Epam Systems Inc (EPAM) 2011 Q4 法說會逐字稿

Good morning, and welcome to EPAM's fiscal fourth-quarter and full-year 2011 earnings conference call. During today's call, there will be a Q&A session. Today's call is being recorded, and we have allocated an hour for prepared remarks and Q&A. (Operator Instructions).

At this time, I would like to turn the conference call over to [Richard Zubeck] with Investor Relations.

Thank you, Operator. Good morning, everyone. By now you should have received a copy of the earnings release for the Company's fourth-quarter and full-year 2011 results. If you have not, a copy is available on our website, www.EPAM.com. The speakers we have on today's call are Arkadiy Dobkin, CEO and President; and Ilya Cantor, Chief Financial Officer.

Before I begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties as described in the Company's earnings release and other filings with the SEC.

I would now like to turn the call over to Arkadiy Dobkin.

Thank you. Good morning, everyone, and thank you for joining us today on our first earnings call as a public company. Doing this for the first time, I would like to spend a few moments and introduce you to who we are, and then talk about our results and our strategy going forward.

But before doing this, I would like to say thank you to all the people who participated in and helped us through the very recent [few] quarters, and especially to our thousands of employees around the world, because without their hard work and exceptional knowledge base, we wouldn't be the company we are today.

So look to the business itself. EPAM is a region global IT service provider focused on public software engineering services directly in to customers' development solutions. The Company was started in 1993 and we built the core of our company with some of the strong sides of relative cases and (inaudible). Over 90% of our employees hold IT, math or science university degrees, and their qualifications serve as a key point of differentiation in how we can deliver a superior value proposition to our clients.

This allows us to attract attention from global and independent software vendors or ISVs and other technology companies, and start helping them with products in the media and product development service. This experience gave us very deep exposure to the top source vending and processes that existed in the market. It also allowed us to stay constantly in touch with the cutting-edge emergency technology trends.

As a result, this enabled us to differentiate ourselves in the market by developing very strong software skills and best in class technology capabilities, which are comparable to the best in the industry. Working for these clients has exposed us to the customers' challenges across a variety of industries. These dynamics has enabled us to develop vertical-specific domain expertise and help grow our business in such fast-growing segments as banking and financial services, business information and media, travel and hospitality, and retail and consumer.

In many cases, we also become strong professional services partners for our ISP clients, helping them to deliver quality sophisticated solutions to their customers. Experience in delivery of complex software engineering services for over 15 years helped us to build internally unique and flexible software development lifecycle platforms and complementary tools, to support highly distributed development processes across our clients, and now all on multiple locations, and even more differentiate our working increase in the global outsourcing environmental landscape.

We do believe our robust global delivery platform creates a key competitive advantage, enabling us to better service in meeting our clients' diverse needs. Today, a majority of our IT professionals are located at delivery centers in Belarus, Ukraine, Russia, Hungary and Poland, in the cities which are also major educational and industrial centers in terms of industry in Europe. Delivering by outsourcing of custom software for the development services being exported from this region has shown significant levels of growth over the past few years.

The growth from this region has been driven by the availability of highly educated, multilingual IT professionals, the cultural compatibility of the European markets, and an increase in clients within this to engage regional-wide service providers as an alternative to industry. Our ability to attract and retain these professionals highlights our success, and serves as a key point of differentiation in how we deliver a superior value proposition to our clients.

During the last years, we certainly benefited from the increased reliance on offshore outsourcing in Europe, where we, with the majority of our engineering staff across shared and sent over from the European region, remained well-positioned to capitalize on site growing trends. At the same time, during the last years, we were converting EPAM from just a strong software shop, carrying mostly global leading ISVs, into one of the first vendors in the key, for us, vertical segments.

In today's challenging environment, we have other technology computers. Companies in search for the reliable partners is a strong continuing heritage and proved trans-zone expertise in such emerging trends as social enterprise, enterprise mobility, cloud, and big debt. Clients are expecting to receive real help in delivering complex mission-critical solutions cost effectively, with the global delivery model, the level of quality and sophistication they expected in the past only from the local specialized vendors and professional services divisions of leading software projects companies. And EPAM is well-positioned to provide such help.

Now let me turn to our results. Ilya will discuss our financials in greater detail shortly. Bottom line, we had a very good quarter and a great year. For Q4 of 2011, revenue grew 34.4% to $95.1 million year-over-year. Adjusted income from operations grew 20.1% to [$15.4 million] year-over-year. For the 2011 fiscal year, our revenues grew over 50% to $334.5 million. Adjusted income from operations grew 67.8% to just over $55 million.

So 2011 accomplishments -- during 2011, we generated the majority of our revenue from software development, and expect this service area to continue to represent our significant portion of the business. Software development had strong [earning] and margin expansion as revenues increased 46.5% to $219 million, accounting for 65% growth of our revenue results. Application testing services brought $67.8 million, which represents a growth of 52.6%. Application maintenance and support generated revenues of $29.3 million, which was an increase of 52% over 2010.

2011 was also an important year for us, where we rapidly expanded our vertical segments. The fastest growing was travel and hospitality, increased by 113.6%. Financial services increased by 78.4%, retail and consumer by 78.7%, and business information and media by 36.3%. Revenue from ISVs decreased as a percentage of total revenue but increased in absolute numbers by 27.1% in 2011.

We intend to keep ISV revenue in the 20%, 25% range of total revenue going forward, as a strategic effort to make sure EPAM'S engineering staff is continually exposed deeply to the most advanced trends in the software engineering discipline, emerging technologies and innovative simulation process, and to be able to bring those advantages to the our industry business units to benefit our growing breadth of corporate clients. Today, our client portfolio primarily consists of large multinational companies located in North America, Europe and the CIS. We maintain a geographically diverse client base with nearly 50% of our 2011 revenues from clients located in North America, 32% from clients in Europe, and 17% from clients in CIS.

Our focus on delivering quality to our clients is reflected by the average 86% and [70.5%] of our revenue in 2011, coming from the clients that had used our services for at least two and three years, respectively. In addition, we have significantly grown the size of existing accounts. For example, from 2010 to 2011, the number of clients accounting for $5 million in annual revenue increased 50% from 10 to 15. 2011 was also a strong year for EPAM in terms of new clients. We added over 13 new large clients across all of our verticals and geographies.

2012 strategies -- now let me spend time talking to you about our long-term growth strategy and highlight some of the key drivers that delivered results. Our approach is focused around the following areas -- number one, where we can develop further our strong competencies and capabilities, some of which we've built over the years of serving leading global ISVs, to deepen and expand our services into vertical markets.

As I mentioned before, we have developed a culture focused on innovation, technology leadership, and process excellence, which helps us to maintain a strong key position with our clients based on competencies, technical expertise, and high-quality project delivery. This is why we have made our main priority in near-terms to invest more in the continuous development of our core competencies, as well as to identify and bring onboard new talent with strong industry knowledge, in order to penetrate these strategic segments further.

Number two, capitalize on our geographic position and recent growth of outsourcing IT services across Europe. Following the recent declines of the European markets, many companies are finding it necessary to outsource their IT functions. Given our proximity to cultural seats, proven ability in the similar time zones as our clients in Europe, we are in the best position to capitalize on this trend towards outsourcing.

Also, the challenging economic environment is causing European firms to evaluate and consider the use of offshore outsourcing. Pricing the one by far is not the main factor in the selection process. Again, it's our ability to deliver complex software engineering solutions that allow us to be the best suited to services under penetrated markets, and provide a compelling value proposition to the clients.

Number three, continue to attract and retain a quality workforce. We employ highly educated IT professionals. And to ensure that we attract the best candidates from the deep talent pools, we have developed close relationships with the leading technical institutions in the region, whereby we actively support curriculum development and engage students to identify their talents and interests. We continue to expand these efforts throughout the major talent hub, which is in Central Eastern Europe. End result, our attrition rates are among the lowest in the industry and have declined over the past few years.

Number four, we will continue to identify and evaluate potential acquisitions to expand our geographic footprint and complement our global delivery capabilities. We will also evaluate acquisitions opportunities with an eye towards deepening our industry knowledge and technology capabilities, which are becoming more and more important in delivering complex mission-critical solutions.

And, number five, finally, as I also stated before, we plan strategically continue serving ISVs in technology market segments with a core differentiation vertical for EPAM.

With that, I would like to turn the call over to Ilya, who will walk you through financial details. Ilya?

Thank you, Ark. Good morning, everyone. As Ark mentioned, 2011 was an great year for us. We grew over 50%, expanded margins, further strengthened our balance sheet, and completed a successful Initial Public Offering in shaky markets. We saw strong double-digit growth across all of our key verticals and geographies, and we kept attrition at an all-time low.

Revenue in the fourth quarter ended December 31, 2011 was $95.1 million, representing a year-over-year increase of 34.4%, which was a sequential improvement of 10.1%. For the full year, revenue was $334.5 million, an increase of 50.8% over 2010.

During year, ISVs and Technology represented our largest vertical with 26.1% of total revenue, down from 31%. As Ark mentioned, we would maintain a sizeable proportion of ISV business of 20-25% in order to stay on the cutting edge of technology and maintain our deep-rooted foundation with Independent Software Vendors. Banking and Financial Services increased to 22.8% of overall revenue from 19.3% on rapid growth of several large strategic accounts. Business Information and Media was 18.6% of total revenue, Travel and Hospitality was 12%, and Retail and Consumer was 9.4%. Each of our key verticals exhibited sequential quarter-on-quarter growth, and double digit year-on-year growth.

Our revenue comes from three primary geographic markets -- North America, Europe, and the CIS. During the quarter, 48.2% of our revenue originated in North America. Europe accounted for 32.7% and CIS accounted for 17.2%. During the fourth quarter, revenue from Europe increased 11.3% sequentially and 60% year-over-year. For the year, revenues from Europe increased 82.8%. During the fourth quarter, revenue from CIS increased 12% sequentially and 20.1% year-over-year. For the full year, revenues from the CIS increased 32.3% and this segment also had a very healthy increase in profitability.

Time and materials contract continues to increase as a percent of revenue, with 86% in 2011 compared to 85% in 2010. Took fees continued to decline, representing 11% of total revenue in 2011 versus 12% in 2010. We have also significantly grown the size of our existing accounts. Revenue from existing clients continued to increase in 2011. The number of clients that accounted for over $10 million in annual revenues increased to 8 from 4 last year, and the number of clients that generated at least $20 million of revenues increased to 3 from 1 in 2010. Our top 5 and top 10 clients accounted for 32% and 44.6% of total revenue in 2011, respectively. We continue to broaden our client base in 2011 with 33 new accounts.

Turning to our costs, cost of revenues, excluding depreciation and amortization in the fourth quarter. was $59.4 million, representing an increase of 48% from $40.1 million in the fourth quarter of 2010. SG&A in the fourth quarter was 19.5% of revenues, which was a decrease of 324 basis points compared to the fourth quarter of 2010.

Depreciation and amortization expense was $1.8 million, a slight increase from $1.7 million reported in 2010. Likewise, for the full year, cost of revenues, excluding depreciation and amortization, was $205.3 million, representing a 55% increase over 2010. The increase was primarily attributable to a net increase of 1,618 IT professionals from December 31, 2010 to December 31, 2011, to support the growth in demand of our services.

SG&A in 2011 was 19.4% of revenues, a decrease of 207 basis points compared to 2010. Depreciation and amortization expense was $7.5 million, which was a 20.8% increase compared to $6.2 million in 2010.

Income from operations in the fourth quarter of 2011 was $15.4 million, an increase of 20.1% over the fourth quarter of 2010. For the full year, income from operations was $55 million, an increase of 67.8% compared to 2010. Operating margins were 16.2% for the fourth quarter, a year-over-year decline of 194 basis points, which was largely due to increased incentive compensation costs commensurate with the kind of year we had. For the full year, operating margins were 16.4%, which were a year-over-year increase of 166 basis points.

Non-GAAP income from operations in the fourth quarter of 2011 was $60.3 million, an increase of 14% over the fourth quarter of 2010. For the full year, operating income was $60.9 million, an increase of 61% compared to 2010. Non-GAAP operating margins were 17.1% for the fourth quarter, a year-over-year decline of 304 basis points, but they were 18.2% for the full year, representing a year-over-year increase of 118 basis points for the full year.

Interest income for the quarter was $0.3 million and $1.3 million for the full year. Net foreign exchange loss was $0.5 million for the quarter, and approximately $3.6 million loss for the full year.

Net income for the quarter was $12.4 million, which was a year-over-year increase of 6.5%. Our pro forma diluted net income per share calculation was computed using the as-if-converted method, as though the initial public offering had occurred as of the beginning of the period. As a result, net income for the fourth quarter was $13.7 million or diluted earnings per share of $0.30 per share on a non-GAAP basis. As a reminder, our non-GAAP net income excludes the impact of foreign exchange, acquisition costs, purchase accounting, and stock-based compensation.

For the full year, net income was $44.4 million, an increase of 56.7% from $28.3 million in fiscal 2010. Non-GAAP net income was $53.9 million or diluted earnings per share of $1.19 on a non-GAAP basis. Our effective tax rate for the fourth quarter was 19.3% and 16% for the full year. Diluted share count for the year was $45.1 million, and for the quarter, it was $45.6 million.

Turning to our balance sheet, we finished 2011 with $88.8 million in cash. During the year, net cash from operations increased by $34 million to $54.5 million. Net cash used in finance activities was $1.6 million, a decrease of $6.5 million, primarily due to the $7 million decrease as we -- in the amount outstanding under our revolving line of credit, but partially offset by $1.6 million of public offering costs. We used $15.5 million of capital expenditures during the full year, which was primarily associated with IT equipment acquisitions to support our growth in headcount, plus we spent about $1.5 million on starting construction of a new building in Belarus.

In 2011, accounts receivable, net of allowances, increased to $59.5 million compared to $41.5 million in 2010. Deferred revenues for 2011 totaled $6.9 million compared to $5.2 million at the end of 2010. Unbilled receivables was approximately $24.5 million compared to $33.4 million at the end of Q3. Our DSOs for the quarter were about 61 days compared to 57 days in the fourth quarter of last year.

Turning to people, our people are critical to the success of our business. Attracting and retaining employees is a key factor in our ability to grow our revenues and meet our clients' needs. We ended 2011 with 6,968 employees, IT professionals, an increase of 30.2% over 2010. We ended 2011 with 6,968 IT professionals, representing an increase of 30.2% over 2010. Stock compensation expense was $2.9 million for 2011, which was virtually flat with 2010. Facilities expenses increased by $2.9 million or 32.3% to $12 million, as compared to 2010.

Finally, I would like to comment on our growth expectations for Q1 and for the full year 2012. We expect Q1 revenues to be between $92 million and $94 million, which would represent year-on-year growth of 26% to 29%. We expect diluted earnings per share on a non-GAAP basis to be in the range of $0.28 per share to $0.30 per share for Q1, with a share count of approximately $46.3 million and a tax rate of approximately 17%.

For the full year, we expect revenue growth between 23% and 25% over 2011 results. On a full-year basis, we expect earnings growth on a non-GAAP basis to be in the range of 10% to 12% year-over-year, with tax rate of approximately 17%.

With that, I would like to say that we are all very excited to start a life as a public company, and we're also very excited about our growth prospects for 2012.

And with that, Operator, would you please open the lines for questions?

(Operator Instructions) David Grossman, Stifel Nicolaus.

I'm wondering if you could first, perhaps, Ilya, just clarify a couple items on the guidance. In terms of the growth you had just said, I thought, 10% to 12% growth in adjusted earnings per share. Did you mean adjusted net income (multiple speakers) -- for 2010?

(multiple speakers) Okay, yes, we did mean growth in adjusted net income. And I also want to kind of go back to the beginning of my script. In my enthusiasm for my first earnings call, I believe I said we doubled our revenues. Clearly, that was not the case, although we did do pretty well with 50% growth year-on-year. I'm sorry, David.

That's okay. Thanks. And then just in terms of what's in the guidance, can you help us understand what, if any, foreign exchange assumptions are included in your guidance for the year, as well as how we should think about how the pro forma adjustments would trend on a year-over-year basis?

So, to address the first part of your question, we do not, as a rule, forecast FX impact. And guidance to the guidance would be considered exclusive of any currency impact. And on your second question, I believe you asked about how the pro forma adjustments are trending during the course of the year?

Right.

You mean stock compensation? You mean purchase accounting amortization and --?

It was after that.

-- acquisition costs, and so on?

Yes.

So, we -- if you give us a few seconds, we'll come back to that question.

Okay, and maybe I can just ask Arkadiy a question in the meantime. You know, Arkadiy, you talked a little bit about Europe, and obviously, there's been a lot of dislocation there. Can you help us better understand how things are changing over there? And whether some of the historical barriers to offshoring are breaking down, and how that may be impacting your business as we migrate through the year?

Can you clarify a little bit? So, you mean --?

Well, I was thinking more in terms of the historical barriers to offshoring in Europe being principally some of the labor laws. (multiple speakers) Right.

Okay. Yes, yes, yes. We do believe that the situation changing, and as you can notice from our data we are growing in Europe aggressively, over 80% per year during the last -- during 2011 and very fast year before as well. So we definitely see the changes which happening after 2008-2009, when Europe kind of opened up for much more offshoring or near-shoring, in our case. And we do believe that this trend will be continued during the 2012 and later as well. So the change is visible.

And how about competitively in Europe? It looks like the domestic Indian companies are aggressively trying to mobilize around this as well. Any thoughts on the change in the competitive dynamic that may be happening around the European opportunity?

Yes. I do believe that large global players were pretty active, specifically in UK, even before. But and as we see, everybody is thinking how to get market share in Europe, we just believe that we have some advantage, being kind of practically local and creating better compatibility with clients' sites around Western Europe. Competition is increasing, but at the same time, as you mentioned or as you were asking, Europe with sales opened up much, much broader as well. So I think there are opportunities for everybody, and we believe that it's better for us.

Okay, very good. Thank you very much.

And David, to come back to your first question, so amortization of purchased intangibles and stock compensations are spread more or less equally during the year. And we're not projecting, in that forecast or in the guidance, acquisition costs or foreign exchange.

So on a year-over-year basis, would I expect those numbers to go up materially for '12 versus '11? Would you expect them to be relatively flat?

I don't think I would expect them to go up materially, no.

Okay, very good. Thank you.

Moshe Katri, Cowen Group, Inc.

Good morning and congratulations on your first quarter as a publicly traded company. Ilya, I just -- I want to go back to David's question regarding guidance for the year. I'm a bit confused. Can you help me kind of figure out how does your non-GAAP net income growth of 10% to 12% translate into non-GAAP diluted EPS range for the year?

Hi, Moshe. So, we -- the guidance we're giving is for 10% to 12% of our adjusted net income. Some of the considerations that went into giving this guidance was that this would eliminate some of the noise caused by the calculations involved in doing fully diluted EPS calculations, which take into account various assumptions which could vary from person to person. Right? So this is the thinking behind giving you essentially growth percentages off the preceding period. And when applied to non-GAAP metrics like adjusted net income, we believe that that represents the most appropriate way to view our forward earnings momentum.

All right. Well, which non-GAAP net income number as a base are we using for last year?

So, we have a non-GAAP net income number. Right? Also, it could be referred to as adjusted net income; those terms are used interchangeably.

Can you just tell us what's the number for -- which base number are we using for last year in order for us to take it and grow by 10% to 12%?

Okay.

And then also in that context, just other things to kind of think about (multiple speakers) -- sorry, go ahead.

Right. So, 2011 adjusted net income number, we have $53.8 million in adjusted net income, which is about 16% of revenue.

Okay, so we're using $53.8 million as a base from last year, and that's what we're using to calculate 2012's adjusted net income number?

Correct.

Excellent. Now, how should we think about the quarterly revenues and margin in terms of how they've progressed throughout the year?

So, you know, look, it's still a little bit early to tell exactly how things are going to get spaced apart during the year. I mean, obviously, we have really good visibility into Q1, so we gave you guidance on that. As far as Q2, 3 and 4, I think you're going to see somewhat of a similar pattern as we had in 2011, but we wouldn't specifically comment on the quarters; just on the current quarter and the full year.

And what about margin trends? What do you think -- what sort of a run rate are you going to end up for the year?

So this is also something we wouldn't give guidance on, as far as margins are concerned.

Okay. And then in your revenue metrics that you kind of provided us with, I don't believe you provided us with sequential and year-over-year growth for North America, and also some of the numbers on your top one customer.

So you're looking for --?

Sequential growth and year-over-year growth for North America for the quarter. And then the mix that came -- the revenue mix that was generated from your top one customer.

Okay. So, sequential growth year-over-year for North America, what we're seeing is, for the full year, North America increased by 41%, 2011 versus 2010. For the quarter, North America increased by 27.5%; that's fourth quarter.

Okay, great. And then your top one customer?

So our top one customer, Thomson Reuters -- you're looking for year-over-year growth?

No, just the revenue mix. Which portion of revenues did it account for, for the quarter? For the quarter, for Q4 -- so Thomson Reuters Q4.

So it's under 10%.

It's under 10%? So it fell below 10%? Excellent. All right, thank you very much.

Darrin Peller, Barclays Capital.

Thanks, guys, and good job on the first quarter out of the IPO. Just first question is on the overall expectation for guidance. How much of it is actually expected from new wins or versus what your locked-in projects are now? Maybe you can give us a sense of what you're expecting to really put in? When we talked about this during the IPO process, there was, I think, somewhere around 10% or so. Is that about the same?

Yes. We do believe that in 2012, we will have around 10%, 15% of revenue coming from new wins.

Okay. And on that note, I think there was a -- I think Moshe brought up Thomson before. And so on that note, I mean, there has been some salespeople shifting or really some of the technicians shifting engineers to other projects. Have you seen new client wins with basically the ability to use some of the personnel from that project on others kind of coming in so far?

First of all, decline in Thomson Reuters is not so significant to fair play; too many people available from this. But at the same time, all good personnel practically deployed to new projects very fast. So we don't have any problem with increasing branch right now.

Okay, and on the topic of headcount, can you just give us a sense -- I mean, I think you mentioned you had about a 20% -- a 30%, a little over 30%, 32% headcount increase, but you obviously had about a 50% growth in revenue. So just give us a sense of what we should be expecting from a headcount growth standpoint through the year.

So our plans for headcount growth are around 20%, 22% for 2012.

Okay, so there's still some -- I mean, you should have some natural margin upside from that, assuming your guidance of 23% to 25% is really (multiple speakers).

Yes, we do -- first of all, we move into more kind of high competitive serious client margins, and we also are winning new deals with higher initial rates than historically were experienced.

All right, and then just a high-level question. I mean, how does it feel right now? In terms of the demand environment from your existing clients, especially the ones you've had for some time, I mean, are you still continuing to grow and farm more within those clients? Or is most of your revenue still coming from referrals from one client to another? Is it still -- you know, how does the demand environment really feel today, or versus maybe this time last year, or even -- maybe a couple quarters ago, when we started the IPO process off? I mean, was it -- does it seem to be the same, better or worse, I guess? And maybe you can kind of break out North America and Europe.

So I wouldn't kind of classify all clients similarly. But, like, if you look at our top 10 clients, then there are clients which kind of reach in the top flat level. At the same time, we are in between -- among the top 5, we have clients each continue to grow like 30%, 40%. And we have a number of clients with -- they range from $1 million to $5 million, which, in general, can grow to 20%, 30% per year. Again, there are some clients which decrease in their growth, but it's not many.

All right, and then last question for me. Just specific to the financial services vertical, I mean, I know there were some strengths seen there. Can you just give us a sense of what is driving the strength for you guys in financials? Is it just the law of numbers, you still have more room to grow off maybe a small base within certain clients? Or -- because obviously, you've seen -- you've heard, especially out of Europe, I mean, a lot of different type of sentiment from some of your competitors out of India and other areas, which haven't seen maybe some strength, as much strength, in that operation.

Yes, we clearly heard a lot of concerns about investment banking and financial services in general from many of our competitors. In our situation, we do believe that growth in this sector for us has taken some market share from competition, and some of them moving from different geographies to Europe. And it's actually very beneficial for us during the last couple years. And we've seen the same trend today, besides like clients which we acquired during 2009, 2011, we have couple very interesting opportunities, which is new.

Good. All right, that's great. Well, thanks, guys.

Arvind Ramnani, UBS.

Congrats on great results. I just have a couple of questions. At some of your larger accounts, your revenue earn is pretty much the same size as some of the very large sort of Indian competitors. so are you going to kind of just provide some level of color on the opportunity, or the penetration rates that you have at your last -- your top 5 or 10 clients?

So you're asking how well we position --?

Yes, how well you're positioned at your top 5 or 10 clients, just given that the revenue that you earned from them is pretty much the revenue at forms that are significantly going to be much larger.

Arvind, I think you've kind of given us a big complement if you compare our revenue with clients with our large competitors from India. It's far -- far from that yet. Okay? So we cannot claim tens of clients with [hundred million of training] for something like this. So I think actually, with most of the clients among our top 10, we have still very high growth potential.

Maybe there is 2 or 3 of them, they kind of let out; some might consider different strategy like captive, for example. You know that Thomson Reuters are considering multisourcing, including captive. But even then, even in Thomson Reuters, we still have growth in different divisions, and to be actually successful at getting new projects. With the rest of our top 10, I think in most cases, we have high growth potential during the next years.

Okay, great. So I mean, is there any growth at 25% or so, 2012, the revenues will grow about $85 million. How much of that do you think will come from your top 5 or your top 10 accounts?

I cannot give you exact number. But again, I think a lot of growth will be coming from, I would say, top 30 accounts which we have today. So I cannot give you specific number right now.

Yes. That sounds great. Are you able to provide some sort of color on your gross margin projections for 2012?

We -- so, Arvind, hi. How are you? (multiple speakers) We -- we're not going to give guidance on margins, unfortunately.

Sure. Okay, all right. All right, I think that's about all I have. And good luck for 2012.

(Operator Instructions) Ashwin Shirvaikar, Citi.

(multiple speakers) So, good quarter. Guidance seems ahead of my numbers in absolute terms, so that's all good. I guess my question is about your sales pipeline, as that is the pace of client decision-making, how that is progressing, if you have any comments on that?

So we are comfortable with our guidance right now. So we have clearly very good visibility for Q1 and for the next several quarters as well. So I think we -- again, comfortable with our current guidance. And the pipeline is proportioned as well.

Yes, but is the pipeline growing? Is the pace at which your clients decide to sign on with you, make that decision on who to go with, has that changed in the last one to two quarters? Is there any material difference there?

I don't see any material differences -- all risky situation, kind of some of them clarified, some of them not. But in general, I think we didn't see any significant changes.

Okay, got it. And one other question is with regards to seasonality. I think, Ilya, you've had some comments on seasonality of revenues, generally speaking, following last year's pattern. I just had a clarification on the cost side. Is there any seasonality that we should expect on the cost side, such as the impact of and the timing of wage increases or things like that? Can you comment on that?

Yes, hi. So, typically in the March quarter, you will have the impact of some wage inflation. You will also have the impact of a number of holidays that take place in the former Soviet Union region. And also then in the September quarter, you'll have impact of additional wage inflation and also, again, the holiday season, vacation season, and so on and so forth.

So -- and that's not only sort of a cost factor, right, because 86% of our business is time and materials. When people go on vacation, typically -- not in every case but typically, sort of you lose sort of that invoicing. Right?

Right.

However, if you look over the past two to three years, because of the rate of growth the business has experienced, the seasonality has been more or less smoothed out. But the way we're planning our year right now, we are taking into account seasonality. Yes.

Okay, I guess my last question is on the progress you are making on your strategic push to set up centers to grow the applications and infrastructure outsourcing business. What should we expect with regards to -- and I may have missed this in your prepared comments -- with regards to capital outlay, as well as with specific headcount growth, if you can provide -- in a couple of the bigger regions?

Yes. So, for capital expenditures, what we're looking at is around $17 million to $18 million in regular capital that's designed to support growth in our staff. In addition to that, around $18 million or $19 million is going to be deployed towards the construction of a new facility in Minsk.

And, sorry, what was the second part of your question?

With regards to headcount growth in a couple of the larger regions?

So, I think Arkadiy Dobkin gave you guidance for overall headcount growth, which -- of 20% to 22%. So I think that's where we --

Yes, that's probably what we can share with you right now. It's relatively equally proportionally spread around our regions right now.

Okay. Got it. Thank you, guys, and congratulations.

David Grossman, Stifel Nicolaus.

Sorry, Ilya, I don't think I caught all of the numbers when you read them by geography and vertical. Do you mind just giving us the dollar numbers for the fourth quarter again, for both revenue by geography and by vertical?

Certainly. So you want me to read all the verticals and all geography numbers?

Yes, just to make sure I got them, yes. If you don't mind.

Okay, do you want them for the quarter or for the year?

For the quarter.

For the quarter. All right, so revenue by verticals for the quarter for Q4 2011 -- ISVs and technologies, $23.4 million -- that's the absolute, right; up by 14.8% year-on-year. Banking and financial services, $22.6 million, up by 49.2%. Business information media, $15.7 million, up by 14.8%. Travel and hospitality, $11.5 million, up by 91.5%. Retail and consumer, $11.1 million, up by 86%.

We also have sort of the everything-else bucket, which is not a defined managed vertical, but that part of the business is about $9 million, up by 15% year-over-year. And to round that out, tied to the total $95.1 million number, we have reimbursable expenses, which is up by itself by about -- which is $1.9 million, up by 4.1%.

And you also wanted geo, geography. So for the quarter, for Q4 2011, North America was $45.8 million, which is up 27.5%, representing 48.2% of total. Europe, which is $31.1 million, representing a 60% increase quarter-over-quarter, representing 32.7% of total. The CIS region, with $16.3 million in the quarter, which is 20% growth, representing 17.2% of total. And rounding that out to add to the $95.1 million, we have reimbursable expenses and other of $1.9 million.

Okay. And was Europe -- was that down sequentially, or was it flattish? And if so, was that more of a seasonal thing? Or is there something else going on that's driving that particular number, given the underlying trends in the broader market in Europe?

So, Europe sequentially -- give us one second.

Thank you. I'm showing no further audio questions at this time.

One second, Operator. (multiple speakers) So, David? David? Hello? David?

Yes, I'm here.

Sorry. No; Q3 2011 Europe was $27.9 million, so that increased sequentially to $31.1 million.

Okay, got it. Great. Thanks very much.

Thank you.

And that does conclude our question-and-answer session at this time. I will now turn the conference call back over to Richard Zubeck. Please go ahead.

This is Ilya. I will -- I just want to thank you all for joining our first call and wish you a great day. Thanks a lot.

(multiple speakers) Thank you very much.

(multiple speakers) Ladies and gentlemen, that does conclude our conference call for today. I would like to thank all of you for your participation and you may now disconnect.