Q1 2022 Epam Systems Inc Earnings Call

[music].

Good morning, ladies and gentlemen, thank you for standing by.

And welcome to the bank.

<unk>.

2022 earnings conference call.

This time all participants.

The only mode.

The speakers presentation there'll be a question and answer session.

So a question during this session you will need to press. The Star then the one key on your Touchtone telephone.

Please be advised that today's conference is being recorded.

Operator please.

Zero.

I would now like to turn the conference over to your Speaker host David Straube head of Investor Relations. Please go ahead.

Thank you operator, and good morning, everyone. By now you should have received a copy of the earnings release for the company's first quarter 2022 results. If you have not copies are available on <unk> dot com in the investors section with me on today's call are caught adoption CEO and president.

And Jason Peterson, Chief Financial Officer, I'd like to remind those listening that some of the comments made on today's call may contain forward looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings.

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

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

Thank you David good morning, everyone.

Thank you for joining us today.

Using our previous William School I finish my remarks, these are sort of the level of maturities of two pumps with what.

What was the last few years alone because our ability to iterate and learn and show a performance unions are difficult times in 2014, and 15 and Ukraine in 'twenty, and 2020, one and Bill Evans.

Allows us to say.

Well put it to address the potential challenges of 'twenty to 'twenty, two by leveraging our broad global reach.

Deep regional insight and buy a plane or shrunk in Geneva in G&A.

And most importantly.

I will never end and into the Premier old Spirit, two continuum Lake in the future deal for clients.

All employees and all of global and local communities, while keeping everybody safe as possible.

We live alone.

We didnt extensible.

But any measurement the quarter could have been.

Unlike any other quarter you know if she has something.

But actually I mean, I don't know if you can change the world and then putting tens of millions of people, including tens of thousands of followed employees their families and friends.

Enablers in Ukraine and around the world.

What we saw was unimaginable when we reported our Q4 earnings on February 17th.

Okay.

We'll change it equally.

Okay.

No let me repeat the simple statement.

The problem with the company fully stands with Ukraine.

During the last months since the beginning of the war.

What is the Russian government Oh, absolutely.

Absolute top priority has been and continues to be the safety and wellbeing of our employees and their families in Ukraine.

Today, all employees in that region and around the globe continue to support each other donating time and resources to cultivate a cool and Ukraine.

Additionally, the company has provided significant financial and logistical support to help move our Ukrainian employees and their families to safely reduce inside and outside of your career.

As we have previously announced bump because it's got muted Congress million U S doors in our systems to fill it with a broad range of needs for our people and their close ones.

The Lumpiness financial assistance.

It's been an outpouring of support from a great number of clients and partners responding to justice and different type of rates.

Thinking more broadly about what the people of Ukraine, we used others from Ukraine assistance fund to support the strategy that will eat organization to provide direct relief to those in vulnerable situations across Ukraine.

This fund is a separate and in addition to the Congress.

When you take <unk> commitment previously mentioned.

And despite a very challenging and sometimes unimaginable conditions on the ground in Ukraine.

Are you planning on the call that there's been Zealand's indicated does their work and customer responsibilities continuing to produce and to deliver results.

He promised management team together with old clients extremely impressed and grateful for this incredible efforts and we see today increased interest from our customers to continue work.

Work to Crane.

I personally want to thank each and every one on all Ukrainian too.

However, well they got it wrong. We were also somehow right about the whole level of readiness to address that at all.

Because today, despite the broad and disruptive nature of the events unfolding daily you'll find those cells to be better prepared it might jump in just three months ago.

Oh and the last one since I didn't all operational and logistical platforms teams and processes because it enables us to respond quickly and established and framework.

Continuum place to recover the procedures.

Let us try to illustrate it in a bit more structured way.

Representing several stages of fault current Jordan or at least the way we are going to assume can both things.

Cost.

In addition to preserving the safety of all your opinion, you Palmer since their families well, helping to move money thousands with people from east to west inside the country and abroad. Our initial focus during the last few months has been on maintaining our customer relationships.

<unk> continues to deliver.

An important initiative, despite the war and interrelated geopolitical challenges.

Those samples can be defined for ourselves as a phase one a period of safety and stabilization for good reasons.

Very little attention to anything beyond that.

Under the current conditions. We believe this place is largely completed and we will call it out as a notable success.

P. J suddenly you alluded to it in more details the specific numbers for Q1 results and our guidance for Q2 shortly.

So well yeah.

<unk>.

So it was at the minute they didn't graduate from Ukraine. We also what kind of gives out what customers towards Reza can source.

And request to reposition projects and teams to different geographies.

So very much geis, it whereas the business continuing to plants, because previously established reserve lives, including multiple location alternatives for all employees.

In April we also made the decision to exit those operations in Russia.

Which is in step with the market.

The broader global response to the actions of the Russian government.

We are fully committed to our tenants in Russia, who said Oh, well, there's an old position and for most of our employees since it isn't working in multiple locations all of the businesses two allows them to demand as a company and as long as that caters to Paul.

This statement is bringing us to what we consider to be a phase two which is our activities to accelerate the diversification. What are you willing to excuse me of our global locations and continued growth with our delivery capabilities.

We have already begun the second space, which closed there was little ups visa face law.

This acceleration includes rapidly scaling already exist and deliberate or locations in India Latin America Central Asia.

Well as establishing several newly created delivery hubs and expand and when your existing across Europe .

This expansion will support us to reposition.

The repositioning of the fault current employees and simultaneously creates about a 22 to develop as a local Italian market.

Club locations.

This will allow us to maintain the experienced delivery times, while also establishing new delivery footprints and alone with significant increases in local and.

And better facilitating future growth in those locations.

At this point, we cannot report does this development.

In play already.

And we're seeing early success.

We will continue to update you on our progress on a little simpler soils.

I would also point out that in large part because as you can see patient program was well underway even during the past pivotal yes.

We spoke with all locations with Italian from Ukraine, and Belarus, and Russia was close to 70% of our total production capacity.

At the end of 'twenty or 'twenty one it was lives in 16, and we believe by the end of 'twenty. So we need to be able to manage to reduce the location of our production stuff and they do use them to both switch a percent.

Additionally, we have a strong convention to maintain and potentially grow our talent pool in Ukraine, which we believe will continue to be a significant day too.

It's supposed to work.

Well the size and scale. This disruption has been very significant and while we still expect some very much unexpected seems to come up I think it's important to bring context does the rest of our business in the restaurant portfolio continued to have good rate in the business as usual manner.

And then longer term demand trends have driven growth in our business before remains very much intact.

We believe these trends combined with our unique with it is enabled by our differentiated unions DNA and market position will place us on this list.

If I may the organic revenue growth profile sooner rather than late.

And this brings us to what we call phase III superior to focus on driving demand.

This place is also underway and we will occur in two phases, we described above.

What this means is that we are focusing on the revenue growth when you and existing customers and starting to upgrade in type of new normal environment for us.

We believe that this new normal should valuate is lift to sequential revenue growth during the second half was pointing 22.

After that we believe we will be able to enter phase four of our recovery plan.

She will be time to focus on profitability with the objective to return to appropriate levels consistent with the pumps historically tried to get three inches.

This was truly an important area of attention on all agenda already today, but we plan to carry a stronger focus on profitability as well as an improving rate structures and optimizing performance. So far and you deliberately locations throughout the second half of 'twenty or 'twenty two to show visible performance improvements.

While this place will likely carry on into 2023.

Okay.

I think it's really much understandable, it's all of the places I just outlined are not sequential as well as many elements of these airports Oh, good luck and in time. They also very much intuitively if.

If I look at traditional complexity.

And to all the day to day activities.

At the same time, it's also important to underscore as opposed to places already very much underway and the next two phases are just getting started.

All places we will continue to be present in all life for some time.

To summarize.

Well it causes disruptions beyond our control today, we are responding at this scale in the place to put our best effort to visit to contain this as much as possible. The impact of this work was in 2022.

Our new strategy is not really new but an acceleration of our previously stated strategy adapt grow and deliberate or will you across a broader.

More engaged ecosystem, most people customers and partners.

Well listen I'll, even reading seriously.

Integrated ease of navigation and transformational consulting capabilities, we already do well and what was the last he is really talking to industry, leading growth and they're more in line profitability model, while still challenging those skills in Dublin as a company 20th when you want to reach in three Years' time as we have done previously three times since our IPO in 2012.

Yeah.

I am confident we will execute this unimaginable challenge and emerge as a more divorce Moody's Leland.

Really wanted to pop.

I hope you'll be able to join our investor and analyst day event on May 19th in Boston, where we will share more insights you know plans and goals.

Now, let me turn the call over to Jason who will talk about our Q1 results and additional perspective as you look at Q2 and beyond.

Thank you Ark and good morning, everyone in the first quarter E payment alert strong results. Despite the impact of the company's decision in March to discontinued services to customers based in Russia.

In Q1, we also incurred some of the initial costs, resulting from Russias invasion of Ukraine.

And the acceleration of our geographic diversification strategy.

These costs, including expenditures related dpm's humanitarian commitment to Ukraine.

<unk> for impairment of Russia on long lived assets and costs associated with accelerated employee relocation had been excluded from non-GAAP financial results.

We've included additional disclosures specific to these and other related items in our Q1 earnings release.

During the quarter EQM generated revenues of $1 $1 $7 billion, a year over year increase of 51% on a reported basis and 53% in constant currency terms, reflecting a negative foreign exchange impact of 290 basis points.

Looking at the performance of our industry verticals in the quarter travel and consumer grew 99% driven by strong organic growth from both our retail and travel customers.

Well as revenue contributions from recent acquisitions.

Financial services grew 54% with very strong broad based growth coming from asset management insurance and banking.

Life Sciences, and healthcare grew 35, 9%.

Business information and media delivered 31, 5% growth in the quarter.

Software and Hi Tech grew 28, 8% in the quarter and finally, our emerging verticals delivered 59, 4% growth driven by clients in telecommunications and energy.

Manufacturing and automotive.

From a geographic perspective, Americas, our largest region, representing 59% of our Q1 revenues grew 46% year over year or 46, 5% in constant currency.

EMEA, representing 36% of our Q1 revenues grew 62, 7% year over year or 68, 1% in constant currency.

EMEA performance was driven by stronger organic growth combined with an incremental contribution from our recent acquisitions.

C representing 3% of our Q1 revenues grew 10, 5% year over year and 36% in constant currency.

Growth in the quarter was reduced by the initial impact of the discontinuance of services to our customers located in Russia.

And finally, APAC grew 41, 2% year over year or 41, 7% in constant currency terms and now represent 3% of our revenues.

In Q1 revenues from our top 20 clients grew 32% year over year, while revenues from clients outside our top 20 grew 63%.

Moving down the income statement, our GAAP gross margin for the quarter was 33, 4% compared to 33, 5% in Q1 of last year.

non-GAAP gross margin for the quarter was 33, 3% compared to 34, 9% for the same quarter last year gross margin in Q1 2022 was negatively impacted by the inability to recognize revenue, resulting from work done for certain of our Russian customers.

As well as lower utilization in Russia, Belarus and Ukraine.

GAAP SG&A was 23% of revenue compared to 17, 5% from Q1 of last year and non-GAAP SG&A came in at 15, 6% of revenue compared to 15, 5% in the same period last year.

SG&A in the quarter reflected a higher level of bad debt largely driven by a higher level of reserves associated with their customers located in Russia.

GAAP income from operations was $129 million or 11% of revenue in the quarter compared to $107 million or 13, 7% of revenue in Q1 of last year.

non-GAAP income from operations was $189 million or 16, 1% of revenue in the quarter compared to $137 million or 17, 5% of revenue in Q1 of last year.

Our GAAP effective tax rate for the quarter was 15, 6%, our non-GAAP effective tax rate, which excludes the excess tax benefits was 23, 9% and includes a one time charge related to certain tax credits.

Diluted earnings per share on a GAAP basis was $1.52, reflecting a 34 decline or 18, 3% decrease year over year.

GAAP EPS includes the impact of Ukrainian manager and expenditures charges related to the impairment of Russian long lived assets.

Expenses related to accelerated staff relocation and losses on Russian ruble forward contracts that were unwound in the quarter. Our non-GAAP diluted EPS was $2 49, reflecting a 68, an increase of 37, 6% growth over the same quarter in 2021.

In Q1, there were approximately $58 9 million diluted shares outstanding.

Now turning to our cash flow and balance sheet cash flow from operations for Q1 was a net cash outflow of $51 8 million compared to a net cash inflow of $13 million in the same quarter of 2021.

Q1 cash flow was negatively impacted by expenditures related to our Ukrainian humanitarian support initiative and the payment of a higher level of company wide variable compensation.

Our 2021 performance, we also accelerated the timing of variable compensation payments with a higher proportion paid in Q1 than in prior years.

Free cash flow was negative $75 1 million compared to positive free cash flow of $2 million in the same quarter last year.

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

At the end of Q1, DSO was 69 days and compares to 62 days for Q4, 2021, and 67 days for the same quarter last year, we expect to maintain DSO slightly above current levels throughout 2022.

Now moving onto a few operational metrics.

We ended the quarter with more than 55050 consultants designers and engineers a year over year increase of 41, 8%.

Our total head count for Q1, it was around 61600 employees.

In the quarter, we had approximately 2800 net additions.

Production head count growth was negatively impacted by lower than planned growth in Ukraine, and an actual reduction in Russia based production head count.

We continue to experience accelerated growth and production head count in countries other than Ukraine, Russia and Belarus.

Utilization was 78, 4% compared to 81, 4% in Q1 of last year and 76, 8% in Q4 2021. Our Q1 utilization includes those employees who've been assigned in a backup capacity to support project substantially delivered from Ukraine.

Although these employees were counted as utilized for the purpose of our utilization calculations. This work was largely unbilled.

Utilization in Ukraine did decline somewhat on a year over year basis, but it means being maintained at extremely high levels, considering the current operating environment.

Now, let's turn to our business outlook on February 28, we withdrew our business outlook due to the uncertainties related to Russia's invasion of Ukraine for.

For the remainder of this year, we plan to provide guidance for the next quarter only with the expectation of resuming our full year guidance at the beginning of the 2023 year.

Additionally to help align with our thinking around significant events, let me provide a few broad assumptions, which will help frame our guidance for Q2 and the remainder of 2022.

Russian aggression continues to take a terrible pull on Ukraine, but most of the finding is currently concentrated in the eastern portion of the country.

We continue to see relatively high levels of productivity from our Ukrainian staff, who are substantially located in safer portions of the country.

Our Q2 guidance assumes that we will maintain Ukrainian utilization at slightly lower levels than those experienced in Q1.

During the initial weeks of invasion, we were able to relocate approximately 2000 employees out of the country, where they're safe and productive.

Pam has spent over $25 million, so far as part of the Companys $100 million humanitarian commitment to Ukraine and of Ukrainian employees and their families.

Further humanitarian expenditures will be made in Q2 and throughout the remainder of the year.

To date, we have relocated significant numbers of our Russian employees until delivery locations outside of Russia.

We expect to relocate more of our Russian employees throughout Q2.

Employees relocated outside of Russia are being moved to fill billable positions and are expected to be billable in their destination countries.

During Q2, we expect that lower levels of demand for Russia based resources will result in considerably lower utilization levels for those staff remaining in the country.

At this time, we are planning to maintain operations in Belarus.

We expect a lower level of utilization as we execute business continuity plans for a defined number of clients, who would like us to deliver from countries other than <unk>.

In parallel with the repositioning of our people we have begun the effort to align our cost and rate structures to reflect the prevailing economics in the geographies, which demand has been redirected.

In many cases, the result will be increasingly building rates to reflect higher cost, although we although we expect some lag and the establishment of these higher bill rates.

Additionally, we expect some short term inefficiencies as we scale newer delivery locations. The combination of these factors will put downward pressure on our profitability in Q2.

However, we expect to see ongoing improvement in profitability in the second half of 2022 with a return to something closer to our historical levels of profitability in the first half of 2023.

Lastly, based on the continued strong demand stability in our customer portfolio and progress in accelerating our global diversification, we expect to return to positive sequential revenue growth in the second half of 2022.

Now moving onto our Q2 2022 outlook.

We expect revenues to be at least 114 billion producing a year over year growth rate of at least 29%.

In constant currency terms revenue growth is expected to be at least 34%.

Included in these growth rates is approximately 600 basis points of revenue contribution to come from acquisitions closed over the last 12 months.

For the second quarter, we expect GAAP income from operations to be in the range of 3% to 5%.

And non-GAAP income from operations to be in the range of 10% to 12%.

We expect our GAAP effective tax rate to be approximately 19% and our non-GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation to be approximately 23%.

Earnings per share, we expect GAAP diluted EPS to be at least 73 for the quarter and non-GAAP diluted EPS to be at least $1 70 for the quarter.

We expect a weighted average share count of $59 5 million diluted shares outstanding.

Finally, a few key assumptions that support our GAAP to non-GAAP measurements in the second quarter stock based compensation expense is expected to be approximately $27 5 million.

Amortization of intangibles is expected to be approximately $6 million.

The impact of foreign exchange is expected to be approximately a $1 $5 million loss.

Tax effective non-GAAP adjustments is expected to be around $16 5 million.

Finally, we expect excess tax benefits to be around $4 million in the quarter.

In addition to these traditional GAAP to non-GAAP measurements consistent with Q1, we will have additional non-GAAP adjustments in Q2 that are a result of Russia's invasion of Ukraine. Please see our Q1 earnings release for a detailed reconciliation of our GAAP to non-GAAP guidance.

In summary, despite a challenging March we are pleased with our Q1 results.

In Q2 and for the remainder of the year and Tim will continue to focus on the geographic repositioning of our company.

Then in the second half of the year, we expect to see both improving profitability and a return to sequential growth.

Now I would like to take this opportunity to thank all of <unk>, but particularly those <unk> working from Ukraine.

It is hard to imagine living through all that you are living through and still doing all of that is necessary to meet delivery obligations and sustained <unk> operations in the country.

My thoughts and prayers are with you and your families.

I also have a huge amount of respect for all of you.

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

Thank you.

Gentlemen, a question at this time.

Sorry.

On your question Tom.

Ladies and Don will be compile the Q&A roster.

Yeah.

No first question coming from the line of Ryan Bergan with Cowen. Your line is now open.

Sure.

Hi, Good morning, Thank you and I hope all of your colleagues remain safe here.

First question I have is around client retention. So it's obviously you had very solid revenue results here, but can you just gave us more color around client conversations have you experienced any client losses, just their choice for reduction in risk exposure.

And how is the conversion of new work with the existing clients progressing relative to maybe historical pace.

So I assume it's a pretty tend to spend the most of it.

Kind of similar to US clients also went through multiple so it's due to the loss.

First a couple of weeks of invasion.

Invasion is.

Through couple of months and a lot of opinions so assumptions changed so we do have several cases where clients.

Decided to stop growing with us.

And but did some very with very much exceptional sales we've had multiple cases.

So Airbus planes.

Work with us and it's going to be joining back several weeks.

Starting to grow with us as well I assume because.

Yeah.

I would describe it.

Much better than we.

We would expect several months ago, and I assume the level of comfort and confidence is practically growing each week.

Multiple clients, who are talking to our people.

Grant and exploration.

But.

Really in placements.

What's happening.

And so all my zinc producer and that was a little.

Although productivity because it seemed like myself.

<unk>.

Jason where exploration due to this.

Well already today.

So and due to the less peaks we see.

New business starting to comp some clients, specifically asking too a good eight.

For Q in location and we start again.

Cut in Ukraine, as well, so I think that.

Summarize.

Okay. Okay, that's good to hear.

And then just on the on the profitability outlook. So I wanted to dig into some of the context you provided around around this phase four.

So it sounds like you believe there is the potential to achieve your prior levels of profitability in the future, but are there any structural considerations in those future plans versus the prior operating model that you considered so it's really just what are the risks youre thinking about getting back to that view and I think you said 23. Thank you.

Yes, so if we talk about I guess Q2, and then talk about maybe the journey as you as you head back towards 2023 is that.

Initially, we're going to have lower utilization as I mentioned during the prepared remarks.

Clearly in Russia, as we've exited that exited as we exit operations and particularly as we have deter.

Determined to stop doing work for Russian clients.

Got.

We modeled somewhat lower levels of utilization for Ukraine, just because of the situation remains dynamic.

And then we are also seeing some clients who are asking us to do delivery.

As Ark said stay with the Pam, but ask us do delivery outside of Bell risks and so you've got in that entire region, you've got probably somewhat lower utilization and I think you'll work through a lot of that here in Q2 with improving utilization in Q3.

You do have obviously, some standup costs associated with creating a whole series of new delivery centers in growing existing delivery centers, while were ramping down and still maintaining some of the costs associated with with our current delivery locations, particularly in Russia.

And then would you have and we've talked about this in the past is as you move people into into the next geography into their next delivery country is in some cases those are more expensive countries and we've pretty immediately take people's compensation up. So there is an increase in compensation cost and then there needs to be a discuss.

And with clients about the associated rate increase those conversations are already underway and will be working on that throughout.

Throughout that throughout the year, but that's probably that the.

The balancing act because I think you've worked through the utilization and then the SG&A efficiency.

Golf as a percentage of revenue in Q2, but then I believe begin to come back down in the second half.

And then we've just got to work through all those sort of rate discussion.

Okay very good thank you.

And our next question coming from the line of Darrin Peller with Wolfe Research. Your line is open.

Thanks, guys first of all you know.

It really just hope everybody is doing well and as they see it as possible.

Secondly, it's very impressive to see you guys manage through this.

And on that note I really just wanted to understand when you think about looking forward for the next few quarters.

The new balanced portfolio from a supply side for your business. If you could just help us understand if theres going to be if you've identified it like any specifically new center results.

A real differentiated talent development.

The way that you you would leverage Ukraine, and Belarus, and the past are there other markets that you see becoming your go to differentiated markets that are maybe new or whether its turkey or I know theres been areas, you're moving some of the Russian base too and so I'm wondering if some of those could be that source and then just on top of that.

Is there any way you can help us understand the breakdown of the percentage breakdown of your employee base that you'd expect it to be within a couple of quarters. After these moves occur.

Uh huh.

Yes. Thank you for the question.

Sure.

Okay.

I think we Directionally indicated how much we've seen.

But <unk> of the year, we expect into <unk> pupil between Ukraine and Belarus.

Because of them that are actually close in the next.

A few months.

We will also open I shouldn't be indicators this as well Jason was focused on.

We mentioned this specifically.

As it is right now.

Glenn in right now.

Good novel for employees at all.

Russia and some fulfill out of this will be located in waste.

BCP.

I Miss from the clients.

Relocation of equipment right now too.

Multiple countries across mostly in Europe .

Uh huh.

We have some Asia as well.

Central Asia as well.

So I don't think we can.

Saturday saw details in percentages.

Great.

But the idea definitely that we.

To find a number of specific.

Countries, where we think we can scale, but we also bring news as it started to exist.

And we believe that in this configuration that we will be able to.

Accelerated.

The recruitment.

And bringing the connectivity to bump culture.

And.

Well, it's a sensitive issue at the company for a long time.

So at the same time during the last.

12 months is the fastest growing markets for us actually.

In Latin America.

So and so we were talking about before.

Oh, well started focusing on diversification and this is actually working for us and we will be accelerating.

More.

And this time it's months.

So India and Latin America will be the focus.

New <unk> centers in existing centers in Europe .

Which will be completed.

Got it.

<unk> from <unk>.

Our traditional locations.

Fruit creates stability.

Client comfort, which we believe.

We will be driving that growth.

Okay, I think thats, what we can say that I don't think we can share a very specific numbers right now.

Alright, Thanks, and then just very quick follow up is the you mentioned pricing discussions will obviously come after this but can you just comment on the receptivity that we heard from one of your competitors yesterday and others in the industry that they are seeing pretty understanding receptivity on the industry around it. Please.

Police have being passed through in price, so, especially in the context of what you have to do to move folks.

What kind of reaction of our customers, having now to that price.

Offset yes.

I think we've talked about over the last couple of quarters that the market just because of that.

The imbalance between supply of technical resources, and then the immense demand is it those conversations have been easier for a while and then on top of it.

Our clients are also seeing the cost of their employees go up so there is some some cognition.

That there.

There is inflation in the market and so those discussions.

Were easier the one thing I think I've been pleased by is just.

In conversations with clients.

There's an understanding that they do get.

A different level of productivity from Pam and so there is an understanding that as we've had to make all these difficult transitions in different countries.

That what they get for me Pam from a delivery standpoint truly is differentiated.

And so that's helped with the stability of maintaining customers, but it also is supportive of the conversations that we will be having about pricing.

So I think that's how I'd answer that.

Alright, guys, thanks and be safe.

Thank you.

And our next question coming from the line of Arvind <unk> with Piper Sandler Your line is open.

Oh, Thanks for thanks for taking my question.

Congrats on operating.

Operating in a really tough environment.

Just had a couple of questions.

We had done some checks it folks on the ground and quite amazed with the residents.

We heard from Ukraine.

Can you provide some.

It's a granular feedback on how you're delivering this heighten levels of productivity from the UK and I know you provided the high 11.

Sort of feedback, but can you provide some more specific feedback on how you're able to deliver these kinds of productivity from from the Ukraine.

So as you know like UK and I'll use location.

And we said <unk> distributed.

Delivery centers infrastructure and Zika.

With several major defense of that.

So indeed it is.

Post two weeks link.

Uh huh.

So the main focus was to bring in as many as possible people to the western part of your grant.

Revenue for the.

That is our central and <unk>.

Establishing them with new lift synthesis in the smaller cities.

Around the region as well.

So.

Infrastructure point of view can you seriously point of view. So we didn't have practically any interruptions and Keith as well, which is why you'll see two.

When you develop a system. So between these two we practically we're covered in majority of the vessels.

The necessary work happening.

Yeah.

So I don't know what else what.

Olivia the hidden besides like a phrase.

Craig praising our employees, who were focusing them actually keeping the same way today. It is difficult situations in the work so.

It was a plus couple of thousands of people specifically, when we're able to relocate to Poland and too.

The.

Work from these locations as well.

And then.

Just as you transition you tell.

And then from that.

That shows that they lose on Ukraine.

Most of them being moved to it I think it is.

Can be moved to like.

Poland and Hungary.

Move to the U S.

Most of these folks are being moved to.

So the exiting.

Three two.

This is.

But it just sophisticated.

Right now and if I start to.

To lead countries, where people might be because right now it would probably will be presented on this call, but there are several specific it is Poland.

Obviously, it was one of the key destinations, but it's not the only pull in those countries in central Asia countries.

Countries like Turkey, and Saturday. So it's so no names, but at the same time, it's not doing the one phrase exercise because in some situations we have to move people very quickly.

After this fund as a final destination, which could be used for Canada as well depending on.

People depend and skills profile, so it's a very much longer term.

So for us.

Terrific and last question for me.

Just wanted to follow up on Brian's question earlier.

On to the existing and prospective clients plenty I think existing clients that being supportive.

But what is the feedback from new clients, you're still sort of selling to new new logos and getting traction with newer clients.

Yeah, as we mentioned like clearly there.

So really the focus was to stabilize the exploration with existing clients and address opportunities of growth and existing clients, which still stepping in.

Yeah.

Uh huh.

Definitely there are new logos coming to us and they're a very trusted political people in the industry who.

Bleeding into us Tuesday, new destination, because people move in and very comfortable is working with us. So this is Larry.

In a very normal and some of those people really believe.

The integration level Saturday because your company. So this is still happening, but as you can see we practically flat August here.

Q1 and Q2.

Which means.

It's a balance right now.

Get them stabilization them, so we really believe that.

Q3, and Q4 should be it should be more reflection of the Wisconsin.

But we cannot tell exist.

All expectation otherwise, we will be guidance was a year.

Terrific.

And President U N focusing a DPM. Thank you very much.

Hey, Thank you so much.

And our next question coming from the line of Ashwin <unk>.

Your line is open.

Thank you.

Yeah, Hi, Jason.

First of all.

Much inspect for what you and your employees achieved this quarter.

It's.

Truly amazing.

I guess my question is can you accelerate some of the annuity diversification using M&A or is there just too much going on operationally that you would not add that to the list of things to do.

Alright, so if we look at opportunities.

He was in this very difficult period, I don't think of it and when they said that you changed you're looking for.

Chile additional skills and additional locations between those looking for very large funds because it's a different level of integration.

As you mentioned is probably not the existence of our minds right now, but if you're looking for some smaller accelerators in different geographies. So that we can grow faster.

If necessary so they.

Might that actually be entry points are beachheads in the countries in which we are not currently operating they'd give us management experience in those countries and then we grow around them. So in many ways they might start small but allow us to accelerate.

Regions, including.

The Balkans in Latin America.

Understood understood and I think that I didn't hear a comment with regards to.

New business development.

Having destocking.

Could you maybe provide more color around around that and is that perhaps an indicator that even your client conversations as you mentioned previously.

Transitioning from.

Pete.

So you're getting up the annuity with you to perhaps be getting up.

Yeah.

Yeah.

So I really didn't.

Good situation exists, so new business development and business development.

Well first of all again, we have significant presence outside of those two Egypt and yourself.

We have built three to three two good reputation during the last year so from quarter to delivery. So we still have people coming to us and some of them actually look as if it was a.

Type of talent, we should experience in this.

<unk> right now to use them and we have opportunity to relocate and mix.

Capabilities right, though and many clients are actually looking for this as well so.

It's really difficult in this situation to say is it's a huge.

Both new logos kind of them, it's not because people.

Careful cautious right now, but we see definitely very positive.

A very positive direction.

Since.

Since the beginning of March.

Okay.

Got it thank you.

Thank you.

Okay.

Question coming from the line of Ramsey Lso with Barclays. Your line is now open.

Hi, Thank you for taking my question today and also.

Amazing job that you guys are getting as we can all see.

Can you describe how you balance actually.

Going to ask was.

When you're relocating people right away is there a lag.

That's due to travel et cetera, or.

Those relocation efforts are you able to make those people productive pretty quickly and I guess the follow up question. There is is there a backlog of people who are still waiting to be relocated or is the relocation process largely compete at least as it stands today understanding that the situation on the ground as fast moving in terms of the console.

Oh.

I don't think we would be setting or logistical come.

Components of what's good for them, because it's difficult to describe with.

While simple challenges there and we really.

Carolyn.

But it did actually that this is not an easy perot systems. There are multiple aspects of this so.

<unk>.

What we can.

I think what's important instead of talking about all of the specifics that we do believe that was in terms of year.

I'll, let patients.

In Ukraine, and Belarus, who would be not more than 30% of all places.

I think that's important for the rest of this I was Rosa.

Excuse me.

Bob.

Fair enough fair enough.

Has there been any issues with attrition outside the kind of conflict zone and another one in other words are you having.

The staff, who are having to lean on in order to keep the operations going having any earn out or morale issues in terms of just the degree to which you need to sort of lever them to keep the operation going or are things, okay on that side as well.

Well I'll comment on attrition and put a few numbers out there and so.

The attrition has also been very positive.

I don't want call. It a surprise, but certainly if we didn't have any incremental let's say voluntary attrition, while we have added some incremental in the involuntary attrition primarily related to Russia.

And so we are up around lets say around the 20% range from an attrition standpoint, but from an from a voluntary standpoint. The attrition levels. We are seeing are very similar to what we saw in Q4 and Q3. So at least at this time very little change in attrition and.

<unk> employees are highly supportive of all the work that needs to be done and obviously, that's why we've executed a successful as we have.

That's great I appreciate it thank you.

Our next question coming from the line of David Grossman with Stifel. Your line is open.

Yeah.

Thank you.

Morning.

I was wondering if I can excuse me just go back to the supply side.

Or kind of maybe you could speak to some of the key similarities and maybe even the differences.

In building supply outside of your historical strengths in Belarus.

Ukraine.

And perhaps share some lessons maybe learn from the efforts years ago to start up in India is that operation kind of had some fits and starts and just curious what lessons you took from there that maybe helping you scale.

Outside of that region.

I think it is for the question because like.

And we've used specifically in some other analysts on the call who saw the pharma duration of 10 years ago.

And visa to Tor.

Locations the exam.

So 10 years ago, we were created practically in full countries only.

So and then as those countries at this time nobody was thinking that it's possible to put together with tens of thousands of people.

We put a lot of investments in infrastructure.

Plus the.

The additional ecosystem and when you're asking to actually assume a low enough. We try to bring all of this experience how to build in kind of not really relatively scalable.

Centers.

Relatively scalable operation.

And you mentioned means yet.

We started the needs are much much relief there isn't anybody else.

Yeah.

2014 was the trigger for us to open their predictions.

In Latin America in Mexico as well.

Yeah.

And as we lap lines.

Fair enough lessons we learned.

Oh completely greenfield stovetop in eastern Europe .

So.

India last year was the fastest growing location for us.

But it wasn't faster drilling locations for us was for three years, which was practically flat.

So we changed reputations and while we still have the same management to each we're quite a long time ago.

So yourself.

Supporters as team too.

<unk> is two very different company today, and Thats, why India, probably present over the year it would be.

Probably number two number three location for us.

What are they similar companies in Latin America, we were selected verticals, what as a management team is there to seize it.

We'd like to put very different standards something so.

We did a small acquisition last year.

Colombia growing for us very quickly we will open it like a growth Latin America as well.

Mexico also one of the fastest growing location fronts.

So I think we bring it into what we know to.

Two new locations.

So that's why we are pretty confident.

Again, there's some <unk>.

Difficult to become students when there are so many unknown, but with some assumptions call. It crap.

We do believe that.

Even by the end of this year, we will be growing back close to normal rates.

Right. So as they're just at least from where you sit today or are there any.

Differences in these other geographies that you would highlight or.

All right.

Is it looking very similar to what you've seen thus.

Thus far in key locations that you operate today.

So there are definitely differences sense would it be.

End of <unk>.

Not responsible to say is it's not.

Countries in different development stage that is different though.

So if things.

Kind of much food each of them, but we do believe that we've got multiple locations, where they're moving to.

Today, we should be able to reach the level of.

Quality, we should stand at a 45. So I can say is that we don't see we don't see right now obstacles, we should stop our growth.

It was before.

And David one of the differences might be the circumstances right. So we've got a much larger number of people moving into these newer delivery locations. So, bringing you know D. Pam delivery methodologies culture.

All of the different types of tools that are referred to and so we start with I would say.

<unk> injection of kind of BPM culture into each of these locations and maybe you would've seen in prior movement into new geographies.

Got it.

Great. Thank you for that.

Just wanted to clarify one thing.

I think he made maybe it was you Jason a comment about the bench included in utilization and maybe I just misunderstood the comment, but perhaps you could just clarify that are you maintaining a larger bench than in the Ukraine now just two to back people up or is that just.

Understand that kind of on that side.

First let me clarify that probably for everybody here is that we've got.

Some individuals that were that were added in as Ark said the focus of of Q1 was to make certain that we were able to maintain delivery and obviously maintain customers and so we had a net.

Significant number of employees that were added.

We are not building at this time they are potentially billable, but are currently not being billed did show up in utilization because they are they are technically and sort of billable roles, but we're not charging for them.

The customers, we did exclude the expense for the purpose of the non-GAAP numbers that we provided.

And the idea is that at some point in time and already we're beginning to have discussions to make certain that those physicians become billable, but right now they're there to make certain that if there was any concern about continuity in Ukraine that we'd have effectively kind of backup resources available generally those are in countries.

Clearly outside of the affected region.

Right can you can you just give us a sense of the scale of that backup.

Kind of work for us at this point.

Yeah, I think that you can see it in the press release I think we've got a call out in terms of the guide.

And it will in so you can actually see sort of the percentage.

Costs associated with it and so its there in the press release.

Got it.

Alright, good luck to all of you.

We're very proud of what you've been able to accomplish.

Thank you David Thank you.

And as a reminder to ask a question. Please press star one.

And I am showing no further questions at this time I would.

Now I'd like to turn the call back over to Mr. Dugan for any closing remarks.

Thank you.

First of all I would like to pursue.

One is the same.

The entire team.

<unk>.

Their dedication and leadership and commitment.

We have been through a lot of.

During the last couple of years.

<unk>.

We definitely.

Okay.

During the economic assumptions, which we never expected it in the last months.

So I really appreciate it everybody.

Staying with us and doing this with us and our clients and our partners.

And.

Yeah.

As always for.

People on the call. So if you have questions you know where to do.

Judy exam and hopefully we will see you also in Boston.

Couple of weeks.

Pretty much.

Yeah.

Yeah.

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.

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