Earnings Call Transcript
Endava plc (DAVA)
Earnings Call Transcript - DAVA Q3 2022
Operator, Operator
Good morning. My name is Rob, 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. Thank you. Laurence Madsen, Head of Investor Relations, you may begin your conference.
Laurence Madsen, Head of Investor Relations
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 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 Investor 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.
John Cotterell, CEO
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 outweighs 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 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 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. We 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 £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 31, 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 31, 2022, over the same quarter last fiscal year, with demand particularly strong in banking, capital markets, insurance, as well as in technology and mobility. Revenue in our payments and financial services vertical grew by 46% year-on-year, driven by strong growth in all sub-segments of that vertical. Our other verticals 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 digital 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 showrooms, assistance applications for logistics workers, 3D industrial training applications, and business-to-consumer applications for areas like furniture and toys, and virtual experiences for tourists. All of these applications require 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 have recently joined the Unity Certified Creator network, which leverages Unity technology to solve customer problems. With the power of real-time three-dimensional modeling, 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 and early movement towards decentralization and token-based economics fundamental to blockchain technology. 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 a virtual blockchain-enabled gallery in the metaverse to view and transact in NFTs. We're also enhancing internal tools for their blockchain 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 microservices that will provide a scalable and flexible infrastructure. We've been working with ConsenSys, a leading Ethereum software technology company on several of their blockchain-based product offerings, starting with Comngo, a trade finance platform backed by 15 of the world's largest banks and trading companies, enabling authorized participants to securely transact using blockchain 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 notice issuance and visualization, as well as user productivity management. Finally, we're working on Mehta mosque, the primary way a global user base of approximately 30 million monthly active users interacts with a universe of Web3 applications. They include NFT marketplaces, play-to-earn games, decentralized autonomous organizations, which have software platforms running business processes on transparent blockchain protocols, decentralized 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 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 an 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 client. 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 partner 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 payments transactions. By keeping pace with the escalating adoption of SaaS tools and commerce platforms, merchants are able to reach new customers and increase 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 employees, a 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 with 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-client 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 1,780 Endavans in the region, up 65% year-on-year. At Endava, we're committed to supporting our staff and giving 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 increasing awareness of environmentally friendly practices, both at work and at home through relevant 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. Under this campaign, we plant a tree for each thank-you note sent by one Endavan to another, 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 you notes. Endavans wanted to respond to the humanitarian crisis in Ukraine, so we launched an employee 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 Moldova 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 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 opportunities 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.
Mark Thurston, CFO
Thanks, John. Endava's revenue totaled £169.2 million for the three months ended March 2022 compared to £112.3 million in the same period in the prior year, a 50.7% increase over the 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.
John Cotterell, CEO
Our adjusted diluted EPS was £48 for the three months ended March 31, 2022, calculated on 58 million diluted shares compared to £34 for the same period in the prior year, calculated on 57.2 million diluted shares. Revenue from our ten largest clients accounted for 35% of revenue for the three months ended March 31, 2022, 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. 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 the three months ended March 31, 2022, over the same quarter of fiscal year 2021.
Mark Thurston, CFO
Comparing the same periods, revenue from Europe grew 26.9%, the UK grew 49.4%, and the rest of the world grew 28.8%. We grew in all three of our industry verticals during the quarter. Revenue from payments and financial services grew 46.0% for the three 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 technology, media, and telecommunications (TMT) grew 40.08% for the three months ended March 31, 2022, over 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 the three 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. Now, let’s 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 £120.4 million on March 31, 2022, compared to £69.9 million on March 31, 2021. Capital expenditures for the three months ended March 31, 2022, as a percentage of 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 £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 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 rate 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, Operator
And your first question comes from Ashwin Shirvaikar from Citi. Your line is open.
Ashwin Shirvaikar, Analyst
Good morning. Good quarter. Hope you're all well. My question was regarding headcount growth, obviously, in the quarter headcount 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.
John Cotterell, CEO
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 talent into the business. We are, as you touched on, also diversifying, with a 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 as a new start-off area. So by expanding our geographical footprint and refining our employee proposition in different markets, we're continuing to see that success in headcount growth that you were touching on.
Ashwin Shirvaikar, Analyst
And then the commentary regarding demand being greater than supply is consistent with the past. You also had a line in there which said you're being selective as it relates to client opportunities. Might be useful if you could walk through some of the conditions, so to speak, key factors that you look for in terms of that selection and I'm assuming that also applies as you review business opportunities coming from Russia, Ukraine, Belarus type clients.
John Cotterell, CEO
Just to be very clear, we have no clients or staff in Russia, Ukraine, or Belarus. And no plans to do so. Our prioritization is actually really clear, so we focus on clients 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 in working on a single project for new clients if we don't think the relationship can expand. 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 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 of Belarus here coming in talking to us. We apply the same criteria to those opportunities that we applied to with the others.
Ashwin Shirvaikar, Analyst
Okay, so all of that seems consistent to the prior approach that aren't new conditions you're putting in there.
John Cotterell, CEO
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.
Ashwin Shirvaikar, Analyst
Got it. Thank you.
Operator, Operator
Your next question comes from the line of Bryan Bergin from Cowen. Your line is open.
Bryan Bergin, Analyst
Hi, good morning, good afternoon. Thank you. First question on the demand front. So you guided to 30% or better revenue growth with a 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 seen any change in client decision-making pace or just any pockets of caution to be mindful of, particularly in Europe?
John Cotterell, CEO
Good morning, Bryan. No, demand remains very strong across the business and the pipeline remains very strong as it has been over the past 12 months. And that includes Europe. 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. Clients tend to cut back on their IT spend by reducing business as usual expenses and continuing to prioritize the investment that's going into the key change projects that we're engaged on. 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.
Bryan Bergin, Analyst
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 are clients reacting specifically to delivery there? And then lastly on BCP, at what pace could you presumably shift things around from that region if the country became embroiled in the war?
John Cotterell, CEO
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 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. Client reaction is very positive and supportive. We continue to see work going into Moldova and demand flowing in that direction positively. I think on the BCP question, we have our Ukraine situation task force, which monitors the situation on a twice-a-day basis, and we have plans in place which include the possibility of relocating our teams in Moldova. The way in which we operate is our distributed agile delivery model provides a 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 makes BCP planning easier and more effective. In Moldova, 96% of our people are working for clients for whom we also deliver from another location. This means that if we do need to relocate them, we can relocate them into offices and infrastructures that already exist for those clients in other countries. A higher portion of our staff in Moldova have e-passports, either Romanian and or Bulgarian passports, which we've encouraged them to obtain over the years because it makes it easier for them to travel to client sites within the EU and, if they do need to relocate, they will be doing so as EU citizens to other countries within the European Union, where we have locations, speeding up the process regardless of the level of crisis and countries opening their doors from a refugee standpoint. So the pace of shift that we see if the need arises in that disaster scenario is straightforward and more manageable than with some of our peers who have operations in Russia and Ukraine.
Bryan Bergin, Analyst
Okay. Very thorough. Thank you very much.
John Cotterell, CEO
Thanks, Bryan.
Operator, Operator
Your next question comes from the line of James Faucette from Morgan Stanley. Your line is open.
James Faucette, Analyst
Thank you very much. I wanted to ask about the impact of the current demand acceleration on your growth outlook for the next few years. Additionally, considering the hiring environment, is the 30% headcount growth still the maximum you are comfortable with in a quarter? How are you planning to meet the demand, and what does that mean for your long-term growth outlook?
Mark Thurston, CFO
Hi James. 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, which caused us to accelerate beyond that 30%. That 30% upper limit really remains in place and it's a quality issue for us, which we want to maintain for our clients. With that set as the upper limit, we have seen the cost demand ahead of that, and we've been meeting it as best we can. I think the outlook beyond the current fiscal year is we will continue to see demand above 25%, which is higher than we've seen historically as the years where it's been around 20%. So I think we're looking at elevated levels of demand, around 25%, but we still remain within that limit at around 30% because of our ability to recruit quality candidates.
John Cotterell, CEO
We're saying that that 30% headcount 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.
James Faucette, Analyst
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 Endava's team, but just wondering how you're thinking about it and what you may be seeing.
John Cotterell, CEO
We continue to keep the markets for M&A opportunities, particularly ones that will offer geographic balancing and diversification. We're pushing on Asia-Pacific. 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. Deals often bring some elements of all three components. We continue to focus on that look for it.
James Faucette, Analyst
That's great. Thank you very much.
John Cotterell, CEO
Thanks, James.
Operator, Operator
Your next question comes from the line of Maggie Nolan from William Blair. Your line is open.
Maggie Nolan, Analyst
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 by 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?
John Cotterell, CEO
Good morning, Maggie. If we look at the distribution, we will have a strong sales team and operation in North America. Our European team is still building up strength. It's a more complex market just in terms of languages and multiple countries, 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 is the rest of the world, Middle East and Asia-Pacific, and we're seeing good traction out of Singapore, Dubai, and Sydney in Australia. So those are the areas of focus for me. From a sector perspective, we will continue to push in the other space, seeing opportunities in mobility, retail, healthcare, which is reasonably small for us, but in particular in the North America market, we're seeing good opportunities in that space as well.
Maggie Nolan, Analyst
Okay. Thank you. And then given the 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?
John Cotterell, CEO
Yes. The pattern that we tend to experience with clients is that we'll start work with them on a small ideation piece of work. Proof-of-concept will be fairly small. As they see the impact that that's going to have on their business, they will engage on the first project, perhaps of getting that into production. As that has success, they still pull us into other costs of the business, so we then engage in discussions with those clients around long-term contracts, 3-5 year type arrangements. We will give up a little bit in terms of the price per day in recognition of the benefit we get for utilization from having the assurance of our business going forward. As we're scaling with more and more large clients fully into that category, we're seeing more of those opportunities mature and come through in larger, long-term deals.
Maggie Nolan, Analyst
Thank you.
John Cotterell, CEO
Thanks, Maggie.
Operator, Operator
Your next question comes from the line of Mayank Tandon from Needham. Your line is open.
Mayank Tandon, Analyst
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 should we think about the margin impact over the next several quarters?
John Cotterell, CEO
So on the attrition, it's fairly stable. We're up about half a 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 to cover the inflation?
Mark Thurston, CFO
Yes. Q3 is where we experience our main pay rise, which goes through on January 1. We saw a gross margin in the quarter step down about 2.6%. Most of that is due to lower working days in the quarter going from 66 to 64. However, there was the impact of cost pressure coming through. We lost about 2% on the cost per head, but elevation of utilization has offset that. The average wage inflation we saw as a result of that pay increase was probably about 4%, and what will happen from now on and is implicit for Q4, is that we then start to recruit that from conversations with clients about rate increases.
Mayank Tandon, Analyst
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 the pure plays that you compete with head-on? How are you tracking and maybe a little bit of color around different verticals where you have the advantage?
John Cotterell, CEO
That activity continues to be a standard part of our operations. The market remains large for us and our competitors. We don't often face direct competition from companies like EPAM and Globant, but when we do, we strive to compete effectively. More frequently, we encounter larger, more established companies such as Accenture in our sales efforts. Our advantage over Accenture is highlighted by our integrated multi-disciplinary teams compared to their creative and engineering capabilities. The competitive landscape has remained consistent over the past few years.
Mayank Tandon, Analyst
Great job on the quarter. Thank you.
John Cotterell, CEO
Thank you.
Operator, Operator
Your next question comes from the line of Bryan Keane from Deutsche Bank. Your line is open.
Bryan Keane, Analyst
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?
Mark Thurston, CFO
Yes, it was but not markedly so. I mean, typically, we've done 2% to 3% in the 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 can focus on the job ahead, we’ve managed to do it at a sensible increase in packages.
John Cotterell, CEO
If you compare the situation that we have in the geographies that we operate in, while there are inflationary pressures, it's nothing like what you guys are experiencing here in the U.S. And so we are able to frame that within the price discussions that we're also having with clients.
Bryan Keane, Analyst
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?
John Cotterell, CEO
Yes. I think that's what we're looking for. Historically, we have been able to raise our rates at a higher rate, actually, in the past. So I'm still very confident that we'll be able to deliver those rate increases through the effects of the concurrent calendar year.
Bryan Keane, Analyst
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?
John Cotterell, CEO
We have seen a 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 and is coming through in April, May. But yes, there is work shifting across.
Bryan Keane, Analyst
Got it. Thanks for taking the questions.
John Cotterell, CEO
Thank you.
Operator, Operator
And your next question comes from the line of Jamie Friedman from Susquehanna. Your line is open.
Jamie Friedman, Analyst
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?
John Cotterell, CEO
Sure. So Stripe is obviously a very exciting player in the payments world and one that we know well. We have joined the partner ecosystem, which essentially enables us to 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, etc., for us, and we're seeing a good pipeline already coming through from that.
Jamie Friedman, Analyst
And then maybe for my follow-up, I was just looking at this Slide 15, it's the technology disruption wave that you defined 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?
John Cotterell, CEO
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. 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. On the following slide, with just the payments as a single example, you can feel different areas of technology disruption that we're stepping through. The strong areas that we see are in the payments arena, 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. The media space, with the metaverse impacting games and broadcast and so on, is also seeing significant change. 5G in the telco space is opening huge opportunities, while the e-commerce wave has been running for years. Are we seeing a lot of different technologies and approaches and products that can be created under that banner? Mobility is huge too, where the shift to electric vehicles captures what we see in that area. 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 across many verticals.
Jamie Friedman, Analyst
Dynamic time. Always appreciate your perspective.
John Cotterell, CEO
Thanks, Jamie.
Operator, Operator
And there are no further questions at this time. Mr. John Cotterell, I turn the call back over to you for some closing remarks.
John Cotterell, CEO
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.
Operator, Operator
This concludes today's conference call. Thank you for your participation. You may now disconnect.