EPAM Systems, Inc.

Ladies and gentlemen, thank you for standing by. I would like to welcome everyone to the EPAM Systems Q4 2023 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press the star followed by the one once again. Thank you. I will now hand the call over to David Strauber. Head of Investor Relations. You may begin your conference.

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 2023 results. If you have not, a copy is available on epam.com in the Investor section. With me on today's call are Akati 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 materials located in the investor section of our website. With that said, I'll now turn a call over to Ark.

Thank you, David. Good morning, everyone. Thank you for joining us today. As usual in Q1, it's time for us to reflect on the past 12 months and share what we think about the next 12. Before I do that, I want to thank our team around the world for their dedication to our clients and hard work throughout last year and for staying committed and engaged in the work ahead of us in 2024. Looking back to 2023, I will start from a short summary very much in line with what we shared in today's press release. We believe that EPAM performance in 2023 reflects our ability to navigate volatile demand brought simultaneously, and simultaneously is the key word here, on us by both geopolitical and macroeconomic conditions. After rebalancing most of our delivery talent footprint across Europe, Western Central Asia, India, and Latin America, and refining our go-to-market approach to meet current demand, we are now focused primarily on harmonizing our delivery quality optimizing cost effectiveness, and proactively leveraging our extensive advanced technology and growing consulting capabilities to capitalize on gen AI and AI-driven opportunities of the future. In that context, first a few notes on 2023 and their relevance to 2024, and then I can move on aspects of our 2024 outlook. Let me start from geopolitical and economic impact on the PAM operation. In February of 2022, the Russian invasion of Ukraine made it necessary for us to relocate over 13,000 people plus families to new geographies. While most of these relocations completed back in 2022, many adjustments did happen last year. And still today in 2024, we will continue to work on some downstream factors, including seniority pyramid, team composition, and cost effectiveness across our traditional and new locations. I want to also especially recognize our team in Ukraine who proved that despite the level of challenges, they accepted a reliable partner for our clients existing in nuance. A few additional notes on repositioning and stabilization of our tiling delivery platform. As mentioned already, 2023 was a year of significant rebalancing for most of our global delivery. We work on scaling India and Latam. and at the same time preparing for future growth in development centers across Europe and Western and Central Asia, our key destination for majority of our relocated talent. In 2023, India continued to be our fastest growing location, practically since 2021. And while we were growing our capabilities there with accelerated speed, we also worked to ensure that our delivery culture remains focused on quality and client value. India will likely become our largest location by the end of 2024, or at least on match with our current scale in Ukraine. Latin America, specifically our locations in Colombia and Mexico, have been maturing significantly as we scale out our cloud and data capabilities there to be prepared to meet rising demand from North American clients. And so, we are starting 2024 from significantly a factory geographic delivery platform, much more balanced than ever, to bring together the practices, methods, and collaborative ways of working, and to focus on harmonizing our engineering competencies and critical capabilities in cloud data and now in AI, to be present now in each of our strategic locations. In 2024, this is one of our key priorities, and we expect these programs to be continuous areas of investment and differentiations for Obama. As I mentioned in previous calls, there is a growing number of clients who, after slowing their spending with us due to the war, have started to grow their engagements with us again by utilizing our much more diverse geographic footprint and advanced delivery capabilities. Supporting this trend will be another key priority as we continue during 2024 to build up our capabilities both geographically and from our services mix perspective. To illustrate some relevant specific efforts, I will share several ongoing investments in engineering excellence AI learning journeys for all ePalmers, covering standard copilots and other AI-assisted engineering productivity tools for all key delivery roles with specific adoption targets being set up for all locations. This tool was released in 2023 with upgrades coming in Q1 and beyond. New upgrades to our digital delivery platform. now being AI-enabled, and leveraging a set of composable assets that include EPUM proprietary together with open source components and tools to connect to a variety of LLMs for supporting the most critical capabilities, protecting private data, and prompting cost-effective and reliable consumption of external LLMs, EPUM Dial Platform. Finally, Productivity Measurement Framework. allowing of engineering and agile best practices for continuous improvements of individual and team productivity in AI-assisted development environment. All those efforts should make it possible for us to become the most geographically diverse and broadly AI-assisted delivery planning platforms in the industry. Now about cost effectiveness. It became obvious at the end of 2022 throughout 2023 that to navigate current economic environment, we must continuously consider cost optimization efforts to react properly to all changes around us. Some targeted optimization efforts were ongoing in 2023 across both in market and global delivery locations. This has improved our utilization in short term and allow us to fund several initiatives in 2023 and 2024. We will be considering similar efforts as appropriate in the future to ensure our adaptability needs. We are also actively working on rebalancing our seniority pyramids by engaging and training junior talent while improving overall seniority in market and across our key global practices. About AI and AI efforts. For years, we have been investing and scaling our data, ML, and predictive AI capabilities. Today, many of our clients are engaging us to do the foundational engineering and data ML work required to help them operate their current businesses, but also to enable them to start their work with generative AI. Since mid of last year, our majority of these are relatively small. We engage in over 400 GNI-related projects. Our coverage of use cases is broad, from knowledge management to HCR, from product management to supply chain and service optimization, from advanced business process redesign to new interactive agent development, from engineering productivity enhancements by using GenAI tools to improving speed and quality of code generation and testing. Last year, we launched DIAL, our enterprise-level orchestration platform, to accelerate development of GenAI-empowered business solutions. Recently, we released it for open source. We are encouraged by seeing a high level of interest from our clients expressed in over 60 pursuits with 15 active projects in progress right now. And some already in production implementations across tech, insurance, retail, automotive, life science, and business information vertical segments. One of the most interesting deployment was done for major global economic data institution, and one of the most rewarding has been our work in Ukraine on a government platform, which now includes and AI capabilities as well. Now, let's talk about demand environment. In 2023, we have managed to safeguard many of our programs and clients' portfolios. We also saw some pullback in spend last year and expect that this may continue to be a factor into 2024, as our clients execute vendor consolidation exercises to manage their costs. While this trend continues, and in some cases to our benefit, we are seeing encouraging signals of a general rebound for built-based solutions. and for traditionally strong capabilities in advanced tech, data experience consulting, and AI. To capitalize on potential new demand, we are expanding our new business initiative by enhancing our sales strategies and go-to-market partnerships, dedicating resources to create new accelerators, establishing new engagement models, and innovating our customer interaction methods. In 2023, it was also evident that we brought new clients at a rate higher than in previous years, and we plan to do it again in 2024. Still, in overall, we believe at this point the 2024 environment will be, at least for the first half of the year, a continuation of second part of 2023 trends, with the potential demand up toward the second half. While we have made significant progress on involving our operations, and despite the challenges we have faced in 2023, our work with clients has been increasingly recognized by leading analysts and provide, in turn, some independent support for the stories we shared. All the reports are very recent, last two, three months, and present the up-to-date views on EPAM. About some new capabilities. In November 2023, IPAM was featured by Gartner and competitive landscape IT service providers to the global insurance industry report. That is probably one of the first recognition by Gartner of our industry expertise and the result of our efforts to bring insurance consultancy and implementation services simultaneously for the client's benefits. Putting together insurance consulting advisory practice was one of the key efforts for us during the last few years. Similar efforts today are underway in healthcare and life science, retail and distribution, oil and gas, among a few others. In Q4 2023, IPAM was featured in Forrester Report, the Cybersecurity Consulting Services Landscape, Q4 2023. IPAM was highlighted as one of the top 33 cybersecurity consulting services providers, which is probably recognition of a critical capability we are developing for the last year. Now about some established capabilities which were confirmed recently. In November 2023, EPAM was recognized as the top three companies in Magic Quadrant for critical capabilities for customer software development services worldwide by Gartner. EPAM leadership and strengths were specifically highlighted in leveraging generative AI, pioneering DevOps, and providing superior customer support and unique user experience. In November, December 2023, IDC named IPAM as a leader in three reports. IDC Marketscape for worldwide experience design services vendor assessment. IDC Marketscape for worldwide experience build services vendor assessment. And IDC Marketscape for worldwide software engineering services vendor assessment. Ed H recognized EPAM as the number six largest agencies in the United States and number 18 in the world's largest agencies companies categories. In just seven years, EPAM has moved from number 130 to number six among U.S. agencies. Before I hand over the call to Jason, I would like to take a moment to share a couple points on some aspects of our results for 2023 and our outlook for 2024. In 2023, we generated 4.69 billion in revenues, reflecting a correction of 2.8% year-over-year. Excluding the impact of exiting our Russian operations, revenue declined 1.8%. Adjusted income from operations was 16.3% of revenue and above the midpoint of our initial guided range. Also, the current market conditions don't represent at all an ideal demand environment for EPAM. Our 2023 results highlight our commitment to adapting the company to suit the current circumstances while continuously preparing for the more beneficial for demand environment in the future. What I want to point out as well is that our Q4 results shows a sequential revenue growth, first time after three previous quarters of sequential declines. About 2024 outlook, because of our ability to adapt to new client demands and market conditions, we are optimistic about the opportunities ahead of us towards the end of 2024. Demand to build during the last two years should rebound, driven by long-term pressures for legacy modernizations, by needs for advanced customer-centric solutions, and by the massive interest to understand how to apply and general AI capabilities to build new platforms and solutions. Even while we continue to navigate current economic and geopolitical environment carefully, we will invest in strategic initiatives organically and with support of expanded M&A activities in demand generation efforts and in people programs. This will have some effect on our profitability in 2024, but we believe this is the right actions to ensure long-term growth and stronger market position. Let me turn the call over to Jason to provide more details on our fourth quarter and full year results, in addition to our initial view of 2024 expectations.