Date
First quarter revenues of
GAAP Diluted EPS of
Non-GAAP Diluted EPS of
“We delivered a strong first quarter with growth across all of our verticals, based on our ability to meet the demands of our customers, helping them create new business models to stay competitive in an ever-changing market,” said Arkadiy Dobkin, CEO & President, EPAM. “We continue to gain market share through both our core engineering and digital capabilities, in addition to our investments in emerging technologies and acquisitions. Our first quarter results provide a solid foundation and positions us well for fiscal 2018.”
First Quarter 2018 Highlights
- Revenues increased to
$424.1 million , a year-over-year increase of$99.5 million , or 30.6%, and on a constant currency basis, revenue was up 26.0% over the corresponding period last year. Revenue growth in the quarter continues to demonstrate strong broad-based demand from both existing and new clients across the industriesEPAM serves and the geographies in which it operates; - GAAP income from operations was
$48.7 million , an increase of$17.7 million , or 57.3%, compared to$31.0 million in the first quarter of 2017; - Non-GAAP income from operations was
$67.7 million , an increase of$18.4 million , or 37.4%, compared to$49.3 million in the first quarter of 2017; - Diluted earnings per share (“EPS”) on a GAAP basis was
$1.15 , an increase of$0.71 , or 161.4%, compared to$0.44 in the first quarter of 2017. GAAP EPS benefited from a net$22.5 million one-time benefit recorded in the first quarter of 2018 related to the implementation of tax planning to disregard certain foreign subsidiaries as separate entities for U.S. income tax purposes partially offset by an incremental provisional charge associated with the one-time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax required under U.S. Tax Reform. Diluted EPS on a GAAP basis excluding the net discrete benefit from tax planning and U.S. tax reform was$0.75 ; and - Non-GAAP diluted EPS was
$0.93 , an increase of$0.21 , or 29.2%, compared to$0.72 in the first quarter of 2017 based on a weighted average share count of 56.2 million fully diluted shares outstanding.
Cash Flow and Other Metrics
- Cash from operations was
$7.3 million for the first quarter of 2018, down from$29.1 million for the first three months of 2017. The decrease is primarily due to higher variable compensation payments associated with the 2017 performance year as well as an increase in days sales outstanding during the first quarter of 2018; - Cash, cash equivalents and restricted cash totaled
$537.1 million as of March 31, 2018, a decrease of$45.8 million or 7.9% from$582.9 million as of December 31, 2017. The decrease is primarily attributable to the$50.3 million net cash used in the acquisition of Continuum during the quarter ended March 31, 2018; and - Total headcount was approximately 26,700 as of March 31, 2018. Included in this number were approximately 23,700 delivery professionals, an increase of 20.4% from March 31, 2017.
2018 Outlook - Full Year and Second Quarter
Full Year
- Revenue growth for 2018 will now be at least 27%, including an estimated 2% for currency tailwinds. The Company expects constant currency growth will now be at least 25%;
- The Company expects GAAP income from operations to continue to be in the range of 12% to 13% of revenues and non-GAAP income from operations to continue to be in the range of 16% to 17% of revenues;
- The Company expects its GAAP effective tax rate to now be approximately 4% principally due to the implementation of tax planning to disregard certain foreign subsidiaries as separate entities for U.S. income tax purposes and its non-GAAP effective tax rate to continue to be approximately 22%; and
- The Company expects GAAP diluted EPS will now be at least
$3.77 for the full year; and non-GAAP diluted EPS will now be at least$4.11 for the full year based on an updated expected weighted average share count of 56.9 million diluted shares outstanding.
Second Quarter
- Revenues will be at least
$445 million for the second quarter, reflecting a year-over-year growth rate of approximately 28% including an estimated 2% for currency tailwinds. The Company expects constant currency growth will be approximately 26%; - For the second quarter, the Company expects GAAP income from operations to be in the range of 11.5% to 12.5% of revenues and non-GAAP income from operations to be in the range of 15.5% to 16.5% of revenues;
- The Company expects its GAAP effective tax rate to be approximately 10% and its non-GAAP effective tax rate to be approximately 22%; and
- The Company expects GAAP diluted EPS will be at least
$0.82 for the quarter, and non-GAAP diluted EPS will be at least$0.98 for the quarter based on an expected weighted average share count of 56.9 million diluted shares outstanding.
Conference Call Information
About
Since 1993,
For more information, visit http://www.epam.com/ and follow
Non-GAAP Financial Measures
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 the Company's most recent Annual Report on Form 10-K and other filings with the
Contact:
Phone: +1-267-759-9000 x59419
david_straube@epam.com
EPAM SYSTEMS, INC. AND SUBSIDIARIES | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME | |||||||
(Unaudited) | |||||||
(In thousands, except per share data) | |||||||
Three Months Ended March 31, |
|||||||
2018 | 2017 | ||||||
Revenues | $ | 424,148 | $ | 324,651 | |||
Operating expenses: | |||||||
Cost of revenues (exclusive of depreciation and amortization) | 277,634 | 207,730 | |||||
Selling, general and administrative expenses | 87,777 | 78,453 | |||||
Depreciation and amortization expense | 8,176 | 6,672 | |||||
Other operating expenses, net | 1,864 | 830 | |||||
Income from operations | 48,697 | 30,966 | |||||
Interest and other (loss)/income, net | (551 | ) | 584 | ||||
Foreign exchange loss | (247 | ) | (2,955 | ) | |||
Income before (benefit from)/provision for income taxes | 47,899 | 28,595 | |||||
(Benefit from)/provision for income taxes | (16,519 | ) | 4,954 | ||||
Net income | $ | 64,418 | $ | 23,641 | |||
Foreign currency translation adjustments, net of tax | 3,309 | 6,386 | |||||
Unrealized gain on cash-flow hedging instruments, net of tax | 69 | — | |||||
Comprehensive income | $ | 67,796 | $ | 30,027 | |||
Net income per share: | |||||||
Basic | $ | 1.21 | $ | 0.46 | |||
Diluted | $ | 1.15 | $ | 0.44 | |||
Shares used in calculation of net income per share: | |||||||
Basic | 53,079 | 50,958 | |||||
Diluted | 56,241 | 53,889 | |||||
EPAM SYSTEMS, INC. AND SUBSIDIARIES | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(Unaudited) | |||||||
(In thousands, except share and per share data) | |||||||
As of March 31, 2018 |
As of December 31, 2017 |
||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 535,857 | $ | 582,585 | |||
Accounts receivable, net of allowance of $1,375 and $1,186, respectively | 262,295 | 265,639 | |||||
Unbilled revenues | 136,807 | 86,500 | |||||
Prepaid and other current assets, net of allowance of $161 and $45, respectively | 33,154 | 23,196 | |||||
Employee loans, current, net of allowance of $0 and $0, respectively | 2,067 | 2,113 | |||||
Total current assets | 970,180 | 960,033 | |||||
Property and equipment, net | 96,825 | 86,419 | |||||
Employee loans, noncurrent, net of allowance of $0 and $0, respectively | 1,883 | 2,097 | |||||
Intangible assets, net | 59,500 | 44,511 | |||||
Goodwill | 150,337 | 119,531 | |||||
Deferred tax assets | 48,170 | 24,974 | |||||
Other noncurrent assets, net of allowance of $138 and $140, respectively | 16,507 | 12,691 | |||||
Total assets | $ | 1,343,402 | $ | 1,250,256 | |||
Liabilities | |||||||
Current liabilities | |||||||
Accounts payable | $ | 8,474 | $ | 5,574 | |||
Accrued expenses and other current liabilities | 56,701 | 89,812 | |||||
Due to employees | 60,642 | 38,757 | |||||
Deferred compensation due to employees | 1,827 | 5,964 | |||||
Taxes payable, current | 52,264 | 40,860 | |||||
Total current liabilities | 179,908 | 180,967 | |||||
Long-term debt | 25,025 | 25,033 | |||||
Taxes payable, noncurrent | 62,031 | 59,874 | |||||
Other noncurrent liabilities | 21,090 | 9,435 | |||||
Total liabilities | 288,054 | 275,309 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity | |||||||
Common stock, $0.001 par value; 160,000,000 authorized; 53,326,733 and 53,003,420 shares issued, 53,306,998 and 52,983,685 shares outstanding at March 31, 2018 and December 31, 2017, respectively |
53 | 53 | |||||
Additional paid-in capital | 486,022 | 473,874 | |||||
Retained earnings | 583,695 | 518,820 | |||||
Treasury stock | (177 | ) | (177 | ) | |||
Accumulated other comprehensive loss | (14,245 | ) | (17,623 | ) | |||
Total stockholders’ equity | 1,055,348 | 974,947 | |||||
Total liabilities and stockholders’ equity | $ | 1,343,402 | $ | 1,250,256 | |||
EPAM SYSTEMS, INC. AND SUBSIDIARIES | ||
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Financial Measures | ||
(In thousands, except percent and per share amounts) | ||
(Unaudited) | ||
Reconciliation of revenue growth at constant currency to revenue growth as reported under GAAP is presented in the table below: | ||
Three Months Ended March 31, 2018 |
||
Revenue growth at constant currency(1) | 26.0 | % |
Foreign exchange rates impact | 4.6 | % |
Revenue growth as reported | 30.6 | % |
(1 | ) | Constant currency revenue results are calculated by translating current period revenue in local currency into U.S. dollars at the weighted average exchange rates of the comparable prior period. |
Reconciliation of various income statement amounts from GAAP to Non-GAAP for the three months ended
Three Months Ended March 31, 2018 | |||||||||||
GAAP | Adjustments | Non-GAAP | |||||||||
Cost of revenues (exclusive of depreciation and amortization)(2) | $ | 277,634 | $ | (8,289 | ) | $ | 269,345 | ||||
Selling, general and administrative expenses(3) | $ | 87,777 | $ | (8,684 | ) | $ | 79,093 | ||||
Income from operations(4) | $ | 48,697 | $ | 18,976 | $ | 67,673 | |||||
Operating margin | 11.5 | % | 4.5 | % | 16.0 | % | |||||
Net income(5) | $ | 64,418 | $ | (12,175 | ) | $ | 52,243 | ||||
Diluted earnings per share | $ | 1.15 | $ | 0.93 | |||||||
Three Months Ended March 31, 2017 | |||||||||||
GAAP | Adjustments | Non-GAAP | |||||||||
Cost of revenues (exclusive of depreciation and amortization)(2) | $ | 207,730 | $ | (5,350 | ) | $ | 202,380 | ||||
Selling, general and administrative expenses(3) | $ | 78,453 | $ | (10,994 | ) | $ | 67,459 | ||||
Income from operations(4) | $ | 30,966 | $ | 18,293 | $ | 49,259 | |||||
Operating margin | 9.5 | % | 5.7 | % | 15.2 | % | |||||
Net income(5) | $ | 23,641 | $ | 15,281 | $ | 38,922 | |||||
Diluted earnings per share | $ | 0.44 | $ | 0.72 | |||||||
Items (2) through (5) above are detailed in the table below with the specific cross-reference noted in the appropriate item. |
Three Months Ended March 31, |
|||||||
2018 | 2017 | ||||||
Stock-based compensation expenses - non-acquisition related | $ | 8,289 | $ | 5,350 | |||
Total adjustments to GAAP cost of revenues(2) | 8,289 | 5,350 | |||||
Stock-based compensation expenses - acquisition related | — | 4,574 | |||||
Stock-based compensation expenses - all other | 8,307 | 5,852 | |||||
Other acquisition-related expenses | 377 | 568 | |||||
Total adjustments to GAAP selling, general and administrative expenses(3) | 8,684 | 10,994 | |||||
Amortization of purchased intangible assets | 1,760 | 1,949 | |||||
One-time charges | 243 | — | |||||
Total adjustments to GAAP income from operations(4) | 18,976 | 18,293 | |||||
Foreign exchange loss | 247 | 2,955 | |||||
(Benefit from)/provision for income taxes: | |||||||
Tax effect on non-GAAP adjustments | (4,231 | ) | (4,273 | ) | |||
Net discrete benefit from tax planning and U.S. tax reform | (22,477 | ) | — | ||||
Excess tax benefits related to stock-based compensation | (4,690 | ) | (1,694 | ) | |||
Total adjustments to GAAP net income(5) | $ | (12,175 | ) | $ | 15,281 | ||
Reconciliation of diluted EPS on a GAAP basis to diluted EPS on a GAAP basis excluding the net discrete benefit from tax planning and U.S. tax reform for the three months ended
Three Months Ended March 31, 2018 | |||||||||||
GAAP | Adjustments | GAAP excluding Net Discrete Benefit from Tax Planning and U.S. Tax Reform |
|||||||||
Net income(6) | $ | 64,418 | $ | (22,477 | ) | $ | 41,941 | ||||
Weighted average diluted shares outstanding |
56,241 | 56,241 | |||||||||
Diluted earnings per share | $ | 1.15 | $ | 0.75 |
(6 | ) | The total adjustments to GAAP net income include the one-time tax benefit associated with the recognition of $24.6 million of net deferred tax assets as a result of the election to disregard as separate entities for U.S. tax purposes certain foreign subsidiaries of the Company partially offset by a $2.2 million provisional charge to increase the income taxes payable associated with the one-time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. |
Reconciliations of Guidance Non-GAAP Measures to Comparable GAAP Measures
(in percent, except per share amounts)
(Unaudited)
The below guidance constitutes forward-looking statements within the meaning of the federal securities laws and is based on a number of assumptions that are subject to change and many of which are outside the control of the Company. Actual results may differ materially from the Company’s expectations depending on factors discussed in the Company’s filings with the
Reconciliation of projected revenue growth in constant currency is presented in the table below:
Second Quarter 2018 |
Full Year 2018 | ||||
Revenue growth at constant currency(7) | 26 | % | 25 | % | |
Foreign exchange rates impact | 2 | % | 2 | % | |
Revenue growth | 28 | % | 27 | % | |
(7 | ) | Constant currency revenue results are calculated by translating current period projected revenues in local currency into U.S. dollars at the weighted average exchange rates of the comparable prior period. |
Reconciliation of GAAP to Non-GAAP income from operations as a percentage of revenue is presented in the table below:
Second Quarter 2018 |
Full Year 2018 | ||||
GAAP income from operations as a percentage of revenue | 11.5% to 12.5% | 12% to 13% | |||
Stock-based compensation expenses | 3.2 | % | 3.3 | % | |
Included in cost of revenues | 1.6 | % | 1.6 | % | |
Included in selling, general and administrative expenses | 1.6 | % | 1.7 | % | |
Other acquisition-related expenses | — | 0.1 | % | ||
Amortization of purchased intangible assets | 0.5 | % | 0.5 | % | |
One-time charges | 0.3 | % | 0.1 | % | |
Non-GAAP income from operations as a percentage of revenue | 15.5% to 16.5% | 16% to 17% | |||
Reconciliation of GAAP to Non-GAAP effective tax rate is presented in the table below:
Second Quarter 2018 |
Full Year 2018 | ||||
GAAP effective tax rate | 10 | % | 4 | % | |
Tax effect on non-GAAP adjustments | 4.9 | % | 5.3 | % | |
Net discrete benefit related to tax planning and U.S. tax reform | — | % | 7.2 | % | |
Excess tax benefit related to stock-based compensation | 7.1 | % | 5.5 | % | |
Non-GAAP effective tax rate | 22 | % | 22 | % | |
Reconciliation of GAAP to Non-GAAP diluted earnings per share is presented in the table below:
Second Quarter 2018 |
Full Year 2018 | ||||||
GAAP diluted earnings per share (at least) | $ | 0.82 | $ | 3.77 | |||
Stock-based compensation expenses | 0.25 | 1.06 | |||||
Included in cost of revenues | 0.12 | 0.53 | |||||
Included in selling, general and administrative expenses | 0.13 | 0.53 | |||||
Other acquisition-related expenses | — | 0.01 | |||||
Amortization of purchased intangible assets | 0.04 | 0.15 | |||||
One-time charges | 0.02 | 0.03 | |||||
Foreign exchange loss | 0.03 | 0.08 | |||||
Provision for income taxes: | |||||||
Tax effect on non-GAAP adjustments | (0.07 | ) | (0.29 | ) | |||
Net discrete benefit from tax planning and U.S. tax reform | — | (0.39 | ) | ||||
Excess tax benefits related to stock-based compensation | (0.11 | ) | (0.31 | ) | |||
Non-GAAP diluted earnings per share (at least) | $ | 0.98 | $ | 4.11 | |||
Source: EPAM