EPAM Systems - Q4 2015
February 18, 2016
Transcript
Operator (participant)
As a reminder, this conference is being recorded. I will now turn the conference over to Ms. Lilya Chernova, Investor Relations. Thank you, Ms. Chernova. You may now begin.
Lilya Chernova (Head of Investor Relations)
Thank you. Good morning, everyone. By now, you should have received your copy of the earnings release for the company's Q4 and full year 2015 results. If you have not, a copy is available in the investor 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 the risks and uncertainties as described in the company's earnings release and other filings with the SEC. Arkadiy?
Arkadiy Dobkin (CEO and President)
Thank you, Lilya, and good morning, everyone. Thanks for joining us today. First, I hope our results address some immediate concerns about the possibility of EPAM adding to the recent stream of unexpected news. I am pleased to confirm that we have been able to navigate well multiple challenges of 2015, including growing level of pessimism during the last quarter in regards to weaknesses of financial services sector and continuous negative effects impact on reported results in particular. So let me highlight now some most important facts for 2015. Q4 revenue increased by 29% year-over-year to $260 million, and in constant currency, it represent 34.3% growth. More importantly, our organic growth representing 24% increase over last year, which translated into 29% constant currency growth.
It was also exciting for us to cross $250 million in Q4, that brings us to a run rate past the symbolic $1 billion annualized revenue mark to pass this year. One more data point to mention: the last quarter was our 25th consecutive quarter of over 20% organic year-over-year growth and 16th since our IPO four years ago. I think it's a good reference point for EPAM inclusion into Fortune 100 fastest growing public companies in 2015, where we were recognized as the fastest growing firm in IT services segment. As a result, we are closing the year with $914 million in annual revenue, which is 25.2% growth in USD and 33% in constant currency over our 2014 results.
And while it's obviously disappointing to lose $55 million due to effects headwinds, we are glad to report our strong organic growth, which represented 23% for the whole year in USD and 31% in constant currency. So at this point, and before passing to Anthony to provide much more detailed financials on our 2015 results and 2016 guidance, I would like to talk a little bit more on a bigger picture. To remind what was in our focus during the last periods, what our progress to date was, and what would be our focus and key efforts in the near future. First of all, three years ago, we decided that we plan to target a specific subset of IT market, which was driven by now probably much overused but still real term as a digital transformation disruption.
We plan to benefit from our strong software engineering background built over the years of serving top software and technology companies and helping them to develop new products and solutions. We also realized three years ago that to be successful in penetrating that market segment, we would have to bridge significant gaps in multiple areas, including specific delivery capabilities and much more advanced account management practices. Only in such case we would have a chance to play in that fast-growing market. We should potentially reach a size of $80 billion by 2018, according to analyst prediction. Then, three years ago, we set an internal goal to double our revenue by 2015 and identified a number of specific focus areas to make it happen.
The last couple of years were really challenging and eventful years for EPAM, and much like the rest of the world, from continued political conflicts and currency headwinds to shifts within some of our large customers without any links to our performance. With such remarks, I would like to highlight the following facts in EPAM's continuous evolution and EPAM's current state. Based on our plans, we started to build advanced digital strategy and experience design capabilities about three years ago, and we started to do that with a very strong focus on integrating these capabilities into EPAM's historically mature engineering DNA. We believed that while it would be a much more difficult journey to do that in an integrated way, it should bring also some strong competitive advantage for us eventually. The journey is not finished yet.
However, in 2015, we saw strong repeatable patterns in how we engage in new deals and how we started to execute them. Our digital engagement practice visibly matured during last year and became a recognizable force among our clients in many new engagements. Some capabilities, such as service design, for example, started to play a more important role in specific situations. And finally, in addition to Navigation Arts, with a strong focus on content technologies, strengthened our leadership position in the digital solution space. Those changes at EPAM, combined with our investments in industry-specific competencies as well as data and advanced technology services, allow us to differentiate and expand significantly. First of all, across our fastest growing in 2015 verticals, which are travel and consumer and media and entertainment, those grew 36.5% and 31.5% year-over-year accordingly.
The digital focus allowed us to add 4 out of top 10 global retailers as clients, and now we have 15 of top 100. In most cases, we are helping there with a range of digital transformation initiatives. In many cases, like for Canadian Tires, Sephora, and Mary Kay, among others, those initiatives are driving significant revenue acceleration and very strategic in nature. Similarly, we are working with five of top 10 global media companies, including one of the largest, Liberty Global, and also within travel and consumer vertical, the world's largest online travel agency in the world and the largest global hotel chain for eight straight years.
Similarly, we are working with five of the top 10 global media companies, including one of the largest, Liberty Global, and also within travel and consumer vertical, the world's largest online travel agency in the world and the largest global hotel chain for eight straight years, along with two of the top five low-cost global airlines. Turning to financial services, which continue to be our top vertical by revenue, we are seeing a further diversification of services revenue with significant growth driven through digital transformation initiatives. In 2015, we added four significant financial services clients, and we continue to expand our digital engagement efforts. For example, our focus on wealth management has helped our customer reimagine their role in an extremely competitive arena of financial services and to successfully defend their market share against new entrants.
With our growing ability to lead the transformation by providing end-to-end capability from ideation to service design, user experience, and global engineering, we are able to roll our digital platforms, like I mentioned already, Wealth Management, as a more productized service and to do so simultaneously in multiple geographies. Digital engagement for financial services spanned today the globe with teams supporting customers' programs in the U.S., Switzerland, U.K., Nordic, APAC, and now Middle East. In 2015, we also took on the challenge of driving industry change with continued investment in trading platforms and the introduction of blockchain, hedge accounting, and other specific solutions. While the overall growth of financial services was only 15%, if we eliminate an impact of the Russian market, the growth will be up to 23% and in Constant Currency 27% over 2014 numbers.
To complete our vertical stories, let me spend a couple of minutes on our oldest focus area, software and high tech, and our most recent industry entrants, life sciences and healthcare. Software and high tech continues to be an important component of our client portfolio. While we are enjoying working in that segment for many years, it's also critical for us to stay on top of technology trends as well as experience firsthand the most advanced processes and methodologies related to delivery of the most complex and advanced solutions. We're glad that we continue to have a very healthy growth rate of 22.2% in that segment, which allowed us to keep our engineering skills very much up to date and bring those back to many demanding engagements across our vertical portfolio. Finally, about our smallest today but fastest growing vertical, life sciences and healthcare.
While we provided services in this area in the past, our most strategic entrance happened just in 2014 when we acquired core industry expertise in several key accounts. During 2015, we put our initial focus on expanding into a few existing accounts. While it's still too early to make final conclusions, we are already seeing the first results of such efforts. In addition, combining industry subject matter expertise with our advanced digital and data capabilities allowed us to land several new, very interesting clients in this market. A good example of such success would be Human Longevity, Inc., the company with a mission to create the world's largest and most comprehensive database of whole genome.
In addition, HLI business also includes a genomic-powered clinical research program, which uses whole genome sequence analysis, advanced clinical imaging, and innovative machine learning, along with curated personal health information to deliver the most complete picture of individual health. Only having a unique combination of capabilities with understanding both science and advanced technologies allowed us to land such an opportunity, which in turn became our first fastest growing account in 2015 across this vertical. In Q4, our growth for that portfolio was over 45%, and today we are involved in providing services to six of the top 10 global life science companies and to five of the top 10 largest healthcare vendors, which creates a very interesting for us opportunity to penetrate.
Now, I think it also would be helpful to take a closer look at our client base beyond the vertical boundary because while in general a number of top brands in each vertical sector is important, it doesn't provide a comprehensive picture about the level of diversification, penetration, and about expansion opportunity we potentially should be able to realize with those accounts. So let us talk a bit about that. First of all, we do believe we have pretty healthy client concentration ratios with our top clients representing 14.2% of our revenue, top five, 32.6%, top 20, 54.3%, and top 50, 70%. In result, with such balance, for example, our loss of one of 2014 top 10 clients, you know, TriZetto was acquired by Cognizant, didn't really affect our growth numbers.
By the end of 2015, among our accounts with annual revenue over $1 million, we had about 50 accounts representing the largest 2,000 global companies. With 25 of them, we had revenue under $3 million annually. To seven of them, we provided $3- 5 million in services. With four, $5 - 10 million, and with another four, $10 - 20 million. Finally, we have six such clients with revenue $20 - 50 million per year, and as you know, just one was above $100 million. We do believe that the majority of those accounts should be able to provide for us lending opportunities to expand. We expect a natural shifting of the current budgets towards new digital and data platforms, which should allow such expansion even without expanding clients' current IT budgets, as we're seeing it's happening among a growing number of our other clients.
For example, today, in 20 of our top 25 accounts, there is at least one significant digital transformation program ongoing, and in five of the top 10 accounts, the digital platform work represents a significant proportion in total revenue. We expect such services to grow over 2016 and take on even more work around digital product and platform engineering and integration across the existing client base. I would like to state also that while we do believe we have significant opportunity across our existing client base, we continue to bring new logos and expect them to support an existing today ratio of about 10% of next year revenue to be brought from new clients.
To finish my highlights for 2015, I would like to say that last year was also a year of significant expansion of our delivery capabilities geographically, making our delivery platform more balanced and diversified across the globe and across the time zones. We, at the end of 2015, had the largest ever global footprint with offices in 25 countries and with over 16,000 delivery professionals worldwide. We grew in China with people and with new global clients' operations as well, added development centers in Guadalajara and Prague. And what was a significant event for us, we came to India with the acquisition of Alliance Global Services at the very end of last year. And today, we can report already that there are clients which are utilizing distributed teams across Europe and India. Looking forward to 2016, we are seeing a strong level of demand from both current and prospective customers.
While such demand continues in our core engineering and advanced technology services, as mentioned before, we are experiencing a stronger shift towards services requiring combined digital product and platform engineering and integration capabilities. We do believe EPAM is in a good position to take advantage of these types of shifts and these types of demands, having invested and continuously investing in a range of integrated services, including customer experience and digital platform, data analytics in cloud, and service design. We also, as many others, believe that a deeper understanding of our IT platforms and related data analytics services would become much more important in the near future, which is another area of continuous investment for us in 2016. The combination of our solutions and our vertical focus should position us well this year to take advantage of our shifting services market.
With that, I will turn to Anthony to provide more details on our financial results and 2016 guidance.
Anthony Conte (SVP and CFO)
Thank you, Ark, and good morning, everyone. I'll spend a few minutes taking you through the Q4 and full year 2015 results. Then I'll talk more about our outlook for 2016. Let me start by saying that we are pleased with our overall results for Q4 and full year 2015. Our business is well-positioned for growth, but with the current instability in the marketplace, there still remains some uncertainty. But as Ark mentioned, we have sustained over 20% organic growth for every quarter since IPO, continuing to prove that the fundamentals of EPAM are strong. Q4 was another solid quarter of revenue, closing at $260 million, 28.7% over last year and 10.3% over prior quarter.
This includes the impact of Alliance Global and Navigation Arts, which contributed slightly over $10 million, resulting in organic revenue of $250 million and organic growth of 24% year-over-year and 7.6% sequentially. Currency continues to be a big piece of our story as headwinds have continued, compressing our organic Q4 revenue by about 6%, meaning, in constant currency terms, we would have grown 29% over Q4 2014 and 6% sequentially. For the full year of 2015, we closed at $914 million of reported revenue, 25% over last year after 8% currency headwinds, meaning constant currency growth was 33%. Organically, we ended just over $900 million or 23% growth, but in constant currency, it would have been 31%.
North America, our largest geography, represents 53% of our full year revenues and is up 40% from Q4 and 32% year-over-year, with constant currency growth of 43% and 35% respectively. Europe was up 24% year-over-year and 23% in Q4, representing 39% of full year revenue. In constant currency terms, the EU would have been up 32% year-over-year and 28% in Q4, reflecting the impact of both the euro and sterling volatility over the past year. For APAC, we saw 26% growth year-over-year and 30% in constant currency. CIS was down 23% for the year and 16% compared to Q4 2014 and now represents under 5% of revenue in Q4. In constant currency terms, the region would have seen about 9% growth for the quarter and 11% for the year. Our customer concentration numbers for Q4 remain fairly consistent with past quarters.
For the full year, our top 20 accounts grew 23% year-over-year and 30% in constant currency, representing 54% of revenue. All other clients outside of our top 20 grew 28% year-over-year and 39% in constant currency. From our IPO date to today, we have managed to reduce the revenue concentration of our top 20 accounts from 60% down to 54% while maintaining consistent mid-20% growth. Turning to our expenses, we completed the year with over 18,000 employees, an increase of about 30% compared to 2014, including about 1,200 employees from Alliance Global. Currency generated some benefits to the cost of revenue in the quarter when compared to prior year. There was approximately 7% constant currency benefit versus Q4 2014, and the allocation of our currencies across our expense base remained fairly consistent.
Utilization for the quarter was at 77%, up 3% from Q3, and the full year ended at 75%. GAAP income from operations increased 32% year-over-year to represent 12.2% of revenue in the quarter. Stock-based compensation expense for the Q4 increased 54% over prior year, mainly driven by the significant increase in the average closing price of the stock. Additionally, 38% of the total Q4 charge and 23% of the increase is related to the acquisitions. Our non-GAAP income from operations for the quarter after adjustments increased 30% over prior year to $47 million, representing 18% of revenue. For the full year, non-GAAP income from operations was up 29% to $158.7 million or 17.4% of revenue. Our effective tax rate for the quarter and full year came in at 20.4%.
For the quarter, we generated $0.78 of non-GAAP EPS and 0.52 of GAAP EPS based on approximately 53 million shares diluted outstanding. For that full year, we generated $2.73 of non-GAAP EPS, $0.07 above guidance and 23% above 2014. GAAP EPS was $1.62, 16% above 2014 based on 52 million weighted shares diluted outstanding. Our balance sheet remained strong. We finished the quarter with approximately $199 million of cash plus $30 million in time deposit accounts. During the Q4, operating activities generated approximately $11 million of cash, and for full year, we had $76 million of operating cash flows. Unbilled revenues were at $96 million at December 31st. Accounts receivable were at $175 million, and DSO ended the quarter at approximately 53 days. Now for our guidance.
For the full year 2016, revenue growth will be at least 26% after factoring in about 3% estimated currency headwinds, meaning constant currency growth will be 29%. Organic revenue is becoming harder to separate due to the full integration of Navigation Arts, and we anticipate once Alliance Global is fully integrated during Q2 2016, a clear separation will be very difficult. However, our initial plan does include the impact of both 2015 acquisitions, and excluding them, organic constant currency growth would be at least 23%. Since currency will remain a theme in financial results for 2016, our assumptions are that the currency mix will remain materially similar to 2015 for both revenue and expense. For Q1 2016, revenue will be at least $258 million or 29% growth after 3% currency headwinds, meaning constant currency growth will be at least 31%. Organic revenue will be at least 23% constant currency.
Adjusted income from operations for the full year will remain in our guidance range of 16%-18%. Stock compensation expense is expected to be around $55 million, with 13 million in Q1 and 14 million in Q2 through Q4. Amortization of intangibles will be about $6.5 million or about $1.6 million per quarter. GAAP EPS will be at least $0.43 in Q1 and at least 2.05 for the full year. Non-GAAP EPS will be at least $0.70 in Q1 and at least $3.20 for the full year. With that, I would now like to turn the call back over to the operator and open up for Q&A. Operator?
Operator (participant)
Thank you. We will now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from David Grossman of Stifel. Please go ahead.
David Grossman (Managing Director)
Thank you and good morning. Anthony, I'm wondering if you could just touch a little bit on the cash flows. It looks like they were down in the quarter and down year-over-year. I'm wondering, is that a function of perhaps the acquisitions or maybe it's just timing in the quarter?
Anthony Conte (SVP and CFO)
Yeah, sure. Hi, David. It is primarily a timing issue. We are seeing just some extended terms from a lot of our clients. People are pushing for longer 60-90-day payment terms, so you see a little bit of a bump up in my overall DSO. It pushed some of our end-of-year receivables into January. We actually collected about $35 million in January alone. As far as cash flows outside of AR, if you notice our tax payments, if you look at our cash flow, tax payments are going up. My cash tax rate, as we have more people sitting in U.S., U.K., I'm seeing higher cash tax going out the door, so that also impacted my cash flow when you look at it year-over-year. AGS does impact my cash flow, but that's not within the operating cash flows. That's obviously down within the investing section.
David Grossman (Managing Director)
Thanks. And so can you give us a few of the parameters then for modeling 2016 free cash flow in terms of what you expect for CapEx, cash taxes, or any other working capital items that may affect the difference between that income and cash flow?
Anthony Conte (SVP and CFO)
Sure. From a CapEx perspective, we're forecasting around $19-20 million worth of CapEx. As far as cash taxes go, we're looking at roughly a 20% cash tax rate.
David Grossman (Managing Director)
Okay. No real diversion there, right? Because I think you got it in 2020.
Anthony Conte (SVP and CFO)
Cash tax rate has actually crept up a couple of points over the past couple of years. When we first IPOed and stock options started to vest and get exercised, we saw a larger than normal benefit from stock option exercises as a deduction to our taxes, which has now leveled itself off. So therefore, that is coming down, therefore bringing cash tax rate up a bit. So that is impacting my cash flow.
David Grossman (Managing Director)
Right. Okay. On a year-over-year basis, but it looks like it's consistent with your GAAP guide of 2021, right?
Anthony Conte (SVP and CFO)
Yes. Yeah. It's becoming more in line with the effective tax rate.
David Grossman (Managing Director)
Right. And then just a question quickly on pricing. Just wondering, is the pricing environment similar to what we experienced, or is your expectation 2016 to look like 2015, and should we expect to get the typical growth in revenue of around 6% similar to what we've gotten historically?
Anthony Conte (SVP and CFO)
We're actually being a little bit more conservative around pricing for 2016 just based on what we're seeing in the marketplace. It's still a bit early in the year for us to fully vet out what everything's going to settle at. That usually is kind of towards the end of the first quarter. So we're actually looking at more of a 3%-4% is what we're building into our models just because of everything that's happening in the economy these days.
David Grossman (Managing Director)
Okay. And just finally then, I know you gave the top customers, I think those were growth rates for the year. Do you happen to have those for the quarter on a constant currency basis for the different categories that you disclosed?
Anthony Conte (SVP and CFO)
You mean constant currency growth for what? The top five, top 10, and such?
David Grossman (Managing Director)
Exactly. Yeah. Top clients, top five, top 10, exactly, for Q4.
Anthony Conte (SVP and CFO)
I do. Give me one second. Okay. For the top five, oh, I have it for the full year. I didn't do it for the actual quarter. I can recalculate those for you if you need.
David Grossman (Managing Director)
All right. We can do that last line.
Anthony Conte (SVP and CFO)
But for the year, the top five grew 31% in constant currency. Top 10 was 30%. Top 20 was 27%.
David Grossman (Managing Director)
Okay. How about the top clients, constant?
Anthony Conte (SVP and CFO)
Yeah. I mean UBS?
David Grossman (Managing Director)
Yes.
Anthony Conte (SVP and CFO)
36%.
David Grossman (Managing Director)
Okay. All right, guys. Thanks very much.
Anthony Conte (SVP and CFO)
Yep.
Operator (participant)
Thank you. The next question is from Ashwin Shirvaikar of Citigroup. Please go ahead.
Ashwin Shirvaikar (Managing Director)
Good morning, guys, and congratulations on the good quarter. I just want to ask about what we're seeing in our checks is some spotty client-specific response to the current environment, the macro uncertainty, and so on. Sometimes, from an IT budget standpoint, it seems to take the impact of some impact on demand, sometimes impact on pricing. Is that what is causing your cash flow terms to move out, and is that more of a broad comment, or is that a narrow client-specific type of comment?
Anthony Conte (SVP and CFO)
It's more of a broader comment. Historically, my payment terms have been kind of 30-45 days, and what we're seeing within the marketplace is a lot of people are pushing for 60-90-day payment terms, and we're having to move a little bit just to basically, larger clients have extended terms as far as 45-60 days beyond our normal 30-day. So that's why you're seeing a little bit of a creep on our DSO and a little bit of extension of our collections. But it's just part of the normal marketplace. I'm not talking long. Instead of our normal 30-45 days, we're talking 45-60, sometimes up to 90 days.
Ashwin Shirvaikar (Managing Director)
Okay. And on a client-specific basis, okay. I understand. This may be more for you guys, an impact that you guys are getting larger at certain clients.
Anthony Conte (SVP and CFO)
Exactly. And that we're dealing with larger clients who have, in a lot of cases, very standard terms that they don't accept anything under, say, 60 days. And that's the trend that we're seeing. So I'm feeling a little bit of upward pressure on my DSO as we deal with larger and larger clients, more procurement groups, things of that nature.
Ashwin Shirvaikar (Managing Director)
Got it. Got it. A question. I appreciate your commentary on sort of the bigger picture. As you look at how the environment is evolving and you compare that with the product set and the service portfolio that you're bringing to market, do you see that there's a good match, or do you see a need for ongoing investments? I know there are normal ongoing investments, but ongoing investments at a particularly high level in the coming quarters that you have to invest in certain areas?
Arkadiy Dobkin (CEO and President)
Ashwin, when you say at high level, what do you mean exactly?
Ashwin Shirvaikar (Managing Director)
Well, are we going to first of all, I guess first part of the question was with regards to is there a good match in terms of what you're bringing to market versus what you're seeing a demand for? And if not, what sorts of investments will you have to make?
Arkadiy Dobkin (CEO and President)
Yeah. So I think we're improving the matching component of this. But as you mentioned, so this is, I think, kind of common statement, the situation changing very much. Some years ago, when you were implementing systems, it was kind of longer term of life for them. Now, with this customer engagement situation and drive, when we're talking about mostly consumer-oriented systems, so the change is happening too fast. So this level of investment required is very high. So I think while we're kind of shrinking the gaps in some places, we're seeing some gaps growing in another ones. For example, Internet of Things, which we mentioned today as well, in our opinion, would change the whole landscape pretty strongly.
Ashwin Shirvaikar (Managing Director)
I understand.
Arkadiy Dobkin (CEO and President)
It would require the short answer, it would require a lot of investment, in our opinion, on the way going ahead.
Ashwin Shirvaikar (Managing Director)
Right. I mean, eventually, I'm trying to get to a little bit more of a business model question. We've had this services versus need for a product, need for a software type of a look discussion in the past. As you think of exactly those sorts of things, more Internet of Things, maybe wearables, areas like that, do you see the need for more of a product or a platform type investment is what I'm trying to get at?
Arkadiy Dobkin (CEO and President)
So we see again, in this terminology, it's also pretty fuzzy with what is the product here, what is the platform. But we're definitely seeing broader needs for solution type of platforms, which would help to accelerate startup phases of the projects. And also, with experience during the last couple of years when we went through dozens of corners or consumer engagement type of implementations, we're seeing a lot of opportunities for some level of generalization through accelerators development. So that would be happening. And yeah, I think one of the key advantages we're seeing at EPAM is that we can actually put relatively complex custom implementations of aggregated platform for this changing environment.
Ashwin Shirvaikar (Managing Director)
Got it. Thank you, guys.
Operator (participant)
Thank you. The next question is from Steve Milunovich of UBS. Please go ahead.
Steve Milunovich (Analyst)
Thank you. What kind of headcount growth are you thinking about in 2016, and what sort of utilization rate?
Anthony Conte (SVP and CFO)
Headcount should be 20%-25%, and utilization should be around 77%. We always target getting into the 76%-78% range, so we're kind of modeling right on the middle of the range there.
Steve Milunovich (Analyst)
Okay. And you've obviously got robust guidance, and it is a difficult environment. You talk about having 90% type visibility over 12 months. Are you building some buffer into this? Are you taking into account the risk of pricing pressure or some companies pulling back some business temporarily? Just kind of wondering your confidence level.
Anthony Conte (SVP and CFO)
Well, I mean, we have a high confidence with the numbers that we've shared with you. But as I mentioned earlier on pricing, we're being a little bit more conservative on our estimates there just given the current environment.
Steve Milunovich (Analyst)
Generally speaking, we're very confident though with the numbers that we come out for guidance. I was curious, for an update on Google, you talked quite a bit about it at the last analyst day, and I thought it was very interesting. Any update in terms of what you're doing for them or how much that business is growing?
Arkadiy Dobkin (CEO and President)
It's growing, but what we're doing for them, I don't think we can talk in details. But it's the second largest account right now for EPAM. That's what we do probably.
Steve Milunovich (Analyst)
It's the second largest account?
Arkadiy Dobkin (CEO and President)
Yes.
Steve Milunovich (Analyst)
Could you be specific in terms of what sort of growth you expect from UBS in 2016?
Arkadiy Dobkin (CEO and President)
We don't really share specific client growth expectations.
Steve Milunovich (Analyst)
Okay. Thank you.
Arkadiy Dobkin (CEO and President)
No problem.
Operator (participant)
Thank you. The next question is from Jason Kupferberg of Jefferies. Please go ahead.
Jason Kupferberg (Equity Research Analyst)
Hey. Thanks. Good morning, guys. Great growth metrics here. I wanted to talk a little bit about the investment side, which you touched on before, just to get a little bit more specific there. I mean, if we look at the full guidance for 2016, I know the bottom line is growing somewhat slower than the top line. I think maybe a little bit of that is tax and a little bit of that is share count. But it would also seem like the implied operating margin guide is maybe for a little bit of year-over-year decline. I know you're still going to be in the 15%-18% target range, but you were above the midpoint of that in 2015.
Is that a fair conclusion, that maybe you're in the kind of lower to middle part of the 16-18 as opposed to the upper part just given some of the investments you need to make?
Anthony Conte (SVP and CFO)
Well, I mean, our overall guidance is just coming into that range, and we do continue to make investments. Some of the overperform that you saw in 2015 was having some help from currency, which we don't necessarily factor that into the forecast that we'll get that benefit. We forecast relatively neutral on currency benefits. Then we have a variety of things that we want to continue to invest into the business to continue to support the growth. And that's really all factored into those numbers. And that's how we come back to 16%-18% within the range. We don't really specify where in the range we're going to land.
Jason Kupferberg (Equity Research Analyst)
Right. Right. Okay. I know you don't make specific projections on individual clients, but if you look at what do you want to segment on as top five or top 10, do you think the growth rates for those groups in constant currency can be sustained in 2016?
Anthony Conte (SVP and CFO)
Absolutely. Yes. I mean, we're very confident. We have a very good client list right now, and we definitely feel that there's still a lot of opportunity within our client list. And given the size of the companies and the size of the marketplace, we see a lot of potential for growth.
Arkadiy Dobkin (CEO and President)
So the best we can do, you kind of can look to historical numbers, and these ratios were pretty stable over the last several years. So our assumption is that it would be in line for the next couple of years as well. But as all of us know, predicting some things would be very difficult, and we'll see. But we also like to I mentioned today a number of large clients we have and opportunities for growing. So we kind of have pretty stable and interesting existing client base to benefit from.
Jason Kupferberg (Equity Research Analyst)
Okay. And just lastly on the supply side of the business, any latest statistics you can share in terms of your hit rate on campus offers and just some general commentary on the recruiting environment?
Arkadiy Dobkin (CEO and President)
So I would say a very general statement. You saw our attrition rates and wage inflations, which is a little bit lower than traditionally we have during the last several years, which probably function of some situation in Eastern Europe. But in general, the environment is still very difficult and very competitive for any talent acquisition, and especially the talent which we're looking for. So it's, as I'm repeating practically on each call, really the biggest global problems everybody has. And we don't see any simplification here. So basically, for our growth, the right balance between business and actually delivery is still the main act of art, I would say.
Jason Kupferberg (Equity Research Analyst)
Okay. I appreciate the comments.
Operator (participant)
Thank you. The next question is from James Friedman of SIG. Please go ahead.
James Friedman (IT Services Research Analyst)
Hi. Let me echo my congratulations. I had a couple of questions. First, Ark, with your helpful disclosure about the 25 that do $3 million, the seven, the four, I want to ask about the six and the $20-50 million range. My question is, in that top six, that six that do $20-50 million, just below the top one, is there any anticipation that they'll break through the $100 million threshold? And if so, at what time? Yep.
Arkadiy Dobkin (CEO and President)
I don't think any of them will break $200 million within the next year or maybe two. But a couple of them have a potential for this type of business. And I think even below this top five, there are clients with such potential as well. But again, it's not going to happen this year.
James Friedman (IT Services Research Analyst)
Okay. I also want to ask you, Ark, about your commentary that 10% of the revenue will come from new customers. If I heard that right, is that so? Could you give us some profile of where you think those will come from, either on a vertical basis or on a geographic basis? Will it be similar to the current footprint of the company?
Arkadiy Dobkin (CEO and President)
So it would be pretty much in line with our current vertical focuses. And it's also a combination of this because we're bringing some very interesting logos through new sales, but some of them coming actually to us through acquisitions. And it would be kind of irresponsible to not focus on them and put the best people to farm those accounts. So from this point of view, we expect close to this or around this percentage to be brought this year from logos which we practically started during the previous 12 months. And that's pretty much in line with our historical numbers too. But diversification of this would be I mean, spread of this would be very similar to what we have today.
James Friedman (IT Services Research Analyst)
Got it. And Anthony, I just want one housekeeping. I thought you were going kind of quick there when you said the unbilled what was that number again, the unbilled? I don't know if you call it unbilled revenue or unbilled receivable for the quarter.
Anthony Conte (SVP and CFO)
Yeah. The unbilled closed at $96 million.
James Friedman (IT Services Research Analyst)
Does that compare?
Anthony Conte (SVP and CFO)
The accounts receivable was at $175 million.
James Friedman (IT Services Research Analyst)
Okay. Does that 96 compare to the $13 million in the Q3, or was that?
Anthony Conte (SVP and CFO)
13? No. I mean, Q3 revenue was how is it when I look? I don't recall the number offhand. It was $104 million in Q3, so it dropped from $104 to the 96 million.
James Friedman (IT Services Research Analyst)
Okay. I'm sorry. I'm looking at the wrong one. Okay. Thank you.
Anthony Conte (SVP and CFO)
I'm not sure what 13 is.
Operator (participant)
Thank you. The next question is from Arvind Ramnani of Gordon Haskett. Please go ahead.
Arvind Ramnani (Analyst)
Hi. Thanks for taking my question. Yeah. I wanted to ask about the nature of work in digital, and this is a little bit of a follow-up to the question Ashwin asked. So your digital work, I know it's typically project-based, and the needs of each of your clients is pretty unique. But are you getting to a point now where you have a platform or a solution that is targeted to a specific area where you can take work from one client and apply it to a group of clients? I guess what I'm trying to get to is some of the work that you're doing for your top five or top 10 clients, do you have the ability to package some of that expertise and sell it to other potential clients?
Arkadiy Dobkin (CEO and President)
Yeah. It probably will take another discussion to define what is solution, product, expertise, and all that stuff. But on a very high level, I would say that we're definitely moving forward with more productized offering where productized you need to understand in a very broad sense of this word. And I mentioned today on wealth management, we have similar efforts and similar kind of reusable assets around our retail commerce proposals. We're also working on multiple accelerators around integration efforts. And that was already this year and going to be in the next year's big portion of our investments as well. So it has become very important for us and for the differentiation story.
Arvind Ramnani (Analyst)
Great. That's helpful. And just a follow-up question. I wanted to get a sense of your medium to longer-term plans for your India operation. Given that India is a lot about scale, do you expect your India office to become a more significant part of your headcount? And I guess kind of a part two of the same question is, as the revenues from your top 10 accounts are growing and the average size of your large client is getting larger, is there some need to do lower-end work, and will you look to kind of send some of the work to a geography like India?
Arkadiy Dobkin (CEO and President)
So first of all, I think we would be much more comfortable to tell you an extended answer a little bit later because we need to work before we run with new acquisitions and specifically new for us geographies. At the same time, when we were making decisions about Alliance Global, we had very specific plans and very specific profiles of the company. And at this point, we're pretty much satisfied and didn't see anything unexpected. But it doesn't mean that we were doing this from the perspective to replicate exactly what large Indian vendors do. So Alliance Global has a more technology profile similar to EPAM. So they have very specific expertise in automation testing which we're already benefiting from and going to benefit more. So from this perspective, we're not looking for expanding dramatically in lower level of work.
I think the tail which we were having historically from our clients when we were doing more complex stuff is still pretty big. The percentage of more complex work, more digital work, will be changing. There is definitely a shift in client budgets. I think for our growth, we will be focusing still on more high-end part of the jobs.
Arvind Ramnani (Analyst)
Great. That's very helpful. Thank you very much, and good luck for 2016.
Arkadiy Dobkin (CEO and President)
Thank you.
Operator (participant)
Thank you. The next question is from Anil Doradla of William Blair. Please go ahead.
Anil Doradla (Senior Analyst)
Hey, guys. A couple of questions. So on the call, we talked about macro in certain ways. You talked about conservative pricing. You've talked about some of the accounts receivable and DSOs. But Anthony and Arkadiy, can you specifically talk about when you talk about some macro weakness, where are you exactly seeing it?
Arkadiy Dobkin (CEO and President)
I would like to joke that in our competitors' reports, but. So in general, on a high level, I think for us, the environment is very similar to previous years. So it might be very slight signs of changes, maybe not. It's very difficult for us to identify. But again, as usual, this year, I would like to repeat that our size of the company and our visibility to the market not necessarily would be in line with companies which are 10x bigger than us. So we're working on a very specific subset of the IT market which is higher growth.
But we're responsible, and we're seeing that some clients, especially if you think about the FX situation in Europe and for some global companies reporting in dollars but having euro type of revenue and paying us in dollars, there are some cases like this which are very specific, and this is single cases.
Anil Doradla (Senior Analyst)
So it's almost.
Arkadiy Dobkin (CEO and President)
I don't know if Anthony would like to add something.
Anthony Conte (SVP and CFO)
Well, I mean, I had a more general answer. I mean, you talk about macro uncertainties and weakness, and really, it's everywhere. I mean, just look at the news and just look at what's happening in just overall the world. And so our conservatism is coming from looking at, yes, other reports that have been coming out, but also from just reading the news on a regular basis and just looking at what's happening in the world.
Anil Doradla (Senior Analyst)
Great. So it sounds like there's a degree of conservativeness. You're not really seeing weakness. That's how I'm interpreting this.
Arkadiy Dobkin (CEO and President)
We're seeing a high level of unpredictability. Even if you think about, we're forecasting results. We're assuming very specific FX trends, while for the last two years, all these assumptions were wrong and surprising us. So we're seeing the same environment. So from this point of view, it's not like we're worried about something bad happening, but the level of unpredictability is pretty high.
Anil Doradla (Senior Analyst)
Okay. Now, the acquisition of Alliance and the mix of that, that might have a little dilutive effect on the average revenue per employee. Can you talk about how you look at the Alliance acquisition from a pricing point of view going forward?
Arkadiy Dobkin (CEO and President)
Back to my previous answer. I think we need to work first. But clearly, in longer-term plans, we would like to bring the pricing closer to EPAM standards. But we will have to kind of watch what's happening and how it would be working. At this point, we're already starting to engage our Indian operation in a more broader EPAM client base. We're kind of trying to understand how it works, how EPAM clients are accepting this. And again, we'll have a much more detailed answer probably in a couple of quarters.
Anil Doradla (Senior Analyst)
Excellent. And finally, if I can squeeze one final in, your largest customer is undergoing consolidation in terms of its IT vendor list. How are you guys positioned? I'm presuming that you guys will come out well, but any color on that?
Arkadiy Dobkin (CEO and President)
I think we hope that we'll come up well there, as you said. So I don't think anything else should be added. So we don't see any specifically dangerous signs in this direction.
Anil Doradla (Senior Analyst)
Very good. Congrats, guys, and looking forward to a great 2016.
Arkadiy Dobkin (CEO and President)
Thank you.
Operator (participant)
Thank you. We have time for one final question. Our last question is from Alex Veytsman of Monness Crespi Hardt. Please go ahead.
Alex Veytsman (Analyst)
Yes. Hi, guys. Just a quick question on labor sourcing. As we're looking to 2016, can you give us an idea as to which markets would potentially be improved or rather enhanced in terms of labor sourcing and which markets will decline in terms of the number of delivery professionals?
Arkadiy Dobkin (CEO and President)
None of our markets will decline. At this point, any market that we are currently in is looking at growth from a labor sourcing perspective. And some of our more traditional markets, Belarus, will continue to be one of our fastest-growing areas in absolute headcount. And then some of our smaller and newer locations, if you think about Poland, Hungary, you look at what we're doing in Mexico. Those guys will grow at probably a faster percentage clip. India, now that's part of the geo-mix, so that will grow.
We have specific targets.
Alex Veytsman (Analyst)
Very balanced.
Arkadiy Dobkin (CEO and President)
We have specific targets for each market, but I don't think we're disclosing this on this level of details. Also, from the movement which we did during the last couple of years, I think it's pretty obvious that we're doing some diversification from former Soviet Union more to European Union and now globally to APAC. China, India will be growing as well. There is no decline. There is practically no status quo in any of these markets for us.
Alex Veytsman (Analyst)
Got it. That's helpful. Thank you.
Operator (participant)
Thank you. That does conclude the question and answer session. I'd like to turn the conference back over to Mr. Dobkin for any closing comments.
Arkadiy Dobkin (CEO and President)
As usual, thank you very much for spending time this morning with us. So it was a good year. So we hope that we will prove that 2016 is going to be a good year too, but definitely not going to be easy. I would like to also remind that we're organizing our second annual Investor Day on March 9 in New York City. And if you're interested in seeing more information about EPAM, more details, and some client stories, so welcome to join. And you can find information on our website or contact directly later. Thank you. Thank you very much.
Operator (participant)
Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.