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EPAM Reports Results for Second Quarter 2015

    • Raises guidance for full year 
    Second quarter revenues of $218 million, up 25% year-over-year 
    Non-GAAP net income increased 25% for the second quarter year-over-year

    Newtown, PA - August 4, 2015 - EPAM Systems, Inc. (NYSE:EPAM), a leading global provider of product development and software engineering solutions, today announced its second quarter 2015 financial results.

    Second Quarter 2015 Highlights

    Revenues increased to $217.8 million, up 24.7% over the same period last year and up 8.9% over the previous quarter. In constant currency, revenue grew 32.5% year over year and 6.7% from the first quarter of 2015. GAAP income from operations was $23.6 million, an increase of 27.8% compared to $18.5 millionin the second quarter of 2014. Non-GAAP income from operations was $36.9 million, an increase of $8.0 million, or 27.7%, from $28.9 million in the second quarter of 2014. Non-GAAP quarterly diluted earnings per share (EPS) was $0.64, up 20.8% from $0.53 in the second quarter of 2014. Quarterly diluted EPS on a GAAP basis was $0.37, up from $0.30 in the year-ago quarter.

    EPAM reported cash from operations of $2.2 million in the second quarter of 2015 and $9.0 million on a year to date basis. At June 30, 2015, cash and cash equivalents were $175.7 million.

    "We are pleased with our strong financial results for the second quarter of 2015," said Arkadiy Dobkin, CEO and President of EPAM. "Our revenue growth is on target with our projections and we continue to see broad-based gains across multiple dimensions of our business. Despite the currency headwinds, we are maintaining our market momentum and remain focused on further differentiating our capabilities and enhancing our offerings."

    Full Year and Third Quarter 2015 Outlook

    Factoring in the over-performance we have experienced in the first half of the year, combined with expectations from the recent acquisition of NavigationArts, Inc., EPAM is increasing guidance and now expects full-year revenue growth to be between 23% and 25%. Non-GAAP net income growth for 2015 is expected to be in the range of 22% to 24% year-over-year, with an effective tax rate of approximately 21%. The full year weighted average share count is expected to be approximately 52 million diluted shares outstanding.

    For the third quarter of 2015, EPAM expects revenues between $238 million and $240 million, representing a growth rate of 23% to 25% over third quarter 2014 revenues. Third quarter 2015 non-GAAP diluted EPS is expected to be in the range of $0.66 to $0.68 based on an estimated third quarter 2015 weighted average of 52 million diluted shares. GAAP diluted EPS is expected to be in the range of $0.43 to $0.45.

    Conference Call Information

    EPAM will host a conference call to discuss results on Wednesday, August 5, 2015 at 8:00 a.m. Eastern Time. The live conference call can be accessed by dialing 1-877-407-0784 (international) or 1-201-689-8560 (domestic). A telephonic replay will also be available approximately one hour after the call and can be accessed by dialing 1-877-870-5176 (international) or 1-858-384-5517 (domestic). The passcode for the replay is 13614991. The telephonic replay will be available until August 19, 2015. 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

    Established in 1993, EPAM Systems, Inc. (NYSE: EPAM) is recognized as a leader in software product development by independent research agencies. Headquartered in the United States, EPAM serves clients worldwide utilizing its award-winning global delivery platform and its locations in over 20 countries across North America, Europe, Asia and Australia. EPAM was ranked #6 in 2013 America's 25 Fastest-Growing Tech Companies and #3 in 2014 America's Best Small Companies lists by Forbes Magazine.

    For more information, please visit http://www.epam.com.


    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 inEPAM'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 Six Months Ended
      June 30, June 30,
      2015 2014 2015 2014
    Revenues  $ 217,781  $ 174,695  $ 417,826  $ 335,079
    Operating expenses:        
    Cost of revenues (exclusive of depreciation and amortization) 134,256 110,102 260,143 212,556
    Selling, general and administrative expenses 55,976 38,671 102,914 71,030
    Depreciation and amortization expense 3,903 5,451 8,103 9,140
    Other operating expenses/(income), net 40 1,995 240 2,020
    Income from operations 23,606 18,476 46,426 40,333
    Interest and other income, net 1,299 1,164 2,457 2,140
    Foreign exchange loss (465) (1,239) (6,219) (2,480)
    Income before provision for income taxes 24,440 18,401 42,664 39,993
    Provision for income taxes 5,209 3,587 8,719 7,815
    Net income  $ 19,231  $ 14,814  $ 33,945  $ 32,178
    Foreign currency translation adjustments 3,674 2,894 944 (683)
    Comprehensive income  $ 22,905  $ 17,708  $ 34,889  $ 31,495
             
    Net income per share:        
    Basic  $ 0.40  $ 0.31  $ 0.70  $ 0.69
    Diluted  $ 0.37  $ 0.30  $ 0.66  $ 0.65
    Shares used in calculation of net income per share:        
    Basic 48,584 47,068 48,237 46,933
    Diluted 51,917 49,559 51,461 49,384
             
             
    EPAM SYSTEMS INC. AND SUBSIDIARIES
    CONSOLIDATED BALANCE SHEETS
    (US Dollars in thousands, except share and per share data)
         
      As of As of
      June 30, December
      2015 31, 2014
    Assets    
    Current assets    
    Cash and cash equivalents  $ 175,717  $ 220,534
    Time deposits 30,000 —
    Accounts receivable, net of allowance of $2,389 and $2,181, respectively 134,941 124,483
    Unbilled revenues 92,266 55,851
    Prepaid and other current assets 19,635 9,289
    Employee loans, net of allowance of $0 and $0, respectively, current 2,576 2,434
    Deferred tax assets, current 1,831 2,496
    Total current assets 456,966 415,087
    Property and equipment, net 58,446 55,134
    Restricted cash, long-term 111 156
    Employee loans, net of allowance of $0 and $0, respectively, long-term 3,814 4,081
    Intangible assets, net 38,868 47,689
    Goodwill 61,159 57,417
    Deferred tax assets, long-term 13,568 11,094
    Other long-term assets 3,561 3,368
    Total assets  $ 636,493  $ 594,026
         
    Liabilities    
    Current liabilities    
    Accounts payable  $ 11,993  $ 4,641
    Accrued expenses and other liabilities 26,841 32,203
    Deferred revenue, current 2,615 3,220
    Due to employees 25,986 24,518
    Taxes payable 21,505 24,704
    Contingent consideration, current — 35,524
    Contingent liability 87 —
    Deferred tax liabilities, current 974 603
    Total current liabilities 90,001 125,413
    Deferred tax liabilities, long-term 2,432 4,563
    Total liabilities 92,433 129,976
    Commitments and contingencies    
    Stockholders' equity    
    Common stock, $0.001 par value; 160,000,000 authorized; 49,632,642 and 48,748,298 shares issued, 49,623,617 and 48,303,811 shares outstanding at June 30, 2015 and December 31, 2014, respectively 49 48
    Additional paid-in capital 270,662 229,501
    Retained earnings 294,539 260,598
    Treasury stock (80) (4,043)
    Accumulated other comprehensive loss (21,110) (22,054)
    Total stockholders' equity 544,060 464,050
    Total liabilities and stockholders' equity  $ 636,493  $ 594,026
         
         
    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, 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  $ 13,752  $ 32,983  $ 33,945  $ 30,120  $ 64,065
    Diluted earnings per share(5)  $ 0.37  $ 0.27  $ 0.64  $ 0.66  $ 0.58  $ 1.24
                 
                 
      Three Months Ended June 30, 2014 Six Months Ended June 30, 2014
      GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
    Cost of revenues (exclusive of depreciation and amortization)(1)  $ 110,102 $ (2,525)  $ 107,577  $ 212,556 $ (3,928)  $ 208,628
    Selling, general and administrative expenses(2)  $ 38,671 $ (3,665)  $ 35,006  $ 71,030 $ (6,051)  $ 64,979
    Income from operations(3)  $ 18,476  $ 10,412  $ 28,888  $ 40,333  $ 14,851  $ 55,184
    Operating margin 10.6% 5.9% 16.5% 12.0% 4.5% 16.5%
    Net income(4)  $ 14,814  $ 11,651  $ 26,465  $ 32,178  $ 17,331  $ 49,509
    Diluted earnings per share(5)  $ 0.30  $ 0.23  $ 0.53  $ 0.65  $ 0.35  $ 1.00
                 
    Notes:
    (1) Adjustments to GAAP cost of revenues (exclusive of depreciation and amortization) were comprised of stock-based compensation expense recorded in the periods presented.
    (2) Adjustments to GAAP selling general and administrative expenses:
                 
      Three Months Ended Six Months Ended
      June 30, June 30,
      2015 2014 2015 2014
    Selling, general and administrative expenses - Acquisition related 4,951 1,430 9,443 2,223
    Selling, general and administrative expenses - All other 3,537 1,936 5,695 2,948
    Acquisition-related costs — 299 62 880
    Total adjustments to GAAP selling, general and administrative expenses  $ 8,488  $ 3,665  $ 15,200  $ 6,051
             
    (3) Adjustments to GAAP income from operations:
             
      Three Months Ended Six Months Ended
      June 30, June 30,
      2015 2014 2015 2014
    Stock-based compensation expense  $ 12,253  $ 5,891  $ 21,387  $ 9,099
    reported within cost of revenues 3,765 2,525 6,249 3,928
    reported within selling, general and administrative expenses - acquisition related 4,951 1,430 9,443 2,223
    reported within selling, general and administrative expenses - all other 3,537 1,936 5,695 2,948
    Acquisition-related costs — 299 62 880
    Amortization of purchased intangible assets 1,034 2,222 2,452 2,872
    One-time charges   2,000   2,000
    Total adjustments to GAAP income from operations  $ 13,287  $ 10,412  $ 23,901  $ 14,851
             
    (4) Adjustments to GAAP net income:
             
      Three Months Ended Six Months Ended
      June 30, June 30,
      2015 2014 2015 2014
    Stock-based compensation expense  $ 12,253  $ 5,891  $ 21,387  $ 9,099
    reported within cost of revenues 3,765 2,525 6,249 3,928
    reported within selling, general and administrative expenses- acquisition related 4,951 1,430 9,443 2,223
    reported within selling, general and administrative expenses- all other 3,537 1,936 5,695 2,948
    Acquisition-related costs — 299 62 880
    Amortization of purchased intangible assets 1,034 2,222 2,452 2,872
    One-time charges   2,000   2,000
    Foreign exchange loss 465 1,239 6,219 2,480
    Total adjustments to GAAP net income  $ 13,752  $ 11,651  $ 30,120  $ 17,331
             
    (5) There were no adjustments to GAAP average diluted common shares outstanding during the three and six months ended June 30, 2015 and 2014.