EPAM(EPAM) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2, the company generated revenue of $1.17 billion, reflecting a year-over-year decrease of 2.1% on a reported basis and a decrease of 2.4% in constant currency terms [25] - The reduction in revenue was impacted by client spending cuts and a 100-basis-point negative impact from exiting the Russian market [26] - GAAP income from operations was $144 million or 12.3% of revenue, compared to $93 million or 7.8% in Q2 of the previous year [75] - Non-GAAP diluted EPS was $2.64, reflecting a $0.26 increase compared to the same quarter in 2022 [76] Business Line Data and Key Metrics Changes - Travel and consumer revenue declined by 1%, primarily due to retail declines, while financial services grew by 3.2% driven by asset management and insurance services [27] - Life Sciences and Healthcare revenue decreased by 10.9%, impacted by the ramp-down of a large transformational program, but showed a positive sequential growth of 2.9% [70] - Software and Hi-tech contracted by 10.3%, reflecting a reduction in revenue from a former top customer and slower growth across various clients [61] Market Data and Key Metrics Changes - The Americas represented 58% of Q2 revenues, declining by 5.9% year-over-year, while EMEA grew by 8.5% year-over-year [98][99] - APAC revenues declined by 19.7% year-over-year, primarily due to ramp-downs in financial services [100] - CEE revenues contracted by 61.1% year-over-year, significantly impacted by the exit from the Russian market [72] Company Strategy and Development Direction - The company is focusing on diversifying its global delivery platform and optimizing talent allocation across regions [43] - There is a strong emphasis on AI-led transformation and modernization efforts, with expectations that these will drive future demand [38][39] - The company aims to maintain its relevance and competitiveness in a low-demand environment by enhancing partnerships with major cloud providers [16][18] Management's Comments on Operating Environment and Future Outlook - Management noted that the demand environment is becoming more normalized, with some signs of recovery expected in the upcoming quarters [16] - The company anticipates a continued negative dynamic in the second half of 2023, but at a lower level than the first half [34] - There is cautious optimism regarding client spending, with expectations for gradual stabilization and potential growth in the future [150][151] Other Important Information - The company completed the sale of its Russian business, which will impact Q3 results with an estimated loss of $18.4 million [81] - The company expects GAAP diluted EPS for the full year to be in the range of $7 to $7.20, and non-GAAP diluted EPS to be in the range of $9.90 to $10.10 [83] Q&A Session Summary Question: What is the visibility among top clients regarding stability? - Management indicated that there are signs of stability among top clients, with some returning to discussions about growth [117] Question: How is the demand environment evolving across different verticals? - Management noted that while there is still softness, there are signs of increased activity with new logos and existing clients [151] Question: What are the expectations for operating margins in the second half of the year? - Management expects margins to remain stable, with a focus on managing expenses and optimizing headcount [120][121]