EPAM — EPAM Systems, Inc.

EPAM Q4 2025 Earnings Call Summary

1. Key Financial Results and Metrics

• Q4 Revenue: $1.4 billion, up 12.8% year-over-year, exceeding expectations.
• Organic Revenue Growth: 5.6% year-over-year on a constant currency basis.
• GAAP Gross Margin: 30.1%, slightly down from 30.4% in Q4 2024.
• Non-GAAP Gross Margin: 31.7%, down from 32.2% year-over-year.
• GAAP Income from Operations: $149 million (10.6% of revenue), compared to $137 million (10.9% of revenue) in Q4 2024.
• Non-GAAP Income from Operations: $230 million (16.3% of revenue), down from $208 million (16.7% of revenue) year-over-year.
• GAAP Diluted EPS: $1.98; Non-GAAP Diluted EPS: $3.26, up 14.8% from Q4 2024.
• Cash Flow from Operations: $283 million, significantly up from $130 million in Q4 2024.
• Free Cash Flow: $268 million, compared to $115 million in the same quarter last year.

2. Strategic Updates and Business Highlights

• AI Native Revenues: Over $105 million in Q4, with expectations to exceed $600 million in 2026, driven by increased client investments in AI.
• Vertical Growth: Five out of six industry verticals grew year-over-year, with financial services and emerging verticals showing notable strength.
• Geographic Performance: EMEA grew 21.8% year-over-year, while the Americas grew 7.6%.
• Partnerships: Recognized as Microsoft Innovate with Azure AI Platform Partner of the Year and AWS Global Innovation Partner of the Year.
• Client Engagements: Successful projects with clients like Bayer and Zalando, showcasing EPAM's capabilities in AI and digital transformation.

3. Forward Guidance and Outlook

• 2026 Revenue Growth: Expected in the range of 4.5% to 7.5%, with organic constant currency growth projected at 3% to 6%.
• Q1 2026 Revenue Guidance: Anticipated between $1.35 billion to $1.4 billion, reflecting a year-over-year growth of approximately 3% at the midpoint.
• Profitability Targets: GAAP income from operations expected to be 10% to 11%, and non-GAAP income from operations between 15% to 16%.
• EPS Guidance: GAAP diluted EPS projected between $7.95 to $8.25; non-GAAP diluted EPS between $12.60 to $12.90 for the full year.

4. Bad News, Challenges, or Points of Concern

• Client-Specific Decline: NEORIS' largest client is expected to decline sequentially from Q4 to Q1, impacting overall growth by approximately 100 basis points.
• Decision-Making Delays: Slower decision-making processes are anticipated due to larger program governance, which may affect the timing of revenue recognition.
• Gross Margin Pressure: Margins were impacted by increased variable compensation expenses and investments in business development, with expectations for limited improvement in 2026.

5. Notable Q&A Insights

• Visibility and Pipeline: Management expressed confidence in their pipeline and client sentiment, despite some slowness in decision-making at the start of 2026.
• Investment in Vertical Expertise: Plans to bolster vertical industry expertise through business development investments were discussed, with potential impacts on the P&L.
• AI Native Revenue Definition: EPAM's strict definition of AI native revenue excludes foundational services, positioning them uniquely compared to competitors.
• Share Repurchase Strategy: The company plans to remain active in share repurchases, particularly in the first half of 2026, while also considering small acquisitions.

Overall, EPAM demonstrated strong financial performance in Q4 2025, with a focus on AI-driven growth and strategic partnerships, while navigating challenges related to client-specific declines and decision-making delays.