Epam Systems Inc (EPAM) 2014 Q3 法說會逐字稿

Greetings and welcome to the EPAM Systems Third Quarter 2014 results conference call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lilya Chernova. Thank you, you may begin.

Thank you and good morning, everyone. By now you should have received your copy of the earnings release for the Company's third-quarter 2014 results. If you have not, a copy is available on our website at epam.com. The speakers on today's call are Arkadiy Dobkin, CEO and President, and Anthony Conte, Chief Financial Officer.

Before we begin, I would like to remind you that some of the comments made in 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. Arkadiy?

Thank you, Lilya and thanks to everyone on the call for your time today. Over the past quarters, we have accelerated [some EPAM] strategies to help customers around digital. In short, we were focusing very strongly on how better to address the growing clients' needs, [created] by new digitally disrupted business model, they have to implement to stay competitive. To achieve that, we continued to invest in critical [to our] digital skills and technology capabilities, as well as very specific industry expertise. This has been made possible by unique combination of investments we made and continue making, both organically and inorganically since our IPO in 2012.

In the third quarter, the momentum continued. EPAM had a very positive third quarter results, as we delivered a strong revenue of $192.8 million, or 37.5% growth over prior year and 10% growth over our Q2 results. Partially, [it has reduced] our three previous acquisitions, which we had further integrated into EPAM during the last month, when they turn into their first full quarter of performance.

While on the acquisition side, I would mention that just last week we closed an another important deal for us, therefore with strong service design capabilities called Great Fridays. We'll talk more about it later today. At the same time, we very much believe that our growth has a very organic nature, which we carefully complement with additional specific skills and capabilities by adding very selectively to our strong core skills in software project engineering. In result, our overall growth during the last couple of years was driven by growing customer demand in our increasingly [acquired] set of skills, capabilities, experiences and our overall ability to engage and deliver complete software solutions. And we do believe our customers recognize this unique value, which have been much more now.

So, before I turn things over to Anthony to go over further details on our Q3 financial performance, I would like to illustrate the statement I made by number of recognitions we received in Q3. I think that will provide a good set of independent confirmation, which further supports our overall strategy and also help to demonstrate the progress we achieved in moving forward to the right directions.

So, first of all, our product engineering capabilities. As we said during our previous calls, we do believe that our heritages of product engineering gives us many advantages into their market, when software product development skills become important, not only for traditional software industry, but for many other industries forced to align software to implement very new business model. We said before that we plan to maintain very strong core skill set in software engineering to support and develop our core technology skills to understand new emerging technologies better and to know first-hand what is happening in the enterprise software market.

It's important for us not for only because it's a sizable customer market segment for us, it's a key differentiation expertise, critically important for our new clients in this new software-driven segment. So, we do -- [have reached there] about one year's of hands-on experience to develop an awaited software for global brands and enable our clients in digitally disruptive industry to continue to stay ahead of the competition.

So, in addition to the recent Forrester Wave for Product Development Services, where EPAM was placed in leadership position, it was very good see that EPAM was recognized in this quarter as one of the leaders in two software product development verticals, Enterprise Software and Consumer Software by Zinnov. Zinnov is a management consultant firm, focusing primarily on product development, market research and published this Global R&D Service Provider (inaudible).

Now on our (inaudible) engineering skills as a strong differentiation point, but to bring real value to our new clients we need to do much more. So, today EPAM is more and more in a position of leading next-generation customer engagements, (inaudible) many devices and many channels, is multi-vendor, omni-channel eCommerce platforms. Such platforms include leading enterprise software such as SAP Hybris, Oracle ATG, (inaudible) platform into completely custom development effort [to develop]. Very often those are combined with our growing capabilities in Big Data, analytics and cloud. So in confirmation of that, last month EPAM has been included in the list of the Top 10 Largest Commerce Service Providers in Forrester September 2015, Commerce Service Providers Market Overview: Large Scale Partners Can Accelerate Commerce For Key Customers report. The report reviews over 110 responses from representatives at both leading full-line and specialty commerce service providers companies and details the eCommerce platforms, geographies, and industry verticals that the largest providers support.

Another interesting illustration of the same point is an EPAM win Liberty Global Best Product & Service Quality award, the top award in the seventh annual technology summit and won dozens of events. In addition, EPAM was shortlisted in the top 3 for the Best Innovator category. I would mention that Liberty Global is the largest cable company in the world today. The winners of the Liberty Global Technology award were selected based on input from large number of senior executives across the entire company. This recognition has acknowledged the relationship with EPAM as the highest level of development and innovation across Liberty Global business platform. And in result, Liberty Global was able to source and refine ideas in response to real business challenges [inherent] in the collective creativity of EPAM employees and encourage them to submit ideas to innovate together [towards the business goal]. In our opinion, this win continues to validate our standards of product engineering and innovation services we can offer to EPAM clients.

Now on Big Data and analytics capabilities. During this quarter, EPAM was included in the shortlist of companies considered for the implementation of Consolidated Audit Trail, or CAT, a system for the Securities and Exchange Commission to be developed in response on SEC Rule 613 adopted in July 2012. The CAT is one of the biggest undertakings in the history of securities industry. It involves recording [21] petabytes of securities transaction data within the next five years. And is second only to National Security Agency's data warehouse in scale. Over 3,000 organizations rely on the CAT to access transaction data. The CAT will load and process more than 50 billion records, resulting in approximately 10 terabytes of data per day, a number that is expected to grow 25% a year. EPAM was among the six bids that were selected from the list of 31 initial submissions, including all major companies in the field, including IBM, Google, Computer Sciences Corporation and others. The decision where each company gets a contract will come next year, but we consider it as a success and confirmation of our expertise in Big Data and the capital markets, allowing us to come up with very confident proposals. EPAM was shortlisted amongst six top vendors, together with FINRA, SunGard, Computer Sciences Corporation and HP. And it puts us in a lead category of vendors able to help find and answer what is one of today's biggest challenges in the financial services industry.

Now, around digital strategy capabilities and the recent announcement of Great Fridays acquisition. Customer experience has become a great focus for EPAM as we work to differentiate our offering in the marketplace. In 2012, we acquired Empathy Lab, a digital strategy and experienced design firm to add enhanced capabilities to EPAM adjacent product development skill set. And we know now it makes a very important impact on EPAM (inaudible) .

Last week, EPAM acquired Great Fridays, a product and service design firm. Headquartered in Manchester, UK, with studios in London, San Francisco and New York, Great Fridays focuses on bridging the gap between business and design.

Through its design-focused thinking, Great Fridays has helped companies such as Sonos, Pearson, MasterCard and Vodafone create not only beautiful products and services but also smart new business practices that deliver lasting commercial value and business transformation.

Great Fridays success at bringing together different business and designs, combined with Empathy Lab's digital strategy and experience design, and then supported by EPAM deep core for the development and software engineering capabilities should allow us to create an end-to-end solution for those customers looking to build a comprehensive digital customer experience. And we are very excited to add Great Fridays capabilities to the EPAM family and face the common resolve.

To conclude I would report to our most recent recognition coming from Forbes Magazine. Each year Forbes looks to identify up and coming companies that have displayed strong consistent growth, in future America's Best Small Companies, or probably companies under $1 billion in revenue. 36 annual (inaudible) that spans the economy from aerospace to homebuilding to retail. They rank the companies based on return on equity, sales growth and earnings growth over the last 12 months, as well as past five years. They also factor in stock market performance versus each company, industry, peer group during the past year. So, this year Forbes ranked EPAM Number 3 overall and Number 1 for technology companies on its America's Best Small Companies list, and underscoring EPAM's ability to continue to grow in change. This recognition provides kind of integral mark to our overall direction, especially taking into account with regards on release for the second year in a row. Last year, EPAM was Number 6 and Number 2 accordingly.

Now over to Anthony for more details on the Q3 financial performance.

Thank you Ark. Good morning, everyone. I am going to spend a few minutes taking you through the third quarter results. Then I will talk more about our fourth quarter and full year outlook. As usual, the full details of our results can be found in our press release and the quarterly factsheet located on the Investors section of our website.

As detailed in our press release, the third quarter revenues grew 37.5% over last year and 10.3% sequentially to $192.8 million, above the top end of our guidance. North America remains our largest segment, representing 50.7% of our revenue, up 35.8% year-over-year and 13% sequentially. Europe was up 42% year-over-year and 5.5% sequentially, now representing 37.5% of revenue. CIS was up 1% year-over-year and 2.7% sequentially, representing only 7.9% of revenues.

Looking at service lines, we have experienced no significant change in our revenue mix. Software development and application testing services continue to be our largest service offering, representing approximately [69%] and 20% of revenue, respectively. Our top 20 accounts came in at 55.3% of revenue, growing 31.8%, while all our other clients below top 20 grew 46.6% year-over-year.

Each of our verticals grew year-over-year and sequentially, led by Travel and Consumer and the Other vertical. Travel and Consumer increased 52.1% from prior year and 18% sequentially, representing 22.2% of our Q3 revenues. The large sequential growth was related to completion of some key milestones for several large accounts and the quick ramp-up for a new opportunity that started in Q2. The Other vertical grew 61% year-over-year and [16%] sequentially, primarily due to the GGA acquisition and represents 13% of Q3 revenues.

GAAP income from operations increased 7.9% year-over-year to represent 11.3% of revenue. Included in our operating results on a GAAP basis are stock-based compensation expenses, amortization of purchased intangibles, acquisition-related costs and certain other one-time items that we excluded from our non-GAAP measures. Full details on these can be found in our press release.

Stock-based compensation expense increased around 26% sequentially in Q3 as a result of the first full quarter of expense for stock granted as the part of the acquisitions in the first half of the year. After these adjustments, our non-GAAP income from operations increased 33.2% over prior year to $31.8 million, representing 15.5% of revenue.

GAAP net income increased 15.8% year-over-year and non-GAAP net income grew 43% year-over-year. Net income for the quarter was boosted by a lower-than-normal tax rate of approximately 15%. This was due to a one-time reversal of reserve for an uncertain tax position set up in 2010. Our 2010 tax return filed timely in September 2011 included the uncertain tax position form that properly explained the position issue to the IRS. The IRS statutory limitation has now expired and the 2010 tax return in total has expired from statute.

For the quarter, we generated $0.60 of non-GAAP EPS, also above the top end of our guidance, and $0.38 GAAP EPS, based on approximately 49.8 million diluted shares outstanding. The over performance in EPS is due to several factors. Almost $3 million of revenue over-performance contributed about $0.03 to the bottom line, the tax reserve reversal was worth approximately another $0.02, on a GAAP basis we also had about a $0.04 over-performance due to an error in our estimate related to stock compensation expense from the acquisitions.

We completed the quarter with 11,509 IT professionals, an increase of approximately 26% compared to Q3 2013 and 4% sequentially. Approximately 9% of this growth is from acquisitions, bringing organic headcount growth to about 17%. Utilization for the quarter was at 73.8%, about 3% lower than Q2, primarily due to the heavy vacation months of July and August, combined with some rampup in hiring in some new locations like Poland.

Now turning to our balance sheet, we finished the quarter with approximately $191 million of cash, up $16 million from June 30, and $22 million from December 31. During the third quarter, operating activities generated approximately $16.2 million of cash, unbilled revenues were at $71 million as of September 30, an increase of about $3 million compared to Q2. This sequential increase is normal as our fixed-priced projects grow throughout the year and then expire in the fourth quarter. As a percentage of revenue, however, this is so much lower than Q3 of 2013. Account receivables were at $114 million at the end of Q3 and DSO ended the quarter at approximately 54 days.

Turning to our guidance, for the full year 2014, based on current conditions and including the impact of all acquisitions, EPAM expects revenue growth to be $728 million to $730 million. Non-GAAP net income growth for 2014 is expected to be in a range of 33% to 35% year-over-year, with an effective tax rate of 19%. For the full year, weighted average share count is expected to be just under 50 million diluted shares outstanding.

For the fourth quarter of 2014, EPAM expects revenues between $200 million and $202 million, representing a growth rate of 27% to 28% over fourth quarter of 2013 revenues. Fourth quarter of 2014 non-GAAP diluted EPS is expected to be in a range of $0.59 to $0.61, based on an estimated third quarter weighted average shares outstanding of 50 million. GAAP diluted EPS is expected to be in the range of $0.36 to $0.38.

I would now like to turn the call back to the operator and open up for Q&A. Operator?

(Operator Instructions) Moshe Katri, Cowen & Company.

Can you talk a bit about the gross and operating margin trends in the quarter, the pluses and minuses that kind of shows us what happened year-over-year in terms of comps?

Hi Moshe, it's Anthony here. Any particular trend that you are looking at in specific or just --

I think gross margins were down year-over-year. So, I wanted to kind of understand what happened there and then the same thing for operating margins, GAAP and then adjusted?

In the operating margins, again, we continue to put money into the business. We're working on a variety of investments where the top-line growth is coming in ahead of where we expected, both from an organic and from an acquisition perspective. So we've been having to continue to spend into the business in a variety of areas to continue to shore up the infrastructure to make sure we can continue to support the growth that we're seeing on the topline. That's had some impact on the operating margins and kept them pretty much flat to Q2 and a little bit down from last year. And it's a lot of the same areas where we've talked in the past, bringing in some domain expertise, focusing on the sales function. I mean we just continue to spend in those particular areas and that's keeping the operating margins where they are.

Gross margins, they are down about 0.4% from last year, in Q3, our utilization was a little bit lower due to heavier vacations in the July and August cycles. So that's going to kind of cause a little bit of a drop in the gross margin, combined with some additional wage inflation that we saw in our mid-year raises. Really nothing more than those two components playing on the gross margin component.

And then was there any FX contribution to the margins as well?

A little bit. There was a small impact at the gross margin level and at the bottom line, net income level is a little bit over a $1 million of positive impact, once you factor in the negative revenue impact, offset by obviously the positive pickup on the expense side. So [with] about $1 million on the bottom line.

And then final question, I saw a spike in the contribution from top client, I think you're at 14%. Can you talk a bit about that, just remind us are we working with various different departments within that client and what are you doing there?

Yes, Moshe, we are working with multiple groups inside of this account in multiple geographies, it's actually very much global accounts and covering for us, not just Europe and not just North America, but also now Asia, China, Singapore including. And again, it's very, very diverse effort for us right now.

Steve Milunovich, UBS.

So, your fourth quarter revenue guidance obviously suggests a deceleration into the high-20s in revenue growth. Is there anything in particular driving that, is that conservatism or I know in the fourth quarter sometimes you have some significant swing factors?

Yes. For the last couple of years we've had some revenue, which were a little bit surprise to us and usually it was coming from CIS region. Reservation was happened in this quarter as well, because you know during this year, we don't expect any jumps in Q4. And on top of this, as you know, ruble and majority of our revenue come in local currencies for us, definitely getting weaker and weaker. And just on total shares, revenue if you take into account, foreign exchange it's a big amount, kind of going down. So, that's why Q4 looks as it looks. If you've taken out for example CIS revenue, then our [gross] increase will be practically in line with what you saw previously though.

Anthony, given the ruble's end hits you at the revenue line, but are you likely to see a positive to the EPS line as you did this quarter.

Yes, there will definitely be some positive impacts on the bottom line as things swing. But we look at things in group currencies as well. So we have to really see where everybody goes in the fourth quarter and see how that falls out. But yes, it should in theory give us a little bit of an uplift on the EPS number.

But please do remember that our cost in rubles only in Russia. So, it's not like impacting, for example, (inaudible) Ukraine. So it's only Russia-based.

And I would say that our estimate -- our EPS estimate includes that potential impact. So we bake that into both the topline revenue numbers and the EPS numbers. We've already adjusted based on where we're seeing the ruble go.

And can you bring us up to date in terms of your clients view of the situation in Ukraine, whether that's having any impact on your pipeline and so forth?

Clients view, or majority of the clients views are actually driven by what's happened in kind of in the media and probably you see that media is pretty relatively quiet if you compare versus what we saw six months or kind of nine months ago, eight months ago. So I think people kind of work in, in assumption that it would be settled and that's what we are seeing as well. With some escalations coming kind of up and down, situation definitely much more stable than we were seeing this in the middle of the summer for example, or at the beginning of spring. So I think most of the clients actually at the rate increasing are more right now.

And then finally, who are you competing against, in particular, new client deals, is it Luxoft primarily or is it more of the larger service companies?

We don't compete much with Luxoft. We might compete from time to time in financial sector, but even there, like with the exception of [credit accounts], we don't see each other much. The second, besides financial sector, as you know that we have a little bit different strategy and to we mostly are focusing on kind of digital change and we are competing with people like second or some strategic companies focusing on eCommerce and digital marketing type of applications. We also compete in big accounts with major players, including IBM and Infosys and Cognizant and others as well and some special focused divisions with them.

David Grossman, Stifel.

I may have missed a couple of the quick data points, so if I could just start there, could you just review what the organic growth was, both year-over-year and sequentially?

David it's Anthony here. Q3 organic was around 27% and sequentially we were coming in at about 6% organic.

And I think you did mention utilization Anthony, I just I missed it, what's in the quarter?

74%.

And is that pretty much consistent with the first half?

No. It's down. Q3 is a heavy vacation cycle, so July and August lot of people are out. So utilization drops. It is consistent with where we are Q3 of last year, given the summer.

And then I wonder if I could go back to a question that was asked a little bit earlier. It looks like the growth in your top client was pretty robust and may be this is a manifestation of just a couple of other clients, but when you look at the Top 5 and the top (technical difficulty) most of that growth came from that one client. Is there some attrition in some of the Top 5 or the Top 10 that's really masking that so that the others are actually in fact growing much faster or is that just the way the quarter rolled out where one client pretty much accounted for the vast majority of the growth?

A lot of the -- I mean when we did the acquisition of Jointech, that brought revenue from that same large client. So what you have is the first full quarter of revenue from Jointech and so that's why you are seeing the pop in that one client for this particular quarter.

And then in terms of, you know, I think Arkadiy talked about how important the digital marketing and commerce segment is to you. Can you help us size just how big that is within EPAM when you include the recent acquisition of Great Fridays is a small specialized acquisition, so I don't think it's impact in any sense in numbers, but the sizing of this, it's very difficult calculation, because it depends whether you are counting in and [corners] it's a broad term. So what I can say that it's probably very fast -- it is a very fast growing market and if you're talking about the strictly eCommerce implementation of things like Hybris or ATG, then it is tens and tens of millions. If you are looking at this broader and include in the digital strategy part of the business and mobile extensions and analytics. and actually back-office, including like logistical fees for retail, then it could be -- it will be for us in hundreds of millions [yearly].

And then just finally, with the recent acquisition activity and just bundling everything together, Anthony can you give us a sense for what the stock-based comp and the amortization should look like going forward?

Absolutely. The stock based comps -- we haven't finalized the purchase accounting and everything from great price [into this] quarter's last week. So, there are some estimate sin my numbers related to that one. But I would expect Q4 stock compensation to be approximately $7.6 million and from an amortization of intangibles, it should be about $2.8 million. This is what I am currently estimating.

And that's just the partial quarter, right, for Great Fridays?

Correct. Yes, it would only be two months for the Great Fridays piece. So then I would say, if you want a more kind of a full quarter view, probably be about $7.8 million on the stock comp, full quarter view, and add maybe another [$200,000] to amortization of intangibles, so about $3 million.

(Operator Instructions) Ashwin Shirvaikar, Citi.

So, good quarter here. I guess there is not much doubt in my mind about the demand profile you guys are seeing, and our checks show the same thing. My question is more on the people side, the supply side of the equation. Could you talk a little bit about your headcount growth strategy? Some of the areas you're moving into require a slightly different kind of talent potentially. Where are you finding that talent, is it challenging, things like that could you address those types of questions?

Yes, sure. I know like when we were talking last year, it was -- where some consumers about (inaudible) was that in 2012 we have built a pretty significant bench, those will provide us with kind of impact, and we didn't need to hire as many people as before, proportionate to the growth rates. That's exactly what's kind of the reason why our hiring rate went down a little bit in the last year. I think this year, we are actually back to speed and the hiring is happening still mostly in the same regions where we did before in Eastern Europe and Hungary. We also are starting to grow much faster aggressively in Poland. We just recently opened development center in Bulgaria. So we'll be growing there. As you know, China now in the map, and it's still kind of in -- a lot of integration efforts happening and we kind of learning a lot. But it would be growth area for the next year for us, at least we're planning for this.

So I think that the picture didn't change much from the last year. When you're asking if it's easy or hard, yes, it's not easy and I also was mentioning all the time that the talented people in demand all over the place from San Francisco to New York to London and [it will remain so always]. So, from this point of view, not much changes, but we investing as we did, and that's big portion -- part of our investments coming to relationship with universities across all former Soviet Union and our development centers, both in Hungary and Poland and for internal trainings as well. So, I don't think I told you something new, but that's what it is.

It's good to get the update. One question I did have as I look at some of the metrics you provided, Russia seem to pop up in terms of headcount increase. I'm not sure that's Russia itself or are you kind of lumping maybe a few countries, is it Russia and a few countries.

This is mostly GGA. GGA had half of southern people in Russia and you see basically impact of this.

The other question I had was with regards to -- as you get deeper into digital marketing and areas like that, are you seeing maybe an increased volatility of the projects that lower visibility of projects, or do you still have the historical level of visibility into your revenues?

I do believe in general on the level of Company we have very, very similar visibility as we did in the past. There are definitely changes, because this is digital-driven projects, we start in sometimes relatively small or with a pilot, but we are trying to carefully select opportunities where we have kind of upside and repeated business. And so far we have proved that it could bring us significant tens of million business over the next several years with clients where we started small and then expanded in different areas, different brands, different omni-channel -- different channels as well. So I think it's working well. But there are some projects, small ones as well, which we -- getting in with completely open eyes, because we would like to test ourself and test new technologies and be able to have good hands-on experience before we are applying this to big opportunities. But it is very much in line with our history of working with sometimes small startup and independents like this small software product companies where we try to understand what's happening in technology and kind of emerging trends. So, there isn't not much new, it's just a little bit different sector for us.

(Operator Instructions) Mayank Tandon, Needham & Company.

Anthony, I don't know if you've talked about pricing trends, if you could just touch on how much of the growth is coming from pricing? I know you had a lot of increases last year, almost double-digit, maybe give us some perspective on that. And also, Ark, I wanted to ask you about the sales productivity. I know you've invested aggressively in sales. Maybe just give us some sense of the trends there and how do you expect to position yourself for 2015 on that front as well. Should we expect more investments or do you feel like you've done as much as you can now and you want to start to see the payoff before you start to invest more aggressively on the sales front?

Hi Mayank, it's Anthony. I'll tackle the first one and then let Ark jump in. As far as pricing trends, there is really no difference at this stage of the year. I mean, we're still looking at kind of that 6%, 7%, 8% blended price increases that we've talked about through most of the year. Most of that pricing will happen as we move into the new year, we'll get a better picture on where pricing has gone for 2015 in Q1, but at this stage we're not seeing any change from what we see in the balance of this year.

And in regards to our kind of sales, marketing [field operation], so yes, we invest in a lot and we have ample new people and we are also slowly doing exactly what we were planning to do and what we have talked about since IPO, changing the profile of the Company, elevate in profile and kind of our brand for this digital marketing and eCommerce type of profile, so working more and able to get in the doors to only to achieve people or achieve budget, but now business budget and marketing budget. This is all happening. If you're asking if we are seeing that now, we will see very clearly on this investments, that's probably I would be much more conservative. I think it's kind of non-stop effort, and we do believe that we're very much in the beginning of this effort still and we still need to elevate profile a little high and we should be able to do it, based on some good number of successes and that's what I was trying to explain and kind of illustrate this morning actually. But no, we're not stopping this. It's continuous and I think it will be continued for a long time.

Okay, I appreciate the color. And then I just wanted to ask you on the M&A strategy. I know you've done [similar] acquisitions, but as you look ahead in terms of balancing organic growth and future M&A, what are some of the areas that you want to acquire and is it more delivery expansion to diversify or are there other capabilities, verticals or services that you want to enter into, just based on demand from your clients? Maybe just give us some perspective on that as well, please.

It's more on the second part of what you mentioned and you see, we don't have the strategy kind of to built EPAM through acquisitions, we don't have any type roll-up strategy and we never had. And if you look at our historical kind of speed of acquisitions, we did two right after IPO, relatively small, but very specific; one from the point of building very strong front [activation] for EPAM in Canada. And another was important for us, the first kind of [newer] digital strategy capability acquisition. And then during the 2013 we didn't do any, because we didn't find anything interesting from this point of view and it seems like we did many of them in 2014. And yes, we did, but again, most of them pretty small from a revenue perspective, but very specific on the skill set or industry focus, or kind of think like Great Fridays, extend in what we are already starting to do and what we think is really important for us.

And that's going to be our strategy in the future, though. I'm not saying that this something much, much more strategy couldn't happen, but that's not a focus for us. We're kind of looking for opportunities to improve our [muscles] in different parts of the organization and to put it on the basis of our software engineering skill set, which we built over the last 20 years, as I repeat all the time.

And then last question from me is on the hiring front. In terms of the hiring numbers, I think you had mid 20s growth the last couple of quarters; obviously that's skewed by acquisitions. Could you give us what's your organic increase in headcount was, also maybe comment on the attrition trends that you're seeing in your various markets, not employee attrition?

So I think actually Anthony mentioned very precisely, exactly organic growth in headcount and the growth including acquisition. I think it was 26% and 17%.

Yeah, it's 19% actually. I missed both in my script. It's actually 19% is organic and 26% in total.

Then on the attrition side, any changes that you've noticed in your various markets?

No, it's still in the low teens.

Alex Veytsman, Monness, Crespi.

Just wanted to ask you if you're seeing any impact from the sanctions that are still of course very much present in Russia and also, you know, given the overall anti-Western sentiment there, is that impacting you at all as a US-based company?

Nothing impact us as a US-based company. So from the sanction point of view, there is no any direct impact, but as I mentioned, probably sanction did have some impact on Russian economy, and on FX situation in Russia and that's clearly making some impact, and again, negative and positive simultaneously and I think Anthony was still kind of addressing this already. But there is no any direct impact, there is no sanctions against EPAM doing business anywhere. So zero on this. And, again, just general economic impact.

And I think your number of employees in Russia still around 1,200, 1,300. I mean, do you intend to decrease it longer-term? I mean I guess kind of where are you now and kind of what are the plans for the next year or two as far as labor relocation if any?

No, there is no specific labor relocation plans. So there is clearly very specific actions where we are growing and how fast we are growing and Russian wasn't growing or practically was flat from headcount point of view, but again, there is no relocation strategy. I think we would be able to probably able to bring in projects there, and again, the increase in Russia happened this year, mostly due to acquisition of GGA.

Mr. Dobkin, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thank you. And thank you everybody for joining us today. I hope we addressed your questions and looking forward to talk again in three months. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference, you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.