Q1 2025 EPAM Systems Inc Earnings Call
Good day and welcome to EPAM Systems First Quarter 2025 Earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session. And finally, I would like to advise all participants that this call is being recorded.
Thank you [inaudible]
Speaker Change: I'd now like to welcome Mike Rowshandel, Head of Investor Relations to begin the conference.
Mike Over To You
Mike Rowshandel: Good morning everyone, and thank you for joining us today on our first quarter 2025 earnings announcement.
Speaker Change: As the operator just mentioned, on Mike Rowshandel, head of investor relations
Speaker Change: We hope you've had an opportunity to review the two news releases we shared earlier today. If you have not, copies are available on epam.com in the Investor section.
Speaker Change: With me on today's call are Arkadiy Dobkin, CEO and President, and Jason Peterson, Chief Financial Officer.
Speaker Change: I would like to remind those listening that some of the comments made on today's call may contain forward-looking statements.
Speaker Change: These statements are subject to risk and uncertainties as described in the company's earnings release and FEC filings.
Speaker Change: Additionally, all references to reporter results that are non-GAAP measures have been reconciled to the comparable GAAP measures and are available in our quarterly earning materials located in the investor section of our website.
Speaker Change: With that said, I will now turn the call over to Ark.
Thank you, Mike. Good morning, everyone. [inaudible]
Thank you for joining us today.
Speaker Change: As you may have seen in our additional press release this quarter, we have one more update to share today that goes beyond our usual business performance.
Speaker Change: Alongside our strong Q1 results, despite the tough macro-environment, we also announce our planned leadership success.
Speaker Change: So, before we get in the details of our performance in Gross Momentum [inaudible]
Speaker Change: I want to take a moment to share a few thoughts on my plan transition from CEO role.
Speaker Change: After 32 years since starting the empowerment series of the Chairman, CEO and President, I decided to transition into the role of the Executive Chairman.
Speaker Change: This move has been pleasantly planned over the past several years and I believe that the right moment is now both for me personally and for the future of the company.
Speaker Change: But I'm not leaving EPAM. As a guest, Executive Chairman, I plan to continue providing strategic guidance combined in my years of experience to hold the relationships. Thank you.
Speaker Change: and board leadership, and ensuring that the CEO transition is smooth and effective, and that the PAM continues advancing our mission, culture, and world.
Speaker Change: Beyond the transition period, I will be actively engaged as an employee of the company and helping to shape a firm long-term strategic direction, maintaining key relationships with clients, partners, and investors.
Speaker Change: Providing guidance on critical strategic initiatives in programs and promoting the company
Speaker Change: I will be close to collaborating with the CEO and the leadership team to help improve the values, relationship and strategic focus that have defined EPAM for decades, continue to as a company future.
Speaker Change: With that said, I am pleased to announce today that Bala Ferris will become our new Chief Executive Chief Officer and President on September 1st, 2025.
Speaker Change: Bala's better known as a bee, joined the company over 20 years ago and has been a critical part of our growth story.
KS leadership has been instrumental to EPAM's development.
Speaker Change: serving as our first CEO , building our financial services business globally, leading our European and APAC markets, and most recently, serving as the president of global business and chief
Speaker Change: AB has uniquely positioned to provide both strategic and operational leadership during our next phase of our evolution.
Speaker Change: Time-consistent that she's rare combination of business and technical such a man will enable him to continue driving Epam Forward.
Speaker Change: David brings not only deep operation experience, but also a strong sense of energy and vision for
Speaker Change: Company with a reputation for quality execution and excellence, commitment to our customers, employees and communities
Speaker Change: In terms of timing and priorities, very much in focus on Q2 and full 2025 execution. Working hard to extend our sequential momentum by driving and winning more voter share.
Thank you.
Speaker Change: The CEO transition plan should be completed on September 4, 2025. At each point, we will provide more comprehensive update. It is on the part we need you to hear directly from with me.
Speaker Change: I look forward to working closely with him, our entire executive team and the board, to support the continuous growth and long-term success of the company, as a PAM enters the next phase of its
Now, let's go to our Q1 results.
Speaker Change: I am pleased to say today that our first quarter results aim and better than expected despite a more challenging macroeconomic environment than most would have predicted 90 days ago.
Speaker Change: This marks also a consecutive quote of our performance and we are pleased to see the sequential momentum which we hope will continue throughout the reminder of this event.
Speaker Change: In a climate where a court continues to be top of mind, our client conversations have been broadly
Speaker Change: And we encourage to see if UN benefit from supply consolidation activity in our corporate folder.
Speaker Change: It continues to be our view that the pivot to reliability and quality is slowly progressing.
Speaker Change: EPAM's proven track record and reputation for high quality execution put us in a sweet spot and is driving increased levels of new deal activity which is enabling us to maintain and grow our organic footprint with existing clients.
Speaker Change: Outside the volatility of the broader geopolitical economic environment, most of the gross themes we have been discussing over the past few quarters, especially air-related, have continued through Q1 and we expect we'll carry throughout the reminder of this yet.
During Co-Anne, we return to double digit Prevenue Gross, year over year.
Speaker Change: And while our inorganic contribution was driving a large portion of that, Leonardo B. Delivering, Yale, via organic growth as well, in some significantly above our initial Q1 expectations, was being fled at the midpoint of our guidance.
Speaker Change: This marks our second quarter in the role of delivering positive year over year, Daniel Gross, since 2022, and the industry's continuous improvement in the core business.
Speaker Change: Overall, in PLA, client sentiment and engagement remain strong to cross most of our vertical
This particular high interest in our rapidly expanding AI related capabilities.
Speaker Change: Our performance this quarter was driven by meaningful progress, and stranded inclined engagement, enhancing cross-selling efforts, and continuing to deliver advanced complex solutions.
Our global footprint supported by robust platforms tools.
Speaker Change: Andy Precified, Talent House, is enabling us to effectively meet the evolving needs of our clients in rapidly changing business environment.
Now, turn into demand.
Speaker Change: Despite the notable changes over the past 90 days, we remain cautiously optimistic, given our 31 results and the key two momentum they have built. The February and March project ramp up dynamics that this signal last quarter played.
Better than expected. [inaudible]
Is the client sentiment continuing to improve?
Speaker Change: Father, we are encouraged by the incremental demand we continue to see for our AI capabilities that focus on productivity and efficiency gains turns into more comprehensive AI-native transformation programs and encompass multiple types of AI-centered solutions.
Speaker Change: In short, our baseline climate in the H1 is improving faster than anticipated.
Speaker Change: While the remain mindful of external pressures caused by challenges in our clients and markets, as well as isolated instances of increased caution and shifting decision-making due to market economic uncertainty, we have not seen any material impact on our business to date.
Speaker Change: Oral, the Felgut-Base, Trililins, Ophater, Phomance, Ophase, SIE.
Speaker Change: It's also important to emphasize that we are doing everything we can to stay closely aligned with our clients. Taking practice.
Discipline steps to effectively manage our operations. [inaudible]
Speaker Change: Ensuring we are well prepared to respond to any potential impacts that we had into the second half.
of 2025.
Speaker Change: In addition, reflecting our recent plan conversations, one thing become clear.
Speaker Change: During the past few years of great volatility, some clients who have had a tight cost above all else in selecting partners are now returning to EPAM. They experience this underperforming programs.
Speaker Change: Catherine Ford, the critical value of deep expertise, consistent deliverability and the trusted ability to execute its scale.
Speaker Change: That is why even as we expect 2025 to remain a year of transition .
Speaker Change: is a potential for increased uncertainty in the second half. We believe clients will continue to focus on the most strategic priorities. We should translate into stronger growth for us compared to 2024.
Speaker Change: An altitude ability in growing reputation as a leading partner in AI and AI in native transformation already driving greater market awareness and demand. At rent, we expect to continue throughout the reminder of this year.
The End
Speaker Change: Now, moving on to our four global delivery hubs, which now are working together in some new ways and and is rapidly growing access to our advanced AI enabled productivity platforms.
Speaker Change: In Q1, we saw another quarter of sequential increase in net-organic account across India, Europe , and Western Central Asia.
Speaker Change: Central Eastern Europe continues to be a cornerstone geography for us and served as a backbone for many long-term clients with growing global location strategies.
Speaker Change: We saw modest growth in Hungary, Poland, Croatia and Serbia, and stability across the rest of the region.
Speaker Change: Ukraine is well-remain stable in terms of scale and corporate abilities as our nearly 9,000 people remain highly productive and continue to support both new and current clients across the diverse range of problems.
Speaker Change: In India, we continue to see strong women for differentiated product engineering offerings, alongside our core capabilities in platforms, cloud data and ads.
Speaker Change: The momentum we built last quarter carried out into Q1 with additional nethead crown growth.
Speaker Change: We are also deep in our relationships with Global Capability Center, so GCCS, they are pushing our role as a trusted transformation partner.
Speaker Change: Investor in Central Asia, we continue to invest and expand our delivery presence with the modest net additions across several locations.
Speaker Change: As we shared in the past, these locations allow us to have even great availability when it comes to serving our clients by balancing code quality and execution, and in some cases proximity to client locations.
Speaker Change: Finally, in Latin America, we continue to progress with our significantly expanding client and talent footprint with the addition of new worries.
So, 15 to AI.
It's highlighted in our recently published air report. Thank you very much.
Speaker Change: Skating and adoption across the enterprise continues to be changed
Speaker Change: In fact, only 30% of even the most advanced companies surveyed reported success in implementing
Speaker Change: Given that AI scale remains a relatively new concept today, we believe the broader transformation required, including modernizing platforms, data, organizational structures, skills and business processes. [inaudible]
All that represented significant opportunity for EPAM
Speaker Change: Our unique combination of deep engineering and consulting expertise, backed by our advanced youth of IP tools and accelerators, position as well to lead in the space.
Speaker Change: Well, the Air landscape is evolving rapidly. One thing is undeniable. I continue to drive new demand for us.
Speaker Change: Even in the context of traditional modernization programs, they are placed a central role in the majority of violent discussions.
Speaker Change: We are currently engaged in the wide range of air initiatives with the vast majority of our top
Speaker Change: I will stage your engagements amateur invisibly, this is a strong year-over-year growth. With more of them evolving into mid-sized projects, we will clearly define outcomes and measurable error wise.
Speaker Change: As we expand into larger scale area factories, these programs are becoming increasingly comprehensive. Now, incorporating a JTKI in governments frameworks while also scaling in volume and complexity.
Speaker Change: In 2001, our A-Nated Prevenants, Drew Stronk, double digit quota, over quota.
Continues the strong momentum from the previous quarter.
Speaker Change: As we continue to mature our eye consulting and engineering classrooms, we are also strengthening our overall value proposition by partner with strategic players in cloud data.
Speaker Change: and platforms to deliver innovative commercially attractive software assets focused on the industry's specific transformation productivity gains.
Speaker Change: One illustrative example of our progress is an oil and gas manufacturing vertical where we develop breakthrough innovation in AI-powered geospatial data visualization and insights.
Speaker Change: Built and partnership is Google Cloud in the three solutions. This work led to upon being named Google 2025 partner of the year for oil and gas.
Speaker Change: The solution which integrates with Google Gemini models can also apply to broader data challenges across manufacturing and supply chain use cases.
Speaker Change: Demonstrating our deep domain expertise, our ability to handle flashing complex data sets in our proven track where to deliver an A&A cloud-based applications at scale
Speaker Change: Another strong example is our own going effort to advance global engineering productivity through AI. Our focus extends beyond individual code generation to full life cycle transformation in team environments.
Speaker Change: In Q3 of Latia, we introduced EPAM Air-On. Our end native is DLC Framework and Toolkit.
Speaker Change: And we are now well-positioned to build on this foundation through a strategic collaboration agreement with AWS.
Speaker Change: By leverage in advanced generative AI services, including Amazon WebDrog, fill in power plans to develop Specialized AI agent in a native solution that addresses as you'll see productivity challenges for large teams.
Speaker Change: This collaboration creates a robot platform for accelerating cloud and data modernization through a driven world plan in Tuliana, Tommage.
Speaker Change: Finally, to restrict our continuous innovation with the PAM Dial Platform, we continue to integrate advanced AI technologies into custom-tellered business strategies, which is driving significant impact across the industry and open source communities.
Speaker Change: Dell had the world through several investments and iterations since we started building it.
Speaker Change: Today, they are the complete Geneaer platform is orchestration, including Agentsik, Marketplace, Mind Maps, and Dial Expressive Logic, and so much more.
Dell is evolving.
Intercomplete Air Platform with surprises. [inaudible]
To conclude.
Speaker Change: We are pleased with our stronger than expected Q1 results. The improvement in the organic growth and the sequential momentum we continue to build.
Speaker Change: Our increasingly diversified and agile global delivery hubs combined with advanced air-native capabilities and deepening strategic partnerships are having real impact.
Speaker Change: A decisive last quarter to expect a Tony Tony fight to be in transformative fear.
Speaker Change: And that outlook is proving true. We have even more easily than we anticipated three months ago.
Speaker Change: We are encouraged by the opportunity to have and remain cautiously optimistic about the second half of 2025 even as Margaret uncertainty persists.
Our focus and discipline execution reminds our top priority.
Speaker Change: Let me now turn call over to Jason, who will provide additional details on our Q1 results in 2025 outlook.
Jason: Thank you, Ark. Good morning, everyone. In the first quarter, EPAM generated Revenue of $1.3 billion, a year-over-year increase of 11.7% on a reported basis.
Jason: On an organic constant currency basis, revenue grew 1.4% compared to the first quarter of 2024, exceeding our expectations of flat organic growth anticipated at the midpoint of our Q1 guidance.
Jason: We are pleased to deliver another quarter of the year of the year organic growth in constant currency, reflecting on going to man-free-pimp services and strong execution across our global portfolio of clients.
Ark: As Ark mentioned, we believe the outperformances impart driven by client recognition of EPAM's superior delivery quality and momentum across our AI offerings.
Ark: Moom to our Q1 vertical performance, 4 out of 6 industry verticals delivered strong to very strong revenue growth.
Ark: Revenues from our FD and YOURS acquisitions had the most impact on our financial services in emerging verticals, so I will break out the organic and the inner organic contribution within these two verticals.
Ark: Financial Services delivered very strong growth of 29.3% year of a year, reflecting 4.5% organic growth and constant currency.
Driven by continued strength and insurance, banking, and payments
Ark: Software and High Tech grew 9.6% year-over-year, driven by strong execution and broad improvement across our existing portfolio as well as new logo activity.
Ark: Dimmer Goods Retail and Travel decreased 1.4% year-over-year, largely due to the clients' consumer products and retail, partially upset by growth and travel.
Business Information and Media, Declined 2.2% year-over-year
Ark: Our emerging verticals delivered very strong growth of 22.8%, growth was positively impacted by Neorath's industrial materials customers, emerging verticals organic revenue in constant currency contracted by 3.5%, [inaudible]
Ark: It was negatively impacted by softness across manufacturing and telecom clients
Ark: From a geographic perspective, America's our largest region representing 60% of her Q1 revenues grew 12.6% year-of-year .
Ark: Amaya, representing 38% of RQ1 revenues increased 10.7% year-over-year, and finally APAC, representing 2% of her revenues increased 4.3% year-over-year.
Ark: Each of our geographies delivered year-to-year organic constant currency revenue growth in the quarter.
Ark: Lastly, in Q1, revenues from our top 20 clients grew 6.1% year-to-year, while revenues from clients outside our top 20 increased 14.6% [inaudible]
Ark: Moving down the income statement, our gap growth margin for the quarter was 26.9%.
Converged to 28.4% in Cuban of last year. [inaudible]
Ark: non-GAAP Grossmargin for the quarter was 28.7%, compared to 30.4% for the same quarter last year.
Ark: Relative to Q1 2024, Bruce Martin in Q1 2025 was negatively impacted by 2024 compensation increases, which were only partially offset through pricing.
Additionally, lower profitability from recent acquisitions negatively impacted Chris Martin.
Ark: The negative impacts from compensation and lower profitability from acquisitions exceeded the benefits of improved utilization in the positive impact from the Porsche R&D incentive.
Ark: The company will be focused on improving gross margin throughout the remainder of the year.
Ark: Gap S GNA was 16.8% of revenue compared to 17% in Q1 of last year.
Ark: non-GAAP S GNA in Q1 2025, came in at 14.2% of revenue compared to 14.1% in the same period last year.
Ark: Gap Inc. from operations with 99 million or 7.6% of revenue in the quarter, compared to 111 million or 9.5% of revenues in Q1 of last year.
Ark: non-GAAP income from operations was 176 million per 13.5% of revenue in the quarter compared to 174 million per 14.9% of revenue in Q1 of last year.
Ark: Our gap effective tax rate for the quarter came in at 22.2%, and our non-GAAP effective tax rate was 23.1%.
Ark: Deleted earnings per share on a gap basis was $1.28. Our non-GAAP delivered DPS was $2.41 compared to $2.46 in Q1 of last year.
reflecting a five-cent decrease year-over-year [inaudible]
In Q1, there were approximately 57.3 million delivered shares outstanding. [inaudible]
Ark: Turned into our cash flow and balance sheet, cash flow from operations for Q1 was 24 million, compared to 130 million in the same quarter of 2024 [inaudible]
Ark: Higher Bonus Payments in Q1 2025 and a higher DSO resulting from the impact of an increasing share of fixed fee revenues with associated milestone billing, full of contributed to the year of a year decline in operating cash flows.
Ark: Free cash flow was 15 million compared to free cash flow of 123 million in the same quarter last year.
Ark: Cash and Cash Equivalence, World 1.2 Billion, has to the end of the quarter.
Ark: At the end of Q1, DSO was 75 days and compares to 70 days for Q4 2024 and 73 days for the same quarter last year
Ark: Share we purchases in the first quarter were approximately 796,000 shares for $160 million at an average price of $201.7 per share.
Ark: Moving on to the operational metrics, we ended the Q1 with more than 55,600 consultants, designers, engineers, and architects for collecting total growth of 18.2% and organic growth of 6.4% compared to Q1 in 2024.
In the quarter we added over 500 professionals.
Ark: Partial head count for the quarter was more than 61,700 employees.
Ark: Utilization was 77.5% compared to 76.8% in Q1 of last year and 76.2% in Q4 2024.
Now let's turn to guidance.
Ark: But for moving to the specifics of our 2025 and Q2 Outlook, I'd like to provide some thoughts to help frame our guidance.
Ark: While the macroeconomic environment remains highly dynamic, we are pleased with our strong Q1 performance, with your, your organic constant currency revenue growth exceeding our expectations.
Ark: This has resulted in three consecutive quarters of sequential organic revenue growth.
Ark: With good visibility into Q2, we expect ongoing improvement in our organic revenues with both year-rear and sequential growth in the quarter.
Ark: We continue to experience improving demand for highly differentiated services. Incline budgets appear to remain substantially intact, with a few pockets of caution, which we are closely monitoring. Clients are turning deep in for trusted quality of execution, and our advanced AI offerings. [inaudible]
Ark: Today, we have not seen a material flowdown in client spending, as evidenced by our stronger than expected Q1 performance and sequential momentum we have seen thus far in Q2.
That said, we acknowledge the avoided uncertainty macroeconomic risk.
Ark: Considering our stronger than expected first half, balanced with a thoughtful assessment of client demand in our second half, we are raising the lower end of our organic, full-year revenue guidance while leaving the upper end of the range unchanged.
Ark: There are several additional factors impacting our view of revenue growth during the remainder of the year. Since we issued guidance last quarter, certain currencies has strengthened considerably relative to the US dollar.
Ark: At the same time, due to the elevated uncertainties resulting from carousel and impacts on the manufacturing and materials industries, we are seeing a reduction in demand from a top customer, acquired as part of our numerous acquisition.
Ark: With our improved organic revenue contribution, the expected benefits from warrant change.
Ark: Partially offset by a modest reduction in expected inter-organic revenues, we are raising both the upper and lower end of our reported revenue gains [inaudible]
Ark: Our guidance continues to assume that we will be able to deliver out of our Ukraine delivery centers at productivity levels, somewhat similar to those achieved in 2024 .
Moving on to the Folier Outlook.
Ark: Revenue growth will now be in the range of 11.5% to 14.5% with an inorganic contribution of approximately 9% for 2025.
Ark: Based on today's spot exchange rates, coupled with an assumption of modest strengthening in the U.S. dollar and the second half, foreign exchange is now expected to have a positive impact on revenue growth of 0.4%.
Ark: We expect your every year revenue growth on an organic constant currency basis to now be in the range of two to five percent.
Ark: We expect Gapping confirm operations to continue to be in the range of 9% to 10% and non-Gapping confirm operations to continue to be in the range of 14.5 to 15.5%.
Ark: We expect our gap effective tax rate to now be 25%, our non-GAAP effective tax rate, which excludes excess tax benefits related to stock-based compensation, will continue to be 24%.
Ark: And non-GAAP divided the EPS will now be in the range of $10.70 to $10.95 for the full year.
Ark: The increase in non-GAAP diluted EPS is in part driven by our assumption of a reduced share count resulting from our plan to increase share with purchases within the constraints of the current share with purchase authorization.
Ark: We now expect wedded average share account 56.5 million fully diluted shares of standing
Ark: Moving to our QG 2025 outlook, we expect revenue to be in the range of 1.325 to 1.340 billion, producing the over-year growth of 16.2% at the midpoint of the range.
Ark: Our guidance reflects an energetic contribution of 10.6% with a 1.8% positive toward exchange
Ark: For the second quarter, we expect gap income from operations to be in the range of 9% to 10% and non-GAAP income from operations to be in the range of 14 to 15% .
Ark: We expect our gap effective tax rate to be approximately 26% and our non-GAAP effective tax rate to be approximately 24%.
Ark: For earnings per share, we expect gap-deleted EPS to be in the range of $1.67 to $1.75 for the quarter, and non-gap-deleted EPS to be in the range of $2.56 to $2.64 for the quarter.
Ark: With increases in share with purchase assistance during the year, we expect a weighted average share account of 56.7 million dollars to share without staining.
Ark: Finally, a few key assumptions that support our gap to non-gab measurements for Q2 in the full year.
Ark: Doc-based compensation expenses expect to be approximately 40 million for Q2, 45 million for Q3 and 46 million for Q4.
Ark: Emerization of Enkandables is expected to be approximately 17 million for each of the remaining quarters.
Ark: The impact of foreign exchange is expected to be negligible for each of the remaining quarters.
Ark: Tax Effective non-GAAP Adjustments is expected to be around 13 million for Q2 and 15 million for Q3 and 14 million for Q4.
Ark: We expect access tax shortfall to be around 1 million for Q2, with minimal access tax benefits or shortfalls from the remaining quarters. We expect access tax benefits or shortfalls from the remaining quarters.
Ark: Severance, driven by our cost optimization programs, is expected to be around 2 million in Q2 and 3 million for each of the running quarters.
Ark: Finally, one more assumption outside of our gap to non-GAAP items. With the increased share with purchases, we will have a lower level of interest generating cash. Therefore, we now expect interest in other income to be 2 million in both Q2 and Q3 and 3 million in Q4.
Ark: We remain committed to continuing to drive sequential momentum and are confident in our positioning entering Q2 despite the dynamic environment. We will continue to run EPAM efficiently while remaining focused on strong execution and profitability throughout the year.
Ark: Lastly, my continued thanks to all our employees for their dedication and focus on survey our clients and driving results free PIM.
Operator, let's open the call for questions.
Speaker Change: Thank you. If you wish to ask a question, please press star one on your telephone keypad. We ask you limit your questions to one and one short follow-up so we are able to take as many questions as possible.
Speaker Change: Your first question comes from line of Bryan Bergin with TD Cowan. Please go ahead.
Brian Bergen: Hi, good morning. Thank you. Our first just congrats on all the success we can build here and congrats to FB for his promotion.
Brian Bergen: My first question is the 25 growth guide. Do you raise your organic view here on the low-end by a point? It looks to be a good one Q and two Q view. Can you give more color on that second half confidence?
Speaker Change: What are you seeing in underlying macro and how did you think about what you have contracted versus what you need to still go get?
So, we're still...
Speaker Change: Continue our kind of look forward to use in life with what we were doing for the last couple quarters.
Speaker Change: So, our youth for the year didn't change much but we definitely saw [inaudible]
The first half of the year better than we expected.
So...
Speaker Change: Our projection for the second part, practically in line is what we can communicate during the last quarter .
Speaker Change: And as soon as we will see whether it will be the decision later on we will kind of address this but right now it's what we see in
And third, basically we didn't see it.
Keri Specifics, which is a change of the few, bigger.
Speaker Change: outside of normal. And to go back to the last running call, you know, we talked about the fact that we'd seen a soft January and then we expect to see improvement in February and March. We absolutely saw that. We're still seeing improvement in demand.
in April and May. Thanks.
Speaker Change: You know, it's difficult, obviously, to forecast, they're the remainder of the year, but you know, we are looking into Q3 still feeling like the Book of Business looks quite solid.
Speaker Change: And then the guy would reflect the fact that, you know, VIX could be soft in Q4 but again we're not seeing any change
Speaker Change: And generally what we are seeing is some amount of, you know, return to EPAM for a quality of execution which we think has probably been helpful for us and maybe explains the difference in our results relative to some of our peers.
Speaker Change: Okay, make sense. And then I follow up, it's just kind of around the bookings dynamic. I think any detail you can just give us around bookings to help convey the magnitude of the positive directionality that's forming here and you're attributing better performance and optimism partly from a pick up an AI related work, just any numbers you can put around these.
Thank you.
Yep, I think it's good [inaudible]
Speaker Change: The only, you know, specific that we would have is on the AI native work that we talked about last quarter as we look from Q1 to Q2.
Speaker Change: You know, we would say that we probably have double digit, you know, let's say, you know, strong double digit sort of growth in AI related revenues between Q1 and Q2. So again, you know, nice improvement in those revenues. [inaudible]
Okay, thank you.
Speaker Change: Your next question comes from the line of Ramsey, Elisell, with Barclays. Please go ahead.
Ramsey Ellisall: Hi, thank you very much for taking my question and congratulations for me as well to both Ark and NFB.
Ramsey Ellisall: I wanted to ask about free cash flow and I know you called out some of the drivers of the low free cash flow, a result this quarter on a year of your basis. How should we expect that to trend as we move through the year, are some of these drivers more persistent or do you expect things to normalize us in? [inaudible]
Ramsey Ellisall: Yeah, I think the, you know, the seasonality with us, right? So Q1 is usually low. Q1 was a lot better last year. And again, some of it has to do with all the payments we have associated with bonuses and things that happened in Q1.
Ramsey Ellisall: I still would say that we expect 80-90% cash flow conversion, which is consistent. The only thing that I would say is maybe a little bit of a change is I do think DSO is probably going to stay a little bit elevated. I think in the past we would have talked to maybe around. [inaudible]
Ramsey Ellisall: 73, I think it's likely to stay a few days higher. And as we see more fixed fee revenues, we see some milestone billings and some of that stuff which usually means the invoice has gone a little bit later, and we are seeing a little bit of an impact on DSL related to that.
Okay.
Ramsey Ellisall: A follow-up for me is on the pricing environment and as you're seeing organic demand, you know, pick up.
Ramsey Ellisall: Are you starting to sense now that you might be able to deploy a little bit of pricing later in the year, or is that still too early to call?
I think it's too early to call. We indicated...
Ramsey Ellisall: Last time, but I think it is going to be an adhesive gap between this, it could be some lagging changes, so it's not going to happen.
Ramsey Ellisall: Two quickly, that's what we're showing. And I think I would like to put in perspective also. Yes, we've seen improvements, but this improvement still relative to him. [inaudible]
who started in Guadalajara in a great situation.
Thank you.
Thank you very much [inaudible]
I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Thank you.
Speaker Change: Your next question comes from line of Maggie Nolan with William Blair. Please go ahead.
Yeah.
Maggie Nolan: Hi, thank you. Can you talk a little bit more in specifics about plans to improve Grossmargin over the remainder of the year, particularly in light of mentioning that the guidance allows for some softening in the fourth quarter? Thank you very much.
Yes, so the un...
You know what it is?
Maggie Nolan: There's only some benefit that results in the second half just due to kind of seasonal factors and pushing past, you know, social security, sort of spending, you know, caps and some of that type of stuff. And so to be fair, usually you would have a stronger Q3 because of more buildings and some other factors and at the same time we are focused on improving utilization.
Maggie Nolan: You know, and then over time, you know, probably in 2020, it's kind of better. And so we just got kind of a renewed focus on it, and improvements as you met.
Speaker Change: Okay, thank you and can you size partnership revenue within the business or give an idea of how it's trended in the last couple of years and is this an important growth driver for the business going forward? [inaudible]
Maggie Nolan: I'd answer the last question, which would be yes. Unfortunately, I don't think I can give you a specific kind of impact, but yes, it's been obviously...
Maggie Nolan: You know, very helpful both the co-funding and the introductions to clients and it is definitely part of what is driven revenue growth early time and our, you know, commitment to the partnerships has certainly an investment in the partnerships has certainly been helpful.
Thank you.
Speaker Change: Your next question comes from the line of David Grossman with Steeple, please go ahead.
Thank you.
Good morning. Thank you.
Speaker Change: You know, I pointed to you just speak a little bit more about the growth dynamics, which will tell me the customer co-hearts. I think the growth outside the top 20. [inaudible]
Speaker Change: You know, it's obviously we accelerated and maybe in the context of that question maybe speak a little bit about. You know, it's a little bit about.
Speaker Change: When the customer losses cop out, and if it remains a headwind in the second quarter, I think you said in your prepared remarks, but certain customers are coming back to you and maybe if you could just flush out that dynamic a little bit more. [inaudible]
I think ...
That's what we...
We have been shooting for some time. And...
Speaker Change: It's not compensated and it's not like all coming back. But the trend is very visible and I think partially why we see this improvement and because this trend is repeated and kind of accumulating quote after quote.
you know, kind of accelerating versus the top 20.
Speaker Change: Yeah, you know, I think sometimes when you have M&A, and particularly larger scale M&A, like we have, you know, there are a large number of sort of small customers introduced
Speaker Change: And I think it's a little harder to do it in apples to apples comparison just because of the magnitude of the M&A introduced in Q4.
and I think some of what you're seeing.
Speaker Change: is probably M&A-driven, but we are seeing improvements in new logos and the introduction of new customers.
Speaker Change: That, you know, they are clearly kind of helping relationships. One of the things we've talked about a little bit is Grossman in the least where we see a number of new engagements. So, yeah, that's probably what I would say at this point.
Got it. And then just on the supply side.
Speaker Change: The whole dynamic around recruiting, the relationships, your ability to kind of fill the demand for resources at the price points that you want just...
Speaker Change: You know, I don't know if there's a way to really characterize that, but just-
Speaker Change: Somehow compare because you know you've been in India since you had what 2015 2016 and others a lot of work down there You know to modify that model but just curious where we are in India today versus you know your most mature recruiting you know kind of infrastructure in the Ukraine. [inaudible]
Speaker Change: I think David that would be difficult comparison because it's not like him.
Speaker Change: Because it's very difficult day and night, like if you ask me like 20 years ago, where...
Speaker Change: Our today considering much cooler locations, it would be probably that from the dynamics point of view very similar because the ratio of senior people versus junior was very different.
Speaker Change: Inder right now is growing for us and the reservoir is strong level of maturity in the top of the pyramid which is comparable with anything else, but the number of more junior people will.
accommodated to our requirements.
Speaker Change: Still digger. Versus like Manchura, like Ukraine or something which is not growing for the last couple years.
But I think this general G. P. Schienke-Kenneth. [inaudible]
Speaker Change: Decade, so I think we're working to manage all of this, but again, Inja is extremely for the partners, practically 20% of our capacity right now and we will be growing and it's growing right now for us.
Alright, alright, great, thanks for that. [inaudible]
Thank you.
Jonathan Lee: Your next question comes from the line of Jonathan Lee with Guggenheim. Please go ahead.
Jonathan Lee: Great, thanks for seeing our questions, and let me echo my congrats to TARC and FB and your respective physicians.
Speaker Change: Look, you highlighted strikes stemming from the GCC's, can you talk through how much of the growth you're expecting in this year is driven by GC related work? And how does that impact any of your contract structures duration or contract profitability?
So, I don't think we can share a specific, specific numbers here, we...
Speaker Change: Just not doing this. And the contract there, fortunately, very much still lying with.
Speaker Change: As we got through our industry, so while it could be any type of lexes, there is no guarantees of substance, we will be here tomorrow, because utilities are our VT simple consolations, tribulations.
Kind of terrible stuff there. So...
Speaker Change: and Profitability Mostly Aligned with what we see in India across Asia.
Speaker Change: on the clients. It's part of the growth, but I wouldn't say it's the big part of the growth story. And then the other thing I just say is that they continue to sort of value EPAM's differentiated engineering capabilities, so that continues to be a selling point for us for the Jesuses.
Thank you. Thank you. Thank you.
Speaker Change: Understood. And look, it's good to hear the traction that you're seeing around the native AI volumes. And how are you thinking about the level of reinvestment needed to continue to drive that AI related volume, particularly as it relates to the 90-based point headwind, you call that on margins last quarter? Yes, sir.
Yeah, you know I think that
Speaker Change: The investment that we're making, you know, probably no change in terms of what we said during the last earnings call.
Speaker Change: So we are making investment, we do think it's producing real benefit. Again, we are getting really positive feedback on client's rent.
Speaker Change: Again, our differentiation. And I think that what you see is maybe some reduction in the suspended percentage of revenue once you get barred in the 2026.
Speaker Change: But right now I would say it's generally similar to what we talked about at the beginning of the year in the last turning school [inaudible]
Thank you.
Appreciate that color. Thank you
Speaker Change: Your next question comes from the line of Jason Kupferberg with Bank of America. Please go ahead.
Thank you.
Jason Kupferberg: Good morning, guys. I appreciate it and congrats on the management transition. I wanted to ask a little bit more about the vendor consolidation point. I think that came up a couple of times. It sounds like there's certain instances where clients are coming back to EPAM. Can you just talk about some of the specific project types? [inaudible]
Jason Kupferberg: and when you have these situations where work is coming back to you, Pam, from Compilators and Curious, where the clients are having that work gets on. Thank you.
Jason Kupferberg: He wasn't coming back, it was not necessary, the work coming back, it was a location where it was delivered, it was working because during the last several years we shared it, there were a lot of changes and kind of issues.
Jason Kupferberg: Distractions of our delivery centers, so let's work kind of back to...
Mr. Europe
Good morning.
Jason Kupferberg: So, the work is back to the central region, so it's a pretty broad.
Jason Kupferberg: But some specifically, if possible, coming back exactly to locations where it was started from, but together it's pretty, pretty diverse.
Thank you. Thank you.
Okay.
Okay, I understand. Good.
Speaker Change: And the second thing I wanted to ask was just in the Q1 revenue just from a quarter of a quarter for special financial services really stood out and you're up 12% there and assuming
Speaker Change: So it was quarter, quarter, it was all organic, and I'm just wondering if there were, you know, a couple of sizable contract ramps there or any additional color on that vertical what you saw there and and sustainability of that insecure tune beyond. Thank you very much.
Speaker Change: Yeah, so in the Q4 and Q1 compare, you would have had two months of Neoris and two months of FD and Q4 and three months of Neoris and three months of FD in Q1.
Speaker Change: Both of those acquisitions have got a significant financial services component, so some of it is that.
Speaker Change: And at the same time, we are seeing improvement in the organic business, and we do expect to continue the improvement in the organic business and financial services, you know, banking, telemountain growth and insurance, and we've also seen some growth in pairs at least in Q1.
But probably banking would be maybe the biggest area. [inaudible]
Speaker Change: You're probably on to something. Well, Mr. Straube, you won't be able to hear me tonight. You're going to have to switch on the mic, please. I'm not sure I can hear you.
Thanks, Jason.
Thank you.
Speaker Change: Your next question comes from the line of Jamie Friedman with Susquehanna, please go ahead.
Jamie Freedman: Hi, good morning and let me echo my congratulations to Ark, I learned a lot from me over the years and to have the on your future endeavors. So I'll just ask my two up front.
Jamie Freedman: The 6th Price Jason that you're calling out, you know, that did grow 19.4% up from 15.1%. I'd just be interested in your perspective both on your confidence on the delivery side because when you move into 6th price, you know, the list does...
Speaker Change: Get reassigned, so that's the first one. And then on the second one, just go back to Jonathan's question earlier. The dip in the Gross margins to 26.9% Jason, is that the wage increment or is that still to come? Thank you both.
Yeah, I think so on. Let me do.
Speaker Change: Let me do the last question first, okay, on the Gross margin, when you look at the Q1 to Q1 compare
Speaker Change: You know, we would have a salary increase that would occur in Q2 of 2024 and we would probably also have some market adjustments in Q3 and Q4 and Q3.
Speaker Change: And so when you do a Q1 to Q1 compare, you don't have the salary increase in the Q1 of 2024, but it does show up.
Speaker Change: in the Q1 2025. And then what we've been talking about is just there isn't as much ability to pass on the sour increases with rate increases to clients, although we're seeing a little bit of improvement. [inaudible]
Speaker Change: In the case of, and then the other thing, as we've talked about, is that the margin reduction that comes from the two acquisitions, which has about, you know, a 50 basis point, negative impact. So I guess that's the first question.
and Mike Rowshandel.
Speaker Change: Yeah, fixed price. Yeah, fixed price. Again, a little bit complicated. Some of it is evolution of our pricing models. And it's not always, you know...
Speaker Change: We're going to do something for ten million dollars for two years. Sometimes it's just a monthly fixed fee arrangement for either a team. It may assume some productivity, but again there isn't as much kind of risk associated with that. We're going to do that.
Speaker Change: And then also with nearest FD, they've got more fixed B in their engagements, although usually shorter term.
Speaker Change: And so that's what kind of cost the shift as you looked in the Q1, but I think you'll continue to see a little bit of evolution. It may be also part of the model, you know, with the use of AI. Bye.
Speaker Change: which is to introduce some productivity but do it with a fixed monthly fee type component and be able to produce some benefits for the client but also some better margin for us.
Thank you, I'll drop back in the queue. [inaudible]
Thank you. Bye.
Speaker Change: And your next question comes from the line of Puneet Jain, please go ahead.
Puneet Jain: Say thanks for taking my question and please accept my congratulations as well. It's been great working with you, Ark.
Overlapped from the near
Speaker Change: Second half for this year. Can you remind us, like I know in the past, as we've talked about, that you expect higher billing days in the second half? Can you remind us, like, what does this side is, again? Okay, I'll...
Puneet Jain: Oh, from first cast to second half, and the vividly TV you have on second half, Ramnani.
Puneet Jain: Yeah, so, you know, we never assumed improvement in billing throughout the year. What we did say is that we did expect that as the demand environment.
Puneet Jain: Improved that there would be the ability to pass on more raise increases next year.
Puneet Jain: So right now, I would say that no real change in the environment. You still have some cost-take-out exercises going on with clients.
Puneet Jain: There's some modest opportunity for rate increases and so again it's maybe not as bad the pricing is as challenging as it was last year but still not significantly improved.
Puneet Jain: And then if I just kind of look ahead, you know, again, we do. Thank you.
Speaker Change: Quite through visibility in Q2, and all indications are that that would carry through into Q3, but of course as we know, you know, that you know things are subject to change. As Ark said in his prepared remarks, we're not seeing, you know. [inaudible]
Speaker Change: Almost any sort of changes in the demands from clients or slow down in project spending.
Speaker Change: And so that's kind of how we're thinking about key three. Clearly, we got some benefits from foreign exchange and we try to be clear on that that particularly the appreciation of the euro. It should take up anybody's revenue guide and I'm having sure, you know. [inaudible]
Speaker Change: specifically the assumptions that we used in the production of the guide.
Speaker Change: Yeah, you know, that's great, but I'm sorry, I meant to ask, like, Denning Day's number of-
Speaker Change: Like the day people can work executing holidays and locations in that water.
Yeah, so Q3 is always more build-ass [inaudible]
Speaker Change: and so it would have a natural, you should get gross and cute, cute, cute, cute, cute, just based on seasonality.
Speaker Change: Q2 has got less build days and Q3 but it's still relatively good build days.
And so, you know, you just look at seasonal patterns [inaudible]
Speaker Change: You would expect an improvement to keep you to Q3 and then arguably a decline to Q3 to Q4 The last couple of years we haven't seen that, we've seen growth between Q3 and Q4 even in challenging demand environments we've seen growth between Q4 and Q4 and Q4 and Q4 and Q4 and Q4 and Q4 and Q4 and Q4 and Q4
but right now, particularly the midpoint of the guide. [inaudible]
Speaker Change: would have the more kind of the seasonal feel to it. Again, with a little bit of improvement in revenue between Q2 and Q3 turn by personality and, you know, some softness and Q4, which could be demand related but also is just generally, you know, it can be a seasonal pattern.
Okay. Thank you.
Speaker Change: Thank you. Your next question comes from line of Darren Peller with Wolf Research. Please go ahead.
Guys, thanks, and Ark, congrats on everything.
Speaker Change: Guys, your headcount showed notable year of year growth, even after accounting for the employee data from the two recent acquisition. So maybe just a little bit more color on your overall headcount strategy for this year, where you're really sourcing talent from.
Speaker Change: Relative basis versus what's, let's just say a couple of years back and really what roles you're hiring for the Hubble for now.
So I think we in general clearly much more.
Peter Polo, even with this result and with better than we expected.
for staff of the year, everybody.
What has been careful about what would be happening? So, and, uh...
We try to...
Quentin, Butter
Speaker Change: Beta Batch from this point of view, and when we bring in people, we bring in people in locations where we expect in this type of environment more than one.
Speaker Change: Until again, you can form the situation really changing because I would like to still keep
Speaker Change: The result of each work one and the reality of each two is very difficult to predict.
Speaker Change: So, basically, India still is the fastest growing and we are bringing people from the market with...
Speaker Change: Very specific skills and juniors as well, because we believe that we can train better with
C.I. Impact Terminator is DLC process. The same. The same.
Thank you.
Okay.
with Gwee
Recruitment, but we got right now a bit very very.
See you after the holidays.
Speaker Change: That makes sense. We're all in terms of size of average engagement on AI deals now, and just maybe a little more color on how that's trended and where you see that going, just kind of curious where any kind of quantitative update to the best you can provide on AI.
I can cheerlead...
Can you repeat what you were saying?
Speaker Change: During the last quarter, and this is happening and this thread continues, the size is increasing, and
Bye.
Functionality, so
Thank you.
Speaker Change: What if I isn't behind? What type of appropriations is dynamically changing as well? That's why sometimes it's very difficult to have real and vulnerable comparison.
with what we do and can do this internally because...
Speaker Change: It's much easier to do than to direct with his external announcement than self-signal.
Confederation, the site for the deals differently. Thank you, thank you, thank you.
Thank you.
Speaker Change: We are talking about few deals like 10 million, this number is increasing.
Let's opt-creator, we have time for one more question, please.
Speaker Change: And your final question comes from Jim Schneider with Goldman Sachs. Please go ahead.
Jim Schneider: Good morning. Thanks for taking my question and our graph on low deserved transition. Two if I may. One is, you know, your commentary on client conversations and the outlook peers, you know, significantly better or at least from high perception motive to some of your peers. So you mentioned the. Yeah.
Thank you. Bye.
Speaker Change: This is some clientry turning, but can you attribute that to any other sort of different kinds of projects work for other clients as it factors that you're seeing in terms of the better client outlook. And then maybe in terms of your visibility into the second half, that any way of sort of quantifying your second half backlog covered perhaps being better worse or the same as in a typical time after few months. Thank you.
Speaker Change: So I think you would expect, I think this is exactly what's happening, that when clients come in...
Speaker Change: Back to us, it's both sometimes we get in exactly the same work which we were kind of doing before, sometimes it's a very new engagement so that
I think. We're talking about-
Second couple of the year.
I only can repeat what we said already, so… [inaudible]
With all kind of bad environments with abilities too relatively.
Difficult, what we've seen.
Speaker Change: For the second part of the year, Approximately with USA . . .
and Walter. So, thank you.
Speaker Change: Q-1 and Q-2-4. Predicting Q-3 and Q-4, better than we predicted so far, it is difficult, including the size of the deals.
So, I think we-
Can share a more next quarter.
Thank you. Thank you very much. I think...
Speaker Change: Hopefully, it was a little bit better message from us than before. So at the same time, these are all this encouragement about opportunities ahead of us.
thinking about the future with...
Horses Optimiz, Best on every single step I've been in every single [inaudible]
Speaker Change: This is a list of that switching from Mark Vagant. I would like to make sure that we are balancing.
Thank you.
Speaker Change: The good message was a difficult, very difficult environment. Thank you and still talking to you next Thank you very much.
Speaker Change: That concludes our conference call for today. Thank you for participating. You may now all disconnect.