The paragraph is from the EPAM Third Quarter 2024 Earnings Conference Call, introduced by the conference operator and led by Mike Rowshandel, Head of Investor Relations. He introduces Arkadiy Dobkin, CEO and President, who reports that EPAM's third-quarter results exceeded expectations due to strong execution and relevance to clients. Dobkin also highlights two significant acquisitions, including NEORIS, marking a major addition for EPAM that strategically expands their presence into new markets in Latin America and parts of Europe.

The paragraph outlines three main growth strategies: expanding opportunities with current and new clients, enhancing the NEORIS delivery platform, and improving regional services in Latin America and the Spanish and Portuguese-speaking markets. In Q3, the company achieved revenue growth year-over-year and sequentially, driven by increased client trust and diversified capabilities. Key growth sectors include life sciences, healthcare, financial services, and biotech, with signs of stabilization in business information, media, consumer goods, retail, and travel. The company also notes a positive demand sentiment and strong reputation in technology-led optimization and transformation programs.

The company is optimistic about targeted market sectors and its portfolio returning to growth. Despite cautious spending and delayed decisions, they continue to invest in expanding capabilities and market share globally. They closely align with clients to address investment and transformation needs. Their global strategy aims to diversify talent and support transformative business models, focusing on growth in four major global delivery hubs. In Europe, their strong engineering expertise and successful Q3 results highlight their ability to tackle complex challenges, particularly through their operations across multiple countries, including a significant presence in Ukraine and the EU zone.

The recent signing of a derivative deal is expected to strengthen the company's European presence and enhance resources for financial services. In India, the company is experiencing significant growth, adding over 2,000 professionals this year, with expectations to reach 10,000 by early 2025. Similarly, investment in Latin America since 2015 led to the acquisition of NEORIS, doubling the company's delivery footprint to 7,500 people across Latin America, Spain, and Portugal. NEORIS enhances the company's capabilities in application development, cloud migration, and automation, especially in data, AI, and SAP, and brings strong local expertise across key verticals, including manufacturing and telecom.

The paragraph discusses EPAM's ongoing efforts in Western Central Asia, where they are expanding with a new delivery hub and employing nearly 7,000 people. It highlights a balanced workforce of experienced and eager junior talent. The focus is on their three-dimensional AI transformation strategy. The first dimension involves internal efficiency and talent development. The second focuses on client transformation through Gen AI solutions like EPAM DIAL, EPAM AI/Run, and EPAM EliteA. The third dimension emphasizes collaboration with partners for successful AI-driven programs. EPAM reports solid progress in all dimensions and will focus on how dimensions 2 and 3 are enhancing client engagement and creating value through 2024.

The paragraph discusses a company's programs that cover engineering core capabilities, including AI services and platforms, often coupled with business consulting for holistic redesign and optimization. They report engagement in Gen AI initiatives with about 70% of their top 100 clients, noting a rise in early-stage projects that progress to more defined and outcome-driven midsize projects. Stage 3 projects focus on broader AI-enabled transformations through multiyear, multimillion dollar programs. Their transformative work involves creating large-scale AI ecosystems within client organizations, handling entire product life cycles. They predict growth in these sizable AI ventures by 2025 and mention ongoing significant engagements this year.

The paragraph discusses two major data transformation projects. The first involves a collaboration between a team and their client Record to transform a 200-year-old company's operations using AI and data strategies. The second project features the development of StatGPT, a conversational platform for exploring global economic and financial data, built in collaboration with the International Monetary Fund. StatGPT, which was recently upgraded to version 2.0, has been showcased at international events and evaluated by numerous representatives from national and international statistical organizations.

The paragraph discusses EPAM's presentation at a 2024 IMR statistical forum and highlights its strong Q3 results, underscoring its core differentiation and market growth strategy. EPAM reported $1.168 billion in revenue, a year-over-year increase, with positive contributions from 4 out of 6 industry verticals. The company also benefited from Polish government incentives, recognizing $52 million for qualifying research and development activities, which improved its profitability. Jason Peterson provides additional details on the company's Q3 performance and outlook.

The paragraph discusses the financial impact of incentives related to activities in 2023 and 2024, highlighting a $22.9 million adjustment for non-GAAP purposes and a $29.1 million benefit from Polish R&D activities, improving non-GAAP metrics. The incentive, expected to recur, is projected to give a $9 million benefit in Q4 2024. The effective tax rate was negatively impacted by the accounting of the incentive, contributing $0.62 to Q3 GAAP EPS and $0.35 to non-GAAP EPS. In vertical performance, Financial Services grew 3.3% due to increased demand in fintech, banking, and insurance, while Life Sciences & Healthcare saw a 14.6% increase. Conversely, Consumer Goods, Retail, and Travel decreased by 4.5%, despite growth in travel. Software and hi-tech grew 2.1%, while Business Information and Media declined 9%, impacted by the loss of 20 clients, though it had slight sequential growth.

In Q3, the company experienced solid growth in its emerging verticals, with an 8.5% year-over-year increase in revenue, primarily driven by the energy and manufacturing sectors. Revenues in the Americas grew by 2.9%, while EMEA contracted slightly but showed signs of stabilization. APAC saw a modest increase in revenue and now constitutes 2% of the total revenue. The top 20 clients contributed a 0.6% revenue growth, whereas clients outside this group saw a 1.7% increase. The GAAP gross margin improved to 34.6% from 31.1% last year, aided by the Polish R&D incentive. Non-GAAP gross margin also saw an increase, reaching 34.3%. There was a slight increase in GAAP SG&A costs as a percentage of revenue, but non-GAAP SG&A improved due to cost management efforts. GAAP income from operations rose significantly to $177 million, while non-GAAP income from operations increased to $223 million, with both metrics benefitting from the Polish R&D incentive.

In the most recent quarter, the company reported a GAAP effective tax rate of 28.1% and a non-GAAP rate of 24.1%, both impacted negatively by a Polish R&D incentive, while GAAP and non-GAAP EPS were positively affected by it, with non-GAAP EPS at $3.12 showing a year-over-year increase. The company had 57.4 million diluted shares outstanding, with cash flow from operations and free cash flow hitting record highs. DSO improved to 74 days, and share repurchases totaled 245,000 shares for $50 million. The company's headcount declined year-over-year but saw sequential growth for the first time in nine quarters. Utilization improved compared to the previous year. Looking ahead, the company expects continued revenue growth in North America and stability in Europe.

The company anticipates flat year-over-year revenue for Q4 2024, excluding the NEORIS acquisition's contribution. They expect operational consistency from Ukraine and benefit from Polish R&D incentives. Production headcount is set to grow in Q4, marking a return to year-over-year growth after declines. For the full year, revenue is projected between $4.685 billion and $4.695 billion, with a positive 0.2% impact from foreign exchange. This reflects improvements in organic revenues and a $54 million contribution from NEORIS for November and December. GAAP income from operations is estimated at 11-11.5%, and non-GAAP at 16-16.5%, with respective tax rates of 23% and 24%. GAAP EPS is expected to range from $7.78 to $7.86, and non-GAAP from $10.73 to $10.81, based on 57.9 million diluted shares. For Q4, revenue is forecasted between $1.205 billion and $1.215 billion, marking a 4.6% year-over-year increase, with a constant currency growth of 4.3%, including the $54 million from NEORIS.

In the fourth quarter, the company anticipates GAAP income from operations to be between 10.5% and 11.5%, and non-GAAP income from operations to be between 16% and 17%. The GAAP effective tax rate is projected at 26%, while the non-GAAP rate is expected at 24%. GAAP diluted EPS is estimated to range from $1.73 to $1.81, with non-GAAP diluted EPS between $2.70 and $2.78, based on a share count of 57.2 million. Key adjustments include $44 million for stock-based compensation, $9 million for amortization of intangibles, and a $1 million foreign exchange loss. Interest income is expected to decrease to $6 million due to acquisitions. The company plans to maintain efficiency to benefit from future demand stabilization and expressed gratitude to employees. The call is open for questions.

The paragraph is a segment from a Q&A session, where Bryan Bergin from TD Cowen asks about the areas leading recovery in client behavior and early 2025 budget discussions. Jason Peterson responds by highlighting improvement in financial services, hi-tech, and life sciences sectors, noting that financial services clients are starting to reinvest. Although it's premature to predict 2025 budgets, he mentions a sense of stability and constructive discussions with clients. Bergin also inquires about the impact of the Poland R&D incentive on gross margin and effective tax rate, to which Peterson explains that the entire benefit, $29 million year-to-date and $9 million for Q4, affects gross margin.

The paragraph discusses the financial outlook and challenges faced by a company moving forward. A significant point is the expectation of maintaining strong gross margin and adjusted IFO, even without certain adjustments for Poland. The company faces challenges with wage inflation and anticipates a disconnect between wage increases and pricing improvements in 2025, which could impact profitability. In terms of staffing, they have seen increased headcount as a positive indicator and expect further increases in Q4, with global hiring picking up in various regions beyond India and Latin America.

The paragraph discusses a financial update during a Q&A session, emphasizing the seasonality impact between the third and fourth quarters, which includes more holidays leading to a slight sequential decline. Despite this, the third quarter results surpassed expectations, and the fourth quarter is projected to be stronger than initially anticipated. There is discussion of revised guidance figures, reflecting better-than-expected performance. Additionally, Ramsey El-Assal from Barclays inquires about the continuity of R&D incentives from Poland and whether similar incentives could be pursued in other regions.

In this conversation, Jason Peterson discusses the challenges and opportunities faced by the company as they expand into more expensive regions in Central Europe, particularly Poland, where they expect similar benefits in the coming year. He mentions the lack of price improvement and the impact of wage inflation, suggesting profitability may fall below the 16% to 17% range in 2025. Ramsey El-Assal asks about future M&A activities, and Arkadiy Dobkin responds that while the level of past acquisitions may not be repeated, the company will continue to pursue smaller, strategic acquisitions focused on specific capabilities or leadership.

In the paragraph, Jonathan Lee from Guggenheim Securities inquires about the demand trends in Eastern and Central Europe and any changes in top account dynamics. Jason Peterson notes some recovery in Eastern Europe demand, while Arkadiy Dobkin mentions increased capacity focus on Eastern and Central Europe due to a diversification need beyond India. Dobkin discusses a shift from stabilization to the activation of transformational programs, with some initiatives accelerating faster than expected.

The paragraph is part of a financial earnings call where Maggie Nolan asks about profitability improvements excluding a benefit related to Poland. Jason Peterson responds, highlighting improvements in resource utilization and SG&A as a percentage of revenue. He mentions that there hasn't been much price improvement due to ongoing promotions. Additionally, they are exploring opportunities in their pyramid structure and are starting to expand staffing globally. Maggie Nolan also inquires about plans for integrating recent acquisitions and driving synergies. Jason Peterson notes that they anticipate a $54 million contribution from NEORIS in Q4 but have not included any projections from First Derivative, as the acquisition has not yet closed.

The paragraph discusses the integration focus between EPAM and NEORIS, emphasizing revenue growth opportunities and joint client engagements. It notes that the combined entity is expected to have slightly lower profitability than EPAM alone, with anticipated contributions from NEORIS and First Derivative in the low-teens percentage range, slightly impacting adjusted IFO. Arkadiy Dobkin highlights the emphasis on engineering quality and capabilities during integration, acknowledging the challenges of compressed timelines in due diligence. Despite these challenges, the merger is viewed as a strategic move to enhance financial performance and leverage traditional capabilities in the market.

The paragraph involves a discussion between Surinder Thind from Jefferies and Jason Peterson about the impact of a more diversified global delivery footprint on margins. Jason explains that the margin profiles of businesses in different geographies such as India, Eastern Europe, and Western regions are more similar than generally perceived, implying no significant change in profitability from geographic shifts. He highlights that the global seniority pyramid and wage environments are more influential factors, as wage increases have not been fully passed on to clients amidst a changing demand environment. Jason suggests that an improvement in revenue would be the first sign of a demand recovery, eventually leading to improved pricing. Surinder then inquires about quantifying the changes in the seniority pyramid and its implications.

In the paragraph, Arkadiy Dobkin discusses the company's approach to adapting to changes in demand, emphasizing the need for a dynamic strategy. He mentions the importance of having a senior workforce, investing in education and recruitment, and being prepared to scale hiring if necessary. Jason Peterson adds that improvements take time to manifest and require a better demand environment. Dobkin notes the current advantage of having a more senior workforce than in the past. David Grossman asks about the factors driving demand improvement, to which Dobkin responds that it's difficult to distinguish between macro demand-related factors and clients' comfort with the new delivery platform due to the influence of global and geopolitical factors.

The paragraph discusses how enterprises are starting to recognize the need to invest in data and cloud infrastructure to leverage the benefits of new technologies like Generative AI for future gains. It highlights a noticeable shift in client behavior, with companies paying more attention to these technologies and returning to familiar vendors due to quality issues with others. There is mention of visible growth among returning clients and new opportunities scaling significantly in revenue. The conversation also touches on client growth in specific markets like financial services and technology. Finally, there is a brief reference to prior discussions about Poland and company margins.

In the conversation, Jason Peterson clarifies that they expect benefits from Poland, advising to project slightly below 16% growth for 2025, including a $38 million contribution from Poland. David Grossman confirms these numbers and inquires about a significant increase in non-IT headcount of 600 people, 550 being non-IT, to which Peterson clarifies that the increase is mostly in production roles with further growth expected in Q4. Jason Kupferberg from Bank of America/Merrill Lynch asks about returning to positive organic revenue growth by 2025, to which Peterson confirms an expectation for growth, though the extent of "meaningful" growth is not strictly defined.

The paragraph discusses NEORIS, highlighting its organic revenue growth and client concentration, particularly with CEMEX, which, while a significant customer, is not the majority client. NEORIS also serves other industries like manufacturing, materials, and financial services. Jason Peterson notes the business's growth, estimating annual revenue by extrapolating from November and December figures, and expresses optimism about future growth opportunities through combined capabilities.

In the paragraph, Arkadiy Dobkin discusses the current state and future expectations regarding employee productivity in new regions, particularly Latin America and India. He mentions that productivity levels in these regions are nearing those seen in Eastern Europe and highlights the impact of the NEORIS acquisition in Latin America. Dobkin notes that a more comprehensive update will be possible in a few quarters. He also touches on the unpredictability of certain market factors, expressing difficulty in forecasting client-specific challenges for 2025, as there are many variables influencing sales and market conditions.

The paragraph discusses the expectations for global politics and its impact on the market, emphasizing the need for preparation to address technical challenges. Puneet Jain and Arkadiy Dobkin express optimism about EPAM's Q3 results and anticipation for a strong Q4. They believe EPAM is well-positioned to capture future market demand rebounds. The call concludes with the operator thanking participants and signaling the end of the session.

This summary was generated with AI and may contain some inaccuracies.