Press Release: November 7, 2019

Third quarter revenues of $588.1 million, up 25.6% year-over-year
GAAP Diluted EPS of $1.16 for the third quarter
Non-GAAP Diluted EPS of $1.39 for the third quarter

NEWTOWN, Pa., Nov. 7, 2019 /PRNewswire/ -- EPAM Systems, Inc. (NYSE: EPAM), a leading global provider of digital platform engineering and software development services, today announced results for its third quarter ended September 30, 2019.

"Our clients are continually being challenged to deliver dynamic, human-centered experiences and platforms quickly and at scale," said Arkadiy Dobkin, CEO & President, EPAM. "Our third quarter results demonstrate the continued demand for our services as we help our clients become adaptive enterprises to better address these market challenges."

Third Quarter 2019 Highlights

  • Revenues increased to $588.1 million, a year-over-year increase of $119.9 million, or 25.6%, and on a constant currency basis, revenues were up 27.2% over the corresponding period last year;
  • GAAP income from operations was $80.6 million, an increase of $16.0 million, or 24.8%, compared to $64.6 million in the third quarter of 2018;
  • Non-GAAP income from operations was $99.7 million, an increase of $17.7 million, or 21.6%, compared to $82.1 million in the third quarter of 2018;
  • Diluted earnings per share ("EPS") on a GAAP basis was $1.16, an increase of $0.01, or 0.9%, compared to $1.15 in the third quarter of 2018 based on a weighted average share count of 57.8 million fully diluted shares outstanding; and
  • Non-GAAP diluted EPS was $1.39, an increase of $0.22, or 18.8%, compared to $1.17 in the third quarter of 2018.

Cash Flow and Other Metrics

  • Cash provided by operating activities was $162.9 million for the first nine months of 2019, compared to $169.1 million provided by operating activities for the first nine months of 2018;
  • Cash, cash equivalents and restricted cash totaled $854.4 million as of September 30, 2019, an increase of $82.7 million, or 10.7%, from $771.7 million as of December 31, 2018; and
  • Total headcount was approximately 35,500 as of September 30, 2019. Included in this number were approximately 31,500 delivery professionals, an increase of 25.0% from September 30, 2018.

2019 Outlook - Full Year and Fourth Quarter

Full Year

  • Revenue growth for 2019 will continue to 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 continues to expect revenue growth on a constant currency basis will be at least 24%;
  • The Company expects GAAP income from operations to continue to be in the range of 12.5% to 13.5% of revenues and non-GAAP income from operations to now be in the range of 16.5% to 17.5% of revenues;
  • The Company expects its GAAP effective tax rate to now be approximately 15% and its non-GAAP effective tax rate to now be approximately 22%; 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 $5.35 for the full year. The Company continues to expect weighted average share count for the year of 57.7 million diluted shares outstanding.

Fourth Quarter

  • Revenues will be at least $616 million for the fourth quarter reflecting a year-over-year growth rate of 22%. The Company expects foreign currency translation to 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 22%;
  • For the fourth quarter, the Company expects GAAP income from operations to be in the range of 13.5% to 14.5% 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 21% and its non-GAAP effective tax rate to be approximately 23%; and
  • The Company expects GAAP diluted EPS will be at least $1.19 for the quarter, and non-GAAP diluted EPS will be at least $1.43 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 the results on Thursday, November 7, 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 13695316. The replay will be available until November 21, 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, 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

Nine Months Ended

 

September 30,

September 30,

 

2019

2018

2019

2018

Revenues

$     588,103

$     468,186

$ 1,661,023

$ 1,337,981

Operating expenses:

Cost of revenues (exclusive of depreciation and

       

amortization)

377,525

301,081

1,078,129

867,890

Selling, general and administrative expenses

118,886

93,226

332,434

276,140

Depreciation and amortization expense

11,127

9,319

32,355

26,457

Income from operations

80,565

64,560

218,105

167,494

Interest and other income, net

2,509

1,941

6,775

2,442

Foreign exchange (loss)/gain

(3,105)

(514)

(10,151)

1,069

Income before provision for/(benefit from) income taxes

79,969

65,987

214,729

171,005

Provision for/(benefit from) income taxes

12,967

369

28,196

(9,286)

Net income

$        67,002

$       65,618

$     186,533

$     180,291

Foreign currency translation adjustments, net of tax

(10,114)

(2,118)

(4,551)

(14,643)

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

 

(2,163)

 

(74)

 

2,474

 

(2,081)

Comprehensive income

$        54,725

$       63,426

$     184,456

$     163,567

         

Net income per share:

       

Basic

$            1.22

$            1.22

$            3.42

$            3.37

Diluted

$            1.16

$            1.15

$            3.24

$            3.19

 Shares used in calculation of net income per share:                                                                                                                         

Basic

54,878

53,852

54,604

53,485

Diluted

57,844

56,963

57,567

56,600

 

 

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

 
 

As of
September 30,

2019

As of
December 31,

2018

Assets

   

Current assets

   

Cash and cash equivalents

$

853,241

$

770,560

Accounts receivable, net of allowance of $1,519 and $1,557, respectively

339,112

297,685

Unbilled revenues

142,949

104,652

Prepaid expenses and other current assets

29,390

26,171

Total current assets

1,364,692

1,199,068

Property and equipment, net

115,321

102,646

Operating lease right-of-use assets

207,145

Intangible assets, net

56,537

57,065

Goodwill

186,299

166,832

Deferred tax assets

75,071

69,983

Other noncurrent assets

35,098

16,208

Total assets

$

2,040,163

$

1,611,802

     

Liabilities

   

Current liabilities

   

Accounts payable

$

6,896

$

7,444

Accrued expenses and other current liabilities

128,639

127,937

Due to employees

63,536

49,683

Deferred compensation due to employees

13,427

9,920

Taxes payable, current

47,548

67,845

Operating lease liabilities, current

51,424

Total current liabilities

311,470

262,829

Long-term debt

25,000

25,031

Taxes payable, noncurrent

43,738

43,685

Operating lease liabilities, noncurrent

153,980

Other noncurrent liabilities

13,858

17,661

Total liabilities

548,046

349,206

Commitments and contingencies

Stockholders' equity  

Common stock, $0.001 par value; 160,000,000 authorized; 54,968,833 and 54,099,927

shares issued, 54,949,098 and 54,080,192 shares outstanding at September 30, 2019
and December 31, 2018, respectively

55

54

Additional paid-in capital

589,764

544,700

Retained earnings

946,066

759,533

Treasury stock

(177)

(177)

Accumulated other comprehensive loss

(43,591)

(41,514)

Total stockholders' equity

1,492,117

1,262,596

Total liabilities and stockholders' equity

$

2,040,163

$

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

Nine Months Ended

September 30, 2019

September 30, 2019

Revenue growth on a constant currency basis(1)

27.2 %

26.2 %

Foreign exchange rates impact

(1.6)%

(2.1)%

Revenue growth as reported

25.6 %

24.1 %

 

 (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 nine months ended September 30, 2019 and 2018:

     
 

Three Months Ended
September 30, 2019

 Nine Months Ended
September 30, 2019

         
 

GAAP 

Adjustments

Non-GAAP

GAAP

Adjustments

Non-GAAP

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

$

377,525

$

(7,580 )

$

369,945

 

$

1,078,129

 

$

(27,841)

 

$

1,050,288

Selling, general and administrative
     
expenses(3)                                             

$

118,886

 

$

(9,037)

 

$

109,849

 

$

332,434

 

$

(28,264)

 

$

304,170

Income from operations(4)

$

80,565

$

19,171

$

99,736

$

218,105

$

63,398

$

281,503

Operating margin

13.7%

3.3%

17.0%

13.1%

3.8%

16.9%

Net income(5)

$

67,002

$

13,215

$

80,217

$

186,533

$

38,920

$

225,453

Diluted earnings per share

$

1.16

 

$

1.39

$

3.24

 

$

3.92

 
     
 
 

Three Months Ended
September 30, 2019

Nine Months Ended
September 30, 2019

     
 

GAAP 

Adjustments  

Non-GAAP

GAAP

Adjustments

Non-GAAP

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

$

301,081

$

(7,492 )

$

293,589

 

$

867,890

 

$

(22,835)

 

$

845,055

Selling, general and administrative
     
expenses(3)                                             

$

93,226

 

$

(7,993)

 

$

85,233

 

$

276,140

 

$

(25,917)

 

$

250,223

Income from operations(4)

$

64,560

$

17,493

$

82,053

$

167,494

$

54,552

$

222,046

Operating margin

13.8%

3.7%

17.5%

12.5%

4.1%

16.6%

Net income(5)

$

65,618

$

749

$

66,367

$

180,291

$

(4,605)

$

175,686

Diluted earnings per share

$

1.15

 

$

1.17

$

3.19

 

$

3.10

                     
 
 

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

 

 

 
 
 
 
 

Three Months Ended
September 30,

Nine Months Ended
September 30,

 

2019

2018

2019

2018

 

Stock-based compensation expenses

$

7,580

$

7,492

$

27,841

$

22,835

Total adjustments to GAAP cost of revenues(2)

7,580

7,492

27,841

22,835

Stock-based compensation expenses

7,891

7,838

25,183

23,901

Other acquisition-related expenses

1,144

245

2,505

707

    One-time charges

2

(90)

576

1,309

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

9,037

7,993

28,264

25,917

Amortization of purchased intangible assets

2,554

2,008

7,293

5,800

Total adjustments to GAAP income from operations(4)

19,171

17,493

63,398

54,552

Change in fair value of contingent consideration included in

       

Interest and other income, net

(900)

1,356

(900)

Foreign exchange loss/(gain)

3,105

514

10,151

(1,069)

Provision for/(benefit from) income taxes:

       

Tax effect on non-GAAP adjustments

(4,833)

(3,490)

(15,503)

(11,007)

Net discrete benefit related to U.S. tax reform

(6,801)

(29,984)

Excess tax benefits related to stock-based compensation

(4,228)

(6,067)

(20,482)

(16,197)

Total adjustments to GAAP net income(5)

$

13,215

$

749

$

38,920

$

(4,605)

 

 

    

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:

 
 
 

Fourth Quarter 2019

Full Year 2019

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

22%

24 %

Foreign exchange rates impact

0 %

(1)%

Revenue growth (at least)

22%

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:

 
 

Fourth Quarter 2019

Full Year 2019

GAAP income from operations as a percentage of revenues

13.5% to 14.5%

12.5% to 13.5%

Stock-based compensation expenses

2.4%

3.5%

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

1.2 %

1.8 %

Included in selling, general and administrative expenses

1.2 %

1.7 %

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

16.5% to 17.5%

16.5% to 17.5%

 

 

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

 
 

Fourth Quarter 2019

Full Year 2019

GAAP effective tax rate (approximately)

21%

15%

Tax effect on non-GAAP adjustments

1.4 %

3.3 %

Excess tax benefits related to stock-based compensation

0.6 %

3.7 %

Non-GAAP effective tax rate (approximately)

23%

22%

 

 

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

 
 

Fourth Quarter 2019

Full Year 2019

GAAP diluted earnings per share (at least)

$

1.19

$

4.43

Stock-based compensation expenses

0.25

1.19

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

0.12

0.61

Included in selling, general and administrative expenses

0.13

0.58

Other acquisition-related expenses

0.02

0.06

Amortization of purchased intangible assets

0.05

0.17

One-time charges

0.01

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

0.02

Foreign exchange loss

0.03

0.21

Provision for income taxes:

   

Tax effect on non-GAAP adjustments

(0.08)

(0.35)

Excess tax benefits related to stock-based compensation

(0.03)

(0.39)

Non-GAAP diluted earnings per share (at least) 

$

1.43

$

5.35

 

 

 

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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