Q2 2021 Epam Systems Inc Earnings Call
[music].
Good day and thank you for standing by welcome to the E systems second quarter 2001 of your earnings conference call at.
At this time all participants are in a listen only mode.
After the presentation, there will be a question and answer session.
To ask the question during the session you will need the press star 1 on your telephone.
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 today, the Trabi head of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. By now you should have received your copy of the earnings release for the company's second quarter 2021 results.
You have not a copy is available on the APM dot com in the investors section.
With me today are Arcata, Dobkin, CEO, and President and Jason Peterson, Chief Chief Financial Officer.
I would like to remind those listening that some of the comments made on today's call may contain forward looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP measures have been reconciled to.
So the compare comparable GAAP measures and are available in our quarterly earnings materials located in the investors section of our website.
With that said I'll now turn the call over the arc.
Thank you David.
Good morning, everyone and thank you for joining us today.
The diluted a strong set of results for the second quarter is there any of the here. So 800, EQM EBITDA, reflecting reported year over year growth rate of 39% as such of 6% in constant currency of tests.
GAAP earnings per share were $2.05, an increase of 40% of is the same quarter in 2020.
Gross was weighted much broadbased would argue over the fees and most of our industry verticals experienced strong demand.
The the collections the robust market, the Nevada, and a portion of our growth rate the historic data of levels.
On the sequential basis quarterly revenue has exceeded our Q1 the result by more than the 1 Congress millions.
And we finished another quarter of his latest growth sequential growth.
The recent passage of the demand discrete 2 of us by now we all know that the application development in cloud and data integration condition cities are growing in the post pandemic later strongly and relevant corporate budgets flow.
But in addition, and become very feasible the recurring client transformational efforts of continuous and multi dimensional in theory zone. So it into all of that.
No.
And that is the reason why on the top of application development and closed the engagements like the.
In the latest fast expanding demand for software enabled business to notice coming our way too.
Political and across all of our industry verticals and the portfolio with new and current customers, we see progression into new and larger multi year engagement as our customers look at Dupont to fulfill the zoom meeting demand as well as the demand for new collaboration models, the brain and greater stake in product design and both of them.
Money.
In short clients really.
The need simultaneous sale.
3 of the genome.
And women patients today.
This means that the <unk>.
Smartly blend not on the industry inbound cone consulting expertise with the good portion of management consulting capabilities.
Together with the latest scalable and the promotions and media and technology delivery services, we should have been maturing overseas.
All of that requires us to the premium is new approaches to source different type of Thailand money numerous risks and find new ways of working channel.
And we're doing all of it.
Switching to the Parisian practices introduced in the response to Covid of might us nimble and responding to new customer demands and the theft created it was more adaptable internal digital platforms to 1 of the show increasingly global business of berries.
Additionally, through all of <unk> 2021 we have focused on establishing the repeatable approaches to drive gross the gross well globally diversified delivery base, while also expanding our domain capability in geographical footprint, both organically and through acquisitions.
Finally, we are constantly in the passion our partner ecosystem is closed and will the ethically outline the <unk> disposition of the pump as a partner of choice for cloud digital and the industry solution of the relations.
This includes for example, the pump market participation of is the mitral items and continuous contribution.
The 45 Congress the balance to open source process, which makes it the number 1 service company now in the open source community and among top 20 global contributor was oil.
Okay.
Let's bring now some highlights on the expanding our pump continuum of it.
The 2 months 1 of our good.
Priorities, including the addition of <unk> advisory services on top of the polluted the established industry and functional and consulting capabilities.
As Buchanan the important exactly because of growing client demand specifically in level of business Tonight and.
In the <unk> now.
Now to help clients the gross number of affiliates in the fast changing businesses.
These are both Trey the inbound.
Mutations simultaneously.
Okay.
During the last pivotal growth.
Non specific line stories to illustrate our progress in the end to end solution and increasing the impact of our consulting growth into all of it will engagement.
If you look at examples from the gaming industry, which was 1 of the few that performed well even at the beginning of the funding uncertainty and the health care industry.
The Pelican the lifestyle technology platform transformation of that.
And data and analytics segment.
The assistant to 1 of the most sophisticated global information provides us with the measure.
Cloud from the realizations to put it.
Today, we would like to highlight the client from the retail industry.
<unk> across the range, we'll plan to end programs.
This American multinational manufacturer and marketer of prestige skincare makeup fragrance.
Fragrance and hair care products is undergoing a transformation to the rest of the depot connection to their customers optimize operations and shorten the supply chain.
Isn't part of the Spooned into consumer changes because of the global pandemic.
The why the shift into the luxury in beauty retail business model.
Okay.
We are looking to be the company to develop the control tower equivalent of the supply chain.
Financial several internal and external data points, including political opponents of course geographic regions compared to the allow.
Of this consumer engagement index social media.
The even the Wednesday labs to create the predictive view influencing the real time production in placement of the product and consumer markets.
This deflation of optimization project, <unk>, and our business consulting data analytics and engineering capabilities.
Is the blending of physical and digital consumer buying behaviors, we develop on the virtual try on blood flow, allowing the consumer to apply from cosmetic use.
Using AI to the average technology. In addition to create an eventual consultation and the ability to engage with the.
Consumer in new ways the platform can be repurposed the cause of the multiple cosmetic brands.
Okay.
So the digital engagement platform the user journey during the pandemic months when stores were clueless to close of the world and because the even better conversion rates and sold for consumer acquisitions from glass.
The solidity of what is the major countries.
Obviously coupon and.
And the here to stay so as the company and if I believe the the future sales will be largely driven by digital platforms and the increased functionality based on the latest technology sales.
Okay.
Moving now to the tactical task.
While the supply of Titan continues to me is a major challenge the deferred.
By all of the players in our sector. The pump continues to grow rapidly in central and eastern Europe and the maintenance. Additionally, we opened the new deliberate of location in Ontario, Canada and I'll also expanded the authorization from electromagnetic via the acquisition of Columbia with Digital Engineering company.
You should have just closed a couple of days ago, we will share more details in just a couple of minutes.
In total in Q2, we welcomed more than silicate funded net Carter's organically to power the talent joining the company from our University programs lateral hires in our dilutive locations and increasingly senior level of carriers in all in market geographies as extensive industry index.
Excuse me.
The last 1 allow us to expand our bump continuing penetration of North American market with the addition of business experiencing technology consulting teams and the half dozen new locations, while the in the Euro we also growth new consulting capability.
Sure.
In total in the first half of 2021 approximately.
6 months of sell in Congress net additions have joined the pump and number greater than what the historically ever had ended when the pool via branches.
As of the past to maintain client.
And accelerate the trade we continue to make significant investments in our global talent develop apps Kieran and educational programs.
We believe that in addition to these investments our internal platform progression in talent analytics and AI, we will continue to bring us a new level of engagement and capability to deploy the increase into higher value services to our global enterprise customers.
We also believe the.
All of that should allow us to continuous the scale. It will also ensure the quality standards of our delivery services results completions of those.
Last time, the seriousness of both to the companies being added to bond while M&A efforts.
Currently the may of 2 more acquisitions to extend to our consulting from software engineering capabilities, while also expanding our presence in several force.
<unk> geographies.
The last week the announced the addition of core business.
The consulting same task with the life of 19 strategy and technology James from foundations with presence in between Dubai, London and Zurich.
All of those changes the boundaries of that you can sort of implicit in and extent our talent pool in the back.
Future.
What is the sweet we also closed the acquisition of <unk> of digital software Engineering company.
In addition to the primary the complex application platform development expertise. The company is specialized in machine learning data architecture and cloud hubs.
Located in Bogota, Colombia, and as President and CFO of vessel from the acquisition of <unk>.
Expenses geographic presence and legend Mandioca influence the second quarter comp into the future.
Okay.
We are extremely pleased.
The extent of pump team as the new talent and capabilities for Covid.
Those 2 for us.
Regarding the acquisitions I would like to close.
With some additional equipment related to all of the recent their purchase of the religious see visible contribution from our recent M&A activities and associated from cyber and advanced analytics, specifically on both source, which is the 1 of the largest deals to date. This will say that we are rapidly shape of new pump listening and acceleration of our go to <unk>.
Market opportunities within the fast growing sales force the ecosystem.
Okay.
Is that listen in terms of global over to Jason.
Who will provide more specifics on our Q2 results an update of our 2021 business outlook.
Thank you art and good morning, everyone. We are very pleased with the <unk> results, which reflect strong growth across the broad range of industry verticals and geographies.
In the second quarter EPS delivered revenues of $891.4 million of year over year increase of 39, 4% on a reported basis.
And 35, 9% on constant currency terms.
Checking of positive foreign exchange impact of 350 basis points.
This quarter's revenue growth was substantially driven by the continued improvement in the company's ability to expand delivery capacity in response to the extremely strong demand pre payment services.
Moving onto the industry vertical performance, we delivered very strong sequential and year over year growth across the travel and consumer.
Financial services telecommunications.
Energy and manufacturing and automotive industries.
Looking at the year over year performance across each of our industry vertical.
Travel and consumer grew 59, 9%.
Driven by very strong growth from both our consumer and retail clients, who are initiating an expanding large scale transformation programs as they look for different ways to connect to their customers.
Financial services grew 51, 5% with very strong broad based growth coming from banking insurance wealth management and.
Payment platform providers.
Like last quarter growth was driven by modernization and transformation of core applications. In addition to the new payment platforms associated with real time payments.
Software and Hi Tech grew 33, 2% in the quarter.
Life Sciences in the health care grew 33, 1%.
The business information of media delivered 12, 5% growth in the quarter.
Growth in the quarter reflected the tougher comparison with the same quarter last year. The several clients having experienced substantial growth in the first half of 2020 with revenues from those programs generally plateauing late in 2020.
And finally, our emerging verticals delivered 56, 4% growth driven by clients in telecommunications energy manufacturing and automotive.
From a geographic perspective, North America, our largest region, representing 59, 8% of our Q2 revenues grew 38, 1% year over year.
The 36, 9% in constant currency.
Europe, representing 33% of our Q2 revenues grew 38% year over year or 29, 9% in constant currency.
Cif representing 4.4% of our Q2 revenues grew 78% year over year and 74, 6% from constant currency.
Strong performance in both financial services and materials. In addition to travel and consumer contributed to growth from Q2.
And finally, APAC grew 44, 4% year over year of 38, 9% in constant currency terms and now represents 2.8% of our revenues.
In Q2 revenue growth across the portfolio of resulted in increased customer diversification with our top 20 clients growing 19%.
Well our clients outside of our top 20 grew 55%.
And moving down the income statement, our GAAP gross margin for the quarter was 33, 8% compared to 33, 7% from Q2 of last year.
Non-GAAP gross margin for the quarter was 35% compared to 35, 1% from the same quarter last year.
Gross margin for the first half of 2021 reflects some degree of elevated labor cost in certain locations.
We expect the advantage with rate increases in staffing rotations.
GAAP SG&A was 17, 2% of revenue compared to 18, 1% from Q2 of last year.
And non-GAAP SG&A came in at 15, 6% of revenue compared to 16% in the same period last year.
While the absolute dollar spend of our SG&A has increased the relative percentage of revenue remains lower than historical averages.
GAAP income from operations was $125.3 million of 14, 2% of revenue in the quarter compared to $83.4 million per.
13, 2% of revenue in Q2 last year.
Non-GAAP income from operations was $155.2 million or 17, 6% of revenue in the quarter compared to $108.2 million or 17, 1% of revenue in Q2 of last year.
Our GAAP effective tax rate per the quarter came in at 6.9%.
Which includes the higher 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, 9%.
Diluted earnings per share on a GAAP basis was $1.94.
Non-GAAP diluted EPS was $2.5.
Reflecting the 44% increase over the same quarter of 2020.
In Q2, there were approximately 59 million diluted shares outstanding.
Turning to our cash flow and balance sheet.
Cash flow from operations for Q2 was $68.8 million compared to $146.2 million in the same quarter of 2020.
Free cash flow was $46.2 million.
Compared to $134.7 million in the same quarter last year.
The lower level of free cash flow in Q2.2021 relative to Q2.2020 was the result of changes in DSL in each quarter.
Our levels of cash payments made in Q2.2021 associated with corporate income tax and the absence of tax payment deferral programs made available in Q2.2020 as part of the government Covid relief programs.
We ended the quarter with approximately $1.3 billion in cash and cash equivalents.
At the end of Q2 of DSO was 70 days and compares to 67 days from Q1, 2021, and 73 days from the same quarter last year we.
We expect to maintain DSL around the same level for the remainder of the year.
Moving onto a few operational metrics, we ended the quarter with more than 42800 consultants designers and engineers.
The year over year increase of 32, 6%.
Our total head count for Q2 was more than 47850 employees.
Both groups of employees grew just over 10% sequentially.
The utilization was 82% compared to 83, 9% in Q2 of last year and 81, 4% in Q1.2021.
Now, let's turn to guidance.
The strong first half behind us from robust demand environment and increased confidence in our ability to scale production of head count in order to meet this demand we are raising our business outlook for 2021.
Starting with our full year outlook revenue growth will now be at least 37% on a reported basis and in constant currency terms will now be at least 35% after factoring in approximate 2% favorable foreign exchange impact.
We now expect approximately 300 basis points of revenue contribution come from acquisitions, we closed in the last 12 months, including of course and that's Farhan.
We expect GAAP income from operations will now be in the range of 13, 5% to 14, 5%.
And non-GAAP income from operations will now be in the range of 17% to 18% sales.
On the strength of our first half of an anticipated ongoing efficiencies and SG&A spending as a percentage of revenue.
We expect our GAAP effective tax rate will now be approximately 11% and our non-GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation to continue to be approximately 23%.
Okay.
Earnings per share, we expect the GAAP diluted EPS will now be in the range of $7.72.
The $7.89 for the full year.
And non-GAAP diluted EPS will now be in the range of $8.25 to $8.44 for the full year.
Expect weighted average share count of 59 million fully diluted shares outstanding.
For Q3 of 2021, we expect revenues to be in the range of $957 million to $965 million.
Are you seeing of year over year growth rate of approximately 47% at the midpoint of the range.
We expect the favorable impact of FX on revenue growth to be approximately 1%.
Lastly, we now expect approximately 450 basis points of revenue contribution to come from acquisitions, we closed in the last 12 months.
For the third quarter, we expect GAAP income from operations to be in the range of 13, 5 to 14, 5% and non-GAAP income from operations to be in the range of 17% to 18%.
We expect our GAAP effective tax rate of approximately 13% and our non-GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation to be approximately 23%.
For earnings per share, we expect GAAP diluted EPS to be in the range of $1.89 to $1.96 for the quarter and non-GAAP diluted EPS to be in the range of $2.15 to $2.22 for the quarter.
Back to weighted average share count of $59.2 million diluted shares outstanding.
Finally, a few key assumptions that support our GAAP to non-GAAP measurements.
Stock based compensation expenses expected to be approximately $27.6 million in Q3, and $25.7 million in Q4.
Amortization of intangibles is expected to be approximately $5.6 million per each of the remaining quarters.
The impact of foreign exchange is expected to be approximately of $1.5 million loss per each of the remaining quarters.
Tax effect of non-GAAP adjustments is expected to be around 7.6 non in Q3 and approximately $7.1 million in Q4.
And finally, we expect excess tax benefits to be around $13.7 million in Q3.
And $12.8 million in Q4.
In summary, we are pleased with our Q2 and first half 2021 results, which combined with the broad based strength, we see across the business provide support for what we believe will be of very strong 2021 performance.
Operator, let's open the call up for questions.
Thank you as a reminder to ask the question we need the press star 1 of your telephone to withdraw your question press the pound key.
The standby, while we compile the Q&A roster.
Our first question comes from David Grossman with Stifel. Your line is open.
Good morning, Thank you very much.
Yeah.
Obviously, very strong quarter and a very strong outlook.
It sounds like from extended.
Volume driven and your ability to.
The access labor pools.
I guess earlier in the year ambition of being more careful cold. So if you could help us better understand what changed over the course of the last 3 months that.
Enables you to access that labor to what are you doing something different something break in the market.
David just some more insight into.
Kind of what evolved over the last 3 to 4 months.
Okay.
Okay.
I think.
I think it was campaign across multiple multiple aircraft features to us it's not necessary to you in Sydney.
The 3 months ago, but it wasn't before COVID-19, causing the Luke.
Looking at the delivery ecosystem.
We were talking about of diversification go into different buckets growing the existing location I think we will.
We're not sure what's exactly results it would be.
But.
The last couple of quarters kind of for the most of the efforts proved true.
And we grew in line.
We grew in the.
<unk> <unk>.
Do you do well not only in the eastern Europe anymore, but also across India.
It has started to more aggressively work in Latin America, as well, but even the in some markets is low.
In Europe in Western Europe and in U S.
And the more people in the unit.
The anticipated before so I think it's the gross multiple components of this.
So was there anything specific or that you thought of.
Among those initiatives that was particularly effective in driving.
Your ability that kind of growth.
Accrued.
Hey, Dan I don't think of it is <unk>.
Kind of.
Storage was happening.
The broad based growth.
In the recovery.
And as of now.
The point of growth for US in addition to eastern Europe the quote.
So David probably a broader range of geographies from which we're recruiting Additionally, probably the ability to sort of bring in staff that are in more distributed mode gives us access to staff and resources in different geographies, even within the countries that we've traditionally recruited.
So I think it's both that and then just obviously, we're working hard to meet demand.
Right.
And I think you mentioned in your prepared remarks about.
The ability to offset some of the gross margin pressure from higher labor costs with pricing so.
I think that last year with this unusual year, where you had pricing going up in the labor markets with.
At the same time trying to keep pricing down share clients or in the dress. So.
Did that start to change of the first half of the year or is that something that's more of a prospective segments kind of.
Yes, going back to a more normalized pricing environment.
Yes, so I think 1 of the things that we are beginning to see even in the middle of this year, which I think is different than certainly last year and probably different than prior years 2000.1918 is we are getting mid year rate increases. So we are working with clients.
To begin to take up rates, even even PRN as we enter Q3, and then clearly as I discussed in the last call is that we're expecting to see greater than equal rate increases in 2020. So there is a real focus on account margin theres, even some prioritization of staffing.
Weighted to both profitability and obviously the strategic nature of the client and so I think the dynamics on the pricing side or certainly.
Improving and at the same time, we still have to manage in a in an elevated wage inflation environment.
Right and just 1 last question as I think you mentioned the acquisition contribution for the third quarter and the year I just want to make sure I got that right was at $4.50 for the year 450 bps from.
Yes, so it's 450 bps for Q3, and it's 300 bps for 2021.
Yes.
Got it alright, great. Thanks very much.
Thank you.
Our next question comes from Ramsey El <unk> with Barclays. Your line is open.
Hi, Thanks for taking my question this morning.
I wanted to ask you about you had mentioned that Covid kind of inspired you guys to create more digital platforms explore more repeatable approaches to delivery is this 1 of the drivers of margin expansion in the business is that an overstatement or is that part of whats, giving you confidence to raise the.
The full year margin guidance a little bit.
Well I don't flow.
I don't believe that is true.
Actually the margin related.
Sure.
Kind of benefit Thats, mostly how to manage the cost deliver in the call to bring in the talent in the company and be able to operate in low adaptively.
<unk>.
Employees day, according to of our delivery.
While the growth is good growth right now.
Fair enough.
Okay.
Okay.
And then could you give us an update on your consulting strategy.
In terms of I don't know if you can share there in terms of <unk>.
Cross sell.
Or and also just comment on the driver of your.
Kind of a bullish guidance to what degree is consulting played a part and accelerating your broader growth in terms of engaging with clients are getting.
More work on the table, if you could comment on that would be great.
We have to prove.
That is going towards the square.
Got it alright, thanks, so much I appreciate it.
Thank you. Thank you our net.
Question comes from Ashwin share Baker with Citi. Your line is open.
Okay.
Alright, thank you.
Hi, Jason Good morning, and.
Outstanding quarter here congratulations.
Thank you.
I wanted to ask.
About.
The prepared remarks, you alluded to clients coming to you for software enabled the business scenarios.
Does that change your long held the view.
You said, many time Securities services company.
The.
Look towards becoming more of the software company channel conflict all of those things.
But I do see that the implied revenue per employee in acquisitions like coal is much higher.
Hugh.
You know, perhaps tweaking around the edges the.
The.
The viewpoint at Hound.
Software in any way.
Oh.
I think when we took a number of software.
More of alerted to the previous question about call of <unk> consultants from the call much of it.
For the.
New business models could drive the opportunity for us to build solutions. There is still significant a significant portion of custom guest of the world because most of the solutions required by cohort from the real time understanding what's happening.
Look the necessary.
1 of the very standard.
The board from Oakland to the price per acre.
So our typical implementations of solutions relevant to the would include the 70, 80% of.
First on the court.
On top of the sub standard component.
But the combination of this exactly should the level of new business models.
That's what the mostly was limited, but the reserve the right level of consultants, who then we kind of advice was this.
Final solution could look like in the zone helped too.
The build it and windmill.
At the same time, there is the increasing portion of some accelerators.
Lots of software you should do all of them over the years.
It is helping us actually to build the solution, sometimes not only the third party of component of the bus is our own components.
It's not my changing from.
Our more traditional business model is exceptional.
I would like to start ordering the early share Inc.
<unk> strategy to either.
Understood understood that's very helpful.
And this might seem like.
Part of question given how much share outlook has been raised in the results but.
Last year, obviously, you had certain parts of the business certain toward the close there.
Quite seriously impacted does the current outlook reflects that.
All of those have.
Reasonably fully the colored or is there.
Still some recovery to come from.
Kind of impaired of many heart.
Verticals from last year.
I would tell you our results still reflect the fact that there is still some impairment from some of the some of the verticals, but our outlook would include expectations for.
For some improvement, particularly profit, possibly in the travel and hospitality, we were beginning to see sequential growth, but not necessarily annual growth. We do think the business information and media will probably continue to deliver revenue growth.
Below our average revenue growth for the remainder of the year and although we feel that life sciences, and healthcare is going to produce sort of <unk>.
Strong market opportunity for the company longer term, we've got a few customer programs that are coming to an end in Q3, and so you might see that will have life sciences and healthcare run at a somewhat lower than company.
The growth rate and of course of the company growth rate is quite high so that doesn't mean that it will be.
The single digits or something it just means that it will be lower than the average.
Set of lot there does that answer your question of instrument.
Yes, yes, yes, that's helpful. Thank you.
Okay.
Our next question comes from James Faucette with Morgan Stanley. Your line is open.
Thank you very much I wanted to ask.
Struck a little bit by utilization kind of being down around 80%, which sounds like there's still a bit more capacity for you or how are you thinking about.
How long you can kind of stay ahead of the curve from that perspective, and how should we think about utilization evolution over the.
The coming quarters.
Yes, I mean utilization traditionally for US ran below 80, and then we had some very very high utilization due to sort of unique circumstances. In Q2 of 2020 of that was the almost 84%, but that was really kind of unparalleled utilization for us. So we do think that once you get to 80 it does.
Clearly it limits your ability to grow when you've got new accounts or when you've got accounts that you didn't expect it we're looking for new resources, you don't have as much of availability on your bench and so I think we probably believe that running maybe.
And the high high high 70 somewhat below 80 is probably a better place for us to be we also think that we're going to see somewhat elevated levels of vacation in the second half of 2021. So right now what we would model as utilization below 80% in the in the second half of 2021.
Okay.
Good day here and then as far as.
Art made comments around setting up new delivery centers in hiring in those regions I'm just wondering.
How the <unk> brand itself as you know thats been an important hiring tool for you in the past and how it's resonating in these new areas locally in.
Or are you being able to adapt and adjusted as needed based on what you're seeing on hiring trends and retention trends. Thanks a lot.
Okay.
Okay.
I think.
Yeah.
The recognition of.
Of different we are in the markets create as Blake additional low <unk> CFO of work required.
The definitely trying to understand if they would be.
No.
Because it would have good opportunity to grow inside of the bar, we definitely have a very different interest from this more experienced portion of those of talent globally.
But then we had a couple of years ago, It's a very very reasonable at the same time also brand recognition in the market growth.
For some time or new markets reach.
We enter in the book in Eastern Europe, because we.
This higher level of distribution that causes more traditional across the region, but also in India in the Latin America visibly illustrate the there is very different recognition.
And hope opportunity inside of.
In the lithium us different type of services company that has a very strong continuing the pitch for each making some additional attractiveness for the product.
Good day here and we thank you very much.
Thank you.
<unk> comes from Bryan Bergin with Cowen Your line is open.
Hi, Good morning, guys. Thank you.
Just curious if you can comment on the pace at which you're able to add new resources to your engagements. After they're hired so so now the time to ramp new hires and laterals has that been accelerated versus the historical pace. Given just this this level of demand.
How are you thinking about that and what kind of leverage could you use to drive that better productivity and hiring pace.
So it's the.
In the in there of you'll understand.
It's not only related to power grids.
Very different day.
<unk> trends.
We were experiencing not just 12 months ago, because 12 months ago.
Definitely was a very different story in the very different outlook, but let's say 24 months ago, So everybody knows that.
Again, David.
The change the course of direction in this case clients.
And linear of millennials in working in different.
Kind of a relative pressure.
Our ready to work.
Speed up the whole process, but it's also very.
Big effort, that's kind of.
Of course of monetization efforts of the whole supply chain of revenue.
Growing but the growth today, and Thats, where exactly with the OE.
Interest in the more in digital ecosystem and I think we experienced that we hope we experienced some advantages of doing this.
The investment.
Kind of.
The very purposely during the left the case, it's not just 2 of the link lost here or periods here.
So and we benefit in loans put on top of our previous investments.
And the whole of the call timing from Aw.
Opening the opportunity to start to Oxford of goods through startup process definitely is much more optimal today is on the was a couple of years ago plus.
Okay.
And then you talked about of progression into new and larger multi year engagements can you put any numbers around that as far as giving us a sense on how much larger or longer youre seeing in deals relative to 1 of 2 years ago.
So I think it's in general difficult to quantify book.
Mike.
With our growth right now and if you're.
We will look as the novel of clients, because Congress meal of <unk> and <unk>.
Non looks like Verde.
The video, obviously, increasing very fast ramp up.
So, but I don't think I can give we can give it the sport liquidity of special.
Quantify it kind of points.
Okay understood.
The other thing I would add that we have.
From our clients, which are growing from.
Start to.
Towards the 30.50 meal.
The call of this acceleration also valuable revenue.
Thank you.
Our next question comes from Dan Kupferberg with Bank of America. Your line is open.
Yeah. Thanks, guys. Congrats that great numbers I wanted to start with the follow up on Brian's question. Just the these larger multi year engagements is at both the msas in the individual <unk> that are getting bigger and longer and I'm. Just wondering if that's having any effect on your sales approach and strategy as you pursue.
The larger engagements.
I don't think it's related to specific msas sizes because.
Because from this point of view.
We'll probably end of the Sam and the sense of direction of leg before nobody promising lake huge huge deals like contractually and abroad.
The reality of the deals is the.
Is pretty different and.
Again, the services business most of the clients to maintain the flexibility to stop doing things legally.
Virtually while impracticality of this engagements where the very different trade zone.
Okay.
So given how much your growth is accelerating have you seen any change in the composition of your top 5 top 10 top 20 clients.
So probably not a lot of change with the top 5 but you certainly would have seen rotation.
Probably in that what I call. The 11 through 20 cohort and as art was indicating when he answered. The earlier question is we have.
Several maybe maybe more than several customers that have gone from from zero to our top 20.
In the year of less and so we are seeing some programs, where there is a real strategic imperatives, where the.
The growth accelerates very rapidly and they are already running in our top 20.
Okay. Just last 1 real quick are you seeing any return to in person selling or in person project delivery.
For the sales in pursuit of your views on site.
Okay.
Yeah.
Yes, if you're if you're asking if clients asking us to read the people on site or in the office.
The problem that I see.
The situation in general still very unstable and the even if there are some movement of the size like 2 weeks later.
Could be kind of salt right now probably over there with the kind of in the way from <unk>.
The board in.
With regards into on site.
The working.
Makes sense. Thanks for all of the color guys I appreciate it.
Sure. Thank you.
As a reminder to ask the question at this time. Please press Star then 1 on your Touchtone telephone or the.
Next question comes from Maggie Nolan with William Blair. Your line is open.
Okay. Thank you.
And of strong demand environment like this is there an opportunity to evaluate your client portfolio or become more selective over which clients you'd like to work with and what are your latest thoughts on what an ideal our target client portfolio. It looks like our profile looks like.
Yes.
Yes, you're absolutely right.
The situations that are opportunities to do it and we are definitely the.
Carefully reviewing the situation.
Sometimes changing priorities from a milestone for us.
Yes, we are looking for ideal clients clearly all the time.
Broadly define the somewhat.
Definitely definitely an opportunity, but again reevaluate and of this carefully.
Constantly in the per.
Before right now more and more things to do it.
So there.
The real choices right now each of them make them aware too in the west.
I don't know how to answer your question.
But the stay in the ESP grievances Maggie some of the growth in the outside of our top 20 is probably coming from exactly the type of decisions that <unk> was referring to where we are looking at clients, where we think that there is significant growth potential, but we also think that profitability will be sort of attractive and then we are choosing the sort of staff and grow with.
Those customers and so I think part of the reason why youre seeing.
Good growth is not only our ability to bring more resources into the company, but also some of the decisions we're making around.
Somewhat smaller and newer customers that we think of that significant growth potential both from the second half and into 2020.
Okay. Thanks, and then as you think about the core acquisition and maybe future acquisitions that you might do.
What is the timeline for integration into the business and do you and Ken QR, It's important to let some of these consultancies operate somewhat separately for a period of time.
Okay.
Sure.
And the acquisitions, which we do look for some time.
The trying to understand more details.
Kind of getting more insight because it's never possible too.
The picture before.
Before closing of the deal so the same campaign in the right now and specifically the consultant to the.
Definitely we will be of look low.
Look into what's happening in the was the best ways for us to work together so for some time it would be of creation.
Definitely higher level of independence, but again the.
The integration points.
Mutual opportunities considered.
Perhaps the culinary of them.
Yeah.
Hi.
Thank you.
Okay.
Our next question comes from Vladimir <unk> with the V T. The capital your line is open.
Hello, Thank you for taking my questions.
And could you update.
The bulk of your M&A pipeline do you sort of getting increasingly important in your growth story.
Do you expect from more juice to common becoming the couple of quarters maybe.
Look the expertise zone could be the true do you want to develop the shorter with them with this M&A.
And the second question of you felt like on the on the growth of look if we take the 2 year stack and the <unk>.
Both rates that we're seeing are more or less close to you are at historical levels of something in the mid <unk>, but this is the last couple of years I would say we're quite bumpy.
Maybe you could comment with your visibility from let's say 1 year of hip.
And do we really see from kind of acceleration from the historical levels of growth organic growth.
We have seen so far thank you.
I think Oh, let's start from the second question of Ice Inc.
Agree with you.
It was the last couple of years result of bumpy.
Of those things in loving the turnaround for US was very 1 day as well of that same sort of election of this.
Ill take this out of them are long term.
Kind of promised to grow in.
Hey, Bob 20.
20% growth that's exactly what we're targeting and we are on the same 1 of the same journey of retina with definitely on the this threshold.
Unknown, which is around us putting some extra person maybe of some opportunities to improve what we were thinking of relative book looked for us to.
Grow profitably with 20% organic year over year of growth and how can we in terms of quarters of delivery of the same type of thing Thats good industrial actions at the time.
The rest of this.
The impact is where a lot of changes around us.
The first question of was about M&A M&A.
And I think of here there is not much changes.
The <unk>.
And before the 2.
Evaluation of the pipeline all the time that we were looking for new capabilities in market expertise consulting component.
The silicon the work.
It would be the worst.
For us.
Sure.
Kind of the structure of our delivery so it's all applicable today.
We closed in the low 5 deals this low this year.
Just reflection of the.
We found better companies.
The link to join us.
The strong pipeline point of view it was pretty clear.
Peter will develop pipeline in the past, we have pretty well developed pipeline right now of any other transaction will be closing the reason.
The next 6 to 12 months, we need to wait and see.
Okay. Thank you very much.
And then in general I would like to say like we don't help us throughout the year of kind of rolling.
Our oil and up acquisitions.
Specifically, we're looking for some of it should add capabilities and fuels, the gaps, which we needed to fill so and even the right now most of the transactions.
The 2 small.
Okay.
Thank you. Our next question comes from Sovereign debt then with Jefferies. Your line is open.
Thank you.
I'd like to start with the Big picture question here.
Any color you can provide on perhaps how compressed the timelines are for clients in terms of trying to get jobs. The project is done meaning pre COVID-19 what of roadmap might have looked like and what it looks like nowadays.
Okay.
Oh.
Okay that does Inc.
The go into further interest in new over the top is definitely the.
Of the pressure too.
Paul and to deliver is much higher now.
Alright.
I was trying to say post COVID-19 kind of it.
As per scores of still continuous COVID-19 time versus prior quarter, that's definitely changed because everybody understand the there is only so much time to adjust business models and build solutions to be able to continuously kind of.
<unk> in this.
Continuous COVID-19 time.
Okay.
It is very visible across all 4 of markets right now and I think create pressure on clients and all of us as well.
Fair enough.
I guess, what I'm trying to understand here is.
The client appetite, obviously, everybody wants to get something done today, so how much.
Worker, you, perhaps leaving on the table.
And maybe in terms of the ability on earlier questions about now.
Now able to do rate increases.
At mid year, you may be able to push rates at this point.
Can you talk a little bit about that dynamic.
Because it just seems like you talked about having bigger projects longer projects. There's this dynamic of the rate increases.
How should we think about how that fits into your strategy of adding head count at this point I mean, what kind of head. Count addition, should we think about.
So I think.
It's.
Kind of the good question.
At the same time, we get in our understanding as we speak as well as the growth low.
If.
9 months ago somebody will tenant of ours that we will be growing.
Talent pool, as we grow and today, we would be very cautious to cash form as it will be possible at the same time as we mentioned before with the.
Sales in multiple efforts with sales that we can do better than we were thinking in the past right. Now this income that probably around 3000 additions per quarter would be.
Samsung for us to achieve results.
The result.
Much of quality.
The risks.
Maybe more but the <unk>.
We are looking at is what would be happening in reality, we will see in a couple of quarter.
And the the rate increase question is about what can happen in terms of revenue growth certainly.
That's helpful and you are seeing an expansion of the revenue per head, but at the same time of lot of the conversations that we're having the clients are informed by the wage inflation, we're seeing and so clearly they're difficult conversations with clients.
We're helping them understand obviously, what conditions were facing with somewhat elevated levels of wage inflation, which is in part then driving the conversation around meeting the higher rates.
Or do you want us to leave with the idea that.
We feel good about the demand environment the demand environment helps us when it comes to to rate increases, but at the same time, the 17% to 18% guide that we have for the full year.
Is informed in part by the lower SG&A in 2021, and you're likely to see somewhat higher SG&A in.
2022, and at the same time, we're going to work hard to sort of maintain and improve gross from merchants overtime.
Got it so just to clarify the last part is the idea that when you think about 2022.
Relative margin stability versus this year or are you looking to maybe invest more or are we just trying to understand how that dynamic is working out because it seems that there is a really big opportunity here to continue to build out globally and do a lot of things.
But at the same time, there's just some structural limitations and those kinds of things as well.
Yes, so when we backup historically, so youll remember that we generally have talked about 16% to 17% as a targeted adjusted type of range and then we've run in the last couple of years closer to the top end of that range of somewhat above and so we guided this year to the 16, 5% of 17.5 in part because.
What we're seeing and also because we had lower than.
The typical SG&A as a percentage of revenue.
Right now with obviously the strength in revenue and ongoing savings in SG&A. We've guided of 17 to 18, but I think as you look forward I wouldn't I certainly wouldn't commit to 17% to 18% is the targeted profitability range in future years. So you might think about us coming back to some earlier led.
<unk>.
In part because of what will do is we'll continue to make investments in delivery centers and in other capabilities. So we can continue to grow the business at a high rate.
Thank you very helpful.
Okay.
Thank you and I'm currently showing no further questions at this time I would like to turn the call back over to Arcata Dobkin for closing remarks.
Okay.
Thank you. Thank you everybody for joining today so.
As usual if you have the integrations Davis is available to help.
And the.
Looking forward to talk to as few months. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
[music].
[music].
[music].