Press release·02/28/2025 21:23:16

Financial Performance Overview

EPAM Systems, Inc. is a leading global provider of digital engineering, cloud, and AI-enabled transformation services. The company has reported its financial results for the year ended December 31, 2024, showcasing a solid performance amidst a challenging business environment.

EPAM’s total revenues for the year 2024 increased by 0.8% to $4.728 billion, compared to $4.691 billion in the previous year. This growth was driven by stabilizing demand for the company’s services and positive impacts from foreign currency exchange rates, partially offset by the sale of its remaining holdings in Russia. The company’s acquisitions of NEORIS and First Derivative also contributed $65.9 million to the revenue growth in 2024.

The company’s cost of revenues (exclusive of depreciation and amortization) increased by 0.6% to $3.277 billion, representing 69.3% of total revenues, compared to 69.4% in the previous year. This increase was primarily due to higher compensation costs, including a $12.1 million increase in stock-based compensation expense, as well as reduced benefits from the company’s hedging program and the negative impact of foreign currency exchange rates. These increases were significantly offset by benefits totaling $68.8 million recognized for government incentives related to conducting R&D activities in Poland and a decline in costs associated with the company’s humanitarian efforts for Ukraine and its unbilled business continuity resources.

Selling, general and administrative expenses increased slightly by 0.2% to $816.3 million, representing 17.3% of total revenues, compared to 17.4% in the previous year. The increase was primarily driven by higher personnel-related costs, including a $7.4 million increase in stock-based compensation expense, and an increase in professional fee expenses related to the company’s business acquisition efforts. These increases were partially offset by a decrease in bad debt expense, facility exit costs, and facilities and infrastructure expenses.

Depreciation and amortization expense decreased by $2.2 million to $89.6 million, representing 1.9% of total revenues, the same as the previous year. The decrease was primarily due to lower depreciation on furniture, fixtures, other equipment, and computer hardware, partially offset by increased amortization of software licenses and acquired finite-lived intangible assets.

EPAM’s income from operations increased by 8.6% to $544.6 million, representing 11.5% of total revenues, compared to 10.7% in the previous year. This improvement was primarily driven by the benefits from government incentives, reduced costs associated with the company’s humanitarian efforts and business continuity resources, and improved utilization, partially offset by the increase in stock-based compensation expense.

The company’s net income for the year 2024 was $454.5 million, or $7.84 per diluted share, compared to $417.1 million, or $7.06 per diluted share, in the previous year. The increase in net income was primarily due to the higher income from operations, partially offset by a slight decrease in interest and other income, net, and a slight increase in the provision for income taxes.

Segment Performance

EPAM operates in two reportable segments: North America and Europe. The company’s operations in Russia were previously reported as a separate segment, but the company completed the sale of its remaining holdings in Russia in 2023.

The North America segment, which accounted for 60.6% of total segment revenues in 2024, experienced a 3.7% increase in revenues to $2.866 billion. This growth was driven by the company’s acquisitions, which contributed $95.7 million to the segment’s revenues. The North America segment’s operating profit increased by 5.9% to $541.4 million, representing 18.9% of the segment’s revenues, up from 18.5% in the previous year. The improvement in operating profit was primarily due to higher utilization and the recognition of government incentives related to R&D activities in Poland, partially offset by an increase in variable compensation expense.

The Europe segment, which accounted for 39.4% of total segment revenues in 2024, experienced a 2.5% decrease in revenues to $1.862 billion. This decline was partially offset by the positive impact of changes in foreign currency exchange rates. Acquisitions contributed $28.9 million to the segment’s revenues. The Europe segment’s operating profit increased by 13.6% to $284.2 million, representing 15.3% of the segment’s revenues, up from 13.1% in the previous year. The improvement in operating profit was primarily due to higher utilization, government incentives related to R&D activities in Poland, partially offset by an increase in variable compensation expense and the negative impact of foreign exchange rate fluctuations.

Strengths and Weaknesses

EPAM’s key strengths include:

1. Diversified client base and service offerings: The company has a well-diversified client base across various industry verticals, including Financial Services, Consumer Goods, Retail & Travel, Software & Hi-Tech, Business Information & Media, Life Sciences & Healthcare, and Emerging Verticals. This diversification helps mitigate the impact of any downturn in a particular industry. Additionally, EPAM’s evolving service offerings, which combine software engineering with customer experience design, business consulting, and technology innovation, allow the company to provide more customized and integrated solutions to its clients.

2. Global delivery model and centralized support functions: EPAM’s global delivery model and centralized support functions enhance its productivity levels and enable the company to better manage the efficiency of its global operations. This allows EPAM to seamlessly deliver services and solutions from its global delivery centers to clients across the world.

3. Strategic acquisitions: EPAM has completed several strategic acquisitions, including NEORIS and First Derivative, which have enhanced the company’s client portfolio, service offerings, and geographic presence, particularly in Latin America and Europe.

4. Strong financial performance: EPAM has demonstrated a consistent track record of financial performance, with steady revenue growth, improved profitability, and healthy cash flow generation. The company’s focus on cost optimization and efficient operations has contributed to its strong financial position.

EPAM’s key weaknesses include:

1. Geopolitical risks: The company’s operations in Ukraine have been significantly impacted by the ongoing war with Russia, which has disrupted its delivery of services, caused the company to shift work to other locations, and resulted in increased expenses related to employee relocation, humanitarian efforts, and business continuity measures. The prolonged military conflict and any escalation involving Belarus could continue to have a material adverse effect on EPAM’s operations and financial condition.

2. Dependence on key clients: While EPAM has a diversified client base, the company still derives a significant portion of its revenues from its top clients. The loss of or reduced business from these key clients could have a material impact on the company’s financial performance.

3. Talent acquisition and retention: As a technology-driven company, EPAM’s success is heavily dependent on its ability to attract, develop, and retain highly skilled professionals. Intense competition for talent in the industry and the company’s geographic expansion could pose challenges in this area.

Outlook and Future Prospects

Despite the ongoing challenges posed by the war in Ukraine, EPAM remains focused on executing its business continuity plans and adapting to the evolving situation to protect the safety of its employees and maintain consistent high-quality delivery to its clients. The company continues to operate productively in multiple locations and has sufficient resources, including infrastructure and capital, to support its ongoing operations.

Looking ahead, EPAM is well-positioned to capitalize on the growing demand for digital transformation services. The company’s strategic focus on specialization in key verticals, continued emphasis on strategic partnerships, and its ability to deliver end-to-end digital transformation services position it for future growth. Additionally, the company’s recent acquisitions are expected to further enhance its client portfolio, service offerings, and geographic presence.

However, the company remains cautious about the potential long-term impact of the war in Ukraine and the broader geopolitical tensions. Prolonged military activities, broad-based sanctions and counter-sanctions, or escalation of the war could have a material adverse effect on EPAM’s operations and financial condition.

Overall, EPAM’s strong financial performance, diversified business model, and strategic initiatives suggest that the company is well-equipped to navigate the current challenges and continue its growth trajectory, provided that the geopolitical situation does not deteriorate further.