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    EPAM
    Earnings call· Mar 2026(Q1 FY26)

    EPAM Systems Q1 FY26 earnings call EPAM

    May 7, 2026 Source

    Executive summary

    EPAM Q1 FY26 — AI Momentum Amidst Macro Headwinds

    EPAM delivered solid Q1 results, driven by strong AI native revenue growth and improved profitability, alongside a strategic AI partnership with Anthropic. However, increased macro uncertainty and delayed client decisions, particularly in North America, led to a downward revision of the full-year revenue outlook. The company is accelerating go-to-market investments in North America and focusing on converting a pipeline of large, multiyear AI-enabled vendor consolidation deals to drive second-half growth.

    Highlights

    5

    • Revenue growth of 7.6% YoY, reaching the high end of outlook, with 3.7% organic constant currency growth.

    • Adjusted profitability and gross margins improved year-over-year, with non-GAAP gross margin at 29.4% (vs 28.7% in Q1 FY25).

    • Non-GAAP diluted EPS grew 18.7% YoY to $2.86.

    • Pure AI revenues exceeded $125 million in Q1, up nearly 20% sequentially, with strong line of sight to a $600 million full-year target.

    • EMEA region delivered strong double-digit year-over-year growth of 15.9% (8.4% constant currency).

    Concerns

    5

    • Full-year revenue growth outlook lowered to 4-6.5% (organic constant currency 2.5-5%) due to increased macro variability and delayed client decision-making.

    • Underperformance in North America contributed to lower visibility for the second half of the year.

    • Cash flow from operations was negative $36 million in Q1, compared to positive $24 million in Q1 FY25, impacted by higher variable compensation and vendor payment timing.

    • Days Sales Outstanding (DSO) increased to 76 days at quarter-end, up from 72 days in Q4 FY25.

    • Q2 is expected to be impacted by macro volatility and caution in client decision-making on larger discretionary programs.

    Guidance & targets

    29
    CategoryTargetConfidence
    Full-year FY26 Revenue Growth (Reported)
    4% to 6.5%
    high materiality
    Medium
    Full-year FY26 Revenue Growth (Organic Constant Currency)
    2.5% to 5%
    high materiality
    Medium
    Full-year FY26 GAAP Income from Operations
    10% to 11%
    medium materiality
    High
    Full-year FY26 Non-GAAP Income from Operations
    15% to 16%
    high materiality
    High
    Full-year FY26 GAAP Effective Tax Rate
    27%
    low materiality
    High
    Full-year FY26 Non-GAAP Effective Tax Rate
    24%
    low materiality
    High
    Full-year FY26 GAAP Diluted EPS
    $8.29 to $8.59
    high materiality
    Medium
    Full-year FY26 Non-GAAP Diluted EPS
    $12.98 to $13.28
    high materiality
    Medium
    Full-year FY26 Weighted Average Share Count
    52.7 million
    low materiality
    High
    Q2 FY26 Revenue
    $1.4 billion to $1.415 billion
    high materiality
    High
    Q2 FY26 Revenue Growth (Reported)
    4% at the midpoint
    high materiality
    High
    Q2 FY26 Revenue Growth (Organic Constant Currency)
    2.7% at the midpoint
    high materiality
    High
    Q2 FY26 GAAP Income from Operations
    9% to 10%
    medium materiality
    High
    Q2 FY26 Non-GAAP Income from Operations
    15% to 16%
    high materiality
    High
    Q2 FY26 GAAP Effective Tax Rate
    27%
    low materiality
    High
    Q2 FY26 Non-GAAP Effective Tax Rate
    24%
    low materiality
    High
    Q2 FY26 GAAP Diluted EPS
    $1.79 to $1.87
    high materiality
    High
    Q2 FY26 Non-GAAP Diluted EPS
    $3.10 to $3.18
    high materiality
    High
    Q2 FY26 Weighted Average Share Count
    52.4 million
    low materiality
    High
    Q2 FY26 Stock-based Compensation Expense
    $50 million
    low materiality
    High
    Remaining Quarters FY26 Stock-based Compensation Expense
    $44 million each
    low materiality
    High
    Remaining Quarters FY26 Amortization of Intangibles
    $70 million each
    low materiality
    High
    Each Quarter FY26 FX Impact
    approximately $3 million loss
    low materiality
    High
    Q2 FY26 Tax Effect of Non-GAAP Adjustments
    $19 million
    low materiality
    High
    Remaining Quarters FY26 Tax Effect of Non-GAAP Adjustments
    $14 million each
    low materiality
    High
    Q2 FY26 Cost Optimization Program Expenses
    $13 million
    low materiality
    High
    Q2 FY26 Interest and Other Income
    $1 million
    low materiality
    High
    Q3 FY26 Interest and Other Income
    $2 million
    low materiality
    High
    Q4 FY26 Interest and Other Income
    $4 million
    low materiality
    High

    Segment performance

    11
    SegmentRevenueYoYQoQMargin
    Financial Services
    Driven by asset management and insurance clients.
    		—11.5%——
    Software and Hi-Tech
    Driven by strong execution across existing clients and contributions from new logos.
    		—10.9%——
    Consumer Goods, Retail and Travel
    Notably driven by retail and consumer goods.
    		—7.2%——
    Life Sciences and Health Care
    Driven primarily by clients in life science and med tech.
    		—5.9%——
    Business Information Media
    		—-0.7%——
    Emerging Verticals
    Primarily driven by ongoing strength in energy and government.
    		—6% to 8%——
    Americas
    Largest region, experiencing underperformance and lower visibility in H2.
    % of Q1 revenues: 57%
    		—2.5%——
    EMEA
    Delivered strong double-digit growth.
    % of Q1 revenues: 41%Constant currency growth: 8.4%
    		—15.9%——
    APAC
    % of Q1 revenues: 2%
    		—1.2%——
    Top 20 Clients
    		—4.4%——
    Clients Outside Top 20
    		—9.1%——

    Operational metrics

    27
    Revenue
    $1.4 billion
    Q1 FY26

    At the high end of Q1 revenue outlook.

    Revenue growth
    7.6%YoY
    Q1 FY26
    Organic constant currency revenue growth
    3.7%YoY
    Q1 FY26
    GAAP gross margin
    27.7%vs 26.9% in Q1 FY25
    Q1 FY26

    Improved year-over-year.

    Non-GAAP gross margin
    29.4%vs 28.7% in Q1 FY25
    Q1 FY26

    Improved year-over-year, demonstrating commitment to improving profitability.

    GAAP SG&A as % of revenue
    17.1%vs 16.8% in Q1 FY25
    Q1 FY26
    Non-GAAP SG&A as % of revenue
    14.1%vs 14.2% in Q1 FY25
    Q1 FY26
    GAAP income from operations
    $117 millionup 18% YoY
    Q1 FY26

    Compared to $99 million or 7.6% of revenue in Q1 FY25.

    Non-GAAP income from operations
    $201 millionup 14% YoY
    Q1 FY26

    Compared to $176 million or 13.5% of revenue in Q1 FY25.

    GAAP effective tax rate
    31.6%
    Q1 FY26
    Non-GAAP effective tax rate
    23.6%
    Q1 FY26
    GAAP diluted EPS
    $1.52up $0.24 YoY (18.8%)
    Q1 FY26

    Compared to $1.28 in Q1 FY25.

    Non-GAAP diluted EPS
    $2.86up $0.45 YoY (18.7%)
    Q1 FY26

    Compared to $2.41 in Q1 FY25.

    Diluted shares outstanding
    54.2 million
    Q1 FY26
    Cash and cash equivalents balance
    over $1 billion
    Q1 FY26

    As of the end of the quarter.

    Share repurchases
    $264 million
    Q1 FY26
    Total capital returned via share repurchase program
    $1.5 billion
    To date

    Since the initiation of the program.

    Delivery professionals
    56,500+1.6% total growth YoY
    Q1 FY26
    Utilization
    77%vs 77.5% in Q1 FY25, 75.4% in Q4 FY25
    Q1 FY26

    Impacted by the ongoing introduction of juniors, who initially operate at lower levels of utilization.

    AI certifications (Claude)
    1,400+
    Current

    Over 20,000 EPAMers have completed training via Anthropic economy.

    New AI-native projects launched
    100+
    Q1 FY26

    Illustrates active pipeline and healthy replenishment of new opportunities.

    Clients engaged in AI initiatives
    80%+
    Q1 FY26
    Nelnet productivity increase (PDLC transformation)
    31%
    Q1 FY26

    Achieved through EPAM's AI/Run transform playbook.

    Nelnet back-end development acceleration
    nearly 2x
    Q1 FY26

    Achieved through EPAM's AI/Run transform playbook.

    Streaming platform client uptime
    99%
    Q1 FY26

    Achieved with a self-healing global system sustaining 10+ million concurrent users.

    Streaming platform client configuration drift reduction
    70%
    Q1 FY26

    Achieved with automated IAC governance and standardized site reliability engineering practices.

    Insurance company first order of loss processing time decrease
    75%
    Q1 FY26

    Achieved through AI and GenAI programs for billing reconciliation and treaty analysis.

    Industry KPIs

    5
    MetricValueDetails
    Headcount dso76 daysdays
    Customer logo metrics100+projects
    Bookings tcv book to billclose to 10 opportunitiesopportunities
    Genai ai book of business$125 million+USD
    Ai agentic channel product adoption1,400+certifications

    Product announcements

    4
    ProductTypeDetails
    Google Cloud Partner of the Year Awardsmilestone
    Forrester Customer Experience strategy consulting services landscapemilestone
    IDC Marketscape worldwide data modernization services provider for retail and restaurantsmilestone
    Glassdoor's Best Companies in Tech and AI 2026 listmilestone

    Deals & partnerships

    1
    AnthropicStrategic multiyear applied AI partnership to accelerate delivery of safe, reliable enterprise-grade AI for clients.multiyear

    EPAM is building a dedicated practice with over 10,000 cloud-certified architects, including 250 forward-deployed engineering Black Belts. Over 1,400 EPAMers are Claude certified, targeting 5,000 by end of Q3 and 10,000 by year-end.

    Risks & headwinds

    5
    Macro uncertainty and delayed client decisionsQ2 FY26 and second half FY26

    Lowered full-year revenue growth outlook to 4-6.5% (organic constant currency 2.5-5%)

    Mitigation: Accelerating go-to-market investments in North America; focusing on converting large, multiyear AI-enabled vendor consolidation deals.

    Underperformance in North AmericaSecond half FY26

    Americas revenue grew 2.5% YoY in Q1, contributing to lower visibility in H2.

    Mitigation: Accelerating deliberate go-to-market investments in North America, modeled on successful EMEA strategies.

    Higher energy prices and global economic uncertaintyFY26

    Expected to impact full-year revenue growth rate.

    Mitigation: Factored into revised full-year guidance; not assuming geopolitical volatility moderates.

    Revenue cannibalization from AI shiftOngoing

    Clients shifting IT budgets towards AI spending, automating parts of SDLC (e.g., testing), and diverting investments from digital/e-commerce platforms to AI native products.

    Mitigation: Proactively engaging clients with advanced engagement models like 'dark factory' capabilities and AI/Run transform playbook to automate and optimize workflows.

    Geopolitical volatilityOngoing

    Not assuming moderation; guiding as seen currently.

    Mitigation: Guidance does not factor in significant changes to the current geopolitical setup.

    What to watch in Q2 FY26

    5

    Large AI-enabled deals conversion

    Q3 and Q4 FY26
    CurrentClose to 10 opportunities in pipeline, risk-adjusted in guidance
    TargetConversion and ramp-up of these deals

    Why it matters

    These deals are expected to drive higher growth in the second half of the year and represent a meaningful step in EPAM's evolution as a strategic partner.

    We also had a pipeline of large opportunities, which we're working to close and start to ramp in Q3 and Q4.

    Q&A highlights

    5

    Can you elaborate on the reasons for the 2026 organic growth guide revision? Is it a few large engagements slowing or a broader dynamic? What gives confidence in H2 sequential growth, and does it assume geopolitical volatility moderates?

    The Q2 impact is from a handful of customers delaying decisions, primarily in April/May. The H2 confidence is not based on geopolitical moderation, but on a pipeline of unusually large AI-native vendor consolidation and transformation deals that were previously inaccessible to EPAM, which are expected to close and ramp in Q3/Q4.

    “Number one, in our estimate, we are not kind of considering that the geopolitical environment changes significantly. So we are guiding as we see it right now. So we're not assuming anything significantly changing in the current geopolitical setup. At the same time, we have quite a bit of -- as I in the prepared remarks, I highlighted large, unusually large opportunities, which we are targeting.”

    asked by Bryan Bergin · answered by Balazs Fejes

    2 min read5 chapters

    Detailed Narrative

    01

    AI Transformation Strategy

    EPAM is pursuing a multiyear strategy to become a leading AI delivery software engineering services provider, transforming itself into an AI-native organization, and capitalizing on its AI infrastructure to expand go-to-market offerings. This strategy leverages 30-plus years of engineering DNA, domain expertise, IP, and strategic partnerships, aiming to address the significant gap between rapidly developing foundational AI capabilities and enterprise adoption.

    02

    AI Native Engineering and Business Transformation

    The company is moving beyond traditional IT services with a sharp focus on AI native engineering and AI native business transformation. This includes fundamentally re-engineering how EPAM operates, scaling AI adoption across its 60,000 people, and developing a new operating model that blends human talent, AI capabilities, and advanced agentic systems to run the business more efficiently and at lower cost across all geographies.

    03

    AI/Run Transform Playbook

    EPAM's AI/Run Transform playbook integrates engineering excellence with AI native delivery, strategic consulting, deep technical expertise, and partner ecosystem technologies. This approach aims to provide a proven, repeatable, and scalable transformation platform for clients, moving beyond traditional consulting deployments by integrating blueprints, talent, and tools to drive ROI-driven outcomes.

    04

    North America Go-to-Market Investments

    EPAM is accelerating deliberate go-to-market investments in North America, its largest market, mirroring successful strategies implemented in EMEA. These investments will focus on personnel, process, and transformation of go-to-market motions to address current underperformance and improve market position, aiming to expand the new client portfolio over the coming quarters.

    05

    Client Sentiment and Macro Variability

    Client sentiment remained stable through Q1, with a continued shift in spend towards AI native and strategic deployments. However, increased macro uncertainty🌐 and broader variability in client decision-making emerged in April and May, particularly in North America. This has led to delayed decisions on larger discretionary programs, impacting the Q2 outlook and contributing to lower visibility for the second half of the year.

    AI-generated summary of the company’s earnings call. Not investment advice.