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EPAM Reports Results for Second Quarter 2017

    • Second quarter revenues of $349.0 million, up 23.0% year-over-year
    GAAP Diluted EPS of $0.68 for the second quarter
    Non-GAAP Diluted EPS of $0.80 for the second quarter

    Newtown, PA -- August 03, 2017 -- EPAM Systems, Inc. (NYSE:EPAM), a leading global provider of digital platform engineering and software development services, today announced results for its second quarter ended June 30, 2017.

    “Our Q2 results underscore the strong demand we continue to see for our high-value digital business solutions,” said Arkadiy Dobkin, CEO & President, EPAM. “The combination of our core engineering, digital design expertise and our expanding consultative capabilities reinforces our leadership position, making us an ideal partner for clients facing disruption.”

    Second Quarter 2017 Highlights

    • Revenues increased to $349.0 million, a year-over-year increase of $65.1 million, or 23.0%. Stronger than expected revenue performance in the second quarter was driven by favorable movements in exchange rates and stronger revenue production;
    • In constant currency, revenue was up 23.7% year-over-year;
    • GAAP income from operations was $40.7 million, an increase of $8.6 million or 26.8% compared to $32.1 million in the second quarter of 2016;
    • Non-GAAP income from operations was $55.8 million, an increase of $8.2 million, or 17.2%, compared to $47.6 million in the second quarter of 2016;
    • Diluted earnings per share (EPS) on a GAAP basis was $0.68, an increase from $0.46 in the second quarter of 2016; 
    • Non-GAAP diluted EPS was $0.80, an increase from $0.71 in the second quarter of 2016 based on a weighted average share count of 54.8 million fully diluted shares outstanding.

    Cash Flow from Operations

    • Cash from operations was $59.1 million for the first half of 2017, up from $49.4 million for the first half of 2016;
    • Cash and cash equivalents totaled $443.5 million as of June 30, 2017, an increase of $81.5 million or 22.5% from $362.0 million as of December 31, 2016.

    Other Metrics

    • Total headcount was 23,233 as of June 30, 2017, an increase of 11.9% from 20,761 as of June 30, 2016;
    • Total number of delivery professionals was 20,414 as of June 30, 2017, an increase of 12.1% from 18,206 as of June 30, 2016.

    2017 Outlook - Full Year and Third Quarter

    Full Year

    • Revenue growth for fiscal 2017 will now be at least 23%, after reflecting an updated foreign exchange assumption of an estimated 0% for currency headwinds. We expect constant currency growth will continue to be at least 23%.
    • We expect GAAP income from operations to now be in the range of 12% to 13% of revenue and non-GAAP income from operations to now be in the range of 16% to 17% of revenue.
    • We now expect our GAAP effective tax rate to be approximately 16% and non-GAAP effective tax rate to be approximately 22%. This reflects the adoption of the accounting pronouncement related to stock based compensation effective January 1st 2017.
    • For earnings per share:
      • We now expect GAAP diluted EPS will be at least $2.57 for the full year driven primarily by a lower effective tax rate attributable to greater than expected excess income tax benefit from stock-based compensation; and
      • Non-GAAP diluted EPS will now be at least $3.29 for the full year based on an expected weighted average share count of 55.2 million fully diluted shares outstanding. The updated Non-GAAP EPS reflects greater than expected employee stock option exercises driving both higher total share count and greater payroll tax expense.

    Third Quarter

    • Revenues will be at least $367 million for the third quarter, reflecting a year-over-year growth rate of at least 23% after estimating 1% for currency tailwinds, meaning expected constant currency growth will be at least 22%.
    • For the third quarter, we expect GAAP income from operations to be in the range of 11.5% to 12.5% of revenue and non-GAAP income from operations to be in the range of 15.5% to 16.5% of revenue.
    • We expect our GAAP effective tax rate to be approximately 16.5% and non-GAAP effective tax rate to be approximately 22%.
    • We expect GAAP diluted EPS will be at least $0.68 for the quarter, and non-GAAP diluted EPS will be at least $0.84 for the quarter based on an expected weighted average share count of 55.6 million fully diluted shares outstanding.

    Conference Call Information

    EPAM will host a conference call to discuss results on Thursday, August 3, 2017 at 8:00 a.m. Eastern Time. The live conference call will be available by dialing +1 (877) 407-0784 or +1 (201) 689-8560 (outside of the U.S.).  A webcast of the conference call can be accessed at the Investor Relations section of the Company’s website at http://investors.epam.com. A replay will be available approximately one hour after the call by dialing +1 (844) 512-2921 or +1 (412) 317-6671 (outside of the U.S.) and entering the conference ID 13663873. The replay will be available until August 17, 2017.

     

    About EPAM Systems

    Since 1993, EPAM Systems, Inc. (NYSE: EPAM), has leveraged its core engineering expertise to become a leading global product development and digital platform engineering services company. Through its “Engineering DNA” and innovative strategy, consulting, and design capabilities, EPAM works in collaboration with its customers to deliver innovative solutions that turn complex business challenges into real business opportunities. EPAM’s global teams serve customers in over 25 countries across North America, Europe, Asia and Australia. EPAM is a recognized market leader among independent research agencies and was ranked #8 in FORBES 25 Fastest Growing Public Tech Companies, as a top information technology services company on FORTUNE’S 100 Fastest Growing Companies, and as a top UK Digital Design & Build Agency. 

    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-offs and recoveries, amortization of purchased intangible assets, goodwill impairment, legal settlements, foreign exchange gains and losses, acquisition-related costs, and the related effect on taxes. Management may also compare operating results on a basis of “constant currency”, which is also a non-GAAP financial measure. This measure excludes the effect of foreign currency exchange rate fluctuations by translating the current period revenues and expenses into U.S. dollars at the weighted average exchange rates of the prior period of comparison. 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
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
    (Unaudited)
    (US Dollars in thousands, except share and per share data)
     
      Three Months Ended
     June 30,    		   Six Months Ended
     June 30,
      2017   2016   2017   2016
    Revenues $ 348,977     $ 283,832     $ 673,628     $ 548,314  
    Operating expenses:              
    Cost of revenues (exclusive of depreciation and amortization) 220,132     180,782     427,862     348,163  
    Selling, general and administrative expenses 80,419     64,241     158,872     125,735  
    Depreciation and amortization expense 7,020     6,123     13,692     11,225  
    Other operating expenses, net 724     606     1,554     780  
    Income from operations 40,682     32,080     71,648     62,411  
    Interest and other income, net 802     1,138     1,386     2,349  
    Foreign exchange gain (loss) 1,562     (2,295)     (1,393)     (3,585)  
    Income before provision for income taxes 43,046     30,923     71,641     61,175  
    Provision for income taxes 5,687     6,493     10,641     12,846  
    Net income $ 37,359     $ 24,430     $ 61,000     $ 48,329  
    Foreign currency translation adjustments 4,551     (2,386)     10,937     2,313  
    Comprehensive income $ 41,910     $ 22,044     $ 71,937     $ 50,642  
                   
    Net income per share:              
    Basic $ 0.72     $ 0.49     $ 1.19     $ 0.97  
    Diluted $ 0.68     $ 0.46     $ 1.12     $ 0.92  
    Shares used in calculation of net income per share:              
    Basic 51,899     50,211     51,431     49,688  
    Diluted 54,848     53,271     54,371     52,803  

     

    EPAM SYSTEMS, INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (Unaudited)
    (US Dollars in thousands, except share and per share data)
     
      As of
     June 30,  
     2017    		   As of
    December 31, 
     2016
    Assets      
    Current assets      
    Cash and cash equivalents $ 443,501     $ 362,025  
    Restricted cash 2,638     2,400  
    Time deposits 403     403  
    Accounts receivable, net of allowance of $1,419 and $1,434, respectively 208,273     199,982  
    Unbilled revenues 107,858     63,325  
    Prepaid and other current assets, net of allowance of $292 and $644, respectively 23,275     15,690  
    Employee loans, net of allowance of $0 and $0, respectively 2,533     2,726  
    Total current assets 788,481     646,551  
    Property and equipment, net 77,115     73,616  
    Restricted cash 277     239  
    Employee loans, net of allowance of $0 and $0, respectively 2,705     3,252  
    Intangible assets, net 49,998     51,260  
    Goodwill 116,239     109,289  
    Deferred tax assets 33,022     31,005  
    Other long-term assets, net of allowance of $138 and $132, respectively 11,546     10,599  
    Total assets $ 1,079,383     $ 925,811  
           
    Liabilities      
    Current liabilities      
    Accounts payable $ 4,253     $ 3,213  
    Accrued expenses and other liabilities 47,822     49,895  
    Due to employees 41,312     32,203  
    Deferred compensation due to employees 1,172     5,900  
    Taxes payable 35,661     25,008  
    Total current liabilities 130,220     116,219  
    Long-term debt 25,033     25,048  
    Other long-term liabilities 4,424     3,132  
    Total liabilities 159,677     144,399  
    Commitments and contingencies      
    Stockholders’ equity      
    Common stock, $0.001 par value; 160,000,000 authorized; 52,476,671 and 51,117,422shares issued, 52,456,936 and 51,097,687 shares outstanding at June 30, 2017 and December 31, 2016, respectively 51     50  
    Additional paid-in capital 439,523     374,907  
    Retained earnings 507,060     444,320  
    Treasury stock (177)     (177)  
    Accumulated other comprehensive loss (26,751)     (37,688)  
    Total stockholders’ equity 919,706     781,412  
    Total liabilities and stockholders’ equity $ 1,079,383     $ 925,811  

     

    EPAM SYSTEMS, INC. AND SUBSIDIARIES
    Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Financial Measures
    (US Dollars in thousands, except percent and per share amounts)
    (Unaudited)
     
      Three Months Ended June 30, 2017   Six Months Ended June 30, 2017
      GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP
    Cost of revenues (exclusive of depreciation and amortization)(1) $ 220,132     $ (4,189)     $ 215,943     $ 427,862     $ (9,539)     $ 418,323  
    Selling, general and administrative expenses(2) $ 80,419     $ (9,068)     $ 71,351     $ 158,872     $ (20,062)     $ 138,810  
    Income from operations(3) $ 40,682     $ 15,145     $ 55,827     $ 71,648     $ 33,438     $ 105,086  
    Operating margin 11.7%     4.3%     16.0%     10.6%     5.0%     15.6%  
    Net income(4) $ 37,359     $ 6,425     $ 43,784     $ 61,000     $ 21,706     $ 82,706  
    Diluted earnings per share(5) $ 0.68         $ 0.80     $ 1.12         $ 1.52  

     

      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  

     

    Items (1) through (4) above are detailed in the table below with the specific cross-reference noted in the appropriate item.

     

      Three Months Ended
     June 30,    		   Six Months Ended
     June 30,
      2017   2016   2017   2016
    Stock-based compensation expenses - non-acquisition related $ 4,189     $ 4,438     $ 9,539     $ 8,082  
    Total adjustments to GAAP cost of revenues(1) 4,189     4,438     9,539     8,082  
    Stock-based compensation expenses - acquisition related 3,277     2,970     7,851     5,980  
    Stock-based compensation expenses - all other 5,461     5,322     11,313     9,632  
    Other acquisition-related expenses 330     307     898     307  
    Total adjustments to GAAP selling, general and administrative expenses(2) 9,068     8,599     20,062     15,919  
    Amortization of purchased intangible assets 1,888     2,521     3,837     4,214  
    Total adjustments to GAAP income from operations(3) $ 15,145     $ 15,558     $ 33,438     $ 28,215  
    Foreign exchange (gain) loss (1,562)     2,295     1,393     3,585  
    Provision for income taxes:              
    Tax effect on non-GAAP adjustments (3,020)     (4,352)     (7,293)     (7,488)  
    Excess tax benefits related to stock-based compensation (a) (4,138)     —     (5,832)     —  
    Total adjustments to GAAP net income(4) $ 6,425     $ 13,501     $ 21,706     $ 24,312  

     

      (a)  Effective January 1, 2017 with the adoption of ASU 2016-09, the Company is prospectively presenting excess tax benefits related to stock-based compensation in the Provision for income taxes.  Prior to January 1, 2017, the Company recorded these benefits in Additional paid-in-capital.
    (5)   There were no adjustments to GAAP average diluted common shares outstanding during the three and six months ended June 30, 2017 and 2016.

     

    EPAM SYSTEMS, INC. AND SUBSIDIARIES
    Reconciliations of Revenue Growth to Constant Currency Revenue Growth
    (in percent)
    (Unaudited)
     
      Three Months Ended
     June 30, 2017    		   Six Months Ended
     June 30, 2017
    Revenue growth at constant currency(6) 23.7%     23.8%  
    Foreign exchange rates impact (0.7)%     (0.9)%  
    Revenue growth as reported 23.0%     22.9%  

     

    (6)   Constant currency revenue results are calculated by translating current period revenue in local currency into U.S. dollars at the weighted average exchange rates of the comparable prior period.

     

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

    The below guidance constitutes forward-looking statements within the meaning of the federal securities laws and is based on a number of assumptions that are subject to change and many of which are outside the control of the Company. Actual results may differ materially from the Company’s expectations depending on factors discussed in the Company’s filings with the Securities and Exchange Commission.

    Reconciliation of GAAP to Non-GAAP diluted earnings per share is presented in the table below:

      Third Quarter 
    2017    		   Full Year
    2017
    GAAP diluted earnings per share (at least) $ 0.68     $ 2.57  
    Stock-based compensation expenses 0.20     0.92  
    Included in cost of revenues 0.07     0.30  
    Included in selling, general and administrative expenses 0.13     0.62  
    Other acquisition related expenses —     0.02  
    Amortization of purchased intangible assets 0.03     0.14  
    Foreign exchange loss 0.04     0.10  
    Provision for income taxes:      
    Tax effect on non-GAAP adjustments (0.07)     (0.27)  
    Excess tax benefits related to stock-based compensation (a) (0.04)     (0.19)  
    Non-GAAP diluted earnings per share (at least) $ 0.84     $ 3.29  

     

      (a)  Effective January 1, 2017 with the adoption of ASU 2016-09, the Company is prospectively presenting excess tax benefits related to stock-based compensation in the Provision for income taxes.  Prior to January 1, 2017, the Company recorded these benefits in Additional paid-in-capital.

    Reconciliation of projected revenue growth in constant currency is presented in the table below:

      Third Quarter 
    2017    		   Full Year
    2017
    Revenue growth at constant currency (at least)(7) 22.0%     23.0%  
    Foreign exchange rates impact 1.0%     0.0%  
    Revenue growth (at least) 23.0%     23.0%  

     

    (7)   Constant currency revenue results are calculated by translating current period projected revenue in local currency into U.S. dollars at the weighted average exchange rates of the comparable prior period.