EPAM - Earnings call transcript Q1 2019

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Operator

Greetings and welcome to the EPAM Systems First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Investor EPAM of Head Straube, Relations Systems. for David you. Thank

You may begin.

David Straube

the and Thank of By for XXXX good now, operator the first results. you release copy everyone. your morning you, quarter received should earnings company’s have

you Peterson, epam.com the at Chief today’s are Financial Investors is and CEO on in Arkadiy me Officer. have Dobkin, not, With President If copy call available a section. and Jason

contain on the forward-looking as you begin, These that to some today’s I call filings. comments the described release I subject may Before are SEC remind made statements. uncertainties statements to company’s would of and and like risk earnings in

Additionally, all to Investors Ark. our turn website. are are and available over measures references in I the With our call that section have of said, materials that will the non-GAAP been quarterly now reconciled in GAAP reported to to earnings results located

Arkadiy Dobkin

our start revenues terms. year-over-year like and XX% currency few financial Thank I us. you, in growth everyone. of would quarter. joining Dave Thanks reflecting with constant XX% a $XXX for million, first good We to or morning highlights of delivered

players. about which do worried remark some based our still we from market back, it addition, least We continued of strong recently In everyone start solid our of mentioned per then seems fiscal us relevance and to muted account level important, believe just performance the X on given results a QX QX have months XXXX. is uncertainties, in think of at taking in especially when XX% we represents the non-GAAP $X.XX, which our We and regional share year delivered growth now earnings macro underscore reported like it it market.

future. proceedings, better on sales through a our has talent company be and of we prepared constantly this to the our at nonstop business, overall, the faster, chances to our broadening focus across think point, So set improve for disrupting as been investing our developing relevance owned our our

While what think isn’t reminder in QX possible regards to help period, it significantly short focus what of I serve a something is. a could in new did previous we summery to our share versus as

are to which cushion XXXX by shaping during blending our organically strengthening capabilities, added acquisitions. we in and our continuously So, new EPAM we and by end-market consulting teams

our historically to They well-integrated delivering. with business, the strong are bring As indicated before, empower build expertise. to offering our to experience our real capabilities across engineering is allow we goal consulting project technology us should value and and solutions clients

in quality and testing as clients’ our Also, across locations and and as quarter, improving and a level continuously platforms are investing are to in we improving support working continuously own and differently engineering of the we we forcing this thinking During our saw product act way within a all those, good capabilities making for about solutions direction. us it think productivity, last the because progress practice to collaborating to global another zone the didn’t new shows the brought work for us solving, the alternative And new QX us of challenges outside reason. or and are didn’t or one we problem we past and some us in services, to expertise of in constantly our digital by future. consider approaches excited And of teams comfort address it. well new which and glimpse

a could are our good challenges with we we example strategy to result how and evolution to and of even changing speed to non-stop are of difference the and to The execution we those their likely in terms the difference address is and and very the just to details, waste. production that such both we work of Finally, company probably EPAM design impact optimize and know, thousands models number of ideation that everything function and from similarities. to again overall approach our eliminating the partner do. are And as consulting, multi-functional most help with over true engineering Yes, clients Proving and in encouraging a can from hear many from small difficult productivity quality have all that, multi-locational the in improving excited constantly we including run. different before engagement a practice yourself cycle only the the to our of and experimenting to teams effort way also the while And differentiation and of improve architecture in – industry, are clients very digital total in of of how remarks we points on new brands of of One is and capabilities to itself allows our in our a the the where you forth message. an and our businesses. with it about it’s growing obstacles. is clearly constantly forward we and of deliverables that’s heard differentiate all the on together over put them critical ability of interact orchestrate are be move extra to desire overcome giving connect the and across efforts which partners overall unstoppable internally speed constantly concept, platform clients delivery reason positive is the others

clients, different and all optimistic flexible everything together While are it, are sometimes into environment. the suppliers the work they the we ecosystem, maybe are difficult of consumers, broadly reasons we our to platform employees, future be term are partners, scalable blended also to that sharing in that overused continuing about where and because and including how digital

years. competitive innovative want them across our and analytics, and simple. do platforms, consulting over see To depth to ways enable and our that and customers full Delivery multiple to the we through blended our We the disruptive breadth helping of put which be uniquely machine, through the changes. goal capabilities. to our to together around with today, capabilities our successfully emerging So, pragmatic data in EPAM navigate built verticals of we while is Global and And engineering and consistent verticals such technology for in marketplace in continue main solutions demand automation

point, level we the think this Despite some we as at of are constantly are can uncertainties, XXXX macro ago. did I and again about, months repeat at looking optimistically. we X So we watching reading

to digital With said, continue base let help and QX and global We execute are very to our relevant them programs me ability can on to real. programs over and business for to more details the turn transformation to ambitious results our make through we that confident that our to on diverse client lifescale very remain some our Jason update outlook. innovations, call

Jason Peterson

talk Good about solid cash you, start line guidance will Ark. performance, everyone. flow highlights, we the expectations financial first earnings top exceeded Thank per morning for QX and quarter, end XXXX on on the year our grew delivered you profitability, profitability I fiscal and In with and QX. then share.

million, currency, from exchange came growth a foreign XX.X% basis are at the growth few reflecting $XXX.X Revenue impact quarter. year-over-year a a on of a in Here highlights X.X%. XX.X% in constant negative of key reported or

based product and and digital Financial analytics. or growth of growth QX transformation, Growth across at first at is engagement, drivers Europe. development through reported impacted efficiencies vertical, our include artificial service very driving of on deeper the constant addition financial verticals, customer in remain delivered year-over-year. several by was to XX.X% for and and predominantly in revenue consistent largest an Looking machine quarter X.X% currency increased learning in down insights few services focus industry Russia, our revenue clients our the a expected activity growth clients ramp timing in recognition of intelligence,

by terms. XX.X% XX.X% grew continue in growth of a and space, few constant our the growing clients currency see Travel in QX and in revenues, in but represent in ramp along of a for We consumer rapidly based consumer Europe, part muted payment Growth which of the [indiscernible] for share demand insurance account few services North America. our impacted currently for down modest to financial reported clients increasing with portfolio. offerings and processing was

recognition Business revenue currency primarily And and industries clients media In year-over-year several in in programs. geography lastly, in currency respectively. or XX.X% our information XX.X% automotive. growth XX.X% our growth From clients and revenues, represents and grew the America, and region, constant a revenues, or North geographic XX of representing outside revenues, representing reflecting telecommunications X.X% currency. or compared delivered XX.X% finally, was our last in XX.X% both Software by QX Growth and XX.X% across declining XX.X% XX.X%, energy, and and largest top CIS, by now reported perspective, constant to XX% currency. this our growth basis, grew contracted our and clients was X.X% and in a a grew new posted in our client impacted the XX% XX.X% XX Europe, high-tech of the grew year-over-year healthcare And our first in services representing broad-based constant our driven growth primarily top quarter financial year-over-year Life was verticals XX.X% QX. constant timing emerging both APAC XX.X% same QX approximately year. of of grew the in sciences growth existing XX.X% and of quarter, revenues. X.X% on quarter. in clients. QX at XX.X%

of of was was somewhat XX.X% Non-GAAP income in year, non-GAAP of million in compared $XX.X XX.X% the or GAAP year. that was compared quarter in in to $XX.X gross to of bottom the of last the XX.X% XX.X% GAAP or last SG&A from the XX.X% of compared the XX.X% QX year. operations range we to quarter target. the quarter the to revenue to Moving of XX.X% XX.X% below income gross margin in period revenue QX the operations our compared and same for or revenue GAAP to at or for last statement, XX.X% million $XX.X revenue XX% million $XX.X end of the down same SG&A in income from margin compared revenue quarter was of million last year year. revenue last came quarter of for compared last QX XX% year. in XX.X% QX in was of Non-GAAP

the effective X.X%, exercises tax for rate investing restricted quarter related units. tax to GAAP million stock option benefit Our excess in at includes which came stock of $XX.X

XX.X%. In was earnings certain items, the a the were and outstanding. XX.X% fiscal non-GAAP excess XXXX. over Our diluted GAAP quarter was on tax excludes effective and approximately increase $X.XX, share million in which basis reflecting per was shares there non-GAAP Diluted EPS benefit same QX, tax a one-time $X.XX rate, XX.X

same payments higher the flow last negative million end Cash related QX free cash annual And in and same were programs, last was fiscal at last million an a lesser extent QX. Turning to performance year. was the quarter our balance was quarter and million year. flow negative sheet, impacted compensation from positive and of between a quarter to DSO quarter cash XX and days the million a $X.X XXXX to negative by compared XXXX compared DSO $X.X compared level based our variable flow in a cash to operations XX this to increase in year. $X.X flows QX our for in same at paid out QX XX days which days to the $XX.X on

continue We performance. their pleased be DSO to with

we XX.X% of on professionals and production increase ended net XX,XXX to quarter professionals, X,XXX the metrics, QX. over that’s addition than a operational Moving delivery with during few more year-over-year,

year in the XX,XXX XX.X% ended Utilization compared XX.X% same more in and headcount employees. QX. than at total was Our last to quarter XX.X%

Now, Starting terms XX% foreign percent least revenue reported estimated XXXX, be let’s unfavorable and exchange continue in fiscal least to factoring XX% at to at currency will after guidance. a constant growth impact. turn with

the to to income continue in operations be from and to We XX.X% be non-GAAP income in range expect operations XX%. of XX.X% to continue range the GAAP to to of from XX%

and expect least now XX% expect expect our to non-GAAP to $X.XX rate the XX full tax GAAP continue effective our diluted rate per diluted we be EPS to effective reflecting of modest diluted million in at approximately be We expected least to now average share, be profitability full fully for non-GAAP GAAP outstanding. share We tax count weighted Earnings be year. at now XX%. will and for improvement $X.XX, EPS the shares approximately year now a

unfavorable of For growth producing foreign least ‘XX, will in QX XX% at terms year reported estimated quarter, after constant rate at least XX% currency fiscal in an least for factoring second million be revenues of impact. a and the at $XXX exchange X%

CIS higher region the We expect compensation level from operations holidays income the of income in be our a GAAP to in annual of XX.X% to and in to of the XX% range and operations from reflecting be of XX% range to the XX.X%, non-GAAP impact increases.

be rate the the effective non-GAAP GAAP share million share, per shares and X% outstanding. be for to non-GAAP expect at be average expect EPS we XX%. least at be tax will diluted effective diluted We we quarter $X.XX Earnings lastly, weighted will will count GAAP least fully approximately and for our quarter. expect And rate approximately $X.XX XX.X tax a of EPS

is expense million Finally QX, million key GAAP of for in quarters. million our is the year, million $X to for The with $X.X QX approximately to assumptions million million in approximately quarters. be remaining in compensation QX foreign million measurements. to effective expected expected a approximately quarter. is remaining Stock $XXX,XXX of non-GAAP each few $XX.X of the remaining adjustments, be each the that and of to to support and be $X in expected each a $XX.X of in around QX. QX Amortization exchange remainder non-GAAP is approximately in loss Tax $X.X intangibles be expected the and $XX.X in million impact $X

QX. We lastly, expect remainder benefits fiscal expect tax interest an given million XXXX, the of to the are year. be million and to related income in in income And the and adding for QX, we $XX interest in we other $X.X assumption of million around QX for $X.X amount excess

diverse income summary, our to services, $X.X our by projects that future. quarters. that, industries and across each we open demand advanced confident heritage business our the other and With of solid for well technology for of results remain In and reflect interest questions. the EPAM our positions underpinned expect million QX combining engineering offerings We for be remaining mix core a services We consulting, strategy with serve. for the call digital the let’s

Operator

Thank you. you. [Operator Instructions] Thank

from your Please question of proceed the first Shirvaikar with line Ashwin with Our comes question. Citi.

Ashwin Shirvaikar

Hi, the start year. Jason. Ark. to Good Hi,

Arkadiy Dobkin

Thank you.

Ashwin Shirvaikar

end with I outlook the I full-year the guess question, currency XX%. remains start first your obvious of half constant my and – was low XX% let growth me guess about your

the full all client not you on the about But think year mentioned, of further not bringing factor, your it’s ramp if details reference, optimism Russia year be outlook? great sure a I expressing more low keeps full basis, would from you’re there. end the given importantly, year timing, about downs up you the any European what

Jason Peterson

we on are challenged is whose things, is demand a the challenged seeing our we’ve Brexit customers for So business started with QX fair where a you’re associated clearly, question. somewhat little bit of are models good certain primarily strong and about – good on who QX probably what seeing and further and of a what few We And retail, consumer are feel again how feel is our guidance about based good couple unevenness environment. a What some clients in associated spending. for and is spending pullback one seeing is in you’re pulling Europe. our of then that that with seeing which year. demand customers addition, bit across are And then uncertainty seeing full a by bit guidance little we of little a back growth there we’re in on and the European forms banking in

is I so see continue thoughtful is overall business. the what strong across to guidance, And the demand would and say, again we

You can growth in see sciences the and life rates healthcare.

see in rates in the can our high emerging growth verticals. You tech,

little a enter the but to of very feel environment And the year. about so, the be remainder bit just want we about QX we as demand we good thoughtful fiscal

Arkadiy Dobkin

we’re would right I And traditionally that now. Ashwin, project we that, add what seeing

we at [indiscernible]. happen is happening, would QX, but – it’s this QX, in will this point what see So be

guidance. for increase full the the we guidance project We – so year the don’t can feel now become – is QX and right So yet. the increase – we but

Ashwin Shirvaikar

it. Got Understood.

least the detail. and checks, not digital it question good middle is transformation guess continues type work. work, at based That I that’s second Now sizes on, increasing. back our contract front-office type just are office, incorporate to

that of you level you so And internally deals? agree bigger would a the on of and First, make so, – tools to changes get if about that? some talk you from share with those incremental can continue with good to so

Arkadiy Dobkin

you center, whole office of that many of customization as on on very always processes the kind companies, in driven, how of understand front of the development in center get it – we and focusing core traditionally, And then And know. this were for engineering implementation Yes, while working means to of product large technology digital with stack impacts just them do this. experience business front-end, and simplistic platforms. our experience we’re platforms we strongly definitely. helping Transformation and but not always business an was

down – of advancing we the well. progress we us. a we point legacy and changing and went lot with and And – couple for during years, the some technologies for it’s corporations this investing systems there have the have progress For modernization actually skills as visible and solutions we’re and last in

So end bigger or not portion still or and development stock on managing business becoming that’s of maintaining customization view, very now, the [indiscernible]. we to on the actually from points highly of can optimize engineering but our end and legacy

Ashwin Shirvaikar

Got it. Thank quarter. you, guys. Good

Jason Peterson

Thank you.

Operator

you. Thank

comes America/Merrill Our with of Lynch. proceed Please the question. Bank question Jason Kupferberg of next with from your line

Amit Singh

Hi, Great is overall. Amit Singh. guys. This quarter actually

to financial North we or your been start also Just then if further the is decelerate overall your to the on has the could going off vertical should sense question wanted here? related clients, last last decelerating of and growth on a health growth And been we growth I how us forward? while quarters? so on services at in expect of the going given America on pullback talk among look over you revenue a services update few the from Should clients that to a financial get has about services, European for wanted financial this this question the something you has new to

Jason Peterson

Right.

thanks that question. So, for

is focus I overall the demand the want thing on just company. to first the environment for So

So, both growth always a broad across of see broad that’s range and about we clients, sort verticals. I a as is able what the new talked to existing would you growth company to of deliver of and have having can what series engines, that refer we’re then

than constitutes XX% more be EPAM at of vertical that New and revenue would services. financial

beginning we seeing then our in some growth and exciting make processing near which today asset small with and to in We midterm. are the customers, our fin rapidly grow management, business, in of tech, see but both payment we’re the very insurance growth and in actually very part card expect actually strong a up to relatively

a So, that’s of services of a sources our handful seeing guidance. financial to growth we’re we’ve there of inside lot just what clients, bit and that what then forms just got of want there pull-back acknowledge and in a we little been has banking

remainder As what of guide Ark to reduction again the for want today forms we for the year the that said, a full – saw is year. guidance the can to and QX we of the somewhat see do what in we

Amit Singh

Okay, you then if the year be or that, How guidance, it you seems last and as margins like X,XXX consulting long-term you’re bit consulting of adding your an range? maybe end on this perfect. related over because it quarter? current so upper a should more on the XX% little of – you that your will and to people, XX% that talked employees to And likely impact toward based overall capabilities quarter has believe And provide then around were consulting ago. more changed could about your a I these have

Arkadiy Dobkin

message that this and go. previous trying to create business, the not was And kind is solution create result. a on delivering to the line and still consulting, then this end optimizing we’re of than integrated of during to actually separate calls, is So, our advising which from we rather touched

more consulting difficult. even very specific of professionals services, on specific consulting – multiple because don’t roles in in play attribute it’s like it’s like specific engagements. We pure which is EPAM have and So, headcount

end metrics very but delivery so how than bit this of in results. point profitably impact on play to difficult margins the increasing a increase, on – our and and in market global centers to measuring measure So market people, number market margin, – people on from and answer The end our so this will lower trying general, on we view. we’re of the because questions little with in to end

we we As seeing is consultative different engagements. growing actually of can the we the and time, clients, bringing manner. clients of some We can same and in this that engagement advise very are work because the us year are getting marginality behavior with different a of whole consultative and type

and we it’s So, what we guidance but see margin impact communicating our long necessary a in going right that not of do to now. time, our investment are kind is is

Amit Singh

Alright. Perfect, much. thank you very

Operator

you. Thank

Blair. comes proceed Our from with your Nolan the of next with Maggie line Please question. William question

Maggie Nolan

Good morning.

or ability your remarks you And QX. stands on for kind were new first in bit challenges business for that interesting there So Is specific anything challenges be the that business? you little on quarter? of solutions create Ark, or faced to a you other a that those? that development challenges Are of happening particular some prepared talked out you some tie Can driver vertical as the an in about new that then in this also elaborate call? you something the during there the the there the growth Is into that services? could outlined

Arkadiy Dobkin

Okay.

disruption kind it unknown with through multiple be our – capabilities. have they situation and referring type for we challenges of clearly to in some earlier of what of not the trend solutions how quarters of projects, internal it’s new is And organic new and challenge And capabilities coming but go today. coming engagement – two constantly, know I and almost of answers. from different acquisitions, from of this what from new kind we and some was I and just with there type about And areas disruption – that’s going the because I bring test otherwise over type about as wouldn’t overlapping coming one confirmation do which it’s thing challenges kind And our us. and type is clients to know services QX answers of new us In to challenges to of where bringing we’re reality, exactly because questions. talking creating as services. is we internal great all as this it – of the ideas necessarily type a when opportunities new to rule, to well, don’t think new

Maggie Nolan

Okay, and of And type these engagements these of more of winning, of new kind you’ve I understand. transformational engagements, the think about then, much you business of that how that as been would you deals as this be in an the are in the you any then characterize And transformational? pipeline on pipeline well, and increase the transformational appreciated. would seeing Thanks. quantification of that

Arkadiy Dobkin

cannot ago like it’s it’s the definitely like numbers, where increasing but I deals of transformational come X was pretty us initiative effort type client critical rapidly X, you specific give years to single. the base, it or a from

Now, participate this in engagement. of probably dozens of type we

Operator

Thank you.

line Bryan with question. Cowen with your Company. Our Bergin the comes Please next from of question & proceed

Bryan Bergin

you penetrated thank on with with A offerings? success follow-up if you Hi, services, your clients those have a are consulting base than winning that leading you. by that in have Are these the give design new offerings? the relationships client? there am starting sense and of of counterparts curious here us can different target engagements having you a traditional I

Arkadiy Dobkin

Can I repeat? am sorry. you

Bryan Bergin

sure. Yes,

at you of to with traditionally penetrated then the you services? dealing the you this So with the different client you base with respect counterparts offering, leading consulting And if services, – design existing clients how with with then be? your are different people would of respect to have are and much those

Arkadiy Dobkin

type this is with penetration pretty service deep. of probably Yes,

interact companies business, specific not is it’s leadership IT XX% actually to numbers, like because way IT but with again giving with – cooperation digital still we and the XX%, it’s of So in interaction it’s with of about probably broadening XX%, people, and we’re but operation type of closer it’s together. involving over a serious business people, working lot our

without is more deliver. I platforms big more characters side, So portion this client and a think IT seeing technology practically but of still to because driving on impossible different we’re complex

Bryan Bergin

between Okay, revenue show that Do about you separation growth. then you the any also talent this And is you talk just to there a Can then Alright. hiring nice sense. the for think sourcing, and sustainable? continue on ramp changes? headcount talent, competition makes and

Arkadiy Dobkin

think new is on there nothing separation No, I here.

So come and our a of presence, think in slightly this it to short in contracts I and we’re be the case same. with with structure increasing multiple indicating better It’s rates. new times continues

of seen. inside question this growth challenges existing as promotion we’ve of people, about sourcing... of And contracts from as that’s same experience revenue the the far the which second proportion was and our because So accumulated practically

Bryan Bergin

Yes, talent – the changes talent, competition still playing? any there for

Arkadiy Dobkin

we way to have do any don’t Yes, easier it.

tough important, plus type So we retention, to bringing run which it’s attract in talented market of in very clearly interesting the allocation, – workforce. still and more investment in investments us training, opportunity of people, in the still deals very we and components

Bryan Bergin

Thank you. Okay.

Arkadiy Dobkin

is challenge sorry, absolutely. But there,

Operator

Thank you.

comes line from question next Our with question. Mayank Please of the Tandon Needham & Company. proceed with your

Mayank Tandon

profile for the your further quarter going any could through your parse terms of headcount into forward potential the of pricing tailwinds Good in year? and expectations utilization you also again. you. for improvement of in morning. maybe type Good the building revenue you’re Thank Jason, what plans, rest

Jason Peterson

a That’s fair question.

somewhat per are ongoing that a count shift gradual have an pricing revenue as a standpoint, you positive talent head is toward market, a is is there Ark uplift, OK. more that so from indicated, So doing if in

price indicated, As and and is we then at for other after pricing just increases we Ark potential also get well. our certain and a customers, did to continue rate existing as alignment customers newer there promotions with we usually of opportunities amount cycle, have that

wage somewhat probably elevated now level similar right what looking a seen we’ve not environment in is to inflation, periods and that inflation. is at an So, we’re probably certainly an similar past time what level wage of

pricing and I so, I consistent think sort sort fairly that, clear and this a standpoint From to for make environment. of do sort need a And that bodes wage around of inflation half our companies our first that of lower available we what of of fiscal seasonality got what we a has days. see capacity other or or is year quaternization bill business, utilization usually called

And environment, associated significant got QX May Christmas, got we’ve in our the with associated significant in with Orthodox so, holidays QX. holidays CIS in we’ve in region

as and in second days a improvement result, half, you’ll working available years. general then patterns see impact working a we’ve usually negative our throughout you more the on available somewhat a fewer And has that have got we So, and in days. profitability And of couple of last see profitability. the that

with now than elevated And running but higher think decline in we’ll because to QX we We from at May. relatively right vacations we utilization high-level a a the modest QX, years we’re level would expect so, associated part as have I of in in past at utilization. go a run

Mayank Tandon

on Great, provide that’s the expanding into on organically? how just or helpful thinking emerging are any also, the either you what you color. verticals, could And new areas, comprise? I about more then M&A follow-up can details through verticals if And

Jason Peterson

that’s Okay, fair.

a there from from in we has emerging growth the which been a here customers standpoint, series generally on QX. energy, in sort is strong but of So, focus of there

automotive in been growth has seeing in sort and we’re an M&A some focus then telecommunications. We’re and good growth activity on of the standpoint, From incremental a seeing lot interesting of probably probably has from to consulting talents. skills there’s in-market changed dramatically. and the standpoint But additional capability, some an and some not M&A get opportunities of sort focus then also strategy developing

consulting on market. more capabilities of focused still We’re sort in

Mayank Tandon

Great. Thank you.

Operator

Cantor question next our Fitzgerald. with Foresi question. Joseph [Operator Please the your from you Thank with line proceed of comes Instructions]

Joseph Foresi

versus know traditionally question Hi. I the in work I work? a that engagements. ask sense in takeaways? and coming in And of new seen shift new the get that’s coming new the wanted I engagements way. there’s or have How been the new much engagements to are you are or demand brand to wanted any engagements of this that

Arkadiy Dobkin

that existing engagements mean You clients? new and

Joseph Foresi

and shift new have Yes. work any still that more is Is that there? or takeaways seen primarily you

Arkadiy Dobkin

in something think not, qualify I doing were because this of don’t this. think what this is in the is continuation sometimes platform most still shift there I is extension build new initiative very before. modern engagement or approximately it the platform, there kind There large sub-components well. which especially difficult of of all But new any and as you out, it’s it’s development, usually it’s connect of and is to of

Jason Peterson

from XX% existing dollar that at clients revenue trend incremental has dollars incremental and clients. look you year-over-year that incremental revenue so, comes from of on XX% new our And consistent the basis, the that if a dollar comes of been revenue

rapidly Again, we And engagements. and grow continue new longest-standing to of quite we revenue and trend many bit get a largest incremental consistent. as customer pretty so, continue to of that our stays from customers, quite

Joseph Foresi

then one, ask Yes. I’ll guidance I ask differently. it helpful. That’s I’ll And and second very guess again my about

the year want side? side, look up. they go and what take a margin there? the that On not keeps full the are to conservative side seem on guidance the for you to on at levers margin to the Why continue Thanks. What

Jason Peterson

Okay.

confidence run what can more does we thought so, And level higher year. at business fiscal profitability we that we a somewhat than of the have guidance our began we somewhat indicate that when the

we continue last saw consistent to SG&A margin that can I that does to we take-up of some of want improve gross at invest And what sense relatively the incrementally certain investment. But think EPS profitability. some in So, related we look year. be with of that business think we have amount will reflect sort to the make business, we that as I in that

And market. the its is about, Ark are desire business. invest kind with informed as challenges additional of, to by so, in And capabilities notion continue I talked to bringing to the customers we let’s the of that think say,

with maybe in capabilities filling We’re we historically had. haven’t that

from that. learning We’re

that. supports to be clients continue our We learning and year. Our long-term, expected of is per to in which it more clients growth to are excess think then makes XX% from us relevant it

Joseph Foresi

Great. Thank you.

Operator

you. Thank

of Our next with question Please with proceed comes Securities. line Moshe from Wedbush question. Katri your the

Moshe Katri

emerging impacts a Is a as insurance tech quantify there way the fin follow-up, you on the the of maybe that for which Can morning. some Thanks to and revenue services color mentioned the financial weakness the us growth from good areas then And lot. are offsetting both in a you these vertical for? thanks, Europe. percentage Hi, business the overall quarter? give ramp-downs in banking two growth a traditional account

Jason Peterson

is growing. broad growth across that lot to we think pull opportunities different has the we’ve talked What I insurance, business of I’m of say always sort opportunities is significant a wouldn’t is overall, the practice. a probably then which this industry with financial about I Yes, of think source services clients. series just small We’ve tech. verticals, talk and But existing both and of I a time kind back growth fin had moment that rapidly about EPAM across got of going new in of components can dissecting spend and the

the as so, despite year, financial would excess softness the per in XX% quarter And is not how about in services are source spending I because and I we of dependent on speak Company. some is in business think a Company year both growth fiscal the the full for banks, of grow with continuing part our to

relatively constrained. the long today think and would than demand be historically different, term is continue that been look we I that supply I no think I we’ve to other be say would I thing constrained ever more

customers, an a modest find So deploy is always is oftentimes in a other in than almost is more you’ll if opportunity reduction what of even across resources accounts. in demand couple often there there to

Moshe Katri

Thanks.

Arkadiy Dobkin

one resolve will it there client wouldn’t our and growth. during exactly think we that’s even happening is X never impacted last down, years, times kind we so of that to or the be very ensure client We it handle any don’t overall historically, what’s quickly be X couple if danger a And years, able multiple of concentration, will clients. go

confident. the changes unless feel broader we free somewhere, So, pretty economic

Moshe Katri

thanks. Helpful,

Operator

you. Thank

from Our next proceed question Ramnani your with Capital Arvind Please with of KeyBanc comes line Markets. question. the

Arvind Ramnani

question. taking Hi, my thanks for

or through to well? some Just banks had Brexit commentary Is your on the related banks there it of some of specific some going a Europe. question softer in-sourcing some mostly regarding the of spend earlier the in at as is

Arkadiy Dobkin

of combination this. be might It

banks for control necessarily driving us direct long it’s even But it of have to same we while time, is not pretty because difficult because at time through this a what don’t it story asking going for this conveys question. big some well our very point. answer, the the exactly So, we’re very at so of banks this, kind answers when as very hearing insourcing story, optimistic we’re part and about

Arvind Ramnani

to you once spending. do accelerate? and in Great. temporary actually separate if maybe But and pertains months some I – clarity spending next XX slowdown Brexit some there’s pertains Brexit, XX as clearly it is And now mean kind uncertainty there the as to things months to things it of could think and could that is slowdown the

Arkadiy Dobkin

last so would bit the every funny, little is many but if temporary a probably you it’s answer changes year. and like everything be during My we saw think

or down So, it a going maybe going permanent come clients I not Life all, months, slowed for some back. that some up. demand to be replacement thing. going Is down Brexit always X was then all is at and that’s going make were I’m it don’t or changes, will not will and XX months pretty sure impact. know,

Arvind Ramnani

DXC, to absorbed kind just of on And recruit? environment, to the or be easier it recruiting given made now by Great. is that continued environment the that has has Luxoft difficult recruiting being

Arkadiy Dobkin

and to don’t to overall on any think Europe. respect creates all impact With that I EPAM across the recruitment Luxoft, situation

So, ecosystem. it’s bigger a much because

general, in how still bring where challenge. We and in are this? be it our all we recruit, in that think assumption I it’s going, doing real would challenging about where kind auctions we’re we we play of

in the and market So, situation I labor Luxoft anyway. changes don’t with think

Arvind Ramnani

luck Good for... you. thank Great,

Arkadiy Dobkin

the Definitely not market. simplifying

Arvind Ramnani

for luck remainder Good you. Thank great. Sounds year. the of

Operator

you. Thank

the line proceed your of question. Our Vladimir VTB next Please question comes Capital. Bespalov with with from

Vladimir Bespalov

correct, taking was my to and Hello. quarter in for on My the thank though diluted in the revenues you Could quarter. professional my Congratulations allocation second activity, question you going know forward? lot if you of revenues be first my I high professional, some per good you what on a is strategy. considering question I and fourth how are balance this behind comment the always capital cash this bit first be on that still questions. even should sheet. pretty will And M&A in the see your but are saw so a have delivery develop you little per close on will results calculations and decrease rate what utilization

for ways or So, using dividend any Thank of buybacks you. share other this cash, example, whatever? are you or distribution thinking

Jason Peterson

Yes.

And is And we headcount exchange an when quarters. you per we’ve calculation that per you’re per level with is in and growth we’ve growth a just calculation foreign in factor Maybe pretty the and couple doing, revenue exchange, so at what we those we do to we when is increasing. at first the question, so, exactly the for is that in revenue growth think both look revenue we is the headcount do past headcount, see adjust thing that headcount I two so that understand saying what not you’re on last important is quarters. would revenue in if actually that kind one seen let’s you of from the the what have say, that perspective, in, that utilization consistent is the in your of is factors, can seen do as foreign per revenue same

Arkadiy Dobkin

currency. constant In

Jason Peterson

Yes.

inorganic would and strategy as and this adjust the capital. strategy [indiscernible] constant got So, but we’re for change utilization. you’ve continue for, from evaluating And a we you to let’s opportunities currency standpoint say announce and that capital time. indicate, allocation we of wouldn’t nothing will that consume And announce at for is a as have then foreign capital exchange then an allocation – overtime,

Vladimir Bespalov

you Thank very much.

Operator

you. Thank

Our question. your with next question comes from Wolfe proceed the line Please of Darrin Peller Research. with

Darrin Peller

of but we environment it demand of questions; the RFPs guys. kinds about be a [Technical very like one trends, is question higher to is Difficulty] strong, just competitors of backdrop that of sounds kind quick the at Thanks struggling the question tax. level of honestly in kind kinds different certain seem Couple based competition see and on

versus first been consolidation now healthcare, like you’re well, deals it’s something just And ago? in financial standpoint in you it’s from then room? So, much you as clients, of same not different you more you’ve a from of the you are as, I seen seen on a I’d go in some seeing impacting let’s with that market, head-to-head whether there have release Are for the backdrop and competitors what well that We’ve for color than guess two please. of maybe shown has seen you’ve of people all, is hear your so players end as like years kinds competing to that in budget different would other guys heard love March call just services, as a little your it, past? that

Arkadiy Dobkin

But pretty provide. in competitors different movements companies some of group which type in are I which services general, our seen. think consistent there we’ve think I its

big multinational focused company I’m very quite broad consistent, local on it’s still system While very integrators very competencies. and seeing some specific it’s from

years the the before. and deals, think exceptions years, while right in we for than bigger we’re ago similar often was So, with that us big for like go guys was I X very its more X seeing case now, that

So, the second question, the repeat bit you little Can I breaking you. didn’t question? it was second on a

Darrin Peller

out merging figure among guys you of at that Are their I that prior to been where budget impact there so you in of less but clients your environment the finalize clients And some financial trying curious. if release or are than Yes, like consolidation for healthcare a base, banks saw degree, to of some seeing budget these client there’s demand might certain merging. was the all? are some actually It year I’m was March heard that also years. doesn’t sound we the you

Jason Peterson

not a seeing budget both I sides of Yes, with slowdown in that, healthcare strong demand and or on budget sciences and mean clearly release extremely we’re associated so a seeing life we’re release. and of lack a

Arkadiy Dobkin

So, and the is consolidation well. [indiscernible] risk in also,

us potentially I clients well, with several is creating so think strategy us. don’t growing on issue in by us So, which groups, some that’s getting consolidation as But for was and companies difference an different with big far. happening

Darrin Peller

when we mean And then I free at little flow I expected. in just Jason. right. a All cash it numbers, below question, came financial one quick the look what

contribute for And remind M&A in for your what us maybe quarter just what to you from prepared expect if I you think could more did on a it free year the year? bit you expect Just again your you on in cash give little the what But remarks the us touched hear the what what in a color and curious happened flow? what quarter.

Jason Peterson

so Sure, question the first. I’ll last take

basis XXX about in of growth contributed M&A So, points QX.

in of versus expect profitability your M&A terms referring revenue year, of cash we’d would coming about specific... are model, basis the XXX low or in For or that what to growth. then flow points the full you or And contribute

Darrin Peller

the number about. cash, talking flow Free I’m cash free

Jason Peterson

Yes.

there strong would a two mean, variable values a as paid result, of had the major a level we relatively element quite there’s be honestly and compensation compensation very I there. XXXX was One out. So, variable and higher

days, days XX in that XXs the to So, DSL days in that’s we’ve past. very run increased again from still And us, XX one. for note you’ll then XX DSO is good but the

level But that And it’s DSO. extent, the the performance really with variable so, due impact in the lesser of XXXX and the elevated compensation quite we payout increase a the in had high-level happy somewhat of to I’m to still DSO.

So, if in more seasonal quite I thing, standpoint. from a guess we’re add I cash one generation would

the have variable would compensation. you QX, in so, And

You have a half and quarters little bit of the compensation again variable our in are usually second in the of QX cash-generation year. strongest

Darrin Peller

Got it.

Okay, thanks again.

Operator

the Thank you. conclude floor turn Ladies any Dobkin will I final session. question-and-answer and our gentlemen, comments. that to for back does Mr.

Arkadiy Dobkin

us Thank you today. joining for

and next just around should summarize, you. So the feel new about us, we think constant, nothing which quarter. And Thank you strong practically I see to all from year happening is confirming pretty do noises I QX think the it and that this. be with clear call this

Operator

This you. teleconference. concludes today’s Thank

your disconnect at you this your Thank lines participation. time. for may You

EPAM Systems (EPAM) 9 May 192019 Q1 Earnings call transcript