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EPAM Reports Results for Fourth Quarter and Full Year 2016

Fourth quarter revenues of $313.5 million, up 20.5% year-over-year
Annual revenues of $1.16 billion, up 26.9% year-over-year
GAAP Diluted EPS of $0.46 for the fourth quarter and $1.87 for the full year
Non-GAAP Diluted EPS of $0.77 for the fourth quarter and $2.90 for the full year

NEWTOWN, Pa., Feb. 16, 2017 (GLOBE NEWSWIRE) -- EPAM Systems, Inc. (NYSE:EPAM), a leading global provider of product development and software engineering solutions, today announced results for its fourth quarter and full year ended December 31, 2016.

"2016 was a milestone year for EPAM, we tripled revenues since our IPO, closing at over $1 billion. Our continued evolution in extending our Engineering DNA into a full spectrum of services for Digital Business has positioned EPAM as a new breed of service provider, keeping us relevant to clients navigating dynamic market demands," said Arkadiy Dobkin, Chairman, CEO & President, EPAM.

Fourth Quarter 2016 Highlights

  • Revenues increased to $313.5 million, a year-over-year increase of $53.3 million, or 20.5%;
  • In constant currency, revenue was up 22.8% year-over-year;
  • GAAP income from operations was $37.4 million, an increase of $5.6 million or 17.7% compared to $31.8 million in the fourth quarter of 2015;
  • Non-GAAP income from operations was $51.5 million, an increase of $4.6 million, or 9.7%, compared to $46.9 million in the fourth quarter of 2015;
  • Diluted earnings per share (EPS) on a GAAP basis was $0.46, a decrease from $0.52 in the fourth quarter of 2015;
  • Non-GAAP diluted EPS was $0.77, an increase from $0.73 in the fourth quarter of 2015.

Full Year 2016 Highlights

  • Revenues increased to $1.16 billion, a year-over-year increase of $246.0 million, or 26.9%;
  • In constant currency, revenue was up 29.4% year-over-year;
  • GAAP income from operations was $133.7 million, an increase of $27.7 million or 26.2% compared to $106.0 million in 2015;
  • Non-GAAP income from operations was $191.8 million, an increase of $33.1 million, or 20.9%, compared to $158.7 million in 2015;
  • Diluted EPS on a GAAP basis was $1.87, compared to $1.62 in 2015;
  • Non-GAAP diluted EPS was $2.90, compared to $2.47 in 2015.

Cash Flow from Operations

  • Cash from operations was $164.8 million in 2016, up from $76.4 million in 2015; and was $53.7 million in the fourth quarter of 2016, up from $11.8 million in the fourth quarter of 2015;
  • Cash and cash equivalents totaled $362.0 million as of December 31, 2016, an increase of $162.6 million or 81.5% from $199.4 million as of December 31, 2015.

Other Metrics

  • Total headcount was 22,383 as of December 31, 2016, an increase of 22.0% from 18,354 as of December 31, 2015;
  • Total number of delivery professionals was 19,670 as of December 31, 2016, an increase of 22.3% from 16,078 as of December 31, 2015.

2017 Outlook - Full Year and First Quarter

Full Year

  • Revenue growth for fiscal 2017 will be at least 20%, after factoring in an estimated 3% for currency headwinds, meaning expected constant currency growth will be at least 23%.
  • We expect GAAP income from operations to be in the range of 12% to 14% of revenue and non-GAAP income from operations to be in the range of 16% to 18% of revenue.
  • We expect our effective tax rate to be at least 19%. This reflects the adoption of the accounting pronouncement related to stock based compensation effective January 1st.
  • We expect GAAP diluted EPS will be at least $2.45 for the full year, and non-GAAP diluted EPS will be at least $3.38 for the full year based on expected weighted average share count of 54.8 million fully diluted shares outstanding.

First Quarter

  • Revenues will be at least $315 million for the first quarter, reflecting a growth rate of at least 19% after estimating 3% for currency headwinds, meaning expected constant currency growth will be at least 22%.
  • For the first quarter, we expect GAAP income from operations to be in the range of 10% to 11% of revenue and non-GAAP income from operations to be in the range of 15% to 16% of revenue.
  • We expect our effective tax rate to be at least 20%.
  • We expect GAAP diluted EPS will be at least $0.49 for the quarter, and non-GAAP diluted EPS will be at least $0.72 for the quarter based on an expected weighted average share count of 53.9 million fully diluted shares outstanding.

Conference Call Information

EPAM will host a conference call to discuss results on Thursday, February 16, 2017 at 8:00 a.m. Eastern Time. The live conference call will be available by dialing +1 (877) 407-0784 or +1 (201) 689-8560 (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 http://investors.epam.com. A replay will be available approximately one hour after the call by dialing +1 (844) 512-2921 or +1 (412) 317-6671 (outside of the U.S.) and entering the conference ID 13654193. The replay will be available until March 2, 2017.

About EPAM Systems

Since 1993, EPAM Systems, Inc. (NYSE:EPAM), has leveraged its core engineering expertise to become a leading global product development and digital platform engineering services company. Through its “Engineering DNA” and innovative strategy, consulting, and design capabilities, EPAM works in collaboration with its customers to deliver innovative solutions that turn complex business challenges into real business opportunities. EPAM’s global teams serve customers in over 25 countries across North America, Europe, Asia and Australia. EPAM is a recognized market leader among independent research agencies and was ranked #8 in FORBES 25 Fastest Growing Public Tech Companies, as a top information technology services company on FORTUNE’S 100 Fastest Growing Companies, and as a top UK Digital Design & Build Agency.
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 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.

Contact:
EPAM Systems, Inc.
David Straube, Senior Director, Investor Relations
Phone: +1-267-759-9000 x64588
Fax: +1-267-759-8989
investor_relations@epam.com

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
December 31,
Year Ended
December 31,
2016 2015 2016 2015
Revenues$313,525 $260,253 $1,160,132 $914,128
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization) 198,226 158,291 737,186 566,913
Selling, general and administrative expenses71,432 64,414 264,658 222,759
Depreciation and amortization expenses6,237 4,899 23,387 17,395
Other operating expenses, net247 884 1,205 1,094
Income from operations37,383 31,765 133,696 105,967
Interest and other income, net1,432 1,409 4,848 4,731
Foreign exchange (loss)/gain(6,765) 1,559 (12,078) (4,628)
Income before provision for income taxes32,050 34,733 126,466 106,070
Provision for income taxes7,287 7,095 27,200 21,614
Net income$24,763 $27,638 $99,266 $84,456
Foreign currency translation adjustments(5,209) (5,699) (2,538) (13,096)
Comprehensive income$19,554 $21,939 $96,728 $71,360
Net income per share:
Basic$0.49 $0.56 $1.97 $1.73
Diluted$0.46 $0.52 $1.87 $1.62
Shares used in calculation of net income per share:
Basic50,717 49,360 50,309 48,721
Diluted53,380 52,670 53,215 51,986

EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US Dollars in thousands, except share and per share data)
As of
December 31,
2016
As of
December 31,
2015
Assets
Current assets
Cash and cash equivalents$362,025 $199,449
Restricted cash2,400
Time deposits403 30,181
Accounts receivable, net of allowance of $1,434 and $1,729, respectively199,982 174,617
Unbilled revenues63,325 95,808
Prepaid and other current assets, net of allowance of $644 and $0, respectively15,690 14,344
Employee loans, net of allowance of $0 and $0, respectively2,726 2,689
Deferred tax assets 11,847
Total current assets646,551 528,935
Property and equipment, net73,616 60,499
Restricted cash239 238
Employee loans, net of allowance of $0 and $0, respectively3,252 3,649
Intangible assets, net51,260 46,860
Goodwill109,289 115,930
Deferred tax assets31,005 18,312
Other long-term assets10,599 4,113
Total assets$925,811 $778,536
Liabilities
Current liabilities
Accounts payable$3,213 $2,576
Accrued expenses and other liabilities49,895 63,796
Due to employees32,203 26,703
Deferred compensation due to employees5,900 5,364
Taxes payable25,008 29,472
Total current liabilities116,219 127,911
Long-term debt25,048 35,000
Other long-term liabilities3,132 2,402
Total liabilities144,399 165,313
Commitments and contingencies
Stockholders’ equity
Common stock, $0.001 par value; 160,000,000 authorized; 51,117,422 and 50,177,044 shares issued, 51,097,687 and 50,166,537 shares outstanding at December 31, 2016 and December 31, 2015, respectively 50 49
Additional paid-in capital374,907 303,363
Retained earnings444,320 345,054
Treasury stock(177) (93)
Accumulated other comprehensive loss(37,688) (35,150)
Total stockholders’ equity781,412 613,223
Total liabilities and stockholders’ equity$925,811 $778,536

EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Financial Measures
(US Dollars in thousands, except percent and per share amounts)
(Unaudited)
Three Months Ended December 31, 2016 Year Ended December 31, 2016
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1) $198,226 $(4,019) $194,207 $737,186 $(16,619) $720,567
Selling, general and administrative expenses(2)$71,432 $(8,097) $63,335 $264,658 $(33,331) $231,327
Income from operations(3)$37,383 $14,083 $51,466 $133,696 $58,120 $191,816
Operating margin11.9% 4.5% 16.4% 11.5% 5.0% 16.5%
Net income(4)$24,763 $16,290 $41,053 $99,266 $55,184 $154,450
Diluted earnings per share(5)$0.46 $0.77 $1.87 $2.90


Three Months Ended December 31, 2015 Year Ended December 31, 2015
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1) $158,291 $(3,824) $154,467 $566,913 $(13,695) $553,218
Selling, general and administrative expenses(2)$64,414 $(8,903) $55,511 $222,759 $(32,871) $189,888
Income from operations(3)$31,765 $15,142 $46,907 $105,967 $52,723 $158,690
Operating margin12.2% 5.8% 18.0% 11.6% 5.8% 17.4%
Net income(4)$27,638 $10,735 $38,373 $84,456 $44,097 $128,553
Diluted earnings per share(5)$0.52 $0.73 $1.62 $2.47


Items (1) through (4) above are detailed in the table below with the specific cross-reference noted in the appropriate item.


Three Months Ended
December 31,
Year Ended
December 31,
Notes:
2016 2015 2016 2015
Stock-based compensation expenses - non-acquisition related$4,019 $3,824 $16,619 $13,695
Total adjustments to GAAP cost of revenues(1)4,019 3,824 16,619 13,695
Stock-based compensation expenses - acquisition related3,014 4,705 12,884 18,690
Stock-based compensation expenses - all other4,691 3,954 19,741 13,448
Other acquisition-related expenses392 244 706 733
Total adjustments to GAAP selling, general and administrative expenses(2) 8,097 8,903 33,331 32,871
Amortization of purchased intangible assets1,967 1,674 8,170 5,416
One-time charges 741 741
Total adjustments to GAAP income from operations(3)$14,083 $15,142 $58,120 $52,723
Foreign exchange loss/(gain)6,765 (1,559) 12,078 4,628
Tax effect on non-GAAP adjustments(4,558) (2,848) (15,014) (13,254)
Total adjustments to GAAP net income(4)$16,290 $10,735 $55,184 $44,097


(5)There were no adjustments to GAAP average diluted common shares outstanding during the three months and year ended December 31, 2016 and 2015.


EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Revenue Growth to Constant Currency Revenue Growth
(in percent)
(Unaudited)
Three Months
Ended
December 31,
2016
Year Ended
December 31,
2016
Revenue growth as reported20.5% 26.9%
Foreign exchange rates impact2.3% 2.5%
Revenue growth at constant currency(6) 22.8% 29.4%


(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 Guidance Non-GAAP Measures to Comparable GAAP Measures
(in percent, except per share amounts)
(Unaudited)

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 GAAP to Non-GAAP diluted earnings per share is presented in the table below:

First Quarter
2017
Full Year
2017
GAAP diluted earnings per share (at least)$0.49 $2.45
Stock-based compensation expenses0.25 1.01
Included in cost of revenues0.08 0.41
Included in selling, general and administrative expenses 0.17 0.60
Amortization of purchased intangible assets0.04 0.14
Foreign exchange loss0.03 0.13
Tax effect on non-GAAP adjustments(0.09) (0.35)
Non-GAAP diluted earnings per share (at least)$0.72 $3.38

Reconciliation of projected revenue growth in constant currency is presented in the table below:

First Quarter 2017 Full Year 2017
Revenue growth (at least)19.0% 20.0%
Foreign exchange rates impact3.0% 3.0%
Revenue growth at constant currency (at least)(7) 22.0% 23.0%


(7)Constant currency revenue results are calculated by translating current period projected revenue in local currency into U.S. dollars at the weighted average exchange rates of the comparable prior period.

Source:EPAM