EPAM Reports Results for Third Quarter 2016
November 07 2016 - 5:15AM
Third quarter revenues of $298 million,
up 26% year-over-yearGAAP Diluted EPS of $0.49, up
11% year-over-yearNon-GAAP Diluted EPS of $0.76,
up 19% year-over-year
EPAM Systems, Inc. (NYSE:EPAM), a leading global provider of
product development and software engineering solutions, today
announced results for its third quarter ended September 30,
2016.
Third Quarter 2016 Highlights
- Revenues increased to $298.3 million, a year-over-year increase
of $62.2 million, or 26.4%;
- In constant currency, revenue was up 28.7% year-over-year;
- GAAP income from operations was $33.9 million, an increase of
$6.1 million or 22.1% compared to $27.8 million in the third
quarter of 2015;
- Non-GAAP income from operations was $49.7 million, an increase
of $8.2 million, or 19.9%, from $41.5 million in the third quarter
of 2015;
- Diluted earnings per share (EPS) on a GAAP basis was $0.49, an
increase from $0.44 in the third quarter of 2015;
- Non-GAAP quarterly diluted EPS was $0.76 compared to $0.64 in
the third quarter of 2015.
Cash Flow from Operations
- Cash from operations was $111.2 million for the nine months of
2016, up from $64.6 million as compared to the nine months of 2015;
and was $61.8 million in the third quarter of 2016, up from $55.5
million in the third quarter of 2015;
- As of September 30, 2016, cash and cash equivalents
totaled $330.6 million.
Other Metrics
- As of September 30, 2016, total headcount was 21,720, an
increase of 35.5% from 16,026 at September 30, 2015;
- Total number of delivery professionals increased 36.2% to
19,070 as of the end of the third quarter of 2016 from 14,004 as of
the end of the third quarter of 2015;
- Billed and unbilled Days Sales Outstanding (“DSO”) decreased to
83 days as of the end of the third quarter of 2016 compared to 88
days as of the end of the second quarter of 2016.
2016 Outlook - Full Year and Fourth
Quarter
Full Year
- Revenues will be at least $1,156 million for the full year
2016, representing a growth rate of at least 26.5% over 2015. This
includes approximately 2.5% anticipated currency headwinds, meaning
constant currency growth of at least 29%;
- The full year GAAP diluted EPS will be at least $1.94, with an
effective tax rate of approximately 21%;
- The full year non-GAAP diluted EPS will be at least $2.90;
- The full year weighted average share count is expected to be
approximately 53.6 million diluted shares outstanding.
Fourth Quarter
- Revenues will be at least $310 million for the fourth quarter
of 2016, representing a growth rate of at least 19% over fourth
quarter 2015 revenues. This includes approximately 2% anticipated
currency headwinds, meaning constant currency growth of at least
21%;
- Fourth quarter 2016 GAAP diluted EPS to be at least $0.54;
- Fourth quarter 2016 non-GAAP diluted EPS is expected to be at
least $0.78 and is based on an estimated fourth quarter 2016
weighted average share count of 54.3 million diluted shares
outstanding.
Also effective for the quarter are the following
executive announcements:
“It is with a mix of gratitude and sadness that I announce that
Anthony Conte, the Company’s Senior Vice President, Chief Financial
Officer and Treasurer has notified the Company that he plans to
step down in the third quarter of 2017 in order to pursue personal
and other business interests,” said Arkadiy Dobkin, Chairman, CEO
& President, EPAM. “Over his 10-year career with EPAM,
Anthony’s financial and business leadership has been a key part of
EPAM’s growth and success. The Company will conduct a search to
find a successor. Anthony will participate in selection of his
successor and assist with the transition.”
Mr. Dobkin continued, “We have recently welcomed Larry Solomon
as our Chief People Officer. Larry came to us after spending nearly
30 years at Accenture, most recently as the Senior Managing
Director and Accenture’s North America Operating Officer. Larry
will lead all aspects of Talent Management & Talent
Acquisition, Workforce Planning & Management, as well as other
HR-related functions within EPAM across the globe. We anticipate
that his significant experience and background will help elevate
EPAM’s talent and workforce management capabilities.”
Conference Call Information
EPAM will host a conference call to discuss
results on Monday, November 7, 2016 at 8:00 a.m. Eastern Time. The
live conference call can be accessed by dialing 1-877-407-0784
(domestic) 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 1-844-512-2921 (domestic) or
1-412-317-6671 (international). The passcode for the replay is
13648357. The telephonic replay will be available until November
21, 2016. 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
EPAM Systems, Inc. (NYSE:EPAM), a leading global product
development and platform engineering services company, is focused
on delivering results through best-in-class software engineering,
combined with innovative strategy, consulting and design
capabilities. With 23 years of experience in the information
technology industry, EPAM’s 19,000 people serve our customers in
over 25 countries across North America, Europe, Asia and Australia.
EPAM was ranked #8 in FORBES 25 Fastest Growing Public Tech
Companies and ranked as a top information technology services
company on FORTUNE’S 100 Fastest Growing Companies.
For more information, please visit http://www.epam.com and
follow us 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,
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-offs and
recoveries, amortization of purchased intangible assets, goodwill
impairment, legal settlements, foreign exchange gains and losses,
acquisition-related costs and the related effect on taxes.
Management may also compare 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 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 condensed 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 September
30, |
|
Nine Months Ended September
30, |
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Revenues |
|
$ |
298,293 |
|
|
$ |
236,049 |
|
|
$ |
846,607 |
|
|
$ |
653,875 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of
depreciation and amortization) |
|
190,797 |
|
|
148,479 |
|
|
538,960 |
|
|
408,622 |
|
Selling, general and administrative
expenses |
|
67,491 |
|
|
55,431 |
|
|
193,226 |
|
|
158,345 |
|
Depreciation and amortization
expense |
|
5,925 |
|
|
4,393 |
|
|
17,150 |
|
|
12,496 |
|
Other operating expenses/(income),
net |
|
178 |
|
|
(30 |
) |
|
958 |
|
|
210 |
|
Income from
operations |
|
33,902 |
|
|
27,776 |
|
|
96,313 |
|
|
74,202 |
|
Interest and other
income, net |
|
1,067 |
|
|
865 |
|
|
3,416 |
|
|
3,322 |
|
Foreign exchange
(loss)/gain |
|
(1,728 |
) |
|
32 |
|
|
(5,313 |
) |
|
(6,187 |
) |
Income before
provision for income taxes |
|
33,241 |
|
|
28,673 |
|
|
94,416 |
|
|
71,337 |
|
Provision for income
taxes |
|
7,067 |
|
|
5,800 |
|
|
19,913 |
|
|
14,519 |
|
Net
income |
|
$ |
26,174 |
|
|
$ |
22,873 |
|
|
$ |
74,503 |
|
|
$ |
56,818 |
|
Foreign currency
translation adjustments |
|
358 |
|
|
(8,341 |
) |
|
2,671 |
|
|
(7,397 |
) |
Comprehensive
income |
|
$ |
26,532 |
|
|
$ |
14,532 |
|
|
$ |
77,174 |
|
|
$ |
49,421 |
|
|
|
|
|
|
|
|
|
|
Net income per
share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.51 |
|
|
$ |
0.47 |
|
|
$ |
1.48 |
|
|
$ |
1.17 |
|
Diluted |
|
$ |
0.49 |
|
|
$ |
0.44 |
|
|
$ |
1.40 |
|
|
$ |
1.10 |
|
Shares used in
calculation of net income per share: |
|
|
|
|
|
|
|
|
Basic |
|
51,131 |
|
49,043 |
|
50,172 |
|
48,506 |
Diluted |
|
53,864 |
|
52,344 |
|
53,159 |
|
51,755 |
EPAM SYSTEMS, INC. AND
SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
(US Dollars in thousands, except share and per
share data) |
|
|
As ofSeptember 30,2016 |
|
As of December31, 2015 |
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
$ |
330,627 |
|
|
$ |
199,449 |
|
Time deposits |
— |
|
|
30,181 |
|
Accounts receivable, net of
allowance of $2,301 and $1,729, respectively |
187,833 |
|
|
174,617 |
|
Unbilled revenues |
82,360 |
|
|
95,808 |
|
Prepaid and other current
assets |
32,205 |
|
|
14,344 |
|
Employee loans, net of allowance of
$0 and $0, respectively |
2,698 |
|
|
2,689 |
|
Deferred tax assets |
— |
|
|
11,847 |
|
Total current assets |
635,723 |
|
|
528,935 |
|
Property and equipment,
net |
70,284 |
|
|
60,499 |
|
Restricted cash |
236 |
|
|
238 |
|
Employee loans, net of
allowance of $0 and $0, respectively |
3,283 |
|
|
3,649 |
|
Intangible assets,
net |
53,867 |
|
|
46,860 |
|
Goodwill |
111,722 |
|
|
115,930 |
|
Deferred tax
assets |
26,598 |
|
|
18,312 |
|
Other long-term
assets |
7,486 |
|
|
4,113 |
|
Total
assets |
$ |
909,199 |
|
|
$ |
778,536 |
|
|
|
|
|
Liabilities |
|
|
|
Current
liabilities |
|
|
|
Accounts payable |
$ |
4,661 |
|
|
$ |
2,576 |
|
Accrued expenses and other
liabilities |
34,856 |
|
|
60,749 |
|
Deferred revenue |
3,685 |
|
|
3,047 |
|
Due to employees |
34,894 |
|
|
26,703 |
|
Deferred compensation to
employees |
4,035 |
|
|
5,364 |
|
Contingent consideration |
800 |
|
|
— |
|
Taxes payable |
39,499 |
|
|
29,472 |
|
Total current liabilities |
122,430 |
|
|
127,911 |
|
Long-term debt |
33,062 |
|
|
35,000 |
|
Deferred tax liabilities,
long-term |
3,327 |
|
|
2,402 |
|
Other long-term
liabilities |
268 |
|
|
— |
|
Total
liabilities |
159,087 |
|
|
165,313 |
|
Commitments and
contingencies |
|
|
|
Stockholders’
equity |
|
|
|
Common stock, $0.001 par
value; 160,000,000 authorized; 51,035,509 and 50,177,044
shares issued, 51,016,500 and 50,166,537 shares outstanding at
September 30, 2016 and December 31, 2015, respectively |
50 |
|
|
49 |
|
Additional paid-in
capital |
363,154 |
|
|
303,363 |
|
Retained earnings |
419,557 |
|
|
345,054 |
|
Treasury stock |
(170 |
) |
|
(93 |
) |
Accumulated other
comprehensive loss |
(32,479 |
) |
|
(35,150 |
) |
Total
stockholders’ equity |
750,112 |
|
|
613,223 |
|
Total
liabilities and stockholders’ equity |
$ |
909,199 |
|
|
$ |
778,536 |
|
EPAM SYSTEMS, INC. AND
SUBSIDIARIES |
Reconciliations of Non-GAAP Financial Measures
to Comparable GAAP Financial Measures |
(in thousands, except percent and per share
amounts) |
(Unaudited) |
|
|
|
Three Months Ended September 30,
2016 |
|
Nine Months Ended September 30,
2016 |
|
|
GAAP |
|
Adjustments |
|
Non-GAAP |
|
GAAP |
|
Adjustments |
|
Non-GAAP |
Cost of revenues
(exclusive of depreciation and amortization)(1) |
|
$ |
190,797 |
|
|
$ |
(4,518 |
) |
|
$ |
186,279 |
|
|
$ |
538,960 |
|
|
$ |
(12,600 |
) |
|
$ |
526,360 |
|
Selling, general and
administrative expenses(2) |
|
$ |
67,491 |
|
|
$ |
(9,315 |
) |
|
$ |
58,176 |
|
|
$ |
193,226 |
|
|
$ |
(25,234 |
) |
|
$ |
167,992 |
|
Income from operations(3) |
|
$ |
33,902 |
|
|
$ |
15,822 |
|
|
$ |
49,724 |
|
|
$ |
96,313 |
|
|
$ |
44,037 |
|
|
$ |
140,350 |
|
Operating margin |
|
11.4 |
% |
|
5.3 |
% |
|
16.7 |
% |
|
11.4 |
% |
|
5.2 |
% |
|
16.6 |
% |
Net income(4) |
|
$ |
26,174 |
|
|
$ |
14,582 |
|
|
$ |
40,756 |
|
|
$ |
74,503 |
|
|
$ |
38,894 |
|
|
$ |
113,397 |
|
Diluted earnings per
share(5) |
|
$ |
0.49 |
|
|
|
|
$ |
0.76 |
|
|
$ |
1.40 |
|
|
|
|
$ |
2.13 |
|
|
|
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 |
|
|
$ |
10,713 |
|
|
$ |
33,586 |
|
|
$ |
56,818 |
|
|
$ |
33,362 |
|
|
$ |
90,180 |
|
Diluted earnings per
share(5) |
|
$ |
0.44 |
|
|
|
|
$ |
0.64 |
|
|
$ |
1.10 |
|
|
|
|
$ |
1.74 |
|
|
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
Notes: |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
|
Stock-based compensation expenses -
non-acquisition related |
|
$ |
4,518 |
|
|
$ |
3,622 |
|
|
$ |
12,600 |
|
|
$ |
9,871 |
|
Total
adjustments to GAAP cost of revenues(1) |
|
4,518 |
|
|
3,622 |
|
|
12,600 |
|
|
9,871 |
|
Stock-based compensation expenses -
Acquisition related |
|
3,890 |
|
|
4,542 |
|
|
9,870 |
|
|
13,985 |
|
Stock-based compensation expenses -
All other |
|
5,418 |
|
|
3,799 |
|
|
15,050 |
|
|
9,494 |
|
Other acquisition-related
expenses |
|
7 |
|
|
427 |
|
|
314 |
|
|
489 |
|
Total
adjustments to GAAP selling, general and administrative
expenses(2) |
|
9,315 |
|
|
8,768 |
|
|
25,234 |
|
|
23,968 |
|
Amortization of purchased
intangible assets |
|
1,989 |
|
|
1,290 |
|
|
6,203 |
|
|
3,742 |
|
Total
adjustments to GAAP income from operations(3) |
|
$ |
15,822 |
|
|
$ |
13,680 |
|
|
$ |
44,037 |
|
|
$ |
37,581 |
|
Foreign exchange loss/(gain) |
|
1,728 |
|
|
(32 |
) |
|
5,313 |
|
|
6,187 |
|
Tax effect on non-GAAP
adjustments |
|
(2,968 |
) |
|
(2,935 |
) |
|
(10,456 |
) |
|
(10,406 |
) |
Total
adjustments to GAAP net income(4) |
|
$ |
14,582 |
|
|
$ |
10,713 |
|
|
$ |
38,894 |
|
|
$ |
33,362 |
|
|
(5) There
were no adjustments to GAAP average diluted common shares
outstanding during the three and nine months ended September 30,
2016 and 2015. |
EPAM SYSTEMS, INC. AND
SUBSIDIARIES |
Reconciliations of Revenue Growth to Constant
Currency Revenue Growth |
(in percent) |
(Unaudited) |
|
|
Three MonthsEnded September 30,
2016 |
Revenue growth
as reported |
26.4 |
% |
Foreign exchange rates impact |
2.3 |
% |
Revenue growth at constant
currency(6) |
28.7 |
% |
|
(6) Constant currency
revenue results are calculated by translating current period
revenue in local currency into U.S.dollars at the weighted average
exchange rates of the comparable prior period. |
EPAM SYSTEMS, INC. AND
SUBSIDIARIES |
Reconciliations of Non-GAAP Guidance Measures
to Comparable GAAP Measures |
(in percent, except per share
amounts) |
(Unaudited) |
|
Reconciliation of GAAP to Non-GAAP diluted earnings per
share is presented in the table below: |
|
|
|
FourthQuarter |
|
Full Year |
GAAP diluted
earnings per share (at least) |
$ |
0.54 |
|
|
$ |
1.94 |
|
Stock-based
compensation expenses |
0.25 |
|
|
0.95 |
|
Included in cost of revenues |
0.08 |
|
|
0.32 |
|
Included in selling, general and
administrative expenses |
0.17 |
|
|
0.63 |
|
Other
acquisition-related expenses |
— |
|
|
0.01 |
|
Amortization of
purchased intangible assets |
0.04 |
|
|
0.15 |
|
Foreign exchange
loss |
0.02 |
|
|
0.12 |
|
Tax effect on non-GAAP
adjustments |
(0.07 |
) |
|
(0.27 |
) |
Non-GAAP diluted earnings
per share (at least) |
$ |
0.78 |
|
|
$ |
2.90 |
|
Reconciliation of projected revenue growth in constant
currency is presented in the table below: |
|
|
Fourth QuarterGuidance |
|
Full
YearGuidance |
Revenue growth
(at least) |
19.0 |
% |
|
26.5 |
% |
Foreign exchange rates impact |
2.0 |
% |
|
2.5 |
% |
Revenue growth at constant
currency (at least)(7) |
21.0 |
% |
|
29.0 |
% |
|
(7) Constant currency
revenue results are calculated by translating current period
projected revenue in local currencyinto U.S. dollars at the
weighted average exchange rates of the comparable prior
period. |
Contact:
EPAM Systems, Inc.
Anthony J. Conte, Chief Financial Officer
Phone: +1-267-759-9000 x64588
Fax: +1-267-759-8989
investor_relations@epam.com
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