EPAM Systems, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the EPAM Systems Fourth Quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, David Straube, Head of Investor Relations. Please go ahead, sir.

Thank you, operator, and good morning, everyone. By now, you should have received your copy of the earnings release for the company's fourth quarter fiscal 2020 results. If you have not, the copy is available on epam.com in the investor section. With me on today's call are Akati Dutkin, CEO and President, and Jason Peterson, Chief Financial Officer. Before we begin, I would 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 measures have been reconciled to GAAP and are available in our quarterly earnings materials located in the investor section of our website. With that said, I'll now turn the call over to Ark.

Thank you, David. Good morning, everyone, and thank you for joining us today. Let me start from taking a look back to 2020. which we all know was a very different year for all of us, to say the least. In preparation for today's call, I briefly reviewed what we were thinking and what we were sharing during the last year, starting from 12 months back, and then 9, 6, and just 3 months ago. I think it tells an interesting story. February last year, still full of hope for another practically normal year for us, with 20 plus percent organic growth. focusing on our adaptive enterprise story and, in short, looking optimistically into 2020. Just three months later, while still reporting 26% constant currency growth for Q1, we, like everybody else at the time, didn't understand at all where we would end up and what we would have to do to go over this very uncertain and very fast worsening situation. The situation When more than 30% of our client portfolio experienced some form of revenue impact, we practically had to reorganize ourselves on the fly and to start preparation for a very defensive play for protecting, as a first priority, well-being of our people and ensuring continued liquidity and viability of our business. When thinking about the time now, I really would like to share again our deep appreciation to the thousands of IPAMs who did everything possible to support each other and the company, to our clients for trusting us with their most critical issues, and to our many extended communities around the world. At that point, we really didn't know how the 2020 would end up for us and for our clients. In another three months, to our surprise, we saw the first signs of some stabilization and client realization of new reality a necessity to start preparing for the future which will be impacted by such new reality for a long enough period, if not forever. It pushed our drive for agility and an urgent need to adapt to enterprise transformation even further. Time was very condensed and made us as a company become much more closely connected by sharing information and making decisions much faster than ever before. At this point, we also realized that while our original plans for 2020 will not be in line with our financial performance priorities, most of those planned changes, which we outlined for ourselves back in normal times, will be very much accelerating from strategic transformational standpoints. During that period, we landed also several large new logos and started to see that we were taking an increasingly larger share of our portfolio across several existing strategies for our clients. which was encouraging. Finally, just three months ago, while seeing many new geopolitical turbulence in locations where we operate and have significant talent presence, we still become comfortable enough to remind everybody again, and to ourselves first of all, the goal we stated 12 months back in our last investor day, the goal of turning IPAM into a truly adaptive company. We become comfortable simply because of our realization of how much we advance forward to that goal during those all-around very challenging nine months. Thanks to our investments into integrated consulting with Palm Continuum, into cloud-enabled business transformation efforts, and data analytics, AI, and dev-test-sec ops capabilities, strongly supported by our engineering DNA and by much more flexible, scalable, and distributed delivery locations and delivery models enabled in turn by our digital target productivity, knowledge, and educational platform for our EPAM anywhere part-time. We believe all those investments are paying back and preparing us strongly for the future growth. In regard to EPAM Continuum, I would like to mention also that today we see not only recognition of this new service offerings from leading analysts, but encouraging take of the new proposition from a broad base of clients around the world and across our verticals in insurance and financial services, consumer and life sciences, to name a few. Our approach to EPUM Continuum goes beyond our working market, but extended very much into cross-pollination of all EPUM capabilities and experiences through network organizational approach comprised of people, tools, and shared ways of working. It should enable us to build global, agile, and expert teams more quickly and more efficiently. While this work is ongoing and represents a significant portion of our investment agenda, we are seeing strong results today in our card portfolio. Results that are driving higher value for customers and that are enabling a firm to scale larger and complex programs faster than ever in the past. During last year, we shared several specific stories already. Those included Epic Games story, as well as the large healthcare technology platform, which not just became our fastest growing client in 2020, but is already among our top 10 clients currently. In addition to those, let us share two short news stories. The first one started just over a year ago, as an agile engineering program, as a top 10 global property and casualty insurance giant. Since then, EPAMP has become the go-to transformation and IT strategy and implementation partner, helping the company to transform its IT and digital product functions, to accelerate cloud transformation journey, and to position the company for innovation through a combination of the strategy consulting and engineering implementation services. The second is very recent engagement for global retail and wholesale pharmacy leader. EPAM provides full value stream services, including product management, design, and end-to-end engineering. The client is building an omnichannel care management product, including clinical physical services, device and digital elements, and is making full use of our integrated research, experience consulting, physical and digital product design on top of our traditional engineering capabilities. So everything I've mentioned is made possible by the ongoing investment in our business, which will remain our consistent priority and we do expect indeed even higher levels of investments in 2021 to keep pace with our growth needs. Moving on to our numbers and let's start from 2020 results. For fiscal 2020, we landed at close to $2.7 billion in revenues, reflecting 16% year-over-year constant currency growth, which included double-digit growth in the majority of our industry verticals. Non-GAAP earnings per share of $6.34, a 17% increase over fiscal 2019. Lastly, we generated $476 million of free cash flow for the year, a result that was more than 2.5 times the average of our last four years. On the people front, for the year, we welcomed more than 4,400 new NET employees to EPAM across our client-facing teams and corporate functions. At this point, I would like to remind also that during all 2020, we were very consistently repeating the very simple statements. We strongly believe our position as a leading provider of digital products and platform engineering services combined with our maturing consulting expertise is our key differentiator and we are confident in our ability to come out of this challenging time a more value-based and result-driven company that will continue growing as a post-pandemic environment at a 20% plus organic growth rate again. It wasn't an obvious statement, especially at the beginning, but we think that What was happening during the past 12 months is very telling. From our practically worst quarter ever with a sequential drop in revenue in Q2 to probably the best sequential growth we saw during the last decade when we increased revenue in Q4 2020 by almost 11% in comparison with our Q3 result. So looking ahead to 2021, we see a market that continues to be very active. and one that demonstrates strong demand for our services. With the events of the past year, our clients are adapting to changing landscape, which requires hybrid business models and different ways of interacting with their customers and end market. This requires even faster pace of transformation, modernization of application, as well as the building or expansion of the platform that connects and powers enterprises. enabled first by the cloud and a need for really co-innovation partners. It means that we will have to lead large scale transformation with consulting, product development engagement with design, data monetization and process optimization engagement with analytics, digital technology architecture and custom platform development engagement with engineering. And all of those to be led by strong alignment with our clients and some other key platform partners. Regarding market sizing, in the past we spoke about EPAM positioning in the fast-growing digital platform project engineering segment, which analysts estimate to be more than $150 billion. While we still firmly position us with such a segment, we are seeing enhanced opportunities for EPAM to play in the broader application development and cloud integration services market, which leading analysts are projecting to be resurging in the post-pandemic environment. in completing a combination of custom software development, cloud native integration work, technology consulting, and training services. And this represents in total over 700 billion dollars in 2021 alone, for about 60% of the total global IT services market. While thinking about this in context of near term demand for UPAM and the lagging effect of the pandemic on our customers, We still anticipate some continuing disruption in few of our customers and markets and probably longer term damage for certain industries. However, today when 2020 is already in the past and while we are obviously still not being out of post-pandemic time zone and specific geopolitical risks, we do believe that 2021 will be a year of return to 20 plus percent growth organically. With that, let me send the call over to Jason to provide more specifics in our 2020 results and our annual business outlook, which we are resuming for fiscal 2021.