EPAM Systems Inc (EPAM) — Q3 2018 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 2018 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 I 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 risks and uncertainties as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP measures have been reconciled to GAAP and are available in our Q3 earnings material located in the Investor 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. Let me begin with a few financial highlights from Q3. We delivered a strong third quarter with revenue of $468 million, reflecting 24% year-over-year growth or 25.4% in constant currency terms. Our revenue growth was broad-based both geographically and across all of our industry verticals. In addition, we delivered strong non-GAAP earnings per share of $1.17, which represents 27% growth from Q3 of 2017. Our results for the first three quarters of fiscal 2018 point to a very consistent story of our ability to execute and grow in the market that demands high-end expertise and ever-changing cutting-edge capabilities spread across multi-functional teams and geographical locations. With the story of consistencies as a backdrop, I would like to step back from the quarter and share a bit broader perspective. We are now approaching EPAM's 25th anniversary in December and we started to orchestrate a number of events across the company. Just last month, we hosted our 11th Annual Software Engineering Conference, we brought together all community support practitioners to connect, learn and exchange ideas about technology trends and define the market we're currently in. This year's event was attended by over 3,000 employees as well as guests from our clients and professional communities. They visited from over 20 countries. From one side, our message during this conference was kind of a familiar one to practically everyone today. The world continues to be disrupted at a pace and scale that is forcing massive change across all industries and for the clients we serve. As a result, the environment continues to be even more demanding and challenging. Outdated, inflexible IT systems cannot compete against upstarts operating on natively digital platforms. There is a need for completely new enterprise architecture, which is simple, customer-centric, and configurable, but they often lack the right capabilities to do so, and in many cases, the current partners they are relying on do not have the capabilities to comprehend such new architectures either. Most importantly, the speed of the changes occurring is a real danger because most often before a client can replace a system or build new ones at their regular pace, the time will be gone; it's a killer if you don't have the speed. The demand for capability and experience has become even more challenging because this next wave of digitization, the digital ecosystem where everything comes together: people, suppliers, consumers, and businesses, creates a scalable and flexible platform environment, which brings a completely different level of sophistication in designing, building, and delivering optimal systems. So on the other side, the question we really try to address is how to better prepare for those challenges? How to disrupt ourselves further? To be able to answer this question for us and for the client. We believe we have a unique advantage by benefiting from our core software engineering and product development expertise accumulated over the last 25 years in collaboration with stable technology and software companies. By being their trusted partners, both to build software and to deliver the most complex solutions around it. That allows us to navigate over the last few years a much more intrinsic journey through digital augmentation and digital services, arriving naturally into the world of much more advanced digital ecosystem enterprise-level challenges. Still, even with a slight advantage, the realities of speed, agility, and the right capabilities at the right place and time impose challenges to us to disrupt ourselves further by continuously investigating how to turn the company into a truly digital ecosystem itself. It simply means that to support the needed speed and agility, we need to encourage our own advanced and native digital platforms and be able to orchestrate on-demand capabilities across business technology and experience consultancy in a timely manner, which includes educational and training services and also helping the majority of our clients do the same. Otherwise, we wouldn't be able to help them solve their critical business challenges. In light of all that, we also have to continue to support and expand our key advantage, which is our engineering capability even further. This set of challenges is what we've been striving to address over the last few years. We are sure that it is also the set of challenges we will have to address in the future too. All that means we need to understand what the right investments are that we have to make to continuously challenge and disrupt ourselves to find the right answers quickly or sometimes in advance. So far, we believe this push is bringing new types of opportunities to EPAM, where we’re getting into very different competition with much larger, more experienced players than us. But by demonstrating a different level of speed, agility, and engineering quality, we’re starting to see engagements that now include implementation, roadmaps, and aspects that have changed from organizational strategy to digital operating models to future platform architecture, design, and the build of such platforms, and even new ways of running those. In fact, the same started to happen practically across all industry sectors we are engaged with. In addition, we continue our efforts in open-source contributions, where we are one of the industry leaders. We continue to focus on our top-tier partnerships; for example, we now have over 2,000 certified architects and engineers across our various cloud competency centers, with over 500 certifications for Google Cloud Platform, which probably makes us number one in such a category. We are also continuing to launch platform accelerators and productivity tools, as well as establishing new engineering labs and relevant initiatives to bring financial speed and agility to ourselves and our clients. With that, I think it's almost the right time to return to our consistency story and pass the call over to Jason to reiterate it with more specific data than I did in the beginning. But still, before that, I would like to provide a bit more details on this morning's news that is very much related to the same topic I mentioned in my earlier comments. You might have seen it already. We announced the acquisition of TH_NK Digital, a UK-based consultancy with three studios across the UK. TH_NK brings a high level of consultants and customer engagement expertise that expands upon our global digital and organizational consulting capabilities within the UK and Europe. This acquisition should further enhance our ability to meet customer demand for dynamic, design-led consulting, digital product innovation, and advanced business solutions, helping us to build platform speed at scale. So we are the story that continues to evolve. With that said, let me turn finally the call over to Jason for an overview of our Q3 results and an update on our business outlook.

Thank you, Ark. Good morning everyone. I will start with some financial highlights and then talk about profitability, cash flow, and then guidance for fiscal 2018 in Q4. In the third quarter, we delivered a very strong top-line performance, exceeded our profitability expectations, and improved earnings per share. Here are a few key highlights from the quarter. Revenue came in at $468.2 million, with a year-over-year growth of 24% and 25.4% growth in constant currency. In the quarter, revenue reflected a negative foreign exchange impact of 1.4%, which was greater than the 1% impact we expected when we set our Q3 guidance in August. Reported revenue would have been approximately $2.1 million higher this quarter had we applied the same foreign exchange rates to non-USD revenues used for our Q3 guidance. Looking at revenue growth across our industry verticals in the third quarter, the drivers of growth remained consistent in the industries we serve, which include digital transformation, increased focus on customer engagement, product development, and driving efficiencies, along with deeper insights into artificial intelligence, machine learning, and analytics. In Financial Services, our largest vertical, we delivered 18.1% growth year-over-year. Growth in Q3 was impacted by an expected ramp-down of activity at a few clients outside of our top five, predominantly based in Europe. Travel and consumer grew 21.9%, software and hi-tech grew approximately 20.1%, Business Information & Media posted 27.2% growth, and life sciences and healthcare grew 40.3%, reflecting growth in existing clients and quite strong growth in new client revenue. Lastly, our emerging verticals delivered 31.4% growth, primarily driven by clients in industrial engineering and energy. From a geographic perspective, North America, our largest region representing 60.7% of our Q2 revenues, grew 30.3% year-over-year, or 30.7% in constant currency. Europe, representing 32.5% of our Q3 revenues, grew 12.4% year-over-year, or 14% in constant currency. CIS, representing 4% of our Q3 revenues, grew 15.9% year-over-year, or 27.8% in constant currency. Finally, APAC grew 67.6%, or 71% in constant currency, and now represents 2.8% of our revenues. We continue to deliver growth across a broad range of industries, geographies, and engagement types while driving further diversification in our client concentration. In the third quarter, growth in our top 20 clients was approximately 23%, while growth outside our top 20 clients was approximately 25% compared to the same quarter last year. Moving to the income statement, our GAAP gross margin for the quarter was 35.7%, compared to 36.6% in Q3 of last year. Non-GAAP gross margin for the quarter was 37.3%, compared to 37.9% for the same quarter last year. The decline in gross margin was primarily driven by a higher level of accrued variable compensation compared to the same quarter last year. GAAP SG&A was 19.8% of revenue, compared to 21.5% in Q3 of last year. Non-GAAP SG&A came in at 18% of revenue, compared to 19.8% in the same period last year, and at the bottom of the 18% to 19% range that we use to manage the business. GAAP income from operations was $64.6 million, or 13.8% of revenues in the quarter, compared to $49.2 million, or 13% of revenue in Q3 last year. Non-GAAP income from operations was $82.1 million, or 17.5% of revenue in the quarter, compared to $62.6 million, or 16.6% of revenue in Q3 of last year. Our GAAP effective tax rate for the quarter came in at 0.6%, which includes the impact of a $7.1 million favorable adjustment to the original charge for the one-time transition tax under U.S. Tax Reform originally booked in Q4 2017, as well as a $6.1 million excess tax benefit related to stock option exercises involving restricted stock units. Our non-GAAP effective tax rate, which excludes these and other adjustments, was approximately 20%. Diluted earnings per share on a GAAP basis was $1.15, and non-GAAP EPS was $1.17, reflecting a 49.4% and 27.2% increase over the same quarter in fiscal 2017. In Q3, there were approximately 57 million diluted shares outstanding. We ended the quarter with over 25,200 delivery professionals, a 16.6% increase year-over-year, and a net addition of more than 900 production professionals during Q3. Our total headcount ended at more than 28,400 employees. Utilization was 76.4%, compared to 77.6% in the same quarter last year and 78% in Q2. Turning to our cash flow and balance sheet, cash flow from operations for Q3 was $102.3 million, compared to $62.2 million in the same quarter last year, and free cash flow was $94.1 million, compared to $56.8 million in the same quarter last year. DSO was 81 days, compared to 83 days at the end of Q2 fiscal 2018 and 82 days in the same quarter last year. We continue to focus on managing our total DSO performance in the low 80s. Now let's turn to guidance. Our updated full-year and Q4 outlook reflect both an acceleration in revenue growth expected for the quarter relative to that achieved in Q3 and a modest contribution from the acquisition we announced earlier today. So starting with fiscal 2018, revenue growth is now expected to be at least 26.5% reported, despite the strength of the U.S. dollar reducing the full-year benefit of foreign exchange from 1% to 0.5%. Revenue growth on a constant currency basis will now be at least 26%. As a reminder, our full-year revenue outlook continues to reflect an approximate 2% contribution from inorganic revenues. We expect GAAP income from operations to now be in the range of 12.5% to 13.5%, and non-GAAP income from operations to now be in the range of 16.5% to 17.5%. We expect our GAAP effective tax rate to now be approximately 2%, which reflects our tax planning efforts in response to the U.S. tax reform legislation. We expect our non-GAAP effective tax rate to continue to be approximately 22%. For earnings per share, we now expect GAAP diluted EPS to be at least $4.22 for the full year, and non-GAAP diluted EPS will now be at least $4.32 for the full year. We continue to expect a weighted average share count of 56.7 million fully diluted shares outstanding. For Q4 of fiscal year 2018, revenues will be at least $500 million for the fourth quarter, including an estimated $2 million contribution from the TH_NK acquisition, producing a growth rate of at least 25% reported and at least 26% in constant currency, after factoring in a 1% estimated unfavorable foreign exchange impact. For the fourth quarter, we expect GAAP income from operations to be in the range of 14% to 15%, and non-GAAP income from operations to be in the range of 17% to 18%. We expect our GAAP effective tax rate to be approximately 19%, and non-GAAP effective tax rate will be approximately 22%. For earnings per share, we expect GAAP diluted EPS to be at least $1.03 for the quarter and non-GAAP EPS to be at least $1.22 for the quarter. We expect a weighted average share count of 57.1 million fully diluted shares outstanding. Lastly, a few key assumptions support our Q4 GAAP to non-GAAP measurements. Stock compensation expense is now expected to be approximately $13 million. Amortization of intangibles is now expected to be approximately $2.7 million. The impact of foreign exchange is expected to be approximately $0.5 million loss. The tax effect of non-GAAP adjustments is now expected to be around $3.2 million. Lastly, we expect excess tax benefits to be around $2.3 million. In summary, we are pleased with the third quarter results, which reflect strong broad-based growth across all our verticals and geographies. Our unique positioning in the market combined with our solid fundamentals positions us well for continued growth in fiscal 2018. With that, let's open up the call for questions.

Thank you, hello Ark, hello Jason. Good morning. My question is regarding the acceleration in revenues that you're seeing. Could you maybe break that down into signing new clients versus your contract sizes increasing as software engineering and digital transformation just becomes more and more mainstream? Let me start by asking if you could provide a bit of color as to what's driving that acceleration and the sustainability of it?

Hi. So first of all, the acceleration exists, but it's not so huge; it's probably in line with what we were showing before. The type of work is slowly starting to change; we see more platform demand opportunities, and we do believe we have some advantage there, but it is very complex. There is a lot of demand, but delivering is still a challenge for us as well. That's why I was trying to explain and focus on a lot of potential challenges we see ahead of this. This also applies to our capabilities, with a material decline from one side of what clients need and from the other side, clients are not necessarily always ready for this. In short, we see the change in the kind of portfolio, where more than once come from more integrated platform lead solutions.

Yes, the only subtle addition I would make is that we are seeing somewhat of an acceleration in new customer revenues. We have significant demand from new customers. They obviously start small and then grow over time, and that is contributing to the somewhat higher level of demand that we're seeing in Q4.

Got it. And then just to highlight a couple of the areas, the verticals look like good sequential acceleration in life sciences and the emerging verticals are also doing well. Could you talk about what's contained in the emerging verticals and just honestly about the comments on platform and life sciences and healthcare? Maybe something about the nature of the work you're doing and why you're seeing the pickup there?

That's a lot of questions. In terms of what we classify under others, it includes areas that currently do not fit into our primary business lines, yet it is experiencing rapid growth. This category encompasses sectors such as oil, gas, energy, engineering, and even telecommunications, including automotive. In the automotive sector, we see significant growth, with many of these being new clients for us. A good share of this growth is linked to platform lead opportunities, where we need to leverage our expertise to deliver effectively. Specifically, in life sciences and some other sectors, we have observed much stronger results this quarter compared to the past. This segment is relatively small, accounting for roughly 10% to 11% of our overall business, so fluctuations are to be expected. However, this quarter shows promising outcomes; our focus in life sciences revolves around R&D and data, particularly in genomic data, where we've made notable advancements in automation. We are also seeing growth in the commercial aspects. This summarizes the situation.

No, I think I'm just basically looking for those sorts of examples on life sciences trying to connect it to your platform comment, but I think I do get that. Thank you, congratulations on this quarter.

Thank you.

Hi, good morning everyone. My first question is around pricing. Does the growing consulting focus enable you to positively impact the overall pricing plan?

So, I think in the long-term, we will expect more impact. But at this point, consulting for us has enabled total solutions. There is no goal to bring consulting as just a separate service for higher margins; the goal is to help to deliver end-to-end solutions and assist clients in our sales to explain ROI in advance and then focus on necessary actions. I think it would take some time before the maturity of this whole operation grows, and we can see a bigger impact on our margins. There are probably some, but it's very difficult to measure specifically because we do not treat consulting just as a line of business. So it's challenging to understand exactly where the benefits or problems would begin.

And the next question regards finding the right talent. Are you looking into new regions or new countries in order to find the required talent?

So we always look for new regions and new talents because for everyone in the global market, it remains a key challenge. We are opening additional offices in Europe and we're considering investments in locations to improve the quality of talent we can bring, how to train it, and how to bring the level we need. But the simple answer is yes, we look all the time.

Alright, hey guys, good morning, thanks. To start off with a financial question, your margin did come in better than we thought, and your rising EPS guidance is now impressive. Could you give us some building blocks on what the key drivers of that were versus your prior expectations going into the beginning of the year and even into the quarter?

Yes, we had to run at somewhat higher utilization than we had expected. We expect to see the higher utilization again in Q4. We're also seeing a stable wage environment, probably getting a little benefit from customer mix, and throughout the year we've had a focus on account profitability, which has been beneficial. Finally, we're also benefiting from our focus on managing SG&A. At the same time, we continue to invest to ensure we can deliver greater than 20% in the upcoming fiscal years.

Great, thanks. That sounds like some of these variables are sustainable in terms of utilization, wages. Would you say that wage inflation in your view is looking stable at this point for the next few quarters?

Yes, it’s always hard to predict what will happen with wage inflation. This year, wage inflation has been very much within our expectations and has been stable, not elevated over the levels we've seen in the past. However, it would be hard for me to predict the future.

And I would agree that it's difficult to predict how it's going to work out because it’s clearly a function of talent availability. The digital talent landscape is tight right now, so it will be interesting to see how it unfolds next quarter. So it’s difficult to predict.

But as always, we are quite focused on account-level profitability and doing what we can to maintain and improve profitability, despite any outcomes with wage inflation.

That’s good to see that commentary. Just a quick follow-up on the financial verticals; again, revenue growth is strong, but one vertical looks like it decelerated a little bit, and I’m just curious if it’s related to one of your larger clients running at a theme or anything else going on there?

So I think that’s just a couple of things. If we included foreign exchange, which was negative, the growth in that financial services would have been just over 20%. We did see a few financial services customers not in our top five—that’s where we saw some declines. There were a few customer-specific events, but we still see strong demand in financial services and expect strong demand in Q4; we just experienced a few declines from our smaller clients.

Good morning guys, thanks. I wanted to follow up on the margin question; you took the guidance up 50 basis points at the midpoint to your 17% for the year. How much headroom is there over time in the margins? Is there still room to drive additional SG&A efficiency as you think about your business over the next couple of years?

Yes, I think I’d say that we’re still working on our 2019 plans, so it would be hard for us to comment at this time. We're going to continue to make investments to ensure we grow the company in excess of 20% per year. The first half of the year saw us in the low end of the 16% to 17% range, but in Q3 and Q4 we're talking about being above the 17% range. You can clearly see that we can operate anywhere in that 16% to 17% range, both at the high and low ends. At this time, we would not be able to provide any additional color on what we expect for adjusted IFO in 2019.

Okay. What can you tell us about attrition trends in the quarter? I know you don't disclose an exact number, but I believe last quarter the comment was that it had grown up quarter-over-quarter. What was the direction there in Q3?

So attrition is still at the same kind of level; it has not significantly changed since last quarter, but it’s mid-teens right now. Again, it’s all a combination of balance and wage.

Yes, the digital count is still tight?

It's not decreasing, let's say that.

Thank you. Good morning. As you look ahead into next year, I wanted to get your thoughts on growth from the standpoint of headcount additions versus pricing leverage and any further improvement in utilization. Additionally, do you expect the model to shift more to fixed price, maybe even outcome-based or transaction-based pricing versus currently being much more heavily weighted towards time-and-materials?

I think on utilization, we are probably at a level that we’re not going to make it higher; we’re around optimal. We would probably like to maintain that level. Specifically, regarding the model, we are exploring multiple initiatives right now to separate these two elements, but headcount growth will still be very important for us. The T&M model isn’t selected just because it’s easier; it’s subject to the type of work we do, which involves dynamically changing staffing from the client side and the client competition side. It’s difficult to turn this type of work into fixed-cost or isolates, as fixed-cost isolates require definitions of what you are doing multiple times, allowing for easy predictions. This is not the type of work we typically undertake. At the same time, outcome-based pricing might be an answer if the right relationship and understanding exist not only from us but from clients as well. That's why we've been talking about the importance of creating our digital ecosystems—so that we can respond more quickly. We’re also working on creating a type of consultancy for clients, where some are genuinely interested in a capacity to act accordingly. I think there are some initial indications that we might have opportunities to earn differently, with different models—but it’s still early to say. However, we are certainly thinking and experimenting with it right now.

Thanks. Just a quick financial question to get started. Are you going to disclose the top clients going forward? I know you provided the top 10 and top 20 but what about the top 5?

Yes, we’ve got that information available in our fact sheet posted on our website regarding the top five.

Okay. I can look there earlier. Yes, and then I think this has come up in a couple of different questions: if you go back to the end of last year, that's when the cost per head began to grow at a faster rate than the revenue per head. I know wage inflation plays a role here, but can you provide a sense of what we should expect over the next 12 months in terms of that equation?

In terms of price increases or in terms of

Yes, that’s one of those types of questions that we cannot entirely answer. What we’re observing is the ability to raise rates; we did see some rate increases across some large customers in Q3. It is critical for us to deliver quality and also to ensure we're capturing some of the value for our investors. We aim to achieve greater account profitability, and there is ongoing attention to the pricing element. Therefore, while I can’t predict if pricing will accelerate at a greater rate than wage inflation, I can confidently say we do continue to pursue rate increases and we look for those opportunities with both existing and new customers.

Hi, thank you and congratulations on the 25th anniversary. Ark, in your prepared remarks, you mentioned increased complexity in the technology landscape. I want to clarify, is that a good or bad thing for EPAM?

Question number one: Is it good or bad? Well, it's reality, and we believe for the component of the market that we should blame in, it's provided us opportunities to potentially win more deals because we believe we are better prepared for this type of complex work. However, at the same time, as more complex work increases, a different combination of capabilities is required, which creates challenges for us too. So we think it’s a good opportunity, but it’s also quite challenging.

From the DSO standpoint, we took down DSO by two days in the quarter. I would not expect to see a further decline; I think we’re comfortable with this low 80s, but it is an area of focus for us, and we are looking to continue to evolve that. At this time, I'd say just consider a low 80s as our corporate target.

Hi Ark, hi Jason. Congrats on another strong quarter.

Thank you.

Just a couple of questions on automation; in the last earnings call, you explained what you're doing with automation. Just wanted to see if you have an update, and specifically are there particular vendors you're working with regarding RPA?

I think nothing significantly changed during the quarter. It’s still a very good area and a growing area for us, but I don’t think there is any specific update over the three months that makes sense to highlight.

Yes, but are there some particular RPA vendors that you're working with? I know Work Solution is one, but are there others you’re working with as well?

No, we're working with the same set of vendors. We're choosing ones that are top-tier and are working with a couple of others. The landscape hasn't changed significantly in a few months.

Right.

While I understand you’re asking because it's a dynamic market, things don't change that quickly.

Great. And in terms of pricing models for your automation projects, are they similar to your other projects, or are there pricing models that are slightly different?

That's a very new area, and clearly, automation would lean towards outcome-based because it's much easier to measure the impact, and there are multiple discussions in our current deals regarding how we’re going to do this. That's a very relevant question; it's the area where we might be moving away from time and materials much faster.

Great. And finally, are there particular clients, either by geography or industry, where you're seeing higher interest, or is this a demand area across your entire client base?

So definitely, I think insurance and financial services are currently champions because there are numerous services needed, but it's also related to retail as well.

Yes, hi guys, thanks for taking the question. I guess a quick high-level question from me; are you seeing increasing demand from your clients for near and onshore delivery as you gradually move away from offshore?

So I think we’re seeing demand for more cross-functional teams with some of them being staffed in the market. The complexity of the problems requires more specialized expertise and consulting skills, which need to be deployed locally. This is happening, and it’s a trend we’re observing; however, there isn’t a complete shift away from global delivery and offshore capabilities. The balance between capabilities, costs, and scalability is still evolving. There are no dramatic changes, but it will be some type of evolution. In our case specifically, we have what, 10% to 11% of our talent located in the market, which is probably at least wise compared to most of our competitors.

Hello, congratulations on a very strong number, and thank you for taking my question. My first question is on client concentration. I see that there has been a significant increase in the share of your top clients. Could you provide some insight into whether this was driven by acquiring new clients or ramping up existing ones?

From a concentration standpoint, it’s a good observation; there was indeed a substantial growth rate in the 11th to 20th largest customers this quarter. Many of those clients may not be brand new but are clients we've acquired over the last two years. This indicates that we are still in a position with our customers, including our larger ones, that many of them have significant wallet share opportunities for us. They are large global companies; we get something started with them, we see success and then they're asking us to help out in more areas. There is continued growth opportunity within these large customers, especially with the addition of some good, growing accounts in that range.

Thank you. And regarding capital allocation, any new developments on how to allocate this cash? How much of this is in Belarus and outside of Belarus?

Regarding cash, you're right; we utilized more cash this quarter than last. We have taken the opportunity post-U.S. tax reform to bring some of that cash back to the United States. Right now, over 40% of that cash is in the U.S., so we have reduced the balance we have in Belarus. In terms of capital allocation, our focus remains on acquisitions. You might see us doing deals at a somewhat accelerated rate in the first half of 2019, possibly somewhat larger deals compared to the $30 million to $50 million deals we've done previously. Our board continuously deliberates on the evolution of our capital allocation strategy, considering options like share purchases to reduce dilution among stockholders.

Hi. I was wondering if you could give more color on the types of projects and clients that had issues within financial services.

Financial services is a very diverse segment, and I think we've been sharing our work on both the more traditional investment banking side and also on the wealth management and digital project sides. The financial services scope for us also includes numerous clients operating in data spaces for financial services, including smaller companies focused on new banking systems and payment systems. This sector offers an interesting and growing avenue for us. We've got numerous verticals there, covering retail banking and payment systems primarily, but it’s pretty well diversified geographically across Europe, North America, and Asia.

We see strong demand within wealth management, asset management, and FinTech, and also see growth in insurance, albeit a relatively small area currently. Nevertheless, we are growing rapidly with key customer revenues, which can be considered in response to your question.

Hi, thank you, and congratulations on the 25th anniversary. Ark, in your prepared remarks, you noted the increased complexity within the technology landscape; I would like to clarify if this represents a positive or negative aspect for EPAM.

Regarding increased complexity, it represents a reality we must adapt to; we believe it's an opportunity that can lead to winning more deals, especially since we believe we are better prepared for this type of work. However, it does entail more challenges, as complexity requires more capabilities to be developed.

From the DSO perspective, we managed to reduce DSO by two days this quarter. I wouldn’t expect additional declines; we are comfortable within the low 80s, which remains a focus area for us. However, I would advise considering a target range of low 80s as our benchmark.

Thank you, everyone. We believe it was a good quarterly performance, and we anticipate good results as we move forward in Q4. Don't forget to mark your calendars for December, as we will be celebrating our 25th anniversary this year. I want to thank our employees, clients, and investors for their continued support. Thank you very much.