EPAM Reports Results for Second Quarter 2016

Second quarter revenues of $283.8 million, up 30% year-over-year
GAAP Diluted EPS of $0.46, up 24% year-over-year 
Non-GAAP Diluted EPS of 0.71, up 22% year-over-year

Newtown, PA - August 04, 2016 -- EPAM Systems, Inc. (NYSE:EPAM), a leading global provider of product development and software engineering solutions, today announced results for its second quarter ended June 30, 2016.

“We are pleased with our second quarter results, which delivered 30.3% year-over-year revenue growth,” said Arkadiy Dobkin, CEO and President, EPAM. “As we look at the remainder of 2016, various macro-economic and geo-political challenges could cause some unexpected volatility in the market, but we remain confident that we can achieve our top line growth objectives. Our long-term strategy remains intact and we will continue to focus on delivering the most innovative digital solutions to our customers and investing in our talent, capabilities and global delivery locations.”

Second Quarter 2016 Highlights

  • Revenues increased to $283.8 million, a year-over-year increase of $66.1 million, or 30.3%;
  • In constant currency, revenue was up 33.9% year-over-year;
  • GAAP income from operations was $32.1 million, an increase of $8.5 million compared to $23.6 million in the second quarter of 2015;
  • Non-GAAP income from operations was $47.6 million, an increase of $10.7 million, or 29.1%, from $36.9 million in the second quarter of 2015;
  • Diluted earnings per share (EPS) on a GAAP basis was $0.46, an increase from $0.37 in the second quarter of 2015;
  • Non-GAAP quarterly diluted EPS was $0.71(*) compared to $0.58(*) in the second quarter of 2015;

(*)Excluding the tax effect on non-GAAP adjustments, non-GAAP diluted EPS would result in $0.79 for the second quarter of 2016 and $0.64 for the second quarter of 2015.

Cash Flow from Operations

  • Cash from operations was $49.4 million for the first half of 2016, up from $9.0 million as compared to the first half of 2015; and was $38.5 million in the second quarter of 2016, up from $2.2 million in the second quarter of 2015;
  • As of June 30, 2016, cash and cash equivalents totaled $280.7 million.

Other Metrics

  • As of June 30, 2016, total headcount was 20,761, an increase of 36.5% from 15,213 at June 30, 2015;
  • Total number of delivery professionals increased 37.4% to 18,206 in the second quarter of 2016 from 13,253 in the second quarter of 2015;
  • Billed and unbilled Days Sales Outstanding (DSO) decreased to 88 days for the second quarter of 2016 compared to 94 days in the first quarter of 2016.

2016 Outlook - Full Year and Third Quarter

Full Year

  • We are reaffirming our year-over-year revenue growth guidance of at least 26% after approximately 3% currency headwinds, resulting in constant currency growth of 29%. Given the various macro-economic and geo-political uncertainties, our normal visibility has been impaired and we could experience unexpected volatility over the next several quarters. We remain very confident about the continued long-term growth outlook for the business and the overall markets;
  • The full year GAAP diluted EPS will be at least $2.05, with an effective tax rate of approximately 21%;
  • The full year non-GAAP diluted EPS will be at least $2.97(*), which includes the tax effect from non-GAAP adjustments;
  • The full year weighted average share count is expected to be approximately 53.4 million diluted shares outstanding;

(*)Under the previous reporting method, before considering tax effects on the non-GAAP adjustments, the full year non-GAAP diluted EPS was estimated to be at least $3.20.

Third Quarter

  • Revenues will be at least $295 million for the third quarter of 2016, representing a growth rate of at least 25% over third quarter 2015 revenues. This includes approximately 3% anticipated currency headwinds, meaning constant currency growth of at least 28%;
  • Third quarter 2016 GAAP diluted EPS to be at least $0.52;
  • Third quarter 2016 non-GAAP diluted EPS is expected to be at least $0.73, which includes the tax effect from non-GAAP adjustments and is based on an estimated third quarter 2016 weighted average share count of 53.6 million diluted shares outstanding.

Conference Call Information

EPAM will host a conference call to discuss results on Thursday, August 4, 2016 at 8:00 a.m. Eastern Time. The live conference call can be accessed by dialing 1-855-327-6837 (domestic) or 1-631-891-4304 (international). A telephonic replay will also be available approximately one hour after the call and can be accessed by dialing 1-877-870-5176 (domestic) or 1-858-384-5517 (international). The passcode for the replay is 10001455. The telephonic replay will be available untilAugust 18, 2016. Interested investors and other parties may also listen to a webcast of the conference call by logging onto the Investor Relations section of the Company’s website at http://investors.epam.com.


About EPAM Systems

EPAM Systems, Inc. (NYSE:EPAM), a leading global product development and platform engineering services company, is focused on delivering results through best-in-class software engineering, combined with innovative strategy, consulting and design capabilities. With 23 years of experience in the information technology industry, EPAM’s 18,000 people serve our customers in over 25 countries across North America, Europe, Asia and Australia. EPAM was ranked #8 in FORBES 25 Fastest Growing Public Tech Companies and was ranked as a top information technology services company on FORTUNE’S 100 Fastest Growing Technology Companies.

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-off and recovery, amortization of purchased intangible assets, goodwill impairment, legal settlement, foreign exchange gains and losses, and acquisition-related costs. 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.

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

  Three Months Ended
 June 30,
  Six Months Ended
 June 30,
  2016   2015   2016   2015
Revenues $ 283,832     $ 217,781     $ 548,314     $ 417,826  
Operating expenses:              
Cost of revenues (exclusive of depreciation and amortization) 180,782     134,256     348,163     260,143  
Selling, general and administrative expenses 64,241     55,976     125,735     102,914  
Depreciation and amortization expense 6,123     3,903     11,225     8,103  
Other operating expenses, net 606     40     780     240  
Income from operations 32,080     23,606     62,411     46,426  
Interest and other income, net 1,138     1,299     2,349     2,457  
Foreign exchange loss (2,295)     (465)     (3,585)     (6,219)  
Income before provision for income taxes 30,923     24,440     61,175     42,664  
Provision for income taxes 6,493     5,209     12,846     8,719  
Net income $ 24,430     $ 19,231     $ 48,329     $ 33,945  
Foreign currency translation adjustments (2,386)     3,674     2,313     944  
Comprehensive income $ 22,044     $ 22,905     $ 50,642     $ 34,889  
               
Net income per share:              
Basic $ 0.49     $ 0.40     $ 0.97     $ 0.70  
Diluted $ 0.46     $ 0.37     $ 0.92     $ 0.66  
Shares used in calculation of net income per share:              
Basic 50,211   48,584   49,688   48,237
Diluted 53,271   51,917   52,803   51,461
               

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

  As of
 June 30,  
 2016
  As of
 December 31,  
 2015
Assets      
Current assets      
Cash and cash equivalents $ 280,724     $ 199,449  
Time deposits     30,181  
Accounts receivable, net of allowance of $2,997 and $1,729, respectively 178,796     174,617  
Unbilled revenues 96,045     95,808  
Prepaid and other current assets 15,273     14,344  
Employee loans, net of allowance of $0 and $0, respectively 2,684     2,689  
Deferred tax assets     11,847  
Total current assets 573,522     528,935  
Property and equipment, net 66,751     60,499  
Restricted cash 246     238  
Employee loans, net of allowance of $0 and $0, respectively 3,478     3,649  
Intangible assets, net 55,962     46,860  
Goodwill 110,668     115,930  
Deferred tax assets 25,991     18,312  
Other long-term assets 7,270     4,113  
Total assets $ 843,888     $ 778,536  
       
Liabilities      
Current liabilities      
Accounts payable $ 3,005     $ 2,576  
Accrued expenses and other liabilities 29,557     60,749  
Deferred revenue 3,356     3,047  
Due to employees 33,421     26,703  
Deferred compensation to employees 910     5,364  
Taxes payable 21,765     29,472  
Total current liabilities 92,014     127,911  
Long-term debt 40,088     35,000  
Deferred tax liabilities 2,819     2,402  
Total liabilities 134,921     165,313  
Commitments and contingencies      
Stockholders’ equity      
Common stock, $0.001 par value; 160,000,000 authorized; 50,884,007 and 50,177,044 shares issued,
50,866,612 and 50,166,537 shares outstanding at June 30, 2016 and December 31, 2015, respectively
50     49  
Additional paid-in capital 348,527     303,363  
Retained earnings 393,383     345,054  
Treasury stock (156)     (93)  
Accumulated other comprehensive loss (32,837)     (35,150)  
Total stockholders’ equity 708,967     613,223  
Total liabilities and stockholders’ equity $ 843,888     $ 778,536  
               

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

  Three Months Ended June 30, 2016   Six Months Ended June 30, 2016
  GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1) $ 180,782     $ (4,438)     $ 176,344     $ 348,163     $ (8,082)     $ 340,081  
Selling, general and administrative expenses(2) $ 64,241     $ (8,599)     $ 55,642     $ 125,735     $ (15,919)     $ 109,816  
Income from operations(3) $ 32,080     $ 15,558     $ 47,638     $ 62,411     $ 28,215     $ 90,626  
Operating margin 11.3%     5.5%     16.8%     11.4%     5.1%     16.5%  
Net income(4) $ 24,430     $ 13,501     $ 37,931     $ 48,329     $ 24,312     $ 72,641  
Diluted earnings per share(5) $ 0.46         $ 0.71     $ 0.92         $ 1.38  
                                       

 

  Three Months Ended June 30, 2015   Six Months Ended June 30, 2015
  GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1) $ 134,256     $ (3,765)     $ 130,491     $ 260,143     $ (6,249)     $ 253,894  
Selling, general and administrative expenses(2) $ 55,976     $ (8,488)     $ 47,488     $ 102,914     $ (15,200)     $ 87,714  
Income from operations(3) $ 23,606     $ 13,287     $ 36,893     $ 46,426     $ 23,901     $ 70,327  
Operating margin 10.8%     6.1%     16.9%     11.1%     5.7%     16.8%  
Net income(4) $ 19,231     $ 10,849     $ 30,080     $ 33,945     $ 22,649     $ 56,594  
Diluted earnings per share(5) $ 0.37         $ 0.58     $ 0.66         $ 1.10  
                                       

Notes:

  (1)   Adjustments to GAAP cost of revenues (exclusive of depreciation and amortization) were comprised of non-acquisition related stock-based compensation expense recorded in the periods presented.
  (2)
  Adjustments to GAAP selling general and administrative expenses:

 

  Three Months Ended
 June 30,
  Six Months Ended
 June 30,
  2016   2015   2016   2015
Stock-based compensation expenses - Acquisition related $ 2,970     $ 4,951     $ 5,980     $ 9,443  
Stock-based compensation expenses - All other 5,322     3,537     9,632     5,695  
Other acquisition-related expenses 307         307     62  
Total adjustments to GAAP selling, general and administrative expenses $ 8,599     $ 8,488     $ 15,919     $ 15,200  
                               

 

  (3)   Adjustments to GAAP income from operations:

 

  Three Months Ended
 June 30,
  Six Months Ended
 June 30,
  2016   2015   2016   2015
Stock-based compensation expense $ 12,730     $ 12,253     $ 23,694     $ 21,387  
reported within cost of revenues 4,438     3,765     8,082     6,249  
reported within selling, general and administrative expenses - acquisition related 2,970     4,951     5,980     9,443  
reported within selling, general and administrative expenses - all other 5,322     3,537     9,632     5,695  
Other acquisition-related expenses 307         307     62  
Amortization of purchased intangible assets 2,521     1,034     4,214     2,452  
Total adjustments to GAAP income from operations $ 15,558     $ 13,287     $ 28,215     $ 23,901  

 

  (4)   Adjustments to GAAP net income:

 

  Three Months Ended
 June 30,
  Six Months Ended
 June 30,
  2016   2015   2016   2015
Stock-based compensation expense $ 12,730     $ 12,253     $ 23,694     $ 21,387  
reported within cost of revenues 4,438     3,765     8,082     6,249  
reported within selling, general and administrative expenses - acquisition related 2,970     4,951     5,980     9,443  
reported within selling, general and administrative expenses - all other 5,322     3,537     9,632     5,695  
Other acquisition-related expenses 307         307     62  
Amortization of purchased intangible assets 2,521     1,034     4,214     2,452  
Foreign exchange loss 2,295     465     3,585     6,219  
Tax effect on non-GAAP adjustments (4,352)     (2,903)     (7,488)     (7,471)  
Adjustments to GAAP net income $ 13,501     $ 10,849     $ 24,312     $ 22,649  
                               

 

  (5)   There were no adjustments to GAAP average diluted common shares outstanding during the three and six months ended June 30, 2016 and 2015.
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