Document

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549


 

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported):  November 2, 2017
 
EPAM SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
Delaware
1-35418
223536104
(State or other jurisdiction of incorporation)
(Commission File Number)
(IRS Employer Identification No.)
 
41 University Drive,
Suite 202
Newtown, Pennsylvania
 
18940
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
Registrant’s telephone number, including area code:  267-759-9000
 




Not Applicable
(Former name or former address, if changed since last report)

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
  
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
  
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 






Item 2.02. Results of Operations and Financial Condition.
    
On November 2, 2017, EPAM Systems, Inc. (the “Company”) issued a press release discussing results of operations for the third quarter ended September 30, 2017. A copy of the press release is attached as Exhibit 99.1 to this report and is incorporated by reference into this Item 2.02.
The information in this report, including Exhibit 99.1 attached hereto, is being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise be subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Exchange Act or the Securities Act of 1933, except as expressly stated by specific reference in such a filing. 

Item 9.01. Financial Statements and Exhibits.
(d) Exhibits

99.1    Press release dated November 2, 2017, announcing results of operations of EPAM Systems, Inc. for the third quarter ended September 30, 2017.




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: November 2, 2017
 
By:
/s/ Jason Peterson
 
Name:
Jason Peterson
 
Title:
Senior Vice President, Chief Financial Officer and Treasurer

 



INDEX TO EXHIBITS
99.1    Press release dated November 2, 2017, announcing results of operations of EPAM Systems, Inc. for the third quarter ended September 30, 2017.


Exhibit



http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11866905&doc=3
Exhibit 99.1
EPAM Reports Results for Third Quarter 2017

Third quarter revenues of $377.5 million, up 26.6% year-over-year
GAAP Diluted EPS of $0.77 for the third quarter
Non-GAAP Diluted EPS of $0.92 for the third quarter

Newtown, PA — November 2, 2017 — EPAM Systems, Inc. (NYSE: EPAM), a leading global provider of digital platform engineering and software development services, today announced results for its third quarter ended September 30, 2017.

“Our third-quarter results were driven by strong demand from our clients, fueled by their need to stay competitive under constant disruption,” said Arkadiy Dobkin, CEO & President, EPAM. “Our focus on continuously improving and adding capabilities, and hiring and developing the best talent, has helped us keep pace with the next wave of emerging technologies and offer our clients the most valuable business solutions.”

Third Quarter 2017 Highlights
Revenues increased to $377.5 million, a year-over-year increase of $79.2 million, or 26.6% due to strong broad-based demand across the industries we serve and geographies in which we operate. In constant currency, revenue was up 24.6% year-over-year;
GAAP income from operations was $49.2 million, an increase of $15.3 million or 45.3% compared to $33.9 million in the third quarter of 2016;
Non-GAAP income from operations was $62.6 million, an increase of $12.9 million, or 25.9%, compared to $49.7 million in the third quarter of 2016;
Diluted earnings per share (EPS) on a GAAP basis was $0.77, an increase from $0.49 in the third quarter of 2016;
Non-GAAP diluted EPS was $0.92, an increase from $0.76 in the third quarter of 2016 based on a weighted average share count of 55.2 million fully diluted shares outstanding.
Cash Flow from Operations
Cash from operations was $124.0 million for the first nine months of 2017, up from $111.2 million for the first nine months of 2016;
Cash and cash equivalents totaled $512.5 million as of September 30, 2017, an increase of $150.5 million or 41.6% from $362.0 million as of December 31, 2016.
Other Metrics
Total headcount was 24,547 as of September 30, 2017, an increase of 13.0% from 21,720 as of September 30, 2016;
Total number of delivery professionals was 21,638 as of September 30, 2017, an increase of 13.5% from 19,070 as of September 30, 2016.






2017 Outlook - Full Year and Fourth Quarter
Full Year
Revenue growth for fiscal 2017 will now be at least 24%, after reflecting an updated foreign exchange assumption of an estimated 1% for currency tailwinds. We expect constant currency growth will continue to be at least 23%.
We expect GAAP income from operations to continue to be in the range of 12% to 13% of revenue and non-GAAP income from operations to continue to be in the range of 16% to 17% of revenue.
We now expect our GAAP effective tax rate to be approximately 16% and our non-GAAP effective tax rate to be approximately 21%. This reflects the adoption of the accounting pronouncement related to stock based compensation effective January 1st 2017.
Based on stronger than previously expected second-half revenues, for earnings per share:
We now expect GAAP diluted EPS will be at least $2.68 for the full year; and
Non-GAAP diluted EPS will now be at least $3.41 for the full year based on an expected weighted average share count of 54.9 million fully diluted shares outstanding.
Fourth Quarter
Revenues will be at least $395 million for the fourth quarter, reflecting a year-over-year growth rate of at least 26% after estimating 3% for currency tailwinds, meaning expected constant currency growth will be at least 23%.
For the fourth quarter, we expect GAAP income from operations to be in the range of 13% to 14% of revenue and non-GAAP income from operations to be in the range of 16.5% to 17.5% of revenue.
We expect our GAAP effective tax rate to be approximately 17% and our non-GAAP effective tax rate to be approximately 20%.
We expect GAAP diluted EPS will be at least $0.78 for the quarter, and non-GAAP diluted EPS will be at least $0.96 for the quarter based on an expected weighted average share count of 55.8 million fully diluted shares outstanding.
Conference Call Information
EPAM will host a conference call to discuss results on Thursday, November 2, 2017 at 8:00 a.m. Eastern time. The live conference call will be available by dialing +1 (877) 407-0784 or +1 (201) 689-8560 (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 http://investors.epam.com. A replay will be available approximately one hour after the call by dialing +1 (844) 512-2921 or +1 (412) 317-6671 (outside of the U.S.) and entering the conference ID 13670468. The replay will be available until November 16, 2017.

About EPAM Systems
Since 1993, EPAM Systems, Inc. (NYSE: EPAM), has leveraged its core engineering expertise to become a leading global product development and digital platform engineering services company. Through its “Engineering DNA” and innovative strategy, consulting, and design capabilities, EPAM works in collaboration with its customers to deliver innovative solutions that turn complex business challenges into real business opportunities. EPAM’s global teams serve customers in over 25 countries across North America, Europe, Asia and Australia. EPAM is a recognized market leader among independent research agencies and was ranked #12 in FORBES 25 Fastest Growing Public Tech Companies, as a top information technology services company on FORTUNE’S 100 Fastest Growing Companies, and as a top UK Digital Design & Build Agency.
For more information, please visit http://www.epam.com/ and follow us on Twitter (@EPAMSYSTEMS) 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, 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-offs and recoveries, amortization of purchased intangible assets, goodwill impairment, legal settlements, foreign exchange gains and losses, acquisition-related costs, and the related effect on taxes. Management may also compare 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 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.
David Straube, Senior Director, Investor Relations
Phone: +1-267-759-9000 x59419
david_straube@epam.com







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,
 
2017
 
2016
 
2017
 
2016
Revenues
$
377,523

 
$
298,293

 
$
1,051,151

 
$
846,607

Operating expenses:
 
 
 
 
 
 
 
Cost of revenues (exclusive of depreciation and amortization)
239,369

 
190,797

 
667,231

 
538,960

Selling, general and administrative expenses
81,190

 
67,491

 
240,062

 
193,226

Depreciation and amortization expense
7,174

 
5,925

 
20,866

 
17,150

Other operating expenses, net
542

 
178

 
2,096

 
958

Income from operations
49,248

 
33,902

 
120,896

 
96,313

Interest and other income, net
1,416

 
1,067

 
2,802

 
3,416

Foreign exchange loss
(77
)
 
(1,728
)
 
(1,470
)
 
(5,313
)
Income before provision for income taxes
50,587

 
33,241

 
122,228

 
94,416

Provision for income taxes
7,953

 
7,067

 
18,594

 
19,913

Net income
$
42,634

 
$
26,174

 
$
103,634

 
$
74,503

Foreign currency translation adjustments
5,703

 
358

 
16,640

 
2,671

Comprehensive income
$
48,337

 
$
26,532

 
$
120,274

 
$
77,174

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.81

 
$
0.51

 
$
2.00

 
$
1.48

Diluted
$
0.77

 
$
0.49

 
$
1.90

 
$
1.40

Shares used in calculation of net income per share:
 
 
 
 
 
 
 
Basic
52,545

 
51,131

 
51,807

 
50,172

Diluted
55,229

 
53,864

 
54,662

 
53,159































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

 
As of  
 September 30, 
 2017
 
As of  
 December 31, 
 2016
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
512,493

 
$
362,025

Restricted cash

 
2,400

Time deposits
803

 
403

Accounts receivable, net of allowance of $1,460 and $1,434, respectively
230,119

 
199,982

Unbilled revenues
106,377

 
63,325

Prepaid and other current assets, net of allowance of $123 and $644, respectively
31,557

 
15,690

Employee loans, net of allowance of $0 and $0, respectively
2,393

 
2,726

Total current assets
883,742

 
646,551

Property and equipment, net
77,935

 
73,616

Restricted cash
278

 
239

Employee loans, net of allowance of $0 and $0, respectively
2,462

 
3,252

Intangible assets, net
46,238

 
51,260

Goodwill
119,452

 
109,289

Deferred tax assets
30,300

 
31,005

Other long-term assets, net of allowance of $136 and $132, respectively
12,599

 
10,599

Total assets
$
1,173,006

 
$
925,811

 
 
 
 
Liabilities
 
 
 
Current liabilities
 
 
 
Accounts payable
$
5,592

 
$
3,213

Accrued expenses and other liabilities
71,842

 
49,895

Due to employees
42,920

 
32,203

Deferred compensation due to employees
2,890

 
5,900

Taxes payable
35,740

 
25,008

Total current liabilities
158,984

 
116,219

Long-term debt
25,041

 
25,048

Other long-term liabilities
3,836

 
3,132

Total liabilities
187,861

 
144,399

Commitments and contingencies
 
 
 
Stockholders’ equity
 

 
 

Common stock, $0.001 par value; 160,000,000 authorized; 52,748,006 and 51,117,422 shares issued, 52,728,271 and 51,097,687 shares outstanding at September 30, 2017 and December 31, 2016, respectively
52

 
50

Additional paid-in capital
456,624

 
374,907

Retained earnings
549,694

 
444,320

Treasury stock
(177
)
 
(177
)
Accumulated other comprehensive loss
(21,048
)
 
(37,688
)
Total stockholders’ equity
985,145

 
781,412

Total liabilities and stockholders’ equity
$
1,173,006

 
$
925,811






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

Reconciliation of revenue growth at constant currency to revenue growth as reported under GAAP is presented in the table below:
 
Three Months Ended 
 September 30, 2017
 
Nine Months Ended 
 September 30, 2017
Revenue growth at constant currency(1)
24.6
%
 
24.1
%
Foreign exchange rates impact
2.0
%
 
0.1
%
Revenue growth as reported
26.6
%
 
24.2
%

(1)
Constant currency revenue results are calculated by translating current period revenue 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, 2017 and 2016:
 
Three Months Ended September 30, 2017
 
Nine Months Ended September 30, 2017
 
GAAP
 
Adjustments
 
Non-GAAP
 
GAAP
 
Adjustments
 
Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(2)
$
239,369

 
$
(4,913
)
 
$
234,456

 
$
667,231

 
$
(14,452
)
 
$
652,779

Selling, general and administrative expenses(3)
$
81,190

 
$
(6,336
)
 
$
74,854

 
$
240,062

 
$
(26,398
)
 
$
213,664

Income from operations(4)
$
49,248

 
$
13,376

 
$
62,624

 
$
120,896

 
$
46,814

 
$
167,710

Operating margin
13.0
%
 
3.6
%
 
16.6
%
 
11.5
%
 
4.5
%
 
16.0
%
Net income(5)
$
42,634

 
$
8,336

 
$
50,970

 
$
103,634

 
$
30,042

 
$
133,676

Diluted earnings per share(6)
$
0.77

 
 
 
$
0.92

 
$
1.90

 
 
 
$
2.45


 
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2016
 
GAAP
 
Adjustments
 
Non-GAAP
 
GAAP
 
Adjustments
 
Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(2)
$
190,797

 
$
(4,518
)
 
$
186,279

 
$
538,960

 
$
(12,600
)
 
$
526,360

Selling, general and administrative expenses(3)
$
67,491

 
$
(9,315
)
 
$
58,176

 
$
193,226

 
$
(25,234
)
 
$
167,992

Income from operations(4)
$
33,902

 
$
15,822

 
$
49,724

 
$
96,313

 
$
44,037

 
$
140,350

Operating margin
11.4
%
 
5.3
%
 
16.7
%
 
11.4
%
 
5.2
%
 
16.6
%
Net income(5)
$
26,174

 
$
14,582

 
$
40,756

 
$
74,503

 
$
38,894

 
$
113,397

Diluted earnings per share(6)
$
0.49

 
 
 
$
0.76

 
$
1.40

 
 
 
$
2.13


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,
 
2017
 
2016
 
2017
 
2016
Stock-based compensation expenses - non-acquisition related
$
4,913

 
$
4,518

 
$
14,452

 
$
12,600

Total adjustments to GAAP cost of revenues(2)
4,913

 
4,518

 
14,452

 
12,600

Stock-based compensation expenses - acquisition related
216

 
3,890

 
8,067

 
9,870

Stock-based compensation expenses - all other
6,088

 
5,418

 
17,401

 
15,050

Other acquisition-related expenses
32

 
7

 
930

 
314

Total adjustments to GAAP selling, general and administrative expenses(3)
6,336

 
9,315

 
26,398

 
25,234

Amortization of purchased intangible assets
1,869

 
1,989

 
5,706

 
6,203

One-time charges
258

 

 
258

 

Total adjustments to GAAP income from operations(4)
$
13,376

 
$
15,822

 
$
46,814

 
$
44,037

Foreign exchange loss
77

 
1,728

 
1,470

 
5,313

Provision for income taxes:
 
 
 
 
 
 
 
Tax effect on non-GAAP adjustments
(2,497
)
 
(2,968
)
 
(9,790
)
 
(10,456
)
Excess tax benefits related to stock-based compensation (a)
(2,620
)
 

 
(8,452
)
 

Total adjustments to GAAP net income(5)
$
8,336

 
$
14,582

 
$
30,042

 
$
38,894


 
(a)
Effective January 1, 2017 with the adoption of ASU 2016-09, the Company is prospectively presenting excess tax benefits related to stock-based compensation in the Provision for income taxes. Prior to
January 1, 2017, the Company recorded these benefits in Additional paid-in-capital.
(6)
There were no adjustments to GAAP average diluted common shares outstanding during the three and nine months ended September 30, 2017 and 2016.









EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Guidance Non-GAAP Measures to Comparable GAAP Measures
(in percent, except per share amounts)
(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 projected revenue growth in constant currency is presented in the table below:
 
Fourth Quarter 2017
 
Full Year 2017
Revenue growth at constant currency (at least)(7)
23.0
%
 
23.0
%
Foreign exchange rates impact
3.0
%
 
1.0
%
Revenue growth (at least)
26.0
%
 
24.0
%

(7)
Constant currency revenue results are calculated by translating current period projected revenue in local currency into U.S. dollars at the weighted average exchange rates of the comparable prior period.

Reconciliation of GAAP to Non-GAAP income from operations as a percentage of revenue is presented in the table below:

 
Fourth Quarter 2017
 
Full Year 2017
GAAP income from operations as a percentage of revenue
13.0% to 14.0%

 
12.0% to 13.0%

Stock-based compensation expenses
3.0
%
 
3.5
%
Included in cost of revenues
1.3
%
 
1.3
%
Included in selling, general and administrative expenses
1.7
%
 
2.2
%
Other acquisition related expenses

 

Amortization of purchased intangible assets
0.5
%
 
0.5
%
One-time charges

 

Non-GAAP income from operations as a percentage of revenue
16.5% to 17.5%

 
16.0% to 17.0%


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

 
Fourth Quarter 2017
 
Full Year 2017
GAAP effective tax rate
17.0
%
 
16.0
%
Tax effect on non-GAAP adjustments
1.4
%
 
2.3
%
Excess tax benefit related to stock-based compensation (a)
1.6
%
 
2.7
%
Non-GAAP effective tax rate
20.0
%
 
21.0
%

 
(a)
Effective January 1, 2017 with the adoption of ASU 2016-09, the Company is prospectively presenting excess tax benefits related to stock-based compensation in the Provision for income taxes. Prior to January 1, 2017, the Company recorded these benefits in Additional paid-in-capital.





Reconciliation of GAAP to Non-GAAP diluted earnings per share is presented in the table below:
 
Fourth Quarter 2017
 
Full Year 2017
GAAP diluted earnings per share (at least)
$
0.78

 
$
2.68

Stock-based compensation expenses
0.20

 
0.93

Included in cost of revenues
0.09

 
0.35

Included in selling, general and administrative expenses
0.11

 
0.58

Other acquisition related expenses

 
0.02

Amortization of purchased intangible assets
0.03

 
0.14

One-time charges
0.00

 
0.00

Foreign exchange loss
0.03

 
0.06

Provision for income taxes:
 
 
 
    Tax effect on non-GAAP adjustments
(0.04
)
 
(0.22
)
     Excess tax benefits related to stock-based compensation (a)
(0.04
)
 
(0.20
)
Non-GAAP diluted earnings per share (at least)
$
0.96

 
$
3.41

 
(a)
Effective January 1, 2017 with the adoption of ASU 2016-09, the Company is prospectively presenting excess tax benefits related to stock-based compensation in the Provision for income taxes. Prior to January 1, 2017, the Company recorded these benefits in Additional paid-in-capital.