Endava PLC (DAVA) 2022 Q1 法說會逐字稿

Hello, and welcome to the Endava Q1 Fiscal Year 2022 Financial Results Conference Call.

(Operator Instructions)

I would now like to turn the call over to Ms. Laurence Madsen.

Please go ahead.

Thank you, operator.

Good afternoon, everyone, and welcome to Endava's First Quarter Fiscal 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 Q2 fiscal year 2022 and for the full fiscal year 2022 and statements regarding our perceived opportunities and anticipated future growth, our expectations regarding digital transformation of existing businesses and industries, the necessity of digital transformation for many companies and Endava's ability to benefit there from potential technological advances across the industry, our expectations for future partnerships and other credentials, anticipated client demand for Endava services, our ability to attract and retain employees, our integration of FIVE and Levvel, 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 on September 28, 2021, 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.

The reconciliation of non-IFRS to IFRS 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, Laurence.

So I'd like to start by thanking you all for joining us today.

I hope you're all staying safe and well.

We're pleased to be here to provide an update on our business and financial performance for the 3 months ended September 30, 2021.

At headline level, we continue to experience very strong demand for our digital services in all of our regions and verticals.

While we're very focused on recruiting talented people, we remain in an environment where demand outweighs supply.

And therefore, we're having to be selective in the work that we take on.

Endava, reported revenue of GBP 147.5 million for Q1 of our fiscal year 2022, representing an almost 61% year-on-year increase in constant currency from GBP 95.1 million in the same period in the prior year.

We ended the quarter with an adjusted profit before tax for the period of GBP 34.8 million, representing a 91% year-on-year increase from GBP 18.2 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.

I mentioned on previous calls that we were seeing an increasing flow of new client opportunities, which starts small with ideational proof-of-concept engagements and then scale as we move into production and system development.

The scaling of these projects as engagements expand, is now driving the growth of larger clients and the increased spend by these clients.

As a result, we ended the quarter with 658 active clients, up from 501 at the end of the same period in the prior year, a 31% year-on-year increase.

Importantly, we grew the number of larger clients with a total of 93 clients who are paying us in excess of GBP 1 million per year compared to $66 million in the same period last year, representing a 41% year-on-year increase.

The average spend of our top 10 clients is also accelerating, growing by 42% year-on-year, and the revenue from clients who paid us above GBP 5 million increased 31% year-on-year.

The integration of our most recent U.S. acquisitions, FIVE and Levvel, both of which we acquired this past fiscal year, is going very well, and we're actually in Charlotte in person this week, meeting with clients and our people.

I'm very excited about the growth prospects for our business in the U.S. following these acquisitions.

Our business in the U.S. continues to grow strongly, up 93% for the 3 months ended September 30, 2021, over the same quarter of fiscal year 2021.

From a technology perspective, we continue to see high demand for all types of cloud computing services from helping clients with cloud choices and strategy through migration of existing software to cloud platforms, to development of cloud native applications and finally, operating cloud-based platforms who are our managed by Endava services.

As part of accelerating disruption and change for our clients, we work on all 3 major cloud platforms, maintaining strong partnerships with AWS, Azure and Google Cloud.

These partnerships give us access to the knowledge and skills building needed to ensure that we can use the agility and sophistication of these cloud platforms to build industry-leading solutions for our clients.

This allows us to avoid the delays associated with on-premise infrastructure and allows us to harness industry-leading cloud services, such as those for cognitive computing and data analytics.

Additionally, cloud platforms avoid many of the traditional bureaucratic and governance obstacles that are found in large organizations, allowing us to deliver value faster.

Often, we find that a relatively specialist project in one area of cloud computing, for instance, creating a data lake or advising on the migration of an application that often drives other cloud-based work to us.

And importantly, our people love working on cloud platforms and so it helps us to grow and retain the best software engineers.

Another technical trend that we're observing with interest is the rising profile of a possible future Metaverse, fueled in part by Facebook's recently rebranding and investment announcements relating to it.

Whilst we'd agree with many observers that such an ambitious virtual environment is many years and a number of technology advances ahead of us, we can see its future importance to our clients, and we'll continue to track its development and experiment with it as it evolves.

Back in today's world, though, we are seeing greater awareness of the possibilities offered by augmented reality, virtual reality and mixed reality across a range of our clients.

And in response, we continue to grow our strong capabilities in these areas through our group level technical community for XR and 3D computing.

Demand for our services in the payments vertical continues to accelerate.

At the core of payments are the acquiring systems, which are the most complex aspect of the entire payment journey.

Relatively few organizations have tackled the challenges of either reengineering or building from scratch an acquiring platform due to the great complexity and risks associated with such undertakings.

However, these projects are at the core of our expertise, and demand for this service continues to increase.

With the significant shift to online payments, Endava is also helping payments companies ensure their platforms and systems can scale with increases in volume.

Aligned with the increasing requirement by consumers and businesses to send and receive money in real-time, Endava is also helping clients to roll out real-time payments globally.

Additionally, a key challenge for payments companies today is to differentiate themselves while holding on to merchants.

We think the best way to do this is through delivering value add services, thus creating additional stickiness.

Here also, we support our clients by innovating and building additional services, such as portals with business analytics or loyalty offerings, such as merchant financing.

We also go further building downloadable at smart terminals that don't just take payments but also control stock and host bookkeeping as a service.

Here are some examples of what we're doing today for our clients in the payments vertical.

We're working with ClearCourse, a partnership of innovative technology companies created in 2018.

They provide membership software to organizations and small businesses to help their clients manage their members and clients, administer their business workflow and automate their payment processes seamlessly.

This allows them to deliver a cleaner customer journey and to cross-sell.

It also helps increase revenue while lowering expenses.

Endava has been their exclusive tech partner in this journey from the very beginning as we're enabling them to become a fully-fledged payments facilitator.

Endava and Mastercard are working to deliver additional choice in how consumers and businesses pay, seen in account-to-account and real-time payments infrastructure.

This is built on a relationship with Vocalink in the early 2000s.

And we're working with OneBanks, an innovative solution, which enables financial institutions to broaden and maintain a cost-effective, sustainable physical presence to support their full customer base.

As bank branches continue to close and people are being financially excluded., OneBanks leverages open banking to support communities by providing individuals and SMEs access to their underlying bank accounts in a single location and by providing face-to-face support to help people engage with the digital future.

OneBanks' ambition is to play a leading role in the delivery of everyday banking services in the U.K. initially before looking to take the solution international as open banking continues to gain traction globally.

Endava has played a pivotal role since inception in the development of the platform and continues to work on expanding new and innovative capabilities.

Endava came to ACI was part of the acquisition of the SpeedPay bill payment business from Western Union.

Endava's teams designed the cloud architecture and built the platform for Western Union.

We started working with ACI in 2019 and have been a key part of SpeedPay's ongoing functional development, client onboarding and integrations with ACI systems.

Prior to the acquisition, we provided sole application support of the SpeedPay platform.

We currently work closely with ACI teams on joint support of the application.

Endava has moved beyond SpeedPay to support other areas in the ACI business.

We are working with a leading payment company to build a gateway for non-card payments, known as alternative payment methods or APMs, including connections to aggregators, such as PPRO.

We support APMs as well as the shopping cart integrations, building the reference implementations for 2 key marketplaces.

We're also helping build a new e-commerce fraud solution and enhancing the flexibility and its scalability of the overall cloud architecture.

Final areas of support involve the integration of Salesforce and the associated merchant billing, pricing and onboarding enhancements.

I also want to highlight that we recently celebrated our 10-year anniversary working together with Worldpay from FIS, and we continue to expand our work with FIS and Worldpay globally.

Our client growth continues to translate into strong employee growth.

We ended the quarter with 9,616 employees, a 33.6% increase from 7,199 in the same period last year.

We added 733 net new employees in the last quarter.

While competition for talent remains intense, our focus on recruiting the best talent in the countries where we are located is unchanged, and we continue to recruit and retain the employees we need.

Our attrition level remains low by industry standards.

Focusing on being an employer of choice in our core locations remains a key objective of our growth strategy.

Additionally, we believe the moat around our business model, created by our unique culture, remains intact despite our strong headcount growth.

We recently opened new state-of-the-art offices in Bucharest, Romania and Buenos Aires in Argentina designed specifically for hybrid work across (inaudible) office.

The new working environment maximized collaboration and innovation (inaudible) innovation when teams are in the office and offers our people flexibility.

These 2 offices will serve as a pilot so that we can further refine and optimize this new model and work.

More employees are choosing to return to the office.

However, it has to be said that the majority of our workforce continues to work from home most of the time given the ongoing impact of the COVID-19 pandemic in our geographies.

Following up on the launch of our sustainability report, we're relighted to receive such great feedback and we will continue to build and iterate our road map around the 5 key pillars of our We Care approach.

If you've not had a chance to read our report, we invite you to have a look.

More recently, we started the rollout of our inclusive leadership program focused on equipping our leaders with practical solutions, actions, and a toolkit to build solutions to inclusion challenges and improve our people's experience.

As demonstrated by our financial results, demand for our services remain strong.

We're excited about the opportunities in front of us and remain confident in our ability to deliver value for all of our stakeholders.

I'll 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 GBP 147.5 million for the 3 months ended September 30, 2021 compared to 95.1 million pounds in the same period last year, a 55.0% increase over the same period in the prior year.

In constant currency, our revenue growth rate was 60.8%.

Profit before tax for Q1 fiscal year 2022 was GBP 24.9 million compared to GBP EUR 8.7 million in the same period in the prior year.

Our adjusted profit before tax for the 3 months ended September 30, 2021 was GBP 34.8 million compared to GBP 18.2 million for the same period last year.

Our adjusted profit before tax margin was 23.6% for the 3 months ended September 30, 2021 compared to 19.2% for the same period last year.

With adjusted profit before tax, adjusted PBT, is defined as the company's profit before tax adjusted to exclude the impact of a share-based compensation expense, amortization of acquired intangible assets and realized and unrealized foreign currency exchange gains and losses, all of which are noncash items.

Adjusted PBT margin is adjusted PBT as a percentage of total revenue.

Our adjusted diluted EPS was 49p for the 3 months ended September 30, 2021 calculated on 57.8 million diluted shares as compared to 26p for the same period last year, calculated on 56.6 million diluted shares.

Revenue from our 10 largest clients accounted for 36% of revenue for 3 months ended September 30, 2021, compared to 39% for the same period last year.

Additionally, the average spend per client from our 10 largest clients increased from GBP 3.7 million to GBP 5.3 million for the 3 months ended September 30, 2021, representing a 42.0% year-over-year increase.

In the 3 months ended September 30, 2021, North America accounted for 36% of revenue compared to 29% in the same period last year.

Europe accounted for 20% of revenue compared to 25% in the same period last year, and the U.K. accounted for 41% of revenue compared to 43% in the same period last year, while the rest of world accounted for 3%, unchanged from the same period last year.

Revenue from North America grew 93.0% for the 3 months ended September 30, 2021, over the same quarter of fiscal year 2021.

Comparing the same periods, revenue from Europe grew 24.1%, the U.K. grew 47.6%, and the rest of world grew 53.6%.

We grew in all 3 of our industry verticals during the quarter.

Revenue from payments and financial services grew 54.8% for the 3 months ended September 30, 2021.

Revenue from payments and financial services accounted for 50% of revenue, unchanged from the same period last year.

Revenue from TMT grew 35.6% for the 3 months ended September 30, 2021, over the same quarter of 2020 and accounted for 25% of revenue compared to 28% in the same period last year.

Revenue from other grew 81.2% for the 3 months ended September 30, 2021, of over the same quarter of 2020 and now accounts for 25% of revenue compared to 22% in the same period last year.

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 noncurrent tangible and intangible assets.

Our adjusted free cash flow was GBP 16.5 million for the 3 months ended September 30, 2021, compared to GBP 21.2 million during the same period last year.

Our cash and cash equivalents at the end of the period remained strong at GBP 82.0 million at September 30, 2021, compared to GBP 69.9 million at June 30, 2021.

CapEx for the 3 months ended September 30, 2021, as a percentage of revenue was 2.3% compared to 0.6% in the same period last year.

Our guidance for Q2 fiscal year 2022.

Endava expects revenues will be in the range of GBP 150 million to GBP 152 million, representing constant currency revenue growth of between 47% and 49%.

Endava expects adjusted diluted EPS to be in the range of 42p to 44p per share.

Our guidance for full year fiscal year 2022 is as follows: Endava expects revenues will be in the range of GBP 615 million to GBP 620 million, representing constant currency growth of between 40% and 41%.

Endava expects adjusted diluted EPS to be in the range of GBP 1.71 to GBP 1.76 per share.

This above guidance for Q2 fiscal year 2022 and the full fiscal year 2022 assumes the exchange rates at the end of October, when the exchange rate was GBP 1 to $1.37 and EUR 1.18.

This concludes our prepared comments.

Operator, we are now ready to open the line for Q&A.

(Operator Instructions) Your first question comes from the line of James Faucette with Morgan Stanley.

I want to ask first, if you're seeing any changes around client behavior and decision-making in that current environment, especially when so many people are facing headcount constraints, just especially in their IT departments.

James, thanks for that.

I mean, client behavior is very much driven by the business opportunities and challenges that we're seeing as seen in the digital space at the moment.

So there's a lot of demand flowing from those business needs and the projects that are emerging from that.

Now the demand in this space is far exceeding supply right across the whole business.

And so that is, of course, driving them to have conversations with organizations like ourselves who have the skills and capabilities to execute on their business challenges.

Now that's not particularly a change in behavior from before, but there is definitely higher volumes of that coming through and hitting us.

Got it.

And then on that point of hiring, et cetera, can you provide an update on your own?

Are you still comfortable with the previous maximums of how quickly you can grow your own headcount in a quarter or a year?

And can you just kind of give an update of what that looks like and how are you thinking about your current recruitment algorithm, et cetera?

Sure.

I mean, the recruiting stuff has always been a challenge in getting the right talented people.

And it requires successful businesses to build a really good market presence with a career proposition that's going to attract and retain the best.

And that is very, very crucial in the current market at the moment.

Now I think as you were touching on, we've always guided that we can do a sort of 25% to 30% organic headcount growth as a sensible scaling where the ability to onboard people, deploy them into projects and make sure they're operating with the quality and the Endava approach that is going to enable us to deliver effectively to our clients.

It's is the constraining factor, which sort of caps it at that 30%.

Now currently, our attrition is actually running very low, actually around the 12% mark over the last 12 months, which is still below the 15% that we target and that's giving us a little bit of headroom on that 30% max that we normally go for and it's actually trending down.

If we look at our rolling 3 months attrition, that has been moving down over the last 4 months.

One of the things that happened through the pandemic period a year ago, was that actually, we didn't lay off staff.

We held on to them.

We continue to promote them during that slightly slower growth period, as a result of which, Endava just became a little bit more senior than we normally are in terms of operate.

And that's also provided a little bit of headroom in terms of being able to expand.

So we've run a little bit above the 30%.

I think we're about 34% year-on-year,.

But Mark?

Yes.

And that's part of what has enabled that to happen.

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

Just given the magnitude of growth right now and demand outstripping supply, can you talk about your near considerations for maintaining these high levels of adjusted PBT margin versus reinvesting even more at a higher level to try and support elevated growth for an extended period?

I mean, we've had a very strong quarter.

Our adjusted gross margin was just shy of 43% and that reflects a reasonable level of utilization amongst our folks.

It hasn't really picked up significantly quarter-on-quarter, so, such in a stable environment.

We've always talked about high 60s to low 70s.

So we're at the higher end of that sort of range.

And the pricing environment for us remains good, which sort of supports that gross margin outlook.

I think the only comment is around the battle for talent.

We are seeing -- we're going to have to face sort of cost pressures.

We onboard new people as we got our headcount to meet the strong demand that we see.

So we have to be competitive in the marketplace with our packages and also to keep our people within Endava in developing their career.

So we've got an eye on attrition and keeping that in a sensible pace.

So I think there's definitely cost pressures that we're seeing.

It's not going to become immediately apparent how strong they are because we have our major pay round in January, but there are definitely sort of cost pressures there in the sort of near term.

But we're confident in the medium term, and I'd say, over the next 12 months, that we will be able to recover those through pricing discussions with clients.

And then I guess the other component for adjusted PBT margins, SG&A, this quarter, it was a pretty low percentage, of about 15%, which is a little bit of delayed spend.

If you compare it with last quarter, I expect it to pick up in the coming quarter.

We're definitely spending more on sales and marketing and also, there's some integration activities we have with our most recent M&A.

But we'll be just going up to around 16.5%, 17%.

But I think in the medium term, we always have that algorithm for us, which is maintaining the gross margin in that sort of 14-plus percent area, and it is leveraging that SG&A, and we will get occasional sort of variations in that from quarter-to-quarter, but it doesn't change the long-term outlook.

Yes.

And it's worth just adding to that, that over the last 9 months or so, we have been investing in our industry vertical space.

So specifically, accelerators and propositions to industry segments within the market to strengthen our position in the market and that is part of what's helping accelerate the demand that we're seeing.

But we've been doing that within the framework of the results that we've been delivering.

Okay.

That's good to hear.

And then just as you lean into that U.S. opportunity further, should we expect an even more substantial LATAM build out on the operational front?

Can you kind of give us a sense on how you're thinking about the footprint expansion in the LATAM region over 2022.?

Yes.

So the whole Americas is expanding really well for us.

If you actually looked at what we did in the U.S. this last quarter, it was actually at 107% in constant currency terms that we expanded in the U.S. and that is very, very strongly linked to what we're doing in LATAM.

I haven't got the percentages, but the LATAM acceleration is significantly faster than we're seeing in Central Europe at the moment as we're scaling for that growth that we're seeing in the U.S. Do you have another?

We'll take that in a moment.

Yes.

So I mean, the LATAM growth was very, very strong.

If you look at it year-on-year, we've really sort of embedded the approach for the near-shore delivery of our North American revenues, which is proving that sort of accelerator there.

So we're really encouraged by the growth that we're seeing there.

We'll pull that out and drop it later in the call.

Your next question comes from the line of Jamie Friedman of Susquehanna.

Great results.

Thanks, Jamie.

So John, in your prepared remarks, you talked a bit about the Metaverse, and I couldn't help but ask for some use cases.

I know you talked about 3D, but could you share some other use cases that you're seeing potential demand or from client?

Yes.

So at the moment, it is much more in the space of augmented reality, virtual reality and mixed reality type solutions that we're putting together with clients.

So for instance, we're helping a client in the industrial space, a large German client who's using augmented reality to actually review large machinery, things like turbines and so on, so that an engineer can remotely send a drone and review equipment.

The other side of the world using a headset to view what's happening through the drone as an example.

So -- and these sorts of applications are starting to appear quite a lot sort of IoT related in different segments and a lot of it is the more experimental end of testing the boundaries of what is going to be possible with clients, that ideation type stuff that we do with clients and then a few of them are scaling.

Training is another area where, actually, with the working from home environments and so on, we've been able to set up training situations, once again, with real equipment that actually enables someone who's unable to travel to be trained on how to do maintenance and so on and how to guide local maintenance in remote factories and so on.

Great.

And then, Mark, just as we're building out the quarters for the year, you gave the Q2 and the fiscal year, but how much M&A contribution is there?

And then is there a particular time at this point where it fades like assuming you don't do more, which you may, but absent that, do the accounts get different in the second half?

Yes.

So there's an M&A contribution in our constant currency for Q1, 61%, about 15% of that is a contribution from M&A and then implied in the guide for Q2, where we're guiding at a 44% overall, but actually, it's at 49%.

Constant currency, there's a contribution of 39%.

So you've got organic, you've got about 10%.

So the full year, the guide at the top end, which is 41%, we've got an M&A contribution of 7%, leaving the organic elements of 34%.

So there's a phasing of that M&A contribution basically because of the acquisitions that we did towards the tail end of Q3 FY '20 with FIVE and Levvel.

So they run the full twelve 12-month cycle.

So when you get to Q4 in the guide, we'll be totally sort of organic, and that will be certainly above the sort of 20%.

So I just wanted to sort of answer that question that we had earlier with Bryan about the increase in LATAM headcount.

So year-on-year, it's been 61%.

So we have roughly about 1,400 people in LATAM.

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

Just a follow-up on that.

So is that delivery mix a big factor in driving your rev per delivery head up over time or could you get a little bit more granular in what's been driving that up, particularly the strength this quarter and then how sustainable you feel that is?

Yes.

I mean, we've been making very good progress on the revenue per head, certainly at around sort of GBP 69,000 and it's -- you can see that sort of in the headcount growth year-on-year is 37%, and that yet we're delivering constant currency revenue growth of 61%.

So part of that is coming from increased utilization, probably about 8% or so.

There's a slight shift in our onshore, near-shore mix.

So with the acquisition of Levvel and FIVE, that proportion has increased.

So instead of being around sort of 6% and 8% that contributes an element of growth of around 6% and then the actual rate in terms of the services that we can deliver on a man-day rate basis contributes about 9%, takes us to sort of 61%.

So the revenue ahead metric is again, I think, remain at this higher level because the mix of onshore, near-shore, it's isn't going to change significantly.

Basically, we are at, I think, we're at the top end of our utilization, which is the low sort of 70s.

The only thing that is going to then potentially drive it higher will be the man-day rate, which is, again, how we recover that pressure -- or the cost base over the balance of the year.

But I think the revenue per head is going to remain pretty stable, but probably, there's probably a little bit of upside given the pricing environment.

It's probably worth just noting there that, although we've increased utilization against the same quarter last year, it was actually very low last year at 67%.

So we moved it up to 71%.

That's what drove the 8% element of the utilization component going into that revenue per head.

So we're keeping that at a level that's sustainable for the high-growth that we experienced.

As you know, we run the utilization a bit lower than many of the larger peers in the business, and that is to enable our growth rates to continue.

That's all great detail.

The other thing I wanted to ask about the other segment is growing quite well, and it's becoming a more sizable piece of the business.

So any granularity on particular sub verticals that are really driving that particular clients or projects, anything of that nature we should be keeping our eye on as a future growth driver?

It's -- well, geography is contributing an element to that, particularly sort of North America.

So there's a good contribution from Levvel and FIVE as part of that growth.

But actually, we're seeing strong growth in mobility, which we sort of talked about on previous calls and also in the health tech space as well as retail CPG.

But the mobility thing is the thing that is really driving the growth this quarter followed by health so it's sort of those 3 verticals that we've talked about previously and I think, certainly, so the Levvel and FIVE have given us an acceleration in that space.

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

Congrats John and Mark on a strong quarter.

I wanted to go back to John's comment around the 25% to 30% headcount growth.

So if we think about that as the benchmark in terms of head count, and given the pricing leverage and maybe some more room for utilization, can we then assume that the embedded organic growth is probably going to run somewhere closer to what, Mark, you said you'll finish fiscal '22, more like some medium-term outlook.?

Just curious if that is a sustainable level as you look at the demand climate today?.

Yes.

So the exit rate, we are sort of on the previous question talking about, which is a clean organic figure.

It will certainly be in the 20s.

It will certainly be in the sort of low to mid-20s.

And we don't really see that changing.

We think the demand is strong at this stage in the sort of cycle because we've got our major sort of pay around to go through.

And then that influences the conversations we have with clients.

So to a certain extent, we're being a little bit cautious in that growth outlook into next year, but I'm being cautious in the sort of near term, and my confidence in our ability to pass on those -- the competition for talent and the packages that it requires to secure people and keep attrition where it should be at sensible levels.

I'm confident in our ability to recover that through price increases.

Certainly, it's true that the 25% to 30% is a headcount growth range.

Historically, we've also achieved price increases and so on.

So the revenue growth has trended above the headcount growth in the past and we don't see any reason why we wouldn't be able to achieve that going forward.

That's very helpful.

Then I wanted to ask just about the verticals and service lines, obviously doing really well across your portfolio today.

Any areas that you want to be in that you would call out as maybe target areas, whether it's organic build out or through M&A that you would look to maybe expand into both from a vertical standpoint and from a service line perspective?

So at the moment, we're focusing on the areas that we've highlighted to you guys in the past, in essence, i.e.

the insurance payments and the banking and capital markets, the fintech areas, if you like, in those financial services, arenas, the TMT space, which is coming through strongly.

And then within other, we've stuck with health, CPG and retail, and the mobility space with a little bit of activity coming through, in what we call private equity.

It's a cross-industry area, but it's driven by the relationships we have with private equity firms.

Now that is turning up 1 or 2 other areas that are looking at interest and maybe in a year or 2 through M&A or otherwise through some of these client relationships that are coming through our private equity practice.

We might see ourselves moving into that.

So energy is one of those that we've got operating at a small level at the moment.

There's also interestingly some mining activity where digital is even hitting a business like that now.

Your next question comes from the line of Moshe Katri with Wedbush Securities.

Okay.

Let me add my congrats on very strong results.

I have 2 here, 2 questions.

First, it's kind of exciting to see the growth in the U.S. and obviously, this is a relatively new market for Endava.

Any specific differences based on what you've seen so far in terms of your ongoing interactions with the U.S.-based clients or enterprise customers that you're seeing?

Are you planning to run this a bit differently versus what you've done in the past?

And then how are the specific verticals do you think will be probably the leading in terms of growth down the road for Endava here?

That's my first question.

So yes, the U.S. has been very strong.

I mean, we've always run the business with a mindset that says you need local people in each market, who are going to make things happen.

And that is as true in our client markets,: U.S., Europe and so on.

It's also true in the way in which we run our delivery operations with Romanians in Romania, Argentinians in Argentina and so on running things.

So that's pretty fundamental to having a team who understand what's happening in the local market and respond.

In the U.S., we are seeing a lot more strength in the nonfinancial services space.

And that is -- that's very good news for us.

It helps with our diversification strategy, not just geographically, but pushing into other sectors.

So we're seeing strength in the mobility space.

We're seeing demand coming through strongly in retail.

Technology is one of the big strengths that we see in the U.S., big West Coast clients who are using our services to build out critical products such as the web conferencing or work from home type platforms that we're all familiar with.

We work on some of the big names there.

So -- and that is different to what we see in, say, Europe around technology.

Health is also a space where the U.S. market is much more innovative and fast-moving than we see in Europe and so we've been able to tap into that.

It's early days for us at the moment because we haven't had that history of a lot of activity and health coming out of Europe, but we're getting real traction over here in the U.S. and seeing that move forward.

And then just a follow-up.

Given the extensive kind of knowledge and work that you've done in fintech and payments and dealing with, with some of the players, including the neo banks, any thoughts on kind of building your own platform and trying to kind of leverage that in terms of infrastructure and kind of being able to market that to some of your fintech kind of customers?

Yes, thanks for that question.

It's one of the areas where we've been clear that we're not going to go down the route of building a product.

There are a number of reasons for that.

One of the key ones being you end up, to some extent, competing with your own clients because you harvest knowhow that you build in an industry by working with them and so we've adopted the view that we won't build product, and we won't, therefore, cause any sensitivities with the client base that we work with.

The one thing that we do is we build what we call accelerators, which are components that are fairly standard, frequently used across the different spaces in which we operate.

And that can help accelerate the projects that we're working on with clients and clients are very, very positive about those accelerators where we deliver them.

(Operator Instructions) Your next question comes from the line of Bryan Keane with Deutsche Bank.

I want to ask about open banking, the demand there.

Is there a material ramping of payment volume there yet or is it still in the development phase?

Well, that's a pretty big question.

Open banking is well beyond the development phase and is a huge facilitator for alternative payment types.

It's stronger in Europe at the moment, but we're starting to see it open up in the U.S. as well and it's driving a lot of activity.

There's a lot of hugely value-added services that can be built on the open banking platforms.

And we're definitely seeing that move very strongly in systems that are in use in the market with millions of customers on them.

Got it.

And the payment volume inside there, especially in account-to-account has been ramping pretty significantly?

Yes, very much so.

Got it.

And then the only other question I want to ask on was M&A, just further appetite, maybe what you're looking at potentially and valuations willing to fit?

Yes.

So M&A is one of the areas that we keep a close eye on.

We're seeing many opportunities, high single digits per week of opportunities get right across our desks, but few of them have the right DNA.

That DNA been similar enough to Endava for us to integrate the ideation to production, agile approach to doing business, utilizing next gen technology.

We're always looking for that.

So we remain very choosy on where we engage.

And the strategy remains the same, which is to use M&A to help with our diversification strategy as in bringing geographic balancing and pushes into geographic areas that we're looking to expand faster, sector acceleration so some of those long wave change opportunities that we see in different industries where an M&A opportunity is going to bring acceleration in the right spaces for that, we'll look very closely at it.

And occasionally, there's an organization that brings some technology that we've not been able to (inaudible) here ourselves.

It's actually very rare.

Often, some deals will bring elements of all 3. So we're continuing to look very hard and have conversations, nothing that I can report on at the moment but if anything material happens, of course, we'll report to market.

How about valuations, John?

Have they changed much given the market trend?

Yes.

So I would say valuations have moved up a little bit over the last 12 months in particular.

There's a little bit of extra competition.

I think the market is beginning to understand the Endava business model and organizations that operate that way are becoming more attracted to the general ones in the market and so that's pushed valuations up maybe around 20% over the last 12 months.

And that makes it more important for us to choose wisely which businesses we're going to buy and integrate.

At this time, there are no further questions.

I would like to turn the call back over to Mr. John Cotterell for closing remarks.

Well, thank you all for joining us today.

As you'll have noted from the call, demand for our services remains very strong.

We're seeing good demand across all of our verticals and geographies.

And so we remain very positive about our business position.

Mark and I look forward to speaking to you early next year on our next earnings call.

Thank you all.

This concludes today's conference.

You may now disconnect.