Q3 2021 Endava PLC Earnings Call
Okay.
Good day, and thank you for standing by.
And welcome to day Indaba plc earnings release third quarter fiscal year, 2021 conference call.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session.
If you would like to ask a question at this time, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker for today, Mr. Lars maintain please go ahead.
Thank you operator, good afternoon, everyone and welcome to end of a third quarter a fiscal year 2021 conference call. As a reminder, this conference call is being recorded joining me today are John Cottrell and death, as Chief Executive Officer, and Mark Thurston and a as chief financial.
Yes, Sir.
Before we begin a quick reminder, to our listeners our remarks today include forward looking statements, including our guidance for Q4 fiscal year 2021 and for the full fiscal year 2021 are expected near and medium term revenue growth to potential impacts of the COVID-19 pen.
That make an associate a global economic uncertainty, including with respect to our expectations regarding future work arrangements for our people our expectations regarding digital transformation of existing businesses and industry.
The necessity a digital transformation for many companies and and that is the ability to benefit there from anticipated client demand find out a services our expected ability to leverage our intellectual property to provide more cost effective deliverables to our clients with greater speed.
Alright, spectation regarding expansion opportunities and our ability to execute on our sustainability objectives 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 repair.
Where did 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 to the extent required by law.
Please refer to the risk factors section of our annual report on form 20-F.
With the Securities and Exchange Commission on September 15, 2020, which contains a discussion of important factors that could cause actual results to differ materially from those contained in any forward looking statements.
Also during the call well present, both a S. R S and non Ifr S financial measures a reconciliation of non ferrous to a serious 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 be.
A available there with that I'll turn the call over to John.
Thanks, Lawrence and I'd like to thank you for joining us today I do hope that you're all staying safe and healthy in these unusual times.
We're pleased to be here to provide an update on a business and financial performance.
For the 3 months ended March 31st 2021.
Now while the COVID-19 vaccination campaign is underway around the globe life is not yet back to normal.
Even as lockdown restrictions are being gradually lifted in many countries.
We continue to prioritize the safety and wellbeing of our people as.
As this pandemic effects the countries and the communities in which they live and work.
But even in that context, we've seen a strong demand for our services.
We've seen that digital transformation is at the heart of significant changes in how the world does business and we continue to grow in all regions and all verticals.
And all of a had a solid Q3 for a fiscal year 2021 with revenue of 112.3 million pounds, representing growth of 23, 8% year on year in constant currency for.
From 92.2 million pounds in the same period in the prior year.
We ended the quarter with an adjusted profit for the period of 19.3 million pounds, representing a 51% year on year increase from 12.8 million pounds in the same period in the prior year.
A strong revenue growth was once again driven by both the expansion of work for our existing clients and the acquisition of new ones during the quarter.
We continued to broaden our client base and ended the quarter with 567 active clients up from 395 at the end of the same period in the prior year.
For a 43.5% year on year increase.
Average revenue from our top 10 clients grew by 21% year on year as.
As we continue to deepen our relationships with these large accounts and.
And revenue from clients, who paid us a both 5 million pounds increased 41% year on year.
Additionally, we continue to increase the number of clients, who are paying us in excess of 1 million pounds per year with a T. 1 clients in this category up from 67 in the same period last year, representing a 21% year on year increase.
We continue to see an accelerating trend of new clients starting work with us on a small ideation a proof of concept engagement.
And then scaling as they realize the business benefits.
This effect is driving the growth in these large client cohorts.
On the technology side, we see a lot of demand across the full range of a services.
But a couple a technical trends stand out this quarter.
First there is the continued need for digital platforms.
Digital platforms, a cloud native software applications that can be accessed and extended by a well defined a P is allowing them to be quickly and reliably extended form a range of business functions in a particular day mine both by the owning organization and X.
Donald partners.
These platforms are in demand in both emerging industries like Fintech and an established domains like mobility.
And we believe that we are well positioned to meet this demand across industries.
The second trend is demand for application rationalization and modernization.
In large financial services firms in payments and in other transaction based areas of these organizations.
We provide both a strategic view of what and how to modernize as well as the engineering skills to perform the modernization.
Now last quarter I explained some of the work we've been doing over the last few years to create accelerators that make us more efficient and client delivering projects.
1 of these that I'd like to highlight this quarter is a software analytics tool called Kronos.
It is the technical accelerate to the underpins our software analytics service and provides an extremely sophisticated analysis of existing software systems using a range of inputs, including metadata from source code control systems, such as gate.
Change truckers from issue management systems a lot.
Jarrod and.
And other simple a metrics generation tools.
It uses a library of patterns and anti patents to spot characteristics and problems in a software.
Often producing insights that surprised people who've worked on that software for years.
Such as patents a develop a behavior.
Hidden dependencies and knowledge gaps in the current team.
We have analyzed dozens of complex systems over the last few years.
Kronos as being a key enabler for us to do this quickly and reliably.
The understanding of our clients' existing systems.
We're able to generate with class helps us to deliver application rationalization and modernization programs faster and more cost effectively than we were able to do without this tool.
Now we recently launched all we care a program to bring to life our sustainability mission.
Making a positive impact on the world around US has always been at the heart of our business and it means a lot to me personally.
And the others cool purpose and values aimed capture this mission.
We identified 5 key areas that we care deeply about first our people as we enable them to be the best that they can be.
Second social impact and a contributions for the communities in which we operate.
Third operating responsibly, demonstrating a ethical approach to business.
Both innovation and data integrity as we continued to provide secure and smart solutions.
And finally, the environmental impact as we play a Pos and protecting our planet.
Now we've captured a documented what we do across all these areas to make it much easier for clients and other stakeholders to understand a passion in this area and what we're doing about it.
As part of our commitment to a people we continue to champion and empower women in technology.
At the end of March women accounted for 35% of all work force.
We recently held our indulge a women's week with a program a exciting and impactful events, including master courses with inspirational industry leaders.
Live Q&A panel that brought together leaders from across a global business.
And the access to 2 major international Women's day events.
Across all locations and Dolphins participated invents encouraging women to imagine the future and I T. While internally. We also launched mentoring initiatives to further support a women to rise in their careers.
Many of our client engagements.
Also a very aligned with all we care a mission I'm going to run through some specific examples on how we help our clients to make a positive impact.
Ox global the creator of the Ox truck has the mission to deliver affordable low carbon transport and emerging markets with the goal of creating economic growth positive social impact and reduced emissions.
To achieve the required low a price.
A physical operating costs for the Nox truck a shared across multiple users on a mobility as a service basis.
We partnered with <unk> to build a simple app that will allow the customer to request an ox service such as transport a distribution of goods to and from a location.
We believe the user centric technology strategy and operating model. We helped design is best suited to serve offices unique target market.
We also helped Macmillan cancer support 1 of the Uk's, leading cancer charities with a digital transformation.
The new cloud based platform will build on micro services, allowing mcmillan to provide a more engaging digital presence that is intuitive and helps and supports uses.
Using this platform people living with cancer and their families can get the help they need when they need it and Macmillan staff can work together more effectively and create new exciting and engaging digital experiences and content to keep supporting the audiences that they're committed to serving.
Electrical Inc. The company responsible for operating the data hub underpinning the U K energy market need.
I needed to deliver a new digital product to support the uk's target of achieving a net zero carbon footprint by 2050.
The goal is to enable electricity distribution organizations and their customers. The best plan for power provision using green and renewable sources.
And David teamed up with electoral Inc. Acting as the delivery partner to build a minimum viable product, providing a graphical presentation of generation and electricity network data.
The client called the final product a game changer, and how the electricity industry will view and use data.
Stem is a global leader in artificial intelligence, driven energy storage systems at storage solutions accelerates renewable energy growth help alleviate power grid intermittency issues and support copra ESG goals, our data scientists and data engine.
Yes.
Worked with stem software team to build solutions that reduce energy costs by automatically switching between using battery powered during more expensive periods and grid power during cheap a periods.
Another area, we've been working with home cycle technologies, and innovative startup reinventing, how plastic and aluminium items a recycled.
The company pays customers to recycle based on a unique codes on the containers and specialized trash bins. We helped build the recycling system App for that pilot currently running in a state of New York as well as that website.
We've also been working with lineage logistics, the world's largest and most innovative temperature controlled industrial REIT and logistics solutions provider.
They are transforming the supply chain by preserving protecting and optimizing the distribution of food.
We are assisting them with the development of the industry, leading warehouse operations technology, including the implementation of automation technology and apply data science lineage has been named as a visionary partner a feeding America, the United States' largest domestic hunger relief organization.
I'm very proud of our success in helping these clients with their goals of making the world a better place.
Now we're also continuing a strategy of tuck in acquisitions and recently completed 2 transactions, we acquired 5 based in Croatia in Brooklyn, New York on March the force.
5 increases our capacity in the ideation design and delivery of intelligent digital experiences and enhances our capabilities in digital products strategy and performance optimization services.
5 has a team of 157 operational employees, mainly based in delivery centers in Croatia in Brooklyn.
And on April a first we acquired level based in Charlotte North Carolina level.
A level has a strong focus in the payments and financial services logistics, a mobility in TMT segments, and we believe will enable us to continue to expand in the United States, while serving clients in these core markets sectors level.
Level delivers from the U S and Mexico with a 172 operational employees.
We believe these 2 transactions will enable us to further accelerate the expansion of our U S business, which is showing strong organic growth over the last few years.
They also offer a Mexico in Croatia, as new countries in which we can expand our delivery capability.
I'm pleased with the strategic and cultural fit a by 5 and level with a dogma and we're already seeing a significant number of joint opportunities.
A client growth continues to translate into strong employee growth. We ended the quarter with 8127 employees, a 25.6% increase from 6468 in the same period last year.
We continue to actively recruit.
In all regions.
We remain the employer of choice and a core locations and continue to attract top talent.
At the same time, our attrition rate remains extremely low.
The majority of our work force continues to work from home and productivity remains high.
We expect a gradual return to the office starting in a second half of this calendar year with a hybrid model of in person and remote working.
As shown by our results and by the guidance Mark will provide a services or the core of our clients' digital transformation journey. We're.
We're excited about the opportunities emerging and remain confident in our ability to deliver value for all of our stakeholders.
And by thinking a people, who continued to deliver excellent quality and value to our clients and diverse homeworking contexts, and who enable the performance that I've just discussed we appreciate your dedication and loyalty.
I will now pass the call onto Mark who will walk you through our financial results for the quarter and provide a guidance for the coming quarter and for fiscal year.
Thanks, John.
And all of his revenue title, a $112 3 million pounds for the 3 months ended March 31st 2021, compared to $92 2 million pounds in the same period last year, a 21, 8% increase over the same period in the prior year.
In constant currency, a revenue growth rate was 23, 8%.
Profit before tax for Q3 fiscal year, 2021 was $16 5 million pounds compared to $18 3 million pounds in the same paired in a prior year.
Our adjusted profit before tax for 3 months ended March 30 class 2021 with $23 9 million pounds compared to 16.0 million pounds for the same period last year.
Our adjusted profit before tax margin was 21, 3% kind of 3 months ended March 31, 2021 compared to 17, 4% for same period last year.
Adjusted profit before tax or adjusted PBT, a defined as the company's profit before tax adjusted to exclude the impact a share based compensation expense.
<unk>, a b T bonus amortization acquired intangible assets realized and unrealized foreign currency exchange gains and losses net gain on disposal of a subsidiary share.
Share based compensation expense amortization of acquired intangible assets.
Realized foreign currency gains a noncash expenses.
Adjusted PBT margin is adjusted PBT as a percentage of total revenue.
Our adjusted diluted earnings per share or EPS was 30 full pants for 3 months ended March 31st 2021 calculated on a $57 2 million diluted shares as compared to 23 pence for the same period last year calculated on a $56 3 million diluted shares.
Revenue from a ton largest clients accounted for a 96% a revenue for the 3 months ended March 31st 2021 unchanged from the same period last year.
Additionally, the average spend per client from our 10 largest clients increased from $3 3 million pounds to for 0.0 a million pounds for the 3 months ended March 31 2021.
And a 3 months ended March 31, 2021, North America accounted for 29% revenue compared to 27% in the same period last year Europe accounts for 25% unchanged from the same period last year and the U K accounted for 43% a revenue compared to 45% and a.
Same period last year, while the rest of world accounts for 3% unchanged from the same period last year.
Revenue from North America grew 28, 9% for 3 months ended March 31st 2021, a at the same quarter of 2020.
Comparing the same periods revenue from Europe grew 21, 3% and the UK grew 18.0%.
We grew in all 3 a high industry verticals during the quarter.
Revenue from payments from financial services grew 19, 2% for 3 months ended March 31 2021.
Revenue from payments and financial services accounted for 53% of revenue compared to 54 sent in a same period last year.
Revenue from TMT growth 32, 3% for 3 months ended March 31, 2021, and at the same quarter of 2020 and accounted for 27% net revenue compared to 25% in the same period last year.
Revenue from other grew 15, 7% for 3 months ended March 31st 2021 over the same quarter. A 2020 now accounts for 20% of revenue compared to 21% in a same period last year.
We now turn to adjusted free cash flow, which is a net cash provided by operating activities plus grants received less net purchases of non current tangible and intangible assets.
Our adjusted free cash flow was $10 2 million pounds for 3 months ended March 31, 2021 compared to $9 6 million pounds. During the same period last year.
Our cash and cash equivalents at the end of the period remained strong a $78 8 million pounds March 31, 2021, compared to a $101 3 million pounds at June 30, a 'twenty 'twenty.
We spent $14 7 million pounds net of cash a quiet on the acquisition a 5 during a quarter.
Capex for the 3 months ended March 31, 2021, as a percentage of revenue is a 1 2 per cent compared to $2 4 per cent and a same period last year a guidance for Q4 fiscal year 2021 is as follows.
A doctor expects revenues will be in a range, a 130 million pounds to 132 million pounds, representing constant currency revenue growth of between 51% from 53%.
<unk> expects adjusted diluted EPS to be in a range 30 for pets to 36 pence per share.
Our guidance for full year fiscal year 2021 is as follows.
<unk> expense revenues will be in a range of 443 million pounds to 445 million pounds, representing constant currency growth of between 29% a 30%.
<unk> expects adjusted diluted EPS in a range of a 122 patents to a 124 pence per share.
Constant currency growth I think a clarity for a full fiscal year 'twenty 1 guidance still includes a pro forma adjustments for the wall a captive as it remains in a full year comparative.
Just a tough guidance for Q4 fiscal 'twenty, 1 and for the full fiscal year 'twenty 1 ashamed the exchange rates at the end of April when the exchange rate was 1 British pound to 1.3, non U S dollars and $1 1 5 year.
This concludes our prepared comments operator, we are NAV.
But he slept on a line for Q&A.
Ladies and gentlemen, if you would like to ask a question at this time. Please press star followed by the number 1 on your telephone keypad again, a star 1.
Pause for just a moment.
You have a question from the line of Bryan Bergin with Cowen.
Hi, good afternoon. Thank you.
I wanted to ask on the Fork you outlook and that's material uptick in growth, but first can you just quantified a level of organic versus inorganic mix.
And then it would seem like the demand is rapidly normalized here, but can you talk about what you're seeing in a pace a client decision, making sales cycles really any changes in client buying behavior youre, noting now versus pre pandemic.
Yeah, So hi, Brian so well that has been a material uptick in a guide so we have a full quarter from 5 compared to a month in Q3, and then we have a full quarter contribution from a level. So a.
A the inorganic.
Component of the growth guidance that we're giving a soccer as a a 12%.
That's actually that's been a very big acceleration in the underlying business and that is around sort of a 11% of the increase that we had on a previous guide which is implied in a full year guidance was around 30%. So the 2 components.
3% sort of uplift.
Slightly more from a acquisitions at 12%, but the organic uplift is around 11%.
Yeah, and just on the.
The wide a picture around client buying behavior, and what's driving demand.
We see.
Demand remaining very strong.
And that's the the buying process with us.
Is that the clients engage with us.
Whether it's a new client or indeed as existing ones, who are looking to build out new products.
In initial ideation phases.
Where.
We're looking at a new product with a.
Potentially do for that business.
We are producing proof of concepts and so on.
And as those get selected.
They scale up into a larger production demand.
So what we're seeing at the moment is we've got many of these early stage engagements.
A more than we would have had a pre pandemic.
And the expectation is that over the next 12 to 18 months, we should see those flow up into a.
Production scale.
<unk> that drive demand.
So we see quite a large pipeline coming through.
That is being driven by that early stage work that we're doing with the clients and a did you actually see some of that in the.
The numbers a smaller clients that are expanding fast over the last year 1 of the drivers of that.
As a new clients engaging us in ideation phases.
I don't have.
A huge.
Cost tags attached to them.
So as they get traction as a.
Quite a move that business forward.
Flow into a wider engagements.
Okay understood.
And then you had a notable SG&A reduction is down 11% in dollars and pounds quarter over quarter. He talked about the efficiencies that are driving that I don't think you've been at this level since pre IPO. So so what's how do you think about the sustainability at this rate as you do consider reopening.
Later in 'twenty, 1 and a likely uptick in activity.
So there's a number a sort of positive factors behind that I mean, we were in a range.
Slightly above actually on a revenue, but the EPS with a big day.
Primarily that was sort of gross margin, but the SG&A was.
It was a big contributor to that as a round on adjusted basis, just under 16%.
Revenue as we are anticipating 18% and Theres, a number of items, which range from a bad debt release, as we're coming out of a pandemic and that allow a spending should magnitude or timing around items, such yourselves a marketing.
Going forward sell it for Q4, we'd see a more normalized level of SG&A around 18% and adjusted SG&A, 18%, a revenue and I sort of implicit and a Aps Skype for giving.
Okay. Thank you.
Thanks, Brian.
You have a question from a line of Ashman serve a car with Citi.
Hi, good morning, and my congratulations as well this is a.
Quite a quite an exceptional uptake and expectations.
The question, let me start with asking a box supply of talent.
So have a.
A very strong.
Taking a head count there.
So.
You know in the geographies that you are getting a talent from a U R.
Are you beginning to see sort of a supply concerns in March.
And if so is it more.
Is it related to the number of people related or if not a year.
Doing something different.
Facing this.
Similar to other people.
Hey.
Yeah. Thanks Ashwin.
So I mean, the recruitment of quality staff.
There is always a challenge a requires.
A successful market presence in Korea proposition, that's going to attract and retain the best.
Currently demand is running ahead of our ability to grow in terms of the.
Ramping up with people.
Of course, we have taken a into account in the guidance that we've given.
We've always guided the market.
Around about 30% organic growth on average you can see some quarters pop out over it.
It is a sensible ceiling.
Growing beyond the ability to onboard train quip all teams.
For them and they involve a way.
Currently our attrition is actually very low.
For the 8%.
Which is well below the 15 per cent that we target so that is enabling us to grow organically at a greater than a 30% Max that we'd normally guide without the stapling the stabilizing our expansion.
However, as I just noted it's still below the market demand that we're experiencing so we are actually having to turn from business away.
So that probably goes to the hall of a question I imagine.
Yes, it does.
That's quite a useful and I would think that based on your comments on pipeline as vantage book you have said.
Prepared remarks on on demand. This is not a temporary snapped back that this huge.
A inform your.
A year outlook when you find a gear your fiscal 'twenty 2 backlog. So this is a 8 a longer term sequence of events a multiyear it hopefully.
Would that be accurate.
Yes, I mean, absolutely it feels like that at the moment with the with the visibility of those.
Ideation phases that we're doing with clients.
We would expect a significant number a nice flow through into production.
Systems, which which is a significant step up on a.
The engagement level with clients in the mountains of spend.
On the induction phase so.
Yes, it feels more like a new normal.
And then any sort of normalization bags for the growth rates of historic.
Guidance.
Good day here.
Thank you.
You have a question from the line a thanks ashwin.
You have a question from the line of James Faucette with Morgan Stanley.
Great. Thank you I just had a couple of follow up questions or at least 1 follow up question to Ashland's question as it relates to recruiting in the past at.
At least you've talked about.
Being able to recruit roughly 1 third from referrals.
A third coming from.
The University partnerships and basically a third coming from a market any change in that kind of mix and I guess tied to that.
If there are changes or even if they're not what are you needing to do from a a compensation standpoint, and you're recruiting right now.
Alright, Thanks James.
A really small changes, we're probably seeing about 40% of.
A recruitment coming through referrals.
Which has pulled back.
And market elements, a small amount.
And they're all they're all some sign of a staff cost pressures at the moment.
Box all.
A major pay round annually.
In December and we actually addressed a lot of that pressure.
In the December pay round.
And with the level of demand in a market we do expect.
That we will see some cost pressures coming through in a.
We've taken a account as we look forward.
I expect the attrition will.
A pick up from current levels.
And you know that was a little so.
And for our position on salaries as a market.
But we remain confident that we can recruit and retain excellent people at that.
At that level of growth that we're comfortable with.
That's good to hear and then on the other side of the equation I guess, a could you talk about the pricing environment and.
You're expecting a ability to pass through costs.
I'm curious based on your comments around the ideation engagement et cetera.
Are you able to manage like how does that impact your pricing with with your customers and are you able to build in some of these cost pressures, particularly if you're engaging kind of a at earlier stages now.
So that's a pricing environment.
You're a convenient.
Paul.
Revenue per head.
Remained relatively consistent quarter on quarter, despite FX headwinds so, it's it's pretty solid and we see that.
Going out.
I think Kevin that's what a cost pressures.
Sort of indicated we will need to have conversations with our clients over the coming months about a rights.
So that's a whole backdrop of tomorrow.
A demand picture out there.
We're pretty confident that we can in a.
It's a kill that pricing.
Sensible levels to get the talent that we've acquired to deliver for solutions to clients.
Yeah, and just for that.
On a pricing conversation.
Which is oriented around the value that we're bringing a.
Through a transformative product that we've helped the client to envision.
Very different to a a commodity style price income section.
That's great to hear a thank you very much.
Thanks James.
You have a question from a line of Maggie Nolan with William Blair.
Hey, this is Ted on for Maggie Thanks for taking our question.
Past, you've mentioned net margins can be strong on initial relationships with clients is that a piece of what's driving the current margin strength or has that dynamic changed at all.
And we do get an element to that yes, because the.
You know when we when we're doing a small.
Engagement.
We tend to start a little bit close to the right chord and then as we scale with a client and a spending more with us obviously.
We go for some discounts against the volume and assurance a business going forward.
Which benefits us as a business as well, obviously, so it's a sensible dynamic.
It won't be a huge dimension in terms of moving the margin I'm guessing less than 1%.
But it is a small element.
Okay. Thanks, that's helpful. And then John I think you mentioned that in the second half a year. There's a gradual return to the office with a hybrid model can you maybe elaborate on what that hybrid model looks like how does that impact kind of see any level of spend and maybe how you can use from cross state footprint.
Yes, sure I mean, obviously this is an area.
Huge disruption across the industry.
We're seeing some companies take a different directions.
On it.
In indaba way, all with very very consciously trying to balance.
For 2 to 2 factors.
1 hand, we've seen a major benefits from working from home with a.
A good productivity.
Employees like having that flexibility.
They want to see it as part of a working patterns in future.
All of which we will respond to.
On the other hand, we also strongly believe that teamwork across multi disciplinary teams in an agile setting actually benefits hugely from in person team activity, enabling better ideation.
Improved team spirit, and actually a social context for our people to a.
Thrive as a team. So it's a people are also keen to see that so as a result, we are planning for a hybrid model at people will have a law a flexibility within that teams.
Have head down days at high a quiet spaces in the office it for.
And then there'll be other days, where T agile ceremonies.
As a team in person in the office spring planning.
Retrospective technical business solution ideation, and so on within your team so.
So we will see a mixture of it and I think that will give people the benefit of.
Flexibilities for work from home.
A lot of a time when they won't see but also delivering the team benefits that we need for a business model.
A market I don't know if you want to say anything on that.
Impacts on the P&L.
Over time.
With a property footprint, we should get better utilization with people coming in.
Less than 5 days, a week and that will push up occupancy.
<unk> sort of in some longer term lease arrangements the requirement for space over the coming years will reduce so I expect a sort of a property costs for a potential revenue ticked down a percentage or 2.
As a coming is.
Alright, great. Thank you very much.
Thank you.
You have a question from the line of <unk> Tandon with Needham.
Hey, guys. This is actually Kyle Peterson on for Mike Thanks for taking the questions.
Just wanted to start with M&A you guys have definitely been pretty active on that on that front lately and what's the pipeline like right now and what are some key areas of priority for you and what you guys are looking for on future deals.
Sure. So yes, if you'd noted we closed 2 transactions.
1.
In in March and 1 right at the beginning of this current quarter.
And we're seeing a lot of opportunities.
The multiple.
Deal opportunities a running across our desk.
For the every day.
So theres a lot of activity out of that.
Actually a few of them have got the right a DNA that ideation to production capability agile approach.
Utilizes nextgen technology that we're looking for and.
And we remain very choosy.
And where we engage now there's nothing I can report on a at the moment as soon as there is anything material obviously of course.
We will report it.
In terms of the focus.
It very much remains a firstly around the geographic balancing so adding a geographic locations.
And of course, the last 2 strengthened in the U S. The previous 2 strengthened us in Continental Europe.
And so we'll be looking.
Probably into Asia Pac.
Maybe maybe for the right opportunities further strength in the U S and Continental Europe.
Secondaries around a sector acceleration.
Particularly building out the.
Some of the key opportunities, we see in all of our segments.
Then there occasionally a some technology pieces that a valuable and often.
<unk> brings some element of all 3 of these.
And that makes those.
Businesses, particularly attractive from an M&A quite a bit.
Got it that's helpful. And then I guess, just a quick follow up.
Trends in the payments and be a kasai vertical looked really strong this quarter.
Is that really is that new clients and blank projects ramping is there more spend in some of the existing base and how should we think about how level.
Will it impact your kind of reaching and scale within the payments vertical for moving forward.
I mean, that's right.
It was strong I mean, despite the headwinds we had 14% consecutive quarter for that.
And most of that has been across all of a geography.
So we're getting real traction in our offering.
Rock and that weighed, particularly well.
Yes.
And from a level point of view.
I mean that business is split across mobility and logistics as being the largest area.
And then the payments a financial services, particularly a mid tier banks.
He will set a very very strong capability. So there's always those will add to our existing.
A sector focus and give us some.
Some depth in acceleration in the U S and a nice Texas.
Great. That's helpful. Thanks, guys nice quarter.
Okay.
You have a question from the line of Bryan Keane with Deutsche Bank.
Hi, just a couple of clarifications a lot of my questions have already been asked and answered.
You know mark when we look at the organic growth increase from the <unk> Guide I think you were talking about maybe 11% uplift, what's causing that for.
Vs expectations 3 months ago.
Basically a acceleration across diverse because I mean, a fairly strong pickup in payments from financial services.
Last question, a sort of pointed out and we are seeing an acceleration.
Graphically as we go into a key.
<unk> for tickets.
Can you sort of your plan.
Okay, so well.
We're.
Firing on all cylinders in terms of Jr expansion, and particularly the payments for financial services sector.
Got it and then you know I'm thinking.
Thinking about the EPS range.
The range was material there even despite the acquisition or the acquisition is accretive or they actually dilute.
To start in the fourth quarter.
I think that contributes.
But I mean in terms of the beat this quarter was for.
Really from.
And a strong gross margin so it was a star.
Longer than we anticipated, which was high utilization people, taking a less.
Today the SG&A.
Timing effect that I sort of points.
Pointed out which should sort of normalize for the 18%.
And basically we see the margin that we secured in Q1 being maintained at that level.
Adjusted basis, that's 41 5.
And it is a we.
We get a contribution and a minor uplift from the acquisitions that we had and for the full year effect a full quarter in <unk>.
In Q4 for level and for 5.
Got it okay. Thanks very much.
Alright, Thanks, Brian.
Once again, ladies and gentlemen, if you have a question. Please press star 1.
You have a question from a line of Jamie Friedman with Susquehanna.
Mark can you.
In your answer to a previous question.
I thought that you.
Disclose the specific growth in payments unless I heard you wrong.
Was.
Can you reiterate what you just what you had said previously.
Yeah.
Pointing out that sequentially quarter on quarter guidance from Q2 to Q3, we've had strong quote around 14% and most of that has been across all our geos.
Well, that's a payments on a fast payments from financial services, sorry includes ensure a check.
Wealth management banking.
Okay.
Thank you and then.
So the the head count did grow a little bit faster than the revenue.
Is that any interest and then your attrition is really low at the same time, 8% a remarkable so is that head count growth in anticipation of.
The.
Standing up new.
Business as soon as the fourth quarters that what that's about.
Well they I.
Pennsylvania looking at year on year on a quarter on quarter. So a it.
Total level, we grew quarter on quarter.
About 7% we had a.
A contribution from M&A, so let's call it sort of a 6% in terms of our revenue growth.
And the head count pens at a better bet a head count metric to take is the average because it has a relationship with revenue rather than period end and that grew quarter on quarter about 6% or so and even if you take out a contribution from a fee.
5 which is in that for a 1 month, you're getting to around a 6%. So we are growing really the revenue in line with a head count now we saw an improvement in the margin in the quarter because utilization went up marginally so we're reaching into a bench that we had previously.
Builds for a thing.
The Q1 Q2.
I think moving in a position now where we are still a recruiting very strongly to meet that demand that we've outlined in the in.
And the guide and probably a utilization will remain at around that sort of level and that's why I think a gross margin will be in line with what we've delivered this quarter.
Got it.
Comment I was making was year over year, but I understand the sequential.
Makes more sense as a way to look at it and then.
Hi, John.
Your prepared remarks talked a lot about North America.
And I realize that's obviously a very important geography for you, though historically smaller then.
Say the U K.
Your acquisitions or <unk>.
This quarter in North America.
Would it be fair to map the growth in the verticals by the growth in the geographies in other words like.
TMT grew 32%.
North America grew almost as fast as they're more TNT in North America than elsewhere.
Not particularly.
On the mix.
The mix doesn't exactly map onto the geographies.
A completely homogenous.
But a lot of the growth in North America for instance is happening in the payments and financial services Arena.
So.
There's more of a rebalancing and.
Standardizing if you like us.
<unk> as you look at cost broker fees and a.
And Texas is going on so.
Whereas historically North America, probably has been a little bit more in TMT and all that.
It is normalizing.
As a whole organic growth comes true.
Got it thanks, I'll jump back in the queue.
Okay.
Alright, thank you.
Sure.
There are no additional questions I would like to turn a call back over to management for closing remarks.
Great well, thank you all for joining us today I'm.
I'm sure you'll have noted that demand for our services actually remains very strong.
And we're seeing that across all our verticals and geographies.
So we remain very positive about our business position.
And look forward to seeing you at our next earnings call, which.
Which will be in September given it's a full year.
Thank you.
Okay.
Ladies and gentlemen, this does conclude today's conference you may now all disconnect.