Q3 2019 Earnings Call
Greetings and welcome to the E M systems third quarter 2019 earnings call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I.
I would now like to turn the conference over to your host Mr., David Stroppy head of Investor Relations for eat Pam systems.
Thank you you may begin.
Thank you operator and welcome everyone by now you should have received a copy of the earnings release for the company's third quarter 2019 results.
Not a copy is available at <unk> dot com and Investor section.
On today's call Arkadiy, Dobkin, CEO , and President and Jason Peterson, Chief Financial Officer.
Before we begin I'd like to remind you that some of the comments made on today's call may contain forward looking statements.
These statements are subject to risks and uncertainties as described in the Companys earnings release FCC filings.
Well, you're all references to reported results that are non-GAAP measures have been reconciled to GAAP and are available at our quarterly earnings materials located investor section of our website.
With that said.
Now, let's turn the call over to arc.
Thank you David and good morning, everyone.
Thanks for doing enough.
We do believe it or three renewal five Congress AJ Guido if were to an approximate 26% year over year gross or 27% and of course I've got answered though.
Additionally, non-GAAP earnings per share was one dollar so to land sales, which represents approximately 19% growth from Q3 2008 yet.
As you kind of discussions about the challenges facing our clients continue to the complex and multi dimensional.
This is consistent with evidence of this coming together, including people top lives consumers and businesses into scalable and flexible environment. What else is it is completely different level sophistication in designing building and do it in the not experiences blood for some systems.
And so when your company assigned Switzerland Digital technologies, the coast alluded divorce ones critical system of record engagement them inside the use of technology to solve currently visible problems doesn't ensure future success.
Instead organizations must think steps ahead, and Toyota themselves into constantly changing a different surprises when politicians is good but villages in Brocal Gopro to design and the bell deal digital ecosystem.
This means that the oakland's must think about call. It to meet the children. Just said it isn't there mark is that enough opportunities, there's always called to adapt to both technology and quantum could I mean, there's no changes and do so there's a high degree of budget. It too that's continues.
Did you laid a critical.
As a result during the last several years and fees in Q3, you assume inconsistent demand environment. That's continues to present to us as opposed to tune. It is too expensive for them as the traditional productivity you didn't mention how would you let lines of businesses into.
Adjacent business, an experience that even if a customer names.
That into a 'cause forced us not only to the west so consultant, who incidents, but nobody else those capabilities much older ones engagement cycles, you can put us into what we did just several years ago.
This evolution is also a challenge in Pos to think about call. It appropriately I guess threerd well ask so Paulo consulting capabilities to get.
You know, who didnt business experiencing technology.
Well luggage, we said been carefully advancing during the last few years, what sort of graphically and so a number will start to get typically positions.
They do this on top of Oh, the additional hosted eggs and ability to build like what is your solutions blood forms and experiences it speeds and scale gifts a bomb is ideally suited to extend plaza echoes of Doom and gloom scrape.
And the laws.
The third of our clients, who is more complex requirements endorsed the article in cities on told them right.
So today, they feel that time is right to position ourselves more formally in away is it correct. Then you did worse since you'll followed business.
This is why in September launched it bumped continue integrated Brent, which links together, okay, but religious and business consulting just now would you can sell junk experience in another isn't consulting.
If I'm going to you is part of the by modernization and the long because all could go the things even good but it is but it doesn't market integrated senior team approach to furnace, that's going to just want to go in describing it as.
Its place and of course multiple ones you know clients organizations.
To help them out there the children get Philadelphia enterprises. This creates a magic.
Similar to our emphasis on thought didn't develop until the basin.
But I didn't hear a little supporters, who always eating excellence and they've all in all markets facing an ecosystem partners model.
The launch of a bomb continuum is another example will follow a never ending Jordan, It's a change your bomb instead elephant talk lines and the market.
Oh, Yes man Sunpower can you just put it continued to be one of the sources looks like change.
On Tuesday, we all know the acquisition of Magic noise.
And then close integration consultancy waste in Israel, and Sun cause a California.
This acquisition complements a bomb existing capabilities and also expands our geographic footprint into you started mark.
Before it sounds a cool well what to do some I would love to quite a lot just one of them. When you do got difference would be bonkers received since our last week school.
In the oldest upon wasn't included on the list of wishing about Congress lots of good companies for 2000 light you ranking of the world with their foremost over the last three years somebody even years book has been stuck your thoughts.
It's interesting to note also that Dupont will do and information technology services company.
He should it.
In 2018 leased.
So to summarize just by some of the macro level, uncertainties, which has been reserved for multiple quarters, yeah producers O sort of quarterly results, which had a good broad based consistent high quality warnings that underscores our ability to execute and grow into markets. That's continues to them and <unk>.
Next is an ever changing goodbye.
I don't know can go over to Jason to give more details who knows what quarter result, as relative share our Q4 and annual guidance.
Jason.
Hey, Thank you arc and good morning, everyone in the third quarter, we produced strong results in both revenue and profitability, while delivering across several key operational metrics.
A few highlights from the quarter.
Revenue came in at 588.1 million a year over year growth of 25.6% on a reported basis and 27.2% growth in constant currency terms.
Reflecting a negative foreign exchange impact of 1.6%.
Revenues from acquisitions contributed approximately 1.5% to revenue grew up in the core.
Our demand patterns for this quarter were relatively consistent with those a previous quarters, we saw strong broad based growth across most industry verticals.
Looking at Q3 revenue growth across our industry verticals financial services delivered 24.4% year over year growth with demand substantially driven by offerings in asset management payment processing and insurance.
Additionally, gross in the quarter was positively impacted by the timing of revenue recognition for a few financial services clients, primarily in Russia, which we previously discussed during our first quarter call.
Software and high Tech grew 22.9% in the quarter driven by demand for product engineering services.
Travel and consumer grew 11.2% in the Q3, reflecting increasing demand for E Commerce, Replatforming and data engineering and retail.
Offset by the continued ramp down of a few consumer clients.
Rounding out our vertical performance, we saw very strong growth in business information, a media, which posted 29.3% growth in Q3, driven by demand for data and analytic services.
Life Sciences, and health care grew 49.7%, reflecting strong growth across both industries with demand for services and R&D I T. In addition to customer facing solutions and applications.
Emerging verticals delivered 35.1% growth driven primarily by clients and telecommunications and energy.
From a geographic perspective, North America, our largest region, representing 60.9% ever Q3 revenues were 26.2% year over year or 26.5% in constant currency.
Europe , representing 32.2% over Q3 revenues grew 24.4% year over year or 28.4% in constant currency.
Yes, representing 4.5% over Q3 revenues grew 43% or 42.9% in constant currency.
And finally in APAC grew 4.1% or 5.5% in constant currency.
Now represents 2.4% of our revenue.
[noise], our revenue results for the quarter underpinned by a diverse set of growth drivers across the portfolio of clients. We serve in the third quarter growth in our top 20 clients was 17%.
And our clients outside or top 20, which represent approximately 60% of revenue grew 32% compared to the same quarter last year.
Moving down the income statement, our GAAP gross margin for the quarter was 35.8% compared to 35.7% in Q3 of last year.
non-GAAP gross margin for the quarter was 37.1% compared to 37.3% for the same quarter last year.
Got best DNA was 20.2% of revenue compared to 19.9% in Q3 of last year.
non-GAAP EPS you know it came in at 18.7% of revenue compared to 18.2%.
The same period last year inline with our expectations.
Our S. You named priorities remain focused on building capacity and capabilities to support our longer term growth plans.
GAAP income from operations was 80.6 million or 13.7% of revenue in the quarter compared to 64.6, that's 13.8% of revenue in Q3 of last year.
non-GAAP income from operations was 99.7 million or 17% of revenue in the quarter compared to 82.1 million or 17.5% of revenue in Q3 of last year.
Our GAAP effective tax rate for the quarter came in at 16.2%, which includes a 4.2 million excess tax benefit related to stock option exercises investing a restricted stock units.
Our non-GAAP effective tax rate, which excludes the excess tax benefit and includes the tax effect on non-GAAP adjustments was 21.5%.
Our non-GAAP tax rate reflects a 1.2 million discrete benefit in connection with our 2018 tax return filing.
Diluted earnings per share on a GAAP basis was one dollar and 16 cents, which reflects the impact from foreign exchange and a lower than expected excess tax benefit in the quarter.
non-GAAP , yes, what's the dollar 39, and 18.8% increase over the same quarter in fiscal 2018.
In Q3, there were approximately 57.8 million diluted shares outstanding.
Now turning to our cash flow and balance sheet.
Cash flow from operations in Q3 was 119 million compared to 102.3 million in the same quarter last year and free cash flow was 91.8 million compared to 94.1 million in the same quarter last year.
Yes, I was 75 days compared to 79 days at the end of Q2 and 81 days in Q3 of last year.
The lower than average Dsos. This quarter was the result of our ongoing operational focus in this area.
Moving onto a few operational metrics, our total head count for the quarter ended up more than 35400 and voice, which includes approximately 31400 delivery professionals.
A 24.7% increase year over year.
During the quarter, there were more than 2000 delivery professionals, who joined to eat Pam primarily in our global delivery locations.
Utilization was 76.1% compared to 76.4% in the same quarter last year and 78.4% in Q2.
Now, let's turn to our business outlook.
Starting with fiscal 2019 based on continued strong demand revenue growth will continue to be at least 23% reported and at least 24% in constant currency terms factoring in a 1% estimated unfavorable foreign exchange impact.
We expect GAAP income from operations to continue to be in the range of 12.5% to 13.5%.
non-GAAP income from operations to now be in the range of 16.5% to 17.5%.
We expect our GAAP effective tax rate to now be approximately 15%, which includes an updated assumptions for a lower level of excess tax benefit and a non-GAAP effective tax rate to now be approximately 22%.
Earnings per share, we now expect GAAP diluted EPS to be at least $4.43 for the full year, which reflect the impact about higher GAAP effective tax right.
non-GAAP diluted EPS will now be at least $5.35, reflecting a modest improvement in expected profitability for the full year.
We continue to expect weighted average share count of 57.7 million fully diluted shares outstanding.
For Q4 of F. Why 19 revenues will be at least 616 million for the fourth quarter, producing a growth rate of 22% in both reported and constant currency terms. So we anticipate there will be an insignificant foreign exchange impact.
Expect GAAP income from operations to be in the range of 13.5% to 14.5%.
non-GAAP income from operations to be in the range of 16.5% to 17.5%.
We expect our GAAP effective tax rate to be approximately 21% non-GAAP effective tax rate will be approximately 23%.
Earnings per share, we expect GAAP diluted EPS will be at least $1.19 cents for the quarter.
non-GAAP <unk> will be at least one dollar and 43 cents for the quarter.
And lastly, we expect a weighted average share count of 57.9 million fully diluted shares outstanding.
[noise] finally, a few key assumptions that support our Q4 GAAP to non-GAAP measurements stock compensation expense is expected to be 14.8 million.
Amortization of intangibles is expected to be 2.7 million.
The impact of foreign exchange is expected to be approximately 2 million dollar law.
Tax effect of non-GAAP adjustments is expected to be 4.5 million.
We expect excess tax benefit to be 1.8 million.
And lastly, one more assumption that is not part of our GAAP to non-GAAP assumptions, we expect interest in other income to be 2.4 million in Q4.
In summary, we're quite pleased with a third quarter results, which reflect continued strong demand for services underpinned by a diverse mix of projects offerings across the industries we serve.
With that let's open up the call for questions.
Before we open the call for Q and I do want to mention that arc and Jason are in different locations for today's call and we could experience a slight delay in responding to questions with that operator can you. Please give instructions for queuing <unk>.
Thank you at this time will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation total indicate your line is in the question Kim.
You mean for start to if you like your move your question from the Ken for participants you think speaker equipment, it maybe necessary to pick up your handset before pressing the star Keith.
Our first question comes from the line of Ramsey El Assal with Barclays. Please proceed with your question.
Hi, Good morning. This is damian on for around say on I wanted to ask about your revenue growth expectations here I had any potential conservatism. That's in your guidance I know you have a tough comp coming up here in Q4, but I would've thought that after the acceleration this quarter that you raised full year. So maybe what's stopping you there and how much conservatism is paid.
And your expectations and then maybe as we as we move into 2020 is there any reason to believe that the nice growth that you've seen this year is set to decelerate seems like all the segments. Our chugging along nicely is there any reason that we can't use this year's exit rate if that sort of baseline for 2020.
Yeah. So I think your points are good ones. So we continue to experience strong demand for our services, but I think compare in the Q4 2018 is a challenging one I think you'll remember that the growth in that quarter on a constant currency basis was 29% and 26.5% if you strip out the the inorganic piece.
That's the highest growth rate since since I've been here, we also generated 70% growth rate in the life science and health care business in that business actually grew 26% sequentially. In Q4. So that is just it's a tough reference point. In addition, what we saw this year is a slightly different pattern in our our Crs revenue recognition.
Usually we'd see at a higher percentage of that revenue recognized in Q4. This year, we probably saw about $3 million more recognized in Q3, then we would expect based on traditional pattern. So that $3 million recognized in Q3 of 2019.
I think earlier in the year, we were would've expected that would probably show up in Q4 of 2019.
So again I think that the guide from a revenue standpoint. It is is a fair guide and then from a growth rate standpoint, I'm in 2020, we continue to see strong demand for our services the demand environment that we see is unchanged from the last conference call.
And in right now, we're expecting to continue see growth rate in excess of 20%.
In our fiscal 2020.
Yeah, that's great.
And ER, maybe I'll just zero in here on my follow up on the APAC region saw slow down there on that there anything to do with that maybe like the U.S., China trade war or Hong Kong or is it just simply tougher comps any any brought her commentary on the demand environment like Asiapac region. Thanks, guys. Yeah, you know I would say, that's probably specific to eat Pam.
Is that as he wouldn't know a you know must where growth has come out a western Europe and died in North America odd a pack historically you know we went to because our clients in North America, and and Europe had asked us to support their operations there it hasn't been a huge area of focus for us.
Because we've been driving demand and said are supporting demand out of our north American and European customers and so I think over time, it'll be an area of focus for us and you will see greater growth, but at this point I think what we're doing is we're prioritizing resourcing to support our large and rapidly growing customers in North America in Europe .
Alright, great. Thanks, so much.
Thank you.
Thank you. Our next question comes on line of Jason Kupferberg with Bank of America Merrill Lynch. Please proceed with your question.
Good morning, guys. Thanks, I just wanted to start with a couple of questions on the they acquisition what kind of contribution to revenue are we thinking there for Q4 as well is 2020 and just any color on number of employees. They.
In Israel really the main new geography, they help bring you went to.
[noise] yeah.
As we mentioned that.
They said related and I.
Integration to the cloud consultancy is the smell a company so the.
To do some from all our position as we hope its oh, well over 1%. So there is no much embarked on.
Numbers, but from capabilities for interview, it's Nice addition to our technology consulting group and so we do believe that there's room to improve Oh, we're shooting.
Mostly in U.S. in Western Europe , and the also giving us a.
Additional benefits to have fair voices in Israel and to to be able to source some specific talent available to Israel.
So just to clarify all acquisitions, including now I would make up about 1% growth rate in Q4 2019. So it's a you know we think an interesting acquisition, but again, it's more of a capability and play than it is a substantial increment in terms of revenue.
Okay. Okay understood and then can you comment on a employee attrition in the quarter like to keep checking in on not just obviously given the war for digital Cow and then maybe as part of that any color. You can provide just in terms of that hit rate you're seeing these days on campus.
Yes offers.
[noise]. So it's so mostly mostly in line because what you have said in due to the large school last quarter. So maybe even less pivotal yes. So it's always tough environment, Oh, I see you soon rates, but it doesn't last year.
So we are putting a lot of efforts to make sure that retention ward Kim.
Granular activated from all sides and focus on application and there's no learning is very high. So we've put in a lot of efforts to make sure that it's not embarked him in but you know gross but it got in general it's always challenging but I don't think there is any new specifically this quarter.
Okay. If I can just sneak one more real quick just like let's take the growth rate in fixed price revenue that seems to be accelerating and I'm. Just wondering if that's reflected a broader trend in terms of client preferences or any certain project types that you see lending themselves more to the fixed price model.
Yeah, no not really so you certainly see it show up in the numbers, but let me kind of explain to you what you're seeing is some of the acquisitions that we have do have de small sort of fixed fee arrangements that might be projects. It last a couple of months, but what you're really seeing in terms of that the change in that percentage of fixed fee. In this quarter is we have.
A large customer that has been growing rapidly.
That has our pricing arrangement with them involved with side, there was sort of pricing per team and so it's based on that component of the team the size of the team. The the skill sets. So the team and so it's very timely materials like but because the pricing is done on a per team basis. It turns out that it was classes.
Hi, this is a fixed fee, but again its traditional kind of agile kind to build new development type work. So it doesn't represent anything really different just the pricing is is is like let's say a vague variant on time in materials that does show up in a in a fixed fee classification.
Okay very helpful. Thank you guys.
Sure.
Thank you. Our next question comes on line of Maggie Nolan with William Blair. Please proceed with your question.
Hi, as we think about I'm getting into more consulting type engagements earlier in the cycle does that change your expectation or what you're seeing in the way, it's a larger deals.
Yes, I assume.
It is happening.
We have provided in any specific.
Okay. So measurement phones is but I think it's working in line to be though expectations and that's why we also.
No I shouldn't bump continue.
Brands now to make sure that we can.
Do right go to market approach and ER explains the declines.
That's a capability to speech, we now can both here and to be kind of much shorter is a and as a game too.
To compete for the full larger deals from and through.
This is Kevin.
Okay, Great and then as you think about the company continuing to scale up and what is really the optimal structure for IPAB in terms of how that employee Paramount is balanced John how many reporting levels are necessary versus you know what would allow the company and make you less agile I'm trying to under.
And whether or not you know you Pam prefers that horizontal structure or if there's a little bit more hierarchy that needs to be introduced into the model.
Did do not believes that we need more crowded out because uh huh.
Dude believes that we probably need even less and that's one of the keep wants to know.
And for US all the time and when is the same time, it's a very.
Dynamically changing but phones anyway. So we don't know what's the optimal we try into two finds the right configuration and kind of rolled in.
I think we will talk maybe a little bit more eyeballs to do things Oh, and the rest of the like a couple of weeks.
Understood. Thank you.
Thank you. Our next question comes from line of Darrin Peller with Wolfe Research. Please proceed with your question.
Hey, guys. Thanks, you know I just wanted to touch first just given where we are in the year right now on.
What kind of conversations you're having with your clients as they start thinking about 2020 from a demand standpoint and from a specific you know more and more granularity of where they are actually looking to spend maybe even on a vertical basis. If you can.
[noise] well listen.
Well I understand the Zioptan to know what's built into the future. The same time conversation has this period. So yeah still more focus how to finish the year, so not too much flys fleet into to go in conversation about next period.
And.
Uh huh.
But all of innovative borden onset of but we don't expect any.
Significant changes since the Tong from last year. So that is [laughter] demand for people for companies, Michigan delivered in complex. It's a growing so we do believe it is a.
The man, who would be good anything can happen and if and compare them as we all know from.
Economist standpoint.
So, let's let's wait.
So from a demand environment, we're not seeing.
Any change from really any change from the last quarter.
You know we've done in early prelim look at our numbers for 2020 in do you believe we'll continue to grow at a rate if you know above 20% and the only if that sort of call out I have just in terms of overall demand in this is very consistent with what we said throughout this fiscal year. So this is not new commentary.
But we continue to see.
Kind of I'd some pro in some con in retail in Europe , where you've got some clients who continue to make investments. It continues to grow with the Pam other clients, who are beginning to tend to slow down their investment levels and those clients are actually having some modest decline in so you've got some some mix and what I call kind of retail in Europe , and particularly in the UK.
And then the other area and we've talked about this throughout the fiscal years is that just the European banking demand is less certain at this time and that's you know that's unchanged from I think we talked about this even in Q1 of 2019.
I mean, it looks like your financial segment continues to do very well in fact accelerate I know some of that could have been timing, but.
You know nonetheless, I mean with Europe being a little bit.
I guess it speaks to the North American financial side doing better than maybe earlier, the or is that fair yet in some ways I think our portfolio might be different than many of our clients and so we've got very strong growth in asset management in insurance in Fintech.
There's a whole series a different in payment processing, and so I think theres, probably less exposure to us to large banks and why you're seeing that the high growth as you're seeing growth in these other areas of our portfolio in plus if you tell you pointed out a little bit of that Russian revenue recognition, which is largely financial services and that's why you're seeing.
The high levels of growth in our financial services portfolio. That's great to hear just one last quick one is just on cash on hand has gone up nicely and you know your balance sheet looks really good. So just one when thinking about priorities now I mean, you know you've done a.
A number of smaller tuck ins or just anything in a larger size that's in your pipeline or.
Discussions right now from an M. I assume it's all going to use either for just keeping cash on hand or M&A.
Rather that yes so.
I think you've seen us do more acquisitions. This year as you point out they've been small you know sort of tuck in acquisitions I think you'll continue to see US do you know what a fair number of acquisitions in the coming year and I think it's likely that yeah, the acquisitions or at least one or more of them could be could be larger and that would be somewhat concerned.
<unk> cash and then the other place where we are using cash is to continue to build out our physical infrastructure and our delivery centers and so those are probably the two places where you will see cash used in the coming year got it okay, alright, nice job guys. Thanks.
Thank you.
Thank you. Our next question comes from the line Mayank Tandon with Needham and company. Please proceed with your question.
Hey, good morning, I'm actually cow Peterson on for Mike Thanks for taking the questions.
Sort of margins the profitability is obviously it looks very good the last several quarters cannot towards the top end of that kind of 16, 17% range.
In the Fourq you guide.
Implies that tech continues so how should we think about margins moving forward.
16, 17, still the right and to look at or should they be more kind on the upper end of that are just want to see your thoughts on the profitability outlook.
Yeah. So as you pointed out we run into top half of the range you know in all quarters in 2019. It at the same time, though we continue to believe that operating in the 16% to 17% ranges is appropriate for the business. So I probably wouldn't have a different god than what we've talked about throughout this fiscal year.
Great. That's helpful. And then just one quick follow up I'm on the software and high Tech vertical at least on sequential basis seem to be a little softer relative to all the other verticals, which are quite strong.
Are there any seasonality there that we should pay attention to or anything particular kind of happening under the hood just want to get a little more color on that.
It does seem to have for any specific.
Core them into a loose.
Second quarter, two given the number if you recall them.
It's a good run a little bit flanges and was it a spikes I don't think you will find through any specific trends. If you start to analyze two quick ones, but there is nothing to highlight there.
All right great. Thanks, guys nice quarter.
Thank you.
Thank you. Our next question comes from nine of Joseph Crazy with Cantor Fitzgerald. Please proceed with your question.
Hi, My first question is just around.
The governors to growth.
As you look at the business model today, obviously, there's pockets of weakness but.
It is how was the human capital element.
Potentially a governor to growth and how could impact margins. There's a couple of different players in the space. Another public company. That's obviously a focused on the Ukraine is really the human resources to one governor to growth.
That you worry about.
The most and you know how does that shake out today versus two three years ago.
It is definitely one of the major component so as a gross.
No just.
Clearly non both people, but the quality shows is that but and that's the type of issue.
Kind of touching correct, particularly each quarter and we.
Specifically, we had to talking about Oh investments in particular do patient selection retention. So it's a very big topic reach almost impossible to address.
Here, if you ask income compared to last couple years I assume.
It was pretty good friends, three or four years ago, and we do and soon though.
Infrastructure or kind of ecosystem internally ecosystem how to deal is this that's why I don't think could feel much defendant couple years ago, but it's still pretty tough and again I think both it would be one of the mortgage with topics, we should be going to college students Investor day.
Got it. Okay. Then just my last kind of two part question can you just give us an update on attrition rates and wage inflation.
In perhaps you're more dominant regions and then you know margins seem to want to continue to move upwards I know I've asked a couple of times on the call about the kind of upward push on the margins, maybe you could give us a sort of your long term view on where you think margins can go and what the puts and takes our there. Thanks.
Yes, so from an attrition standpoint attrition is lower in Q3 of 19 than it was in Q3 of of 18 attrition continues to run in a in the low teens for us. So again, we focus a lot of energy on that.
And making certain that we're providing an appropriate sort of career experience for our delivery personnel. So that they really do feel that they've got a career in a long term comedy Pam.
From a wage inflation standpoint, the wage inflation really hasn't changed throughout the year. So so really no change there.
Versus what I've talked about in the past and then from a margin standpoint.
I think you know we're going to continue to focus on on running let's say the gross margin at about the level you know that we've been running it at so and then from that from an estimated standpoint, I think we've talked about this sort of 18% to 19% range and so yeah, I don't see a I wouldn't be talking.
About a different range for 2020.
Certainly you can see that we've been able to run at the top end to the range in a in 2019, but I think what we'd still talk about as a 16% to 17% adjusted IFO target range.
As we.
As we enter that 2020 fiscal year.
Thank you.
Thank you.
Thank you. Our next question comes from line of Ashwin Shirvaikar with Citi. Please proceed with your question.
Thank you good money Uh huh.
Good quarter Hey.
Hey, So I guess my question is that it last time you spoke September .
That said demand exceeds supply, which for you generally has been true.
For some time, but the question that I have is.
If that continues because it.
Does it make sense it any any point for you guys to make a sort of phase scans based acquisition as opposed to.
What you generally been doing is capability based acquisitions, just to kind of tap into more off the demand spectrum.
[noise] might make sense, if this would allow us to off those two.
Expand.
I've got actually Moyes, well ended the quarter to exists I.
Acquisition would be line that is.
I would expect phase from the beaches video.
Kind of long shot so.
So but today, we're looking for listen to use this opportunity will come differently they will be considered.
But again sizable acquisition of is high quarter, two sources and ER.
Ability to grow at least 20%. After this so this type of confidence.
Rovio cost a lot and have their own sort of vision.
Understood now that makes a that makes sense.
The other thing was just really a clarification with regards to.
The.
Stock based compensation and and.
Accrual was the impact of thought of that I'm I'm thinking that's already in the number.
For for Q margins right.
Yes, correct.
Right so.
The I want to call the variable compensation certainly the accrual is in for that based on our expectations for the performance in the fiscal year and then the stock based comp yeah, we would be recognized expense associated with that throughout the year.
As a percentage revenue would you expect it to start did to be trending upward as we look in the future.
I haven't thought about what that specific element would be and so let me think about data we can talk about that that later.
Yeah, I guess, maybe I'll just leave it at that.
Okay got it. Thank you guys. Okay. Thanks again, thanks bye.
Thank you. Our next question comes in line of Latam Your Best Philosophy VTB capital. Please proceed with your question.
Hello, Congratulations on the number and thank you for taking my questions.
My first question, if I hear your kind of broad one maybe you could talk a bit Oh look would be to both to your conversations with clients.
For example, you for the clients need to cut spending to goes over the macro uncertainty or something like this where would they keep spending has stand in beef in their priorities right now whether this is the lost any kind of expense I can that they're going to cost or you you see risks on the site and probably a couple of technique.
A question so on the numbers for us they see some acceleration in hiring so maybe you could provide some color on this acceleration in the in the last reported quota and also a very the change in the trend off your client concentration the top five clients study to increase and this is the first time for.
<unk> for several quarters, so easy thing I kind of quarterly volatility or maybe you see from some changes some beside this well thank you.
What about the demand yeah.
Hi.
Can you like the first question about two months you said.
If we have fields as areas. There is some softness on some clients and then I didn't understand exactly what it was a question then would all the actions should be there was no. One can can you clarify it is on it.
Yeah, Yeah, yeah. So just wondering if if if I've said it CLIA. So my view my question was basically if we see some macro uncertainties to your thumb recession in the global economy and things like these and the company's your clients in particular will have to cut spending so <unk> in terms of cutting spending.
Are you spending with them for your clients, whether it's gonna be number one I team, which they're going to cut or seems piece is so important for sustainability over their business. This there will be probably vilifying Halloween Chino you feel that your claims to think about right.
So you know it's very tough question taken a in a an account how many clients and how many different situations could visit so and are also taken an account call to produce.
Uh huh.
Level of Simplot, so wasn't <unk>, Oh, how deep recession recalled vehicles like a coming down the onto an could be.
There is a different buckets of glass for some of them. It might be could you just go for a lot of clients it would be probably up opportunity to in the west continuously in a digital parts of the business. So.
Hi, Ken I can.
Give you know from all experienced like 10 years ago, when pretty tough one Fairbanks we've got.
Couple of Glasgow stop completely and pick up a bunch of clients, who I'm sure. They continue to grow sends them some jumped off what's going to fall would utilize it was a good.
The goods capabilities in engineered and Ken but at the time for example, a bomb was flat for though.
Before year end zone thats into grow 50%.
Okay.
So.
Yeah, I mean, all Didnt, maybe not what's expected, but I don't think there is there is really clear asset to us.
Okay. Thank you very much.
And just on the head count you know so yeah. The head count additions in Q3, just dirt suggestive of what we're seeing from a demand environment. We continue to see a strong demand environment. We grew head count rapidly in places like India, India and Mexico. In addition to rapid growth rates in our traditional geography is like Ukraine in Belarus.
We're also beginning to stand up a few additional sort of smaller centers and so you'd see some growth there and then that competent them acquisition came with over 200 head count primarily in Russia, and so for the most of our you know the head count growth is really being driven substantially by by what we're seeing from a demand stamp.
Yes.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question can you. Please press star one at this time next question comes from line as Moshe Katri with Wedbush Securities. Please proceed with your question.
Hey, Thanks, a couple of things here it seems that there's a different dynamics looking at the growth rates between the top 20, and the rest of the business in terms of client base. So should we assume that there are a number of large top five or top 10 clients that are kinda dragging growth much lower on proportionally maybe you can.
Got some color on that.
And then maybe some color also on what are we seeing on pricing I think historically, we've seen some pricing uptick of Oh in terms of a couple of hundred basis points is that still the case.
And then any change in the dynamics look at wage inflation, specifically in some of the geographies in eastern Europe they'll be helpful. Thanks, a lot.
So from a bad I guess, a concentration and I think that would also was a question that was asking that from the by the prior color is that the.
I I would say that the little bit of an uptick that you've seen between Q2 in Q3 in terms of concentration is not something that we expect over a longer period of time I think it's just a you know just had a bit of a subtle kind of uptick and we have seen some good growth in a in some of our larger customers, but at the same time, we're seeing extremely high growth rates in income.
Summers outside our top 20 as well so I think it said fairly typical and again I think it speaks to the diversification of the business that we've got you know rapid growth in our large.
Customers and we also have a gross and even greater growth in our customers outside the top 20 from a wage inflation standpoint, you know I at least at this time, it's pretty pretty similar to what we've seen in past years.
You know hard to predict what it could look like in the in the future, but but you know at this point in time, it's been very consistent and from a pricing environment standpoint, you know also quite similar so we continue to get you know rate increases across a subset of our of our large longstanding customers and then with newer engagements those generally have.
You know somewhat stronger pricing just the based on the overall kinda you know demand for Resourcing and in a market that is resource constrained.
And then just if I can just sneak in one last one.
Looking at obviously you gave us some color in Q4.
Is there anything that we should kind of keep in mind in terms of hide how to Q1 will start in terms of budgets and funding for projects and seasonality is there anything unusual looking into Q1 at this point.
Yeah, we've done a prelim look for the full fiscal year and again, it's very preliminary and it does again speak to a growth rate in excess of 20% in in the coming year <unk> hard for me to provide color on Q1 at this time.
Understood. Thanks, a lot.
Thank you.
Thank you. Our next question comes on line Bryan Bergin with Cowen and company. Please proceed with your question.
Hi, Good morning, Thanks, I wanted to ask on the Salesforce can you can you provide an update on the sales strategy is looked to 2020 any color around.
More proactive development of a larger direct sales team and if so any particular service lines or areas of focus.
[noise] [noise], so I don't soon.
Changes like his exceptional locally so can involve more consultative approach and consulting approach is definitely parts of our go to market and business development strategy, how each of which clients is.
Smarter way so.
Recognizer opportunities and challenges they stephan or for the solutions, but in general is a market restrict that it has to be too.
Interesting from growth well into the I don't think we opened in kind of new lines of business. Oh, you said close to go after and.
Today, we already.
We're growing though headcount in direct sales over the last couple of years. So I think we enjoy in good place yet.
Okay does the build out or broadening of that consulting practices that do anything from a profitability profile or is that consistent with where they are on the in the company average.
Ah we will see you real woods will be fair put in as it is.
Probably everybody remember was all on so for some time because.
It's about gross it's not knows about pushes the ability for us to supports the growth we have right now and to be more impactful on glens results, but we bring in.
Some additional people, but if the ability here probably depends on the cost of the resources and Oh.
Wages for consultants also so I assume it was well in SaaS revenue revenue gross.
Going forward is Oh.
Oh, yeah, so significantly larger engagements, which we hope will also have higher value and then again it said its blended as part of an overall kind of delivery organization kind of a the consulting combined with a with the delivery and so don't expect a you know material impact in profitability at least in the near term are they coming here.
Okay that makes sense and Jason just a follow up on that on the delivery regions. You mentioned, some smaller centers, you're standing up of those a new regions rebound.
Yeah, there and you daring somewhat newish regions for us kind of deal, let's say tangential to some of the places that we done business over the years.
Okay. Thank you.
Thank you Sir our next question comes on line of James Friedman with Susquehanna. Please proceed with your question.
Hi.
Thanks for taking my questions Jamie.
I'll just ask to upfront, Jason with regard to that I hate to start here, but with regard to the tax rate that was a little confusing because you had a divergence between your non-GAAP tax commentary in your tax commentaries I just want to make sure I heard that right. So that's for Jason and then arc.
You did.
I don't know if you are aren't aware of it. There's if there is it fair amount of controversy about.
The outsourcing trends product development trends in the software in high Tech vertical when your competitors has some has called out some challenges they're exiting some verticals, they're exiting some customers where you guys actually our present.
So I <unk> I heard your answer to the previous one there was little deceleration nothing to call out, but we just trying to get sensor Marcy is.
He is is there something more profound going on here or do you feel like you know you're.
Still adding the value in your roadmap looks looks positive. So the first on tax in the second and software and high Tech. Thank you.
Hey, So I guess I'll talk first about the tax rate and so I think one either one of the same as I made was at the excess tax benefit.
Was was somewhat less than we had expected inside the quarter and so that would.
I have impacted the GAAP tax rate and then just the other segment. We made is that we had a a discrete benefit associated with our 2018 return and that discrete benefit would have impacted both the gap in the non cap rate, but you know what I was trying to clarify is that's why the a the GAAP tax rate.
It was you know quite a bit lower than the approaching 23% that we sort of talked about as our expected non-GAAP tax rate.
Thank you, okay and so.
Second question. Your question is like.
You, who feels as though these substance specials happening then high tech and soft percepta from.
For the continuing services.
Well into yeah, Yeah, that's what I'm trying to ask.
So I don't know what to whom you do for.
There are some specific from problem. So oh, we aren't you did do believes that its a strong component for us and it's a strategic up working for US we would like to stay there as we do things as who bring a lot of value to some small so for a company ascend, but up kind of much sort of software policies.
And so what.
Santa decide their creatures old digital blood form born companies and I think it's we expended for you to elsewhere, so and that's definitely nothing specific loans this quarter.
Got it I mean, the numbers were good. It's just I was trying to get some context about the overall demand trajectory. Thanks I appreciate the color.
Thank you.
Thank you ladies and gentlemen that concludes our question answer session I tend to flow back to Mr., Don King for any final comments.
Thank you thank everybody for the times this morning.
I would like also to send Colo employees.
As education to provide services and to help us to grow.
Management team and myself, who can afford or two in the rest of day.
On November 21st in Boston, So almost please.
Contact do it if you have any any questions and hopefully see you.
First a phase we just thanks bye.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.