Lilya Chernova - IR Arkadiy Dobkin - President & CEO Anthony Conte - CFO.

Ashwin Shirvaikar - Citibank Jason Kupferberg - Jefferies Darrin Peller - Barclays Anil Doradla - William Blair David Grossman - Stifel Financial Avishai Kantor - Cowen & Company. James Friedman - Susquehanna Financial Arvind Ramnani - Pacific Crest Joseph Foresi - Cantor Georgios Kertsos - Berenberg Moshe Katri - Williams Trading.

Welcome to the EPAM Systems Q2 2016 Earnings Conference Call. As a reminder all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]. I would now like to turn the conference over to Lilya Chernova of Investor Relations. Please go ahead..

Thank you, and good morning, everyone. Right now you should have received your copy of the earnings release for the company's second quarter 2016 results. If you have not, the copy is available in the Investors section on our website at epam.com.

The speakers for today’s call are Arkadiy Dobkin, CEO and President; and Anthony Conte, Chief Financial Officer. Before we begin, I would like to remind you that some of the comments made on today’s call and some of the responses to your questions may contain forward-looking statements.

These statements are subject to risks and uncertainties as described in the company’s earnings release and other filings with the SEC.

Arkadiy?.

Thank you, Lilya, and thanks everyone for joining us today. We had a strong quarter joining in a solid first half of 2016 with Q2 revenue of $283.8 million. This represents 30.3% year-over-year growth and 33.9% constant currency growth. Important to note, that our organic growth for Q2 was 24%, and in constant currency 27%.

Our quarterly performance is above guidance is driven by continuous growth in our existing strategic accounts spanning across all verticals and geographies, aiding to growth on ways we have seen a good pipeline of new orders being added in each of our key geographies.

Anthony will provide a more detailed update on our financial performance, but for now I would want to spend a few minutes on how we see demands and pricing going into the latter half of the year. Let's start with the most talked, about challenge in the market, the issue related to the U.K.

decision to exit European Union and its impact on overall economic environment. First of all, I don't think it would be a surprise to anybody that at this point we do anticipate some downstream effect both on overall pricing and demand elasticity with several key accounts in the BFSI vertical.

In the case of UBS, our largest account overall and by far the largest in our financial vertical. We have seen already indications of demand compression started in Q3 and expect those to continue in the last quarter of the year. At the same time, across the broader BFSI European business.

While we have some indications to be conservative for the immediate demand, we also have new business opportunities across every major account.

Additionally we’re seeing the general volatility affect sectors beyond financial services as even some consumer oriented companies in Europe are experiencing reduced visibility in their demand which could cause some delays in the decision process and increased scrutiny of discretionary budgets.

So in result because of the current level of visibility it becomes more obvious that in some pockets of our targeted markets our clients business environment is becoming less stable and less predictable than we experienced before and it's rather difficult at this point to quantify the nature or the exact impact on demand and by extension on revenue numbers for the second part of the year.

Practically, we anticipate the general environment might cause some delays in our effort of pricing adjustment, projects start and in some already contracted ramp-ups across specific lines in near future.

On another side in North America, we anticipate strong growth in all verticals unless some uncertainty related to the election cycle with slow change in the business programs. In Europe, we also see an increased demand across a number of verticals.

So for example in Life Science & Healthcare, to increase global revenue by 78% year-over-year and in our Media & Entertainment vertical return in a 47% year-over-year growth. We are also seeing significant growth in our emerging verticals with steel and energy clients.

And as always we continue to focus on our traditionally strong are by expanding our foundation in software and high-tech vertical.

So taken all those different drivers into the account, and as you look at our current book of business for the second half of 2016, we are optimistic that is our continuous help to transfer our clients’ organizations into digital connected businesses and with demand for such services and with our unique combination for business acumen, digital insight and engineering delivery excellence, we should be able to navigate well over the current period of uncertainty and still achieve our annual growth target which we said at the beginning of the year with year-over-year revenue increase of at least 26%.

Now to what hasn’t changed at all in our view. We want to underscore that even with the overall volatility in the business environment, we are continually investing in our talent productivity platforms, IT development, deliver locations and service lines.

This investments we believe are critical to ensure that we are well-positioned to deliver on the commitment we've made to our employees and our customers, and these are also the strategic differentiators which despite the current business environment will well position us to take advantage of the opportunities that will certainly reveal themselves over the course of the next few quarters.

You also will recall from previous calls that we have taken a number of initiatives towards built-out and increase the visibility of our key go-to-market offerings.

I am pleased to say that you were once again permanently featured in 38 industry analyst reports to Q1 and Q2 including coverage from Gartner, Forrester and other key leadership differentiators in areas of digital platform commerce cloud, agile, social, testing services, IT digital labs and innovation as a service and analytics and security.

In closing I want to mention that this quarter is an important milestone for our company, as our trailing 12-month revenue has crossed $1 billion mark. So overall, we are confident that in long-term we will be able to demonstrate continuous revenue growth in excess of 20%. With this, turning over to Anthony..

Thank you, Ark, and good morning, everyone. As you heard in Ark’s comments, we’ve turned in another strong performance in the second quarter. Looking our results from a high level, here are a few key highlights.

First, this is our 22nd consecutive quarter of over 20% organic growth, which demonstrates our effectiveness at delivering against our strategic plan, executing our diversification strategy and helping our clients continue to successfully navigate their challenges in the marketplace.

Revenue closed at $283.8 million, 30.3% over second quarter of last year, and constant currency growth of 33.9% and 7.3% over Q1 2016. Geographically, North America remains our largest region, representing 56.7% of our Q2 revenues, up 45.8% year-over-year. Europe was up 17.4% year-over-year representing 36.1% of Q2 revenue.

In constant currency terms EU would have been up 21.4% year-over-year reflecting the impact of both the euro and sterling volatility over the past year. APAC which only represents 2% of our revenue is slightly down and CIS is flat year-over-year.

Further reinforcing our strong diversification story, which is one of the key underpinnings to our consistent growth, Q2 again demonstrated this broad-based growth story.

As you heard from Ark, all of our verticals continue to grow and our client concentrations continued to improve, which emphasizes the growth we're experiencing from quite outside of our top 20.

The addition of Navigation Arts and AGS, both contributed clients that mainly fell outside of the top 20; plus our concentrated sale efforts in winning new logos helped drive 45% year-over-year growth on all accounts outside of the top 20. Turning to profitability.

GAAP income from operations increased 35.9% year-over-year to represent 11.3% of revenue in the quarter. Our non-GAAP income from operations for the quarter after non-GAAP adjustments increased 29.1% over prior year to $47.6 million, representing 16.8% of revenue. Our effective tax rate for the quarter came in at 21%.

For the quarter, we generated $0.46 of GAAP EPS, $0.71 of non-GAAP EPS, which includes the tax effect on non-GAAP adjustments that is based on 53.3 million diluted shares outstanding.

As Ark mentioned, while we continue to invest in expanding key capabilities, the market volatility is impacting our ability to balance our resources against projected book and deploy demand. This lag is visible in the 2.6% drop in our overall utilization numbers for this quarter ending at 74%.

To address the shifting demand and to rebalance our investments, we continued to improve our operations related to workforce planning utilization and believe the utilization impacts are short term.

As you know historically, Q3 utilization drops to the heavy summer vacations, so Q3 will be another quarter relatively of low utilization with improvements coming in Q4. We finished this quarter with 18,206 IT professionals, representing a 6.2% increase from Q1 2016 and 27% over prior year excluding acquisitions.

Turning to our cash flow and balance sheet. Cash from operations for Q2 was $38.5 million, significantly above Q2 of 2015, which was $2.2 million. The increase in Q2 cash flows can be attributed to our decrease in our total AR and unbilled DSO and less expenditures in the quarter.

This quarter are AR DSO is 57 days and our unbilled DSO is 31 days, for a total of 88 days. Compared to Q1 2016 AR DSO of 54 days and unbilled DSO of 40 days for a total of 94 days. Ark already discussed UBS at a high level but I’d like to specifically address DSO issue which you all have questions about in Q1. UBS DSO has improved dramatically.

It's down to 85 days in total from 114 days in Q1. So based on the processes we’ve implemented last quarter to improve total DSO, we have made substantial progress. The AR DSO are still bit high but this is mainly due to the efforts to reduce the unbilled DSO which resulted increase invoicing that remains uncollected.

We have a good process in place and we anticipate continued improvement. Turning now to guidance. We are reaffirming our year-over-year guidance of 26% revenue growth. Given the various macroeconomic and geopolitical uncertainties, our normal visibility has been impaired and we could experience unexpected volatility over the next several quarters.

We remain very confident about the continued long-term growth outlook for the business and overall markets. We still anticipate currency headwinds of approximately 3% resulting in constant currency growth of 29%. You may wonder why this has not increased in the recent fall in the British pound.

While the pound has fallen compared to our expectations earlier in the year, we have seen improvements in the Russian rubel and Canadian dollar that have offset, keeping full year currency headwinds approximately in the same range. The four year GAAP diluted EPS will be at least $2.5 with an effective tax rate of approximately 21%.

Non-GAAP diluted EPS will be at least $2.97 which includes the tax effects of non-GAAP adjustments and the full-year weighted average share count is expected to be approximately 53.4 million diluted shares outstanding. And now for the third quarter.

Revenue is expected to be at least $295 million, 25% above third quarter of last year, and includes about 3% currency headwinds resulting in constant currency growth of 28%. GAAP diluted EPS will be at least $0.52.

Non-GAAP EPS will be at least $0.73, which includes the tax effects on non-GAAP adjustments and is based on a weighted average share count of 53.6 million fully diluted shares outstanding. With that, I’ll now turn it back to the operator for Q&A.

Operator?.

We will now begin the question-and-answer session. [Operator Instructions]. We will pause for a moment as callers join the queue. The first question today is from Ashwin Shirvaikar of Citibank. Please go ahead..

Thank you. Good morning, Ark. Good morning, Anthony. Well, good quarter first of all, and thank you for the color with regards to what’s going on in the environment. I had a clarification to start.

So when you say that you expect some projected start delays some pricing pressure in some parts [ph], is that explicitly incorporated in your outlook? So, for example, have you assumed the UBS, let's call it, $30 million quarterly instead of what they did this time, it's at $36 million, I just want to make sure that it is explicitly there in your guidance with offsets on the other side?.

Hi, Ashwin. I think it’s incorporate in quarter in terms of our current visibilities. So that's what we’re seeing right now. So that's why we clearly communicate that environment is softer than we used to and that predictability a little bit less than before. So what we’re seeing right now that’s definitely incorporated.

Right?.

Right.

And then should these things pan out in terms of revenue weakness, pricing weakness, is there anything you can do on the cost side in the short-term to have some sort of an offset? I know you’re not spending less on strategic initiatives and I would personally argue neither should you, but is there anything else you can do maybe on the G&A side, or anything like that that helps?.

So we definitely considering different options there and Anthony also pointed it out on utilization which is probably not optimal right now and we definitely will be focusing on this part. At the same time we - at this point, we will continue to invest in the areas which we plan to invest and not going to cut costs there.

Again utilization and staffing probably one of the area and because of all what was happened during last couple months, so we have, as mentioned several point higher than we anticipated. So but clearly we're looking at this..

Okay. And last quick clarification on DSOs.

It's a good trend that that’s begun to get it back down to where it should be, but what is your long-term target?.

We want to keep bringing it down but I think overall general targets is to get the overall DSO to kind of back to the mid-to-low 80s combined where I'd like to see it, and then the AR DSO to be somewhere in the mid 50s is probably what we are going to see there..

Okay, great. Thank you..

The next question is from Jason Kupferberg of Jefferies. Please go ahead..

Thanks. Good morning guys.

So just to maybe build on some of those comments that you just made, mean, should we think about this as just kind of taking away some upside potential to the year? I mean, I know that you still have at least label on your revenue outlook, but given some of the cross currents out there, are we just thinking about more like this is an inline kind of year as opposed to having much in the way of upside given some of the challenges in Europe?.

I think we can just repeat what we said already. So at the beginning of the year in [indiscernible] giving guidance we were giving guidance with what we saw and it was much more known. Right now to the end of the year, in general less - supposed to be a less unknown but volatility increased.

So what we’re doing right now, again we share it with you exactly would we say. So we're also sharing with you that like you were asking practically each quarter how we are seeing the market, how we compare this is what is hidden from other companies, and the usual answer was that we don’t see the market changes. This time our message is different.

We've seen some concerns. We’ve seen like companies were reacting on Brexit or maybe they were reacting after Brexit or sounds little before. So right now we, again sharing exactly what we see..

Okay. I mean, I guess if you we were to….

Yes, go ahead..

Sorry. I was just going to say, so if we think about visibility in percentage terms, I mean, what would your visibility typically be at this point in the year on the full year outlook and what is that visibility now? I'm just trying to capture that..

Visibility to the final annual guidance, which we provided, very similar to our previous years. But again the market in our view is soft and that’s why we kind of openly sharing this. But visibility like in percentage, how we see like pipeline, it’s at this point similar to what we saw during the previous years..

I think the key addition is what we’re trying to say is that there is a lot more clouding that surround that visibility, so while we - the guidance we gave is based on what we see right now, there is a lot of changing events over the next six months and the economy.

Things change almost on a daily basis, so we can't predict what that volatility is going to be. Based on what we see today, that's what our guidance is based upon and our visibility is comparable to prior years..

And I'm pretty sure you realize that our kind of position is reflection from what we see in the declines, and some of the clients which were much more confident before, right now not giving likely answers. So which means that they’re struggling to understand what’s going to happen. Again I'm pretty sure I'm not saying anything new to you..

Right, okay. I mean, that's helpful. Just one more.

Are you changing your second half hiring plans at all just given your desire to bring the utilization rate back up and given some of this uncertainty in the demand environment?.

Yes, we definitely adjusting this but it’s also nothing new here. We are doing this practically real-time during the last years. Like if you think about it like in the past, like some events happening, we do in the adjustments of our hiring plans between different locations and number of people, and clearly we are doing this right now.

We mentioned our utilization is higher than we expected.

Okay. Thank you..

You’re welcome. Over to next question..

It’s from Darrin Peller of Barclays. Please go ahead..

Thanks guys. I just want to start off with helping segment the growth rates by your client base. I’m trying to get a little sense as to whether you're seeing a little less certainty from certain types of clients versus others.

I mean, last quarter you had a high-teens growth rate from your top clients and 30%-plus growth from your, let's call it, tail 80% of your client base.

Is that trend similar now? I mean, are you seeing any specific large clients maybe the top five or so that are pulling back in because of saying we're going to hang tight and give you a decision later.

Can you just give us a sense as to the mix in terms of growth profile?.

Yes, I mean, I think I had mentioned it in my commentary as well that the accounts outside of our top 20 are growing at a much faster rate than those within our top 20. I don't know that that's a reflection that the top 20 are not growing. They are still - if you look my top 20 are still growing at high-teens rate and with the lower 18%.

It's just that those outside the top 20 are growing at about 45% rate. So it's more a reflection of the diversification of our client base. Our top 20, some of them are getting to be quite sizable, so some low big numbers they start to slow down a little bit in the growth rate. We're still very confident.

We're still getting strong growth from a lot of those in our top 20. We do have some that are flattening out. We talk about Barclays every so often being a little bit flat over the past several years, so that obviously impacts overall top growth rates. And then we have a couple of other accounts within our top 20. Every year we have it.

We have some that flat now drop-outs, change, so that's just the normal dynamic, nothing unusual in it this year..

Is there anything, let's call the top five or 10 that’s new that this quarter given Brexit or any other uncertainties in the macro have decided to say that used to be driving growth for you guys that are now deciding not to, and that’s contributing to your decision on guidance for the second half?.

Well, I think clearly UBS has made their own statements around concerns around Brexit, and we know that European banks in general are struggling, so UBS growth rate, I’m sure you've seen it, this quarter was about 14% year-over-year which is below the growth rate we've seen historically in that account.

And as far as others, nothing specific to call out. Nobody else that specifically pulling things down. I think there is just a general sense across the client base of unease and uncertainty with where the markets are going..

And then lastly, is there anything in the second half that sort of anniversaring organic or inorganic from some of the acquisitions you have made, or is there any impact there that you're growing over deals that might be contributing as well, just because obviously the second half implied growth rates in more like mid-20s versus mid-30s, you run again in the first half of the year on a constant currency basis, so just trying to understand that..

You're asking about the growth rate in the second half versus the first half?.

What was organic growth during the quarter, if you can help us with that? And then what in the second half - is there anything that you bought that's anniversaring that's contributing to this?.

Organic growth was 24%, 27-ish in constant currency..

Okay..

So that’s it. As far as in the second half, yes, I mean last year Navigation Arts was the second half acquisition. AGS was a second half acquisition. So we pick those up. One was in Q3. One was in Q4..

I think AGS was practically on the board versus New Year..

It was [indiscernible]..

What was that?.

Does that answer your question, Darrin? I’m not sure if I’m getting….

Yes, so there is a couple of - so there is certainly some of the growth profiles embedded and you guys you’re going to grow over as well..

Yes..

Okay. Alright guys, thank you very much..

Sure. No problem..

The next question is from Anil Doradla of William Blair. Please go ahead..

Hey guys, couple of questions. So you talked about Europe. You talked about some of the banking guys. When I dig into perhaps UBS, over the last four to six months, there have been some changes. You've had a Chief Information Officer coming onboard in February-March. I think they got a new CIO literally within the last month.

So from that account point of view, how much would you attribute it to structural changes organizational changes, and first of all, did it impact you guys on that front?.

Well, it is a question which we don’t have answer truthfully to what the organizational changes and what’s the economy, and what’s the Brexit. I don’t think I can comment on this. I don’t know how to put priority on any of these components..

Okay.

And when you look at some of the functions, you talked about some softness from that region, in the BFSI area, were there some particular functions where you were seeing perhaps a little bit more pull back, more softness versus some other, whether it's wealth management, whether it is application development? Can you give us some color on whether you could break it down by functions, or was it kind of across the board?.

It was maybe a little bit in specific regions in APAC for us, but for the future even like for Q3 or Q4, we are very much on the impression that if client is considering some cuts, they are still struggling internally in what areas is going to be or slightly across multiple areas.

So I think the exception of an APAC right now, I don’t think we can name anything..

Okay, and from a share point of view, you’re not worried about your market share, right? There is no concern about you losing share to competitors. This is purely a macro-driven issue that's going on.

Is that fair to say?.

Based on what we know, it's correct..

Okay. Thank you..

The next question is from David Grossman of Stifel Financial. Please go ahead..

Thank you. So Arkadiy, historically when you’ve seen this deceleration among some of your larger clients for whatever reason, that has been absorbed by other clients that have kind of stepped in and not only absorbed that but also drove for us.

And it sounds like to the extent that that's happening with UBS and maybe others in the back half of the year that that may be happening again, so you reiterated your 20% organic growth target, so should we take from that that the backlog of opportunity in this rest of the base should be sufficient for you to continue to grow at 20%-plus organically assuming the environment doesn't fall out of bed from where we’re right now?.

I think we would like again repeat ourselves. So yes, in the past, it was kind of similar situation but each time it’s a little bit different. I think right now at this specific point maybe in two weeks or four weeks from now, we will be in different position.

At this specific point, the level of unpredictability is higher than we used to, at least in this segment which we highlighted. Okay? So we still think that our initial target could be reached, and again we’ll update later. Like in the past, like yes, there are similar situation but each of them were a little bit different.

Sometimes we were getting like pretty specific notification like with a specific plans. Right now everything is little bit farther, at least again in this specific segment of the market which we can talk about..

Okay. And just to make sure I understood you correctly.

Your specific concern is the financials in Europe, that's where the specific concern is right now?.

This is number one. Number two, that it might be impacting some other sectors in the region as well..

Right. Okay. And then I'm wondering if you just clarify your commentary about pricing.

I’m just - perhaps you could help us better understand why you’re seeing incremental pressure on pricing now?.

Because of all of these reasons and there is more difficult negotiation for potential increases, and we explained before how the pricing - what components contribute to pricing increases from review and the seasonality of the position, from annual increases, which is not necessarily matching the calendar year, right.

So all these components, and we just anticipate that it probably would be more difficult than before..

Okay. So just to be clear….

Or even with new contracts it could be more difficult as well..

I see. Okay. Very good. Thank you very much..

The next question is from Avishai Kantor of Cowen & Company. Please go ahead..

Yes, hi. Good morning, everyone, and thank you very much for taking my question.

Can you describe the nature of the interactions that you’re having with those large European financial services clients which you mentioned, how - compared to your conversations with clients in other verticals, are those different conversations?.

Yes, it’s a different conversation with - because there is discussions about the future and this discussion changed from what it was like one quarter or two quarters ago. So there is change in plans. The problem with this is the plan is not defined and I think the specific line is still struggling with their decisions.

And that’s why we had to translate the same level of unpredictability which we have. But again at the same time, we do think that we would be able to achieve our guidance which we provided at the beginning of the year..

Okay.

And then, I know it’s too early but given increased costs associated with Brexit for some of those clients, longer term do you see any increased willingness to engage in additional projects?.

Listen, it’s much more - again it’s much more complicated from different angles. Too many variables and unknown, like from one point of view, definitely they are trying to figure it out how it would influence them. On another side, there is also a lot of movements as this declines to optimize the vendors infrastructure.

So there is a chance that it would be increase, so our share would increase as well taking in account of type of work we are doing. So what’s going to be there like two quarters from now? I don’t think anybody knows, but it was previous question we would do things that we wouldn’t share of the budget. There like proportionally we don’t believe so.

I think our share probably is still going to be increased..

Thank you so much for the detailed answer..

The next question is from Steve Milunovich of UBS. Please go ahead..

Hi. This is Ben [ph] in for Steve this morning. Anthony, could you comment on your long-term expectations for margins and revenue for engineer? Are we kind of at a new normal here? Do you expect improvement going forward? Thanks..

No, our operating guidance holds. We’ve always said we’ll be between 16% to 18% in the adjusted operating margin. That guidance has not changed, and as you can see we’re somewhere right in the middle or almost at the middle of that guidance range and we don’t provide guidance on a revenue per engineer..

Okay. Thank you..

The next question is from James Friedman of Susquehanna Financial. Please go ahead..

Hi. Congratulations on the improvement in cash flow and the unbilled.

Anthony, what should we anticipate the trajectory on those metrics going forward?.

As I said earlier, DSOs longer term, we’re focusing on getting them down even more. So we’re down to about 88 total pulled up six days out this quarter. Most of those six days were from the two big accounts we talked about last period, UBS being one and one other large client.

So we fixed those issues and a few other steps to improve DSO brought down to 88. We want to continue to push that down to kind of mid-to-low 80s overall is the target. That will probably take a few - at least a few more quarters to cycle through, so that’s the overall guidance there..

Okay. And can you remind us is there seasonality in that metric.

Should we be thinking about it that way?.

Seasonality in DSO metric?.

Yes..

Look, maybe a little bit towards the end of the year and the beginning of the year around holiday times and things of that nature, people tend to try and clean out budgets at the end of the year, so we always see a little bit of a pop at the end of the year as people make and accelerate payments.

And then there is typically a slowdown at the beginning of the year as people are starting up the New Year, budgets are being set. But I don’t think it’s dramatic..

Got it. All right, thank you for the color..

Yes..

The next question is from Ashwin Shirvaikar of Citibank. Please go ahead..

Hi, I just wanted to hop back in the queue. Ark, your answer to a previous question I think it's from David on pricing. You implied - because when you first said pricing I thought you were talking about price decreases being contemplated, but your answer implied more or less a lack of pricing increase.

So I just want to clarify, are both those things on the table basically?.

No, we weren’t talking about pricing decreases. I mean we’re still - year-to-date we’re still staying right around just under 3% as far as pricing increases. What Ark was alluding to was that we just start expecting to see any additional expansion of pricing.

We expect to continue to see pressure on getting price increases into the future, not necessarily decreases. That wasn’t really part of the message..

Okay..

We were talking about again more difficult environment in our regular incremental increases like which happened during the year as well..

Yes, understood. I just wanted to clarify that. Thank you very much..

Yes..

The next question is from Arvind Ramnani of Pacific Crest. Please go ahead. Mr. Ramnani your line is open..

Hi.

Can you hear me?.

Yes..

Great. Impressive performance at your non-top 20 accounts.

And if you can provide some color, how did this compare to growth of non-top-20 accounts compared to last year, is this growth accelerating?.

It’s comparable. I mean, last year the account size of the top 20 were growing in excess of 40%. We’re seeing the same this year.

So I think the consistent message that we talk about is the diversification of our client base and the amount of growth that we get across our client base both within our top 20 and more importantly outside the top 20 as we have new accounts growing and becoming those future top 20s is very important to us and that’s how we grow through all these years is that we see constant flow of new clients into our pipeline and accelerated growth outside the top 20 as these accounts ramp up.

So I think it’s a consistent message from past years..

Great, and are there any specific accounts or industries you can call out in this particular group?.

It’s really across the board as far as industries.

I mean, there is no accounts that I can mention, but it is pretty broad-based across our industry segments and I think you can see that when you look at the growth across the industries because they are all growing in excess of 20% as well with obviously I called - or Ark called out, three key segments which are growing a little bit faster than the others this time around being Life Sciences and Healthcare, Media & Entertainment is doing well and then within the emerging vertical, we have a number that are contributing as well.

So right now we’re seeing a lot of growth from those but really seeing over 20% growth from everybody which is what we’re going to see..

Excellent. And then just a quick question on Dextrys.

Are you going to provide some metrics in how large Dextrys is, and what kind of contribution will be for the second half of the year from this acquisition?.

No. Dextrys is really a very immaterial acquisition. It was primarily focused on bringing in a few extra employees in China - I’m sorry, a few hundred extra employees in China in a new location up near Shanghai. It’s a lower cost location, provides us access to Shanghai market. The revenue was really not material, so there is nothing to disclose there.

It’s not going to have any significant impact on our performance..

Excellent, and a good job on improving DSOs. Good luck for the remainder of the year..

Thank you..

The next question is from Joseph Foresi of Cantor. Please go ahead..

Hi. Just to go back to the softness you’re seeing.

Is this because clients are under stress, or is it more associated with just concerns over what Brexit is going to look like? And I’m wondering, are they delaying the start of new projects but still continuing present work and/or are they cutting present work?.

I think it’s really a related like question. I think they have more difficult time because of Brexit in general and that’s why they are uncertain about future. So I don’t know what else to add to what we said already. So at this point, we’re seeing again a less certainly in some pockets of our market and some specific line, and that’s all we can share.

I don’t know what to add..

Okay. And then, I guess from a utilization standpoint, obviously it ticked down and then you’re talking about the seasonality in the summer.

That utilization movement, where - are you taking people off of projects that are being cut and moving them onto new work, or is it just that you didn’t have that extra work in the quarter? I'm just trying to understand where they’re going and when we can expect sort of the rebound in that metric?.

So we do believe - again Q3 usually it’s a time of vacations and that’s why season play a role here. That’s what we experienced during the last year. It’s always bringing a couple of additional points to our range. So we do think that it would rebound in Q4..

Okay. And then as you look into your full kind of client base and I know you’ve talked about areas of growth compensating for some of the areas where you are seeing some softness, and that’s why you are confident in the guidance.

Maybe you can just walk us through those potential areas like North America, and why you feel like they are kind of hot pockets that won't be affected by what’s going on globally?.

So that’s what we are seeing on the market. So again all our message is just a reflection of understanding of our specific portfolio of clients. And from this, we’re still optimistic that we would be able to achieve the guidance. And North America from this point of view is more stable than Europe and that’s all we can say.

So if any changes will be happening, we will be communicating them as soon as possible..

Okay. Thank you..

Thank you..

The next question is from Georgios Kertsos of Berenberg. Please go ahead..

Yes, hi guys. Thanks for taking the question. As you can probably imagine, most of my questions have basically been answered. But I just like to follow-up on the pricing pressure point that seems to be one of the key points that you’re raising. I noticed a bit of a gross margin contraction year-on-year.

So Q2 versus Q2 ‘16, ‘15, and I was just wondering whether this is due to this sort of wider pricing pressure that you’re referring to, or whether this is due to some contract specific issues, and what are your FY16 and beyond, if possible, gross margin expectations. Thank you..

Yes, the gross margin is really specifically tied to the utilization. So the drop in utilization is what creates - having more people on the bench is what creates that compression on the gross margin. So as we adjust utilization issue, the gross margin should take care of itself..

Okay. So just back to a follow-up just to confirm, so the bench, basically people that are not utilized, you book the cost for those people in cost of goods sold rather than SG&A? That’s what it seems to....

Correct. Anybody who has a label considered a production or billable employee is classified as cost of revenue and goes to that line..

Okay. So basically capturing all that point together is that you’re not really expecting any significant gross margin contraction for the full-year and beyond based on the visibility that you have now.

Is that correct?.

That is correct. We’re not expecting any compression, significant compression..

Thank you..

The next question is from Moshe Katri of Williams Trading. Please go ahead..

Hey thanks, let me add my congrats on the DSO improvements at UBS.

Just going back to the discussion on pricing compression, are there any major contract renewals coming up which could include some of this pricing pressure that you’re talking about that we should be aware of? And then just in terms of how these contracts are structured with existing engagements, I guess, can the client come in and ask for pricing reset on an agreement that's actually that’s been signed a year ago or a few years ago? Thanks..

There is nothing specific about any renewals right now. On another side, Moshe, I’m pretty sure you know that any client can come and ask for any discount at any point depending on their situation on the market situation. So it always could be happening even with any existing contract. So that’s always on the table.

The same like if market difference we can do opposite as well, but then its negotiation all-related circumstances..

Okay, that's fine. That makes sense. And then some color on some of the growth rates we have seen in Media and then on the Life Sciences, these are pretty strong numbers for the quarter.

And then also in that respect, maybe we can also talk about some of the new strategic wins that you had during the quarter and year-to-date maybe in terms of verticals and the activity that you are seeing there? Thanks..

I think in general nothing special happening - didn’t happen or going to happen during this last and next quarters. I think we have good performance in two verticals. Healthcare also Life Science affected by some acquisitions happened with Alliance Global, but it’s also reflection of some organic growth in new clients in this sector as well.

So it’s a combination of the strong specific focus. It’s all in line with what we communicated during the last quarter. So we think that each of our segment is pretty interesting and perspective for us including the financial services too. We’re still very optimistic about long-term future there.

So it’s a lot of changes going to happen, a lot of potential work for us too especially with our focused areas of expertise and capabilities and build-out we should do it..

Okay. And then strategic wins.

Is there a way to kind of quantify how many of these did you have during the quarter maybe year-to-date and then where do you see the most activity in terms of verticals?.

Strategic in terms of?.

Clients..

You’re asking about number of clients in specific areas or what exactly?.

I'm asking how many strategic client wins did you have during the quarter, or where are we year-to-date and maybe there is a way to segment it by vertical?.

So, I guess, you mean new clients or what?.

Yes..

Okay..

So I think the quantification is probably three or four new real strategic accounts beyond - Ark mentioned a few last quarter, there is probably a couple more that came in this quarter, but I don’t think there is only huge stories. A couple of new strategic accounts that we see real opportunity for growth. But Moshe, you know our story is always.

We get into the clients. We do a few projects and then they grow from there. So it’s the same basic trend that we have experienced in the past, so two or three that we see real opportunity to grow and deep penetration..

So basically from the point of new logos which we acquired last quarter or we kind of increased sales right now it’s pretty much in line with our historical numbers..

All right guys..

But we don’t see any bad messages in this area..

This concludes the time allocated for questions on today’s call. I would now like to turn the conference back over Arkadiy Dobkin for closing remarks..

And as usual, thank you very much for joining us today.

So I would like just to confirm that despite of the softness which we see in those market, we’re pretty confident about long-term story and I think our message from this point of view very consistent for the last four years starting from our IPO days that we’re still thinking that 20%-plus organic growth is possible for us and going to happen, and that our operational margins will still be between 16%, 18% like it was like we said several years ago.

So we’re still pretty confident in this long-term. Again, thank you very much and see you in three months or talk to you in three months. Bye..

This concludes today’s conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day..