Epam Systems ((EPAM)) has held its Q1 earnings call. Read on for the main highlights of the call.
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EPAM Systems’ recent earnings call painted a picture of robust growth tempered by some financial challenges. The company reported strong Q1 results, showcasing significant revenue growth and AI-driven momentum, even as it navigated a challenging macroeconomic environment. Strategic leadership transitions and continued geographic expansion were also highlighted, although decreased free cash flow, declining gross margins, and specific industry verticals facing headwinds posed challenges. Overall, the sentiment was one of cautious optimism, balancing growth initiatives with financial hurdles.
Strong Q1 Revenue Growth
EPAM Systems reported impressive revenue figures for the first quarter, generating $1.3 billion, which marks an 11.7% year-over-year increase. This growth exceeded expectations, particularly in organic constant currency terms, which saw a 1.4% rise compared to Q1 2024, surpassing the anticipated flat growth.
AI-Driven Momentum
The company is riding a wave of AI-driven momentum, with AI native revenues experiencing strong double-digit growth quarter-over-quarter. This surge is attributed to heightened client demand for AI capabilities, with EPAM engaging in numerous AI initiatives across its top 100 clients.
Leadership Transition Announced
A significant leadership transition is on the horizon for EPAM Systems. Arkadiy Dobkin announced his planned move to Executive Chairman, while Balazs Fejes is set to take over as CEO and President on September 1, 2025, marking a new chapter in the company’s leadership.
Geographic Expansion and Talent Growth
EPAM’s geographic expansion is evident with a notable increase in net organic headcount across India, Europe, and Western Central Asia. This growth, driven by strong demand in these regions, resulted in a total headcount increase of 18.2% year-over-year.
Recognition and Partnerships
EPAM’s innovative efforts have been recognized, as the company was named Google 2025 Partner of the Year for Oil and Gas. This accolade underscores EPAM’s strong collaborations and innovations in AI-powered solutions.
Decreased Free Cash Flow
The company faced a decrease in free cash flow, which dropped to $15 million from $123 million in the same quarter last year. This decline was primarily due to higher bonus payments and increased DSO linked to fixed fee revenues.
Gross Margin Decline
EPAM experienced a decline in gross margins, with GAAP gross margin for Q1 at 26.9%, down from 28.4% in Q1 2024. The non-GAAP gross margin also decreased, impacted by compensation increases and lower profitability from acquisitions.
Challenges in Consumer and Telecom Verticals
Certain industry verticals, such as consumer and telecom, faced challenges. Generic goods, retail, and travel sectors saw a 1.4% year-over-year decrease, while emerging verticals’ organic revenue contracted by 3.5% due to softness in manufacturing and telecom clients.
High DSO Levels
The company reported high Days Sales Outstanding (DSO) levels, which rose to 75 days at the end of Q1, up from 70 days in Q4 2024. This increase is attributed to a growing share of fixed fee revenues and associated milestone billing.
Forward-Looking Guidance
Looking ahead, EPAM Systems has raised its full-year revenue growth guidance to a range of 11.5%-14.5%, with an inorganic contribution of about 9%. The company expects organic constant currency growth between 2%-5%. This optimistic outlook is supported by strong performance in financial services and the Americas region, along with continued focus on AI-related capabilities.
In summary, EPAM Systems’ earnings call highlighted a blend of strong growth and strategic initiatives, alongside financial challenges that temper the overall optimism. The company’s robust revenue growth, AI momentum, and leadership changes are set against the backdrop of decreased cash flow and margin pressures, painting a complex picture for investors and stakeholders.