Perficient, Inc. (PRFT) CEO Jeff Davis on Q2 2022 Results - Earnings Call Transcript

Aug. 05, 2022 7:13 PM ETPerficient, Inc. (PRFT)
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Perficient, Inc. (NASDAQ:PRFT) Q1 2023 Earnings Conference Call August 4, 2022 11:00 AM ET

Company Participants

Jeff Davis - Chairman & Chief Executive Officer

Paul Martin - Chief Financial Officer

Tom Hogan - President & Chief Operating Officer

Conference Call Participants

Maggie Nolan - William Blair

Mayank Tandon - Needham Company

Brian Kinstlinger - Alliance Global

Surinder Thind - Jefferies

Jonathan Lee - Morgan Stanley

Puneet Jain - JPMorgan

Vincent Colicchio - Barrington Research

Jack Vander Aarde - Maxim Group

Divya Goyal - Scotiabank

Operator

Good day and thank you for standing by. Welcome to Perficient Q2 2022 Earnings conference call. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your speaker for today Jeff Davis Chairman and CEO. You may begin.

Jeff Davis

Thank you and welcome everybody. Appreciate your time. With me on the call today is Paul Martin our CFO and Tom Hogan our President and COO. We have 10 to 15 minutes of prepared comments per usual after which we'll open up the call for Q&A. Before we proceed Paul would you please read the CFO's statement?

Paul Martin

Thanks Jeff and good morning, everyone. Some of the things we will discuss in today's call concerning future company performance will be forward-looking statements within the meaning of the securities laws. Action results may purely differ from those discussed these forward-looking statements and we encourage you to refer to the additional information contained during FCC filings concerning factors that could cause those results to be different than contemplated in today's discussion.

At times during this call, we will refer to adjusted EPS and adjusted EBITDA, our earning press release including a reconciliation of certain non-GAAP financial measure to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles or our GAAP. It is posted on our website at www.perficient.com. We have also posted a slide deck which includes a reconciliation of certain non-GAAP guidance to the most directly comparable financial measures prepared in accordance with GAAP on our website under investor relations. Jeff?

Jeff Davis

Thanks Paul. And once again we appreciate your time this morning as we discuss our second quarter performance and continued growth, as well as our optimism for the remainder of the year. Adjust earnings per share was up 26% during the period with revenue of 21%. North American average bill rates remained in an all-time high and offshore rates increased by double digits.

While there are always project cancellations and delays there were more than a normal number in the quarter, in evaluating each of these we are confident they are isolated incidents and we do not believe them to be indicative of any broader trends. These events combined with an accelerated shift to offshore modestly impacted revenue in the quarter. In fact, our bookings and pipeline remain robust with the quarter up more than 40% versus the prior year period.

Let me repeat that. Q2 bookings were up 40% organically versus the prior year period. Representing also at an all-time high for Q2 bookings. Q3 is also off to a great start, July was an incredible month for bookings. Just last week we closed more than $55 million of bookings at a single day at a single client and we continue to pursue nearly 207 figure plus opportunities in a number of deals well into eight figures.

Organic offshore revenue grew 44% of the quarter and offshore revenue grew 93% overall. Our fully integrated global delivery model continues to resonate with clients who value the combination of our local and global reach. Offshore ADR reached an all-time high as I mentioned before in double-digit range and added the percentage of revenue delivered by our non-US colleagues. So, we're delivering more and more revenue offshore which again as I alluded to earlier had some impact on the top line revenue in the quarter.

We continue to scale in both Latin America and India. We recently opened a new office in Argentina increased our office base by nearly 60% in India expanding into new territory in Hyderabad and Pune, adding satellite offices in both Chennai and Bangalore and adding space to our facility and net core.

Industry analysts and partners continue to recognize us for our capabilities and expertise. In fact recently Forrester named Perficient a strong performer in the modern application development service provider wave. And just this week our enterprise partner Sitecore awarded us with their sales excellence award. So a solid quarter of continued growth and with that I'm going to turn things over to Paul for more details on the numbers. Paul?

Paul Martin

Thanks Jeff. Services revenue excluded reimbursable expenses for the quarter were 219.8 million, a 21.3% increase over the prior year. Year over year organic services revenue growth was 14.1%. Services gross margin excluded reimburse expenses at stock count was 40% for the second quarter compared to 40.2 in the second quarter of 2021.

SG&A expense was 40.9 million for the second quarter of 2022 compared to 37.4 million in the prior year. SG&A expense is a percentage of revenue decreased to 18.3% from 20.3% in the second quarter of 2021. Adjusted EBITDA for the second quarter of 2022 was 51.2 million or 23% of revenues compared to 39 million or 21.2% of revenues for the second quarter of 2021.

The second quarter of 2022 included amortization of six million compared to 6.3 million in the prior year period. The decrease in amortization is primarily due to certain intangibles for acquisitions becoming fully amortized. Net interest expense for the second quarter of 2022, decreased to 0.8 billion from 3.4 billion in the prior year primarily as a result of adopting a new accounting standard for convertible debt in the first quarter of 2022.

Our effective tax rate was 28% for the three months end of June 30th 2022 compared to 27% in the comparable prior-year quarter. Net income increased 67.6% to 27.8 million for the second quarter of 2022 from 16.6 million in the second quarter of 2021, primarily as a result of higher revenues and lower SG&A as a percentage of revenue. Diluted GAAP earning per share increases $0.77 a share for the second quarter of 2022 for $0.49 in the second quarter of 2021. Adjusted earnings per share increased to $1.6 for the second quarter of 2022 from $0.84 cents in the second quarter of 2021. You can see the press release for a full reconciliation between GAAP and adjusted earnings.

I'll now turn to the year-to-date results. Services revenue excluding reimbursable expenses, were $439.3 million for the six months end of June 30th 2022, a 26.4% increase over the comparable prior year period. Year over year organic growth for services was 18.4%. Gross margin for the six months ended June 30th 2022, increased 10 basis points to 38.1% compared to the prior year period.

SG&A expense was $83.1 million compared to $71.4 million in the comparable prior year period and SG&A expenses, a percentage of revenues decreased to 18.7% from 20.2% percent in the six months ended June 30th 2021. Adjusted EBITDA for the six months ended June 30th 2022 was $98.5 million or 22.1% of revenues compared to $73.6 million or 20.8% of revenues in the comparable prior year period.

The six months ended June 30th 2022 included amortization of 12 million, compared to 13.4 million in the comparable prior year period. Net interest expense for the six months end of June 30th 2022 decreased to $1.7 million from $6.7 million in the comparable prior year period again primarily, as a result of adopting the new accounting standard for a convertible debt in the first quarter of 2022.

Our effective tax rate was 23.3%, for the six months compared to 23.6% for the comparable prior year period. That income for the six months ended June 30, 2022 was $54.9 million compared to $30.2 million on the comparable prior year period, primarily as a result of higher revenues the lower SG&A has a percent of revenues. Diluted GAAP earning per share increased to a $1.52 for the six months end of June 30th 2022 compared to $0.90 cents for the prior year period.

Adjusted earnings per share increased to $2.3 for the six months end of June 30,2022 from $1.58 in the comparable prior year period. Our ending global headcount at June 30, 2022 was 5,810 including 5,455 billable consultants and 355 subcontractors. SG&A head count at June 30 was 937.

Our outstanding debt net of deferred issuance cost as of June 30,2022 was $393.5 million. We also had $38.9 million in cash and cash equivalents as of June 30th 2022 and $199.8 million of unused borrowing capacity on our credit facility. Our balance sheet continuously was very well positioned to execute against our strategic plan.

I'll now turn the call over to Tom Hogan. for a little commentary behind the metrics. Tom?

Tom Hogan

Thank you, Paul and good morning everybody. As Jeff mentioned, booking's momentum continued during the second quarter and the third quarter is off to a very fast start. Historically, we've classified large deals as those worth $500,000 or more and we've shared our progress each quarter winning work in that range. Given our success in the scale, we now feel $1 million and greater is a more appropriate framework, so we'll be sharing those results moving forward.

And of course at some point the future, we'll reach a place where it makes sense to again adjust higher. We've booked 45 deals greater than a $1 million during the second quarter of 2022, which compares to 28 in the second quarter of 2021. Again, we've booked 45 deals greater than a $1 million during the second quarter compared to 28 in the second quarter of 2021.

And in addition to that large deal volume growth of greater than 60%, the average deal size went up as well. A couple of Q2 highlights I wanted to share. We're building on a long-term partnership, with a global health services and insurance company. We recently secured multi-year, eight-figure deal one of the largest in our company's history positioning Perficient as the trusted partner for healthcare data and analytics modernization.

Our multi-shore team will work across several technology stacks to build a platform that provides the company with better financial data, accurate financial transactions enhanced reporting capabilities. Not only are our global teams contributing to many of our largest accounts, they're also generating meaningful bookings.

Our Latin America sales team recently pursued in one a seven-figure project, providing many services to a pharmacy benefit management healthcare provider. Our team will work with the provider to run all IT operations for their end client. This work will include software development, testing and support services, for the end client core systems and custom service applications.

We continue to remain well diversified from a customer industry and platform perspective. During the quarter, healthcare remains solid and the financial services, automotive, energy and utility verticals continue to demonstrate strong performance from a revenue of booking perspective.

As we continue to land new enterprise clients and expand in existing accounts, we remain focused on investing in development of our internal systems and applications that enable us to scale more rapidly and create competitive advantages.

We've spoke in the Q4 in year-end calls, about our investment in Compass, a custom-developed proprietary tool that provides our business and project leaders with incredibly detailed project performance metrics, including real-time project profitability data as granular as the margins associated with an individual contribution to particular work streams.

The tool also surfaces client insights, budget for dashboards, and even resource availability that ensures we're maximized utilization across the world. We continue to add functionality to the tool and can further enable leaders to manage current and upcoming projects. We added alerts for senior leaders, when projects or client performance metrics cross key thresholds, allowing us to proactively respond and improve financial outcomes. For project leaders, we made additional enhancements to further centralize project administrative tasks into one tool, freeing them to spend more time working directly with our clients.

Future innovation will include additional standardized reports and scale and certification management, which will make it easier to identify ideal resources for a specific project task at scale as Perficient grow globally.

And with that I'll turn things back to Jeff to discuss the third quarter and the remainder of 2022.

Jeff Davis

Thanks, Tom. Perficient expects its third quarter 2022 revenue to be in the range of $227 to $233 million. Third quarter GAAP earnings per share is expected to be in the range of $0.75 to $0.78. Third quarter adjusted earnings per share is expected to be in the range of $1.8 to $1.12. We expect full-year 2022 revenue to be in the range of 907 billion to 923 billion and we're reaffirming our 2022 GAAP earnings per share range of $3.08 and $3.19 and reaffirming our 2022 adjusted earnings per share range of $4.24 to $4.36. And let me just comment that the adjustment that we're making at the top line revenue reflects what I mentioned earlier which were a couple of cancellations above the norm but also a material impact of our advanced or I should say accelerated shift to offshore which actually is a positive. It's actually enhancing margins, which of course is what's enabling us to reaffirm earnings even while adjusting revenue somewhat down.

With that we'll open up the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you [Operator Instructions] Our first question comes from the line of Maggie Nolan with William Blair. Your line is open.

Maggie Nolan

Hi, thank you. A lot of good details here on how you're feeling about Q3 and the large deals but I have to ask on the cancellations just a little bit more info on what are the circumstances there? What gives you confidence that they're isolated rather than indicative of a trend? And then did they involve any maybe top 10 clients or hit any particular verticals?

Jeff Davis

That's one of the reasons that we're pretty confident or are quite confident actually that it's not a trend, it was not isolated to any particular industry. And as we looked at each of them again in isolation, it was really a function of shifting business priorities or business conditions, which weren't macro-related. So again this is a nature of the beast in this industry it happens. It was unusual in terms of the number that we had in the quarter.

Maggie Nolan

Okay, understood. And then on the offshore impact to revenue, good to see that's a positive for profitability and that you reaffirmed bottom-line guidance, but I'm curious is that accelerated move driven by client preferences or requests or was it a matter of trying to absorb the amount that you had planned in the face of some of these cancellations?

Jeff Davis

No, it's really more a function of the market. And it’s not – so it is client preference but a lot of it represents what would be incremental revenue to us. What I was really specifically referring to I'll be very specific, we exceeded our forecast for offshore revenue in the quarter by more than $1 million. So if you translate that back to US revenue it's about a $4 million difference. It's a four-to-one ratio on the rates. And we're seeing that trend continue through the year. So again in addition to the cancellations, that's a material component of the reason that we're adjusting revenue and again it did have some impact on the quarter.

Maggie Nolan

Okay. Thanks so much.

Jeff Davis

Thanks, Maggie.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Mayank Tandon with Needham Company. Your line is open.

Mayank Tandon

Thank you. Good morning. Jeff, I wanted to just get maybe a broader sense of demand. Clearly the bookings are positive and that's a good sign for the back half of the year but given the economic uncertainty and obviously you've lived through some trying times for the economy before how is this different if at all in terms of client decision-making and client priorities, as you look over the next six months and beyond?

Jeff Davis

I would say the current climate remains robust. We certainly don't want any surprises going forward so we put what we believe is a pretty conservative guidance out there to also again reflect on things I mentioned earlier, but also reflect some of the volatility that exists.

However having said that, we don't believe these recent events are related to macro and the activity of the pipeline remain very robust from what we see right now. To your point, everybody in this industry is seen ups and downs and so the climate can change quickly but I would say right now, I'm more confident than ever in terms of what we're seeing right in front of us, which is the pipeline in the bookings that we've already locked in.

Mayank Tandon

Got it. And then turning to the supply side, I just want to get a sense of, how are you navigating the cost pressures? I'm sure like everyone in the industry you're probably seeing some incremental wage inflation impact. Are you able to pass on these higher costs to your clients through price increases? Are there other levers you can pull beyond the offshore mix to help protect margins and earnings?

Jeff Davis

Actually, we are. I mentioned earlier that AVR for North America was actually up, as well as substantially up offshore. Both of those increases, which I'm not going to disclose for proprietary reasons specifically, but both of those increases exceeded our cost increases at least modestly. So, we're having great success in terms of passing that on. It's the climate we're in, clients understand, it particularly new engagements in new clients, we have a lot of pricing control on that and like I said, they're pretty reasonable and understanding.

In terms of additional capacity and other ideas, we’re bringing the largest -- we've already begun to and will continue to bring in the largest campus recruiting groups that we ever had in our history. That's a relief area in terms of capacity very exciting to get this new fresh blood in as well. It's great to see these guys and gals. And then also, our Bright Paths program, where we're pursuing underserved constituents and getting them in here as well. And those are a couple of areas that we're leveraging and I'll reiterate and you mentioned it, but offshore is going extremely well. Very well received. And when I say offshore, I'm lobbing nearshore into that. So, we're seeing a tremendous amount of demand both in Asia specifically India as well as LatAm.

Mayank Tandon

And just -- sorry Jeff, one housekeeping item. I think you addressed this in response to Maggie's question, but what is the breakdown between the guidance adjustment for the cancellations versus the offshore revenue mix shift? If you could just give that detail, that would be helpful. Thank you.

Jeff Davis

Sure. I don't have the specific numbers in front of me, but I would estimate it's about 50/50.

Mayank Tandon

Got it. Thank you.

Jeff Davis

Thanks, Mayank.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Brian Kinstlinger with Alliance Global. Your line is open.

Brian Kinstlinger

Hi. Thanks for taking my questions, guy. I know for North American billable headcount quarter end was lower than the average for the quarter which was unusual for a growing company like Perficient is and it's actually unusual for Perficient in general for the last several years. So with your growing revenue, I'm curious in addition with bookings up 40%, what's behind that? Is it involuntary? Is it voluntary? Maybe some details would help. Thanks.

Jeff Davis

Yes, sure Brian. It's a combination of both and it was also a function of us allowing attrition, both voluntary and involuntary to adjust the headcount to reflect those cancellations that we've been talking about. But as you pointed out, that's North America. So, we've continued to add headcount at a very accelerated pace for both offshore and nearshore. So again, a lot of it's the shift that we're experiencing.

Brian Kinstlinger

Hiring in North America has picked back up in this current quarter I assume.

Jeff Davis

Yes, that's likely.

Brian Kinstlinger

Yes. My other question I'm sure everyone's going to focus on the topline, given the commentary on the guidance, but in the second quarter, again, in the many years I've covered Perficient especially as you invest in growth have rarely seen cash SG&A decline as much as it did sequentially in the second quarter versus the first. Was there a one-time benefit? Was there some cost cutting? Just maybe some detail behind that. Thanks so much.

Jeff Davis

Yes, there were a number of areas where we cut cost to your point. Obviously, we continue to enjoy scale. Q1 tends to be a seasonally high expense quarter and then of course a component of that based on the Q2 result is tied to bonus accrual. So, that was substantially down from the first quarter.

Brian Kinstlinger

Great. Thank you, so much.

Jeff Davis

Thanks, Brian.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Surinder Thind with Jefferies. Your line is open.

Surinder Thind

Thank you. Jeff, can you please elaborate on the comment about the client preferences for offshore? That's obviously been a secular theme for a while, but is it accelerating at this point or is there anything where you're getting a sense that, there's client concerns around costs and budgets and that's maybe perhaps driving a little bit more sensitivity to how they want their global delivery?

Jeff Davis

I think it's really us taking share more than anything. So, certainly, in this climate, it's been this way for a long time you just made this point, where clients are always looking for more for less. I would too. And so that's a factor and it's been there for a while, but it's a space that we really didn't have the critical mass to go and pursue aggressively and we do now. So a lot of it is our own strategy that's driving it and taking share away from others that would normally have gotten that work.

And when I talk about that work, I mean, combined onshore, offshore, with a significant offshore component. So it's a blend of the two. We're not necessarily competing against guys that do everything offshore, which is why our rates and margins are substantially better, but it's a blend of the two and that blend is increasing on the offshore side.

Surinder Thind

Got it. And then, just following up on the question about the cancellations, I realize, it's been asked in a few different ways, but it sounded like there wasn't a pattern, whether it was industry, but anything to do with maybe the types of projects that the clients were thinking or client durations, or was it truly just, everyone was literally unique to internal client reorganizations? And put another way, is that potentially a theme where, again, if we have a deteriorating economic environment we may see more internal deliberations at clients that may potentially impact work?

Jeff Davis

Yes, it really was shifting priorities. It was businesses that might be struggling on their own, but again not a trend for their industry, as an example. And frankly, one or two of them, I should say, at least one of these and sometimes is the case is the regime change. And with that come new priorities and often new partners. So this is some of that. Like, I said if you take each one and its story in isolation, you won't be able to put any correlation together among them.

Surinder Thind

Got it. And then, a final question here on the revision to the metrics on the deal size. Any color on what the metric would be under the old methodology of project sizes greater than $500,000?

Jeff Davis

Yes. If you look at the over half a million, we did 107 in the second quarter and that compares to 75 in the second quarter of last year.

Surinder Thind

Thank you. And then, in terms of just further breakdown of that number, obviously, where does, kind of, the breakpoints start to move at this point? Is it $2 million; is it $5 million projects? I know that in the past you've talked about potentially even pursuing eight-figure projects. But any kind of sense of the distribution of the deals that are greater than $1 million here?

Jeff Davis

Yes. I think, let me have a look here. So we have the million-dollar-plus deals making up about 50% of our revenue. And that's up substantially from 40% a year ago.

Surinder Thind

Okay. Got it. Thank you.

Jeff Davis

Yes.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Jonathan Lee with Morgan Stanley. Your line is open.

Jonathan Lee

Hey, guys. Thanks for taking my questions. Have you seen any notable changes to engagement type over the course of the quarter, whether that's there because of shifting delivery or macro-related concerns? Any sort of color that would be helpful.

Jeff Davis

Yes. Not much beyond what we talked about. If anything, it improved throughout the court. If you look at bookings, right, and then the types of projects, their size and duration, complexity, all are increasing. And I think that's a function of our building brand.

And a lot of those are with repeat customers. Much of our revenue comes from repeat customers, which I think is a testament to our quality delivery and them having more confidence and faith and giving us more business and letting us take on larger and more complex engagements.

That said, we've got a lot of new engagements that are starting at a higher level. The way this business works and always has is, often in a new relationship you start pretty small and build from there as you gain trust.

But we're actually seeing clients willing, I think, because of reputation and brand and things like that, willing to bite off a bigger chunk out of the gate. So that's helping move up the average as well.

Jonathan Lee

Got it. That's helpful color. And look historically, you've been very acquisitive. Any sort of update as to how you're thinking about future acquisitions? What are you looking for in these acquisitions and what's the current landscape or pipeline like for targets?

Jeff Davis

Yes. So, sort of, all things digital, of course, as we move our focus more and more, almost exclusively to that, in terms of our revenue base. But we also really like the nearshore. That's worked extremely well for us as the offshore continues to.

So we're going to continue to look for things that are digital that also have that component. That isn't to say, we wouldn't do something that was North American only, but we like the combination and we like that back end for sure.

And we're pretty optimistic. It's been a while since we've gotten a deal done. We've been in a lot of discussions, a lot of talks and we are in later stages now with a couple of firms. So we're optimistic that we'll have a deal done here probably in this quarter, and perhaps another one before the end of the year behind that possibly even two more.

Jonathan Lee

Thanks for the color, guys.

Jeff Davis

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from a line of Puneet Jain with JPMorgan. Your line is open.

Puneet Jain

Hey, thanks for taking my question. The question on margins for this year given higher offshore -- a potentially higher offshore and with further expansion into Argentina, India. What should we expect for margins this year EBITDA margins for this year or maybe for next year? Can you remind us the margin sensitivity with increasing offshore mix?

Jeff Davis

Yes. If you look at the guidance that we reaffirmed that's going to point to probably about 150 basis points or more of adjusted EBITDA expansion. And we've got a serious opportunity there that will continue for some time in terms of the scale particularly obviously in SG&A.

In terms of gross margin, I've said for some time we're going to hold it intentionally strategically around the 40 -- low 40s as a percent because we want to stay as competitive as possible. We're a little more concerned about growing the top-line than we are necessarily expanding gross margins.

Again that said even holding gross margins flat, we do have an opportunity to continue to expand EBITDA. I do think however that gross margin can and will expand gradually. But on the face of wage inflation and everything else we're applying some of that additional margin on a location basis to your point more to pricing and more to the wage increase.

Puneet Jain

Got you. And then second -- Jeff if you take a step back look at the business you are lot more globally distributed in delivery now. The projects that you are trying to pursue are larger than what they used to be before. Is there a risk or rather maybe not risk -- is there a consideration about project management like -- or contract management?

Like a few years ago I think, you talked about inside platform, a proprietary platform for project management -- internal project management. Is that something that you need to pay more attention to as you become larger as you become more distributed and service global customers?

Jeff Davis

Yes. Most definitely. And I'm not sure if you made the early part of the call and the prepared statements, but Tom covered what we're referring to as Compass or what is our internal proprietary tool that is custom called Compass that does exactly what you described.

It's a tool that management can use to not only allocate resources and make sure we've got the right people aligned with the right opportunities, but also monitor in real-time the performance of any given project in terms of financial as well as progress. So you're right. It is important to scale the entire business, including the infrastructure not just headcount. And we're doing that with Compass.

Puneet Jain

Got it. Thank you.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Vincent Colicchio with Barrington Research. Your line is open.

Vincent Colicchio

Yes, Jeff. I'm curious on the healthcare and financial services verticals which have been mainstays for the company in terms of growth. They were down sequentially. Should we expect a rebound in the near future?

Jeff Davis

Absolutely. Both of those are actually very healthy. And I'll make no secret we talked about Kaiser Permanente for a long time. We did $30 some-odd million in business with them last year. I've mentioned for a long time that we're exiting that account and that's going to be down to single-digits this year. So some of the sort of at least year-over-year basis is coming from just that account.

At the same time, we're adding more and more and growing the existing ones we have. So we still continue to see robust demand in healthcare. Super excited about financial services. I mean, you're going to see us I think increase that obviously absolutely, but also relatively going forward where we've finally gotten to the point where we've penetrated more on the technology side.

We've done a lot of management consulting over the years in that space, but we've been under-represented on the technology piece which we're gaining a lot of traction with right now and starting up a lot of new accounts and new engagements and existing accounts. And I think you'll see that move the meter pretty substantially material here by end of year.

Vincent Colicchio

And any thoughts on the changes in Columbia's government any impact they may have on the business?

Jeff Davis

You know, I have some concern because you never know in those situations and I think the individual has a reputation of maybe not being the most US-friendly. However, I was at least pleased that now he's saying and shortly after the election he's enforced that he wants a good relationship with the US. And we'll just have to see how it goes and take it as it comes. But right now from what we understand in talking to the folks that live there, of course, and understand the climate better than I do, they're pretty optimistic.

Paul Martin

And one thing I add there Vince is we did the Overactive acquisition last fall, which essentially broadened our delivery capability in Latin America. And as Jeff said on the M&A front, if we do something in Latin America, we would likely again further reduce our dependance on Columbia.

Vincent Colicchio

And one macro question. I think, I know the answer, but any easing in wage inflation in any of your geographies?

Jeff Davis

I would say it’s been surprisingly manageable. It's definitely increased but not as much as you'd think given the lack of supply, right? But a lot of these folks are I guess Gen-Z not necessarily motivated just by money. Of course everybody needs to make a good living and that's an important yardstick for where you are in your career.

But there are other factors that come into that. I think we're seeing that come into play. And we're I think very competitive on both the wage increases, as well as new hire wages, and we're faring well in terms of landing new people. So I feel like we've got it at the right level and right now it's very manageable. And as I said before our rates are actually slightly ahead of it.

Vincent Colicchio

Thanks for answering my questions.

Jeff Davis

Thanks Vince.

Operator

Thank you. Please stand by for our next question. Our next question comes from a line of Jack Vander Aarde with Maxim Group. Your line is open.

Jack Vander Aarde

Great. Good morning and thanks for taking my question. Jeff, good to see the EPS guidance range maintained for the year despite the lower revenue guide. I know you mentioned contract cancellations and offshore mix shifts as factors. But was there any other impact maybe from currency fluctuations stronger dollar maybe delays in large projects or just maybe a greater uncertainty of the timing of large projects? How much should that play a role?

Jeff Davis

That's a good question. We have FX pretty largely hedged, so it doesn't play much of a factor in reality. Of course, most of our revenue is -- no -- North American revenue, so it's really more on the cost side. And again we have that mostly hedged and we'll continue to do that as we continue the expansion obviously in offshore and near-shore.

Jack Vander Aarde

Okay, great. And then maybe just in terms of organic growth and maybe Paul can help here too. Any chance you can share what the overall organic growth rate was in the second quarter? And then the implied, if you can, implied organic growth for the third quarter guidance in the 2022 rev guide?

Paul Martin

Sure. Yeah. So the organic growth for Q2 was 14% and the guide is 11.5 to 14.5 in Q3, and 14 to 16 for the year.

Jack Vander Aarde

Okay, great. Thank you. That’s it for me guys. Thank you.

Jeff Davis

Thank you.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Divya Goyal with Scotiabank. Your line is open.

Divya Goyal

Good morning, everyone. So, I have a special question on the guidance for the year. You did cut the guidance down by approximately $10 million to $20 million, but you continue to maintain your EPS guidance. Do we anticipate material cost cutting here, or is it due to the offshoring is why you see that benefit?

Jeff Davis

It's mostly offshore. We're not aggressively cutting any costs. We always try to manage costs carefully. In fact we're actually making investments with, obviously, baked into that guidance above and beyond what we've done in most recent years I would say. So, it’s more -- there's a little bit of a bonus reduction but mostly it's scale.

Divya Goyal

That's great. So, on that same topic could you talk to us a little bit about your expansion across India? And then currently all these offshore locations are your cost basis, but do you see them becoming revenue basis eventually as you continue to expand your presence there?

Paul Martin

Sure. We're going to continue to expand. I think we see the market primarily as delivery centers for US customers. The acquisitions that we did in Latin America, we do a modest amount of work for in-country customers, and we'll continue to evaluate that with our scale in India and likely would pick up in-country customers so to speak over time there.

Divya Goyal

But there is no such plans for now?

Jeff Davis

Right now, not so much in India. We do actually do that in Latham, and a little bit in China. China is actually servicing a client that we already had a preexisting relationship with in the US. But currently no, we're managing India as basically a development center.

Divya Goyal

Perfect. And one more topic on the staffing side of things. You did mention that you're aggressively hiring and obviously, you do see a huge amount of demand, but something that is an industry-wide theme is -- tech services are doing well. All companies on the tech services front seem to be hiring, but could there be a risk of over-hiring or over-staffing considering your expansion across India and in general this trend of college hiring?

Jeff Davis

Yes, I think that's a good question, and there’s always a balance in this business. I think we're doing a good job with it. As I mentioned before, we've got tools in place, proprietary tools that we're using to manage the proper capacity. And again, mainly allowing attrition if we feel like we need to slow increase more allowing attrition than slowing hiring. We've got a very real-time hiring model with 20-some-odd full-time people in our talent acquisition pool, and we'll continue to deflect that as we need.

Divya Goyal

Perfect. And just my last question. On the M&A front, do you see M&A coming more from access to technology or would it be more offshore? What are your general expansion plans in the next few quarters?

Jeff Davis

Yes. We're very interested in adding to our offshore and nearshore capacity, but also in a way that fills skill gaps, right? It isn't just a headcount play. These are targets that have a meaningful account base that we'll be introducing additional services into, but also a great talent pool that in many cases have either more depth or even unique skills that we don't have enough of or have gaps in today.

Divya Goyal

Great. Sorry, can I just ask one more last question here? On Compass, is that an internal tool only or is that an IP that you use externally as well?

Jeff Davis

Operator?

Operator

Yes. Can you hear me?

Jeff Davis

Yes.

Operator

All right. There was a question.

Jeff Davis

Do we have a question?

Operator

Your line is open.

Divya Goyal

Sorry Jeff. I was just asking about Compass as a tool. Do you use that internally or do you use that as a proprietary tool externally as well and sell it to external customers?

Jeff Davis

Currently, it's internal. But -- of course, a lot of it the information data coming out of it is geared towards driving client success. The future plans for it is to extend it actually to the client where they can log in and see a lot of these details directly.

Divya Goyal

Perfect. Thank you so much for answering my questions.

Jeff Davis

Okay. Thank you.

Operator

Thank you. Please standby for our next question. We have a follow-up question from the line of Brian Kinstlinger with Alliance. Your line is open.

Brian Kinstlinger

Great. Thank you. In your presentation, healthcare is 25% of revenue compared to 31% in the prior second quarter and using back of the envelope suggesting industry contribution's down despite M&A. If I used that same methodology, retail and CPG were down as well. Last quarter you talked about the natural conclusions of some projects. So with the 40% increase in bookings and the solid pipeline you're discussing, when should we expect these verticals are going to return to growth?

Jeff Davis

I think you'll see it this year. I'm not sure if you caught it earlier, but some of the contributor on a year-over-year basis -- material contributor on a year-over-year basis to healthcare is KP. We talked about that in the past. So substantial decrease there this year and as I think I mentioned earlier, financial services decreasing. Retail CPG, it's an interesting climate out there. Consumer-driven economy, we'll see what happens. I'm not as probably bullish on that, in general, as I am in healthcare. I do think that we'll see it increase there. I think some of the percentage of declines, are actually dilution from increases in other industries.

Brian Kinstlinger

Great. Thank you so much follow-up.

Jeff Davis

Thanks, Brian.

Operator

Thank you. Please stand by for our next question. We have a follow-up from the line of Surinder Thind with Jefferies. Your line is open.

Surinder Thind

Thank you. A question about just your expansion in India and the addition of the new global delivery locations. Can you talk a little bit about that in terms of the relative cost of opening up a new location versus maybe expanding an existing location?

Also in terms of the selection of the location perhaps moving to smaller cities. Is there may be a more of a work-from-home model there? How should we think about the forward-looking expansion plans versus existing real estate footprints?

Tom Hogan

During the pandemic and what we're doing there's a lot of work from home that was happening in India. We were pretty strategic in where we made those hires whereas worked remotely. Actually the infrastructure we're building is just a supply for the individuals we've hired specifically in certain areas. We are expanding in Chennai a very large city. We're actually expanding to another side of Chennai which helps us there. Costs are relative are good position for us there.

As well as when we look at Pune, Hyderabad, we have a infrastructure of team that we're providing a place them to work as they now come back into the office and provide better collaboration and get out of their homes and work more at our office space. So, the locations are very specific to hiring that we did during 2021 and currently. Sorry, go ahead.

Jeff Davis

I was going to say on the cost side of that you asked about. You probably know well it's very effective and pretty low cost. However as part of your question we are actually expanding in existing facilities where we can, so it's a pretty darn low-cost gamble.

Surinder Thind

Got it. And then a follow on the M&A question earlier. Sounds like you're in the process or maybe a deal this quarter maybe something thereafter in the following quarters. Can you talk a little bit about valuations? It seems that it's been more difficult to get deals done simply because valuations are higher and they haven't quite reset the way the public markets have. Any color there in terms of the attractiveness in consideration of valuation versus the strategicness of the deal?

Jeff Davis

Absolutely. There is a higher premium today than there was a year ago and the year before that. We really haven't seen a lot of a pullback maybe a little bit. I think the difference between that and the public market is that there are other factors impacting the public market that aren't impacting these private businesses or our own in terms of demand.

I mean other than what we've already talked about these folks are very optimistic. They're not desperate and they continue to be a premium. However again we work hard look at a lot of different businesses and a lot of different elements of those businesses and whether they're going to be a fit for us or not. And we will walk away from deals that we think are just too expensive and have.

Surinder Thind

And one final housekeeping question under the new large project metric are you able to provide the numbers for last quarter?

Jeff Davis

Where is it?

Paul Martin

Yes. 53 deals over a million dollars in Q1 of 2022 and 47 in the summer quarter last year.

Surinder Thind

Got it. Thank you. That’s it for me.

Paul Martin

Thank you.

Operator

Thank you. I'm showing no further questions in the queue. I will now like to turn the call back over to Jeff for closing remarks.

Jeff Davis

Well, thank you all for your time today. While the results I'm sure from many perspectives were mixed, I think the outlook is fantastic. Hopefully, we conveyed that result. Thank you. And we'll be back here in 90 days with another great result. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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