EPAM Systems (EPAM) Q2 2025 Earnings Call August 07, 2025 08:00 AM ET Speaker0Thank you for standing by. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the EPAM Reports Results for Second Quarter twenty twenty five Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.Thank you. I would now like to turn the call over to Mike Roshandl, He ...

Financial Data and Key Metrics Changes - The company reported record sales of $963 million, up 30% year-over-year, with organic growth of 9% driven by both volume and price [12] - Adjusted EPS grew 28% to $0.86, exceeding guidance [14] - Adjusted operating income increased 18% year-over-year, with a return on sales of nearly 21% [8][14] Business Line Data and Key Metrics Changes - Systems Protection sales increased 43% to $632 million, with organic growth of 10% [14][16] - Electrical Connections sales rose 11% to $331 million, with organic sales up 7% [16] - Infrastructure vertical led with organic sales growth over 20%, while commercial residential sales were up mid-single digits and industrial sales were down slightly [8][16] Market Data and Key Metrics Changes - All key geographic regions experienced growth: Americas up 9%, Europe up 10%, and Asia Pacific up low single digits [9] - The backlog increased more than fourfold compared to the previous year, driven by strong demand in data centers and power utilities [6][10] Company Strategy and Development Direction - The company is focused on becoming a higher growth electrical connection and protection company, with a significant shift towards the infrastructure vertical, which is expected to account for over 40% of sales [25][26] - Investments are being made in data solutions to support the AI build-out, with a focus on innovative power and cooling solutions [27][29] - The company is prioritizing growth initiatives, including new products and acquisitions, while maintaining a strong balance sheet [10][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong performance and growth outlook, particularly in data centers and power utilities [10][11] - The company raised its full-year sales guidance to reflect strong Q2 results, expecting reported sales growth of 24% to 26% [21] - Management acknowledged the dynamic tariff environment but emphasized their ability to manage pricing and productivity to offset impacts [10][87] Other Important Information - The company launched 50 new products in the first half of the year, contributing over three points to sales growth [8] - Free cash flow for the quarter was robust at $74 million, with a healthy balance sheet supporting disciplined capital allocation [18][19] Q&A Session Summary Question: Timing of converting backlog and its duration - Management indicated that the backlog is expected to convert into sales through 2026 and beyond, driven by growth in the data center solutions business and recent acquisitions [36][37] Question: Concerns about disintermediation in liquid cooling - Management clarified that they partner with hyperscalers to provide complete system solutions or specific products, maintaining strong relationships despite market changes [38][41] Question: Performance of commercial residential segment - Management noted healthy performance in the commercial residential segment but remained cautious about the overall industry outlook, expecting it to be flattish for the year [47][49] Question: Backlog growth and expectations for the second half - Management confirmed that backlog has grown significantly, particularly in the systems protection business, which is expected to grow ahead of the electrical connections segment [54][55] Question: Price recovery from tariff impacts - Management stated that they expect to recover tariff impacts through pricing and productivity, with a focus on maintaining healthy margins [85][87] Question: Modular data centers and integration of other products - Management indicated that they are integrating other OEMs' equipment into their modular data center offerings, which will enhance their capabilities over time [90][91] Question: Growth opportunities in international markets - Management attributed outperformance in international markets to a focus on high-growth verticals and strong distribution partnerships [117] Question: Margin protection amid inflation and tariffs - Management confirmed that they have mechanisms in place to adjust pricing in response to tariffs and inflation, ensuring margin protection through long-term contracts [119]