Press Release: November 4, 2021

 

  • Third quarter revenues of $988.5 million, up 51.6% year-over-year
  • GAAP Income from Operations was 14.6% of revenues and Non-GAAP Income from Operations was 18.2% of revenues for the third quarter
  • Third quarter GAAP diluted EPS of $1.95, an increase of 27.5%, and Non-GAAP diluted EPS of $2.42, an increase of 46.7% on a year-over-year basis
  • EPAM raises full year 2021 outlook and now expects revenue growth to be at least 40%, GAAP diluted EPS to be in the range of $7.86 to $7.93 and Non-GAAP diluted EPS to be in the range of $8.72 to $8.79

 

NEWTOWN, Pa., Nov. 4, 2021 /PRNewswire/ -- EPAM Systems, Inc. (NYSE: EPAM), a leading digital transformation services and product engineering company, today announced results for its third quarter ended September 30, 2021.

"We are pleased with our strong third-quarter results, which reflect a wide-range of demand across all our geographies and industry groups," said Arkadiy Dobkin, CEO & President, EPAM. "The increased rate of change that was difficult to predict over a year ago, is now driving higher levels of transformation across the industries we serve. As such, we continue to invest in growing our teams and capabilities to help our customers to simultaneously envision and deliver solutions through our industry leading digital transformation services and product engineering offerings." 

Third Quarter 2021 Highlights

  • Revenues were $988.5 million, a year-over-year increase of $336.3 million, or 51.6%. On a constant currency basis, revenues were up 50.7% compared to the third quarter of 2020. Acquisitions completed in the last twelve months contributed 5.0% to revenue growth in the quarter;
  • GAAP income from operations was $144.1 million, an increase of $47.7 million, or 49.5%, compared to $96.4 million in the third quarter of 2020;
  • Non-GAAP income from operations was $179.6 million, an increase of $56.3 million, or 45.7%, compared to $123.3 million in the third quarter of 2020;
  • Diluted earnings per share ("EPS") on a GAAP basis was $1.95, an increase of $0.42, or 27.5%, compared to $1.53 in the third quarter of 2020; and
  • Non-GAAP diluted EPS was $2.42, an increase of $0.77, or 46.7%, compared to $1.65 in the third quarter of 2020.

Cash Flow and Other Metrics

  • Cash provided by operating activities was $287.7 million for the first nine months of 2021, compared to $385.0 million for the first nine months of 2020;
  • Cash, cash equivalents and restricted cash totaled $1,425.6 million as of September 30, 2021, an increase of $102.0 million, or 7.7%, from $1,323.5 million as of December 31, 2020; and
  • Total headcount was approximately 52,650 as of September 30, 2021. Included in this number were approximately 47,050 delivery professionals, an increase of 39.4% from September 30, 2020.

2021 Outlook - Full Year and Fourth Quarter

Full Year

Given the strength of the first nine months of 2021 combined with a strong demand environment, EPAM is raising its full year outlook:

  • The Company now expects revenue growth for 2021 to be at least 40% on a GAAP basis, which includes a favorable foreign currency translation impact of approximately 2%. Revenue growth on a constant currency basis will now be at least 38%. The Company expects acquisitions, including the acquisition of Emakina Group SA, will contribute approximately 4% to reported revenues;
  • For the full year, EPAM continues to expect 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 17% to 18% of revenues;
  • The Company expects its GAAP effective tax rate to continue to be approximately 11% and its non-GAAP effective tax rate to now be approximately 22%; and
  • EPAM expects GAAP diluted EPS to now be in the range of $7.86 to $7.93 for the year, and non-GAAP diluted EPS to now be in the range of $8.72 to $8.79 for the year. The Company now expects weighted average diluted shares outstanding for the year of 59.1 million.

Fourth Quarter

EPAM expects the following for the fourth quarter:

  • Revenues will be in the range of $1.075 billion to $1.085 billion on a GAAP basis for the fourth quarter reflecting a year-over-year growth rate of approximately 49% at the mid-point of the range. The Company expects foreign currency translation will have a minimal impact on year-over-year reported revenue growth. The Company expects acquisitions, including the acquisition of Emakina Group SA, will contribute approximately 8% to reported revenues;
  • For the fourth quarter, EPAM 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 17% to 18% of revenues;
  • The Company expects its GAAP effective tax rate to be approximately 14% and its non-GAAP effective tax rate to be approximately 22%; and
  • EPAM expects GAAP diluted EPS will be in the range of $2.11 to $2.18 for the quarter, and non-GAAP diluted EPS will be in the range of $2.44 to $2.51 for the quarter. The Company expects weighted average diluted shares outstanding for the quarter of 59.3 million.

Conference Call Information

EPAM will host a conference call to discuss the results on Thursday, November 4, 2021 at 8:00 a.m. EDT. 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 2091279. The replay will be available until November 11, 2021.

About EPAM Systems

Since 1993, EPAM Systems, Inc. (NYSE: EPAM) has leveraged its advanced software engineering heritage to become the foremost global digital transformation services provider – leading the industry in digital and physical product development and digital platform engineering services. Through its innovative strategy; integrated advisory, consulting and design capabilities; and unique 'Engineering DNA,' EPAM's globally deployed hybrid teams help make the future real for clients and communities around the world by powering better enterprise, education and health platforms that connect people, optimize experiences, and improve people's lives. Selected by Newsweek as a 2021 Most Loved Workplace, EPAM's global multi-disciplinary teams serve customers in more than 40 countries across five continents. As a recognized leader, EPAM is listed among the top 15 companies in Information Technology Services on the Fortune 1000 and ranked as the top IT services company on Fortune's 100 Fastest-Growing Companies list for the last three consecutive years. EPAM is also listed among Ad Age's top 25 World's Largest Agency Companies and in 2020, Consulting Magazine named EPAM Continuum a top 20 Fastest-Growing Firm. Learn more at www.epam.com and follow EPAM on Twitter 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. These statements may include words such as "may," "will," "should," "believe," "expect," "anticipate," "intend," "plan," "estimate" or similar expressions. 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 conduct business and where our operations are located and the effect that these events may have on our revenues, operations, access to capital, profitability and customer demand. Other factors that could cause actual results to differ materially from those expressed or implied include general economic conditions, the risk factors discussed in the Company's most recent Annual Report on Form 10-K, the discussion in the Company's Quarterly Report on Form 10-Q, filed on or after the date of this press release,  particularly under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" 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
(Unaudited)
(In thousands, except per share data)

 
 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2021

 

2020

 

2021

 

2020

Revenues

$

988,539

   

$

652,243

   

$

2,650,680

   

$

1,935,985

 

Operating expenses:

             

Cost of revenues (exclusive of depreciation and amortization)

653,374

   

423,388

   

1,756,430

   

1,266,730

 

Selling, general and administrative expenses

169,498

   

116,530

   

457,797

   

355,829

 

Depreciation and amortization expense

21,543

   

15,929

   

59,804

   

46,095

 

Income from operations

144,124

   

96,396

   

376,649

   

267,331

 

Interest and other (loss)/income, net

(5,325)

   

1,672

   

2,629

   

5,875

 

Foreign exchange (loss)/gain

(3,441)

   

5,896

   

(5,835)

   

3,253

 

Income before provision for income taxes

135,358

   

103,964

   

373,443

   

276,459

 

Provision for income taxes

19,702

   

14,532

   

34,070

   

34,838

 

Net income

$

115,656

   

$

89,432

   

$

339,373

   

$

241,621

 
               

Net income per share:

             

Basic

$

2.04

   

$

1.60

   

$

6.01

   

$

4.34

 

Diluted

$

1.95

   

$

1.53

   

$

5.75

   

$

4.14

 

Shares used in calculation of net income per share:

             

Basic

56,649

   

55,884

   

56,429

   

55,625

 

Diluted

59,203

   

58,616

   

58,999

   

58,341

 

 

EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value)

 
 

As of

September 30,

2021

 

As of

December 31,

2020

Assets

     

Current assets

     

Cash and cash equivalents

$

1,266,614

   

$

1,322,143

 

Short-term investments

   

60,007

 

Trade receivables and contract assets, net of allowance of $6,207 and $4,886, respectively

755,588

   

501,062

 

Prepaid and other current assets

69,992

   

29,570

 

Total current assets

2,092,194

   

1,912,782

 

Restricted cash, noncurrent

158,454

   

1,284

 

Property and equipment, net

176,881

   

169,533

 

Operating lease right-of-use assets, net

192,628

   

228,672

 

Intangible assets, net

74,576

   

51,975

 

Goodwill

386,508

   

211,956

 

Deferred tax assets

104,057

   

92,454

 

Other noncurrent assets

56,935

   

52,676

 

Total assets

$

3,242,233

   

$

2,721,332

 
       

Liabilities

     

Current liabilities

     

Accounts payable

$

8,086

   

$

10,189

 

Accrued compensation and benefits expenses

412,061

   

294,709

 

Accrued expenses and other current liabilities

140,298

   

79,690

 

Income taxes payable, current

20,928

   

20,603

 

Operating lease liabilities, current

51,174

   

60,759

 

Total current liabilities

632,547

   

465,950

 

Long-term debt

25,024

   

25,038

 

Income taxes payable, noncurrent

42,193

   

43,448

 

Operating lease liabilities, noncurrent

149,556

   

180,604

 

Other noncurrent liabilities

53,794

   

23,274

 

Total liabilities

903,114

   

738,314

 

Commitments and contingencies

     

Stockholders' equity

     

Common stock, $0.001 par value; 160,000 shares authorized; 56,728 and 56,128 shares issued, 56,708 and 56,108 shares outstanding at September 30, 2021 and December 31, 2020, respectively

57

   

56

 

Additional paid-in capital

693,887

   

660,771

 

Retained earnings

1,687,253

   

1,347,880

 

Treasury stock

(177)

   

(177)

 

Accumulated other comprehensive loss

(41,901)

   

(25,512)

 

Total stockholders' equity

2,339,119

   

1,983,018

 

Total liabilities and stockholders' equity

$

3,242,233

   

$

2,721,332

 

 

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

 
 

Three Months Ended

September 30, 2021

 

Nine Months Ended

September 30, 2021

Revenue growth as reported

51.6

%

 

36.9

%

Foreign exchange rates impact

(0.9)

%

 

(2.5)

%

Revenue growth on a constant currency basis(1)

50.7

%

 

34.4

%

   

(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 nine months ended September 30, 2021 and 2020:

 
 

Three Months Ended

September 30, 2021

 

Nine Months Ended

September 30, 2021

 

GAAP

 

Adjustments

 

Non-GAAP

 

GAAP

 

Adjustments

 

Non-GAAP

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

$

653,374

   

$

(12,174)

   

$

641,200

   

$

1,756,430

   

$

(34,552)

   

$

1,721,878

 

Selling, general and administrative expenses(3)

$

169,498

   

$

(18,655)

   

$

150,843

   

$

457,797

   

$

(48,777)

   

$

409,020

 

Income from operations(4)

$

144,124

   

$

35,513

   

$

179,637

   

$

376,649

   

$

95,114

   

$

471,763

 

Operating margin

14.6

%

 

3.6

%

 

18.2

%

 

14.2

%

 

3.6

%

 

17.8

%

Net income(5)

$

115,656

   

$

27,549

   

$

143,205

   

$

339,373

   

$

31,170

   

$

370,543

 

Diluted earnings per share

$

1.95

       

$

2.42

   

$

5.75

       

$

6.28

 
 
 

Three Months Ended

September 30, 2020

 

Nine Months Ended

September 30, 2020

 

GAAP

 

Adjustments

 

Non-GAAP

 

GAAP

 

Adjustments

 

Non-GAAP

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

$

423,388

   

$

(10,854)

   

$

412,534

   

$

1,266,730

   

$

(23,796)

   

$

1,242,934

 

Selling, general and administrative expenses(3)

$

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

 
 

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,

 

2021

 

2020

 

2021

 

2020

Stock-based compensation expenses

$

12,174

   

$

10,854

   

$

34,552

   

$

23,796

 

Total adjustments to GAAP cost of revenues(2)

12,174

   

10,854

   

34,552

   

23,796

 

Stock-based compensation expenses

17,013

   

12,620

   

43,086

   

30,998

 

Other acquisition-related expenses

1,553

   

243

   

5,585

   

859

 

One-time charges

89

   

113

   

106

   

4,640

 

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

18,655

   

12,976

   

48,777

   

36,497

 

Amortization of acquired intangible assets

4,684

   

3,086

   

11,785

   

9,215

 

Total adjustments to GAAP income from operations(4)

35,513

   

26,916

   

95,114

   

69,508

 

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

6,998

   

(43)

   

1,362

   

(1,481)

 

Impairment of investment

   

   

   

313

 

Foreign exchange (loss)/gain

3,441

   

(5,896)

   

5,835

   

(3,253)

 

Provision for income taxes:

             

Tax effect on non-GAAP adjustments

(8,053)

   

(4,558)

   

(18,312)

   

(13,181)

 

Excess tax benefits related to stock-based compensation

(10,350)

   

(9,165)

   

(52,829)

   

(28,991)

 

Total adjustments to GAAP net income(5)

$

27,549

   

$

7,254

   

$

31,170

   

$

22,915

 

 

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

 

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

 
 
 

Fourth Quarter 2021
(at mid-point of range)

 

Full Year 2021
(at least)

Revenue growth

49%

 

40%

Foreign exchange rates impact

—%

 

(2)%

Revenue growth on a constant currency basis (6)

49%

 

38%

 

(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:

 
 

Fourth Quarter 2021

 

Full Year 2021

GAAP income from operations as a percentage of revenues

13.5% to 14.5%

 

13.5% to 14.5%

Stock-based compensation expenses

2.9%

 

2.9%

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

1.3%

 

1.3%

Included in selling, general and administrative expenses

1.6%

 

1.6%

Other acquisition-related expenses

0.1%

 

0.2%

Amortization of purchased intangible assets

0.5%

 

0.4%

Non-GAAP income from operations as a percentage of revenues

17% to 18%

 

17% to 18%

 

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

 
 

Fourth Quarter 2021

 

Full Year 2021

GAAP effective tax rate (approximately)

14%

 

11%

Tax effect on non-GAAP adjustments

3.1%

 

3.1%

 Excess tax benefits related to stock-based compensation

4.9%

 

7.9%

Non-GAAP effective tax rate (approximately)

22%

 

22%

 

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

 
 

Fourth Quarter 2021

 

Full Year 2021

GAAP diluted earnings per share

$2.11 to $2.18

 

$7.86 to $7.93

Stock-based compensation expenses

0.53

 

1.85

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

0.25

 

0.83

Included in selling, general and administrative expenses

0.28

 

1.02

Other acquisition-related expenses

0.03

 

0.13

Amortization of purchased intangible assets

0.10

 

0.30

Change in fair value of contingent consideration

 

0.02

Foreign exchange loss

0.03

 

0.12

Provision for income taxes:

     

     Tax effect on non-GAAP adjustments

(0.14)

 

(0.45)

     Excess tax benefits related to stock-based compensation

(0.22)

 

(1.11)

Non-GAAP diluted earnings per share

$2.44 to $2.51

 

$8.72 to $8.79

 

Cision View original content to download multimedia:https://www.prnewswire.com/news-releases/epam-reports-strong-results-for-third-quarter-2021-and-raises-full-year-outlook-301416205.html

SOURCE EPAM Systems, Inc.

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