EPAM Systems Q1 Earnings Call Highlights

Key Points

• EPAM beat first-quarter expectations with revenue of $1.4 billion, up 7.6% year over year, and improved profitability as GAAP and non-GAAP operating income and EPS all rose. Management said results were supported by solid demand and better margins.
• AI remains a major growth driver, with “pure AI” revenue topping $125 million in Q1 and EPAM saying it has a strong path toward its $600 million full-year AI target. The company also deepened its partnership with Anthropic and is aggressively expanding Claude-related training and certifications.
• Full-year revenue guidance was lowered to 4% to 6.5% growth as EPAM cited macro uncertainty, higher energy prices, and slower decision-making from some clients, especially in North America. Despite that, the company kept its profitability outlook unchanged and continues to see strong demand in financial services and high tech.

EPAM Systems NYSE: EPAM reported first-quarter 2026 revenue at the high end of its outlook and improved profitability, while management lowered its full-year revenue growth forecast amid macroeconomic uncertainty and slower decision-making among some clients.

Chief Executive Officer and President Balazs Fejes said the company delivered “a solid first quarter” with revenue growth at the high end of its guidance range, year-over-year improvement in adjusted profitability and gross margins, and strong adjusted earnings per share. Chief Financial Officer Jason Peterson said revenue rose 7.6% year over year to $1.4 billion. On an organic constant currency basis, revenue increased 3.7% from the first quarter of 2025.

GAAP income from operations increased approximately 18% year over year to $117 million, or 8.3% of revenue. Non-GAAP income from operations rose more than 14% to $201 million, or 14.3% of revenue. GAAP diluted earnings per share were $1.52, up from $1.28 a year earlier, while non-GAAP diluted EPS increased to $2.86 from $2.41.

AI Revenue Momentum and Anthropic Partnership

Fejes said EPAM’s “pure AI” revenue exceeded $125 million in the first quarter, up nearly 20% sequentially from the fourth quarter. He said that performance gives the company “a strong line of sight” to its $600 million full-year AI revenue target, despite broader macro variability in its outlook.

The company also highlighted a strategic multi-year applied AI partnership with Anthropic. Fejes said EPAM is building a dedicated practice targeting more than 10,000 Claude Certified Architects, including 250 “forward-deployed engineering black belts.” He said more than 20,000 EPAM employees have completed training through Anthropic Academy, more than 1,300 are Claude certified, and the company expects to reach 5,000 certifications by the end of the third quarter and 10,000 by year-end.

Fejes described the Anthropic relationship as an expansion rather than a pivot for EPAM. In response to an analyst question, he said EPAM expects to go to market with Anthropic on applied AI solutions and focus on “safe AI capabilities” for enterprises.

Management said demand for AI-native work remains strong. Fejes said more than 80% of EPAM’s top 100 clients are engaged in AI initiatives, and the company launched more than 100 new AI-native projects in the quarter. He also said EPAM is seeing a growing pipeline of large, AI-enabled vendor consolidation opportunities that are larger than its historical norm and use a range of commercial models.

Verticals and Regions Show Mixed Growth

Peterson said EPAM delivered broad-based growth across most industry verticals in the first quarter:

• Financial services revenue increased 11.5% year over year, driven by asset management and insurance clients.
• Software and high tech revenue grew 10.9%, supported by existing clients and new logos.
• Consumer goods, retail and travel revenue rose 7.2%, led by retail and consumer goods.
• Life sciences and healthcare revenue increased 5.9%, driven primarily by life sciences and med tech clients.
• Business information and media declined 0.7%.
• Emerging verticals grew 6.8%, driven by energy and government.

Geographically, the Americas represented 57% of first-quarter revenue and grew 2.5% year over year. EMEA accounted for 41% of revenue and grew 15.9%, or 8.4% in constant currency. APAC represented 2% of revenue and grew 1.2%.

Fejes said client sentiment remained stable through the end of the first quarter, with spending continuing to shift toward AI-native and strategic deployments. However, he also said there is “more macro uncertainty today compared to 90 days ago,” particularly in North America, which is contributing to lower visibility in the second half of the year.

Guidance Lowered on Uncertainty

EPAM lowered its full-year revenue growth outlook. Peterson said the company now expects 2026 revenue growth of 4% to 6.5%, including an expected positive foreign exchange impact of about 1.5%. Organic constant currency growth is now expected to be in the range of 2.5% to 5%.

The company maintained its full-year profitability outlook, expecting GAAP income from operations of 10% to 11% of revenue and non-GAAP income from operations of 15% to 16%. Full-year GAAP diluted EPS is now expected to be $8.29 to $8.59, while non-GAAP diluted EPS is expected to be $12.98 to $13.28.

For the second quarter, EPAM expects revenue of $1.4 billion to $1.415 billion, representing 4% year-over-year growth at the midpoint. Organic constant currency growth is expected to be 2.7% at the midpoint. The company guided for second-quarter GAAP diluted EPS of $1.79 to $1.87 and non-GAAP diluted EPS of $3.10 to $3.18.

Peterson said the lower full-year revenue outlook reflects the expected impact of higher energy prices and global economic uncertainty. He said the company began seeing delayed decision-making from a handful of customers in April and May. Fejes said EPAM is not assuming a significant change in the geopolitical environment in its guidance.

Large Deal Pipeline and Client Spending Trends

During the question-and-answer session, analysts focused on the company’s second-half growth assumptions and large-deal pipeline. Fejes said EPAM is pursuing close to 10 outsized opportunities tied to vendor consolidation and enterprise AI transformation. He said the deals are outside EPAM’s historical norm, are not traditional time-and-materials engagements, and include commercial models involving AI and token economics.

Peterson said the guidance assumes EPAM captures only a “small subset” of those opportunities on a risk-adjusted basis. Fejes added that reaching the midpoint of the guidance range does not require EPAM to win many of the large deals, describing the midpoint as dependent on steady execution and typical deal conversion.

Management also addressed where weakness is appearing. Fejes said the travel and consumer sectors are showing some impact, while financial services and high tech continue to show strong demand. He said some clients are shifting IT budgets toward AI spending and away from areas such as digital platform or e-commerce buildouts.

Cash Flow, Headcount and Capital Allocation

EPAM reported negative operating cash flow of $36 million in the first quarter, compared with positive operating cash flow of $24 million in the prior-year period. Free cash flow was negative $54 million, compared with positive free cash flow of $15 million a year earlier. Peterson said cash flow was affected by higher variable compensation payments tied to 2025 performance and the timing of certain vendor payments.

The company ended the quarter with just over $1 billion in cash and cash equivalents. EPAM repurchased approximately 1.8 million shares for $264 million during the quarter at an average price of $143.84 per share. Peterson said the company has returned approximately $1.5 billion in cash to shareholders since initiating its share repurchase program.

EPAM ended the quarter with more than 56,500 delivery professionals and more than 62,750 total employees. Peterson said the company reduced headcount in Mexico and made targeted reductions in certain geographies as part of its cost optimization program. Utilization was 77%, compared with 77.5% a year earlier and 75.4% in the fourth quarter of 2025.

On capital allocation, Peterson said EPAM expects to continue some open-market share repurchases while also looking at potential M&A opportunities later in the year. He said areas of interest include domain capabilities, data assets and geographic opportunities, most likely in Asia-Pacific.

About EPAM Systems NYSE: EPAM

EPAM Systems, Inc is a global provider of digital platform engineering and software development services. The company partners with clients across industries—such as financial services, healthcare, retail, and technology—to design, develop, and maintain complex software applications and digital experiences. EPAM's offerings include custom software development, application management, infrastructure management, quality assurance, and testing services, enabling organizations to accelerate digital transformation and enhance operational efficiency.

In addition to its core engineering capabilities, EPAM delivers a range of specialized services, including product design and consulting, data and analytics, cloud computing, DevOps, and cybersecurity.

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