Greetings, and welcome to the EPAM Systems Fourth Quarter and Full Year 2015 Earnings 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 Ms. Lilya Chernova, Investor Relations. Thank you Ms. 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 fourth quarter and full year 2015 results. If you have not, a copy is available in the Investor 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. Thanks for joining us today. First, I hope our results addressed some immediate concerns about the profitability of EPAM aiding to the recent stream of an unexpected news. I am pleased to confirm that we have been able to navigate through our multiple challenges of 2015, including growing the level of SMEs during the last quarter in regards to weaknesses of financial services sector and continuous negative FX impact on reported results in particular. So let me highlight now the most important facts for 2015. Q4 revenue increased by 29% year over year to $260 million and in constant currency it represents 34.3% growth. More importantly, our organic growth representing 24% increased over last year, which translated into 29% constant currency growth. It was also exciting for us to cross $250 million in Q4 that brings us to a run rate price of symbolic $1 billion annualized revenue mark to play [ph] this year. One more data point to mention, that last quarter was our 25th consecutive quarter of over 20% organic year-over-year growth and 16th since our IPO four years ago. I think it’s a good reference point for EPAM including into Fortune 100 fastest growing public companies in 2015 where we were recognized as the fastest growing firm in IT services segment. In Israel, we are closing the year with $914 million in annual revenue which is 25.2% growth in USD and 33% in constant currency over our 2014 results. And while it’s obviously disappointing to lose 55 million due to FX headwinds we’re going to report our strong organic growth which represented 23% for the full year in USD and 31% in constant currency. So at this point and before turning to Anthony to provide much more detailed financials on our…

Thank you, Ark and good morning everyone. I will spend a few minutes taking you through the fourth quarter and full year 2015 results. Then I will talk more about our outlook for 2016. Let me start by saying that we are pleased with our overall results for the fourth quarter and full year 2015. Our business is well positioned for growth but with the current instability in the marketplace there still remains some uncertainty. But as Ark mentioned, we have sustained over 20% organic growth for every quarter since IPO, continue to improve that the fundamentals at EPAM are strong. Q4 was another solid quarter of revenue, closing at $260 million, 28.7% over last year and 10.3% over prior quarter. This includes the impact of Alliance Global and NavigationArts which contributed slightly over $10 million resulting in organic revenue of $215 million and organic growth of 24% year over year and 7.6% sequentially. Currency continues to be our big piece of our story as headwinds have continued, compressing our organic Q4 revenue by about 6%, meaning in constant currency terms, we would have grown 29% over Q4 2014 and 6% sequentially. For the full year of 2015 we closed at $914 million of reported revenue, 25% over last year after 8% currency headwinds, meaning, constant currency growth was 33%. Organically we ended just over $900 million or 23% growth but in constant currency would have been 31%. North America, our largest geography, represents 53% of our full year revenues and is up 40% from Q4 and 32% year-over-year, with constant currency growth of 43% and 35% respectively. Europe was up 24% year-over-year and 23% in Q4, representing 39% of full year revenue. In constant currency terms, EU would've been up 32% year-over-year and 28% in Q4, reflecting the impact…

[Operator Instructions] Our first question is from David Grossman with Stifel.

Anthony, I am wondering if you could just touch a little bit on the cash flows. It looks like they were down in the quarter and down year over year. I am wondering, is that a function of perhaps the acquisitions or maybe just timing on the quarter?

Sure. Hi, David, it is primarily a timing issue. We are seeing just some extended terms from a lot of our clients, people are pushing for longer 60 to 90-day payment terms, so you see little bit of a bump up in my overall DSO. It pushed some of our end of year receivables into January. We actually collected about $35 million in January alone. As far as cash flows outside of AR, if you noticed our tax payments – if you look at our cash flow, tax payments are going up. My cash tax rate as we have more people sitting in US, UK, I am seeing higher cash tax going out the door, so that also impacted my cash flow when you look at it year-over-year. ADS does impact my cash flow but that's not within the operating cash flows, that’s not really down within the investing section.

So can you give us a few of the parameters on for modeling 2016 free cash flow in terms of what you expect for CapEx, cash taxes or any other working capital items that may affect the difference between net income and cash flow?

Sure. From a CapEx perspective, we’re forecasting around $19 million, $20 million worth of CapEx and as far as cash taxes go, we are looking at roughly a 20% cash tax rate.

So no real diversions there –

Cash tax rate has actually crept up a couple points over the past couple of years. When we first IPOed and stock options started to vet, and get exercised, we saw a larger than normal benefit from stock option exercises as a deduction to our taxes which has now leveled itself off. And so therefore that is coming down, therefore bringing cash tax rate up a bit. So that is impacting my cash flow.

On a year-over-year basis but it looks like it’s adjusting with your GAAP guide of 21, right?

Yes. It’s becoming more in line with the effective tax rate.

And then just a question quickly on pricing, just wondering, is the pricing environment similar to what we experienced or is your expectations of ’16 look like ‘15 and should we expect to get the typical growth to pin [ph] revenue of around 6% similar to what we’ve gotten historically?

We’re actually being a little bit more conservative around pricing for 2016 just based on what we’re seeing in the marketplace. It’s still that early in the year for us to fully vet out what everything is going to settle at, that usually is kind of towards the end of the first quarter. And so we are actually looking at more – 3% to 4% is what we’re building into our models just because of everything that’s happening in the economy these days.

And just finally then, I know you gave the top customers, I think those with growth rates for the year, do you happen to have those for the quarter on a constant currency basis for the different categories that you disclosed?

You mean the constant currency growth for what? Like the top 5, top 5, as such?

Exactly, yes, the top clients, top 5, top 10 exactly for the fourth quarter?

Do give me one second. Okay. For the top 5, oh, I have it for the full year, I didn’t fill for the actual quarter, I can recalculate those for you if you need. For the year, the top 5 grew 31% in constant currency, top 10 was 30%, top 20 was 27%.

How about the top client –

Top – I mean UBS? 36%.

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

I just wanted to ask about what this mean in our checks [ph] client specific response to the current environment, the macro uncertainty and so on, and sometimes from an IT budget standpoint, it seems that the impact on demand, sometimes the impact on pricing, is that what is causing your cash flow terms to move out and is that more of a broad comment or is that a narrow – client specific type of comment?

It’s more of a broader comment. Historically my payment terms have been kind of 30 to 45 days and most what we’re seeing within the marketplace is lot of people are pushing for 60 to 90 day payment terms and we’re having to move a little bit just to basically -- larger clients have extended terms as far as like 45 to 60 days, beyond our normal 30 day. That's why you're seeing a little bit of a creep on our DSO and a little bit of extension of our collections. It’s part of the normal marketplace, I am not talking long, I am talking instead of our normal 30 to 45 days, 45 to 60, sometimes up to 90 days.

On a plan specific basis, okay, I understand. This may be more for you guys, an impact that you guys are getting larger at certain times.

Exactly and that we’re dealing with larger clients who have in a lot of cases very standard terms, if they don't accept anything under say 60 days, that’s the trend that we are seeing. So I am feeling a little bit of upward pressure on my DSO as we deal with larger margin clients, more procurement groups and things of that nature.

And a question, Ark, appreciate your commentary on sort of the bigger picture. As you look at how the environment is evolving and you compare that with the product set and the service portfolio that you're bringing to market, do you see that there's a good match, or do you see a need for ongoing investment? I know there are normal ongoing investments but ongoing investments at a particularly high level in the coming quarters that you have to invest in certain areas?

Ashwin, when you are saying at high level, what do you mean exactly?

Well, are we going to – I guess first part of the question was with regards to, is there a good match in terms of what you bring into market versus what you're seeing a demand for? And if not, what sorts of investments will you have to make?

So I think we’re improving the major component of this but as you mentioned, so this is I think kind of common statement there, situation is changing in very much like -- some years ago when we were implementing systems it was kind of longer term of life for them, now it’s customer engagement situation can drive, when we’re talking about mostly consumer oriented systems, so the change is happening too fast. So this level of investment required is very high. So I think while we kind of sinking the gaps in some places, we see some gaps growing in other ones. Like for example, internet of things which we mentioned today as well, in our opinion would change the whole landscape pretty strongly. So it would require – short answer, it would require a lot of investments in our opinion where we’re going.

I am trying to get to a little bit more of a business model question, where you’ve had this services versus need for a product, need for a software type of a look discussion in the past. As you think of exactly those sorts of things, and more internet of things, maybe wearables areas like that, do you see the need for more of a product, or platform type investment, is what I am trying to get at?

And this terminology is sort of pretty sizable, what is the product here, what is required for them but we’re definitely seeing broader needs for solution type of platforms which would help to accelerate startup phases of the projects and also we’ve experienced during the last couple of years when we went through dozens of corners or consumer engagement type of implementations, we’ve seen a lot of opportunities for some level of amortization through accelerators development. So that would be happening. So yeah, I think one of the key advantages we’re seeing at EPAM that we can actually put relatively complete custom implementations of aggregated platform for this changing environment.

Thank you. The next question is from Steve Milunovich of UBS.

Thank you. What kind of headcount growth are you thinking about in ’16 and what sort of utilization rate?

Headcount should be 20%, 25% and utilization should be around 77%. We always target getting into the 76 to 78 range. So we’re kind of modeling right on the middle of the range there.

And you’ve obviously got robust guidance and it is a difficult environment. You talked about having 90% type visibility over 12 months. Are you building some buffer into this? Are you taking into account a risk of pricing pressure or some companies pulling back some business temporarily, just kind of wondering your confidence level?

Well, I mean we have a high confidence with the numbers that we’ve shared with you so – but as I mentioned earlier on pricing we are being a little bit more conservative on our estimates there just given the current environment. And generally speaking we’re very confident with the numbers that we’ve come out for guidance.

And I was curious for an update on Google, you talked quite a bit about it at the last day, analyst day, and I thought it was very interesting. Any update in terms of what you’re doing for them or how much that business is growing?

It’s growing but what we’re doing for them, I don’t think we can talk in details. But it’s the second largest account right now for EPAM, that’s what we provided.

It’s the second largest account?

Yes.

And could you be specific in terms of what sort of growth you expect from UBS in ’16?

We don’t really share specific client growth expectations.

Thank you. The next question is from Jason Kupferberg of Jefferies.

I want to talk a little bit about investments that you touched on before, just to get a little bit more specific there. I mean if we look at the full guidance for 2016, I know the bottom line is growing somewhat slower than the top line, I think maybe a little bit of that is tax and a little bit of that is share count but it would also seem like the implied operating margin guide is maybe for a little bit of year-over-year decline, I know you’re still going to be in the 15% to 18% target range but you were above the midpoint of that in 2015. So is that a fair conclusion that, that maybe you’re in the kind of lower to middle part of the 16% to 18% as opposed to the upper part, just given some of investments you need to make?

Our overall guidance is just coming to that -- into that range and we do continue to make investments. And some of the over-performance that you saw in 2015 was, having some help from currency which we don't necessarily factor that into the forecast that we will get that benefit, we forecast relatively neutral on currency benefits. And then we have a variety of things that we want to continue to invest into the business, to continue to support the growth. And that's really all factored into those numbers. So that’s how we come back to 16% to 18% within the range. We don’t really specify where in the range we’re going to land.

And I know you don’t make specific projections on individual clients. But if you look at what you want to segment in this top 5 or top 10, do you think the growth rates for those groups in constant currency can be sustained in 2016?

Absolutely. Yes, I mean we’re very confident, we have a very good client list right now. And we definitely feel there is still lot of opportunity within our client list and given the size of the companies and the size of the marketplace we see a lot of potential for growth.

What you can do – you can look to historical numbers and these ratios were pretty stable over the last several years. So our assumption is that would be in line for the next couple of years as well but as a follow up, now predicting things would be very difficult and we’ll see. But we will also – I mentioned today number of large clients, we have an opportunity for growing. So we kind of have pretty stable and interesting existing client base to benefit from.

Just lastly on the supply side of the business, any latest statistics you can share in terms of your cap rate on campus offers, just in general commentary on recruiting environment?

So I would say very general statements like you saw our attribution rate and wage inflation which is a little bit lower than traditionally we’ve had during the last several years, which probably is a function of some situation in Eastern Europe but general environment is still very difficult and very competitive for any talent acquisition and especially the talent which we’re looking for. So it’s – as I repeat practically on each call, really the biggest global problems everybody has, and we don’t see any simplification here. Basically for our growth right balance between business and actually delivery still remain the main focus I would say.

Thank you. The next question is from James Friedman of SIG.

Hi, let me echo my congratulations. I had a couple of questions, first, Ark, with your helpful disclosure about the 25, that do 3 million to 7 -- want to ask about the six in the $20million to $50 million range. Is my question, is in that top six, the 6 that do 20 million to 50 million, just below the top one, is there any anticipation that they will break through the $100 million threshold and if so, at what term?

I don’t think any of them will break to $100 million in the next year and maybe two, but couple of them have a potential for this type of business. And I think even below this top 5 there are clients with such potential as well. But again it’s not going to happen this year.

I also want to ask, Ark, about your commentary that 10% of the revenue will come from new customers. If I heard that right, is that -- could you give us some profile of where you think those will come from either on a vertical basis or on a geographic basis, will it be similar to the current profile in the company?

So it would be much in line with our current vertical focuses. So it’s a combination of this, because we’re bringing some very interesting products through new sales but some of them came in actually to us through acquisitions and it would be kind of unresponsible to not focusing on them but put the risk – people to farms [ph] also down. So from this point of view, we expect close to this, around this percentage to be brought this year, from as long as which we’ve practically started during the previous 12 months. And that’s pretty much in line with our historical numbers too. But depreciated – this would be like spread, or this would be very similar to what we have today.

And Anthony, just one housekeeping, I thought you were going kind of quick there when you said the unbilled. What was that number again, the unbilled -- I don't know if you call unbilled revenue, unbilled receivables for the quarter?

The unbilled closed at $96 million, the accounts receivable was $175 million.

Does that $96 million compared to the $13 million in the Q3 or was that $13 --

No, I mean Q3 unbilled was – I’ll call the number off hand – it was $104 million in Q3, so it dropped from 104 million to 96 million.

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

Hi, thanks for taking my questions. Yes, I wanted to ask about the nature of work in digital and this is a little bit of a follow-up to the question Ashwin asked. So your digital work, I know it's typically project based and the needs of your clients, each of your clients is pretty unique. But are you getting to a point now where you have a platform or a solution that is targeted to a specific area where you can take work from one client and apply to a group of clients? I guess what I'm trying to get is some of the work that you're doing for your top 5 or top 10 clients, do you have the ability to package some of that expertise and send it to other potential clients?

Yes, we’ll take another discussion to define what a solution product expertise and all that stuff but in very high level I would say that we’re definitely moving forward with a more productized – where productized you need to understand in where the growth sense of this will. And I mentioned today on wealth management. We have similar effort and similar kind of reusable assets around our retail corners proposals. We're also working on multiple accelerators around integration efforts. So – and that was already this year and going to be in the next year, big portion of our investments as well. So it has become very important for us and for the depreciation story.

That's helpful, and just a follow-up question. I wanted to get a sense of your medium to longer-term plans for your India operation. Given that India has a lot of scale, do you expect India office will become the most significant part of your headcount and I guess, kind of a part two of the same question is, as the revenues from your top 10 accounts are growing and the average size of your large client is getting larger, is there some need to do lower end work and will you look to kind of send some of the work to a geography like India?

First of all, I think it would be much more comfortable to tell you kind of extended answer little bit later because we need the actual work before we run with new acquisitions and specifically new for us geographies. At the same time when we were making decision about Alliance Global we kept very specific clients and very specific profile of the company, and at this point we’re pretty much satisfied and didn’t see any unexpected but it doesn’t mean that we’re doing this from the perspective to replicate exactly what large Indian vendors do. So Alliance Global has more technology profile similar to EPAM. So they have very specific expertise in automation tech in which we’re already benefitting from and going to benefit more. So from this perspective, we’re not looking for expanding dramatically in low level of work. So I think the payout which we were having historically from our clients when we were doing more complex stuff, still pretty weak and the percentage of more complex work, more digital work, will be changing, there is definitely shift in the client budget. And I think for our growth we will be focusing still on more high end part of the drugs.

Thank you. The next question is from Anil Doradla of William Blair.

Hey guys. A couple of questions. So on the call we talked about the macro in certain ways, you talked about conservative pricing, you’ve talked about some of the accounts receivable and DSOs. But Anthony and Ark, can you specifically talk about -- when you talk about some macro weakness, where are you exactly seeing it?

I would like to joke [ph] it’s in our competitors reports. So in general, like on high level I think for us environment is very similar to previous years. So it might be very slight signs of changes, maybe not, it’s very difficult for us to identify but again as usual this year I would like to repeat that our size of the company and now with ability to the market not necessarily but would be in line with the companies 10 times bigger than us. So we work in very specific subset of the IT market which is high growth. But we’re responsible and we see some clients especially like if you think about FX situation in Europe and for some global companies reporting indoors, paid in euro type of revenue and paying us indoors. There are some cases like this, which are very specific and this is like single cases. Anthony would like to add something.

I mean I had a more general answer. You talked about macro uncertainties and weakness, and really it’s everywhere. I mean, just look at the news and just look at what’s happening and just overall the world, and so our conservatism is coming from looking at, yes other reports that have been coming out but also from just reading the news on a regular basis and just looking at what’s happening in the world.

So it sounds like there is a degree of conservativeness, you are not really seeing weakness, that’s how I'm interpreting this?

We’ve seen like higher level of unpredictability, even like if you think about, with full year results, we’ve seen a very specific effects trend while for the last two years all these assumptions were wrong, and surprisingly. So we’re seeing the same environment. So from this point of view it’s not like we’re worried about something what’s happening but level of unpredictability is pretty high.

Okay. Now, the acquisition of Alliance and the mix of that, that might have a little dilutive effect on the average revenue per employee. Can you talk about how you look at the Alliance acquisition from a pricing point of view going forward?

Back to my previous answer, I think we need to work closely but fully in longer term plans we would like to bring the pricing closer to EPAM standards. But we will have to kind of watch what’s happening and how it would be working. At this point we’re already starting to engage our Indian operation in more broader EPAM client base, kind of trying to understand how it works, how client – EPAM client acceptance is. And again we will have much more detailed answer probably in couple of quarters.

And finally, if I can squeeze one final in. Your largest customer is undergoing consolidation in terms of its vendor list -- IT vendor list. How are you guys positioned, I'm presuming that you guys will come out well, but any color on that?

I think we hope that we will come out well there as you said so, I don’t think anything else should be added. So we don’t see any specifically dangerous signs in the direction.

Thank you. We have time for last final question and our last question is from Alex Veytsman of Monness, Crespi, Hardt.

Yes. Hi guys, just a quick question on labor sourcing as we look to 2016. Can you give us an idea as to which markets will potentially be improved or whether enhanced in terms of labor sourcing and which markets will decline in terms of the number of delivery professionals?

None of our markets will decline. At this point any market that we are currently in is looking at growth from a labor sourcing perspective. And some of our more traditional markets, Belarus, will continue to be one of our fastest growing areas in absolute headcount and then some of our smaller and newer locations if you think about like Poland, Hungary, you look at what we are doing in Mexico, those guys will grow at probably a faster percentage cliff. India, now that’s part of the geo mix, so that will grow, a very balanced.

So we set specific targets for each market but I don’t think we’re disclosing this on this level of detail, also from the moment which we did in the last couple of years, I think it’s pretty obvious that we do in some diversification from former Soviet Union, more to European Union and now globally to APAC, China, India, they’re growing as well. But the regional decline, there is practically no status quo in any of these markets. End of Q&A

Thank you. That does conclude the question and answer session. I would like to turn the conference back over to Mr. Dobkin for any closing comments.

As usual, thank you very much for spending time this morning with us. So it was a good year, so we hope that we will prove that 2016 is going to be a good year too but definitely not going to be – I would like to also remind that we are organizing our second annual investor day on March 9 in New York City and if you’re interested to see more information about EPAM, more details and client stories, welcome to join and you can find information on our website or contact directly Lilya. Thank you. Thank you very much.

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.