EX-99.1 2 ex99_1.htm EXHIBIT 99-1
Exhibit 99.1

EPAM Systems Reports Results for Third Quarter 2013
Third quarter revenues up 27% year-over-year and 5% sequentially
 
Newtown, PA – November 7, 2013 - 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 September 30, 2013.
“We are pleased to deliver yet another quarter of industry-leading revenue growth,” said Arkadiy Dobkin, CEO and President of EPAM Systems. “During this time of significant technological change impacting our clients, we are continuing to prove and enhance our competitive differentiation, in particular our  strong hands-on knowledge of emerging technologies combined with rapidly improving domain expertise, and the sophistication of our global delivery platform.”
Third Quarter 2013 Highlights
Revenues increased to $140.2 million, up 27.3% year-over-year and 5.2% sequentially;
Non-GAAP income from operations was $23.8 million, an increase of 24.2% from the third quarter of 2012, rising to 17.0% of revenue;
GAAP income from operations was $20.2 million compared to $16.7 million in the third quarter of 2012;
Non-GAAP quarterly diluted EPS was $0.43, up 16.2% from $0.37 in the year-ago quarter;
Quarterly diluted earnings per share (EPS) on a GAAP basis was $0.34 compared to $0.30 in the year-ago quarter.
EPAM generated cash from operations of $15.6 million in the third quarter of 2013. At September 30, 2013, cash and cash equivalents were $123.0 million.
Reconciliations of non-GAAP financial measures to operating results and diluted EPS are included at the end of this release.
Recognition
EPAM was named number 2 on the Forbes’ list of “America’s Best Small Companies: 20 Fast-Growing Tech Stars” released by Forbes on October 9, 2013. Forbes’ annual list of America’s Best Small Public Companies highlights the 100 best-performing public companies with sales below $1 billion ranked according to their stock performance, return on equity, sales growth, and earnings growth over the past year and over five years. Based on the ranking, Forbes sub-divided the listed companies into the fastest growing “tech stars,” where EPAM is the highest ranked Information Technology company. Earlier this year, EPAM was named to Forbes’ list of America’s 25 fastest-growing tech companies underscoring the Company’s status as one of the most rapidly developing software engineering and IT consulting companies in America.
EPAM was positioned in Zinnov’s Global R&D Service Provider Ratings (GSPR) for 2013 as a Leading Consumer Software Service Provider and a Leading Software/ ISV R&D Service Provider in the Consumer and Enterprise Software categories, respectively.
The Everest group recognized EPAM as a “2013 Capital Markets AO Market Star Performer” (registering a strong year-on-year positive movement both on delivery capability and market success), for the second year in row. Only five of out of the 20 assessed providers have received the “star performer” status.
Outlook
“Our business model allows us to maintain stable margins while investing in critical areas of our business, and at same time delivering superior revenue growth,” continued Mr. Dobkin. “Healthy demand in the third quarter of 2013 resulted in broad-based growth across our verticals, geographies, and services, driving revenue and EPS outperformance, which allowed us to raise our guidance early. We are pleased to maintain our recently updated guidance as we continue to see a very positive demand environment.”
Based on current conditions, EPAM reiterates its recently increased full year guidance of expected year-over-year revenue growth in the range of $542 million to $545 million. Non-GAAP net income growth for 2013 is expected to be in the range of 15% to 20% year-over-year, with an effective tax rate of approximately 19%.
For the fourth quarter of 2013, EPAM expects revenues between $144 million and $147 million, representing a growth rate of 15% to 18% over fourth quarter 2012 revenues. Fourth quarter 2013 non-GAAP diluted EPS is expected to be in the range of $0.44 to $0.47 based on an estimated fourth quarter 2013 weighted average of 49.2 million diluted shares.
Conference Call Information
EPAM will hold a conference call to discuss its third quarter 2013 results at 8:00 a.m. Eastern Standard Time, on Friday, November 8, 2013. A live webcast of the call may be accessed over the Internet from EPAM’s Investor Relations website at http://investors.epam.com. Participants should follow the instructions provided on the website to download and install the necessary audio applications. The live conference call can be accessed by dialing 1-877-407-0784 (international) or 1-201-689-8560 (domestic).
A telephonic replay of the live conference call will 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 13572574. The telephonic replay will be available until November 22, 2013.
About EPAM Systems
Established in 1993, EPAM Systems, Inc. (NYSE: EPAM), provides complex software engineering solutions through its award-winning Central and Eastern European service delivery platform. Headquartered in the United States, EPAM employs approximately 9,000 IT professionals and serves clients worldwide from its locations in the United States, Canada, UK, Switzerland, Germany, Sweden, Netherlands, Singapore, Belarus, Hungary, Russia, Ukraine, Kazakhstan, and Poland.
EPAM is ranked #2 on the 2013 Forbes list of America’s Best Small Companies: 20 Fast-Growing Tech Stars and is recognized among the leaders in software product development services by Forrester and Zinnov analysts. The company is also included in the top 30 in IAOP’s “The 2013 Global Outsourcing 100” list.
Non-GAAP Financial Measures
EPAM supplements results reported in accordance with principles generally accepted 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.
Contact:
EPAM Systems, Inc.
Ilya Cantor, Chief Financial Officer
Anthony Conte, VP of Finance
Phone: +1-267-759-9000 x64588
Fax: +1-267-759-8989
investor_relations@epam.com




EPAM SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
(in thousands, except share and per share data)
 
Revenues
 
$
140,150
   
$
110,078
   
$
397,532
   
$
308,261
 
Operating expenses:
                               
Cost of revenues (exclusive of depreciation and amortization)
   
88,539
     
69,099
     
250,023
     
193,077
 
Selling, general and administrative expenses
   
27,893
     
21,153
     
83,517
     
59,491
 
Depreciation and amortization expense
   
3,906
     
3,040
     
11,377
     
7,674
 
Other operating (income)/ expenses, net
   
(418
)
   
50
     
(686
)
   
669
 
Income from operations
   
20,230
     
16,736
     
53,301
     
47,350
 
Interest and other income, net
   
846
     
486
     
2,245
     
1,422
 
Foreign exchange loss
   
(720
)
   
(635
)
   
(2,088
)
   
(1,949
)
Income before provision for income taxes
   
20,356
     
16,587
     
53,458
     
46,823
 
Provision for income taxes
   
3,919
     
2,522
     
10,223
     
7,338
 
Net income
 
$
16,437
   
$
14,065
   
$
43,235
   
$
39,485
 
 
                               
Net income per share:
                               
Basic
 
$
0.36
   
$
0.33
   
$
0.95
   
$
0.93
 
Diluted
 
$
0.34
   
$
0.30
   
$
0.90
   
$
0.85
 
Shares used in calculation of net income per share:
                               
Basic
   
46,162
     
42,952
     
45,492
     
38,990
 
Diluted
   
48,720
     
46,501
     
48,120
     
42,729
 




EPAM SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
As of
September 30, 2013
   
As of
December 31, 2012
 
 
 
(in thousands, except share
and per share data)
 
Assets
 
   
 
Current assets
 
   
 
Cash and cash equivalents
 
$
122,979
   
$
118,112
 
Accounts receivable, net of allowance of $2,592 and $2,203, respectively
   
87,611
     
78,906
 
Unbilled revenues
   
64,957
     
33,414
 
Prepaid and other current assets
   
22,234
     
11,835
 
Employee loans, net of allowance of $0 and $0, respectively, current
   
1,848
     
429
 
Time deposits
   
     
1,006
 
Restricted cash, current
   
217
     
660
 
Deferred tax assets, current
   
5,350
     
6,593
 
Total current assets
   
305,196
     
250,955
 
Property and equipment, net
   
54,062
     
53,135
 
Restricted cash, long-term
   
246
     
467
 
Employee loans, net of allowance of $0 and $0, respectively, long-term
   
4,456
     
 
Intangible assets, net
   
14,539
     
16,834
 
Goodwill
   
22,411
     
22,698
 
Deferred tax assets, long-term
   
3,585
     
6,093
 
Other long-term assets
   
969
     
632
 
Total assets
 
$
405,464
   
$
350,814
 
 
               
Liabilities
               
Current liabilities
               
Accounts payable
 
$
8,195
   
$
6,095
 
Accrued expenses and other liabilities
   
8,866
     
19,814
 
Deferred revenue, current
   
2,583
     
6,369
 
Due to employees
   
14,530
     
12,026
 
Taxes payable
   
17,364
     
14,557
 
Deferred tax liabilities, current
   
577
     
491
 
Total current liabilities
   
52,115
     
59,352
 
Deferred revenue, long-term
   
155
     
1,263
 
Taxes payable, long-term
   
1,228
     
1,228
 
Deferred tax liabilities, long-term
   
354
     
2,691
 
Total liabilities
   
53,852
     
64,534
 
Commitments and contingencies
               
Stockholders’ equity
               
Common stock, $0.001 par value; 160,000,000 authorized; 47,329,699 and 45,398,523 shares issued, 46,375,152 and 44,442,494 shares outstanding at September 30, 2013 and December 31, 2012, respectively
   
46
     
44
 
Additional paid-in capital
   
189,457
     
166,962
 
Retained earnings
   
172,227
     
128,992
 
Treasury stock
   
(8,684
)
   
(8,697
)
Accumulated other comprehensive loss
   
(1,434
)
   
(1,021
)
Total stockholders’ equity
   
351,612
     
286,280
 
Total liabilities and stockholders’ equity
 
$
405,464
   
$
350,814
 




EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures
(Unaudited)
(In thousands, except per share amounts and percentages)
 
 
 
 
Three Months Ended
September 30, 2013 
 
Nine Months Ended
September 30, 2013 
 
 
GAAP 
 
Adjustments 
 
Non-GAAP 
 
GAAP 
 
Adjustments 
 
Non-GAAP 
Cost of revenues (exclusive of depreciation and amortization)(1)
   $
88,539
     $
(1,498
)
   $
87,041
     $
250,023
     $
(3,356
)
   $
246,667
 
Selling, general and administrative expenses(2)
   $
27,893
     $
(1,867
)
   $
26,026
     $
83,517
     $
(6,483
)
   $
77,034
 
Income from operations(3)
   $
20,230
     $
3,612
     $
23,842
     $
53,301
     $
11,158
     $
64,459
 
Operating margin
   
14.4
%
   
2.6
%
   
17.0
%
   
13.4
%
   
2.8
%
   
16.2
%
Net income(4)
   $
16,437
     $
4,332
     $
20,769
     $
43,235
     $
13,246
     $
56,481
 
Diluted earnings per share(5)
   $
0.34
             $
0.43
     $
0.90
             $
1.17
 
 
 

 
 
Three Months Ended
September 30, 2012 
 
Nine Months Ended
September 30, 2012 
 
 
GAAP 
 
Adjustments 
 
Non-GAAP 
 
GAAP 
 
Adjustments 
 
Non-GAAP 
Cost of revenues (exclusive of depreciation and amortization)(1)
   $
69,099
     $
(1,036
)
   $
68,063
     $
193,077
     $
(2,486
)
   $
190,591
 
Selling, general and administrative expenses(2)
   $
21,153
     $
(997
)
   $
20,156
     $
59,491
     $
(3,257
)
   $
56,234
 
Income from operations(3)
   $
16,736
     $
2,464
     $
19,200
     $
47,350
     $
7,038
     $
54,388
 
Operating margin
   
15.2
%
   
2.2
%
   
17.4
%
   
15.4
%
   
2.2
%
   
17.6
%
Net income(4)
   $
14,065
     $
3,099
     $
17,164
     $
39,485
     $
8,987
     $
48,472
 
Diluted earnings per share(5)
   $
0.30
             $
0.37
     $
0.85
             $
1.06
 
 

 
Notes:
(1) Adjustments to GAAP cost of revenues (exclusive of depreciation and amortization) include $1,498 and $1,036 of stock-based compensation expense reported within cost of revenues during the three months ended September 30, 2013 and 2012, respectively, and $3,356 and $2,486 of stock-based expense during the nine months ended September, 2013 and 2012, respectively.

(2) Adjustments to GAAP selling general and administrative expenses:

 
 
Three Months Ended
September 30, 
 
Nine Months Ended
September 30, 
 
 
2013 
 
2012 
 
2013 
 
2012 
Stock-based compensation expense
   $
1,867
     $
1,010
     $
6,435
     $
2,883
 
Acquisition-related costs
   
     
(13
)
   
48
     
374
 
Total adjustments to GAAP selling, general and administrative expenses
   $
1,867
     $
997
     $
6,483
     $
3,257
 

(3) Adjustments to GAAP income from operations:

 
 
Three Months Ended
September 30, 
 
Nine Months Ended
September 30, 
 
 
2013 
 
2012 
 
2013 
 
2012 
Stock-based compensation expense
   $
3,365
     $
2,046
     $
9,791
     $
5,369
 
reported within cost of revenues
   
1,498
     
1,036
     
3,356
     
2,486
 
reported within selling, general and administrative expenses
   
1,867
     
1,010
     
6,435
     
2,883
 
Amortization of purchased intangible assets
   
723
     
431
     
2,126
     
711
 
Acquisition-related costs
   
     
(13
)
   
48
     
374
 
One-time charges
   
(476
)
   
     
(807
)
   
584
 
Total adjustments to GAAP income from operations
   $
3,612
     $
2,464
     $
11,158
     $
7,038
 
 
 
(4) Adjustments to GAAP net income:

 
 
Three Months Ended
September 30, 
 
Nine Months Ended
September 30, 
 
 
2013 
 
2012 
 
2013 
 
2012 
Stock-based compensation expense
   $
3,365
     $
2,046
     $
9,791
     $
5,369
 
reported within cost of revenues
   
1,498
     
1,036
     
3,356
     
2,486
 
reported within selling, general and administrative expenses
   
1,867
     
1,010
     
6,435
     
2,883
 
Amortization of purchased intangible assets
   
723
     
431
     
2,126
     
711
 
Acquisition-related costs
   
-
     
(13
)
   
48
     
374
 
One-time charges
   
(476
)
   
-
     
(807
)
   
584
 
Foreign exchange loss
   
720
     
635
     
2,088
     
1,949
 
Total adjustments to GAAP net income
   $
4,332
     $
3,099
     $
13,246
     $
8,987
 

(5)
Non-GAAP weighted average diluted common shares outstanding were 48,720 and 46,501 during the three months ended September 30, 2013 and 2012, respectively, and 48,120 and 45,803 during the nine months ended September 30, 2013 and 2012, respectively.
 
Non-GAAP diluted earnings per share presents non-GAAP net income divided by Non-GAAP weighted average diluted common shares outstanding. Non-GAAP weighted average diluted common shares outstanding assumes (i) the 2.9 million shares EPAM sold in its February 2012 initial public offering were outstanding as of January 1, 2012, and (ii) the conversion of the outstanding preferred stock into common stock on an as-converted basis.