EPAM Systems Reports Record Results for Fourth Quarter and Full Year 2012

  • Fourth Quarter revenues up 14% sequentially and 32% year-over-year 

  • Annual revenues of $433.8 million, up 30% year-over-year  

  • Double digit growth in profitability achieved in both fourth quarter and full year 2012 

  • 2013 revenues expected to increase by 23% to 25% 

Newtown, PA - February 27, 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 record results for its fourth quarter and full year ended December 31, 2012.

Arkadiy Dobkin, CEO and President commented, "Our strong fourth quarter and full year 2012 results demonstrate the competitiveness of our business proposition. By combining our core strengths in software engineering with our strong expertise in a number of emerging technologies and our fast developing domain knowledge, EPAM is differentiated as a provider of high quality, complex technology and business solutions to meet the rapidly-changing needs of global clients.  Consequently, we reported significant year-over-year revenue growth across our three geographic regions and most of our key vertical markets in both the fourth quarter and full year 2012.

Profitability was in line with our guidance, as we continued to post double-digit year-on-year improvement in both the fourth quarter and full year 2012, while investing in people and infrastructure that will drive future growth. At the end of the fourth quarter, we completed an important strategic transaction with the acquisition of Empathy Lab, a digital strategy and multi-channel experience design firm that significantly strengthens our position as a global provider of end-to-end digital services and multi-channel eCommerce solutions. The integration of Empathy Lab is currently underway, and we are working together on business development initiatives to drive revenue synergies."

Fourth Quarter 2012 Highlights

  • Revenues increased to a record $125.5 million, up 32.0% year-on-year  and 14.0% sequentially

  • GAAP income from operations was $18.7 million, an increase of 20.9% compared to $15.4 million in the fourth quarter of 2011

  • Non-GAAP income from operations was $20.6 million, an increase of $4.2 million or 26.0%, from $16.3 million in the fourth quarter of 2011

  • Quarterly diluted earnings per share (EPS) on a GAAP basis was $0.32, up from  $0.29 in the year-ago quarter

  • Non-GAAP quarterly diluted EPS was $0.37, up 23% from $0.30 in the year-ago quarter

EPAM generated cash from operations of $35.8 million in the fourth quarter of 2012, an increase of $9.4 million generated over the fourth quarter of 2011.

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

Full Year 2012 Highlights

  • Revenues increased 29.7% to a record $433.8 million, up from $334.5 million reported in 2011

  • GAAP income from operations for 2012 was $66.0 million, an increase of 20.0% over 2011

  • Non-GAAP income from operations was $74.9 million compared to $60.9 million in 2011

  • Diluted EPS on a GAAP basis was $1.17, compared to $0.63 in the previous year

  • Non-GAAP diluted EPS was $1.42, compared to $1.19 in 2011

  • Net headcount for IT professionals increased 21.9% to 8,495 as of December 31, 2012, from 6,968 as of December 31, 2011

For full year 2012, EPAM generated operating cash flow of $48.5 million.  As of December 31, 2012 EPAM had cash and cash equivalents of $118.1 million.

Full Year and First Quarter 2013 Outlook

"Based on our visibility and the market conditions we see for our service offerings, we are confident that our growth momentum will continue in 2013 and beyond. To support this expansion, we will continue to invest in the development of technical competencies that are critical to our success and to build our on-site presence to better support complex solution delivery requirements. Additionally, we will evaluate organic opportunities as well as acquisitions to expand our scope of services, complement existing technical expertise, and add new vertical markets," concluded Mr. Dobkin.

Based on current conditions, EPAM expects year-over-year revenue growth in the range of 23% to 25%. Non-GAAP net income growth for 2013 is expected to be in the range of 12% to 15% year-over-year, with an increase in the effective tax rate to approximately 20%.

For the first quarter of 2013, EPAM expects revenue between $122 million and $125 million, representing a growth rate of 29% to 31% over first quarter 2012 revenue, which includes results from two acquisitions made in 2012 that were not in the comparable period.  First quarter 2013 non-GAAP diluted EPS is expected to be in the range of $0.32 to $0.34 based on an estimated first quarter 2013 weighted average of 47.6 million diluted shares.

Conference Call Information

EPAM will hold a conference call to discuss its fourth quarter and full year 2012 results at 8:00 a.m. Eastern time, on Thursday, February 28, 2013. A live webcast of the call may be accessed over the Internet from EPAM's Investor Relations website at investors.epam.com. Participants should follow the instructions provided on the website to download and install the necessary audio applications. The conference call also is available by dialing 1-877-407-0784 (domestic) or 1-201-689-8560 (international) and entering passcode 409154. Participants should ask for the EPAM Systems fourth quarter and full year 2012 conference call.

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 (domestic) or 1-858-384-5517 (international) and entering the replay passcode 409154. The telephonic replay will be available until March 10, 2013.

About EPAM Systems

Established in 1993, EPAM Systems, Inc. (NYSE:EPAM) provides software engineering solutions through its leading Central and Eastern European service delivery platform. Headquartered in the United States, EPAM employs approximately 8,500 IT professionals and serves clients worldwide from its locations in the United States, Canada, UK, Switzerland, Germany, Sweden, Belarus, Hungary, Russia, Ukraine, Kazakhstan and Poland.

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 M&A 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
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 AND COMPREHENSIVE INCOME

      Three Months Ended   Year Ended
      December 31,   December 31,
      2012   2011   2012   2011
      (in thousands, except share and per share data)
Revenues $125,538   $95,127   $433,799   $334,528
Operating expenses:              
    Cost of revenues (exclusive of depreciation and amortization) 77,284                  59,388   270,361                205,336
    Selling, general and administrative expenses 26,377                  18,510   85,868                  64,930
    Depreciation and amortization expense 3,208                    1,806   10,882                    7,538
    Goodwill impairment loss                         -                            -                             -                      1,697
    Other operating expenses, net                        13                          (4)                        682                         19
  Income from operations 18,656   15,427   66,006   55,008
  Interest and other income, net 519                       422   1,941                    1,422
  Foreign exchange loss                     (135)                      (500)                    (2,084)                   (3,638)
  Income before provision for income taxes 19,040   15,349   65,863   52,792
  Provision for income taxes 4,041   2,965   11,379   8,439
Net Income $14,999   $12,384   $54,484   $44,353
Comprehensive income $15,640   $11,535   $56,977   $43,103  
                   
Accretion of preferred stock                      -                         -                          -      (17,563)
Net income allocated to participating securities                      -      (6,941)               (3,341)    (15,025)
Net income available for common stockholders 14,999   5,443   51,143   11,765
Net income per share of common stock:              
    Basic (common) 0.35   0.32   1.27   0.69
    Basic (puttable common)                      -     0.32                        -     1.42
    Diluted (common) 0.32   0.29                   1.17   0.63
    Diluted (puttable common)                      -     0.29                        -     0.77
Shares used in calculation of net income per share of common stock:              
    Basic (common) 43,294   17,141   40,190   17,094
    Basic (puttable common)                      -     18                        -     18
    Diluted (common) 46,604   20,520   43,821   20,473
    Diluted (puttable common)                      -     18                        -     18

EPAM SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

      As of
December 31,
2012
  As of December 31,
2011
      (in thousands, except share and per share data)
Assets
Current assets
     
  Cash and cash equivalents $118,112   $88,796
  Accounts receivable, net of allowance of $2,203 and $2,250, respectively 78,906   59,472
  Unbilled revenues 33,414   24,475
  Prepaid and other current assets 12,264   6,436
  Time deposits 1,006   -  
  Restricted cash, current 660   -  
  Deferred tax assets, current 6,593     4,384
    Total current assets 250,955   183,563
Property and equipment, net 53,135   35,482
Restricted cash, long-term 467   2,582
Intangible assets, net 16,834   1,251
Goodwill 22,698   8,169
Deferred tax assets, long-term 6,093     1,875
Other long-term assets 632   2,691
Total assets $350,814   $235,613
Liabilities
Current liabilities
     
  Accounts payable $6,095   $2,714
  Accrued expenses 19,814   24,782
  Deferred revenue 6,369   6,949
  Due to employees 12,026   8,234
  Taxes payable 14,557   8,712
  Deferred tax liabilities, current 491   1,736
    Total current liabilities 59,352   53,127
Deferred revenue , long-term 1,263   -
Taxes payable, long-term 1,228   1,204
Deferred tax liabilities, long-term 2,691   283
Total liabilities 64,534   54,614
Commitments and contingencies      
Preferred stock, $.001 par value; 0 and 5,000,000 authorized at December 31, 2012 and December 31, 2011; 0 and 2,054,935 Series A-1 convertible redeemable preferred stock issued and outstanding at December 31, 2012 and December 31, 2011; $.001 par value 0 and 945,114 authorized at December 31, 2012 and December 31, 2011, 0 and 384,804 Series A-2 convertible redeemable preferred stock issued and outstanding at December 31, 2012 and December 31, 2011 -     85,940
Stockholders' equity      
Common stock, $.001 par value; 160,000,000 authorized; 45,398,523 and 18,914,616 shares issued, 44,442,494 and 17,158,904 shares outstanding at December 31, 2012 and December 31, 2011, respectively 44   17
Preferred stock, $.001 par value; 0 and 290,277 authorized Series A-3 convertible preferred stock issued and outstanding at December 31, 2012 and December 31, 2011, respectively -     -  
Additional paid-in capital 166,962   40,020
Retained earnings 128,992   74,508
Treasury stock  (8,697)    (15,972)
Accumulated other comprehensive loss  (1,021)    (3,514)
Total stockholders' equity 286,280   95,059
Total liabilities and stockholders' equity $350,814   $235,613

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

    Three Months Ended   Year Ended  
    December 31,   December 31,  
    2012   2012   2012   2012   2012   2012  
    GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP  
Income from operations $18,656   $1,896   $20,552  (a) $66,006   $8,934   $74,940  (a)
Operating margin 14.9%   1.50%   16.4%   15.2%   2.10%   17.3%  
Net income $14,999   $2,031   $17,030  (b) $54,484   $11,018   $65,502  (b)
  Diluted earnings per share $0.32       $0.37  (c) $1.17       $1.42  (c)
                           

 

    Three Months Ended   Year Ended  
    December 31,   December 31,  
    2011   2011   2011   2011   2011   2011  
    GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP  
Income from operations $15,427   $887   $16,314  (a) $55,008   $5,869   $60,877  (a)
Operating margin 16.2%   0.9%   17.1%   16.4%   1.8%   18.2%  
Net income $12,384   $1,387   $13,771  (b) $44,353   $9,507   $53,860  (b)
  Diluted earnings per share $0.29       $0.30  (c) $0.63       $1.19  (c)
                           

 

Notes:                  
      Three Months Ended   Year Ended
      December 31,   December 31,
      2012   2011   2012   2011
(a)                  
  Adjustment to GAAP Income from operations:               1,896                    887             8,934            5,869
  Stock-based compensation, of which: 1,457   712   6,826   2,866
    reported in cost of revenues                 323                   418            2,809           1,365
    reported in sales, general and administrative expenses              1,134                   294            4,017           1,501
  Amortization of purchased intangible assets 313   140   1,024   779
  M&A costs 126   35   500   527
  One-time charges                      -                          -     584                   -  
  Goodwill write-off                      -                          -     -     1,697
(b)                  
  Adjustment to GAAP Net Income:               2,031                 1,387          11,018            9,507
  Stock-based compensation, of which: 1,457   712   6,826   2,866
    reported in cost of revenues                 323                   418            2,809           1,365
    reported in sales, general and administrative expenses              1,134                   294            4,017           1,501
  Amortization of purchased intangible assets 313   140   1,024   779
  M&A costs 126   35   500   527
  One-time charges                      -                          -     584                   -  
  Goodwill write-off                      -                          -     -     1,697
  Foreign exchange (gains) and losses 135   500   2,084   3,638

 

(c)                  
  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, 2010, and (ii) the conversion of the outstanding preferred stock into common stock on an as-converted basis. The following table presents the non-GAAP weighted average diluted common shares outstanding for the periods presented:  

 

      Three Months Ended   Year Ended
      December 31,   December 31,
      2012   2011   2012   2011
  Non-GAAP weighted average diluted common shares outstanding 46,604   45,278   46,123   45,250

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