Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the EPAM Reports Results for Third Quarter 2025 Conference Call. [Operator Instructions] I would now like to turn the call over to Mike Rowshandel, Head of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today on our third 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 Balazs Fejes, CEO and President; 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 FB.

Thank you, Mike, and good morning, everyone. It's a pleasure to be here with you on my very first earnings call as a CEO. And please just call me FB, as Hungarian names are notoriously difficult to pronounce and why FB because in my native language family name comes first. This quarterly call arrived faster that even my standard double espresso shot in the morning, and that's really the theme for the day. Things have been moving quickly since we spoke last, and today, we have positive news to share. Our third quarter results came in better than expected, marking another quarter of broad outperformance and strong delivery execution. We continue to benefit from AI and AI native led demand or thesis that data and modern cloud architecture are critical for AI adoption and auto realization is broadly being confirmed by what we are seeing. Our clients are prioritizing their AI build-outs, turning to EPAM to help them accelerate their investments and innovation in AI. The unique combination of our deeply rooted engineering DNA and our globally recognized best-in-class AI-native expertise continues to differentiate our offerings and help us further expand wallet share within our existing client portfolio and targeted new logo segments. At the same time, we are more focused than ever on upgrading our engineering skills advantage and investing for the future with new advanced AI playbooks and accelerators. Serving as client 0 for adoption, we believe innovation starts from inside, which is why in parallel, we continue to relentlessly push our AI literacy and AI adoption rates. Looking at our progress year-to-date, more than 90% of EPAMers have completed their mandatory AI literacy education and approximately 95% of our engineers have completed foundational AI education. Additionally, our internal business processes are increasingly benefiting from AI-driven efficiencies. As…

Thank you, FB, and good morning, everyone. In the third quarter, EPAM generated revenue of $1.394 billion a year-over-year increase of 19.4% on a reported basis, exceeding the high end of our Q3 revenue guidance. On an organic constant currency basis, revenues grew 7.1% compared to the third quarter of 2024. We delivered another consecutive quarter of very solid year-over-year organic constant currency growth, reflecting ongoing steady execution. Our growth in the quarter was driven by a continued shift to quality and accelerating momentum across our AI native, data, cloud and AI foundational initiatives. We're making early headway with the launch of our AI/RUN transform strategy, which complements our underlying growth momentum, positioning us well to continue to capture demand. Our outperformance in the quarter was broad-based. We also recently announced a new $1 billion share repurchase program. The underlying strength of our business and continued momentum coupled with our efficient free cash flow generation and a strong balance sheet enable us to take advantage of the current market dynamic while returning cash to shareholders. Moving to our Q3 vertical performance. Five of our 6 industry verticals posted year-over-year growth, with 4 of the 6 growing double digits. NEORIS and First Derivative continue to contribute substantially to our financial services and emerging verticals. Financial Services once again delivered very strong growth, up 32.7% year-over-year on a reported basis, with 6% organic growth in constant currency. Growth came from banking, asset management, and insurance clients. Software and Hi-Tech grew 19.1% year-over-year, driven by strong execution and broad improvement across large clients. Life Sciences and Healthcare increased 11.8% on a year-over-year basis. Revenue growth in the vertical continues to be driven primarily by clients in Life Sciences and MedTech. Consumer goods, retail and travel delivered 9.9% year-over-year growth, marking a notable rebound…

[Operator Instructions] And your first question comes from the line of Maggie Nolan with William Blair.

So I wanted to start with the push that you mentioned into Agentic BPO. Do you intend to enter that space with proprietary products? Or can you talk about maybe build versus buy decisions from clients for processes? And then just like the ability to automate this, how that may be or may not be any different from the robotic process automation wave that we saw several years ago that ended up being sort of difficult to accomplish given the variability of processes.

Good morning, Maggie. Thank you for the question. Actually, it's a really interesting subject. It's early days for us. As you know, we made 2 acquisitions in this space. First was First Derivative where we had a line of business which was in business services, that's where we really went after that acquisition with the pieces that we could automate with Agentic AI, the KYC and fin crime elements of their business. The second acquisition was LYNXUS which was this year, and it was a small BPO to really understand the space itself. So going back to what we are seeing. We are seeing our clients are keen to try out, but it's early days. We are using EPAM build platform itself, in order to really deliver the automation, but it's a very different than RPO in the past. What we try to do is we're trying to experiment on simple and more complex agentic flows, which requires high level of degree of engineering going beyond simple RPO or simple RPA capabilities. We don't know yet where the market will go. We don't know where it's leading. Right now, we are seeing a build momentum from the clients, which we are talking, but it's a very small sample which we're talking about. It's early days for us.

Your next question comes from the line of Bryan Bergin with TD Cowen.

I wanted to ask about as we think on your 4Q exit rate considerations. And I think beyond that, as we move forward to '26, how we should be thinking about growth potential? And specifically, if you can kind of comment on the impact of bill days and furloughs and things like that as you go through 3Q and 4Q and then into 1Q as well as just any other important factors such as how growth in NEORIS and FD may affect your organic growth rate as you fold those in going forward?

Yes. Bryan, this is Jason. So as I think most people know, there's a negative impact from a seasonality standpoint, if you look at sequential Q3 to Q4 and so that impact is kind of 3 things, which is one is fewer bill days, you've got more vacation. And then you also have a higher degree of furloughs. So all of those things produce some tens of millions of kind of headwind on sequential growth Q3 to Q4. When I look at the performance of our business throughout 2025, Q1 to Q2, Q2 to Q3 and Q3 to Q4, if you adjust for foreign exchange and you adjust for sequential factors, our sequential growth rate has actually been surprisingly consistent. The other thing I would add is you've got probably a little bit of headwind on foreign exchange sequentially Q3 to Q4. Just to sort of maybe answer a question that you hadn't asked, is that our guide at the midpoint of the range contemplates, I think I said 4.4% organic constant currency growth. If we operate at the high end of the range in Q4, we'd be at about 5% organic constant currency growth.

Your next question comes from the line of Jason Kupferberg with Wells Fargo.

So the organic constant currency in the quarter, obviously, the 7%, I think, kind of best-in-class now among the peer group. But just to kind of build on the last question, I guess, can you kind of break down the sources of what looks to be some deceleration in the Q4 on a year-over-year basis, you just walked us through the sequentials, Jason, I just want to make sure you kind of -- we have the puts and takes right there and then how we should just at least directionally be thinking about where the organic growth can go in '26 versus, call it, a 4.5% exit rate for this year.

Okay. Still -- yes, so from a year-over-year standpoint, I think maybe the biggest difference is we see clients continue to make investments and move forward on programs. What we're not seeing is the release of excess budget at the end of the year, the way we saw in Q4 of last year. And so I think that is probably the biggest difference. Clients continue to invest, but there isn't a big kind of opening up the wallet at the end of the year. From a demand standpoint, it still feels broad-based and it still feels, again, like we're continuing to see growth in financial services, hi-tech and also kind of the emerging energy portion of the portfolio FD, have thoughts on 2026? We believe that organic growth rate will be higher than this year. We see the moment is driven by very much, as we mentioned, some of the AI fundamental build out, foundational build-outs. And we see the pipeline for 2026 building very, very nicely at this point of time. It's early days, but we see positive signals.

Your next question comes from the line of Jonathan Lee with Guggenheim Partners.

And FB, welcome to the first, hopefully, many earnings calls as CEO. It's interesting to hear that clients are redirecting work from partners who failed to deliver effectively highlighting that you're winning share from peers. Can you help size that contribution and unpack your competitive advantage here versus your peers? And how do you expect to maintain that gap going forward?

Jonathan, thank you very much for the kind words. I don't think we can size it yet, right? I don't think we can size it how much work is actually redirecting to us. We are seeing that in major programs, competitors who failed to deliver now clients are interacting the work to us. And the reason why because it's actually delivering these solutions in enterprises, much more difficult than what it seems like YouTube short or a TikTok video. You need deep engineering skill set capabilities across the foundation elements on data, on data platforms on cloud or enterprise platform themselves or actually modernization in order to deliver on that. You also need to consider the cost, you need to -- and cost engineers are quite expensive. You need to consider risk element, actual reliability and performance. All of these requires deep engineering skill set. So how are we going to keep our advantage because we are investing in our people, we are investing in our engineering talent, investing into tooling methodologies and investing into the playbooks, and we actually trying it out and experimenting on ourselves. That's why we believe being the customer 0 and being the client zero base is so important for our future.

[Operator Instructions] And your next question comes from the line of Jim Schneider with Goldman Sachs.

In some of your public commentary and interviews recently, I think you've kind of struck a chord about focus on costs for the company. Can you maybe give us a sense about how that focus on cost is being manifest across the company and how that might materialize in terms of SG&A or other kind of cost savings or margins over time?

Thank you very much. So I think in the last recent months, I was talking about the focus on pyramids. We focus on actually balancing the pyramid. Throughout when we diversified our delivery engine, we actually went into certain geographies, went into certain locations, we were not able to really create the ideal pyramid structure. Now we're working on that and we're trying to rebalance the pyramid itself. Rebalancing the pyramid is actually allowing us to really focus on and bring down some of the cost. Second is as a CEO, I'm putting more emphasis on profitability on the deals, emphasis on the capabilities to actually deliver profitable projects, profitable growth, which is really manifesting for us selecting the right clients, being more picky and more selective on the deals what we make, which we can only do because our demand is changing and the demand is up for us and that's what you are seeing the effect of that.

Yes. I think I'll add a piece on this as well. So as FB indicated, with that focus, we are seeing an improvement in account margin in the second half of the fiscal year. And I think probably what is most notable is throughout the year, we've been talking about a 15% midpoint of our profitability range. And at this time, we feel pretty strongly that we'll operate in the upper half of the 14.5% to 15.5% range. And as we talked about in my prepared remarks, is we expect to operate in the 15% to 15.3%. And that is a result of a number of things, including a better account margin as we work through the fiscal year.

That's helpful. And then maybe as a follow-up, you gave many data points relative to your AI project traction and increasing size of deals in AI. Can you maybe give us or level set any kind of quantification in terms of the size of your average AI project today? And then where you hope it may go in, say, 2 years?

I think in our prepared remarks, we had kind of explained how the projects are evolving, moving from proof of concepts to medium- to large-scale engagements. So it's an evolving set. We have hundreds of engagements right now. And most engagements typically start on a small side of the, call it proof of concept. And as they're scaling up some of them get into the tens of millions of dollars range as we go forward. We do see most of our top 100 clients are actually engaging with large AI initiatives, which looks like -- so it doesn't mean that right now, we are executing large AI projects, but we have large AI initiatives. We are hoping to -- most of our revenue will be coming in the coming years from these initiatives, either because of AI transformation, either because introducing AI or creating the foundational events for the AI deployment, which is right now one of the main driver for our business.

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

Some of your comments were considerably more technical than what some of us sort of accustomed to, and we appreciate that because that's where the industry is going. So we'll adjust. I wanted to ask specifically about agentic delivery, life cycle management. Yes, that one. So what -- in terms of like the vectors or phases that the customers need in order to proceed with agentic delivery, how would you describe the chronology of that aspect and the relative size of that one in delivery life cycle relative to some of the others that you mentioned.

Thank you for the question. So what we need to start considering is when clients were just delivering software products, they still have to master SDLC cycles. Most of our clients and most of the industry haven't really fully mastered the SDLC itself. When you start deploying agentic capabilities and trying to automate large scale of processes and works using agentic AI capabilities, you need to really follow an agentic development process, agentic life cycle. And it is also complex or even more complex than compared to SDLC. So it's not as simple as it looks in order to make it really work in the enterprise, right? So I know that everybody believes and keep believing that this is a simple step and adjusting development life cycle. It is complex of any SDLC life cycle, and you need to really master it. And this is going to -- we think it's going to be a bigger problem because you were going forward than mastering SDLC. The reason being is now you no longer just touching on certain elements of your software spec, but now you really need to consider how you automate processes, which you never automated before. You are going to step into automating previously very manually intensive components and automating those are very, very complicated and difficult and more prudent process itself. As you're migrating in this it's not just you need to upskill your teams who are doing it. And it's no longer just engineers who we're talking about. You need to also introduce the right tooling, the right processes across the enterprise. And if you want to really take -- get the benefit you need to also start considering not just the element of can I actually automate this process, but during automation, I really also want to achieve a certain ROI because if the automation results into a higher cost, then you kind of deliver on your promise. So we think this is a large shift. It is not going to be a very quick one. It really requires tremendous amount of work to make it happen. And companies will have to partner with organizations such as EPAM to actually do that in what we call an AI factory model where you are introduce a foundation, build a foundational component, build the right process in place, the right governance itself and then you go process by process and building the agentic automations.

Your next question comes from the line of David Grossman with Stifel.

Just kind of looking at a high level of the business and how it's been performing. It looks like the revenue per head is up for the first time in 3 quarters despite flat utilization. So maybe you could just talk a few minutes about what's going on under the covers here? Is it geographic mix, where you're delivering from? Is it perhaps growth outside the top 20, which has been very strong and historically a pretty good leading indicator of kind of new business activity and funnel. So maybe you could just illuminate what's happening there.

David, good question. And one of the things about the revenue per head count number is that there is a lot of, I guess, what I'd have to call noise in it. And so utilization, as you pointed out, is one of the factors. Foreign exchange actually impacts as well. And so it is a number that I think most people will look at and try to sort of draw a conclusion from how much price uplift is the company getting if they increase revenue per head count. But I think there's more noise in it that I think people realize, okay. But as we look at our number and I subtract out some of these factors that I just referred to. What we're really seeing is we are getting somewhat better price than we've gotten in the past. Some of that is probably mix related. Again, I'd say more kind of customer mix. And as we talked about, it's consistent with the account margin improvement that I referred to earlier in the call. And so again, some of it is foreign exchange but some of that really is actual price driven.

And when did the contract profitability, when -- is this the first quarter that it really inflected or has it been inflecting and just not visible.

Yes. I think we've been working on it throughout the year. I think we've talked about it a fair bit last quarter. And so it's all the things that drive that, including pyramid. And again, the pyramid that they will probably have more of an impact on 2026. And I think it's just really beginning to probably show up in this discussion as we see both solid profitability in Q3. And what we're now expecting is much better profitability in Q4 than we originally anticipated 90 days ago. And so again, some of that is accounted to profitability improvement. And I think, as I said earlier, I was very convinced that we were going to operate it at about 15% this year. And now, as you heard me, we're talking about operating in the 15% to 15.3% range.

The next question comes from the line of Bryan Keane with Citi.

Congrats on the solid results. Jason, let me just follow up on that discussion. What does that mean for headcount growth going forward in this model and maybe even revenue per head going forward? How should we think about that as we get into the fourth quarter and into next year? And then my second question is just the organic growth of FD and NEORIS, maybe you can help us with that.

Yes. So you would -- you'd expect us to see us add headcount in Q4. It will be similar to what we've been doing throughout the year, where we do have some pockets of excess bench that we continue to kind of reduce and we'll be making net additions globally. And so you'll see an increase in headcount in Q4. From an FD and NEORIS standpoint, as we are talking about very early in the year, the lead customer at NEORIS was impacted early by U.S. tariffs and kind of generally kind of political and economic instability in Mexico. And so we definitely see a decline in that customer on a year-over-year basis. And so it probably has a modestly negative impact on organic constant currency growth. But both of those businesses have kind of stabilized at this point, and we think there's a lot of strategic benefits. But again, particularly with that big customer from NEORIS, it has a modestly negative impact on organic constant currency growth in Q4.

Okay. That's helpful. And then any comments on revenue per head on what that might look like going forward?

So it's always -- utilization and foreign exchange really moves the needle on this one. So it's difficult for me to tell. What I will just do is comment on pricing. What we do think is that pricing is better at this time than it was last year at the same time. Maybe it hasn't improved a lot over the last 90 days, but it is a somewhat better pricing environment. And we are expecting modest price increases as we enter 2026. Again, maybe not at the level that we would have gotten 4 or 5 years ago, but in kind of the low single-digit kind of range, which is a better environment than certainly 2023 was, in 2024.

The next comes from the line of Sean Kennedy with Mizuho.

Very nice results. Great to see the growth momentum in the business. So I have a follow-up on the AI projects. I appreciate it's still early, but how does the AI work differ from EPAM's non-AI projects? in terms of duration and profitability now? And how do you think that could evolve in the future? Also, are you seeing certain clients in terms of size and industry engage in AI projects more than others?

So I think -- the project, I don't think it's fundamentally different in AI. It requires a senior engineering discipline, engineering capability. It might have more skewed towards data or skewed towards data platform or the capability around AI. So it requires a little bit different engineering skill set, different understanding. On the other hand, it also requires a combination of the business domain understanding. And really you need to combine it because now you are starting automating processes which were not automated before. So building the platform is probably very similar to what we've done in the past. Preparing the foundation, cloud migration, data platform build-out, data engineering or building -- modernizing the back end. This is very, very typical for EPAM. But when you are really start automating new processes, that's where the main capabilities, select capabilities, understanding of how to automate that process and understanding the specific industry is very needed. Profitability wise, at this point, probably similar than others. But I think there is a clear potential for later for better profitability as you are potentially not just delivering the projects maybe on a material basis, but maybe you can explore alternative business models. And I'm hoping, of course, that with these kind of projects, we are able to charge probably higher rates to begin with.

Your next question comes from the line of Darrin Peller with Wolfe Research.

This is Paul Obrecht on for Darrin. Jason, I appreciate all the color on headcount. Just curious, longer term, if you think the greater usage of AI will perhaps impact the need to hire in any way? And just to what degree as you increasingly embed AI internally? Is that perhaps allowing for lower delivery requirements?

I'm going to turn that one over to FB.

So we continuously believe Darrin that although AI does create efficiency gains -- the demand increase will outstrip any kind of efficiency gains what we are seeing. So we believe that going forward basis, we continue to hire, we continue to grow. Organization will grow, we need to bring in maybe differently trained teams. And we also bringing on anticipating your next question, we're going to continue bringing in junior engineers because with the right training, with the right background, with the right education, we do believe that the balance pyramid is the best serving not just our clients, but also industry.

Your next question comes from the line of James Faucette with Morgan Stanley.

It's Antonio on for James Faucette. I wanted to ask more on -- back to the like AI part of the equation. Just on your build versus buy strategy? I know that you had touched on that earlier, but I'm just trying to get a sense of like what is the growth of your GenAI like revenue?

Yes, it's a little bit hard for me to tell exactly what you're looking for there, but what we continue to see is this strong sequential improvement in revenues for what we call the GenAI native. And so that continues to be kind of double digits sequentially. We saw again during this quarter. And then as FB has been talking about and maybe he wants to add some color is that we continue to see strong growth in the, what we call the foundational side, which is the cloud modernization and data and that piece of the business.

So we continue to see lots of demand coming in. As Jason mentioned, the AI native revenue is growing sequentially very strongly, up double digits. We are seeing our clients building more solutions and actually he taking advantage of AI software engineering feature or a capability and a functionality because the functionality close to it decreases, they're actually building more. So we believe that people going forward basis, they will build more than buy. It's actually the equation of or the percentages will start skewing towards build versus the buy side. So that's our thesis, and we are seeing evidence around that.

Got it. Got it. That's helpful. And then as a follow-up, I wanted to ask on the Software and Hi-Tech vertical. What are some of the key drivers for that growth? I know it's grown pretty nicely sequentially. Any like onetime factors there? Or is this just a broadening out of demand there?

Yes. I mean we've had a few large customers that are growing nicely. We've got 1 client that particularly has a large kind of platform program that they've been investing in. You won't see the growth rates stay like that forever in that space, but we've been pleased with the ongoing revenue generation from the Hi-Tech portion.

At this time, there are no further questions. I will now turn the call back over to FB for closing remarks.

Thank you very much for attending my first earnings call. Really, I would like to thank all the EPAM employees for delivering a successful quarter, and we talk next time in 90 days approximately. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.