Epam Systems Inc (EPAM) 2015 Q1 法說會逐字稿

Greetings and welcome to the EPAM Systems first-quarter 2015 results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Ms. Lilya Chernova, IR Coordinator. Thank you, ma'am, 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 first-quarter 2015 results. If you have not a copy is available on our website at EPAM.com.

The speakers on today's call our 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 am pleased to report that while the first-quarter showed some continuing challenges primarily with the currency volatility in several of our markets it proved to be another strong quarter for EPAM and a solid start to the year.

We closed with revenue of $200 million above consensus and the top end of the guidance and 25% growth over prior year. We were down sequentially about 1% which is relatively common for first quarter as we deal with holidays in January and short billing month in February and a sometimes slow start to customer budget allocations. Margins also closed strongly with 16.7% adjusted operating margin, 30 basis points above last year.

Taking into account the foreign exchange and currency volatility remains a big part of our story in Q1 I would like to state right up front that our revenue in Q1 2015 faced approximately a 9% headwind when compared to Q1 2014, meaning our constant currency growth was about 34%. At the same time the impact of adjusted operating margin show that we remain naturally relatively hedged with a total impact from constant currency being less than $1 million tailwind or less than 3% impact on adjusted income from operations. With that note I will let Anthony dive deeper into numbers and the currency impact explanation.

I will be relatively brief today with my updates on the business partially because we already described our approach and our differentiation points in regards to EPAM move into digital engagement space. We talked about that in many details during our calls last year. And partially because Q1 is still just the beginning of the year and it's too early to evaluate any new trends in our activities in comparison with what we did during our previous call when we talked about 2014 results and our overall plans for 2015.

So the first quarter for us was a continuation of the growth strategy we began several years back as a part of EPAM 2015 vision. And while we continue to face many of the same challenges still today we are also starting to see dividends on our decisions to focus on the system engagement space and on many investments we did during the last few years.

As always we continue to focus on global competencies in core engineering and advanced technology and on big data and analytics and other drivers of digital engagement, and all that while having a very focused approach to regional and local team building. We believe very much that closely aligned have the capabilities is a key component in our ability to deliver quality solutions which drive successful engagement and allowing our clients to stay competitive. This is why our major continuous effort today are to push harder to the highest level of engagement between the new strategy capabilities which we are developing organically and are organically driven the last several years, and even more importantly into very strong alignment with our traditional strengths, high-quality software engineering and advanced technology services.

For us understanding that EPAM is about building hybrid teams of strategists, experienced designers, architects, developers and business consultants means that we are working very hard to build these teams not just in general but very much where they need to be present and to connect with clients better for solving complex problems. So while we're expanding the presence of such teams in our traditional markets in North America and Europe we are also very focused to improve such capabilities in the APAC region where we started to operate just during last year and where we already have strong traction. And now we plan to expand in new for us locations including the most recent one in Guadalajara, Mexico.

In addition to that we are continuing to invest in developing capabilities in our key focus industries. We believe that EPAM will ultimately be successful precisely because we understand the technology platform exists in the context of specific industry needs.

And we also know that many of these industries are going through major disruptions and shifts due to technology changes. We are excited to see the examples how we're increasingly able to help bridging the business with technology in life science and financial services companies.

I wanted to say just a few words about our still new capabilities in digital strategy and service design and how those feed into our growth positioning. We do believe that combining those also increase very strong product development mindset which we develop over the years should become the true driver for us. And not just in digital engagement but also in helping to address the full scope of some of the transformational programs by helping clients to find very new solutions to connect digital and physical world together and make total customer experience more natural and transparent or simply intuitive if you will.

Such type of opportunities we now see on the market more and more and we're starting to play a role in those very exciting new engagements. We hope to share some interesting stories on those subjects in the near future.

Finally as in the past 2014 we continue to educate the market about our progress in all those directions. Forrester Research included us as a strong performer in B2B commerce wave and into enterprise mobile capabilities wave. We also have seen increased coverage from analysts including Gartner and Everest in our traditional industry sectors and are starting to be covered in new for us verticals like life science and healthcare.

With that I will turn to Anthony to give more structural information and to provide our guidance for this 2015.

Thank you, Ark. Good morning everyone.

I will spend a few minutes taking you through the first-quarter results, then I will talk more about our outlook for Q2 and the full-year. As usual you can find the full details of our results in our press release and on the quarterly fact sheet located in the investor section of our website.

As Ark mentioned 2015 opened with another solid quarter of revenue, just over $200 million and 24.7% over last year. Currency headwinds remained compressing our Q1 revenue by about 9% meaning in constant currency terms we would have grown 33.7% over Q1 2014. The final reported results came in above guidance and consensus by about 1%.

Sequentially we were down about 1% from Q4 which is not uncommon for the first quarter. However, in constant currency terms we would have grown about 1.4%.

The key currency mix of our revenue in Q1 has remained pretty consistent with what I shared at year-end. 16% of our revenues remain US dollar-based. The pound is at 13%, the euro is at 7%, Canadian and Swiss francs are at 6% and the ruble has dropped to 3%.

North America remains our largest segment representing 52.3% of our Q1 revenues, up 32.3% year over year. Europe was up 18.1% year-over-year representing 39.7% in Q1 revenue. In constant currency terms EU would have been up 30% year over year.

CIS continues to struggle and is down 26.9% year over year and 36.4% sequentially representing only 4.4% revenue in Q1. The dynamic of the drop is both currency and volume related and in constant currency terms CIS would have been up 13% year over year but still down 28% sequentially.

Our top 20 accounts came in at 57.6% of revenue growing 24% while all other clients grew 27% year-over-year. The increased concentration of the top 20 is mainly driven by continued strength in UBS account which grew 54% year over year and 12% sequentially to represent 15.4% of revenue in Q1.

Turning to our expenses we completed the quarter with over 12,600 IT professionals, an increase of about 29.8% compared to Q1 of 2014. Approximately 8% of this growth was from acquisitions bringing the organic headcount growth to about 22%.

Currency generated some benefits to the cost of revenue in the quarter when compared to prior year. There was approximately 12% benefit and 3% versus prior quarter.

The allocation of our currencies across expense base also remains fairly consistent with the guidance I provided, roughly 63% of the US dollar, 7% from ruble based, 8% in the Hungarian forint and 5% in the British pound. The balance are insignificant.

Utilization for the quarter was at 77.6%, essentially flat to Q4. GAAP income from operations increased 4.4% year over year to represent 11.4% of revenue in the quarter. GAAP IFO includes stock-based compensation expenses and certain acquisition-related costs that we exclude from our non-GAAP measures.

Stock-based compensation expense for the first quarter increased 185% over prior year. 50% of the total Q1 charge and 62% of this increase is related to acquisitions.

If you exclude acquisitions, stock comp is up 92%. However, total outstanding non-acquisition-related equity grants are up only 16%. So the main driver behind the growth in the stock comp expense is the fact that our stock price is up over 90% this year.

Our non-GAAP income from operations for the quarter after all those adjustments increased 27% over prior year to $33.4 million representing 16.7% revenue. For the quarter we generated $0.61 of non-GAAP EPS above the top end of our guidance and $0.29 of GAAP EPS based on approximately 51 million shares diluted outstanding.

The GAAP EPS shortfall is primarily caused by two main issues. First, non-operating foreign currency losses exceeded our estimate by about $4 million resulting in about $0.08 negative impact on GAAP EPS.

Many of our entities hold assets and liabilities and currencies different from the local currency. Each period these are remeasured and the unrealized gain/loss goes to our P&L. The strength of the US dollar versus EU currencies, mainly the euro, at the end of Q1 created this loss.

The second issue impacting GAAP EPS is driven by the significant increase in our share price in Q1 which caused a larger-than-expected mark-to-market charge related to stock issued in connection with acquisitions resulting in approximately $0.02 impact on GAAP EPS. Together this results in a $0.10 negative impact on GAAP EPS.

Our balance sheet remained strong. We finished the quarter with approximately $222 million of cash, up $2 million from December 31.

During the first quarter operating activities generated approximately $6 million of cash. Unbilled revenues were at $88 million at March 31. Accounts receivable were at $105 million and DSO ended the quarter at approximately 50 days.

Turning to our guidance, based on current conditions we reaffirm our guidance for the full-year. We expect 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%, and then effective tax rate approximately 20%.

For the second quarter of 2015 EPAM expects revenues between $213 million and $215 million, representing a growth rate of 22% to 23% over the second quarter of 2014. Second quarter of 2015 non-GAAP diluted EPS is expected to be in a range of $0.62 to $0.64 based on an estimated second-quarter 2015 weighted average share count of 51.2 million shares. GAAP diluted EPS is expected to be in the range of $0.30 to $0.32.

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

(Operator Instructions) Ashwin Shirvaikar, Citi.

Thank you. Good morning and good quarter. I guess my first question is trying to figure out how much incremental from the time you gave guidance to now how much incremental FX headwind are you absorbing in your guidance here full-year?

Versus when we gave guidance you're asking? I didn't hear the first part. I'm sorry.

Yes, versus when you released your guidance.

It was about $2 million of additional headwind beyond what we gave guidance on on Q1.

No, no. I meant for the full-year.

For the full-year. We haven't changed our expectations on headwinds for the full-year.

The difference between when we gave guidance and today wasn't material enough to shift. So we're still looking at about 6% headwinds on the full-year. But clearly there's going to be more headwinds in Q1 and Q2 versus Q3 and Q4 because 2014 it was that latter half of the year when FX started to ramp.

So we expect to see more impact earlier in the year and less in the back half. But our expectations are still right around that 6% headwind.

Okay. I guess the follow-on is you guys are growing at a pretty hectic pace in what seems like all the right areas. The headcount growth if you could address what challenges you face with regards to hiring, training and the capability to keep ramping that at a healthy pace.

This is a difficult question because that's a challenging situation. So you know all the years we are working on this is like as you know there is shortage of talent and I answer this question many times. So we really invest in multiple areas inside of the Company to support our kind of software engineering skills because while we think we are probably more advanced than most of our competitors at the same time we don't want to lose this advantage.

And I thought we refer this a couple of times how what investment we do and in training we have special division of the Company each focusing only on this. We dramatically expanded our talent acquisition capability during the last couple of years.

I also mentioned that we brought two years ago the persons from large competitor who experienced already what does mean real scale and you need to hire not just 1,000 people but tens of thousands of people. So our talent acquisition led by such person and he put in a lot of effort to make it scalable. So university relationships very, very strong, so we expand in different geographies as well.

We open a couple of additional offices in Central Eastern Europe. As you know we now operate in APAC and growing there. We also open an operation in Guadalajara in Mexico at the end of last year.

And one of the key challenges is actually how to integrate additional skills and advanced consultant skills which now is very big and digital skills which is very big advantage which we have and if we can combine them right. And this is different type of people and it's very difficult to bring them to work as a team. So this is a lot of effort which we put in.

So in general like it's probably a separate discussion for multiple hours if you'd like to say it. And also during our Analyst Day we mentioned our internal systems which is part of this, too, how to bring people together and how to do assessments right and we're learning from the best of our clients and as you know we have some best names in technology as our clients. So we're learning from this and I can continue for a long time.

No, no. That's actually pretty good color. Part of the reason to ask as you know is that as you grow and each time 98% growth means more people, [low 20%s] growth means more people compared to (multiple speakers)

That's not -- and you understand it's not just about more people. It's about what type of people and how they are working together because we are also changing the portfolio of our engagements as well.

So it's situated more in solutions-based or sometimes end-to-end implementations. And this is very different categories of people and how project's implemented. So it's a lot of training not just from half-qualified people but actually from the processes and to this part.

Okay. My last quick question was have you updated the on-site headcount percentage metrics? Is there a new target? You guys used to have a 10% --

We don't have a specific target like we had a couple of years ago to achieve 10%. What I can tell that it's definitely going to be increasing with the time and we probably need to assess a little bit the situation before we can put a target on ourselves. But the plan is definitely to increase onshore component.

Great, thank you and congratulations.

Jason Kupferberg, Jefferies.

Thanks, good morning guys, congrats on the numbers. I just want to talk a little bit more about the full-year outlook and make sure we understand the moving parts as we go through the year and look at the year-over-year growth rates by quarter. Because obviously here in Q1 you came out ahead of guidance no matter how you slice it with currency, without currency it, etc., you're maintaining the full-year as you said.

So that would obviously imply that you're expecting some deceleration in year-over-year growth during the remainder of the year. Is some of that just lapping of acquisitions? Maybe you can remind us how much inorganic revenue contribution there was in Q1 and how much is embedded in the full-year guide of 21 to 23 in terms of acquisition contribution?

Well we don't really separate out in our forecast the organic versus inorganic. When we do our planning we pretty much do the planning as one consolidated entity. Most of these acquisitions have actually been fully integrated at this point so separating them is actually quite difficult.

I can give you a view on actuals in Q1 and it's a rough separation. But if you look at from a constant currency basis our growth organically was around 24% excluding the contribution from the acquisition that we received in Q1. And that's I would say it's a very rough percentage because a lot of these accounts have been integrated.

We've grown them post-acquisition both from the contribution on the EPAM side as well as the acquisition side. So it's very hard to slice them at this point.

But typically to give you like an explanation like when we are saying this is a number for organic we assume deducting completely the revenue from accounts which existed at companies which we brought in. But it doesn't mean that it's really in some cases in organic revenue because the revenue which increase there probably was delivered by already EPAM people and capabilities which didn't exist in the original Company.

So it's really difficult to separate. In some situations we increase significantly revenue on EPAM historical accounts because we bring in new capabilities from acquired companies and sometimes it's opposite. So it really is difficult to calculate.

Okay. So the implied deceleration the rest of the year, is that more just hey, let's be conservative since we're only through a quarter? Or is it more a function of the anniversarying of some of the acquisitions understanding that it's hard to pull out or quantify those --

Well you also have to factor in what's happening in the CIS. We're seeing between currency and volume impacts at CIS we are seeing deceleration there and we're forecasting basically pretty significant drops in the CIS business. So that is decelerating due to the currency and due to the macroeconomic issues going on there.

North America and Europe continue to grow in line with expectations. I think what you're seeing is a blend of the drop we're seeing in CIS, the FX impacts that we're anticipating pulling down the overall growth rates of the Company. Not really pulling them down but smoothing them out as we go through the year.

Okay. Understood. And maybe just a question more generally about the demand environment.

I know you obviously don't get like a bookings metric per se. But just qualitatively can you talk about what the environment has looked like through the first four months or so of the year just in terms of your ability to compete for and win brand-new business either at existing clients or adding new logos?

I think from where we are it seems it's pretty healthy environment. And as I mentioned before while we are growing like 25%, 30% during the last several years even after IPO we are still a relatively small player of the global market and I don't think in this niche of services which we provide we can see any changes during this year. So I think there is pretty strong demand and the whole point how to provide quality response on this.

Okay. Then just last one for me on the supply side, I know you talked about all the investments in hiring, recruiting, etc.

Do you have any statistics offhand for example in terms of the percent of job offers that you guys make that are accepted? Just trying to get a sense of your success rate or your hit rate as you obviously try and focus on not only recruiting the right number of people but the right type of people.

You know, we probably have all these statistics but we never prepare this for this call and I don't have on top of my head. But what I can tell you that clearly EPAM become much more attractive Company for talented people because from name recognition there is significant improvement versus several years ago.

So I think it's getting better. I know this from multiple specific cases but I don't have the statistics right now.

Understood. Thank you for the color.

Moshe Katri, Cowen and Company.

Hey, thanks, good morning. Good quarter.

A couple of follow-ups. One, did you provide a revenue breakdown by verticals for during the call? I missed that.

No, I stopped quoting them. They come out on our fact sheet which you can get. But I can read through them real quick if you'd like.

Sure. Let's start with financial services.

It was 28.3% of revenue.

And growth?

Growth was -- hang on, I've got it on a different sheet. Growth was year on year 19.4%.

Okay.

ISV was 22.2% of revenue and growth of 27.7%. Information and media was 13.1% of revenue and 24.7% growth.

Travel and consumer 21.8% of revenue and 20% growth. Life Sciences which we started breaking out this quarter for the first time is 7.2% revenue and like almost 200% growth but it's mainly driven by the acquisition of GGA and Netsoft.

Okay, great. That's helpful.

And then the other is balance.

And then UBS you said was up 54% for the quarter and accounted for 15% of revenues. I think it would be helpful if you could give us some color in terms of what's going on in this account, what are you doing more there, what sort of traction you're getting? And then should we expect that mix to continue to move higher, greater than 15% in the upcoming quarters?

Well as you might remember Jointech, the acquisition we did in APAC was mostly -- well almost all UBS revenues when we acquired them. So the jump year on year is driven in big part by that.

Plus if you look at the UBS growth last year 2014 it grew most 100% year over year from 2013 to 2014. So it's really just the continuation of that growth in Q1 and the impact of that growth on the Q1 numbers.

But we won pretty large digital program at the beginning of last year and this program is still growing. And it's difficult to predict the speed of this account because we're bidding potentially for some specific projects and it's not like just incremental increase in headcount and some other areas. So we will see.

Understood. How large was Barclays during the quarter?

Barclays was about 5.7% of our revenue in the quarter.

Okay. Then, Arkadiy, you spoke about increased traction and APAC. Could you talk about that in terms of what we've seen so far year to date out of Asia and I'm assuming it's coming via the acquisition that you made last year.

As Anthony mentioned acquisition mostly, not mostly, almost 100% was focused on UBS account. And for us it was a move necessary to get involved in the global digital program which was started from APAC.

So we need the resources there and we need very good strong engineering capabilities there. So what is happening now is now having a hub there we're starting to bring new clients in the region.

Most of the international companies plus we have multiple opportunities for existing client base which operate globally. And we hope that we will replicate this UBS situation where we're working in North America or Western Europe we will be serving the needs of those clients in the region. And we see that there is traction there.

Okay. Did you staff the 700 or so seats that you have in China?

Excuse me, what?

With the acquisition I remember you had about 700 seats of delivery out of China. Have you staffed these or are you considering staffing them?

You mean from the space point of view --

Yes.

No, it's not completely staffed now.

Okay. Final question (multiple speakers)

I think we still have in China specifically we have around 300 people between China and Hong Kong.

And the attrition for the quarter? That's the last question.

Attrition for the quarter was right around 7%.

And remind us how does that compare for last quarter?

It's low, it's low. We've typically been around 10%, 11%, so this quarter came in quite low around 7%.

Wow. Impressive. Okay, guys, thank you.

Steven Milunovich, UBS.

Thank you, good morning, this is Peter in for Steve. Thanks for taking my question.

In regards to the headcount this was the largest sequential gain you've had excluding acquisitions. Can you give us a sense of where the employee growth was and was it more juniors versus lateral hires and are you also seeing any wage pressure in constant terms?

You are talking about headcount increase, right?

Correct.

I was going to say it was about a 7% sequential growth. There's nothing special or unique about that. We've continued to higher in line with our needs and to staff the projects that we have, utilization has remained relatively constant.

It's part of what has grown, supported the over performance in the quarter is the additional headcount, the service and revenue streams that we have. Ark I don't know if you have anything more?

If you look at the headcount of the flow it's always a little bit bulky. And for example end of last year was very high utilization, over 80% I think, in the quarter. So we were doing high headcount.

Now probably we will start to utilize these people during the next couple of quarters. And when we bring in also juniors and we have a percent of juniors relatively high in Belarus and now Ukraine, we are spending like two, three, sometimes six months on internal training as well. So that's kind of normal and then you will see that utilization will be a little bit higher now.

And were there any changes in wage pressures?

That's a complex question taking into account all the currency volatility. Because how to look at this but I'll give --

Yes, overall blended wage increases that we saw last year were about 4% to 5% in a local currency base. But FX helped us tremendously on this front and the overall wage inflation that we felt in US dollar terms was close to zero.

So it almost, the FX benefits almost completely negated the wage inflation that we felt which is what you see -- you see that in our gross margin pickup. We picked up over a percentage in our gross margin. A lot of that is driven by the FX benefits that we've received because of the neutralization of the wage inflation.

That's helpful. And then relative to last year do you think M&A will pick up in the next couple of quarters?

Peter, we will see if it will.

Okay. Then finally a number of the larger vendors including Accenture, Cap Gemini, even Cognizant have had strong quarters particularly on quoting growth in digital, particularly in North America. When you're competing for new deals are you seeing more competition coming to the table and have you seen any change in your win rates for new business?

I'm trying to think how to -- so again just based on our feeling consist I think competition is increasing. But in my opinion the market and demand increasing if not it's -- probably faster than capabilities of delivering. So this is very interesting market and I think there are a lot of space there, a lot of people trying to build up capabilities quickly and it's not so simple.

Especially if it's not just created for digital parts which is a lot of people putting together many small agencies and trying to compete but actually how to deliver this complex staff and integrate in the digital system. I think it's on the surface competition is growing but quality delivery is still very much in demand.

Great, thanks for the commentary.

Mayank Tandon, Needham & Company.

Thank you, good morning. Ark you mentioned earlier about the challenges in terms of hiring people. I'm just wondering are you exploring other delivery locations whether it's Asia and Latin America or even India to diversify your delivery over time and maybe that can help mitigate some of the challenges that you face in terms of hiring?

Number one, I don't remember when we didn't have challenges. Probably when we were very small and nobody wanted to work in Belarus and Ukraine, then you can hire as many people as you want. But then after this it's unfortunately changed.

But we will open a couple new locations in Central Europe, like we now operate in Bulgaria. We are growing in Poland. We are still growing in Hungary.

We are growing in our traditional locations in Belarus, Ukraine and in Russia as well. Because now we have after acquisition of GGA we have interesting hub in Russia for Western clients too.

But we also as you know opened in China and (inaudible) in China while again our development center there is more like a front office for APAC region not just delivery location for global market. We also open as I mentioned in Guadalajara, Mexico just recently. It's very much just greenfield operation, so a couple of people there but we have already some clients starting with us to operate there.

So we have some other plans but it's too early to share. I mean it is nothing unusual this quarter or last quarter. It's part of our day-to-day or year-by-year challenges.

Okay, that's very helpful. Then I know in the past you've also talked about most of your business historically was one through referrals but over the last 18 months or so you've been investing in the sales force. And I just wanted to get a sense of how that's progressing in terms of impacting new logo wins and also expanding your relationships with existing customers?

I would say that I don't see any bad from having referrals. And I think that's probably a very good source of business, which talking about reputation and quality of the delivery. And I think it's still a relatively big portion of our business.

And I hope that it continues to be a relatively big portion of our business which is not so uncommon actually for services operations when we need to have hundred clients, not thousand clients and million clients. At the same time we definitely improved during the last several quarters our markets and sales operation which is also bringing new opportunities. Like we talked about our brand recognition from industry analysts and becoming some strong performance or leaders in multiple categories which is helping us to get new opportunities and equipped our sales teams.

We also have new head of North American sales. We brought three hiring salespeople. We changed salespeople as usual, so this is normal cost.

Just to give you very simple metric which probably illustrate what it's like we just calculated just during the last six months we have at least 20 accounts which already on $1 million-plus run rate and some of them $3 million or $5 million. And probably five or six of these accounts could be $10 million accounts for example. And this is kind of brand-new logos which we brought during the Q1 and Q4.

Great. That was great color. Then just two final questions for me for Anthony, Anthony I don't know if you mentioned this earlier but what was the pricing uptick in the quarter and what are you building in for fiscal 2015 guidance?

And then finally also utilization. What was the number in the quarter and what is the trend for the rest of the year?

Sure. Pricing we're sticking with a 6% to 8% range and that's what we're seeing. A lot of that is unfortunately being neutralized by FX as well, same with our wage inflation but that's the base that we're building in.

Utilization for the quarter came in at 77.6% and our forecast is pretty much holding that steady throughout the year. So it will be kind of 76%, 77% throughout the year.

We'll see a little bit of -- we forecast a normal dip in Q3 which is a typical vacation cycle and then it picks up in Q4. So I'm talking on average for the whole year.

Okay, thank you. Good job on the quarter.

David Grossman, Stifel.

Thank you. I just have two very quick follow-ups.

First I think you had mentioned that the first quarter is typically a flattish sequential quarter which was obviously different than the way you guided it three months ago. Just curious whether the guide three months ago, did that reflect exogenous factors like currency unrest in the Ukraine, whatever it may have been? Or did in fact going into the quarter did you generally believe that there were fundamental reasons to think that you would be down sequentially more than you have been historically?

I think that when we did the forecasting we always anticipate a much lower Q1 ramp. We did see some things happening a little bit earlier this year similar to last year which benefited the quarter. The overperform was only a couple million dollars so it wasn't a significant spike and everything else was pretty much in line with where we expected it.

There is nothing unusual in the quarter. We just had a couple million dollars of overperform from some of our customers ramping things a little bit faster.

Okay. And then just secondly, getting back to your largest customer which is outpacing the growth of the rest of the business and now at 15% of revenue, can you just help us understand how you're thinking about the growth in that, how it primarily as it relates to the risk, overall risk of the business in the future in terms of how it could impact growth if in fact that kind of does decelerate over time?

So the growth partially do acquisition as we mentioned. So we're also growing in this account in very different areas and we open a couple of new areas and specifically on this large digital program.

So I don't see this as a danger at 15% or even let's say 20% which I don't think we're going to get. So taking in account like health of top 5 or top 10 or top 20 accounts which we have I think we're still pretty well-balanced.

Can you help us understand how many components, Ark, that exist within that account whether it be geographically or within divisions of that (multiple speakers)

Like this is very diverse account. We work in now in three continents, we work in Europe, we work in North America we work in APAC. And in each of these it's a significant business.

Then you're working across different business lines. Then we're working from delivery point of view, again this is like Hungary, Poland, Ukraine, Switzerland, UK, China, Hong Kong and Singapore. So this is like very spread activities because of this.

Okay. Then just third, Anthony, I'm wondering can you give us what we should model for the non-GAAP adjustments for the year for stock-based comp and the intangibles amortization, etc.?

Sure, I can do that. So stock comp is going to come in in Q2 right around $11.8 million and then it will drop to $11.3 million and $11.4 million in Q3 and Q4 so you will end up the year around $43.7 million. And as far as amortization of intangibles it's going to be about $1.4 million per quarter going forward.

Great. All right, guys, thank you.

Darrin Peller, Barclays.

Thanks guys. Listen I just want to follow-up first on the strong growth at UBS. I mean it's continuing to pace well even organically and I guess one question is just if the client itself, if UBS itself has any parameters as to whether or not how much it's willing to work with any given vendor?

I know it also works with one of your large competitors. So where can that go without them getting worried about risk management on their end?

And then I guess just a follow-up on that is the growth rate of the top 10 I think we're calculating around a mid-teen, maybe 16%, 17% growth rate of the top 10 clients excluding UBS although I think currency is probably playing a big part in that given I imagine at least one of them is out of the Russia region. So can you just give us some color on the organic constant currency growth of the other 9 of your top 10?

Do you want to talk to the UBS question first?

I think on the UBS question I don't know what to add already to what we talked about when David asked the question and previously as well. So I think Anthony is trying to --

Well what I'm trying to figure out is if they're going to continue to be comfortable working with anyone given vendor (multiple speakers)

Okay I believe these clients have some internal policy how much business they can do --

Exactly, exactly.

So we far from this gate here. So we have space to grow. And I don't think we're going to reach, with our client spread I don't think we're going to reach this limit.

All right. That's helpful. And then just on the other side of it just trying to figure out the organic constant currency growth, Anthony, of the other top 10 clients, 9 out of the top 10. Because I know UBS is a big driver still.

Yes, UBS is definitely a large driver and looking at the other top accounts it's about -- most of them are primarily USD-based with a little bit of a mix of Canadian in there. So I think from a constant currency perspective, let's see Barclays will have a mix, yes, it's not going to be dramatically different. I don't have that number at my fingertips, Darrin --

Okay, we can follow-up with that.

Yes so I'd say there's going to be some euro and some Canadian impact (multiple speakers)

On top 10 the biggest impact coming from one Canadian client, which big and Canadian dollars dropped almost 25% which is a big deal.

And Barclays which is going to be a mixed account. They have a heavy US dollar component (multiple speakers)

Okay. I just had one follow-up. You guys had some there was some pretty good media around I think the contract with the SEC.

It just seems like another sort of area of growth potential for you guys. Can you just comment on that for a moment and how that's been what the opportunity is there?

On this project with the Securities and Exchange Commission as I mentioned multiple times during the calls we were proud of being selected in the short list. But we are not really thinking that we can win this deal realistically taking the size of the deal and some government requirements.

Okay.

We might have an opportunity like one of our goals were to get there to make sure that we will be able to work in this area where implementation of these regulations would be first. And it would be a lot of work and we already attached our name on this specific subject matter.

Okay. I must've missed it earlier in the call.

But we for example in financial services we started to work with two large banks. And both of them will be growing right now opinion pretty significantly.

So this is like another like we started to work with a couple large retailers on opportunities. So as I mentioned like just in the last six months we have 20 new names with $1 million-plus run rate already.

And a number of those I think you also mentioned a number of those were new logos, right?

That's what I was mentioning, specifically new logos.

That's great. All right, great, thanks guys.

James Friedman, Susquehanna.

Most of my questions have been answered but Ark you were mentioning in your opening remarks that budgets which sometimes can be tentative in a first quarter are proceeding at I think you said more predictably. I was just wondering if you could articulate in which areas budgets may have a better cadence like specifically either by industry or by service line?

I don't think I can give any specific details on this. Because it's probably drew across most of the accounts and industries as well. I don't have any specific splits.

In terms of your say digital practice is that the same buyer as what you have sold in the past? In other words are you selling more into the chief marketing officer as opposed to chief technology officer or the financial office?

This is again everybody's talking about it so I don't think I'll give you any different number. It's it definitely the shift from traditional IT to more business.

We are working with business leaders in specific areas and we are working with horizontal digital leaders at our client site. This is definitely increasing very rapidly.

And we sell into this business digital people on the client side. Probably still not more than to IT people but definitely increasing proportion.

Okay. I think at your Analyst Day you had a number of examples of that.

I guess my last question on that is I think you had said at the Analyst Day that well you had a couple of significant referenceable accounts, this was on March 6. So if you could talk to the growth of some of those accounts that were presented at the Analyst Day and if there have been any further update, Canadian Tire and Google in particular.

Well all those accounts like Canadian Tire's CTO was present there, I think he said it the best, I don't think I can do any better than he did. And this is still a growing account for us. Clearly it's a little bit more difficult taking into account that the Canadian dollar has dropped so significantly.

We have a number of growing accounts. I'm not going to mention specific but we have all our top 10 growing and we have a number below that are growing fast and digital growing faster than (inaudible) for us, too.

Okay, thank you.

Arvind Ramnani, [RDO Research].

Hi, thanks for taking my question. I know you already kind of touched upon this but I just wanted to see if I could dig a little bit deeper.

So by the math I've done the four acquisitions in 2014 contributed about $40 million to EPAM revenues on a partial year basis. So on a full-year revenue basis aggregate revenue from these four acquisitions may have been like $60 million to $70 million.

And sort of assuming that they will continue to grow in 2015 (technical difficulty) $70 million, $80 million. So based on this it looks like your guidance may be conservative given some of the acquisition-related revenue that will kick in. So is it mostly like FX and CIS business at play for guiding to 21%, 22% guidance?

Well 23% considers about a 6% headwind from currency. So in constant currency terms we're projecting 29% growth which I don't think it is conservative at all.

I think that you have to also factor what I had said earlier about the CIS region where that is dropping, we're anticipating that dropping roughly 40% year on year through both currency impacts and just sheer volume impacts because of the economic situation in the CIS region. So I would counter and say I don't think that 21% to 23% is conservative taking into account the 6% currency headwinds that we are factoring into that number and the issues that we're facing within the CIS region.

Great. That's helpful. And just one question in terms of the competitive environment, how much of your business is going head to head with the US firms versus the Indian firms versus the in-house IT spend essentially greenfield opportunities?

Have you been in situations where you're competing with these firms one-on-one? Has the dynamic changed over the last couple of years? Maybe you can provide some examples that would be great.

Definitely we see all around all this line of competitors. We compete with smaller US-based or European-based consultative-type of firms focused in specifically on e-commerce or digital or content, complex content management engagement so we compete with these guys. We compete with Accenture and IBM on specific engagements and with special dividends of them and we definitely compete with many companies with back ends in India.

So this is like all over the place. And we it's a lot to compete one-on-one, usually you compete against for our five of them simultaneously. I don't know like what exactly to answer here.

Yes we clearly we -- in many cases we take and share from existing business from this competition. In some cases we get into very greenfield initial deals and we win those. But right now the competition all over the place.

Great, thank you very much and best of luck for 2015.

Alex Veytsman, Moness Crespi.

I just wanted to dig further on some other vertical, specifically on the IC technology, it look like that the growth rate has accelerated this quarter to about 28% to low 20% throughout 2014. I just wanted to ask you for some, what were some of the drivers behind that growth and also how should we thinking about it throughout the year for the next few quarters?

So specifically what's behind ISV growth?

Right. I mean the drivers what led to the top-line growth acceleration in that vertical and is that a growth rate sustainable for the next three quarters?

So I think again this is not growing faster than we're growing in general so I don't see any unusual stuff here. And this is very traditional historically, very strong we're feeling at EPAM.

And even like three years ago when right after IPO when we described our strategy we mentioned that we would like to keep our IC businesses around 25% if possible. Because we would like to be involved in all new technology trends and feel hands-on what's happening in this. Because that's giving us an advantage to offer new ideas and strong hands-on experience with this new technologies to our corporate clients.

So we have a special group focusing on this and this is practically business as usual for us. So I don't see anything special here. But we still would like to keep significant portion of our business in independent software vendors and technology segment.

Got it. And then for the life science and healthcare this is maybe like obviously a new segment here.

How should we be thinking about the growth rates for the remainder of the year? Obviously it's ramping up. So the growth, we would expect the growth would be faster than other verticals.

So you know that we're not giving guidance on specific segments, so at the same time clearly we consider this an interesting perspective for us. We are still learning, so it's not like all new business for us because we were playing in this field a little bit it was kind of part of our other revenue.

Now we consolidate this in life science and healthcare. So we are clearly hoping that this would grow faster than the rest of the business at least initially.

And we see very interesting opportunities in the field taking into account that we brought probably with this acquisition at least half of the other Fortune 500 companies on our client list. And they could be double and triple or more over the next couple of years. But I don't think we can give you any specific quantitative predictions right now.

Thank you.

It appears we have no additional questions at this time. I would like to turn the floor back over to Mr. Dobkin for any additional or concluding comments.

Okay, as usual thank you very much for listening to us and asking questions. And I hope we will have good conversation in three months from now again. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.