Q4 2020 Epam Systems Inc Earnings Call

Excess tax benefits related to stock based compensation.

Our non-GAAP effective tax rate, which excludes excess tax benefits was 22, 6% day.

Diluted earnings per share on a GAAP basis was $1 46.

Non-GAAP EPS was $1 81, reflecting a 19, 9% increase over the same quarter on fiscal 2019.

In Q4, there were approximately $58 8 million diluted shares outstanding.

Now turning to our cash flow on balance sheet.

Cash flow from operations for Q4 was $159 3 million compared to $124 6 million in the same quarter for 2019 for.

Free cash flow was $140 9 million compared to $77 6 million in the same quarter last year, resulting in a 133% conversion of adjusted net income.

We ended the quarter with $1 3 billion in cash and cash equivalents.

In Q4, DSO was 64 days the lowest in at least five years and compares to 70 days at the end of Q3, 2020, and 72 days in the same quarter last year.

We are very pleased with this performance and believe we can manage future DSO levels in the upper <unk>.

Moving on to a few operational metrics. We ended this quarter with approximately 36700 engineers designers and consultants a.

A year over year increase of 12, 8% and a sequential increase of eight 8% our highest quarterly increase in the last five years our.

Our total head count for Q4 was more than 41100 employees.

A net addition of more than 3100 <unk> cameras from the previous quarter.

Utilization was 77, 9% consistent with Q4 of last year and down from 78, 2% in Q3 2020.

Turning to results for the 2020 full fiscal year <unk>.

Revenues closed at $2 66 billion or 15, 9% reported growth over 2019, and 16% on a constant currency basis.

During fiscal 2020, our acquisitions contributed approximately 100 basis points to our growth.

GAAP income from operations was $379 3 million, an increase of 25, 3% year over year.

And represented 14, 3% of revenue on.

Our non-GAAP income from operations was $472 7 million, an increase of 21, 5% over the prior year and represented 17, 8% of revenue.

Our GAAP effective tax rate for the year came in at 13, 6%, excluding the impact for the excess tax benefits related to stock based compensation and certain onetime adjustments our non-GAAP effective tax rate was 22, 6%.

Diluted earnings per share on a GAAP basis was $5 60.

Non-GAAP, EPS, which excludes adjustments for stock based compensation acquisition related costs and other certain one time items was $6 34.

Reflecting a 17% increase over fiscal 2019 and higher than our pre pandemic expectations of $6 30.

In fiscal 2020, there were approximately $58 4 million weighted average diluted shares outstanding.

And finally cash flow from operations was $544 4 million compared to $287 5 million for fiscal 2019, and free cash flow was $475 6 million, reflecting a 128% adjusted net income conversion.

Now, let's turn to guidance.

Given the relative stability as well as improved visibility across the portfolio. We are resuming our full year guidance for fiscal 2021.

While we anticipate growth patterns across the industry verticals to vary throughout the year, we expect our diversified portfolio to drive growth more in line with pre pandemic levels.

At the same time, we will be investing at elevated levels across the business to make certain we have sufficient resources to meet new demand.

Additionally, we will increasingly be investing in new geographies to support our long term growth.

One area of focus in 2021 will be the creation of the infrastructure to support our larger and increasingly global economy.

Starting with our full year outlook.

Revenue growth will be at least 23% on a reported basis and in constant currency terms will be at least 22% after factoring in a 1% favorable foreign exchange impact.

We expect GAAP income from operations to be in the range of 13, 5% to 14, 5%.

And non-GAAP income from operations to be in the range of 16, 5% to 17, 5%.

Our income from operations reflects a higher level of investment in the planned expansion of our capabilities and geographies in 2021.

We expect our GAAP effective tax rate to be approximately 12% and our non-GAAP effective tax rate to be approximately 23%.

For earnings per share, we expect GAAP diluted EPS to be in the range of $6 65.

To $6 86 for the full year.

And non-GAAP diluted EPS to be in the range of $7 22.

On to $7 41 for the full year.

We expect weighted average share count of 59 million fully diluted shares outstanding.

For Q1 of fiscal year 'twenty, one we expect revenues to be in the range of $7 $57 million to $765 million for.

Reducing our year over year growth rate of approximately 17% at the midpoint of the range in.

In Q1, we expect the favorable impact of foreign exchange on revenue growth to be approximately 2%.

For the first quarter, we expect GAAP income from operations to be in the range of 12, 5% to 13, 5%.

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 1% and non-GAAP effective tax rate to be approximately 23% we.

We anticipate our GAAP effective tax rate in the quarter will be impacted by a higher level of excess tax benefits related to divesting of restricted stock units in connection to our annual compensation cycle.

For earnings per share, we expect GAAP diluted EPS to be in the range of $1 66.

To $1 70 for for the quarter and.

And non-GAAP diluted EPS to be in the range of $1 62 to $1 70 for the quarter.

We expect a weighted average share count of 59 million diluted shares outstanding.

Finally, a few key assumptions that's for our GAAP to non-GAAP measurements stock.

Stock compensation expense is expected to be approximately $86 5 million with 20 with $22 5 million in Q1 $20 million in Q2 and $22 million in the remaining quarters.

Amortization of intangibles is expected to be approximately $12 5 million for the year evenly spread across each quarter.

The impact of foreign exchange is expected to be approximately $5 5 million loss for the year with 1 million for Q1, and the balance evenly spread across each remaining quarter.

The tax effect of non-GAAP adjustments is expected to be around $21 6 million for the year with $5 1 million for Q1, and Q2 and $5 $7 million in each remaining quarter.

And finally, we expect excess tax benefits to be around $51 5 million for the full year with approximately 2020.

$24 5 million in Q1, $13 5 million in Q2, and $6 $8 million in each remaining quarter.

In summary, we are pleased with our high quality results, we delivered in fiscal 2020.

And are encouraged by what lies ahead in 2021.

Operator, let's open the call up for questions.

Thank you.

To ask a question you will need to press star one on your telephone.

So I would draw your question press the balance sheet. Please standby, while we compile the Q&A roster.

Our first question comes from Randy <unk> with Barclays. You May proceed with your question.

Hi, guys. Thanks for taking my question and congratulations on another strong quarter.

Sure.

Eric you mentioned that Youre seeing some COVID-19 related you are still seeing a little COVID-19 related impact for some of your clients and I think you said potential longer term adjustments to certain verticals kind of going forward.

I guess the question is how do you see your the post pandemic sort of business mix for <unk> evolving shall we start to think about verticals debt.

Like Fi growing a lot faster than some of your other verticals or how should we think about the mix kind of going forward.

Okay.

Probably when we look historically as to have free to credit.

For a good little volatility on a quarterly basis from even the annual versus across all verticals.

And again, we believe that.

<unk> sciences, the country growing for this type of volatility depending on.

12345, large accounts could be still in place so I assume difficult difficult to say.

If you look at the quarter over quarter.

Changing champions for Oxy credit pools of time.

So I think.

In general it would be something similar at least for this year and credit.

Capability, but some industries, which are most impacted.

<unk> might actually start to invest to an a mall it can be seen in retail for example, oil and trails livestock investment investing more to prepare for.

So.

No.

So difficult to predict.

Okay. So hard to tell at this point okay.

And I also wanted to ask about margins and sort of specifically your visibility to margin performance next year. How confident are you that the costs that basically kind of came out of the model on the context of COVID-19 are going to flow back and I'm thinking of things like travel I guess the easier way to ask the question is what.

Would see you sort of outperformed margins versus underperform margins next year.

Okay. So I think you're on the first thing I would say is that our guidance.

Expected to communicate that we do feel that sort of the middle point of the guided range of 16, 5% to 75 or 17% is really kind of how we're thinking about the business next year and if I sort of break it into two components, we expect that SG&A will go up somewhat.

As a percentage of revenue. So I think we exited the full year at about 16, 4%, Inc. For the full year of 2021, you'd be looking at something heading towards <unk>.

17% and some of that is additional investments in the business and some of that is the return to some amount of normalcy in spending later in the year, but you can see that theres still some some benefit that results from that because prior to the pandemic we were running at over 18% now from a gross.

<unk> margin standpoint.

What we expect is that we'll continue to see strong growth as evidenced by our guide on the top line. We do think that we'll continue to make investments in growing the business that will include traditional sort of head count additions on all the infrastructure that's required.

<unk> talent and bring talent into the company, but then it also will include an expansion.

In geographies.

Poland, India, Mexico, and maybe other places in Latin America, and other places in Europe.

And so those investments at least probably in 2021 have for somewhat negative impact on gross margin with the idea that there are sub scale at this point, we need to grow them rapidly and then as they get closer to scale they'll have more consistent profitability.

So the guide kind of incorporates again, a somewhat elevated level of SG&A, maybe a slightly lower level of gross margin again as we invest in our infrastructure. So that we can increasingly become a much larger and of course from a global company.

Great that's super helpful. I appreciate it thanks, so much.

Thank you. Our next question comes from David Grossman with Stifel. You May proceed with your question.

Yeah.

Good morning, Thank you.

If I could just.

A follow up Jason.

Jason on your comment about the geographic diversification.

How much of that if.

If any is related to some of the unrest in Belarus over the last.

Kind of Youre going to have.

And could you just remind us.

About how a new facility or how it ramps on what is the typical trajectory of gross margin.

As you ramp on new geography.

Okay.

Okay lets me do is start from relative.

Belarus because.

Yes definitely.

<unk> influence on whats happening there similar like it was.

<unk> share.

In Boston, obviously on can involve diversification on our global delivery <unk> in 2014.

Around credit.

Kind of Russian Ukrainian conflict, so Zen, we accelerated our presence in central Eastern Europe.

India and Latin America.

During those periods between 14 and taught US we definitely we're moving to this direction and I think we continue to move to this direction. So.

There are multiple.

The centers to issue opening.

There are different costs.

Our cost structure, so I will first two.

So Jason to equivalent on specific.

Yes so.

As Mark indicated we would grow more naturally rapidly.

We have grown more rapidly naturally in some of these other geographies.

But Belarus is part of what we're looking at at this point and we probably will see some employees, who may help us stand up operations in Lithuania and May help us grow Poland even further.

From a gross margin standpoint, when you start a brand new facility from scratch kind of the way, we didnt Lithuania. It is going to have.

Initially you'll have very low utilization youll have additional infrastructure costs that arent necessarily carried by by rates, but again those are relatively modest facilities in the case of Poland, where we're still sub scale, it's got somewhat lower levels of profitability than than a couple of our at scale operations like you would find in Belarus and Ukraine.

So that's part of it again.

It's a more rapid growth rate in those.

<unk>, which have a somewhat lower level of profitability and then David I think longer term as we get those those countries and those individual delivery centers up to debt.

More appropriate scale I think youll see an evening out of the profitability on the gross margin.

Giovanni.

We expect a very simple in Q2 as we experienced in.

In 2015 and 16.

And just how long does it.

Is it to take to get to scale, where those margins with book more similar to some of your other geographies.

I assume.

Again, there is some slight impact.

And also subtypes car to predict at this point because he alone on the way.

But again, we have much much more.

Practical fluids is we've had like five six years ago and on top of this EPS there is.

Most significant embarked on margins that those would come from different.

Situation changes across the globe as well so this might be a bigger impact, but it's completely unpredictable.

Yeah, I think David as art said, its somewhat difficult to tell but I think as we work through this fiscal year on into the next fiscal year I think thats when you kind of get to a more appropriate scale and again more kind of normalized margin.

I would say.

And then just.

Looking at the.

Yes.

The evolution of this industry I'm just curious at this point do you have any better insight into.

How the workplace for the future and it's going to all of our customers.

Do you sense that they're getting more comfortable with a more distributed work.

Our model so that it would allow you to maybe operate more satellite.

No.

Or just give you access to a broader talent pool in a more fragmented workforce that may not be working on a centralized location.

And any insights into kind of how those.

Cost savings get share with the client or maybe just too early at this point, but just curious if you have any updates on how the split fall day.

I assume consider two different questions Blake.

In general differently.

First of all a prediction of changes for us.

Multiple years ago.

Got you and then certainly we started.

Very specific programs cloud to establish a much more flexible environment for people.

To support higher distribution, but not to lose on quality and to find the right guidance like an annual locations around the world and we start as is practical for three years ago.

And could it.

Become a real accelerator for this so it's.

We felt probably little bit more prepared.

So that would be expected before so thats, one part of the story and clearly client by client.

There are different situations.

For sure there are more acceptance than it was 12 months ago.

And it helps to excluding me on kind of to build traditional Bruce for.

Much more distributed model. This all happened on another side when you're talking about cost factors. It's also has a multiple multiple.

Attributes because for a simple <unk>.

This of course will be saved but you have to invest more in this.

Distributor virtual infrastructure.

Sometimes it's increase innovation inflation, because acceptance of distributed model become and Vega.

Actually the competition for the attendance growing as well so is that on too many too many moving parts right now to say.

Change the cost model.

Great Alright, and just if I could get one more in.

During the pandemic you focused more on the top 20 are that's where the growth was coming in maybe some more opportunity there.

Below the top 20, historically has been pretty important contributor to your overall growth rate. So.

Just curious you talked about gaining share in your prepared remarks from new logo wins.

Larger clients, Inc, gaining wallet share should we expect the top 20.

The business for the new normal for you in terms of where the growth is coming from or do you expect.

Kind of the same distribution that we saw pre pandemic returning sometime over the next several months.

Yes, I think David one of the things that's been interesting about this year is that.

We've had a number of customers that have have bolted right from modest revenue in one quarter to being in the top 20 within three or four quarters and so some of what I think <unk> talked about on the last couple of quarters for our clients are feeling the need to really accelerate their investments in rapidly make the investments to allow them to transform the business.

It means that they move from being outside the top 20 to almost immediately into the top 20, and I think that does kind of distort the top 20 growth rate.

I do think that Youll see you will see some growth from some of the larger customers in the top 20 in in fiscal year 2021, and at the same time from internally when we look at the statistics for new logo revenues and new customer revenues, which are customers that began generating revenue within the last 12 months, we're seeing that those are increasing asset.

As a as a percentage of total revenue and I think that sort of shows up in the concentration metrics, particularly as we move from Q2 to Q3 for Q4 in 2020 fiscal year.

Got it great.

So I assume.

Top 20 is it changing a lot as well so some companies, which kind of an executive from below the top 20, and becoming one of those.

Our book level of volatility.

Okay, great. Thank you very much.

Thank you. Our next question comes from share Anderson with Jefferies. You May proceed with your question.

Thank you.

To start just a question on kind of when.

When you look ahead to the two.

<unk> thousand 21 can you maybe talk about.

The mix that you're anticipating in terms of revenues from current customers and then from what you anticipate to be new customers over the next 12 months.

And how that kind of that go to market strategy is changing as it seems like youre getting wallet share.

Think of debt evolution.

Yes, so we havent traditionally forecasted new customer revenues instead, we kind of look at the trends kind of historically, but I think as art pointed out at the end is that we are seeing a lot of customers.

Begin their journey with <unk>.

And very rapidly move into into the top 20, and so again.

It's interesting.

Many of you have noted is that we're already seeing growth again in our travel and hospitality and it's not because travel has improved but because there are retailers and consumer goods companies, who are making quite significant investments right now.

Ted revisit their business models for the either to expand an existing E commerce strategy.

To create one to find different ways to connect with customers to deliver products with customers.

We are seeing a lot of.

A lot of spending in that area Youre seeing a lot of spending in manufacturing again with more of a sort of a digital.

On connection.

So I think you will see growth in some of these customers that are relatively small for us, but we also have a couple of large customers that we are expecting high levels of growth from in 2021.

Got it and then in terms of just the overall dealer client conversations that youre, having it sounds like clients are willing to start embarking on some of the bigger projects can you talk a little bit about that or are they trying to bite off things smaller chunks and youre just trying to see a lot of renewal.

For the follow on of that projects those projects.

Alright.

Differently.

We use it for a novel.

<unk> programs, because I do believe that.

Good number of clients already.

Uh huh.

Kind of.

On a line with ditch Kevin.

Yes.

Create strength of <unk> and actually.

<unk>.

Aggressively moving in the direction to make sure the Z prepare it for the next unexpected sinks, which might happen. So as things move we built programs some of them.

But the shape, but some of them you'll be share due to the next.

For the two quarters as well, but from what we're seeing again.

Level.

Big engagements has increased for us too.

That's helpful. And then just final question related to that how does it.

I guess some of these larger projects or the potential for larger projects impact for visibility and stuff as you kind of look out for 2021, when I kind of look back.

Over the last couple of quarters, you guys have come in well above guidance Im assuming thats part of that is just.

Faster than anticipated recovery, but when you think about the forward guide how should we think about.

The visibility into that and maybe where you end up.

In terms of.

Above debt.

'twenty through 'twenty three percentage.

I don't know if you can share assumptions, which you know from our mist with how we predicted I assume.

Comfortable enough to return to.

Guidance guidance cycles.

For in kind of big.

Peak share we do in this very similar like we were doing this throughput.

And while there are some bigger program, helping us we also because vega so.

So.

In some way already.

Rationale for.

From our point of view.

No.

I think again, our visibility and predictability to message right now very similar to what we have.

We were doing.

<unk> at times.

Okay. Thank you.

Thank you. Our next question comes from Jason Kupferberg with Bank of America. You May proceed with your question.

Hey, good morning, guys I just wanted to start with kind of a big picture question. We recently did a CIO survey that showed a meaningful decrease in the percentage of enterprises, who believe that they are largely done with their digital transformation journey, and we think thats because they just continue to find more parts of their business that can be digitized said the run rate.

It keeps getting longer and I'm just wondering if that's a dynamic youre observing within your client base or by the digital journey kind of continues to get extended as the scope of digital transformation efforts broaden out.

So you're saying that based on the euro.

As such Zara.

Most of the clients <unk> done business.

Well, what we're saying there is actually a decline in the percentage of enterprises, saying that they are largely not because.

It's getting longer as they find more areas to digitize and I'm wondering if you are observing that.

I.

Doesn't seem clear.

We do because like.

I think it's.

So it's a double negative with a decline in the number of who say that they're done so on Nicolai on India right in fact book.

It's actually reported.

Okay.

Right yes.

This is well it's also very difficult to kind of talk about it.

Asking what it does it mean digitizing because this is not a very well defined net in different clients, whom can differently around us, but definitely cloud migration and modernization.

Huge huge change you didnt serve.

Several years, while everybody talking about it for almost a decade. The real impact is we will see happening during the last several years on I assume call it as a huge.

Huge accelerator for losses. So from this point of view, we definitely soon.

Much more interest in <unk>.

For more urgency to to focus on those.

And kind of related to previous questions feel free to ask.

For inventory.

Right right, Okay, and Jason can you just tell us a bit about the assumptions, you're making for utilization and pricing in the 2021 guidance.

Yes so.

Utilization I think is fairly consistent with.

Utilization that we that we exit with here in Q4, and so we're not expecting a significant uptick in utilization.

We're not expecting you're expecting less demand didn't come in as expected that we'd see a significant decline. While we are seeing as Ark indicated as wage inflation historically, I think I've talked about 4% to 5% wage inflation in 2020 was probably more on the five to six range and probably would stay on the five to six range in 2021.

And so it may be a somewhat elevated level of wage inflation.

And pricing is again, it's kind of a mixed environment, where newer engagements, particularly with the high demand for resources and again the robust robust demand for the type of work that we do.

Provide some opportunities, but there are probably some existing customers, particularly in still impacted sectors of the economy, who are a little bit less open to the idea of a 2021 rate increase but are signaling to us that there.

More open and quite open to a 2022 rate increases.

Okay makes sense. Thank you.

Thank you and as a reminder.

Please limit yourself to one question and one follow up our next question comes from Maggie Nolan with William Blair. You May proceed with your question.

Thank you.

Sure.

Following up on the Buildout of new geographies can you give us some insight into the decision process behind what geographies you chose to build out.

Why you picked those locations and then your assessment given the our ability to attract talent.

Market.

Yes.

Definitely there is some preparation for Lucerne.

For those who are watching us for since say fewer days like you remember was a true.

Very heavily concentrated practically in a couple countries and well we still have.

Comes from concentration in this country right now it's much much smaller.

Portion of this so which we proved that we can do it in scale.

Different locations and the right now.

We look in a second.

Second kind of.

Degree.

Geographies.

This is Luke.

Not necessary.

New for the global market, what might view relatively new for us and Thats includes logo acceleration for example, <unk> zone.

<unk> solution.

In America, but also.

A number of countries for growth.

Our traditional locations.

Again.

Great day, usually.

So there is.

Infrastructure. There is there are some guidance, which was built on tractors.

Tractors by competitors, but also for.

Quarter, two if you knew was just university systems.

In some situations.

Windsor is a kind of initial integration due to due to geopolitical situations, we select in some countries, which would be much more comfortable for people.

Guided to relocate as well.

Partially 2020 was kind of a combination of those is to two things.

Got it. Thank you and then if we take a look at some of your client buckets.

Hey, guys.

Top 20, there was a good growth there maybe with the exception of debt slight sequential decline in the top five.

Any comments on what's going on there and then when you think about no debt outside of the top 10.

Last year that was a nice growth driver for the company. This year its trail a little bit kind.

On a consolidated company growth.

Is there any dynamics there that we should be aware of or any thoughts about how to kind of reinvigorate that client relationship those client relationship.

That bucket as you navigate through a comprehensive income okay.

Yeah, So that's fair.

I think that we still think about the business very much as a diversified portfolio, whether we're looking at industry verticals are customers and I think are excited at the very beginning of the call, which is it's a little bit.

Hard to predict which customer is going to going to drive the growth.

With absolute certainty in a given fiscal year.

We certainly are seeing some customers in the top 20 that we think are still going to have high levels of growth. We are seeing a few that are going to slow down one thing I could call out is that we've had very high growth with large customers in that business information and media space.

We continue to have very significant relationships with.

Number of those clients, who are now very much on our top 10, we think that we might not see as much growth in fiscal year 2021, as we certainly as we saw in 2020.

We've got growth coming from from some of the manufacturing customers, we've got some growth coming from.

Some customers with more of a health care flavor to them and so again I think you are going to see a little bit more of a return to the <unk> traditional growth rate in the below 20, but it may not be quite the way. It was three or four years ago, because I do think as we continue to have established relationships with large companies.

Our senior debt.

Vendor they can get things done inside those companies you do get you do get growth inside those portfolios.

Alright, Thanks, Jason Thanks, Eric.

Hey, Thank you.

Thank you for our next question comes from Bryan <unk> with Cowen You May proceed with your question.

Hey, guys good morning.

On hiring here she added a significant 3000 billable head count in the quarter. How do you feel the model operated as you've on boarded here in the last couple of months did you feel like you're at near a ceiling level to comfortably add and how should we be thinking about the pace of head count expansion in early 'twenty one for your scale some of these newer regions.

So.

Clearly we have.

<unk> invested in our capability our capacity to add additional head count and so as we get bigger as we make those investments.

We talked about this is that the biggest inc.

Rental growth that we've had and yesterday the company, but clearly we're putting in place a structure that allows us to continue to do that but.

Clearly Q4 were kind of catching up from Q2, and Q3 and so right now we might not have as much head count growth expected.

As we for instance, enter Q1, but again, we're running at a higher level than we have in past years in part because we are seeing that the demand is very strong and we are putting in infrastructure in place that allows us to meet that demand.

Credit <unk> from the challenge not just to to grow but actually to grow responsibly to make sure that you keep in balance between demand and supply and this was always like a true. So from this point of view the Swan zone.

Key kind of challenges for sure threat.

Okay.

Following on that.

Can you comment on the cash position and M&A Receptiveness here, how are you thinking about M&A as a component of the geographic expansion.

Right. So I talked about this I think every quarter and I'm going to add something to what I've said in the past so that the M&A pipeline.

Quite active in our discussions with potential.

Potential.

The acquisition targets and at this point, we are we are.

We're quite advanced in our discussions with several companies and so I do expect that we'll be talking more about that in the not too distant future.

We continue to have a focus on on capabilities, but also.

<unk> would probably play a role as well on it might focus might be on helping us with kind of end markets. So again more customer facing but in some cases, we may use an acquisition to get us on established position.

Anne day, and a management team on a country that we don't have as much experience and so I think youll see both of those things in 2021.

Okay. Thank you.

Thank you. Our next question comes from Ashwin <unk> with Citi. You May proceed with your question.

Thank you good morning, good morning, Jason good quarter here.

Hi.

<unk>.

My first question is you've mentioned a couple of times larger and increasingly global Tam and you provided a lot of detail on net from a delivery perspective. My question is from a revenue perspective can provide specifics with regards to.

How you are.

Thinking about.

For future globalization.

On the Perm footprint from a revenue perspective.

Hal.

The vast majority of for revenues come from North America and Europe.

Any debt any thoughts on diversification and Jason your comments on M&A is that more of a geography focus capability focus.

I'll answer first and I'm sure Oracle that have something to say as well here. So I think from in some cases the market investment that's more customer focusing may still be in places like Western Europe.

I think in terms of longer term expansion I do think that APAC continues to be an opportunity for the company. As you note most of the revenue does come out of.

Western Europe, and North America, and we still are I would say underpenetrated in Asia Pac so longer term I think that's definitely an opportunity I think you are beginning to see slightly elevated growth rates in APAC and I think that particularly it is interesting opportunities in the Singapore market and so I think kind of longer term I think.

We'll see greater revenue, but I'm not necessarily expecting that to show up in a material way in 2021, but more kind of in future years.

Yes, so from a.

General direction.

In Western Europe, as a way for us on land priority too.

The rest of the markets.

Jason mentioned priorities call to serve our global clients in this market and establish ourselves for little bit, but that's what we're scoping and due to the lost profit. So in Ats OSB came to China because of.

<unk> for example, and starting to expense so I think it would be growth in APAC.

Even with some local clients, but again not going to be really significant but the growth is a global.

Our global clients, which you said I mean in North America, Western Europe, and extension to different markets from APAC to potentially religion on immediately as well very much anticipated.

Got it alright.

With our size, we have almost unlimited opportunity in the markets, where we are.

Understood that's good to know.

Our net pullout day.

The acquisition that you did book.

I wanted to talk that the continuum acquisition.

Integrated consulting back for zone.

A key capability that you guys added I was curious if you could shed more light on how that performed through the cornerstone for 'twenty 'twenty, particularly given.

Was it.

Is it more debt.

Net debt the discretionary in nature, perhaps on snack was impacted on was it.

Look.

Look to use.

Adapt more so if you could talk how that how you see that day model on how you see.

Net affecting your future interest rates.

Yes, I think.

We tried to illustrate to do just a couple of examples but in general it's Dick.

<unk>.

In a very trivial.

<unk> on say, it's a journey.

We did a number for acquisition to build experience consultancy capabilities.

Yields in business.

Business consultancy capabilities is this for organically and we do believe that reserve for very good foundation for technology consulting capabilities as it will influence for us how to bring them all together and create in some way is a continuum of offering.

Linking this to engineering, because that's why I like in deposits.

Stated multiple times between not even looking on specific line of service and consulting to separate from our traditional engineering, but actually the real strong COVID-19 related to this and from this point to the USA Inc.

During the last two years, we saw.

A very positive impact on I think 2020 to our surprise.

Such as French and difficult difficult here actually triggered with multiple wins, where we answered.

New clients through very different for us from the past.

Is it on started much more significant programs for our sales is a big potential and also we've had a couple of the interest that goes to the top consulting firms to do all the feature.

Sure.

Kind of much more comfortable.

<unk> is the digestion issue selected so they're a very.

Very good signs for that.

Moving on for <unk>.

Right now.

Got it.

Hey, guys.

Thank you I would now like to turn the call back over.

Our next question comes from Permian from 90 with Piper Sandler You May proceed with your question.

Great.

Congrats on another terrific quarter that day.

Demand environment seems quite robust across your portfolio.

Are you seeing pricing strength as the overall demand environment improves.

Yes, I think.

There are opportunities with some of the newer engagements and particularly Youre right. When there is there is strong demand and supply is a little bit more challenged that produces opportunities, but I think with some of the long standing relationships.

It's a little bit more mix right. It kind of depends on where they are in terms of their own demand and a lot of people still have some uncertainty.

So we still see pricing opportunity, but maybe a little bit cautious on the ability to take up rates as frequently as we have in the past.

And Thats important kind of what informs the guidance with the midpoint of that range being 17% adjusted iPhone.

Great Great and I had a question operationally.

How are you thinking about staffing in a post pandemic environment.

Daily.

The last day property kind of fewer.

Vacations and high levels of productivity, but when you look at the next 12 to.

18 months.

Good day that elevated levels of.

Alright, vacation and time off and things of that.

You're kind of anticipating planning.

Sort of your staffing levels to account for some of it.

Yes. Thank you you touched on this already put into some questions.

<unk>.

So as a concern on the west like on a management call to discuss his executive team going for locations for six months on nine months. After this so but.

But in general we definitely put into a model a lot of sorts and we project.

Accelerated locations as humans at quarter, it really will give up.

More than we're seeing right now, but yes, its one of them with perfect but.

Our current model anticipated some increase locations.

After the explanation will be done.

Correct, Okay, great terrific.

And good luck for 2021.

Hey, Thank you I appreciate it.

Thank you I would now like to turn the call back over to our card adoption for any closing remarks.

Yes. Thank you. Thank you everybody for attending.

We all know how.

For 2020.

And we really closed that pointed to a new on that will be.

Differently EBITDA, while we will understand that this.

We will be a mix of different things.

We look positively to overall situation and hopefully our next quarter will be different from the second quarter.

Quarter over this last year, when we completely changed the whole curve to change the whole picture. So hopefully it will be different this year. So incubating wise from talk to you next time.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Okay.

Yes.

[music].

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Ladies and gentlemen, thank you for standing by and welcome to the Crown systems for quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question answer session basket question during the session.

For one on your telephone please be advised that today's conference is being recorded you're acquiring further assistance. Please press star Zero I would now like turn the conference over to your Speaker today, David Straube head of Investor Relations. Please go ahead Sir.

Thank you operator, and good morning, everyone by now you Should've received a copy of the earnings release for the company's fourth quarter fiscal 2020 results. If you have not copies are available on <unk> dot com in the investors section.

With me on today's call are current dotcom, CEO, and President and Jason Peterson Chief Financial Officer.

Before we begin I would 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 on the Companys earnings release and SEC filings.

Additionally, all references to reported results on a non-GAAP measures have been reconciled to GAAP and are available on our quarterly earnings materials located on the investors section of our website.

With that said I'll now turn the call over to Ark.

Thank you David Good morning, everyone and thank you for joining us today.

Let me start from taking a look back to 'twenty two on it.

We all know was a very different here for all of us to say the least.

For today's call I'll briefly review, what because I assume and what we were saying during the last year starting from 12 months back ends on line six and just three months ago.

I think it tells an interesting story.

So every day left here still full of for for another practically a normal year for US is 20 plus percent organic growth focusing on our adaptive enterprise story, and then short looking optimistically into 2020.

Just three months later, well still reported 26% constant currency growth for Q1.

Like everybody else at the time didn't understand it all right.

And what it would have to do to go over this very uncertain and very fast worsening situation. This is.

Creation.

With more than 30% of our client portfolio experienced some form of revenue impact.

The practical effect for the organized ourselves on the fly and to start preparation for everybody a defensive play for protect hill as a first priority will be enough for people.

And then ensuring continuous liquidity and viability of our business.

When thinking about the time now really would like to share again, our deep appreciation for is a thousand but the balance who did everything possible to support each other as a company to our clients for trusting us with their most critical issues and to our linear extent as convenient as Raul.

Yeah.

At this point, we really didn't know how the 'twenty 'twenty would end up for us and for our clients.

In another three months to our surprise, we saw the first signs of SaaS stabilization and glad to utilization of new reality and necessity to start preparing for the future, which will be impacted by such new realities for long enough period, if not for all.

It pushed our drive for agility and on origin to adapt different to the price transformation even try that.

Tyler, it's really kind of debt and made us as a company become much more closely connected by sharing information and making decisions much faster than ever before.

At this point, we also realized that while our original plans for 2020 will not be in line with our financial performance. The outages. Most of this blend changes, which we outlined for ourselves back in normal times, you'll be very much accelerating.

From a strategic transformational standpoints.

During that period, we landed all for several large new logos and started to see lets take an increasingly larger share of work portfolio for several existing strategic force class, which was encouraging.

Finally, just three months ago, well see in landing new geopolitical third losses in locations, where they're creating significant value for it though is still become comfortable enough for them.

Line, everybody again and to our sales force to all the goal of this day to 12 months back on our last Investor day.

So starting on the pump into truly adaptive company.

At current comfortable simply because of holiday realization of how much for at the last for does it will during those all around for each LNG as nine months.

Thanks to our investments into integrated consulting pump continue on into cloud enabled business transformation efforts and data analytics AI and deaths per set of capabilities.

Wrongly support as well engineering, DNA and very much more flexible scalable and distributed delivery locations and delivery models enabled and torn by our digital talent productivity to knowledge and educational platform.

Away from anywhere per site.

We believe all of those investments are paying debt and preparing us strongly for future growth.

In regard to a pump continue on we'd like to mention also that today, we see not only recognition for this new service offerings from region analyst, but encouraging take.

The new proposition from a broad base of clients around the world and across our verticals in insurance and financial services consumer and life Sciences to name a few.

Our approach strip on continuum goes beyond our work on market, but extended wait and watch into cross pollination of all up on capabilities and experiences through our.

Our organizational approach comprised of people tools and various ways of working it should enable us to build global agile and expert teams more quickly and more efficiently.

While this work is ongoing and represent a significant portion for our investment agenda BSA on strong results today in our current portfolio.

The result that are driving higher value for customers and that they never enabling the pronto scale larger and complex program faster.

In the past.

During last year the share to several specific story this holiday.

Also included is a game story as well as the logical security technology of blood flow, which not just became our fastest growing client in 2020, what is already among our top 10 clients currently.

In addition.

And to.

Lets US 32 short news stories for the first one started just over a year ago.

As an agile engineering program is a top 10 global property and casualty insurance Jack.

Since then the pump has become their go to transformation in nature strategy and implementation partner, Philippines, a company to transform its 80 and digital credit functions to accelerated cloud transformation journey and to position the company for innovation through a combination of the strategy consulting and engineering implementation services.

The second is very recent engagements for our global retail and wholesale pharmacy later.

The patent provides full value stream services, including product management design end to end engineering.

The client is building.

And on the channel current management products, including clinical physical services direct and digital elements and is making full use of our integrated resource experienced consulting physical digital product design on top of our traditional engineering capabilities.

So Alison Atlanta is made possible by the ongoing investment in our business, we feel they can land our consistent priority and we do expect indeed, even higher levels of investment in 'twenty and 'twenty, one to keep pace with our growth needs.

Moving on to our numbers.

And let's start from 2020 results.

For fiscal 'twenty, a tornado ended at close to $2 7 billion in revenues, reflecting 16% year over year constant currency growth, which included double digit growth in the majority of our industry.

Non-GAAP earnings per share for $6. So it is for sales for 17% increase over fiscal 2019.

Lastly, we generated for Congress 76 million of free cash flow for the year. It resolved it was more than two five times the average of our last for years.

For the people front for the year, we welcomed more than 400, new net employees to pump across our client facing teams and corporate functions.

At this point I would like to remind also that during all 2020.

<unk> consistently repeating the very simple state.

We strongly believe our position as a leading provider of digital product and platform engineering services combined visa on maturing consultant to produce is a key differentiator and we are confident in our ability to come out of this challenge in time and what really led from the result, even company that will continue growing as a post pandemic in Nevada.

It's a 20% plus organic growth rate to go.

It wasn't clear statement, especially as EBITDA, but.

But we're seeing that what was happening during the past 12 months is ready.

From our own practically at worst quarter ever with a sequential drop in revenue in Q2, two provinces of less sequential growth. We saw during the last decade. When we increased revenue in Q4 2020, we're almost 11% in comparison with our Q3 result.

So looking ahead to 2021, you see a market that continues to be very active in the wrong, then demonstrate strong demand for our services.

As the events of the past year, our clients are adapting to changing landscape, we should acquire established business models and different ways of interacting with their customers on the end market.

This requires even faster pace of transformation.

On the organization on application as well as a building or expansion of the platform that connect and powered enterprise enabled force by the cloud and the need for really co innovation partners.

It means that we will have to lead large scale transformation as consultant.

Product development engagement with design.

Data monetization and process optimization on engagements with analytics digital technology on their channel custom platform.

Relevant engagement with engineering.

And all of those to be led by strong alignment with our clients and some other key platform platforms.

Regarding the market size in the past we spoke about the <unk> position in the fast growing digital platform product engineering sales.

Analysts estimate to be more than Congress 50.

$50 billion.

While it is still firmly position us. Besides your segment PSA on enhanced opportunities for <unk> to play in the broader application development and cloud integration services market with leading analyst average.

Direct into be a resurgent in the post pandemic environment.

And completion and combination of custom software development cloud native integration work technology consulting and training services.

<unk> presents in total over $700 million in 2021 alone are about 60% of the total global AG services margin.

Well silicon involved this in context of near term demand for <unk> and <unk>.

Lagging effect of the pandemic on our customers, we still anticipate some continued disruption in few of our customers and markets and probably longer term damage for certain industries.

However, today 21 years already in the past and while we are obviously still not being out of post pandemic time zone and specific geopolitical risks, we do believe the 'twenty to 'twenty, one will be free to them to 20 plus.

<unk> growth organic.

With that let me turn the call over to Jason to provide more specifics on now 'twenty 'twenty results and our annual business outlook each day.

But as humans for fiscal 'twenty or 'twenty one.

Thank you Ark and good morning, everyone. We are pleased with our 2020 fiscal year performance, especially given the dynamic environment.

Our results demonstrate the durability of our portfolio the adaptability of our people and highlight the teams ability to meet the needs of clients even during challenging times.

In the fourth quarter <unk> generated revenue of $723 5 million a year over year increase of 14, 3% on a reported basis from 13, 7% in constant currency terms, reflecting a positive foreign exchange impact of approximately 60 basis points.

Revenue came in higher than previously guided due to our ability to expand our delivery capacity in response to a stronger than anticipated demand environment.

Revenues also benefited somewhat from the aforementioned foreign exchange contribution.

Our industry vertical performance in Q4 produced very strong sequential improvement driven by higher level of growth from both new work at existing clients and revenue from new customer relationships established over the last 12 months.

Looking at year over year performance across this group.

Life Sciences, and healthcare grew 24% growth for the quarter was driven by data and analytics.

Platform development to support new business models and client investments to improve R&D efficiency.

Is this information on media delivered 16, 2% growth on a quarter.

Financial services grew 16, 1% with growth coming from traditional banking insurance and to a lesser degree wealth management.

Software and Hi Tech grew 14, 3% on the quarter.

Travel and consumer returned to growth and increased five 4% year over year in Q4, we saw strong growth from our consumer clients, along with solid and improving performance within retail as clients made investments in response to the dramatic changes in their operating environment.

Finally, our emerging vertical delivered 13, 1% growth driven by clients in telecommunications automotive and materials.

From a geographic perspective, North America, our largest region, representing 59, 9% over Q4 revenues grew 14% year over year for 13, 7% in constant currency.

Europe, representing 32% of our Q4 revenues grew 11, 8% year over year or seven 5% in constant currency.

Cif representing five 2% of our Q4 revenues grew 22, 9% year over year and 45, 2% in constant currency similar to Q3 growth from the <unk> region was driven primarily by clients in financial services and materials.

And finally, APAC grew 39, 4% year over year on 35, 7% in constant currency terms and now represents two 9% of our revenues.

Growth in the quarter was primarily driven by clients on financial services.

In the fourth quarter year over year growth in our top 20 clients was 16, 6% and growth outside our top 20 clients was 12, 8%.

And moving down the income statement as mentioned last quarter, we continue to run the business with a cost base that is lower than previous levels.

While the lower cost base is driven by operational efficiencies, we have delivered across the business. There are also temporary contributors, including reduced travel relocations and certain administrative expenses producing lower levels of SG&A spend over the last three quarters.

Looking forward, we expect a higher level of cost in a post pandemic environment, but anticipate that some of the efficiency benefits may be maintained longer term.

Our GAAP gross margin for the quarter was 35, 6% compared to 35, 2% in Q4 of last year.

Non-GAAP gross margin for the quarter was 36, 9% compared to 36, 7% for the same quarter last year.

GAAP SG&A was 17, 8% of revenue compared to 19, 8% in Q4 of last year and non-GAAP SG&A came in at 16, 2% of revenue compared to $18. One in the same period of last year.

Our SG&A results continue to see short term benefits from the previously mentioned items.

GAAP income from operations was 112 million or 15, 5% of revenue in the quarter compared to $84 7 million or 13, 4% of revenue in Q4 of last year.

Non-GAAP income from operations was $135 9 million or 18, 8% of revenue in the quarter compared to $107 6 million or 17% of revenue in Q4 of last year.

Our GAAP effective tax rate for the quarter came in at 16, 2%, which includes a lower than expected level of excess tax benefits related to stock based compensation.

Our non-GAAP effective tax rate, which excludes excess tax benefits was 22, 6%.

Diluted earnings per share on a GAAP basis was $1 46.

Non-GAAP EPS was $1 81, reflecting a 19, 9% increase over the same quarter on fiscal 2019.

In Q4, there were approximately $58 8 billion diluted shares outstanding.

Now turning to our cash flow on balance sheet cash flow from operations for Q4 was $159 3 million compared to $124 6 million in the same quarter for 2019 for.

Free cash flow was $140 9 million compared to $77 6 million in the same quarter last year, resulting in a 133% conversion of adjusted net income.

We ended the quarter with $1 3 billion in cash and cash equivalents.

In Q4, DSO was 64 days the lowest in at least five years and compares to 70 days at the end of Q3, 2020, and 72 days in the same quarter last year.

We are very pleased with this performance and believe we can manage future DSO levels in the upper sixties.

Moving on to a few operational metrics. We ended this quarter with approximately 36700 engineers designers and consultants a year over year increase of 12, 8% and a sequential increase of eight 8% our highest quarterly increase in the last five years.

Our total head count for Q4 was more than 41100 employees.

A net addition of more than 3100 day cameras from the previous quarter.

Utilization was 77, 9% consistent with Q4 of last year and down from 78, 2% in Q3 2020.

Turning to results for the 2020 full fiscal year <unk>.

Revenues closed at $2 66 billion or 15, 9% reported growth over 2019, and 16% on a constant currency basis.

During fiscal 2020, our acquisitions contributed a per approximately 100 basis points to our growth.

GAAP income from operations was $379 3 million, an increase of 25, 3% year over year.

And represented 14, 3% of revenue.

Our non-GAAP income from operations was $472 7 million, an increase of 21, 5% over the prior year and represented 17, 8% of revenue.

Our GAAP effective tax rate for the year came in at 13, 6%, excluding the impact of the excess tax benefits related to stock based compensation and certain onetime adjustments our non-GAAP effective tax rate was 22, 6%.

Diluted earnings per share on a GAAP basis with $5 60.

Non-GAAP, EPS, which excludes adjustments for stock based compensation acquisition related costs and other certain one time items was $6.34, reflecting a 17% increase over fiscal 2019 and higher than our pre pandemic expectations at $6 30.

For fiscal 2020, there were approximately $58 4 million weighted average diluted shares outstanding.

And finally cash flow from operations was $544 4 million compared to $297 5 million for fiscal 2019, and free cash flow was $475 6 million, reflecting a 128% adjusted net income conversion.

Now, let's turn to guidance.

Given the relative stability as well as improved visibility across the portfolio. We are resuming our full year guidance for fiscal 2021.

While we anticipate growth patterns across the industry verticals to vary throughout the year, we expect our diversified portfolio to drive growth more in line with pre pandemic levels.

At the same time, we will be investing at elevated levels across the business to make certain we have sufficient resources to meet renewed demand <unk>.

Additionally, we will increasingly be investing in new geographies to support our long term growth.

On area of focus in 2021 will be the creation of the infrastructure to support our larger and increasingly global EPS.

Starting with our full year outlook.

Revenue growth will be at least 23% on a reported basis and in constant currency terms will be at least 22% after factoring in a 1% favorable foreign exchange impact.

We expect GAAP income from operations to be on the range of 13, 5% to 14, 5% and non-GAAP income from operations to be in the range of 16, 5% to 17, 5% our.

Our income from operations reflects a higher level of investment in the planned expansion of our capabilities and geographies in 2021.

We expect our GAAP effective tax rate to be approximately 12% and our non-GAAP effective tax rate to be approximately 23%.

For earnings per share, we expect GAAP diluted EPS to be in the range of $6 65.

To $6 86 for the full year.

And non-GAAP diluted EPS to be in the range of $7 from 'twenty to.

To $7 41 for the full year.

We expect weighted average share count of 59 million fully diluted shares outstanding.

For Q1 of fiscal year 'twenty, one we expect revenues to be in the range of $757 million to $765 million for.

Reducing our year over year growth rate of approximately 17% at the midpoint of the range in.

In Q1, we expect the favorable impact of foreign exchange on revenue growth to be approximately 2%.

For the first quarter, we expect GAAP income from operations to be in the range of 12, 5% to 13, 5%.

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 1% and non-GAAP effective tax rate to be approximately 23% we.

We anticipate our GAAP effective tax rate in the quarter will be impacted by a higher level of excess tax benefits related to divesting of restricted stock units in connection to our annual compensation cycle.

For earnings per share, we expect GAAP diluted EPS to be in the range of $1.66 to $1 74 for the quarter.

And non-GAAP diluted EPS to be in the range of $1 62 to $1 70 for the quarter.

We expect a weighted average share count of 59 million diluted shares outstanding.

Finally, a few key assumptions that support our GAAP to non-GAAP measurements stock.

Stock compensation expense is expected to be approximately $86 5 million with 20 with $22 $5 million in Q1 $20 million from Q2, and 22 million in the remaining quarters.

Amortization of intangibles is expected to be approximately $12 5 million for the year evenly spread across each quarter.

The impact of foreign exchange is expected to be approximately $5 5 million loss for the year with 1 million for Q1, and the balance evenly spread across each remaining quarter.

The tax effect of non-GAAP adjustments is expected to be around $21 6 million for the year with $5 1 million for Q1, and Q2 and $5 $7 million on each remaining quarter.

And finally, we expect excess tax benefits to be around $51 5 million for the full year with approximately 20 $24 $5 million on Q1 $13 five line in Q2 from.

$6 $8 million in each remaining quarter.

In summary, we are pleased with our high quality results, we delivered in fiscal 2020 and.

<unk> are encouraged by what lies ahead in 2021.

Operator, let's open the call up for questions.

Thank you.

To ask a question you will need to press star one on your telephone.

So withdraw your question press the balance sheet. Please standby, while we compile the Q&A roster.

Our first question comes from Randy <unk> with Barclays. You May proceed with your question.

Hi, guys. Thanks for taking my question and congratulations on another strong quarter.

You're right.

Eric you mentioned that Youre seeing some COVID-19 related you are still seeing a little COVID-19 related impact for some of your clients and I think you said potential longer term adjustments to certain verticals kind of going forward.

The question is how do you see your the post pandemic sort of business mix for <unk> evolving shall we start to think about verticals debt.

<unk> Fi growing a lot faster than some of your other verticals or how should we think about the mix kind of going forward.

Okay.

Probably when we look at historically, we still have free tier.

Pretty good little volatility on a quarterly basis, and even on annual versus across our verticals.

And again, we believe that there is still a is all SaaS, which is definitely growing for this type of volatility depending on.

1234, or five large accounts could be still in place so I assume difficult difficult to say.

If you look on the quarter by quarter. It was changing champions practically all the time.

So I think.

In general it would be something similar at least for this year and the unpredictability, but some industries, which are most impacted.

By acquired might actually start to invest to an a mall that we are seeing in retail for example, oil and trails might start investment investing more to prepare for.

Current work so.

Difficult to predict.

Okay. So hard to tell at this point okay.

And I also wanted to ask about margins and sort of specifically your visibility to margin performance next year. How confident are you that the cost debt basically kind of came out of the model on the context of COVID-19 are going to flow back and I'm thinking of things like travel I guess the easier way to ask the question is what.

Would see you sort of outperform margins versus underperform margins next year.

Okay. So I think you're on the first thing I would say is that our guidance is <unk>.

Expected to communicate that we do feel that sort of the middle point of the guided range of 16, 5% to 75 or 17% is really kind of how we're thinking about the business next year and if I sort of break it into two components. We expect that SG&A will go up somewhat as a percentage of revenue. So I think we exited the full year at about 16, 4%.

I think for the full year of 2021, you'd be looking at something heading towards.

17% and some of that is is additional investments in the business and some of that is the return to some amount of normalcy in spending later in the year, but you can see that theres still some some benefit that results from that because prior to the pandemic we were running at over 18% now from a gross margin standpoint.

We expect is that we'll continue to see strong growth as evidenced by our guide on the top line. We do think that we'll continue to make investments in growing the business that will include traditional sort of head count additions and all the infrastructure that's required to attract talent and bring talent into the company. But then it also will include an expansion in <unk>.

Thiago fees.

Poland, India, Mexico, maybe other places in Latin America, and other places in Europe.

And so those investments at least probably in 2021 have a somewhat negative impact on gross margin with the idea that there are subscale at this point, we need to grow them rapidly and then as they get closer to scale they'll have more consistent profitability.

So the guide kind of incorporates a again a somewhat elevated level of SG&A, maybe a slightly lower level of gross margin again as we invest in our infrastructure. So that we can increasingly come on much larger and of course for global company.

Okay. That's super helpful. I appreciate it thanks, so much.

Thank you. Our next question comes from David Grossman with Stifel. You May proceed with your question.

Yeah.

Good morning, Thank you.

If I could just.

A follow up Jason.

Jason on your comment about the geographic diversification.

Much of that if.

If any is related to some of the unrest Inc.

<unk> over the last.

Kind of your year and a half.

And can you just remind us.

About how a new facility or how it ramps here what is the typical trajectory of gross margin.

As you ramp on new geography.

Okay.

Okay lets me do is start from relative use because.

Yes, definitely there is some.

Influence on.

What's happening there similar like it was.

<unk> share.

The impact obviously on can involve diversification on our global delivery.

In 2014.

Around Crimea.

Kind of Russian Ukrainian conflict. So then we accelerated our presence in central Eastern Europe.

India and Latin America.

During this period between <unk> and 'twenty as we definitely we're moving to this direction and I think we continue to move to this direction. So.

There are multiple.

The centers for each year of opening.

There are different costs.

Cost structures are so I will.

Two.

So Jason to equivalent on specifics.

Yes so.

As Mark indicated we would grow more naturally rapid.

We will grow more rapidly naturally and from these other geographies.

But Belarus is part of what we're looking at at this point and we probably will see some inflow employees, who may help us stand up operations in Lithuania, and May help us grow Poland even further.

From a gross margin standpoint, when you start a brand new facility from scratch kind of way, we didnt Lithuania. It is going to have.

Initially you'll have very low utilization, you'll have additional infrastructure costs that arent necessarily carried by by rates, but again those are relatively modest facilities in the case of Poland, where we're still sub scale.

It's got somewhat lower levels of profitability than than a couple of our at scale operations like you would find in Belarus, and Ukraine. So that's part of again it's.

More rapid growth rate in those entities.

<unk> entities, which have a somewhat lower level of profitability and then David I think longer term as we get those those countries and those individual delivery centers up Todd debt.

More appropriate scale I think youll see an evening out of the profitability on the gross margin.

Do you have any systems.

We expect.

We expect a very simple if you change we experienced in 2015 and 16.

And it's just how long does it.

Is it to take to get to scale, where those margins with book more similar to some of your other geographies.

I assume.

Again, there is some slight impact.

And also subtype scar to predict at this point because you'll learn on the way.

But again, we have much much more.

Practical for us that we've had like five six years ago and on top of this if there is.

More significant impact on margins that would come from different.

Tax situation changes across the globe as well so this might be bigger impact, but it's completely unpredictable.

So David as art said its.

Somewhat difficult to tell but I think as we work through this fiscal year on into the next fiscal year I think thats when you kind of get to a more appropriate scale and again more kind of normalized margin.

Let's see.

And then just on.

Looking at the.

The evolution of this industry I'm just curious at this point do you have any better insight into.

How the workplace for the future and it's going to all of our customers.

In a sense that they're getting more comfortable with a more distributed work in our model. So that it would allow you to maybe operate more satellite.

<unk>.

Or just give you access to a broader talent pool in a more fragmented workforce that may not be working in a centralized location.

And any insights into kind of how those <unk>.

Cost savings get share with the client or maybe just too early at this point, but just curious if you have any updates on how this is Paul debt.

I assume consider two different questions Blake.

In general differently.

First of all a prediction of changes towards like multiple years ago.

Even internally we started.

Very specific programs cloud to establish a much more flexible environment for people.

To support higher distributions, but not to lose on quality and how to find the right talent like an annual locations around the world and we start to this low practically three years ago.

And could it.

Become a real accelerator for this so it's.

We felt probably a little bit more prepared.

So that would be expected before so thats, one part of the story and clearly client by client.

For a different situations, but.

For sure there are more acceptance than it was 12 months ago.

And it's helped to experiment and kind of to build traditional groups for.

Much more distributed model, that's all happened, but another side when you're talking about cost factors. It's also has a multiple multiple.

Attributes because for a simple symptoms.

Of course, we will be saved but you have to invest more in this.

Distributor to your Chilean infrastructure.

Sometimes it's increase innovation inflation, because acceptance a distributed model becoming bigger.

Actually the competition for talent growing as well so there are too many too many moving parts right now to say about change the cost model.

Great Alright, and just if I could get one more in.

Got it during the pandemic you focused more on the top player that's where the growth was coming in maybe you saw more opportunity there.

Below the top 20, historically has been pretty important contributor to your overall growth rate. So.

Just curious you talked about gaining share in your prepared remarks from new logo wins.

Larger clients, Inc, gaining wallet share and should we expect the top 20.

The business for the new normal for you in terms of where the growth is coming from or do you expect.

Kind of the same distribution that we saw pre pandemic returning sometime over the next several months.

Yes, I think David one of the things that's interesting about this year is debt.

We've had a number of customers that have have voltage right from modest revenue in one quarter to being in the top 20 within three or four quarters and so some of what I think <unk> talked about on the last couple of quarters for our clients are feeling the need to really accelerate their investments in rapidly make the investments that allow them to transform the business.

It means that they move from being outside the top 20, Thomas immediately into the top 20, and I think that does kind of distort the top 20 growth rate.

I do think that Youll see you will see some growth from some of the larger customers in the top 20 in in fiscal year 2021, and at the same time from internally when we look at the statistics for new logo revenues and new customer revenues, which are customers that began generating revenue within the last 12 months, we're seeing that those are increasing asset.

As a as a percentage of total revenue and I think that sort of shows up in the concentration metrics, particularly as we move from Q2 to Q3 for Q4 in 2020 fiscal year.

Got it great.

Alright.

On top 20 is it changing a lot as well so some companies feature Kirby's executive from below top 20 has become in Nevada.

Good level of volatility.

Okay, great. Thank you very much.

Thank you. Our next question comes from share Anderson with Jefferies. You May proceed on your question.

Thank you.

To start just a question on kind of when.

When you look ahead to the.

2021 can you maybe talk about.

To mix that you're anticipating in terms of revenues from current customers and then from what you anticipate to meet new customers over the next 12 months.

And how that kind of that go to market strategy is changing as it seems like youre getting wallet share.

You should think of debt evolution.

Yes, so we havent traditionally forecasted new customer revenues instead, we kind of look at the trends kind of historically, but I think as art pointed out at the end is that we are seeing a lot of customers.

Begin their journey with <unk> and very rapidly move into into the top 20, and so again, what we know.

It's interesting.

Many of you have noted is that we're already seeing growth again in our travel and hospitality and it's not because travel has improved but because there are retailers and consumer goods companies, who are making quite significant investments right now.

Ted revisit their business models for the either to expand an existing E commerce strategy.

To create one to find different ways to connect with customers to deliver products with customers. So you are seeing a lot of.

A lot of spending in that area Youre seeing a lot of spending in manufacturing again with more of a sort of a digital.

On connection.

So I think you will see growth in some of these customers that are relatively small for us, but we also have a couple of large customers that we are expecting high levels of growth from in 2021.

Got it and then in terms of just the overall dealer client conversations that youre, having it sounds like clients are willing to start embarking on some of the bigger projects can you talk a little bit about that or are they trying to bite off things in smaller chunks and youre just trying to see a lot of renewal.

For the follow on of that projects those projects.

Alright.

Definitely.

Diluted to a novel low.

Large programs because I do believe that.

Good non <unk> clients already.

Sure.

Kind of.

On a line what did happen.

Create strength at <unk> list and actually.

Aggressively moving in the direction to make sure the day prepare it for the next unexpected sinks, which might happen. So as things that are non booth with big programs some of them much better shaped, but some of that will be shipped during the next one or two quarters as well, but from what we're seeing.

Again, it's.

Novel for Big.

<unk> engagement is increasing for us too.

That's helpful. And then just final question related to that how does it.

I guess some of these larger projects or the potential for larger projects impact your visibility and stuff as you kind of look out for 2021, when I kind of look back over the last couple of quarters, you guys have come in well above guidance I'm, assuming that's part of that is just for.

Foster than anticipated recovery.

But when we think about the forward guide how should we think about debt.

The visibility into that and then maybe where you end up.

In terms of.

Above that the 20% to 23%.

I don't know if you can share assumption, which you know from our mist with how we predicted I assume.

Comfortable enough to return to our annual guidance guidance cycles.

In kind of big.

Peak share Lee during this very similar like we were doing this pre COVID-19.

And while there are some bigger program happening we also pick up Vega so.

In some way ready for it.

The rationale for.

From our point of view.

No.

I think again, our visibility and predictability and methods for right now very similar to what we are.

We were doing.

In precluded at times.

Okay. Thank you.

Thank you. Our next question comes from Jason Kupferberg with Bank of America. You May proceed with your question.

Hey, good morning, guys I just wanted to start with kind of a big picture question. We recently did.

Oh survey that showed a meaningful decrease in the percentage of enterprises, who believe that they are largely done with their digital transformational journey and we think thats because they just continue to find more parts of their business that can be digitized said the run rate basically it keeps getting longer and I'm. Just wondering if that's a dynamic youre observing within your client base for bi.

The digital journey kind of continues to get extended.

The scope of digital transformation efforts broaden out.

So you're saying that based on your.

As you saw there are most of the clients and as they already done or is this.

Well, what we're saying there is actually a decline in the percentage of enterprises, saying that they are largely got because.

It's getting longer range, they find more areas to digitize and I'm wondering if you are observing that.

I.

It does seem clear.

We do because like.

I think it's a <unk>.

So it's a double negative with a decline in the number of who say that they're done so nicolai on India right.

It's actually reported okay.

Right Yeah, we see this as well it's also very difficult to kind of talk about it.

Asking what it does mean digitizing because this is not a very well defined net in different clients, whom can differently around this but definitely cloud migration and modernization.

Huge huge change in the last several years, while everybody talking about it for almost a decade. The real impact is we will see happening during the last several years on I assume COVID-19 is a huge.

Huge accelerator for losses.

And from this point of view, we definitely soon.

Much more interest.

Much more urgency to to focus on those.

And kind of related to previous questions for you.

Two.

Right right, Okay, and Jason can you just tell us a bit about the assumptions, you're making for utilization and pricing in the 2021 guidance.

Yes so.

Utilization I think is fairly consistent with.

Utilization that we that we exit with hearing in Q4, and so we're not expecting a significant uptick in utilization.

We're not expecting you're expecting less demand didn't come in as expected that we'd see a significant decline. While we are seeing as Ark indicated as wage inflation historically, I think I've talked about 4% to 5% wage inflation in 2020 was probably more on the five to six range and probably would stay on the five to six range in 2021.

And so it may be a somewhat elevated level of wage inflation.

And pricing is again, it's kind of a mixed environment, where newer engagements, particularly with the high demand for resources and again the robust robust demand for the type of work that we do.

Provide some opportunities, but there are probably some existing customers, particularly in still impacted sectors of the economy, who are a little bit less open to the idea of a 2021 rate increase letters signaling to us that there.

More open and quite open to a 2022 rate increases.

Okay makes sense. Thank you.

Thank you and as a reminder.

Please limit yourself to one question and one follow up our next question comes from Maggie Nolan with William Blair. You May proceed with your question.

Thank you.

Following up on the Buildout of new geographies can you give us some insight into the decision process behind what geographies you chose to build out.

On why you picked up on locations and then your assessment of your ability to attract talent in those markets.

Definitely there is some preparation for this.

Sure.

For those who are wishing us for since say fewer days like you remember that we were.

Very heavily concentrated practically in a couple countries and well we still have.

Constant concentrations in this country right now it's much much smaller portion of this so which we proved that we can do it in scale.

Different locations and the right now.

We look in a second.

Second kind of.

Degree of.

Yes.

Geographies.

Not necessary very new for the global market, but might be relatively new for us and that's includes logo acceleration for example in India or acceleration.

In America, but also.

A number of countries for growth.

Our traditional locations.

Again.

Credit data usually.

So there is a.

Infrastructure is there are some Thailand, which was built on tractors.

Tractors by competitors, but also for.

The quarter to a few new ones or just University system.

In some situations.

On the reserve kind of initial immigration due to due to geopolitical situations, we select in some countries, which would be much more comfortable for people.

Guided to relocate as well and.

Partially 2020 was kind of combination losses to two things.

Got it. Thank you and then if we take a look at Tim on your client buckets.

Yes.

Top 20, there was good growth there maybe with the exception of debt slight sequential decline in the top five Kelly any comments on what's going on there and then when you think about the outside of the top 10.

Last year that was a nice growth driver for the company. This year its trail a little bit.

For the consolidated company growth.

Is there any dynamics there that we should be aware of or any thoughts about how to kind of reinvigorate that client relationship.

This client relationship.

Bucket as you navigate through a credit rating from go okay.

Yeah, So that's fair.

I think that we still think about the business very much as a diversified portfolio, whether we're looking at industry verticals, our customers and I think are excited at the very beginning of the call, which is it's a little bit.

Hard to predict which customer is going to is going to drive the growth.

With absolute certainty in a in a given fiscal year.

We certainly are seeing some customers and in the top 20 that we think are still going to have high levels of growth. We are seeing a few that are going to slow down one thing I could call out is that we've had very high growth with large customers in that business information media space.

We continue to have very significant relationships with a number of those clients who are now very much on our top 10, we think that we might not see as much growth.

In fiscal year 2021, as we certainly as we saw on in 2020.

We've got growth coming from from some of the manufacturing customers, we've got some growth coming from.

Some customers with more of a health care flavor to them and so again I think you are going to see.

A little bit more of a return to the <unk> traditional growth rate in the below 20, but it may not be quite the way. It was three or four years ago, because I do think as we continue to have established relationships with large companies are seeing is debt.

Vendor they can get things done inside those companies you do get you do get growth inside those portfolios.

Alright, Thanks, Jason Thanks, Eric.

Hey, Thank you.

Yes.

Thank you for our next question comes from Bryan <unk> with Cowen You May proceed with your question.

Hey, guys good morning.

On hiring here she added a significant 3000 billable head count in the quarter. How do you feel the model operated you've on boarded here. The last couple of months did you feel like you're at near a ceiling level comfortably add and how should we be thinking about the pace of head count expansion in early 'twenty one for your scale some of these newer regions.

It soon.

Clearly we've got.

<unk> invested in our capability our capacity to add additional head count and so as we get bigger as we make those investments.

We talked about this is that the biggest thing from an.

Rental growth that we've had and yesterday the company, but clearly we're putting in place a structure that allows us to continue to do that but.

Clearly Q4 were kind of catching up from Q2, and Q3 and so right now we might not have as much head count growth expected.

As we for instance in Q1, but again, we're running at a higher level than we have in past years in part because we are seeing that the demand is very strong and we are putting in infrastructure in place that allows us to meet that demand.

Okay.

Credit <unk> orphans challenge not just to to grow but actually to grow responsibly to make sure that you keep in balance between demand and supply and this was always like a true.

So from this point of view the Swan zone.

Key kind of challenges, we should try and get to them.

Okay, I guess following on that.

Can you can you comment on the cash position and M&A Receptiveness here, how are you thinking about M&A as a component of the geographic expansion.

Right. So I talked about this I think every quarter and I'm going to add something to what I've said in the past so that the M&A pipeline.

We were quite active in our discussions with potential.

The acquisition targets and at this point, we are we are quite advanced in our discussions with with several companies and so I do expect that we'll be talking more about that in the not too distant future.

We continue to have a focus on on capabilities, but also geography would probably play a role as well on it might focus might be on helping us what's kind of end markets. So again more customer facing but in some cases, we may use an acquisition to get us on established position and day.

And a management team in a country that we don't have as much experience and so I think youll see both of those things in 2021.

Okay. Thank you.

Okay.

Thank you. Our next question comes from Ashwin <unk> with Citi. You May proceed with your question.

Thank you.

Good morning morning, Jason good quarter here.

Hi.

My first question is you've mentioned a couple of times larger and increasingly global Tam.

And you provided a lot of detail on debt from a delivery perspective. My question is from a revenue perspective, you can provide.

Fix with regards to <unk>.

Year.

Thinking about.

Future globalization.

The <unk> footprint from a revenue perspective.

Need to have.

The vast majority of for revenues come from North America and Europe.

Any debt any thoughts on diversification and Jason your comments on M&A as debt more of a geography focus.

Focus.

I'll answer first and I'm sure our coal have something that day as well here. So I think from an.

In some cases the market investment debt score customer focusing may still be in places like Western Europe.

I think in terms of longer term expansion I do think that APAC continues to be an opportunity for the company. As you note most of the revenue does come out of.

Western Europe, and North America, and we still are I would say underpenetrated in Asia Pac so longer term I think that's definitely an opportunity I think you are beginning to see slightly elevated growth rates in APAC and I think that in particular is interesting opportunities in the Singapore market and so I think kind of longer term I think you will.

See greater revenue, but I'm not necessarily expecting that to show up in a material way in 2021, but more kind of in future years.

Yeah assumed from <unk>.

General direction.

On the Western Europe, as a way for us in land priority too.

The rest of the markets.

<unk>, Jason mentioned priorities call to serve our global clients in this market and establish ourselves for little bit, but that's what we're putting into the last probably seven eight years OSB came to China because of <unk>.

<unk> for example, and starting to expense so I think it would be growth.

APAC.

Even with some local clients, but again not going to be really significant but the growth is a global.

Global clients for issues here in North America, Western Europe, and extension to different markets from APAC to potentially for lesser numerically as well very much anticipated.

Got it alright.

With our size, we have almost unlimited opportunity in the markets, where we are.

Understood that's good for now.

Okay.

Net pullout day.

Acquisition that you did but.

Wanted to talk that the continuum acquisition.

Hey, David consulting back reserve.

Key capability.

Thank you guys added I was curious if you could share.

More like on how that performed to the cornerstone for plenty plenty, particularly given.

Lizzy.

More debt.

That debt the discretionary nature, perhaps on snack was impacted on was it net client.

Look to us.

Adapt more so if you could talk how that how you see that day model on how you see.

That's affecting your fee share internationally.

Yes, I think.

We try to illustrate to do is a couple of examples but in general it's <unk>.

Currently.

In weighted trivial.

Stefan say, it's a journey and.

We did a number for acquisition to two built experienced consultancy capabilities.

Yields in business.

Business consultancy capabilities is this for organically and we do believe that we have for very good foundation for technology consulting capabilities as they were important for us to bring them all together and create in some way is a continuum of offering.

Linking this to engineering, because that's why I like as opposed to.

Stated multiple times that we're not even looking on specific line of service and consulting to separate from our traditional engineering, what's actually the real strong quicker lasers and from this point until you I assume.

During the last two years, we saw.

Very positive impact on I think 2020 to our surprise.

Such as French and difficult difficult here actually triggered at multiple events, where we answered.

New clients through very different for it for us from the past.

In Utah started much more significant programs for our sales is a big potential and also referred couple audience against the top consulting firms to do all do each year.

US kind of much more comfortable.

I assume that was the direction that you selected so they're on.

Very good signs for that.

It's moving for.

Right now.

Got it thank you guys.

Thank you I would now like to turn the call back over.

Our next question comes from Permian from 90 with Piper Sandler You May proceed with your question.

Great.

Congrats on another terrific quarter.

The demand environment.

<unk> quite robust across the portfolio are you seeing pricing strength as the overall demand environment improves.

Yes, I think.

There are opportunities with some of the newer engagements in particularly you are right. When there is theres strong demand and supply is a little bit more challenged that produces opportunities, but I think with some of the longstanding relationships.

It's a little bit more mix right. It kind of depends on where they are in terms of their own demand and a lot of people still have some uncertainty and so we still see pricing opportunity, but maybe a little bit cautious on the ability to take up rates as frequently as we have in the past.

And thats important and kind of what informs the guidance with the midpoint of that range being 17% adjusted iPhone.

Great Great and I had a question on operationally.

How are you thinking about staffing in a post pandemic environment.

Daily.

Last day at our property kind of fewer.

Vacations and high levels of productivity, but when you look at the next 12.

18 months.

Good day.

The levels of.

Alright vacation time off and things of that sort.

You're kind of anticipating planning.

Sort of your staffing levels to account for some of this.

Yes. Thank you you touched on is very very interesting question that is true.

Very good.

Turn on the west like on our management of course, we discussed at the executive team going for locations for six months on nine months. After this.

But.

But the but in general we definitely put as a model a lot of sorts and we project an accelerated locations as humans. It correlates really will give up.

More than obviously in right now, but yes, its one of them with perfect now, but our current model anticipated some increase locations.

After the foundation will be done.

Correct, Okay, great terrific. Thank you and good luck for 2021.

Thank you I appreciate it.

Thank you I would now like to turn the call back over to our cloud adoption for any closing remarks.

Yes. Thank you. Thank you everybody for attending.

We all know how.

For 2020.

And we really hope to 'twenty or 'twenty, one will be.

Differently EBITDA, while we all understand that it's.

We will be a mix of different things.

We will look into positively to overall situation loans hopefully our next quarter will be different from the second quarter of this last year, when we completely changed the whole curve.

To change the whole future. So hopefully it will be different this year. So thank you very much him talk to you next time.

Yeah.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.