Press Release: August 8, 2019

Second quarter revenues of $551.6 million, up 23.8% year-over-year
GAAP Diluted EPS of $1.02 for the second quarter
Non-GAAP Diluted EPS of $1.28 for the second quarter

NEWTOWN, Pa., Aug. 8, 2019 /PRNewswire/ -- EPAM Systems, Inc. (NYSE: EPAM), a leading global provider of digital platform engineering and software development services, today announced results for its second quarter ended June 30, 2019.

EPAM logo (PRNewsfoto/EPAM Systems, Inc.)

"Our ability to manage complex, enterprise-level programs, in addition to our continued investments in our people and new technologies across our entire services portfolio, underpins our strong Q2 results," said Arkadiy Dobkin, CEO & President, EPAM. "Based on the continued demand we see for our services and solutions, we have raised our full-year revenue outlook."

Second Quarter 2019 Highlights

  • Revenues increased to $551.6 million, a year-over-year increase of $105.9 million, or 23.8%, and on a constant currency basis, revenues were up 25.1% over the corresponding period last year;
  • GAAP income from operations was $72.9 million, an increase of $18.6 million, or 34.4%, compared to $54.2 million in the second quarter of 2018;
  • Non-GAAP income from operations was $92.6 million, an increase of $20.3 million, or 28.0%, compared to $72.3 million in the second quarter of 2018;
  • Diluted earnings per share ("EPS") on a GAAP basis was $1.02, an increase of $0.13, or 14.6%, compared to $0.89 in the second quarter of 2018 based on a weighted average share count of 57.6 million fully diluted shares outstanding; and
  • Non-GAAP diluted EPS was $1.28, an increase of $0.27, or 26.7%, compared to $1.01 in the second quarter of 2018.

Cash Flow and Other Metrics

  • Cash provided by operating activities was $43.8 million for the first six months of 2019, compared to $66.8 million provided by operating activities for the first six months of 2018;
  • Cash, cash equivalents and restricted cash totaled $778.5 million as of June 30, 2019, an increase of $6.8 million, or 0.9%, from $771.7 million as of December 31, 2018; and
  • Total headcount was approximately 33,100 as of June 30, 2019. Included in this number were approximately 29,400 delivery professionals, an increase of 21.0% from June 30, 2018.

2019 Outlook - Full Year and Third Quarter

Full Year

  • Revenue growth for 2019 will now be at least 23%. The Company continues to expect that foreign currency translation will have a 1% unfavorable impact on full year reported revenues. The Company now expects revenue growth on a constant currency basis will be at least 24%;
  • The Company continues to expect GAAP income from operations to be in the range of 12.5% to 13.5% 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 now be approximately 14% and its non-GAAP effective tax rate to continue to be approximately 23%; and
  • The Company expects GAAP diluted EPS will now be at least $4.43 for the full year, and non-GAAP diluted EPS will now be at least $5.25 for the full year. The Company now expects weighted average share count for the year of 57.7 million diluted shares outstanding.

Third Quarter

  • Revenues will be at least $579 million for the third quarter reflecting a year-over-year growth rate of at least 23%. The Company expects foreign currency translation to 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 at least 24%;
  • For the third quarter, the Company expects GAAP income from operations to be in the range of 12.5% to 13.5% 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 15% and its non-GAAP effective tax rate to be approximately 23%; and
  • The Company expects GAAP diluted EPS will be at least $1.14 for the quarter, and non-GAAP diluted EPS will be at least $1.32 for the quarter. The Company expects weighted average share count for the quarter of 57.9 million diluted shares outstanding.

Conference Call Information

EPAM will host a conference call to discuss results on Thursday, August 8, 2019 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 at 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 13692355. The replay will be available until August 22, 2019.

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 over 25 countries across North America, Europe, Asia and Australia. EPAM is a recognized market leader in multiple categories among top global independent research agencies and was one of only four technology companies to appear on Forbes 25 Fastest Growing Public Tech Companies list every year of publication since 2013. Learn more at http://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, write-offs and recoveries, 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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)



Three Months Ended
 June 30,


Six Months Ended
 June 30,


2019


2018


2019


2018

Revenues

$

551,587



$

445,647



$

1,072,920



$

869,795


Operating expenses:








Cost of revenues (exclusive of depreciation and amortization)

355,915



289,175



700,604



566,809


Selling, general and administrative expenses

111,762



93,273



213,548



182,914


Depreciation and amortization expense

11,028



8,962



21,228



17,138


Income from operations

72,882



54,237



137,540



102,934


Interest and other income, net

1,190



1,052



4,266



501


Foreign exchange (loss)/gain

(3,562)



1,830



(7,046)



1,583


Income before provision for/(benefit from) income taxes

70,510



57,119



134,760



105,018


Provision for/(benefit from) income taxes

11,733



6,864



15,229



(9,655)


Net income

$

58,777



$

50,255



$

119,531



$

114,673


Foreign currency translation adjustments, net of tax

2,620



(15,834)



5,563



(12,525)


Unrealized gain/(loss) on cash-flow hedging instruments, net of tax

1,537



(2,076)



4,637



(2,007)


Comprehensive income

$

62,934



$

32,345



$

129,731



$

100,141










Net income per share:








Basic

$

1.07



$

0.94



$

2.19



$

2.15


Diluted

$

1.02



$

0.89



$

2.08



$

2.03


Shares used in calculation of net income per share:








Basic

54,682



53,517



54,465



53,299


Diluted

57,614



56,587



57,427



56,415


 

 

EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)



As of
June 30, 
 2019


As of
December 31,
2018

Assets




Current assets




Cash and cash equivalents

$

777,365



$

770,560


Accounts receivable, net of allowance of $1,882 and $1,557, respectively

343,864



297,685


Unbilled revenues

135,786



104,652


Prepaid expenses and other current assets

28,808



26,171


Total current assets

1,285,823



1,199,068


Property and equipment, net

111,175



102,646


Operating lease right-of-use assets

210,447




Intangible assets, net

53,821



57,065


Goodwill

179,214



166,832


Deferred tax assets

69,734



69,983


Other noncurrent assets

21,237



16,208


Total assets

$

1,931,451



$

1,611,802






Liabilities




Current liabilities




Accounts payable

$

6,043



$

7,444


Accrued expenses and other current liabilities

96,026



127,937


Due to employees

64,032



49,683


Deferred compensation due to employees

7,928



9,920


Taxes payable, current

50,156



67,845


Operating lease liabilities, current

48,429




Total current liabilities

272,614



262,829


Long-term debt

25,000



25,031


Taxes payable, noncurrent

43,650



43,685


Operating lease liabilities, noncurrent

158,137




Other noncurrent liabilities

9,803



17,661


Total liabilities

509,204



349,206


Commitments and contingencies




Stockholders' equity




Common stock, $0.001 par value; 160,000,000 authorized; 54,799,024 and 54,099,927 shares issued, 54,779,289 and 54,080,192 shares outstanding at June 30, 2019 and December 31, 2018, respectively

55



54


Additional paid-in capital

574,619



544,700


Retained earnings

879,064



759,533


Treasury stock

(177)



(177)


Accumulated other comprehensive loss

(31,314)



(41,514)


Total stockholders' equity

1,422,247



1,262,596


Total liabilities and stockholders' equity

$

1,931,451



$

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
 June 30, 2019


Six Months
Ended
 June 30, 2019

Revenue growth on a constant currency basis(1)

25.1

%


25.7

%

Foreign exchange rates impact

(1.3)

%


(2.3)

%

Revenue growth as reported

23.8

%


23.4

%

 

(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 and six months ended June 30, 2019 and 2018:



Three Months Ended
 June 30, 2019


Six Months Ended
 June 30, 2019


GAAP


Adjustments


Non-GAAP


GAAP


Adjustments


Non-GAAP

Cost of revenues (exclusive of depreciation and amortization)(2)

$

355,915



$

(7,480)



$

348,435



$

700,604



$

(20,261)



$

680,343


Selling, general and administrative expenses(3)

$

111,762



$

(9,606)



$

102,156



$

213,548



$

(19,227)



$

194,321


Income from operations(4)

$

72,882



$

19,687



$

92,569



$

137,540



$

44,227



$

181,767


Operating margin

13.2

%


3.6

%


16.8

%


12.8

%


4.1

%


16.9

%

Net income(5)

$

58,777



$

14,933



$

73,710



$

119,531



$

25,705



$

145,236


Diluted earnings per share

$

1.02





$

1.28



$

2.08





$

2.53


 


Three Months Ended
 June 30, 2018


Six Months Ended
 June 30, 2018


GAAP


Adjustments


Non-GAAP


GAAP


Adjustments


Non-GAAP

Cost of revenues (exclusive of depreciation and amortization)(2)

$

289,175



$

(7,054)



$

282,121



$

566,809



$

(15,343)



$

551,466


Selling, general and administrative expenses(3)

$

93,273



$

(8,997)



$

84,276



$

182,914



$

(17,924)



$

164,990


Income from operations(4)

$

54,237



$

18,083



$

72,320



$

102,934



$

37,059



$

139,993


Operating margin

12.2

%


4.0

%


16.2

%


11.8

%


4.3

%


16.1

%

Net income(5)

$

50,255



$

6,821



$

57,076



$

114,673



$

(5,354)



$

109,319


Diluted earnings per share

$

0.89





$

1.01



$

2.03





$

1.94



Items (2) through (5) above are detailed in the table below with the specific cross-reference noted in the appropriate item.

 

 


Three Months Ended
 June 30,


Six Months Ended
 June 30,


2019


2018


2019


2018

Stock-based compensation expenses

$

7,480



$

7,054



$

20,261



$

15,343


Total adjustments to GAAP cost of revenues(2)

7,480



7,054



20,261



15,343


Stock-based compensation expenses

8,217



7,756



17,292



16,063


Other acquisition-related expenses

850



85



1,361



462


One-time charges

539



1,156



574



1,399


Total adjustments to GAAP selling, general and administrative expenses(3)

9,606



8,997



19,227



17,924


Amortization of purchased intangible assets

2,601



2,032



4,739



3,792


Total adjustments to GAAP income from operations(4)

19,687



18,083



44,227



37,059


Change in fair value of contingent consideration included in Interest and other income, net

1,356





1,356




Foreign exchange loss/(gain)

3,562



(1,830)



7,046



(1,583)


Provision for/(benefit from) income taxes:








Tax effect on non-GAAP adjustments

(4,931)



(3,286)



(10,670)



(7,517)


Net discrete benefit related to U.S. tax reform



(706)





(23,183)


Excess tax benefits related to stock-based compensation

(4,741)



(5,440)



(16,254)



(10,130)


Total adjustments to GAAP net income(5)

$

14,933



$

6,821



$

25,705



$

(5,354)


 

 

EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Guidance Non-GAAP Financial Measures to Comparable GAAP Financial 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:



Third Quarter 2019


Full Year 2019

Revenue growth on a constant currency basis (at least) (6)

24

%


24

%

Foreign exchange rates impact

(1)

%


(1)

%

Revenue growth (at least)

23

%


23

%

 

(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:



Third Quarter 2019


Full Year 2019

GAAP income from operations as a percentage of revenues

12.5% to 13.5%


12.5% to 13.5%

Stock-based compensation expenses

2.9

%


3.0

%

Included in cost of revenues (exclusive of depreciation and amortization)

1.4

%


1.5

%

Included in selling, general and administrative expenses

1.5

%


1.5

%

Other acquisition-related expenses

0.1

%


0.1

%

Amortization of purchased intangible assets

0.5

%


0.4

%

Non-GAAP income from operations as a percentage of revenues

16% to 17%


16% to 17%

 

 

Reconciliation of projected GAAP to non-GAAP effective tax rate is presented in the table below:



Third Quarter 2019


Full Year 2019

GAAP effective tax rate (approximately)

15

%


14

%

Tax effect on non-GAAP adjustments

3.4

%


3.9

%

Excess tax benefits related to stock-based compensation

4.6

%


5.1

%

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:



Third Quarter 2019


Full Year 2019

GAAP diluted earnings per share (at least)

$

1.14



$

4.43


Stock-based compensation expenses

0.28



1.20


Included in cost of revenues (exclusive of depreciation and amortization)

0.13



0.61


Included in selling, general and administrative expenses

0.15



0.59


Other acquisition-related expenses

0.01



0.04


Amortization of purchased intangible assets

0.05



0.18


One-time charges



0.01


Change in fair value of contingent consideration included in Interest and other income, net



0.02


Foreign exchange loss

0.02



0.16


Provision for income taxes:




     Tax effect on non-GAAP adjustments

(0.08)



(0.34)


     Excess tax benefits related to stock-based compensation

(0.10)



(0.45)


Non-GAAP diluted earnings per share (at least)

$

1.32



$

5.25


 

 

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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