Q3 2023 Endava plc Earnings Call
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Good day and welcome to the Endava third quarter fiscal year 2023 results conference call. Our participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.
I would now like to turn the conference over to Lawrence Madison, Head of Investor Relations. Please go ahead.
Thank you. Good afternoon, everyone, and welcome to NDAVA's third quarter of fiscal year 2023 conference call. As a reminder, this conference call is being recorded. Joining me today are John Cottrell, NDAVA's chief executive officer, and Mark Thurston, NDAVA's chief financial officer.
Before we begin, a quick reminder to our listeners. Our presentation and our accompanying remarks today include forward-looking statements, including our guidance for Q4 of fiscal year 2023 and for the full fiscal year 2023.
our ability to grow revenue and in particular, growth and expansion in our industry verticals, the company's continued business optimization actions, enhancement to our technology and offerings, the impact of adverse macroeconomic conditions, and other forward-looking statements regarding our business strategies.
Plans and Operations.
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 by such forward-looking statements.
and reported results should not be considered as an education of future performance.
Please note that these forward-looking statements made during this conference call speak only as of today's date and we undertake no obligation to update them to reflect subsequent events or circumstances other than to the extent required by law.
For more information, please refer to the Risk Factors section of our annual report filed with the Securities and Exchange Commission on October 31, 2022.
Also, during the call, we'll present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which you can find on our Investor Relations site or on the SEC website.
A link to the replay of this call will also be available on our website. With that, I'll turn the call over to John .
Thank you, Lawrence. I'd like to thank you all for joining us today and I hope you're all well.
business and financial performance for the three months ended March 31, 2023.
Despite the challenging macroeconomic environment, we reported another solid quarter, with revenue totaling £203.5 million for Q3 of our fiscal year 2023.
representing a 20.3% year-on-year increase from £169.2 million in the same period in the prior year.
We ended the quarter with an adjusted profit before tax for the period of £43.4 million, representing a 21.3% adjusted profit before tax margin.
While the near-term outlook might be more challenging, we are managing the business for the long term.
We remain very focused on our Vision30, which is our planned scale-up as we head to 2030.
and we are gearing in DARPA for exciting market opportunities.
Post COVID, we experienced an increase in demand, which made it difficult to undertake some business optimization actions required to deliver on this vision.
The recent cooling down in demand has given us a chance to recalibrate the business and to better position ourselves for continued growth into the next decade.
Over the past three years, we have been building our industry vertical focus.
establishing teams who market, sell, ideate and deliver into specific industries.
This enables the incubation of technologies and capabilities attuned to the specific needs of clients and differentiates our solutions from generic horizontal technologies.
We have now reorganized internally into our industry verticals and continue to invest in talent to help our clients adapt to the new disruptive technological waves, including AI and ML.
As I highlighted in our last earnings call, last December we saw a change in behaviour.
as some clients added another level of due diligence to their decision-making cycles.
slowing the commencement of new projects, and in some cases pausing existing spend as they reassess their priorities.
I also noted that we'd seen an uptick in activity in February , which resulted in March being our highest revenue month in our history.
Unfortunately, the recent bank failures triggered another wave of caution, and as a result, the momentum going into March stalled.
and we now see lower demand than our previous guidance.
To give this some colour, the banking failures triggered a significant change in behaviour in our PE portfolio company clients.
where they curtailed spend sharply.
The drop in revenue in Q4 from Q3 is down to PE portfolio company reductions, with the rest of the business flat, allowing for lower working days in Q4.
We believe that this now pent-up demand will return when economic conditions recover.
In the last quarter, our revenue growth year on year was driven primarily by both the expansion of work for our existing clients and the acquisition of new ones during the quarter.
We continue to prioritise our efforts on larger relationships that can grow and scale.
As a result, we continued growing the number of larger clients, with a total of 155 clients, each paying us in excess of £1 million per year.
compared to 118 in the same period last year, representing a 31% year-on-year increase.
We also saw the cohort of our largest clients, those who each spend over £5 million per year with us, grow by 35%, from 23 in the same period last year to 31 last quarter.
Moving on to technology, it will be a surprise to no one that data and AI related work has been an important part of our business for a long time and has continually grown in scale, value and complexity as we have engaged in larger and more involved pieces of work for our clients in recent years.
Today I'll highlight some of the work we've been doing using this technology.
It's important to note that the inherently exploratory and iterative nature of generative AI work aligns with Indharva's natural way of working.
We strive to work in an exploratory way with our clients from ideation to production.
working iteratively to understand their needs and opportunities, applying the right technology in the right way.
and deepening our knowledge and the client's understanding as we progress together.
This allows us to achieve a rapid time to initial value, but also lasting and sustainable value for the client in the long term.
We deliberately bracket data and AI together.
as AI is dependent on data to train its models to extract patterns and insights.
So our skills across the data spectrum directly support our work in the AI field.
Our work in data and AI is varied both in business domain where we work across a wide range of industries.
and in the technical nature of the work.
This area is varied, being a continuum from traditional BI-based data work at one end to AI-based analytics and generative AI at the other, with the different aspects complementing each other. Our projects vary from data warehousing and reporting.
through modern data engineering, where we solve the big problems clients have in organizing their data, so that it can be used profitably.
through building leading edge data platforms to provide clients with environments to exploit the potential of their data.
We also provide advanced analytical work to unlock the value of data and AI projects, where we harness the latest advantages in AI technology to solve practical problems in ways that simply wouldn't have been possible a few years ago.
The first example I'd like to share is work we did for a dynamic New York based digital marketing agency.
who were struggling to manage and capitalize on the large amount of data they were collecting.
We created a cloud-based data platform to allow advertising budget allocation across different marketing channels based on real-time channel performance during an advertising campaign.
This revolutionized our clients' understanding of their in-flight campaigns, avoiding the long delays associated with traditional approaches by providing immediate insight into campaign performance through visual dashboards and analytics, allowing them to seize opportunities by responding immediately to trends and insights.
In a completely different domain, we created a novel solution for bad debt collection for an international insurer.
Our client recognized an opportunity to improve the bad debt collection process by analyzing data from a range of older systems.
We implemented a data platform solution that materially improved their understanding of this difficult part of their business.
by providing analysis and visualization of patterns and trends in bad debt collection.
This allows tactical response to immediate problems as well as strategic optimization of the process.
Sophia Genetics, a global cloud-native data-driven software company in the healthcare space, engaged us to optimize a federated data query processing implementation to increase throughput and lower cloud costs.
Our team did a cost performance comparative analysis.
between various technologies and designed the architecture and implementation.
Moving on to a more AI centric example, we applied modern AI to a very traditional industry when we worked with a central European bank, NLP banker.
to supply AI to modernize their retail banking experience.
Our client's goal was to make their customer's financial management insight proactive, engaging and empowering.
To do this, they needed a powerful mechanism to classify banking transactions.
We created a categorization engine that classifies very large numbers of retail bank transactions into categories such as grocery, shopping, health and leisure.
adapting the categories over time by learning from customer input.
The categorisation is an important component of the bank's new digital customer experience, driving customer loyalty, a push for new customers and new cross-selling opportunities by allowing the bank to better understand their customers and the customers to understand and optimise their spending patterns.
We've also done ideation work in the AI area. For example, we completed a project for a management consultancy firm to encode data from medical records into knowledge graphs, which could then be analysed using a graph neural network for anomaly detection.
This is designed to drive better patient outcomes and help medical practitioners to improve their medical practice.
by identifying potential mistakes in treatment and insight into position behaviour and decision making.
Another advanced project example is one of our internal R&D projects in the area of generative AI, which developed a system to allow game designers to generate 3D visual assets.
such as characters and gameplay environments using natural language, significantly improving the productivity of the game designers by providing them with a rich source of inspiration, as well as an artistic digital assistant to rapidly perform any of the routine graphical design tasks for them.
Indelbra is currently engaged in the development of two distinct accelerators concentrating on large language models.
Leveraging our partnership with Google, we've been given early access to their Enterprise generative AI tooling. We've applied this against the insurance industry, successfully demonstrating the practical utility of generative AI within a business environment.
We developed an interactive workshop highlighting the optimization of interactions between brokers, underwriters and compliances.
by employing instruction-based tasks and chain-of-thought reasoning prompts.
This innovative approach has the potential to transform complex business processes.
ultimately enhancing clients' operational efficiency and positively impacting their bottom line.
The second accelerator involves a comparative analysis of cost, performance, features and industry specific capabilities of various commercial and open source LLMs.
Indava is currently evaluating models from OpenAI, Google and Open Source within the context of three industry verticals, healthcare, financial services and insurance.
The analysis evaluates the strengths and capabilities of each model in relation to industry-specific client implementations. The knowledge we gain from this exercise is foundational in delivering effective applications of AI for our clients.
because the nuanced understanding we are gaining of how the different models behave in different industry scenarios will allow us to apply the right technology to each client scenario. So, de-risking the work and avoiding lengthy experimentation phases for model selection. The hunger for data.
to train computer vision based machine learning models has prompted us to build a synthetic data generation accelerator.
This highly customizable pipeline can generate tens of thousands of uniquely rendered images tailored to specific scenarios, all geared to accelerate the training and continue performance enhancement of these models.
Paired with our comprehensive data science and machine learning expertise, this new capability has opened up new opportunities with both existing new clients.
Finally, we're working with large language model technologies like ChatGPT and GitHub Copilot, trialing them within the firm and building proof of concept applications with them to explore their potential, understand their limitations and identify the problems that we can apply them to in our business and with our clients.
In summary, data has been an important area for us for a long time and we see more and more interest and an increasing variety of work in this area.
which is being accelerated further by the recent advances and interest in AI, which we are well placed to respond to. We believe these latest technological developments will be an important source of additional work opportunities for Indava.
Clients will spend less on legacy work, leaving larger budgets for complex transformation work that will continue to need delivery by experienced, high-performing cross-functional teams.
who will deliver results faster using generative AI tools. Additionally, this new technology will improve productivity across the board, allowing for higher spend.
And finally, we expect lots of high-value projects to emerge as our clients try to apply generative AI to their businesses for which they are likely to need our help.
I'm excited about our recent acquisition of MugBoth, an Australian-based technology firm specialising in strategy, design and engineering services.
Mudbath partners with businesses to build new digital solutions.
enhance user experiences, and accelerate digital transformation programs across enterprise systems, web, and mobile products using their proven agile delivery methodology.
Mudbox clients span broad industry verticals, including retail, mining and adjacent activities including rail and tools.
health, insurance, banking and travel, and will help in our strategic intent of diversifying away from the UK and from payments and financial services. The acquisition follows our organic entry into Australia in 2021 and the acquisition of Lexicon, an Australian-based consulting, design and engineering firm, in 2022.
We continue to see Australia as a growing and attractive market.
with strong demand for high quality technology product creation delivered both onshore and nearshore by multidisciplinary delivery teams.
Mudbath teams and strong client relationships are expected to complement Dava's expanding nearshore capability in Malaysia and Vietnam to continue to deliver innovative high quality digital solutions.
I remain excited about our growth prospects in the Asia-Pacific region. We're delighted to share some highlights of our WeCare sustainability approach over the past few months. To mark International Women's Day, throughout March, we recognise the impactful work and contribution of women across our global organisation.
talk about the importance of diversity.
the role women play in the working world, sharing some of their career journeys and giving advice to women in the tech space. To celebrate Earth Day, we rallied behind this year's theme, Invest in Our Planet, which highlights the importance of dedicating our time, resources and energy to understand and address climate change and other environmental challenges.
As an example, we start to engage with our suppliers for awareness and joint actions to reduce the environmental impact of our operations.
We ended the quarter with 11,742 employees, a 6.7% increase from 11,001 in the same period last year.
We've made the strategic decision to increase our selectivity regarding our recruitment efforts and are focusing on areas of strong demand plus sales and marketing.
In summary, despite the recent challenges based on our conversations, we believe clients continue to prioritise digital transformation in their IT budgets.
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 . Endava's revenue totalled £203.5 million for the three months ended March 31, 2023, compared to £169.2 million in the same period in the prior year, a 20.3% increase over the same period in the prior year.
Propping full tax for Q3 fiscal year 2023 was £30.4 million compared to £25.9 million in the same period in the prior year.
Our adjusted profit before tax for the three months ended March 31st, 2023 was £43.4 million compared to £34.2 million for the same period in the prior year.
Our adjusted profit before tax margin was 21.3% for the three months ended March 31st, 20.3% compared to 20.2% 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 realized and unrealized foreign currency exchange gains and losses, structuring costs
and fair value movement of contingent consideration, all of which are non-cash items except for the restructuring costs and realised foreign currency exchange gains and losses. Adjusted PBT margin is adjusted PBT as a percentage of total revenue. The diluted earnings per share or EPS.
Revenue from our 10 largest clients accounted for 33% of revenue for the three months ended March 31st, 2023, compared to 35% for the same period last fiscal year.
Additionally, the average spend per client from our 10 largest clients increased from £5.8 million to £6.8 million for the three months ended March 31, 2023, representing a 17% year-over-year increase.
In the three months ended March 31st, 2023, North America accounted for 32% of revenue compared to 33% in the same period last fiscal year. Europe accounted for 24% of revenue compared to 21% in the same period last fiscal year. And the UK accounted for 38% of revenue compared to 21% in the same period last fiscal year.
compared to 43% in the same period last fiscal year, while the rest of the world accounted for 6% compared to 3% in the same period last fiscal year.
Revenue from North America grew 15.4% for three months ended March 31st 2023 over the same quarter of fiscal year 2022. Comparing the same periods revenue from Europe grew 35.6% the UK grew 7.2%
the rest of the world grew 173.4%.
Revenue from Payments and Financial Services grew 24.3% for the three months ended March 31st 2023. Revenue from Payments and Financial Services accounted for 53% of revenue compared to 51% in the same period last fiscal year.
Revenue from TMT grew 1.2% for the three months ended March 31st 2023 of the same quarter of fiscal year 2022 and accounted for 21% of revenue compared to 25% in the same period in the prior year.
Revenue from other grew 32.2% for three months ended March 31st 2023 over the same quarter of fiscal year 2022 and now accounts for 26% of revenue compared to 24% in the same period in the prior year. We now turn to our adjusted free cash plan
which is our net cash provided by operating activities plus grants received less net purchases of non-current tangible and intangible assets.
Our justifiably cash flow was £21.2 million for the three months ended March 31st 2023 compared to £16.1 million during the same period last fiscal year.
Our cash and cash equivalents at the end of the period remained strong at £199.2 million on March 31, 2023, compared to £162.8 million on June 30, 2022.
Absolute expenditure for the three months ended March 31, 2023 as the percentage of revenue was 2.0% compared to 1.6% in the same period last fiscal year.
During the quarter, we took a restructuring charge of £2.6 million and a total of £3.7 million for the nine months of FY23 related to business optimisation actions.
Our guidance for Q4 fiscal 2023 is as follows. And Darva expects revenue to be in the range of £187 million to £189 million, representing constant currency revenue growth of between 3% and 4%.
In Java expects adjusted diluted EPS to be in the range of 44 to 45 pence per share.
Our guidance for full year fiscal year 2023 is as follows. And Darva expects revenue to be in the range of £792 million to £794 million, representing constant currency growth of between 16.0% and 16.5%.
and Dava expects adjusted diluted EPS to be in the range of 215p to 216p per share.
This above guidance for Q4 fiscal year 2023 and the full fiscal year 2023 assumes the exchange rate at the end of April 2023 when the exchange rate was £1.26US and £1.13 trails remote inflows of $26.3.20US $1.40US
This guidance seeks to take into account the current macroeconomic head wounds highlighted by John in his comments. This concludes our prepared comments. Operator, we are now ready to work to the line for Q&A.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Our first question comes from Ashwin Shervakar from City. Please go ahead.
Thank you, and good morning.
Yes, maybe my first question here is with regards to Johnny's comment.
that you expect the
the fall off in demand to be temporary and I think you characterized it as there's going to be now pent up demand. If you could maybe give us some color around what gives you the confidence that it is pent up demand and over what time.
down. The business picked up actually pretty strongly through Q3, resulting in marketing our highest revenue month in our history and actually helping us to be the high guide that we have to fix you through.
However, as we've got to the end of March, we saw this pullback triggered by the bank failures that were going through economically. And it was, particularly true, it was almost entirely true that it was our private equity portfolio clients who pulled back. And they acted very fast following the bank failures.
And that meant that our pipeline business that we were expecting from those clients failed to convert as they could tail and stand.
And that has now stabilized as we've gone through Q4.
just to give the context on the other clients, they flattened off so they didn't continue the growth that we saw being sustained through Q3 and that's the other half of why we've had to lower the guide.
Now in terms of the colour on the PE portfolio clients, things of those are the guys who differ, stand and pull back. They're generally large organisations, so not early stage businesses. And the pause has been governed by their own PE evaluation of their business models.
and the returns. Given the macro, the access to capital interest rates and so on that are developing across.
Let me plot the economies.
Now we believe that about 50% of that delay work will go ahead once they've re-evaluated it.
and we're starting to see that come through. So in summary, on the PE side, they were quick to take action and that was particularly visible off to the bank failures.
things are stabilized since. Our sales teams are starting to see renewed interest in investing in those projects, from those clients and others. And mainly focused on building capabilities that direct support top-line growth.
or helping controlling costs.
So that's the reason why we're looking at that P pullback as being the macro has hit them a bit harder than them.
our general client base because of access to capital and interest rates changing. And so they've taken a much harder look at their portfolio of projects, and that's created a backlog. That is creating a huge amount of activity. So our Q4 sales activity is the highest we've ever seen by some distance.
The slippage from Q3, the PE that I've described, plus new opportunities is giving a bulge of opportunity in Q4. And while some of that might slip into Q1, it's actually a clear indicator of a very strong level of market activity and interest in the things that we do.
So there's quite a bit of colour there, but hopefully that helps you understand what's been going on.
Yeah, no, no. That's interesting that you gave a very explicit reason as opposed to a general macro weakness as the rationale. So that's helpful.
And it's interesting that you gave a very explicit reason as opposed to a general macro weakness as the rationale. So that's helpful.
With your comments on generative AI, if you could maybe describe what sorts of talent you're now looking for and do agree with the data and AI combination. But what sorts of talent and are you beginning to see primarily these sort of pilot projects?
Yeah, sure. So, I mean, just to reemphasize again, so we've been working in this space for over eight years. I think the big change that's coming through with the recent advances in the technology is that the speed with which you can implement some of the benefits and so on is...
of interest in exploring what technology can do with business models. So the things we're doing in the ideation space of what we do with clients is driving quite a lot of activity around that. There is currently still a nervousness.
want to use it against your proprietary databases, you don't want the generated AI to take that off you. Now that is rapidly changing. So we steer as a little bit like the shift to public cloud that happened a few years ago with the nervousness that clients had around that.
were ideation phase examples during the opening remarks. But the power of what they can do to organizations is becoming very visible through that. On the questions around specific talent areas, there are sort of data oriented capabilities, things like Python, PyTorch, et cetera, that are growing in demand, so that you can clean up the underlying corporate data that you're gonna train the AI models against. And then there are new areas, things like prompt engineering is gonna become something that people become very familiar with.
you know prompt engineering is how you prime your AI to work properly by asking the right questions. And so you know we're starting to see an expansion in demand for that and how we train people in order to do that.
Thank you very much. The next question comes from Ryan Bergen from TD Cowan. Please go ahead. Hi, thank you. Can you give us a sense of how you're expecting the trajectory of the G20?
you up beyond the June quarter and whether that is expected to be a growth trough.
Yeah, so for, let me contrast it with Q3. Whereas Q3 we had a big drop in December and then a rapid build up through the quarter. In Q4 it's a shallower drop off. We had a drop off at the end of March and a little drop off in June .
smaller at the end of April , may looks flat and June , we're looking at a small uptick. So, if you project that forward, which is what I'm sure you're looking at doing, the Q1 uptick is dependent on us closing some of these large numbers of sales opportunities that we have in Q4 and seeing that push into Q1.
the bigger uptick I would expect to see come through in Q2. Yeah, I agree with that, Brian . We have a very limited pipeline in this guide. It's about 1% or so, seeing what we've seen through the course of March and April .
It's a very sort of fluid environment at the moment, but we do think the P business side has stabilized as indeed has the non-P side. So there's opportunities that John's are looting to. They may give us an impetus to Q1.
Camellia trans sixteen perus
Okay, that's helpful. And then follow up on the PE client portfolio. Can you remind us the mix of the revenue scale of that cohort and within that group the clients all broadly act in a similar way or within pockets that may have been more pronounced in the spending pullback than others based on underlying portfolio company industry or region?
Yeah, so the PE, it gives you a sort of sense of the decline. We had an ecline of about 21% quarter on quarter, going from Q3 to Q4. So, you know, we've gone from something like Q3, 22% of the revenue to dip 19%. So, we sort of, one thing that you might think about
significant sort of contraption. It was pretty broad across.
payments and financial services. It was a pullback there with stronger, it's 29% overall, particularly in payments. So it's about a third of what we think is PE for Q4, but we also saw a significant pullback.
in GMT, particularly in tech as well. So high teams there and others. It was very broad, basically, across the piece. So everybody pulled back. It seems like the pull back was strongest in financial services and particularly sort payments.
Okay, understood. Thank you. Our next question.
Our next question comes from James Fasa from Morgan Stanley . Please go ahead.
Great, thank you. I wanted to pull up on a couple of things there. I guess, you know, I understand that the comments around the back farms, et cetera. But, you know, I think that when we look at the numbers, it seemed like the UK was also a little bit weaker.
Can you talk a little bit about what's happening in that demand arena, the particular area or region within that? And can you talk through, are you seeing a similar plateauing or stabilization out of the UK? Good.
That's right, James. I mean, the UK sequentially was down on Q2. It will continue to decline probably about 6%. Again, we're seeing a big sort of pull back on
PE's about 25 so actually sequentially. The non-PE business is reasonably sort of stable. There's a modest sort of decline but again we've got it so much and down in terms of the Penn's financial services with a non-PE space model at the client. It's strongest in TNT but other is relatively strong seeing some sequential growth.
So it's, we see it continues to decline in the UK. It's been led by PE and if non-PE, the main reason is weakness in TMT. Got it, got it. I meant, I wanted to talk about client and client count. It looked like...
The client roster, the speaker on here, and...
If we're looking at, kind of, it sounds like you're actually having a really good quarter from a sales perspective and engagement perspective, to expect that to continue to increase free or to rebound, I should say, or are we gonna go through a period do you think of increasing customer constraints in what you're doing more for existing customers before starting to flatten? And then eventually I would imagine rebroad now.
months or so we've actually been focusing quite hard alongside that on trimming out the smaller clients. It's one of the things that happens when we do M&A, for instance we pick up a roster of small clients and obviously for a period of time you continue to look after those as mentioned combined on 2021.
But over time, if they're not going to grow and go somewhere, we actually want to focus our efforts on the larger clients. Now, if you look at the numbers for larger clients, we've been particularly strong in the larger one, so the greater than five million.
those increased to 31 compared to 23 last year. And we have published a band that if you look at the 2 to 5 million client band that moved up to 56 compared to 35 last year. So it's all about us putting the energy into the larger clients that have the opportunity to scale.
Obviously we're still bringing in a good number of new smaller clients, but they get out weighed or have done over the last two or three quarters by the trimming of the very small ones.
I think that's something you'll see, James. I think our top 10, certainly in the near term, will increase as a percentage of revenue. And it looks like they're also slowing at not the same rate as the rest of the business.
I think our top 10 certainly in the near term will increase the percentage of revenue and it looks like they're also slowing at not the same rate as the rest of the business sequentially.
Got it, got it. That's really helpful. Thank you.
God, I got it. That's really helpful. Thank you. Thanks, friends.
Our next question comes from Jamie Friedman from Susquehanna. Please go ahead. Hi, I'm John . Thank you for your comments on January the day. I they were really helpful with the use cases. I had a question for Mark though. How should we be thinking about inputs like utilization and headcount growth?
We put in place a transformation programme, so headcount will sequentially decrease as we go into Q4, anticipate average about 3%. Utilisation is going to fall as a consequence, probably about 3 percentage points or so.
but actually the the the growth margin after we've taken those restructuring costs as exceptional will remain you know basically stable in the sort of high high 30s around sort of 38% or so. We haven't concluded
of budget process. I'm not going to add any colour beyond June . It's dependent on the sequential glaze that we see in Q1, Q2. How quickly or otherwise we re-build headcount.
Okay, and then just as a follow-up, John , with your 2030 Outlook Commentary, how do you see the company at a high-level, different thenment, and is now, whether it's based on geographies and verticals or practicing, just any high-level comment that you see the company over the orange. Thank you.
Yeah, sure. So I mean, some of the things that we're focused on is becoming more global, more spread. So the UK, becoming a smaller proportion of RO wall revenue by contrast, the US in particular, and the rest of the world stepping up sharply as the percentages of the business.
We likewise see diversification from a sector point of view. So moving from around 50% in the payments to financial space, seeing that moved down quite substantially, that the expense of increasing our investment in the other spaces, including Tim Tiernaught. We will.
and start to see what we classify as other segments, grow to a scale where we can pull them out and start disclosing individual segments. And that's certainly something we're looking at for next year being able to do that and give a little bit more color on how things are moving. So digification, a big theme there.
You know, the focus that we have on industry verticals, the way in which we put multi-disciplinary teams together to create and solution opportunities.
and how technology can impact clients in different segments. We see that growing in maturity and impact with our clients.
As I mentioned, we've been on the way with that for three years now. The change that we've just pushed through means organizationally, we've become much more oriented in terms of how we execute on that vision, meaning that the multidisciplinary teams
You know, put marketing sales, ideation, subject matter experts, delivery people and so on. I'm now organised into teams, focused on each of the industry segments as a poster collaborating as previously done from their different organisational slots.
So we believe that if we look forward to 2030, that that's going to make a significant difference in us maturing opposition in the market and maintaining a differentiation against bulk competitors.
We believe that if we look forward to 2030, that that's gonna make a significant difference in us maturing opposition in the market and maintaining a differentiation against all competitors. Thank you, thank you, Joe.
Thanks, then. Our next question comes from Maggie Nolan from William Blair. Please go ahead.
Thanks, thank you. Our next question comes from Maggie Nolan from William Blair. Please go ahead. Thank you.
You commented on a portion of work within the PE cohort that you expected would go ahead post kind of evaluation by the companies. What is the nature of the work that you don't place within that bucket? And then are you expecting these to be kind of outright cancellations of projects or just a deferral to a later date comparatively?
So there is a bundle of stuff which as we look at it, and obviously it's a client call at the end of the day, but as we look at it and we look at what the clients are seeking to do with their business, where we think given the more challenging
environment in terms of access to capital in terms of the interest rates that they are peddling against, if you like, where we think they will decide to pull back and not go for the investment and return.
that they previously saw as attractive. And so, you know, we think about 50% of what we've seen pull back on with the PE clients just won't happen at all.
You know, given the time frames for them delivering the turns to their owners, etc. It feels like a roundabout day is just not going to happen. Okay, thank you. And then you recently acquired another Australian company. Can you just comment a little bit about
the demand environment in APAC, maybe how that's progressed over the last several months, and then again the kind of long-term opportunity that you see there.
Yeah, so, I mean, we've mainly been focused on Australia so far under the APAC banner and we see demand as being excellent in Australia. So we've seen good organic growth over the last 12 months and that is continuing to come through.
And then that has been augmented by the M&A deals that we've done. Lexicon 1 and now recently muddoth.
Now part of the attraction of the Australian market is that the maturity of genuine digital suppliers is actually lower than we see in Europe and in North America. And so putting ourselves together with some of the emerging digital
just to pick up on it. Well, we're talking about it is the Middle East. And that's another area where we're seeing outsized growth with our, with the client opportunities. They're in a different sort of macro to the rest of the world. And so we're seeing great opportunities low as well. So those two things put together have driven the large part of the step up in.
In the proportion of our business and the rest of the world from three percent up to six percent that you've seen A lot of that is organic. It isn't just the M&A coming through
Thanks for the update. Okay.
Again, if you have a question, please press star then one. Our next question comes from Brian Keane from Deutsche Bank. Please go ahead. Hi, thanks for taking my question. I wanted to ask about your post-COVID comments where you guys saw an increase in demand. Do you think there was a bubble in demand? And why is that demand?
normal expected growth rates. And so you know that was stretching the business really hard as we were we were growing had those sorts of rates. So the ability to optimise to make reorganisation when you're actually being stretched by growing a 50% was something that we...
we deferred and chose not to do. You know also we have some people in the business who weren't performing as well but actually taking them out at that point where we were absolutely against the wall in terms of growing our head count was difficult to do so we optimized what we could achieve with them.
rather than actually making the decisions to, that would keep us in the 50th state for growth. So as that pressure has come off, which has essentially been coming into this new calendar year, we've actually been able to make the decisions on those people to reorientate.
to the higher performers, to the people who we get high availability, along with clients and so on. And so that's what's driven the restructure, the reorientation that Mark touched on. Got it, know that's helpful. And then just to make sure I have it right, the, was there any weakness?
that you're seeing in the guide that's outside the P portfolio I think you talked about flat maybe sequentially in revenues but just trying to think about any specific areas outside those P companies that also showed some weakness as you look at the guide in Q4.
Yeah, I mean, when we're saying about flat, it's the revenue generated per working day that is stable at the teams degree. So there are less days in Q4 available to us than Q3. So there will be what will look like a slow down.
in the non-PE business, sequentially. But when you de-due the number of working days available, it's actually pretty stable. And again, the weakness is across the piece, it's not as pronounced as with the business, so we're still continuing to see weakness in our pencil financial services. It's mainly...
impacting the non-P business actually in tech and TNT. That's the real ones that sort of notice. And TNT is we turn the non-P on into the business. Got it. Thanks for digging the questions. This concludes our question and answer session. I would like to turn the conference back over to John Coddarell for any closing remarks.
Thank you, and thank you all for joining us today. You can see that we're excited about the market opportunities that we have over the medium to long-term, from all the technological ways that continue to emerge, some of which we outlined on this call. We're gearing in d'Arv to continue as a leader as these tech ways go at strength.
I look forward to speaking June September on our next earnings call. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
I would.