EPAM Systems Inc (EPAM) — Q2 2025 Earnings Call Transcript

Good morning, everyone, and thank you for joining us today on our second quarter 2025 earnings announcement. As the operator just mentioned, I'm Mike Rowshandel, Head of Investor Relations. We hope you've had an opportunity to review our earnings release we issued earlier today. If you have not, copies are available on epam.com in the Investors section. With me on today's call are Arkadiy Dobkin, CEO and President; Balazs Fejes, President of Global Business and Chief Revenue Officer; and Jason Peterson, Chief Financial Officer. I would like to remind those listening that some of the comments made on today's call may contain forward-looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP measures have been reconciled to the comparable GAAP measures and are available in our quarterly earnings materials located in the Investors section of our website. With that said, I will now turn the call over to Ark.

Thank you, Mike. Good morning, everyone. It's a pleasure to have you on this call, and thank you for joining us today. I'm pleased to share that our second-quarter efforts delivered results ahead of expectations, marking another consecutive quarter of outperformance and further shaping what we believe will be our durable and truly differentiated market proposition, combining best-in-class AI native services with our core engineering and practical consulting strengths. Before we dive in, let me outline today's call. I will begin with our Q2 results and outperformance and then walk through the foundational themes driving our improved growth rates. I will then hand it over to FB, who will share some highlights as the Chief Revenue Officer on how we position ourselves for continued sustainable growth. Finally, Jason will cover our detailed financial results and outlook. After that, the three of us will be available for questions during the Q&A session. Now turning to our Q2 results. As we shared it in our last update, we have been focused on sustaining sequential growth momentum even against the complex macroeconomic backdrop. In Q2, we once again delivered double-digit year-over-year revenue growth, while inorganic contribution played a significant role. It's important to note that our organic growth accelerated from the low single digits to the mid-single digits, exceeding the expectations set 90 days ago. This marks our third consecutive quarter of positive organic growth, reflecting steady improvements in our core business and a return to much more consistent performance. Our Q2 growth was broad-based with all six verticals growing year-over-year and sequentially. Notable standouts include financial services, emerging verticals, and software and hi-tech. Consumer goods, retail, and travel, as well as business information and media, both returned to positive year-over-year growth this quarter. Geographically, all three regions delivered strong year-over-year growth, reinforcing our view that while demand conditions remain dynamic, the environment for EPAM is stabilizing and possibly improving across the whole of our core business. Now shifting to our positioning through the first half. While we anticipated earlier in the year that 2025 would remain a transitional period, we are encouraged to see our sequential momentum improved faster than anticipated. This continuous project ramp-up in Q2 is driving what we believe is among the strongest organic constant currency growth rates in the industry during this time. As a reminder, our client base is almost exclusively large and midsized private sector enterprises with no exposure to federal BP and legacy managed services. And although we remain very prudent and mindful of our clients' end markets in the current climate, we have seen no material impact on our business, unlike some of our peers. Our clients remain focused on strategic efficiency and growth with EPAM playing a key role in both. Our investments in domain expertise, AI-enabled delivery, quality standards across our global talent hubs, and complex client engagements are helping us to retain and expand wallet share and win new logos, positioning us for stronger growth in 2025 versus 2024. If we take a step back, there are three long-term foundational themes, which together should help explain why we should show a different trajectory in the current market. We believe these factors underpin our improving growth trends and position us for differentiated results in 2025 and beyond. Firstly, we continue to see clients refocus on quality as execution matters. EPAM today is known as a trusted strategic partner that consistently delivers quality outcomes. While we are building our own AI-led consulting capabilities, our core focus is still on executing, designing, building, and deploying mission-critical enterprise products and platforms. Rooted in our heritage and culture, this differentiation is not easily replicated. The last several years have confirmed that. Our core engineering DNA, which has remained intact through multiple technology cycles, will be even more critical in the AI era. In Q2, more clients entrusted us with their most complex ROI-driven programs, often expanding engagements to include new commercial and delivery models. These programs are also growing in scale. As AI becomes more deeply embedded across enterprise platforms, complexity will further increase disproportionately, driving even greater demand for the reliable end-to-end AI optimized execution and this specialization we provide. We are seeing some consolidation of demand, and we believe that EPAM is benefiting through our ability to bring a unique combination of AI-native consulting, engineering, organizational enablement, and transformational services. We are seeing more new RFPs for both AI-ready solutions and for core system migration and modernization as clients prepare for AI adoption. Secondly, we continue to expand our market-leading positioning as an AI-native transformation company. Our early investments in AI are serving us well and have enabled us to achieve a high level of AI adoption and to build a highly advanced set of AI and AI native capabilities, platforms, tools, and accelerators. We would like to stress that AI adoption alone, while essential, is not enough for long-term success, which is why today, we offer a full range of AI transformational capabilities from engineering to organizational enablement to our own proprietary and open-source platforms such as DIAL and AI/RUN. As a result, our AI native revenue is growing double digits sequentially, up from strong double digits last quarter. Looking at our top 100 clients, the vast majority continue to be actively engaged with AI initiatives that have now moved beyond experimental PVC to medium and larger scale programs, with many adopting EPAM platforms to accelerate those. These platforms go beyond enabling agentic workflows and data native reasoning. They address the structural challenges of deploying AI at scale across the enterprise. By integrating best-of-breed external products and client-specific tools in both structured and unstructured data, they allow us to close the integration gap faster, ensuring reliable and cost-effective preparation and fostering enterprise-wide use. Importantly, they achieve this without locking clients into proprietary tools, reflecting the open-source nature of most of our AI enablement offerings. In summary, we are making meaningful progress and gaining significant momentum in becoming an AI native transformation company. We expect this driver of growth to build further in the quarters ahead. We will be sharing more updates along the way, including showcasing the new high-impact proposition we are taking to market. Thirdly, we continue to scale and optimize our global delivery hubs, offering clients more attractive and scalable options than ever before. We remain convinced that talent will be a critical driver of our industry’s future and growth. In rapidly expanded markets for AI-led transformation, the ability to scale specialized talent is essential. So we are relentlessly training and upskilling our teams, particularly as we deploy AI to enhance both individual and team productivity. Our global footprint, spanning four diversified talent hubs in Europe, India, Latin America, and Western and Central Asia, is connected through a single proprietary delivery platform and unified AI-enabled delivery methodology. This integrated model provides greater resilience and enables us to deliver truly strategic global capabilities to large enterprises that must constantly balance cost considerations and location strategy with business priorities. Each hub operates on the same delivery backbone, supported by advanced training and globally managed technical assessments. Together, they drive collaboration, co-innovation, and rated client access to advanced native AI capabilities. Our operating models also support centers of excellence that strengthen horizontal capabilities such as data, cloud, and experience engineering, delivering end-to-end execution from strategy through implementation. These foundational themes are our core differentiators and are essential for our long-term growth. EPAM has taken the necessary steps to address our company-specific challenges over recent years while simultaneously positioning our underlying business for strong and sustainable organic constant currency growth, putting us in a much stronger position than we anticipated just six months ago. Lastly, today is my 52nd and final call as the CEO of EPAM. It has indeed been an incredible journey for me from founding EPAM back in 1993 to our IPO day in 2012 and to this moment with everything in between. So at this point, I would like to state that the CEO transition plan has been going well and is on track to be completed by September 1, 2025, at which point FB will become our new Chief Executive Officer and President while I transition into the role of Executive Chairman. The title changes, but my commitment doesn't. I look forward to supporting the long-term success of the company. I want to thank the entire leadership team and all our employees around the world for their relentless drive, innovation, commitment to engineering excellence, differentiation, and the value that they continue to deliver to our clients. With that, I want to welcome FB to provide some additional remarks. FB, over to you.

Thank you, Ark, and good morning, everyone. It's a pleasure to join you today from my seat as Chief Revenue Officer. I would like to take this opportunity to walk you through some commercial and operational highlights of the quarter, the evolving market landscape, and how our AI investments across go-to-market, partnerships, client engagement, and technology are positioning us for continued sustainable growth. Now turning to market trends and the demand environment. As Ark mentioned, we are seeing some positive trends in our markets globally. The increasing attention on AI is triggering incremental demand and improving our overall picture, marked by accelerating cloud migration, growing demand for foundational data engineering, decision-making, and the need to modernize and operationalize platforms and systems at scale. Because our clients are still focused on optimizing their investments, they are relying on EPAM to ensure their AI initiatives are carried out with the right rigor and accuracy to enable maximum flexibility in deployment methods to meet business objectives. I'm encouraged by the client sentiment in both North America and Europe, showing stable and modestly growing demand, especially in our banking and financial services and life sciences and healthcare verticals, along with really strong growth in emerging sectors, especially in energy and oil and gas, particularly in discretionary transformation programs. But we are seeing differentiation from EPAM, bringing in net new opportunities across our portfolio, increasingly realized by our ability to orchestrate across our lines of business in core engineering, cloud, data, and experience, led by our Empathy Lab proposition in Europe. Clients remain focused on value realization and the speed of innovation, which is where our reputation for quality evolved commercial models and client-centric hybrid teams continues to be relevant. Shifting to our go-to-market and client-centric initiatives, we believe that the transformation in the IT services market opens new opportunities for us to capture additional market share. To better position ourselves, we have made meaningful progress on our go-to-market motions. Over the past quarter, you may have seen public announcements around our core engineering, cloud, and AI initiatives, both independently and in collaboration with partners. Today, we partner with over 150 global ecosystem partners and have achieved top-tier strategic partner status with all core cloud and data platforms. Our partnership strategy is client-centric and has become a cornerstone of EPAM's ability to bring the best-of-breed solutions to our global client base, particularly around complex cloud architecture and the operationalization of AI and agentic workflows. As an interesting example, in this recent Databricks announcement, EPAM won the ML Growth Partner of the Year award for rapidly expanding Databricks adoption through large-scale data platform modernization and AI/ML innovation. In Q2, we further operationalized our vertical-led sales and account engagement structure with deeper alignment between our industry teams and solution practices. This enabled us to have better visibility into high-potential deals and to improve win rates with new and existing strategic pursuits. Over the last couple of quarters, we have also progressively strengthened our field enablement. We rolled out a unified global CRM analytics platform, giving our sales and marketing teams real-time insights into deal velocity, deal qualification, pipeline health, and client behavior. This is already improving our sales cycle efficiency and cross-selling effectiveness. Now turning to our transformation of services and key investments. Our services portfolio continues to evolve. A significantly higher proportion of our programs today are high-impact consultative transformation engagements. The vast majority of our new wins this quarter were anchored in digital product and platform transformation, cloud, and AI native services. We have made strategic investments in our key solutions areas, focused on generative AI, industry cloud accelerators, cybersecurity, data factories, and customer experience transformation. These solution centers serve as co-innovation hubs with clients and have already contributed to increasing our total wallet share over the same quarter last year. We also deepened our capabilities with two recent larger acquisitions, one in regulated industries, including financial services, another in cloud-native engineering and transformations serving LatAm and the Spanish-speaking market. These teams are quickly becoming integrated into selling and operational processes and are already supporting our largest clients across most of our verticals. Now turning to our client engagement, client centricity remains at the core of our operating model. We launched a new client success program this quarter, focusing on our top 100 clients. We continue to experiment and work with clients to provide additional flexibility with new engagement models, which have planned to scale in the future. For example, we have launched platform-based delivery for several AI operational engagements, allowing clients to consume AI as a service through our DIAL platform. This is delivering measurable efficiency gains and helping us to move up the value chain. Finally, moving to AI and data-driven revenue transformation. We are deeply committed to using AI not just for our clients but also to transform our internal operations. Effectively, we view EPAM as customer zero for anything we want to bring to the market with AI. This gives us a measurable edge in a competitive market. In addition, we have made strategic investments in our data platforms, and we now have a centralized data lake architecture powering everything from client 360-degree views to marketing personalization. This is enabling more constructional conversations and sharper targeting across all channels. To close, our operating momentum is strong. We are executing with discipline, aligning closely to client priorities and bringing forward innovations that differentiate us in the marketplace. Looking ahead, we see continued differentiation in EPAM's AI native services, cloud and data modernization, and agentic automation. Our commercial and operational foundations are strong, and we remain confident in our ability to capture net new demand and drive sustainable growth in the quarters to come. Jason, over to you.

Thank you, FB, and good morning, everyone. In the second quarter, EPAM generated revenue of $1.353 billion, a year-over-year increase of 18% on a reported basis, surpassing the upper end of our Q2 revenue outlook. On an organic constant currency basis, revenues grew 5.3% compared to the second quarter of 2024. This marks our third quarter in a row delivering positive year-over-year organic constant currency growth, reflecting steady and resilient execution. Additionally, we've returned to growth amidst a macroeconomic climate that remains complex. Our outperformance in the quarter was broad-based, driven by improvements across all verticals and geographies. As Ark and FB mentioned, our strong results and continued sequential momentum are being driven by clients turning to EPAM for trusted quality, coupled with accelerating momentum across our AI and AI native offerings. Moving to our Q2 vertical performance. All six industry verticals showed encouraging momentum and improvement this quarter. Our recent acquisitions, NEORIS and First Derivative, also contributed positively, particularly within financial services and emerging verticals, complementing the strong underlying performance of our organic business. Financial services continued to deliver very strong double-digit growth, up 34.4% year-over-year on a reported basis, reflecting 6.5% organic growth in constant currency, driven by strength across banking and insurance. Software and hi-tech grew 21.2% year-over-year, driven by strong execution and broad improvement across our existing clients as well as new logos. Life sciences and healthcare increased 11.7% on a year-over-year basis. Revenue growth in this vertical continues to be driven primarily by clients in life sciences and med tech. Consumer goods, retail, and travel delivered 6.2% year-over-year growth, showing improvement versus recent quarters. The vertical delivered positive organic sequential growth in constant currency across both consumer products and retail as well as travel and hospitality. Business information and media also returned to growth, increasing 2.8% year-over-year. The return to growth within this vertical was driven by strong momentum across several key clients as well as revenue from new logos. Our emerging verticals delivered another quarter of very strong year-over-year growth of 28.7%, with NEORIS continuing to positively impact the vertical's performance. On an organic constant currency basis, growth was 3.3%, primarily driven by ongoing strength within energy, industrial materials, and real estate. From a geographic perspective, the Americas, our largest region, representing 59% of our Q2 revenues, grew 15.9% year-over-year on a reported basis, reflecting 3.8% organic growth in constant currency. EMEA, comprising 39% of our Q2 revenues, increased 21.7% year-over-year, reflecting 7.6% organic growth in constant currency. And finally, APAC, making up 2% of our revenues, increased 13% year-over-year, reflecting 8.3% organic growth in constant currency. Lastly, in Q2, revenues from our top 20 clients grew 8.8% year-over-year, while revenues from clients outside our top 20 increased 23%. Moving down the income statement, our GAAP gross margin for the quarter was 28.8% and compared to 29.3% in Q2 of last year. Non-GAAP gross margin for the quarter was 30.1% compared to 30.8% for the same period a year ago. Somewhat higher variable compensation, combined with lower profitability associated with recent acquisitions, both contributed to the lower gross margin level. The company continues to focus on improving utilization and gross margin, and we'll maintain this focus throughout the remainder of the year. GAAP SG&A was 17.1% of revenue compared to 16.9% in Q2 of last year. Non-GAAP SG&A in Q2 2025 came in at 14.1% of revenue compared to 14.3% in the same period last year. GAAP income from operations was $126 million or 9.3% of revenue in the quarter compared to $121 million or 10.5% of revenue in Q2 of last year. Non-GAAP income from operations was $203 million or 15% of revenue in the quarter compared to $175 million or 15.2% of revenue in Q2 of the previous year. Our GAAP effective tax rate for the quarter came in at 28.9%, and our non-GAAP effective tax rate was 24%. Diluted earnings per share on a GAAP basis was $1.56. Our non-GAAP diluted EPS was $2.77 compared to $2.45 in Q2 of last year, reflecting a $0.32 increase year-over-year. In Q2, there were approximately 56.5 million diluted shares outstanding. Turning to our cash flow and balance sheet. Cash flow from operations for Q2 was $53 million compared to $57 million in the same quarter of 2024. Free cash flow was $43 million compared to free cash flow of $52 million in the same quarter last year. Cash and cash equivalents were just over $1 billion as of the end of the quarter. At the end of Q2, DSO was 78 days and compares to 75 days for Q1 2025 and 76 days for the same quarter last year. Share repurchases in the second quarter were approximately 1.1 million shares for $195 million at an average price of $179.23 per share. Moving on to operational metrics. We ended Q2 with more than 55,800 consultants, designers, engineers, and architects, reflecting total growth of 18.7% and organic growth of 6.7% compared to Q2 2024. In the quarter, we added approximately 200 delivery professionals. Our total headcount at quarter end was just over 62,000 employees. Utilization was 78.1% compared to 77.5% in both Q2 of last year and Q1 2025, driven by bench optimization efforts. Now let's turn to guidance. Before moving to the specifics of our 2025 and Q3 outlook, I would like to provide some thoughts to help frame our guidance. Our solid financial performance in H1 amidst economic and tariff-related uncertainty continues to be driven by clients who value our strong delivery execution across all our global delivery locations. We are also highly encouraged to see accelerating growth in our advanced AI native offerings, which contributed to our improving revenue growth rates. With good visibility into Q3, we expect further improvement in our year-over-year organic constant currency growth rate in the quarter. With regards to the full year, I would like to remind everyone of the typical seasonal impacts in the second half. Relative to Q2, Q3 benefits from more bill days contributing positively to sequential revenue growth. Compared to Q3, Q4 is negatively impacted by a higher number of holidays, vacations, and potential furloughs. EPAM's revenues and our Q3 pipeline have developed nicely throughout the year. But we also realize that we're still operating in a dynamic demand environment. We want to continue to be prudent with our approach to guidance and currently expect Q4 revenue to be predominantly driven by seasonal factors, which will likely result in flat to a modest decline sequentially from Q3 to Q4. We expect to continue to see strong inorganic revenue contributions from NEORIS and First Derivative, particularly in the financial services and emerging verticals. Based on our strong H1 performance and good visibility into Q3, we are raising the bottom end of the range for 2025 full-year organic constant currency revenue growth. Additionally, due to further appreciation in the euro and GBP, we will also be increasing the FX contribution to reported revenue growth. While driving top-line revenue growth, we will also remain focused on improving gross margin. We are working on improving utilization and will continue to reduce isolated pockets of bench while adding net headcount to support growth. Our guidance continues to assume that we will be able to deliver out of our Ukraine delivery centers at productivity levels similar to those achieved in 2024. Moving to our full-year outlook, revenue growth will now be in the range of 13% to 15%, with inorganic continuing to contribute approximately 9% for 2025. Based on today's spot exchange rates, coupled with the assumption of modest strengthening in the U.S. dollar in the second half, foreign exchange is now expected to have a positive impact on revenue growth of 0.9%. We expect year-over-year revenue growth on an organic constant currency basis to now be in the range of 3% to 5%. We expect GAAP income from operations to continue to be in the range of 9% to 10%, and non-GAAP income from operations to continue to be in the range of 14.5% to 15.5%. We expect our GAAP effective tax rate to now be 26%. Our non-GAAP effective tax rate, which excludes the impact of benefits and shortfalls related to stock-based compensation, will continue to be 24%. For earnings per share, we expect the GAAP diluted EPS will now be in the range of $6.48 to $6.64 for the full year, and non-GAAP diluted EPS will now be in the range of $10.96 to $11.12 for the full year. We now expect a weighted average share count of 56.4 million fully diluted shares outstanding. Moving to our Q3 2025 outlook, we expect revenue to be in the range of $1.365 billion to $1.380 billion, producing year-over-year growth of 17.6% at the midpoint of the range. Our guidance reflects an inorganic contribution of 10.4%, with a 1.0% positive FX impact during the quarter, producing a 6.2% organic constant currency growth rate at the midpoint of the range. For the third quarter, we expect GAAP income from operations to be in the range of 10% to 11% and non-GAAP income from operations to be in the range of 15.5% to 16.5%. We expect our GAAP effective tax rate to be approximately 25% and our non-GAAP effective tax rate to be approximately 24%. For earnings per share, we expect GAAP diluted EPS to be in the range of $1.89 to $1.97 for the quarter, and non-GAAP diluted EPS to be in the range of $2.98 to $3.06 for the quarter. We expect a weighted average share count of 55.9 million diluted shares outstanding. Finally, a few key assumptions as part of our GAAP to non-GAAP measurements for Q3 and Q4. Stock-based compensation expense is expected to be approximately $44 million for Q3 and $45 million for Q4. Amortization of intangibles is expected to be approximately $18 million for each of the remaining quarters. The impact of foreign exchange is expected to be approximately a $2 million loss for Q3 and negligible for Q4. Tax-effective non-GAAP adjustments are expected to be around $17 million for Q3 and $16 million for Q4. We expect minimal excess tax benefits or shortfalls in the remaining quarters. Severance driven by our cost optimization program is expected to be around $9 million for Q3 and $8 million for Q4. And one more assumption outside of our GAAP to non-GAAP items, we now expect interest and other income to be $3 million for each of the remaining quarters. We remain committed to driving revenue growth and improving profitability in the second half, and we are confident in our strong positioning entering Q3 despite the dynamic environment. We will continue to run EPAM efficiently, maintaining our focus on profitability throughout the remainder of the year. Thanks again to all our employees for their dedication and focus on serving our clients and driving results for EPAM. I would now like to take a moment to acknowledge Ark's leadership and the profound impact he has had across the industry, our clients, and our company. Ark has successfully led EPAM through multiple tech cycles over multiple decades, and he has positioned the company to capture the next wave of AI-driven growth. Leading the company through a challenging couple of years and a near existential crisis resulting from the Russian invasion of Ukraine, Ark has played an instrumental role in our return to growth. Today, EPAM is better positioned than ever as a truly global company, offering industry-leading delivery execution across all of our geographic delivery hubs. On a personal note, it's been an honor working with Ark, and I look forward to continuing to work with him in his new role as Executive Chairman. Operator, let's open the call up for questions.

FB, welcome and congrats to you and to Ark. First question for you, kind of on the workforce here and the intentions. It's good to see the organic growth acceleration. But despite that improved quarter-over-quarter organic growth, I noticed you slowed the net quarter-over-quarter billable increase in Q2 versus Q1. So I just wanted to reconcile that. Can you just comment on how you're balancing new talent additions versus bench optimization? Are you making any lasting gains in agentic delivery capabilities? Just anything you can give some more detail on there.

Yes. That's a good question. I think I'll take that. This is Jason. So we continue to hire to support revenue growth. And I think you see in our guide that we intend to continue to grow throughout the year. At the same time, I think we have been a little bit more thoughtful about pockets of bench that we have globally. And we, let's say, have been somewhat more active to address the bench issue. So we are seeing an improvement in utilization, and we look forward to continuing to maintain utilization at a somewhat higher level than we did last year. And Bryan, that's generally why you see a somewhat lower headcount addition. I think that you'll see net additions clearly in Q3 and probably greater net additions in Q4 as we exit and prepare for 2026.

Okay. Understood. And then my follow-up. So obviously, a very complex macro environment. In your conversations with client leaders, what do you really think it's going to take for them to lean back in more notably in discretionary areas just to sustainably recover growth? Is it as simple as trade deals and rate cuts? Or do you sense there are just prior levels of outsized discretionary spend where there wasn't an ample ROI that may have changed lasting changes in behavior to discretionary activities?

Bryan, this is FB. I think it's a very good question because what's really happening on the field is clients have to go back to discretionary spending for two reasons. One is that they were suspending discretionary investments for a while now, and they're no longer able to do that due to regulatory requirements or due to platform shifts, which they have. Also, most of our clients started to prepare themselves for AI adoption. In order to do AI adoption, they have to really touch upon their fundamentals. Fundamentals, meaning they have to take a close look at their legacy infrastructure, start modernizing, going back, shifting to the cloud, and really addressing the backbone, which is data. In order to really adopt AI and actually roll out AI solutions in the enterprise, you need to make sure that your data environment, your core data assets are in good shape. This is very much playing to the sweet spot of EPAM. This is very much playing to our strengths. That's kind of what's happening right now.

Congratulations on your final earnings call. It's been a remarkable journey, and FB looking forward to working with you. Jason, this one is for you. I appreciate some of the context you provided around the outlook. Can you dig into some of the specifics across what's contemplated at the high end and the low end of the range particularly from a macro perspective? And can you help unpack some of your assumptions around the range of your implied Q4 exit rate?

Okay. Excellent. Thank you, Jonathan. And I think I'll give you kind of a bonus. I'll start with the midpoint of the range, and then we'll talk about low end and high end. So from a midpoint of the range for the full year, which would be 3% to 5%, which I guess midpoint would be around 4%. It would require that we achieve the midpoint of the guided range for Q3 and then some sequential decline Q3 to Q4, largely driven by the seasonal factors I mentioned. And so nothing heroic involved in hitting the midpoint of the range. On the low end of the range, that would say you probably achieved the low end of the Q3 guide. And then you see a significant deterioration in demand, and then as a result, significant decline in revenues in Q3 to Q4 due to both the seasonal and the demand impacts. On the high end of the range, that would say you achieved the high end of Q3 guide, and then you see some sequential growth Q3 to Q4. And again, that would you'd have to see some improvement in the demand environment because you do have the negative impact of seasonality. On the midpoint of the guide, your Q4 exit would be sort of 3% and change to maybe 4% organic constant currency year-over-year growth rate. On the high end of the guide, again, if you were to exit closer to the 5% for the full year, you would actually exit Q4 at an organic constant currency growth rate in excess of 5%.

That's great color there. As a follow-up, can you provide incremental color on the net new discretionary transformation program that you're seeing, especially given that most peers have cited challenges in discretionary spending? And how are these new wins factoring into the outlook for the back half and perhaps even into '26?

I think it's a kind of continuation of what FB already mentioned because if you think about EPAM, we have pointed to this multiple times. Our client portfolio, the portfolio of our engagements is different. When there is pressure on more traditional services, including large managed service contracts on BPO, usually it goes because of automation involved and specifically today, AI-driven parts. And this is where we're seeing increment for us. If you remember, we were talking for quarter after quarter that we're waiting for when actually AI will start to put additional pressure and drive for the new type of build. I think this is a sign that we see during the last couple of quarters, which is confirming our growth and discretionary increase, not at the level which we would like, but at least in the right direction. And I think this is how it's shaped right now. So we don't see impact with some other vendors based on their portfolio configuration, and we see some incremental increase.

Can you hear me?

Yes, we can.

How are you measuring your progress in upskilling the employee base? And how far are you in this process and the related investments? Is this an outsized investment compared to typical training initiatives? And maybe kind of reconcile that with the impact of your efforts to increase utilization.

Maggie, it’s great to meet you. In 2024, we launched an AI upskilling initiative for our employees, achieving participation from over 80% of our workforce. We are committed to this ongoing effort and ensure our team is kept informed about the latest trends. We introduced a special program that provides essential boot camp materials for our staff to begin this journey. Additionally, we are working on getting more of our engineers certified in AI, focusing on deepening their expertise. However, our focus is expanding beyond just our engineering teams; we are also implementing this training for our client-facing and back office teams so they can understand and effectively utilize AI. We are experiencing an accelerating adoption curve for AI. While we have not yet reached our target, we are clearly seeing progress. We recognize that successful adoption also requires collaboration with our clients to integrate AI into our services. Overall, we are making good strides and aspire to continuously enhance the skills of our entire workforce.

Yes. So from a utilization standpoint, which is one of the big areas of focus right now, it's to exit the year at, let's say, 77% or maybe a little above. And again, Q4 is usually a quarter when you've got a lot of vacation, and that does impact utilization. So if you look back to last Q4, that shows improvement. We are somewhat more focused on account margin, making sure that we're taking deals with appropriate pricing and profitability. And so it continues to be a work in progress, but it's certainly part of our focus as we work through the second half of 2025.

Could you provide some clarity on the margin question, Jason? Considering the exit rate and the various factors influencing 2025, is it reasonable to use the fourth-quarter exit rate as a starting point for next year? Or should we take other factors into account as we look beyond the fourth quarter? Additionally, could you share any updates regarding the pricing and wage dynamics you've been facing over the past few months?

Okay. So I think it's sometimes hard to use Q4 because usually the second half has got somewhat better profitability than the first half. I do think for the full year, you're looking at us hitting kind of the midpoint of our guided range of 14.5% to 15.5%. And clearly, there's a focus on trying to improve profitability as we enter the next year. I think right now, what you've got is, again, a focus on utilization. We are seeing an environment where clients are looking for EPAM to either take over troubled programs or to help them execute, as FB said, on foundational data or AI-related programs. Generally, clients are willing to pay us for that. So the profitability is probably improving somewhat from a deal standpoint. But at the same time, it's still, let's call it, a somewhat cautious environment. But I would say that we feel better about the pricing environment today than we would have felt six months ago.

Got it. And then I think everybody on this call and everyone in the team knows the narrative is weighing pretty heavily on the group, and I think you understand those concerns as it relates to productivity gains and revenue. You've provided some information in your prepared remarks, but are there any other trends or data points that you can share that may provide better insight in both the opportunities and the risks? I think you talked a lot about the opportunities. So maybe more on the risks, at least in terms of the market's perception versus what you think are the realities.

Yes. I think it's correct. So let me clarify. You're basically directly asking how worried we are about the future because of AI potentially taking our jobs, correct? And I think we are definitely very carefully watching everything that's happening. As you know, we have a pretty strong part of our portfolio, which is very much hi-tech product companies. Some of them are actually driving what's happening in adopting AI, not only for building new solutions but also how to build it, basically how it deals work. We're investing a tremendous amount of time in this, and I think we understand and see it pretty well, specifically for the complex enterprise market. With all of this, we do believe that the complexity of the new landscape of enterprise enabled by AI would be so high that it would require very good engineers and solutions people. The type of work they will do again, I'm not telling anything that's going to be different, but this will be slightly developed over the next few years, and the amount of people who can do something like this will be in very high demand. We believe this, and we do believe this even from what we're seeing right now. Many clients wanted to do it themselves and initially thought it was easy and a straightforward use case. However, they come back after three, six, or nine months looking to engage us for both the actual development and the new solution itself. This is practically the trend, and this is part of the sequential increases as well.

I just wanted to add, we released a public press release and a case study with Wolters Kluwer just yesterday, which points out where we're working with our core clients to help their adoption and educate them. It's not as easy as it may sound. I know that everybody believes that watching YouTube videos is enough to write code for ERP applications, but that's not how it works.

So I would describe a more optimistic view. We're very much at the beginning of enterprise transformation, and it's very difficult to predict. Most of the predictions today focus on individual productivity or very specific use cases, rather than the complexity that we will see or are already seeing today.

I guess Ark, just big picture. When we think about all of the change in the organization and all the adaptability to the new tools and technology, how are you thinking about the shape of the actual delivery footprint itself? Are we thinking about more senior people, fewer senior people being used? And how is that going to shake out as we look in the years ahead?

Thank you for the question. And I'll pass it to FB because he's smiling and wanted to answer.

We believe that right now, everyone still thinks that in order to really use the AI tooling, you only need senior people, but that's not a sustainable proposition. We're observing how our kids are using AI in their studying efforts. Imagine that a few years out, all those kids will have been using AI for not just one or two years, but for five years in they have experience. They have their instincts on how to ask the right questions and how to actually do the right project. We believe that we need to continue investing in our people. We need to continue building a balanced setup. Yes, you need to make the right hires, but maybe the hires going forward are not going to be based on coding skills, but on engineering skills. Engineering remains, coding is changing. That's how we think about this. Going forward, our delivery teams are going to take on a different shape. But the challenges they need to tackle mean that the number of features they will need to deliver is going to be much greater. So we are not seeing a dramatic shift in terms of population or size of our delivery team. We continue to believe that we should be investing in it and we continue to believe that the future is to create the right shape pyramid. If this is what you're asking, it's not just seniors and not just the most senior people who can really use it. It's key to education and having the right engineering background to understand the basics, understand the concepts, and then use AI effectively to deliver the solution.

That's helpful. And then when we think about this idea of building these new products and solutions, how do you think about the idea of being a pure-play engineering firm? I felt you went out of your way to say that you don't do managed services. And yet, one of the thesis out there is this idea that as agentic capabilities become more integrated into workflows, you need some component of managed services, like other companies are going with a much more integrated approach. How do you feel like you fit into this? Can you just do the engineering and walk away?

Yes. Let me clarify one point. When we're talking about we don't do managed services, we mean we don't do traditional managed services much, and there are different ways things happen. For example, in platform build-up and managed products, we do this, but it's very different than traditional legacy stuff. That's what we mean. We're definitely building this expertise because when we help clients to build, we are continuously maintaining this, but it's a very big mix of manage and build in constant exchange. That's what we're doing, and this is much more embedded in our services. So I think it's important, and I think that's an answer to your question.

I wanted to touch on how much of your sequentially incremental revenue we're seeing is coming from these existing clients or pre-existing customers returning now? Like how much does that make up of the actual incremental dollars that's new business for you today? And then maybe just help us a little more on where they're choosing delivery out of, whether it's more India now or it's still a mix between India and Eastern Europe. Just curious kind of what the demand is for you from them.

Okay. So let me take the first half. You get a little bit of benefit with the additional bill days in Q2 to Q3. Certainly, we think some of the improvement in our revenue versus our earlier expectations and probably versus peers has to do with this return to quality. It's hard for us to sort of turn that into a dollar figure, but we think it is what is likely separating us from an organic constant currency growth rate relative to peers. I don't know if either Ark or FB want to take the question about where the demand is coming from, India versus Europe.

I think the demand right now is quite balanced, right? It is broad-based. We are clearly able to serve our client base from the four large geographies, where we are delivering from Latin America, Central and Eastern Europe, Western Central Asia, and India. Depending on clients' needs and their own location strategy, we are equally serving them from all four locations right now. So we are seeing growth. We're seeing demand in all our four major centers.

Okay. That's helpful. So do you guys think you're at the end of your repositioning geographically, versus what you were trying to do over the last few years? And then maybe just a quick one on attrition. Where are the trends recently? Have they been stable year-to-date?

I'm going to let Ark talk about positioning, but let me just say on attrition, involuntary attrition is up a little bit for the reasons that I talked about earlier. But voluntary attrition is actually in very good shape and is actually running below 10%.

And you answered already kind of, yes, we are focusing on pretty well and trying to see where the right talent globally is, and I think we believe we're in a good state right now between all major hubs. Still, Central Eastern Europe is the biggest one if you combine all of this, and then India, Latin America, Western Central Asia. From this point of view, it's not going to be any additional updates. We're growing in all of them, and we believe we're in good shape. And we also believe that with the increase in demand, we cannot predict what it's really. All very much positioned from the quality of talent and our ability to invest in all the time to make sure we're ready for future requirements.

Good quarter, guys. Are there any differences in AI adoption across different verticals? Like financial services, that vertical has been doing better than others. Is that in any way driven by AI adoption, like the different levels of AI adoption in that vertical?

Well, I think right now, we see adoption across all the different verticals. It's a broad-based adoption for each vertical. Each vertical has its own champions. I think there are — in each vertical, there are players who are front-running it, and there are players who are still waiting to start off. We don't see the differences between verticals right now, yes.

I don't think there's any connection right now between the vertical performance. The vertical performance, I would say, is mostly attributed to differences in macroeconomic conditions, like tariff and macro-related factors.

So we're continuously experimenting with engagement models. In my opening remarks, I talked about it as we are working with our clients. We see certain subscription models already taking hold with our EPAM platforms. I think it's not settled yet. It is changing as we go, and we continue to see how we can best adapt to our client needs and also be able to really capture the benefits of our AI and share those benefits with our customers.

Thank you, again, as always, for the last 50-plus times. It has been very good to have this call. I guess we're doing, as we mentioned, better than we expected. This third quarter of growing organically is an important kind of milestone for us to continue. I look forward to seeing you next time on the call. Thank you very much.