Q4 2020 Endava PLC Earnings Call
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Ladies and gentlemen, this is the conference operator your conference will begin momentarily. Please continue to hold thank you for your patience.
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And then so session to ask a question during the session you'll need to press star one on your telephone if you require any further assistance. Please press star Zero I would now like to turn the conference over to your speaker today, Laurence Mattson Investor Relations. Please go ahead.
Thank you good afternoon, everyone and welcome to end of US fourth quarter of fiscal year 2020, and full fiscal year 2020 earnings Conference call. As a reminder, this conference call is being recorded joining me today are John Cottrell end up as a chief Executive Officer, and Mark Thurston and divest chief financial.
Yes, Sir.
Before we begin a quick reminder, to our listeners our remarks today include forward looking statements, including our guidance for Q1 fiscal year 2021 are expected near and medium term revenue growth the potential impact of the coast had 19 pandemic and associated global economic I'm sure.
Turning to our expectations.
Our expectations for future investments in our business, our expectations regarding digital transformation of existing businesses and industries.
The necessity of digital transformation from many and then does the ability to benefit there from an anticipated client demand and diverse services as well as other forward looking statements.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward looking statements.
Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward looking statements and reported results should not be considered as an indication of future performance.
Please note that these forward looking statements made during this conference call speak only as of today's date and the company undertakes no obligation to update them to reflect subsequent events or circumstances other than the extent required by law.
Please refer to the risk factor section of our annual report on form 20-F filed with the Securities and Exchange Commission on September 15, 2020, which contains and identifies important factors that could cause actual results to differ materially from those contained in any forward looking.
Yes.
Also during the call well present, both I Srs and non I Srs financial measures a reconciliation of non I FRS too I Srs measures is included in todays earnings press release, which you can find on our Investor Relations website, a link to the replay of this call will also.
We'll be available there with that I will turn the call over to John.
So thank you Lawrence and I'd like to thank everyone for joining us today, and I hope, you're all staying safe and healthy.
I'm talking I'm pleased to be here to provide an update on our business and financial performance for the three months ended June 30th Twentytwenty and for the full fiscal year 2020.
Now the world has changed drastically over the last six months, an evolution that might previously have taken years or even decades to occur has been accelerated into a matter of months the benefit of a business model that has the ability to operate predominantly in a digital environment.
As being clearly demonstrate to it.
Okay, but 19 has given us a glimpse of the large amount of digital transformation work still to be done in our world.
In addition, as I mentioned last time, the productivity improvements when we switched to working from home has led to widespread acceptance of this more flexible working model and.
And we expect this to serve us well in the future with a more attractive employee proposition possible assisting in the attraction and recruitment of people.
The into all the distributed agile delivery model was designed to be hugely flexible and this has served us well as the structural shocks have impacted enabling a fast reaction and protecting our business performance and our people as the changes hit.
Moving to the financials, firstly looking at the quarter full fiscal year, Twentytwenty and dollar had a solid quarter.
With revenue of 90.5 million pounds, a growth of 18.1% year on year.
From 76.6 million pounds in the same period in the prior year.
If we pray pharma adjust for the revenue from the will take captive divested in August 2019, alright.
Revenue growth on a constant currency basis was 20.4% year on year.
Our strong revenue growth was driven by the expansion of work for existing customers and the acquisition of new ones during the quarter.
During the quarter, we continued to broaden our client base and ended the quarter with 416 active clients up from 275 at the end of the same period in the prior year, a 51.3% year on year increase.
We saw a trough in client projects in April may.
And business has recovered nicely since many.
Many customers reevaluate that priorities with an unprecedented level of stopping and starting projects underlying I'll call to full performance.
In the quarter revenue growth coming from our largest clients increased sequentially.
Large corporations continue to invest in digital transformation during the pandemic.
Revenue from clients, who paid us above 5 million pounds increased 7.6% over the prior quarter alright.
While revenue from our smaller clients decreased slightly during the same period.
This was part of a very visible trend, where our larger clients with strong balance sheets doubled down on digital investments through this period.
While smaller customers trims back while they assessed the impact of the pandemic.
We wouldn't normally disclose our book to bill ratio in the interest of providing additional color. During these uncertain times I will disclose that for Q4 book to Bill was well over two and our highest quarterly ratio in four years.
Our ability to engage with customers and claims business was not impeded by the pandemic, despite reduced travel and attendance at industry events.
Much of this order book will take a few months to come through into revenue as project ramp ups take time and as early stages in both smaller teams undertaking ideation solution design and so on.
Moving onto our results for the full fiscal year Twentytwenty ill revenue totaled 351 million pounds.
21.9% year over year.
And 24.2% adjusting for the sale of the will pay cut.
Well the pandemic hole to Dol record of more than 30% reported revenue growth every year since 2015.
And makes near term prospects difficult to predict.
We remain confident in our ability to continue to grow our top line, let's say the 20% on an annualized basis in the near to medium term.
In the last fiscal year, we grew in all regions and the schools.
We continue to invest in our North American business, where we posted a slight revenue increase of 26.3% year on year and two.
28.9% year on year in Q4.
For the year Europe grew 8.5%.
The UK, 20.1%.
All of our verticals also grew nicely with payments and financial services up 21.7% year on year, TMT up 14.4% and other up 32.8%.
Our strong revenue growth came with an improving adjusted profit before tax margin.
We know that these continue to be uncertain times with the impact of this pandemic still being felt but.
But at the same time for Indaba. These pressures has opened up opportunities and.
And acceptance of new business and operating models for which we are highly equipped.
We expect many traditional industries and the established businesses. They exist there in will dramatically change and expand that business models over the course of the next two years and these changes won't be subtle understanding the critical necessity of digital interactions organizations.
Relied solely on in person high touch customer interactions will face to face business processes will need to develop new digital revenue streams to energy line of business from markets and operational risk.
Overall, we expect business is that going to have to look hard at the strengths and weaknesses of that customer relationships and the products and platforms that support those bonds.
Hi, identifying which interactions already digital which can handle complete digitization and which need to be retired they can evolve beyond the analog business models that we have the flexibility to roll with the punches and an uncertain, we believe undoubtedly digital future.
I'd now like to provide an update on what has been happening on the private equity side of our business.
The initial reaction we saw from private equity firms during the Covis 19 crisis was generally to focus our efforts on protecting that current portfolios we.
We reacted by offering a new portfolio Advisory service, which was warmly received and resulted in strengthening our position and credibility within the markets.
Following the initial slowdown of deal flow certain markets, notably the German speaking a Nordic regions.
Began to open up and we noticed a significant increase in complex transactions for example, carve outs and distressed assets and so on.
Requiring index and real World technology expertise.
We saw investors begin to shift focus from more traditional business, such as manufacturing and retail to.
The software and technology driven targets.
We also noticed some PE firms had a greater appetite for risk and we're taking advantage of the volatile market.
These factors contributed to our team successfully securing 40, new clients in the last three months with the majority of this work being undertaken room nights way.
A recent example includes an outside in due diligence for us.
For a Swiss generalist PE investors focusing on the mid market.
The client was extremely pleased with the quality of our work, which also allowed them to form that due diligence virtually and communicate with the management of the target seamlessly.
With respect to our relationship with Bain and company, we see evolving customer expectations alongside cost reduction and operational improvement imperatives, pushing technology to the top of retail banks and insurers strategic agendas.
With our clients competitiveness in mind paying an adult have partnered to develop an end to end digital solution.
Joining through strategic and engineering heritage to enable retail banks and insurers to best serve our customers in the digital world.
This cloud ready solution is built upon a compostable architecture of micro services designed to provide maximum flexibility and long term sustainability and powered by over 80 proprietary accelerators that help increase velocity improved quality.
And reduce execution risk.
Moving on to M&A, we are delivering on our strategy of pursuing tuck in acquisitions.
Last month, we announced the acquisition of concentrate digital services Cts.
Provide a strategic software engineering services and solutions with delivery centers in Slovenia, Serbia and bowls.
I first met the team at Cts over one and a half years ago and we.
We had an immediate connection as their whole mindset the way they develop and look out for their people and the way they go to market resonated with me and mindset.
Okay.
This acquisition fits with our strategy of further expanding our European business and complements our acquisition of Exocet in December 2019 by broadening our delivery centers in order to service clients in the German speaking region with CBS is 460 technical stuff.
Additionally, cdss existing client basis strengths, our existing verticals in payments and financial services, and TMT and bring clients in other verticals, including logistics energy travel and healthcare.
Culturally we believe Cts is a great fit for indaba and we are excited about this acquisition.
We also completed a thorough tuck in acquisition this past financial year and show it to us which expanded our footprint in private equity.
Our client growth continues to translate into strong employee growth.
We ended the quarter with 6624 employees, a 15.1% increase from the 5754 in the same period last year.
While revenue per operational head continues to improve.
Ending the year at 62.3 thousand pounds.
Up from 58.7 thousand pounds last year a six.
A 6.1% year over year increase driven mainly by an increase in pricing.
Our attrition rate has decreased every quarter this past financial year as well.
As we mentioned last quarter, we did not stop hiring when the pandemic heads wireless decision marginally impacted our utilization rate during the quarter. We believe that we are in a good position at the start of a new fiscal year to handle our strong pipeline.
We added 137 operational stuff in the quarter up 2.3% over the prior quarter and up 14.9% year on year.
As shown by these results client demand for our services is stronger than ever as digital transformation has become digital necessity for many.
Mark and I and the entire team extremely.
Extremely pleased with our excellent performance for the fiscal year just ended despite the challenging environment and we are excited about the opportunities ahead of us and remain confident in our ability to deliver value for all of our stakeholders.
I'll now pass the call on to Mark who will walk you through our financial results for the quarter and for the year and provide guidance for the coming quarter.
Thanks, John.
Here are some highlights for the most recent quarter.
And Tavis revenue totaled 90.5 million pounds for the three months ended June 30th Twentytwenty compared to 76.6 million pounds in the same period last year, an 18.1% increase over the same period in the prior year.
In constant currency, our revenue growth rate was 16.5%.
As Joe mentioned, if we pro forma adjust for the revenue from that we'll pay captive last year, our revenue growth on a constant currency basis was 20.4% year on year.
Profit before tax for Q4 fiscal year, Twentytwenty 6.7 million pounds compared to profit before tax of 10.4 million pounds in the same period in the prior year.
In Java incurred a true up charge in Q4 fiscal year 20, 23.1 million pounds relating to the previously disclosed funding mainstays Twentytwenty are the second and final tranche of the nonrecurring discretionary employee bonus by indaba limits at Guernsey benefit truck.
We'll ABT the beneficiaries of which.
Thomas employees.
Our adjusted profit before tax for the three months ended June 30th Twentytwenty is 15.2 million pounds compared to 13.5 million pounds for the same period last year.
12.6 year over year increase.
Our adjusted profit before tax margin was 16.8% for the three months ended June 30, 2020 compared to 17.6% for the same period last year.
Adjusted profit before tax adjusted PBT is defined as the company's profit before tax adjusted to exclude the impact of share based compensation expense discretionary ABT bonus amortization of acquired intangible assets realized and unrealized foreign currency exchange gains and losses.
Initial public offering expenses incurred sarbanes Oxley compliance readiness expenses incurred net gain on disposal of subsidiary fair value movement on contingent consideration secondary offering expenses incurred stems duty on transfer shares.
Share based compensation expense amortization of acquired intangible assets unrealized foreign currency gains and losses and fair value movements of contingent consideration or non cash expenses adjust.
Adjusted PBT margin is adjusted PBT as a percentage of total revenue.
Our adjusted diluted EPS was 23 pence for the three months ended June 30, Twentytwenty calculated on 56.4 million diluted shares as compared to 20 pence for the same period last year calculated on 55.2 million diluted shares up 15%.
Yeah.
Revenue from our 10 largest clients accounted for 14% of revenue for the three months ended June 32 inch 20 unchanged from the same period last year at this.
Additionally, the average spend per client from our 10 largest clients increased from 3.1 million pounds to 3.6 billion pounds for the three months ended June searches twentytwenty.
In the same months ended June 32 inch 20, North America accounted for 31% of revenue compared to 28% in the same period last year.
Europe accounted for 24% of revenue compared to 27% in the same period last year and the UK accounted for 42% of revenue compared to 45% in the same period last year, while the rest of world accounted for 3% of revenue.
No we did not report rest of world in prior years.
Revenue from North America grew 28.9% for the three months ended June 32020 of the same quarter of 2019 compare.
Comparing the same periods revenue from Europe grew 7.8% and the UK grew 9.1%, but excluding the impact of the well paid captive from the prior year period comparative growth would have been 8.4% higher was 17.5%.
We grew in all three of our industry verticals during the quarter.
Revenue from payments and financial services grew 17% for the three months ended June 30, twentytwenty, excluding the impact of that will pay captive. So the prior year period comparative growth would have been 7.8% higher or 24.8%.
Revenue from payments and financial services accounted for 52% of revenue unchanged from the same period last year.
Revenue from TMT grew 18.8% for the three months ended June 32020 of the same course with 2019 and accounted for 28% of revenue unchanged from the same period last year.
Revenue from other grew 19.8% for the three months ended June 32020 of the same quarter of 2019, and now accounts for 20% of revenue unchanged from the same period last year.
This growth was mainly driven by clients in the logistics and retail sectors.
We now turn to our adjusted free cash flow, which is our net cash provided by operating activities plus grants received less net purchases of non currents tangible and intangible assets.
Our adjusted free cash flow was point 4 million pounds for the three months ended June 30th Twentytwenty compared to 8.9 million pounds. During the same period last year.
Adjusted free cash flow is impacted by the payments of the final tranche of the nonrecurring discretionary employee bonus mentioned earlier, the 14.9 million pounds.
Our cash and cash equivalents at the end of the period remains strong with 101.3 million pounds compared to 70.2 million pounds at the end of June 29 team.
Capex for the three months ended June 30th Twentytwenty as a percentage of revenue was 1.9% compared to 2.9% in the same period last year.
I'd now like to move on to some highlights for our fiscal year Twentytwenty.
And to help us revenue totaled 361 million pounds for the fiscal year 2020 compared to 287.9 million pounds in the previous fiscal year They Tony.
At 21.9% increase over the same period in the prior year.
In constant currency revenue growth rate was 21% and adjusting for the sale of the well paid captive 24.2%.
Profit before tax for the fiscal year, Twentytwenty was 25.3 million pounds compared to profit before tax of 30.1 million pounds in the same period in the prior year.
Our adjusted profit before tax for the fiscal year, Twentytwenty 268.6 million pounds compared to 52 million pounds for the same period last year.
32% year over year increase our.
Our adjusted profit before tax margin was 19.5% for fiscal year 2020 compared to 18% for the same period last year.
The year over year improvement in our adjusted profit before tax margin is mainly due to a continued positive pricing environment FX Tailwinds and control the best DNA, Despite having taken the sizable bad debt charge in Q3.
Our adjusted diluted EPS was one pound the fiscal year ended June 30, Twentytwenty calculated or 56.1 million diluted shares as compared to 76 pence for the previous fiscal year calculated on 55 million diluted shares up 31.6.
Sense here growth year.
Revenue from our 10 largest clients accounted for 38% of revenue for the fiscal year ended June 32020 unchanged from the previous fiscal year. Additionally, the average spend declined from our 10 largest clients increased from 10.9 million pounds to 13.4 million pounds, a 23 point.
Cent year over year increase.
We grew in all geographies lower year over year basis, with North America up 26.3% year over year, Europe up 8.5% and the UK up 20.1%. However, excluding the impact of that will take captive from the prior year period comparative growth in UK would have been seven point.
3% higher or 27.4% on an.
On a year over year basis revenue from payments and financial services increased 21.7%. However, excluding the impact of well paid two from the prior year period comparative growth in this segment would have been 6.3% higher or 28%.
TMT increased 14.4% and other increased 32.8%.
Yes over year gross and other came mainly from the logistics retail and services.
Our adjusted free cash flow was 31.4 million pounds for the fiscal year ended June 32020, compared to 29.8 million pounds. During the same period last year our.
Our adjusted free cash flow was impacted by the payment of the nonrecurring discretionary employee bonus of 25.9 million pounds.
Capex for the fiscal year ended June 30, Twentytwenty as a percentage of revenue were 2.8% compared to 2.5% during the same period last year.
At this time it is difficult to predict the duration and full scope of the direct and indirect potential impacts of the ongoing cobot 19 pandemic.
These uncertainties in mind and DAVA is providing guidance for Q1 fiscal 21, but not full year fiscal year 21 at this time.
Our guidance for Q1 fiscal year 21 is as follows.
DARPA expects revenues will be in the range of 93 million to 94 million pounds, representing constant currency revenue growth of between 18 cents and 20%.
And debris expects adjusted diluted EPS to be in the range of 21 to 22 pence per share.
Our guidance regarding constant currency revenue growth is pro forma for the sale of Antarctica technology Srl also referred to as the cat well paid captive to well pay the transaction closed on August 31st 2019.
This quarter, we are providing guidance for Q1 fiscal 2001.
Using the exchange rates at the end of August when the exchange rate was one British pound to 133 US dollar and won 12 euro.
This concludes our prepared comments operator, we're now ready to open the line for Q and a.
Thank you at this time, we'd like to ask a question press Star one on your telephone to withdraw your question press the pound key Peter Leys, probably compiled the question.
And your first question comes from the line of Bryan Bergin with Cowen. Please go ahead.
Hi, Thank you.
Wanted to start with the outlook here, so demand commentary Sandro solid.
But as it relates to withholding that full year outlook. Just curious is this merely caution amid the ongoing uncertainty or where anything visible that may suggest some increased near term near term challenges I heard the commentary about trough activity in the April may period. So just any reason to believe that drove the growth trajectory does it improve from here.
Hi, Brian Thanks for the question.
No. It is just caution the.
You know the question of whether.
Second waves are going to build up in the northern hemisphere.
As we get into the winter period and whether the.
Whether that might cause clients to reevaluate again.
Some of that spending.
I mean, we we do believe that.
Actually having been through a first wave.
Most clients have got a lot clearer view of what they want to do through this period.
And it's less likely to be affected we believe.
By a second wave, but at the same time.
These are very uncertain times and so given given we've got a full 12 months for our financial year.
As opposed to just two quarters, we held off given guidance.
Okay makes sense.
And then just follow up here religion around margin potential. So so with the significant ramp and transformation activity that you're anticipating you have to do anything differently in your investments to capture that work.
I'm curious on on the work from home amplify.
Implications can you just go into a bit more detail on how you're thinking about the financial implications for your model.
Yes so.
On the work from home we moved seamlessly.
As you May recall from Q3, two to work from home actually productivity improved.
We're being cautious about the return to the the office environment, given the uncertainty and the co fit set up but we think it presents opportunity for us to look at the whole way that people work and I think we would have a balance between having the flexibility of work from home and also.
Thanks for some of the scrum initiation start a project, we should better down face to face in an office environment. So we're looking at a whole property, Sonora, which would have implications for the property as a percentage of SGN ache going forward.
In terms of the yeah.
The outlook.
Thats fully reflected basically in John's opening comments.
We're not really targeting.
From a sort of investments on anything.
To change the business model, where maybe just focusing on the web.
From home dimension of moment.
I mean, the one thing that I would call out is the.
When we're kicking off new projects with clients.
The early stages of that are not high in terms of billing because we're doing ideation critical smaller teams working on that doing analysis and so on.
Before the audit teams ramp up.
For execution and delivery of product to market. So.
One of the new stuff that we've.
Talked about Thats coming through.
It does take a little while to build up.
We have we have done a little bit of investment over the summer and what we call accelerators, where we find that they are all frequent.
Requests for.
Certain capabilities and functionalities.
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Across our client base.
Given the bench rose slightly as you saw in our figures during that period, we invested that in creating some accelerators and actually that is helping us to.
To push some of these deals along a little bit faster.
Okay.
Okay Thats helpful. Thank you.
And your next question comes from the line of James Faucette with Morgan Stanley. Please go ahead.
Great. Thank you very much for taking my question I wanted to ask if you could give a little more color on.
The the pacing of work and engagement you mentioned there were some starting and stopping.
Wondering if you can can summarize kind of what is starting or maybe whats stopping is that just types of projects or types of customers.
And then as far as the high level of book to Bill where are you seeing span prioritized in terms of types of projects.
Okay.
So as we went through our Q4.
There was a bit of a pull back in April and May, which we which we talked about a little at the last earnings call.
Say and it.
Characteristics with very different across different industries, so it's quite difficult to draw.
High level views, but let me give you. Some examples an industry level. So if you look at the payment space for instance.
There was a bit of pull back on the.
On the call as president type acquiring.
Investments to all clients were making and that was basically because of the volumes.
That would dropping of people going into shops and so on.
In contrast to that the E Commerce World started stepping up in activity and we saw clients pushing a lot more investment into into the E Commerce World.
Things like self service on on boarding the Onboarding process for a new motion is traditionally quite menu.
Can take weeks for a new merchants to be able to still accepting card payments.
We help our clients implement systems that enable a cell phone boarding experience for an emotion in a matter of minutes.
Now obviously that was absolutely crucial as we started to go through the early stages of.
The kind of impact.
Another another area, which was picking up where there's a lot more investment around open banking loss that's been around a while.
And banking facilitated.
A lot of types of payments, which became attractive to customers in a.
And it kind of it.
Demick type world.
Moving away from needing to use debit or credit cards, and so on in a retail environment.
In some in some other areas.
We worked with quite a.
Quite a few automotive.
Companies, who.
Needed to move from people coming into that cost showrooms to providing a more virtual environment.
Where where they can view vehicles.
Compare vehicles in a much more virtual world as opposed to the sort of traditional.
Paris and tight capabilities that web sites had when we.
We also use that for virtual shows because some of the.
The night shows with.
Turned into virtual shows.
Well say things like the deal is being able to pull down video content from from the call company that they're working with in a dedicated dealer portal.
And make that a much more manageable and.
Environment for them.
And the other one is logistics, we saw quite a few of the logistics clients who.
Who were more digitally equipped if you like.
We saw a significant step up in customers asking to use the services.
Which meant that systems needed to be integrated into the systems of these new clients.
And so that was quite a bit of implementation work and tuning work that was required to enable that happen.
In Healthtech, we saw some significant investments in.
Tele health.
Enabling people to do consultations online.
We had a we had a an interesting projects that were.
We recognize that there was a major gap in most tele health solutions in the physical therapy space.
So using digital measurement analysis and data capture tools.
We were able to use and essentially bleeding edge immersive media technologies and integrate into the Tele health solution.
And it's now the number one feature this requested by the uses of application.
Prior prior to the release of the Tele health solution of all client was receiving ratings of two and a half to three out of five.
But now in the two months after going live.
It's jumped to four out of five so those are some examples of the sorts of switches where clients.
Moved away from the investment portfolio on an accelerated in.
Investments in the mall digital space.
Got it and then.
Sorry.
Yes that was a book to Bill dimension to your question as well right.
Yes, so the book to Bill some of that some of that is long term commitments the clients were making.
Multiple year in nature, which are.
This is very.
Very good for us in these more uncertain times and we're glad to have booked close some of those.
Some of those with new projects that we're kicking off and as I cautioned in my opening statement.
Not all of that will heads visit.
Visibly in this quarter one that we're in now.
Because we're at the early stage.
Envisioning and shaping those projects with clients and that tends to be smaller teams who do that.
I appreciate that John and then I guess my follow up question. Just what are you seeing in terms of vendor consolidation and your clients and.
And do you think you're you're being able to win share right now and and if so from home or what is I guess, just looking for a little color whats happening with vendor consolidation.
Their client base.
Yes, so I mean, we have the view that van vendor consolidation is always happening.
Across our client base.
It's it's not that visible to us we don't tend to be.
In the place where.
They're evaluating the sort of things that we do for vendor consolidation.
I'd characterize it it tends to be the legacy type services without looking to squeeze that cost down in the doing that through vendor consolidation.
Where is the types of services that we're providing.
They are looking for organizations like indaba, who who can make a real difference in the conversations that we're having with a much more.
Much more strategic and much more.
Around how technology can impact that business models and use cases so.
So vendor consolidation I think we benefit from it shall we say because it because it squeezes that cost that.
And savings that can come in our direction.
But we very rarely find ourselves going through vendor consolidation process.
It does happen, but but probably in the low single digits as a portion of our clients.
Yeah.
That's great I appreciate the commentary this morning.
Okay.
And your next question comes from the line of my Cambeiro with need head. Please go ahead.
Thank you congrats John and Mark on a strong quarter I had a.
Couple of questions first on the growth trajectory getting back to that 20% to 30% type growth I think John you mentioned could you break that down between organic versus inorganic and on that note what would the inorganic contribution in the one Q guide as well.
So.
Yes so.
I suppose what you're pulling out is what's the underlying growth that is going on.
You know we saw three major differences between our Q1 and Q4 numbers, obviously, there's the inorganic growth.
That's right.
Adjusting all revenue growth.
But we also have significant FX headwinds in the number.
And these two almost offset each other.
And then the other factor that we have is we got headwinds of about 2% from what I'll call the holiday effect.
Were considerably more holiday is being taken in Q1 compared to Q4. So what happened is lockdowns during our Q4.
And people didn't take much holiday.
As there's lockdowns.
Weakened in in Europe.
The teams have taken more holiday.
So that that's had an effect of about 2% headwind. So if you take the underlying growth adjusting for those items you can see that we are actually stronger than the 4% growth guided.
The other interesting factor is the holiday headwind is all in Europe, and North America. If you look at last time.
It's lockdowns and winter months still ongoing.
We expect to have a similar holiday level than last time that we had in Q4, so in that region. The headwind was not experienced but it.
But it will occur in the future, but obviously, it's only 15% of all revenue. So it's not a material impact for in dollar. So hope that gives the color you're looking for.
Sure. That's helpful. And then I would just like to also ask as you look to get back to that trend line growth again, I think you said, 20% to 30% longer term.
Maybe sooner rather than later, how does that break down between the impact of utilization versus wrapping up hiring versus any type of pricing improvements that you might expect to see as well.
Get back to that sort of pre Colgate pricing leverage that you had in the past.
So I think pricing wise.
Seen hold up relatively well to be honest guiding to in Q3 Q4 on where we're seeing at the moment as well so in terms of.
Upswing in revenue.
Not really going to come from an improving sort of price position, it's it's volume of demand coming through.
There's a little bit of constraint that you could see in terms of the growth for Q1 because of.
And availability of people through the holiday period, so that is a little bit short term in nature and actually as we actually push on the recruitment engine, which we we held a little bit back given the uncertainty then.
Isn't also going to be a straining patents around the return to the 20% growth. So it's it's basically how quick call those those projects going to crank up.
As we said sort of part of the question about why we're not giving full year guidance, whilst things are more stable amongst our clients somewhere we are optimistic about it cautiously.
Come why would it not.
No not give us.
Could blow us off course, so in terms of trying to judge when that 20% growth comes back.
Well not to be drawn on it at this stage.
Got it great.
Great. Thank you for answering my questions I appreciate it.
Thank you.
And your next question comes the line of me Saskatchewan with Wedbush. Please go ahead.
Hey, Thanks, and congrats on a very strong quarter.
We'll follow ons going back to the commentary and hiring and recruiting.
Given the book to Bill dynamics is there a specific target in mind that you have in terms of headcount additions for our fiscal year 21.
Thats number one and then I have a follow up thanks.
Yes, So you show the on the recruitment side.
Aiming to pull teams and as.
The lines with all revenue growth.
We tend to because we see a bit of pricing.
Improvement year to year and as Mark was just touching on.
That continues to flow through.
So we tend to recruit.
4% to 5% less people.
Right.
And you see on the top line growth. So if we if we grow.
Topline in the low Twentys week, three week, whether the people headcount in the high teens.
And.
With.
We are seeing.
Good opportunities to recruit good people at the moment I think one of the benefits of being an organization that didnt lay people off.
During this period.
Reinforced our reputation in the markets that we operate.
In as a as a.
Employer is a safe place to be.
To be employed.
And you know even although.
Right.
Yes people are prepared to.
Switch jokes to join and DAVA.
Although they might be less keen to join other organizations.
So we don't see that as being a restriction on our growth as we move through this financial year.
Okay I appreciate that and then going back to the book to Bill and sell the commentary regarding the nature of the work appreciate the color around.
CMP versus card present kind of work E com.
And then going back to your commentary on the platform that you've developed with Bain is that an open banking platform targeting some of the financial institution.
It's it's basically.
Based on putting together some accelerators that exist across the banking and insurance world.
It's it's a mixture of some of the accelerators that we build ourselves, but also product that's available in the market.
That has the architectural characteristics.
That were confident will give clients flexibility for a digital world.
No not all platforms are highly suited to.
To an agile flexible digital proposition in the market. So we basically pulled out a switch which fit well which have the IPO price.
Which have a microservices toy design.
The enable flexibility for clients.
And you know.
We're working a fair number of organizations through how that would work for them as they are considering.
How they want to improve their offerings or how they want to move into a more digital proposition in the market.
Of course with pain Thats on a more global basis than and all of its traditional footprint.
Understood. Thanks.
Okay.
Thank you.
Your next question comes the line of Charlie Brenda with Credit Suisse. Please go ahead.
Hi, Charlie.
You might be on mute.
Hello can you hear me now.
We can yes hello.
Thanks, Doug.
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I've got two questions. If I can the first is just to come back to your observation on holiday dynamics.
You beat your guidance in the fourth quarter by around four percentage points.
At reasonable to attribute half of that to you won't expect to hold tight dynamic of people taking holidays in Q4 over is that reflected in your your fourq expectations.
And then secondly.
Just on acquisitions.
Well the inorganic contribution was for the fourth quarter can you.
Can you just give us the revenue contribution.
And then just related to acquisitions, we're clearly in uncertain times Im just wondering what gave you the confidence to press ahead with the calm trade do given its one of the largest acquisitions you would have done.
The backdrop seems to be magnifying M&A risk at the moment.
Okay. So I'll, let me just pick up at a high level. The holiday dynamics, we actually saw that one coming so we had anticipated we'd get a bit of an uplift from.
People not taking holiday during Q4.
And so that was built into our guidance whats what happened was if you. If you look under the covers of Q4, there was a sharp ramp down at the beginning of Q4 as clients suspend.
Suspended projects and.
Reduced team sizes, and so on as they would do in the Reprioritization and then a strong pickup in the last six weeks or so in the quarter.
As they pass could commence new things or expanded existing teams.
One site like got clarity around where they want it to focus their energies so.
So obviously that's that pickup.
The end of Q4 was visible to us at a time, we've given the guidance.
And indeed that was even potential that things could carry on dipping for awhile.
So thats why the beat came through as strongly as it did.
Yeah and on the margin Charlie I mean, it's purely really to that utilization.
And so we are about the time of issuing the guide.
But we have quite a significant bench things start to get absorbed so utilization was better than we anticipated by about two percentage points, which is roughly.
Well, we've done that we've ended up so sequentially. If you look at our.
Gross margin from Q3 into Q4.
So on the adjusted basis from 43.4 to 41.2.
So the gross margin was stronger than anticipated.
Everything else was broadly in line, so demand stronger utilization better.
Yeah, and just coming to your question on the.
On the acquisition of Cts.
I mean these were these were a team that I've been talking to you.
18 months I first met them in January two.
2019.
And they want they want.
They went on the market so I had to persuade them.
So that it was a good thing to become part of an adult.
And we had started to diligence with them.
Prior to the pandemic hitting it pulls.
It pulls it for a couple of months.
Probably.
Just how the recognition of the uncertainty of the time.
But as we go into June and we can see our business picking up.
And.
And I was confident because I knew this team well and being working with him over a number of meetings.
I thought it was keen to go ahead and execute on some.
On something which I think over the medium to long term, we will make a big positive impact on indaba. So.
So so that's why we went went through with that.
Perfect Mark are you able to help us with the revenue contribution from M&A and careful.
Yes, I mean for the full year full year 20, and we take constant currency pro forma 24% and said the organic elements of that 20%. So Q4.
Looking at contribution from M&A of around 5% to 6%.
Which gives you an indication of the growth that we put in organically.
Which was where basically we got left on the revenue against the guide.
Perfect. That's very helpful. Thank you.
And your next question comes the line of Jamie Friedman.
Just Kwan. Please go ahead.
In your prepared remarks, John you had mentioned that the.
Business in general have a lot of starts and stops. It was late would you used in the quarter I was just wondering.
Right.
Operating perspective, what kind of challenges that create in terms of utilization bench commitment. That's the first question and then.
Okay, and then Mark in terms of the margins going forward are there any seasonality call outs for the seasons all off because.
Some of the unique macro factors.
Okay say, Jamie from an operating perspective, yes when.
When you get projects, stopping and starting or you'll needing to redeploy its obviously not a completely seamless.
Activity, where people step off one project and move on to another.
Say that.
That lag effects, where people come off and then move on to another is the main reason if you like why you saw us a step down in.
In revenues from Q3 to Q4.
And then sort of looking forward.
I think we've always had a son some slight seasonality around on margins because all our major pay round guys thing first of January so we tend.
We tend to step down slightly on our gross margin in Q3 Q4, so that dynamic will remain the same but in terms of the near term. This I think there will be a slight coming off in the gross margin.
Well, we've seen in Q4.
To this impact that John was pointing out around people delaying taking all of that.
So the margins I think will continue during Q on Q to that level and then we'll just see that the usual seasonality where the annual pay around goes through.
Let me start to recover that through all right negotiations with clients thereafter.
And then if I could sneak one more in.
Thank you for the incremental disclosure on the bookings book to Bill.
How much of the business typically is like sell and bill, meaning it's booked and billed intra quarter. I think you said in your prepared remarks that.
To put words in your mouth, but you did give.
A perspective as to it would take.
Weeks or months before the bookings started billing what's the what kind of duration do you get added that greater than two book to bill.
So the book to Bill.
I mean, we don't publish it because its much bumpier.
Are the reason for pulling it out was there has been a lot of questions about.
Has caveated in the pandemic environment impeded our ability to sell and close business to.
To fill the pipeline and see things come through so the real reason for.
Highlighting that was to make it absolutely clear that during this period, we have been able to.
And our opportunities with clients and close deals.
Under the number there is a mixture of longer term deals and and short term in nature.
The short term in nature. It does get built very quickly.
Long term if it's a if it's a three year deal can be.
Can be fairly flat over three years and it can take time.
Can flatten that that booking over three years.
That was it wasn't say unusual mixture.
If you like it was a fairly normal.
Mixture.
That that was a.
A number of new sizable opportunities that we picked up.
Where we the entire process form.
The first call with a client three to starting a project occurred.
In a virtual environment and there's not been any face to face meetings with the client.
So.
I think in the in terms of the guide that we've put in you can see some of that work coming through.
But our belief is that the the major benefit of those values bookings are the projects that weve kicked off when we spend in Q1 that we seen demonstrating.
Got it thank you.
There are no further questions at this time I will turn the call back over to the presenters for closing remarks.
So thank you all for joining us.
These are interesting and on certain types.
But I hope we've been able to give you some real insights into how in Dover is responding and how it's performing and I look forward to catching up with you all.
In around November when we do our Q1 results.
This concludes today's conference call and now disconnect.
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Okay.
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