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01/11 13:51
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Revenue $1.353 billion, a year-over-year increase of 18% on a reported basis. Organic constant currency growth was 5.3%. Growth was driven by improvements across all verticals and geographies, with strong contributions from AI and AI-native offerings.
Financial Services Revenue Increased by 34.4% year-over-year on a reported basis, with 6.5% organic growth in constant currency. Growth was driven by strength across banking and insurance.
Software and Hi-Tech Revenue Grew 21.2% year-over-year, driven by strong execution and broad improvement across existing clients and new logos.
Life Sciences & Healthcare Revenue Increased by 11.7% year-over-year, primarily driven by clients in life sciences and med tech.
Consumer Goods, Retail, and Travel Revenue Grew 6.2% year-over-year, showing improvement versus recent quarters. Positive organic sequential growth in constant currency was observed across consumer products, retail, and travel and hospitality.
Business Information & Media Revenue Increased by 2.8% year-over-year, driven by strong momentum across key clients and revenue from new logos.
Emerging Verticals Revenue Grew 28.7% year-over-year, with 3.3% organic constant currency growth. Growth was driven by strength in energy, industrial materials, and real estate.
Americas Revenue Representing 59% of Q2 revenues, grew 15.9% year-over-year on a reported basis, with 3.8% organic growth in constant currency.
EMEA Revenue Comprising 39% of Q2 revenues, increased 21.7% year-over-year, with 7.6% organic growth in constant currency.
APAC Revenue Making up 2% of revenues, increased 13% year-over-year, with 8.3% organic growth in constant currency.
Top 20 Clients Revenue Grew 8.8% year-over-year.
Clients Outside Top 20 Revenue Increased 23% year-over-year.
GAAP Gross Margin 28.8%, compared to 29.3% in Q2 of last year. Decline attributed to higher variable compensation and lower profitability from recent acquisitions.
Non-GAAP Gross Margin 30.1%, compared to 30.8% in the same period last year. Decline attributed to similar reasons as GAAP gross margin.
GAAP Income from Operations $126 million or 9.3% of revenue, compared to $121 million or 10.5% of revenue in Q2 of last year.
Non-GAAP Income from Operations $203 million or 15% of revenue, compared to $175 million or 15.2% of revenue in Q2 of the previous year.
GAAP Effective Tax Rate 28.9%.
Non-GAAP Effective Tax Rate 24%.
GAAP Diluted EPS $1.56.
Non-GAAP Diluted EPS $2.77, compared to $2.45 in Q2 of last year, reflecting a $0.32 increase year-over-year.
Cash Flow from Operations $53 million, compared to $57 million in the same quarter of 2024.
Free Cash Flow $43 million, compared to $52 million in the same quarter last year.
Cash and Cash Equivalents Just over $1 billion as of the end of the quarter.
DSO (Days Sales Outstanding) 78 days, compared to 75 days in Q1 2025 and 76 days in the same quarter last year.
Share Repurchases Approximately 1.1 million shares for $195 million at an average price of $179.23 per share.
Consultants, Designers, Engineers, and Architects More than 55,800, reflecting total growth of 18.7% and organic growth of 6.7% compared to Q2 2024.
Total Headcount Just over 62,000 employees.
Utilization 78.1%, compared to 77.5% in both Q2 of last year and Q1 2025.
AI-native services: EPAM has positioned itself as a leader in AI-native transformation, with significant investments in AI capabilities, platforms, and tools. AI-native revenue is growing double digits sequentially, and the company has introduced proprietary platforms like DIAL and AI/RUN to support enterprise-wide AI adoption.
New acquisitions: EPAM acquired two companies: one specializing in regulated industries like financial services and another in cloud-native engineering for the Latin American and Spanish-speaking markets. These acquisitions are already contributing to client engagements.
Geographic growth: All three regions (Americas, EMEA, APAC) showed strong year-over-year growth, with EMEA leading at 21.7% and APAC showing 13% growth. The Americas, the largest region, grew by 15.9%.
Vertical growth: All six verticals experienced growth, with financial services leading at 34.4% year-over-year growth. Emerging verticals like energy and real estate also showed strong performance.
Global delivery hubs: EPAM has scaled its global delivery hubs across Europe, India, Latin America, and Western and Central Asia. These hubs are integrated through a proprietary delivery platform and AI-enabled methodology, enhancing resilience and scalability.
Client-centric initiatives: EPAM launched a new client success program focusing on its top 100 clients and introduced platform-based delivery models for AI operational engagements.
Leadership transition: Arkadiy Dobkin, the CEO, will transition to Executive Chairman by September 1, 2025, with Balazs Fejes taking over as CEO and President.
AI-driven transformation: EPAM is focusing on AI-driven transformation as a core strategy, leveraging its expertise in engineering, cloud, and data modernization to capture new market opportunities.
Macroeconomic Climate: The company acknowledges operating amidst a complex macroeconomic environment, which could impact client demand and overall business performance.
Client End Markets: EPAM remains cautious about the potential impact of clients' end markets on its business, despite no material impact observed so far.
Seasonal Impacts: The company anticipates seasonal factors, such as holidays and vacations, to negatively affect Q4 revenue, potentially leading to flat or modest sequential decline from Q3 to Q4.
Bench Utilization: Efforts to optimize bench utilization are ongoing, but isolated pockets of bench remain, which could affect operational efficiency and profitability.
Acquisition Integration: Recent acquisitions, while contributing positively to revenue, have lower profitability levels, impacting gross margins.
Ukraine Delivery Centers: The company assumes continued productivity from its Ukraine delivery centers, but any disruption could pose risks to operations.
Dynamic Demand Environment: The company operates in a dynamic demand environment, which requires prudence in guidance and could affect revenue predictability.
Revenue Growth: Revenue growth for 2025 is projected to be in the range of 13% to 15%, with inorganic contributions accounting for approximately 9%. Organic constant currency revenue growth is expected to be in the range of 3% to 5%.
Foreign Exchange Impact: Foreign exchange is expected to have a positive impact on revenue growth of 0.9% for the full year.
Q3 2025 Revenue: Revenue for Q3 2025 is expected to be in the range of $1.365 billion to $1.380 billion, representing year-over-year growth of 17.6% at the midpoint of the range. Organic constant currency growth is projected at 6.2%.
Q4 2025 Revenue: Q4 revenue is expected to be predominantly driven by seasonal factors, likely resulting in flat to a modest decline sequentially from Q3 to Q4.
AI and AI Native Offerings: Accelerating growth in advanced AI native offerings is contributing to improving revenue growth rates. AI native revenue is growing double digits sequentially, and this driver of growth is expected to build further in the quarters ahead.
Client Engagement and Market Trends: Clients are showing stable and modestly growing demand, particularly in banking, financial services, life sciences, healthcare, and emerging sectors like energy and oil and gas. Incremental demand is being triggered by AI adoption, cloud migration, and platform modernization.
Operational Metrics: Utilization is expected to improve as the company focuses on reducing bench and optimizing headcount to support growth. Productivity levels in Ukraine delivery centers are assumed to remain similar to 2024 levels.
Earnings Per Share (EPS): GAAP diluted EPS for 2025 is expected to be in the range of $6.48 to $6.64, while non-GAAP diluted EPS is projected to be in the range of $10.96 to $11.12. For Q3 2025, GAAP diluted EPS is expected to be in the range of $1.89 to $1.97, and non-GAAP diluted EPS is projected to be in the range of $2.98 to $3.06.
Tax Rates: The GAAP effective tax rate for 2025 is expected to be 26%, while the non-GAAP effective tax rate is projected to be 24%.
Strategic Investments: The company is making strategic investments in AI, cloud accelerators, cybersecurity, data platforms, and customer experience transformation to drive future growth.
Share repurchases: In the second quarter, EPAM repurchased approximately 1.1 million shares for $195 million at an average price of $179.23 per share.
The earnings call highlights strong AI-driven growth, strategic investments, and improved margins. Despite some negative seasonality impacts and uncertainties in the Agentic BPO space, the company shows a positive outlook with robust revenue growth projections and strategic share repurchases. The Q&A section reveals confidence in AI initiatives and competitive advantages, although some responses were vague. Overall, the strategic focus on AI and client engagement, along with expected profitability improvements, suggests a positive sentiment. However, the lack of market cap data limits the precision of the prediction.
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.
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.
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.
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