Company Overview - EPAM Systems has undergone a transformation since its peak in 2021, influenced by the war, persistent wage inflation, and tightening IT budgets [1] - The company is currently trading at a significant discount from its historical levels, with a price-to-earnings ratio of just 15x [1] Investment Insights - The investment thesis suggests that identifying high-quality and/or severely mispriced investment ideas is crucial for potential investors [1] - A strong investment opportunity is characterized by the ability to purchase great companies at attractive prices [1]

Market and Economic Risks - The company operates significantly in emerging markets, which exposes it to greater economic, financial, and banking risks compared to developed markets[96]. - A majority of the company's revenues are generated in North America and Western Europe, while most personnel and delivery centers are located in emerging markets, increasing foreign exchange risks[96]. - The company faces risks related to compliance with a variety of legal requirements across different jurisdictions, which could adversely affect operations and financial condition[99]. - Changes in U.S. policies regarding offshore outsourcing could impact the company's ability to deploy employees and conduct business effectively[104]. - The company’s operations may be negatively impacted by geopolitical events, natural disasters, and other disruptions, affecting client spending decisions[146]. Financial and Revenue Risks - The company does not have long-term commitments from clients, making future revenues uncertain and dependent on securing new engagements[109]. - Delays in client payments or contract terminations could lead to increased cash collection times and bad debt expenses, adversely affecting financial results[110]. - A downturn in any of the targeted industries or a slowdown in outsourcing trends could materially affect demand for the company's services and negatively impact financial results[112]. - The company’s effective tax rate may be adversely affected by changes in tax laws and regulations across multiple jurisdictions, impacting overall profitability[147]. - The company believes its current cash and cash flow are sufficient for the next twelve months, but may require additional capital for future investments or acquisitions[144]. Competitive Landscape and Market Position - The competitive landscape is intensifying, particularly with the development of generative AI capabilities, which may lead to pricing pressures and loss of market share[97]. - The company must adapt to rapidly changing technologies and industry standards to remain competitive; failure to do so could lead to loss of clients[118]. - Company revenues are highly dependent on five key industry verticals: Financial Services, Software & Hi-Tech, Business Information & Media, Consumer Goods, Retail & Travel, and Life Sciences & Healthcare[111]. Operational and Compliance Risks - The company faces risks related to pricing structures, which are influenced by internal forecasts and global economic conditions, potentially leading to unprofitable contracts[114]. - Significant resource commitments are required before realizing revenues, and delays in the sales cycle could adversely affect revenue timing and growth[116]. - The company relies on visas for personnel to work at client sites, and any changes in visa regulations could delay project timelines and affect service delivery[105]. - The corporate reputation is crucial for client engagement and retention, and any damage to reputation could adversely affect business and investor confidence[123]. Intellectual Property and Legal Risks - The company relies on a combination of intellectual property protections, but effectiveness may vary by country, exposing it to risks of unauthorized use[125]. - Intellectual property infringement claims could divert management attention and result in significant costs, impacting the company's ability to provide existing services[128]. - The existence and ownership of intellectual property rights related to generative AI technologies are under review, posing potential legal liabilities for the company[130]. - Any adverse outcomes from litigation or claims could materially affect the company's business, financial condition, and results of operations[131]. Cybersecurity and Information Security Risks - The company has experienced cybersecurity incidents and anticipates ongoing threats, with increasingly sophisticated attacks making detection and defense more challenging[134]. - The cost of information security measures and compliance with privacy regulations significantly reduces profitability, potentially leading to client loss and reputational harm[138]. - The company is subject to GDPR and other privacy laws, which impose significant restrictions and can result in substantial financial penalties for non-compliance[139]. - The company must continuously enhance its information security measures to protect sensitive data, which involves significant costs and resources[137]. - The company’s ability to monitor third-party suppliers' information security systems is limited, increasing vulnerability to potential breaches[135]. Financial Volatility and Risk Management - The company’s stock price has shown substantial volatility due to variations in financial results and external market conditions, impacting future operating results[142]. - The company faces counterparty default risk in its hedging program, which could lead to significant losses if a counterparty defaults[145].

Core Viewpoint - EPAM Systems reported strong fourth-quarter results for 2024, with earnings and revenues exceeding expectations, but provided disappointing guidance for 2025, leading to a decline in share price over the past year [1][3]. Financial Performance - EPAM's fourth-quarter non-GAAP earnings were $2.84 per share, beating the Zacks Consensus Estimate by 3.3%, and increased from $2.75 per share in the same quarter last year [1]. - The company's revenues for the fourth quarter reached $1.25 billion, surpassing the consensus mark by 3.3%, and reflecting a year-over-year growth of 7.9% [2]. - Non-GAAP gross profit increased by 5.3% year over year to $402.1 million, while the gross margin contracted by 80 basis points to 32.2% [6]. Segment Performance - Revenue growth was driven by various industry verticals, with Financial Services generating $280.9 million (up 15.9% year over year) and Emerging revenues at $211.8 million (up 24.8% year over year) [4][5]. - However, revenues from Consumer Goods, Travel, and Retail declined by 3% year over year to $250.6 million [4]. Guidance and Estimates - For Q1 2025, EPAM expects revenues between $1.275 billion and $1.29 billion, indicating a year-over-year growth of 10% at the midpoint, while the Zacks Consensus Estimate is $1.27 billion [9]. - The company anticipates non-GAAP earnings for Q1 to be between $2.22 and $2.32 per share, below the Zacks Consensus Estimate of $2.57 per share [10]. - For the full year 2025, EPAM expects revenue growth of 10.0-14.0%, with a consensus estimate of $4.69 billion, indicating minimal year-over-year growth of 0.04% [10]. Balance Sheet and Cash Flow - As of December 31, 2024, EPAM had cash and cash equivalents of $1.29 billion, down from $2.04 billion as of September 30, 2024 [7]. - The company reported cash flow from operations of $130.3 million and free cash flow of $114.5 million for the fourth quarter [7].

Financial Data and Key Metrics Changes - In Q4 2024, EPAM generated revenues of $1.25 billion, a year-over-year increase of 7.9% on a reported basis, including revenues from recent acquisitions [37] - Organic revenues grew 1% compared to Q4 2023, marking a return to year-over-year organic revenue growth for the first time since Q1 2023 [37][38] - GAAP gross margin for Q4 was 30.4%, down from 31.1% in Q4 of the previous year, while non-GAAP gross margin was 32.2%, compared to 33% in the same period last year [44] - GAAP income from operations was $137 million, or 10.9% of revenue, compared to $122 million, or 10.6% of revenue in Q4 of last year [46] - Non-GAAP diluted EPS was $2.84, reflecting an increase of 3.3% compared to the same quarter in 2023 [47] Business Line Data and Key Metrics Changes - Financial services delivered strong growth of 15.9% year-over-year, with 4.3% organic and 11.6% inorganic growth [39] - Life sciences and healthcare increased 8.6% year-over-year, reflecting 5.7% organic and 2.9% inorganic growth [39] - Emerging verticals delivered very strong growth of 24.8%, with 3% organic and 21.8% inorganic growth [41] - The travel and consumer vertical declined by 3% year-over-year, reflecting a negative 5.7% organic and a positive 2.7% inorganic growth [40] Market Data and Key Metrics Changes - The Americas, representing 60% of Q4 revenues, increased 11.4% year-over-year, reflecting 2.7% organic and 8.7% inorganic growth [42] - EMEA, representing 38% of Q4 revenues, increased 3.1% year-over-year, reflecting negative 1.4% organic and positive 4.5% inorganic growth [42] - APAC increased 4.3% year-over-year and represents 2% of revenues [43] Company Strategy and Development Direction - The company is focused on becoming the most globally geo-balanced talent company for AI native digital business services, with recent acquisitions aimed at expanding global client relationships and penetrating new markets [9] - EPAM is investing in GenAI and AI-driven client engagement, with 75% of top country clients engaged in GenAI initiatives [23] - The company anticipates that 2025 will be a transformative year, driven by increased client demand for advanced AI native and agentic software and data engineering services [32] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about 2025 being a better year than 2024, despite caution regarding growth market sensitivity and macroeconomic risks [11][16] - There is a belief that the demand for AI-related services will increase, with clients transitioning to more engineering-led programs [15] - Management acknowledged ongoing cost sensitivity among clients, which remains a critical decision factor [16] Other Important Information - The company ended Q4 with approximately $1.3 billion in cash and cash equivalents, lower than the previous year due to recent acquisitions [48] - Total headcount reached 61,200 employees, with a growth of 16.3% compared to Q4 of 2023 [49] - The company expects flat year-over-year organic revenue growth in Q1 2025, followed by continued improvement throughout the year [56] Q&A Session Summary Question: Can you elaborate on the expectations embedded in the revenue guidance? - Management indicated a cautious approach to revenue expectations for NEORIS and FD, with a zero to 4% revenue growth for organic and a 1% to 5% growth when considering foreign exchange headwinds [70][71] Question: What are the implications of investments in Agentic AI and IP? - Management highlighted the importance of investing in GenAI and retaining top talent, which has led to increased compensation costs and pressure on margins [74][76] Question: How did client spending behavior progress through Q4? - Management noted a good number of new clients entering the pipeline, with some quickly reaching significant revenue levels, while also seeing the return of previous clients [90][91] Question: What is the outlook for revenue growth and profitability? - Management expects improved profitability in the second half of 2025, aiming to return to typical profit levels of 16% or better [97]

分组1 - Epam reported quarterly earnings of $2.84 per share, exceeding the Zacks Consensus Estimate of $2.75 per share, and showing an increase from $2.75 per share a year ago, representing an earnings surprise of 3.27% [1] - The company achieved revenues of $1.25 billion for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 2.92%, and up from $1.16 billion year-over-year [2] - Epam has consistently outperformed consensus EPS and revenue estimates over the last four quarters [2] 分组2 - The stock has gained approximately 10.4% since the beginning of the year, outperforming the S&P 500's gain of 4.5% [3] - The current consensus EPS estimate for the upcoming quarter is $2.57 on revenues of $1.27 billion, and for the current fiscal year, it is $11.29 on revenues of $5.26 billion [7] - The Computers - IT Services industry, to which Epam belongs, is currently ranked in the top 29% of over 250 Zacks industries, indicating a favorable outlook [8]

Contents 01 | | Who We Are | 4 | | --- | --- | --- | | 02 | The EPAM Story | 7 | | 03 | Our Positioning | 11 | | 04 | Market Trends | 13 | | 05 | How We Do It | 15 | | 06 | Artificial Intelligence | 18 | | 07 | Corporate Recognition | 28 | | 08 | Investment Highlights | 30 | EPAM Proprietary & Confidential. 3 01 Investor Presentation F E B R U A R Y 2 0 2 5 EPAM Proprietary & Confidential. Safe Harbor Statement These materials contain forward-looking statements. You should not place undue reliance on these ...

Core Insights - EPAM Systems, Inc. reported strong fourth quarter results for 2024, achieving a year-over-year organic growth and completing significant acquisitions to enhance its global strategy [1][4][5] Fourth Quarter 2024 Highlights - Revenues reached $1.248 billion, reflecting a 7.9% increase year-over-year, with an organic constant currency growth of 1.0% compared to Q4 2023 [4][5] - GAAP income from operations was $136.5 million, up 11.4% from $122.5 million in Q4 2023, while Non-GAAP income from operations increased by 3.9% to $208.2 million [4][5] - GAAP diluted EPS was $1.80, an increase of 8.4%, and Non-GAAP diluted EPS was $2.84, up 3.3% year-over-year [4][5] Full Year 2024 Highlights - Total revenues for 2024 were $4.728 billion, a slight increase of 0.8% year-over-year, with a decline of 1.7% on an organic constant currency basis [4][5] - GAAP income from operations was $544.6 million, an increase of 8.6% compared to 2023, while Non-GAAP income from operations rose by 1.8% to $779.2 million [4][5] - GAAP diluted EPS for the year was $7.84, up 11.0%, and Non-GAAP diluted EPS was $10.86, an increase of 2.5% year-over-year [4][5] Acquisitions and Strategic Developments - The company completed the acquisition of NEORIS, enhancing its offerings in Latin America, and First Derivative, which strengthens its financial services consulting capabilities [5][6] - These acquisitions are expected to broaden EPAM's global delivery capabilities and client portfolio, particularly in financial services [5][6] Cash Flow and Financial Position - Cash provided by operating activities in Q4 2024 was $130.3 million, down from $171.4 million in Q4 2023, while total cash and equivalents decreased to $1.290 billion, a 36.8% drop from $2.043 billion in the previous year [8][6] - The company repurchased 53 thousand shares for $13.0 million in Q4 2024, totaling 1,854 thousand shares repurchased for $398.0 million throughout the year [8][6] 2025 Outlook - For Q1 2025, EPAM expects revenues between $1.275 billion and $1.290 billion, indicating a year-over-year increase of approximately 10.0% at the midpoint [7][16] - The company anticipates a revenue growth rate for 2025 in the range of 10.0% to 14.0%, with organic constant currency growth expected to be between 1.0% and 5.0% [7][16]

Financial Performance - Revenues for Q4 2024 were $1.248 billion, representing a year-over-year increase of 7.9%[5] - GAAP diluted EPS for Q4 2024 was $1.80, an increase of 8.4% compared to $1.66 in Q4 2023[6] - Full year 2024 revenues reached $4.728 billion, up 0.8% year-over-year[9] - GAAP income from operations for the full year 2024 was $544.6 million, an increase of 8.6% from $501.2 million in 2023[9] - Net income for the three months ended December 31, 2024, was $103,299, up from $97,554 in the prior year, reflecting a growth of 7.0%[21] - Basic net income per share increased to $1.82 for the three months ended December 31, 2024, compared to $1.69 for the same period in 2023[21] - Operating income for the three months ended December 31, 2024, was $136,512, an increase from $122,494 in the same period of 2023[21] - Total adjustments to GAAP net income for the year ended December 31, 2024, amounted to $60.1 million, compared to $64.2 million in 2023, reflecting a decrease of 6.5%[25] Future Guidance - For 2025, the company expects year-over-year revenue growth of 10.0% to 14.0%[10] - GAAP diluted EPS guidance for 2025 is projected to be between $6.78 and $7.08[10] - The company expects revenue growth of 10.0% for Q1 2025 and between 10.0% to 14.0% for the full year 2025[34] - Non-GAAP income from operations as a percentage of revenues is projected to be between 12.5% to 13.5% for Q1 2025 and 14.5% to 15.5% for the full year 2025[34] - GAAP diluted earnings per share is estimated to be between $1.27 to $1.37 for Q1 2025 and $6.78 to $7.08 for the full year 2025[36] - Inorganic revenue growth is expected to decline by 11.4% in Q1 2025 and 9.9% for the full year 2025[34] Operational Highlights - Cash provided by operating activities in Q4 2024 was $130.3 million, down from $171.4 million in Q4 2023[9] - Total headcount as of December 31, 2024, was approximately 61,200, with a 16.3% increase in delivery professionals from the previous year[9] - The company recorded a benefit of $68.8 million from research & development government incentives in Poland for the full year 2024[9] - Total current assets decreased to $2,426,248 as of December 31, 2024, down from $3,091,361 as of December 31, 2023[23] - Total assets increased to $4,750,473 as of December 31, 2024, compared to $4,352,365 as of December 31, 2023[23] - Total liabilities increased to $1,119,322 as of December 31, 2024, from $880,895 as of December 31, 2023[23] - The company’s retained earnings increased to $2,555,796 as of December 31, 2024, compared to $2,501,107 as of December 31, 2023[23] Acquisitions and Strategic Moves - The company completed the acquisition of NEORIS and First Derivative, enhancing its capabilities in Latin America and financial services[6] - The company recorded a loss on the sale of its remaining operations in Russia of approximately $25.9 million during the year ended December 31, 2023[30] Expenses and Charges - Stock-based compensation expenses increased to $22.1 million for Q4 2024, up from $19.2 million in Q4 2023, representing a 9.7% increase[25] - Humanitarian support expenses related to Ukraine amounted to $3.1 million in Q4 2024, compared to $0.8 million in Q4 2023, indicating a significant increase[25] - Cost Optimization charges for the year ended December 31, 2024, were $31.3 million, down from $35.1 million in 2023, showing a reduction of 10.8%[25] - The company anticipates an effective tax rate of approximately 24% for both Q1 2025 and the full year 2025[35] Foreign Exchange Impact - The company reported a foreign exchange loss of $5,632 for the three months ended December 31, 2024, compared to a loss of $9,053 in the same period of 2023[21] - The organic constant currency revenue growth for the three months ended December 31, 2024, was 1.0%, while the inorganic revenue growth was -7.3%[24]

Core Viewpoint - Analysts forecast that Epam (EPAM) will report quarterly earnings of $2.75 per share, indicating no change from the previous year, with revenues expected to reach $1.21 billion, reflecting a 4.8% increase year-over-year [1]. Group 1: Earnings and Revenue Estimates - The consensus EPS estimate for the quarter has been revised upward by 0.5% over the last 30 days, indicating a collective reassessment by analysts [2]. - Analysts project revenues by contract type: Time-and-materials at $1.03 billion (+4.5% year-over-year) and Fixed-price at $174.25 million (+4.8% year-over-year) [5]. - Licensing and other revenues are estimated at $9.96 million, showing a significant year-over-year change of +41.5% [6]. Group 2: Market Performance and Analyst Insights - Epam shares have returned +16.8% over the past month, outperforming the Zacks S&P 500 composite, which increased by +4.9% [6]. - The importance of earnings estimate revisions is highlighted as a predictor of potential investor behavior and short-term stock performance [3]. - A deeper analysis of analysts' forecasts for key metrics can provide a more comprehensive understanding of the company's performance [4].

Group 1 - Zacks Premium offers various tools to help investors become more confident and informed, including daily updates on Zacks Rank and Industry Rank, Equity Research reports, and Premium stock screens [1][2] - The Zacks Style Scores are complementary indicators that rate stocks based on value, growth, and momentum characteristics, helping investors identify stocks likely to outperform the market in the next 30 days [2][3] Group 2 - The Value Score focuses on identifying undervalued stocks using ratios like P/E, PEG, and Price/Sales, appealing to value investors [3] - The Growth Score assesses a company's future prospects by analyzing projected and historical earnings, sales, and cash flow, targeting growth investors [4] - The Momentum Score identifies optimal times to invest based on price trends and earnings estimate changes, catering to momentum traders [5] Group 3 - The VGM Score combines the three Style Scores to identify stocks with attractive value, strong growth forecasts, and promising momentum, serving as a useful indicator alongside the Zacks Rank [6] - The Zacks Rank utilizes earnings estimate revisions to simplify portfolio building, with 1 (Strong Buy) stocks achieving an average annual return of +25.41% since 1988, significantly outperforming the S&P 500 [7][8] Group 4 - To maximize returns, investors should focus on stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B, while also considering the direction of earnings estimate revisions [9][10] - EPAM Systems, Inc. is currently rated 3 (Hold) with a VGM Score of A and a Momentum Style Score of A, having seen an 11.6% increase in shares over the past four weeks [11] - Four analysts have revised EPAM's earnings estimate upwards for fiscal 2024, with the Zacks Consensus Estimate increasing by $0.04 to $10.78 per share, and an average earnings surprise of 9.9% [12]