EPAM Systems, Inc. (EPAM) Q3 2015 Earnings Report, Transcript and Summary

Greetings, and welcome to the EPAM Systems Third 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 turn the conference over to Miss Lilya Chernova, Investor Relations. Thank you Miss Chernova, you may now begin.

Thank you. Good morning, everyone. By now, you should have received your copy of the earnings release for the company’s third quarter 2015 results. If you have not, a copy is available in the Investor Relations section on our website at epam.com. The speakers for 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 to share with you our third quarter results. The large portion of the light portion EPAM revenue generated outside of the United States and with corresponding significant currency headwinds all around the globe, it was not an easy quarter for us to navigate. At the same time, during this period we continue to outperform the market by posting significant and consistent growth. While our Q3 revenue of $236 million represent 22% topline and 8.4% sequential growth, our growth in constant currency was 31% year-over-year and 11% sequentially. Overall despite the recent acceleration of currency headwinds which was $32.7 million investment in part on our Q3 revenue just since our last earnings call and we’ll have an estimated $3 million embarked on Q4, we are confident that our 2015 performance will still be inline with our additional guidance. Anthony will provide a more detailed update on our financial performance in the quarter as well as full 2015 guidance. From a strategy perspective, we continue to follow the plans that we laid out in previous quarters, focussing largely on expanding – EPAM have the capabilities in our effort to help clients as they transition into becoming digital businesses. As we incorporate a much more consultative approach into our mix of services, we expect that our top clients will continue to grow significantly always as well as driving engagements further up with a value chain. From a vertical perspective, we are pleased with the growth in our newer focus areas as well as continuing strength from our established business and financial services, business information and media and travel and consumer industries. Our largest vertical banking and financial services grew over 20% in constant currency and we expect our digital business there particularly in wealth management. While we anticipate additional opportunities that will diversify or traditionally in that segment over the next several quarters. Accelerating growth in our travel and consumer and business information and media is also being driven by increase in the digital platform work. We are expecting it to continue especially as the benefits of the new skills we developed organically and via recent acquisitions we’ll be merging with our current capabilities and be realized by our clients. We see significant potential upticks as a result of both existing accounts as well the acceleration of new logo acquisitions. We also continue to see growth from our independent software vendor segment at 20% in constant currency. However, there is a very interesting challenge now in how to draw the line between traditional issue segment and many of our strong technology driven clients with a focus on generating revenue based on the business services and solutions versus selling software licenses or subscriptions directly. We will continue to evaluate how it categorise customer gross, our verticals to address this boring line. One of the most interesting industry stories is a significant growth we have seen within our Life Science and Healthcare business with our guiding growth rate of over 46% year-over-year. The work we are doing in this vertical evaluation key shift towards consumerism where EPAM is building integrated experience in transactional platforms by bringing together critically important expertise we accumulated and working with more traditionally consumer oriented industries and now a strong subject matter knowledge impulse. Today for example, we are involved in truly ground breaking innovation work with companies that sit at the forefront of healthcare. We’ve helped them to translate the latest insights in innovations and genomics and digital information and mutual reality technologies into new business models for delivering healthcare and precision medicine targets to patients unique, genetic and phenotrophic profile. From a horizontal practise view, we continue our integration efforts of the recent acquisitions and we are increasing our investments into our key capabilities and digital strategy and user experience as well as data analytics and service design methodologies. We see a significant increase in customer traction or what we call our end-to-end engagement portfolio. So a continued investment in bringing together a very aggressive working between our traditional software and genetic services and those new imaging capabilities is one of our primary focuses. In this past quarter, we have added 10 significant new accounts for which seven represent this new digital and analytics engagement models as well as started a number of new digital initiatives across our existing clients. And we believe that this strength will accelerate into the next quarters. From a deliberation [ph] standpoint, our investment in key locations and in turn key iteration platform that allow us to work, identity and distant our talent pool are allowing us to do a better job and stack a new hybrid teams of consultants, designers, architects and engineers. In Q3, our global headcount increased to 14,000 employees. We continue to expand our footprint practically across all our main delivery, geographies including North America, Western as well as Central and Eastern Europe and also in Asia and now in Latin America. While competition for technology talent is very strong globally and represent a significant challenge to all players. Our ability to identify and track qualitative as well as quantitative methods will sophisticate an internal platforms give us an advantage in being able to hire retain [ph] and retain the best talent in the novel key global locations. Therefore [ph] results -- those efforts we continue to build on our reputation as a leader in product and platform development sales. With that, I will turn to Anthony to share more details on our performance and guidance.

Thank you, Ark and good morning everyone. I will spend a few minutes taking you through the third quarter results; then I will talk more about our outlook for 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 website. Q3 was another solid quarter of revenue, closing at $236 million, and 22.5% over last year, 8.4% over prior quarter. As Ark mentioned, currency remains a big piece of our story as headwinds have continued compressing our Q3 revenue by about 8%, meaning in constant currency terms we would have grown 30.8% over Q3 2014 and 10.8/% sequentially. North America remains our largest geography representing 52.9% of our Q3 revenues, up 27.7% year-over-year and 31.3% in constant currency. The continued weakening of the Canadian dollar is a primary driver to the almost 4% currency headwind. Europe was up 26.3% year-over-year representing 38.7% of Q3 revenue. In constant currency terms EU would have been up 34.3% year-over-year reflecting the impact of both the euro and sterling volatility over the past year. For APAC, this is the first full quarter of 2015 that is comparable to prior year given the Q2, 2014 acquisition of Jointech. With that we saw 19.7% growth year-over-year and 23.1% in constant currency. We continue to see acceptance of our APAC offering as more non-banking and financial services customers move into that region. CIS continues to struggle and is down 27.7% year-over-year and down to only 4.6% of revenue in Q3. In constant currency terms the region would have seen 15.1% growth, clearly highlighting the dramatic drop in the rouble over the past year. Clearly even the 15% constant currency growth rate is well below our other regions, further reflecting the pressure on the business from a macro economic situation in CIS. In terms of our industry verticals, growth in banking and financial service this quarter remained consistent with Q2 at 10.7% year-over-year growth and 4.6% sequentially. The significant slowdown in the Russian banking industry compounded by the drop in the rouble is still offsetting the healthy growth in key banking and financial services accounts in other regions. In constant currency, banking and financial services grew 20% year-over-year and if you exclude CIS it would have grown 23%. Travel and consumer, turned in another strong quarter growing 36.9% year-over-year and 13.7% sequentially. In constant currency terms we saw 51.6% year-over-year with about 3% of this coming from navigation arts, who brought some strong logos into this vertical whom we acquired. Life sciences in healthcare grew 46.6% year-over-year with Q3 being the first fully comparable quarter since we acquired GDA [ph] in June of 2014. Sequentially, it grew 27.1% and now represents 8.4% of Q3 revenue. Currency has some minor impact here shifting the year-over-year growth rate to 49%. Business information and media has a solid quarter with 34.2% year-over-year growth and 9.9% sequentially. Currency on this vertical is immaterial as most customers are U.S. dollar denominated. The ISV vertical saw a drop in year-over-year growth rate and in the quarter at 15.9% growth and about 3% sequentially. Currency headwinds would add about 4% year-over-year and a key factor impacting this vertical is the work at [Indiscernible] ended in Q2 of 2015 due to the acquisition by Cognizant and excluding this account from all periods year-over-year growth for the balance of the vertical would have been 24.4%. Our other vertical which is our collection of customers from various industries grew 4% year-over-year and is down 3% sequentially. In our customer concentration numbers we are seeing some positive trends, our top 20 accounts which grew 19.2% year-over-year and 22.7% in constant currency now represent 53.9% of our Q3 revenue which is down about 2% from last quarter. Our other clients outside of our top 20% grew 26.8% year-over-year and 40.3% in constant currency. Turning to our expenses. We completed the quarter with over 14,000 IT professionals, an increase of about 22% compared to Q3 of 2014 and 18% increase year-to-date. Currency generated some benefits to the cost of revenue in the quarter when compared to prior year. There was about 6% constant currency benefit versus Q3 2014 and the allocation of our currencies across our expense base remains fairly consistent. Utilization for the quarter was at 75%, slightly down from Q2 due to the heavy July and August vacation season. GAAP income from operations increased 27.2% year-over-year to represent 11.8% of revenue in the quarter. GAAP IFO includes stock-based compensation expense and certain acquisition related costs that we exclude from our non-GAAP measures. Stock-based compensation expense for the third quarter increased 61% over prior year. This is mainly driven by the over 80% increase in our average closing stock price and additionally 38% of the total Q3 charge and 43% of this increase is related to acquisitions. Our non-GAAP income from operations for the quarter after all adjustments increased 30.5% over prior year to $41.5 million, representing 17.6% of revenue. Our effective tax rate for the quarter came in at 20.2%, and for the quarter, we generated $0.70 of non-GAAP EPS $0.02 above our end -- top end of our guidance and $0.44 of GAPP EPS based on approximately 52 million shares diluted outstanding. Our balance sheet remained strong. We finished the quarter with approximately $214 million of cash plus $30 million in time deposit accounts. During the third quarter, operating activities generated approximately $55.5 million of cash. Unbilled revenue were at $105 million in September 30th. Accounts receivable were at $126 million and DSO ended the quarter at approximately 51 days. With that I'll now turn to our guidance. Due to the strong volatility in the currency markets which we believe will continue into 2016, we are adjusting how we provide guidance. So for the full year, we expect to achieve revenue growth of atleast 30% in constant currency and atleast $900 million in GAAP reported revenue. Non-GAAP net income growth for 2015 is expected to be atleast 25% year-over-year with an effective tax rate of approximately 20%. Full year non-GAAP diluted EPS is expected to be at least $2.65 per share based on the weighted average share count of approximately $52 million diluted shares outstanding. GAAP diluted EPS is expected to be at least $1.55 per share. In February, we will provide you full year guidance for 2016 and then provide updates quarterly. With that, I'll now like to turn the call back over to the operator and open up for Q&A. Operator?

Thank you. We will now be conducting a question and answer session. [Operator Instructions] Our first question is from Ashwin Shirvaikar of Citi. Please go ahead.

Thank you. Hi, Ark, hi, Anthony. So, if I understand this correctly, I'm kind of laying out three factors here. One is currency in CIS and Canada. The second is CIS revenue weakness, which have been there for a while. And the third is Trizetto moving out, but that sort of stuff is kind of normal ebb and flow of contracts that can happen. Is that sort of the sum total of all the impact or am I missing something with regards to the miss and I don't miss everyone according to guide down, because the lower end of the range seem to move up a little bit. Is that what the impacts are?

Yes. All of these factors clearly play through all, but I don't think it's exactly a right analysis. I think on FX, definitely – FX definitely plays a major role. As we mentioned it was $2.7 million impact. And clearly, specifically Canadian dollars were the most biggest surprise for us. It's happened practically after our last announcements and we didn't expect at this level, so, Canadian dollars were low increase FX loss versus previous sequential quarter by $1.5 million. So, in general again, $2.7 million came from FX. Another $1.3 million, $1.5 million against what we were expecting is our guidance, came practically from reviewing and then making some decisions about how to proceed these capabilities which we required during the several last quarters. Because as we always mentioned, our acquisitions were mostly focusing on additional capabilities which would utilize the gross different EPAM units, and this quarter we have to make couple of calls where we have to decide about advantages of longer term perspective figures of short term revenue, and how to utilize capabilities which we get for potentially bigger deals from the future versus small short-term available possessions. So, that was actually another $1.3 million, $1.5 million. Trizetto was expected – mostly expected. We thought might be – would be little bit longer, but it was finished, but we didn't count on this much. And as you mentioned shares also more or less with what you understand how it’s what’s happening there?

Okay. So…

So and if you take out for example $2.7 million than this is $1.3 million which is on kind of short-term revenue which we decided to give up, its couple of percent of mix.

Right, right. No. And that kind of gets us to where I think consensus was. As you look at that process of calling contracts and making that long-term versus short-term decision, is that process behind us? I know that as you grow it can come up again, but for now is it behind us and what is the forward looking impact?

I think its still – yes, I understand. So I think its still could be partially drew in Q4.

Okay.

But after this we should start realizing the benefits of what we're doing. And we'll see.

But that's built into our guidance.

Right. That's right.

For Q3.

Right. And when you talk about the benefits, the forward benefit of walking away from shorter term revenues; is that mainly a resourcing type issue where you move resources towards getting longer work is it…

Yes. That's the right word. Yes. This is like, again, we're talking about here resource constraint, but we clearly were optimizing the long-term of opportunities with high quality -- capabilities otherwise it would short-term billable practice.

Okay. And my last question. Does any of this change, your forward view with regards to the nature of investments you're making as you go through that process whether on organic or inorganic basis?

Do you mean longer term projections or what?

Yes. Not necessarily projections, but more investments that you're making as you think through what you – you gone through obviously a process here where you're kind of looking at, yes, that I want to be focus not in these other areas. Does that impact your investment process with regards to how you think of acquisitions, with regards to how you think of inorganic investments?

No. We don't think that it's impacting us. So, again, we said it before our approach to M&As and we were talking about multiple purposes, multiple growth of this including capabilities, specific expertise and probably some additional delivery locations, but its all still in place right now. So, we're not changing this approach and I don't think we – thinking that anything changed in the longer term perspective as well.

Okay, great. Thank you. Thank you.

Thank you. The next question is Jason Kupferberg with Jefferies. Please go ahead.

Thanks, guys. Good morning. So, if current spot rate holds through all of next year what would be the OpEx headwinds on the top line in 2016?

I'm sorry, headwinds on 2016.

If current spot rate stay in effect through all of next year what would be the FX headwind on revenue in 2016?

I mean, we haven't really released our forecast for 2016, so I don't know that I could really compute for you what the headwinds would be. I mean, we'll factor that into our guidance when we give it. So, you're saying as compared to this year I guess is what you're saying?

Yes. Yes, just year-over-year, in other words, if we stay at these types of levels?

Honestly, I haven't done that calculation to really determine that.

But I think might be it would be held for -- held for different, a little different time factor, I mean, answer to a little bit different question. So, for example if estimate how much revenue will loss based on the FX situation from the time when we gave guidance for the year than this number would be 17 million right now.

Okay. That's helpful.

And another number which might help everybody as well, if we compared as a lot in effects versus last year than this number would 51 million.

Okay. Understood. And so, just shifting gears to the competitive environment, can you give us sense these days, how often are you competing versus the multinationals, you know, Accenture, Capgemini etcetera versus the big Indian players versus some of the other regional players in the CIS area, I mean, has that makes changed at all?

This is already pretty diverse competitive landscape for us. We are seeing all of those companies. So, we're seeing all of these companies on our competition list. And it might be a little bit different between different verticals, but it is pretty much everybody from you named.

Okay. And can you give us a sense today of how penetrated the Fortune 1000 by EPAM in other words, what percentage of the Fortune 1000 roughly, if U.S. met our clients of EPAM today?

I don't have. This one is not on the top my head, so probably we can't give this answer to you separately. So…

Okay. All right. Thank you, guys.

Thank you. The question is from Darrin Peller of Barclays. Please go ahead.

Hey, thanks guys. Look, I just to start off, I know it’s a little early, but with regard to outlook in terms of what you're seeing from your clients right now, any indications into 2016 in terms of trends and budgets and really how clients are feeling right now, may that would helpful, especially just given the some of settlement we're seeing out of some of your areas in Russia and another areas around there. It would be helpful to get a better sense of how everyone else is feeling for now?

I probably can repeat what I repeating during the quarters, quarter after quarter. So I think from our perspective, from our side we're seeing pretty healthy demand in North America and Western Europe. So, clearly, Russia or CIS is a different story. So from this perspective we'll see in the next year in similar terms like previous years. So that's our long term answer was like we're looking forward to grow at least 20%.

Okay. What about with some of your top clients. I mean, I guess, it's been pretty big driver for you seeing is specifically UBS. I'm carrying a fair amount of growth for you guys over the past years. I mean, I think it was about 22% or low 20s% this quarter as what we calculate, little bit of deceleration although, it's obviously offered very high growth rate before and maybe FX impact you that as well. Maybe just give us little more color on the top few clients when we get it there?

As far as UBS growth, the one thing I do want to point out, remember that we acquired Jointech in Q2 of last year. So that brought us a significant uptake in UBS revenue since they were primarily servicing on the UBS. So the growth rate in UBS has to be adjusted for the fact that this is in the first fully comparable quarter for 2015. So it was a 20 – you're right, its about 21% growth rate for UBS this quarter. Constant currency would be about 25% for UBS. I think it's – the growth there remains solid and strong. The growth rate is obviously down from where it was in Q1, Q2 because of the Jointech acquisition but its growing pretty much inline with where we expected to be and in line with the rest of the company.

Okay. Anything for the other Top 5 guys that you can just comment on any risk or opportunities that we should be aware of given how there are some pretty large clients out there?

Well, UBS we spoke about, you mean, from the top 10 or 20 or…

Yes. You can go as far as Top 10 perhaps. I mean, I was really thinking just given there some concentration of the Top 5 or so, but yes, I mean, Top 10 is great?

So, I can tell you that Top 5 in general grew about 20%. And I think that's like Top 10 grow in 25%. So this is all in line with general growth.

And going through the list and there's nothing – there is no specific big stories in any of them, the stories there, pretty consistent with what we've always talked about, it just continue to gain traction and penetrate deeper into those clients.

Okay. Just last question for you guys.

There is special story.

I appreciate that. Just last question from me.

And just to also call it like last year Trizetto was one of the Top 10 clients for us.

All right. That's a fair point. Thanks. Just last question again on the margin side, again, you've maintain margins in a certain band and you've done a pretty job with that and reinvesting in the business. Just give us a little comfort level on cushion you have to continue to reinvest and what's need it given, just how competitive digital has become across your -- pretty much top few names out there, really a pull ahead of the pack around digital and you guys have done a probably standout job given how percentage your mix is digital. But again it's always a challenge to know what you invested in and the margin is a story for you guys even able to maintain. So, is there – is that – are you still comfortable with that capability going forward whether it’s a next quarter or even year given just how competitive digital is becoming?

Yes. We are comfortable and we clearly going to continue to compete in this place very seriously. And we do believe that we have very interesting distinguish against most our players in this space, because we're really trying to invest in integration between digital part of this and really strong [Indiscernible] and we do think that is becoming pretty obviously competitive advantage for us and differentiator. So, from this point of view we're not trying to replicate some other companies each to go into this kind of overlap of digital agencies all around the globe. We're trying to bring this capability and actually really deeply integrate with our delivery skills.

Okay. Thanks, guys.

Thank you. The next question is from Mayank Tandon of Needham & Company. Please go ahead.

Hi. This is Elizabeth Chwalk for Mayank. Thank you for taking my questions. Are there been any changes in hiring or hiring plans in your key delivery locations?

As I mentioned today we do hiring people across all locations, mostly during the last 18 months we expanded in central Eastern Europe like we open as you know Bulgaria, we're growing in Poland. We open center in Czech Republic, so we mentioned that we building operating in Mexican [Indiscernible] already brought their existing clients. So we're looking at this as very much kind of global perspective how to serve clients from different locations and potentially 24x7.

Okay. Thank you. And can you give us any color on how attrition is trending and how wage inflation or deflation what that looks like given the recent currency issues?

Attrition remains pretty low for us. For the quarter we saw about 8.2% of voluntary production attrition, so it's much lower than our historical average which usually in the low teens. Again as we've talked about in past quarters this kind of driven by the situation in the CIS region allowing us to keep attrition down, so we don't know if that’s going to be a long term permanent effect or not at this stage but we're taking it for this year. As far as wage inflation goes, we would do a small mid-year promotion cycle. So, we saw about 2.5%, 2.6% of wage inflation coming from that mid year cycle, otherwise for the year it remains very low close to zero because of the benefits of FX.

Okay. Thank you.

Thank you. The next question is from Peter Christiansen of UBS. Please go ahead.

Good morning. Thanks for taking my questions. Ark, I look back, I think about like two years ago, you had Thomson Reuters rolling off and that time the company was intentionally lowering utilization, investing in the pipeline of work that you saw coming in. Now today, if Trizetto rolling off, you talked about some new accounts coming into the pipeline with important key digital initiatives and utilizations now in the mid 70s. Can we draw parallels between these two periods? Am I thinking about this correctly that you are kind of saving your power there for longer term potential here?

Thomson Reuters was the largest client versus Trizetto was one of the Top 10, I don't see this is direct here. Also we're talking about Trizetto because it’s a very kind of probably within formation when Cognizant acquired them, but during the history, during the three years we have similar situation like we were standard because of acquisitions, because of some other different reasons one client from top to any each year Thomson [Indiscernible]. So, I wouldn't put strong parallels. At the same time, yes, Trizetto was big enough clients and we clearly had our opportunities to the purpose, the talent in different directions. So, no, I don't its direct parallels [ph] business. By the way at the same time I would mention that from three years ago Thomson Reuters now become again Top 5 clients.

Okay. Thank you.

And probably this is in three years ago.

Okay. And then, I think we've heard a little bit during the quarter about potentially some areas that you're looking to in Blockchain, is this is a key capability that you're looking to build upon and do you see this a big opportunity for the company?

I don't think we were talking about Blockchain on our calls, but in general yes, it could be interesting opportunities including we're looking at into this, which is relatively only one, but as we all know very important financial markets right now.

Great. And then, Anthony, can you give us a breakdown of the difference between GAAP and non-GAAP for the full year, I guess, giving that full year?

Sure.

Or for the quarter would have bit easier?

I can do either or both.

For the quarters it would be great.

Yes, stock comp obviously the biggest component for the quarter. It was just under $12 million for the full year. It will about $45 million. M&A activity will be about $500,000 for the year, for the quarters about $427, amortization and purchase intangibles was $1.3 million for the quarter, it would be about $5 million for the year. And FX right was about 150 negative for the quarter. It will be about $6 million positive for the year and I think that's it. That should get you everything.

Great. And then the stock based comp that was tied to M&A, is that size of that, is that recurring, do you believe that level or was that more one time in nature?

No. its not one time, it will continue through probably a little bit into next year about half way as we start fall off, so next year we'll start to see some fall up in lets say 2012 acquisition, some of the amortization than it will kind of fall off from there as acquisition age.

Right. Thanks for taking my question.

Thank you. The next question is from Arvind Ramnani of Gordon Haskett. Please go ahead.

Hi, Ark, hi Anthony. I think that we as far as to talk about some of your large like $20 million accounts clearly a search in all of these accounts, but what are some of the inflexion points at a client that will help the account grow from like $4, $5 million account to $20 million. And what are you doing from a process perspective to enable more of the accounts to get this $20 million plus mark?

Okay. We don't have kind of these accounts at $20 million mark here. I think its still pretty individual improvisation happening. Yes. We have probably around six, seven accounts right now. So, and I think that what we exactly trying to do and that's what we were doing during these last three years, bringing this most strategic capabilities to the clients being able to start more consultative engagements, people who can handle these type of conversations and advice. And we're usually building very strong reputation as a delivery partner. After each client coming to us and starting to – who are coming to us and started to ask about more strategic capabilities and kind of advice and bring installment together and that's why we were really lack in talent like three, four years ago. And again, that's what we were doing and that's what we trying to do. And I think increasing large clients is actually showing that it works and that we continue to do -- planning to continue to do.

Great. Helpful. And just very quick on Russia, as expected that the business continues to get kind of smaller, so what's the thinking, what kind of keeping the Russia business still ongoing, is that some point probably it’s a little too expensive to kind of maintain that business or is that thinking of keeping the Russia business still ongoing so that's an environment gets smoke and conducive to growth, you're dare to take advantage of the opportunity. This time we get a clear sense of your Russia starting longer term?

Basically if I rephrase, are you asking why we still stay in the market and why we not exiting market completely?

Yes.

I think it would be for us a little bit premature to do something like this. Russia and Former Soviet Union countries, its quarter million population which again, yes, we know that it's went down, but there are still major businesses there. There is still going on international business which consider in the region as a market and they need to be serve there. And for us is our routes would be kind of a little bit silly probably exiting the market where we can comfortably accurate and still going to accurate because we have 2000 delivery capacity in the market. So we're going to stay there no matter what from delivery perspective. So we just need to be more careful what we're doing, how we're doing this – what type of clients to serve and that's already happening during the last three years, because even before ruble crash you probably saw that the proportionally shares market was going down.

Yes. That's very helpful. Thank you very much and good luck for the rest of the year.

Thank you.

Thank you. The next question is from Alex Veytsman of Monness, Crespi, Hardt. Please go ahead.

Yes. Good morning, guys. Quick question for you on North America, it seems that sequential revenue grew roughly $15 million which is arguably one of the largest deltas we've seen in a region for the last several quarters. Could you be more specific about what drove that in terms of accounts and also your verticals?

You said sequential you saw a growth that was progressing.

From Q2 to Q3, right, from Q2 to Q3.

Right. So it’s up about -- on reported terms North America is up about 14 million due to – I don't know that we address any specific accounts within that. North America just continues to be a very strong, our strongest sector. Growth is coming really from across the spectrum of different verticals, so they are really growing. I don't know if there's any specific story different than I kind of spoke to at the top level. Obviously, travel and consumer was very big for us this quarter globally, that's still also true within North America. And we saw a growth across many of our other verticals. So, there's no specific story that I have that addresses that.

And as far as going forward…

It's really profitable perspective.

And as far as going forward for the fourth quarter, should we expect you know you dealt it to be fairly similar or do you expect it to be more in line with Q3, because it was I mean….

Yes, Alex it was actually coupled kind of fixed cost deliverables which we did we did in North America which probably was a little bit extra. So I think life science contributed well in this segment. So probably next quarters maybe not for North America as strong as this one but in general its going to consistently grow like it did in the past.

[Indiscernible] that’s helpful. And then for life sciences, I mean like as you mention yes, it was quite significant growth obviously Silicon of a growth with smaller segments so it grows fairly fast, what are your expectations for the next several quarters. Are you expecting it to kind of harbour around the same levels that you -- or do you expect to expand?

So probably in the future it would be getting more in line with average across the company. So and right now it’s too early to say. So I think it still will be growing in Q4 pretty too well and let’s see.

Sounds good. Thank you.

Thank you. The next question is from Ashwin Shirvaikar of Citi. Please go ahead.

Hi, I just wanted to follow back up on one question. You know when you move to using atleast --it’s a good move but clearly positive and negatives to providing only a lower bound instead of a range. So I just want to understand for 4Q what you guys assumptions are with regards to budget flush, with regards to FX, demand trend it seems like FX would stay consistent and the demand trend generally speaking is good except for the calling you mentioned so that sort of leaves primary the budget flush. What are your assumptions generally for 4Q?

I think everybody has too memory, because this spike in Q4 was happening like more like in 2013 I think. So it was smaller last year and we don’t expect much this year. So it would probably would be kind of regular quarterly increase as anybody else. Because like in 2016 it was probably imparted by actually CIS market where it had more fixed cost deals closing in Q4. So last year it was already different and this year we don’t expect it.

Okay, that…

And then to your question on -- and the answer to your question on FX expectations, built into the forecast is really looking at some of the forward rates for the quarter and you know taking that approach for what we build in from FX expectations. So it will be dependent upon how good the forward forecasts are.

Super. That’s good to know, great. Thank you guys.

Thank you. And the next question is from Anil Doradla of William Blair. Please go ahead.

Hi, this is Maggie Nolan in for Anil Doradla. I had a question on I know you spoke some about your tap [ph] talents but I’m wondering if the focus in the long term is going to be more on growing kind of this existing tap [ph] talents and finding new opportunities within those accounts or if you are looking more towards really growing the client base overall. Hoping you can shed a little bit more color on that?

Yes, probably my answer would be very simple that we are trying to do both, but we have really and we do believe that we have a very strong opportunity in our existing base and we will be continuing growing this and finding new lines of revenue there especially taking into account that we are spending our capabilities and can venture [ph] new things. So I think existing accounts is a big potential for us, we have pretty large number of -- I don’t know exactly what percent of Fortune 500 of 1000 but we have a significant number of large clients which could grow in double and [Indiscernible] with us. But we also when -- a very strong potential right now on the new logo.

Great. That helps thanks. Because we have heard some of your peers mention you know trying to kind of zone [ph] in on some of those existing accounts a little bit more, so I’m wondering is there a tab for the number of new opportunities that you want to bring on or do you just intend to continue to grow headcounts just for that growth?

What we do believe that we need to have pretty [Indiscernible] client base and not to have to concentrate it. So I think what we have today and with our potential growth of around 20% plus we will try to maintain similar client concentration.

Okay, great. Thanks for taking my question.

Thank you. At this time I would like to turn the conference back over to Mr. Dobkin for any closing comments.

Again thank you everyone to join in today and I hope we have addressed concerns which we understand were valid and I hope, we hope to see you in three months again. Thank you. Bye.

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation.