2022 conference call. At this time, all participants are in listen-only mode. After the speakers' presentations, there'll be a question-and-answer session. To ask the question at that time, please press star one one on your touch-tone telephone. As a reminder, today's call is being recorded. I will now turn the conference over to your host, Mr. David Straube, Head of 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 second quarter 2022 results. If you have not, a copy is available on epam.com in the investor section. With me on today's call are Arkadiy 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 risks 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 the call over to Ark. Thank you, David. Good morning, everyone. Thank you for joining us today. I want to start by reminding you of our earnings call three months ago, and then our Investors and Analysts Day on May 19th, where we shared our approach and high-level plan for the following months. At that time, we said that we didn't expect the war to end quickly, and as a result, our plans for adapting the company were developing based on series of overlapping efforts phases. Today, we are still very much in the wartime, and we don't fully see a definitive conclusion of it in the near term. That means that as we expected, we are continually adjusting our operations, our delivery organization, and ways of working to what is our new normal now. Let's go quickly over the progress we are making across those phases. First phase is a focus on the safety of our employees and stabilization of our operations in Ukraine. At this time, all our employees are in safe locations, either within the country or in neighboring countries. Our teams continue to work supporting our customers at levels of productivity very much in line with what we experienced before the war or even higher. In addition, in this new normal, we continue to support our Ukrainian employees and their families, as well as the Ukrainian people. We're providing various forms of humanitarian relief with EPAM Ukraine Assistance Fund and our $100 million assistance commitment, which we announced back in March. I would just add that we are constantly moved by the resilience and morale of our Ukrainian employees, and we want to take one more opportunity to thank them for their incredible commitment and level of efforts they demonstrate. The second phase of our framework is acceleration of our global diversification efforts and continued growth of our diverse capabilities. Yes, this includes, first of all, geographical diversification of our delivery platform. It also includes many other critical aspects of our operations and several key investment efforts, which ensure the quality of our delivery while we expand it rapidly across multiple years. We are scaling in already existing delivery locations in India, Latin America, and Central Asia, as well as establishing several newly created delivery hubs and expanding many existing sites across Central and Eastern Europe and Western and Central Asia as well. This is also supported by the active redeployment of many of our current employees who decided to explore opportunities outside of their home countries and simultaneously establishing a strong EPAM cultural foundation in those locations to further develop the local talent market in fast-growing EPAM hubs. Looking at our global footprint, EPAM now serves customers from more than 50 countries around the world, which means we just doubled our country count in the last three years. As a result, rebalanced our delivery platform across now four major geographies, which includes Central and Eastern Europe, India, Western and Central Asia, and Latin America. Storage almost didn't exist for us just a few years back. Today, with those efforts and accelerated growth outside of impacted regions, we have reduced our delivery capacity there from roughly 60% in February of 2022 to 40% now. We expect to reach a level close to 30% during the second half of 2022. As for this process, we are well underway in our commitment of exiting our operations in Russia. While we move quickly and anticipate completing the process shortly, we are still working through a number of legal, regulatory requirements in the country, which means that the timing of full transition is still difficult to predict precisely. With that said, we can share that our local footprint went from over 9,000 people as of Q1 to just under 1,000 today. With that, I would like to say big thank you to many people within the EPAM global delivery talent management and financial organization at a very different seniority levels for enabling this massive talent transformation efforts across dozens of countries simultaneously and under very challenging timelines. Thank you. Moving to our third phase in the framework, continuing to serve and expand demand for our services for our growing global customer portfolio. Over the last five months, we have repositioned absolute majority of our clients who requested their work to be relocated based on their sense of risk mitigation factors. We know that such requests will continue to happen in the future depending on the different fast-developing external factors. We just feel at this point that we are much better prepared now to address such future needs. With this, I would like to state that while we continue to be extremely open and responsive to our customer needs and their preferences, we are seeing today some new incoming demand into the region, and expect a significant proportion of our client portfolio, even with increased global diversification, to be continuously served from Ukraine and Belarus. Another indication of our success in our third phase could be expressed by the growth of our top 20 and top 50 client portfolio. Most of them have been with us and stayed with us through multiple phases of change and growth. Thanks to their support today during such a huge and terrible disruption, the current war in Ukraine. Finally, the last element of our framework is a focus on profitability for phase four. The work has been repositioned to new geographies. We have begun the effort to align rate structures and optimize the performance of new delivery locations, which will continue throughout this year and into 2023. While still too early to provide specifics on our progress on this phase, we believe we will return to profit levels approaching EPAM's historical ranges during the first half of 2023. In addition to all of this, we continue to progress our investment agenda across several key areas for us. EPAM Continuum is now a consulting brand recognized by leading analysts and strongly supporting our growing focus on more complex and advisory-led engagement. Our cloud and data offerings are progressing fast into large organization programs enabled by our strengthening relationship with key partners in this space. We continue to see traction with EPAM efforts in our IP and educational initiatives, as well as our advanced remote supply model enabled by our continuously inventing digital platforms. Of course, we feel good right now about our progress to date of rebalancing our global delivery and moving forward with all other additional initiatives. This should allow us to maintain the sequential constant currency revenue growth rate despite the massive disruption we suffered in Ukraine. With that, I would like to provide some comments on the current demand environment, or at least how we see it from our side. While we really are doing better today than we expected, we, like our competitors and all of you, see a growing number of mixed economic indicators and caution in the market. At the same time, we still believe the near-term demand environment remains intact. We also believe the medium-term growth within demand trends, which have driven activity in our industry in the past, will continue to support our ability to drive stronger than growth at way above our old normal 20%. While we are not immune to the impact of the global economic events, we will be in much better position today than in the past to address any future shifts. We also believe EPAM remains well-positioned for long-term growth and value creation opportunities for our people, for our clients, and for our investors. To summarize, our priority remains to contain as much as possible the impact of the current disruption of the war within 2022. We have made significant progress in this area over the last five months. Third, in addition, we are significantly accelerating key elements of our overall strategy. Because, to a big extent, other than the closing of our operation in Russia, what is happening right now and what we now call our new normal is very much the accelerated effort towards several strategic directions which have been part of our medium- to long-term plans. The resilience of our people, customers, and operations have effectively created exactly this new normal for EPAM, an entirely different level of cost efficiency, productivity, and agility of the business to ensure our future growth in this constantly changing market environment. Overall, these challenging times are helping us to build better and more adaptive EPAM, and fast. In closing, as I mentioned on our Q1 earnings call, and it's worth repeating, EPAM as a company fully stands with Ukraine. Since the beginning of the war, our absolute top priority has been and continues to be the safety and well-being of our employees and their families. One more time, thank you to all of our employees for this effort and their loyalty during these not at all easy times. Now let me turn the call over to Jason, who will talk about our Q2 results and additional perspective as we look at Q3 and beyond. Thank you, Ark, and good morning, everyone. In the second quarter, EPAM delivered another set of strong results, including a sooner than anticipated return to sequential revenue growth. These results were produced at a time when the company was experiencing unprecedented disruptions across all of EPAM's major delivery locations. As we mentioned during our Q1 earnings call, in addition to our customary non-GAAP adjustments, expenditures related to EPAM's humanitarian commitment to Ukraine, the exit of our Russian operations, and costs associated with accelerated employee relocations have been excluded from non-GAAP financial results. We have included additional disclosures specific to these and other related items in our Q2 earnings release. During Q2, EPAM generated revenues of $1.19 billion, a year-over-year increase of 35.6% on a reported basis, and 40.1% in constant currency terms, reflecting a negative foreign exchange impact of 450 basis points. Looking at the performance of our industry verticals and geographic regions in the quarter, growth was negatively impacted by the ongoing exit of our Russia operation and the effect of foreign exchange on our U.S. dollar reported results. Where helpful, I will provide an adjusted year-over-year comparison. Beginning with our industry verticals, travel and consumer grew 61.1%, driven by strong organic growth, primarily from our retail customers, as well as revenue contributions from recent acquisitions. Life sciences and healthcare grew 40.1%, with strong growth coming from the healthcare industry, in addition to growth in life sciences. Financial services grew 29.4%, with growth coming from asset management, payments, and banking. Excluding our Russia customers, growth was 41.5% or 45.7% in constant currency. Business information and media delivered 25.4% growth in the quarter, driven primarily by customers in the business information industry. Software and high tech grew 22.7% in the quarter. Finally, our emerging verticals delivered 36.1% growth, driven by clients in telecommunications, energy, manufacturing, and automotive. Excluding our Russian customers, growth was 40.6% or 49.1% in constant currency. From a geographic perspective, Americas, our largest region representing 60% of our Q2 revenues, grew 36.8% year-over-year, or 37.9% in constant currency. EMEA, representing 35% of our Q2 revenues, grew 45.2% year-over-year, or 58% in constant currency. EMEA performance was driven by strong organic growth combined with an incremental contribution from recent acquisitions. CEE representing 2% of our Q2 revenues contracted 46.7% year-over-year, or 58.2% in constant currency. Revenue growth in the quarter was impacted by the winding down of services to our Russian customers. Finally, APAC grew 20.8% year-over-year, 25% in constant currency terms, and now represents 3% of our revenues. In Q2, revenues from our top 20 clients grew 27% year-over-year, while revenues from clients outside our top 20 grew 41%. Moving on to the income statement. Our GAAP gross margin for the quarter was 29.2% compared to 33.8% in Q2 of last year. Non-GAAP gross margin for the quarter was 31.5% compared to 35% for the same quarter last year. Compared to Q2 2021, gross margin in Q2 2022 was negatively impacted by the ongoing transition of customer work to higher cost geographies as well as lower utilization in Russia. GAAP SG&A was 19.5% of revenue compared to 17.2% in Q2 of last year. Non-GAAP SG&A came in at 15.2% of revenue compared to 15.6% in the same period last year. GAAP income from operations was $93 million, or 7.8% of revenue in the quarter, compared to $125 million, or 14.2% of revenue in Q2 of last year. The lower level of profitability was primarily driven by costs associated with the exit of our Russia operations, relocation of our employees, and humanitarian expenditures in support for Ukrainian employees. Non-GAAP income from operations was $177 million, or 14.9% of revenue in the quarter, compared to $155 million or 17.6% of revenue in Q2 of last year. We are pleased with our operating profit in a quarter when the company was also executing a significant geographic transformation. Our GAAP effective tax rate for the quarter was - 114.9%, primarily driven by excess tax benefits related to stock-based compensation, as well as a one-time deferred tax benefit associated with tax planning. Our non-GAAP effective tax rate, which excludes excess tax benefits as well as one-time benefits from tax planning, was 22.9%. Diluted earnings per share on a GAAP basis was $0.32, reflecting a -$1.62 or 83.5% decrease year-over-year. GAAP EPS includes the impact of Ukraine humanitarian expenditures, expenses related to accelerated staff relocations, costs related to the planned exit of our Russian operations, and the FX impact of Russian ruble appreciation on intercompany payables denominated in and U.S. dollar denominated assets held by our Russian entity. Our non-GAAP diluted EPS was $2.38, reflecting a $0.33 increase or 16.1% growth over the same quarter in 2021. In Q2, there were approximately 59 million diluted shares outstanding. Turning to our cash flow and balance sheet. Cash flow from operations for Q2 was $78 million, compared to $69 million in the same quarter of 2021. Free cash flow was $59 million, compared to free cash flow of $46 million in the same quarter last year. We ended the quarter with approximately $1.3 billion in cash and cash equivalents. At the end of Q2, DSO was 71 days, compared to 69 days for Q1 2022, and 70 days for the same quarter last year. We expect to maintain DSO in and around this level throughout 2022. Now moving on to a few operational metrics. We ended the quarter with more than 54,850 consultants, designers, and engineers, a year-over-year increase of 28.1%. Our total headcount for Q2 was around 61,300 employees. Compared to Q1, we saw a net decrease of approximately 300 headcount. Significant additions in India, Central Europe, and Latin America were offset by the reduction of headcount in Russia. Utilization was 78% compared to 80.2% in Q2 of last year and 78.4% in Q1 2022. Our Q2 utilization includes those employees who have been assigned in a backup capacity to support projects substantially delivered from Ukraine. Although these employees were counted as utilized for the purpose of our utilization calculations, this work was largely unbilled. Additionally, during the quarter, utilization in Russia was significantly lower compared to the same quarter of 2021. Utilization in Ukraine remains steady and at levels similar to, but somewhat lower than 2021. Now let's turn to our business outlook. As a reminder, on February 28, we withdrew our full-year business outlook due to the uncertainties related to Russia's invasion of Ukraine. For the remainder of this year, we plan to provide guidance for the next quarter only, and expect to resume our full year guidance at the beginning of the 2023 year. However, I will provide some additional insights and assumptions which will help frame our Q3 guidance and expectations for the second half of 2022. At this time, we continue to see a stable demand environment, which, combined with the progress in repositioning our workforce and portfolio, we expect will drive continued sequential revenue growth throughout the second half of 2022. However, with our reduced Russian customer revenue, we expect to see the impact of tougher year-over-year revenue comparisons in both Q3 and Q4. We will continue to provide color regarding the impact the Russia exit has on EPAM's rates. We continue to see relatively high levels of productivity from our Ukrainian staff. We're substantially located in the safer portions of the country. Our Q3 guidance assumes that we will maintain Ukrainian utilization levels only slightly lower than pre-war levels. Those Russian employees who wanted to relocate, we have relocated the majority of that population during the second quarter. Therefore, we expect a lower level of employee relocations in Q3. Parallel with the repositioning of our people, we are working through the process to align our costs and rate structures to reflect the prevailing economics in the geographies to which demand has been redirected. In many cases, the result will be increased billing rates to reflect higher costs, although we expect some lag in the establishment of these higher bill rates. The movement of customer projects from people, we expect some short-term inefficiencies, including a higher level of bench and therefore somewhat lower utilization as we scale new and existing delivery locations. The combination of these factors will continue to weigh on our profitability. However, we expect to see an improvement in profitability between Q2 and Q3, and are currently forecasting profitability in Q4 at levels similar to those we expect to achieve in Q3. Finally, to date, EPAM has spent over $34 million as part of the company's $100 million humanitarian commitment to our Ukrainian employees and their families. We expect further humanitarian expenditures will be made throughout 2022 and into 2023. Now moving to our Q3 2022 outlook. We expect revenues to be at least $1.210 billion, producing a year-over-year growth rate of at least 22%. In constant currency terms, revenue growth is expected to be at least 26%. Included in these growth rates is approximately 400 basis points of revenue contribution from acquisitions closed over the last 12 months. I will also point out that we expect customers based in Russia to contribute less than $10 million in revenues in the quarter, compared with the $44 million in Russia-based customer revenues generated in Q3 of 2021. For the third quarter, we expect GAAP income from operations to be in the range of 9.5%-10.5%, and non-GAAP income from operations to be in the range of 15%-16%. We expect our GAAP effective tax rate to be approximately 19% and non-GAAP effective tax rate, which excludes excess tax benefits related to stock-based compensation, to be approximately 22%. For earnings per share, we expect GAAP diluted EPS to be at least $1.65 for the quarter, and non-GAAP diluted EPS to be at least $2.48 for the quarter. We expect a weighted average share count of 59.4 million diluted shares outstanding. Finally, a few key assumptions that support our GAAP to non-GAAP measurements in the third quarter. Stock-based compensation $38 million. Amortization of intangibles is expected to be approximately $5.7 million. The impact of foreign exchange is expected to be negligible. Tax effect of non-GAAP adjustments is expected to be around $13.6 million. Finally, we expect excess tax benefits to be around $5.9 million in the quarter. In addition to these customary GAAP to non-GAAP adjustments, and consistent with Q2, we expect to have ongoing non-GAAP adjustments in Q3 resulting from Russia's invasion of Ukraine. Please see our Q2 earnings release for a detailed reconciliation of our GAAP to non-GAAP guidance. We're pleased with our Q2 performance, which is the result of a lot of hard work by our employees around the globe, whom I want to thank for their dedication and the world-class service they provide to our customers. Operator, let's open the call for questions. Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star one one on your touchtone telephone. Again, to ask a question, please press star one one. Thank you. Our first question comes from Bryan Bergin of Cowen. Your line is open. Hi, good morning. Thank you. I wanted to start with a growth composition question. So can you comment on how the attribution of growth between new clients versus existing clients turned out in 2Q and how you see that progressing over the course of the second half? Just trying to understand if you're seeing a return to new client inflow versus servicing that existing base in the middle of this global transition. Really just trying to understand how you're thinking about the recovery of new logo flow, if you haven't gotten back to it already. Hey, Bryan, so this is Jason, and thanks for the question. You know, from a demand standpoint in revenue growth, you know, we continue to see, you know, solid growth in the existing customers, and probably with a little bit of a slowdown in new customers in Q2, 'cause I think you'll remember that our focus, certainly in March, probably April and May, was really focused more on retaining existing customers. We continued to grow significantly with the existing customers, as you can see by our revenue fee. Then probably by the time you got to the second half of Q2, we began to focus again on new logo activity. Right now you've got quite a bit of new logo driven demand that we expect to come in the second half. Again, I think that probably just as a top line, I'd say that we, you know, continue to see growth in both our, and our existing customers. Okay, that makes sense. Just on the workforce, if you excluded the workforce attrition from Russia, can you give us a sense of how the sequential billable headcount landed in the second quarter? Really how you're thinking about your ability to return to the pre-war quarter-over-quarter headcount levels across the broader global footprint as you go through the second half. I'm gonna let Ark talk about headcount, but let me just mention attrition. If we exclude Russia, where we've had higher both voluntary and involuntary attrition, our attrition rates have remained very consistent, you know, Q4, Q1, Q2. Ark, do you wanna talk about headcount? Yes. On headcount, I think definitely the total number is impacted by exiting in Russia right now. In general, just to understand, we're pretty comfortable that we will be able to return to our pre-war situation. I think it's difficult to compare this with 2021, which was special year for everybody from the growth perspective, where sometimes we were growing in headcounts against 2022, like in 30+, sometimes 40% per quarter on annual basis. I don't think anybody will be coming back to this, but definitely to what we were experiencing in quarter by quarter. On annual growth in 2019, for example, or 2018, we will be coming back to the same speed. We're comfortable with this based on what we were sharing during our analyst day, how we position ourself outside of this traditional Eastern European landscape, which we have in Latin America, in Western Central area, and India as well. That's making us pretty comfortable that we will be able to achieve the demand. Okay, thank you very much. Thank you. Our next question comes from Darrin Peller of Wolfe Research. Your line is open. Guys, it's good to see the execution. I really just wanna hone in on the actual headcount changes that you've been making over the last couple of quarters and how it's playing out in the new market with the new delivery centers now. Really just to give us a quick update on, you know, what kind of performance you're seeing out of those new, newer locations, whether it's where you move people or you've been really growing new head. Our increase was between 2,500 and 3,000 people in Q2, and all of this clearly was outside of Ukraine, Belarus and Russia. We share, if you think and compare this with the past, exactly, explain why we feel comfortable right now that we will be able to continuously grow in the future as well with similar rates which we experienced before. Okay. When we think about the execution and the utilization of those, where do you see in terms of timeframe them being at more of a full run rate, so they can actually produce the same types of revenue per head? As a quick follow-up, I mean, the newer regions you were talking about at your investor day, some of the Latin American areas and some in further incremental areas, even in Eastern Europe, if you could just give us a quick update on how it's progressed. Yeah. From a utilization standpoint, if I talk about Q2, what we saw, as you would expect, is quite low utilization in Russia. One of the reasons we had the revenue beat that we had is our utilization was quite a bit higher in the rest of the world than we had originally expected. Utilization levels have remained, you know, pretty solid, and particularly, you know, quite solid in Ukraine, considering everything that's going on there. We are expecting as we go from Q2 to Q3, that we may see somewhat lower levels of utilization because as you transition work from one country to another, you might end up with a somewhat larger bench in, let's say, the donating country, and then we're building up capacity in these newer countries. Again, you have a little bit more bench there. As Ark said, you know, I think we feel really good about our ability to add headcount to support demand. We've made, you know, really good progress in both transitioning resources to some of these new geographies and adding resources in these geographies. As Ark said, we're around sort of 40% of our delivery capacity in the traditional sort of CIS region. I think we feel good about not only our execution in Q2, but our ability to support ongoing demand in Q3 and Q4. All right. Thanks. Thanks, guys. Thank you. Our next question comes from Maggie Nolan of William Blair. Your line is open. Thank you. I wanted to check in on how the conversations regarding those, adjusting those rate cards to the new delivery locations are going, as well as obviously wage inflation is probably complicating this. On the kind of new delivery locations aspect of it, do you expect resolution by 2023, or will there be an impact of that kind of adjustment phase that persists into the next year? Yeah. Maybe I'll let Ark comment on customers, but just in terms of the algebra, what we see as we transition resources to new geographies is that, you know, you have a change in compensation almost immediately, and then there's a lag, as you know, Maggie, in terms of our ability to get rate increases. We have some customers where the rate increases are immediate, some customers where there might be a quarter lag, and some customers where we might not see rate increases until, you know, as we enter 2023. You know, traditional to EPAM operating structure, we collect data on all of this, which is updated on a daily basis. We run dashboards. We can see that we're making good progress, both in terms of the conversations. In some cases, we actually already have the rate changes in place. In other cases, we have agreement to have the rate changes in place later in the year. Maggie, I think we're making really good progress. I would expect, you know, let's say the vast majority of those conversations to be completed with higher rates, you know, as we enter Q1 of 2023. Ark, do you wanna talk about conversations with clients or? Well, I think, exactly like Jason said, we're still in the process. Great. Ark, do you wanna talk about conversations with clients or? Well, I think exactly like Jason said, we're still in the process. Right now, the feel is pretty optimistic from the results of this process. We know a significant number of clients already agreed on rate adjustments. Some of this delayed for the next month, two, or three. As that would be mentioned already today, that we expect approaching the profitability rate similar to pre-war conditions in 2023. Again, approaching this. There are too many moving parts, some of them not even related to this event, because if you think about what's happening is foreign exchange, for example, and sometimes it's a market situation as well between Euro and U.S. dollars and then what currencies we pay. Compensation is the issue. It's more difficult conversation. Rate adjustments on the way, and we are optimistic of this in a sense. Thank you. That's helpful. Jason, how does the cash you generated this quarter compare with your expectations going into the quarter, just given all the atypical expenditures you've had of late? What's the expectation for how cash flow should trend from here? Yeah. I would say that, you know, cash flow was pretty good. I think we tried to hold DSO to 70, and it did end up at 71, and so that may have had a modestly negative impact, and we're trying to sort of keep DSO in and around or maybe slightly lower than 71 on a go-forward basis. You know, we do expect cash flow conversion to be over 100% in Q3, which is kinda you know, more consistent with sorta historical patterns. Right now, you know, both our cash position and our ability to generate cash is pretty encouraging. Thank you both. Thank you. Thank you. Our next question comes from Jason Kupferberg of Bank of America. Your line is open. Good morning, everyone. This is Tyler DuPont on for Jason. Last quarter, you had suggested that you could be back to pre-war normalized growth and margins by the first part of 2023. But based on the 2Q results and the 3Q guidance so far, do you feel this could happen even sooner? Can you just like quantify what your benchmarks are for those pre-war levels? I think when we, you know, we're guiding to 15%-16% in Q3. What I said, just in case it wasn't clear in the fixed portion of the call here today, is that we expected that we could, you know, see profitability in a similar level in Q4. You know, that's already trending back towards that traditional sort of 16%-17% range. When we kind of talk about our historical range, that's more what we mean, rather than the elevated, you know, profitability that we would have seen, you know, during very, very high demand periods last year. Again, I feel that, you know, the progress to date, I think is pretty good as you can see by the guide. as Ark said, we're continuing to work through the pricing and the other adjustments, but it's still a little too early to sort of communicate exactly where we expect 2023 to end up. Okay, perfect. Thank you. Just one more. As you continue on your path for headcount diversification, can you maybe discuss some of the regions that have been relatively easier to build out versus the ones that have been a bit more challenging? On that line, do you feel that you are past the riskiest phase of your headcount diversification efforts? Okay. Yeah. From the standpoint of the ability to add headcount, you know, we feel that we've actually, you know, we're ahead of our own goals in terms of, you know, building out Latin America, and we've seen strong growth in India. Seen very strong growth in Central Europe. Yeah, I mean, it, you know, the market continues to be a bit of a challenge, but I don't think we've had any, you know, real difficulty hiring to meet demand and to create the capacity that we wanna have outside of the what we call the impacted region. Not to say that things couldn't change in the future, but right now, I think we feel pretty good about our ability to build out capacity outside of the region through both relocations and through the additional headcount, effectively hiring in the region. All right, perfect. Thank you very much. Thank you. Our next question comes from James Faucette of Morgan Stanley. Your line is open. Mr. Faucette, your line is open. Oh, thanks. The operator cut out at the exact moment that she was pronouncing the name. Thanks for taking a few minutes here. Wanted to dig in again on demand and client relationships. Obviously, you know, the client retention has been quite good, et cetera. As you're moving resources around, is there. Are you still having customers decide and indicate that they wanna change delivery locations? And you know, what are the trends around that and how quickly do you expect customers, if they are doing that, to get settled on their preferred delivery regions? I think it's a very right question, and I think there is no simple answer which would be addressing. Everybody kind of approached that. There are some groups of clients which really trying to mitigate risk and move out of the region in danger. There are some clients which is continuously working almost in kind of pre-war scenarios, and there are some new clients coming there as well. Again, as you probably understand too, it's all a little bit moving target. We're working month by month, day by day, and sometimes seeing something unexpected. In general, I think we're sharing exactly the numbers which we kind of aggregating what we understand going to happen. We're clearly not in business as usual in general situation. When we have to move thousand of people and based on our business continuity approach, and if we assign a lot of delivery capacity, it's nothing as business as usual. If you think that we're still growing, and especially if you think how growth happening without Russia, because this is where we disconnected our organic constant currency growth outside of Russia in Q2 was like 37%. Which means that there is normal demand if you take into account that we exiting there. I know I'm not giving you precise answer, but there is no precise answer. There are clients which is trying to completely change approach, and there are clients which picking up on this capacity which releasing from them. In some respect, a little bit similar to what we were experiencing in 2014, second time. Got it. That's really helpful though. You know, on top of everything else, what have been the macro related conversations with your clients, both in terms of existing and potential? Are you seeing any indications of softening, whether it be lengthening sales cycles or having clients approach you and say, "Hey, these are projects that we'd like to put off because we're a little uncertain." Are you having those conversations at all? How is macro contemplated in your outlook, if at all? Are you relating to situation in Eastern Europe or are you? For just the economy, yeah, the economy more generally. Okay. Yeah. I think, first of all, for us sometimes it's difficult to distinguish one from another because it's not necessarily clients saying exactly why this conversation might happen. This conversation, conversations are happening, but again, they were happening like, 12 months ago. They were happening 24 months ago. If it's a little bit more often, maybe, but it's still difficult because it's even volatile by quarter by quarter. The reasoning for this could be exactly situation where majority of our resources are or economy. It's very difficult to distinguish for us. Yeah, that's understandable. Thanks for that, Mark. Appreciate it. Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then one, then one on your touchtone telephone. Again, please press star one one on your touchtone telephone. Our next question comes from Surinder Thind of Jefferies. Your line is open. Thank you. Following up on the earlier question, about just the client's desire for their, the delivery model. Are the client conversations continuing to evolve in the sense that there were clients last quarter that requested a change in their, where delivery is from, and this quarter there's new sets of clients that are asking for delivery changes? Or how should we think about the potential for your year-end targets to kind of evolve? Like I realize you kinda said that it's fluid, but I just wanted to make sure I understand all the push-pull factors here. I think, again, I think we're repeating ourselves, but everything is a little bit moving target. Some clients were asking last quarter, and they're settled. Some clients might be asking today and will be asking tomorrow as well. At the same time, if you aggregate everything, we see in the picture where demand independently from location is still pretty strong. That's what I mentioned, which is not exactly right comparison, but in some sense similar to what we experienced eight years ago when some clients were completely leaving the region and some other clients were picking up. We're seeing these trends as well. What would be bigger, we will see probably in two and three quarters, and it's also dependent on what would be happening. What would be actually happening in the region and what would be results of the current war as well. With, on top of this, and that's what we're communicating, we're pretty comfortable with speed of growth outside of the region. When we're talking about Latin America and India and Western Central Asia, we're pretty comfortable that we would be able to grow from applied point of view in line with what we need. Understood. Then in terms of just clarification on Russia, it sounds like all of the individuals that you wanted to relocate or have requested relocation are done. What is left in Russia at this point? Is it assumed that all of that work will be transitioned within the next quarter or two? Any color there or any additional color there? Yeah. What's left what People are left. We're finalizing the conditions how we're exiting Russia completely. I mentioned today that there are some regulatory requirements, and we're going through this right now, which might take another month or so. After this, the rest of headcount which we have in Russia today will be outside of EPAM. Which is currently already less than 1,000 people. Thank you. Thank you. Our next question comes from Ramsey El-Assal of Barclays. Your line is open. I was wondering if you could update us on your thinking around M&A and the degree to which potentially you could leverage M&A to, you know, help, you know, fill in some of the gaps or address some of the challenges that have come out of the geopolitical situation you find yourselves in. I think approach for M&A didn't change for us much. Very similar like in the past, M&A for us, it's additional capabilities. Sometimes beginning of the growth in some region, but from the point of the current delivery platform and delivery locations, we already feel pretty comfortable with all foundations which we have. I don't think M&A will be specifically important for this part. We are sourcing, again, traditional augment capabilities and consulting capability and industry expertise, and maybe sometimes in new locations, but again, it's not critical for us because we already established pretty good footprint with growth. My follow-up is just on a question around sort of the macro resilience of the business. Again, I'm not referring to Eastern Europe and the military conflict there. I'm referring more to just the, you know, the economic environment more broadly. Can you talk about, you know, how you think about EPAM in the context of dealing with cyclical pressures, recessionary pressures? I think, you know, typically historically, IT services have been somewhat cyclical. I think some of the digital tailwinds today may provide sort of a secular, you know, tailwind that might help quite a bit through a recessionary period. I'm just curious, your view about how the business fares during a hypothetical recession. I think we do have experience in the past. It's always difficult to predict how experience from the past is applicable for the future and how different the next recession is going to be. In the past, we usually were practically flat for two to three quarters and then started to grow again. I think in general, that what we were mentioning as well. In our industry, with all that's happening, I think we will be able to kind of tune headcount for couple quarters. All kind of challenges in 2020, 2021, and specifically in 2022, make us actually much more resilient and much more adaptive to address potentially necessary adjustments. I think, and again, we already talked about it, today about it, we feel ourselves much more comfortable, much more prepared for some elements of unknown. We probably, during the last couple years, and we talked about it in Investor Day. It's not only about this war, it's about situation in Belarus during the last couple years. We are trained and prepared better than anybody else on the market right now for recession as well, if it would be happening. That makes a lot of sense. You guys do have a lot of practice with crisis management at this point and pivoting the business successfully. So, thanks for your answer. Appreciate it. Thank you. Thank you. Our next question comes from Puneet Jain of J.P. Morgan. Your line is open. Thanks for taking my question. Good quarter, guys. I have, like, a question on gross margins. Given that your delivery profile is changing, can gross margins go back to the prior pre-war 35%-36% levels? Or, maybe like the new locations, the pricing dynamics, labor dynamics there, might result in like a different gross margin profile over the medium term compared to what it used to be before, this invasion. Yeah. This is Jason. From the standpoint of gross margin, I think gross margin in Q2 came in, you know, somewhat better than we had expected due to, you know, our ability to continue to deliver out of certain locations, and just kind of manage the, you know, manage demand. We are expecting a bit of an improvement in gross margin between Q2 and Q3. As we've talked about, we think there's a temporary impact as we shift people into new geographies, some of which are more expensive than the geographies in which they're leaving. There would be a temporary impact that we expect to largely address by the time we enter 2023. You know, there could be a little bit of, you know, compression on margin relative to the very high levels that we were running at, you know, when we were running at 18% IFO or something, right? When we talk about kind of our return to profitability, we are really sort of thinking more about the traditional 16%-17% range. We continue to see good efficiency from an SG&A standpoint, and so I, again, I think I probably would sort of guide us towards the adjusted IFO, and just assume that we'll kind of manage it between the two components. Again, feel good about our ability to head back towards the higher levels of gross margin, but they could be slightly lower than they've been, you know, during the particularly hot quarters of 2021. Understood. Obviously, you mentioned macro remains healthy and all the good comments there. Has there been any change in client priority in terms of the type of projects they execute? Like, have you seen any changes in type of projects or any changes in sales cycles or the speed at which they award new projects at all? You know, we you know, I know that some people are talking about maybe an eventual shift towards efficiency or cost efficiency. We have not seen that at this time. We still see the traditional drivers, you know, application modernization, cloud migration, data, and then all the platform engineering that EPAM is well known for. We still see those as underlying drivers, and part of the reason why I think we feel comfortable guiding towards, you know, sequential growth, both in Q3 and as we talked about it, and expected in Q4 as well. Does that answer that question or? Yes, it does. Thank you. Thank you. Our next question comes from Arvind Ramnani of Piper Sandler. Your line is open. Thank you for taking my question. Yeah, I just wanted to ask about you've had kind of roughly maybe six months looking at these new geos and kind of taking a closer look at scaling operations in geos across the globe. You know, as you kind of digest what you've looked at in terms of local talent in markets, which geos outside you know outside Belarus and Ukraine and Russia are looking kind of promising to kinda scale up as you look out over the next two couple of years? Well, I think it is difficult to add something substantial in a couple of minutes answer versus what we shared already during our Analyst Day in May. I think when we went actually is to some level of details. I can only repeat that, for example, what's happening during the last six months, in some respects was prepared during the previous, like, years. We were specifically talking about how we were growing in India. During the last couple years, it's become one of the fastest talent growing market for us, and we continue to do this. We were starting to focus in on Latin America before war happened, and we pretty impressed with the level of talent there. Number of countries across Western Central Asia, which we started to focus in 2020, 2021, and some of them, like, after the war, we're seeing there's a good potential as well. That's why, again, already was answering several times today. We're pretty comfortable that we will be able to scale with the talent outside of our traditional locations. Don't forget that we're still growing pretty significantly in Central Eastern Europe, which we have very strong experience and complement all of these locations with people who decided to relocate. This is not a small number of people too. Basically, we have advantage of bringing EPAM DNA and EPAM experience in new hubs for us. Terrific. Just one quick follow-up. You know, just in terms of your gross margin, you have just clearly it's been impacted by this transition. Are you able to provide some color how much of the impact was due to utilization in Russia versus the transition to higher cost geos? Let me think. Now, whenever we sort of give you a description of the impact, you know, there's a whole series of different things that are impacting profitability. I don't know. You know, the change into the new geographies is probably having a you know at least the impact you know or more so than the Russian utilization. What it is gonna, you know, we're gonna continue to move people into new geographies. We did that in Q2. We're gonna do that in Q3. You're gonna see some accumulation of people who are still sort of in a holding pattern waiting to get rate increases even though their costs have gone up. That's why, you know, I think that you'll see profitability in Q3 and Q4 be more similar rather than an increase in profitability between Q3 and Q4. Again, we're working through it, Arvind, and, you know, again, I think we feel relatively comfortable that we're making good progress with clients around, you know, appropriate rates for the geographies. Then we continue to have the same menu of options we've always had, in that we also have relatively, you know, lower cost centers in Central and Western Asia, India, other. We offer a, you know, a full range of opportunities for clients. Terrific. Thank you very much, and good luck for the rest of the year. Thank you. Thank you. Our next question comes from David Grossman of Stifel. Your line is open. Thank you. Good morning. I just wanted to follow up a couple things you said earlier in the call. The first was, I think you said you expect about 30% of your delivery capacity to come from the impacted regions in the back half of the year, and that's down from 60%, I believe, at the end of last year. When you look at that change, is that the way to think about the distribution of work? Secondly, it seems about half of that decline came from closing down Russia. I just wanna make sure that I got those numbers right. Yes. At the beginning of this year, we were a little bit under 60% between three countries. Right now, we are at about 40%. By the end of the year, we expect to be closer to 30%. This is approximately clearly present distribution of work as well. Yes. The second. Okay. It looks like about half of that decline of that 30% change, 15% of that was shutting down Russia. I just wanna. It seems like the math works that way. That's right. Okay. The second question I had was just about the new geographies that you opened or you're opening. Is the percentage of employees that are being paid in U.S. dollars changing at all with the opening and expansion of the new geographies? It's a mix, and we still will have a number of geographies which will be denominated in USD, which is making clearly the whole story a little bit complicated when you try to calculate it. It's still going to be a factor because in some new locations which we enter in, especially specifically in Western Central Asia, we will be paying salaries in USD calculation. Yeah, David. It's mixed. You know, the Russian employees were paid in rubles. You know, some of them are going to end up in countries where they are paid in local currency, and some of them are going to end up in countries where we are using a U.S. dollar as the currency for compensation. Any idea of just your, you know, your cost of goods, what percentage is in USD? I can't do that off the top of my head, David, and it would also be hard for me to do it. Let me see what we can do to provide information to the market. I think we've historically talked about. Actually, I wanna say there's some, again, I can't do that off the top of my head, so let me try to provide some information on that later. Okay, that's fine. Yeah, we can take that offline. Great. Thank you very much. Thank you. I'm showing no further questions at this time. I'll just turn the call back over to Arkadiy Dobkin, President and CEO, for any closing remarks. Thank you, operator, and thank you everybody who joined us today. As always, if you have any questions, David is available to help. In general, I think we doing better than we would expect, like, four, five months ago. We still in challenging time, but again, we see that we kind of stabilizing, and now we're much more comfortable to say that we know how to redesign, like, our delivery platform and it works. Thank you. Valerie, before we close off the call, I'd like to acknowledge we experienced some audio quality issues with the management commentary portion of the call. We have posted a copy of our prepared remarks in the Q2 quarterly earnings section of our investor relations site on epam.com. Please go there if you need further clarifications on our prepared remarks. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.