Earnings Call: Q4 2019

Jan 16, 2020

Greetings, and welcome to the EPAN Systems 4th Quarter 20 19 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Straube, Head of Investor Relations. Thank you, sir. You may begin. Thank you, operator, and good morning, everyone. By now, you should have received your copy of the earnings release for the company's Q4 2019 results. If you have not, a copy is available at epam.com in the Investors section. With me on today's call are Arkadiy Dobkin, CEO and President and Jason Peterson, Chief Financial Officer. Before we begin, I'd like to remind you 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 GAAP 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, Dave, and good morning, everyone. Thanks for joining us. At our recent Investor and Analyst Day in November 2019, we spent some time speaking about the challenges our customers face, from improving productivity to speeding up business results in increasingly competitive environment. We talked about the necessity for most of our customers to transform themselves into adaptive enterprises because the way we see it, adaptiveness is a key puzzle that must be solved in order to compete effectively. And in turn, to be the best partner to our clients and help them solve their challenges, we understand that EPAM needs to be a fast, global and highly adaptive organization itself. While obviously most of our competitors have also been talking about transforming into more modern players, we tried to explain back in November why this and keep on with our very early adoption of distributed agile delivery models and close collaborations via hybrid teams, product centric engineering practices is positioned better than most to be successful in solving the corresponding challenges. And that we are planning to do to make sure those goals are not just words, but a direction for an actionable effort and practical investments. Now 3 months later, we can share our full year financial results as well as revisit several points we talked with you about back in November. We finished 2018 in strong fiscal position across several dimensions in our business. Financially, we landed at 2.290 $1,000,000,000 in revenues, reflecting 25 percent year over year constant currency growth and non GAAP earnings per share of $5.42 a 23% increase over fiscal 2018. Additionally, we generated $188,000,000 of free cash flow for the year. On the people front, we added 6,500 addition to our EPAM headcount across our client facing teams and corporate functions. Also in 2018, we were focused on extending our client engagement capabilities through more robust sales and account managing functions and establish a comprehensive consulting coaching. We launched ePlan Continuum, our brand that integrates our capabilities in business, technology and experience consulting. EPAM Continuum, along with our core product engineering capabilities, brings to the market an integrated approach to solving complex problems by engaging a team of practitioners that can respond across multiple organizational touch points to help our clients address the challenges of the adaptive enterprise with speed and agility. In addition to launching our consulting portfolio in former, we also saw an increased demand for companies that truly understand how to build differentiated business platform out of best of breed components connected through intelligent APIs. We've seen this component build strategy gain more traction in the market as enterprises start to orient away from pure of the shelf models towards more product centric go to market and solution strategies, which is very much in line with the prediction made 5 years ago by a leading analyst organization who stated that by 2020, 75% of digital enterprise applications will be built versus buy. They also clarified that their research shows that many companies already favor a new kind of build that doesn't include out of the box solution. Instead, a combination of application component that are differentiated, innovative and not standard software as well as highly customized solutions will be increasingly adapted. We think our product engineering DNA really helped us to become 5 years ago much more relevant on the market because of the strength. We believe that this intelligent component build capabilities will become even more important beyond 2020 as speed and differentiation pressures continues to push our customers to change the way they look at their technology business processes and organizations. That is why in 2019, we expanded a number of our strategic partner relationship to go far beyond of just formal understanding of those critical components and create valuable reusable accelerators and very much advanced level of engineering expertise around them for increased speed and reliability of this complex and differentiating build solutions. It specifically covers such components in our cloud first automation data and engagement practices. In 2018, in addition to building our capabilities organically, we continued our strategy of targeted, competency driven acquisitions that support our practices in data, devtestsecops and our growing consulting confidence, which expanded our expertise in cloud data migration, AI based insights, crowdsourcing testing and analytics, just to name a few. We also diversified our global presence, both from client and delivery perspective, and operate now in more than 30 countries. We often speak about our efforts around education and training as one of the key drivers for future scalability. We have always done this for both our internal and external audiences in terms of our current and future employees. But 2018 became a very important year for us as we took our educational capabilities to a new level of professionalism and now ready for the next level of investment in the area, is much more confident than in the past. Last year, through our learning platform, Ipam University and a variety of boot camps and hackathons, our education and development efforts impacted more than 10,000 people, helping us engage and develop our own talent and train new experts in our core delivery markets. And it's pretty broad effort from launching our pilot master in software engineering program in Eastern Europe to extending our CSR education effort across 19 countries to reach more kids than ever before. Also in 2019, we brought our experience in developing and delivering integrated and interactive assessment and training platform to our clients. If you remember, at some point, we shared a brief case study about an automotive client who trusted us to deliver a program for their employees. We are happy to share that last week, EPAM was 1 of only 10 companies out of 400 that was recognized at Daimler Group's Global Supplier Summit. The Innovation Award was presented to Yipan for a program tailored to the Daimler IT team for helping them to transform their organization's digital knowledge. Now to conclude on 2019 and to bridge into 2020. With all of these initiatives in mind, in 2020, we will continue to focus our investment into real programs that support our ability to execute our growth strategy. As you can see, some programs began in 2019, but many will focus on making continuous and sometimes significant upgrades, including consulting and industry expertise, people development, education and engagement. I think it's also important to remind that being an engineering driven company is still a key area of focus for us, and we would like to stay firmly ahead of the competition. In addition to the education and training activities mentioned before, this also includes our investments in open source based engineering productivity tools as well as internal global delivery and infrastructure platforms that we are continuing to expand and evolve to provide a higher level of collaboration, knowledge management and deep understanding of our internal and external data, basically making those platforms even more comprehensive and intelligent to support the speed and scale we need. I think to conclude my part, I would provide a brief summary of our ambitions for 2020. We think the ability to transform ourselves into adaptive enterprise will be the real key to driving our future success. And we understand that we need to continue to disrupt ourselves and evolve at accelerated pace to make it happen. Together, we need to become one of the best in the world in innovation and design, consulting, education and social responsibility, while continuing to strengthen our core engineering capabilities. So we will have to continuously invest in adapting our people platforms and processes into those that quickly respond to change, leveraging our existing global and distributed delivery environment to build and bring to life the EPAM digital platform that connect our people and enable them to work seamlessly, making us more efficient and effective in all that we do. Opening opportunities for transformation for everyone, anywhere through next gen delivery as well as educational, social, and innovation programs and lastly, extending our leadership across integrated consulting and engineering. We realize that these ambitious goals and the growth goals before us are even more challenging as we become a more global complex and dynamic organization. So our investment continue to be focused, and we continue to stress our ability to see and respond to change as a core value that goes back to EPAM early days. With all of this in mind and despite some of the macro level uncertainties we are constantly watching and reading about, we are looking at 2020 optimistically. We believe that we can continue life's scale digital transformation program and help them make their ambitious innovation programs a reality. I will turn it over to Jason for a detailed financial update of last year and our guidance for 2020. Thank you, Ark, and good morning, everyone. I'll start with our Q4 financial highlights, follow with industry vertical performance and then touch on a few operational highlights, ending with guidance for fiscal year 2020 and Q1. Revenue for Q4 came in at $632,800,000 a year over year growth of 25.3 percent on a reported basis or 24.8 percent growth in constant currency, reflecting a positive foreign exchange impact of 0.5%. We saw higher than expected revenue for Q4 driven substantially by an uptick in demand in the second half of the quarter as well as stronger performance from a few of our acquired companies and FX benefit due to the strengthening Russian ruble. Growth in the quarter was broad based across our client portfolio. Some of the trends in growth include customer engagement, e commerce replatforming, scaling new models to drive clients' future growth, products and platform engineering and application modernization, regulatory activity, data and data analytics, and education. Looking at our 4th quarter revenue growth across our industry verticals, software and high-tech grew 24.5% in the quarter. Financial Services delivered 21.8% growth. Life Sciences and Healthcare grew 20.3% in the quarter, reflecting a tougher year over year comparison given the exceptionally strong performance in Q4 FY 'eighteen. And Travel and Consumer grew 15.9%. Running out our vertical performance, we saw very strong growth in both Business Information and Media, which posted growth of 38% and our emerging vertical, which delivered 36.3% growth driven primarily by clients in Telecommunications and energy. From a geographic perspective, North America, our largest region representing 60.1 percent of our Q4 revenues grew 22.2 percent year over year. Europe, representing 32.7 percent of our Q4 revenues, grew 31.4% year over year, with 31.7% in constant currency. CIS, representing 4.9% of our Q4 revenues, grew 39.7% year over year and 27.7% in constant currency. Finally, APAC grew 5.4 percent and now represents 2.3% of our revenues. In the 4th quarter, growth in our top approximately 22.1% and growth outside of our top 20 clients was approximately 27.7% compared to the same quarter last year. Moving down the income statement, our GAAP gross margin for the quarter was 35.2% compared to 36.8% in Q4 of last year. Non GAAP gross margin for the quarter was 36.7% compared to 37.7% for the same quarter last year. GAAP SG and A was 19.8% of revenue compared to 19.3 percent in Q4 of last year and non GAAP SG and A came in at 18.1% of revenue compared to 17.7% in the same period last year. SG and A in Q4 reflected investments to create new capabilities, expand infrastructure and introduce new lines of business. GAAP income from operations was $84,700,000 or 13.4 percent of revenue in the quarter compared to $78,300,000 or 15.5 percent of revenue in Q4 last year. Non GAAP income from operations was $107,600,000 or 17% of revenue in the quarter compared to $93,100,000 or 18.4 percent of revenue in Q4 of last year. The year over year comparisons for both gross margin and income from operations reflect a lower level of utilization as a result of our decision to increase the rate of headcount additions in the second half of fiscal year 'nineteen. Our GAAP effective tax rate for the quarter came in 12.1%, which includes a higher than expected level of excess tax benefit related to stock based compensation. Our non GAAP effective tax rate, which excludes the excess tax benefit, was 20.7%. In Q4, both GAAP and non GAAP rates were favorably impacted by one time adjustments related to prior years. Diluted earnings per share on a GAAP basis was $1.29 and non GAAP EPS was $1.51 reflecting an 18.9% increase over the same quarter in fiscal 2018. In Q4, there were approximately 58,000,000 diluted shares outstanding. Turning to our cash flow and balance sheet. Cash flow from operations for Q4 was $124,600,000 compared to $123,100,000 in the same quarter for FY 2018. In Q4 FY 'eighteen, DSO improved by 8 days versus a 3 day improvement in Q4 FY 'nineteen. Free cash flow was $77,600,000 compared to $113,000,000 in the same quarter last year, resulting in an 88.9 percent conversion of adjusted net income. DSO was 72 days compared to 75 days at the end of Q3 fiscal 2019 and 73 days in the same quarter last year. The lower than average DSO quarter was the result of our ongoing operational focus in this area. Moving on to a few operational metrics. We ended the quarter with more than 32,500 delivery professionals, a 21.7% increase year over year and a net addition of more than 1,000 production professionals during Q4. Our total headcount ended at more than 36,700 employees. Utilization was 77.9% compared to 80.2% in the same quarter last year and 76.1% in Q3. Turning to the results for fiscal 2019, revenues for the fiscal year closed at $2,290,000,000 or 24.5 percent reported growth over 2018 or a constant currency growth of 25.8%. During fiscal 2019, our acquisitions contributed approximately 1.5% to our growth. GAAP income from operations increased 23.2% year over year and represented 13.2% of revenue for the year. Our non GAAP income from operations was $389,200,000 an increase of 23.5% over the prior year and represented 17% of revenue. Our GAAP effective tax rate for the year came in at 12.8%. Excluding the impact of the excess tax benefits and certain one time adjustments, our non GAAP effective tax rate was 21.8%. Diluted earnings per share on a GAAP basis was $4.53 Non GAAP EPS, which excludes adjustments for stock based compensation and acquisition related costs, was $5.42 reflecting a 23.7% increase over fiscal 2018. In fiscal 2019, there were approximately 57,700,000 weighted average diluted shares outstanding. In fiscal 2019, cash flow from operations was $287,500,000 compared to $292,200,000 for fiscal 2018 and free cash flow came in at $188,100,000 reflecting a 60.2% adjusted net income conversion. Now let's turn to guidance. Starting with fiscal 2020, revenue growth will be in excess of 22% for both reported and constant currency. Inorganic contribution for the full year is expected to be approximately 1%. We expect GAAP income from operations to be in the range of 13% to 14% and non GAAP income from operations to be in the range of 16% to 17%. We expect our GAAP effective tax rate to be approximately 14% and our non GAAP effective tax rate to be approximately 23%. Earnings per share, we expect GAAP diluted EPS to be at least 5 point $6.30 for the full year. We expect weighted average share count of 58,800,000 fully diluted shares outstanding. For Q1 of FY 2020, revenues will be at least $642,000,000 for the Q1 producing a growth rate of at least 23% for both reported and constant currency. For the Q1, we expect GAAP income from operations to be in the range of 12% to 13% and non GAAP from operations to be in the range of 15% to 16%. We expect our GAAP effective tax rate to be approximately 5% and non GAAP effective tax rate will be approximately 23%. For earnings per share, we expect GAAP diluted EPS will be at least 1 point $2.7 for the quarter and non GAAP EPS will be at least $1.36 for the quarter. We expect a weighted average share count of 58,300,000 fully diluted shares outstanding. Finally, a few key assumptions that support our GAAP to non GAAP measurements. Stock compensation expense is expected to be approximately $74,000,000 with $18,000,000 in Q1, dollars 17,000,000 in Q2, dollars 19,000,000 in the remaining quarters. Amortization of intangibles is expected to be approximately $11,000,000 for the year, evenly spread across each quarter. Impact of foreign exchange is expected to be approximately a $9,000,000 loss for the year, spread evenly across each quarter. Tax effective non GAAP adjustments is expected to be around $20,500,000 for the year with $5,300,000 in Q1 and approximately $5,100,000 in each remaining quarter. We expect excess tax benefits to be around $34,000,000 for the full year with approximately $14,500,000 in Q1, dollars 9,500,000 in Q2 and $5,000,000 in each remaining quarter. One last point on our business outlook. We expect the profitability profile of fiscal 2020 to be more similar to that experienced in fiscal 2018, with lower utilization and profitability in the first half of the year with improvements in the second half of the year. So in summary, our 2020 outlook reflects continued strong demand for our services, underpinned by the diverse set of industries we serve, which provide EPAM with a broad range of growth opportunities. Our investments across our people, platforms and processes will equip and position EPAM for future growth. With that, let's open the call up for questions. Thank you. At this time, we will be conducting the question and answer session. Thank you. Our first question comes from Maggie Nolan with William Blair. Please proceed. Thank you. Good morning. Jason, I wanted to follow-up on that last comment, the cadence of the year, the first half versus the second half. What is contributing to that lower utilization and profitability in 1H? And why is it going to improve in the second half of the year? Sure. So the traditional pattern for the company has been higher profitability in the first half and lower profitability in the second half. In 2018, we ran with that very high utilization in Q1, which which was 80%. And we don't expect to run at that level of utilization in Q1. And I'll talk about a couple things. So, first, we've got fewer available bill days in the first half of the fiscal year than we have in the second half. So, that generally has a the more bill days, as you know, has a positive impact on profitability. The other thing is we've got some impacts in Q1. I think most of us will be aware of Payroll taxes kick back in to the extent that they've been capped in certain geographies, particularly the U. S. And Russia. They're uncapped as you start Q1. So, that has a significant impact on costs in the Q1 relative to Q4. The other thing we have is we have our significant amount of our compensation increases actually occur in Q2. And so both of those impacts tend to have a somewhat, I'll call it, moderating impact on profitability. When we get into the second half, we've got greater bill days. We begin to see more capping of the payroll taxes. And generally, what we expect to see is that we're going to keep an eye on utilization with a focus on keeping that around the range where we're at now with some potential for improvement. Okay, great. Thank you. And then, Arcadia, you talked about continuing to be that adaptability is important. So I'm wondering, as you think about that concept, is there a risk here that certain initiatives would cannibalize other opportunities that you already have in place? For instance, the education capabilities and services, did that ever cannibalize your opportunity for other services with clients? How should we think about kind of that changing dynamic as you are an increasingly more adaptable organization? Hopefully, when people talking about it, it means that we're trying to improve speed to market. Basically, what value, what changes our clients' experience, we will be able to change our offering to help bring in specific value and doing this fast. So I don't think it's about specifically one over another like our educational service is not really compete but complements our core capabilities. So because from our point of view, when you educate clients, so you can eventually work with this client much more efficiently and improve overall speed. That's a real goal for us to invest in this area, for example. And for any specific example, probably we can give similar explanation or rationale. Okay, understood. Thank you. Thank you. Thank you. Our next question comes from Ashish Sherbicher with Citi. Please proceed. Hi, Ark. Hi, Jason. Congratulations on the good quarter. I wanted to start as well with a question. Hi, sure. I wanted to start as well with a question on margins. So is the incremental push into consulting also affecting the margin profile this year or has that become part of the baseline at this point? And as consulting builds, should that affect your traditional financial model? I mean, will it affect the ability to enlarge your deals? Do you expect a certain newer target for on-site percentage? Any of those granular comments would be great. Yes. I don't think that the consulting business itself has a specific impact on profitability or the model. And so, I think it'd be the same answer we've talked about. It's a modest evolution. And while it may somewhat take up the on-site percentage, it's not that's not what's showing up in, let's say, profitability year over year. From a 2019 to 2020 bridge standpoint, which I think is the question you're asking about, we feel that we really need to continue to make investments in the business to continue to grow the company at a rate in excess of 20%. And so, I think one of the real advantages of EPAM's strategy or kind of direction over time has been to continue to evolve the business. I think we've all seen companies that maybe offer us the same service or product and then over time that offers us stale. EPAM has continued to evolve its offerings and I think that's why the company continues to grow at this organic constant currency growth rate. We are beginning and this is maybe a little bit of new information, but we are beginning to think about what it means to be a much bigger company. So, as we exit this fiscal year 2020, we're guiding towards something approaching $3,000,000,000 in revenue. And we're already as we look at our success in the market and our position in a fast growing market, we are beginning to think about what it means to be a company that generates $5,000,000,000 in revenue. And so we are trying to make sure that we're making the necessary investments and taking the evolutionary steps that support our longer term growth towards that bigger company. Got it. No, that's good to hear. And the cadence of revenue growth, it seemed to me that there isn't necessarily a cadence that it should continue to be a steady low 20s, hopefully approaching mid-20s type of growth. Would that would you agree with that or that incremental comments that you might provide? So, maybe clarify that. You're saying it doesn't appear or that it does appear, right? I'm not No, I'm asking for the cadence of revenue growth, what you expect. It looks to me like a normal year from a revenue growth perspective. Yes. So, we're I use the language to exceed 22%, which is slightly different than at least and that was intentional. And so, yes, we continue to feel good about the demand environment and continue to expect to grow revenue certainly in excess of 20% sort of yes, so as I said, started to exceed a 22% growth rate. Got it. Thank you. Thank you. Our next question comes from Ramsey El Assal with Barclays. Please proceed. Hi, thanks for taking my question. I was wondering if you could give a little color on the reacceleration in growth in the Travel and Consumer segment. Just talk about the drivers there. Yes. So, we had seen a slowdown in that segment and it was across a couple of customers. And so, one was a North American retailer and the other, to be honest, was a range of retail and consumer goods customers in UK and in Europe. And what we're beginning to see is, we think, a certain degree of stabilization in the UK market. And then, at the same time, we're beginning to see what we think could be some really interesting opportunities in the branded consumer goods space. And so, I think you're seeing some I think you're still going to be in something south of 20% growth rate in the coming quarter, but you're beginning to see some improvement because we see some stabilization and we're beginning to get some interesting new opportunities in branded consumer goods. That's great. And maybe that dovetails into my follow-up question, which is, given the geographic diversity you guys called out, can you give us your general read on the demand environment? Are you seeing I mean, it sounded like the things in the UK, at least for you, maybe looking good at that specific segment. Any impacts you're seeing from geopolitical issues? Obviously, we have from developments in Asia with coronavirus or other situations. What's your general view of the global kind of demand environment? I think we're trying to share our view with our kind of guidance for 2020. So at the same time, there is some level of unpredictability, which I guess we all understand, like for example, what is happening in APAC right now, there is some direct but very minimum impact which we're seeing at this point, but indirectly who knows what will be happening within the next couple of quarters. And even specifically on this market, which Jason mentioned, like retail and luxury goods, because that might be the most vulnerable part of our market. So, but in general, we as we mentioned, we are looking at this pretty optimistic, We're saying like we're going to exceed in 22% growth, which is pretty optimistic view, I think. So again, we continue to see strong growth in West Coast High-tech. We've had extremely strong growth in Business Information and Media, and we expect to see that type of growth in the future, continue to see exciting opportunities in clients that we're not doing business with in the life sciences and healthcare space. And then from a Europe standpoint, what we continue to see is that slowdown in European banking demand, but we've got a lot of interesting demand in things like neobanks, payments we've talked about. As we've said before, insurance is growing very rapidly. So excited about those opportunities. And now I'm going to take one quick opportunity to remind people of the European growth rate. And so we talked about this and I just want to make certain that it's still on people's minds is that we have a large customer that has been a historic EPAM customer in the Business Information and Media space and it's split into 2 customers. And when it's split into 2 customers, one half of the business is now the decision making is out of the UK. And so that customer then became a European customer and it was not a European customer in 2018. And so, we've had very strong growth in that particular business in information media customer. The growth rate in Europe would have been sub-twenty percent in Q4 without the change in that customer. And the growth rate in North America would have been somewhat higher if that kind of geographic reclassification had not occurred. Okay, great. Thanks so much. That's super helpful. You bet. Thanks. Thank you. Our next question comes from Jason Kupferberg with Bank of America. Please proceed. Hey, good morning guys. How are you? Good, good. Thanks. So just wanted to start with kind of a high level question around just when we think of trade offs between growth and margins as a general theme, where do you guys stand on that? I mean, do you think it's plausible to have both accelerating top line growth and margin expansion simultaneously? Or are we always going to generally be in more of a trade off status between those 2? And I ask just because it looks like maybe 2020 is a case in point where top line forecast looks terrific. You talked about some of the investments that you need to make and some of the utilization dynamics. So maybe margins are going to be kind of flat to down. So just wanted to see how you're thinking about that on a longer term conceptual basis. And then if you can detail some of the reinvestments a little bit more for 2020, that would be great. Thanks. I think it's the whole life was a trade off, so the same growth and profitability too. So I think growth for us is a primary goal, but profitability is a very important factor. And I think it's going in ways. And you're right, like we're talking about specific investments because we're going like if you think back like 8 years ago when we did IPO, so it was one company with very different profile than today. It was like $300,000,000 plus company. Today, we approaching $3,000,000,000 So and obviously, this investment is very kind of like simple statement, investments in changing necessary. I think we were talking about it all the time and we were actually performing on this and we saw volatility in our profitability as well. So, I think as you mentioned 2020 for us will be investment here. We thought actually that last year will be investment here as well, but we were able to run better than we expected. Q4 actually when we started to invest because we feel that we can do it. And Q1 and further will be continuous. It's very difficult and I know maybe not exactly what everybody want to hear, but it's very difficult to predict exactly result of this. And that's why we are looking at this directionally and quarter by quarter, what we will need to do and how we will need to change. If you're talking about specific investment, I think we tried to highlight those specifically. We're talking about consultancy, very important. We're talking about our traditional investment in engineering quality because that's kind of skeleton of our operation and our differentiation. We are talking about education because it's a scalability from one point of view and improving productivity relationship with clients from another point of view. And we're talking about digital platforms because we become public again 8 years ago with 7,000 people. Now we this year we will be approaching 40,000 people. So we need to think how to turn ourselves to potentially in the near future to $5,000,000,000 revenue company. So, probably a little bit more extended answers and maybe even further answers than you would anticipate, but that's a reflection of reality, in some respect. Yes. No, that's very helpful. Just a quick follow-up. I think the growth in the top five customers accelerated and I was just wondering whether there was any change in the composition of those top 5 clients and is this exit rate for 2019 in that top 5 bucket expected to be sustainable in 2020? There is very natural competition across our clients to be number 1, number 2, number 3. So, there are some changes there, okay. Jason also mentioned that one of our top clients split in 2 and both of them continuously growing, one of them very, very aggressively. So I think there is no really changes in top 5, but in total, but I mean like the position of each of them going down and up depending on even quarters or years. And clearly, there are some new faces in our top 10 and top 20. Thank you. Thank you. Our next question comes from Bryan Bergin with Cowen. Please proceed. Good morning. Thank you. Wanted to ask on the NIAGEN integration. Can you give some detail there? It sounded like the contribution may have been stronger than you expected. Yes. It was a little bit stronger than we expected, but it's also also in kind of the same range as some of them. And it is very, very new for us. It's just the Q2, I believe, when it's happening. So, it's too early. And one good project could and this is relatively small deal, so one big project can change the whole parameters. So, I think it's doing better than we anticipated and think it would be good in 12 months to talk about it. But it's kind of very much in line with our expectation on capabilities for it, given what it's bringing to us and how it's helped us. Okay. And then just a follow-up on margin here. So can you talk about how you think about longer term SG and A leverage potential? I get the sense you're making the investments here now as you think about the needs of a $5,000,000,000 revenue entity. But assuming relatively stable gross margin levels, just curious how we should be thinking about the model from the ability to drive leverage elsewhere? Yes. So, what we've been guiding to is this kind of 18% to 19% range on SG and A as a percentage of revenue. And I think probably in 2020 and maybe even into the next year, you'll continue to see the type of investments that it takes to transform and make EPAM the adaptive organization or the increasingly adaptive organization that Aarik referred to. I think that's probably maybe a multi year cycle with an opportunity for some improvement potentially after that. So as Ark said, it kind of goes in waves. So I think this is going to be a bit of an investment year. You might still see some more of that in 2021. And then, as we continue to ramp revenue at a $5,000,000,000 company, you do have a potential to sort of look at and readjust your model. Okay. Thanks, guys. Thank you. Our next question comes from Surinder Thind with Jefferies. Please proceed. Good morning, gentlemen. Just a quick question in terms of just generally the way that you guys are thinking about revenues and guidance. Are there any risks or things that you've accounted for in your guidance related to maybe, let's say, election related activity in the U. S. Depending on how that race unfolds or are there other events or things that we should be thinking about that might potentially impact the numbers there, especially in the past? I don't think we're talking about election impact when we're talking about our view. And if you're talking about election, it's also very difficult question. Then we need like to think about elections in very many geographies as well. But we generally clearly looking at our experience and political situations in different geographies based again, based on our understanding and experience of the past. That's helpful. So, the visibility continues to be in the let's call it, the 80% to 90% range. We've guided, as Ark said, with our assessment of the near term kind of direct impact of what's going on in Asia Pac. So we have kind of modeled a little bit of a slowdown in our business in Hong Kong and China. We haven't necessarily modeled a more substantial sort of global growth slowdown. But we clearly have been kind of prudent and David and I spent a lot of time doing sort of channel checks and working with each of the individual business units. And consistent with what I said with one of your earlier questions is we continue to see very strong demand in the life science and health care space. We can continue to see interesting and very exciting opportunities in IoT. We've got a whole series of different types of financial services opportunities that are outside of the traditional kind of banking environment, which is why you see our financial services practices perform the way it does relative to maybe some of our peers. We continue to see that very strong growth that we've talked about in business information and media. And then finally, we continue to have a lot of growth in our West Coast high-tech clients. And so we feel good about the business. And again, the thing that I think I'm always comforted by is that our demand is broad based across a wide range of industry verticals. We're not dependent on growth from 1 or 2 customers or one specific vertical to make our 22% our in excess of 22% growth rate. That's helpful. And then in terms of just kind of thinking about your cash levels, I guess, there's been talk about M and A for a while now. Any additional color you can provide there in terms of pipelines or the quality of targets that are out there? Is it simply that you guys are having a challenge finding the right fit, the right cultural fit, the right group of people or is there some valuation issue considerations here? How should we think about your M and A stuff? It probably could be all of the above, but I think that for us, we have done, I think, a larger number of kind of smaller acquisitions in fiscal year 2019. There is more open mindedness based on some of the success that we've had with those acquisitions for deals that could be of a somewhat larger size. And I think you might see some of that in 2020. But as you indicated, I think our most important filter really is this sort of cultural fit, whether it's a business that's going to bring something to EPAM and whether the management team is still motivated and is excited about the opportunity to join EPAM and continue to grow our collective organization. Filter where we sort of might step away from a transaction because we want to make certain that the fit is good and it is going to produce positive outcomes for the employees of both companies. Our next question comes from Darrin Peller with Wolfe Research. Please proceed. Hey, good morning, guys. This is Andrew on behalf of Darren. Wanted to hone in on the account cohorts with regards to the revenue size. Look, the 57% growth you saw in 2019 and the $20,000,000 plus is really impressive. I guess I'm trying to parse out what is the clients that are just graduating from the lower tiers and versus incremental wins? And then my follow-up would be the platform strategy over the last couple of years is clearly working in the market. And how should we think about the spend curve with regards to the second derivative of spend within those accounts, be it in the product development, technology and engineering offerings you guys have? Can you go with the first question? Yes, I'll go with the first. So, in the case of the, I guess, the transition of the cohorts is that it's kind of a combination of things. As what we've talked about over time where we do have many of our clients who may look small on our charts are actually large global corporations that have significant opportunities for EPAM and we continue to grow inside those opportunities. So, what we've always talked about is we grow from existing relationships and we also grow due to the introduction of new relationships. So you've got some of growth within companies that have been EPAM customers for a period of years. Then what you also have is a couple of companies where you've had this real rapid growth. We talked about the business information and media in Europe. We've also had some another very significant grower in the Business Information and Media space in the United States. And so, it's kind of a combination of a couple of new customers and this growth. So, hopefully that answers that question. And then, Ark? And the second question, if I understand correctly, was about our involvement in helping building platforms. Is that correct? Yes, that's right. I mean, it's just obviously that seems to be the tip of the spear in some circumstances. And I'm just curious on how that how you've seen that translate into incremental spend in the other offerings that you have for those clients? First of all, we definitely have ambition to be kind of main orchestrator for this type of programs when clients need it. And I think we were explaining that we do believe that we have right experience, right capabilities for this, specifically coming from our product engineering background initially and then helping kind of digitally born companies to build their internal products, internal platforms. So we understand the needs for scalability and flexibility and complexity of this. And that's what we are actually trying to put together the right orchestration level from consultancy, from business perspective to technology and experience perspective and being very strong engineers to do it. And I think that works for us because a portion of this type of deals is increasing and we're seeing pretty strong demand for these capabilities, specifically in more traditional corporate market where people has to move to this direction to protect the land, which they have. So, I don't know exactly what you're trying to understand, but I think it's proportionally increasing part of our business and basically our main goal how to become a leader in this space. No, that's helpful. Congratulations on another impressive year. Thanks guys. Thank you very much. Appreciate it. Thank you. Our next question comes from Arvind Ramnani with KeyBanc Capital Markets. Please proceed. Arvind Raman, your line is live. I was on mute. Just a quick question on here. Given your expanded services and consulting, are you seeing increased visibility and downstream revenues? And also with this increased consulting, are you seeing a different set of competitors? I don't think we see significant change in competitors' landscape because we were like all our larger players, they have multifunctional areas and we were competing with them just in different segments, but now we're competing in more kind of high value chain component of this as well. So, and visibility is a very difficult question. We clearly are now getting into the programs where we potentially seeing opportunities from a different perspective and we make an impact on the client in different perspective. So, if it's giving us better predictability, I think based on the numbers, you can see that we're probably in very similar position as before, but the addressable market and our scale is increasing. So I think it's proportionally working well for us because all this capability improvement and all investments which we're doing, it's confirming our ability to grow 20 plus percent. That's the point. Great. And certainly, your guidance is very strong for 2020, but I wanted to clarify, is that all organic? Is there any inorganic component to what you're guiding to? Yeah. No, that's a great question. And so, again, what we're saying is we will exceed 22% growth, which as I said earlier, is slightly different language and intentional versus the at least we've used in the past. And we believe about based on the acquisitions that we have today, about 1% would be from the inorganic kind of component. And then just kind of reconfirming the profitability guidance in the 16% to 17% range. So we intend to operate in the range rather than at the top of the range the way we did in 2019. Perfect. Good luck for 2020. Thank you so much. Thank you. Thank you. Our next question comes from James Friedman with Susquehanna Financial Group. Please proceed. Hi, thank you and let me echo the congratulations. I just wanted to ask 2 things. Ark, in your prepared remarks, you really were emphasizing the product development conversation. I realized that that has been core to the company since your origins. But when you made the comment that your clients are more interested in building versus buying their technology, I was just hoping you could frame that in the context of the cloud. I'm sorry to ask that, but is it like our clients building more because of the cloud or is there something else going on? And then, let me just ask my second one, I'll get it out of the way. The fixed price did increase as a percentage of revenue and it's higher now than I can remember. Is that due to the same thing or is there something else going on there? Okay. Let me answer the easier question first, which is fixed fee and I'll let Art deal with the complicated topics. And so, the increase is primarily due to growth in a couple of larger accounts where we've got these fee structures that are that adjust based on team size. Size changes up or down, it changes the fixed monthly fee. Okay. And that's why you're seeing this sort of shift towards higher sort of fixed fee, but it's not a classic multi year fixed fee where we committed to do something for $20,000,000 over a time period. So it's much less risky. And again, if in month 2, the team size is taken up, then the fixed fee goes up. So it's, I would call, kind of a settled variant on a time and materials, but we've chosen to classify it as fixed fee. Yes. And on the first part of the question, so build versus buy, so I think this kind of direction started to become much more visible when companies started to compete not on efficiency of the back office operation, but on the efficiency of engagement engine basically. Consumer or client oriented part of the digital ecosystem. And when you go into your clients and compete for this market, you need to differentiate ourselves much, much stronger than in backwashes on efficiency stuff. So, ideally, both parts should be very well coordinated. And analysts started to talk about important of this system of engagement, differentiation, flexibility and constant update times ago. That's what I mentioned like this report of from 2015. So and when it's happening, then you cannot just use the standard enterprise package software. You have to customize it to very big extent and sometimes this customization even doesn't make sense. So you need like to utilize multiple components and you're building the system and this platform correctly, then you need like to integrate this component in such a way to be replaceable because technology change in the next couple of years, this component will be obsolete and somebody will get an advantage. And that's what we're talking about when we mentioned build versus buy. So nothing new, but to do it, you need to have very strong engineering product, engineering background. It's not just configuration. It's not just switching some checkboxes. So, and I think why we were performing the way we were performing during the last multiple like, yes, it was due to this engineering capabilities and we don't want to lose it, but we also need to add additional one because differentiation is also coming from experience and from business models. And all of this together for us is a build. Got it. Thank you. Thank you both. All right, Emily. Okay. You bet. Thank you. Our final question for today comes from Joseph Foresi with Cantor Fitzgerald. Please proceed. Hi. I'll make sure it's short given how long the call is. Just a couple of quick ones. One, we talk a lot about the verticals that are doing well. But I'm curious what transformation areas are customers most interested in these days? I know when digital began, it was a lot about the consumer, but I'm wondering what you're doing from sort of a product development perspective. And then I have just one quick follow-up. This is a big question, which I don't know how to answer in kind of 30 seconds or 2 minutes because unfortunately, the answer would be very, very generic and we will be talking about analytics and data and potentially IoT and cloud. So basically, the answer will be too generic in this terms unless you have real conversation. Yes. So let me ask you in a different way. Has the type of transformation changed since you were a $300,000,000 company? And my follow-up would be, are you finding the proper skill sets for that type of change? I think from $300,000,000 company to current state, then it will answer, it will be very similar to what I was giving like several minutes ago because this notion of system of engagements. And when we were a $300,000,000 company, we were mostly product engineering extension for our clients versus right now we're building the whole solutions where we're bringing this differentiation. And that's why on top of engineering skills, we need all these additional layers. And that's the main driver and main goal for us to bring value there. So that's the biggest difference. Incorporating all these new technologies, we're changing like very quickly. Got it. And then do you feel like you have the skill set, particularly on the outer edges where you're looking at more? And that's yes, and that's part of this wave and this is part of the training because that's why we're talking about education. And my typical answer during all these quarters was, no, there is no enough skills, but we find the way how to train and build them because we also are very interested in fundamental knowledge of our employees. So it's not just people who train for 3 months on something. We have a talent which we're able to retrain or direct in the right kind of area to get new skills. And again, this is back to our educational and training I'd like to turn the floor back over to management for any additional concluding comments. So thank you. Thank you, everybody. As usual, we are pleased with our 2019 results. We continue to grow. We are confirming our ability to grow at the extent of 20%. And thank you to your support and thank you to all of our 36,000 people globally and let's talk in 3 months. Thank you. Thank you. Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.