Q4 2019 Earnings Call
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Thank you operator, good afternoon, everyone and welcome to end of US fourth quarter of fiscal 2019 and fiscal year 2019 earnings Conference call. As a reminder, this conference call is being recorded joining me today, our engine control and that as Chief Executive Officer, and Mark person and other chief financial.
For sure.
Are we began its quick reminder, to our listeners are remarks today include forward looking statements, including our guidance for Q1 fiscal year 2020 and afford the full fiscal year 2020 .
Other forward looking statements. 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 to resolve or timing predicted or implied by such forward looking statements and reported results should not be considered as an indication of future performance. Please note that these forward looking statements made during this conference call speak only.
As of today's date and the company undertakes no obligation to update them to reflect subsequent events or circumstances on other than to the extent required by law. Please refer to our FCC filings as well as our financial results press release for a more detailed description of the risk factors that.
Any affect our results.
Also during the call will present, both I FRS and non I FRS financial measures reconciliation of non I FRS two I FRS measures is included in today's earnings press release, which you can find on our Investor Relations website, a link to the replay of this call will also be available there.
With that I'll turn the call over to John .
Thank you all very much for joining us today.
And I'm very pleased to be has bought an update on our business and financial performance for the three months ended June Thirtyth 29 team.
And for all fiscal year 29 team.
And the other had another record quarter for Q4 fiscal year 19 with revenue of 76.6 million pounds, a strong growth of 24.6% year on year from 61.5 million pounds in the same quarter in the prior fiscal year all of it on an organic basis.
Our revenue growth rate that constant currency was 22.7% year on yeah.
Our strong revenue growth is driven by the expansion of our existing customers on the acquisition of new ones during the quarter.
We continue to broaden our client base and added 20, new ones during the quarter in all regions Unversed cools.
We ended the quarter with 275 active clients up from 258 at the end of the same quarter in the prior fiscal year.
I'd like to reflect on our accomplishments in our first yeah as a public company.
It's been an exciting journey for us and all listing on the New York stock exchange as being a catalyst for all visibility.
We continue to expand in all three of our industry verticals, while accelerating our growth in new verticals.
For the fiscal year ended June 30, as 2019, our revenue totaled 287.9 million pounds up 32.3% year over year.
The total number of clients, who generated revenue over 1 million pounds increased by 37% year on year to 63, well those generating revenue over 5 million pounds increased by 88% to 15 during the same period.
In the last fiscal year, we grew in all of all regions and verticals.
In North America, our revenue increased 73.8% year on year in Europe by 7.8% and in the UK, 31.4%.
All of our verticals also grew very strongly with payments some financial services up 23% year on year.
TMT up 29.1%.
The other up 73.1%.
We had strong revenue growth and improved operating margins.
As we spend time talking to our customers about the challenges and opportunities they face and embracing digitization, we see a number of trends emerging.
Whilst many organizations have embraced the opportunities provided by becoming a more EPA centric. There is an increasing realize position the to gain broader agility and efficiency advantages investments need to be made in decoupling and simplifying legacy architectures cluster.
Those are having to address them one would challenge.
Exercise can seem somewhat daunting.
But it is our experience the aligning business objectives, and Roadmaps alongside technology change Roadmaps organizations have the opportunity to decouple the same time as delivering change programs.
Increasing the organizations also talking about the phadia to realize the gains anticipated from adopting robotic process automation technologies.
This is largely driven from using the tools and approach and attract pool versus strategic fashion.
To truly realize the potential offered organizations have to have roadmaps to not only automate the Columbus and manual processes, but also to describe how those processes are ultimately subsumed into core systems and platforms, we believe that coming out the solution from the perspective.
The business problem, coupled with deep technical expertise allows us to propose more intelligent and sometimes custom developed automation solutions that go beyond what can be described by non technical users.
Both of these macro trends highlight the need to consider systems combined in an architecture from a more evergreen perspective, rather than considering the lifecycle of systems from the perspective of projects on programs change should being priced as a constant when business.
See teams then embraced the benefits of thinking in products and placing user experience at the heart of what they do there is a recipe for success.
The into other online community remains very active with over 30 postings on technology thought leadership in the quarter ended June 32019.
Today I'd like to highlight how our technical solutions and product innovation offerings, helping clients in the fast evolving world of TMT.
In the office creativity combined with our technical expertise has been instrumental in helping our TMT clients develop and implement new technologies to reach new markets and further drive sales by innovating that product offering.
In the technology sector, we've utilized our experience in distributed agile delivery to support the innovation product development and engineering integration efforts of poly.
Formally plantronics and Polycom.
We've been working with the engineering teams for the last eight years on developing their desktop mobile and cloud software product lines and helping them maximize the value of the headsets.
Dover is also a certified Cisco preferred supplier and we've been working with them on Webex conferencing, Webex teams and Cisco Jabah messaging IP telephony and video endpoints.
Two years ago, we began working with display link a fabulous semiconductor company developing technology that enables seamless connectivity between devices and displays irrespective of operating system or display connector and whose chips used in products from some of the world's leading.
C and peripheral brands.
We started by developing a colonel mode driver for an emerging USBC technology, an area that was new to us which mental teams were excited to tackle the new technical challenge.
We quickly deliberate approach taught driver compatible with similar software stacks developed by Microsoft until.
Nine months later this driver is fully featured complete and highly performance with display length using it to showcase their solutions to new OEM customers.
Display link increased the scope of work mid development in order to build a similar colonel driver for the Android platform accelerating significant new opportunities in the Android smartphone market.
We continue to expand our relationship with display link.
Using our creative and cloud services, and we are working as a partner across other business areas and operations.
Other projects the West Coast technology clients often include analysis of data to ensure that provision of excellent cloud based services to their customers, including subscription based services and loyalty platforms, which allow clients to keep close to that customers.
We are providing near real time data analysis and measurement solutions through the cloud to large technology clients.
Help them interact successfully with their customers, both b to B and B to C.
Our partnership with pain and company continues to grow strongly we now have three clients, who registered over 1 million pounds of revenue to indaba since we announced our partnership to date, we've completed over 10 projects through this partnership helping drive revenue growth for both.
Businesses together, we are focused firstly on digital transformation programs.
Secondly, on working with PE firms to develop their investment thesis for perspective targets.
And finally on building great product that uses technology to help bain accelerate that consultancy offerings.
Our client growth continues to translate into strong employee growth. We ended the fiscal year with 5754 employees.
19.4% increase from 4819 at the end of the last fiscal year.
While the competition for talent remains challenging our strategy of being an employer of choice in the cities, where we operate is a strength in recruiting and retaining talent.
The team of 32 highly experienced salesforce specialists based in Romania, who joined US early June is already well integrated and now working as part of in dollar sales and delivery.
Salesforce is a disruptive technology for our existing client base and this team is helping to accelerate our industry lines of business by giving us an extra dimension to explore with existing customers plus creating opportunities with new organizations.
On a macro level, we continue to review the potential impacts of Brexit on in dollar.
Currently we are not spyware of any clients, who are adjusting their spending plans with us as a result of the uncertainties caused by Brexit.
I'm pleased to announce the appointment of Celina Connell to our board of directors. She has served as a director of mobile and connectivity partnerships at Facebook and previously served as the senior Vice President of strategic partnerships at Orange.
We're off to a strong starts to the here and despite macro uncertainties client demand for digital transformation is not pivoting.
Demand remains strong in all geographies and verticals and we remain optimistic about our ability to deliver sustainable growth in the future.
I'll now pass the call onto Mark first than our CFO , who will walk you through our financial results for the quarter and the fiscal year and provide guidance for the coming quarter and the new fiscal year.
Thanks, John .
Service revenue totaled 76.6 million pounds for the three months ended June Thirtyth 29 team compared to 61.5 million pounds in the same period last year.
24.6% increase over the same period in the prior year.
In constant currency revenue growth rate was 22.7%.
Our adjusted profit before tax for the three months ended June 30, 29 team is 13.5 million pounds compared to 9.7 million pounds for the same period last year, a 39.9% year over year increase.
Our adjusted profit before tax margin was 17.6%. The three months ended June 30, 29 team compared to 15.7% for the same period last year.
The year over year improvement in our adjusted profit before tax margin is mainly due to a continued positive pricing environment FX tailwinds under control as DNA.
Adjusted profit before tax is defined as the company's profit before tax for the period adjusted to exclude the impact of share based compensation expense amortization of acquired intangible assets realized and unrealized foreign currency exchange gains and losses initial public offering expenses incurred sarbanes.
Obviously compliance of readiness expenses.
Finally movement of contingent consideration secondary offering expenses incurred stamp duty on transfer shares all of which are noncash other than realized foreign currency exchange gains and losses initial public offering expenses Sarbanes Oxley compliance readiness expenses secondary offering expert.
This is incurred and stamp duty on transfer shares.
Adjusted PBT margin is calculated as a percentage of our total revenue.
Our adjusted diluted EPS was 20 pants for three months ended June 29 team calculated on 55.2 million diluted shares as compared to 15 pants for the same period last year calculated on 51.3 million diluted shares up.
33.3% year over year.
Revenue from our top 10 largest client accounts for 40% around revenue for the three months ended June 30, 2019 compared to 39% in the same period in the prior year and the average spend per client from our top 10 largest clients increased from 2.4 million pounds to three.
Point 1 million pounds for the three months ended June 30, 29 team.
We continue to grow outside of our top 10 clients. The number currency generated revenue of at least 1 million pounds on a rolling 12 month basis grew to 63 at June 30, 2019 compared to 46 at June 30 2018.
These large clients operates in all three of our geographical locations North America, Europe and UK.
In the three months ended June 30, 29 team North America accounted for 28% of revenue compared to 26% in the same period last year.
Europe accounted for 27% of revenue compared to 31% in the same period last year and the UK for 45% of revenue compared to 43% in the same period last year.
Revenue from North America grew 34.2% for three months ended June 30 of 29 team over the same quarter of 2018, comparing the same periods revenue from Europe grew 8.2% and the UK, 30.5%.
We grew in all three of our industry verticals during the quarter.
Revenue from payments in financial services grew 22.4% for the three months ended June 30 at 29 team over the same quarter of 2018 and accounted for 52% of revenue compared to 53% in the same period last year.
Revenue from TMT grew 21.9% for three months ended June 30, 29 team over the same Ctwenty 18, and accounted for 28% of revenue unchanged from the same period last year.
Revenue from other grew 35.1% for three months ended June 30, 29 team over the same quarter of 2018, and now accounts for 20% of revenue compared to 19% in the previous fiscal year.
This growth was mainly driven by clients in the consumer products goods services and education sectors.
Our adjusted free cash flow was 8.9 million pounds for three months ended June 30, 2019, compared to 11.9 million pounds. During the same period last year. This is largely due to timing of cash outflows in the comparative quarter.
Our adjusted free cash flow is on net cash provided by strong used in operating activities plus grants received less net purchases of non current tangible and intangible assets.
Capex for three months ended June 30, 2019 as percentage of revenue was 2.9% compared to 2.8% in the same period last year.
I'd now like to move onto some highlights for our fiscal year 29 team.
And don't have as revenue totaled 287.9 million pounds for the fiscal year 2019, compared to 217.6 million pounds in the previous fiscal year, 32.3% increase over the same period in the prior year.
In constant currency, our revenue growth rate was 31.1%.
Our adjusted profit before tax for the fiscal year 2019 totaled 52 million pounds compared to 33.5 million pounds for the same period last year at 55.3% year over year increase.
Our adjusted profit before tax margin was 18% for the fiscal year 2019, compared to 15.4% for the same period last year.
The year over year improvement in our adjusted profit before tax margin is mainly due to a continued positive pricing environment improve utilization and FX tailwinds.
Our adjusted diluted EPS was 76 cents for the fiscal year ended June Thirtyth 2019 calculated on 55 million diluted shares as compared with 53 pants for the previous fiscal year calculated on 50.4 million diluted shares up 43.4% yeah.
Every year.
Revenue from our top 10 largest clients accounted for 38% of revenue for the fiscal year ended June 30 of 29 team compared to 42% in the previous fiscal year.
Additionally, the average spend per client from our top 10 largest clients increased from 9 million pounds to 10.9 million pounds, a 20.2% year over year increase.
We grew in all geographies on a year over year basis, with North America up 73.8% year over year, Europe , 7.8% and the UK, 31.4%.
On a year over year basis, the revenue from payments and financial services increased 23%.
DMT, 29.1% and other 73.1%.
The year over year growth in other came mainly from consumer product goods energy healthcare retail and services.
Our adjusted free cash flow was 29.8 million pounds for the fiscal year ended June 30 at 29 team compared to 28.7 million pounds. During the same period last year.
Capex for the fiscal year ended June Thirtyth 2019, as a percentage of revenue was 2.5% unchanged from the same period last year.
Soon to an agreement that we entered into with well pay in November 2016, we granted will pay an option to acquire our captive Romanian subsidiary that we created and staff will pay.
On June 1st 29 team, we entered into an agreement to sell the caps will pay and to terminally option and transfer agreement and on August 31st 2019, the transaction was completed.
Our guidance for Q1 fiscal year 20 is as follows.
We expect revenues will be in the range of 81 million pounds to 81.8 million pounds, representing constant currency growth of between 20 and 21%.
We expect adjusted diluted EPS to be in a range of 21 to 22 pence per share.
Our guidance for the full fiscal year 2020 is as follows we expect revenues will be in a range of 346 million pounds to 348 million pounds, representing constant currency growth of between 20 and 21%.
We expect adjusted diluted EPS to be in a range of 85 to 88 pence per share.
Our guidance regarding constant currency growth is pro forma for the sale of the captive which closed on August 31st.
This concludes our prepared comments operator, we're now ready to open the line for culinary.
Thank you as a reminder to ask a question you want me to press Star one on your telephone to withdraw your question press the pound or hash key please standby compiler Q and a roster.
And our first question comes from the line of Bryan Bergin from Cowen Your line is open.
Hi, This is actually Gerald Levine on for Brian . So I just have one question. The quick follow up after so in terms of the cap to sale now completed what is the updated outlook in terms of the broader FDIC counting any cross sell successes to date you can mention.
Sure Hi, Joe.
Yes Jared.
Jared Hi.
Yes, thanks for that the yes, just to recap so you the captive.
Deal closed at the end of August .
Obviously, the Fiat deal with well pay.
I'm also closed a little bit slightly more recently Matt.
I mean, the relationship with well pay remains very strong.
We've got a number of conversations going direct with yes.
But I think in a few weeks since that closed.
It's probably too early to actually see cross sale.
What we are seeing is some of the fire strategy about where they want to do with well pay to start to cascade through.
Into some of the backlog of work that we're starting to conform.
Gotcha and then just one quick follow we noticed the new board member anything to call out there.
Far as new potential opportunities there.
Okay. So he knows.
Currently at Facebook.
And she runs number that partner programs there so.
I will let easy and as a board member first but.
Hopefully over time, there might be some introductions that she can Mike.
Perfect. Thank you congrats on the quarter.
Thank you.
Our next question comes from the line of Bryan Keane from Deutsche Bank. Your line is open.
Hi, guys congrats.
I wanted to ask about clients.
Over 1 million pound it looks like it dropped sequentially by 463 looks a little bit unusual compare to the region trends anything to call out there.
Hi, Brian .
No not really it's it's a 12, it's a 12 month measure.
So any sort of minor change in activity quarter on quarter.
Relegate decline below the the 1 million.
I think what gives you a better sense of the progress actually is if you look at it annually and.
20-F hasn't I think has just come out certain there in the.
The detail, but the was very encouraging is actually the the progress of the number of clients going up the band So we call out in the 20-F.
Alright over 5 million two to five so up over 5 million from 28 team went from eight to 15, our two to 5 million went from 20 to 26, and then our $1 million to $2 million.
For the 16 to 22 said.
I think it's just one of those.
Small movements that we get.
Actually from quarter to quarter.
Got it got it and then on I know you guys talked about well intact from breaks.
Can you talk a little bit about the Europe geography.
Earn out there.
Potential slowdown or you guys seeing anything or anything in the pipeline that could suggest.
Pressure from Europe .
Yes so.
Actually the reason why we're not growing as strongly in Europe is because we're pushing more of that new territory energy into the us.
In terms of where we're expanding the sales force.
Putting our investment.
So the slower growth in Europe is more a function of.
Our focus in energy's over the last 12 months.
Than a function of actually lack of opportunities there.
Just rewind it was.
About 21 months ago, we did the velocity partners deal, which gave us a big step up in the states.
That integration is going very well.
And.
Combining those sales teams and beginning to drive the action and activity in the years with a critical.
Paul.
A follow through on on that merger and acquisition so.
The organic growth that you're seeing in the U.S. absolutely place to that.
We will start put some attention back into Europe knowledge that lease I now and I think over the next 12 months, you'll see it picked up the results from the energy viewpoint.
Okay, Great and then last question I add is on the revenue guidance.
Constant currency hold for the first quarter and for the full fiscal year.
Yep.
You guys are expecting pretty constant growth not a lot of fluctuation.
Quarter is that just you're moving.
There are just.
Demand that you're seeing you don't expect to see any real fluctuations in revenue growth rate.
Hi.
And so I certainly sort of looking out of Q1, we're not that far off from it so.
That is a pretty sort of nailed down sort of figure.
The growth for the full year, obviously is.
Good sort of nine months off.
So we have put sort of visibility going ahead and.
The demand for our services sort of continues and maybe some variation over the course as BARDA and expected to be significantly.
Okay, great. Thanks for taking the questions.
Right.
Our next question comes from the line of Charlie Brennan from Credit Suisse. Your line is open.
Great. Thanks for taking my questions.
Just to actually the first as a follow up on that revenue guidance.
I was earmarked you've got basically 100% visibility of Q1 your visibility is less than that for the full year as a whole.
If I look up my model it looks like the second quarter com saw optimal three points harder than during Q1.
Can you just give us some visibility into the.
No contracts that are ramping up and ramping down the give you some confidence that you can sustain that Q1 gross rates.
And then secondly, if we just dropped down through the peer now we've seen we've seen margins ticking higher.
You're obviously called out the the rising prices on an FX benefits.
Can you just update us on where you think the right sort of medium term margin when divers for the company. Thank you.
So you say, you're absolutely right about the sort of visit visibility sort of Q1 Q2.
So.
I think there's no there's nothing sort of significant in terms of growth I think the.
Console consensus we have out that.
It's quite sort of strong for Q2.
We see more strength actually in the second half from where we're looking at the moment.
So that's basically all I can say really about that.
In terms of.
Margins and and.
Our margins sort of structure so.
Absolutely right, we maintained our gross margin adjusted gross margin going from.
Q3 Q4.
Basically that was a factory utilization not coming off as strongly as we anticipate because of the continued strength we were helped with.
The strong pricing environment that we're in and we are getting a little bit of help on FX I suspect.
That our Q1 gross margin.
We'll probably be as strong as our Q4 margin mainly because the utilization remains where it is some way as I've said that the pricing remains good.
We are keeping the weather I also on the Argentinian so pest side as well, where we have proportion of all cost base. So I think the gross margins are going to remain.
Where they are.
The moment gang certainly through Q1 Q2.
But going out further into the second half, which is one just to remind you when we have our major pay round that should adjust the margins down five percentage point tool side.
And SGN as we go through the year. It's it was pretty high as we sort of had flagged for Q4, it 22.7%, we'd anticipate that moving down over the course as the year, but it will remain.
Roughly about that level in the first half so I think we're going to see some strong.
Adjusted PBT margin in Q1.
But then it will move down to levels that were indicating in the guidance for the full year.
I'm just.
A quick financial follow up certainly relative to my motto. There was a nice earnings be but it looked like it was driven by.
Interest income can you just remind us why the interest incomes come from will happen start interest line through this year.
Yes, certainly so the income is basically because of the IPO proceeds the current on deposit.
They have not makes all the meaningfully deploy that we are cash generative sort of business. So we had a net.
Income.
For Q3 in Q4, and I think we will also see that in Q1, we are anticipating.
We have to take into account chart that we moved our FX in those lines, but it also we are anticipating putting in place.
An extended revolving credit facility.
We said, we currently have a facility a 50 million and we see significant sort upsizing in that in time for Q2, Q3 and Q4. So the interest line will move up as we covered a commitment fee cost on that.
Correct correct. Thank you.
Again, if you'd like to ask a question that star one on your telephone keypad. Our next question comes from the line of making no Nolan from William Blair. Your line is open.
Hi that aren't for Maggie.
I wanted to ask about the new client industry.
Corridor.
Could you give us an idea of what verticals.
We're very active principal accounts there.
So we could you repeat the question we've struggled to pick that up.
Yes.
So wanted to ask about new quite additions this quarter could you give us an idea of what verticals distant worried and if there any.
There.
Yes.
Can you hear or.
So.
So the new client additions so.
Seven of them we're in the us.
And out of those seven four of them. We're in TMT, one was payments financial services.
And the two others were both in health care.
The six of them where in the UK.
One in the payments financial services space.
And five in the other space ranging across education.
Health care nonprofit and some retail.
Activity.
That does that give you a feel for.
Yes, that's very helpful.
Then as a follow up I wanted to ask about.
Area the business.
Well.
You're going to emphasize this year in terms of investment. So this last year, North America's Korea, a priority for that.
Well, our about security business, you are going to double down here in 2014.
Yes.
Sure, Yes, so as you picked up one of the areas that were starting to.
Push energy and is ramping.
Sales activity in Europe certainly.
We can find some M&A opportunities that.
Again to fit that Europe focus as well will give those a lot of attention.
Across the segments and so on that we operate in.
There there what we're always looking for is.
Those sectors of the business where.
Technology, and the new technologies going coming through are actually going to drive.
Changes to business models and changes.
To the way in which organizations operate.
And you know we've got our eyes on a few.
Segments, where where we're seeing nice things pick up.
Certainly insurance in the financial World.
We're seeing more and more activity and a few clients starting to really get going on that transformations asset in wealth management also.
That one's been going for a little while but its continues to build momentum.
If we look across to the.
The other space, where we see a lot of activity.
Healthcare now that were more established in the U.S. is becoming a much bigger opportunity for us than than it was.
Over here in Europe .
The logistics space, we're actually seeing some opportunity to look at convergence across logistics travel automotive essentially the whole mobility space.
Around helping people and.
Items move from.
One place to another.
And the changes of business models that are being enabled through the technology through fiveg et cetera, that's starting to be applied to that space. So once again.
You know in the early stages of shaping programs with clients around.
Around what could happen, there and starting see a pickup in execution.
That's very helpful. Thank you.
And we have no further questions at this time I will turn the call back over to the presenters.
Well. Thank you all for joining us today as you've heard through the coal we remain optimistic about our ability to maintain our sustainable growth and we look forward to speaking to you next quarter. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.