Conferencia de resultados del 3T 2026 de EPAM: ingresos por IA, previsiones y recompra de acciones

EPAM reportó unos ingresos en el tercer trimestre de 2026 de 1.426 millones de dólares y mayores márgenes interanuales, mientras que los ingresos nativos de IA superaron los 185 millones de dólares. Además, la dirección elevó su objetivo de ingresos nativos de IA para todo el año y anunció un programa ampliado de retorno de capital.

Puntos clave

• Los ingresos del tercer trimestre aumentaron un 2,3% interanual hasta situarse en 1.426 millones de dólares. El crecimiento orgánico a tipo de cambio constante fue del 2,5%, superando el rango superior de las previsiones de la propia EPAM.
• Los ingresos nativos de IA superaron los 185 millones de dólares, lo que representa aproximadamente el 13% de los ingresos totales frente a cerca del 11% en el segundo trimestre. EPAM prevé ahora al menos 650 millones de dólares en ingresos nativos de IA en 2026, por encima de su objetivo anterior de 600 millones de dólares.
• El BPA diluido GAAP aumentó un 32,5% hasta los 2,53 dólares, mientras que el BPA diluido no GAAP creció un 14,0% hasta situarse en 3,51 dólares. Los márgenes operativos GAAP y no GAAP también mejoraron.
• Los ingresos de servicios financieros crecieron un 13,7% y los de ciencias de la vida y atención médica aumentaron un 9,9%. El segmento de software y alta tecnología cayó un 6,1%, mientras que el de bienes de consumo, comercio minorista y viajes retrocedió un 2,5%.
• EPAM firmó tres importantes acuerdos estratégicos plurianuales en servicios financieros y energía. La dirección espera que comiencen a aportar ingresos en el primer trimestre de 2027 y que generen una mayor contribución en el segundo trimestre.
• La empresa planea un programa acelerado de recompra de acciones por valor de 500 millones de dólares y se comprometió a retornar al menos el 50% del flujo de caja libre anual a los accionistas en cada uno de los ejercicios de 2027, 2028 y 2029.

Resultados financieros clave

Desempeño operativo y empresarial

Los servicios financieros lideraron el crecimiento sectorial con un aumento del 13,7%, impulsados por la solidez en seguros y gestión de activos. Ciencias de la vida y atención médica creció un 9,9%, respaldado por clientes del ámbito de las ciencias de la vida y la tecnología médica. La energía también continuó siendo un motor de fortaleza dentro de los sectores verticales emergentes.

Bienes de consumo, comercio minorista y viajes retrocedió un 2,5%, dado que algunos clientes adoptaron una mayor cautela en el gasto. Los ingresos de software y alta tecnología cayeron un 6,1% debido al menor gasto de ciertos clientes tecnológicos, mientras que información empresarial y medios disminuyó un 5,5%.

América representó el 57% de los ingresos y creció un 0,2% interanual. EMEA aportó el 41% y aumentó un 5,8% a pesar de los efectos adversos del tipo de cambio. Por su parte, APAC supuso el 2% y se contrajo un 4,0%.

EPAM finalizó el trimestre con más de 57.350 profesionales de prestación de servicios, lo que supone un incremento interanual del 2,2% y de unos 700 trabajadores frente al trimestre anterior. La plantilla total rondó los 63.650 empleados, con una tasa de utilización del 76,5%.

La dirección señaló que el crecimiento de los servicios nativos de IA se apoya en AI/Run, servicios de ciberseguridad y ciberresiliencia, tareas de modernización y alianzas con empresas de Frontier AI. EPAM informó de más de 200 oportunidades en su ecosistema de socios nativos de IA y lanzó su Frontier AI Service en octubre.

Los tres acuerdos estratégicos recién firmados son contratos plurianuales cuyo valor contractual total suele situarse entre varias decenas de millones de dólares y más de 100 millones de dólares. La mayoría de las oportunidades de la cartera comercial procede de clientes actuales, si bien EPAM también busca captar nuevas cuentas para competir frente a los proveedores consolidados.

Previsiones de la dirección

Para el conjunto de 2026, EPAM prevé:

Para el cuarto trimestre de 2026, la dirección prevé unos ingresos de entre 1.405 y 1.420 millones de dólares, lo que representa un crecimiento reportado de entre el -0,2% y el +0,9%. Se espera que el crecimiento orgánico a tipo de cambio constante se sitúe entre el 0,5% y el 1,6%, con un efecto adverso estimado de las divisas del 0,7%.

Se prevé que el margen operativo GAAP del cuarto trimestre se sitúe entre el 11,5% y el 12,5%, con un margen operativo no GAAP de entre el 16,0% y el 17,0%. El BPA diluido GAAP se proyecta entre 2,43 y 2,51 dólares, y el BPA diluido no GAAP entre 3,50 y 3,58 dólares.

La dirección prevé un margen operativo no GAAP para 2027 de entre el 15% y el 16%. La empresa planea publicar previsiones detalladas para 2027 junto con sus resultados del cuarto trimestre de 2026. La dirección espera que los acuerdos recientemente firmados aceleren su despliegue en el primer trimestre y aporten una contribución más significativa en el segundo trimestre, pero no prevé que EPAM regrese a un crecimiento de dos dígitos en 2027.

Riesgos y aspectos a vigilar

Se prevé que Norteamérica continúe mostrando un rendimiento inferior en el cuarto trimestre a pesar de los primeros signos de estabilización y de la mejora en los ingresos derivados de nuevos clientes. La dirección indicó que la transformación de su estrategia comercial regional requerirá varios trimestres más antes de poder mostrar resultados sostenidos.

La demanda sigue bajo presión en software y alta tecnología, información empresarial y medios, y las verticales vinculadas al consumo. La dirección vinculó la debilidad del consumo a la inflación y a las presiones de costes, mientras que la información empresarial y los medios continúan afrontando la disrupción provocada por la IA.

Se espera que los ingresos secuenciales del cuarto trimestre afronten un efecto adverso derivado de los tipos de cambio de aproximadamente 11 millones de dólares debido al fortalecimiento del dólar estadounidense.

EPAM prevé que el beneficio de los incentivos a la I+D en Polonia, registrado como una reducción del coste de los ingresos, descienda de unos 40 millones de dólares en 2026 a unos 20 millones de dólares en 2027. Junto con la normalización de la retribución variable, esto podría traducirse en un margen bruto ligeramente inferior el próximo año.

Las previsiones de la empresa también contemplan que sus centros de prestación de servicios en Ucrania continúen operando a niveles de productividad similares a los alcanzados en 2025.

Puntos destacados de la sesión de preguntas y respuestas con analistas

• Despliegue de grandes contratos: La dirección espera que los tres contratos firmados comiencen a desplegarse en el primer trimestre de 2027 y aporten una mayor contribución a los ingresos en el segundo trimestre. Los costes iniciales de puesta en marcha podrían situar los márgenes ligeramente por debajo durante los primeros trimestres, pero la dirección confía en que los contratos alcancen con el tiempo la rentabilidad habitual de EPAM.
• Cartera de grandes contratos: EPAM cuenta con más de 10 grandes contratos en su cartera de proyectos, y la cifra total sigue en aumento. La dirección espera comentar varios cierres adicionales en la próxima conferencia de resultados, si bien las oportunidades con nuevos clientes siguen siendo una parte minoritaria de la cartera.
• Recuperación en Norteamérica: EPAM está ampliando su capacidad comercial, segmentando las cuentas de forma diferente y modificando el empaquetado y la comercialización de sus servicios. La dirección señaló que los avances son alentadores, aunque no llegó a proclamar un cambio de tendencia.
• IA frente a servicios tradicionales: La dirección reconoció que algunos servicios tradicionales se están reduciendo o sustituyendo a medida que los clientes redirigen su gasto hacia soluciones nativas de IA. Asimismo, enfatizó que la estricta definición de nativo de IA aplicada por EPAM excluye las tareas asistidas por IA y los servicios fundacionales.
• Factores determinantes del margen bruto: La mejora de precios, la mayor rentabilidad en contratos de tarifa fija, la eficiencia en la prestación de servicios en India y una rentabilidad superior a la media de los ingresos nativos de IA respaldaron los márgenes del tercer trimestre. EPAM prevé que la modesta mejora de precios continúe en 2027.
• Retorno de capital: El consejo de administración elevó la autorización de recompra de acciones a 1.800 millones de dólares hasta el 31 de diciembre de 2029, sustituyendo el programa de 2025 y añadiendo una capacidad de 1.500 millones de dólares.

Transcripción completa de la conferencia de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Good day, everyone. My name is Ryan, and I will be your conference operator today. At this time, I would like to welcome you to EPAM's Third Quarter Earnings Release Conference Call. [Operator Instructions]

At this time, I would like to turn the call over to Mike Rowshandel, Head of Investor Relations.

Mike Rowshandel

Good morning, everyone, and thank you for joining us today on our third quarter 2026 earnings announcement. As the operator just mentioned, I'm Mike Rowshandel, Head of Investor Relations. We hope you've had an opportunity to review our earnings release we issued earlier today. If you have not, copies are available on epam.com in the Investors section. With me on today's call are Balazs Fejes, CEO and President; and Jason Peterson, Chief Financial Officer.

I would like to remind those listening that some of the comments made on today's call may contain forward-looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings.

Additionally, all references to reported results that are non-GAAP measures have been reconciled to the comparable GAAP measures and are available in our quarterly earnings materials in the Investors section of our website.

With that said, I will now turn the call over to FB.

Balazs Fejes

Thank you, Mike, and good morning, everyone. It's a pleasure to be with you all again. Today, we are sharing positive progress and results. Our third quarter came in better than expected, outperforming the high end of our outlook range for revenue, profitability and earnings per share.

In the quarter, the company generated over $185 million in AI native revenues, once again delivering a sequential double-digit growth rate. EPAM now expects to generate at least $650 million in AI native revenues in 2026, an increase from our original target of $600 million. We accomplished all of this while continuing to transform our core business. We are seeing accelerating momentum in the execution of our strategy and are pleased to deliver on many of the commitments we set out earlier this year.

On the new big strategic deals, we signed 3 in the quarter and continue to progress with deals in our pipeline, which continue to grow. With our strategic partnerships, we are ahead of our plan, both from a capability and enablement standpoint as well as in terms of building deal generation motion that put emphasis on hundreds of production deployments that deliver a unique value proposition with each partner.

In October, we launched our new Frontier AI service and our new Frontier partnership channels are beginning to generate new opportunities. We are the client 0 of our own AI transformation and taking what we learned to clients as the proof points. We're also making solid progress on our go-to-market transformation with North America as the focus. And finally, our full year outlook now sits at or just above the midpoint of the range we set out in August.

And as part of our commitment to return volume to shareholders, today, we are announcing our long-term capital allocation framework. The framework aims to return at least half of our free cash flow to shareholders over the next 3 years and includes a new repurchase program, starting with an accelerated share repurchase. Jason will walk through the details a bit later.

Now let's turn to some quick Q3 highlights. Revenue grew 2.3% year-over-year on a reported basis, with organic constant currency growth of 2.5% above the high end of our outlook range. Profitability, led by the gross margin, improved again and adjusted earnings per share remained strong. Growth was led by financial services, our largest vertical, as well as life sciences, and health care, which both delivered solid year-over-year growth. We're also seeing strength in our energy subvertical within our emerging vertical.

Across geographies, ML remained our growth leader, up middle single digits. Americas was roughly flat year-over-year and grew sequentially for the second quarter in a row. Our diversified delivery capacity is growing to meet current and anticipated demand. Delivery professionals grew by nearly 700 in the quarter to more than 57,000, up 2.2% year-over-year after a roughly flat first half. We will continue to hire for demand we see and we expect net delivery head count to grow faster in the fourth quarter.

On the demand environment, overall client sentiment and spending are stable to modestly better compared to long quarter while broad economic environment continues to experience volatility. Despite the volatility, we believe that demand for our services will remain resilient over the long term, particularly related to our client propensity to spend on AI and technology transformation services.

We are seeing stable budgets for the remainder of 2026 with some potential for further unlocking of scaled AI programs going into next year. To help them with their most complex technology programs, clients continue to turn to EPAM for our advanced AI and engineering capabilities. AI transformation is a business transformation and nearly every client conversation today reflects the complexity of both business and technology [indiscernible].

Programs are moving up the volume [indiscernible] from using AI as a workforce enabling technology to scaling across systems to automating and identifying food processes. And beyond that, the frontier use cases that drive new types of businesses. This is where clients asking for our help and relying on EPAM to bridge the full maturity life cycle and value chain.

Looking across our AI native capabilities, notable revenue growth drivers include FDA led plot for engagements and global traction brought by our AI/Run execution scaffolding and operating framework. We are also seeing significant acceleration in AI native cyber resilience, which is driving both pure AI native revenue as well as downstream core remediation work.

Our focus going into the end of the year and looking forward into 2027 is to continue building our momentum in capturing AI-native demand by expanding our core services offering as AI fully transformed and accelerates our ability to drive key service lines in cloud, modernization, data and managed services. Let me share a few client examples to help illustrate how AI and core services are combining to create client volume.

First, for a leading wealth management firm, decades of business logic was buried in millions of lines of [indiscernible] code -- at risk was, better than specialists near retirement. EPAM used its MF platform part, EPAM [indiscernible] tools to reverse engineer extra business tools, dependencies and lineage, cutting analysis afforded by 60% and discovery costs by 80%. The client was able to move into modernization with greater confidence and less uncertainty compared to when it started.

Next, for a U.S.-based medical center specializing in complex bleeding and clotting disorders, EPAM designed and built a modular suite of AI customer applications, all embedded within the center's existing EMR. The approach prioritizes seamless integration so clinicians gain new capabilities inside the tools they order they use every day. The solution is driving $1 million in projected cost savings from digital forms and assessments while providing a scalable foundation for continued AI expansion.

Next, Storio Group, a European leader in personalized photo products, wanted to unlock revenue growth by rethinking how their marquee product gets built and maintained. The company partnered with EPAM to build a strategic agentic AI workflow using Claude. In weeks, the team made the codes legible, safe and predictable to maintain. The cost savings were [indiscernible], a fraction of the cost of a commercial rebuild with a clear part to innovation.

And last, for medical technology and health care services company, we reduced the total cost of ownership by 20% with 0 downtime on AWS. As an AWS premier tier services partner, EPAM was selected for its deep engineering and cloud innovation capabilities. Through our structured methodology, we have the client migrate from Oracle to AWS, replace licensed infrastructure with AWS native services, modernize the operational layer and build scalable foundation without reintroducing unnecessary costs or complexity.

And now the update I promised on our new big strategic deals. We continue to put emphasis on large transformational deal generation. These deals are a combination of both our current clients looking to accelerate volume through scaled AI as well as new logos who see EPAM as a strategic entrant into their Tier 1 partner portfolio, specifically to enable AI transformation at scale. All the big deals are large, [indiscernible] strategic programs. The majority are incremental expansion of our footprint within existing client portfolios specifically within agentic managed services and application maintenance.

The new logos are opportunities to come in as a challenger to take out established legacy programs. I'm happy to report that 3 of these deals have been signed so far, and we are progressing on the remaining deals and expect to provide a further update during our Q4 earnings call. These 3 closed deals sit within financial services and energy, we expect them to begin ramp in 2027.

Now turning to the second pillar of our strategy, strategic partnerships. Our list of partners is growing to include not only cloud and data providers, but also the frontier companies who are driving a significant number of opportunities into the top of our funnel. In terms of FDA capability building and domain-specific playbooks and certifications, I'm pleased to report that we are on our wait meeting or stated year-end goals. So far earning more than 25,000 certifications in just 6 months across Anthropic, Open AI, Google Germina Enterprise and Microsoft.

With Anthropic, we have certified more than 8,300 Claude architects against our year-end target of 10,000. With Open AI, we have certified more than 5,800 Forward Deployed Engineers with months of announcing the partnerships, and we are on the pace for our first year commitment of 10,000. With Google Gemini Enterprise, we have certified more than 8,700 under the Gemini Certified Partner Specialist Program against our target of 10,000 by the end of the year. With Microsoft, more than 2,800 of our engineers have earned their Frontier Certification, one of the most demanding in the program. And with AWS, we are working on evolving our FD propositions with our current team of more than 1,100 certified AI practitioners and professionals.

As our partnership with frontier companies develop and mature, we are building focused GTM motions to include both vertical use cases and domains as well as horizontal specializations in high-growth areas like cybersecurity and cyber resilience. To date, there are more than 200 of these opportunities across the cohort of AI native partners and we will be sharing more public case studies as we scale production deployments.

With all of these new partners and new capabilities, EPAM is committed to being client 0, bringing more innovation, commercial and delivery models and benchmarks together with the power of rising capabilities across the full enterprise landscape, which brings me to our new Frontier AI Service.

A few weeks ago, we rolled out our new Frontier AI Service, which helps our enterprise clients and Frontier labs accelerate volume creation from applied AI, spanning high-fidelity data generation, evaluation, reinforcement learning and benchmarking. The same data muscle EPAM is building for Frontier lab is exactly what enterprises will need as they hill climb their own AI systems, turning proprietary workflows and domain expertise into evaluations, environment and feedback loops that measurably improve agent performance on the tasks that matter to their business. More to come on this in the future quarters as we build out our team and start to drive deal flow.

A note on cyber, which is busy making headlines. As AI becomes prevalent, we are seeing accelerating cyber trust across a broader attack surface than ever before. It is both helping to create attack capabilities as well assisting the cyber defense measures. Our AI native cyber resilience offering was launched earlier this year, and we are seeing significant demand for AI native cybersecurity advisory assessment, architecture and remediation. We are building our cyber capabilities in partnership with strategic partners and Frontier labs. In August, we announced our partnership with Wiz to help enterprises reduce cloud risk and strengthen cyber resilience through the use of agentic security postures.

Now shifting to progress update on our operational transformation. This is what we see so far. Revenue in the Americas, our largest reported region, which includes North America, was roughly flat year-over-year and grew sequentially for the second quarter in a row. We are not calling that turn yet. We expect to take the next several quarters to go beyond implemented investments and changes into demonstrated results.

In North America, we continue to see some drivers of slower growth from last quarter, including year-over-year declines in several software and high-tech clients and some drag across the consumer goods, retail and travel vertical were impacts of persistent global inflation and selective consumer spending have brought more focus on operational efficiency.

That said, the global transformation of our go-to-market motion is well underway with the global and regional programs, executing on the commitments to build enhanced sales, marketing and commercial motions. With North America, our focus is already evident in how we show up at the industry trade shows and client events.

Going into the end of the year, we are seeing increasing traction broadly and across our horizontals and verticals, including new logo revenue in the region. And since we spoke last, EPAM has received several key recognitions. Gartner named EPAM a leader in the Magic Quadrant of Custom Software Development Services for the fourth consecutive year. IDC MarketScape named EPAM, a leader in multiple assessments, including life sciences R&D lab of the future technology solutions and consulting services for the second conservative assessment.

Worldwide AI-driven professional services for oil and gas companies and its integral assessment and Adobe AI-enabled professional services. IDC MarketScape also named EPAM as a major player in its 2026 Worldwide Cloud Professional Services in the AI area vendor assessment. Whitelane Research. 2026 IT sourcing study ranked EPAM #1 for satisfaction and delivery in Switzerland and EPAM NEORIS named #1 in Spain for using AI technology and tools to improve client services.

Forbes named EPAM Most Trusted and the World's Best Employer for Tech and Fast Company named EPAM a Best Workplace for Innovators. These recognitions reflect the work of our global teams and their commitment to delivering results for our clients.

In summary, we are pleased with our third quarter results. We outperformed the high end of our outlook range, continued growing of our pure AI native revenues, turned our partnerships into certified capacity, signed the first set of our large AI-led opportunities and so early evidence that our work in North America is moving from plans to delivery or conviction in our long-term strategy the team and the commercial transformation continues to build. Lastly, I want to thank all EPAMers for their commitment this quarter and all of you for continued trust and support.

Jason, over to you.

Jason Peterson

Thank you, FB, and good morning, everyone. In Q3, we delivered strong quarterly results, outperforming the high end of our guidance range for revenue growth, profitability and EPS. Revenue was $1.426 billion, delivering year-over-year growth of 2.3%. On an organic constant currency basis, revenue grew 2.5%. Both GAAP and non-GAAP gross margin improved year-over-year and exceeded our expectations for the quarter. The solid revenue growth and improved year-over-year profitability, GAAP income from operations grew by 21.4% and non-GAAP income from operations grew by 7%. GAAP diluted EPS grew by 32.5% and non-GAAP diluted EPS grew by 14%.

Our AI native offerings continue to gain traction and contribute to year-over-year growth. AI native revenues were more than $185 million in the quarter, approximately 13% of total revenues, up from approximately 11% last quarter.

Before further discussion of company financial performance, I want to first provide an update on EPAM's capital allocation strategy. As we've communicated in the past, EPAM's capital allocation strategy prioritizes investments that enable sustainable growth. First and foremost, we will continue to make investments in capabilities, partnerships and go-to-market motions that support our organic growth momentum while also making limited tuck-in acquisitions to enhance our end-market domain expertise and create beachheads to facilitate entry into new markets.

While we make these investments, we also intend to increase the relative level of capital return to shareholders. Since 2023, EPAM's Board has authorized 3 repurchase programs. And since the initiation of the company's first share repurchase program, EPAM has returned approximately $1.7 billion to shareholders. Today, we are making several announcements that together bolster the company's commitment to capital return.

First, we plan to enter into a $500 million accelerated share repurchase agreement next week. Second, we are committing to returning at least 50% of free cash flow to shareholders annually over each of the next 3 years, 2027, 2028 and 2029.

In support of these commitments, EPAM's Board has approved an increased share repurchase authorization of [ $1.8 billion ] through December 31, 2029. This authorization replaces the 2025 program and adds an incremental $1.5 billion of capacity. Our approach to repurchases will continue to be disciplined and dynamic, making necessary adjustments based on the price of the shares relative to long-term value of the business.

Let me now discuss EPAM's Q3 results. Moving to our Q3 verticals. Performance was mixed and growth was led by financial services and life sciences and health care. Financial Services grew 13.7% year-over-year, driven by insurance and asset management clients. Life sciences and health care increased 9.9% on a year-over-year basis, driven primarily by clients in life sciences and med tech. pConsumer goods, retail and travel declined 2.5% year-over-year as several consumer goods companies became more cautious about spending due to the more challenging macroeconomic environment. Software and hi-tech declined 6.1% year-over-year due to lower spend from certain technology clients as discussed last quarter.

Business information and media decreased 5.5% year-over-year, primarily driven by information services. Emerging verticals delivered a year-over-year decline of 0.5%, with lower revenues from clients in materials, telecommunications and real estate, partially offset by ongoing strength in the energy sector.

From a geographic perspective, Americas, our largest region, representing 57% of our Q3 revenues, increased 0.2% year-over-year, with strong growth in financial services, life sciences and health care, and energy, offset by a slowdown in consumer goods, retail and travel and declines in the software and hi-tech and business information and media verticals. EMEA comprising 41% of our Q3 revenues increased 5.8% year-over-year despite FX headwinds with strong growth in financial services as well as contributions from life sciences and health care and energy.

Finally, APAC making up 2% of our revenues declined 4% year-over-year. In Q3, revenues from our top 20 clients grew 0.8% year-over-year, while revenues from clients outside our top 20 increased by 3.0%.

Moving down the income statement. Our GAAP gross margin for the quarter was 31.3% compared to 29.5% in Q3 of last year. Non-GAAP gross margin for the quarter was 32.8% compared to 31% for the same period a year ago, demonstrating our ability to improve profitability while growing our AI native revenues.

GAAP SG&A was 16.7% of revenue compared to 16.8% in Q3 of last year. Non-GAAP SG&A in Q3 2026 came in at 15% of revenue compared to 14.1% in the same period last year. The increase in non-GAAP SG&A reflects incremental investments in our go-to-market motions and AI capabilities.

GAAP income from operations was $176 million or 12.3% of revenue compared to $145 million or 10.4% of revenue in Q3 of last year and grew by 21.4% year-over-year. Non-GAAP income from operations was $238 million or 16.7% of revenue compared to $223 million or 16% of revenue in Q3 of the previous year and grew 7% year-over-year.

Our GAAP effective tax rate, which includes a higher level of tax shortfalls related to stock-based compensation, came in at 26.1%, and our non-GAAP effective tax rate was 24.7%. Diluted earnings per share on a GAAP basis was $2.53 compared to $1.91 in Q3 of last year, a $0.62 increase year-over-year, reflecting growth of 32.5%. Our non-GAAP diluted EPS was $3.51 compared to $3.08 in Q3 of last year, a $0.43 increase year-over-year, reflecting growth of 14%. In Q3, there were approximately 51.5 million diluted shares outstanding.

Turning to our cash flow and balance sheet. Cash flow from operations for Q3 was $289 million compared to $295 million in the same quarter of 2025. Free cash flow was $274 million compared to free cash flow of $286 million in the same quarter last year. Cash and cash equivalents were $965 million as of the end of the quarter. At the end of Q3, DSO was 78 days and compares to 82 days for Q2 2026 and 75 days for the same quarter last year. Share repurchases in the third quarter were approximately 700,000 shares for $80 million at an average price of $113.06 per share.

Moving on to operational metrics. We ended Q3 with more than 57,350 delivery professionals, reflecting total growth of 2.2% compared to Q3 2025 and a net increase of 700 people sequentially. Our general head count at quarter end was approximately 63,650 employees. Utilization was 76.5%, unchanged from Q3 of last year compared to 78.3% in Q2 of 2026.

Now let's turn to guidance. Before moving to the specifics of our 2026 and Q4 outlook, I would like to provide some thoughts to help frame our guidance. We're pleased with the third quarter performance, which included solid revenue growth and profitability improvement, which exceeded our expectations. As FB mentioned, the company won 3 large multiyear client engagements and delivered ongoing growth in AI native revenues. EPAM now expects to deliver at least $650 million in AI native revenues in the year, an increase from our earlier guidance of $600 million. We also began to see some benefit from our go-to-market investments with improving new customer revenue in the quarter.

With regards to Q4 reported revenue guidance, we currently expect FX to have a negative $11 million impact on sequential growth in the quarter. Excluding the impact of the strengthening U.S. dollar, which is creating FX headwinds, Q4 is shaping up as expected. We are encouraged by ongoing strength in demand in EMEA and in our financial services and life sciences and health care verticals.

Additionally, we are seeing stabilization in our Ibero American business. Although we are beginning to see some improvement in pockets of demand in the North American region, our North American business is expected to continue to underperform in Q4. For the full year, the company expects to deliver organic constant currency revenue growth of 2.5% to 2.7% at or just above the midpoint of the most recent guidance range.

As in past years, we expect strong free cash flows in Q4 with our free cash flow conversion rate forecasted to be above 100%. As usual, our guidance assumes we can continue to deliver from our Ukraine delivery centers at productivity levels similar to those achieved in 2025.

Now turning to 2027. EPAM will provide detailed guidance for its 2027 year in February of 2027 during its Q4 2026 earnings call. However, at this time, I want to provide some current thinking about the 2027 year. With regards to revenue and despite ongoing volatility, we are encouraged by the sequential growth of EPAM's AI native revenues as well as the expected future impacts of large multiyear deals we have already won and those we expect to win in coming months. Those deals that we recently won will ramp in the first half of 2027, contributing to revenues in Q1 with greater contributions in Q2. As we exit the 2026 year, we are adding head count to future demand, including demand related to these large scale wins.

With regards to profitability in 2027, we are currently expecting to operate in the 15% to 16% range for non-GAAP income from operations. As we have discussed throughout 2026, we will continue to invest in our AI capabilities and make incremental investments in go-to-market motions. For 2027, we are also expecting a lower level of benefit from the Poland R&D tax incentive program. Over the last 3 years, we've seen ongoing P&L benefit related to this program, which is booked as a reduction to cost of revenue.

In 2027, in future years, we are expecting to derive ongoing P&L benefits from this program at reduced levels. We are focused on actions that will improve gross margin in the future. However, due to the impact of the reduced R&D benefit and expected normalization in variable compensation expense, we are not expecting a further increase in gross margin in the coming year, and we may operate at modestly lower levels of gross margin in 2027.

And moving on to our 2026 full year outlook. Revenue growth will now be in the range of 3.5% to 3.7%. Foreign exchange is expected to have a positive impact of approximately 1%. Therefore, organic constant currency growth is now expected to be in the range of 2.5% to 2.7%. We expect GAAP income from operations to now be in the range of 10.7% to 10.9%, and non-GAAP income from operations to now be in the range of 15.9% to 16.1%.

We expect our GAAP effective tax rate to be 27%. Our non-GAAP effective tax rate will be 24%. For earnings per share, we expect the GAAP diluted EPS will now be in the range of $8.41 to $8.49 for the full year and non-GAAP diluted EPS will now be in the range of $13.23 to $13.31 for the full year. We now expect weighted average share count of 52 million fully diluted shares outstanding.

Moving to our Q4 2026 outlook. We expect revenue to be in the range of $1.405 billion to $1.420 billion, producing year-over-year growth in the range of negative 0.2% to positive 0.9%. Our guidance reflects approximately 0.7% negative foreign exchange impact and organic constant currency growth is expected to be positive and in the range of 0.5% to 1.6%.

For the fourth quarter, we expect GAAP income from operations to be in the range of 11.5% to 12.5% and non-GAAP income from operations to be in the range of 16% to 17%. We expect our GAAP effective tax rate to be approximately 26% and our non-GAAP effective tax rate to be approximately 24%. For earnings per share, we expect GAAP diluted EPS to be in the range of $2.43 to $2.51 for the quarter and non-GAAP diluted EPS to be in the range of $3.50 to $3.58 for the quarter. We expect a weighted average share count of 49.9 million diluted shares outstanding, which reflects the expected initial delivery of shares under the accelerated share repurchase.

Finally, a few key assumptions that support our GAAP to non-GAAP measurements for Q4. Stock-based compensation expense is expected to be approximately $45 million. Amortization of intangibles is expected to be approximately $17 million. The impact of foreign exchange is expected to be an approximate $1 million loss. Tax effect of non-GAAP adjustments is expected to be around $15 million. We expect a tax shortfall related to stock-based compensation of around $1 million. And one more assumption outside of our GAAP to non-GAAP items. We now expect interest and other income to be negative $1 million for the quarter.

Lastly, my continued thanks to all our EPAMers for their dedication and focus on serving our clients and driving results throughout 2026.

Operator, let's open the call for questions.

Operator

[Operator Instructions] Your first question will come from the line of Bryan Bergin with TD Cowen.

Preguntas y respuestas

Bryan Bergin

Maybe let's start on fiscal '27. So I appreciate the initial thoughts that you commented on there, Jason. And it looks like the faster 4Q '26 head count expansion, which is encouraging. I imagine that could be tied to the signing of the 3 strategic deals, which is good to hear. But I wanted to dig in here on the impact of these deals for next year. So can you comment on the shape of these as far as how they contribute to the year? It sounds like just a modest 1Q contribution, but I'm curious, like, at what point do they hit a steady state and how does the investment needs and the margin profile of these ultimately evolve?

Jason Peterson

Yes, good questions. And so as we discussed during our -- I guess, as we just discussed, we have closed 3 deals, but I -- probably what's important is we intend to close more as we exit the fiscal year. So I expect that we'll be talking about further large deal closures in our next earnings call. Is -- what we are thinking is that we'll see ramping of these deals in Q1 with greater contributions in Q2 of 2027. And so we -- as we look from Q4 to Q1, we clearly are expecting a higher level of organic constant currency growth relative to the Q4 exit but what we think we'll see is continued ramping as we move from Q1 to Q2.

From a profitability standpoint, on average, these deals are expected to be kind of within the EPAM norm. If we look at some of the deals, they probably have some start-up costs in the first couple of quarters, so maybe a little bit lower margin. But over time, they should operate kind of substantially where we expect the business to operate in coming years.

Bryan Bergin

Okay. Okay. I appreciate that. And then maybe on the consulting led model. So can you talk about the progress in the revised North America go-to-market, what else is needed to reinvigorate growth in the region? I'm just curious, do you have to see new leadership in place or do you need any further reorg there? Or is it really just about building the muscle with the foundation in place?

Unknown Executive

Bryan, I think as we've highlighted before, we're basically increasing our sales capacity, stratifying accounts, changing the way we go to market, how we actually are packaging or services. Clearly, it involves hiring people and also the way we show up in the marketplace, which is the marketing efforts in events or in conferences, we are actually creating a different posture. So that's what's really happening. Yes, there is going to be continued investments into marketing and sales going forward. But so far, the results are encouraging.

Operator

Your next question will come from the line of Maggie Nolan with William Blair.

Margaret Nolan

I wanted to follow up on those large deals again. I'm curious, are you primarily taking share from incumbents there? Are you expanding work with existing clients? Is there anything like [indiscernible] consolidation happening? What do you feel is contributing to your traction in this area?

Balazs Fejes

Maggie, I think as we highlighted that most of these deals are coming from existing clients, right, where we've already proven our engineering capability. Clearly, we are showing up with a different proposition, which is very AI-led, AI forward. Most cases, these deals are representing something where we are not so much in the vendor consolidation space, but actually, we are taking share from maybe in-house or with other vendors in application maintenance, IT operations, BPO, using agentic operations.

I think our AI forward and overall, the way we are approaching it, which is a little bit disruptive and novel way, I think that's what resonates with our clients. Yes, in some cases, they are bringing us in as a challenger to also in newer logos to challenge the incumbents and to change overall dynamics of the vendor landscape.

Margaret Nolan

Okay. And then, Jason, I think you mentioned that your -- as you exit 2026, you're adding headcount for future demand, how closely should we be watching that as a leading indicator of growth? Or do you expect some level of efficiency in terms of revenue per head different from maybe what we would have seen in the past out of EPAM?

Jason Peterson

Yes. I mean we continue to believe that to grow revenue that we do need to add headcount. So I still think that it certainly is a forward-leading indicator. Clearly, it depends somewhat on where the head count is being added, and we continue to grow in India. But we also feel that our pricing continues to improve. We do expect some -- at least some modest improvements in pricing again as we enter 2027. So generally, I think, yes, it's a reasonable way to sort of think about our forward trajectory. Clearly, we wouldn't be adding head count if we didn't see demand.

Operator

Your next question will come from the line of Jonathan Lee with Guggenheim.

Jonathan Lee

The pipeline now also includes new logos where you could come in as a challenger to displace establish legacy programs around these larger transformational deals. Can you upsize the pipeline, how large the new logo portion is? How you may be faring against incumbents? And how many of the remaining deals do you expect to potentially sign in the coming months?

Balazs Fejes

So Jonathan, we are -- overall, the pipeline is -- continues to be tens of deals. So it's not just that we are signing those deals, but actually, we are backfilling them or kind of we are pursuing and landing new deals into the pipeline in the large deal sizes. I think the new logo is very much the minority in this pipeline itself. I think sizing, it's difficult. It's difficult. But all of them, what we are tracking in this strategic deals are logos. And how many are we expecting to win, I think we have probably going to talk to you about a couple of more as we are closing out the year because as we see the progress in how the negotiations are going.

But we are still not sure about our win ratio because eventually, I don't think it's going to be significantly higher than EPAM average on the longer run. But it's still early days. I think we were talking to you about this for now for almost 6 months. This is the third earnings call where we're addressing it. So it took some time for us to really close this. And probably this shows our relative inexperience in this space that we are actually don't underestimate in the beginning how much time it takes to [indiscernible] logos.

Jason?

Jason Peterson

Yes. Jonathan, so as we've talked about over the last couple of quarters, so we've had more than 10 deals in the pipeline, those deals -- the number of deals continue to grow. As FB said, we closed 3 -- and all of the deals are generally in the, let's call it, high tens of millions of dollars to over $100 million of TCV but all multiyear deals. So 3 years, in some cases, 3 plus 2 in others.

Jonathan Lee

And I want to dig in a little bit around the software clients in North America. Have the pressures you flagged among SaaS and software clients, including spend being redirected toward tokens, GPUs and infrastructure stabilized, intensified or broadened since July, especially since you had cited the year-on-year declines again this quarter? When do you expect that vertical to trough? And how are you positioning the company to recapture some of that spend over time?

James Faucette

I don't think the pressure got worse sequentially and it hasn't been reversed. It stayed concentrated in non-AI services space. And I think it just continues to be the same somewhat. Where I think it's shifting a little bit as we're talking more and more to some of our clients about forward deployed engineers. We're talking about supporting them in the rollouts. But it's not yet pivoted. It will take some quarters to stabilize.

Operator

Your next question will come from Jamie Friedman with Susquehanna International Group.

James Friedman

Congratulations on a good quarter here. So at a very high level, FB, do you see the company returning to the double-digit growth trajectory over time that you had articulated at the Analyst Day last year?

Balazs Fejes

Jamie, at a very high level, definitely not in 2027, I do foresee that we can actually get to double-digit growth. But over time, it's not [indiscernible], right?

James Friedman

And then, FB, part of, I thought, the strategy was that what was working for you in Europe, you could duplicate or attempt to duplicate or at least transfer to the U.S., if I'm remembering that right. So -- and it looks like that's happening. But where are you in the journey of that footprint?

Balazs Fejes

It's a multi-quarter journey. I think we -- I don't think we're going to declare a turning port yet. We're making the investment. We changed the organization. We continue increasing the sales force. We're changing the way we are pursuing clients. So I think we are well underway. I think it will take a couple of more quarters to actually really turn it, but we see a good sign because of the new logos, which are arriving, the stabilizing of the -- somewhat of the revenues and also the attractions what we're having with our clients.

Operator

Next question will come from David Grossman with Stifel.

David Grossman

If I'm understanding the guidance correctly, it implies a deceleration in year-over-year organic constant currency growth in the fourth quarter. And I assume that reflects some of the challenges you talked about in some of the verticals in the U.S. Perhaps you could just help us understand that dynamic in terms of where we are in the cycle, if you will, with these verticals? And at what point do these newer deals that you've signed more than compensate for the headwinds that you're experiencing in those verticals?

Jason Peterson

Yes. So just to clarify, so we do expect at or above 1% organic constant currency growth as we exit Q4. And we do expect that as we enter 2027 that you'd see improving organic constant currency growth rates. But you're right, David, it clearly is a deceleration versus Q3 and Q2. We did have a very strong Q4, including some revenue -- in 2025, including some revenue that was recognized where the work had been done in prior periods, but we weren't able to book the revenue in those quarters. So the compare is a little difficult.

But maybe I'll now turn over the harder part of this question to FB as to kind of what we see as we look forward.

Balazs Fejes

I mean the vertical performance are mixed, right? As we mentioned, the new deals are in energy and in financial services. So that's going to drive -- continue to drive the growth of the large deals in the coming year, once we're ramping them up. But at the same time, I think each sector has -- and each vertical has its own particular issues and challenges. I think we talked quite a bit about software and hi-tech, and I think we addressed that for a while.

Business information and media is a sector which is -- continues to be challenged by AI itself and that's a sector-wide challenge which we are facing. I think we will see a turning point due to the energy -- subvertical of energy in the emerging vertical of ours. But I think the consumer and retail is the one which somewhat changed and they are under pressure due to the continued global inflation -- inflationary pressures and cost pressures, which is very much the fuel prices. This is what manifests. When are they going to turn? I think that's very much going to tie to where the macro is leading. So I believe that vertical is very much tied to the macro environment today.

David Grossman

Do you see -- you said stability in hi-tech. What about the other 2? Are they still declining in the fourth quarter? .

Balazs Fejes

8 I think so, yes.

David Grossman

Got it. And then a question on the gross margin. I know there's some noise in there from -- it sounds like the tax credits that you're getting in -- or the tax programs, I guess, in Poland. But it looks like you had a pretty strong gross margin improvement even with utilization, not providing a tailwind, maybe even sequentially a little bit of a headwind. So I'm just curious what's going on in the gross margin? And I think, Jason, you said gross margin just by virtue of what's going on in Poland could be flattish to down next year. But just trying to understand that dynamic.

Jason Peterson

Yes. So we continue to focus on gross margin improvement. We clearly got price improvement in 2026, and that has kind of helped throughout the 2026 fiscal year. We also expect to see some price in 2027, the early indications that we will be able to get some price increases. We've been focused on improving non-T&M or what is referred to as fixed fee revenue profitability. It's still below company average, but it's definitely improving on a year-over-year basis, David. So that has contributed. We've been focused on sort of basic sort of blocking and tackling, including better efficiency in India. So that's been a positive.

And then the AI native revenues generate profitability somewhat greater than company average. So that also probably has a modest positive impact. So I think all of those things have kind of contributed to the improvement in gross margin throughout the year. Gross margin actually came in a little bit better than we expected in Q3. Utilization was slightly higher than we thought it was going to be as we entered the quarter. As a result, we have somewhat lower bench costs.

I do want to just be a little bit more specific on the Poland R&D benefit. So we have been getting benefit for the last couple of years. And actually, in 2026, the benefit is actually somewhat lower than it was in 2025. And then as we look ahead, the benefit is going to go from about $40 million in 2026 to about $20 million in 2027. So it definitely will have some tens of basis points of impact. At the same time, all the things that we talked about in 2026, we intend to continue to focus on in 2027.

Operator

Your next question will come from Tyler DuPont with Wells Fargo.

Tyler DuPont

This is Tyler DuPont on for Jason Kupferberg. It's nice to see the outperformance in the quarter. I want to start, it was encouraging to see AI native revenue guidance ticked up in the quarter, $185 million in 3Q, implying over 130% year-on-year growth. But just to play devil's advocate for a second, on the flip side of that is that the non-AI business declined 6% year-on-year. So maybe if you can just take a minute to help us understand the demand dynamics between these 2 opportunities? And to what extent you're seeing these AI opportunities beginning to pressure the non-AI part of the business, if at all?

Unknown Executive

So Tyler, good talking to you. The AI native revenues did grow to $185 million per quarter in Q3. And clearly, we see good trajectory until the end of the year. That's why we increased the $650 million -- to $650 million, the guide for that. I think the way we are thinking about this is, as we highlighted in the past call, there are parts of our services, which in Q3 did experience some level of shrinkage. So it went down, the clients are not looking for that skill set. But other parts of our business, people just really transforming the spend. They are no longer building digital platforms. They are building the new AI native solutions.

But also you need to remember that our AI native revenue definition is very, very narrow and does not include any part of our AI assisted revenues, which is -- continues to grow or anything which is I foundation elements. But you are right, mathematically, non-AI revenue is not growing with the same [indiscernible].

Tyler DuPont

Great. And then just as a follow-up, I wanted to like take a step back and ask about macro backdrop, particularly in the context of this week's election results. How are you guys looking at the potential state of play in the market now versus this time last week? Are there any call-outs worth mentioning on a vertical basis or just broad strokes for the market? Just how are you guys thinking about demand within that context? .

Unknown Executive

I think it's too early to sort of guesstimate kind of what the impact could be on the business. I think we're seeing the same thing that everyone else is seeing. We wouldn't have -- we wouldn't have changed our expectations based on the election results.

Operator

Your next question will come from Puneet Jain with JPMorgan.

Puneet Jain

So as we think about growth rate for next year, you've highlighted several potential tailwinds like contribution from large deals, potential benefit from go-to-market investments, or your commentary around demand, it seems like more favorable. So we recognize it's too early to provide like a specific guidance for next year, but directionally, how are you thinking about trajectory growth as these tailwinds evolve? What would need to come together for growth to go from where it is right now to potentially what you delivered last year in 2025?

Jason Peterson

I'll start, and then I'll let FB kind of provide some additional sort of clarification. I think what you're going to see, Puneet, is, as we said, the contribution from some of the new deals that we've won and others that we expect to win will contribute revenues somewhat in Q2 and somewhat more in Q2 and as we begin to sort of build somewhat more in the second half of 2027. I think you're also beginning to see some let's call it, somewhat encouraging signs around North American opportunities. And I think those also will factor in throughout the year. So again, I don't think you're going to see anything dramatic in the first quarter.

But we are looking ahead towards, let's say, improving organic currency growth, certainly off of this very low Q4 exit and generally, obviously -- or generally, we wouldn't be adding head count if we didn't expect to see some additional demand, including ramping of these new deals that we talked about today.

Balazs Fejes

Puneet, I want to just go back to one thing which I think we kind of talked about the Frontier AI service and partnerships, which we started to invest this year. That shows a good promise at this point of time just from the partnerships. We have over 200 new opportunities, which we are tracking. So we are -- we think that has legs and potential to scale and provide the necessary support to lift us up into previous growth rates but it will be later next year or a little bit later after that.

Puneet Jain

Got it. And it's nice to see your AI native services like continue to grow, 13% of revenue. Why is this traction not accompanied with a corresponding increase in non-T&M revenue? Like 77%, 78% of revenue, it seems like still stems from T&M. So how fast should we expect this non-T&M revenue to evolve over the next 2 or 3 years?

Jason Peterson

Yes. So certainly, the newer deals that we've talked about, particularly, again, these 3 larger deals and then much of the AI native does have sort of a fixed fee or non-T&M component to it. Now it's not to say that there isn't still some T&M revenue streams embedded in those deals and in the AI native. But I think what you'll continue to see is ongoing increase in the percentage of non-T&M throughout 2027. So I think again, as we've always said, we didn't expect it to change overnight, but you'll see a steady increase in the percentage of non-T&M over time.

Unknown Executive

But it is changing. It is improving.

Operator

Next question will come from Paul Obrecht with Wolfe Research.

Paul Obrecht

This is Paul Obrecht on for Darrin Peller. FB, clearly, cybersecurity has become top of mind for many enterprises this year. And in your prepared remarks, it sounds like you're seeing that accelerated demand. Can you discuss whether the cyber demand is resulting in net new investment? Or more so a reallocation of existing spend?

And then shifting to EPAM specifically, can you just touch on where your cyber capabilities stand today and maybe what investments you're making to strengthen them?

Balazs Fejes

Paul, thank you for the question. So as you might remember, EPAM made specific acquisitions in the past to build out our initial cyber capability. That's very much allowed us to build some level of scanning capabilities and also advisory around cyber. But most recently, and actually, it's really just only since late August, early September, cyber remediation became a big theme that's where not just with our partnership with the Frontier Labs and with Wiz is playing a part, but also with our clients who are realizing that they need to remediate hundreds, sometimes thousands, sometimes tens of thousands of vulnerabilities, which requires either a lot of engineering skills or AI native remediation, which we brought to the market in the form of AI native remediation service.

So we see this as a growth opportunity. We see this as an ongoing spend from our clients. And our clients are reallocating their budgets to address these things. And it's clearly playing to our strengths, not just the strength on our advising on cybersecurity. But in order to fix those issues or to remediate the tens of thousands of issues in enterprise systems, you require a massive and very capable engineering skill set. And it's very much in our forte. So we're focusing on this. This is what we're tracking, and we expect to see other major revenue source going forward.

Paul Obrecht

That's helpful color. And then, Jason, can you provide a bit more detail on the strength you're seeing in the financial services vertical? It really seems like this is an industry-wide phenomenon. And how durable you view this trend, especially as we look forward to 2027?

Jason Peterson

Certainly, we're seeing strength in banking. We're seeing strength in asset management. We're seeing strength in insurance. We're seeing strength in insurance in both Europe and in North America. And we do expect to continue to see strength as we exit the year.

Operator

Your final question will come from the line of Sean Kennedy with Mizuho.

Sean Kennedy

Congrats on the AI led deals and the results here. So I was wondering if you could just discuss a bit more about the types of services in these deals, what you're specifically doing for these customers? And EPAM's right to win, is it primarily a tech advantage?

James Faucette

I mean we launched an AI/Run transform playbook, which we go to the market back in 2025, that's basically a go-to-market notion, and we continue executing on that. We are seeing how -- in this how you are transforming delivery, engineering itself. We're helping clients building the platforms, helping changing how they engineer solutions, how they upscale their talents bring tooling, how they build out their factories. This is one aspect. The second aspect is how you're transforming overall their businesses. That's the business transformation element with ideas with engineering the right contacts, the semantic players and actually building this out, which is, a, sustainable, b, delivers the right results and become something you can rely on is predictable. What EPAM's advantage is the engineering skill set, building these solutions are difficult, to make it real working that enterprise requires integration, requires you to do the data work, tackling legacy problems, tackling integration issues, and that's where I think it plays to our strength.

Sean Kennedy

Got it. And then as we look to '27, nice to hear the momentum with the large deals. But is there anything else to look out for in terms of large project ramp downs or anything other to note?

Balazs Fejes

I mean right now, at this point of time, we are [indiscernible] as we see it, right? And this is what we can provide. This is what we have visibility today.

Unknown Executive

And we'll provide more color in February.

Operator

There are no more questions at this time. I'd now like to turn the call over to Balazs Fejes for closing remarks.

Balazs Fejes

Thank you very much for joining us, and I would like to thank again our impairs and our shareholders and stakeholders to making this quarter successful and looking forward to talk to you in 3 months' time. .

Operator

This concludes today's call.