Q3 2022 Epam Systems Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Good day, and thank you for standing by welcome to the <unk> systems third quarter 2022 earnings call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question. During this session you will need to press star one one on your telephone please.
Be advised that today's conference is being recorded.
Now I'd like to hand, the conference over to your Speaker today, David Straube head of Investor.
The relations. Please go ahead.
Yeah.
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 2022 results. If you have not copies are available on <unk> dot com in the investors section.
On today's call are 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 measures are available in our quarterly earnings materials located in the investors section of our website.
Now I'd like to turn the call over to Ark.
Thank you David good morning, everyone.
Thank you for $1 billion at this point.
Let me begin today with a simple statement that we are very proud of everything the pharma achieved over our nearly three decades and that we are very central to the people with with bank with it and then just contribution over those years and.
And I would like also to add one more thought we feel it's very important to bring to the doublet bulk in good shape.
So.
While we all know that the way in Ukraine is still eliminating global headlines and we are seeing it's equal effect across many sectors and geographies philosophy and many people around us.
This work continues to be a very central part of our lives deeply personal.
And the constant priority.
With that I would like to start with an update on our progress across our four phased approach, which we started six months ago back in may as well as an update on some adjustments we are making as a result of newly available information.
Our first place the safety of our employees and stabilization of operations in Ukraine.
The work has been ongoing for eight months.
Last time, we met we indicated that we thought that it was going to be longer than anybody was thinking when it began.
And you'll understand the situation continues to be very serious and also that safety is a very relative to when people use in Ukraine.
Today.
With all of that we are constantly and proactively helping our employees their families.
And the people of Ukraine as much as we can.
Wide range of support including the reason those locations.
In all forms of local assistance, making it possible for people listening.
Industry colleagues to continue to live and work in Ukraine.
We are also continually developing ways to address new.
Predictable just yesterday of challenges and we are trying to also think proactively about what we can do today to make it easier and safer for tomorrow.
It is all of that we are working together across all locations to maintain the highest level of service possible for our customers across all of our delivery locations within the UK.
Even with the recent level of infrastructure and stability to the productivity of our teams in country, England, Sky, which make us believe that we can count on this level of resilience in our delivery operations, when we're setting our guidance with the market today.
Thank you to our Ukrainian team and all the partners for making this possible it simply just incredible.
Thank you.
Moving to our second place.
Evaluation of our global diversification efforts and continued growth of our diverse capabilities.
What was the last eight once we have accelerated the key parts of our global strategy in many ways a completion with a plan to do over several years.
The delivery location yogurt has become more and more wells.
Last quarter, we reported that impacted regions accounted for 40% of our guided well today with practically who led the from Russia, approximately 30% of our Thailand <unk> immediate features.
Samsung we plan to achieve closer to <unk> this year.
So our presence in Europe outside of those regions in central and Western Asia, India, and Latin America, a growing proportion of it.
In short the adaptation of our business.
The position of our delivery organizations is moving forward at unprecedented pace.
We are very central to the many thousands of products and their immediate families with their loyalty and their decision to move to new countries.
Locations, while staying with.
And continue to work at it Paul.
While it has been a complex undertaken.
Courage and bio overall levels of engagement and productivity, we are seeing them now winning new clubs and satellite locations.
Many of those employees bring years of experience skills and knowledge with them and a key to our global expansion there.
And we felt the seat integrate and scale globally resilient workforce now operating in more than 50 countries.
Please note that during that time.
We practically doubled the number of locations, which should enable us to establish additional lunch.
<unk> means over 5000 people talent cuts during the next few years and some will discuss these into an existing one.
In February of 2022.
As you can see we have passed.
That's about creating technology cost and expanded our investments in renewables.
As a result, our global delivery platform and new ways of working should position us to become one of the most geographically bill and value added services company and the bank.
Moving to phase III of continuing to serve and expand demand for our services for our growing global customer portfolio.
And placed four of focusing on profitability those two other reconnect.
We are working closely with our customers to reposition sizeable portions of our program portfolio.
A lot of disruption in the third quarter.
And well.
Business continue to programs have been necessary to Glenn who continued gnc's and enable uninterrupted service quality, our customer portfolio is now better diversified and more resilient given the new level of engagement and new talent options that would establish a broader more available parking.
<unk> work for US first of all.
Today, we are staying close to our customers and working through different Brexit plans and contingencies in what has become for us new normal.
That also includes our efforts around coming back to the appropriate levels.
In line with our historic numbers.
As you can see we have some intermediate success in the direction already.
While it is still too early to say that <unk> overcome the challenge to make it sustainable.
On that topic of navigating the unpredictable I would like also to share here is that during the recent symposium on October the pound was a case.
Case study on labor and global talent resiliency is it the western our efforts over the last eight months.
Debt to provide safety to our people and our systems with relocations and we're continually investing in our capabilities and future growth while mitigating predictable.
We believe that most of the airports highlighted by good afternoon that put us on a new trajectory or established foundation. If you deal with still position the bank for continued future growth and market differentiation.
Here I would like to mention three more on top of what we have already shared.
Progressing the pump continue integrated consulting.
Which opens new market entry.
Entry points and extends the depth and breadth of our existing relationship with customers to cover even more strategic set of labs in our portfolio.
Also reflected both increased onset production with current ratio, which is now.
13, 6% the highest analysis there.
Further in our ecosystem partnerships enabled by our product and platform ingredient creditors, and new scale and market to bring demand relevant solutions to customers face an increasingly complex business and technology environments.
Lastly, significantly invest in the decade.
The creation of platforms, which keeps our employees.
And Asia and allow us to attract and develop and deploy global target profile.
As well as the author Compostable education services to our customers.
And more simple way with all above efforts, we are very focused on maintaining our engineering technology advantage and the reputation across all of our new and already established locations.
Yes, we do understand that.
It is exactly one of the key questions you as investors.
Our clients are asking today.
And also probably about our ability to continue moving higher is a worthy chain Samsung started 10 years ago and what we are very eager to continue to do now and in the future.
Proven to the market that it won't be able to navigate an excellent collaboration with the power to be able to offer to our clients Samsung which is rare in the market.
Strategy and implementation simultaneously.
At scale and doing it better than most of our competitors okay.
With that let's talk a bit about our Q3 results, while Jason will serve as always the full level of detail right Todd.
In the third quarter <unk> delivered $1.213 billion in revenues, a 24% year over year growth.
And not the clients for sure.
$3 10.
A 30% increase over Q3 2021.
I think it's important to mention that in constant currency terms and with proper adjustments when discontinued revenue in Russia that growth would be.
About 35%.
Also during this quarter the company generated $234 billion of free cash flow and now has approximately $1 5 billion of cash from Kraft.
We are proud and grateful to all our teams for continuous managing the business at this level, while we're disappointed to constant pressure to plan and execute a large number of tactical adjustments and increasingly complex global geopolitical and economic environment.
And especially central to our teams in Ukraine.
As you have likelihood during the last month, some of our partners and customers who had been messaging the expectation for a global slowdown in demand.
And as a result of actions to better align their businesses to this new environment.
So for us while the demand environment continues to be active across a number of our end markets, including planned second healthy transformational programs products platform development and modernization efforts. In addition to the opportunities triggered from.
The recent acquisitions, we can confirm.
<unk> has been an increasing focus for programs that are tied to driving the short term cost savings other opex efficiencies and growth range optimization programs.
Felicia pump is also appropriately positioned today.
Still <unk> or confidence that our services remain highly relevant and in demand. We are beginning to see signs of growth slow quarter.
So while we have taken steps to moderate our current can spend in response, we're also reminded of previous downturns out of each we grew.
Then to trade.
As such we are working to clear clinical liberate our supply and demand outlooks to capture that demand upswing when it returns.
As we did it in the past.
Okay.
Up 2022, we believe that we will have contained the initial impact of the world within the fiscal year, including the discontinuation of our operations in Russia.
And overall, we know that we are still in the middle of ongoing presence in UK.
And unfortunately, it doesn't seem that right now it will be possible to contain the full impact of the world just within 2022 as we had previously hoped.
What has changed over the past three quarters is that when we say, we can and will adjust our operations. We are confident that under circumstances, we can do so reliably and quickly.
And exactly as it for US is a very important confirmation.
The Doctor over 30 years of our existence up to 10 years of being a publicly traded company and activity kind of in the S&P 500 member we still can demonstrate our strong premium audio DMA and we still can benefit from it but at the startup.
As it ensures our ability to adapt and to grow faster ABF.
For the current time, we are still playing with different types of mitigation scenarios in response to ongoing work to.
To protect them and our employees who remain as it is.
Nonetheless, we are confident that the.
The steps, we have taken to reposition and diversify the company have created an even stronger foundation for future growth as we focus on the pump is a 10 billion company.
Very much in line with what we shared with you in early 2022 before we go.
Now, let me turn the call over to Jason who will talk about our Q3 results.
Additional perspective, as we look at Q4 and beyond.
Thank you Ark and good morning, everyone.
We're covering our Q3 results I wanted to remind everyone that in addition to our customary non-GAAP adjustments expenditures related dpm's humanitarian commitment to Ukraine, the exit of our Russian operations and costs associated with accelerated employee relocations have been excluded for non-GAAP financial results. We have included additional disclosures specific to these.
Other related items in our Q3 earnings release.
In the third quarter ATM delivered another set of strong results across both top and bottom line. In addition to strong cash flow generation.
During Q3, <unk> generated revenues of $1 billion to $3 billion a year over year increase of 24, 1% on a reported basis and 29, 8% in constant currency terms, reflecting a negative foreign exchange impact of 570 basis points.
Additionally, the reduction in Russian customer revenues, resulting from our decision to exit the market had a 470 basis point negative impact on revenue growth.
Adjusting for the exit of our Russian operations reported revenue growth would've been approximately 29%.
Looking at the performance of our industry verticals and geographic regions in the quarter growth was negatively impacted by the ongoing exit of our Russia operations and the effects of foreign exchange on our U S. Dollar reported results were helpful. I'll provide an adjusted year over year comparison.
Beginning with our industry verticals travel and consumer grew 41, 9% driven by strong organic growth primarily from our retail customers as well as revenue contributions from recent acquisitions.
Life Sciences, and healthcare grew 35% with strong growth coming from the health care industry. In addition to growth in life Sciences.
Financial services grew 10, 4% with growth coming from asset management banking and to a lesser extent insurance exclude.
Excluding our Russia customers growth would've been 25, 4% and 29, 9% in constant currency.
Business information and media delivered 28% growth in the quarter, driven primarily by customers and business information industry.
Software and Hi Tech grew 17, 8% in the quarter and finally, our emerging verticals delivered 26, 6% growth.
Driven by clients in energy manufacturing and automotive <unk>.
Excluding our Russia customers growth was 29, 5% or 39, 4% in constant currency.
From a geographic perspective, Americas, our largest region, representing 61% of our Q3 revenues grew 26, 3% year over year or 27, 7% in constant currency.
EMEA represented 36% of our Q3 revenues grew 35, 3% year over year or 53% in constant currency.
EMEA performance was driven by strong organic growth combined with an incremental contribution from recent acquisitions.
CE, representing 1% of our Q3 revenues contracted 77, 2% year over year or 82% in constant currency revenue in the quarter was impacted by our decision to exit Russia, and the resulting ramp down in services to Russia customers.
And finally, APAC grew 10, 5% year over year or 15, 4% in constant currency terms and now represents 2% of our revenues.
In Q3 revenues from our top 20 clients grew 22% year over year, while revenues from clients outside our top 20 grew 25%.
Moving down the income statement, our GAAP gross margin for the quarter was 32, 6% compared to 33, 9% in Q3 of last year.
non-GAAP gross margin for the quarter was 34, 4% compared to 35, 1% for the same quarter last year.
Compared to Q3 2021 gross margin in Q3, 2022 reflects the negative impact of lower utilization as well as the benefit from foreign exchange and the positive impact of a more normalized expense related to variable compensation.
In Q3, 2021 expense related to variable compensation was unusually high based on the strong bottomline and extremely strong topline performance during that year.
Q3, 2022 was also negatively impacted by the timing difference associated with EBIT <unk> ongoing efforts to align bill rates based on employee relocations.
However, we have made better progress adjusting rates than originally anticipated.
As a result, the negative impact on profitability was more limited than originally expected.
GAAP SG&A was 16, 1% of revenue compared to 17, 1% in Q3 of last year and non-GAAP SG&A came in at 14, 1% of revenue compared to 15, 3% from the same period last year.
G&A procurements in the quarter reflected a lower level of costs related to both variable compensation and facilities and also includes a positive benefit of foreign exchange.
GAAP income from operations was $180 million or 14, 7% of revenue in the quarter compared to $144 million or 14, 6% of revenue to Q3 of last year.
non-GAAP income from operations was $232 million or 18, 9% of revenue in the quarter compared to $180 million.
18, 2% of revenue in Q3 of last year.
Q3, non-GAAP income from operations reflects a lower level of variable compensation and a positive impact from foreign exchange offset by a lower level of utilization.
Our GAAP effective tax rate for the quarter was 18, 4%, primarily driven by excess tax benefits related to stock based compensation.
Our non-GAAP effective tax rate, which excludes excess tax benefits was 23, 1%.
Diluted earnings per share on a GAAP basis was $2 63.
Reflecting a 68 or <unk> 34, 9% increase year over year.
GAAP EPS includes the impact of the crane humanitarian expenditures expenses related to accelerated staff relocation and costs related to the planned exit of our Russian operations, our non-GAAP diluted EPS was $3 10.
Reflecting a 68% increase or 21% growth over the same quarter in 2021.
In Q3, there were approximately $59 4 million diluted shares outstanding.
Turning to our cash flow and balance sheet cash flow from operations for Q3 was $252 million compared to $206 million in the same quarter of 2021.
Free cash flow was $234 million compared to free cash flow of $185 million in the same quarter last year.
We ended the quarter with approximately $1 5 billion in cash and cash equivalents.
At the end of Q3, DSO was 69 days and compares to 71 days for Q2 2022 and.
70 days for the same quarter last year.
In Q4, we traditionally experience a further improvement in DSO and expect a similar result this year.
Moving onto a few operational metrics, we ended the quarter with more than 53900 consultants designers and engineers a year over year increase of 14, 5%.
Our total head count for Q3 was more than 60250 employees compared to Q2, we saw a net decrease of approximately 1000 head count.
That decrease in head count as a result of the reduction in Russia based head count combined with a lower level of hiring across the organization due to better than expected productivity in Ukraine, and with a focus on modeling utilization towards higher levels.
Utilization was 73, 5% compared to 77, 1% in Q3 of last year and 78% in Q2 2022 utilization continues to be impacted by the warranty Ukraine.
Now, let's turn to our business outlook as we've done in previous quarters. Let me provide some contacts that is informing your guidance for the fourth quarter.
We expect a solid demand environment, including demand for programs, helping clients drive additional revenue modernization and optimization.
In a few cases in the retail and consumer space, we are seeing signs of moderation in demand due to delays in decision, making for additional scrutiny on program budgets as certain customers become more cautious regarding shifts shifting demand in their end markets.
As a reminder, the exit of our Russian operations and the reduction in Russia customer revenues produces a tougher year over year revenue comparison, particularly in Q4, which has generally been a seasonally strong quarter in Russia.
To date, our operations in Ukraine has not been materially impacted by the recent escalation of the attacks and our teams remain highly focused on maintaining uninterrupted production.
Our guidance assumes that we will continue to be able to deliver from our Ukraine delivery centers at productivity levels at or somewhat lower than those achieved in Q3 and consistent with our experience in the month of October .
Through September 30 E payments spend more than $39 million as part of the company's $100 million monetary and commitment to our Ukrainian employees.
We expect further humanitarian expenditures will be made in Q4 and during 2023.
Now moving to our Q4 2022 outlook.
We expect revenues to be in the range of $1 $220 million to $1 $230 million producing a year over year growth rate of approximately 11% on a reported basis and 15% in constant currency terms both at the midpoint of the range included in these growth rates is approximately 100.
Basis points of revenue contributed from acquisitions closed over the last 12 months.
Additionally, the ramp down of Russian customer revenues due to our decision to exit this market has a negative impact reducing our expected revenue growth rate by approximately 500 basis points.
For the fourth quarter, we expect GAAP income from operations to be in the range of 12% to 13% and.
And non-GAAP income from operations to be in the range of 16% to 17%.
We expect our GAAP effective tax rate to be approximately 21% and our non-GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation to be approximately 23%.
For earnings per share, we expect GAAP diluted EPS to be in the range of $2 <unk>.
To $2 10 for the quarter and non-GAAP diluted EPS to be in the range of $2 62.
To $2 70 for the quarter.
We expect a weighted average share count of $59 6 million diluted shares outstanding.
Finally, a few key assumptions that support our GAAP to non-GAAP measurements in the fourth quarter.
Stock based compensation expense is expected to be approximately $33 million.
Amortization of intangibles is expected to be approximately $5 7 million.
The impact of foreign exchange is expected to be negligible.
Tax effective non-GAAP adjustments is expected to be around $9 6 million.
And finally, we expect excess tax benefits to be around $4 3 million in the quarter.
In addition to these customary GAAP to non-GAAP adjustments in consistent with the prior quarters. In 2022, we expect to have ongoing non-GAAP adjustments in Q4, resulting from Russia invasion of Ukraine. Please see our Q3 earnings release for a detailed reconciliation of our GAAP to non-GAAP guidance.
Our fourth quarter outlook reflects a solid demand environment combined with improving operating performance, allowing <unk> to return to its traditional 16% to 17% adjusted <unk> range sooner than anticipated.
Although we still face ongoing challenges. This is a significant achievement given the amount of disruption. The company is managing through as a result of the warranty claim.
We will continue to closely manage the operations of BPM, while remaining of tenants to any changes in the demand environment.
Lastly, I would like to thank our employees for their continued dedication and focus on our customers.
Operator, let's open the call for questions.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Bryan Bergin with Cowen. Your line is now open.
Hi, guys. Good morning, Thank you I hope your colleagues remain safe here.
I just first I was hoping you could just dig into more on the detail on how you're forecasting that <unk> growth just as we consider a 30% adjusted rate of growth on a constant currency organic basis. This past quarter. When we try to bridge that to the implied level in <unk> can you just talk about some of the puts and takes you factor. There is it really just the <unk>.
Combo of lower utilization and some macro uncertainty and demand.
Yes, I mean, I think there's a few things first there is a decline in revenues associated with Bill days. So it's just the natural algebra there are fewer bill days in Q4 than there are in Q3 and that would.
Net net we actually reduced revenue by 2% between Q3 and Q4, if all things else for LD.
At the same time I think that we continue to feel good about the growth that we generated in Q3 and I think the other thing Brian just to point out is that we have the same impact on our growth rate.
The exit from Russia. So we had a $50 million Q4 last year and we will add.
Single digit.
Mid to low single digit Russian revenue contribution in Q4. This year. So it's a combination of those two things and then again, we continue to see growth.
To see spending in investments on the part of our clients.
Probably at a somewhat lower growth rate than we have experienced earlier in the year.
Okay, Okay, and then on the delivery footprint on understanding you had the Russia exit this quarter that really impacted that workforce level can you just comment on your comfort levels.
Ramping in these other regions have there and are there any notable changes in the delivery mix plan.
That you expect to exit this year at.
Oh.
I shouldn't creative.
It is today.
A couple of quarters ago.
Hello.
Well, it's just our deliberate capacity we are.
Exactly.
And I think Mike Xanthosine appropriate a couple more percentage points, we will be.
So you've talked in reagents.
Which means that we continuously.
Bill.
Patients.
Western Central Asia.
Less politically as well.
Well I'll start again.
In spite of the company, probably we will go from call it switches to us per se.
27, 28%.
An influx of patients.
Alright, Thank you guys.
Thank you.
Our next question comes from the line of David Grossman with Stifel. Your line is now open.
Good morning, and thank you.
Just a couple of quick follow up questions.
About some of the comments that you made about the dynamic between.
If you look at the quarter, you had a sequential decline in head count into revenues modestly.
Yet margins performed but utilization down.
Right is there anything else that kind.
Helps reconcile all those different variables with the outcome.
Yes.
And Theres a couple of different ways to look at this from a pricing standpoint associated with our realignment of pricing for the relocation of employees, we did better than we expected. So we had expected that to have a more negative impact on profitability in Q3 than it actually did.
However, on a year over year basis that wouldn't really show up.
Benefit while we saw was a couple of things as we are getting some benefit from foreign exchange. So foreign exchange is obviously, having a negative impact on our revenue growth rate, but we have a number of countries in which we deliver from where deck currencies, obviously, a devalued more substantially than the devaluation of the euro.
What are the pound and so that has had a somewhat positive impact on profitability on a year over year basis, and the other thing, which I tried to call out in the script is that we had.
An enormously successful year last year relative to expectations, which drove a higher variable.
Compensation costs.
And this year, we're effectively sort of booking a bonus if you will at a 100%.
It's lower than it would have been last year and so last year I guess, you could say, we would've been even more profitable and this year, we're sort of booking yet.
A more consistent level of variable compensation.
Based on our performance.
If that gets harder.
Foreign exchange would definitely be one of the things that's a positive.
Alright, and you had said Jason I think last quarter that you expect to get to more normalized margins.
The first quarter and obviously next year, you've obviously.
Kind of exceeded that this quarter.
If you think about next year and you kind of eliminate some of this noise.
As.
It's kind of a 17% I know you don't want to give guidance. This early in the year, but I guess I'm just trying to get a sense are you still comfortable with that.
Common of getting back to normalized margins and sustaining that next year has anything changed.
Yes, so I think that if I remind I said we get.
We expect to get back.
Towards right, which is.
And right now I feel actually that the company has done a phenomenal job with not only the profitability in Q3, but also the guy getting back to the 16, 6% to 17% in Q4 and part of that has to do with all the work we've done on the.
On the geographic transformation and the realignment of rates, but I think it's too early right now to talk about what profitability could be in.
In 2023, just because theres still a lot of moving pieces with what's going on and with the war and some other things but.
Definitely I'm encouraged by the fact that we generated a strong level of profitability in Q3 and again our confidence.
Well the guidance of 16% to 17% in Q4.
Right and just one last one if I could.
The demand environment, you gave us a good insight into kind of how that informed your fourth quarter guidance.
You called out I thought consumer any other verticals that.
Youre seeing.
Similar dynamic are you just anticipating based on qualitative commentary from your customers that they are planning for a slowdown beyond the consumer vertical just any more color you can give us there would be very helpful.
Doug It's <unk>.
You wish in the region.
What we do.
Zero.
Sure.
I don't know if you use noise.
Got to qualify.
And the message in the market.
Many industries.
Alright, well that's been flake.
Okay.
Second priority.
I mean number one versus most population that's at least what we assume.
<unk> seen in the markets firm specific actions.
Across the industry is but.
Alright, and the relocating.
Can you just give us a quick update in terms of the percentage is more you still have to go to finalize plans on that front and you know when we think about the new geographies. Obviously, you talked about al pricing and those new markets is helping the revenue side to some degree <unk>.
The head count growth, but I'm curious what you expect your head kind of growth capabilities to be from here.
Just being in some of these new markets.
So I think in terms of plans.
We kind of.
So that.
Put into detail blend students always west coast.
<unk> very much on target because this black at the same time as you understand each month nausea was talking about cause.
Sometimes each week, making some adjustments juices. So is this for it.
We do believe that we do notice and festival, whereas tones of the hold time and smuggling airplane.
It like all plans still stays the same so it'd be good to become appropriate as well.
Well as for home delivery perspective.
Company and almost affect us.
Well, he's probably look and how we.
To do a.
Current market.
Because you forced location. So it's all of the plants and that's a very much moving for work.
So what else we will be.
Necessary.
Will you be doing if.
Different type of scenario if it'll be develop these have answers for this I don't think we.
We will be sending all details, but we felt.
Ah bless for this but they got the right topic practically have you just simply asked me to be silent and we very much.
On the package because it's speech besides record thing.
So we feel quite good about our ability to add head count in yeah.
And which were currently expanding as Latin America, and India and other geographies outside of what we call the impact that region and so thank you very much can respond to teach her optics and demand and again feel comfortable with our ability to continue to generate growth.
The 20% based on available demand, Okay, right browser is a little bit of Sun on taking up utilization again, and so that's kind of what you see around the the head count edition.
So it was a question what's your.
Comfortable as a poodle to be able to find the right started to new locations, but there's a short term. So he is right now.
Woke up I propose with people in a couple of quick because obviously have much more experience.
It's going to do it cause we understand how to set you up like the experience speech could develop due to Oh gross.
Kind of comfortable zone, and do some Europe is pretty much it.
Clickable to new locations as well.
[noise] just thanks, just very quickly when you think of the macro and the demand environment for a minute I mean, it's it's pretty clear that you know <unk>.
<unk> are taking a little bit longer to make decisions, but for the right technology. The demand is still very high.
Now have you seen a shift to cost to eke out plans or efficiencies by your clients yet or is it still very much focused on <unk> like digital Digitization and [noise].
French liaison competitively in other projects like it.
I would characterize it as like if.
To speak with a single.
Gross and.
Hello.
The soulless cause for me whatever pupil views, but digital transformation in broad sense of Bliss cause was upswing Nonetheless.
I think right now it's really very much bill has to be is cause.
Shagging soon what people will be tomorrow, I think it's reasonable so it's pretty well as strong.
Digital <unk> still there and it's still one of the two.
Two priorities, but it's now one of the two.
Understood.
Alright, thanks, guys.
[noise]. Thank you next question comes from the line of asthma Chevy car with city your lifestyle.
Uhm, Thank you and good quarter guys.
I Wonder if he just kinda you know.
He can be.
Danny assumptions and you're going through that process for next year.
And as we.
In terms of.
Daniel modeling.
And not asking for guidance, but how would U T. King of the setup for next to you that in terms of the underlying demand for.
They get to the transformation.
Obviously cute.
<unk> com things like that could usage walk through your thought process as you do your own budgeting.
And we're in the midst of it today and so we you know the standard process that we would use where we've got kind of aspirational model and then a very detailed account level of planning and we're beginning to get feedback from each of the business unit test kind of what they were expecting it the account level.
Then as you can imagine resorted consider investment priorities and all of that and we come back with a a.
Guide in terms of authorized the growth and profitability and so you know clearly we're not at a stage, yet where I can talk about that based on what we are in the planning cycle and we're also not got into 2023, but I will provide.
Some color on the revenue growth and so as we've talked about you expect that we will return to a regular growth greater than 20%.
At some point in the future at this time based on what I'm seeing with their numbers I would not expect that to occur in the first half.
The 2023 fiscal year, and instead, I think that would be more likely to occur sometime in the second half.
Understood got it and thank you for next the other question I had was obviously a D C M.
Everybody else's results coming to.
Another weakness in the in the high Tech World to call.
How does that affect your thinking in terms of you know thinking on expectations in terms of he had one client base and.
And and the work you're doing and I use Ah you're beginning to see.
Any any specific impact isn't that I've been working <unk>.
I suppose I shouldn't because it's already kind of growth color in zoos.
In general.
Oh of course was that before and I think.
I know it seems like too.
Too loudly sailors like you open.
Any any redo this everybody took it involves itself and.
No very clear signs.
What will pick it up with what they get everybody much more carefully.
Making decisions and it's not always lead.
And then you tell the details of the accident.
Much.
Consumer reaction as well as the rest of us are pretty stable right now, but I got.
Slower.
From gross boy, So you will definitely slow.
So we shall see spending we still see investment on the part of clients just at the rate of growth appears to be somewhat slower and some of the decision, making us a little bit slower.
And if you can like your brother was always good to have them I think.
[laughter].
Is it.
Relatively light company.
She has to go through difficult times, and you're definitely on the lines of.
And you know specific areas, who knows it each time after this it was kind.
Side of the road again.
Because the situation was the closest he just recently is considered is included.
The.
But it will slow down again, it's worse for several towards us.
But then it was.
Inc. Kind of comeback similar was in 2000.
Eight 2009 for us.
And we will learn our lessons call to litigate resistant to go through this to make sure that we say.
And in the Western part of the company to come back correct. That's what we focus and ensured we talked about the deleted it multiple times.
A consultant integrated with your inquiry.
And the opposite.
And we understand this call too.
Scale up.
That's another area, which we keep it in fact, all the time, even if it does not work so let's call it the slogan.
Call mushroom cloud too.
<unk>, it's still around here and to be treated this way to care for.
Thank you.
[laughter].
Thank you next question comes from the line of <unk> West Barclays Your lifestyle.
Thank you for taking my question. This morning, I had a question on the pricing environment and it seems like there's some puts and takes on on one hand, you have a lot of inflation, which might give you. Some air cover to pass pricing through on the other hand, you were talking about some softening macro and maybe some caution on the side of of your clients can you talk about the puts and takes in pricing and whether you are seeing any change.
As in any environment.
Well I think that I would just comment on what we've seen let's say over the last maybe five months and then it's a little harder predict as to what you might see in the future, but I could talk to kind of what we're expecting for Q4.
One of the things that was a positive surprise from Ah both revenue standpoint, and profitability. In Q3 was that we were able to execute on our on a realignment of rates for all of the relocations that we've done so I haven't cost geography's until we make better progress any unexpected.
Alrighty I think that as we in Q3, we think that we've already got some realignment about two thirds of the positions that have been.
Shifted desert Geography's, we still have ongoing.
Work to do there and also we still are still relocating people from countries that the higher cost countries, but we do expect to continue to see price improvement associated with realignment and then in addition, there probably is some additional pricing kind of going on in the second half of the fiscal year.
Hard to postulate kind of what could happen next year.
Late in the environment that we've been in whether it's been very high demand and some disconnect between supply that's supportive of pricing and discussions and we'll have to see what pricing discussion in bulk like in 2023.
Okay, great and.
One last one for me a question on M&A and similar overlaid with this sort of Macrocycle.
In past cycles, do you guys pull back on deal activity.
As the macro environment gets a little choppier or is instead is at the opposite where you maybe see some opportunities that weren't weren't around.
When times were better how do you think about M&A in that context.
I don't think we were like.
Gretchen.
Acuity wisdom.
Specific like economic climate.
What I meant I assumed you were looking for the right conditions soles of time as we continue to do as well and I think it's going to be but opportunity to Boston.
Coupled with our strong.
Rash important but in general the guys. If you can see that everyone kind of Zeus and it's not right now.
What's the because we don't see the right.
The right things.
Plus definitely mucus.
Maybe it was evidently else, yes, we've got some other priorities because.
There is no specific slow down.
All of them with it.
Got it alright, thanks, so much I appreciate it.
And think.
Thank you.
Question comes from the lineup change Faucet with Morgan Stanley . Your line is now open.
Thank you very much a couple of follow up questions for me, Jason coming back to kind of your your outline for two.
2023, I think it makes sense, particularly given the comps that you faced with Russia and its contribution at least in the early part of the first half of this year.
But there are other drivers are things that we should keep in mind as you think about like that kind of return to 20 per cent plus growth in the second half of the year and kind of what are you planning assumptions, where you're looking at.
<unk> capacity coming online delivery capacity coming online or just how you're thinking about kind of the evolution of the current demand environment, just any incremental color on on what's leading you to kind of think about that that cadence.
So your wife.
Still generates.
Revenues from Russia, particularly in Q1 of 2022, so that'll be a tougher calm we still think foreign exchange is going to have some some headwind associated with it and then I think you know right now we continue to sort of evaluate the demand environment as we've talked about.
But I just think the other thing is that if you look at our headcount additions over the last couple of quarters is that oftentimes you need to have sort of ongoing sequential growth.
Two of them continued to sort of produce strong year over year growth, two or three quarters, how and.
So we feel very comfortable with our ability to add head count over time and again, it's our talked about we feel that we've got increasing sort of operational experience in the newer geographies and right now I just think as I kind of look at the numbers are likely head count at this quarter.
It appears that your trajectory would sort of give you the opportunity for a greater than 20 per cent growth.
In the second half rather than in the first half and I think.
You guys, probably do the same types of Matt that we do and you're likely could see that as well.
[noise], great appreciate digestion and then the second.
My question is like and and I think that takes a little bit into what you were saying around employees and where you're adding heads geographically, but you know.
I think he had made the comment about wanting to to increase utilization et cetera.
Is it right to assume that you are probably running higher utilization and you're more established G OS including maybe those that are impacted still by the the one that Ukraine and the improvements and and utilization are likely to come primarily from the newer geographies or is there more nuanced.
Than that.
Yeah, It would be mix that we're definitely running with lower utilization.
What I'll call the impacted facilities Geography's, but there's also some opportunity for us to tighten up utilization and some of the newer geographies that we've expanded into and so again the goal in queue for it would it be somewhat improved utilization, but still may be a little below our target and then as we enter the first half of next year is to make certain network continuing to sell.
Chris on improved utilization.
But in general with yours.
He's got it because.
You'll locations we.
The new people over to this issue is the beginning of this area below.
422, it will be approved because it will be so yes.
Yes.
That's great. Thanks, Thanks for Ya.
Thank you.
Thank you.
Next question comes from the line as surrender 10, with Jeffrey streamline itself and.
Thank you I'd like to start off with a question about just kind of the delivery footprint that you have at this point can you may be talking about the level of comfort that.
Clients actually have the correct exposure to the region.
So are they expecting you to maintain backup in case of further disruptions are they taking on some of the risks how should we think about that balance that you have with clients at this point.
So it was basically a question.
Oh well.
Companies would be to use whooped locations clients.
Needing to consider.
Where you could always rethought from Thailand.
Correct.
Well more about.
The idea that right now I think the target is to have 30% of your delivery.
From the exposed regions, where where the war is right.
Is there an opportunity to further reduce that or it seems that clients are comfortable with that level of risk.
How should we think about.
Do you have to be back in terms of clients. If there is further disruption or how should we think about you guys managing to this new global delivery footprint.
Like why not reduce it.
That's a very dynamic.
And I think clients.
Because it is because of it.
And in general appliance golfing familiars is but as soon as it eased squeal.
Anyway.
Yeah.
Distribution company that that's.
Let some way the Z somebody challenged shows us what we are living through it.
Is this specific for it as soon as it is a kind of a squeeze some.
Consoles and what will be.
One months from now or two months from now.
Little bit different.
<unk>, that's exactly the challenge okay.
Other sites because.
Multiple locations.
You mentioned significant.
The significance of inbound where school moved from one location to another and.
Came to new locations.
Kind of our seats to accelerate.
The.
Knowledge religious.
Religious vendors and grow in your location and also like glass comfortable azusa locations, because some good concentration of people who already know.
Who's that so roses bleed when they call.
Paul.
As well as soon as.
But.
Right now, it's just so 2% and is <unk>.
Music.
Please please includes level.
Right now.
Thank you and then as a follow up can you maybe talk a little I understand this but a lot of questions about the man.
Can you make you talk about the level of visibility that you have with customers.
What I'm trying to get here is can you maybe talk about the rate that maybe projects are being delayed or canceled relative to historical and.
Is there are incremental risk in the sense that woods 2023 budgets get established.
It's really been that clients have to make decisions. So maybe.
You know current conversations may be productive, but you know what it really the rubber hits the road.
They're more hesitant to start projects. So it just kind of trying to understand.
The risk and the numbers of it seems like.
Some commentary from everyone else things are just slight faster than anticipated and so the question is this.
Why can't that continue.
I think oh typical sort of.
At this stage.
Two ord into say because it's.
Kind of not people in the middle of Q4.
This is very very true in any venue normally.
It is kind of note what is normal yeah, probably when I am looking to.
Revenue threat. So the results in normal years, the last time, we so probably.
2019 <unk>.
Before going to send before then it was like being slow down on the huge acceleration does.
Okay. So it was it was it <unk>.
Whole general economic threats like good.
Differences in we saw just six months ago.
Okay. So that's why I like U S completion, but even the normal year is not equivalent to those this is this specific here I don't think we can we can say like it's it is waiting Tonight.
That's helpful.
That's it for both.
Thank you.
Our last question comes from the line.
Jamie Friedman was Susquehanna Your line is how often.
Hi.
Arcane your prepared remarks here called out the increase in the.
On site.
Composition, the highest in the company's history.
So I just wanted to get some context on that way now and then.
Let me just start with any perspective, and then I had a question about the $10 billion.
Comment as well, but how about the onsite first.
I think we took in involved with the bomb continue development as a breath.
Practically does it exist.
Three years ago.
No that's in.
The beach.
Started to be recognized a zoom occupant consultant field so.
Oh.
Reserved listen specifically acquisition <unk> in 2019.
So what do you need a 21 2021 22, when you walk away increasing list.
To to support.
The new type of engagements, which we anticipate and into each doing already so.
We actively worker and does it work so it's not specifically why now it's just a continuation with Stephanie.
Okay. Thank you and then in terms of your comment about the $10 billion.
<unk>.
Point to specific time, but how were you thinking about that journey in light of everything that's going on in the 10 billion target.
So is.
Probably it is maybe sounds a little display, especially taken exertion.
What's going on right now.
But is the same as the same time.
Wilders is very very special situations.
We will understand it so.
Although experiencing over the bus tours.
It's good it's good to have him.
One quarter is three quarters.
On top of it is it is this a potential economic slowdown.
About it if you think about the whole number students with us several with us.
Wasteful.
Economic environment based on our competitors.
If.
Or wouldn't happen.
Numbers might be considered normal.
Not very much different from what other sport.
I'm just reading the oldest colors.
Just to confirm that we definitely look into.
Towards glued to be within the next couple of quarters.
Six months, but we definitely we can still be here in two years or three years.
As from this point of view.
And billing will look looks like a pretty serious.
Stupid.
Gulf War, unless police, but realistic.
Three years ago probe interview would be to solve this lady.
Let them watch aspirational.
Right now is just pretty much exactly for us.
The salt.
Got it thank you I'll drop back in the queue.
Thank you I would now like to hand, the conference back over to our <unk> for Clinton remarks.
Again, thank you very much for joining us today, Thank you for support.
Hidden from everyone does it.
I think it's important to.
One more time standard bomb.
As a company are you supporting Ukraine's 500%.
So it'd be very come into our own people in the country, we do get into two grand will be part of the nation.
For many many years.
And while you go out with a difficult difficult parts I think we're still seeing them very bright future for.
E bomb and gross.
And.
Please understand that it is challenging times, so let's cook.
Three months and you'll see what's happened and.
Thank you very much.
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