Q4 2024 Endava PLC Earnings Call
Good day, and welcome to the Endeavour fourth quarter and full year 2024 results conference call.
All participants will be in a listen only mode.
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Speaker Change: After todays presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question you May Press Star then one other question Tom.
Speaker Change: Withdraw your question. Please press Star then two.
Speaker Change: Please note this event is being recorded.
Speaker Change: I would now like to turn the conference over to Laurence Madsen head of Investor Relations and ESG. Please.
Laurence Madsen: Please go ahead.
Laurence Madsen: Thank you good afternoon, everyone and welcome to end of Us fourth quarter and fiscal year 'twenty 'twenty Four conference call. As a reminder, this conference call is being recorded joining me today are John <unk>, Chief Executive Officer, and Mark Thornton Chief financial.
Speaker Change: Before we begin a quick reminder, to our listeners our presentation and our companion remarks. Today include forward looking statements included including but not limited to statements regarding our guidance for Q1 fiscal year 2025 and for the full fiscal year.
2025, the amdocs up headwinds facing our industry and business, our ability to capitalize on market opportunities and trends in our industry, including with respect to development of artificial intelligence and expectations regarding the impact of our recent acquisition of Galaxy on our business.
Speaker Change: And then spends Georgia allergen offerings demand from clients to art for a technology services, our ability to create long term value for our clients, our people and our shareholders and our business strategies plans and operation.
Speaker Change: 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.
Speaker Change: These statements and reported results should not be considered as an education of future performance.
Speaker Change: Please note that these forward looking statements made during this 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.
Speaker Change: Information please refer to the risk factors section.
Speaker Change: Reports filed with the Securities and Exchange Commission on September nine in 2024.
Speaker Change: Also during the call well present, both ferrous and non <unk> financial measures, while we believe the non <unk> financial measures provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a.
Speaker Change: Substitute for the financial information presented in accordance with IRS reconciliations of such non I as far as measures to the most directly comparable <unk> measures are included in today's earnings press release.
Speaker Change: As well as your Investor presentation, both of which you can find our investor relation site O N E. S. E. T 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.
Speaker Change: Thanks Laurence.
Speaker Change: And I'd like to thank you all for joining us today and hope you're all doing well.
John: Now for over two decades, and dollar has been successfully partnering with our clients to guide a digital transformation journey.
John: By combining our deep industry expertise with outstanding ideation to production capabilities.
John: This experience allows us to recognize the disruptive impact it's having on businesses.
John: The technology landscape.
John: Sorry about the opportunities it presents.
John: Enabling us to help our clients evolve and thrive in this digital first shift.
John: But this shift presents some real challenges.
Challenges with our clients understanding the technology.
John: <unk> in market dynamics.
Speaker Change: And in some cases businesses reticence to spend until the path forward it becomes clearer.
Speaker Change: Let's look back and reflect on the past 12 months, it's been a challenging year for endeavour and it's been a period of substantial repositioning for our business.
Speaker Change: Our revenue has experienced headwinds due to the challenging macroeconomic backdrop slower spend for I T from some of our larger clients and more recently the impact of AI, which is elongated clients planning work and caused delays before scaled production ready projects can be commenced.
Speaker Change: Our concentration of payments as a vertical.
Speaker Change: And although our U K client base has for many years driven significant growth for our business.
Speaker Change: And of course, this is where the business started so perhaps that has not been surprising.
Speaker Change: However over the past 12 months. These two areas have experienced significant headwinds.
Speaker Change: Looking forward, we plan to continue to diversify our industry verticals and client geographies.
Speaker Change: Moving towards a more balanced and less cyclical business model.
Speaker Change: Finally during the last 12 months, we have broadened our delivery presence evolving into a truly global delivery organization with significant capabilities across all time zones.
Speaker Change: As of Q4, FY 'twenty for 17% of the Dolphins were based in APAC.
Speaker Change: Compared to 9% Q4, FY 'twenty two 'twenty three.
Speaker Change: Yeah.
Speaker Change: As we have entered a new financial yeah, we continue to invest in the people and skills required to support this next wave of digital transformation.
Speaker Change: We have launched Dove axe, where we provide tailored expertise to help clients embrace and implement technologies rapidly and at scale. These.
Speaker Change: These hyper focused specialist areas represent emerging and established technologies and the strong capabilities clients have access to when working with indaba.
The areas of specialism covered five dahlberg saw a O N data core modernization cloud cyber security embedded software sustainability physical computing.
Speaker Change: And quantum.
Speaker Change: We strengthened our team through key hires and an internal reorganization to ensure we are fully focused on delivering the best outcomes for our clients.
Speaker Change: We also invested in tools and technology for enhanced efficiency.
Speaker Change: Over time this investment is expected to shift towards revenue generating efforts paving the way for improved margins in the future.
Speaker Change: I'm very excited about our acquisition of Galaxy and the integration is going according to plan. We are seeing a significant number of cross sell projects and I'll give you. Some example, shortly.
Speaker Change: Yeah.
And now let me share a few thoughts about some of the most exciting achievements and advances from indaba as recent months.
Speaker Change: Well the AI driven digital shift offers exciting opportunities, we are honest and I'll emphasis of upskilling people and businesses to leverage technological advancements to drive meaningful and impactful outcomes.
Speaker Change: Maximize the potential of our organization should move away from seeing Oh immediately as an add on to existing systems installed.
Speaker Change: Install considering edges of this tall tool capable of driving holistic transformation across the enterprise.
Speaker Change: It presents an example, with deeply engaged with a leading insurance company on the Sperry journey.
Speaker Change: We carried out an in depth analysis of the organization technology landscape to identify the use cases that could be transformed by a O.
Speaker Change: This resulted in a roadmap that we believe provides the guide for years worth of technology transformation opportunity and sets the foundation for the path forward.
Speaker Change: This is an approach we have honed over decades.
Speaker Change: He presented to our clients as a way of transforming their businesses.
Speaker Change: Whilst minimizing risk.
Speaker Change: Yeah.
Speaker Change: Another area, where we see continued opportunity is in helping our clients move beyond proof of concepts and towards more scaled production systems. This is particularly relevant to the work we're doing with AI.
Speaker Change: <unk> technology presents significant engineering challenges building production scale systems.
Speaker Change: To address this we are working closely with our clients on the Ideating through use cases focused on the business problems. They have as opposed to simply prove they can use the technology.
Speaker Change: A few examples from across the various industries. We work in include.
Speaker Change: Helping an airline client leverage AI to better service clients, helping an insurance client optimize the claims processed by embedding alloy.
Speaker Change: And using automation to enhance document validation for our clients in the health care space.
Speaker Change: I would also like to share some progress on some of the exciting in house solutions, we have developed to help our clients through this digital shift.
Speaker Change: You may remember our previous announcements about our proprietary adjourn teekay isolation called Morpheus.
Speaker Change: We continue to advance this solution and our clients are showing interest in leveraging it to enhance their business.
Speaker Change: As an example, we are currently using it to help deliver the creation of code for clients in a highly regulated health care industry.
Speaker Change: Working with the client we use morpheus to create a O agents focused on assisting their teams with delivery of complex workflows.
Speaker Change: These agents can play specific roles.
Speaker Change: This tools and collaborate to re imagine complex business processes.
Speaker Change: In a recent project for a global Pharmaceuticals company Morpheus helped reduce our business process from five days to less than 10 minutes and is expected to deliver annualized savings of more than $10 million.
Speaker Change: We believe this particular used case is applicable to over 50 similar organizations.
Speaker Change: We've received incredible feedback from leaders in the AI ecosystem that Morpheus is potential is truly transformational.
Speaker Change: It's great to see how it is helping our clients achieve their objectives and embracing AI and we will continue to develop the capabilities of Morpheus in line with our client needs.
Speaker Change: In addition to the example, Doug already mentioned, we continue to see demand from our clients to leverage AI across many other use cases as well for example, we are currently working with the medical examination provider to optimize the processing workflow and reduce the cost by enhancing the adult human validation and koala.
Speaker Change: T assurance with AI capabilities.
Speaker Change: To help them achieve this we developed an AI driven solution using G. P. T four and cloud based cognitive services to verify fields check grammar and assess responses by our user friendly web app, improving the accuracy and efficiency for medical professionals, well performing their daily tasks.
Speaker Change: As a final example of just how broad the opportunity for AI is we also recently worked with a large furniture supplier in Europe to create an AI powered solution to assist decline in building furniture catalogs by forecasting item introduce performing domain specific translations between multiple language.
Speaker Change: And analyzing material images for accurate lately.
Speaker Change: So this particular project we used a slightly different technology in this case open AI and Microsoft Azure cognitive services, which demonstrates how we can adapt to the client's technology needs.
Speaker Change: As we noted the industry's fast changing landscape, it's being fueled by this disruptive tech way driven by all.
Speaker Change: This requires businesses to not only embrace innovative technologies, but also look into their core systems and a shift towards a truly digital cool that enables that rapid and efficient delivery of new initiatives.
Speaker Change: That is one of the reasons, we are integration the galaxy core modernization approach with our existing capabilities.
Speaker Change: And with positive feedback from clients so far.
Speaker Change: Many of our existing clients have expressed significant interest due to their need to transfer all that call legacy applications to enable the next wave of digital transformation and integrate with Hale I capabilities. We're seeing this trend across many of our clients, but most significantly in financing.
Speaker Change: Health care.
Speaker Change: I'm proud to share a few examples of early success stories from our cross selling efforts.
Speaker Change: The first example of our work is for a leading financial services company, where we embarked on a project to analyze their existing technology platforms and rationalize them down to an optimal future state design that was much more efficient to run.
Speaker Change: We used our automation tools to help perform the analysis and identify the impact of specific business requirements on the target state designs.
Speaker Change: Payments that would need to be changed.
And the impact to the regression test scope and specific use cases, all of which helps to create transparency and builds confidence in the likelihood of success for the transformation.
Speaker Change: Next we worked with an energy supply and logistics company.
Speaker Change: To complete our post acquisition integration projects in which we don't commence their internal tech and disaster recovery process using our automation capabilities.
Speaker Change: Additionally, we are working with a bio pharmaceuticals services company to help them on a critical project to redesign how they store and access data.
Speaker Change: To achieve the desired results, we're helping them manage data across different teams and business areas to form a more cohesive view of key business and operational data.
Speaker Change: Another Great example of our foreign National Drugstore chain in the U S where our latest projects involve discovery work on how to modernize a two decade old application.
Speaker Change: Our system was built to handle the filling of prescriptions across their retail locations and is a major part of the business that needs updating.
Speaker Change: Lastly for one of our large payment clients, we are working to update a number of the existing platforms using our core modernization capabilities in.
Speaker Change: In parallel we are beginning to incorporate all the AI tools like get pub co pilot to help enhance and Derisk. The changes are being made.
Speaker Change: All of these examples leverage a combination of the traditional digital transformation capabilities, we are known for as well as the core modernization capabilities. We've gained through the incorporation of galaxy.
Speaker Change: Yeah.
Speaker Change: Moving on I'm pleased to share that this July we announced a strategic deal with open AI to deploy chat G. P. T enterprise licenses to all of our employees globally.
Speaker Change: <unk> of chat J P T champions from across the business, so already developing G T J P Ts.
Speaker Change: And passing on best practice to deeply embed AI within all areas of our business.
Speaker Change: We're integrating the technology with internal systems to establish best practice and pave the way for seamless companywide integration.
Speaker Change: We are already seeing the power of this technology with a number of specialized G. P. T has been created and deployed to enable our teams to be more productive.
Speaker Change: To ensure employees maximize the benefits of this powerful tool whilst using it responsibly. We have established an AOE committee to define and refine all I use policy and we have implemented a mandatory training module on the use of AI for old stuff.
Now an exciting piece of news today, we announced a partnership with the Phoenix SUNS in Phoenix Mercury to elevate that fan engagement through personalized digital experiences the collaboration and the latest in the global professional sports market will bring our technology to the sums and the curious marketing effort.
Speaker Change: To provide increased data insights, it's a really exciting project and we're looking forward to tip off our partnership with the sons and Mercury.
Speaker Change: I'm pleased to share that today, we published our 'twenty 'twenty four sustainability report, which is now available on our website. We've made significant progress with our environmental agenda and our S. P. T O I targets were officially approved in July.
Speaker Change: Daughter has approved near and long term science based emissions reduction targets and an overall science based net zero targets. Additionally, I'll report also focuses on how we support our clients in our sustainability journey.
Speaker Change: Fueled by our industry expertise ESG partnerships and green software capabilities.
Speaker Change: In the same breath I'd like to touch on our commitment to continuing to invest in meaningful partnerships that bolster our existing ecosystem and ultimately better support our clients. An example of this was the recent panel discussion with Indaba partners from Snowflake guide wire and stripe diving into how strategic partnerships can draw.
Speaker Change: Ive client Centricity and creativity.
Speaker Change: Wrapping up we ended the quarter with 12085 and Dolphins on board, which represents a 0.2% increase from the same period last year.
Speaker Change: Looking forward in the current environment, we're prioritizing recruitment in high demand areas.
Speaker Change: I'd like to take this opportunity to thank all indulgence for that commitment and determination as we're navigating the challenges and moving towards new opportunities together.
Speaker Change: We will continue to manage the business for the long term, maintaining our culture and organizational health.
Speaker Change: And creating exciting technological solutions that empower our clients and their clients to thrive in this next wave of AI driven digital transformation.
Mark: Now I'll hand over to Mark who will walk you through our quarterly financial results out of our guidance for the upcoming quarter and new financial year.
Mark: Thanks, Joe.
Mark: And Tom as revenue totaled $194 4 million pounds kind of three months ended June 30th.
Mark: Cool compared to $189 8 million pounds in the same period in the prior year and two 4% increase over the same period probably yeah.
Speaker Change: In constant currency, our revenues increased three 5% from the same parent in the prior year and reflected a 15, 6% positive inorganic contribution during the quarter.
Speaker Change: Sequentially revenue was up by 11, 4% in constant currency on the previous quarter.
Speaker Change: <unk>, a 13, 5% inorganic contribution primarily related to the impacts of the county acquisition.
Speaker Change: The contribution of Galaxy drove increases to revenue in North America, and primary health cabinets Kohl's and then.
Speaker Change: Uh huh.
Speaker Change: You were partially offset by decreases in our UK geography.
Speaker Change: That's cool respectively.
Speaker Change: Before tax for the three months ended June.
Speaker Change: 24 was 0.4 million pounds compared to a profit before tax of $24 9 million pounds.
Speaker Change: <unk> parent in the prior year.
Our adjusted PBT for the three months ended June 2024 months.
Speaker Change: $14 9 million pounds compared to one three.
Speaker Change: 3 million pounds for the same period in the prior year.
Speaker Change: Our adjusted PBT margin of seven 7% in the three months ended June 2024 compared to 22%.
Same period in the prior year.
Speaker Change: Okay before tax and adjusted PBT were impacted by a decline in operating margins.
Speaker Change: As mentioned previously we expect these margins to normalize in future periods financial equation of Galaxy and the business optimization that says we undertook during the fiscal 'twenty 'twenty four.
Speaker Change: Our adjusted diluted earnings per share was 22 pence for three months ended June that chip. Thanks, any cool calculated on 58 8 million diluted shares as compared to 57 patents in the same period in the prior year calculated on $58 1 million College a chance.
Speaker Change: Revenue from our 10 largest clients accounted for 34% of revenue for three months ended June 32024, compared to 35%. The same period last fiscal year. The average spend per client from our 10 largest clients increased from $6 6 million pounds to $6 7 million pounds.
Speaker Change: For the three months ended June <unk> 2020 for us.
Speaker Change: As compared to the three months ended June 32023, representing a 2% year over year.
Speaker Change: Chris.
Speaker Change: And the same on Saturday June 'twenty to 'twenty, four North America accounted for 38% of revenue for 25% of U K for 30%, while the rest of world accounted for 7%.
Speaker Change: Revenues from North America grew 28, 9% for three months ended June 30th change too much for the same period last fiscal year.
Alright, and the same parents revenue from Europe grew eight 5% UK declined 19, 2% and the rest of the World declined 13 point Sheila.
Speaker Change: As mentioned North America was boosted by the contribution of the Galaxy business.
Speaker Change: Okay was partially impacted by the decline in the payments that's cool Michelle will discuss shortly.
Michelle: Revenue from payments declined 35% and three months ended June 2000.
Speaker Change: For the same period last fiscal year and accounted for 19% of total revenue.
Speaker Change: Revenue from banking and capital markets grew 10, 7%. The three months ended June 32024 over the same period last fiscal year and accounted for 17% of total revenue.
Speaker Change: Revenue from insurance grew 13, 9% and three months ended June 2000.
Speaker Change: 24 over the same period last fiscal year and accounted for 9% of total revenue.
Speaker Change: Revenue from TMT.
Speaker Change: Is there a 0.4% for three months ended June 2024.
Speaker Change: St parent last fiscal year.
Speaker Change: Thats it for 21% of total revenue.
Speaker Change: Revenue from mobility declined 11, 7%.
Speaker Change: As of June 32024 over the same period last fiscal year and accounted for 9% of total revenue.
Revenue from other grew 58, 8% for three months ended June 30 of 2024 over the same period last fiscal year and accounted for 25% of total revenue.
Speaker Change: Regarding payments decrease has been driven by slowing activity in a few of our larger clients compared to the prior year.
Speaker Change: Meanwhile, the increase in revenue was driven by increased revenue in the house counterparts cool finding galaxy acquisition.
Speaker Change: Our adjusted free cash flow was $6 6 million pounds three months ending June 30 of 2024 compared to $31 5 billion pounds Jonassaint parent last fiscal year, which included $6 3 million pounds by exceptional restructuring costs in the period.
Speaker Change: Our cash and cash equivalents at the end of the period totaled $62 4 million pounds of change that you had 2024 compared to $164 7 million pounds of genes that your 2023.
Speaker Change: That change in our cash equivalents was primarily impacted by payments for acquisitions, including the Galaxy business in Q4 offsetting part by the proceeds from a drilling down of our revolving credit facility in Q4.
Speaker Change: Our borrowings $144 8 million pounds at June 32024.
Speaker Change: Capital expenditure for the three months ended June 32020 pool, essentially revenue, 0.8% compared to 1.0% in the same period last fiscal year.
Speaker Change: Yeah.
Speaker Change: I'd now like to move on to some highlights for our fiscal year 'twenty to 'twenty four.
Speaker Change: And then Tavis revenue totaled 748 million pounds for the fiscal year at June 32024, compared to $794 7 million pounds in the previous fiscal year, a six 8% decrease over the prior year.
Speaker Change: In constant currency, our revenues declined four 5% from the same period in the prior year.
Speaker Change: That's at an eight 2% positive inorganic contribution during the fiscal year primary related to the impacts of the Galaxy acquisition.
As we've noted before we still facing challenging macro economic headwinds.
Speaker Change: Our backlog of work as clients continue to lie spending decisions.
Speaker Change: Continue to impact our revenue performance.
Speaker Change: Profit before tax for the fiscal year ended June 30 of 2024 was 27.0 billion.
Speaker Change: Pounds compared to a profit before tax of $114 2 million pounds.
Speaker Change: Crying, yeah, largely as a result of a decline in the adjusted PBT margin.
Speaker Change: As mentioned earlier, we expect these margins to normalize in upcoming periods.
Speaker Change: Our adjusted PBT for fiscal year, 2024, $93 7 million pounds compared to $164 2 million pounds in a problem yet.
Speaker Change: Our adjusted PBT margin was 11, 2% for the fiscal 2024 compared to 27% and the <unk>.
Speaker Change: Yeah.
Speaker Change: Our adjusted diluted earnings per share was 112 pence for the fiscal year 'twenty.
Speaker Change: 2024 calculated on $58 7 million diluted shares as compared to 228 pence.
Speaker Change: The previous fiscal year calculated on $58 1 million diluted shares.
Speaker Change: Revenue from our 10 largest clients accounted for 32% of revenue.
Full year 2024, compared to 33% for the previous fiscal year.
Speaker Change: Pre spend per client from our 10 largest clients decreased 26.0 million pounds to $24 1 million pounds.
Speaker Change: Fiscal year 2024, as compared to fiscal <unk>.
Speaker Change: Yeah 2023.
In terms of geographies on a year over year basis, North America was down six 4% Europe up four 7% U K down 20.0% and the rest of the world up 34, 9%.
Speaker Change: And so the Q4 numbers our U K segment was impacted by the broad decline in payments and to a lesser degree the decline in T N T.
Speaker Change: On a year over year basis revenues from payments decreased 23 point Sara.
Speaker Change: Capital markets decreased 14, 7% insurance increased 13, 4% TMT decreased two 7% mobility decreased to eight 3%.
Speaker Change: And other increased 17, 2%.
Speaker Change: As noted earlier payments was impacted by reduced activity from a few significant.
Speaker Change: Compared to the prior year, whereas the increase in <unk>.
Speaker Change: Boosted by the contribution from the Galaxy acquisition.
Speaker Change: Our adjusted free cash flow was $58 4 million pounds for the fiscal year ended June 32024, compared to $111 5 billion pounds. During the same period last fiscal year.
Speaker Change: Which included $13 6 million pounds of exceptional restructuring costs in the period.
Speaker Change: Capital expenditure.
Speaker Change: Fiscal year ended June 30 of 2024.
Speaker Change: Essentially revenue with 0.7% compared to one 7% in the last fiscal year.
Speaker Change: So let's answer the guide I would like to make a couple of points.
Speaker Change: Since we exited fiscal year 2020 for the U S. Dollar has weakened against the British pound from 126 to one.
Speaker Change: That she bought which adversely impacts our revenue guide and I will set this out and getting the revenue ranges and gloves.
Speaker Change: Additionally, as John highlighted we are investing in our teams in anticipation of the next wave of digital transformation.
Speaker Change: So whilst restructuring in FY 'twenty for its claims savings we continue to invest in people technology and the galaxy integration in FY 'twenty five.
Speaker Change: And as for the longer term opportunity.
Speaker Change: These in essence are impacted.
Speaker Change: Adjusted PBT margin.
Speaker Change: About two 5% cheering FY 'twenty five.
Speaker Change: Reflected in the guide.
Speaker Change: Our guidance for Q1 fiscal year 'twenty to 'twenty five as follows.
Speaker Change: And Tom who I expect revenue to be in the range of 194 million pounds to 195 million pounds, representing constant currency revenue growth of between four 5% and 5.0 cents on a year over year basis.
Speaker Change: In the absence of U S. Dollar weakness Q1, FY 'twenty five would have been 1% higher in Q4, FY 'twenty full resulting in 196 million pounds at the top end of the guide.
Speaker Change: M&A contributed 13% of credits to the constant currency year on year Guide.
Speaker Change: <unk> expects adjusted diluted EPS to be in the range of 21 22 pence per share.
Speaker Change: Our guidance for full year fiscal year 2025 is as follows.
Speaker Change: And Tom who I expect revenue to be in a range of 800 million pounds to 810 million pounds, representing constant currency grabbing you increase between 10.0% and 11, 5% on a year over year basis.
Speaker Change: Again in the absence of U S dollar weakness full year figure out what I'm, saying, two 5% higher than the top of the guidance range, resulting in a 826 million pounds.
God: And God.
God: M&A contributed 11% of this constant currency guide.
Speaker Change: <unk> expects adjusted diluted EPS to be in the range of 112 to 170 that's for sure.
Speaker Change: It's above guidance for Q1 fiscal year 2025, and our full fiscal year 2025 seems to exchange rates on August 13, two.
Speaker Change: 2024, when they exchange rate was one of the British pound to $1 three one in U S dollars and one point on nine you're right.
Speaker Change: This concludes our prepared comments operator, we are now ready to open the line for Q&A.
We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the key.
Speaker Change: If at any time. Your question has been attacked and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Our first question today comes from Jonathan Lee with Guggenheim Partners.
Speaker Change: Please go ahead.
Speaker Change: Great. Thanks for taking my questions your outlook implies a slight sequential improvement through the year, what's driving your confidence in that dynamic and how much visibility do you have at this point in the year.
Speaker Change: Thanks, Jonathan.
Speaker Change: Yes, there is some sequential improvement in local cultural non-violent alright.
Speaker Change: It's pretty conservative.
Speaker Change: As you look at the business, we've been talking about.
Speaker Change: Paul.
Speaker Change: Cool modernization to us.
Speaker Change: Hell, that's driving activity.
Speaker Change:
Speaker Change: So as clients look at how they can.
Speaker Change: Okay.
Speaker Change: And to that call and get access to data and so on.
Speaker Change: Those are quite big projects, and it's driving a lot of pipeline activity and cold section with clients.
Speaker Change: So that's one aspect.
Speaker Change: The second area is now.
Speaker Change: Now that we have a footprint in India, we're starting to see.
Speaker Change: Some clients and existing clients.
Speaker Change: Talking to us about work that we'd previously wouldn't have been considered cool.
Speaker Change: But where we are well positioned in terms of industry vertical northern Ireland et cetera.
Speaker Change: So that's opening up another little Avenue for growth.
Speaker Change: And then Keith.
Speaker Change: That is the cross selling opportunities that we're getting with galaxy.
With their clients and have them with us.
Keith: And once again I covered quite a lot of.
Speaker Change: The areas, where we're seeing some cross selling opportunities in the upcoming months.
Speaker Change: Nice together and.
Speaker Change: Yeah.
Speaker Change: Feeling that.
Speaker Change: Hmm.
Speaker Change: The.
Speaker Change: Our outlook for the year should be showing some growth.
Speaker Change: So we believe that's the right thing to do.
Speaker Change: And in terms of the quarter on quarter cadence.
Speaker Change: The sequential.
Speaker Change: Q1, relatively modest, though I have to say around about a 2% also at the top end of the guide a quarter on quarter.
Speaker Change: The visibility.
Speaker Change: Question.
Speaker Change: Do you expect that this budget into some.
Speaker Change: Is pretty solid.
Speaker Change: With the second half as is relatively low.
Speaker Change: Davidson.
Speaker Change: In terms of how we look at it.
Speaker Change: The proportion of contracted information hotline.
Speaker Change: The important thing is that the business mix.
Speaker Change: <unk> has changed markedly with the acquisition of Galaxy. So we're less exposed to payments and less exposed to the U K. So we're seeing more celebrity comes from anybody out of industry verticals.
Speaker Change: Thanks for the detail there I mean, given some of the payments softness you called out can you talk us through what you're seeing across your top two customers or what's contemplated in your outlook across those two.
Speaker Change: Can I, just clarify Jonathan who Youre thinking goes talk to the customers.
Speaker Change: We would point to.
Speaker Change: Mastercard and wolfberry.
Speaker Change: Okay.
Speaker Change: And for asking US are we have a we have a.
Speaker Change: Different customer.
Speaker Change: Second slot I didn't want to confuse.
Speaker Change: So I just wanted to make sure.
Speaker Change: As we look at those two.
Speaker Change: The the revenue from one continues to.
Speaker Change: Due to the crossover where we've got a large program that.
Speaker Change: He used to.
<unk> steadily.
Speaker Change: And that is offset by other revenues in the client, but all building up.
Speaker Change: Hum.
Speaker Change: No I think the buildup side is actually very strong.
Speaker Change: Our base.
Speaker Change: But it is now catching up fast.
Speaker Change: So we would expect that plan to stabilize striked slightly full and the outlook that we have.
Speaker Change: The second clients is actually picking up over the years.
Speaker Change: You've got private equity investment into the business.
Speaker Change: And Thats kicked off the transformation program, which we are participating in that thing.
Speaker Change: <unk> area.
Speaker Change: I appreciate the color thanks, guys.
Jonathan Lee: Thanks, Jonathan.
Jonathan Lee: Our next question comes from Bryan Bergin with TD Cowen. Please go ahead.
Bryan Bergin: Oh good morning, good afternoon, and thanks for taking my question John.
John: John I wanted to.
Bryan Bergin: Kind of double click on the comments you had on AI driven sales elongation. So just just considering how early it still is an enterprise adoption journey out with most of US testing P. O sees that does this mean you may face a more extended recovery to a new normal loan growth profile. Just how are you thinking about that.
Bryan Bergin: Yeah.
Bryan Bergin: Yeah, I mean, we definitely saying that sales elongation.
Speaker Change: And that's driven some of the.
Our expectations that we set in the guidance, but we're not seeing.
Speaker Change: A huge jump forward in that over the next 12 months.
Speaker Change: I mean, it's probably worth me expanding a little bit on what we're saying in the market place.
Speaker Change:
Speaker Change: As as organizations came out of Covid, where where that spend is shall we say a little on controlled.
Speaker Change: We had macro uncertainties buildup interest rates have gone up.
Speaker Change: And CFO of.
Speaker Change: <unk> raised the bar on business cases are added extra levels of sign off quite often on new projects.
Speaker Change: You put that alongside an emerging technology.
The benefits of the engineering challenges is still being worked out.
Speaker Change: And C. C O you always are finding it harder.
Speaker Change: She'd give certainty of outcomes in that context. So you have a context of a high at all.
Speaker Change: I had a tougher challenge and proving out the technology and what it is going to deliver.
Speaker Change: And that's causing a hiatus.
Speaker Change: I think what you're referring to so the projects are there and eating a lot of additional price typing development of the business case.
Speaker Change: Creating a much longer decision making cycle for us.
Speaker Change: We are seeing projects emerging from the tunnel.
Speaker Change: And go into production build.
Speaker Change: Many of us continuing to advance.
Speaker Change: Not saying the Miss Claire the volumes come through sufficiently to start pushing it and to help guide them.
Speaker Change: And any strength.
Speaker Change: Okay understood and then Mark just shifting over to margins here. So I. Appreciate you quantifying the reinvestment level. This year can you give us a sense on kind of the path to a gross margin recovery as as twenty-five unfolds and just maybe digging a little bit on any aspects around pricing dynamics in the market.
Speaker Change: Sure so.
Speaker Change: Let's say, we went through a restructuring.
Speaker Change: It's the right size.
Speaker Change: On the spine business.
Speaker Change: But we are reinvesting the launching.
Speaker Change: Proof.
Speaker Change: As John outlined on a scratch indaba Rex tools and technologies.
Speaker Change:
Speaker Change: The investment.
Speaker Change: Hi.
Speaker Change: Adjusted PBT margin.
Speaker Change: Basically say the first half of fiscal 'twenty five.
And then we'll start to improve as.
Speaker Change: As we come through Q3 Q4.
Speaker Change: In terms of the gross margin adjust.
Speaker Change: Adjusted PBT margin.
Speaker Change: The improvement, we're assuming pricing remains flat for us so there's no sort of leverage from that perspective.
Speaker Change: The other side of the equation, which is pay rises we will have to say in a recovery in demand.
Speaker Change: At a heightened level.
Speaker Change: And see whether the pricing that we're seeking to secure from clients condensates justify.
Speaker Change: The pay rises as I've just talked through so I think the the margin improvement comes basically from those investments.
Speaker Change #100: She said first off.
Speaker Change: Maybe a little bit into the third quarter as we might.
Speaker Change #101: Okay that sounds Oh systems.
Speaker Change #102: So it's a way on us a little bit of Q4, we will see an uptick.
Speaker Change #102: Okay I appreciate the detail thanks.
Thanks, Brian.
Speaker Change #102: The next question comes from Puneet Jain with J P. Morgan. Please go ahead.
Hi, Thanks for taking my question I just wanted to follow up on the prior question on Oh visibility to fiscal quantify them for you.
Speaker Change #102: Hmm.
Speaker Change #102: So.
Speaker Change #103: What does the guidance assume for client budgets next year like are there any early signs that you might see.
Speaker Change #104: That might suggest some level of improvement in next calendar year as supposed to or in second half of the fiscal year.
Speaker Change #104: Got it.
Speaker Change #106: So we're.
Speaker Change #107: Not facing big died or a.
Speaker Change #107: Significant change in client level budgets.
Speaker Change #108: As I touched on it it's more based on the expanded.
Speaker Change #108: Service capabilities and their footprint in the cross selling.
Speaker Change #108: It gives us the confidence.
Speaker Change #108: Thats expanding us into.
Speaker Change #108: New client spaces.
Speaker Change #108: In our existing client base and new clients.
Speaker Change #108: As we as we.
Speaker Change #108: And that service around cost optimization.
Speaker Change #108: We're seeing the pipelines around that and that's what we face.
Speaker Change #108: The slight growth that we have and the go idle.
Speaker Change #109: Gotcha Gotcha.
Speaker Change #110: Can you also double click on Galaxy integration plans like where do you like.
Speaker Change #111: Like you mentioned like some of your existing customers start looking like.
Speaker Change #111: Galaxy is India capabilities.
Speaker Change #112: So maybe if you can talk about cross sell opportunities synergies that we can expect to see it.
Speaker Change #112: Yeah, I mean, the galaxy integration is going well and Mark will touch on the investment.
Mark: Alright, so I can just pick out one.
Mark: The customer facing side.
We are seeing significant cross selling opportunities.
Speaker Change #113: Strong pipeline monitoring are working well together.
Speaker Change #113: Around.
Speaker Change #113: The core modernization space, we've integrated that capabilities and see.
Speaker Change #113:
Approach that we had previously had in that space and created a very very powerful proposition.
Speaker Change #113: Proposition that we're going to market with.
Speaker Change #113: That he is getting a lot of interest from our customers both existing and new.
Speaker Change #113: It's an interesting space because as.
Speaker Change #113: Oh and market develops.
Speaker Change #113: The need to be able to modernize your cool leads towards having a more digital cool.
Speaker Change #113: So that you can exploit the benefits of cloud they are.
Speaker Change #113: It becomes more and more crucial.
Speaker Change #113: And that's the approach that we have which includes accelerated productivity tool.
Speaker Change #113: To be able to really dig into the core effectively.
Like you say a powerful proposition in that space and a lot of that has come.
Speaker Change #113: Through integrating galaxy entity.
Speaker Change #113: Capability that we have in that space, we're getting a lot of cross sell opportunities all the time.
Speaker Change #113: Second one that I touched on a moment.
We're also seeing opportunities to do some delivery out of India for existing clients as.
Speaker Change #114: Well, we wouldn't have been considered for the work previously.
Speaker Change #114: But actually given the relationship that we have with the footprint that we now have in India.
Speaker Change #114: Because of this thing.
Speaker Change #114: Opportunities.
Speaker Change #114: Coming through the pipeline around that so lots of cross selling opportunities with galaxy one.
Speaker Change #115: It's double digits work at all.
Speaker Change #116: Mark anything on the.
Speaker Change #116: And that's what I'm not going to quantify I mean, that's a.
Speaker Change #117: Raisin respectful and she's migration onto our systems and processes, which will be heavy through Q2, and Q spring when they anticipate that done.
Speaker Change #117: But outside of sharpening up the go to market.
Speaker Change #117: We have to cross selling opportunities.
Speaker Change #117: And that very strongly and offering the adult.
Speaker Change #117: After the market mix will also require investment.
Speaker Change #118: Okay. Thank you.
Tony: Thanks, Tony.
Speaker Change #118: Okay.
Speaker Change #118: The next question comes from Bryan Keane with Deutsche Bank. Please go ahead.
Speaker Change #120: Hey, John just wanted to ask about Gen AI.
Speaker Change #121: And when you think it becomes a little more material to the revenue base. You know is this is this a couple years out is this a you know a fiscal year 'twenty five phenomenon. How do you think about it maybe any leading indicators you're going to watch two or they give you a signs that it's that it's more material.
Speaker Change #122: Yeah, I mean I think the.
Speaker Change #123: The lead indicators, they're going to be how we see our pipeline progress.
Speaker Change #123: Rather than any sort of.
Speaker Change #124: Macro historic external look.
Speaker Change #125: We are seeing things move forward as I touched on on the call.
Speaker Change #125: Focusing on the <unk>.
Speaker Change #125: Real use cases are going to make a difference too.
Speaker Change #125: All client businesses is definitely accelerate to the discussions that we're having with them.
Speaker Change #125: I think the market is starting to understand and learn about the engineering around implementing G&A.
Speaker Change #125: It's actually pretty complex.
Speaker Change #125: The idea that you could take it out the bulks put it in an organization and somehow it would work out by itself how to integrate.
Speaker Change #125: Optimize our processing and all the rest of it is.
Speaker Change #126: It's clearly not.
Speaker Change #126: Not true.
Speaker Change #126: The opportunity for <unk> and <unk>.
Speaker Change #126: The other is where we have the organization.
Speaker Change #126: Ourselves and all payers, who can actually solve engineering problems.
Speaker Change #126: We help clients new sort of place where.
Speaker Change #126: The business cases stand up well.
The cost of implementation.
Speaker Change #126: Versus the benefits and efficiencies and so on that you gotta get downstream.
Speaker Change #126: Stand up and where customers have the confidence and the engineering to believe they kind of get an outcome.
Speaker Change #126: These are not small projects.
Speaker Change #126: And hence that getting a lot of scrutiny often as I touched on a moment ago I'd have to go in and modernized cool alongside implementing they.
Speaker Change #126: Engineering.
Speaker Change #126: That's a lot of work and it's something you know over the last 20 years of digital transformation clients are managed to avoid doing.
Speaker Change #126: Build building that digital transformation around the outside of the cool.
Speaker Change #126: As we go forward.
Speaker Change #126: It really requires getting at the data and the processes and the cool.
So that core modernization work is also required.
Speaker Change #126: The big projects.
Speaker Change #126: Long sales cycles, and we are seeing progress right.
Speaker Change #126: I don't think we'll see the 20% plus growth come through in <unk>.
Speaker Change #127: Actually we had 25.
Speaker Change #126: Which is why we've kept the guide the way we have.
Speaker Change #128: Got it and then just on the on the payments market you know looking out beyond.
Speaker Change #128: Beyond that the two major players in the in your client concentration.
Speaker Change #129: Is the outlook for payments I guess, one just trying to understand the softness there.
Speaker Change #129: You know consumer spend has been relatively resilient, so I'm, a little surprised to see that sector get hit as hard as it has or is that just more of the client concentration and then I guess.
Speaker Change #130: The second piece of that is that that outlook going forward.
Speaker Change #130: I assume that it won't have that much of a negative hit in fiscal year, 'twenty five and the payment sector.
Speaker Change #131: Yeah, I mean, the you know the good news looking forward is that we are much less exposed to payments than we were historically, it's come down to 19% of the business.
Speaker Change #130: And.
Speaker Change #130: The top two clients that you're touching all remain.
Speaker Change #130: Lillian.
Speaker Change #132: I'm not showing strong growth.
Lillian: Obviously did for many years.
Lillian: But they're not going away.
Lillian: In terms of falling like a spine.
Lillian: The.
Lillian: And the other thing, though I would say about the payments market.
Lillian: We focus on the payment processes.
Lillian: As a kind of a small kit is becoming more competitive and you're seeing some of the spend.
Investment in payments, so they've been city into the banks, even some into the retailers and so on.
Lillian: And so we're seeing a diversification.
Lillian: Our payments capability into other markets.
Lillian: Which.
Lillian: The claim this is a horizontal is not as weak as payments.
Lillian: <unk>.
Lillian: For us as a business.
Lillian: Some of those other markets are investing strongly in payments.
Lillian: So.
Speaker Change #134: It's very difficult for us to pull that out because that's a horizontal view that we don't really analyze it fits within the banking spend clients for instance.
Lillian:
But yes, I think I think those two things put together are creating a more competitive market for the payment processes.
Lillian: And that is pressurizing that margins rather than volumes.
Lillian: Which cascades through into the investment cases that'd be nice.
Lillian: The underlying dynamics.
Speaker Change #135: Providing me the macro in payments.
Speaker Change #136: Got it thanks for taking the questions.
Speaker Change #136: Thanks, Brian.
Speaker Change #136: The next question comes from James Fawcett with Morgan Stanley. Please go ahead.
James Fawcett: Thank you very much just a couple of follow up questions. When you talk about customers, having kind of elongated decision cycles et cetera.
Speaker Change #139: Is it specific to projects that would incorporate AI or are they is it more generalized because maybe they don't know what do they want to use.
Speaker Change #140: AI type tools et cetera, so that's leading to an elongation everywhere.
Speaker Change #141: Looking for a little bit of clarification on on where you're seeing that elongation that and if we can isolate it the types of projects for customers.
Speaker Change #141: Okay.
Speaker Change #142: So I would say that it's creating some elongation.
Speaker Change #143: Right across their discretionary spend.
Speaker Change #143: Thats still pushing out of the projects.
Speaker Change #143: The managed services in nature.
Speaker Change #143: <unk>.
Speaker Change #143: Outsourcing a nicer to drive costs down.
Speaker Change #143: And that is all.
Speaker Change #143: Okay.
Speaker Change #143: Following more normal decision cycles, but also not an area where now.
Speaker Change #143: Adult it plays hugely.
Speaker Change #143: Whereas the CFO is raising the bar.
Speaker Change #144: He was talking about earlier.
And adding extra levels of sign off is extending the cycle.
Speaker Change #144: On the rest of discretionary spend.
Speaker Change #145: But the areas that are seeing the longest decision cycle.
Speaker Change #146: I called the migration related activities.
Speaker Change #147: Got it got it got it okay. Thanks for that color and then back to the Galaxy you know certainly it looks like a good acquisition, what can you give us a sense of.
Speaker Change #148: How much and it seems like you're getting some incremental you've talked about some cross sell benefits or potential there, but how should we think about at least at.
Speaker Change #149: At this early stage how quickly galaxies type of work is growing within indaba and.
Speaker Change #149: How should we be thinking about that in terms of.
Speaker Change #150: What's being pricing driven and impact that that could have on on some kpis like revenue per head et cetera, and how do you anticipate that playing out more over the medium term beyond just this fiscal year.
Speaker Change #151: So let me, let me pick it up at a high level D.
Speaker Change #151: The cross selling opportunities.
Speaker Change #152: We have landed two or three which which we all building clients for now.
Speaker Change #153: But most of it is still pipeline and still proving the we win together in that space. So it is a good early signs.
Speaker Change #153: So we have a product and capability that we can go to market with that he is going to be very powerful.
Speaker Change #153: But we're still trading it out.
Speaker Change #153: Which is.
Speaker Change #153: Why we've just put a saligenin.
I think.
Speaker Change #153: It's too early to give you sort of indicators on revenue.
Speaker Change #153:
Speaker Change #153: James basically I mean does this that we're investing in all go tomorrow okay.
Speaker Change #153:
Speaker Change #154: At sharpening up box offering.
Speaker Change #155: We shouldn't be a combination of the two businesses. So I think it's too early to say what it will do to the operational metrics in terms of revenue per head, etc.
Speaker Change #155: Well I'll, just say a lot more clarity as we get towards.
Speaker Change #155: Full integration, which will be.
25, and we will probably be able to update you more on this next quarterly call with you.
Speaker Change #156: That's great I appreciate all the color Mark and John.
Speaker Change #157: Thanks James.
The next question comes from Maggie Nolan with William Blair. Please go ahead.
Maggie Nolan: Hi, everyone.
Mark: Maybe mark you mentioned some of that.
Mark: Well impact.
Martin: Martin can you think.
Speaker Change #160: A little bit more.
Speaker Change #160: Well.
It is mainly across a number of items in Asia.
John: As John outlined.
X: Uh Huh X, where we are investing in tools and technologies around delivery.
John: Delivery.
John: One thing the offering to the market.
John: He's also sharpening up the go to market around industry verticals.
As John said on the call investing with Powershares Chachi P T.
John: Which is heavy.
Licenses are.
Speaker Change #162: And also there's the galaxy integration costs, which are pretty heavy I think the other things had sort of mentioned as well.
We didn't have any bonus last year because of the performance.
Speaker Change #162: We anticipate.
Speaker Change #162: We anticipate paying.
Based on.
Speaker Change #162: Good performance this year.
Speaker Change #162: Those elements are weighing.
Speaker Change #162: On the margin.
Speaker Change #162: <unk> investments and we expect them to pay back in terms of it said I think the return in terms of improved in March and will come through towards the last quarter of the fiscal year.
Speaker Change #163: Okay, great. Thank you that's helpful. And then John you mentioned a continued priority.
Speaker Change #164: Meaningful partnerships are there specific partnerships that you think could provide indaba.
Speaker Change #165: The opportunity in the next year.
John: Oh, yes.
John: There's quite a few.
John: I hesitate to list them, all but maybe maybe I should have.
John: So obviously with with Google on the clouds AWS.
John: Microsoft through the Azure space.
John: Critical hyper scale at partnerships, where we worked very closely with them.
John: We then got partnerships with snowflake.
John: Right.
John: And the payments arena.
John: Taking payments into wider markets.
And.
John: Well a number of others. So it's an area that we've invested in quite considerably over the last.
John: Two or three years.
John: And starting to see the benefits of our partners.
John: We can incorporate into our technical solutions.
John: Real difference clients, but also who will where appropriate bring us see the engineers, who can make things work.
John: In real life situations so in both studies.
John: So we're seeing real benefits from those partnerships.
Speaker Change #166: Great. Thank you guys.
Speaker Change #166: Okay.
This concludes our question and answer session I would like to turn the conference back over for any closing remarks.
Speaker Change #166: I think it also joining us today.
Speaker Change #166: As I mentioned in my prepared remarks.
Speaker Change #167: We continue to invest in the people and skills required to support this next wave of digital transformation.
We strengthened our team three key hires.
Speaker Change #167: An internal reorganization to ensure that we're fully focused on delivering the best outcomes for our clients.
We've also invested in tools and technology and accelerators.
Speaker Change #167: The enhanced efficiency.
Speaker Change #167: Over time this investment is expected to shift towards revenue generating efforts paving the way for improved margins in the future.
Speaker Change #167: I look forward to seeing you all on our next earnings call in November. Thank you.
Speaker Change #167: Okay.
Speaker Change #167: Yeah.
Speaker Change #168: The call has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change #168: Okay.
Speaker Change #168: [music].