PERFICIENT INC - Quarter Report: 2008 March (Form 10-Q)

 

 

 

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Part I.	Financial Information	1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007	2
	Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2008	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
Part II.	Other Information	18
Item 1A.	Risk Factors	18
Item 6.	Exhibits	18
	Signatures	19

 

 

 

 

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 Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets

		March 31, 2008				December 31, 2007
ASSETS		(In thousands)
Current assets:
Cash and cash equivalents		$	12,887			$	8,070
Accounts receivable, net			47,405				50,855
Prepaid expenses			1,470				1,182
Other current assets			1,811				4,142
Total current assets			63,573				64,249
Property and equipment, net			3,113				3,226
Goodwill			104,785				103,686
Intangible assets, net			16,440				17,653
Other non-current assets			1,174				1,178
Total assets		$	189,085			$	189,992
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	3,381			$	4,160
Other current liabilities			12,912				18,721
Total current liabilities			16,293				22,881
Deferred income taxes			1,119				1,549
Total liabilities		$	17,412			$	24,430
Stockholders’ equity:
Common stock (par value $.001 per share; 50,000,000 shares authorized and
29,669,753 shares issued and outstanding as of March 31, 2008;
29,423,296 shares issued and outstanding as of December 31, 2007)		$	30			$	29
Additional paid-in capital			192,059				188,998
Accumulated other comprehensive loss			(144	)			(117	)
Accumulated deficit			(20,272	)			(23,348	)
Total stockholders’ equity			171,673				165,562
Total liabilities and stockholders’ equity		$	189,085			$	189,992

See accompanying notes to interim unaudited condensed consolidated financial statements.

 

 

 

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Perficient, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

		Three Months Ended March 31,
		2008				2007
		(in thousands, except per share data)
Revenues
Services		$	52,100			$	43,297
Software			1,684				4,192
Reimbursable expenses			3,539				2,560
Total revenues			57,323				50,049
Cost of revenues (exclusive of depreciation and amortization, shown separately below)
Project personnel costs			33,703				26,266
Software costs			1,469				3,486
Reimbursable expenses			3,539				2,560
Other project related expenses			1,050				685
Total cost of revenues			39,761				32,997
Gross margin			17,562				17,052
Selling, general and administrative			10,760				10,299
Depreciation			538				337
Amortization of intangible assets			1,217				846
Income from operations			5,047				5,570
Interest income			113				49
Interest expense			(5	)			(50	)
Other income			48				6
Income before income taxes			5,203				5,575
Provision for income taxes			2,127				2,415
Net income		$	3,076			$	3,160
Basic net income per share		$	0.10			$	0.12
Diluted net income per share		$	0.10			$	0.11
Shares used in computing basic net income per share			29,535,262				27,081,425
Shares used in computing diluted net income per share			30,724,006				29,448,512

 See accompanying notes to interim unaudited condensed consolidated financial statements.

 

 

 

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Perficient, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

Three Months Ended March 31, 2008

(Unaudited)

(In thousands)

 

														Accumulated
		Common				Common				Additional				Other								Total
		Stock				Stock				Paid-in				Comprehensive				Accumulated				Stockholders’
		Shares				Amount				Capital				Loss				Deficit				Equity
Balance at December 31, 2007			29,423			$	29			$	188,998			$	(117	)		$	(23,348	)		$	165,562
ePairs acquisition purchase accounting adjustment											88												88
Stock options exercised			200				1				361												362
Purchase of stock under the Employee Stock Purchase Plan			8								56												56
Tax benefit of stock option exercises and restricted stock vesting											276												276
Stock compensation and retirement savings plan contributions			39								2,280												2,280
Foreign currency translation adjustment															(27	)							(27	)
Net income																			3,076				3,076
Total comprehensive income																							3,049
Balance at March 31, 2008			29,670			$	30			$	192,059			$	(144	)		$	(20,272	)		$	171,673

See accompanying notes to interim unaudited condensed consolidated financial statements.

 

 

 

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Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

		Three Months Ended March 31,
		2008				2007
		(In thousands)
OPERATING ACTIVITIES
Net income		$	3,076			$	3,160
Adjustments to reconcile net income to net cash provided by operations:
Depreciation			538				337
Amortization of intangibles			1,217				846
Deferred income taxes			(192	)			928
Non-cash stock compensation and retirement savings plan contributions			2,280				1,580
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			3,574				(140	)
Other assets			834				1,643
Accounts payable			(794	)			(1,791	)
Other liabilities			(5,877	)			(7,829	)
Net cash provided by (used in) operating activities			4,656				(1,266	)
INVESTING ACTIVITIES
Purchase of property and equipment			(430	)			(406	)
Capitalization of software developed for internal use			(5	)			(50	)
Cash paid for acquisitions and related costs			(103	)			(6,306	)
Net cash used in investing activities			(538	)			(6,762	)
FINANCING ACTIVITIES
Proceeds from short-term borrowings			--				9,100
Payments on short-term borrowings			--				(7,200	)
Payments on long-term debt			--				(350	)
Tax benefit on stock options and restricted stock vesting			276				1,702
Proceeds from the exercise of stock options and Employee Stock Purchase Plan			417				1,232
Net cash provided by financing activities			693				4,484
Effect of exchange rate on cash and cash equivalents			6				(9	)
Change in cash and cash equivalents			4,817				(3,553	)
Cash and cash equivalents at beginning of period			8,070				4,549
Cash and cash equivalents at end of period		$	12,887			$	996
Supplemental disclosures:
Cash paid for interest		$	--			$	26
Cash paid for income taxes		$	829			$	177
Non cash activities:
Stock issued for purchase of businesses		$	--			$	5,755
Change in goodwill		$	2			$	(257	)

See accompanying notes to interim unaudited condensed consolidated financial statements.

 

 

 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Basis of Presentation

 

The accompanying unaudited interim condensed consolidated financial statements of Perficient, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States and are presented in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. Accordingly, certain footnote disclosures have been condensed or omitted. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. Operating results for the three months ended March 31, 2008 may not be indicative of the results for the full fiscal year ending December 31, 2008.

2. Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and such differences could be material to the financial statements.

Revenue Recognition

 

Revenues are primarily derived from professional services provided on a time and materials basis. For time and material contracts, revenues are recognized and billed by multiplying the number of hours expended in the performance of the contract by the established billing rates. For fixed fee projects, revenues are generally recognized using the proportionate performance method based on the ratio of hours expended to total estimated hours. Billings in excess of costs plus earnings are classified as deferred revenues. On many projects the Company is also reimbursed for out-of-pocket expenses such as airfare, lodging and meals.  These reimbursements are included as a component of revenues. Revenues from software sales are recorded on a gross basis based on the Company's role as principal in the transaction.

Revenues are recognized when the following criteria are met: (1) persuasive evidence of the customer arrangement exists, (2) fees are fixed and determinable, (3) delivery and acceptance have occurred, and (4) collectibility is deemed probable. The Company’s policy for revenue recognition in instances where multiple deliverables are sold contemporaneously to the same counterparty is in accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position 97-2, Software Revenue Recognition, Emerging Issues Task Force (“EITF”) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, and SEC Staff Accounting Bulletin No. 104, Revenue Recognition. Specifically, if the Company enters into contracts for the sale of services and software, then the Company evaluates whether the services are essential to the functionality of the software and whether it has objective fair value evidence for each deliverable in the transaction. If the Company has concluded that the services to be provided are not essential to the functionality of the software and it can determine objective fair value evidence for each deliverable of the transaction, then it accounts for each deliverable in the transaction separately, based on the relevant revenue recognition policies. Generally, all deliverables of the Company’s multiple element arrangements meet these criteria. The Company follows the guidelines discussed above in determining revenues; however, certain judgments and estimates are made and used to determine revenues recognized in any accounting period. Material differences may result in the amount and timing of revenues recognized for any period if different conditions were to prevail.  

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

Intangible Assets

 

Goodwill represents the excess purchase price over the fair value of net assets acquired, or net liabilities assumed, in a business combination. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), the Company performs an annual impairment test of goodwill. The Company evaluates goodwill as of October 1 each year or more frequently if events or changes in circumstances indicate that goodwill might be impaired. As required by SFAS 142, the impairment test is accomplished using a two-step approach. The first step screens for impairment and, when impairment is indicated, a second step is employed to measure the impairment. The Company also reviews other factors to determine the likelihood of impairment. During the three months ended March 31, 2008, there were no triggering events that may indicate an impairment of goodwill has occurred.

 

 

 

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Other intangible assets include customer relationships, non-compete arrangements and internally developed software, which are being amortized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives range from three to eight years. Amortization of customer relationships, non-compete arrangements and internally developed software are considered operating expenses and are included in “Amortization of intangibles” in the accompanying Condensed Consolidated Statements of Operations. The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in a lack of recoverability or revised useful life.

 Stock-Based Compensation

 

The Company recognizes share-based compensation ratably using the straight-line attribution method over the requisite service period. In addition, pursuant to SFAS No. 123 (revised), Share Based Payment (“SFAS 123R”), the Company is required to estimate the amount of expected forfeitures when calculating share-based compensation.  Refer to Note 3, Stock-Based Compensation, for further discussion.

 3. Stock-Based Compensation

 

Stock Option Plans

 

In May 1999, the Company’s Board of Directors and stockholders approved the 1999 Stock Option/Stock Issuance Plan (the “1999 Plan”). The 1999 Plan contains programs for (i) the discretionary granting of stock options to employees, non-employee board members and consultants for the purchase of shares of the Company’s common stock, (ii) the discretionary issuance of common stock directly to eligible individuals, and (iii) the automatic issuance of stock options to non-employee board members. The Compensation Committee of the Board of Directors administers the 1999 Plan, and determines the exercise price and vesting period for each grant. Options granted under the 1999 Plan have a maximum term of 10 years. In the event that the Company is acquired, whether by merger or asset sale or board-approved sale by the stockholders of more than 50% of the Company’s outstanding voting stock, each outstanding option under the discretionary option grant program which is not to be assumed by the successor corporation or otherwise continued will automatically accelerate vesting in full, and all unvested shares under the discretionary option grant and stock issuance programs will immediately vest, except to the extent the Company’s repurchase rights with respect to those shares are to be assigned to the successor corporation or otherwise continued in effect. The Compensation Committee may grant options under the discretionary option grant program that will accelerate vesting in the event of an acquisition even if the options are assumed or that will accelerate if the optionee’s service is subsequently terminated.

The Compensation Committee may grant options and issue shares that accelerate vesting in connection with a hostile change in control effected through a successful tender offer for more than 50% of the Company’s outstanding voting stock or by proxy contest for the election of board members, or the options and shares may accelerate upon a subsequent termination of the individual’s service.

Total share-based compensation cost recognized for the three months ended March 31, 2008 was approximately $2.3 million, which included $0.3 million of expense for retirement savings plan contributions.  For the three months ended March 31, 2007, total share-based compensation cost was approximately $1.6 million.  The associated current and future income tax benefits recognized for the three months ended March 31, 2008 and 2007 were approximately $0.7 million and $0.5 million, respectively.  As of March 31, 2008, there was $28.6 million of total unrecognized compensation cost related to non-vested share-based awards. This cost is expected to be recognized over a weighted-average period of 4 years.

 

 

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Stock option activity for the three months ended March 31, 2008 was as follows (in thousands, except exercise price information):

  

						Range of				Weighted-Average
		Shares				Exercise Prices				Exercise Price
Options outstanding at January 1, 2008			2,379			$	0.02 -- 16.94			$	4.44
Options exercised			(200	)			0.02 -- 10.00				1.80
Options outstanding at March 31, 2008			2,179				0.03 -- 16.94				4.69
Options vested at March 31, 2008			1,742			$	0.03 -- 16.94			$	4.31

 

Restricted stock activity for the three months ended March 31, 2008 was as follows (in thousands, except fair value information):

 

		Shares				Weighted-Average Grant Date Fair Value
Restricted stock awards outstanding at January 1, 2008			2,053			$	14.33
Awards granted			48				7.66
Awards vested			(10	)			17.03
Awards canceled			(21	)			14.60
Restricted stock awards outstanding at March 31, 2008			2,070			$	14.16

  

4. Net Income per Share

 

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

 

		Three months ended March 31,
		2008				2007
Net income		$	3,076			$	3,160
Basic:
Weighted-average shares of common stock outstanding			29,535				27,081
Shares used in computing basic net income per share			29,535				27,081
Effect of dilutive securities:
Stock options			1,068				2,004
Warrants			7				8
Restricted stock subject to vesting			114				356
Shares used in computing diluted net income per share (1)			30,724				29,449
Basic net income per share		$	0.10			$	0.12
Diluted net income per share		$	0.10			$	0.11

(1)	For the three months ended March 31, 2008, approximately 179,000 options for shares and 1.6 million shares of restricted stock were excluded from shares used in computing diluted net income per share because they would have had an anti-dilutive effect.

 

 

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5. Commitments and Contingencies

 

The Company leases its office facilities and certain equipment under various operating lease agreements. The Company has the option to extend the term of certain of its office facilities leases. Future minimum commitments under these lease agreements are as follows (table in thousands):

		Operating Leases
2008 remaining		$	1,837
2009			2,165
2010			1,844
2011			1,432
2012			497
Thereafter			271
Total minimum lease payments		$	8,046

 

At March 31, 2008, the Company had one letter of credit outstanding for $100,000 to serve as collateral to secure an office lease.  This letter of credit expires in October 2009 and reduces the borrowings available under the Company’s accounts receivable line of credit.

6. Balance Sheet Components

 

The components of accounts receivable are as follows (in thousands):

		March 31, 2008				December 31, 2007
Accounts receivable		$	30,263			$	36,894
Unbilled revenue			18,385				15,436
Allowance for doubtful accounts			(1,243	)			(1,475	)
Total		$	47,405			$	50,855

The components of other current assets are as follows (in thousands):

		March 31, 2008				December 31, 2007
Deferred current tax assets		$	599			$	837
Acquired income tax receivable			503				496
Other receivables			238				252
Payroll tax refund receivable			232				527
Income tax receivable			--				1,174
Other current assets			239				856
Total		$	1,811			$	4,142

The components of other current liabilities are as follows (in thousands):

		March 31, 2008				December 31, 2007
Accrued subcontractor fees		$	2,176			$	2,399
Payroll related costs			2,079				1,862
Accrued bonus			2,868				9,378
Accrued reimbursable expenses			1,065				788
Deferred revenues			838				1,439
Accrued medical claims expense			850				850
Income taxes payable			586				--
Other accrued expenses			2,450				2,005
Total		$	12,912			$	18,721

 

 

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Property and equipment consists of the following (in thousands):

 

		March 31, 2008				December 31, 2007
Computer hardware (useful life of 2 years)		$	5,942			$	5,805
Furniture and fixtures (useful life of 5 years)			1,269				1,248
Leasehold improvements (useful life of 5 years)			918				884
Software (useful life of 1 year)			1,073				920
Less: Accumulated depreciation			(6,089	)			(5,631	)
Total		$	3,113			$	3,226

 

 7. Business Combinations

 

The Company did not enter into any agreements to acquire another business during the three months ended March 31, 2008. 

2007 Acquisitions:

        On February 20, 2007, the Company acquired e tech solutions, Inc. (“E Tech”), a solutions-oriented IT consulting firm, for approximately $12.3 million. The purchase price consists of approximately $5.9 million in cash, transaction costs of approximately $663,000, and 306,247 shares of the Company’s common stock valued at approximately $20.34 per share (approximately $6.2 million worth of the Company’s common stock) less the value of those shares subject to a lapse acceleration right of approximately $474,000, as determined by a third party valuation firm. The results of E Tech’s operations have been included in the Company’s consolidated financial statements since February 20, 2007.

 

        On June 25, 2007, the Company acquired Tier1 Innovation, LLC (“Tier1”), a national customer relationship management consulting firm, for approximately $15.1 million. The purchase price consists of approximately $7.1 million in cash, transaction costs of approximately $762,500, and 355,633 shares of the Company’s common stock valued at approximately $20.69 per share (approximately $7.4 million worth of the Company’s common stock) less the value of those shares subject to a lapse acceleration right of approximately $144,000 as determined by a third party valuation firm. The results of Tier1’s operations have been included in the Company’s consolidated financial statements since June 25, 2007.

 

        On September 20, 2007, the Company acquired BoldTech Systems, Inc. (“BoldTech”), an information technology consulting firm, for approximately $20.9 million. The purchase price consists of approximately $10.0 million in cash, transaction costs of $1.0 million, and 449,683 shares of the Company’s common stock valued at approximately $23.69 per share (approximately $10.6 million worth of the Company’s common stock) less the value of those shares subject to a lapse acceleration right of approximately $723,000 as determined by a third party valuation firm. The results of BoldTech’s operations have been included in the Company’s consolidated financial statements since September 20, 2007.

 

        On November 21, 2007, the Company acquired ePairs, Inc. (“ePairs”), a California-based consulting firm focused on Oracle-Siebel with a recruiting center in Chennai, India, for approximately $5.1 million. The purchase price consists of approximately $2.5 million in cash, transaction costs of $500,000, and 138,604 shares of the Company’s common stock valued at approximately $16.25 per share (approximately $2.2 million worth of the Company’s common stock) less the value of those shares subject to a lapse acceleration right of approximately $86,000 as determined by a third party valuation firm. The results of ePairs’ operations have been included in the Company’s consolidated financial statements since November 21, 2007.

8. Goodwill and Intangible Assets

 

     Goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2008 are as follows (in thousands):

 

Balance at December 31, 2007		$	103,686
Adjustments to preliminary purchase price allocations for 2007 acquisitions			1,097
Adjustments to goodwill related to deferred taxes associated with acquisitions			2
Balance at March 31, 2008		$	104,785

 

 

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     Intangible Assets with Definite Lives

 Following is a summary of Company’s intangible assets that are subject to amortization (in thousands):

		March 31, 2008												December 31, 2007
		Gross Carrying Amounts				Accumulated Amortization				Net Carrying  Amounts				Gross Carrying  Amounts				Accumulated Amortization				Net Carrying Amounts
Customer relationships		$	21,131			$	(6,293	)		$	14,838			$	21,130			$	(5,285	)		$	15,845
Non-compete agreements			2,633				(1,687	)			946				2,633				(1,550	)			1,083
Internally developed software			1,177				(521	)			656				1,173				(448	)			725
Total		$	24,941			$	(8,501	)		$	16,440			$	24,936			$	(7,283	)		$	17,653

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

 

Customer relationships	3 - 8 years
Non-compete agreements	3 - 5 years
Internally developed software	3 - 5 years

9. Line of Credit and Long-Term Debt

 

In June 2006, the Company entered into an Amended and Restated Loan and Security Agreement with Silicon Valley Bank and Key Bank National Association. The amended agreement is a senior bank credit facility of $50 million which includes an accounts receivable line of credit of $25 million and an acquisition term line of credit of $25 million.

 

The accounts receivable line of credit, which expires in October 2009, provides for a borrowing capacity equal to all eligible accounts receivable, including 80% of unbilled revenues, subject to certain borrowing base calculations as defined in the agreement, but in no event more than $25 million. Borrowings under this line of credit bear interest at the bank’s prime rate (5.25% on March 31, 2008). As of March 31, 2008, there were no amounts outstanding under the accounts receivable line of credit and $24.9 million of available borrowing capacity due to an outstanding letter of credit to secure an office lease. Additionally, the line of credit bears an annual commitment fee of 0.12% on the unused portion of the line of credit.

 

The Company’s $25 million term acquisition line of credit provides an additional source of financing for certain qualified acquisitions. As of March 31, 2008, there were no amounts outstanding under this acquisition line of credit. Borrowings under this acquisition line of credit bear interest equal to the four year U.S. Treasury note yield plus 3% based on the spot rate on the day the draw is processed (5.2% on March 31, 2008). Draws under this acquisition line may be made through June 2008.  The Company currently has $25 million of available borrowing capacity under this acquisition line of credit. Additionally, the line of credit bears an annual commitment fee of 0.12% on the unused portion of the line of credit.

The Company is required to comply with various financial covenants under the $50 million credit facility. Specifically, the Company is required to maintain a ratio of after tax earnings before interest, depreciation and amortization, and other non-cash charges, including but not limited to stock and stock option compensation expense on trailing three months annualized, to current maturities of long-term debt and capital leases plus interest of at least 1.50 to 1.00, a ratio of cash plus eligible accounts receivable including 80% of unbilled revenues less principal amount of all outstanding advances on the accounts receivable line of credit to advances under the term acquisition line of credit of at least 0.75 to 1.00, and a maximum ratio of all outstanding advances under the entire credit facility to earnings before taxes, interest, depreciation, amortization and other non-cash charges, including but not limited to, stock and stock option compensation expense including pro forma adjustments for acquisitions on a trailing twelve month basis of no more than 2.50 to 1.00. As of March 31, 2008, the Company was in compliance with all covenants under this facility. This credit facility is secured by substantially all of the assets of the Company.

10. Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions.  The Internal Revenue Service (IRS) has completed examinations of the Company’s U.S. income tax returns for 2002, 2003 and 2004. The IRS has proposed no significant adjustments to any of the Company's tax positions.

The Company adopted the provisions of the Financial Accounting Standards Board (the “FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (“FIN 48”), on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized no increases or decreases in the total amount of previously unrecognized tax benefits.  The Company had no unrecognized tax benefits as of March 31, 2008.

 

 

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The Company’s effective tax rate was 40.9% for the three months ended March 31, 2008 compared to 43.3% for the three months ended March 31, 2007. The decrease in the effective rate is due to a decline in our state tax rate and certain nondeductible executive stock compensation. The difference between the Company’s federal statutory rate of 35% and effective tax rate relates primarily to state income taxes, net of the federal benefit, and non-deductible stock compensation partially offset by the tax benefits of certain dispositions of incentive stock options by holders.  The Company has deferred tax assets resulting from net operating losses and capital loss carry forwards of acquired companies amounting to approximately $2.4 million, for which a valuation allowance of $0.1 million is recorded. Additionally, the Company has deferred tax assets of $2.1 million related to stock compensation, reserves and accruals. At March 31, 2008, deferred tax assets net of the valuation allowance total $4.4 million and are offset by deferred tax liabilities of $4.9 million related to identifiable intangibles and cash to accrual adjustments from current and prior acquisitions.  Any reversal of the valuation allowance on the deferred tax assets will be adjusted against goodwill and will not have an impact on our statement of operations. All of the net operating losses and capital loss carry forwards relate to acquired entities, and as such are subject to annual limitations on usage under the “ownership change” provisions of the Internal Revenue Code.

11.  Recent Accounting Pronouncements

 

In December 2007, FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”), which is a revision of SFAS No. 141, Business Combinations (“SFAS 141”).  SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree, recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The revised statement will require that transaction costs be expensed instead of recognized as purchase price. The Company is currently evaluating the impact of SFAS 141R on its consolidated financial statements.

Effective January 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of SFAS No. 115 (“SFAS 159”). SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 did not have a material impact on the Company’s condensed consolidated financial statements.

Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”).  In February 2008, the FASB issued Staff Position No. 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”), which delayed the effective date of SFAS 157 for certain nonfinancial assets and liabilities, including fair value measurements under SFAS 141 and SFAS 142 of goodwill and other intangible assets, to fiscal years beginning after November 15, 2008.  Therefore, the Company has adopted the provisions of SFAS 157 with respect to its financial assets and liabilities only.  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs.  The standard describes a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

·	Level 1 – Quoted prices in active markets for identical assets or liabilities.

·

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·	Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of March 31, 2008, the Company did not hold any assets or liabilities that are required to be measured at fair value on a recurring basis, and therefore the adoption of the respective provisions of SFAS 157 did not have a material impact on the Company’s condensed consolidated financial statements.

 

 

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Item 1A. Risk Factors

 

In evaluating all forward-looking statements, you should specifically consider various risk factors that may cause actual results to vary from those contained in the forward-looking statements. Our risk factors are included in our Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC on March 4, 2008 and available at www.sec.gov. There have been no material changes to these risk factors since the filing of our Form 10-K.

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PERFICIENT, INC.
Date: May 7, 2008	By:	/s/ John T. McDonald
		John T. McDonald
		Chief Executive Officer(Principal Executive Officer)

 

Date: May 7, 2008	By:	/s/ Paul E. Martin
		Paul E. Martin
		Chief Financial Officer(Principal Financial Officer)

 

Date: May 7, 2008	By:	/s/ Richard T. Kalbfleish
		Richard T. Kalbfleish
		Vice President of Finance and Administration(Principal Accounting Officer)

 

 

 

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