EPAM Systems, Inc. (NYSE:EPAM) Q4 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture. While Q4 revenue and EPS saw growth, margins declined due to compensation increases and recent acquisitions, posing profitability concerns. The cautious revenue guidance and macroeconomic risks further temper expectations. However, the company's focus on AI and strategic acquisitions could provide long-term benefits. The Q&A highlighted cautious optimism, but management's lack of specificity on certain issues adds uncertainty. Overall, the stock is likely to remain relatively stable in the short term, leading to a neutral sentiment.
Key Financial Performance
EPS $2.84, an increase of $0.09 or 3.3% compared to the same quarter in 2023.
Revenue $1.25 billion, a year-over-year increase of 7.9% on a reported basis, including revenues from recent acquisitions.
Organic Revenue Growth 1% compared to the fourth quarter of 2023, returning to year-over-year organic revenue growth.
GAAP Gross Margin 30.4%, compared to 31.1% in Q4 of last year, negatively impacted by compensation increases and lower profitability of recent acquisitions.
Non-GAAP Gross Margin 32.2%, compared to 33% for the same quarter last year, impacted by compensation increases and lower profitability from acquisitions.
GAAP SG&A 17.4% of revenue, compared to 18.5% in Q4 of last year, reflecting lower SG&A as a percentage of revenue.
Non-GAAP SG&A 14.4% of revenue, compared to 14.2% in the same period last year, higher due to recent acquisitions.
GAAP Income from Operations $137 million or 10.9% of revenue, compared to $122 million or 10.6% of revenue in Q4 of last year.
Non-GAAP Income from Operations $208 million or 16.7% of revenue, compared to $200 million or 17.3% of revenue in Q4 of last year.
Cash Flow from Operations $130 million, compared to $171 million in the same quarter of 2023.
Free Cash Flow $115 million, compared to free cash flow of $161 million in the same quarter last year.
Total Headcount 61,200 employees, a growth of 16.3% compared to Q4 of 2023.
Utilization Rate 76.2%, compared to 74.4% in Q4 of last year.
2024 Revenue $473 billion, up 0.8% on a reported basis year-over-year.
GAAP Income from Operations (2024) $545 million, an increase of 8.6% year-over-year.
Non-GAAP Income from Operations (2024) $779 million, a growth of 1.8% compared to the prior year.
Non-GAAP EPS (2024) $10.86, reflecting a 2.5% increase over fiscal 2023.
Cash Flow from Operations (2024) $559 million, compared to $563 million for 2023.
Free Cash Flow (2024) $527 million, reflecting an 83.7% adjusted net income conversion.
Shares Repurchased (2024) Approximately 1,854,000 shares for $398 million at an average price of $214.65 per share.
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Operating Highlights
GenAI Initiatives: 75% of top country clients engaged on GenAI initiatives, generating about $50 million in Q4 from AI-native programs.
AI Native Digital Platforms: Engagements with Baker Hughes to build AI native digital platforms, enhancing their offerings in the energy sector.
Acquisitions: Acquired NEORIS and First Derivative, adding nearly 6,000 employees and expanding global footprint.
Geographic Expansion: Significant growth in India, now the largest delivery location with over 10,000 employees, and Latin America as the third largest delivery region.
Organic Revenue Growth: Returned to organic revenue growth for the first time since Q1 2023, with mid-single-digit growth in Q4.
Global Delivery Strategy: Diversified global talent pools across Europe, India, Latin America, and Western Central Asia.
Focus on AI and Engineering: Continued investment in AI capabilities and engineering services to meet growing client demand.
Cost Sensitivity and Discretionary Spending: Balancing cost sensitivity with the need for discretionary spending as clients address backlogs.
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Risk or Challenges
Market Sensitivity: There is caution in growth market sensitivity, indicating potential risks in demand and client spending.
Geopolitical Environment: The dynamic geopolitical environment poses policy-specific uncertainties that could impact business operations.
Cost Sensitivity: Clients are focused on cost, which remains an important decision factor, potentially limiting discretionary spending.
Talent Market Challenges: Challenges exist in talent markets, which could affect the company's ability to attract and retain skilled professionals.
Profitability Pressure: Profitability is expected to be lower due to compensation increases, limited pricing power, and dilution from recent acquisitions.
Economic Factors: Broad macro risks and economic factors could impact client budgets and spending patterns.
Integration of Acquisitions: The integration of recent acquisitions may present challenges that could affect operational efficiency and profitability.
Client Budget Finalization: Slightly softer revenue in January due to clients finalizing budgets indicates potential short-term revenue risks.
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Guidance & Outlook
Acquisitions: EPAM has successfully executed its global business strategy through organic growth and acquisitions, notably NEORIS and First Derivative, to enhance its capabilities in AI native digital business services.
Global Delivery Strategy: EPAM is diversifying its global talent pools and enhancing its delivery capabilities across major hubs in Europe, India, Latin America, and Western Central Asia.
GenAI Initiatives: 75% of top country clients are engaged in GenAI initiatives, with significant growth in AI-native programs generating approximately $50 million in Q4.
Talent Growth: EPAM has achieved 10x growth in India, now employing over 10,000 people, and has expanded its footprint in Latin America.
2025 Revenue Growth: EPAM expects revenue growth in the range of 10% to 14% for 2025, with an inorganic contribution of approximately 10%.
Q1 2025 Revenue Guidance: For Q1 2025, EPAM anticipates revenues between $1.275 billion and $1.290 billion, reflecting year-over-year growth of approximately 10%.
Profitability Outlook: EPAM expects lower profitability levels in 2025 due to investments in talent retention and GenAI platforms, with GAAP income from operations projected at 6.5% to 7.5% for Q1.
EPS Guidance: For 2025, GAAP diluted EPS is expected to be in the range of $6.78 to $7.08, and non-GAAP diluted EPS is projected to be between $10.45 and $10.75.
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Shareholder Return Plan
Share Repurchases in Q4 2024: Approximately 53,000 shares for $13 million at an average price of $241.99 per share.
Total Shares Repurchased in 2024: Approximately 1,854,000 shares for $398 million at an average price of $214.65 per share.
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Key Q&A
Q:Can you elaborate on the expectations embedded in the top and low end of revenue guidance?
A:We expect modest growth from NEORIS and FD, with organic revenue growth of 0-4%. Including foreign exchange headwinds, growth is projected at 1-5%. January started slow, but we anticipate strong program starts and client demand in February.
Q:What are your thoughts on investments in Agentic AI and IP, and how do you balance these with cost synergies from acquisitions?
A:We expect adjusted IFO to be 16.5% in 2024, dropping to 15% in 2025 due to acquisition dilution. Investments in GenAI are increasing SG&A and slightly decreasing gross margin. We are focused on retaining top talent despite cost increases.
Q:Can you provide insights on client spending behavior in Q4, particularly regarding new versus existing clients?
A:We saw a good number of new clients, with some quickly reaching annualized $10 million. Existing clients are returning, particularly in tech, which we consider a new market.
Q:What are your expectations for revenue growth and the impact of geographic mix shift on bill rates in 2025?
A:We feel good about revenue growth across various geographies, but expect some headwinds from geographic mix shifts affecting revenue per headcount.
Q:What are your hiring plans for the year and how might geopolitical factors impact your headcount?
A:We plan to add around 1,000 headcount in Q1 2025, with growth in India and certain European geographies. We have seen a decline in Belarus and Ukraine headcount but expect potential growth in Ukraine if the conflict resolves.
Q:What verticals do you expect to accelerate or decelerate throughout the year?
A:Life sciences and financial services are showing good dynamics, while retail and business information recovery remain uncertain.
Q:What would catalyze a return to a better pricing environment?
A:Clients focusing on change programs may lead to a better pricing environment, but broader market acceptance is needed.
Q:Review of Unclear Management Responses
A:Management avoided providing specific numbers on client spending behavior and geographic mix shift impacts on revenue growth in 2025. They also did not quantify the headwind from geographic mix shift on revenue growth.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI capability
AI platform
AI program
AI service
Agentic AI
CTC
Canada
DNA
Dimension
EliteA
GenAI AI
Head Investor
Investor Relations
NEORIS FD
Number
Relations section
Rowshandel Head
SDLC
Western Central
acquisition NEORIS
adoption
backlog
buying signal
caution
client portfolio
country
differentiation
digit
domain
energy technology
expectation
lifecycle
modernization
momentum
noise
provider
sensitivity
talent pool
traction client
EPAM Transcript
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EPAM Systems, Inc. (EPAM) Q2 2025 Earnings Call Transcript
Positive8-7
The earnings call indicates solid growth and strategic initiatives, particularly in AI transformation and client engagement. Despite some cautious guidance on Q4, there is optimism in discretionary spending and AI-driven programs. The Q&A section reveals management's focus on improving utilization and margins, with positive client demand trends. The ongoing AI upskilling and balanced workforce composition are strengths. While some risks are not fully detailed, the overall sentiment is positive, with strong financial metrics and strategic direction likely to support a 2% to 8% stock price increase.
EPAM Systems, Inc. (EPAM) Q1 2025 Earnings Call Transcript
Unknown5-8
The earnings call presented mixed signals. While there is strong growth in AI-related revenues and positive client engagement, financial metrics like gross margin, income from operations, and cash flow have declined year-over-year. The Q&A section reveals uncertainties about pricing, cash flow normalization, and management's reluctance to provide specific numbers, which may concern investors. Despite positive AI initiatives, the weak financial performance and vague guidance lead to a neutral sentiment, suggesting limited stock price movement in the near term.
EPAM Systems, Inc. (NYSE:EPAM) Q4 2024 Earnings Call Transcript
Unknown2-21
The earnings call presents a mixed picture. While Q4 revenue and EPS saw growth, margins declined due to compensation increases and recent acquisitions, posing profitability concerns. The cautious revenue guidance and macroeconomic risks further temper expectations. However, the company's focus on AI and strategic acquisitions could provide long-term benefits. The Q&A highlighted cautious optimism, but management's lack of specificity on certain issues adds uncertainty. Overall, the stock is likely to remain relatively stable in the short term, leading to a neutral sentiment.
EPAM Slides
EPAM Report
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