The paragraph is an introduction to the EPAM Systems Fourth Quarter and Full Year 2024 Earnings Conference Call. The operator welcomes participants and introduces Mike Rowshandel, Head of Investor Relations, who provides information on accessing the earnings release and introduces key speakers Arkadiy Dobkin, CEO and President, and Jason Peterson, CFO. Mike reminds listeners that the call may include forward-looking statements subject to risks and uncertainties. Arkadiy Dobkin then shares that the company's first quarter results surpassed expectations due to strong execution and the company's advanced capabilities and service offerings.

The paragraph reflects on the performance of a company in 2024, highlighting three key points: successful execution of their global business strategy amid challenges, significant improvements and better-than-expected results in their standalone business despite a weak first half of the year, and the buildup of sequential momentum towards the end of 2024. The company has made strategic acquisitions, such as NEORIS and First Derivative (FD), to enhance their global presence and penetrate new markets, which has resulted in encouraging progress with joint opportunities. Looking towards 2025, they are optimistic about a transformative year despite market sensitivities. In Q4 of 2024, the company achieved mid-single-digit growth both year-over-year and sequentially, marking a return to organic revenue growth.

The paragraph highlights improvements in client sentiment and engagement across various industries and regions, particularly regarding AI capabilities. Growth was observed in most verticals with strong momentum from the previous quarter. Notable growth was seen in life sciences, healthcare, software, high tech, financial services, and emerging sectors. Geographically, the Americas and APAC led year-over-year growth, while Europe showed sequential revenue growth. The demand environment is more positive compared to 90 days ago, with improved sentiment across client portfolios. The company is consolidating work as clients shift towards engineering-led programs. Recent conversations indicate higher buying signals, with an increase in scaled and transformational AI programs. The company anticipates realizing first-mover advantages in AI by 2025.

The paragraph discusses a cautiously optimistic outlook for EPAM amid macroeconomic risks and geopolitical uncertainties, focusing on global delivery and talent strategy. The company is balancing optimism with caution as clients slowly increase discretionary spending. EPAM has diversified its talent pools across delivery hubs in Europe, India, Latin America, and Western Central Asia, noting growth in India's workforce and a positive shift in Ukrainian operations despite geopolitical challenges. The company emphasizes Europe's importance as a talent pool and highlights significant growth in India, showcasing EPAM's adaptability and commitment to a global, diverse workforce.

The paragraph discusses the company's strategic growth and focus areas. It highlights the strengthening of their presence in Latin America, which has become a significant delivery region, as well as progress in Western Central Asia. Recent acquisitions of NEORIS and FD have expanded their global footprint, particularly in Latin America, Canada, Spain, UK, and Ireland. The company is also heavily investing in Generative AI (GenAI) initiatives, with 75% of top clients engaged and numerous AI projects underway. These efforts are showing strong growth and are leading to more defined midsized AI projects. Larger AI initiatives, managed through AI factories, are generating substantial value, and the company's AI-driven client engagement is outlined in three major dimensions.

The paragraph outlines three dimensions of productivity and AI-related enhancements. Dimension one focuses on improving productivity in enterprise-level engagements through GenAI-enabled software development lifecycle (SDLC) transformation programs. These programs leverage advanced tools and EPAM's AI/Run framework to optimize costs and create new revenue streams. Dimension two involves data and cloud engagements to support scalable AI-native programs. Dimension three emphasizes go-to-market transformation programs powered by GenAI, which have gained traction and significantly increased revenues by Q4 2024. The paragraph mentions two client examples to demonstrate the real value and engagement generated through these initiatives.

The paragraph highlights EPAM's collaboration with Canadian Tire Corporation to enhance software delivery through modernization and standardization, achieving significant optimization and efficiency. EPAM has effectively implemented the EliteA platform and trained over 700 individuals. The partnership with Baker Hughes aims to develop AI-native digital platforms leveraging EPAM's engineering capabilities and Baker Hughes' energy expertise. EPAM is recognized as a key partner for digital and AI transformation, demonstrating successful large-scale AI programs with proven ROI. The company is focusing on growing partnerships with major cloud and data providers to foster AI advancements, maintaining its strategic vision for 2025 and beyond.

The demand for advanced AI software and data engineering services is expected to rise, driven by the need for increased engineering productivity and security modernization. EPAM has shown strong performance in Q4, supported by its AI capabilities and global diversification. While 2025 is anticipated to be challenging, marked by cost sensitivity and the need for discretionary spending, EPAM aims to navigate these pressures by investing in talent, AI advancements, and integration of recent acquisitions. This strategic positioning is intended to ready the company for a rebound in discretionary demand.

In the fourth quarter, EPAM reported revenues of $1.25 billion, marking a 7.9% year-over-year increase due to both organic growth and acquisitions, such as NEORIS and First Derivative. Organic revenue grew by 1%, exceeding the company's Q4 guidance due to better-than-expected new project starts. Most industry verticals saw sequential organic growth, with financial services showing a significant 15.9% increase, driven by strong banking, insurance, and payment sectors. Life sciences and healthcare grew by 8.6%, boosted by new clients, while software and high-tech saw a 7.7% increase. The travel and consumer vertical was the only area with a decline from Q3 to Q4.

The paragraph discusses the financial performance and growth trends of various industry sectors and regions for the company. Overall, consumer goods, retail, and travel saw a year-over-year decrease of 3%, with organic declines and inorganic growth largely due to losses in consumer products and retail, countered by growth in travel. The business information and media segment experienced a 3.9% decrease, while emerging verticals showed strong growth of 24.8%, driven by energy, manufacturing, and industrial materials sectors, with contributions from NEORIS. Geographically, the Americas, accounting for 60% of Q4 revenues, increased by 11.4%, EMEA rose by 3.1%, and APAC grew by 4.3%. Revenue from the top 20 clients grew 4%, while those from other clients rose by 10%. Additionally, gross margins declined due to compensation increases from a 2024 promotion campaign and lower profitability from recent acquisitions.

In Q4 2024, the company saw increased SG&A expenses due to recent acquisitions and higher variable compensation, with GAAP SG&A at 17.4% of revenue and non-GAAP SG&A at 14.4%. GAAP income from operations was $137 million (10.9% of revenue), while non-GAAP income was $208 million (16.7% of revenue). The GAAP effective tax rate was 24.8% and non-GAAP was 24%. GAAP diluted EPS was $1.80 and non-GAAP diluted EPS was $2.84, a 3.3% increase from Q4 2023. Cash flow from operations decreased to $130 million, and free cash flow fell to $115 million due to acquisitions, resulting in $1.3 billion in cash and equivalents at quarter-end. DSO improved to 70 days. The company repurchased 53,000 shares for $13 million at an average price of $241.99 per share.

In Q4, the company had over 55,100 consultants and related professionals, a 16.3% increase from Q4 2023, partly due to acquisitions and organic growth. The total headcount reached 61,200, with a 76.2% utilization rate. For the 2024 fiscal year, revenues were $473 billion, up 0.8% year-over-year, though down 1.7% on an organic constant currency basis. GAAP income from operations increased by 8.6% to $545 million, benefiting from $69 million in Polish R&D incentives but negatively impacted by $31 million in severance costs. Non-GAAP income was $779 million, up 1.8%, aided by $45 million in Polish R&D incentives. The GAAP tax rate was 22.2%, and the non-GAAP rate was 24%. GAAP earnings per share were $7.84, while non-GAAP EPS rose 2.5% to $10.86, with approximately 58 million diluted shares outstanding.

The paragraph outlines the financial performance and guidance of a company. Cash flow from operations was $559 million, and free cash flow was $527 million in 2024, with 1,854,000 shares repurchased for $398 million. In 2025, the company expects flat organic revenue growth in Q1, with improvements throughout the year, and a focus on revenue growth. Profitability is expected to be lower due to talent retention costs, limited pricing improvements, and acquisitions, though improvements are anticipated in the year's second half. Revenue growth is projected between 10% to 14%, with a 10% inorganic contribution, and foreign exchange is expected to negatively impact by 0.9%. The company will maintain productivity from its Ukraine delivery centers.

The paragraph outlines the financial expectations for a company, including GAAP and non-GAAP income from operations and earnings per share (EPS) for the full year and the first quarter of 2025. The company anticipates a GAAP income from operations between 9% and 10% and a non-GAAP range from 14.5% to 15.5%, with EPS ranging from $6.78 to $7.08 (GAAP) and $10.45 to $10.75 (non-GAAP). The effective tax rate, both GAAP and non-GAAP, is expected to be around 24%. For Q1 2025, projected revenues are between $1.275 billion and $1.290 billion, reflecting a 10% year-over-year growth but with a negative 1.4% foreign exchange impact. Q1 income from operations is expected between 6.5% and 7.5% (GAAP) and 12.5% to 13.5% (non-GAAP), factoring in social security caps, 2024 compensation increases, acquisition dilution, and slower revenues in January. The EPS and share counts for full-year and Q1 are detailed with expectations of outstanding shares at 58.1 million and 57.7 million respectively.

The paragraph outlines several financial expectations for the year 2025, focusing on GAAP to non-GAAP adjustments and other financial forecasts. Stock-based compensation is projected to total $194 million, amortization of intangibles at $68 million, and foreign exchange losses at $1 million per quarter. The tax effect of non-GAAP adjustments is estimated at $61 million for the year, while excess tax benefits will be around $14 million. Severance costs from a 2024 cost optimization program are expected to be $6 million in Q1 and $1 million in Q2. Interest and other income for 2025 are anticipated to be lower than in 2024 due to recent acquisitions, totaling $18 million for the year. The paragraph concludes with a note of gratitude for the company's efforts in 2024 and a prompt for questions.

The paragraph discusses expectations and growth projections for NEORIS and FD's revenue from Q4 to 2025. A projected 0-4% organic revenue growth is expected, which may reach 1-5% when accounting for foreign exchange headwinds. Although there was a slow start in January 2025, substantial project initiations and increasing client engagement are anticipated to drive growth, particularly from a high-tech client. Sequential revenue growth is expected between Q1 and Q2, with strong project commencements in February. The conversation also touches on investments in areas like Agentic AI and intellectual property, which is unusual for IT services companies that typically don't retain much of the IP they produce. Maggie Nolan expresses interest in these investment strategies.

In the paragraph, Jason Peterson discusses the financial impact of recent acquisitions and investments in GenAI on the company's adjusted income from operations (IFO) for 2024 and 2025. The acquisitions of FD and NEORIS, while accretive from an earnings per share (EPS) perspective, result in a 60 basis point dilution of adjusted IFO, bringing it down from 16.5% to 15.9%. Additionally, investments in GenAI are leading to increased sales, general, and administrative (SG&A) expenses and a slight reduction in gross margin. Despite challenges in obtaining rate increases in 2024 and expected continued difficulties in early 2025, the company is focusing on retaining top technical talent, which has led to cost and compensation increases. The pricing environment is expected to improve somewhat throughout 2025, with efforts to optimize utilization and staffing structures. Markets in India and Ukraine continue to perform profitably.

The paragraph discusses the company's strategic focus on investing in generative AI (GenAI) despite current pricing pressures affecting their gross margin and adjusted IFO. Arkadiy Dobkin explains that similar investments have been made during previous technological transitions, such as the shift to cloud and mobile, even in better macro environments. The company believes investing in GenAI is crucial to remain competitive and capitalize on future transformations driven by AI technologies. During a Q&A session, Jamie Friedman from Susquehanna asks about the company's focus on transformational versus operational aspects in relation to pricing pressures. Dobkin confirms their ongoing exposure to "run the business" opportunities alongside transformational initiatives.

The paragraph discusses the company's approach to adapting to automation and pricing pressures, with changes expected to become more apparent by 2025. Jamie Friedman acknowledges this information and the operator then introduces a question from Bryan Bergin from TD Cowen, who inquires about client spending behavior in the fourth quarter, particularly differences between new and existing clients. Arkadiy Dobkin responds that while specific numbers cannot be disclosed, the company has acquired several new clients, some quickly reaching significant spending levels. Additionally, many new clients are exploring GenAI proof-of-concepts. Interestingly, some returning clients, previously inactive since the beginning of the war, are being treated as new clients, with one significant tech company notably resuming and increasing its activities.

The paragraph discusses a financial update provided by Jason Peterson, highlighting revenue and profitability performance. The company reported stronger-than-expected revenue growth, with specific contributions from NEORIS and FD. They saw growth in Europe and financial services, particularly in November and December. The discussion then shifts to margins, with questions from Bryan Bergin about profitability. Jason Peterson expects improved profitability in the latter half of the year, aiming for a typical profit margin of 16% to 17%, as they work towards returning to previous profit levels.

In the paragraph, Jason Peterson discusses the company's capacity to accelerate revenue growth when demand improves, emphasizing their strong talent capability across various regions like India, Eastern Europe, the Americas, and even Ukraine. However, he anticipates headwinds in 2025 due to a geographic mix shift, such as local revenue growth in Latin America with NEORIS and in India, leading to some expected compression or slow growth in revenue per headcount. David Grossman inquires about the specifics of the mix shift's impact on revenue growth for 2025, but Peterson notes they had discussed it the previous year without providing specific details in the current discussion.

The paragraph discusses the current business landscape and future expectations, with a focus on geographic demand and workforce management. It highlights growing demand in India and Eastern Europe, and mentions the impact of geographic expansion on profit margins. Jason Peterson talks about maintaining low attrition rates by retaining high-quality talent, which is crucial for upcoming transformative initiatives. The company sees clients returning due to dissatisfaction with other service providers. There's also a potential opportunity to improve pricing over time, and Arkadiy Dobkin is expected to provide more insight on talent management.

The paragraph contains a discussion among industry professionals about business strategies and financial projections. Arkadiy mentions relocating employees to various regions to manage costs and opportunities for growth in Central Europe and West and Central Asia. David Grossman asks about expectations for financial margin improvements. Jason Peterson responds, indicating that no significant improvements are expected from Q1 to Q2, but strategies like better utilization and scaling are being implemented to enhance profitability, aiming to reach or surpass a 16% profitability target by 2025. The discussion then shifts to Jason Kupferberg from Bank of America, who asks about revenue predictions and assumptions related to discretionary spending improvements.

The paragraph involves a discussion between Jason Peterson, Arkadiy Dobkin, and Jason Kupferberg about the company's revenue and margin outlook. They mention an improvement in discretionary changes compared to the previous year, with positive signs in quality transformations and scale programs, especially related to GenAI. Achieving the high end of the revenue range depends on these discretionary changes and pragmatic views from companies initiating change programs. However, the pricing environment remains challenging. Wage inflation, particularly in offsite countries, is impacting margins, with a projected decrease of 90 basis points on an organic basis due to efforts to retain talent.

The paragraph discusses challenges and strategies related to retaining technical talent, particularly in the context of new technologies like GenAI. The focus is on maintaining a workforce in delivery locations outside the US and Europe, with an emphasis on understanding new software development life cycles (SDLC). Darrin Peller from Wolfe Research asks about hiring plans, especially in light of recent organic headcount growth excluding acquisitions, and seeks information about the geographical distribution of employees and potential geopolitical impacts, particularly regarding the situation in Ukraine and Russia. Jason Peterson is expected to respond to these queries.

The paragraph discusses the company's headcount changes and geographical growth expectations. In Q3 2024, the company added fewer than 1,000 employees organically, and expects around 1,500 in Q4, including contributions from FD and NEORIS. For Q1 2025, they anticipate adding nearly 1,000, although the start to January has been slow. Growth is expected in Europe, especially in India, but headcount in Belarus and Ukraine has declined year-over-year, with some growth in Ukraine during Q4. The resolution of the conflict in Ukraine might increase client willingness to engage in projects there. From a profitability perspective, Ukraine is highlighted as one of the most profitable regions. Additionally, the text mentions a 400-500 basis point increase in fixed contract percentages over recent periods, asking for further details on trends and timing.

In the paragraph, Jason Peterson discusses their business growth, highlighting expansion in the Middle East, which operates more on a fixed fee basis, as well as an increase in consulting-led programs and managed services with fixed fees. Jonathan Lee from Guggenheim Partners asks about anticipated growth in specific industry verticals. Arkadiy Dobkin responds that life sciences and financial services are showing good dynamics, while retail and business information recovery remain uncertain. Energy and technology are noted as potential growth areas, with improvements expected in tech by Q4. The conversation acknowledges a challenging pricing environment, although specifics on catalysts for pricing improvement aren't provided.

In the paragraph, Arkadiy Dobkin discusses how clients are focusing more on change and adapting their pricing strategies in certain areas. He expresses satisfaction with how the company finished the previous year and optimism about the upcoming year. Dobkin emphasizes a pragmatic approach to annual guidance and suggests revisiting the discussion in three months. The operator then concludes the conference call.

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