Earnings Call: Q3 2018

Nov 1, 2018

Welcome to the EPAM Systems Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief 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 for EPAM. Thank you, Mr. Straube. You may begin. Thank you, operator, and good morning, everyone. By now, you should have received your copy of the earnings release the company's Q3 2018 results. If you have not, a copy is available at epam.com in the Investor section. With me on today's call are Arkadiy Dobkin, CEO and President and Jason Peterson, Chief Financial Officer. Before I 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 Q3 earnings material located in the Investors section of our website. With that said, I'll now turn the call over to Ark. Thank you, David, and good morning, everyone. Thanks for joining us. Let me begin with a few financial highlights from Q3. We delivered a strong Q3 with revenue of $468,000,000 reflecting 24% year over year growth or 25.4% in constant currency terms. Our revenue growth was broad based, both geographically and across all of our industry verticals. In addition, we delivered strong non GAAP earnings share of $1.17 which represents 27% growth from Q3 of 2017. Our results for the first 3 quarters of fiscal 2018 point to a very consistent story of our ability to execute and grow in the market that demands high end expertise and ever changing cutting edge capabilities, spread across multifunctional teams and geographical locations. With the study of consistencies as a backdrop, I would like to step back from the quarter and share a bit broader perspective. We are now approaching a PAM 25th anniversary in December, and we started to orchestrate a number of events across the company. Just last month, we hosted our 11th Annual Software Engineering Conference, which brought together our communities of practitioners to connect loan and exchange ideas about technology trends and define the market we operate in. This year event was attended by over 3,000 employees as well as guests from our clients and from professional communities. They visited from over 20 countries. From one side, our message during this conference was kind of a familiar one to practically everyone today. The world continues to be disrupted in a place at scale that is forcing massive change across all industries and for the clients we serve. And in result, the environment continues to be even more demanding and challenging. Outdated and flexible IT system that cannot compete against upstarts operating on natively digital platforms, a need for completely new enterprise architecture, simple customer centric and configurable, but they often lack the right capabilities to do so. And in many cases, the current partners they are relying on don't have the capabilities to comprehend such new architectures either. And most importantly, the speed of the change is occurring is a real danger because most often before client can replace the system or build the new ones at their regular pace, the time will be gone. It's a killer if you don't have the speed. And demand for capabilities and experience become even more challenging because this next wave of digitization, the digital ecosystem, where everything is coming together, people, suppliers, consumers and businesses into scalable and flexible platform environment brings a completely different level of sophistication in designing, building and delivering of such systems. So from another side, the question which we really try to address was and still is how to be better prepared for those challenges, how to disrupt ourselves further to be able to solve the speed question for us and for the clients. We do believe we have a unique advantage by benefiting from our core software engineering and product development expertise accumulated over the last 25 years in collaboration with Topwall Technology and Software Companies by being their trusted partners, both to build software and to deliver the most complex solution around it. That allowed us to navigate over the last years a much more authentic journey digital augmentation and digital services for us and arriving naturally into the world of much more advanced digital ecosystem enterprise level challenges. Still, even with such advantage, the realities of speed, agility and the right capabilities at right place and time forced the pump to disrupt ourselves further by continuously investigating how to turn the company into truly digital ecosystem itself. This simply means that to support needed speed and agility, we need to operate on our own advanced and native digital platforms and be able in resolve to orchestrate on demand capabilities across business technology and experience consultancy, innovative thinking, internal and external right in time educational and training services, and also helping the majority of our clients do the same. Otherwise, we wouldn't be able to help them solving their critical business challenges. With all that, we also have to continue to support and expand the key for us, our engineering advantage even further. So that is a set of challenges which we were trying to address during the last few years. And we are sure that is a set of challenges we will have to address in the future too. All that means we need to understand what are the right investments we have to make to continuously challenging and disrupting ourselves to find the right answer fast or sometimes in advance. So far, we do believe that this push is bringing new type of opportunities to EPAM, where we are getting into very different competition with much larger and if you will, much more experienced firms. But by demonstrating a different level of speed and agility and engineering quality, we started to see the engagements now, which include implementation roadmaps with all aspects of change from organizational strategy to digital operating models to future platform architecture, design and build of such platforms and even new ways of running those. And such things started to happen practically across all industry sectors we are playing in. In addition, we continue our efforts in open source contributions where we are one of the industry leaders, Continue to focus on our top tier partnerships. For example, we have now over 2,000 certified architects and engineers to our various cloud competency centers with over 500 certification for Google Cloud Platform, which probably make us number 1 in tools as well as establishing new R and D Labs and correspondent initiatives to bring above mentioned speed and agility to ourselves and to our clients. With that, I think it's almost the right time to come back to our consistency story and to pass it to Jason to illustrate it with much more specific data than I did in the beginning. But still, before that, I would like to provide a bit more details on this morning's news, which very much relates to the details on this morning's news, which very much relates to the same topic I mentioned in my earlier comments. You might have seen it already. We announced the acquisition of Sing Digital, a UK based consultancy with 3 studios across UK. ZYNG brings a high level of consulting and customer engagement expertise that expands upon global digital and organizational consulting capabilities within UK and Europe. This acquisition should further enhance our ability to meet customer demand for dynamic design led consulting, digital product innovation and advanced business solutions, helping us to build platforms at speed at scale. So, we are the story that continues to evolve. With that said, let me turn finally the call over to Jason for an overview of our Q3 results and business outlook update. Thank you, Art. Good morning, everyone. I'll start with some financial highlights, then talk about profitability, cash flow and end on guidance for fiscal 2018 in Q4. In the Q3, we delivered very strong top line performance, exceeded our profitability expectations and grew earnings per share. Here are a few key highlights from the quarter. Revenue came in at $468,200,000 a year over year growth of 24% and 25 0.4% growth in constant currency. In the quarter, revenue reflected a negative foreign exchange impact of 1.4%, greater than the 1% impact we expected when we set our Q3 guidance in August. Reported revenue would have been approximately $2,100,000 higher this quarter, applying the same foreign exchange rates to non USD revenues used for our Q3 guidance. Looking at revenue growth across our industry verticals in the 3rd quarter, the drivers of growth remain very consistent in the industries we serve and include digital transformation and increased focus on customer engagement, product development and driving efficiencies and deeper insights through artificial intelligence, machine learning and analytics. In financial services, our largest vertical, we delivered 18.1% growth year over year. Growth in Q3 was impacted by an expected ramp down of activity at a few clients outside of our top 5, predominantly based in Europe. Travel and consumer grew 21.9%. Software and high-tech grew approximately 20.1%. Business Information and Media posted 27.2% growth. Life Sciences and Healthcare grew 40.3%, reflecting growth in existing clients and quite strong growth in new client revenue. And lastly, our emerging verticals delivered 31.4% growth, driven primarily by clients in industrial engineering and energy. From a geographic perspective, North America, our largest region representing 60.7% of our Q3 revenues, grew 30.3% year over year or 30.7% in constant currency. Europe, representing 32.5% of our Q3 revenues, grew 12.4% year over year or 14% in constant currency. CIS, representing 4% of our Q3 revenues, grew 15.9% year over year or 27.8% in constant currency. And finally, APAC grew 67.6 percent or 71% in constant currency and now represents 2.8% of our revenues. We continue to deliver growth across a broad range of industries, geographies and engagement types, while driving further diversification in our client concentration. In the Q3, growth in our top 20 clients was approximately 23%, and growth outside our top 20 clients was approximately 25% compared to the same quarter last year. Moving down the income statement, our GAAP gross margin for the quarter was 35.7% compared to 36.6% in Q3 of last year. Non GAAP gross margin for the quarter was 37.3% compared to 37.9% for the same quarter last year. The decline in gross margin was primarily driven by a higher level of accrued variable compensation compared to the same quarter last year. GAAP SG and A was 19.8 percent of revenue compared to 21.5% in Q3 of last year. And non GAAP SG and A came in at 18% of revenue compared to 19.8% in the same period last year and at the bottom of the 18% to 19% range we used to manage the business. GAAP income from operations was 64,600,000 percent of revenues in the quarter, compared to $49,200,000 or 13% of revenue in Q3 last year. Non GAAP income from operations was $82,100,000 or 17.5 percent of revenue in the quarter compared to $62,600,000 or 16.6 percent of revenue in Q3 of last year. Our GAAP effective tax rate for the quarter came in at 0.6%, which includes the impact of a $7,100,000 favorable adjustment to the provisional charge for the one time transition tax under U. S. Tax reform originally booked in Q4 2017, as well as a $6,100,000 excess tax benefit related to stock option exercises investing in restricted stock units. Our non GAAP effective tax rate, which excludes these and other adjustments, was approximately 20%. Diluted earnings per share on a GAAP basis was $1.15 and non GAAP EPS was $1.17 reflecting a 49.4 percent and 27.2 percent increase over the same quarter in fiscal 2017. In Q3, there were approximately 57,000,000 diluted shares outstanding. We ended the quarter with over 25,200 delivery professionals, a 16.6% increase year over year and a net addition of more than 900 production professionals during Q3. Our total headcount ended at more than 28,400 employees. Utilization was 76.4% compared to 77.6% in the same quarter last year and 78% in Q2. Turning to our cash flow and balance sheet, cash flow from operations for Q3 was up $102,300,000 compared to $62,200,000 in the same quarter last year. And free cash flow was $94,100,000 compared to 56 $800,000 in the same quarter last year. DSO was 81 days compared to 83 days at the end of Q2 fiscal 2018 and 82 days in the same quarter last year. We continue to focus on managing our total DSO performance in the low 80s. Now let's turn to guidance. Our updated full year and Q4 outlook reflect both an acceleration in revenue growth expected for the quarter relative to that achieved in Q3, as well as a modest contribution from the acquisition we announced earlier today. So starting with fiscal 2018, revenue growth is now expected to be at least 26.5% reported despite the strength of the U. S. Dollar reducing the full year benefit of foreign exchange from 1% to 0.5%. Revenue growth on a constant currency basis will now be at least 26%. As a reminder, our full year revenue outlook continues to reflect an approximate 2% contribution from inorganic revenues. We expect GAAP income from operations to now be in the range of 12.5% to 13.5 percent and non GAAP income from operations to now be in the range of 16.5% percent to 17.5 percent. We expect our GAAP effective tax rate to now be approximately 2%, which reflects our tax planning efforts in response to the U. S. Tax reform legislation. We expect our non GAAP effective tax rate to continue to be approximately 22%. For earnings per share, we now expect GAAP diluted EPS to be at least $4.22 for the full year and non GAAP diluted EPS will now be at least $4.32 for the full year. We continue to expect weighted average share count of 56,700,000 fully diluted shares outstanding. For Q4 fiscal year 'eighteen, revenues will be at least $500,000,000 for the 4th quarter, including an estimated $2,000,000 contribution from the THINK acquisition, reducing a growth rate of at least 25% reported and at least 26% in constant currency after factoring in a 1% estimated unfavorable foreign exchange impact. For the Q4, we expect GAAP income from operations to be in the range of 14% to 15% and non GAAP income from operations to be in the range of 17 percent to 18%. We expect our GAAP effective tax rate to be approximately 19% and non GAAP effective tax rate will be approximately 22%. For earnings per share, we expect GAAP diluted EPS will be at least $1.03 for the quarter and non GAAP EPS will be at least $1.22 for the quarter. We expect a weighted average share count of 57,100,000 fully diluted shares outstanding. And finally, a few key assumptions which support our Q4 GAAP to non GAAP measurements. Stock compensation expense is now expected to be approximately $13,000,000 Amortization of intangibles is now expected to be approximately 2,700,000 dollars The impact of foreign exchange is expected to be approximately of non GAAP adjustments is now expected to be around $3,200,000 Lastly, we expect excess tax benefits to now be around $2,300,000 dollars In summary, we are pleased with our 3rd quarter results, which reflect strong broad based growth across all our verticals and geographies. Our unique positioning in the market combined with our solid fundamentals positions us well for continued growth in fiscal 2018. With that, let's open up the Our first question comes from the line of Ashwin Shirvaikar with Citi. Please proceed with your question. Thank you. Hi, Ark. Hi, Jason. Good morning. My question is with regards to the acceleration in revenues that you're seeing. If you could maybe break that down into sort of signing new clients versus your contract sizes increasing as software engineering and digital transformation just becomes more and more mainstream? I guess, let me start there. If you could provide a little bit of color as to what's driving that acceleration and the sustainability of it? Hi. So, first of all, the acceleration exists, but it's not so huge. It's probably in line with what we were showing before. But the type of work is slowly that's clearly starting to change. We see this more platform demand opportunities. And we do believe we have some advantage there, but it is very complex and there is a lot of demand there. But kind of delivering this is still challenge for us as well. And that's why I was trying to explain and focusing on a lot of potential challenges we're seeing ahead of this. And this is also like I was trying to highlight that it's on our capabilities, but it's also on the majority of the clients from one point of view, clients needed from point of view, clients not necessary always ready for this. But again, in short, we see the change in this kind of portfolio where more demand is coming for more integrated platform lead solutions. I don't know if I can bring more color to this, but that's happening. Yes. I guess the only sort of subtle adder would be that we are seeing somewhat of an acceleration in new customer revenues. So, we have a significant demand from new customers. They obviously start small and then grow over time. And that is contributing to the somewhat higher level demand that we're seeing in Q4. Got it. And then just to pick out a couple of the areas, the verticals, obviously, good it looks like good sequential acceleration in life sciences and the emerging verticals are also doing well. Could you kind of talk about sort of, first of all, what's contained in the emerging verticals? And just talk about just link back to the comment on platform, life sciences and healthcare. Maybe something about the nature of the work you're doing. Is it the reason you're seeing the pickup there? Okay. It's a lot of questions, Eduardo. So what we qualify under others, it's everything which not belong to the our key line of business right now. But you're right, it's growing fast and it's include, example, oil, gas, energy, engineering and even Telkka as well. So basically in automotive, right. So and it is a high growth and this is many of them new clients for us and good portion of this coming with this platform lead opportunities where we need like to put the best of us to be able to deliver, okay? So, specifically on Life Science, for example, or some other verticals like this quarter Life Science and Healthcare Assuring much better results than before. And again, this is relatively it's only 10%, 11% of our business. So, volatility here is happening and will be happening. Because, again, 1, 2 clients start or finish might impact specific quarterly results. This quarter, it looks very good. So, what we do in life science, we're mostly still operating in R and D space and in data space with specialization and focus on some programs around genomic data, for example, or automating the lab processes. So but we're growing in commercial part as well. So what other questions was there? No, I think I was just basically looking for those sorts of examples on Life Sciences, trying to connect it to your platform comment, but I think I do get that. Thank you. Congratulations on this quarter. Thank you. Thank you. Our next question comes from the line of Afzis Shah Kannanar with Cowen and Company. Please proceed with your question. Hi, good morning, everyone. My first question is around pricing. Is the growing consulting what seems to be the growing effort and focus around consulting, does that enable you to have a positive impact on the overall pricing plan? So, I think in longer term, we will expect more impact. But at this point, consulting for us is enable for the total solutions. And for us, there is and we shared this in the past as well. There is no goal to bring consulting as it just separate service with higher margins. The goal how to help to do end to end solutions and help clients and ourselves actually to explain ROI in advance and then focus on the things which necessary. I think it would take some time before maturity of this, the whole operation would grow and we will see much bigger impact on our margins. There are probably some, but it's very difficult to measure specifically because of we're not treating consulting just as a line of business. So, it's difficult to understand exactly from where the benefits or problem would be coming from. And the next question regarding finding the right talent, are you looking for new regions or new countries in order to find the required talent? So, we're always looking for new regions for new talent because all of us is practically each time we repeat and that it's one of the key challenges for everybody in global market. And we're opening offices, additional offices in Europe. We're thinking about some additional investments in locations where we have how to improve the quality of talent we can bring, how to train it and how to bring the level which we need. But yes, a simple answer we are looking all the time. Great. Thank you so much for the details. Thank you. Thank you. Our next question comes from the line of Darrin Peller with Wolfe Research. Please proceed with your question. All right. Hey, guys. Good morning. Thanks. Maybe just start off with a financial question. Your margin did come in better than we thought and you're raising EPS guidance nicely now. Maybe you could just give us some building blocks on what's the key drivers of that And and we are expected to see higher utilization again in Q4. We're also seeing a stable wage environment, probably getting a little bit of a benefit from customer mix. And then throughout the year, we've had a focus on account profitability and I'd like to think that has produced some benefit. Finally, we're also seeing benefits from our focus on managing SG and A. At the same time, we continue to invest to make certain that we can deliver greater than 20% growth in the upcoming fiscal years. All right. Thanks. So I mean that sounds like some of these variables are sustainable in terms of utilization, wage. You tell me, I mean not to put words in your mouth, would you say that wage inflation in your view is looking like it's pretty stable at this point or like for the next few quarters more than just this one? It's always hard to predict what will happen with wage inflation. And so what I can say is that wage inflation, let's say this year has been very much within our expectations and it's been relatively stable and not elevated over levels we've seen in the past. But it would be hard for me to predict the future. And I would agree that it's difficult to predict how it's going to work out because it's clearly a function of talent availability. And we all know and confirm that it's a global challenge and we will see how next quarters will work. So difficult to predict. But as always, but over the years, but certainly I think with a little bit more focus, we are quite focused on account level profitability and doing what we can do to maintain and improve profitability despite what happens with the wage inflation. That's good to see that coming through. Just a quick follow-up on the financials vertical. Look again, I mean revenue growth is strong. That one vertical looked like it decel a little bit. And I'm just curious if it's something around like maybe one of your larger clients having a tailwind that sort of running out of steam or anything else going on there? Thanks guys. Okay. So, I think just a couple of things on that. So, if we draw if we included foreign exchange, which was a negative, the growth in the financial services would have been just over 20%. We did see a few financial services customers not in our top 5 that saw a decline. So there were a few customer specific events. We still see very strong demand in financial services and expect to see very strong demand in Q4. But we did see a few of our smaller clients with the decline. Okay. Okay. Thank you. Our next question comes from the line of Jason Kupferberg with Bank of America. Please proceed with your question. Good morning, guys. Thanks. I just wanted to add on with the margin question. So obviously, you took the guide up there 50 basis points at the midpoint here at 17% now for the year. I mean, how much headroom is there over time in the margins? I mean, is there still room to drive additional SG and A efficiency over time as you think about the business over the next couple of years? Because it sounds like this is a little bit of a new normal to the extent that the recent range was kind of pegged between 2016 2017 and now we're trending higher than that? Yes. I think I'd say that we're still working on our 2019 plan. So, it would be hard for us to comment at this time. We are going to continue to make investments to make sure that we can continue to grow the company in excess of 20% per year. I think that the one comment I would make just kind of based on history is that in the first half of the year you saw us in the low end of the 16% to 17% range clearly in Q3 and in Q4, we're talking about being above the 17% range. So I think what I say is you can clearly see that we can operate anywhere in that 16% to 17% range at the high end of the range as well as the low end of the range. But at this time, we wouldn't be able to sort of provide any additional color on what we expect for adjusted IFO in 2019. Okay. What can you tell us just in terms of attrition trends in the quarter? I know you don't disclose an exact number, but I think last quarter the comment was that it had gone up quarter over quarter. So what was the direction there in Q3? So, attrition is still at the same kind of level, like it may be significantly higher than last quarter, but it's mid teens right now. So, and again, it's all combination of talent and wage. Yes, digital talent is still tight. It's not decreasing, let's say this. Okay. Okay. Well, that's helpful. Thank you, guys. Sure. Thank you. Our next question comes from the line of Mayank Tandon with Needham and Company. Please proceed with your question. Thank you. Good morning. Jason, as you look ahead into next year and maybe for Ark as well, I just wanted to get your thoughts on how you think about growth from a standpoint of headcount additions versus pricing leverage and any further improvement in utilization? And then I have a follow-up around just over time, do you expect the model to shift more to fixed price, maybe even outcome based or transaction based pricing versus currently being much more heavily weighted towards time and materials? Thank you. Okay. I think on utilization, we're probably at the level which we're not going to make it higher. I think it's around optimal and we would be probably happy to maintain it as well. Specifically telling that we continue to grow pretty fast. So, on the model, we're definitely researching and brainstorming what's possible to do here. But like also pointed before and I would like to point it one again, the T and M, it's not just a model which we selected because it's easier to do. CNM, it's practically subject of type of work which we do and where we're going and building new stuff, which is dynamically changing from client side and from the client competition side. And it's very difficult to turn this type of work to fixed cost or SLA because, again, fixed cost to SLA is something which very well defined or you did multiple times, you know how to predict, you know how to cut fat, and this is not the type of work which we usually do. So, at the same time, outcome based might be an answer for this if there are right kind of relationship understanding and readiness not only from us, but from the clients. And that's why we were talking about earlier that we're working and creating this digital ecosystems to run our self to be more agile and speedy. And we're trying to starting to offer this type of consultancy to clients as well, because some of them really like an ability to act accordingly. And I think there are some signs that might be opportunities for us to turn more to different models, but it's still very early to say. But we're definitely thinking and experimenting with this right now. Great. So, it sounds like the growth will be largely driven by headcount additions, at least in the near to medium term? So it would be yes, it would be both. We clearly we have multiple initiatives right now how to separate these 2. But headcount still would be the number of quality of engineering staff still would be very important. Thank you very much. Super helpful. Thank you. Our next question comes from the line of David Grossman with Stifel. Please proceed with your question. Thanks. Just a quick financial question to get started. Are you going to disclose the top client percentage and top 5 anymore? I know you gave the, I think, top 10 and top 20 or outside the top 20. Yes, we've got the is it tough about David or is it? Yes, David, that is in our fact sheet on our website, the top 5. Okay. All right. Sorry, I can look there. I didn't see it earlier. Yes. And then, I think this has come up in a couple of different questions. But if you go back starting at the end of last year is when the cost of per head started growing at a faster rate than the revenue per head. And I know there's a utilization element to that. But Ark, is that the state of the world that we're in for the foreseeable future given the labor markets? And how much historically, I know pricing leverage to some extent has been a function of employee or customer turnover. But can you give us a sense of kind of what we should be thinking about over the next 12 months in terms of that equation? In terms of price increases or in terms of what? Yes, the price wage dynamic because historically, you were able to drive revenue per head at a faster rate than cost per head and that dynamic slipped last year. I'm not sure it's flipped since the last year. So, there is a difficult to answer the question when I'm not exactly understanding the question. David, again, as you can imagine, this is one of those it depends questions in terms of the answer. But what we are seeing is the ability to take up rates still. We did see some rate increases across some large customers here in Q3. It is a focus of ours obviously to deliver sort of quality and to make certain that we're getting work done for our clients, but at the same time to capture some of the value for the firm and for our investors. And so, it is a focus of ours to sort of drive account profitability. And there is definitely attention to the pricing element. And so, it's hard to say whether or not pricing is going to accelerate at a greater rate than wage inflation. But what I can say is that we do continue to get rate increases and we clearly look for those opportunities with both existing and new customers. Okay, got it. Thanks very much. Thank you. Our next question comes from the line of Jamie Friedman with Susquehanna. Please proceed with your question. Hi. Thank you and congratulations on the 25th anniversary. Ark, in your prepared remarks, you had outlined the increased complexity was already used in the technology landscape. I just want to make sure I understand, is that a good or bad thing for EPAM? That's my first question. And I'll just get my other way in. Jason, with regard to the DSO, it's a good cash flow quarter and good to see the DSO stable. Is there any opportunity to improve on that even further? So first on the complexity of checking on the cash, the DSO. Thank you. Question number 1. Good or bad, it's first of all, that's a reality. And we do believe the component of the market which you're playing in is giving us opportunity to potentially win more deals because we believe better prepared for this type of more complex work. But at the same time, more complex work require different combination of capabilities and all of this is creating challenges as well. So, we do think it's good, but it's more challenging as well. From a DSO standpoint, we took down DSO by 2 days in the quarter. I would not expect to see a further decline. I think we're comfortable with this kind of low 80s, but it is an area of focus of ours and we are looking to continue to evolve that. But at this time, I would say just to consider sort of a low 80s is an appropriate target for us. Got it. Thank you. Thank you. Thank you. Our next question comes from the line of Arvind Ramnani with KeyBanc. Please proceed with your question. Hi, Ark. Hi, Jason. Congrats on another strong quarter. I just had a couple of questions on automation. In the last earnings call, you had kind of explained what you're doing on automation. Just wanted to see if you have an update. And specifically, are there particular vendors that you're working with as it relates to RPA? I think nothing significantly changed during the quarter. It's still very hot area and it's a growing area for us. But I don't think there is any specific update over the 3 months, which makes sense to bring right now. Yes. But are there some particular RPA vendors that you're working with? I know WorkFusion is 1, but are there others you're working with as well? No, we're working with the same set of vendors. WorkFusion is one of the top, and we're working with couple others. Exactly, again, its landscape didn't change in 3 months. While I understand you're asking this because it's a very dynamic market and everything can happen, but not so fast. Great. And just in terms of like the pricing models on your automation projects, is it similar to kind of the other projects you do or are the pricing models slightly different? This is very new and clearly automation much more suitable for outcome based because it's much easier to measure the impact. And there are multiple discussions in our current deals how we're going to do it. So, that's a very right question. That's probably the area where we might be going out of CNM in the future much faster. Great. And just last question on this topic. Are there particular set of clients either by geography or by industry where you're seeing higher interest or is this kind of an area that has demand across all of your client base? So, definitely, I think insurance and financial services probably championing this right now because there are a lot of PPO type of services there, but it's also related to retail as well. The next question comes from the line of Georgios Curcao with Renenburg. Please proceed with your question. Yes. Hi, guys. Thanks for taking the question. I guess a quick high level question for me. Are you seeing increasing demand from your clients for near and onshore delivery, I. E. Effectively rotating gradually and steadily away from offshore? So, I think we've seen demand for more cross functional teams and with some of them to be staffed in the markets. So, because of complexity of the programs, not because specifically wanted people here, but to deliver this complexity, we need more subject met expertise, more vertical knowledge, more consulting skills. And very often, these type of skills should be deployed in the market. So, this is happening and this is a trend we're seeing, but we don't see the trend like no global delivery and no offshoring. This is still the play between all capabilities, cost and scalability clearly. So, I don't think there are a radical change, but it would be some type of evolution to and again, in our case specifically, we have even still only what, 10%, 11% of people in the market, which is probably at least twice less than most of our competitors. Thank you. Thank you. Our next question comes from the line of Vladimir Bastogolov with VTB Capital. Please proceed with your question. Hello, congratulations on very strong number and thank you for taking my questions. So I have my first question is on your client concentration. I see that in the second decile in your top 20, there is a big increase of the share of those clients. Maybe you could provide some color what was this driven by acquisition of new clients or ramping up of the existing clients? And my second question is on capital allocation. I ask this question from time to time, but I see your cash flow keeps increasing. So any new developments in this area? How to allocate this cash? How to use it? And could you maybe provide how much of this is in Belarus and outside Belarus? Thank you. Yes, that's fair. So from a concentration standpoint, and it's a good point, because I saw the same thing, which is the 11 to 20 the 11th largest to the 20th largest customers had a very high growth rate in the quarter. And a number of those customers are customers that may not be new customers, but customers that we've acquired within the last 2 years. And what I think it does speak to is just the fact that we are still in a position with our customers and even our larger customers where many of them there are significant wallet share opportunities for us. They are large global companies. We get in, we do work. We're successful with a program and then they ask us to help out in other areas. And so what you do find is that there continues to be significant growth opportunities even within these large customers. And again, you had a couple of very nice kind of growing accounts in that 11 to 20 range. From a cash standpoint, you are right. We have even more cash this quarter than last. And we have taken the opportunity post U. S. Tax reform to bring some of that cash back in the United States. Right now, over 40% of that cash is in the U. S. So, we have taken down the balance that we have in Belarus. And from a capital allocation standpoint, it's still very focused on acquisitions. I think what you might see in the first half 2019 is see us doing deals at a somewhat accelerated rate. So, a couple of deals in that time period rather than one. I think you might see us do somewhat larger deals. And so rather than deals at a $30,000,000 or $50,000,000 deals that would be somewhat larger than that. And so that's where we're going to continue to sort of focus the use of cash. However, we do meet with our Board and discuss the evolution of our capital allocation strategy. And we do think about all the obvious sort of share purchase to sort of reduce dilution in some of that. But we're not at a point in time where we'd be discussing that and certainly not with any sort of communications Our next question comes from the line of Joseph Foresi with Cantor Fitzgerald. Please proceed with your question. Hi. I was wondering if you could give more color on what type of projects and clients had issues within Financial Services? Financial Services clearly is a very diverse segment. And I think we were telling the story to what we're doing on more traditional investment banking side. And we also shared some successes and we continue doing this on the wealth management side and more digital type of projects. So, we're working in financial services also incorporate for us number of clients, which is more in data side for financial services. In tech, smaller companies, which are building new type of banking systems and payment systems, That's another segment which we see in both of this like when I'm saying banking, I'm more referring to retail banking, online retail banking and everything around payments, which is pretty interesting and growing area for us. And there are also a number of services we provide for hedge funds as well. So again, it's very diverse portfolio with very different type of projects. And from geography point of view as well, it's pretty much spread across Europe and North America and Asia too. So that is where we're really where we're seeing the growth with the wealth management, asset management, FinTech. Also seeing some nice growth in the insurance area. It's still relatively small for us, but growing with a lot of new customer revenues. And so, I guess maybe you could conclude from that, I guess, the inverse in terms of answering your question. Okay. That's what I thought. Okay. And then, just on the platforms and the move to platforms, do those come in at higher margins? Although you build once and kind of resell opportunity? And how should we think about that as it becomes a bigger piece of your business? Does it extend your comp set? How do we think about that and its impact on margins? Thanks. We kind of were answering this already, and there is no black and white answer here because from one point of view, this platform starting from consultancy and starting from consultancy and going to architecture and going to selecting the right components and then put it together. And what I'm trying to say is that it's still in majority T and M type of job. And you need like in some categories, you need much more higher caliber people for this. But at the same time, this high caliber people, it's also more expensive. So, until we will see enough experience doing this and able to bring more our accelerators and some components and we're focusing on this too, it will be difficult to kind of predict what the margin impact is going to be. But at the same time, it's definitely giving us opportunity to grow fast and to support the investments which we need to do. Got it. Thank you. Thank you. Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for closing comments. Okay. Thank you. Thank you, everyone. So, it was a good quarter. We hope to deliver the good year in 3 months and share this with you. And also just to share that in December, we're going to celebrate our 25 years anniversary. So, it's a kind of special year for us. And I would like to thank all our employees and clients for giving us opportunity and for investors clearly too. Thank you very much.