EPAM Systems Reports Second Quarter 2012 Results

Press Release:

 

Second quarter revenues up 10% sequentially and 30% year-over-year;

Income from operations up 55% and non-GAAP income from operations up 40% year-over-year

Newtown, PA – August 3, 2012  EPAM Systems, Inc. (NYSE: EPAM), a leading software engineering and IT outsourcing (ITO) provider with development centers across Central and Eastern Europe (CEE), today reported the following financial results for the quarter ended June 30, 2012:

  • Quarterly revenues increased to $103.8 million, up 10% over first quarter 2012 and 29.5% compared to the year-ago quarter
  • GAAP income from operations was $16.8 million, an increase of 54.7% compared to $10.9 million in the second quarter of 2011
  • Non-GAAP income from operations increased to $19.1 million, an increase of 39.5% compared to $13.7 million in the second quarter of 2011
  • Quarterly diluted earnings per share (EPS) on a GAAP basis was $0.29, compared to $(0.41) in the year-ago quarter
  • Quarterly diluted EPS on a non-GAAP basis was $0.37, compared to $0.26 in the year-ago quarter, or a 42.3% increase
  • Headcount for IT Professionals increased 25.7% to 7,750 as of June 30, 2012 from 6,166 as of June 30, 2011

"We are pleased with another strong quarter.  We saw strong growth in Europe and the US, as well as across most of our key verticals." said Arkadiy Dobkin, CEO and President of EPAM Systems. "Although the macroeconomic environment remains uncertain and customers' decision times are longer, we remain confident in our ability to identify and provide differentiated solutions that address our customers' mission critical needs."

The Company generated $1.6 million in cash from operations during the first six months of 2012. As of June 30, 2012, the Company had cash and cash equivalents of $104.9 million.    

Financial Outlook

  • Third quarter 2012 revenues are expected to be in the range of $107 million to $109 million
  • Third quarter 2012 non-GAAP diluted EPS is expected to be in the range of $0.34 to $0.36. This expectation is based on an estimated weighted average of 45.6 million diluted shares during fiscal 2012
  • Full year 2012 revenues are expected to be between $412 million and $418 million, with non-GAAP net income growth in the range of 16% to 18%

Conference Call Information

The Company will hold a conference call to discuss its second quarter results at 8:00 a.m. EST this morning. A live webcast of the call may be accessed over the Internet from the Company'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 is also available by dialing 877-941-1427 (domestic) or 1-480-629-9664 (international) and entering passcode 4553720. Participants should ask for the EPAM Systems second quarter earnings conference call.

A replay of the live conference call will be available approximately one hour after the call.  The replay will be available on the Company's website or by dialing 1-877-870-5176 (domestic) or 1-858-384-5517 (international) and entering the replay passcode 4553720.  The telephonic replay will be available until Friday, August 10, 2012.

About EPAM Systems

Established in 1993, EPAM Systems, Inc. (NYSE: EPAM) is a leading global IT services provider with delivery centers throughout Central and Eastern Europe. Headquartered in the United States, EPAM employs over 7,700 IT professionals and provides services to clients worldwide using a global delivery model through its client management and delivery operations in the United States, Belarus, Hungary, Russia, Ukraine, UK, Germany, Kazakhstan, Sweden, Switzerland, Poland and Canada.

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 the company's business and uses the measures to establish budgets and operational goals, communicated internally and externally, for managing the company'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, amortization of purchased intangible assets, goodwill impairment, foreign exchange gains and losses, and certain other non-recurring charges. 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 the Company'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 is 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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

      Three Months Ended   Six Months Ended
      June 30,   June 30,
      2012   2011   2012   2011
      (in thousands, except share and per share data)
                   
Revenues   $103,800   $80,176   $198,183   $152,978
Operating expenses:              
    Cost of revenues (exclusive of depreciation and amortization) 63,803   48,816   123,978   94,321
    Selling, general and administrative expenses 20,711   16,805   38,338   30,598
    Depreciation and amortization expense 2,423   1,959   4,634   3,649
    Goodwill impairment loss -     1,697   -     1,697
    Other operating expenses, net 33   21   619   23
  Income from operations 16,830   10,878   30,614   22,690
  Interest and other income, net 460   428   936   615
  Foreign exchange loss          (1,394)    (703)    (1,314)    (837)
  Income before provision for income taxes 15,896   10,603   30,236   22,468
  Provision for income taxes 2,575   2,326   4,816   4,449
Net Income   $13,321   $8,277   $25,420   $18,019
Comprehensive income $10,857   $8,445   $24,568   $19,438
                   
Accretion of preferred stock -      $(15,271)   -      $(17,563)
Net income allocated to participating securities -     -      $(3,176)   $ (4,188)
Net income/ (loss) available for common stockholders $13,321   $(6,994)   $22,244   $ (3,732)
Net income/ (loss) per share of common stock:              
    Basic (common) $0.31    $(0.41)   $0.60    $(0.22)
    Basic (puttable common) -     -     -     $0.19
    Diluted (common) $0.29    $(0.41)   $0.55    $(0.22)
    Diluted (puttable common) -     -     -     $0.18
Shares used in calculation of net income per share of common stock:              
    Basic (common) 42,475   17,056   36,987   17,055
    Basic (puttable common) -     57   -     57
    Diluted (common) 46,382   20,300   40,820   20,299
    Diluted (puttable common) -     57   -     57

EPAM SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

      As of
June 30,
2012
   As of  December 31,
2011
      (in thousands, except share and per share data)
Assets        
Current assets      
  Cash and cash equivalents $104,930   $88,796
  Accounts receivable, net of allowance of $1,875 and $2,250, respectively 68,186   59,472
  Unbilled revenues 36,817   24,475
  Prepaid and other current assets 10,323   6,436
  Restricted cash, current 516   -
  Deferred tax assets, current 4,000   4,384
    Total current assets 224,772     183,563
  Property and equipment, net   40,219   35,482
  Restricted cash, long-term 1,921     2,582
  Intangible assets, net 6,227   1,251
  Goodwill 12,436   8,169
  Deferred tax assets, long-term 1,866   1,875
  Other long-term assets 553   2,691
  Total assets $287,994   $235,613
Liabilities        
Current liabilities      
  Accounts payable $4,345   $2,714
  Accrued expenses 10,296   24,782
  Deferred revenue 4,607   6,949
  Due to employees 13,326   8,234
  Taxes payable 10,095   8,712
  Deferred tax liabilities, current 1,232   1,736
    Total current liabilities 43,901   53,127
  Taxes payable, long-term 1,218   1,204
  Deferred tax liabilities, long-term 269   283
  Total liabilities 45,388   54,614
  Commitments and contingencies      
  Preferred stock, $.001 par value; 0 and 5,000,000 authorized at June 30, 2012 and December 31, 2011; 0 and 2,054,935 Series A-1 convertible redeemable preferred stock issued and outstanding at June 30, 2012 and December 31, 2011; $.001 par value 0 and 945,114 authorized at June 30, 2012 and December 31, 2011, 0 and 384,804 Series A-2 convertible redeemable preferred stock issued and outstanding at June 30, 2012 and December 31, 2011                                     -                                    85,940
  Stockholders' equity      
  Common stock, $.001 par value; 160,000,000 authorized; 44,049,919 and 18,914,616 shares issued, 42,767,545 and 17,158,904 shares outstanding at June 30, 2012 and December 31, 2011, respectively 43   17
  Preferred stock, $.001 par value; 0 and 290,277 authorized Series A-3 convertible preferred stock issued and outstanding at June 30, 2012 and December 31, 2011, respectively -     -  
  Additional paid-in capital 158,667   40,020
  Retained earnings 99,928   74,508
  Treasury stock  (11,666)    (15,972)
  Accumulated other comprehensive loss  (4,366)    (3,514)
  Total stockholders' equity 242,606   95,059
  Total liabilities and stockholders' equity $287,994   $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   Six Months Ended  
    June 30,   June 30,  
    2012   2012   2012   2012   2012   2012  
    GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP  
Income from operations $16,830   $2,220   $19,050  (a) $30,614   $4,574   $35,188  (a)
Operating margin 16.2%   2.2%   18.4%   15.4%   2.4%   17.8%  
Net income $13,321   $3,614   $16,935  (b) $25,420   $5,888   $31,308  (b)
  Diluted earnings per share $0.29       $0.37  (c) $0.55       $0.69  (c)
                           

 

    Three Months Ended   Six Months Ended  
    June 30,   June 30,  
    2011   2011   2011   2011   2011   2011  
    GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP  
Income from operations $10,878   $2,781   $13,659  (a) $22,690   $3,724   $26,414  (a)
Operating margin 13.6%   3.4%   17.0%   14.8%   2.5%   17.3%  
Net income $8,277   $3,484   $11,761  (b) $18,019   $4,561   $22,580  (b)
  Diluted earnings per share ($0.41)       $0.26  (c) ($0.22)       $0.51  (c)

 

                           
  Notes:                
      Three Months Ended   Six Months Ended  
      June 30,   June 30,  
      2012   2011   2012   2011  
  (a)                  
  Adjustment to GAAP Income from operations:          2,220            2,781             4,574            3,724  
  Stock-based compensation, of which:           1,773   655   3,323   1,369  
    reported in cost of revenues            884              260            1,450              530  
    reported in sales, general and administrative expenses            889              395            1,873              839  
  Amortization of purchased intangible assets              140   240   280   448  
  M&A costs              307   189   387   210  
  Goodwill write-off                 -     1,697   -     1,697  
  One-time charges                 -                     -     584                   -    
  (b)                  
  Adjustment to GAAP Net Income:          3,614            3,484             5,888            4,561  
  Stock-based compensation, of which:           1,773                655              3,323             1,369  
    reported in cost of revenues            884              260            1,450              530  
    reported in sales, general and administrative expenses            889              395            1,873              839  
  Amortization of purchased intangible assets              140   240   280   448  
  M&A costs              307   189   387   210  
  One-time charges                 -                     -     584                   -    
  Goodwill write-off                 -     1,697   -     1,697  
  Foreign exchange (gains) and losses           1,394   703   1,314   837  
  (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   Six Months Ended  
      June 30,   June 30,  
      2012   2011   2012   2011  
  Non-GAAP weighted average diluted common shares outstanding          46,382   45,096   45,449   44,637