Release Date: May 08, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• EPAM Systems Inc (EPAM, Financial) reported stronger-than-expected Q1 results, marking consecutive quarters of outperformance despite a challenging macroeconomic environment.
• The company announced a planned leadership succession with Balazs Fejes set to become the new CEO and President, bringing extensive experience and a vision for EPAM's future growth.
• EPAM returned to double-digit revenue growth year-over-year, with significant contributions from both organic and inorganic sources.
• The company is experiencing increased demand for its AI capabilities, with strong double-digit growth in AI-related revenues quarter-over-quarter.
• EPAM's global delivery hubs, particularly in India and Central Eastern Europe, continue to expand, supporting the company's ability to meet evolving client needs.

Negative Points

• EPAM's GAAP gross margin decreased to 26.9% from 28.4% in the same quarter last year, impacted by compensation increases and lower profitability from recent acquisitions.
• Cash flow from operations significantly declined to $24 million from $130 million in the same quarter of 2024, due to higher bonus payments and increased DSO.
• The company faces ongoing macroeconomic uncertainties, which could impact client decision-making and spending in the second half of 2025.
• EPAM's consumer goods, retail, and travel verticals experienced a year-over-year revenue decline, largely due to softness in consumer products and retail.
• Despite improvements, the pricing environment remains challenging, with limited ability to pass on compensation increases to clients.

Q & A Highlights

Q: Can you provide more color on the second half confidence for the 2025 growth guide, especially regarding the underlying macro environment and contracted versus needed business? A: Arkadiy Dobkin, CEO, mentioned that while the view for the year hasn't changed much, the first half of the year was better than expected. The projection for the second half remains in line with previous communications, with no specific changes outside of normal expectations. Jason Peterson, CFO, added that demand improvement was seen in February and March, and continues into April and May, with no change in client purchasing behavior.

Q: Can you provide details on the bookings dynamics and the impact of AI-related work on performance and optimism? A: Jason Peterson, CFO, noted that AI native work showed strong double-digit growth in revenues between Q1 and Q2, indicating a positive direction in bookings and performance.

Q: How should we expect free cash flow to trend throughout the year, considering the lower result this quarter? A: Jason Peterson, CFO, explained that Q1 is usually low due to seasonality and bonus payments. The expectation is for 80% to 90% cash flow conversion, with DSO likely to remain elevated due to fixed fee revenues and milestone billings.

Q: Are there plans to deploy pricing adjustments later in the year as organic demand picks up? A: Arkadiy Dobkin, CEO, stated that it is too early to call for pricing adjustments, as the improvement in demand is still relatively small and any changes would lag.

Q: Can you discuss plans to improve gross margin over the remainder of the year? A: Jason Peterson, CFO, mentioned that seasonal factors and improved utilization are expected to benefit gross margin. The focus is on driving revenue growth and improving utilization to achieve better margins.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.