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EPAM Systems Inc (NYSE:EPAM)
Q4 2019 Earnings Call
Feb 20, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the EPAM Systems Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Straube, Head of Investor Relations. Thank you, sir. You may begin.

David Straube -- Head of Investor Relations

Thank you, operator and good morning everyone. By now you should have received your copy of the earnings release for the company's fourth quarter 2019 results. If you have not, a copy is available at epam.com in the Investors section. With me on today's call are Arkadiy Dobkin, CEO and President, and Jason Peterson, Chief Financial Officer.

Before we begin, I'd like to remind you that some of the comments made on today's call may contain forward-looking statements. These statements are subject to risk and uncertainties as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP measures have been reconciled to GAAP and are available on our quarterly earnings materials located in the Investors section of our website. With that said, I will now turn the call over to Ark.

Arkadiy Dobkin -- Chief Executive Officer and President

Thank you, David and good morning everyone. Thanks for joining us. At our recent Investor and Analyst Day in November 2019, we spent some time speaking about the challenges our customers face from improving productivity to speeding up business results in increasingly competitive environment. We talked about the necessity for most of our customers to transform themselves into adaptive enterprises, because the way we see it, adaptiveness is a key puzzle that must be solved in order to compete effectively. And in turn to be the best partner to our clients and help them solve their challenges, we understand that EPAM needs to be a fast global and highly adaptive organization itself.

While, obviously, most of our competitors have also been talking about transforming into more modern players, we tried to explain back in November, why we think EPAM is all ready for the adoption of distributed agile delivery models in close collaborations why our delivery teams in product centric engineering practices is positioned better than most to be successful in solving the corresponding challenges. And that we are planning to do to make sure those goals are not just words but a direction for an actionable efforts and practical investments.

Now three months later, we consider our full year financial results, as well as revisit several points we talked with you about back in November. We finished 2019 in strong fiscal position across several dimensions in our business. Financially, we landed $2.29 billion in revenues reflecting 25% year-over-year constant currency growth and non-GAAP earnings per share of $5.42, a 23% increase over fiscal 2018. Additionally, we generayed $188 million of free cash flow for the year. On the people front, we added 6500 addition to our EPAM headcount across our client facing teams and corporate functions.

Also in 2019, we were focused on extending our client engagement configurations through more of our sales and account management functions and establish a comprehensive consultant quotient. We launched EPAM Continuum, our brand that integrates our capabilities in business technology and experienced consulting. EPAM Continuum, along with our core product engineering capabilities, brings to the market, an integrated approach to solving complex problems by engaging a team of practitioners that can respond across multiple organizational touch points to help our clients address the challenges of the adaptive enterprise with speed and agility.

In addition to launching our consulting performance [Phonetic] formula, we also saw an increased demand for companies that truly understand how to build differentiated business platforms out of best-of-breed components connected through intelligent APIs. We have seen this component build strategy, gain more traction in the market as enterprises start to pull away from few of the shelf models toward more product centric go-to-market and solution strategies, which is very much in line with the prediction made five years ago by a leading analyst organization who stated that by 2020, 75% of digital enterprise applications will be build versus buy. They also clarified that their research shows that many companies already favor a new kind of build that doesn't include out-of-the-box solutions. Instead a combination of application component that are differentiated, innovative and not standard software as well as a highly customized solutions will be increasingly adapted.

We think our product engineering DNA really helps us to become, five years ago, much more relevant to the market because of this trend. We believe that this intelligent component build capabilities will become even more important beyond 2020 as speed and differentiation pressures continues to push our customers to change the way they look at the technology business processes and organizations. That is why in 2019, we expanded a number of our strategic partners relationship to go far beyond of just formal understanding for those critical components and create available reasonable accelerators and very much advanced level of engineering expertise around them for increased speed and reliability of this complex and differentiated build solutions. It specifically covers such components in our cloud faced automation data and engagement practices.

In 2019, in addition to building our capabilities organically, we continued our strategy of targeted competency-driven acquisitions to support our practices in data, data-as-a-code and now growing consulting coordinates which expanded our expertise in cloud data integration, AI based inside cloud sourced interest and analytics, just to name a few. We also diversified our global presence both from clients and delivery perspective and operate now in more than 30 countries.

We often speak about our efforts around education and training is one of the key drivers for future scalability. We have always done this for both our internal and external audiences in terms of our current and future employees. But 2019 became a very important year for us as we took our educational capabilities to a new level of professionalism and now ready for the next level of investment in the area and is much more confident than in the past. Last year through our learning platform EPAM University and a variety of good camps and hackathons, our education and development efforts impacted more than 10,000 people helping us engage and develop our own talent in training new experts in our core delivery markets. And it's pretty good effort from launching our pilot Master in Software Engineering program in Eastern Europe to extending our TSR education effort across 19 countries to reach more kids than ever before.

Also in 2019, we brought our experience in developing and delivering an integrated and interactive assessments in training platform to our clients. If you remember, at some point, we shared a briefcase study about an automotive client who trusted us to deliver a program for the employees. We are happy to share that last week EPAM was one of only 10 companies out of 400 that was recognized at Daimler Groups Global Supplier Summit. The innovation award was presented to EPAM for the program tailored to the Daimler IT team for helping them to transform their organizational digital knowledge.

Now to conclude on 2019 and to bridge into 2020, with all of these initiatives in mind, in 2020, we will continue to focus our investment into real programs that support our ability to execute our growth strategy. As you can see, some programs began in 2019, but many will focus on making continuous and sometimes significant upgrades including consultant and industry expertise, people development, education, and engagement. I think it's also important to remind that being an engineering driven company it's still a key area of focus for us and we would like to stay firmly ahead of the competition in it. In addition to the education and training activities mentioned before, this also includes our investments in open source based engineering productivity tools as well as internal global delivery and infrastructure platforms that we are continuing to expand and evolve to provide a higher level of global reach in knowledge management and deep understanding of our internal and external talent, basically making those platforms even more comprehensive and intelligent to support the speed and scale we need. I think to conclude my part I would provide a brief summary of our ambitions for 2020.

We think the ability to transform ourselves into adaptive enterprise will be the real key to driving our future success. And we understand that we need to continue to disrupt ourselves and evolve at accelerated pace to make it happen. To get there, we need to become one of the best in the world in innovation and design consulting, education and social responsibility, while continuing to strengthen our core engineering capability. So we will have to continuously invest and adapt in our people platforms and processes into those that quickly respond to change, leveraging our existing global industry distributed delivery environment to build and bring to life the EPAM digital platforms that connect our people and enable them to work seamlessly making us more efficient and effective in all that we do, opening opportunities for transformation for everyone, anywhere through next gen delivery as well as educational, social, and innovation programs, and lastly, extending our leadership across integrated consulting and engineering. We realize that these are ambitious goals and the growth goals before us are even more challenging, as we become a more global, complex and dynamic organization. So our investment continue to be focused and we continue to stress our ability to see and respond to change as the core values that goes back to EPAM's early days.

With all of this in mind, and despite some of the macro level uncertainties, we are constantly watching and region wide, we are looking at 2020 optimistically, we believe that we can continue to remain relevant to our global and diverse client base through our ability to execute large scale digital transformation program and help them make their ambitions, innovation programs adherence. I will turn it over to Jason for a detailed financial update of last year and our guidance for 2020.

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Thank you, Ark and good morning everyone. I'll start with our fourth quarter financial highlights, follow with industry vertical performance and then touch on a few operational highlights, ending with guidance for fiscal year 2020 in Q1. Revenue for Q4 came in at $632.8 million a year-over-year growth of 25.3% on a reported basis or 24.8% growth in constant currency, reflecting a positive foreign exchange impact of 0.5%. We saw higher than expected revenue for Q4 driven substantially by an uptick in demand in the second half of the quarter as well as stronger performance from a few of our acquired companies and FX benefit due to the strengthening Russian ruble.

Growth in the quarter was broad-based across our client portfolio. Some of the trends in growth include customer engagement, e-commerce replatforming, scaling new models to drive clients future growth, products and platform engineering and application modernization, regulatory activity, data and data analytics, and education. Looking at our fourth quarter revenue growth across our industry verticals, software and hi-tech grew 24.5% in the quarter. Financial Services delivered 21.8% growth, life sciences and healthcare grew 20.3% in the quarter, reflecting a tougher year-over-year comparison, given the exceptionally strong performance in Q4 FY18 and travel and consumer grew 15.9%. Rounding out our vertical performance, we saw very strong growth in both business information and media, which posted growth of 38% and our emerging vertical, which delivered 36.3% growth, driven primarily by clients in telecommunications and energy.

From a geographic perspective, North America, our largest region, representing 60.1% of our Q4 revenues, grew 22.2% year-over-year. Europe, representing 32.7% of our Q4 revenues, grew 31.4% year-over-year or 31.7% in constant currency. CIS, representing 4.9% of our Q4 revenues, grew 39.7% year-over-year, and 27.7% in constant currency. And finally APAC grew 5.4% and now represents 2.3% of our revenues.

In the fourth quarter, growth in our top-20 clients was approximately 22.1% and growth outside our top-20 clients was approximately 27.7% compared to the same quarter last year.

Moving down the income statement, our GAAP gross margin for the quarter were 35.2% compared to 36.8% in Q4 of last year. Non-GAAP gross margin for the quarter was 36.7% compared to 37.7% for the same quarter last year. GAAP SG&A was 19.8% of revenue compared to 19.3% in Q4 of last year and non-GAAP SG&A came in at 18.1% of revenue compared to 17.7% in the same period last year. SG&A in Q4 reflected investments to create new capabilities, expand infrastructure and introduce new lines of business.

GAAP income from operations was $84.7 million or 13.4% of revenue in the quarter compared to $78.3 million or 15.5% of revenue in Q4 last year. Non-GAAP income from operations was $107.6 million or 17% of revenue in the quarter compared to $93.1 million or 18.4% of revenue in Q4 of last year. The year-over-year comparisons for both gross margin and income from operations reflect a lower level of utilization as a result of our decision to increase the rate of head count additions in the second half of fiscal year '19.

Our GAAP effective tax rate for the quarter came in at 12.1%, which includes a higher than expected level of excess tax benefit related to stock-based compensation. Our non-GAAP effective tax rate, which excludes the excess tax benefit was 20.7%. In Q4, both GAAP and non-GAAP tax rates were favorably impacted by one-time adjustments related to prior years.

Diluted earnings per share on a GAAP basis was $1.29 and non-GAAP EPS was $1.51 reflecting an 18.9% increase over the same quarter in fiscal 2018. In Q4, there were approximately 58 million diluted shares outstanding.

Turning to our cash flow and balance sheet, cash flow from operations for Q4 was $124.6 million compared to $123.1 million in the same quarter for FY18. In Q4 FY18, DSO improved by eight days versus a three-day improvement in Q4 FY19. Free cash flow was $77.6 million compared to $113 million in the same quarter last year, resulting in an 88.9% conversion of adjusted net income. DSO was 72 days compared to 75 days at the end of Q3 fiscal 2019 and 73 days in the same quarter last year. The lower-than-average DSO this quarter was the result of our ongoing operational focus in this area.

Moving on to a few operational metrics, we ended the quarter with more than 32,500 delivery professionals, a 21.7% increase year-over-year and a net addition of more than 1,000 production professionals during Q4. Our total headcount ended at more than 36,700 employees. Utilization was 77.9%, compared to 80.2% in the same quarter last year and 76.1% in Q3.

Turning to the results for fiscal 2019, revenues for the fiscal year closed to $2.29 billion or 24.5% reported growth over 2018 or a constant currency growth of 25.8%. During fiscal 2019, our acquisitions contributed approximately 1.5% to our growth. GAAP income from operations increased 23.2% year-over-year and represented 13.2% of revenue for the year. Our non-GAAP income from operations was $389.2 million, an increase of 23.5% over the prior year and represented 17% of revenue. Our GAAP effective tax rate for the year came in at 12.8%. Excluding the impact of the excess tax benefits and certain one-time adjustments, our non-GAAP effective tax rate was 21.8%. Diluted earnings per share on a GAAP basis was $4.53. Non-GAAP EPS, which excludes adjustments for stock-based compensation and acquisition-related costs, was $5.42, reflecting a 23.7% increase over fiscal 2018.

In fiscal 2019, there were approximately 57.7 million weighted average diluted shares outstanding. In fiscal 2019, cash flow from operations was $287.5 million compared to $292.2 million for fiscal 2018. And free cash flow came in at $188.1 million, reflecting a 60.2% adjusted net income conversion.

Now let's turn to guidance. Starting with fiscal 2020, revenue growth will be in excess of 22% for both reported and constant currency. Inorganic contribution for the full year is expected to be approximately 1%. We expect GAAP income from operations to be in the range of 13% to 14% and non-GAAP income from operations to be in the range of 16% to 17%. We expect our GAAP effective tax rate to be approximately 14% and our non-GAAP effective tax rate to be approximately 23%. Earnings per share, we expect GAAP diluted EPS to be at least $5.56 for the full year and non-GAAP diluted EPS will be at least $6.30 for the full year. We expect weighted average share count of 58.8 million fully diluted shares outstanding.

For Q1 of FY20, revenues will be at least $642 million for the first quarter, producing a growth rate of at least 23% for both reported and constant currency. For the first quarter, we expect GAAP income from operations to be in the range of 12% to 13% and non-GAAP from operations to be in the range of 15% to 16%. We expect our GAAP effective tax rate to be approximately 5% and non-GAAP effective tax rate will be approximately 23%. Earnings per share, we expect GAAP diluted EPS will be at least $1.27 for the quarter and non-GAAP EPS will be at least $1.36 for the quarter. We expect a weighted average share count of 58.3 million fully diluted shares outstanding.

Finally, a few key assumptions that support our GAAP to non-GAAP measurements. Stock compensation expense is expected to be approximately $74 million with $18 million in Q1, $17 million in Q2 and $19 million in the remaining quarters. Amortization of intangibles is expected to be approximately $11 million for the year, evenly spread across each quarter. The impact of foreign exchange is expected to be approximately a $9 million loss for the year spread evenly across each quarter. Tax effective non-GAAP adjustments is expected to be around $20.5 million for the year with $5.3 million in Q1 and approximately $5.1 million in each remaining quarter. We expect excess tax benefits to be around $34 million for the full year with approximately $14.5 million in Q1, $9.5 million in Q2 and $5 million in each remaining quarter.

One last point on our business outlook, we expect the profitability profile of fiscal 2020 to be more similar to that experienced in fiscal 2018, with lower utilization and profitability in the first half of the year, with improvements in the second half of the year. So in summary, our 2020 outlook reflects continued strong demand for our services, underpinned by the diverse set of industries we serve which provide EPAM with a broad range of growth opportunities. Our investments across our people, platforms and processes will flip and position EPAM for future growth. With that, let's open the call up for questions.

Questions and Answers:

Operator

Thank you.[Operator Instructions] Our first question comes from Maggie Nolan with William Blair. Please proceed.

Maggie Nolan -- William Blair -- Analyst

Thank you and good morning. Jason, wanted to follow up on that last comment, kind of the cadence of the year, the first half versus the second half. What is contributing to that lower utilization and profitability in 1H and why is it going to improve in the second half of the year?

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Sure. So the traditional pattern for the company has been higher profitability in the first half and lower profitability in the second half. In 2018, we ran with that very high utilization in Q1, which is -- which was 80% and we don't expect to run at that level of utilization in Q1. And I'll talk about a couple of things. So first, we've got fewer available bill days in the first half of the fiscal year than we have in the second half, so that generally has a -- the more bill days, as you know, has a positive impact on profitability. The other thing is we've got some impacts in Q1, I think most of us would be aware of, payroll taxes kick back in to the extent that they've been capped in certain geographies, particularly the US and Russia. They're uncapped as you start Q1. So that has a significant impact on costs in the first quarter relative to Q4.

The other thing we have is we have our -- a significant amount of our compensation increases actually occur in Q2 and so both of those impacts tend to have a somewhat, let's call it, moderating impact on profitability. When we get into the second half, we've got greater bill days, we begin to see more capping of the payroll taxes and generally what we expect to see is that we're going to keep an eye on utilization with a focus on keeping that around the range we're at now with some potential for improvement.

Maggie Nolan -- William Blair -- Analyst

Okay, great. Thank you. And then, Arkadiy, you talked about continuing to be -- that adaptability is important. So I'm wondering, as you think about that concept, is there a risk here that certain initiatives would cannibalize other opportunities that you already have in place. For instance the education capabilities and services, does that ever cannibalize your opportunity for other services with clients? How should we think about kind of that changing dynamic as you are an increasingly more adaptable organization?

Arkadiy Dobkin -- Chief Executive Officer and President

Hopefully, when people are talking about it, it means that we are trying to improve our speed to market basically what value would change this -- our clients experience and we will be able to change our offering to help gaining specific value and doing this fast. So I don't think it's about specifically, one over another. Like our educational services is not really compete but complements our core capabilities. So because from our point of view when you educate clients, so you can eventually work with the client much more efficiently and improve overall speed. That's a real goal for us to invest in this area, for example. And for any specific example, probably, we can give similar explanation or rationale.

Maggie Nolan -- William Blair -- Analyst

Okay, understood. Thank you.

Arkadiy Dobkin -- Chief Executive Officer and President

Thank you.

Operator

Thank you. Our next question comes from Ashwin Shirvaikar with Citi. Please proceed.

Ashwin Shirvaikar -- Citi -- Analyst

Hi, Ark. Hi, Jason. Congratulations on the good quarter. I wanted to start as well with a question...

Arkadiy Dobkin -- Chief Executive Officer and President

Hi, Ashwin.

Ashwin Shirvaikar -- Citi -- Analyst

Hi. I wanted to start as well with a question on margin. So is the incremental push into consulting also affecting the margin profile this year or has that become part of the baseline at this point and as consulting business, should that affect your traditional financial model? I mean will it affect the ability to win larger deals? Do you expect certain newer target for onsite percentage? Any of those granular comments would be great.

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Yeah, I don't think that the consulting business itself has had a specific impact on profitability or the model. And so I think it would be the same answer, we've talked about, it's a modest evolution and while it may somewhat take up the onsite percentage, it's not going to -- it's not -- that's not what's showing up in, let's say, profitability year-over-year. From a 2019 to 2020 bridge standpoint, which I think is the question you're asking about, we feel that we really need to continue to make investments in the business to continue to grow the company at a rate in excess of 20%. And so I think one of the real advantages of EPAM's strategy or kind of direction over time has been to continue to evolve the business. I think we've all seen companies that maybe offer us the same service or product and then over time that offering goes stale. EPAM has continued to evolve its offerings and I think that's why the company continues to grow at this industry-leading organic constant currency growth rate.

We are beginning, and this is maybe a little bit of new information, but we are beginning to think about what it means to be a much bigger company. So as we exit this fiscal year 2020, we're guiding toward something approaching $3 billion in revenue. And we're already -- as we look at our success in the market and our position in a fast-growing market, we are beginning to think about what it means to be a company that generates $5 billion in revenue. And so we are trying to make sure that we're making the necessary investments in taking the evolutionary steps that support our longer-term growth toward a bigger company.

Ashwin Shirvaikar -- Citi -- Analyst

Got it. No, that's good to hear. And the cadence of revenue growth, it seemed to me that there isn't necessarily a cadence that it should continue to be a steady low-20s hopefully approaching mid -20s type of growth. Would that -- would you agree with that or are there incremental comment that you might provide?

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

So maybe clarify that, you're saying it doesn't appear or that it does appear, right. I'm not...

Ashwin Shirvaikar -- Citi -- Analyst

No, I'm asking for the cadence of revenue growth, what you expect. It looks to me like a normal year from a revenue growth perspective.

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Yeah. So I used the language to exceed 22%, which is slightly different than at least and that was intentional. And so, yeah, we continue to feel good about the demand environment and continue to expect to grow revenue certainly in excess of 20s and sort of -- yeah, so as I said, sort of to exceed a 22% growth rate.

Ashwin Shirvaikar -- Citi -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question comes from Ramsey El Assal with Barclays. Please proceed.

Ramsey El Assal -- Barclays -- Analyst

Hi, thanks for taking my question. I was wondering if you could give a little color on the reacceleration in growth in the travel and consumer segment. Just talk about the drivers there.

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

So we had seen a slowdown in the -- in that segment and it was across a couple of customers. And so, one was a North American retailer. And the other, to be honest, was a range of retail and consumer goods customers in U.K. and in Europe. And what we're beginning to see is, we think, a certain degree of stabilization in the U.K. market and then, at the same time, we're beginning to see what we think could be some really interesting opportunities in the branded consumer goods space. And so I think you're seeing some -- I think you're still going to be in the -- in something south of 20% growth rate in the coming quarter. But you're beginning to see some improvement because we see some stabilization and we're beginning to get some interesting new opportunities in branded consumer goods.

Ramsey El Assal -- Barclays -- Analyst

That's great. And maybe that dovetails into my follow-up question, which is, given the geographic diversity you guys called out, can you give us your general read on the demand environment? Are you seeing -- I mean, it sounded like things in the U.K., at least for you, may be looking good at a specific segment. Any impact you're seeing from geopolitical issues, obviously, that we have from developments in Asia with coronavirus or other situations? What's your general view of the global kind of demand environment?

Arkadiy Dobkin -- Chief Executive Officer and President

I think we are trying to share our view with our kind of guidance for 2020. So at the same time, there is some level of unpredictability which I guess we all understand like for example what is happening in APAC right now. There is some direct but very minimum impact which we're seeing. It's improving but indirectly who knows what will be happening in the next couple of quarters, and even specifically on this market which Jason mentioned, like retail and luxury goods, because that might be the most vulnerable part of our market. So, but in general, as we mentioned, we're looking at this pretty optimistically, we're saying like we're going to exceeding 22% growth, which is pretty optimistic view, I think.

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

So again, we continue to see strong growth in the West Coast high-tech. We've had extremely strong growth in business information and in media and we expect to see that type of growth in the future. We continue to see exciting opportunities in clients that we're not doing business with in the life sciences and healthcare space. And then from a Europe standpoint, what we continue to see is that slowdown in European banking demand, but we've got a lot of interesting demand and things like neo banks payments, we've talked about, as we've said before, insurance is growing very rapidly. So excited about those opportunities.

And now I'm going to take one quick opportunity to remind people of the European growth rate. And so we talked about this and I just wanna make certain that it's still on people's minds is that, we have a large customer that has been a historic EPAM customer in the business information and media space and it's split into two customers and when it's split into two customers, one half of the business is now the decision making is out of the U.K. and so that customer then became an European customer, and it was not a European customer in 2018. And so we've had very strong growth in that particular business and information media customer. The growth rate in Europe would've been sub-20% in Q4 without the change in that customer. And the growth rate in North America would have been somewhat higher if that kind of geographic reclassification had not occurred.

Ramsey El Assal -- Barclays -- Analyst

Okay, great, thanks so much. That's super helpful.

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

You bet. Thanks.

Operator

Thank you. Our next question comes from Jason Kupferberg with Bank of America. Please proceed.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Hey, good morning guys. How are you?

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Good, good. Thanks.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

So I just wanted to start with kind of a high-level question around just when we think of trade-offs between growth and margins as a general theme, where do you guys stand on that? I mean, do you think it's plausible to have both accelerating top-line growth and margin expansion simultaneously or are we always going to generally be in more of a trade-off status between those two? And I ask just because it looks like maybe 2020 is a case in point where top-line forecast looks terrific. You talked about some of the investments that you needed to make and some of the utilization dynamic. So maybe margins are going to be kind of flat to down. So just wanted to see how you're thinking about that on a longer-term conceptual basis. And then if you can detail some of the reinvestments a little bit more for '20, that would be great. Thanks.

Arkadiy Dobkin -- Chief Executive Officer and President

I think it's -- the whole lag was a trade-off so the same growth and profitability too. So I think growth for us is a primary goal but profitability is a very important factor and I think it's going in ways, and you're right, like we're talking about specific investments because we're going like if you think back like eight years ago when we did IPO, so it was one company, it is a very different profile today. It was like $300 million plus company, today we are approaching $3 billion. So, and obviously this investment is really kind of like simple statement, investments aren't changing necessarily. I think we were talking about it all the time when we were actually performing on this and we saw our agility in our profitability as well. So I think as you mentioned, 2020 for us will be investment year. We thought actually that last year will be investment year as well, but we weren't able to run better than we expected. Q4 actually when we started to invest because we feel that we can do it, and Q1 and further we will be continuously -- it's really difficult and I know maybe not exactly what everybody want to hear, but it's very difficult to predict exactly result of this and that's why we're looking at directionally and quarter-by-quarter, what we will need to do and how we will need to change.

If you are talking about specific investment, I think we tried to highlight those specifically. We're talking about consultancy, very important. We are talking about our traditional investment in engineering quality because that's kind of skeleton of our operation and our differentiation. We are talking about education because it's a scalability from one point of view and improving productivity relations with these clients from another point of view. And we are talking about digital platforms, because we became public again eight years ago with 7,000 people, now we -- this year we will be approaching 40,000 people. So we need to think how to turn ourselves to potentially, in the near future, to $5 billion revenue company. So, probably a little bit more extended uncertain maybe even further answer than you anticipated but that's a reflection of reality, so I would expect.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Yeah, I know that's very -- It's very helpful. Just a quick follow-up. I think the growth in the top-5 customers accelerated and I was just wondering whether there was any change in the composition of those top-5 clients and is this exit rate for 2019 in that top-5 bucket expected to be sustainable in 2020?

Arkadiy Dobkin -- Chief Executive Officer and President

There is very initial competition across our clients to be number 1, number 2, number 3. So there are some changes there, OK. Jason also mentioned that one of our top clients split in two and both of them continuously grow and one of them very, very aggressively. So I think there is no really changes in top-5. But in total, but, I mean, like the position of each of them going down and up depending on even quarters or years. And clearly there are some new new faces in our top-10 and top-20.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Thank you. Our next question...

Arkadiy Dobkin -- Chief Executive Officer and President

Thank you.

Operator

Our next question comes from Bryan Bergin with Cowen. Please proceed.

Bryan Bergin -- Cowen and Company -- Analyst

Good morning. Thank you. Wanted to ask on the NAYA Tech integration. Can you give us some detail there? It sounded like the contribution may have been stronger than you expected.

Arkadiy Dobkin -- Chief Executive Officer and President

It was a little bit stronger than we expected, but it's also in kind of the same range as some of them, and it is very, very new for us, just second quarter, I believe when this happened. And so it's too early and one good project, good -- and this is relatively small deal, so one big project can change the whole parameters. So I think it's doing better than we anticipated. And I think it would be good in 12 months to talk about it. But, it's kind of very much in line with our expectation on capabilities point of view and what it's bringing to us and how it's helped us.

Bryan Bergin -- Cowen and Company -- Analyst

Okay and then just a follow-up on margin here. So can you talk about how you think about longer term SG&A leverage potential? I get a sense you're making the investments here now as you think about the needs of a $5 billion revenue entity, but assuming relatively stable gross margin level, I'm just curious how we should be thinking about the model from the ability to drive leverage elsewhere.

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Yeah. So what we've been guiding to is this kind of 18% to 19% range on the SG&A as a percentage of revenue. And I think probably in 2020 and maybe even into the next year, you'll continue to see the type of investments that it takes to transform and make EPAM the adaptive organization or the increasingly adaptive organization that Ark referred to. And I think that's probably maybe a multi-year cycle with an opportunity for some improvement potentially after that. So, as Ark said, it come and goes in waves. So I think this is going to be a bit of an investment year, you might still see some more of that in 2021. And then as we continue to ramp revenue at a $5 billion company, you do have a potential to sort of look at and readjust your model.

Bryan Bergin -- Cowen and Company -- Analyst

Okay, thanks guys.

Operator

Thank you. Our next question comes from Surinder Thind with Jefferies. Please proceed.

Surinder Thind -- Jefferies -- Analyst

Hi, good morning, gentlemen. Just a quick question in terms of just generally the way that you guys are thinking about revenues and guidance. Are there any risks or things that you've accounted for in your guidance related to maybe, let's say, election related activity in the U.S., depending on how that race unfolds or are there other events or things that we should be thinking about that might potentially impact the numbers there, especially in the...

Arkadiy Dobkin -- Chief Executive Officer and President

I don't think we're thinking about election impact when we're talking about -- and if you're talking about election, it is also very difficult questions when we reflect to think about elections in very many geographies as well. But we, generally, clearly looking at our experience and political situations in different geographies based -- again, based on our understanding and experience of the past.

Surinder Thind -- Jefferies -- Analyst

So that's helpful.

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Yeah, so the visibility continues to be in the, let's call it, the 80% to 90% range, we've guided as Ark said, with our assessment of the near-term kind of direct impact of what's going on in Asia-Pac. So we have kind of modeled it, a little bit of a slowdown in our business in Hong Kong and China. We haven't necessarily modeled a more substantial sort of global growth slowdown, but we clearly have been kind of prudent and we -- David and I spent a lot of time doing sort of channel checks and working with each of the individual business units and consistent with what I said, with one of the earlier questions, is we continue to see very strong demand in the life science and healthcare space.

We continue to see interesting and very exciting opportunities in IoT. We've got a whole series of different types of financial services opportunities that are outside of the traditional kind of banking environment, which is why you see our financial services practices perform the way it does relative to maybe some of our peers. We continue to see that very strong growth that we've talked about in business information and media. And so again -- and then finally, we continue to have a lot of growth in our West Coast high tech clients. And so we feel good about -- about the business and again, the thing that I think I'm always comforted by is that our demand is broad-based across a wide range of industry verticals. We're not dependent on growth from one or two customers or one specific vertical to make our 22% or in excess of 22% growth rate.

Surinder Thind -- Jefferies -- Analyst

That's helpful. And then in terms of just kind of thinking about your cash levels. I guess you guys just haven't talked about M&A for a while now. Any additional color you can provide there in terms of pipelines or the quality of targets that are out there? Is it simply that you guys are having a challenge finding the right fit, the right cultural fit, the right group of people, or is it -- or is there some valuation issue considerations here? How should we think about your M&A stuff?

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Yeah, it probably could be all of the above. But I think that for us, we have done, I think, a larger number of kind of smaller acquisitions in fiscal year 2019. There is more open mindedness based on some of the success that we've had with those acquisitions for deals that could be of a somewhat larger size. And I think you might see some of that in 2020. But as you indicated, I think, our most important filter really is this sort of cultural fit whether it's a business that's going to bring something to EPAM and whether the management team is still motivated and as excited about the opportunity to join EPAM and continue to grow our collective organizations. And so a lot of times, I think that's probably the filter where we sort of might step away from a transaction, because we want to make certain that the fit is good and it is going to produce positive outcomes for the employees of both companies.

Surinder Thind -- Jefferies -- Analyst

Thank you.

Operator

Thank you. Our next question...

Arkadiy Dobkin -- Chief Executive Officer and President

Thank you.

Operator

Our next question comes from Darrin Peller with Wolfe Research. Please proceed.

Andrew -- Wolfe Research -- Analyst

Hey, good morning guys, this is Andrew on behalf of Darrin. I wanted to hone in on the account cohorts with regards to the revenue size. Look, the 57% growth you saw on 2019 in the $20 million plus is really impressive. I guess I'm trying to parse out what is the clients that are just graduating from the lower tiers and versus incremental wins. And then my follow up would be, the platform strategy over the last couple of years is clearly working in the market and how should we think about the spend curve with regards to the second derivative of spend within those accounts, be it in the product development, technology and engineering offerings you guys have?

Arkadiy Dobkin -- Chief Executive Officer and President

Can you go with the first question?

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Yeah. I'll go with the first. So in the case of the -- I guess the transition of the cohorts is that it's kind of a combination of things because what we've talked about over time where we do have many of our clients who may look small on our charts are actually large global corporations that have signaled all opportunities for EPAM and we continue to grow inside those opportunities. So what we've always talked about is we grow from existing relationships and we also grow due to the introduction of new relationships. So you've got some of growth within companies that had been EPAM customers for a period of years. Then what you also have is a couple of companies where we've had this real rapid growth. We talked about the business information and media in Europe. We've also had some another very significant grower in the business information and media space in the United States and so it's kind of a combination of a couple of new customers and this growth. So hopefully that answers that question, and then Ark?

Arkadiy Dobkin -- Chief Executive Officer and President

And the second question, if I understand correctly was about our involvement in growth in building platforms. Is that correct?

Andrew -- Wolfe Research -- Analyst

Yeah, that's right, I mean it's just, obviously, that seems to be the tip of the spear in some circumstances and I'm just curious on how that -- how you've seen that translate into incremental spend in the other offerings that you have for those clients.

Arkadiy Dobkin -- Chief Executive Officer and President

First of all, we definitely have ambition to be kind of main orchestrator for this type of programs when clients need it. And I think we were explaining that we do believe that we have right experience, right capabilities for this specifically coming from our product engineering background initially and then helping kind of digitally bound companies to build their internal products, internal platform. So we understand their needs for scalability and flexibility and the complexity of this. And that's what we are actually trying to put together the right orchestration level from consultancy from business perspective to technology and experience perspective and being very strong, continue to do it. And I think that works for us because a portion of this type of deals is increasing and we're seeing pretty strong demand for this capability, specifically in more traditional corporate market where people has to move to this direction to protect the land which they have. So I don't know exactly what you're trying to understand, but I think it's proportionately increasing part of our business and basically our main goal how to become a leader in this space.

Andrew -- Wolfe Research -- Analyst

No, that's helpful. Congratulations on another impressive year. Thanks, guys.

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Thank you very much. Appreciate it.

Arkadiy Dobkin -- Chief Executive Officer and President

Thank you.

Operator

Thank you. Our next question comes from Arvind Ramnani with KeyBanc Capital Markets. Please proceed. Arvind Ramnani, your line is live.

Arvind Ramnani -- KeyBanc Capital Markets -- Analyst

Hi. I was on mute. Just a quick question on, given your expanded services and consulting, are you seeing increased visibility in downstream revenues and also with this increased consulting, are you seeing a different set of competitors?

Arkadiy Dobkin -- Chief Executive Officer and President

I don't think we see significant change in competitors landscape because we were, like all out larger players, they have multi-functional areas and we work on [Indecipherable], just in different segment, but now we compete in more kind of high-value chain component of this as well. So -- and visibility is a very difficult question. We're clearly now getting into the programs where we're potentially seeing opportunities from a different perspective and we make an impact on the client a different perspective. So if it's given us -- but the predictability, I think, based on the numbers you can see that we're probably in very similar position as before, but the addressable market and our scale is increasing. So I think it's proportionately working well for us, because all these capability improvement and all the investments which we're doing, it's confirming our ability to grow 20-plus percent and that's the point.

Arvind Ramnani -- KeyBanc Capital Markets -- Analyst

Great, great. And certainly your guidance is very strong for '20. But I wanted to clarify, is that all organic? Is there any inorganic component to what you're guiding to?

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Yeah, no, that's a great question. And so again, what we're saying is we will exceed 22% growth, which as I said earlier, is slightly different language and intentional versus the "at least" we've used in the past and we believe about -- based on the acquisitions that we have today, about 1% would be from the inorganic kind of component. And then just kind of reconfirming the profitability guidance in the 16% to 17% range that we intend to operate in the range rather than at the top of the range the way we did in 2019.

Arvind Ramnani -- KeyBanc Capital Markets -- Analyst

Perfect. Good luck for 2020.

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Thank you so much.

Arkadiy Dobkin -- Chief Executive Officer and President

Thank you.

Operator

Thank you. Our next question comes from James Friedman with Susquehanna Financial Group. Please proceed.

James Friedman -- Susquehanna Financial Group -- Analyst

Hi, thank you and let me echo the congratulations. I just wanted to ask two things. Ark, in your prepared remarks you really were emphasizing the product development conversation. I realize that, that has been core to the company since your origins, but when you made the comment that you're clients are more interested in building versus buying their technology, I was just hoping you could frame that in the context of the cloud. I'm sorry to ask that, but is -- like are clients building more because of the cloud or is there something else going on?

And then let me just ask my second one and I'll get it out of the way. The fixed price did increase as a percentage of revenue, and it's higher now than I can remember. Is that due to the same thing, or is there something else going on there? So the first...

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Let me answer the easier question first, which is fixed fee, and I'll let Ark deal with the complicated topics. And so the increase is primarily due to growth in a couple of larger accounts, where we've got these fee structures that are -- that adjust just based on team size. And so there is kind of a fixed monthly fee based on the composition of the team. If the team size changes up or down, it changes the fixed monthly fee, OK. And that's why you're seeing the sort of shift toward higher sort of fixed fee, but it's not a classic multi-year fixed fee where we committed to do something for $20 million over a time period. So it's much less risky and again if in month two, the team size is taken up, then the fixed fee goes up, so it's -- I would call kind of a subtle variant on a time and materials, but we've chosen to classify it as fixed fee.

Arkadiy Dobkin -- Chief Executive Officer and President

Yeah. And on the first part of the question, so build versus buy. So I think this kind of direction started to become much more visible when company started to compete not on efficiency of the work with the separation, but on the efficiency of engagement engine basically, consumer or client at the end part of the digital ecosystem. And when you go into your clients and compete for this market, you need to differentiate ourselves much, much stronger and work on the efficient system. So ideally both part should be very well coordinated and analysts started to talk about importance of this system of engagement differentiation, flexibility and constant update times ago. That's what I mentioned like this report from 2015. So -- and when it's happening then you cannot just use a standard enterprise package software. You have to customize it to very big extent and sometimes this customization even doesn't make sense. So you need to look to utilize multiple components. And if you're building the system and this platform correctly then you need like to integrate this component and set you well to be replaceable because technology is changing and then the next couple of years, this component will be obsolete and somebody will get an advantage.

And that's what we're talking about when we're mentioning built versus buy. So nothing new but to do it, you need to have very strong engineering project, engineering with route. It's not just configuration, it's not just switching some check boxes. So and I think, the way we were performing, the way we were performing during the last multiple years was due to this engineering capabilities and we don't want to lose it, but we also need to add additional ones because differentiation is also coming from experience and from business models. And all of this together for us is a built.

James Friedman -- Susquehanna Financial Group -- Analyst

Got it. Thank you. Thank you, both.

Arkadiy Dobkin -- Chief Executive Officer and President

Hope I have...

James Friedman -- Susquehanna Financial Group -- Analyst

Yeah, OK.

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

You bet.

Operator

Thank you. Our final question for today comes from Joseph Foresi with Cantor Fitzgerald. Please proceed.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Hi. I'll make sure it's short given how long the call is. Just a couple of quick ones. One, you talked a lot about the verticals that are doing well, but I'm curious what transformation product or what transformation areas are customers most interested in these days? I know when digital began, it was a lot about the consumer but I'm wondering what you're doing from sort of a product development perspective. And then I have just one quick follow-up.

Arkadiy Dobkin -- Chief Executive Officer and President

This is a big question, which I don't know how to answer in kind of 30 seconds of two minutes because unfortunately the answer would be very, very generic and we will be talking about analytics and data and potentially IoT and cloud also basically the answer will be too generic in this sense unless we have real conversation.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Yeah, so let me ask in a different way. Has the type of transformation changed since you were $300 million company? And my follow-up would be, are you finding the proper skill sets for that type of change?

Arkadiy Dobkin -- Chief Executive Officer and President

I think from $300 million company to current state, then answer will be very similar to what I was giving like several minutes ago because this notion of system of engagements and when were a $300 million company, we were mostly product engineering extension with our clients versus right now we're building the core solutions where we're bringing this differentiation. And that's why on top of engineering skills, we need all this additional lifts and that's a main driver and the main goal for us to be doing well. So that's the biggest difference, in corporate and all this new technologies we change it like very, very quickly.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

And then, do you feel like you have the skill set, particularly on the outer edges where you're looking at more [Speech Overlap]

Arkadiy Dobkin -- Chief Executive Officer and President

Yeah, and that's part of this wave and this is part of the training, because that's why we're talking about education and my typical answers during all this quarter was, no, there is not enough skills, but we're finding the way how to train and build them because we also are very interested in fundamental knowledge of our employees. So it's not just people who train for three months or something. We have the talent, which we're able to retrain or direct and direct in right kind of area to get new skills and again this is back to our educational and training works.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Thank you.

Operator

Thank you, this concludes our question and answer session for today. So I'd like to turn the floor back over to management for any additional concluding comments.

Arkadiy Dobkin -- Chief Executive Officer and President

So thank you, thank you everybody. As usual, we are pleased with our 2019 results. We continue to grow. We are confirming our ability to to grow at the extent of 20% and thank you to your support and thank you to all of our 36,000 people globally, and let's talk in three months. Thank you.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

David Straube -- Head of Investor Relations

Arkadiy Dobkin -- Chief Executive Officer and President

Jason Peterson -- Chief Financial Officer, Senior Vice President and Treasurer

Maggie Nolan -- William Blair -- Analyst

Ashwin Shirvaikar -- Citi -- Analyst

Ramsey El Assal -- Barclays -- Analyst

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Bryan Bergin -- Cowen and Company -- Analyst

Surinder Thind -- Jefferies -- Analyst

Andrew -- Wolfe Research -- Analyst

Arvind Ramnani -- KeyBanc Capital Markets -- Analyst

James Friedman -- Susquehanna Financial Group -- Analyst

Joseph Foresi -- Cantor Fitzgerald -- Analyst

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