Ladies and gentlemen, thank you for standing by. Welcome to the Endava first quarter fiscal year 2020 results. At this time, all participants are in a listen- only mode. After the speaker's presentation, there will be a question and answer session. Instructions will be provided at that time. If you require any further assistance, please press star zero. Thank you. I would now like to hand the conference over to your speaker for today, Laurence Madsen, investor relations. Please go ahead.
Thank you. Good afternoon, everyone, and welcome to Endava's first quarter of fiscal year 2020 earnings 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 2020 and the full fiscal year 2020 and 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 our SEC filings as well as our financial results press release for a more detailed description of the risk factors that may affect our results. 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. 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, and thank you all very much for joining us today. Mark and I are pleased to be here to provide an update on our business and financial performance for the three months ended September the 30th, 2019. Endava had another record quarter for quarter one fiscal year 2020, with revenue of GBP 82.4 million, a strong growth of 24% year- on- year from GBP 66.4 million in the same period in the prior year. Our strong revenue growth is driven by the expansion of our existing customers and the acquisition of new ones during the quarter. We continue to broaden our client base and ended the quarter with 278 active clients, up from 262 at the end of the same period in the prior year.
The total number of clients who generated revenue over GBP 1 million on a rolling 12- month basis was 62, an increase of 19% over the same period of the prior year. We continue to grow the number of clients generating over GBP 2 million on a rolling 12- month basis. This group increased by 50% from the same period last year to 45%. In the last quarter, we grew in all of our regions and verticals. We had strong revenue growth along with continued improvement in our operating margins. As of this quarter, we will report our revenue from the Rest of the World. In quarter one of fiscal year 2020, the Rest of the World accounted for 2% of revenue. It is small but fast-growing. The Rest of the World includes companies located in Hong Kong, Japan, and the Middle East.
On the technology front, we see several trends continuing to develop in parallel streams, often within the same organizations. Our clients are demonstrating an increasing desire to bring their IT and business organizations closer together in a deliberate move to drive towards more rapid value delivery. The need to create a unified business view and operational structure around transformation is growing strongly. Given our unique combination of next- gen technology ideation focused on solving business problems, alongside our ability to take these concepts to production at an enterprise scale, we are successfully helping our clients make that organizational pivot by merging these groups while delivering new products and platforms to market. Additionally, the C-suite is now realizing their transformation initiatives will be seriously hindered without a strong cloud foundation. The deepening of cloud initiatives has become a priority.
We've been active in helping clients capitalize on the promised benefits to streamline business services, rationalize IT estate, and lower costs. Finally, we see the need for businesses of all sizes and maturity levels to better understand the strengths and weaknesses of their software platforms. Most organizations have an application estate that has grown organically and largely tactically over the years without much cohesion. We are increasingly asked for architectural evaluation exercises at all levels of scale, from detailed code analysis of individual applications to entire application estate reviews. We use a range of industry-recognized and proprietary techniques for these evaluations, along with our own proprietary code analysis technology. I would now like to spend a moment on our private equity focus and strategy.
Work for PE portfolio clients has been a significant proportion of Endava's business over the years, as we successfully deliver transformational change to their portfolio companies through the adoption of next-generation technology. Strategically, we believe that extending our footprint and relationships with PE clients will position Endava well, not just for the due diligence and digital strategy work, but also for the downstream transformation programs once the clients have completed their acquisitions. We also see more PE firms evaluating the potential for technology change to drive significant value increase as part of their investment thesis in a number of sectors. As a result of this strategy and belief, we have invested further in the PE segment in a couple of areas over the past month. Firstly, two weeks ago, we announced the acquisition of Intuitus Limited, headquartered in Edinburgh, Scotland.
Intuitus is a leading independent provider of technology and digital due diligence and other technology advisory services to PE clients, significantly expanding the number of PE firms with whom we have a relationship. Culturally, we believe Intuitus will fit well with the Endava family and open up significant opportunity for downstream transformation programs following deal completion. This acquisition adds 24 employees and a network of senior freelance IT professionals. The transaction closed on November 1st, 2019, and we expect it to be accretive in year one. Secondly, last week, we announced the launch of an integrated IT due diligence product with Bain & Company, targeted at PE clients. As I highlighted in previous calls, we have been actively working with Bain in the PE space, and this announcement is a natural evolution in our relationship.
In the last year, our integrated offering has grown into a defined product set, which has been well received by PE clients who recognize the value of a combined team which integrates the deep technology insights developed by Endava into the broader investment thesis of commercial due diligence. In the light of these announcements, I would like to just highlight some of the private equity projects we have been working on with Bain. We've worked closely with a leading PE fund on several projects in Italy. We did the pre-acquisition work on a large education company in which the PE fund took a stake. Our work included analyzing the user experience of the digital platform, along with a deep dive into the architecture and IT systems.
Another assignment involved looking at a credit company in order to help it scale the existing platform, understand the defensibility and potential to develop value-added products based on the existing architecture and operations. We've also been actively advising another global PE firm for some of their portfolio companies in the retail and transportation sectors located in France and the Nordic region. We performed in-depth digital maturity assessments, including technology assessments, and made recommendations around architectural, application landscape, and IT operations. Our assessments led to immediate strategic decisions for those companies. Our client growth continues to translate into strong employee growth. We ended the quarter with 5,904 employees, a 13.9% increase from 5,182 in the same period last year. As a reminder, during this quarter, we transferred 146 employees with the sale of Endava Technology S.R.L., also referred to as the Captive to Worldpay.
The transaction closed on August 31st, 2019. The competition for talent remains challenging, but our strategy of being an employer of choice in the cities where we operate is a strength in recruiting and retaining talent. The Endava online community remains very active, with over 33 postings on technology thought leadership in the quarter ended September 30th, 2019. On a macro level, we continue to review the potential impact of Brexit on Endava. We're not aware of any clients who are adjusting their spending plans with us as a result of the uncertainties caused by Brexit. We started the 2020 fiscal year with solid results, and client demand for our service offerings remains strong. We remain optimistic about our ability to deliver sustainable growth into the future.
I'll now pass the call on to Mark Thurston, our CFO, who will walk you through our financial results for the quarter, and provide guidance for the coming quarter, and update it for the fiscal year.
Thanks, John. Endava's revenue totaled GBP 82.4 million for the three months ended September 30th, 2019, compared to GBP 66.4 million in the same period last year, a 24.0% increase over the same period in the prior year. In constant currency, our revenue growth rate was 21.5%. As John mentioned, the sale of the Captive to Worldpay closed on August 31st, 2019, and this means the current quarter reported had one less month's contribution from the Captive than the comparative period. Our adjusted profit before tax for the three months ended September 30th, 2019 was GBP 16.9 million compared to GBP 11.7 million for the same period last year. A 45.0% year-over-year increase. Our adjusted profit before tax margin was 20.5% for the three months ended September 30th, 2019, compared to 17.6% for the same period last year.
The year-over-year improvement in our adjusted profit before tax margin is mainly due to a continued positive pricing environment and one-off IFRS 16 contribution for sublet rental income related to sale of the Captive to Worldpay. Excluding the contribution from the sale of the Captive, our adjusted profit before tax margin would have been 19.9%. Adjusted profit before tax is defined as the company's profit before tax for the period, adjusted to exclude the impact of share-based compensation expense, amortization of acquired intangible assets, realized and unrealized foreign currency exchange gains and losses, initial public offering expenses incurred, Sarbanes-Oxley compliance readiness expenses, fair value movement of contingent consideration, and gain on disposal of subsidiary. All of which are non-cash other than realized foreign currency exchange gains and losses, initial public offering expenses, Sarbanes-Oxley compliance readiness expenses, and gain on disposal of subsidiary.
Adjusted PBT margin is calculated as a percentage of our total revenue. Our adjusted diluted EPS was GBP 0.24 for the three months ended September 30th, 2019, calculated on 55.4 million diluted shares as compared to GBP 0.17 for the same period last year, calculated on 53.8 million diluted shares, up 41.2% year-over-year. Revenue from our 10 largest clients accounted for 41% of revenue for the three months ended September 30th, 2019, compared to 39% in the same period in the prior year, and the average spend per client from our 10 largest clients increased from GBP 2.6 million- GBP 3.3 million for the three months ended September 30th, 2019. We continue to grow outside of our top 10 clients. Number of clients who generated revenue of at least GBP 1 million on a rolling 12-month basis was 62 at September 30th, 2019, compared to 52 at September 30th, 2018.
These large clients operate in all three of our largest geographical locations, North America, Europe, and U.K. In the three months ended September 30th, 2019, North America accounted for 27% of revenue, compared to 27% in the same period last year. Europe accounted for 26% of revenue, compared to 29% in the same period last year, and the U.K., 45% of revenue compared to 44% in the same period last year. Revenue from North America grew 25.5% for the three months ended September 30th, 2019, over the same quarter of 2018. Comparing the same periods, revenue from Europe grew 10.6%, and the U.K., 27%. As John mentioned, starting this quarter, we will be breaking out the revenue from the Rest of the World. This revenue was previously attributed to the U.K.. We grew in all three of our industry verticals during the quarter.
Revenue from payments and financial services grew 22.4% for the three months ended September 30th, 2019, over the same quarter of 2018, and accounted for 53% of revenue, unchanged from the same period last year. Revenue from TMT grew 17% for the three months ended September 30th, 2019, over the same quarter of 2018, and accounted for 25% of revenue, compared to 27% in the same period last year. Revenue from other grew 38% for the three months ended September 30th, 2019, over the same quarter of 2018, and now accounts for 22% of revenue, compared to 20% in the previous fiscal year. This growth was mainly driven by clients in the consumer products goods, retail, and services sector. Our adjusted free cash flow was GBP 13.5 million for the three months ended September 30th, 2019, compared to GBP 0.3 million during the same period last year.
Our adjusted free cash flow is our net cash provided by or used in operating activities, plus grants received, less net purchases of non-current tangible and intangible assets. CapEx for the three months ended September 30, 2019, as a percentage of revenue was 3.0%, compared to 2.9% in the same period last year. Our guidance for Q2 fiscal year 2020 is as follows. We expect revenues will be in the range of GBP 82.5 million- GBP 83.2 million, representing constant currency growth of between 20%- 21%.
We expect adjusted diluted EPS to be in the range of GBP 0.21-GBP 0.22 per share. Our full year guidance for fiscal year 2020 is as follows. We expect revenues will be in the range of GBP 340 million-GBP 343 million, representing constant currency growth of between 22%- 23%. We expect adjusted diluted EPS to be in the range of GBP 0.86-GBP 0.89 per share. Our guidance for the full year fiscal year 2020 is below the range we provided last quarter, due solely to a movement in foreign exchange rates as a result of the strengthening of the British pound. We provided guidance for the full fiscal year 2020 last quarter, using the exchange rates at the end of August, when the exchange rate was GBP 1- $1.21 and EUR 1.10.
This quarter, we are providing guidance for Q2 fiscal 2020, and for the full fiscal year 2020 using exchange rates at the end of October, when the exchange rate was GBP 1- $1.29 and EUR 1.16, an increase of 7% and 5% respectively. This concludes our prepared comments. Operator, we are now ready to open the line for Q&A.
Certainly. At this time, if you'd like to ask a question, please press star one on your telephone keypad. To withdraw your question, press the pound key. We'll pause for a moment to compile the Q&A roster. Bryan Bergin with Cowen, your line is open.
Hi, thank you. I wanted to start with Intuitus. Can you comment on the scale of that business? I am just trying to connect the change in guidance on a constant currency basis attributable to that versus the organic. Then also comment on just the planned go-to-market strategy with that entity.
Hi, Bryan. Thanks for that. Yes. Intuitus, for us, is all around our focus on private equity, building their relationships with these guys who end up owning a number of portfolio companies, and then driving the downstream transformation opportunities that will come out of it. The major benefit that we see to Endava as a business will be through the leverage that comes from those relationships with the PE owners. It's actually, in revenue terms, it's less than 2% of the Endava revenue. The impact on us is very very low in terms of actually driving direct revenue. It is much more about that leverage through the customer relationships that we can get.
Okay. Makes sense. On the TMT vertical, can you just comment on what you're seeing in that industry vertical? I think it ticked down this quarter. What are your opportunities to just drive that back to higher growth levels?
Yeah. Obviously, across our verticals, we're seeing continued strength in payments and financial services. Obviously, as well from the numbers, other continues to step up very strongly. TMT remains strong for us. It's just not as strong as we're getting in the other areas. Actually, with TMT, a lot of the strength is in the U.S. rather than in Europe, which is good news for us. As we continue to get the results of the investment that we've made in the sales teams across the U.S., we think that will pull through on the TMT side as well.
Okay. Thank you.
Thanks, Bryan.
Maggie Nolan with William Blair, your line is open.
Thank you. I wanted to talk about the delivery locations. Just given that you're breaking out Rest of the World now, are there future delivery locations that you feel need to be broken out? Then also in that same vein, just given that Velocity Partners is well integrated into the business at this point, can you comment on how you've done in terms of growing Latin America as a delivery center?
Sure. Obviously, we're breaking out Rest of the World from a revenue perspective. As with our previous expansions into new areas of geography, we tend to lead on client relationships and revenue before investing behind that in terms of delivery locations. Rest of the World we pulled out because it's hit that sort of 2% mark, and it's moving quite strongly. Largely, it's been payments and financial services. It's mainly been existing client relationships, where someone has moved from an existing client in Europe or North America into the Rest of the World, and then has taken us with them into their new role. If you look at it from a delivery location's point of view, you know, obviously, our strategy is to have nearshore or similar time zone delivery capability to the majority of our clients.
As that Rest of the World, which is, you know, Southeast Asia and Middle East at the moment, as that builds and grows, we will be looking to establish delivery capability in the Asia-Pac region. Not imminently would be my call on that. We want to see the client revenues grow a little bit more before we do that. What was the second part of your question?
Just the success building out Latin America as a delivery location, since that's a bit newer geography for you.
Oh, right. Yes. Yes, actually, Mark's got some numbers here.
Yeah. I think that we're continuing to sort of grow LatAm, our headcount is up in the region. We closed Q4 about 780. We've moved that number up sort of 6% sequentially quarter-over-quarter. We're making great inroads into that territory in supporting our growth in North America, as we sort of pointed out. Now the revenues grew 25% year-over-year. Good progress, I'd say.
Just a little bit of color on that. The two main areas, the two main countries we're growing in, are in Colombia and Argentina. Both of which have a good delivery culture and mindset, are very well aligned with the way in which Endava operates now. I see that growth that Mark was just calling out as coming out of that good integration that we've had.
Thank you. On the margins, can you break down some of the puts and takes of the margin strength at both the gross and adjusted PBT level?
Sure. The gross margin, we had a strong result. On an adjusted basis, we're at 42.7%, 42.8%, sorry, w hich was up from where we were at Q4. We benefited basically from continued pricing and rates. Utilization did come off somewhat, as we sort of flagged in the previous sort of call. Through the course of 2019, we've been operating at elevated levels of utilization, which is above 70% for us. That has come down to our more normalized levels currently. That mitigates some of the strength that we saw in the positive pricing environment. Similarly, whilst we also got the advantage of the gross margin, which is about a percentage point, SG&A was also lower than anticipated, and there's a number of small items behind that. We do believe that we have further public company costs to come in.
We suspect that we were going to have to put some further work into our Sarbanes-Oxley, because of the size of the free float at the moment. That roughly took us up a good sort of 2.5 percentage points over Q4. We received a one-off gain as a result basically of implementing IFRS 16, which grosses up the balance sheet for mainly property leases. That gain came about because of the Captive. We recognized an asset onto the balance sheet, and because the sublet income had a slight margin, on it actually produced a gain when we do recognized it and recognized the sublease income as a financial asset in the balance sheet. That's approximately 0.6% of the raise. The adjusted PBT margin for the quarter is exceptionally strong at 20.5%.
I sort of pointed out that 0.6% of that is due to IFRS 16 and this Captive gain, so that takes it down to about 19.9%. Whilst we're seeing a positive pricing environment, I expect utilization to come down a little bit during Q2 to a more normalized level. I think you could read in that Q1 was pretty exceptional for us, and that we should get down to a more normalized level of adjusted PBT margin.
Thank you.
Bryan Keane with Deutsche Bank, your line is open.
Good morning to us out here, and good afternoon to you guys. I wanted to ask on Payments and Financial Services. It continues to be a robust area for you guys. Is there any call-outs in specific areas that you guys are seeing extra demand? I am actually curious a little bit about blockchain. Are you seeing a pickup in demand there in particular?
Yeah. More generally, in the financial services arena, payments continue to be a very strong area for us. It is enabling us to expand geographically. Some of the Rest of the World's work has been in the payments space, as well as doubling down with existing clients and seeing large expansion there. That continues to be in the traditional areas around acquiring merchant portals, clearing, and so on. Other areas where we've seen activity have been insurance. Insurance is building up strongly for us. Asset and wealth management continues to see a lot of activity, partly driven by regulatory changes in that market segment. Also, some of the next-gen banking challenges, open banking, and so on is also driving expansion in that space.
Specifically on blockchain, actually, we're seeing some things get into production environments, but most of what we're seeing on blockchain is more at the proof of concept and prototyping level. We're seeing quite a lot of activity in that, as in three or four clients working around blockchain challenges in the exchanges space, increasing the security of interaction around exchanges. Outside of the payments and financial services area, the largest area of activity we see is in the logistics space, once again around shipping goods and being able to track and undertake all of the customs and so on activities around logistics.
Okay. That's helpful. Wanted to ask about the Bain & Company partnership. Is there a way to think about how much revenue that partnership contributes for you guys? Then going forward now with this additional announcement, is there a growth rate or a way to think about how big this business could be with Bain combined?
I mean the relationship with Bain continues to strengthen both in the PE space that I covered in the opening remarks, but also in the wider areas around digital transformation, and some of the work that we do with them around products that they can then take to their clients. We're continuing to win new logos together, and the number of clients that we're working alongside each other is expanding. It's quite difficult to separate out and measure because we find ourselves in situations where we're the incumbent in a client, and we introduce Bain to do what they do well. Where they're an incumbent, and they introduce us. We also find ourselves in situations where we operate in subcontract to Bain. Being able to separate out and measure, as a proportion of Endava's business, where and how all of that has occurred is quite difficult for us.
What I can say is where we are in subcontract to Bain, they are one of the clients that are in the greater than GBP 1 million turnover category now.
Okay, great. Thanks for the help.
Great.
Ashwin Shirvaikar with Citi, your line is open.
Thank you. Good morning, folks.
Hi, Ashwin.
I guess my first question is, John, you mentioned doing these architecture reviews and so on and so forth. You mentioned a little bit about the downstream opportunity. Can you maybe provide more details with regards to, are you already beginning to see that downstream opportunity emerge? Would you in general expect sort of some kind of an acceleration in the size of relationships, size of contracts to emerge from this?
At a headline level, yes, we are seeing the downstream opportunities and yes, we are converting some of them. I think, Ashwin, from what you know about us, there's always been a reasonably significant proportion of Endava's revenue that's come through these PE client relationships. Doing the transformation, the platform transformation work that is needed as part of those clients' investment thesis. The work we're doing with Bain and the Intuitus acquisition is both in the PE space about widening those PE relationships and the conversations that we can have with the owners of these businesses, so that we can help them create their thesis around technology transformation and the value creation of the platform that they get out of that. Execute on it, once they've acquired the businesses.
We have a significant number of portfolio companies, and we might dig into that number for you next time, where we're working with the portfolio companies on transformation. With the Intuitus guys, as I mentioned a moment ago, we're already seeing downstream transformation leads coming through the relationships that they have at that level.
Got it. Broader than that, are you currently leaving revenue growth opportunities sort of untapped because of supply constraints? We do hear that from others in the space. In other words, can you grow faster if you wanted to?
I think we never tap into 100% of the opportunity in front of us, because it's more about being able to get the teams together in a timely fashion for clients than around the general recruitment and retention. Our ability to recruit remains strong. Our retention is high. You can see that in our attrition figures, which are continuing to trend down. In the locations where we're operating, we broadly are able to draw in the talent that we need to meet our top line. As I said, it's never 100% that you get through that.
Right. I guess partly where I was going with that was the headcount growth in quarter. I think might be the lowest you've ever reported. Am I to then assume that that is a temporary circumstance, and we should see headcount growth re-accelerate?
I think on the headcount point, you need to take account of the disposal of Worldpay. I think John called out 13.9%. It's nearer 17% when you call that, do it on a like-for-like basis. You compare that with the growth that we had year-over-year, which was constant currency of 21.5%, it's broadly similar. You've got two percentage points differential. I don't think we're constrained. I think our utilization, as we been trailing, was elevated last year. It is starting to trend back down to our more normalized levels. The headcount growth is what we require basically to deliver sustainable margin going forward.
Understood. Got it. Thank you.
Thanks a lot .
Charlie Brennan with Credit Suisse, your line is open.
Great. Thank you very much for taking the questions. Just two, actually. Firstly, coming back on the margin point, you continue to call out favorable pricing. Is there a way for us to think about how much of your existing book of business you've been able to reprice, and how much more of a future benefit is that going to be? Secondly, back on this Intuitus deal. It looks like they're a mid-market specialist, and I typically think about you servicing larger clients. Have I misrepresented Intuitus, and how do you feel about the mid-market space?
You want to do the first one, Mark?
Yeah. Pricing, it does continue to be favorable for us. We certainly see it in terms of the metrics that can be calculated in terms of revenue per head. There's a healthy sequential increase quarter- on- quarter, albeit a little bit flattered by the FX rates. We definitely see it on a like-to-like basis in our day rates, our revenue per man day rates. It is a benign environment, and we've continued to see this momentum through 2019. So far, the outlook into 2020 that we could see, it also remains benign. In terms of the repricing, I guess you're referring to renewal conversations with clients. I think we said in the past that we tend to get premium pricing when we secure new work for clients because of the scarcity of the talent and the expertise that we bring.
We still manage to secure meaningful rate increases when we come to renew with our clients that we've been on{guess} site with for quite some time. We are benefiting from that positive pricing environment. It is basically, I think, a consequence of where we operate in the market. At the moment, we're not seeing any sort of weakness at the moment.
Right. On your Intuitus question, yes, they've been focused around mid-market. They are moving up into a little bit more of the top tier. It does actually complement very well what we do with Bain, which is very, very much focused on the top tier global PE firms. Actually, through their delivery model, because they have access to 100 C-suite level freelancers in the business. It provides us with a huge amount of extra flexibility to respond to demand in this space. The challenge in the space is that demand comes along very very quickly.
A client will call up and go, "I need a team on Monday to have a look at this prospective acquisition." The senior level of freelancers will enable us to respond not just to the existing client base that Intuitus have, but also much more effectively working alongside Bain, where frankly we've been turning work away.
Great. Thank you.
Thanks, Charlie.
Mayank Tandon with Needham & Company, your line is open.
Thank you. Could you comment on attrition, where it is today, and how does it compare to, say, six, 12 months ago? You mentioned that it has been downticking, so would love to get some perspective on that. In the same way, and if you could talk about your expectations for wage inflation and how you see that rolling through the year?
Yeah. Attrition has been coming down. We target staying below 15%, which we've remained below the entire period on the public market. It did edge up towards it at one point about a year and a half ago, and has been trending down steadily since then to probably a couple of percentage points off that peak.
I didn't catch the second question, actually, Mayank.
Right. Mark, I was asking about the wage inflation, how you see that rolling through the year, the impact that you expect. Maybe if you could talk about it in terms of some of your core markets, how does that flow through the model?
We always have the competition for talent always is as high as John sort of said. Actually, our ability to recruit at a sensible price point is undiminished. We basically attribute this to the successful business that we've built, the brand that attracts talent, which means that we don't have to pay market-leading salaries to attract that talent. You can see that with the attrition rates where they are, that we're doing a good job on that.
In terms of the cost going forward, in terms of an average cost per head, it is basically at the levels that we have seen historically, where we manage the cost base, certainly delivery cost base, through, let's call it a pyramid structure, where basically people come into the organization and develop skills and expertise that we are able then to pass onto our clients as they increase their seniority through Endava. Then as we go through renewal conversations with clients, we tend to recover that cost through the balance of the year. We're not seeing any margin pressure, really, from the cost of securing talent.
That's helpful. If I could ask one more in terms of just competition as you scale, then I would imagine are competing on larger opportunities in the market. How has the competitive landscape changed for you, if at all?
The competitive landscape continues to be fairly similar. It's always a competitive market. The larger players that we run up against are Accenture and EPAM. They're probably the most common two that we see. Demand is strong, and there's good opportunities with the client base. We continue to win well right across the portfolio and sectors, driving the top-line growth that you see.
Excellent. Thank you.
Joseph Foresi with Cantor Fitzgerald, your line is open.
Hi. Most of the questions have been answered, as you guys can imagine. The first one I'd like to start with is just around inorganic growth. Obviously, you did sort of a smaller tuck-in acquisition, but you've created some more flexibility on the balance sheet. I know, to the extent that you could talk about it, maybe you can shed some light on potential acquisition targets. Would you be looking to do something smaller or larger, tuck-in in nature, transformative, and any particular vertical that you might be looking at?
Yes, we continue to look for the right sorts of inorganic acquisition opportunities. They will very much fit in line with the strategy that we previously articulated to market around tuck-in opportunities that we can integrate closely into the business. We're looking for opportunities that are going to add either sector or technology capability to the business, but may also add some delivery capability if we're looking at new geographies. For instance, when we get to wanting delivery capability in Asia Pac, we may well look at an acquisition to assist us in doing that. We are actively looking, as I called out in the last quarter. As opportunities come through, we'll close them and announce them to market.
Got it. Kind of building on Mayank's question, just on the political climate in the regions that you're servicing from Ukraine and Latin America, there's been obviously a lot of turmoil in the global political arena. Maybe you could talk about any impact that you're seeing there, anything that you're monitoring from a delivery perspective. I'd love to get your feedback on that.
Okay. The first thing to say is we are not in the Ukraine, or Russia for that matter.
I'm sorry. I meant Romania. I apologize.
Yeah. Largely, we've gone for places that they offer opportunity to establish a leading position and attract great staff, because they're not the Silicon Valleys and established parts of the world. Now, we've adopted an approach of choosing locations that are emerging, but not too politically sensitive. Romania, for instance, as you call out, is within the European Union, and has been maturing strongly as a nation since they joined the European Union back in 2007. We plot a path around not finding ourselves with strong delivery locations in highly politically sensitive territories. That's how we manage that political risk.
Got it. Then just the last one from me around margins. Do you foresee a time where you may review the margin profile over the long term? How should we think about I know it's been asked a couple different ways, but do you review that on an annual basis? Will you review it again in 2020? Obviously the margins could potentially, at least they appear like they should or could potentially expand at some point.
Yeah. I think that's a good point. I think at the moment it's a little bit too early to call. We just said we just delivered 20.5% and there was one-off sort of contributed to that, and we certainly came into the IPO with a target margin of 17%, and we've done better than that almost every quarter since. I would prefer to make that call as we get towards March next year when we see our Q3. As I said, our utilization has come down from the elevated levels that we had during the course of 2019, so they're our normal range of operation. We're still generating strong gross margin, primarily because of the pricing sort of environment. I think we need to also establish what our go-ahead level of SG&A is.
As we leverage, we should get some traction in reducing that as a percentage of revenue. I think it's probably about six months away, to be frank, Joe, before we sort of call out any change.
Got it. Thank you.
If you'd like to ask a question, please press star one on your telephone keypad. Arvind Ramnani with KeyBanc, your line is open.
Hi, thanks for taking my question. I'll ask another question on the private equity Bain partnership, and my question on that is, how are you organized from a sales perspective? Is it something that you as senior management kind of work selectively and plan out course of action, or do you have dedicated kind of sales teams on the opportunity related to Bain?
We have a steering group that we operate with Bain, which includes myself and senior Bain leadership team folk. The amount and level of activity is fairly broad. We draw in the relevant business winning teams from Endava and Bain on an opportunity basis in order to close business together, win alongside each other and so on. That works very well. We've been doing that for around two years now and going down the learning curve of how we win together. It's reached that point where it's scaled across both organizations. Let me describe it that way, where lots of people on each side are involved in executing against it.
Terrific. Just a quick follow-up on the same topic. Do you have any kind of rules of engagement around essentially kind of conflict where you're going and helping potential competitor of one of their clients, or you really haven't run into such situations?
It's a very open relationship where we're not restricting each other particularly. If Bain introduce us somewhere or we introduce them, we don't restrict downstream behavior to being alongside or through each other. We have a clear preference to actually work together and make these things happen together because we believe that when you put the technology and the organizational and commercial capabilities across our two organizations that we have together in a structured fashion, you get a much more powerful result than the client can get just by putting two organizations with those capabilities alongside each other who've never worked together before. It's the nature of technology. How do you actually get that dimension of change, that ideation of what's going to make a difference into the sort of strategy and organizational change discussions?
If you don't have that operating closely enough together, it's tough to make it work.
Great. If I can squeeze one last one.
Sorry, go on.
Great. If I can squeeze one last one in, is around the topic of automation. I know you kind of talk about it a lot and within the industry itself, but if you can kind of just give us a view of.
Sorry, did we lose you or was that?
The questioner has dropped.
Okay.
There are no further questions at this time. I would now like to turn the call back over to the presenters for final remarks.
Thank you all for joining the call. I hope that you've picked up through it on our continued optimism about our ability to deliver sustainable growth going forward, and we look forward to speaking to you all again next quarter. Thank you.
This concludes the Endava first quarter fiscal year 2020 results conference call. We thank you for your participation. You may now disconnect.