EPAM(US:EPAM)2022-05-05 18:01Financial Data and Key Metrics Changes - In Q1 2022, EPAM generated revenues of $1.17 billion, a year-over-year increase of 50.1% on a reported basis and 53% in constant currency terms [28] - GAAP gross margin for the quarter was 33.4%, compared to 33.5% in Q1 of last year, while non-GAAP gross margin was 33.3%, down from 34.9% [32] - GAAP income from operations was $129 million, or 11% of revenue, compared to $107 million, or 13.7% of revenue in Q1 of last year [33] - Non-GAAP diluted EPS was $2.49, reflecting a 37.6% growth over the same quarter in 2021 [35] - Cash flow from operations for Q1 was a net cash outflow of $51.8 million, compared to a net cash inflow of $13 million in the same quarter of 2021 [36] Business Line Data and Key Metrics Changes - Travel and Consumer grew 90.9%, driven by strong organic growth from retail and travel customers [28] - Financial Services grew 54%, with strong growth from asset management, insurance, and banking [28] - Life Sciences and Healthcare grew 35.9%, while Software and Hi-Tech grew 28.8% [28] - Emerging verticals delivered 59.4% growth, driven by clients in telecommunications, energy, manufacturing, and automotive [28] Market Data and Key Metrics Changes - America represented 59% of Q1 revenues, growing 46% year-over-year [30] - EMEA represented 36% of Q1 revenues, growing 62.7% year-over-year [30] - APAC grew 41.2% year-over-year, representing 3% of revenues [30] Company Strategy and Development Direction - The company is focusing on geographic diversification and has begun scaling operations in India, Latin America, and Central Asia [15][18] - EPAM has committed $100 million in assistance to support employees affected by the war in Ukraine [8] - The company plans to maintain operations in Belarus while expecting lower utilization levels [44] - Future phases of recovery include focusing on revenue growth and profitability, with expectations to return to historical profit levels by the first half of 2023 [21][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of Ukrainian employees and their ability to maintain productivity despite the ongoing conflict [9][77] - The company anticipates ongoing improvement in profitability in the second half of 2022, with a return to positive sequential revenue growth [46] - Management noted that client retention has been better than expected, with new business starting to come in [57][84] Other Important Information - The company has exited operations in Russia and is working to relocate employees to other delivery locations [14][43] - The company expects to reduce the allocation of production staff in the region to about 30% by the end of 2022 [18] Q&A Session Summary Question: Client retention and new work conversion - Management noted that while some clients paused growth, many have returned and expressed appreciation for the productivity of Ukrainian teams [56] Question: Profitability outlook and structural considerations - Management acknowledged lower utilization levels in Q2 but expects improvement in Q3, with ongoing discussions about rate increases with clients [58][61] Question: New talent development centers - Management indicated a focus on India and Latin America for talent development, with ongoing efforts to establish new delivery centers [69] Question: Pricing discussions with clients - Management reported that clients are generally receptive to price increases due to inflation and the value of EPAM's differentiated service [72] Question: Relocation of employees - Management confirmed that relocation efforts are ongoing, with many employees being moved to various countries, including Poland and Turkey [78] Question: New business development - Management stated that new business development has restarted, with positive feedback from clients about EPAM's capabilities [84]