EPAM Systems Inc (EPAM) — Q4 2022 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 fourth quarter and full year 2022 results. If you have not, a copy is available on epam.com in the Investors section. With me on today's call are Arkadiy Dobkin, CEO and President; and Jason Peterson, Chief Financial Officer. I'd like to remind those listening that some of our 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 the comparable GAAP measure and are available in our quarterly earnings materials located in the Investors section of our website. With that said, I'll now turn the call over to Ark.

Thank you, David. Good morning, everyone. Thank you for joining us this morning. Twelve months ago on February 17, we were looking towards 2022 with optimism. We had been added to the S&P 500 and we expected to grow almost 40% and generate over $5 billion in revenues this year. Even with some falling volumes, the Russian invasion struck the world one week later and put us in a very different place regarding our priorities. The new reality redefined the meaning of success for us. We are grateful to the tens of thousands of EPAMers and our customers around the world who mobilized to support people in our business during the past year. Our success in 2022 was defined by new criteria and priorities, many of which we have shared with you in our regular calls and updates during 2022. Priority one was to do everything possible for the safety of our people in Ukraine. Next, our global mobility mission was immediately repurposed and scaled to support over 10,000 EPAMers. We chose to stay in neighboring countries, many with their families. In addition, our business continuity strategy was adapted to include an exit of our business from Russia. Throughout the year, our customer focus was elevated to ensure that even with an environment that was anything but normal, our clients continued to experience the consistent high quality of delivery and level of service that they expected under traditional business conditions. 2022 was in every way the most disruptive year for EPAM that I can remember, and I have a previous history to remember all of them. You might ask why we consider 2022 a relative success. As a result of our 2022 efforts, in 2023 we have a global delivery footprint and urbanization that makes EPAM one of the most geo-diversified IT services companies in the world, operating in more than 50 countries. When we began 2022, roughly 60% of our delivery was in the three largest locations combined. Today, only 30% of our talent is there. We expect that this will fall closer to a 20-25% concentration by the end of this year with accelerated growth outside. We also didn't lose any significant clients during the last 12 months despite actively running a global delivery location rebalancing program, and in real time we were continuously developing new capabilities across our major markets. We were prudent with our delivery out of Ukraine. We consistently demonstrated productivity and quality, very much in line with previous expectations. Our new locations have maintained EPAM's productivity and quality engineering standards. Why then do we use a relative qualifier to the stated success to date? Simply, the war within Ukraine is not over, and we believe that it will be our daily reality for some time to come. Having accomplished what was an extremely difficult transformation and finding our organization much stronger, more capable, and effective than we have been before. We do realize that it's an ongoing process which demands our even higher-level preparedness for new and unexpected challenges. As I've mentioned during our last earnings call, some of our partners and customers have been messaging their expectation for a global slowdown in demand and started taking resultant actions to better align their businesses to the new environment. While we expected a slowdown, our reality has proven to be more complex than the typical slowdown indicated by others. When we shared our Q3 results in November, we had not yet seen a detailed picture of what EPAM's specific demand environment would become in 2023. Today, what we are experiencing is a degree of caution related to macroeconomic conditions. The emerging view is specific to both the overall global market conditions and also reflects the client expectations as part of our mitigation and diversification plans, as well as their corresponding decision-making processes during the last year. First, we now understand that some of our clients didn't expect that we would mitigate the past 12 months as well as we did. At some point, they chose to mitigate their risk associated with our situation in advance and to consider alternatives for new work streams. We believe that while they are now comfortable with our diversified delivery footprint and committed to continue working with us, a number of decisions made two or three quarters prior only became visible to us now. Second, due to the immediate redistribution of our talent to new locations, our overall cost structure and costs to our customers were disrupted to some level. During the previous boom environment, the changes were accommodated relatively easily, but in the current slowed environment, the new location, pricing, and mix present greater challenges, at least while we address the imbalance. Third, several key verticals, such as software and high-tech, for example, were disproportionately impacted by the current slowdown. There are also several large clients that faced their own specific circumstances during the last several months and had to delay previously committed initiatives. Finally, our attention to acquiring net new logos during the last 12 months was deprioritized as we focused on retaining our existing customers and repositioning our global delivery. Due to these EPAM-specific factors, we believe we are now seeing a lower revenue growth outlook at the beginning of 2023 than we would historically expect at this time. Our current view for the year now shows relatively low growth during the first half, with acceleration in growth in the second half of 2023, potentially approaching the high teens in Q4, with an opportunity to return to our pre-pandemic organic growth profile of 20% plus shortly after that. At this point, we are investing in our customer and partner relationships and working across our global portfolio to build on our strong differentiators, adding value through services in consulting, client data, and customer experience. These are long-term programs that we've had underway for several years. Our current positioning as a top-tier partner to our clients and the additional credibility we've built over the last 12 months should help create an uplift in demand going into the second half of 2023. Today, we continue to stabilize our global delivery platform and develop talent across new geographies. A significant part of those continuous efforts will allow us to restore the balanced cost structure across all major delivery centers. At the same time, we are fully committed to ongoing investments in our strategic differentiators, carefully watching the balance of those investments against current demand. Given the uncertainty looking at our business from both a long and short-term view, we are heavily utilizing our digital platforms, which have been instrumental in guiding our decisions so far and allowing us to monitor our business daily, making real-time calibrations when necessary to ensure we protect our best talent as a key priority while still driving towards our historic growth and profitability levels. On the general slowdown issue, we believe that in today's technology-dependent world, the real impact of slow demand on the IT services global market should be limited to several quarters. The pullback will encourage new players to enter the market with new technology-led business solutions and push enterprises to respond with new investments to protect their competitive positions. This, in turn, should accelerate growth for EPAM, as our proposition focuses on bringing new strategy and implementation simultaneously in the most responsive and efficient ways. Our goal today is to prepare EPAM for this situation and to be able to respond promptly to the next growth and capability challenges. Thus, we plan to focus our attention in the coming quarters to stabilize our global operations further, continuously invest in new talent, new capabilities, and new markets, while maintaining our strong engineering DNA as a much more globally diversified company than ever before. Looking at our results for 2022, we generated over $4.8 billion in revenue, reflecting more than 28% year-over-year growth. Non-GAAP earnings per share were $10.90, a 20% increase over fiscal 2021. We also generated $382 million in free cash flow. We accomplished all of this during a year when we had almost 60% of our talent in regions directly or indirectly affected by war, supporting thousands of EPAMers and their families due to the continuous relocation process. In 2023, we are committed to accelerating our mission of becoming a true world orchestrator for our customers, and we work daily to stay focused on our customer needs and demands, even while we continue rolling out geographic expansions and capabilities within our commercial offerings for a larger, more diversified, and more capable EPAM. It is a bit strange to talk again today, 12 months later, about crossing the $5 billion revenue mark in 2023, as we did back in February 2022. The war took a year of our life, a year of our growth. But we all know too well that this is nothing compared to what people in Ukraine are going through today and what is happening on the ground in Turkey as we speak. With that said, we remain confident that with what we have built and are continuously building, we will be able to navigate challenges and return to our 20% plus organic growth rate in the next several quarters, and to our $10 billion aspiration in the next several years. With that, let me turn the call over to Jason, who will discuss our Q4 and full-year 2022 results as well as our business outlook for 2023.

Thank you, Ark, and good morning, everyone. Before covering our Q4 results, I wanted to remind everyone that in addition to our customary non-GAAP adjustments, expenditures related to EPAM's humanitarian commitment to Ukraine, the exit of our Russian operations, and costs associated with accelerated employee relocations had been excluded from non-GAAP financial results. We have included additional disclosures summarizing these and other related items in our Q4 earnings release. In the fourth quarter, EPAM delivered solid results. The company generated revenues of $1.23 billion, a year-over-year increase of 11.2% on a reported basis and 14.4% in constant currency terms, reflecting a negative foreign exchange impact of 320 basis points. Additionally, the reduction in Russian customer revenues resulting from our decision to exit the Russian market had a 440 basis point negative impact on revenue growth. Excluding Russia revenues, reported year-over-year revenue growth would have been 15.6%, and constant currency growth would have been almost 19%. Beginning with our industry verticals, travel and consumer grew 16%, driven by strong growth in travel and hospitality, with some moderation in retail and consumer goods, as customers exhibited incremental caution in the last few months of 2022. The ongoing exit from the Russian market also impacted growth in this vertical. Absent that impact, growth would have been 19% or 25.4% in constant currency. Financial services grew 2.4%, with very strong growth coming from asset management and insurance. Excluding our Russian customer revenues, growth would have been 17.8% and 20.8% in constant currency. Software and Hi-Tech grew 10.3% in the quarter, reflecting reductions in revenue from a customer that was previously in our top 20, in addition to slower generalized growth in customer revenues across the vertical. Life sciences and healthcare grew 11.5%. Growth in the quarter was partially impacted by the unexpected ramp-down of a large transformation program at a customer that was previously EPAM's top 10. We currently anticipate further ramp-downs in this customer spending in Q1 of 2023. Business Information and Media delivered 10.9% growth in the quarter. Finally, our emerging verticals delivered strong growth of 20.8%, driven by clients in manufacturing, automotive, and energy. From a geographic perspective, the Americas, our largest region, representing 59% of our Q4 revenues, grew 14.7% year-over-year or 15.6% in constant currency. EMEA, representing 37% of our Q4 revenues, grew 18% year-over-year or 25.7% in constant currency. The accelerated growth in the quarter is partially the result of recent acquisitions. CEE, representing 1% of our Q4 revenues, contracted 71.8% year-over-year or 72.6% in constant currency, impacted by our decision to exit the Russian market and the resulting ramp-down of services to Russian customers. Finally, APAC was flat year-over-year, but actually grew 3.8% in constant currency terms and now represents 2% of our revenues. In Q4, revenues from our top 20 clients grew 8% year-over-year, while revenues from clients outside of our top 20 grew 13%. Moving down the income statement, our GAAP gross margin for the quarter was 32.4% compared to 34.3% in Q4 of last year. Non-GAAP gross margin for the quarter was 34.1% compared to 35.9% for the same quarter last year. Gross margin in Q4 2022 reflects the negative impact of lower utilization and the positive impact of a more normalized variable compensation expense compared to Q4 2021. Gross margin in the quarter was also negatively impacted by the timing difference associated with EPAM's ongoing efforts to align bill rates based on employee relocations, most of which have been accomplished in 2022. GAAP SG&A was 16.6% of revenues compared to 17.2% in Q4 of last year. Non-GAAP SG&A came in at 14.8% of revenue compared to 15.6% in the same period last year. The SG&A results for Q4 reflected efficiencies made primarily in our facilities footprint and lower variable compensation compared to Q4 2021. GAAP income from operations was $170 million or 13.8% of revenue in the quarter, compared to $166 million or 15% of revenue in Q4 of last year. Non-GAAP income from operations was $220 million or 17.8% of revenue in the quarter compared to $206 million or 18.6% of revenue in Q4 of last year. Our GAAP effective tax rate for the quarter was 22.9% versus our Q4 guidance of 21%, due primarily to lower excess tax benefits related to stock-based compensation, as well as the impact of the change in certain tax regulations. Our non-GAAP effective tax rate, which excludes excess tax benefits and includes the impact of the change in those tax regulations, was 23.5%. Diluted earnings per share on a GAAP basis was $2.61. Our non-GAAP diluted EPS was $2.93, reflecting a $0.17 increase and a 6.2% growth over the same quarter in 2021. In Q4, there were approximately 59.3 million diluted shares outstanding. Turning to our cash flow and balance sheet, cash flow from operations for Q4 was $186 million compared to $285 million in the same quarter of 2021. Free cash flow was $165 million compared to free cash flow of $228 million in the same quarter last year. We ended the quarter with approximately $1.7 billion in cash and cash equivalents. At the end of Q4, DSO was 70 days, compared to 69 days in Q3 2022, and 62 days in the same quarter last year. Looking ahead, we expect DSO to remain steady in 2023. Moving on to a few operational metrics for the quarter, we ended Q4 with more than 52,850 consultants, designers, engineers, trainers, and architects. Production headcount growth was relatively flat compared to Q4 2021, with a total headcount for the quarter exceeding 59,250 employees. Utilization was 73.6% compared to 76.8% in Q4 of last year and 73.5% in Q3 of 2022. Turning to our full-year results for 2022, revenues were $4,825 million, producing 28.4% reported growth and 32.4% on a constant-currency basis compared to 2021. During 2022, our acquisitions contributed approximately 5% to our growth. Excluding Russia revenues, reported year-over-year revenue growth would have been approximately 32.1% and constant currency growth approximately 36.3%. GAAP income from operations was $573 million, an increase of 5.7% year-over-year, representing 11.9% of revenue. Our non-GAAP income from operations was $818 million, an increase of 20.6% over the prior year, representing 17% of revenue. Our GAAP effective tax rate for the year was 17.3% and our non-GAAP effective tax rate was 23.4%. Diluted earnings per share on a GAAP basis was $7.09. Non-GAAP diluted EPS, excluding adjustments for stock-based compensation, acquisition-related costs, and other one-time items, was $10.90, reflecting a 20.4% increase over fiscal 2021. In 2022, there were approximately 59.2 million weighted average diluted shares outstanding. Finally, cash flow from operations was $464 million compared to $572 million for 2021. Free cash flow was $382 million, reflecting a 59.3% adjusted net income conversion. Cash flow in 2022 reflected expenses associated with our ongoing humanitarian efforts in supporting our Ukrainian employees and specific cash impacts related to the exit of our Russian operations. We're pleased with our 2022 results given the significant disruption and transformation navigated throughout the year. Now let's turn to guidance. For 2023, we will resume providing a full-year outlook, in addition to guidance for the next quarter. To date, our operations in Ukraine have not been materially impacted, and our teams remain highly focused on maintaining uninterrupted production. Our guidance assumes that we will continue to deliver from our Ukraine delivery centers, productivity levels at or somewhat lower than those achieved in 2022. As we mentioned during our Q3 earnings call, we began to see signs of moderation in demand, including delays in decision-making and additional scrutiny on program budgets in early Q4. At that time, this was isolated to a few customers in the retail and consumer goods industries. Since then, we've seen further evidence of slower decision-making and caution regarding spending, including some program ramp-downs. For most clients, caution around budgets has only resulted in a slowdown in growth. For some clients, we experienced actual reductions in spend in Q4, combined with continued cautious spending entering Q1. For two customers in our top 20 in 2022, we've seen ramp-downs in programs that will negatively impact Q1 revenues. We expect neither of these customers to be in our top 20 in Q1, but we see one of those customers once again requesting incremental project teams. At this time, we expect lower revenue in Q1, producing a slower start to our 2023 fiscal year. Consistent with previous cycles, where we managed through a temporary softening in demand, we will continue to thoughtfully adjust our expense levels while focusing on preserving our talent in preparation for expected stronger second-half demand in 2023. In the first half of 2023, we expect headcount to continue to decline due to reduced hiring, combined with normal attrition levels. We plan to return growth in production headcount in the second half of 2023. We expect utilization in the mid-70s in the first half of the year, normalizing to our more traditional 77% to 79% range in the second half. As a reminder, the exit of the Russian market and reduced customer revenues create challenging year-over-year comparisons primarily in the first half of 2023. Starting with our full-year outlook, revenue growth will be at least 9% on both a reported and constant currency basis. The impact of foreign exchange is expected to be negligible on a full-year basis. Additionally, at this time, there is no inorganic revenue contribution for 2023; therefore, our guide includes organic revenue growth only. Excluding the exit of the Russian market, reported revenue growth is expected at approximately 11%. We expect first half revenue growth to be in the single digits, returning to double-digit growth in the second half. In Q4 2023, we expect revenue growth in the high teens. We expect GAAP income from operations to be in the range of 11.5% to 12.5% and non-GAAP income from operations to be in the range of 15.5% to 16.5%. We expect our GAAP effective tax rate to be approximately 21%. Our non-GAAP effective tax rate, excluding excess tax benefits related to stock-based compensation, will be 23%. For earnings per share, we expect the GAAP-diluted EPS to be in the range of $8.64 to $8.84 for the full year, and our non-GAAP diluted EPS will be in the range of $11.15 to $11.35 for the full year. We expect a weighted average share count of 59.6 million fully diluted shares outstanding. For Q1 of 2023, we expect revenues to be in the range of $1.200 billion to $1.210 billion, producing a year-over-year growth rate of approximately 3%. Our guidance reflects an unfavorable foreign exchange impact of 2%, with the year-over-year growth rate on a constant currency basis expected to be approximately 5%. We expect negligible contribution from acquisitions to revenue growth. Adjusted for the impact of exiting the Russian market, constant currency revenue growth would be approximately 8%. For the first quarter, we expect GAAP income from operations to be in the range of 9.5% to 10.5%, and non-GAAP income from operations to be in the range of 14% to 15%. Incoming operations reflect the impact of resetting social security caps and lower utilization, which we expect to improve throughout the year. We expect our GAAP effective tax rate to be approximately 18%, with our non-GAAP effective tax rate, excluding excess tax benefits related to stock-based compensation, at approximately 23%. For earnings per share, we expect GAAP diluted EPS to be in the range of $1.66 to $1.74 for the quarter, and the non-GAAP diluted EPS to be in the range of $2.30 to $2.38 for the quarter. We expect a weighted average share count of 59.5 million diluted shares outstanding. Finally, a few key assumptions that support our GAAP to non-GAAP measurements in 2023. Stock-based compensation expenses are expected to be approximately $152 million, with $35 million in Q1, $36 million in Q2, and $81 million in the remaining quarters. Amortization of intangibles is expected to be approximately $22 million for the year, evenly spread across each quarter. The impact of foreign exchange is expected to be nominal for the year. Tax-effective non-GAAP adjustments are expected to be around $44 million for the year, with $12 million in Q1, $10 million in Q2, and $11 million in each remaining quarter. Finally, we expect excess tax benefits to be around $23 million for the full year, with approximately $8 million in Q1, $6 million in Q2, and $9 million in the remaining quarters. Related to supporting our Ukrainian employees, through December 31, 2022, EPAM has spent approximately $45 million as part of the company's $100 million humanitarian commitment to our Ukrainian employees and their families. We expect further humanitarian expenditures will be made during 2023. Lastly, our Board of Directors recently approved a share repurchase program authorizing the company to purchase up to $500 million of the company's common stock over the next 24 months. This program will allow the company to substantially offset dilution associated with the issuance of employee equity. We expect to continue to generate solid free cash flows in 2023, and even stronger free cash flows in 2024. With our significant cash position and our confidence in EPAM's ability to generate strong free cash flows, we believe the company can pursue significant strategic acquisitions while evolving our capital allocation strategy to include a share buyback program. Again, my thanks to all the EPAMers who made 2022 a successful year and will help us drive growth throughout 2023. Operator, let's open the call for questions.

Hi, thanks so much for taking my question this morning. I wanted to ask about Ark's comments on some clients preemptively making the decision to move some workloads off of EPAM and that dynamic playing out as we speak. I guess the question is, is that dynamic already largely complete, or is it ongoing deeper into the year? And then maybe you could speak to how you can go about winning those workloads back?

It's very difficult to measure what’s happening, but we have not taken work away from EPAM. What we're saying is that we are realizing that some future work traditionally expected from our existing client base has likely been diverted to alternative vendors, and these decisions were made to explore alternatives several quarters ago when clients were uncertain how well we would navigate the disruption in Eastern Europe. It’s difficult to measure this exactly, but from the current demand situation in Q1, we assume this is happening. The situation is not easy to confirm. However, we know that with the majority of clients, we didn’t lose significant clients at all. They understand we've managed to continuously work from Ukraine, and the quality of our delivery has been maintained even when working in new locations. Currently, there's a level of comfort that clients will be considering us for future work as well. This comfort has been regained. However, we also have certain cost changes that we are actively working to balance.

Thank you. And one quick follow-up from me. Maybe Jason, could you comment on the margin cadence this year? Should we expect margins to step up along with revenue in a straight line as we move deeper into the year or is there any other color on the cadence in margins that you might share?

Let me clarify what we think we’ll see in 2023. Clearly, we were very thoughtful about our guidance with a 15.5% to 16.5% adjusted IFR range. We anticipate that we would operate above the midpoint of that range in 2023. In the first half of the year, we expect lower levels of profitability, but in the second half, we're expecting higher profitability. We entered 2023 with a reset of Social Security caps and lower utilization due to ramp-downs. We expect gross margin in the first half of the year, probably in the 31% to 32% range, likely closer to 31%. At the same time, with the lower level of revenue, SG&A may go above 15% in the first half. Then in the second half with stronger growth, higher billable days, improved utilization, and focusing on aligning our costs with demand, we anticipate improved gross margins, probably around the 34% range in the second half and SG&A below 15%. So to summarize, SG&A above 15% in the first half and below 15% in the second half.

Very helpful. Thanks so much.

Hi, thank you. I wanted to ask on the outlook here. So as you built the Q1 and 2023 growth outlook, is that baseline from Q4 and really the December client activity you saw, or is that more a real-time view of client contractions in the last few weeks? I'm trying to understand the underlying assumptions in that full-year guide and whether you have a different level of visibility to the full year target versus what you normally have at this point in the year, given all the moving parts.

It's a more challenging environment to forecast. We are seeing some positives around the macroeconomic environment that makes us comfortable. As we exited 2022, we saw slow demand in December and January. However, we are beginning to see some green shoots of incremental demand as clients get more comfortable with 2023. The full-year view is based on the slow start in Q1 but optimistic for the remainder of the year due to increased activity in RFPs and requests for discussions with clients. Thus, we feel confident we could generate stronger revenue growth consistent with our pre-pandemic sequential growth rates of 5% to 8%.

Our assumptions consider the general economic slowdown. Given the trends specific to EPAM, we're cautiously optimistic for the second half of the year. We believe growth will return to pre-pandemic levels and reach high teens by year's end.

Okay, my follow-up on margin here. Can you discuss the impact of lower growth on the year-over-year decline of margins versus global investments to support diversification and pricing/wage pressures? Can you rank those three factors impacting your margin outlook?

It's a tale of two halves this year. In the first half, we're seeing lower profits, which is driven by unexpected lower demand and utilization issues. In the second half, we're going to carefully align costs to demand, expecting recovery in margins. Pricing power is less pronounced this year as we face high wage inflation but less rate improvement available compared to previous years. We anticipate improved profitability as we exit 2023, particularly into 2024.

Thank you for all the detail.

Thanks very much. I'm curious about the steps you're taking to revive the new business pipeline, given your secondary focus as you were adapting last year.

What we're doing to revive the pipeline is as follows.

In general, we have much better stability in our global operations, creating opportunities to focus on business. Our focus on consultants is working. We're also developing shorter programs that are transformational for our clients. Multiple activities are underway to support new revenue generation from smaller deals to consulting-led initiatives.

Can you elaborate on your top client portfolio, how you see growth materializing, and if there are patterns emerging regarding clients' preferences for delivery geography?

We are delivering from various geographies, and most clients are comfortable with this. We don’t have major geographical issues; our clients are utilizing our resources across different regions effectively. There is a caution among clients due to the current slowdown, with some still growing fast, while decision-making is slower. As we enter Q1, we will understand the broader trends impacting all clients.

Thank you.

Great, thank you so much. I wanted to dig into some comments Ark and Jason made regarding customer relationships. What levers are you looking to pull to reengage and rebuild those relationships and work streams? Should we expect any changes to pricing or delivery strategy in response to client dynamics?

We are actively monitoring the real-time market situation. For clients and specific deals, we are making real-time decisions. We recognize the general market trend as well as specifics to EPAM. Our clients are feeling more confident in our delivery capabilities despite ongoing challenges. Rebuilding trust with clients will take time.

Regarding pricing, we see fewer opportunities for price improvement this year, so we must ensure competitiveness without impairing long-term profitability.

Thank you for that. Could you share your current acquisition strategy, especially in light of the buyback authorization? What are you looking for in acquisitions, and what does your pipeline look like for potential deals?

Our acquisition activity was deprioritized last year due to other pressing priorities. Nevertheless, we continue to assess opportunities. We expect to be active in acquisitions in 2023, potentially focusing on consulting-oriented firms with growth potential in the European market.

Good morning. In your prepared commentary, you mentioned potentially seeing some green shoots. Are clients more optimistic than they were in December and January? How do you justify growth in the back half of 2023 given current client demand?

Yes, we are seeing clients become more optimistic, especially in consumer goods and retail. Despite sluggish demand in December and January, we're beginning to see more positive engagement with our clients, even with previous ramp-downs.

We see active deals and opportunities. Our business development teams are engaged with several new projects. While we have strong assumptions for growth, factors like the ongoing conflict and market changes will impact the pace of recovery. We believe strong demand will return, and our pricing structure will adapt to emerging needs.

Can we discuss delivery footprint costs? Has the competitive edge from lower cost talent in Eastern Europe diminished? How do clients perceive your new delivery footprint?

We're still competitive in Eastern Europe while aggressively expanding in India and Latin America. Both regions provide organic growth with considerable expertise aligned with EPAM standards. While new regions may be initially unfamiliar, we are confident in our ability to maintain quality and competitive pricing.

So, operator, I think we are running a little bit late. We have time for one more quick question if we could.

Thanks, guys. I'll just ask a quick two-parter. Of all the factors impacting the revenue growth in 2023, which surprised you the most? Can you also speak to the conservatism in your revenue guide, especially given the infusion of optimism from the green shoots you mentioned?

January brought slower demand and specific ramp-downs with a couple of top clients. These elements shifted the entry point for Q1 2023. The guide reflects a reset after that caution. With multiple positive signs, we're confident in growing revenues through 2023, especially in Q4.

Thank you, as always, for attending today's call. As you know, any questions, David is available to help. Talk to you in three months. Thank you.