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    EPAM
    Earnings call· Jun 2026(Q2 FY26)

    EPAM Systems Q2 FY26 earnings call EPAM

    Aug 6, 2026 Source

    Executive summary

    EPAM Q2 FY26 — AI Native Revenue Accelerates Amidst North America Headwinds

    EPAM delivered Q2 results at the high end of its revenue outlook, driven by accelerating AI native revenues and strong performance in EMEA and key verticals like Financial Services. However, significant underperformance in North America, attributed to a demand shift and internal go-to-market issues, led to a lowered full-year revenue growth outlook. The company is undertaking a multi-quarter commercial transformation to address these challenges, with expectations for meaningful revenue contribution from new large deals shifting to early 2027.

    Highlights

    5

    • Revenue grew 4.5% year-over-year on a reported basis to $1.415 billion, reaching the high end of the outlook range.

    • AI native revenues accelerated, reaching over $160 million in the quarter and representing over 11% of the business.

    • Non-GAAP income from operations grew by 14.7% to $233 million, with non-GAAP gross margin improving to 32%.

    • Financial Services and Life Sciences & Healthcare verticals delivered strong growth of 11.5% and 8% respectively.

    • EMEA continued to lead growth with strong double-digit performance, increasing 10.9% year-over-year.

    Concerns

    5

    • North America, representing 57% of Q2 revenues, grew only 0.5% year-over-year and is expected to operate below expectations in H2.

    • Full-year organic constant currency growth guidance lowered to 2% to 3% from a previous higher range.

    • Free cash flow was negative $18 million in Q2, with full-year conversion rate expected around 70%, below the typical 80-90%.

    • DSO increased to 82 days in Q2, compared to 76 days in Q1 FY26 and 78 days in Q2 FY25.

    • Software and Hi-Tech and Business Information & Media verticals declined 1.3% and 2.1% respectively.

    Guidance & targets

    38
    CategoryTargetConfidence
    Full-year 2026 Revenue Growth
    3.2% to 4.2%
    high materiality
    Medium
    Full-year 2026 Organic Constant Currency Growth
    2% to 3%
    high materiality
    Medium
    Full-year 2026 FX Impact on Revenue Growth
    1.2% positive impact
    medium materiality
    High
    Full-year 2026 GAAP Income from Operations margin
    10.5% to 11%
    high materiality
    Medium
    Full-year 2026 Non-GAAP Income from Operations margin
    15.5% to 16%
    high materiality
    High
    Full-year 2026 GAAP Effective Tax Rate
    27%
    medium materiality
    High
    Full-year 2026 Non-GAAP Effective Tax Rate
    24%
    medium materiality
    High
    Full-year 2026 GAAP Diluted EPS
    $8.22 to $8.38
    high materiality
    Medium
    Full-year 2026 Non-GAAP Diluted EPS
    $13.08 to $13.24
    high materiality
    Medium
    Full-year 2026 Weighted Average Share Count
    52.2 million fully diluted shares
    low materiality
    High
    Full-year 2026 Free Cash Flow Conversion Rate
    around 70%
    high materiality
    Medium
    Full-year 2026 AI Native Revenues
    $600 million
    high materiality
    High
    Q3 2026 Revenue
    $1.410 billion to $1.425 billion
    high materiality
    High
    Q3 2026 Revenue Growth
    1.7% at midpoint
    high materiality
    High
    Q3 2026 Organic Constant Currency Growth
    1.8% at midpoint
    high materiality
    High
    Q3 2026 FX Impact on Revenue Growth
    0.1% negative impact
    medium materiality
    High
    Q3 2026 GAAP Income from Operations margin
    11% to 12%
    high materiality
    High
    Q3 2026 Non-GAAP Income from Operations margin
    15.5% to 16.5%
    high materiality
    High
    Q3 2026 GAAP Effective Tax Rate
    approximately 25%
    medium materiality
    High
    Q3 2026 Non-GAAP Effective Tax Rate
    approximately 24%
    medium materiality
    High
    Q3 2026 GAAP Diluted EPS
    $2.33 to $2.41
    high materiality
    High
    Q3 2026 Non-GAAP Diluted EPS
    $3.38 to $3.46
    high materiality
    High
    Q3 2026 Weighted Average Share Count
    51.4 million diluted shares
    low materiality
    High
    Q3 2026 Stock-based compensation expense
    approximately $44 million
    low materiality
    High
    Q3 2026 Amortization of intangibles
    approximately $17 million
    low materiality
    High
    Q3 2026 FX impact (loss)
    approximately $3 million loss
    low materiality
    High
    Q3 2026 Tax effect of non-GAAP adjustments
    around $14 million
    low materiality
    High
    Q3 2026 Tax shortfall related to stock compensation
    negligible
    low materiality
    High
    Q3 2026 Interest and other income
    $1 million
    low materiality
    High
    Q4 2026 Stock-based compensation expense
    $45 million
    low materiality
    High
    Q4 2026 Amortization of intangibles
    approximately $17 million
    low materiality
    High
    Q4 2026 FX impact (loss)
    $1 million loss
    low materiality
    High
    Q4 2026 Tax effect of non-GAAP adjustments
    $14 million
    low materiality
    High
    Q4 2026 Tax shortfall related to stock compensation
    $2 million
    low materiality
    High
    Q4 2026 Interest and other income
    $0.5 million
    low materiality
    High
    H2 2026 Free Cash Flow Conversion Rate
    above 100%
    medium materiality
    High
    H2 2026 North America Revenue Growth
    very slow revenue growth
    high materiality
    High
    Large Deals Revenue Contribution
    meaningful revenue contribution starting in the first half of 2027
    high materiality
    Medium

    Segment performance

    11
    SegmentRevenueYoYQoQMargin
    Financial Services
    Fastest-growing vertical, driven significantly by insurance and asset management clients across both EMEA and the Americas, with significant contribution from AI modernization programs.
    		—11.5%——
    Life Sciences and Healthcare
    Second fastest-growing vertical, picking up momentum, led by pharma R&D and clinical trials paired with AI, and continued momentum in med tech products and services.
    		—8%——
    Emerging Verticals
    Primarily driven by ongoing strength in energy and manufacturing. Energy book of business significantly larger than 12 months ago, expanding into midstream, downstream, and data center work.
    		—4.9%——
    Consumer Goods, Retail and Travel
    Notably driven by retail and consumer goods.
    		—2.3%——
    Software and Hi-Tech
    Declined due to expected ramp down of a large client program and shift in priorities. Project ramp downs concentrated in non-AI services outweighed growth in AI, cloud, and cybersecurity work.
    		—-1.3%——
    Business Information & Media
    Driven primarily by the completion of several client projects.
    		—-2.1%——
    Americas
    Strong growth in financial services revenue offset substantially by declines in the Software and High-Tech and Business Information and Media verticals.
    % of Q2 revenues: 57%
    		—0.5%——
    EMEA
    Strong growth in financial services as well as contributions from travel and consumer goods and energy.
    % of Q2 revenues: 41%Constant currency growth: 9.4%
    		—10.9%——
    APAC
    Revenue decreased year-over-year.
    % of Q2 revenues: 2%
    		—-0.3%——
    Top 20 Clients
    Revenue growth from the largest clients.
    		—3.1%——
    Clients outside Top 20
    Revenue growth from clients beyond the top 20.
    		—5.2%——

    Operational metrics

    20
    Revenue
    $1.415 billion4.5% year-over-year growth
    Q2 FY26

    Reported revenue for the quarter.

    Organic constant currency revenue growth
    3.4%year-over-year
    Q2 FY26

    Organic constant currency revenue growth for the quarter.

    AI native revenues
    $160 millionsixth consecutive quarter of sequential double-digit growth
    Q2 FY26

    Pure AI native revenues.

    GAAP gross margin
    30.4%vs 28.8% in Q2 FY25
    Q2 FY26

    GAAP gross margin for the quarter.

    Non-GAAP gross margin
    32%vs 30.1% in Q2 FY25
    Q2 FY26

    Non-GAAP gross margin for the quarter.

    GAAP SG&A as % of revenues
    17.3%vs 17.1% in Q2 FY25
    Q2 FY26

    GAAP Selling, General & Administrative expenses as a percentage of revenues.

    Non-GAAP SG&A as % of revenues
    14.5%vs 14.1% in Q2 FY25
    Q2 FY26

    Non-GAAP Selling, General & Administrative expenses as a percentage of revenues.

    GAAP income from operations
    $152 millionvs $126 million in Q2 FY25, 20.4% year-over-year growth
    Q2 FY26

    GAAP income from operations for the quarter.

    Non-GAAP income from operations
    $233 millionvs $203 million in Q2 FY25, 14.7% year-over-year growth
    Q2 FY26

    Non-GAAP income from operations for the quarter.

    GAAP effective tax rate
    26.7%
    Q2 FY26

    GAAP effective tax rate, including higher tax shortfalls related to stock-based compensation.

    Non-GAAP effective tax rate
    24%
    Q2 FY26

    Non-GAAP effective tax rate.

    GAAP diluted EPS
    $1.97vs $1.56 in Q2 FY25, $0.41 increase, 26.3% year-over-year growth
    Q2 FY26

    GAAP diluted earnings per share.

    Non-GAAP diluted EPS
    $3.38vs $2.77 in Q2 FY25, $0.61 increase, 22% year-over-year growth
    Q2 FY26

    Non-GAAP diluted earnings per share.

    Diluted shares outstanding
    52.3 million
    Q2 FY26

    Approximately diluted shares outstanding in Q2.

    Cash and cash equivalents balance
    $800 million
    Q2 FY26

    Cash and cash equivalents at the end of the quarter.

    Shares repurchased
    1.3 million shares
    Q2 FY26

    Shares repurchased during the quarter, including open market purchases and ASR settlement.

    Total cash returned to shareholders
    $1.6 billion
    since program initiation

    Total cash returned to shareholders since the initiation of the share repurchase program.

    Delivery professionals
    56,6501.5% growth compared to Q2 FY25
    Q2 FY26

    Number of delivery professionals at quarter end.

    Total headcount
    62,850
    Q2 FY26

    Total headcount at quarter end.

    Utilization
    78.3%vs 78.1% in Q2 FY25 and 77% in Q1 FY26
    Q2 FY26

    Utilization rate for the quarter.

    Industry KPIs

    2
    MetricValueDetails
    Headcount dso82 daysdays
    Genai ai book of business$160 millionUSD

    Product announcements

    9
    ProductTypeDetails
    OpenAI Partner Networkexpansion
    Google Gemini Certified Partner Specialist programexpansion
    Anthropic partnershipexpansion
    Databricks 2026 Consulting and Systems Integrator AI Partner of the Yearmilestone
    2026 Fortress Cybersecurity Award in cloud securitymilestone
    Gartner Emerging Market Quadrant for Physical AI Servicesmilestone
    IDC MarketScape Worldwide Life Services R&D Strategic Consulting Services 2026 Vendor Assessmentmilestone
    Forrester Customer Experience Strategic Consulting Services Landscapemilestone
    Wall Street Journal Best Companies for the Futuremilestone

    Deals & partnerships

    3
    OpenAIJoined OpenAI Partner Network as an advanced partner

    Building forward deployed engineering, cyber resilience, and customer experience capabilities on OpenAI's frontier models. First-year commitment to certify over 5,000 OpenAI consultants and train over 10,000 EPAM specialists.

    GoogleCertified Partner Specialist program for Gemini

    Certified over 2,000 specialists (out of a 5,000 by Q3 target) under the Gemini Certified Partner Specialist program, building capabilities on Google's Gemini enterprise ecosystem.

    AnthropicCertified engineers program

    Among the top 5 globally certified partners with over 5,700 certified engineers (ahead of 5,000 by Q3 milestone). Building toward over 10,000 certified engineers by year-end, with over half of delivery organization through academic coursework.

    Risks & headwinds

    7
    North America Growth SlowdownH2 FY26

    0.5% year-over-year growth in Q2; expected very slow revenue growth for H2

    Mitigation: Multi-quarter commercial transformation, building forward selling momentum, investing in sales capabilities and training, and focusing on business development.

    Shift in Client Buying PatternsOngoing

    Clients reprioritizing budgets away from task-based services (manual testing, UX, JavaScript front-end engineering) towards AI-led modernization.

    Mitigation: Strengthening business development capabilities to sell AI-native solutions, leveraging certified engineers and existing knowledge.

    Project Ramp-downs in Software and Hi-TechQ2 FY26 and ongoing

    Software and Hi-Tech declined 1.3% year-over-year due to project ramp-downs in non-AI services.

    Mitigation: Focusing on growth in AI, cloud, and cybersecurity work within the same vertical, while addressing the broader go-to-market issues.

    Prolonged Decision-MakingOngoing

    Client sentiment and budget behavior sitting in roughly the same zone as last quarter; environment has not materially improved nor worsened.

    Mitigation: Focusing on areas of strength like EMEA and specific verticals, and adapting go-to-market to address client demands for business cases and ROI.

    Timing Gap in AI TransitionOngoing

    AI-led modernization is happening faster than replacement work is ramping, creating a growth gap. Client savings from AI are realizing slower than expected.

    Mitigation: Transforming client savings from AI-driven services into reinvestment for growth through larger deal motions, expanding footprint into new areas.

    Free Cash Flow ConversionFY26

    Q2 FCF was negative $18 million; full-year FCF conversion rate expected around 70%, below typical 80-90%.

    Mitigation: Expectation to generate significant free cash flows in H2 (above 100% conversion in Q3 and Q4) to compensate for H1 performance. Confident in return to 80-90% conversion beyond 2026.

    Large Deals Revenue Contribution DelayH2 FY26

    Meaningful revenue contribution from new large deals now expected in H1 2027, shifted from H2 2026.

    Mitigation: Continuing to build the pipeline for large deals and focusing on execution, recognizing longer procurement cycles.

    What to watch in Q3 FY26

    5

    North America Revenue Growth

    next quarter
    Current0.5% YoY in Q2 FY26
    TargetImproved growth rate

    Why it matters

    North America is the largest region and its underperformance is a key drag on overall company growth, requiring successful go-to-market transformation.

    However, we are now expecting a slowdown in our revenue growth rate in the second half of the year. I'll try to be clear about the underpinnings of our updated outlook. As FB indicated, we delivered modest growth from North America in Q2 and now expect to continue to see very slow revenue growth from this geography for the remainder of the year.

    Q&A highlights

    8

    What are the primary headwinds in the reduced outlook, specifically vertical slowdowns and North America weakness, and what changes are being made to restart growth?

    The demand environment is unchanged macro-wise, but clients are reprioritizing AI budgets away from task-based services, creating a growth gap, especially in North America's SaaS client base. EPAM is implementing a multi-quarter commercial transformation, building business development capabilities, and expanding the sales force in North America, mirroring successful strategies in EMEA.

    “What started to change somewhere in July, and first of all, really explain it, I need to remind everybody that most of our business is time and material contracts, right? It's not annuity-based. So you need to resell or renew the contracts quite regularly. And somewhere in July, we started to see that clients are prioritizing AI budgets, reprioritizing away from cost-based services like manual testing, user experience, and as I mentioned, from Javascript front-end engineering.”

    asked by Bryan Bergin · answered by Balazs Fejes

    3 min read5 chapters

    Detailed Narrative

    01

    AI Transformation and Opportunity

    EPAM is leveraging AI to transform software engineering, moving clients beyond traditional SDLC into integrated Agentic enterprise harnesses, data modernization, cyber resilience, and token cost engineering. The company sees the gap between AI experimentation, adoption, and optimization as a significant opportunity. Foundational work like modernization, data engineering, and retiring technical debt are now addressable due to AI, feeding the AI native pipeline. For a leading financial services wealth management firm, EPAM is modernizing with AI and accelerating mainframe transformation, delivering 60% time savings in reverse engineering. For a multinational beverage manufacturing company, a unified data platform enabled over 80 data and AI initiatives, resulting in over EUR 30 million in business operational impact over the past 12 months. For a global energy commodity company, EPAM helped migrate over 1,000 workloads to AWS with 0 downtime, achieving a 40% reduction in infrastructure and operational costs and a 30% improvement in operational efficiency.

    02

    Strategic Partnerships and Talent Development

    EPAM is expanding strategic partnerships to build a multimodal bench of AI experts. This quarter, they joined the OpenAI Partner Network as an advanced partner, committing to certify over 5,000 OpenAI consultants and train 10,000 specialists. They have certified over 2,000 Google Gemini Certified Partner Specialists, aiming for 5,000 by Q3, and are among the top 5 globally certified Anthropic partners with over 5,700 certified engineers, ahead of their 5,000 by Q3 milestone. The goal is to reach over 10,000 Anthropic-certified engineers by year-end, with over half of the delivery organization having completed academic coursework.

    03

    North America Go-to-Market Transformation

    The company acknowledges that North America is not growing fast enough, attributing it to a genuine shift in client buying patterns away from task-based services (like manual testing, UX, JavaScript front-end engineering) towards AI-led modernization, and internal go-to-market inefficiencies. A structured multi-quarter commercial transformation has been launched to address this, focusing on standardizing account prioritization, improving new logo pipeline management, and investing in sales capabilities and training across the organization. This is a forward investment in commercial discipline and a 'back to fundamentals' execution focus.

    04

    Large Deal Pipeline and Timing Shift

    EPAM is seeing good progress in its new big deals pipeline, which consists exclusively of AI-led opportunities with existing clients, specifically in Agentic managed services and application maintenance. These deals are notable for their composition, size, and multiyear structure, allowing EPAM to expand its footprint into areas where it hasn't historically been positioned. However, due to longer natural procurement cycles, meaningful revenue contribution from these deals is now expected to shift from H2 2026 to H1 2027.

    05

    Industry Recognitions and Accolades

    EPAM received several key leadership distinctions, including being named Databricks' 2026 Consulting and Systems Integrator AI Partner of the Year. They won the 2026 Fortress Cybersecurity Award in cloud security for migrating a Swiss private bank's IT landscape to Microsoft Azure. Gartner positioned EPAM as a specialist in its emerging market quadrant for physical AI services, and IDC MarketScape named them a major player in Life Sciences R&D Strategic Consulting Services. Forrester included EPAM among the most important vendors in customer experience strategic consulting, and the Wall Street Journal named them one of its best companies for the future.

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