EPAM Reports Results for Fourth Quarter and Full Year 2019
NEWTOWN, Pa., Feb. 20, 2020 /PRNewswire/ -- EPAM Systems, Inc. (NYSE: EPAM), a leading global provider of digital platform engineering and software development services, today announced results for its fourth quarter and full year ended December 31, 2019.
"We are pleased to report another strong year with industry-leading organic growth, enabled by ongoing investments across our people, platforms and geographies and further enhanced by our strategic acquisitions," said Arkadiy Dobkin, CEO & President, EPAM. "We remain confident in our ability to provide highly relevant, adaptive services that help our customers succeed in an increasingly competitive and disruptive environment."
Fourth Quarter 2019 Highlights
-- Revenues increased to $632.8 million, a year-over-year increase of
$127.8 million, or 25.3%, and on a constant currency basis, revenues
were up 24.8% over the corresponding period last year;
-- GAAP income from operations was $84.7 million, an increase of $6.5
million, or 8.3%, compared to $78.3 million in the fourth quarter of
2018;
-- Non-GAAP income from operations was $107.6 million, an increase of $14.6
million, or 15.7%, compared to $93.1 million in the fourth quarter of
2018;
-- Diluted earnings per share ("EPS") on a GAAP basis was $1.29, compared
to $1.05 in the fourth quarter of 2018; and
-- Non-GAAP diluted EPS was $1.51, an increase of $0.24, or 18.9%, compared
to $1.27 in the fourth quarter of 2018.
Full Year 2019 Highlights
-- Revenues increased to $2.29 billion, a year-over-year increase of $450.9
million, or 24.5%, and on a constant currency basis, revenues were up
25.8% year-over-year;
-- GAAP income from operations was $302.9 million, an increase of $57.1
million, or 23.2%, compared to $245.8 million in 2018;
-- Non-GAAP income from operations was $389.2 million, an increase of $74.0
million, or 23.5%, compared to $315.1 million in 2018;
-- Diluted EPS on a GAAP basis was $4.53, compared to $4.24 in 2018; and
-- Non-GAAP diluted EPS was $5.42, an increase of $1.04, or 23.7%, compared
to $4.38 in 2018.
Cash Flow and Other Metrics
-- Cash provided by operating activities was $124.6 million in the fourth
quarter of 2019, an increase from $123.1 million in the fourth quarter
of 2018; and was $287.5 million in 2019, a decrease from $292.2 million
in 2018;
-- Cash, cash equivalents and restricted cash totaled $937.7 million as of
December 31, 2019, an increase of $166.0 million, or 21.5%, from $771.7
million as of December 31, 2018; and
-- Total headcount was approximately 36,700 as of December 31, 2019.
Included in this number was approximately 32,600 delivery professionals,
an increase of 21.7% from December 31, 2018.
2020 Outlook - Full Year and First Quarter
Full Year
-- The Company expects revenue growth for 2020 to exceed 22% on both a GAAP
and constant currency basis;
-- The Company expects GAAP income from operations to be in the range of
13% to 14% 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 14%
and its non-GAAP effective tax rate to be approximately 23%; and
-- The Company expects GAAP diluted EPS to be at least $5.56 for the full
year, and non-GAAP diluted EPS to be at least $6.30 for the full year.
The Company expects weighted average diluted shares outstanding for the
year of 58.8 million.
First Quarter
-- The Company expects revenues to be at least $642 million for the first
quarter, reflecting a year-over-year growth rate of at least 23% on both
a GAAP and constant currency basis;
-- The Company expects GAAP income from operations to be in the range of
12% to 13% of revenues and non-GAAP income from operations to be in the
range of 15% to 16% of revenues;
-- The Company expects its GAAP effective tax rate to be approximately 5%
and its non-GAAP effective tax rate to be approximately 23%; and
-- The Company expects GAAP diluted EPS to be at least $1.27 for the
quarter, and non-GAAP diluted EPS to be at least $1.36 for the quarter.
The Company expects weighted average diluted shares outstanding for the
quarter of 58.3 million.
Conference Call Information
EPAM will host a conference call to discuss results on Thursday, February 20, 2020 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 in 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 13697861. The replay will be available until March 5, 2020.
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 more than 30 countries across North America, Europe, Asia and Australia. As a recognized market leader in multiple categories among top global independent research agencies, EPAM was one of only four technology companies to appear on Forbes 25 Fastest Growing Public Tech Companies list every year of publication since 2013 and was the only IT services company featured on Fortune's 100 Fastest-Growing Companies list of 2019. Learn more at 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
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Ended Year Ended December 31,
December 31,
2019 2018 2019 2018
---
Revenues $
632,775 $
504,931 $
2,293,798 $
1,842,912
Operating expenses:
Cost of revenues (exclusive of depreciation and 410,069 319,031 1,488,198 1,186,921
amortization)
Selling, general and administrative expenses 124,999 97,447 457,433 373,587
Depreciation and amortization expense 12,962 10,183 45,317 36,640
Income from operations 84,745 78,270 302,850 245,764
Interest and other income, net 1,950 1,080 8,725 3,522
Foreign exchange (loss)/gain (1,898) (582) (12,049) 487
Income before provision for income taxes 84,797 78,768 299,526 249,773
Provision for income taxes 10,273 18,803 38,469 9,517
Net income $
74,524 $
59,965 $
261,057 $
240,256
Foreign currency translation adjustments, net of tax 10,846 (6,695) 6,295 (21,338)
Unrealized gain/(loss) on cash-flow hedging instruments, net 1,371 (472) 3,845 (2,553)
of tax
Comprehensive income $
86,741 $
52,798 $
271,197 $
216,365
Net income per share:
Basic $
1.35 $
1.11 $
4.77 $
4.48
Diluted $
1.29 $
1.05 $
4.53 $
4.24
Shares used in calculation of net income per share:
Basic 55,062 54,031 54,719 53,623
Diluted 57,965 56,887 57,668 56,673
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
As of As of
December 31, December 31,
2019 2018
---
Assets
Current assets
Cash and cash equivalents $
936,552 $
770,560
Trade receivables and contract assets, net of allowance of $2,920 and $1,557, respectively 497,716 402,337
Prepaid and other current assets 39,943 26,171
Total current assets 1,474,211 1,199,068
Property and equipment, net 165,259 102,646
Operating lease right-of-use assets, net 238,991
Intangible assets, net 56,258 57,065
Goodwill 195,043 166,832
Deferred tax assets 75,013 69,983
Other noncurrent assets 39,433 16,208
Total assets $
2,244,208 $
1,611,802
Liabilities
Current liabilities
Accounts payable $
7,831 $
7,444
Accrued compensation and benefits expenses 230,035 177,594
Accrued expenses and other current liabilities 82,476 50,253
Income taxes payable, current 9,064 27,538
Operating lease liabilities, current 57,542
Total current liabilities 386,948 262,829
Long-term debt 25,074 25,031
Income taxes payable, noncurrent 45,878 43,685
Operating lease liabilities, noncurrent 180,848
Other noncurrent liabilities 9,315 17,661
Total liabilities 648,063 349,206
Commitments and contingencies
Stockholders' equity
Common stock, $0.001 par value; 160,000,000 authorized; 55,207,446 and 54,099,927 shares 55 54
issued, 55,187,711 and 54,080,192 shares outstanding at December 31, 2019 and December 31, 2018, respectively
Additional paid-in capital 607,051 544,700
Retained earnings 1,020,590 759,533
Treasury stock (177) (177)
Accumulated other comprehensive loss (31,374) (41,514)
Total stockholders' equity 1,596,145 1,262,596
Total liabilities and stockholders' equity $
2,244,208 $
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 Year Ended
December 31, 2019 December 31, 2019
---
Revenue growth on a constant currency basis (1) 24.8 25.8
% %
Foreign exchange rates impact 0.5 (1.3)
% %
---
Revenue growth as reported under GAAP 25.3 24.5
% %
===
(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 months and years ended December 31, 2019 and 2018:
Three Months Ended December 31, 2019
Year Ended December 31, 2019
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
---
Cost of revenues (exclusive of depreciation and
amortization)(2) $
410,069 $
(9,739) $
400,330 $
1,488,198 $
(37,580) $
1,450,618
Selling, general and administrative expenses(3) $
124,999 $
(10,542) $
114,457 $
457,433 $
(38,806) $
418,627
Income from operations(4) $
84,745 $
22,902 $
107,647 $
302,850 $
86,300 $
389,150
Operating margin 13.4
% 3.6
% 17.0
% 13.2
% 3.8
% 17.0
%
Net income(5) $
74,524 $
12,731 $
87,255 $
261,057 $
51,651 $
312,708
Diluted earnings per share $
1.29 $
1.51 $
4.53 $
5.42
Three Months Ended December 31, 2018
Year Ended December 31, 2018
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Cost of revenues (exclusive of depreciation and
amortization)(2) $
319,031 $
(4,410) $
314,621 $
1,186,921 $
(27,245) $
1,159,676
Selling, general and administrative expenses(3) $
97,447 $
(8,081) $
89,366 $
373,587 $
(33,998) $
339,589
Income from operations(4) $
78,270 $
14,792 $
93,062 $
245,764 $
69,344 $
315,108
Operating margin 15.5
% 2.9
% 18.4
% 13.3
% 3.8
% 17.1
%
Net income(5) $
59,965 $
12,359 $
72,324 $
240,256 $
7,754 $
248,010
Diluted earnings per share $
1.05 $
1.27 $
4.24 $
4.38
Items (2) through (5) above are detailed in the table below with the specific cross-reference noted in the appropriate item.
Three Months Ended
Year Ended
December 31, December 31,
2019 2018 2019 2018
Stock-based compensation expenses $
9,739 $
4,410 $
37,580 $
27,245
Total adjustments to GAAP cost of revenues(2) 9,739 4,410 37,580 27,245
Stock-based compensation expenses 9,273 8,042 34,456 31,943
Other acquisition-related expenses 1,269 209 3,774 916
One-time charges (170) 576 1,139
Total adjustments to GAAP selling, general and administrative expenses(3) 10,542 8,081 38,806 33,998
Amortization of purchased intangible assets 2,621 2,301 9,914 8,101
Total adjustments to GAAP income from operations(4) 22,902 14,792 86,300 69,344
Change in fair value of contingent consideration included in Interest and other income, net 420 1,776 (900)
Foreign exchange loss/(gain) 1,898 582 12,049 (487)
Provision for income taxes:
Tax effect on non-GAAP adjustments (4,586) (1,855) (20,089) (12,862)
Net discrete charge/(benefit) related to U.S. tax reform 13 (29,971)
Excess tax benefits related to stock-based compensation (7,903) (1,173) (28,385) (17,370)
Total adjustments to GAAP net income(5) $
12,731 $
12,359 $
51,651 $
7,754
EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Guidance Non-GAAP Measures to Comparable GAAP 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:
First Quarter 2020 Full Year 2020
---
Revenue growth on 23 22
a constant
currency %
basis(6) %
Foreign exchange 0 0
rates impact % %
---
Revenue growth on 23 22
a GAAP basis
%
%
===
(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:
First Quarter 2020 Full Year 2020
---
GAAP income from operations
as a percentage of
revenues 12% to 13% 13% to 14%
Stock-based compensation 2.5 2.5
expenses % %
Included in cost of
revenues (exclusive of
depreciation and % %
amortization) 1.2 1.2
Included in selling, 1.3 1.3
general and administrative
expenses % %
Other acquisition-related 0.1 0.1
expenses % %
Amortization of purchased 0.4 0.4
intangible assets % %
Non-GAAP income from
operations as a percentage
of revenues 15% to 16% 16% to 17%
===
Reconciliation of projected GAAP to non-GAAP effective tax rate is presented in the table below:
First Quarter 2020 Full Year 2020
---
GAAP effective tax rate 5 14
(approximately)
% %
Tax effect on non-GAAP 4.6 3.4
adjustments % %
Excess tax benefits related 13.4 5.6
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:
First Quarter 2020 Full Year 2020
---
GAAP diluted earnings per
share (at least) $
1.27 $
5.56
Stock-based compensation
expenses 0.31 1.25
Included in cost of
revenues (exclusive of
depreciation and
amortization) 0.15 0.61
Included in selling,
general and administrative
expenses 0.16 0.64
Other acquisition-related
expenses 0.02 0.07
Amortization of purchased
intangible assets 0.05 0.19
Foreign exchange loss 0.05 0.15
Provision for income taxes:
Tax effect on non-GAAP
adjustments (0.09) (0.35)
Excess tax benefits related
to stock-based
compensation (0.25) (0.57)
Non-GAAP diluted earnings
per share (at least) $
1.36 $
6.30
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SOURCE EPAM Systems, Inc.
