Q1 2021 Epam Systems Inc Earnings Call
Okay.
Thank you for standing by and welcome to the E systems first quarter 2021 earnings conference call at.
At this time, all participant lines are low listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.
Please be advised on today's call is being reported.
Crime missile systems, Please press star zero to reach an operator.
I'd now like to hand, the call low Mr. David Straube head of Investor Relations. Please go ahead.
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 2021 results.
Not a copy is available on ebay on dot com and the industrial section with me today are all Ekati, Dobkin, CEO, and President and Jason Peterson Chief Financial Officer.
I'd like to remind those listening that some other comments made on today's call may contain forward looking statements. These statements are subject to risks and uncertainties as described on the company's earnings release and SEC filings.
Additionally, all references to reported results that are non-GAAP measures have been reconciled the comparable GAAP measures and are available on our quarterly earnings material located on the investors section on our website.
That said I'll turn the coal arc.
Okay.
Thank you David Good morning, everyone and thank you for joining us today.
When you think myself.
For the past month to.
Two months that we are still very.
The weighted much global pandemic.
<unk> continued to be United and other elements.
Good.
Over the last year, we will do everything possible to support other people to grow as a company interest in visa Inc.
Sure.
Now turning to our results for the first quarter would be dilutive, so strong at $81 million, reflecting growth of 20% year over year as reported and 18% on constant currency.
Non-GAAP earnings per share for $1 two of sales, 27% increase over the same quarter in 2020.
Well, maybe on your gross on blinded at the vehicle level for stability enabled us to continue to English and at higher levels across the business.
Since we last talked mid February we have Susan.
On meaningful increase in demand across our business.
A notable acceleration moving into the.
The circumstances of COVID-19.
And for Us.
Just wanted to double down on digital transformation.
Jos.
Recently.
Well not only build from a blood flow.
You can see with digital products and services as well as to modernize and transform.
Just two other and delivery models.
Yeah.
Did you.
This is Jason.
With increasing interest in business strategy, new types of engagement platforms cloud migration and modernization efforts data engineering and data analytics engagements and then toward Washington, logging and AI applications.
When industry perspective, we experienced from the laggard, most notably in life science on their financial services insurance, CPG retail and telecommunications.
Because there is a focus on building a stronger vertical expertise delivering more effectively all marketing capabilities importance and using data and club.
As a result.
We still have much more work to do to continue building, our integrated consultative propositions Sunday from continuing brands.
Is that all increasing depths and vertical domains you already see allergens are preliminary sales delivered an increasingly differentiate and offerings to all global enterprise customers.
From an example.
The pump sales.
For box is creating the plus corp.
The low with a modern cloud based applications for this.
Services and renewals the data or things to a new generation of consumers.
It is a critical part of parts of your cloud and data driven for submission for Equifax.
Working together to build a Google cloud platform based data public.
So enables equal parts other than ours.
Yes.
Legacy data sources into a single seamless structure, well keep them all critical government on separation measures in place.
So for us.
The operating nickel plus legacy systems to the cloud nature would normally take yes, you pump successfully assistance and transport of Echo consequent for them on vacations from lives on less than a year.
This is only one example is the repeat on a go.
Most of markets and to be able to close and so from financial services for your bonds and interest in retail until blood flows.
We believe this underscores the loss of technology change the discussion all industries, Inc.
Higher levels of activity.
The oldest denied.
And hopefully soon for squeeze environment, the non boat business in Atlanta, and processes, which must be digitized as go into the rapidly increasing.
Gross markets, along with our partner systems.
Jason composite Willis to capture data.
And I will.
Give us sizable it won't look at 10 years for sustainable growth.
To meet this growth. We also continued to focus on scaling up on them.
Yeah.
So on the 40 children.
Moving to reliable and secure the operations.
You won this presented an opportunity it deliberate each of those investments in infrastructure model target processes and touring for.
On the globe to explorer.
And the beach weekend actually weighted broad Italian markets and deploy it in a more diverse set of capabilities.
The result is.
Net that's called growth is accelerating.
For Q1, we welcomed approximately 23 Congress net cash to par, which included an increase of senior level hires coming to us with strong industry.
Students inaugural since the beginning of Q4, 'twenty 'twenty more than.
You spoke on this net additions have joins the company representing the highest level for powers the step edits from two consecutive losses.
Oh, well this shortly for a gift nickel and deeply industry isn't on industry issue the accounts.
The total investment income failure.
Oh and away from brand recognition and extending and plead guilty of Georgia, We will continue to draw topped out into fall.
Oh, so parcel for pumps gross debt is the expansion on the phone capabilities to be very focused acquisition efforts.
Simply because for the acquisitions bring into pumped out into an experience in the areas of sales force business intelligence and securities.
Landfills, you announced the acquisition of full source of sales force consultancy vs. The Titans concentration in the U S U K and Poland Felix.
He will extent on our sales force seriousness afflictions.
Its global footprint and provide and full of diesel for built in additional expertise IP in scale, but all sales force ecosystem.
It is from Nielsen all acquisition of wholesale partner Rick stuff.
It depends how the sales force EBITDA capabilities and to enable customers to leverage a multi cloud approach.
Other than you would conclude the disposals team to bring two gives a weighted different proposition.
So price clients by drilling and other extended consultant and global engineering courses and to become one of the top global players and the sales force synthesis place.
Yeah.
The acquisition more widespread.
Each cyber security to consultancy based in Israel.
So that expertise methodologies and team will starting to professionals.
Said that defense capabilities to help clients to positive group seven protection reasons air platforms.
Yes.
And lastly, we recently closed an acquisition, which uses data and analytics consultancy for we look this as in Europe, and Asia children customers for growth retail consumer loans.
This acquisition on the ability in Wisconsin to advise us on that.
The force personal data analytics consultancy, including strategies, whether the data management market leaders incinerators customer and end to end deliberate because small to other parts for myself.
We are pleased to cash.
The three companies doing.
Coal Hill, we encourage the low zero day attack.
During the last 12 months, the blue collar leadership position.
Digital segment on the very competitive global it services market.
From a today is much more adaptable Ddos and global company is increasingly strong market listings and all the necessary components for scalable talent took us system.
Required for growth as we think about Dupont coming from five to 10 billion coffee.
Is this let me say on the call over to Jason to provide more specifics in our Q1 results.
Debt to our 2021 business on.
Thank you Ark and good morning, everyone. We're pleased with our performance this quarter as Ark mentioned, we delivered strong growth across a broad range of industry verticals and geographies.
First quarter repayment generated revenues of $788 million a year over year increase of 19, 9% on a reported basis.
17, 8% in constant currency.
I can pause from foreign exchange impact of 210 basis points.
Revenue came in higher than previously guided due to stronger demand in the second half for the quarter combined with our ability to accelerate hiring in response to the improving demand environment.
Our industry vertical performance from the strong sequential growth across the majority of the portfolio.
On my higher level on revenues from both new work and existing clients and new customer relationships established over the last 12 months.
The year over year performance across our industry verticals life Science and health care grew 31, 6%.
Growth in the quarter was driven by platform development to support new business models, and data and analytics to drive deeper customer insights.
Actual services grew 28, 3% for.
Gross coming from traditional banking insurance until a lesser degree wealth management.
This was driven by our clients' needs transform me on digital banking to modernize core processes and applications leveraging the cloud.
For and Hi Tech grew 27% on the corner.
Travel and consumer grew 16, 3%.
Driven by strong growth from our consumer clients, along with solid and improving performance with retail.
Business information on media delivered six 5% growth on the quarter.
Within the quarter, reflecting the tougher comparison with the same quarter last year.
From clients, having experienced substantial growth in the first half of 2020 with revenues from those programs generally plateauing late last year.
Finally, our emerging verticals delivered 23, 6% growth.
By clients in telecommunications automotive and materials.
From a geographic perspective, North America, our largest region, representing 62% of our Q1 revenues grew 21, 6% year over year on a 19, 9% constant currency.
Up representing 33, 2% of our Q1 revenues grew 16, 3% year over year for 10, 9% in constant currency.
Yeah, yes, representing three 9% of our Q1 revenues grew 21, 2% year over year on 28, 2% in constant currency.
On the APAC grew 53, 9% year over year for 48, 4% in constant currency and now represents two 7% of her readiness.
Growth in the quarter was driven primarily by clients in financial services. Additionally, the shutdown of economic activity in the region in March 2020 produced a beneficial year over year comparison.
Q1 revenue growth across the portfolio with more diverse than in previous quarters.
Our top 20 clients growing 12, 1% all clients outside our top 20 grew 25, 9%.
Additionally, we saw good growth from both existing and new clients.
Moving on the income statement, our GAAP gross margin for the quarter was 33, 5% compared to 34, 9% from Q1 of last year.
Non-GAAP gross margin for the quarter was 34, 9% compared to 35, 5% from the same quarter last year.
The lower gross margin in the quarter was primarily the result of Q1 2021, having one less available day of capacity.
Q1 2020.
Additionally, we're beginning to see some degree of elevated labor costs.
Certain geographies.
SG&A was 17, 5% of revenue compared to 19, 2% in Q1 of last year.
Non-GAAP SG&A came in at 15, 5% of revenue compared to 17, 6% in the same period last year.
SG&A continue continuous from reflect a lower level of corporate spend which we believe will tick up as we progressed throughout the year.
I think from from operations was $107 3 million from 13, 7% of revenue in the quarter compared to $87 5 million.
13, 4% of revenue in Q1 of last year.
Non-GAAP income from operations was $136 9 million or 17, 5% of revenue in the quarter compared to $105 3 million 16.
62% of revenue in Q1 of last year.
Our GAAP effective tax rate for the quarter came in at five 1%.
This includes a 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, 7%.
Diluted earnings per share on a GAAP basis was $1 86.
Non-GAAP diluted EPS was $1 91.
<unk> at 26, 6% increase over the same quarter of 2020.
You wanted to or approximately $58 8 million diluted shares outstanding.
Turning to the cash flow on balance sheet cash flow from operations for Q1 was $12 8 million.
Year to $63 3 million in the same quarter of 2023.
Free cash flow was $1 6 million compared to $34 2 million on the same quarter last year.
Lower level cash flow on the quarter was a result of the timing of payments related to our annual variable compensation programs returning to more historic norms.
Additionally, income tax payments were higher compared to the same quarter in 2020.
We ended the quarter with 1.3 dollars 7 billion in cash and cash equivalents.
On DSO was 67 days on the third and.
And compares to 64 days in Q4 and 2027.
Seven six days from the same quarter last year.
I believe we can continue.
The levels for <unk>.
Moving onto a few operational metrics, we ended the quarter with more than 38008 on.
Engineers designers on consultants.
Year over year increase of 17, 3% and a sequential increase of five 7%.
Total headcount for Q1 was 43000 and 415 points.
Utilization was 81, 4% compared to 79, 5% in Q1 of last year and 77, 9% in Q4 of 2020.
Now, let's turn to guidance.
We continue to see strong demand across a broad range of our offerings.
The elevated demand across the portfolio combined with improvements in staffing and capacity, we are raising our revenue and EPS outlook for 2021.
I mentioned during our last earnings call throughout 2021, we will be investing at elevated levels across the business to support growing demand and we will continue our expansion into new geographies underpinning our long term growth objectives and goals of becoming a large both our larger and increasingly global you Pam.
Starting with our full year outlook.
Revenue growth will now be at least 29% on a reported basis and in constant currency terms will now be at least 28%.
After factoring in an approximate 1% favorable foreign exchange impact.
Now expect approximately 200 basis points from revenue contribution to come from acquisitions, we closed on the last 12 months.
We expect GAAP income from operations to continue to be in the range from 13 five to 14, 5%.
And non-GAAP net income from operations to continue to be in the range of 16 five to 17, 5%.
I mentioned earlier, our income from operations reflects a higher level of investment from the planned expansion of our capabilities and geographies on 'twenty one.
We expect for GAAP effective tax rate to continue to be approximately 12% and our non-GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation to continue to be approximately 23%.
Earnings per share.
We expect GAAP diluted EPS will now be in the range of $7.09 to $7 from 31 cents for the full year.
Non-GAAP diluted EPS will now be in the range of $7.54 to.
To $7 from 76 cents for the full year.
Weighted average share count from 59 million fully diluted shares outstanding.
Q2 of 2021 we expect revenues to be in the range of $853 million to $861 million.
Year over year growth rate on proportionately.
35, 5% at the midpoint of the range.
We expect from favorable impact of FX on revenue growth to be approximately 3%.
Lastly, we now expect approximately 250 basis points of revenue contribution to come from acquisitions, we closed on the last 12 months.
Second quarter, we expect GAAP income from operations to be in the range from $13 five to 14, 5% and non-GAAP income from operations to be in the range of 16 five to 17, 5%.
Our GAAP effective tax rate.
7% and our non-GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation.
2020.
Yes.
Earnings per share, we expect GAAP diluted EPS to be in the range of $1.76 for $1 83 for the quarter.
Non-GAAP diluted EPS in the range of $1 98 to $1.95 for the quarter.
Our weighted average share count of 59 million diluted shares outstanding.
Finally, a few key.
GAAP to non-GAAP stock.
From based compensation expenses.
Approximately $21 8 million in Q2 from.
On $1 5 million $321 2 million in Q4.
Thanks for intangibles.
Approximately three 1 million for each of the remaining quarters.
Foreign exchange is expected.
Ultimately a $1 5 million dollar loss for each other on them.
Effective non-GAAP adjusted.
Activity around $5 $7 million from Q2 on approximately five $5 million in each remaining.
Remaining quarter.
And finally, we expect excess tax benefits to be around $14 2 million in Q2.
We went to minus three.
6 million from Q4.
Separately, we are pleased with the high quality results, we delivered in the quarter, which combined with the broad based strength, we see across the business to support strong 2021 performance.
Operator, let's open the call.
For the question.
As a reminder to ask a question. Please press Star then one.
For your question has been answered and you'd like to leave yourself from the queue press the pound key.
Our first question comes from Bryan Bergin with Cowen Your line is open.
Hi, good morning, Thank you.
Wanted to ask on the outlook for can you talk about where the strongest recoveries and demands have been at a better enable the upside guidance race here and are you seeing improved pricing discussions with existing clients or is this upside predominantly being driven by volume or.
Yes, so the upside would predominantly be generated by volume and say what we are seeing is that it's a whole wave of.
Modernization programs kicking off within the financial services industry. So a significant amount of growth expected as you saw on Q1, but also what probably further acceleration of growth in financial services in Q2 due to the modernization programs with our with large banks and then also with at a much accelerated growth in insurance.
We're seeing recovery in the in the travel and consumer section of our portfolio quite strong growth with them with.
Consumer oriented programs, both in retail on with consumer goods companies, we're even beginning to see some on a sequential.
Sequential growth in the in the travel space.
We're seeing strong growth in in <unk>.
In health care and life Sciences were seeing a continued sort of solid growth in our traditional sort of high tech software and high technology clients and we're seeing an emerging kind of our emerging vertical with very strong growth in telecommunications automotive and materials as we talked about and again, where we expect beta.
In Q1, and Q2, we expect to see.
Even stronger growth in financial services, even stronger growth than Q1.
In the in the travel and hospitality vertical and again, even stronger growth in the emerging verticals and so again it is pretty broad based its existing relationships, it's new relationships or we're seeing some good new customer.
<unk> revenues and then from a pricing environment I think we're having more constructive conversations with with clients and I think both existing and new clients understand that debt with the wage inflation. That's out there on the marketplace debt. It is going to likely require somewhat higher pricing to support. The addition of new teams but.
For the most part this is this is volume based.
Okay and then on on margin you talk about building cadence, particularly in the second half for the year, which would suggest you're pretty well set up within the outlook, but did you have any investments that had shifted within the year or any changes in your expectation on the scale of talent investments can you can you dig in a little bit on that elevated labor cost come out.
Yes, we're expanding our capacity in terms of adding staff and probably you know that would probably more show up in the in the SG&A portion.
I think that as we look at gross margin I, if I were to be very clear I think we're expecting now the gross margin might be slightly lower.
Lower than Q1, but lower than our original expectations for 2021.
Based on this updated guidance, but SG&A will also be somewhat lower and so we're able to maintain the profitability in the 16 five to 17 and a half range that we've talked about with a real focus on the midpoint of 17%.
But we are seeing somewhat elevated.
Levels of the compensation being required both to retain and bring staff in TEP and <unk> and that's something that we're mindful of.
Fourth as we produce the guidance and as obviously, we try to drive the company throughout the remainder of the year.
Thank you.
Okay.
Our next question comes from Maggie Nolan with William Blair. Your line is open.
Thank you.
They build up on some of that talent questions and any changes to the geographic focus that you talked about last quarter with Poland, India and Mexico, just given some of the talent challenges and then as you broaden your capabilities and become a more global company and what do you think is the right disturbed.
You should not that talent in terms as onshore nearshore and offshore locations.
I don't think there are significant changes soon as a deduction from the locations.
Locations like we talked about Joey talked about Mexico, and we continue to to grow with them actually Indu probe is the fastest growing for us component.
In Thailand composition right now so.
From this point of view again.
E T a becoming more distributed and more balanced and concentration is guido.
Eastern Europe.
So each of the non mall of user gross gross of the company on globalization of our clients as well so in terms so for was the worst.
Offshore onshore we're still increasing.
In Korea now on shore component.
Especially these are complex you chose engagement with.
Do it.
On the associated to Phil.
Strong industry connectivity on consultant.
As you saw that's growing but it's not drastically changing as well. So if you let it go for the.
Manages a balance right now.
So what does a deal I don't see opinion, but then also it's a very dynamically changing them. Even if you think about what scope on the 'twenty 'twenty on continued work in 'twenty one.
I don't think anybody is talking about ideal right now.
Okay, and then Jason I understand the current <unk>.
Margin dynamics that you just outlined on and the expectations, but when you think about more kind of medium term and becoming a more global company does that allow you to start to drive gross margins back up over time or what should we expect over kind of a more medium term timeframe.
Yeah. So let me try to be so on the I guess, the 34, 9% adjusted gross margin that we booked here in Q1.
The lower level of gross margin was in part the result of there being one less available day of capacity in the quarter.
And so that's it and it's just the way that Monday through Friday. This fall on the calendar for for Q1, there was one less day than what we would've traditionally seen in previous Q1s. However.
However, I do think we are succeeding.
Somewhat elevated levels of wage inflation and those could continue to elevate throughout the fiscal year. So I think that in the let's call. It in debt throughout the remainder of the year.
I think we might run.
Below the approximate sort of 36% that we've kind of talked about over time from a gross margin standpoint. It is I think it would be it's sort of generally stabilized at a slightly lower level than that that 36%, but.
So I don't expect it to continue to decline and I think the question Mark is kind of what happens in 2022 on <unk>.
Right now again, I am feeling that we'd kind of gross margin is going to stabilize.
And then we'll kind of see what happens throughout the remainder of the year in terms of.
The pricing environment.
And I think we'll be able to provide a little bit better guidance, probably later in this fiscal year.
Okay. Thanks, Mike.
Sure.
Our next question comes from James Faucette with Morgan Stanley. Your line is open.
Thank you very much I wanted to ask on on hiring.
The 2000 net head Count addition, looks really strong, especially considering the competitive environment for talent can you provide a bit of an update on on hiring and the traction you're seeing on on anywhere and I guess, just generally you're hiring strategy for fiscal year 'twenty, one and what do you think is achievable are sustainable given.
Just the strong competition on demand for high skilled talent right now.
I assume could comfortable.
With current level of guidance, so I assume <unk> soon can vote couple of thousand.
Couple of thousand net you per quarter it should be achievable for this year my vehicle, besides you'll see but based on our understanding of the market, which is extremely challenging I don't want to downplay is it like.
When I say, we should probably shooting from Adi as a company.
He should be differently included it's extremely challenging market.
With yes.
The other ethical distributions, we have today, which we will build in the last five six years.
Very purposely so assume people would be able to continue.
Continue vs replace it with.
Sure.
Got it got it and then you announced the White had acquisition yesterday, just what's your appetite for further acquisitions this year and and what kinds of capabilities. Do you think are important to be looking for in <unk>.
Looking to add.
Really nothing nothing changes in our direction in M&A. So.
Hi, guys. This is Kathy on for day. So I just wanted to ask about utilization Uhm do you <unk> you know what's your comfort level at this around 81% you know kind of I know you guys are slowing a little bit of sequential headcount growth that so very strong you know just wanted to know kind of how are you balancing that and what's the real sweet spot on utilization.
Yeah, when we're running at any one person that would still generally be hot so where we continue to explore kind of what the right level is I think we believe that somewhere in the high seventies continues to be a better place for us because it does allow us to be more prepared for new customer engagements and for them.
For an unexpected expansion that existing customers and so I would say that is we think about the remainder of the year. We're we're thinking more in the in the in the high seventies. We also think that there's some possibility that there could be some elevated vacation taking from the second half. If you think about all of the the unused vacation that's out there from 22.
20, our revenue guidance would also incorporate some amount of lower utilization due to to further vacation taking in the in the summer and fall months.
Okay, perfect and just a follow up question wanted that you know has there been any change in deal sizes that you guys have seen or you know an update kind of on to pay that converting backlog to avenue. It sounds like you guys I haven't had any problems, but you know I just wanted to get an update there.
I mean, there's been a series recently of I would say quite large modernization programs that are likely to be multiyear link that are kind of kicked off and you know as we've discussed is that we continue to engage with our customers and let's say a somewhat different way then maybe we put a five year.
For us to go work with a broader sort of consulting solution hang and then of course sort of delivery capability and I think you're seeing more of those types of engagements as well.
Okay perfect. Thank you.
Thank you.
Next question comes on most of the Katherine with Wedbush. Your line is open.
Most of that you may be muted.
Operating why don't we go to the next question.
Our next question comes from Ashwin.
Sure for care what city your line is open.
Thanks.
Hey, Jason Good day Ashwin for.
Alright.
To talk about it right now.
Got it got it Okay, and then you know I know that there's always churn in sort of the top 20 client new stopped implant is that thing, but clients outside top 20 growing faster.
<unk> is that you think that's a.
General sustainable trend, whereby just you know newer relationship to kick off and damp much faster than expected does that what what your what your <unk>.
Yeah, I think when we look at the pipeline that we expect it's a trend that was certainly continue on queue to wear again, we have no more rapid growth in our other than top 20, then in our top 20.
And then we'll see what happens throughout the remainder of the year, but you know I.
I think last year was a little bit unique right, where we had probably a series of customers on our top 10, who are very large corporations, who are probably probably less impacted by the by the pandemic in terms of their <unk> their business and those companies continue to grow quite rapidly I think this year, what you're beginning to see if some of the new relationships we established.
In in 2020, and then also relationships that we've had for long periods of time, but where the clients are looking to do you know very important kind of modernization programs. They were looking to eat Pam and that's driving growth as well and that's in the the other than top 20 customers.
Got it okay. Thank you.
As a reminder to ask a question. Please for Star then one.
Our next question comes from Jamie Friedman with S. I G. Your line is open.
Hi, Good morning, Great results here Uhm I Wanna.
Ask you are about two things you had in your prepared remarks. So the first one was.
About the theme of David Digitization I think it was on language that you were using I'm. Just wondering do you consider that like modernization last quarter. You started talking about systems integration, how would you characterize character like cat categorize where.
Data digitization.
Uhm is classified.
I.
I don't think it was a data digitization terms soon towards.
Some quota too for.
Call today was a burst of I was talking about general much more kind of traditional term digitization in general and clearly data enclosed.
L O.
Significant Rosa so what I did not try to the wilderness Hotel [laughter].
And then I did notice, though that you.
So.
You said $5 billion to $10 billion.
As the target for the company I realize you haven't given a time for frame.
But my recollection is that's a little bit different bigger than what you had said previously which was just to double.
So.
Any context that you could share.
On the 10, especially because that's a lot more than five.
It would be helpful. Yeah, that's that's how long the other so longer discuss them clearly for you I notice if you're watching us for where to work time for.
For our particular before before with you on nine years ago, and you remember what zone.
And you saw was was hoping enough to a pure was we were changing every soon for or if it inc. Two hour delivery.
Landscape to make sure that you're looking for the non will he has occurred.
We practically weird over to comprehend is three years if not.
When Derek.
We probably would do that with the advent of this here against three years ago and who knows.
But if you if you could even slower pace them.
It is pretty practical simple on all sides right now how to become company O five for.
Quite a bit on Ohio so.
And let's call we seem can involve built into the company and not just for the next quarter.
Got it thank you I'll drop back in the queue.
Our next question comes from Randy <unk> with Barclays. Your line is open.
Focusing on way before on David Keith and I think that's what.
We have put in and I assume productivity.
Yeah.
Not really impacted.
At the same time, which pushed a lot of these are believers in this highly distributed way of working and had to accept his speech, making all of this.
To work, even better so I think that will stay I think oh human process everybody on on.
<unk> been talking about we will take or what they will be 10 months.
Got to order right now to judge.
And quickly on the margin front I think we had modeled debt the second half of the year would move towards some degree of normalcy, but as Ark, just said you know.
It's unclear that debt, we end up there.
In the second half, but the idea was that there would be some some.
The increase in cost, we still think that theres, some temporary benefits debt that we're seeing it in the P&L, but I believe that we are seeing.
Greater efficiency in SG&A and some of that's going to stick in future years. So on so that's kind of how I think about the business right. Now is as I said before running very much in at the mid point of that 16, and a half to 17, 5% range, which is pretty much. The top end of the range that we used to use at 16% to 17%.
And so we definitely accountants.
For the situations that if everything suddenly improved travel might pick up so we think about it.
Our non watch right now, but again.
North Korea for its going to pare back on that.
That's that's very helpful. Thank you all for the color there and maybe I'll just do a quick.
Follow up here on involuntary attrition just if you could speak a little bit about what youre seeing in your employee base on how that sort of change obviously, it's right at the beginning of the pandemic, but just an update on involuntary attrition that'd be great. Thanks, guys.
So I'm going to assume for voluntary or.
Rather than involuntary or do we still have it okay. So I'll just kind of talk.
Sure.
So we so right on Christian.
Yeah attrition in Q1 for.
For the entire quarter is still relatively low below 15%, it's actually somewhat lower than it was in Q1 of 2020. However, we are beginning to see some degree of elevation in attrition at the end of the quarter in March and here again in April and so again, we are below.
Oh, 15% and again.
I think well within our expectations for the quarter as a whole, but beginning to see some some increase in attrition.
Both at the end of Q1 and the beginning of Q2.
Thanks, guys.
Our next question comes from Latin America in Blanco with BTB capital. Your line is open.
Hello, Congratulations on the number and thank you for taking my question. My first question will be on your on your latest acquisition.
You are clearly moving to the side for strategic area, which probably has not been that much for focus before could you. Please provide more color on are you looking at this area for you.
Because for <unk> or <unk> going to be kind of complementary to your offering.
<unk> two to the clients and my second question will be on price discounts last year. During the pandemic you provided price discounts to clients, but this should be expiring now will be for.
For you to generate more revenue for them to help with pricing. Thank you.
So on the first question about cyber security just so it's always was a important part for us when we built applications.
But for us because the zone.
Of the day that sort of a lot of the win for us to make sure that it's.
Secure enough is there as we all understand.
<unk>.
We organically developed.
Practices capabilities, but similar.
Similar like who is the other.
These other capabilities, which are important for credit.
Overall platform ingredient so.
Additional skills.
As I mentioned, it's a.
Relatively small consultancy work.
Very high.
Experience.
Because it will be just a part of our global.
Global Engineering practice, which falcon to us to make sure that every day since good. So I think it's really simple answer here, but it's nothing.
Nothing special to yeah.
Yeah and on the pricing front youre right that the COVID-19 concessions are pretty much gone at this point that would have already sort of showed up in the Q1 numbers and in the guide for Q2. So I don't think that there's too much uplift to be expected from that.
And as we've talked about we're increasingly having not always easy, but let's call them constructive conversations with clients about pricing.
Yeah.
Thank you very much.
Yes. Thank you.
Our next question comes from David Grossman with Stifel Stifel. Your line is open.
Thank you good morning.
I wanted to first if you could just.
Perhaps give us a little more insight into your commentary about modernization in the financial services industry and that being a driver of volume growth.
Could you just give us a little more detail on what exactly you're referring to.
There's a specific catalyst that maybe driving that.
Larger programs.
Yeah.
Hey, Kevin.
I don't think we have we have time here for moving discussion but.
It's still pretty generic and pretty much in line with everybody.
For all Silicon worked with.
Even though example issue for you this morning about across our suite.
Bring in infrastructure applications to the cloud with a very often.
Additional additional functionality and upgrade on this and maybe with a very different targets and that's a huge huge.
Efforts across multiple capabilities usually touched on.
Legacy day.
Better analytics on the evolution so.
I don't know what specific.
We can add here, but.
Glenn.
On line Wei Wen came for.
From one point to you and go into two.
Again cloud new architecture from one other point to probably to describe it.
Full scale over this.
Okay. Thanks, we can we can take that offline and then the second question I had was I know there's already been a lot of questions about pricing on wage inflation margins et cetera, but I'm just curious.
Why is this playing out differently than they historically were.
The market is a little more dynamic in terms of responding to that imbalance it sounds like.
Youre being a little more guarded about.
You know kind of debt ability to get pricing at least near term. So is there something different in the market is it that the market may be pricing and.
Some of the more secular.
Opex savings from a work from home.
You know kind of environment are right.
Alright, just misinterpreting this and this is just the typical dynamics that you see it.
Yes.
Yeah, I think one of the questions Youre, asking is whether or not with work from home that's impacting pricing that clients are somehow asking for either no rate increase or savings from that is that what you're asking David or.
Well that was just.
Kind of a guess on my part debt what could be going on but the bigger question is just why that market.
Is it responding as quickly to the supply demand balance that you're talking about in terms of.
Sure So I think it.
David I think it just takes time right. If he is as you would know with both <unk>.
Engagements that you negotiate pricing and <unk> and everything that are in place.
You know it takes some time and then of course clients who've got budgets and.
Clients are still trying to work their way through through what happened last year.
So those conversations are definitely accelerating.
But probably a little bit of disconnect just based on the economic disruption of last year and I think those conversations will continue.
Potentially accelerated.
As we work through the remainder of the year on an Ark do you have thoughts are.
No I agree I think it is timing because has to change for all we don't know what would be happening.
Turan.
Uh huh.
As soon as there is a good on for GAAP purposes.
But we will see.
And maybe partially Yogurts also correct as well for us.
And some thinking.
There is the idea that it's probably cheaper who's out infrastructure, but it's not necessarily true because investment on support and distributed.
Again as the balance so here because it's all.
Kind of a very connected.
So my.
It might require even more on the questions.
Right.
And just one last question just I think this came up on another question as well about growth outside the top 20, but.
My recollection is that over the last 12 months, particularly during the pandemic that you had to prioritize.
And your capacity utilization to those larger customers longer term customers is some of that growth. Because this is more of a normalized.
You know kind of dynamic for you on with that growth outside the top 20. So is that just an indication we're back toward normalized operating environment or is it something different than that.
I don't know if you're trying to.
Derive from.
Conclusion from this dynamic I think.
There are some big clients, who each inside of the top 20 wishes.
Growing very aggressively there are some clients features slowdown practically flipped out and there are.
Several clients issued pickup just dwell for 18 months ago, who now product.
Become a part of.
Part of our.
Top 20, I don't know if its function of the market.
More function of epub change in dynamic as well, so and I think probably it soon.
More on the second one where we though offering we now can accelerate some.
Some clients do well on much faster.
Mhm.
Got it okay guys. Thanks very much.
Okay.
Our next question comes from Jack Nichols with Keybanc capital markets. Your line is open.
Hey, Good morning. This is Jack on for Steve vendors.
What trends are you seeing with account consolidation within your accounts and whats been your ability to capture incremental share of wallet.
I would.
On Cerro Verde.
Very shortly so I think we're pretty happy with our ability to consolidate.
And some accounts right now I think we went into the budgets and so inside those accounts.
Do you think you'd certainly see the performance in financial services that would give you some indication there.
<unk> had some success there.
Okay.
Okay, perfect, Thanks, and you've talked about investing more on your consulting business, how have those investments been resonating and how much have you been able to capture consulting services within your customers.
Yes, as we mentioned like many many times, we're not trying to just capture consulting services, there's a lot of business to be trying to get in the conversations with.
Visa clients much all day is the game to make sure that we can actually derive.
The next day it was a tale of the consulting.
Kind of.
On activities to more practical implementations of the platforms and I assume.
Again, we pre too.
J P. The progress, which we do look quarter after quarter and as we get to new use cases seem to be getting higher zone.
Well Ya Qin and creating this examples but again, it's not about just chasing a consult with market.
As a pure consulting credit.
Okay, great. Thank you.
Thank you.
Okay.
Our next question comes from Arvin Ramani with Piper Sandler Your line is open.
Alright, congrats on another great quarter.
It's just a question on on some of the sort of emerging technologies that are working on them.
And a couple of years back here for working on on.
On the blockchain technologies are you starting to see.
Kind of interested in in those.
And in the areas of blockchain is that is that becoming a meaningful portion of your.
Oh for kind of capabilities.
And and as.
Similar to blockchain as it is is this stuff on like.
AI that debt net debt to golar.
With the clients.
Yeah.
Is difficult to say that blood channel <unk> was a significant.
Driver, but it's definitely a part of nonwoven engagements is similar like any other advanced technologies as well.
And so we definitely see an ulcer.
So on peak option and engagement.
While it's still relatively small portion of what's happening, we think it might accelerate into the future.
Because again a lot of effort during the last several years to create a data infrastructure capable to support for this type of new applications.
I think I wrote.
Finish with this.
Great great.
And just making on it.
But I guess by then.
Digital which is kind of a very broad work.
Uh huh.
Are there particular areas within digital that you're seeing it really fast fast growth.
Because I mean like I said digital is extremely broad.
It could mean, many different things, but are there specific technologies that you're seeing.
Really high growth already high levels of client interest.
Yeah.
I think I would prefer and even through my current low ground to talk about very broad brush terms and clearly again everybody knows.
All this cloud modernization as a driver and around this.
A lot of a lot of different six important but I wouldn't call anything specific right now.
Perfect. Thank you.
Okay.
There are no further questions I'd like to turn the call back over to art for any closing remarks.
Yes, Cynthia Cynthia day, everybody for proton to do for them to participate.
And as usual if you have on equation.
Dave is available to help.
Talk to you in three months since you very much.
Okay.