PR Newswire | Nov 4, 2021 06:01AM EDT

11/04 05:00 CDT

EPAM Reports Strong Results for Third Quarter 2021 and Raises Full Year Outlook- Third quarter revenues of $988.5 million, up 51.6% year-over-year- GAAP Income from Operations was 14.6% of revenues and Non-GAAP Income from Operations was 18.2% of revenues for the third quarter- Third quarter GAAP diluted EPS of $1.95, an increase of 27.5%, and Non-GAAP diluted EPS of $2.42, an increase of 46.7% on a year-over-year basis- EPAM raises full year 2021 outlook and now expects revenue growth to be at least 40%, GAAP diluted EPS to be in the range of $7.86 to $7.93 and Non-GAAP diluted EPS to be in the range of $8.72 to $8.79 NEWTOWN, Pa., Nov. 4, 2021

NEWTOWN, Pa., Nov. 4, 2021 /PRNewswire/ -- EPAM Systems, Inc. (NYSE: EPAM), a leading digital transformation services and product engineering company, today announced results for its third quarter ended September 30, 2021.

"We are pleased with our strong third-quarter results, which reflect a wide-range of demand across all our geographies and industry groups," said Arkadiy Dobkin, CEO & President, EPAM. "The increased rate of change that was difficult to predict over a year ago, is now driving higher levels of transformation across the industries we serve. As such, we continue to invest in growing our teams and capabilities to help our customers to simultaneously envision and deliver solutions through our industry leading digital transformation services and product engineering offerings."

Third Quarter 2021 Highlights

* Revenues were $988.5 million, a year-over-year increase of $336.3 million, or 51.6%. On a constant currency basis, revenues were up 50.7% compared to the third quarter of 2020. Acquisitions completed in the last twelve months contributed 5.0% to revenue growth in the quarter; * GAAP income from operations was $144.1 million, an increase of $47.7 million, or 49.5%, compared to $96.4 million in the third quarter of 2020; * Non-GAAP income from operations was $179.6 million, an increase of $56.3 million, or 45.7%, compared to $123.3 million in the third quarter of 2020; * Diluted earnings per share ("EPS") on a GAAP basis was $1.95, an increase of $0.42, or 27.5%, compared to $1.53 in the third quarter of 2020; and * Non-GAAP diluted EPS was $2.42, an increase of $0.77, or 46.7%, compared to $1.65 in the third quarter of 2020.

Cash Flow and Other Metrics

* Cash provided by operating activities was $287.7 million for the first nine months of 2021, compared to $385.0 million for the first nine months of 2020; * Cash, cash equivalents and restricted cash totaled $1,425.6 million as of September 30, 2021, an increase of $102.0 million, or 7.7%, from $1,323.5 million as of December 31, 2020; and * Total headcount was approximately 52,650 as of September 30, 2021. Included in this number were approximately 47,050 delivery professionals, an increase of 39.4% from September 30, 2020.

2021 Outlook - Full Year and Fourth Quarter

Full Year

Given the strength of the first nine months of 2021 combined with a strong demand environment, EPAM is raising its full year outlook:

* The Company now expects revenue growth for 2021 to be at least 40% on a GAAP basis, which includes a favorable foreign currency translation impact of approximately 2%. Revenue growth on a constant currency basis will now be at least 38%. The Company expects acquisitions, including the acquisition of Emakina Group SA, will contribute approximately 4% to reported revenues; * For the full year, EPAM continues to expect GAAP income from operations to be in the range of 13.5% to 14.5% of revenues and non-GAAP income from operations to be in the range of 17% to 18% of revenues; * The Company expects its GAAP effective tax rate to continue to be approximately 11% and its non-GAAP effective tax rate to now be approximately 22%; and * EPAM expects GAAP diluted EPS to now be in the range of $7.86 to $7.93 for the year, and non-GAAP diluted EPS to now be in the range of $8.72 to $8.79 for the year. The Company now expects weighted average diluted shares outstanding for the year of 59.1 million.

Fourth Quarter

EPAM expects the following for the fourth quarter:

* Revenues will be in the range of $1.075 billion to $1.085 billion on a GAAP basis for the fourth quarter reflecting a year-over-year growth rate of approximately 49% at the mid-point of the range. The Company expects foreign currency translation will have a minimal impact on year-over-year reported revenue growth. The Company expects acquisitions, including the acquisition of Emakina Group SA, will contribute approximately 8% to reported revenues; * For the fourth quarter, EPAM expects GAAP income from operations to be in the range of 13.5% to 14.5% of revenues and non-GAAP income from operations to be in the range of 17% to 18% of revenues; * The Company expects its GAAP effective tax rate to be approximately 14% and its non-GAAP effective tax rate to be approximately 22%; and * EPAM expects GAAP diluted EPS will be in the range of $2.11 to $2.18 for the quarter, and non-GAAP diluted EPS will be in the range of $2.44 to $2.51 for the quarter. The Company expects weighted average diluted shares outstanding for the quarter of 59.3 million.

Conference Call Information

EPAM will host a conference call to discuss the results on Thursday, November 4, 2021 at 8:00 a.m. EDT. The live conference call will be available by dialing +1 (844) 707-0662 or +1 (703) 318-2250 (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 https://investors.epam.com. A replay will be available approximately one hour after the call by dialing +1 (855) 859-2056 or +1 (404) 537-3406 (outside of the U.S.) and entering the conference ID 2091279. The replay will be available until November 11, 2021.

About EPAM Systems

Since 1993, EPAM Systems, Inc. (NYSE: EPAM) has leveraged its advanced software engineering heritage to become the foremost global digital transformation services provider - leading the industry in digital and physical product development and digital platform engineering services. Through its innovative strategy; integrated advisory, consulting and design capabilities; and unique 'Engineering DNA,' EPAM's globally deployed hybrid teams help make the future real for clients and communities around the world by powering better enterprise, education and health platforms that connect people, optimize experiences, and improve people's lives. Selected by Newsweek as a 2021 Most Loved Workplace, EPAM's global multi-disciplinary teams serve customers in more than 40 countries across five continents. As a recognized leader, EPAM is listed among the top 15 companies in Information Technology Services on the Fortune 1000 and ranked as the top IT services company on Fortune's 100 Fastest-Growing Companies list for the last three consecutive years. EPAM is also listed among Ad Age's top 25 World's Largest Agency Companies and in 2020, Consulting Magazine named EPAM Continuum a top 20 Fastest-Growing Firm. Learn more at www.epam.com and follow EPAM on Twitter 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, communicate 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 expenses, acquisition-related costs including amortization of intangible assets, impairment of assets, certain other one-time charges and benefits, changes in fair value of contingent consideration, foreign exchange gains and losses, excess tax benefits related to stock-based compensation, and the related effect on income taxes of the pre-tax adjustments. Management also compares 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 in accordance with 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 in accordance with GAAP.

Forward-Looking Statements

This press release includes estimates and 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. Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our business and operations. These statements may include words such as "may," "will," "should," "believe," "expect," "anticipate," "intend," "plan," "estimate" or similar expressions. Those future events and trends may relate to, among other things, the anticipated impact of the COVID-19 pandemic and civil unrest in the geographies where we conduct business and where our operations are located and the effect that these events may have on our revenues, operations, access to capital, profitability and customer demand. Other factors that could cause actual results to differ materially from those expressed or implied include general economic conditions, the risk factors discussed in the Company's most recent Annual Report on Form 10-K, the discussion in the Company's Quarterly Report on Form 10-Q, filed on or after the date of this press release, particularly under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other filings with the Securities and Exchange Commission. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. 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 STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)



Three Months Ended Nine Months Ended September 30, September 30,

2021 2020 2021 2020

Revenues $988,539$652,243$2,650,680$1,935,985

Operating expenses:

Cost of revenues (exclusive of depreciation653,374 423,388 1,756,430 1,266,730 and amortization)

Selling, general and 169,498 116,530 457,797 355,829 administrative expenses

Depreciation and 21,543 15,929 59,804 46,095 amortization expense

Income from operations 144,124 96,396 376,649 267,331

Interest and other (loss)/(5,325) 1,672 2,629 5,875 income, net

Foreign exchange (loss)/ (3,441) 5,896 (5,835) 3,253 gain

Income before provision 135,358 103,964 373,443 276,459 for income taxes

Provision for income taxes19,702 14,532 34,070 34,838

Net income $115,656$89,432 $339,373 $241,621



Net income per share:

Basic $2.04 $1.60 $6.01 $4.34

Diluted $1.95 $1.53 $5.75 $4.14

Shares used in calculation of net income per share:

Basic 56,649 55,884 56,429 55,625

Diluted 59,203 58,616 58,999 58,341

EPAM SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except par value)



As of As of September 30,December 31, 2021 2020

Assets

Current assets

Cash and cash equivalents $1,266,614 $1,322,143

Short-term investments - 60,007

Trade receivables and contract assets, net of 755,588 501,062 allowance of $6,207 and $4,886, respectively

Prepaid and other current assets 69,992 29,570

Total current assets 2,092,194 1,912,782

Restricted cash, noncurrent 158,454 1,284

Property and equipment, net 176,881 169,533

Operating lease right-of-use assets, net 192,628 228,672

Intangible assets, net 74,576 51,975

Goodwill 386,508 211,956

Deferred tax assets 104,057 92,454

Other noncurrent assets 56,935 52,676

Total assets $3,242,233 $2,721,332



Liabilities

Current liabilities

Accounts payable $8,086 $10,189

Accrued compensation and benefits expenses 412,061 294,709

Accrued expenses and other current liabilities 140,298 79,690

Income taxes payable, current 20,928 20,603

Operating lease liabilities, current 51,174 60,759

Total current liabilities 632,547 465,950

Long-term debt 25,024 25,038

Income taxes payable, noncurrent 42,193 43,448

Operating lease liabilities, noncurrent 149,556 180,604

Other noncurrent liabilities 53,794 23,274

Total liabilities 903,114 738,314

Commitments and contingencies

Stockholders' equity

Common stock, $0.001 par value; 160,000 shares authorized; 56,728 and 56,128 shares issued, 57 56 56,708 and 56,108 shares outstanding at September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 693,887 660,771

Retained earnings 1,687,253 1,347,880

Treasury stock (177) (177)

Accumulated other comprehensive loss (41,901) (25,512)

Total stockholders' equity 2,339,119 1,983,018

Total liabilities and stockholders' equity $3,242,233 $2,721,332

EPAM SYSTEMS, INC. AND SUBSIDIARIES Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Financial Measures (Unaudited) (In thousands, except percent and per share amounts)



Reconciliation of revenue growth as reported on a GAAP basis to revenue growth on a constant currency basis is presented in the table below:



Three Months EndedNine Months Ended September 30, 2021September 30, 2021

Revenue growth as reported 51.6 % 36.9 %

Foreign exchange rates impact (0.9) % (2.5) %

Revenue growth on a constant currency 50.7 % 34.4 % basis^(1)



Constant currency revenue results are calculated by translating current (1)period revenues in local currency into U.S. dollars at the weighted average exchange rates of the comparable prior period.

Reconciliation of various income statement amounts from GAAP to non-GAAP for the three and nine months ended September 30, 2021 and 2020:



Three Months Ended Nine Months Ended September 30, 2021 September 30, 2021

GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP

Cost of revenues (exclusive of depreciation $653,374 $(12,174) $641,200 $1,756,430 $(34,552) $1,721,878 and amortization)^ (2)

Selling, general and $169,498 $(18,655) $150,843 $457,797 $(48,777) $409,020 administrative expenses^(3)

Income from $144,124 $35,513 $179,637 $376,649 $95,114 $471,763 operations^(4)

Operating 14.6 %3.6 %18.2 %14.2 %3.6 %17.8 %margin

Net income^(5)$115,656 $27,549 $143,205 $339,373 $31,170 $370,543

Diluted earnings per $1.95 $2.42 $5.75 $6.28 share



Three Months Ended Nine Months Ended September 30, 2020 September 30, 2020

GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP

Cost of revenues (exclusive of depreciation $423,388 $(10,854) $412,534 $1,266,730 $(23,796) $1,242,934 and amortization)^ (2)

Selling, general and $116,530 $(12,976) $103,554 $355,829 $(36,497) $319,332 administrative expenses^(3)

Income from $96,396 $26,916 $123,312 $267,331 $69,508 $336,839 operations^(4)

Operating 14.8 %4.1 %18.9 %13.8 %3.6 %17.4 %margin

Net income^(5)$89,432 $7,254 $96,686 $241,621 $22,915 $264,536

Diluted earnings per $1.53 $1.65 $4.14 $4.53 share



Items (2) through (5) above are detailed in the table below with the specificcross-reference noted in the appropriate item.



Three Months Ended Nine Months Ended September 30, September 30,

2021 2020 2021 2020

Stock-based compensation expenses $12,174$10,854$34,552$23,796

Total adjustments to GAAP cost of 12,174 10,854 34,552 23,796 revenues^(2)

Stock-based compensation expenses 17,013 12,620 43,086 30,998

Other acquisition-related expenses1,553 243 5,585 859

One-time charges 89 113 106 4,640

Total adjustments to GAAP selling, general and administrative 18,655 12,976 48,777 36,497 expenses^(3)

Amortization of acquired 4,684 3,086 11,785 9,215 intangible assets

Total adjustments to GAAP income 35,513 26,916 95,114 69,508 from operations^(4)

Change in fair value of contingent consideration included in Interest6,998 (43) 1,362 (1,481) and other income, net

Impairment of investment - - - 313

Foreign exchange (loss)/gain 3,441 (5,896) 5,835 (3,253)

Provision for income taxes:

Tax effect on non-GAAP adjustments(8,053) (4,558) (18,312)(13,181)

Excess tax benefits related to (10,350)(9,165) (52,829)(28,991)stock-based compensation

Total adjustments to GAAP net $27,549$7,254 $31,170$22,915income^(5)

EPAM SYSTEMS, INC. AND SUBSIDIARIES Reconciliations of Guidance Non-GAAP Financial Measures to Comparable GAAP Financial Measures (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 expectationsdepending on factors discussed in the Company's filings with the Securities and Exchange Commission.



Reconciliation of expected revenue growth on a GAAP basis to expected revenuegrowth on a constant currency basis is presented in the table below:



Fourth Quarter 2021 Full Year 2021 (at mid-point of range)(at least)

Revenue growth 49% 40%

Foreign exchange rates impact -% (2)%

Revenue growth on a constant currency49% 38% basis ^(6)

Constant currency revenue results are calculated by translating expected (6)revenues in local currency into U.S. dollars at the weighted average exchange rates of the comparable prior period.

Reconciliation of expected GAAP to non-GAAP income from operations as a percentage of revenues is presented in the table below:



Fourth Quarter 2021Full Year 2021

GAAP income from operations as a 13.5% to 14.5% 13.5% to 14.5% percentage of revenues

Stock-based compensation expenses 2.9% 2.9%

Included in cost of revenues (exclusive 1.3% 1.3% of depreciation and amortization)

Included in selling, general and 1.6% 1.6% administrative expenses

Other acquisition-related expenses 0.1% 0.2%

Amortization of purchased intangible 0.5% 0.4% assets

Non-GAAP income from operations as a 17% to 18% 17% to 18% percentage of revenues

Reconciliation of expected GAAP to non-GAAP effective tax rate is presented inthe table below:



Fourth Quarter 2021Full Year 2021

GAAP effective tax rate (approximately) 14% 11%

Tax effect on non-GAAP adjustments 3.1% 3.1%

Excess tax benefits related to 4.9% 7.9% stock-based compensation

Non-GAAP effective tax rate 22% 22% (approximately)

Reconciliation of expected GAAP to non-GAAP diluted earnings per share is presented in the table below:



Fourth Quarter 2021Full Year 2021

GAAP diluted earnings per share $2.11 to $2.18 $7.86 to $7.93

Stock-based compensation expenses 0.53 1.85

Included in cost of revenues (exclusive 0.25 0.83 of depreciation and amortization)

Included in selling, general and 0.28 1.02 administrative expenses

Other acquisition-related expenses 0.03 0.13

Amortization of purchased intangible 0.10 0.30 assets

Change in fair value of contingent - 0.02 consideration

Foreign exchange loss 0.03 0.12

Provision for income taxes:

Tax effect on non-GAAP adjustments (0.14) (0.45)

Excess tax benefits related to (0.22) (1.11) stock-based compensation

Non-GAAP diluted earnings per share $2.44 to $2.51 $8.72 to $8.79

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SOURCE EPAM Systems, Inc.