EPAM Systems (EPAM) Q4 2020 Earnings Call Transcript

EPAM Systems (EPAM 1.17%)
Q4 2020 Earnings Call
Feb 18, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the EPAM Systems fourth-quarter 2020 earnings conference call. [Operator instructions] I would now like to hand the conference over to your speaker today, David Straube, head of investor relations. Please go ahead, sir.

David Straube -- Head of Investor Relations

Thank you, operator and good morning, everyone. By now you should have received a copy of the earnings release for the company's fourth-quarter fiscal 2020 results. If you have not, a copy is available on 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 would like to remind you that some of the comments made on today's call may contain forward-looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP measures have been reconciled to GAAP and are available in our quarterly earnings materials located in the Investors section of our website. With that said, I'll now turn the call over to Ark.

Arkadiy Dobkin -- Chief Executive Officer and President

Thank you, David. Good morning, everyone, and thank you for joining us today. Let me start from taking a look back to 2020, which we all know was a very different year for all of us, to say the least. In preparation for today's call, I briefly reviewed what we were thinking and what we were sharing during the last year, starting from 12 months back and then nine, six and just three months ago.

I think it tells an interesting story. February last year, still full of hope for another practically normal year for us with 20-plus-percent organic growth, focusing on our adaptive enterprise story and in short, looking optimistically into 2020. Just three months later, we are still reporting 26% constant-currency growth for Q1. We, like everybody else at the time, didn't understand at all where we would end up and what we would have to do to go over this very uncertain and very fast worsening situation.

The situation, when more than 30% of our client portfolio experienced some form of revenue impact. We practically had to reorganize ourselves on the fly and to start preparation for a very defensive play for protecting as a first priority will be in the power of people and ensuring continued liquidity and viability of our business. When thinking about the time now, really would like to share again our deep appreciation to the thousand EPAMers who did everything possible to support each other as a company, to our clients for trusting us with their most critical issues and to our many extended communities around the world. At that point, we really didn't know how the 2020 would end up for us and for our clients.

In another three months, to our surprise, we saw the first signs of some stabilization and client realization of new reality and necessity to start preparing for the future, which will be impacted by such new reality for a long enough period, if not forever. It pushed our drive for agility and an urgent need to adaptive enterprise transformation even further. Time was very condensed and made us, as a company, become much more closely connected by sharing information and making decision much faster than ever before. At this point, we also realized that while our original plans for 2020 will not be in line with our financial performance realities, most of these planned changes, which we outlined for ourselves back in normal times, will be very much accelerating from strategic transformational standpoints.

During the period, we landed also several large new logos and started to see that we will take an increasingly larger share of our portfolio across several existing strategy for our clients, which was encouraging. Finally, just three months ago, while seeing many new geopolitical turbulences in locations where we operate and have significant talent presence, we still become comfortable enough to remind everybody again and to ourselves, first of all, the goal we stated 12 months back in our last investor day, the goal of turning EPAM into a truly adaptive company. We become comfortable simply because of our realization of how much we advance for -- to the growth during those all around very challenging nine months. Thanks to our investments into integrated consulting with EPAM Continuum, into cloud-enabled business transformation efforts and data analytics, AI and their test set of capabilities, strongly supported by our engineering DNA and by much more flexible, scalable and distributed delivery locations and delivery models, enabled in turn by our digital talent, productivity knowledge and educational platform for our EPAM Anywhere paradigm.

We believe all those investments are paying back and preparing us strongly for the future growth. In regard to EPAM Continuum, I would like to mention also that today, we see not only recognition of these new service offerings from leading analysts, but encouraging take of the new proposition from a broad base of clients around the world and across our verticals, in insurance and financial services, consumer and life sciences, to name a few. Our approach to EPAM Continuum goes beyond our working market, but extended very much into cross-pollination of all EPAM capabilities and experiences through network organizational approach comprised of people, tools and shared ways of working, which should enable us to build global, agile and expert teams more quickly and more efficiently. While this work is ongoing and represents a significant portion of our investment agenda, we are seeing strong results today in our current portfolio, results that are driving higher value for customers and that enable -- enabling EPAM to scale larger and complex program faster than ever in the past.

During last year, we shared several specific stories already. Those included Epic Games story as well as a large healthcare and technology platform, which not just became our fastest-growing client in 2020, but is already among our top 10 clients currently. In addition to those, let us share two short new stories. The first one started just over a year ago as an agile engineering program, as a top 10 global property and casualty insurance giant.

Since then, EPAM has become their go-to transformation and IT strategy and implementation partner, helping the company to transform its IT and digital project functions to accelerate cloud transformation journey and to position the company for innovation through a combination of the strategy consulting and engineering implementation services. The second is very recent engagement for a global retail and wholesale pharmacy leader. EPAM provides full value stream services, including product management design and end-to-end engineering. The client is building an omnichannel care management product, including clinical, physical services, device and digital elements and is making full use of our integrated research experience, consulting, physical and digital product design on top of our traditional engineering capabilities.

So everything I've mentioned is made possible by the ongoing investment in our business, which will remain our consistent priority, and we do expect indeed even higher levels of investment in 2021 to keep pace with our growth needs. Moving on to our numbers, and let's start from 2020 results. For fiscal 2020, we ended at close to $2.7 billion in revenues, reflecting 16% year-over-year constant-currency growth, which included double-digit growth in the majority of our industry verticals. Non-GAAP earnings per share of $6.34, a 17% increase over fiscal 2019.

Lastly, we generated $476 million of free cash flow for the year, a result that was more than 2.5 times the average of our last four years. For the people front, for the year, we welcomed more than 4,400 new net employees to EPAM across our client-facing teams and corporate functions. At this point, I would like to remind also that during all 2020, we were very consistently repeating the very simple statement. We strongly believe our position as a leading provider of digital product and platform engineering services, combined with our maturing consulting expertise, is our key differentiator.

And we are confident in our ability to come out of this challenging time, a more value-based and result-driven company that will continue growing at the post-pandemic environment at a 20%-plus organic growth rate again. It wasn't obvious statement especially at the beginning. But we think that what was happening during the past 12 months is very telling. From our practically worst quarter ever with a sequential drop in revenue in Q2 to probably the best sequential growth we saw during the last decade when we increased revenue in Q4 2020 by almost 11% in comparison with our Q3 result.

So looking ahead to 2021, we see a market that continues to be very active and one that demonstrate strong demand for our services. With the events of the past year, our clients are adapting to changing landscape, which requires hybrid business models and different ways of interacting with their customers in the end market. This requires even faster pace of transformation, the organization of application as well as the building of expansion of the platform with connect and powered enterprise, enabled first by the cloud and the need for really co-innovation partners. It means that we will have to lead large-scale transformation with consulting, product development engagement with design, data monetization and process optimization engagement with analytics, digital technology architecture and custom platform development engagement with engineering.

And all of those to be led by strong alignment with our clients and some other key platform partners. Regarding market size. In the past, we spoke about EPAM positioning in the fast-growing digital platform product engineering segment, which analysts estimate to be more than $150 billion. While we still firmly position us with such a segment, we are seeing enhanced opportunities for EPAM to play in the broad application development and cloud integration services market, which leading analysts are projecting to be resurging in the post-pandemic environment.

In comparison -- in combination of custom software development, cloud-native integration work, technology consulting and training services, and which represents a total over $700 billion in 2021 alone or about 60% of the total global IT services market. While thinking about this in context of near-term demand for EPAM and the lagging effect of the pandemic on our customers, we still anticipate some continued disruption in a few of our customers and markets and probably longer-term damage for certain industries. However, today, when 2020 is already in the past and while we are obviously still not being out of post-pandemic time zone and specific geopolitical risks, we do believe that 2021 will be a year of return to 20-plus-percent growth organically. With that, let me hand the call over to Jason to provide more specifics in our 2020 results and our annual business outlook, which we are resuming for fiscal 2021.

Jason Peterson -- Chief Financial Officer

Thank you, Ark and good morning, everyone. We are pleased with our 2020 fiscal year performance, especially given the dynamic environment. Our results demonstrate the durability of our portfolio, adaptability of our people and highlight EPAM's ability to meet the needs of clients even during challenging times. In the fourth quarter, EPAM generated revenue of $723.5 million, a year-over-year increase of 14.3% on a reported basis and 13.7% in constant-currency terms, reflecting a positive foreign exchange impact of approximately 60 basis points.

Revenue came in higher than previously guided due to our ability to expand our delivery capacity in response to a stronger-than-anticipated demand environment. Revenues also benefited somewhat from the beforementioned foreign exchange contribution. Our industry vertical performance in Q4 produced very strong sequential improvement, driven by a higher level of growth from both new work and existing clients and revenue from new customer relationships established over the last 12 months. Looking at year-over-year performance across this group.

Life Sciences & Healthcare grew 24%. Growth in the quarter was driven by data and analytics, platform development to support new business models and client investments to improve R&D efficiency. Business information and media delivered 16.2% growth in the quarter. Financial services grew 16.1% with growth coming from traditional banking, insurance and, to a lesser degree, wealth management.

Software and hi-tech grew 14.3% in the quarter. Travel and Consumer returned to growth and increased 5.4% yaer over year. In Q4, we saw strong growth from our consumer clients, along with solid and improving performance within retail as clients made investments in response to the dramatic changes in their operating environments. Finally, our emerging vertical delivered 13.1% growth, driven by clients in telecommunications, automotive and materials.

From a geographic perspective, North America, our largest region, representing 59.9% of our Q4 revenues, grew 14% yaer over year or 13.7% in constant currency. Europe, representing 32% of our Q4 revenues, grew 11.8% yaer over year or 7.5% in constant currency. CIS, representing 5.2% of our Q4 revenues, grew 22.9% yaer over year and 45.2% in constant currency. Similar to Q3, growth in the CIS region was driven primarily by clients in financial services and materials.

And finally, APAC grew 39.4% yaer over year or 35.7% in constant-currency terms and now represents 2.9% of our revenues. APAC growth in the quarter was primarily driven by clients in financial services. In the fourth quarter, year-over-year growth in our top 20 clients was 16.6%, and growth outside our top 20 clients was 12.8%. And moving down the income statement.

As mentioned last quarter, we continue to run the business with a cost base that is lower than previous levels. While the lower cost base is driven by operational efficiencies we have delivered across the business, there are also temporary contributors, including reduced travel, relocations and certain administrative expenses producing lower levels of SG&A spend over the last three quarters. Looking forward, we expect a higher level of cost in a post-pandemic environment, but anticipate that some of the efficiency benefits may be maintained longer term. Our GAAP gross margin for the quarter was 35.6% compared to 35.2% in Q4 of last year.

Non-GAAP gross margin for the quarter was 36.9% compared to 36.7% for the same quarter last year. GAAP SG&A was 17.8% of revenue compared to 19.8% in Q4 of last year, and non-GAAP SG&A came in at 16.2% of revenue compared to 18.1% in the same period of last year. Our SG&A results continue to see short-term benefits from the previously mentioned items. GAAP income from operations was $112 million or 15.5% of revenue in the quarter compared to $84.7 million or 13.4% of revenue in Q4 of last year.

Non-GAAP income from operations was $135.9 million or 18.8% of revenue in the quarter compared to $107.6 million or 17% of revenue in Q4 of last year. Our GAAP effective tax rate for the quarter came in at 16.2%, which includes a lower-than-expected level of excess tax benefits related to stock-based compensation. Our non-GAAP effective tax rate, which excludes excess tax benefits, was 22.6%. Diluted earnings per share on a GAAP basis was $1.46.

Non-GAAP EPS was $1.81, reflecting a 19.9% increase over the same quarter in fiscal 2019. In Q4, there were approximately 58.8 million diluted shares outstanding. Now, turning to our cash flow and balance sheet. Cash flow from operations for Q4 was $159.3 million compared to $124.6 million in the same quarter for 2019.

The free cash flow was $140.9 million compared to $77.6 million in the same quarter last year, resulting in a 133% conversion of adjusted net income. We ended the quarter with $1.3 billion in cash and cash equivalents. In Q4, DSO was 64 days, the lowest in at least five years, and compares to 70 days at the end of Q3 2020 and 72 days in the same quarter last year. We are very pleased with this performance and believe we can manage future DSO levels in the upper 60s.

Moving on to a few operational metrics. We ended this quarter with approximately 36,700 engineers, designers and consultants, a year-over-year increase of 12.8% and a sequential increase of 8.8%, our highest quarterly increase in the last five years. Our total headcount for Q4 was more than 41,100 employees, a net addition of more than 3,100 EPAMers from the previous quarter. Utilization was 77.9%, consistent with Q4 of last year and down from 78.2% in Q3 2020.

Turning to results for the 2020 full fiscal year. Revenues closed at $2.66 billion or 15.9% reported growth over 2019 and 16% on a constant-currency basis. During fiscal 2020, our acquisitions contributed approximately 100 basis points to our growth. GAAP income from operations was $379.3 million, an increase of 25.3% yaer over year and represented 14.3% of revenue.

Our non-GAAP income from operations was $472.7 million, an increase of 21.5% over the prior year and represented 17.8% of revenue. Our GAAP effective tax rate for the year came in at 13.6%. Excluding the impact of the excess tax benefits related to stock-based compensation and certain onetime adjustments, our non-GAAP effective tax rate was 22.6%. Diluted earnings per share on a GAAP basis was $5.60.

Non-GAAP EPS, which excludes adjustments for stock-based compensation, acquisition-related costs and other certain onetime items, was $6.34, reflecting a 17% increase over fiscal 2019 and higher than our pre-pandemic expectations of $6.30. In fiscal 2020, there were approximately 58.4 million weighted average diluted shares outstanding. And finally, cash flow from operations was $544.4 million compared to $287.5 million for fiscal 2019. And free cash flow was $475.6 million, reflecting a 128% adjusted net income conversion.

Now, let's turn to guidance. Given the relative stability as well as improved visibility across the portfolio, we are resuming our full-year guidance for fiscal 2021. While we anticipate growth patterns across the industry verticals to vary throughout the year, we expect our diversified portfolio to drive growth more in line with pre-pandemic levels. At the same time, we will be investing at elevated levels across the business to make certain we have sufficient resources to meet renewed demand.

Additionally, we will increasingly be investing in new geographies to support our long-term growth. One area of focus in 2021 will be the creation of the infrastructure to support a larger and increasingly global EPAM. Starting with our full-year outlook. Revenue growth will be at least 23% on a reported basis and in constant-currency terms will be at least 22% after factoring in a 1% favorable foreign exchange impact.

We expect GAAP income from operations to be in the range of 13.5% to 14.5% and non-GAAP income from operations to be in the range of 16.5% to 17.5%. Our income from operations reflects a higher level of investment in the planned expansion of our capabilities and geographies in 2021. We expect our GAAP effective tax rate to be approximately 12% and our non-GAAP effective tax rate to be approximately 23%. For earnings per share, we expect GAAP diluted EPS to be in the range of $6.65 to $6.86 for the full year and non-GAAP diluted EPS to be in the range of $7.20 to $7.41 for the full year.

We expect weighted average share count of 59 million fully diluted shares outstanding. For Q1 of fiscal year '21, we expect revenues to be in the range of $757 million to $765 million, producing a year-over-year growth rate of approximately 17% at the midpoint of the range. In Q1, we expect the favorable impact of foreign exchange on revenue growth to be approximately 2%. For the first quarter, we expect GAAP income from operations to be in the range of 12.5% to 13.5% 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 1% and non-GAAP effective tax rate to be approximately 23%. We anticipate our GAAP effective tax rate in the quarter will be impacted by a higher level of excess tax benefits related to the vesting of restricted stock units in connection to our annual compensation cycle. For earnings per share, we expect GAAP diluted EPS to be in the range of $1.66 to $1.74 for the quarter, and non-GAAP diluted EPS to be in the range of $1.62 to $1.70 for the quarter. We expect a weighted average share count of 59 million diluted shares outstanding.

Finally, a few key assumptions that support our GAAP to non-GAAP measurements. Stock compensation expenses is expected to be approximately $86.5 million, with $22.5 million in Q1, $20 million in Q2 and $22 million in the remaining quarters. Amortization of intangibles is expected to be approximately $12.5 million for the year, evenly spread across each quarter. The impact of foreign exchange is expected to be approximately a $5.5 million loss for the year, with $1 million for Q1 and the balance evenly spread across each remaining quarter.

The tax effective non-GAAP adjustments is expected to be around $21.6 million for the year, with $5.1 million for Q1 and Q2 and $5.7 million in each remaining quarter. And finally, we expect excess tax benefits to be around $51.5 million for the full year, with approximately $24.5 million in Q1, $13.5 million in Q2 and $6.8 million in each remaining quarter. In summary, we are pleased with the high-quality results we delivered in fiscal 2020 and are encouraged by what lies ahead in 2021. Operator, let's open the call up for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Ramsey El-Assal with Barclays. You may proceed with your question.

Ramsey El-Assal -- Barclays -- Analyst

Hi, guys. Thanks for taking my question and congratulations on another strong quarter. Your -- Ark, you mentioned that you're seeing some COVID-related -- you're still seeing a little COVID-related impact for some of your clients. And I think you said potential longer-term adjustments to certain verticals kind of going forward.

I guess the question is, how do you see your -- the post-pandemic sort of business mix for EPAM evolving? Should we start to think about verticals that -- like FI growing a lot faster than some of your other verticals? Or how should we think about the mix kind of going forward?

Arkadiy Dobkin -- Chief Executive Officer and President

Probably when we look at historically, we still have pretty good level volatility on a quarterly basis and even on annual basis across our verticals. And again, we believe that with still with our size, which is definitely growing, this type of volatility depending on one, two, three, four, five large accounts could be still in place. So it's, I think, difficult to say. And if you look at it quarter by quarter, it was changing champions practically all the time.

So I think in general, it would be something similar at least for this year. And there is unpredictability, but some industries which is the most impacted by COVID might actually start to invest even more like we see in retail, for example. Or even travels might start investing more to prepare for common work. So sorry, but difficult to predict.

Ramsey El-Assal -- Barclays -- Analyst

OK. So hard to tell at this point. OK. And I also wanted to ask about margins and sort of specifically your visibility to margin performance next year.

How confident are you that the costs that basically kind of came out of the model in the context of COVID are going to flow back in? I'm thinking of things like travel. I guess the easier way to ask the question is, what would see you sort of outperform margins versus underperform margins next year?

Jason Peterson -- Chief Financial Officer

OK. So I think the first thing I would say is that our guide is expected to communicate that we do feel that sort of the middle point of the guided range of 16 and a half or 17 and a half or 17% is really kind of how we're thinking about the business next year. And if I sort of break it into two components, we expect that SG&A will go up somewhat as a percentage of revenue. So I think we exited the full year at about 16.4%.

I think for the full year of 2021, you'd be looking at something heading toward 17%. And some of that is additional investments in the business, and some of that is the return to some amount of normalcy in spending later in the year. But you can see that there's still some benefit that results from that because prior to the pandemic, we were running at over 18%. Now, from a gross margin standpoint, what we expect is that we'll continue to see strong growth as evidenced by our guide on the top line.

We do think that we'll continue to make investments in growing the business. That will include traditional sort of headcount additions and all the infrastructure that's required to attract talent and bring talent into the company. But then it also will include an expansion in geographies, Poland, India, Mexico, maybe other places in Latin America and other places in Europe. And so those investments, at least probably in 2021, have a somewhat negative impact on gross margin.

With the idea that they're subscale at this point, we need to grow them rapidly. And then as they get closer to scale, they'll have more consistent profitability. And so the guide kind of incorporates, again, a somewhat elevated level of SG&A, maybe a slightly lower level of gross margin, again, as we invest in our infrastructure so that we can increasingly become a much larger and, of course, more global company.

Ramsey El-Assal -- Barclays -- Analyst

Great. That's super helpful. I appreciate it. Thanks so much.

Operator

Thank you. Thank you. Our next question comes from David Grossman with Stifel. You may proceed with your question.

David Grossman -- Stifel Financial Corp -- Analyst

Good morning. Thank you. I wonder if I could just follow-up, Jason, on your comment about the geographic diversification. How much of that, if any, is related to some of the unrest in Belarus over the last kind of year, year and a half? And can you just remind us about how a new facility or how it ramps? What is the typical trajectory of gross margin as you ramp a new geography?

Arkadiy Dobkin -- Chief Executive Officer and President

OK. Let me, David, start from Belarus because, yes, definitely, there is some influence on what's happening there, similar like it was very much impacting how we think it involve diversification on our global delivery events in 2014 around crime and kind of Russian-Ukrainian conflict. So then we accelerated our presence in Central, Eastern Europe and India and Latin America. And during this period between 14 and 20, we definitely were moving to this direction.

And I think we continue to move to this direction. So there are multiple new centers, which we're opening, and there are different cost structures there. So I will pass to Jason to comment on specifics.

Jason Peterson -- Chief Financial Officer

Yes. So as Ark indicated, so we would grow more naturally -- we've grown more rapidly naturally in some of these other geographies. But Belarus is part of what we're looking at, at this point. And we probably will see some employees who may help us stand up operations in Lithuania and may help us grow Poland even further.

From a gross margin standpoint, when you start a brand-new facility from scratch, kind of the way we did in Lithuania, it is going to have -- initially, you'll have very low utilization, you'll have additional infrastructure costs that aren't necessarily carried by rates. But again, those are relatively modest facilities. In the case of Poland, where we're still subscale, it's got somewhat lower levels of profitability than a couple of our at-scale operations like you would find in Belarus and Ukraine. So that's part of -- again, it's a more rapid growth rate in those entities, which have a somewhat lower level of profitability.

And then, David, I think, longer term, as we get those countries and those individual delivery centers up to a more appropriate scale, I think you'll see an evening out of the profitability and the gross margin.

David Grossman -- Stifel Financial Corp -- Analyst

Do you have any sense for...

Arkadiy Dobkin -- Chief Executive Officer and President

In general, we expect very similar future, which we experienced like in 2015 and '16.

David Grossman -- Stifel Financial Corp -- Analyst

And just how long does it to take to get to scale where those margins would look more similar to some of your other geographies?

Arkadiy Dobkin -- Chief Executive Officer and President

I think again, there is some slight impact, and also sometimes hard to predict at this point because you'll learn on the way. But again, we have much, much more practical points that we've had like five, six years ago. And on top of this, if there is more significant impact on margin that it would come from different tax situation changes across the globe as well, so that might be a bigger impact. But it's completely unpredictable.

Jason Peterson -- Chief Financial Officer

I think -- so David, as Ark said, it's somewhat difficult to tell. But I think as we work through this fiscal year and into the next fiscal year, I think that's when you kind of get to a more appropriate scale and again, more kind of normalized margin.

David Grossman -- Stifel Financial Corp -- Analyst

I see. And then just looking at the evolution of this industry. I'm just curious, at this point, do you have any better insight into how the workplace for the future is going to of all our customers? Do you sense that they're getting more comfortable with a more distributed work models so that it would allow you to maybe operate more satellites or just give you access to a broader talent pool in a more fragmented workforce that may not be working in a centralized location? Any insights into kind of how those cost savings get shared with the client? Or maybe it's just too early at this point, but just curious if you have any updates on how this is evolving.

Arkadiy Dobkin -- Chief Executive Officer and President

I think it's two different questions, like in general, definitely -- first of all, like prediction of changes was like multiple years ago. Even internally, we started very specific programs how to establish a much more flexible environment for people and to support high distribution, but not to lose on quality and how to find the right talent like in any locations around the world. And we started this like practically three years ago here. And COVID become a real accelerator for this source, and we felt probably a little bit more prepared than we expected before.

So -- and that's one part of the story. And clearly, client by client, there are different situation. But for sure, there are more acceptance than it was 12 months ago. And it helps to experiment and kind of to build additional proofs for much more distributed model.

That's all happening. On another side, when you're talking about cost factors, it's also has a multiple attributes there because there are simple thinking that which cost will be saved, but you have to invest more in this distributed virtual infrastructure. Sometimes it's increase in wage inflation because acceptance of distributed model becoming bigger, and actually, competition for the talent growing as well. So there are too many moving parts right now to say how it would change the cost model.

David Grossman -- Stifel Financial Corp -- Analyst

Great. All right. And just if I could get one more in. During the pandemic, you focused more on the top 20.

That's where the growth was coming, and maybe you saw more opportunity there. Below the top 20 historically has been a pretty important contributor to your overall growth rate. So I'm just curious, you talked about gaining share in your prepared remarks and some new logo wins of larger clients and gaining wallet share. Should we expect the top 20 -- is this the new normal for you in terms of where the growth is coming from? Or do you expect kind of the same distribution that we saw pre-pandemic returning sometime over the next several months?

Jason Peterson -- Chief Financial Officer

Yeah. I think, David, one of the things that's been interesting about this year is that we've had a number of customers that have bolted right from modest revenue in one quarter to being in the top 20 within three or four quarters. And so some of what I think Ark's talked about in the last couple of quarters where clients are feeling the need to really accelerate their investments and rapidly make the investments to allow them to transform the business, means that they move from being outside the top 20 to almost immediately into the top 20. And I think that does kind of distort the top 20 growth rate.

I do think that you will see some growth from some of the larger customers in the top 20 in fiscal year 2021. And at the same time, from -- internally, when we look at the statistics for new logo revenues and new customer revenues, which are customers that began generating revenue within the last 12 months, we're seeing that those are increasing as a percentage of total revenue. And I think that sort of shows up in the concentration metrics, particularly as we move from Q2 to Q3 to Q4 in the 2020 fiscal year.

David Grossman -- Stifel Financial Corp -- Analyst

Got it. Great. That's it. Thank you very much.

Arkadiy Dobkin -- Chief Executive Officer and President

And I think top 20 is changing a lot as well. So some companies which come in exactly from below top 20 and becoming one of them, and there are good level of volatility at the top.

David Grossman -- Stifel Financial Corp -- Analyst

OK, great. Thank you very much.

Operator

Thank you. Our next question comes from Surinder Thind with Jefferies. You may proceed with your question.

Surinder Thind -- Jefferies -- Analyst

Thank you. To start, just a question on kind of -- when you look ahead to the 2021, can you maybe talk about the mix that you're anticipating in terms of revenues from current customers and then from what you anticipate to be new customers over the next 12 months? And how that kind of that go-to-market strategy is changing? It seems like you're getting wallet share, and how we should think of that evolution?

Jason Peterson -- Chief Financial Officer

Yeah. So we haven't traditionally forecasted new customer revenues. Instead, we kind of look at the trends kind of historically. But I think as Ark pointed out at the end is that we are seeing a lot of customers begin their journey with EPAM and very rapidly move into the top 20.

And so again, what we -- it's interesting, as many of you have noted, is that we're already seeing growth again in our Travel and Hospitality. And it's not because travel has improved, but because there are retailers and consumer goods companies who are making quite significant investments right now to revisit their business while either to expand an existing e-commerce strategy, to create one, to find different ways to connect with customers, to deliver products with customers. So you are seeing a lot of spending in that area. You're seeing a lot of spending in manufacturing, again, with more sort of a digital connection.

And so I think you will see growth in some of these customers that are relatively small for us. But we also have a couple of large customers that we are expecting high levels of growth from in 2021.

Surinder Thind -- Jefferies -- Analyst

Got it. And then in terms of just the overall dealer client conversations that you're having, it sounds like clients are willing to start embarking on some of the bigger projects. Can you talk a little bit about that? Or are they trying to bite off things in smaller chunks and you're just trying to seeing a lot of renewal or the follow-on of that projects -- those projects?

Arkadiy Dobkin -- Chief Executive Officer and President

I think there are definitely visibility to a number of large programs because I do believe that a good number of clients already kind of analyzed what did happen and create strategy out of this and actually very aggressively moving in the direction to make sure that they prepare it for the next unexpected things which might happen. So I think there are a number of big programs, some of them much better shaped, but some of them will be shaped during the next one or two quarters as well. But from what we're seeing, again, it's a number of big engagement is increasing for us too.

Surinder Thind -- Jefferies -- Analyst

That's helpful. And then just final question related to that. How does, I guess, some of these larger projects or the potential for larger projects impact your visibility and stuff as you kind of look out to 2021? When I kind of look back over the last couple of quarters, you guys have come in well above guidance. I'm assuming that's -- part of that is just a faster-than-anticipated recovery.

But when we think about the forward guide, how should we think about the visibility into that? And then -- and maybe where you end up in terms of -- above that, the 23%?

Arkadiy Dobkin -- Chief Executive Officer and President

I don't know if we can share something which you don't know from our method, how we predict it. I think we were comfortable enough to return to our annual guidance cycles. And in kind of big picture, we're doing this very similar like we were doing this pre COVID. And while there are some bigger program happening, we also become bigger.

So it's in some way, very rational from our point of view. So I think, again, our visibility and predictability methods right now very similar to what we were doing like in pre-COVID times.

Surinder Thind -- Jefferies -- Analyst

OK, thank you.

Operator

Thank you. Our next question comes from Jason Kupferberg with Bank of America. You may proceed with your question.

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

Hey. Good morning, guys. I just wanted to start with kind of a big-picture question. We recently did a CIO survey that showed a meaningful decrease in the percentage of enterprises who believe that they're largely done with their digital transformational journey.

And we think that's because they just continue to find more parts of their business that can be digitized, so the runway basically keeps getting longer. And I'm just wondering if that's a dynamic you're observing within your client base, provide the digital journey kind of continues to get extended as the scope of digital transformation efforts broaden out.

Arkadiy Dobkin -- Chief Executive Officer and President

So you're saying that based on your research, there are -- most of the clients saying that they're already done with this?

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

Well, we're saying there's actually a decline in the percentage of enterprises saying that they are largely done because the runway it's getting longer as they find more areas to digitize, and I'm wondering if you're observing that.

Arkadiy Dobkin -- Chief Executive Officer and President

I don't think we do because like -- I think it's...

Jason Peterson -- Chief Financial Officer

A little bit, so it's a double negative. So it's a decline in the number that say that they're done.

Arkadiy Dobkin -- Chief Executive Officer and President

Decline in...

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

Right, right.

Arkadiy Dobkin -- Chief Executive Officer and President

So it's actually broadening. OK. Yes. I think we see this as well.

It's also very difficult to kind of talk about it when asking what it does mean digitizing because this is not a very well-defined area and different clients thinking differently around this. But definitely, cloud migration and modernization, it's a huge change in the last several years. While everybody is talking about it for almost a decade, the real impact as we all see happening during the last several years. And I think COVID is a huge accelerator of all of this.

So -- and from this point of view, we definitely see much more interest and much more audience to focus on this, and kind of related to previous questions, which we answered it too.

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

Right. Right. OK. And Jason, can you just tell us a bit about the assumptions you're making for utilization and pricing in the 2021 guidance?

Jason Peterson -- Chief Financial Officer

Yeah. So utilization, I think, is fairly consistent with utilization that we exit with here in Q4. And so we're not expecting a significant uptick in utilization. And we're not expecting it unless demand didn't come in as expected that we'd see a significant decline.

What we are seeing, as Ark indicated, is wage inflation. Historically, I think I've talked about 4% to 5%. Wage inflation in 2020 was probably more in the 5% to 6% range and probably would stay in the 5% to 6% range in 2021, and so maybe a somewhat elevated level of wage inflation. And pricing is, again, it's kind of a mixed environment where newer engagements, particularly with the high demand for resources and again the robust demand for the type of work that we do provides some opportunities.

But there are probably some existing customers, particularly in still impacted sectors of the economy, who are a little bit less open to the idea of a 2021 rate increase, that are signaling to us that they're more open and quite open to a 2022 rate increase.

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

OK, make sense. Thank you.

Operator

[Operator instructions] Our next question comes from Maggie Nolan with William Blair. You may proceed with your question.

Maggie Nolan -- William Blair -- Analyst

Thank you. Following up on the build-out of new geographies, can you give us some insight into the decision process behind what geographies you chose to build out, why you picked those locations and then your assessment of your ability to attract talent in those markets?

Arkadiy Dobkin -- Chief Executive Officer and President

Definitely. There is some preparation for this. And for those who are watching us for since IPO days, like you remember that we were very heavily concentrated practically in a couple of countries. And while we still have concentration in these countries, right now, it's much, much smaller portion of this, so which we prove that we can do it and can scale in different locations.

And right now, we're looking at a second kind of degree of geographies, which is not necessarily very new for the global market but might be relatively new for us. And that includes like our acceleration, for example, in India, our acceleration in Latin America, but also in a number of countries across our traditional locations. And again, the criteria usually, there is IT infrastructure there. There are some talent which was built out, attracted by competitors, but also the quality of university system.

In some situation, we -- when there is a kind of natural migration due to geopolitical situation, we select in some countries which would be much more comfortable for people that decided to relocate as well. And partially, 2020 was kind of a combination of these two things.

Maggie Nolan -- William Blair -- Analyst

Got it. And then if we take a look at some of your client buckets, the top 20, there was good growth there, maybe with the exception of the slight sequential decline in the top 5. So any comments on what's going on there? And then when you think about the outside of the top 10, last year, that was a nice growth driver for the company. This year, it's trailed a little bit kind of the consolidated company growth.

So is there any dynamics there that we should be aware of? Or any thoughts about how to kind of reinvigorate that client relationship, those client relationships in that bucket as you navigate the recovery from COVID?

Jason Peterson -- Chief Financial Officer

Yeah. So that's fair. So I think that we still think about the business very much as a diversified portfolio, whether we're looking at industry verticals or customers. And I think Ark said it at the very beginning of the call, which is, it's a little bit hard to predict which customer is going to drive the growth with absolute certainty in a given fiscal year.

We certainly are seeing some customers in the top 20 that we think are still going to have high levels of growth. We're seeing a few that are going to slow down. One thing I could call out is that we've had very high growth with large customers in the business information and media space. We continue to have very significant relationships with a number of those clients who are now very much in our top 10.

We think that we might not see as much growth in fiscal year 2021 as we -- certainly as we saw in 2020. We've got growth coming from some new manufacturing customers. We've got some growth coming from some IT customers with more of a healthcare flavor to them. And so again, I think you are going to see a little bit more of a return to the EPAM traditional growth rate in the below 20%, but it may not be quite the way it was three or four years ago because I do think as we continue to have established relationships with large companies and are seeing as a vendor that can get things done inside those companies, you do get growth inside those portfolios.

Maggie Nolan -- William Blair -- Analyst

All right. Thanks, Jason. Thanks, Ark.

Jason Peterson -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Bryan Bergin with Cowen. You may proceed with your question.

Bryan Bergin -- Cowen and Company -- Analyst

Hey, guys. Good morning. Question on hiring here. So you added a significant 3,000 billable headcount in the quarter.

How do you feel the model operated as you've onboarded here the last couple of months? Did you feel like you're nearer ceiling level to comfortably add? And how should we be thinking about the pace of headcount expansion in early '21 before you scale some of these newer regions?

Jason Peterson -- Chief Financial Officer

So clearly, we've invested in our capability or our capacity to add additional headcount. And so as we get bigger, as we make those investments, we talked about this is the biggest incremental growth that we've had in the history of the company. But clearly, we're putting in place a structure that allows us to continue to do that. But clearly, Q4, we're kind of catching up from Q2 and Q3.

And so right now, we might not have as much headcount growth expected as we, for instance, enter Q1. But again, we're running at a hotter level than we have in past years, in part because we are seeing that the demand is very strong and we are putting an infrastructure in place that allows us to meet that demand.

Arkadiy Dobkin -- Chief Executive Officer and President

I think very often, the challenge is not just to grow, but actually to grow responsibly to make sure that you keep in balance between demand and supply. And this is almost like a trade-off. So from this point of view, that's one of the key kind of challenges which we try to navigate.

Bryan Bergin -- Cowen and Company -- Analyst

OK. I guess following on that, can you comment on the cash position and M&A receptiveness here? How are you thinking about M&A as a component of the geographic expansion?

Jason Peterson -- Chief Financial Officer

Right. So I talked about this, I think, every quarter, and I'm going to add something to what I've said in the past. So the M&A pipeline, quite active in our discussions with potential acquisition targets. And at this point, we're quite advanced in our discussions with several companies.

And so I do expect that we'll be talking more about that in the not-too-distant future. We continue to have a focus on capabilities. But also, geography would probably play a role as well. And it might -- the focus might be on helping us with kind of end markets, so again, more customer-facing.

But in some cases, we may use an acquisition to get us an established position and a management team in a country that we don't have as much experience in. So I think you'll kind of see both of those things in 2021.

Bryan Bergin -- Cowen and Company -- Analyst

OK, thank you.

Operator

Thank you. Our next question comes from Ashwin Shirvaikar with Citi. You may proceed with your question.

Ashwin Shirvaikar -- Citi -- Analyst

Thank you. Good morning, Ark. Good morning, jason. Good quarter here.

My first question is, you've mentioned a couple of times larger and increasingly global EPAM. And you provided a lot of detail on that from a delivery perspective. My question is from a revenue perspective, if you can provide specifics with regards to how you're thinking about future globalization of the EPAM footprint from a revenue perspective. You continue to have the vast majority of your revenues come from North America and Europe.

Any thoughts on diversification? And Jason, your comments on M&A, is that more of a geography focus or capability focus?

Jason Peterson -- Chief Financial Officer

I'll answer first and I'm sure Ark have something to say as well here. So I think from a -- in some cases, the market investment that's more customer focusing may still be in places like Western Europe. I think in terms of longer-term expansion, I do think that APAC continues to be an opportunity for the company. As you note, most of the revenue does come out of Western Europe and North America.

And we still are, I would say, underpenetrated in Asia Pac. So longer term, I think that's definitely an opportunity. I think you are beginning to see slightly elevated growth rates in APAC. And I think that, particularly, there's interesting opportunities in the Singapore market.

And so I think kind of longer term, I think you will see greater revenue. But I'm not necessarily expecting that to show up in a material way in 2021, but more kind of in future years.

Arkadiy Dobkin -- Chief Executive Officer and President

Yeah. I think from general direction, North America and Western Europe is by far the main priority. The rest of the markets, which Jason mentioned, priority is how to serve our global clients in these markets and establish ourselves a little bit better. And that's what was happening during the last probably seven, eight years when we came to China because of UBS, for example, and starting to expand.

So I think it would be growth in APAC even with some local clients, but again, it's not going to be really significant. But the growth with the global clients which we serve in North America, Western Europe and extension to different markets from APAC to potentially Latin America is, well, very much anticipated.

Ashwin Shirvaikar -- Citi -- Analyst

Got it. Got it.

Arkadiy Dobkin -- Chief Executive Officer and President

And I think because with our size, we have almost unlimited opportunity in the markets where we are.

Ashwin Shirvaikar -- Citi -- Analyst

Understood. That's good to know. Ordinarily, I wouldn't pull out a specific acquisition that you did, but I always thought that the Continuum acquisition with integrated consulting, that was a key capability set that you guys added. I was curious to -- if you could shed more light on how that performed through the course of 2020, particularly given -- was it more that the discretionary nature perhaps of that was impacted? Or was it that clients look to you to adapt moreso? If you can talk how that -- how you see that evolve and how you see that affecting your future investments?

Arkadiy Dobkin -- Chief Executive Officer and President

Yes. And I think we try to illustrate today with a couple of examples. But in general, it's definitely in my material statement say it's a journey and we did a number of acquisitions to build experienced consultancy capabilities with built-in business consultancy capabilities at this point organically. And we do believe that we have a very good foundation for technology consulting capabilities.

And the more important for us, how to bring them all together and create, in some way, the continuum of offering linking this to engineering. That's why, like in the past, we stated multiple times that we're not even looking on specific line of service and consulting to separate from our traditional engineering. But actually, the real strong got away with this. And from this point of view, I think during the last two years, we saw a very positive impact.

And I think 2020, to our surprise, being such a strange and difficult, difficult year, actually triggered multiple wins where we entered new clients through very different point for us from the past and in return started much more significant programs for ourselves with a big potential. And also, we had a couple of wins against top consulting firms in the world, which making us kind of much more comfortable thinking about the direction which we selected. So there are very good signs that it's moving forward well right now.

Ashwin Shirvaikar -- Citi -- Analyst

Got it. Thank you, guys.

Operator

Thank you. I would now like to turn the call back over -- Our next question comes from Arvind Ramnani with Piper Sandler. You may proceed with your question.

Arvind Ramnani -- Piper Sandler -- Analyst

Great. Congrats on another terrific quarter. The demand environment seems quite robust across your portfolio. Are you seeing pricing strength as the overall demand environment improves?

Jason Peterson -- Chief Financial Officer

Yeah. I think there are opportunities with some of the newer engagements. And particularly, you're right, when there's strong demand and supply is a little bit more challenged, that produces opportunities. But I think with some of the long-standing relationships, it's a little bit more mixed, right? It kind of depends on where they are in terms of their own demand, and a lot of people still have some uncertainty.

And so we still see pricing opportunity. But maybe a little bit cautious on the ability to tick up rates as frequently as we have in the past. And that's important kind of what informs the guidance with the midpoint of that range being 17% adjusted IFO.

Arvind Ramnani -- Piper Sandler -- Analyst

Great. Great. And I had a question operationally. How are you thinking about staffing in a post-pandemic environment? Clearly, last year, there were probably kind of fewer vacations and high levels of productivity.

But when you look at the next 12 to 18 months, there could be like elevated levels of vacation and time off and things of that sort. Are you kind of anticipating planning sort of your staffing levels to account for some of this?

Arkadiy Dobkin -- Chief Executive Officer and President

Yes. Thank you. It's actually a very, very interesting question, which triggered a lot of internal debates. Like on our management calls, we discussed it, the executive team going for vacation for six months or nine months after this.

So -- but in general, we definitely put in the model a lot of source, and we're projecting accelerated vacations, assuming that COVID really will give up more than we're seeing right now. But yeah, it's one of the moving parts right now. But our current model anticipated some increased vacations after vaccination will be done.

Jason Peterson -- Chief Financial Officer

Correct.

Ashwin Shirvaikar -- Citi -- Analyst

Great. Terrific. Thank you and good luck for 2021.

Jason Peterson -- Chief Financial Officer

OK, thank you. Appreciate it.

Operator

Thank you. I would now like to turn the call back over to Arkadiy Dobkin for any closing remarks.

Arkadiy Dobkin -- Chief Executive Officer and President

Yes. Thank you. Thank you everybody for attending. Again, we all know how tough was 2020.

And we really hope that 2021 will be different year while we all understand that it will be a mix of different things. We are looking positively to overall situation. And hopefully, our next quarter will be different from the second-quarter update last year when we completely changed the whole -- have to change the whole picture. So hopefully, it will be different this year.

Thank you very much, and talk to you next time.

Operator

[Operator signoff]

Duration: 67 minutes

Call participants:

David Straube -- Head of Investor Relations

Arkadiy Dobkin -- Chief Executive Officer and President

Jason Peterson -- Chief Financial Officer

Ramsey El-Assal -- Barclays -- Analyst

David Grossman -- Stifel Financial Corp -- Analyst

Surinder Thind -- Jefferies -- Analyst

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

Maggie Nolan -- William Blair -- Analyst

Bryan Bergin -- Cowen and Company -- Analyst

Ashwin Shirvaikar -- Citi -- Analyst

Arvind Ramnani -- Piper Sandler -- Analyst

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