Sign in
ES

EPAM Systems, Inc. (EPAM)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $1.248B, up 7.9% year-over-year; organic constant currency growth returned to positive at +1.0%. GAAP EPS was $1.80 and non-GAAP EPS was $2.84; GAAP operating margin was 10.9% and non-GAAP operating margin was 16.7% .
  • Results materially beat Q4 guidance: revenue ($1.248B vs $1.205–$1.215B) and non-GAAP EPS ($2.84 vs $2.70–$2.78); the beat was driven by stronger stand‑alone demand and new project starts, with inorganic contributions from NEORIS and First Derivative (FD) .
  • 2025 outlook: revenue growth of 10–14% (organic constant currency 1–5%), non‑GAAP operating margin of 14.5–15.5%; management flagged 1H profitability pressure from talent retention investments, pricing constraints, and acquisition dilution, with improvement expected in 2H .
  • Strategic catalysts include expanding AI-native programs (Q4 generated ~$50M in AI-native program revenue), deepening cloud/data partnerships, and enlarged global delivery capacity from NEORIS/FD integrations .

What Went Well and What Went Wrong

  • What Went Well

    • Returned to organic constant currency growth (+1.0%) for the first time since Q1 2023; stand‑alone revenues exceeded guidance on stronger new project starts and improving client sentiment .
    • Vertical/geography strength: Financial Services +15.9% YoY; Americas +11.4% YoY; top 20 clients +4% YoY while non‑top‑20 +10% YoY .
    • AI traction and scale: 75% of top 100 clients engaged on GenAI; Q4 AI‑native programs generated ~$50M; “we believe EPAM is one of the few AI‑native service providers who can demonstrate scale programs with proven AI ROI today” (Arkadiy Dobkin) .

  • What Went Wrong

    • Margin pressure: non‑GAAP gross margin fell to 32.2% (vs 33.0% prior year) as compensation increases and lower acquisition profitability weren’t offset by pricing; GAAP gross margin declined to 30.4% YoY .
    • Mixed vertical performance: Consumer Goods/Retail/Travel −3.0% YoY and Business Information & Media −3.9% YoY in Q4; EMEA organic growth slightly negative despite sequential improvement .
    • Cash metrics softened: cash from operations in Q4 fell to $130.3M (vs $171.4M in Q4 2023), and cash balances declined after closing NEORIS and FD .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Billions)$1.147 $1.168 $1.248
GAAP Diluted EPS ($)$1.70 $2.37 $1.80
Non-GAAP Diluted EPS ($)$2.45 $3.12 $2.84
GAAP Operating Margin (%)10.5% 15.2% 10.9%
Non-GAAP Operating Margin (%)15.2% 19.1% 16.7%
GAAP Gross Margin (%)29.3% 34.6% 30.4%
Non-GAAP Gross Margin (%)30.8% 34.3% 32.2%
Cash from Operations ($USD Millions)$57 $242 $130.3

Q4 vs prior year and guidance/consensus:

MetricQ4 2023Q4 2024 ActualQ4 2024 Guidance (Company)Consensus (S&P Global)
Revenue ($USD Billions)$1.157 $1.248 $1.205–$1.215 N/A – consensus unavailable via SPGI
GAAP Diluted EPS ($)$1.66 $1.80 $1.73–$1.81 N/A – consensus unavailable via SPGI
Non-GAAP Diluted EPS ($)$2.75 $2.84 $2.70–$2.78 N/A – consensus unavailable via SPGI
GAAP Operating Margin (%)10.6% 10.9% 10.5%–11.5% N/A – consensus unavailable via SPGI
Non-GAAP Operating Margin (%)17.3% 16.7% 16.0%–17.0% N/A – consensus unavailable via SPGI

Segment and geography breakdown (Q4 2024):

SegmentRevenue ($USD Millions)YoY Change
Financial Services$281+15.9%
Software & Hi‑Tech$182+7.7%
Life Sciences & Healthcare$152+8.6%
Consumer Goods, Retail & Travel$250−3.0%
Business Information & Media$171−3.9%
Emerging$212+24.8%
GeographyRevenue ($USD Millions)YoY Change
Americas$753+11.4%
EMEA$468+3.1%
APAC$27+4.3%

KPIs:

KPIQ2 2024Q3 2024Q4 2024
Utilization (%)77.5% 76.4% 76.2%
DSO (days)76 74 70
Total Headcount52,650 53,250 61,200
Delivery Professionals——~55,100
Cash, Cash & Restricted ($USD Billions)$1.792 $2.041 $1.290
Share Repurchases (Qtr)1.160M shrs / $214.5M 245k shrs / $50M 53k shrs / $13.0M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance / ActualChange
Revenue ($USD Billions)Q4 2024$1.205–$1.215 (11/7/24) $1.248 (Actual) Raised vs guide; beat
GAAP EPS ($)Q4 2024$1.73–$1.81 (11/7/24) $1.80 (Actual) In‑range to high end
Non‑GAAP EPS ($)Q4 2024$2.70–$2.78 (11/7/24) $2.84 (Actual) Beat
GAAP IFO (%)Q4 202410.5%–11.5% (11/7/24) 10.9% (Actual) In‑range
Non‑GAAP IFO (%)Q4 202416.0%–17.0% (11/7/24) 16.7% (Actual) In‑range
Revenue ($USD Billions)FY 2024$4.590–$4.625 (8/8/24) → $4.685–$4.695 (11/7/24) $4.728 (Actual) Raised; beat
GAAP EPS ($)FY 2024$7.18–$7.38 (8/8/24) → $7.78–$7.86 (11/7/24) $7.84 (Actual) Raised; delivered
Non‑GAAP EPS ($)FY 2024$10.20–$10.40 (8/8/24) → $10.73–$10.81 (11/7/24) $10.86 (Actual) Raised; delivered
Revenue ($USD Billions)Q1 2025—$1.275–$1.290 (YoY ~10% at midpoint) New
GAAP / Non‑GAAP IFO (%)Q1 2025—6.5%–7.5% / 12.5%–13.5% New
GAAP / Non‑GAAP EPS ($)Q1 2025—$1.27–$1.37 / $2.22–$2.32 New
FY 2025 Revenue GrowthFY 2025—+10–14% (organic cc +1–5%) New
FY 2025 IFO (%)FY 2025—GAAP 9–10%; non‑GAAP 14.5–15.5% New
FY 2025 ETR (%)FY 2025—GAAP ≈24%; non‑GAAP ≈24% New
FY 2025 GAAP / Non‑GAAP EPS ($)FY 2025—$6.78–$7.08 / $10.45–$10.75 New

Earnings Call Themes & Trends

TopicQ2 2024 (older)Q3 2024Q4 2024 (current)Trend
AI/technology initiativesBuilt GenAI delivery practices (DIAL, AI/Run, EliteA), broad upskilling; early POCs and production groundwork with clients (Unity, Xsolis, StatGPT) Shift to larger “AI factories” and multiyear programs; client example Record (data transformation) and StatGPT 2.0; improving pipeline 75% of top 100 engaged; ~$50M AI‑native program revenue in Q4; Baker Hughes collaboration deepens enterprise AI platforms Accelerating scale/value
Pricing/macroWage inflation; pricing unable to offset; cautious demand; SG&A efficiency focus More constructive demand; limited pricing improvement; plan for below‑historical profitability in 2025 Margin compression expected in 1H 2025 from talent retention and acquisition dilution; pricing remains tight; expect 2H improvement Pressure near term, easing 2H
Delivery footprintIndia growing toward >20% of headcount; LatAm and W&C Asia hubs expanding NEORIS completed; ~7,300+ in W&C Asia; broader hiring beyond India India became largest single‑country delivery location (>10k); Ukraine sequential net additions; ~6,000 added via NEORIS/FD Diversified/global scale
Poland R&D incentivesSerbian incentive noted; (Poland detail mainly later) Poland R&D incentive recognized ($52M); boosted gross margin/IFO; tax rate headwind Incentive benefits continued; embedded in cost of revenues and reconciliations Ongoing net positive to IFO
Contracting mixFixed‑price share rising; Middle East and outcomes-based structures emerging More fixed fee/managed services; flexibility to improve profitability Continued emphasis on fixed fee, with DSO improvements (70 days) Mix shift supports stability
Attrition/peoplePyramid reshaping; juniors to improve profitability Sequential production headcount growth resumes; hiring broader geographies Voluntary attrition in single digits; investments to retain top technical talent Stronger retention posture

Management Commentary

  • “Our fourth quarter results came in better than expected… returning to year‑over‑year organic growth, while we accelerated our global strategy with the acquisitions of NEORIS and First Derivative” — Arkadiy Dobkin, CEO .
  • “Organic revenues exceeded our Q4 guidance due to higher‑than‑expected new project starts, indicating modestly improving client sentiment” — Jason Peterson, CFO .
  • “We believe 2025 will be a year of transition… clients balance their cost focus with the need to accelerate their transformational and GenAI journeys” — Arkadiy Dobkin, CEO .
  • “We are investing in retaining our top talent as well as further accelerating investments in our advanced GenAI platforms and tools… pricing environment still pressurizing gross margin and adjusted IFO” — Jason Peterson, CFO .

Q&A Highlights

  • Guidance cadence: Organic growth expected flat in Q1 with sequential improvement through 2025; high end of revenue range assumes stronger discretionary spend recovery (especially in hi‑tech) .
  • Margin bridge: ~60bps dilution from NEORIS/FD; incremental GenAI investment and compensation increases compress non‑GAAP IFO to ~15% midpoint in 2025; target a return toward 16%+ longer‑term .
  • Pricing dynamics: Pressure persists across run‑the‑business and change‑the‑business programs; pockets of improvement where transformational work accelerates .
  • Capacity and mix headwinds: Broader hiring across India, Eastern/Central Europe, and LatAm; modest average bill rate headwind from mix shift; Ukraine remains one of the most profitable geographies .
  • Fixed‑fee mix: Growth in fixed fee (Middle East, consulting-led engagements, managed services) with potential margin benefits; DSO improved to 70 days .

Estimates Context

  • We attempted to retrieve S&P Global Wall Street consensus for Q4; consensus data was unavailable due to SPGI request limits (“Daily Request Limit … Exceeded”). As a result, “vs estimates” comparisons rely on company guidance beats rather than consensus values [GetEstimates error].
  • Given Q4 outperformance vs guidance and 2025 revenue growth outlook (10–14%) alongside lower non‑GAAP IFO (14.5–15.5%), models may need to reflect stronger top‑line trajectories with tempered near‑term margin assumptions per management’s framework .

Key Takeaways for Investors

  • Revenue momentum is real: Q4 delivered 7.9% YoY growth with a return to organic constant currency growth (+1.0%), and beat on both revenue and non‑GAAP EPS vs guidance .
  • Near‑term margin trade‑off: Management is prioritizing talent retention and GenAI investments, and absorbing acquisition dilution; expect non‑GAAP IFO ~14.5–15.5% for FY25 with 2H improvement .
  • AI commercialization is scaling: 75% of top 100 clients engaged; ~$50M in AI‑native program revenue in Q4; collaborations like Baker Hughes validate enterprise‑scale opportunity .
  • Diversified delivery footprint: India is now the largest delivery location; Ukraine capacity is recovering; NEORIS/FD expand LatAm/EMEA capabilities and financial services depth .
  • Segment mix matters: Watch continued strength in Financial Services, Life Sciences/Healthcare, Emerging, and Software & Hi‑Tech; monitor recovery in Consumer/Retail and Business Information & Media .
  • Cash discipline: Q4 operating cash flow moderated; cash balances reduced post‑acquisitions; share repurchases continue with remaining authorizations .
  • Setup for 2025: Revenue growth guided at +10–14% (organic cc +1–5%); EPS ranges set; execution on pricing, utilization, and acquisition integration will be key for margin recovery .

Sources: Q4 2024 press release and exhibits ; Q4 2024 earnings call transcript ; Q3/Q2 2024 press releases and transcripts for trend analysis ; Baker Hughes collaboration press release .