EPAM Systems, Inc. Q4 FY2024 earnings call

• Q4 Results: Grew mid-single-digits YOY and sequentially, returning to organic revenue growth since Q1 2023. Improved client sentiments and engagements, especially around AI-related capabilities.
• Acquisitions: NEORIS and First Derivative expanded global footprint by ~6,000 people, with significant impact on emerging verticals and geographic regions.
• GenAI Progress: 75% of top country clients engaged on GenAI initiatives, early-stage projects growing, and mid-sized AI projects emerging as Agentic AI pilots.
• Global Delivery: Diversified talent pools across Europe, India, Latin America, and Western Central Asia, with sequential net additions in various regions, including Ukraine showing first sequential net additions since the Russian invasion.

Vertical Performance:

• Financial services: 15.9% year-over-year growth, with 4.3% organic and 11.6% inorganic growth.
• Life sciences and healthcare: 8.6% year-over-year growth, 5.7% organic and 2.9% inorganic growth.
• Software and high-tech: 7.7% year-over-year growth, 6.4% organic and 1.3% inorganic growth.
• Emerging verticals: 24.8% growth, 3% organic and 21.8% inorganic growth, driven by energy, manufacturing, and industrial materials.
• Consumer goods, retail and travel: -3% year-over-year, -5.7% organic and 2.7% inorganic growth.
• Business information and media: -3.9% year-over-year, -4.7% organic and 0.8% inorganic growth.

Geographic Performance:

• Americas: 11.4% year-over-year growth, 2.7% organic and 8.7% inorganic growth, representing 60% of Q4 revenues.
• EMEA: 3.1% year-over-year growth, -1.4% organic and 4.5% inorganic growth, with sequential organic revenue improvement.
• APAC: 4.3% year-over-year growth, representing 2% of revenues.

• Full-Year 2025: Revenue growth range 10%-14% (inorganic ~10%), organic flat YOY then improving. GAAP income from operations range 9%-10%, non-GAAP 14.5%-15.5%. EPS GAAP range $6.78-$7.08, non-GAAP $10.45-$10.75.
• Q1 2025: Revenue range $1.275B-$1.290B, ~10% YOY growth. GAAP income from operations range 6.5%-7.5%, non-GAAP 12.5%-13.5%.
• Assumptions: Stock-based comp, intangibles amortization, FX impact, tax effects, and other items outlined to support GAAP to non-GAAP measurements.

• Macro Risks: Broad macro risks, geopolitical uncertainty, and challenges in client and talent markets.
• Pricing and Margin: Cost sensitivity among clients impacting pricing, margin pressure from compensation increases, acquisition margins, and pricing challenges.

Q: Maggie Nolan with William Blair asked about expectations embedded in revenue guidance and macro perspective.

A: Jason Peterson mentioned careful expectations for NEORIS and FD, with substantial program starts and client demand picking up despite a slower January.

Q: Jamie Friedman with Susquehanna asked about pricing and GenAI IP investment.

A: Jason Peterson discussed margin compression due to price sensitivity and client demand, while Arkadiy Dobkin emphasized investment in GenAI as crucial for future transformation.

Q: Bryan Bergin with TD Cowen asked about client spending behavior and new vs existing clients.

A: Arkadiy Dobkin and Jason Peterson discussed new client additions, sequential growth in certain verticals, and strong revenues in November and December.

Q: David Grossman with Stifel asked about capacity, margin, and geographic mix.

A: Jason Peterson and Arkadiy Dobkin discussed ability to grow revenue across geographies, margin improvement expectations, and impact of geographic mix on margins.

Q: Jason Kupferberg with Bank of America asked about revenue assumptions and margin.

A: Arkadiy Dobkin and Jason Peterson discussed discretionary spending improvement impact on revenue guide and wage inflation impact on margins.

Q: Darrin Peller with Wolfe Research asked about hiring plans and fixed contract percent.

A: Jason Peterson discussed headcount additions, geographic hiring, and fixed fee business mix.

Q: Jonathan Lee with Guggenheim Partners asked about vertical outlook and pricing catalyst.

A: Arkadiy Dobkin and Jason Peterson discussed vertical acceleration expectations and factors catalyzing better pricing environment.