EPAM(EPAM)2024-11-07 16:49Financial Data and Key Metrics - Revenue for Q3 2024 was $1.168 billion, a year-over-year increase of 1.3% on a reported basis or 0.9% in constant currency terms [26] - GAAP gross margin for Q3 was 34.6%, compared to 31.1% in Q3 2023, benefiting from a Polish R&D incentive [32] - Non-GAAP diluted EPS was $3.12, up from $2.73 in Q3 2023, reflecting a $0.39 increase year-over-year [34] - Free cash flow reached $237 million, the highest level in the company's history [35] Business Line Performance - Financial Services revenue increased 3.3% year-over-year, driven by demand from fintech, banking, and insurance sectors [29] - Life Sciences & Healthcare delivered strong year-over-year growth of 14.6%, driven by clients in life sciences, pharmaceuticals, and med-tech [29] - Consumer Goods, Retail, and Travel decreased 4.5% year-over-year, with declines in consumer products and retail partially offset by growth in travel [30] - Software and Hi-Tech grew 2.1% year-over-year, while Business Information and Media declined 9% [30] Market Performance - Americas, representing 60% of Q3 revenues, grew 2.9% year-over-year [30] - EMEA, representing 38% of Q3 revenues, contracted 0.3% year-over-year but showed signs of stabilization with sequential growth [30] - APAC increased 1.8% year-over-year and now represents 2% of revenues [30] Strategic Direction and Industry Competition - The acquisition of NEORIS provides entry into Latin America and parts of Europe, accelerates growth opportunities, and strengthens local and near-shore value propositions [7] - The company is focusing on Gen AI initiatives, with 70% of top 100 clients engaged in various Gen AI projects [20] - EPAM is expanding its global delivery hubs, including significant growth in India and Latin America, with plans to reach 10,000 employees in India by early 2025 [14][15] Management Commentary on Operating Environment and Future Outlook - Management noted a more positive demand sentiment compared to 90 days ago, with clients showing increased willingness to invest in technology-led optimization and transformation programs [10] - The company remains optimistic about certain sectors and expects a return to higher growth levels in the coming quarters, despite ongoing caution and delayed decision-making in some areas [11] - EPAM is strategically investing in capabilities to capture market share as global demand returns [11] Other Important Information - The company recognized a $52 million benefit from a Polish government incentive program, improving GAAP gross margin and IFO by 450 basis points [27] - EPAM expects further benefits from the Polish R&D incentive in Q4 2024 and beyond, with an estimated $9 million benefit in Q4 [28] - The company ended Q3 with 47,750 consultants, designers, engineers, and architects, a decline of 1.5% year-over-year but a sequential increase of 750 employees [36] Q&A Session Summary Question: What areas are leading the recovery in client behavior? - Financial Services, Hi-Tech, and Life Sciences & Healthcare are showing improvement, with clients beginning to recognize the need to invest again [44] Question: How will the Poland R&D incentive impact future margins and tax rates? - The $29 million benefit in Q3 and an expected $9 million in Q4 will positively impact gross margins, but wage inflation and pricing challenges may pressure profitability in 2025 [45][46] Question: What is the outlook for revenue per head and hiring in Europe? - The company expects headcount growth in Q4, with hiring broadening globally, including in Eastern Europe and Western Asia [49] Question: What is the organic growth profile of NEORIS and its client concentration? - NEORIS is expected to contribute $54 million in Q4, with CEMEX being a significant but not majority customer [82][83] Question: How is employee productivity in new regions like LatAm and India? - Productivity in LatAm is expected to be comparable to other regions, with further assessments to be made in the coming quarters [87] Question: What is the outlook for organic revenue growth in 2025? - The company expects to return to organic revenue growth in 2025, though the extent of growth will depend on demand conditions [80]