Former VP at Epam Systems Inc
- Epam Systems’ (NYSE: EPAM) overall operating environment and key risks
- Competitive dynamics between Epam, Endava (NYSE: DAVA), Globant (NYSE: GLOB), Infosys (NYSE: INFY) and Cognizant (NASDAQ: CTSH)
- International growth, M&A strategy and post-coronavirus outlook
- Outlook for 2022 and beyond, including new product and market opportunities
What is your overview of Epam Systems’ overall operating environment? Which key trends or drivers are particularly important or relevant?
Can you elaborate on the key risks with the mounting tension between Ukraine and Russia? How might that affect Epam’s business overall?
What might be a worst-case scenario if the overall conflict continues to heat up? It seems Russia accounted for 4.5% of Epam’s Q3 2021 revenues, over 50% increase from prior earnings calls.
Who would you describe as Epam’s key competitors and how are they differentiated? What are the key differences between the engineering and software capabilities from some of the core competitors, such as Globant and Endava?
What is Epam’s overall ability to transform from a pure software engineering services firm to a much more diverse digital and product consultancy with strong engineering offerings attached? Do you think that will be the primary driver of near-to-medium-term margin expansion potential? Are you sceptical about the company’s ability to progress?
What proprietary technology or tech stack does Epam have to enable its business or services? Is that of key importance to the company’s overall growth story?
What is Epam’s ability to scale its Epam Anywhere platform and to hire and retain remote talent? Do you think this could be a differentiator in the industry’s talent war?
How does Epam’s overall ability to hire and maintain talent compare vs upper-bucket players such as Accenture and IBM, or lower-bucket players such as Endava and Globant? Does Epam have any advantages based on territory or otherwise?
Is Epam’s university programme through its business a major differentiating factor in the company’s overall quality of engineers? What do you make of this approach? Are other competitors emulating it?
How has Epam managed to maintain certain legacy customer relationships much longer than peers? I think over 58% and 26% of revenue in 2020 was from 5-year and 10-year customer cohorts respectively. When other digital IT service companies hit a certain number of employees, growth seems to slow. How has Epam dealt with similar issues? Is it concerned about legacy customer churn if it continues to scale up and add headcount?
Epam expects high client demand for software engineering consulting services through 2022 but what are your expectations for overall 2022 IT budgets? What are the considerations around insourcing vs outsourcing demand, as you mentioned?
Are contracts typically fixed vs variable or otherwise structured? Is it based on customer preferences? Do you think contracts and structures could evolve over time? Do escalators in contracts usually take wage inflation into account?
Did anything surprise you in Epam’s recent financial operational performance? Q3 2021 revenue rose 51.5% YoY, USD 988m and the company has produced at a 24-25% five-year revenue CAGR. Do you think this is sustainable in the long term?
Are there any specific near-term headwinds or tailwinds to Epam’s double-digit revenue growth, maybe outside of its ability to hire and maintain headcount? What else could drive or pull back growth?
Epam also reported Q3 2021 EBITDA margins around 20% while full-year guidance from third-party research suggests the margin to be around 19%, up from 15-18% years prior. What could be Epam’s margin expansion opportunity over the near-to-medium term, or next three years?
What is your take on Epam’s overall inorganic growth strategy? Is there anything you’d do differently?
What might represent an attractive M&A opportunity for Epam? Which specific names or companies could be complementary acquisitions at this point?
Which specific verticals could be pursued for new logo growth? There was significant growth across some of Epam’s customers on a verticalised basis, such as the financial services sector which had almost 70% growth. Are any areas of the TAM underpenetrated by peers?
What is your 3-5-year outlook for the industry and Epam? Who could be the medium-to-long-term winners and losers?
Could any specific verticals in which Epam operates experience headwinds or tailwinds, especially given a post-coronavirus shift, or as a result from evolving macroeconomic factors in demand or changes in customer preference?
What is Epam’s ability to move into new products such as application development and cloud integration? You mentioned expanding the gamut of digital transformation services, but how equipped is the company to move in and penetrate markets where it hasn’t been a major player?
What industry assumptions should we challenge? Should we reconsider any commonly held numbers or theses? Are there any discussion points that we need to reassess or probe more?
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