Earnings Call: Q3 2017

Nov 2, 2017

Greetings, and welcome to the EPAM Q3 twenty seventeen Earnings 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, Mr. David Straube, 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 for the company's Q3 fiscal 2017 results. If you have not, a copy is available at epam.com in the Investors section. With me on today's call are Arkhanie Dobkins, CEO and President and Jason Petersen, 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 numbers have been reconciled to GAAP and are available in our 3rd quarter earnings materials located in the Investors section of our website. With that said, I'll now turn the call over to Ark. Thank you, David, and good morning, everyone. Thanks for joining us. Our 3rd quarter revenue results reflect continued high demand for our services across both the industries we serve and the geographies in which we operate. We also delivered strong profitability in the quarter and generated significant free cash flow. Revenue for Q3 came in at $378,000,000 representing year over year organic growth of 26.6% reported or 24.6% in constant currency. Across all verticals, the trends of transformation, digitalization and competitive disruption in our clients and markets are main drivers for our growth. Financial Services, our largest vertical, finished the quarter with 15% growth, which was broad based across our major geographies and driven by clients responding to regulatory changes, digitization and the drive to optimize payments. Excluding the impact of UBS, financial services grew 27% in Q3. Travel and consumer grew 20% in the quarter with growth coming from the continued focus on e commerce, customer experience and personalization efforts among clients in North America and Europe. Software and high-tech grew 22% for the quarter, driven by diversified portfolio of mature software companies, emerging startups and technology companies going through digital platform transformations. Media and entertainment posted 40 2% growth in the quarter. The continued evolution of direct to consumer trends, which include enriching the viewing and user experience across multiple platforms, helped drive growth in this vertical. Life Science and Healthcare grew 24% over the same quarter last year. Trends driving the growth this quarter were Life Science clients focusing on new ways to engage with doctors and patients in addition to R and D IT initiatives. And lastly, our emerging And lastly, our emerging verticals delivered another strong quarter with growth of 78%, driven primarily by telecommunications and energy clients. The diversification across our clients continues to progress with growth outside of the top 20 accounts coming in at 37% and growth in the top 20 accounts at just over 15% or more than 20% excluding the effect of UBS. As usual, growth this quarter came from combination of existing and new clients. We ended this quarter with over 21,600 IT professionals, an increase of over 13% year over year, bringing our total employee headcount to more than 24,500. Net addition of more than 12 100 production professionals during Q3 is a level we have not seen in 6 quarters. Stitching a bit away from numbers, I would like to bring just one customer story, which should illustrate well the journey we are experiencing today with some of our key clients. The journey, which is very much in line with what we shared during our Investor Day in regards to unique relationships among the pump service horizons, which include core engineering services to make sure we build things right, complex solution design and delivery to improve our client systems of engagement, and innovative creative thinking and experimentation with new technologies and business models to predict how those critical solutions might look like for our customers tomorrow. And what is important, visibility to materialize, bring to the market those solutions sooner than most of our competitors can due to our core engineering advantage. We, in short, make those solutions real. We do believe the right complementing balance of efforts across those horizons differentiates EPAM on the market today. So, back to the story. Liberty Global is one of the largest cable companies in the world. We started to work with Liberty over 5 years ago, and it was one of our 4th digital strategy engagements, which brought us an innovation award at their technology summit back then. Nothing unusual is that. What is more unusual that during the past years, EPAM received at Liberty Global Technology Summit another 3 awards in the Innovation and Breakthrough nominations. For example, this year award focused on the Palm augmented reality Hololens solution for Formula E racing, which allows users to watch multiple race cameras at one time and also see the circuit with the current position of the driver. And just last week, Liberty Global was named as the winner of the best wireless broadband solution as a Broadband World Forum Awards for their new Connect app, which EPAM team helped to develop and was honored to be invited to the stage together with our client to accept the award. The app allows users to check their mobile usage monitor devices connected to their home Wi Fi network and automatically connect to about 10,000,000 Wi Fi hotspots internationally. What is interesting that during those 5 years, in addition of those innovation awards, Liberty became for us one of the top clients just confirmed that we are bringing balanced value across all three horizons and driving that value from the innovation angle to real tangible results to the client. With that, I think it would be appropriate to share a news about another relevant recognition for our digital capabilities. Last month, EPAM was ranked for the 2nd year in a row the UK top 100 digital agencies, raising in rank to number 5 agency in U. K. And lastly, in Q3, we held our annual software engineering conference that brings together e commerce from around the world, from engineers to designers to data scientists and functional leaders. This year, a large group of clients join us for the first time to share from one side and to hear from another the latest trends in technology and engineering and how those trigger new business models and bring new value. This is a valuable event that helps us to develop our talent and forge stronger relationship with our customers. It's just another component which illustrates how important for us to maintain our engineering DNA, which is a key glue across all services of our business. So, with that, let me hand the call over to Jason for additional details on the quarter. Thank you, Ark, and good morning, everyone. As Ark mentioned, we delivered strong top line performance, drove higher profitability, and generated significant free cash flow in the 3rd quarter. Let me start with some financial highlights, talk about profitability, cash flow and end on guidance. Getting with revenue, on a reported basis, we closed the 3rd quarter at $377,500,000 26.6 percent growth over the same quarter last year and 8.2% growth sequentially. Year over year constant currency growth was 24.6%, reflecting a currency benefit of 2%. Actual revenues compared to our Q2 guidance benefited from a combination of stronger revenue production of $8,200,000 and a favorable currency impact of $2,300,000 From a geographic perspective, North America, our largest region representing 57.8% of our Q3 revenues, grew 28.4% year over year and 27.6% in constant currency. Europe, representing 35.9 percent of our Q3 revenue, grew 22.8% year over year and 19.8% in constant currency. Absent the effect of UBS, growth in Europe was 26.4% in constant currency. CIS grew 44.6% year over year or 34.7% in constant currency and now represents 4.2% of our revenue. And lastly, APAC grew 12.6% year over year and 12.2% in constant currency and now represents 2.1% of our revenue. Moving down the income statement, our GAAP gross margin for the quarter was 36.6% compared to 36% in Q3 of last year. Non GAAP gross margin for the quarter was 37.9% compared to 37.6% for the same quarter last year. The 30 basis point year over year increase in non GAAP gross margin resulted from the higher utilization offset by the negative impact of foreign exchange. GAAP SG and A was 21.5 percent of revenue compared to 22.6% in Q3 of last year and non GAAP SG and A, which excludes stock based compensation expense and certain other items came in at 19.8% compared to 19.5% in the same period last year. Our level of SG and A reflects the continued investment in our talent acquisition, extension of our global footprint and expansion of our capabilities with a focus on supporting our long term sustainable growth strategy. GAAP income from operations was $49,200,000 compared to $33,900,000 in Q3 last year, representing 13% of revenue in the quarter. Non GAAP income from operations was $62,600,000 dollars compared to $49,700,000 in Q3 last year, representing 16.6% of revenue. Our GAAP effective tax rate for the quarter came in at 15.7% and our non GAAP effective tax rate was 20.4%. For the quarter, we generated $0.77 of GAAP EPS. Non GAAP EPS was $0.92 a 21.1% increase when compared with non GAAP EPS of $0.76 in the Q3 of last year. Total shares outstanding for Q3 were approximately 55,200,000. Utilization was 77.6% compared to 72% in the same quarter last year and 79.6% last quarter. We landed slightly over the top end of the 75% to 77% range we like to manage to and higher than our Q3 historical levels. We will continue to hire for the demand we see in our business with an expectation that utilization will trend more towards our traditional range of 75% to 77% over the medium term. Turning to our cash flow and balance sheet. Cash from operations for Q3 was $64,900,000 compared to $61,800,000 in the same quarter last year. Free cash flow came in at $59,400,000 compared to $55,400,000 in Q3 of last year, resulting in 116% conversion of adjusted net income. Total DSO was 82 days compared to 83 days in the same quarter last year. We continue to be pleased with our total DSO performance in the low 80s. Turning now to guidance. Starting with fiscal 2017, revenue growth will now be at least 24% and we expect constant currency growth will continue to be at least 23%. For the full year, we now expect the impact of foreign exchange will be a positive 1%. We expect GAAP income from operations will continue to be in the range of 12% to 13% and non GAAP income from operations will continue to be in the range of 16% to 17%. We expect our GAAP effective tax rate will continue to be approximately 16% and our non GAAP effective tax rate will now be approximately 21%. For the full year earnings per share, we now expect GAAP diluted EPS to be at least 2 point at least $3.41 substantially driven by stronger revenue performance in fiscal 2017. We now expect weighted average share count of 54,900,000 fully diluted shares outstanding. For Q4, revenues will be at least $395,000,000 for the 4th quarter, reflecting a growth rate of at least 26% after 3% currency tailwinds, meaning we expect constant currency growth will be at least 23%. For the Q4, 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 16.5% to 17.5%. We expect our GAAP effective tax rate will be approximately 17% and our non GAAP effective tax rate will be approximately 20%. Earnings per share, we expect GAAP diluted EPS will be at least $0.78 and non GAAP EPS to be at least $0.96 for the quarter. We expect a weighted average share count of 55,800,000 fully diluted shares outstanding. Few key assumptions which support our GAAP to non GAAP measurements in the 4th quarter. Stock compensation expense is now expected to be approximately $11,400,000 amortization of purchased intangibles is now expected to be approximately 1,800,000 dollars Foreign exchange losses are now expected to be approximately $1,500,000 Tax effective non GAAP adjustments is now expected to be approximately $2,000,000 dollars Lastly, with the recent adoption of ASU 20 sixteen-nine, as a result of movement in our stock price, we continue to expect future volatility in our effective tax rate and GAAP EPS. In Q4, we expect excess tax benefit of approximately $2,300,000 Thank you. And now let me turn the call back to David. Thanks, Jason. To allow as many participants as possible on today's call, I would request that each of you ask one question and a follow-up. Operator, would you please provide instructions for those on the call? Our first question comes from the line of Darrin Peller with Barclays. Please proceed with your question. Nice job on the quarter. Let me just start off with the talent ability to acquire talent for you guys. I mean, it's obviously becoming a much more competitive space overall around digital. And you've done well there. I just want to hear a little more about how what type of supply there is for talent, if it's changed in terms of the dynamic from a competitive standpoint? And then maybe just follow-up to that on pricing, actually. Obviously the prices you're paying for this talent probably is higher. If you could talk through a little bit of the pricing environment, if you could pass that through, anything is changing on that front? Just a quick update there. Thanks. You probably remember that each time we are answering this question, our reply is pretty consistent. It's never was easy and it's not easy at all right now and probably would be even more challenging in the future. So, and with each kind of stage in our development and growth, we're finding a way how to train people, how to attract people and we're putting a lot of efforts to make sure that there is enough opportunities inside of the palm for people to realize and stay here. So, we just mentioned, for example, Software Engineering Conference and there are a couple of components on talent. It's on engineering side and on creative side. And how to make sure that this type of people can work together, which is create relatively unique environment for them to stay. Basically, on engineering side, we're doing this for a very, very long time. So, and we put in more efficient program how to train people, at the same time how to explain why farm different and why opportunities is different here. But again, it is very challenging and it's just generally industry huge challenge. And on more creative digital part of which is part of people we have to retain and attract. It's also a little bit changing from geographical point of view. It's more in client facing locations, while it's still pretty significant and very competitive in our development centers as well. So, there is no simple answer, but we're investing heavily in recruitment, in training, in opportunity building across our projects. To be clear, it seems fine this quarter, but I want to be sure. I mean there's nothing that's changing around the ability for you to maintain both the spread for the cost of the labor to pricing. In other words, the margin implications on it, nothing's changed there. Is that fair? I just want to make sure going forward we model that correctly. I think you're touching on very right points and this is definitely a challenge. But again, the challenge for everybody, we were navigating this for a long time. As you can see, during the last 6 quarters, we have some volatility in recruitment because of utilization and different type of impact. But for example, in Q3, we had the largest number of new employees join the company through different sources. So, I think we don't have simple answer, but we know how to kind of address the challenge. Okay. All right. I'll leave it there guys. Thanks very much. Thank you. Thank you. Our next question comes from the line of Ramsey El Assal with Jefferies. Please proceed with your question. Sure. I was wondering if you could give us kind of your latest thoughts on M and A, how active is your pipeline, whether you're evaluating deals, what type of deals might be most interesting to you? Again, I think you should expect our usual answer here too. So, we have a pipeline, we have deals and discussions right now. I don't think we can comment on specifics. But in general, we're always looking how to improve our client facing capabilities and how to extend specific capabilities from industry expertise to digital to engineering excellence type. So, again, I don't think we would comment on specifics until it's happened. Okay. Can you give us some idea about in terms of your kind of revenue growth algorithm, how much of your organic growth is from cross selling or up selling existing clients versus signing new logos, which is the more important driver or is it pretty evenly split there? Well, I guess if we look at the growth, I think we're quite pleased with the fact that we're generating growth from, I guess, both pieces of that equation. So, we're seeing growth in our top 20 customers, once we've got sort of long established relationships with growing at 15% a year in Q3. And actually, if you net out UBS, it would be over 20%. And then, in our other than top 20, I believe the growth rate is actually 37%. What you're seeing is continued growth in customers that we have long standing relationships with and then you're seeing quite robust growth from customers that we're adding and growth with those network customers. Okay. So, just to be clear, it's a pretty even split between those two drivers? I think that's fair. Okay. All right. Thanks a lot. I appreciate it. Thank you. Our next question comes from the line of Anil Dorudla with William Blair. Please proceed with your question. Good morning, guys, and congratulations from my end too. So, Arkady, you rightly pointed out never seen so many engineers being hired in this one particular quarter. Was it from any particular geography? Was it focused for any particular client? Any color around that? No, it was pretty well like equally spread across geographies and there is no any specific client which was driving this. So, this is again a reflection of diversification of our client base as well as we talked about. Great. And as a follow-up, Arkady, as we look into 2018, I know you guys are not giving any formal guidance right now. But any kind of qualitative color around kind of the demand environment, what you're seeing? Yes, Daniel, we would like to be consistent. So all we can say that we believe that we can continue growing over 20% organically. So, and that's how we're trying to design the future from clients to delivery capabilities. Very good. Congrats on the solid execution guys. Thank you. Our next question comes from the line of Ashwin Shirvaikar with Citigroup. Please proceed with your question. Sure. Thanks. Good quarter. Questions on some of the solution development that you guys are doing with regards to working with clients on AI project, IoT projects and so on and so forth. I would imagine the demand for those kinds of projects is pretty high. And this is a topic again we've discussed before to some extent, but anytime I look at the growth of AI, it seems to me a company like yourself, which has very strong software development capabilities, might actually do well with having your own software focused approach in a little part of your business. Can you provide us with the logic of how you're thinking on that? I know the bulk of your business is always services focused, but there are parts that might be better suited for software? So, we I think we shared it during the Investors Day as well that we're are really focusing on developing a number of accelerators for our solutions. We're still not going to not planning to go with product strategy, product strategy, but solution accelerators around specifics, including what you mentioned because it's becoming really interesting drivers for new clients and it's becoming very important part for them to compete. And solution kind of solution accelerators around engineering productivity. And we're also focusing right now on some specific solutions around talent management, talent growth because that's what we can apply to ourselves. In regards to all this IoT and artificial intelligence and automation, we partner with some of our clients and with market leaders. But again, considering how to put accelerators on top of this to be faster. Got it. And Ashwin, like in this category, and this is typical, most of the products not necessarily mature today because it's all experimentation, which is giving us additional advantage. And that's why we need these accelerators because very often we need to cover for the lack in functionality or stability of this type of product. And that's exactly where we think our competitive advantage. Understood. Understood. One of the things as we try to break down the elements of EPAM's growth, which again, one more quarter of fairly robust growth here. What I'm trying to think of is sort of the same store sales metric, how you're increasingly penetrating existing clients and how your sales force is positioned to do that on an ongoing basis? Could you provide maybe sort of hunting versus farming type of breakdown with regards to your sales force? So, we're getting new logos and we have the team is focusing exclusively on hunting. At the same time, our growth completely impossible without very good farming and this is what's historically the main driver of our growth and it's still probably the most important part. So, we mentioned that we have like right now 200 clients with $2,000,000 plus revenue, which is create huge opportunity for continue this length and extend approach. For Bose Business Development in Bose's segments, I think consultative approach becoming much more important and we talked about it, about our ambitious to build relatively efficient consulting organization. So and playing with our competency centers kind of to go and do this in very good orchestration. So, I think that's like very high level overview if possible on this call. Yes. I guess, we're certainly seeing an acceleration in the revenues that we're generating from our new customers. And so, as Ark indicated, we continue to see quite a bit of revenue growth from farming, but the hunting is increasingly generating growth as well. Got it. Can I squeeze in one more question just a clarification on the tax rate? Even here I would comment on top of what Jason mentioned. Our hunting still a lot of referral which we are out of this because it's a reputational type of extension to new logos. And that's what we would like to make sure that we're kind of keeping up because I think our delivery reputation should be main driver for new sales as well. Yes. No, no. Go ahead, squeezing your question. Yes, yes. So the tax rate question that I had was just the clarification on the lower tax rate entirely due to it's not mix or anything else, it's entirely due to one factor, which is stock based compensation rule changes. And why should that not be your go forward assumption, not just for 1 quarter, but going forward? Yes. So, if you look at the GAAP tax rate, that clearly is in there. If you look at the non GAAP tax rate, obviously, that's not part of that. And so, I would say that in terms of the somewhat of a decline we've seen in the tax rate that that is a little bit due to the greater revenue profits that we're producing in offshore centers as we've sort of driven the headcount increase that Arkadiy talked about and the higher utilization. And so I think in the second half of this year, you've seen a somewhat greater percentage of our revenue and profits come from those locations where the tax rates are generally lower. I do think next year what you'll see is maybe a little bit of a return back as we pursue our strategy of greater sort of client facing resources and delivery teams. Understood. Thank you. Thank you. Our next question comes from the line of Jason Kupferberg with Bank of America Merrill Lynch. Please proceed with your question. Hi, this is Amit Singh for Jason. Just quick question on your constant currency revenue growth as we look at it seems like it's growing at around 2x your sort of client serving headcount in Q3 and it was like similar in Q2. Just trying to understand the drivers here and is that sustainable? Yes. So, I'd say you have a couple of factors when I think about the growth. So, you've got one is obviously the growth in the headcount. And so, we had a very robust addition of headcount in Q3, which included both talent acquisitions, so talent from outside the market. And then also our resource development capability, which is to take younger recent university graduates and sort of train and develop them and to bring them into our development organizations as well. So, you've got the 2 pieces of, let's call that, headcount or resource addition. The other piece that you've had has been utilization improvement and the combination of those 2 have helped drive revenue growth. But as I think we've discussed, we have very strong demand across all of our geographies, across our pretty much all of our industry verticals and then both from new and existing customers. And we feel that we've very much got a series of engines in place to continue to add the headcount that we need to grow revenue in 2018. All right, perfect. And just quickly, I mean, if I look at your full year guidance, adjusted operating margin guidance, it seems like you would probably need still some ramp up in your adjusted operating margin in 4th quarter to get to around the middle of that guidance range. So just your confidence level in that. I know historically, I mean, last quarter, the 4th quarter adjusted margins were slightly below Q3, but in the prior years, they've been higher. So just trying to understand how the dynamics play out this year? I think there were some challenges last year that were specific to a single customer or maybe pretty much a single customer. This year, I think we would see a more traditional pattern. And historically, what we've seen is an improvement in utilization as we go from Q3 to Q4. And so, again, that's a historic pattern that you see as you come out of the summer quarter, which has higher vacations and as a result lower utilization. And so higher utilization historically would produce both higher revenue and higher profitability. All right. Thank you very much. Thank you. Our next question comes from the line of Joseph Foresi with Cantor Fitzgerald. Please proceed with your question. Hi. Can you talk about growth in Europe and its drivers and maybe give us an update on UBS? I think update on UBS is pretty straightforward. It's stabilized. It's a little bit growing, but in general, it's not impacting so much the overall picture because it's lower than 10% for several quarters in the row. So, in general, demand coming from traditional sectors, it's still coming. And you see it, we provided numbers outside of UBS impact from financial services and from Retail from Media. So practically pretty equally distributed across segments. Got it. And then the second question, can you talk a little bit about the pipeline? Are you working on any large deals? The reason why I ask is usually headcount additions like this imply that there is some demand out there that needs to be addressed or is it more balanced? Thanks. It is pretty balanced and don't try to read too deeply in this situation. Just remember that we have at some point very low utilization last year, just 12 months ago. And then we have to utilize people. We slowed down in hiring and for several quarters, we were utilizing the people which were available on the bench. And now we're just getting back to normal talent acquisition processes. And clearly, the biggest size 12 months ago, and this is just natural reflection of this. And demand is very broad based across a large number of customers and industry segments. Got it. Helpful. Thank you. Thank you. Our next question comes from the line of Moshe Katri with Wedbush Securities. Please proceed with your question. Hey, guys. Thanks. Good morning. Was there any sort of pricing tailwind during the quarter? And then what are you embedding in terms of your guidance for pricing? And then going back to Darren's question earlier in terms of recruiting, is there any change in terms of wage inflation assumptions by region or by some of the major regions in your numbers? Thanks. When you say pricing tailwinds, are you referring foreign exchange or something else? I'm talking about some of the bill rate increases that we're embedding in our models. Yes. And so, I think what we continue to see is sort of stable pricing. And as I think we've talked about in the past, we do have customers where we're getting annual price increases. But again, the pricing environment is stable. Back to the question around wage inflation, as Ark said, it's a competitive market, but there's a number of levers to maintain gross margin that includes utilization, That includes Pyramid. And so, yes, I think we're generally comfortable. The wage inflation is still kind of roughly somewhere in the mid single digits. Is that still the right number to use on a blended basis? Again, mid single digits. I think it's it would vary by geography. I think we're seeing a slight increase in wage inflation to be fair. But at the same time, what I was trying to communicate earlier is we do have the ability to sort of mitigate that through adjustments in pyramid, through adjustments in where and how we deliver. And then bill rate increases is still also kind of somewhere in the low single digits? Yes, it's sort of consistent with what we talked about in the past. If you're looking to sort of update the model, yes, keep the assumptions the same as what we've communicated in prior quarters. Thanks a lot. Thank you. Our next question comes from the line of Arvind Ramanani with Pacific Crest Securities. Please proceed with your question. Hey, congrats on a good quarter. I just wanted to get your view on the overall environment and if you could contrast it to last year. Last year we had a bunch of uncertainties around elections and UBS. And given that the environment is much better, how should we start thinking about kind of as we enter into next year? And not looking for guidance, just trying to get a sense of what your view of the environment is? You see, with all respect to elections, I think the last year, the main impact was still from UBS for us and with our size and with our kind of market being traded. I think if you take UBS out and now we see that it was pretty specific situation to this specific client. I think it's pretty consistent. The demand for this, again, overused, but there is a reason why term like digital transformation is very strong and it's driving a lot of new client engagements today. And with relation to this, a lot of back end rebuild and modernization activities. So, I don't see big difference with exceptions that Q3 last year was really impactful by one specific client. Great. Thank you very much and good luck for the remainder of the year. Thank you. Thank you. Our next question comes from the line of Steve Milunovich with UBS. Please proceed with your question. Yes, thank you. I just wonder how we should be thinking about OpEx going forward. You've been hiring consultants. So, in terms of SG and A investments, do you see any lumpiness or surprises there? And if we look out a year, would you think we'd be more at the high or low end of the 16% to 18% range? Yes. I don't think we're ready to guide yet on where we're going to be in the 16% to 18% range over the coming year. I think we need a little bit more time here to think about that here in Q4. From your question though on SG and A, is that we are making investments in our consulting capability to advance our ability to sort deliver and to work and deliver solutions to our customers. But it's not going to show up as a significant SG and A spend. And then the other thing is that a portion of those resources will be billable. And so if you go to the P and L, so they'll show up in core and they'll generate revenues that will offset their costs. And so I don't think you should expect a material increase in SG and A coming from some of those shifts. Okay. And on the competitive front, the Indians are always trying to move up toward your capabilities. Do you see any success there? And is your price premium relative to the Indians changed at all? It's very difficult to comment on price comparisons because that's usually not open information. So, everybody is trying to build digital capabilities and you see a number of acquisitions with global service providers and companies like Accenture doing on more and more regular basis. So, at the same time, I think market is still growing faster than capabilities and there is big demand. And I don't think it's very visible that something changing on the market. I mean, there are good opportunities. The main challenge still to have right capabilities and right balance of these capabilities for this type of deals. Great. I guess, so I just might add that when you look at our growth in certain segments where obviously there's a high digital component, we grew 42% year over year. So, I think that speaks to the strength of our capabilities and the work that we're doing for our customers. Great. Thank you. Our next question comes from the line of Vladimir Bespalov with VTB Capital. Please proceed with your question. Hello and congratulations on the good result. I have a follow-up question on UBS. I made some calculation. And it looks like in the last quarter, this account started to grow sequentially after like several years of pre flash performance. If this is the case and can we speak about the turnaround with this account and in general like with the overall situation, the financial services sector, you're growing pretty good, but do you see any improvement in the industry as a whole? Vladimir, first of all, QBS was the first pickup happened exactly 1 year ago. So, before that, it was pretty strongly grow account for us. So, but all we can comment that it's much more stable. We can predict better like this level of stability because if you remember our comments before, we were always saying like let's take a look at the next quarter. So, and I would kind of end with this type of deployment right now. So, general stability, you're asking about general stability, financial industry, again, for us, it's stable, for us, it's growing. And again, UBS was an exception. Like financial services, with exception of UBS, grew 27%. And that was practically true during the last periods as well. Okay. Thank you. And maybe you could provide some comment on life sciences and healthcare as well, because there was pretty good acceleration of growth year on year after 3 sluggish previous quarters? You see, for us, it's very difficult to kind of single out one vertical against another because as what we're trying to explain, majority of our service is in new development. We don't have a lot of legacy support and maintenance activities. And practically all sectors on which we focus in, it's a high growth sectors for us for the type of engagement we involved. And life science is a good example of this as well. Thank you very much. Thank you. Our next question comes from the line of Georgios Kurzoz with Berenberg. Please proceed with your question. Yes. Hi, guys. A very quick one, high level question for me, I guess. Thinking of growth, have you seen in the last this last quarter or based on the visibility that you have as of now, do you expect to see any sort of divergence between volume and pricing in any of your sectors or geographies? Anything that you can sort of comfortably call out there? That's all for me. Thank you. So, yes, so in the near term, I'm not certain that we see between volume and price. I think longer term, we've talked about the fact that we will likely see more of our work come out of our customer facing geographies. And so, over the mid term to longer term, what you could see is a divergence between volume and price just because the on-site or customer facing geographies would have higher rates than the offshore geographies. So, I guess the only other Yes. Okay. Just as a reminder, we're largely a T and M business, of 90% or overnight slightly over 90% of our revenues come from T and M. And so, you don't see significant changes based on things that could be happening with a large fixed bid engagement. Again, we're substantially sort of a T and M. Thank you. Our next question is a follow-up from Vladimir Bespalov with VTB Capital. Please proceed with your question. Thank you for taking my question. I would like to talk to you about the cash which you have on your balance sheet. It keeps growing and growing. You have answered this question quite a number of times in the past. But still, I mean, you have much more than you can stand on acquisitions probably. So, what is the longer term strategy for UB cash? Thank you. Yes. So, we're over $500,000,000 in cash. We had very strong cash production in Q3 as you're aware. 75% of that cash is offshore. And so, what we feel at this time is the cash that we have in place very much is there to support our acquisition strategy, our organic growth strategy. We do have discussions around what we might do longer term, but I wouldn't comment on that at this time. And instead, we'll just continue to focus on, I guess, the question that was asked by Avaric a while back, which is about our acquisition strategy and we continue to be active. Thank you. Thank you. Our next question comes from avishai cancer with Cowen and Company. Please proceed with your question. Good morning. Can market share or wallet share gains at large existing or relatively new clients explain the nice delta between headcount growth and revenue growth in recent quarters? Yeah. I mean, we're certainly seeing that. Clearly, an ongoing growth in our existing customers, as I think we talked about sort of 15% excluding UBS for our top 20 customers and over 20% if you exclude UBS. I think probably it's still a combination of things, which probably is more headcount growth and utilization, okay, as well as obviously expanded revenue across the hosted clients including our new customers. Thank you. Thank you. There are no further questions at this time. I would like to turn the call back over to Arkady Topkin for closing remarks. Thank you. We're clearly pleased with our result in Q3 and kind of excited about how end of the year shaping up for us right now. So and looking forward to update you in 3 months what really would happen. See you here in 3 months. Thank you very much. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful