Q3 2020 Earnings Call

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To ask a question. You may press * then 1 on your touchtone phone to withdraw your question, please press * then two, please note this event is being recorded. I would not like to turn the conference over to William main investor relations, please go ahead. Thank you Gary and welcome to 4 Tuesdays third quarter fiscal year 2020 earnings conference call where we'll be discussing our final results from 4 to 6. Third quarter ended December 31st, 2019 on the call with me or Chris, Corona chairman and chief executive officer and Rajon Calia Executive Vice President and Chief Financial Officer service statements made on this call. They're not based on historical information or forward-looking statements, which are made pursuant to the safe harbor provision of the private Securities litigation Reform Act of 1995 during this month. We will make Express or implied forward-looking statements relating to among other things produces expectations and assumptions concerning Management's forecasts of financial performance the growth of it uses business the abyss.

for Tuesday to produces clients through

Realize benefits from the use of or chooses IT services and management plans objectives and strategies. These statements are neither promises nor guarantees and are subject to a variety of risks and uncertainties many of which are Beyond his control which could cause actual results to differ materially from those contemplated in these forward-looking statements existing and prospective investors are cautioned not to place undue Reliance on these forward-looking statements, which speak with today's date for Tuesday undertakes, no obligation to update or revise the information disclosed during this call, whether it's a result of normal information future events or circumstances or otherwise month statements on this call also include certain non-gaap financial information as defined by the SEC and constant currency Revenue provide a framework for assessing how our Revenue performed excluding the effect of foreign currency rate fluctuations. We provide non-gaap adjusted operating income non-gaap adjusted net income and non-gaap earnings per share, which we believe provide insight into the operational performance of our business reconciliation. Yep.

Got the Gap measures are included in today's earnings, press release and data sheet which can be found on the investor relations page of our website. We also present a Reconciliation of cash cash equivalents short-term and long-term Investments That We Believe or insight into our total cash position and overall.

Liquidity. Please know that a supplemental data presentation to our third quarter results has also been posted to our investor relations website for additional disclosure regarding these and other risks faced by virtue said the disclosures contained introduces public filings with the Securities and Exchange Commission, and in our earnings, press release with that. I'd like to turn the Clone with Chris Chris. Thank you will good evening everyone and thank you for joining us today. I'll begin the call with some financial highlights total revenue for the fiscal third-quarter was 335 or 1 million dollars representing 2% sequential and 6.5% year-over-year growth.

Our top-line performance was driven primarily by our Healthcare Communications and Technology industry practice areas a consequence of other continued efforts to broaden our industry mix.

Third quarter non-gaap operating margin was 12.1% of 170 basis points year-over-year wage, and I'll go non-gaap EPS was seventy-eight cents.

I would performance and position remains strong as we are benefiting from our clients unwavering ID spend priorities and the average spending demand for digital and Cloud transformation Engineering Services.

BT and BT are increasingly being seen as essential undertaking for all major corporations today as they seem to keep Pace with changing consumer expectation new competitors and the unrelenting pressure on both the top and bottom line.

Accordingly our DT and City areas are and will be the key growth drivers of our business office and will continue to receive much of our Strategic investment Focus.

It is a positive reality capture in our digital pipeline showing above 30% year-over-year draws in fiscal Q3, our third consecutive quarter of 30% + digital pipeline growth and resulting in d t and c t revenue comprising 41% of total revenue in fiscal Q3.

Looking to the balance of fiscal 2020 and into fiscal year 21 early indications from our clan and the industry analysts point to Thursday IT services budget for calendar year 2020 which spending on DT and CT initiatives continuing to grow at a strong. Yes with the growth. We are also seeing different Industries at different stages of DT and CT sophistication and maturity banking financial services and insurance. Our largest segment has been a forerunner in digital transformation investing.

the big Finance

Two players spending strategies by expanding to achieve truly end-to-end digital systems that deliver Port greater customer value package and significant infrastructure cost savings.

Beyond working with other bfsi clients across every stage from designing the front end bite Delight customer experiences and storefronts off of Central Middle where Bridges to the back and modernization task of moving workloads and data to the private and public cloud.

Second only to pick tag of a bfsi clients are broadening and deepening. They are DT NCT investment while summer other Industries are really just beginning to increase their commitment as they realize the necessity of transformation.

The increasingly seeing d t and city has the essential work of changing how they are businesses work and seeing virtusa as the partner to make it happen. That's why we are seeing double-digit growth momentum in our Healthcare communication and Technology segment a clear indication of both demand and greater top-line diversification.

The robust growth in DT and City demand across Industries has created both incredible opportunity and increasing competition producers ability to stand above the rest. Is it function of our deep digital engineering and domain expertise of abreast of emerging Technologies and other formidable Partnerships with the leading digital and cloud service provider?

Please pause the factors have enabled us to compete for and win some of the largest and most strategic DT and City contracts in the industry's we operate in.

We are building on an already impressive track record while deepening and broadening of relationships with the market share leader is in many of the sectors Thursday we serve.

I dunno share some recent women that exemplify the importance of the work we are doing and how we are applying our digital engineering Ingenuity do uniquely soil. What are often seemingly intractable challenges.

As I mentioned earlier, we are seeing strong momentum with our media and Communications clients seeking to undertake digital transformation in order to compete more effectively evolving consumer demand and to take advantage of the new opportunities presented by emerging Technologies such as life a great example involves a Fortune 100 cable company that selected producer to modernize their digital marketing platforms across all digital sales channels representing 45% of the clients customer acquisition.

For Tuesday's building a new Advanced Digital Technology Center housing dedicated agile scrum team that are supporting our clients launch our new products and services as well as consolidating their multiple Legacy sales platforms and tools into a highly efficient agile is a Squall, but Tuesday was able to secure the Strategic relationship through our Innovation and Technology thought leadership in digital engineering and reputation for delivery excellence.

But Tuesday's also been engaged by a major US Wireless telecommunications company to enhance their customer service experience bias artificial intelligence technology to provide personalized service and relevant offers to its end customers.

This solution leverages predictive and adaptive analytics and three build processes to identify a customer's intent for calling off and proactively provide service responses and personalized offers.

Healthcare as I mentioned earlier also remains one of our fastest growing Industries and is an area where we are seeing substantial demand for Thursday T Solutions

For example, but you said was recently selected by a leading disability insurance to implement a natural language processing solution that automated service request rooting for a Raj.

For a range of services including billing contracts and ongoing employee maintenance the solution resulted in ninety percent of requests being routed life without human interaction driving meaningful cost efficiency for our client while improving overall turnaround times and consumer experience.

Within of a bfsi client portfolio Cloud transformation projects are joining digital as a top priority the pac-10 performance benefit of moving workloads to the cloud has become overwhelmingly compelling and the comparative advantages are unassailable.

Driving a large number of us and Global Banks. So significantly accelerate. Cloud Investments.

The financial services industry is experiencing unrelenting pressure to catch up to consume expectations and take advantage of cost efficiency wage and elastic compute and data capability for running data-intensive workloads.

Recently and Astra and in-depth evaluation reducible selected by one of the largest US Banks as they are strategic Cloud Center of Excellence partner to accelerate the transition of on-premise workloads to their public Cloud infrastructure while increasing engineering productivity gains improving large AI ml workload implementation by leveraging the elasticity that the public Cloud provides.

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It's considered one of the industry leaders in private and public Cloud deployment further underscoring the importance of Virtues our selection long as their partner in this critical initiative.

It clearly reflects the strength of a digital engineering our extensive Cloud transformation experience and other proven expertise in deploying m c i c d n n two n Dev SEC Ops to automate and accelerate Cloud adoption.

In another instance, we partnered with a well-known Global cloud provider to deliver cloud services to a large Bank in the Middle East off the building moving the banks testing and development environments to a public Cloud infrastructure. This multi-million-dollar engagement is important to our client as well. As our Cloud partner as it is the First Bank in the region to move on to our partners public cloud.

but to

So let's chosen due to our extensive cloud and Engineering expertise, especially in building Cloud Foundation along with our deep industry knowledge. This is an important win for producer as many companies in Europe and the Middle East are increasingly moving towards public Cloud adoption.

In conclusion the pace of change and the need for business transformation to keep up with that change are unlikely to update.

Every major corporation in every major industry in every geography realizes that cloud digital and Cloud transformation off becoming nimbler smarter and more efficient are NOW essential capacity not just to thrive but to survive and they realize that in order to undertake successful Transformations, they need a partner that can Bridge their business needs with the technological capacities in ways that work for all their life stakeholder.

in this regard

But to SARS digital engineering prowess software platforming Heritage and digital and Cloud transformation capabilities are second to none.

Accordingly we will continue to invest in our d t and c t practice areas as the key drivers of a business and the core context of our Market positioning.

We will parlay that Focus to drive both top and bottom line performance while doubling down on high-growth verticals including health care and high taxes and on high-potential accounts to further diversify our Revenue industry and client mix

Yeah, I'm confident that this is the right strategy one Temple enable us to deliver greater than industry talk line growth and strong atheist secretion off over the long term.

No, I'd like to turn the call over to Ron Jon who will provide more details on our results as well as our fourth quarter and fiscal year twenty-twenty serve brunch on thanks Chris and good evening to everyone. Let me start by summarizing the results of our fiscal third-quarter 2025. I will then provide our current guidance for both fiscal fourth quarter and fiscal year ending March 31st, 2020 before opening the call for questions.

Revenue for the fiscal third-quarter was 335.1 million dollars representing 2% sequential growth in reported currency and 1.4% wrote inconsistency.

You have a year a third-quarter revenue increased 6.5% in the currency and 6.4% in constant currency.

A sequential and year-over-year revenue growth was driven primarily by RCMP Industry Group.

Gross margin for fiscal third-quarter was 29.4% up two hundred basis points sequentially.

Gap operating income for the third quarter was 30.4 Million compared with nineteen point two million in the prior quarter and 19.3 million dollars in the year ago.

Third-quarter other expense was seven point two million dollars. This includes three point 1 million dollars of net foreign exchange loss and 4.1 million dollars of net interest and authors Spence.

Net interest and other expense includes approximately 4.9 million of interest expense and $800,000 of interest and other income.

Diluted earnings per share was $0.38 in the third quarter this compares to $0.20 in the prior quarter and thirty-seven cents in the year-ago.

Now turning to our non-gaap results non-gaap operating income was 40.5 million dollars in the third quarter compared to twenty nine point four million dollars in the prior quarter and took two point seven million dollars in the year ago. Third quarter non-gaap operating margin was 12.1% in line with our prior expectations and up 350 basis points. Sequentially 170 basis points year-over-year.

Non-gaap earnings per share was $0.78 in the third quarter $0.02 above the midpoint of our prior guidance mainly driven by lower than previously expected tax expense primarily from one-time discrete tax items.

This is compared to $0.54 in the prior quarter and 61 cents in the year-ago.

Do I need to the balance sheet ending cash at December 31st, 2019 was 237.5 Million inclusive of cash and cash equivalents short-term and long-term Investments.

Gosh increase approximately $39 sequentially cash provided by operating activities was fifty point seven million dollars in the fiscal third-quarter representing 15.1% of Revenue.

Ideas for the third quarter, but sixty nine days and Improvement of five days sequentially.

Now I will turn to a more detailed discussion of our fiscal third-quarter Revenue performance by Industry Group. Bfsi Revenue decreased 3.1% sequentially and 5.1 home theater over here representing 56% of Revenue versus 63% a year ago.

I'd be

It is also in the third quarter primarily reflect the previously discussed spend reduction at one of our large European banking clients.

Communication and Technology Revenue increased 10.3% sequentially and 34.1% year-over-year are strong sequential growth in CNT was fueled by growth at our large. May I take Internet and you get welcome client CNT represented 36% of Revenue in Q3 up from twenty 68% a year ago as we continue to diversify other industry.

Media information and other Revenue increased 5.5% sequentially and was essentially flat year-over-year representing the remaining 8% of Revenue.

We are seeing good momentum for our transmission services around media clients.

Turning to our geographical performance North America Revenue grew 3.7% sequentially and 12.1% year-over-year driven by rbfs and Healthcare clients.

Europe decline 3.3% sequentially and 15.2% year-over-year finally rest of the world declined 1.6% sequentially and grew 12.7% off over here.

I will now provide our current guidance for our fiscal fourth quarter and year ending, March 31st, 2020.

W in the fourth quarter or a 5:20 is expected to be in the range of 353.4 million to 361.4 million.

Non-gaap diluted earnings per share in the fourth quarter or a 5:20 is expected to be in the range of 92 ninety six cents.

IQ for fiscal guidance anticipates an average share count of approximately 33.6 million.

For fiscal ending March 31st, 2020. We expect Revenue to be in the range of 1.336 billion to 1.3 for four billion dollars.

Non-gaap diluted earnings per share for fiscal year 2020 is expected to be in the range of $2.63 to $2.69.

Our guidance excludes 23.7 billion of stock compensation expense and 17.4 million of acquisition-related charges.

Full fiscal year 2029 EPS anticipates an average share count of approximately 33.7 million our current gaap and non-gaap guidance is based on a set of assumptions that can be found on our data sheet located in the investor relations sections of our website.

At the midpoint of a fiscal you for guidance revenue is expected to increase 6.7% sequentially slightly above our prior expectations.

a strong sequential growth and Q4 reflects the following factors

first a high number of billing days versus Q3 second the resumption of growth at our large European banking client consistent with our prior expectations as well as they usual Q4 Revenue acceleration at a large European tell compliant.

Sure continued organic growth with other clients in line with our expectations.

And finally with respect to our largest client we expect you for growth above our prior expectations.

As disclosed in our January 8th filing regarding city virtusa was one of a handful of selected to continue as a preferred vendor at our largest client.

In return for becoming a preferred vendor The Firm selected including virtusa agreed.

To provide our client that contract your productivity saving commitments from April 1to December 31st, 2020, which is not achieved would require us to provide certain discounts off. This plan reduction is very similar to what we experience at the time. We acquire Plus.

We believe this development is beneficial to us as were two sides. Now one of only a handful of preferred vendors and we are able to compete for work previously done by those forms impacting a vendor consolidation.

This means we now have a much larger addressable Market with our client. And as you know, our preferred vendor status historically enabled us to drive strong growth with them.

As we discussed above our fiscal Q4 Revenue expectation from our largest client is above our prior expectations.

Our business momentum remains positive and we expect budgets to remain broadly steady. However, we continue to monitor the impacts of macro-economic Trends and recent Global health events on our clients decision making patterns, especially in asia-pacific and Europe.

Lastly we are also closely watching the potential impacts of brexit on our clients demand particularly in the UK.

Twenty-two q 4 modules. We expect our non-gaap operating margins to be lower than our previous expectations driven primarily by lower utilization and higher mix of practice.

In fiscal Q4, we expect and approximately 3.2 million dollars or ten cents per share tax benefit from the approval of our pre-release discuss mergers offer Indian legal entities an election of lower tax rates in India.

This tax benefit reflects our full-year catch up and we'll lower our queue for Gap ETR to approximately 21.2% for the fourth quarter.

Non-gaap effective tax rate is expected to be 26.6% for full fiscal year 2020 versus 30.3% previously stated reflecting the true benefit catch up looking for.

Please note that we will continue to recognize this tax benefit as a result of merger of our Indian legal entities radically each quarter going forward.

No.

Realising for non-recurring benefits and second half we expect RFI 2021 and Beyond non-gaap tax rate to be approximately 28%

What if I 20 at the midpoint of our guidance range we continue to expect Revenue growth of approximately 7.4% in afforded currency.

In constant currency, we expect Revenue growth of 7.8% at the midpoint.

In addition, we expect 40 basis points of non-gaap operating margin equation in FY twenty versus sixty basis points previously.

our current guidance anticipates $19 of interest expense

We now expect strong non-gaap EPS growth of 25% in a 5:20 at the midpoint.

In conclusion, we delivered strong non-gaap operating margin accretion and cash flow in fiscal Q3.

For fiscal twenty we are set up well for strong EPS growth of 25% at the midpoint of our guidance.

Reflecting top-line growth consistent without prior expectations at the midpoint.

Continued Bhajan accretion and signifying tax benefits from the combination of our Indian legal entities.

Not expected strong team for performance sets up. Well for continued Revenue growth margin expansion.

and robust EPS growth in a 521

demand for digital transmission services remains robust across industry groups and geographies

As a result we remain confident in our ability to grow Revenue faster than overall Market while our business momentum remains positive. We will continue to monitor macroeconomic Trends and their potential impact on demand and our banking clients in the US and UK.

operator

You may now begin the Q&A session.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your package before pressing the keys to withdraw your question, please press * then two. Please limit yourself to one question and one follow-up. If you have further questions, you may answer the question Queue at this time. We will pause momentarily to assemble our roster.

Our first question comes from a tendon with Needham & Company, please go ahead. Hey good evening guys is actually Kyle Peterson on from mayank. Thanks for taking the question. So first question. Just wanted to see I'm just a headcount Just a Touch. Is there anything going on there? Was that seasonal or kind of cost-saving or just want to get a little Colour Banker? It's like I can you just just get a little bit more on that head count. Yes, you're right, you know, there was a reduction that had gone from three levels dead, but it's largely due to you know, the headcount realignment that we've been doing with the revenue forecasting that has been going at a large UK client. So it's largely due to that bulb great. That's that's helpful. And then just as a follow-up, I just wanted to get a little color. I know you guys have given a lot of background on the digital the 41% off.

And I believe this quarter and that's growing nice.

They just wanted to see in the other part of the business, you know are the are there any kind of bright spots or growth areas that you guys wanted to call out or kind of how should we think about the the other call at fifty-nine sixty percent of the business moving forward great question, So as you can tell the thing very strong momentum across all of our program and Beyond the digital programs while in general most plants are compressing they are business as usual or them run the business budgets.

What they're spending on even in that part of the business is on ways to increase and wring out efficiency in terms of systems and platforms that could be potentially rationalized or consolidated.

So what you're saying is actually capturing and increasing percentage of the transformation that's taking place. Even on the side to help set up our plan. But obviously for cost reduction initiative as well as in some cases creating the the foundation for them to be able to move workloads to the cloud. So as a matter of fact we are seeing growth not just only on the digital transformation side of the business or the digital business, which is about 41% of our Revenue. You're also seeing growth across the remaining 59% of our Revenue may get a slightly slower Pace than the digital side. So we expect that digital engineering work will continue to grow faster than the company averaged but nevertheless we are seeing growth across the board.

All right, that's helpful color. Thanks guys.

The next question is from with wedbush Securities, please go ahead. Hey, thanks for taking my question. I just want to start just very quickly. I'm not sure if I got that was there any FX impact your life to 3 and then is there going to be any accent back looking at 4 to 3. If you take on the revenue line number was like sixty $700,000 of off, you know better than FX impact. And yes before it will be probably be bigger and more beans about 2 million to two and a half million dollar range on the revenue line item.

Okay, okay, and then just going back, you know as as you know, you know on the margin line item that the margin line item the impacts will probably be about like wage in basis points and then the city renewal and we as you I'm sure you know, we get a lot of questions on this any changes in terms of thoughts in terms of how this actually gets embedded in the model starting obviously in the June quarter. We know it's going to be down year-over-year, but maybe it can be kind of reiterate what you what you are telling the street about that. This is Chris. Let me check that says, you know, we entered into an 8K and the 80s runs on mentioned in his remarks is based on productivity based spent reduction underwritten by a discount in the event. We are unable to drive efficiencies to meet these spend reduction.

This is very very.

Miller to the structure of the spin reduction that we entered into with three when we acquired Polaris now in return for this

and it's a part of being a strategic preferred partner across City. We now have an additional addressable Market opportunity of approximately $450,000 as stated in the RFP, which we responded to in terms of providing them with the spend reduction and in return for the spin reduction from being able to have a much larger addressable Market.

But in addition to this then this is something that we've learned about just about a week ago or less.

And offered a very comprehensive analysis virtusa has recently been empaneled into cities Global consumer Bank as a preferred partner.

So this further expand our addressable Market activity and as you know, the global consumer bank at city is a very significant Investments vendor specifically in digital transformation and digital engineering.

so

Yes, the expected City will continue to be a $200 plus plant based on the Strategic nature of the work video.

The much larger addressable Market available to us and the fact that the global consumer bank empanelled, but as a strategic preferred partner.

Okay, so just to confirm the city is going to be flat year-over-year and it's not going to be then I think we're looking for that to be done at least 10% and physical twenty one month.

So what what obviously in this current fiscal year? I think city did approximately $219 with us in fiscal year. Nineteen. That's right. We'll probably do something a 208 million in fiscal. Actually. It was like to be higher than what we do over two hundred ten million in fiscal twenty and we expect that going into office twenty one. That's the deal will operate as a 200 million plus plan. So if you remember even in our q1 call, we said that your city will decline in high single-digits then when we exited, you know, our Q2 we talked about that City will really decline in mid single-digits and like we talked and prepared remarks that Q4 is now affected City will be doing slightly better than expectations. So with all this put together now, we're really looking at City really decline is low single-digits versus where we started so cities done better than where we started the year off.

It's okay that that's helpful.

Single digit declines versus where we are before which is which I think was low double-digits. Right? We I mean, we had called it out in our queue for q1 call to be a high single digits off high single-digits. Okay, and then just one more question. I'm assuming at this point you're sticking you will be sticking with your long-term guide which is, you know, a single digit growth, maybe not to 10% growth down the road with margin expansion opportunities that hasn't changed.

Oh, I think you're right. I mean we continue to feel good. You know, this was an important year. We we did have you know, specific client issues and q1 and Q2 the guidance that we had together for us tells you to growth Q3 growth in for growth mean, you know Q2 has shown the actual performance as shown in line with guidance. So we if we continue to perform for guidance, we will be exiting strongly if by Twenty One and if I 20 and entering very strongly into a 521

Understood. Thanks a lot.

The next question is from tomorrow with JPMorgan, please go ahead.

Hi guys. Thanks for taking my question. So just to ask you directionally. How should we be thinking about, you know, overall growth rates Beyond this year. Your name is expected to be flat flat, but like other account such as the large UK bank should grow so, you know, just wondering like how we should be thinking about the verticals near-term Outlook.

Yes, so if you like if you actually take the banking segment, which is you know, where the city and Lloyd say Landon the company overall growth was about 7% but we had specific issues in you know, the the large city as our large Plant in the large European plan you back that and you really look at the growth of the banking segment the banking segment growth was in mid teens off the very strong growth that we saw in our banking clients. Now that being said that he said in our prepared remarks and look we we are you know watchful of certain macroeconomic off events that are taking place. So, you know, the brexit has an event that is taking place in you case unfolding some of the health-care events that have just started to unfold in the last few days off they may or they may not have an impact on our clients and we should all be watchful of them. But this year X those two specific client spending issues. We still had a very strong.

Yes.

All right. Thanks, and then it's a quick follow-up, you know how much of eps guidance, you know would like the EPS guidance increased and from below the line items, and if you could be like some use on, you know long-term targets, so that be great here. Thanks.

So if you agree, you know guidance over guidance guidance was $2.58. We really gone to 266 now. So that means we have an innate sense of guidance increment in there and that's made up of fourteen census of lower e t r the why behind the lower ETR is the merger of our legal entities as well as some of the benefits that we will get because of lower tax rate, which is being offset by lower OPM guidance, which you know, like we said in our prepared remarks that is 20 basis points lower than what we had previously expected. So that lower EPS will you know lower OPM will come out about seven cents and then, you know, $0.01 is rounding. So if you take fourteen $7 and 1 due to really come back to the eight cents.

pink noise

The next question is from Maggie Nolan with William Blair, please go ahead.

Hey, this is Ted on for Maggie. Thanks for taking our question. So wanted to ask about your diversification efforts. So as you continue to diversify the business are their organizational changes, they need to be made in terms of how the engineers are the sales force or structured.

As a matter of fact that we had you know diversification is not a new topic for us. It's actually something that we've been working on for quite some time and going into this fiscal year and before the start of fiscal year 20. So this was basically about a year ago. We had structured of organization to basically wage execute against our diversification strategy, which is essentially threefold. The first is geographical concentration that we had our geographical diversification. And we basically going into the structure produces to be able to have very strong leadership across Gio's that had autonomy that to be able to drive those drills and we felt that that would then provide us with the foundation required to expand Gio's and especially expand International wage.

faster

That was the first the second we had already made specific commitments in terms of our allocation of capital around sales and marketing to basically expand and increase the investments into specific Industries where we thought there was significant potential and those Industries specifically were Healthcare technology and telecoms, you can see that many of those Investments are panning out very well today, especially given the growth rates that we are seeing across those areas may be invested slightly ahead of the curve going into fiscal year 20 and the last part of our diversification strategy has to do with identifying high-potential accounts, especially accounts that maybe want to $25 million dollars in size.

Making certain that they have the potential to be fifty to a hundred million dollar accounts and then investing in those accounts and allocating additional Capital sales and marketing investments into those accounts so that we could grow them faster and I think that as we continue you will see this three-pronged strategy play out and they will see that our diversification plans will continue to yield strong diversification and reduction in concentration.

Great, that's very helpful. Wanted to as a follow-up wanted to ask about the pipe line for Acquisitions what verticals of our verticals of our particular interest for you guys? I mean em in a perspective or are you looking for one large Flagship customer in Target companies or abroad vertical exposure just maybe a little commentary on your overall strategy that be great. Let me start by saying that we've been a very pleased obviously with the results of the last two Acquisitions that we've made of scale namely Polaris and attached and I think you've seen the results may have greatly benefited but users platform having said that we are very very focused on continuing to extract the synergies of those Acquisitions and Thursdays. We take a look at moving forward. We obviously not looking for any significant or sizable Acquisitions. We think we have a great platform, but it makes sense for us which has to do with either dead.

New technology reach or or driving new technology expansion. They might consider.

Certain types of expeditions if geographical opportunities present themselves. We might in the third obviously is industrial based. But once again just to temper any any of the month discussion here, they are much more focused on in, you know, integrating and leveraging the Acquisitions. We've already made and then very selectively looking at ways that we might be able to strengthen certain. Yep. Thank you. The next question is from Joseph with Cantor Fitzgerald, please go ahead.

Hi, this is Daniel Regan on for Joe. I wanted to dig a little deeper and ask what you are seeing in terms of spending patterns from your largest clients and hopefully a little more color on how you're shaping your strategy around it.

Yeah, so

Clearly which is very clear to us digital transformation and Cloud transformation are becoming very very significant investment areas across our large plants across the next set of clients and quite candidly all Enterprises in all industries that we operate in so it's pretty much across the board. And in that area. What are they spending on there? Basically spending on developing digital Journeys that provide delightful experiences. They are in consumers are spending on creating digital storefront. So that consumers can do all of their transactions through there digital devices supposed to forcing consumers to go to a specific place to transact.

to support these Digital Store

Once they're investing in building very robust middle layers that can essentially Bridge the systems of record or the Legacy systems this new requirement with digital and then finally across the board are transfer spending at varying degrees of maturity though depending on identifying workloads and moving these workloads to both private and public Cloud by industry. The adoption rate is slightly different and we are seeing that second to Big Tech high-tech Banking and Financial Services are greatly expanding the investments in digital and Cloud a few banks are looking at how they could potentially become technology companies providing Bangkok.

Still be Service as opposed.

Two Banks leveraging technology to execute their services completely different Paradigm. And once again, this is driven by consumer demand of being of wanting to be able to transact with service providers will be Banks insurance companies Healthcare companies telecoms companies and media companies to be able to transact through digital devices as and when they require as and when they want to transact and being able to being able to have the flexibility of doing the entire transaction in to end on there digital device, so this is where we're seeing the most of the Investments going beyond that on the run the business side or the passenger side.

Just seeing many of our clients now looking at ways of rationalizing and consolidating many of the applications and they are you know hundreds and hundreds and thousands of applications so they can become a lot more efficient. Got it. Thank you and just building off of that. So you had noted that you're seeing strong momentum mass media and Communications clients. I'm wondering what opportunities you're seeing here and how we should think about growth for these segments. Thank you. So in media and communication clearly seeing the introduction of 5G being a catalyst for media and Communications companies to introduce a whole series of services that essentially eliminates the latency that used to exist. And now with that reduce latency. There are a whole number of new business models that they can actually provide there and consumers including prestige.

a much stronger and more effective

Based engagement model that predicts what the next best action might be and do that real time. So we're seeing an increasing number of new business models that are coming up within telcos and Media company notwithstanding some of the Legacy Within These firms prevent them from being able to provide these seamless end-to-end Journeys and being able to run things like a I am woke loads by leveraging the elasticity of a public Cloud implementation. So we are seeing greater adoption of public cloud with intercom media companies. We are seeing far greater investments into building those middle garbages that I described earlier and naturally than building new products new services and creating a digital first and digital-only experience for that in consumers.

So we expect because of this that's e n Communications and media will continue to be a growth engine for us moving forward.

Great. Thank you. The next question is from Vincent with Berrington, please go ahead.

Yes, Ron, Jon, you'd how much higher can you increase utilization rates from from current levels? Could you remind us of how much are you could Target rates? Yes. The the realignment of a delivery platforms, you know between virtusa in Polaris and we believe that you know, we could really go out and up till later 80% in terms of deliver utilization inside of it. If you look at if you continue to see more opportunity actually on our on-site utilization, which is very smart and sensitive that being the case we wouldn't really expect all that utilization get really close out at one year. We would really try to continue to have utilized increments probably about like 50 to 75 basis points on an annual basis.

But it's reasonable again to see some of that. I mean the full amount close and then 21, correct? Yep. Yeah, if you look at it, you know our deal size continue to increase our deal size, you know increase on Thursday as well as our deal size continues to increase on our pipeline our deal tenuous star has continued to increase slightly. So all those things make it easier for you to continue to increase utilization off so I can just build on what runs and just said when so overall pipeline has expanded 22% year-over-year digital pipeline is up 34% year-over-year that is now for the third consecutive quarter. We have a digital pipeline has grown over 30% year-over-year and it's runs and just said average deal sizes for the total pipeline is up over 14% year-over-year.

Then one more after the the Brits decided to go ahead with with brexit finally at that moment in time. Did you see any change in client sentiment or is it just just too early to to identify that?

So I can give you that too. Yeah, it's a great question. So you're watching this very carefully. I do believe it's a little too early to predict exactly what is going to transpire as a result of faith in you know, post-brexit environment in Prior conversations. We've talked about the importance of Separation because now many of the UK Banks cannot hold the process Bank say U K Enterprises cannot hold data in the UK to service European customers and vice versa. So you can tell that from a long-term perspective that's going to create more opportunity in the near-term. It's entirely possible that based on brexit uncertainty and some of the ramifications of the brexit uncertainty that certain budgets might be beyond the prison. So it's something that we are watching carefully. I will share with you. However that our large uk-based client.

Why once again, it's a little too early to provide?

Guidance for fiscal 21. They are low point with us as expected was in Q3 despite that they actually grow slightly better than ever expect a Thursday. We expect fairly strong growth in Q4 as I previously had mentioned and after a very comprehensive review of over 20 IT services and 68 during providers, but who was selected as they are number one digital engineering partner. Now that our client is beyond for now, there are large client is beyond they are second a calendar. You're nineteen budget issues that naturally had a fairly significant impact on they are spend with us and others during that second half and by virtue of us are being selected as they are number one disciplines ring partner. We expect that are large uk-based banking plant will be a growth account moving forward.

Thanks for the color. That's it for me. The next question is from Brian Bergen with Colin, please go ahead.

Hi, good afternoon. Thank you. Just wanted a clarification on your large banking client understanding. It sounds like fiscal twenty one is going to be flattish over the $200 a month. Is there anything notable in the margin structure of margin impact based on the you know, the disclosure that you had a couple weeks ago? So I think it's it's going to be a little bit early to comment on that. I mean, I understand why if you look at it the the product of savings that we have contractually committed. Some of them are going to come through savings. Some may come out to discounts very similar to what happened back in seventh and that really gets shape and as the bottom bottoms of Revenue visibility is put together, then we can really have a much better idea where the productivity savings and how much can be derived and how much money you have to talk it out as as discount that whole piece is put in getting computed as we will probably spend Q4 into working on all that stuff and we could probably walk you through better in dog.

May so. I don't think we have full visibility in terms of the margin impact at the account level, but from a company level we continue to feel you know, we're not going to be a margin accretive company. We continue to believe we are going to be a you know, Revenue Growth Company and we continue to believe that we will be double-digit EPS Growth Company.

Okay. Thanks.

So that um and just on the margin. Um, so I did with you know your outlook for 4q with some of the increased subcontract to utilize usage and and utilization down is that um, it's not just a four Q incident or is there something lasting that kind of carries through the early next year? Can you reverse that quickly the question and we've done that before. It's a strong order in terms of us in terms of Revenue growth. Um, yes, we are mix of contractors is higher than what we had previously expected but we've seen that happen before to us in quarters, and we be able to Journey Down in in the following quarter. So this will probably be one of the gross margin drivers that we will continue to work on ourselves in a 521.

Okay, and then just on the, and Technology segment understanding you have very good, you know good strong growth at your large Tech client. How are you? Seeing New Opportunities progress in high-tech anything notable in that range fifteen to twenty-five high potential account range that that you're you're seeing might come across in the near-term.

I think the

Mentioned that we've had a fairly large number of new clients that we have engaged with that are that have recently crossed the million dollar of Mark. Some of them are from a dead and they actually very enthusiastic about both of a person's and the increasing S&M Investments that they are making in the high-tech big Tech Community wage, and that's really believe that that's a significant opportunity ahead of us in the high-tech Corridor and right, you know in our high-tech 30% of our Healthcare clients for calling to high-tech. And as you have seen the health care portfolio for us is you know, expected growth year-over-year 50% So you can tell the contribution that that is also having to RCMP lines. So Healthcare we talked about that, you know large deal in q1 that we had embarked upon, you know that continued to flow well through the year. So there's a lot of health care. That's also sitting in si NT.

Okay.

Thank you.

Again, if you have a question, please press * then 1 the next question is a follow-up from the location of Magnolia William Blair, please go ahead.

Hi one follow-up question for me. So I know you talked about the 40 basis of margin of creation and fiscal twenty so over the long-term. How should we think about the long-term expansion of margins is a hundred two hundred fifty basis points of the game still on the table, you know, we continue to be focused on the mid-teens margin growth Initiative for ourselves that's continues to be a strategic go for us. Yes, I could be yours. Just like we had we we learn from our experience this year. We could have you know, spending clients pending impacts that may result in margin or we could have years where we met expected, you know, a lot of growth initiatives if you see a lot of digital and see Auntie growth in front of us, so those could be years that maybe a lighter than that hundred and hundred fifty basis points annually, but overall, we can't seem to be committed for the margin growth of mid-teens. We continue to be committed for Revenue growth and that could continue should result in EPS growth of double digits.

All right. Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Chris for any closing remarks. Thank you. I'd like to take this opportunity to thank all of our Global team members for that dedication and commitment. Thank you all for joining us and we look forward to updating you at the end of our full support and focused areas the camper now concluded thank you for attending today's presentation. You may now disconnect.

Thursday

Thursday

Dead dead dead dead.