EPAM Systems, Inc. (EPAM) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
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.
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Operating Highlights
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.
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Risk or Challenges
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.
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Guidance & Outlook
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.
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Shareholder Return Plan
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.
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Key Q&A
Q:Do you intend to enter the Agentic BPO space with proprietary products or through build versus buy decisions?
A:The company has made two acquisitions in the Agentic BPO space (First Derivative and LYNXUS) and is experimenting with automation using its EPAM build platform. However, it is still early days, and the market direction is uncertain.
Q:How should we think about growth potential for 4Q and beyond, including the impact of bill days, furloughs, and other factors?
A:There is a negative seasonality impact from fewer bill days, more vacations, and higher furloughs in Q4, resulting in tens of millions in headwinds. Sequential growth has been consistent when adjusted for foreign exchange and other factors. Organic constant currency growth is expected to be 4.4% at the midpoint, potentially reaching 5% at the high end.
Q:Can you break down the sources of deceleration in Q4 on a year-over-year basis and provide insights into organic growth for 2026?
A:The deceleration is due to clients not releasing excess budgets at year-end as they did last year. Growth remains broad-based across financial services, hi-tech, and emerging energy. Organic growth in 2026 is expected to be higher, driven by AI foundational build-outs and a strong pipeline.
Q:Can you size the contribution of work redirected from competitors and explain your competitive advantage?
A:The company cannot size the contribution yet but is gaining work from competitors who failed to deliver. The competitive advantage lies in deep engineering skills, cost considerations, risk management, and investments in talent, tooling, and methodologies.
Q:How is the focus on costs being implemented, and what impact will it have on margins?
A:The company is rebalancing its pyramid structure, focusing on profitability, and being selective with clients and deals. Account margins have improved, and the company expects to operate in the upper half of its 14.5%-15.5% profitability range, with Q4 margins expected between 15%-15.3%.
Q:What is the size of average AI projects today, and how might this evolve in the future?
A:AI projects are evolving from proof of concepts to medium- and large-scale engagements, with some reaching tens of millions of dollars. Most top clients are engaging in large AI initiatives, which are expected to drive significant revenue in the coming years.
Q:What are the phases and challenges of agentic delivery life cycle management?
A:Agentic delivery life cycle management is more complex than traditional SDLC, requiring deep engineering skills, process automation, and ROI considerations. It involves building foundational components, governance, and process-by-process automation, which will take significant effort and time.
Q:What is driving the increase in revenue per head despite flat utilization?
A:The increase is due to better pricing, customer mix, and account margin improvements. Foreign exchange also plays a role, but pricing is better than last year, with modest price increases expected in 2026.
Q:How does AI work differ from non-AI projects in terms of duration, profitability, and client engagement?
A:AI projects require a combination of engineering discipline and business domain understanding. Profitability is currently similar to non-AI projects but has potential for higher rates and alternative business models in the future. Most top clients are engaging in AI initiatives.
Q:Will greater use of AI impact headcount growth and delivery requirements?
A:Despite efficiency gains from AI, demand is expected to outstrip these gains, necessitating continued hiring and growth. The company will focus on training and balancing its pyramid structure.
Q:What is the growth outlook for GenAI revenue and the build versus buy strategy?
A:GenAI revenue is growing strongly, with double-digit sequential growth. Clients are increasingly building solutions rather than buying, and this trend is expected to continue.
Q:What are the key drivers for growth in the Software and Hi-Tech vertical?
A:Growth is driven by large customers investing in platform programs. While growth rates may not remain as high, the vertical continues to generate strong revenue.
Q:Review of Unclear Management Responses
A:Management avoided directly answering the question about the size of work redirected from competitors, stating that it cannot be sized yet. Additionally, while discussing the growth outlook for GenAI revenue, the response lacked specific numerical details.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI RUN
AI adoption
AI engineering
AI literacy
AI outcome
AI playbook
AI product
AI solution
Agentic QA
EPAM leader
FB
IP
Number AI
RUN Transform
accelerator
age
agent
blueprint
build
core AI
development
education
enterprise grade
experience
fan
foundation AI
framework
future
investment AI
life cycle
name
process
proof concept
service AI
solution AI
sport
testing
tool set
EPAM Transcript
EPAM Systems, Inc. (EPAM) Q1 2026 Earnings Call Transcript
Positive5-7
The earnings call summary and Q&A reveal a positive outlook with strong revenue growth, improved profitability, and AI-driven strategies. Despite some uncertainties in pipeline conversions and evolving contract models, the company’s strategic focus on AI and large deal opportunities, coupled with improved margins and shareholder returns, suggest a positive sentiment. The market's response is likely to be positive, with potential for stock price increase.
EPAM Systems, Inc. (EPAM) Q4 2025 Earnings Call Transcript
Unknown2-19
The earnings call shows a mix of positive and negative elements. While there is optimism around AI-native services and potential growth in financial services, there are concerns about slower growth due to client declines and elongated sales cycles. The cautious guidance and lack of clear acceleration timelines contribute to a neutral outlook. The absence of a market cap makes it difficult to gauge the exact impact, but the mixed signals suggest a neutral stock price movement.
EPAM Systems, Inc. (EPAM) Q3 2025 Earnings Call Transcript
Positive11-6
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.
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 Slides
EPAM Report
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