Epam Systems (E3M) Q2 2026 Earnings Report

The call presented a mixed picture: the company beat quarterly expectations with solid revenue, margin expansion, EPS growth and notable AI momentum (AI-native revenues >$160M and strong partner certifications). However, meaningful headwinds remain — most notably underperformance in North America, softer Software & Hi-Tech and Media verticals, delayed cash conversion and a reduced full-year revenue outlook with key AI-led large deals expected to contribute mainly in 2027. Management outlined a multi-quarter go-to-market transformation to address execution gaps, but the near-term outlook is tempered by timing and pipeline-signing risk.

EPAM lowered full‑year 2026 revenue growth to 3.2%–4.2% (organic constant‑currency 2%–3%) with an expected ~+1.2% FX benefit, and now forecasts GAAP income from operations of 10.5%–11% and non‑GAAP IFO of 15.5%–16%; GAAP tax rate ~27% and non‑GAAP tax rate ~24%; full‑year GAAP diluted EPS $8.22–$8.38 and non‑GAAP diluted EPS $13.08–$13.24 with ~52.2M weighted average diluted shares. Q3 revenue is guided to $1.410B–$1.425B (≈1.7% y/y at midpoint; organic cc ~1.8%; FX −0.1%), Q3 GAAP IFO 11%–12% and non‑GAAP IFO 15.5%–16.5%, Q3 GAAP EPS $2.33–$2.41 and non‑GAAP EPS $3.38–$3.46 with ~51.4M diluted shares. Management reiterated the $600M AI‑native 2026 target (Q2 AI‑native >$160M), expects 2026 free cash flow conversion ≈70% (vs. typical 80–90%) but >100% conversion in both Q3 and Q4, reported Q2 cash ≈$800M and DSO 82 days, and disclosed assumptions of stock‑based comp ≈$44M (Q3)/$45M (Q4), amortization ≈$17M/quarter, FX losses ≈$3M (Q3)/$1M (Q4), ~$14M tax effect of non‑GAAP adjustments each quarter, and continued Ukraine delivery productivity at 2025 levels.