Q3 2020 Epam Systems Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the ATM systems third quarter 2020 earnings Conference call.
At this time, all because families aren't always multi mode. After the speakers presentation. There will be a question answer session to ask a question. During the session you will need to press star one of your telephone. Please be advised that todays conference is being recorded if your corn further assistance. Please press star Zero I would now like in the cops over to your speaker today, Dave It's Robbie head of Investor Relations.
Thank you. Please go ahead Sir.
Thank you operator, good morning, everyone. By now you should have received a copy of the earnings release for the Companys third quarter fiscal 2020 results. If you have not a copy is available in the investors section.
Dot com.
With me on today's call are Kati, Dobkin, CEO, and President and Jason Peterson Chief Financial Officer.
Before we begin I would like to remind you that some of the comments made on today's call may contain forward looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and FCC filings a.
Additionally, all references to reported results that are non-GAAP measures have been reconciled to GAAP.
At our available in our quarterly earnings materials located in the Investor section of our website.
But that said I'll now turn the call over to arc.
Thank you David Good morning, everyone and thank you for joining us today.
For Q3, we delivered solid results with revenue to fund the future to either.
I know folks you went to 11% year over year gross has reported to us.
Non-GAAP earnings per share of $1.65 cents, you presents almost 19% growth over the same quarter in 2018.
Before providing whats PC because I don't know excuse me can fall I would love to do to to November.
One in 18, but did you say doing with today in Boston and Cerritos produced an all girls, we pumped when it when you want.
It seems like it was when you lessons about what they thought it was two months it well they started with them was to continue to transfer if you fall into an adaptive enterprise's ability to adapt to pupils loved for some processes into those Italy is bound to change the hilton being towards the digital platforms that connect.
Our people to work seamlessly and enable us to to be if you send to the church. If you know what to do.
[noise] extends our leadership across integrated consulting.
Engine using open up opportunities for transformation for everybody anywhere so net net the delivery of the personal social and innovation programs.
Well, obviously, we started as a Jordan of course, but the possibility long before I'll, let me jump in Boston, but can machines. This year you follow those hills.
Put simply in completely new cities.
Which forced forced us to forget about all the aspirational and then very quickly to apply well it could do address diligent origin and significant changes and the reality is in the business for us and for class.
Lets it comes to asses later become even more challenging is increasing social political turbulence. It grows at multiple yogurt issues, we had good idea.
During that time, Joe surprised to be recognized.
The to live with it but as an industry to switch and at the same time video light that millennials are seem to fit well to do before the global crisis still needed to be done what's a much faster pace.
So is that your mother, let me come back to Oculus easy adult and highlight several things.
At this point, we can say that do it all demand falls here, who sits in Q3 is more in line with Q1 of this year Oh loss pick was good.
Well, just Russia was reading your because these are really change.
Suddenly industries and specific companies are very much damage from the west and boy. It most likely will continue to be under pressure for relatively long time in the future.
So Mike no to us.
On another sand I can just do some companies how much you waited to significantly accelerate the on drive to become a doctor for enterprises itself and to be glad to be put into the next unexpected change what's really twos.
He says I stressed strongly enough within our current client portfolio and the gross new clients, who started to work is as you do the last several months and most is very much well just Mike.
Okay.
So in the results, we continue to invest strategically in our coupon or would it just you said it in November.
Hi, Tim.
Which include integrated consulting coupon continuum detection.
Cloud enabled business transformation efforts.
Data and Dev test sick looks good possibilities.
The other was strengthened our traditional engineering design engineers.
And all that while he's thinking as a practical ideally to more flexible it much more distributed ways to do it with more traditional telcos, if you show FFO work and Todd.
Empowered by Oh digital tied into the acute to Norwegian Integrational plugs loans, which we also extended into direct to if you can talk lives.
Well, what to cool Inclusively, Oh, well anyway direction.
Additionally, there is a question that brought the difference you fight and more dilutive location strategy across the globe to make sure that if if when you quoted your gross house for the future.
We believe this investment along as we would all expanded and new programs, we will continue to positively differentiate as far as.
In continue to evolve in the competitive environment in Asia, not only computers global technology services companies and like global system integrators, but also because we didnt want Brown consultants.
Our focus on becoming a the WP organization because made critical requirement for us.
To review the majority will follow engagements and identify ways in which we can become much more customer set.
We believe that our efforts to zero in on our customer will have created some new opportunities to expand on sort of digital engagement model.
And to help our customers too. So there is a digital programs or in some cases.
Option for new models are working and you might also from good.
A couple of examples to illustrate.
One of our largest privately held family was spirits company in the World you pump helped transform their digital marketing platform allows them the ability to expand their digital footprint and deliver it in a way to connect it experiences to consumers, while keeping cost under control is more than 250 websites in 25 crowded web.
Domains, we improved brand consistency and perception, well accelerating time to market and delivering significant liquidation costs here.
And we really could not have does is owed to clear collaboration model around the customer.
Especially given the massive shift toward from call well still is expected to it'll moderate growth in this segment.
And that was an interesting example is the work is started just several months ago for global leader of Health information technology services devices and software.
Whose products are used at tens of thousands medical facilities around the world.
The goal was to Radicalising legends. The rules you plan it will come from provide into system of records to support an actual sales outcomes.
However, there are underway and we exercise in our new capabilities and consultant ground domain technology and cloud architecture.
Delivery at scale and product usage, and creating a new template for how you engage these customers from zero to full transformational program at a different speed.
With that I'll expectation for Q4, you could do half a sizable sequential step up in our revenue grows which could be one of our highest during the last several years.
We plan to focus on those and the ability to use this rate of growth as well as doing as a whole was hard work of globalisation demands and supply as well as the merchant way and Oh high levels, well do a little bit of college.
All while keeping an eye on the very dynamic environment, which continues to be impacted daily was a global health crisis, social unrest and economic.
Right.
So they understand too well just wells the second half.
When it when you're shaping up to be better than our initial expectation you are not at all.
Oh those awards at this point and 2021 still difficult to predict.
As we look forward to the continued to navigate the current challenges while protecting our people.
Regarding our financial position and investing in our core capabilities platforms and Oh did you.
Yes.
All that to support our DSIP country music.
We strongly believe our position as the leading provider of digital product and platform Engineering services.
Somebody who's a material consulting experience is a key differentiator yeah confident in our ability to come out well the challenge in time and.
Well the waste as a result, even companies that will continue growing it was pandemic environment at 20 plus percent growth rate.
Yes.
And I think it's the right moment to mention.
Just a few days ago Fortune magazine publishers. They found good fastest growing companies lease for 2020 included two problem in it was a short time and second consecutive this 21st of it over it can and is number one in information technology services, particularly.
Now, let me hand, the call over to Jason.
Thank you Ark and.
Good morning, everyone. We delivered very solid results in Q3 with better than expected revenue growth combined with strong profitability and cash flow generation.
Third quarter revenue came in at 652.2 million year over year increase of 10.9% on a reported basis and 10% in constant currency terms.
Flicking a positive foreign exchange impact of approximately 1%.
Revenue for the quarter was higher than our previously guided range due to solid demand environment supporting the stronger hiring as well as greater than expected availability across our delivery organization, resulting in higher billable utilization.
As Eric mentioned, the broad drivers of activity in our end markets remain unchanged, our customers are modernizing and moving their applications to the cloud advancing their digital transformation agendas and in many cases building the frameworks and tools needed to drive deeper insights from the volume of data they generate allowing for better business decision, making.
Looking at Q3 industry vertical performance.
There's this information and media delivered very strong results, 32.3% growth in the quarter and continues to be our largest industry vertical.
Life Sciences, and healthcare grew 11.1%.
Sovereign high Tech grew 9.7% in the quarter.
Financial services grew 4.9% in Q3 rose in the quarter was impacted in part by an expected ramp down of European banking clients.
Excluding this client growth in financial services was 12.3%.
Traveling consumer declined 2% in the quarter rose in this vertical was impacted by a decline in travel and to a lesser extent retail park.
Partially offset by growth across a number of consumer branded goods customers.
And our emerging vertical delivered 12 point, 12% growth driven by clients in telecommunications automotive and manufacturing offset by a slowdown in the energy sector.
The variability in growth across industry verticals is driven in part by certain of our customers working through and market disruptions related to COVID-19. However.
However, we are encouraged by the early signs of improved demand from many of our customers as they make investments in response to the changing business environment.
From a geographic perspective, North America, our largest region, representing 59.8% of our Q3 revenues grew 8.8% year over year or 8.6% in constant currency.
Europe, representing 32.9% of for Q3 revenues.
13.3% year over year or 8.6% in constant currency.
See I asked representing 4.6% of our Q3 revenues.
13.4% year over year and.
3.9% in constant currency.
Recently, she asked region was driven primarily by clients in financial services in mining.
And finally, APAC grew 27.4% year over year or 25.6% in constant currency terms and now represents 2.7% of our business.
In the third quarter growth in our top 20 clients was 17.8% in growth outside our top 20 clients was 6.2% year over year sequential growth for clients outside of our top 20 was 4.9% substantially higher than see sequential growth achieved by our top 20 clients.
We were pleased to see a higher level of contribution in the quarter coming from new logos and the number of clients outside our top 20.
Moving down the income statement.
First note that we continue to run the business with a cost basis that is lower than our usual levels.
The lower cost basis is driven by operational efficiencies, we have delivered across the business. There are also temporary contributors, including reduced travel relocations and certain administrative expenses producing lower levels industry need spend over the last two quarters looking forward, we expect a higher level of costs and opposed pandemic environment.
But anticipate that some of the efficiency benefits could be maintained longer term.
Our GAAP gross margin for the quarter was 35.1% compared to 35.8% in Q3 of last year.
Non-GAAP gross margin for the quarter was 36.8%.
Appeared to 37.1% for the same quarter last year.
Gross margin in the quarter was impacted by the continued effect of COVID-19 concessions, partially offset by higher utilization in benefit from foreign exchange.
Gattass you name was 17.9% of revenue compared to 20.2% in Q3 of last year.
Non-GAAP EPS Geneight came in at 15.9% of revenue compared to 18.7% in the same period last year.
Similar to last quarter, the reduced yesterday levels in the quarter was substantially driven by lower level of activity related relocations travel and marketing events and other administrative related expenses.
GAAP income from operations was 96.4 million or 14.8% of revenue in the quarter compared to 80.6 million a 13.7% of revenue in Q3 of last year.
Non-GAAP income from operations was 123.3 million or 18.9% of revenue in the quarter compared to 99.7 million or 17% of revenue in Q3 of last year.
Our GAAP effective tax rate for the quarter came in at 14%, which includes a greater than expected level of excess tax benefits related to stock based compensation.
Our non-GAAP effective tax rate, which excludes excess tax benefits was 22.6%.
Diluted earnings per share on a GAAP basis was $1.53 cents now.
Non-GAAP EPS was $1.65 cents, reflecting an 18.7% increase over the same quarter in fiscal 2019.
In Q3, there were approximately 58.6 million diluted shares outstanding turning to our cash flow and balance sheet cash flow from operations for Q3 was 175.6 million compared to 119 million in the same quarter for 2019.
Free cash flow was 165.8 million compared to 91.8 million in the same quarter last year, resulting in a 171.5% conversion of adjusted net income.
Our continued focus on operational efficiency around invoicing and cash collection. In addition to lower Capex spending given the current environment strong cash generation in the quarter.
He then ended the quarter with approximately 1.5 billion in cash and available borrowing capacity made up of 1.16 billion in cash and cash equivalents 60 million in short term investments and 275 million available on our revolver DSL was a record 70 days compared to 73 days at the end of Q2.
Q2 thousand 20, and 75 days in the same quarter last year.
Moving onto a few operational metrics with a low level of attrition combined with active hiring we're able to add more than 1500 damage to the company.
The amount of new hires in Q3 is only slightly below our fiscal 19 quarterly average we continue to run our recruiting engine at high levels of efficiency as we wrap ramp up our hiring efforts.
We ended the quarter with approximately 33750 engineers designers and consultants, a 7.4% increase year over year, our total head count for Q3 was more than 38000 employees.
Utilization was 70.2% compared to 76.1% in the same quarter last year and down from 83.9% in Q2 2020.
Now, let's turn to guidance.
As we mentioned earlier in the call as companies continue to focus on modernization and respond to changes in the economic environment described drives demand for our business.
In response to this demand we are increasing hiring but continue to expect QEPM to run with lower than normal SGN expenditures as a result, we expect Q4 deliver strong sequential revenue growth.
Elevated levels of profitability.
For Q4, we expect revenues to be in the range of 695 to 705 million.
Producing a year over year growth rate of 10.6% at the midpoint of the range.
In Q4, we expect the impact of FX on revenue growth to be negligible.
For the fourth quarter, we expect GAAP income from operations to be in the range of 14% to 15% and non-GAAP income from operations to be in the range of 17.5% to 18.5%.
We expect our GAAP effective tax rate to be approximately 15% and non-GAAP effective tax rate to be approximately 23%.
For earnings per share, we expect GAAP diluted EPS to be in the range of $1.44 cents to $1.54 cents for the quarter and non-GAAP diluted EPS to be in the range of $1.63 cents to $1.73 cents for the quarter.
We expect a weighted average share count of 58.9 million diluted shares outstanding.
Finally, if you get key assumptions that support our GAAP to non-GAAP measurements for Q4 stock compensation expense is expected to be approximately 19.5 million.
The addition of acquired intangible assets is expected to be approximately 3.1 million.
The impact of foreign exchange is expected to be approximately a 3 million dollar loss for the quarter.
Expected non-GAAP adjustments is expected to be around 5.4 million.
And we expect excess tax benefits to be around 8.4 million.
We are pleased with the outcome of our Q3 results and encouraged by what is shaping up to be a strong finish to fiscal 2020.
I'd like to thank our employees across the globe for their hard work and dedication Tpms continued success.
Operator, let's open the call for questions.
As a reminder to ask a question you need to press star one of your telephone.
A question please press the pound key.
Just on that will be compiled the queue any roster.
Our first question comes from Bryan Bergin with Cowen Your line is open.
Good morning, Thank you hope you're well.
Just wanted to gauge a bit here on outlook as we move past 20 is there any color you can give on growth recovery trajectory and specific to some of the entry industry. You mentioned it a large European financial service client is that wind down complete and or the traveling consumer clients are they at the base level of what you think you could start growing again.
Yes, let me start with I guess, maybe the more tactical questions. So in terms of the I guess, the wind down of the European banking client that's substantially happened in Q2. It shows up in Q3, which means it will also show up in Q4 in Q1 in Nash.
Negative impact on financial services growth rates.
From a demand standpoint, I don't think we would comment on on beyond 2020, but what I would.
Comment on the on demand overall in what we do continue to see is obviously travel is quite negatively impacted energy is still negative with the low energy prices in the market and then if you're in the large physical audience kind of event space. All those businesses are also impacted.
Other than that though what we what we feel we're seeing very strong demand.
Across a broad range of industries, and even some of the retail and consumer goods companies, who may have paused investment in Q2, clearly are beginning to sort of accelerate investments to respond to the changing business conditions and so did.
Who knows what will happen if there's another round of Covance economic shutdowns and everything but right now the demand is quite strong.
Okay, that's good to hear.
And then just as far as the civil unrest in Belarus can you just give us an update on the operational contingencies you have any anything you can provide from the ground there and how you are mitigating risks and any anything we need to consider as far as client risk so sort of the situation.
Oh.
In a very short.
For.
For the last three months.
We have a probably less than half of day. Some interruption in Q2, two and it was already more than two months ago.
Since then.
Infrastructure and general working conditions environment, where pretty much stable in line is.
Nor on the definitely have a lot of experience of money into it in a kind of seeing what's happening based on.
Our experience of 2014.
So to summarize collusion between Ukraine.
Ukraine, and Russia, so really.
Bill to Lydia.
Tailed BCP blends out all the way to use them I just want them.
We've got that sub SEC subsection or that the industry verticals that are continue to be impacted if and when I first when we talked about in Q2, we said about a third of our customer revenues were in industries that were impacted by end customer demand and I would say at this time in Q3, it's more like 20% and so you're clearly seeing.
An improving environment. The one thing I think its important David it's usually we wouldn't be having net additions of between 1002 thousand employees per quarter and in Q2, we didn't hire that much and we had attrition and so we actually had a decline in productive head count of 800.
So we're still kind of behind on the availability of talent.
And right now we're back in a scenario, where where demand certainly exceed supply and it takes a few quarters for us to kind of get back to the point.
Where we can sort of match up supply fully with available demand, we did hire faster than we expected in Q3 and that contributed.
So 1500 net production head count additions.
And then from a Q4 standpoint based on the demand that we're seeing we're expecting to add.
Over 2000 productive.
Productive staff and that would be the highest rate of headcount growth that we've seen in the history of the company and so I think it just takes us a little bit of time to sort of build back up the productive capacity to allow for those higher rates of annualized growth.
What do I will say is that still fluid into a few others not.
Let me clear and as you see in like we like as opposed to the first time quit shoot.
Who knows what will happen to be the.
So it was always.
Still pretty town Hall.
So.
You have to keep rising land.
Right, but it sounds like at least for the moment, we are still operating in an environment where that demand.
The rebounded demand is exceeding supply right now are still at your revenue growth the base for the moment is still constrained by supply is that fair.
Your statement.
That's not a new issue. So we also bullets in between those two so as you know.
Right right. So this is a figure yes, it look more like normal but visa.
Just a couple of science features as Jason mentioned it when you have to.
Holds the machines and you need look to take time to to go where we come in three to five.
Right and and just I think you also made a comment in your prepared remarks remarks about.
Some of the efficiencies on the expense side, while some are temporary as a result of travel and all these other things going on in the business right now.
Can you help us maybe unpack a little bit what you know how we should interpret that about some of these efficiencies being more enduring and.
And in that response, maybe you could weave in how your clients are.
Thinking about a more sustained work from home model, even if not 100% of your business, but how.
How are they thinking about work from home going forward and how is that getting priced.
So these relationships going forward.
Yes, I'll try to do the tactical on the M&A costs and I'll, let art sort of talk more around what were seeing from a client standpoint. So the last two quarters, we've been around 16% of SG nine as a percentage of revenue.
You'll remember probably I guess last year I was talking about estimate in the range of 18% to 19% I don't think that I will be talking about 19% anytime soon but I do think that 16% is obviously too low and even as we look ahead to Q4, I would expect that estrogen would head towards head towards 17%.
End of revenue.
Clearly continue to have limited travel on pretty much no travel in the in yesterday's side.
We haven't added facilities as rapidly as we would have under under usual conditions. We've got some administrative benefits were not doing marketing events investor.
Investor conferences are done virtually and so I don't know what happens in the future right, but I do suspect that.
There will continue to be savings as long as we're in this sort of deep no travel no physical come.
Coming together environment and so for as long as you think that goes on I think you continue to see some pre salt estimated savings and then in the future I think that we are definitely.
Seeing that there is opportunities it let's say around the margin to run somewhat more efficiently maybe from a supply and demand matching and then in a few areas in terms of our corporate functions and so it's too early for me to sort of say what profitability could look like in the future but.
I'm somewhat hopeful that there is some opportunities for efficiency.
No.
Yeah, I would say in general going from.
Pall Mall this new way of what can I think.
It's very difficult to then you said you too.
It would it took an involuntary clearly liquid foods, we do.
We look forward I don't know how many us from acceptance.
It would be and I don't think.
It would go back completely to what the doors, just nine months ago, So I'm pretty sure the acceptances different films.
If it would be like for a couple of months. This soon whether its sold it to close the year, probably will be much more than the year I'm pretty sure.
Well into state pool.
As the market will be changing level of distribution for all.
On the project would be much more accepted.
Different.
Different approaches to Securities Israel.
As well.
When pretty fast and there are some new programs, but.
It's actually all over the spectrum right now there is some.
Consolidations there are some.
Slow down so I think in general is a field that is.
Much much closer in overall, what we felt.
Like in normal times.
Okay.
So I don't know if I can say that it's completely change but.
He will heal.
Feel more pressure and more speed from some clients.
Yes.
Yes.
Really.
Seems to be a dark just said you know what.
Increased Sarah.
Acceleration of kind of focus on modernization and so you do have a series of customers that really do seem to have accelerated the pace of their journey.
I think arc in his prepared remarks talked about the.
Hi Tech T. software company focused on the health care space and a and that was one of the companies that we had talked about I believe in Q2, where the relationship had been established actually during the quarter times, when we couldn't meet face to face and they couldn't visit our delivery centers.
And that relationship is developing very nicely done they are likely to head towards our top 20, you know very quickly.
Certain relationships are establishing and accelerating very very quickly and then.
Again other other clients just continue to sort of move along on their agendas, but yeah, I think you've seen the industry vertical we continue to have strong growth in the B I am space insurance continues to be an area, where we see accelerated demand we.
We expect to see strong growth in healthcare and life Sciences in Q4 and beyond.
And then you know solid growth in in the high Tech and IP or IDEXX software portion of our portfolio.
Okay I think.
Okay.
I think the difference is.
Like.
All right.
From our standpoint is that everybody understands it.
Like before it was much more longer term right now.
You feel that it could change based on what's happening.
And.
Like weather, we saw it like three mines that could probably going to be down now obviously this is going up and what would be the actual losses.
So there is some question is all the time.
Yes.
The other question was on cash flow and your balance sheet at least here.
Sorry quarter congrats.
Cash flow performance had been pulled forward, Sir any any quirkiness just because of the environment.
And then let the balance sheet that you need this may be the first time year over a billion dollars in cash.
What's the cash usage.
Capital allocation strategy, you're thinking about that you're more likely to.
Look for you know.
Bigger acquisitions, something more transformational or just continue with your current philosophy.
Yes. So you know it's the only one time ish item that I can think of is that we obviously your capex is slowed down somewhat as you're not building out facilities and some of those things just to support head count growth and so you had you had a slowdown in your capex, but really it's driven by the strong profitability.
Early in the significant improvement in DSL, which is down to 70 days and so that's what's driven most of that the cash generation from a standpoint of kind of.
What we're going to do with the cash or how we're thinking about it.
Still focus on the inorganic strategy.
You know our evaluation of opportunities continues to be active.
And do you expect you will see US you know.
And now some things you know over the next couple of quarters and again generally on the smaller side, but I think there's definitely some opportunity to do something somewhat larger than we've done in the past.
Again, it will always be carefully evaluated in and we will be prudent in our decision, making but I could be somewhat larger than deals than you've seen in the past years.
Got it thank you guys.
Thank you.
Our next question comes from James Faucette with Morgan Stanley. Your line is open.
Hey, Jonathan on for Jason. Thanks for taking my question. How are you thinking about the recent shutdowns across Europe have clients expressed concern or delays or our decision, making because of it and this fourq guidance contemplate any impact.
Yes.
Yes, so impact of.
Potential shutdowns or you know the shutdowns in Europe on demand and client.
We didn't see any specific relation yet so.
Yes.
Got it that's helpful and we continue to hear about vendor consolidation across the broader IP services space can you any you I think you mentioned that some of your prepared remarks can you elaborate on some of the competitive environment and dynamics, particularly against some of the larger system.
Systems integrators and consulting fees.
So we don't have any specific.
And EPS.
Tom was to serve but generally.
The company and because like when Keith.
Into next year.
So.
The simple so far through the views always like was also very important.
And so traditionally we were benefiting from our growing with existing clients financing.
The level of.
Kind of the structure of our client portfolio still allow us to grow a lot from.
Existing brands and cross sell.
At the same time.
We mentioned one is.
Which of the title.
Because if you think about it.
Perhaps show was good like two more distribution two more work from calm to more pushing outside of the place where you are and in general like a lot of companies.
Had to reach out to.
Additional vendors so expand into their locations globally. So.
Become.
E as in at the same time, we talked for last T. S. Many many times authentication all of our training and all of this and this is becoming even more important parts of follow up duration.
And.
We try to be like a liberty work to November 2019, whether you met in Boston.
It was big part of our presentation as well.
Actually what it serious into S. As soon as I sit here.
12 months for us as well so we've.
Trying to try to.
Have much more control as I say.
Or comment on the I guess that the demand for talent I'll just comment on some of the internal metrics city attrition within the company has continued to decline.
It clearly focused on on the well being of of employees, but also focused on making certain that employees.
You remain kind of committed to the attorney here D. Pam So we actually completed or annual promotion campaign.
Our nation programs started to find out that actually what was done during the previous couple years should be very quickly Dan.
As some companies, which were passed foreign in their programs.
Yes, very quickly because they have to actually jump is.
Well, if I can business fill out.
Our next question comes from Jason Kupferberg with Bank of America. Your line is open.
[laughter].
Well guys I wanted to follow up with another margin question I thought that the EPS DNA commentary you gave was very helpful. Jason. So I'm just wondering about the puts and takes on gross margins going forward I know there has been some elevated utilization this year, but obviously you've had some client concessions too so how should we be thinking about the move.
In car, it's as we try and put a finer point on our.
Expectations for for gross margin next year.
Yes, so why maybe I'll first focus on discounted Q4. So generally what you have in Q3 is you've got a higher levels of available.
Working days are billed as and so generally that has a positive impact on on gross margin and then you have less.
Internal processes.
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HM HM.
Those are prohibited accused exhibited.
No just the clients as they start to think about their budgets for next year power power. They're budgeting process is changing just in terms of of timing or just the overall approach in in light of Covid. I think this is the time of year. When they would start you know shape shaped those plans for next year. So how's your <unk>.
Talking to your customers are you getting any sense for whether or not budgeting processes are gonna be you know pushed out or or they're gonna look different you know this year than in prior errors.
And your station in increases like it was.
12 months ago, it's a very different environment right now and when we talk about growing demand, it's very visible at least for us as we see in treaty.
Interesting kind of competition for.
Right.
Right capabilities to execute those are programs that much faster so its in some situations where are you.
Again, very different fields, and it was March or April.
Okay, and then are there any specific goals or a timeline for your efforts to create a more diverse global workforce.
And again, just on kind of more tactical metrics or the fastest growing geography's for us in Q3 and.
Mexico, India here Uhm, So we continue to kind of diversify and become increasingly global within the C. I S reach and we're growing most rapidly in the in the in the Ukraine, but you continue to see a sort of expand our geographic clipper.
Thank you.
Next question Carson flattened their best smaller with a new T V capital. Your line is open.
Hello, Congratulations from the number and thank you for taking my question I want to ask you about your utilization the third quarter, it's usually a beautiful vacation spot. This time it looks very different. So if there are any reason for the future. That's a lot of vacation time has been accumulated bite please and this might <unk>.
That the supply site sometime going forth and I would also ask and want to ask nah on the Coleman switching.
During the cold that here in your guidance, you guilty and sometimes Shelton.
Issue, Okay with clients in December and things like this which I know with material Lightning Yep. So uhm, maybe from the supply fight what kind of girl with if you have anything you just goofing some stuff attrition hiring you until they say something like this what kind of growth you could support in the fourth quarter U. If everything is good. Thank you.
Alright, So let me just.
Clarify a little bit on the comment furloughs Stilton com right. So we just try to be thoughtful around the impact on what you described either vacation or furloughs or potential any other types of disruption in so again, there's just ah.
Thoughtfulness and again at this point Uhm, we'll still see what happens here in the remainder of November and December I think from the standpoint of.
Clearly demand exceeds supply, but it would be hard to sort of.
Okay.
Thank you very much and on the accumulated vacation something like this may be you could call them public.
Oh, how do you see this.
Or there is no problem with that.
Yeah, I don't think Theres any I mean again, our our guidance both in terms of revenue and profitability incorporates.
Let's say an appropriate estimate and we're we're pretty focused on on on what that looks like and what the productive capacity looks like so I wouldn't expect anything unusual to occur there.
Thank you very much.
Thank you.
Yes.
Hi, Larry.
Our line pipe.
Type of Sandler your line.
Hi.
Thanks, Thanks for taking my question.
Most of my questions have been answered, but that you know if you could talk about your.
Enterprise sales in a remote working environment.
Yeah, certainly not able to visit their.
Clients that they offices all good industry conferences, but have continued to grow quite nicely Uh huh.
Can you talk a little bit about how you're generating a needs are you closing or continuing to close large deals as you that new clients or even at existing clients.
[noise] well, okay, though so how does that answer this question. So basically through Microsoft teams has little snow so.
Yes I.
Well since my changes, yes, we thought it would be fusion product and everybody else as well but.
Two people find if we were to come when you could.