Good day, everyone. My name is Kehei Alani, and I will be your conference operator today. At this time, I would like to welcome you to the EPAM's fourth quarter and full year 2025 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, and if you have joined via the webinar, please use the raise hand icon now which can be found at the bottom of your webinar application at this time I would like to turn the call over to Mike Rishandle head of investor relations good morning everyone and thank you for joining us today on our fourth quarter and full year 2025 earnings call as the operator just mentioned I'm Mike Rishandle 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 Investor section. With me on today's call are Balash Fayesh, 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 risk 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 investor 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 all and I look forward to seeing many of you again in just a few weeks at our investor day in Boston today we are pleased to share another quarter of strong results as we close out a very successful 2025 and continue to execute our long-term growth strategy, further positioning ourselves to win in the AI-native era. We are confident of our unique differentiation and look forward to building on the momentum we created throughout 2025. At the start of last year we noted that for us it was going to be a year of transition. In fact, today marks my second earnings call and my very first year-end report, underscoring the fast pace at which we continue to operate and adapt to conditions both externally and operationally here at EPAM. As we look ahead to 2026, we see a year of AI momentum marked by our clients' ongoing shift in spending towards AI investments and strategic deployments. Importantly, we are expected to build on our growing momentum in AI native services, supported by our AI foundational services that enable clients to scale AI across their enterprises. These offerings are becoming a more substantial piece of our total services mix, illustrating our ability to capture higher volume and more strategic opportunities as AI investments accelerate across the market. Let me share why we believe EPAM is positioned to win this new AI native services category. While we are seeing measurable productivity gains at scale, we are also seeing complexity dramatically increase at faster pace than we have seen in prior cycles. Clients are facing growing pressure to continue to invest in AI, and that means platform modernization, data and cloud foundations, security, and critical AI-native upscaling. As a result, AI presents a favorable opportunity for ePAN within the build versus buy value proposition. ePAN continues to be positioned in this sweet spot, as we believe we are entering an age of building. With our internal AI-native engineering transformation nearly complete, We are now shifting to develop more verticalized AI-native business offerings and consultancies. This positions us to deliver AI strategy and execution to clients simultaneously, helping them build their own AI-native businesses and platforms. Before getting into details, I would like to quickly reflect on a few themes from the past year which highlight our differentiated position and underpin our confidence as we continue to grow our revenue and improve our bottom line trajectory over the long term. First, we believe we have clearly demonstrated and will continue to demonstrate that we position to win in the AI native engineering category. Our advantage comes from our highly differentiated engineering and AI native talent, along with the tooling and workflows that enable us to deliver production-grade AI at scale. Notably, in Q4, we generated more than $105 million in pure AI native revenues, where we continue to see solid momentum and strong sequential growth. As a reminder, our AI native revenues are defined across two groupings. Number one, AI native IP products, platforms, and solutions, where AI was the core of the solution versus simple work accelerated by the use of AI tools. And number two, AI-led transformation initiative across the entire enterprise. Importantly, our definition excludes all the AI foundational services, along with any AI-assisted work performed by EPAM employees within the software delivery lifecycle. Looking ahead, we continue to see robust demand for our AI-native services and expect to scale these revenues in excess of $600 million in 2026. Second, our developers' and builders' DNA, forged by over 30 years of experience in custom software, product, and platform engineering, prepare us incredibly well for this new supercycle. To stay out of the curve, we expanded our three-year AI readiness mandate to keep pace with advancing technology, new agentic delivery, and new commercial models that help us meet our clients where they are to enable their unique AI journeys. Even under extreme geopolitical and macro-ranking adversary, our business model and brand of very high quality and execution have persisted and today give us a leading edge on AI strategy and delivery at scale. Third, we are supercharging our client zero mentality by extending AI capabilities across our entire business. We have been pioneers, builders, and change agents in transforming the software delivery lifecycle and advancing the AI maturity model with talent, IP, and the ways of working. Now we are adopting our go-to-market approach for a more AI-centric environment, focusing on industry and verticalized expertise and innovating engagement and commercial models to adopt new and emerging trends. We are transforming the way we engage with existing and new buyers, expanding our market growth opportunities across all regions and buyers' personas. Our most recent announcement of Empathy Lab expansions demonstrates this AI-native momentum with our proven AI-native agency now expanding to help CMOs across North America become the growth architects for their businesses. We are bringing AI-powered creative talent accelerators and innovation frameworks to the business of marketing. We will be sharing much more on this at our upcoming Investor Day in March. Finally, our strategy is being validated by the market and our partners in a significant way that underscores our unique AI native capabilities. With Microsoft, we are thrilled to be named the 2025 Microsoft Innovate with Azure AI Platform Partner of the Year. With AWS, we are recognized as 2025 AWS Global Innovation Partner of the Year. With Google Cloud, we launched several advanced AI agents on Google Cloud Marketplace. Most recently, we announced a strategic partnership with Cursor to build and scale AI-native teams for global enterprises. Beyond Partnerships, or Technical Occumen, is recognized by independent benchmarks. EPEM's AI Run Developer Agent was recently ranked in the top five on SWE Bench Verified Leaderboard, an industry-leading benchmark designed to evaluate large language models and AI agents on real-world software engineering tasks. Furthermore, Gartner has positioned us as a leader in the emerging market quadrant for generative AI consulting and implementation services, further solidifying or standing as a trusted guide in this complex landscape now let's turn to some q4 highlights our fourth quarter results came in better than expected marking another quarter of outperformance in q4 we delivered double digit revenue growth including solid year-over-year organic revenue growth of 5.6 percent or underlying growth momentum remains broadly intact with five of the six verticals growing year-over-year and four out of the six verticals growing organically. Notable standouts included financial services, emerging verticals, and software and high-tech. Across geographies, ML delivered strong year-over-year growth, followed them by the Americas and APAC. We continue to add talent across all key geographies. Now, turning to the demand environment. Overall, the client sentiment remains intact with no material change over the past 90 days. AI continues to trigger both incremental and sustained demand and is driving positives in our pipeline. Based on our current visibility, we expect client budgets to remain relatively intact in 2026 compared to 2025, with a continued shift in spending towards scaled AI deployment. Even with the progression of AI towards larger programs, there is a growing emphasis on ROI and the need for scalable enterprise-grade solutions. While these larger programs naturally introduce a more mature procurement process, including RFPs and a modest extension of sales cycle, it also represents a larger opportunity for EPAM to deliver even greater value through bigger and more strategic higher-impact initiatives, something we are observing in our sales pipeline today. Now, turning to our AI progress. EPAM is uniquely positioned to guide clients through the market towards AI-native transformation. We continue to invest in people, accelerators, and advanced tooling to capitalize on our expanding growth opportunities. As a part of evolution to a pure play AI-native company, last quarter we launched our AI-run transform playbook and frameworks, along with our AI-native business transformation offering. Together, AI Run for SDLS and AI Run Transform are the building blocks for our IP-enabled go-to-market strategy. And I'm pleased to say both are picking up early adoption in 2026. These frameworks and tools support the hundreds of AI-native projects we are active in Q4. In line with last quarter, between 60% to 70% have expanded from initial proof-of-concept into larger programs. a clear indicator of our ability to scale AI-native solution into production and convert early wins into more meaningful revenue. Incremental and highly connected to our AI-native services is our AI foundational services, which encompasses the critical AI readiness and preparation work for our clients are undertaking. Demand for these services remain quite strong, and the size of this portfolio is already significantly larger than our pure AI-native revenue base. Once again, in Q4, we saw outsized growth in both our data and cloud practices compared to the rest of the business. Now, turning to some client examples to illustrate the impact we are making. EPAM partnered with EBSCO Information Services to enhance software development processes using the AI run transform framework. EPAM played a critical role by providing AI guidance, helping to establish governance framework, and building an AI adoption dashboard to measure real-time performance metrics. Through each phase of the rollout, EPAM and EBSCO maintained a strong emphasis on measurable outcomes using the dashboard to track metrics such as velocity, cycle time, code review, lead time, AI impact, and productivity gains. In addition to measurable productivity gains, EBSCO also established a robust foundation for future continuous improvement in the use of AI development tooling. Bayer partnered with EPAM to develop an AI-powered pricing tool that optimized pricing strategies across 35 countries. Leveraging machine learning, the tool delivered 20 to 30 million euros in incremental yearly profit, reduced analytics time by 10x, and provided advanced scenario planning capabilities. This collaboration transferred Bayer's pricing processes, enabling smarter data-driven decisions. We're also seeing compounding value of our long-term trusted partnerships with our clients like Zalando, where we're driving impact across data, analytics, AI, and cloud transformation. Our collaboration has yielded three significant outcomes. First, we have developed a pilot for a Gen AI-powered stylete solution, giving mobile users an interactive, highly personalized shopping experience. Second, leveraging a propriety MIGWISER tool, we rapidly migrated their massive data warehouse platform, which fuels their business intelligence, to Amazon Redshift. Finally, we built a sophisticated machine learning solution that combines automated tagging with intelligent oversight to solve the complex challenge of managing extended producer responsibility compliance. Lastly, we are also incredibly proud to announce a new multi-year partnership with National Geographic Society, where EPEM has been designated as Nodgeo's preferred digital transformation partner. This collaboration is about far more than modernization. It's about utilizing innovative technologies to inspire the next generation of explorers and solution seekers. By leveraging our engineering DNA to modernize their nonprofit infrastructure, we are also helping NatGeo to engage global audiences through distinctive experiences that bridge the physical and digital worlds. Our efforts to lead in the age of AI and digital transformation also being consistently recognized by the industry top analyst firms, validating our strategy and quality of our execution. Throughout 2025, we have been honored to receive several key leadership distinctions. For example, EPAM has been named the top IT vendor in Europe for application services and general satisfaction by Whiteline Research for the third consecutive year, which included expanded coverage across categories, ranking first across multiple categories, including application services, general satisfaction, innovation, and service delivery quality. The report highlights EPAM's commitment to delivering high-quality services and innovative solutions. This milestone reflects the trust and partnership of our clients and the dedication of our teams. Gartner recognized EPAM as a leader in the MAGIC quadrant for custom software engineering, a testament to our deep-rooted engineering DNA. Furthermore, Gartner also named us as a leader in the emerging market quadrant for generative AI consulting and implementation services, highlighting our early and impactful entry into this transformative space. Forrester positioned EPAM as a leader in the Forrester way for modern application development services, reinforcing our strength in helping clients to modernize and innovate across their technology stacks. IDC Markets SAP acknowledged our end-to-end capabilities by naming us a leader in the two critical areas, our third year in the role of recognition, CX Design Services and CX Build Services. These underscores our unique ability to not only envision, but also deliver world-class customer experiences. These recognitions, spanning engineering, generative AI, customer experience, and application development, affirm our position as a trusted partner for enterprises navigating complex transformations. They reflect the hard work and dedication of our global teams, and unweaving commitment to delivering tangible, high-value outcomes for our clients. We see this as a strong validation that our integrated approach from strategy and design to engineering and AI-native delivery is what the market needs today. To close, our operating momentum exiting 2025 is strong as AI continues to be the net growth driver for our business. We are encouraged by our progress, transforming our company, our go-to-market capabilities and our offerings. The ETEM Foundation we have built over the past several years, diversifying our global delivery model, enabling our anti-organization with AI, and bringing meaningful solutions to market with our AI-run playbooks and underlining IP position us to continue delivering sustainable revenue growth while also expanding profitability. Jason, over to you.

Thank you, FP, and good morning, everyone. In the fourth quarter, EPM generated over $1.4 billion in revenues, a year-over-year increase of 12.8% on a reported basis, exceeding the high end of our Q4 revenue outlook. On an organic constant currency basis, revenue grew 5.6% compared to the fourth quarter of 2024. We delivered another quarter very solid year-over-year organic constant currency growth, reflecting our steady and focused execution throughout 2025. As FB mentioned, we continue to benefit from the momentum we've created across our AI native and AI foundational services. One thing is clear, clients need help in their AI transformation journeys, and our advanced engineering capabilities, AI assets, and strong delivery execution are helping clients address their most complex business challenges. Our growth this quarter was well-balanced, reflecting our relevance and agility across our major geographic regions. Moving to our Q4 vertical performance, five over six industry verticals posted year-over-year growth. As highlighted last quarter, NEORIS and FIRST derivative revenues moved from inorganic to organic in November and December 2025, respectively. Financial services once again delivered very strong growth, up 19.8% year-over-year on a reported basis with 5% organic growth in constant currency. Growth was mostly driven by ongoing strength in insurance, banking, and asset management. Software and high-tech grew 18.1% year-over-year, driven by strong execution and broad improvement across large clients. Consumer goods, retail, and travel delivered 10.9% year-over-year growth, notably driven by retail and consumer goods. Live sciences and healthcare increased 2% on a year-over-year basis. Revenue growth in the vertical continues to be driven primarily by clients in life sciences and medtech. Business information and media delivered flat year-over-year revenue performance. Our emerging verticals delivered another quarter of strong year-over-year growth of 19.1%. On an organic constant currency basis, growth was 9.7%, primarily driven by ongoing strength in energy and telecommunications. From a geographic perspective, the Americas, our largest region, representing 58% of our Q4 revenues, grew 7.6% year-over-year on a reported basis and 2.2% in organic constant currency. EMEA, comprising 40% of our Q4 revenues, grew 21.8% year-over-year and 11.7% in organic constant currency. And finally, APAC, making up 2% of our revenues, grew 0.6% year-over-year and declined 4.3% in organic constant currency. Lastly, in Q4, revenues from our top 20 clients grew 7.3% year-over-year, while revenues from clients outside our top 20 increased 15.5%. Moving down the income statement, our gap gross margin for the quarter was 30.1%, compared to 30.4% in Q4 of last year. Non-gap gross margin for the quarter was 31.7%, compared to 32.2% for the same quarter last year. Relative to Q4 2024, gross margin in Q4 2025 was negatively impacted by higher variable compensation expense, driven by our stronger second-half performance. GAAP SG&A was 17.3% of revenue, compared to 17.4% in Q4 of last year. Non-GAAP SG&A came in at 14.5% of revenue compared to 14.4% in the same period of last year. GAAP income from operations was $149 million, or 10.6% of revenue in the quarter, compared to $137 million, or 10.9% of revenues in Q4 of last year. Non-GAAP income from operations was $230 million, or 16.3% of revenue in the quarter, compared to $208 million, or 16.7% of revenue in Q4 of last year. Our gap-effective tax rate for the quarter came in at 24%, and our non-gap-effective tax rate was 22.9%. Diluted earnings per share on a gap basis was $1.98. Our non-gap diluted EPS was $3.26, reflecting an increase of $0.42, or 14.8%, compared to the same quarter in 2024. In Q4, there were approximately 55.3 million diluted shares outstanding. Turning to our cash flow and balance sheet, cash flow from operations for Q4 was $283 million, compared to $130 million in the same quarter of 2024. Free cash flow was $268 million, compared to free cash flow of $115 million in the same quarter last year. We entered the quarter with approximately $1.3 billion in cash and cash equivalents. In the end of Q4, DSO was 72 days compared to 75 days in Q3 2025 and 70 days in the same quarter last year. Share repurchases in the fourth quarter were approximately 1.2 million shares for $224 million at an average price of $192.33 per share. Moving on to a few operational metrics from the quarter. We ended Q4 with more than 56,600 consultants, designers, engineers, trainers, and architects, reflecting total growth of 2.7% and organic growth of 2.2% compared to Q4 2024. In the quarter, we added approximately 500 delivery professionals. Our total headcount at quarter end was more than 62,850 employees. Utilization was 75.4% compared to 76.2% in Q4 of last year. and 76.5% in Q3 2025. Q4 2025 utilization was impacted by higher levels of vacation, driven by the shift in delivery locations, as well as the introduction of juniors, who initially operate at lower levels of utilization. The addition of juniors is intended to improve our seniority index in 2026. Turning to our 2025 full-year results, revenues for the year were $5.46 billion, up 15.4% on a reported basis year-over-year. On an organic constant currency basis, revenues were up 4.9% year-over-year. Gap income from operations was $520 million, a decrease of 4.5% year-over-year and represented 9.5% of revenue. Our non-gap income from operations was $831 million, a growth of 6.7% compared to the prior year and represented 15.2% of revenue. Our GAAP effective tax rate for the year was 25.3%. Our non-GAAP effective tax rate was 23.5%. Deleted earnings per share on a GAAP basis was $6.72. Non-GAAP EPS was $11.50, reflecting a 5.9% increase over 2024. In 2025, there were approximately 56 million weighted average diluted shares outstanding. Cash flow from operations was $655 million, compared to $559 million for 2024. And free cash flow was $613 million, reflecting a 94.7% adjusted net income conversion. And finally, share repurchases in 2025 were approximately 3.5 million shares for $661 million at an average price of $186.67 per share. Now let's turn to guidance. But from moving to the specifics of our 2026 and Q1 Outlook, I would like to provide some thoughts to help frame our guidance. We are encouraged by the underlying momentum of our business and the steady outperformance delivered throughout 2025. We step into 2026 with higher confidence in our long-term strategy and growth trajectory, supported by healthy client sentiment, a solid pipeline, and strong momentum in AI native and AI foundational services. We see relative stability in overall client budgets, with a continued shift in spending towards build and strategic AI programs. Similar to last year, we're seeing some slowness in decision-making at the start of 2026, as clients finalize budgets and establish priorities for the year. Our organic constant currency revenues now include Neuris and First Derivative. As we noted throughout 2025, New York's largest client, headquartered in Mexico, has been significantly impacted by a challenging economic environment, including the impact of U.S. tariffs. Revenues from this client will decline sequentially from Q4 2025 to Q1 2026, and then are expected to stabilize throughout the remainder of the year. The full year of 2026 revenues from this client will decrease relative to 2025. And this decrease is expected to have a negative 1% impact on EPAM's 2026 organic constant currency growth rate. In 2026, we remain committed to improving overall profitability and specifically gross margin. Our guidance assumes that we will be able to continue to deliver from our Ukraine delivery centers at productivity levels similar to those achieved in 2025. Now, starting with a full-year outlook, revenue growth will be in the range of 4.5% to 7.5%. Foreign exchange is expected to have a positive impact of 1.5%. Therefore, the organic constant currency growth rate is expected to be in the range of 3% to 6%. We expect gap income from operations to be in the range of 10% to 11%, and non-gap income from operations to be in the range of 15% to 16%. We expect our GAAP-effective tax rates to be approximately 26%. Our non-GAAP-effective tax rate will be approximately 24%. For earnings per share, we expect the GAAP-diluted EPS will be in the range of $7.95 to $8.25 for the full year. And non-GAAP-diluted EPS will be in the range of $12.60 to $12.90 for the full year. We expect weighted average share count of 54.4 million diluted shares outstanding. For Q1 of 2026, we expect revenue to be in the range of $1.385 billion to $1.4 billion, reducing year-over-year growth of 7% at the midpoint of the range. Our guidance reflects a negligible inorganic contribution and estimated 4% positive FX impact during the quarter, producing an approximately 3% organic constant currency growth rate at the midpoint of the range. For the first quarter, we expect gap income from operations to be in the range of 7% to 8% and non-gap income from operations to be in the range of 13.5% to 14.5%. Our Q&A income from operations guide reflects the impact of resetting Social Security caps and slightly softer revenues in the month of January as clients in certain verticals finalized budgets, as well as the negative foreign exchange impact. We expect our gap effective tax rate to be approximately 30% and our non-GAAP effective tax rate, which excludes tax shortfall related to the stock-based compensation, to be approximately 24%. For earnings per share, we expect GAAP diluted VPS to be in the range of $1.32 to $1.40 for the quarter, and non-GAAP diluted VPS to be in the range of $2.70 to $2.78 for the quarter. We expect a weighted average share count of 54.7 million diluted shares outstanding. Finally, a few key assumptions that support our gap-to-non-gap measurements for 2026. Stock-based compensation expense is expected to be approximately $202 million, with $53 million in Q1, $53 million in Q2, $48 million in Q3, and $47 million in Q4. Amortization of intangibles is expected to be approximately $69 million for the year, with approximately $18 million in Q1 and $17 million in each remaining quarter. The impact of foreign exchange is expected to be an approximate $3 million loss each quarter. Tax-effective non-GAAP adjustments is expected to be approximately $70 million for the year, with $19 million in Q1, $19 million in Q2, $16 million in Q3, and $15 million in Q4. We expect tax shortfall upon vesting our exercise of stock awards to be around $4 million for the full year, with an approximate $4 million shortfall in Q1 and minimal access tax benefits or shortfalls in the remaining quarters. Expenses associated with the 2025 cost optimization program are expected to be $14 million in Q1 and $11 million in Q2. And one more assumption outside of our gap-to-non-gap items. We expect interest and other income to be $12 million for the 2026 full year, with $3 million in Q1, $2 million in Q2, $3 million in Q3, and $4 million in Q4. My thanks to all the EPMers who made 2025 a successful year and will help us drive growth throughout 2026. Operator, let's open the call for questions.

We will now move to our question and answer session. As a reminder, if you are joined by the webinar, please use the raised hand icon, which can be found at the bottom of your webinar application. when you are called on please unmute your line and ask your question so now pause a moment to assemble the queue please limit your inquiry to one question and one related follow-up your first question comes from the line of maggie nolan with william blair please unmute and ask your question hi can you hear me okay we can maggie great thank you um i wanted to ask about the first quarter guidance at the midpoint, it's a little bit lower than the full year organic revenue and

margin guidance. So how do you expect the year to build and how is the visibility when we think about the larger deals, ramping, bookings, pipeline, those types of factors?

Okay, let me talk a little bit about Q1 and then I'll hand it over to FB to talk about the remainder of the year. So I think probably the incremental piece of information that we received between our last earnings call and the one obviously we're doing today is that New York's largest customer was going to ramp down business between Q4 and Q1. Now, we have met with them in their headquarters in Mexico, and we do think it stabilizes from this point forward. But we have kind of a mid single digit decline in their business between Q4 and Q1. And that probably is the biggest kind of incremental factor. Even with that, you know, if we can run closer to the high end of the range, We're talking about a, you know, a 3% or maybe somewhat better organic construct frenzy growth rate in the quarter.

Maggie, hi. This is a very – for the remaining quarters, I mean, I think we already have a very nicely built pipeline. And as we are seeing the opportunities arriving, we are actually seeing how that will be converting from it. We see very good traction in the European and the Middle East markets, which we feel that's going to be – allow us to delegate on the year.

Okay. And then Effie, you had made a comment on wanting to bolster the vertical industry expertise. Are there investments that you need to make in sales or delivery in order to achieve And are those going to be material to the P&L? Maybe a few comments on how that will impact your competitive positioning as well.

So I think our current P&L reflects or the guidance reflects the investments which we're planning to make in 2026, yes, we are prioritizing investment into business development and prioritizing developing, besides just AI, which is our biggest investment area, building out our industry capabilities and vertical accelerators and expertise themselves.

Thank you.

Your next question comes from Jonathan Lee with Guggenheim Partners. Please unmute and ask your question.

Great. Thanks for taking my questions. In the last quarter, you called that an expectation of 2026 organic growth being faster than that of 2025. With that in mind, can you help us reconcile that commentary to the 2026 outlook that, you know, at the midpoint on an organic concurrency basis is slower than what you delivered in 2025? Is that due to New York's largest client? Are there any other factors there?

Yeah, Jonathan, thanks for the question, and it's certainly a good one. And so you're right, I think we had 4.9% organic constant currency growth in 2025. The midpoint of the range would produce 4.5. Since the last time we talked, as I told Maggie, we did get incremental information on New York's largest client. As I called out in my fixed remarks, we expect it'll have that a client on a year-over-year basis will have a negative 100 basis point impact on growth. So you've got the 4.5% of the midpoint of our range. You know, obviously, we'd be 100 basis points higher on the rest of the business. I think the other thing that we're trying to do from a guidance standpoint is to make certain that we guide to kind of what we can see today. We're not assuming improvement in environment. Clearly, we've got some opportunities that we talked about throughout the remainder of And so we're clearly going to work to drive towards better. And we'll update you on our progress throughout the year.

Understood. With that in mind, can you help us walk through what's contemplated across the low end and the high end, how much go-get is still needed, and are there any verticals that you would expect to accelerate versus decelerate in the near to medium term?

Let me start with the verticals. We continue seeing very strong demand in financial services and energy. We also kind of forecast or expect or life science and healthcare to gain momentum later part of the year, which is typically very much calendar dependent. So that's very much – and clearly high-tech and software and high-tech continues to be a growth area for us. In terms of between the lower and the high end, I think we're not contemplating anything like changing macro environment in order to achieve the high end of the range. Just like this year, we are expecting that we are going to winning the deals and some of the clients start accelerating expenditure in later quarters.

I appreciate that, caller.

The next question comes from James Kupferberg with Wells Fargo. Please unmute and ask your question.

Hi, guys. Thank you. So I wanted to come back to some of the commentary around the elongated sales cycles. And then I think, Jason, you mentioned some client indecision at the outset of the year. So are those dynamics impacting the full year guide or just the shape of the year, i.e., the Q1 outlook? So putting Eurus' largest client on the side, I just wanted to understand those broader dynamics that you both alluded to in prepared remarks.

So I think as the year started, it's starting similarly to last year, right? We actually do have better visibility in 2026 than what we had in 2025, but it's kind of starting in the same way in terms of shape of the revenue decision-making process. The same time as clients are now really decided to actually embark on large AI transformation programs, that naturally drives them towards a more stringent, let's call it slower process, which involves procurement, which is naturally going to slow down the decision-making process itself. But I think this just makes things bigger, right? And it's actually, as the programs are bigger now and more substantial, this is actually just makes a little bit of a delay, and that's going to be realized when those project starts will come in the later part of the year. But I think it's more natural to the shift what we are experiencing. Okay.

Okay. So it sounds like those dynamics didn't really impact how you guided the full year. It's just more about the shape of the year. Is that right?

That's correct.

Okay. All right, and then Jason, just real quick, anything you can give us on gross margin and free cash flow expectations for this year?

Yeah, so that's great. So we had obviously really strong free cash flow in 2025. The only thing I would say is, as we look ahead towards 2026, you know, we did come out in 2025 above our traditional 80 to 90% conversion guide, and to not think that we'll continue to do that. They think that we should operate within the 80% to 90% range. And then from a gross margin standpoint, and this also would kind of answer one of Maggie's questions, is we do intend to continue to make investments in business development and partnership programs to drive top-line revenue growth. With that said, I don't expect as much benefit from productivity and efficiency in SG&A, again, because we're going to recycle some of those benefits into investments in business development. So most of the improvement will come from gross margin. What we are seeing is better execution in some of our expanding geographies, like Western and Central Europe. In India, as we've talked about, and the profitability in each of those geographies continues to improve on a year-over-year basis, plus we're getting a little bit of price as we enter the year. And so all those things give us confidence that we can improve our gross margin between 2025 and 2026.

Thanks.

Your next question comes from the line of Ryan Bergen with TD Cohen. Please unmute and ask your question.

Hi, guys. Good morning. Thank you. First on the growth guidance, Jason, on the large client, I heard you said you expect that to be down, I think, sequentially mid-single digits. What does that translate to as a headwind to year-over-year growth for the first quarter? And also for the first quarter growth guide, are there any build-day dynamics to consider?

Yeah, so it's 100 basis points approximately for the full year, and it's also about 100 basis points impact on the Q1 number. And so, again, you could do the same thing. You could add 100% to our guide for organic constant currency, and that would be our book of business excluding that one large customer. The bill day impact, you have fewer bill days as you go from Q4 to Q1. So that clearly has some impact on both profitability and on revenues. You probably will have lower vacation, though. So maybe there's kind of a net-net on that when I think about the revenue going from Q4 to Q1.

Okay. And as it relates to the workforce, can you give us an update on pyramiding and global delivery optimization, kind of the effort and progress there, and your expectations around billable engineering resource additions for 26?

Yeah, the interesting thing is in Q4, we actually did see better utilization, Q3 to Q4, if you adjust for vacation. You know, as I kind of hinted in my prepared remarks is we finally have gotten to that shift where we do have more people taking their, you know, year-end holiday, you know, around December 25th rather than January 7th. And so what we did see is lower bench. We continue to focus on that through our cost optimization program. We are getting, I would say, better cost outcomes. I would say great execution in Western and Central Asia, Eastern Europe, and India. And at the same time, we're moving to make certain that we're cost efficient in those geographies. So we are seeing improving profitability in each of those, you know, more rapidly growing geographies. And we continue to work on utilization improvements throughout the year.

To addition to that, throughout 2026, we'll continue working and optimizing our pyramid. And that's why we started to onboard the juniors already in Q4 in 2025. So that's very much going to play out throughout the year. And we will continue working on it, as we talked about it in previous quarters, on optimizing or delivery organization or delivery pyramid itself to actually go back to a shape which is more healthy and more sustainable in a going-forward basis.

Understood. Thank you.

Our next question comes from David Grossman with Steve Ball. Please unmute and ask your question.

Thank you. Good morning. So, Jason, you did a good job of, you know, kind of explaining the impact of the acquisitions on growth in 26. I'm just curious, you know, maybe you could do the same and help characterize what impact, you know, pricing is having, you know, either positive or negative year over year in 26, and also whether there's any, you know, kind of makeshift dynamics that may still be impacting revenue growth. And I'm speaking specifically of, you know, makeshift to India.

Yeah, that's fair. So we did get a little bit of price improvement in the second half of 2025. And what we are seeing as we enter 2026 is a quite significant number of clients in both Europe and North America are giving us at least low single digit rate increases. And so it is, you know, it's not the way it would have been, let's say, four or five years ago, but it's definitely a somewhat improving pricing environment relative to the last couple of years. I think, you know, to your point with India, you know, we continue to execute successfully across the broad range of geographies. India, you know, is growing faster than the other geographies. We are still priced at a premium there, and the profitability in India continues to sort of expand beyond our average. So last year I said, hey, India's operating at profitability higher than EPM average. This year we expect it'll operate at an even higher level of profitability, getting closer to our most mature geographies. But, you know, India still obviously prices at a somewhat lower rate on $1 per hour. basis. So there's probably some impact there. But again, we continue to feel that it's actually, it's probably positive or margin accretive, you know, any expansion that we see in that geography.

Great. Thanks for that. And then I think there was some commentary in the prepared remarks, you know, about, and I think FBE said this again in the Q&A about decision-making slowing, however, the deals are getting larger. You know, I think the industry has been talking about this, you know, for the past 12 to 18 months, you know, when does that dam have to break? You know, at some point, when does, you know, the spending have to accelerate despite uncertainty?

I wish I would have a crystal ball for that, but I think we are seeing more and more larger programs, which makes me optimistic that we are getting close to that point. So I I think right now there are clearly in certain industries, financial services, for example, in Europe, people are no longer able to hold back the transformation and non-discretionally cap expenditure. Plus, in certain other industries, we already see people are no longer able to delay their decision-making around AI investments, and that's triggering larger programs. But as larger programs are being requested or being executed, clearly the governance around the selection process, the procurement is actually becomes a little bit more bureaucratic. And when all the enterprises are making larger decisions, the selection process naturally slows down.

Yeah, are there any data points you can share that would kind of help us understand the momentum, you know, that may be building or accelerating in terms of conversion?

I think in AI, David, we're definitely going to start sharing one. But I think what the data point, which also was part of my opening remarks, is that at the scale of the AI native revenues, we expect to reach $600 million in 2026 for EPAM. So it's actually scaling up, growing really rapidly, but it's still a smaller part of our business.

Great. All right. Thank you. Thank you.

Your next question comes from Jamie Friedman with Susquehanna. Please unmute and ask your question.

Hi. Good morning. Thanks for the opportunity. I had a couple of more quantitative questions. By my math, the revenue per utilized head year over year grew about 10, almost 11%. And because pricing conversations can be quite subjective, that we think of as price. So I'm just wondering if you would react to that. Is, you know, that revenue per utilized head reflecting a better pricing environment? And then I have one quick follow-up.

Yeah, I think as we've talked about over the years, the revenue per head calculation is not one that we usually do internally because there's just an awful lot of noise. But I know it is something that people do externally. Just to remind people of the noise, foreign exchange can have an impact. Obviously, price can have an impact, utilization can have an impact, and then there's different kind of revenue recognition elements that can also have an impact where you might have done work earlier in the year and then recognized revenue later in the year. So all those things can kind of impact that number. The other thing that I do want to remind people of is that we are reporting numbers that are employees only. We do have some contractors. If the contractors grow, they obviously would generate revenue, but it wouldn't necessarily be in the denominator in that headcount figure. So with all those things said, Jamie, I would do the same math that you would do, and I would see that revenue has improved. I would say some of that is foreign exchange-based. Some of that is price. And then we did have a specific, you know, one or two revenue recognition, recognized revenue where the work was done earlier, and that was recognized in Q4. So all those things contributed somewhat to that beat. And at the same time, even if I adjusted out any of those benefits, we still had, you know, a beat relative to our original guidance for Q4.

Okay, and then just to follow up with that, Jason, the other thing that makes the math, that limits the math, is the shift to fixed price. And you had a 150 basis point increase in fixed price as a percentage of total revenue to 20.2. And I would imagine that that's, since it's not time materials, it's not gated by headcount. so could you but at the same time your free cash flow was really good and your DSO was good so anyway in terms of the journey to fixed price which you've been talking about for a while and clearly evolved last year quite a bit how should we be thinking about that as the impact on say free cash flow because we don't see like on bill revenue and it's hard for us to get other details so so any comment about how the deal the fixed price transition impacts free cash flow and I'm sorry someone asked me to ask you about the implications of that for repurchase would be helpful free cash flow repurchase thank you excellent excellent there are a lot of questions and that's why I'm sorry about that yep yeah no that's fine okay so you're correct that we are seeing an evolution towards more fixed fee.

As I think I have said in my prepared remarks, I do think that, at least in the past, it does give us an opportunity to improve pricing as we introduce, let's say, somewhat different commercial models in response to the changing mix of AI native and AI foundational revenues. And so I think you will continue to see an increasing mix of fixed fee. Again, we don't think it goes from 20% to 50% in 2026, but I would suspect it will continue to increase throughout the year. From a cash flow standpoint, I think it's hard for me to say exactly how the fixed fee impacts that because there are different types of fixed fee. So some do have a monthly fixed kind of element associated with them, and that would have a very similar feel to T&M in terms of how we get paid. there, you know, there might be some opportunities to have milestone payments that maybe occur before revenue recognition, which would give you an increase in deferred revenue, you know, and at the same time, it'll allow you to sort of drive, potentially collect cash in advance of revenue recognition. But I think I'd take us back to what I said earlier, which is, you know, I'd really think as we look ahead that, you know, we'll operate in the 80s, not in the 90s the way we did in 2025 from a free cash flow conversion and then just quickly to fork in that share repurchase clearly with the share price where it is today you'll continue to see us reasonably active in terms of share repurchases you know particularly in the first half of 2026. thank you the next question comes from the line of brian keen the city please unmute and ask your question hi guys

good morning. I wanted to ask just on the big debate going on with AI eating software and potential implications for the IT services market. Obviously software stocks have sold off and as a result we've seen the IT services stocks also under pressure. So how do you think about FB especially the AI pressure potentially from Anthropic and OpenAI as those, some of their modules get pushed out?

So, Brian, thank you very much for the question. I think we're actually very, very bullish and optimistic. This is going to open up a tremendous opportunity for EPAM. It's going to turn, flip the buy versus build question, right? And EPAM is a builder. We're going to build much, much more software, right? There is no limit how much software people would like to build. Yes, the coding part of the activity will be automated, but it opens up the potential for all the high-end work, what EPAM is famous and known for, right? It is going to make us stand out because we can use these tools, we can bring our engineering capabilities to it, and we can deliver the solutions our clients are looking for. So actually, I'm much more on the side of AI will enable building more software, more capability. We are a builder. We are not maintaining software. We are not running business processes. We are not input, what people call it, we are not input limited. We are what we want to build. There is a tremendous appetite out there. And if you listen carefully for the comments from Anthropi, comments from OpenAI, and a couple of podcasters, they all talk about how much more software people want to build. And right now, because building software becomes easier per unit, people are going to build more. That's what I think about, and that's how I see the situation. I think the market is a little bit confused. It's very hard to decipher all the signals, but on the long run, we are optimistic and actually very, very bullish what this is going to mean for us.

Got it, got it. And we see the pure AI revenues growing significantly for you guys now. I guess the flip side of that is there any AI pressure as a result of some of the productivity and pricing that gets passed on to the consumer do you see some pressure as a result also in addition to the pure actual revenue growth that you see from the AI revenue yeah I think the one thing I'd say is just into you know to echo FB is we don't have BPO we don't have application maintenance that probably is more likely or or really large testing practices that might be more impacted.

The other thing I just need to make certain that it's communicated is we are not seeing a pressure on our pricing due to AI. Again, most of the pricing that we have is time and materials, as I talked about earlier with some of the earlier questions is that we did see rate improvement in the second half of 2025 and are seeing rate improvement again here in 2026. So I certainly understand if you've got a large book of a multi-year fixed-fee business that that might be subject to sort of pressure in certain types of revenue streams. But with the build work that we've historically done and this more advanced AI work, we aren't seeing build rate compression associated with that.

Okay, thanks so much.

Your last question comes from Jim Schneider with Goldman Sachs. Please unmute and ask your question.

Good morning. Thanks for taking my question. Relative to what was just referenced in terms of the pressure on the software stocks and the services stocks, maybe share with us your thoughts on capital allocation. What are you thinking? What is the board thinking in terms of the desire to potentially do more inorganic actions versus potentially be significantly more aggressive with buyback?

Jim, thanks for the question. I think we continue to, on the share buybacks, which as Jason also already communicated we announced the share by MacPlan earlier previous quarter and in the next couple of quarters at least definitely in the first half year we were going to come to make acquisitions as appropriate and repurchase shares and especially what we are going to execute is small tokens but that's our plans at this point of time and once we stabilize our previous acquisition that's when we look for other opportunities.

Yeah so Jim in the near term you probably still have a focus on share repurchases and then over time I think you you we'd be more open to kind of scaled M&A activity.

Fair enough and then just one question on the AI native revenue that you called out in the quarter. By my math it kind of gets you to for the full year sort of an 80 percent increase in the run rate of AI native revenues as we exit Q4. Can you maybe comment on whether that's directionally correct? And then more importantly, can you talk about how you believe that maybe your AI native revenue is different from some of the AI revenue or bookings numbers being reported by your peers? Thank you.

Yeah, so I would say kind of, you know, directionally correct. So, you know, very high rates of growth on a year-over-year basis. And we talked about the fact that we were seeing strong sequential growth throughout the year and expect to continue to see solid sequential growth in the quarters going forward. I think our definition is very tight. And I think FB did pick that up during his prepared remarks. But if you want to provide some more color, FB.

So I think it's very important that our definition of AI native revenue is super tight, which means that we're not including a lot of things which probably some of our competitors do include. So just a reminder, we basically include type one, which is new types of solution where the center of it is AI itself, and the AI model is making it possible. We're not including anything in this which is AI-assisted, i.e. you're delivering with AI. The solutions which we are delivering has to be built on top of AI. Number two is when somebody embark on an end-to-end or enterprise transformation, which we call AI 360, that's what we include in the second type. We're not including in the second number any kind of work, which is what we call data or AI foundation elements. Actually, those revenues are much, much larger for us than our AI native revenues in themselves.

Thank you.

This concludes the time allotted for Q&A. And now I'd like to turn the call over to Balash Fayesh for closing remarks.

Thank you very much. I would like to thank all ePammers who made 2025 a successful year and who will make us deliver throughout 2026. And thank you all for attending the COF. And I'm looking forward to seeing many of you on our March Investor Analyst Day in Boston. Thank you very much.