EPAM Systems Q4 2024 Earnings Report

EPAM Systems EPS Results

• Actual EPS: $2.23
• Consensus EPS: $2.75
• Beat/Miss: Missed by -$0.52
• One Year Ago EPS: N/A

EPAM Systems Revenue Results

• Actual Revenue: $1.25 billion
• Expected Revenue: $1.21 billion
• Beat/Miss: Beat by +$35.08 million
• YoY Revenue Growth: N/A

EPAM Systems Announcement Details

• Quarter: Q4 2024
• Date: 2/20/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 20, 2025
• Conference Call Time: 8:00AM ET

EPAM Systems (NYSE:EPAM) provides digital platform engineering and software development services worldwide. The company offers engineering services, including requirements analysis and platform selection, customization, cross-platform migration, implementation, and integration; infrastructure management services, such as software development, testing, performance tuning, deployment, maintenance, and support services. It also provides operation solutions comprising integrated engineering practices and smart automation services. In addition, the company offers business, experience, technology, data, and technical advisory consulting services; and digital and service design solutions, which comprise strategy, design, creative, and program management services, as well as physical product development, such as artificial intelligence, robotics, and virtual reality. The company serves the financial services, travel and consumer, software and hi-tech, business information and media, life sciences and healthcare, and other industries EPAM Systems, Inc. was founded in 1993 and is headquartered in Newtown, Pennsylvania.

EPAM Systems Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good day, and welcome to the Fourth Quarter and Full Year twenty twenty four EPAM Systems Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Finally, I would like to advise all participants that this call is being recorded. Thank you.

[Operator]

I would now like to welcome Mike Rochandel, Head of Investor Relations to begin the conference. Mike, over to you.

[Mike Rowshandel, Director - Head of Investor Relations at EPAM Systems]

Good morning, everyone, and thank you for joining us today. As the operator just mentioned, I'm Mike Roshendel, Head of Investor Relations. By now, you should have received your copy of the earnings release for the company's fourth quarter and full year twenty twenty four results. If you have not, a copy is available on epam.com in the Investor Relations section. With me on today's call are Arkady Dobkin, CEO and President and Jason Petersen, Chief Financial Officer.

[Mike Rowshandel, Director - Head of Investor Relations at EPAM Systems]

I would like to remind those listening that some of the comments made on today's call may contain forward looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non GAAP measures have been reconciled to the comparable GAAP measures and are available in our quarterly earnings materials located in the Investor Relations section of our website. With that said, I will now turn the call over to Ark.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Thank you, Mike. Good morning, everyone. Thank you for joining us today. It's good to share that our fourth quarter results came in better than expected. It was another quarter of strong execution.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Thanks to our current differentiation and relevance of our advanced capabilities and service offerings across our new and existing client portfolios. Many of the encouraging themes we shared last quarter have carried through into this quarter. Before discussing our Q4 results and some thoughts on 2025, I would like to step back and reflect on the full year 2024, which was a year of uneven demand, improved stabilization and building some sequential momentum. There are three key points I would like to highlight on our performance over the past year. Number one, we were successfully executing our global business strategy while simultaneously addressing many challenges we have accumulated during the last few years.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

We've done this both organically and through acquisitions with a continuous focus on becoming the most globally geo balanced talent company in the world for AI native digital business services. The two most recent acquisitions, Nuiris and Fourth Derivatives or EVD, are good examples of how we are investing to accelerate our strategy. They allowed us to meaningfully expand our existing global client relationship and further penetrate new markets and talent geo hubs. While still early, we we see encouraging progress across several net new opportunities with more than dozen joint pursuit that combine EPAM new orders and FD capabilities together. Number two, we are pleased to end the year with an underlying improvement on our stand alone business, delivering better results than our expectations earlier in the year when we had to adjust our outlook for weaker than expected H1.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

And finally, number three, exiting 2024, we feel good about the sequential momentum we've built over the past two quarters and see encouraging signs as we look ahead into 2025. While there is still plenty of caution and broad macro sensitivity, we believe we see some fundamental improvements in the business. It gives us optimism that 2025 will be much more transformative and better year for us than 2024 was. Now turning to our Q4 results. During Q4, we grew mid single digits both year over year and sequentially.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Notably returning to organic revenue growth for the first time since Q1 of twenty twenty three. We continue to see improvements in client sentiments and engagements across all our verticals and geographies, and particularly around our AI related capabilities. Our performance in Q4 was driven by our ability to increase our clients' trust and reassure continuous superior quality execution in our key horizontal and vertical domains, while simultaneously we're seeing more globally diversified talent. On a stand alone basis, excluding recent acquisitions, we saw four out of six verticals grow year over year with five out of six growing sequentially, reflecting strong momentum from last quarter. Key verticals to call out include life science and healthcare, software and high-tech, financial services and emerging.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Across geographies, we see similar story to last quarter with Americas and APAC leading growth year over year, with Europe continuing to show organic sequential revenue growth. Now turning to demand. We are encouraged to see a modestly more positive demand environment compared to ninety days ago. Sentiment continues to improve across our existing and newly acquired client portfolios. These clients rely on us for our core engineering DNA as well as our advanced generic capabilities.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

In some cases, we are consolidating work from other suppliers as clients shift over to more engineering plant and scale programs. In our most recent conversations across the C suite, the underlying tone and buying signals are higher than they were last year. With further accumulation of technical and data debt for the past twelve months, we are seeing accelerated take up in more scaled and transformational AI programs. Based on the significant backlog of technical and data modernization along with new AI related demand, we believe that 2025 will be the year where we begin to see real generic force mover advantages. While we are relatively optimistic about the mid term outlook is more encouraging client buying signals than twelve months back, we do still see multiple pockets of caution driven by broad macro risks, policy specific uncertainty due to a very dynamic geopolitical environment and certain challenges in some of our clients and silent markets.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Further, cost very much remains in focus and continues to be an important decision factor for many of our clients. So based on these uncertainties in our current vantage point, we are balancing our optimism as clients continue to transition and modestly expand their discretionary spend. Moving into our global delivery approach, we demonstrated strong execution throughout the year. As we continue to diversify our global talent pools and bringing more optionality to our clients across all four of our major delivery hubs in Europe, India, Latin America and Western Central Asia. In Q4, we saw sequential improvements of net organic additions, which was broader than just India and included some of our traditional European locations.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Europe remains core to us as a top talent pool and we believe we will continue to grow in the region as discretionary spend returns to higher levels. Ukraine is an interesting example to share given the geopolitical environment. While production headcount remained mostly in line year over year, in Q4, we saw sequential net additions for the first time since the start of the Russian invasion. We believe this is a positive signal of our clients' comfort level and desire to return to some of our traditional locations. In India, we hit an important milestone for the company as it now represents our largest single country delivery location and second as a region.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

In just ten years, Epank has achieved 10x growth in India with now over 10,000 employees. This speaks to our ability to adapt to changing market conditions and our commitment to invest in a globally diverse and timely workforce in line with EPAM for G and A. In Latin America, we significantly strengthened our footprint with Nuaris, making Latin America our third largest delivery region and a very important pillar in our global model. We believe we have now the right mix of talent focusing on delivery for North American clients coupled with a deep local expertise and strong capabilities to engage and deliver in LATAM. In Western Central Asia, as we mentioned last quarter, we continue to progress quite nicely with our still relatively new delivery hub of over 7,300 people now.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Back to the two acquisitions we closed in Q4. In overall, with Neuris and FD, we significantly increased our global footprint with the addition of nearly 6,000 people combined, primarily across Latin America, Canada, Spain, UK and Ireland. We remain committed to executing our global delivery strategy further. Now shifting to Gen AI. Even with all the recent noise, sometimes with significant level of confusion and debates, We are seeing indicators of positive change and growing impact.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Overall, we continue to make significant traction across our client portfolio with now 75% of our top country clients engaged on D and A initiatives. Our early stage projects continue to show strong growth year over year with hundreds of new vertical use cases emerging and turning into Argentine AI pilots. These are now mid sized AI projects with more defined outcomes. We are beginning to see more volume and we believe this speaks to the investment and traction clients are making in this space. These programs have a high probability of turning into agentic transformation place in key horizontal and vertical domains.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Finally, in our larger scale AI factories, we manage the entire AI portfolio of agents and applications throughout the program lifecycle and generate tens of millions of dollars in value by each such engagement. Our GenAI and AI driven client engagement could also be presented in three major dimensions. Dimension one is DLC and other related areas of individual and team productivity improvements. Dimension two, data and cloud engagements triggered by the need to enable AI nature programs at scale. Dimension three, scaled AI nature programs and platforms is a goal to drive value against proven business cases and when clients already solve their data and cloud infrastructure challenges.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Let me expand a bit on this. Within dimension one, we are addressing the need of complex enterprise level engagements to orchestrate individual efforts to work total productivity improvements at large teams and programs levels via all latest generic advances. Often to have real engagement impact, our hybrid with client teams must have the same level of modern engineering maturity as purposely G and A trained our own teams. That is why we are offering to client GNAI enabled software development life cycle for HDLC transformational programs, utilizing market leading tools and methodologies along with the EPAM ARRAN framework built on top of our own Dial, Edita, Codme and some other IP assets. It made significant impact on large conference engagement and helps to advance the adoption of AI in large scale enterprises by bringing measurable value through both cost optimization and the creation of new revenue streams.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

While I believe dimension two is very much self explanatory, dimension three is our go to market business transformational programs natively enabled by Gen AI and AI technology. As we move into more comprehensive, agentic proposition, our AI native engagements are starting to be picked up in volume and size. Compared to the first half of twenty twenty four, where we were generating single digit millions of revenue from these AI native programs, Q4 stands out by generating about $50,000,000 in that category. Let me share two client examples to further illustrate how our efforts are driving client engagement and generating real pragmatic value. Let's start with Canadian Tire Corporation, the largest retail chain in Canada where we have embarked on a journey to standardize and modernize software delivery lifecycle.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

With the combined power of CTC Product Engineering Center of Excellence and upon know how, We already drive an initial result with very real optimization and efficiency savings. So far, Ipam has effectively deployed the Alita platform across CTC delivery organization, trained more than 700 individuals and ensures comprehensive adoption of new modernized tools. This is a real example of how our approach amplifies organizational productivity, reduces cost and improves in team and cross team collaboration and serves as a foundation for the next generation of AgenTic platform for ADLC. Another notable example of real progress at scale is our expanded engagements with Baker Hughes, one of the world's largest oilfield services, industrial and energy technology companies. We are enabling Baker Hughes in building and offering to their clients larger and native digital platforms by combining the EPAM best in class product engineering capabilities with Baker Hughes' expertise in energy technology.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Just a few weeks ago, Baker Hughes named EPAM as a key partner for digital and AI to transform the energy sector by leveraging advanced AI native digital platform implementations at scale. We believe EPAM is one of the few AI native service providers who can demonstrate scale programs with proven AI ROI today, which is also well enabled by our growing global partnerships with cloud and data major providers with whom we are expanding our collaborations and focusing on general and AgenTek AI go to marketplace. Now, if we step back and look at the bigger picture more broadly for 2025 and beyond, our thesis remains unchanged. We believe the demand for advanced AI native and Adjentic software and data engineering services will only increase as engineering productivity gains will be significantly outsized by incremental demand to build new and replace the legacies as clients quickly expand in their focus to solve more complex tasks more efficiently. Further, the need for security modernization and managing enterprise data platforms will continue to demand skilled expertise that combines critical AI skills with modern engineering and data science capabilities, all areas in which EPAM excels.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

To conclude, we are pleased with our stronger than expected Q4 results and stabilization achieved during the last year. Our new AI native capabilities, data and core engineering differentiation remained evident, while they are more globally diversified today than ever before. We continue to see clients return to quality and reliable execution and we believe that is putting us into a stronger competitive position today compared to last year. At the same time, we do believe 2025 will be still a challenging and transformative year for the industry with a lot of pressure to mitigate two opposite trends across our client base. One is still being driven by cost sensitivity, while another by the need to return to more discretionary spending and addressing accumulated during the last few years backlogs, which means also that the plant will be performing during 2025, this continuous margin pressures triggered by necessity to invest into several important for us in 2025 areas, such as critical skills and talent retention and development, authentic AI and general IP and tooling advancements, integration efforts of our recent acquisitions and go to market strategies.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

That should allow us to be in right standing when discretionary demand environment will fully rebound. So while we remain vigilant to potential headwinds, we believe our strategic positioning and ongoing initiative places on the trajectory for sustainable performance and growth in 2025 and beyond. Let me now turn the call over to Jason, who will provide additional details on our Q4 results and 2025 outlook.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Thank you, Ark, and good morning, everyone. In the fourth quarter, EPAM generated revenues of $1,250,000,000 a year over year increase of 7.9% on a reported basis, including revenues from recent acquisitions Neoras and First Derivatives. On an organic constant currency basis, revenues grew 1% compared to the fourth quarter of twenty twenty three. In Q4, we are pleased to return to year over year organic revenue growth. Organic revenues exceeded our Q4 guidance due to higher than expected new project starts, indicating modestly improving client sentiment.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Due to the quarter's significant inorganic revenue contribution, I will speak to both organic and inorganic revenues as I discuss industry vertical and geographic performance. Beginning with industry verticals, I want to echo Arik's comments that in Q4, '5 out of six of our industry verticals delivered sequential organic revenue growth. Only the travel and consumer vertical declined Q3 to Q4. Financial services delivered very strong growth of 15.9% year over year, reflecting 4.3% organic and 11.6% inorganic growth, driven by continued strength in the banking, insurance and payment sector. Life sciences and healthcare increased 8.6% on a year over year basis, reflecting 5.7% organic and 2.9 inorganic growth.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Growth in the quarter was driven primarily by clients in life sciences, including some revenues derived from new logo accounts. Software and high-tech increased 7.7% year over year, reflecting 6.4% organic and 1.3% inorganic growth. Consumer goods retail and travel decreased 3% year over year, reflecting a negative 5.7% organic and a positive 2.7% inorganic growth, largely due to declines in consumer products and retail, partially offset by growth in travel. Business information and media declined 3.9% year over year, reflecting negative 4.7% organic and positive 0.8% inorganic growth. Revenue in the quarter was impacted by the previously discussed ramp down of the top 20 client.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

However, sequentially, we were encouraged to see the vertical return to strong growth as we continue to build momentum. And finally, our emerging verticals delivered very strong growth of 24.8%, reflecting 3% organic and 21.8% inorganic growth. Growth was primarily driven by clients in energy, manufacturing and industrial materials with significant contribution coming from Neoras. From a geographic perspective, The Americas, our largest region representing 60% of our Q4 revenues, increased 11.4% year over year, reflecting 2.7% organic and 8.7% inorganic growth. EMEA, representing 38% of our Q4 revenues, increased 3.1% year over year, reflecting negative 1.4% organic and positive 4.5% inorganic growth.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

In the quarter, the region continued to show sequential organic revenue improvement. And finally, APAC increased 4.3% year over year and represents 2% of our revenues. In Q4, revenues from our top 20 clients grew 4% year over year, while revenues from clients outside our top 20 increased 10%. Moving on to the income statement, our GAAP gross margin for the quarter was 30.4% compared to 31.1% in Q4 of last year. Non GAAP gross margin for the quarter was 32.2% compared to 33% for the same quarter last year.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Relative to Q4 twenty twenty three, gross margin in Q4 twenty twenty four was negatively impacted by compensation increases, including those resulting from our 2024 promotion campaign, which we were not able to offset through pricing, as well as lower profitability of recent acquisitions. The compensation increases along with lower profitability from acquisitions and negative foreign exchange impact exceeded the benefits of improved utilization and the positive impact from the Polish R and D incentive. GAAP SG and A was 17.4% of revenue compared to 18.5% in Q4 of last year. Non GAAP SG and A came in at 14.4% of revenue compared to 14.2% in the same period last year. SG and A measured as a percent of revenue is now higher in part due to our recent acquisitions running with higher SG and A levels compared to our standalone business.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

SG and A expense for Q4 twenty twenty four reflects SG and A associated with recent acquisitions as well as higher variable compensation compared to Q4 twenty twenty three. GAAP income from operations was $137,000,000 or 10.9% of revenue in the quarter compared to $122,000,000 or 10.6% of revenue in Q4 of last year. Non GAAP income from operations was $2.00 $8,000,000 or 16.7% of revenue in the quarter compared to $200,000,000 or 17.3% of revenue in Q4 of last year. Our GAAP effective tax rate for the quarter came in at 24.8% and our non GAAP effective tax rate was 24%. Diluted earnings per share on a GAAP basis was $1.8 Our non GAAP diluted EPS was $2.84 reflecting an increase of $0.09 or 3.3% compared to the same quarter in 2023.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

In Q4, there were approximately 57,400,000 diluted shares outstanding. Turning to our cash flow and balance sheet. Cash flow from operations for Q4 was 130,000,000 compared to $171,000,000 in the same quarter of 2023. Free cash flow was $115,000,000 compared to free cash flow of $161,000,000 in the same quarter last year. We ended the quarter with approximately $1,300,000,000 in cash and cash equivalents, which is lower compared to the same quarter last year due to our recently completed acquisitions.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

At the end of Q4, DSO was seventy days compared to seventy four days in Q3 twenty twenty four and seventy one days in the same quarter last year. Share repurchases in the fourth quarter were approximately 53,000 shares for $13,000,000 at an average price of $241.99 per share. Moving on to a few operational metrics for the quarter. We ended Q4 with more than 55,100 consultants, designers, engineers, trainers and architects, a growth of 16.3% compared to Q4 of twenty twenty three. This was a result of recent acquisitions, which contributed nearly 6,000 delivery professionals.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

In addition to solid organic growth, which contributed sequential net additions of around 1,500 employees in the quarter. Our total headcount for the quarter was 61,200 employees. Utilization was 76.2% compared to 74.4% in Q4 of last year and 76.4 in Q3 twenty twenty four. Turning to our 2024 full year results. Revenues for the year were $473,000,000,000 up to 0.8% on a reported basis year over year.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

On an organic constant currency basis, revenues were down 1.7% year over year. GAAP income from operations was $545,000,000 an increase of 8.6% year over year and represented 11.5% of revenue. GAAP income from operations benefited from the recognition of $69,000,000 of incentives related to research and development activities performed in Poland and was negatively impacted by $31,000,000 of severance related costs. Our non GAAP income from operations was $779,000,000 a growth of 1.8% compared to the prior year and represented 16.5 of revenue. Our non GAAP income from operations benefited from the recognition of $45,000,000 of incentives related to research and development activities performed in Poland in 2024.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Our GAAP effective tax rate for the year was 22.2%. Our non GAAP effective tax rate was 24%. Diluted earnings per share on a GAAP basis was $7.84 Non GAAP EPS, which excludes adjustments for stock based compensation, acquisition related costs and certain other one time items including costs associated with our cost optimization programs, was $10.86 reflecting a 2.5% increase over fiscal twenty twenty three. In 2024, there were approximately 58,000,000 weighted average diluted shares outstanding. Cash flow from operations was $559,000,000 compared to $563,000,000 for 2023 and free cash flow was $527,000,000 reflecting 83.7% adjusted net income conversion.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

And finally, shares repurchased in 2024 were approximately 1,854,000 shares for $398,000,000 at an average price of $214.65 per share. Now, let's turn to guidance. Before moving to the specifics of our 2025 and Q1 outlook, I would like to provide some thoughts to help frame our guidance. We have been pleased with the progress we are making on demand generation and will continue to prioritize revenue growth into 2025. We see stability in client budgets and some degree of shift in spending towards growth and strategic programs.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

In 2025, we expect flat year over year organic revenue growth in Q1, followed by continued improvement throughout the year. In terms of profitability for 2025, we do expect to run the business at somewhat lower levels of profitability than we have in past years. As Ark mentioned, we are investing in retaining our top talent as well as further accelerating investments in our advanced Gen AI platforms and tools. Compensation increases to retain talent for future growth combined with the limited ability to improve client pricing in the near term and additional pressure from dilutive impact of recent acquisitions will continue to put pressure on profitability this year. However, we do expect to see improvement in our profitability levels from the first half to the second half of the year.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Our guidance assumes that we will continue to be able to deliver from our Ukraine delivery centers a productivity level similar to those achieved in 2024. Now starting with our full year outlook. Revenue growth will be in the range of 10% to 14% with an inorganic contribution of approximately 10% for 2025. Foreign exchange is expected to have a negative impact of 0.9%. We expect GAAP income from operations to be in the range of 9% to 10% and non GAAP income from operations to be in the range of 14.5% to 15.5%.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

We expect our GAAP effective tax rate to be approximately 24%. Our non GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation will also be 24%. Earnings per share, we expect the GAAP diluted EPS will be in the range of $6.78 to $7.08 for the full year and non GAAP diluted EPS will be in the range of $10.45 to $10.75 for the full year. We expect weighted average share count of 58,100,000 fully diluted shares outstanding. For Q1 of twenty twenty five, we expect revenues to be in the range of $1,275,000,000 to $1,290,000,000 producing year over year growth of approximately 10%.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Our guidance reflects an inorganic contribution of 11.4% with a 1.4% negative FX impact during the quarter. For the first quarter, we expect GAAP income from operations to be in the range of 6.5% to 7.5% and non GAAP income from operations to be in the range of 12.5% to 13.5%. Our Q1 income from operations guide reflects the impact of resetting Social Security caps, the negative impact of 2024 compensation increases, which we were unable to offset with better pricing, dilution from recent acquisitions and a slightly softer revenue in the month of January as clients in certain verticals finalize budgets. For the first quarter, we expect GAAP income from operations to be in the range of 6.5% to 7.5% and non GAAP income from operations to be in the range of 12.5% to 13.5%. Our Q1 income from operations guide reflects the impact of resetting Social Security caps, the negative impact of 2024 compensation increases, which we were unable to offset with better pricing, dilution from recent acquisitions and slightly softer revenues in the month of January as clients in certain verticals finalize budgets.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

We expect a weighted average share count of 57,700,000.0 diluted shares outstanding. Finally, a few key assumptions that support our GAAP to non GAAP measurements for 2025. Stock based compensation expense is expected to be approximately $194,000,000 with $50,000,000 in Q1, '40 '4 million dollars in Q2 and $50,000,000 in each remaining quarter. Amortization of intangibles is expected to be approximately $68,000,000 for the year with approximately $18,000,000 in Q1 and $17,000,000 in each remaining quarter. The impact of foreign exchange is expected to be approximate $1,000,000 loss each quarter.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Tax effect of non GAAP adjustments is expected to be approximately $61,000,000 for the year with $17,000,000

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

in Q1, '14 million dollars

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

in Q2 and $15,000,000 in each remaining quarter. We expect excess tax benefits to be around $14,000,000 for the full year with approximately $7,000,000

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

in Q1, '2 million dollars

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

in Q2, '1 million dollars in Q3 and $3,000,000 in Q4. Severance, driven by our 2024 cost optimization program, is expected to be $6,000,000 in Q1 and $1,000,000 in Q2. Finally, one more assumption outside of our GAAP to non GAAP items. We maintain a significant level of cash and are generating a healthy level of interest income. However, based on the reduction in cash resulting from the recent acquisitions, we are expecting interest and other income to be smaller in 2025 compared to 2024.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

With around $18,000,000 for the 2025 full year with $4,000,000 in Q1 and Q2 and $5,000,000 in each remaining quarter. My thanks to all the ePAMers who made 2024 a successful year and will help us drive growth throughout 2025. Operator, let's open the call for questions.

[Operator]

And your first question comes from the line of Maggie Nolan with William Blair. Your line is open.

[Maggie Nolan, Research Analyst - Technology, Media & Communications at William Blair & Company, L.L.C]

Thank you. Jason, I was hoping you could elaborate a little bit on the expectations that are embedded in the top end and the low end of revenue guidance, both company specific and, from a macro perspective?

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Yes. So I think we've been fairly careful about our expectations for Neoras and FD who both, you know, generally delivered at the level of revenues that we expected in Q4. We have them both with some modest degree of growth as we go from 2024 to 2025. And then as I think we said in the prepared remarks is that we've got a effectively kind of a 0% to 4% growth for organic. And if you introduce the foreign exchange headwinds, you've got a 1% to 5% growth, again, using an organic constant currency.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Right now, what we're seeing is a somewhat slow start in January, but we're seeing substantial program starts and clients, beginning to really get started here in 2025 as we enter February and as we work through the month. If I were to talk about that and Maggie, is this for revenue or is this for the revenue and EBITDA? The revenue? Okay. So what we would have is is is clearly some degree of sequential growth, Q1 to Q2.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

We are seeing substantial sort of project starts in certain areas of our business and we've got a couple of clients, one particularly in sort of high-tech that we expect to show substantial growth, in the year. Again, the 4%, you know, is clearly some degree of sequential revenue growth, in the back half. If you were to end up in the middle part of the range, it's kind of a softer sequential growth. So I'm not certain that helps too much. But what we are seeing is very strong sort of program starts in customer demand here in February despite the fact we had sort of a slower start to January.

[Maggie Nolan, Research Analyst - Technology, Media & Communications at William Blair & Company, L.L.C]

Thank you. That's helpful. And then on the margin side, Arkady, you mentioned that some investments that you are clearly going to be making, I'd be particularly interested in some of the commentary around, AgenTek AI and, IT since IT services companies don't typically retain a significant amount of the IP that they generate. And then how are you thinking about balancing those investments with perhaps the need to drive some cost synergies in these acquisitions that you just onboarded?

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Yes. So let me just do

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

a quick bridge on adjusted IPO and then I'll probably let Ark talk a little bit more about the importance of the investments in, in GenAI. Again, we've got a 2024 at 16.5% adjusted IFO. The midpoint of our guided range for 2025, that would be 15%. We've talked about dilution due to the, due to the acquisition of FD and first and, and Neoras. Both of them are accretive from an EPS standpoint, but they are dilutive from an adjusted IPO.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

And so I think that we've updated our assumption and that's about a 60 basis point dilution. So 16.5 with a 60 basis point, diluted impact of the acquisitions were down to 15.9% and then 15.9% compares to the 15%, which is the midpoint of the 14.5% to 15.5%. And what we're seeing is some incremental investment in Gen AI, which is causing both an increase in SG and A and a little bit of decrease in gross margin. And then Maggie, as we've kind of talked throughout 2024 and I think have also as we've talked about what we expected in 2025, we have been focused on retaining our top technical talent. And so we have had some degree of, of, cost increases or increases in compensation in 2024 in a year when it was very difficult to get rate increases.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

We still expect that this is a more challenging certainly in the first half of twenty twenty five. So what we are expecting to have is our traditional promo campaign in the first half of, of twenty twenty five with limited ability to offset those compensation increases with salary increases. We do expect the pricing environment to improve somewhat throughout the year. Clearly, we're focused on utilization and pyramids and that type of thing. But really what is happening in the 15.9% to 15% is, some amount of compression, due to price sensitivity of the clients.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

India still runs at better than average profitability. Ukraine still runs at high levels of profitability. So we feel good about the business overall, but just the pricing environment, still is kind of pressurizing our gross margin and ultimately our adjusted iPhone.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

This type of investment is not something new for us. Specifically, there is a feasible transition in technology and we all understand that investment in NII is a lot of investment in training, change in the mind of our development team how new software will be built. And on top of this number of accelerators and some IPs as well, specifically in this transitional period where market itself not bringing too many stable solutions to build new type of software. And we did it like when cloud collision was happening, this mobile collision was happening and it was significant investments, it was better macro environment back then. But we do believe that we cannot miss this investment right now because as soon as Gen AI, AI, Identical AI starting to drive real transformation, we need to be ready.

[Operator]

Your next question comes from the line of Jamie Friedman with Susquehanna. Your line is open.

[Jamie Friedman, Senior FinTech and IT Services Research Analyst at Susquehanna International Group]

Hi, good morning. I just want to ask one question. In terms of your prepared remarks, Arkady, you say and I'm quoting, in 2025 clients will balance their cost focus with the need to accelerate their transformational Gen AI journeys. That to me sounds like kind of a change the business versus run the business narrative. I'm just wondering in the context of your pricing commentary, is the pricing do you have any exposure to the run the business opportunities?

[Jamie Friedman, Senior FinTech and IT Services Research Analyst at Susquehanna International Group]

Is it all really the change to business transformational side, whether it's Gen AI or otherwise? And is the pricing pressure that you're feeling on the new stuff or on the old stuff or both? Thank you.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

So we definitely have, during the last several years, exposure to run the business and we have number of engagements. And even this we're trying to do differently than traditionally it was executed, especially with everything which we see in very different level of automation driven by deny progress. But the pressure, pricing pressure coming still during the last several years and there is a big kind of inertia to change it. And that's what we call it will be start happening in 2025 more visibly. But there is a pricing pressure across run and build as well and change as well.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Until again, the change will become much more coming to more traditional levels of demand.

[Jamie Friedman, Senior FinTech and IT Services Research Analyst at Susquehanna International Group]

Okay. Thank you for that. I'll drop back in the queue.

[Operator]

Your next question comes from the line of Brian Burgin with TD Cowen. Your line is open.

[Bryan Bergin, Managing Director at TD Cowen]

Hi, guys. Good morning. Thank you. On demand, I was hoping you could dig in more on how the client spending behavior progressed through each month in 4Q. I'm really trying to dig into commentary on new clients versus existing clients.

[Bryan Bergin, Managing Director at TD Cowen]

So can you talk about that and any interesting bookings there or anything like that as you look at new versus existing?

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

I don't think I can give you like specific numbers, but definitely we enter in good number of new clients. It's not becoming very large right away, but there are some clients which quickly go into the range of kind of annualized 10 mil. So at the same time, there are a lot of new clients which are coming through JNI kind of proof of concept and then starting to scale. But I also would probably mention that for us right now new clients, sometimes it's our old clients as well. Because for the time when starting from the beginning of the war, it was a lot of declines.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

We've seen return of these clients, not fully, but visibly. And for example, Jason mentioned one of the big tech company, so which almost went to zero now starting to really scale. So which we consider in some way new life that we approve again and prove not only would be approved, but, that they come back to us because they need the quality level and understanding of the technology, which we process.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Hey, Brian. So I'm just gonna introduce

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

a couple of numbers here. So, you know, the guide was 12 oh five to 12 15. Neuris performed as expected. We said that we would do about $54,000,000 with Neuris. FD would have been incremental to that.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

And I can tell you that that was about $12,000,000 again as we expected. So at the end of the FD to the guide, it would have been $12.17 to $12.27 and we landed $12.48 And so it clearly was in what we call our stand alone business where we saw strength. We did see sequential growth in Europe. We did see improvement in financial services, including growth in some European financial institutions. And so overall, it was quite a bit stronger quarter from a revenue growth standpoint than we had expected, particularly with good revenues in the months of November and December.

[Bryan Bergin, Managing Director at TD Cowen]

Okay. Very good. I appreciate all that detail. And then, Jason, actually on the margin too for my follow-up here. So thank you for the bridge.

[Bryan Bergin, Managing Director at TD Cowen]

Obviously, a lot of moving parts here with the R and D tax credit, but then the acquisition margin profiles, incremental investment and a different geo footprint. But as we kind of just think ahead, as demand ultimately normalizes, do you anticipate a return to profit levels where you've been before? Or is it too early to make that call?

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Yes. We are definitely expecting to see improved profitability in the second half of the year relative to the first half. And then clearly, we're looking to drive profitability back to what I would call more typical. I know some externally think about 17 plus. I've always sort of thought of us as a 16 to 17 company.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

And so the focus on the, on getting back to a 16% or better would certainly be a goal for the company. And again, with a slightly different environment, we think that's achievable.

[Operator]

Your next question comes from the line of David Grossman with Stifel. Your line is open.

[David Grossman, Managing Director at Stifel Financial Corp]

Thank you, Alcon, Wraying. I'm wondering maybe if you could speak a little bit of your capacity and your ability to accelerate revenue growth once demand improves. And maybe in part of your response, you could help to mention what the headwind we should expect from the bill rate dynamic from geographic makeshift in 'twenty five and how much that may be impacting the growth outlook?

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Okay. So in terms of our ability to grow revenue, we have continued to sort of operate with a strong sort of talent capability. So, we feel good about our ability to grow in India. We feel good about obviously our ability to grow in our traditional Eastern Europe and our ability to grow in The Americas. We are beginning to see some return and we are seeing a little bit of growth even in places like Ukraine.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Obviously, depending on how things resolve themselves there, that could open up further demand for that geography. And so I think, David, we feel good about, the opportunity to kind of grow revenues across a broad range of geographies. I do think you are going to continue to see a little bit of this headwind that we talked about in 2024. Whereas you shift into, let's say Latin America with kind of local to local kind of revenues with Neoras, some further growth in India. And growth in places like kind of Gooka, which is an attractive price point where you'll continue to see a little bit of compression.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

I don't want to say compression, but you'll continue to see some headwinds, on the revenue per headcount number as we move through 2025 would be my expectation.

[David Grossman, Managing Director at Stifel Financial Corp]

Okay. And did you provide, just some color into what you think the mix shift headwind is to revenue growth in 2025?

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

We did not. We talked about it last year. This year, I think, clearly it depends. And I think that the answer is that what I would say is we are beginning to see somewhat broader demand. Clearly, you're continuing to see more growth in India, but we are beginning to see demand for our more traditional kind of Eastern European geographies as well.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

So, maybe I would say it's somewhat less of an impact than what I talked about, in the middle of twenty twenty four. But I would say you'll continue to see some impact from that. But I haven't sized it.

[David Grossman, Managing Director at Stifel Financial Corp]

Okay, great. Thank you for that. And then, just in terms of the margins, I think you've already given a lot of color there. One thing you didn't mention was, again, any headwinds from diversifying your geographic capacity. I'm just wondering what impact if any of that's having on the margins currently.

[David Grossman, Managing Director at Stifel Financial Corp]

And just curious whether there's anything unique about your specific ability to price versus wage increases versus your peers. Because I don't think your peers are seeing quite as much impression as you may be experiencing currently in 2024 and your expectation for 2025.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Yes. I think one of the things is that we continue to focus on retaining talent and our attrition continues to decline throughout 2024. So our voluntary attrition right now is definitely in the single digits. As I think our colleague could probably talk better than I could that we do think what has made us successful over time is really the ability to deliver base with very high quality talent. We do want to make sure that we're able to retain that talent, particularly as we head towards a time where we think there is going to be more transformative programs.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

We are beginning to see, certain clients come back to us where they've had either failures or fatigue with, with other providers. We still think that the quality of execution is important. And we do think that there's an opportunity to improve price over some period of time. But I'll let Art talk about the towel.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Yes. Same to David. This is what we mentioned in our remarks. So there is kind of double movements. And again, our exposure changes proportionally much guys and many of our peers.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

And I think we try to make sure that we have the right talent to come back, when demand will be normalized. So and yes, there is pressure there. When we were allocating people, so we were allocating this to some of them to other countries in Central Europe, some of them to Western Central Asia. And there is a very different price points. We're trying to keep the right balance and create opportunity to grow in each of these locations.

[David Grossman, Managing Director at Stifel Financial Corp]

Great. Thanks for that, Arkane. Just any thoughts on the cadence that you said margin is better in the second half than the first half? And any other color you want to provide around that?

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Yes. I would just say, probably Q1

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

to Q2, you wouldn't see

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

a substantial improvement in gross margin. But we are taking the classic sort of steps to improve profitability throughout the year. That's all the things we've been talking about, improvement in utilization, improvement in pyramid and then some amount of scaling. And so we do want to be prepared for us we want to exit 2025 with an ability to drive closer or above that class profitability target of 16% or above. So

[David Grossman, Managing Director at Stifel Financial Corp]

Got it. Okay. Thank you.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

This is previous year where our profitability was increasing.

[David Grossman, Managing Director at Stifel Financial Corp]

Great. Thank you.

[Operator]

Your next question comes from the line of Jason Kuperberg with Bank of America. Your line is open.

[Jason Kupferberg, Senior Equity Research Analyst at Bank of America Merrill Lynch]

Good morning, guys. Thanks for taking the questions. The first one is just on revenue. I wanted to dive in a little bit just in terms of what's embedded in terms of assumptions on further improvement in discretionary spending. Obviously, you've started to see some pickup.

[Jason Kupferberg, Senior Equity Research Analyst at Bank of America Merrill Lynch]

And I'm wondering if the slope of that line, if you will, does that need to improve to get to, say, the midpoint or the high end of the revenue guide? What's the underlying assumption there that you've built in?

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

So the, what does it take to get the high end of the range? And what's our assumption on improving, discretionary, environment?

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

So we across portfolio, we see and this is what we were sharing like during the previous call. We see in some discretionary change, which very different than twelve months ago. And we saw it in Q4 and we're saying that this is right now in Q1. The challenge here is that pricing environment is still challenging. Again, we mentioned this.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

And how it's going to change, we need to see. But on positive side, this is exactly what we expect to the high range if this is starting to happen because there are already interesting proofs of businesses. Advantages when they started to do quality transformations, quality scale more scale programs, generic related. So that it will drive the others and pricing together with us. So this is more like a high end assumption.

[Jason Kupferberg, Senior Equity Research Analyst at Bank of America Merrill Lynch]

Okay.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

We're

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

not counting on the huge change, but we're counting on some more pragmatic views of the companies which would like to run change programs. And we saw already when the pricing was actually to the point in many programs where the vendors couldn't deliver. So this is already built up as a very good argument to do it differently.

[Jason Kupferberg, Senior Equity Research Analyst at Bank of America Merrill Lynch]

And just a follow-up on the margin. So I guess wage inflation is eclipsing pricing this year. I think you said margins down about 90 bps on an organic basis. I was curious just which countries are driving some of that wage inflation you mentioned as you're investing to retain the talent?

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Yes. I would generally say it's probably more of what I would refer as the off-site countries. Again, it would be hard for me to be specific on one country or another. What you're just seeing is, again, a focus on retaining top technical talent in an environment where it continues to be hard, as Ark said, to pass on price increases. So again, I would generally view it as we've been fairly careful on the expense of on-site talent, but it really is more in the delivery locations outside of The U.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

S. And Europe.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

And you told Italians specifically with ability to understand what's the new ZIL signal to lead with the ability to work in this enabled by GenAI and solutions enabled by GNAI. This is becoming very hard property and again, if we try to build a company which is prepared for this demand, That's a retention thing which we need like to focus exactly right now.

[Jason Kupferberg, Senior Equity Research Analyst at Bank of America Merrill Lynch]

Thank you, Art.

[Operator]

Your next question comes from the line of Darren Peller with Wolfe Research. Your line is

[Operator]

open.

[Darrin Peller, Managing Director at Wolfe Research, LLC]

Hey, good morning. Good day guys. When we exclude the couple of acquisition, it does look like your organic headcount growth inflected for the first time in some time. So maybe a bit more color on your hiring plans for the year, geographies you plan to hire or any maybe specific skill sets?

[Darrin Peller, Managing Director at Wolfe Research, LLC]

And then just as an attached question to that, geopolitically, obviously no one knows where things are going from Ukraine Russia standpoint. But if we were to see any change around the war and any change in terms of abilities for multinational top rate in those areas more, Your headcount is still I mean, you still have a decent headcount in Belarus and Ukraine. Just remind us the mix of where your headcount is going forward for this year and if that could impact you guys in any way from a margin or labor optimization standpoint of where you guys already have some headcount.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Okay. So, just as a reminder, we had net headcount additions that was organic in Q3 of this of 2024. That was somewhat less than 1,000, but still, again, a decent number of additions. We're about 1,500 as I had indicated in Q4, again on an organic kind of basis. And then of course, we had the incremental from FD and EORUS.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

And then for Q1 of twenty twenty five, we're also expected to be something approaching 1,000. We're probably a little bit below based on kind of the slower start to the January month. So we are definitely adding headcount. As I think we've talked about, although I'm not going to be specific about which countries is that we are beginning to see kind of demand return to certain geographies in Europe. We'll clearly still be growing in India.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

We'll clearly still be. We still, you know, we have seen a declining headcount in Belarus on a year over year basis. And a lot of decline in headcount in Ukraine on a year over year basis. But actually, we did see a little bit of growth late in Q4 in Ukraine. And in a resolution to the conflict, we think that could make clients far open to putting more projects programs particularly in the Ukraine.

[Darrin Peller, Managing Director at Wolfe Research, LLC]

Okay. Okay. So I guess we'll have

[Darrin Peller, Managing Director at Wolfe Research, LLC]

to see how it goes. But I imagine from a margin standpoint, some of those labor forces that you guys have could be helpful from just relative

[Darrin Peller, Managing Director at Wolfe Research, LLC]

to the mix you had

[Darrin Peller, Managing Director at Wolfe Research, LLC]

in other markets you've got to build out.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Yes. And let me just quickly, that's a very good point. Yes. Okay. Ukraine is historically and continues to be one of our most profitable geographies.

[Darrin Peller, Managing Director at Wolfe Research, LLC]

Okay. Thanks. Just a quick follow-up. I think you've seen somewhere around 400 or 500 basis points improvement or increase in fixed contract percent, if I'm not mistaken, over the last couple of periods. Maybe just the overall trend, if you could just give us a little bit more color on what you're seeing there and the driving there?

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

Yes.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

So we've got probably three things. Okay. One is that, we are growing in The Middle East, which tends to be more of a fixed fee environment. And so a little bit of the mix shift there. Okay.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

We are seeing some more consulting led programs where there's, you know, more of a consultant engagement and then the tail associated with the build. Those oftentimes have kind of a fixed fee component. And we probably have a little bit more time to manage service or fixed monthly fee. And again, that would obviously contribute to the mix of fixed fee business as well.

[Darrin Peller, Managing Director at Wolfe Research, LLC]

Okay. Very helpful. Thanks guys.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Thank

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

you.

[Operator]

Our final question comes from the line of Jonathan Lee with Guggenheim Partners. Your line is open.

[Jonathan Lee, Managing Director, Equity Research at Guggenheim Partners]

Great. Thanks for taking our questions. Can you help us understand what's contemplated across your outlook range from a vertical perspective? Any verticals expected to accelerate versus decelerate throughout the year?

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

I think it's pretty much in line with what we see during the last year and quarter. So life science and at this point financial services showing good dynamics. So and we're still not sure about retail, for example. And business information recovering because it was big hit by the client which we pulled it last year.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

And then sub components that were emerging, including energy, would probably be areas of growth as well.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

In general, it seems like, across most of the verticals, we expect it to grow.

[Jonathan Lee, Managing Director, Equity Research at Guggenheim Partners]

Yes.

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

And

[Jason Peterson, CFO, SVP & Treasurer at EPAM Systems]

then I think the only other point is that we do expect to see an acceleration in tech. And we are certainly seeing an improvement there in Q4 and do expect to see an improvement in that.

[Jonathan Lee, Managing Director, Equity Research at Guggenheim Partners]

Understood. And recognize that the pricing environment is somewhat challenging. But what in your view would catalyze a potential return to a better pricing environment?

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

So we see in some spots where clients are actually starting to focus more on change. And in these programs, they also understand that pricing should be changing. And we see in these examples, we just need broader of this. And again, that's a previous answer what we're thinking about our high range to achieve. This should be happening better.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

So let's see what market will be showing right now. Okay.

[Jonathan Lee, Managing Director, Equity Research at Guggenheim Partners]

Appreciate it.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

Thank you very much for joining us today. I think we need to satisfy how we finished the year and each year starting from some new unknown because by that you feel as much better what's going to happen.

[Arkadiy Dobkin, Chairman of the Board, CEO & President at EPAM Systems]

I think we have a pretty good, I would say, feeling about how this year starting from the client communications point of view, We're also trying to be very pragmatic with our annual guidance and let's talk in three months. Thank you very much.

Participants

Executives

• Mike Rowshandel, Director - Head of Investor Relations
• Arkadiy Dobkin, Chairman of the Board, CEO & President
• Jason Peterson, CFO, SVP & Treasurer

Analysts

• Maggie Nolan, Research Analyst - Technology, Media & Communications at William Blair & Company, L.L.C
• Jamie Friedman, Senior FinTech and IT Services Research Analyst at Susquehanna International Group
• Bryan Bergin, Managing Director at TD Cowen
• David Grossman, Managing Director at Stifel Financial Corp
• Jason Kupferberg, Senior Equity Research Analyst at Bank of America Merrill Lynch
• Darrin Peller, Managing Director at Wolfe Research, LLC
• Jonathan Lee, Managing Director, Equity Research at Guggenheim Partners