EPAM Reports Results for Third Quarter 2015

Third quarter revenues up 22% year-over-year, and up 31% in constant currency

Non-GAAP net income increased 23% in the third quarter year-over-year

NEWTOWN, Pa., Nov. 04, 2015 (GLOBE NEWSWIRE) — EPAM Systems, Inc. (NYSE:EPAM), a leading global provider of product development and software engineering solutions, today announced its third quarter 2015 financial results.

Third Quarter 2015 Highlights

Revenues increased to $236 million, up 22.5% over the same period last year and up 8.4% over the previous quarter. In constant currency, revenue grew 30.8% year over year and grew 10.8% from the second quarter of 2015. Income from operations was $27.8 million, an increase of 27.2% compared to $21.8 million in the third quarter of 2014. Non-GAAP income from operations was $41.5 million, an increase of $9.7 million or 30.5%, from $31.8 million in the third quarter of 2014. Non-GAAP quarterly diluted earnings per share (EPS) was $0.70, up 16.7% from $0.60 in the third quarter of 2014. Quarterly diluted EPS on a GAAP basis was $0.44, up from $0.38 in the third quarter of 2014.

EPAM reported cash from operations of $55.5 million in the third quarter of 2015 and $64.6 million on a year to date basis. At September 30, 2015, cash and cash equivalents were $214 million.

“We are encouraged to see that our significant and continued efforts to evolve our capabilities and bring new value-add services to our clients strongly contribute to our overall growth, allowing us to close the quarter with a 31% year-over-year increase in constant currency,” said Arkadiy Dobkin, CEO and President of EPAM. “Considering the third quarter currency headwinds, we are especially pleased with our EPS performance for the period. We are planning to continue reinvesting in our services portfolio, as well as expanding our global delivery capabilities.”

Full Year and Fourth Quarter 2015 Outlook

EPAM expects year-over-year revenue growth to be at least 30% in constant currency or $900 million in GAAP reported revenue. Non-GAAP net income growth for 2015 is expected to be at least 25% year-over-year, with an effective tax rate of approximately 20%. Full year 2015 non-GAAP diluted EPS is expected to be at least $2.65 based on the weighted average share count of approximately 52 million diluted shares outstanding. GAAP diluted EPS is expected to be at least $1.55.

Conference Call Information

EPAM will host a conference call to discuss results on Thursday, November 5, 2015 at 8:00 a.m. Eastern Time. The live conference call can be accessed by dialing 1-877-407-0784 (U.S.) or 1-201-689-8560 (International). A telephonic replay will also be available approximately one hour after the call and can be accessed by dialing 1-877-870-5176 (U.S.) or 1-858-384-5517 (International). The passcode for the replay is 13623441. The telephonic replay will be available until November 19, 2015. Interested investors and other parties may also listen to a webcast of the conference call by logging onto the Investor Relations section of the Company’s website at http://investors.epam.com.

About EPAM Systems

Established in 1993, EPAM Systems, Inc. (NYSE: EPAM) is recognized as a leader in software product development by independent research agencies. Headquartered in the United States, EPAM serves clients worldwide utilizing its award-winning global delivery platform and its locations in over 20 countries across North America, Europe, Asia and Australia. EPAM was ranked #6 in America’s 25 Fastest-Growing Tech Companies, and #3 in America’s Best Small Companies lists by Forbes Magazine.

For more information, please visit http://www.epam.com.

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, communicated internally and externally, for managing EPAM’s business and evaluating its performance. Management also believes these measures help investors compare EPAM’s operating performance with its results in prior periods. EPAM anticipates that it will continue to report both GAAP and certain non-GAAP financial measures in its financial results, including non-GAAP results that exclude stock-based compensation expense, write-off and recovery, amortization of purchased intangible assets, goodwill impairment, legal settlement, foreign exchange gains and losses, and acquisition-related costs. Because EPAM’s reported non-GAAP financial measures are not calculated according to GAAP, these measures are not comparable to GAAP and may not be comparable to similarly described non-GAAP measures reported by other companies within EPAM’s industry. Consequently, EPAM’s non-GAAP financial measures should not be evaluated in isolation or supplant comparable GAAP measures, but, rather, should be considered together with the information in EPAM’s consolidated financial statements, which are prepared according to 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 our 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
(US Dollars in thousands, except share and per share data)
       
  Three Months Ended    Nine Months Ended
  September 30,    September 30,
  2015   2014   2015   2014
Revenues $ 236,049     $ 192,764     $ 653,875     $ 527,843  
Operating expenses:              
                       
Cost of revenues (exclusive of depreciation and amortization) 148,479     122,509     408,622     335,065  
Selling, general and administrative expenses 55,431     42,875     158,345     113,905  
Depreciation and amortization expense 4,393     5,510     12,496     14,650  
Other operating (income)/expenses, net (30 )   35     210     2,055  
Income from operations 27,776     21,835     74,202     62,168  
Interest and other income, net 865     1,261     3,322     3,401  
Foreign exchange gain/(loss) 32     (718 )   (6,187 )   (3,198 )
Income before provision for income taxes 28,673     22,378     71,337     62,371  
Provision for income taxes 5,800     3,338     14,519     11,153  
Net income $ 22,873     $ 19,040     $ 56,818     $ 51,218  
Foreign currency translation adjustments (8,341 )   (8,260 )   (7,397 )   (8,943 )
Comprehensive income $ 14,532     $ 10,780     $ 49,421     $ 42,275  
               
Net income per share:              
Basic $ 0.47     $ 0.40     $ 1.17     $ 1.09  
Diluted $ 0.44     $ 0.38     $ 1.10     $ 1.03  
Shares used in calculation of net income per share:              
Basic 49,043   47,315   48,506   47,058
Diluted 52,344   49,829   51,755   49,530

EPAM SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US Dollars in thousands, except share and per share data)
       
  As of
September 30, 2015
  As of
December 31, 2014
Assets      
Current assets      
Cash and cash equivalents $ 214,443     $ 220,534  
Time deposits 30,000      
Accounts receivable, net of allowance of $2,216 and $2,181, respectively 125,683     124,483  
Unbilled revenues 104,860     55,851  
Prepaid and other current assets 20,205     9,289  
Employee loans, net of allowance of $0 and $0, respectively, current 2,760     2,434  
Deferred tax assets, current 2,109     2,496  
Total current assets 500,060     415,087  
Property and equipment, net 60,552     55,134  
Restricted cash, long-term 187     156  
Employee loans, net of allowance of $0 and $0, respectively, long-term 4,177     4,081  
Intangible assets, net 37,176     47,689  
Goodwill 84,229     57,417  
Deferred tax assets, long-term 14,006     11,094  
Other long-term assets 3,341     3,368  
Total assets $ 703,728     $ 594,026  
       
Liabilities      
Current liabilities      
Accounts payable $ 12,061     $ 4,641  
Accrued expenses and other liabilities 42,487     32,203  
Deferred revenue, current 2,345     3,220  
Due to employees 28,666     24,518  
Taxes payable 26,401     24,704  
Contingent consideration, current     35,524  
Deferred tax liabilities, current 933     603  
Total current liabilities 112,893     125,413  
Long-term debt 15,000        
Deferred tax liabilities, long-term 2,967     4,563  
Total liabilities 130,860     129,976  
Commitments and contingencies      
Stockholders’ equity      
Common stock, $0.001 par value; 160,000,000 authorized; 49,857,284 and 48,748,298 shares issued, 49,848,259 and 48,303,811 shares outstanding at September 30, 2015 and December 31, 2014, respectively 49     48  
Additional paid-in capital 284,938     229,501  
Retained earnings 317,412     260,598  
Treasury stock (80 )   (4,043 )
Accumulated other comprehensive loss (29,451 )   (22,054 )
Total stockholders’ equity 572,868     464,050  
Total liabilities and stockholders’ equity $ 703,728     $ 594,026  

EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures
(in thousands, except percent and per share amounts)
(Unaudited)
       
  Three Months Ended September 30, 2015   Nine Months Ended September 30, 2015
  GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1) $ 148,479     $ (3,622 )   $ 144,857     $ 408,622     $ (9,871 )   $ 398,751  
Selling, general and administrative expenses(2) $ 55,431     $ (8,768 )   $ 46,663     $ 158,345     $ (23,968 )   $ 134,377  
Income from operations(3) $ 27,776     $ 13,680     $ 41,456     $ 74,202     $ 37,581     $ 111,783  
Operating margin 11.8 %   5.8 %   17.6 %   11.3 %   5.8 %   17.1 %
Net income(4) $ 22,873     $ 13,648     $ 36,521     $ 56,818     $ 43,768     $ 100,586  
Diluted earnings per share(5) $ 0.44     $ 0.26     $ 0.70     $ 1.10     $ 0.84     $ 1.94  

  Three Months Ended September 30, 2014   Nine Months Ended September 30, 2014
  GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1) $ 122,509     $ (2,463 )   $ 120,046     $ 335,065     $ (6,391 )   $ 328,674  
Selling, general and administrative expenses(2) $ 42,875     $ (4,962 )   $ 37,913     $ 113,905     $ (11,013 )   $ 102,892  
Income from operations(3) $ 21,835     $ 9,933     $ 31,768     $ 62,168     $ 24,784     $ 86,952  
Operating margin 11.3 %   5.2 %   16.5 %   11.8 %   4.7 %   16.5 %
Net income(4) $ 19,040     $ 10,651     $ 29,691     $ 51,218     $ 27,982     $ 79,200  
Diluted earnings per share(5) $ 0.38     $ 0.22     $ 0.60     $ 1.03     $ 0.57     $ 1.60  

Notes:

  (1 ) Adjustments to GAAP cost of revenues (exclusive of depreciation and amortization) were comprised of stock-based compensation expense recorded in the periods presented.
  (2 ) Adjustments to GAAP selling general and administrative expenses:

  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2015   2014   2015   2014
Selling, general and administrative expenses – Acquisition related 4,542     2,905     13,985     5,128  
Selling, general and administrative expenses – All other 3,799     2,057     9,494     5,005  
Acquisition-related costs 427         489     880  
Total adjustments to GAAP selling, general and administrative expenses $ 8,768     $ 4,962     $ 23,968     $ 11,013  

  (3 ) Adjustments to GAAP income from operations:

  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2015   2014   2015   2014
Stock-based compensation expense $ 11,963     $ 7,425     $ 33,350     $ 16,524  
reported within cost of revenues 3,622     2,463     9,871     6,391  
reported within selling, general and administrative expenses – acquisition related 4,542     2,905     13,985     5,128  
reported within selling, general and administrative expenses – all other 3,799     2,057     9,494     5,005  
Acquisition-related costs 427         489     880  
Amortization of purchased intangible assets 1,290     2,508     3,742     5,380  
One-time charges             2,000  
Total adjustments to GAAP income from operations $ 13,680     $ 9,933     $ 37,581     $ 24,784  

  (4 ) Adjustments to GAAP net income:

  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2015   2014   2015   2014
Stock-based compensation expense $ 11,963     $ 7,425     $ 33,350     $ 16,524  
reported within cost of revenues 3,622     2,463     9,871     6,391  
reported within selling, general and administrative expenses- acquisition related 4,542     2,905     13,985     5,128  
reported within selling, general and administrative expenses- all other 3,799     2,057     9,494     5,005  
Acquisition-related costs 427         489     880  
Amortization of purchased intangible assets 1,290     2,508     3,742     5,380  
One-time charges             2,000  
Foreign exchange (gain)/ loss (32 )   718     6,187     3,198  
Total adjustments to GAAP net income $ 13,648     $ 10,651     $ 43,768     $ 27,982  

  (5 ) There were no adjustments to GAAP average diluted common shares outstanding during the three and nine months ended September 30, 2015 and 2014.

 

CONTACT: EPAM Systems, Inc.
CONTACT: Anthony J. Conte, CFO
P: 267.759.9000 x64588
investor_relations@epam.com