EPAM Reports Results for Third Quarter 2019

NEWTOWN, Pa., Nov. 7, 2019 /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, 2019.

"Our clients are continually being challenged to deliver dynamic, human-centered experiences and platforms quickly and at scale," said Arkadiy Dobkin, CEO & President, EPAM. "Our third quarter results demonstrate the continued demand for our services as we help our clients become adaptive enterprises to better address these market challenges."

Third Quarter 2019 Highlights

    --  Revenues increased to $588.1 million, a year-over-year increase of
        $119.9 million, or 25.6%, and on a constant currency basis, revenues
        were up 27.2% over the corresponding period last year;
    --  GAAP income from operations was $80.6 million, an increase of $16.0
        million, or 24.8%, compared to $64.6 million in the third quarter of
        2018;
    --  Non-GAAP income from operations was $99.7 million, an increase of $17.7
        million, or 21.6%, compared to $82.1 million in the third quarter of
        2018;
    --  Diluted earnings per share ("EPS") on a GAAP basis was $1.16, an
        increase of $0.01, or 0.9%, compared to $1.15 in the third quarter of
        2018 based on a weighted average share count of 57.8 million fully
        diluted shares outstanding; and
    --  Non-GAAP diluted EPS was $1.39, an increase of $0.22, or 18.8%, compared
        to $1.17 in the third quarter of 2018.

Cash Flow and Other Metrics

    --  Cash provided by operating activities was $162.9 million for the first
        nine months of 2019, compared to $169.1 million provided by operating
        activities for the first nine months of 2018;
    --  Cash, cash equivalents and restricted cash totaled $854.4 million as of
        September 30, 2019, an increase of $82.7 million, or 10.7%, from $771.7
        million as of December 31, 2018; and
    --  Total headcount was approximately 35,500 as of September 30, 2019.
        Included in this number were approximately 31,500 delivery
        professionals, an increase of 25.0% from September 30, 2018.

2019 Outlook - Full Year and Fourth Quarter

Full Year

    --  Revenue growth for 2019 will continue to 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 continues
        to expect revenue growth on a constant currency basis will be at least
        24%;
    --  The Company expects GAAP income from operations to continue to be in the
        range of 12.5% to 13.5% of revenues and non-GAAP income from operations
        to 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
        15% and its non-GAAP effective tax rate to now be approximately 22%; 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 $5.35 for the
        full year. The Company continues to expect weighted average share count
        for the year of 57.7 million diluted shares outstanding.

Fourth Quarter

    --  Revenues will be at least $616 million for the fourth quarter reflecting
        a year-over-year growth rate of 22%. The Company expects foreign
        currency translation to have a negligible 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 22%;
    --  For the fourth quarter, the Company expects GAAP income from operations
        to be in the range of 13.5% to 14.5% of revenues and non-GAAP income
        from operations to be in the range of 16.5% to 17.5% of revenues;
    --  The Company expects its GAAP effective tax rate to be approximately 21%
        and its non-GAAP effective tax rate to be approximately 23%; and
    --  The Company expects GAAP diluted EPS will be at least $1.19 for the
        quarter, and non-GAAP diluted EPS will be at least $1.43 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 the results on Thursday, November 7, 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 13695316. The replay will be available until November 21, 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, 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              Nine Months Ended


                                                                                                                                                     September 30,                September 30,


                                                                                                                                                2019       2018              2019                   2018

                                                                                                                                                                                                  ---


     
              Revenues                                                                                                                   $588,103   $468,186        $1,661,023             $1,337,981



     
              Operating expenses:


     Cost of revenues (exclusive of depreciation and



     amortization)                                                                                                                          377,525    301,081         1,078,129                867,890



     Selling, general and administrative expenses                                                                                           118,886     93,226           332,434                276,140



     Depreciation and amortization expense                                                                                                   11,127      9,319            32,355                 26,457

                                                                                                                                                                                                  ---


     
              Income from operations                                                                                                       80,565     64,560           218,105                167,494



     Interest and other income, net                                                                                                           2,509      1,941             6,775                  2,442



     Foreign exchange (loss)/gain                                                                                                           (3,105)     (514)         (10,151)                 1,069

                                                                                                                                                                                                  ---


     
              Income before provision for/(benefit from) income taxes                                                                      79,969     65,987           214,729                171,005



     Provision for/(benefit from) income taxes                                                                                               12,967        369            28,196                (9,286)

                                                                                                                                                                                                  ---


     
              Net income                                                                                                                  $67,002    $65,618          $186,533               $180,291



     Foreign currency translation adjustments, net of tax                                                                                  (10,114)   (2,118)          (4,551)              (14,643)



     Unrealized (loss)/gain on cash-flow hedging instruments, net of tax

                                                                                                                                             (2,163)      (74)            2,474                (2,081)




     
              Comprehensive income                                                                                                        $54,725    $63,426          $184,456               $163,567






     
              Net income per share:



     Basic                                                                                                                                    $1.22      $1.22             $3.42                  $3.37



     Diluted                                                                                                                                  $1.16      $1.15             $3.24                  $3.19



     
               Shares used in calculation of net income per share:



     Basic                                                                                                                                   54,878     53,852            54,604                 53,485



     Diluted                                                                                                                                 57,844     56,963            57,567                 56,600


                             
              
                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,
                                                                          2019                              2018

                                                                                                            ---


     
                Assets



     Current assets


      Cash and cash equivalents                                                              $
             853,241       $
         770,560


      Accounts receivable, net of
       allowance of $1,519 and
       $1,557, respectively                                            339,112                           297,685



     Unbilled revenues                                                142,949                           104,652


      Prepaid expenses and other
       current assets                                                   29,390                            26,171

                                                                                                            ---


     Total current assets                                           1,364,692                         1,199,068


      Property and equipment, net                                      115,321                           102,646


      Operating lease right-of-use
       assets                                                          207,145


      Intangible assets, net                                            56,537                            57,065



     Goodwill                                                         186,299                           166,832



     Deferred tax assets                                               75,071                            69,983


      Other noncurrent assets                                           35,098                            16,208

                                                                                                            ---

                   Total assets                                                  $
           
               2,040,163  $
     
          1,611,802

                                                                                                                                ===




     
                Liabilities



     Current liabilities



     Accounts payable                                                                         $
             6,896         $
         7,444


      Accrued expenses and other
       current liabilities                                             128,639                           127,937



     Due to employees                                                  63,536                            49,683


      Deferred compensation due to
       employees                                                        13,427                             9,920


      Taxes payable, current                                            47,548                            67,845


      Operating lease liabilities,
       current                                                          51,424

                                                                                                            ---

      Total current liabilities                                        311,470                           262,829



     Long-term debt                                                    25,000                            25,031


      Taxes payable, noncurrent                                         43,738                            43,685


      Operating lease liabilities,
       noncurrent                                                      153,980


      Other noncurrent liabilities                                      13,858                            17,661

                                                                                                            ---

                   Total liabilities                                   548,046                           349,206

                                                                                                            ---


     
                Commitments and contingencies



     
                Stockholders' equity


      Common stock, $0.001 par value; 160,000,000 authorized; 54,968,833 and
       54,099,927


      shares issued, 54,949,098 and
       54,080,192 shares outstanding
       at September 30, 2019                                                55                                54

     and December 31, 2018, respectively


      Additional paid-in capital                                       589,764                           544,700



     Retained earnings                                                946,066                           759,533



     Treasury stock                                                     (177)                            (177)


      Accumulated other comprehensive
       loss                                                           (43,591)                         (41,514)

                                                                                                            ---

                   Total stockholders' equity                        1,492,117                         1,262,596

                                                                                                            ---

                   Total liabilities and
                    stockholders' equity                                         $
           
               2,040,163  $
     
          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 Ended                           Nine Months Ended


                  September 30, 2019                            September 30, 2019

              ---                                           ---

                  Revenue growth on
                   a constant
                   currency basis(1)                                        27.2 %                                      26.2 %


     Foreign exchange
      rates impact                                                          (1.6)%                                      (2.1)%



                  Revenue growth as
                   reported                                                 25.6 %                                      24.1 %





      (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, 2019 and 2018:




                                                                                                                                                
            
                Three Months Ended                                  
              
                 Nine Months Ended
                                                                                                                                                          September 30, 2019                                                          September 30, 2019




                                                                                                                             GAAP                         Adjustments                      Non-GAAP            GAAP     Adjustments                           Non-GAAP




       Cost of revenues (exclusive of                                                                                                            $
              377,525                               $
          (7,580 )                                $
              369,945              1,078,129         (27,841)        1,050,288

            depreciation and amortization)(2)
                                                                                                                                                                                                                                                                         
      $                
      $            
       $



       Selling, general and administrative                                                                                                       $
              118,886                                        (9,037)                                            109,849                332,434         (28,264)          304,170
      
          expenses(3)
                                                                                                                                                                                         
          $                     
             $                                        
      $                
      $            
       $



       Income from operations(4)                                                                                                                  $
              80,565                                 $
          19,171                                  $
              99,736          $
        218,105    $
         63,398    $
         281,503



       Operating margin                                                                                                    13.7%                                3.3%                         17.0%           13.1%            3.8%                              16.9%



       Net income(5)                                                                                                                              $
              67,002                                 $
          13,215                                  $
              80,217          $
        186,533    $
         38,920    $
         225,453



       Diluted earnings per share                                                                                                                   $
              1.16                                                $
             1.39                                     $
      3.24                   $
         3.92








                                                                                                                                               
            
                Three Months Ended                                    
              
                Nine Months Ended
                                                                                                                                                          September 30, 2019                                                          September 30, 2019




                                                                                                                             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                                                                                                        $
              93,226                                        (7,993)                                             85,233                276,140         (25,917)          250,223
      
          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









       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,

                                                                                                                                                           ---

                                                                                                       2019                             2018       2019                            2018

                                                                                                                                                                                 ---




       Stock-based compensation expenses                                                                                 $
              7,580                         $
              7,492       $
     27,841      $
      22,835

                                                                                                                                                                                                               ---


       
                Total adjustments to GAAP cost of revenues(2)                                    7,580                            7,492     27,841                          22,835

                                                                                                                                                                                 ---


       Stock-based compensation expenses                                                             7,891                            7,838     25,183                          23,901



       Other acquisition-related expenses                                                            1,144                              245      2,505                             707



           One-time charges                                                                              2                             (90)       576                           1,309

                                                                                                                                                                                 ---


       
                
                  
                    Total adjustments to GAAP selling, general and   9,037                            7,993     28,264                          25,917
      
              
                
              
              
                administrative expenses(3)

                                                                                                                                                                                 ---


       Amortization of purchased intangible assets                                                   2,554                            2,008      7,293                           5,800

                                                                                                                                                                                 ---


       
                Total adjustments to GAAP income from operations(4)                             19,171                           17,493     63,398                          54,552

                                                                                                                                                                                 ---


       Change in fair value of contingent consideration included in



       Interest and other income, net                                                                    -                           (900)     1,356                           (900)



       Foreign exchange loss/(gain)                                                                  3,105                              514     10,151                         (1,069)



       Provision for/(benefit from) income taxes:



       Tax effect on non-GAAP adjustments                                                          (4,833)                         (3,490)  (15,503)                       (11,007)



       Net discrete benefit related to U.S. tax reform                                                   -                         (6,801)                                 (29,984)



       Excess tax benefits related to stock-based compensation                                     (4,228)                         (6,067)  (20,482)                       (16,197)

                                                                                                                                                                                 ---


       
                Total adjustments to GAAP net income(5)                                                $
              
                13,215              $
              
                749   $
     
       38,920 $
     
        (4,605)

                                                                                                                                                                                                               ===


                                                                           
              
                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:






                                                                                                                                                             Fourth Quarter 2019 Full Year 2019

                                                                                                                                                                                            ---


     
                Revenue growth on a constant currency basis (at least) (6)                                                                                                22%           24 %



     Foreign exchange rates impact                                                                                                                                          0 %           (1)%




     
                Revenue growth (at least)                                                                                                                                 22%           23 %





      (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:




                                                                                                                                       
     
     Fourth Quarter 2019       
     
     Full Year 2019

                                                                                                                                                                                       ---


     
                GAAP income from operations as a percentage of revenues                                                                            13.5% to 14.5%       12.5% to 13.5%



     Stock-based compensation expenses                                                                                                                         2.4%                  3.5%



     
                Included in cost of revenues (exclusive of depreciation and amortization)                                                                   1.2 %                 1.8 %



     
                Included in selling, general and administrative expenses                                                                                    1.2 %                 1.7 %



     Other acquisition-related expenses                                                                                                                        0.1%                  0.1%



     Amortization of purchased intangible assets                                                                                                               0.5%                  0.4%




     
                Non-GAAP income from operations as a percentage of revenues                                                                        16.5% to 17.5%       16.5% to 17.5%

                                                                                                                                                                                       ===


     Reconciliation of projected GAAP to non-GAAP effective tax rate is presented
      in the table below:




                                                                         Fourth Quarter 2019 Full Year 2019

                                                                                                        ---

                  GAAP effective tax rate
                   (approximately)                                                       21%            15%


     Tax effect on non-GAAP
      adjustments                                                                      1.4 %          3.3 %


     Excess tax benefits related to
      stock-based compensation                                                         0.6 %          3.7 %



                  Non-GAAP effective tax rate
                   (approximately)                                                       23%            22%



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




                                                                                                               Fourth Quarter 2019      Full Year 2019

                                                                                                                                                   ---


     
                GAAP diluted earnings per share (at least)                                                                      $
     
               1.19  $
     
     4.43



     Stock-based compensation expenses                                                                                       0.25                 1.19



     
                Included in cost of revenues (exclusive of depreciation and amortization)                                  0.12                 0.61



     
                Included in selling, general and administrative expenses                                                   0.13                 0.58



     Other acquisition-related expenses                                                                                      0.02                 0.06



     Amortization of purchased intangible assets                                                                             0.05                 0.17



     One-time charges                                                                                                           -                0.01



     Change in fair value of contingent consideration included in Interest                                                      -                0.02

     and other 
              income, net



     Foreign exchange loss                                                                                                   0.03                 0.21



     Provision for income taxes:



     Tax effect on non-GAAP adjustments                                                                                    (0.08)              (0.35)



     Excess tax benefits related to stock-based compensation                                                               (0.03)              (0.39)

                                                                                                                                                   ---


     
                Non-GAAP diluted earnings per share (at least)                                                                  $
     
               1.43  $
     
     5.35

                                                                                                                                                             ===

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SOURCE EPAM Systems, Inc.