Press Release: August 6, 2020

Second quarter revenues of $632.4 million, up 14.6% year-over-year
 
GAAP Diluted EPS of $1.14 for the second quarter
 
Non-GAAP Diluted EPS of $1.46 for the second quarter

NEWTOWN, Pa., Aug. 6, 2020 /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, 2020.

"EPAM's better than expected second quarter performance demonstrates a continued need for our services during a time when businesses had to quickly pivot and adapt to an unpredictable environment," said Arkadiy Dobkin, CEO & President, EPAM. "As we manage through the continued uncertainty in the global environment, we are driving new levels of collaboration, engagement and efficiency across the organization. Our focus for the second half of this year remains on helping our customers successfully navigate change, ensuring the safety and well-being of our employees while giving back to the communities where we live and work." 

Second Quarter 2020 Highlights

  • Revenues increased to $632.4 million, a year-over-year increase of $80.8 million, or 14.6%, and on a constant currency basis, revenues were up 15.5% over the corresponding period last year;
  • GAAP income from operations was $83.4 million, an increase of $10.5 million, or 14.5%, compared to $72.9 million in the second quarter of 2019;
  • Non-GAAP income from operations was $108.2 million, an increase of $15.6 million, or 16.9%, compared to $92.6 million in the second quarter of 2019;
  •  Diluted earnings per share ("EPS") on a GAAP basis was $1.14, an increase of $0.12, or 11.8%, compared to $1.02 in the second quarter of 2019 based on weighted average diluted shares outstanding of 58.2 million; and
  • Non-GAAP diluted EPS was $1.46, an increase of $0.18, or 14.1%, compared to $1.28 in the second quarter of 2019.

Cash Flow and Other Metrics

  • Cash provided by operating activities was $209.4 million for the first six months of 2020, compared to $43.8 million provided by operating activities for the first six months of 2019;
  • Cash, cash equivalents and restricted cash totaled $994.9 million as of June 30, 2020, an increase of $57.2 million, or 6.1%, from $937.7 million as of December 31, 2019; and
  • Total headcount was approximately 36,400 as of June 30, 2020. Included in this number were approximately 32,300 delivery professionals, an increase of 9.7% from June 30, 2019.

Third 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 third quarter:

  • Revenues will be in the range of $633 million to $643 million for the third quarter reflecting a year-over-year growth rate of approximately 8.5% at the mid-point of the range. The Company expects that foreign currency translation will have a negligible 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 8.5% at the mid-point of the range;
  • For the third quarter, 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 16.5% to 17.5% of revenues;
  • The Company expects its GAAP effective tax rate to be approximately 16% and its non-GAAP effective tax rate to be approximately 23%; and
  • The Company expects GAAP diluted EPS will be in the range of $1.15 to $1.24 for the quarter, and non-GAAP diluted EPS will be in the range of $1.40 to $1.49 for the quarter. The Company expects weighted average diluted shares outstanding for the quarter of 58.6 million.

Conference Call Information

EPAM will host a conference call to discuss the results on Thursday, August 6, 2020 at 8:00 a.m. Eastern time. The live conference call will be available by dialing +1 (844) 707-0662 or +1 (703) 318-2250 (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 https://investors.epam.com/. A replay will be available approximately one hour after the call, by dialing +1 (855) 859-2056 or +1 (404) 537-3406 (outside of the U.S.) and entering the conference ID 7297886. The replay will be available until August 13, 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 including amortization of intangible assets, impairment of assets, certain other one-time charges and benefits, changes in fair value of contingent consideration, foreign exchange gains and losses, 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 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 Securities and Exchange Commission. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. 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,

 

2020

 

2019

 

2020

 

2019

Revenues

$

632,383

   

$

551,587

   

$

1,283,742

   

$

1,072,920

 

Operating expenses:

             

Cost of revenues (exclusive of depreciation and
amortization)

419,540

   

355,915

   

843,342

   

700,604

 

Selling, general and administrative expenses

114,191

   

111,762

   

239,299

   

213,548

 

Depreciation and amortization expense

15,226

   

11,028

   

30,166

   

21,228

 

Income from operations

83,426

   

72,882

   

170,935

   

137,540

 

Interest and other income, net

1,817

   

1,190

   

4,203

   

4,266

 

Foreign exchange loss

(9,167)

   

(3,562)

   

(2,643)

   

(7,046)

 

Income before provision for income taxes

76,076

   

70,510

   

172,495

   

134,760

 

Provision for income taxes

9,452

   

11,733

   

20,306

   

15,229

 

Net income

$

66,624

   

$

58,777

   

$

152,189

   

$

119,531

 

Foreign currency translation adjustments, net of tax

12,442

   

2,620

   

(16,077)

   

5,563

 

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

6,446

   

1,537

   

(2,922)

   

4,637

 

Comprehensive income

$

85,512

   

$

62,934

   

$

133,190

   

$

129,731

 
               

Net income per share:

             

Basic

$

1.20

   

$

1.07

   

$

2.74

   

$

2.19

 

Diluted

$

1.14

   

$

1.02

   

$

2.62

   

$

2.08

 

Shares used in calculation of net income per share:

             

Basic

55,701

   

54,682

   

55,494

   

54,465

 

Diluted

58,246

   

57,614

   

58,194

   

57,427

 

 

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

 
 

As of

June 30,

2020

 

As of

December 31,
2019

Assets

     

Current assets

     

Cash and cash equivalents

$

993,724

   

$

936,552

 

Short-term investments

60,025

   

9

 

Trade receivables and contract assets, net of allowance of $6,070
and $2,920, respectively

506,908

   

497,716

 

Prepaid and other current assets

37,679

   

39,934

 

Total current assets

1,598,336

   

1,474,211

 

Property and equipment, net

167,359

   

165,259

 

Operating lease right-of-use assets

234,760

   

238,991

 

Intangible assets, net

55,887

   

56,258

 

Goodwill

199,039

   

195,043

 

Deferred tax assets

78,102

   

75,013

 

Other noncurrent assets

55,647

   

39,433

 

Total assets

$

2,389,130

   

$

2,244,208

 
       

Liabilities

     

Current liabilities

     

Accounts payable

$

7,596

   

$

7,831

 

Accrued compensation and benefits expenses

223,436

   

230,035

 

Accrued expenses and other current liabilities

62,639

   

82,476

 

Income taxes payable, current

10,972

   

9,064

 

Operating lease liabilities, current

60,937

   

57,542

 

Total current liabilities

365,580

   

386,948

 

Long-term debt

25,044

   

25,074

 

Income taxes payable, noncurrent

43,391

   

45,878

 

Operating lease liabilities, noncurrent

181,705

   

180,848

 

Other noncurrent liabilities

20,316

   

9,315

 

Total liabilities

636,036

   

648,063

 

Commitments and contingencies

     

Stockholders' equity

     

Common stock, $0.001 par value; 160,000,000 authorized; 55,845,686
and 55,207,446 shares issued, 55,825,951
and 55,187,711 shares outstanding at June 30, 2020 and December 31, 2019,
respectively

56

   

55

 

Additional paid-in capital

630,679

   

607,051

 

Retained earnings

1,172,909

   

1,020,590

 

Treasury stock

(177)

   

(177)

 

Accumulated other comprehensive loss

(50,373)

   

(31,374)

 

Total stockholders' equity

1,753,094

   

1,596,145

 

Total liabilities and stockholders' equity

$

2,389,130

   

$

2,244,208

 

 

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, 2020

 

Six Months Ended
June 30, 2020

Revenue growth on a constant currency basis(1)

15.5

%

 

20.6

%

Foreign exchange rates impact

(0.9)

   

(1.0)

 

Revenue growth as reported

14.6

%

 

19.6

%

   

(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, 2020 and 2019:

 
 

Three Months Ended
June 30, 2020

 

Six Months Ended
June 30, 2020

 

GAAP

 

Adjustments

 

Non-GAAP

 

GAAP

 

Adjustments

 

Non-GAAP

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

$

419,540

   

$

(8,958)

   

$

410,582

   

$

843,342

   

$

(12,942)

   

$

830,400

 

Selling, general and administrative expenses(3)

$

114,191

   

$

(12,828)

   

$

101,363

   

$

239,299

   

$

(23,521)

   

$

215,778

 

Income from operations(4)

$

83,426

   

$

24,780

   

$

108,206

   

$

170,935

   

$

42,592

   

$

213,527

 

Operating margin

13.2

%

 

3.9

%

 

17.1

%

 

13.3

%

 

3.3

%

 

16.6

%

Net income(5)

$

66,624

   

$

18,362

   

$

84,986

   

$

152,189

   

$

15,661

   

$

167,850

 

Diluted earnings per share

$

1.14

       

$

1.46

   

$

2.62

       

$

2.88

 

 

 

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

   

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,

 

2020

 

2019

 

2020

 

2019

Stock-based compensation expenses

$

8,958

   

$

7,480

   

$

12,942

   

$

20,261

 

Total adjustments to GAAP cost of revenues(2)

8,958

   

7,480

   

12,942

   

20,261

 

Stock-based compensation expenses

10,481

   

8,217

   

18,378

   

17,292

 

Other acquisition-related expenses

148

   

850

   

616

   

1,361

 

One-time charges

2,199

   

539

   

4,527

   

574

 

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

12,828

   

9,606

   

23,521

   

19,227

 

Amortization of acquired intangible assets

2,994

   

2,601

   

6,129

   

4,739

 

Total adjustments to GAAP income from operations(4)

24,780

   

19,687

   

42,592

   

44,227

 

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

(1,000)

   

1,356

   

(1,438)

   

1,356

 

Impairment of investment

313

   

   

313

   

 

Foreign exchange loss

9,167

   

3,562

   

2,643

   

7,046

 

Provision for income taxes:

             

Tax effect on non-GAAP adjustments

(6,769)

   

(4,931)

   

(8,623)

   

(10,670)

 

Excess tax benefits related to stock-based compensation

(8,129)

   

(4,741)

   

(19,826)

   

(16,254)

 

Total adjustments to GAAP net income(5)

$

18,362

   

$

14,933

   

$

15,661

   

$

25,705

 

 

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 expected revenue growth on a constant currency basis to expected revenue growth on a GAAP
basis is presented in the table below:

 
 

Third Quarter 2020

Revenue growth on a constant currency basis (at mid-point of the range) (6)

8.5%

Foreign exchange rates impact

—%

Revenue growth (at mid-point of the range)

8.5%

   

(6)

 Constant currency revenue results are calculated by translating expected revenues in local currency into U.S.
dollars at the weighted average exchange rates of the comparable prior period.

 

Reconciliation of expected GAAP to non-GAAP income from operations as a percentage of revenues is presented in the
table below:

 
 

Third Quarter 2020

GAAP income from operations as a percentage of revenues

13% to 14%

Stock-based compensation expenses

3.0%

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

1.4%

Included in selling, general and administrative expenses

1.6%

Amortization of purchased intangible assets

0.5%

Non-GAAP income from operations as a percentage of revenues

16.5% to 17.5%

 

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

 
 

Third Quarter 2020

GAAP effective tax rate (approximately)

16

%

Tax effect on non-GAAP adjustments

3.4

%

 Excess tax benefits related to stock-based compensation

3.6

%

Non-GAAP effective tax rate (approximately)

23

%

 

Reconciliation of expected GAAP to non-GAAP diluted earnings per share is presented in the table below:

 
 

Third Quarter 2020

GAAP diluted earnings per share (at least)

$1.15 to $1.24

Stock-based compensation expenses

0.33

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

0.15

Included in selling, general and administrative expenses

0.18

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

(0.09)

     Excess tax benefits related to stock-based compensation

(0.10)

Non-GAAP diluted earnings per share (at least)

$1.40 to $1.49

 

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/epam-reports-results-for-second-quarter-2020-301107226.html

SOURCE EPAM Systems, Inc.

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

Want to talk with our investor relations team?

We’d love to hear from you!
 
David Straube
INVESTOR RELATIONS
DAVID STRAUBE
Head of Investor Relations
Phone: +1-267-759-9000 x 59419