EPAM Systems, Inc. Price & Performance (EPAM)

I would like to remind those listening that some of the comments made on today's call contain forward looking statements. These statements are subject to risks and uncertainties as this 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 Investor Relations section of our website.

With that said, I will now turn the call over to Ark.

Thank you, Mike.

Good morning, everyone. Thank you for joining us today. It's good to share that our fourth quarter results came in better than expected. It was another quarter of strong execution. Thanks to our culinary differentiation, and relevance of our advanced capabilities, [indiscernible] across our new and existing client portfolios. Many of the encouraging themes we shared last quarter have carried through into this quarter. Before discussing our Q4 results, 2025. I would like to step back and reflect on the full year 2024. Which was a year of uneven demand improved stabilization and building some sequential momentum. There are three key points I would like to highlight on our performance over the past year. Number one, we were successfully executing our global business strategy while simultaneously addressing many challenges we have accumulated during the last few years. We've done this both organically and through acquisitions, a continuous focus on becoming the most globally [indiscernible] in the world for AI native digital business services. The two most recent acquisitions [indiscernible] investing to accelerate our strategy. They allowed us to meaningfully expand our existing global client relationship and further penetrate new markets and talent geo hubs. While still early, we see encouraging progress across several net new opportunities with more than dozen joint pursuit [indiscernible] Number two, we are pleased to end the year with an underlying improvement on our standalone business delivering better results than our expectations earlier in the year when we had to adjust our outlook for a weaker than expected H1.

And finally, number three, exiting 2024, we feel good about the sequential momentum we've built over the past two quarters. [indiscernible] as we look ahead into 2025, There is still plenty of caution in gross market sensitivity, we believe we see some fundamental improvements in the business. It gives us 2025 will be much more transformative and better year for us 2024 was.

Now turning to our Q4 results. During Q4, we grew mid single digits both year over year and sequentially. Notably returning to organic revenue growth for the first time since Q1 of twenty twenty three.

We continue to see improvements in client sentiments engagements across all our verticals and geographies. And particularly around our AI related capabilities. Our performance in Q4 was driven by our ability to increase our [indiscernible] and reassure our continuous superior quality execution in our key horizontal and vertical domains. While simultaneously working in more globally diversified target. On a standalone basis, excluding recent acquisitions, we saw four out of six verticals grew year over year is five out of six growing sequentially. Reflecting strong momentum from last quarter. [indiscernible] include life science and health care, software and high-tech, financial services, Across geographies, we see a similar story to last quarter with Americas and APAC leading growth year over year. With Europe continuing to show organic sequentially revenue growth. Now turning to demand. We are encouraged to see a modestly more positive demand environment compared to ninety days ago.

Sentiment continues to improve across our existing newly acquired client portfolios. These clients rely on us for our core engineering G and A well as our advanced generic capabilities. In some cases, we are consolidating work from other suppliers as clients shift toward more engineering led and scaled programs. In our most recent conversations across the the underlying tone and buying signals. Are higher than they were last year. With further accumulation of technical and data debt, for the past twelve months, we are seeing accelerated take up in more scale and transformational AI programs. Based on the significant backlog of technical and data modernization, along with new AI related demand We believe that 2025 will be the year we begin to see real demand for mover advantages. While we're relatively optimistic about the mid term outlook, there's more encouraging client buying signals twelve months back.

We do still see multiple buckets of caution driven by broad market risks policy specific uncertainty due to a very dynamic geopolitical environment and certain challenges in some of our clients, and silent markets. Further, first very much remains in focus and continues to be an important decision factor for many of our clients. So based on these uncertainties, in our current vantage point, we are balancing our as clients continue to transition and modestly expand their discretionary spend. [indiscernible] into our global delivery approach.

We demonstrated strong execution throughout the year. As we continue to diversify our global talent pools, and bring in more optionality to our clients across all four of our major delivery hubs in Europe, India, Latin America and Western Central Asia. In Q4, we saw sequential improvements net organic additions which was broader than just India, and included some of our traditional European locations.

Europe remains core to us as a top talent pool. And we believe will continue to grow in the region discretionary spend returns to higher levels. Ukraine is an interesting example to share given the geopolitical environment. While production headcount remained mostly in line year over year, In Q4, we saw sequential net additions for the first time since the start of the Russian We believe this is a positive signal of our clients comfort level return to some of our traditional locations. In India, we hit an important milestone for the company as it now represents our largest single country delivery location and second as a dish. In just ten years, [indiscernible] [indiscernible] is now over 10,000 This speaks to our ability to adapt to changing market conditions and our commitment to invest in a globally diverse and targeting forefoot in line with EPAM for G and A. In Latin America, we significantly strengthened our footprint with new areas, making Latin America our third largest delivery region and a very important pillar in our global model. We believe we have now the right mix of talent focusing on delivery for North American clients coupled with the deep local expertise and strong capabilities to engage and deliver In Western Central Asia, we mentioned last quarter, we continue to progress quite nicely with our still relatively new delivery hub of over 7,300 people now.

Back to the two acquisitions we closed in Q4. In order [indiscernible] we significantly increased our global footprint with the addition of nearly 6,000 people combined. Primarily across Latin America, Canada, Spain, UK, In Ireland, We remain committed to executing our global delivery strategy [indiscernible] Now shifting to Gen AI. Even with all the recent noise, sometimes the significant level of confusion and debates, We have seen indicators of positive change and growing impact. Overall, continue to make significant traction across our client portfolio with now 75% of our top country plants [indiscernible] Our early stage project continue to show strong growth year over year hundreds of new verticals use cases emerging and turning into Argentina Airlines.

These are now mid sized AI projects, with more defined outcomes. We are beginning to see more volume and we believe this speaks to the investment in traction clients are making in this space. These programs have a high probability of turning into argenics from place in key horizontal and vertical domains. Finally, in our larger scale AI factories, we manage the entire AI portfolio of agents and applications throughout the program lifecycle tens of millions of dollars in value by each such investment. Our G and A and AI driven client engagement could also be presented in three major dimensions. Dimension one, is DOC and other related areas of individual and team productivity improve. You mentioned two. Data in cloud engagements. Triggered by the need [indiscernible] [indiscernible] AI and Nature programs and platforms. Is a goal to drive value against proven business cases. And when clients already solve their data and cloud infrastructure challenges. Let me spend [indiscernible] we are addressing the need of complex enterprise level engagements orchestrate individual efforts toward total productivity improvements at large teams and programs levels. Via all latest generic advances. Often to have real engagement impact, our hybrid business clients teams must have the same level of modern engineering maturity as purposely Genai trained our own teams.

That is why are offering to plan GNA enabled software development lifecycle. [indiscernible] which aligns in market leading tools and methodologies [indiscernible] framework built on top of our own dial Codmeid and some other IPAs. It made significant impact on large concrete's engagement and helps to advance the adoption of AI [indiscernible] [indiscernible] through both cost optimization and the creation of new revenue streams. While I believe Dimension two is very much self explanatory. [indiscernible] is our go to market business transformational program natively enabled by Gen AI and AI technologies. As we move into more complex adjunctive proposition, Our AI native engagement are starting to be picked up in volume and size. Compared to the first half of twenty twenty four, where we were generating single digit millions of revenue from these AI native programs. Q4 stands out by generating about $50,000,000 in this category. Let me share two client examples. To further illustrate how our efforts are driving client engagement and generating real pragmatic value. Let's start with Canadian Tire Corporation. Retail chain in Canada, where you have embarked on a journey standardize and modernize software As a combined power of CTC product engineering center of excellence, and upon know how we already driving initial result with very real optimization and efficiency savings.

So far, PAM has effectively deployed the Elita platform [indiscernible] [indiscernible] and ensures comprehensive adoption of new modernized tools. This is a real example of how our approach amplifies organizational productivity reduces cost and improves in team and cross team collaboration. A foundation for the next generation AgenTec platform for SDLC. Another notable example of real progress is scale is our expanded engagements with Baker Hughes. One of the world's largest oilfield services, industrial and energy technology companies. We are enabling Baker Hughes in building and offering to their clients largely native digital platforms by combining the palm based in class product engineering capabilities with Baker Hughes expertise in energy technology. Just few weeks ago, Baker used NEMTipam as a key partner for digital and AI to transform the energy sector by leveraging advanced AI native digital platform within implementations at scale. We believe Ekpam is one of the few innate service providers who can demand scale programs AI ROI today. Which is also well enabled by our growing global partnerships. This cloud and data major providers with whom we are expanding our collaborations and focusing on general and agented AI go to marketplace. [indiscernible] and look at the bigger picture more broadly for 2025 and beyond, Our thesis remains unchanged.

We believe the demand for advanced AI native energetic software data engineering services, will only increase as engineering productivity gains will be significantly outsized by incremental demand to build new and replace the legacies. As clients quickly expanded their focus to solve more conflicts tasks more efficiently. [indiscernible] the need for security modernization and managing enterprise data platforms will continue to demand skilled expertise that combines critical AI skills with modern engineering and data science capabilities. All areas in which EPAM excels. To conclude, we are pleased with our stronger than expected Q4 results and stabilization achieved during the last year. Our new native capabilities data and core engineering differentiation, remained evident While they are more globally diversified, today than ever before. We continue to see clients return to quality reliable execution and we believe that is a into a stronger competitive position today compared to last year. At the same time, we do believe 2025 will be still a challenging and transformative year, for the industry with a lot of pressure to navigate two opposite trends across our client base. One is still being driven by cost sensitivity. While another by the need to return to more discretionary spending addressing accumulated during the last few years backlogs.

Which means also that the plant will be performing during 2025 with continuous margin pressures triggered by necessity to invest across several important for us in 2025 areas.

Critical skills and talent retention and development, [indiscernible] and tooling. Advancements integration efforts of our recent acquisitions and go to market strategies. This should allow us to be in right standing discussion in the demand environment grew fully rebound.

So while we remain vigilant to potential believe our strategic positioning and ongoing initiatives the trajectory for sustainable performance and growth 2025 and beyond. Let me now talk the call over to Jason, who will provide additional details on our Q4 results and 2025 outlook. Thank you, Ark, and good morning, everyone. In the fourth quarter, EPAM generated revenues of $1,250,000,000 dollars a year over year increase of 7.9% on a reported basis including revenues from recent acquisitions Neuris and First Derivative.

On an organic constant currency basis, revenues grew 1% compared to the fourth quarter of twenty twenty three. In Q4, we are pleased to return to year over year organic revenue growth.

Organic revenues exceeded our Q4 guidance due to higher than expected new project starts, indicating modestly improving client sentiment.

Due to the quarter's significant inorganic revenue contribution, I will speak to both organic and inorganic revenues as I discuss industry vertical and geographic performance. Beginning with industry verticals, want to echo Aric's comments.

That in Q4, five out of six of our industry verticals delivered sequential organic revenue growth. Financial services delivered very strong growth of 15.9% year over year reflecting 4.3% organic and 11.6% inorganic growth. Driven by continued strength in the banking, Payment sector. Life Sciences and Healthcare increased 8.6% on a year over year basis. Reflecting 5.7% organic and 2.9% inorganic growth. Growth in the quarter was driven primarily by clients in life science including some revenues derived from new logo accounts. Software and high-tech increased 7.7% year over year reflecting 6.4% organic and 1.3% inorganic growth. Consumer Goods, Retail and Travel decreased 3% year over year. Reflecting a negative 5.7% organic and a positive 2.7% inorganic growth largely due to declines in consumer products and retail, partially offset by growth in travel. Business Information and Media declined 3.9% year over year reflecting negative 4.7% organic and positive 0.8% inorganic growth Revenue in the quarter was impacted by the previously discussed ramp down of the top 20 client. However, sequentially, we were encouraged to see the vertical return to strong growth as we continue to build momentum. And finally, our emerging verticals delivered very strong growth of 24.8% reflecting 3% organic and 21.8% inorganic growth.

Growth was primarily driven by clients in energy, manufacturing, and industrial materials, with significant contribution coming from Neuris. From a geographic perspective, The Americas our largest region representing 60% of our Q4 revenues increased 11.4% year over year.

Reflecting 2.7% organic and 8.7% inorganic growth. EMEA representing 38% of our Q4 revenue increased 3.1% year over year. Reflecting negative 1.4% organic and positive 4.5% inorganic growth. In the quarter, the region continued to show sequential organic revenue improvement. And finally, APAC increased 4.3% year over year and represents 2% of our revenues. In Q4, revenues from our top 20 clients grew 4% year over year, revenues from clients outside our top 20 increased 10%. Moving on the income statement, our GAAP gross margin for the quarter was 30.4% compared to 31.1% in Q4 of last year. Non GAAP gross margin for the quarter was 32.2% compared to 33% for the same quarter last year. Relative to Q4 twenty twenty three, gross margin Q4 twenty twenty four was negatively impacted by compensation increases including those resulting from our 2024 promotion campaign. Which we were not able to offset through pricing. As well as lower profitability of recent acquisitions. The compensation increases along with lower profitability from acquisitions and negative foreign exchange impact exceeded the benefits of improved utilization and the positive impact from the Polish R and D incentive.

GAAP SG and A was 17.4% of revenue compared to 18.5% in Q4 of last year.

Non GAAP SG and A came in at 14.4% of revenue compared to 14.2% in the same period last year. SG and A measured as a percent of revenue is now higher in part due to our recent acquisitions running with higher SG and A levels. Compared to our standalone business.

SG and A expense for Q4 twenty twenty four reflects SG and A associated with recent acquisitions as well as higher variable compensation compared to Q4 twenty twenty three. GAAP income from operations was $137,000,000 or 10.9% of revenue in the quarter, compared to $122,000,000 or 10.6% of revenue in Q4 of last year. Non GAAP income from operations was $2.00 $8,000,000 or 16.7% of revenue in the quarter, compared to $200,000,000 or 17.3% of revenue in Q4 of last year. Our GAAP effective tax rate for the quarter came in at 24.8%, and our non GAAP effective tax rate was 24%. Diluted earnings per share on a GAAP basis was $1.8 Our non GAAP diluted EPS was $2.84 reflecting an increase of $0.09 or 3.3% compared to the same quarter in 2023. Q4, there were approximately 57,400,000 diluted shares outstanding. Turning to our cash flow and balance sheet. Cash flow from operations for Q4 was $130,000,000 compared to $171,000,000 in the same quarter of 2023. Free cash flow was $115,000,000 compared to free cash flow of $161,000,000 in the same quarter last year. We ended the quarter with approximately $1,300,000,000 in cash and cash equivalents. Which is lower compared to the same quarter last year.

Due to our recently completed acquisitions. At the end of Q4, DSO was seventy days. Compared to seventy four days in Q3 twenty twenty four and seventy one days in the same quarter last Share repurchases the fourth quarter were approximately 53,000 shares for $13,000,000 at an average price of $241.99 per share. Moving on to a few operational metrics for the quarter.

We ended Q4 with more than 55,100 consultants designers engineers, trainers and architects. A growth of 16.3% compared to Q4 of twenty twenty three.

This was a result of recent acquisitions, which contributed nearly 6,000 delivery professionals. In addition to solid organic growth, which contributed sequential net additions of around 1,500 employees in the quarter. Our total headcount for the quarter was 61,200 employees. Utilization was 76.2% compared to 74.4% in Q4 of last year. And 76.4% in Q3 twenty twenty four. Turning to our 2024 full year results.

Revenues for the year were $473,000,000,000 up 0.8% on a reported basis year over year. On an organic constant currency basis, revenues were down 1.7% year over year. GAAP income from operations was $545,000,000 an increase of 8.6% year over year and represented 11.5% revenue. GAAP income from operations benefited from the recognition of $69,000,000 of incentives related to research and development activities performed in Poland. And was negatively impacted by $31,000,000 of severance related costs. Our non GAAP income from operations was $779,000,000 a growth of 1.8% compared to the prior year and represented 16.5% of revenue. Our non GAAP income from operations benefited from the recognition of $45,000,000 of incentives related to research and development activities performed in Poland in 2024. Our GAAP effective tax rate for the year was 22.2%, Our non GAAP effective tax rate was 24%. Diluted earnings per share on a GAAP basis was $7.84 Non GAAP EPS which excludes adjustments for stock based compensation, acquisition related costs and certain other one time items, including costs associated with our cost optimization programs, was $10.86 reflecting a 2.5% increase over fiscal twenty twenty three. [indiscernible] In 2024, there were approximately 58,000,000 weighted average diluted shares outstanding.

Cash flow from operations was $559,000,000 compared to $563,000,000 for 2023, And free cash flow was $527,000,000 reflecting an 83.7% adjusted net income conversion.

And finally, shares repurchased in 2024 were approximately 1,854,000 shares. $398,000,000 at an average price of $214.65 per share. Now let's turn to guidance. Before moving to the specifics of our 2025 and Q1 outlook, I would like to provide some thoughts to help frame our guidance. We have been pleased with the progress we are making on demand generation and we'll continue to prioritize revenue growth into 2025 We see stability in client budgets and some degree of shift in spending towards [indiscernible] strategic programs. In 2025, we expect flat year over year organic revenue growth in Q1. Followed by continued improvement throughout the year. In terms of profitability for 2025, do expect to run the business at somewhat lower levels of profitability than we have in past years. As Ark mentioned, we are investing in retaining our top talent, as well as further accelerating investments in our advanced Gen AI platforms and tools. Compensation increases to retain talent for future growth, combined with the limited ability to improve client pricing in the near term, and additional pressure from dilutive impact of recent acquisitions will continue to put pressure on profitability this year. However, we do expect to see improvement in our profitability levels from the first half to the second half of the year.

Guidance assumes that we will continue to be able to deliver from our Ukraine delivery centers at productivity levels similar to those achieved 2024. Now starting with our full year outlook. Revenue growth will be in the range of 10% to 14% with an inorganic contribution of approximately 10% for 2025. Foreign exchange is expected to have a negative impact of 0.9%. We expect GAAP income from operations to be in the range of 9% to 10% and non GAAP income from operations to be in the range of 14.5% to 15.5%. We expect our GAAP effective tax rate to be approximately 24% our non GAAP effective tax rate which excludes excess tax benefits related to stock based compensation, will also be 24 Earnings per share, we expect the GAAP diluted EPS will be in the range of 6 point $0.78 to $7.08 for the full year. And non GAAP diluted EPS will be in the range of $10.45 to $10.75 for the full year. We expect weighted average share count of 58,100,000 fully diluted shares out For Q1 of twenty twenty five, we expect revenues to be in the range of $1,275,000,000 to $1,290,000,000 producing year over year growth of approximately 10%.

Our guidance reflects an inorganic contribution of 11.4% with a 1.4% negative FX impact during the quarter. For the first quarter, we expect GAAP income from operations to be in the range of 6.5% to 7.5% and non GAAP income from operations to be in the range of 12.5% to 13.5%. Our Q1 income from operations guide reflects the impact of resetting social the negative impact of 2024 compensation increases, which we were unable to offset with better dilution from recent acquisitions, and a slightly softer revenue the month of January as clients in certain verticals finalize budgets. For the first quarter, we expect GAAP income from operations to be in the range of 6.5% to 7.5%. And non GAAP income from operations to be in the range of 12.5% to 13.5%. Our Q1 income from operations guide reflects the impact of resetting social security caps, the negative impact of 2024 compensation increases, which we were unable to offset with better pricing, Dilution from recent acquisitions, and slightly softer revenues in the month of January as clients in certain verticals finalized budgets. We expect a weighted average share count of 57,700,000 diluted shares outstanding. Finally, a few key assumptions that support our GAAP to non GAAP measurements for 2025.

Stock based compensation expense is expected to approximately $194,000,000 with $50,000,000 in Q1 $44,000,000 in Q2 and $50,000,000 in each remaining quarter. Amortization of intangibles is expected to be approximately $68,000,000 for the year. With approximately $18,000,000 in Q1 and $17,000,000 in each remaining quarter. The impact of foreign exchange is expected to be approximately $1,000,000 loss each quarter. Tax effective non GAAP adjustments is expected be approximately $61,000,000 for the year was $17,000,000 in Q1, dollars $14,000,000 in Q2 and $15,000,000 in each remaining quarter. Expect excess tax benefits to be around $40,000,000 for the full year with approximately $7,000,000 in Q1, dollars 2,000,000 in Q2, dollars 1,000,000 in Q3 and $3,000,000 in Q4. Severance, driven by our 2024 cost optimization program, is expected to be $6,000,000 in Q1 and $1,000,000 in Q2.

Finally, one more assumption outside of our GAAP to non GAAP items. We maintain a significant level of cash and are generating a healthy level of interest income. However, based on the reduction in cash resulting from the recent acquisitions, we are expecting interest and other income to be smaller in 2025 compared to 2024. With around $18,000,000 for the 2025 full year with $4,000,000 in Q1, In Q2, and $5,000,000 in each remaining quarter. My thanks to all the EPAMers who made 2024 a successful year and will help us drive growth throughout 2025.

Operator, let's open the call for questions.

Line of Maggie Nolan with William Blair. Your line is open. Thank you. Jason, I was hoping you could elaborate a little bit on the expectations that are embedded in the top end and the low end of revenue guidance, both company specific and from a macro perspective? Yes.

So I think we've been fairly careful about our expectations for Neuris and FD. Google generally delivered at the level of revenues that we expected in Q4. We have been both with some modest degree of growth as we go 2024 to 2025, And then as I think we said in the prepared remarks, is that we've got a effectively kind of a 0% to 4% revenue growth for organic And if you introduce the foreign exchange headwinds you've got a 1% to 5% again, using an organic constant currency. Right now, what we're seeing is a somewhat slow start in January, but we're seeing substantial program starts and clients beginning to really get started here in 2025, as we enter February and as we work through the month. If I were to talk about that and Maggie, is this for revenue or is this for the revenue in EPAM? Okay. What we would have is is clearly some degree of sequential growth Q1 to Q2. We are seeing some substantial sort of project starts in certain areas of our business and we've got a couple of clients, one particularly in sort of high-tech that we expect to show substantial growth in the year.

Again, 4% is clearly some degree of sequential revenue growth in the back half If you were to end up in the middle part of the range, it's kind of a softer sequential growth. So I'm not certain that helps too much. But what we are seeing is is very strong sort of program starts in customer demand here in February despite the fact we had sort of a slower start to January.

Thank you. That's helpful.

And then on the margin side, Katie, you mentioned that some investments that you are clearly going to be making? I'd be particularly interested in some of the commentary around [indiscernible] [indiscernible] IT services companies don't typically retain a significant amount of the IP that they generate. And then how are you thinking about balancing those investments with perhaps the need to drive some cost synergies in these acquisitions that you just onboarded.

Yes. So let me just do a quick bridge on adjusted IPO and then I'll probably let Art talk a little bit more about the importance of the investments in Gen AI. We've got a 2024 at 16.5% adjusted IFO, '25, that would be 15%. We've talked about dilution due to the acquisition of Feet and first and in The U. S. Both of them are accretive from an EPS standpoint, but they are diluted from an adjusted IFTA And so I think that we've updated our assumption and that's about a 60 basis point dilution, so 16.5 with the 16 basis point dilutive impact the acquisitions were down to 59% and then 59% compares to the 15%, which is the midpoint of the 14.5% to 15.5%. And what we're seeing is some incremental investment in GenAI, which is causing both an increase in SG and A and a little bit of decrease in gross margin. And then Maggie, as we kind of talked throughout 2024 and I think it also as we talked about what we expected in 2025, have been focused on retaining our top technical talent And so we have had some degree of cost increases or increases in compensation in 2024 in a year when it was very difficult to get rate increases.

We still expect that this is a a more challenging certainly in the first half of twenty twenty five. So what we are expecting to have is our traditional promo campaign in the first half of twenty twenty five, with limited ability to offset compensation increases. With salary increases We do expect the pricing environment to improve somewhat throughout the year. Clearly, we're focused on utilization and pyramids and that type of thing. But really what is happening in the 15.9% to 15% is some amount of compression due to price sensitivity with clients India still runs at better than average profitability. Ukraine still runs at high levels of profitability. We feel good about the business overall. But just the pricing environment still is kind of pressure out in our gross margin and ultimately our adjusted I think This type of investment is not such new for us Specifically, when there is a visible transition in technology, And we all understand that investment in Gen AI is a lot of investment in training changing the monitor power development team how our new software will be built. And on top of this number of accelerators and some IP as well, Typically, in this transitional period where market itself not being too many stable solutions to build new type of software.

And [indiscernible] loud conversion was happening, this mobile conversion was happening, it was significant investments, it was better macro environment. Back then. But we do believe that we cannot miss This investment right now because as soon as we are Gen AI, AI, Identiq AI is starting to drive real transformation, we need to be ready to have a lot of data.

Your next question comes from the line of Jamie Friedman with Susquehanna. Your line is open.

Hi, good morning. I just wanted to ask one question. In terms of your prepared remarks, Katie, you say and I'm quoting in twenty twenty five clients will balance their cost focus with the need to accelerate through transformational Gen AI journeys That to me sounds like kind of a change to business versus run the business narrative. I'm just wondering, in the context of your pricing commentary, Is the pricing do you have any exposure to the run the business all really the change to business transformational side, whether it's Gen AI or otherwise? And is the pricing pressure that you're feeling on the new stuff or on the old stuff or both? Thank you.

We definitely have during the last several years, it's important to run the business in Brazil. Number of engagements And even this, we're trying to do differently than traditionally it was executed, especially with everything what we see in in very different level of automation driven by generic progress. But the pressure pricing pressure coming still during the last several years and there is a really big kind of inertia to change it. And that's what we [indiscernible] [indiscernible] in 2025 more visibly, but there is a pricing pressure across run and build as well. And change as well.

Until again, the change will become much more coming to more traditional levels of demand.

Okay. Thank you for that. I'll jot back in the queue.

Your next question comes from the line of Brian Bergin with TD Cowen. Your line is open.

Hi, guys. Good morning. Thank you. On Demand, I was hoping you could dig in more on how client spending behavior progressed through each month in 4Q. I'm really trying to dig into commentary on new clients versus existing clients. So can you talk about that and any interest So I don't think I can give you, like, specific numbers, but definitely, we [indiscernible] group number of new clients It's not becoming very large right away.

But there are some clients which quickly go into the range of kind of annualized 10,000,000. So at the same time, there are a lot of new clients, which [indiscernible] kind of proof of concept and then starting to scale. But I also would probably mentions that for us, Right now, new clients, sometimes it's our old clients as well. Because for the time when starting from the beginning of the war, it was a lot of declines. [indiscernible] but, reasonably. And, for example, what Jason mentioned one of the big tech company So which almost went to zero now starting to really scale. So which we consider in [indiscernible] [indiscernible] come back to us because because they need a quality level and understanding of the technology which we possess.

Hey, Brian. So I'm just going to introduce a couple of numbers here. So the guide was $12.00 5 to $12.15. New York's performed as expected. We said that we would do about $54,000,000 with Neures. Hefty would have been incremental to that. And I can tell you that that was about $12,000,000 again as we expected. So if you added the FD to the guide, it would have been 12.7 to 12.27 and we landed 12.48. And so it clearly was in what we call our standalone business where we saw strength We did see sequential growth in Europe. We did see improvement in financial services, including growth in European financial institutions. And so overall, it was a quite a bit stronger quarter from a revenue growth standpoint than we had expected. Particularly with good revenues in the month of November and December.

Okay, very good. I appreciate all that detail. And then Jason, actually on the margin too for my follow-up here. So thank you for the bridge. Obviously, a lot of moving parts here. With the R and D tax credit, but then the acquisition margin profiles, incremental investment, different geo footprint. But as we kind of just think ahead as demand ultimately normalizes, do you anticipate a return to profit levels where you've been before or is it too early to make that call?

Yes, we are definitely expecting to see improved profitability in the second year relative to the first half. And then clearly, we're looking to drive profitability back to what I would call more typical. I know some externally think about 17 plus I've always sort of thought of us as a 16 to 17 company. And so the focus on getting back to a 16% or better would certainly be a goal for the company. And again, with a slightly different environment, we think that's achievable.

Your next question comes from the line of David Grossman with Stifel. Your line is open. Thank you, Alcon, Brian.

I'm wondering maybe if you could speak a little bit of your capacity and your ability to accelerate revenue growth once demand improves. And maybe in party response, you could help dimension what the headwind we should expect from the bill rate dynamic from geographic makeshift in '25 and how much that may be impacting the growth outlook?

Okay. So in terms of our ability to grow revenue, We have continued to sort of operate with a strong sort of talent capabilities. So we feel good about our ability to grow in India. We feel good about obviously our ability growing our traditional Eastern Europe and our ability to grow in The Americas. We are beginning to see some return and we are seeing a little bit of growth even in places like Ukraine. Obviously, the that could open up further demand for that geography. [indiscernible] I do think you are going to continue to see little bit of this headwind that we talked about in 2024. Whereas you shift into let's say, Latin America with kind of local to local kind of revenues with Neuris some further growth in India, and growth in places like kind of KUKA, which is an attractive price point. Where you'll continue to see a little bit of compression don't want to say compression, but you'll continue to see some headwinds on the revenue per headcount number as we move 2025 would be my expectation.

Okay.

And did you provide just some color into what you think the mix shift headwind is to revenue growth in 2025? We did not we talked about it last year. This year, I think it clearly it depends. And I think that the answer is that what I would say is we are beginning to see Somewhat water demand Clearly, you're continuing to see more growth in India.

Well, we are beginning to see demand for our more traditional kind of East European geographies as well. So maybe I would say it's somewhat less of an impact than what I talked about in the middle of twenty twenty four. But I would say you'll continue to see some impact from that, but I haven't sized it. Okay, great. Thank you for that. And then just in terms of the margins, I think you've already given a lot of color there. One thing you didn't mention was again, any headwinds from diversifying your geographic capacity. I'm just wondering what impact is any of that's having on the margins currently? And just curious whether there's anything unique about your specific ability to price versus wage increases versus your peers because I don't don't think your peers are seeing quite as much impression as you may be experiencing currently. In 2024 and the expectation for 2025.

Yes, I think one of the things is that we continue to focus on retaining talent and our attrition continues to decline throughout 2024. So our voluntary attrition right now is definitely in the the single digits. [indiscernible] we do think what has made us successful over time is really the ability to deliver base with very high quality talent. Do want to make sure that we're able to retain that talent, particularly as we head towards a time where we think there is going to be more transformative programs We are beginning to see certain clients come back to us where they've they've had either failures or fatigue with other providers We still think that the quality of execution is important. And we do think that there's an opportunity to improve price over some period of time, but I'll let Art talk Yes. Same to David, this is what we mentioned our remarks, So there is kind of Double moments. And again, our exposure changes proportionally much higher than And I think we're trying to make sure that we have the right talent. To come back with demand will be normalized. So and yes, there is pressure there. When we were allocation people, so we were [indiscernible] some of them to other countries in Central Europe, some of them to Western Central Asia and there is a very different pricing points.

We're trying to keep the right balance create opportunity to grow in each of these locations.

Great. Thanks for that, Ark. I guess any thoughts on the cadence that you said margin is better in the second half than the first half and any other color you want to provide around that?

Yes, I would just say, probably Q1, Q2, you wouldn't see a substantial improvement in gross margin but we are taking the classic sort of steps to improve profitability throughout the year. That's all the things we've been talking about improvement in utilization, improvement in Pyramid and then some amount of scaling. And so we do want to be prepared for us. We want to exit 2025 with an ability to drive closer or above that classic profitability target of 16% or above. Got it. Great. Thank you.

So This is previous year where our profitability was increasing Okay.

Great. Thank you.

Next question comes from the line of Jason Kuperberg with Bank of America. Your line is open.

Good morning, guys. Thanks for taking the questions. The first one is just on revenue. I wanted to dive in a little bit just in terms of what's embedded in terms of assumptions on further improvement in discretionary spending, obviously, you've started to see some pickup and I'm wondering if the slope of that line, if you will, does that need to improve? Get to say the midpoint or the high end of the revenue guide? What's the underlying assumption there that you've built in? So what does it take to get the high end of the range and what's our assumption on improving this environment.

So we grew portfolio, we've seen and this is what we were sharing like During the previous call, we've seen some discretionary change.

Which very different than twelve months ago.

And we saw it in Q3 we say this is right now in Q1. The challenge here pricing environment is still challenging. Again, we mentioned this. And how it's going to change? We need to see, but on budget side, this is exactly what we expect for the high range if this is starting to happen because there are already interesting proofs of businesses The advantages once we started to do [indiscernible] more scale programs [indiscernible] So that it will drive [indiscernible] together business.

So this is more like high end assumption. Okay. We don't count on the huge change but we're counting on some pragmatic views of the companies which would like to run change for And we saw already when the pricing was actually to the point in many programs where they vendors couldn't deliver So this is already [indiscernible] very good argument to [indiscernible] And just a follow-up on the margin. So I guess wage inflation is eclipsing pricing this year. I think you said margins down about 90 bps on an organic basis. I was curious just which countries are driving some of that wage inflation you mentioned as you're investing to retain the talent.

Yes, I would generally say it's probably more in what I would refer as the off-site Countries, again, you it would be hard for me to be specific on one country or another. You're just seeing is, again, a focus on retaining top technical talent in an environment where it's continues to be hard as Ark said to pass on price increases.

So again, I would generally view it as we been fairly careful on the expense of on-site talent, but it really is more in the in the delivery locations outside of The U. S. And Europe. [indiscernible] [indiscernible] is the ability to work in this enabled by GenAI and solutions enabled by Jenei. This is becoming very hard Property and HEGOT EV trying to build which is prepared for this demand. That's a retention thing, which we need like to focus exactly right now. Thank you, Art.

Your next question comes from the line of Darren Peller with Wolfe Research. Your line is open.

Good morning. Good day, guys.

When we exclude the couple of acquisition, it does look like your organic ad growth headcount growth inflected for the first time in some time. So maybe a bit more color on your hiring plans for the year, the geographies you plan to hire, any maybe specific skill sets? And then just as a attached question to that, geopolitically, Obviously, no one knows where things are going.

From Ukraine, Russia standpoint. But if we were to see any change around the war and any change in terms of abilities for multinational top rate in those areas more.

Your headcount is still I mean, you still have a decent headcount in Belarus and Ukraine.

Just remind us the mix of where your headcount is going forward for this year? And if that could impact you guys in any way from a margin or labor optimization standpoint where you guys already have [indiscernible] Okay. So just as a reminder, we had net headcount additions that was our organic in Q3 of this of twenty twenty four. That was somewhat less than 1,000, but still again at decent number of additions were about 1,500 as I had indicated in Q4. Again on an organic kind of basis. And then of course, we had the incremental [indiscernible] Approaching 1,000, probably a little bit below based on kind of the the slower start to the January month. So we are definitely adding headcount as I think you've talked about, although I'm not going to be specific about which countries is that we are beginning to see kind of demand return to certain geographies in Europe. We'll clearly still be growing in India. We'll clearly still be We still we have seen a declining headcount in Belarus on a year over year basis. And a modest decline in headcount in Ukraine. On a year over year basis. But actually, we did see a little bit of growth late in Q4 in the Ukraine.

And in a resolution to the conflict, we think that could make clients far open to to putting more projects, programs, particularly in the Ukraine.

Okay. So I guess we'll have to see how it goes. But I imagine from a margin standpoint, some of those comps, some of those labor forces that you guys have could be helpful from just relative to the mix you have in other markets you've got to build out? Yes.

That's I guess very And we just quickly, that's a very good point. Yes, okay, Ukraine is historically and continues to be one of our most profitable geographies.

Okay.

Thanks. Just a quick follow-up.

I think you've seen somewhere around 400 to 500 basis points improvement or increase in fixed contract percent, if I'm not mistaken, over the last couple of periods. Maybe just the overall if you could just give us a little bit more color on what you're seeing and the driving there? Yes. So we've got probably three things. Okay. One is that we are growing in The Middle East, which tends to be more of a fixed fee environment. So a little bit of the mix shift there. Okay. Are seeing some more consulting led programs where there's more of a consultant engagement and then the tail associated with [indiscernible] those oftentimes have kind of a fixed fee component. We probably have a little bit more kind of managed service or fixed monthly fee And again, that would obviously contribute to to the mix of fixed fee business as well.

Okay. Very helpful. Thanks guys. Thank you. Our final question comes from the line of Jonathan Lee with Guggenheim Partners. Your line is open.

Great. Thanks for taking our questions. Can you help us understand what's [indiscernible] any verticals expected to accelerate versus decelerate? Throughout the year?

I think it's pretty much in line with what we see during the last year end quarter, So life science and this point, financial services Showing good dynamics. So and we're still not sure about retail, for example, and business information, recovering because it will be big hit by the client which we worked last year. And then top components of emerging including energy would probably be areas of growth as well.

In general, it seems like across most of the verticals. We expect is a growth. And then I think the only other point is that we do expect to see an acceleration in tech And we are certainly seeing an improvement there in Q4 and do expect to see an improvement in Understood. And recognize that pricing environment is somewhat challenging, but what in your view would catalyze a potential return to a better pricing environment?

So we've seen some spots where clients actually starting to focus more in change and in these programs, they also understand that pricing should be changing. And we see in this example, Broader of this and again that's a previous answer what we're thinking about high range to achieve this should be happening better.

So let's see what market will be showing right now.

Okay. I appreciate you all for joining us today. I think we dissatisfied how we finished the year and each year starting some new unknown [indiscernible] going to happen. I think we have a pretty good [indiscernible] I would say feeling about how this year starting from the client communications point of view. We're also trying to be very pragmatic with our annual guidance and let's talk in Sumatra. Thank you very much.

That concludes our conference for today.