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01/11 13:54
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Revenue $1.394 billion, a year-over-year increase of 19.4% on a reported basis. On an organic constant currency basis, revenues grew 7.1% compared to the third quarter of 2024. Growth was driven by a shift to quality and accelerating momentum across AI native, data, cloud, and AI foundational initiatives.
Financial Services Revenue Increased by 32.7% year-over-year on a reported basis, with 6% organic growth in constant currency. Growth came from banking, asset management, and insurance clients.
Software and Hi-Tech Revenue Grew 19.1% year-over-year, driven by strong execution and broad improvement across large clients.
Life Sciences and Healthcare Revenue Increased 11.8% year-over-year. Revenue growth was driven primarily by clients in Life Sciences and MedTech.
Consumer Goods, Retail, and Travel Revenue Delivered 9.9% year-over-year growth, marking a notable rebound relative to prior quarters. Growth was driven by consumer products and retail.
Business Information & Media Revenue Flat year-over-year revenue performance.
Emerging Verticals Revenue Delivered 38.9% year-over-year growth, with NEORIS contributing significantly. On an organic constant currency basis, growth was 15.1%, driven by energy and materials.
Americas Revenue Grew 16% year-over-year on a reported basis and 3.9% in organic constant currency.
EMEA Revenue Increased 24.9% year-over-year and 11.8% in organic constant currency.
APAC Revenue Increased 17.7% year-over-year and 14.2% in organic constant currency.
Top 20 Clients Revenue Grew 10.2% year-over-year.
Clients Outside Top 20 Revenue Increased 24.4% year-over-year.
GAAP Gross Margin 29.5% compared to 34.6% in Q3 of last year. The prior year benefited from a cumulative catch-up related to the Poland R&D credit. The current quarter includes a single quarter's benefit of $13.2 million.
Non-GAAP Gross Margin 31% compared to 34.3% for the same period a year ago. Lower profitability associated with recent acquisitions contributed to the decline.
GAAP SG&A 16.8% of revenue compared to 17.7% in Q3 of last year.
Non-GAAP SG&A 14.1% of revenue compared to 14% in the same period last year.
GAAP Income from Operations $145 million or 10.4% of revenue in the quarter compared to $177 million or 15.2% of revenue in Q3 of last year.
Non-GAAP Income from Operations $222.8 million or 16% of revenue in the quarter compared to $222.9 million or 19.1% of revenue in Q3 of the previous year.
GAAP Effective Tax Rate 25.6%.
Non-GAAP Effective Tax Rate 24.1%.
GAAP Diluted EPS $1.91.
Non-GAAP Diluted EPS $3.08 compared to $3.12 from Q3 of last year, reflecting a $0.04 decrease year-over-year.
Cash Flow from Operations $295 million compared to $242 million in the same quarter of 2024, marking the highest level of quarterly cash flow from operations in EPAM's history.
Free Cash Flow $286 million compared to $237 million in the same quarter last year, also an all-time high.
Cash and Cash Equivalents Just over $1.2 billion as of the end of the quarter.
DSO (Days Sales Outstanding) 75 days compared to 78 days for Q2 2025 and 74 days for the same quarter last year.
Share Repurchases Approximately 493,000 shares for $82 million at an average price of $167 per share.
Consultants, Designers, Engineers, and Architects More than 56,100, reflecting total growth of 17.5% and organic growth of 6.4% compared to Q3 2024.
Total Headcount 62,350 employees.
Utilization 76.5% compared to 76.4% in Q3 of last year and 78.1% in Q2 2025.
AI/RUN Transform and Agentic QA: EPAM launched AI/RUN Transform, which includes next-generation AI managed services, and Agentic QA, a tool that bridges the gap between automated and manual testing. Agentic QA is 10x more efficient than manual testing, reducing manual efforts by 50% and testing costs by 30%.
AI-native services: EPAM continues to ramp up AI-native services, with 60-70% of AI projects expanding into larger programs. AI-native revenues have shown double-digit sequential growth for three consecutive quarters.
Geographic expansion: EPAM added net organic headcount in key locations such as India, Central Eastern Europe, and South America, while optimizing in other areas.
Client collaborations: Collaborations with clients like Hugo Boss and a German telecommunications provider highlight EPAM's ability to innovate in AI and user experience.
AI literacy and education: Over 90% of EPAM employees have completed mandatory AI literacy education, and 95% of engineers have completed foundational AI education.
Operational efficiencies: Internal business processes are increasingly benefiting from AI-driven efficiencies, contributing to improved profitability.
AI investment and strategy: EPAM is heavily investing in AI accelerators, tooling, and talent to deliver reliable AI outcomes. The company is focusing on building AI responsibly with trust, transparency, and governance.
Verticalized offerings: EPAM is prioritizing verticalized and differentiated horizontal go-to-market offerings to capture new demand.
AI Complexity and Enterprise Risk: As AI adoption grows, the complexity of projects increases, which raises enterprise risk. This necessitates highly advanced engineering and proven enterprise-grade quality execution to manage these risks effectively.
Client Budget Constraints: There is no significant release of excess client budgets, and typical seasonality impacts, such as holidays and potential furloughs, could negatively affect revenue and operations.
Profitability Challenges: Lower profitability is associated with recent acquisitions, higher variable compensation, and ongoing optimization efforts in select pockets.
Geopolitical Risks: The company assumes it will be able to deliver from Ukraine delivery centers at productivity levels similar to 2024, but geopolitical risks could disrupt operations.
Market Competition: Clients are redirecting work from other partners who failed to deliver advanced capabilities, indicating a highly competitive market where EPAM must consistently prove its value.
Operational Efficiency: Utilization rates have slightly decreased, and there are isolated pockets of bench, which could impact operational efficiency.
Economic Uncertainty: The company is not expecting a significant release of excess client budgets, reflecting broader economic uncertainties that could impact client spending.
Revenue Growth: For the full year 2025, revenue is expected to be in the range of $5.430 billion to $5.445 billion, reflecting a year-over-year growth of 15% at the midpoint. For Q4 2025, revenue is expected to be in the range of $1.380 billion to $1.395 billion, producing a year-over-year growth of 11.1% at the midpoint.
Organic Constant Currency Growth: For the full year 2025, organic constant currency revenue growth is expected to be 4.6% at the midpoint. For Q4 2025, organic constant currency growth is expected to be 4.4% at the midpoint.
Profitability: GAAP income from operations for the full year 2025 is expected to be in the range of 9.4% to 9.7%, and non-GAAP income from operations is expected to be in the range of 15% to 15.3%. For Q4 2025, GAAP income from operations is expected to be in the range of 10% to 11%, and non-GAAP income from operations is expected to be in the range of 15.5% to 16.5%.
Earnings Per Share (EPS): For the full year 2025, GAAP diluted EPS is expected to be in the range of $6.75 to $6.83, and non-GAAP diluted EPS is expected to be in the range of $11.36 to $11.44. For Q4 2025, GAAP diluted EPS is expected to be in the range of $2.00 to $2.08, and non-GAAP diluted EPS is expected to be in the range of $3.10 to $3.18.
AI and AI-Native Services: EPAM expects continued growth in AI-native services, with a focus on scaling medium- and large-sized AI projects. The company is investing in AI playbooks, accelerators, and tools such as AI/RUN Transform and Agentic QA to drive future growth.
Market Trends and Client Demand: EPAM anticipates increased demand for AI adoption, data platforms, and cloud modernization. The company expects a continued shift in client investments towards AI-native initiatives and foundational services for AI.
Geographic and Vertical Growth: Growth is expected across all regions, with strong performance in Americas, EMEA, and APAC. Key verticals such as financial services, software and hi-tech, and life sciences are expected to continue driving growth.
Share Repurchase Program: EPAM announced a new $1 billion share repurchase program. In the third quarter, the company repurchased approximately 493,000 shares for $82 million at an average price of $167 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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