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EPAM Reports Results for Third Quarter 2015

    • Third quarter revenues up 22% year-over-year, and up 31% in constant currency
    Non-GAAP net income increased 23% in the third quarter year-over-year 

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

    Third Quarter 2015 Highlights

    Revenues increased to $236 million, up 22.5% over the same period last year and up 8.4% over the previous quarter. In constant currency, revenue grew 30.8% year over year and grew 10.8% from the second quarter of 2015. Income from operations was $27.8 million, an increase of 27.2% compared to $21.8 million in the third quarter of 2014. Non-GAAP income from operations was $41.5 million, an increase of $9.7 million or 30.5%, from $31.8 million in the third quarter of 2014. Non-GAAP quarterly diluted earnings per share (EPS) was $0.70, up 16.7% from $0.60 in the third quarter of 2014. Quarterly diluted EPS on a GAAP basis was $0.44, up from $0.38 in the third quarter of 2014.

    EPAM reported cash from operations of $55.5 million in the third quarter of 2015 and $64.6 million on a year to date basis. At September 30, 2015, cash and cash equivalents were $214 million.

    “We are encouraged to see that our significant and continued efforts to evolve our capabilities and bring new value-add services to our clients strongly contribute to our overall growth, allowing us to close the quarter with a 31% year-over-year increase in constant currency," said Arkadiy Dobkin, CEO and President of EPAM. "Considering the third quarter currency headwinds, we are especially pleased with our EPS performance for the period. We are planning to continue reinvesting in our services portfolio, as well as expanding our global delivery capabilities."

    Full Year and Fourth Quarter 2015 Outlook

    EPAM expects year-over-year revenue growth to be at least 30% in constant currency or $900 million in GAAP reported revenue. Non-GAAP net income growth for 2015 is expected to be at least 25% year-over-year, with an effective tax rate of approximately 20%. Full year 2015 non-GAAP diluted EPS is expected to be at least $2.65 based on the weighted average share count of approximately 52 million diluted shares outstanding. GAAP diluted EPS is expected to be at least $1.55.

    Conference Call Information

    EPAM will host a conference call to discuss results on Thursday, November 5, 2015 at 8:00 a.m. Eastern Time. The live conference call can be accessed by dialing 1-877-407-0784 (U.S.) or 1-201-689-8560 (International). A telephonic replay will also be available approximately one hour after the call and can be accessed by dialing 1-877-870-5176 (U.S.) or 1-858-384-5517 (International). The passcode for the replay is 13623441. The telephonic replay will be available until November 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    Nine Months Ended
      September 30,    September 30,
      2015   2014   2015   2014
    Revenues $ 236,049     $ 192,764     $ 653,875     $ 527,843  
    Operating expenses:              
                           
    Cost of revenues (exclusive of depreciation and amortization)           148,479     122,509     408,622     335,065  
    Selling, general and administrative expenses 55,431     42,875     158,345     113,905  
    Depreciation and amortization expense 4,393     5,510     12,496     14,650  
    Other operating (income)/expenses, net (30)     35     210     2,055  
    Income from operations 27,776     21,835     74,202     62,168  
    Interest and other income, net 865     1,261     3,322     3,401  
    Foreign exchange gain/(loss) 32     (718)     (6,187)     (3,198)  
    Income before provision for income taxes 28,673     22,378     71,337     62,371  
    Provision for income taxes 5,800     3,338     14,519     11,153  
    Net income $ 22,873     $ 19,040     $ 56,818     $ 51,218  
    Foreign currency translation adjustments (8,341)     (8,260)     (7,397)     (8,943)  
    Comprehensive income $ 14,532     $ 10,780     $ 49,421     $ 42,275  
                   
    Net income per share:              
    Basic $ 0.47     $ 0.40     $ 1.17     $ 1.09  
    Diluted $ 0.44     $ 0.38     $ 1.10     $ 1.03  
    Shares used in calculation of net income per share:              
    Basic 49,043   47,315   48,506   47,058
    Diluted 52,344   49,829   51,755   49,530



    EPAM SYSTEMS INC. AND SUBSIDIARIES
    CONSOLIDATED BALANCE SHEETS
    (US Dollars in thousands, except share and per share data)
           
      As of 
    September 30, 2015    		   As of 
    December 31, 2014
    Assets      
    Current assets      
    Cash and cash equivalents $ 214,443     $ 220,534  
    Time deposits 30,000     —  
    Accounts receivable, net of allowance of $2,216 and $2,181, respectively 125,683     124,483  
    Unbilled revenues 104,860     55,851  
    Prepaid and other current assets 20,205     9,289  
    Employee loans, net of allowance of $0 and $0, respectively, current 2,760     2,434  
    Deferred tax assets, current 2,109     2,496  
    Total current assets 500,060     415,087  
    Property and equipment, net 60,552     55,134  
    Restricted cash, long-term 187     156  
    Employee loans, net of allowance of $0 and $0, respectively, long-term 4,177     4,081  
    Intangible assets, net 37,176     47,689  
    Goodwill 84,229     57,417  
    Deferred tax assets, long-term 14,006     11,094  
    Other long-term assets 3,341     3,368  
    Total assets $ 703,728     $ 594,026  
           
    Liabilities      
    Current liabilities      
    Accounts payable $ 12,061     $ 4,641  
    Accrued expenses and other liabilities 42,487     32,203  
    Deferred revenue, current 2,345     3,220  
    Due to employees 28,666     24,518  
    Taxes payable 26,401     24,704  
    Contingent consideration, current —     35,524  
    Deferred tax liabilities, current 933     603  
    Total current liabilities 112,893     125,413  
    Long-term debt 15,000       —  
    Deferred tax liabilities, long-term 2,967     4,563  
    Total liabilities 130,860     129,976  
    Commitments and contingencies      
    Stockholders’ equity      
    Common stock, $0.001 par value; 160,000,000 authorized; 49,857,284 and 48,748,298 shares issued, 49,848,259 and 48,303,811 shares outstanding at September 30, 2015 and December 31, 2014, respectively 49     48  
    Additional paid-in capital 284,938     229,501  
    Retained earnings 317,412     260,598  
    Treasury stock (80)     (4,043)  
    Accumulated other comprehensive loss (29,451)     (22,054)  
    Total stockholders’ equity 572,868     464,050  
    Total liabilities and stockholders’ equity $ 703,728     $ 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 September 30, 2015   Nine Months Ended September 30, 2015
      GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP
    Cost of revenues (exclusive of depreciation and amortization)(1) $ 148,479     $ (3,622)     $ 144,857     $ 408,622     $ (9,871)     $ 398,751  
    Selling, general and administrative expenses(2) $ 55,431     $ (8,768)     $ 46,663     $ 158,345     $ (23,968)     $ 134,377  
    Income from operations(3) $ 27,776     $ 13,680     $ 41,456     $ 74,202     $ 37,581     $ 111,783  
    Operating margin 11.8%     5.8%     17.6%     11.3%     5.8%     17.1%  
    Net income(4) $ 22,873     $ 13,648     $ 36,521     $ 56,818     $ 43,768     $ 100,586  
    Diluted earnings per share(5) $ 0.44     $ 0.26     $ 0.70     $ 1.10     $ 0.84     $ 1.94  

     

      Three Months Ended September 30, 2014   Nine Months Ended September 30, 2014
      GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP
    Cost of revenues (exclusive of depreciation and amortization)(1) $ 122,509     $ (2,463)     $ 120,046     $ 335,065     $ (6,391)     $ 328,674  
    Selling, general and administrative expenses(2) $ 42,875     $ (4,962)     $ 37,913     $ 113,905     $ (11,013)     $ 102,892  
    Income from operations(3) $ 21,835     $ 9,933     $ 31,768     $ 62,168     $ 24,784     $ 86,952  
    Operating margin 11.3%     5.2%     16.5%     11.8%     4.7%     16.5%  
    Net income(4) $ 19,040     $ 10,651     $ 29,691     $ 51,218     $ 27,982     $ 79,200  
    Diluted earnings per share(5) $ 0.38     $ 0.22     $ 0.60     $ 1.03     $ 0.57     $ 1.60  


    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
     September 30,    		   Nine Months Ended
     September 30,
      2015   2014   2015   2014
    Selling, general and administrative expenses - Acquisition related 4,542     2,905     13,985     5,128  
    Selling, general and administrative expenses - All other 3,799     2,057     9,494     5,005  
    Acquisition-related costs 427     —     489     880  
    Total adjustments to GAAP selling, general and administrative expenses $ 8,768     $ 4,962     $ 23,968     $ 11,013  

     

      (3)   Adjustments to GAAP income from operations:

     

      Three Months Ended September 30,   Nine Months Ended
     September 30,
      2015   2014   2015   2014
    Stock-based compensation expense $ 11,963     $ 7,425     $ 33,350     $ 16,524  
    reported within cost of revenues 3,622     2,463     9,871     6,391  
    reported within selling, general and administrative expenses- acquisition related 4,542     2,905     13,985     5,128  
    reported within selling, general and administrative expenses - all other 3,799     2,057     9,494     5,005  
    Acquisition-related costs 427     —     489     880  
    Amortization of purchased intangible assets 1,290     2,508     3,742     5,380  
    One-time charges —     —     —     2,000  
    Total adjustments to GAAP income from operations $ 13,680     $ 9,933     $ 37,581     $ 24,784  

     

      (4)   Adjustments to GAAP net income:

     

      Three Months Ended
     September 30,    		   Nine Months Ended
     September 30,
      2015   2014   2015   2014
    Stock-based compensation expense $ 11,963     $ 7,425     $ 33,350     $ 16,524  
    reported within cost of revenues 3,622     2,463     9,871     6,391  
    reported within selling, general and administrative expenses-
    acquisition related    		 4,542     2,905     13,985     5,128  
    reported within selling, general and administrative expenses-
    all other    		 3,799     2,057     9,494     5,005  
    Acquisition-related costs 427     —     489     880  
    Amortization of purchased intangible assets 1,290     2,508     3,742     5,380  
    One-time charges —     —     —     2,000  
    Foreign exchange (gain)/ loss (32)     718     6,187     3,198  
    Total adjustments to GAAP net income $ 13,648     $ 10,651     $ 43,768     $ 27,982  

     

      (5)   There were no adjustments to GAAP average diluted common shares outstanding during the three and nine months ended September 30, 2015 and 2014.