EPAM Systems, Inc.

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2024 EPAM Systems earning conference call. 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 would like to ask a question during this time, simply press start followed by the number one on your telephone keypad. If you would like to withdraw your question, That's Darwin again. Thank you. I would now like to turn the call over to David Strobe at Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. By now, you should have received your copy of the earnings release for the company's first quarter 2024 results. If you have not, a copy is available on epam.com in the investor section. With me on today's call are Kati Dobkin, CEO and President, and Jason Peterson, Chief Financial Officer. I'd 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'd like to now turn the call over to Ark.

Thank you, David. Good morning, everyone. Thank you for joining us today. First, about our guidance change. As you saw from our press release, we are seeing some continuing volatility in our global demand environment. And while there are encouraging signs of new deals and new types of very different domain-specific demands than even in cyclical nature of 2023 follow us well in 2024, which now leads us to adjust our thinking for both Q2 and for all full-year outlook. As I mentioned during our first quarter earnings call, our initial view was the 2024 environment will be at least for the first half of the year. a continuation of second part of 2023's trends with a potential demand upturn right after. And that would take us into sequential growth for 2024. This view, which we now believe was optimistic, was supported by broadly anticipated more positive macro assumptions in our active interactions with the clients during the very end of 2023 and the beginning of 2024. That was directing our belief that clients will more quickly come back to growth in their prioritization for the remainder of 2024. We also believed that once we entered Q2, we would have much more measurable indicators for the improvements of the demand environment for digital engineering, data, cloud, and AI, and from which we can build further out 2024 revenue scenarios and plans. What we now understand is that the macroeconomic and geopolitical factors that continue to drive volatility in overall markets and specifically in the IT services and digital transformation sectors are still with us throughout the remainder of the year. While the programs we anticipated to start by now are still in place and some are inactive discussions, many of them have been postponed to future periods or decided to be implemented in much more modest scopes. In addition, we need for rebalancing our delivery platform to low cost locations force some level of slowdown in our revenue growth too. And so our expectation for considerably higher level of accelerated revenue trends in second part of the year will not be materializing as we anticipated, at least as we see it now. Jason will provide more details in our updates at Outlook for 2024. But let me share some current highlights of our business from Q1 up to today. Throughout the last quarter and continuing into now, we've been making progress across all critically important areas for us, which were discussed in depth during our previous call. We are strengthening and repositioning our talent delivery platform, as well as the cost effectiveness of our offerings by rebalancing our talent distribution from more expensive locations to less expensive ones, while maintaining our commitment to our traditionally strong gears. India, our second largest delivery location, is growing rapidly, not only in terms of headcount, but also by creating new capability centers in data, cloud, digital transformation, and AI-enabled managed services. We recently opened our GuruGram office and plan to open additional locations to support our client growing needs. LATAM is another of our stated priorities in overall rebalancing. As we refine and expand our locations there, we are expanding our key engineering DNA capabilities in the region. In the first quarter, we are now in the acquisition of VATAS, a multi-award-winning software development company with offices in Argentina and Chile. We are continuously investing in our existing and new technical capabilities, including crucial for the future gen AI, data NML, and predictive AI, and in correspondent IP development. We also continue to improve our domain industry capabilities in consulting and advisory services. During the beginning of 2024, we have seen encouraging signs of more balanced demand environment across our business with both new and existing logos, equally weighted between cost takeout and business change and modernization. This portfolio-wide perspective, combined with our efforts to establish domain-specific and relevant approaches for go-to-market, both independently and with our partners, leads us to believe that our ongoing reinvestment in consulting experience cloud data, AI, and vertical edge solutions will provide the unique edge we need to secure long-term growth. A couple of short stories to illustrate above. EPUM recently teamed up with AWS, helping a leading energy company in the UK to transform its customer experience, responding to a market that is characterized by the need for enhanced customer expectations, emerging competitors, regulatory demands, smart metering adoption, and sustainability goals. Our engagement was built around key transformations of payment channels, customer service frameworks, and shift to agile processes to ensure service flexibility. For a new logo, one of the world's best-known global car rental brands, we are helping to redesign a critical data platform that will enhance intelligent real-time pricing capabilities and drive better experiences for customers and further increasing their price and market leadership. We believe it is the next iteration of platform engineering into truly intelligent application empowered by AI that will drive the future of our demand. Finally, in another encouraging sign, Our long-term clients are also returning to us with newer streams related to modernization and next-gen support, which now include much expanded engagement footprint with larger shares of India and Latin America, including net new delivery locations in Argentina and Brazil. In general, our focus on domain-led propositions is the reason why we believe we saw much stronger growth in some verticals this past quarter. example in our healthcare and life science portfolio we are part of a number of strategic programs helping clients in areas of cloud data platform physical and digital product development and engineering as well as a new generic driven initiatives on another side in some of our vehicles namely business information and media we continue to work through the impact of from downs from a few large clients initiated previously and what we aren't able yet to offset this with revenue coming from new opportunities, we are still seeing a more balanced picture emerging over the course of the next quarters. Across all our vertical NGOs, we are seeing more interesting and higher level of program starts related to generative AI. In Q1, a number of our key clients formally selected EPAM as strategic partners for their AI transformation journeys, where EPAM will help to scale AI including GenAI, to unlock the power of data and to establish valuable insights. These engagements are often starting today from advisory and from the use of our differentiating IP and then ramping up to specific use cases. We believe that will lead us to a new level of engagement with our buyers by allowing to drive meaningful business breakthroughs with our tools and in combination with our consulting and scale delivery capabilities. And while the revenue impact of these programs is still limited today, we see it's a very visible progression of the AI-enabled services market for us. To summarize, while in Q1, across our core business, we were seeing a more balanced demand outlook than in the most part of 2023, and a gradual return to modernization and business change programs, as well as ramping up general related opportunities, As mentioned already today, by the end of Q1, we realized that the speed and scale of those changes were not in line with our early expectations. Moving to how we are managing our business in this part of the cycle. As we focus on driving new demand and proactively converting and expanding our wallet share with clients, we are also looking for opportunities to drive efficiency and focus throughout the organization. We have shared our ongoing efforts to rebalance the business from a geographical perspective over the course of last year, and that program is ongoing. Our attention now is turning toward a more finely tuned approach to both geographic investment as well as our areas of capability in market, particularly around our stated market segments, AI cloud data experience, and domain-led consulting. We've gone to market in much more intentional way with key proposition and strategic partners and are now looking to refine some of those propositions and investment as we look to balance near-term and long-term demand with our investment. Throughout the remainder of this year, we will be focusing on driving enhanced efficiency and further rebalancing of our geographical footprint, resizing portions of our in-market and some other teams, enhancing operational efficiencies and engineering productivity through application of AI and automation internally at the pump, and driving a singular focus on compliance and for the entire company. Those continual efforts are critically important as we navigate the current environment while taking the necessary steps for the eventual return for built and transformed programs, which have been slowed down during the last two years. Our fundamentals are strong, and we are firmly confident that EPAM will be in a lead position in this rebound, enabled by our significantly diversified global delivery platform and driven by long-term pressures for legacy modernization, needs for advanced customer-centric solutions, and the significant interest in applying and integrating general AI and general AI capabilities into new and existing enterprise platforms, innovative intelligent applications, and new transformative business models. With that, let me pass to Jason to provide details on our Q1 results and our guidance for 2024.