Endava plc (DAVA) Q3 2022 Earnings Report, Transcript and Summary

Good morning. My name is Rob(ph), and I will be your conference operator today. At this time, I would like to welcome everyone to the Endava Third Quarter Fiscal Year 2022 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Laurence Madsen, Head of Investor Relations, you may begin your conference.

Thank you. Good morning, everyone and welcome to Endava's Third Quarter Fiscal Year 2022 Conference Call. As a reminder, this conference call is being recorded. Joining me today are John Cotterell, Endava's Chief Executive Officer, and Mark Thurston Endava's Chief Financial Officer. Before we begin, a quick reminder to our listeners. Our remarks today include forward-looking statements, including our guidance for Q4 of fiscal year 2022 and for the full fiscal year 2022 and statements regarding our perceived opportunities and anticipated future growth and geographic expansion. Our expectations regarding digital transformation of businesses and industries, and our industry trends. The necessity of digital transformation for many companies and Endava's ability to benefit therefrom. Potential technological advances, our expectations for future partnerships, and ability to expand our existing relationships. Anticipated client demand for Endava services. Our ability to attract and retain employees and be the employer of choice in multiple geographies. And our ability to execute on our sustainability objectives, as well as 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 the results 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 other than to the extent required by law. Please refer to the Risk Factors section of our annual report on Form 20 F filed with the Securities and Exchange Commission or the SEC on September 28, 2021. And as updated in Exhibit 99.2 to our current report on Form 6-K, filed with the SEC on March 30, 2022, which contains a discussion of important factors that could cause actual results to differ materially from those contained in any forward-looking statements. Also, during the call, we'll present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which you can find on our Investors Relations website. The link to the replay of this call will also be available there. With that, I'll turn the call over to John.

Thank you Laurence. I'd like to thank you all for joining us today and I hope you're all well. We're pleased to be here to provide an update on our business and financial performance for the three months ended March 31, 2022. I'm pleased to report that we continue to be in a very favorable business environment where demand outweigh supply and therefore we remain very selective in the business we take on. We carefully balance expanding work with existing clients and taking on new ones. Our ability to serve as clients from Central Europe has not been impacted by the war in Ukraine. And we remain thoughtful about the locations for our delivery centers. And a very mindful of managing potential geopolitical risks in the countries where we choose to expand. Additionally, our distributed agile delivery model provides for a multi-site delivery approach, spreading delivery to individual clients across multiple centers, reducing risks associated with any one location, and making business contingency planning highly effective, should it be required. And over reported revenue of £169.2 million for Q3 of our fiscal year 2022, representing a 50.9% year-on-year increase in constant currency from a £112.3 million in the same period in the prior year. We ended the quarter with an adjusted profit for tax for the period of £34.2 million, representing a 43.1% year-on-year increase from £23.9 million in the same period in the prior year. Our strong revenue growth continues to be driven by both the expansion of work for our existing clients and the acquisition of new ones during the quarter. The continued scaling of existing projects and accounts continues to drive the growth of larger clients and the increased spend by these clients. We ended the quarter with 717 active clients, up from 567 at the end of the same period in the prior year, a 26.5% year-on-year increase. Importantly, we grew the number of larger clients with a total of 118 clients paying us in excess of £1 billion per year compared to £81 in the same period last year, representing a 45.7% year-on-year increase. Additionally, the average spend of our top 10 clients continues to grow strongly and was up 44.2% year-on-year in the three months ended March the 31st, 2022. Our business in the U.S. continues to expand strongly and revenue from North America grew 75.5% for the three months ended March the 31st, 2022. Over the same quarter last fiscal year, with demand particularly strong in banking and capital markets and insurance, as well as intact and mobility. Revenue in our payments and financial services vertical growing by 46% year-on-year, driven by strong growth in all the sub-segments of that vertical. Our other vertical also grew very strongly. Up 77.3% year-on-year, with mobility being the key driver. Healthy demand from our clients continues to be driven by technology and [Indiscernible] transformations occurring in many industries such as autonomous vehicles, frictionless payments, data insights, and supply chain pressures. There remains much interest in the topic of the metaverse as entire ecosystems are emerging around it, while we're seeing a broadening of its applications. We believe this represents an opportunity for Endava as an expanding area of digital acceleration. For example, we are already seeing an increasing interest in practical applications of virtual and augmented reality using headsets like Microsoft's HoloLens. We have recently developed virtual showing rooms, assistance applications for logistics workers, 3D industrial training applications, and business to consumer applications for areas like furniture and toys, and the virtual experiences for tourists. All of these applications for acquire a blend of skills, including user experience, 3D graphical design, software engineering, automation, and specialized testing and are ideally suited to our cross-functional delivery teams. Such projects also often involve or lead to work on infrastructure, back-end services, or data analytics, generating work for other teams as well. We are investing in the space as we see good growth opportunities. And other recently joined the Unity Certified Creator network, which leverages Unity technology to solve customer problems. With the power of real-time three-day. The membership-based ecosystem is focused on putting diverse, innovative creators such as Endava at the center of the metaverse economy. As we expand our expertise in the media and telecommunications segments, we'd like to highlight a number of clients, both North American and European, where we are accelerating the evolution of their businesses through the application of next-generation technologies. In the media vertical, we're seeing increased demand in building products and platforms in line with the industry's technology disruption [Indiscernible] and early movement towards the decentralization and token-based economics fundamental to [Indiscernible]. We're also helping our clients monetize the metaverse, both in North America and Europe. Endava has been working with a U.S. based gaming company, building the platform for virtual blockchain-enabled gallery in the metaverse to view and transact in NFTs. We're also working on enhancing internal tools for their block chain gaming platform, which will streamline automation when it comes to reviewing and publishing their games. We're working together with the engineering leads to design and deliver the next iteration of their back-end platform, heavily focused on reusable micro services that will provide a scalable and flexible infrastructure. We've been working with consensus, a leading Ethereum software technology company on several of that block chain based product offerings. Starting with Comngo, a trade finance platform backed by 15 of the world's largest banks, trading an oil companies, enabling authorized participants to securely transact using block chain for trading and for the standardization of documents. We're also working on Covanta's platform servicing some of the leading global agricultural commodity providers with a global network for efficient execution of bulk agricultural trade operations, including noticed issuance and visualization, as well as user productivity management. Finally, we're working on Mehta mosque, the primary way at global user base of approximately 30 million monthly active users interacts with a universe of Web3 applications. They include NFV marketplaces, later on, games, de -centralized autonomous organizations, which have software platforms running business processes on transparent block chain protocols. De -centralized financial applications, and metaverse worlds. We started with a small team, which over the last few years, grew to include many scrum teams. Also in media, Endava works with video [Indiscernible], a media measurement and optimization software company, whose goal is to create a more sophisticated, data-driven advertising ecosystem. Our partnership aligns with and supports their goal to redefine how media is valued, bought, and sold. Similar to the scale of the technology disruption wave we see in media, the telco vertical is also moving into a new period of accelerated disruption as the scaled availability of 5G networks has created vast new areas of opportunities for the evolution of mobile experiences. In line with this theme, and supporting a long-term European telecom client, we've recently delivered a large cloud-native gaming platform, leveraging 5G technology to enable unprecedented low latency gaming experience. For that same client, Endava is supporting their innovation unit with application layer and low-vol software expertise in the area of time critical applications over 5G with rate adaptation. Further, we are currently upgrading and managing the e-commerce platform and payments gateway of another large European telecom clients. They look to evolve that business. We're on track to stabilize and provide direction of travel for this complex platform. I'm also very excited about our recently announced partnership with Stripe. We joined Stripe 's new part ecosystem as a key strategic partner. This ecosystem allows merchants to grow their business by connecting them with over 800 partners to facilitate new offerings, experiment with new business models, and monitor as payments transactions. By keeping pace with the escalating adoption of SaaS tools and commerce platforms, merchants are able to reach new customers and increased conversions with a frictionless customer experience. To service space increased customer demand, we continue our growth from a people perspective. We ended the quarter with $ 11,001 [Indiscernible]. That's 35.4% increase from $ 8,127 in the same period last year. While competition for talent remains intense, our focus on recruiting the best talent in the countries where we are located is unchanged. And I'm pleased that our success in recruiting and retaining the people we need. We continue our geographical expansion and diversification. We are expanding our team in Toronto, Canada. In Poland, we currently have two delivery centers in Gdansk and Walbrzych and plans to add several more locations in the coming months. Our expansion in Mexico is progressing well with our delivery center in Monterrey, where we are actively recruiting. We also very recently opened a new delivery center in Kuala Lumpur, Malaysia, to service our APAC customers, and a close to clients location in Dubai, UAE. Additionally, to meet the continued strong growth in demand in North America, we continue to accelerate our LATAM presence. We ended the quarter with over 1780 Endavans in the region. up for 65% year-on-year. At Endava we're going to support our staff and give them the opportunity to achieve their professional ambitions. One of our tools to help them achieve their goals is our award-winning Endava well being program, which we recently offered master classes and workshops, focused on mental well being. As we come together in caring for the environment, we're keen on getting increasing awareness on environmentally friendly practices, both at work and at home through relevant mask losses, workshops, and digital resources. As an example of our efforts, I'm delighted that our Endava Thank You Forest Campaign has recently been awarded CSR Program of the Year at the [Indiscernible]. Under this campaign, we plant a tree for each thank-you note sent by one Endavan to another, both addressing our ecological aims and furthering our collaborative culture. We have planted 23,000 trees near five of our locations and 10,000 more are being planted in May. We look forward to keeping and growing our Endava forest as we continue sharing gratitude by sending e-thank yous. Endavans wanted to respond to the humanitarian crisis in Ukraine, so we launched an employee mash donation campaign and together we raised €1 million. Our combined efforts will help thousands of Ukrainians with our donations to NGOs working on the ground in Ukraine and at the borders of Moldavia and Romania. Demonstrated by our financial results, demand for our services remains strong. We're navigating a challenging global macroeconomic environment and remain excited about the opportunities in front of us and remain confident in our ability to execute on our objectives. Let me end by thanking our people for their resilience and adaptability as they continue to deliver innovation, quality, and excellence to our clients. They enable the performance and the opportunity for our business that I've just discussed. I will now pass the call on to Mark, who will walk you through our financial results for the quarter and provide guidance for the coming quarter and the fiscal year.

Thanks John, Endava's revenue totaled a £169.2 million for the three months ended March 2022 compared to a £112.3 million in the same period in the prior year, a 50.7% increase over same period in the prior year in constant currency, our revenue growth rate was 50.9% Profit before tax for Q3 fiscal year 2022 was £25.9 million compared to £16.5 million in the same period in the prior year. Our adjusted profit before tax for the three months ended March 31, 2022 was £34.2 million compared to £23.9 million for the same period in the prior year. Our adjusted profit before tax margin was 20.2% for the three months ended March 31, 2022, compared to 21.3% for the same period in the prior year. Adjusted profit before tax, or adjusted PBT is defined as the company's profit before tax adjusted to exclude the impact of share-based compensation expense, amortization of acquired intangible assets and realized and unrealized foreign currency exchange gains, MoSys, all of which are non-cash items adjusted PBT margin is adjusted PBT as a percentage of total revenue,

Our adjusted diluted eps was £48 for the three months ended March 31, 2022 calculated on $ 58 million diluted shares as compared to £34 for the same period in the prior year, calculated on $ 57.2 million to China's, revenue from our ten largest clients accounted for 35% of revenue for the three months ended March 31, 20-22, compared to 36% for the same period last fiscal year. Additionally, the average spend per client from our 10 largest clients increased from £4.1 million to £5.8 million for the three months ended March 31, 2022, representing a 44.2% year-over-year increase. In the three months ended March 31, 2022, North America accounted for 33% of revenue compared to 29% in the same period last fiscal year. Europe accounted for 21% of revenue compared to 25% in the same period last fiscal year. And the UK accounted for 43% of revenue unchanged from the same period last fiscal year, while the rest of the world accounted for 3%, unchanged from the same period last fiscal year. Revenue from North America grew 75.5% for three months ended March 31, 2022 over the same quarter of the fiscal year 2021.

Comparing the same periods, revenue from Europe grew 26.9%, the UK grew 49.4%, and the rest of world grew 28.8%. We grew in all 3 of our industry verticals during the quarter. Revenue from payments and financial services grew 46.0% for 3 months ended March 31, 2022. Revenue from payments and financial services accounted for 51% of revenue compared to 53% in the same period last fiscal year. Revenue from TMT grew 40.08% for the three months ended March 31, 2022 of the same quarter of 2021 and accounted for 25% of revenue compared to 27% in the same period in the prior year. Revenue from other grew 77.3% for 3 months, ended March 31, 2022 over the same quarter of 2021 and now accounts for 24% of revenue compared to 20% in the same period in the prior year. 1 We now turn to our adjusted free cash flow, which is our net cash provided by operating activities plus grants received less net purchases of non-current tangible and intangible assets. Our adjusted free cash flow was £16.1 million for the three months ended March 31, 2022, compared to £10.2 million during the same period last fiscal year. All cash and cash equivalents at the end of the period remain strong. At a £120.4 million March 31, 20-22, compared to £69.9 million achieving 30th, 2021. CapEx for three months ended March 31 2022 as a percentage revenue was 1.6% compared to 1.2% in the same period last fiscal year. Our guidance for Q4, fiscal year 2022 is as follows. Endava expects revenues will be in a range of a 177 million to 179 million representing constant currency revenue growth of between 29% to 31%. Endava expects adjusted diluted eps to be in the range of 48 to 49 pence per share. Our guidance for full year fiscal year 2022 is as follows. Endava expects revenues will be in the range of £652 million to £654 million, representing constant currency growth of between 46.0% and 46.5%. Endava expects adjusted diluted EPS to be in the range of £1.91 to £1.92 per share. This above guidance for Q4 fiscal year 2022 and the full year fiscal year 2022, assumes the exchange rates at the end of April, when that exchange rates was one British pound to $ 1.26 and 1.19 euro. This concludes our prepared comments. Operator, we are now ready to open the line for Q&A.

[Operator's Instructions]. And your first question comes from the line of Ashwin Shirvaikar from Citi. Your line is open.

Good morning. Good quarter. Hope you're all well. My question was with regards to head count growth, obviously, in the quarter head count growth continued to be pretty solid. Could you talk a little more with regards to, are you having to adapt your recruiting tactics, your approach, your breadth of where you recruit things like that just given how tough the market seems on that front. Well,

Ladies and gentlemen, we're experiencing some technical difficulties, Please standby. We're live.

Apologies for that. It looks like we had a technical problem on our end, but just following up on your question, yes, we continue to focus really hard on how we can recruit great people into the organization. As you know, we seek to be the employer of choice in cities and locations that we operate in and that requires constant evolution of the way in which we're recruiting. We highlighted recently that we improved our share safe scheme that actually enables every Endavan to participate in the equity of the business and that has helped to attract [Indiscernible] into the business. We are, as you touched on, also, diversifying so big, push ahead over the last 12 months in Latin America. We saw 60% growth there and I will say pushing into other countries in Central Europe such as Poland. Mexico has been strong in Latin America is a new start off area. So by expanding our geographical footprint and refining employee proposition in different markets. We're continuing to see that success in headcount growth that you were touching on.

And then the commentary with regards to demand being greater than supply is consistent with the past. You also had a line in there which we said you're being selective as it relates to client opportunities. Might be useful if you could maybe walk through some of the conditions, so to speak, key factors that you look for in terms -- in terms of that selection and I'm assuming that also applies as you review business opportunities coming from Russia, Ukraine, Belarus type clients.

Yeah. Just to be very clear, we have no clients or stuff in Russia, Ukraine, or Belarus.

[Indiscernible]

And no plans to do so. Yeah, yeah. Our prioritization is actually really clear, so we felt some clients that where we can develop a scale long-term relationship in industries where we can see that prolonged technical transformation is on the way. We're much less interested on working on a single project for new clients if we don't think the relationship can expand. And then we want to grow our wallet share by delivering significant positive impact to our client's business models. The other dimension is to focus on diversifying that geographic and vertical mix of clients. That helps us spread the business across the globe and to get into some of those verticals that are experiencing technology-driven change. Now touching on some of the opportunities that we're seeing coming through, clients if you like, you have suppliers delivering them out of Ukraine, Russia, and particularly a little bit Belarus here coming in talking to us. We apply the same criteria to those opportunities that we applied to with the other. So we're not just reacting to short-term opportunities coming from that shift at those geographies. We're only taking that on where where we see that long-term benefit and the others that I touched on.

Okay, so all of that seems consistent to the prior approach that aren't new conditions you're putting in there.

For us, it's very much business as usual in terms of how we're operating. I know there's a lot of global turmoil but within Endava, within our client base, it all feels very stable.

Got it. Thank you.

Your next question comes from the line of Bryan Bergin Bergin from Cowen. Your line is open.

Hi, good morning, good afternoon. Thank you. First question on demand front. So [Indiscernible] guided to 30% or better, 40 growth on 55% comp. And I think that's all organic. So very confident on the near-term front, but curious beyond that as we think through fiscal '23. Have you think any change in client decision-making pace or just any pockets of caution to be mindful of, just particularly in Europe?

Good morning, Bryan. No we -- demand remains very strongly across the business and the pipeline, remains very strong as it has been over the past 12 months. And that includes in -- in Europe and it's probably worth just re-emphasizing that our clients in Europe are in Western Europe, not in Central Europe. Our experience over the years has been in these times of global pressures on budgets. The way you see clients cut back on their IT spend they are cutting back on that business as usual, spend and continuing to prioritize the investment that's going into the key change projects that we're engaged on. And that pattern is just as visible today as it's been in previous periods of pressure. We still have that strong pipeline and we continue to need to prioritize as I was just touching on the [Indiscernible] as to which projects we take on.

Okay, very good. And then follow up on Moldova, so you gave good detail in the release and your commentary. Just wanted to dig in a little bit more on the what if front. Can you first talk about the nature of the work being delivered from Moldova? Any specific, like specialized services or verticals delivered from there that are different from the balance of operations? How clients are reacting to specific to delivery there? And then lastly on PCP, at what pace could you presumably shift things around from that region if the country became embroiled in the war? So specific activities, client combos, and just PCP pace.

Okay. What we're doing in Moldova is very much the same as what we do across our other delivery locations. As we touched in the release, it's about 9% of our revenue relates to the people in Moldova over in the work that they're doing. We remain very committed to Moldova and our teams and to growing them. It will come down as a proportion of our overall business just because we will be growing faster and diversifying geographically across Endava in line with the strategy that we've articulated. Planned reaction is very positive and very supportive. We continue to see work going into Moldova and demand flowing in that direction in a positive way. I think on the BCP question, which is just touching on the if the wall flows onto Moldovan territory. We have our Ukraine situation task force, so monitoring this on a twice a day, morning and evening basis, and we have plans in place which includes the possibility of relocation of our teams in Moldova. The -- one of the things that I touched on in my opening remarks is that the way in which we operate is there are distributed agile delivery model actually provides real multi-site delivery approach So we spread delivery to individual clients across multiple centers as a matter of course, which reduces the risk associated with any one location. And it makes BCP planning easier and more effective should it be your client. So for instance, in Moldova, 96% of our people are working for clients, but whom we also deliver from another location. Which means that if we do need to relocate them, we can relocate them into officers and infrastructures that already exist for those clients in other countries. Now, in terms of relocation, one of the things that we wanted to highlight is the higher portion of our staff in Moldova, have e-passport, either Romanian and or Bulgarian passport which we've encouraged them to do over the years because it has made it easier for them to travel to client sites within EU and so on. And so if they do need to relocate, they will be relocating as EU citizens to other countries within the European Union, where we have locations, and that will speed up the process, regardless of the level of crisis and countries opening their doors from a refugee point-of-view. So the pace of shift that we see if it was needed in that disaster scenario is actually very [Indiscernible] and much more straightforward and perhaps is being visible with some of our peers who got [Indiscernible] in Russia and Ukraine.

Okay. Very thorough. Thank you very much.

Thanks, Bryan.

Your next question comes from the line of James Faucette from Morgan Stanley. Your line is open.

Great. Thank you very much. I wanted to ask about -- given the rate of growth in the current demand acceleration, how are you thinking about that impacting your growth outlook in the next few years? And I guess as part of that, given the hiring environment, is that 30% head count growth still the maximum you'd feel comfortable growing in a quarter or how are you thinking about the demand and the ability to satisfy that and what that means for long-term growth out looks?

Hi James. I think as we said, we tend to view the upper limit as being about 30% for us in terms of recruiting quality candidates into the business. We have been able to flex to above that as we had more senior distribution in terms that were great, so we're able to seed teams more quickly with juniors wish, caused us to accelerate beyond that 30%. And that 30% upper limit really remains in place and it's a quality issue for us, which we want to maintain for our clients. So with that set has been the upper limit, we have seen the cost demand ahead of that, and we've been meeting it as best we can. And I think the outlook beyond the current fiscal year is we will continue to see, I think, a demand above the 25%, which is higher than we've seen historically as the years where it's been about 20%. So I think we're looking at elevated levels of demand, 25%, but we still remain within that limit. So I think around 30% because of the ability to [Indiscernible] quality candidates.

We're saying that that 30% head count growth should convert to slightly higher than that in terms of revenue growth, just because of the price increases that we're also able to add here on it.

Understood. And then quickly on M&A, how are you thinking about future acquisitions? Obviously, there's a lot of dislocation and valuations right now and I would think that that could be creating some opportunities in terms of adding additional capabilities and skill sets to to Endava's team, but just wondering how you're thinking about it and what you may be seeing.

We continue to the [Indiscernible] that and scanning the markets for M&A opportunities, particularly ones which are going to offer geographic balancing and diversification. We're pushing on Asia - Pac. We're also seeing opportunities within North America that are interesting. The other dimension that we're looking for is M&A opportunities that will give the right acceleration in specific sectors that we're interested in and sometimes there's a technology boost that we get from an M&A. Often deals actually bring some element of all three components. So we continue to focus on that look for it. I'm not sure whether I could comment on whether the current market is affecting the pricing expectations of these sort of smaller businesses that we acquire, but certainly we will keep an eye out for being able to do good and sensible deals as part of any M&A that we would undertake.

That's great. Thank you very much.

Thanks, James.

Your next question comes from the line of Maggie Nolan from William Blair. Your line is open.

Thank you, congratulations. In the past we've talked a bit about a build-out of North America compared to some of the other geographies. And when you look at your allocation of resources and your efforts that your sales team, going forward from here, is there a particular emphasis on any of your geographies or industry verticals more than others at this point, as a particular growth driver for the company?

Morning, Maggie. The -- if we look at the distribution, we pretty much will have an excellent sales team and operation in North America. Our European team, as I've touched on before, is still building up to strength. It's more complex market just in terms of languages and multiple countries and so on and we've got the sort of presence that we want in the German-speaking regions and Scandinavia. Little bit more to do in Benelux and we haven't really moved into -- from Spain, Italy yet. So that's a future focus. The other area that we're putting energy into an environment is the rest of the world, Middle East and Asia-Pacific and actually getting real traction out of Singapore, Dubai and Sydney in Australia. So those are the areas of focus for me. A center point-of-view -- the -- we continue to push in the other space, seeing opportunities in mobility, retail, healthcare is reasonably small for us, but actually as we're -- particularly in the North America market, we're seeing good opportunities in that space as well. So we will continue to push on those as we continue our diversification geographically in sectors.

Okay. Thank you. And then given that nice growth that you've seen in the large client bucket, are you seeing an increase in the typical duration of NSAs or statements of work with clients?

Yes. So the pattern that we tend to experience with clients is the -- we'll start work with them on a small ideation piece of work. Proof-of-concept will be fairly small. And then as they see the impact that that's going to have on their business, that will engage on the first project, perhaps of getting that into production. As that has success and they still pull us into other costs of the business, we will then engage in discussions with those clients around long-term contracts, 3-5 year type arrangements. And we will give up a little bit in terms of the price per day in recognition of the benefit that we get for utilization out of having my assurance of our business going forward. As we're scaling of course, with more and more logic clients fully into that category, we're seeing more of those opportunities mature and come through in larger, long-term deals.

Thank you.

Thanks, Maggie.

Your next question comes from the line of Mayank Tandon from Needham. Your line is open.

Thank you. Good morning. Congrats, John and Mark on the quarter. I wanted to ask on the supply side, just in terms of the key metrics around attrition, how that's been tracking across your base and then also in terms of expectations on rate inflation. When did that hit and how we should think about the margin impact over the next several quarters?

Thanks, Mayank. So on the attrition, it's fairly stable. We're up about half the point on last quarter at 30%, which is still below the 15% that we target as a sensible balance on attrition. Mark, do you want cover the inflation?

Yeah, yeah. Q3 is where we experience our main pay rise, which goes through 1st of January, so the gross margin in the quarter stepped down about 2.6%. Most of that is actually due to lower working days in the quarter going from 60, 6 to 64 [Indiscernible] about percentage per day, but there was the impact of cost pressure coming through. So we lost about 2% on the cost per head, but actually elevation of utilization of course offset that. It was pretty mitigated but the average wage inflation we saw as a result of that pay [Indiscernible] was probably about 4% and what will happen from now on and is implicit [Indiscernible] for Q4 is that we then start to recruit that from conversations with clients about rate increases.

Got it. That's very helpful color. And just a quick follow-up around the new logo activity. Could you talk about competition in general from both the bigger firms in the market and also pure plays that you compete with head-on. How you're [Indiscernible] tracking and maybe a little bit of color around like different vertical where you have the advantage. Thank you.

Yeah. So that activity continues to be very much business as usual for us. The market remains very large in respect to ourselves and our peers. So we don't run up against direct competitors, the likes of EPAM and Globant directly very often and obviously, when we do, we aim to compete strongly and beat them but it's actually relatively rare. We're more like to run up against some of the larger players in the market who are more established, the likes of Accenture in our sales activity across counts, and differentiation against the Accenture remains very strong integrated multi-disciplinary teams, versus the -- some of [Indiscernible] creative and engineering capability is a strong differentiation and the ability to IDH new product ideas, which is where we're operating in the acquisition of new logos. So the competitive landscape remains very similar to what it has been over the last three or four years that we've been reporting to markets.

Great job on quarter. Thank you.

Thank you.

Your next question comes from the line of Bryan Keane from Deutsche Bank. Your line is open.

Just a couple of clarifications. Mark, the cost increase from the labor side, I think you said that went into effect on January 1. How are those impacts versus historical? Was it a little bit higher given how high the demand is and the supply side is?

Yes, it was but not markedly so. I mean, typically, we've done 2%, 3% in last quarter in normal times, so a 4% increase on average was elevated, but you can see in terms of the attrition figures that we put out, we said this quarter's 13%, which was up sequentially on Q2. I think we've pitched at about the right level. So I think we've got stability in the workforce and then can focus on the job ahead, that we've managed to do it at a sensible increase in packages.

Bryan, if you compared the situation that we got in the geographies that we operate in, whilst there is inflationary pressures, it's nothing like what you guys are experiencing here in the U.S. And so we are able to frame that, control that within the price discussions that we're also able to have with clients.

Yes, it seems quite manageable. And then the pricing, you are able to capture throughout the year, will it be north of that 4%, or is there a target range of how much pricing you're trying to get for the next 12 months?

Yes. I think that's what we're looking for. I mean, historically, we have been able to put up our Monday rates at a higher rate, actually in the past. So I'm still very confident that we'll be able to net deliver those rates increases through enter the effects of the concurrent calendar year.

Got it, and then just one other clarification. Are you guys actually taking on additional work from some of those vendors that have been more materially impacted from the unfortunate war in Ukraine or is it just discussions at this point?

No. We have seen couple of reasons. We sized projects that are very much in our wheelhouse that we've started ramping up. None of that will have hit last quarter's numbers is coming through in April, May. But yes, there is work shifting across.

Got it. Thanks for taking the questions.

Thank you.

And your next question comes from the line of Jamie Friedman from Susquehanna. Your line is open.

Hi. Good afternoon. Let me echo the congratulations on the strong results. I know you had mentioned this in your prepared remarks, you had a press release about it, John, but could you elaborate if you could on the Stripe relationship?

Sure. So Stripe is obviously a very exciting player in the payments world and one that we know well. And we have joined the [Indiscernible] share, which is essentially enables us to -- alongside them, engage with their clients in implementing Stripe and getting the best outflow of it. So it's a good route into some of the retail space, et cetera, for us and we're seeing a good pipeline already coming through from that.

And then maybe for my follow-up, I was just looking at this Slide 15, it's the technology disruption wave that you lived by over the years. Did anything change here though? Because it looks to me like some of these got bigger and some of these got smaller. More generally, though, how are you thinking about the relative vertical growth between payments and mobility and retail as you look out?

Yeah, I'm not sure that -- I think it's more schematic than defined the way in which those waves are drawn so I wouldn't attract too much attention to the shape of those individual waves. The -- what we're highlighting there is that there are specific industries that are being much more impacted by the new technologies and opportunities that are coming through in the years going ahead. And on the following slide, with just the payments as a single example, you can feel different areas of technology [Indiscernible] that we're stepping through. We will push that out next quarter because it's a little bit historic, the payments one and we got a strong view of what the future looks like as well and we'll push that graph out to get more visibility at some of the new technologies that are coming through it. We might have another one, maybe mobility. I have just to give a little bit more color on some of the areas where we see that happening but the strong areas, the payments arena, we see insurance going through a lot of change. The retail banking space with the digitalization that's going on there, as well as quite a lot happening in the investment banking capital markets arena, just on the front actual side and then in the other space, media is going through significant change. I touched a lot on the metaverse, and how that's impacting the media space, games, as well as broadcast and so on. Just one exciting new area of technology, 5G in the telco space is opening loss of opportunities. Retail process, the e-commerce wafers has been running for years and lots of different technologies and approaches and products that can be created under that banner. Mobility is a huge one, the whole shifts to one of these vehicles is what we capture under mobility and the different ways in which people will buy the ability to move or the logistics side of moving goods and so on. So a lot of change continues to drive activity -- healthcare. Sorry, I just need to touch on that the diagnostics capability. The digital is going to enable improvements in and so on. We're doing a lot of work in that space as well. So we remain really, really excited about the opportunities that technology is providing to change the way in which business operates and the consumer experience. And that's what's driving our growth and the outlook that we've given you.

Dynamic time. Always appreciate your perspective.

Thanks, Jamie.

And there are no further questions at this time. Mr. John Cotterell, I turn the call back over to you for some closing remarks.

Thank you. Thank you all for joining us today. As you'll have noted, demand for our services remains strong. And it's great across all of our verticals and geographies. We remain very positive about our business position. And look forward to speaking to you in a few months on our next earnings call. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.