Q1 2020 Earnings Call
Greetings welcome to eat Pam systems first quarter 2020 earnings conference call.
At this time, all participants will be in listen only mode. They brief question answer session will follow the formal presentation.
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Please note this conference is being recorded.
This time I'll turn the conference over to David Strobing head of Investor Relations you may now be yet.
Thank you operator, and good morning, everyone. By now you should have received a copy of the earnings release for the company's first quarter 2020 results. If you have not copy is available on M Dot com and investors section.
With me on todays 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 risk and uncertainties that describing the company's earnings release, an FCC filings.
Additionally, all references to reported results that are non-GAAP measures have been reconciled to GAAP and are available in our quarterly earnings materials located the investors section of our website.
But that said I'll now turn the call over to arc.
Thank you David and good morning, everyone.
I do hope is that all of you are staying safe and fail to do this global crisis, because it looked to say the queue for doing this.
Well it has been only three months since we started out what did I tunes results and provide it though somewhat expected went out when you put simplest annualized growth outlook with <unk>.
Recorded 19, but David isn't where it is clear that everything we thought we'd use them. Just if you get Slater started to be Lady might change in one of the daily basis.
In real terms, the but we are seeing all that was the world is immediate serious and localized <unk> each and every one of us and fall clogs.
More importantly, we believe that we're far from zero to just do it in Fourq.
As a view of money somewhere near the end or was it just as opposed to Peter talked disruption.
So while we do understand the significant uncertainty is with us for some time, we wanted to give you a perspective of quality problem is adapting to this new attitude and the way we assume you might be good yields in near future.
It was renewed it there's been this bond into liquid at night in crisis.
And they said it's already bugs in all the bucket Egypt.
So then if it were able to take advantage of a good amount of work done what was a plus he has to put in place that at least to Cogs groups would business continued to as well as quint when west one no internal platforms, which enabled us to support through their drought global delivery in vitamins, including readiness putting more.
Replaces an enhanced productivity measurement.
Because of this therefore, the same combined because our order loadings from our a buck experiences in January and February already in the March you able to move need it all of that Bob to productive extensive work from home in the water.
Practically in it went out days.
This transition away to presented a pretty significant and what was noted by many of our clients with speed and reliability to well service continue region.
So at this moment I wanted to federal my deep appreciation to the cells into a coupon <unk>, who are doing everything possible to support each other.
12 customers would rise tinnitus reserve most critical issues.
Then to all communities around the world, which we are supporting constantly there's a difference means.
We'll fight it was a fun David on different clients.
The health and wellbeing of our people continue to be a top priority to for all of US unions. This time.
Is that in mind, let me see to our Q1 performance and then cover.
Some of the changes, we're making in order to support cost as much as any of your guess is challenging environment.
And and Bill Cosby Sousa forces shaping the next few quarters or demand.
Before doing as a go forward to Jason.
What's the will.
I'm pleased to fair that we delivered a strong because an expected first quarter results Israeli news.
Well see some good 51 million representing 26% in constant currency gross.
Despite some of the or do good at 19 reactions in a buck as opposed to global been David can pots in March.
You want to came in $9 million higher than our initial guidance underscores the value of our divorce and higher what is your but Florida and our ability to continue providing relevant in mission critical services to all clients.
You want marked also you Bob so to seventh consecutive quarter of 20% plus a gun your gross.
The rate or were those who plan to return to post crisis.
Starting from the end of Q1.
And sort of the current quarter they fit those I don't know watteau. So no customers has been significant and a wide range. It isn't wasn't a sort of all but four to create an experienced some form of revenue impact.
And some industry is experiencing never before seen disruption in the end markets.
Customers to know traveling consumer protocols have taken about I too serious steps to protect their people into sort of continuing.
Liquidity I invite you to chills they'd businesses.
And we believe the team may see several there so.
Impart because the crisis continue to unfold I propose although market segments as well.
It is important to note that across all part of Florida.
Even while discussions have taken place it both ways to manage costs during the crisis. When your customers still have continued to move forward with problems or in some cases.
We have chosen to accelerate the pace of their digital transformation in order to support radically changed demands.
Policy engaged and serves a climbs.
We have supported some of those changes in their video very short period of time for mutual shutting down well brick and mortar operations for a major retailer and the move to pure play one like <unk> does it might have scaled infrastructure in the month needed to support the mutual entertainment.
It's pretty major gave in blood flow.
Throws it by several months yeah. So too does that play some scale or is a pandemic is taking the problem into new territory.
Both from the challenges.
Or 50, and all the way of thinking in doing things.
To really keep <unk>, you know fittings region from holiday you imagine your digital platforms to what it means to be cloud for.
To date, our success and whether you want isn't disruption has been due to our ability to leverage our pro that continued included pitch and expertise and to push ourselves to move and adopt even faster.
Internally.
This means and even more serious booth to breakdown Silas towards increased investments into knowledge management collaboration and what are the T.V. two platforms into establishing new foster processes, which enable our teams to address much more seamless then productively the challenges we had station.
The important boding, well I want to know and that's what it can security teams restaurant margin was each has been stress tested way out 100 delivery centers was it but yes.
The self and continue to develop new ways of working and helping our customers to respond to the crisis now.
Well, there's demands for continued operations and fostering what reliable service offerings bring us back to our top priority is gonna be position to be ready was a post crisis time.
And that is it to retain fine attract and develop all the top talent.
By continuing to invest in our delivery calibration of nuclear some community platform and by focusing on our people will feed into the critical aspect of current and future demands, but what is going to be and even more digital world.
No I want to say if you watch involves the outlook for industry segment and 40 palm specifically.
As most of you know the digital service segment in which we had great well generally seen as a high growth market.
And it is.
Unfortunately in the current environment. It is nearly impossible to contemplate doing business as usual dance.
And Brian Peter's data assumptions to establish near tear models.
That is why today, we are learning on the very different <unk> orphan close to real time integrators and signals.
First review and that's our daily standout the changes.
The acute in on the ground because all the specific market and deliver the geographies indices and individual accounts.
We also look into the market trends in general compared to those disclosures industry in financial markets and all these projections.
For example have you looked into financial mother didn't across a number of publicly traded companies and so just projection, but I'll just to driving it ranges from windows them just for the current Q2 of 2020 could.
Well they vary significantly sometimes up to 20%.
That does just another comfortably <unk> unpredictable just situations.
Just so before these better we also didn't seem to be would be able to guide you was was the second quarter.
But today, the I'm more comfortable and ready to provide the range for Q2 results and Jason to go says those.
Details shortly.
But the same time, there's still saying it is extremely challenging to say is acceptable level of confidence what would be separated in Q3.
As we are seeing high volatility in the Cline potential the fit in.
At this point to the open for all types of scenarios, including and as a sequential revenue decline.
This is why we decided not to provide a guide for the whole of 2020 at that time.
Oh it keep product is right now are to continue to protect our people and our financial position as well as to make.
Continuous investment into our core capabilities and blood for in order to be better prepared it puts a comeback.
And while this auctions, maybe if temporary in parts and our profitability. We are absolutely confident of our ability to review, our leading position in the third and the wrong.
Well, you know more than ever.
The fundamental creates with digital product than platform engineering services combined is our ability to breed integrated consulting ones. The frontend is very much intact.
And I'll proof the ability to adopt our sales and our company to a completely new operating environment and says you're sort of Peter tough time has given us the confidence to say that they probably will come out or is this challenge in time and well more well you and it is all driven company and the continued growth.
In past, one dynamic environment, because our sound with expected weighing up 20% plus right.
With that let me answer the cool to Jason.
Thank you arc and good morning, everyone.
Start with our first quarter financial highlights, although with industry vertical performance and then touch on a few operational metrics ending with thoughts for Q2.
Revenue for Q1 came in at 651.4 million a year over year growth, 24.9% on a reported basis or 26% growth in constant currency terms, reflecting a negative foreign exchange impact of 1.1%.
Q1 revenue was higher than expected due to greater than planned level of availability across our client team.
Along with stronger performance from a few of our acquired companies.
During the quarter, we delivered consistent growth across the majority the industry verticals.
Business information media, which in Q1 became our largest industry vertical posted growth of 46%.
Life Science in health care grew 26.4% in the quarter, reflecting a tougher year over year comparison, given the exceptionally strong performance in Q1 2019.
Hi Tech Rue, 21.9% in the quarter financial services delivered 16.2% growth.
I won't consumer grew 14.6% and our emerging vertical delivered 30.3% growth driven primarily by clients in telecommunications and energy.
From a geographic perspective, North America, our largest region, representing 59.9% ever Q1 revenues grew 23.1% year over year, Europe, representing 34.2% ever Q1 revenues grew 28.6% you every year or 30% in constant currency.
See I ask representing 3.8% of our Q1 revenues grew 36.8% year over year in 45.8% in constant currency.
And finally, APAC grew 4.7% and now represents a 2.1% of our revenues.
In the first quarter growth in our top 20 clients was 30.5% growth outside our top 20 clients was 21% compared to the same quarter last year.
Moving down the income statement, our GAAP gross margin for the quarter was 34.9% compared to 33.9% in Q1 of last year.
Non-GAAP gross margin for the quarter was 35.5% compared to 36.3% for the same quarter last year.
GAAP best she and I was 19.2% of revenue compared to 19.5% in Q1 of last year and non-GAAP EPS, you know came in at 17.6% or ladies and gentlemen, sorry, sorry, <unk>. Please standby we're experiencing technical difficulties.
Hi, Rob This is David Stroppy, we have had some technical problems with our webcast or we are going to go lives reading.
Our script.
Can you just can you just confirm that.
Ladies and gentlemen, thank you for standing by we've experienced some technical difficulties David. Please proceed.
[noise]. Thank you operator, and good morning, everyone. By now you should have received a copy of the earnings release for the company's first quarter 2020 results. If you have not copies are available on E com dot com in the Investor section.
With me on today's call or Kati, 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 describing the company's earnings release and FCC filings.
Additionally, all references to reported results that are non-GAAP measures.
I've been reconciled to GAAP and are available at our quarterly earnings materials located in the Investor section of our website.
With that said I'll now turn the call over to our.
Thank you David and good morning, everyone.
I do close it's all of you staying safe and filtered unions in global crisis and want to thank you for joining us.
Well it has been on the three miles since you said it though 2018 results and provide to tell US how is expected by now 20% plus annualized growth outlook, but when it warning.
The question 18 pandemic, because my to clear the terrorists soon to be sold renewals. Then just a few weeks later started to be later in my challenging on a daily basis.
In real terms the impact we are seeing well that was the world is immediate serious and localized for each and everyone else.
And for all customers.
And more importantly, we believe that we're far from there and those this event.
And then Fuck is a view of money we are somewhere near the end Oh suggests the first peto disruption.
[laughter] so.
Well they understand the significant uncertainty is is that for some time, we wanted to give you a perspective for probably been with adapting to this new d. audits and the way they simply might be going anywhere near future.
Since January we've been respond into liquid nitrogen crisis, and it's only imports in though a bucket huge up well then if it you're able to take advantage of a good amount of work done what was the past years to put in place realistic auctions for business continue to Israel is over.
Oh in the west ones in internal blood flow speech enabled us to support a truly a drought global delivery environments, including readiness for remote workplaces and enhanced productivity measurements.
Because of those efforts and combine to be though all your learnings from a buck experience in January and February already in why are you able to move nearly all of the farm.
Oh productive and said what from coal environment practically in a window of days.
This transition you presented the pretty significantly.
Well, it's not just by many of our clients with speed and reliability well share is continuing.
[noise]. So is this moment.
I wanted to share my deep appreciation to the south of apartments or doing everything possible to support each other to our customers well trusting us with the most critical issues and total convenient is around the world.
These U.S. important constantly was different means for Fighting's update me on the front lives.
Sales in the World vehicle, probably people continue to be a top priority to for all of our students. This time.
The second one let me switch to our Q1 performance and then cover some of the changes we are making in order to support customers as anybody has a challenging environment.
And and that's how you see the forces shaping the next few quarters of then well be photo onions, a cool over to Jason.
First of all I'm pleased to fair Redelivery stronger than expected first quarter results with revenue of 2000 $51 million, we present in 26% in constant currency gross.
Despite some of the or to quit 18 reactions.
In a buck.
And the fourth global pandemic involved in March Q1 came in 9 million higher than our initial guidance underscoring the value of our divorce and high quality by Twitter and our ability to continue providing relevant in the mission critical shared with us to all class.
No one must also.
You Palm city, so as consecutive quarter of 20 plus percent organic growth rate of gross who plan to return to post crisis.
That's it from the end of Q1 answer all of their car important they fit of the cut <unk> I don't have artisanal customers has been significant and wide ranging isn't wasn't sort of our portfolio having experience.
Some form of revenue bucket and suddenly in this industry. This experience.
Experience you never before seen disruption in the AD blocking.
Customers, you know thrilled about humor here, because they've taken a variety of serious steps to put out there today people and to ensure a contingent liquidity by village of they'd businesses.
We believe that you might see several ways opened but there's a crisis continues to default across other market segments as well.
It is important to note that across our portfolio you have all discussions are taken place it both ways to manage costs during the crisis when your customers still have continued.
To move forward with their programs.
Well in some cases have chosen to accelerate the pace of their digital transformations in order to support radically change the wins for how they engage and services at cost.
We have supported some of the changes in a very very short period of time from a year chill $2nd of brick and mortar preparations for a major retailer.
As the move to pure play online, causing us to the micro scale to infrastructure on the west needed to support future. David you asked for a major gaming platform.
Throws it by several months, yes, so it sounds as a place on scale of the pandemic a stake in the problem with the new territory was some challenges or 15, Oh, one of the way of thinking and doing things to really key directionless in out working ranging.
Causing <unk>, even with the wage in new digital platform to what it means to be cloud first.
[noise] today to our success in letting him the disruption has been.
Due to our ability to leverage our productivity your interpretation and expertise and to push ourselves to more fun adopt even faster.
[noise] internally this means and even more serious boost to breakdown Silas toward increased investments into knowledge management collaborations lucrative platform.
And to establish a new foster processes, which enables our team to address much more seamlessly and productivity the showing gets there. Please.
Supported lower reinvestment in our network and security infrastructure, mitral, which has been stress.
Tested well beyond the floods delivery centers for the past, yes, we have and continue to develop new ways of working and helping our customers to respond to the crisis now.
Although the west for continued integration and fostering what reliable service well, if you bring us back to our top priority as organizations.
To be ready for the post crisis time.
And that is to retain find a truck and develop our top thought it.
By continuing to invest in our delivery collaboration education can meet your platform and by focusing on our people yeah.
During the critical aspect of current and future demand or what is going to be an even more digital.
Now I want to say if you will work both outlook, while industry segment and we found.
Specifically.
As most of you know the digital services segment.
In which we had great well generally seen as a high growth market.
Entities.
Unfortunately in current environment, it's nearly impossible to constantly years business as usual trends and prior periods data assumptions to establish near term models.
This is why today, we have relied on very different an awful close to real time indicators and signals.
Of course review and that's our daily stand up the changes.
Thank you again on the grounds across all the specific markets in delivery, Joe the his indices and individual account.
We're also looking as the market trends in general competitors disclose industry and financial market analyst projections. For example, you look into financial modeling across a number of publicly traded companies and so those are projected saving your ranges from windows them just for the current Q2 of 20 to one you could well.
They vary significantly sometimes up to 20% doesn't just another confirmation of unpredictable as the situation nice.
Just three for the it's where we also didn't since it would be able to guide even for the second quarter, but today, but I'm more comfortable and ready to provide the range for Q2 results.
And Jason will serve as those details shortly.
As the same time, we still saying it is extremely challenging to say.
He is acceptable levels of coffee does what would be separated in Q3.
And we are saying.
Hi, but I'd be receipt in the Cline potential behaviors as this will it well open it for all types of scenarios, including another sequential revenue decline.
This is why we decided not to provide guide was the goal of 2020 as a time.
Oh, the key priorities right now to continue to protect our people and our financial position.
As well as to make continuous investment in our core capabilities and platforms in order to be better prepared for the comp work.
And well this activities.
Well I have a temporary in parts of our topic I'd really say they absolutely confident of our ability to review of our leading position in the turnaround.
You know you know wasn't era, the fundamental case of digital product of platform Engineering services combined who is our ability to bring integrated consultant on the Frontend is very much intact.
And our pruitt proved the ability to adapt ourselves and our company to a completely new operating environment in such a short period of time, because given as the confidence to say that the power will come out of this challenging time and what will you and that is all driven company and continue grow and it was pandemic environment resolved.
Sound with expected when a 20% plus trade.
With that let me hand, the call to Jason.
Thank you arc and good morning, everyone I'll start with our first quarter financial highlights Paul with industry vertical performance and then touched on a few operational metrics ending with thoughts for Q2.
Revenue for Q1 came at 651.4 million a year over year growth of 24.9% on reported basis.
26% growth in constant currency terms.
Reflecting a negative foreign exchange impact of 1.1%.
Q1 revenue was higher than expected due to a greater than planned levels availability across our client teams along with stronger performance from a few of our acquired companies.
During the quarter, we delivered consistent growth across the majority of the industry industry verticals business information and media, which in Q1 became our largest industry vertical posted growth of 46%.
Life Sciences in health care grew 26.4% in the quarter, reflecting a tougher year over year comparison, given the excess exceptionally strong performance in Q1 2019.
So far and high Tech Rue, 21.9% in the quarter.
Natural services delivered 16.2% growth.
Traveling consumer grew 14.6%.
And our emerging vertical delivered 30.3% growth driven primarily by clients and telecommunications in energy.
From a geographic perspective, North America, our largest region, representing 59.9% never Q1 revenues grew 23.1% year over year.
Europe, representing 34.2% ever Q1 revenues grew 28.6% year over year or 30% in constant currency.
See I asked representing 3.8% ever Q1 revenues grew 36.8% year over year and 45.8% in constant currency.
Finally, APAC grew 4.7% and now represents 2.1% of our revenues.
In the first quarter growth in our top 20 clients was 30.5% and growth outside our top 20 clients was 21% compared with the same quarter last year.
Now moving down the income statement.
Our GAAP gross margin for the quarter was 34.9% compared to 33.9% in Q1 of last year.
Non-GAAP gross margin for the quarter was 35.5% compared to 36.3% for the same quarter last year.
GAAP EPS DNA was 19.2% of revenue compared to 19.5% in Q1 of last year and non cap SG nine came in at 17.6% of revenue compared to 17.7% in the same period last year.
GAAP income from operations was 87.5 million a 13.4% of revenue in the quarter compared to 64.7 million or 12.4% of revenue in Q1 of last year.
Our GAAP effective tax rate for the quarter came in at 11.3%, which includes the lower than expected level of excess tax benefits related to stock based compensation.
Our non-GAAP effective tax rate, which excludes excess tax benefits was 22.8% to.
Diluted earnings per share on a GAAP basis was the dollar 47, non-GAAP EPS was the dollar 43, reflecting a 14.4% increase over the same quarter in 2019.
In Q1, there were approximately 58.1 million diluted shares outstanding.
Turning to our cash flow on balance sheet cash flow from operations for Q1 was 63.3 million compared to a negative point 2 million in the same quarter for 2019 free cash flow was 34.2 million compared to negative 13.69 in the same quarter last year.
Resulting in a 41.2% conversion of adjusted net income.
As a reminder, our cash flow in Q1 is impacted by payments related to our annual variable compensation programs, a portion of which was paid in Q2.
M. ended the quarter with over 1 billion in cash available borrowing capacity made about 960 million in cash and cash equivalents and 270 million of available credit.
Yeah. So it was 76 days compared to 72 days at the end of Q4, 2019, and 78 days in the same quarter last year.
Moving onto a few operational metrics, we ended the quarter with more than 33100 engineers designers and consultants.
An 18.7% increase year over year and the net addition of 550 production professionals.
Our total head count for Q1 was more than 37 300 employees.
Utilization was 79.5% compared to 79.9% in the same quarter last year and 77.77, 0.9% in Q4 2019.
Thank you will not be conducting a question and answer session. If you like to ask a question today. Please for a star one from your telephone keypad and a confirmation total indicate your line isn't the question cue.
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One minute. Please why we pull for questions.
Mm.
Thank you in our first question is coming from the line of Ashwin sure if a car what city group at least it's easy questions.
Oh, Thank you Hi, Eric Hi, Jason are good to hear your wife this.
I guess my.
Question is with regards to.
Expense flexibility.
Kind of walk through.
The the component.
I do you mentioned.
You know some control over discretionary expensive you can kinda quantify.
How we should think about <unk> metrics, such as utilization and my.
My my trend and also not just the flexibility you have but also your willingness to use it worse, because you know keep focusing on growth.
Yeah.
Yeah, So I mean, maybe I'll start with.
High level point, you know or focus really is on controlling costs, including labor costs, while minimizing the impact on the employee base.
We we do want to make certain that we've got sufficient sort of capacity and capabilities to respond robustly to what we expect to be an improved demand environment in the future. So if I were to provide a little bit more descriptive color.
<unk> you one we put significant cost controls in place related to discretionary spending <unk>, including hiring.
As we saw slow down in demand and that became more apparent we dramatically reduced production hiring.
You know as well, we also be and evaluate whether or not we had the right stuff in the right roles and began taking some performance based actions.
You know and then clearly relocation travel events hiring related expenses or or you know well controlled just you know as a result of of everything going on with the code in 19 in the related restrictions and so as we move forward you know we're gonna make certain that we we have is minimal impact on on employees as as possible.
But the same time being kinda mindful of overall profitability I think that's implicit in that 14% to 16% profitability range that we got into for Q. too.
Got it says that <unk>, yeah, now that they that answers. It is especially question with regards to utilization plans in there, but let me look my second question in as well with regards to <unk> you have obviously at our cash on the band sheet.
There's there's a general expectation that and number of assets that might have been attacked two previously, but you know from a financial standpoint, maybe not can you give it can make the d. and things like that how do you think of family name. The current situation so that Andy.
Utilization.
<unk>.
Oh.
Clearly trying to find.
And you bright spots and they disappear.
Included multiple or <unk>, including including Mondays.
But it's the same time, it's probably too but.
Do you do to.
Kind of gods annual follow up to it used to be looking as this but probably a good it's to order to see college rock to the sauce was going to be and also as you understand because besides the price attractiveness is for some of them as a really change in business and I mean, you two Lloyd was create their home watching part was.
Call price.
Oh good his point was so but we we definitely shows.
Okay.
Thank you.
The next question comes from the line of Ramsey, Alan Saul with Barclays. Please just use your questions.
Mmm Pike morning, Guy stay non for Randy you know I just wanted to to ask a little bit more about the self productivity and I know, it's probably really difficult to kind of get or read on this but just you know maybe first from a <unk> a logistical perspective now that everything is virtual maybe some details on.
You know the sale productivity there and then on the demand side as well you know what's your confidence level and you know your ability to rebuild that pipeline once and to be the existing engagements that you figure you know seeing now start to end.
So I'm sorry, I'm used to go Oh parts of the question. So you asking about doing well.
Supply you.
<unk> have to yeah, no through the crisis in kind of the process when you're all remote so.
I assume crow.
Comfortability remote they produce when I think we are pretty comfortable I assume people in general.
<unk> is much more just distribute this company by design.
<unk> delivery synthesize. So this is very different from when you also company. So distribution wasn't like in the real problem. When we were moving to work from home would it quickly and I think.
But it's it it was pretty to fictive and as you know also from well other sources.
People working is this is what I meant unexpectedly productively at least those with her put in your weather, though engagement music lines, even in consultant engagement, which no starting to.
<unk> completely completely remotes, so I assume because that's not.
<unk>.
Right now yeah.
Thing that Archey and you may Miss the first portion of arc script, which were thrilled trying to figure out how to how to resolve but you know we've talked about the fact that we you know been able to even do kind of business development remotely.
You've got a you know daily kind of war rooms, with we for each of our business units, which you're talking about you know not only some of the downsides demands, but also the upside and potential that that are made available by this kind of unique environment.
And do we continue to see opportunities, including kind of new engagements in some cases actually potentially new engagements with new customers. During this environment.
You know without sat obviously, there's there's you know you know clearly challenges in the environment.
But kinda longer term, we feel very good about <unk> the expectations for business and again, an arc script. He talks about the fact that you know we look forward and expect to return to the greater than 20 per cent growth over time once we come out of this this kind of crisis.
Yeah, I have here <unk> work from home with water with working much buttons at school today.
So because like.
And.
<unk>, so I have to.
To say is is to get all sorts of well so someone convenience as soon as like you did in here.
Portion of my.
My introduction to to though.
<unk>.
Okay, we will try to address it sort of your neck, so do about it.
Great Yeah, no I apologize if I Miss anything I just had one follow up which is on pricing you know, it's historically been an advantage for 80 pounds, but you know we've seen some of your peers talk about.
You know deterioration in the pricing environment. You know are you seeing any any changes in your ability to command basic premium prices that you had in the past in order to secure engagements.
Yeah, I I would say that you know I I don't think that there's let's say a difference in terms of our ability to command a premium but you know we've got clients in for instance to travel space you were saying revenue declines of 70 plus percent and then we also have retailers you've got to slow start in China now have a high percentage.
With their stores closed so the pricing environment certainly isn't the same today as it was at the end of the queue for call, where you know why would usually talk about you know kind of you know regular price increasing as a result of Ah you know scarcity in the market.
Well you know, we're responding to our customers challenges okay in doing so in a way that that won't have a long term impact on our profitability.
Oh, I assume <unk> like the situation individual with recalled to <unk>, everybody calls business north as usual this creates completely different for you to.
<unk> stronger than world of independent too from pricing for new programs because.
<unk> trying to prepares himself was going to be after the crisis.
Understands this period of time could be just.
<unk> over the talent an opportunity to build something whereas dress for a couple of course.
So.
Some industries features on huge pressure. So it was over I really shows the different situation is pretty to growth right now.
So, but that's really helpful, but well <unk> <unk> <unk> <unk>.
Confident that it would come back we don't know when 123 quarters buzzer went would be probably wouldn't <unk> was incident of last year.
Because of every single scope and again, it's pretty two of US right now.
We try to prepare yourself executive will just come back and to be pretty shows uprising not going to be an issue afterwards.
Yeah, that's great. Thanks for the color arc in injuries and thanks.
Absolutely.
Our next question comes from the line of Jason Kupferberg with Bank of America pleased to see if your questions.
Hi, This is Kathy on for Jason first just wanted to clarify upon Nike made and you're prepared that Mark you mentioned that it could potentially coral recorder decline in three q.
You can't even more about eight k. and yet scenario Ron's I get more of a worst case scenario and have you seen any stabilisation in any of the market yet. Thank you.
I assume give it would be able to estimated better we will share.
I assume as soon as we know we will.
No, but that's exactly what we we we see all scenarios right now possible yeah. So to be clear. We just did want to put that out there as a possible scenario, we see a little bit of stability is is we run our daily calls, but at the same time. We you know we realized that you know where were you know not.
Yeah, and we just want to acknowledge that as a possible scenario.
That Ain't got it and just.
Just wanted to ask a little bit more about the vertical are there any you know obviously, you know travel and leisure detail. Obviously things are more pressure, but are you kind of and the financial services load a bit and one q. are you expecting similar trends going forward and have you seen any like with <unk>. So far at this point and now we're in.
Okay. Thank you.
Yeah, Yeah, I'd say for instance, traveling hospitality you can imagine is is going to be a challenge space and for US that includes both retailers in consumer goods companies all that would be impacted.
Are emerging includes energy and so clearly that'll have some impact we continued to see very strong demand in in a business information and media as you would expect some very strong <unk>. Good strong demand and Q2 in financial services is probably a little bit mix still seeing some good growth there we do.
Have another one of the European banks, which is showing some declines and we expect to see some declines in q. too.
Right. That's helpful. Thank you.
Sure.
Oh next question comes from the line of Maggie Nolan with William There. Please just use the questions.
I think you you mentioned that more than one third of the portfolio hadn't experience. Some form of revenue impacts can you give a little more granularity on what you're seeing.
Is it <unk>.
Pushed out a contract outright cancellation.
You know like extended timeline sport contracts or or changes to payment terms anything that would be helpful.
It wouldn't probably be kind of e., all the above and so what you see in some cases is is companies that need to sorta, just tighten their belt a little bit in some cases, you see companies that are suspending certain programs in some cases, you see companies that are actually accelerating programs are starting to program. So it's not all negative.
You know some companies and clients are somewhat more concerned about their cash flow centre asking for what I would call sort of you know relatively modesty extension of payment terms and so it kind of varies and again, it's kind of embedded in our expectations for Q2 in in in the reference to the you know what potential yeah.
Sequential decline in Q3.
And again and what we're trying to do is make certain that we respond our customers need to do so in a way that doesn't sort of permanently impact the business or the business model over the longer term.
Thank you and then in terms of you know the gardens that you were able to put together for you too.
What types of assumptions have you made in that guidance in terms of thought the level of utilization that we may see and you expect any changes to productivity you know either in Q2 are kind of asked me go forward as you continue to adapt to this environment.
Yeah, maybe I'll just have to answer the Super Tactical question around utilization and then all that or talk about productivity in our workforce is performing in this new environment. You know from utilization standpoint, this is going to be a quarter.
There you know the utilization is going to be very much in form by the revenue number and so as we tried to communicate is that we want to be you know highly productive of the of the workforce thing. It's the right thing to do and longer term. It's it's important for us to maintain our capabilities for for what we expect to be very robust renewed demand in the future and so you know if if we ever.
The low end of the range.
You know, we'll have lower utilization as you can imagine and if we end up the higher in the range. The that utilization will be pretty solid arc, you want to talk about and and what was going to look to to a site.
So we have three two like in the in this environment.
<unk> fall.
A little bit more than months because like so it's the end of March we moved.
Practically everybody right now, it's 98% for for people working from cool and all over all of this was done just in several in in the several days so first of all infrastructure and level of distribution.
Traditionally those work.
<unk>, but.
The level of distribution tradition that it was <unk> multiple delivery centers.
It was historically be able to.
Be able to reach out to maximum died in we can.
So from this point to you and let's move to call me. It was kind of the next extension of the traditional model <unk>.
And we didn't.
On top of this you understand what you're talking about blood for when nobody smells. There are a lot of things, which we try to try to the plus how to.
Pleasure productivity and call to make sure as it is is distribute it as what I meant it works. So that's why I assume we didn't see.
At least so far and he's imports from day to day I.P. racial.
What was it too soon a lot of gone pretty man from all clients about how speed.
And how productive in this is what it was specifically in comparison to warehouses.
So that's why <unk>, we don't see any.
Significant.
Changes.
Alright, thank you.
Sure.
The next questions from the line of Brian Bergen with Carolyn. Please just use your questions.
Hi, Good morning. Thank you all the guys are well wanted to ask on on the top customers can you talk about your views in your your interaction specific to your top 10, you had a very strong one q. what those could give us a sense of what type of mixed those top 10, maybe and more pressured industry.
[laughter] So top 10 is.
Me too broad group.
We have some thrill companies there we go financial companies, who have to hold you companies and then it'll actually out up to do pretty well, but <unk> exceptions.
Yeah, So increasingly we're seeing more business information and media customers in the top 10 as well.
Yeah.
Okay, and then just we think longer term structural changes that you think stem from the pandemic here for the service industry any insight you can share of what you're thinking about as far as changes to your potential <unk>.
You mean the call we provide is hilarious.
Right.
Yeah, I assume that a multiple assumptions how are pretty soon going to change or portion of this call my she's work from home or.
<unk>.
Well over distribution and delivery model would be accepted well, we actually we're doing some looks good it was before and try to ask lines gives it would be open for this so <unk> preteen negative reaction as their noticing change.
It was this who out so I think the level of acceptance or distribution a different level of.
Except w.
Except themselves.
Much more distributed Thailand.
And how to orchestrate a virgin there's this type of work will be very different to after after the one oh again, if somebody different already so I think it's it would have a box to call you working as a future.
Thank you.
The next question comes from the line of certain surrender signed with Jefferies pleased to see what's your question.
Good morning, gentlemen, <unk>.
One question I'd like to start off with is just the the difference and visibility between between two three obviously you guys were comfortable enough to provide guidance for two to can you talk about.
The difference in your level of confidence how wide I guess a range of outcomes <unk> does there have to be for you to not provide guidance, which you three.
Yeah I'm in actually just talk about some of the process is that we use it. So that you know we've always had a very.
Very robust to kind of process around our pipeline and we have a system that we use in another set of daily updates and so we we haven't updated sort of daily pipeline.
In addition, we have yeah, we've instituted processes. During this this more variable time, where we have sort of a daily series as sort of business unit stand up meetings, where we talk about you know potential ramped downs potential opportunities other sort of sharing surrounding areas of opportunity in the business.
And so we've got a very sort a regular updating of of activity around around clients and then we're we're staying as close as clients as possible and connecting with them on a very regular or you know, maybe even daily basis to to get input cystic kind of what their plans are and and importantly, where we can help them and so that's the reason.
We can give you a very good sense for kind of cute too because we all running of it and even tighter process than usual and we've got very good processes in place around demand, but the challenges you just don't know what's gonna happen I would see more kind of macroeconomically.
What happens kind of I think as as economies in in cities and states in countries try to reopen and so I think that's why we've been more careful about any guidance around Q3.
That's helpful.
And then wonder follow up related to if you can talk a little bit about the mechanics of the the pipe cleaner the visibility in the sense that how much of and advance notice where you're getting if projects get put on hold from your clients and then maybe related to.
The delta in the grocery between obviously, what it was you know really good normalize number versus where you are now is that primarily just.
The new clients not coming on board at this point or or is it just exist inclined to project on hold or can you talk a little bit about the relative color.
Oh, let me, let me bring illegal color like inlets.
Let's try to see him cool really fair, but let's try to think what happened is doing too much well second part of so much when suddenly.
<unk> stuff into issue very special conditions, how to a great. If you think about it like it's the beginning an appropriate we didn't see if we could even guide because nobody knew what's happening climbs didn't know housing who who the canopy raid zero production lines kind of stopping.
They didn't know what's happening to visit a class.
Like for example is the beginning of May appeal, there. So that it would be much wars entities that scout dynamically able to some <unk> because client starting to communicate very different things then.
One week later, they're starting to change their views then another exists that into <unk>. That's why when you asking US questions. You can say that everything was on the table and everyone was <unk> why we could guide is in.
Landfill, if we could too because because our daily stand up you so kind of regions real time signals from clients from the market. We saw the core for this change become much more predictable unstable. That's why we decided to share a guy that's true.
But is the same time, it's still.
Pretty pretty well it though it's <unk> enough that we don't know what you'll be in custody.
That's exactly what we should.
That's very helpful things. So what do you also understands that if client, saying something today, good, though but it doesn't mean that it would be the same position in two weeks later.
I understood I think that that's the key point from my perspective, it's just the the uncertainty you have to quite level.
Given it within such a short period of time that things can change. Thank you.
Thank you.
The next question comes from the line of Kyle Peterson was need them. Please proceed with your question.
Hey morning, guys think sure kicking the question trying to get a little more insane try to push up the detail in that the two q. outlook I was it said deceleration growth.
Is this due to that kind of volume sounds from project work an existing clients is it yeah less fewer expectations for new logo, when it's or pushed out price increases or is it a little bit of all of that just want to get a sense of the puts and takes driving the the deceleration it's extracted next quarter.
Yeah, I mean, it wouldn't you know in encompass arrange for that right certainly you've got.
Customers as I <unk>.
Earlier in the traveling hospitality space you are seeing you know 70, 90% reduction in their revenues.
And you know those customers are clearly having to make the types of decisions that you would make if you saw that type of reduction or revenues and so you've got you know and you know some slow you know the ramp towns are sort of need to sorta reduce the deuce expense there.
Yeah, we obviously wouldn't have the same sort of pricing ability that we would happen in other quarters, but at the same time. We also we're seeing some some demand increases and in some cases, we're seeing clients come to US who were maybe having trouble with other vendors and looking for us to sort of support them with both are existing programs and with new programs.
[noise], Yeah, just to give you like another color like how difficult to answer to this quiz shows because there is no simple on sorta to express like in one minute, but let's say.
Consumer boots or retailers, which.
One of the industry, which is.
Damaged, mostly because all stores closed and the first reaction for them to save money.
They do as opposed to actually the second three actions, we need to increase equipment, just sort of you actually know equipments already increase our systems were designed for this volume can you help so.
<unk>. So that's why is it is an opportunity to from business, but standpoint, because they're most damaging industrious actually to morrow, maybe it'll be the most demanding a industry is because they will have to prepare also themself as that's kept putting in as we speak.
But.
Against they need to maybe get a lot right now they're profitability you to do like I do this for example state deserve profitability drove 95%.
Okay. That's that's good color and then I guess just a quick fault follow up you guys noticed there's a few areas you mentioned in that are actually seeing up kicks in demand and potential for you know and new logo skipping added unless environment. She wants to provide.
Little more Blair, whether it's is that concentrated in specific verticals or specific areas of expertise and delivery that you guys have just <unk> any more detail late provide on the the stronger and didn't some pockets would be really helpful.
Probably is easy to see these few where it's a it's a health care a life size and <unk> very understanding.
Right now so it's the same time it's.
<unk> across.
He went inside of the industry, depending on the company of each soon can a little bit.
You won't get their movies versus shorter and I'd be richer for them to enter birthright, though we say in like some demand grabbing from there.
Exactly as I mentioned before industry speech is damaged, but z. understands and in two or three or four quarters. They might have very interesting.
Went that she was they start to end where snow.
So it's more like.
In some cases company by company.
While clearly traveling 'cause spitale to add to detail of depression.
And <unk>, if you really as well because you understand what's happening right now too.
That's it's helpful color <unk>.
Thank you.
<unk> of Edward cases Wells Fargo.
Use your questions.
Hi, Good morning, I was wondering if you could talk about any issues with clients around compliance and security challenges with your workforce now remote that's impacted or any of your demand.
As I mentioned before we were preparing for this for some time when we were.
Around your special scenarios for business continue to for a long time.
Because that was a key area for us.
So far we didn't have.
Any issues, we actually have against some benefits because.
Seems like all clients soon considered to be doing but some opportunities triggered by that and buy some problems across different.
I was events.
But it's so long as a kid is I don't think anybody protective here fully.
And the other question is you have a sort of mmm a a large number of clients beyond the top 20 here is there a is they're sort of a cleaning of the clients. I mean are you firing any clients or any dropping off but there are any sort of credit issues particular.
And the tale of clients. Thanks.
Yeah, you know I would say not from a a firing standpoint or anything and from from credit standpoint, we're trying to be very mindful of sorta credit risk in this environment and and what I would say if you're referring to the this the growth rate in the other than top 20 is that you know we've had very strong growth you know, particularly in.
Customers in the B.I.M. space, which have increasingly moved up into the top 20 and continue to grow very rapidly you know I would say that you know a lot of our let's say other than top 20 are very large global companies that do have sort of large potential wallets well. We do also have a large number of small and midsize companies. It in.
In the other than top 20, there's a fair concentration of of traveling hospitality companies in in that space and we probably have seen some slowdown in those customers is they obviously sort of recognize that they were seeing slowdown in in their business and so I don't think it's it's a trend I, but I think he it you know you did see a little bit slow down in the any other.
Other than top 20, and in Q1 in probably somewhat related to the economic circumstances of though the the overall sort of global marketplace.
Great. Thank you.
[noise]. Our next question comes from the line of Vladimir <unk> with V.T.V. Capitol. So she's here questions.
Hello. Thank you for taking my question I would like to ask you about your working <unk>. How do you expect to Indy priming quarters do you see it would be quite <unk>, well <unk> Amen.
Maybe a little bit more colorful requirements you reload.
Your current decent some <unk>, you, losing any clients or or maybe whites diversity, you're getting more clients just small engagement Claire <unk>. Thank you.
Yeah. So it's a good question all just take the more tactical cash question and all that or talk about customers and so from a cast standpoint, you know cash collections were pretty.
So far in Q. to look look very solid, but you know we do expect some slow down and as you stated is that you know we do have some customers that that are looking for a sort of temporary.
Payment term extensions than we do want to be mindful of their business environments and so I do expect the cash collections would slow down somewhat in q. too we were over $900 million in cash in cash equivalents in in Q1, I would expect that we'll see you know one of modest decrease in our cash position by the end Q2 and.
And that probably somewhere in the the high hundreds and so again still very strong cash position, but somewhat lower than in Q1 in part because it though.
Somewhat slower cash collections as you call out and I think our can talk about customers and kind of what we see from you know new customers existing customers gonna.
Huh.
So can you like so do to clarify exactly what you asking about customer slick.
<unk> I <unk>.
From let's say in general Yeah, let's say more than you usually get your regular <unk> or maybe you're getting more <unk> the scroll down the albeit an integral to just be cool like lower and engagement mould engagement at the moment could you need to provide some call. It so it's.
Very difficult to do you realize I don't think you'll lose your clients I think every sales would.
How's that people are asking <unk> start a new project slower some clients.
And the students maybe pipeline pipeline is not too.
It was throwing because it was like one cool to go but in general do these proportionally. It's it's proportionally to kind of it crosses the line if it isn't happening.
And.
Oh, so I assume because I'm sort of in numbers I don't know how to.
How to.
Bring additional colors, and I think that would be different enough <unk> be different in a couple of cool.
Because as as we mentioned well, let's see let's see it grows Klein with is very high right now.
<unk> overreacted <unk> on the active.
Situation. So we will see what would be separate and visit next school, though too.
Okay. Thank you very much.
Sure you're welcome.
The next question is from the line of Michael Yang with just my Hannah pleased to see what's your question.
[noise] Hey, good morning, our company is one I just had a quick question about your business media and information services vertical and I know you guys had said that this is a particularly strong vertical but I had heard from a number of competitors that this was actually under pressure because of.
I'd budget compression. So I was wondering if you could speak about the dynamics there.
Competitions AD budget compression okay.
Yeah, so far it's feels.
More normal so and also CLK in the media. So like it's also p. two different businesses in somebody's back like.
You know cases, the same category glued <unk>.
His right no okay, there's a lot of growth opportunities.
So but.
So far is it's beautiful flaws relatively well, yeah, and still looks good and keep two as well. So I don't think we're seeing quite what was described.
Great. Thanks, so much.
Because in addition to adjust to advertisements all of them considering huge now both opportunities to provide to learn seriousness in new type of services as well.
Oh.
<unk> will soon get involved with like a couple of months ago.
Got it thank you.
Thank you at this time reach into a question answer session I'll turn the call back to our county, Tompkins C.M. President for closing remarks.
Sankay butter butter ago, Saudi for some technical problem as soon as though.
There was a cool seems like you didn't hear part of a message which.
Was deliberate.
So I assume.
David will come into this off to me <unk>.
So, but <unk>, yes, it's <unk>.
Different time. So he went already you know he used to choose from multiple recessions. So.
When we assume can about I'm thinking about this it seems like it was relatively long period of problems when.
I was refresh my memory and looking at is the specifics it's usually was.
<unk> for two quarters of then we were seeing the when coming back it's very difficult to save the same part on a bootstrap on here. It is a different different type of crisis.
But I think it's pretty too well this that this type of crisis actually putting on digital seriousness very very different demand and this is a quarter of our business and.
Well, we do is right now.
I didn't know self will come back that's a goal number one and this is a talent as this is financial stability on the exit it was and I think <unk>, we doing pretty well.
So is this how come.
Yeah. So as art mentioned, we did have some technical challenges and with the the initial replay of our call. The entire replay will be available on her investors section within the next hour I want to thank you for your patients in your time today.
Thank you. Thank you.
Thank you.
Today's conference you mean, just connect your lights. This time, thank you for your participation.