Q1 2024 EPAM Systems Inc Earnings Call

Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2024 EPAM system earnings conference call. All lines have been placed on mute to prevent any background noise.

Thank you for standing by my name is Eric and I'll be your conference operator today.

Eric: At this time I would like to walk through them to the first quarter 'twenty 'twenty four E. P. M systems earnings Conference call.

Eric: And it's been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press start, followed by the number one on your telephone key. Do you want to what draw your question? I'll start one again. Thank you. I would now like to turn the call over to David Straube at Investor Relations.

Eric: After the Speakers' remarks, there will be a question and answer session.

Eric: If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

Eric: She would like to withdraw your question Press Star one again.

Eric: I would now like to turn the call over to David <unk>.

David: Investor Relations.

David: Please go ahead.

David Straube: Thank you, Operator. Good morning, everyone.

David: Thank you operator, and good morning, everyone. By now you should have received your copy of the earnings release for the company's first quarter 2024 results. If you have not a copy is available on <unk> dot com in the investors section.

David Straube: By now, you should have received your copy of the earnings release for the company's first quarter 2024 results. If you have not, a copy is available on ePAM.com in the investor section. With me on today's call are Arkadiy Dobkin, 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 risk and uncertainties, as described in the company's earnings release and SEC filing.

David: With me on today's call are caught adoption, CEO, and president and Jason Peterson Chief Financial Officer.

David: To remind those listening that some of the comments made on today's call may contain forward looking statements.

David: These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings.

David Straube: Additionally, all references to reported results that are non-GAAP measures have been reconciled to the comparable GAAP measures and are available in our quarterly earnings materials located in the investor section of our website. With that said, I'd like to now turn the call over to Ark.

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

David: With that said I'd like now turn the call over to Ark.

Arkadiy Dobkin: Thank you, David. Good morning, everyone.

Ark: Thank you David Good morning, everyone Seneca for Julian Us today.

Arkadiy Dobkin: Thank you for joining us today. I will post about our guidance change. As you saw from our press release, we are seeing some continuing volatility in our global demand environment. And while there are encouraging signs of new deals and new types of very different domain-specific demands, then, even in the cyclical nature of 2023, follow us well in 2024, which now leads us to adjust our syncing for both Q2 and for all full-year outlays. As I mentioned during our fourth quarter morning call, our initial view was that the 2024 environment will be, at least for the first half of the year, a continuation of the second part of the 2023 trend, with potential demand for turn right-up. And that would take us into sequential growth for 2024.

Ark: First about the guidance change.

Ark: As you saw from our press release yesterday, and some continuing volatility in the global demand environment.

Ark: And why was it a liquidity concerns both new deals and new types of very different domain specific demands.

Ark: And then even in cyclical nature of what you're telling your story for us well in 'twenty to 'twenty four.

Ark: This now leads us to adjust Alison can for both Q2 and for full year outlook.

Ark: Yeah.

Ark: As I mentioned during our fourth quarter weighting school. Our initial view was the 20th when you're fully Nevada into it will be at least for the first half of the year. The continuation of second part of 'twenty to 'twenty three is trabs visit potential demand up to him right now.

Ark: That would take us into sequential growth with 124.

Arkadiy Dobkin: This year, which we now believe was optimistic, was supported by broadly anticipated more positive macro-insumptions in our active interactions with clients during the very end of 2023 and the beginning of 2025. That prompted our belief that clients would more quickly come back to growth in their prioritization for the remainder of 2020. We also believed that once we entered Q2, we would have much more measurable indicators for the improvements in the demand environment for digital engineering, data, cloud, and AI, from which we can build further our 2024 revenue scenarios and plans.

Ark: Yeah.

Ark: This view.

Ark: Now I believe was optimistic what's supported by broadly anticipated more positive market assumptions and now obviously with interactions music clients using the very end of 'twenty two 'twenty three.

Ark: And is it beginning of 'twenty 'twenty four.

Ark: Yeah.

Ark: That was our belief that the clients will more quickly come back to growth and as it happened accusation was the remainder of 'twenty 'twenty four.

Ark: We also believed that once we enter into Q2 it would have much more measurable indicators for the improvements of the demand environment for digital engineering.

Ark: Data cloud and AI and from which we can build further our 'twenty to 'twenty four revenue scenarios and plants.

Ark: Yeah.

Arkadiy Dobkin: What we now understand is that the macroeconomic and geopolitical factors that continue to drive volatility in overall markets, and specifically in the IT services and digital transformation sectors, will be with us throughout the remainder of the year. While the programs we anticipated to start by now are still in place, and some are in active discussions, many of them have been postponed to future periods or decided to be implemented in much more modest scopes. In addition,

Ark: What we now understand is that the macroeconomic and geopolitical factors that continue to drive volatility in those markets and specifically <unk> two serious and digital transformation sectors are still gives us throughout the remainder of the year.

Ark: Well the programs are anticipated to start by now are still in place and some are in active discussions many of them have been postponed to future periods, well decided to implement it in much more modest scopes.

Ark: In addition.

Arkadiy Dobkin: We need to rebalance our delivery platform to lower cost locations will force some level of slowdown in our revenue growth. And so our expectation for a considerably high level of accelerated revenue trends in the second part of the year will not be materializing as we anticipated, at least as we see it now. Jason will provide more details in our updated Outlook for 2020, but let me share some current highlights of our business from Q1 up to today.

Ark: We need pretty Burlington, our delivery platform to low cost locations force some level of slowdown in our revenue grows too.

And so our expectation well consider it would be higher level of accelerated new trends and second part of the year, we will not be materializing as we anticipated at least as we see it now.

Ark: Okay.

Ark: Jason will provide more details and our updated outlook for 'twenty to 'twenty four.

Jason Peterson: But let me share some guidance highlights of our business from Q1 after today.

Arkadiy Dobkin: Throughout the last quarter and continuing into now, we've been making progress across all critically important areas for us, which were discussed in depth during our previous call. We are strengthening and repositioning our talent delivery platform, as well as the cost-effectiveness of our offerings by rebalancing our talent distribution from more expensive locations to less expensive ones, while maintaining our commitment to our traditionally strong deals. India, our second largest delivery location, is growing rapidly, not only in terms of headcount but also by creating new capability centers in data, cloud, digital transformation, and AI-enabled managed services.

Jason Peterson: So that was the last quarter and continuing into now they've been making progress because all critically important areas for us which were discussed in depth during our previous call.

Jason Peterson: Yesterday, and your position in our talent delivery platform as well as the cost effectiveness of all what's your games, but he Burlington, our talent distribution sort of more expensive locations to less expensive ones, while maintaining our commitment to our traditionally strong years.

Jason Peterson: India, Oh second largest delivery location is growing rapidly not only in terms of head count, but also by creating new capabilities centers and data cloud digital transformation and AI enabled managed services.

Arkadiy Dobkin: We recently opened our Guru Gram office and planned to open additional locations to support our client growth. LATAM is another of our stated priorities in overall rebalancing. As we refine and expand our locations there, we are expanding our key engineering DNA capabilities in the vision. In the fourth quarter, we announced the acquisition of VATAS, a multi-award-winning software development company with offices in Argentina and Chile.

Jason Peterson: We recently opened our goodwill Graham office and plan to open additional locations to support our clients' growing needs.

Jason Peterson: Okay.

Jason Peterson: Latam is another of our stated priorities and overall rebalancing.

Jason Peterson: As we refine and expand our locations and we're expanding our key engineering DNA capabilities since infusion.

Jason Peterson: In the first quarter, we announced the acquisition of what is a multi award convenient software development company with offices in Argentina and Chile.

Arkadiy Dobkin: We are continuously investing in our existing and new technical capabilities, including crucial for the future Gen-AI, Data-NML, and Predictive-AI, and in correspondent IP development. We also continue to improve our domain industry capabilities in consulting and advisory services. During the beginning of 2024, we have seen encouraging signs of a more balanced demand environment across our business, with both new and existing logos, equally weighted between cost takeout and business change and modernization. This portfolio-wide perspective combined with our efforts to establish domain-specific and relevant approaches for go-to-market, both independently and with our partners, leads us to believe that our ongoing reinvestment in consulting experience, cloud, data, AI, and vertical edge solutions will provide the unique edge we need to secure long-term growth. A couple of short stories to illustrate EPAM.

Jason Peterson: We are continuously investing in our existing and new technical capabilities, including crucial for the future Ginnie I data and a mile and predictive AI and then correspondent AEP development.

Jason Peterson: We also continued to improve our domain industry capabilities in consulting and advisory services.

Jason Peterson: During the beginning of 'twenty 'twenty four we have seen encouraging signs of more balanced demand environment across our business with both new and existing logos.

Jason Peterson: Are you fully weighted between cost takeout and business change and modernization.

Jason Peterson: This portfolio wide perspective, combined with our efforts to establish domain specific and relevant approaches for go to market, both independently and with our partners. The leads us to believe that the ongoing reinvestment in consulting experience cloud data AI and vertical solutions will provide unique age we need to.

Jason Peterson: Securing a long term growth.

Speaker Change: Couple of sort of stories to this todays hey, Bob.

Arkadiy Dobkin: EPAM recently teamed up with AWS to help a leading energy company in the UK to transform its customer experience, responding to a market that is characterized by the need for enhanced customer expectations, emerging competitors, regulatory demands, smart metering adoption, and sustainability goals. Our engagement was built around key transformations of payment channels, customer service frameworks, and a shift to agile processes to ensure service flexibility. For a new logo, one of the world's best-known global car rental brands, we are helping to redesign a critical data platform that will enhance intelligent real-time pricing capabilities and drive better experiences for customers, and further increase their pricing market leadership. We believe it is the next iteration of platform engineering into a truly intelligent application, empowered by AI, that will drive the future of our demand. Finally, in another encouraging sign,

Speaker Change: <unk> recently came up with AWS, helping Allegiant energy company in the U K to transform its customer experience disciplined into a market that is characterized by the need for enhanced <unk>.

Customer expectations emerging competitors regulatory demands smart metering adaption and sustainability goals.

Speaker Change: Our engagements was built around key transformations with payment channels customer theaters frameworks and shifts towards al processes to ensure service flexibility.

Speaker Change: Yeah.

Speaker Change: So the new logo one of the world's best known global car rental brands yourself into redesign their critical data platform that will enhance intelligent real time pricing capabilities and drive better experiences for customers.

Speaker Change: Further increasing the price and market leadership.

Speaker Change: We believe it is the next iteration of thought for them engineering into a truly intelligent application empowered by AI that will.

Speaker Change: Drive the future of our demand.

Speaker Change: Okay.

Speaker Change: Finally in another encouraging sign.

Arkadiy Dobkin: Our long-term clients are also returning to us with new work streams related to modernization and next-gen support, which now include a much-expanded engagement footprint with larger shares of India and Latin America, including net new delivery locations in Argentina and Brazil. In general, our focus on domain-led propositions is the reason why we believe we saw much stronger growth in sun verticals this past quarter. For example, in our healthcare and life science portfolio, we are part of a number of strategic programs helping clients in the areas of cloud, data platform, physical, and digital product development and engineering, as well as a new JNI-driven initiative.

Speaker Change: Our long term clients are also returning to US is new work streams related to windows musician and Nextgen support which now include much expanded engagement footprint as the largest share Sapienza and Latin America, including <unk>.

Speaker Change: New delivery locations and Theres continuing Brazil.

Speaker Change: Yeah.

Speaker Change: In general our focus on domain led propositions is there a reason why they believe we saw much stronger gross sand vertical this past quarter.

Speaker Change: All in all of healthcare and life science portfolio.

Speaker Change: We are part of a number of strategic programs, helping clients.

Speaker Change: The areas of cloud data platform, and physical and digital product development and engineering as well as a new generic driven initiatives.

Arkadiy Dobkin: On the other hand, in some of our verticals, namely Business Information and Media, we continue to work through the impact of rundowns from a few large clients initiated previously. And while we aren't yet able to assess this with revenue coming from new opportunities, we are still seeing a more balanced picture emerging over the course of the next quarter. Across all our verticals and geographies, we are seeing more interesting and higher levels of program starts related to generative AI.

Speaker Change: On another side and some of our vehicles, namely business information and media.

Speaker Change: We need to work through the impact of from Downs from a few large clients initiated previously.

Speaker Change: Yeah onto April year to offset this with revenue coming from new opportunities. We're still seeing in mobile is the future emerging over the course of the next quarters.

Speaker Change: Across all our verticals and Geos, we are seeing more interesting and higher level of program starts related to January for AI and.

Arkadiy Dobkin: In Q1, a number of our key clients formally selected PAMP, a strategic partner for their AI transformation journals, where IP will help to scale AI, including Gen. AI, to unlock the power of data and establish valuable insights. These engagements are often starting today from advisory services and from the use of our differentiating IP and then ramping up to specific use cases. We believe that will lead us to a new level of engagement with our buyers by allowing us to drive meaningful business breakthroughs with our tools and in combination with our consulting and scale delivery capabilities.

Speaker Change: In Q1, a number of our key clients formally selected Mr.

Speaker Change: Strategic partners for the AI transformation on Jordan's, where he helped to scale AI, including G&A I do unlock the power of data and to establish available insights.

Speaker Change: This engagement, how often starting today from advisory and from the use of our differentiating IP and then ramping up to specific use cases.

Speaker Change: We believe that will lead us to new level of engagement is all buyers worldwide to drive meaningful business.

Speaker Change: Bruce.

Speaker Change: Our tools and in combination with our consulting and scaled delivery capabilities.

Arkadiy Dobkin: And while the revenue impact of these programs is still limited today, we see it's a very visible progression of the AI-enabled services market for us. To summarize, in Q1, across our core business, we were seeing a more balanced demand outlook than in the most part of 2023 and a gradual return to modernization and business change programs, as well as ramping up generic-related opportunities. As mentioned already today, by the end of Q1, we realized that the speed and scale of those changes were not in line with our early expectations.

Bruce: And what was the revenue impact of these programs is still limited today, you see it's a very reasonable progression of the AI enabled services market for us.

To summarize.

Bruce: In Q1 across our core business have you guys seen any more waitlist demand outlook and in the most part of 'twenty or 'twenty three.

Bruce: And a gradual return to modernization and business change programs as well as the ramping up generic related opportunities as mentioned already today, but at the end of Q1 video lies does the speed and scale of those changes were not in line with the old expectations.

Arkadiy Dobkin: Moving on to how we are managing our business in this part of the site. As we focus on driving new demand and proactively converting and expanding our wallet share with clients, we are also looking for opportunities to drive efficiency and focus throughout the organization. We have shared our ongoing efforts to rebalance the business from a geographical perspective over the course of last year, and that program is ongoing. Our attention now is toward a more finely tuned approach to both geography and investment, as well as our areas of capability in March, particularly around our state-of-the-market segments, AI cloud, data, experience, and domain-led consulting.

Bruce: Moving to Calgary and managing our business in this part of the cycle.

Bruce: We focus on driving new demand and proactively convert and an expansion of <unk>.

Military or as clients were also looking for opportunities to drive efficiency and focus throughout the organization.

Bruce: Yeah sure at our efforts to rebalance the business from a geographical perspective over the course of last year and that program is ongoing.

Bruce: Our attention now starting toward more finely tuned approach towards geographic investment as.

Bruce: As well as all areas of capability in market.

Bruce: Particularly around our stated market segments are cloud data experience and domain led consulting.

Bruce: Okay.

Arkadiy Dobkin: We've gone to market in a much more intentional way with key propositions and strategic partners and are now looking to refine some of those propositions and investments as we look to balance near-term and long-term demand with our investments. Throughout the remainder of this year, we will be focusing on driving enhanced efficiency and further rebalancing of our geographical footprint, resizing portions of our presence in the market and some other. Enhancing operational efficiencies and engineering productivity through the application of AI and automation internally at EPAM and driving a singular focus on client centricity for the entire company.

Bruce: We've gone to market and much more intentional way is keep her position and strategic partners and are now looking to refine some of those propositions in investment as we look to balance near term and long term demand is always the best one.

Bruce: As a reminder of this year, you'll be focusing on driving enhanced efficiency and further rebalancing of our geographical footprint.

Bruce: Besides as portions of our in market and some other teams.

Bruce: And the operational efficiencies and engineering productivity sort of application of AI and automation internally at the pump.

Bruce: And driving a singular focus on client centricity for the entire company.

Arkadiy Dobkin: Those continual efforts are critically important as we navigate the current environment while taking the necessary steps for the eventual return of built and transformed programs, which have been slowed down during the last year. Our fundamentals are strong, and we are firmly confident that EPAM will be an elite position in this rebound, enabled by our significantly diversified global delivery platform and driven by long-term pressures for legacy modernization, needs for advanced customer-centric solutions, and the significant interest in applying and integrating Gen-AI and General-AI capabilities into new and existing enterprise platforms, innovative intelligent applications, and new transformative business models. With that, I will pass to Jason to provide details on our Q1 results and our guidance for 2021.

Bruce: Those continual efforts are critically important as we navigate the current environment, while taking the necessary steps for the eventual return for build and transform programs has been slowed down during the last two years.

Bruce: Oh fundamentals are strong and we are firmly confident that you'll be in a lead position in this regard enabled by our significantly.

Bruce: If you find global delivery platform and driven by long term precious legacy modernization needs for advanced customer centric solutions and the significant interest in acquiring and integrating <unk> and January <unk> capabilities into new and existing enterprise platforms innovative intelligent applications in use.

Bruce: Transformative business models.

Bruce: With that let me pass to Jason to provide details on our Q1 results and our guidance for 2024.

Jason Peterson: Thank you, Ark, and good morning, everyone. In the first quarter, EPM generated revenue of $1.165 billion, a year-over-year decrease of 3.8% on a reported basis or 4.3% in constant currency terms, reflecting a favorable foreign exchange impact of 50 basis points. Due to our exit from the Russian market, we no longer generate revenue from Russian clients. The impact of this exit had an approximate 50 basis point negative impact on year-over-year revenue

Jason Peterson: Thank you Ark and good morning, everyone.

Jason Peterson: First quarter <unk> generated revenue of 1.165 billion a year over year decrease of three 8% on a reported basis or four 3% in constant currency terms.

Jason Peterson: Collecting a favorable foreign exchange impact of 50 basis points.

Jason Peterson: Due to our exit from the Russian market, we no longer generate revenue from Russian clients the.

Jason Peterson: The impact of this asset had an approximate 50 basis point negative impact on year over year revenue growth.

Jason Peterson: Excluding Russia revenues, year-over-year revenue for reported and constant currency would have decreased by 3.3% and 3.8%, respectively. Moving to our vertical performance, life sciences and healthcare delivered very strong year-over-year growth of 26%. Growth in the quarter was driven by clients in both life sciences and healthcare. To reflect a more diverse end market, our Travel and Consumer Vertical has been renamed Consumer Goods, Retail, and Travel.

Jason Peterson: Including Russia revenues year over year revenue for a reported and constant currency would have decreased by three 3% and three 8% respectively.

Jason Peterson: Moving to our vertical performance life Sciences, and healthcare delivered very on year over year growth of 26%.

Jason Peterson: Growth in the quarter was driven by clients in both life Sciences and healthcare.

Jason Peterson: To reflect a more diverse end market, our travel and consumer vertical has been renamed consumer goods retail and travel on.

Jason Peterson: On a year-over-year basis, the vertical decreased 6.9%, largely due to declines in retail, partially offset by solid growth in travel. Sequentially, the vertical grew modestly, driven by solid sequential growth in the travel portion of the portfolio. Software and high tech contracted 8.3% year over year and grew 2.6% on a sequential basis, suggesting some level of stability in the vertical. Financial services decreased 10.3% year over year, driven by declines in banking, asset management, and the payment sector.

Jason Peterson: On a year over year basis, the vertical decreased six 9% largely due to declines in retail partially offset by solid growth in travel.

Jason Peterson: <unk> the vertical grew modestly driven by solid sequential growth in the travel portion of the portfolio.

Jason Peterson: Software and Hi Tech contracted eight 3% year over year and grew two 6% on a sequential basis.

Jason Peterson: Adjusting some level of stability in the vertical.

Jason Peterson: Financial services decreased 10, 3% year over year, driven by declines in banking asset management and the payment sector.

Jason Peterson: Business Information Media declined 15.8% compared to Q1 2023. Revenue in the quarter was substantially impacted by the previously discussed rampdown of the top 20 clients. And finally, our emerging verticals delivered solid year-over-year growth of 12.9%, driven by clients in energy and telecom. From a geographic perspective, America, our largest region representing 59% of our Q1 revenues, declined 2.4% year over year on a reported and constant currency basis. sequentially, growth was 2.4%, reflecting ongoing signs of stabilization in the geography.

Jason Peterson: Business information and media declined 15, 8% compared to Q1 in 2023.

Jason Peterson: Revenue in the quarter was substantially impacted by the previously discussed ramped down at the top 20 clients and finally, our emerging verticals delivered solid year over year growth of 12, 9% driven by clients in energy and telecom.

Jason Peterson: From a geographic perspective, Americas, our largest region, representing 59% of our Q1 revenues declined two 4% year over year on a reported and constant currency basis.

Sequentially growth was two 4%, reflecting ongoing signs of stabilization in the geography.

Jason Peterson: EMEA, which represents 39% of our Q1 revenues, contracted 3.2% year-over-year and 4.8% in cost-to-incurrency terms. And finally, APAC declined 13.1% year-over-year, or 11.5% in constant currency terms, and now represents 2% of our revenue. Revenue in the quarter was impacted primarily by the ramp-down of work within our financial services vertical. In Q1, revenues from our top 20 clients declined 8.6% year-over-year, while revenues from clients outside our top 20 declined 1%. The relatively stronger performance of this latter group was driven by both new logo revenue and inorganic revenue contribution.

Jason Peterson: EMEA, representing 39% of our Q1 revenues contracted three 2% year over year and four 8% in constant currency.

Jason Peterson: And finally, APAC declined 13, 1% year over year or 11, 5% in constant currency terms and now represents 2% of our revenues.

Jason Peterson: Revenue in the quarter was impacted primarily by the ramp down of work within our financial services vertical.

Jason Peterson: In Q1 revenues from our top 20 clients declined eight 6% year over year, while revenues from clients outside our top 20 declined 1%.

Jason Peterson: The relatively stronger performance of this latter group was driven by both new logo revenue inorganic revenue contributions.

Jason Peterson: Moving down the income statement, our gap gross margin for the quarter was 28.4% compared to 29.3% in Q1 of last year. Non-GAAP gross margin for the quarter was 30.4% compared to 31.5% for the same quarter last year. Gross margin in Q1 2024 was negatively impacted by foreign exchange due to the strengthening of currencies in certain of our delivery locations. Additionally, the inability to adjust prices after EPAM's Q2 2023 promotion campaign continues to have a negative impact on profitability.

Jason Peterson: Moving down the income statement, our GAAP gross margin for the quarter was 28, 4% compared to 29, 3% in Q1 of last year.

Jason Peterson: non-GAAP gross margin for the quarter was 34% compared to 31, 5% for the same quarter last year.

Jason Peterson: Gross margin in Q1, 2024 was negatively impacted by foreign exchange due to the strengthening of currencies in certain of our delivery locations.

Jason Peterson: Additionally, the inability to adjust prices. After <unk> Q2, 2023 promotion campaign continues to have a negative impact on profitability.

Jason Peterson: Gap SG&A was 17% of revenue compared to 17.5% in Q1 of last year. Nongap SG&A and Q1 2024 came in at 14.1% of revenue compared to 15.3% in the same period last year. SG&A improvement in the quarter is a result of our ongoing focus on managing our cost base and increasing efficiency in our spend.

GAAP SG&A was 17% of revenue compared to 17, 5% in Q1 of last year non.

Jason Peterson: non-GAAP SG&A in Q1 2024 came in at 14, 1% of revenue compared to 15, 3% in the same period last year.

SG&A improvement in the quarter as a result of our ongoing focus on managing our cost base and increasing efficiency in our spend.

Jason Peterson: Gap income from operations was $111 million, or 9.5% of revenue in the quarter compared to $120 million, or 9.9% of revenue in Q1 of last year. Non-GAAP income from operations was $174 million, or 14.9% of revenue in the quarter compared to $178 million, or 14.7% of revenue in Q1 of last year. Our gap effective tax rate for the quarter came in at 6%, which included a higher level of excess tax benefits related to stock-based compensation. The non-GAAP effective tax rate was 23.4%.

Jason Peterson: GAAP income from operations was $111 million or nine 5% of revenue in the quarter compared to 120 million or nine 9% of revenue in Q1 of last year.

Jason Peterson: non-GAAP income from operations was $174 million or 14, 9% of revenue in the quarter compared to 178 million or 14, 7% of revenue in Q1 of last year.

Jason Peterson: Our GAAP effective tax rate for the quarter came in at 6%.

Jason Peterson: Which included a higher level of excess tax benefits related to stock based compensation.

Jason Peterson: non-GAAP effective tax rate was 23, 4%.

Jason Peterson: Diluted earnings per share on a gap basis was $1.97. Our non-GAAP diluted EPS was $2.46 compared to $2.47 in Q1 of last year, reflecting a one penny decrease year over year. In Q1, there were approximately 58.9 million diluted shares outstanding.

Jason Peterson: Diluted earnings per share on a GAAP basis was $1 97.

Jason Peterson: Our non-GAAP diluted EPS was $2.46 compared to $2 47 in Q1 of last year.

Jason Peterson: Selecting a one penny decrease year over year.

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

Jason Peterson: Turning to our cash flow and balance, cash flow from operations for Q1 was $130 million, compared to $87 million in the same quarter of 2023. Cash flow from operations in the quarter reflected a lower level of variable compensation payout related to 2023. Free cash flow was $123 million compared to $79 million in the same quarter last year. At the end of Q1, DSO was 73 days, which compares to 71 days for Q4 2023 and 69 days for the same quarter last year. The uptick in DSL reflects an increase in the time some clients are taking in the review and approval of payments.

Jason Peterson: Turning to our cash flow and balance sheet.

Jason Peterson: Cash flow from operations for Q1 was $130 million compared to $87 million in the same quarter of 2023.

Jason Peterson: Cash flow from operations in the quarter reflected a lower level of variable compensation payout related to 2023.

Jason Peterson: Free cash flow was $123 million compared to free cash flow of 79 million in the same quarter last year.

Jason Peterson: At the end of Q1, DSO was 73 days and compares to 71 days for Q4, 2023, and 69 days for the same quarter last year.

Jason Peterson: The uptick in DSO reflects an increase in the time some clients are taking in the review and approval of payments.

Jason Peterson: Share repurchases in the first quarter were approximately 396,000 shares for $121 million at an average price of $304.21 per share. As of March 31st, we had approximately $214 million of share repurchase authority remaining. We ended the quarter with approximately $2 billion in cash and cash equivalents. Moving on to a few operational metrics, we ended Q1 with more than 47,050 consultants, designers, engineers, and architects, a decline of 8% compared to Q1 2023. This is the result of lower levels of hiring, combined with both voluntary and involuntary attrition, as we continue to balance supply and demand. Our total headcount for the quarter was more than 52,800 employees.

Jason Peterson: Share repurchases in the first quarter were approximately 396000 shares for 121 million at an average price of $304 21 per share.

As of March 31, we had approximately $214 million of share repurchase authority remaining.

Jason Peterson: We ended the quarter with approximately $2 billion in cash and cash equivalents.

Speaker Change: Moving onto a few operational metrics. We ended Q1 with more than 47050 consultants designers engineers and architects decline of 8% compared to Q1 2023.

Speaker Change: This is the result of lower levels of hiring combined with both voluntary and involuntary attrition as we continue to balance supply and demand.

Speaker Change: Our total head count for the quarter was more than 52800 employees.

Jason Peterson: Utilization was 76.8% compared to 74.9% in Q1 of last year and 74.4% in Q4 2023. Now, let's turn to our business outlook. We're continuing to see a modest improvement in demand. However, client decision making continues to be cautious, and demand is not improving to the degree expected when we set our original 2020 revenue guidance.

Speaker Change: Utilization was 76, 8% compared to 74, 9% in Q1 of last year.

Speaker Change: And 74, 4% in Q4 2023.

Speaker Change: Now, let's turn to our business outlook.

Speaker Change: We're continuing to see a modest improvement in demand. However, client decision, making continues to be cautious and demand is not improving to the degree expected when we set our original 2020 for guidance.

Jason Peterson: At that time, based on the modest sequential growth achieved in Q4 2023 and our forecast of modest growth in Q1, we expected Q2 to show flat to modest sequential improvement, followed by solid sequential growth averaging at least 3% for Q3 and Q4. As a reminder, based on the sequential declines in 2023 quarterly revenue, we needed to generate regular sequential growth in 2024 to produce year-over-year growth. For the remainder of the year, with limited demand improvement, we now expect seasonal factors to have a more pronounced impact on sequential revenue growth, with Q2 showing a modest decline.

Speaker Change: At that time based on the modest sequential growth achieved in Q4 2023.

Speaker Change: And our forecast of modest growth in Q1, we expected Q2 to show flat to modest sequential improvement followed by solid sequential growth averaging at least 3% for Q3 and Q4.

Speaker Change: As a reminder, based on the sequential declines in 2023 quarterly revenue, we needed to generate regular sequential growth in 2024 to produce year over year growth.

Speaker Change: For the remainder of the year with limited demand improvement, we now expect seasonal factors to have a more pronounced impact on sequential revenue growth.

Speaker Change: With Q2, showing a modest decline.

Jason Peterson: Q3 is improving, followed by flat to a possible modest decline in revenues in Q4. Additionally, although we're seeing some modest incremental contribution to revenue from recently completed acquisitions, That contribution is largely offset by foreign exchange headwinds resulting from the ongoing strength of the U.S. dollar. We're maintaining our focus on demand generation and will continue to prioritize revenue growth throughout 2024. Additionally, in 2024, we will incur incremental costs related to compensation. Additionally, lower utilization of prepayments in market resources and some ongoing pricing pressure will continue to negatively impact gross margin.

Speaker Change: Q3, improving.

Speaker Change: Followed by flat to a possible modest decline in revenues in Q4.

Speaker Change: Additionally, although we are seeing some modest incremental contribution to revenue from recently completed acquisitions.

Speaker Change: That contribution is largely offset by foreign exchange headwinds, resulting from the ongoing strength of the U S. Dollar.

Yeah.

Speaker Change: We're maintaining our focus on demand generation and will continue to prioritize revenue growth throughout 2024.

Speaker Change: In 2024, we will incur incremental costs related to compensation.

Speaker Change: Additionally, lower utilization of prepayments in market resources, and some ongoing pricing pressure will continue to negatively impact gross margins.

Jason Peterson: However, we are committed to running the business at a profitability level of at least 15% for non-gap adjusted ISO. We're planning to initiate additional cost savings measures to ensure that we can achieve our profit objectives while still focusing on long-term growth. Finally, our operations in Ukraine continue to run at high levels of utilization, a testament to our team's dedication and focus on maintaining uninterrupted quality of delivery.

Speaker Change: However, we are committed to running the business at a profitability level of at least 15% for non-GAAP adjusted iPhone.

Speaker Change: We're planning to initiate the additional cost savings measures to ensure that we can achieve our profit objectives, while still focusing on long term growth.

Speaker Change: Finally, our operations in Ukraine continue to run at high levels of utilization, a testament to our team's dedication and focus on maintaining uninterrupted quality of delivery.

Jason Peterson: Our guidance assumes that we will continue to be able to deliver from our Ukrainian delivery centers at productivity levels similar to levels achieved in 2023. Moving to our four-year outlook, Revenue is now expected to be in the range of $4.575 to $4.675 billion, meaning a negative growth rate of 1.4% at the midpoint of the range. The impact of foreign exchange on growth is now expected to have a negative impact of approximately 30 basis points.

Speaker Change: Our guidance assumes that we will continue to be able to deliver from our Ukraine delivery centers at productivity levels similar to levels achieved in 2023.

Speaker Change: Moving to our full year outlook.

Speaker Change: Revenue is now expected to be in the range of $4 $5 75 to $4 67 5 billion.

Speaker Change: Negative growth rate of one 4% at the midpoint of the range.

Speaker Change: The impact of foreign exchange on growth is now expected to have a negative impact of approximately 30 basis points.

Jason Peterson: At this time, we expect approximately 1% of revenue contribution from the already completed acquisition. We expect gap income from operations will now be in the range of 10% to 10.5%, and non-GAAP income from operations will now be in the range of 15% to 15.5%. We expect our gap effective tax rate will now be 20%. Our non-gap effective tax rate, which excludes excess tax benefits related to stock-based compensation, will continue to be 24%. Earnings per share. We expect the gap diluted EPS will now be in the range of $7.34 to $7.64 for the full year. And we are focused on maintaining non-gap deluded DPS. So as to remain in the range of $10 to $10.30 for the full year.

Speaker Change: At this time, we expect approximately 1% of revenue contribution from already completed acquisitions.

Speaker Change: We expect GAAP income from operations will now be in the range of 10% to 10, 5% and.

Speaker Change: And non-GAAP income from operations will now be in the range of 15% to 15, 5%.

We expect our GAAP effective tax rate will now be 20%, our non-GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation will continue to be 24%.

Speaker Change: Earnings per share, we expect GAAP diluted EPS will now be in the range of $7 34 to $7.64 for the full year.

Speaker Change: And we are focused on maintaining non-GAAP diluted EPS, so as to remain in the range of $10 to $10 30 for the full year.

Speaker Change: We now expect weighted average share count of $58 7 million fully diluted shares outstanding.

Jason Peterson: We now expect a weighted average share count of 58.7 million fully diluted shares outstanding. Moving to our Q2 2024 outlook. We expect revenue to be in the range of 1.135 to 1.145 billion, producing a year-over-year decline of 2.6% at the midpoint of the range, with the expected impact of foreign exchange to be negative 0.6%. For the second quarter, we expect gap income from operations to be in the range of 9% to 10% and non-gap income from operations to be in the range of 13.5% to 14.5%.

Speaker Change: Moving to our Q2 2020 for outlook.

Speaker Change: We expect revenue to be in the range of 1.135 to 1.15 billion producing a year over year decline of two 6% at the midpoint of the range with the expected impact of foreign exchange to be negative 0.6%.

Speaker Change: For the second quarter, we expect GAAP income from operations to be in the range of 9% to 10% and non-GAAP income from operations to be in the range of 13, 5% to 14, 5%.

Jason Peterson: We expect the GAAP effective tax rate to be approximately 25% and our non-GAAP effective tax rate to be approximately 24%. Earnings per share. We expect cap diluted EPS to be in the range of $1.52 to $1.60 for the quarter and non-gap diluted EPS to be in the range of $2.21 to $2.29 for the quarter. We expect a weighted average share count of 58.8 million Finally, a few key assumptions that support our gap to non-gap measurements for the remainder of the year.

Speaker Change: We expect GAAP effective tax rate to be approximately 25% and our non-GAAP effective tax rate to be approximately 24%.

Jason Peterson: Stock-based compensation expense is expected to be approximately $38 million for Q2, $46 million for Q3 and $47 million for Q4. Amortization of intangibles is expected to be approximately $6 million for each of the remaining quarters. The impact of foreign exchange is expected to be a $1 million loss for each of the remaining quarters.

Speaker Change: For earnings per share, we expect GAAP diluted EPS to be in the range of $1 52 to $1 60 for the quarter and non-GAAP diluted EPS to be in the range of $2 21 to $2 29 for the quarter.

Speaker Change: We expect a weighted average share count of $58 8 million diluted shares outstanding.

Speaker Change: Finally, a few key assumptions that support our GAAP to non-GAAP measurements for the remainder of the year.

Speaker Change: Stock based compensation expense is expected to be approximately 38 million for Q2 40.

Speaker Change: <unk> 46 million for Q3, and 47 million for Q4.

Speaker Change: Amortization of intangibles is expected to be approximately $6 million for each of the remaining quarters.

Speaker Change: The impact of foreign exchange is expected to be a $1 million loss for each of the remaining quarters.

Operator: Tax Effective Non-Gap Adjustments are expected to be around $10 million for Q2 and $11 million for each of the remaining quarters. We expect excess tax benefits to be around $1 million for Q2 and $1.7 million for each of the remaining quarters. We expect incremental restructuring charges in the second half of 2024 and cannot estimate the amounts with reasonable certainty. We expect to provide detailed estimates during our Q2 call.

Speaker Change: Tax effective non-GAAP adjustments is expected to be around $10 million for Q2 and $11 million for each of the remaining quarters.

Speaker Change: We expect excess tax benefits to be around 1 million for Q2, and $1 7 million for each of the remaining quarters.

Speaker Change: We expect incremental restructuring charges in the second half of 2024 and at this time, we cannot estimate the amounts with reasonable certainty we expect to provide detailed estimates during our Q2 call.

Operator: Incremental restructuring charges are currently not included in our guidance. However, these charges will not impact our non-GAAP results. Finally, one more assumption outside of our gap-to-non-gap item. With our significant cash position, we are generating a healthy level of interest income, and we are now expecting interest on other income to be approximately $15 million for Q2. $20 million for Q3 and $15 million for Q4. While we work our way through this cycle of lower demand, we will continue to run EPAM efficiently, positioning the company to capitalize on a more normalized demand environment. Lastly, my continued thanks to all of our employees for their dedication and focus on serving our clients and driving results for E PAMP. Operator, let's open the call up for questions.

Speaker Change: Incremental restructuring charges are currently not included in our guidance. However, these charges will not impact our non-GAAP results.

Speaker Change: Yeah.

Speaker Change: Finally, one more assumption outside of our GAAP to non-GAAP items with our significant cash position, we are generating a healthy level of interest income and are now expecting interest and other income to be approximately $15 million for Q2.

Speaker Change: $20 million for Q3 and $15 million for Q4.

Speaker Change: While we work our way through the cycle of lower demand, we will continue to running Pam efficiently positioning the company to capitalize on a more normalized demand environment.

Speaker Change: Lastly, my continued thanks to all of our employees for their dedication and focus on serving our clients and driving results pre Pam.

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

Operator: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from the line of Brian Bergin with TD Cowan. Please go ahead.

Speaker Change: At this time I would like to remind everyone in order to ask a question.

Speaker Change: Star then the number one on your telephone keypad.

Speaker Change: Your first question comes from the line of Bryan Bergin with TD Cohen.

Arkadiy Dobkin: I wanted to start with some more detail on the change in the growth outlook here and ultimately try to unpack attribution here to macro market driven slowness versus more idiosyncratic factors to your turnaround and your exposure. Can you talk about whether this is really broad-based across the portfolio or more so due to a handful of larger client specific slowdowns? And is there any attribution to a change in client's reception of clients to Ukraine?

Bryan C. Bergin: Please go ahead.

Bryan C. Bergin: Thank you.

Bryan C. Bergin: Wanted to start with some more detail on the change in the growth outlook here and ultimately trying to unpack attribution here to Martin your macro market driven slowness versus more idiosyncratic factors to your turnaround in your exposure can you talk about whether this is really broad based across the portfolio or more so due to a handful of larger client specific.

Bryan C. Bergin: Slowdowns and is there any contribution to a changing in clients reception to Ukraine, Belarus delivery.

Bryan C. Bergin: St.

Bryan C. Bergin: You.

Speaker Change: I think.

Arkadiy Dobkin: Thank you. I think so. In our opening remarks, we exactly reflected what was happening between us. As soon as we got to the level of optimism, I would say, and the beginning of Q1, we were trying to predict how potential growth would look based on this conversation and the standards that are part of it. So the second part of you, One at the same time, we realized that many programs were delayed, and some of them were started, but at very different levels of the scope. And that's what put us in the...

Speaker Change: In the opening remarks, we exactly to what.

Speaker Change: <unk> been through Boston.

Speaker Change: I assume based on the Q4.

Speaker Change: Uh huh.

Speaker Change: Hello.

Speaker Change: To me I would say.

Speaker Change: Beginning with Q1.

Speaker Change: Right.

Speaker Change: Oh.

Speaker Change: Potential growth.

Speaker Change: Westwood.

Speaker Change: Understood.

Speaker Change: So the second one to you.

Speaker Change: It was at the same time video Elisa.

Speaker Change: Linear programs.

Speaker Change: So I will do is start to work it.

Speaker Change: Right.

Speaker Change: Cool.

Speaker Change:

Speaker Change: And this was.

Speaker Change: Awesome.

Unknown Executive: Unknown Executive, Puneet Jain, Moshe Katri, Arvind Ramnani, Ashwin Shirvaikar, David Grossman, a realistic scenario based on what we really know. So there is nothing happening, kind of, but we're not losing clients, we're not having, Some Unexpected. Problem. So there are some more specific trends when we're increasing. India, a share of our delivery. So there is foreign exchange, there are vacations, and billable hours availability in Q2. And that's what I can pass to Jason to monitor.

Speaker Change: But as you can.

Speaker Change: To try to predict the future market.

Speaker Change: Because on the other.

Speaker Change: But actually focus on what you see right now and there is all of this volatility.

Speaker Change: Oh guidance even more.

Speaker Change: There are at least two scenario.

Speaker Change: We really know.

Speaker Change: So there is nothing.

Speaker Change: Kind of where it's been not losing clients with us.

Speaker Change: David.

Speaker Change: Some unexpected.

Speaker Change: Problems.

Speaker Change: So there are some more specific trends when we increase in India sure delivery.

Speaker Change: Florida is an exchange.

Speaker Change: Locations.

Speaker Change: Billable hours.

Speaker Change: In Q2.

Speaker Change: I can pass to James to.

Jason Peterson: Yeah, Brian, I think what Ark said is that we're, you know, at this point, rather than try and predict that there's going to be an improvement in demand, we're just taking kind of what we see today, which is still client decision making is slow, budgets are being partially released, and some programs are being de-scoped. And so we're just not seeing quite the, you know, improvement that we had hoped for. So obviously, it was a miss on our part.

James: More details yes, Brian.

James: I think what our extended.

James: At this point rather than trying to predict that there's going to be an improvement in demand. We're just taking kind of what we see today.

James: Which is still client decision, making is slow budgets are being partially released some programs in scope.

James: And so we're just not seeing quite improvement that obviously, we had hoped for so.

Jason Peterson: The one thing that Ark referenced, which, you know, we've talked about sufficient demand for Ukraine, Poland, locations like that. So utilization is still very good in Ukraine, for instance. However, we are seeing more pronounced growth in India. And so, in the calculations that we've done over the last couple weeks, what we're seeing is that, you know, an ongoing mixed shift towards India, particularly for new engagement, is beginning to produce a bit of a headwind in terms of our revenue growth rate measured in dollars.

James: Miss on our part, but one thing that arc.

James: Referenced which we've talked about over the last couple of quarters, but we've now been able to do some more analysis on it is we.

We still see strong.

James: Sufficient demand for.

James: Ukraine polling locations like that so utilization is still very good.

James: In Ukraine for instance, however, we are seeing more pronounced growth in India and so what.

James: In the calculations that we've done over the last couple of weeks what were seeing is that an ongoing mix shift towards India, particularly for new engagements.

James: He is beginning to produce a bit of a headwind in terms of our revenue growth rate measured in dollars.

Jason Peterson: And so, you know, that is beginning to show up in terms of a sequential impact and a somewhat larger impact for the full year. Some of that was anticipated when we did the guidance, but my guess is probably not fully.

James: And so that's.

James: It is beginning to show up in terms of a sequential impact.

James: Somewhat larger impacts full year some of that was anticipated when we did the guidance, but my guess, it's probably not fully.

Jason Peterson: Okay, okay, that's that's a very good detail. I appreciate that. My follow-up here is partly on that. So as you're refining the global operations and rebalancing the delivery platform, if I heard correctly, it sounds like the structure became a bit too distributed across countries, and you're trying to reign that in. Can you just add more color on what, you know, how long this may ultimately take? And then Jason, on that last point, are you able to quantify how much the shift to lower-cost locations weighs on this year's growth?

Speaker Change: Okay. Okay, that's very good detail I appreciate that.

Speaker Change: My follow up here is partly on that so as you are refining the global operations and rebalancing that delivery platform. If I heard correctly. It sounds like the structure became a bit to distributed across countries and you're trying to rein that in can you just add more color on what you know how long. This may ultimately takes and then Jason just on that last point are you able to quantify how much the shift to the law.

Speaker Change: Our cost locations.

Speaker Change: Ways on this year's growth.

Jason Peterson: Yeah, so, and again, it's a calculation, if we think of a constant currency calculation, where we go, if the mix were the same as in 2023, in 2024, what would the impact be? Again, I do want to confirm that we still have demand for Central Europe and Eastern Europe, but again, a lot of the incremental demand due to client sensitivity is coming into India. You know, it could be something approaching $100 million if he did a constant concurrency impact on a year, every year basis. India continues to... I'm just going to step ahead to the obvious next questions.

Speaker Change: Yes so.

Speaker Change: And again, it's a calculation.

Speaker Change: Thank you have a constant currency calculation, where we go to the mix were the same as in 2023 in 2024, what would the impact be.

Speaker Change: Again, I do want to confirm that we still have demand for central Europe, and eastern Europe, but again, a lot of the incremental demand.

Speaker Change: Client sensitivity is coming into India.

Speaker Change: It could be something approaching $100 million.

Speaker Change: He did a constant currency impact on a year over year basis.

Speaker Change: India continues to I'm, just going to step ahead to the obvious ex questions how profitable in India is that a drag on profitability.

Jason Peterson: How profitable is India? Is that a drag on profitability? You know, the cost structure is lower in India, the bill rates are lower in India, but profitability in India is still very solid. So it's not dragging down profitability by any means, but what it is doing is beginning to produce some headwinds against revenue growth. Some of that, again, would have been anticipated in our regular, traditional guidance or guidance provided at the beginning of the year. But my guess is it wasn't fully anticipated.

unknown: Okay, I understand. Thank you.

Speaker Change: The cost structure is low and even lower in India. The bill rates are lower in India, but the profitability in India.

Speaker Change: It is still very solid so it is not.

Speaker Change: Not dragging down profitability by any means.

Speaker Change: He is doing is beginning to produce some headwind against revenue growth. Some of that again it would have been anticipated and are regularly in our traditional guidance guidance.

Speaker Change: Year, My guess is it wasn't fully anticipated.

Speaker Change: Okay understood. Thank you.

unknown: Your next question comes from the line of Jonathan Lee with Guggenheim Securities. Please go ahead.

Speaker Change: And that comes from the line of Jonathan Lee with Guggenheim Securities.

Jonathan Lee: Please go ahead.

unknown: Great. Thanks for taking my question. Given the way you position the demand environment in your prepared remarks, what in your customer conversations gives you confidence that you're able to achieve sequential growth in 3Q and potentially flat 4Q? And is the 3Q dynamic more of a function of build days?

Jonathan Lee: Great. Thanks for taking my question.

Jonathan Lee: Given the way you position the demand environment in your prepared remarks, what and your customer conversation gives you confidence that you're able to achieve sequential growth re queue and potentially flat.

Speaker Change: This <unk> dynamic more of a function of bill days.

Jason Peterson: You're talking about sequential growth in Q3.

Speaker Change: You're talking about sequential growth in Q3, yes, Jonathan.

Jason Peterson: Q3. Yeah, Jonathan, so just the question about whether or not we see sequential growth in Q3. The way we have, you know, laid out the guidance, okay, really is that seasonal factors are going to drive growth. And so the Q2 to Q3 growth would substantially be driven by seasonality, which is more available until Q3.

Jonathan Lee: Just a question about whether or not we see sequential growth in Q3, the way we have.

Jonathan Lee: Laid out the guidance.

Jonathan Lee: It really is.

Jonathan Lee: The seasonal factors are going to are going to drive and so the Q2 to Q3 growth was substantially driven by seasonality, which is more available bill days in Q3.

Jason Peterson: Thanks for that. And just to follow up, I want to build on Brian's earlier question. You know, you're seeing your India expansion actually take place, and are you comfortable with the level of delivery quality harmonization that you're seeing there, given you've highlighted that in the past, and how much more work needs to happen there?

Speaker Change: Thanks for that and just a follow up I wanted to build on Brian's earlier question.

Speaker Change: You.

Speaker Change: Youre seeing your India expansion actually take place.

Speaker Change: All with the level of delivery quality harmonization that you saw.

Speaker Change: Seeing there given you've highlighted that in the past and how much more work needs to happen there.

Speaker Change: Yeah.

Jason Peterson: I think we feel quite good about the quality of our Indian delivery, and we think it's differentiated. Okay, our India versus, let's say, our peers or competitors India, you know, we still feel very good about the quality of our Eastern European delivery. And, you know, we clearly have a number of clients who still prefer Eastern Europe, but we feel good about the work that we've done in India to differentiate. And again, we've got a good ability to continue to scale the geography. And, and we have a relatively low level.

Speaker Change: I think we feel quite good about the quality of our India delivery going on we think it's differentiated R&D.

Speaker Change: Our India versus let's say are our peers or competitors and yet we still feel very good about the quality of our eastern European delivery.

Speaker Change: Yes sure.

Speaker Change: Clearly have a number of clients, who still prefer eastern Europe, but we feel good about.

Speaker Change: The work that we've done in India to differentiate.

Speaker Change: And again, we've got good ability to continue to scale, the geography and <unk>.

Speaker Change: We have relatively low levels of attrition.

unknown: I appreciate the detail there. Thank you.

Speaker Change: I appreciate the detail there. Thank you.

unknown: Your next question comes from the line of Maggie Nolan with William Blair. Please go ahead.

Speaker Change: Your next question comes from the line of Maggie Nolan with William Blair.

Margaret Marie Niesen Nolan: Please go ahead.

Arkadiy Dobkin: Hi, thank you. I understand the commentary about the rate cards in India and how that's impacting your top line. But it also sounded like there were some delays, some pushbacks of projects. It didn't sound like much in the way of cancellations, which is encouraging. But I'm trying to understand were there particular types of projects, particular verticals in that vein that drove your change in expectations.

Margaret Marie Niesen Nolan: Hi, Thank you.

Margaret Marie Niesen Nolan: I understand the commentary about you know the rate cards in India, and how that's impacting your top line.

Margaret Marie Niesen Nolan: But it also sounded like there were some delays some push outs of projects. It didn't sound like much in the web cancellations, which is encouraging but I'm trying to understand were there particular types of projects particular vertical.

Margaret Marie Niesen Nolan: In that vein that drove your changing expectations.

Arkadiy Dobkin: So I think it's, uh... Rolling. There is no specific on. The articles we actually... Highlight that there are some verticals which are affected by decisions which were made practically in previous periods. There are some verticals which operate better, like we highlighted. Those are the websites as well.

Speaker Change: Alright sounds good.

Speaker Change: There is no specific.

Speaker Change: Yes, It goes we.

Speaker Change: <unk>.

Speaker Change: Alright.

Speaker Change: Got it.

Speaker Change: With decisions.

Speaker Change: Practically genius.

Speaker Change: Period.

Speaker Change:

Speaker Change: Yes of course, we should read that.

Speaker Change: Alliances.

Speaker Change: Let's go to life science as well.

Speaker Change: For example, inclusive bucket so zero.

Arkadiy Dobkin: Energy, for example, is the same packet. So, but in general, it's a... Ricky Broad, Korsunos, and again, a number of programs which we were expecting, expected to jumpstart in Q2, delayed, or again, put down kind of in the scope of implementation. But the conversation is happening, there is no cancellation, or changes. But there are definitely delays and slowness in decisions.

Speaker Change: <unk>.

Speaker Change: Retail growth push for this.

Speaker Change: No I'm good programs to be true.

Speaker Change: Expected to jumpstart in Q.

Speaker Change: Due to delays will again.

Speaker Change: Well put.

Speaker Change: Kind of going to school implementation.

Speaker Change: But can we just stay tuned.

Speaker Change: So there is no constellation constellations.

Speaker Change: Definitely.

Speaker Change: Yes.

Speaker Change: Slow.

Speaker Change: <unk>.

Jason Peterson: And the feedback that we're getting is that, you know, certain clients, although they appear to have a budget, are sort of slow to begin to activate the budget. And I would say probably, though, if we were to talk to a specific portion of the portfolio, we had feared that at some point, we may see more caution in Europe. And I think that's where we're seeing kind of a relative change in the business. More than America does feel like it's stabilized, and we did see sequential growth, as we talked about in our prepared remarks. But what we're beginning to see is some incremental weakness among our European people.

Speaker Change: And the feedback that we're getting is that certain clients. Although they appear to have budget or service low to begin to activate the budget and I would say probably if we were to talk to a specific portion of the portfolio.

Speaker Change: We had feared that at some point we may see.

Speaker Change: More caution in Europe, and I think that's where we're seeing kind of a relative change in the business.

Speaker Change: It does feel like it's stabilized and we did see sequential growth as we talked about in our prepared remarks, but what we are beginning to see some incremental weakness in our European.

Speaker Change: Yeah.

Speaker Change: Yeah.

unknown: Okay, thank you. And then you've obviously, you know, made some changes in terms of pricing, in terms of delivery, you've, you've been putting extra attention on some of your, you know, largest, longest-term clients. So is there any notable change in client retention or win rates? You know, are those progressing differently than they were, you know, roughly a year ago, when you announced some of the changes that you intended to

Speaker Change: Okay. Thank you and then you obviously made some changes in terms of pricing in terms of delivery you you've been putting extra attention on some of your largest longest duration clients. So is there any notable change in.

Speaker Change: Client retention or win rates.

Speaker Change: That's progressing differently than they were you know roughly a year ago.

Speaker Change: Now some of the changes that you intended to make.

Arkadiy Dobkin: I think we just can kind of repeat that, in general, there are no kind of dramatic changes. Mostly it's a tribute to delayed decisions and very specific things like You were talking about Q2, which we already said, it's available hours, it's effective, multiple parameters, which will be called later. So the rest of this is in line with what we were saying before. But, again, decisions. Slow down, and now we try to project exactly what we see versus what we kind of think might happen. Yeah, and clearly no longer have the confidence of, you know, sequential demand improvement in the second half the way we had when we were starting.

Speaker Change: Alright, thank you.

Speaker Change: And of the E&P.

Speaker Change: In <unk>.

Speaker Change: No.

Speaker Change: Got it.

Speaker Change: I don't watch it changes, mostly instituted to delaying decisions.

Speaker Change: The specifics.

Speaker Change: Good.

Speaker Change: You were talking about Q2.

Speaker Change: We already said it.

Speaker Change: Billable hours since effects, it's logical to arrive at those features.

Speaker Change: It will.

Speaker Change: So the rest of this.

Speaker Change: In line with what you said before.

Speaker Change: But hey, good.

Speaker Change: Decisions.

Speaker Change: And now he's trying to project exactly what we see versus what we kind of think in white cliffs.

Speaker Change: Clearly no longer have the confidence.

Speaker Change: Sequential demand improvement in the second half the way we had when we got it.

Speaker Change: Thank you.

unknown: Your next question comes from the line of Surinder Thind with Jefferies. Please go ahead.

Speaker Change: Your next question comes from the line of sprinter.

Speaker Change: And with Jefferies.

Sprinter: Please go ahead.

Jason Peterson: Thank you. Is there any color that you can provide on intracorridor trends in one cue in the sense of... how the quarter started, and then at what point did you kind of start to see clients, you know, begin to push off projects? Any color there would be helpful.

Sprinter: Yeah.

Sprinter: Yes.

Jefferies: Thank you.

Jefferies: Is there any color that you can provide on intra quarter trends in <unk> and a sense of.

Speaker Change: How the quarter started and then at what point did you kind of start to see.

Speaker Change: <unk> begin to push off projects.

Speaker Change: Just any color there would be helpful.

Jason Peterson: Yeah, maybe what I'll do is unpack. I guess the word I'll use is what happened in Q1. So we entered Q1 with the guide that we had. And you know, we expected that we probably could get to the top or maybe a little bit above the high end of the range, you know, had come in with a range that we wanted to make sure that we could do. But what we saw during the quarter was that things were a little bit slower than expected.

Speaker Change:

Speaker Change: Yes, maybe what I'll do is.

Speaker Change: Unpack I guess the word I'll use what what happened in Q1. So we entered Q1 with the guide that we had and we expected that we probably could get to the top or maybe a little bit above the high end of the range.

Speaker Change: It's coming with the range that we wanted to make sure that we make what we saw during the quarter is that things were a little bit slower than expected and we did.

Jason Peterson: And we did get some benefit from foreign exchange, which I would size at about two million dollars, and just a modest amount of M&A contribution that was not in our original guide. And that would be about eight hundred thousand dollars.

Speaker Change: It's a benefit from foreign exchange, which I would size at about $2 million and just a modest amount of M&A contribution that was not in our original guide and that would be about $800000 to be adjusted through those two factors were pretty much closer to the middle point of the range pretty much at consensus.

Jason Peterson: So adjusted for those two factors, the results were pretty much, you know, closer to the middle point of the range, pretty much at, you know, consensus rather than this revenue beat. So things were a little bit slower than we expected in Q1, not much, but somewhat. We have been able to calculate that this, you know, this India shift even showed up in sort of sequential order. And as Ark said, you know, we're at this point; we're just not willing to continue to guide with an assumption that we're going to see improving demand. And we are, but we are seeing stability in the portfolio and probably a little bit of improvement if you adjust.

Speaker Change: Rather than revenue.

Speaker Change: Revenue beats and things were a little bit slower than we expected in Q1, not much but somewhat.

Speaker Change: We have been able to calculate that.

Speaker Change: In the <unk>.

Speaker Change: Even showed up in sort of a sequential impact and as art said we're.

Speaker Change: At this point, we're just not willing to.

Speaker Change: We have continued to guide with an assumption that we're going to see improving demand.

Speaker Change: And we but we are seeing stability in the portfolio and probably a little bit of improvement if you adjust for.

Speaker Change: This shift towards India.

Speaker Change: Okay.

Jason Peterson: Thank you. And then in terms of just understanding trains within the top 20 clients versus those outside the top 20, you called out a pretty material difference in the growth rates. Part of that, I believe you attributed to just the acquisition, but also others to new logo activity, just any color on, you know how much new logos are contributing.

Speaker Change: Thank you and then in terms of just.

Speaker Change: Understanding trains within.

Speaker Change: The top 20 clients versus those outside the top 20, you called out a pretty material difference in the growth rates.

Speaker Change: Part of that I believe you attributed to just the acquisition.

Speaker Change: But also others too new logo activity just any color on.

Speaker Change: How much new logos are contributing to the growth at this point.

Speaker Change: Sure.

Speaker Change: Just where things are within the cycle there.

Jason Peterson: Yeah, and so let me talk about the top 20. So the top 20 does have a significant number of business information and media clients in it. That is a more challenged portion of the portfolio, I would say, due to their end markets. In addition to the client that we talked about over the last couple of quarters that ramped down in Q1 and, you know, again, in Q2 as they kind of exited, we, and again, this is all known and we've talked about, but we are seeing, you know, some reduction in spend on other business information media clients in Europe, and that is the top 20 clients.

Speaker Change: Yeah. So let me talk about the top 20% of the top 20 does have a significant number of business information and media clients in it that is a more challenged portion of the portfolio I would say due to their end markets.

Speaker Change: In addition to the clients that we've talked about over the last couple of quarters that have ramped down.

Speaker Change: In Q1, and again in Q2 as they kind of exit.

Speaker Change: And again this is all known and we've talked about.

Speaker Change: But we are seeing.

Speaker Change: Some reduction in spend and other business information and media clients in Europe and that is the top 20 clients. So those things kind of show up and then from a new logo standpoint.

Jason Peterson: So those things kind of show up. And then from a new logo standpoint, you know, part of what's going on in North America is, again, stability in the, uh, existing client portion of the portfolio. But we are beginning to see growth in North America in terms of new logo revenues. And then in Europe, there's an awful lot of activity.

Speaker Change: Part of what's going on in North America is again stability in the.

Speaker Change: In the existing client portion of the portfolio, but we are beginning to see growth.

Speaker Change: In North America in terms of new logo revenues and then Europe. There is an awful lot of activity and generally it's kind of smaller in size from a contribution standpoint, again, encouraging, but obviously not enough.

Speaker Change: To drive the type of growth rate, we had originally expected.

Speaker Change: Thank you. Thank you.

unknown: Your next question comes from the line of Jason Kupferberg with Bank of America.

Speaker Change: Next question comes from the line of Jason.

Speaker Change: Jason Kupferberg with Bank of America.

Jason Alan Kupferberg: Please go ahead.

Arkadiy Dobkin: Good morning. I wanted to just stay on the India topic for a minute and talk about competition there. You know, obviously, it's pretty crowded, just in terms of the vendor landscape, and on a relative basis, EPAM is somewhat more of a newcomer. So, curious to see how you see the competitive landscape there versus your more traditional service delivery geographies. And then just if we look at the headcount mix, I think at the end of last year, Ukraine was still number one at 19%, and India was 15%. I mean, do you think in the not-so-distant future, India could potentially become your largest country?

Jason Alan Kupferberg: Good morning, I wanted to just stay on the India topic for a minute talk about competition there.

Jason Alan Kupferberg: It's a pretty crowded just in terms of the vendor landscape and on a relative basis. He Pam is somewhat more of a newcomer.

Speaker Change: So curious to see how you see the competitive landscape there versus your more traditional service delivery geographies and then just if we look at head count mix I think at the end of last year, Ukraine is still number one at 19% India was 15% I mean do you think in the not too distant future, India could potentially become your largest country.

Arkadiy Dobkin: I think we are very satisfied with our private progress in India, and by the end of the year, we might be closer to 20%. [inaudible] So, from the quality perspective, we talked about it many times in the past, invested in their family, and we're doing this for a long time. India will become the fastest growing location.

Speaker Change: I assume.

Jason Alan Kupferberg: There is such as flat.

Jason Alan Kupferberg: Progress and they do so.

Jason Alan Kupferberg: <unk> been closer to 20%.

Jason Alan Kupferberg: Of the total so it's still going to visit largest fastest growing and.

Jason Alan Kupferberg: I believe you'll be.

Jason Alan Kupferberg: <unk>.

Jason Alan Kupferberg: So from a liquidity perspective, we talked about.

Jason Alan Kupferberg: We.

Jason Alan Kupferberg: <unk>.

Jason Alan Kupferberg: Emily.

Jason Alan Kupferberg: At this time.

Jason Alan Kupferberg: Hey, Dave <unk> Buster's.

Jason Alan Kupferberg: Look Jason.

Arkadiy Dobkin: I think it was a 20... [inaudible] So, and, uh, We're also trying to build, and we mentioned today, like not trying to build, we built a significant data practice. IAEA built a significant digital engagement practice, so we put in all the necessary things there to build an AI practice as well. So it's a location which is in line with all that we see in EPAM. Additionally, and that's a differentiation as well because we're not trying to implicate just kind of scale but exactly the quality which we know it for.

Jason Alan Kupferberg: Yes.

Speaker Change: Thank you.

Jason Alan Kupferberg: It was in <unk>.

Jason Alan Kupferberg: What do you want <unk>.

Jason Alan Kupferberg: Right.

Jason Alan Kupferberg: It was.

Jason Alan Kupferberg: Like wait before working with them.

Jason Alan Kupferberg: No.

Jason Alan Kupferberg: No.

Jason Alan Kupferberg: We are also trying to build we've mentioned today.

Jason Alan Kupferberg: To build rebuild significant data branches.

Jason Alan Kupferberg: <unk> significantly.

Jason Alan Kupferberg: Digital engagement practice so.

Jason Alan Kupferberg: Oh necessity seeking to build.

Jason Alan Kupferberg: Good practice as well so it's low.

Jason Alan Kupferberg: Location of issue.

Jason Alan Kupferberg: Who would you see.

Jason Alan Kupferberg: But at least for Lilly.

Jason Alan Kupferberg: That's a differentiation as well as influence.

Jason Alan Kupferberg: We don't try to duplicate.

Jason Alan Kupferberg: Just kind of scale.

Jason Alan Kupferberg: Is it.

Jason Alan Kupferberg: <unk>.

Jason Alan Kupferberg: Hello.

Arkadiy Dobkin: So, there is a different type of competition; at the same time, we also mentioned that our competition for talent is mostly captive, and technology. And that continues to be for us as well. So I think in general, we're quite happy and we think it will play a bigger and more important role in the future. While we are very committed to our... [inaudible] As we said before, we probably will be the most kind of. He works for the Talent Perspective Company now, right?

Jason Alan Kupferberg: So.

Jason Alan Kupferberg: Different type of MTT as soon as I say.

Jason Alan Kupferberg: Same time, we also mentioned is that the open condition flotel is mostly <unk>.

Jason Alan Kupferberg: Yeah.

Jason Alan Kupferberg: Two of the larger companies.

Jason Alan Kupferberg: <unk> continuous to be for us as well.

Jason Alan Kupferberg:

Jason Alan Kupferberg: So I think in general related questions.

Jason Alan Kupferberg: Yes.

Speaker Change: Please go ahead.

Speaker Change: But while we are very committed to.

Speaker Change: Oh, sorry.

Speaker Change: Started to contribute.

Speaker Change: He is from Europe.

Speaker Change: Okay.

Speaker Change: As we said before we probably will visit windows.

Speaker Change: Hello.

Speaker Change: Yes.

Speaker Change: With respect to <unk>.

Jason Peterson: Right. I'm going to add to that, similar to what we do in Eastern Europe, you know, we don't seek to be the lowest cost provider in any market in which we operate. Again, we differentiate equality in India, and, you know, we charge a premium relative to other peers' kind of Indian rates based on what we believe.

Speaker Change: Alright, Tony I'll add to that.

Speaker Change: What we do in eastern Europe.

Tony: We don't seek to be the lowest cost provider in any market in which we operate and generate.

Tony: Differentiated quality in India, and we charge a premium relative to other peers kind of India rates based on what we believe is a differentiated offering there.

Arkadiy Dobkin: Okay. And, um, I think in response to an earlier question, you said that your win rate on new logos is intact, which is good to hear. I'm just curious whether you've seen any material change in your wallet share within, say, your top 20 existing clients.

Tony: Okay.

Tony: I think in response to an earlier question you said that your win rate on new logos is intact.

Tony: Which is good to hear I'm, just curious whether you've seen any material change in your <unk>.

Tony: Wallet share within say your top 20 existing clients.

Arkadiy Dobkin: There are several clients which we mentioned already, but in general, I think we are in a very good position. Well, I think I'm done. Thank you. Bye bye, share a point of view with you.

Speaker Change: Yeah absolutely.

Speaker Change: There are several clients who each.

Tony: Ashwin loaded so but in general I think is very good.

Tony: No.

Tony: Well.

Tony: Sure.

Speaker Change: Please go ahead.

unknown: Visible increase in some of the clients we have. Pretty good stability, the NASA, and again, and Zura, are companies which we mentioned before, which make like long-term decisions. And we've seen actually a visible slowdown in the execution kind of like when things are happening with us. And there are a couple which turned black and started to grow with us. So I think we're pretty comfortable with what we're doing with our top 20.

Tony: Visible increase in some of the clients.

Tony: <unk> not seen anything.

Tony: <unk>.

Tony: Companies, which we mentioned before these preclinical long-stemmed decision and we've seen actually visible slow down.

Tony: Execution.

Tony: Increased capital gives us.

Tony: Capital of each.

Tony: Subject to agreement with us.

Tony: So I think the recent comfortable is what we do.

Tony: Top 20.

Tony: Yeah.

Speaker Change: Thank you.

Tony: Okay.

unknown: The next question comes from the line of... Moshe Katri with Wedbush Securities?

Speaker Change: Next question comes from the line of <unk>.

Speaker Change: Most gutsy.

<unk>: With Wedbush Securities.

unknown: Hey Moshe, how are you doing?

Speaker Change: Please go ahead Moshe how are you doing.

unknown: Thanks. Good morning.

Moshe: Thanks, Good morning.

Speaker Change: Thanks.

Moshe: So that's so the pipeline is there it's just not converting.

unknown: Thanks for the question. The pipeline is there, just not converting at the pace that you guys expected it to be, and you have some referrals out there. The question here is, and obviously the environment is pretty fluid, how quickly can these be switched around? Let's say the FETS cut rate, Let's say the micro volatility kind of maybe is improving. How quickly can these programs get back on board? Just, again, what I'm hearing is that the demand environment is pretty fluid, and obviously, things can turn on and off pretty quickly. How would you see that? How would you characterize that eye?

Moshe: Paid that debt you guys expected it to be and you have some deferrals out there. The question here is obviously the environment is pretty fluid.

Speaker Change: How quickly can these be.

Speaker Change: Be switched around let's say the fed rates let's.

Speaker Change: And let's say the macro volatility kind of maybe is improving.

unknown: How quickly can these programs get back on board.

Speaker Change: That's just what I'm hearing Kim is it just that the demand environment is pretty fluid and obviously things can turn on and off pretty quickly how would you see that how would you characterize that Kirk.

Speaker Change: Yes.

Speaker Change: Okay.

Arkadiy Dobkin: That's exactly what we said already. We don't want to predict anymore.

Kirk: That's exactly what you say alluded to we don't want to predict.

Arkadiy Dobkin: So we try to be more kind of pragmatic in this situation. Historically, you know better than we do that volatility and change in demand could be very fast. I'm not sure that it will be very fast in this current environment, but... I only can repeat what we were saying before that. The whole point for us is to think during the last couple of years to prepare ourselves well when the environment changes.

Speaker Change: So its right to be more got it.

Arkadiy Dobkin: Break in logic and looser definition.

Speaker Change: Historically, you know better than us.

Arkadiy Dobkin: Agility.

Speaker Change: Change they work with.

Speaker Change: I'm not sure if you'll be very fast in this current environment, but.

I would think as it competes with USAA and before the Super Bowl.

Speaker Change: For us that's been through all of this.

Arkadiy Dobkin: Due to the last couple of years to <unk>.

Arkadiy Dobkin: Sales as well.

Arkadiy Dobkin: It is without any material change.

Arkadiy Dobkin: And that's why we very carefully manage all our capabilities necessary for the restarted, if. And I think that's why, in general, we feel very comfortable, that the fundamentals are there, that we are actually becoming better. [inaudible] from our delivery kind of capabilities. And again, the real change will happen when demand changes. And again, that could happen relatively fast. But let's see, I don't have any more opinion right now.

Arkadiy Dobkin: Why we very carefully.

Arkadiy Dobkin: <unk>.

Arkadiy Dobkin: We're <unk> in all of our capabilities.

Arkadiy Dobkin: Yes.

Arkadiy Dobkin: I think thats why in general we feel very comfortable.

Arkadiy Dobkin: Rentals.

Speaker Change: We have actually been Kevin.

Arkadiy Dobkin: Let's look up when you grow into syndication.

Arkadiy Dobkin: <unk>.

Arkadiy Dobkin: Our delivery.

Arkadiy Dobkin: Of capabilities.

Speaker Change: Thank you.

Arkadiy Dobkin: Well.

Arkadiy Dobkin: The real change will happen when they will change.

Arkadiy Dobkin: That's.

Arkadiy Dobkin: Relatively fast.

Arkadiy Dobkin: I don't think I don't have any more opinion right.

unknown: Okay, that's fair. And then just a follow-up, last quarter you spoke about some clients that were coming back to EPAM. Originally, EFM clients, when they expanded their scope, they went somewhere else, and then they came back. Are you continuing to see the same trend throughout this quarter?

Speaker Change: Okay. That's fair and then just a follow up.

Speaker Change: Last quarter, you spoke about some clients that were coming back to you Pat originally E comm clients when.

Speaker Change: When they expand its scope one somewhere else and they came back.

Speaker Change: Are you continuing to see the same trends throughout this quarter.

Arkadiy Dobkin: Yeah, this is, this is happening, and this is happening on. When clients come back, it's also happening when clients were going down, and now they are becoming comfortable with our kind of restructuring of delivery and starting to come back to us. It's again, it's not huge things, but it's a very positive message. And another thing that the development is switching to some new locations very often as well, and that's again... not necessarily optically visible from the Proportional Revenue Group because we're doing more work in India.

Scott: Yes. This is Scott.

Scott: This is Scott.

Arkadiy Dobkin: Necessary adjust.

Arkadiy Dobkin: When clients go live it's also companies when clients were.

Arkadiy Dobkin: No.

Arkadiy Dobkin: I'm comfortable.

Arkadiy Dobkin: Kind of destruction of delivery is starting to come.

Arkadiy Dobkin: Back to us.

Arkadiy Dobkin: It's again, it's not huge teams, but it's a very positive manner.

Arkadiy Dobkin: And the other thing that.

Arkadiy Dobkin: Sure.

Arkadiy Dobkin: Developments vision tools, some new locations opened as well as us again.

Arkadiy Dobkin: Uh huh.

Arkadiy Dobkin: Exactly.

Arkadiy Dobkin: Necessary, particularly visible through.

Arkadiy Dobkin: Revenue growth because we are doing more work.

Arkadiy Dobkin: And I think that's exactly what we were led to do to make sure that we stabilize and that we protect our market share clients. Thank you for your question. Yes, this is continuous. Thank you. The next question comes from the...

Arkadiy Dobkin: In India.

Arkadiy Dobkin: I think thats exactly what we were.

Speaker Change: Yeah blend to do to make sure that we stabilized and that we protect to know mark its Gerry and clubs.

Arkadiy Dobkin: Yes.

Speaker Change: Thanks for your question Yeah. This continuously.

Speaker Change: Thank you.

Speaker Change: Thanks Moshe.

unknown: The next question comes from the line of Ramsey El Esau with Barclays. Please go ahead. Hi, thanks for taking my question. Could you provide some additional color on margins and the margin cadence as we progress through the year?

Arkadiy Dobkin: Your next question comes from the line of Ramsey El <unk>.

unknown: Barclays.

Speaker Change: Please go ahead.

Speaker Change: Hi, Thanks for taking my question.

Speaker Change: Could you provide some additional color on margins and the margin cadence as we progress through the year.

unknown: Hum.

Speaker Change: And you could help us with there would be appreciated.

Jason Peterson: Yeah, so, um, in Q2, we've got the lower bill days that we talked about, and that usually does have a depressive effect on margins. And so right now, for Q2, I am expecting that we could be at 30% first margin or slightly below that on a non-gap basis. I think for the first half of 2024, you'll see gross margins around 32%. And then for the second half, I think you'd see margins in the 32 to 33% range.

Speaker Change: Yes so.

Jason Peterson: In Q2, we've got the lower build as we talked about and that usually does have a depressive effect on.

Jason Peterson: On margins and so right now for Q2, I am expecting that we could be at 30% gross margin slightly below that.

Jason Peterson: GAAP basis, I think for the first half.

Jason Peterson: Oh 2024, you'll see gross margins of around 32% and then the second half I think you would see margins in the 32% to 33% range and that would kind of blend us into this sort of 31 to 32, so again, you'll see somewhat improving margins as we continue to focus on.

Jason Peterson: And that would kind of blend us into this sort of 31 to 32. So again, you'll see somewhat improving margins as we continue to focus on our costs, and at the same time, you get a little bit of benefit from the stronger build in the second. Thank you. And a quick follow-up.

Jason Peterson: Yeah.

Jason Peterson: Our cost and at the same time, you get a little bit of benefit from the stronger Bill days in the second half.

Speaker Change: Thank you.

Speaker Change: Quick follow up.

Jason Peterson: A lot of your peers who are also calling out big demand headwinds right now view this, these headwinds in terms of sort of discretionary headwinds versus non-discretionary spend. Do you have a view of your own portfolio in that context? What percentage of your portfolio is sort of discretionary? Yeah, I guess it all depends on how you define that.

Speaker Change: A lot of your peers, who are also calling out big demand headwinds right now. They view. This these headwinds in terms of sort of discretionary headwinds versus non discretionary spend do you have a view of your own portfolio in that context, what percentage of your portfolio is sort of discretionary.

unknown: You know, we've never, as I think we all know, had a large portfolio of multi-year maintenance or multi-year BPO or that type of thing. So a lot of our work generally is kind of newer build digital, you know, and as we've talked about the modernization programs, which we still believe are generally intact, but are slow to ramp. In some cases, as Ark indicated, is that people have kind of de-scoped some of those programs. So we still think that demand is in the future. But, you know, arguably, when it comes to discretion, you can certainly delay those programs and

Jason Peterson: Yes, I guess it all depends on how you define that we'd never as I think we all know.

unknown: Large portfolio multiyear maintenance and multiyear epo or that type of thing. So a lot of our work generally is kind of newer build digital.

unknown: And as we've talked about the modernization programs, which we still believe are generally intact, but ours floater ramp.

unknown: In some cases as art indicated is that people have kind of east coast. Some of this program. So we still think that demand is in the future.

unknown: But.

unknown: Do you believe when it comes to discretion you can certainly delay those programs and expenditures.

Speaker Change: Fair enough. Thanks, so much.

unknown: Your next question comes from the line of Ryan Potter with Citigroup. Please go ahead.

Arkadiy Dobkin: Hey, thanks for taking my question. I want to start on pricing. Have you seen any changes to the pricing environment since your last earnings? And are you still offering some discounting to win business in certain areas like you were in the past? Let's try to figure out if you're finding a greater presence from certain lower cost locations like India, and if that's leading maybe to some client pushback on current arrangements or if the pricing pressure is more on the net.

Arkadiy Dobkin: We believe that the pricing environment did not improve. So, and the only improvement could happen if demand went up. So, and with the current status quo, I think the pricing environment is prejudiced, talking, challenging, and continuous.

unknown: So it's not incrementally worse, but it continues to be challenging. It's one of the reasons why there is kind of a bias towards India at the lower bill rates, and the market is Yeah, with what I recall kind of an imbalanced supply and demand. It continues to be a less friendly market when it comes to you know trying to get rate increases for certain

unknown: It's one of the reasons why there is kind of a bias towards India lower bill rates.

unknown: The market is.

Jason Peterson: Got it. And I followed on, I guess, on your investment level and kind of net hiring. Now that you're seeing more of a challenging demand environment, will you look to dial back some of the growth investments you were trying to do when you started the year or reprioritize those? And then, from a headcount perspective, are you expecting headcount to decrease further sequentially off these levels? Are you likely to kind of maintain The bench? You have to meet the man. I think you'll see it to continue to invest in India.

Jason Peterson: I think you'll see us continue to invest in India, as we talked about on this call. I think you'll see us continue to increase our position in Latin America. I do think, and I implied this, or I think maybe even stated it in our prepared remarks, that with this kind of budget caution with clients, we are seeing less demand for in-market resources. That continues to be a place where we do have more bench than we would like.

Jason Peterson: This is kind of budget caution with clients, we are seeing less demand for in market resources that continues to be a place where we do have more bench and we would like.

Jason Peterson: So that that's that's a bit of a challenge for us and again I think what you'll see is due at least for the coming couple of quarters is to continue to invest more in again in India and Latin America.

Jason Peterson: That's a bit of a challenge for us. Again, I think what you'll see us do, at least for the coming couple of quarters, is to continue to invest more in India and Latin America. We still think that there's a demand environment in our future for central and Europe and also for the emerging markets. But today, it certainly continues to be a challenging environment, particularly for the higher cost end market.

Jason Peterson: Guilt thing there is.

Jason Peterson: There's there's a demand environment.

Jason Peterson: In our future for for Central and Eastern Europe, and also for market, but today, it's certainly continues to be a <unk>.

Jason Peterson: <unk> environment.

Jason Peterson: Really for the higher cost 10 market.

Jason Peterson: Resources.

Speaker Change: Got it thanks.

unknown: Your next question comes from the line of James Friedman with Siskiana.

Speaker Change: Okay. Next question comes from the lines of.

James Eric Friedman: James Freedman.

unknown: <unk>.

James Eric Friedman: Please go ahead.

unknown: Hi, thank you for taking the question. Jason, in your prepared remarks, you called out some of the trends in billing and on the DSO. I remember when you first started there, that was a big conversation; you improved that immeasurably. I'm just wondering, what's going on in the DSO? Is this something that we need to watch for billing like Bill Ability and Collections.

James Eric Friedman: Hi, Thank you for taking the question.

unknown: Jason and your prepared remarks, he called out some of the trends in billing and the DSO I remember when you first started there that was a big conversation you to improve that immeasurably.

unknown: I'm just wondering is.

unknown: What's going on in the DSO is this something that we need to watch for a <unk> like <unk>.

unknown: <unk> ability and collections.

Jason Peterson: Yeah, you know, so we're really focused on managing that, and again, very careful to make certain that, obviously, our revenue recognition is appropriate. And also that we're, you know, trying to avoid any potential kind of write-off of AR. So I'm not concerned about that. What we are seeing is clients are taking more time to review and make payments and that type of thing. And I assume it's just based on the environment.

Jason Peterson: Yeah. So we're really focused on managing that.

Jason Peterson: Gary.

Jason Peterson: Careful to make certain that obviously, our revenue recognition is appropriate and and also that we're trying to avoid any potential kind of right off of <unk>.

Jason Peterson: I'm not concerned about that what we are seeing is clients are taking more time to review and make payments and that type of thing and I assume it's just based on the environment.

Jason Peterson: And so we are trying to manage it, but I suspect that DSO is going to remain above 70 for the remainder of the year. Again, I don't have any concerns about it either in terms of revenue recognition or potential write-offs. But yeah, I wish we could maintain it at 70 or 69. And I think that's a little bit unlikely in today's environment, where everyone's kind of managing their cash flow a little bit more carefully.

Jason Peterson: And so we're trying to manage it but I suspect DSO is gonna remain.

Jason Peterson: Above 70 for the remainder of the year again, I don't have concerns about it either in terms of revenue recognition or or a potential way to write offs, okay, but yeah.

Jason Peterson: I wish we could maintain at 70 or 69, and I think that's a little bit unlikely in today's environment, where everyone's kind of managing their cash flow a little bit more carefully.

Speaker Change: Got it and then.

Jason Peterson: Is there any way to unpack revenue, because you alluded to this, you both alluded to this in your prepared remarks, the ramp down versus, you know, the sluggishness, in everything else like how much is the rent for the ramp down dynamic impacting The Revenue Commentary and Guidance?

Jason Peterson: Is there any way to unpack the revenue because you've alluded to this you both alluded to this new prepared remarks, the ramp downs.

Jason Peterson: Versus.

Jason Peterson: <unk>.

Jason Peterson: And everything else like how much is the <unk> the ramp down dynamic impacting.

Jason Peterson: The revenue commentary guidance.

Jason Peterson: Well, so we have this, you know, the same customer that we talked about where a competitor had sort of taken over their IT function, and that obviously had a step down on a year-to-year basis, as well as a, you know, quarterly, sequential impact, Q4 to Q1. There'll be another slightly sequential impact associated with that same client between Q1 and Q2. And then we had a large BIM client who is continuing to sort of tighten up their spending, and because they are a large client, if they tighten their spending, you know, that's certainly, you know, reducing the level of revenue that we were generating from them, and, you know, it is showing up in our growth rates. You know, I don't know whether I'd call it kind of a ramp down, but certainly they're reducing the level of headcount just to kind of...

Jason Peterson: So we have this.

Jason Peterson: Given customers that we talked about where our competitors sort of taken over their their function and that obviously had a step down on a year over year basis as well as that.

Jason Peterson: Currently a sequential impact Q Q1, there'll be another slightly sequential impact associated with that same client between Q1 and Q2 and then we've had a large being client.

Jason Peterson: Continuing to sort of tightened up their spending and because they are a large client if they tighten up their spending that's certainly reducing the level of revenue that we're generating from them and it is showing up in our growth rates.

Jason Peterson: I don't know what I'd call it kind of a rave down, but certainly there they're reducing the level of head count that just to kind of.

Arkadiy Dobkin: Just to kind of, there is no... any real impact from lockdowns, which is kind of new to us; there is a redistribution of low-cost locations. There are new businesses, which are faster growing there as well, and this is all related, again, to the pricing environment. So, but no rundowns right now, not as real fuck. It's more like a normal, like it always could happen, it's happening as well, but in a very normal way.

Arkadiy Dobkin: There is no.

Arkadiy Dobkin: And you.

Arkadiy Dobkin: Real even plugged.

Arkadiy Dobkin: Donald speech.

Arkadiy Dobkin: Kind of new to.

Arkadiy Dobkin: Two of US so there is a.

Arkadiy Dobkin: <unk> Oh.

Arkadiy Dobkin: Delivery as we talk to.

Arkadiy Dobkin: The speech to local close locations around new business.

Arkadiy Dobkin: <unk>.

Arkadiy Dobkin: Faster growth.

Arkadiy Dobkin: Well <unk> it again too pressured environment.

Arkadiy Dobkin: So but no.

Arkadiy Dobkin: Right now north is three.

Arkadiy Dobkin: <unk>.

Speaker Change: Alright, thank no blood.

Arkadiy Dobkin: More like a normal and control.

Arkadiy Dobkin: For those companies as well, but.

Arkadiy Dobkin: As well as normal weight.

Speaker Change: Thank you.

unknown: The next question comes from the line of James...

Arkadiy Dobkin: The next question comes from the line of James Fossette.

unknown: Morgan Stanley.

James: Please go ahead.

Arkadiy Dobkin: Thank you very much this morning. I wanted to ask, just in terms of your planning assumptions and kind of given the experiences of the last few quarters, what are you thinking about or how are you changing your planning assumptions in terms of pipeline, conversion rates, or timing, etc. Not just in terms of like what you're seeing right now, but are you building in more conservatism from that perspective? And, and, you know, how does that impact your planning from a hiring perspective?

James: Thank you very much. This morning wanted to ask just in terms of your planning assumption has been kind of given me experiences of the last few quarters.

Arkadiy Dobkin: Now are you thinking about or how are you changing your planning assumptions in terms of pie.

Arkadiy Dobkin: Pipeline conversion rates are timing et cetera, not just in terms of like what you're seeing right now, but are you building and more conservatism will not perspective and.

Arkadiy Dobkin: You know how does that impact your planning from a hiring perspective right now.

Arkadiy Dobkin:

Arkadiy Dobkin: We definitely log in our lessons, and we put a much more pragmatic view on it because yes, we were a little bit more optimistic in the past about when the market would come back. So right now, we're looking at this very pragmatically with a good level of Strong Clairvaux, kind of conservatism, and I don't know what to add, so I think that's actually exactly what is happening. We're looking for the next... Thank you, Dave, where we can predict it and predict the future best, and if by the end of the quarter, the situation... We will change, we will start doing this differently, and we will, until we see that the general conditions are... Directionally good, more like two, one, or another direction.

Arkadiy Dobkin: We definitely Logan versus inputs.

Arkadiy Dobkin: Inputs.

Arkadiy Dobkin: Much more much view, so because that's where it is.

Arkadiy Dobkin: A little bit more optimistic as a bus with monkeys will come back so right though.

Arkadiy Dobkin: Look into this very pragmatically as a good level of.

Arkadiy Dobkin: So incredible.

Arkadiy Dobkin: Kind of consider it too.

Arkadiy Dobkin: I jumped over two years, so I think that's actually a glucose.

Arkadiy Dobkin: To what you're looking for the next 90.

Arkadiy Dobkin: Two days.

Arkadiy Dobkin: Yeah, we can predict it and predicts the future with those days.

Arkadiy Dobkin: If the president of the situation.

Arkadiy Dobkin: We will change will do this differently.

Arkadiy Dobkin: Until we will say that the general conditions is.

Arkadiy Dobkin: Did excellent good Bullock too.

Arkadiy Dobkin: One or the other direction.

Jason Peterson: Great, that makes sense. And then, in terms of like, from a revenue perspective, with the mixing of geographic shifts and the kind of pricing that your customers are asking for, any sense for how long we should think about that being a revenue headwind? You know, do you have in your mind, like a distribution of delivery and when we might hit a stable level there?

Speaker Change: Alright that makes sense and then in terms of like from a revenue perspective, with the magazine geographic shifts and kind of pricing that your customers are asking for.

Jason Peterson: Any sense for how long, we should think about that being a revenue headwind.

Jason Peterson: Do you have in your mind.

Jason Peterson: Like I guess the distribution of.

Jason Peterson: Delivery and when when it might hit Ah Ah Ah Ah stable level there.

Jason Peterson: Let me comment, and then Ark, I'll probably say something much, much smarter and more insightful. Um, so how I think about it is that it is going to be a trend that we're going to see throughout 2024. But I don't see it as a forever trend. At some point, I think it kind of stabilizes. And I think that we've done a good job of sort of creating a balanced delivery with options or optionality for our clients. And at the same time, I still believe that there is demand for Central and Eastern Europe so far.

unknown: [inaudible]

Speaker Change: Let me comment and then he'll probably say something much much smarter and more insightful.

unknown: I think about it is it is going to be a trend that we're gonna see each route 2024, but I don't see it as a forever trend at some point I think it kind of stabilizes and I think that we've done a good job of sort of creating a balanced deliberate with options are optionality for our clients.

unknown: And at the same time I still believe that there's there's demands for central and eastern Europe.

unknown:

Speaker Change: <unk> says.

Arkadiy Dobkin: We said before, we do believe that we will be able to put them very well in the global delivery. [inaudible] for the interview, equalize as much as possible the quality kind of components. With this, it's again in our segment in our IT services and specifically in a kind of sub segment which we believe the plan, which is more transformational, Platform Build. Conflicts Enterprise Solutions. Right now, difficulty with, Generally, I enabled some of which we consider to be part of, are playing and will be playing in the future. In this situation, it's an all-part war, changing demand when actually our client base will feel that modernization is not just. Transcripts provided by Transcription Outsourcing, LLC, with Maximum. And this is a very different level.

unknown: We said before we do believe that we did.

Arkadiy Dobkin: You'll be able to good.

Arkadiy Dobkin: Very well as a global delivery.

Arkadiy Dobkin: Okay.

Arkadiy Dobkin: As well as from geographical.

Arkadiy Dobkin: <unk> interview.

Arkadiy Dobkin: And.

Arkadiy Dobkin: Equalize as as much as possible.

Arkadiy Dobkin: What is it.

Arkadiy Dobkin: <unk>.

Speaker Change: Who is this.

Arkadiy Dobkin: Again.

Arkadiy Dobkin: All segments whenever I see some specifics.

Arkadiy Dobkin: Subsegment, which we believe we plan which is more.

Arkadiy Dobkin: Palliation, though.

Arkadiy Dobkin: <unk> <unk>.

Arkadiy Dobkin: Conflicts enterprise solutions.

Arkadiy Dobkin: Right now difficult to me is.

Arkadiy Dobkin:

Arkadiy Dobkin: Generally I enabled soldiers mucus.

Arkadiy Dobkin: Consider it to Paul.

Arkadiy Dobkin: Plain and you'll be plan has a future in this.

Arkadiy Dobkin: All thoughts of.

Arkadiy Dobkin: Changing <unk> well actually it is.

Arkadiy Dobkin: Oh go ahead with <unk> with a new leash and that's not just.

Arkadiy Dobkin: Shift to cloud, but actually changes applications changing.

Arkadiy Dobkin: To actually benefit from this.

Arkadiy Dobkin: And this is really different levels.

Arkadiy Dobkin: And I think from this point of view, very similar to what Jason just said, I think India will be a very big portion of EPAM, but it will be balanced, and the demand will be coming from Central Europe and Eastern Europe and Latin America, and it would be all about the quality of delivery and kind of... Well, you put the dollar versus just. And I think it should happen. Still, we were hoping it would happen sooner. But I think all of us here, and the rest of the site, I think we all believe that this will turn around.

Arkadiy Dobkin: This will be okay.

Arkadiy Dobkin: Then the land was a balance will be Aquila asked as well and then it would be crawling all over the place and I assume from this point of view.

Arkadiy Dobkin: Similar to address just said I think India will do anything.

Arkadiy Dobkin: But video view, the Lance will become into central Europe, and Eastern Europe Latin America.

Arkadiy Dobkin: It would be all about <unk> delivery.

Arkadiy Dobkin: Kind of.

Arkadiy Dobkin: Well you could do a lot of versus just.

Arkadiy Dobkin: Lola.

Arkadiy Dobkin: And I think it should happen.

Arkadiy Dobkin: Still.

Arkadiy Dobkin: <unk> kind of sooner.

Arkadiy Dobkin: But I think all of us here.

Arkadiy Dobkin: But under sites in the west.

Arkadiy Dobkin: Science as inquiry will believe that this will.

Arkadiy Dobkin: Because there is no way.

Arkadiy Dobkin: Right now.

unknown: Thank you for your time.

Speaker Change: Alright, thanks for your time.

unknown: Your next question comes from the line Arvind Ramnani with Piper Sandler.

unknown: Next question in swine Arvind Ooh.

unknown: Nanny papers hammer.

unknown: Hi, thanks for taking my question. I just want to kind of really better understand... You know, when you construct guidance, do you look at, like, you know, do you go account by account? Like, just trying to get an understanding of, you know, kind of the procedure, to basically come up with guidance because we have already an environment where things are just so fluid, and the velocity of changes is something that's difficult to break.

Arvind Anil Ramnani: Hi, Thanks for taking my.

Speaker Change: Hi, Thanks for taking my question.

Speaker Change: Yeah I was just wondering.

Speaker Change: I understand.

unknown: When when you kind of guidance do you look at like you know.

unknown: Google account by account I just.

unknown: Trying to get an understanding of the <unk>.

unknown: Procedure.

unknown: Two two basically come up at the guidance if it is.

unknown: Kind of learning things have or are we just an environment, where things are just so so fluid and then and the velocity of changes.

unknown: Something that's difficult to predict.

Jason Peterson: Yeah, and so, you know, it's hard to predict kind of moving quarters at this stage, as we've talked about the unevenness or the choppiness or the, you know, in some cases, we've had programs that we have been awarded, and then they either haven't started, or, as Art talked about, they've been scoped. We have clients who come back to us and say, you know, we'd like you to do this, but in a lower cost geography, and again, all those things kind of impact revenue.

Speaker Change: Yeah, So it's hard to predict kind of wounded quarters at this stage.

Jason Peterson: Talked about the unevenness of the chart to answer that you know in some cases, we've have programs that we have been awarded and then they either haven't started or are talking about them can discount we have clients, who come back to us and said, we'd like you to do this but in a lower cost geography, and again, all those things kind of impact the revenue growth rate.

Jason Peterson: So again, there is a significant amount of sort of, you know, client level and RFP wind estimation and all that, but we're just finding that the demand environment continues not to evolve the way we had originally anticipated.

Jason Peterson: So again, there is a significant amount of sort of client level, an RFP wind estimation and all that but we're just finding that demand environment continues not all the way we had originally expected.

unknown: Right, okay, no, that makes sense. And then, you know, just with kind of, you know, years of cash, you know, as you kind of think about, you know, doing additional M&A or, you know, basically doing kind of buybacks or, you know, just trying to see, you know, or this is one of these things that you continue to build.

Speaker Change: Right, Okay that makes sense and then uhm.

unknown: <unk> just <unk>.

unknown: Yet <unk> cash.

unknown: Kind of take about.

unknown: Doing additional M&A or.

unknown: You're basically doing kind.

unknown: Buybacks are just trying to see.

unknown: Or is it just one of the things that you can continue.

unknown: <unk>.

Jason Peterson: Hey Arvind, I'm going to be a little shorter in my response just because we're kind of at the end of the call or past time. But I would say yes to both. So you will see us continue to do more and more acquisitions that, again, are both strategic and do allow us to continue to expand our position both in end markets and in delivery locations. And you will also clearly see us do more buybacks in the coming years.

Speaker Change: And I'm gonna be a little short of my response, just cause we're kind of at the end of the call our past time, but I would say, yes to both so you will see us continuing to do more and more acquisitions that again are bold strategic and do allow us to continue to expand our position Bolton and markets and delivery locations.

Jason Peterson: And you all seven clearly CSU more buybacks in the coming quarters.

Arvind: Perfect. Thank you.

unknown: Thank you, Arvind. I appreciate it.

unknown: Thank you. Thank you, Arvind. I appreciate it. And this concludes.

Speaker Change: Hey, Thank you appreciate it.

Speaker Change: And this concludes <unk> I would like to turn the call back over to <unk> for closing remarks.

Arkadiy Dobkin: As always, thank you, everybody, for joining us today. I think we're all looking forward to the next call, and I think we're not going to bring surprises. Next, next time it is from the

Speaker Change: Uhm is always <unk> everybody for joining today.

Arkadiy Dobkin: I think.

Arkadiy Dobkin: Will looking looking forward for the nurse call and I still cannot go into green surprises.

Arkadiy Dobkin: Next next diamond.

Arkadiy Dobkin: Similar to today. Let's look pragmatically at everything. So fortunately, we didn't have any questions today about GNI and how we're doing there because we're doing pretty good and feel very good about this area. But probably, we can spend more time on this topic next time.

Arkadiy Dobkin: Similarly to today.

Arkadiy Dobkin: Let's let's look <unk> so.

Arkadiy Dobkin: So we didn't discuss with your questions to <unk>, because we do pretty good and feel very good about this area, but program you can spend more time.

Arkadiy Dobkin: This topic next time.

Arkadiy Dobkin: Much.

Speaker Change: This concludes today's conference cold enjoy the rest of your day you may now disconnect.

Speaker Change: This concludes today's conference cold.