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| 8-K - 8-K - EPAM Systems, Inc. | epam-20201105.htm |
Exhibit 99.1
EPAM Reports Results for Third Quarter 2020
Third quarter revenues of $652.2 million, up 10.9% year-over-year
GAAP Diluted EPS of $1.53 for the third quarter
Non-GAAP Diluted EPS of $1.65 for the third quarter
Newtown, PA — November 5, 2020 — 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, 2020.
“EPAM’s solid third quarter performance was the result of an improving demand environment along with the ongoing expansion of the Company’s capabilities—enabling us to continue supporting our customers in the execution of their transformation programs,” said Arkadiy Dobkin, CEO & President, EPAM. “Our continuous efforts on implementing internally the principles of an adaptive organization, allow us to navigate the realities of the global economic environment more effectively, while increasing the value we bring to our clients and extending our market position as a trusted digital solutions partner.”
Third Quarter 2020 Highlights
•Revenues increased to $652.2 million, a year-over-year increase of $64.1 million, or 10.9%, and on a constant currency basis, revenues were up 10.0% over the corresponding period last year;
•GAAP income from operations was $96.4 million, an increase of $15.8 million, or 19.6%, compared to $80.6 million in the third quarter of 2019;
•Non-GAAP income from operations was $123.3 million, an increase of $23.6 million, or 23.6%, compared to $99.7 million in the third quarter of 2019;
•Diluted earnings per share (“EPS”) on a GAAP basis was $1.53, an increase of $0.37, or 31.9%, compared to $1.16 in the third quarter of 2019 based on weighted average diluted shares outstanding of 58.6 million; and
•Non-GAAP diluted EPS was $1.65, an increase of $0.26, or 18.7%, compared to $1.39 in the third quarter of 2019.
Cash Flow and Other Metrics
•Cash provided by operating activities was $385.0 million for the first nine months of 2020, compared to $162.9 million for the first nine months of 2019;
•Cash and cash equivalents totaled $1,161.1 million as of September 30, 2020, an increase of $224.5 million, or 24.0%, from $936.6 million as of December 31, 2019; and
•Total headcount was approximately 38,000 as of September 30, 2020. Included in this number were approximately 33,800 delivery professionals, an increase of 7.4% from September 30, 2019.
Fourth Quarter 2020 Outlook
The Company expects the following for the fourth quarter:
•Revenues will be in the range of $695 million to $705 million for the fourth quarter reflecting a year-over-year growth rate of approximately 10.6% at the mid-point of the range. The Company expects that foreign currency translation will have a negligible impact on year-over-year revenue growth during the quarter;
•For the fourth quarter, the Company expects GAAP income from operations to be in the range of 14% to 15% of revenues and non-GAAP income from operations to be in the range of 17.5% to 18.5% of revenues;
•The Company expects its GAAP effective tax rate to be approximately 15% and its non-GAAP effective tax rate to be approximately 23%; and
•The Company expects GAAP diluted EPS will be in the range of $1.44 to $1.54 for the quarter, and non-GAAP diluted EPS will be in the range of $1.63 to $1.73 for the quarter. The Company expects weighted average diluted shares outstanding for the quarter of 58.9 million.
Conference Call Information
EPAM will host a conference call to discuss the results on Thursday, November 5, 2020 at 8:00 a.m. Eastern time. The live conference call will be available by dialing +1 (844) 707-0662 or +1 (703) 318-2250 (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 https://investors.epam.com. A replay will be available approximately one hour after the call by dialing +1 (855) 859-2056 or +1 (404) 537-3406 (outside of the U.S.) and entering the conference ID 4187416. The replay will be available until November 12, 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 including amortization of intangible assets, impairment of assets, 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 civil unrest in the geographies where we operate and the effect that they 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.
Contact:
EPAM Systems, Inc.
David Straube, Head of Investor Relations
Phone: +1-267-759-9000 x59419
david_straube@epam.com
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues | $ | 652,243 | $ | 588,103 | $ | 1,935,985 | $ | 1,661,023 | |||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
Cost of revenues (exclusive of depreciation and amortization) | 423,388 | 377,525 | 1,266,730 | 1,078,129 | |||||||||||||||||||
| Selling, general and administrative expenses | 116,530 | 118,886 | 355,829 | 332,434 | |||||||||||||||||||
| Depreciation and amortization expense | 15,929 | 11,127 | 46,095 | 32,355 | |||||||||||||||||||
| Income from operations | 96,396 | 80,565 | 267,331 | 218,105 | |||||||||||||||||||
| Interest and other income, net | 1,672 | 2,509 | 5,875 | 6,775 | |||||||||||||||||||
| Foreign exchange gain/(loss) | 5,896 | (3,105) | 3,253 | (10,151) | |||||||||||||||||||
| Income before provision for income taxes | 103,964 | 79,969 | 276,459 | 214,729 | |||||||||||||||||||
| Provision for income taxes | 14,532 | 12,967 | 34,838 | 28,196 | |||||||||||||||||||
| Net income | $ | 89,432 | $ | 67,002 | $ | 241,621 | $ | 186,533 | |||||||||||||||
| Foreign currency translation adjustments, net of tax | 199 | (10,114) | (15,878) | (4,551) | |||||||||||||||||||
| Unrealized (loss)/gain on cash-flow hedging instruments, net of tax | (498) | (2,163) | (3,420) | 2,474 | |||||||||||||||||||
| Comprehensive income | $ | 89,133 | $ | 54,725 | $ | 222,323 | $ | 184,456 | |||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Basic | $ | 1.60 | $ | 1.22 | $ | 4.34 | $ | 3.42 | |||||||||||||||
| Diluted | $ | 1.53 | $ | 1.16 | $ | 4.14 | $ | 3.24 | |||||||||||||||
| Shares used in calculation of net income per share: | |||||||||||||||||||||||
| Basic | 55,884 | 54,878 | 55,625 | 54,604 | |||||||||||||||||||
| Diluted | 58,616 | 57,844 | 58,341 | 57,567 | |||||||||||||||||||
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
| As of September 30, 2020 | As of December 31, 2019 | ||||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 1,161,065 | $ | 936,552 | |||||||
| Short-term investments | 60,089 | 9 | |||||||||
| Trade receivables and contract assets, net of allowance of $5,371 and $2,920, respectively | 493,225 | 497,716 | |||||||||
| Prepaid and other current assets | 37,843 | 39,934 | |||||||||
Total current assets | 1,752,222 | 1,474,211 | |||||||||
| Property and equipment, net | 163,689 | 165,259 | |||||||||
| Operating lease right-of-use assets, net | 232,780 | 238,991 | |||||||||
| Intangible assets, net | 54,321 | 56,258 | |||||||||
| Goodwill | 207,764 | 195,043 | |||||||||
| Deferred tax assets | 90,071 | 75,013 | |||||||||
| Other noncurrent assets | 54,578 | 39,433 | |||||||||
Total assets | $ | 2,555,425 | $ | 2,244,208 | |||||||
Liabilities | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | 10,785 | $ | 7,831 | |||||||
| Accrued compensation and benefits expenses | 263,918 | 230,035 | |||||||||
| Accrued expenses and other current liabilities | 65,242 | 82,476 | |||||||||
| Income taxes payable, current | 13,779 | 9,064 | |||||||||
| Operating lease liabilities, current | 61,107 | 57,542 | |||||||||
Total current liabilities | 414,831 | 386,948 | |||||||||
| Long-term debt | 25,039 | 25,074 | |||||||||
| Income taxes payable, noncurrent | 43,259 | 45,878 | |||||||||
| Operating lease liabilities, noncurrent | 183,935 | 180,848 | |||||||||
| Other noncurrent liabilities | 28,127 | 9,315 | |||||||||
Total liabilities | 695,191 | 648,063 | |||||||||
Commitments and contingencies | |||||||||||
Stockholders’ equity | |||||||||||
| Common stock, $0.001 par value; 160,000,000 authorized; 56,001,270 and 55,207,446 shares issued, 55,981,535 and 55,187,711 shares outstanding at September 30, 2020 and December 31, 2019, respectively | 56 | 55 | |||||||||
Additional paid-in capital | 648,686 | 607,051 | |||||||||
Retained earnings | 1,262,341 | 1,020,590 | |||||||||
Treasury stock | (177) | (177) | |||||||||
Accumulated other comprehensive loss | (50,672) | (31,374) | |||||||||
Total stockholders’ equity | 1,860,234 | 1,596,145 | |||||||||
Total liabilities and stockholders’ equity | $ | 2,555,425 | $ | 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 as reported on a GAAP basis to revenue growth on a constant currency basis is presented in the table below:
| Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | ||||||||||
Revenue growth as reported | 10.9 | % | 16.6 | % | |||||||
Foreign exchange rates impact | (0.9) | 0.2 | |||||||||
Revenue growth on a constant currency basis(1) | 10.0 | % | 16.8 | % | |||||||
| (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, 2020 and 2019:
| Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
| GAAP | Adjustments | Non-GAAP | GAAP | Adjustments | Non-GAAP | ||||||||||||||||||||||||||||||
Cost of revenues (exclusive of depreciation and amortization)(2) | $ | 423,388 | $ | (10,854) | $ | 412,534 | $ | 1,266,730 | $ | (23,796) | $ | 1,242,934 | |||||||||||||||||||||||
Selling, general and administrative expenses(3) | $ | 116,530 | $ | (12,976) | $ | 103,554 | $ | 355,829 | $ | (36,497) | $ | 319,332 | |||||||||||||||||||||||
Income from operations(4) | $ | 96,396 | $ | 26,916 | $ | 123,312 | $ | 267,331 | $ | 69,508 | $ | 336,839 | |||||||||||||||||||||||
Operating margin | 14.8 | % | 4.1 | % | 18.9 | % | 13.8 | % | 3.6 | % | 17.4 | % | |||||||||||||||||||||||
Net income(5) | $ | 89,432 | $ | 7,254 | $ | 96,686 | $ | 241,621 | $ | 22,915 | $ | 264,536 | |||||||||||||||||||||||
Diluted earnings per share | $ | 1.53 | $ | 1.65 | $ | 4.14 | $ | 4.53 | |||||||||||||||||||||||||||
| Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||||
| GAAP | Adjustments | Non-GAAP | GAAP | Adjustments | Non-GAAP | ||||||||||||||||||||||||||||||
Cost of revenues (exclusive of depreciation and amortization)(2) | $ | 377,525 | $ | (7,580) | $ | 369,945 | $ | 1,078,129 | $ | (27,841) | $ | 1,050,288 | |||||||||||||||||||||||
Selling, general and administrative expenses(3) | $ | 118,886 | $ | (9,037) | $ | 109,849 | $ | 332,434 | $ | (28,264) | $ | 304,170 | |||||||||||||||||||||||
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 | |||||||||||||||||||||||||||
| Items (2) through (5) above are detailed in the table below with the specific cross-reference noted in the appropriate item. | ||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Stock-based compensation expenses | $ | 10,854 | $ | 7,580 | $ | 23,796 | $ | 27,841 | |||||||||||||||
Total adjustments to GAAP cost of revenues(2) | 10,854 | 7,580 | 23,796 | 27,841 | |||||||||||||||||||
Stock-based compensation expenses | 12,620 | 7,891 | 30,998 | 25,183 | |||||||||||||||||||
Other acquisition-related expenses | 243 | 1,144 | 859 | 2,505 | |||||||||||||||||||
One-time charges | 113 | 2 | 4,640 | 576 | |||||||||||||||||||
Total adjustments to GAAP selling, general and administrative expenses(3) | 12,976 | 9,037 | 36,497 | 28,264 | |||||||||||||||||||
Amortization of acquired intangible assets | 3,086 | 2,554 | 9,215 | 7,293 | |||||||||||||||||||
Total adjustments to GAAP income from operations(4) | 26,916 | 19,171 | 69,508 | 63,398 | |||||||||||||||||||
Change in fair value of contingent consideration included in Interest and other income, net | (43) | — | (1,481) | 1,356 | |||||||||||||||||||
Impairment of investment | — | — | 313 | — | |||||||||||||||||||
Foreign exchange gain/(loss) | (5,896) | 3,105 | (3,253) | 10,151 | |||||||||||||||||||
Provision for income taxes: | |||||||||||||||||||||||
Tax effect on non-GAAP adjustments | (4,558) | (4,833) | (13,181) | (15,503) | |||||||||||||||||||
Excess tax benefits related to stock-based compensation | (9,165) | (4,228) | (28,991) | (20,482) | |||||||||||||||||||
Total adjustments to GAAP net income(5) | $ | 7,254 | $ | 13,215 | $ | 22,915 | $ | 38,920 | |||||||||||||||
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 expected revenue growth on a GAAP basis to expected revenue growth on a constant currency basis is presented in the table below:
| Fourth Quarter 2020 | |||||
Revenue growth (at mid-point of the range) | 10.6% | ||||
Foreign exchange rates impact | — | % | |||
Revenue growth on a constant currency basis (at mid-point of the range) (6) | 10.6% | ||||
| (6) | Constant currency revenue results are calculated by translating expected revenues in local currency into U.S. dollars at the weighted average exchange rates of the comparable prior period. | ||||
Reconciliation of expected GAAP to non-GAAP income from operations as a percentage of revenues is presented in the table below:
| Fourth Quarter 2020 | |||||
GAAP income from operations as a percentage of revenues | 14% to 15% | ||||
Stock-based compensation expenses | 3.0 | % | |||
Included in cost of revenues (exclusive of depreciation and amortization) | 1.4 | % | |||
Included in selling, general and administrative expenses | 1.6 | % | |||
Amortization of purchased intangible assets | 0.5 | % | |||
Non-GAAP income from operations as a percentage of revenues | 17.5% to 18.5% | ||||
Reconciliation of expected GAAP to non-GAAP effective tax rate is presented in the table below:
| Fourth Quarter 2020 | |||||
GAAP effective tax rate (approximately) | 15 | % | |||
Tax effect on non-GAAP adjustments | 3.1 | % | |||
| Excess tax benefits related to stock-based compensation | 4.9 | % | |||
Non-GAAP effective tax rate (approximately) | 23 | % | |||
Reconciliation of expected GAAP to non-GAAP diluted earnings per share is presented in the table below:
| Fourth Quarter 2020 | |||||
GAAP diluted earnings per share | $1.44 to $1.54 | ||||
Stock-based compensation expenses | 0.33 | ||||
Included in cost of revenues (exclusive of depreciation and amortization) | 0.15 | ||||
Included in selling, general and administrative expenses | 0.18 | ||||
Amortization of acquired intangible assets | 0.05 | ||||
Foreign exchange loss | 0.05 | ||||
Provision for income taxes: | |||||
Tax effect on non-GAAP adjustments | (0.09) | ||||
Excess tax benefits related to stock-based compensation | (0.15) | ||||
Non-GAAP diluted earnings per share | $1.63 to $1.73 | ||||