EPAM Reports Results for First Quarter 2020
NEWTOWN, Pa., May 7, 2020 /PRNewswire/ -- EPAM Systems, Inc. (NYSE: EPAM), a leading global provider of digital platform engineering and software development services, today announced results for its first quarter ended March 31, 2020.
"EPAM's strong first quarter results exceeded our initial expectations, underscoring the continued robust demand for our services entering 2020," said Arkadiy Dobkin, CEO & President, EPAM. "With the onset of the global pandemic, we have shifted our focus to safeguarding the health and safety of EPAM's employees and proactively partnering with our global customers to help them navigate an unprecedented and volatile social and business environment. Our fundamentals continue to be strong, and the investments we've made in our people and delivery platforms should help position us for a strong comeback in the future."
First Quarter 2020 Highlights
-- Revenues increased to $651.4 million, a year-over-year increase of
$130.0 million, or 24.9%, and on a constant currency basis, revenues
were up 26.0% over the corresponding period last year;
-- GAAP income from operations was $87.5 million, an increase of $22.9
million, or 35.3%, compared to $64.7 million in the first quarter of
2019;
-- Non-GAAP income from operations was $105.3 million, an increase of $16.1
million, or 18.1%, compared to $89.2 million in the first quarter of
2019;
-- Diluted earnings per share ("EPS") on a GAAP basis was $1.47, an
increase of $0.41, or 38.7%, compared to $1.06 in the first quarter of
2019 based on weighted average diluted shares outstanding of 58.1
million; and
-- Non-GAAP diluted EPS was $1.43, an increase of $0.18, or 14.4%, compared
to $1.25 in the first quarter of 2019.
Cash Flow and Other Metrics
-- Cash provided by operating activities was $63.3 million for the first
three months of 2020, compared to $0.2 million used in operating
activities for the first three months of 2019;
-- Cash, cash equivalents and restricted cash totaled $917.4 million as of
March 31, 2020, a decrease of $20.3 million, or 2.2%, from $937.7
million as of December 31, 2019; and
-- Total headcount exceeded 37,300 as of March 31, 2020. Included in this
number were approximately 33,100 delivery professionals, an increase of
18.7% from March 31, 2019.
Second Quarter 2020 Outlook
Due to heightened uncertainty related to the potential impacts of COVID-19 on the Company's full year business results, EPAM is not providing a full year 2020 financial outlook. The Company expects the following for the second quarter:
-- Revenues will be in the range of $590 million to $605 million for the
second quarter reflecting a year-over-year growth rate of approximately
8.3% at the mid-point of the range. The Company expects that foreign
currency translation will 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 approximately 9.3% at
the mid-point of the range;
-- For the second quarter, the Company expects GAAP income from operations
to be in the range of 11% to 13% of revenues and non-GAAP income from
operations to be in the range of 14% to 16% of revenues;
-- The Company expects its GAAP effective tax rate to be approximately 13%
and its non-GAAP effective tax rate to be approximately 23%; and
-- The Company expects GAAP diluted EPS will be in the range of $0.93 to
$1.12 for the quarter, and non-GAAP diluted EPS will be in the range of
$1.12 to $1.31 for the quarter. The Company expects weighted average
diluted shares outstanding for the quarter of 58.4 million.
Conference Call Information
EPAM will host a conference call to discuss the results on Thursday, May 7, 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 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 13701307. The replay will be available until May 21, 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 intangible assets acquired through business combinations, goodwill impairment, certain other one-time charges and benefits, changes in fair value of contingent consideration, foreign exchange gains and losses, 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 estimates and 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. Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our business and operations. Those future events and trends may relate to, among other things, the anticipated impact of the COVID-19 pandemic and the effect that it may have on our sales, operations, access to capital, revenues, profitability and customer demand. Other factors that could cause actual results to differ materially from those expressed or implied include general economic conditions, the factors discussed in the Company's most recent Annual Report on Form 10-K, the factors discussed in the Company's Quarterly Report on Form 10-Q, filed on or after the date of this press release, particularly in Part I. Item 2. (Management's Discussion and Analysis of Financial Condition and Results of Operations) and Part II. Item 1A. (Risk Factors), and other filings with the Securities and Exchange Commission. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. 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
March 31,
2020 2019
---
Revenues $
651,359 $
521,333
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization) 423,802 344,689
Selling, general and administrative expenses 125,108 101,786
Depreciation and amortization expense 14,940 10,200
Income from operations 87,509 64,658
Interest and other income, net 2,386 3,076
Foreign exchange gain/(loss) 6,524 (3,484)
Income before provision for income taxes 96,419 64,250
Provision for income taxes 10,854 3,496
Net income $
85,565 $
60,754
Foreign currency translation adjustments, net of tax (28,519) 2,943
Unrealized (loss)/gain on cash-flow hedging instruments, net of tax (9,368) 3,100
Comprehensive income $
47,678 $
66,797
Net income per share:
Basic $
1.55 $
1.12
Diluted $
1.47 $
1.06
Shares used in calculation of net income per share:
Basic 55,287 54,245
Diluted 58,143 57,236
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
As of As of
March 31, December 31,
2020 2019
---
Assets
Current assets
Cash and cash equivalents $
916,253 $
936,552
Trade receivables and contract assets, net of allowance of $5,356 542,698 497,716
and $2,920, respectively
Prepaid and other current assets 48,786 39,943
Total current assets 1,507,737 1,474,211
Property and equipment, net 164,671 165,259
Operating lease right-of-use assets 243,671 238,991
Intangible assets, net 58,676 56,258
Goodwill 198,534 195,043
Deferred tax assets 79,044 75,013
Other noncurrent assets 59,548 39,433
Total assets $
2,311,881 $
2,244,208
Liabilities
Current liabilities
Accounts payable $
5,232 $
7,831
Accrued compensation and benefits expenses 250,560 230,035
Accrued expenses and other current liabilities 66,434 82,476
Income taxes payable, current 6,987 9,064
Operating lease liabilities, current 60,108 57,542
Total current liabilities 389,321 386,948
Long-term debt 25,046 25,074
Income taxes payable, noncurrent 45,847 45,878
Operating lease liabilities, noncurrent 189,312 180,848
Other noncurrent liabilities 14,873 9,315
Total liabilities 664,399 648,063
Commitments and contingencies
Stockholders' equity
Common stock, $0.001 par value; 160,000,000 authorized; 55,608,835 56 55
and 55,207,446 shares issued, 55,589,100
and 55,187,711 shares outstanding at March 31, 2020 and December 31, 2019,
respectively
Additional paid-in capital 610,579 607,051
Retained earnings 1,106,285 1,020,590
Treasury stock (177) (177)
Accumulated other comprehensive loss (69,261) (31,374)
Total stockholders' equity 1,647,482 1,596,145
Total liabilities and stockholders' equity $
2,311,881 $
2,244,208
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
March 31, 2020
Revenue growth on a constant currency basis(1) 26.0
%
Foreign exchange rates impact (1.1)
%
---
Revenue growth as reported 24.9
%
===
(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 ended March 31,
2020 and 2019:
Three Months Ended
March 31, 2020
GAAP Adjustments Non-GAAP
---
Cost of revenues (exclusive of depreciation and amortization)(2) $
423,802 $
(3,984) $
419,818
Selling, general and administrative expenses(3) $
125,108 $
(10,693) $
114,415
Income from operations(4) $
87,509 $
17,812 $
105,321
Operating margin 13.4
% 2.8
% 16.2
%
Net income(5) $
85,565 $
(2,701) $
82,864
Diluted earnings per share $
1.47 $
1.43
Three Months Ended
March 31, 2019
GAAP Adjustments Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(2) $
344,689 $
(12,781) $
331,908
Selling, general and administrative expenses(3) $
101,786 $
(9,621) $
92,165
Income from operations(4) $
64,658 $
24,540 $
89,198
Operating margin 12.4
% 4.7
% 17.1
%
Net income(5) $
60,754 $
10,772 $
71,526
Diluted earnings per share $
1.06 $
1.25
Items (2) through (5) above are detailed in the table below with the specific cross-reference noted in the appropriate item.
Three Months Ended
March 31,
2020 2019
Stock-based compensation expenses $
3,984 $
12,781
Total adjustments to GAAP cost of revenues(2) 3,984 12,781
Stock-based compensation expenses 7,897 9,075
Other acquisition-related expenses 468 511
One-time charges 2,328 35
Total adjustments to GAAP selling, general and administrative expenses(3) 10,693 9,621
Amortization of acquired intangible assets 3,135 2,138
Total adjustments to GAAP income from operations(4) 17,812 24,540
Change in fair value of contingent consideration included in Interest and other income, net (438)
Foreign exchange (gain)/loss (6,524) 3,484
Provision for income taxes:
Tax effect on non-GAAP adjustments (1,854) (5,739)
Excess tax benefits related to stock-based compensation (11,697) (11,513)
Total adjustments to GAAP net income(5) $
(2,701) $
10,772
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:
Second Quarter 2020
Revenue growth on a constant currency basis (at mid-point of the range) (6) 9.3%
Foreign exchange rates impact (1)%
Revenue growth (at mid-point of the range) 8.3%
(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:
Second Quarter 2020
GAAP
income
from
operations
as a
percentage
of
revenues 11% to 13%
Stock-
based %
compensation
expenses 2.5
Included
in cost
of %
revenues
(exclusive
of
depreciation
and
amortization) 1.3
Included
in
selling, %
general
and
administrative
expenses 1.2
Amortization
of %
purchased
intangible
assets 0.5
Non-
GAAP
income
from
operations
as a
percentage
of
revenues 14% to 16%
Reconciliation of projected GAAP to non-GAAP effective tax rate is presented in
the table below:
Second Quarter 2020
GAAP effective tax rate 13
(approximately)
%
Tax effect on non-GAAP 3.8
adjustments %
Excess tax benefits related 6.2
to stock-based compensation %
Non-GAAP effective tax rate 23
(approximately)
%
Reconciliation of projected GAAP to non-GAAP diluted earnings per share is
presented in the table below:
Second Quarter 2020
GAAP diluted earnings per
share (at least)
$0.93 to $1.12
Stock-based compensation
expenses 0.28
Included in cost of
revenues (exclusive of
depreciation and
amortization) 0.15
Included in selling,
general and administrative
expenses 0.13
Other acquisition-related
expenses 0.01
Amortization of acquired
intangible assets 0.05
Foreign exchange loss 0.05
Provision for income taxes:
Tax effect on non-GAAP
adjustments (0.08)
Excess tax benefits related
to stock-based
compensation (0.12)
Non-GAAP diluted earnings
per share (at least)
$1.12 to $1.31
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SOURCE EPAM Systems, Inc.
