EPAM Reports Results for Third Quarter 2018
NEWTOWN, Penn., Nov. 1, 2018 /PRNewswire/ -- EPAM Systems, Inc. (NYSE: EPAM), a leading global provider of digital platform engineering and software development services, today announced results for its third quarter ended September 30, 2018.
"Our continued focus on expanding and strengthening our engineering, design and consulting capabilities helped us deliver another strong quarter," said Arkadiy Dobkin, CEO & President, EPAM. "As our customers try to keep pace with constant change, we will continue to meet their demands with our compelling, disruptive solutions, delivering value and broadening our relevance to the market."
Third Quarter 2018 Highlights
-- Revenues increased to $468.2 million, a year-over-year increase of $90.7
million, or 24.0%, and on a constant currency basis, revenues were up
25.4% over the corresponding period last year;
-- GAAP income from operations was $64.6 million, an increase of $15.3
million, or 31.1%, compared to $49.2 million in the third quarter of
2017;
-- Non-GAAP income from operations was $82.1 million, an increase of $19.4
million, or 31.0%, compared to $62.6 million in the third quarter of
2017;
-- Diluted earnings per share ("EPS") on a GAAP basis was $1.15, an
increase of $0.38, or 49.4%, compared to $0.77 in the third quarter of
2017 based on a weighted average share count of 57.0 million fully
diluted shares outstanding; and
-- Non-GAAP diluted EPS was $1.17, an increase of $0.25, or 27.2%, compared
to $0.92 in the third quarter of 2017.
Cash Flow and Other Metrics
-- Cash provided by operations was $169.1 million for the first nine months
of 2018, an increase from $121.6 million for the first nine months of
2017;
-- Cash, cash equivalents and restricted cash totaled $686.3 million as of
September 30, 2018, an increase of $103.4 million or 17.7% from $582.9
million as of December 31, 2017; and
-- Total headcount was approximately 28,400 as of September 30, 2018.
Included in this number were approximately 25,200 delivery
professionals, an increase of 16.6% from September 30, 2017.
2018 Outlook - Full Year and Fourth Quarter
Full Year
-- Revenue growth for 2018 will now be at least 26.5%. The Company now
expects that foreign currency translation will have a 0.5% benefit on
full year reported revenues. The Company expects revenue growth on a
constant currency basis will now be at least 26%;
-- The Company expects GAAP income from operations to now be in the range
of 12.5% to 13.5% of revenues and non-GAAP income from operations will
now be in the range of 16.5% to 17.5% of revenues;
-- The Company expects its GAAP effective tax rate to now be approximately
2% and its non-GAAP effective tax rate to continue to be approximately
22%; and
-- The Company expects GAAP diluted EPS will now be at least $4.22 for the
full year, and non-GAAP diluted EPS will now be at least $4.32 for the
full year. The Company continues to expect weighted average share count
for the year of 56.7 million diluted shares outstanding.
Fourth Quarter
-- Revenues will be at least $500 million for the fourth quarter of which
the Company expects a $2 million contribution from the TH_NK acquisition
announced this morning, reflecting a year-over-year growth rate of at
least 25%. The Company expects foreign currency translation to have a 1%
unfavorable impact on year-over-year revenue growth during the quarter.
The Company expects year-over-year revenue growth on a constant currency
basis to be at least 26%;
-- For the fourth quarter, the Company expects GAAP income from operations
to be in the range of 14% to 15% of revenues and non-GAAP income from
operations to be in the range of 17% to 18% of revenues;
-- The Company expects its GAAP effective tax rate to be approximately 19%
and its non-GAAP effective tax rate to be approximately 22%; and
-- The Company expects GAAP diluted EPS will be at least $1.03 for the
quarter, and non-GAAP diluted EPS will be at least $1.22 for the
quarter. The Company expects weighted average share count for the
quarter of 57.1 million diluted shares outstanding.
Conference Call Information
EPAM will host a conference call to discuss results on Thursday, November 1, 2018 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 13683420. The replay will be available until November 15, 2018.
About EPAM Systems
Since 1993, EPAM Systems, Inc. (NYSE: EPAM) has leveraged its software engineering expertise to become a leading global product development, digital platform engineering, and top digital and product design agency. Through its 'Engineering DNA' and innovative strategy, consulting, and design capabilities, EPAM works in collaboration with its customers to deliver next-gen solutions that turn complex business challenges into real business outcomes. EPAM's global teams serve customers in over 25 countries across North America, Europe, Asia and Australia. EPAM is a recognized market leader in multiple categories among top global independent research agencies, and was one of only four technology companies to appear on each of the Forbes 25 Fastest Growing Public Tech Companies lists between 2013 and 2017.
Learn more at http://www.epam.com/ and follow EPAM 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, communicate 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, acquisition-related costs, amortization of purchased intangible assets, goodwill impairment, legal settlements, certain other one-time charges and benefits, change in fair value of contingent consideration, foreign exchange gains and losses, the impact of U.S. tax reform, excess tax benefits related to stock compensation, and the related effect on income taxes of the pre-tax adjustments. Management also compares 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 in accordance with 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 the Company's 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)
(In thousands, except per share data)
Three Months Ended
Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
---
Revenues $
468,186 $
377,523 $
1,337,981 $
1,051,151
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization) 301,081 239,369 867,890 667,231
Selling, general and administrative expenses 92,490 81,190 272,110 240,062
Depreciation and amortization expense 9,319 7,174 26,457 20,866
Other operating expenses, net 736 542 4,030 2,096
Income from operations 64,560 49,248 167,494 120,896
Interest and other income, net 1,941 1,416 2,442 2,802
Foreign exchange (loss)/gain (514) (77) 1,069 (1,470)
Income before provision for/(benefit from) income taxes 65,987 50,587 171,005 122,228
Provision for/(benefit from) income taxes 369 7,953 (9,286) 18,594
Net income $
65,618 $
42,634 $
180,291 $
103,634
Foreign currency translation adjustments, net of tax (2,118) 5,703 (14,643) 16,640
Unrealized loss on cash-flow hedging instruments, net of tax (74) (2,081)
Comprehensive income $
63,426 $
48,337 $
163,567 $
120,274
Net income per share:
Basic $
1.22 $
0.81 $
3.37 $
2.00
Diluted $
1.15 $
0.77 $
3.19 $
1.90
Shares used in calculation of net income per share:
Basic 53,852 52,545 53,485 51,807
Diluted 56,963 55,229 56,600 54,662
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
As of As of
September 30, December 31,
2018 2017
---
Assets
Current assets
Cash and cash equivalents $
685,108 $
582,585
Accounts receivable, net of allowance of $3,039 and $1,186, respectively 282,276 265,639
Unbilled revenues 129,683 86,500
Prepaid and other current assets, net of allowance of $50 and $45, respectively 29,646 23,196
Employee loans, current, net of allowance of $23 and $0, respectively 2,289 2,113
Total current assets 1,129,002 960,033
Property and equipment, net 99,465 86,419
Employee loans, noncurrent, net of allowance of $0 and $0, respectively 1,456 2,097
Intangible assets, net 52,669 44,511
Goodwill 144,987 119,531
Deferred tax assets 61,905 24,974
Other noncurrent assets, net of allowance of $0 and $140, respectively 14,498 12,691
Total assets $
1,503,982 $
1,250,256
Liabilities
Current liabilities
Accounts payable $
8,422 $
5,574
Accrued expenses and other current liabilities 98,442 89,812
Due to employees 52,405 38,757
Deferred compensation due to employees 9,174 5,964
Taxes payable, current 52,530 40,860
Total current liabilities 220,973 180,967
Long-term debt 25,028 25,033
Taxes payable, noncurrent 50,242 59,874
Other noncurrent liabilities 11,804 9,435
Total liabilities 308,047 275,309
Commitments and contingencies
Stockholders' equity
Common stock, $0.001 par value; 160,000,000 authorized; 54,011,579 and 53,003,420 54 53
shares issued, 53,991,844 and 52,983,685 shares outstanding at September 30, 2018
and December 31, 2017, respectively
Additional paid-in capital 530,837 473,874
Retained earnings 699,568 518,820
Treasury stock (177) (177)
Accumulated other comprehensive loss (34,347) (17,623)
Total stockholders' equity 1,195,935 974,947
Total liabilities and stockholders' equity $
1,503,982 $
1,250,256
EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Financial Measures
(In thousands, except percent and per share amounts)
(Unaudited)
Reconciliation of revenue growth at constant currency to revenue growth as reported under GAAP is presented in the table
below:
Three Months Ended Nine Months Ended
September 30, 2018
September 30, 2018
---
Revenue growth at constant currency(1) 25.4 26.2
%
%
Foreign exchange rates impact (1.4)% 1.1
%
---
Revenue growth as reported 24.0 27.3
%
%
===
(1) Constant currency revenue results are calculated by translating current period revenues in local currency into U.S.
dollars at the weighted average exchange rates of the comparable prior period.
Reconciliation of various income statement amounts from GAAP to Non-GAAP for the three and nine months ended
September 30, 2018 and 2017:
Three Months Ended September 30, 2018
Nine Months Ended September 30, 2018
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Cost of revenues (exclusive of $
301,081 $
(7,492) $
293,589 $
867,890 $
(22,835) $
845,055
depreciation and amortization)(2)
Selling, general and administrative $
92,490 $
(8,083) $
84,407 $
272,110 $
(24,608) $
247,502
expenses(3)
Income from operations(4) $
64,560 $
17,493 $
82,053 $
167,494 $
54,552 $
222,046
Operating margin 13.8
% 3.7
% 17.5
% 12.5
% 4.1
% 16.6
%
Net income(5) $
65,618 $
749 $
66,367 $
180,291 $
(4,605) $
175,686
Diluted earnings per share $
1.15 $
1.17 $
3.19 $
3.10
Three Months Ended September 30, 2017
Nine Months Ended September 30, 2017
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
---
Cost of revenues (exclusive of $
239,369 $
(4,913) $
234,456 $
667,231 $
(14,452) $
652,779
depreciation and amortization)(2)
Selling, general and administrative $
81,190 $
(6,336) $
74,854 $
240,062 $
(26,398) $
213,664
expenses(3)
Income from operations(4) $
49,248 $
13,376 $
62,624 $
120,896 $
46,814 $
167,710
Operating margin 13.0
% 3.6
% 16.6
% 11.5
% 4.5
% 16.0
%
Net income(5) $
42,634 $
8,336 $
50,970 $
103,634 $
30,042 $
133,676
Diluted earnings per share $
0.77 $
0.92 $
1.90 $
2.45
Items (2) through (5) above are detailed in the table below with the specific cross-reference noted in the appropriate item.
Three Months Ended Nine Months Ended
September 30, September 30, 2018
2018 2017 2018 2017
Stock-based compensation expenses $
7,492 $
4,913 $
22,835 $
14,452
Total adjustments to GAAP cost of revenues(2) 7,492 4,913 22,835 14,452
Stock-based compensation expenses 7,838 6,304 23,901 25,468
Other acquisition-related expenses 245 32 707 930
Total adjustments to GAAP selling, general and 8,083 6,336 24,608 26,398
administrative expenses(3)
Amortization of purchased intangible assets 2,008 1,869 5,800 5,706
One-time charges (90) 258 1,309 258
Total adjustments to GAAP income from operations(4) 17,493 13,376 54,552 46,814
Change in fair value of contingent consideration included in (900) (900)
Interest and other income, net
Foreign exchange (loss)/gain 514 77 (1,069) 1,470
Provision for/(benefit from) income taxes:
Tax effect on non-GAAP adjustments (3,490) (2,497) (11,007) (9,790)
Net discrete benefit from tax planning and U.S. tax reform (6,801) (29,984)
Excess tax benefits related to stock-based compensation (6,067) (2,620) (16,197) (8,452)
Total adjustments to GAAP net income(5) $
749 $
8,336 $
(4,605) $
30,042
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 projected revenue growth in constant currency is presented in
the table below:
Fourth
Quarter Full Year
2018
2018
---
Revenue growth at 26 26
constant
currency (at
least) (6) % %
Foreign exchange (1)% 0.5
rates impact
%
Revenue growth 25 26.5
(at least)
%
%
===
(6) C
onstant currency revenue results are calculated by translating
current period projected revenues in local
currency into U.S. dollars at the weighted average exchange rates of the
comparable prior period.
Reconciliation of projected GAAP to Non-GAAP income from operations as a percentage of revenues is presented in the table below:
Fourth Quarter Full Year
2018
2018
GAAP income from operations as a percentage of revenues 14% to 15% 12.5% to 13.5%
Stock-based compensation expenses 2.5 3.3
% %
Included in cost of revenues (exclusive of depreciation and amortization) 1.2 1.6
% %
Included in selling, general and administrative expenses 1.3 1.7
% %
Other acquisition-related expenses
% 0.1
%
Amortization of purchased intangible assets 0.5 0.5
% %
One-time charges
% 0.1
%
Non-GAAP income from operations as a percentage of revenues 17% to 18% 16.5% to 17.5%
Reconciliation of projected GAAP to Non-GAAP effective tax rate is presented in the
table below:
Fourth
Quarter Full Year
2018
2018
GAAP effective tax rate 19 2
(approximately)
% %
Tax effect on non-GAAP 1.7 4.5
adjustments
% %
Net discrete benefit related % 9.6
to tax planning and U.S. tax
reform %
Excess tax benefits related 1.3 5.9
to stock-based compensation
% %
Non-GAAP effective tax rate 22 22
(approximately)
% %
Reconciliation of projected GAAP to Non-GAAP diluted earnings per share is presented in the table below:
Fourth Quarter Full Year
2018
2018
GAAP diluted earnings per share (at least) $
1.03 $
4.22
Stock-based compensation expenses 0.23 1.05
Included in cost of revenues (exclusive of depreciation and amortization) 0.11 0.51
Included in selling, general and administrative expenses 0.12 0.54
Other acquisition-related expenses 0.01
Amortization of purchased intangible assets 0.05 0.15
One-time charges 0.02
Change in fair value of contingent consideration included in Interest and other (0.02)
income, net
Foreign exchange (loss)/gain 0.01 (0.01)
Provision for income taxes:
Tax effect on non-GAAP adjustments (0.06) (0.25)
Net discrete benefit from tax planning and U.S. tax reform (0.52)
Excess tax benefits related to stock-based compensation (0.04) (0.33)
Non-GAAP diluted earnings per share (at least) $
1.22 $
4.32
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SOURCE EPAM Systems, Inc.
