Epam Systems Inc (EPAM) 2015 Q3 法說會逐字稿

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

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to Ms. Lilya Chernova, investor relations. Thank you Ms Chernova, you may now begin.

Thank you. Good morning everyone.

By now you should have received your copy of the earnings release for the Company's third-quarter 2015 results. If you have not a copy is available in the investors section on our website at EPAM.com.

The speakers for 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. Good morning everyone and thank you for joining us today to share with you our third-quarter results.

A large portion of EPAM revenue is generated outside of the United States and with currency headwinds all around the globe it was not an easy quarter for us to navigate. At the same time during this period we continued to outperform the market by posting significant and consistent growth. While our Q3 revenue of $236 million represents 22% top line and 8.4% sequential growth our growth in constant currency was 31% year over year and 11% sequentially.

Overall despite the recent acceleration of currency headwinds which has had a $2.7 million investment impact on our Q3 revenue just since our last earnings call and will have an estimated $3 million impact on Q4 we are confident that our 2015 performance will still be in line with our original guidance. Anthony will provide a more detailed update on our financial performance in the quarter as well as full 2015 guidance.

From a strategy perspective we continue to follow the plans that we laid out in previous quarters, focusing largely on expanding EPAM hybrid capabilities in our effort to help clients in their transition into becoming digital businesses. As we incorporate a much more consultative approach into our mix of services we expect that our top accounts will continue to grow significantly (inaudible) as well as drive new engagements further up the value chain.

From a vertical perspective we are pleased with the growth in our newer focus areas as well as continuing strength from our established business and financial services, business information and media and travel and consumer industries. Our largest vertical banking and financial services grew over 20% in constant currency and we expand our digital business there particularly in wealth management.

We anticipate additional opportunities that will diversify our traditional [offerings] in that segment over the next several quarters. Accelerating growth in our travel and consumer and business information and media is also being driven by increasingly digital platform work. We are expecting it to continue, especially as the benefits of the new skills we develop organically and via recent acquisitions will be merging with our current capabilities and be realized by our clients.

We see significant potential upticks as a result of [that in] both existing accounts as well as acceleration of new logo acquisitions. We also continue to see growth from our independent software vendor segment at 20% in constant currency. However, there is a very interesting challenge now in how to draw the line between traditional AC segment and many of our strong technology driven clients with focus on generating revenue based on their business service and solutions versus selling software licenses or subscriptions directly.

We will continue to evaluate how we categorize customers across our verticals to address this (inaudible). One of the most interesting industry stories is the significant growth we are seeing within our life science and healthcare business with our organic growth rate of over 46% year over year.

The work we are doing in this vertical is addressing key shift toward consumerism where EPAM is building integrated experience in transactional platforms by bringing together critically important expertise we accumulated in working with more traditionally consumer oriented industries and our strong subject matter knowledge and health. Today for example we are eyeing wealth in truly groundbreaking innovation work with companies that sit at the forefront of healthcare. We help them to translate the latest insights and innovations in genomics and digital information and virtual reality technologies into new business models for delivering healthcare and precision medicine targets to patient's unique genetic and phenotypic profile.

From a horizontal practice view we continue our integration efforts of the recent acquisitions and we are increasing our investments into our key capabilities and digital strategy user experience as well as data analytics and service design methodology. We see a significant increase in customer traction of what we call our end-to-end engagement portfolio.

So continued investment in bringing together a very cohesive [profit] between our traditional software [e-reading] services and those new emerging capabilities is one of our primary focuses. In this past quarter we have added 10 significant new accounts of which seven represent this new digital analytics engagement models as well as started a number of new digital initiatives across our existing class. And we believe that this trend will accelerate into the next quarters.

From a digital activation standpoint, our investment in key locations and into key operational platforms that allow us to better identify and understand our talent pool are allowing us to do a better job in starting new hybrid teams of consultant designers, architects, and engineers. In Q3 our global headcount increased to 14,000 employees. We continue to expand our footprint practically across all our main delivery geographies including North America, Western as well as Central and Eastern Europe and also in Asia and now in Latin America.

While competition for technology talent is very strong globally and represents a significant challenge to all players our ability to identify and track qualitative as well as quantitative metrics through sophisticated internal platforms give us an advantage in being able to hire, train and retain the best talent in our key global locations. Therefore with all those efforts we continue to build on our reputation as a leader in product and platform development services.

With that I will turn to Anthony to share more details on our performance and guidance.

Thank you Ark and good morning everyone. I will spend a few minutes taking you through the third-quarter results then I will talk more about our outlook for the full year. As usual you can find the full DS of our results in our press release and on the quarterly fact sheet located in the investors section of our website.

Q3 was another solid quarter of revenue closing at $236 million, 22.5% over last year and 8.4% over prior quarter. As Ark mentioned currency remains a big piece of our story as headwinds have continued, compressing our Q3 revenue by about 8% meaning in constant currency terms we would have grown 30.8% over Q3 2014 and 10.8% sequentially.

North America remains our largest geography representing 52.9% of our Q3 revenues, up 27.7% year over year and 31.3% in constant currency. The continued weakening of the Canadian dollar is the primary driver to the almost 4% currency headwind.

Europe was up 26.3% year over year, representing 38.7% of Q3 revenue. In constant currency terms EU would have been up 34.3% year over year, reflecting the impact of both the euro and sterling volatility over the past year.

For APAC this is the first full quarter of 2015 that is comparable to prior year given the Q2 2014 acquisition of Jointech. With that we saw 19.7% growth year over year and 23.1% constant currency. We continue to see acceptance of our APAC offering as more non-banking and financial services customers move into that region.

CIS continues to struggle and is down 27.7% year over year and down to only 4.6% of revenue in Q3. In constant currency terms the region would have seen 15.1% growth, clearly highlighting the dramatic drop in the ruble over the past year. Clearly even the 15% constant currency growth rate is well below our other regions, further reflecting the pressure on the business from the macroeconomic situation in CIS.

In terms of our industry verticals, growth in banking and financial services this quarter remained consistent with Q2 at 10.2% year-over-year growth and 4.6% sequentially. The significant slowdown in the Russian banking industry compounded by the drop in the ruble is still offsetting the healthy growth in key banking and financial services accounts and other regions. In constant currency banking and financial services grew 20% year over year and if you exclude CIS it would have grown 23%.

Travel and consumer turned in another strong quarter growing 36.9% year over year and 13.7% sequentially. In constant currency terms we saw 51.6% year over year with about 3% of this coming from Navigation Arts who brought some strong logos into this vertical when we acquired it.

Life sciences and healthcare grew 46.6% year over year with Q3 being the first fully comparable quarter since we acquired GGA in June 2014. Sequentially it grew 27.1% and now represents 8.4% of Q3 revenue. Currency had some minor impact here shifting the year-over-year growth rate to 49%.

Business information and media has a solid quarter with 34.2% year over year growth and 9.9% sequentially. Currency on this vertical is immaterial as most customers are US dollar denominated.

The ISV vertical saw a drop in year-over-year growth rate and in the quarter at 15.9% growth and about 3% sequentially. Currency headwinds would add about 4% year over year and a key factor impacting this vertical, however, is the work at TriZetto ended in Q2 of 2015 due to the acquisition by Cognizant. And excluding this account from all periods year-over-year growth for the balance of the vertical would have been 24.4%.

Our other vertical which is a collection of customers from various industries grew 4% year over year and is down 3% sequentially. In our customer concentration numbers we're seeing some positive trends of top 20 accounts which grew 19.2% year over year and 22.7% in constant currency now represents 53.9% of our Q3 revenue which is down about 2% from last quarter. All other clients outside of our top 20 grew 26.8% year over year and 40.3% in constant currency.

Turning to our expenses we completed the quarter with over 14,000 IT professionals, an increase of about 22% compared to Q3 of 2014, an 18% increase year-to-date. Currency generated some benefits to the cost of revenue in the quarter when compared to prior year. There is about 6% constant currency benefit versus Q3 2014 and the allocation of our currencies across our expense base remains fairly consistent.

Utilization for the quarter was at 75% slightly down from Q2 due to the heavy July and August vacation season. GAAP income from operations increased 27.2% year over year to represent 11.8% of revenue in the quarter. GAAP IFO includes stock-based compensation expense and certain acquisition-related costs that we exclude from our non-GAAP measures.

Stock-based compensation expense for the third-quarter increased 61% over prior year. This is mainly driven by the over 80% increase in our average closing stock price and additionally 38% of the total Q3 charge and 43% of the increase is related to acquisitions. Our non-GAAP income from operations for the quarter after all adjustments increased 30.5% over prior year to $41.5 million representing 17.6% of revenue.

Our effective tax rate in the quarter came in at 20.2%. And for the quarter we generated $0.70 of non-GAAP EPS, $0.02 above our top end of our guidance and $0.44 of GAAP EPS based on approximately 52 million shares diluted outstanding.

Our balance sheet remains strong. We finished the quarter with approximately $214 million of cash plus $30 million in time deposit accounts.

During the third quarter operating activities generated approximately $55.5 million of cash. Unbilled revenues were at $105 at September 30, accounts receivable where at $126 million and DSO ended the quarter at approximately 51 days.

With that I now turn to our guidance. Due to the strong volatility in the currency markets which we believe will continue into 2016 we're adjusting how we provide guidance.

So for the full year we expect to achieve revenue growth of at least 30% in constant currency and at least $900 million in GAAP reported revenue. Non-GAAP net income growth for 2015 is expected to be at least 25% year over year with an effective tax rate of approximately 20%.

Full-year non-GAAP diluted EPS is expected to be at least $2.65 per share based on the weighted average share count of approximately 52 million diluted shares outstanding. GAAP diluted EPS is expected to be at least $1.55 per share. In February we will provide you full-year guidance for 2016 and then provide updates quarterly.

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. So if I understand this correctly, I'm kind of laying out three factors here. One is currency in CIS Canada, the second is CIS revenue weakness which has been there for a while and the third is TriZetto moving out but that sort of stuff is kind of normal ebb and flow of contracts that can happen.

Is that the sum total of all the impact or am I missing something with regards to the miss? And I don't necessarily want to call it to guide down because the lower end of the update seemed to move up a little bit. Is that what the impacts are?

All of these factors clearly play a role but I don't think it's exactly right analysis. I think on FX definitely FX definitely plays a major role. As we mentioned it was $2.7 million impact and clearly specifically Canadian dollars were the most biggest surprise for us.

It's happened practically after our last announcement and we didn't expect at this level. So Canadian dollar show lower increase FX loss versus previous sequential quarter by 1.5 million.

So in general again $2.7 million came from FX. Another $1.3 million, $1.5 million against what we were expecting with our guidance came practically from reviewing and making some decisions about how to proceed with capabilities which we required during the several less quarters.

Because as we always were mentioning our acquisitions were mostly focusing on additional capabilities which would utilize across different EPAM units. And this quarter we had to make a couple of calls where we have to decide about advantages of longer-term perspective versus short-term revenue and how to utilize capabilities which we got for potentially bigger deals in the future versus small short-term billable positions. So that was actually another $1.3 million, $1.5 million.

TriZetto was expected, mostly expected, we thought maybe it would be a little bit longer but it was finished but we didn't count on this much. And as you mentioned CIS was more or less was what you understand how what's happening there. And if you take out for example $2.7 million then this is $1.3 million which is on short-term revenue which we decided to give up it's a half a percent of miss.

Right. Great. And that kind of gets us to where I think consensus was.

As you look at that process of culling contracts and making that long-term versus short-term decision is that process now behind us? I know that as you grow it can come up again but for now is it behind us and what is the forward-looking impact?

Yes, I understand. So I think it still could be partially through in Q4. But after this so we should start realizing the benefits of what we're doing and we'll see.

But that's built into our guidance.

That's right.

For Q4.

Great. And when you talk about the benefit, the forward benefit of walking away from shorter-term revenues, is that mainly a resourcing type issue where you move resources towards getting longer-term work?

Yes, that's exactly right. Yes this is like again we're not talking about yet resource constrain but we clearly we're optimizing the long-term opportunities with high-quality result capabilities otherwise would be short-term billable projects.

Okay. And my last question, does any of this change your forward view with regards to the nature of investments you're making as you go through that process and whether on an organic or inorganic bases either of those?

You mean longer-term projections?

Yes. Well not necessarily projections but more investments that you're making as you think through what -- you've gone through obviously a process here where you're looking at here is where I want to be focused, not in these other areas. Does that impact your investment process with regards to how you think of acquisitions, with regards to how you think of inorganic investments?

No. We don't think that it's impacting us so again we shared before our approach to M&A and we were talking about multiple purposes, multiple growth of this, including capabilities, specific expertise and probably some additional delivery locations but it's all still in place right now. So we're not changing this approach and I don't think we think that anything changed in the longer-term perspective as well.

Okay, great. Thank you. Think you both.

Jason Kupferberg, Jefferies.

Thanks guys, good morning. So if current spot rates hold through all of next year what would be the FX headwinds on the top line in 2016?

I'm sorry, headwinds on 2016?

If current spot rates stay in effect through all of next year what would be the FX headwind on revenue in 2016, yes.

Well we haven't really released our forecast for 2016. So I don't know that I could really compute for you what the headwinds would be.

We'll factor that into our guidance when we give it. You're saying as compared to this or I guess is what you're saying?

Yes, yes. Just year over year if we stay at these levels --

Honestly I haven't done that calculation to really determine that.

But I think maybe it would be helpful different, a little bit different answer I mean answer to a little bit different question. So for example if estimate how much revenue we will lose based on FX situation from the time when we gave guidance for the year then that this number would be $17 million right now.

Okay. That's helpful. That's helpful.

And another number which might help everybody as well if we compare the loss in FX versus last year then this number would be $51 million.

Okay. Understood. And so just shifting gears to the competitive environment, can you give us a sense these days of how often are you competing versus the multinationals, an Accenture or a CapGemini, etc., versus the big Indian players versus some of the other regional players in the CIS area? Has that mix changed at all?

This is already pretty diverse competitive landscape plus we've seen all of those companies. So we've seen all of those companies on our competition list. And maybe a little bit different between different verticals but it is pretty much everybody from you named.

Okay. Can you give us a sense today of how penetrated the Fortune 1000 is by EPAM? In other words what percentage of the Fortune 1000 roughly would you estimate are clients of EPAM today?

I don't have this on the top of my head. So probably we can give this answer to you separately.

Okay. Thank you guys.

Darrin Peller, Barclays.

Thanks guys. Look I just want to start off I know it's a little early but with regard to the outlook in terms of what you're seeing from your clients right now, any indication into 2016 in terms of trends and budgets and really how clients are feeling right now?

Maybe that would be helpful especially just given some of the sentiment we're seeing out of some of your areas in Russia and other areas around there. It would be helpful to get a better sense of how everyone else is feeling for now.

I probably can repeat repeating during the last quarters, quarter after quarter. So I think from our perspective, from our side we've seen pretty healthy demand in North America and Western Europe.

So clearly Russia or CIS is a different story. But from this perspective we've seen in the next year similar terms like previous year. So that's our long-term answer we're looking forward to grow at least 20%.

Okay. What about with some of your top clients?

I guess it's been a pretty big driver for you seeing specifically UBS carrying a fair amount of growth for you guys over the past year or two. I think it was about 22% or low 20%s this quarter is what we calculated.

A little bit of a deceleration although it's obviously off a very high growth rate before and maybe FX impacted that as well. So maybe just give us a little more color on the top few clients and we will leave it at that.

As far as UBS growth the one thing I do want to point out remember that we acquired Jointech in Q2 of last year. So that brought us a significant uptick in UBS revenues since they were primarily servicing only UBS.

So the growth rate in UBS has to be adjusted for the fact that this is the first fully comparable quarter for 2015. So it was a you're right it's about a 22%, 21% growth rate for UPS this quarter, constant currency would be about 25% for UBS.

I think the growth there remains solid and strong. The growth rate is obviously down from where it was in Q1, Q2 because of the Jointech acquisition. But it's growing pretty much in line with where we expect it to be and in line with the rest of the Company.

Okay. And maybe for the other top five guys that you can just comment on, any risk or opportunities we should be aware of given how you have some pretty large clients up there?

Let's see. Well UBS we spoke about --

You mean from the top 10 or 20 or --

Yes, if you can go as far as the top 10 perhaps. I was really thinking just given there's some concentration in the top five or so. But yes I mean top 10 is great.

So I can tell you that top five in general grew about 20%. And I think that's like top 10 growing 25%. So this is all in line with general growth we have.

And going through the list there is no specific big stories in any of them. The stories there are pretty consistent with what we've always talked about.

We just continue to gain traction and penetrate deeper into those clients. There is no special story.

I appreciate that, Anthony.

And just to also color like last year TriZetto was one of the top 10 clients for us.

All right. That's a fair point.

Just last question again on the margin side, again you've maintained margins in a certain band and you've done a pretty good job with that and reinvesting in the business. Just give us a little comfort level on the cushion you have to continue to reinvest in what's needed given just how competitive digital has become across your pretty much the top few names out there have really pulled ahead of the pack around digital and you guys up and probably a standout job given how high of a percentage your mix is digital.

But again it's always a challenge to know what to invest in and the margin is a story for you guys that you've been able to maintain. So is that are you still comfortable with that capability going forward whether it's the next quarter or even year given just how competitive digital is becoming?

Yes, we are comfortable and we clearly are planning to continue to compete in this space very seriously. And we do believe that we have very interesting distinguished against most of our players in the space because we really are trying to invest in integration between digital part of this and really strong engineering. And we do think that it's becoming pretty obvious competitive advantage for us and differentiator.

So from this point we are not trying to replicate some other companies which are going with kind of a rollup of digital agencies all around the globe. We're trying to bring this capability and actually really deeply integrate with our delivery skills.

Thanks guys. Good job.

Mayank Tandon, Needham and Company.

Hi, this is Elizabeth Chwalk for Mayank. Thank you for taking my questions. Have there been any changes in hiring or your hiring plans in your key delivery locations?

As I mentioned today we are hiring people across all locations. Also during the last 18 months we've expended in Central and Eastern Europe like we opened Bulgaria, we're growing in Poland, we opened a center in the Czech Republic.

So I mentioned that we're building operation in Mexico, Guadalajara and already brought there existing clients. So we're looking at this is very much kind of a global perspective how to serve clients from different locations and potentially 24/7.

Okay, thank you. And can you give us any color on how attrition is trending and how wage inflation or deflation what that looks like given the recent currency issues?

Attrition remains pretty low for us. For the quarter we saw about 8.2% of voluntary production attrition, so it's much lower than our historical average which is usually in the low teens. Again as we talked about in past quarters it's kind of driven by the situation in the CIS region allowing us to keep attrition down, so we don't know if that's going to be a long-term permanent effect or not at this stage but we're taking it for this year.

As far as wage inflation goes we do a small midyear promotion cycle, so we saw about 2.5%, 2.6% of wage inflation coming from that midyear cycle. Otherwise for the year it remains very low, close to zero because of the benefits of FX.

Okay, thank you.

Peter Christiansen, UBS.

Good morning, thanks for taking my question. Ark, I look back I think about like two years ago you had Thomson Reuters rolling off and at that time the Company was intentionally lowering utilization, investing in the pipeline of work that you saw coming in. Now today you have TriZetto rolling off, you talked about some new accounts coming into the pipeline with important key digital initiatives and utilizations now in the mid-70s.

Can we draw parallels between these two periods? Am I thinking about this correctly that you are saving your powder for longer-term potential here?

Thomson Reuters was the largest client versus TriZetto was one of the top 10. I don't see this is direct parallel here.

Also we're talking about TriZetto because it's a very public information when Cognizant acquired them. But during the history, during the last three years we have similar situation. Like we're saying because of acquisitions or because of some other different reasons one client from top 20 each year something happens, so I wouldn't put this strong parallel.

At the same time TriZetto was a big enough client and we clearly had opportunities to repurpose the talent in different directions. So no, I don't think it's direct parallels with us. By the way at the same time I would mention that from this three years ago Thomson Reuters now now becomes again top of our five clients I think.

Okay thank you.

(multiple speakers) three years ago.

Okay. And then I think we've heard a little bit during the quarter about potentially some areas that you're looking to in blockchain. Is this a key capability that you're looking to build upon and do you see this as a big opportunity for the Company?

I don't think we are talking about blockchain on our calls. But in general, yes, it could be an interesting opportunity and clearly we're looking at into this which is relatively early on but as we all know very hot in financial markets right now.

Great. And then Anthony, could you give us a breakdown of the difference between GAAP and non-GAAP for the full-year, I guess since you're giving now full-year?

Sure.

Or for the quarter, whatever is easier.

I can do either or both.

The quarter is great.

Stock comp is obviously the biggest component. For the quarter it was just under $12 million. For the full year it will be about $45 million.

M&A activity will be about $500,000 for the year. For the quarter it was about 427.

Amortization of purchased intangibles was $1.3 million for the quarter, it will be about $5 million for the year. And FX right now was about 150 negative for the quarter, it will be about $6 million positive for the year.

And I think that's it. That should get you everything.

Great. And then the stock-based comp that was tied to M&A, is that the size of that, is that recurring do you believe at that level or was that more one-time in nature?

No, it's not one time. It will continue through probably a little bit into next year about halfway as they start to fall off. So next year we'll start to see some fall off in the say 2012 acquisitions, some of the amortization and then it will fall off from there as acquisitions age.

Great. Thanks for taking my questions.

Arvind Ramnani, Gordon Haskett. Please go ahead.

I think it would be very helpful to talk about some of your large like $20 million accounts, clearly you're servicing more of these accounts but what are some of the inflection point that will help the account grow from like a $4 million or $5 million account to $20 million? And what are you doing from a process perspective to enable more of the accounts to get to this $20 million, plus mark?

Okay, we don't have hundreds of accounts at $20 million mark yet. I think it's still pretty individual approach. We have probably around six, seven accounts right now.

And I think that's what we exactly trying to do and this is what we were doing during this last three years, bringing this more strategic capabilities to the clients, being able to start more consultative engagements, people who can handle this type of conversations and advice. And we usually build in very strong reputation as a delivery partner after which clients coming to us and starting to -- were coming to us and started to ask about more strategic capabilities and advice and brainstorming together. And that's where we're really liking talent like three, four years ago.

And again that's what we were doing and that's what we are trying to do. I think increasing large clients is actually showing that it works and that's what we continue to do -- planning to continue doing.

Great. And just very quick on Russia, as expected that business continues to get smaller so what's the thinking toward keeping the Russia business ongoing?

Because at some point it's probably gets a little too expensive to maintain that business. Or is it the thinking of keeping the Russia business ongoing so that when the environment gets more conducive to growth you're they are to take advantage of the opportunity? I'm just trying to get a sense of your Russia strategy longer term.

Basically if I rephrase are you asking why we're still staying in the market and why we're not exiting the market completely?

Yes.

I think it would be for us a little bit premature to do something like this. Russia and former Soviet Union countries are a quarter of a billion population.

So we know it went down but there are still major business there, there is still going on international business which considering the region as a market and they need to be served there. For us is our roots will be a little bit silly probably exiting the market where we can comfortably operate and still going to operate because we have 2,000 delivery capacity in the market so we're going to stay there no matter what from delivery perspective.

So we just need to be more careful what we do and how we do it and what type of clients we serve. That's already happening during the last three years. Because even before the ruble crashed you probably saw the proportion of the CIS market was going down.

That's very helpful. Thank you very much and good luck for the rest of the year.

Thank you.

Alex Veytsman, Moness, Crespi, Hardt.

Yes, good morning guys. A quick question for you on North America.

It seems that sequentially revenue grew roughly $15 million which is arguably one of the largest deltas we've seen in that region over the last several quarters. Can you be more specific about what drove that in terms of accounts and also your verticals?

You said sequentially you saw it grow?

From Q2 to Q3. Right from Q2 to Q3.

Right. So it's up about in reported terms North America is up about $14 million from Q2. I mean I don't know that we can really address any specific accounts within that.

North America just continues to be a very strong, our strongest sector. Growth is coming really from across the spectrum of different verticals so they are all really growing. I don't know if there is any specific story different than what I kind of spoke to at the top level.

Obviously travel and consumer was very big for us this quarter globally. That's still also true within North America and we saw growth across many of our other verticals. So there is no specific story that I have that addresses that.

And as far as --

It's really across four vertical sectors.

And as far as going forward for the fourth quarter, should we expect the delta to be fairly similar or do you expect it to be more in line with Q3? Because it was --

Alex, it was actually a couple of fixed cost deliverables which we did in North America which probably was a little bit extra. So I think life science contributed well in the segment. So probably next quarter maybe not for North America as strong as this one but in general it's going to consistently grow like it did in the past.

Got it, that's helpful. Then for life sciences I mean like as you mentioned yes, it was quite a significant growth, obviously still kind of a relatively smaller segment so it grows fairly fast.

What your expectations for the next several quarters? Are you expecting it to hover around the same levels or do you expect to expand?

So probably in the future it would be getting more in line with average across the Company. So right now it's too early to say. So I think it still will be growing in Q4 pretty well and let's see.

Sounds good. Thank you.

Ashwin Shirvaikar, Citi.

Hi, I just wanted to follow back up on one question. You know when you moved to using at least, it's a good move for but there are clearly positive and negatives to providing only a lower bound instead of a range.

So I just want to understand for 4Q what your assumptions are with regards to budget flush, with regards to FX, demand trend, it seems like FX would stay consistent and the demand trend generally speaking is good except for the culling you mentioned. So that sort of leaves primarily the budget flush. What are your assumptions generally for 4Q?

I think everybody has too good memory because this spike in Q4 was happening like more like in 2013 I think. So it was smaller last year and we don't expect much risk.

So it probably would be kind of regular quarterly increase as anybody else. Because like in 2013 it was probably impacted by actually CIS market where it had more fixed cost deals closing in Q4. So last year it was already different and this year we don't expect it.

Okay.

And to answer your question on FX expectations, built into the forecast is really looking at some of the forward rates for the quarter and taking that approach for what we've built in from FX expectations. So it will be dependent upon how good the forward forecasts are.

Super. That's good to know. Thank you, guys.

Anil Doradla, William Blair.

Hi, this is Maggie Nolan in for Anil Doradla. I had a question on I know we spoke some about your top accounts but I'm wondering if the focus in the long term is going to be more on growing those existing top accounts and finding new opportunities within those accounts or if it you're looking more towards really growing the client base overall? I'm hoping you can share a little bit more color on that.

Yes, probably my answer would be very simple that we are trying to do both. But we have clearly and we do believe that we have a very strong opportunity in our existing base and we will be continue growing this and finding new lines of revenue there, especially taking into account that we're expanding our capabilities and can offer new things. So I think existing accounts is a big potential for us.

We have pretty large number of -- I don't know exactly what percent of Fortune 500 or 1000 but we have a significant number of large clients which could grow and double and triple with us. But we also are in very strong potential right now on the new orders.

Great, that helps thanks. Because we have heard some of your peers mention trying to zone in on some of those existing accounts a little bit more. So I'm wondering is there a cap for the number of new opportunities that you want to bring on or do you just intend to continue to grow headcount just for that growth?

Again both. We do believe that we need to have pretty diverse client base and not to have too concentrated. So I think what we have today with our potential growth of around 20%-plus we will try to maintain similar client concentration.

Okay great. Thanks for taking my question.

Thank you. At this time I would like to turn the conference back over to Mr. Dobkin for any closing comments.

Again thank you everyone to joining today. And I hope we address concerns which we understand were valid and I hope we hope to see you in three months again. Thank you.

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