EX-99.1 2 exhibit99_q4x2016.htm EXHIBIT 99.1 Exhibit



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Exhibit 99.1
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 - February 16, 2017 - 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 expenses
71,432

 
64,414

 
264,658

 
222,759

Depreciation and amortization expenses
6,237

 
4,899

 
23,387

 
17,395

Other operating expenses, net
247

 
884

 
1,205

 
1,094

Income from operations
37,383

 
31,765

 
133,696

 
105,967

Interest and other income, net
1,432

 
1,409

 
4,848

 
4,731

Foreign exchange (loss)/gain
(6,765
)
 
1,559

 
(12,078
)
 
(4,628
)
Income before provision for income taxes
32,050

 
34,733

 
126,466

 
106,070

Provision for income taxes
7,287

 
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:
 
 
 
 
 
 
 
Basic
50,717

 
49,360

 
50,309

 
48,721

Diluted
53,380

 
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 cash
2,400

 
—

Time deposits
403

 
30,181

Accounts receivable, net of allowance of $1,434 and $1,729, respectively
199,982

 
174,617

Unbilled revenues
63,325

 
95,808

Prepaid and other current assets, net of allowance of $644 and $0, respectively
15,690

 
14,344

Employee loans, net of allowance of $0 and $0, respectively
2,726

 
2,689

Deferred tax assets
—

 
11,847

Total current assets
646,551

 
528,935

Property and equipment, net
73,616

 
60,499

Restricted cash
239

 
238

Employee loans, net of allowance of $0 and $0, respectively
3,252

 
3,649

Intangible assets, net
51,260

 
46,860

Goodwill
109,289

 
115,930

Deferred tax assets
31,005

 
18,312

Other long-term assets
10,599

 
4,113

Total assets
$
925,811

 
$
778,536

 
 
 
 
Liabilities
 
 
 
Current liabilities
 
 
 
Accounts payable
$
3,213

 
$
2,576

Accrued expenses and other liabilities
49,895

 
63,796

Due to employees
32,203

 
26,703

Deferred compensation due to employees
5,900

 
5,364

Taxes payable

25,008

 
29,472

Total current liabilities
116,219

 
127,911

Long-term debt
25,048

 
35,000

Other long-term liabilities
3,132

 
2,402

Total liabilities
144,399

 
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 capital
374,907

 
303,363

Retained earnings
444,320

 
345,054

Treasury stock
(177
)
 
(93
)
Accumulated other comprehensive loss
(37,688
)
 
(35,150
)
Total stockholders’ equity
781,412

 
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 margin
11.9
%
 
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 margin
12.2
%
 
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 related
3,014

 
4,705

 
12,884

 
18,690

Stock-based compensation expenses - all other
4,691

 
3,954

 
19,741

 
13,448

Other acquisition-related expenses
392

 
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 assets
1,967

 
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 reported
20.5
%
 
26.9
%
Foreign exchange rates impact
2.3
%
 
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 expenses
0.25

 
1.01

Included in cost of revenues
0.08

 
0.41

Included in selling, general and administrative expenses
0.17

 
0.60

Amortization of purchased intangible assets
0.04

 
0.14

Foreign exchange loss
0.03

 
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 impact
3.0
%
 
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.