EPAM Reports Results for Third Quarter 2020
Press Release: November 5, 2020
"EPAM's solid third quarter performance was the result of an improving demand environment along with the ongoing expansion of the Company's capabilities—enabling us to continue supporting our customers in the execution of their transformation programs," said Arkadiy Dobkin, CEO & President, EPAM. "Our continuous efforts on implementing internally the principles of an adaptive organization, allow us to navigate the realities of the global economic environment more effectively, while increasing the value we bring to our clients and extending our market position as a trusted digital solutions partner."
Third Quarter 2020 Highlights
- Revenues increased to
$652.2 million , a year-over-year increase of$64.1 million , or 10.9%, and on a constant currency basis, revenues were up 10.0% over the corresponding period last year; - GAAP income from operations was
$96.4 million , an increase of$15.8 million , or 19.6%, compared to$80.6 million in the third quarter of 2019; - Non-GAAP income from operations was
$123.3 million , an increase of$23.6 million , or 23.6%, compared to$99.7 million in the third quarter of 2019; - Diluted earnings per share ("EPS") on a GAAP basis was
$1.53 , an increase of$0.37 , or 31.9%, compared to$1.16 in the third quarter of 2019 based on weighted average diluted shares outstanding of 58.6 million; and - Non-GAAP diluted EPS was
$1.65 , an increase of$0.26 , or 18.7%, compared to$1.39 in the third quarter of 2019.
Cash Flow and Other Metrics
- Cash provided by operating activities was
$385.0 million for the first nine months of 2020, compared to$162.9 million for the first nine months of 2019; - Cash and cash equivalents totaled
$1,161.1 million as ofSeptember 30, 2020 , an increase of$224.5 million , or 24.0%, from$936.6 million as ofDecember 31, 2019 ; and - Total headcount was approximately 38,000 as of
September 30, 2020 . Included in this number were approximately 33,800 delivery professionals, an increase of 7.4% fromSeptember 30, 2019 .
Fourth Quarter 2020 Outlook
The Company expects the following for the fourth quarter:
- Revenues will be in the range of
$695 million to$705 million for the fourth quarter reflecting a year-over-year growth rate of approximately 10.6% 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; - For the fourth quarter, the Company expects GAAP income from operations to be in the range of 14% to 15% of revenues and non-GAAP income from operations to be in the range of 17.5% to 18.5% 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 in the range of
$1.44 to$1.54 for the quarter, and non-GAAP diluted EPS will be in the range of$1.63 to$1.73 for the quarter. The Company expects weighted average diluted shares outstanding for the quarter of 58.9 million.
Conference Call Information
EPAM will host a conference call to discuss the results on
About
Since 1993,
Non-GAAP Financial Measures
EPAM supplements results reported in accordance with
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 civil unrest in the geographies where we operate and the effect that they 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
|
|||||||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||||||
2020 |
2019 |
2020 |
2019 |
||||||||||||
Revenues |
$ |
652,243 |
$ |
588,103 |
$ |
1,935,985 |
$ |
1,661,023 |
|||||||
Operating expenses: |
|||||||||||||||
Cost of revenues (exclusive of depreciation and |
423,388 |
377,525 |
1,266,730 |
1,078,129 |
|||||||||||
Selling, general and administrative expenses |
116,530 |
118,886 |
355,829 |
332,434 |
|||||||||||
Depreciation and amortization expense |
15,929 |
11,127 |
46,095 |
32,355 |
|||||||||||
Income from operations |
96,396 |
80,565 |
267,331 |
218,105 |
|||||||||||
Interest and other income, net |
1,672 |
2,509 |
5,875 |
6,775 |
|||||||||||
Foreign exchange gain/(loss) |
5,896 |
(3,105) |
3,253 |
(10,151) |
|||||||||||
Income before provision for income taxes |
103,964 |
79,969 |
276,459 |
214,729 |
|||||||||||
Provision for income taxes |
14,532 |
12,967 |
34,838 |
28,196 |
|||||||||||
Net income |
$ |
89,432 |
$ |
67,002 |
$ |
241,621 |
$ |
186,533 |
|||||||
Foreign currency translation adjustments, net of tax |
199 |
(10,114) |
(15,878) |
(4,551) |
|||||||||||
Unrealized (loss)/gain on cash-flow hedging instruments, net of |
(498) |
(2,163) |
(3,420) |
2,474 |
|||||||||||
Comprehensive income |
$ |
89,133 |
$ |
54,725 |
$ |
222,323 |
$ |
184,456 |
|||||||
Net income per share: |
|||||||||||||||
Basic |
$ |
1.60 |
$ |
1.22 |
$ |
4.34 |
$ |
3.42 |
|||||||
Diluted |
$ |
1.53 |
$ |
1.16 |
$ |
4.14 |
$ |
3.24 |
|||||||
Shares used in calculation of net income per share: |
|||||||||||||||
Basic |
55,884 |
54,878 |
55,625 |
54,604 |
|||||||||||
Diluted |
58,616 |
57,844 |
58,341 |
57,567 |
|
|||||||
As of |
As of |
||||||
Assets |
|||||||
Current assets |
|||||||
Cash and cash equivalents |
$ |
1,161,065 |
$ |
936,552 |
|||
Short-term investments |
60,089 |
9 |
|||||
Trade receivables and contract assets, net of allowance of |
493,225 |
497,716 |
|||||
Prepaid and other current assets |
37,843 |
39,934 |
|||||
Total current assets |
1,752,222 |
1,474,211 |
|||||
Property and equipment, net |
163,689 |
165,259 |
|||||
Operating lease right-of-use assets, net |
232,780 |
238,991 |
|||||
Intangible assets, net |
54,321 |
56,258 |
|||||
|
207,764 |
195,043 |
|||||
Deferred tax assets |
90,071 |
75,013 |
|||||
Other noncurrent assets |
54,578 |
39,433 |
|||||
Total assets |
$ |
2,555,425 |
$ |
2,244,208 |
|||
Liabilities |
|||||||
Current liabilities |
|||||||
Accounts payable |
$ |
10,785 |
$ |
7,831 |
|||
Accrued compensation and benefits expenses |
263,918 |
230,035 |
|||||
Accrued expenses and other current liabilities |
65,242 |
82,476 |
|||||
Income taxes payable, current |
13,779 |
9,064 |
|||||
Operating lease liabilities, current |
61,107 |
57,542 |
|||||
Total current liabilities |
414,831 |
386,948 |
|||||
Long-term debt |
25,039 |
25,074 |
|||||
Income taxes payable, noncurrent |
43,259 |
45,878 |
|||||
Operating lease liabilities, noncurrent |
183,935 |
180,848 |
|||||
Other noncurrent liabilities |
28,127 |
9,315 |
|||||
Total liabilities |
695,191 |
648,063 |
|||||
Commitments and contingencies |
|||||||
Stockholders' equity |
|||||||
Common stock, |
56 |
55 |
|||||
Additional paid-in capital |
648,686 |
607,051 |
|||||
Retained earnings |
1,262,341 |
1,020,590 |
|||||
|
(177) |
(177) |
|||||
Accumulated other comprehensive loss |
(50,672) |
(31,374) |
|||||
Total stockholders' equity |
1,860,234 |
1,596,145 |
|||||
Total liabilities and stockholders' equity |
$ |
2,555,425 |
$ |
2,244,208 |
|
|||||
Reconciliation of revenue growth as reported on a GAAP basis to revenue growth on a constant currency basis is |
|||||
Three Months Ended |
Nine Months Ended |
||||
Revenue growth as reported |
10.9 |
% |
16.6 |
% |
|
Foreign exchange rates impact |
(0.9) |
0.2 |
|||
Revenue growth on a constant currency basis(1) |
10.0 |
% |
16.8 |
% |
(1) |
Constant currency revenue results are calculated by translating current period revenues in local currency into |
Reconciliation of various income statement amounts from GAAP to non-GAAP for the three and nine months ended |
|||||||||||||||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||||||||||||||
GAAP |
Adjustments |
Non-GAAP |
GAAP |
Adjustments |
Non-GAAP |
||||||||||||||||||
Cost of revenues (exclusive of |
$ |
423,388 |
$ |
(10,854) |
$ |
412,534 |
$ |
1,266,730 |
$ |
(23,796) |
$ |
1,242,934 |
|||||||||||
Selling, general and |
$ |
116,530 |
$ |
(12,976) |
$ |
103,554 |
$ |
355,829 |
$ |
(36,497) |
$ |
319,332 |
|||||||||||
Income from operations(4) |
$ |
96,396 |
$ |
26,916 |
$ |
123,312 |
$ |
267,331 |
$ |
69,508 |
$ |
336,839 |
|||||||||||
Operating margin |
14.8 |
% |
4.1 |
% |
18.9 |
% |
13.8 |
% |
3.6 |
% |
17.4 |
% |
|||||||||||
Net income(5) |
$ |
89,432 |
$ |
7,254 |
$ |
96,686 |
$ |
241,621 |
$ |
22,915 |
$ |
264,536 |
|||||||||||
Diluted earnings per share |
$ |
1.53 |
$ |
1.65 |
$ |
4.14 |
$ |
4.53 |
Three Months Ended |
Nine Months Ended |
||||||||||||||||||||||
GAAP |
Adjustments |
Non-GAAP |
GAAP |
Adjustments |
Non-GAAP |
||||||||||||||||||
Cost of revenues (exclusive of |
$ |
377,525 |
$ |
(7,580) |
$ |
369,945 |
$ |
1,078,129 |
$ |
(27,841) |
$ |
1,050,288 |
|||||||||||
Selling, general and |
$ |
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 |
Items (2) through (5) above are detailed in the table below with the specific cross-reference noted in the appropriate item. |
Three Months Ended |
Nine Months Ended |
||||||||||||||
2020 |
2019 |
2020 |
2019 |
||||||||||||
Stock-based compensation expenses |
$ |
10,854 |
$ |
7,580 |
$ |
23,796 |
$ |
27,841 |
|||||||
Total adjustments to GAAP cost of revenues(2) |
10,854 |
7,580 |
23,796 |
27,841 |
|||||||||||
Stock-based compensation expenses |
12,620 |
7,891 |
30,998 |
25,183 |
|||||||||||
Other acquisition-related expenses |
243 |
1,144 |
859 |
2,505 |
|||||||||||
One-time charges |
113 |
2 |
4,640 |
576 |
|||||||||||
Total adjustments to GAAP selling, general and administrative |
12,976 |
9,037 |
36,497 |
28,264 |
|||||||||||
Amortization of acquired intangible assets |
3,086 |
2,554 |
9,215 |
7,293 |
|||||||||||
Total adjustments to GAAP income from operations(4) |
26,916 |
19,171 |
69,508 |
63,398 |
|||||||||||
Change in fair value of contingent consideration included in |
(43) |
— |
(1,481) |
1,356 |
|||||||||||
Impairment of investment |
— |
— |
313 |
— |
|||||||||||
Foreign exchange gain/(loss) |
(5,896) |
3,105 |
(3,253) |
10,151 |
|||||||||||
Provision for income taxes: |
|||||||||||||||
Tax effect on non-GAAP adjustments |
(4,558) |
(4,833) |
(13,181) |
(15,503) |
|||||||||||
Excess tax benefits related to stock-based compensation |
(9,165) |
(4,228) |
(28,991) |
(20,482) |
|||||||||||
Total adjustments to GAAP net income(5) |
$ |
7,254 |
$ |
13,215 |
$ |
22,915 |
$ |
38,920 |
|
||
The below guidance constitutes forward-looking statements within the meaning of the federal securities laws and is based |
||
Reconciliation of expected revenue growth on a GAAP basis to expected revenue growth on a constant currency basis is presented in the table below: |
||
Fourth Quarter 2020 |
||
Revenue growth (at mid-point of the range) |
10.6% |
|
Foreign exchange rates impact |
— % |
|
Revenue growth on a constant currency basis (at mid-point of the range) (6) |
10.6% |
(6) |
Constant currency revenue results are calculated by translating expected revenues in local currency into |
Reconciliation of expected GAAP to non-GAAP income from operations as a percentage of revenues is presented in the |
||
Fourth Quarter 2020 |
||
GAAP income from operations as a percentage of revenues |
14% to 15% |
|
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 |
17.5% to 18.5% |
Reconciliation of expected GAAP to non-GAAP effective tax rate is presented in the table below: |
||
Fourth Quarter 2020 |
||
GAAP effective tax rate (approximately) |
15 |
% |
Tax effect on non-GAAP adjustments |
3.1 |
% |
Excess tax benefits related to stock-based compensation |
4.9 |
% |
Non-GAAP effective tax rate (approximately) |
23 |
% |
Reconciliation of expected GAAP to non-GAAP diluted earnings per share is presented in the table below: |
||
Fourth Quarter 2020 |
||
GAAP diluted earnings per share |
|
|
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 |
|
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 |
(0.15) |
|
Non-GAAP diluted earnings per share |
|
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SOURCE
EPAM Systems, Inc., David Straube, Head of Investor Relations, Phone: +1-267-759-9000 x59419, Email: david_straube@epam.com