epam-20201105
0001352010false00013520102020-11-052020-11-05


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 5, 2020
EPAM SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware1-3541822-3536104
(State or other jurisdiction of incorporation)(Commission File Number)(IRS Employer Identification No.)
41 University DriveSuite 20218940
NewtownPennsylvania
(Address of principal executive offices)(Zip Code)

267-759-9000
(Registrant’s telephone number, including area code)
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):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
  
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
  
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on which Registered
Common Stock, par value $0.001 per shareEPAMNew York Stock Exchange

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.




Item 2.02. Results of Operations and Financial Condition.
    
On November 5, 2020, EPAM Systems, Inc. (the “Company”) issued a press release discussing its results of operations for the third quarter ended September 30, 2020. 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 Press release dated November 5, 2020, announcing results of operations of EPAM Systems, Inc. for the third quarter ended September 30, 2020.
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: November 5, 2020
By:/s/ Jason Peterson
Name:Jason Peterson
Title:Senior Vice President, Chief Financial Officer and Treasurer




Document

Exhibit 99.1
https://cdn.kscope.io/7de63094ef1be095dd733398f6b57361-logo_usea151.jpg

EPAM Reports Results for Third Quarter 2020

Third quarter revenues of $652.2 million, up 10.9% year-over-year
GAAP Diluted EPS of $1.53 for the third quarter
Non-GAAP Diluted EPS of $1.65 for the third quarter

Newtown, PA — November 5, 2020 — 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, 2020.

“EPAM’s solid third quarter performance was the result of an improving demand environment along with the ongoing expansion of the Company’s capabilities—enabling us to continue supporting our customers in the execution of their transformation programs,” said Arkadiy Dobkin, CEO & President, EPAM. “Our continuous efforts on implementing internally the principles of an adaptive organization, allow us to navigate the realities of the global economic environment more effectively, while increasing the value we bring to our clients and extending our market position as a trusted digital solutions partner.”

Third Quarter 2020 Highlights
Revenues increased to $652.2 million, a year-over-year increase of $64.1 million, or 10.9%, and on a constant currency basis, revenues were up 10.0% over the corresponding period last year;
GAAP income from operations was $96.4 million, an increase of $15.8 million, or 19.6%, compared to $80.6 million in the third quarter of 2019;
Non-GAAP income from operations was $123.3 million, an increase of $23.6 million, or 23.6%, compared to $99.7 million in the third quarter of 2019;
Diluted earnings per share (“EPS”) on a GAAP basis was $1.53, an increase of $0.37, or 31.9%, compared to $1.16 in the third quarter of 2019 based on weighted average diluted shares outstanding of 58.6 million; and
Non-GAAP diluted EPS was $1.65, an increase of $0.26, or 18.7%, compared to $1.39 in the third quarter of 2019.
Cash Flow and Other Metrics
Cash provided by operating activities was $385.0 million for the first nine months of 2020, compared to $162.9 million for the first nine months of 2019;
Cash and cash equivalents totaled $1,161.1 million as of September 30, 2020, an increase of $224.5 million, or 24.0%, from $936.6 million as of December 31, 2019; and
Total headcount was approximately 38,000 as of September 30, 2020. Included in this number were approximately 33,800 delivery professionals, an increase of 7.4% from September 30, 2019.



    
Fourth Quarter 2020 Outlook

The Company expects the following for the fourth quarter:
Revenues will be in the range of $695 million to $705 million for the fourth quarter reflecting a year-over-year growth rate of approximately 10.6% at the mid-point of the range. The Company expects that foreign currency translation will have a negligible impact on year-over-year revenue growth during the quarter;
For the fourth quarter, the Company expects GAAP income from operations to be in the range of 14% to 15% of revenues and non-GAAP income from operations to be in the range of 17.5% to 18.5% of revenues;
The Company expects its GAAP effective tax rate to be approximately 15% and its non-GAAP effective tax rate to be approximately 23%; and
The Company expects GAAP diluted EPS will be in the range of $1.44 to $1.54 for the quarter, and non-GAAP diluted EPS will be in the range of $1.63 to $1.73 for the quarter. The Company expects weighted average diluted shares outstanding for the quarter of 58.9 million.

Conference Call Information
EPAM will host a conference call to discuss the results on Thursday, November 5, 2020 at 8:00 a.m. Eastern time. The live conference call will be available by dialing +1 (844) 707-0662 or +1 (703) 318-2250 (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 https://investors.epam.com. A replay will be available approximately one hour after the call by dialing +1 (855) 859-2056 or +1 (404) 537-3406 (outside of the U.S.) and entering the conference ID 4187416. The replay will be available until November 12, 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 including amortization of intangible assets, impairment of assets, certain other one-time charges and benefits, changes in fair value of contingent consideration, foreign exchange gains and losses, 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 estimates and 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. Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our business and operations. Those future events and trends may relate to, among other things, the anticipated impact of the COVID-19 pandemic and civil unrest in the geographies where we operate and the effect that they may have on our sales, operations, access to capital, revenues, profitability and customer demand. Other factors that could cause actual results to differ materially from those expressed or implied include general economic conditions, the factors discussed in the Company’s most recent Annual Report on Form 10-K, the factors discussed in the Company’s Quarterly Report on Form 10-Q, filed on or after the date of this press release, particularly in Part I. Item 2. (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Part II. Item 1A. (Risk Factors), and other filings with the Securities and Exchange Commission. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. 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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Revenues$652,243 $588,103 $1,935,985 $1,661,023 
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization)
423,388 377,525 1,266,730 1,078,129 
Selling, general and administrative expenses116,530 118,886 355,829 332,434 
Depreciation and amortization expense15,929 11,127 46,095 32,355 
Income from operations96,396 80,565 267,331 218,105 
Interest and other income, net1,672 2,509 5,875 6,775 
Foreign exchange gain/(loss)5,896 (3,105)3,253 (10,151)
Income before provision for income taxes103,964 79,969 276,459 214,729 
Provision for income taxes14,532 12,967 34,838 28,196 
Net income$89,432 $67,002 $241,621 $186,533 
Foreign currency translation adjustments, net of tax199 (10,114)(15,878)(4,551)
Unrealized (loss)/gain on cash-flow hedging instruments, net of tax(498)(2,163)(3,420)2,474 
Comprehensive income$89,133 $54,725 $222,323 $184,456 
Net income per share:
Basic$1.60 $1.22 $4.34 $3.42 
Diluted$1.53 $1.16 $4.14 $3.24 
Shares used in calculation of net income per share:
Basic55,884 54,878 55,625 54,604 
Diluted58,616 57,844 58,341 57,567 




























EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
 
As of
September 30,
2020
As of
December 31,
2019
Assets
Current assets
Cash and cash equivalents
$1,161,065 $936,552 
Short-term investments60,089 
Trade receivables and contract assets, net of allowance of $5,371
and $2,920, respectively
493,225 497,716 
Prepaid and other current assets37,843 39,934 
Total current assets
1,752,222 1,474,211 
Property and equipment, net163,689 165,259 
Operating lease right-of-use assets, net232,780 238,991 
Intangible assets, net54,321 56,258 
Goodwill207,764 195,043 
Deferred tax assets90,071 75,013 
Other noncurrent assets54,578 39,433 
Total assets
$2,555,425 $2,244,208 
Liabilities
Current liabilities
Accounts payable
$10,785 $7,831 
Accrued compensation and benefits expenses263,918 230,035 
Accrued expenses and other current liabilities65,242 82,476 
Income taxes payable, current13,779 9,064 
Operating lease liabilities, current61,107 57,542 
Total current liabilities
414,831 386,948 
Long-term debt25,039 25,074 
Income taxes payable, noncurrent43,259 45,878 
Operating lease liabilities, noncurrent183,935 180,848 
Other noncurrent liabilities28,127 9,315 
Total liabilities
695,191 648,063 
Commitments and contingencies
Stockholders’ equity
  
Common stock, $0.001 par value; 160,000,000 authorized; 56,001,270
and 55,207,446 shares issued, 55,981,535
and 55,187,711 shares outstanding at September 30, 2020 and December 31, 2019, respectively
56 55 
Additional paid-in capital
648,686 607,051 
Retained earnings
1,262,341 1,020,590 
Treasury stock
(177)(177)
Accumulated other comprehensive loss
(50,672)(31,374)
Total stockholders’ equity
1,860,234 1,596,145 
Total liabilities and stockholders’ equity
$2,555,425 $2,244,208 




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 as reported on a GAAP basis to revenue growth on a constant currency basis is presented in the table below:
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
Revenue growth as reported
10.9 %16.6 %
Foreign exchange rates impact
(0.9)0.2 
Revenue growth on a constant currency basis(1)
10.0 %16.8 %
(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 and nine months ended September 30, 2020 and 2019:
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
GAAPAdjustmentsNon-GAAPGAAPAdjustmentsNon-GAAP
Cost of revenues (exclusive of depreciation and amortization)(2)
$423,388 $(10,854)$412,534 $1,266,730 $(23,796)$1,242,934 
Selling, general and administrative expenses(3)
$116,530 $(12,976)$103,554 $355,829 $(36,497)$319,332 
Income from operations(4)
$96,396 $26,916 $123,312 $267,331 $69,508 $336,839 
Operating margin
14.8 %4.1 %18.9 %13.8 %3.6 %17.4 %
Net income(5)
$89,432 $7,254 $96,686 $241,621 $22,915 $264,536 
Diluted earnings per share
$1.53 $1.65 $4.14 $4.53 


Three Months Ended
September 30, 2019
Nine Months Ended
September 30, 2019
GAAPAdjustmentsNon-GAAPGAAPAdjustmentsNon-GAAP
Cost of revenues (exclusive of depreciation and amortization)(2)
$377,525 $(7,580)$369,945 $1,078,129 $(27,841)$1,050,288 
Selling, general and administrative expenses(3)
$118,886 $(9,037)$109,849 $332,434 $(28,264)$304,170 
Income from operations(4)
$80,565 $19,171 $99,736 $218,105 $63,398 $281,503 
Operating margin
13.7 %3.3 %17.0 %13.1 %3.8 %16.9 %
Net income(5)
$67,002 $13,215 $80,217 $186,533 $38,920 $225,453 
Diluted earnings per share
$1.16 $1.39 $3.24 $3.92 
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,
2020201920202019
Stock-based compensation expenses
$10,854 $7,580 $23,796 $27,841 
Total adjustments to GAAP cost of revenues(2)
10,854 7,580 23,796 27,841 
Stock-based compensation expenses
12,620 7,891 30,998 25,183 
Other acquisition-related expenses
243 1,144 859 2,505 
One-time charges
113 4,640 576 
Total adjustments to GAAP selling, general and administrative expenses(3)
12,976 9,037 36,497 28,264 
Amortization of acquired intangible assets
3,086 2,554 9,215 7,293 
Total adjustments to GAAP income from operations(4)
26,916 19,171 69,508 63,398 
Change in fair value of contingent consideration included in Interest and other income, net
(43)— (1,481)1,356 
Impairment of investment
— — 313 — 
Foreign exchange gain/(loss)
(5,896)3,105 (3,253)10,151 
Provision for income taxes:
Tax effect on non-GAAP adjustments
(4,558)(4,833)(13,181)(15,503)
Excess tax benefits related to stock-based compensation
(9,165)(4,228)(28,991)(20,482)
Total adjustments to GAAP net income(5)
$7,254 $13,215 $22,915 $38,920 




EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Guidance Non-GAAP Financial Measures to Comparable GAAP Financial 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 expected revenue growth on a GAAP basis to expected revenue growth on a constant currency basis is presented in the table below:
Fourth Quarter 2020
Revenue growth (at mid-point of the range)
10.6%
Foreign exchange rates impact
— %
Revenue growth on a constant currency basis (at mid-point of the range) (6)
10.6%
(6)Constant currency revenue results are calculated by translating expected revenues in local currency into U.S. dollars at the weighted average exchange rates of the comparable prior period.

Reconciliation of expected GAAP to non-GAAP income from operations as a percentage of revenues is presented in the table below:
Fourth Quarter 2020
GAAP income from operations as a percentage of revenues
14% to 15%
Stock-based compensation expenses
3.0 %
Included in cost of revenues (exclusive of depreciation and amortization)
1.4 %
Included in selling, general and administrative expenses
1.6 %
Amortization of purchased intangible assets
0.5 %
Non-GAAP income from operations as a percentage of revenues
17.5% to 18.5%

Reconciliation of expected GAAP to non-GAAP effective tax rate is presented in the table below:
Fourth Quarter 2020
GAAP effective tax rate (approximately)
15 %
Tax effect on non-GAAP adjustments
3.1 %
 Excess tax benefits related to stock-based compensation4.9 %
Non-GAAP effective tax rate (approximately)
23 %




Reconciliation of expected GAAP to non-GAAP diluted earnings per share is presented in the table below:
Fourth Quarter 2020
GAAP diluted earnings per share
$1.44 to $1.54
Stock-based compensation expenses
0.33 
Included in cost of revenues (exclusive of depreciation and amortization)
0.15 
Included in selling, general and administrative expenses
0.18 
Amortization of acquired intangible assets
0.05 
Foreign exchange loss
0.05 
Provision for income taxes:
     Tax effect on non-GAAP adjustments
(0.09)
     Excess tax benefits related to stock-based compensation
(0.15)
Non-GAAP diluted earnings per share
$1.63 to $1.73