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. |