EPAM Systems, Inc. (EPAM) Earnings

Management highlights

Balazs Fejes mentioned a solid first quarter with revenue growth at the high end of the outlook range, year-over-year improvement in adjusted profitability and gross margins, and strong adjusted earnings per share. Pure AI revenues exceeded $125 million in Q1, up nearly 20% sequentially. Announced a strategic multiyear applied AI partnership with Ontic. Have a strategy with 3 pillars: establishing as a leading AI delivery software engineering services provider, transforming into an AI-native organization, and capitalizing on AIT structure to expand go-to-market offerings. Over 20,000 EPAMers completed training via entropic economy, over 1,300 are Claude certified, expecting 5,000 by end of Q3 and 10,000 by year-end. Client examples include PDLC transformation for Nelnet, modernizing global streaming infrastructure for a media entertainment client, and bringing AI and GenAI programs to a large global insurance company. Received several key leadership distinctions. Jason Peterson discussed revenue, profitability, cash flow, balance sheet, and operational metrics like head count and utilization.

Guidance

Full year revenue growth outlook is now 4% to 6.5% with organic constant currency growth 2.5% to 5%. GAAP income from operations expected 10% to 11%, non-GAAP income from operations 15% to 16%. GAAP diluted EPS range $8.29 to $8.59, non-GAAP diluted EPS range $12.98 to $13.28. Q2 revenue expected $1.4 billion to $1.415 billion, year-over-year growth 4% at midpoint. GAAP income from operations 9% to 10%, non-GAAP income from operations 15% to 16%. GAAP diluted EPS range $1.79 to $1.87, non-GAAP diluted EPS range $3.10 to $3.18. Key assumptions include stock-based compensation, amortization of intangibles, foreign exchange impact, tax effect of non-GAAP adjustments, and expenses related to cost optimization program.

Segment performance

In Q1, revenues grew 7.6% year-over-year to $1.4 billion, with constant organic currency revenue growth of 3.7%. AI native revenues exceeded $125 million in Q1, up nearly 20% sequentially from Q4. Americas was the largest region at 57% of Q1 revenues, growing 2.5% year-over-year; EMEA was 41% of revenues, growing 15.9% year-over-year; APAC was 2% of revenues, growing 1.2% year-over-year. Financial Services grew 11.5% year-over-year, Software and Hi-Tech grew 10.9%, Consumer Goods, Retail and Travel grew 7.2%, Life Sciences and Health Care grew 5.9%, Business Information Media decreased 0.7%, and emerging verticals grew 6% and 8%. GAAP gross margin was 27.7%, non-GAAP gross margin was 29.4%. GAAP income from operations was $117 million (8.3% of revenue), non-GAAP income from operations was $201 million (14.3% of revenue).

Risks & headwinds

Broader macro variability, underperformance in North America affecting visibility in the second half, client decision-making caution due to macro volatility, uncertainty around the timing and conversion of large multiyear deals, and impacts of geopolitical volatility on revenue growth and client spending decisions.

Analyst Q&A

• Q: On the 2026 guide on the organic growth guide revision, is it a handful of large engagements moving slower or broader portfolio dynamic and confidence on second half implied sequential growth?

  A: Balazs Fejes said it's a handful of customers with delayed decision-making, Jason Peterson said not assuming significant geopolitical change and guiding as seen, Balazs Fejes said have deals starting in Q3 and pipeline of large opportunities.

• Q: On Anthropic relationship, how different from heritage delivery approach and impact on AI native revenue growth mix?

  A: Balazs Fejes said prepared engineers, ramping up certifications, expansion not pivot.

• Q: Follow up on subset of clients with weakness, does full year guidance range consider broadening?

  A: Jason Peterson said lowering bottom end reflects broadening, Balazs Fejes said seeing impacts in travel and consumer sector but strong demand in Financial Services and Hi-Tech.

• Q: Bridge gap between non-GAAP operating margin in quarter and full year target?

  A: Jason Peterson said Q1 lower due to seasonal factors, improvement in gross margin, expecting improved gross margin from Q1 to Q2.

• Q: Quarter-over-quarter revenue growth expectations for Q3 and Q4?

  A: Jason Peterson said stronger sequential growth between Q2 and Q3 driven by seasonal factors and deals ramping, Balazs Fejes said have deals starting in Q3 and pipeline of large opportunities.

• Q: Finer point on large deals converting to revenue, impact on margins?

  A: Jason Peterson said still looking at improved gross margin, seasonal impacts, and focus on improving profitability.

• Q: Capital allocation, thoughts on buybacks and M&A?

  A: Balazs Fejes said accelerated share repurchase, looking ahead to M&A investments.

• Q: Contract pricing, how different with Anthropic deal?

  A: Balazs Fejes said economics moving target, exploring commercial models, not seeing rate compression.

• Q: Head count cadence and revenue per head to hit guidance?

  A: Jason Peterson said head count additions throughout year, revenue per head influenced by foreign exchange and contract structures.

• Q: Confidence in large deals converting, impact on margins?

  A: Jason Peterson said seeing significant opportunities, focus on improving profitability.

• Q: Proactively going to clients with AI advancements to lower head count?

  A: Balazs Fejes said proactively talking to clients about advanced engagement models.

• Q: Levers for controlling tokenization costs and M&A views?

  A: Balazs Fejes said controlling model usage, multi-sourcing, Jason Peterson said focusing on domain capabilities and geographic opportunities in M&A