EPAM(US:EPAM)2022-08-05 22:07Financial Data and Key Metrics Changes - In Q2 2022, EPAM generated revenues of $1.19 billion, a year-over-year increase of 35.6% on a reported basis and 40.1% in constant currency terms, reflecting a negative foreign exchange impact of 450 basis points [27] - GAAP gross margin for the quarter was 29.2% compared to 33.8% in Q2 of last year, while non-GAAP gross margin was 31.5% compared to 35% for the same quarter last year [32] - GAAP income from operations was $93 million or 7.8% of revenue, down from $125 million or 14.2% of revenue in Q2 of last year, primarily due to costs associated with the exit of Russian operations and humanitarian expenditures [33] Business Line Data and Key Metrics Changes - Travel & consumer grew 61.1%, driven by strong organic growth from retail customers and recent acquisitions [29] - Life sciences and healthcare grew 40.1%, with significant contributions from the healthcare industry [29] - Financial services grew 29.4%, with growth from asset management, payments, and banking [29] - Emerging verticals delivered 36.1% growth, driven by clients in telecommunications, energy, manufacturing, and automotive [30] Market Data and Key Metrics Changes - The Americas, representing 60% of Q2 revenues, grew 36.8% year-over-year [31] - EMEA, representing 35% of Q2 revenues, grew 45.2% year-over-year [31] - CEE, representing 2% of Q2 revenues, contracted 46.7% year-over-year due to the ramp down of services to Russian customers [31] - APAC grew 20.8% year-over-year, now representing 3% of revenues [31] Company Strategy and Development Direction - The company is focusing on geographical diversification of its delivery platform and has established digital delivery locations in India, Latin America, and Central Asia [9][10] - EPAM is committed to exiting operations in Russia, reducing its local footprint from over 9,000 people to just under 1,000 [11][12] - The company aims to return to profit levels approaching historical ranges during the first half of 2023 [16] Management's Comments on Operating Environment and Future Outlook - Management noted a stable demand environment and expects continued sequential revenue growth throughout the second half of 2022 [40] - The company is optimistic about returning to profitability levels similar to pre-war conditions in 2023 [65][66] - Management acknowledged mixed economic indicators but believes medium-term demand trends will support strong organic growth [19][20] Other Important Information - EPAM has spent over $34 million as part of its $100 million humanitarian commitment to Ukrainian employees and their families [44] - The company ended Q2 with approximately $1.3 billion in cash and cash equivalents [36] Q&A Session Summary Question: Growth composition between new and existing clients in Q2 - Management indicated solid growth in existing customers with a slight slowdown in new customers during Q2, but expects new logo-driven demand to increase in the second half [51][52] Question: Sequential billable headcount excluding Russia - Management confirmed that attrition rates outside of Russia remained consistent, and they are comfortable returning to pre-war headcount levels [53][54] Question: Performance of new delivery locations - Management reported an increase of 1,200 to 1,300 people in Q2, primarily outside of Ukraine, Belarus, and Russia, and expressed confidence in the ability to grow in new regions [56][57] Question: Adjusting rate cards to new delivery locations - Management noted that there is a lag in rate increases as resources transition to new geographies, but they are optimistic about completing most rate adjustments by early 2023 [63][64] Question: Cash flow expectations - Management expressed satisfaction with cash flow performance and expects cash flow conversion to exceed 100% in Q3 [67] Question: Gross margins and delivery profile changes - Management anticipates some temporary impacts on gross margins due to shifting to higher-cost geographies but expects improvements as they transition [91][92] Question: Client project priorities and sales cycles - Management has not observed significant changes in client priorities or project types, maintaining focus on application modernization and cloud migration [95]