EPAM Reports Results for Fourth Quarter and Full Year 2019
Press Release: February 20, 2020
"We are pleased to report another strong year with industry-leading organic growth, enabled by ongoing investments across our people, platforms and geographies and further enhanced by our strategic acquisitions," said Arkadiy Dobkin, CEO & President,
Fourth Quarter 2019 Highlights
- Revenues increased to
$632.8 million , a year-over-year increase of$127.8 million , or 25.3%, and on a constant currency basis, revenues were up 24.8% over the corresponding period last year; - GAAP income from operations was
$84.7 million , an increase of$6.5 million , or 8.3%, compared to$78.3 million in the fourth quarter of 2018; - Non-GAAP income from operations was
$107.6 million , an increase of$14.6 million , or 15.7%, compared to$93.1 million in the fourth quarter of 2018; - Diluted earnings per share ("EPS") on a GAAP basis was
$1.29 , compared to$1.05 in the fourth quarter of 2018; and - Non-GAAP diluted EPS was
$1.51 , an increase of$0.24 , or 18.9%, compared to$1.27 in the fourth quarter of 2018.
Full Year 2019 Highlights
- Revenues increased to
$2.29 billion , a year-over-year increase of$450.9 million , or 24.5%, and on a constant currency basis, revenues were up 25.8% year-over-year; - GAAP income from operations was
$302.9 million , an increase of$57.1 million , or 23.2%, compared to$245.8 million in 2018; - Non-GAAP income from operations was
$389.2 million , an increase of$74.0 million , or 23.5%, compared to$315.1 million in 2018; - Diluted EPS on a GAAP basis was
$4.53 , compared to$4.24 in 2018; and - Non-GAAP diluted EPS was
$5.42 , an increase of$1.04 , or 23.7%, compared to$4.38 in 2018.
Cash Flow and Other Metrics
- Cash provided by operating activities was
$124.6 million in the fourth quarter of 2019, an increase from$123.1 million in the fourth quarter of 2018; and was$287.5 million in 2019, a decrease from$292.2 million in 2018; - Cash, cash equivalents and restricted cash totaled
$937.7 million as ofDecember 31, 2019 , an increase of$166.0 million , or 21.5%, from$771.7 million as ofDecember 31, 2018 ; and - Total headcount was approximately 36,700 as of
December 31, 2019 . Included in this number was approximately 32,600 delivery professionals, an increase of 21.7% fromDecember 31, 2018 .
2020 Outlook − Full Year and First Quarter
Full Year
- The Company expects revenue growth for 2020 to exceed 22% on both a GAAP and constant currency basis;
- The Company expects GAAP income from operations to be in the range of 13% to 14% of revenues and non-GAAP income from operations to be in the range of 16% to 17% of revenues;
- The Company expects its GAAP effective tax rate to be approximately 14% and its non-GAAP effective tax rate to be approximately 23%; and
- The Company expects GAAP diluted EPS to be at least
$5.56 for the full year, and non-GAAP diluted EPS to be at least$6.30 for the full year. The Company expects weighted average diluted shares outstanding for the year of 58.8 million.
First Quarter
- The Company expects revenues to be at least
$642 million for the first quarter, reflecting a year-over-year growth rate of at least 23% on both a GAAP and constant currency basis; - The Company expects GAAP income from operations to be in the range of 12% to 13% of revenues and non-GAAP income from operations to be in the range of 15% to 16% of revenues;
- The Company expects its GAAP effective tax rate to be approximately 5% and its non-GAAP effective tax rate to be approximately 23%; and
- The Company expects GAAP diluted EPS to be at least
$1.27 for the quarter, and non-GAAP diluted EPS to be at least$1.36 for the quarter. The Company expects weighted average diluted shares outstanding for the quarter of 58.3 million.
Conference Call Information
About
Since 1993,
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
EPAM SYSTEMS, INC. AND SUBSIDIARIES |
|||||||||||||||
Three Months Ended |
Year Ended December 31, |
||||||||||||||
2019 |
2018 |
2019 |
2018 |
||||||||||||
Revenues |
$ |
632,775 |
$ |
504,931 |
$ |
2,293,798 |
$ |
1,842,912 |
|||||||
Operating expenses: |
|||||||||||||||
Cost of revenues (exclusive of depreciation and |
410,069 |
319,031 |
1,488,198 |
1,186,921 |
|||||||||||
Selling, general and administrative expenses |
124,999 |
97,447 |
457,433 |
373,587 |
|||||||||||
Depreciation and amortization expense |
12,962 |
10,183 |
45,317 |
36,640 |
|||||||||||
Income from operations |
84,745 |
78,270 |
302,850 |
245,764 |
|||||||||||
Interest and other income, net |
1,950 |
1,080 |
8,725 |
3,522 |
|||||||||||
Foreign exchange (loss)/gain |
(1,898) |
(582) |
(12,049) |
487 |
|||||||||||
Income before provision for income taxes |
84,797 |
78,768 |
299,526 |
249,773 |
|||||||||||
Provision for income taxes |
10,273 |
18,803 |
38,469 |
9,517 |
|||||||||||
Net income |
$ |
74,524 |
$ |
59,965 |
$ |
261,057 |
$ |
240,256 |
|||||||
Foreign currency translation adjustments, net of tax |
10,846 |
(6,695) |
6,295 |
(21,338) |
|||||||||||
Unrealized gain/(loss) on cash-flow hedging instruments, net |
1,371 |
(472) |
3,845 |
(2,553) |
|||||||||||
Comprehensive income |
$ |
86,741 |
$ |
52,798 |
$ |
271,197 |
$ |
216,365 |
|||||||
Net income per share: |
|||||||||||||||
Basic |
$ |
1.35 |
$ |
1.11 |
$ |
4.77 |
$ |
4.48 |
|||||||
Diluted |
$ |
1.29 |
$ |
1.05 |
$ |
4.53 |
$ |
4.24 |
|||||||
Shares used in calculation of net income per share: |
|||||||||||||||
Basic |
55,062 |
54,031 |
54,719 |
53,623 |
|||||||||||
Diluted |
57,965 |
56,887 |
57,668 |
56,673 |
EPAM SYSTEMS, INC. AND SUBSIDIARIES |
|||||||
As of |
As of |
||||||
Assets |
|||||||
Current assets |
|||||||
Cash and cash equivalents |
$ |
936,552 |
$ |
770,560 |
|||
Trade receivables and contract assets, net of allowance of $2,920 and $1,557, respectively |
497,716 |
402,337 |
|||||
Prepaid and other current assets |
39,943 |
26,171 |
|||||
Total current assets |
1,474,211 |
1,199,068 |
|||||
Property and equipment, net |
165,259 |
102,646 |
|||||
Operating lease right-of-use assets, net |
238,991 |
— |
|||||
Intangible assets, net |
56,258 |
57,065 |
|||||
Goodwill |
195,043 |
166,832 |
|||||
Deferred tax assets |
75,013 |
69,983 |
|||||
Other noncurrent assets |
39,433 |
16,208 |
|||||
Total assets |
$ |
2,244,208 |
$ |
1,611,802 |
|||
Liabilities |
|||||||
Current liabilities |
|||||||
Accounts payable |
$ |
7,831 |
$ |
7,444 |
|||
Accrued compensation and benefits expenses |
230,035 |
177,594 |
|||||
Accrued expenses and other current liabilities |
82,476 |
50,253 |
|||||
Income taxes payable, current |
9,064 |
27,538 |
|||||
Operating lease liabilities, current |
57,542 |
— |
|||||
Total current liabilities |
386,948 |
262,829 |
|||||
Long-term debt |
25,074 |
25,031 |
|||||
Income taxes payable, noncurrent |
45,878 |
43,685 |
|||||
Operating lease liabilities, noncurrent |
180,848 |
— |
|||||
Other noncurrent liabilities |
9,315 |
17,661 |
|||||
Total liabilities |
648,063 |
349,206 |
|||||
Commitments and contingencies |
|||||||
Stockholders' equity |
|||||||
Common stock, $0.001 par value; 160,000,000 authorized; 55,207,446 and 54,099,927 shares |
55 |
54 |
|||||
Additional paid-in capital |
607,051 |
544,700 |
|||||
Retained earnings |
1,020,590 |
759,533 |
|||||
Treasury stock |
(177) |
(177) |
|||||
Accumulated other comprehensive loss |
(31,374) |
(41,514) |
|||||
Total stockholders' equity |
1,596,145 |
1,262,596 |
|||||
Total liabilities and stockholders' equity |
$ |
2,244,208 |
$ |
1,611,802 |
EPAM SYSTEMS, INC. AND SUBSIDIARIES |
|||||
Reconciliation of revenue growth on a constant currency basis to revenue growth as reported under GAAP is presented in the table below: |
|||||
Three Months Ended |
Year Ended |
||||
Revenue growth on a constant currency basis (1) |
24.8 |
% |
25.8 |
% |
|
Foreign exchange rates impact |
0.5 |
% |
(1.3) |
% |
|
Revenue growth as reported under GAAP |
25.3 |
% |
24.5 |
% |
|
(1) |
Constant currency revenue results are calculated by translating current period revenues 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 and years ended December 31, 2019 and 2018: |
|||||||||||||||||||||||
Three Months Ended December 31, 2019 |
Year Ended December 31, 2019 |
||||||||||||||||||||||
GAAP |
Adjustments |
Non-GAAP |
GAAP |
Adjustments |
Non-GAAP |
||||||||||||||||||
Cost of revenues (exclusive of depreciation and amortization)(2) |
$ |
410,069 |
$ |
(9,739) |
$ |
400,330 |
$ |
1,488,198 |
$ |
(37,580) |
$ |
1,450,618 |
|||||||||||
Selling, general and administrative expenses(3) |
$ |
124,999 |
$ |
(10,542) |
$ |
114,457 |
$ |
457,433 |
$ |
(38,806) |
$ |
418,627 |
|||||||||||
Income from operations(4) |
$ |
84,745 |
$ |
22,902 |
$ |
107,647 |
$ |
302,850 |
$ |
86,300 |
$ |
389,150 |
|||||||||||
Operating margin |
13.4 |
% |
3.6 |
% |
17.0 |
% |
13.2 |
% |
3.8 |
% |
17.0 |
% |
|||||||||||
Net income(5) |
$ |
74,524 |
$ |
12,731 |
$ |
87,255 |
$ |
261,057 |
$ |
51,651 |
$ |
312,708 |
|||||||||||
Diluted earnings per share |
$ |
1.29 |
$ |
1.51 |
$ |
4.53 |
$ |
5.42 |
Three Months Ended December 31, 2018 |
Year Ended December 31, 2018 |
||||||||||||||||||||||
GAAP |
Adjustments |
Non-GAAP |
GAAP |
Adjustments |
Non-GAAP |
||||||||||||||||||
Cost of revenues (exclusive of depreciation and amortization)(2) |
$ |
319,031 |
$ |
(4,410) |
$ |
314,621 |
$ |
1,186,921 |
$ |
(27,245) |
$ |
1,159,676 |
|||||||||||
Selling, general and administrative expenses(3) |
$ |
97,447 |
$ |
(8,081) |
$ |
89,366 |
$ |
373,587 |
$ |
(33,998) |
$ |
339,589 |
|||||||||||
Income from operations(4) |
$ |
78,270 |
$ |
14,792 |
$ |
93,062 |
$ |
245,764 |
$ |
69,344 |
$ |
315,108 |
|||||||||||
Operating margin |
15.5 |
% |
2.9 |
% |
18.4 |
% |
13.3 |
% |
3.8 |
% |
17.1 |
% |
|||||||||||
Net income(5) |
$ |
59,965 |
$ |
12,359 |
$ |
72,324 |
$ |
240,256 |
$ |
7,754 |
$ |
248,010 |
|||||||||||
Diluted earnings per share |
$ |
1.05 |
$ |
1.27 |
$ |
4.24 |
$ |
4.38 |
Items (2) through (5) above are detailed in the table below with the specific cross-reference noted in the appropriate item. |
Three Months Ended |
Year Ended |
||||||||||||||
2019 |
2018 |
2019 |
2018 |
||||||||||||
Stock-based compensation expenses |
$ |
9,739 |
$ |
4,410 |
$ |
37,580 |
$ |
27,245 |
|||||||
Total adjustments to GAAP cost of revenues(2) |
9,739 |
4,410 |
37,580 |
27,245 |
|||||||||||
Stock-based compensation expenses |
9,273 |
8,042 |
34,456 |
31,943 |
|||||||||||
Other acquisition-related expenses |
1,269 |
209 |
3,774 |
916 |
|||||||||||
One-time charges |
— |
(170) |
576 |
1,139 |
|||||||||||
Total adjustments to GAAP selling, general and administrative expenses(3) |
10,542 |
8,081 |
38,806 |
33,998 |
|||||||||||
Amortization of purchased intangible assets |
2,621 |
2,301 |
9,914 |
8,101 |
|||||||||||
Total adjustments to GAAP income from operations(4) |
22,902 |
14,792 |
86,300 |
69,344 |
|||||||||||
Change in fair value of contingent consideration included in Interest and other income, net |
420 |
— |
1,776 |
(900) |
|||||||||||
Foreign exchange loss/(gain) |
1,898 |
582 |
12,049 |
(487) |
|||||||||||
Provision for income taxes: |
|||||||||||||||
Tax effect on non-GAAP adjustments |
(4,586) |
(1,855) |
(20,089) |
(12,862) |
|||||||||||
Net discrete charge/(benefit) related to U.S. tax reform |
— |
13 |
— |
(29,971) |
|||||||||||
Excess tax benefits related to stock-based compensation |
(7,903) |
(1,173) |
(28,385) |
(17,370) |
|||||||||||
Total adjustments to GAAP net income(5) |
$ |
12,731 |
$ |
12,359 |
$ |
51,651 |
$ |
7,754 |
EPAM SYSTEMS, INC. AND SUBSIDIARIES |
|||||
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 Securities and Exchange Commission. |
|||||
Reconciliation of projected revenue growth on a constant currency basis to projected revenue growth on a GAAP basis is presented in the table below: |
|||||
First Quarter 2020 |
Full Year 2020 |
||||
Revenue growth on a constant currency basis(6) |
23 |
% |
22 |
% |
|
Foreign exchange rates impact |
0 |
% |
0 |
% |
|
Revenue growth on a GAAP basis |
23 |
% |
22 |
% |
(6) |
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 projected GAAP to non-GAAP income from operations as a percentage of revenues is presented in the table below: |
|||||
First Quarter 2020 |
Full Year 2020 |
||||
GAAP income from operations as a percentage of revenues |
12% to 13% |
13% to 14% |
|||
Stock-based compensation expenses |
2.5 |
% |
2.5 |
% |
|
Included in cost of revenues (exclusive of depreciation and amortization) |
1.2 |
% |
1.2 |
% |
|
Included in selling, general and administrative expenses |
1.3 |
% |
1.3 |
% |
|
Other acquisition-related expenses
|
0.1 |
% |
0.1 |
% |
|
Amortization of purchased intangible assets |
0.4 |
% |
0.4 |
% |
|
Non-GAAP income from operations as a percentage of revenues |
15% to 16% |
16% to 17% |
Reconciliation of projected GAAP to non-GAAP effective tax rate is presented in the table below: |
|||||
First Quarter 2020 |
Full Year 2020 |
||||
GAAP effective tax rate (approximately) |
5 |
% |
14 |
% |
|
Tax effect on non-GAAP adjustments |
4.6 |
% |
3.4 |
% |
|
Excess tax benefits related to stock-based compensation |
13.4 |
% |
5.6 |
% |
|
Non-GAAP effective tax rate (approximately) |
23 |
% |
23 |
% |
Reconciliation of projected GAAP to non-GAAP diluted earnings per share is presented in the table below: |
|||||||
First Quarter 2020 |
Full Year 2020 |
||||||
GAAP diluted earnings per share (at least) |
$ |
1.27 |
$ |
5.56 |
|||
Stock-based compensation expenses |
0.31 |
1.25 |
|||||
Included in cost of revenues (exclusive of depreciation and amortization) |
0.15 |
0.61 |
|||||
Included in selling, general and administrative expenses |
0.16 |
0.64 |
|||||
Other acquisition-related expenses |
0.02 |
0.07 |
|||||
Amortization of purchased intangible assets |
0.05 |
0.19 |
|||||
Foreign exchange loss |
0.05 |
0.15 |
|||||
Provision for income taxes: |
|||||||
Tax effect on non-GAAP adjustments |
(0.09) |
(0.35) |
|||||
Excess tax benefits related to stock-based compensation |
(0.25) |
(0.57) |
|||||
Non-GAAP diluted earnings per share (at least) |
$ |
1.36 |
$ |
6.30 |
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SOURCE
EPAM Systems, Inc., David Straube, Head of Investor Relations, Phone: +1-267-759-9000 x59419, david_straube@epam.com