Press Release: November 7, 2013

Third quarter revenues up 27% year-over-year and 5% sequentially 

Newtown, PA - November 7, 2013 - EPAM Systems, Inc. (NYSE: EPAM), a leading provider of complex software engineering solutions and a leader in Central and Eastern European IT services delivery, today announced results for the quarter ended September 30, 2013.

"We are pleased to deliver yet another quarter of industry-leading revenue growth," said Arkadiy Dobkin, CEO and President of EPAM Systems. "During this time of significant technological change impacting our clients, we are continuing to prove and enhance our competitive differentiation, in particular our  strong hands-on knowledge of emerging technologies combined with rapidly improving domain expertise, and the sophistication of our global delivery platform."

Third Quarter 2013 Highlights

·   Revenues increased to $140.2 million, up 27.3% year-over-year and 5.2% sequentially;

·   Non-GAAP income from operations was $23.8 million, an increase of 24.2% from the third quarter of 2012, rising to 17.0% of revenue;

·   GAAP income from operations was $20.2 million compared to $16.7 million in the third quarter of 2012;

·   Non-GAAP quarterly diluted EPS was $0.43, up 16.2% from $0.37 in the year-ago quarter;

·   Quarterly diluted earnings per share (EPS) on a GAAP basis was $0.34 compared to $0.30 in the year-ago quarter.

EPAM generated cash from operations of $15.6 million in the third quarter of 2013. At September 30, 2013, cash and cash equivalents were $123.0 million.

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

Recognition

·   EPAM was named number 2 on the Forbes' list of "America's Best Small Companies: 20 Fast-Growing Tech Stars" released by Forbes on October 9, 2013. Forbes' annual list of America's Best Small Public Companies highlights the 100 best-performing public companies with sales below $1 billion ranked according to their stock performance, return on equity, sales growth, and earnings growth over the past year and over five years. Based on the ranking, Forbes sub-divided the listed companies into the fastest growing "tech stars," where EPAM is the highest ranked Information Technology company. Earlier this year, EPAM was named to Forbes' list of America's 25 fastest-growing tech companies underscoring the Company's status as one of the most rapidly developing software engineering and IT consulting companies in America.

·   EPAM was positioned in Zinnov's Global R&D Service Provider Ratings (GSPR) for 2013 as a Leading Consumer Software Service Provider and a Leading Software/ ISV R&D Service Provider in the Consumer and Enterprise Software categories, respectively.

·   The Everest group recognized EPAM as a "2013 Capital Markets AO Market Star Performer" (registering a strong year-on-year positive movement both on delivery capability and market success), for the second year in row. Only five of out of the 20 assessed providers have received the "star performer" status.

Outlook
"Our business model allows us to maintain stable margins while investing in critical areas of our business, and at same time delivering superior revenue growth," continued Mr. Dobkin. "Healthy demand in the third quarter of 2013 resulted in broad-based growth across our verticals, geographies, and services, driving revenue and EPS outperformance, which allowed us to raise our guidance early. We are pleased to maintain our recently updated guidance as we continue to see a very positive demand environment."

Based on current conditions, EPAM reiterates its recently increased full year guidance of expected year-over-year revenue growth in the range of $542 million to $545 million. Non-GAAP net income growth for 2013 is expected to be in the range of 15% to 20% year-over-year, with an effective tax rate of approximately 19%.

For the fourth quarter of 2013, EPAM expects revenues between $144 million and $147 million, representing a growth rate of 15% to 18% over fourth quarter 2012 revenues. Fourth quarter 2013 non-GAAP diluted EPS is expected to be in the range of $0.44 to $0.47 based on an estimated fourth quarter 2013 weighted average of 49.2 million diluted shares.

Conference Call Information
EPAM will hold a conference call to discuss its third quarter 2013 results at 8:00 a.m. Eastern Standard Time, on Friday, November 8, 2013. A live webcast of the call may be accessed over the Internet from EPAM's Investor Relations website at http://investors.epam.com. Participants should follow the instructions provided on the website to download and install the necessary audio applications. The live conference call can be accessed by dialing 1-877-407-0784 (international) or 1-201-689-8560 (domestic).

A telephonic replay of the live conference call will 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 13572574. The telephonic replay will be available until November 22, 2013.

About EPAM Systems
Established in 1993, EPAM Systems, Inc. (NYSE: EPAM), provides complex software engineering solutions through its award-winning Central and Eastern European service delivery platform. Headquartered in the United States, EPAM employs approximately 9,000 IT professionals and serves clients worldwide from its locations in the United States, Canada, UK, Switzerland, Germany, Sweden, Netherlands, Singapore, Belarus, Hungary, Russia, Ukraine, Kazakhstan, and Poland.

EPAM is ranked #2 on the 2013 Forbes list of America's Best Small Companies: 20 Fast-Growing Tech Stars and is recognized among the leaders in software product development services by Forrester and Zinnov analysts. The company is also included in the top 30 in IAOP's "The 2013 Global Outsourcing 100" list.

Non-GAAP Financial Measures
EPAM supplements results reported in accordance with principles generally accepted in the United States, 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 and compare EPAM and similar companies. 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. However, because EPAM's reported non-GAAP financial measures are not calculated according to GAAP, these measures are not comparable to GAAP and may not necessarily 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 its 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.
Ilya Cantor, Chief Financial Officer
Anthony Conte, VP of Finance
Phone: +1-267-759-9000 x64588
Fax: +1-267-759-8989
investor_relations@epam.com

EPAM SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2013     2012     2013     2012  
    (in thousands, except share and per share data)  
Revenues   $ 140,150     $ 110,078     $ 397,532     $ 308,261  
Operating expenses:                                
Cost of revenues (exclusive of depreciation and amortization)     88,539       69,099       250,023       193,077  
Selling, general and administrative expenses     27,893       21,153       83,517       59,491  
Depreciation and amortization expense     3,906       3,040       11,377       7,674  
Other operating (income)/ expenses, net     (418 )     50       (686 )     669  
Income from operations     20,230       16,736       53,301       47,350  
Interest and other income, net     846       486       2,245       1,422  
Foreign exchange loss     (720 )     (635 )     (2,088 )     (1,949 )
Income before provision for income taxes     20,356       16,587       53,458       46,823  
Provision for income taxes     3,919       2,522       10,223       7,338  
Net income   $ 16,437     $ 14,065     $ 43,235     $ 39,485  
                                 
Net income per share:                                
Basic   $ 0.36     $ 0.33     $ 0.95     $ 0.93  
Diluted   $ 0.34     $ 0.30     $ 0.90     $ 0.85  
Shares used in calculation of net income per share:                                
Basic     46,162       42,952       45,492       38,990  
Diluted     48,720       46,501       48,120       42,729  

EPAM SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

    As of
September 30, 2013
    As of
December 31, 2012
 
    (in thousands, except share
and per share data)
 
Assets            
Current assets            
Cash and cash equivalents   $ 122,979     $ 118,112  
Accounts receivable, net of allowance of $2,592 and $2,203, respectively     87,611       78,906  
Unbilled revenues     64,957       33,414  
Prepaid and other current assets     22,234       11,835  
Employee loans, net of allowance of $0 and $0, respectively, current     1,848       429  
Time deposits     -       1,006  
Restricted cash, current     217       660  
Deferred tax assets, current     5,350       6,593  
Total current assets     305,196       250,955  
Property and equipment, net     54,062       53,135  
Restricted cash, long-term     246       467  
Employee loans, net of allowance of $0 and $0, respectively, long-term     4,456       -  
Intangible assets, net     14,539       16,834  
Goodwill     22,411       22,698  
Deferred tax assets, long-term     3,585       6,093  
Other long-term assets     969       632  
Total assets   $ 405,464     $ 350,814  
                 
Liabilities                
Current liabilities                
Accounts payable   $ 8,195     $ 6,095  
Accrued expenses and other liabilities     8,866       19,814  
Deferred revenue, current     2,583       6,369  
Due to employees     14,530       12,026  
Taxes payable     17,364       14,557  
Deferred tax liabilities, current     577       491  
Total current liabilities     52,115       59,352  
Deferred revenue, long-term     155       1,263  
Taxes payable, long-term     1,228       1,228  
Deferred tax liabilities, long-term     354       2,691  
Total liabilities     53,852       64,534  
Commitments and contingencies                
Stockholders' equity                
Common stock, $0.001 par value; 160,000,000 authorized; 47,329,699 and 45,398,523 shares issued, 46,375,152 and 44,442,494 shares outstanding at September 30, 2013 and December 31, 2012, respectively     46       44  
Additional paid-in capital     189,457       166,962  
Retained earnings     172,227       128,992  
Treasury stock     (8,684 )     (8,697 )
Accumulated other comprehensive loss     (1,434 )     (1,021 )
Total stockholders' equity     351,612       286,280  
Total liabilities and stockholders' equity   $ 405,464     $ 350,814  
 
EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures
(Unaudited)
(In thousands, except per share amounts and percentages)
 
    Three Months Ended
September 30, 2013 
  Nine Months Ended
September 30, 2013 
    GAAP    Adjustments    Non-GAAP    GAAP    Adjustments    Non-GAAP 
Cost of revenues (exclusive of depreciation and amortization)(1)    $ 88,539      $ (1,498 )    $ 87,041      $ 250,023      $ (3,356 )    $ 246,667  
Selling, general and administrative expenses(2)    $ 27,893      $ (1,867 )    $ 26,026      $ 83,517      $ (6,483 )    $ 77,034  
Income from operations(3)    $ 20,230      $ 3,612      $ 23,842      $ 53,301      $ 11,158      $ 64,459  
Operating margin     14.4 %     2.6 %     17.0 %     13.4 %     2.8 %     16.2 %
Net income(4)    $ 16,437      $ 4,332      $ 20,769      $ 43,235      $ 13,246      $ 56,481  
Diluted earnings per share(5)    $ 0.34              $ 0.43      $ 0.90              $ 1.17  
 
    Three Months Ended
September 30, 2012 
  Nine Months Ended
September 30, 2012 
    GAAP    Adjustments    Non-GAAP    GAAP    Adjustments    Non-GAAP 
Cost of revenues (exclusive of depreciation and amortization)(1)    $ 69,099      $ (1,036 )    $ 68,063      $ 193,077      $ (2,486 )    $ 190,591  
Selling, general and administrative expenses(2)    $ 21,153      $ (997 )    $ 20,156      $ 59,491      $ (3,257 )    $ 56,234  
Income from operations(3)    $ 16,736      $ 2,464      $ 19,200      $ 47,350      $ 7,038      $ 54,388  
Operating margin     15.2 %     2.2 %     17.4 %     15.4 %     2.2 %     17.6 %
Net income(4)    $ 14,065      $ 3,099      $ 17,164      $ 39,485      $ 8,987      $ 48,472  
Diluted earnings per share(5)    $ 0.30              $ 0.37      $ 0.85              $ 1.06  

Notes:

(1)   Adjustments to GAAP cost of revenues (exclusive of depreciation and amortization) include $1,498 and $1,036 of stock-based compensation expense reported within cost of revenues during the three months ended September 30, 2013 and 2012, respectively, and $3,356 and $2,486 of stock-based expense during the nine months ended September, 2013 and 2012, respectively.

(2)   Adjustments to GAAP selling general and administrative expenses:

    Three Months Ended
September 30, 
  Nine Months Ended
September 30, 
    2013    2012    2013    2012 
Stock-based compensation expense    $ 1,867     $ 1,010      $ 6,435     $ 2,883
Acquisition-related costs     -     (13 )     48     374
Total adjustments to GAAP selling, general and administrative expenses    $ 1,867     $ 997      $ 6,483     $ 3,257

(3)   Adjustments to GAAP income from operations:

    Three Months Ended
September 30, 
Nine Months Ended
September 30, 
    2013  2012  2013  2012 
Stock-based compensation expense    $ 3,365      $ 2,046      $ 9,791      $ 5,369  
reported within cost of revenues     1,498       1,036       3,356       2,486  
reported within selling, general and administrative expenses     1,867       1,010       6,435       2,883  
Amortization of purchased intangible assets     723       431       2,126       711  
Acquisition-related costs     -       (13 )     48       374  
One-time charges     (476 )     -       (807 )     584  
Total adjustments to GAAP income from operations    $ 3,612      $ 2,464      $ 11,158      $ 7,038  

(4)   Adjustments to GAAP net income:

    Three Months Ended
September 30, 
  Nine Months Ended
September 30, 
    2013    2012    2013    2012 
Stock-based compensation expense    $ 3,365      $ 2,046      $ 9,791      $ 5,369  
reported within cost of revenues     1,498       1,036       3,356       2,486  
reported within selling, general and administrative expenses     1,867       1,010       6,435       2,883  
Amortization of purchased intangible assets     723       431       2,126       711  
Acquisition-related costs     -       (13 )     48       374  
One-time charges     (476 )     -       (807 )     584  
Foreign exchange loss     720       635       2,088       1,949  
Total adjustments to GAAP net income    $ 4,332      $ 3,099      $ 13,246      $ 8,987  
 
(5) Non-GAAP weighted average diluted common shares outstanding were 48,720 and 46,501 during the three months ended September 30, 2013 and 2012, respectively, and 48,120 and 45,803 during the nine months ended September 30, 2013 and 2012, respectively.

Non-GAAP diluted earnings per share presents non-GAAP net income divided by Non-GAAP weighted average diluted common shares outstanding. Non-GAAP weighted average diluted common shares outstanding assumes (i) the 2.9 million shares EPAM sold in its February 2012 initial public offering were outstanding as of January 1, 2012, and (ii) the conversion of the outstanding preferred stock into common stock on an as-converted basis.
 
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