Epam Systems Inc (EPAM) 2014 Q4 法說會逐字稿

Greetings and welcome to the EPAM Systems Fourth Quarter and Full Year 2014 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. 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 fourth quarter and full year 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 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. Arkadiy?

Thank you, Lilya, and good morning everyone. Thanks for joining us today. I'm pleased to report that while the fourth quarter saw some challenges, primarily due to currency volatility in several of our markets and the continuing conflicts in Ukraine, it proved to be another strong quarter for EPAM. So despite all that, we closed it with revenue of $202.2 million, above consensus and at top-end of guidance. It's 28% over prior year and 5% above last quarter. While I would note that this was the first quarter for us with over $200 million in revenue and we were very proud of that, I still would like to the highlight the fact that if you look at our results on constant currency basis, year-over-year growth would have been close to 37% and sequentially Q4 would show 9% growth. Clearly Russian rubles were the primary challenge, but we also had exposure related to the euros, pounds, Canadian dollars and Swiss francs.

For the full 2014, we are finishing at the top-end of our guidance at $730 million, which is 31% over previous year. At the same time, please note that for those last 12 months, we lost approximately $15 million in revenue, making our constant currency growth at 34.2% for the full year. Anthony will provide more detail into the financial results and more clarity around the currency situation and impact on the full P&L.

At this moment, I would like to share some highlights to 2014, which was a very different year than we expected 12 months ago when we tried to predict our future. For the first time in our history, we had to deal not with hitech but general financial crisis as we experienced in 2000 and 2001 and then in 2008 and 2009, but with a large scale political and not only political crisis involving countries where EPAM has thousands of talented people and importantly operational infrastructure. This wasn't something we or anybody around us anticipated when we prepared ourselves for 2014.

As a result, during this year, we had to make many adjustments to our original plans and that very much in the real time to be able to continuously deliver while addressing many unusual challenges. Today, 12 months later, we can say that 2014 was actually another year of growth and strategic exploration at EPAM. It was very much in line with the growth we communicated since our IPO day which actually happened almost exactly three years ago. During this year, we've proved that many our efforts and investment from prior year indeed brings the Company to the next level. We expanded our industry solutions focus into a new segment, life science and healthcare and we're very excited about prospective we see in this area and how can we apply the experience we accumulated to this [new for us vertical].

We significantly increased our presence in our targeted markets. You probably remember our goal of 10% of people in North America and Western Europe, now we achieved it. We added China, Hong Kong and Singapore to the EPAM map in order to support global strategic programs for our largest clients which in turn was triggered by our expanded capabilities in digital strategy and experience design and our ability to win the [new for us] engagements. Last year, we brought into the Company one new important capability service design and now this would be able to help our customers even more by finding new and innovative solutions to their most complex business problems and transforming their business to meet the demands of their industry-respective challenges.

So let me highlight some most important recognitions which illustrate how our clients in the whole market sees EPAM progressing towards becoming one of the leading software solution providers. First, we won a good number of top innovation awards across our worldwide client base in 2014. And this is a direct client recognition of our value. I would like to highlight just one. EPAM won the Most Transformative Branch Experience Award in the Citi Mobile Challenge, which was an extraordinary event that brought together more than 3,000 developers in 744 teams from 319 cities, 62 countries and six continents. It was a virtual competition hosted by Citi that is designed to accelerate digital banking innovation by bringing together the most talented and creative developers and designers in the world to create cutting-edge applications for Citi's Digital Banking Platforms. Our effort resulted in four ideas that were all selected for the Citi Mobile Challenge finals. Only 60 from the initial 744 were selected for this. Our winning project, Citi Concierge, was delivered by EPAM's Digital Engagement Practice which creates a personalized experience for customers at Citi branch and provided analytics for Citi to optimize branch operations.

By the way, I just mentioned EPAM's Digital Engagement Practice which is a reflection of our effort to reorganize EPAM in a way to very closely integrated digital strategy and experience design capabilities and our traditional strong software engineering skills in complex commerce content mobile analytical areas. We are really focused on how to blend it together and bring very much integrated value to our clients. We are (inaudible) independent unions with just loosely complimenting capabilities. It is very challenging task, but we do believe we are moving into the right direction and we do believe our clients started to recognize the value too.

And our digital engagement practice is just one of the examples of EPAM internal transformation which focuses on bringing new value to the clients. So, as a result of all that, Forrester Research, the leading global independent research firm, cited EPAM as a global leader in the product development services space, included EPAM in the list of Top 10 largest commerce solution providers, and recognized EPAM as a primary agile service player.

Finally, just before the end of the year, EPAM was named Number 3 on Forbes' 2014 list of America best companies under $1 billion and also scored as EPAM as Number 1 among technology companies on the list. All of this shows the impact we've had at some of world's greatest companies by the technology solution we built, the public facing digital experience we created and the obstacles we've overcome time and time again on behalf of our plans.

I think it's now a good moment to also note that during the past year, we put an effort defining our true sales in continuation of what we started several years back. In 2014, we took the time to look at what really drives us at EPAM, what kind of company we want to be and how indeed our brand should reflect it. As I stated before, we have been engaged in a year-long process to evolve many elements of our brand. We will be changing how we speak and how we look and at this point, planning to launch our new brand by the end of Q2. With that I will turn to Anthony to bring more factual information and to provide our guidance for 2015.

Thank you Ark. Good morning, everyone. I want to spend a few minutes taking you through the fourth quarter and full year results, then I'll talk more about our 2015 outlook. As usual, the full details of our results can be found in our press release and on the quarterly fact sheet located in the investor section of our website. As Ark mentioned, Q4 was another great milestone for EPAM as we had our first quarter of revenue over $200 million. Fourth quarter revenues grew 28.3% over last year and about 5% sequentially to $202.2 million. This was at the top-end of our guidance and with the full-year, we ended at $730 million, which was 31.5% growth over prior year.

The currency situation was clearly a big issue for revenue in this quarter, led by the precipitous decline in the Russian ruble and lesser declines in other key currencies. During the quarter, we lost over [$13] million in currency versus last year alone and almost $8 million sequentially. On a constant currency basis, we grew 36.7% over Q4 last year and 9% sequentially. For the full year, we lost approximately $15 million, making our constant currency growth 34.2% for the full-year. Based on our Q4 currency breakdown, we are still over 60% of our revenue based in US dollars. And the Great British pound and the euro account for approximately 18%, Canadian dollar 7%, Swiss francs at 5% and the Russian ruble is down to only 5%. The remaining 5% is spread across a number of different currencies, none of which account for more than 1% individually.

North America remains our largest segment, representing 50.4% of our full-year revenue, up 30.4% year-over-year. Europe was up 42.3% year-over-year, now representing 39% of revenue. CIS, given all the troubles, was actually down 15% year-over-year, representing only 7.6% of revenue. Our top 20 accounts came in at 55% of revenue, growing 29%, while our other clients grew 35% year-over-year.

Turning to the expenses, we completed the quarter with over 11,800 IT professionals, an increase of approximately 27% compared to 2013. Approximately 7% of this growth was from acquisitions, bringing the organic headcount growth to about 20%. Currency generate some benefits to the cost of revenue in the quarter, when compared to prior year and the quarter. There is approximately $9 million of benefit versus prior year and $5 million versus prior quarter. In the interest of providing a full currency picture, the allocation of our currencies across our expense base is roughly 65% in US dollars, 9% was ruble based, 8% in the Hungarian forint and 5% within the Great British pound. The remainder are insignificant.

Utilization for the quarter was at 77.7%, about 3% higher than Q3. This was primarily due to the heavy vacation months of July and August and brings the utilization back to levels consistent with the first half of 2014. For the full-year 2014, average utilization ended around 77%.

GAAP income from operations increased 3.5% year-over-year to represent 11.9% of revenue in the quarter. For the full-year, it increased 12.7% and represent 11.8% of revenue. Our operating results on a GAAP basis include stock-based compensation expenses, amortization of purchased intangibles, acquisition related costs and certain other one-time items that we exclude from our non-GAAP measures. Stock-based compensation expense for the fourth quarter increased 141% over prior year and 87% on a full-year basis. This is mainly related to the stock grants that are issued as part of the acquisitions throughout the year.

During the quarter, we had several other one-time events. Due to continued macroeconomic issues in Russia and the pressure that it placed on our customer base there, we had a $2 million goodwill balance that was related to the 2006 acquisition of that Vested Development, Inc. Based on those problems, that goodwill balance became impaired and we had to write that off in Q4. Additionally, as we've mentioned in past quarters, we've had some troubles related to a contractor in Minsk that was working on the construction of a new building. Additional analysis identified another $1.5 million worth of materials and services that required a write-off in the quarter. Lastly, we had a $1.9 million fair value adjustment related to the GGA acquisition tied to their contingent consideration, which was able to be resolved at the end of the year as well.

Our non-GAAP income from operations for the quarter, after all those adjustments, increased 32% over prior year to $36.2 million, representing 17.9% of revenue. For the full-year, it increased 34.1% to $123.1 million or 16.9% of revenue, both within our guidance range of 16% to 18%. None of the one-time items result in any tax benefits to the Company and therefore, they have the effect of bringing down my GAAP pre-tax income, thereby increasing my overall tax rate for the quarter to 25.1% and 19.9% for the full-year. We do anticipate that our cash tax rate will remain consistent with past years and be somewhere in the mid-teens. However, we're still finalizing our 2014 tax returns. For the quarter, we generated $0.62 of non-GAAP EPS, also above the top-end of our guidance and $0.37 of GAAP EPS based on approximately 50.3 million shares diluted outstanding.

Now turning to our balance sheet, we finished the quarter with approximately $220 million of cash, up $29 million from September 30 and $51 million from December 31. During the fourth quarter, operating activities generated approximately $49 million of cash. Unbilled revenues were at $56 million as of December 31, a decrease of about $15 million compared to Q3. Accounts receivable were at $124 million at the end of Q4 and DSO ended the quarter at approximately 57 days.

Now turning to our guidance for 2015, based on the current conditions, EPAM expect the year-over-year revenue growth to be 21% to 23%. Non-GAAP net income growth for 2015 is expected to be in the range of 20% to 22% year-over-year, with an effective tax rate of approximately 20%. The full year weighted average share count is expected to be approximately 51 million diluted shares outstanding.

For the first quarter of 2015, EPAM expects revenues between $196 million and $198 million, representing a growth rate of 22% to 23% over the first quarter of 2014. First quarter 2015 non-GAAP diluted EPS is expected to be in the range of $0.54 to $0.55, based on an estimated first quarter 2015 weighted average share count of 50.7 million. GAAP diluted EPS is expected to be in the range of $0.34 to $0.35.

Since currency is such a theme these days, I did want to provide a bit of clarity around our assumptions for the 2015 forecast. When building forecast, we used the average 2015 year-to-date rates and assumed they remain consistent throughout the year. We do not attempt to forecast currency movements throughout the year. So our forecast is subject to additional swings in key currencies. At this point, we are assuming revenue in US dollars will remain just above the 60% of total, with pound and euro increasing slightly and ruble dropping to under 5% and all other will remain consistent.

On the expense side, we anticipate the US dollar concentration to drop slightly as we open new development centers outside of Eastern Europe and [have a] broader global base of IT professionals paid in their local currencies. Having said that, we still expect to have over 60% of our expense base denominated in US dollars.

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

Thank you. At this time, we'll be conducting a question-and-answer question. (Operator Instructions) Moshe Katri, Cowen & Co.

Thanks, guys. Good morning. Just to be clear, Anthony, looking at your calendar year 2015 guidance, are you factoring any FX headwinds in those numbers or should we kind of consider these more in the line of constant currency revenue growth guidance?

What we did for our forecast is we use the average rates over Jan and Feb and built that into it, assume that stayed constant. So that is what we've used and any movements off of that average will impact our forecast.

Okay, understood. And then -- and if, let's say we're not looking at the FX headwinds or the FX volatility, should we assume that this preliminary guidance is going to be to what we've done in the past which is we're starting the year pretty conservatively and then assuming that if all the assumptions are correct, the numbers will gradually move higher throughout the year?

It's hard to say. I mean, obviously, there's a lot of uncertainties with the currency potential and given where things are going from just a macroeconomic picture in the CIS region. So there's a number of variables into that. So this is kind of our view as we sit here today.

And then follow up question, your assumptions for organic growth for 2015?

Well, organic growth is -- it's an interesting picture because we're seeing drops in the CIS region. So it's hard to break that apart plus the acquisitions have been fully integrated at this point. So we're actually -- it's difficult to pull part of things like GGA and Jointech which are now cross selling between accounts and that become essentially business units within the EPAM infrastructure. Having said that, we're going to see organically a pretty significant drop in our Russia business both due to the severe currency drop and the macroeconomic situation, which is pulling back from there, but North America and Europe are continuing to grow over 20% in the first quarter and will be in the mid '20s for the full year organically. At least that's our view sitting here today.

Steven Milunovich, UBS.

Hi, good morning, this is Peter Christiansen in for Steve Milunovich. Anthony, can you talk about the expectations for FX savings to the operating margin and also with the new depreciation expense going forward, do you anticipate still having that 16% to 17% non-GAAP operating margin in 2015?

The answer to the last question, yes, the operating margin range of 16% to 18% is still our goal for 2015. So, we expect to stay in that range. And I'm sorry Pete, I'm not sure I fully understood the first part of the question.

So, assuming that there will be some operating savings with the currency impact and in addition to a lower depreciation charge going forward as a result of the recent write-down, can you quantify what that savings could be and I'm assuming that you're going to reinvest that back into the business through the year?

I assume the write-down you're speaking to is the Russia goodwill impairment, correct?

Correct.

Yes, that actually does not get depreciated at all. So, goodwill from accounting perspective does not get depreciated throughout the year. It gets assessed on an annual basis for impairment. If there is no impairment, the balance stays. If there's an impairment, you take the write-down. So, there's really no change to our depreciation because of that write-down. It's a one-time event, will not impact anything going forward. And as far as savings from currency, the short at it is most likely. If we have savings and benefits, we will continue to use those to reinvest in the business and keep our operating margin in that 16% to 18% range.

That's very helpful. And then, in the beginning of last year, you were predicting 21% to 23%. It looks like, on a constant currency basis, organic growth was somewhere in the high-20s. Can you talk about what really drove that outperformance this year? Any specific verticals would be helpful?

I think it's a very much in line with we've saying during previous calls. Like the topline revenue were growing a lot by financial services, but also by retail vertical. Plus we added life science and healthcare, and life science was performing well too. So, but probably the better look would be not at specific vertical but what type of work we doing and that's again back to our continuous message on mixing digital strategy and experience design together with our engineering skills and building this new type of systems of engagement. We won a number of programs during the 2014 which we couldn't even like consider that we will be doing like in 2012 or even 2013 based on new kind of integrational skills. And that was actually driving additional work around this programs as well. I think that probably would be the shortest answer to your question.

That's helpful. And then lastly from me, in terms of the currency impact on your cost base, particularly your Russian operations, how have you factored in wage inflation? Is there a potential that you could begin using dollar index to compensate your Russian-based employees?

So, we're clearly looking at the market situation, labor market situation and right now, we don't see a necessity to do this and I don't think market reacting in this way to index it to the dollars, but again we will be watching situation and see what we have to do to be competitive on the labor market.

Thank you.

Also, Peter, one correction, you'd mentioned organic growth in the high 20s. It was actually, organic growth was more around 25% in 2014.

Excluding currency?

I'm sorry. You said constant currency. Sorry, I missed that piece of it. Then, you're correct.

Jason Kupferberg, Jefferies.

Thanks guys. Just another one in FX to kind of put a fine point on edge. So, can you just lay out for us exactly what the headwind is assumed? I know you're holding kind of the 2015 year-to-date rate constant. So does that -- what does that leave it? Is that somewhere in the neighborhood of like an [8%] FX headwind that's baked into the 21% to 23%?

It's actually more around 6% headwind that we're seeing across all the various currencies.

Okay, all right. That's helpful. And then how does it net out at the EPS line, just given some of the associated cost benefits? Is it still a headwind on EPS?

Yes, it is a slight headwind on EPS or -- yes, on EPS, depending on where share count ends up obviously, but yes, it's a slight headwind still on EPS.

Okay, understood. And then just, if we look at the quarterly cadence of what you're expecting in terms of margins and expenses, it's relative to what the street was modeling, the Q1 EPS is lower, but obviously the full year looks just fine. So is there any inordinate amount of expense timing related in Q1 for example or how should we be thinking about quarterly progression of margins?

Yes, we had the same issue last year with the consensus. It kind of straight lines it a little bit more than our true trend. Q1 for us is a little bit of a squeeze quarter, because revenue is typically flat to down and we also put in place all our promotions and wage increases. So, you end up with a little bit of a compression in Q1 that then as customers release budgets and revenue starts to grow throughout the year, you see the expansion again. So, Q1 is always a little bit of a squeeze. We had the same issue last year with consensus.

(multiple speakers) in Eastern Europe.

Right. Yes, we have the orthodox holidays in Eastern Europe and that just brings revenue down plus a lot of budget cycles are slow to pick up until Feb, March.

Right, okay. And then just a last one from me, if we just think about Ukraine specifically and I know you spend a lot of the time in the region in general, can you just give us sort of the latest bird's eye view on what's happening with the operations across Europe, half a dozen or so development centers in the country, I know that none of them are especially close to where the bulk of the military conflicts have been occurring. But have you had to move any folks around among those Ukraine centers or outside of Ukraine to Belarus or elsewhere?

Yes, we didn't run special programs to relocate people on purpose from Ukraine to like Eastern Europe, to Central Eastern Europe or any other locations. But we [staff] internally what we call mobility program were people who would like to be relocated apply. And probably, in spite of this program, it was slightly higher number of people than usual. But based on the kind of day-to-day situation, it's pretty normal again in line what we had communicated during the last quarters. So yes, there are concerns and we don't know what could happen. They're still, but again operations right now as usual and there is some movement of people but again it's not like in dramatically higher numbers than before.

Mayank Tandon, Needham & Company.

Thank you. Good morning. Anthony, as we look at the revenue growth for fiscal 2015, could you help us break it down between head count growth, utilization and any pricing increments you are expecting in 2015?

Sure. Head count growth in 2015 that we are assuming is going to be fairly in line with what we were looking this past year, probably somewhere in the 20% range. As far as growing organic head counts, could be a little bit lighter than that. And as far as bill rates, we're seeing a pretty consistent trend. We've always talked about 7%, 8% bill rates. It's coming in roughly around that same range. We're still obviously getting actuals in from our customers and seeing where things are going to fall in but that's what we're assuming at this point is something consistent with past years.

Okay. So that would imply utilization basically remains flattish with where you've finished 2014?

Yes, I mean, we finished our 2014 at 77%. So we expect utilization to remain right around that range, 77%, maybe 78% but it's not going to get much higher than that.

Okay. And then I wanted to get some color on your expectations for wage inflation in 2015 and also, what are you seeing on the employee attrition front in your various geographies?

So, in general, we are expecting similar numbers historically, but clearly wage inflation right now is a big factor of again currency rates exchanges. So, we are working on this and we -- like with the previous questions, we're looking at what this rate is going to be. So, at this point, we expect similar numbers like previous years.

So my model includes consistent figures of past years.

Which would be high single digits? Is that in the ballpark?

Yes, correct, for both of them.

Okay, for attrition and for wage inflation. Got it. And then one last question. Just your comments around competition, any new players out there you're seeing? What have your win rates been like lately? Any change at the margin that you're seeing on the competitive side would be helpful.

You see, the market is so big and there are so many players that I don't think any specific one player will change the situation. And as we said it before, in different segments of our markets, we compete with different players. So far, we didn't see any significant changes, like maybe the most interesting is still consolidation that are on track like Sapient become part of the agency right now together is the same with the same (inaudible) and that might be interesting impact on some part of market we targeting right now. So, but in general, I think is very consistent competition.

Ashwin Shirvaikar, Citi.

Thank you. Let me start with a congratulations on the good quarter, considering the currency headwinds and all that, and what looks like good guidance as well. One question I had was 2014 obviously a year of transition. You took a lot of different steps to diversify and so on. You mentioned preparing for the next phase. How should the financial model look like in the next couple of years in terms of your ability to sustain a low 20s, low-to-mid 20s topline growth, the 16 to 18 margin, the ability to win maybe larger contracts, things like that?

When you're asking how financial model should look like, what do you mean?

I mean, will it evolve, now that you've made some of these investments? Maybe if you go after the larger contracts, does that affect maybe your ability to grow faster? Is there a price to be paid in terms of operating profitability?

Yes, I think -- and it's very difficult to see over the -- and see what kind of impact will be happening with the next years. We are looking still like, as today, we're giving guidance for the next year and we look into the market because we clearly would like to, first of all, create a value to the clients that would give us this growth which we're hoping [in 20 plus percentage] and how specifically it would impact our margins in longer term, we don't know. Because like what we're doing right now is something unusual for us. We're bringing very different capabilities and really trying to integrate them and harmonize it across the Company which sometimes putting us in unexpected kind of ground. That's why I don't think I can't give you any more data than we're sharing right now. I think we hope that with this new capabilities and this like -- you're absolutely right, 2014 was a very interesting year for us when we brought different capabilities. But some of them, still like, when for example Anthony mentioned fully integrated, they kind of fully (inaudible) stand integrated from the approaching clients, from integration and putting the team together which is harmonized teams working to one goal and working very effectively together, it's still a lot of work. And as you understand like some of the acquisition we've done in the second part of the year, it's still a lot of work to be invested. And we're practically learning on the job how to do it better. And from this point of view, it should not stop. So it will be continued this year and we still have number of gaps and capabilities which we're going to breach through additional small acquisitions or potentially through via organic growth. So I know I'm kind of given you [fine] answer, but that's how we accurate in many respects because market is moving so fast that we're trying to catch it up and be in line with demands, and this demand is changing.

Understood. That's still pretty good color. One question about GGA, you mentioned the value adjustment, are there any more details? Is this, and you did say it's behind you. But I guess the question is around the management team and the capabilities that came with GGA. You still have those? I just want to make sure.

Yes, just, I'll give you some color on the fair value adjustment. What it basically is, is a tie to the earnout that we had at GGA. So as we close the year out, their earnout ended on December 31, and they did better than we initially anticipated earlier in the year and that $1.9 million is meant to reflect the incremental earnout that we will be giving them based on their final performance.

Okay. So that makes it clear. The Minsk building charge and you have mentioned this in the past, but I just want to make sure, does that affect operations in anyway? I mean, presumably, the building was being constructed to house, I mean, to have employees in there. So is this affecting delivery? I mean, are there alternatives that you're working towards?

I mean, it doesn't affect delivery. I mean, before we started construction, we would run space throughout Minsk and really what it has meant is we've had to continue to rent various facilities throughout Minsk to house our folks. And the delay means that we just have a delay in being able to benefit from having our own building and putting everybody in one place, but it doesn't really affect operations at all.

So, what's the outlook now? Are you still proceeding with the construction?

Yes. We have a target date of June to try and complete the building and move up folks in probably over the summer, if all goes according to plan.

Okay, and my last question is on the headcount. US and Western Europe, the target was 10%. You hit it. What's the next goal?

So, it's still going to grow with, again, with the change in type of services which we provide and we're still going to grow. Right now, we kind of trying to understand exactly what areas it would be and also because potentially we will be filling the gaps with some small M&A transactions which, again, might happen, might not. We're probably looking during the next couple of years to increase it by another 2%, 3%.

David Grossman, Stifel Nicolaus.

Hi guys. This is Irvin Liu, calling in for David Grossman. Most of my questions have already been asked. So just a modeling question. For 2015, could you walk us through the non-GAAP adjustments that's assumed in guidance?

Sure. So, the only non-GAAP adjustment that we really actually forecast are going to be a little bit of FX, P&L FX which we have modeled out about $2.5 million right now, which is really a very rough estimate, but we want to put something as a placeholder. And stock compensation is estimated to be around $31 million for the year.

Got it. And what about amortization?

Amortization? Yes, I forget. Amortization of intangibles, should be about $5.8 million.

And what about the drop-off in D&A expense for the fourth quarter? How should we think about that going forward?

Drop-off in, I'm sorry, I didn't hear. Drop-off in what expense?

D&A? Depreciation and amortization?

Depreciation and amortization, yes. I'm sorry. It's primarily related to some amortization that really just came to conclusion in the third quarter. So it was fully amortized in Q3 and we didn't have [any results] ramping up to that point. So, we saw a drop in overall amortization, non-acquisition amortization.

[Alex Bateman, Mona Christy].

Just to follow-up one of the earlier question, as your efforts continue to shift the labor force from Ukraine to Poland, Hungary and given the wage differential between those markets, between Ukraine and [Visegrad] countries, are you baking in any bottom line impact from that into your 2015 guidance?

First of all, we didn't say that we shifting from Ukraine to Poland and Hungary. We're still growing in Ukraine. That's why I'm not sure that I -- we didn't say that we are doing anything specific to shift people from Ukraine.

But are you growing the Polish and Hungarian markets? I mean, (multiple speakers).

Yes, we're growing like Hungarian market growth practically like -- we grew during the last couple of years. Poland growing faster but it's much much smaller, smaller ways. So, clearly we are taking this into account when we're modeling because we've have different growth perspective for different countries and we have modeled based on this. So it's counted into the model based on what we see today. Again, if you look -- but it's practically adjusted on quarterly if not even monthly basis based on necessity for us station for specific opportunities, specific engagement and also some external factors because while I'm saying that Ukraine is still growing, clearly like 12 months ago, we were thinking that Ukraine would be growing faster than it's happened during 2014. So, it's very much adjustable but right now, it's based on the current plans for the year.

Okay. Makes sense. And then, I think at some point you cited that Ukraine's labor force is around maybe 28%, 29% of the labor force and in that range, and Russia is maybe about half of that, 14%, 15%. Can you update us on those numbers? Are those numbers still intact?

It's approximately like the Ukraine.

Ukraine's probably in the low-20s now, because as we've grown elsewhere, they are representing low-20s and Russia after acquisition with GGA, probably somewhere around mid-teens, [14%, 15%].

So Ukraine, I mean, so its low-20s now, not because you've downsized there but because you've increased the base in other markets?

More because we've seen growth in other locations, but they've continued to grow as well. So, it's just become diversified a bit. I want to just double check that Ukraine number but I'm pretty (multiple speakers).

Ukraine is high-20s but actually it's around 14%, 15%.

(Operator Instructions) Moshe Katri, Cowen and Company.

Just a brief follow-up. Can we get an update on where we are in terms of the sales force headcount right now? Are we still continuing to expand that group? And then, maybe looking at the pipeline into 2015, is there anything different compared to last year or few years ago in terms of the nature of the deals and maybe sizes of the deals? Thanks.

Yes, there's still, also as I showed it in the past, we're still hiring people for our business development function. Again, that's not a function where we're planning to have hundreds of people. So, it's still couple of dozens people across locations. So, but we are hiring and kind of optimizing the separation all the times. So we probably still double this number during the last year, and also don't forget that we inherited some number of people with the small -- with acquisitions which are becoming part of it. So I think the total number will double but again it's all couple dozens, not high. So from the pipeline point of view, it gradually changing the type of projects like, if in 2015, it was few of the kind of projects where we were leading from consulting digital strategy, in 2014, this number of projects increased, and we see a lot of things where we kind of leading the new commerce or complex web content engagements, which actually are driving additional mobile engagement to analytics engagement and optimizing services engagement in these areas. So I think the proportion of this type of deals increasing probably in line with increased capabilities to do it, and better integration between this new type of skills and traditional ingenious skills you have.

And are these larger deal sizes or kind of a lot of them that may be smaller?

So there are some of them which looks smaller initially but again triggering more opportunities and more engagements like on the tail of this. So and some of them pretty light. So we have couple of very large engagements in this area last year and we see the number of opportunities right now already.

(Operator Instructions) Steven Milunovich, UBS.

Hi, it's Peter again. I just have a quick follow-up. Firstly, I think you guys normally disclose at the end of the year the number of accounts that you have? And can you give us a sense of where that is this full year?

We usually do the accounts over $100,000 worth of business and that would be 306 accounts over $100,000 compared to 263 last year.

And then what was constant currency growth in the CIS region in the quarter?

Constant currency growth in the CIS region?

Just trying to get sense of a how the volume was year-over-year irrespective of currency.

I don't think it was a growth.

Yes. We didn't really break it out that finite but if you're talking about from a revenue perspective, ruble drops, let me see with the number is here. (multiple speakers) broken down by region. Sorry.

We can come back on this, but I would say the CIS region probably didn't grow even in constant currency because CIS region was clearly hitted by two factors, currency itself but actually the economic situation in the region not great.

Thank you.

Region is down on both metrics, yes.

Okay.

That's why we were pointing out that North America and European Union region, we're growing in pretty high numbers because Russia or CIS was impacting us on both fronts.

Thank you. Mr. Dobkin, there are no further questions at this time. I'd like to turn the floor back to you for any closing and final remarks.

Again, thank you very much for joining us today and we're really glad that we went through this difficult year with results which we're sharing. And talk to you in three months. Thank you very much.

Thank you. This concludes today's teleconference. You may disconnect your lines. Thank you for your participation and have a wonderful day.