Greetings, and welcome to EPAM Systems Fourth Quarter Fiscal 2017 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to turn the conference over to your host, David Straube, Senior Director of Investor Relations. Please go ahead, Sir.

Thank you, operator, and good morning, everyone. By now, you should have received your copy of the earnings release for the Company’s fourth quarter fiscal 2017 results. If you have not, a copy is available at epam.com in the Investors section. With me on today’s call are Arkadiy Dobkin, CEO and President; and Jason Peterson, our Chief Financial Officer. Before we begin, I’d like to remind you that some of the comments made on today’s call may contain forward-looking statements. These statements are subject to risk and uncertainties as described in the Company’s earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP numbers have been reconciled to GAAP and are available in our fourth quarter earnings materials located in the Investors section of our website. With that said, I will now turn the call over to Ark.

Thank you, David, and good morning, everyone. Thanks for joining us. We finished fiscal 2017 in a strong position with annual revenue of $1,450 million reflecting 25% year-over-year organic growth or 24% on constant currency terms. Our revenue growth was broad based both geographically and across the majority of our industry verticals. Additionally, we delivered strong non-GAAP earnings per share of $3.46, a growth of 19.3% and generated free cash flow of $166 million. In addition to finishing the fiscal year on the strong footing, we continue to evolve EPAM across three major pillars of our business. Our people, our capabilities and our key markets and customers. Combination of those is driving our differentiation, powered by our unique core engineering and digital business services strength. Let’s start from people, engagement and talent development. In 2017, we welcomed over 6,000 new employees to EPAM, hiring activity across most of our delivery centers in key end market locations. We attracted and highly skilled individuals to build multi-disciplinary hybrid teams, which is capable of solving the complexity associated with today’s business and technology challenges; and delivering solutions that help our clients to stay competitive in the fast-changing current environment, and be better prepared for tomorrow’s changes as well. We are making ongoing investments in our people function, employee engagement ecosystem as well as in advanced training and educational programs, engineering productivity tools and efficient delivery practices. We also ran over 500 events last year from [indiscernible] regional software engineering conferences to various specialized meet-ups, professional communities gatherings, numerous hackathons and innovative [events] [ph] across all EPAM locations. All that allows EPAM to continuously raise the bar to maintain our talent advantage in the marketplace. In 2017, over 4,000 students were enrolled in our university enrichment program, the largest group since we began this…

Thank you, Ark and good morning, everyone. I’ll start with some financial highlights. Talk about profitability, cash flow and on guidance for fiscal 2018 in Q1. In Q4, we delivered continued strong top line performance through non-GAAP earnings per share and generated significant free cash flow. There are a few key highlights from this quarter, revenue close to $399.3 million reflecting a 27.4% year over year reported organic growth rate or 23.8% growth in constant currency terms, sequentially our Q4 growth rate was 5.8%. From a geographic perspective, North America our largest region representing 56.9% of our Q4 revenues move 22.5% year over year. Europe representing 35.1% of our Q4 revenues grew 29.7% year-over-year or 22.5% in constant currency. CIS assets representing 5.8% of our Q4 revenues grew 73.8% year over year or 64.6% in constant currency. And finally, APAC grew 31.5% or 27.3% in constant currency and now represents 2.2% of our revenues. Moving now to income statement, our GAAP gross margin for the quarter was 36.4% compared to 36.8% percent in Q4 of last year. Non-GAAP gross margin for the quarter was 38% compared to 38.1% for the same quarter last year. GAAP SG&A was 21.2% of revenue compared to 22.8% in Q4 last year and non-GAAP SG&A came in at 19.6% of revenue compared to 20.2% in the same period last year. Our current level of SG&A reflects our continued investment in talent acquisition, extension of our global footprint and expansion of capabilities with a focus on supporting our long term sustainable growth strategy. GAAP income from operations was 52.1 million or 13% of revenue in the quarter compared to 37.4 million or 11.9% of revenue in Q4 last year. Non-GAAP income from operations with 66.9 million or 16.8% of revenue in the quarter compared to 51.5…

[Operator Instruction] Thank you. Our first question comes from the line of Darrin Peller with Barclays. Please proceed with your question.

All right, thanks guys. Nice job. Just want to start off with the overall environment. Ark look, I mean obviously in the backdrop of tax reform macro we’re hearing some positive sentiment from some competitors of yours as well as from the end market. I mean have you seen any inflection in terms of client discussions, in terms of [indiscernible] spent in certain areas that maybe weren’t there as much last year or, I mean clearly, well I just wanted to know if there are certain areas it may have accelerated or not?

So, you know it’s very difficult to [indiscernible] micro kind of changes. It still seems like for us, in line with what we’ve seen before maybe in 6 or 12 months from now we’ll be able to evaluate it better. But right now I think we’re having similar environments that you had before.

Okay. And then just let me go into more specifics on financials. Just one question is on margins and free cash. I mean you guys have historically been pretty steady with your margin plans to reinvest in the business and maintain that. Just curious though it’s high level again, just given the growth are there - assuming you wanted to change your investment levels, I guess giving [indiscernible] profile I guess how much room would you consider discretionary on the margin. We’re getting this question from clients because you’re growing so well, right now. If growth would ever slow down would you be able to turn on the margin switch if you needed to? Just curious your high level strategic thoughts on the margin again, if you’re just planning on keeping it roughly flat for the next couple of years [indiscernible]?

Certainly, we continue to see strong growth in the market and expect to continue to deliver greater than 20% annual revenue growth. And so, as long as those conditions exist I think you can look at the profitability that we’re delivering in this - in the guide for obviously 2018, is in the 16% to 17% range. Certainly, where we operate in 2018, we visit it over time if growth rates ever change. But right now, continue to invest in the business. And in 2018 expect to deliver between 16% and 17% adjusted IFO.

Okay. All right, just last one quickly on the organic versus inorganic assumptions that was in fourth quarter embedded in the outlook? And then I will turn back to queue. Thanks guys.

Yeah. So, it was all organic right now.

And the guidance that we have for 2018 also is organic. So, if we were to announce anything in the future it would [indiscernible].

Excellent. Thanks guys.

[Operator Instruction] The next question comes from the line of Ramsey El-Assal with Jefferies. Please ask your question.

I had a question about DevOps and sort of continuous development methodologies which you mentioned briefly. Did these give you a competitive advantage or do they reduce internal development costs? How is this, how will you your use of DevOps sort of benefit you in the marketplace?

So definitely impacting engineering productivity and predictability of quality of delivering solutions. And we talked pretty regularly about our kind of [indiscernible] experience to build professional software products and this is one of the components which allow us to differentiate ourselves. So, it’s a pure differentiation of quality of final deliverables. And with this new kind of growing complexity of the digital solutions, it’s a very important component of being on target.

Thank you. The next question is from the line of Ashwin Shirvaikar with Citigroup. Please go ahead with your question.

Hey guys, good quarter there. My question is on your headcount expectations, obviously you know that 24% growth, 200 basis points from FX in there. Jason you mentioned higher utilization, so that gave you some help. But you kind of ended the year at 17% headcount growth, are you going to accelerate your headcount, hiring plan or is there a pricing component in there, could you talk about that?

Thanks. Yeah. So, you know we continue to see strong demand and so we clearly are hiring for that demand. What we have sort of talked about is that, we are running a pretty high utilization at this point and I think 78.8% for Q4 and talked about that utilization level coming down slightly over time. So yeah that would reflect the fact that we do intend to be doing some additional hiring to support our revenue growth. One of the benefits of running a slightly lower utilization level is it does give you more opportunity to support upticks in demand. And so, the upside to that is that, you got some additional sourcing available for unexpected customer demand. But generally, the slightly lower utilization does have some impact on gross margins and that part of what drove the guidance for Q1.

But is the level of pricing -- is the level of demand [indiscernible] I guess?

So, from a pricing standpoint I think that we’ve got - we have opportunities in pricing in part because of the demand and a scarcity of resources in the marketplace. And as we talked in the past we do get annual increases across a significant subset of our top customers. So, there are some opportunities from a pricing standpoint if you - sort of talking about gross margin more broadly. Programs like Ark talked about in terms of like university program that brings you know additional levels of [indiscernible] resources into the company also helps from a pyramid standpoint and are supportive of gross margin kind of management and improvement.

Our next question from the line of Maggie Nolan with William Blair. Please proceed with your question.

Hi guys. Just building on that previous question, can you talk a little bit about your ability to move employees across engagements or geographies as demand ebbs and flows?

So, I think it’s kind of a regular process with optimization of the teams and finding the best opportunities where we can utilize that talent. So, when necessary, there is definitely a rotation of the projects and there is some rotation or some movement to [indiscernible] geographies but it’s pretty minor in our environment. So basically, we optimize in team composition and again internal project rotations that’s part of our model. Moving people from one geography to another, it’s more on exceptional basis.

Thanks. Congrats on the results.

Thank you.

Our next question is from the line of Lou Miscioscia with Pivotal Research. Please proceed with you question.

Thank you. Just first a clarification I think consensus for EPS for 2018 is around $4.17. Obviously in the press release you’ve given guidance that’s below that. Would you say that your guidance is just being conservative or maybe just an explanation of why EPS is not growing as fast as revenue? And then I have a follow up if possible.

I think what we’re guiding to is profitability remaining reasonably consistent. What we think that we’ll see is - we’ve talked about is utilization declining slightly, at the same time we think that we will see some greater efficiency in SG&A. And what you refer to as SG&A leverage. So, we’re comfortable with being able to deliver 16% to 17% adjusted IFO, while growing the business rapidly and giving ourselves the opportunity to support increments in demand.

Okay, then tighten to the follow up question, when you look at utilization, a lot of other IT service companies maybe ones that are bigger than you, a few years ago had utilization levels at the same level that you had and basically, they switch things around and just actually start to get utilization more into the 80s. So, is there any chance to rethink that? And not exactly sure how operationally to do it but, others have. So just wondering if the goal should be higher there? Thank you.

I think we have for our environment for our size and for the type of services which we provide and we have optimal goal at least that’s our opinion right now. It’s very difficult to compare these larger vendors especially not only because of the size, but because of the portfolio of services they provide into.

But it’s something that we do revisit overtime and there’s always this balance between making certain that you’ve got resources available to support sort of upticks in demand And then of course not having - not kind of over-hiring. So, there’s a fine balance there.

Thank you.

Our next question is from the line of Moshe Khatri with Wedbush Securities. Please proceed with your question.

Thanks. Good morning. Congrats on strong results. Couple of questions, CIS was up a lot sequentially and year of the year. Maybe you can talk a bit about that, whereas the sources of the strength that’s coming from that specific region? Is that sustainable? And then the other question is going to be related to expectations for wage inflation that’s embedded in the model for 2018? Thanks a lot.

Sure. On the CIS front, I just kind of several things. So, while we had a strong movable between obviously Q4 of ‘16 and Q4 ‘17, just got appreciation sort of and increases in revenue growth by foreign exchange. The other thing that was we actually had some timing of revenue recognition in Q4 for two financial services clients, who had sort of an uptick in revenue that in part was due to sort of timing of revenue recognition, so extremely high-level growth that we saw in CIS countries between Q4 ‘16 and ‘17 is not what I would expect on the go forward basis, but at the same time we still see good revenue growth there and continues to be a nice piece of our business.

And when you’re looking at facts which is complement, it it’s still a reflection of a stronger economy in comparison with couple years ago because oil prices went up so basically kind of went up more business layer as well.

So, wage inflation assumptions for 2018?

So clearly, it’s something that we’re were regularly monitoring. I would say that the wage inflation is still what I would call relatively modest. There may have been a little bit of an uptick in 2017 but we feel that it’s something that we’re able to manage. And again, if I think about gross margin, it’s got multiple components. One is the ability to price which we talked about in the earlier - one of the earlier questions. And we do see some opportunities from pricing standpoint as the ability to manage the pyramid and Ark talked about that and his opening response where we’re bringing in additional university students and also sort of a customer mix. And so, we feel comfortable with our ability to continue to manage.

So, are we still on that 6% to 7% level in terms of wage inflation 40,000?

I wouldn’t say any higher than that. So yeah.

Our next question is from the line of Avishai Kantor with Cowen & Company. Please go with your question.

Hi and thank you for taking my question. You mentioned strength in the automotive segment. I was wondering if you can elaborate on that where is it coming from? Are you gaining share, which regions are you adding new client?

So, we mention this because it’s part of our kind of as other emergence verticals right now. So, we didn’t have much business in this segment probably 24 months ago. Now it is a growing, and this is mostly Europe and Asia.

So, it’s still a modest number, but it’s our new revenue stream for us and it is growing.

Do you think you’re getting market share from other vendors there?

When you grow and it’s always taken share from other vendors, but again it’s relatively insignificant right now. Probably it would be better to talk like in 12 months or even late to understand.

The next question is from the line of Mayank Tandon with Needham & Company. Please proceed with your question.

Thank you. Good morning Ark could you drill into a little bit more on the drivers and some of the key verticals like banking, financial services and healthcare. Especially in banking we’ve been hearing obviously mixed signals. The banks are investing in digital, but they’re also condensing their spend on some of the legacy’s and how that’s impacting you in that verticals? And of course, what the drivers are in financial services broadly? And of course, in the key Healthcare segment as well? Thank you.

I think it is a pretty simple answer because like in financial services it all of us was very EGK specifically on workers and a lot of big systems which were supposed to be have to be supported there. So, we all of us when we were talking about our line of services weren’t it was a legacy component or some kind of traditional maintenance component. It is pretty small. And right now for example, and we talked today about it, all year delivering mostly on digital side so the type of new engagement systems for financial services like wealth management is a good example of this and this was one of our good business. So, it’s mostly a growing area for us even today.

And so, again our growth relative to maybe some of the others in the market as Ark said, we got substantial growth in wealth and asset management both with existing and new customers. So very much the kind of digital transformation and we have very limited exposure to what you would call the traditional sort of keep the lights on business which maybe is a more challenging kind of stream. So that said our legacy is never been a significant part of our revenue stream.

And on healthcare any drivers that you could call out there that are maybe fueling spending there or you know how we should look at that segment in terms of overall spend levels because as your other verticals?

I also mentioned already today that we do believe that it’s a very strong article and we have big opportunity there. While it’s still smaller for us and volatility is much bigger than other segments, like couple accounts, couple engagements could actually impact quarterly results. So, what we are very optimistic on this one. And we’ve seen a lot of opportunities in business for us.

Our next question is from the line of Jason Kupferberg with Bank of America. Please proceed with your question.

Hey good morning guys. Another good year. I just want to ask question actually about the share count forecast for 2018. It looks like share count is going to be growing a little faster in ‘18 than in ‘17 if that’s just a function of how the stock has performed or other factors? And as part of that any thoughts I’m possibly using some share buyback to soak up some of the ongoing creep. I mean, I think this is one of the big deltas between what the street may have been forecasting for EPS and what the guidance looks like? And if you can tie that in just with some broader balance sheet deployment comments, I think you’re at almost 600 million in cash now. So, I would love to hear your latest thoughts there? Thanks.

Yeah. So that’s fair. Continue to use some stock as an element of our compensation and retention, but I don’t think you really see any significant change there in our guidance in 2019 which may be seeing is that as our share price appreciates you know that does have an impact on the fully diluted shares and that calculation. So maybe that’s kind of what we’re showing up from a couple allocation standpoint. We’re going to continue to do is to focus our cash on inorganic strategy and you know we are active and I think you’ll see us be more active in 2018. So, I think for the most part that’s where you will see cash deployed. There isn’t a plan right now to begin using the cash for buybacks, but it’s certainly - we are revisiting our capital allocation strategy. And I things could change overtime but clearly in the coming year we’re very focused on our organic strategy.

Our next question is from the line of Joseph Forrester with Cantor Fitzgerald. Please proceed with your question.

Hi. I was wondering if you could talk about the size of contracts. Are they getting bigger and are there any large projects that you’re working on just given the growth?

Definitely is a decisive engagement is growing. So, while we still have we still have kind of like approach where we sometimes starting from a relatively small engagement and then getting in different areas. You can see it also from rate of growth and the level of the rate of kind of concentration of our clients. But it’s definitely bigger and bigger deals we participate in right now.

And at the same time, we continue to be highly diverse range of customers. So as Ark said, we’re you know we’re growing our engagements with large customers which is a significant source of our growth. But we continue to be very diversified across our customer base and very diversified across the industries we work in.

I think is unhealthy. We use it to do this to clients to be sure we work in less than 12 months. But the speed of growth will bring them probably to 20 or so to top the counts for us in 2018.

Got it. And then just financial services, are you expecting any acceleration in spending now that the tax bill has gone through and your clients have a little bit more money? And maybe you can give us a little bit of an update on UBS? Thanks.

So, as I mentioned already we rather watch what’s happening and we’ll try to predict the market. So, I think again while are growing fast we are still a relatively small player in this in this segment and I don’t think it’s impacting us one way or another significantly. So, on UBS we gave some color on what program on what program we are on and how successful there. And as we mentioned last time, it is stable account for us right now and we have on line with expectations which we had.

Our next question is from the line of James Freedman with Susquehanna Financial. Please proceed with your question.

Thank you and congratulations on your 25, its Jamie from Susquehanna. I want to ask about the median enter team and observations. Do you anticipate that vertical still expected to grow faster than the company average going forward? And if you wouldn’t mind sharing some use cases I know you did that the Analyst Day last year about what’s resonating in media and entertainment?

Well during the last call, we were talking about Liberty Global and how we grow in these diverse programs. But with a lot of new things happening there how we felt on innovation side of the business as well. So that would be true for both accounts in this in this segment. I don’t think it would be growing fast growing right now, but it probably will be above company grows for some time.

Thanks Ark. And then maybe the same on Life Science and healthcare, it look like it decelerated a bit but any color that you might have there would be helpful?

Difficult to listen to what I mentioned already and or kind of answer in as well, so it’s still small sector for us. We have some two account which we finished some programs, but we do believe that it would go back and probably will be growing at least through speed or the rest of the company in the next 12 to 18 months.

Got it. Thanks for the perspective.

The next question is from the line of Vladimir Bespalov with VTB Capital. Please proceed with you question.

Hello. Congratulations on the number. Thank you for taking my question. Like a couple of very brief questions. First on the substance for growth in constant currency versus growth, at all what assumptions do you use for a year versus other key currencies? Then the second question is on the margin guidance, your non-GAAP operating margin guidance for 2019, the range is narrowed compared to what you guy did before 16% to 18%. So, what is this like competitive pressure or just a trade-off between growth and stability and things like this? Could you provide some color on that? And the last thing, could you educate me a little bit on this effect of U.S. tax reform on your GAAP earnings and does it affect the cash flow at all?

Sure, it’s always from a foreign exchange assumptions for the most part, what we used for development of our guidance was partly from probably early, and so rather than trying to sort of forecast rates or what the impact might be in the future you would generally use kind of spot rates and of course we’ve seen strong or Euro and Pound and Ruble appreciation between 2016 and 2017 and early 2018. And in part that’s what you see driving that or we feel would tailwind foreign exchange. From the standpoint of the profitability range, when we got to the second half of 2017 we did narrow range of 16% to 17%. And so, this is not really a change from that. And I think what it just kind of reflects is where we think we’ll operate inside of 2018 and so we’re not guiding to what we think could happen in 2019, but just it’s a reflection of where we think we’ll operate as we continue to drive you know high top line growth. So finally, from the standpoint of I guess the tax reform you know we looked at obviously a significant entry in Q4 that’s not - that doesn’t impact the cash flow. Again, we will need to effectively make payments over a year time period. With their early years the 8% of that total and then it gets higher overtime particularly in the last three years. And so, I don’t think you’ll see a significant impact on cash flow for us. The only thing is that you know it does give you more flexibility now to sort of money that we have in various non-U.S. sort of geographies and we’ll be sort of revisiting that and that gives us some of that money back into the U.S. and Western Europe to support our inorganic strategy.

Our next question comes from the line of Arvind Ramnani with KeyBanc. Please proceed with your question.

Hey first of all congrats on a great quarter and good guidance. I have a broader question about 12 to 18 months back you expanded and refreshed your management team. Can you comment on what you have done with the sales organization? And also, you know are you doing anything different on partnerships and alliances side?

Like you wish us for over six years carefully. So, there is always something changing in the management and in respect of our 24 feet. And you mentioned this question about sales was a favorite for a long time. And we do believe that we have great opportunities in our client base and we’ve target in sales actually how to penetrate this, while again about 10% of business came in from new loggers today. So, I don’t know how in couple sentences to actually answer, but there are definitely improvements in this area and a lot of us came in and growth supported while we were like four times bigger than we were six years ago or something like that. So, I don’t know what else to say.

I think from my perspective as one of the new entrants you know is that we continue to grow with the right customers who work with us and add one account or move to another job and then oftentimes they bring which I think is both high praise and also a great source of our growth.

Yeah, when I’m I’ve done checks on your feedback is always very positive. Clients are really happy about kind of the work that EPAM does. You know certainly like enthusiastic at client base. I was just wondering you know are you still expanding the sales team or are kind of this sales model that has worked so well for so many years is that kind of staying consistent?

Let me answer differently, I think the sales model to deliver good quality services is the best sales model. We definitely extended in the number of people in business development function, but I think it’s actually driven by the quality of delivery and reputation is probably the most reliable. So, to be fair then it’s my job for our business development people too. So, we’re focusing on quality, we’re focusing on the capabilities this is number one.

Great. Thank you very much and wish you the best for 2018.

The next question comes from the Louis Miscioscia with Pivotal Research. Please proceed with your question.

This is your question for our follow up. So obviously we were hearing a lot about block chain automation robotic process automation AI. If you could just maybe comment is what you’re really seeing out there in the sense of a lot of your clients engaging with you with these new types of technologies. Or is it real just still very embryonic and not really kicking into high gear yet in a meaningful portion of revenue? Thank you.

What we’re seeing in the market right now that anything related to automation is becoming very very hard. And there are a lot of companies being in on this very seriously and this type of engagements are starting to show up all over the place. So, I think it’s interesting they really didn’t prove probably completely return on investment, but there are a lot of companies here. With Blockchain, is still probably much more in the beginning a lot of hopes, but initial experimentation and yeah.

Thank you. Good luck for another new year.

Our final question this morning comes from the line of David Grossman with Stifel. Please proceed with your question.

Thank you. So, I just wanted to go back to something I came up earlier about utilization and I thought I’d heard you talk about running at the higher end of the target range even though it’s coming down you’re still going to run at the higher end of your target. And if that’s right is that a management decision to run at the high end of the range or is it reflecting type supply? And how should we think about diversification in your supply base over the next few years including perhaps set up and know kind of what’s going on in India with these subsidiaries there?

Okay. We were running this higher than before because probably the scale of the company improved and we’re trying to understand what actually optimal and what’s possible from this point of view. So, we will see that we can and we kind of talked about that result - it would be possible to increase we definitely will increase. But we are not going to do it in the exchange of the quality of delivery or preparedness of our teams to do that type of work in it. And so, our best efforts would be to keep it higher than before I came on the situation of the workforce. We also mentioned during the last couple years that like four, five years ago we didn’t have any iteration so in delivery centers outside of Eastern Europe. We’re investing a lot right now in India. We investing in China, we have a center in Mexico right now. So, diversification is happening. Proportion of resources like five six years ago as Bellerose was by far the biggest, now is very, very different. And this is a big increase in Central Europe between well and in Hungary right now as well. So, if the situation is happening all the time we continuously see and would what could be done better in this area.

Thank you. I would like to turn the floor back to management for closing remark.

Thank you and we are pleased with our results in 2017. The core of our growth continue to be defined by our ability to deliver the complex programs. So as we mentioned the focus on the quality of our capabilities and that should drive everything else. This year I would like thank to all our 25,000 people globally for helping to make happening what’s happening right now. And thank you for today’s call and talk to you in three months. Thank you.

This concludes today’s conference. You may disconnect right this time. Thank you for your participation.