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, 2017, has been prepared in accordance with U.S. generally accepted accounting principles. The financial data presented is not directly comparable between periods as a result of two acquisitions in 2017, one acquisition in 2016, and three acquisitions in each of 2015, 2014 and 2013.
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.
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| Income Statement Data: | | (In thousands, except per share information) | |
| Revenues | | $ | 485,261 | | | $ | 486,982 | | | $ | 473,621 | | | $ | 456,692 | | | $ | 373,325 | |
| Cost of revenues | | $ | 323,748 | | | $ | 335,702 | | | $ | 318,411 | �� | | $ | 307,357 | | | $ | 250,226 | |
| Selling, general and administrative | | $ | 108,192 | | | $ | 101,264 | | | $ | 99,963 | | | $ | 90,202 | | | $ | 77,601 | |
| Depreciation and amortization | | $ | 19,747 | | | $ | 18,238 | | | $ | 18,315 | | | $ | 18,187 | | | $ | 11,236 | |
| Acquisition costs | | $ | 1,359 | | | $ | 1,252 | | | $ | 1,235 | | | $ | 3,446 | | | $ | 2,297 | |
| Adjustment to fair value of contingent consideration | | $ | 3,235 | | | $ | (1,679 | ) | | $ | 445 | | | $ | (1,463 | ) | | $ | 287 | |
| Income from operations | | $ | 28,980 | | | $ | 32,205 | | | $ | 35,252 | | | $ | 38,963 | | | $ | 31,678 | |
| Net interest expense | | $ | 1,838 | | | $ | 1,636 | | | $ | 2,085 | | | $ | 1,438 | | | $ | 293 | |
| Net other (income) expense | | $ | (1 | ) | | $ | 60 | | | $ | 332 | | | $ | 5 | | | $ | (112 | ) |
| Income before income taxes | | $ | 27,143 | | | $ | 30,509 | | | $ | 32,835 | | | $ | 37,520 | | | $ | 31,497 | |
| Net income | | $ | 18,581 | | | $ | 20,459 | | | $ | 23,007 | | | $ | 23,163 | | | $ | 21,432 | |
| Basic net income per share | | $ | 0.56 | | | $ | 0.60 | | | $ | 0.69 | | | $ | 0.73 | | | $ | 0.71 | |
| Diluted net income per share | | $ | 0.55 | | | $ | 0.58 | | | $ | 0.67 | | | $ | 0.70 | | | $ | 0.67 | |
| | | As of December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| Balance Sheet Data: | | (In thousands) | |
| Cash and cash equivalents | | $ | 6,307 | | | $ | 10,113 | | | $ | 8,811 | | | $ | 10,935 | | | $ | 7,018 | |
| Working capital (1) | | $ | 67,935 | | | $ | 76,446 | | | $ | 83,176 | | | $ | 76,276 | | | $ | 56,477 | |
| Property and equipment, net | | $ | 7,145 | | | $ | 8,888 | | | $ | 7,891 | | | $ | 7,966 | | | $ | 7,709 | |
| Goodwill and intangible assets, net | | $ | 356,304 | | | $ | 320,320 | | | $ | 322,791 | | | $ | 282,235 | | | $ | 218,997 | |
| Total assets | | $ | 499,060 | | | $ | 456,576 | | | $ | 474,364 | | | $ | 425,363 | | | $ | 324,958 | |
| Long-term debt | | $ | 55,000 | | | $ | 32,000 | | | $ | 56,000 | | | $ | 54,000 | | | $ | 19,000 | |
| Total stockholders’ equity | | $ | 366,351 | | | $ | 359,465 | | | $ | 348,810 | | | $ | 304,728 | | | $ | 259,490 | |
(1) Working capital is total current assets less total current liabilities
| | | | | |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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 on Form 10-K and in the documents that we incorporate by reference into this Annual Report on Form 10-K. This Annual Report on Form 10-K 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.”
We are an information technologyPerficient is a global digital consultancy transforming how the world’s biggest brands connect with customers and management consulting firm serving Forbes Global 2000® and other large enterprise companies with a primary focus on the United States.grow their businesses. We help clients, primarily focused in North America, gain competitive advantage by using digital technology to: make their businesses more responsive to market opportunities; strengthen relationships with customers, suppliers, and partners; improve productivity; and reduce information technology costs. OurWith unparalleled strategy, creative and technology capabilities, across industries, our end-to-end digital consulting services help our clients drive faster speed-to-market capabilities and stronger, more compelling experiences for consumers. We go to market with six primary service categories – strategy and consulting, customer experience business optimization and industrydesign, innovation and product development, platforms and technology, data and intelligence, and optimized global delivery. Within each service category, and collectively, we deliver a deep and broad portfolio of 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. Our solutions include analytics, custom applications, management consulting, commerce, content management, business integration, customer relationship management, portals and collaboration, platform implementations, and business process management, among others. Our solutionsthat enable our clients to operate a real-time enterprise that dynamically adapts business processes and the systems that support them to meet the changing demands of an increasinglya global Internet-driven, and competitive marketplace.
15COVID-19 Pandemic
In March 2020, the World Health Organization recognized a novel strain of coronavirus (COVID-19) as a pandemic. In response to the pandemic, the United States and various foreign, state and local governments have, among other actions, imposed travel and business restrictions and required or advised communities in which we do business to adopt stay-at-home orders and social distancing guidelines, causing some businesses to adjust, reduce or suspend operating activities. While certain of these restrictions and guidelines have been lifted or relaxed, they may be reinstituted in response to continuing effects of the pandemic, including emerging variants. The pandemic and the various governments’ response have caused, and continue to cause, significant and widespread uncertainty, volatility and disruptions in the U.S. and global economies, including in the regions in which we operate.
Through December 31, 2021, we have not experienced a material impact to our business, operations or financial results as a result of the pandemic. However, in the current and future periods, we may experience weaker customer demand, requests for discounts or extended payment terms, customer bankruptcies, supply chain disruption, employee staffing constraints and difficulties, government restrictions or other factors that could negatively impact the Company and its business, operations and financial results. As we cannot predict the duration or scope of the pandemic or its impact on economic and financial markets, any negative impact to our results cannot be reasonably estimated, but it could be material.
We continue to monitor closely the Company’s financial health and liquidity and the impact of the pandemic on the Company, including emerging variants. We have been able to serve the needs of our customers while taking steps to protect the health and safety of our employees, customers, partners, and communities. Among these steps, we have transitioned to primarily working remotely and minimizing travel, which has not resulted in a material disruption to the Company’s operations. We are proactively planning to reopen our offices in a manner that protects the safety and well-being of our Perficient colleagues, while complying with federal, state and local government and health regulations. See “Part I – Item 1A – Risk Factors” of this Form 10-K for additional information regarding the potential impact of COVID-19 on the Company.
Services Revenues
Services revenues are derived from professional services that include developing, implementing, integrating, automating and extending business processes, technology infrastructure, and software applications. Professional services revenues are recognized over time as services are rendered. Most of our projects are performed on a time and materials basis, while a portion of our revenues is derived from projects performed on a fixed fee basis. Fixed fee engagements represented approximately 8% of our services revenues for the year ended December 31, 2017 compared to 11% for each of the years ended December 31, 2016 and 2015. The decrease inor fixed fee revenues is primarily attributable to an organic decrease in fixed fee engagements overall.percent complete basis. For time and material projects, revenues are recognized and billed by multiplying the number of hours our professionals expend in the performance of the project by the established billinghourly rates. For fixed fee contracts, revenues are recognized and billed by multiplying the established fixed rate per time period by the number of time periods elapsed. For fixed fee percent complete projects, revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours. Amounts invoicedFixed fee percent complete engagements represented 6% of our services revenues for the year ended December 31, 2021 compared to 8% and collected in excess of revenues recognized are classified as deferred revenues. In conjunction with services provided, we occasionally receive referral fees under partner programs. These referral fees are recognized when earned7% for the years ended December 31, 2020 and recorded within services revenues.2019, respectively. On most projects, we are also reimbursed for out-of-pocket expenses
including travel and other project-related expenses. These reimbursements are included as a component of revenues.the transaction price of the respective professional services contract. The aggregate amount of reimbursed expenses will fluctuate depending on the location of our clients, the total number of our projects that require travel, the impact of travel restrictions imposed as a result of the COVID-19 pandemic, and whether our arrangements with our clients provide for the reimbursement of such expenses. In conjunction with services provided, we occasionally receive referral fees under partner programs. These referral fees are recognized at a point in time when earned and recorded within services revenues.
Software and Hardware Revenues
Software and hardware revenues are derived from sales of third-party software and hardware resales, in which we are considered the agent, and sales of internally developed software, and hardware.in which we are considered the principal. Revenues from sales of third-party software and hardware are generallyrecorded on a net basis, while revenues from internally developed software sales are recorded on a gross basis provided that we act as a principal in the transaction. Revenues from sales of third-party software-as-a-service arrangements where we are not the primary obligor are recorded on a net basis. Software and hardware revenues are expected to fluctuate depending on our clients’ demand for these products.products, which may be impacted by the COVID-19 pandemic.
If we enter into contracts for the sale of services and software or hardware, management evaluates whether each element should be accounted for separately by considering the following criteria: (1) whether the deliverables have value to the client on a stand-alone basis; and (2) whether delivery or performance of the undelivered item or items is considered probable and substantially in our control (only if the arrangement includes a general right of return related to the delivered item). Further, for sales of software and services, management also evaluates whether the services are essential to the functionality of the software and whether there is fair value evidence for each deliverable. If management concludes that the separation criteria are met, then it accounts 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 and are accounted for separately, with the arrangement consideration allocated among the deliverables using vendor specific objective evidence of the selling price. As a result, we generally recognize software and hardware sales upon delivery to the customer and services consistent with the policies described herein.
Further, delivery of software and hardware sales, when sold contemporaneously with services, can generally occur at varying times depending on the specific client project arrangement. Delivery of services generally occurs over a period of time consistent with the timeline as outlined in the client contract.
There are no significant cancellation or termination-type provisions for our software and hardware sales. Contracts for our professional services provide for a general right, to the client or us, to cancel or terminate the contract within a given period of time (generally 10 to 30 days’ notice is required). The client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract.
Cost of Revenues
Cost of revenues consists of cost of services, software and hardware costs, and reimbursable expenses. Cost of services consists primarily ofrelated to cash and non-cash compensation and benefits (including bonuses and non-cash compensation related to equity awards), costs associated with subcontractors, reimbursable expenses and other unreimbursed project-related expenses. Cost of revenues does not include depreciation of assets used in the production of revenues which are primarily personal computers, servers, and other information technology related equipment. In accordance with ASC Topic 606, sales of third-party software and hardware are presented on a net basis, and as such, third-party software and hardware costs are not presented within cost of revenues.
Our cost of services as a percentage of services revenues is affected by the utilization rates of our professionals (defined as the percentage of our professionals’ time billed to clients divided by the total available hours in the respective period), the salaries we pay our professionals, and the average billing rate we receive from our clients. If a project ends earlier than scheduled, we retain professionals in advance of receiving project assignments, or demand for our services declines, our utilization rate will decline and adversely affect our cost of services as a percentage of services revenues. Software and hardware costs as a percentage of software and hardware revenues (excluding internally developed software) are typically higher than cost of services as a percentage of services revenues, and the mix of services and software and hardware for a particular period can significantly impact our total combined cost of revenues as a percentage of total revenues for such period. In addition, software and hardware costs as a percentage of software and hardware revenues can fluctuate due to pricing and other competitive pressures.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses are primarily composed of sales-related costs, general and administrative salaries, stock compensation expense, office costs, recruiting expense, variable compensation costs, marketing costs and other miscellaneous expenses. We have access to sales leads generated by our software vendors most notably IBM, Oracle and Microsoft, whose products we use to design and implement solutions for our clients. These relationships enable us to optimize our selling costs and sales cycle times and increase win rates through leveraging our partners’ marketing efforts and endorsements.
Plans for Growth and Acquisitions
Our goal is to continue to build one of the leading information technology consulting firms by expanding our relationships with existing and new clients and through the continuation of our disciplined acquisition strategy. Our future growth plan includes expanding our business with a primary focus on customers in the United States, both organically and through acquisitions. We also intend to further leverage our existing offshore and nearshore capabilities to support our future growth and provide our clients flexible options for project delivery. Our ability to continue to implement our growth plan may be negatively affected by the impact of the COVID-19 pandemic on our operations, and our ability to evaluate potential acquisitions.
When analyzing revenue growth by base business compared to acquired companies in the Results of Operations section below, revenue attributable to base business includes revenue from an acquired company that has been owned for a full four quarters after the date of acquisition.
United States Tax ReformAcquisition of Overactive
The 2017 Tax Act was signed into law on December 22, 2017. The law includes significant changesOn October 15, 2021, a wholly-owned subsidiary of the Company acquired Overactive pursuant to the U.S. corporate income tax system, includingterms of a federal corporate tax rate reduction from 35%Stock Purchase Agreement. Overactive is based in Montevideo, Uruguay with nearshore delivery centers in Colombia, Argentina, Uruguay, Chile and Puerto Rico. Overactive specializes in digital modernization solutions driven by cloud-based custom software. Overactive added nearly 700 skilled professionals to 21%the Company and brings strategic client relationships with customers across several industries. Refer to Note 9, Business Combinations, limitationsfor additional information on the deductibilityacquisition.
Acquisition of interest expense and executive compensation, andPSL
On June 17, 2020, a wholly-owned subsidiary of the transition of U.S. international taxation from a worldwide tax system to a territorial tax system. This change may result in a U.S. tax liability on those earnings which have not previously been repatriatedCompany acquired Productora de Software S.A.S. (“PSL”) pursuant to the U.S.terms of a Stock Purchase Agreement. PSL is based in Medellin, Colombia, with additional locations in Bogota and Cali, Colombia. The acquisition of PSL strengthens the Company’s global delivery capabilities, enhancing its nearshore systems and custom software application development, testing, and ongoing support for customers. PSL added more than 600 skilled professionals to the Company and brings strategic client relationships with customers across several industries. Refer to Note 9, Business Combinations, with future foreign earnings potentially not subject to U.S. income taxes when repatriated. Seefor additional information on the acquisition.
Adoption of ASU No. 2016-13
As further detailed in Note 10, Income Taxes2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements, for a discussion of the Company’s repatriation of earnings from the Company’s Chinese subsidiary. The majority of the provisions will have an impact on Perficient beginning in fiscal years 2018 and 2019. However, there are certain transitional impacts of the 2017 Tax Act which affected the Company’s tax provision during the fourth quarter of 2017. As part of the transition to the new territorial tax system, the 2017 Tax Act imposed a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries, which produced a $1.1 million tax expense payable over eight years. As a result, a $0.1 million current liability and a $1.0 million non-current liability were recorded in the Company’s consolidated financial statements during the fourth quarter of 2017. The reduction of the federal corporate tax rate caused the Company to adjust its U.S. deferred tax assets and liabilities to the lower federal base rate of 21%. The reduction in the corporate tax rate resulted in a provisional net tax credit of $3.3 million for the fourth quarter of 2017. In addition, as a result of the 2017 Tax Act, changes to the net tax cost of certain China dividends repatriated during 2017 created a $1.6 million tax credit during the fourth quarter of 2017.
There were no specific impacts of the 2017 Tax Act that could not be reasonably estimated which the Company accounted for under prior tax law. However, the SEC has issued rules that would allow for a measurement period of up to one year after the enactment date of the 2017 Tax Act to finalize the recording of the related tax impacts. Based on a continued analysis of the estimates and further guidance on the application of the law, it is anticipated that additional revisions may occur throughout the allowable measurement period. We currently anticipate finalizing and recording any resulting adjustments within a year of the enactment date. See Note 10, Income Taxes, in the Notes to the Consolidated Financial Statements for additional information regarding the 2017 Tax Act.
Revenue Recognition Standard Adopted January 1, 2018
In May 2014, the Financial Accounting Standards Board (“FASB”) issuedwe adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 replaced most existing revenue recognition guidance in U.S. GAAP. In 2015, the FASB deferred the effective date of ASU No. 2014-09 by one year. In 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations, ASU No. 2016-10, Identifying Performance Obligations and Licensing, ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, all of which further amended ASU No. 2014-09. The Company adopted the standardCredit Losses on January 1, 2018 Financial Instruments using the modified retrospective method,method. ASU No. 2016-13 requires the immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including trade receivables. The Company adopted this ASU on January 1, 2020 using a modified retrospective approach, which requiresallows the impact of adoption to be recorded through a cumulative-effectcumulative effect adjustment to the opening balance of retained earnings within stockholders’ equity, as will be fully presentedwithout restating comparative periods. The cumulative effect adjustment for adoption of ASU No. 2016-13 resulted in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2018. The Company has determined that the most significant impact upon adoption is to third-party softwarea decrease of $0.4 million in Accounts receivable, net, and hardware revenue, which has primarily been recorded on a gross basis as the principaldecrease of $0.3 million in the transaction through December 31, 2017 and will be presented on aRetained earnings, net basis as the agentof tax, as of January 1, 2018. Had2020. Refer to Note 8, Allowance for Credit Losses, for additional disclosures resulting from the Company historically presented third-party software and hardware revenues on a net basis, software and hardware revenues would have been $5.3 million, $6.4 million, and $5.5 million for the years ended December 31, 2017, 2016, and 2015, respectively. As the Company adopted ASU No. 2014-09 using the modified retrospective method, the gross versus net presentation will not impact the historical presentation, but will impact the 2018 presentation. Additionally, as the agent, revenue from multi-year sales of third-party software and support will be recognized upfront as the performance obligation is fulfilled, rather than annually as invoiced to the customer. The impact from this timing change is expected to be immaterial. Variable consideration related to service contracts, such as volume discounts and holdbacks, may be recognized earlier under the new standard, and the Company is currently evaluating the impact of this change on contracts that are open as of December 31, 2017. The adoption of ASU No. 2014-09 and its amendments will also result in additional disclosures around the nature and timing of performance obligations, contract costs, and deferred revenue, as well as significant judgments and practical expedients used by the Company.2016-13.
The following table summarizes our results of operations as a percentage of total revenues:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Total revenues | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Total cost of revenues (cost of services, exclusive of depreciation and amortization, shown separately below) | 61.6 | | | 62.2 | | | 62.6 | |
| Selling, general and administrative | 20.0 | | | 22.0 | | | 23.7 | |
| Depreciation and amortization | 3.9 | | | 4.6 | | | 3.6 | |
| Acquisition costs | 0.5 | | | 0.6 | | | 0.2 | |
| Adjustment to fair value of contingent consideration | — | | | 1.6 | | | 0.1 | |
| Income from operations | 13.9 | | | 9.0 | | | 9.8 | |
| Net interest expense | 1.8 | | | 1.7 | | | 1.3 | |
| Loss on extinguishment of debt | 3.8 | | | 0.7 | | | — | |
| Net other expense | 0.1 | | | — | | | — | |
| Income before income taxes | 8.2 | | | 6.6 | | | 8.5 | |
| Income tax provision | 1.4 | | | 1.7 | | | 1.9 | |
| Net income | 6.8 | % | | 4.9 | % | | 6.6 | % |
| Revenues: | | 2017 | | | 2016 | | | 2015 | |
| Services revenues | | | 89.5 | % | | | 85.9 | % | | | 86.9 | % |
| Software and hardware revenues | | | 8.0 | | | | 10.3 | | | | 9.8 | |
| Reimbursable expenses | | | 2.5 | | | | 3.8 | | | | 3.3 | |
| Total revenues | | | 100.0 | | | | 100.0 | | | | 100.0 | |
| Cost of revenues (depreciation and amortization, shown separately below): | | | | | | | | | | | | |
| Cost of services | | | 57.3 | | | | 56.2 | | | | 55.2 | |
| Software and hardware costs | | | 6.9 | | | | 8.9 | | | | 8.7 | |
| Reimbursable expenses | | | 2.5 | | | | 3.8 | | | | 3.3 | |
| Total cost of revenues | | | 66.7 | | | | 68.9 | | | | 67.2 | |
| Selling, general and administrative | | | 22.3 | | | | 20.8 | | | | 21.1 | |
| Depreciation and amortization | | | 4.1 | | | | 3.7 | | | | 3.9 | |
| Acquisition costs | | | 0.3 | | | | 0.3 | | | | 0.3 | |
| Adjustment to fair value of contingent consideration | | | 0.7 | | | | (0.3 | ) | | | 0.1 | |
| Income from operations | | | 6.0 | | | | 6.6 | | | | 7.4 | |
| Net interest expense | | | 0.4 | | | | 0.3 | | | | 0.4 | |
| Net other expense | | | 0.0 | | | | 0.0 | | | | 0.1 | |
| Income before income taxes | | | 5.6 | | | | 6.3 | | | | 6.9 | |
| Provision for income taxes | | | 1.8 | | | | 2.1 | | | | 2.0 | |
| Net income | | | 3.8 | % | | | 4.2 | % | | | 4.9 | % |
A discussion of changes in our financial condition and results of operations during the year ended December 31, 2020 compared to the year ended December 31, 2019 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 25, 2021, which is available free of charge on the SEC’s website at www.sec.gov and on our investor relations website at www.perficient.com.
Year Ended December 31, 20172021 Compared to Year Ended December 31, 20162020
Revenues. Total revenues decreased less than 1%increased24% to $485.3$761.0 million for the year ended December 31, 2021 from $612.1 million for the year ended December 31, 20172020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Financial Results
(in thousands) | | Explanation for Increases (Decreases) Over Prior Year Period (in thousands) |
| Year Ended December 31, | | Total Increase (Decrease) Over Prior Year Period | | Increase Attributable to Revenue Delivered by Resources of Acquired Companies | | Increase (Decrease) Attributable to Revenue Delivered by Base Business Resources |
| | 2021 | | 2020 | | | |
| Services Revenues | $ | 758,722 | | | $ | 609,583 | | | $ | 149,139 | | | $ | 36,912 | | | $ | 112,227 | |
| Software and Hardware Revenues | 2,305 | | | 2,550 | | | (245) | | | — | | | (245) | |
| Total Revenues | $ | 761,027 | | | $ | 612,133 | | | $ | 148,894 | | | $ | 36,912 | | | $ | 111,982 | |
Services revenues increased24% to $758.7 million for the year ended December 31, 2021 from $487.0$609.6 million for the year ended December 31, 2016.
| | | Financial Results | | | Explanation for Increases (Decreases) Over Prior Year Period | |
| | | (in thousands) | | | (in thousands) | |
| | | For the Year Ended December 31, 2017 | | | For the Year Ended December 31, 2016 | | | Total Increase (Decrease) Over Prior Year Period | | | Increase Attributable to Acquired Companies | | | Decrease Attributable to Base Business | |
| Services Revenues | | $ | 434,253 | | | $ | 418,589 | | | $ | 15,664 | | | $ | 33,607 | | | $ | (17,943 | ) |
| Software and Hardware Revenues | | | 38,642 | | | | 49,954 | | | | (11,312 | ) | | | - | | | | (11,312 | ) |
| Reimbursable Expenses | | | 12,366 | | | | 18,439 | | | | (6,073 | ) | | | 440 | | | | (6,513 | ) |
| Total Revenues | | $ | 485,261 | | | $ | 486,982 | | | $ | (1,721 | ) | | $ | 34,047 | | | $ | (35,768 | ) |
2020. Services revenues delivered by base business resources increased 4%$112.2 million, primarily driven by increased demand for our services and due to $434.3the 2020 acquisitions becoming part of the base business in the second half of 2021. Services revenues delivered by resources of acquired companies was $36.9 million, resulting in a total increase of $149.1 million.
Software and hardware revenues decreased 10% to $2.3 million for the year ended December 31, 20172021 from $418.6$2.6 million for the year ended December 31, 2016. The increase in2020.
Total Cost of Revenues (cost of services, exclusive of depreciation and amortization, discussed separately below). Total cost of revenues was primarily due to acquisitions. Services revenues attributable to our base business decreased $17.9 million while services revenues attributable to acquired companies was $33.6 million, resulting in a total increase of $15.7 million.
Software and hardware revenues decreasedincreased 23% to $38.6$468.8 million for the year ended December 31, 20172021 from $50.0$380.7 million for the year ended December 31, 2016 2020 primarily duedue to a decreasehigher headcount in initialresponse to higher services revenues and renewal software license sales. Reimbursable expenses decreased 33% to $12.4 million for the year ended December 31, 2017 from $18.4 million for the year ended December 31, 2016 primarily as a result of a higher mix of projects performed in our offices and lower media buy expenses passed through to customers of $2.6 million. We do not realize any profit on reimbursable expenses.
Cost of Revenues (exclusive of depreciation and amortization, discussed separately below). Cost of revenues decreased 4% to $323.7 million for the year ended December 31, 2017 from $335.7 million for the year ended December 31, 2016. The decrease in cost of revenues is primarily related to software and hardware costs which decreased 24% to $33.3 million for the year ended December 31, 2017 from $43.6 million for the year ended December 31, 2016, as a result of the decrease in software license sales. Software and hardware costs as a percentage of software and hardware revenues was 86.2% for the year ended December 31, 2017 and 87.2% for the year ended December 31, 2016. Services revenue costs increased 2% to $278.1 million for the year ended December 31, 2017 from $273.7 million for the year ended December 31, 2016 due to an increase in service revenue as noted above. acquisitions.Services costs as a percentage of services revenues decreased to 64.0%61.8% for the year ended December 31, 20172021 from 65.4% 62.5% for the year ended December 31, 2016 primarily driven by improvements in the North American average bill rate and utilization, as well as a $1.0 million cost reduction related to labor incentives earned by the Company’s Louisiana and China operations. The average bill rate for our professionals decreased to $126 per hour for the year ended December 31, 2017 from $127 per hour for the year ended December 31, 20162020, primarily due to the impact of acontinued shift to higher mix of lower bill ratemargin offshore resources.and nearshore delivery.
Selling, General and Administrative. SG&A expenses increased 7% to $108.2$152.4 million for the year ended December 31, 20172021 from $101.3$134.7 million for the year ended December 31, 2016 2020 primarily duedue toincreased sales-related costs and other SG&A expenses (primarily related to acquisitions, completed during the first half of 2017 recruiting and the fluctuations in expenses as detailed in the following table.immigration costs). SG&A expenses, as a percentage of total revenues, increased to 22.3%were 20% and 22% for the yearyears ended December 31, 2017 from 20.8% for the year ended December 31, 2016.2021 and 2020, respectively.
| Selling, General and Administrative Expense (in millions) | | For the Year Ended December 31, 2017 | | | For the Year Ended December 31, 2016 | | | Increase (Decrease) | | | Percentage Change | |
| Sales-related costs | | $ | 30.3 | | | $ | 28.4 | | | $ | 1.9 | | | | 7 | % |
| Salary expense | | | 26.3 | | | | 25.3 | | | | 1.0 | | | | 4 | |
| Stock compensation expense | | | 9.3 | | | | 8.9 | | | | 0.4 | | | | 4 | |
| Office costs | | | 9.2 | | | | 8.9 | | | | 0.3 | | | | 3 | |
| Marketing expense | | | 5.9 | | | | 5.6 | | | | 0.3 | | | | 5 | |
| Variable compensation expense | | | 5.2 | | | | 2.0 | | | | 3.2 | | | | 160 | |
| Recruiting expense | | | 5.1 | | | | 5.7 | | | | (0.6 | ) | | | (11 | ) |
| Bad debt expense | | | 0.9 | | | | 1.1 | | | | (0.2 | ) | | | (18 | ) |
| Other | | | 16.0 | | | | 15.4 | | | | 0.6 | | | | 4 | |
| Total | | $ | 108.2 | | | $ | 101.3 | | | $ | 6.9 | | | | 7 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Selling, General and Administrative Expense | Year Ended December 31, | | Increase (Decrease) | | Percentage Change |
| (in millions) | 2021 | | 2020 | | |
| Salary expense | $ | 53.3 | | | $ | 51.0 | | | $ | 2.3 | | | 5 | % |
| Sales-related costs | 19.0 | | | 13.7 | | | 5.3 | | | 39 | % |
| Office costs | 15.1 | | | 14.2 | | | 0.9 | | | 6 | % |
| Stock compensation expense | 13.7 | | | 11.9 | | | 1.8 | | | 15 | % |
| Variable compensation expense | 15.2 | | | 13.0 | | | 2.2 | | | 17 | % |
| Travel & entertainment | 0.8 | | | 1.6 | | | (0.8) | | | (50) | % |
| Benefits expense | 8.4 | | | 7.6 | | | 0.8 | | | 11 | % |
| IT/Infrastructure | 8.9 | | | 8.0 | | | 0.9 | | | 11 | % |
| Bad debt expense | 1.8 | | | 0.9 | | | 0.9 | | | 100 | % |
| Other | 16.2 | | | 12.8 | | | 3.4 | | | 27 | % |
| Total | $ | 152.4 | | | $ | 134.7 | | | $ | 17.7 | | | 13 | % |
Depreciation. Depreciation expense decreased 3%increased 18% to $4.7$6.4 million for the year ended December 31, 20172021 from $4.9$5.4 million for the year ended December 31, 2016. The decrease in depreciation expense is primarily attributable to certain property and equipment becoming fully depreciated. 2020. Depreciation expense as a percentage of total revenues was 1.0%0.8% for each of the yearsyear ended December 31, 20172021 and 2016.0.9% for the year ended December 31, 2020, respectively.
Amortization. Amortization expense increased 12%3% to $15.0$23.5 million for the year ended December 31, 20172021 from $13.4$22.9 million for the year ended December 31, 2016. The increase in amortization expense was due to the addition of intangible assets from the 2016 and 2017 acquisitions, partially offset by intangible assets from previous acquisitions becoming fully amortized.2020. Amortization expense as a percentage of total revenues was 3.1% for the year ended December 31, 20172021 and 2.7% 3.7% for the year ended December 31, 2016.2020. The increase in amortization expense was primarily due to the addition of intangibles from our two acquisitions in 2021.
Acquisition Costs. Acquisition-related costs of $1.4$3.8 million were incurred during 20172021 related to the acquisitions of Talos and Overactive compared to $1.3$3.7 million during 2016.2020 related to the acquisitions of MedTouch, Brainjocks, and PSL. Costs were incurred for legal, accounting, tax, investment bank and advisor fees, and valuation services performed by third parties in connection with merger and acquisition-related activities.
Adjustment to Fair Value of Contingent Consideration. An unfavorable adjustment of $3.2$0.2 million was recorded during the year ended December 31, 2017 2021 which represents the net impact of the fair market value adjustments to the Clarity, RAS,MedTouch LLC (“Medtouch”), Catalyst Networks, Inc. (“Brainjocks”), and BluetubePSL revenue and earnings-based contingent consideration liabilities, in addition to the accretion of the fair value estimate for the revenue and earnings-based contingent consideration related to the acquisition of Bluetube and Clarity. as well as accretion. A favorablen adjustment of $1.7$9.5 million was recorded during the year ended December 31, 2016 2020 which represents the net impact of the fair market value adjustments to the EnlightenSundog Interactive, Inc. (“Sundog”), MedTouch, Brainjocks, and PSL revenue and earnings-based contingent consideration liability partially offsetliabilities, as well as accretion. Our 2020 acquisitions benefited from cost reductions resulting from travel and other restrictions caused by the accretionCOVID-19 pandemic and quicker than anticipated revenues and market demand for nearshore work delivered by PSL.
Net Interest Expense. Net interest expense increased to $14.1 million for the year ended December 31, 2021 from $10.1 million for the year ended December 31, 2020. The increase in net interest expense was primarily due to non-cash amortization of debt discount and issuance costs.
Loss on Extinguishment of Debt. During the year ended December 31, 2021, the Company repurchased the remaining portion of the fair value estimate foroutstanding 2023 Notes and a portion of the revenue and earnings-based contingent consideration related tooutstanding 2025 Notes, resulting in a loss of $29.0 million. During the acquisitionyear ended December 31, 2020, the Company repurchased a portion of Zeon, Market Street, Enlighten and Bluetube.the outstanding 2023 Notes, resulting in a loss of $4.5 million.
Provision for Income Taxes. We provide for federal, state, and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses. The effective incomeincome tax rate decreased to 31.5%16.6% for the year ended December 31, 20172021 from 32.9%25.2% for the year ended December 31, 2016. 2020. The decrease in the effective rate is primarily due to the effects of certain foreign withholding taxes, a foreign toll charge on historic foreign earnings, and a revaluation of ending deferred income tax caused by passage of the 2017 Tax Act. These favorable items were partially offset by an increase in our unrecognized tax benefits. See Note 10, Income Taxes, in the Notes to the Consolidated Financial Statements for additional information regarding the 2017 Tax Act.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenues. Total revenues increased 3% to $487.0 million for the year ended December 31, 2016 from $473.6 million for the year ended December 31, 2015.
| | | Financial Results | | | Explanation for Increases (Decreases) Over Prior Year Period | |
| | | (in thousands) | | | (in thousands) | |
| | | For the Year Ended December 31, 2016 | | | For the Year Ended December 31, 2015 | | | Total Increase Over Prior Year Period | | | Increase Attributable to Acquired Companies | | | Decrease Attributable to Base Business | |
| Services Revenues | | $ | 418,589 | | | $ | 411,469 | | | $ | 7,120 | | | $ | 16,405 | | | $ | (9,285 | ) |
| Software and Hardware Revenues | | | 49,954 | | | | 46,622 | | | | 3,332 | | | | 4,226 | | | | (894 | ) |
| Reimbursable Expenses | | | 18,439 | | | | 15,530 | | | | 2,909 | | | | 4,427 | | | | (1,518 | ) |
| Total Revenues | | $ | 486,982 | | | $ | 473,621 | | | $ | 13,361 | | | $ | 25,058 | | | $ | (11,697 | ) |
Services revenues increased 2% to $418.6 million for the year ended December 31, 2016 from $411.5 million for the year ended December 31, 2015. The increase in services revenues was primarily due to acquisitions. Services revenues attributable to our base business decreased $9.3 million while services revenues attributable to acquired companies was $16.4 million, resulting in a total increase of $7.1 million.
Softwarestock compensation deductions and hardware revenues increased 7% to $50.0 million for the year ended December 31, 2016 from $46.6 million for the year ended December 31, 2015 primarily due to acquisitions. Reimbursable expenses increased 19% to $18.4 million for the year ended December 31, 2016 from $15.5 million for the year ended December 31, 2015. The increase in reimbursable expenses is primarily due to the acquisition of Enlighten in which media buy expenses are passed through to customers. We do not realize any profit on reimbursable expenses.
Cost of Revenues (exclusive of depreciation and amortization, discussed separately below). Cost of revenues increased 5% to $335.7 million for the year ended December 31, 2016 from $318.4 million for the year ended December 31, 2015. The increase in cost of revenues is primarily related to costs associated with services revenues which increased 5% to $273.7 million for the year ended December 31, 2016 from $261.7 million for the year ended December 31, 2015 due to an increase in revenue as noted above. Services costs as a percentage of services revenues increased to 65.4% for the year ended December 31, 2016 from 63.6% for the year ended December 31, 2015 primarily driven by a decrease in the average bill rate of our professionals, in addition to higher salaries and subcontractor costs. The average bill rate decreased to $127per hour for the year ended December 31, 2016 from $134 per hour for the year ended December 31, 2015 primarily duenon-deductible transaction costs compared to the impact of a higher mix of lower bill rate offshore resources combined with a 1% reduction in the North American employee bill rate. Software and hardware costs increased 6% to $43.6 million for the year ended December 31, 2016 from $41.2 million for the year ended December 31, 2015, as a result of the increase in software license sales. Software and hardware costs as a percentage of software and hardware revenues was 87.2% for the year ended December 31, 2016 and 88.3% for the year ended December 31, 2015.prior year.
Selling, General and Administrative. SG&A expenses increased 1% to $101.3 million for the year ended December 31, 2016 from $100.0 million for the year ended December 31, 2015 primarily due to acquisitions completed during the second half of 2015 and October 2016 and the fluctuations in expenses as detailed in the following table. SG&A expenses, as a percentage of total revenues, decreased to 20.8% for the year ended December 31, 2016 from 21.1% for the year ended December 31, 2015.
| Selling, General and Administrative Expense (in millions) | | For the Year Ended December 31, 2016 | | | For the Year Ended December 31, 2015 | | | Increase (Decrease) | | | Percentage Change | |
| Sales-related costs | | $ | 28.4 | | | $ | 29.1 | | | $ | (0.7 | ) | | | (2 | )% |
| Salary expense | | | 25.3 | | | | 23.9 | | | | 1.4 | | | | 6 | |
| Stock compensation expense | | | 8.9 | | | | 8.7 | | | | 0.2 | | | | 2 | |
| Office costs | | | 8.9 | | | | 8.2 | | | | 0.7 | | | | 9 | |
| Recruiting expense | | | 5.7 | | | | 6.0 | | | | (0.3 | ) | | | (5 | ) |
| Marketing expense | | | 5.6 | | | | 5.6 | | | | 0.0 | | | | 0 | |
| Variable compensation expense | | | 2.0 | | | | 3.4 | | | | (1.4 | ) | | | (41 | ) |
| Bad debt expense | | | 1.1 | | | | 0.4 | | | | 0.7 | | | | 175 | |
| Other | | | 15.4 | | | | 14.7 | | | | 0.7 | | | | 5 | |
| Total | | $ | 101.3 | | | $ | 100.0 | | | $ | 1.3 | | | | 1 | % |
Depreciation. Depreciation expense increased 8% to $4.9 million for the year ended December 31, 2016 from $4.5 million for the year ended December 31, 2015. The increase in depreciation expense is primarily attributable to an increase in capital expenditures to support our growth. Depreciation expense as a percentage of total revenues was 1.0% and 0.9% for the years ended December 31, 2016 and 2015, respectively.
Amortization. Amortization expense decreased 3% to $13.4 million for the year ended December 31, 2016 from $13.8 million for the year ended December 31, 2015. The decrease in amortization expense was due to intangible assets related to previous acquisitions becoming fully amortized partially offset by the addition of intangible assets from the 2015 and 2016 acquisitions. Amortization expense as a percentage of total revenues was 2.7% for the year ended December 31, 2016 and 2.9% for the year ended December 31, 2015.
Acquisition Costs. Acquisition-related costs of $1.3 million were incurred during 2016 compared to $1.2 million during 2015. Costs were incurred for legal, accounting, tax, investment bank and advisor fees, and valuation services performed by third parties in connection with merger and acquisition-related activities.
Adjustment to Fair Value of Contingent Consideration. A favorable adjustment of $1.7 million was recorded during the year ended December 31, 2016 which represents the net impact of the fair market value adjustments to the Enlighten revenue and earnings-based contingent consideration liability partially offset by the accretion of the fair value estimate for the revenue and earnings-based contingent consideration related to the acquisition of Zeon, Market Street, Enlighten and Bluetube. An adjustment of $0.4 million was recorded during the year ended December 31, 2015 for the accretion of the fair value estimate for the revenue and earnings-based contingent consideration related to the acquisitions of the Zeon, Market Street, and Enlighten.
Provision for Income Taxes. We provide for federal, state, and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses. The effective income tax rate increased to 32.9% for the year ended December 31, 2016 from 29.9% for the year ended December 31, 2015. The increase in the effective rate is primarily due to an additional research and development tax credit recorded during the year ended December 31, 2015 related to the finalization of the Company’s 2014 research and development tax assessment. The increase in the effective rate year ended December 31, 2016 was partially offset by an incremental research and development tax credit related to the current year and a favorable impact related to the early adoption of ASU No. 2016-09. See Note 2, Summary of Significant Accounting Policies-Recent Accounting Pronouncements, in the Notes to Consolidated Financial Statements for additional information regarding the adoption of ASU No. 2016-09.
Liquidity and Capital Resources
Selected measures of liquidity and capital resources are as follows (in millions):
| | | | As of December 31, | | | December 31, |
| | | 2017 | | | 2016 | | | 2015 | | | 2021 | | 2020 | | 2019 |
| Cash and cash equivalents (1) | | $ | 6.3 | | | $ | 10.1 | | | $ | 8.8 | | Cash and cash equivalents (1) | $ | 24.4 | | | $ | 83.2 | | | $ | 70.7 | |
| Working capital (including cash and cash equivalents) (2) | | $ | 67.9 | | | $ | 76.4 | | | $ | 83.2 | | Working capital (including cash and cash equivalents) (2) | $ | 94.8 | | | $ | 97.6 | | | $ | 127.3 | |
| Amounts available under credit facilities | | $ | 69.7 | | | $ | 93.0 | | | $ | 69.0 | | Amounts available under credit facilities | $ | 199.8 | | | $ | 124.8 | | | $ | 124.8 | |
(1)The balance at December 31, 20172021 includes $3.9 $6.1 million held by our Canadian, Indian and United Kingdomcertain foreign subsidiaries which is not available to fund domestic operations unless deemed repatriated. We currently do not plan or foresee a need to repatriate such funds. The balance also includes $1.8$5.2 million in cash held in our Chinese subsidiary. During the year endedby certain other foreign subsidiaries which is available to fund domestic operations. The balance at December 31, 2017, the Company determined that the Chinese subsidiary’s earnings were no longer permanently reinvested and repatriated a total of approximately $9.62020 includes $5.1 million held by certain foreign subsidiaries which is not available to fund domestic operations unless deemed repatriated. The balance also includes $7.9 million in cash held by certain other foreign subsidiaries which is available to the U.S. parentfund domestic operations. The balance at December 31, 2019 includes $5.5 million held by certain foreign subsidiaries which is not available to fund domestic operations unless deemed repatriated. The balance also includes $1.1 million in the second and third quarters of 2017. See Note 10, Income Taxes, in the Notescash held by certain other foreign subsidiaries which is available to Consolidated Financial Statements for a discussion of the Company’s repatriation of earnings from the Company’s Chinese subsidiary.fund domestic operations.
(2)Working capital is total current assets less total current liabilitiesliabilities.
Net Cash Provided Byby Operating Activities
Net cash provided by operating activities for the year ended December 31, 20172021 was $55.2$84.9 million compared to $63.3 million and $44.7$118.0 million for the yearsyear ended December 31, 2016 and 2015, respectively.2020. For the year ended December 31, 2017,2021, the components of operating cash flows were net income of $18.6$52.1 million plus net non-cash charges of $33.2$79.0 million and reductionsadditions in net operating assets of $3.5 $46.2
million. The primaryprimary components of operating cash flows for the year ended December 31, 20162020 were net income of $20.5$30.2 million plus net non-cash charges of $34.9$66.8 million and reductionsreduction in net operating assets of $7.9 million, primarily driven by reductions in accounts receivable. The primary components of operating cash flows for the year ended December 31, 2015 were net income of $23.0 million plus net non-cash charges of $31.9 million and investments in net operating assets of $10.2$21.0 million.
Net Cash Used in Investing Activities
During the year ended December 31, 2017,2021, we used $37.9$108.8 million for acquisitions and $4.3 million to purchase property and equipment and to develop software. During the year ended December 31, 2016, we used $7.5 million for acquisitions and $6.1$10.2 million to purchase property and equipment and to develop software. During the year ended December 31, 2016, we also purchased and subsequently sold short-term investments of $0.9 million and settled $2.8 million of Company-owned life insurance (“COLI”) policies, the proceeds of which were used to fund new COLI policies. For the year ended December 31, 2015,2020, we used $37.8$91.9 million for acquisitions (net of cash acquired) and $4.4$6.7 million to purchase property and equipment and to develop software.software.
Net Cash Provided ByUsed in Financing Activities
For the year ended December 31, 2017,2021, we received $369.5 million of proceeds from the issuances of $275.0the 2026 Notes, net of issuance costs, received $23.4 million of proceeds from the sales of net-share-settled warrants and paid $66.1 million for privately negotiated convertible note hedge transactions. We also used $368.7 million to repurchase the remaining 2023 Notes and a portion of the 2025 Notes, received $381.3 million related to the sale of privately negotiated convertible hedge transactions for the 2023 Notes and 2025 Notes, and paid $303.9 million for the repurchase of net-share-settled warrants related to the 2023 Notes and 2025 Notes. We drew down $74.0 million from our line of credit, and $0.1 million in proceeds from the sales of stock through the Employee Stock Purchase Plan. In 2017, we made payments of $252.0repaid $74.0 million on our line of credit, used $32.6$21.7 million to repurchase shares of our common stock through the stock repurchase program, and used $4.2 million to remit taxes withheld as part of a net share settlement of restricted stock vesting. We also used $3.3 million to settle the contingent consideration for the purchase of Market Street, Enlighten and Bluetube and paid $0.4 million in fees related to our credit facility. For the year ended December 31, 2016, we received proceeds of $208.5 million from our line of credit and $0.2 million in proceeds from the sales of stock through the Employee Stock Purchase Plan. In 2016, we made payments of $232.5 million on our line of credit, used $18.0 million to repurchase shares of our common stock through the stock repurchase program and used $3.7 million to remit taxes withheld as part of a net share settlement of restricted stock vesting. We also used $2.1 million to settle the contingent consideration for the purchase of Zeon and paid $0.2 million in fees related to our credit facility. For the year ended December 31, 2015, we received proceeds of $266.5 million from our line of credit and we realized a tax benefit of $1.4 million related to the vesting of stock awards and stock option exercises plus $0.3 million in proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan. In 2015, we made payments of $264.5 million on our line of credit, used $5.0$13.5 million to remit taxes withheld as part of a net share settlement of restricted stock vesting, $24.1 million to settle contingent consideration for the purchase of MedTouch, Brainjocks, and PSL, and paid $0.6 million for credit facility financing fees. We also received proceeds from sales of stock through the Employee Stock Purchase Plan of $0.6 million. For the year ended December 31, 2020, we received $222.7 million of proceeds from the issuances of the 2025 Notes, net of issuance costs, received $22.2 million of proceeds from the sales of net-share-settled warrants and paid $48.9 million for privately negotiated convertible note hedge transactions. We also used $2.8$180.4 million to repurchase a portion of the 2023 Notes, received $50.1 million related to the sale of privately negotiated convertible hedge transactions for the 2023 Notes, and paid $43.0 million for the repurchase of net-share-settled warrants related to the 2023 Notes. We drew down $28.0 million from our line of credit, repaid $28.0 million on our line of credit, used $19.6 million to repurchase shares of our common stock through the stock repurchase program, $8.0 million to remit taxes withheld as part of a net share settlement of restricted stock vesting, and paid $0.2$2.8 million in fees related to our credit facility.settle contingent consideration for the purchase of Elixiter and Sundog. We also received proceeds from sales of stock through the Employee Stock Purchase Plan of $0.3 million.
Availability of Funds from Credit Facility
On June 9, 2017, weMay 7, 2021, the Company entered into aan Amended and Restated Credit Agreement as amended (the “Credit“2021 Credit Agreement”), with Wells Fargo Bank, National Association, as administrative agent and the other lenders parties thereto. The Credit Agreement replaces the Second Amended and Restated Credit Agreement dated as of July 31, 2013 between the Company, Silicon Valley Bank and the other lenders and signatories thereto (the “Prior Credit Agreement”). The new credit facility was used to repay amounts due under the Prior Credit Agreement and will be used for working capital and general corporate purposes. In connection with the new agreement, the Company wrote off $0.2 million in unamortized credit facility fees associated with the Prior Credit Agreement, which was included in “Net interest expense” on the Consolidated Statements of Operations during the year ended December 31, 2017. The2021 Credit Agreement provides for revolving credit borrowings up to a maximum principal amount of $125.0$200.0 million, subject to a commitment increase of $75.0 million.million. All outstanding amounts owed under the 2021 Credit Agreement become due and payable no later than the final maturity date of June 9, 2022.May 7, 2026. As of December 31, 2021, there was no outstanding balance under the 2021 Credit Agreement. The Company incurred $0.6 million of deferred finance fees as a result of the 2021 Credit Agreement during the twelve months ended December 31, 2021.
The 2021 Credit Agreement also allows for the issuance of letters of credit in the aggregate amount of up to $10.0 million at any one time; outstanding letters of credit reduce the credit available for revolving credit borrowings. As of December 31, 2017,2021, the Company had onetwo outstanding letterletters of credit for $0.3$0.2 million. Substantially all of the Company’s assets are pledged to secure the credit facility.
Borrowings under the 2021 Credit Agreement bear interest at the Company’s option ofof the prime rate (4.50%(3.25% on December 31, 2017)2021) plus a margin ranging from 0.00% to 0.50%1.00% or one-month LIBOR (1.56%(0.10% on December 31, 2017)2021) plus a margin ranging from 1.00% to 1.75%2.00%. The Company incurs an annual commitment fee of 0.15% to 0.20% on the unused portion of the line of credit. The additional margin amount and annual commitment fee are dependent on the level of outstanding borrowings. As of December 31, 2017,2021, the Company had $69.7$199.8 million of unused borrowing capacity.
At December 31, 2017,2021, we were in compliance with all covenants under the 2021 Credit Agreement.
Prior to 2018, ourThe Company’s Board of Directors authorized the repurchase of up to $135.0$315.0 million of ourCompany common stock. On February 20, 2018, our Board of Directors authorized the expansion of ourstock through a stock repurchase program by authorizing the repurchase of up to an additional $25.0 million of our common stock for a total repurchase program of $160.0 million and extended the expiration date of the program toexpiring December 31, 2019. The2022. The program could be suspended or discontinued at any time, based on market, economic, or business conditions. The timing and amount of repurchase transactions will be determined by our
management based on its evaluation of market conditions, share price, and other factors. Since the program’s inception on August 11, 2008, the Company has repurchased approximately $261.3 million (16.1 million shares) of outstanding common stock through December 31, 2021.
From time to time, we establish a written trading plan in accordance with Rule 10b5-1 of the Exchange Act, pursuant to which we make a portion of our stock repurchases. Additional repurchases will be at times and in amounts as the Company deems appropriate and will be made through open market transactions in compliance with Rule 10b-18 of the Exchange Act, subject to market conditions, applicable legal requirements, and other factors.
Since the program’s inception on August 11, 2008, we have repurchased approximately $135.0 million (12.4 million shares) of our outstanding common stock through December 31, 2017.
Cash Requirements from Contractual Obligations
For the year ended December 31, 2017,2021, there were no material changes outside the ordinary course of business in lease obligations or other contractual obligations. See Note 12, Commitments and Contingencies,16, Leases, in the Notes to Consolidated Financial Statements for further description of our contractual obligations.
As of December 31, 2017, there was $55.0 millionThere were no balances outstanding under the Credit Agreement as of December 31, 2021 and 2020. As of December 31, 2021, there were in aggregate $326.1 million of outstanding Notes, net of unamortized debt discount and issuance costs, compared to $32.0$183.6 million outstanding under the Prior Credit Agreement as of December 31, 2016. 2020. The amounts under the Credit Agreement are classified as “Long-term debt”“Long-term debt” within the Consolidated Balance Sheets as of December 31, 2021 and 2020. The 2026 Notes will become due and payable no later than the final maturity date of June 9, 2022.November 15, 2026. The 2025 Notes will become due and payable no later than the final maturity date of August 1, 2025.
We have incurred commitments to make future paymentsunder contracts such as leases, the 2021 Credit Agreement and the Credit Agreement.Notes, as well as noncancellable purchase obligations, which primarily relate to multi-year third-party software sales. Maturities under these contracts are set forth in the following table as of December 31, 20172021 (in thousands):
| | | Payments Due by Period | |
| Contractual Obligations | | Total | | | Less Than 1 Year | | | 1-3 Years | | | 3-5 Years | | | More Than 5 Years | |
| Operating lease obligations | | $ | 29,484 | | | $ | 6,535 | | | $ | 12,611 | | | $ | 7,368 | | | $ | 2,970 | |
| Software license purchase obligation | | | 835 | | | | 835 | | | | - | | | | - | | | | - | |
| Total debt | | | 55,000 | | | | - | | | | - | | | | 55,000 | | | | - | |
| Total | | $ | 85,319 | | | $ | 7,370 | | | $ | 12,611 | | | $ | 62,368 | | | $ | 2,970 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| Contractual Obligations | Total | | Less Than
1 Year | | 1-3
Years | | 3-5
Years | | More Than
5 Years |
| Operating lease obligations | $ | 38,119 | | | $ | 10,384 | | | $ | 15,615 | | | $ | 8,017 | | | $ | 4,103 | |
| Total debt (1) | 403,293 | | | — | | | — | | | 403,293 | | | — | |
| Purchase obligations | 3,995 | | | 1,285 | | | 2,710 | | | — | | | — | |
| Total | $ | 445,407 | | | $ | 11,669 | | | $ | 18,325 | | | $ | 411,310 | | | $ | 4,103 | |
22
(1)Debt obligations include the principal amount of the Notes, but exclude interest payments to be made under the Notes.
Conclusion
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.
Of the total cash and cash equivalents reported on the Consolidated Balance Sheet as of December 31, 20172021 of $6.3$24.4 million, approximately $3.9$6.1 million was held by certain foreign subsidiaries where the Company’s Canadian, Indian and United Kingdom subsidiaries and isCompany has considered the earnings to be indefinitely reinvested in those operations. The Company is able to fund its liquidity needs outside of these subsidiaries, primarily through cash flows generated by domestic operations and our credit facility.facility, as well as the proceeds from the 2026 Notes issuances in the fourth quarter of 2021. Therefore, the Company has no current plans to repatriate cash from these foreign subsidiaries in the foreseeable future. As of December 31, 2017,2021, the aggregate unremitted earnings of the Company’s foreign subsidiaries for which a deferred income tax liability has not been recorded was approximately $4.9$19.5 million, and the unrecognized deferred tax liability on unremitted earnings was approximately $0.2$1.3 million. See Note 10, Income Taxes, in the Notes to Consolidated Financial Statements for a discussionAs of December 31, 2021, $5.2 million of the Company’s repatriation oftotal cash and cash equivalents was held by certain other foreign subsidiaries where the Company has determined that the earnings from the Company’s Chinese subsidiary.these subsidiaries are not permanently reinvested and may repatriate available earnings from these subsidiaries from time to time.
We believe that the currently available funds, access to capital from our credit facility, and cash flows generated from operations will be sufficient to meet our working capital requirements and other capital needs for the next 12 months.
However, while the Company did not experience a material impact on the business, operations or financial results from the COVID-19 pandemic during the year ended December 31, 2021, the pandemic may materially and adversely affect our business, operations and financial results, including our cash flows, in the future as a result of, among other things, weaker customer demand, requests for discounts or extended payment terms, customer bankruptcies, supply chain disruption, employee staffing constraints and difficulties, government restrictions or other factors. For example, since the start of the COVID-19 pandemic we have experienced certain of our customers requesting discounts or extended payment terms, pausing or slowing services, or declaring bankruptcy. Additionally, we have experienced some delays in obtaining new commitments from customers. Given the uncertain duration and scope of the pandemic and its impact on economic and financial markets, we cannot reliably predict or estimate the impact of the pandemic on our business, operations or financial results. See “Part I – Item 1A – Risk Factors” of this Form 10-K for additional information regarding the potential impact of COVID-19 on the Company.
Critical Accounting Policies
Our accounting policies are fully described in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements. We believe our most critical accounting policies include revenue recognition, purchase accounting and related fair value measurements, convertible debt, and income taxes.
Revenue Recognition
The Company’s revenues consist of services and Allowancesoftware and hardware sales. In accordance with ASC Topic 606, Revenue from Contracts with Customers, revenues are recognized when control of services or goods are transferred to clients, in an amount that reflects the consideration the Company expects to be entitled to in exchange for Doubtful Accountsthose services or goods.
ServiceServices revenues are primarily derived fromcomprised of professional services providedthat include developing, implementing, automating and extending business processes, technology infrastructure, and software applications. The Company’s professional services span multiple industries, platforms and solutions; however, the Company has remained relatively diversified and does not believe that it has significant revenue concentration within any single industry, platform or solution.
Professional services revenues are recognized over time as services are rendered. Most projects are performed on a time and materials basis, while a portion of revenues is derived from projects performed on a fixed fee or fixed fee percent complete basis. For time and material contracts, service revenues are generally recognized and billedinvoiced by multiplying the number of hours expended in the performance of the contract by the established billinghourly rates. For fixed fee projects, servicecontracts, revenues are generally recognized and invoiced by multiplying the fixed rate per time period established in the contract by the number of time periods elapsed. For fixed fee percent complete contracts, revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours. Amounts invoicedhours, and collected in excess of revenues recognized are classified as deferred revenues. In conjunction with services provided, the Company occasionally receives referral fees under partner programs. These referral fees are recognized when earned and recorded within service revenues. Revenues from software and hardware sales are generally recorded on a gross basis considering the Company’s role as a principal in the transaction. Revenues from sales of third-party software-as-a-service arrangements where the Company is not the primary obligor are recorded on a net basis. On many projects the Company is also reimbursed for out-of-pocket expenses including travel and other project-related expenses. These reimbursements are included as a component of revenues. We did not realize any profit on reimbursable expenses.
Unbilled revenues represent the project time and expenses that have been incurred, but not yet billed to the client, prior to the end of the fiscal period. For time and materials projects, the client is invoiced for the amount of hours worked multiplied by the billing rates as stated in the contract. For fixed fee arrangements, the client is invoiced according to the agreed-upon schedule detailing the amount and timing of payments in the contract.
Clients are typically billed monthly for services provided during that month, but can be billed on a more or less frequent basis as determined by the contract. If the time and expenses are worked/incurredis worked and approved at the end of a fiscal period and the invoice has not yet been sent to the client, the amount is recorded as unbilled revenue once the Company verifies all other revenue recognition criteria have been met.
Revenuesmet, and the amount is classified as a receivable as the right to consideration is unconditional at that point. Amounts invoiced in excess of revenues recognized are recognized when the following criteriacontract liabilities, which are met: (1) persuasive evidence of the customer arrangement exists; (2) fees are fixed and determinable; (3) delivery and acceptance have occurred; and (4) collectability is deemed probable. The Company’s policy for revenue recognition in instances where multiple deliverables are sold contemporaneously to the same customer is in accordance with the FASB Accounting Standards Codification (“ASC”) Subtopic 985-605, Software – Revenue Recognition, ASC Subtopic 605-25, Revenue Recognition – Multiple-Element Arrangements, and ASC Section 605-10-S99 (Staff Accounting Bulletin Topic 13, Revenue Recognition). Specifically, if the Company enters into contracts for the sale of services and software or hardware, then the Company evaluates whether each element should be accounted for separately by considering the following criteria: (1) whether the deliverables have value to the client on a stand-alone basis; and (2) whether delivery or performance of the undelivered item or items is considered probable and substantiallyclassified as deferred revenues in the control of the Company (only if the arrangement includes a general right of return related to the delivered item). Further, for sales of softwareConsolidated Balance Sheet. The term between invoicing and services, the Company also evaluates whether the services are essential to the functionality of the software and if it has fair value evidence for each deliverable. If the Company has concluded that the separation criteria are met, 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 and are accounted for separately, with the arrangement consideration allocated among the deliverables using vendor specific objective evidence of the selling price. As a result, the Company generally recognizes software and hardware sales upon delivery to the customer and services consistent with the policies described herein.
Further, delivery of software and hardware sales, when sold contemporaneously with services, can generally occur at varying times depending on the specific client project arrangement. Delivery of services generally occurs over a period of time consistent with the timeline as outlined in the client contract.
There are no significant cancellation or termination-type provisions for the Company’s software and hardware sales.payment due date is not significant. Contracts for professional services provide for a general right, to the client or the Company, to cancel or terminate the contract within a given period of time (generally 10 to 30 days’ notice is required). The client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract.
The Company Certain contracts may provide multiple services under the terms of an arrangement and is required to assess whether oneinclude volume discounts or more units of accountingholdbacks, which are present. Service fees are typically accounted for as one unitvariable consideration, but are not typically significant. The Company estimates variable consideration based on historical experience and forecasted sales and includes the variable consideration in the transaction price.
Other services revenues are comprised of accounting,hosting fees, partner referral fees, maintenance agreements, training and internally developed software-as-a-service (“SaaS”) sales. Revenues from hosting fees, maintenance agreements, training and internally developed SaaS sales are generally recognized over time using a time-based measure of progress as fair value evidenceservices are rendered. Partner referral fees are recorded at a point in time upon meeting specified requirements to earn the respective fee.
On many professional service projects, the Company is also reimbursed for individual tasksout-of-pocket expenses including travel and other project-related expenses. These reimbursements are included as a component of the transaction price of the respective
professional services contract and are invoiced as the expenses are incurred. The Company structures its professional services arrangements to recover the cost of reimbursable expenses without a markup.
Software and hardware revenues are comprised of third-party software and hardware resales, in which the Company is considered the agent, and sales of internally developed software, in which the Company is considered the principal. Third-party software and hardware revenues are recognized and invoiced when the Company fulfills its obligation to arrange the sale, which occurs when the purchase order with the vendor is executed and the customer has access to the software or milestonesthe hardware has been shipped to the customer. Internally developed software revenues are recognized and invoiced when control is transferred to the customer, which occurs when the software has been made available to the customer and the license term has commenced. Revenues from third-party software and hardware sales are recorded on a net basis, while revenues from internally developed software sales are recorded on a gross basis. There are no significant cancellation or termination-type provisions for the Company’s software and hardware sales, and the term between invoicing and payment due date is not available. The Company followssignificant.
Arrangements with clients may contain multiple promises such as delivery of software, hardware, professional services or post-contract support services. These promises are accounted for as separate performance obligations if they are distinct. For arrangements with clients that contain multiple performance obligations, the guidelines discussed above in determining revenues; however, certain judgmentstransaction price is allocated to the separate performance obligations based on estimated relative standalone selling price, which is estimated by the expected cost plus a margin approach, taking into consideration market conditions and estimatescompetitive factors. Because contracts that contain multiple performance obligations are made and usedtypically short term due to determine revenues recognized in any accounting period. If estimates are revised, material differences may result in the amount and timingcontract cancellation provisions, the allocation of revenues recognized forthe transaction price to the separate performance obligations is not considered a given period.significant estimate.
Revenues are presented net of taxes assessed by governmental authorities. Sales taxes are generally collected and subsequently remitted on all software and hardware sales and certain services transactions as appropriate.
Allowance for doubtful accounts is based upon specific identification of likely and probable losses. Each accounting period, accounts receivable is evaluated for risk associated with a client’s inability to make contractual payments, historical experience and other currently available information. 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. Considerable judgment is used 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 the evaluation of service delivery issues or a client’s ability to pay is incorrect, future reductions to revenue or bad debt expense may be incurred.
Purchase Accounting and Related Fair Value Measurements
The Company allocates the purchase price, including contingent consideration, of our acquisitions to the assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Such fair market value assessments are primarily based on third-party valuations using assumptions developed by management that require significant judgments and estimates that can change materially as additional information becomes available. The purchase price allocated to intangibles is based on unobservable factors, including but not limited to, projected revenues, expenses, customer attrition rates, royalty rates, a weighted average cost of capital, among others. The weighted average cost of capital uses a market participant’s cost of equity and after-tax cost of debt and reflects the riskrisks inherent in the cash flows. The approach to valuing the initial contingent consideration associated with the purchase price also uses similar unobservable factors such as projected revenues and expenses over the term of the contingent earn-out period, discounted for the period over which the contingent consideration is measured.measured, and volatility rates. Based upon these assumptions, the initial contingent consideration is then valued using a Monte Carlo simulation. The Company finalizes the purchase price allocation within 12 months of the acquisition date asonce certain initial accounting valuation estimates are finalized.
finalized, and no later than 12 months following the acquisition date.
Convertible Debt
In accordance with accounting for debt with conversion and other options, the Company bifurcated the principal amount of the Notes into liability and equity components. The initial liability component of the Notes was valued based on the contractual cash flows discounted at an appropriate comparable market non-convertible debt borrowing rate at the date of issuance. The equity component representing the conversion option and calculated as the residual amount of the proceeds was recorded as an increase in additional paid-in capital within stockholders’ equity, partially offset by the associated deferred tax effect. The amount recorded within additional paid-in capital is not to be remeasured as long as it continues to meet the conditions for equity classification. The resulting debt discount is being amortized to interest expense using the effective interest method over the period from the issuance date through the contractual maturity date. The Company utilizes the treasury stock method to calculate the effects of the Notes on diluted earnings per share.
In connection with the issuance of the Notes, the Company entered into the Notes Hedges with the Option Counterparties. The Notes Hedges provide the Company with the option to acquire, on a net settlement basis, shares of common stock equal to the number of shares of common stock that notionally underlie the Notes and corresponds to the conversion price of the Notes. If the Company elects cash settlement and exercises the Notes Hedges, the aggregate amount of cash received from the Option Counterparties will cover the aggregate amount of cash that the Company would be required to pay to the holders of the Notes, less the principal amount thereof. The Notes Hedges do not meet the criteria for separate accounting as a derivative as they are indexed to the Company’s stock and are accounted for as freestanding financial instruments. The Notes
Hedges were recorded as a reduction in additional paid-in capital within stockholders’ equity, partially offset by the associated deferred tax effect.
Additionally, in connection with the issuance of the Notes, the Company sold the Notes Warrants in privately negotiated transactions with the Option Counterparties. The strike price of the Notes Warrants is subject to certain adjustments under the terms of the Notes Warrants. As a result of the Notes Warrants and related transactions, the Company is required to recognize incremental dilution of earnings per share to the extent the average share price is over the strike price of the Notes Warrants for any fiscal quarter. The Notes Warrants may be settled in net shares of common stock or net cash at the Company’s election. The Notes Warrants were recorded as an increase in additional paid-in capital within stockholders’ equity.
During the year ended December 31, 2021, the Company repurchased the remaining portion of the outstanding 2023 Notes, which met the criteria to be accounted for as a debt extinguishment, and repurchased a portion of the outstanding 2025 Notes, which met the criteria to be accounted for as a debt extinguishment with an inducement charge. The consideration paid for the repurchases was allocated to the liability and equity components of the 2023 Notes and 2025 Notes based on the fair value of the liability component, which was determined utilizing an estimated discount rate for a similar liability with the same maturity, but without the conversion option. The consideration allocated to the equity component was calculated by deducting the fair value of the liability component from the aggregate consideration, excluding interest. The Company subsequently compared the allocated consideration with the carrying value of the liability component to record a loss on extinguishment, which includes the proportionate amounts of unamortized debt discount and the remaining unamortized debt issuance costs. An inducement charge representing the difference between the fair value of the consideration delivered to the holders of the repurchased 2025 Notes and the fair value of the consideration issuable under the original conversion terms is included in “Loss on extinguishment of debt” in the accompanying Consolidated Statements of Operations.
Income Taxes
The Company calculates and provides for income taxes in each jurisdiction in which it operates. Deferred tax assets and liabilities, measured using enacted tax rates, are recognized for the future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized. The Company has established liabilities or reduced assets for uncertain tax positions when it believes those tax positions are not more likely than not of being sustained if challenged. The Company evaluates these uncertain tax positions and adjusts the related tax assets and liabilities in light of changing facts and circumstances each quarter.On December 22, 2017, the U.S. government enacted the 2017 Tax Act. The 2017 Tax Act significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates and implementing a territorial tax system. See Note 10, Income Taxes, in the Notes to the Consolidated Financial Statements for additional information regarding the 2017 Tax Act.
Recent Accounting Pronouncements
Recent accounting pronouncements are fully described in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, except operating lease commitments as disclosed in Note 12, Commitments and Contingencies, in the Notes to Consolidated Financial Statements.
| | | | | |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
We are exposed to market risks related to changes in foreign currency exchange rates and interest rates. We believe our exposure to market risks is immaterial.
Exchange Rate Sensitivity
We are exposed to market risks associated with changes in foreign currency exchange rates because we generate a portion of our revenues and incur a portion of our expenses in currencies other than the U.S. dollar. As of December 31, 2017,2021, we were exposed to changes in exchange rates between the U.S. dollar and the Canadian dollar, Chinese Yuan, Indian Rupee, British Pound, and Euro. ten other currencies. We hedge material foreign currency exchange rate exposures when feasible using forward contracts. These instruments are subject to fluctuations in foreign currency exchange rates and credit risk. Credit risk is managed through careful selection and ongoing evaluation of the financial institutions utilized as counter parties.counterparties. Refer to Note 11, Financial Instruments14, Derivatives, in the Notes to Consolidated Financial Statements for further discussion.
Interest Rate Sensitivity
As of December 31, 2017,2021, there was $55.0 millionno outstanding balance and $69.7$199.8 million of available borrowing capacity under our credit facility. OurTo the extent we have outstanding borrowings under the credit facility, our interest expense will fluctuate as
the interest rate for the line of credit floats based, at our option, on the prime rate plus a margin or the one-month LIBOR rate plus a margin.
During the third quarter of 2020 and the fourth quarter of 2021, we issued the 2025 Notes and the 2026 Notes, respectively, which have a fixed interest rate of 1.250% and 0.125%, respectively. The fair value of the Notes may increase or decrease for various reasons, including fluctuations in the market price of our common stock, fluctuations in market interest rates and fluctuations in general economic conditions. Based onupon the $55.0 million outstanding on the line of creditquoted market price as of December 31, 2017, an increase in2021, the interest ratefair value of 100 basis points would add $550,000 of interest expense per year, which is not considered material to our financial position or results of operations.the 2025 Notes and 2026 Notes was approximately $59.6 million and $363.6 million, respectively.
We had unrestricted cash and cash equivalents totaling $6.3$24.4 million at December 31, 20172021 and $10.1$83.2 million at December 31, 2016.2020. The unrestricted cash and cash equivalents are primarily held for working capital purposes.purposes and acquisitions. We do not enter into investments for trading or speculative purposes.
24
| | | | | |
| Item 8. | Financial Statements and Supplementary Data. |
PERFICIENT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
| | | | December 31, | | | December 31, |
| | | 2017 | | | 2016 | | | 2021 | | 2020 |
| ASSETS | | (In thousands, except share information) | | ASSETS | |
| Current assets: | | | | | | | Current assets: | | | |
| Cash and cash equivalents | | $ | 6,307 | | | $ | 10,113 | | Cash and cash equivalents | $ | 24,410 | | | $ | 83,204 | |
| Accounts receivable, net | | | 112,194 | | | | 103,702 | | Accounts receivable, net | 177,602 | | | 133,085 | |
| Prepaid expenses | | | 4,470 | | | | 3,353 | | Prepaid expenses | 5,400 | | | 5,575 | |
| Other current assets | | | 6,237 | | | | 5,331 | | Other current assets | 7,296 | | | 4,646 | |
| Total current assets | | | 129,208 | | | | 122,499 | | Total current assets | 214,708 | | | 226,510 | |
| Property and equipment, net | | | 7,145 | | | | 8,888 | | Property and equipment, net | 14,747 | | | 11,902 | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | 33,353 | | | 38,539 | |
| Goodwill | | | 305,238 | | | | 275,205 | | Goodwill | 515,229 | | | 427,928 | |
| Intangible assets, net | | | 51,066 | | | | 45,115 | | Intangible assets, net | 81,277 | | | 63,571 | |
| Other non-current assets | | | 6,403 | | | | 4,869 | | Other non-current assets | 23,258 | | | 17,311 | |
| Total assets | | $ | 499,060 | | | $ | 456,576 | | Total assets | $ | 882,572 | | | $ | 785,761 | |
| | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | | | | | | | Current liabilities: | | | |
| Accounts payable | | $ | 23,196 | | | $ | 18,416 | | Accounts payable | $ | 26,074 | | | $ | 25,613 | |
| Other current liabilities | | | 38,077 | | | | 27,637 | | Other current liabilities | 93,877 | | | 103,267 | |
| Total current liabilities | | | 61,273 | | | | 46,053 | | Total current liabilities | 119,951 | | | 128,880 | |
| Long-term debt | | | 55,000 | | | | 32,000 | | |
| Long-term debt, net | | Long-term debt, net | 326,126 | | | 183,624 | |
| Operating lease liabilities | | Operating lease liabilities | 23,898 | | | 29,098 | |
| Other non-current liabilities | | | 16,436 | | | | 19,058 | | Other non-current liabilities | 47,832 | | | 50,081 | |
| Total liabilities | | $ | 132,709 | | | $ | 97,111 | | Total liabilities | $ | 517,807 | | | $ | 391,683 | |
| | | | | | | | | | |
| Commitments and contingencies (see Note 12) | | | | | | | | | |
| Commitments and contingencies (see Note 17) | | Commitments and contingencies (see Note 17) | 0 | | 0 |
| | | | | | | | | | |
| Stockholders’ equity: | | | | | | | | | Stockholders’ equity: | | | |
| Common stock (par value $.001 per share; 100,000,000 shares authorized and 47,370,945 shares issued and 33,249,665 shares outstanding as of December 31, 2017; 50,000,000 shares authorized and 45,895,086 shares issued and 33,865,688 shares outstanding as of December 31, 2016) | | $ | 47 | | | $ | 46 | | |
| Preferred stock (par value $0.001 per share; 8,000,000 authorized; no shares issued or outstanding as of December 31, 2021 and December 31, 2020) | | Preferred stock (par value $0.001 per share; 8,000,000 authorized; no shares issued or outstanding as of December 31, 2021 and December 31, 2020) | $ | — | | | $ | — | |
| Common stock (par value $0.001 per share; 100,000,000 authorized; 52,534,967 shares issued and 33,881,196 shares outstanding as of December 31, 2021; 50,296,453 shares issued and 32,074,094 shares outstanding as of December 31, 2020) | | Common stock (par value $0.001 per share; 100,000,000 authorized; 52,534,967 shares issued and 33,881,196 shares outstanding as of December 31, 2021; 50,296,453 shares issued and 32,074,094 shares outstanding as of December 31, 2020) | 53 | | | 50 | |
| Additional paid-in capital | | | 403,906 | | | | 379,094 | | Additional paid-in capital | 423,235 | | | 459,866 | |
| Accumulated other comprehensive loss | | | (1,822 | ) | | | (2,743 | ) | |
| Treasury stock, at cost (14,121,280 shares as of December 31, 2017; 12,029,398 shares as of December 31, 2016) | | | (163,871 | ) | | | (126,442 | ) | |
| Accumulated other comprehensive (loss) income | | Accumulated other comprehensive (loss) income | (5,843) | | | 3,746 | |
| Treasury stock, at cost (18,653,771 shares as of December 31, 2021; 18,222,359 shares as of December 31, 2020) | | Treasury stock, at cost (18,653,771 shares as of December 31, 2021; 18,222,359 shares as of December 31, 2020) | (324,412) | | | (289,225) | |
| Retained earnings | | | 128,091 | | | | 109,510 | | Retained earnings | 271,732 | | | 219,641 | |
| Total stockholders’ equity | | | 366,351 | | | | 359,465 | | Total stockholders’ equity | 364,765 | | | 394,078 | |
| Total liabilities and stockholders’ equity | | $ | 499,060 | | | $ | 456,576 | | Total liabilities and stockholders’ equity | $ | 882,572 | | | $ | 785,761 | |
See accompanying notes to consolidated financial statements.
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
| Revenues: | | (In thousands, except per share information) | |
| Services | | $ | 434,253 | | | $ | 418,589 | | | $ | 411,469 | |
| Software and hardware | | | 38,642 | | | | 49,954 | | | | 46,622 | |
| Reimbursable expenses | | | 12,366 | | | | 18,439 | | | | 15,530 | |
| Total revenues | | | 485,261 | | | | 486,982 | | | | 473,621 | |
| Cost of revenues (exclusive of depreciation and amortization, shown separately below): | | | | | | | | | | | | |
| Cost of services | | | 278,087 | | | | 273,682 | | | | 261,711 | |
| Software and hardware costs | | | 33,295 | | | | 43,581 | | | | 41,170 | |
| Reimbursable expenses | | | 12,366 | | | | 18,439 | | | | 15,530 | |
| Total cost of revenues | | | 323,748 | | | | 335,702 | | | | 318,411 | |
| | | | | | | | | | | | | |
| Selling, general, and administrative | | | 108,192 | | | | 101,264 | | | | 99,963 | |
| Depreciation | | | 4,722 | | | | 4,867 | | | | 4,496 | |
| Amortization | | | 15,025 | | | | 13,371 | | | | 13,819 | |
| Acquisition costs | | | 1,359 | | | | 1,252 | | | | 1,235 | |
| Adjustment to fair value of contingent consideration | | | 3,235 | | | | (1,679 | ) | | | 445 | |
| Income from operations | | | 28,980 | | | | 32,205 | | | | 35,252 | |
| | | | | | | | | | | | | |
| Net interest expense | | | 1,838 | | | | 1,636 | | | | 2,085 | |
| Net other (income) expense | | | (1 | ) | | | 60 | | | | 332 | |
| Income before income taxes | | | 27,143 | | | | 30,509 | | | | 32,835 | |
| Provision for income taxes | | | 8,562 | | | | 10,050 | | | | 9,828 | |
| | | | | | | | | | | | | |
| Net income | | $ | 18,581 | | | $ | 20,459 | | | $ | 23,007 | |
| | | | | | | | | | | | | |
| Basic net income per share | | $ | 0.56 | | | $ | 0.60 | | | $ | 0.69 | |
| Diluted net income per share | | $ | 0.55 | | | $ | 0.58 | | | $ | 0.67 | |
| Shares used in computing basic net income per share | | | 33,016 | | | | 34,023 | | | | 33,408 | |
| Shares used in computing diluted net income per share | | | 34,066 | | | | 35,001 | | | | 34,324 | |
See accompanying notes to consolidated financial statements.
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)thousands, except per share information) | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| |
| Revenues | $ | 761,027 | | | $ | 612,133 | | | $ | 565,527 | |
| | | | | |
| Total cost of revenues (cost of services, exclusive of depreciation and amortization, shown separately below) | 468,813 | | | 380,723 | | | 354,213 | |
| Selling, general, and administrative | 152,419 | | | 134,675 | | | 134,187 | |
| Depreciation | 6,398 | | | 5,430 | | | 4,447 | |
| Amortization | 23,453 | | | 22,857 | | | 16,151 | |
| Acquisition costs | 3,814 | | | 3,675 | | | 896 | |
| Adjustment to fair value of contingent consideration | 198 | | | 9,519 | | | 301 | |
| Income from operations | 105,932 | | | 55,254 | | | 55,332 | |
| | | | | |
| Net interest expense | 14,052 | | | 10,128 | | | 7,418 | |
| Loss on extinguishment of debt | 28,996 | | | 4,537 | | | — | |
| Net other expense (income) | 401 | | | 260 | | | (27) | |
| Income before income taxes | 62,483 | | | 40,329 | | | 47,941 | |
| Income tax provision | 10,392 | | | 10,148 | | | 10,816 | |
| | | | | |
| Net income | $ | 52,091 | | | $ | 30,181 | | | $ | 37,125 | |
| | | | | |
| Basic net income per share | $ | 1.62 | | | $ | 0.95 | | | $ | 1.18 | |
| Diluted net income per share | $ | 1.50 | | | $ | 0.93 | | | $ | 1.15 | |
| Shares used in computing basic net income per share | 32,202 | | | 31,793 | | | 31,344 | |
| Shares used in computing diluted net income per share | 34,670 | | | 32,516 | | | 32,243 | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
| Net income | | $ | 18,581 | | | $ | 20,459 | | | $ | 23,007 | |
| Other comprehensive income (loss), net of reclassification adjustments: | | | | | | | | | | | | |
| Foreign benefit plan | | | 88 | | | | (34 | ) | | | - | |
| Foreign currency translation adjustment | | | 833 | | | | (834 | ) | | | (1,224 | ) |
| Comprehensive income | | $ | 19,502 | | | $ | 19,591 | | | $ | 21,783 | |
See accompanying notes to consolidated financial statements.
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME
(In thousands)
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Net income | $ | 52,091 | | | $ | 30,181 | | | $ | 37,125 | |
| Other comprehensive (loss) income, net of reclassification adjustments and income taxes | | | | | |
| Foreign benefit plan, net of tax | (188) | | | (149) | | | (71) | |
| Foreign currency translation adjustment, net of tax | (9,401) | | | 6,545 | | | 9 | |
| Comprehensive income | $ | 42,502 | | | $ | 36,577 | | | $ | 37,063 | |
See accompanying notes to consolidated financial statements.
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(In thousands)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | | | | |
| | | | | |
| Common Stock | | | | | |
| Beginning of period | $ | 50 | | | $ | 49 | | | $ | 48 | |
| Stock compensation related to restricted stock vesting and retirement savings plan contributions | 3 | | | 1 | | | 1 | |
| End of period | 53 | | | 50 | | | 49 | |
| Additional Paid-in Capital | | | | | |
| Beginning of period | 459,866 | | | 455,465 | | | 437,250 | |
| Proceeds from the sales of stock through the Employee Stock Purchase Plan | 631 | | | 310 | | | 178 | |
| Stock compensation related to restricted stock vesting and retirement savings plan contributions | 20,401 | | | 18,514 | | | 16,581 | |
| Issuance of stock in conjunction with acquisitions including stock attributed to future compensation | 6,822 | | | 10,184 | | | 1,456 | |
| Equity component of issuance of convertible notes, net of tax | 49,332 | | | 36,386 | | | — | |
| Debt issuance costs of convertible notes allocated to equity, net of tax | (1,394) | | | (1,147) | | | — | |
| Purchase of hedges related to issuance of convertible notes, net of tax | (49,308) | | | (36,387) | | | — | |
| Proceeds from issuance of warrants related to issuance of convertible notes | 23,408 | | | 22,218 | | | — | |
| Equity component of repurchase of convertible notes, net of tax | (407,084) | | | (52,711) | | | — | |
| Proceeds from sale of hedges related to repurchase of convertible notes | 381,290 | | | 50,062 | | | — | |
| Purchases of warrants related to repurchase of convertible notes | (303,896) | | | (43,028) | | | — | |
| Shares issued upon extinguishment of 2025 convertible notes | 243,167 | | | — | | | — | |
| End of period | 423,235 | | | 459,866 | | | 455,465 | |
| Accumulated Other Comprehensive Income (Loss) | | | | | |
| Beginning of period | 3,746 | | | (2,650) | | | (2,588) | |
| Foreign benefit plan, net of tax | (188) | | | (149) | | | (71) | |
| Foreign currency translation adjustment, net of tax | (9,401) | | | 6,545 | | | 9 | |
| End of period | (5,843) | | | 3,746 | | | (2,650) | |
| Treasury Stock | | | | | |
| Beginning of period | (289,225) | | | (261,624) | | | (233,676) | |
| Purchases of treasury stock and buyback of shares for taxes | (35,187) | | | (27,601) | | | (27,948) | |
| End of period | (324,412) | | | (289,225) | | | (261,624) | |
| Retained Earnings | | | | | |
| Beginning of period | 219,641 | | | 189,775 | | | 152,650 | |
| Cumulative effect of accounting changes (See Note 2) | — | | | (315) | | | — | |
| Net income | 52,091 | | | 30,181 | | | 37,125 | |
| End of period | 271,732 | | | 219,641 | | | 189,775 | |
| Total Stockholders’ Equity | $ | 364,765 | | | $ | 394,078 | | | $ | 381,015 | |
| | | Common Stock Shares | | | Common Stock Amount | | | Additional Paid-in Capital | | | Accumulated Other Comprehensive Loss | | | Treasury Stock | | | Retained Earnings | | | Total Stockholders’ Equity | |
| Balance at December 31, 2014 | | | 32,855 | | | $ | 43 | | | $ | 334,645 | | | $ | (651 | ) | | $ | (95,353 | ) | | $ | 66,044 | | | $ | 304,728 | |
| Proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan | | | 26 | | | | - | | | | 337 | | | | - | | | | - | | | | - | | | | 337 | |
| Net tax benefit from stock option exercises and restricted stock vesting | | | - | | | | - | | | | 1,335 | | | | - | | | | - | | | | - | | | | 1,335 | |
| Stock compensation related to restricted stock vesting and retirement savings plan contributions | | | 893 | | | | - | | | | 13,110 | | | | - | | | | - | | | | - | | | | 13,110 | |
| Purchases of treasury stock and buyback of shares for taxes | | | (411 | ) | | | - | | | | - | | | | - | | | | (7,844 | ) | | | - | | | | (7,844 | ) |
| Issuance of stock for acquisitions | | | 1,031 | | | | 2 | | | | 15,359 | | | | - | | | | - | | | | - | | | | 15,361 | |
| Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 23,007 | | | | 23,007 | |
| Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | (1,224 | ) | | | - | | | | - | | | | (1,224 | ) |
| Balance at December 31, 2015 | | | 34,394 | | | $ | 45 | | | $ | 364,786 | | | $ | (1,875 | ) | | $ | (103,197 | ) | | $ | 89,051 | | | $ | 348,810 | |
| Proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan | | | 10 | | | | - | | | | 197 | | | | - | | | | - | | | | - | | | | 197 | |
| Stock compensation related to restricted stock vesting and retirement savings plan contributions | | | 753 | | | | 1 | | | | 13,973 | | | | - | | | | - | | | | - | | | | 13,974 | |
| Purchases of treasury stock and buyback of shares for taxes | | | (1,213 | ) | | | - | | | | - | | | | - | | | | (21,746 | ) | | | - | | | | (21,746 | ) |
| Surrender of stock in conjunction with net working capital settlement | | | (86 | ) | | | - | | | | - | | | | - | | | | (1,499 | ) | | | - | | | | (1,499 | ) |
| Issuance of stock for acquisitions | | | 8 | | | | - | | | | 138 | | | | - | | | | - | | | | - | | | | 138 | |
| Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 20,459 | | | | 20,459 | |
| Foreign benefit plan | | | - | | | | - | | | | - | | | | (34 | ) | | | - | | | | - | | | | (34 | ) |
| Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | (834 | ) | | | - | | | | - | | | | (834 | ) |
| Balance at December 31, 2016 | | | 33,866 | | | $ | 46 | | | $ | 379,094 | | | $ | (2,743 | ) | | $ | (126,442 | ) | | $ | 109,510 | | | $ | 359,465 | |
| Proceeds from the sales of stock through the Employee Stock Purchase Plan | | | 8 | | | | - | | | | 135 | | | | - | | | | - | | | | - | | | | 135 | |
| Stock compensation related to restricted stock vesting and retirement savings plan contributions | | | 784 | | | | - | | | | 14,096 | | | | - | | | | - | | | | - | | | | 14,096 | |
| Purchases of treasury stock and buyback of shares for taxes | | | (2,058 | ) | | | - | | | | - | | | | - | | | | (36,797 | ) | | | - | | | | (36,797 | ) |
| Surrender of stock in conjunction with net working capital settlement | | | (34 | ) | | | - | | | | - | | | | - | | | | (632 | ) | | | - | | | | (632 | ) |
| Issuance of stock in conjunction with acquisitions including stock attributed to future compensation | | | 684 | | | | 1 | | | | 10,581 | | | | - | | | | - | | | | - | | | | 10,582 | |
| Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 18,581 | | | | 18,581 | |
| Foreign benefit plan | | | - | | | | - | | | | - | | | | 88 | | | | - | | | | - | | | | 88 | |
| Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | 833 | | | | - | | | | - | | | | 833 | |
| Balance at December 31, 2017 | | | 33,250 | | | $ | 47 | | | $ | 403,906 | | | $ | (1,822 | ) | | $ | (163,871 | ) | | $ | 128,091 | | | $ | 366,351 | |
See accompanying notes to consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Common Stock, shares | | | | | |
| Beginning of period | 32,074 | | | 31,687 | | | 31,771 | |
| Sales of stock through the Employee Stock Purchase Plan | 9 | | | 9 | | | 6 | |
| Stock compensation related to restricted stock vesting and retirement savings plan contributions | 522 | | | 678 | | | 783 | |
| Purchases of treasury stock and buyback of shares for taxes | (431) | | | (637) | | | (927) | |
| Issuance of stock in conjunction with acquisition including stock attributed to future compensation | 67 | | | 337 | | | 54 | |
| Issuance of shares for repurchase of convertible notes | 1,640 | | | — | | | — | |
| End of period | 33,881 | | | 32,074 | | | 31,687 | |
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
| OPERATING ACTIVITIES | | (In thousands) | |
| Net income | | $ | 18,581 | | | $ | 20,459 | | | $ | 23,007 | |
| Adjustments to reconcile net income to net cash provided by operations: | | | | | | | | | | | | |
| Depreciation | | | 4,722 | | | | 4,867 | | | | 4,496 | |
| Amortization | | | 15,025 | | | | 13,371 | | | | 13,819 | |
| Deferred income taxes | | | (4,140 | ) | | | 4,390 | | | | 1,497 | |
| Non-cash stock compensation and retirement savings plan contributions | | | 14,096 | | | | 13,974 | | | | 13,110 | |
| Tax benefit from stock option exercises and restricted stock vesting | | | - | | | | - | | | | (1,432 | ) |
| Adjustment to fair value of contingent consideration for purchase of business | | | 3,235 | | | | (1,679 | ) | | | 445 | |
| Write-off unamortized credit facility fees | | | 246 | | | | - | | | | - | |
| | | | | | | | | | | | | |
| Changes in operating assets and liabilities, net of acquisitions: | | | | | | | | | | | | |
| Accounts receivable | | | (3,003 | ) | | | 16,905 | | | | 3,512 | |
| Other assets | | | (1,775 | ) | | | (467 | ) | | | (448 | ) |
| Accounts payable | | | 4,780 | | | | (377 | ) | | | (3,242 | ) |
| Other liabilities | | | 3,454 | | | | (8,142 | ) | | | (10,043 | ) |
| Net cash provided by operating activities | | | 55,221 | | | | 63,301 | | | | 44,721 | |
| | | | | | | | | | | | | |
| INVESTING ACTIVITIES | | | | | | | | | | | | |
| Purchase of property and equipment | | | (3,361 | ) | | | (4,087 | ) | | | (3,356 | ) |
| Capitalization of internally developed software costs | | | (961 | ) | | | (1,964 | ) | | | (1,035 | ) |
| Purchase of short-term investments | | | - | | | | (869 | ) | | | - | |
| Proceeds from sale of short-term investments | | | - | | | | 853 | | | | - | |
| Proceeds from settlement of company-owned life insurance | | | - | | | | 2,792 | | | | - | |
| Payments to fund company-owned life insurance | | | - | | | | (2,792 | ) | | | - | |
| Purchase of businesses, net of cash acquired | | | (37,886 | ) | | | (7,464 | ) | | | (37,848 | ) |
| Net cash used in investing activities | | | (42,208 | ) | | | (13,531 | ) | | | (42,239 | ) |
| | | | | | | | | | | | | |
| FINANCING ACTIVITIES | | | | | | | | | | | | |
| Proceeds from line of credit | | | 275,000 | | | | 208,500 | | | | 266,500 | |
| Payments on line of credit | | | (252,000 | ) | | | (232,500 | ) | | | (264,500 | ) |
| Payments for credit facility financing fees | | | (355 | ) | | | (194 | ) | | | (193 | ) |
| Payment of contingent consideration for purchase of business | | | (3,258 | ) | | | (2,144 | ) | | | - | |
| Tax benefit from stock option exercises and restricted stock vesting | | | - | | | | - | | | | 1,432 | |
| Proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan | | | 135 | | | | 197 | | | | 337 | |
| Purchases of treasury stock | | | (32,601 | ) | | | (18,023 | ) | | | (2,840 | ) |
| Remittance of taxes withheld as part of a net share settlement of restricted stock vesting | | | (4,196 | ) | | | (3,723 | ) | | | (5,004 | ) |
| Net cash used in financing activities | | | (17,275 | ) | | | (47,887 | ) | | | (4,268 | ) |
| Effect of exchange rate on cash and cash equivalents | | | 456 | | | | (581 | ) | | | (338 | ) |
| Change in cash and cash equivalents | | | (3,806 | ) | | | 1,302 | | | | (2,124 | ) |
| Cash and cash equivalents at beginning of period | | | 10,113 | | | | 8,811 | | | | 10,935 | |
| Cash and cash equivalents at end of period | | $ | 6,307 | | | $ | 10,113 | | | $ | 8,811 | |
| | | | | | | | | | | | | |
| Supplemental disclosures: | | | | | | | | | | | | |
| Cash paid for income taxes | | $ | 9,074 | | | $ | 5,038 | | | $ | 9,944 | |
| Cash paid for interest | | $ | 1,551 | | | $ | 1,487 | | | $ | 2,005 | |
| Non-cash activities: | | | | | | | | | | | | |
| Stock issued for purchase of businesses (including settlement of contingent consideration) | | $ | 9,429 | | | $ | 96 | | | $ | 15,361 | |
| Stock surrendered by sellers in conjunction with net working capital settlement | | $ | 572 | | | $ | 1,499 | | | $ | - | |
| Liability incurred for purchase of property, plant and equipment | | $ | - | | | $ | 1,671 | | | $ | - | |
See accompanying notes to consolidated financial statements.
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| OPERATING ACTIVITIES | |
| Net income | $ | 52,091 | | | $ | 30,181 | | | $ | 37,125 | |
| Adjustments to reconcile net income to net cash provided by operations: | | | | | |
| Depreciation | 6,398 | | | 5,430 | | | 4,447 | |
| Amortization | 23,453 | | | 22,857 | | | 16,151 | |
| | | | | |
| Loss on extinguishment of debt | 28,996 | | | 4,537 | | | — | |
| Deferred income taxes | (12,662) | | | (1,588) | | | 2,041 | |
| Non-cash stock compensation and retirement savings plan contributions | 21,554 | | | 19,146 | | | 17,425 | |
| Amortization of debt issuance costs and discounts | 11,014 | | | 6,855 | | | 4,667 | |
| Adjustment to fair value of contingent consideration for purchase of business | 198 | | | 9,519 | | | 301 | |
| | | | | |
| Changes in operating assets and liabilities, net of acquisitions: | | | | | |
| Accounts receivable | (34,451) | | | 8,237 | | | (3,402) | |
| Other assets | (3,475) | | | 1,821 | | | (7,677) | |
| Accounts payable | 56 | | | 861 | | | (1,356) | |
| Other liabilities | (8,256) | | | 10,104 | | | 8,243 | |
| Net cash provided by operating activities | 84,916 | | | 117,960 | | | 77,965 | |
| | | | | |
| INVESTING ACTIVITIES | | | | | |
| Purchase of property and equipment | (9,244) | | | (5,266) | | | (8,082) | |
| Capitalization of internally developed software costs | (960) | | | (1,465) | | | (1,174) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Purchase of businesses, net of cash acquired | (108,848) | | | (91,883) | | | (11,143) | |
| Net cash used in investing activities | (119,052) | | | (98,614) | | | (20,399) | |
| | | | | |
| FINANCING ACTIVITIES | | | | | |
| Proceeds from issuance of convertible notes | 380,000 | | | 230,000 | | | — | |
| Payment for convertible notes issuance costs | (10,540) | | | (7,253) | | | — | |
| Purchase of hedges related to issuance of convertible notes | (66,120) | | | (48,944) | | | — | |
| Proceeds from issuance of warrants related to issuance of convertible notes | 23,408 | | | 22,218 | | | — | |
| Payments for repurchase of convertible notes | (368,664) | | | (180,420) | | | — | |
| Proceeds from sale of hedges related to repurchase of convertible notes | 381,290 | | | 50,062 | | | — | |
| Repurchase of warrants related to repurchase of convertible notes | (303,896) | | | (43,028) | | | — | |
| Payment for credit facility financing fees | (633) | | | — | | | — | |
| Proceeds from line of credit | 74,000 | | | 28,000 | | | — | |
| Payments on line of credit | (74,000) | | | (28,000) | | | — | |
| | | | | |
| Payment of contingent consideration for purchase of business | (24,128) | | | (2,820) | | | (4,281) | |
| Proceeds from the sale of stock through the Employee Stock Purchase Plan | 631 | | | 310 | | | 178 | |
| Purchases of treasury stock | (21,724) | | | (19,573) | | | (20,612) | |
| Remittance of taxes withheld as part of a net share settlement of restricted stock vesting | (13,463) | | | (8,028) | | | (7,336) | |
| Net cash used in financing activities | (23,839) | | | (7,476) | | | (32,051) | |
| Effect of exchange rate on cash and cash equivalents | (819) | | | 606 | | | 229 | |
| Change in cash and cash equivalents | (58,794) | | | 12,476 | | | 25,744 | |
| Cash and cash equivalents at beginning of period | 83,204 | | | 70,728 | | | 44,984 | |
| Cash and cash equivalents at end of period | $ | 24,410 | | | $ | 83,204 | | | $ | 70,728 | |
| | | | | |
| Supplemental disclosures: | | | | | |
| Cash paid for income taxes | $ | 16,122 | | | $ | 5,256 | | | $ | 7,405 | |
| Cash paid for interest | $ | 3,988 | | | $ | 3,411 | | | $ | 3,674 | |
| Non-cash activities: | | | | | |
| Stock issued for purchase of businesses | $ | 6,244 | | | $ | 8,729 | | | $ | 1,294 | |
| Issuance of shares for repurchase of convertible notes | $ | 243,167 | | | $ | — | | | $ | — | |
| Liability incurred for purchase of property and equipment | $ | 144 | | | $ | 503 | | | $ | 1,851 | |
See accompanying notes to consolidated financial statements.
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 20172021
1. Description of Business and Principles of Consolidation
Perficient, Inc. (the “Company”) is an information technology consulting firm. The Company helps itsa global digital consultancy. Perficient’s work enables clients, use Internet-based technologiesprimarily focused in North America, to make their businessesdeliver experiences that surpass customer expectations; become more responsive to market opportunitieshuman-centered, authentic, and threats;trusted; innovate through digital technologies; outpace competition; grow and strengthen relationships with customers, suppliers, and partners; improve productivity; and reduce information technology costs. The
Through December 31, 2021, the Company designs, builds,had not experienced a material impact to its business, operations or financial results as a result of the novel coronavirus (COVID-19) pandemic. However, the Company’s operating results for the year ended December 31, 2021 are not necessarily indicative of future results, particularly in light of the COVID-19 pandemic and deliversits continuing effects on domestic and global economies. To limit the spread of COVID-19, governments have imposed, and may continue to impose, among other things, travel and business operation restrictions and stay-at-home orders and social distancing guidelines, causing some businesses to adjust, reduce or suspend operating activities. While certain of these restrictions and guidelines have been lifted or relaxed, they may be reinstituted in response to continuing effects of the pandemic, including as a result of emerging variants. These disruptions and restrictions could adversely affect our operating results due to, among other things, reduced demand for our services and 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.requests for discounts or extended payment terms, or customer bankruptcies.
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
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and such differences could be material to the financial statements.
ServiceThe Company recognizes revenues are primarily derived from professional services provided on a time and materials basis. For time and material contracts, service 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, service revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours. Amounts invoiced and collected in excess of revenues recognized are classified as deferred revenues. In conjunction with services provided, the Company occasionally receives referral fees under partner programs. These referral fees are recognized when earned and recorded within service revenues. Revenues from software and hardware sales are generally recorded on a gross basis considering the Company’s role as a principal in the transaction. Revenues from sales of third-party software-as-a-service arrangements where the Company is not the primary obligor are recorded on a net basis. On many projects the Company is also reimbursed for out-of-pocket expenses including travel and other project-related expenses. These reimbursements are included as a component of revenues. We did not realize any profit on reimbursable expenses.
Unbilled revenues represent the project time and expenses that have been incurred, but not yet billed to the client, prior to the end of the fiscal period. For time and materials projects, the client is invoiced for the amount of hours worked multiplied by the billing rates as stated in the contract. For fixed fee arrangements, the client is invoiced according to the agreed-upon schedule detailing the amount and timing of payments in the contract. Clients are typically billed monthly for services provided during that month, but can be billed on a more or less frequent basis as determined by the contract. If the time and expenses are worked/incurred and approved at the end of a fiscal period and the invoice has not yet been sent to the client, the amount is recorded as unbilled revenue once the Company verifies all other revenue recognition criteria have been met.
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) collectability is deemed probable. The Company’s policy for revenue recognition in instances where multiple deliverables are sold contemporaneously to the same customer is in accordance with the FASB Accounting Standards Codification (“ASC”) Subtopic 985-605, Software –Topic 606, Revenue Recognition, ASC Subtopic 605-25, Revenue Recognition – Multiple-Element Arrangements, and ASC Section 605-10-S99 (Staff Accounting Bulletin Topic 13, Revenue Recognition). Specifically, iffrom Contracts with Customers. See Note 3, Revenues, for information regarding the Company’s revenue recognition accounting policies.
Allowance for Credit Losses
As of January 1, 2020, the Company enters into contractsestimates its allowance for credit losses in accordance with ASC Topic 326, Financial Instruments - Credit Losses. See Note 8, Allowance for Credit Losses, for information regarding the sale of services and software or hardware, then the Company evaluates whether each element should be accounted for separately by considering the following criteria: (1) whether the deliverables have value to the client on a stand-alone basis; and (2) whether delivery or performance of the undelivered item or items is considered probable and substantially in the control of the Company (only if the arrangement includes a general right of returnCompany’s accounting policies related to the delivered item). Further, for sales of software and services, the Company also evaluates whether the services are essential to the functionality of the software and if it has fair value evidence for each deliverable. If the Company has concluded that the separation criteria are met, 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 and are accounted for separately, with the arrangement consideration allocated among the deliverables using vendor specific objective evidence of the selling price. As a result, the Company generally recognizes software and hardware sales upon delivery to the customer and services consistent with the policies described herein.
Further, delivery of software and hardware sales, when sold contemporaneously with services, can generally occur at varying times depending on the specific client project arrangement. Delivery of services generally occurs over a period of time consistent with the timeline as outlined in the client contract.
There are no significant cancellation or termination-type provisions for the Company’s software and hardware sales. Contracts for professional services provide for a general right, to the client or the Company, to cancel or terminate the contract within a given period of time (generally 10 to 30 days’ notice is required). The client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract.
The Company may provide multiple services under the terms of an arrangement and is required to assess whether one or more units of accounting are present. Service fees are typically accounted for as one unit of accounting, as fair value evidence for individual tasks or milestones is not available. 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. If estimates are revised, material differences may result in the amount and timing of revenues recognized for a given period.
Revenues are presented net of taxes assessed by governmental authorities. Sales taxes are generally collected and subsequently remitted on all software and hardware sales and certain services transactions as appropriate.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is based upon specific identification of likely and probablecredit losses. Each accounting period, accounts receivable is evaluated for risk associated with a client’s inability to make contractual payments, historical experience, and other currently available information.
The fair value of restricted stock awards are based on the value of the Company’s common stock on the date of the grant. Stock-based compensation is accounted for in accordance with ASC Topic 718, Compensation – Stock Compensation. Under this guidance, the Company recognizes share-based compensation ratably using the straight-line attribution method over the requisite service period, which is generally three years. In addition, pursuant to ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting,The fair value of restricted stock awards is based on the Company has continued to elect to estimatevalue of the amountCompany’s common stock on the date of expected forfeitures when calculating share-based compensation, instead of accounting for forfeitures as they occur.the grant.
The Company accounts for income taxes in accordance with ASC Subtopic 740-10, Income Taxes (“ASC Subtopic 740-10”), and ASC Section 740-10-25, Income Taxes – Recognition (“ASC Section 740-10-25”). ASC Subtopic 740-10 prescribes the use of the asset and 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. ASC Section 740-10-25 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. ASC Section 740-10-25 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions.On December 22, 2017, the U.S. government enacted the 2017 Tax Act. The 2017 Tax Act significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates and implementing a territorial tax system. See Note 10, Income Taxes, for additional information regarding the 2017 Tax Act.
Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances and liquid investments with original maturities of three months or less.
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 seven years). Leasehold improvements are amortized over the shorter of the life of the lease or the estimated useful life of the assets.
Goodwill and Intangible Assets
Goodwill represents the excess purchase price over the fair value of net assets acquired, or net liabilities assumed, in a business combination. In accordance with ASC Topic 350, Intangibles – Goodwill and Other (“ASC Topic 350”), the Company performs an annual impairment review in the fourth quarter and more frequently if events or changes in circumstances indicate that goodwill might be impaired. The Company has one reporting unit for purposes of the goodwill impairment review. ASC Topic 350 permits an assessment of qualitative factors to determine whether it is more likely than not that the fair value is less than the carrying amount of the Company before applying the quantitative goodwill impairment test. If it is more likely than not that the fair value is less than the carrying amount of the Company, the quantitative goodwill impairment test will be conducted to detect and measure any impairment. Based upon the Company’sCompany’s qualitative assessment, it is more likely than not that the fair value of the Company is greater than its carrying amount. No impairment charges were recorded for 2017, 20162021, 2020 or 2015.2019.
Other intangible assets include customer relationships, non-compete arrangements, trade names, customer backlog, and internally developed software, which are being amortized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives range from less than one year to ten10 years. Amortization of customer relationships, non-compete arrangements, trade names, customer backlog, and internally developed software is considered an operating expense and is included in “Amortization” in the accompanying Consolidated Statements of Operations. The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in a lack of recoverability or revised useful life. Other intangible assets are evaluated for impairment upon the occurrence of events or changes in circumstances indicating that the carrying amount of an asset may not be recoverable. NoNaN impairment of intangible assets wereor other long-lived assets was recorded for 2017, 20162021, 2020 or 2015.2019.
Purchase Accounting and Related Fair Value Measurements
The Company allocates the purchase price, including contingent consideration, of ourits acquisitions to the assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Such fair market value assessments are primarily based on third-party valuations using assumptions developed by management that require significant judgments and estimates that can change materially as additional information becomes available. The purchase price allocated to intangibles is based on unobservable factors, including but not limited to, projected revenues, expenses, customer attrition rates, royalty rates, aand weighted average cost of capital, among others. The weighted average cost of capital uses a market participant’s cost of equity and after-tax cost of debt and reflects the risks inherent in the cash flows. The approach to valuing the initial contingent consideration associated with the purchase price also uses similar unobservable factors such as;as projected revenues and expenses over the term of the contingent earn-out period, discounted for the period over which the initial contingent considerationsconsideration is measured.measured, and volatility rates. Based upon these assumptions, the contingent consideration is then valued using a Monte Carlo simulation. The Company finalizes the purchase price allocation within 12 months of the acquisition date asonce certain initial accounting valuation estimates are finalized.finalized, and no later than 12 months following the acquisition date.
Cash equivalents, accounts receivable, accounts payable, and other accrued liabilities are stated at amounts which approximate fair value due to the near term maturities of these instruments. The Company’s long-term debt balance approximatesrelated to
its 2.375% Convertible Senior Notes Due 2023 (“2023 Notes”), 1.250% Convertible Senior Notes Due 2025 (“2025 Notes”), and 0.125% Convertible Senior Notes Due 2026 (“2026 Notes”) are carried at their principal amount less unamortized debt discount and issuance costs, and are not carried at fair market value.value at each period end. See Note 12, Long-Term Debt, for information regarding the Company’s convertible debt accounting policies.
The Company, when deemed appropriate, uses derivatives as a risk management tool to mitigate the potential impact of foreign currency exchange rate risk. Both the gain or loss on derivatives not designated as hedging instruments and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. All derivatives are carried at fair value in the consolidated balance sheets. See Note 11, Financial Instruments14, Derivatives, for additional information regarding ourthe Company’s derivative financial instruments.
The Company uses the cost method to account for repurchases of its own stock.
Segment and Geographic Information
The Company operates as one1 reportable operating segment according to ASC Topic 280, Segment Reporting, which establishes standards for the way that business enterprises report information about operating segments. The chief operating decision maker formulates decisions about how to allocate resources and assess performance based on consolidated financial results. The Company also has one reporting unit for purposesDuring each of the goodwill impairment analysis discussed above. Approximatelyyears ended December 31, 2021, 2020 and 2019, approximately 97%, 98%, and 98% of ourthe Company’s revenues were derived from clients in the United States during eachStates.As of the years ended December 31, 2017, 20162021 and 2015. Less than 2%2020, 33% and 20%, respectively, of the Company’s non-current assets were located outside the United States, for eachthe majority of which were comprised of goodwill and other intangible assets from acquisitions outside of the years ended December 31, 2017 and 2016.United States.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 replaced most existing revenue recognition guidance in U.S. GAAP. In 2015, the FASB deferred the effective date of ASU No. 2014-09 by one year. In 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations, ASU No. 2016-10, Identifying Performance Obligations and Licensing, ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, all of which further amended ASU No. 2014-09. The Company adopted the standard on January 1, 2018 using the modified retrospective method which requires a cumulative-effect adjustment to the opening balance of retained earnings within stockholders’ equity, as will be fully presented in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2018. The Company has determined that the most significant impact upon adoption is to third-party software and hardware revenue, which has primarily been recorded on a gross basis as the principal in the transaction through December 31, 2017 and will be presented on a net basis as the agent as of January 1, 2018. Had the Company historically presented third-party software and hardware revenues on a net basis, software and hardware revenues would have been $5.3 million, $6.4 million, and $5.5 million for the years ended December 31, 2017, 2016, and 2015, respectively. As the Company adopted ASU No. 2014-09 using the modified retrospective method, the gross versus net presentation will not impact the historical presentation but will impact the 2018 presentation. Additionally, as the agent, revenue from multi-year sales of third-party software and support will be recognized upfront as the performance obligation is fulfilled, rather than annually as invoiced to the customer. The impact from this timing change is expected to be immaterial. Variable consideration related to service contracts, such as volume discounts and holdbacks, may be recognized earlier under the new standard, and the Company is currently evaluating the impact of this change on contracts that are open as of December 31, 2017. The adoption of ASU No. 2014-09 and its amendments will also result in additional disclosures around the nature and timing of performance obligations, contract costs, and deferred revenue, as well as significant judgments and practical expedients used by the Company.
In February 2016, the FASBFinancial Accounting Standards Board (the “FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2016-02, Leases, which supersedes ASC Topic 840, Leases, and creates a new topic, ASC Topic 842, Leases. This update requiresDuring the year end December 31, 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, ASU 2018-11, Leases – Targeted Improvement, and ASU 2018-20, Leases (Topic 842): Narrow Scope Improvements for Lessors which further amended ASU No. 2016-02. These updates require lessees to recognize a lease liabilityliabilities and a lease assetright of use (“ROU”) assets for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is to become effective for the Company onadopted ASC Topic 842 as of January 1, 2019 with earlier application permitted. This update will be applied using athe modified retrospective transition approachmethod provided by ASU No. 2018-11. The Company elected the package of practical expedients granted by ASU No. 2016-2 and did not reassess whether existing contracts contained a lease, the classification of existing leases, and unamortized indirect costs as of January 1, 2019. The Company also elected the practical expedient related to the combination of lease and non-lease components and included fixed payments related to common area maintenance expense for the Company’s office leases existing at, or entered into after,in the beginningmeasurement of the earliest comparative period presented inCompany’s ROU assets and lease liabilities. There was no impact on net income, cash flows or net assets as a result of adoption. Refer to Note 16, Leases, for additional disclosures resulting from the financial statements. While the Company is currently assessing the impactadoption of ASU No. 2016-02 will have onand its consolidated financial statements, the Company expects the primary impact upon adoption will be the recognition, on a discounted basis, of its minimum commitments under noncancellable operating leases on its consolidated balance sheets resulting in the recording of right of use assets and lease obligations. Current minimum commitments under noncancellable operating leases are disclosed in Note 12, Commitments and Contingencies.amendments.
In AugustJune 2016, the FASB issued ASU No. 2016-15, Classification2016-13, which amended the guidance of Certain Cash Receipts and Cash Payments. This update eliminates the diversity in practice related to the classificationASC Topic 326, Financial Instruments - Credit Losses (Topic 326): Measurement of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization.Credit Losses on Financial Instruments. ASU No. 2016-15 designates2016-13 requires the appropriate cash flow classification,immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. This update is to become effective for thetrade receivables. The Company adopted this ASU on January 1, 2018 and requires2020 using a modified retrospective approach.approach, which allows the impact of adoption to be recorded through a cumulative effect adjustment to retained earnings without restating comparative periods. The Company elected to early adopt this update retrospectively on January 1, 2017 since the Company was already in compliance with the new standard. Thecumulative effect adjustment for adoption of ASU No. 2016-15 did2016-13 resulted in a decrease of $0.4 million in Accounts receivable, net, and a decrease of $0.3 million in Retained earnings, net of tax, as of January 1, 2020. Refer to Note 8, Allowance for Credit Losses, for additional disclosures resulting from the adoption of ASU No. 2016-13.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative or for convertible debt issued at a substantial premium. The ASU removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception, permitting more contracts to qualify for the exception. In addition, the guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The ASU is effective for annual reporting periods beginning after December 15,
2021, including interim reporting periods within those annual periods, with early adoption permitted no earlier than the fiscal year beginning after December 15, 2020. The ASU allows entities to use a modified or full retrospective transition method. Under the modified approach, entities will apply the guidance to all financial instruments that are outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings. Under the full retrospective method, entities will apply the guidance to all outstanding financial instruments for each prior reporting period presented. The Company adopted this ASU on January 1, 2022 under the modified retrospective method of transition. Upon adoption, the Company expects to initially record a $2.1 million cumulative-effect adjustment to the opening balance of retained earnings on the consolidated balance sheet, largely due to the reduction in non-cash interest expense associated with the historical separation of debt and equity components for the Notes. The Company also expects an increase to long-term debt, net of $66.2 million, a net change in the deferred tax balance of $16.8 million, and a decrease to additional paid-in capital of $51.5 million due to no longer separating the embedded conversion feature of the Notes. Upon adoption, the Company expects interest expense recognized will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost. The Company does not expect this adoption to have a material impact on the Company’s consolidated financial statements.statement of cash flows. Upon adoption, the Company will prospectively utilize the if-converted method to calculate the impact of convertible instruments on diluted earnings per share.
In January 2017,October 2021, the FASB issued ASU No. 2017-04, Simplifying the Test2021-08, Business Combinations - Accounting for Goodwill Impairment. This update eliminates Step 2Contract Assets and Contract Liabilities from the goodwill impairment testContracts with Customers (Subtopic 805), which compares the impliedrequires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606) rather than adjust them to fair value of a reporting unit’s goodwill withat the carrying amount of that goodwill.acquisition date. The Company will adopt this ASU No. 2017-04 does not make any changes to the impairment indicators or aspects of the qualitative assessment. This update is to become effective for the Company on January 1, 20202023. The Company is current evaluating the related impact of the new guidance on its financial statements.
3. Revenues
The Company’s revenues consist of services and requires using a prospective approach. Early adoption is permitted beginningsoftware and hardware sales. In accordance with interimASC Topic 606, revenues are recognized when control of services or annual goodwill impairment testsgoods are transferred to clients, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or goods.
Services Revenues
Services revenues are primarily comprised of professional services that include developing, implementing, automating and extending business processes, technology infrastructure, and software applications. The Company’s professional services span multiple industries, platforms and solutions; however, the Company has remained relatively diversified and does not believe that it has significant revenue concentration within any single industry, platform or solution.
Professional services revenues are recognized over time as services are rendered. Most projects are performed on testing datesa time and materials basis, while a portion of revenues is derived from projects performed on a fixed fee or after January 1, 2017. The Company elected to early adopt this update prospectively on January 1, 2017. The adoption of ASU No. 2017-04 did not have an impact on the Company’s consolidated financial statements.
3. Net Income Per Share
Basic earnings per share is computedfixed fee percent complete basis. For time and material contracts, revenues are generally recognized and invoiced 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 andmultiplying the number of equivalent shareshours expended in the performance of the contract by the hourly rates. For fixed fee contracts, revenues are generally recognized and invoiced by multiplying the fixed rate per time period established in the contract by the number of time periods elapsed. For fixed fee percent complete contracts, revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours, and the client is invoiced according to the agreed-upon schedule detailing the amount and timing of payments in the contract.
Clients are typically billed monthly for services provided during that month, but can be billed on a more or less frequent basis as determined by the contract. If the time is worked and approved at the end of a fiscal period and the invoice has not yet been sent to the client, the amount is recorded as revenue once the Company verifies all other revenue recognition criteria have been met, and the amount is classified as a receivable as the right to consideration is unconditional at that point. Amounts invoiced in excess of revenues recognized are contract liabilities, which are classified as deferred revenues in the Consolidated Balance Sheet. The term between invoicing and payment due date is not significant. Contracts for professional services provide for a general right, to the client or the Company, to cancel or terminate the contract within a given period of time (generally 10 to 30 days’ notice is required). The client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract. Certain contracts may include volume discounts or holdbacks, which are accounted for as variable consideration, but are not typically significant. The Company estimates variable consideration based on historical experience and forecasted sales and includes the variable consideration in the transaction price.
Other services revenues are comprised of hosting fees, partner referral fees, maintenance agreements, training and internally developed software-as-a-service (“SaaS”) sales. Revenues from hosting fees, maintenance agreements, training and
internally developed SaaS sales are generally recognized over time using a time-based measure of progress as services are rendered. Partner referral fees are recorded at a point in time upon meeting specified requirements to earn the respective fee.
On many professional service projects, the Company is also reimbursed for out-of-pocket expenses including travel and other project-related expenses. These reimbursements are included as a component of the transaction price of the respective professional services contract and are invoiced as the expenses are incurred. The Company structures its professional services arrangements to recover the cost of reimbursable expenses without a markup.
Software and Hardware Revenues
Software and hardware revenues are comprised of third-party software and hardware resales, in which the Company is considered the agent, and sales of internally developed software, in which the Company is considered the principal. Third-party software and hardware revenues are recognized and invoiced when the Company fulfills its obligation to arrange the sale, which occurs when the purchase order with the vendor is executed and the customer has access to the software or the hardware has been shipped to the customer. Internally developed software revenues are recognized and invoiced when control is transferred to the customer, which occurs when the software has been made available to the customer and the license term has commenced. Revenues from third-party software and hardware sales are recorded on a net basis, while revenues from internally developed software sales are recorded on a gross basis. There are no significant cancellation or termination-type provisions for the Company’s software and hardware sales, and the term between invoicing and payment due date is not significant.
Revenues are presented net of taxes assessed by governmental authorities. Sales taxes are generally collected and subsequently remitted on all software and hardware sales and certain services transactions as appropriate.
Arrangements with Multiple Performance Obligations
Arrangements with clients may contain multiple promises such as delivery of software, hardware, professional services or post-contract support services. These promises are accounted for as separate performance obligations if they are distinct. For arrangements with clients that contain multiple performance obligations, the transaction price is allocated to the separate performance obligations based on estimated relative standalone selling price, which is estimated by the expected cost plus a margin approach, taking into consideration market conditions and competitive factors. Because contracts that contain multiple performance obligations are typically short term due to the contract cancellation provisions, the allocation of the transaction price to the separate performance obligations is not considered a significant estimate.
Contract Costs
In accordance with the terms of the Company’s sales commission plan, commissions are not earned until the related revenue is recognized. Therefore, sales commissions are expensed as they are earned. Certain sales incentives are accrued based on achievement of specified bookings goals. For these incentives, the Company applies the practical expedient that allows the Company to expense the incentives as incurred, since the amortization period would be issuedhave been one year or less.
Deferred Revenue
The Company’s deferred revenue balance as of December 31, 2021 and 2020 was $8.2 million and $9.4 million, respectively. Substantially all of the December 31, 2020 deferred revenue balance was recognized in revenue during the year ended December 31, 2021.
Transaction Price Allocated to Remaining Performance Obligations
Due to the ability of the client or the Company to cancel or terminate the contract within a given period of time (generally 10 to 30 days’ notice is required), the majority of the Company’s contracts have a term of less than one year. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original maturity date of one year or less or time and materials contracts for which the Company has the right to invoice for services performed. Revenue related to the stock options, unvested restricted stock,unsatisfied performance obligations for remaining contracts as of December 31, 2021 was immaterial.
Disaggregation of Revenue
The following tables present revenue disaggregated by revenue source and warrants using the treasury method, unless such additional equivalent shares are anti-dilutive.pattern of revenue recognition (in thousands):
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 |
| | Over Time | | Point In Time | | Total Revenues |
| Time and materials contracts | $ | 577,674 | | | $ | — | | | $ | 577,674 | |
| Fixed fee percent complete contracts | 49,117 | | | — | | | 49,117 | |
| Fixed fee contracts | 107,698 | | | — | | | 107,698 | |
| Reimbursable expenses | 10,677 | | | — | | | 10,677 | |
| Total professional services fees | 745,166 | | | — | | | 745,166 | |
| Other services revenue* | 11,320 | | | 2,236 | | | 13,556 | |
| Total services | 756,486 | | | 2,236 | | | 758,722 | |
| Software and hardware | — | | | 2,305 | | | 2,305 | |
| Total revenues | $ | 756,486 | | | $ | 4,541 | | | $ | 761,027 | |
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 |
| | Over Time | | Point In Time | | Total Revenues |
| Time and materials contracts | $ | 436,466 | | | $ | — | | | $ | 436,466 | |
| Fixed fee percent complete contracts | 51,752 | | | — | | | 51,752 | |
| Fixed fee contracts | 95,237 | | | — | | | 95,237 | |
| Reimbursable expenses | 10,110 | | | — | | | 10,110 | |
| Total professional services fees | 593,565 | | | — | | | 593,565 | |
| Other services revenue* | 13,536 | | | 2,482 | | | 16,018 | |
| Total services | 607,101 | | | 2,482 | | | 609,583 | |
| Software and hardware | — | | | 2,550 | | | 2,550 | |
| Total revenues | $ | 607,101 | | | $ | 5,032 | | | $ | 612,133 | |
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| | Over Time | | Point In Time | | Total Revenues |
| Time and materials contracts | $ | 384,422 | | | $ | — | | | $ | 384,422 | |
| Fixed fee percent complete contracts | 41,484 | | | — | | | 41,484 | |
| Fixed fee contracts | 104,056 | | | — | | | 104,056 | |
| Reimbursable expenses | 15,474 | | | — | | | 15,474 | |
| Total professional services fees | 545,436 | | | — | | | 545,436 | |
| Other services revenue* | 13,604 | | | 2,878 | | | 16,482 | |
| Total services | 559,040 | | | 2,878 | | | 561,918 | |
| Software and hardware | — | | | 3,609 | | | 3,609 | |
| Total revenues | $ | 559,040 | | | $ | 6,487 | | | $ | 565,527 | |
* Other services revenue primarily consists of hosting fees, maintenance, training, internally developed SaaS and partner referral fees.
The following table presents revenue disaggregated by geographic area, as determined by the calculationbilling address of basic and diluted net income per sharecustomers (in thousands, except per share information)thousands):
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
| Net income | | $ | 18,581 | | | $ | 20,459 | | | $ | 23,007 | |
| Basic: | | | | | | | | | | | | |
| Weighted-average shares of common stock outstanding | | | 33,016 | | | | 34,023 | | | | 33,408 | |
| Shares used in computing basic net income per share | | | 33,016 | | | | 34,023 | | | | 33,408 | |
| | | | | | | | | | | | | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Restricted stock subject to vesting | | | 488 | | | | 493 | | | | 466 | |
| Contingently issuable shares (1) | | | - | | | | 2 | | | | 2 | |
| Shares issuable for acquisition consideration (2) | | | 562 | | | | 483 | | | | 448 | |
| Shares used in computing diluted net income per share | | | 34,066 | | | | 35,001 | | | | 34,324 | |
| | | | | | | | | | | | | |
| Basic net income per share | | $ | 0.56 | | | $ | 0.60 | | | $ | 0.69 | |
| Diluted net income per share | | $ | 0.55 | | | $ | 0.58 | | | $ | 0.67 | |
| | | | | | | | | | | | | |
| Anti-dilutive options and restricted stock not included in the calculation of diluted net income per share | | | 88 | | | | - | | | | 28 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| United States | $ | 738,298 | | | $ | 599,236 | | | $ | 552,357 | |
| Other countries | 22,729 | | | 12,897 | | | 13,170 | |
| Total revenues | $ | 761,027 | | | $ | 612,133 | | | $ | 565,527 | |
(1) | For the year ended December 31, 2016, this represents the shares issued to Zeon Solutions Incorporated and certain related entities (collectively, “Zeon”) pursuant to the Asset Purchase Agreement. For the year ended December 31, 2015, this represents the Company’s estimate of shares to be issued to Zeon pursuant to the Asset Purchase Agreement. |
(2) | For the year ended December 31, 2017, this represents the shares held in escrow pursuant to: (i) the Asset Purchase Agreement with BioPharm Systems, Inc. (“BioPharm”); (ii) the Asset Purchase Agreement with Zeon; (iii) the Asset Purchase Agreement with The Pup Group, Inc. d/b/a Enlighten (“Enlighten”); (iv) the Asset Purchase Agreement with RAS & Associates, LLC (“RAS”); and (v) the Asset Purchase Agreement with Clarity Consulting, Inc. and Truth Labs, LLC (together, “Clarity”), as part of the consideration. For the year ended December 31, 2016, this represents the shares held in escrow pursuant to: (i) the Asset Purchase Agreement with BioPharm; (ii) the Asset Purchase Agreement with Zeon; (iii) the Stock Purchase Agreement for Market Street Solutions, Inc. (“Market Street”); and (iv) the Asset Purchase Agreement with Enlighten as part of the consideration. For the year ended December 31, 2015, this represents the shares held in escrow pursuant to: (i) the Agreement and Plan of Merger with ForwardThink Group Inc. (“ForwardThink”); (ii) the Asset Purchase Agreement with BioPharm; (iii) the Asset Purchase Agreement with Trifecta Technologies, Inc. and Trifecta Technologies Canada, Limited (together “Trifecta”); (iv) the Asset Purchase Agreement with Zeon; (v) the Stock Purchase Agreement for Market Street and (vi) the Asset Purchase Agreement with Enlighten as part of the consideration. |
4. Concentration of Credit Risk and Significant Customers