Q3 2021 Epam Systems Inc Earnings Call
Good day, and thank you for standing by and welcome.
Welcome to the ethane system third quarter 2021 earnings conference call.
At this time all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session.
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I would now like to hand, the conference over to your Speaker today, David Straube 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 third quarter 2021 results. If you have not a copy is available on <unk> dot com in the investors section with me on today's <unk>.
Call, our Ekati, Dobkin, CEO, and President and Jason Peterson, Chief Financial Officer.
I'd 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 the comparable GAAP measure.
<unk> and are available at our quarterly earnings materials located in the investors section of our website.
That said I will now turn the call over to art.
Thank you David Good morning, everyone and thank you for joining us today.
I think it would make sense to start today from the same reference point, we used exactly 12 months ago. When we began to see the first positive joining size after the pandemic hit us all in 2020.
The reference point was our Investor and Analyst day, which took place in November 2019 in Boston, which was still done.
The old question in person city.
Good day related to winding about the pump history during our policy Julius and transformational journey from being a pure software engineering services to a much more diverse digital improve the consultancy business drove continued invoicing.
Beginning in 2016, we set an aspirational goal to become vessels are global leaders in product development services space.
Three years later in 2016, we set out.
To become a global leaders in product and platform in the heating services.
Okay.
Can you say that practically every few years, we focused on wave one needs to look at.
Our organization is out look at things and the specific elements.
Central to transport as a company.
Yes.
This undertakings enable us to innovate.
And Steve.
Early changes market during those initial positive jaws guidance.
We shipped traditional mission was done as of late is important in the longer absorb.
Bottlenecks and was validated by external views, namely industry analyst portion of the sector and our ability to grow significantly faster than the market.
This has resulted in doubling the company youre dealing in practically every three years.
As a result at our Investor and Analyst day in 2019.
This is our aspiration for the next three years <unk> actually at the end of 2020 one.
And <unk> indicated that we might be able to double the size of the basket.
We also stayed the same.
To achieve this goal we will need to continue transforming the bump into a different company with a strong capability to adapt to people platforms and processes and tools that can quickly respond to change built in bringing to life. The digital platform that connects our people towards seamlessly and enables us to be.
And effective in what we do.
<unk> leadership with close integrated consulting.
Unique services.
And in these open up opportunities for transformation for everybody.
And.
Innovation delivered educational social and innovation programs.
In short we have set our sights on.
I'm into transformation platform for those clients, who would like to become adaptive enterprises themselves VCA wans, Indeed, our current undertaken today as well.
So last year, when our QC earnings call related to margin.
And further to good levels of optimism.
Confidence if you will.
Redo it into our traditional 20 plus percent organic growth rate and post pandemic environment.
But we also were almost surgeon is important.
Doubling our 2018 revenue by the end of 2020, one will not be realistic target anymore as evidenced the experience in Q2, and Q3 of last year and how the in general So the situation for 2021 <unk> in November of 2020.
Now as we sit here today, we see how naive.
Our post pandemic assumptions, we're just a year ago, especially the debt into the post pandemic term itself.
I guess.
And to do this weekend drove supposed portion.
For some time in the future.
But on the other side, we are now realizing the Dupont is an exciting growth roads and as 2000 ATM Jordan because we're looking at the present. These have clear line of sight to the fiscal year, we should be one of the fastest growing revenue years in our post IPO history, that's inclusive of <unk>.
Breaking through $12 billion revenue quarter as of the end of 'twenty or 'twenty one.
And actually still at each and out.
Ill aspirational goal of doubling the company.
First time since 2012.
This result is an obsession of many factors that have led us to our current state and the next phase of our Jordan and Jordan.
As much about transport him any bump as it has been about helping our clients transform their lives.
Sales.
It's exactly through this latest ambition. Please refer you can work on that we are developing ourselves to be one of the best in the areas of innovation and design consultant consultation and social responsibility. In addition to driving even higher levels of excellence is one of the strongest engineering companies.
Space.
And to date Ibama substantially different company than you were just six to eight years ago.
While I am discussing much more diverse foundation to drive the next level, so value to the clients and our growth and results.
So along the way with that too and we will continue to solve for the challenges of scaling for growth geographical expansions and attracting new types of started the different experiences in different types of silicon tube pump, while complementing our strong technical and engineering teams.
Additionally at each.
Country Islands.
And in Japan.
<unk> that would be needed to strengthen or build in order to transport will be bump to serve the market needs.
Yeah.
And to be done in voice with organically and through acquisitions, which continued to be an important part of our capability to extension.
As we turn to the future and set our sights on growing to 10 billion revenue company in our.
Growth will come from the foundational building blocks.
Assembled over the last years.
<unk>.
Include.
An integrated consulting engineers, you Didnt questionings.
To get the business and strategy technology and experience consulting group.
As our markets through all inbound continuum with unions.
Hi, William Cloud services focused on cloud native development applications organization, and enabling the data driven enterprise, helping our customers modernize.
From inside out.
Data and.
Yes.
Leveraging our trunk advances engineered and condensate billions of massive data structure of simulated EDI and API technology used to drive phosphate sites.
And enabled with our global talent pool that <unk>.
<unk> digital platforms guided by our next generation delivery methodologies and supported by educational social and innovation initiatives.
Lastly, we will continue to focus on expanding our partner ecosystem aligns with our vision and lab with our vertical and geographical focus developing drilling solutions and willing to market together.
So if you look into the current moment as I mentioned, a short time ago acquisitions, we will continue to be a prominent part of the bank capabilities and geographical extension study.
This year, we have already closed on five acquisitions BK, enabling us to expand our current solutions and sales force cyber security analytics strategy consulting and our presence in Latin America.
You also may have seen the recent regulatory filings about our intention to acquire <unk> group.
Cana is globally recognized digital markets is an experienced agency of holiday pulls himself as a user agency specializing in a range of areas, including cornerstone retail media Lincoln and by service design, Brendan and content production. The gross number of islands headquartered in Belgium, and visit more than 11 Congress.
Employees and studios across 18 countries in Europe.
The Middle East Africa, and North America.
This acquisition will enhance the possibility to deliver creative solutions personalized experience and new generation digital products between increasingly weighted into our local clients.
So worth noting that while.
Bob is already listed among the top 25 largest agencies in the world in my keynote at building new capabilities to our agency working and significantly strengthen the bump in market position across Europe and middle East.
With that it seems like it's.
Alright, Mogens now to mentioned that just a few days ago, pushing leverage and published 100 fastest growing companies list for 2021 and included the bond.
First time and third consecutive year ranking us.
One <unk> and a number of London's information technology services category.
I will not be actually it is only ICT services company owned duties.
And in addition.
<unk> included a pound for the first time in late 2021.
Americas, most loved what in place rent.
<unk> is a number of 49.
<unk>.
So before turning to Jason to provide an update on our third quarter results and our 'twenty to 'twenty one outlook, while over the leg one more time to state. The landfall of services continues to be very strong and we see this across all <unk>.
Market segments. We are also very well understand that this is the overall strong demand for products and.
This is precisely why we feel the current become Illinois confidence, we need to continuously building on our grid and continuously investing in our strong continued caution.
Constantly expanding our services into real end to end higher complexity engagements across the globe to bring an equation that will relate to the clients, we understand everything about our future high growth as Scott, but this before.
We're not trying to push into new areas because they are challenging and we are committed to do so in a very thoughtful and sustainable way.
So as not to compromise on the quality of the deliveries at the pump knowing full and if anything we are constantly looking for ways to establish through differentiation will not only our customers, but also as importantly, 40 pilots.
With that let me turn the call over to Jason.
Thank you Ark and good morning, everyone in the third quarter <unk> delivered very strong results, reflecting continued significant demand for the company's services across a wide range of industry verticals and geographies.
During the quarter <unk> generated revenues of $988 5 million a year over year increase of 51, 6% on a reported basis and 57% in constant currency terms, reflecting a positive foreign exchange impact of 90 basis points.
Our continued robust demand environment combined with our ability to recruit at record levels, while retaining talent drove a higher than expected revenue results for the quarter.
Customers continue to turn to <unk> for help transforming their businesses and we continue to support our customers across a range of initiatives, including modernizing and transforming applications across the full range of industries, we serve.
Creating new digital products and businesses and harnessing the resulting data to improve revenue growth supply chain operations and customer experiences and finally, merging physical and digital to create superior retail experiences.
Turning to the performance of our industry verticals travel and consumer grew 79, 3% driven by very strong growth from both our consumer and retail clients. In addition, we saw renewed demand in return of growth across our travel customers.
Financial services grew 68, 9% with very strong broad based growth coming from asset management insurance payments and banking.
Software and Hi Tech grew 46, 6% in the quarter.
Life Sciences, and healthcare grew 29, 5%.
Business information and media delivered 23, 6% growth in the quarter and finally, our emerging verticals delivered 61, 5% growth driven by clients in telecommunications energy manufacturing and automotive.
From a geographic perspective, North America, our largest region, representing 60% of Q3 revenues.
Grew 51, 6% year over year or 51, 4% in constant currency.
Europe, representing 33% of our Q3 revenues grew 59% year over year or 49, 5% in constant currency.
Cif representing 4% of our Q3 revenues grew 49, 7% year over year and 44, 6% in constant currency.
And finally, APAC grew 64% year over year or 58% in constant currency terms and now represents 3% of our revenues.
In Q3 revenues from our top 20 customers grew 29% while revenues from clients outside our top 20 grew 69%, resulting in greater diversification across our revenue base.
Moving down the income statement, our GAAP gross margin for the quarter was 33, 9% compared to 35, 1% in Q3 of last year.
Non-GAAP gross margin for the quarter was 35, 1% compared to 36, 8% for the same quarter last year.
Gross margin in Q3, 2021 was impacted by higher levels of funding for our variable compensation programs given the company's outperformance versus targets established at the beginning of the 2021 fiscal year.
GAAP SG&A was 17, 1% of revenue compared to 17, 9% in Q3 of last year and.
And non-GAAP SG&A came in at 15, 3% of revenue.
Compared to 15, 9% in the same period last year.
GAAP income from operations was $144 1 million or 14, 6% of revenue in the quarter compared to $96 4 million or 14, 8% of revenue in Q3 of last year.
Non-GAAP income from operations was $179 6 million or 18, 2% of revenue in the quarter compared to $123 3 million or 18, 9% of revenue in Q3 of last year.
Our GAAP effective tax rate for the quarter came in at 14, 6% versus our Q3 guide of 13%.
Due to our lower than expected level of excess tax benefits related to stock based compensation.
And a onetime benefit related to certain tax credits.
Our non-GAAP effective tax rate, which excludes excess tax benefits and includes the onetime benefit of the tax credit was 21%.
Diluted earnings per share on a GAAP basis was $1 95.
Our non-GAAP diluted EPS was $2 42.
Reflecting a 77% increase or 46, 7% growth over the same quarter in 2020.
In Q3, there were.
Proximately $59 2 million diluted shares outstanding.
Now turning to our cash flow and balance sheet cash flow from operations for Q3 was $206 1 million compared to $175 6 million in the same quarter of 2020.
Free cash flow of $184 9 million produced 129% conversion of adjusted net income.
Compared to free cash flow of $165 8 million in the same quarter last year.
We ended the quarter with approximately $1 3 billion in cash and cash equivalents, which does not include the restricted cash related to the acquisition of the mechanic group.
Additionally, in October we updated and expanded our unsecured credit facility, which will allow for up to $700 million in funding plus an additional $300 million via accordion, giving us access to a total of $1 billion in borrowing capacity.
This new credit facility replaces the 2017 facility, which allowed for borrowing up to $300 million with an additional $100 million via accordion.
At the end of Q3, DSO was 70 days and compares to 70 days for both Q2 2021, and the same quarter last year.
We expect to maintain DSL around the same level or somewhat lower in Q4.
Moving onto a few operational metrics, we ended the quarter with more than 47050 consultants designers and engineers a year over year increase of 39, 4%.
Our total head count for Q3 was more than 52650 employees.
In the first three quarters of 2021, we had approximately 11500 net additions a record number for <unk> over a nine month period.
Utilization was 77, 1% compared to 78, 2% in Q3 of last year and 82% in Q2 2021.
Now, let's turn to guidance.
Based on our year to date results combined with a robust demand environment and continued confidence in our ability to scale production head count we are raising our business outlook for 2021.
So starting with our full year outlook revenue growth will now be at least 40% on a reported basis and in constant currency terms, we will now be at least 38%.
After factoring in an approximate 2% favorable foreign exchange impact.
On an organic constant currency basis revenue growth will be at least 34%. After excluding an approximate 400 basis points of revenue contribution from acquisitions, we closed in the last 12 months, including <unk> Makena.
This compares to the previous full year revenue growth outlook of 37% reported 35% constant currency and 32% and organic constant currency terms, which we provided during our Q2 earnings call.
We expect GAAP income from operations to continue to be in the range of 13, 5% to 14, 5% and non-GAAP income from operations to continue to be in the range of 17% to 18%.
We expect our GAAP effective tax rate to continue to be approximately 11%, which includes the benefit of certain tax credits I mentioned previously.
Our non-GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation will now be 22%.
Earnings per share, we expect GAAP diluted EPS will now be in the range of $7 86.
The $7 93 for the full year and non-GAAP diluted EPS will now be in the range of $8 72.
The $8 79 for.
For the full year.
We expect weighted average share count of $59 1 million fully diluted shares outstanding.
For Q4 of 2021, we expect revenues to be in the range of 1.075 billion to 1.085 billion producing a year over year growth rate of approximately 49% at the midpoint of the range with the favorable impact of foreign exchange on revenue growth expected to be minimal.
Lastly, we expect approximately 800 basis points of revenue contribution to come from acquisitions closed over the last 12 months, including E Makena.
For the fourth quarter, we expect GAAP income from operations to be the range of 13, five to 14, 5% and.
And non-GAAP income from operations to be in the range of 17% to 18%.
We expect our GAAP effective tax rate to be approximately 14% and our non-GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation to be approximately 22%.
For earnings per share, we expect GAAP diluted EPS to be in the range of $2 11 to $2 18 for the quarter and non-GAAP diluted EPS to be in the range of $2 44 to $2 51 for the quarter.
We expect a weighted average share count of $59 3 million diluted shares outstanding.
Finally, a few key assumptions that support our GAAP to non-GAAP measurement in the fourth quarter.
Stock based compensation expense is expected to be approximately $31 4 million.
Amortization of intangibles is expected to be approximately $5 6 million.
The impact of foreign exchange is expected to be approximately a $1 $5 million loss.
Tax effect of non-GAAP adjustments is expected to be around $8 million.
And finally, we expect excess tax benefits to be around $13 million in the quarter.
In summary, we are pleased with our Q3 results and our record growth, we're producing in our 2021 fiscal year.
While it is too early to give a detailed view of our business outlook for 2022, we believe the demand environment continues to support an elevated annual growth rate in excess of our traditional guidance of greater than 20%.
However, we also believe it is important to establish and maintain a more sustainable growth rate in the coming year than that achieved in 2021.
As we have done in the past we will provide a detailed view of 2022 guidance in February.
On our Q4 earnings call.
Operator, let's open the call for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Our first question comes from Bryan Bergin Cowen Your line is open.
Hi, good morning.
I wanted to ask about the spread between head count head count growth versus revenue growth. It's really widened here. Despite the utilization normalizing can you talk about some of the key drivers there as well as sustainable level for that difference.
Yes, I think that we continue to see some improvement in pricing is I think we've discussed over the last couple of calls and then probably there is a little bit of shift from a geographic standpoint in different geographies to have somewhat higher rate rates associated with them and so on.
I think you might continue to see some improvement over time.
And as I think we've sort of talked about we feel that we've definitely increased our capacity to <unk>.
Add head count and more specifically to retain head count and so we expect that we will continue to add head counts at greater than historic rates, but currently we are guiding.
To a somewhat lower increase in head count in Q4 relative to Q3 based on what we think will be a little bit of slowdown and not and people joining the company in the month of December.
Okay, and then just on the growth outlook, so really looks quite broad based across the business.
Just any thoughts on how 2022 growth made progress considering the level of comps you continue to put on the board here in 'twenty one.
More specifically, how do you feel about headroom to grow in some of your largest clients.
The demand environment continues to be strong.
We see quite a bit of growth from existing clients. We also have a number of engagements that we have entered into more recently.
A lot of growth potential so the demand environment is obviously quite solid.
We also feel that we have increased our ability to support organic growth rates at the same time I should say that we don't expect that at 36% organic growth rate become <unk>.
Normal sort of.
Multiyear sustainable norm.
Okay, and the largest accounts headroom in those do you still feel strong there yes, there is definitely theres.
There is potential in the larger accounts.
Alright, thank you.
Thank you. Our next question comes from Jamie Friedman with Susquehanna. Your line is open.
Hi, let me echo the congratulations.
As a company as plain as a market right now this is.
<unk> groschen.
Most of the articles clear I assume Kurds concede.
Consumer goods today of all the detail definitely <unk>.
<unk>, what it would be relevant for.
Majority of financial services.
On definitely entertainment.
And publishing so I think it's pretty much corrosion or.
And healthcare analyze facts.
All of it.
Yeah, and I guess I'll answer the second question is have good morning and.
From the standpoint of budgets.
Budgets.
Intact, as we sort of exit cue for clients are looking to invest in to continue Ted drive digital transformation.
So right now it continues to be a market, we're probably supply constrained is.
The greater issue rather than demand and we enter 2022, which looks with what looks like a pretty intact demand environment.
Got it I will drop back in the queue. Thank you.
Thank you.
Our next question comes from Ramsey alcohol.
Barclays.
[music].
Our next question comes from astronauts should maker with city. Your line is open.
Thank you.
Congratulations on the quarter.
I guess the question in the.
Past you guys have outspoken about.
Sort of the.
Corporate culture from growing too fast and the ability to grow too fast.
So.
Scale has that ability changed has your view.
Changed.
All right.
I think it's definitely.
Okay.
Very relevant concern.
To be put in a lot of attention to this.
At the same time like.
Since changing from important to Hollywood Silicon involved generally duration.
Level of distribution.
How people work in just two years ago. So I am just reminded exactly both kind of our navy too sometimes and.
Boot during the last.
Couple of years and it was starting to do before a lot of efforts to make sure that we create an environment from digital ecosystem perspective, as well to see how we can support.
The culture.
Better in.
Is what you were thinking.
We will be relevant probably not during the 20 22021, but later.
It's all accelerated Lakeview always took an environment what does the same time, that's exactly with Jason already mentioned, we don't believe that it's sustainable to grow grow switches temporary in right now for a relatively long period of time, so think it might be better than what we expected.
Couple of years ago.
Took an involved with our growth 20 plus percent regarding grows maybe it'll be better in the future, but it's definitely nauseate, which we grow in today because.
In this case, where you'll be kind of.
50 to 60, 70% of pupils will be new to the company of issues are very difficult to sustain culture and quality of the delivery and we've already very much.
Focusing on the.
Quality levels.
Understood understood no. So you're focused on the right thing as far as that that type of growth is concerned which is which is good.
I guess when separate question network with the <unk>.
Against that process has been ongoing since since August.
Just to clarify.
Is the acquisition now complete.
In terms of safety.
Yeah.
Public share repurchase and stuff like that and.
Is this an 80.
You would see your central continuing to.
Two continuing to scale in terms of.
Acquiring a lot of local talent and many different geography.
Yeah. So from I guess, the acquisition standpoint over 98% of shareholders have agreed to tender their shares and cash has been transferred we're still going through a little bit of a <unk> I guess, what's called a squeeze our process here for the remainder of the shareholders and so for all practical purposes, we would control the company.
As of I guess yesterday.
And I guess, that's that's kind of what I would say about that.
And we definitely focusing on expanding in.
In the market.
It might be an acquisition bring in the leg.
The lowest 100 people to us specifically.
European markets is definitely improving our experienced consultants, who digital consultancy a marketing.
But related consultancy skills, which is a little bit new to palm with very complete minutes into what we're doing but it's also.
Very reasonable improvement of our presence of gross European.
And some.
Middle East Yoga race.
And we played into continuously do this but again, but of course visit right proportion.
Is consistent focus on delivery and renewed.
An engineering quarters.
And just to clarify and I think I said that in in my prepared remarks, but.
We've got two months of you Mccain results built into the guidance that we communicated for the Q4 quarter.
Understood Okay, great. Thank you.
Thank you.
Our next question comes from Maggie.
Okay.
Thank you I am wondering what is the level of in Europe at the employee that you've been hiring.
A rapidly in the last couple of quarters here and has the pyramid.
And the last couple of years.
I think.
Definitely do and.
Very specific analysis on the spot.
While we growing faster than we expected we keep in seniority Remington Dr right now.
So.
We're clearly risley seniority rebooting and more new people and that's a.
A little bit more challenging that's kind of related to the previous question is.
Actually that was us can be careful you doing this is what they're going to see nudity per I mean, it is supported as needed for.
For the double services, we delivered.
Thank you and then in previous quarters, it's Scott putting through an additional number of price increases compared to prior years.
How widespread is this across your client base and what is the magnitude and how receptiveness clients tend to these conversations.
We continue to have discussions and negotiations with clients around rate increases some of those are coming in the second half of 2021 at the same time. We're also beginning to have the discussions around rate increases for the beginning of 2022, which is kind of a more traditional period for rate increases.
Obviously, nobody likes to absorb a rate increase but I think based on everything that people are seeing from a wage inflation standpoint from I guess, a global inflation standpoint, and just the continued strong demand for resources. These are relatively easier conversations that we've had in the past and I expect that we will see.
Better price increase a rate increase in 2022 than we've seen in previous years.
Is that pretty widespread across their client at Jason.
Yes.
Every client is probably a little bit different but yes, I think that.
There is there will generally be greater increases across clients that we've seen in the past.
Some clients will have higher rate increases and others.
Depending on where they've kind of been historically, we are trying to make certain that we are growing our business responsibly and sort of able to maintain sort of as a stable sort of level of profitability of the way we've run the business over the last couple of years.
Yeah.
Thank you and congratulations.
Thank you.
Our next question comes from Jason Kupferberg with Bank of America. Your line is open.
Hey, guys. This is Kathy.
Great.
I wanted to ask about Martin.
Margaret performance has been very impressive year to date.
Talking to the upper end of your full year guidance aimed at 17 or 18%. Okay is there a reason you'd pick up the player market guided conservatism.
There are other factors that we should be aware of.
Sure. So we believe that the 17% to 18% guidance that we maintained for adjusted income from operations is the appropriate kind of guidance Q3 was it was a quite strong quarter, which did.
Some of the profitability improvement was the result of that.
The upside and revenue that was somewhat unexpected.
In the quarter for Q4, we expect that.
SG&A will come up a little bit between Q2, and Q4 will maintain grace gross margins kind of in and around the range that we saw in Q3, and then I think the other thing I should point out is that.
A recent acquisitions have somewhat lower levels of profit.
Than our traditional <unk> business. So all of those things kind of pushes you more towards a queue for exit in the middle of that <unk>.
17% to 18% range and so that's that's kind of what importance that 17, 18% guidance for the full year.
Great very helpful and just a quick follow up.
I just wanted to ask about utilization, obviously, that's great see number one.
About two years now.
I'd like to see the timing Onboarding Scobie, Seattle based off hiring quarter alright.
Obviously demand remains based off of this month.
Is there is that factor contributing to that thing.
Yeah. So utilization in Q3 is traditionally the seasonal low quarter and so if you think about world I guess pre 2020.
It's a time when people go on vacation and if you're lucky enough to be in Europe, maybe it's a two or three week vacation and some utilization is relatively low last year when people couldn't leave their homes in countries, we saw higher utilization than is typical.
The 77.1% that we saw in Q3 is actually pretty good and sort of again sort of seasonally consistent we expect utilization might come up a little bit.
In queue for but.
Not unhappy with the 77, 1% that we had in Q3 and I guess the other thing I should point out is we usually think about the business is kind of running and maybe a 77% to 79% utilization and again it is somewhat seasonal.
There are quarters, when we run at or above 80%, but we generally consider that.
The hotter site.
Great very helpful. Thanks, guys.
Thank you.
Next question.
Jeffrey Your line is okay.
Hi, Jason.
Just I was hoping for a bit more color on your commentary around.
When you mentioned looking towards a more sustainable growth rate what you're currently generated.
Is that.
Commentary around the scale at which he came as currently operated yet or is that also some commentary on.
The industry growth, that's occurring and maybe ultimately some expectations of slowdown as we look ahead.
It's difficult to equivalent to both industry as a whole at this point, we're seeing that as well.
Very strong demand.
There is no.
Early signs of this event will go go down at the same time from our internal assessment, we really would like to make sure that we bring the zoo will you to the clients and supporting the reputation which revealed due to the previous couple decades.
And from this point interview.
Well since deniability of our growth because like if you go into.
Growing like 50% for a couple of years.
It's our size.
We don't believe that it's possible to do is the complexity of the business.
The complexity of the engagement.
So basically the system the village, who was referred and exhibited too.
To our understanding what's possible in reality is keeping is equivalent to.
Culture of the company similar.
Similarly reply towards related to us as well.
Understood.
In related to the commentary around.
Expectations of.
Strong demand outlook.
If you look over the next X number of years.
You made a comment earlier about that night.
Predicting demand about a year ago or you thought things were can.
Can you maybe provide some color around what gives you confidence that.
The current level of demand from an industry perspective.
Favorable at these levels.
And then if we look at past cycles it seems like.
Spike.
Will persist for a couple of years, but then there is generally a quick draw down any color you can provide though and your confidence levels.
I assume our point was exactly how difficult to to predict the future just a couple of years ago, we didn't understand that it was the visitors know each fur.
12 months ago.
In fact of.
And David who will be different and.
Just two other two quarters later, it's changed.
That's why I from Europe.
Croatian.
We do believe that it would be.
Strong demand in the next several years what would be after this and houses with who will do work and it's interesting question because everything changes.
So unfortunately, it kind of gives users.
Users kind of assurance was.
The next decade assumption.
Okay.
Understood. That's helpful. Thank you.
Thank you.
Our next question comes from.
Morgan Stanley Your line is open.
Thank you very much and thanks for all the detail today.
Wondering you mentioned and prepared remarks that you are making some progress on standing up new delivery centers.
In different regions can you give a little more detail on that house hiring going in those regions and how're, you being able to to build and and the the Pam brand, which seems to.
Really well to date an existing geographies.
I assume who will do very consistent resolve equivalent of the sites.
I don't remember his words quarter U as soon as it is easy to bring talent.
And.
I agree to all of US were controlled means. It's also very global there is no practical as places in the world to do what you can common starting to.
Like.
Style into results.
Our challenges.
And so I assume each quarter.
<unk> is becoming more challenging at the same time I will investments in education, and our recruitment processes.
Dalmatian evidence and becoming.
More impactful and.
Allowed us to support towards we do today.
I don't know what else to say I think wolf a talent is like.
All media and though websites everywhere like everybody talking about it.
We've pretty crowd to this point has to be able to sustain.
The level of.
And I have to do some issues here and level of.
Kind of.
Relatively relatively manageable additional rates.
And certainly.
Good reason to be proud and impressed with what you've done to date on a hiring.
You also talked about it I just want to talk a little bit more ask quickly on.
Customer.
Growth and contribution it seemed like there was pretty material sequential growth crusher top customers.
How much is that the result of their own demand versus you turning away, maybe other business and and so that's resulting in more concentration and how should we think about that going forward.
Do you think you can get far enough ahead of the hiring curve to be able to to take on some of that work that maybe you've been turning away recently or is that going to be an ongoing challenge.
Yeah. So I think that we're actually kind of D. Concentrating what I would say is that if you looked at that cohort in the 11 to 20, you did have pretty elevated growth rate in that cohort and maybe some of that it speaks to sort of the trends we're seeing in the market. So you've got it.
Few clients.
One in the asset management space that was probably somewhat unprepared for for the new digital kind of operating world.
Pandemic.
Sort of encouraged them to make investments and now there is a significant amount of investment around updating their infrastructure and the way they connect with their end clients and so you've got I would say a number of companies who.
Probably got additional religion via via the pandemic and you are seeing quite accelerated investment and then he came continues to bring that sort of trusted partner to the table and so.
Clients, who were looking to make certain that their transformation journey of successful.
Oftentimes, they're working with <unk> because of the track record that artist is spoken about so we did see some really strong growth in the 11th 20, but we're also seeing very strong growth in the customers below 20, I would say probably if you're an existing customer have a strong demand you probably have a little bit more of a say at the table and so probably.
Getting a little bit more of their share of resources and brand new customers.
And again, we continue to be constrained by supply and are expecting that.
We will continue to have very very solid net additions in queue for but at a somewhat lower level.
And in Q3, Okay and of course that excludes the.
1100 additions coming cream E Mckenna.
I said a lot was that relatively clear yeah that was that was perfect. Just one clarification and I think you've touched on this in terms of the lower net addition to the fourth quarter, you think that seasonal or is there. Some other aspect it's impacting that.
I mean, I think generally what we're thinking is that December is a time when most people don't change jobs and so we will have maybe fewer joiners in December but it might be a reflection that things could get a little bit harder overtime, but arcas talked about we've really improved our capability to.
Attract I think are hiring brand continues to improve quarter after quarter year. After year. We've also improved our ability to staff projects and to match supply and demand. So I think that we've.
Improved our capabilities around organic growth rates, but again are expecting us somewhat slower level of net additions in queue for.
That's great. Thank you.
Question.
Piper Sandburg.
Yeah.
Hey.
Congrats on a tech a quarter.
I just wanted to go back to them.
Comment.
Art man.
And the prepared remarks and.
And talking about kind of pushing into new areas and capabilities.
So.
Couple of questions around what are you.
Doing in terms of figuring out Vicky.
Which areas to invest in just given the breath of.
Tech innovation.
Kind of across across the space, which areas.
However, it is heading which areas to really kind of focus on that and build capabilities and.
What is commercial revenue opportunity.
And the second question is how.
How are you deciding.
What areas to kind of deemphasize at a certain areas.
You don't see much growth, how you're deciding what areas to say like we're going to focus less on this area.
Yeah.
Prefer to your questions Laker.
All the stress and trying to understand the fusion how're you doing this and so like.
Well.
Simple salad question of each like really.
Complex.
Just would like to them or you might.
I'm not going to go to specific topics, but.
We do believe that one of the advantages issue.
Sounds probably.
So 240% of our business is still would confuse software companies and technology companies and blood form companies and we're doing significant.
Kind of sometimes a significant portion of.
Development of new products and blood for this type of clients that you've given us like very different exposure to what's happening.
In different areas like sometimes we do a new product on new concept like my shoulder. Then is go into the market, but then we are forced to.
Kelp.
This type of clients to do implementation of this so we have.
Kind of organic and terminal.
Borough inventory feel if you will to help us to select some ideas and we build this capability to sometimes and we're going to quit and.
The way designed to be trying to keep <unk> proportion of those of such clients or no.
Our business portfolio to be able to continuously do is this.
This is from technologist input and then from end to end solutions concludes we definitely busybodies and what we said in the world consultancy with good up in up in the chair and explained in.
Business perspective of would be building.
And how we can cope.
Help clients.
First consulting Coors for us deeply technology, and we ended experienced components and we were talking about business now took in the world.
Part of this what we also did a couple more musicians in this area and this is when we talking about new areas. It's not only work neutrophil usage also who was the whole story.
Perfect perfect.
Another question.
Let me in the last.
Two years of.
Vanity or consulting capabilities.
Makes a lot more sense given that now you're doing close to a billion dollars in revenue.
Quarter.
Can you stop maybe body competitive set who are you winning business from.
Ah you as a competitive set change.
Changed.
Now with the three four years back.
I think you you understand our competitive with literally well and I assume.
We just get him proportionally more.
To the situations when consultant.
Much more important part to start a new business to open the door.
From this point of view.
I assume greasy as a defense from general competitive.
Kind of what's exactly companies, we compete against I assume could slide you the same because for most of the larger enders heads. This capability before if you're just trying to bring different will you through integrated with us is diluted in engineering.
Perfect. Thank you and good luck for rest of the year.
Okay. Thank you.
Our next question comes from Steve Enders with Keybanc capital markets.
Okay, great. Thanks for asking for taking my question isn't it part of all of it more of a macro I'm kind of our budgets are at this point.
Good to see I guess travel and consumer specifically.
Right there, but are you still seeing some of that depressed funding levels from.
From Covid sobbing across one of the the vertical and your and your client base.
I don't believe we seen any.
Any of this is this is this stage has practically and it's not only about Roland consumers practically totally as we do believe that pivoted with them.
Preparation for something new or you would like.
Changes to reach.
This pandemic tieger.
Split the cost of them when I was.