EPAM Systems, Inc. Q1 FY2025 earnings call

• CEO Transition: Arkadiy Dobkin announced his transition to Executive Chairman, with Balazs Fejes set to become CEO and President on September 1, 2025. - Q1 Results: Q1 results were better than expected with 11.7% YOY revenue growth, and organic growth above initial expectations. Client sentiment and engagement remained strong, particularly in AI-related capabilities. - AI Initiatives: AI native revenues grew double-digit quarter-over-quarter. EPAM is engaged in various AI initiatives with top clients, and collaborations like with AWS and Google Cloud are driving progress. - Global Delivery Hubs: The global delivery hubs are expanding, with growth in regions like India, Europe, Western Central Asia, and Latin America (with NEORIS).

In the first quarter, EPAM generated revenue of $1.3 billion, a year-over-year increase of 11.7% on a reported basis. On an organic constant currency basis, revenue grew 1.4%. From a vertical perspective, four out of six industry verticals delivered strong to very strong revenue growth. Financial services delivered very strong growth of 29.3% year-over-year, Software and Hi-Tech grew 9.6%, Life sciences and healthcare increased 10.5%, while Generic goods, retail and travel decreased 1.4%. Emerging verticals delivered very strong growth of 22.8%. Geographically, America, the largest region at 60% of Q1 revenues, grew 12.6% YOY; EMEA (38% of revenues) increased 10.7% YOY; and APAC (2% of revenues) increased 4.3% YOY. Revenues from the top 20 clients grew 6.1% YOY, while those from clients outside the Top 20 increased 14.6%.

• Full-year 2025 revenue growth is expected to be in the range of 11.5% to 14.5% with an inorganic contribution of approximately 9%. Organic constant currency revenue growth is projected to be in the range of 2% to 5%. - Q2 2025 revenue is expected to be in the range of $1.325 to $1.340 billion, producing year-over-year growth of 16.2% at the midpoint. GAAP income from operations is expected to be in the range of 9% to 10%, and non-GAAP income from operations in the range of 14% to 15%. EPS guidance adjusted for GAAP and non-GAAP measures.

• Macroscopic uncertainty in the economic environment. - Challenges in clients' and markets' situations leading to isolated instances of increased caution and shifts in decision-making due to microeconomic uncertainty, which could potentially impact the business.

Q: Bryan Bergin asked about the '25 growth guide and second half confidence, with color on bookings dynamics and AI related work.

A: Arkadiy Dobkin mentioned the second half view is practically in line with previous quarters, and AI related revenues between Q1 and Q2 are expected to have strong double-digit growth. Jason Peterson noted improvement in demand from February and March and continued improvement in client sentiment.

Q: Ramsey El-Assal inquired about free cash flow trend and pricing environment.

A: Jason Peterson said free cash flow has seasonality, DSO is likely to stay a bit elevated, and pricing environment is too early to call for immediate deployment.

Q: Maggie Nolan asked about gross margin improvement plans and partnership revenue.

A: Jason Peterson mentioned focus on improving utilization and partnerships are a helpful growth driver.

Q: David Grossman asked about customer cohorts growth dynamics and India vs mature geographies.

A: Arkadiy Dobkin said there's a visible trend of some clients returning, and India is growing fast with a strong top pyramid but has a larger number of junior people compared to mature geographies like Ukraine.

Q: Jonathan Lee asked about GCC related work growth and AI reinvestment.

A: Arkadiy Dobkin said GCC work is in line with industry contracts, and AI investment is producing benefit with some margin impact. Jason Peterson noted GCCs value EPAM's differentiated engineering capabilities.

Q: Jason Kupferberg asked about vendor consolidation and financial services vertical.

A: Arkadiy Dobkin said vendor consolidation is broad with work coming back to various locations, and financial services vertical had strong growth due to acquisitions and organic business improvement.

Q: Jamie Friedman asked about fixed price and gross margin.

A: Jason Peterson said fixed price has evolution in pricing models, and gross margin was impacted by salary increases and acquisitions.

Q: Puneet Jain asked about billing days.

A: Jason Peterson said Q3 has more bill days, and there's seasonality with Q2 to Q3 expected to show growth due to seasonality.

Q: Darrin Peller asked about headcount strategy and AI deal size.

A: Arkadiy Dobkin said headcount is carefully managed with focus on specific skills, and AI deal sizes are increasing with more production-type situations.

Q: Jim Schneider asked about client conversations and second half backlog coverage.

A: Arkadiy Dobkin said clients returning have various types of engagements, and second half visibility is relatively difficult but in line with previous statements.