EPAM Reports Results for First Quarter 2020
Press Release: May 7, 2020
"EPAM's strong first quarter results exceeded our initial expectations, underscoring the continued robust demand for our services entering 2020," said Arkadiy Dobkin, CEO & President, EPAM. "With the onset of the global pandemic, we have shifted our focus to safeguarding the health and safety of EPAM's employees and proactively partnering with our global customers to help them navigate an unprecedented and volatile social and business environment. Our fundamentals continue to be strong, and the investments we've made in our people and delivery platforms should help position us for a strong comeback in the future."
First Quarter 2020 Highlights
- Revenues increased to
$651.4 million , a year-over-year increase of$130.0 million , or 24.9%, and on a constant currency basis, revenues were up 26.0% over the corresponding period last year; - GAAP income from operations was
$87.5 million , an increase of$22.9 million , or 35.3%, compared to$64.7 million in the first quarter of 2019; - Non-GAAP income from operations was
$105.3 million , an increase of$16.1 million , or 18.1%, compared to$89.2 million in the first quarter of 2019; - Diluted earnings per share ("EPS") on a GAAP basis was
$1.47 , an increase of$0.41 , or 38.7%, compared to$1.06 in the first quarter of 2019 based on weighted average diluted shares outstanding of 58.1 million; and - Non-GAAP diluted EPS was
$1.43 , an increase of$0.18 , or 14.4%, compared to$1.25 in the first quarter of 2019.
Cash Flow and Other Metrics
- Cash provided by operating activities was
$63.3 million for the first three months of 2020, compared to$0.2 million used in operating activities for the first three months of 2019; - Cash, cash equivalents and restricted cash totaled
$917.4 million as ofMarch 31, 2020 , a decrease of$20.3 million , or 2.2%, from$937.7 million as ofDecember 31, 2019 ; and - Total headcount exceeded 37,300 as of
March 31, 2020 . Included in this number were approximately 33,100 delivery professionals, an increase of 18.7% fromMarch 31, 2019 .
Second Quarter 2020 Outlook
Due to heightened uncertainty related to the potential impacts of COVID-19 on the Company's full year business results, EPAM is not providing a full year 2020 financial outlook. The Company expects the following for the second quarter:
- Revenues will be in the range of
$590 million to$605 million for the second quarter reflecting a year-over-year growth rate of approximately 8.3% at the mid-point of the range. The Company expects that foreign currency translation will have a 1% unfavorable impact on year-over-year revenue growth during the quarter. The Company expects year-over-year revenue growth on a constant currency basis to be approximately 9.3% at the mid-point of the range; - For the second quarter, the Company expects GAAP income from operations to be in the range of 11% to 13% of revenues and non-GAAP income from operations to be in the range of 14% to 16% of revenues;
- The Company expects its GAAP effective tax rate to be approximately 13% and its non-GAAP effective tax rate to be approximately 23%; and
- The Company expects GAAP diluted EPS will be in the range of
$0.93 to$1.12 for the quarter, and non-GAAP diluted EPS will be in the range of$1.12 to$1.31 for the quarter. The Company expects weighted average diluted shares outstanding for the quarter of 58.4 million.
Conference Call Information
EPAM will host a conference call to discuss the results on
About
Since 1993,
Non-GAAP Financial Measures
EPAM supplements results reported in accordance with
Forward-Looking Statements
This press release includes estimates and 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. Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our business and operations. Those future events and trends may relate to, among other things, the anticipated impact of the COVID-19 pandemic and the effect that it may have on our sales, operations, access to capital, revenues, profitability and customer demand. Other factors that could cause actual results to differ materially from those expressed or implied include general economic conditions, the factors discussed in the Company's most recent Annual Report on Form 10-K, the factors discussed in the Company's Quarterly Report on Form 10-Q, filed on or after the date of this press release, particularly in Part I. Item 2. (Management's Discussion and Analysis of Financial Condition and Results of Operations) and Part II. Item 1A. (Risk Factors), and other filings with the
|
|||||||
Three Months Ended |
|||||||
2020 |
2019 |
||||||
Revenues |
$ |
651,359 |
$ |
521,333 |
|||
Operating expenses: |
|||||||
Cost of revenues (exclusive of depreciation and amortization) |
423,802 |
344,689 |
|||||
Selling, general and administrative expenses |
125,108 |
101,786 |
|||||
Depreciation and amortization expense |
14,940 |
10,200 |
|||||
Income from operations |
87,509 |
64,658 |
|||||
Interest and other income, net |
2,386 |
3,076 |
|||||
Foreign exchange gain/(loss) |
6,524 |
(3,484) |
|||||
Income before provision for income taxes |
96,419 |
64,250 |
|||||
Provision for income taxes |
10,854 |
3,496 |
|||||
Net income |
$ |
85,565 |
$ |
60,754 |
|||
Foreign currency translation adjustments, net of tax |
(28,519) |
2,943 |
|||||
Unrealized (loss)/gain on cash-flow hedging instruments, net of tax |
(9,368) |
3,100 |
|||||
Comprehensive income |
$ |
47,678 |
$ |
66,797 |
|||
Net income per share: |
|||||||
Basic |
$ |
1.55 |
$ |
1.12 |
|||
Diluted |
$ |
1.47 |
$ |
1.06 |
|||
Shares used in calculation of net income per share: |
|||||||
Basic |
55,287 |
54,245 |
|||||
Diluted |
58,143 |
57,236 |
|
|||||||
As of |
As of |
||||||
Assets |
|||||||
Current assets |
|||||||
Cash and cash equivalents |
$ |
916,253 |
$ |
936,552 |
|||
Trade receivables and contract assets, net of allowance of |
542,698 |
497,716 |
|||||
Prepaid and other current assets |
48,786 |
39,943 |
|||||
Total current assets |
1,507,737 |
1,474,211 |
|||||
Property and equipment, net |
164,671 |
165,259 |
|||||
Operating lease right-of-use assets |
243,671 |
238,991 |
|||||
Intangible assets, net |
58,676 |
56,258 |
|||||
|
198,534 |
195,043 |
|||||
Deferred tax assets |
79,044 |
75,013 |
|||||
Other noncurrent assets |
59,548 |
39,433 |
|||||
Total assets |
$ |
2,311,881 |
$ |
2,244,208 |
|||
Liabilities |
|||||||
Current liabilities |
|||||||
Accounts payable |
$ |
5,232 |
$ |
7,831 |
|||
Accrued compensation and benefits expenses |
250,560 |
230,035 |
|||||
Accrued expenses and other current liabilities |
66,434 |
82,476 |
|||||
Income taxes payable, current |
6,987 |
9,064 |
|||||
Operating lease liabilities, current |
60,108 |
57,542 |
|||||
Total current liabilities |
389,321 |
386,948 |
|||||
Long-term debt |
25,046 |
25,074 |
|||||
Income taxes payable, noncurrent |
45,847 |
45,878 |
|||||
Operating lease liabilities, noncurrent |
189,312 |
180,848 |
|||||
Other noncurrent liabilities |
14,873 |
9,315 |
|||||
Total liabilities |
664,399 |
648,063 |
|||||
Commitments and contingencies |
|||||||
Stockholders' equity |
|||||||
Common stock, |
56 |
55 |
|||||
Additional paid-in capital |
610,579 |
607,051 |
|||||
Retained earnings |
1,106,285 |
1,020,590 |
|||||
|
(177) |
(177) |
|||||
Accumulated other comprehensive loss |
(69,261) |
(31,374) |
|||||
Total stockholders' equity |
1,647,482 |
1,596,145 |
|||||
Total liabilities and stockholders' equity |
$ |
2,311,881 |
$ |
2,244,208 |
|
||
Reconciliation of revenue growth on a constant currency basis to revenue growth as reported under GAAP is presented in |
||
Three Months Ended |
||
Revenue growth on a constant currency basis(1) |
26.0 |
% |
Foreign exchange rates impact |
(1.1) |
% |
Revenue growth as reported |
24.9 |
% |
(1) |
Constant currency revenue results are calculated by translating current period revenues in local currency into |
Reconciliation of various income statement amounts from GAAP to non-GAAP for the three months ended |
|||||||||||
Three Months Ended |
|||||||||||
GAAP |
Adjustments |
Non-GAAP |
|||||||||
Cost of revenues (exclusive of depreciation and amortization)(2) |
$ |
423,802 |
$ |
(3,984) |
$ |
419,818 |
|||||
Selling, general and administrative expenses(3) |
$ |
125,108 |
$ |
(10,693) |
$ |
114,415 |
|||||
Income from operations(4) |
$ |
87,509 |
$ |
17,812 |
$ |
105,321 |
|||||
Operating margin |
13.4 |
% |
2.8 |
% |
16.2 |
% |
|||||
Net income(5) |
$ |
85,565 |
$ |
(2,701) |
$ |
82,864 |
|||||
Diluted earnings per share |
$ |
1.47 |
$ |
1.43 |
Three Months Ended |
|||||||||||
GAAP |
Adjustments |
Non-GAAP |
|||||||||
Cost of revenues (exclusive of depreciation and amortization)(2) |
$ |
344,689 |
$ |
(12,781) |
$ |
331,908 |
|||||
Selling, general and administrative expenses(3) |
$ |
101,786 |
$ |
(9,621) |
$ |
92,165 |
|||||
Income from operations(4) |
$ |
64,658 |
$ |
24,540 |
$ |
89,198 |
|||||
Operating margin |
12.4 |
% |
4.7 |
% |
17.1 |
% |
|||||
Net income(5) |
$ |
60,754 |
$ |
10,772 |
$ |
71,526 |
|||||
Diluted earnings per share |
$ |
1.06 |
$ |
1.25 |
Items (2) through (5) above are detailed in the table below with the specific cross-reference noted in the appropriate item. |
Three Months Ended |
|||||||
2020 |
2019 |
||||||
Stock-based compensation expenses |
$ |
3,984 |
$ |
12,781 |
|||
Total adjustments to GAAP cost of revenues(2) |
3,984 |
12,781 |
|||||
Stock-based compensation expenses |
7,897 |
9,075 |
|||||
Other acquisition-related expenses |
468 |
511 |
|||||
One-time charges |
2,328 |
35 |
|||||
Total adjustments to GAAP selling, general and administrative expenses(3) |
10,693 |
9,621 |
|||||
Amortization of acquired intangible assets |
3,135 |
2,138 |
|||||
Total adjustments to GAAP income from operations(4) |
17,812 |
24,540 |
|||||
Change in fair value of contingent consideration included in Interest and other income, net |
(438) |
— |
|||||
Foreign exchange (gain)/loss |
(6,524) |
3,484 |
|||||
Provision for income taxes: |
|||||||
Tax effect on non-GAAP adjustments |
(1,854) |
(5,739) |
|||||
Excess tax benefits related to stock-based compensation |
(11,697) |
(11,513) |
|||||
Total adjustments to GAAP net income(5) |
$ |
(2,701) |
$ |
10,772 |
|
||
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 on a constant currency basis to projected revenue growth on a GAAP basis is presented in the table below: |
||
Second Quarter 2020 |
||
Revenue growth on a constant currency basis (at mid-point of the range) (6) |
9.3% |
|
Foreign exchange rates impact |
(1)% |
|
Revenue growth (at mid-point of the range) |
8.3% |
(6) |
Constant currency revenue results are calculated by translating current period projected revenues in local currency |
Reconciliation of projected GAAP to non-GAAP income from operations as a percentage of revenues is presented in the table below: |
||
Second Quarter 2020 |
||
GAAP income from operations as a percentage of revenues |
11% to 13% |
|
Stock-based compensation expenses |
2.5 |
% |
Included in cost of revenues (exclusive of depreciation and amortization) |
1.3 |
% |
Included in selling, general and administrative expenses |
1.2 |
% |
Amortization of purchased intangible assets |
0.5 |
% |
Non-GAAP income from operations as a percentage of revenues |
14% to 16% |
Reconciliation of projected GAAP to non-GAAP effective tax rate is presented in the table below: |
||
Second Quarter 2020 |
||
GAAP effective tax rate (approximately) |
13 |
% |
Tax effect on non-GAAP adjustments |
3.8 |
% |
Excess tax benefits related to stock-based compensation |
6.2 |
% |
Non-GAAP effective tax rate (approximately) |
23 |
% |
Reconciliation of projected GAAP to non-GAAP diluted earnings per share is presented in the table below: |
||
Second Quarter 2020 |
||
GAAP diluted earnings per share (at least) |
|
|
Stock-based compensation expenses |
0.28 |
|
Included in cost of revenues (exclusive of depreciation and amortization) |
0.15 |
|
Included in selling, general and administrative expenses |
0.13 |
|
Other acquisition-related expenses |
0.01 |
|
Amortization of acquired intangible assets |
0.05 |
|
Foreign exchange loss |
0.05 |
|
Provision for income taxes: |
||
Tax effect on non-GAAP adjustments |
(0.08) |
|
Excess tax benefits related to stock-based compensation |
(0.12) |
|
Non-GAAP diluted earnings per share (at least) |
|
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SOURCE
EPAM Systems, Inc.. David Straube, Head of Investor Relations, Phone: +1-267-759-9000 x59419, david_straube@epam.com