Greetings, and welcome to the EPAM Systems Second Quarter 2015 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Lilya Chernova, IR. Thank you, you may begin.

Thank you. Good morning, everyone. By now, you should have received your copy of the earnings release for the company’s second quarter 2015 results. If you have not, a copy is available in the Investor Relations section on our website at epam.com. The speakers on today’s call are Arkadiy Dobkin, CEO and President; and Anthony Conte, Chief Financial Officer. Before we begin, I would like to remind you that some of the comments made on today’s call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties as described in the company’s earnings release and other filings with the SEC. Arkadiy?

Thank you, Lilya. Good morning, everyone and thanks for joining us. Today, we’re reporting another strong quarter with 25% revenue growth over last year and 33% growth in constant currency tax. Our Q2 revenue is $280 million above both consensus and guidance and represents sequential growth of 9% against Q1. Anthony will provide more detail update on our financial performance in second quarter as well as explain the changes in our Q3 in 2015 guidance. Before that I am going to first on business highlights and our operations in priorities. As you know, we are well into 2015 plan at this point. We also know what in our previous conversions that our strategies and plans were are set out some time ago in an attempt to realizing opportunities open up for service providers due to the strong digital disruption in the traditional marketplaces. Today there is a significant number of corporate wide information programs that many large and smaller companies are undertaking as a first priority. We also convenience now that these disruptions presented a very specific opportunity for EPAM through advance in the market so called product development services space. We talk previously in some level of debts about it. So during the last quarter, we continue to move forward in line with our plans. Also, if you remember at the begin of the year, we mentioned that we wanted to bring our new brand to life and present more consistent messaging around our growth service working in our target industries. As planned in the beginning of June, we launched our new website and now we consider the current state of it still work in progress and I think it always will be taken in account how fast all change in technology. We believe it's now better communicates our…

Thank you, Ark and good morning everyone. I will spend a few minutes taking you through the second quarter results; then I will talk more about our outlook for Q3 and the full year. As usual you can find the full details of our results in our press release and on the quarterly fact sheet located in the Investors section of our Web site. Q2 was another solid quarter of revenue, closing at 217. 8 million, and 24.7% over last year, 8.9% over prior quarter, and beating both consensus and guidance. Currency headwinds remained compressing our Q2 revenue by about 8%, meaning in constant currency terms we would have grown 32.5% over Q2 2014. Sequentially, we are up 8.9% from Q1 and 6.7% in constant currency terms; meaning, compared to Q1 we saw some currency tailwinds on our revenue. The key currency mix of our revenue in Q2 has remained relatively consistent with what I shared in Q1. North America remains our largest segment representing 50.7% of our Q2 revenues, up 27.6% year-over-year and 30.4% in constant currency, the difference being mainly movements from the Canadian dollar. Europe was up 27.5% year-over-year representing 40.1% in Q2 revenue. In constant currency terms EU would have been up 37.4% year-over-year. APac continues to grow and diversify away from just banking and financial services, now representing 2.8% of revenue and growing 14.9% sequentially. CIS continues to struggle and is down 20.9% year-over-year representing only 5.4% of revenue in Q2. The dynamic of this drop in both currency and volume related. But in constant currency terms, CIS would have been up 8.5% year-over-year. In terms of our industry verticals we have seen some tempering of the growth in the banking and financial service industry this quarter, at about 10.7% growth rate, due to significant…

[Operator Instructions] Our first question is from Anil Doradla from William Blair. Mr. Doradla? We will move on to our new questioner. Our next question is from Jason Kupferberg from Jefferies.

It's great that you guys raised the overall reported guidance just wanted to get a sense of that in second quarter it seems like the FX headwinds were slightly lower than what you guys were expecting around 70 basis points lower, and for the full year you guys have previously talked a 6% year-over-year FX headwind. I’m trying to get a sense of has that expectation change as well, I mean ultimately I’m trying to get your constant currency revenue growth guidance for the full year?

Yes, hi, the expectation for the full year has not changed. We saw some pull back in currency in Q2, but if you look at what happened really over the past month, it looks like the Ruble is starting to fall again. We’re seeing some weakness in Hungarian Forint, and the Pound in Europe as well. So I would say our expectations remained consistent with what we have given kind of 5% to 6% full year. The Q2 coming in slightly below our initial expectation, looks like it is reversing in Q3 at this point.

And then for the guidance raise, if you could breakdown, I mean how much of it is from the second quarter upside versus the expected contribution from navigation arch. And while you are speaking about it, if you could give us a little bit of sense of how much inorganic contribution is supposed to be in your 2015 revenues.

When you say inorganic, you're specifically talking at navigation arch or are you talking about comparatives to prior year?

First to start-off in this year, your guidance raise, how much is it from the second quarter revenue upside, and from the expected contribution from navigation archs in your full year revenue?

It’s very hard to separate the two. With navigation archs, we've actually already begun a full integration and we have some plans where we are actually going to market as one company already, so the guidance actually includes a pretty well integrated go-to-market approach. So I can’t clearly separate the two, from what’s organic and what’s coming from navigation arch, just the way we did this acquisition. Roughly speaking I would say that if you look at the first half of the year and the over performance from the first half for the year combined with our expectations for the second half and including navigation arch you can roughly say 50-50 is organic and inorganic, but again that line is fairly blurred based on how we’re moving forward with integration and navigation archs and what we are seeing as probably traction with their existing accounts and the growth expectations we have.

All right perfect and just one last one from me, for margins I mean you guys are showing year-over-year, adjusted operating margin improvement and this quarter it was up 40 basis points year-over-year. How much of that is related to FX and as you are talking about the full year, are you guys still expecting to be in that 16% to 18% range?

Yes, we are expecting to be in that range. And the impact on margins from FX is actually relatively small. We tend to be relatively in actual hedge. We see some real headwinds on revenue -- believe no other benefits on the expense side, so it's really negligible benefit at the operation margin level from currency.

Our next question is from Anil Doradla from William Blair.

Just a small clarification, skipped a little bit of your prepared remarks, but on the infrastructure service, I know it's a very small portion of your business, but what's going on there? I mean from a sequential and year-over-year, growth not very strong.

Nothing's really special. I would say that it is really not a significant piece of our business. It's not something that we actively go after or actively market. A lot of our infrastructure services is related to other services in the software development space that we are providing. So it's not something we are really focused on. It's relatively small piece of the overall revenue Pi. So it moves randomly within the 8% to 9% in that range there.

Right, and Arkadiy as a follow up, can you talk a little bit about talent, your ability to source talent and ability to get the right personnel, clearly you are moving in the right direction, you are hiring a lot of people. Can you at least qualitatively talk how the talent pool is? Many of your competitors are opening shops in some of the geographies that you are present in. So would love to hear what is going on at that front.

Yeah. It would be good if you confirm who is opening so. I think we mostly in line is our regular core maintenance hearings so it's, I am repeating probably this each call that in general there is definitely shortage of talent and I mentioned today what we are doing in this area and how we are trying to not just hire from market, but grow people internally, but at the same time working with university. I wouldn’t say anything new happening this quarter and I wouldn’t say that there is some specific issue which we may consist doesn’t work like several quarters ago. It is one of the challenges and this challenge we kind of inflation for the -- probably for the decades and probably it will deflate some more so, don't see any changes.

Our next question is from Steven Milunovich from UBS.

Good morning this is Peter in for Steve. Thanks for taking my question. Anthony could you give us a sense of what attrition was in the quarter?

Attrition came in at about 7.5% for the quarter, voluntary, yes.

Voluntary, so that marks two quarters your 8% or below, is that changing your plans for headcount growth for the year at all?

We’re adjusting based on that and continue to watch attrition levels. As we said in Q1, we’re still benefiting from some of the macroeconomic issues that are going on in CIS region and that's helping keep attrition low. So we keep watching that. We do expect it to start to go back up to normal levels at some point, but we modulate our headcount in recruiting based on what we’re seeing for attrition trends.

Okay. Any sense of what type of headcount growth you are looking for to exit the year end.

I’m sorry, can you repeat that question?

What the expected headcount growth that you are expected to exit this year at?

It looks like we’re on target to roughly in the high-teens to 20%.

And then if I look at SG&A, its up about 300 bips as a percentage of revenue year-over-year, same as last quarter, should we consider this roughly the new baseline. And if currencies were to reverse and go against you, how flexible are you in controlling that spending?

We can definitely control the spending, a part of the uptick that you are seeing is related to -- we’ve opened a number of new locations which brings new facilities, some new overheads, but not upfront investments to get those facilities up and running. So a lot of that, front runs, when those locations can become billable. So that's causing a spike in my SG&A. As far as currency goes, SG&A, a lot of that tends to be in US dollars. So we don't get a ton of benefit through the SG&A line from currency, most of that seems to impact our cost of revenue. And so that causes a little bit of the swing that you see in percentage of revenue. So we get benefit from cost of revenue which helps gross margin go up, but SG&A doesn’t get as much of a savings from currency.

That make sense. And then if I look at revenue per engineer adjusting for currency, it looks to be up nicely about 6%, 7% year-over-year. Can you attribute that to more of a changing dynamic of the mix of work that you’re doing or our pricing uplift contributing to that as well?

Honestly, we don’t spend a lot of time looking at that particular metric revenue by headcount. It’s not something that we analyze, so I can’t answer that specifically. As the reason for the uptick, I think that we are seeing increases from a pricing perspective still. Unfortunately currency headwinds are taking a lot of the price increases away because we have a lot of ruble, pound, euro and euro based revenue. So we’re seeing some headwinds taking away some of that pricing benefit. And we are seeing ourselves continue to sell the higher value services and we’re moving more and more towards higher product development services and I don’t know, Ark, if you want to talk more about that mix of our services.

We’re not sharing specific data here, but clearly again back to what you said a little earlier today, we see it as a digital consultative approach in this area, actually create very different entry point for us and very interesting opportunities in the market across all these verticals were we work. So I know, again we said tolerative couple of examples, but there are many more and this example is not a kind of singled out case. It's actually differently a representation of some type of trends.

Is this changing some of these uplifts that you’re seeing from this consultative approach? How would you compare that versus some of the earlier success you’ve had with MT labs and leveraging some of the front end capabilities of that acquisition?

Its extension and clearly we will get as more experience how it works. And as also we mentioned that one of the key challenges is kind of how to make this type of capabilities working in good harmony and how to work from the beginning together when we start to consult and design. There is a very good understanding in how we’re going to deliver. And like all the successes are actually opposite when we started to work together, people from 0:32:59.1 [indiscernible]. Now it’s coming on a very different level and very different size of programs as well. So again that's an experience which we have already for two plus years and then we added, as we also mentioned service design capabilities, use great 0:33:16.9 [indiscernible] acquisition and now we call that we would be able to do it much smoothly with the new additional skill set.

Our next question is from Alexie Gogulus [ph] from JP Morgan. We’ll switch to Vladimir Bespalo from VTB Capital. Please proceed with your question.

I have a question for both your verticals, so if you look at the growth rates they acquired diversion for example on banking and financial services. So we see a slowdown in some other verticals like travel and consumer and life sciences and healthcare; we see very good growth. So what is behind these, so this is the first question; and how to see these verticals going forward? , How big trends are going to develop, in particular in your guidance for the full year for example?

Well, on the banking and financial, I kind of addressed this in my script. The main issue in banking and financial is that the Russian Ruble dropped and the macroeconomic concerns in Russia have really impacted our banking and financial services clients there causing a significant pull back when we look at it as a percentage of our overall revenue, it actually dropped so much its offsetting all the positives that we’re seeing in Europe and North America and the traction we’re having there. As far as travel and consumer goes, again as I kind of referencing to my script, we are seeing, very broad based growth especially in Europe, and we are gaining significant traction in the travel consumer space and we saw some real heavy growth across the board in Europe and even in North America from the travel consumer sector.

But in general we expect as we also mentioned before, we expect growth and similar growth across all our verticals and there is clearly volatility, quarter-by-quarter depending on when new client start or some spikes in delivery or special -- kind of very special deliverables for specific programs. And again results size, sometimes it actually great this kind of difference in growth, in particular quarter. But there is nothing special to change it.

Our next question is from James Friedman from Susquehanna.

Anthony, I want to ask you about the pricing environment. I know that you had mentioned that some of the price actions may have gotten compromised by foreign exchange. On a constant currency basis through how would you characterize the direction in pricing?

Direction in pricing for the constant currency is roughly in range with what we have discussed. We are still seeing 6% to 8% annual price increases. So we are still seeing a pretty healthy relatively speaking pricing environment for our services. So very consistent with what we have discussed in the past.

Okay. And then with regards to the top 10 customers, I know you called it out, as seen here in fact sheet here, looks like you jump a bit year-over-year, was down sequentially. I guess my question is how far behind the top 10 is that revenue rushing in? So was this balanced across the remainder of the customer base or are there others that are up and coming that may enter the top desk style here?

Yes, it's definitely across the board. And I think I have shared one of metrics that talked about, I looked at it slightly at top 20 and below the top 20. But if you look at all of our customers below the top 20, they are growing at over 27%. So, pretty healthy growth coming from the broad customer base. So we are seeing a lot of growth across the board, a lot of new customers coming into the pipeline and significant growth outside of the top 10 and top 20.

Our next question is from Alex Veytsman from Monness, Crespi.

Just want to talk to you about Europe. It looks like sequentially you had roughly 7 million to 8 million upside from the first quarter to the second quarter in the European market. What's specifically driving that upside, where are you seeing the strongest trends right now?

In Europe end markets specifically Alex, is that the question?

Yes, specifically in Europe. Yes.

Well, as I mentioned the travel consumer was actually one of our strongest sectors in the European market for this quarter. Additionally banking and financial continues to be a very big market for us in Europe as well. Obviously UBS is based out of Europe and continues to grow strongly for us. We have a number of new banking customers, and we have a number of new travel customers and the consumer space. So those three areas tend to be the strongest growth for us in Q2 in European market.

And then it looks like that CIS as a percentage of total revenues is stabilizing, actually increased for the first time in last several quarters. It's roughly 5% of total revenues, is that what you expect as a run rate for the rest of the year and maybe continue as well?

Yes, that’s approximately we’re expecting it to settle in at. The Q1 is typically very slow quarter for CIS. There is just you have half of January with the holidays and just a low billing month in February. So Q1 always slow in CIS. So Q2 is more of a normalized trend that I would expect to settle in around there, subject to impact coming from the ruble as you probably seen starting its fall again in July.

Our next question is from Steve Malonivich from UBS.

Last one for me Anthony. Can you just give us the bridge between GAAP and non-GAAP for the full year and the quarter?

So the bridge thing, go through the specific items or amounts, or what specifically do you mean?

Sure, there will be great, if you could just go through expectations for stock comp.

I’m sorry, the forecast demand?

Yes, please.

So the stock comp should remain relatively consistent for the balance of the year, looking at probably 11.4 million to 11.5 million per quarter for the second half. And then amortization of intangibles should be around 1.5 million per quarter. And FX; I’m putting FX in a roughly about million a quarter in loss and we’ll see where that settles out. I mean FX is always our big kind of capture because nobody knows where exactly it's going to go exactly.

[Operator Instructions] Our next question is from Ivan Belyaev from SberBank.

Good afternoon, this is actually Joya Gurcheva [ph] from SberBank. Just curious on your guidance that you have up by about 14 million to 15 million. How much that is coming from navigation arch?.

Sure I'd kind of address this one earlier. With navigation arch it's very difficult to separate it out, because we have already actually began integration of nav arch and our go-to-market approach is much more integrated than really any other acquisition we’ve done in the past. So there is no clear separation. Roughly speaking we said about 50-50 is the split of organic in that arch, but again that line is heavily blurred as we’ve already done a lot of integration and we’re really moving forward as one company especially with a lot of their existing clients.

Is it possible then maybe to comment on just the revenue base of the company approach to your acquisition and maybe to talk about the cost?

No, I am sorry, we don't really share that information.

Ladies and gentlemen we’ve reached the end of our question and answer session. I’d like to turn the floor back to Arkadiy Dobkin for closing remarks.

Thank you everybody again for participation today. So it was a good quarter for us and again no any specific news; we just probably good as well, too good. So we’ll be talking to you in three months and therefore good day today. Thank you.

Thank you. This does conclude today’s conference call. You may disconnect your lines at this time and have a wonderful day.