EPAM Systems Inc (EPAM) — Q3 2017 Earnings Call Transcript

Thank you, operator, and good morning everyone. By now, you should have received your copy of the earnings release for the Company's third 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, 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 third 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. Our third quarter revenue results reflect continued high demand for our services across both the industries we serve and the geographies in which we operate. We also delivered strong profitability in the quarter and generated significant free cash flow. Revenue for Q3 came in at $378 million, representing year-over-year organic growth of 26.6% reported or 24.6% in constant currency. Across all verticals, the trends of transformation, digitalization, and competitive disruption in our clients and markets are the main drivers for our growth. Financial Services, our largest vertical, finished the quarter with 15% growth, which was broad-based across our major geographies and driven by clients responding to regulatory changes, digitalization, and the drive to optimize payments. Excluding the impact of UBS, Financial Services grew 27% in Q3. Travel & Consumer grew 20% in the quarter with growth coming from the continued focus on ecommerce, customer experience, and personalization efforts among clients in North America and Europe. Software and Hi-Tech grew 22% for the quarter, driven by a diversified portfolio of mature software companies and emerging startups growing through digital platform transformations. Media & Entertainment was 42% growth in the quarter. The continued evolution of direct-to-consumer trends, which include enrichment review and end-user experience across multiple platforms, helped drive growth in this vertical. Life Science and Healthcare grew 24% over the same quarter last year. Trends driving the growth this quarter were Life Science clients' focus on new ways to engage with doctors and patients, in addition to GIT initiatives. And lastly, our emerging verticals delivered yet another strong quarter with growth of 78%, driven primarily by telecommunications and energy clients. The diversification across our clients continues to progress, with growth outside of the top 20 accounts coming in at 37% and growth in the top 20 accounts at just over 15% or more than 20% excluding the effect of UBS. As usual, growth this quarter came from a combination of existing and new clients. We ended this quarter with over 21,680 professionals, an increase of over 13% year-over-year, bringing our total employee headcount to more than 24,500. A net addition of more than 1,200 production professionals during Q3 is a level we have not seen in six quarters. Taking a bit away from the numbers, I would like to bring just one customer story, which illustrates well the journey we are experiencing today with some of our key clients. The journey, which is very much in line with what we shared during our Investor Day in regards to unique relationships among coupon service horizons, which include core engineering services to ensure we build things right, complex solution design and delivery to improve our clients' systems of engagement, and innovative creative thinking and experimentation with new technologies and business models to predict how those critical solutions might look like for our customers tomorrow. What is important is the ability to materialize and bring to the market those solutions sooner than most of our competitors can due to our core engineering advantage, or in short, make those solutions real. We believe that the right complement in balance of vapors across those horizons differentiates EPAM in the market today. Back to the story. Liberty Global is one of the largest cable companies in the world. We started to work with Liberty over five years ago, and it was one of our first digital strategy engagements, which brought us and innovation at what as their technology standard breaks down. Nothing unusual is it. What is more unusual is that during the past years, EPAM received at Liberty Global Technology Summits another three awards in the innovation and breakthrough illumination. For example, this year we focused on the EPAM augmented reality hologram solution for Formula E-racing, which allows users to watch multiple race scanners at one time and also see the circuit with the current position of the driver. Last week, Liberty Global was named as the winner of the Best Wireless Broadband Solution at the Broadband World Forum awards for their new Connect Up, which the EPAM team helped to develop and was honored to be invited to the stage together with our client to accept the award. That allows the user to check their well usage monitor devices, devices connected to their home Wi-Fi network, and automatically connect to about ten million Wi-Fi hotspots internationally. What is interesting is that during those five years, in addition to those innovation awards, Liberty became one of our top clients. We just confirmed that we are bringing balanced value across all three horizons and driving that value from the innovation angle to real tangible results for the client. With that, I think it would be appropriate to share news about another relevant recognition for our digital capabilities. Last month, EPAM was ranked for the second year in a row, in the UK Top 100 Digital Agencies. The region ranked EPAM number five agency in the UK. Lastly, in Q3, we held our Annual Software Engineering Conference that brings together EPAMers from around the world, from engineers to designers to data scientists and functional leaders. This year, a large group of clients joined us for the first time to share from one side and to hear from another the latest trends in technology and engineering and how those revenue business models can bring new value. This is a global event that helps us to develop our talent and forge stronger relationships with our customers. It’s just another component that illustrates how important it is for us to maintain our engineering DNA, which is a key goal across all services of our business. So with that, let me hand the call over to Jason for additional details on the quarter.

Thank you, Ark, and good morning, everyone. As Ark mentioned, we delivered strong top-line performance, drove higher profitability, and generated significant free cash flow in the third quarter. Let me start with some financial highlights, talk about profitability, cash flow, and end on guidance. Starting with revenue, on a reported basis, we closed the third quarter with $377.5 million, 26.6% growth over the same quarter last year and 8.2% growth sequentially. Year-over-year, constant currency growth was 24.6%, reflecting a currency benefit of 2%. Actual revenues, compared to our Q2 guidance, benefited from a combination of stronger revenue production of $8.2 million and a favorable currency impact of $2.3 million. From a geographic perspective, North America, our largest region, representing 57.8% of our Q3 revenues, grew 28.4% year-over-year and 27.6% in constant currency. Europe, representing 35.9% of our Q3 revenue, grew 22.8% year-over-year and 19.8% in constant currency. Absent the effect of UBS, growth in Europe was 26.4% in constant currency. CIS grew 44.6% year-over-year, with 34.7% in constant currency and now represents 4.2% of our revenue. Lastly, APAC grew 12.6% year-over-year and 12.2% in constant currency and now represents 2.1% of our revenue. Moving down the income statement, our GAAP gross margin for the quarter was 36.6%, compared to 36% in Q3 of last year. Non-GAAP gross margin for the quarter was 37.9%, compared to 37.6% for the same quarter last year. The 30 basis point year-over-year increase in non-GAAP gross margin resulted from higher utilization, offset by the negative impact of foreign exchange. GAAP SG&A was 21.5% of revenue, compared to 22.6% in Q3 of last year, and non-GAAP SG&A, which excludes stock-based compensation expense and certain other items, came in at 19.8%, compared to 19.5% in the same period last year. Our level of SG&A reflects the continued investment in our talent acquisition, the extension of our global footprint, and the expansion of our capabilities with a focus on supporting our long-term sustainable growth strategy. GAAP income from operations was $49.2 million, compared to $33.9 million in Q3 last year, representing 13% of revenue in the quarter. Non-GAAP income from operations was $62.6 million, compared to $49.7 million in Q3 last year, representing 16.6% of revenue. Our GAAP effective tax rate for the quarter came in at 15.7%, and our non-GAAP effective tax rate was 20.4%. For the quarter, we generated $0.77 of GAAP EPS. Non-GAAP EPS was $0.92, a 21.1% increase when compared with non-GAAP EPS of $0.76 in the third quarter of last year. Total shares outstanding for Q3 were approximately 55.2 million. Utilization was 77.6%, compared to 72% in the same quarter last year and 79.6% last quarter. We will end up slightly over the top end of the 75% to 77% range we like to manage to and higher than our Q3 historical levels. We will continue to hire for the demand we see in our business with an expectation that utilization will trend more towards our traditional range of 75% to 77% over the medium-term. Turning to our cash flow and balance sheet. Cash from operations for Q3 was $64.9 million, compared to $61.8 million in the same quarter last year. Free cash flow came in at $59.4 million, compared to $55.4 million in Q3 of last year, resulting in a 116% conversion of adjusted net income. Total DSO was 82 days, compared to 83 days in the same quarter last year. We continue to be pleased with our total DSO performance in the low 80s. Turning now to guidance, starting with fiscal 2017, revenue growth will now be at least 24% and we expect constant currency growth will continue to be at least 23%. For the full year, we now expect the impact of foreign exchange to be a positive 1%. We expect GAAP income from operations will continue to be in the range of 12% to 13% and non-GAAP income from operations will continue to be in the range of 16% to 17%. We expect our GAAP effective tax rate will continue to be approximately 16% and our non-GAAP effective tax rate will now be approximately 21%. For the full year, earnings per share, we now expect GAAP diluted EPS to be at least $2.68 and non-GAAP EPS will now be at least $3.41, substantially driven by stronger revenue performance in fiscal 2017. We now expect a weighted average share count of 54.9 million fully diluted shares outstanding. For Q4, revenues will be at least $395 million for the fourth quarter, reflecting a growth rate of at least 26% after 3% currency tailwinds, meaning we expect constant currency growth will be at least 23%. For the fourth quarter, we expect GAAP income from operations to be in the range of 13% to 14% and non-GAAP income from operations to be in the range of 16.5% to 17.5%. We expect our GAAP effective tax rate will be approximately 17% and our non-GAAP effective tax rate will be approximately 20%. Earnings per share, we expect GAAP diluted EPS to be at least $0.78 and non-GAAP EPS to be at least $0.96 for the quarter. We expect a weighted average share count of 55.8 million fully diluted shares outstanding. A few key assumptions that support our GAAP-to-non-GAAP measurements in the fourth quarter are stock compensation expenses, which is now expected to be approximately $11.4 million; amortization of purchased intangibles is now expected to be approximately $1.8 million; foreign exchange losses are now expected to be approximately $1.5 million; tax-effective non-GAAP adjustment is now expected to be approximately $2 million. Lastly, with the recent adoption of ASU 2016-09, as a result of movement in our stock price, we continue to expect future volatility in our effective tax rate and GAAP EPS. In Q4, we expect an excess tax benefit of approximately $2.3 million. Thank you. And now let me turn the call back to David.

Thanks, Jason. To allow as many participants as possible on today’s call, I would request that each of you ask one question and a follow-up. Operator, would you please provide instructions for those on the call?

Hey guys. Nice chat on the quarter. Let me just start off with the talent – ability to acquire talent for you guys. I mean, it's obviously becoming a much more competitive space overall around digital. And you've done well there. I just want to hear a little bit more about how – what type of supply there is for talent? If it’s changed in terms of the dynamics from a competitive standpoint? And then, maybe just follow-up to that on pricing, obviously, the prices you are paying for this talent probably is higher, if you could talk to a little bit about the pricing environment, if you could pass that through? Anything is changing on that front? Just a quick update there. Thanks.

You probably remember that each time we answer this question, our reply is pretty consistent. It's never been easy and it's not easy right now and probably would be even more challenging in the future. And with each stage in our development and growth, we are finding it very hard to train people, hard to attract people, and we put in a lot of effort to make sure that there are enough opportunities inside of EPAM for people to realize and stay here. So, we mentioned, for example, our Software Engineering Conference and there are a couple of components on talent. On the engineering side and on the creative side, we make sure that this type of people can work together, which creates a relatively unique environment for them to stay. Basically, on the engineering side, we have been doing this for a very long time. We have implemented more efficient programs on how to train people, at the same time explaining why EPAM is different and why opportunities are different here. But again, it is very challenging and it's just a huge challenge in the industry. On the more creative digital part, which is part of the people we have to retain and attract, it's also changing from a geographical point of view. It's more in client-facing locations, while it's still pretty significant and very competitive in our development centers as well. So, there is no simple answer, but we invest heavily in recruitment, in training, and in opportunity building across our projects.

I mean, to be clear, it seems fine this quarter, but I just want to be sure, I mean, there is nothing that's changing around the ability for you to maintain both the split of the cost of the labor to pricing. In other words, the margin implications on it, nothing has changed there. Is that fair? I just want to make sure going forward we model that correctly.

I think you are touching on very right points, and this is definitely a challenge, but again, the challenge is for everybody. We are getting this for a long time. As you can see, during the last six quarters, we have some volatility in recruitment because of utilization and different impacts. But for example, in Q3, we had the largest number of new employees join the company through different sources. So, I think we don't have a simple answer, but we know how to kind of address the challenge.

Sure. I was wondering if you could give us your latest thoughts on M&A? How active is your pipeline? Whether you are evaluating deals? What type of deals might be most interesting to you?

Again, I think you expect our usual answer here too. So we have a pipeline, we have deals in discussions right now. I don't think we can comment on specifics. But in general, we are always looking at how to improve our client-facing capabilities and how to extend specific capabilities from industry expertise to digital to engineering takes a long time. So, again, I don't think we would comment on specifics until it happens.

Okay. I have – can you give us some idea about, in terms of your kind of revenue growth algorithm, how much of your organic growth is from cross-selling or up-selling existing clients versus signing new logos? Which is the more important driver? Is it evenly split there?

Well, I guess when we look at the growth, I think we are quite pleased with the fact that we are generating growth from both pieces of that equation. So we are seeing growth in our Top-20 customers, which have long-established relationships, growing at 15% a year in Q3, and actually, if you net out UBS, it would be over 20%. In our other than Top-20, I believe the growth rate is actually 37%. So what you're seeing is continued growth in customers that we have longstanding relationships with, and then you are seeing quite robust growth from customers that we are adding in growth with those newer customers.

Good morning guys. And congratulations from my end too. So, Arkadiy you rightly pointed out you have never seen so many engineers being hired in this one particular quarter. Was it from any particular geography? Was it focused for any particular client? Any color on that?

No, it was split equally across geographies and there is no specific client which was driving us. So this is, again, a reflection of the diversification of our client base, as well that you talked about.

Great. As a follow-up, Arkadiy, as we look into 2018, I know you guys are not giving any formal guidance right now. But any kind of qualitative color on the demand environment, what you are seeing?

So, Anil, we would like to be consistent. So, all we can say is that we believe that we can continue growing over 20% organically. That's how we are trying to design the future from clients to delivery capabilities.

Sure, thanks. Good quarter. Ark, questions on some of the solution development that you guys are doing regarding working with clients on AI projects, IoT projects, and so forth. I would imagine the demand for those kinds of projects is pretty high. And this is a topic we've discussed before to some extent, but anytime I look at the growth of AI, it seems to me that a company like yours, which has very strong software development capabilities, might actually do well having your own software-focused approach in a little part of your business. Can you provide us with the logic of how you are thinking on that? I know the bulk of your business is always services-focused, but there are parts that might be better suited for software.

We – I think we said this during the Investor Day as well that we are really focusing on developing a number of accelerators for our solutions. We are still not planning to go with a product strategy, but solution accelerators around specifics including what you mentioned, because it's becoming a really interesting driver for new clients and it’s becoming a very important part for them to compete. And solution accelerators around engineering productivity, and we are also focusing right now on some specific solutions around talent management and talent growth, because that's what we can apply to ourselves. Regarding all of this, how we see artificial intelligence and automation, we partner with some of our clients and with market leaders. But again, we are considering how to put accelerators on top of this to be faster.

Sure, got it. And...

In this category, and typically, most of the products are not necessarily mature today because it’s all experimentation, which is giving us additional advantage, and that's why we need these accelerators, because very often we need to cover for the lack in functionality or stability of this type of product and that's exactly where we think our competitive advantage is.

Understood, understood. As one other thing as we try to break down the elements of EPAM's growth, which now began one more quarter of fairly robust growth here, what I am trying to think of is sort of the same-store sales metric how you are increasingly penetrating existing clients? And how your sales force is positioned to do that on an ongoing basis. Could you provide maybe sort of a hunting versus farming type of a breakdown with regards to your sales force?

We are getting new logos, and we have the team, which is focusing exclusively on hunting. At the same time, our growth results in very good farming, and this has historically been the main driver of our growth and it’s still probably the most important part. We mentioned that we have like, right now, 200 clients with $2 million plus revenue, which is a huge opportunity for continued lend and extend approach. For both business developments in both segments, I think a consultative approach is becoming much more important, and we talked about our ambitions to build a relatively efficient consulting communication. Pairing with our competency centers is how we grow and do this in a well-orchestrated manner. So, I think that's a high-level review of this situation.

As you know, we are certainly seeing an acceleration in the revenues that we are generating from our new customers. As Ark indicated, we continue to see quite a bit of revenue growth from farming, but hunting is increasingly generating growth as well.

Got it. Can I squeeze in one more question, just a clarification on the tax rate...

Ashwin, and then even here, I would call it on top of what Jason mentioned, our accounting still has a lot of referral coming from this because that's a reputational type of extension to new logos and that's what we would like to ensure we're keeping out because I think our delivery reputation should be the main driver for new sales referral.

Yes, I don’t know how...

You can squeeze in your question.

Yes, yes. So the tax rate question that I had was if the clarification on the lower tax rate is entirely due to – it’s not mix or anything else, it's entirely due to one factor, which is stock-based compensation that will change this and why should that not be your go-forward assumption not just for one quarter, but going forward?

Yes, and so, if you look at the GAAP tax rate, that clearly is in there. If you look at the non-GAAP tax rate, obviously, that's not part of that. So, I would say that in terms of somewhat of the decline we've seen in the tax rate that that is a little bit due to the greater revenue profits that we are producing in the offshore centers as we’ve sort of driven the headcount increase that Arkadiy talked about and the higher utilization. I do think next year, what you'll see is maybe a little bit of our return back as we pursue our strategy of greater sort of client-basing resources and delivery teams.

Hi, this is Amit Singh for Jason. Just a quick question on your constant currency revenue growth, as we look at it, it seems like it's growing at around two times your sort of client-serving headcount in the third quarter, and it was similar in the second quarter. Just trying to understand the drivers here and is that sustainable?

Yes, so I'd say there are a couple of factors when I think about the growth. One is obviously the growth in headcount, and so we had a very robust addition of headcount in Q3, which included both talent acquisition, so talent from outside the market, and our resource development capability, which is to take younger recent university graduates and sort of train and develop them into our development organizations as well. So you've got the two pieces of let's call that headcount or resource addition. The other piece is that you have the utilization improvement, and the combination of those two has helped drive revenue growth. But as I think we’ve discussed, we have a very strong demand across all of our geographies and across pretty much all of our industry verticals, and we feel that we've very much got a series of engines in place to continue to add the headcount that we need to grow revenue in 2018.

All right, perfect. And just quickly, I mean, if I look at your full-year guidance, adjusted operating margin guidance, it seems like you would probably need still some ramp-up in your adjusted operating margin in the fourth quarter to get to around the middle of that guidance range. So just your confidence level in that. I know historically, last quarter the fourth quarter adjusted margin was slightly below third quarter, but in the prior year, they have been higher. So just trying to understand how the dynamics play out this year?

I mean, there were some challenges last year that were specific to a single customer, maybe pretty much a single customer. This year, I think we would see a more traditional pattern, and historically, what we’ve seen is an improvement in utilization as we go from Q3 to Q4. Higher utilization historically would produce both higher revenue and higher profitability.

Hi, can you talk about growth in Europe and its drivers and maybe give us an update on UBS?

I think the update on UBS is pretty straightforward. It's stabilized. It's a little bit growing, but in general, it's not impacting so much that overall. It should be closer to over 10% for several quarters. Demand comes from traditional sectors, and you can see that we provided numbers outside of UBS's impact from Financial Services and from retail and media. So, practically, it's distributed equally across segments.

Got it. And then the second question, can you talk about a little bit about the pipeline. Are you working on any large deals? And the reason why I ask is usually headcount additions like this imply that there is some demand out there that needs to be addressed, or is it more balanced? Thanks.

It is pretty balanced, and don't try to retool too deeply in this situation. Just remember that we had very low utilization last year, just twelve months ago, and then we had to utilize the people who slowed down and hiring can for several quarters. We are utilizing people very well at the branch, and now we are just getting back to normal talent acquisition processes, and clearly, the biggest size on it where twelve months ago, and this is just natural reflection.

Hey guys, thanks. Good morning. Was there any sort of pricing tailwind during the quarter? And then, what are you embedding in terms of your guidance for pricing? And then, going back to Darrin's question earlier in terms of recruiting, is there any change in terms of wage inflation assumptions by region or by some of the major regions in your numbers? Thanks.

So when you say pricing tailwinds, are you referring to foreign exchange or is it something else?

I am talking about some of the bill rate increases that we are embedding in our models.

Yes, and so I think what we continue to see is sort of stable pricing. As we've talked about in the past, we do have customers where we are getting annual price increases. But again, the pricing environment is stable. Back to the question around wage inflation, as Ark said, it's a competitive market, but there are a number of levers to maintain gross margin that includes utilization, that includes pyramid, and so yes, I think we are generally comfortable.

So wage inflation is still kind of roughly somewhere in the mid-single digits. Is that still the right number to use on a blended basis?

Again, mid-single digits, I think it varies by geography.

I think we're seeing a slight increase in wage inflation to be fair, but at the same time, what I am trying to communicate earlier is we do have the ability to sort of mitigate that through adjustments and pyramid adjustments in where and how we deliver.

And then bill rate increases are still also kind of somewhere in the low-single digits?

Yes, it's consistent with what we've talked about in the past. If you're looking to sort of update the model, yes, we’d keep the assumptions the same as what we've communicated in prior quarters.

Yes, hey, congrats on a good quarter. I just wanted to get your view on the overall environment and if you could contrast it to last year. Last year we had a bunch of uncertainties around directions and UBS. Given that the environment is much better, how should we start thinking about kind of – as we enter into next year? Not looking for guidance, just trying to get a sense of what your view of the environment is?

You see, with all respect to elections, I think the last year, the main impact was from UBS for us and results size and with our kind of market penetration. I think if you take UBS out, now we see that it was pretty specific situation to this specific client. I think it's pretty consistent. The demand for this, again overused, but there is a reason why the term like digital transformation is very strong and it's driving a lot of new client engagements today. And with relation to this, a lot of vacant rebuild and modernization activities. So I don't see big differences with the exception that Q3 last year was really impactful but one specific client.

Thank you. I just wonder how you are thinking about OpEx going forward. You've been hiring consultants. So in terms of SG&A investments, do you see any lumpiness or surprises there? And if we look out a year, would you think we’d be more at the high or low-end of this 16% to 18% range?

Yes, I don't think we're ready to guide yet on where we are going to be in the 16% to 18% range over the coming year. I think we need a little bit more time here to think about that here in Q4. From your question on SG&A is that we are making investments in our consulting capability to advance our ability to sort of deliver and to work and deliver solutions to our customers. But it's not going to show up as a significant SG&A spend. The other thing is that the portion of those resources will be billable. If you go to the P&L, they will show up in core revenue and generate revenues that will offset their costs. I don't think you should expect a material increase in SG&A coming from some of those shifts.

Okay. And on the competitive front, the Indians are always trying to move up toward your capabilities. Do you see any success there? And has your price premium relative to the Indians changed at all?

It's very difficult to comment on the price comparisons because that's usually not open information. So everybody is trying to build these digital capabilities and you see the number of acquisitions with global service providers and companies like Accenture doing this on a more regular basis. So at the same time, I think markets are still growing faster than capabilities and there is a big demand, and I don't think it's very visible that something is changing on the market. I mean, there are good opportunities. The main challenge is still to have the right capabilities and right balance of these capabilities for this type of deals.

Just so, I just might add that when you look at our growth in certain segments, where obviously there is a high digital component, we grew 42% year-over-year. So, I think that speaks to the strength of our capabilities and the work that we are doing for our customers.

Hello and congratulations on the very good results. I have a follow-up question on UBS. I've made some calculations. It looks like in the last quarter, these accounts started to grow sequentially after several years of pretty sluggish performance. If that's the case, can we speak about the turnaround with this account and in general with the overall situation in the Financial Services sector growing pretty good? But do you see any improvement in the industry as a whole? Thank you.

Vladimir, first of all, UBS was the first pickup that happened exactly one year ago. Before that, it was pretty strongly growing account for us. All we can comment on is that it's much more stable. We can predict better this level of stability because, if you remember, our comments before, we were always saying, let's take a look at the next quarter. I would conclude with this type of comment right now. General stability - you are asking about general stability of the financial industry, again, for us, it’s stable and growing. Again, UBS was an exception. Financial Services, excluding UBS, grew 27%, as was practically the same during the last periods.

Okay, thank you. Could you provide some comments on Life Sciences & Healthcare as well because there was a pretty good acceleration of growth year-on-year after previous quarters?

It's very difficult for us to single out one vertical against another because that’s what we are trying to explain. The majority of our services are in new developments. We don't have a lot of legacy support and maintenance activities. Practically, all sectors on which we focus are high growth sectors for us for the type of engagements, and Life Science is a good example of this as well.

Yes, hi guys. A very quick one, high level question for me. I am thinking of growth, have you seen in the last quarter or based on the visibility that you have as of now, do you expect to see any sort of divergence between volume and pricing in any of your sectors or geographies? Anything that you can sort of comfortably call out there? That’s for me. Thank you.

Yes, so in the near term, I am not sure that we see a divergence between volume and price. I think longer term, we've talked about the fact that we will likely see more of our work come out of our customer-facing geographies, and so over the mid-term to longer-term what you could see is a divergence between volume and price, just because the on-site or customer-facing geographies would have higher rates than the offshore geographies. Just as a reminder, we are a T&M business, over slightly 90% of our revenues come from T&M. So you don't see significant changes based on things that could be happening with a large fixed engagement again, we are substantially a T&M.

Thank you for taking my question. I would like to talk to you about the cash which you have on your balance sheet. It keeps growing and growing. You have answered this question quite a number of times in the past, but still, I mean you have much more than you can stand on exhibitions probably, but what is the longer-term strategy for using cash?

Yes, we are over $500 million in cash. We had very strong cash production in Q3, as you are aware. 75% of that cash is offshore. What we feel this time is that the cash we have in place is very much there to support our acquisition strategy and our inter-growth strategy. We do have discussions around what we might do longer-term, but I wouldn't comment on that at this time, and instead, we just continue to focus on our acquisition strategy and we continue to be active.

Good morning. Can market share or larger gains that large existing or relatively new clients explain the nice delta between headcount and revenue growth in recent quarters?

Yes, I mean we are certainly seeing that. Clearly, ongoing growth in our existing customers, as I think we talked about sort of 15% excluding UBS for our Top-20 customers and over 20%, if you exclude UBS. It's still a combination of things, which probably is more headcount growth and utilization, okay, as well as obviously expanded revenue across the host of clients, including our new customers.

Thank you. There are no further questions at this time. I would like to turn the call back over to Arkadiy Dobkin for closing remarks.

Thank you. We are clearly pleased with our results in Q3 and kind of excited about how we went through the year shaping our path right now. Looking forward to updating you in three months on what really would happen. See you here in three months. Thank you very much.