EPAM Q1 Earnings Call: Leadership Transition and AI Demand Shape Outlook

Digital engineering services company EPAM Systems (NYSE:EPAM) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 11.7% year on year to $1.3 billion. Its non-GAAP EPS of $2.41 per share was 6.1% above analysts’ consensus estimates.

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StockStory’s Take

EPAM’s first quarter results were shaped by a blend of organic growth and strategic acquisitions, with CEO Arkadiy Dobkin highlighting progress in AI-related offerings and the return of some clients previously lost to competitors. Dobkin explained, “Our performance this quarter was driven by meaningful progress and strengthening client engagement, enhancing cross-selling efforts, and continuing to deliver advanced complex solutions.” Management also pointed to supplier consolidation trends and increased demand for quality-driven execution as factors supporting sequential momentum. The company saw double-digit year-over-year revenue growth, with contributions from both core business and recent acquisitions, despite ongoing margin pressures from compensation increases and lower profitability in acquired units.

Looking ahead, EPAM’s updated guidance reflects management’s expectation of continued demand for its AI and digital transformation services, alongside a carefully managed leadership transition. Dobkin stated, “We are encouraged by the incremental demand we continue to see for our AI capabilities, as focus on productivity and efficiency gains turns into more comprehensive AI native transformation programs.” Management cautioned, however, that macroeconomic uncertainty remains, particularly in the second half of the year, and that visibility into client spending is still limited. CFO Jason Peterson added that while client budgets appear intact, “all indications are that [current trends] would carry through into Q3,” with the company monitoring for any changes. The company raised its full-year adjusted EPS outlook and expects sequential growth into the next quarter, though it remains mindful of potential headwinds.

Key Insights from Management’s Remarks

Management attributed quarterly results to increased AI-related demand, successful client re-engagement, and contributions from recent acquisitions, while also noting ongoing macroeconomic challenges and margin pressures.

• Leadership transition announced: Founder Arkadiy Dobkin will move to Executive Chairman in September, with Balazs Fejes (President of Global Business and Chief Revenue Officer) set to become CEO, ensuring continuity as the company enters a new phase focused on AI-driven transformation.
• AI-driven client demand: Management reported double-digit growth in AI-related revenues and highlighted that the majority of top clients are expanding their use of EPAM’s AI consulting and engineering services. Early-stage AI projects are maturing into larger, production-scale engagements, particularly in industries such as oil and gas and manufacturing.
• Supplier consolidation benefits: EPAM is seeing business return from clients who previously left for lower-cost competitors. Dobkin noted that “clients who had prioritized cost above all else in selecting partners are now returning to EPAM,” citing the importance of proven delivery quality and expertise.
• Acquisition impact and diversification: Recent acquisitions, including NEORIS and FD, contributed materially to financial services and emerging verticals, though management acknowledged that these additions lowered overall margins due to integration costs and profitability differences.
• Geographic and talent footprint expansion: EPAM continued to grow its delivery hubs in India, Central and Eastern Europe, and Latin America. The company highlighted net headcount growth in these regions and the importance of balancing junior and senior talent to support evolving client needs.

Drivers of Future Performance

Management expects future performance to be driven by sustained AI-related demand, operational efficiency, and the ability to adapt to evolving client priorities amid ongoing macroeconomic uncertainty.

• AI and digital transformation momentum: EPAM anticipates that growing client interest in AI native transformation programs will remain a primary driver of revenue, with many projects expanding in scale and complexity. Management emphasized partnerships with cloud and platform providers to enhance its AI value proposition.
• Operational focus and margin improvement: The company plans to improve gross margins by increasing utilization and driving productivity, while managing compensation and integration costs from acquisitions. CFO Jason Peterson highlighted a renewed focus on utilization and noted that seasonal factors should benefit margins in the second half of the year.
• Cautious outlook amid uncertainty: Despite strong first-half momentum, management acknowledged that macroeconomic risks and potential demand softening in the fourth quarter could temper growth. The company remains vigilant in monitoring client spending and is prepared to adjust hiring and investment levels as needed.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace and size of AI-related project expansion and how quickly early-stage engagements mature, (2) the progression of the CEO transition and any strategic shifts under incoming leadership, and (3) improvements in margin from operational actions and acquisition integration. Additional attention will be paid to client spending patterns and the impact of macroeconomic factors on demand.

EPAM currently trades at a forward P/E ratio of 16.2×. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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