EPAM Reports Results for Fourth Quarter and Full Year 2023
Fourth Quarter 2023
-
Revenues of
$1.157 billion , down 6.0% year-over-year - GAAP Income from Operations was 10.6% of revenues and Non-GAAP Income from Operations was 17.3% of revenues
-
GAAP Diluted EPS of
$1.66 , a decrease of 36.4%, and Non-GAAP Diluted EPS of$2.75 , a decrease of 6.1% on a year-over-year basis
Full Year 2023
-
Revenues of
$4.691 billion , down 2.8% year-over-year - GAAP Income from Operations was 10.7% of revenues and Non-GAAP Income from Operations was 16.3% of revenues
-
GAAP Diluted EPS of
$7.06 , a decrease of 0.4%, and Non-GAAP Diluted EPS of$10.59 , a decrease of 2.8% on a year-over-year basis
"EPAM's performance in 2023 reflects our ability to successfully navigate a volatile demand and macro-economic environment," said
Fourth Quarter 2023 Highlights
- Revenues decreased to
$1.157 billion , a year-over-year decrease of$74.0 million , or 6.0%. On an organic constant currency basis excluding the impact of the exit fromRussia , revenues were down 7.1% compared to the fourth quarter of 2022; - GAAP income from operations was
$122.5 million , a decrease of$48.0 million , or 28.1% , compared to$170.5 million in the fourth quarter of 2022. GAAP income from operations was negatively impacted by$27.9 million of costs incurred in connection with the Company's Cost Optimization Program; - Non-GAAP income from operations was
$200.4 million , a decrease of$19.2 million , or 8.7%, compared to$219.6 million in the fourth quarter of 2022; - Diluted earnings per share ("EPS") on a GAAP basis was
$1.66 , a decrease of$0.95 , or 36.4%, compared to$2.61 in the fourth quarter of 2022; and - Non-GAAP diluted EPS was
$2.75 , a decrease of$0.18 , or 6.1%, compared to$2.93 in the fourth quarter of 2022.
Full Year 2023 Highlights
- Revenues decreased to
$4.691 billion , a year-over-year decrease of$134.2 million , or 2.8%. On an organic constant currency basis excluding the impact of the exit fromRussia , revenues were down 2.6% year-over-year; - GAAP income from operations was
$501.2 million , a decrease of$71.7 million , or 12.5%, compared to$573.0 million in 2022. GAAP income from operations was negatively impacted by a$25.9 million loss on the sale of the Company's remaining holdings inRussia and by$35.1 million of costs incurred in connection with the Company's Cost Optimization Program; - Non-GAAP income from operations was
$765.1 million , a decrease of$53.1 million , or 6.5%, compared to$818.2 million in 2022; - Diluted EPS on a GAAP basis was
$7.06 , a decrease of$0.03 , or 0.4%, compared to$7.09 in 2022; and - Non-GAAP diluted EPS was
$10.59 , a decrease of$0.31 , or 2.8%, compared to$10.90 in 2022.
Cash Flow and Other Metrics
- Cash provided by operating activities was
$171.4 million in the fourth quarter of 2023, a decrease from$186.1 million in the fourth quarter of 2022; and was$562.6 million in 2023, an increase from$464.1 million in 2022; - The Company repurchased 143 thousand shares of its common stock for
$36.5 million during the fourth quarter of 2023 under its share repurchase program. During the year endedDecember 31, 2023 , the Company repurchased 686 thousand shares of its common stock for$164.9 million under its share repurchase program. As ofDecember 31, 2023 , the Company had$335.1 million remaining under its share repurchase authorization. - Cash, cash equivalents and restricted cash totaled
$2.043 billion as ofDecember 31, 2023 , an increase of$359.5 million , or 21.4%, from$1.684 billion as ofDecember 31, 2022 ; and - Total headcount was approximately 53,150 as of
December 31, 2023 . Included in this number were approximately 47,350 delivery professionals, a decrease of 10.4% fromDecember 31, 2022 .
2024 Outlook - Full Year and First Quarter
Full Year
EPAM expects the following for the full year:
- The Company expects the year-over-year growth rate for revenues to be in the range of 1% to 4% for 2024. The Company expects foreign currency translation will have a negligible impact on year-over-year reported revenue growth. This guidance also reflects a minimal contribution from inorganic revenues.
- For the full year, EPAM expects GAAP income from operations to be in the range of 9.5% to 10.5% of revenues and non-GAAP income from operations to be in the range of 14.5% to 15.5% of revenues;
- The Company expects its GAAP effective tax rate to be approximately 21% and its non-GAAP effective tax rate to be approximately 24%; and
- EPAM expects GAAP diluted EPS will be in the range of
$7.20 to$7.60 for the year, and non-GAAP diluted EPS will be in the range of$10.00 to$10.40 for the year. The Company expects weighted average diluted shares outstanding for the year of 59.3 million.
First Quarter
EPAM expects the following for the first quarter:
- The Company expects revenues will be in the range of
$1.155 billion to$1.165 billion for the first quarter reflecting a year-over-year decline of 4% at the midpoint of the range. The Company expects that foreign currency translation will have a negligible impact on year-over-year revenue decline during the quarter. This guidance also reflects a minimal contribution from inorganic revenues; - For the first quarter, EPAM expects GAAP income from operations to be in the range of 9% to 10% of revenues and non-GAAP income from operations to be in the range of 13.5% to 14.5% of revenues;
- The Company expects its GAAP effective tax rate to be approximately 11% and its non-GAAP effective tax rate to be approximately 24%; and
- EPAM expects GAAP diluted EPS will be in the range of
$1.79 to$1.87 for the quarter, and non-GAAP diluted EPS will be in the range of$2.26 to$2.34 for the quarter. The Company expects weighted average diluted shares outstanding for the quarter of 59.1 million.
Conference Call Information
EPAM will host a conference call to discuss results on
About
Since 1993,
We deliver globally, but engage locally with our expert teams of consultants, architects, designers and engineers, making the future real for our clients, our partners and our people around the world.
We believe the right solutions are the ones that improve people's lives and fuel competitive advantage for our clients across diverse industries. Our thinking comes to life in the experiences, products and platforms we design and bring to market.
Added to the S&P 500 and the Forbes Global 2000 in 2021 and recognized by Glassdoor as a Best Workplace in 2023 and 2024, our multidisciplinary teams serve customers across six continents. We are proud to be among the top 15 companies in Information Technology Services in the Fortune 1000 and to be recognized as a leader in the IDC MarketScapes for Worldwide Experience Build Services, Worldwide Experience Design Services and Worldwide Software Engineering Services as well a leader in the 2023 Gartner® Magic Quadrant™ for Custom Software Development Services, Worldwide.*
Learn more at www.epam.com and follow us on LinkedIn.
* Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.
Non-GAAP Financial Measures
EPAM supplements results reported in accordance with
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
|
|||||||
CONSOLIDATED STATEMENTS OF INCOME |
|||||||
(Unaudited) |
|||||||
(In thousands, except per share data) |
|||||||
|
|||||||
|
Three Months Ended |
|
Year Ended |
||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Revenues |
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
797,633 |
|
832,728 |
|
3,256,514 |
|
3,286,683 |
Selling, general and administrative expenses |
213,972 |
|
204,952 |
|
815,065 |
|
872,777 |
Depreciation and amortization expense |
23,158 |
|
23,146 |
|
91,800 |
|
92,272 |
Loss on sale of business |
— |
|
— |
|
25,922 |
|
— |
Income from operations |
122,494 |
|
170,477 |
|
501,239 |
|
572,966 |
Interest and other income, net |
13,962 |
|
4,383 |
|
51,124 |
|
10,025 |
Foreign exchange (loss)/gain |
(9,053) |
|
26,302 |
|
(15,778) |
|
(75,733) |
Income before provision for income taxes |
127,403 |
|
201,162 |
|
536,585 |
|
507,258 |
Provision for income taxes |
29,849 |
|
46,123 |
|
119,502 |
|
87,842 |
Net income |
$ 97,554 |
|
$ 155,039 |
|
$ 417,083 |
|
$ 419,416 |
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
Basic |
$ 1.69 |
|
$ 2.69 |
|
$ 7.21 |
|
$ 7.32 |
Diluted |
$ 1.66 |
|
$ 2.61 |
|
$ 7.06 |
|
$ 7.09 |
Shares used in calculation of net income per share: |
|
|
|
|
|
|
|
Basic |
57,767 |
|
57,580 |
|
57,829 |
|
57,291 |
Diluted |
58,913 |
|
59,349 |
|
59,085 |
|
59,169 |
|
|||
CONSOLIDATED BALANCE SHEETS |
|||
(Unaudited) |
|||
(In thousands, except par value) |
|||
|
|||
|
As of December 31, 2023 |
|
As of December 31, 2022 |
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
$ 2,036,235 |
|
$ 1,681,344 |
Trade receivables and contract assets, net of allowance of |
897,032 |
|
932,626 |
Short-term investments |
60,739 |
|
60,336 |
Prepaid and other current assets |
97,355 |
|
85,319 |
Total current assets |
3,091,361 |
|
2,759,625 |
Property and equipment, net |
235,053 |
|
273,348 |
Operating lease right-of-use assets, net |
134,898 |
|
148,780 |
Intangible assets, net |
71,118 |
|
77,652 |
|
562,459 |
|
529,072 |
Deferred tax assets |
197,901 |
|
172,797 |
Other noncurrent assets |
59,575 |
|
47,877 |
Total assets |
$ 4,352,365 |
|
$ 4,009,151 |
|
|
|
|
Liabilities |
|
|
|
Current liabilities |
|
|
|
Accounts payable |
$ 31,992 |
|
$ 30,852 |
Accrued compensation and benefits expenses |
412,747 |
|
475,871 |
Accrued expenses and other current liabilities |
124,823 |
|
154,339 |
Income taxes payable, current |
38,812 |
|
46,069 |
Operating lease liabilities, current |
36,558 |
|
40,352 |
Total current liabilities |
644,932 |
|
747,483 |
Long-term debt |
26,126 |
|
27,693 |
Operating lease liabilities, noncurrent |
109,261 |
|
122,317 |
Other noncurrent liabilities |
100,576 |
|
108,648 |
Total liabilities |
880,895 |
|
1,006,141 |
Commitments and contingencies |
|
|
|
Equity |
|
|
|
Stockholders' equity |
|
|
|
Common stock, |
58 |
|
58 |
Additional paid-in capital |
1,008,766 |
|
847,965 |
Retained earnings |
2,501,107 |
|
2,248,948 |
|
— |
|
(118) |
Accumulated other comprehensive loss |
(39,040) |
|
(95,321) |
|
3,470,891 |
|
3,001,532 |
Noncontrolling interest in consolidated subsidiaries |
579 |
|
1,478 |
Total equity |
3,471,470 |
|
3,003,010 |
Total liabilities and equity |
$ 4,352,365 |
|
$ 4,009,151 |
|
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 an organic constant currency basis excluding the impact of the exit from |
|
|
Three Months Ended |
|
Year Ended |
Revenue growth as reported |
(6.0) % |
|
(2.8) % |
Foreign exchange rates impact |
(1.3) % |
|
(0.6) % |
Inorganic revenue growth |
(0.5) % |
|
(0.2) % |
Impact of exit from |
0.7 % |
|
1.0 % |
Revenue growth on an organic constant currency basis excluding the impact of the exit from |
(7.1) % |
|
(2.6) % |
Reconciliation of various income statement amounts from GAAP to non-GAAP for the three months and years ended |
|
|
Three Months Ended |
|
Year Ended |
||||||||
|
GAAP |
|
Adjustments |
|
Non-GAAP |
|
GAAP |
|
Adjustments |
|
Non-GAAP |
Cost of revenues (exclusive of depreciation and amortization)(1) |
$ 797,633 |
|
$ (22,183) |
|
$ 775,450 |
|
|
|
$ (89,464) |
|
$ 3,167,050 |
Selling, general and administrative expenses(2) |
$ 213,972 |
|
$ (49,747) |
|
$ 164,225 |
|
$ 815,065 |
|
$ (125,768) |
|
$ 689,297 |
Income from operations(3) |
$ 122,494 |
|
$ 77,939 |
|
$ 200,433 |
|
$ 501,239 |
|
$ 263,871 |
|
$ 765,110 |
Operating margin |
10.6 % |
|
6.7 % |
|
17.3 % |
|
10.7 % |
|
5.6 % |
|
16.3 % |
Net income(4) |
$ 97,554 |
|
$ 64,211 |
|
$ 161,765 |
|
$ 417,083 |
|
$ 208,555 |
|
$ 625,638 |
Diluted earnings per share |
$ 1.66 |
|
|
|
$ 2.75 |
|
$ 7.06 |
|
|
|
$ 10.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Year Ended |
||||||||
|
GAAP |
|
Adjustments |
|
Non-GAAP |
|
GAAP |
|
Adjustments |
|
Non-GAAP |
Cost of revenues (exclusive of depreciation and amortization)(1) |
$ 832,728 |
|
$ (21,226) |
|
$ 811,502 |
|
$ 3,286,683 |
|
$ (69,802) |
|
$ 3,216,881 |
Selling, general and administrative expenses(2) |
$ 204,952 |
|
$ (22,300) |
|
$ 182,652 |
|
$ 872,777 |
|
$ (153,214) |
|
$ 719,563 |
Income from operations(3) |
$ 170,477 |
|
$ 49,165 |
|
$ 219,642 |
|
$ 572,966 |
|
$ 245,239 |
|
$ 818,205 |
Operating margin |
13.8 % |
|
4.0 % |
|
17.8 % |
|
11.9 % |
|
5.1 % |
|
17.0 % |
Net income(4) |
$ 155,039 |
|
$ 18,858 |
|
$ 173,897 |
|
$ 419,416 |
|
$ 225,501 |
|
$ 644,917 |
Diluted earnings per share |
$ 2.61 |
|
|
|
$ 2.93 |
|
$ 7.09 |
|
|
|
$ 10.90 |
|
Items (1) through (4) above are detailed in the following table with the specific cross-reference noted in the appropriate item. |
|
Three Months Ended December 31, |
|
Year Ended December 31, |
||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Stock-based compensation expenses |
$ 19,228 |
|
$ 15,688 |
|
$ 68,797 |
|
$ 47,470 |
Humanitarian support in |
2,955 |
|
3,688 |
|
11,252 |
|
28,976 |
Unbilled business continuity resources (b) |
— |
|
1,850 |
|
9,415 |
|
14,712 |
Discretionary compensation (c) |
— |
|
— |
|
— |
|
(21,356) |
Total adjustments to GAAP cost of revenues(1) |
22,183 |
|
21,226 |
|
89,464 |
|
69,802 |
Stock-based compensation expenses |
18,966 |
|
15,929 |
|
78,933 |
|
52,439 |
Cost Optimization Program charges (d) |
27,936 |
|
— |
|
35,052 |
|
— |
Humanitarian support in |
836 |
|
2,614 |
|
6,145 |
|
15,833 |
Other acquisition-related expenses |
275 |
|
603 |
|
2,723 |
|
1,537 |
Geographic repositioning (e) |
916 |
|
1,245 |
|
1,793 |
|
38,742 |
One-time charges |
818 |
|
1,723 |
|
1,122 |
|
7,959 |
|
— |
|
— |
|
— |
|
19,570 |
|
— |
|
186 |
|
— |
|
17,134 |
Total adjustments to GAAP selling, general and administrative expenses(2) |
49,747 |
|
22,300 |
|
125,768 |
|
153,214 |
Loss on sale of business (h) |
— |
|
— |
|
25,922 |
|
— |
Amortization of purchased intangible assets |
6,009 |
|
5,639 |
|
22,717 |
|
22,223 |
Total adjustments to GAAP income from operations(3) |
77,939 |
|
49,165 |
|
263,871 |
|
245,239 |
Foreign exchange loss/(gain) |
9,053 |
|
(26,302) |
|
15,778 |
|
75,733 |
Change in fair value of contingent consideration included in Interest and other income, net |
1,000 |
|
2,581 |
|
2,818 |
|
11,101 |
Loss on financial instrument |
700 |
|
— |
|
700 |
|
— |
Impairment of financial assets |
— |
|
750 |
|
— |
|
2,050 |
Provision for income taxes: |
|
|
|
|
|
|
|
Tax effect on non-GAAP adjustments |
(19,755) |
|
(3,587) |
|
(53,815) |
|
(65,030) |
Excess tax benefits related to stock-based compensation |
(4,726) |
|
(3,749) |
|
(19,829) |
|
(35,119) |
Net discrete benefit from tax planning (i) |
— |
|
— |
|
(968) |
|
(8,473) |
Total adjustments to GAAP net income(4) |
$ 64,211 |
|
$ 18,858 |
|
$ 208,555 |
|
$ 225,501 |
|
(a) Humanitarian support in |
|
(b) Given the uncertainty in the region introduced by |
|
(c) Discretionary compensation includes the reduction of previously accrued amounts associated with the Company's variable compensation program for the year ended |
|
(d) Cost Optimization Program charges includes severance and facilities charges incurred in connection with the 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 |
|
(f) As a result of the Company's decision to no longer serve customers in |
|
(g) As a result of the Company's decision to no longer serve customers in |
|
(h) On |
|
(i) One-time benefit related to the implementation of tax planning to disregard certain foreign subsidiaries as separate entities for |
|
|
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 |
|
Reconciliation of expected GAAP to non-GAAP income from operations as a percentage of revenues is presented in the table below: |
|
|
First Quarter 2024 |
|
Full Year 2024 |
GAAP income from operations as a percentage of revenues |
9% to 10% |
|
9.5% to 10.5% |
Stock-based compensation expenses |
3.7 % |
|
4.1 % |
Included in cost of revenues (exclusive of depreciation and amortization) |
1.7 % |
|
1.8 % |
Included in selling, general and administrative expenses |
2.0 % |
|
2.3 % |
Amortization of purchased intangible assets |
0.5 % |
|
0.6 % |
Humanitarian support in |
0.2 % |
|
0.2 % |
One-time charges (d) |
0.1 % |
|
0.1 % |
Non-GAAP income from operations as a percentage of revenues |
13.5% to 14.5% |
|
14.5% to 15.5% |
Reconciliation of expected GAAP to non-GAAP effective tax rate is presented in the table below: |
|
|
First Quarter 2024 |
|
Full Year 2024 |
GAAP effective tax rate (approximately) |
11 % |
|
21 % |
Excess tax benefits related to stock-based compensation |
15 % |
|
5 % |
Tax effect on non-GAAP adjustments |
(2) % |
|
(2) % |
Non-GAAP effective tax rate (approximately) |
24 % |
|
24 % |
Reconciliation of expected GAAP to non-GAAP diluted earnings per share is presented in the table below: |
|
|||
|
First Quarter 2024 |
|
Full Year 2024 |
GAAP diluted earnings per share |
|
|
|
Stock-based compensation expenses |
0.74 |
|
3.34 |
Included in cost of revenues (exclusive of depreciation and amortization) |
0.33 |
|
1.50 |
Included in selling, general and administrative expenses |
0.41 |
|
1.84 |
Amortization of purchased intangible assets |
0.11 |
|
0.43 |
Humanitarian support in |
0.04 |
|
0.17 |
Cost Optimization Program charges (d) |
0.04 |
|
0.04 |
Other acquisition-related expenses |
0.01 |
|
0.01 |
Foreign exchange loss |
0.02 |
|
0.07 |
Provision for income taxes: |
|
|
|
Tax effect on non-GAAP adjustments |
(0.19) |
|
(0.79) |
Excess tax benefits related to stock-based compensation |
(0.30) |
|
(0.47) |
Non-GAAP diluted earnings per share |
|
|
|
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