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): February 20, 2020
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ☐
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Item 2.02. Results of Operations and Financial Condition.
On February 20, 2020, EPAM Systems, Inc. (the “Company”) issued a press release discussing results of operations for the fourth quarter ended December 31, 2019. 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
101 Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.
104 The cover page from this Current Report on Form 8-K, formatted as Inline XBRL.
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: February 20, 2020
By: | /s/ Jason Peterson | |
Name: | Jason Peterson | |
Title: | Senior Vice President, Chief Financial Officer and Treasurer | |
Exhibit 99.1
EPAM Reports Results for Fourth Quarter and Full Year 2019
Fourth quarter revenues of $632.8 million, up 25.3% year-over-year
Annual revenues of $2.29 billion, up 24.5% year-over-year
GAAP Diluted EPS of $1.29 for the fourth quarter and $4.53 for the full year
Non-GAAP Diluted EPS of $1.51 for the fourth quarter and $5.42 for the full year
Newtown, PA — February 20, 2020 — EPAM Systems, Inc. (NYSE: EPAM), a leading global provider of digital platform engineering and software development services, today announced results for its fourth quarter and full year ended December 31, 2019.
“We are pleased to report another strong year with industry-leading organic growth, enabled by ongoing investments across our people, platforms and geographies and further enhanced by our strategic acquisitions,” said Arkadiy Dobkin, CEO & President, EPAM. “We remain confident in our ability to provide highly relevant, adaptive services that help our customers succeed in an increasingly competitive and disruptive environment.”
Fourth Quarter 2019 Highlights
• | Revenues increased to $632.8 million, a year-over-year increase of $127.8 million, or 25.3%, and on a constant currency basis, revenues were up 24.8% over the corresponding period last year; |
• | GAAP income from operations was $84.7 million, an increase of $6.5 million, or 8.3% , compared to $78.3 million in the fourth quarter of 2018; |
• | Non-GAAP income from operations was $107.6 million, an increase of $14.6 million, or 15.7%, compared to $93.1 million in the fourth quarter of 2018; |
• | Diluted earnings per share (“EPS”) on a GAAP basis was $1.29, compared to $1.05 in the fourth quarter of 2018; and |
• | Non-GAAP diluted EPS was $1.51, an increase of $0.24, or 18.9%, compared to $1.27 in the fourth quarter of 2018. |
Full Year 2019 Highlights
• | Revenues increased to $2.29 billion, a year-over-year increase of $450.9 million, or 24.5%, and on a constant currency basis, revenues were up 25.8% year-over-year; |
• | GAAP income from operations was $302.9 million, an increase of $57.1 million, or 23.2%, compared to $245.8 million in 2018; |
• | Non-GAAP income from operations was $389.2 million, an increase of $74.0 million, or 23.5%, compared to $315.1 million in 2018; |
• | Diluted EPS on a GAAP basis was $4.53, compared to $4.24 in 2018; and |
• | Non-GAAP diluted EPS was $5.42, an increase of $1.04, or 23.7%, compared to $4.38 in 2018. |
Cash Flow and Other Metrics
• | Cash provided by operating activities was $124.6 million in the fourth quarter of 2019, an increase from $123.1 million in the fourth quarter of 2018; and was $287.5 million in 2019, a decrease from $292.2 million in 2018; |
• | Cash, cash equivalents and restricted cash totaled $937.7 million as of December 31, 2019, an increase of $166.0 million, or 21.5%, from $771.7 million as of December 31, 2018; and |
• | Total headcount was approximately 36,700 as of December 31, 2019. Included in this number were approximately 32,600 delivery professionals, an increase of 21.7% from December 31, 2018. |
2020 Outlook - Full Year and First Quarter
Full Year
• | The Company expects revenue growth for 2020 to exceed 22% on both a GAAP and constant currency basis; |
• | The Company expects GAAP income from operations to be in the range of 13% to 14% of revenues and non-GAAP income from operations to be in the range of 16% to 17% of revenues; |
• | The Company expects its GAAP effective tax rate to be approximately 14% and its non-GAAP effective tax rate to be approximately 23%; and |
• | The Company expects GAAP diluted EPS to be at least $5.56 for the full year, and non-GAAP diluted EPS to be at least $6.30 for the full year. The Company expects weighted average diluted shares outstanding for the year of 58.8 million. |
First Quarter
• | The Company expects revenues to be at least $642 million for the first quarter, reflecting a year-over-year growth rate of at least 23% on both a GAAP and constant currency basis; |
• | The Company expects GAAP income from operations to be in the range of 12% to 13% of revenues and non-GAAP income from operations to be in the range of 15% to 16% of revenues; |
• | The Company expects its GAAP effective tax rate to be approximately 5% and its non-GAAP effective tax rate to be approximately 23%; and |
• | The Company expects GAAP diluted EPS to be at least $1.27 for the quarter, and non-GAAP diluted EPS to be at least $1.36 for the quarter. The Company expects weighted average diluted shares outstanding for the quarter of 58.3 million. |
Conference Call Information
EPAM will host a conference call to discuss results on Thursday, February 20, 2020 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 in 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 13697861. The replay will be available until March 5, 2020.
About EPAM Systems
Since 1993, EPAM Systems, Inc. (NYSE: EPAM) has leveraged its software engineering expertise to become a leading global product development, digital platform engineering, and top digital and product design agency. Through its ‘Engineering DNA’ and innovative strategy, consulting, and design capabilities, EPAM works in collaboration with its customers to deliver next-gen solutions that turn complex business challenges into real business outcomes. EPAM’s global teams serve customers in more than 30 countries across North America, Europe, Asia and Australia. As a recognized market leader in multiple categories among top global independent research agencies, EPAM was one of only four technology companies to appear on Forbes 25 Fastest Growing Public Tech Companies list every year of publication since 2013 and was the only IT services company featured on Fortune's 100 Fastest-Growing Companies list of 2019. Learn more at www.epam.com and follow EPAM 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, 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, amortization of purchased intangible assets, goodwill impairment, certain other one-time charges and benefits, changes in fair value of contingent consideration, foreign exchange gains and losses, the impact of U.S. tax reform, 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 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 the Company’s 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, Head of Investor Relations
Phone: +1-267-759-9000 x59419
david_straube@epam.com
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenues | $ | 632,775 | $ | 504,931 | $ | 2,293,798 | $ | 1,842,912 | |||||||
Operating expenses: | |||||||||||||||
Cost of revenues (exclusive of depreciation and amortization) | 410,069 | 319,031 | 1,488,198 | 1,186,921 | |||||||||||
Selling, general and administrative expenses | 124,999 | 97,447 | 457,433 | 373,587 | |||||||||||
Depreciation and amortization expense | 12,962 | 10,183 | 45,317 | 36,640 | |||||||||||
Income from operations | 84,745 | 78,270 | 302,850 | 245,764 | |||||||||||
Interest and other income, net | 1,950 | 1,080 | 8,725 | 3,522 | |||||||||||
Foreign exchange (loss)/gain | (1,898 | ) | (582 | ) | (12,049 | ) | 487 | ||||||||
Income before provision for income taxes | 84,797 | 78,768 | 299,526 | 249,773 | |||||||||||
Provision for income taxes | 10,273 | 18,803 | 38,469 | 9,517 | |||||||||||
Net income | $ | 74,524 | $ | 59,965 | $ | 261,057 | $ | 240,256 | |||||||
Foreign currency translation adjustments, net of tax | 10,846 | (6,695 | ) | 6,295 | (21,338 | ) | |||||||||
Unrealized gain/(loss) on cash-flow hedging instruments, net of tax | 1,371 | (472 | ) | 3,845 | (2,553 | ) | |||||||||
Comprehensive income | $ | 86,741 | $ | 52,798 | $ | 271,197 | $ | 216,365 | |||||||
Net income per share: | |||||||||||||||
Basic | $ | 1.35 | $ | 1.11 | $ | 4.77 | $ | 4.48 | |||||||
Diluted | $ | 1.29 | $ | 1.05 | $ | 4.53 | $ | 4.24 | |||||||
Shares used in calculation of net income per share: | |||||||||||||||
Basic | 55,062 | 54,031 | 54,719 | 53,623 | |||||||||||
Diluted | 57,965 | 56,887 | 57,668 | 56,673 | |||||||||||
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
As of December 31, 2019 | As of December 31, 2018 | ||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 936,552 | $ | 770,560 | |||
Trade receivables and contract assets, net of allowance of $2,920 and $1,557, respectively | 497,716 | 402,337 | |||||
Prepaid and other current assets | 39,943 | 26,171 | |||||
Total current assets | 1,474,211 | 1,199,068 | |||||
Property and equipment, net | 165,259 | 102,646 | |||||
Operating lease right-of-use assets, net | 238,991 | — | |||||
Intangible assets, net | 56,258 | 57,065 | |||||
Goodwill | 195,043 | 166,832 | |||||
Deferred tax assets | 75,013 | 69,983 | |||||
Other noncurrent assets | 39,433 | 16,208 | |||||
Total assets | $ | 2,244,208 | $ | 1,611,802 | |||
Liabilities | |||||||
Current liabilities | |||||||
Accounts payable | $ | 7,831 | $ | 7,444 | |||
Accrued compensation and benefits expenses | 230,035 | 177,594 | |||||
Accrued expenses and other current liabilities | 82,476 | 50,253 | |||||
Income taxes payable, current | 9,064 | 27,538 | |||||
Operating lease liabilities, current | 57,542 | — | |||||
Total current liabilities | 386,948 | 262,829 | |||||
Long-term debt | 25,074 | 25,031 | |||||
Income taxes payable, noncurrent | 45,878 | 43,685 | |||||
Operating lease liabilities, noncurrent | 180,848 | — | |||||
Other noncurrent liabilities | 9,315 | 17,661 | |||||
Total liabilities | 648,063 | 349,206 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity | |||||||
Common stock, $0.001 par value; 160,000,000 authorized; 55,207,446 and 54,099,927 shares issued, 55,187,711 and 54,080,192 shares outstanding at December 31, 2019 and December 31, 2018, respectively | 55 | 54 | |||||
Additional paid-in capital | 607,051 | 544,700 | |||||
Retained earnings | 1,020,590 | 759,533 | |||||
Treasury stock | (177 | ) | (177 | ) | |||
Accumulated other comprehensive loss | (31,374 | ) | (41,514 | ) | |||
Total stockholders’ equity | 1,596,145 | 1,262,596 | |||||
Total liabilities and stockholders’ equity | $ | 2,244,208 | $ | 1,611,802 | |||
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 on a constant currency basis to revenue growth as reported under GAAP is presented in the table below:
Three Months Ended December 31, 2019 | Year Ended December 31, 2019 | ||||
Revenue growth on a constant currency basis (1) | 24.8 | % | 25.8 | % | |
Foreign exchange rates impact | 0.5 | % | (1.3 | )% | |
Revenue growth as reported under GAAP | 25.3 | % | 24.5 | % | |
(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 months and years ended December 31, 2019 and 2018:
Three Months Ended December 31, 2019 | Year Ended December 31, 2019 | ||||||||||||||||||||||
GAAP | Adjustments | Non-GAAP | GAAP | Adjustments | Non-GAAP | ||||||||||||||||||
Cost of revenues (exclusive of depreciation and amortization)(2) | $ | 410,069 | $ | (9,739 | ) | $ | 400,330 | $1,488,198 | $ | (37,580 | ) | $1,450,618 | |||||||||||
Selling, general and administrative expenses(3) | $ | 124,999 | $ | (10,542 | ) | $ | 114,457 | $ | 457,433 | $ | (38,806 | ) | $ | 418,627 | |||||||||
Income from operations(4) | $ | 84,745 | $ | 22,902 | $ | 107,647 | $ | 302,850 | $ | 86,300 | $ | 389,150 | |||||||||||
Operating margin | 13.4 | % | 3.6 | % | 17.0 | % | 13.2 | % | 3.8 | % | 17.0 | % | |||||||||||
Net income(5) | $ | 74,524 | $ | 12,731 | $ | 87,255 | $ | 261,057 | $ | 51,651 | $ | 312,708 | |||||||||||
Diluted earnings per share | $ | 1.29 | $ | 1.51 | $ | 4.53 | $ | 5.42 | |||||||||||||||
Three Months Ended December 31, 2018 | Year Ended December 31, 2018 | ||||||||||||||||||||||
GAAP | Adjustments | Non-GAAP | GAAP | Adjustments | Non-GAAP | ||||||||||||||||||
Cost of revenues (exclusive of depreciation and amortization)(2) | $ | 319,031 | $ | (4,410 | ) | $ | 314,621 | $ | 1,186,921 | $ | (27,245 | ) | $ | 1,159,676 | |||||||||
Selling, general and administrative expenses(3) | $ | 97,447 | $ | (8,081 | ) | $ | 89,366 | $ | 373,587 | $ | (33,998 | ) | $ | 339,589 | |||||||||
Income from operations(4) | $ | 78,270 | $ | 14,792 | $ | 93,062 | $ | 245,764 | $ | 69,344 | $ | 315,108 | |||||||||||
Operating margin | 15.5 | % | 2.9 | % | 18.4 | % | 13.3 | % | 3.8 | % | 17.1 | % | |||||||||||
Net income(5) | $ | 59,965 | $ | 12,359 | $ | 72,324 | $ | 240,256 | $ | 7,754 | $ | 248,010 | |||||||||||
Diluted earnings per share | $ | 1.05 | $ | 1.27 | $ | 4.24 | $ | 4.38 | |||||||||||||||
Items (2) through (5) above are detailed in the table below with the specific cross-reference noted in the appropriate item. |
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Stock-based compensation expenses | $ | 9,739 | $ | 4,410 | $ | 37,580 | $ | 27,245 | |||||||
Total adjustments to GAAP cost of revenues(2) | 9,739 | 4,410 | 37,580 | 27,245 | |||||||||||
Stock-based compensation expenses | 9,273 | 8,042 | 34,456 | 31,943 | |||||||||||
Other acquisition-related expenses | 1,269 | 209 | 3,774 | 916 | |||||||||||
One-time charges | — | (170 | ) | 576 | 1,139 | ||||||||||
Total adjustments to GAAP selling, general and administrative expenses(3) | 10,542 | 8,081 | 38,806 | 33,998 | |||||||||||
Amortization of purchased intangible assets | 2,621 | 2,301 | 9,914 | 8,101 | |||||||||||
Total adjustments to GAAP income from operations(4) | 22,902 | 14,792 | 86,300 | 69,344 | |||||||||||
Change in fair value of contingent consideration included in Interest and other income, net | 420 | — | 1,776 | (900 | ) | ||||||||||
Foreign exchange loss/(gain) | 1,898 | 582 | 12,049 | (487 | ) | ||||||||||
Provision for income taxes: | |||||||||||||||
Tax effect on non-GAAP adjustments | (4,586 | ) | (1,855 | ) | (20,089 | ) | (12,862 | ) | |||||||
Net discrete charge/(benefit) related to U.S. tax reform | — | 13 | — | (29,971 | ) | ||||||||||
Excess tax benefits related to stock-based compensation | (7,903 | ) | (1,173 | ) | (28,385 | ) | (17,370 | ) | |||||||
Total adjustments to GAAP net income(5) | $ | 12,731 | $ | 12,359 | $ | 51,651 | $ | 7,754 | |||||||
EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Guidance Non-GAAP Measures to Comparable GAAP Measures
(Unaudited)
(In percent, except per share amounts)
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 on a constant currency basis to projected revenue growth on a GAAP basis is presented in the table below:
First Quarter 2020 | Full Year 2020 | ||||
Revenue growth on a constant currency basis(6) | 23 | % | 22 | % | |
Foreign exchange rates impact | 0 | % | 0 | % | |
Revenue growth on a GAAP basis | 23 | % | 22 | % | |
(6) | Constant currency revenue results are calculated by translating current period projected revenues in local currency into U.S. dollars at the weighted average exchange rates of the comparable prior period. |
Reconciliation of projected GAAP to non-GAAP income from operations as a percentage of revenues is presented in the table below:
First Quarter 2020 | Full Year 2020 | ||||
GAAP income from operations as a percentage of revenues | 12% to 13% | 13% to 14% | |||
Stock-based compensation expenses | 2.5 | % | 2.5 | % | |
Included in cost of revenues (exclusive of depreciation and amortization) | 1.2 | % | 1.2 | % | |
Included in selling, general and administrative expenses | 1.3 | % | 1.3 | % | |
Other acquisition-related expenses | 0.1 | % | 0.1 | % | |
Amortization of purchased intangible assets | 0.4 | % | 0.4 | % | |
Non-GAAP income from operations as a percentage of revenues | 15% to 16% | 16% to 17% | |||
Reconciliation of projected GAAP to non-GAAP effective tax rate is presented in the table below:
First Quarter 2020 | Full Year 2020 | ||||
GAAP effective tax rate (approximately) | 5 | % | 14 | % | |
Tax effect on non-GAAP adjustments | 4.6 | % | 3.4 | % | |
Excess tax benefits related to stock-based compensation | 13.4 | % | 5.6 | % | |
Non-GAAP effective tax rate (approximately) | 23 | % | 23 | % | |
Reconciliation of projected GAAP to non-GAAP diluted earnings per share is presented in the table below:
First Quarter 2020 | Full Year 2020 | ||||||
GAAP diluted earnings per share (at least) | $ | 1.27 | $ | 5.56 | |||
Stock-based compensation expenses | 0.31 | 1.25 | |||||
Included in cost of revenues (exclusive of depreciation and amortization) | 0.15 | 0.61 | |||||
Included in selling, general and administrative expenses | 0.16 | 0.64 | |||||
Other acquisition-related expenses | 0.02 | 0.07 | |||||
Amortization of purchased intangible assets | 0.05 | 0.19 | |||||
Foreign exchange loss | 0.05 | 0.15 | |||||
Provision for income taxes: | |||||||
Tax effect on non-GAAP adjustments | (0.09 | ) | (0.35 | ) | |||
Excess tax benefits related to stock-based compensation | (0.25 | ) | (0.57 | ) | |||
Non-GAAP diluted earnings per share (at least) | $ | 1.36 | $ | 6.30 | |||