Q1 2025 Endava PLC Earnings Call
Speaker Change: [music].
Good day and welcome to the Indaba first quarter fiscal year 2025 results conference call.
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Speaker Change: I would now like to turn the conference over to Lawrence Mattson head of Investor Relations at E. S. G. Please go ahead.
Speaker Change: Thank you good morning, everyone and welcome to end of our first quarter of fiscal year 'twenty 'twenty Conference call.
Speaker Change: A reminder, this conference call is being recorded joining.
Speaker Change: Joining me today are John cultural another Chief Executive Officer, and Mark Thurston and then from Chief Financial Officer before we begin a quick reminder.
Speaker Change: Our presentation in our remarks.
Speaker Change: Our remarks today include forward looking statements.
Speaker Change: Nothing major.
Statements regarding our guidance for Q2 fiscal year 'twenty 'twenty four for that.
Speaker Change: For fiscal year 'twenty three 'twenty four.
Speaker Change: Yes.
Facing our industry.
Speaker Change: Our ability to capitalize on market opportunities and trends in our industry, including with respect to development with artificial intelligence, our addressable market our expectations regarding the impact of her son.
Speaker Change: Fisher Galaxy on our business and that maps to our technology and offering demand from clients for technology services, our ability to create long term value for our clients our.
Speaker Change: Our people and our shareholders.
Speaker Change: The strategy well information.
Speaker Change: Geez.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially from those countries and the forward looking statements.
Speaker Change: As a result and at the time.
We have certain events may differ materially from the results or timing predicted or implied by such forward looking statements and reported results should not be considered as an educational future performance. Please note that these forward looking statements made during this conference call.
Speaker Change: As of today's date.
Speaker Change: And we undertake no obligation to update them do reflect subsequent events or circumstances.
Speaker Change: And then to the extent required by law.
Speaker Change: Information please refer to the risk factors section of our annual report filed with the Securities and Exchange Commission on September 19 2024.
Speaker Change: Also during the call well present, both resi and non <unk> financial measures, we believe the long term.
Speaker Change: National measures provide useful information for investors.
Speaker Change: Congrats on tissue disinformation is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with I am sorry.
Speaker Change: Sure.
Speaker Change: First measures she said.
Speaker Change: Most directly comparable.
Speaker Change: Its measures.
Speaker Change: In two days.
Speaker Change: Actually as well.
Speaker Change: Your presentation, which you can find on our Investor relations site or on your website.
Speaker Change: Thanks to the replay of this call will also be available on our website with that I'll turn the call over to John.
John Cultural: Thank you Laura and good morning, everyone.
John Cultural: Thank you for joining us for our first quarter fiscal year 2025 earnings call.
John Cultural: We're pleased with our first quarter results, which beat our guidance.
John Cultural: I'm sure, it's top line growth quarter on quarter as well as year on year.
John Cultural: As we discussed on our last earnings call. We believe our market is exhibiting the characteristics.
John Cultural: Significant digital shift.
John Cultural: This is visible and slow you down more traditional digital business alongside the acceleration of new mainly AI and cold modernization driven right.
John Cultural: This crisis has emerged from a smaller base, we believe that the acceleration is beginning to outpace the areas decline.
John Cultural: I will add that this shift seems to differ from others the market experienced over the years.
John Cultural: The AI imperative to transform the cool comes with a plethora of exciting opportunities revolutionizing the digital experience.
John Cultural: We believe our experience and expertise in digital transformation and core modernization make us the ideal partner for customers in this new disruptive wave.
John Cultural: Additionally, we believe the size of the market. We address is expanded by the ship.
John Cultural: We're quite Excitingly, we are no longer focused on selection still predominantly around the cool, but in fact need to engage directly with the core itself.
John Cultural: <unk> Street production what are we are calling the digital shift.
John Cultural: We believe our business is well set up for these new growth areas, whilst reducing concentrations.
John Cultural: Our focus on AI is continuing to establish leading edge propositions to solve real business challenges and our acquisition of Galaxy has enhanced our core modernization capability.
John Cultural: Adding pace.
John Cultural: <unk>, which provides clients with a more secure cost effective cost does that digital future.
John Cultural: These capabilities give us access to larger more complex transformation programs with a powerful proprietary set of accelerators, providing us with a compelling sales offerings.
John Cultural: Alongside this we've diversified our customer footprint across industries, and geographies and globalized our delivery capability.
John Cultural: We believe these changes strategically position us to meet the growing demands of the digital shift and this morning, I'll outline our progress across each of these priorities and look forward to showcasing some of our latest technology offerings at our Investor Day Tomorrow and hope you can join up with us.
Speaker Change: Uh huh.
Speaker Change: Business winning activities.
We continue to focus on building larger strategic partnerships with customers is a key lever for future growth.
We have increased the size of the largest opportunities we are seeing over the last few years regularly bidding on and winning deals.
Speaker Change: 100 million Sterling is higher.
Speaker Change: As a result of the shifts in the market. We are also having more conversations with our customers about addressing the largest enterprise challenges.
Speaker Change: I'm pleased to share that in recent months, we secured strategic deals with clients in various verticals and regions highlighting our continued business diversification.
Speaker Change: A few examples of these include a multi year agreement with adding this to support them with that digital transformation ambitions and specialists strategic advisory work.
Speaker Change: Business wise migration and implementation programs.
Speaker Change: And they're always I'll work with a leading mining company and also several large longer term commitments with big insurers in order to de risk their modernization programs.
Speaker Change: I'm also happy to announce all progressing partnerships across the markets to open up new channels and leverage relationships.
Speaker Change: Today, we announced a partnership with Neusoft.
Speaker Change: Kind of a low code platform with which to develop business critical applications.
Speaker Change: As you saw continues to focus on product innovation.
Speaker Change: The rule provides implementation support and drive stronger customer relationships to help scale that platforms impact.
Speaker Change: We also recently formed a strategic partnership with members.
Speaker Change: Drive innovation in the financial services sector through cloud banking technology.
In a nutshell the partnership aims to help financial institutions modernize their core systems accelerate time to market.
Speaker Change: It has customer experiences.
Speaker Change: This collaboration will empower banks and fintech to adopt flexible scalable and API driven solutions, enabling us to stay competitive and evolving digital landscape, while meeting regulatory requirements sufficiently.
Speaker Change: And finally, we recently signed a strategic partnership with Qatar Cordless aimed at enhancing digital payment solutions for businesses globally simply put through this partnership businesses can expect to streamline payment processes reduce cost and improve cash flow management.
Speaker Change: Partnership will focus on delivering innovative scalable solutions that meet the growing demand for seamless real time payments experiences.
Speaker Change: Moving on to technology and AI in particular based on the results of our recent sponsored IDC impact brief tie fold. The next wave of digital transformation in the area.
Speaker Change: AI powered digital shifts.
Speaker Change: 60% of sea ice consider deploying AI machine learning agenda today.
Speaker Change: Paul organization and transformation initiative.
Speaker Change: Leading priority for this group.
Speaker Change: That's truly harness aoi's transformative potential.
Speaker Change: Organizations must show ensure that this technology is embedded deep within that core systems.
Speaker Change: Which is why in modernizing our clients' core infrastructure is a key pillar of our long term strategy.
Speaker Change: So, let's turn to the core modernization.
Speaker Change: We don't view it as just the behind the scenes upgrade is the critical foundation, enabling the adoption of cutting edge technologies.
Speaker Change: To drive future growth.
Speaker Change: For the AI and automation to advanced analytics.
Speaker Change: Without modern flexible and scalable systems businesses simply called take full advantage of these innovations.
Speaker Change: Our coal modernization is a holistic approach to transforming platforms.
Speaker Change: Historically resisted the change will be over looked and transformation efforts.
Speaker Change: The same of IDC research found that 49% of subs attribute over spending on digital infrastructure to the costs of maintaining legacy systems, which just underscores the urgent need to modernize the greater operational efficiency.
Speaker Change: When we work with clients to modernize their core systems, we aim to develop those relationships into long term partnerships, where we can continue to help them thrive in a rapidly changing landscape.
Speaker Change: And sure core modernization empowers us to deliver innovation at scale.
Speaker Change: Setting the stage for future growth and transformation.
Speaker Change: Throughout all of our ex capabilities, we designed and accelerates our clients changed at Jefferies.
Speaker Change: Honestly integrating these innovations with our foundational capabilities to drive lasting impacts.
Speaker Change: It's about equipping organizations with the ability to implement and optimize nextgen technologies without being held back by our data systems.
So what does this innovation look like in action.
Speaker Change: The cornerstone of our modernization approach is an in depth analysis of our legacy technology assets.
Speaker Change: This analysis is supported by our own the IP in the form of AI enabled accelerators, which are designed to reduce disruption vastly increase the speed and accuracy of delivery.
Tailored unique approach that analyzes each customer situation, thereby facilitating our ability to develop deploy and integrate impactful solutions.
Speaker Change: The seven Modernisation accelerators range from Kronos, and Rea, which focus on software assessments.
Speaker Change: Morpheus alright.
Speaker Change: Accelerator.
The suite also includes tools for dependency.
Speaker Change: <unk> analysis capabilities.
Speaker Change: Optimizing data center environments, which clients have told us our unique features which enables more efficient low risk accelerated transformation programs.
Speaker Change: And by leveraging next generation technologies, we believe we can deliver even greater value to our clients pushing the boundaries of what's possible with the goal of delivering sustainable growth.
Speaker Change: These accelerators and the others that we offer in specific verticals totaling more than 20 overall.
Speaker Change: Really come into their own went underpinned by our core competencies in data and digital products strategy and management.
Speaker Change: A big focus for US right now is supporting clients as they transition.
Speaker Change: Use cases for proof of concepts to oil pricing and production.
Speaker Change: We have front row seats, when seeing the value that Oh I see.
Speaker Change: <unk> provides to our clients.
Speaker Change: An example.
Speaker Change: We're a preeminent London market and sure we deployed Nia our system that monitors the huge volume of incoming submissions.
Speaker Change: Politely decline as the ones that don't so you saw a clients business model.
Speaker Change: So to see the system makes the decision based on whether it is the wrong type of product.
Speaker Change: It may slow the whole portfolio.
Speaker Change: Oh interesting use case is walking by Redeveloped today, our system for our personal lines insurer offering called private insurance products in the UK.
Speaker Change: We worked on that claims transformation program to increase the number of online self reported customer claims Australia accidents.
Speaker Change: And the first notification of loss.
Speaker Change: He used to ensure that the climate with never need to repeat information even if the case was escalated claims.
Speaker Change: Claims handling is a major cost area for insurers to this program had an important value proposition.
Speaker Change: Our system went live around 14% of that customer's claims with self reported online.
Speaker Change: Yeah, Ross rock Guy likely said doubled to about 28%.
Speaker Change: Capes increasing.
Speaker Change: Then there was the U S as a trucking company.
Speaker Change: Are you seeing a demanding environment, what precise real time tracking of physical assets with essential.
Speaker Change: Challenges another around accurately pinpointing and recording asset locations.
Speaker Change: Leveraging our customized AI model integrates with an Iot solution. We also makes it the Gi marketing process. This eliminates the need for manual data entry enhanced accuracy and provides the client with a seamless trucking space.
Speaker Change: And finally, a manufacturer of intelligence glasses required greater levels of accuracy. When you use this issue voice commands.
Speaker Change: To help resolve the problem of large language model.
Speaker Change: Our land based solution was deployed to enhance the user experience. When he uses speaks to the device the mobile maps natural language to the command is supported by the divorce. If the use of words do not match predefined commands the ion mobile generates an appropriate response.
Speaker Change: The device is capable of processing, both use the stage and images, providing a comprehensive and intuitive interaction experience.
Speaker Change: As you can see it's an exciting time for us. These deployed use cases represent just a small subset of the solutions, we have been creating and deploying them to clients.
Speaker Change: Switching gears now and moving onto Galaxy integration is progressing with a focus on both commercial alignment and the goal of achieving operational excellence.
Speaker Change: We are concentrating on our cross selling efforts and recently leveraged on the agile teams to support a major U S pharmaceutical retailer their international assets, demonstrating our global reach and industry insights.
Speaker Change: Additionally, we broadened the scope of services offered to our longstanding Galaxy health care clients now working to elevate their data strategy and reinforcing our commitment to delivering transformative outcomes and health care.
Speaker Change: I mentioned that we escalate the lifestyle delivery capability.
Speaker Change: To expand on that we are excited to have been able to open up new areas of client spend with our delivery footprint in India.
Speaker Change: Our presence in this region gives us the ability to offer global coverage across time zones and access to a diverse and skilled team.
Speaker Change: Essential elements in large scale engagements.
Speaker Change: India is also in a strategic location and our clients technology delivery plan, we're already seeing a new level of engagement with potential customers, including strategic bids that would previously have been out of our reach.
Speaker Change: Our first net new success in the region was our selection as the preferred technology partner for our global capital markets organization.
Speaker Change: This perfectly illustrates the benefits from our new India footprints.
Our India delivery qualified us to engage with the customer.
Speaker Change: But the services will require delivery not just from India, but also central Europe and Latam.
Speaker Change: Well it's both.
Speaker Change: Core modernization capabilities.
Speaker Change: Building on this momentum we are progressing with further opportunities across payments and retail and are actively collaborating with existing customers to design optimal best shoring solutions.
Speaker Change: Now moving onto our people we ended the quarter with 11821 adult onboard.
Which represents a 0.5% increase from the same period last year.
Speaker Change: Looking forward and based on the current environment, we are prioritizing recruitment in high demand areas such as around the demands of data AI cloud.
Speaker Change: With our people in mind I would like to focus on an area that is very important which.
Speaker Change: Which is mental health.
Speaker Change: We are committed to creating an environment, where everyone feels empowered to take care of that well thing.
Speaker Change: And Orange can find support and guidance for the employee assistance program and our dedicated wellbeing champions.
Speaker Change: Tomorrow, the World Mental Health day this October.
Speaker Change: Oh for the Master class and workshops, offering practical tools and strategies and advocate life's ups and downs with confidence.
Speaker Change: We also joined the global celebration of customer experience day, recognizing the positive impact it creates for our organization our people and our clients.
Speaker Change: I'll tell you that our engineering days took center stage, featuring three days of live talks streamed from Bucharest, Montevideo and Melbourne.
Speaker Change: These global sessions were led by our top engineers exploring key topics that resonate across our business and the wider industry today.
Speaker Change: Local and regional events bullet fostering collaboration among our team is as we continue to transform how we envision and engage with technology.
Speaker Change: In closing I'd like to take this opportunity. Thank all in dogs for their commitment.
Speaker Change: <unk> and determination as we are navigating the challenges of the digital shift.
Speaker Change: Let's also discovering new opportunities it brings.
Speaker Change: We will continue to manage the business for the long term, maintaining our culture and organizational health and creating exciting technological solutions that empower our clients to thrive in this next wave of AI.
Speaker Change: Digital transformation.
Speaker Change: Now I'll hand over to Mark who will walk you through our quarterly financial results.
Mark Thurston: Our guidance for the upcoming quarter and remainder of the fiscal year.
Mark Thurston: Thanks, Sean.
Speaker Change: <unk> totaled $195 1 million pounds to three months.
Speaker Change: That's right Paul.
Speaker Change: Because back to the auction.
Speaker Change: In the same period.
Speaker Change: Representing a three 5% increase.
Speaker Change: In constant currency revenues increased five 2% from the same period prior year.
Sequentially revenue was up 2% in constant currency this quarter.
Speaker Change: Okay before tax for the three months ended September six tons of transport.
Speaker Change: To me in Paris, compared to $17 3 million pass in the site here.
Speaker Change: Yes.
Speaker Change: Adjusted PBT for the three months ended September 20.
Speaker Change: <unk> four is $19 2 million as compared to $29 8 million ads for the same period in the prior year.
Speaker Change: Just the PBT margin was $9, 90% for the three months ended September.
Speaker Change: Sure.
Speaker Change: For the past 15, 8% signing period in the prior year.
Speaker Change: Profit before tax and adjusted PBT were impacted by decline in operating margins.
Speaker Change: As I said last quarter, we expect these margins to put into some kind of level.
Speaker Change: Future periods following the integration of balance sheet and business optimization initiatives, we undertook during fiscal 'twenty trying to pool.
Our adjusted diluted earnings per share was 25 pence.
Speaker Change: At September 32004, <unk> of 59 4 million shares.
Speaker Change: 79, this time period in the prior year calculated on $54 million chip shots.
Speaker Change: Revenue from our 10 largest clients cats for 36% revenue for the three months ended September 32024 capacity, 35% the same period last fiscal year.
Speaker Change: After spending declines from our 10 largest clients increased from $6 5 million past $7 1 million pounds for the three months ended sept kind of perfect.
Speaker Change: As compared to three months and its side effects.
Representing.
Speaker Change: Representing an 8%.
Speaker Change: The increase.
Speaker Change: In the three months ended September 32, transferring for North America attached to 39% right.
Speaker Change: So 75% UK cause that'd be bumpy.
While the rest of world accounted for Fox.
Speaker Change: Revenue from North America grew 32, 5% for three months ended September 30.
Speaker Change: China for the same period last fiscal year.
Speaker Change: Paying the same periods revenue from Europe grew two 7% UK declined 8% and the rest of world declined $42 eight.
Speaker Change: North America was boosted by the contribution of the gas business.
Speaker Change: The decrease in the UK is mainly to choose to any decrease in payments and the rest as well as due mainly to Australia.
Vacuum aftermarkets and shifts basketballs.
Speaker Change: Revenue from payments declined.
Speaker Change: 5% for the three months ended September 32024 over the same period last fiscal year and attached for 'twenty.
Speaker Change: Compared with the same period revenue from banking and capital markets Treasury folks.
Speaker Change: It's just a sense of sensitive type of weapon.
Speaker Change: Revenue from insurance food, 45% cash.
Speaker Change: Randy.
Speaker Change: Revenue from TMT declined by four 5%.
Speaker Change: The caps.
What type of question.
Speaker Change: Revenue from mobility declined 43%.
The allowance totaled roughly.
Speaker Change: Revenue from health care, which starting this quarter will be reported as a separate vertical.
<unk> included in all other that's cool.
Speaker Change: 201, 6% with the acquisition of Galaxy Macau.
Speaker Change: The 12%.
Speaker Change: Let me.
Speaker Change: <unk>, 3.0% and accounted for 12% of total revenue.
Speaker Change: The government payments.
Decrease was mainly driven by lower spending by a few cards logical capacity.
Speaker Change: However, on a sequential basis revenue from payments increased by two 4%.
Speaker Change: Our adjusted free cash flow was $3 5 million pounds.
Speaker Change: Months ended September 32004, compared to 16 million pounds. During the same period last fiscal year.
Speaker Change: Our cash and cash equivalents theoretic type of $52 8 million as September 32024, compared to $62 4 million pounds achieved that yet.
Speaker Change: <unk>.
Speaker Change: Our borrowings totaled $132 6 million pounds.
Speaker Change: 2024 compared to $144 eight.
Speaker Change: At June 24.
Speaker Change: Capital expenditure for the three months ended September 32004 is essentially let me.
Speaker Change: Zero, 6% compared to seven 4% in the same period last fiscal year.
Speaker Change: Now moving onto our outlook.
Speaker Change: Our targets for Q2 fiscal year 'twenty time alright.
Speaker Change: Yes.
Speaker Change: <unk> expects revenue to be in the range of 95 million pounds to 197 million representing constant currency.
Speaker Change: Currency revenue class III.
Speaker Change: Eight 5% nine 5% on a year over year basis.
Speaker Change: <unk> expects adjusted diluted EPS in a range 24 to 25 pence per share.
Speaker Change: Our guidance for full year fiscal year 2025, just for us.
Speaker Change: <unk> expects revenue to be in that range.
Speaker Change: Patterns after the tenured partners representing constant currency revenue increase between 10 four zero percent.
Speaker Change: <unk>.
Speaker Change: Thanks.
Speaker Change: And <unk> expects adjusted diluted EPS in a range of 112 to 117 pence per share.
Speaker Change: The soft guidance for Q2 fiscal year trying to attract five and our full fiscal year 2025 seems to exchange lives on October 31st.
Speaker Change: For the next challenge that is long British pound to $1 <unk>.
Speaker Change: I have one long gone and go about.
Speaker Change: This concludes our prepared comments operator, we don't have revenue line.
Speaker Change: 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 keys.
Speaker Change: If at any time. Your question has been addressed 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: Okay.
Speaker Change: The first question today comes from Jamie Friedman with Susquehanna. Please go ahead.
Speaker Change: Hi, good morning, good afternoon.
Speaker Change: I wanted to ask John I was intrigued by your prepared remarks, especially the opening commentary about the acceleration of the new technologies now outpacing the decline of the deluxe, but you went on to say that this is different from prior technology architectures. In your view I was just hoping you could elaborate that.
Speaker Change: Like if you can help unpack how bad is the bad stuff.
John Cultural: First is the good stuff and why this is different this time.
Jamie Friedman: Yeah. Thanks, Jamie.
Speaker Change: Good question.
Speaker Change: I mean this is around the digital shift.
Speaker Change: I was highlighting in my opening remarks.
Well.
Speaker Change: If you look if you look back the.
Speaker Change: Previous 20 years of our business, we would largely building digital capabilities around the outside of clients cool systems.
Speaker Change: And the shifts.
Speaker Change: Going wrong.
Speaker Change: It remained around the outside.
Speaker Change: The need of AI two seasons.
Speaker Change: So the data workflows and processes that sits at.
The enterprise.
Speaker Change: It means that you cant.
In this new era.
Speaker Change: Just build around the outside.
Speaker Change: But do you actually need to get into the cool until you have a lot of the transformation work on the tool.
Speaker Change: So that's the difference so I was picking out.
Speaker Change: The the impactful Nox is booked.
Speaker Change: As clients.
Speaker Change: Clients get into engaging with dice questions. They are larger programs.
Speaker Change: Because it's not a case of creating some caught up capability.
Speaker Change: Largely around the outside of the cool, but actually a depot program of work that goes into core and transform.
Speaker Change: And that's not an easy program.
Speaker Change: The larger programs clients taking longer to do.
Speaker Change: Two the preparatory work on it.
Speaker Change: And two.
Speaker Change: So you just sign off flat.
So that's the shift.
Speaker Change: Picture if he liked us.
The second thing on which way at all.
Speaker Change: Negotiating our way through at the moment.
Speaker Change: Great. Thank you for the color John I'll drop back in the queue.
Speaker Change: Thanks, Jeremy.
Speaker Change: The next question comes from Jonathan Lee with Guggenheim. Please go ahead.
Speaker Change: Great. Thanks for taking my question, then tremendous to see the relative stability in the outlook here can you provide an update around your underlying assumptions in your outlook across the macroeconomic landscape and client budgets and where you would expect potential for maybe growth acceleration versus deceleration based on what you see in your pipeline today.
Speaker Change: Yeah, Good morning, Jonathan.
Speaker Change: So the broad picture that we have in our outlook is based on the.
Speaker Change: The macro to the current situation.
Speaker Change: Largely remaining unchanged.
Speaker Change: And the.
Speaker Change: The process is that clients are going through in terms of thinking about where to prioritize their spend and the time, it's taking them to do that.
Speaker Change: Following similar.
Speaker Change: Standard cycles.
Speaker Change: I'll go through that.
Speaker Change: There are still.
Speaker Change: Our standards.
Speaker Change: CSI is a setting in terms of the financial returns of the investments that they're making.
Speaker Change: That used to be the case during.
Speaker Change: Cardioversion post Covid period.
Speaker Change: And expectations of solid business cases that are coming home.
Speaker Change: At the same time these are new technologies AI the approaches to cool modernization that we're bringing and so on.
Speaker Change: So.
Speaker Change: The.
Speaker Change: Creating the business cases that have the solidity all challenged from a technical point of view.
We're putting a lot of work into helping our clients get to the bottom of that some get back cases.
Speaker Change: You stand up please.
So the second part of your question that essentially is what's driving the ups and downs.
Speaker Change: Shift from the normal traditional.
Speaker Change: Digital transformation work.
Speaker Change: Built around the outside the cool towards larger programs, taking longer sign off that guy.
Speaker Change: In the core and data monetization approach.
Speaker Change: And so as we look forward.
Speaker Change: We are we are balancing.
Speaker Change: The ups and downs are not shifting client spend.
Speaker Change: Time that it takes them to make those decisions.
Speaker Change: Okay.
Speaker Change: Thanks for that detail and just as a follow up your outlook contemplate sequential revenue growth acceleration in the back half of your fiscal year.
Speaker Change: In your customer conversations gives you that confidence and visibility into your ability to achieve that and how do we balance that with the sequentially lower head count we saw in the quarter.
Speaker Change: Yes.
Speaker Change: So let me let me cover some of the customer conversations and then Mark.
Speaker Change: Give us some of the numbers.
Mark Thurston: Alright that go alongside that so the customer conversations as I touched on in the last two conversations.
Speaker Change: Moving around.
Speaker Change: Clients, making nice large transformative decisions.
Speaker Change: Some of those are underway.
Speaker Change: As us some confidence that those programs will.
Speaker Change: <unk> ramp up over the next.
Speaker Change: Eight months or so through to the end of our fiscal.
Speaker Change: And all of those are still in pipeline.
Subject to the uncertainties that business there is still to be closed class.
Speaker Change: But nonetheless, we can see a few of those shaping up.
Speaker Change: Quite nicely and they are large programs.
Speaker Change: And can make a solid impact on us.
Mark Thurston: Mark do you want to cover.
Speaker Change: Having much to that to what John said I mean, the Potline continues to grow.
Speaker Change: Since the last call in September.
Speaker Change: It's balanced cost such as in the verticals, we're seeing lots of potential deal opportunities.
Speaker Change: I think some of this is also coming from enhanced capability to see acquisition.
Speaker Change: Core modernization.
Speaker Change: Topic, John touched on.
We're getting incremental.
Speaker Change: Trust I should basically because of our presence in India. So that is opening opportunities for us.
Speaker Change: You put all that together it underpins that sort of comfort still be hot another sequential quotes in a SEC.
Speaker Change: Second half.
Speaker Change: Okay.
Speaker Change: Great color there thanks, guys.
Speaker Change: Thanks, Don.
Speaker Change: The next question comes from Maggie Nolan with William Blair. Please go ahead.
Maggie Nolan: Thank you.
Speaker Change: Sort of alluded to there's been a couple of different ways, but maybe I'll just ask explicitly.
Speaker Change: If you could comment on these larger longer term projects.
Speaker Change: You know once that are focused on core modernization slightly different than what you've done in the past do they have different conversion timeline ramp timeline margin profile any other aspects that you would flag that are different from what indaba and it typically thought previously.
Speaker Change: So yeah I think.
Speaker Change: These differences the longer conversion times.
Speaker Change: We're not expecting the margin protocols to look different.
Speaker Change: It is very much our approach to this is an accelerator enabled approach enables us to get.
Speaker Change: Very good analytics on lease these complex legacy calls that clients have.
Speaker Change: Sure.
Speaker Change: And we will need to recognize they've left he's a lawyer and as long as they can.
Speaker Change: Because of the complexity of understanding them.
Speaker Change: As many of the people who are involved in building them are no longer around.
Speaker Change: Businesses and so on.
Speaker Change: So good analytics on understanding these calls.
Speaker Change: It gives more assured transformation program.
Speaker Change: And then you get a faster and more cost effective transition them.
Speaker Change: The historic traditional approaches the paper with games.
Speaker Change: Using <unk> very much as part of that too.
Uh huh.
Deepen.
Speaker Change: Those rigs to understanding what the court does.
Speaker Change: And for speeding up the.
Speaker Change: The process of changing it once you've got your arms around it.
Speaker Change: So because it's different to the historic.
Speaker Change: Why is it much other organizations have tackled core modernization.
Speaker Change: We don't expect it to be.
Speaker Change: Margin reducing.
Speaker Change: But actually it's all.
Speaker Change: Right to a similar dynamic that we had with.
Speaker Change: Digital transformation over the past 20 years.
And the added value of the approach.
Speaker Change: And the economic benefits to the clients.
Speaker Change: As you know.
Speaker Change: And ability to protect our margins as we get through that.
Speaker Change: Okay.
Speaker Change: That's helpful. Thank you and then Mark maybe could you is there any more insight you could give into the trajectory of the adjusted PBT margin over the course of the fiscal year.
Speaker Change: Is that a.
Speaker Change: Second half phenomenon later in the year, and then as well as the magnitude of the improvements as we think about things like the cost efficiency program integration.
Speaker Change: Yes.
Speaker Change: Trajectory. Thank you.
Speaker Change: So I mean, the EPS guide for Q2, you can tell that the adjusted PBT outlook is broadly in line with Q1.
Speaker Change: I think we see the improvements come through in the second half.
Speaker Change: Partially through sort of Q3, but mainly Q4, when we complete our integration from systems perspective from a process perspective with Galaxy one.
Speaker Change: Schedule for the end of February.
Speaker Change: So there's still a heavy investment going on in the integration activities in Q2, and Q3 and then that abates.
Speaker Change: Let me get into Q4.
Speaker Change: Adjusted PBT margin is maybe about two.
Speaker Change: You guys have sort of a teen.
Speaker Change: <unk> 14 central side.
Speaker Change: So we should be exiting this fiscal year.
Speaker Change: Not much.
Speaker Change: <unk> run rate outlook.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Thanks, Mike.
Speaker Change: The next question comes from Bryan Bergin with TD Cowen. Please go ahead.
Hi, Thanks. This is Zach <unk> been on for Bryan Bergin first question. We had was on top client performance. So it was encouraging to see the top 10 cohorts better sequentially again here, but just given some of the variability seen over the past year with some of the top accounts can you just speak to what's embedded in the fiscal 'twenty five outlook.
Speaker Change: And they provide more insight into the latest sentiment with some of these key accounts relative to what was seen earlier this calendar year.
Speaker Change: Yes, I think on the previous call, we set up our largest client wins at Galaxy Court, we expect stability there.
Speaker Change: <unk>.
Speaker Change: Next a couple of clients.
Speaker Change: Payment sort of sites and we are seeing stability now.
Speaker Change: So as well.
Speaker Change: And he gave me nicely a little bit of growth and one of them.
Speaker Change: Second half.
Speaker Change: The rest of the client, but it looks pretty stable, we do have a slug, it out and our media clients.
Speaker Change: Where there's been an M&A transaction, which you're expecting to ramp down quite quickly so that will impact.
Speaker Change: Q2.
Speaker Change: Our balance just yet, but the rest of the clients look stable in fact.
Speaker Change: And it looks like it will go to quite honestly.
Speaker Change: That's good to hear and a follow up on Gen AI.
Speaker Change: Any notable change in the number of projects that are now progressing into full scale production mode and for programs that are moving forward can you compare or contrast contract structures pricing productivity commitments anything along those lines relative to more of the traditional work that you've done in the past.
Speaker Change: Yeah. So there is there is a step up.
Speaker Change: In projects that are going into production.
I'd caution that it's not huge in context of the number of projects that involve it does but it is a.
Speaker Change: A steady increase from a small base.
Speaker Change: And it's.
Speaker Change: It's good to see.
Speaker Change: As many proof of concepts.
Speaker Change: Some of them starting to convert into production.
Nine months.
Speaker Change: Starting to see the benefits.
Speaker Change: <unk> delivered to clients.
Is something we've been doing for a while if you will it picked up in your opening remarks.
Speaker Change: A couple of those have been in place for over a year.
Speaker Change: And.
Speaker Change: So it's it's it's it's not ramping.
Speaker Change: Nothing a completely new but the gen I ask spaces, it's picking up speed as it's been everything up from a contracting point of view.
Speaker Change: We expect that over time, we're talking two to three years.
Speaker Change: The shape of the contractual discussions will begin to move towards more outcome based pricing.
Speaker Change: Pricing. However today. It is it is all on a PNM basis.
Speaker Change: There is there is still too much.
Speaker Change: Learning to be done both by us and by our clients in terms of what can be done with gen. Two.
Speaker Change: To actually be turning that into outcome based pricing.
Speaker Change: But we do believe that that will be opportunity.
Speaker Change: Particularly as we as we get specific use cases, and idled, we can roll them too.
Speaker Change: Multiple clients across an industry.
Speaker Change: But actually moving to an outcome based mechanism will become part of a practice around January one.
Speaker Change: Very helpful color. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Bryan Keane with Deutsche Bank. Please go ahead.
Bryan Keane: Yeah, Hi, thanks for taking my questions.
Bryan Keane: Can you guys quantify the percentage of revenue now coming from Gen. II and then Mark any update on pricing on the contracts are what you're seeing in the market.
Speaker Change: I mean pricing.
Overall, just remains stable but.
Speaker Change: Still competitive.
Speaker Change: With budget pressures.
Speaker Change: We're not seeing a price erosion or being for price erosion based.
Speaker Change: Based on our P&L, which measures all.
Speaker Change: Right.
Speaker Change: Thanks.
Speaker Change: I think they the AI piece we.
Speaker Change: We are not turning to look at it that way because it kind of as we think about.
Speaker Change: Providing solutions to clients using the best technologies, and obviously I always I saw strong components of spot checks embedded in most of the solutions that.
Speaker Change: We are offering to cost, but we don't look at it as a product. This is a percentage shift.
Speaker Change: Opportunities that are on the slate and cleared out I think I always in and all of them to a varying degree.
Speaker Change: So what I was thinking of a shot that we I can give you Brock.
Speaker Change: Got it and Marc just hoping to get the acquisition contribution for the quarter and what you're expecting for fiscal year 2012.
Speaker Change: So essentially.
Speaker Change: Essentially if reported revenue for Q2, we expect.
Speaker Change: The contribution to be 13 cents as it was in Q1.
Speaker Change: And the proportion of.
Speaker Change: The M&A for the full year remains unchanged from the previous sort of guy.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Thanks, Brian.
Speaker Change: As a reminder, if you would like to ask a question. Please press Star then one to join the question queue.
Speaker Change: The next question comes from James Fawcett with Morgan Stanley. Please go ahead.
James Fawcett: Hey, good morning. Thanks for the details wanted to just follow up on question in terms of the project size and conversion time.
James Fawcett: What does that entail or what should we take from that in terms of the amount of competition. There are for these projects is that also different and <unk>.
Youre looking at these longer time to conversion how should we think about the change in visibility as we go out beyond kind of your current forecast horizon.
James Fawcett: Okay.
Speaker Change: The project sizes as I touched on in the opening remarks earlier.
Speaker Change: Oh larger of course, one of the.
Speaker Change: And just to walk through with clients is to step them a roadmap.
Speaker Change: We're like well if they can see the article cites like can actually break.
Speaker Change: The deliverables down into more bite sized chunks.
Speaker Change: With business benefit aligned with that.
Speaker Change: So that we turn it into an incremental.
Speaker Change: Improvement approach.
Speaker Change: It still hits the longer conversion time that ive been touching on.
Speaker Change: <unk> is the need for the overall framework.
And the client confidence.
Speaker Change: The roadmap that they had.
Speaker Change: Yes.
Speaker Change: But then once we start moving into pulling off.
Speaker Change: Alright, so its chunks.
Speaker Change: Then the program gets traction and starts to move forward.
Speaker Change: The competition question is is mix I think sometimes yes.
Speaker Change: Do you see higher levels of competition.
Speaker Change: But other times.
Speaker Change: It follows the traditional.
Speaker Change: Business, winning approach that we've had over the last 25 years.
Where we've been working with our clients around the audit the possible.
Speaker Change: Doing proof of concepts, whether it be AI and are at the core modernization and.
Speaker Change: To show them, what can be achieved.
Speaker Change: Alongside the roadmap planning and then actually start to see that pull off without without going through an RFP or a large scale process. So it falls into both categories.
Speaker Change: We do see a little bit more if they are the competition in the RFP process on some of the large programs, but but not exclusively.
Speaker Change: Got it got it and then just touching on the the visibility point I mean, it seems like.
Speaker Change: Is this improving your visibility I guess beyond this fiscal year into next and when should we I misspoke, a little bit on Jonathan's question.
Speaker Change: Like how should we be thinking about the pace of hiring or for net head count additions over the course of the rest of this fiscal year.
Speaker Change: So they so they don't go into the decision, making Max judgments hotline conversion more challenging than it has been.
Speaker Change: So we are adopting a cautious approach to that I think as we're approaching.
The turn of the calendar year budgets are being set.
And again.
Speaker Change: Exactly sort of caution around.
Speaker Change: Our assumptions around pipeline conversion that I don't have that sort of manifest itself in the sense of head count growth as the <unk>.
Speaker Change: Tissue types.
Speaker Change: Any sort of significant ramp up.
Speaker Change: And head count until we get.
Speaker Change: Well into.
Speaker Change: Q3 ready.
Speaker Change: We are recruiting though I have to say, we also have shown certain skills, which are high demand site data and cloud.
Speaker Change: But I was just talking up skills.
Speaker Change: What we can see here now.
Speaker Change: That's great. Thanks for all the color.
Thanks, John.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to John Cottrell for closing remarks.
John Cottrell: Thank you and thank you all for joining us today as.
John Cottrell: As I mentioned in my prepared remarks, we believe the market continues to exhibit characteristics of a significant digital shifts.
John Cottrell: Less visible in the slowdown of more traditional digital business alongside the acceleration of new mainly AOS core modernization driven.
We believe our experience and expertise in digital transformation.
John Cottrell: And core modernization makes us the ideal partner for our customers and this new disruptive wave.
John Cottrell: Additionally, as a result of the digital shift and I'll work into the cool pool. We believe we can now offer services to a wider range of potential clients.
John Cottrell: Well look forward to our Investor day Tomorrow. So that you can join us and to our next earnings call in February. Thank you.
Speaker Change: The conference has now concluded.
Speaker Change: You for attending today's presentation you may now disconnect.
Speaker Change: [music].