Digital engineering services company EPAM Systems (NYSE: EPAM) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 11.7% year on year to $1.30 billion. Guidance for next quarter’s revenue was optimistic at $1.33 billion at the midpoint, 2.8% above analysts’ estimates. Its non-GAAP profit of $2.41 per share was 6.1% above analysts’ consensus estimates.
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EPAM (EPAM) Q1 CY2025 Highlights:
- Revenue: $1.30 billion vs analyst estimates of $1.28 billion (11.7% year-on-year growth, 1.6% beat)
- Adjusted EPS: $2.41 vs analyst estimates of $2.27 (6.1% beat)
- Revenue Guidance for Q2 CY2025 is $1.33 billion at the midpoint, above analyst estimates of $1.30 billion
- Management raised its full-year Adjusted EPS guidance to $10.83 at the midpoint, a 2.1% increase
- Operating Margin: 7.6%, down from 9.5% in the same quarter last year
- Constant Currency Revenue rose 1.4% year on year (-4.3% in the same quarter last year)
- Market Capitalization: $9.02 billion
"We reported strong first quarter results amidst a dynamic macroeconomic landscape, which highlights our unique differentiation in supporting our clients through their transformation journeys," said Arkadiy Dobkin, CEO and President at EPAM.
Company Overview
Founded in 1993 during the early days of offshore software development, EPAM Systems (NYSE: EPAM) provides digital engineering, cloud, and AI transformation services to help global enterprises and startups modernize their technology systems and create digital products.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years.
With $4.86 billion in revenue over the past 12 months, EPAM is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions.
As you can see below, EPAM’s sales grew at an exceptional 14.9% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. EPAM’s recent performance shows its demand has slowed significantly as its revenue was flat over the last two years. 
We can dig further into the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 1.6% year-on-year declines. Because this number is lower than its normal revenue growth, we can see that foreign exchange rates have boosted EPAM’s performance. 
This quarter, EPAM reported year-on-year revenue growth of 11.7%, and its $1.30 billion of revenue exceeded Wall Street’s estimates by 1.6%. Company management is currently guiding for a 16.2% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 10% over the next 12 months, an improvement versus the last two years. This projection is healthy and implies its newer products and services will catalyze better top-line performance.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
EPAM has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 12%, higher than the broader business services sector.
Looking at the trend in its profitability, EPAM’s operating margin decreased by 3.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.
This quarter, EPAM generated an operating profit margin of 7.6%, down 1.9 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
EPAM’s spectacular 14% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
In Q1, EPAM reported EPS at $2.41, down from $2.46 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 6.1%. Over the next 12 months, Wall Street expects EPAM’s full-year EPS of $10.82 to stay about the same.
Key Takeaways from EPAM’s Q1 Results
We were impressed by EPAM’s optimistic revenue guidance for next quarter, which blew past analysts’ expectations. We were also glad its EPS guidance for next quarter outperformed Wall Street’s estimates. On the other hand, its constant currency revenue missed significantly. Zooming out, we think this quarter featured some important positives. The stock traded up 7.6% to $171.50 immediately after reporting.
Sure, EPAM had a solid quarter, but if we look at the bigger picture, is this stock a buy? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
