EPAM(US:EPAM)2022-11-03 18:12Financial Data and Key Metrics Changes - In Q3 2022, EPAM delivered revenues of $1.23 billion, representing a 24% year-over-year growth, and a non-GAAP diluted EPS of $3.10, a 30% increase over Q3 2021 [23][32][44] - The company generated $234 million of free cash flow and ended the quarter with approximately $1.5 billion in cash [24][45] - The GAAP gross margin for the quarter was 32.6%, compared to 33.9% in Q3 of the previous year, while non-GAAP gross margin was 34.4%, down from 35.1% [39][40] Business Line Data and Key Metrics Changes - Travel and Consumer grew 41.9%, driven by strong organic growth from retail customers [35] - Life Sciences and Healthcare grew 35%, with significant contributions from the healthcare sector [35] - Financial Services grew 10.4%, while excluding Russian customers, growth would have been 25.4% [35] - Emerging verticals delivered 26.6% growth, driven by clients in energy, manufacturing, and automotive [36] Market Data and Key Metrics Changes - The Americas represented 61% of Q3 revenues, growing 26.3% year-over-year [37] - EMEA, accounting for 36% of revenues, grew 35.3% year-over-year [37] - CEE contracted 77.2% year-over-year due to the exit from Russia [38] - APAC grew 10.5% year-over-year, now representing 2% of revenues [38] Company Strategy and Development Direction - The company is focused on global diversification and expanding its delivery capabilities, with a goal to become one of the most geographically balanced service companies [12][15] - EPAM is working to reposition its service portfolio and maintain high service quality amid geopolitical challenges [16][17] - The company aims to maintain its engineering and technology advantage while investing in educational platforms for talent development [21][22] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the ongoing geopolitical challenges, particularly the war in Ukraine, and its impact on operations [7][27] - There is a cautious outlook on demand, with clients focusing on cost savings and operational efficiencies [25][81] - The company expects Q4 revenues to be in the range of $1.220 billion to $1.230 billion, reflecting a year-over-year growth rate of approximately 11% [52] Other Important Information - EPAM has spent over $39 million as part of its $100 million humanitarian commitment to Ukrainian employees and their families [51] - The company is adjusting its operations to mitigate the impact of the war and is confident in its ability to adapt and grow [28][29] Q&A Session Summary Question: Insights on Q4 growth forecast - Management indicated that Q4 growth is impacted by fewer billable days and the exit from Russia, which will reduce revenue by approximately 2% [60] Question: Delivery footprint and workforce ramp-up - Management confirmed that they are on track with their delivery capacity plans and expect to reduce reliance on impacted regions [62] Question: Headcount and margin dynamics - Management noted that pricing realignment for relocated employees had a less negative impact on profitability than expected [66] Question: Demand environment and client spending - Management observed a shift towards cost-saving measures among clients, balancing digital transformation priorities [81] Question: Pricing environment amidst inflation - Management highlighted successful rate realignment efforts and ongoing pricing improvements due to relocations [94] Question: M&A activity in the current macro environment - Management stated that M&A activities are not adjusted based on economic conditions, and they continue to seek strategic additions [96]