Yahoo Finance Luxoft Holding Inc (LXFT) Q3 2018 Earnings Conference Call Transcript
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Luxoft Holding Inc (NYSE: LXFT)
Q3 2018 Earnings Conference Call
Nov. 15, 2018, 8:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Greetings, and welcome to the Luxoft Holdings Incorporated Second Quarter Fiscal 2019 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions)
It is now my pleasure to introduce your host, Tracy Krumme, Vice President of Investor Relations. Thank you. You may begin.
Tracy Krumme -- Vice President, Investor Relations
Good morning, everyone. Thank you for joining us on Luxoft's Second Quarter Fiscal 2019 Conference Call. On the call with me today are Dmitry Loschinin, Chief Executive Officer and President; and Evgeny Fetisov, Chief Financial Officer.
Before we begin, I would like to note that we have provided a slide presentation that will help guide our discussion. This presentation can be accessed on the webcast and also on our website, luxoft.com.
I would like to caution investors regarding forward-looking statements. Any statements made in today's presentation that are not based on historical facts are forward-looking. Such statements are based on certain estimates and expectation and are subject to a number of risks and uncertainties. Actual future results may vary materially from those expressed or implied by these forward-looking statements. We encourage you to read the risks described in our 20-F filing for the fiscal year ended March 31, 2018. Except to the extent required by applicable security laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that we make here today, whether as a result of new information, future events or otherwise.
Today's presentation will also include references to certain non-GAAP financial measures. We have reconciled these comparable GAAP and non-GAAP numbers in the press release as well as in the supplemental tables in our slide deck.
And with that, I would now like to turn the call over to Dmitry. Dmitry, please go ahead.
Dmitry Loschinin -- Chief Executive Officer and President
Thank you, Tracy, and thanks, everyone, for joining us today for our second quarter fiscal 2019 conference call.
I will begin on Slide 5 with key highlights from Q2. During the quarter, we made progress in our transformational initiatives and generated solid results, largely in line with our expectations. Revenue was slightly above the midpoint of our guidance range, while adjusted EBITDA margin and EPS finished above our guidance ranges. We maintain our focus on improved profitability and have completed trimming the low-margin business within Digital Enterprise. In second quarter, Financial Services revenue ex-Top 2 was up 16% year-over-year and 11% sequentially. Our Top 2 client concentration decreased 5% year-over-year and is now at 30%. Automotive revenue increased 26% year-over-year and 14.5% sequentially. It is important to know, we expect a strong acceleration of auto revenue in the second half of the year and we'll see double-digit sequential growth through Q3 and Q4. We remain on track to achieve our full year goal of 40% constant currency growth. We will continue to invest in our Automotive solutions, given strong growth potential in the areas such as Connected Mobility, Autonomous Drive and Digital Cockpit. We continue to strengthen our leadership position and recently added a new automotive client to our Top 10 list, bringing the total number of automotive clients in the list to four. We continue to expand our global delivery scale and established new presence in Shanghai, China; Turin, Italy; and Seoul, Korea. Growing our presence is essential for growth of the business and we have achieved 65% growth in APAC year-over-year, predominantly from Automotive and Financial Services.
We are committed to invest in disruptive technologies in order to enhance our value proposition. We are building strong momentum with our blockchain technologies as a growing number of clients are moving from ideation to implementation phases. We are well positioned with blockchain and have the resources and capabilities to drive successful clients. As we focus our resources on high-growth digital solutions, we will continue investing in our sales and marketing teams in support of our go-to-market strategy. We continue to consolidate our back office consistent with our cost optimization goals, which will drive margin expansion in fiscal 2020. We are well positioned in fast growing markets and have many exciting opportunities on the horizon. We are expecting to enter fiscal 2020 with a stronger backlog and a stronger pipeline than we entered fiscal '19.
Turning to Slide 6 for an update of -- on our revenue diversification. A few things to note, Automotive has grown rapidly and now represents approximately 22% for our business, up from 12% three years ago. We expect Automotive to move toward 30% of total revenue already in Q4. We continue to de-risk our revenue profile year-over-year. As a percent of revenue, our Top 10 decreased from 58% to 54%; our Top 5 decreased from 47% to 43%; and our Top 2 decreased from 35% to 30%. Most notably, DB has decreased from 18% to 14%. Revenue from APAC and Europe increased 65% and 17% year-over-year, respectively.
Turning to Slide 7. Financial Services revenue was up 6% sequentially but down 3% year-over-year due to the decline in DB. In addition to this decline, we are facing some market challenges in this space. First, as previously communicated, we do not expect growth from our Top 2 accounts this year. In total, these two accounts represent 55% of our total Financial Services revenue, down from 73% two years ago. As we continue to diversify and the concentration of Top 2 declines, we will see growth acceleration. Second, the overall macro outlook for Capital Markets and Investment Banking remained soft, particularly in Europe. This area represents roughly 70% of our Financial Services business. We will see the concentration to continue to drop, as we diversify into wealth and asset management and grow in APAC and in the United States. Third, on the regulatory front, MiFID initiatives are nearly complete. While new regulations are on the horizon, such as FRTB, execution has been delayed until fiscal 2020. While we initially expected to recognize this revenue in the second half, we will now benefit from this work in fiscal 2020. Lastly, we recently made the decision to walk away from a new business deal with Tier 1 client due to competitive pricing challenges. While we were front-runner for this deal, we ultimately walked away after a competitor substantially cut their price to win the deal. Our decision is consistent with our focus on profitable growth and margin expansion. However, this negatively impacts our second half revenue expectation in Financial Services by roughly 4%.
On a positive note, we continued to make inroads in Asset Management and Wealth Management, with combined growth of over 35% year-over-year. While still a relatively small portion of our business, we are seeing strong demand from our clients, predominantly in the US. As this becomes a larger percentage for our Financial Services business, we will see growth acceleration. We are making strides in our target markets demonstrated by ex-Top 2 year-over-year growth of 19% in North America and 55% in APAC. In addition, we are beginning to see traction in the Middle East, a new region for us.
During the quarter, we secured a number of engineering projects for the largest asset manager in this region. We won a long-term deal with a leading global financial institution, where we are building and maintaining a variety of financial and business intelligence apps. Lastly, we have been integral in the development of workflow operations for a large global bank. We believe forward demand in Financial Services will be driven by the ongoing need to improve profitability and adopt digital technologies. We will continue to focus on growing our Wealth Management and Asset Management, and expect further growth in fiscal '20.
Now turning to UBS, our largest client, on Slide 8. Revenue in the quarter was down 3.5% year-over-year and flat sequentially, in line with our plan. UBS remains focused on bolstering the ratio of internal staff to external provider -- providers, but we continue to look for upside in the Wealth Management space where we have seen some growth. Based on the current softness in the IB space, we currently expect a slight decline in revenues from UBS in the second half of the year. Moving forward, they are focused on the bid to find opportunities in APAC and Wealth Management and Infrastructure within this client.
Now moving to Slide number 9 and an update on Deutsche Bank, our second largest client. Our outlook remains the same. We continue to face headwinds at DB. As stated in our Q1 call, visibility into DB long-term strategy remains challenging and unpredictable. This account was down 25% year-over-year and up 5.5% sequentially. The slight uptick has -- this quarter reflects the delay in cuts in some of our programs. Given these delays, we expect a sharp decline in the back half of the year. We continue to look for opportunity outside of Investment Banking area and more attractive segments. However, this account will continue to have a material impact on our performance this year. As we continue diversifying our revenues, we expect the contribution from Deutsche Bank to be below 10% by the end of this year, reducing our exposure in 2020.
Moving to Automotive, where revenue grew 26% year-over-year and 14.5% sequentially. This continues to be our fastest growing line of business as we secure new projects and grow existing partnerships. We will see a steady double-digit sequential growth throughout the whole year compared to Q3 last year, where we saw a sequential decline. We reiterate our full year target of 40% constant currency growth. We maintain our leadership position in this fast-growing sector and continue to secure multi-year collaborative agreements with leading Tier 1 and OEMs. We are growing our European business with our largest account, Daimler, and are building a very strong pipeline with two more major European OEMs. We also see an increased demand for our solutions with year-over-year expected growth of approximately 60% in Digital Cockpit, 250% in Autonomous Drive and 90% in Connected Mobility. This quarter, we hosted the Delivery Center Tour in our Berlin office, an office we coined as a co-collaboration space with Daimler. We had a number of leaders from our Automotive team speak, as well as members of MBItion, a subsidiary of Daimler, and LG Electronics team. We continue to build a strong relationship with LG Electronics, co-creating a range of technologies and products applicable in the automotive, smart home and robotics markets. We've worked alongside LG to bring the next-generation webOS to multiple verticals using our one-of-a-kind go-to-market partnership strategy.
Let me highlight a few more achievements during the quarter. We have seen impressive sequential growth in our Asian and North American markets, up 33% and 50%, respectively. We have several wins with multiple large Tier 1 suppliers and OEMs in China, and recently signed a long-term delivery agreement with one of our key clients in the Americas. We are capturing synergies with Objective Software, and are pleased with the new opportunity this acquisition has provided. We partnered with Vantage Power to launch a next-generation fleet performance and diagnostic platform. Lastly, we recently joined a Connected Motorcycle Consortium to support the development of next-gen cooperative intelligent transport systems. We are uniquely positioned. This market will continue to engage with our clients and partners in order to drive the mobility revolution.
Lastly, turning to Slide 11 and our Digital Enterprise business. Revenue fell 10% year-over-year, as we finished up the trimming of low margin non-core business. As previously communicated, we took the strategic decision to enhance our profitability in the long term. A few achievements to highlight in the quarter, in total, we added seven new logos. This is very impressive number, and we expect continued growth with new names now that the trimming process is complete. We will be able to fully allocate resources to this new opportunity, strengthening both top and bottom line. We see a strong growth in Energy and a strong pipeline in our Healthcare and Life Science practices. We extend our Travel practice with several new clients, including one leading European Online Travel Agency. We won a key project with a large Sports Media company. We see strong demand for our Blockchain solutions in a variety of industries as many companies become more familiar with this technology. I'll speak to our prominent position in this market and our strong pipeline in a few minutes. Lastly, we were recognized as innovator in five Gartner Hype Cycles, including AI and Application Services. We have taken the right steps to strengthen our Digital Enterprise business, and we are on track to start growing. We reiterate our medium-term goal of 20% revenue growth.
Moving to Slide 12. I would like to take a moment to speak to our Blockchain practice. This technology is a strong differentiator in our digital business and we are excited about the opportunity it brings. While this is still a relatively new technology, it is began to -- is beginning to rapidly grow, and we are positioned very well to capture this growth. We have strong relationship with a number of partners and platform providers, as you can see on the bottom of this slide. We established a position in this market in its earlier stages and we are widely recognized by peers as key player. In addition, we have created our own products and blueprints that are able to be used in a number of industries, including Healthcare, Pharma, Auto and Travel.
Let me highlight a few of Blockchain wins. We have launched the Cordentity app with our partner R3, which highlighted (ph) Blockchain technology and sparkling (ph) interest in Healthcare, Life Science and Mobility. Our VP of Technology, Vasiliy Suvorov, recently presented at the BMW IT Fair and at the Distributor Healthcare Conference. He discussed our growing position in the Blockchain revolution. The pictures on the slide represent only small number of the events that we've been participated. In the Healthcare industry, we are working with a large Healthcare company in order to simplify and streamline their claims processing. We are also engaged in a revenue cycle management project for a large hospital network. Within Auto, we are working alongside BMW to transform the mobility ecosystem with ride-sharing apps, loyalty programs and shared fleets for electrical cars. We see tremendous opportunity with Blockchain, and expect to see growth rapidly accelerate as this technology becomes more mainstream. If you are interested in reading a bit more about our Blockchain practice, I urge you to visit our website where we have some great podcasts and videos that highlight our experience.
Now moving to Slide 13 and a discussion of the market environment we expect in the coming months. Our first half performance was in line with our expectations. We are pleased with our improved profitability and ability to execute on new opportunities. However, during the second half of the year, we will face some headwinds. I have already mentioned some of the market and timing-related headwinds predominantly in the Financial Services space, including anticipated sharp decline in DB that will have an impact on our top line and margins; softness in the Investment Banking market, particularly in Europe; our decision to walk away from a low-margin project with a Tier 1 Financial Services client, impacting second half Financial Services revenue by roughly 4%. We also anticipate ForEx headwinds of about 2% for the full year. Due to these factors, we expect our year-over-year growth, excluding our Top 2 accounts to be approximately 15% constant currencies, or approximately 13% in actual (ph) currencies.
Despite the headwinds in the second half, the outlook for 2020 is positive. We believe our focus on digital opportunities will drive accelerated organic growth. We anticipate stronger performance across each line of business next year. Automotive will generate another year of strong growth as we continue to benefit from our investments in strategic offerings and established industry relationships. Financial Services growth will be driven by increased presence in North America and APAC, especially within our Wealth Management and Asset Management practices and our focus on generating new business among Tier 2 and Tier 3 banks. We have built a very strong pipeline and we will also benefit from a few deals that we are going to realize in 2020. Our Digital Enterprise transformation is completed, with resources and teams fully aligned with high-growth opportunities. As we've communicated on previous calls, this year has been a transitional year for us, and we expect to see growth return in fiscal '20. We are committed to our strategy and believe we are taking the right steps to strengthen our long-term growth potential.
With that, I will turn it over to Evgeny.
Evgeny Fetisov -- Chief Financial Officer
Thank you, Dmitry. Hello, everyone, and thank you for being on the call with us. I will go over some key numbers, provide additional color on Q2 results and introduce our third quarter fiscal '19 guidance.
If you turn to Slide 15, we delivered second quarter revenue of $228.4 million, roughly flat year-over-year and slightly above the midpoint of our guidance range. Of this $228.4 million, $219 million were organic revenues. Second quarter fiscal '19 FX impact on revenue was a negative $1.3 million, or a negative 0.6%. Our gross margin was 38.4%, down 50 basis points from one year ago. SG&A as a percentage of revenue was 26.2%, up 70 basis points from second quarter of last year. For the first half of the year, SG&A was down 20 basis points from the first half of last year. SOP expense as a percent of revenue was 3.5%, up 80 basis points from Q2 last year. However, for the first half, SOP expense was down 10 basis points year-over-year. This is in line with our expectation of annual SOP expense less than $30 million and below 4% of the revenue.
On Slide 16, you will see our adjusted EBITDA margin of 16%, which is down 90 basis points year-over-year, and it is ahead of our Q2 guidance. GAAP EPS amounted to $0.43 per share compared with $0.54 in Q2 last year. This was above our second quarter guidance. On a non-GAAP basis, diluted EPS was $0.74 per share compared with $0.82 in the second quarter of last year. The quarterly weighted average diluted share count was 33.7 million shares.
Turning to Slide 17, where I will provide a bit more detail on currency mix. This quarter, revenues in US dollars, euros and pounds represented 54%, 31% and 4% of total revenue, respectively. As stated, we experienced a $1.3 million quarter-over-quarter negative FX impact on top line and $3.1 million on a year-over-year basis. This is due to the increased concentration of euro-dependent revenue and the weakening euro. This number is mitigated on the bottom line due to sufficient share of euro costs and hedging. Looking ahead, our top line performance will continue to depend on the strength of these currencies, and we anticipate FX headwinds of roughly $5 million, or 2% in the third quarter of this year.
Turning to Slide 18. Free cash flow for the quarter was at 10.6%, which is slightly above our target level. We continue to focus on managing receivables and improving DSO. DSO in the second quarter improved to 86 days from 91 days in the first quarter, demonstrating focused efforts in working capital management. This is a priority for us and we will continue to further reduce DSO in the second half of the year.
Moving to Slide 19. For the third quarter of the fiscal 2019, we expect revenue and adjusted EBITDA margin to be in the range of $230 million to $235 million and 14% to 15%, respectively. We expect GAAP EPS to be in the range of $0.29 to $0.37 and non-GAAP EPS to be in the range of $0.62 to $0.69. While Dmitry communicated the top line revenue challenges we will face in the second half, I would like to address the margin deceleration in this third quarter. Continued cuts at DB coupled with a seasonal mandatory (inaudible) will have an impact on our earnings. To reiterate, we now expect our fiscal 2019 growth excluding Top 2 to be approximately 15% on a constant currency basis and 13% reported.
With this, we are opening the lines and look forward to your questions.
Questions and Answers:
Operator
Thank you. (Operator Instructions) Our first question comes from the line of Joseph Foresi with Cantor Fitzgerald. Please proceed with your question.
Joseph Foresi -- Cantor Fitzgerald & Co -- Analyst
Hi. My first question here is, maybe you could help quantify for us the impact of Deutsche Bank next quarter, and even as you look at it through 4Q, it would be good to get maybe a numerical number around that. And I assume that's weighing on margins, because you've got to redistribute people. Maybe you could talk to that as well.
Dmitry Loschinin -- Chief Executive Officer and President
Hi, Joseph. This is Dmitry. So, the outlook side (ph) of that, we're going to see quite a steep decline in our Q3 and anticipate the decline to continue in Q4. So, we are currently looking at DB somewhat around 90-plus for the full year.
Joseph Foresi -- Cantor Fitzgerald & Co -- Analyst
Okay. And just to kind of finish that question, is that -- I mean, the margins are coming in, are we expecting a 1%, 2% margin headwind from reallocating people off of DB?
Dmitry Loschinin -- Chief Executive Officer and President
They're going to have some margin headwind related to the DB decline, yes. So we didn't have much of the decline in our Q2, we managed kind of to postpone. But Q3, Q4, we're going to have a decline, and obviously margins will have some impact.
Joseph Foresi -- Cantor Fitzgerald & Co -- Analyst
Got it. Okay. And then my second question, just on the Financial Services outlook. You mentioned some moving parts within Financial Services. What -- how do you think about that business? Are these unexpected changes and you're more concerned about the business excluding DB than you were six months ago? Can you grow through these changes around Investment Banking? Are they momentary and you think it's not an issue over the long term? I'm just wondering how you think about some of the other commentary, including walking away from the deal in Financial Services over the long term?
Dmitry Loschinin -- Chief Executive Officer and President
So, remember that about 70% of our business today is in Investment Banking or Capital Markets. And also, quite significant -- about the same percentage is related to European business. So in those two areas, we clearly see some softness on the market. So it's not that the business is disappearing but decisions are taken longer and some of the projects and programs are shifted toward 2020. So I wouldn't say we see a significant drop. The pipeline is strong. We just saw in our second half some of the business and opportunities, which we believe we'll realize. They are simply either going on a slow pace or shifted toward 2020.
Joseph Foresi -- Cantor Fitzgerald & Co -- Analyst
Okay. And then my last question --
Dmitry Loschinin -- Chief Executive Officer and President
At the same time -- just to complete here, at the same time, on our Wealth Management, even though on a relatively small base, showing very good growth across the board. We are very happy with our business dynamic in APAC, including actually IB, but overall, it's -- they also reported pretty high-growth trajectory there. And we have started seeing some good traction in US. So we invest in the sales team. Actually, I believe that we have all ingredients in place to start growth in the US in 2020, but already this year, you're going to see pretty decent growth number.
Joseph Foresi -- Cantor Fitzgerald & Co -- Analyst
Okay, good. And then lastly, talking about 2020, I think most people on the call and who follow your stock knew that DB was going to be down in the second half, maybe it's a little bit worse than expected. But could you provide for us any color around growth rates or expectations for growth rates in Financial Services, Auto and Digital in 2020, or anything around the margin profile, because I think that would really help investors as we continue to weigh through Deutsche Bank in the back half of this year and some other challenges? Thanks.
Dmitry Loschinin -- Chief Executive Officer and President
So -- yes. So for 2020, the way we see it today, and yet, we need another five months to realize and to have a better picture, but we are quite confident that our Automotive business will demonstrate 35-plus percent growth. So the growth will remain there. And actually, the pipeline which we're building (ph) and the backlog is going -- is looking very strong already now. Our Digital Enterprise business is actually on growth trajectory. Already, you can see sequential growth from Q1 to Q2. You're going to see it in our Q3 and further. So, we're expecting to see for Financial Services -- for Digital Enterprise double-digit growth already in 2020. As for the Financial Services, we still need to see how the pipeline and overall market sentiment will form up until the end of the year. We also see we have quite a high level of volatility with our -- with this DB account.
So for now, let's say that we will -- we should be able to demonstrate good growth momentum outside of Top 2. As for DB especially and, to some extent, for UBS, it's premature to say.
Joseph Foresi -- Cantor Fitzgerald & Co -- Analyst
Thank you.
Operator
Thank you. Our next question comes from the line of Arvind Ramnani with KeyBanc Capital Markets. Please proceed with your question.
Arvind Ramnani -- KeyBanc Capital Markets -- Analyst
Hi. Thanks for taking my question. Just a couple of questions. Can you maybe kind of talk a little bit about your kind of EPS and margin performance, what kind of drove the upside in the second quarter?
Dmitry Loschinin -- Chief Executive Officer and President
So the EPS, and it's predominantly driven by two factors, that our gross margins -- we actually delivered quite well on the gross margins. It is attributable to growing margins in Digital Enterprise, which is basically a reflection of our strategy. We also did better, I would say, on the DB front, because we didn't have as many cards as we initially anticipated. So, overall, the margins there were good. Actually, Automotive margins are very good, overall. So these three factors also on our G&A front, so they are not -- we're continuing to invest in the sales, but our administrative costs are going down, so run rate is reduced. So I would say these are the three key factors.
Arvind Ramnani -- KeyBanc Capital Markets -- Analyst
Great. And then on Automotive, you seem to be still very confident on delivering kind of a 40% growth for the year, even though both Q1 and Q2 have been 25% -- 26% this quarter. But, I mean, it seems like a pretty steep acceleration. You -- what drives that level of confidence?
Dmitry Loschinin -- Chief Executive Officer and President
So we have a bit different pattern this year than a year ago. So, if you can see that on the sequential basis, so quarter-on-quarter, we demonstrated a double-digit growth performance, and we will see that going forward in Q3 and Q4. So it's not actually that much of the growth, it's just a gradual growth throughout the year. While in -- last year, we had a bit bumpy performance. So, for instance, Q3 -- or Q2 was pretty high, and then there was a slight drop in Q4 and then it went up again -- sorry, in Q3, and then it went up again in Q4. So -- and our confidence is just based on the pipeline and the backlog and the way we see it. We are like very confident in the performance. It's just a different pattern.
Arvind Ramnani -- KeyBanc Capital Markets -- Analyst
Great. And last question from me. Some of your peers, some of the larger IT services companies have indicated that they may be entering a pretty tough kind of macro environment because of some trade wars and Brexit. Do you feel like your expectations for, say, calendar '19 are conservative enough, or you think like if the macro does get a little bit volatile, things need to be revised?
Dmitry Loschinin -- Chief Executive Officer and President
I would say, we see it in the Financial Services space. So, we clearly see very soft market in terms of the overall spend and decision making. It's not a drastic difference. At the beginning of the year, however, obviously, all of the news impact the market performance. On the Digital Enterprise, it's a well-diversified market, multiple industry. The growth momentum, we don't see a really big, big difference. Automotive, on its own, I don't think it is anyhow related to the market fluctuation, because the overall spend in momentum is not designed for 2020, it's already 2022 and 2025. So, it's a much longer horizon for OEMs and Tier 1s, the way they spend.
Arvind Ramnani -- KeyBanc Capital Markets -- Analyst
Great. And just a quick follow up on Financial Services. In Financial Services, has the commentary from your clients become cautious, or have they actually pulled back on some projects?
Dmitry Loschinin -- Chief Executive Officer and President
I would say more cautious. It's really kind of a slow paced and growth of certain programs pushing kind of toward next period start. So, for instance, there was a deal which we won. We know -- we were awarded. We expected that to start in our Q2, actually late Q2, and already we have full swing in Q3, Q4. Now, the start will be only sometime Q4.
Arvind Ramnani -- KeyBanc Capital Markets -- Analyst
Great. Thank you very much, and good luck for remainder of the year.
Dmitry Loschinin -- Chief Executive Officer and President
Thanks, Arvind.
Operator
Thank you. Our next question comes from the line of Avishai Kantor with Cowen & Company. Please proceed with your question.
Avishai Kantor -- Cowen & Co., LLC -- Analyst
Yes, hi. My first question, can you give us some more details as much as you can, obviously, on the client from which you walked away, the contract from which you walked away?
Dmitry Loschinin -- Chief Executive Officer and President
Sure. It's Tier 1 European bank. And the deal, which we were in the final, being a front-runner with all indication to get the business, and we kind of expect that there's high probability of this to be in our backlog by the second half of the year. At the very last stage, we were the only two competitors. The competitor dropped the price just by (ph). So they went for a money-losing business, but I guess they just look differently. And we were offered to rebid, and decided not to. We just didn't see that fit into our longer term profitability strategy. So that pretty much explains the case.
Avishai Kantor -- Cowen & Co., LLC -- Analyst
And that's a contract which was supposed to actually ramp in the second half?
Dmitry Loschinin -- Chief Executive Officer and President
Yeah. The contract was to supposed to ramp up in the second half quite aggressively, absolutely (ph).
Avishai Kantor -- Cowen & Co., LLC -- Analyst
Okay. And then my next question is, any update on North America Automotive traction or trends over there?
Dmitry Loschinin -- Chief Executive Officer and President
Actually, we see very good dynamic there. I think we reported that we have decent growth in the region. We have already a few clients and new clients secured, and the pipeline is beefing (ph) up. So, very positive. It's 50% growth this year for North America, so really high growth. We are growing the team. We have several large deals on the horizon. So I'm pretty sure we'll get one of that. We have one large OEM as kind of a key account there. But overall, we definitely will make it in US.
Avishai Kantor -- Cowen & Co., LLC -- Analyst
Great. Thank you so much for the details.
Dmitry Loschinin -- Chief Executive Officer and President
Thank you, Avishai.
Operator
Thank you. Our next question comes from the line of Charlie Brennan with Credit Suisse. Please proceed with your question.
Charles Brennan -- Credit Suisse Securities Limited -- Analyst
Great. Thanks so much for taking my question. Can I just come back to this contract with pricing pressure? Can you just give us a sense of what the nature of the contract was? Was it a basic body shopping headcount augmentation contract, or was it something more complex?
And then secondly, why do you think it is that you are being undercut on pricing? Do you think you've now become subscale in Financial Services and you lack the critical mass to compete to market pricing? And maybe I can extend that to Deutsche Bank, with you doing maybe $90 million of revenue this year, do you think they still see you as a strategic supplier, or do you think you've dropped off that top table?
Dmitry Loschinin -- Chief Executive Officer and President
Hi, Charlie. Yeah, sure. So, for the deal, it was a large-scale outsourcing (ph) deal, very strategic on one hand. I won't say, (inaudible) complexity. But still just because of the relationship and our position with this account, we definitely were the front-runner. And again, the competitor decided just to go all in and put the price tag, which just didn't make sense for us. So, happens. But -- and again, we could have won, we just decided not as, again, this is a longer term deal that will impact our profitability with this client. And besides, actually it's not -- we feel (ph) there's opportunity with the same client to grow much more profitably. So, I would say, it's rather one-off than something very typical. Not every time we see someone would go that much aggressive for money-losing business overall.
As for the DB, we remain part of their strategic suppliers. I don't think that other people there, they have better trajectory than us. So, it's pretty much across the board as you can expect for DB. There are few things that makes this story as we see it now, and we discussed on the previous calls, the overall shrink of their spend in IT, and especially in the IB space, and they have this rebalancing program with insourcing -- very aggressive insourcing. So those two very significant headwinds, which basically drive decline for us, and I'm pretty sure for other suppliers as well.
Charles Brennan -- Credit Suisse Securities Limited -- Analyst
Okay, thank you.
Dmitry Loschinin -- Chief Executive Officer and President
Thanks.
Operator
Thank you. (Operator Instructions) Our next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.
Maggie Nolan -- William Blair & Company, L.L.C. -- Analyst
Hi. Just building up on that competitively priced deal, have you noticed any changes in the competitive environment or the pricing environment outside of that, or do you feel like this was more of a one-off occurrence?
Dmitry Loschinin -- Chief Executive Officer and President
Well, this clearly was one-off, and it was really quite unexpected that (ph) someone would go that aggressive. So that's an exceptional case. Overall, I -- what I would say, I don't think it's a surprising one. In the commodity space, when you compete for the traditional sourcing work, pricing pressure is high and it's building up. So you have to really go and propose very competitive pricing on a more complex matters or the work that assumes multiple components, the consulting component, system integration component, engineering component. When you play in a one-stop shop, you can still work with high price, a decent price.
Maggie Nolan -- William Blair & Company, L.L.C. -- Analyst
Okay, great. And then can you talk through (ph) some of your challenges and successes in winning clients in North America? And with that -- with a large piece of your Financial Services revenue in Europe under pressure, do you need to put an enhanced focus on growing in North America?
Dmitry Loschinin -- Chief Executive Officer and President
Yeah, absolutely. We're doing this. So, we have two regions where we see opportunities for the scale and growth. One is APAC, and we've demonstrated that the growth there was in terms of their margins, and we're getting really decent margins in the region, as well as overall sentiment. So it's not as distressed as, for instance, the market in Europe these days. Yes, it's more optimistic -- we are more optimistic on the US, and again, we expect to grow about 50% this year overall for the region. And also, we put in a lot of efforts and also investing in the sales force and the local experts, so that would help us boost the business.
Maggie Nolan -- William Blair & Company, L.L.C. -- Analyst
Thank you.
Operator
Thank you. Ladies and gentlemen, that is the end of the time that we have allowed for questions. I'll turn the floor back to Mr. Loschinin for any final comments.
Dmitry Loschinin -- Chief Executive Officer and President
Thank you, operator. Thank you, everyone, for joining us on the call today. We look forward to updating you on our progress on our Q3 call. Additionally, if anyone is in New York City for the UBS Conference in two weeks, we will see you there soon. Have a good day.
Operator
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Duration: 42 minutes
Call participants:
Tracy Krumme -- Vice President, Investor Relations
Dmitry Loschinin -- Chief Executive Officer and President
Evgeny Fetisov -- Chief Financial Officer
Joseph Foresi -- Cantor Fitzgerald & Co -- Analyst
Arvind Ramnani -- KeyBanc Capital Markets -- Analyst
Avishai Kantor -- Cowen & Co., LLC -- Analyst
Charles Brennan -- Credit Suisse Securities Limited -- Analyst
Maggie Nolan -- William Blair & Company, L.L.C. -- Analyst
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