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Subjects: ERN, ERP

EPAM Reports Results for Second Quarter 2022


NEWTOWN, Pa., Aug. 4, 2022 /PRNewswire/ -- EPAM Systems, Inc. (NYSE: EPAM), a leading digital transformation services and product engineering company, today reported results for the second quarter ended June 30, 2022.

EPAM Reports Results for Second Quarter 2022

"Our strong second quarter results reflect EPAM's resiliency, agility and focus as the Company navigates the impact of the war in Ukraine," said Arkadiy Dobkin, CEO & President, EPAM. "The acceleration of our strategy will enable EPAM to continue our growth trajectory by developing our consulting and next generation delivery capabilities, investing in our people and communities as well as leading the change for customers through strategy and execution, simultaneously.  I remain confident we will continue to execute through this near-term challenge, and emerge as a more diverse, more resilient and more relevant global company."

Second Quarter 2022 Highlights

Cash Flow and Other Metrics

Third Quarter Outlook

EPAM expects the following for the third quarter:

Conference Call Information

EPAM will host a conference call to discuss the results on Thursday, August 4, 2022, at 8:00 a.m. EDT.  The conference call will be available live on the EPAM website at https://investors.epam.com. Please visit the website at least 15 minutes prior to the call to register for the event. For those who cannot access the live webcast, a replay will be available in the Investor Relations section of the website.

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. In 2021, EPAM was added to the S&P 500 and included among the list of Forbes Global 2000 companies.  

Selected by Newsweek as a 2021 Most Loved Workplace, EPAM's global multi-disciplinary teams serve customers in more than 50 countries across six 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 for three consecutive years, and 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, expenses associated with EPAM's humanitarian commitment to its professionals in Ukraine, unbilled business continuity resources resulting from Russia's invasion of Ukraine, costs associated with the geographic repositioning efforts in Russia and Belarus, employee separation costs in Russia, 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, developments relating to the invasion of Ukraine, political and civil unrest or military action in the geographies where we conduct business and operate, developments relating to the on-going COVID-19 pandemic, and the effect that they 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 and the factors discussed in the Company's Quarterly Report on Form 10-Q, filed on or after the date of this press release,  particularly under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" 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 based on 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

June 30,


Six Months Ended

June 30,


2022


2021


2022


2021

Revenues

$    1,194,861


$       881,366


$ 2,366,475


$ 1,662,141

Operating expenses:








Cost of revenues (exclusive of depreciation and
amortization)

846,323


583,728


1,627,159


1,103,056

Selling, general and administrative expenses

232,527


151,910


469,804


288,299

Depreciation and amortization expense

22,991


20,454


47,250


38,261

Income from operations

93,020


125,274


222,262


232,525

Interest and other income, net

1,579


2,580


1,414


7,954

Foreign exchange loss

(85,941)


(4,693)


(108,726)


(2,394)

Income before provision for income taxes

8,658


123,161


114,950


238,085

(Benefit from)/ provision for income taxes

(9,946)


8,490


6,627


14,368

Net income

$         18,604


$       114,671


$     108,323


$     223,717









Net income per share:








Basic

$              0.33


$              2.03


$           1.90


$           3.97

Diluted

$              0.32


$              1.94


$           1.84


$           3.80

Shares used in calculation of net income per share:








Basic

57,240


56,463


57,078


56,317

Diluted

59,020


59,011


58,981


58,896

 

EPAM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value)



As of

June 30,

2022


As of

December 31,

2021

Assets




Current assets




Cash and cash equivalents

$    1,293,518


$    1,446,625

Trade receivables and contract assets, net of allowance of $18,554

 and $5,521, respectively

929,217


768,928

Short-term investments

60,098


?

Prepaid and other current assets

76,845


53,927

Total current assets

2,359,678


2,269,480

Property and equipment, net

211,119


236,214

Operating lease right-of-use assets, net

159,726


184,841

Intangible assets, net

89,032


101,143

Goodwill

521,267


530,723

Deferred tax assets

172,807


143,928

Other noncurrent assets

50,335


56,898

Total assets

$    3,563,964


$    3,523,227





Liabilities




Current liabilities




Accounts payable

$         22,488


$         24,847

Accrued compensation and benefits expenses

414,674


502,997

Accrued expenses and other current liabilities

181,525


142,014

Short-term debt

6,701


16,018

Income taxes payable, current

18,190


27,440

Operating lease liabilities, current

41,125


50,104

Total current liabilities

684,703


763,420

Long-term debt

30,221


30,234

Income taxes payable, noncurrent

45,441


42,454

Operating lease liabilities, noncurrent

130,891


142,802

Other noncurrent liabilities

48,702


48,480

Total liabilities

939,958


1,027,390

Commitments and contingencies




Stockholders' equity




Common stock, $0.001 par value; 160,000 shares authorized; 57,373 and 56,868
shares issued, 57,353 and 56,849 shares outstanding at June 30, 2022 and December
31, 2021, respectively

57


57

Additional paid-in capital

760,975


711,912

Retained earnings

1,937,855


1,829,532

Treasury stock

(177)


(177)

Accumulated other comprehensive loss

(76,357)


(54,207)

Total EPAM Systems Inc. stockholders' equity

2,622,353


2,487,117

Noncontrolling interest in consolidated subsidiaries

1,653


8,720

Total stockholders' equity

$    2,624,006


$    2,495,837

Total liabilities and stockholders' equity

$    3,563,964


$    3,523,227

 

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 Ended

June 30, 2022


Six Months Ended

June 30, 2022

Revenue growth as reported

35.6 %


42.4 %

Foreign exchange rates impact

4.5 %


3.8 %

Revenue growth on a constant currency basis(1)

40.1 %


46.2 %



(1)

Constant currency revenue results are calculated by translating current 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 six months ended June 30, 2022 and 2021:



Three Months Ended

June 30, 2022


Six Months Ended

June 30, 2022


GAAP


Adjustments


Non-GAAP


GAAP


Adjustments


Non-GAAP

Cost of revenues (exclusive of
  depreciation and
  amortization)(2)

$   846,323


$   (27,272)


$  819,051


$  1,627,159


$    (27,218)


$  1,599,941

Selling, general and
  administrative expenses(3)

$   232,527


$   (51,439)


$  181,088


$     469,804


$  (105,693)


$       64,111

Income from operations(4)

$     93,020


$    84,467


$  177,487


$     222,262


$   143,911


$    366,173

Operating margin

7.8 %


7.1 %


14.9 %


9.4 %


6.1 %


15.5 %

Net income(5)

$     18,604


$  121,634


$  140,238


$     108,323


$   178,958


$    287,281

Diluted earnings per share

$         0.32




$        2.38


$           1.84




$          4.87






Three Months Ended

June 30, 2021


Six Months Ended

June 30, 2021


GAAP


Adjustments


Non-GAAP


GAAP


Adjustments


Non-GAAP

Cost of revenues (exclusive of
  depreciation and
  amortization)(2)

$  583,728


$   (11,261)


$  572,467


$  1,103,056


$   (22,378)


$  1,080,678

Selling, general and
  administrative expenses(3)

$  151,910


$   (14,744)


$  137,166


$     288,299


$   (30,122)


$     258,177

Income from operations(4)

$  125,274


$    29,966


$  155,240


$     232,525


$    59,601


$     292,126

Operating margin

14.2 %


3.4 %


17.6 %


14.0 %


3.6 %


17.6 %

Net income(5)

$  114,671


$      6,467


$  121,138


$     223,717


$      3,621


$     227,338

Diluted earnings per share

$        1.94




$        2.05


$           3.80




$           3.86

 

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

 


Three Months Ended

June 30,


Six Months Ended

June 30,


2022


2021


2022


2021

Stock-based compensation expense

$         14,732


$         11,261


$     14,308


$     22,378

Humanitarian support in Ukraine (a)

3,279


?


22,435


?

Unbilled business continuity resources (b)

9,261


?


11,831


?

Discretionary compensation (c)

?


?


(21,356)


?

Total adjustments to GAAP cost of revenues(2)

27,272


11,261


27,218


22,378

Stock-based compensation expenses

13,161


12,637


20,697


26,073

Other acquisition-related expenses

91


2,099


670


4,032

One-time charges

2,513


8


3,876


17

Humanitarian support in Ukraine (a)

5,088


?


11,588


?

Geographic repositioning (d)

14,366


?


33,072


?

Russia long-lived asset impairment charges (e)

?


?


19,570


?

Russia business restructuring (f)

16,220


?


16,220


?

Total adjustments to GAAP selling, general and
  administrative expenses(3)

51,439


14,744


105,693


30,122

Amortization of acquired intangible assets

5,756


3,961


11,000


7,101

Total adjustments to GAAP income from operations(4)

84,467


29,966


143,911


59,601

Change in fair value of contingent consideration included in
  Interest and other income, net

2,733


(692)


6,106


(5,636)

Impairment of financial asset

?


?


1,300


?

Foreign exchange loss

85,941


4,693


108,726


2,394

Provision for income taxes:








Tax effect on non-GAAP adjustments

(36,930)


(6,525)


(53,399)


(10,259)

Excess tax benefits related to stock-based compensation

(7,382)


(20,975)


(20,491)


(42,479)

Net discrete benefit from tax planning (g)

(7,195)


?


(7,195)


?

Total adjustments to GAAP net income(5)

$       121,634


$            6,467


$   178,958


$       3,621

 

(a) Humanitarian support in Ukraine includes expenses related to EPAM's $100 million humanitarian commitment in response to Russia's invasion of Ukraine to support EPAM professionals and their families in and displaced from Ukraine. These expenses are incremental to those expenses incurred prior to the crisis, clearly separable from normal operations, and not expected to recur once the crisis has subsided and operations return to normal.


(b) Given the uncertainty in the region introduced by Russia's invasion of Ukraine, EPAM has assigned delivery employees in locations outside of the region to ensure the continuity of delivery for customers who have substantial delivery exposure to Ukraine or other delivery concerns resulting from the invasion. These employees are not billed to clients and operate largely in a standby or backup capacity. These expenses are incremental to those expenses incurred prior to the crisis, clearly separable from normal operations, and not expected to recur once the crisis has subsided and operations return to normal.


(c) Discretionary compensation includes the reduction of previously accrued amounts associated with the Company's variable compensation program for the year ended December 31, 2021. This adjustment was made in response to Russia's invasion of Ukraine and is not expected to recur in the future.


(d) Geographic repositioning includes expenses associated with the Company's accelerated efforts to relocate employees in Russia and Belarus to other countries and includes the cost of accommodations, travel and food. These expenses are incremental to those expenses incurred prior to the crisis, clearly separable from normal operations, and not expected to recur once the crisis has subsided and operations return to normal.


(e) As a result of the Company's decision to no longer serve customers in Russia, the Company incurred impairment charges for long-lived assets in Russia including charges of $15.1 million associated with property and equipment, $3.8 million associated with right-of-use assets and $0.7 million associated with goodwill for the six months ended June 30, 2022. Consistent with the Company's historical non-GAAP policy, impairment charges have been excluded from non-GAAP results as these are one-time and unusual in nature.


(f) As a result of the Company's decision to no longer serve customers in Russia and begin the process of a phased exit of its operations in Russia, the Company incurred charges associated with employee separation. Consistent with the Company's historical non-GAAP policy, employee separation costs incurred in connection with formal restructuring initiatives have been excluded from non-GAAP results as these are one-time and unusual in nature.


(g) A one-time benefit related to the implementation of tax planning to disregard certain foreign subsidiaries as separate entities for U.S. income tax purposes. Consistent with the Company's historical non-GAAP policy, the benefit related to the implementation of tax planning has been excluded from non-GAAP results as it is one-time and unusual in nature.

 

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 expectations depending 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 revenue growth on a constant currency basis is presented in the table below:

 


Third Quarter 2022



Revenue growth (at least)

22 %



Foreign exchange rates impact

4 %



Revenue growth on a constant currency basis (at least) (6)  

26 %





(6)

Constant currency revenue results are calculated by translating expected 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:



Third Quarter 2022

GAAP income from operations as a percentage of revenues

9.5% to 10.5%

Stock-based compensation expenses

3.1 %

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

1.6 %

Included in selling, general and administrative expenses

1.5 %

Humanitarian support in Ukraine (a)

0.6 %

Unbilled business continuity resources (b)

0.3 %

Geographic repositioning (d)

0.6 %

One-time charges

0.3 %

Other acquisition-related expenses

0.1 %

Amortization of purchased intangible assets

0.5 %

Non-GAAP income from operations as a percentage of revenues

15% to 16%


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



Third Quarter 2022

GAAP effective tax rate (approximately)

19 %

Tax effect on non-GAAP adjustments

2.1 %

Excess tax benefits related to stock-based compensation

0.9 %

Non-GAAP effective tax rate (approximately)

22 %


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



Third Quarter 2022

GAAP diluted earnings per share (at least)

$                       1.65

Stock-based compensation expenses

0.64

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

0.34

Included in selling, general and administrative expenses

0.30

Humanitarian support in Ukraine (a)

0.12

Unbilled business continuity resources (b)

0.06

Geographic repositioning (d)

0.14

One-time charges

0.09

Other acquisition-related expenses

0.01

Amortization of purchased intangible assets

0.10

Provision for income taxes:


     Tax effect on non-GAAP adjustments

(0.23)

     Excess tax benefits related to stock-based compensation

(0.10)

Non-GAAP diluted earnings per share (at least)

$                       2.48

 

EPAM logo

Photo - https://mma.prnewswire.com/media/1872293/D528_Q2_2022_PR_final.jpg
Logo - https://mma.prnewswire.com/media/722474/EPAM_Logo.jpg

 


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