Press Release: April 30, 2014

First Quarter revenue is up 29% year-over-year and up 2% sequentially

Newtown, PA - April 30, 2014 - EPAM Systems, Inc. (NYSE: EPAM), a leading provider of complex software engineering solutions and a leader in Central and Eastern European IT services delivery, today announced results for its quarter ended March 31, 2014.

 

First Quarter 2014 Highlights

 
· Revenues increased to $160.4 million, up 29.1% year-over-year, and up 1.8% sequentially;
· GAAP income from operations was $21.9 million, an increase of 40.7% compared to $15.5 million in the first quarter of 2013;
· Non-GAAP income from operations was $26.3 million, an increase of $7.4 million, or 39.5%, from $18.8 million in the first quarter of 2013;
· Quarterly diluted earnings per share (EPS) on a GAAP basis was $0.35, up from $0.27 in the year-ago quarter;
· Non-GAAP quarterly diluted EPS was $0.47, up 34.3% from $0.35 in the year-ago quarter.

EPAM generated cash from operations of $16.2 million in the first quarter of 2014, an increase of $27.9 million from $11.7 million used in operations in the first quarter of 2013.

Reconciliations of non-GAAP financial measures to operating results and diluted EPS are included at the end of the release.

"I am pleased with the start of 2014." said Arkadiy Dobkin, CEO and President of EPAM. "Our first quarter came in stronger than anticipated, allowing us to continue to deliver industry-leading year-over-year growth, as well as sequential quarterly growth."

Full Year and Second Quarter 2014 Outlook

For the full year 2014, based on current conditions, and including the impact of the acquisitions of Netsoft and Jointech, EPAM expects year-over-year revenue growth to be 25% to 27%. Non-GAAP net income growth for 2014 is expected to be in the range of 23% to 25% year-over-year, with an effective tax rate of 20%. The full year weighted average share count is expected to be just over 50 million diluted shares outstanding.

For the second quarter of 2014, EPAM expects revenues between $168 million and $170 million, representing a growth rate of 26% to 27% over second quarter 2013 revenues. Second quarter 2014 non-GAAP diluted EPS is expected to be in the range of $0.47 to $0.48 based on an estimated second quarter 2014 weighted average of 49.7 million diluted shares. GAAP diluted EPS is expected to be in a range of $0.30 to $0.32.

Conference Call Information

EPAM will host a conference call to discuss results on Thursday, May 1, 2014 at 8:00 a.m. Eastern Time. The live conference call can be accessed by dialing 1-877-407-0784 (international) or 1-201-689-8560 (domestic). A telephonic replay will also be available approximately one hour after the call and can be accessed by dialing 1-877-870-5176 (international) or 1-858-384-5517 (domestic). The passcode for the replay is 13580261. The telephonic replay will be available until May 15, 2014. Interested investors and other parties may also listen to a webcast of the conference call by logging onto the Investor Relations section of the Company's website at http://investors.epam.com.

About EPAM Systems

Established in 1993, EPAM Systems, Inc. (NYSE: EPAM), is recognized as a leader in software product development by independent research agencies. Headquartered in the United States, EPAM employs approximately 9,800 professionals and serves clients worldwide utilizing its award-winning Central and Eastern European global delivery platform and its locations in 17 countries throughout North America, Europe, and Asia. EPAM was ranked by Forbes as #6 among America's 25 Fastest-Growing Tech Companies and #2 among the Fast-Growing Tech Stars.

For more information, please visit www.epam.com.

 

Non-GAAP Financial Measures

EPAM supplements results reported in accordance with principles generally accepted in the United States, referred to as GAAP, with non-GAAP financial measures. Management believes these measures help illustrate underlying trends in EPAM's business and uses the measures to establish budgets and operational goals, communicated internally and externally, for managing EPAM's business and evaluating its performance. Management also believes these measures help investors compare EPAM's operating performance with its results in prior periods and compare EPAM and similar companies. EPAM anticipates that it will continue to report both GAAP and certain non-GAAP financial measures in its financial results, including non-GAAP results that exclude stock-based compensation expense, write-off and recovery, amortization of purchased intangible assets, goodwill impairment, legal settlement, foreign exchange gains and losses, and acquisition-related costs. However, because EPAM's reported non-GAAP financial measures are not calculated according to GAAP, these measures are not comparable to GAAP and may not necessarily be comparable to similarly described non-GAAP measures reported by other companies within EPAM's industry. Consequently, EPAM's non-GAAP financial measures should not be evaluated in isolation or supplant comparable GAAP measures, but, rather, should be considered together with its consolidated financial statements, which are prepared according to GAAP.

Forward-Looking Statements

This press release includes statements which may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the accuracy of which are necessarily subject to risks, uncertainties, and assumptions as to future events that may not prove to be accurate. Factors that could cause actual results to differ materially from those expressed or implied include general economic conditions and the factors discussed in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. EPAM undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities law.

 

Contact:
EPAM Systems, Inc.
Anthony J. Conte, Chief Financial Officer
Phone: +1-267-759-9000 x64588
Fax: +1-267-759-8989
investor_relations@epam.com

 

EPAM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(US Dollars in thousands, except share and per share data)

    Three Months Ended
March 31,  
    2014    2013 
Revenues   $ 160,384     $ 124,198  
Operating expenses:                
Cost of revenues (exclusive of depreciation and amortization)     102,454       77,937  
Selling, general and administrative expenses     32,359       27,083  
Depreciation and amortization expense     3,689       3,617  
Other operating expenses, net     25       25  
Income from operations     21,857       15,536  
Interest and other income, net     976       630  
Foreign exchange loss     (1,241 )     (499 )
Income before provision for income taxes     21,592       15,667  
Provision for income taxes     4,228       2,987  
Net income   $ 17,364     $ 12,680  
                 
Net income per share:                
Basic   $ 0.37     $ 0.28  
Diluted   $ 0.35     $ 0.27  
Shares used in calculation of net income per share:                
Basic     46,797       44,812  
Diluted     49,207       47,646  
 

EPAM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(US Dollars in thousands, except share and per share data)

 
    As of
March 31, 2014 
  As of
December 31, 2013 
Assets            
Current assets            
Cash and cash equivalents   $ 174,066     $ 169,207  
Accounts receivable, net of allowance of $1,936 and $1,800 respectively     89,932       95,431  
Unbilled revenues     58,791       43,108  
Prepaid and other current assets     15,111       14,355  
Employee loans, net of allowance of $0 and $0, respectively, current     2,114       1,989  
Time deposits     6,884       1,188  
Restricted cash, current     -       298  
Deferred tax assets, current     5,366       5,392  
Total current assets     352,264       330,968  
Property and equipment, net     53,072       53,315  
Restricted cash, long-term     216       225  
Employee loans, net of allowance of $0 and $0, respectively, long-term     4,234       4,401  
Intangible assets, net     12,957       13,734  
Goodwill     26,392       22,268  
Deferred tax assets, long-term     4,705       4,557  
Other long-term assets     4,797       3,409  
Total assets   $ 458,637     $ 432,877  
                 
Liabilities                
Current liabilities                
Accounts payable   $ 11,812     $ 2,835  
Accrued expenses and other liabilities     15,314       20,175  
Deferred revenue, current     4,539       4,543  
Due to employees     17,305       12,665  
Taxes payable     10,413       14,171  
Deferred tax liabilities, current     1,072       275  
Total current liabilities     60,455       54,664  
Deferred revenue, long-term     340       533  
Taxes payable, long-term     1,228       1,228  
Deferred tax liabilities, long-term     334       351  
Total liabilities     62,357       56,776  
Commitments and contingencies                
Stockholders' equity                
Common stock, $0.001 par value; 160,000,000 authorized; 47,893,055 and 47,569,463 shares issued, 46,940,797 and 46,614,916 shares outstanding at March 31, 2014 and December 31, 2013, respectively     47       46  
Additional paid-in capital     201,955       195,585  
Retained earnings     208,350       190,986  
Treasury stock     (8,663 )     (8,684 )
Accumulated other comprehensive loss     (5,409 )     (1,832 )
Total stockholders' equity     396,280       376,101  
Total liabilities and stockholders' equity   $ 458,637     $ 432,877  
 
EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures
(in thousands, except percent and per share amounts)
(Unaudited)
 
    Three Months Ended
March 31, 2014 
    GAAP    Adjustments    Non-GAAP 
Cost of revenues (exclusive of depreciation and amortization)(1)   $ 102,454     $ (1,403 )   $ 101,051  
Selling, general and administrative expenses(2)   $ 32,359     $ (2,386 )   $ 29,973  
Income from operations(3)   $ 21,857     $ 4,439     $ 26,296  
Operating margin     13.6 %     2.8 %     16.4 %
Net income(4)   $ 17,364     $ 5,680     $ 23,044  
Diluted earnings per share(5)   $ 0.35             $ 0.47  
 
    Three Months Ended
March 31, 2013 
    GAAP    Adjustments    Non-GAAP 
Cost of revenues (exclusive of depreciation and amortization)(1)   $ 77,937     $ (779 )   $ 77,158  
Selling, general and administrative expenses(2)   $ 27,083     $ (1,835 )   $ 25,248  
Income from operations(3)   $ 15,536     $ 3,313     $ 18,849  
Operating margin     12.5 %     2.7 %     15.2 %
Net income(4)   $ 12,680     $ 3,812     $ 16,492  
Diluted earnings per share(5)   $ 0.27             $ 0.35  
 

Notes:

(1)       Adjustments to GAAP cost of revenues (exclusive of depreciation and amortization) include $1,403 and $779 of stock-based compensation expense reported within cost of revenues during the three months ended March 31, 2014 and 2013, respectively.

 

(2)       Adjustments to GAAP selling general and administrative expenses:

  Three Months Ended
March 31, 
  2014   2013
Stock-based compensation expense $ 1,805   $ 1,797
Acquisition-related costs    581      38
Total adjustments to GAAP selling, general and administrative expenses $ 2,386    $ 1,835
 
 

(3)       Adjustments to GAAP income from operations:

  Three Months Ended
March 31,
  2014    2013
Stock-based compensation expense $ 3,208    $ 2,576
reported within cost of revenues   1,403      779
reported within selling, general and administrative expenses   1,805      1,797
Amortization of purchased intangible assets   650      699
Acquisition-related costs   581      38
Total adjustments to GAAP income from operations $ 4,439    $ 3,313
 

(4)       Adjustments to GAAP net income:

    Three Months Ended
March 31,
 
    2014     2013  
Stock-based compensation expense   $ 3,208     $ 2,576  
reported within cost of revenues     1,403       779  
reported within selling, general and administrative expenses     1,805       1,797  
Amortization of purchased intangible assets     650       699  
Acquisition-related costs     581       38  
Foreign exchange loss     1,241       499  
Total adjustments to GAAP net income   $ 5,680     $ 3,812  
 
(5) Non-GAAP weighted average diluted common shares outstanding were 49,207 and 47,646 during the three months ended March 31, 2014 and 2013, respectively.

Non-GAAP diluted earnings per share presents non-GAAP net income divided by Non-GAAP weighted average diluted common shares outstanding. Non-GAAP weighted average diluted common shares outstanding assumes (i) the 2.9 million shares EPAM sold in its February 2012 initial public offering were outstanding as of January 1, 2012, and (ii) the conversion of the outstanding preferred stock into common stock on an as-converted basis.
 
 
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