EPAM Systems Cuts Fiscal Outlook, Cites Demand ‘Uncertainty’

‘In the weeks since our Q1 earnings call, we have seen our clients become even more cautious with spending specifically in the ‘build’ segment of the global IT services market. After careful assessment of changes in our May and June forecast data, we have come to understand that pipeline conversions are occurring at slower rates than previously assumed and we are also seeing some reduction in the total pipeline, says EPAM Systems CEO and President Arkadiy Dobkin.

EPAM Systems CEO and President Arkadiy Dobkin

Global IT solution provider EPAM Systems Monday slashed its outlook for both its second fiscal quarter 2023 and its full year 2023 based on a deteriorating and uncertain demand environment.

With the guidance warning, Newtown, Pa.-based EPAM becomes the latest IT solution provider to reduce expectations due to economic factors.

Investors reacted quickly to the lowered expectations, driving the company’s stock price down 22 percent on Monday. The share price recovered about 2.7 percent Tuesday to $208.77 by the end of the trading day, but in after-hours trading the downward march resumed as the stock fell 0.37 percent.

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EPAM, which focuses on digital transformation services and product engineering, Monday said the company now expects fiscal year 2023 revenue to be in the range of $4.65 billion to $4.80 billion. At the midpoint, that would be a 2-percent drop in revenue compared to fiscal 2022.

EPAM, ranked no. 21 in the CRN Solution Provider 500, in early May guided fiscal 2023 revenue to be in the range of $4.95 billion to $5 billion.

For fiscal 2023, EPAM now expects GAAP earnings of $7.38 to $7.68 per share, and non-GAAP earnings of $9.80 to $10.02 per share. Last month, the company said it expected full year GAAP earnings of $8.11 to $8.31 per share, and non-GAAP earnings of $10.60 to $10.80 per share.

For its second quarter fiscal 2023, EPAM said it now expects revenue in the range of $1.16 billion to $1.17 billion, or a drop of 2.5 percent over the same period of last year at the midpoint. The revenue expectation is a significant drop from EPAM’s guidance in early May, when it said it expected revenue of $1.195 billion to $1.205 billion.

EPAM is also now expecting GAAP earnings for the quarter in the range of $1.75 to $1.82 per share, and non-GAAP earnings of $2.33 to $2.40 per share. This is down from its earlier guidance of GAAP EPS of $1.82 to $190 and non-GAAP EPS of $2.38 to $2.46 per share.

EPAM CEO and President Arkadiy Dobkin, in a prepared statement, blamed the revised guidance on a better understanding of changes in client’s expected spending since the original guidance was discussed.

“In the weeks since our Q1 earnings call, we have seen our clients become even more cautious with spending specifically in the ‘build’ segment of the global IT services market,” Dobkin said. “After careful assessment of changes in our May and June forecast data, we have come to understand that pipeline conversions are occurring at slower rates than previously assumed and we are also seeing some reduction in the total pipeline. Our revenue update is the result of our applying more conservative assumptions for the current quarter and the full year based on our recent experience.”

Even so, Dobkin said, EPAM expects the business to pick up again.

“We are encouraged by the increasing pace of new logo acquisition as well as our continued high customer retention and satisfaction rates,” he said. “Once industry demand returns, EPAM will once again be well positioned for long-term growth by leveraging our unique and globally-recognized engineering and transformation capabilities.”

EPAM is not the only major IT solution provider to reduce guidance this year.

New York-based Kyndryl in mid-May said its fiscal 2024 revenue is expected to fall 6 percent to 8 percent compared to its fiscal 2023 revenue, with positive revenue growth not expected until fiscal 2025.

Bangalore, India and East Brunswick, N.J.-based Wipro in April guided sequential revenue for its first fiscal quarter 2024 to be down by 1 percent to 3 percent due to prolonged uncertainty in the economic environment.