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EPAM Systems (NYSE:EPAM)
Q1 2021 Earnings Call
May 06, 2021, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Thank you for standing by and welcome to the EPAM Systems first quarter of 2021 earnings conference call. [Operator instructions] Please be advised that today's call is being recorded. [Operator instructions] I would now like to hand the call over to David Straube, head of investor relations. Please go ahead.

David Straube -- Head of Investor Relations

Thank you, operator. Good morning, everyone. By now, you should have received your copy of the earnings release for the company's first-quarter 2021 results. If not, a copy is available on EPAM.com in the Investors section.

With me today are Arkadiy Dobkin, CEO and president; and Jason Peterson, chief financial officer. I would like to remind those listening that some of the comments made on today's call may contain forward-looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP measures have been reconciled to the comparable GAAP measures and are available in our quarterly earnings material located in the Investors section on our website.

With that said, I'll now turn the call over to Ark.

Ark Dobkin -- Chief Executive Officer and President

Thank you, David. Good morning, everyone, and thank you for joining us today. I will begin my summary of the quarter. I want to acknowledge that the past months has been a stark reminder that we are still with a deadly and very major global pandemic and that we must continue to be united in our efforts against COVID.

As we have done over the last year, we will do everything possible to support our people on the ground and the communities in which they live and work. Now, turning to our results, for the first quarter, we delivered APM of $781 million in revenues, reflecting growth of 20% year over year with a reported 18% in constant currencies. Non-GAAP earnings per share of $1.81, a 27% increase over the same quarter in 2020. Both revenue growth, combined with a greater level of profitability enabled us to continue to invest in -- at higher levels across the business.

Since we last talked mid-February, we have seen a meaningful increase in demand across our business. The notable consolidation activity in the second half of the quarter. Within fall, core services is very robust as clients doubled down on digital transformation and innovation journeys. Recently, we turned to embark ourselves to not only build new platforms, also to conceive new digital products and services, as well as to modernize and transform the creative technology strategy and delivery models.

Digitization trends are driving increasing interests in business strategy, new types of engagement platforms, cloud migration, and modernization efforts, data engineering, and data analytics, engagements, and then to our machine learning, and AI applications. On industry perspective, we are experiencing this dynamic, most notably in life science and healthcare, financial services, insurance, CPG, retail, and to the communications. Today, the focus is on building a stronger vertical expertise to leverage even more effectively our marketing capabilities and current renewed data and cloud. As a result, we still have much more work to do to continue building our integrated consulting propositions on the EPAM Continuum brand.

With our increasing depth in vertical domains, we're already realizing the promise of delivering increasingly differentiated all things to our global enterprise customers. One example, EPAM and Equifax is creating a platform developing more than cloud-based applications, products, and services and bringing their data workings to a new generation of consumers. It is a critical part of a multimedia cloud and data-driven reformulation for Equifax where they are working together to build a Google Cloud platform with data fabric to enable Equifax to organize its just great legacy data sources into a single seamless structure while keeping all critical development and separation measures in place. Also worth mentioning that while the variety in Equifax legacy system to the cloud nature would normally take years, EPAM successfully assisted in transforming Equifax mainstream applications in less than one year.

This is only one example which is repeating across most of markets and verticals themselves from financial services to the bulging interest in retail intel platforms. We believe it's in this course, the amount of technology led to change the discussion of linguistics into higher levels of activity. All these dynamics have led to that and hopefully soon in post-COVID environment. The number of business demands and processes which must be digitized is going to be rapidly increasing.

Those market drivers, along with opportunities in cloud modernization, composable architecture, data, ML and AI, and cybersecurity will give us sizable room for continuous and sustainable growth. To meet this growing demand, we also continue to focus on scaling up our talent. 2020 challenged us to create a reliable and secure remote operations. 2021 has presented an opportunity to leverage those investments in infrastructure, modern target processes, and tooling project load to explore ways in which we can activate broader talent markets and deploy a more diverse set of capabilities.

The result is that our project and net headcount growth is accelerating. For Q1, we welcomed approximately 2,300 net hires to EPAM, which included an increase of senior-level hires coming to us with a strong, consistent experience. And overall, since the beginning of Q4 2020, more than 5,400 net additions have joined the company representing the highest level of performers we have added in two consecutive quarters. So, while this shortage of technical and deep-industry talent is a known industry issue, we are confident that our investment in that area are awaiting brand recognition and expanding employee's great journey.

We will continue to draw top-down and too far. Also, part of EPAM's growth strategy is the expansion of our capabilities with very focused acquisition efforts, simply because three acquisitions bring into EPAM talent and experience in the areas of salesforce, business intelligence, and security. Therefore, we announced the acquisition of PolSource, a salesforce consultancy with a talent concentration in the U.S., U.K., and Poland. We'll extend to our salesforce series of supply chains as global footprint and provide consolidation for building additional expertise, IP, and scale at our salesforce ecosystem.

This acquisition builds on our earlier acquisition of Mulesoft Partner Ricston. It builds our salesforce API capabilities and to enable customers to leverage a multi-cloud approach. Already working closely with PolSource team to bring together a very different proposition, enterprise clients by joining our expanded consulting and global engineering coherence, and to become one of the top global players in the salesforce services space. On Tuesday, we announced the acquisition of White-Hat, a niche cybersecurity consultancy based in Israel.

White-Hat's expertise, methodologies, and team with talented professionals will intensify cyber defense capabilities and help clients to further improve cyber protection within their platforms. And lastly, we recently closed an acquisition [Inaudible], an analytics consultancy firm with offices in Europe and Asia, serving customers who are growth retail consumer in their area. This acquisition will bring a team of trusted advisors and experts to provide the full spectrum of data and analytics consultancy, including strategy advisory data management, market-leading accelerators, customize an end-to-end delivery across multiple vendor platforms and solutions. We are pleased to acquire these three companies due in part.

In conclusion, we're encouraged about the road ahead. During the last twelve months, we proved our leadership position in the digital segment of a very competitive global IT services market. EPAM today is much more adaptable, diverse, and global company with increasingly strong market listings, and all the necessary components of a scalable talent ecosystem which are required for growth as we think about to finally becoming a $5 billion to $10 billion company. With that, let me hand the call over to Jason to provide more specifics in our Q1 results, update to our 2021 business outlook.

Jason Peterson -- Chief Financial Officer

Thank you, Ark, and good morning, everyone. We're pleased with our performance this quarter. As Ark mentioned, we delivered strong growth across a broad range of industry verticals and geographies. First-quarter APM generated revenues of $780.8 million, a year-over-year increase of 19.9% on a reported basis and 17.8% in constant currency, reflecting a positive foreign change impact of 210 basis points.

Revenues came in higher than previously guided due to stronger demand in the second half of the quarter, combined with our ability to accelerate hiring in response to the improving demand environment. Our industry vertical performance produced strong sequential growth across the majority of the portfolio and by higher-level revenues from both new works at existing clients and new customer relationships established over the last 12 months. Looking at the year-over-year performance across our industry verticals, life science and healthcare grew 31.6%. Growth in the quarter was driven by platform development to support new business models and data and analytics to drive deeper customer insights.

Financial services grew 28.3%, growth coming from traditional banking, insurance, and to a lesser degree, wealth management. Growth was driven by our clients' need to transform beyond digital banking to modernize core processes and applications, leveraging the cloud. Software and high-tech grew 20.7% in the quarter. Travel and consumer grew 16.3%, driven by strong growth from our consumer clients, along with a solid and improving performance with retail.

Business information and media delivered 6.5% growth in the quarter. Growth in the quarter reflected a tougher comparison with the same quarter last year. Several clients having experienced substantial growth in the first half of 2020 with revenues from those programs generally plateauing late last year. And finally, our emerging verticals delivered 23.6% growth, driven by clients in telecommunications, automotive, and materials.

From a geographic perspective, North America, our largest region representing 60.2% of our Q1 revenues grew 20.6% year over year or 19.9% in constant currency. Europe, representing 33.2% of our Q1 revenues grew 16.3% year over year or 10.9% in constant currency. CIS, representing 3.9% of our Q1 revenues grew 21.2% year over year and 28.2% in constant currency. Finally, APAC grew 53.9% year over year or 48.4% in constant currency, and now represents 2.7% of our revenues.

Growth in the quarter was driven primarily by clients in financial services. Additionally, the shutdown of economic activity in the region in March 2020 produced a beneficial year-over-year comparison. In Q1, revenue growth across the portfolio was more diverse than in previous quarters. Our top 20 clients growing 12.1%, while clients outside our top 20 grew 25.9%.

Additionally, we saw good growth in both existing and new clients. Moving on to income statement, our GAAP gross margin for the quarter was 33.5%, compared to 34.9% in Q1 of last year. Non-GAAP gross margin for the quarter was 34.9%, compared to 35.5% for the same quarter last year. The lower gross margin in the quarter was primarily the result of Q1 2021 having one less available day of capacity -- Q1 2020.

Additionally, we're beginning to see some degree of elevated labor costs in certain geographies. GAAP SG&A was 17.5% of revenue and compared to 19.2% in Q1 of last year. Non-GAAP SG&A came in at 15.5% of revenue, compared to 17.6% in the same period last year. SG&A continue -- continues to reflect a lower level of corporate spend, which we believe will tick up as we progress throughout the year.

GAAP income from operations was $107.3 million or 13.7% of revenue in the quarter, compared to $87.5 million, 13.4% of revenue in Q1 of last year. Non-GAAP income from operations was $136.9 million or 17.5% of revenue in the quarter, compared to $105.3 million, 16.2% of revenue in Q1 of last year. Our GAAP effective tax rate for the quarter came in at 5.1%, 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 22.7%.

Diluted earnings per share on a GAAP basis was $1.86. Non-GAAP diluted EPS was $1.81, reflecting a 26.6% increase over the same quarter in 2020. In Q1, there were approximately 58.8 million diluted shares outstanding. Turning to the cash flow and balance sheet.

Cash flow from operations for Q1 was $12.8 million, compared to $63.3 million in the same quarter of 2020. Free cash flow was 1.6 million compared to 34.2 million in the same quarter last year. Lower level of cash flow in the quarter was a result of timing of payments related to our annual variable compensation programs returning to more historic norms. Additionally, income tax payments were higher compared to the same quarter in 2020.

We ended the quarter with 1.37 billion in cash and cash equivalents. Q1 DSO was 67 days and compares to 64 days in Q4 2020. 76 days in the same quarter last year. We believe we can continue managing DSO levels in the upper 60s.

Moving on to a few operational metrics. We ended the quarter with more than 38,800 engineers, designers, and consultants, a year-over-year increase of 17.3% and a sequential increase of 5.7%. Total headcount for Q1 was 43,450 employees. Utilization was 81.4%, compared to 79.5% in Q1 of last year and 77.9% in Q4 2020.

Now let's turn to guidance. We continue to see strong demand across a broad range of our offerings. The elevated demand across the portfolio, combined with improvements in staffing capacity, we are raising our revenue and EPS outlook for 2021. I mentioned during our last earnings call, throughout 2021, we will be investing at elevated levels across the business to support growing demand, and we will continue our expansion into new geographies, underpinning our long-term growth objectives and goal of becoming a large -- both a larger and increasingly global EPAM.

Starting with our full-year outlook. Revenue growth will now be at least 29% on a reported basis, and in constant currency terms, will now be at least 28% after factoring in an approximate 1% favorable foreign exchange impact. We now expect approximately 200 basis points of revenue contribution to come from acquisitions we closed in the last 12 months. We expect GAAP income from operations to continue to be in the range of 13.5% to 14.5%, and non-GAAP income from operations to continue to be in the range of 16.5% to 17.5%.

As mentioned earlier, 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 continue to be approximately 12%, and our non-GAAP effective tax rate, which excludes excess tax benefits related to stock-based compensation, to continue to be approximately 23%. Earnings per share, we expect GAAP diluted EPS will now be in the range of $7.09 to $7.31 for the full year. Non-GAAP diluted EPS will now be in the range of $7.54 to $7.76 for the full year.

We expect weighted average share count of 59 million fully diluted shares outstanding. In Q2 of 2021, we expect revenues to be in the range of 853 million to 861 million, producing a year-over-year growth rate of approximately 35.5% at the midpoint of the range. We expect a favorable impact of FX on revenue growth to be approximately 3%. Lastly, we now expect approximately 250 basis points of revenue contribution to come from acquisitions we closed in the last 12 months.

In the second quarter, 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%.  We expect our GAAP effective tax rate to be approximately 11% and our non-GAAP effective tax rate, which excludes excess tax benefits related to stock-based compensation, to be approximately 23%. Earnings per share, we expect GAAP diluted EPS to be in the range of $1.76 to $1.83 for the quarter. Non-GAAP diluted EPS to be in the range of $1.88 to $1.95 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-based compensation expense is expected to be approximately 21.8 million in Q2, 21.5 million in Q3, and 21.2 million in Q4. Monetization on intangibles is expected to be approximately $3.1 million for each of the remaining quarters. Impact of foreign exchange is expected to be approximately a $1.5 million loss for each of the remaining quarters.

Tax-effective non-GAAP adjustments is expected to be around $5.7 million in Q2 and approximately $5.5 million in each remaining quarter. And finally, we expect excess tax benefits to be around 14.2 million in Q2, 2.2 million in Q3 to 8.6 million in Q4. In summary, we are pleased with the high-quality results we delivered in the quarter, which combined with the broad-based strength we see across the business, provide support for strong 2021 performance. Operator, let's open the call for questions.

Questions & Answers:


Operator

[Operator instructions] Your first question comes from Bryan Bergin with Cowen. Your line is open.

Bryan Bergin -- Cowen Inc. -- Analyst

Hi, good morning. Thank you. I wanted to ask on the outlook first. Can you talk about where the strongest recoveries in demand have been that enabled the upside guidance raise here? And are you seeing improved pricing discussions with existing clients? Or is this upside predominantly being driven by volume more?

Jason Peterson -- Chief Financial Officer

Yeah. So the upside would predominantly be generated by volume. And so what we are seeing is that there's a whole wave of modernization programs kicking off within the financial services industry. So a significant amount of growth expected, as you saw in Q1, but also probably further acceleration of growth in financial services in Q2 due to the modernization programs with large banks and then also with a much-accelerated growth in insurance.

We're seeing recovery in the travel and consumer section of our portfolio, quite strong growth with, you know, consumer-oriented programs, both in retail and with consumer goods companies. We're even beginning to see some sequential growth in the travel space. We're seeing strong growth in healthcare and life sciences. We're seeing, you know, a continued sort of solid growth in our traditional sort of high-tech software and high-technology clients.

And we're seeing, you know, a reemergent kind of emerging verticals with very strong growth in telecommunications, automotive, and materials, as we talked about. And again, where we expect between Q1 and Q2, we expect to see, you know, even stronger growth in financial services, even stronger growth than Q1 in the travel and hospitality vertical, and, again, even stronger growth in the emerging verticals. And so again, it is pretty broad-based. It's existing relationships.

It's new relationships. So we're seeing some good new customer revenues. And then from a pricing environment, I think we're having more constructive conversations with clients. And I think both existing and new clients understand that with the wage inflation that's out there in the marketplace, that it is going to, you know, likely require somewhat higher pricing to support the addition of new teams.

But for the most part, this is volume-based. 

Bryan Bergin -- Cowen Inc. -- Analyst

OK. And then on margin, you talked about building cadence, particularly during, I think, the second half of the year, which would suggest you're pretty well set up within the outlook. But did you have any investments that had shifted within the year? Or any changes in your expectation on the scale of talent investments? Can you dig in a little bit on that elevated labor cost comment you had? 

Jason Peterson -- Chief Financial Officer

Yeah. So, we're expanding, you know, our capacity in terms of adding staff. And probably -- you know, that would probably more show up in the SG&A portion. I think that as we look at gross margin, if I were to, you know, be very clear, I think we're expecting now that gross margin might be slightly lower, not lower than Q1, but lower than our original expectations for 2021 based on this updated guidance.

But SG&A will also be somewhat lower. And so we're able to maintain the profitability in the 16.5% to 17.5% range that we've talked about with a real focus on the midpoint, 17%. But we are seeing, you know, somewhat elevated levels of compensation being required both to retain and bring staff, you know, into EPAM. And that's something that we're mindful of, you know, both as we produce the guidance and as obviously, we try to drive the company throughout the remainder of the year. 

Bryan Bergin -- Cowen Inc. -- Analyst

Thank you.

Operator

Our next question comes from Maggie Nolan with William Blair. Your line is open.

Maggie Nolan -- William Blair & Company -- Analyst

Thank you. To build up on some of those talent questions, any changes to the geographic focus that you talked about last quarter with Poland, India, and Mexico, just given some of the talent challenges? And then as you broaden your capabilities and become a more global company, what do you think is the right distribution of that talent in terms of onshore, nearshore, and offshore locations?

Ark Dobkin -- Chief Executive Officer and President

I don't think there are significant changes in the direction from the locations like we talked about India, we talked about Mexico, and we continue to -- to grow with them. Actually, India, probably the fastest-growing for us components in talent composition right now. So from this point of view, again, we each year becoming more distributed and more [Inaudible] balanced, and concentration is going down in Eastern Europe, so -- which is normal with the growth of the company and globalization of our clients as well. So, in terms of what's the best offshore, onshore, we're still increasing -- increase in our onshore component.

Especially with the complexity of the engagement, we're doing a necessity to have strong industry connectivity and consulting connectivity. So that's growing, but it's not drastically changing as well. So, we're very careful at managing the balance right now. So what is ideal? I don't think anybody knows.

So it's very dynamically changing, even if you think about what's happened in 2020, continue in 2021. I don't think anybody talking about ideal right now. 

Maggie Nolan -- William Blair & Company -- Analyst

OK. And then, Jason, I understand the current gross margin dynamics that you just outlined and the expectations. But when you think about more kind of medium term and becoming a more global company, does that allow you to start to drive gross margins back up over time? Or what should we expect over kind of a more medium-term time frame?

Jason Peterson -- Chief Financial Officer

Yeah. So let me try to be -- so on the, I guess, the 34.9% adjusted gross margin that we booked here in Q1, you know, the lower-level gross margin was, in part, the result of there being one less available day at capacity in the quarter. And so that's -- it's just the way that Monday through Friday falls in the calendar for Q1. It was one less day than what we would have traditionally seen in previous Q1s.

However, I do think we are seeing, you know, somewhat elevated levels of wage inflation. And, you know, those could continue to elevate throughout the fiscal year. So I think that in the -- let's call it, in the -- throughout the remainder of the year, you know, I think we might run below the approximate sort of 36% that we've kind of talked about over time from a gross margin standpoint. It is -- I think it's sort of generally stabilized at a slightly lower level than that 36%.

But -- so I don't expect it to continue to decline. And I think the question mark is kind of what happens in 2022. Right now, again, I am feeling that we've kind of -- you know, gross margin is going to stabilize. And then we'll kind of see what happens throughout the remainder of the year in terms of, you know, the pricing environment.

And I think we'll be able to provide a little bit better guidance probably later in this fiscal year.

Maggie Nolan -- William Blair & Company -- Analyst

OK. Thanks, guys.

Jason Peterson -- Chief Financial Officer

Sure.

Operator

Our next question comes from James Faucette with Morgan Stanley. Your line is open. 

James Faucette -- Morgan Stanley -- Analyst

Thank you very much. I wanted to ask on hiring. The 2,000 net headcount addition looks really strong, especially considering the competitive environment for talent. Can you provide a bit of an update on hiring and the traction you're seeing on anywhere? And I guess just generally, your hiring strategy for fiscal year '21.

And what do you think is achievable or sustainable given just the strong competition and demand for high-skill talent right now? 

Ark Dobkin -- Chief Executive Officer and President

I think we're comfortable with current level of guidance. So I think thinking about a couple of thousand net new per quarter should be achievable for this year. Maybe a little bit higher, we will see. But based on our understanding of the market, which is extremely challenging.

I don't want to downplay it like message which you're probably hearing from any other company. So we should be definitely included. It's extremely challenging talent market. But with the geographical distribution we have today and which we were building during the last five, six years very, very purposely, so I simply would be able to continue with the pace which we have in Q1. 

James Faucette -- Morgan Stanley -- Analyst

Got it. Got it. And then you announced the White-Hat acquisition yesterday. Just what's your appetite for further acquisitions this year? And what kinds of capabilities do you think are important to be looking for and looking to add?

Ark Dobkin -- Chief Executive Officer and President

Really nothing changing in our direction in M&A. So it just happened this quart -- this quarter, it was three of them. And to be in constant -- in constant social and constant discussions. Also, need to understand that two of these is pretty small boutique type of consultancies.

We just add in right capabilities to the base which we have. So -- we did mention our traditional kind of approach for acquisitions. We were looking for mostly capabilities and some geographical diversification as well. And I think, again, that's what we're going to do in the future too.

James Faucette -- Morgan Stanley -- Analyst

That's great. Hey, thanks a lot guys, and all I can say is keep it going. All right.

Ark Dobkin -- Chief Executive Officer and President

Hey, thank you.

Operator

Our next question comes from Jason Kupferberg with Bank of America. Your line is open.

Unknown speaker

Hey, guys, this is Kathy on for Jason. Just wanted to ask about utilization. You know, what's your comfort level that this around 81%? You know, kind of I know you guys were slowing a little bit in sequential headcount growth but still very strong. You know, I just wanted to know kind of how are you balancing that and what's the real sweet spot on utilization?

Jason Peterson -- Chief Financial Officer

Yeah. When we're running at 81%, you know, that would still generally be hot. You know, so we're -- we continue to explore kind of what the right level is. I think we believe that, you know, somewhere in the high 70s continues to be a better place for us because it does allow us to be more prepared for new customer engagements and for unexpected expansion at existing customers.

And so I would say that as we think about the remainder of the year, we're, you know, we're thinking more in that -- in the high 70s. We also think that there's some possibility that there could be some elevated vacation taking in the second half. If you think about all of the unused vacation that's out there from 2020, our revenue guidance would also incorporate some amount of lower utilization due to, you know, further vacation taking in the summer and fall months.

Unknown speaker

OK. Perfect. And just a follow-up question. I wanted to ask, you know, has there been any change in deal sizes that you guys have seen or, you know, an update kind of on the pace of converting backlog to revenue? It sounds like you guys are -- haven't had any problems, but, you know, just want to get an update there. 

Jason Peterson -- Chief Financial Officer

I mean, there's been a series recently of I would say quite large modernization programs that are likely to be multiyear in length that have kind of kicked off. And, you know, as we discussed it, that we continue to engage with our customers in let's say a somewhat different way than maybe we would have five years ago, where with that broader sort of consulting solutioning, and then, of course, sort of delivery capability. And I think you're seeing more of those types of engagements as well.

Unknown speaker

OK. Perfect. Thank you.

Jason Peterson -- Chief Financial Officer

Thank you. 

Operator

Our next question comes from Moshe Katri with Wedbush. Your line is open. Moshe, you may be muted.

David Straube -- Head of Investor Relations

Operator, why don't we go to the next question?

Operator

Our next question comes from Ashwin Shivaikar with Citi. Your line is open now. 

Ashwin Shivaikar -- Citi -- Analyst

Thanks, Ark and Jason.

Jason Peterson -- Chief Financial Officer

Hey, Ashwin. 

Ashwin Shivaikar -- Citi -- Analyst

Hi. So I think my first question, you guys mentioned both elevated labor costs, and I'm wondering, is it in any particular geo? And the flip side of it, you mentioned pricing, and I wanted to point out if that's either more naturally capabilities-based or are clients willing to pay up for the, you know, the shortage of talent?

Ark Dobkin -- Chief Executive Officer and President

So I think to the wage inflation. And this is -- probably, it would be fair to say that is across all markets, including in-markets as well. So as you can see from the sector right now, there are significant increase in demand. It says it so.

So in regards to pricing, I think Jason mentioned that, at this point, majority of the revenue growth is coming specifically from the volume of work we're doing. But the record utilization we started to care for that. I think they're becoming right now a much more realistic from both clients -- from client side as well. And we do expect some pricing improvement.

And specifically, in the big programs led by consulting efforts too. So -- but it's a little bit too early to talk about it right now.

Ashwin Shivaikar -- Citi -- Analyst

Got it. Got it. OK. And then, you know, I know that there's always churn in sort of the top 20 client list, top 10 client list, that thing.

But clients outside top 20 growing faster, is that -- do you think that's a general sustainable trend whereby just as, you know, newer relationship just kick off and ramp much faster than expected? Is that what you're seeing?

Jason Peterson -- Chief Financial Officer

Yeah, I think when we look at the pipeline that we expect, it's a trend that would certainly continue in Q2 where, again, we have, you know, more rapid growth in our other than top 20 than in our top 20. And so the -- and then we'll see what happens throughout the remainder of the year. But, you know, I think last year was a little bit unique, right, where we had, you know, it did -- probably a series of customers in our top 10 who are very large corporations who were probably less impacted by the pandemic in terms of their business. And those companies continue to grow quite rapidly.

I think this year, what you're beginning to see is some of the new relationships we established in 2020. And then also relationships that we've had for long periods of time, but where the clients are looking to do, you know, very important, kind of modernization programs. They're looking to EPAM, and that's driving growth as well and that's in the other than top 20 customers.

Ashwin Shivaikar -- Citi -- Analyst

Got it. OK. Thank you.

Operator

[Operator instructions] Our next question comes from Jamie Friedman with SIG. Your line is open.

Jamie Friedman -- Susquehanna International Group -- Analyst

Hi, good morning. Great results here. I want to ask you, Ark, about two things you had in your prepared remarks. So the first one was about the theme of data digitization, I think was the language that you were using.

I'm just wondering, do you consider that like modernization? Last quarter, you started talking about systems integration. How would you characterize -- character -- like categorize where data digitization is classified?

Ark Dobkin -- Chief Executive Officer and President

I don't think it was a data digitization term. I think it was -- some quarter to your follow-up call today wasn't best. And I was talking about general and much more kind of traditional term, digitization in general. And clearly, data and cloud, and AI, ML, all lend significant roles there.

So what -- I didn't try to invent another term. 

Jamie Friedman -- Susquehanna International Group -- Analyst

And then I did notice though that you -- so you said $5 billion to $10 billion as the target for the company. I realize you haven't given a time frame. But my recollection is that's a little bit different -- bigger than what you had said previously, which was just to double. So any context that you could share on the 10 especially because that's a lot more than five would be helpful.

Ark Dobkin -- Chief Executive Officer and President

Yeah, that's a little good -- that's a little good discussion clearly to you. I know as if you're watching us for a very long time. I mean, practically before nine years ago and you remember us back then. And you saw what was happening after IPO when we were changing everything from offering to our delivery kind of landscape to make sure that we were looking for the number of years ahead.

And we practically were doubling company each three years. If not pandemic, we probably would be down within -- at the end of this year against three years ago. And who knows. But if you put even slower pace, then it is pretty practical thinking on our side right now how to become a company of five or -- 5 billion or higher.

So -- and that's how we're thinking about building as a company, and not just for the next quarter.

Jamie Friedman -- Susquehanna International Group -- Analyst

Got it. Thank you. I'll drop back in the queue.

Operator

Our next question comes from Randy El-Assal with Barclays. Your line is open.

Damian Wille -- Barclays Investment Bank -- Analyst

Hey, guys. It's Damian on for Ramsey. Thanks for taking my questions. I wanted to ask again on margins here.

But maybe I'll do it in the context of employee travel. I think, you know, obviously, as the world starts to normalize, the expectation is that there's a little bit more employee travel. So to the extent that that is included in your margin assumptions, about to get that. And maybe on that same subject, Ark, we'd love to just get your high-level thoughts on sort of this virtual delivery, you know.

In the thick of the pandemic, I remember your view as sort of, you know, it's going to continue to stick around for the long term. But are you all seeing any change to what your clients are looking for in terms with -- of how you engage with them?

Ark Dobkin -- Chief Executive Officer and President

I think it's still too early to judge what's going to happen. There are definitely a desire from all of us to get in work in some type of more traditional conversations, seeing each other versus the screen. Some clients are actually talking about it. But at the same time, it's still very difficult to predict what would happen.

And also, like our understanding what's happening and changing on the fly, like even a couple of months ago, I personally would be much more optimistic about vaccination process. And right now, it's not clear if it would be based on what exists 50% even in the U.S. So -- and as soon as you look into the global map, who knows how this would work for 2021 for all of us. So at the same time, if you're talking about like working environment in much more distributed way, I think that's what we were focusing way before pandemic hit.

And I think that's what happened. And I think productivity not really impacted. And at the same time, it's pushed a lot of these believers in this highly distributed way of working and had to accept it, which making all of this to work even better. So I think that would stay.

I think our human partners, everybody understand and talking about, will take all -- maybe [Inaudible] Again, too early right now to judge.

Jason Peterson -- Chief Financial Officer

Yeah. And quickly, on the margin front, I think we had modeled that the second half of the year would move toward some degree of normalcy. But as Ark just said, you know, it's unclear that we end up there, you know, in the second half. But the idea was that there would be some, you know, increase in costs.

We still think that there's some temporary benefits that we're seeing in the P&L. But I believe that we are seeing greater efficiency in SG&A and we're -- you know, some of that's going to stick in future years. So that's kind of how I think about the business right now. As you know, as I said before, running very much in the midpoint of that 16.5% to 17.5% range, which is, you know, at pretty much the top end of the range that we used to use at 16% to 17%.

Ark Dobkin -- Chief Executive Officer and President

And so we definitely accounted that -- for the situation that if everything suddenly improved, then travel might pick up. So we're thinking about it and it was in our numbers right now. But again, not clear if was going to happen or not.

Damian Wille -- Barclays Investment Bank -- Analyst

That's very helpful. Thank you all for the color there. Maybe I'll just do a quick follow-up here on involuntary attrition. Just if you could speak a little bit about what you're seeing in your employee base and how that sort of change since it's way to the beginning of the pandemic, but just an update on involuntary attrition would be great.

Thanks, guys.

Jason Peterson -- Chief Financial Officer

So I'm going to assume the voluntary or rather than involuntary? Or do we still have these all just kind of talk?

Damian Wille -- Barclays Investment Bank -- Analyst

Yeah, right, involuntary. Thanks. 

Jason Peterson -- Chief Financial Officer

So with attrition -- yeah, attrition in Q1, you know, for the entire quarter is still relatively low below 15%. It's actually somewhat lower than it was in Q1 of 2020. However, we are beginning to see some degree of elevation and attrition at the end of the quarter in March and here again in April. And so again, we are below 15% and again, I think, we're well within our expectations for the quarter as a whole but beginning to see some increase in attrition both at the end of Q1 and the beginning of Q2.

Damian Wille -- Barclays Investment Bank -- Analyst

Thanks, guys.

Operator

Our next question comes from Vladimir Bespalov with VTB Capital. Your line is open.

Vladimir Bespalov -- VTB Capital -- Analyst

Hello. Congratulations on the number and thank you for taking my question. My first question will be about your latest acquisition. You are clearly moving to the cybersecurity area, which probably has not been that much of a focus before.

Could you please provide more color? Are you looking at this area as a new big opportunity or this is still going to be kind of complementary to your offering to the clients? And my second question will be on price discounts. Last year, during the pandemic you provided price discounts to clients, but this should be expiring now. What -- will this help you to generate more revenues and to help with pricing? Thank you.

Ark Dobkin -- Chief Executive Officer and President

So on the first question about cybersecurity, it was all an important part for us when we built applications and platforms because, at the end of the day, that's one of the main points to make sure that it's secure enough as we all understand. And we organically developed practice and capabilities but similarly, with others, there are capabilities that are important for kind of overall platform engineering, so we needed additional skills. And as I mentioned, it's a relatively small consultancy but is a very high experience and we just got to be part of our global engineering practice, which important to us to make sure that everything's good. So I think it's -- very, very simple answer here.

There's nothing special to it.

Jason Peterson -- Chief Financial Officer

Yeah. On the pricing front, you're right. The COVID concessions are pretty much gone at this point. That would have already sort of showed up in the Q1 numbers and in the guide for Q2.

So I don't think that there's too much uplift to be expected from that. And as we've talked about, you know, we're increasingly having not always easy but let's call them constructive conversations with clients about pricing.

Vladimir Bespalov -- VTB Capital -- Analyst

Thank you very much. 

Jason Peterson -- Chief Financial Officer

Yeah. Thank you.

Operator

Our next question comes from David Grossman with Stifel. Your line is open.

David Grossman -- Stifel Financial Corp. -- Analyst

Thank you. Good morning. I want to first if you could just perhaps give us a little more insight into your commentary about modernization in the financial services industry and that being a driver of modern growth. Could you just give us a little more detail on what exactly you're referring to and if there's a specific catalyst that may be driving these larger programs?

Ark Dobkin -- Chief Executive Officer and President

Again, I don't think we have time here for proving discussion but it's still pretty generic and pretty much in line with everybody else talking about is our -- even our example, which we were showing this morning about programs in building infrastructure and applications to the cloud with very often additional functionality and upgrading this and maybe with a very different target environment. That's huge, huge efforts across multiple capabilities usually touching on legacy, data, analytics, and everything. So I don't know what specific we can add here but when this is online, we went in from one point of view and going to, again, cloud and new architecture from another point of view and probably could describe the full scale of this.

David Grossman -- Stifel Financial Corp. -- Analyst

OK. Thanks. We can take that offline. And then, the second question I had it was -- I know there's already been a lot of questions about pricing, wage inflation, margins.

etc. But I'm just curious why is this playing out differently than historically where the market is a little more dynamic in terms of responding to that imbalance? It sounds like you're being a little more guarded about, you know, kind of that ability to get pricing at least near term. So is there something different in the market, is it that the market may be pricing in some of the more secular opex, you know, savings from a work from home kind of environment or it might just misinterpreting this and this is just the typical dynamic that you see?

Jason Peterson -- Chief Financial Officer

Yeah. So I think one of the questions you're asking is whether or not with work from home that's impacting pricing and that clients are somehow asking for either no rate increase or savings from that. Is what you're asking, David? Or --

David Grossman -- Stifel Financial Corp. -- Analyst

Well, that was just kind of a guess on my part that what could be going on. But the bigger question is just why the market isn't responding as quickly to the supply demand balance that you're talking about in terms of service and the churn --

Jason Peterson -- Chief Financial Officer

I think, you know, David, I think it just takes time, right? As you would know with both, you know, in the engagements that you negotiate pricing and SOWs and everything that are in place. You know, it takes some time and then, of course, clients have got budgets and clients are still trying to work their way through what happened last year. So those conversations are definitely accelerating but probably a little bit of disconnect just based on the economic disruption of last year. And I think this conversation will continue to potentially accelerate as soon as we work through the remainder of the year.

I don't know, Ark, do you have thoughts here?

Ark Dobkin -- Chief Executive Officer and President

No, I agree. I think it is timing because it's to create change from we don't know what would be happening to run and I think there is going to be put to this, but we'll see. And maybe partially you guess also carried out as well because some may think there are ideas that are probably cheaper result infrastructure. But it's not necessarily true because the investment on support and distributed.

And again, at the time, because it's all very kind of really connected and might require even more investment.

David Grossman -- Stifel Financial Corp. -- Analyst

Right. And just one last question just that I think this came up in another question as well about growth outside the top 20. But you know, my recollection is that over the last 12 months, particularly during the pandemic, that you had to prioritize in your capacity utilization to those larger customers, longer-term customers. Is some of that growth -- because this is more of a normalized kind of dynamic for you with that growth outside the top 20.

Is that just an indication that we're back toward a normalized operating environment or is it something different than that?

Ark Dobkin -- Chief Executive Officer and President

I don't know if you are trying to drive some conclusions from this dynamic. I think there are some big clients who are inside of the top 20, which is growing very aggressively. There are some clients who just slow down practically flat out. And there are several clients who become just 12, 18 months ago who now become a part of the top 20.

I don't know if it's a function of the market or is it more of a function of EPAM changing dynamic as well. So I think probably it's more on the second one where results often can now accelerate some clients' development and trust.

David Grossman -- Stifel Financial Corp. -- Analyst

Got it. OK, guys, thanks very much.

Operator

Our next question comes from Jack Nichols with KeyBanc Capital Markets. Your line is open.

Jack Nichols -- KeyBanc Capital Markets -- Analyst

Hey, good morning. This is Jack on for Steve Enders. What trends are you seeing with the count consolidation within your accounts and what's been your ability to capture an incremental share of wallet?

Ark Dobkin -- Chief Executive Officer and President

I would answer very, very short. So I think we're pretty creative in our ability to consolidate in some accounts right now. I think we reduce the budget inside of the accounts. 

Jason Peterson -- Chief Financial Officer

I think you'd certainly see that performance in financial services that would give you some indication that we have had some success there.

Jack Nichols -- KeyBanc Capital Markets -- Analyst

OK. Perfect thanks. And you've talked about investing more in your consulting business. How are those investments resonating and how much have you been able to capture consulting services within your customers?

Ark Dobkin -- Chief Executive Officer and President

Yeah. As we mentioned like many, many times, we're not trying to just capture consulting services as our business, we're trying to get into the conversations with the clients much earlier in the game to make sure that we can actually drive the next step that tells the consulting kind of activities to do more practical implementations of the platforms. And I think, again, we are pretty happy with the progress, which we do in like quarter after quarter. And we're getting new use cases and we're getting higher in the kind of value chain and create in these examples.

But again, it's not about just chase the consulting market as a pure consultant creative.

Jack Nichols -- KeyBanc Capital Markets -- Analyst

OK, great. Thank you.

Ark Dobkin -- Chief Executive Officer and President

Thank you.

Operator

Our next question comes from Arvind Ramnani with Piper Sandler. Your line is open. 

Arvind Ramnani -- Piper Sandler -- Analyst

I'd like to add, congrats on a great quarter. I have a question on some of the sort of emerging technologies that you are working on. In a couple of years back, you were working on and kind of blockchain technologies, are you starting to see kind of interest in those -- in the areas of blockchain, and is that becoming a meaningful portion of your kind of capabilities? And similar to blockchain, is it the stuff around like AI that you are working with clients?

Ark Dobkin -- Chief Executive Officer and President

It's difficult to say that blockchain becomes a significant driver but it's definitely part of normal engagement like any other advanced technologies as well. And we definitely see and also some pickups well in AI engagement while it's still a relatively small portion of what's happening. We think it might accelerate in the future but because, again, a lot of preparation in the last several years is to create a data infrastructure capable to support this type of new application. And I think I would finish with this.

Arvind Ramnani -- Piper Sandler -- Analyst

Great. And just like -- but I guess within your digital, which is kind of a very broad word. Are there particular areas within digital that you're seeing really fast growth? I mean, like I said, digital is extremely broad, it could mean many different things. But are there specific technologies that you're seeing really high growth or really high levels of client interest?

Ark Dobkin -- Chief Executive Officer and President

I think I would prefer and even from my kind, I wouldn't talk about very broad terms. And clearly, again, everybody knows that all this cloud modernization is a driver. And around this, a lot of different things are important, but I wouldn't call anything specifically right now.

Arvind Ramnani -- Piper Sandler -- Analyst

Terrific. Thank you.

Operator

There are no further questions. I like to turn the call back over to Ark for any closing remarks.

Ark Dobkin -- Chief Executive Officer and President

Thank you, everybody, for your time today to participate. And as you know, if you have any questions, David is available to help. So talk to you in three months. Thank you very much.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

David Straube -- Head of Investor Relations

Ark Dobkin -- Chief Executive Officer and President

Jason Peterson -- Chief Financial Officer

Bryan Bergin -- Cowen Inc. -- Analyst

Maggie Nolan -- William Blair & Company -- Analyst

James Faucette -- Morgan Stanley -- Analyst

Unknown speaker

Ashwin Shivaikar -- Citi -- Analyst

Jamie Friedman -- Susquehanna International Group -- Analyst

Damian Wille -- Barclays Investment Bank -- Analyst

Vladimir Bespalov -- VTB Capital -- Analyst

David Grossman -- Stifel Financial Corp. -- Analyst

Jack Nichols -- KeyBanc Capital Markets -- Analyst

Arvind Ramnani -- Piper Sandler -- Analyst

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