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EPAM Systems, Inc. (EPAM)·Q1 2025 Earnings Summary

Executive Summary

  • EPAM delivered a solid Q1: revenue $1.302B (+11.7% YoY) with organic constant-currency growth of 1.4%, non-GAAP operating margin 13.5%, and non-GAAP EPS $2.41; the company raised its FY25 revenue growth outlook to 11.5%–14.5% (organic CC 2%–5%) .
  • Results beat S&P Global consensus: revenue $1.302B vs $1.282B*, and non-GAAP EPS $2.41 vs $2.27*; GAAP EPS $1.28 (pricing lag and lower acquisition profitability pressured gross margin) . Consensus values from S&P Global.*
  • Q2 guide implies continued momentum: revenue $1.325–$1.340B (mid +16.2% reported YoY; +3.8% organic CC), non-GAAP EPS $2.56–$2.64; FY25 non-GAAP EPS raised to $10.70–$10.95 and FY25 GAAP EPS set at $6.78–$7.03 (higher GAAP ETR 25%) .
  • Strategic catalysts: accelerating AI-native demand with strong double-digit QoQ AI revenue growth, vendor consolidation driving share gains, expanded AWS SCA for GenAI, and Google Cloud Industry Solutions Partner of the Year (Oil & Gas); leadership succession announced (CEO to Executive Chairman Sep 1, 2025; CRO Balazs Fejes to CEO) .

What Went Well and What Went Wrong

  • What Went Well

    • AI-native momentum and client quality pivot: “our early-stage AI engagements are maturing visibly… AI native revenues grew strong double-digit quarter-over-quarter” .
    • Share gains via vendor consolidation: “some clients… are now returning to EPAM” as quality and reliability become paramount .
    • Broad-based growth: 4 of 6 verticals up; Financial Services +29.3% YoY (4.5% organic CC) with strength in insurance, banking, payments; Americas +12.6% YoY, EMEA +10.7% YoY; all regions grew organically in CC .

  • What Went Wrong

    • Gross margin compression: GAAP 26.9% (vs 28.4% LY) and non-GAAP 28.7% (vs 30.4% LY) due to 2024 compensation increases and lower acquisition profitability, only partly offset by utilization and Polish R&D incentive .
    • Cash flow softness: CFO from ops $24.2M (vs $129.9M LY) on higher bonus payments and elevated DSO (75 days) given more fixed-fee milestone billing; FCF $15M (vs $123M LY) .
    • Macro/tariffs headwind: reduced demand at a top NEORIS-acquired customer due to tariffs/manufacturing/materials uncertainty; pricing still not fully offsetting wage inflation near-term .

Financial Results

Trend snapshot (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($B)$1.168 $1.248 $1.302
GAAP Diluted EPS ($)$2.37 $1.80 $1.28
Non-GAAP Diluted EPS ($)$3.12 $2.84 $2.41
GAAP Operating Margin %15.2% 10.9% 7.6%
Non-GAAP Operating Margin %19.1% 16.7% 13.5%
Organic CC YoY Revenue Growth %(0.3%) 1.0% 1.4%

Q1 2025 vs S&P Global consensus

MetricQ1 2025 ConsensusQ1 2025 ActualSurprise
Revenue ($B)$1.282*$1.302 Bold beat
Non-GAAP EPS ($)$2.27*$2.41 Bold beat
GAAP EPS ($)n/a$1.28 —

Values with asterisk are from S&P Global (Capital IQ).*

Segment breakdown (Q1 2025)

SegmentRevenue ($M)YoY
Financial Services$314+29.3%
Software & Hi-Tech$221+9.6%
Life Sciences & Healthcare$190+10.5%
Consumer Goods, Retail & Travel$255(1.4%)
Business Information & Media$167(2.2%)
Emerging$155+22.8%
GeographyRevenue ($M)YoY
Americas$780+12.6%
EMEA$497+10.7%
APAC$25+4.3%

KPIs and operating metrics (Q1 2025)

KPIQ1 2025
Cash from Operations ($M)$24.2
Free Cash Flow ($M)$15
DSO (days)75
Utilization %77.5%
Cash, cash equivalents & restricted ($B)$1.179
Share repurchases0.796M shares for $160.0M
Total headcount~61,700 (delivery ~55,600)
GAAP Gross Margin %26.9%
Non-GAAP Gross Margin %28.7%

Non-GAAP adjustments: Q1 adjustments included SBC ($23.9M in cost of revenue; $24.5M total cost of revenue adj; $24.5M SG&A SBC), cost optimization charges ($5.3M), other acquisition costs ($0.6M), Ukraine humanitarian support ($4.35M total), and amortization of intangibles ($17.7M) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue growth (reported)FY2510.0%–14.0% 11.5%–14.5% Raised
Organic CC revenue growthFY251.0%–5.0% 2.0%–5.0% Raised (low end)
GAAP op margin %FY259%–10% 9%–10% Maintained
Non-GAAP op margin %FY2514.5%–15.5% 14.5%–15.5% Maintained
GAAP effective tax rateFY25~24% ~25% Raised
Non-GAAP effective tax rateFY25~24% ~24% Maintained
GAAP diluted EPS ($)FY25$6.78–$7.08 $6.78–$7.03 Lowered (top end)
Non-GAAP diluted EPS ($)FY25$10.45–$10.75 $10.70–$10.95 Raised
Diluted shares (M)FY2558.1 56.5 Lower (buybacks)
Revenue ($B)Q2’25n/a$1.325–$1.340 New
GAAP vs Non-GAAP op margin %Q2’25n/a9%–10% vs 14%–15% New
GAAP vs Non-GAAP ETRQ2’25n/a~26% vs ~24% New
GAAP EPS ($)Q2’25n/a$1.67–$1.75 New
Non-GAAP EPS ($)Q2’25n/a$2.56–$2.64 New

Earnings Call Themes & Trends

TopicQ-2 (Q3’24)Q-1 (Q4’24)Current (Q1’25)Trend
AI/technology initiativesGenAI solutions, DIAL/AI/RUN; R&D incentive impact Return to organic growth; 2025 “transition year” with GenAI investment AI-native revenues up strong double-digit QoQ; scaling AI factories, agentic AI; expanded AWS SCA; Google Cloud award Improving
Demand/bookings & vendor consolidationStabilizingSequential momentum built into FY25 Clients “returning to EPAM” for quality; supplier consolidation helping; baseline demand improving faster than expected H1 Improving
Pricing & marginsMargin aided by Poland incentive Margin mix; guided FY25 op margin 9%–10% GAAP/14.5%–15.5% non-GAAP Gross margin down YoY (wages, M&A mix); focus on utilization; pricing improvement will lag Mixed
Regional delivery hubs & India—India/LatAm capacity expanded (NEORIS) India ~20% capacity; net headcount growth in India, Europe, Western/Central Asia; Ukraine stable Scaling
Tariffs/macro——Tariffs/manufacturing headwind reduced demand at top NEORIS customer Headwind
R&D incentives (Poland)$52M benefit recognized; recurring $68.8M FY benefit recognized; recurring Benefit continues; aided gross margin Stable
M&A integration (NEORIS, First Derivative)NEORIS closed Nov 1 NEORIS & First Derivative closed; inorganic lift Inorganic contribution ~9% in FY25; Q2 inorganic 10.6% Ongoing

Management Commentary

  • Strategy and AI-native positioning (CEO): “Our early-stage AI engagements are maturing visibly… as we expand into larger scale AI factories, these programs are becoming increasingly comprehensive, now incorporating Agentic AI and governance frameworks” .
  • Quality-driven share gains (CEO): “Some clients who have prioritized cost above all else… are now returning to EPAM… experience with underperforming programs has reinforced the critical value of deep expertise [and] consistent delivery quality” .
  • Margin drivers and focus (CFO): “Gross margin… negatively impacted by 2024 compensation increases… [and] lower profitability from recent acquisitions… exceeded the benefits of improved utilization and the positive impact from the Polish R&D incentive” .
  • FY25/2Q outlook (CFO): Raised FY25 revenue growth to 11.5%–14.5% (organic CC 2%–5%), with Q2 revenue $1.325–$1.340B and non-GAAP OI margin 14%–15% .

Q&A Highlights

  • AI revenue trajectory: management expects strong double-digit growth in AI-native revenues from Q1 to Q2; deal sizes and number of >$10M AI engagements are increasing .
  • Cash conversion/DSO: FCF conversion target 80%–90% long-term; DSO likely to remain a few days higher (mid-70s) as fixed-fee milestone mix rises .
  • Pricing and rates: some modest improvement, but “too early to call”; pricing lags wage inflation and will take time to improve .
  • Gross margin remediation: utilization improvement, seasonal benefits in 2H; intent to lift utilization above ~77% into 2026 .
  • Vendor consolidation and GCC: consolidation benefiting EPAM; GCCs value engineering differentiation; partnership revenue important but not quantified .

Estimates Context

  • Q1 2025 vs S&P Global: revenue $1.302B vs $1.282B*; non-GAAP EPS $2.41 vs $2.27*; both beats. Drivers: stronger-than-expected organic CC growth (+1.4%), AI-native momentum, and consolidation-driven share gains; offset by margin pressure from wages and M&A mix . Consensus values from S&P Global.*
  • Q2 2025 guide vs S&P Global: revenue guide $1.325–$1.340B vs consensus $1.333B* (in line at midpoint); non-GAAP EPS guide $2.56–$2.64 vs consensus $2.61* (in line at midpoint) . Consensus values from S&P Global.*

Values with asterisk are from S&P Global (Capital IQ).*

Key Takeaways for Investors

  • Beat-and-raise quarter anchored by AI-native momentum and quality-led share gains; FY25 revenue growth outlook raised to 11.5%–14.5% (organic CC 2%–5%) .
  • Near-term margin pressure persists (wage inflation, acquisition mix), but management is prioritizing utilization improvements and expects seasonal tailwinds in 2H; Poland R&D incentive remains supportive .
  • Cash flow headwinds (bonus timing, DSO shift with fixed-fee mix) are likely transitory; watch DSO stabilization and milestone billing cadence through Q2–Q3 .
  • Inorganic growth is a meaningful contributor in 2025 (~9% FY, ~10.6% in Q2), while organic CC growth is improving; monitor integration progress and vertical mix (manufacturing/materials sensitivity) .
  • Q2 guidance aligns with consensus, suggesting continued sequential momentum; any upside likely hinges on AI program scale-ups, utilization gains, and pricing traction .
  • Strategic positioning strengthened by expanded AWS SCA for GenAI and Google Cloud award; should aid pipeline conversion in energy/manufacturing and modernization programs .
  • Leadership transition (Sep 1, 2025) is planned and orderly; continuity expected with founder becoming Executive Chairman and CRO Fejes stepping in as CEO .