EPAM Systems, Inc.

Q2 revenue was $1.415 billion, increasing 4.5% year over year, and organic constant-currency revenue grew 3.4%. GAAP gross margin was 30.4% versus 28.8% a year ago, while non-GAAP gross margin was 32.0% versus 30.1%. GAAP diluted EPS was $1.97, up from $1.56, and non-GAAP diluted EPS was $3.38, up from $2.77. GAAP income from operations rose 20.4% to $152 million, and non-GAAP income from operations rose 14.7% to $233 million. For the full year 2026, EPAM now expects revenue growth of 3.2% to 4.2%, organic constant-currency growth of 2% to 3%, GAAP operating margin of 10.5% to 11%, non-GAAP operating margin of 15.5% to 16%, GAAP EPS of $8.22 to $8.38, and non-GAAP EPS of $13.08 to $13.24. For Q3, the company guided to revenue of $1.410 billion to $1.425 billion and non-GAAP EPS of $3.38 to $3.46.

Balazs Fejes said the quarter showed EPAM is progressing on its AI strategy, with AI native revenue accelerating and partnerships with OpenAI, Google, Anthropic and others helping build a full-stack AI-native organization. He emphasized that AI is increasing enterprise complexity and that EPAM’s opportunity is in modernization, data, cyber resilience and forward-deployed engineering rather than simple code generation. His tone was confident on the long-term strategy but candid that North America is underperforming and that the second half of 2026 will be uneven.

Jason Peterson said Q2 results beat the high end of guidance for organic growth, profitability and EPS. He highlighted the margin improvement, including GAAP gross margin of 30.4%, non-GAAP gross margin of 32.0%, GAAP operating margin of 10.8%, and non-GAAP operating margin of 16.4%. Cash flow was weaker in the quarter, with operating cash flow of negative $2 million and free cash flow of negative $18 million, driven by higher variable compensation payments and increased DSO to 82 days. He noted cash and cash equivalents of about $800 million, repurchases of about 1.3 million shares, and said the company still expects to return to 80% to 90% free cash flow conversion beyond 2026.

Analysts pressed on why the outlook was cut, whether the North America weakness was macro-driven or company-specific, and how long it would take for the commercial transformation to work. Management said the issue is largely idiosyncratic: clients are shifting spending away from task-based services toward AI-led modernization and infrastructure, while EPAM’s North America go-to-market has not been strong enough, especially in Software & Hi-Tech. Questions also focused on cash flow, pricing, and the large-deal pipeline; management said Q2 cash flow was hurt by payment timing, pricing improved earlier in the year, and the larger AI-related deals are progressing but are not expected to contribute meaningful revenue until early 2027.