EPAM Systems (NYSE:EPAM) reported fourth-quarter and full-year 2025 results that management said exceeded expectations, while outlining a 2026 outlook shaped by continued client spending shifts toward AI initiatives and a modest headwind from a large NEORIS customer.
Q4 results topped outlook as AI demand supported growth
Chief Financial Officer Jason Peterson said EPAM generated “over $1.4 billion” in fourth-quarter revenue, up 12.8% year over year on a reported basis and above the high end of the company’s outlook. On an organic constant-currency basis, revenue rose 5.6% versus the fourth quarter of 2024.
Fejes also disclosed that EPAM generated more than $105 million in what it defines as “pure AI-native revenues” in Q4 and said the company expects to scale AI-native revenue to “in excess of $600 million in 2026.” He emphasized that EPAM’s AI-native revenue definition is “super tight” and excludes AI foundational services and AI-assisted work performed as part of the software delivery lifecycle.
Vertical and regional performance
Peterson said five of EPAM’s six industry verticals posted year-over-year growth. He also noted that NEORIS and First Derivative revenues moved from inorganic to organic in November and December 2025, respectively.
- Financial Services: up 19.8% reported; 5% organic constant-currency growth, driven by insurance, banking, and asset management.
- Software & Hi-Tech: up 18.1% reported, supported by “broad improvement across large clients.”
- Consumer Goods, Retail & Travel: up 10.9% reported, led by Retail and Consumer Goods.
- Life Sciences & Healthcare: up 2% reported, with growth driven primarily by Life Sciences and MedTech clients.
- Business Information & Media: flat year over year.
- Emerging Verticals: up 19.1% reported; 9.7% organic constant-currency growth, driven by energy and telecommunications.
By geography, the Americas represented 58% of Q4 revenue and grew 7.6% reported (2.2% organic constant currency). EMEA represented 40% and grew 21.8% reported (11.7% organic constant currency). APAC was 2% of revenue and grew 0.6% reported while declining 4.3% organically in constant currency.
Peterson added that revenue from the top 20 clients increased 7.3% year over year in Q4, while revenue from clients outside the top 20 rose 15.5%.
Profitability, cash flow, and workforce metrics
Fourth-quarter GAAP gross margin was 30.1%, down from 30.4% a year earlier, while non-GAAP gross margin was 31.7% versus 32.2%. Peterson said gross margin was negatively impacted by higher variable compensation expense tied to stronger second-half performance.
GAAP operating income was $149 million (10.6% of revenue) versus $137 million (10.9%) a year ago. Non-GAAP operating income was $230 million (16.3%) versus $208 million (16.7%). GAAP diluted EPS was $1.98 and non-GAAP diluted EPS was $3.26, up $0.42, or 14.8%, from the prior-year period.
Cash generation improved sharply. Cash flow from operations was $283 million in Q4 versus $130 million a year earlier, and free cash flow was $268 million versus $115 million. EPAM ended the quarter with about $1.3 billion in cash and cash equivalents. DSO was 72 days, compared to 75 days in Q3 2025 and 70 days in Q4 2024.
EPAM repurchased about 1.2 million shares for $224 million in Q4 at an average price of $192.33 per share.
On staffing, Peterson said EPAM ended Q4 with more than 56,600 delivery professionals and total headcount above 62,850 employees. Utilization was 75.4%, down from 76.2% a year earlier and 76.5% in Q3. Peterson attributed the utilization impact to higher vacation levels as delivery locations shift and the onboarding of junior staff, which he said is intended to improve the company’s seniority index in 2026.
Full-year 2025 results and 2026 guidance
For full-year 2025, revenue was $5.46 billion, up 15.4% reported and up 4.9% organically in constant currency. GAAP operating income was $520 million (9.5% margin), down 4.5% year over year, while non-GAAP operating income was $831 million (15.2% margin), up 6.7%. GAAP EPS was $6.72 and non-GAAP EPS was $11.50, up 5.9% from 2024. Operating cash flow was $655 million and free cash flow was $613 million, which Peterson said reflected a 94.7% adjusted net income conversion. EPAM repurchased about 3.5 million shares for $661 million in 2025 at an average price of $186.67.
Looking to 2026, Peterson said the company sees “relative stability in overall client budgets,” with continued shifts toward “build and strategic AI programs,” though he noted some early-year decision-making slowness as clients finalize budgets. EPAM guided for 2026 revenue growth of 4.5% to 7.5%, including an expected 1.5% positive FX impact, implying organic constant-currency growth of 3% to 6%.
Management flagged a specific headwind tied to NEORIS’s largest client, headquartered in Mexico. Peterson said this customer has been significantly impacted by a challenging economic environment, including the impact of U.S. tariffs. EPAM expects the client’s revenue to decline sequentially from Q4 2025 to Q1 2026 and then stabilize, and said the year-over-year decrease is expected to have a negative 1% impact on EPAM’s 2026 organic constant-currency growth rate.
For profitability, EPAM guided to GAAP operating margin of 10% to 11% and non-GAAP operating margin of 15% to 16% for 2026. Peterson said the company intends to improve gross margin year over year, citing improving profitability in expanding geographies such as Western and Central Europe and India, as well as “a little bit of price” entering the year. He added that EPAM plans to recycle some SG&A efficiency benefits into investments in business development and partnership programs.
First-quarter 2026 guidance calls for revenue of $1.385 billion to $1.4 billion, with year-over-year growth of 7% at the midpoint. EPAM said this assumes roughly 4% positive FX and about 3% organic constant-currency growth at the midpoint. EPAM guided to Q1 GAAP operating margin of 7% to 8% and non-GAAP operating margin of 13.5% to 14.5%, citing the reset of Social Security caps, slightly softer January revenues as some clients finalized budgets, and negative FX impact. Q1 GAAP EPS is expected to be $1.32 to $1.40 and non-GAAP EPS $2.70 to $2.78.
AI strategy, deal dynamics, and capital allocation comments
Fejes said EPAM is seeing a trend toward larger AI programs that include “more mature procurement process,” including RFPs and “a modest extension of sales cycle.” In Q&A, management characterized the slower decision-making as influencing the “shape of the year” more than the full-year guidance, with expectations that some project starts will occur later in 2026.
Management also reiterated that AI foundational services—data, cloud, and other readiness work—remain strong and are “significantly larger than” the company’s pure AI-native revenue base, with Peterson noting outsized growth in the data and cloud practices in Q4.
On pricing, Peterson said EPAM saw some rate improvement in the second half of 2025 and is seeing low single-digit rate increases from a “quite significant number of clients in both Europe and North America” as it enters 2026. He also said the company is not seeing pricing pressure due to AI and reiterated that EPAM’s business is primarily “build work,” not BPO or large application maintenance engagements.
On capital allocation, management said EPAM expects to remain “reasonably active” in share repurchases, particularly in the first half of 2026, while also continuing to pursue acquisitions “as appropriate,” with an emphasis on small tuck-ins. Fejes added the company plans to look for additional opportunities after stabilizing prior acquisitions.
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.
