News Column

EPAM Systems Reports Results for Second Quarter 2014

August 6, 2014



ENP Newswire - 06 August 2014

Release date- 04082014 - Newtown, PA - EPAM Systems, Inc. (NYSE: EPAM), a leading provider of complex software engineering solutions and a leader in Central and Eastern European IT services delivery, today announced results for the quarter ended June 30, 2014.

Second Quarter 2014 Highlights

Revenues increased to $174.7 million, up 31.2% year-over-year and 8.9% sequentially;

Non-GAAP income from operations was $28.9 million, an increase of $7.1 million or 32.7% from $21.8 million in the second quarter of 2013;

Non-GAAP quarterly diluted EPS was $0.53, up 32.5% from $0.40 in the second quarter of 2013;

GAAP income from operations was $18.5 million, an increase of $0.9 million, or 5.4%, from $17.5 million in the second quarter of 2013;

Quarterly diluted earnings per share (EPS) on a GAAP basis was $0.30, up 3.4% from $0.29 in the second quarter of 2013.

EPAM generated cash from operations of $15.4 million in the second quarter of 2014 and $31.6 million on a year-to-date basis. At June 30, 2014, cash and cash equivalents were $175.1 million.

Reconciliations of non-GAAP financial measures to operating results and diluted EPS are included at the end of this release.

Corporate Highlights

EPAM delivery headcount crossed the 10,000 employee mark.

EPAM was named as one of Top 50 on CRN's 2014 Solution Provider 500 (SP500) list by The Channel Company's CRN. The list ranks the top revenue-generating technology integrators in the U.S. and Canada whose forward-thinking approach to the channel has helped them evolve and thrive in today's cloud and services-driven IT era.

EPAM was named as one of 20 most promising solution providers in Travel & Hospitality 2014, published by CIO Review magazine in its special edition.

EPAM, together with industry leaders CIO magazine and The CMO Club, released a new study looking at the challenges CIOs and CMOs are facing in pursuing omnichannel strategies.

Full Year and Third Quarter 2014 Outlook

'I am very pleased to report another very solid quarter, despite all the geo-political turmoil in Eastern Europe over the last six months. Our strong focus on the high growth portion of global software services market and continued delivery of high quality solutions to our clients allowed us to over-perform the original organic forecast as well as the general market.' said Arkadiy Dobkin, CEO and President of EPAM. 'Combined with several relatively small but important acquisitions our top-line grew over 30% this quarter setting a good base for achieving our annual and longer-term strategic goals.'

For the full year 2014, based on current conditions and including the impact of all acquisitions, EPAM expects year-over-year revenue growth to be 28% to 30%. Non-GAAP net income growth for 2014 is expected to be in the range of 26% to 28% year-over-year, with an effective tax rate of 20%. The full year weighted average share count is expected to be just over 50 million diluted shares outstanding.

For the third quarter of 2014, EPAM expects revenues between $188 million and $190 million, representing a growth rate of 34% to 36% over third quarter 2013 revenues. Third quarter of 2014 non-GAAP diluted EPS is expected to be in the range of $0.53 to $0.55, based on an estimated second quarter weighted average shares of 50.3 million. GAAP diluted EPS is expected to be the in the range of $0.25 to $0.27.

Conference Call Information

EPAM will host a conference call to discuss its second quarter results on Tuesday, August 5, 2014 at 8:00 a.m. Eastern Time. The live conference call can be accessed by dialing 1-877-407-0784 (international) or 1-201-689-8560 (domestic).

A telephonic replay will also be available approximately one hour after the call and can be accessed by dialing 1-877-870-5176 (international) or 1-858-384-5517 (domestic). The passcode for the replay is 13587206. The telephonic replay will be available until August 19, 2014.

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 employs approximately 10,500 IT professionals and serves clients worldwide utilizing its award-winning Central and Eastern European global delivery platform and its locations in 17 countries throughout North America, Europe, and Asia. EPAM was ranked by Forbes as #6 among America's 25 Fastest-Growing Tech Companies and #2 among the Fast-Growing Tech Stars.

For more information, please visit www.epam.com.

Non-GAAP Financial Measures

EPAM supplements results reported in accordance with generally accepted accounting principles in the United States, 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 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, write-off and recovery, amortization of purchased intangible assets, goodwill impairment, legal settlement, foreign exchange gains and losses, and acquisition-related costs. 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 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 its 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

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(US Dollars in thousands, except share and per share data)

As of

June 30,

2014

As of

December 31,

2013

Assets

Current assets

Cash and cash equivalents

$

175,075

$

169,207

Accounts receivable, net of allowance of $2,267 and $1,800, respectively

108,179

95,431

Unbilled revenues

67,880

43,108

Prepaid and other current assets

16,200

14,355

Employee loans, net of allowance of $0 and $0, respectively, current

2,240

1,989

Time deposits

1,142

1,188

Restricted cash, current

-

298

Deferred tax assets, current

4,123

5,392

Total current assets

374,839

330,968

Property and equipment, net

54,523

53,315

Restricted cash, long-term

212

225

Employee loans, net of allowance of $0 and $0, respectively, long-term

4,218

4,401

Intangible assets, net

49,381

13,734

Goodwill

42,547

22,268

Deferred tax assets, long-term

9,382

4,557

Other long-term assets

2,862

3,409

Total assets

$

537,964

$

432,877

Liabilities

Current liabilities

Accounts payable

$

12,500

$

2,835

Accrued expenses and other liabilities

23,280

20,175

Deferred revenue, current

4,244

4,543

Due to employees

21,006

12,665

Taxes payable

15,050

14,171

Deferred tax liabilities, current

1,563

275

Total current liabilities

77,643

54,664

Other long-term liabilities

31,892

-

Deferred revenue, long-term

228

533

Taxes payable, long-term

1,228

1,228

Deferred tax liabilities, long-term

326

351

Total liabilities

111,317

56,776

Commitments and contingencies

Stockholders' equity

Common stock, $0.001 par value; 160,000,000 authorized; 48,229,347 and 47,569,463 shares issued, 47,514,892 and 46,614,916 shares outstanding at June 30, 2014 and December 31, 2013, respectively

48

46

Additional paid-in capital

212,450

195,585

Retained earnings

223,164

190,986

Treasury stock

(6,500

)

(8,684

)

Accumulated other comprehensive loss

(2,515

)

(1,832

)

Total stockholders' equity

426,647

376,101

Total liabilities and stockholders' equity

$

537,964

$

432,877

EPAM SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

(US Dollars in thousands, except share and per share data)

Three Months Ended

June 30,

Six Months Ended

June 30,

2014

2013

2014

2013

Revenues

$

174,695

$

133,184

$

335,079

$

257,382

Operating expenses:

Cost of revenues (exclusive of depreciation and amortization)

110,102

83,547

212,556

161,484

Selling, general and administrative expenses

38,671

28,541

71,030

55,624

Depreciation and amortization expense

5,451

3,854

9,140

7,471

Other operating expenses, net

1,995

(293

)

2,020

(268

)

Income from operations

18,476

17,535

40,333

33,071

Interest and other income, net

1,164

769

2,140

1,399

Foreign exchange loss

(1,239

)

(869

)

(2,480

)

(1,368

)

Income before provision for income taxes

18,401

17,435

39,993

33,102

Provision for income taxes

3,587

3,317

7,815

6,304

Net income

$

14,814

$

14,118

$

32,178

$

26,798

Foreign currency translation adjustments

2,894

(1,045

)

(683

)

(3,388

)

Comprehensive income

$

17,708

$

13,073

$

31,495

$

23,410

Net income per share:

Basic

$

0.31

$

0.31

$

0.69

$

0.59

Diluted

$

0.30

$

0.29

$

0.65

$

0.56

Shares used in calculation of net income per share:

Basic

47,068

45,486

46,933

45,151

Diluted

49,559

47,977

49,384

47,813

EPAM SYSTEMS, INC. AND SUBSIDIARIES

Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures

(in thousands, except percent and per share amounts)

Three Months Ended June 30, 2014

Six Months Ended June 30, 2014

GAAP

Adjustments

Non-GAAP

GAAP

Adjustments

Non-GAAP

Cost of revenues (exclusive of depreciation and amortization)(1)

$

110,102

$

(2,525

)

$

107,577

$

212,556

$

(3,928

)

$

208,628

Selling, general and administrative expenses(2)

$

38,671

$

(3,665

)

$

35,006

$

71,030

$

(6,051

)

$

64,979

Income from operations(3)

$

18,476

$

10,412

$

28,888

$

40,333

$

14,851

$

55,184

Operating margin

10.6

%

5.9

%

16.5

%

12.0

%

4.5

%

16.5

%

Net income(4)

$

14,814

$

11,651

$

26,465

$

32,178

$

17,331

$

49,509

Diluted earnings per share(5)

$

0.30

$

0.23

$

0.53

$

0.65

$

0.35

$

1.00

Three Months Ended June 30, 2013

Six Months Ended June 30, 2013

GAAP

Adjustments

Non-GAAP

GAAP

Adjustments

Non-GAAP

Cost of revenues (exclusive of depreciation and amortization)(1)

$

83,547

$

(1,079

)

$

82,468

$

161,484

$

(1,858

)

$

159,626

Selling, general and administrative expenses(2)

$

28,541

$

(2,781

)

$

25,760

$

55,624

$

(4,616

)

$

51,008

Income from operations(3)

$

17,535

$

4,233

$

21,768

$

33,071

$

7,546

$

40,617

Operating margin

13.2

%

3.1

%

16.3

%

12.8

%

3.0

%

15.8

%

Net income(4)

$

14,118

$

5,102

$

19,220

$

26,798

$

8,914

$

35,712

Diluted earnings per share (5)

$

0.29

$

0.11

$

0.40

$

0.56

$

0.19

$

0.75

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

June 30,

Six Months Ended

June 30,

2014

2013

2014

2013

Stock-based compensation expense

$

3,366

$

2,771

$

5,171

$

4,568

Acquisition-related costs

299

10

880

48

Total adjustments to GAAP selling, general and administrative expenses

$

3,665

$

2,781

$

6,051

$

4,616

(3)

Adjustments to GAAP income from operations:

Three Months Ended

June 30,

Six Months Ended

June 30,

2014

2013

2014

2013

Stock-based compensation expense

$

5,891

$

3,850

$

9,099

$

6,426

reported within cost of revenues

2,525

1,079

3,928

1,858

reported within selling, general and administrative expenses

3,366

2,771

5,171

4,568

Acquisition-related costs

299

10

880

48

Amortization of purchased intangible assets

2,222

704

2,872

1,403

One-time charges

2,000

(331

)

2,000

(331

)

Total adjustments to GAAP income from operations

$

10,412

$

4,233

$

14,851

$

7,546

(4)

Adjustments to GAAP net income:

Three Months Ended

June 30,

Six Months Ended

June 30,

2014

2013

2014

2013

Stock-based compensation expense

$

5,891

$

3,850

$

9,099

$

6,426

reported within cost of revenues

2,525

1,079

3,928

1,858

reported within selling, general and administrative expenses

3,366

2,771

5,171

4,568

Acquisition-related costs

299

10

880

48

Amortization of purchased intangible assets

2,222

704

2,872

1,403

One-time charges

2,000

(331

)

2,000

(331

)

Foreign exchange loss

1,239

869

2,480

1,368

Total adjustments to GAAP net income

$

11,651

$

5,102

$

17,331

$

8,914

(5)

There were no adjustments to GAAP average diluted common shares outstanding during the three and six months ended June 30, 2014 and 2013.

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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Source: ENP Newswire


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