Q4 2021 Endava PLC Earnings Call

Yes.

Good morning, and welcome everyone. So endeavor plc or any earnings released quite a fourth quarter for year 'twenty 'twenty. One conference call. All lines have been please on mute to prevent any background noise. There will be a question and answer session. If you would like to ask a question. During this time simply press.

Star then the number one on your telephone keypad, if you would like to withdraw your question press.

The pound key.

And now I would like to turn the call over to our presenter for today Laurence Madsen you may begin the conference.

Thank you good afternoon, everyone and welcome to <unk> fourth.

<unk> fourth quarter and full year fiscal 2021 conference call.

As a reminder, this conference call is being recorded joining me today are John Contrail, and Douglas Chief Executive Officer, and Mark Thurston and diverse Chief Financial Officer.

Before we begin a quick reminder, to our listeners our remarks today include forward looking statements, including our guidance for Q1 fiscal year 2022 and for the full fiscal year 2022 are perceived opportunities to potential impacts of the COVID-19 pandemic.

And associated global economic uncertainties, including with respect to our expectations regarding future work arrangements for our people.

Our expectations regarding digital transformation of existing businesses and industries. The necessity of digital transformation for many companies and that has the ability to benefit from anticipated client demand for <unk> services.

T to attract and retain employees 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.

Statements actual results and the timing of certain events may differ materially from the results and timing predicted or implied by such forward looking statements and reported results should not be considered as an indication of future performance.

Please note that these forward looking statements made during this conference call speak only as of todays 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.

Please refer to the risk factors section of our annual report on form 20-F filed with Securities and Exchange Commission on September 28, 2021 which contained a discussion of important factors that could cause actual results to differ materially from those contained in it.

Any forward looking statements.

Also during the call we'll present, both I F. R S and known I F. R. S financial measures a reconciliation of non Ifr S to ISR S. Measures is included in today's earnings press release, which you can find on our Investor Relations website. The link to the replay of this call.

We will also be available there with that I'll turn the call over to John.

Thank you Laurence.

I'd like to thank you all for joining us today, and I hope, you're all staying safe and healthy.

Mark and I are pleased to be here to provide an update on our business and financial performance for the three months ended June 30th 2021 and for the full fiscal year 2021.

While the Covid vaccine campaign remains underway around the globe.

The Delta Varian is challenging a full return to normality.

But in <unk>, we continued to prioritize the safety and wellbeing of our people.

With differing measures across the world.

<unk> effects, the countries and the communities in which they live and work.

However, despite this difficult environment, we continue to experience very strong demand for our digital services in all of our regions and verticals and the pace of increase in demand is only accelerating.

<unk> finished the year strongly with revenue of 133.6 million pounds for Q4 of our fiscal year 2021.

Presenting a 54, 9% year on year increase in constant currency from 90.5 million pounds in the same period in the prior year.

We ended the quarter with an adjusted profit after tax for the period of $29.0 million pounds, representing an 83.7% year on year increase from $20.0 million pounds in the same period in the prior year.

Our strong revenue growth continues to be driven by both expansion of work for our existing clients and the acquisition of new ones during the quarter.

We ended the quarter with 615 active clients up from 416 at the end of the same period in the prior year.

47, 8% year on year increase.

We continue to expand our penetration with our largest clients is the average revenue from our top 10 clients grew by 31% Erwinia Andrew.

And revenue from clients, who paid us above 5 million pounds increased 29, 5% year on year.

And we continue to increase the number of clients who are paying us in excess of 1 billion pounds per year with 85 clients in this category up from 65 in the same period last year, representing a 30.8% year on year increase.

Moving onto our results for the full fiscal year 2021 we reported revenue of $449.0 million pounds.

Representing a 34, 4% year on year increase in constant currency.

And adjusting for the sale of the world pay captive.

Yeah.

Our revenue CAGR for the last five years stands at 29.4%.

In the last fiscal year, we grew in all of the whole regions and verticals.

Our North American business posted a solid revenue increase of 40% year on year.

For the year Europe grew 25, 7% and the U K, 20.3%.

All of our verticals also grew nicely with payments and financial services up 22.3% year on year TMT up.

34.1% and other <unk>.

T point of 9%.

Our strong revenue growth continues to translate into solid profitability and we ended the year with an adjusted PBT margin of 20.6%.

Impaired to 19.5% in fiscal year 'twenty.

As shown by our acquisitions of five and level. This past financial year, we continue to invest in our U S business.

Both five and level of culturally very similar to an <unk> and our integrations of these businesses is progressing smoothly.

We are encouraged by joint commercial opportunities that have already presented themselves.

We've had an opportunity to pull fives product design teams into programs within new areas of two existing indaba clients. Our U S fintech kind of U K insurer.

As well as adverse they bring to bear in Davos scale to grow and expand one of five largest clients.

Together with the team at level.

Making meaningful commercial progress with a number of new clients, most interestingly with a U S airline about an overhaul of the main digital experience platform.

I'd actually like to highlight some of the work we are doing in the U S, where we're working with clients in many different industries.

Is it an implementation partner fins Act.

Nextgen cloud native core banking platform, we're helping multiple U S banks implement core banking solutions as part of a broader digital transformation programs.

We are working with an alternative investments fintech to create our go forward product strategy.

From business vision to high level target state digital capabilities the.

The client is in alternative investments marketplace provider, who has a rapidly growing business on both sides of the marketplace and needed to improve market responsiveness through increased delivery capacity ads platform scalability.

Through rapid product envisioning, we were able to distill the process visions of their leadership downturn actionable and transparent goals then building upon a clear set of outcomes, we help the client assess their existing digital capabilities.

To yield a clear path forward for that infrastructure data and delivery agility roadmap.

Valley Bank's strategic vision is to take ownership of their technology state and rebuild with best in class capabilities to drive innovation and speed to market.

Part of this is embracing molten technology trends in architecture platforms, and Devils with a goal to deliver truly innovative technology enabled relationship banking through customer friendly products are much faster than they have been able to do in the past.

And the other is helping valley realized that technical vision working on coal platforms marketing systems client on boarding systems and devil transformations across the bank.

Call Digital media, a top 10 advertise it in the U S across display paid search mobile and social marketing.

As engaged with indaba for the last three years.

Strategic technology consultant.

Cole Digital's, new offering my wallet Joy.

Which provides content and tools to help that uses to get a handle on the financial impacts of their life goals was developed in large part by Endo of a staff working in tandem with cool digital product owners and creators.

In addition, and all the engineers have been able to call digital to modernize their core financial services environment from a legacy monolith architecture to a domain driven design micro services oriented.

Architecture, creating a more scalable and maintainable infrastructure.

And <unk> has also been working with a leading life Sciences and diagnostics company on their front end and backend design.

In order to simplify their existing design the.

The project resulted in greater efficiency and allows the client to stay current with functional and security updates and upgrades.

Yeah.

Moving on to the technology side, there are two trends that we've observed though I would like to highlight today.

They are both focused on how building digital products used across a range of industries with our strategic services and drove higher demand for all of the services that we offer.

The move from running our it projects to building software based products has been underway for some years.

But we're seeing a renewed level of interest across many industry sectors from both clients and potential clients, who want to explore what this means for their business. This interest has led to a strong demand for digital product strategy and design expertise, helping clients to improve the digital experience with both.

That customers and their employees.

In some cases this focus is a new strategic direction, such as opening up a new direct to consumer channel.

In other cases, it's about replacing older user interfaces with modern task oriented ones and finally, it can also lead to rethinking the entire digital experience for existing successful business lines.

This rethinking drive strong demand for our digital strategy product design user experience design and user interface development expertise as well as the modern software engineering capability, we have to provide the underlying cloud first application platform to support these digital workflows.

Companies have also recognized the need to improve the efficiency of their internal software development activities and to improve our software developer experience.

This recognition has led to increased demand for our software delivery automation skills C. I C D cloud automation.

And in some cases, the creation of an entire new developer platforms to make enterprise developers more effective.

Turning to the second trend we've been performing software architecture reviews for many years and have developed a flexible and repeatable approach to delivering these engagements.

As I mentioned last quarter, we've seen a lot of interest in application rationalization and modernization, particularly in financial services.

We are now also seeing wider demand for more general architecture reviews to help clients understand the strengths and weaknesses of their existing software applications and to work with them to identify options for the future evolution. We find that this review often leads to long term software development engagements as.

The application Roadmaps, we help clients define require significant amounts of work to re factor rebuild or even entirely replace parts of their application of states.

Growth in Fintech continues to be very strong as we see widespread innovation and change occurring across many parts of the financial services industry and.

And we continue to expand in this area.

Including payments insurance banking and asset management.

The move to cloud computing, the constant innovation in payments the widespread use of a P O I's to dot.

Yes, Componentized services.

The emergence of modern API based software package vendors and the entrance of challenge of startups and establish business areas are all trends that are driving demand for all services.

Our client growth continues to translate into strong employee growth. We ended the fiscal year with 8883 employees, a 34.1% increase from 6624 in the same period last year.

In the last fiscal year, we added 2259 net new employees.

Of which 756 were in the last quarter.

We continue to be unemployed of choice in our core locations.

Which allows us to continue to recruit the best talent.

Importantly, our attrition rate remains extremely low.

When he believed people join and dull but for a career.

Got to work on a single assignment and that is our ability to keep our employees engaged and challenge that has allowed us to keep our attritional level, though.

While competition for talent remains strong we are not having difficulties recruiting and retaining the employees we need.

Although we are careful to avoid over expanding as a result, the huge demand that we touched on earlier.

More employees are choosing to return to the office. The majority of our workforce continues to work from home most of the time.

We are committed to a hybrid model of in person and remote working is the best way to allow flexibility for all people, whilst enabling team creativity and productivity to thrive.

Slowly ramping the hybrid model backup as the pandemic conditions evolve.

We remain very focused on providing the best work environment for our employees all week half program focused on diversity inclusion and the wellbeing. This last quarter, which we launched with our first indaba inclusion mic.

We hosted a number of inspiring speakers and impactful master classes covering topics ranging from the role we'll play in a truly diverse workforce through two disability support and parenting.

And we were delighted to see over 3000 in 10 days from across the business engage.

In August we also launched our diversity and inclusion for which builds on the great work, we have already done in this space.

The forum is designed to bring together a representative group of indulgence it will.

Sure that voice and play a part in shaping our inclusion agenda going forward.

In addition, we started rolling out our inclusive leadership training and also enhanced and office speak up safely initiative by introducing a network of reps across the business, which gave us all colleagues a new way to raise concerns confidentially and brings a human face to the process.

We were also delighted this quarter to have indaba recognized by the Romanian business services for them with three awards, including business services company of the year and employer of the year.

Our indaba wellbeing program, which continues to experience high levels of engagement with over 7000 attendees to our master classes and over 2007 hundred attendance in our welding web shops was also recognized as best Wellbeing initiative. These awards reinforce the recognition.

The indaba strives to be an employer of choice in all key markets, attracting and retaining the best people.

Finally, I am pleased to announce that today, we have just published our first weaker sustainability report, which highlights our ongoing commitment to meet our environmental social and governance responsibilities.

You can view the report in the weakest section of our website, where you will also find a short video with the highlights.

As demonstrated by our results we believe that our services are at the core of our clients' digital journey.

We're excited about the opportunities in front of us and remain confident in our ability to deliver value for all of our stakeholders.

Let me end by thanking our people for their resiliency and adaptability as they continued to deliver excellent quality and value to our clients in diverse home and hybrid work in context.

They enable the performance I've just discussed.

We appreciate your dedication and loyalty.

I will now pass the call onto Mark will walk you through our financial results for the quarter and provide guidance for the coming quarter and the new fiscal year.

Thanks, Sean.

We get into the numbers I'd like to apologize for the July imaging our coated tanks.

The closed process took longer than we anticipated as we had to work with our auditors to settle on the treatment of cash receipt post year end for locks receivable.

This resulted in an overall bad debt provision release in the quarter at $4.0 million pounds, which is shown on the face of the profit and loss accounts.

This item boosted the already strong quarter delivered by the underlying business.

And Tavis revenue totaled $139.0 million pounds for the three months ended June 30 of 2021 compared to $24.0 million pounds in the same period last year, a 47, 7% increase over the same period in the prior year.

Constant currency, our revenue growth rate was 54, 9%.

Profit before tax for Q4 fiscal year, 2021 was $23.0 million pounds compared to $13.0 million pounds in the same period in the prior year.

Our adjusted profit before tax for three months ended June 30th 2021 was $32.0 million pounds compared to $17.0 million pounds for the same period last year.

Our adjusted profit before tax margin was 21, 9% for the three months ended June 32021, compared to 16, 8% for the same period last year.

Adjusted profit before tax adjusted PBT is defined as the company's profit before tax adjusted to exclude the impact of share based compensation expense.

<unk> EBT bonus amortization of acquired intangible assets realized and unrealized foreign currency exchange gains and losses net gain on disposal of subsidiary.

Share based compensation expense amortization of acquired intangible assets and unrealized foreign currency gains are noncash expenses.

Adjusted PBT margin is adjusted PBT as a percentage of total revenue.

Our adjusted diluted EPS was 41 pence for the three months ended June 30 of 2021 calculated on 57.5 million diluted shares as compared to 23 pads for the same period last year calculated on $60.0 million diluted shares.

Revenue from our 10 largest clients accounted for 36% of revenue for the three months ended June 32021, compared to 40% for the same period last year.

Additionally, the average spend per client from our 10 largest clients increased from $9.0 million pounds to $13.0 million pounds for the three months ended June 32021, representing a 31, 1% year over year increase.

In the three months ended June 30 of 2021, North America accounted for 37% of revenue compared to 31% in the same period last year.

Europe accounted for 21% of revenue compared to 24% in the same period last year and the U K accounted for 40% of revenue compared to 42% in the same period last year, while the rest of the world accounted for 2% compared to 3% in the same period last year.

Revenue from North America grew 77, 4% for the three months ended June 32021 of the same quarter of 2020.

Comparing the same periods revenue from Europe grew 26, 9% the UK grew 48% and the rest of the World grew 10, 7%.

We grew in all three of our industry verticals during the quarter.

Revenue from payments and financial services grew 46, 4% for three months ended June 30 of 2021 revenue from payments and financial services accounted for 51% of revenue compared to 52% in the same period last year.

Revenue from TMT grew 33, 2% for the three months ended June 32021 over the same quarter of 2020 and accounted for 25% of revenue compared to 28% in the same period last year.

Revenue from other grew 78% for three months ended June 32021 of the same quarter of 2020, and now accounts for 24% of revenue compared to 20% in the same period last year.

We now turn to adjusted free cash flow, which is our net cash provided by operating activities plus grants received less net purchases of non tangible and intangible assets.

Our adjusted free cash flow was $38.0 million pounds for the three months ended June 32021 comparison point 4 million pounds. During the same period last year.

Our cash and cash equivalents at the end of the period remained strong at $78.0 million pounds at June 32021, compared to $104.0 million pounds at June 30 of 2020.

We spent $44.0 million pounds net of cash acquired on the acquisition of level during the quarter.

Capex for the three months ended June 30 of 2021.

<unk> revenue was one 7% compared to one 9% in the same period last year.

I'd now like to move on to some highlights for our fiscal year 2021.

And Tavis revenue totaled 446.6 million pounds for the fiscal year 2021, compared to 351.0 million pounds in the previous fiscal year at 27, 2% increase over prior year.

In constant currency, our revenue growth rate was 29, 6% and adjusted for the sale of the world paid captive 34%.

Profit before tax for the fiscal year, 2021 was $58.0 million pounds compared to profit before tax of $28.0 million pounds in the prior year.

Our strong revenue growth continues to translate into solid profitability.

Adjusted profit before tax for the fiscal year 2021 totaled $93.0 million pounds compared to $74.0 billion pounds in the prior year.

34, 2% year over year increase.

<unk> profit before tax margin was 26% for fiscal year 2021, compared to 19, 5% for last year.

The year over year improvement in our adjusted profit before tax margin is mainly due to a continued positive pricing environment foreign exchange rate tailwind and control of SG&A expenses.

Our adjusted diluted EPS was $1 three zero pounds for the fiscal year ended June 32021 calculated on $58.0 million diluted shares as compared to one pound previous fiscal year calculated on $57.0 million diluted shares up 30.

Yeah part of the year.

Revenue from our 10 largest clients accounted for 35% of revenue for the fiscal year ended June 'twenty, 'twenty, one compared to 38% for the previous fiscal year.

Additionally, the average spend per client from our 10 largest clients increased from $17.0 million pounds to $21.0 million pounds up 16, 5% year over year.

We grew in all geographies on a year over year basis, with North America up 40% year over year, Europe up 25, 7%, the UK up 23% and the rest of the world up 18, 1%.

However, excluding the impact of the world paid captive from the prior year period, comparative closing U K would have been one 7% higher or 22.0%.

On a year over year basis revenue from payments and financial services increased 22, 3%. However, excluding the impact the well paid captive from the prior year comparable growth in this segment would have been 1.4% higher or 23, 7%.

On a year over year basis, TMT increased 34, 1% and other increased 13, 9%.

The year over year growth in other came mainly from mobility retail and health Tech.

Our adjusted free cash flow was $89.0 million pounds for the fiscal year ended June 32021, compared to $35.0 million pounds. During the same period last year, we spent $103.0 million pounds net of cash acquired on acquisitions completed during the fiscal year.

Capex for the fiscal year ended June 32021, as a percentage of revenue was one 3% compared to two 8% during the same period last year.

Our guidance for Q1 fiscal year 2022.

And <unk> expects revenues will be in the range of 143.0 million pounds to 145.0 pounds, representing constant currency revenue growth.

<unk>, 56% and 58%.

And <unk> expects adjusted diluted EPS to be in the range of 42 to 44 pence per share.

Our guidance for the full year fiscal year 'twenty to 'twenty two is as follows.

And tav expects revenues will be in the range of 608 million pounds to 615 million pounds, representing constant currency growth of between 38% and 14%.

<unk> expects adjusted diluted EPS to be in the range of $1 six one to 1.67 pounds passionate.

This above guidance for Q1 fiscal year 2022, and the full fiscal year 2022 assuming the exchange rates at the end of August when the exchange rate was one British pound to $1 three at U S dollar and 1.17 year end.

This concludes our prepared comments operator, we are now ready to open the line for Q&A.

Thank you for sensors at this time I would like to remind everyone in order to ask a question press targeted a number one on your telephone keypad.

POS for just a moment to compile the Q&A roster.

Your first question comes from.

Sweden serve a car of Citi. Your line is now open.

Thank you.

And.

Congratulations on the good quarter and results.

My question is I mean at this point, we obviously know that the end market environment is incredibly strong.

Yeah evidence of sustainability.

This environment as well.

The supply side.

It seems to be.

Where some of these challenges are but.

You don't you know at least in your prepared remarks, it didn't see any evidence that you're seeing the same are you doing something.

Differently with regards to hiring retaining or is it basically you know.

Less competitive geographies could you maybe comment a little bit more on the supply side.

With regards to the ability to keep hiring.

Sure. Thanks Ashwin.

I mean, the recruitment of quality stuff's always a challenge.

And it requires successful businesses to build that market presence.

Korea proposition, that's going to attract and retain the best.

You touched on.

The strength of demand the reality is that it is.

Running ahead of our ability to.

Deliver on the supply side.

Having said that we've always guided the market.

A sort of 25% to 30% head count growth.

Clay is all is all sensible ceiling.

Without without growing beyond that place where our ability to.

Onboard train and equip our teams to perform in the end all the way is going to work.

But there's a there's a few factors playing into it at the moment, meaning we're being able to grab a little bit beyond that that usual ceiling.

Firstly, our attrition remains low.

It's around the 10% Mark so its moved up slightly from last quarter, but still well below the 15% that we target.

And also you'll be aware that during the summer of 'twenty 'twenty.

As the pandemic hit.

Like any layoffs and we continued to promote store.

With that experience and capability, which.

Which meant that last year, we ended up growing slightly more senior staff profile than we would normally have.

And those two factors together the lower attrition in that more senior profile has given us additional headroom for growth.

And that's enabling us to push our head count organically at greater than the 30% Max that we'd normally go out.

Without the stabilizing our expansion.

<unk>.

That's on the head count side, it's probably worth noting that that level of head count growth converts to a higher revenue growth.

Given the price rises that we're also achieving.

But yes. It is we are seeing market demand that is higher than that as well. So it is a.

Careful balance of making sure that we don't over half the business.

And start to lead the culture and the way in which we operate by ever expanding.

Thank you and now those detailed theres quite quite useful.

Well one of your comments.

Very beginning of your prepared remarks was.

Not only is the environment is strong but it is also accelerating.

And I just wanted to get your view with regards to as you.

Armed your outlook.

What assumptions did you make with regards to the accelerating but still accelerating part of.

Oh.

Demand.

Hi, Ashwin.

Right.

The demand is is as you put it out in strong we're recruiting very.

Quickly into that demand curve.

We have.

<unk> taken.

Taken a sort of accounts of.

And our pricing within that because as we are recruiting people were looking at packages to make sure. The overall nutrition stays in the right place.

<unk>.

We've been as you would expect organically growth is very strong in terms of the outlook for Q1.

In terms of the full year, we got out to June.

We also are forecasting sort of strong growth there as well.

But I think it's we haven't baked in all the pricing improvements that we think could be achieved in this market in the guide, but the underlying question about the strength of the demand.

As reflected in our guidance.

Just to add to that.

Our business model as you're aware as to <unk>.

Start with smaller ideation phases, with new clients or proof of concepts that we do.

So small assignment that brings to life.

Way in which technology can impact all clients business model.

And as we bring that to life, there's an opportunity to scale what were doing with that client as we tightly.

Take those systems.

Production.

And that can significantly expand activity in the client footprint.

And Neil have observed in our numbers that those new clients coming in is also expanding quite rapidly over the last year going from 416 to.

650.

So we can see those bubbling up into larger engagements and that's part of the acceleration that we're saying.

Got it understood. Thank you.

Alright, Thanks Ashwin.

As a reminder.

In order to ask a question press Star then the number one on your telephone keypad.

That is star one on your telephone keypad. Your next question comes from Bryan Bergin of Cowen. Your line is now open.

Hi, all thank you.

A little bit of a follow up question on the nature of client conversations and demand curious is the expanded urgency and prioritization of transformation initiatives translate into any changes in the contractual terms. So are you seeing any changes in terms such as the average duration of engagements or opportunities around game.

Sharing or other non linear revenue and anything just to call out or quantify around that potential incremental pricing strength.

So let me pick up the first pet.

No.

The structure of client engagements is.

Is following our traditional pattern is.

He is getting bigger as we scale so our larger clients are getting larger.

You will have observed.

There is a little bit of a shift too.

Slightly more fixed outcome.

Contracts were.

Where we put some quality measures.

In alongside the T N M that.

We're delivering to clients.

And that gets clients a little bit more assurance.

All delivery as well as giving us some potential upside as we do well.

Mark anything I'm, just just in terms of the pricing I think I can also reiterate.

Two two Ashwin Q4, very strong revenue per head sequentially. We were up from around 63.64 to 68, we see that continuing as we outlook and saying the remainder of the year.

And the guidance is basically.

Being not not prejudging that we will be able to secure all the price rises that we think we will do over the long period.

Okay, I mean, just on price.

Very focused on delivering value to clients in a whole ideation approach enables us to.

Articulate value early in the.

And the decision, making cycle with clients and you know that.

<unk> to protect prices for us.

Okay makes sense.

And then follow up just run travel resumption. So as you built the forecast for 22 can you dig in a bit more on around your assumptions for cost or on the operating model and travel.

Assuming the current mix here and work from home or you're building back some increase of onsite and associated costs with that.

What we are building and increased travel basically in the second half.

Of the guide.

Yeah, we see things opening up as our sales teams getting front of clients.

Okay.

Yeah.

They in terms of the sort of impact on revenue side.

In terms of us sort of a pass through for us visiting clients et cetera.

That is not going to be significant although we are baking in much more sort of travel as our teams see clients and sells engagements with clients in the second half.

But its not a its not a seismic change in terms of the profitability profile.

Alright, thanks, guys.

Thanks, Brian.

Your next question comes from Matt Young and then of Needham. Your line is now open.

Great. Thank you and congratulations on the strong quarter maybe.

Maybe John or Mark I wanted to just ask about the client penetration opportunity you shared some metrics around the top 10 accounts and I think.

The fiscal year 'twenty, one had you at $20.0 million average revenue in your top 10, how much can that growth just trying to get a feel for the run way within the top 10 client portfolio as we move forward.

So most of our top 10 are.

Very large enterprises.

Where there's a lot of opportunity to grow what we're doing with them.

In fact, it's one of our.

Key parts of our business model is too.

Ill start with a client in one product area do the Audi Asian as they see the impact that that can have on that business. They they take that product into production.

And as it successful.

And what we're doing with them to accelerated success in the market.

But then with these large customers as often.

Many of the parts of that business, where once they see that success that comes out of working with us.

That keen to pull us into other business areas and.

He like to push product forward across their other lines of business.

So that's where the client penetration opportunity comes walnuts what.

A big part of what drives the growth in AR.

It is part of our planning model.

To see our larger clients continue to grow.

Although obviously as the business scales, they they slowly come down as a proportion.

Our overall business.

And I think you can see that sort of momentum.

As we went through Q4, because the average spend of the top 10.

Created by something like over 15%.

Oh.

Full year slides, you can see the year on year, but.

Both in the top 10 selling accelerated in Q4.

So helpful color. Thank you so much for that and then just a quick follow up I wanted to ask about the margin trajectory as we move through the year. Obviously you have the wage pressures. How are you are able to offset that if you could just talk about the levers that you have in the model to negate the impact of wage pressures and how should we expect margins to run.

Over the course of fiscal 2022, thank you.

Okay.

So I expect sort of near term Q1.

Our gross margin should classes the key sort of focus we will be.

Equivalent basically for the exit rate of Q4, but I think they will follow that.

No picture that we have.

As we go through the egg because our major pay round goes through first of January So we always are.

Get some dilution of margin as those.

Pedro I just go through that we recover over the balance of the year.

So I don't think there's going to be much change from that sort of traditional sort of picture.

Picture, where I'll go small chains will be relatively strong in the first two quarters of the year. The main pay rise goes through.

A little bit of a knocked back and then we recover it through the balance of Q3 Q4.

I think the only sort of different so the thing to add about that there will be some downward pressure as we offer competitive packages, we want to keep attrition and are in the right place you didn't notice we said it's at 10%.

This this quarter and that's what we like to sort of keep it.

But within those sort of parameters of managing our overall sort of grade distribution.

And on boarding the people that we need we think we can manage that that pressure.

Sure.

Great. Thank you for taking my questions I appreciate it.

Okay.

Your next question comes from Bryan Keane.

Do you Bank. Your line is now open striking.

Yeah, Hi, guys congrats on the phenomenal growth.

Looking at the at the verticals it.

It looks like other.

It's become a bigger percentage.

From last quarter I think it was 20% of the mix now, it's 24% and that was it.

Decent sized move is that was that due to the acquisition that moved that or is there some extra demand and set of consumer health care and retail that's pushing up that percentage.

It's a mixture of the two to be honest.

So our level of acquisition that came in the beginning quarter strengthen payments.

Payments and financial services, but equally it has good.

Strength in the other being a particularly around sort of mobility, but we are seeing.

Good.

Our momentum in that in that segment as well and we're particularly excited about.

Yes.

Mobility space is really accelerating for us perhaps not a surprise.

A lot of it around last mile deliveries.

And retail is improving there.

Service to clients.

Retail is another area that's been expanding.

We've done well out of our understanding of the payments.

Landscape.

The impact that can have on retailers.

Help them with frictionless payments.

Or buy now pay later and so on.

Then the other strength area and others being a health which has moved forward.

Strongly over the last year.

Got it got it.

And then just one question on the guidance Mark just thinking about the cadence of the revenue growth. It starts at 56% to 58% growth and then for the full year, it's 38% to 40%.

How much of that is is some of the acquisitions run off do you have any extra M&A in there from acquisition is not about are not announced and then.

Just trying to get a feel that it is still incredibly strong for the year versus the growth of the industry.

Any thoughts on sustainability of that 38% to 40% growth rate.

Yeah, I mean, they would obviously you're getting a full contribution basically up until we lap the level acquisition, which will be Q3, so expect to see very strong organic constant currency growth Q2, Q3, probably dropping off from where we've guide.

Good.

And then Q4 will be clean so we don't bake in any.

Anticipated M&A, but certainly exiting sort of Q4 will be north of that 20% constant currency organic target that we set ourselves so that they take short talk so I guess to the top end of that 40% is that youll be seeing organic growth over 30%.

Component and the balance will be.

M&A contribution.

Got it.

And ability.

Yeah go ahead John.

Yeah. So one of the things that you're you'll be aware of that we're looking for as a business is where technology is driving what we call long wave change.

Driven by all the digital technologies that are out there.

So you know the industries that we're focused on.

Of all being around.

Where technology is driving significant.

I am changing.

Structural change in those industries.

And you know.

Those are long ways you know the example payments that's been running for 15 years or so we see that continuing.

Pace.

Decades.

Looking forward from now and then.

You get into the other spaces that we're in banking insurance asset asset <unk> wealth management on the.

Payments financial services side.

The Tac arena, particularly the clients in the West coast.

The.

Telco space the media space and then some of the ones. We just touched on in other around mobility and logistics health retail and so on.

All of these are going through long wave change and actually.

There's a lot of cross sector convergence happening as well.

The ability of technology to integrate.

Through IPO is and so on across sectors.

Is transforming business models.

And the ways in which sectors interact with each other.

And you know we placed ourselves in the center of those so sustainability wise.

As touched on a moment ago, it's still from our point of view he feels like it's accelerating.

And not as a long term not as a short term blip, but as part of that.

Long term transformation that's happening across these industries.

Got it congrats again thanks.

Brian Thanks.

Your next question comes from Jamie Friedman of Susquehanna. Your line is now open.

Hi.

Great results here.

Couple of questions. John do you have any perspective, yet on next year's budgets to start at a very high level and then I'll ask my follow up at the same time in your prepared remarks, John you mentioned.

Hi.

I couldn't quite like it wasn't your fault was my fault, but there was something that happened with the top five clients in the payments and Fintech vertical I thought it may have related to an acquisition. If you could elaborate on that one too. Thank you.

I'll, let Martin look for the second one.

I mean, the interesting thing about the it budgets question for us is the.

A lot of the budget for the work that we do.

With all clients isn't isn't really coming out of a traditional budget framework.

It's it's clients who are looking at from a business point of view to create technical.

Technology product in the market.

And that's what's driving their investment cases, and the work they're doing with us.

So I'm sure somewhere.

It links back to.

The capital.

Spend.

Framework that they have within their organization, but I'm not sure that it links back to.

Our it budget specifically.

And if we don't find ourselves.

Sitting talking about it budgets with our clients very often.

Mark if he picks up on the other.

I think I think Jamie you are referring to clients, who paid us over 5 million pounds, rather than the top five is that right.

Two a mountain increase we didn't talk about movement in the top five clients per se.

I thought you had alluded to.

A fintech that came in we got expanded because of.

Maybe the five acquisition one of the acquisitions, but if that's too specific just maybe more general.

John in your prepared remarks, you talked about the API.

Progression in the payments and Fintech space.

We usually don't rely on you to for some great insights into that end market. So it just didn't in general what are you excited about in.

In the payments World These days.

So I mean in the payments world.

One of the things that's very exciting for us is.

How it is a door opener into other sectors for us.

So for example, as I touched on a moment ago in retail.

And clients to move towards a frictionless payments being able to walk into a store pick something up and walk out again.

A smooth the e-commerce experience.

Or.

Now pay later.

What we're finding is that whilst retailers are dependent on the payment providers.

The back end processing.

They're starting to look to pick up some of that.

Payments ecosystem themselves to create differentiation in the marketplace.

To get better information and data on their clients and so on.

So we're working directly with retailers on some of those things.

Notably in the banking world.

The banks all.

Tina to get involved in the payments arena a lot of that's driven by open banking.

Where theyre backend capabilities.

And the open banking regulations that allow them to create new products and services that look a little bit different to the traditional payments world.

[noise], helping a lot of banks with with those sorts of things.

And there's a lot of industries, where micropayments makes a big difference.

Where.

They want you want to collect.

Small amounts of cash from clients and how you do that in a cost effective way.

Subscription models are growing and that has a big impact on the payments world and the way in which we can help clients to do that.

One of the very exciting areas for us is how payments is pushing into other sectors.

In helping us open those sectors up but of course once we touched on get get a good product flying for a client in our sector. It helps us push into other parts of that business.

Going on alright, Thank you guys congrats again.

Thanks, Thank you.

Your next question comes from Maggie Nolan of William Blair. Your line is now open.

Thank you congrats on the good result.

Okay.

You talked about.

Application rationalization and modernization in general architecture reviews.

Like maybe it is a bit more tied to a traditional budget and.

Curious, how and God is really kind of differentiating from competitors in this area.

Yeah. So I mean, so it's that whole arena.

On there is around how the backend is implementing the digital product that we're helping clients to put in place.

So.

Essentially as you take product through the ideation phase into.

Prototypes and into production.

<unk>.

You start to really stretch the product into the backend in terms of the added value that you can deliver to clients.

And so that's where we get into these application.

These architectures and so on is around.

As the product is being extended.

Into multiple countries as youre, adding functionality and so on as it has success in the market.

Or do you need to do to your backend.

To ensure you have continued differentiation in the market.

Speed to market isn't being slowed down.

And the other points of differentiation.

Functional and so on can actually be added so that's where we get into the back end. So we're not.

Just going along with to clients and saying, let's do a big architecture study for you.

Many of our competitors would.

It's much more driven by our understanding of the product that we're building.

Building and what needs to therefore, we drove another back end to enable that to take forward.

Okay. Thanks, and then as you continue to grow in the U S and North America are these clients been won through competitive processes are you are you taking market share from other providers and are the pricing dynamics any different in that region.

So the U S feels very similar to the other.

Other geographies of the business in terms of the way in which we are.

Our wind business.

You know the the ideation approach that we take.

Means that.

We are much more rally.

The in our competitors getting involved not through an RFP process.

But but getting involved through.

Ideation of vault.

New product.

Or a product enhancement could do for our clients and and so we focus on that that space. It often very small.

Initial engagements.

Then scale as the vision of what can be done.

I guess the client excited.

<unk> investing further.

And then.

Spending money to get that into production environments.

That is just as true in the U S and the way in which we're expanding in the U S.

It is in Europe, and the U K.

And and the rest of the world as with building out the <unk>.

So there's there isn't any difference it is across all three sectors. So.

The payments financial services, TMT, and although we're seeing activity in all of those areas.

Health in the U S is as one wishes leading for us really I think the.

Ill health sector, and how technology can be applied is more advanced in our experience in the U S. Then.

In Europe, and the U K.

So health is one that's that's pulling on.

<unk> is another one where we're working with west coast businesses, where we're seeing a lead out of the U S.

And then that's pulling on the.

The rest of the business in our other geographies.

Okay. Thank you.

Thanks Maggie.

Your next question comes from James Fawcett of Morgan Stanley. Your line is now open.

Hey, this is Jonathan on for James Thanks for fitting us in here I want to build on some of the pricing questions that have already been asked how are clients responding to the pricing dynamics. You mentioned has there been any pushback around pricing increases and do you envision more clients moving towards fixed outcome contracts.

I think I think our clients understand the wider backdrop.

What we do alongside others is special and.

It requires being able to onboard talent.

And there is a battle for it.

And so whilst.

Nobody likes.

Rate increases as a client they understand that we are competing in a global market for that talent.

And as long as those conversations are sensible and we continue to deliver good outcomes and excellent work for our clients.

Then it isn't usually.

A difficult conversation.

In terms of.

Just to just to add to that I think the key thing with our clients is to be able to demonstrate that.

You add to that business, that's going to come.

Through the engagement.

And because of our approach.

Which helps to bring to life, what the technology is going to going to do for the business.

It really helps clients frame up their business cases.

And once you've got a good business case and a good product that's flying.

It's a it's a very different discussion.

At round, what we all need to do sensibly, we need to demonstrate to clients that we are sensibly pricing.

But they are much more amenable to that because.

The route to delivering their outcome.

Is much more strongly.

<unk> bye.

By staying engaged with indaba. So that's the nature of the conversations we're having with we're not trying to push.

Ours is down our clients' throws without demonstrating value.

That's helpful color and one more if I may you've highlighted the success at both five and level.

How are you thinking about.

Incremental acquisition or is there still a focus on expanding U S based capabilities what else are you looking at and how is the current landscape and pipeline.

Yeah, So I mean, obviously we've.

We've had.

Very successful mergers with other businesses.

And five in level in the fall that Cts.

Have have all gone very well and we're very pleased with him actually very excited about them as businesses and the value that they add to an adult.

The we continue to look for the ROI opportunities.

We are very choosy.

A lot of there's a lot of opportunities out there.

But we're very choosy Mary engage.

Nothing to report at the moment.

But as soon as there is we will obviously bring that to the market.

In terms of our strategy remains as I've articulated before that.

We want to look for businesses going to strengthen.

Geographic geographic diversifications, so pushing forward in the U S.

Creasing Lee looking too.

Asia Pacific to see whether there are good businesses there.

It will add to it.

The sales teams that we've put on the ground out there.

We also look for businesses that are going to accelerate us in the right sectors, where we see these low wave opportunities.

Say businesses are kind of brewing knowhow and capability in those sectors and help us accelerate.

And occasionally.

We look for a business that's going to give us some technological capability.

We don't have a need to quickly.

Third is actually quite rare.

We're good at building the technology capabilities that we need ourselves, but we do keep an eye out just in case.

And of course, often the deals that we do bring some element of all three components of that.

So we keep looking.

A lot out in the market, but we're very choosy.

Yeah.

Very helpful. Congrats on the results.

Okay. Thanks, Jonathan.

Thank you no more questions.

Interest you may continue.

Thanks for that thank you all for joining us today.

As you will have noted demand for our services actually remains very strong.

We're seeing good demand in all our verticals and geographies and remain very positive about.

Business position as we go into FY 'twenty two we're excited about the opportunities that this year offers.

Keep well and we look forward to seeing you on the next earnings call. Thank you.

Okay.

This concludes today's conference. Thank you all for joining.

Have a great day.

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