Q3 2022 Endava PLC Earnings Call
Please wait the conference will begin shortly.
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Good morning, My name is Rob and I'll be your conference operator today.
At this time I would like to welcome everyone to the Indaba third quarter fiscal year 2022 results conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session if.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one.
Thank you Laurence Madsen head of Investor Relations.
May begin your conference.
Thank you good morning, everyone and welcome to <unk> third quarter fiscal year 2022 conference call. As a reminder, this conference call is being recorded joining me today are John <unk>, Chief Executive Officer, and Mark <unk> Chief Financial Officer.
Before we begin a quick reminder, to our listeners our remarks today include forward looking statements, including our guidance for Q4 fiscal year 2022, and for the full fiscal year 2022, and statements regarding our perceived opportunities and anticipated future growth and.
Expansion.
Alright expectations regarding digital transformation of businesses and industries and our industry trends the necessity of digital transformation for many companies and the us.
They only teach a benefit there.
Potential technological advances.
Expectations for future partnerships and ability to extend our existing relationships anticipated client demand for <unk> services our ability.
Ability to attract and retain employees and media and then apply a choice in multiple geographies and our ability to execute on our sustainability objectives as well as other forward looking statements. These statements are subject to risks and uncertainties that could cause actual results.
To differ materially from those contained in the forward looking statements.
Actual results and the timing of certain events may differ materially from the results or timing predicted or implied.
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 today's date and the company undertakes no obligation to update them to reflect subsequent events.
Or circumstances aren't there then to the extent required by law.
Please refer to the risk factors section of our annual report on form 20-F filed with the Securities and Exchange Commission or the SEC on September 28, 2021, and as updated in exhibit 99, two to our current report on form 6K.
Filed with the SEC on March 32022.
Which contained a discussion of important factors that could cause actual results to differ materially from those contained in any forward looking statements.
During the call, we will present, both <unk> and non <unk> financial measures and a reconciliation of non.
Erez to FRS measures is included in today's earnings press release, which you can find on our Investor Relations website.
A replay of this call will also be available data 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 are all well we're pleased to be here to provide an update on our business and financial performance for the three months ended March 31st 2022.
I am pleased to report that we continue to be in a very favorable business environment, where demand outweighs supply and therefore, we remain very selective in the business we take call.
We carefully balance expanding work with existing clients and taking on new ones.
Our ability to service clients from Central Europe has not been impacted by the war in Ukraine.
Although we remain thoughtful about the locations for our delivery centers in a very mindful of managing potential geopolitical risk in the countries, where we choose to expand.
Additionally, distributed agile delivery model provides for a multi site delivery approach.
<unk> delivery to individual clients across multiple centers, reducing risk associated with any one location and making business contingency planning highly effective should it be required.
And all of our reported revenue of 169 2 million pounds for Q3 of our fiscal year 2022, representing a 59% year on year increase in constant currency from $112 3 million pounds in the same.
Period in the prior year, we ended the quarter with an adjusted profit before tax for the period.
<unk> 4.2 million pounds, representing a 43, 1% year on year increase from.
From $23 9 million pounds in the same period in the prior year.
Our strong revenue growth continues to be driven by the expansion of work for our existing clients.
The acquisition of new ones during the quarter. The continued scaling of existing projects and accounts continues to drive the growth for larger clients and the increased spend by these clients.
We ended the quarter with 717 active clients up from.
567 at the end of the same pressure yet in the pie.
A 26, 5% year on year increase.
Importantly, we grew the number of larger clients with a total of 118 clients paying us in excess of 1 billion pounds per year compared to 81 in the same period last year, representing a 45, 7% year on year increase.
Additionally, the average spend of our top 10 clients continues to grow strongly and was up 44, 2% year on year in the three months ended March 31st 2022.
Yeah.
Our business in the U S continues to expand strongly and revenue from North America grew 75, 5% for the three months ended March 31st 2022.
Over the same quarter last fiscal year with demand, particularly strong in banking and capital markets and insurance as well as in tech and mobility.
Revenue in our payments and financial services vertical grew by 46% year on year, driven by strong growth in all of the sub segments of that vertical.
Other vertical also grew very strongly up 77, 3% year on year with mobility being the key driver.
The healthy demand from our clients continues to be driven by technology enabled transformations occurring in many industries.
None of us vehicles, frictionless payments data insights and supply chain pressures.
There remains much interest in the topic at the metaverse his entire ecosystems that are emerging around it while we are seeing a broadening of asos applications.
We believe this represents an opportunity for the other.
As an expanding area of digital acceleration.
For example, we are already seeing an increasing interest in practical applications.
<unk> and augmented reality using headsets like Microsoft early lessons.
We have recently developed virtual showrooms assistance applications for logistics workers through EDI industrial training applications and business to consumer applications for areas like furniture, and toys and the virtual experiences for tourists.
All of these applications require a blend of skills, including user experience.
<unk> graphical design software engineering automation and specialized testing.
Ideally suited so our cross functional delivery teams.
Such projects also often involve all lead to work on infrastructure backend services or data analytics generating work for other teams as well.
We are investing in this space as we see good growth opportunities.
And although recently joined the unity certified creator network, which Leverages unity technology to solve customer problems with the power of real time three day.
The membership based ecosystem is focused on putting diverse innovative creators such as indoor.
The center.
Economy.
As we expand our expertise in the media and telecommunications segments, we'd like to highlight a number of clients, both north American and European where we are accelerating the evolution of that businesses through the application of next generation technologies.
And the media vertical we're seeing increased demand in building products and platforms in line with the industry technology disruption right.
And early movement towards the decentralization and token based economics fundamental to web re.
We are also helping our clients monetize the metaphase, both in North America and Europe .
<unk> has been working with a U S based gaming company building the platform further virtual blockchain and now Youll gallery in the matter for us to view and transact in Ftes. We're also working on enhancing internal tools, so that blockchain gaming platform, which will streamline automation when it comes to.
Reviewing and publishing that guidance.
We're working together with their engineering leads to design and deliver the next iteration of that backend platform heavily focused on reusable micro services that will provide a scalable and flexible infrastructure.
We've been working with consensus are leading a theory and software technology company on several of the blockchain based product offerings.
Starting with calm Guy a trade finance platform backed by 15 of the world's largest banks trading in oil companies, enabling authorized participants to securely transact using blockchain for trading and for the standardization of documents.
We're also working on Covance. This platform servicing some of the leading global agricultural commodity providers, whether the global network for efficient execution of bulk agricultural trade operations, including notice issuance and visualization as well as user productivity management.
Finally, we are working on meta mask the primary way our global user base of approximately 13 million monthly active users interact with a universe of web three applications that include NFC marketplaces play to earn games decentralized autonomous organization.
<unk>, which software platforms running business processes.
<unk> blockchain protocols.
Decentralized financial applications and met with Us wells.
We started with a small team which over the last few years grew to include many scrum teams.
Also in media and all the works with video.
Our media measurement and optimization software company, whose goal is to create a more sophisticated data driven advertising ecosystem.
Our partnership aligns with and supports that goal to redefine how media is valued bought and sold.
Similar to the scale of the technology disruption, we see in media.
Okay vertical is also moving into a new period of accelerated disruption as the scaled availability of five <unk> networks has created vast new areas of opportunity for the evolution of mobile experiences.
In line with this theme.
Supporting our long term European Telecom client.
Recently delivered a large cloud native gaming platform, leveraging <unk> technology to enable unprecedented low latency gaming experience.
For that same client.
Supporting the innovation unit with applications layer in mobile software expertise in the area of time critical applications over five G with rate adaptation.
Further we are currently upgrading and managing the e-commerce platform and payments gateway of another large European telecom clients.
I look to evolve their business, we're on track to stabilize and provide direction of travel for this complex platform.
I'm also very excited about our recently announced partnership with stripe Wechat.
And stripes, new partner ecosystem is a key strategic partner.
This ecosystem allows merchants to grow their business by connecting them with over 800 partners.
New offerings experiment with new business models, and monetize payments transactions by keeping pace with the escalating adoption of SaaS tools and commerce platforms merchants are able to reach new customers and increase conversions with a frictionless customer experience.
To service this increased customer demand, we continue our growth from a people perspective.
We ended the quarter with 11001 and documents.
A 35, 4% increase from 8127 in the same period last year.
While competition for talent remains intense I'll focus on recruiting the best talent in the countries, where we are located is unchanged and I am pleased to our success in recruiting and retaining the people we need.
We continue our geographical expansion and diversification.
We're expanding our team in Toronto, Canada, and Poland. We currently have two delivery centers in Gdansk and watch.
And plan to add several more locations in the coming months.
Our expansion in Mexico is progressing well with our delivery center in Monterrey, where we are actively recruiting.
We also very recently opened a new delivery center in Kuala Lumpur.
To service, our APAC customers and are close to clients location in Dubai UAE.
Additionally to meet the continued strong growth in demand in North America, we continue to accelerate our Latam presence, we ended the quarter with over 1780 and dominance in the region up 65% year on year.
But we aim to support our staff and give them the opportunity to achieve that professional ambitions.
One of our tools to help them achieve that goals is our award winning and although well being program, which we recently offered master classes and workshops focused on mental well being.
As we come together and caring for the environment, we are keen on getting increasing awareness on environmentally friendly practices. Both at work and the time through relevant master classes workshops and digital resources.
As an example of our efforts on delighted and Delmarva. Thank you Forest campaign has recently been awarded CSR program of the year at the Aes remaining Eric Lala.
Under this campaign, we plan to tree for each <unk> <unk> by one endorsement of another both addressing the ecological aims and furthering our collaborative culture.
Planted 23000 trees, yes, five of our locations.
10000, more are being planted in may.
We look forward to keeping growing.
And the other forest as we continue sharing gratitude by sending E think case.
And all of US wanted to respond to the humanitarian crisis in Ukraine.
So we launched an employee match donation campaign and together, we raised 1 billion euros. Our combined efforts will help thousands of Ukrainians without donations to Ngos working on the ground in Ukraine and at the borders of multi and Romania.
As demonstrated by our financial results demand for our services remained strong while navigating a challenging global macroeconomic environment and remain excited about the opportunities in front of us and remain confident in our ability to execute on our objectives.
Let me end by thanking our people for their resilience and adaptability as they continue to deliver innovation quality and excellence to our clients.
Enable the performance and the opportunity for our business, though I've just discussed.
I will now pass the call on to Mark who will walk you through our financial results for the quarter and provide guidance for the coming quarter and the fiscal year.
Thanks, John .
<unk> revenue totaled $169 2 million pounds for the three months ended March 31, 2022, compared to $112 3 million pounds in the same period in the prior year at 57% increase over the same period in the prior year.
In constant currency, our revenue growth rate was 59%.
Profit before tax for Q3 fiscal year, 2022, with $25 9 million pounds compared to $16 5 million pounds in the same period in the prior year.
Our adjusted profit before tax for three months ended March 31, 2022, with $34 2 million pounds compared to $23 9 million pounds for the same period in the prior year.
Our adjusted profit before tax margin was 22% for the three months ended March 31, 2022, compared to 21, 3% for the same period in the prior year.
Adjusted profit before tax or adjusted PBT is defined as the company's profit before tax adjusted to exclude the impact of share based compensation expense amortization of acquired intangible assets and realized and unrealized foreign currency exchange gains and losses, all of which are noncash and cash items.
<unk>.
Adjusted PBT margin is adjusted PBT as a percentage of total revenue.
Our adjusted diluted EPS was <unk> 48 pence for the three months ended March 31, 2022 calculated on $58 1 million diluted shares as compared to 30 for the same period in the prior year calculated on $57 2 million diluted changes.
Revenue from our 10 largest clients accounted for 35% of revenue for three months ended March 31, 2022 compared to 36% for the same period last fiscal year.
Additionally, the average spend per client from our 10 largest clients increased from $4 1 million pounds to five 8 million pounds for the three months ended March 31, 2022, representing a 44, 2% year over year increase.
In the three months ended March 31, 2022, North America accounted for 33% of revenue compared to 29% in the same period last fiscal year.
Europe accounted for 21% of revenue compared to 25% in the same period last fiscal year and the U K accounted for 43% of revenue unchanged from the same period last fiscal year, while the rest of world accounted for 3%.
<unk> for the same period last fiscal year.
Revenue from North America grew 75, 5% for three months ended March 31, 2022 over the same quarter of the fiscal year 2021.
Comparing the same periods revenue from Europe grew 26, 9%. The UK grew 49, 4% and the rest of World grew 28, 8%.
We grew in all three of our industry verticals during the quarter.
Revenue from payments and financial services grew 46, 7% to three months ended March 31, 2022 revenue from payments and financial services accounted for 51% of revenue <unk>.
<unk>, 53% in the same period last fiscal year.
Revenue from TMT grew 40.0% for the three months ended March 31, 2022 at the same quarter of 2021 and accounted for 25% of revenue compared to 27% in the same period in the prior year.
Revenue from other grew 77, 3% for three months ended March 31 2022.
Same quarter of 2021, and now accounts for 24% of revenue compared to 20% in the same period in the prior year.
We now turn to our 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.
Adjusted free cash flow was $16 1 million pounds for the three months ended March 31, 2022, compared to $10 2 million pounds. During the same period last fiscal year.
Our cash and cash equivalence at the end of the period remained strong at 124 million pounds at March 31 2022.
Third to $69 9 million pounds at June 30 of 2021.
Opex for three months ended March 31, 2022, as a percentage of revenue was one 6% compared to one 2% in the same period last fiscal year.
Our guidance for Q4 fiscal year 2022 is as follows.
<unk> expects revenues will be in a range of 177 million pounds to 179 million pounds, representing constant currency revenue growth between 29% 31%.
<unk> expects adjusted diluted EPS to be in the range of 48 to 49 pence per share.
Our guidance for full year fiscal year 2022 is as follows.
<unk> expects revenues will be in the range of 652 million pounds to 654 million pounds, representing constant currency growth of between $46 zero percent and 46, 5%.
And <unk> expects adjusted diluted EPS to be in the range of $1 nine one pounds to 192 pounds per share.
This above guidance for Q4 fiscal year 2022, and the full year fiscal year 2022, assuming the exchange rates at the end of April when that exchange rates was one British pound to $1 $2 six U S dollar and $1 109 Euro.
This concludes our prepared comments operator, we are now ready to open the line for Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
And your first question comes from the line of Ashwin <unk> from Citi. Your line is open.
Good morning.
Good quarter hope, you're all well.
Hi, My question was with regards to head count growth, obviously in the quarter head count growth continues to be pretty solid.
Could you talk a little more with regards to.
Are you having to adapt your.
Youre recruiting tactics.
The approach.
Brett.
Uh huh.
Great.
Things like that.
Given.
How tough the market seats on that next time.
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Apologies for that it looks like we had a technical problem all right.
Just following up on your question, Yes, we continue to.
The focus really hard on how we can create great people into the organization.
As you know we seek to be the employer of choice in the cities and locations that we operate in.
And.
That requires constant evolution of the way in which we are.
Creating.
We highlighted recently that we improved our share save scheme.
That actually enables every endorsement.
Participate.
The equity of the business has.
It's helped to attract site into the business. We are as you touched on also.
Diversifying so.
Big push ahead over the last 12 months in Latin America.
We saw a 65% growth.
And.
I don't think pushing into other countries in central Europe , such as Poland.
Mexico has been strong in Latin America, as a new store.
Our top area.
So by expanding our geographical footprint.
And refining.
Employee proposition in different markets.
We're continuing to see that success in head count growth that you're touching on.
Okay.
And then the you know the commentary with regards to.
Demand being greater than supply.
In the past.
You also had had a line in the third youre being selective as it relates to client opportunities.
Useful if you could maybe walk through some of the.
<unk>.
Condition so to speak.
Factors that you look for in term in terms of that selection and I'm assuming that also applies.
As you review business opportunities coming from.
Russia, Ukraine, Belarus type.
Right.
Type clients.
Yes so.
I mean, just just to be very clear, we have no clients all staff in Russia, Ukraine and Belarus.
And no plans to do 17.
Yes, yes.
So our prioritization is actually really clear so we focus on clients that where we can develop.
Our scale long term relationship.
In industries, where we can see that prolonged technical transformation is underway.
So we're much less interested on working on a single project for new clients. If we don't think the relationship can expand.
And then we want to grow our wallet share by delivering significant positive impact to our clients' business models.
So.
The other dimension is.
To focus on diversifying that geographic and vertical mix of clients.
That helps us spread.
Business across the globe.
To get into some of those.
Those calls that are experiencing technology driven change.
Now just touching on some of the opportunities that we're seeing coming through.
Clients. If you will I think that supply is delivering to them out to Ukraine, Russia.
Take care, a little bit Bellow race.
Coming and talking to us we apply the same criteria.
These opportunities.
That we apply to all the others so.
We're not just reacting.
Short term opportunities coming from that shift those geographies, we're already taking that on.
Where we see that long term benefit and the others that I touched on.
Okay. Okay. So all of that seems consistent with the prior approach that arent new conditions here putting in there.
No there arent.
I mean for us.
It's very much business as usual.
In terms of how we're operating.
I know theres a lot of global turmoil.
Within industrial group within our client base it all feels very stable.
Got it thank you.
New York.
Our next question comes from the line of Bryan Bergin from Cowen Your line is open.
Sure.
Hi, Good morning, good afternoon, and thank you first question on the demand front so.
You've just guided to 30% or better <unk> growth on a 55% comp and I think thats all organic so very confident on the near term front, but curious beyond that as we think through fiscal 'twenty. Three have you sensed any change in client decision, making pace or just any pockets of caution to be mindful of particularly in Europe .
Yes, good morning, Brian .
Demand remains very strong across the business and the pipeline remains very strong.
As it has been over the past 12 months I'm not that includes in Europe , and it's probably worth.
Re emphasizing all clients in Europe , Western Europe not in central.
Central Europe .
Our experience over the years.
In these times of global pressures on budgets.
Where you see clients cut back on their it spend by cutting back on their business as usual spend.
And and continuing to prioritize the investment that's going into the key change projects that we're engaged on.
And that path.
As justice visible today as it's been in previous periods.
Periods of pressure.
So so we still have that strong.
Pipeline and we continue to lead to prioritize as I was just touching on but ashwin.
As to which projects we take on.
Okay very good and then follow up on <unk> you gave good detail in the release and your commentary just wanted to dig in a little bit more on but what if front. So can you first just talk about the nature of the work being delivered from mobile are there any specific like specialized services verticals delivered from there that are different from the balance.
Operations, how clients are reacting just specific to delivery there and then just lastly on ECP.
<unk> could you presumably shift things around from that region, if the country became embroiled in the war.
Specific activities client combos, and just BCP pace.
Okay.
So what we're doing in Moldova is very much the same as what we do across our other delivery locations.
As we touched.
The release.
It's about 90% of our revenue relates to.
The people in Moldova, and the work that they're doing.
And.
We remain very committed to multi and our teams.
And see growing them it will come down as a proportion of our overall business just because we will be growing fast and diversifying geographically at cost in dollars.
In line with the strategy that we've articulated.
Client reaction.
It is very positive and very supportive we continue to see work.
Going into multi either.
And demand flowing in that direction.
In a positive way.
I think on the BCP question, which.
Just touching on the wall flows OXXO hold open territory.
We have <unk>.
<unk> situations hospitals, so we're monitoring this on it.
Twice a day.
Good evening basis.
Have plans in place, which includes the possibility of relocation of our teams.
In multi.
Yeah.
The.
One of the things that.
I touched on in my opening remarks is that the way in which we operate.
Is the are distributed agile delivery model actually provides with multi site delivery approach.
<unk>.
We spread delivery to individual clients across multiple centers.
Matter of course.
Reduce the risk associated with any one location.
BCP planning easier.
Easier and more effective should it be required so for instance in Moldova, 96% of our people.
Working for clients for whom we also deliver from another location.
Which means that if we do need to relocate them, we can relocate them into offices and infrastructure is the already exists so those.
As clients.
In other countries now in terms of relocation one of the things that we wanted to highlight is the portion of our staff in Moldova half EU passport or the Romania, Bulgaria and Possibles.
Which we've encouraged them to do over the years because it has made it easier for them to travel to client sites within the EU and so on.
And so if they do need to relocate they will be relocating as EU citizens.
Two of the countries within the European Union, where we have locations and that will speed up the <unk>.
Process, regardless of the level of crisis.
And countries opening their doors.
From a refugee point of view.
So the pace of shift that we see if it would if it was needed in that disaster scenario is actually very soft.
And.
Much more straightforward than perhaps has been visible with some of our peers.
Got pressures in Russia and Ukraine.
Okay.
Thank you very much.
Thanks, Brian .
Your next question comes from the line of James Faucette from Morgan Stanley . Your line is open.
Great. Thank you very much I wanted to ask about given the rate of growth in the current demand acceleration. How are you thinking about that impacting your growth outlook in the next few years and I guess as part of that given the the hiring environment.
That 30% head Graaf head count growth still the maximum you'd feel comfortable growing.
In a quarter or how are you thinking about.
The demand and the ability to satisfy that and what that means for long term growth out books.
Hi, James.
I think as we said we tend to view the upper limit is being about flat.
For us in terms of recruiting quality, yes.
Since the business, we have been able to flex above spot.
As we had more senior distribution in terms of the great. So we're able to see teams more quickly with juniors.
Cause us to accelerate beyond that 30%.
30% upper limit really remains in place.
Quality.
Issue for us, which we want to maintain for our clients. So I mean with that said it's been the upper limits. We have seen of course demand ahead.
Flat.
And we are being meet.
Meeting as best we can and I think the outlook beyond the current fiscal year is we will continue to see I think.
Demand above the sort of 25%, which is higher than we've seen historically.
But it's been about 20%. So I think we're looking at elevated levels of demand, 25%, but we still remain within that limit. So I think around sort of 30%.
Because of the ability to onboard quality candidates.
We're saying that that 30% head count growth should converge to slightly higher than that in terms of revenue growth just because of the price increases that were also able to ask you on that.
Understood and then quickly on.
On M&A, how are you thinking about future acquisitions, obviously theres a lot of dislocation in valuations right now.
I would think that that could be creating some opportunities in terms of adding additional capabilities and skill sets to <unk> team, but just wondering how youre thinking about it and what you may be seeing.
Yes.
<unk> be very interested in.
Scanning the market.
For M&A.
Opportunities, particularly.
Ones, which are kind of the geographic balancing and diversification.
We are pushing on Asia Pac we're also seeing opportunities.
Within.
North America that are interesting.
The other dimension that we're looking for is.
M&A opportunities that will give us.
The REIT acceleration in specific sectors that we're interested in.
And sometimes there's a technology boosted that we get from an M&A and often deals actually bring some element of all three components.
So we continue to focus on that look for it.
Yes.
I'm not sure I could comment on with.
The current market is affecting the pricing expectations.
So the smaller businesses that we acquire.
But certainly we will we will keep an eye out.
Being able to do.
Good and sensible deals as part of any M&A that we.
We would undertake.
That's great. Thank you very much.
Thanks James.
Our next question comes from the line of Maggie Nolan from William Blair. Your line is open.
Thank you and congratulations.
In the past, we've talked a bit about kind of the build out of North America compared to some of the other geographies.
And when you look at your allocation of resources and your efforts at your sales team going forward from here is there a particular emphasis on any of your geographies or industry verticals.
More than others at this point is it particular growth driver for the company.
Good morning, Mike.
The.
If we look at the distribution, we've pretty much Bill has an excellent sales team in operation in North America.
Our European team as I've touched on before is still building up to strength.
It's more complex market just in terms of languages.
Multiple countries and so on.
And.
We've got to sort of presence that we won in.
The German speaking regions in Scandinavia.
A little bit more to do in Benelux, and we Havent really moved.
France, Spain, Italy, yet.
So that's a huge focus the other area that were.
Putting energy into it environment is the rest of the world Middle East and Asia Pacific.
And actually getting real traction.
Singapore Dubai.
Sydney in Australia.
Those are the areas of focus from a sector point of view.
We continue to push in the auto space are seeing opportunities in mobility retail health care is reasonably small for us but actually.
As ware.
Particularly in the North American market were seeing good.
Good opportunities in that space as well.
So we'll continue to push on those as we continue our diversification geographically and set to us.
Okay. Thank you and then given that nice growth that you've seen in our large client bucket.
Are you seeing an increase in the typical duration of.
Msas or statements of work with clients.
Yes, so the pattern.
We tend to experience with clients is that we'll start work with them.
On a smaller ideation piece of work proof of concept will be fairly small.
And then as they see the impact that that's going to have on that business.
We'll engage on the first project, perhaps of getting that into production.
As that has success and they start to pull us into other parts of the business.
We will then engage in discussions with those clients around long term contracts.
Three five year type arrangements.
And.
And we will give up a little bit in terms of.
The.
The price.
Day.
In recognition of the benefit that we get from utilization.
Out of having the assurance of that business going forward.
So as as we're scaling of course with more and more larger clients fully into that category, we're seeing more of those opportunities mature and come through in larger long term deals.
Thank you.
Thanks, Mike.
Your next question comes from the line of Man Tandon from Needham Your line is open.
Thank you good morning, Congrats jargon mark on the quarter I wanted to ask on the supply side just.
In terms of the key metrics around attrition, how that's been tracking across your base.
Base and then also in terms of expectations for wage inflation when does that hit and how we should think about the margin impact over the next several quarters.
Thanks Frank.
On the attrition.
It's fairly stable and were up about half a point on last quarter.
Perhaps 30%, which is still below the 15% that we.
Targa has a sensible balance on attrition.
Mark do you want to cover the inflation, yes, yes, I mean Q3 is where we experience our main pay rise which goes through first.
January rates.
Gross margin in the quarter stepped down about two 6%.
Most of that is actually due to lower working days in the quarter going from 66 to 64, she thinks about percentage.
But that was the.
The impacts of cost pressure coming so with.
You talked about 2%.
The cost per head, but actually elevation.
Utilization of course offset that so it was quickly mitigates.
Sort of.
Wage inflation that you saw as the results of part pay around guidance. So there's probably about 4% and what will happen from now on.
Q4 is that we then start to recoup that from conversations with clients about rate increases.
Got it that's very helpful color.
And then just a quick follow up around the new logo activity.
Talk about competition in general from both the bigger firms in the market and also pure plays that you compete with head on.
Rates tracking and maybe a little bit of color around like different verticals, where you have the advantage. Thank you.
Yes.
Yes.
Activity continues to be very much business as usual for us.
The market remains very large.
And risk factors.
Ourselves and our peers.
So we don't run up against our direct competitors the likes of the globe.
Directly very often.
And what.
Obviously, when we do.
We aim to compete strongly and beat them.
But it's actually relatively we're at we're more likely to run up against some of the larger players in the market who are more established the likes of Accenture.
In our sales activity across accounts.
And our differentiation against Accenture remains very strong our integrated.
Integrated multi disciplinary teams.
Is that.
Somewhat separate creative.
<unk> engineering capability.
A strong differentiation and the ability to <unk>.
New product ideas, which is which is where we're operating.
In the acquisition of new logos.
So the competitive landscape remains very similar to what it has been.
Over the last three or four years that we've been reporting.
To markets.
Great great job on the quarter. Thank you.
Thank you.
Your next question comes from the line of Bryan Keane from Deutsche Bank. Your line is open.
Hi, just a couple of clarifications Mark.
Costs increased from from the Labor side I think you said it went into effect on January one.
How are those impacts versus historical was it a little bit higher given how hot the band is in the supply side is.
Yes.
Yes.
Not markedly size I mean typically.
Done that sort of two 3% in let's call. It normal times, so a 4% increase on average.
It was elevated vacancy.
But you can see in terms of the.
Nutrition thinkers that we called out when we set this quarter was 13%.
Sequentially on Q2, so I think we pitched at about the right level.
No.
We've got stability in the workforce.
And they can focus on the chop ahead that we manage to do it at a sensible increase in packages.
I think Brian just if you compare the situation that we've got.
The geographies that we operate.
Right.
Whilst there is inflationary pressures, it's nothing like what you guys are experiencing here in the U S.
And so we are able to frame that control that within a price discussions that we're also able to have with clients.
Yes, it seems quite manageable and then the pricing.
We're able to.
Capture throughout the year will be north of that 4% or is there a target range of how much pricing you're trying to get for.
The next 12 months.
Yes, I think Thats what were looking for I mean, historically, we have been able to put up.
<unk>.
Our mandate rates.
The higher rate actually in the past.
I'm still very confident that we'll be able to deliver those rate increases.
Understood.
Kind of the year.
Got it and then just one other clarification.
Are you guys actually taking on additional work from some of those vendors.
I've been more materially impacted from the unfortunate award and.
Ukraine or is it just discussions at this point.
Yes.
No we have seen.
Couple of reasons, we saw as projects that are very much in our wheelhouse.
<unk>.
<unk> ramping up.
None of that will last quarter's numbers coming through in <unk>.
April may.
But yes, there is there is work shifting across.
Got it thanks for taking the questions.
Thank you.
And your next question comes from the line of Jamie Friedman from Susquehanna. Your line is open.
Hi, Good afternoon, let me echo the congratulations on the strong results.
So I know you had mentioned this in your prepared remarks, you had a press release about it but could you elaborate if you could on the.
Stripe relationship.
Sure So strike is.
Obviously, a very exciting player in the payments world.
And one that we know well.
And we've joins the that that partnership which is essentially a.
Enables us to alongside them engage with their clients.
In implementing stripe.
Getting the best outflow.
So it's a good prudent.
Some of the retail space et cetera for us.
And we're seeing a good pipeline already coming through format.
And then maybe for my follow up I was just looking at this slide 15, it's the.
Technology disruption that you kind of live by over the years.
Did anything change here, though because it looks to me like some of these got bigger in some of these got smaller more generally though how are you thinking about the relative vertical growth.
Between say payments in mobility and retail.
As you look out.
Yes, I'm not sure, but I think it's more schematic then.
Defined the way in which those waves withdrawn so I wouldn't attract too much.
Attention so the shape of those individual weights.
The.
Sure.
Yeah.
What we're highlighting there is there are.
Specific industries.
Being much more impacted.
By the new technologies and opportunities that are coming through in the years current pad.
And.
On the following slide just the payments as a single example.
You can see.
For in areas of technology.
I think that we're stepping through we will push that out next quarter.
Because it's a little bit historic the payments, one and we've got a strong view of what the future looks like as well and we will push that graph out to get more visibility at some of the new technologies that are coming through.
And we might have another one maybe mobility.
Just to get a little bit more color on some of the areas, where we see that happening.
The strong areas.
The payments arena, we see insurance.
Through a lot of change.
Retail banking space with the Digitization that's.
Going on that.
As well as quite a lot happening in the.
Investment banking capital markets Arena, just on the financial side.
And then in the other space media is going through significant change I touched a lot on the matter.
And how that's impacting the media space games as well as broadcast and so on.
Just one exciting new areas technology, sorry, FTE in the telco space is opening up lots of opportunities.
Retail.
E Commerce wafers being running.
Yes and locks.
Different technologies and approaches and products.
They created under that banner.
Mobility is a huge one the whole shift to autonomous vehicles is what we capture.
Mobility and the different ways in which people will buy.
The.
The ability to move all the logistics side of moving goods and so on so a lot of change continues to drive activity healthcare, sorry, I'll just need to touch on that.
The diagnostics capability.
Digital is going to enable improvements in and so on.
We're doing a lot of work in that space as well.
So.
We remain really really excited about the opportunities that technology is providing.
To change the way in which business operates.
And the consumer experience.
So what's driving.
<unk>.
The outlook that we've given you.
Dynamic time always appreciate your perspective.
Thanks, John .
And there are no further questions at this time, Mr. Jon <unk> I turn the call back over to you for some closing remarks.
Alright, well, thank you all for joining us today.
As you will have noted demand for our services remains strong.
And it's great across all of our verticals and geographies. So we remain very positive about our business position and look forward to speaking to you in a few months on next earnings call.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
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