule 14A (File No. 001-15169) on October 13, 2005 and incorporated herein by
reference
Form of Restricted Stock Agreement, previously filed with the Securities and Exchange Commission as an Exhibit to our
annual report on Form 10-K for the year ended December 31, 2005 and incorporated by reference herein
Form of Indemnity Agreement between Perficient, Inc. and each of our directors and officers, previously filed with the
Securities and Exchange Commission as an Exhibit to our Registration Statement on Form SB-2 (File No. 333-78337)
declared effective on July 28, 1999 by the Securities and Exchange Commission and incorporated herein by reference
Offer Letter, dated July 20, 2006, by and between Perficient, Inc. and Mr. Paul E. Martin, previously filed with the
Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on July 26, 2006 and
incorporated herein by reference
Offer Letter Amendment, dated August 31, 2006, by and between Perficient, Inc. and Mr. Paul E. Martin, previously filed
with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on September 1,
2006 and incorporated herein by reference
Employment Agreement between Perficient, Inc. and John T. McDonald dated April 20, 2007, and effective as of January
1, 2007, previously filed with the Securities and Exchange Commission as an Exhibit to our annual report on Form 10-K
for the year ended December 31, 2005 and incorporated by reference herein
Employment Agreement between Perficient, Inc. and Jeffrey Davis dated August 3, 2006, and effective as of July 1, 2006
filed with the Securities and Exchange Commission as an Exhibit to our Quarterly Report on Form 10-Q filed on August
9, 2006 and incorporated herein by reference
10.10 Amended and Restated Loan and Security Agreement by and among Silicon Valley Bank, KeyBank National Association,
Perficient, Inc., Perficient Canada Corp., Perficient Genisys, Inc., Perficient Meritage, Inc. and Perficient Zettaworks, Inc.
dated effective as of June 3, 2005, previously filed with the Securities and Exchange Commission as an Exhibit to our
annual report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference
10.11 Amendment to Amended and Restated Loan and Security Agreement, dated as of June 29, 2006, by and among Silicon
Valley Bank, KeyBank National Association, Perficient, Inc., Perficient Genisys, Inc., Perficient Canada Corp., Perficient
Meritage, Inc., Perficient Zettaworks, Inc., Perficient iPath, Inc., Perficient Vivare, Inc., Perficient Bay Street, LLC and
Perficient Insolexen, LLC, previously filed with the Securities and Exchange Commission as an Exhibit to our Current
Report on Form 8-K filed on July 5, 2006 and incorporated herein by reference
63
Source: PERFICIENT INC, 10-K, March 04, 2008
Exhibit
Number Description
10.12
10.13
10.14
14.1
14.2
Lease by and between Cornerstone Opportunity Ventures, LLC and Perficient, Inc., previously filed with the Securities
and Exchange Commission as an Exhibit to our annual report on Form 10-K for the year ended December 31, 2005 and
incorporated by reference herein
First Amended and Restated Investor Rights Agreements dated as of June 26, 2002 by and between Perficient, Inc. and the
Investors listed on Exhibits A and B thereto, previously filed with the Securities and Exchange Commission as an Exhibit
to our Current Report on Form 8-K (File No. 001-15169) filed on July 18, 2002 and incorporated by reference herein
Securities Purchase Agreement, dated as of June 16, 2004, by and among Perficient, Inc., Tate Capital Partners Fund,
LLC, Pandora Select Partners, LP, and Sigma Opportunity Fund, LLC, previously filed with the Securities and Exchange
Commission as an Exhibit to our Current Report on Form 8-K filed on June 23, 2004 and incorporated by reference herein
Corporate Code of Business Conduct and Ethics, previously filed with the Securities and Exchange Commission on Form
10-KSB/A for the year ended December 31, 2003 and incorporated by reference herein
Financial Code of Ethics, previously filed with the Securities and Exchange Commission on Form 10-KSB/A for the year
ended December 31, 2003 and incorporated by reference herein
21.1*
Subsidiaries
23.1* Consent of BDO Seidman, LLP
23.2* Consent of KPMG LLP
24.1
Power of Attorney (included on the signature page hereto)
31.1* Certification by the Chief Executive Officer of Perficient, Inc. as required by Section 302 of the Sarbanes-Oxley Act of
2002
31.2* Certification by the Chief Financial Officer of Perficient, Inc. as required by Section 302 of the Sarbanes-Oxley Act of
2002
32.1*
Certification by the Chief Executive Officer and Chief Financial Officer of Perficient, Inc. pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
†
*
Identifies an Exhibit that consists of or includes a management contract or compensatory plan or arrangement.
Filed herewith.
64
Source: PERFICIENT INC, 10-K, March 04, 2008
Source: PERFICIENT INC, 10-K, March 04, 2008
EXHIBIT 21.1
Subsidiaries
Perficient, Inc.
Perficient Canada Corp.
Perficient iPath, Inc.
Perficient Vivare, Inc.
Perficient Bay Street, LLC
Perficient Insolexen, LLC
Perficient DCSS, Inc.
Perficient E-Tech, LLC
BoldTech International LLC
BoldTech Systems (Hangzhou), Ltd.
ePairs India Private Limited
Subsidiaries
Jurisdiction
Providence of Ontario, Canada
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Colorado
People’s Republic of China
India
Source: PERFICIENT INC, 10-K, March 04, 2008
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
Perficient, Inc.
Austin, Texas
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-100490, No. 333-116549,
No. 333-117216, No. 333-123177, No. 333-129054, No. 333-138602, No. 333-142267, No. 333-145899, No. 333-147687 and No.
333-148978) and Form S-8 (No. 333-42626, No. 333-44854, No. 333-75666, No. 333-118839, No. 333-130624 and 333-147730) of
Perficient, Inc. of our reports dated March 1, 2007, except Note 2 relating to the 2006 consolidated financial statements, as to which
date is August 13, 2007, which appears in this Form 10-K.
/s/ BDO Seidman, LLP
Houston, Texas
March 3, 2008
Source: PERFICIENT INC, 10-K, March 04, 2008
Consent of Independent Registered Public Accounting Firm
Exhibit 23.2
The Board of Directors and Stockholders
Perficient, Inc.:
We consent to the incorporation by reference in the registration statements (No. 333-100490, No. 333-116549, No. 333-117216, No.
333-123177, No. 333-129054, No. 333-138602, No. 333-142267, No. 333-145899, No. 333-147687, and No. 333-148978) on Form
S-3 and (No. 333-42626, No. 333-44854, No. 333-75666, No. 333-118839, No. 333-130624, and No. 333-147730) on Form S-8 of
Perficient, Inc. and subsidiaries (the Company) of our reports dated March 3, 2008, with respect to the consolidated balance sheets of
the Company as of December 31, 2007, and the related consolidated statements of income, stockholders’ equity, and cash flows, for
the year then ended, and the effectiveness of internal control over financial reporting as of December 31, 2007, which reports appear
in the December 31, 2007 annual report on Form 10-K of the Company.
Our report with respect to the consolidated financial statements refers to the Company’s adoption, effective January 1, 2006, of
Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment.
Our report dated March 3, 2008, on the effectiveness of internal control over financial reporting as of December 31, 2007, contains an
explanatory paragraph that states the Company acquired e tech solutions, Inc. (E Tech), Tier1 Innovation, LLC (Tier 1), BoldTech
Systems, Inc. (BoldTech), and ePairs, Inc. (ePairs) during 2007, and management excluded from its assessment of the effectiveness of
the Company’s internal control over financial reporting as of December 31, 2007, E Tech, Tier 1, BoldTech, and ePairs’ internal
control over financial reporting associated with 25% and 10% of the Company’s total assets and total revenues, respectively, as of and
for the year ended December 31, 2007. Our audit of internal control over financial reporting of Perficient, Inc. as of December 31,
2007 also excluded an evaluation of the internal control over financial reporting of E Tech, Tier 1, BoldTech, and ePairs.
/s/ KPMG LLP
St. Louis, Missouri
March 3, 2008
Source: PERFICIENT INC, 10-K, March 04, 2008
Exhibit 31.1
CERTIFICATIONS
I, John T. McDonald, certify that:
1. I have reviewed this annual report on Form 10-K of Perficient, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date: March 4, 2008
By:
/s/ John T. McDonald
John T. McDonald
Chief Executive Officer
Source: PERFICIENT INC, 10-K, March 04, 2008
Exhibit 31.2
CERTIFICATIONS
I, Paul E. Martin, certify that:
1. I have reviewed this annual report on Form 10-K of Perficient, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: March 4, 2008
By:
/s/ Paul E. Martin
Paul E. Martin
Chief Financial Officer
Source: PERFICIENT INC, 10-K, March 04, 2008
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
Exhibit 32.1
Pursuant to 18 U.S.C. Sec. 1350 and in connection with the accompanying report on Form 10-K for the fiscal year ended December
31, 2007 that contains financial statements for such period and that is being filed concurrently with the Securities and Exchange
Commission on the date hereof (the “Report”), each of the undersigned officers of Perficient, Inc. (the “Company”), hereby certifies
that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: March 4, 2008
Date: March 4, 2008
By: /s/ John T. McDonald
John T. McDonald
Chief Executive Officer
By: /s/ Paul E. Martin
Paul E. Martin
Chief Financial Officer
_______________________________________________
Created by 10KWizard www.10KWizard.com
Source: PERFICIENT INC, 10-K, March 04, 2008