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8-K - FORM 8-K - EPAM Systems, Inc.d436469d8k.htm

Exhibit 99.1

EPAM Systems Reports Third Quarter 2012 Results

Third quarter revenues of $110 million up 6% sequentially, and 27% year-over-year;

Raises full year revenue and adjusted earnings growth guidance

NEWTOWN, PA, November 8, 2012 – EPAM Systems, Inc. (NYSE: EPAM), a leading provider of complex software engineering solutions and a leader in Central and Eastern European IT service delivery, today reported the following financial results for its quarter ended September 30, 2012:

 

   

Quarterly revenues increased to $110.1 million, up 6.0% sequentially, and 27.4% compared to the year-ago quarter.

 

   

GAAP income from operations was $16.7 million, a decrease of 0.9% compared to $16.9 million in the third quarter of 2011.

 

   

Non-GAAP income from operations was $19.2 million, an increase of 5.8% compared to $18.1 million in the third quarter of 2011.

 

   

Quarterly diluted earnings per share (EPS) on a GAAP basis was $0.30, compared to $0.33 in the year-ago quarter.

 

   

Quarterly diluted EPS on a non-GAAP basis was $0.37, compared to $0.39 in the year-ago quarter

 

   

Headcount for IT Professionals increased 24.1% to 8,132 as of September 30, 2012 from 6,552 as of September 30, 2011.

“We are pleased with our continued consistent performance and strong growth during the quarter despite the volatile global economic environment,” said Arkadiy Dobkin, CEO and President of EPAM Systems. “These results continue to reaffirm our unique value proposition which comes from almost 20 years of software product engineering expertise, and showcase the results of our focus on expanding vertical expertise and domain knowledge, developing the best engineering talent and our commitment to customer satisfaction and loyalty.”

The Company generated $11.1 million in cash from operations during the quarter. As of September 30, 2012, the Company had cash and cash equivalents of $105.9 million.

Financial Outlook

 

   

Fourth quarter 2012 revenues are expected to be in the range of $115 million to $118 million.

 

   

Fourth quarter 2012 non-GAAP diluted EPS is expected to be in the range of $0.35 to $0.37. These non-GAAP diluted EPS estimates are based on an estimated 2012 fiscal year weighted average of 47.4 million diluted shares.

 

   

Full year 2012 revenues are expected to be between $423 million and $426 million, with non-GAAP net income growth in the range of 18% to 20%.

 

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Awards and Recognition

During the quarter, EPAM was recognized by a number of industry analysts for its continued excellence in product development and deep domain expertise:

 

   

EPAM was recognized among the top 10 Market Leaders in Industry Verticals by Zinnov’s “Global R&D Service Providers Rating (GSPR) 2012”. EPAM was named as one of the three best companies in the ISV (Enterprise Software) and Consumer Software categories, confirming its capability in implementing a go-to-market concept for software products, introducing strategic innovations for its customers, and working with the world’s largest ISVs (Independent Software Vendors). Zinnov also ranked EPAM in the “Leadership Zone” in Cloud Computing and Enterprise Mobility.

 

   

EPAM was been named an IT Services Leader in “Global Product Development”, “Top Mid-Tier ADM Companies”, and “Top Mid-market Enterprise Applications Deployment” categories by Global Services. EPAM has also been recognized as a leader in “Mid-Tier Leaders – Testing Services”.

 

   

EPAM has been ranked #37 on The 2012 Global Outsourcing 100® list. EPAM has also been recognized in seven of IAOP’s sublists: Best 20 Leaders in Technology (Hardware and Software); Best 10 Leaders in Entertainment & Media; Best 20 Leaders in Information/ Communication Technology Services; Top List Climbers Year to Year; Best Leaders in Revenue Growth.

 

   

EPAM was included in the InformationWeek 500, an annual listing of the United States’ most innovative users of business technology. EPAM was recognized for designing and implementing a suite of innovative systems to support globally distributed software engineering services delivery.

 

   

EPAM Canada was selected as the Bronze Winner of Best Mobile Solution at the 2012 CDN Awards Gala. CDN, Canada’s No.1 IT channel publication, ranks Canadian solution providers in ten categories including Best Enterprise Solution, Best Cloud Computing Solution, Best Collaborative Solution and Best Mobile Solution.

Conference Call Information

The Company will hold a conference call to discuss its third quarter results on Friday, November 9, 2012 at 8:00 a.m. Eastern. A live webcast of the call may be accessed over the Internet from the Company’s Investor Relations website at investors.epam.com. Participants should follow the instructions provided on the website to download and install the necessary audio applications. The conference call also is available

 

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by dialing 1-877-941-1427 (domestic) or 1-480-629-9664 (international) and entering passcode 4570358. Participants should ask for the EPAM Systems third quarter earnings conference call.

A replay of the live conference call will be available approximately one hour after the call. The replay will be available on the Company’s website or by dialing 1-877-870-5176 (domestic) or 1-858-384-5517 (international) and entering the replay passcode 4570358. The telephonic replay will be available until Friday, November 16, 2012.

About EPAM Systems

Established in 1993, EPAM Systems, Inc. (NYSE: EPAM) provides complex software engineering solutions through its award-winning Central and Eastern European service delivery platform. Headquartered in the United States, EPAM employs over 8,100 IT professionals and serves clients worldwide from its locations in the United States, Canada, UK, Switzerland, Germany, Sweden, Belarus, Hungary, Russia, Ukraine, Kazakhstan, and Poland.

EPAM is recognized among the top companies in IAOP’s “The 2012 Global Outsourcing 100”, featuring EPAM in a variety of sub-lists, including “Leaders - Companies in Eastern Europe”. The Company is also ranked among the best global service providers on “The 2012 Global Services 100” by Global Services Magazine and Neogroup, which names EPAM “Leaders - Global Product Development” category.

Non-GAAP Financial Measures

EPAM supplements results reported in accordance with principles generally accepted in the United States, referred to as GAAP, with non-GAAP financial measures. Management believes these measures help illustrate underlying trends in the Company’s business and uses the measures to establish budgets and operational goals, communicated internally and externally, for managing the Company’s business and evaluating its performance. Management also believes these measures help investors compare EPAM’s operating performance with its results in prior periods and compare EPAM and similar companies. 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, amortization of purchased intangible assets, foreign exchange gains and losses, and certain other non-recurring charges. However, because EPAM’s reported non-GAAP financial measures are not calculated according to GAAP, these measures are not comparable to GAAP and may not necessarily be comparable to similarly described non-GAAP measures reported by other companies within the Company’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 its consolidated financial statements, which are prepared according to GAAP.

Forward-Looking Statements

 

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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 EPAM’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.

Contact:

EPAM Systems, Inc.

Ilya Cantor, Chief Financial Officer

Phone: +1-267-759-9000 x64588

Fax: +1-267-759-8989

investor_relations@epam.com

 

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EPAM SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  
     (in thousands, except share and per share data)  

Revenues

   $ 110,078      $ 86,423      $ 308,261      $ 239,401   

Operating expenses:

        

Cost of revenues (exclusive of depreciation and amortization)

     69,099        51,627        193,077        145,948   

Selling, general and administrative expenses

     21,153        15,822        59,491        46,420   

Depreciation and amortization expense

     3,040        2,083        7,674        5,732   

Goodwill impairment loss

     —          —          —          1,697   

Other operating expenses, net

     50        —          669        23   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     16,736        16,891        47,350        39,581   

Interest and other income, net

     486        385        1,422        1,000   

Foreign exchange loss

     (635     (2,301     (1,949     (3,138
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     16,587        14,975        46,823        37,443   

Provision for income taxes

     2,522        1,025        7,338        5,474   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

   $ 14,065      $ 13,950      $ 39,485      $ 31,969   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 16,769      $ 12,130      $ 41,337      $ 31,568   
  

 

 

   

 

 

   

 

 

   

 

 

 

Accretion of preferred stock

     —          —          —          (17,563

Net income allocated to participating securities

     —          (7,822     (3,259     (12,010

Net income/ (loss) available for common stockholders

     14,065        6,128        36,226        2,396   

Net income/ (loss) per share of common stock:

        

Basic (common)

     0.33        0.36        0.93        0.14   

Basic (puttable common)

     —          0.36        —          0.40   

Diluted (common)

     0.30        0.33        0.85        0.14   

Diluted (puttable common)

     —          0.33        —          0.37   

Shares used in calculation of net income per share of common stock:

        

Basic (common)

     42,952        17,124        38,990        17,078   

Basic (puttable common)

     —          18        —          44   

Diluted (common)

     46,501        20,656        42,729        20,156   

Diluted (puttable common)

     —          18        —          44   

 

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EPAM SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     As of
September 30,
2012
    As of
December 31,
2011
 
     (in thousands, except share and
per share data)
 

Assets

    

Current assets

    

Cash and cash equivalents

   $ 105,885      $ 88,796   

Accounts receivable, net of allowance of $2,355 and $2,250, respectively

     67,867        59,472   

Unbilled revenues

     44,342        24,475   

Prepaid and other current assets

     13,270        6,436   

Time deposits

     1,545        —     

Restricted cash, current

     948        —     

Deferred tax assets, current

     3,815        4,384   
  

 

 

   

 

 

 

Total current assets

     237,672        183,563   

Property and equipment, net

     52,948        35,482   

Restricted cash, long-term

     674        2,582   

Intangible assets, net

     6,014        1,251   

Goodwill

     11,305        8,169   

Deferred tax assets, long-term

     3,529        1,875   

Other long-term assets

     578        2,691   
  

 

 

   

 

 

 

Total assets

   $ 312,720      $ 235,613   
  

 

 

   

 

 

 

Liabilities

    

Current liabilities

    

Accounts payable

   $ 2,558      $ 2,714   

Accrued expenses

     13,485        24,782   

Deferred revenue

     3,847        6,949   

Due to employees

     12,137        8,234   

Taxes payable

     12,802        8,712   

Deferred tax liabilities, current

     1,243        1,736   
  

 

 

   

 

 

 

Total current liabilities

     46,072        53,127   

Taxes payable, long-term

     1,228        1,204   

Deferred tax liabilities, long-term

     269        283   
  

 

 

   

 

 

 

Total liabilities

   $ 47,569      $ 54,614   
  

 

 

   

 

 

 

Commitments and contingencies

    

Preferred stock, $.001 par value; 0 and 5,000,000 authorized at September 30, 2012 and December 31, 2011; 0 and 2,054,935 Series A-1 convertible redeemable preferred stock issued and outstanding at September 30, 2012 and December 31, 2011; $.001 par value 0 and 945,114 authorized at September 30, 2012 and December 31, 2011, 0 and 384,804 Series A-2 convertible redeemable preferred stock issued and outstanding at September 30, 2012 and December 31, 2011

     —          85,940   

Stockholders’ equity

    

Common stock, $.001 par value; 160,000,000 authorized; 44,677,738 and 18,914,616 shares issued, 43,395,364 and 17,158,904 shares outstanding at September 30, 2012 and December 31, 2011, respectively

     43        17   

Preferred stock, $.001 par value; 0 and 290,277 authorized Series A-3 convertible preferred stock issued and outstanding at September 30, 2012 and December 31, 2011, respectively

     —          —     

Additional paid-in capital

     164,443        40,020   

Retained earnings

     113,993        74,508   

Treasury stock

     (11,666     (15,972

Accumulated other comprehensive loss

     (1,662     (3,514
  

 

 

   

 

 

 

Total stockholders’ equity

     265,151        95,059   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 312,720      $ 235,613   
  

 

 

   

 

 

 

 

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EPAM SYSTEMS, INC. AND SUBSIDIARIES

Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures

(Unaudited)

(In thousands, except per share amounts)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012
GAAP
    2012
Adjustments
    2012
Non-GAAP
    2012
GAAP
    2012
Adjustments
    2012
Non-GAAP
 

Income from operations

   $ 16,736      $ 2,464      $ 19,200 (a)    $ 47,350      $ 7,038      $ 54,388 (a) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin

     15.2     2.20     17.4     15.4     2.20     17.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 14,065      $ 3,099      $ 17,164 (b)    $ 39,485      $ 8,987      $ 48,472 (b) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   $ 0.30        $ 0.37 (c)    $ 0.85        $ 1.06 (c) 
  

 

 

     

 

 

   

 

 

     

 

 

 

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011
GAAP
    2011
Adjustments
    2011
Non-GAAP
    2011
GAAP
    2011
Adjustments
    2011
Non-GAAP
 

Income from operations

   $ 16,891      $ 1,258      $ 18,149 (a)    $ 39,581      $ 4,982      $ 44,563 (a) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin

     19.5     1.5     21.0     16.5     2.1     18.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 13,950      $ 3,559      $ 17,509 (b)    $ 31,969      $ 8,120      $ 40,089 (b) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   $ 0.33        $ 0.39 (c)    $ 0.14        $ 0.89 (c) 
  

 

 

     

 

 

   

 

 

     

 

 

 

Notes:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012     2011      2012      2011  

(a)

          

Adjustment to GAAP Income from operations:

     2,464        1,258         7,038         4,982   

Stock-based compensation, of which:

     2,046        785         5,369         2,154   

reported in cost of revenues

     1,036        417         2,486         947   

reported in sales, general and administrative expenses

     1,010        368         2,883         1,207   

Amortization of purchased intangible assets

     431        191         711         639   

M&A costs

     (13     282         374         492   

Goodwill write-off

     —          —           —           1,697   

One-time charges

     —          —           584         —     

(b)

          

Adjustment to GAAP Net Income:

     3,099        3,559         8,987         8,120   

Stock-based compensation, of which:

     2,046        785         5,369         2,154   

reported in cost of revenues

     1,036        417         2,486         947   

reported in sales, general and administrative expenses

     1,010        368         2,883         1,207   

Amortization of purchased intangible assets

     431        191         711         639   

M&A costs

     (13     282         374         492   

One-time charges

     —          —           584         —     

Goodwill write-off

     —          —           —           1,697   

Foreign exchange (gains) and losses

     635        2,301         1,949         3,138   

(c)

          

Non-GAAP diluted earnings per share presents non-GAAP net income divided by Non-GAAP weighted average diluted common shares outstanding. Non-GAAP weighted average diluted common shares outstanding assumes (i) the 2.9 million shares EPAM sold in its February 2012 initial public offering were outstanding as of January 1, 2010, and (ii) the conversion of the outstanding preferred stock into common stock on an as-converted basis. The following table presents the non-GAAP weighted average diluted common

 

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  shares outstanding for the periods presented:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Non-GAAP weighted average diluted common shares outstanding

     46,501         45,414         45,803         44,896   

 

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