EPAM Systems Q3 Earnings Call Highlights

Key Points

• EPAM beat Q3 expectations: Revenue rose 2.3% year over year to $1.426 billion, while non-GAAP diluted EPS increased to $3.51 from $3.08.
• AI revenue and strategic deals are growing: AI-native revenue exceeded $185 million, about 13% of total revenue, prompting EPAM to raise its 2026 target to at least $650 million. Three large multiyear deals are expected to begin contributing revenue in early 2027.
• EPAM expanded shareholder returns but gave a measured outlook: It approved a $1.8 billion buyback authorization and plans to return at least 50% of free cash flow annually in 2027–2029. The company does not expect a return to double-digit growth in 2027.

EPAM Systems NYSE: EPAM reported better-than-expected third-quarter revenue and earnings, raised its full-year target for AI-native revenue and announced plans for a $500 million accelerated share repurchase.

The technology services company generated $1.426 billion in revenue in the third quarter of 2026, up 2.3% from a year earlier. Organic revenue rose 2.5% in constant currency. CEO and President Balázs Fejes said revenue, profitability and earnings per share all exceeded the high end of the company’s outlook.

AI-native revenue surpassed $185 million, or about 13% of total revenue, compared with approximately 11% in the prior quarter. EPAM now expects at least $650 million in AI-native revenue for 2026, up from its previous target of $600 million.

AI Deals and Demand

Fejes said EPAM signed three large, multiyear strategic deals during the quarter in financial services and energy. CFO Jason Peterson said the engagements are expected to begin contributing revenue in the first quarter of 2027, with larger contributions in the second quarter.

The deals are generally valued from the high tens of millions of dollars to more than $100 million in total contract value, Peterson said. Fejes said most opportunities in the broader pipeline involve existing clients, while new customers represent a minority. The company expects to discuss additional deal closures on its next earnings call.

Peterson said the new deals could carry startup costs and lower margins in their early quarters but should generally operate within EPAM’s normal profitability range over time.

EPAM ended the quarter with more than 57,350 delivery professionals, a sequential increase of about 700. Fejes said the company expects net delivery headcount to grow faster in the fourth quarter as it hires for anticipated demand.

Fejes also pointed to demand for AI-native cybersecurity services, including remediation of vulnerabilities. He said clients are reallocating budgets toward that work. EPAM’s AI-native revenue definition is narrow, he added, and excludes AI-assisted revenue and certain AI foundation work.

Mixed Results Across Markets

Growth was led by financial services revenue, which rose 13.7% year over year, and life sciences and healthcare, which increased 9.9%. Consumer goods, retail and travel revenue fell 2.5%, while software and high tech declined 6.1% and business information and media dropped 5.5%.

Revenue in the Americas, which accounted for 57% of the quarterly total, rose 0.2% from a year earlier. EMEA revenue increased 5.8%, while APAC declined 4%.

Fejes said Americas revenue grew sequentially for a second consecutive quarter, but cautioned that EPAM was not yet calling it a turnaround. The company is increasing sales capacity and changing how it markets and packages services in North America. Peterson said the region is expected to continue underperforming in the fourth quarter.

GAAP diluted earnings per share rose to $2.53 from $1.91 a year earlier. Non-GAAP diluted earnings per share increased to $3.51 from $3.08. GAAP gross margin improved to 31.3% from 29.5%, while non-GAAP gross margin rose to 32.8% from 31%.

Outlook and Shareholder Returns

For 2026, EPAM expects reported revenue growth of 3.5% to 3.7% and organic constant-currency growth of 2.5% to 2.7%. Its full-year forecast calls for GAAP diluted earnings per share of $8.41 to $8.49 and non-GAAP diluted earnings per share of $13.23 to $13.31.

For the fourth quarter, the company forecasts revenue of $1.405 billion to $1.420 billion, ranging from a 0.2% year-over-year decline to 0.9% growth. Organic constant-currency growth is expected to be between 0.5% and 1.6%.

EPAM plans to provide detailed 2027 guidance in February. Peterson said the company expects a non-GAAP operating margin of 15% to 16% next year and potentially modestly lower gross margin, partly because of a reduced benefit from a Polish research and development tax incentive and normalized variable compensation. Fejes said he sees a path back to double-digit growth over time, but not in 2027.

Under its new capital allocation framework, EPAM plans to return at least 50% of free cash flow to shareholders annually in each of 2027, 2028 and 2029. Its board approved a $1.8 billion share repurchase authorization through the end of 2029, replacing the 2025 program and adding $1.5 billion of capacity.

About EPAM Systems (NYSE:EPAM)

EPAM Systems, Inc is a global digital engineering and technology services company that helps organizations design, develop and modernize software and digital platforms. Its services support digital transformation initiatives across industries, including financial services, healthcare, life sciences, retail, travel and consumer products.

The company provides software engineering, product development, consulting, cloud services, data and analytics, artificial intelligence, cybersecurity, quality assurance and platform engineering.

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