EPAM Systems’ Earnings Call Highlights Growth Amid Challenges

Epam Systems ((EPAM)) has held its Q4 earnings call. Read on for the main highlights of the call.

EPAM Systems’ latest earnings call revealed a strong return to organic growth and successful integration of acquisitions, which have significantly expanded the company’s global footprint and capabilities. Despite impressive growth in AI engagements and key verticals, EPAM faces ongoing profitability pressures due to a challenging pricing environment and geopolitical risks. The company’s outlook remains cautiously optimistic, balancing strategic investments with macroeconomic uncertainties.

Return to Organic Revenue Growth

EPAM Systems reported a mid-single-digit growth year-over-year and sequentially in Q4, marking its return to organic revenue growth for the first time since Q1 of 2023. This growth was fueled by improvements in client sentiments and increased engagements across all verticals and geographies, particularly in AI-related capabilities.

Successful Acquisitions and Expansion

The strategic acquisitions of NEORIS and First Derivative have significantly expanded EPAM’s global presence, adding nearly 6,000 employees across Latin America, Canada, Spain, the UK, and Ireland. These acquisitions are set to accelerate EPAM’s strategy and enhance its market positioning.

Strong Performance in Key Verticals

EPAM experienced robust year-over-year growth in four out of six verticals, with notable momentum in life sciences, healthcare, software and high tech, and financial services. The Americas and APAC regions were at the forefront of this growth.

Growth in AI Engagements

The company reported substantial traction in GenAI initiatives, with 75% of top country clients engaged. Revenue from AI-native programs reached approximately $50 million in Q4, indicating strong growth in early-stage projects.

Record Headcount Growth

EPAM ended Q4 with over 61,200 employees, reflecting significant contributions from recent acquisitions and organic growth. India became the largest single country delivery location for EPAM, now representing over 10,000 employees.

Profitability Pressure

EPAM experienced a decline in non-GAAP gross margin to 32.2% in Q4 2024 from 33% in the previous year, primarily due to compensation increases that were not offset by pricing improvements and lower profitability from recent acquisitions.

Challenging Pricing Environment

The company faced difficulties in enhancing client pricing in the near term. Combined with compensation increases and dilution from recent acquisitions, this resulted in continued margin pressures.

Geopolitical and Macro Risks

Ongoing geopolitical issues, particularly in Ukraine, and broader macroeconomic uncertainties continue to challenge EPAM, potentially impacting client spending and talent markets.

Lower Cash Flow from Operations

Cash flow from operations in Q4 was $130 million, down from $171 million in the same quarter of 2023. This decline is attributed to recent acquisitions and increased operational expenses.

Forward-Looking Guidance

EPAM Systems provided guidance for 2025, projecting a revenue growth range of 10% to 14%, with inorganic contributions from recent acquisitions accounting for approximately 10% of this growth. The company expects flat organic revenue growth in the first quarter, followed by sequential improvements throughout the year. On the profitability front, EPAM anticipates improvements in the second half of the year, with expected GAAP and non-GAAP income from operations ranging between 9% to 10% and 14.5% to 15.5% respectively.

In conclusion, EPAM Systems’ earnings call highlights a strong return to growth fueled by strategic acquisitions and expansions, particularly in AI and key verticals. Despite facing profitability pressures and geopolitical risks, the company remains optimistic about its strategic investments and future growth prospects.