Earnings Call: Q2 2021

Aug 5, 2021

Thank you, operator, and good morning, everyone. By now, you should have received your copy of the earnings release for the company's Q2 2021 results. If you have not, a copy is available on epam.com in the Investors section. With me today are Arkadiy Dobkin, CEO and President and Jason Peterson, Chief Financial Officer. I would like to remind those listening that some of the comments made on today's call may contain forward looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings. Additionally, All references to reported results that are non GAAP measures have been reconciled to the comparable GAAP measures and are available in our quarterly earnings materials located in the Investors section of our website. With that said, I'll now turn the call over to Ark. Thank you, David. Good morning, everyone, and thank you for joining us today. We delivered a strong set of results for the Q2 with revenues of $881,000,000 reflecting reported year over year growth rate of 39% and 36% in constant currency terms. Non GAAP earnings per share were $2.05 an increase of 40% over the same quarter in 2020. Growth was very much broad based. All our geographies and most of our industry verticals experienced strong demand, reflecting the robust market environment and pushing our growth rates to historic pay per levels. On a sequential basis, quarterly revenues exceeded our Q1 results by more than $100,000,000 and we finished another quarter with very strong sequential growth. The reason for such demand is pretty obvious. By now, we all know that application development in cloud and data migration and integration services are growing post pandemic very strongly and driving corporate budget forward. But in addition, it has becomes very visible that the current client's transformation efforts are continuous and multidimensional and carry the uncertainty of the unknown. And that is the reason why on top of application development and cloud migration at large, we are seeing very fast expanding demands for software enabled business scenarios coming our way too. Overall and across all our industry verticals and the portfolio of both new and current customers, We see progression into new and larger multiyear engagement as our customers look to be found to fulfill both engineering demand as well as demand for new collaboration models that bring a greater stake in product design and product management. In short, clients really need simultaneous help with both strategy and implementations today. That means that we will have to smartly blend not only industry and function consulting expertise, but a good portion of management consulting capabilities together with very scalable and top nothings we need in technology delivery services, which we have been maturing over the years. All that requires us to experiment with new approaches to source different type of talent, manage numerous risks and find very new ways of work in general. And we are doing all of that. First, certain operation practices introduced in response to COVID have made us nimble in responding to new customer demands, and we have created an even more adaptable internal digital platforms to manage our increasingly global business operation. Additionally, throughout 2021, we have focused on establishing repeatable approaches to drive growth across a more globally diversified delivery base, while also expanding our domain capability and geographical footprint, both organically and through acquisitions. Finally, we are constantly enhancing our partner ecosystem, with closer and more drastically aligned offering that position EPAM as a partner of choice for our cloud, digital and industry solution relations. That includes, for example, EPAM active participation with the Match Alliance and continuous contribution of over 4,500 EPAMers to open source projects, which makes EPAM the number one services company now in the open source community and among top 20 global contributors overall. Let's bring now some highlights and expanding our EPAM Continuum market, which remains one of our core priorities, including the addition of strategy advisory services on top of already established industry and functional consulting capabilities. It's becoming important exactly because of growing client demand for software enabled business scenarios. And we seek now to help clients across a number of areas in their fast changing businesses with both strategy and implementations simultaneously. During the last several calls, We are sharing specific client stories to illustrate our progress in that end to end solution and increasing impact of our consulting footprint to our overall engagement. We've got examples from the gaming industry, which was one of the few that performed well even at the beginning of pandemic uncertainty and the healthcare industry, where we are helping with large scale technology platform transformation effort and data and analytics segment where we are assisted to one of the most sophisticated global information providers with their massive cloud modernization study. Today, we would like to highlight a client from the retail industry where we have delivered across a range of end to end programs. This American multinational manufacturer and market of prestige skincare, makeup, fragrance and hair care products is undergoing their own transformation to drive a deeper connection to their customers, optimize operations and shorten the supply chain. He is in part responding to consumer changes because of the global pandemic with the wider shift in the luxury and beauty retail business model. We are working with the company to develop a control tower equivalent of their supply chain, connecting several internal and external data points, including product performance across geographic regions, competitor analysis, consumer engagement index, social media and even weather events to create a predictive view informing real time production in placement of their products in consumer markets. This supply chain optimization project leveraging our business consulting data analytics and engineering capabilities. With the blending of physical and digital consumer buying behaviors, we developed a virtual try on platform, allowing the consumer to apply cosmetic using ARVR technology. In addition to creating a virtual consultation and the ability to engage with the consumer in new ways, The platform can be repurposed because there are multiple cosmetic brands. The digital engagement platform strengthened the user journey during the pandemic months when stores were closed across the world and has driven better conversion rates and sold for consumer acquisitions online. It's already where the major consumer behavior should happen And I'm here to stay, so the company and Yifan believe that the future sales will be largely driven by digital platforms and the increased functionality based on the latest technology trends. Let's move now to the topic of Tynisk. While the supply of Tynisk continues to be the major challenge that replaced by all of the players in our sector. EPAM continues to grow rapidly in Central and Eastern Europe and in India. Additionally, we opened a new delivery location in Ontario, Canada and are also expanding our operations in Latin America with acquisition of Columbia based Digital Engineering Company, which we have just closed a couple of days ago. We will share more details just in couple of minutes. In total, in Q2, we welcome more than 3,800 net hires organically to EPAM. We started joining the company from our university programs, lateral hires in our delivery locations and increasingly senior level hires in market geographies with extensive industry and tech experience. The last one allows us to expand our EPAM continuing penetration of North American market with the addition of business experience in technology consulting teams in a half dozen new locations. While in Europe, we also brought new consulting capability while increasing. In total, in the first half of twenty twenty one, approximately 6,700 net additions have joined the pump, a number greater than what we historically ever had added on a full year basis. As in the past, to maintain hiring and accelerated trade, we continue to make significant investment in our global talent development, upskilling and educational programs. We believe that in addition to these investments, our internal platform progression in talent, analytics and AI will continue to bring us a new level of engagement and capability to deploy increasingly higher value services to our global enterprise customers. We also believe that while all this should allow us to continuously scale, it will also ensure the quality standards of our delivery services without Last time, we heard news about 3 companies being added to EPAM via our M and A efforts. Recently, we made 2 more acquisitions to extend our consulting consulting capabilities, while also expanding our presence in several of us key geographies. Last week, we announced our acquisition of Core as The consulting team stands specialized in IT Strategy and Technology Driven Transformations, with presence in Berlin, Dubai, London and Zui. Zui will strengthen EPAM's strategic consulting footprint and extend our talent footprint in the Dutch region. Earlier this week, we also closed the acquisition of SVN, a digital software engineering company. In addition to their primary complex Application platform development expertise, the company is specialized in machine learning, data architecture and cloud apps. Located in Bogota, Colombia and is present in Seattle, Washington, the acquisition of Espoo and Expensive Geographic trends in Latin America informs the 2nd for us half in the region. We are extremely pleased to extend the pump team with the new talent and capabilities offered by those 2 firms. Regarding acquisitions, I would like to close with some additional comments related to our recent efforts in the area. We already see visible contribution from our recent many activities in such areas in cyber and advanced analytics, specifically on Pulseource, which is one of the largest deals to date. We should say that we are rapidly shaping new EPAM offering and accelerating our go to market activities with the fast growing sales force ecosystem. With that, let me hand the call over to Jason, who will provide more specifics on our future results and update our 2021 business outlook. Thank you, Art, and good morning, everyone. We are very pleased with our Q2 results, which reflects strong growth across a broad range of industry verticals and geographies. In the 2nd quarter, EPAM delivered revenues of $891,400,000 a year over year increase of 39.4 percent on a reported basis and 35.9% in constant currency terms, reflecting a positive foreign exchange impact of 3.50 basis points. This quarter's revenue growth was substantially Continued improvement in the company's ability to expand delivery capacity in response to the extremely strong demand for EPAM services. Moving on to industry vertical performance, we delivered very strong sequential and year over year growth across the travel and consumer, Financial Services, Telecommunications, Energy and Manufacturing and Automotive Industries. Looking at the year over year performance across each of our industry verticals, travel and consumer grew 59.9%, driven by very strong growth from both our consumer and retail clients who are initiating and expanding large scale transformation programs as they look for different ways to connect to their customers. Financial services grew 51.5% with very strong broad based growth coming from banking, Insurance, wealth management and payment platform providers. Like last quarter, growth was driven by modernization and transformation of core applications In addition to new payment platforms associated with real time payments, software and high-tech grew 33.2% in the quarter. Life Sciences and Healthcare grew 33.1%. Business Information and Media delivered 12.5% growth in the quarter. Growth in the quarter reflected a tougher comparison with the same quarter last year with several clients having experienced substantial growth in the first half of twenty twenty with revenues from this program is generally plateauing late in 2020. And finally, our emerging verticals delivered 56.4% growth driven by clients in telecommunications, energy, manufacturing and automotive. From a geographic perspective, North America, Our largest region representing 59.8 percent of our Q2 revenues grew 38.1% year over year were 36.9% in constant currency. Europe, representing 33% of our Q2 revenues, grew 38% year over year or 29.9% in constant currency. CIS representing 4.4% of our Q2 revenues grew 70.8% year over year and 74.6% in constant currency. Strong performance in both financial services and materials in addition to travel and consumer contributed to growth in Q2. And finally, APAC grew 44.4% year over year or 38.9% in constant currency terms and now represents 2.8 percent of our revenues. In Q2, revenue growth across the portfolio resulted in increased customer diversification with our top 20 clients growing 19%, while our clients outside our top 20 grew 55%. And moving down the income statement, our GAAP gross margin for the quarter was 33.8% compared to 33.7% in Q2 of last year. Non GAAP gross margin for the quarter was 35% compared to 35.1% for the same quarter last year. Gross margin for the first half of twenty twenty one reflects some degree of elevated labor costs in certain locations, which we expect to manage with rate increases and staffing rotations. GAAP SG and A was 17.2 percent of revenue compared to 18.1% in Q2 of last year and non GAAP SG and A came in at 15.6 percent of revenue compared to 16% in the same period last year. While the absolute dollar spend of our SG and A has increased, the relative percentage of revenue remains lower than historical averages. GAAP income from operations was $125,300,000 or 14.2 percent of revenue in the quarter compared to 83,400,000 or 13.2 percent of revenue in Q2 of last year. Non GAAP income from operations was $155,200,000 were 17.6 percent of revenues in the quarter compared to $108,200,000 or 17.1 percent of revenue in Q2 of last year. Our GAAP effective tax rate for the quarter came in at 6.9%, which includes a higher than expected level of excess tax benefits related to stock based compensation. Our non GAAP effective tax rate, which excludes excess tax benefits, was 22.9%. Diluted earnings per share on a GAAP basis was $1.94 Non GAAP diluted EPS was $2.05 reflecting a 40.4% increase over the same quarter in 2020. In Q2, there were approximately 59,000,000 diluted shares outstanding. Turning to our cash flow and balance sheet. Cash flow from operations for Q2 was $68,800,000 compared to $146,200,000 in the same quarter of 2020. Free cash flow was $46,200,000 compared to $134,700,000 in the same quarter last year. The lower level of free cash flow in Q2 2021 relative to Q2 2020 was the result of changes in DSO in each quarter, higher levels of cash payments made in Q2 associated with corporate income tax and the absence of tax payment deferral programs made available in Q2 2020 as part of government COVID relief programs. We ended the quarter with approximately $1,300,000,000 in cash and cash equivalents. At the end of Q2, DSO was 70 days and compares to 67 days in Q1 2021 and 73 days in the same quarter last year. We expect to maintain DSO around the same level for the remainder of Moving on to a few operational metrics. We ended the quarter with more than 42,800 consultants, designers and engineers, a year over year increase of 32.6 percent. Our total headcount for Q2 was more than 47,850 employees. All groups of employees grew just over 10% sequentially. Utilization was 80.2% compared to 83.9% in Q2 of last year and 81.4% in Q1 2021. Now let's turn to guidance. With a strong first half behind us, a robust demand environment and increased confidence in our ability to scale production headcount in order to meet this demand, we are raising our business outlook for 2021. Turning with our full year outlook, revenue growth will now be at least 37% on a reported basis and in constant currency terms will now be at least 35% after factoring in approximate 2% favorable foreign exchange impact. We now expect approximately 300 basis points of revenue contribution to come from acquisitions we closed in the last 12 months, including Corus C and S4N. We expect GAAP income from operations will now be in the range of 13.5% to 14.5%. And non GAAP income from operations will now be in the range of 17% to 18%. Based on the strength of our first half anticipated ongoing efficiencies in SG and A spending as a percentage of revenue. We expect our GAAP effective tax rate will now were 11% and our non GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation to continue to be approximately 23%. Earnings per share, we expect the GAAP diluted EPS will now be in the range of $7.70 to $7.89 for the full year and non GAAP diluted EPS will now be in the range of $8.25 to $8.44 for the full year. We expect weighted average share count of 59,000,000 fully diluted shares outstanding. For Q3 of 2021, we expect revenues to be in the range of $957,000,000 to $965,000,000 producing a year over year growth rate of approximately 47 at the midpoint of the range. We expect the favorable impact of FX on revenue growth to be approximately 1%. Lastly, we now expect approximately 4.50 basis points of revenue contribution to come from acquisitions we closed in the last 12 months. For the Q3, we expect GAAP income from operations to be in the range of 13.5% to 14.5% and non GAAP income from operations to be in the range of 17% to 18%. We expect our GAAP effective tax rate to be approximately 13% and our non GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation to be approximately 23%. For earnings per share, we expect GAAP diluted EPS to be in the range of $1.89 to $1.96 for the quarter and non GAAP diluted EPS to be in the range of $2.15 to $2.22 for the quarter. We expect a weighted average share count of 59,200,000 diluted shares outstanding. Finally, a few key assumptions that support our GAAP to non GAAP measurements. Stock based compensation expense is expected to be approximately $27,600,000 in Q3 $25,700,000 in Q4. Amortization of intangibles is expected to be approximately $5,600,000 for each of the remaining quarters. The impact of foreign exchange is expected to be approximately a $1,500,000 loss for each of the remaining quarters. Tax effect of non GAAP adjustments is expected to be around 7 point $6,000,000 in Q3 and approximately $7,100,000 in Q4. And finally, we expect excess tax benefits to be around $13,700,000 in Q3 and $12,800,000 in Q4. In summary, we are pleased with our Q2 and first half twenty twenty one results, which combined with the broad based strength we see across the business, provide support for what we believe will be a very strong 2021 performance. Operator, let's open the call up for questions. Thank Our first question comes from David Grossman with Stifel. Your line is open. Good morning. Thank you very much. It's obviously a very strong quarter and a very strong outlook. And it sounds like to some extent it was Volume driven and your ability to access labor pools that you, I guess, Earlier in the year, Envision being more difficult. So maybe you could help us better understand what changed over the course of the last 3 months that Enabled you to access that labor? Were you doing something different? Did something break in the market? Maybe just some more insight into kind of what evolved over the last 3 to 4 months? I think it was happening across multiple efforts, which we started, not necessarily even 3 months ago, but even before COVID, how we were looking at our delivery ecosystem. And we were talking about diversification going to Markets and growing in existing education. And I think we were not sure what exactly results it would bring. But last couple of quarters confirmed that most of the efforts were fruitful, and we're growing like We grew pretty well, not only in Eastern Europe anymore, but also across India, and we started to much more aggressively work in Latin America as well. But even in some markets as well, in Europe, in Western Europe and in U. S, we were hiring more people than we we're anticipating before. So I think it's across multiple components of this. So was there anything specific, Ark, that you thought among those initiatives that was particularly effective in driving your ability to kind of recruit? Again, I don't think it is a one magic kind of storage What's happening? It's exactly broad based, again, with India becoming another point of growth for us in addition to Eastern Europe before. So David, probably a broader range of geographies from which we're recruiting additionally, Probably the ability to sort of bring in staff that are in a more distributed mode gives us access to staff and Resources in different geographies even within the countries that we've traditionally recruited. So, I think it's both that and then just obviously we're working hard to meet demand. Right. And I think you mentioned in your prepared remarks about the ability to offset Some of the gross margin pressure from higher labor costs with pricing. So I think that last year was this unusual year where you had pricing going up in the labor markets with at the same time trying to keep pricing down for your clients who are under duress. So did that start to change in the first half of the year or is that Something that's more of a prospective thing that's going to going back to a more normalized pricing environment. Yes. So I think one of the things that we're beginning to see even in the middle of this year, which I think is different than certainly last year And probably different even than prior years 2019 2018 is we are getting mid year rate increases. So we are working with clients to begin to take up rates even here and as we enter Q3. And then clearly, as I discussed in the last call, is that we're expecting See greater than usual rate increases in 2022. So there's a real focus on account margin. There's even some prioritization of staffing related to both profitability and obviously the strategic nature of the client. And so, I think that the dynamics on the pricing side are certainly improving and at the same time we still have to manage in an elevated wage inflation Right. And just one last question. I think you mentioned the acquisition contribution for the Q3 in the year. I just want to make sure I got that right. Was it 450 bps for the year, 450 bps Yes. So it's 4.50 bps for Q3 and it's 300 bps for 2021. Got it. All right, great. Thanks very much. Thank you. Our next question comes from Ramsey El Assal with Barclays, your line is open. Hi, thanks for taking my question this morning. I wanted to ask you about you'd mentioned that COVID I kind of inspired you guys to create more digital platforms, explore more repeatable approaches to delivery. Is this one of the drivers of margin expansion in the business? Is that an overstatement? Or is that part of what's giving you confidence to raise the full year margin guidance a little bit? I don't we don't believe that it's actually margin related And the benefit is mostly how to manage and how to deliver and how to bring the talent in the company and be able to Accurate more adaptively. So quality of our delivery while we're growing as we're growing right now. Fair enough. Okay. And then Could you give us an update on your consulting strategy in terms of I don't know what you can share there terms of cross sell, or and also just comment on the driver of your Kind of bullish guidance, to what degree has consulting played a part in accelerating your broader growth in terms of engaging with clients or getting More work on the table. If you could comment on that, that would be great. I think at large, there is no much change from our previous We're not trying to build like separate completely separate line of business and consultancy, but we're trying to deliver more end to end solutions and be able to advise clients earlier in this end to end story. And We're seeing the progress like we definitely was good we're accumulating more experience and understanding how to bring this multifunctional Teams, including consultants and designers and engineers for more complex opportunities. So and I think it's starting to Pay some dividends. And what we also saw that we probably need to go even higher in the value chain and bring some strategic advisory services as well. And we were experimenting during the last 12 months with this type Engagement which were single engagement for us when we were going to this level and now decided to strategically invest in this area too. And one of the acquisitions in Europe exactly in this segment. So I think in short, we hope that we would be able to make more impact and potentially maybe benefit even in the margin situation, but we still have to prove that it's going to work this way. Got it. All right. Thanks so much. Appreciate it. Thank you. Thank you. Our next question comes from Ashwin Shirvaikar with Citi. Your line is open. Thank you. Hi, Jason. Good morning and outstanding quarter here. Congratulations. Thank you. I wanted to ask about ArcFirst. In your prepared remarks, you alluded to clients coming to you for software enabled business scenarios. Does that change your long held view that you said many times that you're a services company, you don't want to Go towards becoming more of a software company, channel conflict, all those things. But I do see that the implied revenue per employee in acquisitions like Call is much higher. Are you perhaps tweaking around the edges, The viewpoint around software in any way? I think when we're talking about software enabling, it's more related to the previous question about how much consulting and how much Actually, new business models could drive the opportunity for us to build solutions. This is still significant portion of custom development because Most of the solutions require like almost in real time understanding what's happening and not necessarily relying on the various standard portion of enterprise packages. So our typical implementations or Solutions even today would include like 70%, 80% of custom code on top of the substandard component. But combination of this exactly should enable new business models. And that's what we mostly mean. But if we have the right level of consultancies, then we can advise what this Final solution could look like and then help to build it and implement. At the same time, there is increasing portion of some accelerators and parts of software which we're developing over the years. And it's helping us actually to build a solution sometimes not only with 3rd party components, but with our own components. But again, it's not much changing from our more traditional business model with exception that we would like to start earlier in the value chain, including some, strategic adviser. Understood. That's very helpful. And this might seem like a hard question given how much outlook is being raised in results. But Last year, obviously, you had certain parts of the business, certain verticals that were quite seriously impacted. Does the current outlook reflect that all of those have reasonably fully recovered? Or is there Still some recovery to come from what would kind of impaired or very hurt verticals from last year? I would say our results still reflect the fact that there's still some impairment in some of the verticals, But our outlook would include expectations for some improvement, particularly possibly in travel and hospitality. We were beginning to see sequential growth, but not necessarily annual growth. We do think that Business Information and Media We'll probably continue to deliver revenue growth below our average revenue growth for the remainder of the year. And although we feel that life sciences and healthcare is Going to produce sort of a strong market opportunity for the company longer term. We've got a few customer programs that are coming to an end in Q3. And so you might see that we'll have life sciences and healthcare run at a somewhat lower than company Growth rate. And of course, the company growth rate is quite high. So that doesn't mean that it'll be single digits or something. It just means that it'll be lower than the average. So I don't know, I said a lot there. Does that answer your question, Najmin? Yes, it does. Yes, that's helpful. Thank you. Okay. Our next question comes from James Faucette with Morgan Stanley. Your line is open. Thank you very much. I wanted to ask, I was struck a little bit by utilization kind of being down around 80%, which Sounds like there's still a bit more capacity for you. How are you thinking about, how long you can kind of stay ahead of the curve From that perspective and how should we think about utilization evolution over the coming quarters? Yes. I mean utilization traditionally for us ran below 80% and then we had this very, very high utilization due to sort of unique circumstances in Q2 Due to 2020 that was almost 84%, but that was really kind of unparalleled utilization for us. We do think that once you get to 80, it does clearly it limits your ability to grow when you've got new accounts or when you've got accounts that you didn't expect it, we're looking for new resources. You don't have as much availability on your bench. And so I think we probably believe that running maybe In the high, high, high 70s, somewhat below 80 is probably a better place for us to be. We also think that we're going to see somewhat elevated levels of In the second half of twenty twenty one. So right now, what we would model is utilization below 80% in the second half of twenty twenty one. Okay. That's good to hear. And then as far as Art made comments around Setting up new delivery centers and hiring in those regions. I'm just wondering, how the EPAM brand itself is That's been an important hiring tool for you in the past and how it's resonating in these new areas locally and Are you being able to adapt and adjust it as needed based on what you're seeing in hiring trends and retention trends? Thanks a lot. I think Recognition of how different we are in the markets created like additional level of curiosity for later retired, and They're definitely trying to understand if they would be if they would have good opportunity to grow inside of the pump. We definitely have very different Interest from this more experienced portion of the talent pool globally than we had a couple of years ago. It's very, very visible. At the same time, also our brand recognition in the markets where we operate for some time or new markets which We enter in both in Eastern Europe because we do this high level of distribution across this more traditional for us region, But also in India and Latin America, visibly illustrated there is very different recognition and hope for opportunity inside of in many months different type of services company with a very strong engineering heritage, which making some additional attractiveness for the talent. Good to hear. Thank you very much. Thank you. Our next question comes from Bryan Bergin with Cowen. Your line is open. Hi, good morning guys. Thank you. I'm curious if you can comment on the pace at which you're able to add new resources To your engagements after they're hired. So the time to ramp new hires and laterals, has that been accelerated versus the historical pace given just This level of demand, how are you thinking about that? And what kind of levers could you use to drive that better productivity and hiring pace? So it's in general, we all understand, and it's not only related to epound. There is Very different demand trends than we were experiencing not just 12 months ago, because 12 months ago, it Definitely, it was a very different story and very different outlook, but let's say, 24 months ago. So everybody knows that, again, pandemic changed the whole direction. In this case, clients And many of them working in different kind of agility pressure and ready to work and speed up the whole process. But it's also a very big effort and kind of harmonization effort for the whole supply chain when you're Growing like we're growing today. And that's why exactly we said we invest in more in digital ecosystem. And I think we're having At least we hope we're having some advantages of doing this investment kind of very purposely during the last decade. So it's not just even like last year or previous year. So and we're benefiting on putting on top of our previous investment. And the whole timing from Opening opportunity to staff to actually going through staffing process definitely is much more optimal today than it was even a couple of years ago plus. Okay. And then you talked about a progression into new and larger multiyear engagements. Can you put any numbers around that as far as giving us a sense on how much larger or longer you're seeing in deals relative to 1 or 2 years ago? So I think it's, in general, difficult to quantify. But like With our growth right now and if you look at the number of clients, it's 100 mil and 50 mil and 20 mil, that's number of like very, very obviously increasing very fast right now. So but I don't think I can give we can give at this point like very special quantified kind of points. Okay, understood. The only things I would add that we have now clients which are growing from start to 20, 30, 50 mil. As a whole, this acceleration also very, very visible. Thank you. Our next question comes from Den Kupferberg with Bank of America. Your line is open. Yes. Thanks, guys. Congrats. Great numbers. I wanted to start with a follow-up on Brian's question, just these larger multiyear engagements. Is it both The MSAs and the individual SOWs that are getting bigger and longer, and I'm just wondering if that's having any effect on your Sales approach and strategy as you pursue larger engagements? I don't think it's related to It's CIFIC, I must say, sizes because from this point of view, We're probably in the same situation like before. Nobody promising like huge, huge deals like contractually and upfront. But the reality of the deals is pretty different. And again, in services business, most of the clients still maintain the flexibility to stop doing things legally, contractually, while in practicality, this engagement is very different right now. Okay. So given how much your growth is accelerating, have you seen any change in the composition of your top 5, top 10, top 20 clients? So probably not a lot of change with the top 5, but You certainly would have seen rotation, probably in that what I call the 11 through 20 cohort. And as Art was Indicating when he answered the earlier question is we have several maybe more than several customers that have gone from from 0 to our top 20 in a year or less. And so we are seeing some programs where there's a real strategic imperative where The growth accelerates very rapidly and they're already running in our top 20. Okay. Just last one real quick. Are you seeing any return In person selling or in person project delivery? So that means in person you've been on-site or Yes. If you're asking if clients asking us to bring people on-site or in the office, then probably not. I think situation in general is still very unstable. And even if there are some movement in this site, like 2 weeks Later, it could be canceled. And right now, probably everybody kind of been waiting, see what in regard into on-site working. Makes sense. Thanks for all the color guys. Appreciate it. Sure. Thank you. Our next question comes from Maggie Nolan with William Blair. Your line is open. Hi, thank you. In a strong demand environment like this, is there an opportunity to evaluate your client portfolio or Become more selective over which clients you'd like to work with? And what are your latest thoughts on what an ideal or target client portfolio looks like or profile looks like? Thank you. Yes, you're absolutely right. In this situation, there are opportunities to do And we're definitely carefully reviewing the situation and sometimes changing priorities from our standpoint. And yes, we're looking for ideal clients clearly all the time and probably finding some, but Definitely an opportunity, but again, we're evaluating this carefully and constantly In the past before, right? Now more things to do it. So there is choices right now which we're making where to invest and again, I don't know how else to answer your question about that. But say yes, we do this. Maggie, some of the growth in the Outside of our top 20 is probably coming from exactly the type of decisions that Ark was referring to where we are looking at clients where we think that there's significant growth potential, Where we also think that profitability will be sort of attractive and then we are choosing to sort of staff and grow with those customers. And so I think part of the reason why you're seeing Good growth is not only our ability to bring more resources into the company, but also some of the decisions we're making around Somewhat smaller and newer customers that we think have got significant growth potential both in the second half and into 2020. Okay. And then as you think about the core acquisition and maybe future acquisitions that you might do, what is the time line for integration into the business? And do you intend to or is it important to let some of these consultancies operate somewhat separately for a period of time? Any acquisitions which we're doing for some time, We are trying to understand more details and kind of getting more insight because it's never possible to have a full picture before closing the deal. So the same happening right now. And specifically, in consultancy, Definitely, we will be like looking to what's happening and what's the best ways for us to work together. So for some time, it would be operating This definitely high level of independence, but again, integration points and mutual opportunities considered practically in real time. Thank you. Our next question comes from Vladimir Besselyov with VTB Capital. Your line is open. Hello. Thank you for taking my questions. First, could you update a little bit about your M and A Pipeline, these are getting increasingly important in your growth story. Do you expect more deals to come in the coming couple of quarters maybe? And what expertise and capabilities do you want to develop further with this M and A? And the second question is like on the growth outlook. If we take the 2 year stack, the growth rates that we are seeing are more or less close to your historical level something in the mid-20s. But this the last couple of years, I would say, were like Quite bumpy. And maybe you could comment with your visibility, let's say, 1 year ahead. And do we really see some kind of acceleration from the historical levels of growth, organic growth that we have seen so far? Thank you. I think let's start from the second question. And I think I agree with you For the last couple of years, results are bumpy, but I think the environment around us was very bumpy as well, and I think that's a reflection of this. If we take this out, then our long term kind of promise to grow in Above 20% growth, that's exactly what we're targeting, and we're on the same journey right now. We're definitely under this pressure of unknown which is around us, putting some extra efforts and maybe we will find some opportunities to improve what we were thinking about it. But again, long term for us, how to Grow profitably with 20% organic year over year growth and how to maintain the periods of delivery at the same time. I think that's good enough challenge and that's the target. The rest of this, again, impacted by a lot of changes around us. And the first question was about M and A. M and A. And I think here there is not much changes. We were mentioning before that we're Evaluating the pipeline all the time that we are looking for new capabilities in market expertise, consulting component And thinking what would be the best for us Kind of the structure of our delivery. So it's all applicable today. That's we're closing like 5 deals This year, it's just reflection that we found better companies willing to join us. Yes. So from pipeline point of view, it was pretty well developed pipeline in the past. We have pretty well developed pipeline right now. How many other transaction will be closing within the next 6 to 12 months. So we need like to wait and see. Okay. Thank you very much. In general, I would like to say like we don't have a strategy of kind of Rolling up acquisitions, we specifically looking for some which would add capabilities and fill the gaps which we need to fill. So and even right now, most of these transactions, it's pretty small. Thank you. Our next question comes from Surinder Thun with Jefferies. Your line is open. Thank you. I'd like to start with a big picture question here. Any color you can provide on perhaps how compressed The timelines are for clients in terms of trying to get jobs, the projects done, meaning pre COVID, what a roadmap might have looked like and what it looks like nowadays. Again, I don't think We're going to share anything new or what you don't know. It's definitely the pressure to perform and to deliver is much Yes. Now in I was trying to say post COVID and we don't know if it's post COVID or still continuous COVID time versus pre COVID time. That's definitely changed because everybody understands there is only so much time to adjust business models and build solutions to be able to continuously compete in this continuous COVID time. And it is very visible across all markets right now. And I think create pressure on clients and on us as well. Fair enough. I guess what I'm trying to understand here is the client's appetite. Obviously, everybody wants to get something done today. And so how much work are you perhaps leaving on the table? And then maybe in terms of the ability or On earlier questions about you're now able to do rate increases at mid year, you may be able to push rates at this point. Can you talk a little bit about that dynamic? Because it just seems like you talked about having bigger projects, longer projects. There's this dynamic of the rate increases. And then how should we think about how that fits into your strategy of adding headcount at this point? I mean, What kind of headcount additions should we think about? So I think It's kind of a good question. At the same time, we Getting our understanding as we speak as well because like if 9 months ago somebody will tell us that we will be growing Talent Pool, as we're growing today, we would be very cautious to confirm that it would be possible. At the same time, as we mentioned before, with orchestrating multiple efforts, we see that we can do better than we were thinking In the past, right now, you're thinking that probably around 3,000 addition per quarter would be Something for us to achieve without Much quality risks, maybe more, but That's how we're looking at this. What would be happening in reality, we will see like in couple of quarters. Yes. And the rate increase question is about what can happen in terms of revenue growth. Certainly, that's helpful. I mean, you are seeing an expansion of revenue per head. But at the same time, a lot of the conversations that we're having with clients are informed by the wage inflation we're seeing. And so clearly they're difficult conversations with clients. We're helping them understand obviously what conditions we're facing with somewhat elevated levels of wage inflation, which is in part then driving the conversation around meeting the higher rates. So I do want us to leave with the idea that we feel good about the demand environment. The demand environment helps us When it comes to rate increases, but at the same time, the 17% to 18% guide that we have for the full year is informed in part by the lower SG and A in 2021. And you're likely to see somewhat higher G and A, in 2022 and at the same time we're going to work hard to sort of maintain and improve gross margins over time. Got it. And so just to clarify the last part, is the idea that when you think about 2022 Relative margin stability versus this year? Or are you looking to maybe invest more? Or are we I'm just trying to understand how that dynamic is working out because Seems that there's a really big opportunity here to continue to build out globally and do a lot of things, but at the same time there's just Structural limitations and those kinds of things as well. Yes. So we back up historically. So you'll remember that we generally have talked about 16% to 17% as a targeted adjusted EIFO range. And then we've run-in the last couple of years Closer to the top end of that range or somewhat above. And so we guided this year to the 16.5% to 17.5% in part because what we were And also because we had lower than typical SG and A as a percentage of revenue. Right now with obviously the strength in revenue And ongoing savings in SG and A, we've guided to 17% to 18%. But I think as you look forward, I wouldn't I certainly wouldn't commit to 17% to 18% as a targeted profitability range in future years. So you might think about us coming back to some earlier level, In part because what we'll do is we'll continue to make investments in delivery centers and in other capabilities so we can continue to grow the business at a high rate. Thank you. Very helpful. Thank you. And I'm currently showing no further questions at this time. I would like Turn the call back over to Arkady Dobkin for closing remarks. Thank you. Thank you, everybody, for joining today. So as usual, if you have any questions, David is available to help. And Looking forward to talk to you in 3 months. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.