Le Lézard
Classified in: Science and technology, Business
Subjects: ERN, ERP

EPAM Reports Results for Third Quarter 2023 and Updates Full Year Outlook


NEWTOWN, Pa., Nov. 2, 2023 /PRNewswire/ -- EPAM Systems, Inc. (NYSE: EPAM), a leading digital transformation services and product engineering company, today reported results for the third quarter ended September 30, 2023.

"While we navigate through a challenging market landscape, we have observed indications of stability and growth in some parts of our business, which partially offsets the negative impacts in other parts of our portfolio," said Arkadiy Dobkin, CEO & President, EPAM. "Our solid third-quarter results are primarily due to our enhanced efforts in driving key client engagements, investment in strategic solution capabilities and go-to-market partnerships, and the unwavering dedication of our employees."

Third Quarter 2023 Highlights

Cash Flow and Other Metrics

2023 Outlook - Full Year and Fourth Quarter

Full Year

EPAM now expects the following for the full year:

Fourth Quarter

EPAM expects the following for the fourth quarter:

Conference Call Information

EPAM will host a conference call to discuss the results on Thursday, November 2, 2023, 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, 2022 and 2023 Most Loved Workplace, EPAM's global multidisciplinary 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 four times as the top IT services company on Fortune's 100 Fastest Growing Companies list. 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 acquired 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 of EPAM employees based outside of Ukraine impacted by the war and geopolitical instability in the region, 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 revenues on an "organic constant currency basis excluding the impact of the exit from Russia," which is also a non-GAAP financial measure. This measure excludes the effect of acquisitions by removing revenues from an acquired company in the twelve months after completing an acquisition, foreign currency exchange rate fluctuations by translating the current period revenues into U.S. dollars at the weighted average exchange rates of the prior period of comparison and the decision to exit from Russia by removing revenues from customers located in Russia in both the current period and 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 war in Ukraine and escalation of the war in the surrounding region, political and civil unrest or military action in the geographies where we conduct business and operate, difficult conditions in global capital markets, foreign exchange markets and the broader economy, and the effect that these events may have on our revenues, operations, access to capital, and profitability. 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 Reports on Form 10-Q, 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

September 30,


Nine Months Ended

September 30,


2023


2022


2023


2022

Revenues

$    1,152,136


$    1,226,920


$ 3,533,283


$ 3,593,395

Operating expenses:








Cost of revenues (exclusive of depreciation and amortization)

794,265


826,796


2,458,881


2,453,955

Selling, general and administrative expenses

194,829


198,021


601,093


667,825

Depreciation and amortization expense

23,092


21,876


68,642


69,126

Loss on sale of business

25,922


?


25,922


?

Income from operations

114,028


180,227


378,745


402,489

Interest and other income, net

13,931


4,228


37,162


5,642

Foreign exchange gain/(loss)

3,893


6,691


(6,725)


(102,035)

Income before provision for income taxes

131,852


191,146


409,182


306,096

Provision for income taxes

34,648


35,092


89,653


41,719

Net income

$         97,204


$       156,054


$     319,529


$     264,377









Net income per share:








Basic

$              1.68


$              2.72


$           5.52


$           4.62

Diluted

$              1.65


$              2.63


$           5.40


$           4.47

Shares used in calculation of net income per share:








Basic

57,853


57,420


57,850


57,194

Diluted

58,948


59,357


59,143


59,108

 

EPAM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value)



As of

September 30,

2023


As of

December 31,

2022

Assets




Current assets




Cash and cash equivalents

$    1,872,977


$    1,681,344

Trade receivables and contract assets, net of allowance of $10,884

 and $15,310, respectively

913,029


932,626

Short-term investments

60,431


60,336

Prepaid and other current assets

78,851


85,319

Total current assets

2,925,288


2,759,625

Property and equipment, net

239,654


273,348

Operating lease right-of-use assets, net

136,311


148,780

Intangible assets, net

69,730


77,652

Goodwill

548,177


529,072

Deferred tax assets

187,524


172,797

Other noncurrent assets

55,588


47,877

Total assets

$    4,162,272


$    4,009,151





Liabilities




Current liabilities




Accounts payable

$         25,415


$         30,852

Accrued compensation and benefits expenses

392,417


475,871

Accrued expenses and other current liabilities

127,898


154,339

Income taxes payable, current

29,554


46,069

Operating lease liabilities, current

38,294


40,352

Total current liabilities

613,578


747,483

Long-term debt

27,500


27,693

Operating lease liabilities, noncurrent

108,332


122,317

Other noncurrent liabilities

112,844


108,648

Total liabilities

862,254


1,006,141

Commitments and contingencies




Equity




Stockholders' equity




Common stock, $0.001 par value; 160,000 shares authorized; 57,706 and 57,668

shares issued, 57,693 and 57,655 shares outstanding at September 30, 2023 and

December 31, 2022, respectively

58


58

Additional paid-in capital

951,086


847,965

Retained earnings

2,440,043


2,248,948

Treasury stock

(118)


(118)

Accumulated other comprehensive loss

(91,630)


(95,321)

Total EPAM Systems, Inc. stockholders' equity

3,299,439


3,001,532

Noncontrolling interest in consolidated subsidiaries

579


1,478

Total equity

3,300,018


3,003,010

Total liabilities and equity

$    4,162,272


$    4,009,151

 

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 decline as reported on a GAAP basis to revenue decline on an organic constant currency basis excluding the impact of the exit from Russia is presented in the table below:



Three Months Ended

September 30, 2023


Nine Months Ended

September 30, 2023

Revenue decline as reported

(6.1) %


(1.7) %

Foreign exchange rates impact

(1.9) %


(0.4) %

Inorganic revenue growth

(0.2) %


(0.1) %

Impact of exit from Russia

0.4 %


1.1 %

Revenue decline on an organic constant currency basis excluding the impact of the exit from Russia(1)

(7.8) %


(1.1) %



(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 nine months ended September 30, 2023 and 2022:

 


Three Months Ended

September 30, 2023


Nine Months Ended

September 30, 2023


GAAP


Adjustments


Non-GAAP


GAAP


Adjustments


Non-GAAP

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

$ 794,265


$  (21,146)


$ 773,119


$  2,458,881


$  (67,281)


$  2,391,600

Selling, general and administrative expenses(3)

$ 194,829


$  (28,828)


$ 166,001


$ 601,093


$  (76,021)


$ 525,072

Income from operations(4)

$ 114,028


$    81,584


$ 195,612


$ 378,745


$ 185,932


$ 564,677

Operating margin

9.9 %


7.1 %


17.0 %


10.7 %


5.3 %


16.0 %

Net income(5)

$    97,204


$    63,876


$ 161,080


$ 319,529


$ 144,344


$ 463,873

Diluted earnings per share

$        1.65




$       2.73


$        5.40




$        7.84



Three Months Ended

September 30, 2022


Nine Months Ended

September 30, 2022


GAAP


Adjustments


Non-GAAP


GAAP


Adjustments


Non-GAAP

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

$ 826,796


$  (21,358)


$ 805,438


$  2,453,955


$  (48,576)


$  2,405,379

Selling, general and administrative expenses(3)

$ 198,021


$  (25,221)


$ 172,800


$ 667,825


$  (130,914)


$ 536,911

Income from operations(4)

$ 180,227


$    52,163


$ 232,390


$ 402,489


$ 196,074


$ 598,563

Operating margin

14.7 %


4.2 %


18.9 %


11.2 %


5.5 %


16.7 %

Net income(5)

$ 156,054


$    27,685


$ 183,739


$ 264,377


$ 206,643


$ 471,020

Diluted earnings per share

$        2.63




$       3.10


$        4.47




$        7.97


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

 


Three Months Ended

September 30,


Nine Months Ended

September 30,


2023


2022


2023


2022

Stock-based compensation expenses

$         18,142


$         17,474


$     49,569


$     31,782

Unbilled business continuity resources (a)

?


1,031


9,415


12,862

Humanitarian support in Ukraine (b)

3,004


2,853


8,297


25,288

Discretionary compensation (c)

?


?


?


(21,356)

Total adjustments to GAAP cost of revenues(2)

21,146


21,358


67,281


48,576

Stock-based compensation expenses

19,705


15,813


59,967


36,510

One-time charges (d)

7,178


2,360


7,420


6,236

Humanitarian support in Ukraine (b)

643


1,631


5,309


13,219

Other acquisition-related expenses

867


264


2,448


934

Geographic repositioning (e)

435


4,425


877


37,497

Russia long-lived asset impairment charges (f)

?


?


?


19,570

Russia business restructuring (g)

?


728


?


16,948

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

28,828


25,221


76,021


130,914

Loss on sale of business  (h)

25,922


?


25,922


?

Amortization of acquired intangible assets

5,688


5,584


16,708


16,584

Total adjustments to GAAP income from operations(4)

81,584


52,163


185,932


196,074

Foreign exchange (gain)/loss

(3,893)


(6,691)


6,725


102,035

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

300


2,414


1,818


8,520

Impairment of financial assets

?


?


?


1,300

Provision for income taxes:








  Tax effect on non-GAAP adjustments

(12,395)


(8,044)


(34,060)


(61,443)

  Excess tax benefits related to stock-based compensation

(1,720)


(10,879)


(15,103)


(31,370)

  Net discrete benefit from tax planning (i)

?


(1,278)


(968)


(8,473)

Total adjustments to GAAP net income(5)

$         63,876


$         27,685


$   144,344


$   206,643

 

(a)

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.



(b)

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.



(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)

One-time charges for the three and nine months ended September 30, 2023 include $7.1 million related to the Company's Cost Optimization Program initiated in the third quarter of 2023. Consistent with the Company's historical non-GAAP policy, costs incurred in connection with formal restructuring initiatives have been excluded from non-GAAP results as these are one-time and unusual in nature.



(e)

Geographic repositioning includes expenses associated with the relocation to other countries of employees based outside of Ukraine impacted by the war and geopolitical instability in the region, 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.



(f)

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 nine months ended September 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.



(g)

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.



(h)

On July 26, 2023, the Company completed the sale of its remaining operations in Russia and recorded a loss on sale of approximately $25.9 million during the third quarter of 2023, including the recognition of the accumulated currency translation loss related to this foreign entity that was previously included in Accumulated other comprehensive loss in the condensed consolidated financial statements. The Company excluded this loss from non-GAAP results as it is one-time and unusual in nature.



(i)

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 decline on a GAAP basis to expected revenue decline on an organic constant currency basis excluding the impact of the exit from Russia is presented in the table below:

 


Fourth Quarter 2023


Full Year 2023

Revenue decline (at midpoint of the range)

(8) %


(3) %

Foreign exchange rates impact

(0.4) %


(0.6) %

Inorganic revenue growth

(0.2) %


(0.2) %

Impact of exit from Russia

0.6 %


0.8 %

Revenue decline on an organic constant currency basis excluding the impact of the exit from Russia (at midpoint of the range) (6)

(8) %


(3) %



(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:



Fourth Quarter 2023


Full Year 2023

GAAP income from operations as a percentage of revenues

10% to 11%


10% to 11%

Stock-based compensation expenses

3.2 %


3.1 %

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

1.4 %


1.4 %

Included in selling, general and administrative expenses

1.8 %


1.7 %

Unbilled business continuity resources (a)

? %


0.2 %

Humanitarian support in Ukraine (b)

0.2 %


0.3 %

One-time charges (d)

1.2 %


0.4 %

Loss on sale of business (h)

? %


0.5 %

Amortization of acquired intangible assets

0.4 %


0.5 %

Non-GAAP income from operations as a percentage of revenues 

15% to 16%


15% to 16%

 

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



Fourth Quarter 2023


Full Year 2023

GAAP effective tax rate (approximately)

24 %


22 %

Excess tax benefits related to stock-based compensation

0.9 %


3.0 %

Tax effect on non-GAAP adjustments

(1.9) %


(2.0) %

Non-GAAP effective tax rate (approximately)

23 %


23 %

 

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



Fourth Quarter 2023


Full Year 2023

GAAP diluted earnings per share

$1.67 to $1.75


$7.07 to $7.15

Stock-based compensation expenses

0.62


2.47

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

0.28


1.12

Included in selling, general and administrative expenses

0.34


1.35

Unbilled business continuity resources (a)

?


0.16

Humanitarian support in Ukraine (b)

0.06


0.29

One-time charges (d)

0.25


0.40

Loss on sale of business (h)

?


0.43

Other acquisition-related expenses

?


0.04

Amortization of acquired intangible assets

0.10


0.38

Change in fair value of contingent consideration

?


0.03

Foreign exchange loss

?


0.12

Provision for income taxes:




     Tax effect on non-GAAP adjustments

(0.21)


(0.78)

     Excess tax benefits related to stock-based compensation

(0.02)


(0.28)

  Net discrete benefit from tax planning (i)

?


(0.02)

Non-GAAP diluted earnings per share

$2.47 to $2.55


$10.31 to $10.39

 

SOURCE EPAM Systems, Inc.


These press releases may also interest you

at 17:10
Marc G. Serré, Parliamentary Secretary to the Minister of Energy and Natural Resources and to the Minister of Official Languages, on behalf of the Honourable Jonathan Wilkinson, Minister of Energy and Natural Resources, will deliver a keynote address...

at 17:00
zkLink, the leading zero-knowledge(ZK) Layer 3 infrastructure provider, today announced the launch of zkLink Nova, the industry's first aggregated Layer 3 zkEVM rollup network, based on zkSync's ZK Stack and zkLink Nexus. zkLink Nova unifies...

at 14:52
Celebrating a significant milestone, JKA Supplier Diversity Solutions, at the forefront of supplier diversity consulting, proudly announces its prestigious ranking of No. 143 on the Inc. 5000 Regionals: Northeast list for 2024. Achieving an...

at 12:01
Sure, Phil Zamloot's team can make you a great trade show booth at a really good price. But that's not what makes him and his company, Metro Exhibits, so successful....

at 11:00
QUICK TAKE: Taiko Labs raised a total of US$37 million across three rounds, with its most recent Series A round led by Lightspeed Faction, Hashed, Generative Ventures, and Token Bay Capital.Taiko is now the largest Discord community in the rollups...

at 10:59
In a notable acknowledgment of its commitment to quality and innovation, REPT BATTERO was honored with the prestigious "Quality Excellence Award" by SUNGROW at the Global Partners Conference held in Hefei on February 28, 2024. This accolade serves as...



News published on and distributed by: