EPAM Reports Results for Second Quarter 2019
NEWTOWN, Pa., Aug. 8, 2019 /PRNewswire/ -- 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, 2019.
"Our ability to manage complex, enterprise-level programs, in addition to our continued investments in our people and new technologies across our entire services portfolio, underpins our strong Q2 results," said Arkadiy Dobkin, CEO & President, EPAM. "Based on the continued demand we see for our services and solutions, we have raised our full-year revenue outlook."
Second Quarter 2019 Highlights
-- Revenues increased to $551.6 million, a year-over-year increase of
$105.9 million, or 23.8%, and on a constant currency basis, revenues
were up 25.1% over the corresponding period last year;
-- GAAP income from operations was $72.9 million, an increase of $18.6
million, or 34.4%, compared to $54.2 million in the second quarter of
2018;
-- Non-GAAP income from operations was $92.6 million, an increase of $20.3
million, or 28.0%, compared to $72.3 million in the second quarter of
2018;
-- Diluted earnings per share ("EPS") on a GAAP basis was $1.02, an
increase of $0.13, or 14.6%, compared to $0.89 in the second quarter of
2018 based on a weighted average share count of 57.6 million fully
diluted shares outstanding; and
-- Non-GAAP diluted EPS was $1.28, an increase of $0.27, or 26.7%, compared
to $1.01 in the second quarter of 2018.
Cash Flow and Other Metrics
-- Cash provided by operating activities was $43.8 million for the first
six months of 2019, compared to $66.8 million provided by operating
activities for the first six months of 2018;
-- Cash, cash equivalents and restricted cash totaled $778.5 million as of
June 30, 2019, an increase of $6.8 million, or 0.9%, from $771.7 million
as of December 31, 2018; and
-- Total headcount was approximately 33,100 as of June 30, 2019. Included
in this number were approximately 29,400 delivery professionals, an
increase of 21.0% from June 30, 2018.
2019 Outlook - Full Year and Third Quarter
Full Year
-- Revenue growth for 2019 will now be at least 23%. The Company continues
to expect that foreign currency translation will have a 1% unfavorable
impact on full year reported revenues. The Company now expects revenue
growth on a constant currency basis will be at least 24%;
-- The Company continues to expect GAAP income from operations to be in the
range of 12.5% to 13.5% of revenues and non-GAAP income from operations
to be in the range of 16% to 17% of revenues;
-- The Company expects its GAAP effective tax rate to now be approximately
14% and its non-GAAP effective tax rate to continue to be approximately
23%; and
-- The Company expects GAAP diluted EPS will now be at least $4.43 for the
full year, and non-GAAP diluted EPS will now be at least $5.25 for the
full year. The Company now expects weighted average share count for the
year of 57.7 million diluted shares outstanding.
Third Quarter
-- Revenues will be at least $579 million for the third quarter reflecting
a year-over-year growth rate of at least 23%. 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 24%;
-- For the third quarter, the Company expects GAAP income from operations
to be in the range of 12.5% to 13.5% of revenues and non-GAAP income
from operations to be in the range of 16% to 17% of revenues;
-- The Company expects its GAAP effective tax rate to be approximately 15%
and its non-GAAP effective tax rate to be approximately 23%; and
-- The Company expects GAAP diluted EPS will be at least $1.14 for the
quarter, and non-GAAP diluted EPS will be at least $1.32 for the
quarter. The Company expects weighted average share count for the
quarter of 57.9 million diluted shares outstanding.
Conference Call Information
EPAM will host a conference call to discuss results on Thursday, August 8, 2019 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 13692355. The replay will be available until August 22, 2019.
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 Forbes 25 Fastest Growing Public Tech Companies list every year of publication since 2013. 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 expenses, write-offs and recoveries, acquisition-related costs, amortization of purchased intangible assets, goodwill impairment, certain other one-time charges and benefits, changes in fair value of contingent consideration, foreign exchange gains and losses, the impact of U.S. tax reform, excess tax benefits related to stock-based 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 in accordance with 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
Six Months Ended
June 30, June 30,
2019 2018 2019 2018
---
Revenues $
551,587 $
445,647 $
1,072,920 $
869,795
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization) 355,915 289,175 700,604 566,809
Selling, general and administrative expenses 111,762 93,273 213,548 182,914
Depreciation and amortization expense 11,028 8,962 21,228 17,138
Income from operations 72,882 54,237 137,540 102,934
Interest and other income, net 1,190 1,052 4,266 501
Foreign exchange (loss)/gain (3,562) 1,830 (7,046) 1,583
Income before provision for/(benefit from) income taxes 70,510 57,119 134,760 105,018
Provision for/(benefit from) income taxes 11,733 6,864 15,229 (9,655)
Net income $
58,777 $
50,255 $
119,531 $
114,673
Foreign currency translation adjustments, net of tax 2,620 (15,834) 5,563 (12,525)
Unrealized gain/(loss) on cash-flow hedging instruments, net of tax 1,537 (2,076) 4,637 (2,007)
Comprehensive income $
62,934 $
32,345 $
129,731 $
100,141
Net income per share:
Basic $
1.07 $
0.94 $
2.19 $
2.15
Diluted $
1.02 $
0.89 $
2.08 $
2.03
Shares used in calculation of net income per share:
Basic 54,682 53,517 54,465 53,299
Diluted 57,614 56,587 57,427 56,415
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
As of As of
June 30, December 31,
2019 2018
---
Assets
Current assets
Cash and cash equivalents $
777,365 $
770,560
Accounts receivable, net of allowance of $1,882 and $1,557, respectively 343,864 297,685
Unbilled revenues 135,786 104,652
Prepaid expenses and other current assets 28,808 26,171
Total current assets 1,285,823 1,199,068
Property and equipment, net 111,175 102,646
Operating lease right-of-use assets 210,447
Intangible assets, net 53,821 57,065
Goodwill 179,214 166,832
Deferred tax assets 69,734 69,983
Other noncurrent assets 21,237 16,208
Total assets $
1,931,451 $
1,611,802
Liabilities
Current liabilities
Accounts payable $
6,043 $
7,444
Accrued expenses and other current liabilities 96,026 127,937
Due to employees 64,032 49,683
Deferred compensation due to employees 7,928 9,920
Taxes payable, current 50,156 67,845
Operating lease liabilities, current 48,429
Total current liabilities 272,614 262,829
Long-term debt 25,000 25,031
Taxes payable, noncurrent 43,650 43,685
Operating lease liabilities, noncurrent 158,137
Other noncurrent liabilities 9,803 17,661
Total liabilities 509,204 349,206
Commitments and contingencies
Stockholders' equity
Common stock, $0.001 par value; 160,000,000 authorized; 54,799,024 and 54,099,927 shares issued, 54,779,289 and 54,080,192 shares outstanding at June
30, 2019 and December 31, 2018, respectively 55 54
Additional paid-in capital 574,619 544,700
Retained earnings 879,064 759,533
Treasury stock (177) (177)
Accumulated other comprehensive loss (31,314) (41,514)
Total stockholders' equity 1,422,247 1,262,596
Total liabilities and stockholders' equity $
1,931,451 $
1,611,802
EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Financial Measures
(Unaudited)
(In thousands, except percent and per share amounts)
Reconciliation of revenue growth on a constant currency basis to revenue growth as reported under GAAP
is presented in the table below:
Three Months Six Months
Ended Ended
June 30, 2019 June 30, 2019
---
Revenue growth on
a constant
currency % %
basis(1) 25.1 25.7
Foreign exchange (1.3) (2.3)
rates impact % %
---
Revenue growth as 23.8 23.4
reported
% %
===
(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 six months ended June 30, 2019 and 2018:
Three Months Ended
Six Months Ended
June 30, 2019 June 30, 2019
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
---
Cost of revenues (exclusive of depreciation and amortization)(2) $
355,915 $
(7,480) $
348,435 $
700,604 $
(20,261) $
680,343
Selling, general and administrative expenses(3) $
111,762 $
(9,606) $
102,156 $
213,548 $
(19,227) $
194,321
Income from operations(4) $
72,882 $
19,687 $
92,569 $
137,540 $
44,227 $
181,767
Operating margin 13.2
% 3.6
% 16.8
% 12.8
% 4.1
% 16.9
%
Net income(5) $
58,777 $
14,933 $
73,710 $
119,531 $
25,705 $
145,236
Diluted earnings per share $
1.02 $
1.28 $
2.08 $
2.53
Three Months Ended
Six Months Ended
June 30, 2018 June 30, 2018
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
---
Cost of revenues (exclusive of depreciation and amortization)(2) $
289,175 $
(7,054) $
282,121 $
566,809 $
(15,343) $
551,466
Selling, general and administrative expenses(3) $
93,273 $
(8,997) $
84,276 $
182,914 $
(17,924) $
164,990
Income from operations(4) $
54,237 $
18,083 $
72,320 $
102,934 $
37,059 $
139,993
Operating margin 12.2
% 4.0
% 16.2
% 11.8
% 4.3
% 16.1
%
Net income(5) $
50,255 $
6,821 $
57,076 $
114,673 $
(5,354) $
109,319
Diluted earnings per share $
0.89 $
1.01 $
2.03 $
1.94
Items (2) through (5) above are detailed in the table below with the specific cross-reference noted in the appropriate item.
Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Stock-based compensation expenses $
7,480 $
7,054 $
20,261 $
15,343
Total adjustments to GAAP cost of revenues(2) 7,480 7,054 20,261 15,343
Stock-based compensation expenses 8,217 7,756 17,292 16,063
Other acquisition-related expenses 850 85 1,361 462
One-time charges 539 1,156 574 1,399
Total adjustments to GAAP selling, general and administrative expenses(3) 9,606 8,997 19,227 17,924
Amortization of purchased intangible assets 2,601 2,032 4,739 3,792
Total adjustments to GAAP income from operations(4) 19,687 18,083 44,227 37,059
Change in fair value of contingent consideration included in Interest and other income, net 1,356 1,356
Foreign exchange loss/(gain) 3,562 (1,830) 7,046 (1,583)
Provision for/(benefit from) income taxes:
Tax effect on non-GAAP adjustments (4,931) (3,286) (10,670) (7,517)
Net discrete benefit related to U.S. tax reform (706) (23,183)
Excess tax benefits related to stock-based compensation (4,741) (5,440) (16,254) (10,130)
Total adjustments to GAAP net income(5) $
14,933 $
6,821 $
25,705 $
(5,354)
EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Guidance Non-GAAP Financial Measures to Comparable GAAP Financial Measures
(Unaudited)
(In percent, except per share amounts)
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 on a constant currency basis to projected revenue growth on a GAAP
basis is presented in the table below:
Third Quarter 2019 Full Year 2019
---
Revenue growth on 24 24
a constant
currency basis %
(at least) (6) %
Foreign exchange (1) (1)
rates impact % %
Revenue growth 23 23
(at least)
%
%
===
(6) Constant 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:
Third Quarter 2019 Full Year 2019
---
GAAP income from operations
as a percentage of
revenues 12.5% to 13.5% 12.5% to 13.5%
Stock-based compensation 2.9 3.0
expenses % %
Included in cost of
revenues (exclusive of
depreciation and % %
amortization) 1.4 1.5
Included in selling, 1.5 1.5
general and administrative
expenses % %
Other acquisition-related 0.1 0.1
expenses % %
Amortization of purchased 0.5 0.4
intangible assets % %
---
Non-GAAP income from
operations as a percentage
of revenues 16% to 17% 16% to 17%
===
Reconciliation of projected GAAP to non-GAAP effective tax rate is presented in the table below:
Third Quarter 2019 Full Year 2019
---
GAAP effective tax rate 15 14
(approximately)
% %
Tax effect on non-GAAP 3.4 3.9
adjustments % %
Excess tax benefits related 4.6 5.1
to stock-based compensation % %
Non-GAAP effective tax rate 23 23
(approximately)
% %
===
Reconciliation of projected GAAP to non-GAAP diluted earnings per share is presented in the table below:
Third Quarter 2019 Full Year 2019
---
GAAP diluted earnings per
share (at least) $
1.14 $
4.43
Stock-based compensation
expenses 0.28 1.20
Included in cost of
revenues (exclusive of
depreciation and
amortization) 0.13 0.61
Included in selling,
general and administrative
expenses 0.15 0.59
Other acquisition-related
expenses 0.01 0.04
Amortization of purchased
intangible assets 0.05 0.18
One-time charges - 0.01
Change in fair value of
contingent consideration
included in Interest and
other income, net - 0.02
Foreign exchange loss 0.02 0.16
Provision for income taxes:
Tax effect on non-GAAP
adjustments (0.08) (0.34)
Excess tax benefits related
to stock-based
compensation (0.10) (0.45)
Non-GAAP diluted earnings
per share (at least) $
1.32 $
5.25
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SOURCE EPAM Systems, Inc.
