EPAM Systems NYSE: EPAM reported second-quarter 2026 revenue growth that reached the high end of its outlook range, while raising its profitability expectations for the full year. However, the company lowered its revenue outlook as it expects slower growth in North America and delayed contributions from larger AI-related opportunities.
Revenue for the quarter was $1.415 billion, up 4.5% from a year earlier and 3.4% on an organic constant-currency basis. CEO and President Balazs Fejes said the company’s AI-native revenue exceeded $160 million, representing its sixth consecutive quarter of double-digit sequential growth. AI-native revenue accounted for more than 11% of EPAM’s business, according to management.
“The gap between AI experimentation, adoption, and optimization is EPAM’s opportunity,” Fejes said, describing demand for modernization, data engineering, cybersecurity and other foundational work needed before enterprises can deploy AI at scale.
Profitability Improves as AI Revenue Expands
EPAM said GAAP income from operations rose 20.4% year over year to $152 million, or 10.8% of revenue. Non-GAAP operating income increased 14.7% to $233 million, or 16.4% of revenue.
GAAP diluted earnings per share increased 26.3% to $1.97, while non-GAAP diluted EPS rose 22% to $3.38. GAAP gross margin was 30.4%, compared with 28.8% in the prior-year quarter, and non-GAAP gross margin improved to 32% from 30.1%.
Chief Financial Officer Jason Peterson said the company benefited from price increases implemented earlier in the year, improved profitability on fixed-fee work and cost-efficiency efforts. He said EPAM expects gross margin above 32% in each of the third and fourth quarters.
Financial services was EPAM’s fastest-growing industry vertical, with revenue rising 11.5% year over year, supported by insurance and asset-management clients in both the Americas and EMEA. Life sciences and healthcare revenue increased 8%, while emerging verticals grew 4.9%, led by energy and manufacturing.
Consumer goods, retail and travel revenue rose 2.3%. Software and high tech revenue declined 1.3%, primarily because of a large client-program ramp-down and shifting client priorities. Business information and media revenue fell 2.1% as several client projects were completed.
North America Growth Falls Short of Expectations
The Americas, which represented 57% of second-quarter revenue, grew just 0.5% year over year. In contrast, EMEA, representing 41% of revenue, grew 10.9%, or 9.4% in constant currency. APAC revenue, which accounted for 2% of revenue, declined 0.3%.
Fejes said North America is “not growing fast enough” and acknowledged that EPAM’s go-to-market operations in the region have not performed at the required level. The company has begun a multi-quarter commercial transformation focused on prioritizing large accounts, developing new-logo pipeline management, expanding sales capabilities and improving training.
Management said North American clients are shifting spending away from task-based services, including manual testing, user experience and JavaScript front-end engineering, toward AI-led modernization. In software and high tech, particularly among SaaS clients, some spending has also moved toward tokens, graphics processing units and other infrastructure needs.
Fejes said the transition is occurring faster than replacement AI work is being ramped, creating a growth gap. He said EPAM has the delivery capabilities to address demand but needs stronger business-development and commercial capabilities in North America.
Large AI Opportunities Expected to Contribute in 2027
EPAM said it is developing a pipeline of larger, multiyear AI opportunities with existing clients, including agentic managed services and application-maintenance work. None of the opportunities had been signed as of the call, and management said it now expects meaningful revenue contribution from them to begin in the first half of 2027 rather than the second half of 2026.
The company said several potential large deals are in regulated sectors, including financial services, banking and insurance. Management also cited progress in vendor-consolidation opportunities and AI-supported modernization programs using EPAM intellectual property.
EPAM continues to invest in AI partnerships and training. During the quarter, it joined the OpenAI Partner Network as an advanced partner and committed to certify more than 5,000 OpenAI consultants and train more than 10,000 specialists in the first year. The company also said it had certified more than 2,000 employees under Google’s Gemini Enterprise program and more than 5,700 engineers under Anthropic’s certification program.
Outlook Revised for Slower Second-Half Revenue Growth
For full-year 2026, EPAM now expects reported revenue growth of 3.2% to 4.2%, including an estimated 1.2% positive foreign-exchange impact. Organic constant-currency growth is projected at 2% to 3%.
- GAAP operating margin is expected to be 10.5% to 11%.
- Non-GAAP operating margin is expected to be 15.5% to 16%.
- GAAP diluted EPS is projected at $8.22 to $8.38.
- Non-GAAP diluted EPS is projected at $13.08 to $13.24.
For the third quarter, EPAM forecast revenue of $1.410 billion to $1.425 billion, representing 1.7% year-over-year growth at the midpoint. The outlook implies 1.8% organic constant-currency growth at the midpoint. The company expects modest sequential revenue growth in the third quarter followed by roughly flat revenue from the third to fourth quarter.
Cash flow from operations was negative $2 million in the second quarter, compared with positive $53 million a year earlier, while free cash flow was negative $18 million. Peterson attributed the decline partly to variable compensation payments and payments from clients that were expected late in the quarter but arrived in early July. Days sales outstanding increased to 82 days from 76 days in the first quarter.
EPAM ended the quarter with about $800 million in cash and cash equivalents. It repurchased approximately 1.3 million shares during the quarter and said it has returned about $1.6 billion to shareholders since starting its repurchase program.
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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