Q2 2025 EPAM Systems Inc Earnings Call
Thank you for standing by. My name is Jeanne and I will be your conference operator today.
At this time, I would like to welcome everyone to the EPAM Systems, Inc. Q2 2025 earnings 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.
If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad,
If you would like to draw your question, press star 1 again we do ask you limit your your questions to 1 and 1 follow-up. Thank you I would now like to turn the call over to Mike roshandel head of investor relations. Please go ahead.
Good morning, everyone and thank you for joining us today. On our second quarter 2025 earnings announcement.
As the operator just mentioned, I'm Michael shandal head of investor relations. We hope you've had an opportunity to review our earnings release. We issued earlier today. If you have not copies are available on epam.com in the investor section with me on today's call or aati doin CEO and president Bosch Bosch president of global business and chief Revenue officer and Jason Peterson Chief Financial Officer.
I would like to remind those listening that some of the comments made on today's call may contain forward-looking statements. The statements are subject to risk and uncertainty as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP measures have been reconciled to the comparable GAAP measures and are available in our quarterly earnings materials located in the Investor section of our website. With that said, I will now turn the call over to Arkadiy Dobkin. Thank you, Mark. Good morning, everyone. It's a pleasure to be with you on this call, and thank you for joining us today.
I'm pleased to share that our second quarter efforts, delivered results. You heard of expectations
Mike and another consecutive quarter of our performance and further shaping, what we believe will be our durable and truly differentiation Market proposition.
Combining Western-class AI native services with our core engineering and practical consulting. Strengths.
before we dive in, let me outline today's call, I will begin with our Q2 results and our performance and then work through the foundational themes driving our improved growth rates.
I will then hand it over to the, could you share some highlights as a chief Revenue officer on how we position, ourself for continuing sustainable growth.
Finally, Json will cover our detail, Financial results, and Outlook after that, the 3 of us will be available for our questions during the Q&A session.
Now, turn on to our Q2 results.
Because you heard it in our last update, we have been focused on sustaining sequential growth momentum even against the countries. Microeconomic backdrop.
In future. We once again, delivered it double digits here, over the year Revenue growth. Well in organic contribution, played a significant role
It's important to know that our organic growth accelerated, from the low single digits, to the mid single digits exceeding. The expectation set 90 days ago,
This marks our thought consecutive quarter of positive organic growth reflecting steady improvements in our poor business and return to much more consistent performance.
Our 22 growth was broad-based with all 6, verticals growing year-over-year and sequentially.
Not above 10 hours include Financial Services.
Emerging verticals and software and high tech.
Consumer goods, retail, and travel, as well as business information and media, both return to positive year-over-year growth this quarter.
Geographically all 3 regions delivered, a strong year-over-year growth. The unfortunate our view that while demand conditions remain Dynamic. The environment for your palm is stabilizing and possibly improving across the whole of our Core Business.
Now shifting to all position in through the first half.
We are encouraged to see our sequential momentum, improved faster than anticipated.
This continuous projects ramp UPS in Q2 driving, what we believe is among the strongest. Organic constant currency growth rates in the industry in this track.
As a reminder, our client based.
Is almost exclusively large and midsize private sector Enterprises, there's no exposure to Federal and Legacy managed service.
And also, the remaining very prudent and mindful of our clients on and markets in the current climate, we have seen no material impact on our business. Unlike, some of our peers,
Our clients remain focused on strategic efficiency and growth with the Palm PL rolling board.
Our investments in the domain expertise, AI enabled delivery quality standards across our Global Italian house, and complex client. Engagements are helping us to retain and expand, while we share and we knew logos.
Position us for stronger. Growth in 2025, we also 2024
if you take a step back,
There are 3 long-term foundational themes which together should help to explain why we should show in a different trajectory in the current market.
We Believe The Sims and the pin are improving growth Trends and position us for differentiated results, in 2025 and Beyond.
Number 1, we continue to seek clients. We focus on quality as execution matters.
Upon today is known as a trusted strategic partner that consistently delivers quality outcomes.
While we are building our own Airline Consulting capabilities. Our core focus is still on execution design. Build and deploy of mission, critical Enterprise products and platforms.
Rooted in our heritage and culture. This differentiation is not easily replicated.
the last several years have confirmed that
Our core engineering DNA, which remained intact through multiple technology, Cycles will be even more critical in the area.
In future more clients and trusted us with their most complex Roi driven programs.
Often expanding engagements to include new commercial and delivery models.
This programs are also growing in scale.
Is AI becomes more deeply embedded across Enterprises platform. Complexity will further increase disproportionately driving even greater demands for the reliable and to enter optimized execution. In this specialization we provide
We are seeing some consolidation of demand and we believe the department is benefiting through our ability to bring a unique combination of native Consulting, engineering and organizational, enablement and transformational services.
We are seeing more new recipes goes for a radio Solutions, and for the core system, migration and modernization with the client, prepare for AI adoption.
Number 2, we continue to expand our Market leading position as a AI native transformation company.
Our only investments in AI are sharing as well and have enabled us to achieve a high level of high adoption and to build a highly Advanced set of AI and AI native capabilities platforms, tools and accelerators.
We would like to stress that the adoption alone, while essential, is not enough for long-term success.
This is why today we offer full range of are transformational capabilities.
From engineering to organizational enablement, to our own proprietary and open-source platform such as Dial and Are Run.
As a result, our native revenue is growing double digits, sequentially up from strong global digits last quarter.
Looking at our top hungry client.
The last majority continue to be actively engaged with the initiative. That now have moved Beyond experiential PVC to medium and larger scale programs, and many adapting. The pump platforms to accelerate those this platforms, go beyond enabling agent, workflows and data native reasoning, their director structural challenges of deploying AI at scale across the Enterprise.
By integrating west of breed external products, client specific Tools in both structure. And the structural data, they allow to close the integration Gap faster, including reliable cost effective operation and fostering Enterprise wide use
Enablement offerings in short, we are making meaningful progress and gaining significant momentum and becoming na in Native transformation company.
And we expect this driver of growth to build further in the quarters ahead.
If we will be sharing more updates along the way, including showcasing the new high-impact proposition we are taking on the market.
Number 3, we continue to scale and optimize our Global delivery hubs whether in clients, more attractive and scalable options than ever before.
We remain convinced that Italian will be critical driver of our Industry future and growth.
In rapidly, expanding markets, for AI transformation, the ability to scale specialized Talent is essential.
So we are relentlessly training and upskilling our teams, particularly that we deploy AI to enhance both individual and team productivity.
Our Global footprint experience for Diversified time and half in Europe India and Latin America and Western and Central Asia is connected through single proprietary delivery platform.
And unify.
AI enabled, delivery methodology.
This integrated model provides greater resilience and enables us to deliver truly strategic Global capabilities to large Enterprises. That must constantly Balance cost, considerations and location strategy with business priorities.
Each Hub iterates on the same delivery backbone supported by Advanced Training in globally, managed technical assessments.
Together the draft collaboration for Innovation and rated client access to Advanced, AI native capabilities.
Our operating models also, support centers of excellence, the strengthening horizontal capabilities, such as data, cloud and experience in engineering.
And vertical specialization delivering end-to-end execution, from strategies for implementation.
This foundational themes.
Our core differentiators and essential for our long-term growth.
Kam has taken the necessary steps to address our company's specific challenges of recent years while simultaneously positioning our underlying business for strong and sustainable, organic constant currency growth, and putting us in much stronger position than the, it is separated just 6 months ago.
Blessing. Today is my 52nd and Final Call as a CEO of a pump.
It was indeed an incredible journey for me from founding a farm back in 1993. And to our I feel the in 2012 came to this moment.
With everything in between.
So, at this point, I would like to state that the CEO transition plan has been going well and is on track to be completed by September 1st 2025.
In which we will become our new chief executive officer and president and I transition into the role of executive chairman.
The title changes, but my commitment, doesn't I look forward to continue supporting the long-term success of the company?
I want to thank the entire leadership team and all our employees around the world for their Relentless Drive. Innovation commitment to engineering excellence and differentiation in value, that they continue to deliver to our clients.
With that, I want to welcome a v to provide some additional call.
It be over to you.
Thank you, work. And good morning, everyone. It's a pleasure to join you today from my seat as a chief Revenue officer. I would like to take this opportunity to walk you through some commercial and operational highlights of the quarter, the evolving Market landscape, and how our AI Investments across, go to market Partnerships client engagement, and Tech.
Technology are positioning us for continued. Sustainable growth.
Now, turning to market trends and demand environment.
Was Ark mentioned, we are seeing some positive Trends in our markets globally, the increasing attention on AI is triggering incremental demand and improving our overall picture more by accelerating Cloud. Migration growing demand for foundational data, engineering decisioning and the need to modernize and operationalize platforms and systems at scale. And because our clients are still focused on optimizing their Investments. They are relying on epam to ensure the AI initiatives are carried out with the right rigor and accuracy to enable maximum flexibility in deployment methods to meet business objectives.
Services, and life sciences and Healthcare verticals along with really strong growth in emerging sectors, especially and energy, and oil, and gas particularly in discretionary transformation programs. But we are seeing differentiation from epam bringing in net, New Opportunities, across all 4 folio increasingly realized by our ability to orchestrate across our lines of business in core, engineering, cloud data and experience led by our empathy lab proposition in Europe.
Clients remain focused on value realization and speed on innovation. And this is where our reputation for quality, evolved commercial models, and client-centric, hybrid teams continues to be relevant.
Shifting to our go to market and client Centric initiatives.
We believe that the transformation in the IT services Market opens, new opportunities for us to capture additional market share.
To better position ourselves, we admit meaningful progress on our go to market motions or the past quarter. You may have seen Public Announcement around or core engineering, cloud and AI initiatives, both in the fundamentally and collaboration with Partners today we partner with over 150 Global ecosystem partners and have achieved top tier strategic partner status, with all the core cloud and data platforms or partnership strategy is kind.
Subjects have become a cornerstone of EPAM's ability to bring the best of breed solutions to our global client base.
Particularly around complex. Clouding architecture and operationalization of AI and agentic workflows.
As an example, this is the recent data bricks announcement, where epam won the ml growth partner of the Year award for rapidly expanding data bricks. Adoption through large scale data platform modernization and AI ml innovation.
In Q2 the further, operationalized or vertical land sales and account engagement structure with deeper alignment between our industry teams and solution practices.
Enabled us to have better, visibility into high, potential deals and to improve win rates with new and existing strategic Pursuits.
Over the last couple of quarters. We are also progressively, strengthened or field enablement. We rolled out a unified Global CRM. Analytics platforms, giving our sales and marketing teams real time insights into their velocity, their qualification pipeline health and client Behavior.
This is already improving our sales cycle, efficiency, and cross-selling effectiveness.
Now, turning to our transformation of services and key Investments.
Our services portfolio continues to evolve.
A significantly higher proportion of our programs today are high impact, consultative transformation engagement.
The vast majority of our new wins. This quarter were anchored in digital product and platform transformation, cloud, and AI native services.
We have made strategic investments in our key Solutions areas. Focused on generative AI industry, Cloud, accelerators, cyber security data, Factory and customer experience transformation.
These Solutions Centers serve as schools, innovation hubs with clients, and have already contributed to increasing our total wallet share over the same quarter last year.
We also deepened our capabilities with 2 recent larger Acquisitions 1 in regulated, Industries, including financial services, and other in Cloud, native engineering and transformations.
Serving, latam, and Spanish-speaking markets. These teams are quickly becoming integrated into selling and operational processes.
And already supporting our largest clients across most of our verticals.
Now, turning to our client engagement.
Client centricity remains at the core of our operating model. We launched a new client success program. This quarter focusing on our top 100 clients.
We continue to experiment and work with clients to provide additional flexibility with new engagement models.
Which have planned to scale in the future. For example we have launched platform based delivery for several AI operational engagements allowing clients to consume AI as a service through our dial platform.
This is delivering measurable efficiency gains and helping us to move up the volume chain. And finally moving to Ai and data-driven revenue transformation.
But also to transform or internal operations.
Effectively with you eam of customer zero for anything. We want to bring to the market with AI. This gives us a measurable Edge in a competitive market.
In addition, we have made Strategic investment in our data platforms and we now have a centralized data Lake architecture. Powering everything from client 360 degree views to marketing personalization. This is enabling more constructional conversations and sharper targeting across all channels.
To closed or operating momentum is strong. We are executing with discipline, aligning closely to client priorities, and bringing forward innovations. That differentiate Us in the marketplace. Looking ahead, we see continued differentiation in ens AI, native Services, cloud and data modernization and agentic automation, or commercial. And operational foundations are strong and we remain confident in our ability to capture net. New demand and drives sustainable growth in the totals to come Jayson over to you.
Thank you, FP, and good morning everyone. In the second quarter EPM generated, revenue of 1.353 billion.
A year-over-year increase of 18% on a reported basis surpassing the upper end of a Q2 Revenue Outlook.
On an organic constant currency basis, revenues grew 5.3% compared to the second quarter of 2024. This marks our third consecutive quarter of delivering positive year-over-year organic constant currency growth, reflecting steady and resilient execution.
Additionally, we've returned to growth in midst of macroeconomic climate, that remains complex.
Our outperformance in the quarter was Broadband driven by improvements, across all verticals and geographies.
As our in FB mentioned our strong results in continued sequential momentum are being driven by clients turning to epam for trusted quality.
Coupled with accelerating momentum across our Ai and AI native offering.
Moving to our Q2 vertical performance, all 6 industry, verticals showed encouraging momentum and Improvement this quarter.
Our recent acquisitions in the US and first derivative also contributed positively particularly within financial services and emerging verticals.
Complementing, the strong underlying performance of our organic business.
Financial Services continue to deliver very strong double digit growth.
Up 34.4% year-over-year on a reported basis, reflecting 6.5% organic growth in constant currency, driven by strength across Banking and Insurance.
Software and high-tech crew 21.2% year-over-year. Driven by strong execution and Broad Improvement across our existing clients as well as new Legos.
Life sciences and Healthcare increased 11.7% on a year-over-year basis.
Revenue growth in the vertical continues to be driven primarily by clients and life sciences and Medtech.
Consumer goods retail and travel delivered 6.2% year-over-year, growth showing Improvement versus recent quarters.
the vertical delivered positive organic sequential growth in constant currency across both consumer products and Retail as well as travel and hospitality
Business information. Media also returned to growth increasing with 2.8% year-over-year, the return to growth within this vertical was driven by strong momentum across several key clients as well as revenue from new logos.
Our emerging verticals delivered, another quarter of very strong year-over-year, growth of 28.7% with New York, continuing to positively impact, the vertical performance.
On an organic constant currency basis. Growth was 3.3%, primarily driven by ongoing strength within energy industrial materials, and real estate.
From the geographic perspective of Americas, our largest region representing 59% of our Q2 revenues grew 15.9% year-over-year on a reported basis reflecting 3.8% organic growth in constant currency.
AA.
Comprising, 39% of our Q2 Revenue increased 21.7% year-over-year, reflecting 7.6%, organic growth in constant currency.
And finally, the APAC region made up 2% of our revenues, which increased 13% year-over-year, replacing 8.3% organic growth in constant currency.
lastly in Q2 residents from our top, 20 clients grew 8.8% year-over-year while revenues from clients outside our top 20 increased 23%
Moving down the income statement, our Gap growth margin for the quarter was 28.8% compared to 29.3% in Q2 of last year.
Year ago.
Someone with higher variable compensation combined with lower profitability, associated with recent acquisitions.
Both contributed to the lower gross margin level.
The company continues to focus on improving utilization and gross margin, and will maintain this focus throughout the remainder of the year.
Gap sgna was 17.1% of Revenue compared to 16.9% in Q2 of last year.
Non-gaap sgna and Q2 2025 came in at 14.1% of Revenue compared to 14.3% in the same period last year.
Gap income from operations, was 126 million or 9.3% of Revenue in the quarter compared to 121 million or 10.5% of Revenue in Q2 of last year.
Non-gaap income from operations, was 203 million or 15% of Revenue in the quarter, compared to 175 million or 15.2% of Revenue. In Q2 of the previous year, our Gap effective tax rate for the quarter of payment at 28.9% and our non-gaap effective tax rate was 24% diluted earnings per share on a gap basis was $1.56.
Our non-GAAP diluted DPS was $2.77 compared to $2.45 in Q2 of last year.
Reflecting a 32 Cent, increase year-over-year.
In Q2, there were approximately 56.5 million, diluted shares outstanding.
Turning to our cash flow and balance sheet, cash flow from operations for Q2 was $53 million compared to $57 million in the same quarter of 2024.
Free cash flow was 43 million compared to free cash flow of 52 million in the same quarter last year.
Cash and cash equivalents were just over $1 billion as of the end of the quarter.
At the end of Q2 DSO was 788 days in compares to 75 days for q1 2025.
And 76 days for the same quarter last year.
Share repurchases. In the second quarter were approximately 1.1 million shares for 195 million at an average price of 179.23 per share.
Moving on to operational metrics, we ended Q2 with more than 55,800 Consultants designers engineers and architects.
Reflecting total growth of 18.7% and organic growth of 6.7% compared to Q2 2024.
In the quarter, we added approximately 200 delivery professionals.
Our total headcount, a quarter end was just over 62,000 employees.
Utilization was 78.1% compared to 77.5% in both QT of last year and q1 2025.
Driven by bench, optimization efforts.
Now, let's turn to guidance.
Before moving to the specifics of our 2025 in Q3 Outlook, I would like to provide some thoughts to help frame our guidance.
Our solid financial performance. In H1 amidst, economic and tariff related, uncertainty continues to be driven by clients who value our strong delivery execution across all our Global delivery locations.
We are also, highly encouraged to see accelerating growth in our Advanced AI native offerings, which contributed to our improving Revenue growth rates
With good visibility in the Q3. We expect further improvement in our year-over-year, organic constant currency growth rate in the quarter.
With regards to the full year, I would like to remind everyone of the typical seasonal impacts in the second half.
Relative to Q2, Q3 benefits from more billable days contributing positively to sequential revenue growth.
compared to Q3 Q4 is negatively impacted by a higher number of holidays vacations and potential for Less
EPAM's revenues and our Key3 pipeline have developed nicely throughout the year.
But we also realize that we're still operating in the dynamic demand environment.
We want to continue to be prudent with our approach to guidance and currently expect Q4 Revenue to be predominantly driven by seasonal factors.
Which will likely result in flat to a modest decline sequentially from Q3 to Q4.
We expect to continue to see strong inorganic Revenue contributions from New York and first derivative, particularly in the financial services and emerging verticals.
Based on our strong H1 performance and good visibility into Q3, we are raising the bottom end of the range. For the full year 2025, we expect organic constant currency revenue growth.
Additionally, due to a further. Appreciation in the Euro and GBP, we will also be increasing the FX contribution, to reported Revenue growth.
While driving Topline Revenue growth. We will also remain focused on improving gross margin.
We are working on improving utilization and will continue to reduce isolated pockets of bench. While adding net head count to support growth
Moving to our full year outlook Revenue. Growth will now be in the range of 13 to 15%.
With inorganic continuing to contribute approximately 9% for 2025.
Based on today's spot exchange rates coupled with the Assumption of modest, strengthening in the US dollar and the second half foreign exchange is now expected to have a positive impact on Revenue growth of 0.9%.
We expect your Revenue growth on an organic constant currency basis to now be in the range of 3% to 5%.
We expect Gap income from operations, to continue to be in the range of 9% to 10%.
And non-gaap income from operations to continue to be in the range of 14.5 to 15.5%.
We expect our Gap effective tax rate to now be 26%, our non-gaap effective tax rate which excludes the impact of benefits and shortfalls related to stock-based, compensation, will continue to be 24%.
Earnings per share. We expect the Gap to loaded up EPS will now be in the range of $6.48 to $6.64 for the full year.
A non-gaap to win the DPS will now be in the range of ten dollars. 96 cents to $11.12 for the full year.
We now, expect weighted, average, share count of 56.4 million fully diluted shares outstanding.
Moving to our Q3 2025 Outlook. We expect Revenue to be in the range of 1.365 to 1.380 billion producing year-over-year growth of the 17.6% at the midpoint of the range.
Our guidance for flexing inorganic contribution of 10.4% with a 1.0% positive FX impact during the quarter producing. A 6.2% organic constant currency growth rate at the midpoint of the range.
for the third quarter, we expect Gap income from operations to be in the range of 10 to 11% and non-gaap income from operations, to be in the range of 15.5%, to 16.5%
We expect our Gap effective tax rate to be approximately 25% and our non-gaap effective tax rate to be approximately 24%.
For earnings per share. We expect Gap diluted EPS to be in the range of 1.89 cents to $1.97 for the quarter.
And non-gaap diluted EPS to be in the range of 2.98 cents to $3.66 for the quarter.
We expect a weighted average share count of 55.9 million diluted share of South standing.
finally, a few key assumptions that support our Gap to another Gap measurements for Q3 and Q4
stock based compensation, expense is expected to be approximately 44, million producer rate, in 45 million for Q4,
Amortization of intangibles is expected to be approximately 18 million for each of the remaining quarters.
Tax effect is non-gaap adjustments is expected to be around 17 million for Q3 and 16 million for Q4.
We remain committed to driving Revenue growth and improving profitability in the second half and we are confident in our strong positioning and our in Q3.
Despite the dynamic environment.
We will continue to run epam efficiently, maintaining your focus on profitability throughout the remainder of the year.
Thanks again, to all our employees for their dedication and focus on serving our clients and driving results for epam. I would now like to take a moment to acknowledge our leadership and the profound impact he has had across the industry, our clients and our company.
Arc has successfully led the team through multiple tax cycles over multiple decades, and he has positioned the company to capture the next wave of AI-driven growth.
Leading the company through a challenging couple years and in near existential crisis, resulting from the Russian invasion of Ukraine Arc is played an instrumental role in our return to growth.
today epam is better positioned than ever as a truly global company offering industry-leading delivery execution across all of our Geographic delivery, hubs,
on a personal note, it's been an honor working with Arc and I look forward to continuing to work with him in his new role, as executive chairman
operator, let's open the call up for questions.
At this time, I would like to remind everyone in order to ask a question. Press star, then the number 1 on your telephone keypad,
Please limit yourself to 1 question and 1 quick, follow-up.
comes from the line of Brian Bergin with TD Cowen, please go ahead
Hi guys. Good morning, SB. Welcome and congrats to you and, and to Arc. Um, first question for you kind of on the workforce here in the the intentions, it's good to see the organic growth acceleration, but despite that improved quarter over quarter organic growth. I noticed you slowed, the net quarter over quarter billable increase in 22 versus 1 Q. So I just wanted to reconcile that can you just comment on on kind of how you're balancing new Talent additions for Ben's optimization? Or are you making any lasting gains in a genetic, delivery capabilities, just anything you can uh give some more detail on there.
Yeah, hey so that's a good question. I think I'll take that, this is Jason. So, um, we continue to hire, uh, to support revenue and growth and I think you see in our guide that we, you know, intend to continue to grow throughout the year. At the same time, I think we have been a little bit more thoughtful about pockets of bench that we have globally and we, um, let's say have been somewhat more active to address the the the bench issue. So we are seeing an improvement in utilization and we you know, look forward to continue to maintain uh utilization at a somewhat higher level than we did last year and Brian. That's generally why you see it? Somewhat lower headcount additions? I think that you'll see net additions clearly in Q3 and probably greater net additions in Q4 as we exit and prepare for 2026.
Okay, understood and then my follow-up. So obviously a very complex macro environment in your conversations with client leaders. What do you what do you really think it's going to take for them to lean back in more notably in discretionary areas just to sustainably recover growth, is it as simple as trade deals and rate Cuts or do you sense? There's just prior levels of outsized discretionary spend where there was an ample Roi that may have changed lasting um changes in Behavior to uh discretionary activities.
Ryan. This is. How are you doing? Um, I think it's it's a very good question because
What's really happening to on the field is price are have to go back to discussion. We're spending for 2 Reasons, 1 is that if they were suspended discussion or the investment for for a while now and they no longer able to do that due to regulatory requirements or due to platform shifts, which they have also, most of our clients started to prepare themselves for the AI adoption, in order to do AI adoption, they have to really touch upon their fundamentals, fundamentals, meaning, they have to, uh, take a close look at their legacy infrastructure.
Start doing modernization going back, shifting to the cloud and really addressing uh the the backbone, uh, what which is data, which is in order to really adopt Ai and actually roll out AI Solutions in the Enterprise. You need to make sure that your uh
Data data environment. Your core data assets are in a good shape. This is very much playing to The Sweet Spot of eam. This is very much bringing to our streams.
That's kind of what what's happening right now.
Okay, thank you for that detail.
Your next question comes from the line of Jonathan Lee with Guggenheim Partners. Please go ahead.
Great. Thanks for taking my questions. Our congratulations on your final earnings call. It's been a remarkable journey, and FBA looking forward to working with you. Uh, Jason, this 1's for you, appreciate some of the context, you provide around the Outlook, when you dig into some of the specifics across, what contemplated at the high end and the low end of the range, particularly from a macro perspective and can you help unpack some of your assumptions around the range of your implied? 4qx
Okay, excellent. Thank you Jonathan. And I think I'll give you kind of a bonus. I'll start with the midpoint of the range and then we'll talk about low end and high ends. So from a midpoint of the range for the full year, which would be 3 to 5%, which I guess midpoint would be around 4%. It would require that we achieve the midpoint of the guided range for Q3 and then, you know, some sequential decline t3s Q4 Florida,
Personally driven by the seasonal factors I mentioned and so nothing heroic involved in hitting the midpoint of the range.
on the low end of the range that would say
3 guide and then you see a significant deterioration in demand. Um, and then as a result is significant, um, uh,
Decline in revenues, Q3 to Q4 due to both the the seasonal and the the demand impacts.
On the highest end of the range that would say, you achieve the high end of Q3 guide and then you see some sequential growth Q3 to Q4.
You'd have to see, you know, some improvement in the demand environment because you do have the negative impact of seasonality.
On the midpoint of the guide, your Q4 exit would be sort of 3 and change to maybe 4%, organic constant currency year-over-year growth rate.
On the high end of the guide. Um, again, if you were to exit closer to the 5% for the full year, you would actually exit Q4 at an organic cost of currency growth rate in excess of 5%.
That's a great color there. Uh, as a follow-up. Can you provide incremental color on the net and new discretionary transformation programs that you're you're seeing especially given the most peers of cited challenges discretionary spending and you know how are these new wins factoring into the outlook for the back half and perhaps even into 26?
Uh, I think it's a kind of continuation of what is we already mentioned because if you think about diplomas, we were going to lose multiple times. Oh,
Blind but but for the portfolio of our engagements is different. And when there is a pressure, for example, more traditional services, including like large money, service contracts, and people usually it goes because of automation involved and specifically today. Yeah, it's even part and this is where we see an increment for us.
and if you remember, we were talking
For what after quarter are you waiting, when actually, I will start to put additional pressure and drive for the new type of build? I think this is a science, which we see during the last couple of quarters, which is kind of confirming.
our growth and
discretionary increase, not at the level, which we would like to, but at least in the right direction. And I think this is how in shape right now. So we don't see
Impact.
We understand some other factors based on their portfolio configuration, and we see some incremental increases.
Thanks for that Arc again.
Comes from the line of Maggie Nolan with William Blair. Please go ahead.
Hi.
Can you hear me?
We can Maggie.
Oh good, thank you. Um, how are you measuring your progress in? Upskilling the employee base. And how far are you in this process? And the related Investments is this an outsized investment compared to typical training initiatives, and maybe kind of reconcile that with the impact of your efforts to increase utilization.
Again, nice meeting with you. Um, this is a
so,
in 2024, we launched the EI, upskilling Oar employee base which we actually accomplished with 80 plus percent of our employees went through that process, we continue this effort and we regularly making sure that our
our population are being updated with the latest Trend. We rolled out the very special program which is a provides them. Uh, the necessary, uh, boot camp materials to get started. Also the FBI going to the process of having more and more over Engineers AI certified. So going to the process of mastering the skill set itself,
Now, we no longer just focusing on our engineering teams but actually rolling it out.
For client facing organizations and also to our back office teams to be certified and understand how to best use AI.
What we are seeing is that we are going to an AI. Adoption. The curve is accelerating, we not where we are. We want it to be, but we clearly it is improving because we go along and we try to because it's a, it takes 2 to, 2, to play this. It's also we need to work with our clients to allow us to adopt AI in our deliveries. But we are progressing.
Quite well, and we are hoping to really have the full population continuously, uh, uh, uplifted to the right level.
An early. Look at where you're expecting 2026 to be. Thank you.
yeah, so from a utilization standpoint, which
Is 1 of the big?
Focus right now.
The ex of the year and let's say 77% or maybe a little above. And again, Q4 is usually a quarter when you've got a lot of vacation and that does in fact utilization. So you look back to last key for that shows Improvement. We are, you know, someone more focused on account March. And, um, you know, making sure that we're taking deals with kind of appropriate kind of pricing profitability, and so it continues to be a work in progress. But it's certainly part of our Focus as we as we work through the second half of 2022.
Thank you.
Thank you.
Your next question comes from the line of David Grossman with Stifel. Please go ahead.
Hi, good morning. Uh thanks. Uh wondering if I could just quickly follow up that last question on margin at Jason just you know looking at the exit rate, given all the moving pieces in 2025 can is it fair to use the fourth quarter exit rate as a base to build upon for next year or are there other dynamics that we need to consider? As we look out beyond the fourth quarter and maybe you can weave in any updated commentary on, you know, kind of the pricing wage Dynamic that you're going to experiencing.
Over the last several months.
Okay, so I think it's sometimes hard to use Q4 because usually the second half has got some better profitability than the first half. Um, I do think for the full year, you know, you're looking at us hitting, kind of the, midpoint of our guided range.
Of 14 and a half and to 15 and a half. And clearly there's focus on on trying to improve profitability as we, as we enter the next year.
Um, you know, I I think, you know, right now what you've got is again a focus on on utilization? Uh, we are seeing an environment where clients, uh, are looking for eam to either, take over troubled programs or to help them execute. As FB said, on kind of foundational kind of data or or AI related programs.
Generally clients are willing to to pay us for that. And so the profitability is probably improving somewhat from a deal standpoint. But at the same time um you know it's it's still a let's call it as someone kind of cautious environment, but I would say that we feel better about the price of environment today than we would have felt 6 months ago.
Got it and then um you know I I think everybody on this call and everyone in the you know the team knows the narrative is Wing, excuse me, pretty heavily on the group and I think you understand those concerns as it relates to productivity and Revenue.
You you provided some, you know, information on in your prepared remarks. But are there any other Trends or data points that you can share? That may provide better insight and both the opportunities. And the risks, I think you talked a lot about the opportunity. So maybe more on the risks at least in terms of the Market's, perception versus what you think are the realities.
Yeah, I think that there it's are. So
You.
let's consider it by new ways of just
how scary it was the future because of the I will take our jobs.
Correct.
and uh,
I think, uh, we definitely will care for you watching everything. What's happening. And as, you know, we have
BT strong part of our portfolio, which is very much higher product companies. Some of them actually is a driver who what's happening in? Adopting AI is not only for building new Solutions, but also how to build it. Basically how it deals your work. We invest in tremendous amount of time and this and I think we understand and see it's pretty well specifically for the complex Enterprise environment.
And with all of this, we do believe that.
The complexity of the new landscape of Enterprise enabled by AI would be. So
High that it would require very good, Engineers Solutions. People, the type of work they going to do again. I'm not telling you going to be different, but this would be slightly developed
The amount of people who can do something like this would be very, very high demand.
We really do believe this, and we do believe this even from what we see in right now, like a lot of clients we want to.
To do it themselves. They're picking Our Brands and then transaction. You guys, we will do it. Ourself. Then 3,
6, 9 months later, coming back to us and engaging us back for both for his deal. See itself and the new solution. This is practically the 3. This is part of the sequential increases as well.
If we wanted to add something I just wanted to add we just made a public press release a case study, which we released with Walter's Glovers. Uh just I think yesterday we released that which kind of points out where we working with a core clients to help their adoption and actually do the education itself, which is not as easy. I know that everybody believes that watching the YouTube videos that you can wipe cope. The wipe wipe code, a Erp application, but that's not how it works. So, I would, I would
Optimistic. We're very, very in the beginning of winter, bright transformation, and that's very difficult to predict most of the predictions.
today, it's kind of individual productivity to a very specific, uh,
Trying to do it themselves, but then, coming back to you to do the work to to correctly.
Yeah.
That's like because like initial think, for it's easy because it's very easy use case. Like I'm comparing this again. Sorry for my history. Look, long time being here. I'm comparing this to, and I know people argue that it's not comparable because I will be thinking, and all of this still, I cannot like hold myself, but when HT will come up a lot of applications where I starting to build by doing your people and inside of preparation. And then when it's supposed to go to real production to scale to provide
Scalability and flexibility and performance.
And maintainability in some way.
all of this come back to very complex platforms, very strong, professional leaders is very complex architecture and again,
Work job was changed back then it just wasn't so much popular in media that this transition happening. And I'm pretty sure it will be different this time, but directionally I think it would require a lot of very professional people to understand how it works inside.
Very helpful, thanks Mark. And uh, good luck in the next phase here.
Thank you. Your next question.
Surrender thin with Jeffrey's please go ahead.
Um, thank you. Um,
I, I
guess artist.
Picture when we think about, um, all of the change in the organization and and all the the adaptability, to the new tools and Technology.
How are you thinking about the shape of the actual delivery footprint itself?
Are we thinking about more senior people, less senior people being used, and how does that kind of shake out as as we look in the years ahead?
So thank you for the question and I'll pass it to be because he's smiling wanted to ask to answer. So we have
Right now where we are is but everybody still believes that in order to really use the AI tooling uh you you only need senior people but that's not sustainable.
That's not sustainable proposition.
We all observe how our kids are using AI in their studying efforts, imagine that couple of years out all, all those kids are using AI, not just for 1 or 2 years, but now 5 years in, they have experience, they have their instincts, how to ask the right question, how to actually do the right thing?
So, we do believe that we need to continue. Investing to our people. We need to continue building a balanced setup. Yes you need to
make the right hires, but
hires going forward, not going to be based on coding skills.
The engineering skills engineering remains coding exchanges. That's how we think about this going forward. Our delivery teams are going to be probably
Any shape or the challenges? What what? They are? Need to tackle the number of features. They need to deliver is going to be much much more.
so we are not seeing dramatic shift in terms of,
Uh population or size of our delivery. We continue to believe that we should be investing into it. We continue to believe that the future is to create a right shape pyramid. If you this is what you were asking and the right setup. It's not just seniors and not just the most senior people who can really use it. It's the key is the education and have the right engineering background to be able to understand the basics, understand the concepts. And then use AI for the the most effective way to actually deliver the social.
And I would add that 10 through this point of view. It's also not by change from the past, the same was happening in the past and sometimes it is the right.
Education and the right right desire as a junior people, where your performance in other people very very quickly, and at the same time experience better. So it's all well, I don't think there is. Yes, we are reading the same stuff if you read it, but we also doing this with thousands of people and we
C for the ground to understand what was happening like 10 years ago and 20 years.
That's helpful. And then, when we think about, um,
this idea of
You know, building these new products and solutions, how do you think about the idea of being at the Pure Play engineering firm? I I thought you went out of your way to say that you don't do managed services.
And yet 1 of The Thesis out there is, if I did that, you have to be because a gentic starts to get into the workflow itself that you need some component to manage services. You like
Other companies are going with a much more integrated approach.
How do you feel like you fit into this? Can you just do the engineering and walk away?
yeah, let me let me clarify if I was
when we talking about, we don't do many services, we
I mean, we don't do much.
Of traditional managed services.
And there are different how things happen. And, for example, in platform, build up manage kind of products we do this, but it's a very different than traditional Legacy stuff.
That's what we want. Okay, and we definitely building this expertise, because when we help clients to build very often, we continuously maintaining this. But it's a very
Big mix of.
Managing build constant constant change. That's what we do in this is much more. Uh uh
Kind of existing our services. So I I think it's important.
And uh, I think that's the answer to your question.
Thank you.
Your next question comes from the line of Darren Peller with wolf research. Please go ahead.
Guys, thanks. Um,
Congrats or can FB. I just I wanted to touch on how much of your business that's sequentially. Incremental Revenue we're seeing is coming from these existing clients or pre-existing customers returning now, like how much does that make up of the actual incremental dollars?
Um, that's a new business for you today. Uh, and then maybe just help us a little more on where they're choosing.
Delivery out of whether it's more India now or it's still a mix between India and Eastern Europe, just curious kind of what the um demand is for from them.
Okay, so let me take that first app so you get a little bit of benefit um, you know, with the with the additional build a, the Q2 to Q3 certainly we think some of that improvement in our Revenue versus our earlier expectations in probably versus peers has to do with this returns, they have quality. It's hard for us to sort of turn that into a dollar figure but we think it is what is likely separating us from an organic constant currency growth rate relative to peers. I don't know if there are FB want to take the question about where the demand is coming. India versus Europe versus I think the demand the right not is quite balanced, right? Is a broad-based. So we are clearly able to serve our client base with the 4 large geography, where we are delivering from from Latin America, from central eastern Europe, from Western Central Asia, and from India, and depending on client's needs. And
Right now. So we we are seeing growth. We are seeing demand going into all our for major.
So okay, that's helpful. Thanks. Are you guys are? So do you think you're at the end of your repositioning geographically and then
Versus what you were trying to do over the last few years and then maybe just a quick 1 on attrition, or where are the? Where are the trends recently? Have they been stable your day? Thanks again, guys. Nice job.
Yeah, I'm gonna let Eric talked about positioning, but let me just say on the attrition, um, involuntary is up a little bit. For the reasons that I talked, we talked about earlier but the, uh, voluntary attrition is actually in very good shape and actually running below 10%.
All right. And you you you you answer already kind of himself. Yes. We were focusing on pretty well and duties can and uh trying to see whether there is a right Talent globally and I think we believe in good.
Okay, uh, stay right now between 4, major clubs and still central eastern Europe. Is the biggest 1.
if you combine all of this, and
Then India Latin America and Western Central Asia. So I think, uh,
From this point of view, it's not going to be any additional kind of news regarding our growth in all of them. And we do believe that we are acting in good faith.
And we also do believe that with a increasing demand.
Cannot predict whether it's really.
so, very
Very much positioned.
from the political debate, which we invest in all the time to make sure we're ready for
Okay, thank you.
We have time for 1 more question.
On this question comes from the line of Punnett Jen with JP Morgan. Please go ahead.
Uh, thanks for spending and good quarter guys. Um, are there any differences differences in AI adoption across different verticals? Uh like Financial Services like that vertical has been doing better than others. Uh is that in any way driven by
Uh, yeah, I adoption like the different level of AI adoption in that vertical.
Okay, I, I think right now we see a adoption across all the different verticals. It's a broad-based adoption for each vertical. It has its own Champions. I think there are
In each vertical, there are players who are front running it and there are players who are still waiting to start up. We don't see the differences between verticals right now. Yeah.
but I think it's so many and accelerate now between vertical performance and yeah,
So the vertical performance you would say is mostly attributed to differences in macro like the tariffs and um macro related factors.
Could there be like a change in delivery models? Perhaps to a model that encourages your sales team and the account teams to include more AI models.
So we continuously experimenting with with engagement models and in my opening remarks, I kind of talked about it as we are working with our clients. We see certain subscriptions models already taking up with our e, Platte. I think it's not stackable yet. It is changing as we go and we continue to see how we can best adopt to our client needs. And also able to really capture the benefits of our Ai and share the benefits. With, with our customers.
Got it. Thank you.
Okay, I will now turn the call back over to our kathi, Dobkin for closing remarks.
Thank you again, as always for for the last 50 plus times. So, uh, was very good to hear the school and
I guess, uh, we’re doing, as we mentioned, better than.
we expected this third quarter of growing organically is
A important kind of milestone for us to continue. And I
Request to be to see you next time and do the call. Thank you very much.
for joining, you may now disconnect