EPAM SystemsEPAM

EPAM reported earnings of $3.38 per share, which was better than the $3.14 analysts expected. Revenue grew about 4 percent to $1.41 billion. The company is also becoming more efficient, with operating margins, the percentage of revenue left after paying for its staff and offices, rising to 16.4 percent. This shows the firm is successfully managing its costs after moving thousands of employees out of Ukraine and Russia over the last few years.

However, the stock fell about 15 percent because management lowered its growth expectations for the rest of the year. The company now expects revenue to grow between 3 and 4 percent, down from previous targets. This suggests that while EPAM is more profitable on each dollar it earns, its large corporate clients are still being cautious about starting expensive new software projects. For long-term owners, the focus remains on whether this is a temporary pause in spending or a sign that AI is making it harder for engineering firms to charge for their services.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

The company is scheduled to report its latest results today. Analysts expect revenue of about 1.41 billion dollars and earnings of 3.14 dollars per share. EPAM has a long history of performing better than these estimates, having topped analyst expectations in each of the last eight quarters.

For those watching the business, the most important details will be whether revenue growth is picking up as companies start spending more on artificial intelligence projects. We are also looking to see if the firm is keeping its profit margins steady at 15 percent or higher now that it has finished moving much of its workforce to new global locations.

See the full quarter, and how our tracked metrics did

Key highlights

• Profitability margins improving: The company increased its non-GAAP operating margin, which shows the profit left after running the business, to 16.4% from 15% a year ago. This improvement came even as total revenue growth remained modest at 4.5% for the quarter.
• Organic revenue growth slowing: Organic constant currency revenue grew 3.4% to $1.415 billion, which is a decline from the 3.7% growth rate reported in the previous quarter. This metric helps owners see how the core business is performing by removing the effects of acquisitions and changes in the value of the dollar.
• Engineers added to staff: Total headcount rose to 62,850 and the number of delivery professionals, who are the engineers doing the billable work for clients, increased slightly to 56,650. Hiring more staff is a sign the company expects to have enough work to keep these experts busy in the coming months.
• Capital returned to owners: Management spent $85 million to buy back shares this quarter, bringing the total for the first half of the year to $409 million. These buybacks help increase the value for remaining owners by reducing the total number of shares that share in the company profits.
• Full year outlook lowered: The company now expects full year organic revenue growth to be between 2.0% and 3.0%, which is a drop from the 3.7% growth it was seeing earlier this year. Profit guidance was also tightened, with management now expecting non-GAAP earnings per share to land between $13.08 and $13.24 for the full year.

Our take: A decent quarter on the surface, but the underlying growth story is becoming more difficult. While the company is doing a great job managing its profit margins at 16.4%, the lowered outlook for organic growth suggests that getting new business remains a struggle. This does not break the long-term case, but it does mean owners have to be patient while the company waits for demand to truly pick up again.