EPAM Systems Q1 2025 Earnings Call Transcript

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Operator

Good day, and welcome to EPAM Systems First Quarter twenty twenty five 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. And finally, I would like to advise all participants that this call is being recorded. Thank you.

Operator

I'd now like to welcome Mike Roshandel, Head of Investor Relations to begin the conference. Mike, over to you.

Mike Rowshandel
Mike Rowshandel
Head - Investor Relations at EPAM Systems

Good morning, everyone, and thank you for joining us today on our first quarter twenty twenty five earnings announcement. As the operator just mentioned, I'm Mike Roshandel, Head of Investor Relations. We hope you've had an opportunity to review the two news releases we shared earlier today. If you have not, copies are available on epam.com in the Investors section. With me on today's call are Arkady Dopkins, CEO and President and Jason Peterson, Chief Financial Officer.

Mike Rowshandel
Mike Rowshandel
Head - 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 Investors section of our website. With that said, I will now turn the call over to Ark.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

Thank you, Mike. Good morning, everyone. Thank you for joining us today. As you may have seen in our additional press release this quarter, we have one more update to share today that goes beyond our usual business performance. Alongside our strong Q1 results despite a tough market environment, we also announced our planned leadership succession.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

So before we get into the details of our performance and growth momentum, I want to take a moment to share a few thoughts on my planned transition from COO. After thirty two years since starting the parliamentary as the Chairman, CEO and President, I decided to transition into the role of the Executive Chairman. This move has been thoughtfully planned over the past several years, and I believe that the right moment is now, both for me personally and for the future of the company. But I'm not leaving EPAM. As Executive Chairman, I plan to continue providing strategic guidance, combining my years of experience to hold the relationships and board leadership and including that the CEO transition is smooth and effective and that Tipam continues advancing our mission, culture and values.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

Beyond the transition period, I will be actively engaged as an employee of the company and helping to shape EPAM long term strategic direction, maintaining key relationships with clients, partners and investors, providing guidance on critical strategic initiatives and programs and promoting the company brand worldwide. I will be closely collaborating with CEO and the leadership team to help ensure that the values, relationship and strategic focus that have defined EPAM for decades continue to guide the company's future. With that said, I'm pleased to announce today that Balas Feyros will become our new Chief Executive Officer and President on 09/01/2025. Balaj, better known as RB, joined the company over twenty years ago and has been a critical part of our growth story. His leadership has been instrumental to EPAM's development, serving as our first CTO, building our financial services business globally, leading our European and APAC markets and most recently serving as the President of Global Business and Chief Revenue Officer.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

AB is uniquely positioned to provide both strategic and operational leadership during our next phase of evolution. I'm confident that his rare combination of business and technical acumen will enable him to continue driving EPAM forward. AV brings not only deep operational experience, but also a strong sense of energy and vision for EPAM's continuous evolution into the world's leading AI native transformation company with a reputation for quality execution and excellence, commitment to our customers, employees and communities. In terms of timing and priorities, we remain focused on Q2 and full 2025 execution, working hard to extend our sequential momentum by driving and winning more value share. The CEO transition plan should be completed on 09/01/2025.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

At each point, we will provide a more comprehensive update as an opportunity to hear directly from VP. I look forward to working closely with him, our entire executive team and the board to support the continuous growth and long term success of the company as the pump enters the next phase of its evolution. Now let's turn to our Q1 results. I'm pleased to share today that our first quarter results came in better than expected, despite a more challenging macroeconomic environment than most would have predicted ninety days ago. This marks our third consecutive quarter of outperformance and we are pleased to see sequential momentum, which we hope will continue throughout the remainder of this year.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

In a climate where cost continues to be top of mind, our client conversations have been broadly positive. And we are encouraged to see fund benefit from supplier consolidation activity in our core portfolio. It continues to be our view that the pivot toward reliability and quality is slowly progressing. EPAM's proven track record and reputation for high quality execution put us in sweet spot and is driving increased levels of new deal activity, which is enabling us to maintain and grow our organic footprint with existing clients. Outside the volatility of the broader geopolitical economic environment, most of the growth seems we have been discussing over the past few quarters, especially AI related have continued through Q1 and we expect will carry throughout the remainder of this year.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

During Q1, we returned to double digit revenue growth year over year. And while our inorganic contribution was driving a large portion of that, we are notably delivering year over year organic growth as well, which was significantly above our initial Q1 expectations for being flat at the midpoint of our guidance. This marks our second quarter in a row of delivering positive year over year organic growth since 2022 and illustrates continuous improvement in the core business. Overall, in Q1, client sentiment and engagement remained strong across most of our verticals and geographies, with particularly high interest in our rapidly expanding AI related capabilities. Our performance this quarter was driven by meaningful progress and strengthening client engagement, enhancing cross selling efforts and continuing to deliver advanced complex solutions.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

Our global footprint supported by robust platforms, tools and diversified talent hubs is enabling us to effectively meet the evolving needs of our clients in rapidly changing business environment. Now turning to demand. Despite the notable changes over the past ninety days, we remain cautiously optimistic given our strong Q1 results and the Q2 momentum we have built. The February and March project ramp up dynamics that is signaled last quarter played better than expected, with the client sentiment continues to improve. Further, we are encouraged by the incremental demand we continue to see for our AI capabilities.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

This focus on productivity and efficiency gains turns into more comprehensive AI native transformation programs and encompass multiple types of AI centered solutions. In short, our baseline client demand in H1 is improving faster than anticipated. While we remain mindful of external pressures caused by challenges in our clients and markets, as well as related instances of increased caution and shift in decision making due to macroeconomic uncertainty, we have not seen any material impact on our business to date. Overall, we feel good about the resilience of our performance so far this year. It's also important to emphasize that we are doing everything we can to stay closely aligned with our clients, taking proactive disciplined steps to effectively manage our operations, ensuring we are well prepared to respond to any potential impacts as we head into the second half of twenty twenty five.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

In addition, reflecting our recent client conversations, one thing become clear. During the past few years of greater volatility, some clients who had prioritized cost above all else in selecting partners are now returning to EPAM. Their experience is underperforming programs has reinforced the critical value of deep expertise, consistent delivery quality and the trusted ability to execute at scale. That is why even as we expect 2025 to remain a year of transition, there's a potential for increased uncertainty in the second half. We believe clients will continue to focus on the most strategic priorities, which should translate into stronger growth for us compared to 2024.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

And our credibility and growing reputation as a leading partner in AI and AI native transformation already driving greater market awareness and demand, a trend we expect to continue throughout the remainder of this year. Now moving into our four global delivery hubs, which now are working together in some new ways and with rapidly growing access to our advanced AI enabled productivity platforms. In Q1, we saw another quarter of sequential increase in net organic headcount across India, Europe and Western Central Asia. Central Eastern Europe continues to be a cornerstone geography for us and serves as a backbone for many long term clients with growing global location strategies. We saw modest growth in Hungary, Poland, Croatia and Serbia and stability across the rest of the region.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

Ukraine as well remains stable in terms of scale and core capabilities as our nearly 9,000 people remain highly productive and continue to support both new and current clients across a diverse range of programs. In India, we continue to see strong demand for our differentiated product engineering coatings, alongside our core capabilities and platforms, cloud, data and AI. The momentum we built last quarter carried out into Q1 with additional net head crown growth. We are also deepening our relationships with global capability centers or GCCs, reinforcing our role as a trusted transformation partner. In Western And Central Asia, we continue to invest and expand our delivery presence with modest net additions across several locations.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

As we shared in the past, these locations allow us to have even greater profitability when it comes to serving our clients by balancing cost quality and execution, and in some cases proximity to client locations. Finally, in Latin America, we continue to progress with our significantly expanding client and talent footprint with the addition of new orders. Now shifting to AI. As highlighted in our recently published AI report, while improved productivity and operational efficiency remain universal goals, scaling AI adoption across enterprise continues to be a challenge. In fact, only 30% of even the most advanced companies surveyed reported success in implementing AI at scale.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

Given that AI at scale remains relatively new concept today, we believe the broader transformation required, including modernizing platforms, data, organizational structures, skills and business processes. All of that represents a significant opportunity for EPAM. Our unique combination of deep engineering and consulting expertise, backed by our advanced suite of IP tools and accelerators position us well to lead in this space. While the AI landscape is evolving rapidly, one thing is undeniable. AI continues to drive new demand for us.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

Even in the context of traditional modernization programs, AI plays a central role in majority of client discussions. We are currently engaged in a wide range of AI initiatives with the vast majority of our top 100 clients. Our early stage AI engagements are maturing visibly with strong year over year growth, with more of them evolving into midsized projects with clearly defined outcomes and measurable ROIs. As we expand into larger scale AI factories, these programs are becoming increasingly comprehensive. Now incorporating agentic AI and government frameworks while also scaling in volume and complexity.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

In Q1, our Air and Nature revenues grew strong double digit quarter over quarter, continues the strong momentum from the previous quarter. As we continue to mature our AI consulting and engineering offerings, we are also strengthening our overall value proposition by partnering with strategic players in cloud, data and platforms to deliver innovative commercially attractive software assets focused on industry specific transformation and productivity gains. One illustrative example of our progress is in oil and gas manufacturing vertical, where we develop breakthrough innovation in AI powered geospatial data visualization and insights. Built in partnership with Google Cloud Industry Solutions, this work led to EPAM being named Google twenty twenty five Partner of the Year for Oil and Gas. The solution, which integrates with Google Gemini models, can also apply to broader data challenges across manufacturing and supply chain use cases, demonstrating our deep domain expertise, our ability to handle large and complete datasets in our proven track record and delivering AI native cloud based applications at scale.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

Another strong example is our ongoing effort to advance global engineering productivity through AI. Our focus extends beyond individual core generation to full lifecycle transformation in team environments. In Q3 of last year, we introduced EPAM AIRON, our end native SDLC framework and toolkit. And we are now well positioned to build on this foundation through a strategic collaboration agreement with AWS. By leveraging advanced generative AI services including Amazon Bedrock, we will empower clients to develop specialized agent in a native solution that addresses as you'll see productivity challenges for large teams.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

This collaboration creates a robust platform for accelerating cloud and data modernization through a driven workflow and tooling automation. Finally, to restate our continuous innovation with the Palmdale platform, we continue to integrate advanced AI technologies into custom tailored business strategies, which is driving significant impact across the industry and open source community. Dial has evolved through several investments and iterations since we started building it. Today, Dial is a complete generic platform with orchestration, including Agencik, Marketplace, Mind Maps and Dial Expressive Logic and so much more. Dial is evolving into a complete AI platform for enterprises.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

To conclude, we are pleased with our stronger than expected Q1 results. The improvement in organic growth and the sequential momentum we continue to build. Our increasingly diversified and agile global delivery hubs combined with advanced AI native capabilities and deepening strategic partnerships are having real impact. As we shared it last quarter, we expected 2025 to be a transformative year. And that outlook is proving true, perhaps even more reasonably than we anticipated three months ago.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

We are encouraged by the opportunities ahead and remain cautiously optimistic about the second half of twenty twenty five even as macro uncertainty persists. Our focus and disciplined execution remains our top priority. Let me now turn call over to Jason, who will provide additional details on our Q1 results and 2025 outlook.

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

Thank you, Ark, and good morning, everyone. In the first quarter, EPM generated revenue of $1,300,000,000 a year over year increase of 11.7 on a reported basis. On an organic constant currency basis, revenue grew 1.4% compared to the first quarter of twenty twenty four, exceeding our expectations of flat organic growth anticipated at the midpoint of our Q1 guidance. We are pleased to deliver another quarter of year over year organic growth in constant currency, reflecting ongoing demand for EPM services and strong execution across our global portfolio of clients. As Ark mentioned, we believe the outperformance is in part driven by client recognition of EPM's superior delivery quality and momentum across our AI offerings.

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

Moving to our Q1 vertical performance, four out of six industry verticals delivered strong to very strong revenue growth. Revenues from our FD and EORUS acquisitions had the most impact on our financial services and emerging verticals. So I will break out the organic and inorganic contribution within these two verticals. Financial services delivered very strong growth of 29.3% year over year, reflecting 4.5% organic growth in constant currency, driven by continued strength in insurance, banking and payments. Software and high-tech grew 9.6% year over year, driven by strong execution and broad improvement across our existing portfolio as well as new logo activity.

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

Life Sciences and Healthcare increased 10.5% on a year over year basis. Growth in the quarter was driven primarily by clients in Life Sciences and MedTech. Consumer goods, retail and travel decreased 1.4% year over year largely due to declines in consumer products and retail partially offset by growth in travel. Business information and media declined 2.2% year over year. Our emerging verticals delivered very strong growth of 22.8%.

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

Growth was positively impacted by Neoris Industrial Materials customers. Emerging verticals organic revenue in constant currency contracted by 3.5%. It was negatively impacted by softness across manufacturing and telecom clients. From a geographic perspective, Americas, our largest region representing 60% of our Q1 revenues grew 12.6% year over year. EMEA representing 38% of our Q1 revenues increased 10.7% year over year.

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

And finally APAC representing 2% of our revenues increased 4.3% year over year. Each of our geographies delivered year over year organic constant currency revenue growth in the quarter. Lastly, in Q1 revenues from our top 20 clients grew 6.1% year over year, while revenues from clients outside our top 20 increased 14.6%. Moving down the income statement, our GAAP gross margin for the quarter was 26.9% compared to 28.4 in Q1 of last year. Non GAAP gross margin for the quarter was 28.7% compared to 30.4% for

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

the same quarter last year.

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

Relative to Q1 twenty twenty four, gross margin in Q1 twenty twenty five was negatively impacted by 2024 compensation increases, which were only partially offset through pricing. Additionally, lower profitability from recent acquisitions negatively impact gross margin. The negative impacts from compensation and lower profitability from acquisitions exceeded the benefits of improved utilization and the positive impact from the Polish R and D incentive. The company will be focused on improving gross margin throughout the remainder of the year. GAAP SG and A was 16.8% of revenue compared to 17% in Q1 of last year.

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

Non GAAP SG and A in Q1 twenty twenty five came in at 14.2 of revenue compared to 14.1% in the same period last year. GAAP income from operations was $99,000,000 or 7.6% of revenue in the quarter compared to $111,000,000 or 9.5% of revenues in Q1 of last year. Non GAAP income from operations was 176,000,000 or 13.5% of revenue in the quarter compared to $174,000,000 or 14.9% of revenue in Q1 of last year. Our GAAP effective tax rate for the quarter came in at 22.2% and our non GAAP effective tax rate was 23.1%. Diluted earnings per share on a GAAP basis was $1.28 Our non GAAP diluted EPS was 2.41 compared to $2.46 in Q1 of last year, reflecting a $05 decrease year over year.

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

In Q1, were approximately 57,300,000.0 diluted shares outstanding. Turning to our cash flow and balance sheet. Cash flow from operations for Q1 was $24,000,000 compared to $130,000,000 in the same quarter of 2024. Higher bonus payments in Q1 twenty twenty five and a higher DSO resulting from the impact of an increasing share of fixed fee revenues with associated milestone billing, Both contributed to the year over year decline in operating cash flows. Free cash flow was $15,000,000 compared to free cash flow of $123,000,000 in the same quarter last year.

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

Cash and cash equivalents were $1,200,000,000 as of the end of the quarter. At the end of Q1, DSO was seventy five days and compares to seventy days for Q4 twenty twenty four and seventy three days for the same quarter last year. Share repurchases in the first quarter were approximately 796,000 for 160,000,000 at an average price of $201.07 per share. Moving on to a few operational metrics. We ended the Q1 with more than 55,600 consultants, designers, engineers and architects, reflecting total growth of 18.2 and organic growth of 6.4% compared to Q1 twenty twenty four.

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

In the quarter, we added over 500 professionals. Our total headcount for the quarter was more than 61,700 employees. Utilization was 77.5% compared to 76.8 in Q1 of last year and 76.2% in Q4 twenty twenty four. Now let's turn to guidance. Before moving to the specifics of our 2025 and Q2 outlook, I'd like to provide some thoughts to help frame our guidance.

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

While the macroeconomic environment remains highly dynamic, we are pleased with our strong Q1 performance with year over year organic constant currency revenue growth exceeding our expectations. This has resulted in three consecutive quarters of sequential organic revenue growth. With good visibility into Q2, we expect ongoing improvement in our organic revenues with both year over year and sequential growth in the quarter. We continue to experience improving demand for our highly differentiated services and client budgets appear to remain substantially intact with a few pockets of caution, which we are closely monitoring. Clients are turning DPM for trusted quality of execution and our advanced AI offerings.

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

To date, we have not seen a material slowdown in client spending as evidenced by our stronger than expected Q1 performance and sequential momentum we have seen thus far in Q2. That said, we acknowledge the elevated uncertainty in macroeconomic risks. Considering our stronger than expected first half balanced with a thoughtful assessment of client demand in our second half, we are raising the lower end of our organic full year revenue guidance while leaving the upper end of the range unchanged. There are several additional factors impacting our view of revenue growth during the remainder of the year. Since we issued guidance last quarter, certain currencies have strengthened considerably relative to the U.

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

S. Dollar. At the same time, due to the elevated uncertainties resulting from tariffs and impacts on the manufacturing and materials industries, we are seeing a reduction in demand from a top customer acquired as part of our Neoris acquisition. With our improved organic revenue contribution, the expected benefit from foreign exchange, partially offset by a modest reduction in expected inorganic revenues, we are raising both the upper and lower end of our reported revenue guidance. Our guidance continues to assume that we will be able to deliver out of our Ukraine delivery centers at productivity levels similar to those achieved in 2024.

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

So moving on to the full year outlook. Revenue growth will now be in the range of 11.5% to 14.5% with an inorganic contribution of approximately 9% for 2025. Based on today's spot exchange rates coupled with an assumption of modest strengthening in the U. S. Dollar in the second half, foreign exchange is now expected to have a positive impact on revenue growth of 0.4.

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

We expect year over year revenue growth on an organic constant currency basis to now be in the range of 2% to 5%. We expect GAAP income from operations to continue to be in the range of 9% to 10% and non GAAP income from operations to continue to be in the range of 14.5% to 15.5%. We expect our GAAP effective tax rate to now be 25%. Our non GAAP effective tax rate, which excludes excess tax benefits related to stock based compensation will continue to be 24%. For earnings per share, we expect that GAAP diluted EPS will now be in the range of $6.78 to $7.3 for the full year.

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

And non GAAP diluted EPS will now be in the range of 10.7 to $10.95 for the full year. The increase in non GAAP diluted EPS is in part driven by our assumption of a reduced share count resulting from our plan to increase share repurchases within the constraints of the current share repurchase authorization. We now expect weighted average share count of 56,500,000.0 fully diluted shares outstanding. Moving to our Q2 twenty twenty five outlook, we expect revenue to be in the range of 1,325,000,000.000 to 1,340,000,000.00 producing year over year growth of 16.2% at the midpoint of the range. Our guidance reflects an inorganic contribution of 10.6% with a 1.8% positive foreign exchange impact during the quarter.

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

For the second quarter, 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% to 15%. We expect our GAAP effective tax rate to be approximately 26% and our non GAAP effective tax rate to be approximately 24%. For earnings per share, expect GAAP diluted EPS to be in the range of $1.67 to $1.75 for the quarter and non GAAP diluted EPS to be in the range of $2.56 to $2.64 for the quarter. With increases in share repurchases during the year, we expect a weighted average share count of 56,700,000 diluted shares outstanding. Finally, a few key assumptions that support our GAAP to non GAAP measurements for Q2 and the full year.

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

Stock based compensation expense is expected to be approximately $40,000,000 for Q2, '40 '5 million for Q3 and $46,000,000 for Q4. Amortization of intangibles is expected to be approximately $17,000,000 for each of the remaining quarters. The impact of foreign exchange is expected to be negligible for each of the remaining quarters. Tax effective non GAAP adjustments is expected to be around $13,000,000 for Q2 and $15,000,000 for Q3 and $14,000,000 for Q4. We expect excess tax shortfall to be around $1,000,000 for Q2 with minimal excess tax benefits or shortfalls in the remaining quarters.

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

Severance driven by our cost optimization programs is expected to be around $2,000,000 in Q2 and $3,000,000 for each of the remaining quarters. Finally, one more assumption outside of our GAAP to non GAAP items. With the increased share repurchases, we will have a lower level of interest generating cash. Therefore, we now expect interest and other income to be $2,000,000 in both Q2 and Q3 and $3,000,000 in Q4. We remain committed to continuing to drive sequential momentum and are confident in our positioning entering Q2 despite the dynamic environment.

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

We will continue to run EPIM efficiently while remaining focused on strong execution and profitability throughout the year. Lastly, my continued thanks to all our employees for their dedication and focus on serving our clients and driving results for EPIM. Operator, let's open the call for questions.

Operator

Thank Your first question comes from the line of Brian Bergen with TD Cowen. Please go ahead.

Bryan Bergin
MD - Equity Research at TD Cowen

Good morning. Thank you. Ark, first just congrats on all the success we can build here and congrats to FB for his promotion. My first question is the 25% growth guide. So you raised your organic view here on the low end by point, looks to be a good 1Q and 2Q view.

Bryan Bergin
MD - Equity Research at TD Cowen

Can you give more color on that second half confidence? What are you seeing in underlying macro? And how did you think about what you have contracted versus what you need to still go get?

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

So we still continue our kind of look forward views in line with what we were doing for the last couple of quarters. So our view for the year didn't change much, but we definitely saw the first half of the year better than we expected. So our, again, projection for the second part, practically in line with what we communicated during the last quarter. And, as soon as we will see better visibility later on, we will kind of address this. But right now, it's, what we've seen.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

And basically, we didn't see any specifics which is changes as you again, outside of normal.

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

Yeah. To go back to the last earnings call, we talked about the fact that we've seen a soft January and then we expect to see improvement in February and March. We absolutely saw that. We're still seeing improvement in demand in April and May. It's difficult, obviously, to forecast the remainder of the year, but we are looking into Q3 still feeling like the book of business looks quite solid.

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

And then the guide would reflect the fact that things could be soft in Q4. But again, we're not seeing any change in client purchasing behavior at this time. And generally, what we are seeing is some amount of return to EPAM for quality of execution, which we think has probably been helpful for us and maybe explains the difference in our results relative to some of our peers.

Bryan Bergin
MD - Equity Research at TD Cowen

Okay. Makes sense. And then a follow-up, just kind of around the bookings dynamics. Any detail you can just give us around bookings to help convey the magnitude of the positive directionality that's forming here? And you're attributing better performance and optimism partly from a pickup in AI related work.

Bryan Bergin
MD - Equity Research at TD Cowen

Just any numbers you can put around these?

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

Yes. I think the only specific that we would have is on the AI native work that we talked about last quarter. As we look from Q1 to Q2, we would say that we probably have double digit, let's say, strong double digit sort of growth in AI related revenues between Q1 and Q2. So again, nice improvement in those revenues.

Bryan Bergin
MD - Equity Research at TD Cowen

Okay. Thank you.

Operator

Your next question comes from the line of Ramsey El Assal with Barclays. Please go ahead.

Ramsey El-Assal
Ramsey El-Assal
Managing Director at Barclays

Hi. Thank you very much for taking my question. Congratulations from me as well to both ARC and FB. I wanted to ask about free cash flow and I know you called out some of the drivers of the lower free cash flow result this quarter on a year over year basis. How should we expect that to trend as we move through the year?

Ramsey El-Assal
Ramsey El-Assal
Managing Director at Barclays

Are some of these drivers more persistent? Or do you expect things to normalize soon?

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

Yes. I think the you always have seasonality with us, right? So Q1 is usually low. Q1 was a lot better last year. And again, some of it has to do with all the payments we have associated with bonuses and things that happened in Q1.

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

I still would say that we expect kind of an 80% to 90% kind of cash flow conversion, which is consistent. The only thing that I would say is maybe a little bit of a change is I do think DSO is probably going to stay a little bit elevated. I think in the past, we would have talked maybe around 73% or so. I think it is likely to stay a few days higher. And as we see more fixed fee revenues, we do see some milestone billings and some of that stuff, which usually means the invoices go out a little bit later, and we are seeing a little bit of an impact on DSO related to that.

Ramsey El-Assal
Ramsey El-Assal
Managing Director at Barclays

Okay. A follow-up from me is on the pricing environment. And as you're seeing organic demand pick up, are you starting to sense now that you might be able to deploy a little bit of pricing later in the year? Or is that it's still too early to to call?

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

I think it's too early to call. We indicated last time that I think it it is going to be an it is a gap between this. It would be some lagging changes. So it's not going to happen too quickly. That's what we're sure.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

And I think I would like to put in perspective also. Yes. We've seen improvements, but this improvement is still relatively small. So it should be bigger change and to start it in part great situation.

Ramsey El-Assal
Ramsey El-Assal
Managing Director at Barclays

Thank you very much.

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

Thank you.

Operator

Your next question comes from the line of Maggie Nolan with William Blair. Please go ahead.

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

Hi, thank you. Can you talk a little bit more in specifics about plans to improve gross margin over the remainder of the year, particularly in light of mentioning that the guidance allows for some softening in the fourth quarter?

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

Yes. So the there's always some benefit that results in the second half just due to the kind of seasonal factors and pushing past Social Security sort

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

of spend caps and some of that type

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

of stuff. And so to be fair, usually, you would have a stronger Q3 because of more bill days and some other factors. And at the same time, we are focused on improving utilization. And so we continue to focus on taking some amount of actions and obviously working to drive revenue growth, but with a commitment to kind of getting utilization back to sort of 77% and over time, probably in 2026, kind of better. And so we've just got kind of a renewed focus on improving utilization there.

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

Okay. And can you size partnership revenue within the business or give an idea of how it's trended in the last couple of years? And is this an important growth driver for the business going forward?

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

I can answer the last question, which would be yes. Unfortunately, I don't think I can give you a specific kind of impact. But yes, it's been obviously very helpful, both the co funding and the introductions to clients, and it is definitely part of what has driven revenue growth over time. And our commitment to the partnerships has certainly and investment in the partnerships has certainly been helpful.

Operator

Your next question comes from the line of David Grossman with Stifel. Please go ahead.

David Grossman
David Grossman
Managing Director at Stifel Financial Corp

Good morning. Thank you. I wonder if you could just speak a little bit more about the growth dynamics within the customer cohorts. I think the growth outside the top 20 is obviously reaccelerated. Maybe in the context of that question, maybe speak a little bit about when the customer losses comp out and if it remains a headwind in the second quarter.

David Grossman
David Grossman
Managing Director at Stifel Financial Corp

I think you said in your prepared remarks that certain customers are coming back to you. And maybe if you could just flush out that dynamic a little bit more.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

I think there is that's what we were mentioning for some time. And each quarter is a little bit more and a little bit more. It's not compensated, it's not like all all coming back. But the trend is very visible, and I think partially why we see these improvements and because this trend is, repeating and kind of accumulating quarter after quarter.

David Grossman
David Grossman
Managing Director at Stifel Financial Corp

And and maybe explain that dynamic, Eric, outside the top 20, why that growth rate is, kind of accelerating versus the top 20?

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

Yes. I think sometimes when you have M and A and particularly larger scale M and A like we have, there are a larger number of sort of small customers introduced. And I think it's a little hard to do an apples to apples comparison just because of the magnitude of the M and A introduced in Q4. And so I think some of what you're seeing is probably M and A driven, But we are seeing improvements in kind of new logos and the introduction of kind of new customers that are clearly kind of helping relationships. One of the things we've talked about a little bit is growth in The Middle East, where we see a number of new engagements.

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

Yes, that's probably what I would say at this point.

David Grossman
David Grossman
Managing Director at Stifel Financial Corp

Got it. And then just on the supply side, maybe you could speak just a little bit of about where you think India is today versus your most mature geographies in terms of the whole dynamic around recruiting, the relationships, your ability to kind of fill the kind of demand for resources at the price points that you want. Just and I don't know if there's a way to really characterize that, but just somehow compare because you've been in India since, what, 2015, '20 '16.

David Grossman
David Grossman
Managing Director at Stifel Financial Corp

I know there was a lot

David Grossman
David Grossman
Managing Director at Stifel Financial Corp

of work done there to modify that model. But just curious where we are in India today versus your most mature recruiting kind of infrastructure in The Ukraine.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

I think, David, this will be difficult comparison because it's not like in because very different dynamic. Like, if you ask me, like, twenty years ago where our today considered mature locations, it will be probably that from Dynamics point of view, very similar because the ratio of senior people versus junior was very different. India right now is growing for us, and there is a very strong level of maturity in the top of the pyramid, which is comparable with anything else. But the number of more junior people and accommodated to our requirements still bigger versus, like, mature, like, Ukraine or something, which is not growing for the last couple of years. But I think this general gap is shrinking and quality is growing, and there are perceptions from race and everything else which build up not by us over the last couple decades.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

So I think we're working to manage all of this. But, again, India is extremely important part. That's practically 20% of our capacity right now, and, we will be growing. And it's growing right now fast.

David Grossman
David Grossman
Managing Director at Stifel Financial Corp

Right. All right, great. Thanks for that.

Operator

Your next question comes from the line of Jonathan Lee with Guggenheim. Please go ahead.

Jonathan Lee
Managing Director, Equity Research at Guggenheim Partners

Great. Thanks for taking our questions. And let me echo my congrats to Tarek and FB on their respective positions. Look, you highlighted strikes stemming from the GCCs. Can you talk through how much of the growth you're expecting in this year is driven by GC related work?

Jonathan Lee
Managing Director, Equity Research at Guggenheim Partners

And how does that impact any of your contract structures, duration or contract profitability?

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

So I don't think we can share specific numbers here. We just not doing this. And, the contract there, fortunately or fortunately, very much in line with other contracts in our industry. So while it could be any type of flex, still there is no guarantee that such will be here tomorrow because usually there are pretty simple cancellations terminations, kind of tariffs there. So and profitability mostly in line with what we see the need across other clients.

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

Yes, that's part of the growth, but I wouldn't say it's the big part of the growth story. And then the other thing I'd just say is that they continue to sort of value EPAM's differentiated engineering capabilities. So that continues to be a selling point for us for the GCCs.

Jonathan Lee
Managing Director, Equity Research at Guggenheim Partners

Understood. And look, it's good to hear the traction that you're seeing around the native AI volumes. And how are you thinking about the level of reinvestment needed to continue to drive that AI related volume, particularly as it relates to the 90 basis point headwind you called out on margins last quarter?

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

Yes. I think that the investment that we're making, probably no change in terms of what we said during the last earnings call. So we are making investment. We do think it's producing real benefit. Again, we are getting really positive feedback from clients around, again, our

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

differentiation. And I think that what you see is maybe some reduction in the spend as a percentage of revenue once you get more into 2026. But right now, I would say it's generally similar to what we talked about at the beginning of the year and in the last earnings call.

Jonathan Lee
Managing Director, Equity Research at Guggenheim Partners

Appreciate that color.

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

Thank you.

Operator

Your next question comes from the line of Jason Kupferberg with Bank of America. Please go ahead.

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

Good morning, guys. I appreciate it and congrats on the management transition. I wanted to ask a little bit more about the vendor consolidation point. I think

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

that came up a couple of times. It sounds like there

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

are certain instances where clients are coming back to EPAM. Can you just talk about some of the specific project types where you're seeing that happen and and which delivery centers are seeing that work get processed in when you have these situations where where work is is coming back to you, Pam, from competitors? I'm curious where the where the clients are having that that work get done. Thank you.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

Yes. It's it it is pretty broad because even when it's coming back, it's not necessary as the work coming back exactly to the location where it was delivered before because during the last several years, as we shared, there are there were a lot of changes and kind of this destruction of delivery centers. So but work coming back to Eastern Europe. Work coming back with a switch to India. So the work coming back to Western Central Asia.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

So it's a it's a pretty pretty broad. Okay? But some specifically, if possible, if sometimes possible, coming back exactly the locations where it was started from. But, again, it's pretty pretty diverse.

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

Okay. Okay. Understood. And the second thing I wanted to ask was just in the Q1 revenue, just from a quarter over quarter perspective, financial services really stood out. You were up 12% there.

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

I'm assuming since it

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

was quarter over quarter, it

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

was all organic. And I'm just wondering if there were a couple of sizable contract ramps there or any additional color on that vertical, what you saw there and sustainability of that into Q2 and beyond?

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

Yes. So in the Q4 to Q1 compare, you would have had two months of Neoris and two months of FD in Q4 and three months of Neoris and three months of FD in Q1. Both of those acquisitions have got a significant financial services component. So some of it is that. And at the same time, we are seeing improvement in the organic business.

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

And we do expect to continue to see improvement in the organic business in financial services, Banking, some amount of growth in insurance, and we've also seen some growth in payers, at least in Q1. But probably banking would be maybe the biggest area of improvement.

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

Thanks, Jason.

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

Sure.

Operator

Your next question comes from the line of Jamie Friedman with Susquehanna. Please go ahead.

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

Hi, good morning. And let me echo my congratulations to Aric. I learned a lot from you over the years and to FB on your future endeavors. So I'll just ask my two upfront. The fixed price, Jason, that you're calling out, that did grow 19.4% up from 15.1%.

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

I'm just I'd be interested in your perspective both on your confidence on the delivery side because when you move in a fixed price, risk does get reassigned. So that's the first one. And then on the second one, just go back to John's question earlier, the dip in the gross margins to 26.9%, Jason, is that the wage increment? Or is that still to come?

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

Yes.

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

Okay. So let me do the last question first, okay? On the gross margin, when look at the Q1 to Q1 compare, we would have a salary increase that would occur in Q2 of twenty twenty four, and we would probably also have some market adjustments in Q3 and Q4. And so when you do a Q1 to Q1 compare, you don't have the salary increase in the Q1 of twenty twenty four, but it does show up in the Q1 twenty twenty five. And then what we've been talking about is just there isn't as much ability to pass on the salary increases with rate increases to clients, although we're seeing a little bit of improvement.

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

In the case of and then the other thing, as we've talked about, is that the margin reduction that comes from the two acquisitions, which has about a 50 basis point negative impact. So I guess that's the first question. Or the second question? The first question was?

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

Yes, fixed price.

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

Yes, fixed price. Again, a little bit complicated. Some of it is evolution of our pricing models. And it's not always we're going to do something for tens of millions of dollars for two years. Sometimes it's just a monthly fixed fee arrangement for either a team.

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

It may assume some productivity, but again, there isn't much kind of risk associated with that. And then also with Neuros and FD, they've got more fixed fee in their engagements, although usually shorter term. And so that's what kind of caused the shift as you look into Q1. But I think you'll continue to see a little bit of evolution. It may be also part of the model with the use of AI, which is to introduce some productivity, but do it with a fixed monthly fee type component and be able to produce some benefit for the client, but also some better margin for us.

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

Got it. Thank you. I'll jump back in the queue.

Operator

And your next question comes from the line of Puneet Jain. Please go ahead.

Puneet Jain
Puneet Jain
Associate - Equity Research at JP Morgan

Hey. Thanks for taking my question and please accept my congratulations as well. It's been great working with you over the last so many years. I wanted to ask Jason about, like, the guidance and the billing date dynamics that are baked in second half for this year. Can you remind us like, I know in the past that you could talk about that you expect higher billing date in the second half.

Puneet Jain
Puneet Jain
Associate - Equity Research at JP Morgan

Can you remind us, like, what does this guidance assume, from first half to second half and the visibility you have on second half plan?

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

Yes. So we never assumed improvement in billing throughout the year. What we did say is that we did expect that as the demand environment improved that there would be the ability to pass on more rate increases next year. So right now, I would say that no real change in the environment. You still have some cost takeout exercises going on with clients.

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

There's some modest opportunity for rate increases. And so again, it may be not as bad. The pricing isn't, let's say, as challenging as it was last year, but still not significantly improved. And then as I just kind of look ahead, again, we do have quite good visibility in Q2. And all indications are that, that would carry through into Q3.

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

But of course, as we know, things are subject to change. As Ark said in his prepared remarks, we're not seeing almost any sort of changes in demand from clients or slowdown in project spend. And so that's kind of how we're thinking about Q3. Clearly, got some benefit from foreign exchange that we try to be clear on that, that particularly the appreciation of the euro should take up anybody's revenue guide. And I'm happy to share specifically the assumptions that we used in the production of the guide.

Puneet Jain
Puneet Jain
Associate - Equity Research at JP Morgan

Yeah. No. That's great. But I'm sorry. I meant to ask, like, billing days, number of like, the days, like, people can work, excluding holidays and vacation in the quarter.

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

Yeah. So q three is always more bill days, and so it would have a natural you should get growth in q q two to q three just based on seasonality. Q2 has got less bill days than Q3, but it's got it still has got relatively good bill days. And so if you just look at seasonal patterns, you would expect an improvement from Q2 to Q3 and then arguably a decline Q3 to Q4. The last couple of years we haven't seen that.

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

We've seen growth between Q3 and Q4 even in challenging demand environments. But right now, particularly the midpoint of the guide would have the more kind of the seasonal feel to it, again, with a little bit of improvement in revenue between Q2 and Q3 driven by seasonality and some softness in Q4, which could be demand related but also is just generally what can be a seasonal pattern.

Puneet Jain
Puneet Jain
Associate - Equity Research at JP Morgan

Got it. Thank you.

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

Thank you.

Operator

Your next question comes from the line of Darrin Peller with Wolfe Research. Please go ahead.

Darrin Peller
Managing Director at Wolfe Research, LLC

Guys, thanks. And Ark, congrats on everything. Guys, your headcount showed notable year over year growth even after accounting for the employees added from the two recent acquisitions. So maybe just a little bit more color on your overall headcount strategy for this year, where you're see where you're really sourcing talent from on a relative basis versus what's let's just say a couple of years back, and really what roles you're hiring for would be helpful for now.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

So I think we, in general, clearly much more careful with the even with this result and with better than we expected first half of the year, we're very cautious and careful about what would be happening. So and we try to maintain better better batch from this point of view. And when we bring in people, we bring in people in locations where we expect in this type of environment more demand until, again, to transform that situation really changes. Again, I would like to still keep a balance between the positive results of h one and the reality of h two, which were difficult to predict. So basically, India still is fastest growing, and we are bringing people from the market with very specific skills and juniors as well because we believe that we can train better with all advances of AI impact towards the SDLC process.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

The same balance happened in other locations, but again, as you see from the numbers, the number of new employees in other locations is relatively small right now.

Darrin Peller
Managing Director at Wolfe Research, LLC

Okay.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

I can

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

tell you Yeah. Enhancing our training capabilities because we would like to be ready if necessary to increase recruitment. But, again, right now, we're very, very careful with this.

Darrin Peller
Managing Director at Wolfe Research, LLC

That makes sense. Park, where where are we in terms of size of average engagement on AI deals now? And just maybe a little more color on how that's trended and where you see that going. Just kinda curious for any kind of quantitative update to the best you can provide on AI.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

I think here we can repeat what we were saying during the last quarter, and this is happening and this trend continues. The size is increasing and going to more production type situation with more number of use cases and functionality. So size of the deals definitely definitely increases. Another thing is type of what we qualify is a BI. What type of obligations is dynamically changing as well.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

That's why sometimes it's very difficult to have real apple to apple comparison. With what we're doing and can do this internally because it's much easier to do than right. Where it is external announcement and some state competition, the size of the deals definitely increase.

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

Operator, we have

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

time to In number of the deals increasing. When we were talking about few deals like 10,000,000 plus, then this number is reasonable.

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

Operator, we

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

have time for one more question, please.

Operator

And your final question comes from Jim Schneider with Goldman Sachs. Please go ahead.

Jim Schneider
Jim Schneider
Senior Equity Analyst at Goldman Sachs

Good morning. Thanks for taking my question and congrats on a well deserved transition. Two if I may. One is your commentary on client conversations and outlook appears significantly better, at least from my perception relative to some of your peers. So you mentioned the some clients returning, but can you attribute that to any other sort of specific kinds of projects work or other client specific factors that you're seeing in terms of the better client outlook?

Jim Schneider
Jim Schneider
Senior Equity Analyst at Goldman Sachs

And then maybe in terms of your visibility into the second half, any way of sort of quantifying your second half backlog coverage perhaps being better, worse or the same as in a typical time after a few months? Thank you.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

So I think you would expect and I think this is exactly what's happening is that when clients come in back to us, it's a boss. Sometimes we get in exactly the same work which we were kind of doing before. Sometimes it's a very new engagement. So that spreads around these things. If we're talking about second half of the year, I only can we only can repeat what we said already.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

So with all kind of better environment, visibility is still relatively difficult. And what we've seen for the second part of the year, approximately what we were seeing quarter ago. So decisions still making more in real time. That's what we did in Q1 and Q2 from. Predict in Q3 and Q4, better than we predicted so far is is difficult, including the size of the deals as well.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

So I think we can share them on next quarter. Yeah. Thank you. Thank you so much. I think, hopefully, it was a little bit better message from us than before.

Arkadiy Dobkin
Arkadiy Dobkin
Chairman, President and Chief Executive Officer at EPAM Systems

So at the same time, with all this encouragement about opportunities ahead of us, We thinking about the future is cautious optimism based on everything what's happening and everything which is relatively uncertain from market environment. I would like to make sure that we are balancing the good message with difficult very difficult environment. Thank you, and still talking to you next quarter. Thank you very much.

Operator

That concludes our conference call for today. Thank you for participating. You may now all disconnect.

Executives
Analysts

Key Takeaways

  • EPAM announced a leadership succession plan with Arkady Dopkins transitioning to Executive Chairman and Balas Feyros named CEO and President effective September 1, 2025.
  • In Q1 FY25 EPAM delivered $1.3 billion in revenue, up 11.7% year-over-year, and 1.4% organic constant-currency growth versus a flat midpoint guide, marking its third consecutive quarter of outperformance.
  • AI remains a key growth driver, with double-digit quarter-over-quarter AI-related revenue growth, expansion of AI-native platforms (AIRON, Palmdale) and strategic partnerships with Google Cloud and AWS.
  • EPAM raised full-year 2025 revenue guidance to 11.5–14.5% growth (2–5% organic) and sees Q2 revenue of $1.325–1.340 billion, with non-GAAP operating margins of 14–15%.
  • Global delivery capacity reached 55,600 consultants (+18.2% year-over-year, +6.4% organic) across India, Central & Eastern Europe and other hubs, supporting a utilization increase to 77.5%.
AI Generated. May Contain Errors.
Earnings Conference Call
EPAM Systems Q1 2025
00:00 / 00:00

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