Press Release: February 25, 2015

Fourth Quarter revenue increased 28.3% year-over-year and 4.9% sequentially

Annual revenues of $730.0 million, up 31.5% year-over-year

Non-GAAP net income grew more than 32.7% for the fourth quarter year-over-year and 38.0% for the full year

Newtown, PA - February 25, 2015 - EPAM Systems, Inc. (NYSE: EPAM), a leading global provider of complex software engineering solutions and a leader in delivery capacity distributed across Central and Eastern Europe, today announced results for its fourth quarter and year ended December 31, 2014.

Fourth Quarter 2014 Highlights

·          Revenues increased to a record $202.2 million, up 28.3% year-over-year, and 4.9% sequentially;

·          In constant currency, revenue was up 36.7% year over year and 9% sequentially;

·          GAAP income from operations was $24.0 million, an increase of 3.5% compared to $23.2 million in the fourth quarter of 2013;

·          Non-GAAP income from operations was $36.2 million, an increase of $8.8 million, or 32.2%, from $27.4 million in the fourth quarter of 2013;

·          Quarterly diluted earnings per share (EPS) on a GAAP basis was $0.37, down from $0.38 in the year-ago quarter;

·          Non-GAAP quarterly diluted EPS was $0.62, up 29.2% from $0.48 in the year-ago quarter.

EPAM generated cash from operations of $49.1 million in the fourth quarter of 2014, an increase of $2.7 million generated over the fourth quarter of 2013.

Reconciliations of non-GAAP financial measures to GAAP operating results and diluted EPS are included at the end of this press release.

"2014 was another successful year of transforming EPAM from being a pure software engineering outsourcing firm into a solution provider with well-balanced capabilities ranging from digital strategy to managed services, and doing that while maintaining our traditionally strong focus on the engineering quality of our deliverables. We are glad to have achieved this transformation despite a number of challenges we faced in 2014 - some expected as we transition into a more mature company and some very much outside of our control," said Arkadiy Dobkin, CEO and President of EPAM. "We are confident that we are on the correct path, as demonstrated by our over 30% revenue growth and by EPAM reaching the $200 million quarterly revenue mark for the first time in our history."

Full Year 2014 Highlights

·          Revenues increased 31.5% to a record $730.0 million, up from $555.1 million in 2013;

·          In constant currency, revenue was up 34.2% year over year;

·          GAAP income from operations for 2014 was $86.2 million, an increase of 12.7% over 2013;

·          Non-GAAP income from operations was $123.1 million, an increase of 34.1% compared to $91.8 million in 2013;

·          Diluted EPS on a GAAP basis was $1.40, compared to $1.28 in the previous year;

·          Non-GAAP diluted EPS was $2.22, compared to $1.66 in 2013.

For the full year 2014, EPAM generated operating cash flow of $105.2 million. As of December 31, 2014 EPAM had cash and cash equivalents of $220.5 million.

Corporate Highlights
·          EPAM ranked #3 on Forbes' 2014 List of America's Best Small Companies, scores #1 Among Technology Companies
·          EPAM won Best Agile Category at the 2014 European Software Testing Awards
·          EPAM won Most Transformative Branch Experience Award in the Citi Mobile Challenge

"As we turn our attention to 2015, we face another year of challenges, and feel that EPAM is very well positioned to continue its transformation to support its growth and expansion," continued Mr. Dobkin.

Full Year and First Quarter 2015 Outlook

Based on current conditions, EPAM expects year-over-year revenue growth to be 21%-23%. Non-GAAP net income growth for 2015 is expected to be in the range of 20% to 22% year-over-year, with an effective tax rate of approximately 20%. The full year weighted average share count is expected to be just approximately 51 million diluted shares outstanding.

For the first quarter of 2015, EPAM expects revenues between $196 million and $198 million, representing a growth rate of 22% to 23% over first quarter 2014 revenues. First quarter 2015 non-GAAP diluted EPS is expected to be in the range of $0.54 to $0.55 based on an estimated first quarter 2015 weighted average of 50.7 million diluted shares. GAAP diluted EPS is expected to be in the range of $0.34 to $0.35.

Conference Call Information

EPAM will host a conference call to discuss results on Thursday, February 26, 2015 at 8:00 a.m. Eastern Time. The live conference call can be accessed by dialing 1-877-407-0784 (international) or 1-201-689-8560 (domestic). A telephonic replay will also be available approximately one hour after the call and can be accessed by dialing 1-877-870-5176 (international) or 1-858-384-5517 (domestic). The passcode for the replay is 13600522. The telephonic replay will be available until March 12, 2015. Interested investors and other parties may also listen to a webcast of the conference call by logging onto the Investor Relations section of the Company's website at http://investors.epam.com.

About EPAM Systems

Established in 1993, EPAM Systems, Inc. (NYSE: EPAM) is recognized as a leader in software product development by independent research agencies. Headquartered in the United States, EPAM serves clients worldwide utilizing its award-winning global delivery platform and its locations in 19 countries across North America, Europe, Asia and Australia. EPAM was ranked #6 in 2013 America's 25 Fastest-Growing Tech Companies, and #3 in 2014 America's Best Small Companies lists by Forbes Magazine.

For more information, please visit http://www.epam.com.

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, communicated 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 expense, write-off and recovery, amortization of purchased intangible assets, goodwill impairment, legal settlement, foreign exchange gains and losses, and acquisition-related costs. Because EPAM's reported non-GAAP financial measures are not calculated according to 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 according to 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 our 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.

Contact:
EPAM Systems, Inc.
Anthony J. Conte, Chief Financial Officer
Phone: +1-267-759-9000 x64588
Fax: +1-267-759-8989
Investor_relations@epam.com

EPAM SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(US Dollars in thousands, except share and per share data)

  Three Months Ended
December 31,
  Year Ended
 December 31,
  2014     2013     2014     2013  
Revenues $ 202,184     $ 157,585     $ 730,027     $ 555,117  
Operating expenses:                      
Cost of revenues (exclusive of depreciation and amortization) 121,465     97,627     456,530     347,650  
Selling, general and administrative expenses 49,761     32,980     163,666     116,497  
Depreciation and amortization expense 2,833     3,743     17,483     15,120  
Goodwill impairment loss 2,241     -     2,241     -  
Other operating expenses/(income), net 1,869     43     3,924     (643 )
Income from operations 24,015     23,192     86,183     76,493  
Interest and other income, net 1,368     832     4,769     3,077  
Change in fair value of contingent consideration (1,924 )   -     (1,924 )   -  
Foreign exchange income/(loss) 1,123     (712 )   (2,075 )   (2,800 )
Income before provision for income taxes 24,582     23,312     86,953     76,770  
Provision for income taxes 6,159     4,553     17,312     14,776  
Net income $ 18,423     $ 18,759     $ 69,641     $ 61,994  
Foreign currency translation adjustments (11,308 )   (398 )   (20,251 )   (811 )
Comprehensive income $ 7,115     $ 18,361     $ 49,390     $ 61,183  
                       
Net income per share:                      
Basic $ 0.39     $ 0.40     $ 1.48     $ 1.35  
Diluted $ 0.37     $ 0.38     $ 1.40     $ 1.28  
Shares used in calculation of net income per share:                      
Basic 47,620     46,532     47,189     45,754  
Diluted 50,339     49,066     49,723     48,358  

EPAM SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US Dollars in thousands, except share and per share data)

  As of December 31, 2014   As of December 31, 2013
Assets          
Current assets          
Cash and cash equivalents $ 220,534     $ 169,207  
Accounts receivable, net of allowance of $2,181 and $1,800, respectively

 
124,483     95,431  
Unbilled revenues 55,851     43,108  
Prepaid and other current assets 9,289     14,355  
Employee loans, net of allowance of $0 and $0, respectively, current 2,434     1,989  
Time deposits -     1,188  
Restricted cash, current -     298  
Deferred tax assets, current 2,496     5,392  
Total current assets 415,087     330,968  
Property and equipment, net 55,134     53,315  
Restricted cash, long-term 156     225  
Employee loans, net of allowance of $0 and $0, respectively, long-term 4,081     4,401  
Intangible assets, net 47,689     13,734  
Goodwill 57,417     22,268  
Deferred tax assets, long-term 11,094     4,557  
Other long-term assets 3,368     3,409  
Total assets $ 594,026     $ 432,877  
           
Liabilities          
Current liabilities          
Accounts payable $ 4,641     $ 2,835  
Accrued expenses and other liabilities 32,203     20,175  
Deferred revenue, current 3,220     4,543  
Due to employees 24,518     12,665  
Taxes payable 24,704     14,171  
Contingent consideration, current 35,524     -  
Deferred tax liabilities, current 603     275  
Total current liabilities 125,413     54,664  
Deferred revenue, long-term -     533  
Taxes payable, long-term -     1,228  
Deferred tax liabilities, long-term 4,563     351  
Total liabilities 129,976     56,776  
Commitments and contingencies          
Stockholders' equity          
Common stock, $0.001 par value; 160,000,000 authorized; 48,748,298 and 47,569,463 shares issued, 48,303,811 and 46,614,916 shares outstanding at December 31, 2014 and December 31, 2013, respectively 48     46  
Additional paid-in capital 229,501     195,585  
Retained earnings 260,598     190,986  
Treasury stock (4,043 )   (8,684 )
Accumulated other comprehensive loss (22,054 )   (1,832 )
Total stockholders' equity 464,050     376,101  
Total liabilities and stockholders' equity $ 594,026     $ 432,877  

EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures
(in thousands, except percent and per share amounts)
(Unaudited)

  Three months ended December 31, 2014   Year ended December 31, 2014
  GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1) $ 121,465     $ (2,257 )   $ 119,208     $ 456,530     $ (8,648 )   $ 447,882  
Selling, general and administrative expenses(2) $ 49,761     $ (5,863 )   $ 43,898     $ 163,666     $ (16,876 )   $ 146,790  
Income from operations(3) $ 24,015     $ 12,175     $ 36,190     $ 86,183     $ 36,959     $ 123,142  
Operating margin 11.9 %   6.0 %   17.9 %   11.8 %   5.1 %   16.9 %
Net income(4) $ 18,423     $ 12,976     $ 31,399     $ 69,641     $ 40,958     $ 110,599  
Diluted earnings per share(5) $ 0.37           $ 0.62     $ 1.40           $ 2.22  
 
  Three months ended December 31, 2013   Year ended December 31, 2013
  GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1) $ 97,627     $ (1,467 )   $ 96,160     $ 347,650     $ (4,823 )   $ 342,827  
Selling, general and administrative expenses(2) $ 32,980     $ (2,062 )   $ 30,918     $ 116,497     $ (8,545 )   $ 107,952  
Income from operations(3) $ 23,192     $ 4,188     $ 27,380     $ 76,493     $ 15,346     $ 91,839  
Operating margin 14.7 %   2.7 %   17.4 %   13.8 %   2.7 %   16.5 %
Net income(4) $ 18,759     $ 4,900     $ 23,659     $ 61,994     $ 18,146     $ 80,140  
Diluted earnings per share (5) $ 0.38           $ 0.48     $ 1.28           $ 1.66  

Notes:

(1) Adjustments to GAAP cost of revenues (exclusive of depreciation and amortization) were comprised of stock-based compensation expense recorded in the periods presented.
(2) Adjustments to GAAP selling general and administrative expenses:
 
  Three Months Ended
December 31,
  Year Ended
 December 31,
  2014     2013     2014     2013  
Stock-based compensation expense $ 5,839     $ 1,892     $ 15,972     $ 8,327  
Acquisition-related costs 24     170     904     218  
Total adjustments to GAAP selling, general and administrative expenses $ 5,863     $ 2,062     $ 16,876     $ 8,545  
 
(3) Adjustments to GAAP income from operations:
 
  Three Months Ended
 December 31,
  Year Ended
December 31,
  2014     2013     2014     2013  
Stock-based compensation expense $ 8,096     $ 3,359     $ 24,620     $ 13,150  
reported within cost of revenues 2,257     1,467     8,648     4,823  
reported within selling, general and administrative expenses 5,839     1,892     15,972     8,327  
Acquisition-related costs 24     170     904     218  
Amortization of purchased intangible assets (31 )   659     5,349     2,785  
Goodwill impairment loss 2,241     -     2,241     -  
One-time charges 1,845     -     3,845     (807 )
Total adjustments to GAAP income from operations $ 12,175     $ 4,188     $ 36,959     $ 15,346  
 
(4) Adjustments to GAAP net income:
 
  Three Months Ended
 December 31,
  Year Ended
December 31,
  2014     2013     2014     2013  
Stock-based compensation expense $ 8,096     $ 3,359     $ 24,620     $ 13,150  
reported within cost of revenues 2,257     1,467     8,648     4,823  
reported within selling, general and administrative expenses 5,839     1,892     15,972     8,327  
Acquisition-related costs 24     170     904     218  
Amortization of purchased intangible assets (31 )   659     5,349     2,785  
Goodwill impairment loss 2,241     -     2,241     -  
Change in fair value of contingent consideration 1,924     -     1,924     -  
One-time charges 1,845     -     3,845     (807 )
Foreign exchange loss/ (gain) (1,123 )   712     2,075     2,800  
Total adjustments to GAAP net income $ 12,976     $ 4,900     $ 40,958     $ 18,146  
 
(5) There were no adjustments to GAAP average diluted common shares outstanding during the three and year ended December 31, 2014 and 2013.
 
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