Press Release: November 3, 2014

Third Quarter Revenues Up 38% Year-Over-Year and 10% Sequentially

Newtown, PA - November 3, 2014 - 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, 2014.

Third Quarter 2014 Highlights

·         Revenues increased to $192.8 million, up 37.5% year-over-year and 10.3% sequentially

·         GAAP income from operations was $21.8 million, an increase of $1.6 million or 7.9% from $20.2 million in the third quarter of 2013

·         Non-GAAP income from operations was $31.8 million, an increase of $8.0 million or 33.2% from $23.8 million in the third quarter of 2013

·         Non-GAAP quarterly diluted EPS was $0.60, up 39.5% from $0.43 in the third quarter of 2013

·         Quarterly diluted earnings per share (EPS) on a GAAP basis was $0.38, up 11.8% from $0.34 in the third quarter of 2013

EPAM generated cash from operations of $23.1 million in the third quarter of 2014 and $56.2 million on a year-to-date basis. At September 30, 2014, cash and cash equivalents were $191.2 million.

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

Corporate Highlights 

·         EPAM ranked #3 overall and #1 for tech companies on Forbes 2014 List of America's Best Small Companies

·         CEO Arkadiy Dobkin named to Forbes Best Small Companies All Star List

·         EPAM won Liberty Global's Best Product & Service Quality award and was also shortlisted in the top 3 for the Best Innovator category

·         EPAM Recognized as a Global R&D and Product Development Services Leader for Enterprise Software and Consumer Software Markets by Zinnov, a management consulting firm

·         EPAM Recognized among Top 10 Largest Commerce Service Providers by Leading Independent Research Firm

·         EPAM ranked #131 on Software Magazine's 32nd Annual Software 500

·         EPAM was included in the shortlist of companies considered for the implementation of a Consolidated Audit Trail (CAT), a system to be developed in response to SEC Rule 613, adopted in July 2012

Full Year and Fourth Quarter 2014 Outlook

 "EPAM continues its transition into a more strategic, consultative, and industry-aware partner for our clients.  Combined with our traditionally strong software product engineering capabilities, this allows us to bring a very unique value to the market." said Arkadiy Dobkin, CEO and President of EPAM. "The increasing number of public awards and recognitions we continue to receive together with another solid financial quarter demonstrates the strength of our offering and the long-term potential of EPAM." concluded Mr. Dobkin.

Based on current conditions, EPAM is increasing full year guidance of expected revenue growth in the range of $728 million to $730 million. Non-GAAP net income growth for 2014 is expected to be in the range of 33% to 35% year-over-year, with an effective tax rate of approximately 19%.

For the fourth quarter of 2014, EPAM expects revenues between $200 million and $202 million, representing a growth rate of 27% to 28% over fourth quarter 2013 revenues. Fourth quarter 2014 non-GAAP diluted EPS is expected to be in the range of $0.59 to $0.61 based on an estimated fourth quarter 2014 weighted average of 50.0 million diluted shares. GAAP diluted EPS is expected to be in the range of $0.36 to $0.38.

Conference Call Information

EPAM will hold a conference call to discuss its third quarter 2014 results at 8:00 a.m. Eastern time, on Tuesday, November 4, 2014. 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 replay of the live conference call will be available approximately one hour after the call. The replay will be available on EPAM's website or by dialing 1-877-870-5176 (international) or 1-858-384-5517 (domestic) and entering the replay passcode 13593426. The telephonic replay will be available until November 19, 2014.

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 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. 
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
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(US Dollars in thousands, except share and per share data)

  As of
September 30,
2014
    As of
December 31,
2013
Assets          
Current assets          
Cash and cash equivalents $ 191,246     $ 169,207  
Accounts receivable, net of allowance of $2,385 and $1,800, respectively 113,940     95,431  
Unbilled revenues 70,926     43,108  
Prepaid and other current assets 18,188     14,355  
Employee loans, net of allowance of $0 and $0, respectively, current 2,349     1,989  
Time deposits 1,061     1,188  
Restricted cash, current -     298  
Deferred tax assets, current 4,230     5,392  
Total current assets 401,940     330,968  
Property and equipment, net 54,665     53,315  
Restricted cash, long-term 208     225  
Employee loans, net of allowance of $0 and $0, respectively, long-term 4,207     4,401  
Intangible assets, net 46,280     13,734  
Goodwill 39,055     22,268  
Deferred tax assets, long-term 14,929     4,557  
Other long-term assets 3,747     3,409  
Total assets $ 565,031     $ 432,877  
           
Liabilities          
Current liabilities          
Accounts payable $ 6,027     $ 2,835  
Accrued expenses and other liabilities 31,665     20,175  
Deferred revenue, current 2,282     4,543  
Due to employees 22,371     12,665  
Taxes payable 20,317     14,171  
Deferred tax liabilities, current 1,406     275  
Total current liabilities 84,068     54,664  
Other long-term liabilities 31,672     -  
Deferred revenue, long-term 113     533  
Taxes payable, long-term -     1,228  
Deferred tax liabilities, long-term 3,478     351  
Total liabilities 119,331     56,776  
Commitments and contingencies          
Stockholders' equity          
Common stock, $0.001 par value; 160,000,000 authorized; 48,405,957 and 47,569,463 shares issued, 47,691,502 and 46,614,916 shares outstanding at September 30, 2014 and December 31, 2013, respectively 48     46  
Additional paid-in capital 220,722     195,585  
Retained earnings 242,204     190,986  
Treasury stock (6,500 )   (8,684 )
Accumulated other comprehensive loss (10,774 )   (1,832 )
Total stockholders' equity 445,700     376,101  
Total liabilities and stockholders' equity $ 565,031     $ 432,877  

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

  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2014     2013     2014     2013  
Revenues $ 192,764     $ 140,150     $ 527,843     $ 397,532  
Operating expenses:                      
Cost of revenues (exclusive of depreciation and amortization) 122,509     88,539     335,065     250,023  
Selling, general and administrative expenses 42,875     27,893     113,905     83,517  
Depreciation and amortization expense 5,510     3,906     14,650     11,377  
Other operating expenses, net 35     (418 )   2,055     (686 )
Income from operations 21,835     20,230     62,168     53,301  
Interest and other income, net 1,261     846     3,401     2,245  
Foreign exchange loss (718 )   (720 )   (3,198 )   (2,088 )
Income before provision for income taxes 22,378     20,356     62,371     53,458  
Provision for income taxes 3,338     3,919     11,153     10,223  
Net income $ 19,040     $ 16,437     $ 51,218     $ 43,235  
Foreign currency translation adjustments (8,260 )   2,975     (8,943 )   (413 )
Comprehensive income $ 10,780     $ 19,412     $ 42,275     $ 42,822  
                       
Net income per share:                      
Basic $ 0.40     $ 0.36     $ 1.09     $ 0.95  
Diluted $ 0.38     $ 0.34     $ 1.03     $ 0.90  
Shares used in calculation of net income per share:                      
Basic 47,315     46,162     47,058     45,492  
Diluted 49,829     48,720     49,530     48,120  

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

  Three Months Ended September 30, 2014   Nine Months Ended September 30, 2014
  GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1) $ 122,509     $ (2,463 )   $ 120,046     $ 335,065     $ (6,391 )   $ 328,674  
Selling, general and administrative expenses(2) $ 42,875     $ (4,962 )   $ 37,913     $ 113,905     $ (11,013 )   $ 102,892  
Income from operations(3) $ 21,835     $ 9,933     $ 31,768     $ 62,168     $ 24,784     $ 86,952  
Operating margin 11.3 %   5.2 %   16.5 %   11.8 %   4.7 %   16.5 %
Net income(4) $ 19,040     $ 10,651     $ 29,691     $ 51,218     $ 27,982     $ 79,200  
Diluted earnings per share(5) $ 0.38     $ 0.22     $ 0.60     $ 1.03     $ 0.57     $ 1.60  
 
  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     $ 0.09     $ 0.43     $ 0.90     $ 0.27     $ 1.17  

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
 September 30,
  Nine Months Ended
September 30,
  2014     2013     2014     2013  
Stock-based compensation expense $ 4,962     $ 1,867     $ 10,133     $ 6,435  
Acquisition-related costs -     -     880     48  
Total adjustments to GAAP selling, general and administrative expenses $ 4,962     $ 1,867     $ 11,013     $ 6,483  
 
(3) Adjustments to GAAP income from operations:
 
  Three Months Ended
 September 30,
  Nine Months Ended
September 30,
  2014     2013     2014     2013  
Stock-based compensation expense $ 7,425     $ 3,365     $ 16,524     $ 9,791  
reported within cost of revenues 2,463     1,498     6,391     3,356  
reported within selling, general and administrative expenses 4,962     1,867     10,133     6,435  
Acquisition-related costs -     -     880     48  
Amortization of purchased intangible assets 2,508     723     5,380     2,126  
One-time charges -     (476 )   2,000     (807 )
Total adjustments to GAAP income from operations $ 9,933     $ 3,612     $ 24,784     $ 11,158  
 
(4) Adjustments to GAAP net income:
 
  Three Months Ended
 September 30,
  Nine Months Ended
September 30,
  2014     2013     2014     2013  
Stock-based compensation expense $ 7,425     $ 3,365     $ 16,524     $ 9,791  
reported within cost of revenues 2,463     1,498     6,391     3,356  
reported within selling, general and administrative expenses 4,962     1,867     10,133     6,435  
Acquisition-related costs -     -     880     48  
Amortization of purchased intangible assets 2,508     723     5,380     2,126  
One-time charges -     (476 )   2,000     (807 )
Foreign exchange loss 718     720     3,198     2,088  
Total adjustments to GAAP net income $ 10,651     $ 4,332     $ 27,982     $ 13,246  
 
(5) There were no adjustments to GAAP average diluted common shares outstanding during the three and nine months ended September 30, 2014 and 2013.
 
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David Straube
INVESTOR RELATIONS
DAVID STRAUBE
Head of Investor Relations
Phone: +1-267-759-9000 x 59419