Q2 2023 EPAM Systems Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the E. Pam systems second quarter 2023 earnings conference call at.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
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Please be advised that today's conference is being recorded and.
And I would now like to hand, the conference over to your speak today, David <unk> head of Investor Relations. Sir. Please go ahead.
Thank you operator, and good morning, everyone. By now you should have received your copy of the earnings release for the company's second quarter 2023 results. If you have not a copy is available on <unk> dot com in the investors section.
With me on today's call are caught adopter, CEO , and President and Jason Peterson, Chief Financial Officer, I'd like to remind those listening of some of our 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 to the comparable GAAP measures are available in our quarterly earnings materials located in the investors section of our website.
That said I will now turn the call over to Ark.
Thank you David and good morning, everyone.
Before I get into the results of our second quarter I would like to spend a few minutes.
It was a mid quarter update we provided in June .
As I said it in my prepared remarks.
The broader concerns over the economy led to shifts in demand dynamics for our sector.
The partnership has been much more pronounced due to the geopolitical impact on our delivery centers and our focus on the built in digital product engineering segments of the market.
This represents about 80, 85%.
Our engagement per quarter.
This was especially evident in the technology vertical which continues to be impacted by the pullback in spend after years of strong investments in digital product development efforts, while it being spread broader across other industry segments as well.
What was the last quarters, we have also seen this impact in some of our largest clients.
Third work.
To spending from Newbuild programs to the economic conditions and caution in their businesses.
This factor contributed to a higher percentage of our shortfall was the first half of 2023.
Now she's two Q3 and the rest of 2023.
While we are starting to see a few encouraging signs which are more on that in a minute today I would state that we expect to western recurrent level and predictability and negative dynamic to continue into the second half of 2023.
But at a lower level than we saw in the first half of this year.
With that we'd like to state that while we do understand that this is a difficult period for us and for the sector more broadly based on insight from the past several years and past several quarters, especially that.
We are taught them that experience into pragmatic action plan.
We will be applying to our business throughout the remainder of this year and further into the future and consider this terminal opportunity.
Each as we all know.
<unk> presents to transforming our sales.
Some of our current plans and actions are focused on.
Making real time adjustments to our savings go to market plan customer engagement programs and global delivery talent platform stabilization.
This key investments helped us to prepare ourselves for a strong rebound position.
What is important also to note.
Is it primarily a focus on digital products and data engineering services combined with digital consulting agency design content and digital marketing services.
In other words, the primary services and market segments, which allow us to double company.
Three years.
Hey, and intact.
While we continue to tune our capabilities in line with evolving market demands.
Our point is simple as the entire sector is undergoing what we believe is an evolution of the series as market moves from quarter to.
Digital utilization, even more broadly and with significant acceleration.
And to consider new digitally native businesses faster to the integrated care models and ways of working and now is the promise of generative capabilities impoundment.
Yeah.
We have been at the forefront of similar trends before and once again are looking to put a final as a center of new wave of transformation services, we fully expect as a result to be underpinned and even more driven exerted by our traditionally strong product platform engineering.
Data analytics and machine learning capabilities, but now in combination with <unk>.
If we add prices.
Okay.
So our thesis has been and continues to be the telco services profile will benefit in the medium and longer term from a bunker concentration on cloud data engineering.
And we will capitalize strongly in our core capabilities one of the general situation in our SYGMA rebounds.
The impact will become even more real in terms of complexity of future applications and platforms by encapsulation not just currently available elements of gender.
And a very visible needs for trust and reliability and security management.
But also by closer integration with new classes of composite and adaptive.
Platforms as well as with foundational models and specific industry cloud platforms.
Okay.
In short we are optimistic about what the transformation transformative opportunities.
The full application stack coming from led transformation, which is also well illustrated by our latest announcements.
It is one of the key areas of our investments.
The second critical part.
As a further diversification and stabilization of our global delivery platform, including the relocation of our tightened more optimally across the world.
At the same time, enabling our strong continued and quality standards across all upon locations.
This rebalancing effort will be performed over the next three to four quarters in part to drive higher levels of gross margin performance.
Okay.
As our plans and actions today are focused on our immediate demand generation and new logo acquisitions.
During the first half of 2023 and specifically in Q2.
We drove new logo activity at higher levels.
And then when compared to 2021 and 2022, we see this as a positive sign of a return.
To demand.
It should accelerate the recovery and allow us to return.
To growth as soon as the current client base stabilizes.
A few example of new <unk> clients include.
One of the world's leading b to B trail platforms.
European based multinational marketplace.
$9 four trillion of shares and other securities. The multibillion dollar molecular diagnostic company specialized in detection of early stage cancers, a leading global insurance provider of financial protection absence management and supplemental health benefit solutions and.
Global infrastructure services company in the energy space.
In this new program. We are starting to include Google stock of our capabilities from consulting to different types of implementation efforts. Some of those clients. We expect will support our next growth journey.
In addition, we also see some programs with existing clients.
We have started ramping up recently Canadian tire.
On the seven year strategic partnership with Microsoft to accelerate the modernization indirect retail innovation across the Canadian markets.
Leveraging our decade long relationship with Canadian tariffs Dupont youll be trusted and proven engineered in person and digital system integrator to lead the effort.
So there is some science indeed.
Brazil overall demand environment has come into more normal terms for us.
We probably we will be able to share more next quarter of how strong the science are going to be.
But in any way. It also confirms the Dupont continues to remain relevant and competitive even in current market with low demand because they build function.
This is a good entry point to share some of our go to market progress, especially in relationship with Kratos killers.
In June we announced a global strategic partnership with Google Cloud.
Cross our global markets.
Cloud solutions and focusing on specific efforts in our larger verticals, including financial services consumer, Chile, Colombia Entertainment <unk> Life Sciences Center.
Right there to.
To help our customers to modernize and transform their businesses.
We also encourage.
Brazil momentum we are seeing with.
The other major cloud partners, Microsoft and AWS.
More to come on this the reactions very soon but just as a preview you might have seen that we.
We're recently named Microsoft Great partner of the year for 2023 is couple other corner about recognitions is Microsoft partner network.
And although we made very strong progress in establishing <unk> 360 degree relationship is all three major players and plan to be selling more over the course of the next few weeks publicly.
Two final points.
First I just want to reiterate our view that there is a tremendous amount of work to be done in continued modernization application development and integration.
Considering in designing.
The models and strategies.
This change.
Our commitment to our expanding capabilities and engineering consulting and our work to create the next generation agency will help us to compete and win in new demand requirement once customers gain confidence and.
Optimization initiatives and returns their attention to growth.
Second I wanted to touch on one more time.
As it is obviously on everyone's mind these days.
So how do we see its impact to our business and more politically to our customers and the industry at large and of course.
What I would do into positioning <unk> for long term success.
The bank has a long history of investing in LNG and our call to action over the years has been to promises of technology.
I want to change your <unk> <unk>.
From Crowley glucose to Carly position and a great company.
Yeah, we can across thousands of use cases to focus first of all when responsible and very importantly cost effective solutions either.
Otherwise future real progress you'll be difficult.
To do so via focused on extending our partnership including this cloud providers and leading research centers to ensure those critical aspects and also focus ourself when a lightning definitely vehicles consult an experienced in technology.
Is it.
The reality is is it production already services application landscape is still very much is the entry stage of maturity today.
What would you say it is a very large and accelerate an opportunity for us specifically in our primary market segments.
Currently focusing on what type of activities to learning streaming tomorrow from proof of concepts to Rio scaled pilots and sounds scaled transaction initiatives.
[laughter].
So just like advances toward cloud over a decade ago drove demand for advanced engineering named Harish.
<unk> architecture, and crab anything just previously delivery models.
Yeah confident does this way for <unk> requirements, you'll drive more demand for Wednesday, <unk> <unk> content creation.
<unk> intelligence nature application.
You are part of that.
Our clients.
<unk> already started <unk> arms race, you should believe you'll be real engine for the future growth.
Some of those who are already starting to see <unk> pipeline.
Is that I would like to <unk> to Jason to share more details and numbers with you too.
For an update for business Sir Thanks for the reminder of 2020th Street.
Thank you Ark and good morning, everyone.
Covering are cute you resolved I wanted to remind you that in addition to our customer and non-GAAP adjustments expenditures resolving Russia's invasion, Ukraine, including ethereum humanitarian commitment to Ukraine.
Continuity resources and accelerated employee relocations have been excluded from non-GAAP financial results.
We have included additional disclosure specific to these and other related items in our keeps you on its release.
And the second quarter ATM generated revenue of $1.17 billion, a year over year decrease of 2.1% reported basis and a decrease of 2.4% in constant currency terms.
Collecting favorable foreign exchange impact of 30 basis points.
Revenue in the quarter was impacted by reductions in program spending across a number of our clients as well as ongoing climbed caution related to the project starts.
The reduction in Russian customer revenues, resulting from our decision to exit the market had a 100 basis points negative impact on year over year revenue growth.
Excluding Russia revenues year over year revenue for reported in constant currency would have decreased by 1.1% and 1.7% respectively.
Beginning with our industry verticals on a year over year basis traveling consumer declined 1%.
Primarily due to declines in retail, partially offset by solid growth and travel and hospitality.
Financial services grew 3.2% with growth coming from asset management and insurance services.
Business information immediate decreased for 1% of the quarter revenue in the quarter was impacted by a reduction and spend a number of large clients based on uncertainty in their end markets, particularly in the mortgage data stress.
Software and high Tech contracted 10.3% the decline in the quarter reflected a reduction and revenue from a former top 20 customer we mentioned during our previous earnings calls and generally slower growth in revenue across a range of customers in the vertical.
Life Sciences, and healthcare declined 10.9% revenue in the quarter was impacted by the ramp down a a large transformational program mentioned during our previous earnings call.
On a sequential basis squares and life Sciences, and healthcare actually was a positive 2.9% driven by new work at both existing and new logos.
And finally, our emerging verticals delivered solid growth of 8.6% driven by clients and energy manufacturing and automotive.
From the geographic perspective, America's largest region, representing 58% of <unk> revenues declined five 9% year over year for five 7% in constant currency the growth rate in the quarter was impacted in part by the ramp down of life Sciences, and healthcare customer we mentioned during their previous earnings cough.
Mm, representing 39% of our <unk> revenues crew, eight 5% year over year or 6.5% in constant currency.
Qui representing 1% of our <unk> revenues contracted 61, 1% year over year or 45.8% in constant currency revenue in the quarter was impacted by our decision to exit or Russia operations, and the resulting ramp down and services to Russia customers.
And finally, APAC declined $19, 7% year over year or 18.6% in constant currency terms and now represents 2% of our revenues.
<unk> revenue in the quarter was impacted primarily by the Ram count on work within our financial services vertical.
In Q2 revenues from our top 20 customers declined to 4% year over year, while revenues from clients outside our top 20 declined 1.9%.
Moving down the income statement for gap gross margin for the quarter was 39% compared to 29.2% of the cutie of last year.
non-GAAP gross margin for the quarter was 32.6% compared to 31.5% from the same quarter last year.
Gross margin in Q2, 2023 reflects a lower level of variable compensation expense, partially offset by the negative impact of lower utilization.
Gap SG&A was 16.7% of revenue compared to 19.5% in Q2 of last year.
SG&A Q2, 2022 included a more significant level of expenses, resulting from Russia's invasion of Ukraine non.
non-GAAP SG&A in Q2 2023 came in at 14.8% of revenue compared to 50.
2% in the same period last year.
Reductions in both cost of revenue and SG&A during the quarter reflect the company's ongoing focus on managing its cost base as well as reduced variable compensation expense due to the lower level of financial performance expected for the year.
In queue to keep him incurred $5 million in severance related expense included in both gap in non-GAAP SG&A as the company works to better align its cost structure with the current demand environment.
GAAP income from operations was $144 million for 12.3% of revenue in the quarter compared to $93 million or 70.
Seven 8% of revenue Q2 of last year non.
<unk> income from operations was $191 million or 63% of revenue in the quarter compared to $177 million or 14.9% of revenue and Q2 of last year.
Our gap effective tax rate for the quarter came in at 20% <unk>.
non-GAAP effective tax rate was 23.3%.
Diluted earnings per share on a gap basis was $2.03.
Or non-GAAP diluted EPS was $2.64.
Reflecting at 26% increase compared to the same quarter of 2022.
And Q2, there were approximately $59 $2 million diluted shares outstanding.
Turning to our cash flow and balance sheet cash flow from operations for Q2 was $89 million compared to $78 million in the same quarter of 2022.
Free cash flow was $82 million compared to free cash flow of $59 million in the same quarter last year.
At the end of the queue to DSL with 71 days and compares to 69 days for Q1, 2023, and 71 days for the same quarter last year.
Looking ahead, we expect DSL will remain steady throughout 2023.
Share repurchases in the second quarter, where approximately 195000 shares for $41 $4 million at an average price of $212 and 77 per share.
We ended the quarter with proximately $1.8 billion in cash and cash equivalents.
Moving on to a few operational metrics. We ended Q2 with more than 49350 consultants designers engineers trainers <unk>.
Production head count declined 10% compared to Q2 2022.
The result of lower levels of hiring combined with voluntary and involuntary attrition as we continue to balance supply and demand.
Total head count for the quarter was more than 55600 employees.
Utilization was 75.1% compared to 78% in Q2 of last year and.
And $74, 9% in Q1 2023.
Now, let's turn to our business outlook.
Eric mentioned, we have seen a higher level of new logo acquisitions and revenue from our focused efforts on demand generation.
While this progress is encouraging the level of revenue generated is not enough to offset further expected reductions inclined budgets ramped downs and delays in new program starts with.
The range of outcomes, we outlined on our June 5th call, we're maintaining our expectations for muted demand environment with sequential decline in Q3, and further sequential our flat revenue growth in Q4.
Are you, creating delivery organization continues to operate efficiently and our teams remain highly focused on maintaining uninterrupted production.
Our guidance assumes that we will continue to be able to deliver from Ukraine and productivity levels at a somewhat lower than those achieved in 2022.
Consistent with previous cycles, we will continue to thoughtfully calibrate our expense levels, while investing in our capabilities and focusing on the preservation of our talent in preparation for a return to higher levels of demand.
We expect head count will continue to decline modestly in Q3 due to limited the hiring more typical attrition and we will continue to limit hiring until we see improving demand.
We expect utilization to climb slightly in the second half of the year, primarily driven by higher level of expecting vacations.
Lastly at the end of July we completed the sale of our Russian business, which will result in a decline in Russian revenues from cue to cue three Oh.
And we will also recognize an estimated loss on sale of $18 $4 million, which will impact our queue three in full year gap results.
Additionally, this will drive a further modest reduction in head count.
Moving onto our full year outlook, we now expect revenue to be in the range of 465 to $4 70 zero billion, reflecting a year over year decline of approximately 3%.
On an organic constant currency basis, excluding the impact of the exit from Russia. We expect revenue declined to also be approximately 3% both at the midpoint of the range.
We expect GAAP income from operations to now be in the range of $10, 5% to 11.5%, which includes the loss associated with the sale of our Russian business.
And non-GAAP income from operations to continue to be in the range of 15% to 16%.
We expect our gap effective tax rate to continue to be approximately 22%.
Or non-GAAP effective tax rate, which excludes access tax benefits related the stock based compensation is expected to continue to be 23%.
For earnings per share, we expect that gap diluted EPS will now be in the range of $7 to $7.20 for the full year.
And non-GAAP diluted EPS will now be in the range of $9.90 to $10.10 for the full year.
We now expect weighted average share count of $59.1 million fully diluted shares outstanding.
Moving to our Q3 2023 outlook, we expect revenues to be in the range of $114 billion to $1.15 billion, producing a year over year decline of 6% to 7%.
On an organic constant currency basis, excluding the impact of the X, Russia, we expect revenue declined by $8, 5% to 9.5%.
For the third quarter, we expect GAAP income from operations to be in the range of 10% to 11%.
And non-GAAP income from operations to be in the range of $15, 5% to 16.5%.
We expect our gap effective tax rates be approximately 24% on our non-GAAP effective tax rate, which excludes access tax benefits related the stock based compensation to be approximately 23%.
For earnings per share, we expect gap diluted EPS to be in the range of one dollar and 62 cents to $1.70 for the quarter.
And non-GAAP diluted EPS to be in the range of $2.52 to $2.60 for the quarter we.
We expect a weighted average share count at $59.1 million diluted shares outstanding.
Finally, a few key assumptions that support our gap to non-GAAP measurements in the third quarter and the remainder of the year stock based compensation expenses are expected to be approximately $39 million for each of the remaining quarters.
<unk> intangibles is expected to be approximately $5.5 million for each of the remaining quarters.
Impact of foreign exchange is expected to be $1.5 million gain for each of the remaining quarters.
Tax effects of non-GAAP adjustments is expected to be around $11.7 million for Q3 and <unk>.
$9.3 million for Q4.
We expect to excess tax benefits to be around $2.7 million for Q3 $218 million for Q4.
In addition to these customers gaps non-GAAP adjustments and consistent with the prior quarter's in 2023, we expect to have ongoing non-GAAP adjustments in 2023, resulting from Russians invasion of Ukraine.
Police here <unk> earnings release for detailed reconciliation of our gap to non-GAAP guidance.
Finally, one more assumption outside of our gap to non-GAAP items.
With our significant cash position, we are now generating healthy level of interest income and are now expecting interest and other income to be $11.7 million for each of the remaining quarters.
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. Please press star one one on your phone and wasting your name to be announced to withdraw. Your question. Please I saw one one again.
N Y S E <unk> roster.
One moment please file first question.
Hi, first question will come from Brian Bergen TD Calvin Your line is open.
Hi, good morning, Thank you.
Just take off with large client visibility.
Listing base stability can you talk about the conversations you're having among your top 10 or top 20 clients are you getting closer to stability in this space and I'm curious just as we look at the implied sequential the client three Q and perhaps <unk> just trying to understand the attribution to the decline among the large clients still on that base.
<unk> is the intake of Newark coming in at lower levels versus like conversion delays and slower ramps of work.
Hello.
I seem to be liability or.
<unk> program.
It was a couple of glucose ago. So.
We can still add.
But there.
There is still slowed down the beach, coupled coupled with are still going to be.
What is the news and there is also some assume cronies boy.
<unk> was it wouldn't wake us up some of the decisions. So as it is adding this off on those skills.
Again.
The field was it is much more stable.
We will also see.
Top 20.
Some clients touch intuitive towards.
Discussion about growth again, it's difficult to equipment when exactly but.
We see is a law.
Right so.
Additionally square and also just slides coming back to US we have discussions so I think in general seemingly evolved Ukraine. Despite.
What.
Scheduling that more.
Still trumps the client perspective.
Expectation those of stability.
What are conditions taken a nichol launched.
Laws.
Practically.
About two days so people believes it.
Clients and two shields as they can't rely on any for.
For those changes.
So I think in jail, unless they will still unknown.
It will slow down.
And it opened so.
And could feel this publicly the next couple of quarters.
Okay.
Follow up just on the workforce diversification can you give us a sense on how the current operating footprint is comprised as of the close of the June quarter, just just roughly a mix between <unk>.
Bailable in Ukraine, Belarus versus central Europe versus like to emanate back. Thanks.
Yes, so wherever Rodney under 30% <unk> region.
So that's primarily indicated Ukraine Belarus.
We're continuing to see maybe a little bit of growth in India.
So that continues to be a significant delivery location for us right now while we're working through demand probably going to see some stabilization in Latin America, but again continues to be a significant part of our expected current and future delivery for this project.
Okay. Thank you.
Next question.
Next question will come from the line of Jason Kupferberg of Bank of America. Your line is open.
Hi, Good morning, Arkan, Jason This is Tyler depart on Jason and thanks for taking the question I just wanted to start by asking about.
Operating margins during the quarter they seem pretty strong you know 130 greater than the top end up the guidance range can you just spend a minute or two parsing out sort of what led to that outperformance and it's sort of how're you thinking about mortgage honestly the back half of the year or if there's any sort of incremental investment opportunities available or any color.
There.
Yeah, So clearly with the demand environment that we're seeing we're trying to make certain that were cautious about spending.
While still making certain that we're making investments in sales channels and partner programs.
And clearly our AI capabilities that would allow us to return to growth in the in the future.
Focus clearly on SG&A and you're seeing efficiency there and then you also.
Some caution around longer doing but head count in general what you are seeing is always a little bit of tuning in different delivery locations and later.
Hiring very modest hiring which has been offset by attrition and it has resulted in these net reductions in head count.
Peace and we did.
Talk about it I think in the script.
Inside is.
There is a variable compensation element.
It is funded by performance versus our expectations for the full year with the change in expectations for the full year.
We did.
Just the expected.
Expense related terrible compensation that shows have been some benefit in the queue too and we will have lesser but some benefit and the remainder of the year.
And then again, we were just sort of top edge for our revenue standpoint.
11, 70 and Q2.
The ability standpoint, generally Q3 is that is a good quarter for us <unk>.
I don't know I think you're still going to see somewhat lower.
Utilization in Q3, and so probably not expecting.
Much improvement are probably maybe even a little bit of decline. If you went to the midpoint of the range of 15 to 16 and a half.
Guidance you from Q3, I think gross margins could end up in a 32% to 33%.
Range in Q3 with lower build dates in queue for may be somewhat lower than I would definitely expect to see a decline in profitability between Q3 and Q4 due to the lower number of buildings vacations and all of that which generally impacts props building in the last quarter of the year.
Okay, Great I appreciate that takes me. Thanks, and then for my follow up I just wanted to double click on the demand story here as we look towards the back half of the year, specifically your expectations on the evolution of the Panama and demand environment across your total client base.
The balance between if you're assuming macro stability or any sort of additional softness in any of the vertical or geography, you're operating in I know, Brian sort of alluded to the sequential declines and the last question. According to three Q and potentially for queue. So just sort of any clarity there, helping us frame the the demand environment would be appreciated.
Okay. So just I mean, it's going to be the numbers. While we're currently seeing from a forecast standpoint for Q3 and they'll let our comment on maybe to provide more color.
From a sequential standpoint, I think with some with the budget reductions that you've seen a major customers who are likely to continue to see sequential decline.
Cross a fairly large number of our protocol I think you could see sequential growth in.
And the emerging which has got a significant energy manufacturing footprint I think you could continue to see are likely to see.
Sequential growth and the health care life Sciences, where we're making good traction here in fiscal year 2023.
So that's kind of what I'm seeing from from that you still have a little bit of impact from customer decisions to reduce spending Q too.
And I think <unk> has indicated.
More helpful.
Clients are beginning to sort of stabilized or spend and could even see some increase later in the year.
Thank goodness.
It is what they showed at the beginning of those.
Discretions.
It's still soft distillers predictable, it's still slightly good though at the same time, you see is different because negotiations Scott to accept both.
There are more two inches you logos, that's what we should do deserve.
Although it is.
He began but also.
Clients different Joseph conversations it to be so.
Couple.
Coupled last couple of quarters ago.
Still difficult to breathe.
We react in the new year, So we've got the worst of the world.
Considered iPhone.
Great. Thank you both.
Thank you. Thank you.
Okay.
One moment please for our next question.
The next question will come from David Crossman Stifel. Your line is open.
Thank you good morning, I'm wondering if I could just a couple of quick follow up questions. They asked me the first two.
Yeah, just getting back to the customer dynamics.
Desire to connect your personal fire risk geographically.
Things stabilized from here when.
Work with the sequential retinue headwind.
10 minute shifts things too.
Stabilized from here forward.
Yeah. So clearly we would expect sequential decline Q2 Q3, so when would the sequential stabilized and then David I think you're aware of that particularly in the queue for is just you've gotta build a impact.
And so you would have to have an improvement in demand to stake flat Q3, Q for and so we think that that's that's possible as we talked about it in the guidance or maybe you could see a little bit of growth kitwe to queue for it but you do have.
You're you're walking uphill kitwe to keep more with the lower build it.
Right, Okay, David anesthesia.
Yeah go ahead.
No I just wanted to clarify toasted, so excluding seasonality.
Right, you know things stabilized from here.
So it'd be flattish quite choice alright, excluding the seasonal dynamic.
Ah I see.
<unk> equipment.
In June when we took last time and.
In Lake.
Yeah.
Clearly felt.
Situation.
Was it good.
Before we.
<unk>, a nice thing, that's Lucy and increase risk of today okay.
Because it's very difficult to predict like you're asking web so I.
I do believe that.
Businesses.
Perhaps we'll probably we'll get to the situations when sequential literally sequential but almost you'll start to the caller, but clearly we update into this though.
Look out to court.
So we definitely feed and slow dogs, we definitely.
See different signs from the clients, but they get some clients wenzhou made some decisions.
Le which is himself and some type of inertia, which would take.
South time, or White kids will be very clearly changed.
Or less of dysfunction is some other <unk>.
Well at this time.
Okay. Some of this has started to feel this was giving us some level of activities.
I don't I don't think we can say innocent more than.
And those are two sweet voice.
It was thrown up maybe four.
Got it alright, thanks I appreciate that.
And then just back to your own internal.
Hurts to geographically diversify you know without getting too far into the details are there some high level of dashboard items that you can share that would provide some insight into recruiting kind of yields utilization attrition, yeah anything that would give us a sense of.
Kind of how these new geographies a rabbit.
Okay, you're asking about.
What do you feel about our.
<unk>.
To find like a local delivery.
Correct.
Correct.
So.
I assume.
I simply actually.
So just wanted to be the progress I think.
Oh efforts in India and look in America difference.
To.
To pay out.
Right now as a second legislative issue discussed.
It was spot.
<unk> said.
In May 2022.
As well.
All of us.
Kind of like.
Try to do so, though Ukraine and villages production.
<unk> it's.
<unk> 25, 26%.
Oh does it to adult cut prices, but in Latin America.
Providence, <unk>, you'll be closer to 20%.
The quality and effort to each group within the.
Definitely.
Improve it.
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People, whose ted visit possible full of assignment car too.
There is a bug is exclusive locations.
I think.
We're still I mean, it's.
<unk> believes that it will get <unk>.
Yeah, but you don't know where.
But maybe it will be very much alive as a sequential groceries.
To sleep with.
With us but.
So.
Besides in the Latin America reaches a more traditional glucose.
<unk> central West.
Asia beaches interest too because it's a cool way to signal.
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Started to experience this.
<unk> confidence of wealth and again or is it the land permits, but I assume because it would be a good opportunity for us.
And finally.
What's the additional thoughts location central.
Eastern Europe , mostly inside of the use sometimes outside the field what.
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<unk> surface, so I think we actually.
Religion.
12 million in laws.
Global diluting platform.
As soon as it well <unk>.
Comfortable to grow.
Six and we mentioned this we.
Carefully.
Mhm.
Well as soon as a construction because all of the sectors feature outlined.
Cause.
Perhaps just as we go ahead and click to improve our gross margins by the allocation focuses.
The closest locations.
So if any short question, if it'll be able to provide liquidity, which appliance expenses from us very soon to be kind of instant clients, but it's actually really didn't want to do it at home.
Got it. Thank you very much I really appreciate that color.
Thank you.
Thank you.
And one moment please for our next question.
[noise]. The next question will come from Maggie Nolin of William Blair. Your line is open.
Hi, Thank you just to follow up on that last question and your last comment there arc around the margins can.
Can you give us a little bit of that preliminary thought on what all of this might mean for gross margins Ente 2024, when we might see things kind of started to pick up into what magnetic.
Yeah, I think I'll step in that we're probably not quite ready to talk about 2024 in terms of let's say specifics or even ranges, but <unk> point as we moved into the different delivery locations. Obviously did so quickly.
Some cases, we'd probably have a little bit more balancing the higher cost geographies, including.
Traditional kind of on site markets. When we will look to kind of rebalanced that somewhat.
And then the other thing is we've talked about over the last couple of quarters is that as we move to the new geographies and particularly as we sort of either relocated or stood up new geographies quickly we ended up with it somewhat more.
Sort of senior.
Delivery organization and delivery pyramid, and we're working to begin to introduce more juniors.
Later in the year that but then give us a more balanced pyramid and therefore also improved margins and so that obviously combined with utilization improvement.
Would be the things that we're looking to do to sort of stabilized and improved gross margins over time.
Okay. Thank you and then the new logo addition to this.
Good to hear and progress on that corner.
Can you talk a little bit about the ability to keep the salesforce intact carrying all this transformation.
And then any kind of patterns that you're seen on <unk> in terms of the time, it's taking <unk> Avenue.
Oh I should go equivalent of a.
New business.
It is true that the.
Oil sales forces.
<unk> so you.
So I sued due to excellent related.
When can work his throat positively right now I think up to.
Oh equipments like several quarters ago, when we were in the pool.
<unk> locations fluids.
To deal with thousands of people start.
With some slowdowns right now so.
So very much actively focused on external opportunities and much of the internal things that we have the manager of the last.
That's a four quarters are substantially behind us and said.
Focus but.
The account teams salesforce and the executives on driving.
Right.
Thank you.
Thank you.
And one moment for our next question.
Next question will come from the line of <unk> of Barclays'. Your line is open.
Hi, good morning, Thanks for taking my question.
I wanted to follow up with your mentioning tighter integrations and partnerships with the Hyperscalers can you talk about the strategy, how these relationships might impact or expand your capabilities or your addressable market and then also just comment on whether this is part of positioning eat Pam for growth once the demand environment picks up again.
Yeah, I think it said January vehicles for any general because of the.
Market.
Change in couple of it or like it was a year ago.
No we're talking about watch Blue's relationship was fluid so you'll because we definitely like coveted materials.
Lives.
The Lions perspective.
That's good that's good.
Dawson.
Competitors do as as soon as this is kind of nice with you on another side.
The partnership become stronger.
Because just.
B creation to the cloud is.
As his business become in those so easiest and usually it's Ms Woodley globally, the easiest gonna efforts.
This with Rex you.
What's.
This is why is the black issue.
<unk> <unk> <unk>.
More important.
Not only for us but.
Well, we're supposed to bulk.
Can you actually can do conflicts with the music.
Okay.
Cause that's what the land.
So for the nation.
Got to believe his leg vessels.
And so as we <unk>, we will get forwarded this announcement students in the next couple of weeks.
Which would make up for it.
Employers.
Five <unk>, specifically because of our ability to deliver conflicting events.
And it's definitely very good.
Issue from our point of view.
Four.
The bomb because when do we have to Google.
Evidence and reach wasn't he.
Finished and is still alive.
In all got your glucose and clothes is doing the mutilation.
Projects.
Huge for that show.
For things.
Because of the diet coke products so.
Scully relationship it will be like.
Yeah.
Alright, thank you.
And a follow up from me can you contrast to the.
Demand environment and in Europe versus North America.
It looks like the growth rates are different in this geography solve a minute they don't necessarily have not tabulated the constant currency number but.
Is it a different environment you're seeing.
And different geographies or is it very similar trends across the business regardless of geography.
Yeah. So certainly some of what happened in Europe is due to foreign exchange.
But what we are seeing is that some of the larger kind of budget reductions in conservatism actually showing up more in north American clients thinking about a couple of clients, we talked about and health care and.
Tech It was from Bolton North American clients, we've seen less of these types of.
Production and spend it in Europe at the same time, we've got some pretty good tracks and also in even in the consumer and retail side.
And in Europe , and so yes, there does seem to be a bit of a divergence, but we'll see what happens as we work through the remainder of the year.
Fantastic Thanks, a lot.
And you said there was still the previous similar I assume you're talking about several speeches your clients situations, mostly just go for it.
In North America.
Those situations.
Yeah that'd be cool.
Thank you one moment the next question.
Next question will come from <unk> Wedbush Securities. Your line is open.
Hey, Thanks, good morning, and a couple of follow ups here.
You said, you're looking at the new logos can you confirm that you're actually getting the same bill rates.
As you're selling via some of the other delivery centres, including India. As you have been getting in eastern Europe . So are we talking about comparable bill ability.
So.
Usually talk about is an environment, where potentially you could get higher bell rates, but new engagement, that's probably less likely to occur in today's demand environment.
Generally folks you out if you are trying to get it just kind of what happens is you deliver more out of India, India does have somewhat lower price points and some of the geographies in eastern Europe .
Maybe not significantly different than.
What appeared add geographies in southwest.
In Western Asia or just.
Soviet Central Asia, but.
Lower price points, and certainly sort of central Europe .
Okay. So would you say that the new low visit are coming on board are more dilutive to margins versus what you were accustomed to or is there any way to mitigate that.
Yeah. So you know.
If you could just have different bill rates and different geographies and still have the same margin percent.
Yeah, you've got different cost structures, you've got different costs and benefits and that type of thing and so lower.
Price or higher price, even doesn't necessarily mean lower or higher margin.
Again, it so I would say, yes, we can mitigate.
And no I don't expect that new business is being attacked Super impressive.
March and it's working at that kind of.
Sharpen, our pencils, but that would be appropriate in our pricing.
Alright that makes sense in Las Vegas.
Sorry last one here. So we visited your center in Hyderabad, and I Remember you you have a significant capacity to kind of expand there can you talk a bit about your future plans in terms of how important in India are critical India is going to be to be able to continue to get those new law goes.
On board and actually to be able to accelerate growth down the road.
Yeah, I still I know liquid.
Obviously, there's a little bit.
And it's been great but in general.
Need to understand the current market environment, because northwest was evident within those with like ancient months ago. Two years two years ago. The call the rate structure for everyone. That's going through for us is different so.
[noise] deals as well so those are the same speech could change if it's actually.
Deep red carpet towards normal scale and demand for a couple of extra two four build stuff you'll go out the <unk> site. So there is a lesson where'd you go to yourself and your and bagels coming today is very different to the vitamins. If it was a good agent 24 months ago.
Snuggled number to me about pizza.
No I don't know whether you visited I don't remember what you just described the robot, but right now he's got five development centers.
Is there a lot is still.
Israel.
<unk> two other speech, where it is.
<unk> <unk> started recently influenced.
So that's definitely an important part of.
The future of lives in <unk>, it's not like we have good to switch a pleasing that's what I mentioned before we really.
Looking forward to view balanced global.
Ah that's looking for football.
Thanks.
Thank you.
And one moment for our next question.
Our next question will come from Jane.
Jane of J P. Morgan your line is open.
Hey, Thanks for taking my question I also wanted to ask about <unk> do you expect like clients to spend on Capex investments to Modernise black from their core systems sometime this year maybe in 40.
What is that type of work.
<unk> could come through.
Ooh.
Next thing I'll spell check, meaning that it might not come in anytime this year.
Yeah see modernization then.
Spend occurring Q for.
More likely to see a return to budget.
Growth in the first half of 2024.
It's difficult to to us.
I think the answer to this question whether it is another way.
Types.
Laurie.
Those so widespread like beauty too that's a difficult so who.
Who knows it sometimes.
<unk> Q for <unk>.
Really.
Splendid.
Let's see so.
Got it and are you seeing any pricing pressure on and on like like this S.
The pricing pressure on like like basis, So I think art, obviously picked it up in a more pronounced way that I did earlier. So this is definitely an environment, where you need to sharpen your pencil and so clearly we're being thoughtful but you know it is in an environment, where clients are particularly cost sensitive.
And that is showing up in the pricing and.
Most of this question earlier, and traditionally and certainly newer engagements that as an opportunity to sort of improve price and that's less the case in this fiscal year.
Gotcha. Thank you.
Thank you and one moment please for our next question.
The next.
Next question will come from Arvind Ramani Piper Sandler Your line is open.
Hi, Thanks for taking my question.
I wanted to ask you about your.
New clients.
Yeah, I I think coming from <unk> and.
And that is J as in jail is maybe.
Maybe a you're going to provide some color on the nature of work.
On your on your new clients.
I think.
Again, the rest of it just feels like.
Let's say oil and gas speeches.
Okay.
But this is more an exception today.
That's totally new clients.
Hello, you've <unk> to kind of categories some clients whose.
Actually trying to of July so this.
As an opportunity and decided to go into the west instead of like.
Get some competitive advantage and that's exactly what vehicle you force as soon as it does this type of clients feel.
Today's somebody's else it will to Ya.
Governor of July .
For bills.
Kind of stressful a bunch of programs.
Okay and the second is good too good.
I think it's impolite speeches and at this point.
Just to do dress, Florida, two programmers, but.
To utilize this time tubules illusions throne.
Suppose it's usually too.
Prepaid is because.
You know you do web for.
Silence.
With my Kids.
You'll be ready when he just drove resumed issues, what's the company itself Egypt.
Injecting called death.
<unk>.
Oh, let's see news.
But he said it was too good bye.
It seems like it would it would decide to talk about.
Before I, so loquacious, but it's still there and it's real change accumulated scared so.
Perhaps we'll put put echelons with that went through as well well.
People stipulations with it would be.
And placed companies like you've always.
Okay.
Yeah, that's that's.
You know what I mean, I know typically when you start your client relationships. They start small and then they can have ample what time is it is kind of a similar dynamic.
That you'll have that with this new clients.
So is it out to you for example.
We kind of give.
I think five six examples across different interesting cause they're not fuel soon he was three two large.
And that's why we mansions.
It might visits if you'll be driving a gross so the next to us. So that's the top of the beaches more favorable contracts to each one and just started.
Specific place college camping in so it might start to believe results like <unk>.
Closer to the end of the year, maybe the beginning of next year visa bullet yourselves.
And there are some issues are very very specific programs, but it was very interesting.
<unk> could only just unplugged.
So.
It's kind of variety Joseph if we will see.
That would be lifted structuralism working church.
Perfect and last question for me you know I just didn't want to ask about <unk> can you share some sort of headcount fence and utilize them and they <unk> and.
Hey, what's the thing in a pushback with with with set up the exposure to Belarus.
Alright, thank goodness grandson.
Fragrance.
Mmk, Michigan, I assume cause Ukraine, glides, who stays visit Ukraine is much more comfortable right now.
See some clients coming back.
Cause it proves it lasted Lewis pfeffernuss according to his delivery.
Or.
Kind of impact on any redaction activities as students lost ancient months way compliance woke up from the bowl.
Yes, it's a new <unk>.
Nor will lose a key plot doses.
There's been a lot of us.
Ah.
It's a slow though.
We still have clients.
Clients speech, if it is that.
Yeah, it's good to have some classical exit because they're so ability which is.
Oh boy.
You.
Kind of.
[noise] slight is fast to them.
Uh-huh.
Announce.
Perfect. Thank you very much.
Thank you.
Hi, I'm seeing no further questions in the queue I would now like to turn the confidence back to <unk> for closing remarks.
<unk> <unk> everybody alright.
We will update three months, but in general she doesn't have to be Gibson.
Willow predictability, we feel is a little bit more.
Stable and predictable.
The political.
So thank you very much and took two instruments.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
Alright.
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