"The Best International Funds – JPMorgan, Waddell & Reed and Fidelity Investments are Among EPAM`s Shareholders"

"The Best International Funds – JPMorgan, Waddell & Reed and Fidelity Investments are Among EPAM`s Shareholders"
5 August 2015
5 August 2015
Arkadiy Dobkin, co-founder and CEO of the first HTP resident-company EPAM Systems, talked to a Kommersant reporter.


EPAM launched its IPO on the New York Stock Exchange over three years ago. You said earlier that this is the time needed to see the results of going public.

— Now, we can say that it was a positive experience. The company continued to grow significantly for these years, although it was not an easy time. The year 2014 was particularly difficult – just remember what was happening in the world. However, EPAM overfulfilled its forecasts for the past 13 quarters and proved to the market that it can be trusted. EPAM`s capitalization has grown five-fold for that time, and hence investors’ confidence increased. Revenues have increased almost two times; moreover, there was a serious transformation in terms of the level of problems EPAM is solving, the complexity and the scale of projects.

— Indeed, the market cap has increased more than fivefold over that period. But don`t you think that the company was undervalued in the offering?

— When we were going to hold the IPO, we thought a fair price to be $16-18 per share. The trading started at $12 and rose to $13-14. Of course, it was below our expectations. On the other hand, it is necessary to take into account several objective factors. One of them is that in early 2012, the market had not yet recovered from the 2008-2010 recession. If you compare the number of companies conducted an IPO in February 2012, and, for example, in February 2015, you will see that they differ by several times. The second factor is that we were the first company in our segment to launch the IPO, with a significant number of employees being located in Eastern Europe. EPAM has headquartered in the United States since the first day; there was always a Russian "accent" however. The majority of our staff has always been located in Belarus, Ukraine and Russia. That was very unusual for IPO, and the market always responds badly to something new. We actually turned out to be the pioneers, with the market being not very stable, and the company faced all related issues. However, even if EPAM had been estimated $16-17 per share in the offering, our market cap would have nevertheless increased 4-5 times. Yes, we can say that we were not fully valued in the IPO but then we proved to the market that the company can be trusted and show consistent results every quarter. Everything happening today proves that we are surely among the best software development companies.

— Did investors respond to the negative political and economic situation in Eastern Europe where the company has many R&D centers?

— They had a serious concern, and like the quotes of Luxoft, our quotes fell dramatically when the conflict between Russia and Ukraine began. But as we continued to show good results, as expected, investors' confidence gradually returned.

— About 4,000 EPAM employees are working in Belarus. Is it because of the company`s history, or do you want to contribute to the country`s economy?

— EPAM started operating in the United States and Belarus almost simultaneously, and only later we opened development centers in Hungary, Russia, Ukraine and other countries. The majority of EPAM professionals are working there, and our long history is connected with Belarus. At the same time, we are also seriously developing – even today in Ukraine where we have about 3,000 employees. We also have plans to build new development centers in Latin America.

— Did the Ukrainian R&D center stop operating because of the fighting?

— No, it never stopped. We even continued to recruit, though the plans were definitely corrected. At the end of the year, the number of employees in our Ukraine office increased by 10 percent.

— How the offshore programming market is changing? Do you still have to compete with Indian and Asian developers by price?

— I believe that the idea of the offshore market is a little bit outdated; this concept was popular 10-15 years ago. Global companies operating around the world tried to get an advantage of having local development centers in developing countries. In today`s world, a model of software development distributed between two countries is a common situation. For example, IBM and Accenture have hundreds of thousands of employees in India, China and Eastern Europe but no one calls them offshore companies. Significant cost advantages due to development centers in Kiev, Minsk or Bangalore do not exist any longer. Today, we compete not by price but by competencies necessary for a project, understanding of the industry and capability to implement complex tasks. EPAM started with a great amount of complex tasks for technology companies: our first clients were SAP and Oracle; in fact, we helped them to develop their products. Subsequently, we added competencies in other industries through internal development and acquisition of other companies.

— Many IT companies are planning to expand their business in Asia, and private investors heavily invest in companies in the region. Is it that promising?

— I consider all the markets we are operating to be promising. We have a lot of large global companies in various sectors: financial, media, retail, entertainment, tourism, health care, etc. Today, many customers are pushing us to begin operating in Australia and Malaysia as their markets are developing rapidly. Almost all our major clients may be interested in services there.

The interview by Marina Kolomychenko
Kommersant, July 30, 2015
The full interview in Russian may be found here: http://www.kommersant.ru/doc/2778028

Kuprevicha, 1/1, 220141, Minsk, Belarus.