EPAM Systems, Inc. (EPAM) Earnings & Analysis

Latest quarter

EPAM reported third-quarter revenue of $1.4 billion, up 2.30% from a year earlier. In its filing, the company attributed the increase to improving demand for its services, partly offset by currency movements.

CFO Jason Peterson said financial services revenue grew 13.7% year over year, driven by insurance and asset management clients. Life sciences and healthcare grew 9.90%, while software and high tech declined 6.10% as certain technology clients spent less.

EPAM’s gross margin rose to 31.3% from 29.5% a year earlier, and its operating margin increased to 12.3% from 10.4%. The filing attributed lower revenue costs as a share of sales partly to lower variable compensation and higher account-level profitability.

The company reported GAAP diluted earnings per share of $2.53, up from $1.91, while free cash flow declined to $274.2 million from $286.4 million. Peterson said revenue growth, profitability and earnings per share exceeded the high end of EPAM’s guidance; the company’s GAAP operating margin also came in above its range.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CFO Jason Peterson said AI-native offerings contributed to year-over-year growth and accounted for a larger share of revenue than in the preceding quarter. He also said EPAM had won three large multi-year client engagements and had begun to see improving new-customer revenue from its sales investments.

Peterson said demand remained firm in Europe, financial services and life sciences and healthcare, and that the Iberoamerica business was stabilizing. He said some North American demand was improving, although EPAM expected that business to continue to underperform in the fourth quarter. Several consumer goods clients had become more cautious about spending, he said, while certain technology clients had reduced spending.

Asked about the new deals, Peterson said they would begin contributing in the first quarter of 2027, with greater contributions in the second. He said some could carry startup costs in their first quarters, but their profitability over time should be broadly consistent with the company’s expectations for its business.

On pricing and margins, Peterson said EPAM had achieved price improvements in 2026 and expected modest further increases entering 2027. He said fixed-fee work remained less profitable than the company average, although its profitability had improved year over year. He also attributed margin improvement to efficiency gains in India and to AI-native work, which he said was somewhat more profitable than the company average.

Peterson said EPAM would continue investing in AI capabilities and sales efforts. For 2027, he expected a lower benefit from Poland’s research and development tax incentive and a normalization of variable compensation expense; together, those factors could leave gross margin modestly lower. He also said the company planned an accelerated share repurchase and committed to returning at least 50.0% of free cash flow to shareholders annually from 2027 through 2029.

Guidance

EPAM now expects full-year 2026 revenue growth of 3.50% to 3.70%. It raised its full-year AI-native revenue target to at least $650.0 million.

The company raised its full-year GAAP diluted EPS outlook to $8.41–$8.49 and its non-GAAP diluted EPS outlook to $13.23–$13.31. EPAM also expects a full-year GAAP operating margin of 10.7%–10.9% and a non-GAAP operating margin of 15.9%–16.1%.