Perficient Sets Ambitious M&A Goal

Digital transformation consulting firm Perficient has set its sights on an ambitious merger-and-acquisition target this year after adding three companies to its stable in 2018.

The St. Louis-based Perficient hopes acquisitions will add an approximately $50 million revenue run rate to its financial ledger – a goal that CEO Jeffrey Davis acknowledges is tough to do.

“It’s an aggressive goal, but I think it’s possible,” Davis told analysts during Perficient’s fourth-quarter and full-year earnings call yesterday. “We’ve got the pipeline to do it.”

Valuations remain reasonable, according to Davis, whose M&A areas of interest include Pivotal, Oracle and enterprise resource planning.

“There’s a lot of ongoing activity right now,” Davis said. “We do have a few things that are in later stage. We’re confident that we’ll be able to get at least a couple of deals done this year.”

Perficient acquired three companies with a combined $32 million in annual revenue last year: Elixiter, a company specializing in Marketo marketing automation services; digital marketing agency Stone Temple Consulting; and Southport Services Group, a MicroStrategy consultancy.

Perficient yesterday said it signed 49 customer deals valued at more than $500,000 each for the quarter ended Dec. 31, 2108, with an average deal size of $1.1 million. That compares to 48 similar-sized deals in the last quarter of 2017.

“We’re routinely winning big, important long-term work in the largest enterprises, in (the) most recognizable brands in the market,” Davis said. “We’re doing all that by operating, out-hustling and outperforming competitors many times our size.”

Perficient’s revenue for the fourth quarter that ended Dec. 31, 2018, dropped 1.3 percent from the year-ago period to $131.7 million. That was $2.7 million better than the Jefferies equity research estimate, driven by a 10.7 percent jump in services revenue to $130 million . Net income rose 16 percent to $7.5 million compared with the year-ago quarter.

“Perficient fired on all cylinders during the fourth quarter, delivering strong margins and profitability that exceeded our forecast,” Davis said. “That momentum has carried into the first quarter of 2019. Bookings are solid, the pipeline is the largest it has ever been.”

The company’s stock closed up $2.23 or 8.4 percent on Tuesday to $28.82 per share.

Health sciences, financial services, retail consumer goods, automotive and manufacturing verticals represented 76 percent of Perficient’s quarterly revenue, with healthcare at 30 percent.

Perficient continues to be bullish on health services.

“We’re super well-positioned there,” Davis said, while health care will “continue to lead the way in terms of growth.”

Perficient’s full-year net income climbed 32 percent from the prior year to $24.6 million, on revenue that increased 3 percent to $485.3 million.

“Investments we’ve made to expand our portfolio around high-growth areas like cloud and digital are accelerating our performance as well,” Davis said.

The company expects first-quarter revenue of $129 million to $133 million and full-year revenue of $515 million to $545 million.

“We started off the year…kind of gangbusters,” Davis said.

Perficient’s full-year guidance is significantly better than anticipated, according to Jefferies analyst Surinder Thind, “suggesting an acceleration in revenues as the year progresses as well as margin expansion.”

The digital transformation industry is only in the second or third inning, Davis said, using a baseball metaphor.

“We’ve got a very, very long runway,” he said. “And behind digital, it’s going to be something else that we probably don’t even quite understand yet, whether it’s (artificial intelligence) and more (internet of things) devices, etc.”