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Operator
Thank you for standing by and welcome to the EPAM Systems first quarter 2021 earnings conference call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star then one on your telephone. Please be advised that today's call is being recorded. If you require additional assistance, please press star then zero to reach an operator. I would now like to hand the call over to David Straubing, head of investor relations. Please go ahead.
David Straubing
Thank you, operator. Good morning, everyone. By now, you should have received your copy of the earnings release for the company's first quarter 2021 results. If not, a copy is available on epam.com in the investor section. With me today, Arkady Dobkin, CEO and President, and Jason Peterson, Chief Financial Officer. I would like to remind those listening 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 the comparable GAAP measures and are available in our quarterly earnings material located in the investor section on our website. That said, I'll now turn the call over to Arc.
Arkady Dobkin
Thank you, David. Good morning, everyone, and thank you for joining us today. Before I begin my summary of the quarter, I want to acknowledge that the past month has been a stark reminder that we are still in a deadly and very much global pandemic, and that we must continue to be united in our efforts against COVID. As we have done over the last year, we will do everything possible to support our people on the ground and the communities in which they live and work. Now, turning to our results. For the first quarter, we delivered $781 million in revenues, reflecting growth of 20% year-over-year as reported and 18% in constant currency. Stronger earnings per share of $1.81, a 27% increase over the same quarter in 2020. Smaller revenue growth combined with a greater level of profitability enabled us to continue to invest at higher levels across the business. Since we last talked mid-February, we have seen a meaningful increase in demand across our business. The notable acceleration is even in the second half of the quarter. The demand for our core services is very robust, as clients double down on digital transformation and innovation journals. Increasingly, they tend to respond to help not only build new platforms, but also to conceive new digital products and services, as well as to modernize and transform their technology strategy and delivery models. The digitization trends are driving increasing interest in business strategy, new types of engagement platforms, cloud migration and modernization efforts, data engineering and data analytics engagements, and in turn, machine learning and AI applications. On industry perspective, we're experiencing this dynamic most notably in life science and healthcare, financial services, insurance, CPG, retail, and telecommunications. Today, we focus on building a stronger vertical expertise to leverage even more effectively our market-leading capabilities in core engineering, data, and cloud. As a result, we still have much more work to do to continue building our integrated consulting propositions under EPAM Continuum brand. With our increasing depth in vertical domains, we are already realizing the promise of delivering increasingly differentiating offerings. to our global enterprise customers. An example, is creating a platform, developing modern cloud-based applications, products, and services, and bringing their data offerings to a new generation of consumers. It is a critical part of multi-year cloud and data-driven transformation for Equifax, where we are working together to build a Google Cloud platform-based data fabric It enables Equifax to organize its legacy data sources into single, seamless structure, while keeping all critical government and separation measures in place. Also worth mentioning that while the variety in Equifax legacy system to be cloud-native would normally take years, EPAM successfully assisted in transforming Equifax mainframe applications in less than one year. This is only one example, which is repeated across most of markets and verticals we serve, from financial services to rebounding interest in retail and travel platforms. We believe this underscores the amount of technology-led change that is pushing all industries into higher levels of activity. All this dynamic is in play today, and hopefully soon in post-COVID environment, the number of business domains and processes which must be digitized is going to be rapidly increasing. Post-market drivers, along with opportunities in cloud modernization, composable architecture, data, ML, and AI, and cybersecurity, will give us sizable room for continuous and sustainable growth. To meet this growing demand, we also continue to focus on scaling up our talent. 2020 challenged us to create a reliable and secure remote operation 2021 has presented an opportunity to leverage those investments in infrastructure, modern talent processes, and tooling from the globe to explore ways in which we can activate broader talent markets and deploy a more diverse set of capabilities. The result is that our hiring and net headcount growth is accelerating. For Q1, we welcomed approximately 2,300 net hires to EPUB. which included an increase of senior level hires coming to us with strong industry experience. In overall, since the beginning of Q4 2020, more than 3,400 net additions have joined the company, representing the highest level of powers we have added in two consecutive quarters. While this shortage of technical and deep industry talent is a known industry issue, We are confident that our investment in that area, our elevating brand recognition, and expanding employee career journey will continue to draw top talent to EPAM. Also part of EPAM's growth strategy is the expansion of our capabilities with very focused acquisition efforts. Recently, we closed three acquisitions bringing to EPAM talent and experience in the areas of sales force, business intelligence, and security. In April, we announced the acquisition of PulseSource, a Salesforce consultancy with a talent concentration in the U.S., U.K., and Poland. It will extend our Salesforce services offerings as global footprint and provide information for building additional expertise, IP, and scale around Salesforce ecosystem. This acquisition builds on our earlier acquisition of Mulsoft partner, Rickston, to advance our Salesforce API capabilities, and to enable customers to leverage a multi-cloud approach. Already working closely with our team to bring together a very different proposition. Surprise clients by joining our expanded consulting and global engineering confidence, and to become one of the top global players in the Salesforce services space. We are now on the acquisition of White Hat. niche cybersecurity consultancy based in Israel. Expertise, methodologies, and team of talented professionals will enhance cyber defense capabilities and help clients to further improve cyber protection within their platforms. And lastly, we recently closed an acquisition of boutique data and analytics consultancy firm with offices in Europe and Asia, serving customers across retail, consumer, and energy. This acquisition will bring a team of trusted advisors and experts who provide the full spectrum of data and analytics consultancy, including strategy, advisory, data management, market leaders, accelerators, custom ops, and end-to-end delivery across multi-vendor platform and solutions. We are pleased to have these three companies joining us. In closing, we are encouraged about the road ahead. During the last 12 months, we proved our leadership position in the digital segment of a very competitive global IT services market. EPUM of today is much more adaptable, diverse, and global company with increasingly strong market offerings and all the necessary components of scalable talent ecosystem, which are required for growth as we think about EPUM becoming a 5 to 10 billion company. With that, let me hand the call over to Jason to provide more specifics in our Q1 results and update to our 2021 business outlook.
David
Thank you, Art, and good morning, everyone. We're pleased with our performance this quarter. As Art mentioned, we delivered strong growth across a broad range of industry verticals and geographies. First quarter, EPM generated revenues of $780.8 million, a year-over-year increase of 19.9% on a reported basis and 17.8% in constant currency, reflecting a positive foreign exchange impact of 210 basis points. Revenues came in higher than previously guided due to stronger demand in the second half of the quarter, combined with our ability to accelerate hiring in response to the improving demand environment. Our industry vertical performance produced strong sequential growth across the majority of the portfolio, driven by a higher level of revenues from both new work at existing clients and new customer relationships established over the last 12 months. Looking at the year-over-year performance across our industry verticals, life science and healthcare grew 31.6%. Growth in the quarter was driven by platform development to support new business models and data and analytics to drive deeper customer insights. Financial services grew 28.3%. Growth coming from traditional banking, insurance, and to a lesser degree, wealth management. Growth was driven by our clients' need to transform beyond digital banking to modernize core processes and applications leveraging the cloud. Software and high tech grew 20.7% in the quarter. Travel and consumer grew 16.3%, driven by strong growth from our consumer clients, along with solid and improving performance with retail. Business information and media delivered 6.5% growth in the quarter. Growth in the quarter reflected a tougher comparison with the same quarter last year. several clients having experienced substantial growth in the first half of 2020, with revenues from those programs generally plateauing late last year. And finally, our emerging verticals delivered 23.6 percent growth, driven by clients in telecommunications, automotive, and materials. From a geographic perspective, North America, our largest region representing 60.2 percent of our Q1 revenues, grew 20.6 percent year-over-year, or 19.9% in constant currency. Europe, representing 33.2% of our Q1 revenues, grew 16.3% year-over-year, or 10.9% in constant currency. EIS, representing 3.9% of our Q1 revenues, grew 21.2% year-over-year and 28.2% in constant currency. Finally, APAC, grew 53.9% year-over-year, or 48.4% in constant currency, and now represents 2.7% of our revenues. Growth in the quarter was driven primarily by clients and financial services. Additionally, the shutdown of economic activity in the region in March 2020 produced a beneficial year-over-year comparison. In Q1, revenue growth across the portfolio was more diverse than in previous quarters. With our top 20 clients growing 12.1%, while clients outside our top 20 grew 25.9%. Additionally, we saw good growth with both existing and new clients. Moving down the income statement, our GAAP gross margin for the quarter was 33.5% compared to 34.9% in Q1 of last year. Non-GAAP gross margin for the quarter was 34.9% compared to 35.5% for the same quarter last year. The lower gross margin of the quarter was primarily the result of Q1 2021 having one less available day of capacity than Q1 2020. Additionally, we're beginning to see some degree of elevated labor costs in certain geographies. GAAP SG&A was 17.5% of revenue and compared to 19.2% in Q1 of last year. Non-GAAP SG&A came in at 15.5% of revenue. compared to 17.6 percent in the same period last year. Grass-Gene continues to reflect a lower level of corporate spend, which we believe will tick up as we progress throughout the year. Non-GAAP income from operations was $107.3 million, or 13.7 percent of revenue in the quarter, compared to $87.5 million, or 13.4 percent of revenue in Q1 of last year. Non-GAAP income from operations was $136.9 million, or 17.5% of revenue in the quarter compared to $105.3 million, or 16.2% of revenue in Q1 of last year. Our gap effective tax rate for the quarter came in at 5.1%, which includes a lower than expected level of excess tax benefits related to stock-based compensation. Our non-gap effective tax rate, which excludes excess tax benefits, was 22.7%. Diluted earnings per share on a gap basis was $1.86, Non-GAAP diluted EPS was $1.81, reflecting a 26.6 percent increase over the same quarter in 2020. In Q1, there were approximately 58.8 million diluted shares outstanding. Turning to the cash flow and balance sheet, cash flow from operations for Q1 was 12.8 million compared to 63.3 million in the same quarter of 2020. Pre-cash flow was 1.6 million compared to 34.2 million in the same quarter last year. Lower level of cash flow in the quarter was the result of timing of payments related to our annual variable compensation programs returning to more historic norms. Additionally, income tax payments were higher compared to the same quarter in 2020. We ended the quarter with $1.37 billion in cash and cash equivalents. Q1 DSO was 67 days and compares to 64 days in Q4 2020, 76 days in the same quarter last year. believe we can continue managing DSO levels in the upper 60s. Moving on to a few operational metrics, we ended the quarter with more than 38,800 engineers, designers, and consultants. A year-over-year increase of 17.3% and a sequential increase of 5.7%. Our total headcount for Q1 was 43,450 employees. Utilization was 81.4 percent compared to 79.5 percent in Q1 of last year and 77.9 percent in Q4 2020. Now let's turn to guidance. We continue to see strong demand across a broad range of our offerings. The elevated demand across the portfolio, combined with improvements in staffing capacity, we are raising our revenue in EPS outlook for 2021. We mentioned during our last earnings call Throughout 2021, we will be investing at elevated levels across the business to support growing demand, and we will continue our expansion into new geographies, understanding our long-term growth objectives and goal of becoming both a larger and increasingly global EPAM. Starting with our full-year outlook, revenue growth will now be at least 29% on a reported basis, and in constant currency terms will now be at least 28%. after factoring in an approximate 1% favorable foreign exchange impact. Now expect approximately 200 basis points of revenue contribution to come from acquisitions we closed in the last 12 months. We expect gap income from operations to continue to be in the range of 13.5% to 14.5%, and non-gap income from operations to continue to be in the range of 16.5% to 17.5%. As mentioned earlier, our income from operations reflects a higher level investment in the planned expansion of our capabilities and geographies in 2021. We expect our GAAP effective tax rate to continue to be approximately 12% and our non-GAAP effective tax rate, which excludes excess tax benefits related to stock-based compensation, to continue to be approximately 23%. Earnings per share. We expect GAAP diluted EPS will now be in the range of $7.09 to $7.31 for the full year. Non-GAAP diluted EPS will now be in the range of $7.54 to $7.76 for the full year. We expect weighted average share count of 59 million fully diluted shares outstanding. Q2 of 2021, we expect revenues to be in the range of 853 to 861 million. reducing a year-over-year growth rate of approximately 35.5% in the midpoint of the range. We expect a favorable impact of FX on revenue growth to be approximately 3%. Lastly, we now expect approximately 250 basis points of revenue contribution to come from acquisitions we closed in the last 12 months. In the second quarter, we expect GAAP income from operations to be in the range of 13.5% to 14.5%, and non-GAAP income from operations to be in the range of 16.5% to 17.5 percent. We expect our GAAP effective tax rate to be approximately 11 percent, and our non-GAAP effective tax rate, which excludes excess tax benefits related to stock-based compensation, be approximately 23 percent. Earnings per share, we expect GAAP-diluted EPS to be in the range of $1.76 to $1.83 for the quarter. Non-GAAP-diluted EPS to be in the range of $1.88 to $1.95 for the quarter. We expect a weighted average share count of 59 million diluted shares outstanding. Finally, a few key assumptions that support our GAAP to non-GAAP measurements. Stock-based compensation expenses are expected to be approximately $21.8 million in Q2, $21.5 million in Q3, and $21.2 million in Q4. Monetization of intangibles is expected to be approximately $3.1 million for each of the remaining quarters. Impact of foreign exchange is expected approximately a $1.5 million loss for each of the remaining quarters. Tax-effective non-GAAP adjustments are expected to be around $5.7 million in Q2 and approximately $5.5 million in each remaining quarter. And finally, we expect excess tax benefits to be around $14.2 million in Q2, $2.2 million in Q3, and $8.6 million in Q4. In summary, we are pleased with the high-quality results we delivered in the quarter. combined with the broad-based strength we see across the business, provide support for strong 2021 performance. Operator, let's open the call for questions.
Operator
As a reminder, to ask a question, please press star, then 1. If your question has been answered and you'd like to remove yourself from the queue, press the pound key. Our first question comes from Brian Bergen with Cohen. Your line is open.
Brian Bergen
Hi, good morning. Thank you. I wanted to ask on the outlook first, can you talk about where the strongest recoveries and demands have been that have enabled the upside guidance race here? And are you seeing improved pricing discussions with existing clients, or is this upside predominantly being driven by volume?
David
Yeah, so the upside would predominantly be generated by volume. And so what we are seeing is a whole wave of – modernization programs kicking off within the financial services industry, so a significant amount of growth expected, as you saw in Q1, but also probably further acceleration of growth in financial services in Q2 due to the modernization programs with large banks, and then also with a much accelerated growth in insurance. We're seeing recovery in the travel and consumer section of our portfolio. quite strong growth with consumer-oriented programs, both in retail and with consumer goods companies. We're even beginning to see some sequential growth in the travel space. We're seeing strong growth in healthcare and life sciences. We're seeing a continued sort of solid growth in our traditional sort of high-tech software and high-technology clients. And we're seeing a re-emergent kind of emerging verticals with very strong growth in telecommunications, automotive, and materials, as we talked about. And again, where we expect between Q1 and Q2, we expect to see even stronger growth in financial services, even stronger growth than Q1 in the travel and hospitality vertical, and again, even stronger growth in the emerging verticals. And so again, it is pretty broad-based. It's existing relationships. It's new relationships, so we're seeing some good new customer revenues. And then from a pricing environment, I think we're having more constructive conversations with clients. And I think both existing and new clients understand that with the wage inflation that's out there in the marketplace, that it is going to likely require somewhat higher pricing to support the addition of new teams. But for the most part, this is volume-based.
Brian Bergen
Okay. And then on margin, you had talked about building cadence, particularly during, I think, the second half of the year, which would suggest you're pretty well set up within the outlook. But did you have any investments that had shifted within the year or any changes in your expectation on the scale of talent investments? Can you dig in a little bit on that elevated labor cost comment you had?
David
Yes, we're expanding our capacity in terms of adding staff. And that would probably more show up in the SG&A portion. I think that as we look at gross margin, if I were to, you know, be very clear, I think we're expecting now that gross margin might be slightly lower, not lower than Q1, but lower than our original expectations for 2021, based on this updated guidance. But Estrine will also be somewhat lower. And so we're able to maintain the profitability in the 16.5 to 17.5 range that we've talked about with a real focus on the midpoint, 17%. But we are seeing, you know, somewhat elevated levels of compensation being required both to retain and bring staff, you know, into EPAM. And that's something that we're mindful of, you know, both as we produce the guidance and as obviously we try to drive the company throughout the remainder of the year.
Brian Bergen
Thank you.
Operator
Our next question comes from Maggie Nolan with William Blair. Your line is open. Thank you.
William Blair
To build up on some of those talent questions, any changes to the geographic focus that you talked about last quarter with Poland, India, and Mexico, just given some of the talent challenges, and then as you broaden your capabilities and become a more global company, what do you think is the right distribution of that talent in terms of onshore, nearshore, and offshore locations?
Arkady Dobkin
I don't think there are significant changes in the direction from the locations. Like we talked about India, we talked about Mexico, and we continue to grow with them. Actually, India is probably the fastest growing for us components in talent composition right now. so uh from this point of view again we each year becoming more distributed and more rightly balanced and concentration is going down in eastern europe so which is normal with the growth growth of the company and globalization of our clients as well so in terms of uh what's the best uh in offshore and shore we're still increasing increasing our unsure component, especially with the complexity of the engagement we're doing and necessity to have strong industry connectivity and consultant connectivity. So that's growing, but it's not drastically changing as well. So we're very careful managing the balance right now. So what is ideal? I don't think anybody knows, so it's very dynamically changing. Even if you think about what's happening in 2020 and continuing in 2021, I don't think anybody is talking about ideal right now.
William Blair
Okay. And then, Jason, I understand the current gross margin dynamics that you just outlined and the expectations. But when you think about more kind of medium term and becoming a more global company, does that allow you to start to drive gross margins back up over time? Or what should we expect over kind of a more medium term timeframe?
David
Yeah, so let me try to be so on the I guess the 34.9% adjusted gross margin that we booked here in Q1. You know, the lower level gross margin was in part the result of there being one less available day at capacity in the quarter. And so that's it. And it's just the way that Monday through Friday's fall in the calendar for Q1, it was one less day than what we would have traditionally seen in previous Q1s. However, I do think we are seeing, you know, somewhat elevated levels of wage inflation. And, you know, those could continue to elevate throughout the fiscal year. So I think that in the, let's call it, throughout the remainder of the year, you know, I think we might run below the approximate sort of 36% that we kind of talked about over time from a gross margin standpoint. It is, I think it's sort of generally stabilized at a slightly lower level than that 36%. But so I don't expect it to continue to decline. And I think the question mark is kind of what happens in 2022. Right now, again, I am feeling that we've kind of, you know, gross margin is going to stabilize. And then we'll kind of see what happens throughout the remainder of the year in terms of, you know, the pricing environment. And I think we'll be able to provide a little bit better guidance probably later in this fiscal year.
William Blair
Okay. Thank you, guys.
David
Sure.
Operator
Our next question comes from James Fawcett with Morgan Stanley. Your line is open.
James Fawcett
Thank you very much. I wanted to ask on hiring, the 2000 net headcount addition looks really strong, especially considering the competitive environment for talent. Can you provide a bit of an update on hiring and the traction you're seeing on anywhere? And I guess just generally your hiring strategy for fiscal year 21. And what do you think is achievable or sustainable given just the strong competition and demand for high skill talent right now?
Arkady Dobkin
I think we're comfortable with this current level of cutting. So I think thinking about a couple thousand new per quarter, it should be achievable for this year. Maybe a little bit higher, we'll see. But based on our understanding of the market, which is extremely challenging, I don't want to downplay it like, message which we're probably hearing from any other company and which would be definitely included. It's extremely challenging talent market. But with the geographical distribution we have today and which we were building during the last five, six years very purposely. So I think we would be able to continue with the pace which we have in Q1.
James Fawcett
Got it, got it. And then You announced the white hat acquisition yesterday. Just what's your appetite for further acquisitions this year, and what kinds of capabilities do you think are important to be looking for and looking to add?
Arkady Dobkin
Really nothing changing in our direction in M&A, so it just happened this quarter it was three of them, and we're in constant search and constant discussions. Also need to understand that two of this is pretty small boutique type of consultancies, which is right capabilities to the base which we have. So, and very much in our traditional kind of approach for acquisitions, we're looking for mostly capabilities, and some geographical diversification as well. And I think, again, that's what we're going to do in the future too.
James Fawcett
That's great. Hey, thanks a lot, guys. And all I can say is keep it going, right?
David
Thank you.
Operator
Our next question comes from Jason Kupferberg with Bank of America. Your line is open.
Jason Kupferberg
Hey guys, this is Cassie on for Jason. Just wanted to ask about utilization. You know, what's your comfort level at this around 81%? You know, kind of, I know you guys are slowing a little bit in sequential headcount growth, but still very strong, you know, just wanted to know kind of how are you balancing that and what's the real sweet spot on utilization?
David
Yeah, when we're running at 81%, you know, that would still generally be hot, you know, so we continue to explore kind of what the right level is. I think we believe that, you know, somewhere in the high 70s continues to be a better place for us because it does allow us to be, you know, more prepared for new customer engagements and for, you know, unexpected expansion at existing customers. And so I would say that as we think about the remainder of the year, we're thinking more in the high 70s. We also think that there's some possibility that there could be some elevated vacation taking in the second half. If you think about all of the unused vacation that's out there from 2020, our revenue guidance would also incorporate some amount of lower utilization due to further vacation taking in the summer and fall months.
Jason Kupferberg
Okay, perfect. And just a follow-up question. Wanted to ask, you know, has there been any change in deal sizes that you guys have seen or, you know, an update kind of on the pace of converting backlog to revenue? It sounds like you guys haven't had any problems, but, you know, just wanted to get an update there.
David
I mean, there's been a series recently of, I would say, quite large modernization programs that are likely to be multi-year in length that have kind of kicked off And, you know, as we've discussed, is that we continue to engage with our customers in, let's say, a somewhat different way than maybe we would have five years ago with a broader sort of consulting solutioning and then, of course, sort of delivery capability. And I think you're seeing more of those types of engagements as well.
Jason Kupferberg
Okay, perfect. Thank you.
David
Thank you.
Operator
Our next question comes from Moshe Khatri with Wedbush. Your line is open. Moshe, you may be muted.
David Straubing
Operator, why don't we go to the next question?
Operator
Our next question comes from Ashwin Shrivaker with Citi. Your line is open.
Ashwin Shrivaker
So I think my first question, you guys mentioned both elevated labor costs and I'm wondering is it in any particular geo? And the flip side of it, you mentioned pricing and I wanted to find out if that's either more narrowly capabilities based or are clients willing to pay up for the, given the shortage of talent?
Arkady Dobkin
So I think of the wage inflation and everything, this is probably would be fair to say that it's across all markets. including in markets as well. So as you can see from the sector right now, there are significant increase in demand and it says it's all. So in regards to pricing, I think Jason mentioned that at this point, majority of the revenue growth coming specifically from the volume of work we're doing. But there are conversations we're starting to have, and I think they're becoming right now much more realistic from both clients, from client side as well. And we do expect some pricing. improvement and specifically in the big programs and led by consulting efforts too so but it's a little bit too early to to talk about it right now got it got it okay um and then you know i know that there's always churn in sort of the top 20 client list top 10 plant list that thing but clients outside top 20 growing faster
Ashwin Shrivaker
Is that, do you think that's a general sustainable trend whereby just, you know, newer relationships just kick off and ramp much faster than expected? Is that what you're seeing?
David
Yeah, I think when we look at the pipeline that we expect it's a trend that would certainly continue in Q2 where, again, we have, you know, more rapid growth in our other than top 20 than in our top 20. And so, and then we'll see what happens throughout the remainder of the year. But, you know, I think last year was a little bit unique, right? Where we had, you know, probably a series of customers in our top 10 who are very large corporations who were probably less impacted by the pandemic in terms of their business. And those companies continue to grow quite rapidly. I think this year, what you're beginning to see is some of the new relationships we established in 2020. And then also, relationships that we've had for long periods of time, but where the clients are looking to do, you know, very important kind of modernization programs, they're looking to E-PAM and that's driving growth as well. And that's in the other than top 20 customers. Got it. Okay. Thank you.
Operator
As a reminder, to ask a question, please press star then one. Our next question comes from Jamie Friedman with SIG. Your line is open.
Jamie Friedman
Hi. Good morning. Great results here. I want to ask you, Ark, about two things you had in your prepared remarks. So the first one was about the theme of data digitization, I think was the language that you were using. I'm just wondering, do you consider that like modernization last quarter you started talking about systems integration how would you categorize where data digitization is classified I don't think it was a data digitization terms I think it was some quality of our call today wasn't best and
Arkady Dobkin
I was talking about general and much more kind of traditional terms, digitization in general, and clearly data in cloud and AI ML all play a significant role there. So, but I didn't try to invent another term.
Jamie Friedman
And then I did notice though that you, so you said five to $10 billion. as the target for the company. I realize you haven't given a timeframe, but my recollection is that's a little bit different, bigger than what you had said previously, which was just to double. So any context that you could share on the 10 especially, because that's a lot more than five, would be helpful.
Arkady Dobkin
Yeah, that's a longer discussion, clearly. And I know that you're watching us for a very long time, practically before our IPO nine years ago, and you remember us back then. And you saw what was happening after IPO when we were changing everything from offering to our delivery kind of landscape to make sure that we were looking for the number of years ahead. And we practically were a doubling company each three years. And if not pandemic, we probably would be doubling at the end of this year against three years ago. And who knows? But if you put even slower pace, then it is pretty practical thinking on our side right now how to become a company of five or six. five billion or higher. And that's how we're thinking about building the company, not just for the next quarter. Got it. Thank you.
Jamie Friedman
I'll drop back in the queue.
Operator
Our next question comes from Randy Elisal with Barclays. Your line is open.
Randy Elisal
Hey, guys. It's Damian on for Ramsey. Thanks for taking the questions. I wanted to ask Um, again, on, on margins here, uh, but maybe I'll do it in the context of, of employee travel. I think, you know, obviously as the world starts to normalize, um, you know, the expectation is that there's a little bit more employee travel. So to the extent that that is included in your, in your margin assumptions, we'd love to get that. And maybe on that same subject arc, we'd love to just get your, your high level thoughts on sort of this virtual delivery, you know, in the thick of the pandemic. I remember your view is sort of, you know, it's going to continue to stick around for the long term, but are you all seeing any change to what your clients are looking for in terms of how you engage with them?
Arkady Dobkin
I think it's still too early to judge what's going to happen. There are definitely desire from all of us to get back in some type of more traditional conversations, seeing each other through the screen. And some clients actually talking about it, but at the same time, it's still very difficult to predict what would happen. And also like our understanding what's happening, changing on the fly, like even a couple of months ago, I personally would be much more optimistic about vaccination process. And right now it's not clear if it would be patient like this 50, 50% even in the US. So, and as soon as you look into the global map, who knows how this would work for 2021 for all of us. So at the same time, if you're talking about like a working environment in much more, distributed way I think that's what we were focusing way before pandemic hit and I think that's what happening and I think productivity not really impacted and at the same time it's pushed a lot of these believers in this highly distributed way of working and had to accept it which making all of this to work even better. So I think that would stay. I think our human part, as everybody understands and talking about, will take over. We will be meeting, but again, too early right now to judge.
David
Yeah, and quickly on the margin front, I think we had modeled that the second half of the year would move towards some degree of normalcy, but as Art just said, it's unclear that we end up there in the second half. But the idea was that there would be some increase in costs. We still think that there's some temporary benefits that we're seeing in the P&L, but I believe that we are seeing greater efficiency in S3 and A and some of that's going to stick in future years. So that's kind of how I think about the business right now is, as I said before, running very much in the midpoint of that 16.5% to 17.5% range, which is pretty much the top end of the range that we used to use at 16% to 17%.
Arkady Dobkin
And we definitely accounted for the situation that if everything suddenly improved, then travel might pick up. So we're thinking about it even in our numbers right now. But again, not clear if it's going to happen or not.
Randy Elisal
That's very helpful. Thank you all for the caller there. Maybe I'll just do a quick follow-up here on involuntary attrition. Just if you could speak a little bit about what you're seeing in your employee base and how that sort of changed. Obviously, it's slowed at the beginning of the pandemic, but just an update on involuntary attrition. That'd be great. Thanks, guys.
David
So I'm going to assume voluntary rather than involuntary, or do we still have you? Okay, so I'll just kind of talk about it. Yeah. Yeah, attrition in Q1, you know, for the entire quarter is still, you know, relatively low, below 15%. It's actually somewhat lower than it was in Q1 of 2020. However, you know, we are beginning to see some degree of elevation in attrition at the end of the quarter in March and here again in April. And so again, we are below 15%. And again, you know, I think with well within our expectations for the quarter as a whole, but beginning to see some increase in attrition, you know, both at the end of Q1 and the beginning of Q2.
Randy Elisal
Thanks, guys.
Operator
Our next question comes from Vladimir Implinko with VTB Capital. Your line is open.
Vladimir Implinko
Hello, congratulations on the number and thank you for taking my question. My first question will be on your latest acquisition. You are clearly moving to the cybersecurity area, which probably has not been that much of a focus before. Could you please provide more color? Are you looking at this area as a new big opportunity or this is still going to be kind of complementary to your offering to the clients? and my second question will be on price discounts last year during the pandemic you provided price discounts to clients but this should be expiring now will this help you to generate more revenues and help with pricing thank you so on the first question about cyber security so it's always was a important part for us when we built applications and platforms
Arkady Dobkin
because at the end of the day, that's one of the main points to make sure that it's secure enough as we all understand. And we organically developed practice and capabilities, but similar like with other capabilities which important for kind of overall platform engineering So we add in additional skills. And as I mentioned, it's a relatively small consultancy, but it's a very high experience. And again, it will be just a part of our global engineering practice, which is helping to us to make sure that everything's secure. So I think it's a very simple answer here. There's nothing special to it.
David
Yeah, and on the pricing front, you're right that the COVID concessions are pretty much gone at this point. That would have already sort of showed up in the Q1 numbers and in the guide for Q2. So I don't think that there's too much uplift to be expected from that. And as we've talked about, you know, we're increasingly having not always easy, but let's call them, you know, constructive conversations with clients about pricing.
Vladimir Implinko
Thank you very much.
David
Yeah, thank you.
Operator
Our next question comes from David Grossman with Stifel. Stifel, your line is open.
David Grossman
Thank you. Good morning. I wondered first if you could just perhaps give us a little more insight into your commentary about modernization in the financial services industry and that being a driver of volume growth. Could you just give us a little more detail on what exactly you're referring to and you know, if there's a specific catalyst that may be driving these larger programs?
Arkady Dobkin
Again, I don't think we have time here for discussion, but it's still pretty generic and pretty much in line with everybody else talking, but with even our example, which we were sharing this morning about Equifax with bringing infrastructure and applications to the cloud with very often additional functionality and upgrading this, and maybe with a very different target environment. That's a huge, huge effort across multiple capabilities, usually touching on legacy data analytics and everything. So I don't know what specific we can add here, but going with online banking from one point of view and going to, again, cloud and new architecture from another point of view, probably describing the whole scale of this.
David Grossman
Okay, thanks. We can take that offline then. And then the second question I had was, I know there's already been a lot of questions about pricing, wage inflation, margins, et cetera, but I'm just curious, why is this playing out differently than historically where the market is a little more dynamic in terms of responding to that imbalance? It sounds like you're being a little more guarded about that ability to get pricing at least near term. Is there something different in the market? Is it that the market may be pricing in some of the more secular OPEX, you know, savings from a work-from-home, you know, kind of environment? Or am I just misinterpreting this and this is just the typical dynamic that you see?
David
Yeah, so I'm having to – I think one of the questions you're asking is whether or not with work-from-home that's impacting pricing, Clients are somehow asking for either no rate increase or savings from that. Is that what you're asking, David?
David Grossman
Well, that was just kind of a guess on my part that what could be going on. But the bigger question is just why the market isn't responding as quickly to the supply, demand, and balance that you're talking about in terms of pricing and the shortage of-
David
David, I think it just takes time, right, as you would know with both, you know, engagements that you negotiate pricing and SOWs and everything that are in place. You know, it takes some time. And then, of course, clients have got budgets and, you know, clients are still trying to work their way through what happened last year. So those conversations are definitely accelerating. but probably a little bit of disconnect just based on the economic disruption of last year. And I think this conversation will continue to potentially accelerate as we work through the remainder of the year. I don't know. Ark, do you have thoughts?
Arkady Dobkin
I agree. I think it is timing because it's too quick change from we don't know what will be happening to run and I think there is a kind of a gap in this, but we'll see. And maybe partially you guys also correct as well, because in some thinking there is idea that it's probably cheaper without infrastructure, but it's not necessarily true because investment on support and distributed in, again, in the talent search, because it's all kind of very connected, might... might require even more investments.
David Grossman
Right. And just one last question. I think this came up in another question as well about growth outside the top 20. But my recollection is that over the last 12 months, particularly during the pandemic, that you had to prioritize your capacity utilization to those larger customers, longer-term customers. Is some of that growth, because this is more of a normalized you know, kind of dynamic for you with that growth outside the top 20. So is that just an implication we're back to a more normalized operating environment, or is it something different than that?
Arkady Dobkin
I don't know if you're trying to derive some conclusion from this dynamic. I think there are some big lines which inside of the top 20, which is growing very aggressively. There are some clients which is slowed down practically flat out. And there are several clients which we pick up just 12, 18 months ago who now become a part of top 20. I don't know if it's function of the market or it's more function of EPUB change in dynamic as well. So, and I think probably it's more on the second one, where with our offering, we now can accelerate some clients' development much faster.
David Grossman
Got it. Okay, guys, thanks very much.
Operator
Our next question comes from Jack Nichols with KeyBank Capital Markets. Your line is open.
Jack Nichols
Hey, good morning. This is Jack Ompers, Steve Enders. What trends are you seeing with account consolidation within your accounts and what's been your ability to capture incremental share of wallet?
Arkady Dobkin
I would answer very shortly. I think we're pretty happy with our ability to consolidate in some accounts right now. I think we're winning the budgets inside of the accounts.
David
I think you'd certainly see the performance in financial services that would give you some indication that we, you know, have had some success there.
Jack Nichols
Okay, perfect. Thanks. And you've talked about investing more in your consulting business. How have those investments been resonating and how much have you been able to capture consulting services within your customers?
Arkady Dobkin
Again, as we mentioned like many, many times, we're not trying to just capture consulting services as a line of business. We're trying to get in the conversations with the clients much earlier in the game to make sure that we can actually drive the next step, the tail of the consulting kind of activities to more practical implementations of platforms. And I think, again, we're pretty happy with the progress which we're doing like quarter after quarter and we're getting new use cases and we're getting higher in the kind of value chain and creating these examples. But again, it's not about just chasing the consulting market. It's a pure consulting training.
Jack Nichols
Okay, great. Thank you.
Arkady Dobkin
Thank you.
Operator
Our next question comes from Arvind Ramnani with Piper Sandler. Your line is open.
Arvind Ramnani
All right. Congrats on another great quarter. This is a question on some of the emerging technologies you are working on. A couple of years back, you were working on blockchain technologies. Are you starting to see interest in the areas of blockchain and is it becoming a meaningful portion of your capabilities? And similar to blockchain, is there stuff around like AI that you are working with clients?
Arkady Dobkin
It's difficult to say that blockchain becomes a significant driver, but it's definitely part of the number of engagements as similar like any other advanced technologies as well. and we definitely see in also some pickups and mlai engagement while it's still relatively small portion of what's happening we think it might accelerate in the future but because again a lot of effort during the last several years to create a data infrastructure capable to support this type of new applications and i think i would finish with this
Arvind Ramnani
Great, great. And just like, you know, well, I guess within digital, which is kind of a very broad word, are there particular areas within digital that you're seeing really fast growth? Because, I mean, like I said, digital is extremely broad. It could mean many different things, but are there specific technologies that you're seeing really high growth or really high levels of client interest?
Arkady Dobkin
I think I would prefer, even from my current background, to talk about very broad terms. And clearly, again, everybody knows that all this cloud modernization is a driver. And around this, a lot of different things are important. But I wouldn't call anything specifically right now. Perfect. Thank you.
Operator
There are no further questions. I'd like to turn the call back over to Ark for any closing remarks.
Arkady Dobkin
Thank you. Thank you, everybody, for your time today to participate. And as usual, if you have any questions, Dave is available to help and talk to you in three months. Thank you very much.
Operator
Ladies and gentlemen, this does conclude the program, and you may now disconnect. Everyone, have a great day.
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