EPAM

EPAM Systems, Inc. 2025 Annual Report (10-K) Summary

Business Context and Reporting Period

This filing covers the fiscal year ended December 31, 2025. EPAM Systems, Inc. is a global provider of digital engineering, cloud, and AI-enabled transformation services. The company operates through two primary reportable segments: Americas (renamed from North America in 2025) and Europe. EPAM maintains a significant delivery footprint in Ukraine and Belarus, continuing to operate under business continuity plans amidst the ongoing war in Ukraine. The company has discontinued operations in Russia.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 15.4% year-over-year, driven by organic growth and the full-year impact of 2024 acquisitions (NEORIS and First Derivative). Constant currency revenue growth was 14.1%.
• Profitability Decline: Operating income decreased 4.5% to $520.0 million, and Net Income dropped 16.9% to $377.7 million. Margins compressed due to increased compensation costs, lower government incentives in Poland, and foreign exchange headwinds.
• Cost Structure: Cost of revenues rose 18.5% to $3.88 billion (71.2% of revenue), primarily due to higher compensation, acquisitions, and a $13.6 million decrease in Polish R&D tax incentives compared to a catch-up benefit in 2024.
• Foreign Exchange: The company recorded a foreign exchange loss of $25.9 million in 2025, compared to $7.0 million in 2024, impacting operating results.
• Acquisitions: In 2025, EPAM completed one small acquisition ($8.8 million). The major growth drivers were the 2024 acquisitions of NEORIS ($626.3 million) and First Derivative ($300.7 million), which contributed significantly to 2025 revenue.

Guidance, Outlook, and Risks

• AI Strategy: Management emphasizes a strategic shift toward "AI-native transformations," leveraging platforms like EPAM AI/RUN to drive client value. However, risks exist regarding AI tools potentially reducing demand for traditional engineering services or pressuring pricing.
• Geopolitical Risks: The war in Ukraine remains a material risk. EPAM maintains approximately 8,750 delivery professionals in Ukraine and 3,400 in Belarus. The company has $10.1 million remaining on its $100 million humanitarian commitment. Banking instability in Ukraine and Belarus poses liquidity risks, with $49.2 million and $37.8 million in cash held in those regions, respectively.
• Cost Optimization: A 2025 Cost Optimization Program was initiated in Q2 2025 to improve utilization, with expected additional charges of approximately $25.0 million to be incurred through Q2 2026.
• Share Repurchases: In October 2025, the Board authorized a new $1.0 billion share repurchase program. As of December 31, 2025, approximately $776.5 million remained available under this program.
• Tax Reform: The U.S. "One Big Beautiful Bill Act" enacted in July 2025 is expected to accelerate deductions, resulting in a $24.5 million reduction in cash tax payments for the 2025 tax year.

Investor Verification Checklist

• Ukraine/Belarus Exposure: Verify the current status of the 14,100 personnel in Ukraine and Belarus and the impact of potential banking restrictions on the $87 million in cash held in these jurisdictions.
• Margin Recovery: Monitor the trajectory of operating margins as the company absorbs the integration costs of NEORIS and First Derivative and manages wage inflation in emerging markets.
• AI Impact on Pricing: Assess whether the shift to AI-enabled services is maintaining premium pricing or leading to margin compression due to client expectations of lower costs.
• Polish R&D Incentives: Confirm the sustainability of government incentives in Poland, as the 2024 benefit included a catch-up adjustment that is not expected to recur at the same level.
• Share Repurchase Execution: Track the utilization of the new $1.0 billion repurchase authorization and its impact on diluted share count.