Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Indaba first quarter fiscal year 2020 results. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session and instructions will be provided at that time.
If you acquire any further assistance. Please press star zero. Thank you I would now like to have the conference over to your speaker for today warrants Mattson Investor Relations. Please go ahead.
Thank you good afternoon, everyone and welcome to and all those first quarter fiscal year 2020 earnings Conference call. As a reminder, in this conference call is being recorded joining me today, our interim called trail and that's Chief Executive Officer, and Mark Thurston and others Chief Financial Officer before we begin a quick reminder.
Listeners are remarks today includes forward looking statements, including our guidance for Q2 fiscal year 2020 and the full fiscal year 2020 and other forward looking statements. These statements are subject to risk and uncertainties that could cause actual results to differ materially from does contain.
Forward looking statement.
Actual results and the timing of certain events may differ materially from the result, or timing predicted or implied by such forward looking statements and reported results should not be considered as an indication of future performance.
Please note that these forward looking statements made during this conference call speak only as of today's date and the company undertakes no obligation to update them to reflect subsequent events or circumstances or that then to the extent required by law.
Please refer to our FCC filing as well as our financial results press release for a more detailed description of the risk factors that may affect our result.
Also during the call will present, both <unk> for us and I have for financial measures reconciliation of non I have heard us too I ferrous measures is included in todays earnings press release, which you can find on our Investor Relations website linked to the replay of this call will also be available there.
With that I'll turn the call over to John .
Thank you Laurence <unk>. Thank you all very much for joining us today.
What can I, please be hit to provide an update on our business and financial performance.
Three months ended September 30 years.
Do you know in team.
And all the had another record quarter, so cool to one fiscal year 20.
With revenue of 82.4 million pounds, a strong growth of 24% year on year from 66.4 million pounds in the same period in the prior yeah.
Our strong revenue growth is driven by the expansion of our existing customers on the acquisition of new ones. During the quarter. We continue to broaden our client base and ended the quarter with 278 active clients up from 262 at the end at the same period in the prior yeah.
The total number of clients, who generated revenue over 1 million pounds on a rolling 12 months basis was 62.
An increase of 19% over the same period of the prior yeah.
And we continue to grow the number of clients generating over 2 million pounds auto Rolling 12 months basis. This great increased by 50% from the same period last year to 45.
And the last quarter, we grew in all of all regions endorsed calls.
We had strong revenue growth along with continued improvement in operating margins.
As of this quarter, we will report all revenue from the rest of the world.
In quarter, one fiscal year 20, the rest of the world accounted for 2% of revenue.
It is small but fast growing.
The rest of the World includes companies located in Hong Kong, Japan, and the Middle East.
On the technology front, we see several trends continuing to develop in parallel screams often within the same organizations.
Appliances, demonstrating an increasing desire to bring that our European business organizations closer together in a deliberate nave to drive towards more rapid value delivery.
The need to create a unified business view, an operational structure around transformation is growing strongly.
Given our unique combination of Nexgen technology ideation.
Focused on solving business problems alongside our ability to take these concepts to production at an enterprise scale, we're successfully helping all clients make the organizational pivot by merging these groups, while delivering new products and platforms to market.
Additionally, the C suite is now realizing that transformation initiatives will be seriously hindered without a strong cloud foundation.
As a result, the deepening of cloud initiatives has become a priority we've been active in helping clients capitalize on the promise benefits to streamline business services rationalize our t., a state and lower costs.
Finally, we see the need for businesses of all sizes of maturity level to better understand the strengths and weaknesses of their software platforms. Most organizations have an application to state that has grown organically largely tied to play over the years without much cohesion.
We are increasingly off for architectural evaluation exercise at all levels of scale for a detailed code analysis of individual applications to entire application to stay true days, we use a range of industry recognized and proprietary techniques for these evaluations.
Along with <unk> proprietary code analysis technology.
I would now like spend a moment on all private equity focus strategy.
Well, that's a p. portfolio clients as being a significant proportion of into all of us business over the years as we successfully deliver transformational change to that portfolio companies through the adoption of next generation technology.
Strategically, we believe that extending our footprint and relationships with p. clients will position and all that well not just for the due diligence digital strategy work, but also for the downstream transformation programs wants to clients have completed the acquisitions.
We also see more PE firms evaluating the potential for technology change to drive significant value increase as part of their investment thesis in a number of sectors.
As a result of this strategy and belief we have invested further in the P. segment and a couple of there is over the past month.
Firstly, two weeks ago, we announced the acquisition of Intuit. This limited headquartered in Edinburgh, Scotland intuitive is a leading independent provider of technology and digital due diligence and all the technology advisory services to P. clients significantly expanding the number.
PE firms with whom we have a relationship culturally we believe intuit this will fit well with the into all the family and open up significant opportunity for downstream transformation programs following deal completion.
This acquisition adds 24 employees.
That work senior free logs I T professionals. The transaction closed on November the first 29 team and we expect it to be accretive in year one.
Secondly, last week, we announced the launch of an integrated I teach you diligence product with pain on company targeted at P.E. clients.
As I highlighted in previous calls we've been actively working with pain in the P. space and this announcement is a natural evolution in our relationship in the last year or integrated offering has grown into a defined product set which is being well received by p. clients.
We recognize the value of a combined team, which integrates the deep technology and sized developed by and all the into the broader investment thesis of commercial due diligence.
And the like these announcements I would like to just highlight some of the probably the equity projects, we've been working on with fine.
We've worked closely with a leading PE fund on several projects in Italy, We did the pre acquisition work on a large education company in which the PE fund took a stake or work included analyzing the user experience of the digital platform.
Along with a deep dive into the architecture and I T systems.
Another assignment involved looking at a credits company in order to help at scale the existing platform understand the defensibility on potential to develop value added products based on the existing architecture and operations.
We've also been actively advising another global PE firm for some of that portfolio companies in the retail and transportations sectors located in France, and the Nordic region, we formed in depth digital maturity assessments, including technology assessments and made recommendations around dockets.
Actual application landscape and RTT operations are assessments led to immediate strategic decisions for those companies.
I'll point growth continues to translate into strong employee growth we ended the quarter with 5904 employees.
13.9% increase from 5182, and the same period last year.
As a reminder, during this quarter, we transferred 146 employees with the sale a dog technology I saw well also referred to as the captive to will pay.
The transaction closed on August 31st 29 teen.
The competition for talent remains challenging.
Our strategy of being an employer of choice in the cities, where we operate is a strength in recruiting and retaining talent.
The into all the online community remains very active with over 33 postings on technology thought leadership in the quarter ended September Thirtyth 29 team.
On a macro level, we continue to review the potential impact of Brexit on into all the.
We're not aware of any clients, who are adjusting their spending plans with us as a result of the uncertainties caused by Brexit.
We started the 2020 fiscal yeah with solid results a client demand for all service offerings remain strong.
We remain optimistic about our ability to deliver sustainable growth into the future.
I'll now pass the call onto not system, our CFO , who will walk you through all financial results for the quarter and provide guidance for the coming quarter.
And updated for the fiscal year.
Thanks, John .
Dolphins revenue totaled 82.4 million pounds Sterling.
The three months ended September such a 29 team compared to 66.4 million pound Sterling and the same period last year.
24.0% increase over the same period in the prior year.
In constant currency revenue growth rate was 21.5%.
As Joe mentioned, the sale of the captive to well pay closed on August 31st 29 team and this means the current quotes reported at one last month's contribution from the captive done the comparative period.
Our adjusted profit before tax for the three months ended September 30, 229 team 16.9 million pound Sterling compared to 11.7 million pound sterling or the same period last year, 45.0% year over year increase.
Our adjusted profit before tax margin was 20.5% for three months ended September such a 29 teen compared to 17.6% for the same period last year.
The year over year improvement in our adjusted profit before tax margin is mainly due to a continued positive pricing environment I'm. One of my friends 16 contribution to sublet rental income related to sale of the captive to well pay.
Excluding the contribution from the south attached to our adjusted profit before tax margin would have been 19.9%.
Adjusted profit before tax is defined as the company's profit before tax for the period adjusted to exclude the impact to share based compensation expense amortization of acquired intangible assets realized and unrealized foreign currency exchange gains and losses initial public offering expenses incurred so.
All banks Oxley compliance brightness expenses fair value movement of contingent consideration and gain on dispose of subsidiary all of which are noncash other unrealized foreign currency exchange gains and losses initial public offering expenses.
Expenses, Sarbanes Oxley compliance readiness expenses and gain on disposal of subsidiary.
Adjusted PBT margin is calculated as a percentage of our total revenue.
Our adjusted diluted EPS was 24 times for the three months ended September 30, 29 team calculated on 55.4 million diluted shares as compared to 17 pants for the same period last year calculated on 53.8 million diluted shares.
41.2% year over year.
Revenue from 10 largest client accounted for 41% of revenue for the three months ended September Thirtyth 2019, compared to 39% in the same period in the prior year.
Average spend their time from our 10 largest client increased from 2.6 billion pound Sterling to 3.3 million pound Sterling for three months ended September Thirtyth 29 team.
We continue to grow outside of all top 10 clients number of clients, who generated revenue of at least 1 million pound Sterling on a rolling 12 month basis 62 at September 30, 2019, compared to 52 at September 30th 2018.
These large clients operating all three of our largest geographical locations North America, Europe and UK.
And the three months ended September 30 at 29 Teen North America accounted for 27% of revenue compared to 27% in the same period last year.
Accounted for 26% of revenue compared to 29% in the same period last year and the UK, 45% revenue compared to 44% in the same period last year.
Revenue from North America grew 25.5% for the three months ended September such as 2019 of the same quarter 2018, comparing the same parrots revenue from Europe grew 10.6% on UK, 27%.
As Joe mentioned, starting this quarter, we will be breaking out the revenue for the rest of world. This revenue was previously attributed to the UK.
We grew in all three of our industry verticals during the quarter.
Revenue from payments and financial services grew 22.4% for the three months ended September 30, 29 team over the same quotes for 2018 and accounted for 53% of revenue unchanged from the same period last year.
Revenue from TMT grew 17% for the three months ended September Thirtyth 2019 of the same quarter 2018, and accounted for 25% of revenue compared to 27% in the same period last year revenue from other grew 38% for the three months ended September 30 29.
Team over the same courts of 2018, and now accounts for 22% of revenue compared to 20% in the previous fiscal year.
This growth was mainly driven by clients in the consumer products goods retail and services sector.
Our adjusted free cash flow was 13.5 million pound Sterling for the three months ended September 32019, compared 2.3 million pound Sterling during the same period last year.
Our adjusted free cash flow is on net cash provided by or used in operating activities plus grants received less that purchases of noncurrent tangible and intangible assets.
Capex for the three months ended September 30, 2019, as a percentage of revenue was 3.0% compared to 2.9% in the same paid last year.
[noise] our guidance for Q2 fiscal year 2020 is as follows.
We expect revenues will be in the range of 82.5 million pound Sterling 83.2 million pound sterling representing constant currency growth of between 20 and 21%.
We expect adjusted diluted EPS to be in the range of 20 122 pence per share.
Our full year guidance for fiscal year 2020 is as follows we expect revenues will be in the range of 340 million pound Sterling to 343 billion pounds Sterling.
Presenting constant currency growth of between 22 and 23%.
We expect adjusted diluted EPS to be in the range of 86 to 18 nine pence per share.
Our guidance for the full year fiscal year 2020 is below the range, we provided last quarter, she solely to a move and foreign exchange rates as results of the strengthening of the British pound.
We provided guidance for the full fiscal year 2020 last quarter using the exchange rates at the end of August when exchange rate was one pound Sterling to 1.21, U.S. dollar and 1.10 you're right.
This quarter, we are providing guidance for Q2 fiscal 2020 and for the full fiscal year 2020 using exchange rates at the end of October when exchange rate was one pound Sterling to 1.29, U.S. dollar and 1.16 year right an increase of 7%.
5% respectively.
This concludes our prepared comments operator, we're now ready to answer line for Q and I.
Certainly at this time, if you'd like to ask your question. Please press star one on your telephone keypad to withdraw your question press the pound.
Well pause for a moment to compile the Q and a roster.
Bryan Bergin with Cowen Your line is open.
Hi, Thank you one of the start with a with intuitive can you comment on the scale that business just trying to connect the changing guidance on a constant currency basis atriclip attributable to that versus the organic and also comment on just the planned go to market strategy, a with that entity.
Hi, Brian Thanks for that yes, so intuit's us for US is all around all focus on private equity.
Building their relationships with.
These guys, who end up by running a number of portfolio companies and then driving a the downstream transformational opportunities that.
I will come out of it.
So you know the major benefit that we see.
Two in dollar as a business will through will be through the leverage.
That comes.
From a those those relationships with the P who knows.
It's actually in revenue times, it's less than 2% of the into all of a revenue. So the impact on offices is very very low.
In terms of actually driving a direct revenue it is much more about that leverage for either customer relationships that we yeah.
Okay. Thank sense and then on the TMT vertical you just comment on what you're seeing in that industry vertical I think it's it ticked down this quarter what are your opportunities to just drive that back to higher growth levels.
Yeah. So I mean, obviously across all verticals we are seeing.
Continued strength in payment and financial services, and obviously as well from the numbers, although continues to step out varies from weight.
You know TMT remains strong for us.
It's just not as strong as were getting in the other in the other areas I'm actually with TMT a lot of the strength is in is in the U.S. rather than in Europe .
Which is which is good news for us and as we continue to.
Get the results of the investment that we've made in the sales teams across the U.S.
We think that will pull through on the TMT side as well.
Okay. Thank you.
Thanks, Brian .
Thank you Nolan with William Blair. Your line is open.
Thank you.
I Wonder if you talk about the delivery locations.
And that you're breaking out rest of world now other future delivery locations that you feel need to be broken out and then also in that same vein just given that you know velocity partners as well and integrated into the business. At this point can you comment on you know how youve gone in terms of growing Latin America Celebrity Center.
Sure. So I mean, obviously, we're breaking out rest of the world from a revenue perspective.
And as we've previously.
Previous expansions into new areas of geography, we tend to lead on client relationships and revenue before I investing behind in terms of delivery locations.
Rest of the World, we pulled out because it's a it's hit that sort of 2% market is a moving quite strongly.
Largely it's been payments and financial services, and it's mainly been existing client relationships, where someone has moved.
From an existing client in Europe on North America.
So the rest of the World and then as has taken us with them into into that new role.
Now if you look at it from a delivery locations point of view you know obviously our strategy is to have initial similar at times and delivery capability.
To the majority of all clients.
So as a that rest of the world which is.
Southeast Asia Middle East at the moment as that builds.
Grows we will be looking to establish delivery capability.
APAC region.
But not a not imminently would be my my call on that we want to see the decline revenues grow a little bit more before we do that.
What was the second part of your question.
The success building out Latin America delivery locations, that's a bit newer geography for you right. Yes. So yes, so the velocity deal has.
Actually Moscow numbers, yeah, something that would continue to sort of grow lots and so our headcount is up in the region.
Savvy closed Q4 about 780.
That number up sort of 6% sequentially quarter on quarter. So you know, we're making great invited into into that territory and supporting our growth in North America as we so pointed out no revenues grew 25% year on yeah. So good progress I'd say, yeah, just a little bit of color on that.
The two main areas that need to make countries would grind and are in Colombia in Argentina.
Both of which have a very a good delivery culture and mindset very very well aligned with the way in which in the overall price now.
And I see I see that growth that most just called out as coming out of that.
Good integration that we've had.
Thank you and then on the margins can you break down some of the puts and takes up the margin strength that both the gross and adjusted PBT level.
Sure.
So the gross gross margin.
We had a strong strong results adjusted basis 42.75.
42 point eyesight, which was.
Up from where we where Q4.
We benefited basically from continued pricing and rights utilization did come off a somewhat as we sort of flags.
And the previous sort of cold so.
Through the course of 29 team we've been operating at elevated levels of utilization, which is above 70% for that for us.
Hi, This has come down as far more normalized levels. Currently so that mitigates some of the strength that we saw in.
The positive pricing environment.
But certainly whilst we also got the advantage of the gross margin, which is about a percentage point as gene I was also lower than anticipated and there's a number of small items behind that we do believe that we have saw the public company costs to come in.
We suspect that way what guides have to.
Put some further work in into our Sarbanes Oxley because of the size of the free float at the moment.
So that roughly took us up a good sort of two and a half percentage points over Q4.
And then we received a one off gain as a result basically of implementing a fresh 16, which grosses up the balance sheet for mainly proxy leases.
That gain came about because if the captive so we recognized a assets onto the balance sheet and because they suffer net income was I dislike marching on it it actually produced a game when we do you recognized eight and recognize the sub.
Net income as a financial last in the balance sheet, unless approximately <unk>, 0.6% suffer the rice. So the the adjusted PBT margin for the quarter is exceptionally strong at 20.5% sort of pointed out 1.6 advised you too.
16, and it's tough to gain so that type sounds about 19.9, and whilst we're seeing a positive pricing and farm likes that utilization to come down a little bit during Q2, two or more normalized level.
And so I think you shouldn't read in that Q O Q1 was a pretty exceptional for us and that we should get down to more normalized level adjusted PBT margin.
Thank you.
Bryan Keane with Deutsche Bank. Your line is open.
Good morning to us out here and a good afternoon to you guys I'm wondering what's gone on payments in financial services.
You know it continues to be robust area for you guys is there any call outs in specific areas that you guys, you're seeing extra demand actually curious a little bit about block chain are you seeing a pickup in demand there in particular.
Yes, so let's say more generally.
Financial services Arena payments continues to be a very very strong area for us.
Is enabling us to expand geographically so some of the rest of the world work has been in the payment space.
As as well as doubling down with existing clients and seeing large expansion there.
And that continues to be in the traditional areas around acquiring motion portals.
Clearing and so.
Other areas, where we've seen activity has been.
Insurance insurance is building up strongly for us asset and wealth management continues to see a lot of activity, partly driven by regulatory changes in that market segment.
But also some of the the sort of nexgen banking challenges.
In banking and so on is also driving expansion in that space.
Specifically on Fourq chain.
Actually.
We're seeing some things get into production environments, but most of what we're seeing on block chain is more the proof of concept and prior to typing level.
Seeing quite a lot of activity in that as in.
Three or four clients.
Working around block chain challenges in the exchanges space or increasing the security of interaction around exchanges.
Outside of the payments financial services area, the largest area of activity season, the logistics space.
Once once again around.
Shipping goods and being able to track and on the take all of the customers and so on activities.
Around logistics.
Okay. That's helpful. And then when asked about the ban in company partnership is there a way to think about how much revenue that contributes a partnership contributes for you guys and then going forward now what this additional announcement.
You know is or is there a growth rate our way to think about.
How big this business can be with pain combined.
Hi, I'm, sorry, I mean, the relationship with bank continues to strengthen both in the P. space, though covered in the opening remarks, but all say in the in the wider areas around digital transformation.
And some of the work that we do with them around product that they can then take to that clients.
We're continuing to win new logos together and the number of clients to every working alongside each other or expanding.
It's quite difficult to separate out and measure beaches.
We find ourselves in situations, where you know where they incumbent in a client and we introduced Spain to do what they do well was there an incumbent they introduce us a we also find ourselves in situations, where we operate in subcontract to buying.
So actually being able to separate out and measure.
As a proportion of in the office business, where and how all of that as occurred is quite difficult for us.
I can say is where we are in sub contract.
Dying.
They all one of the clients that are in the greater than 1 million ton I've a category now.
Okay, great. Thanks for the help.
Right.
[noise] Ashwin Shirvaikar with Citi. Your line is open.
I think.
Good morning.
Ashley My first.
My first question is.
John You mentioned.
And so on support.
Mentioned, a little bit about downstream opportunities.
You.
Can you maybe.
A wide more details.
Yeah.
You already beginning to see.
Okay downstream opportunity in March and would you.
Expect sort of some kind of an acceleration in the size of.
Relationships the context emerged from this.
And so.
At a headline level, yes, we are seeing the downstream opportunities and yes, we all converting some of them.
You know I think you know ashwin from.
From what do you know about us there's always being <unk>.
Reasonably significant proportion of involve as revenue that's come through these PE client relationships.
And.
I am doing the transformation that the platform transformation work that is needed as part of those clients investment basis.
Say.
We're doing with buying on the Intuit's This acquisition is Bobby.
In the piece by piece about widening.
He's p. relationships and the conversations that we can have with the owners of these businesses.
Sorry that.
We can help them create that thesis around technology transformation and the value creation of platform that they get a class.
But then execute on it once they've acquired the businesses.
So we have a significant number of portfolio companies I mean, we might dig into that number for you next time.
Where we all where we're working with the portfolio companies on on transformation.
With the Intuit disguised as I mentioned, a moment ago, we're already seeing.
Downstream transformation leads coming through the relationships that they haven't not level.
Got it and.
Broader than that.
Currently.
Leaving.
Revenue growth opportunities.
Because of supply constraints.
That oh from from others in this space.
Can you can other words can you grow faster.
If you want it.
I mean, I I think we never tap into 100% of the opportunity in front of us.
He calls, it's more about being able to get the teams together.
In a timely fashion for clients than around the general recruitment and retention.
Our our ability to recreate remains strong.
Our retention is high you can see the in our attrition figures, which are continuing to trend down.
And in the locations, where we're operating a we broadly are able to drill orin.
The talent that we need to me all topline, but but as I said, it's never a 100%, but you got.
Right. So so I guess.
Partly why that was going.
Yeah.
The headcount growth in quarter.
I think.
Might be the lowest ever reported I am I to Dan.
That is a.
Temporary circumstance and we should see had comp.
Great.
So I think I think on the headcount a point or you need to take account of the disposal of will pay so John called out 13.9%. His name is 17% when you when you called out there on a like for like basis.
And then you know you compare that with the glad that we had year on year, which is a constant currency at 21.5% then it's broadly similar to call two percentage points. So differential so they.
I don't think muscle constrained to think they.
You know a utilization as we still have been trialing that was elevated last year. It is starting to trend back into a more normalized levels. So you know the headcount growth is what we call it basically to deliver sustainable margin going forward.
I just.
Thank you.
Thanks.
Charlie Brennan with credit Suisse. Your line is open.
Great. Thanks Rush for taking my questions just just to actually.
Firstly coming back on the margin point, you continue to cool out.
Favorable pricing.
Is there a way for us to think about how much of your existing book of business, you've you've been able to reprice and how much more of a future benefits is that going to be a and then secondly back on this and show it to steel.
Looks like they are a mid market specialist Tonight I typically think about you servicing larger client.
I find misrepresented enjoy this and how do you feel about them at market for us.
The first one.
Yeah. So so pricing it does continue to be favorable for us.
We certainly see in terms of metrics that can be calculated in terms of revenue had side.
As a healthy sequential increase quarter on quarter.
A little bit flattered by the FX.
Affects rights, but we definitely see on a lot slot basis at all you know update rights or revenue per Monday right. So it's it is a a benign environment and we've continued to see this momentum through 2019, and so far you know the outlook.
Into 2020 that we can say it also remind remains benign.
We are in terms of at the reap the repricing I guess, you're referring to renewal conversations with clients. So I think we said in the past we tend to get premium pricing. When we secure you work for closed because of the scarcity of.
The talents in the the expertise that we bring a but we still managed to secure right meaningful rate increases when we come to renew with our clients that we've been in situate full for quite some time. So we are we're benefiting from that that positive pricing environment is.
Basically I think a consequence of why we operate in the market at the moment, we're not saying.
Any sort of weakness at the moment.
Right.
And on your insurance is a question, yes, they've they've been focused around mid market. They are moving up into a little bit more of the talk to you.
It does actually complement very very well, what we do with pain.
Which is very very much focused on the of the top tier global PE firms.
And actually through that delivery model because they have access to you know hundred C suite level freelancers and the business. It provides us with a huge amount of extra flexibility.
To respond to demand in this space the challenge in the space is the demand comes along a very very quickly so client who call up and guy.
I need a team on Monday to how we'll look at this perspective acquisition.
And you know the senior level that freelancers, a will enable us to respond not just to the existing client base in truth as hospitals, so much more effectively.
Working alongside pain, where frankly, we'd been turning work away.
Great. Thank you.
Thanks, Charlie.
[noise] Mayank Tandon with Needham and company your line is open.
Thank you could you comment on a Christian where it is today at how does that compare to say Youre 612 months ago. You mentioned that it has been down ticking So would love to get some perspective on that and then the same way and if you could talk about your expectations real wage inflation and how you see that rolling out through the year.
Oh, yes search attrition has been coming down I mean, we target staying below 15%, which we've which weve remained below the entire period on the public market.
But he did edge up towards it up one point.
[noise] barrier and a half ago.
And has been trending down.
Steadily since then.
Two I, probably a couple of percentage points off.
And you get the spot I didn't catch the second question actually man right Mark I was asking about the wage inflation, how you see that rolling through the year. The impact that you expect or maybe if you could talk about it in terms of some of your poor markets. You know how does that flow through the model.
So.
Well we're always.
Have a you know to come competition for talent always is as high as John sort of set.
But actually our ability to recruit a at a sensible price point is is undiminished.
I know, we've actually attribute this to our successful business that we felt the prime the attracts Tom which means that we don't have to pay market, leading scientists to attract that talent and you can see that you know where the attrition rates, where they are that where we're doing a good job on that in terms of.
You know the cost going forward in terms of average cost per head is basically at the levels that we have seen sort of historically why we we matched the cost space certainly delivery cost base through let's call. It I pyramid structure, where basically people come into the organization entity.
Skills and expertise that they are able we are able then to pass onto our clients as they increase their senior Archie three Sylvain DAVA. So we tend to get a margin diminution when we do our primary pay route which is first of January .
But then as we go through and renewal conversations with clients, we tend to recover that cost due to bounce. The so we're not seeing any margin pressure really from yeah, the cost of securing talent.
That's helpful and then if I could ask one more in terms of just competition as you scaled and I would imagine are competing on larger opportunities in the market has the competitive landscape changed for you if at all.
So the company.
Competitive landscape continues to be.
He seminars, it's always a competitive market.
You know the larger players that we run up against our Accenture and each time that probably the most common to that we see.
But demand is strong and there's good opportunities with the client base.
And so we continue to win well right across the portfolio in sectors driving that top line growth that you see.
Excellent. Thank you.
[noise] Joseph Foresi with Cantor Fitzgerald Your line is open.
Hi, most questions have been answered as you guys can imagine booked.
The first one I'd like to start with is just around inorganic growth.
Obviously, you did sort of a smaller tuck in acquisition.
But youve created some more flexibility on the balance sheet I know to the extent that well to the extent that you can talk about it maybe you can.
Spread some light on our show shed some light on.
Potential acquisition targets would you be looking do something smaller or larger.
Tuck in in nature, transformative and any particular vertical that you might be looking.
So.
Yes, we continue to look right sorts of inorganic.
Physician opportunities.
They will very much fit in line with a strategy that we previously articulated to market around you tuck in opportunities that we can integrate closely.
Into the business, we're looking for opportunities going to add either sector overall technology capability to the business.
But may also adds delivery capability, if we're looking at.
New geographies for instance, when we get to wanting delivery capability in Asia Pac we may well look at an acquisition.
To assist us in doing that.
You know we all we are actively looking as like as I called out in the last quarter.
As opportunities come through I will close to them and announced the market.
Got it and then.
Kind of building a meyer's question just on the political climate in the regions that you're servicing from the Ukraine in Latin America, there's been obviously a lot of turmoil in the global CLO political arena.
Maybe you could talk about any impact that you're seeing there or anything that you're monitoring.
From a delivery perspective.
To get your your feedback on that.
Okay. So I mean first thing stay as we are not in the Ukraine.
All Russia for that matter I'm, sorry, I meant Romania I apologize.
Yeah.
You know so largely we've we've gone for places that.
They offer opportunity to establish a leading position to attract great stuff.
Because they're not the silicon valley's and establish parts of the world.
Now we've we've adopted approach.
Choosing locations that but all emerging but not to politically sensitive.
I say, Romania for instance, as you call out is within the European Union.
And is being maturing strongly as a as a nation since they joined the European Union.
Back in 2007.
So.
You know so we can we please pass around not.
Finding ourselves.
Strongly with strong delivery locations in highly politically sensitive territories.
And that's how we manage that political risk.
And then just last one from me around margins.
Do you foresee.
A time, where you May review the margin profile over the long term.
You know how should we think about sort of I know, it's been asked a couple of different ways, but.
Well you do you review that on an annual basis do you view it again in 2020, because obviously, though.
The margins could potentially at least they appear like they should.
Our could potentially expand at some point.
Yeah, I think that's a good point I think at the moment, it's a little bit too early to call. You. Just said he just delivered 20 and a half a cent and you know there was one also contributed to that and we certainly came into the IPO with a target margin is 17% and we've done better than that or myself.
Quarter since I would.
Make that caused you get towards March next year, Let me say, our Q3 as a set all our utilization has come down from the elevated levels that we had two in COVID-19 to that on a normal range of operation.
And they still generating strong gross margin because of the you know probably probably because of the pricing sort of environment.
I think we need to is also establish for all go ahead level of SGN areas and then as we leverage we should get some traction.
In reducing that as a percentage of revenue.
So I think he's probably about six months away to be Frank just before we sort of color any any change.
Thank you.
Again, if you'd like to ask your question. Please press star one on your telephone keypad Arvind Berman.
Keybanc Your line is open.
Hi, Thanks for taking my question.
And that's kinda question on the.
On the Oh, private equity being lean partnership and.
My question on that is how are you organize from a sales cintas perspective is that something that you as senior management and off.
Kind of look selectively and planned out of course of action or do you have dedicated.
Can I say those sales teams on on that Oh on the beat on the opportunity.
Related to being.
So we have a steering great we operate with pain wishes includes myself and.
Senior pain leadership team like.
And you know the let the amount and level of activity is fairly broad say, a we draw in the relevant business winning teams from and Doran thing.
On an opportunity by opportunity basis.
In order to close business together when alongside each other and so on.
And not worse that works very well we thing.
You know doing that for around two years, now and going down the learning curve of how we went together.
And you know, it's it's reached that point, where scale to crosswhite organizations, and I'm, describing that way where.
You know lots of people on each side are involved in executing against it.
I definitely and then just quick follow up on that on the same topic do you have.
Any kind of room engagement.
Around.
Essentially going to conflict, where you're going in helping.
Potentially a competitor.
One of went up the clients.
Or has that.
Really haven't run into such situation.
So it's a very open relationship where we not restricting each other particularly so.
You know.
If I can introduce us somewhere where we introduce them, we aren't restrick downstream behavior to being alongside through each other.
But you know we have a clear preference to actually work together and make these things happen together because we believe.
When you put the technology and the organizational and commercial capabilities that across our two organizations that we have together in a structured fashion you get a much more powerful result.
On the client can get just by put into organizations with based capabilities alongside each other who've never worked together before.
It's the nature of technology have how do you actually get.
And that dimension of change that.
That ideation of wall is going to make a difference.
Into this sort of strategy and organizational change discussions.
And if you if you don't have flat operating closely enough together it is tough.
Okay.
Great and if I can squeeze one last one.
So I got great infrequent squeeze one last one then it is around the topic of automation I mean, I know I know you're kind of kind of talk of ordered a large <unk>.
In the industry itself, but if you can kind of just just give us a view of.
No.
So I did we lose your was up.
The question or has dropped.
Oh, okay.
There are no further questions at this time I would now like to turn the call back over the presenters for final remarks.
So thank you all for joining the call I hope that you picked up through it on our continued optimism about our ability to deliver sustainable growth going forward and we look forward to speaking to you all again next quarter. Thank you.
This concludes the endeavor.
First quarter fiscal year 2020 results conference call. Thank you for your participation you may now disconnect.