EPAM Reports Results for Fourth Quarter and Full Year 2019

Press Release: February 20, 2020

PDF Version
Fourth quarter revenues of $632.8 million, up 25.3% year-over-year
Annual revenues of $2.29 billion, up 24.5% year-over-year
GAAP Diluted EPS of $1.29 for the fourth quarter and $4.53 for the full year
Non-GAAP Diluted EPS of $1.51 for the fourth quarter and $5.42 for the full year

 

NEWTOWN, Pa., Feb. 20, 2020 /PRNewswire/ -- EPAM Systems, Inc. (NYSE: EPAM), a leading global provider of digital platform engineering and software development services, today announced results for its fourth quarter and full year ended December 31, 2019.

"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, EPAM. "We remain confident in our ability to provide highly relevant, adaptive services that help our customers succeed in an increasingly competitive and disruptive environment."

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 of December 31, 2019, an increase of $166.0 million, or 21.5%, from $771.7 million as of December 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% from December 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

EPAM will host a conference call to discuss results on Thursday, February 20, 2020 at 8:00 a.m. Eastern time. The live conference call will be available by dialing +1 (877) 407-0784 or +1 (201) 689-8560 (outside of the U.S.). A webcast of the conference call can be accessed in the Investor Relations section of the Company's website at http://investors.epam.com. A replay will be available approximately one hour after the call by dialing +1 (844) 512-2921 or +1 (412) 317-6671 (outside of the U.S.) and entering the conference ID 13697861. The replay will be available until March 5, 2020.

About EPAM Systems

Since 1993, EPAM Systems, Inc. (NYSE: EPAM) has leveraged its software engineering expertise to become a leading global product development, digital platform engineering, and top digital and product design agency. Through its 'Engineering DNA' and innovative strategy, consulting, and design capabilities, EPAM works in collaboration with its customers to deliver next-gen solutions that turn complex business challenges into real business outcomes. EPAM's global teams serve customers in more than 30 countries across North America, Europe, Asia and Australia. As a recognized market leader in multiple categories among top global independent research agencies, EPAM was one of only four technology companies to appear on Forbes 25 Fastest Growing Public Tech Companies list every year of publication since 2013 and was the only IT services company featured on Fortune's 100 Fastest-Growing Companies list of 2019. Learn more at www.epam.com and follow EPAM on Twitter @EPAMSYSTEMS and LinkedIn.

Non-GAAP Financial Measures

EPAM supplements results reported in accordance with United States generally accepted accounting principles, 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, communicate 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. 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 expenses, acquisition-related costs, amortization of purchased intangible assets, goodwill impairment, certain other one-time charges and benefits, changes in fair value of contingent consideration, foreign exchange gains and losses, the impact of U.S. tax reform, excess tax benefits related to stock-based compensation, and the related effect on income taxes of the pre-tax adjustments. Management also compares operating results on a basis of "constant currency," which is also a non-GAAP financial measure. This measure excludes the effect of foreign currency exchange rate fluctuations by translating the current period revenues and expenses into U.S. dollars at the weighted average exchange rates of the prior period of comparison. Because EPAM's reported non-GAAP financial measures are not calculated in accordance with GAAP, these measures are not comparable to GAAP and may not 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 the information in EPAM's consolidated financial statements, which are prepared in accordance with 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 the Company's 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.

 

 

EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
 
 

Three Months Ended
December 31,

  

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
     amortization)

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 
     of tax

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
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
 
 

As of
December 31, 
 2019

  

As of
December 31,
2018

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
issued, 55,187,711 and 54,080,192 shares outstanding at December 31, 2019 and December 31, 2018, respectively

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
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Financial Measures
(Unaudited)
(In thousands, except percent and per share amounts)
 

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
December 31, 2019

  

Year Ended
December 31, 2019

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
 December 31,

  

Year Ended
 December 31,
 

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
Reconciliations of Guidance Non-GAAP Measures to Comparable GAAP Measures
(Unaudited)
(In percent, except per share amounts)
 

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.

EPAM Systems, Inc., David Straube, Head of Investor Relations, Phone: +1-267-759-9000 x59419, david_straube@epam.com

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David Straube
INVESTOR RELATIONS
DAVID STRAUBE
Head of Investor Relations
Phone: +1-267-759-9000 x 59419
Email: investor_relations@epam.com