Deep Dive: EPAM Systems (EPAM)

Founded in 1993 by Belarusian natives Arkadiy Dobkin (Executive Chair, retired as CEO in Sept 2025) and Leo Lozner (Retired), EPAM is a near-shore IT Services player based in Newton, PA, focused on software development and “digital transformation”. EPAM was an early pioneer in sourcing talent from Eastern Europe and built its first offshore development center in Belarus in 1993, followed by Russia (1998), and Ukraine (2004). Because of both endogenous and exogenous (i.e. Ukraine war) factors, EPAM now has a globally diversified workforce with less than 30% of its workforce based in Ukraine, Belarus, and Russia (fully exited).

Background

It is important to first read my Primer on IT Services and Additional Thoughts on IT Services to gain important context on the IT Services industry.

EPAM was originally an acronym for "Effective Programming for America". Arkadiy previously worked at SAP, and when he founded EPAM, SAP tasked him with helping them develop their R/3 ERP product. This initial reference eventually led to EPAM doing development work for Google, which then led to a slew of projects with digital-first companies like Booking, Expedia, Oracle, etc.

Arkadiy at EPAM’s 2019 Investor Day

“15 years ago, we started to work with clients which were product software companies. And over all these years, we built a portfolio of over 200 software companies in different areas, from ERP to search, to collaboration, to productivity and why I'm talking about it is because that's how EPAM’s DNA was built up and how our people were trained and what quality standards these clients were establishing for us. We actually built a product engineering services company at the level which we do think differentiates us very strongly.”

By the 2012 IPO, EPAM had significantly expanded its customer base, first with software companies, then to digital natives and eventually to traditional corporations. EPAM’s services also gradually expanded from software development into complex systems integrations and platform engineering and orchestration. By the mid-2010’s, EPAM moved upstream into “design” and consulting helped by its 2018 acquisition of Boston-based Continuum, a strategy consultancy.

Part of the reason EPAM stands out is that EPAM’s leadership places significant emphasis on culture and organizational design as a sustainable source of competitive advantage. As I will describe, EPAM’s culture and its approach to training, hiring, and promotions are unique and differentiated. 

EPAM is one of the rare boutiques that has successfully scaled, mostly organically, to c.$5bn in revenue, making EPAM twice the size of its nearest competitor Globant. Today, EPAM is evolving from being a nimble near-shore boutique to becoming a global full-service player with an established brand. The exogenous circumstances surrounding Russia/Ukraine/Belarus have abruptly accelerated this evolution.

Investors are understandably skeptical that EPAM can sustain its Engineering DNA and hiring advantage after a massive and sudden disruption to its workforce. While these concerns are valid, I do not believe the Russia/Ukraine war has permanently impaired EPAM's value proposition or moat. Rather, it has merely accelerated what was already happening. I will address these concerns later in the report.

As I talked about in my Additional Thoughts on IT Services, we are currently in the worst downturn in the last 25 years. While IT Services spend grew below GDP in 2002, 2009, and 2020, spending bounced back quickly within 18 months. We are in a 3-year slump (2023, 2024, recovering in 2025) where IT Services spend is below GDP growth, but this isn’t a huge surprise.

From 2021-22, we saw a surge in IT spending due to the COVID-fueled rush to digitize combined with stimulus and accommodative rates. The macro environment has since cooled. Normally, I would expect 12 to 18 months of soft spend but this time, we are digesting COVID spend. Moreover, AI is, at least in the short-term, crowding out spending in traditional areas like application development and cloud migrations as CIOs and CTOs figure out their AI strategy before continuing with these plans. These are cyclical, not structural headwinds.

Once we digest the excess COVID spending and once companies formulate a preliminary AI strategy, we should see a reversion to growth, probably by 2026, and a likely acceleration in growth medium-term. However, the market has freaked out. Over the last year, Globant is down 71%, EPAM 25%, Endava 70%, and Grid Dynamics 45%. They are now trading at low-teens and in some cases single digit P/E multiples whilst in many cases, these companies are poised to benefit from AI and can grow EPS double digits organically longer-term.

If I were to summarize my thesis, I believe EPAM has the culture, references, and management to take the next step in its evolution to become a $10bn+ player. Moreover, while EPAM is not the cheapest IT Services company, I believe EPAM is the “cleanest” way to benefit from secular tailwinds in AI (AI opportunity is incremental and will not cannibalize EPAM) and the "cleanest" way to play a near-term recovery in IT Services. EPAM is “clean” because they have clear and transparent accounting with limited add-backs, they hold net-cash and are doing buybacks, and they are unlikely to do large transformational acquisitions.

Organizational Model & Design

At first glance, EPAM has a cookie cutter organizational model. EPAM has 50 delivery centres in 55 countries. Deliver centre heads are responsible for PNL, who then report up to regional delivery heads of APAC, CEE, EMEA, and Americas. Delivery centres leverage regional resources to coordinate projects requiring multiple centres. Within each delivery centre, EPAM has vertical expertise by industry, technology, and vendor, but most engineers are generalists. This is the same model used by most IT Services companies.

In Reply’s organizational model, the fulcrum comes top-down. What I mean is that Reply’s core focus is top-down managerial incentives. Reply’s view is that if the 230 MDs of its boutiques are heavily incentivized on achieving 20%+ EBIT margins, boutiques will naturally focus on cutting edge areas of technology and in turn achieve above-industry growth. Importantly, growth is not explicitly incentivized. This simple but elegant model, which Reply has doggedly stuck-to, has allowed Reply to compound at 28.6% cagr, dividends reinvested, over the last 15 years.

In EPAM’s organizational model, the fulcrum comes bottom-up. EPAM is maniacal in the way it trains, hires, and promotes engineers. EPAM’s view is that if it’s c5,000 annual hires and thousands of annual promotions are the most competent and best-trained engineers, EPAM will naturally achieve higher margin and above-industry growth. While this seems straightforward, EPAM goes above and beyond, as I will describe. EPAM’s “simple” model has allowed EPAM to compound at 22% cagr since its 2012 IPO.

An important point is that both organizational models emphasize enduring principles (i.e. managerial incentives or engineer training) which apply to any technology paradigm (cloud, mobile, AI, etc.). Reply and EPAM’s management are not sitting in a boardroom making bets on future technology trends. Rather, the core differentiation for EPAM is hiring and training exceptional engineers, whereas you can argue competitors were simply first movers into a rapidly growing technology trend, a temporary rather than enduring advantage.

Hiring and Training Junior Engineers. EPAM places unusually high emphasis on hiring and training junior engineers. The root of this emphasis stems from EPAM’s origins as a Belarusian company. In the 1990s, Belarus had students with strong foundational skills in science and math but a poor higher education system. While Indian offshoring was all the rage in the 1980s/90s, EPAM’s thesis was that Belarus had differentiated talent, but EPAM had to take training and education into their own hands. 

Arkadiy Dobkin and Vitaly Shulga (Education Manger) (translated/edited from Ukrainian) – Aug 2022

“[In the 1990s], the educational infrastructure in Belarus was completely broken down. That is, there was no money at the universities at all, there were no computers. And at some point, it started with some project where we were clearly short of people, we decided we had to start building our own training programs. We went to the universities and started offering to cooperate with them. We would equip their classrooms with computers and networks and start explaining what was happening on real projects, and we'd start teaching because the teaching staff there wasn't the best at that time either…it was with one or two universities, then it grew to dozens of universities.”

EPAM was a pioneer in vertically integrating into training and education, and while many peers have copied this, EPAM takes this to the next level. For example, for most university partnerships, EPAM proactively designs and in many cases helps teach the curriculum. In fact, EPAM now has Bachelor's and Master's programs it has designed ground-up through partnerships with universities in Ukraine. Said another way, most IT Services companies think of themselves as distributors of IT talent. They sit between the manufacturers (universities) and customers. EPAM vertically integrated into manufacturing to develop a superior product to distribute.

Over time, EPAM built training labs at their offices where students take courses (mostly free) in conjunction with their university program so students can upskill themselves on practical skills around coding methodologies, teamwork, and project management, and increase their probability of getting hired by EPAM, an employer of choice. 

Arkadiy Dobkin and Vitaly Shulga (Education Manger) (translated/edited from Ukrainian) – Aug 2022

"When a person studies in our training, they not only get knowledge, but also get acquainted with EPAM’s ecosystem. That is, they understand what our values are, they understand what systems we work in, what processes we face. Modern programming is not just about writing code. It's about working in a team, it's about communication, and working in a responsible way. A typical example is when a student worked alone in a version control system and comes to a project with 10 people and completely different skills are needed. It's about working with Agile, with Scrum, with Kanban. And when we train a person, we don't just teach them so-called hard skills, the specialization they came for, but we also teach them to work in a team, to work on a project."

Because EPAM is vertically integrated early into an engineer’s educating journey, EPAM can make objective assessments of an engineer’s capabilities, improve them, and use this data to inform its final hiring decisions. Competitors try and poach the students EPAM trains, which EPAM sees as a necessary evil. There is an “open source” element to EPAM’s approach to training as EPAM in many cases is educating all engineers, not just EPAM’s engineers, but this control over “product” quality typically gives EPAM first dibs over the best talent.

EPAM estimates 50% of those completing on-site programs get hired by EPAM, who in turn account for 98% of EPAM’s junior level hires. Once a junior engineer joins EPAM full-time, the training does not stop, but rather, EPAM has a formal training program called EngX that lasts up to 6 months before EPAM starts staffing junior engineers on client projects.

Viktar Dvorkin, EPAM’s Head of Delivery – 2019 Investor Day

“With the number of engineers we are on-boarding, it's very important for us to focus on them understanding how we deliver, how we quote, engineer and deliver continuously. And we put a lot of effort through the on-boarding process. Every engineer which also graduates from our ISR development labs is coming through a very rigorous process, which takes weeks and months, and then preproduction process, where they are being educated and mentored to deliver the code well.”

While university partnerships and training are in theory easy to replicate, this is something EPAM has consistently and persistently focused on for 30+ years. Training engineers is the core focus of EPAM, which has allowed EPAM to develop process power over-time.

Arkadiy Dobkin and Vitaly Shulga (Education Manger) (translated/edited from Ukrainian) – Aug 2022

"I think that, as usual, if you run a lot, you'll eventually start running fast. So if you train a lot, your quality eventually increases, and you undoubtedly start to get a competitive advantage. So, investment and a lot of work bring results. Without a doubt, these are interconnected things. What we learned to do allowed us to take on more interesting projects. More interesting and significant projects set higher requirements for people and for training programs, and in turn, gave us the opportunity to get the next new project. It was all very interconnected.

Today, EPAM has partnerships with 160 universities. These partnerships are very strong in Belarus and Ukraine, but EPAM has exported its training model and developed partnerships across Europe in Hungary, Poland, Uzbekistan, Bulgaria, and the UK, and across Mexico and Central Asia (Uzbekistan, Kyrgyzstan and Tajikistan). The issues in Belarus and Ukraine have accelerated EPAM’s efforts to diversify its partnerships. EPAM specifically cited in their 2022 Analyst Day that 50+ new university partnerships are being formed including in India, Mexico, and Turkey.

Another example of EPAM’s focus on organizational design, specifically around training, is its Community Schools concept which EPAM runs concurrently with its training programs. Community Schools are free communities, open to both EPAM and non-EPAM engineers, focused on basic programming skills around topics like.NET, Java, Big Data, etc. Like a lot of EPAM’s training, there is an “open source” concept. Community Schools are generally 10-month self-paced learning programs meant to facilitate community interactions to accelerate learning. EPAM seeds these communities with experienced engineers to run weekly Q&As and offers engineers as mentors in the later stage of the program but leaves these communities to self-govern so questions can be asked and mistakes made without the prying eyes of bosses and recruiters. To the extent communities upskill engineers, it helps facilitate hiring and promotions.

Arkadiy Dobkin and Vitaly Shulga (Education Manger) (translated/edited from Ukrainian) – Aug 2022

"I can try to tell you what a community school is by giving you an example of the evolution of a community. We're both writing in the same language, Python, and one way or another, you have some questions about it, and I have them too. Then we find some funny memes. We've created a chat where we talk, discuss questions. Other guys join us. Then we realized that there are a lot of us, and we work in the same office, we don't know each other. We meet in the kitchen, have coffee, and then after some time, we decide to go to a bar on Friday. That's how a community is born. It's just people gathering in their free time based on the use of some tool or technology.”

“This works especially well for new technologies and new tools that are just appearing on the market. There are pioneers, and we get some kind of get-together. After that, we decide that we should also share knowledge. "I found a cool library," or "you found a cool way to apply something." We meet, I tell you, you tell me, and then in the evening we go somewhere for entertainment. Over time, people with less competence will join this group, who are just starting to learn. For example, students. They'll find out that there's this Python group, and they can join us, listen, ask questions.”

“One way or another, over time, this can turn into a more or less centralized training for people in this language and technology. And it's clear that this path doesn't happen in two minutes, as I just told you; it can take months or even years. But as a community grows, it will, one way or another, face the task when the need for training arises. It might not happen, but most communities come to this, and that's how a community school appears. It works according to some of its own rules, its own program that it develops, and trains people in a specific technology."

Hiring and Training Experienced Engineers. When it comes to hiring experienced engineers, EPAM is maniacal about its quality bar. A key difference to nearshore and offshore peers is that EPAM is not constrained by a cost-driven value proposition. EPAM sells quality, not price. EPAM’s quotes will be more expensive to offshore and nearshore peers as evidenced by the highest Revenue/Head amongst peers. In fact, EPAM can bill engineers in India at similar rates to ones in Ukraine. EPAM's value proposition is that the quality of its engineers means the ROI on spend and the quality of the end-project will be higher. The offshore players are selling “low cost” so they need to calibrate their Indian costs to be 30%+ cheaper to Eastern Europe, whereas EPAM does not. The reason EPAM was able to scale India rapidly post-Russia/Ukraine whilst maintaining comparable quality is that EPAM can skim off the top-tier engineers and pay them accordingly.

Former Senior Director at EPAM, per AlphaSense – April 2022

“The model that they adopted for India offshore is slightly different than some of the other competitors like Infosys and TCS. What they were doing in some of the larger cities, they were hiring ex-Googlers. They were paying handsomely so that the quality of work and whatever the image that they have created in the marketplace, that continues. There are Google, Microsoft offices in India. They were hiring from there. The other software competitors, they were more focused on cutting the cost. They were focused on hiring people who they had to pay less.”

Former Senior Director at EPAM, per AlphaSense – April 2022

“The reason [for expanding into India] is not to reduce the cost of operation, but the reason was to diversify in terms of location. That's why the operational model that they picked in India was not to pick talent which are inexpensive. Rather, pick talent that may be expensive, such as ex-Googler or ex-Microsoft that can do good job. They were very aggressive in hiring ex-Googlers in India…EPAM has resources in Eastern Europe they are paying, let's say $30k to $40k per year, USD…In India, the same person with a similar skillset will probably demand $15,000-$20,000, but an ex-Googler will ask for $30,000…They maintain the past level and then they get the person they want.”

While there is skepticism with EPAM given it can charge higher rates than peers on Indian labour, EPAM’s results both leading up to Ukraine and since Ukraine clearly suggest that this has not been a major issue. EPAM’s India exposure for example stepped up from 5% in 2016 to 18% today, a more than tripling. However, during this same time, EPAM’s Revenue/Head has compounded at 5% cagr, so despite “diluting” the headcount to lower cost locations, Revenue/Head has increased at a fast pace. You can also see this in EPAM’s SG&A/Head which is nearly 10% higher to Globant and more than double Tata’s whilst their EBITDA/Head outperforms both players.

New experienced engineers still undertake a shorter but rigorous 1 month training program via EngX. EngX also becomes an ongoing way to upskill employees. EngX currently has 17k courses, with the average EPAM engineer doing 55 hours of training per year. In 2024, EPAM launched an AI upskilling initiative for all engineers including non-engineers and trained 80%+ of its employees on AI tools.

Promotion. When it comes to promotions, EPAM has a novel approach, a process inspired by EPAM’s early digital native clients like Google. EPAM has an internal management tool called TelescopeAI that tracks every engineer’s background, the training courses they’ve completed, and the projects they’ve been staffed-on as well as their productivity on these projects.

EPAM has 8 engineering levels. If an engineer that is a specialist in big data wants a promotion to senior engineer, EPAM’s process is like a “thesis defense”. EPAM convenes 3 subject matter experts globally, not necessarily that engineer’s manager, who evaluate that engineer’s accomplishments leveraging TelescopeAI and quiz that engineer on their technical knowledge. Every engineer in every delivery center across the world goes through the same process and the same standards are applied. This contrasts with most consulting firms where promotions are often made by direct bosses with a heavy weighting towards location and tenure.

Arkadiy Dobkin and Vitaly Shulga (Education Manger) (translated/edited from Ukrainian) – Aug 2022

"The notorious assessments, how to grow at EPAM. We tried to remove the hierarchical bureaucratic component and created, to some extent, a different bureaucracy, but a democracy based, at least we think so, on experts, people who understand what they're evaluating. Not based on personal qualities, but on a combination of how much value you bring, based on specific ingredients. And then the talent management component appeared, which suggested that if you want to grow, you need to take these courses, and then we had to create these courses…and again, this kind of flywheel appeared."

The goal of the promotion process is to be objective, emphasize technical competency, and drive a consistent standard globally. This method of promotion helps EPAM sustain its engineering DNA.

Former Regional Director, EPAM per AlphaSense – Oct 2024

“What else was really enabling the culture, I would say was the way EPAM was promoting people...EPAM has a so-called unified assessment procedure…This is procedure when you would like to get a raise, grow from engineer to senior engineer, etc. you apply for this assessment. You build the deck describing your achievements and how they conform to EPAM values and expectations from your level. You have a conversation session with experts from at least three locations, three countries who listen to you and then share the feedback on your achievements. I would say this is one of their serious culture enforcement, culture spreading mechanisms”

Conclusion. EPAM is one of the rare companies that sees organizational design as the root of their competitive advantage. This is a quality I always keep an eye out for in any kind of “people business”. When you look at the way EPAM hires, trains, and promotes engineers, it is rooted in a strong culture of training which permeates the organization, it is highly vertically integrated, and it is based on objective assessment criteria which then fuels EPAM’s culture and “engineering DNA”. While this is not necessarily hard to replicate, EPAM has doggedly stuck to this process for 30+ years, which today has manifested into a competitive advantage.

Sam Rehman, EPAM’s Chief Information Security Office, 2022 Analyst Day

“Our obsession in engineering and solving large scale, complex problem rooted early in the beginning of our company where we started out working with some of the pioneers and innovators and later on, disruptors in the software industry space. You can imagine years of collaboration like that shaped our thinking and how we appreciate and respect great engineering and product development and attracted like-minded technologists. I mean, honestly, great engineers want to work with great engineers. That's just a fact. And to be very honest with you, that's why I'm here. And we, naturally, started to raise the bar ourselves in how we work, how we foster and how we bring up a lot of our teammates together, who we hired, how we hired and constantly elevated our standards to what we consider great software. In many ways, that shaped our engineering culture.”

In the next sections below, I'll go over:

• Investment Thesis
• Valuation and Returns
• Business Overview
• Russia / Ukraine / Belarus ("BUR") Issues
• Customers & End-Markets
• EPAM's Moat
• Key Risks
• Management & Capital Allocation
• Growth
• Economics & Key Assumptions
• Projected Financials