EPAM Reports Results for Second Quarter 2024 and Updates Full Year Outlook
-
Second
quarter revenues of
$1.147 billion , down 2.0% year-over-year - GAAP income from operations was 10.5% of revenues and non-GAAP income from operations was 15.2% of revenues for the second quarter
-
Second
quarter GAAP diluted EPS of
$1.70 , a decrease of$0.33 , and non-GAAP diluted EPS of$2.45 , a decrease of$0.19 on a year-over-year basis -
For the full year, EPAM narrows expected range for revenues to
$4.590 billion to$4.625 billion , updates expected GAAP diluted EPS to now be in the range of$7.18 to$7.38 and non-GAAP diluted EPS to now be in the range of$10.20 to$10.40 -
For the third quarter, EPAM expects revenues to be in the range of
$1.145 billion to$1.155 billion , GAAP diluted EPS to be in the range of$1.75 to$1.83 and non-GAAP diluted EPS to be in the range of$2.65 to$2.73 -
New Share Repurchase Program - On
August 1, 2024 , the Board of Directors approved a new share repurchase program with authorization to purchase up to$500 million of EPAM common stock
"With ongoing exposure to a challenging macro-demand environment, EPAM's solid performance highlights the Company's ability to adapt and optimize operations, while continuing to strengthen its offerings and client value propositions," said
Second Quarter 2024 Highlights
- Revenues decreased to
$1.147 billion , a year-over-year decrease of$23.6 million , or 2.0%. On an organic constant currency basis excluding the impact of the exit fromRussia , revenues were down 2.8% compared to the second quarter of 2023; - GAAP income from operations was
$120.6 million , a decrease of$23.8 million , or 16.5%, compared to$144.3 million in the second quarter of 2023; - Non-GAAP income from operations was
$174.5 million , a decrease of$16.3 million , or 8.5%, compared to$190.8 million in the second quarter of 2023; - Diluted earnings per share ("EPS") on a GAAP basis was
$1.70 , a decrease of$0.33 , or 16.3%, compared to$2.03 in the second quarter of 2023; and - Non-GAAP diluted EPS was
$2.45 , a decrease of$0.19 , or 7.2%, compared to$2.64 in the second quarter of 2023.
Cash Flow and Other Metrics
- Cash provided by operating activities was
$186.9 million for the first six months of 2024, compared to cash provided by operating activities of$176.4 million for the first six months of 2023; - Cash, cash equivalents and restricted cash totaled
$1.792 billion as ofJune 30, 2024 , a decrease of$251.5 million , or 12.3%, from$2.043 billion as ofDecember 31, 2023 , largely driven by share repurchases; and - Total headcount was approximately 52,650 as of
June 30, 2024 . Included in this number were approximately 47,000 delivery professionals, a level consistent with that as ofMarch 31, 2024 .
Share Repurchase Program
- The Company repurchased 1.160 million shares of its common stock for
$214.5 million during the second quarter of 2024 under its previously authorized share repurchase program. During the second quarter of 2023, the Company repurchased 195 thousand shares of its common stock for$41.4 million under its previously authorized share repurchase program. As ofJune 30, 2024 , the Company exhausted the$500 million available for purchases of the Company's common stock under the previously authorized share repurchase program; - On
August 1, 2024 , the Board of Directors approved a new share repurchase program with authorization to purchase up to$500 million of EPAM common stock; and - EPAM may repurchase shares of its common stock from time to time through open market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The share repurchase program will have a term of 24 months, may be suspended or discontinued at any time, and does not obligate the company to acquire any amount of common stock.
2024 Outlook - Full Year and Third Quarter
Full Year
While client demand has stabilized, the Company is expecting no aggregate improvement in demand for the remainder of the year. As a result, EPAM now expects the following for the full year:
- The Company narrows its expected range for revenues to
$4.590 billion to$4.625 billion for the full year reflecting a year-over-year decline of 1.8% at the midpoint of the range. The Company expects that revenues on an organic constant currency basis excluding the impact of the exit fromRussia will decline 2.9% at the midpoint of the range; - For the full year, EPAM expects GAAP income from operations to now be in the range of 10.5% to 11.0% of revenues and non-GAAP income from operations to now be in the range of 15.5% to 16.0% of revenues;
- The Company expects its GAAP effective tax rate to now be approximately 21% and continues to expect its non-GAAP effective tax rate to be approximately 24%; and
- EPAM expects GAAP diluted EPS to now be in the range of
$7.18 to$7 .38 and non-GAAP diluted EPS to now be in the range of$10.20 to$10.40 . The Company expects weighted average diluted shares outstanding for the year to now be 57.9 million.
Third Quarter
EPAM expects the following for the third quarter:
- The Company expects revenues will be in the range of
$1.145 billion to$1.155 billion for the third quarter reflecting a year-over-year decline of 0.2% at the midpoint of the range. The Company expects that revenues on an organic constant currency basis excluding the impact of the exit fromRussia will decline 1.4% at the midpoint of the range; - For the third quarter, EPAM expects GAAP income from operations to be in the range of 10.0% to 11.0% of revenues and non-GAAP income from operations to be in the range of 16.0% to 17.0% of revenues;
- The Company expects both its GAAP effective tax rate and its non-GAAP effective tax rate to be approximately 24%; and
- EPAM expects GAAP diluted EPS will be in the range of
$1.75 to$1.83 for the quarter, and non-GAAP diluted EPS will be in the range of$2.65 to$2.73 for the quarter. The Company expects weighted average diluted shares outstanding for the quarter of 57.4 million.
Conference Call Information
EPAM will host a conference call to discuss the results on
About
Since 1993,
We make GenAI real with our testing, engineering and AI LLM orchestration solutions, EPAM EliteA™, EPAM AI/RUN™ and EPAM DIAL, respectively.
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 as a leader in the 2023 Gartner® Magic Quadrant™ for Custom Software Development Services, Worldwide.*
Learn more at https://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
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) |
|||||||
|
|||||||
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Revenues |
$ 1,146,597 |
|
$ 1,170,206 |
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and |
810,857 |
|
808,715 |
|
1,645,191 |
|
1,664,616 |
Selling, general and administrative expenses |
194,058 |
|
194,377 |
|
392,511 |
|
406,264 |
Depreciation and amortization expense |
21,121 |
|
22,768 |
|
43,267 |
|
45,550 |
Income from operations |
120,561 |
|
144,346 |
|
231,093 |
|
264,717 |
Interest and other income, net |
12,036 |
|
11,710 |
|
27,078 |
|
23,231 |
Foreign exchange gain/(loss) |
1,213 |
|
(6,010) |
|
(706) |
|
(10,618) |
Income before provision for income taxes |
133,810 |
|
150,046 |
|
257,465 |
|
277,330 |
Provision for income taxes |
35,165 |
|
30,013 |
|
42,577 |
|
55,005 |
Net income |
$ 98,645 |
|
$ 120,033 |
|
$ 214,888 |
|
$ 222,325 |
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
Basic |
$ 1.71 |
|
$ 2.07 |
|
$ 3.72 |
|
$ 3.84 |
Diluted |
$ 1.70 |
|
$ 2.03 |
|
$ 3.67 |
|
$ 3.75 |
Shares used in calculation of net income per share: |
|
|
|
|
|
|
|
Basic |
57,594 |
|
57,993 |
|
57,716 |
|
57,848 |
Diluted |
58,149 |
|
59,181 |
|
58,540 |
|
59,240 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except par value) |
|||
|
As of
2024 |
|
As of
2023 |
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
$ 1,787,182 |
|
$ 2,036,235 |
Trade receivables and contract assets, net of allowance of
and |
960,866 |
|
897,032 |
Short-term investments |
61,492 |
|
60,739 |
Prepaid and other current assets |
106,103 |
|
97,355 |
Total current assets |
2,915,643 |
|
3,091,361 |
Property and equipment, net |
210,378 |
|
235,053 |
Operating lease right-of-use assets, net |
129,953 |
|
134,898 |
Intangible assets, net |
78,241 |
|
71,118 |
|
608,072 |
|
562,459 |
Deferred tax assets |
213,074 |
|
197,901 |
Other noncurrent assets |
67,968 |
|
59,575 |
Total assets |
$ 4,223,329 |
|
$ 4,352,365 |
|
|
|
|
Liabilities |
|
|
|
Current liabilities |
|
|
|
Accounts payable |
$ 30,954 |
|
$ 31,992 |
Accrued compensation and benefits expenses |
367,670 |
|
412,747 |
Accrued expenses and other current liabilities |
129,539 |
|
124,823 |
Income taxes payable, current |
37,466 |
|
38,812 |
Operating lease liabilities, current |
36,829 |
|
36,558 |
Total current liabilities |
602,458 |
|
644,932 |
Long-term debt |
25,501 |
|
26,126 |
Operating lease liabilities, noncurrent |
103,654 |
|
109,261 |
Other noncurrent liabilities |
93,757 |
|
100,576 |
Total liabilities |
825,370 |
|
880,895 |
Commitments and contingencies |
|
|
|
Equity |
|
|
|
Stockholders' equity |
|
|
|
Common stock, |
57 |
|
58 |
Additional paid-in capital |
1,087,411 |
|
1,008,766 |
Retained earnings |
2,379,332 |
|
2,501,107 |
Accumulated other comprehensive loss |
(69,423) |
|
(39,040) |
|
3,397,377 |
|
3,470,891 |
Noncontrolling interest in consolidated subsidiaries |
582 |
|
579 |
Total equity |
3,397,959 |
|
3,471,470 |
Total liabilities and equity |
$ 4,223,329 |
|
$ 4,352,365 |
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 |
|||
|
|||
|
Three Months Ended
|
|
Six Months Ended
|
Revenue decline as reported |
(2.0) % |
|
(2.9) % |
Foreign exchange rates impact |
0.3 % |
|
(0.2) % |
Inorganic revenue growth |
(1.6) % |
|
(1.2) % |
Impact of exit from |
0.5 % |
|
0.5 % |
Revenue decline on an organic constant currency basis excluding the impact of the exit from |
(2.8) % |
|
(3.8) % |
Reconciliation of various income statement amounts from GAAP to non-GAAP for the three and six months ended |
|||||||||||
|
|||||||||||
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
GAAP |
|
Adjustments |
|
Non-GAAP |
|
GAAP |
|
Adjustments |
|
Non-GAAP |
Cost of revenues (exclusive of depreciation and |
|
|
$ (17,504) |
|
|
|
$ 1,645,191 |
|
$ (40,520) |
|
$ 1,604,671 |
Selling, general and administrative expenses(2) |
|
|
$ (30,620) |
|
|
|
$ 392,511 |
|
$ (64,713) |
|
|
Income from operations(3) |
|
|
$ 53,945 |
|
|
|
$ 231,093 |
|
$ 117,003 |
|
|
Operating margin |
10.5 % |
|
4.7 % |
|
15.2 % |
|
10.0 % |
|
5.1 % |
|
15.1 % |
Net income(4) |
$ 98,645 |
|
$ 43,621 |
|
|
|
$ 214,888 |
|
$ 72,624 |
|
|
Diluted earnings per share |
$ 1.70 |
|
|
|
$ 2.45 |
|
$ 3.67 |
|
|
|
$ 4.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
GAAP |
|
Adjustments |
|
Non-GAAP |
|
GAAP |
|
Adjustments |
|
Non-GAAP |
Cost of revenues (exclusive of depreciation and amortization)(1) |
|
|
$ (20,314) |
|
|
|
$ 1,664,616 |
|
$ (46,135) |
|
$ 1,618,481 |
Selling, general and administrative expenses(2) |
|
|
$ (20,654) |
|
|
|
$ 406,264 |
|
$ (47,193) |
|
|
Income from operations(3) |
|
|
$ 46,451 |
|
|
|
$ 264,717 |
|
$ 104,348 |
|
|
Operating margin |
12.3 % |
|
4.0 % |
|
16.3 % |
|
11.1 % |
|
4.4 % |
|
15.5 % |
Net income(4) |
|
|
$ 36,167 |
|
|
|
$ 222,325 |
|
$ 80,468 |
|
|
Diluted earnings per share |
$ 2.03 |
|
|
|
$ 2.64 |
|
$ 3.75 |
|
|
|
$ 5.11 |
|
Items (1) through (4) above are detailed in the table below with the specific cross-reference noted in the appropriate item. |
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Stock-based compensation expenses |
$ 16,937 |
|
$ 15,416 |
|
$ 39,294 |
|
$ 31,427 |
Humanitarian support in |
567 |
|
2,853 |
|
1,226 |
|
5,293 |
Unbilled business continuity resources (b) |
— |
|
2,045 |
|
— |
|
9,415 |
Total adjustments to GAAP cost of revenues(1) |
17,504 |
|
20,314 |
|
40,520 |
|
46,135 |
Stock-based compensation expenses |
18,747 |
|
17,694 |
|
41,181 |
|
40,262 |
Cost Optimization charges (c) |
9,513 |
|
— |
|
16,530 |
|
— |
Humanitarian support in |
2,119 |
|
1,049 |
|
4,739 |
|
4,666 |
Other acquisition-related expenses |
456 |
|
1,340 |
|
1,679 |
|
1,581 |
Geographic repositioning (d) |
104 |
|
230 |
|
825 |
|
442 |
One time (benefits)/charges |
(319) |
|
341 |
|
(241) |
|
242 |
Total adjustments to GAAP selling, general and administrative expenses(2) |
30,620 |
|
20,654 |
|
64,713 |
|
47,193 |
Amortization of acquired intangible assets |
5,821 |
|
5,483 |
|
11,770 |
|
11,020 |
Total adjustments to GAAP income from operations(3) |
53,945 |
|
46,451 |
|
117,003 |
|
104,348 |
Foreign exchange (gain)/loss |
(1,213) |
|
6,010 |
|
706 |
|
10,618 |
Change in fair value of contingent consideration included in Interest and other income, net |
1,485 |
|
1,218 |
|
2,535 |
|
1,518 |
Provision for income taxes: |
|
|
|
|
|
|
|
Tax effect on non-GAAP adjustments |
(10,632) |
|
(10,151) |
|
(25,027) |
|
(21,665) |
Tax shortfall/(excess tax benefits) related to stock-based compensation |
103 |
|
(7,361) |
|
(20,763) |
|
(13,383) |
Net discrete benefit from tax planning (e) |
(67) |
|
— |
|
(1,830) |
|
(968) |
Total adjustments to GAAP net income(4) |
$ 43,621 |
|
$ 36,167 |
|
$ 72,624 |
|
$ 80,468 |
|
(a) Humanitarian support in |
|
|
|
(b) Given the uncertainty in the region introduced by |
|
|
|
(c) Cost Optimization charges include severance, facilities and contract termination charges incurred in connection with the programs initiated in the third quarter of 2023 and second quarter of 2024. 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. |
|
|
|
(d) Geographic repositioning includes expenses associated with the relocation to other countries of employees based outside of |
|
|
|
(e) 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 |
|||
|
|||
Reconciliation of expected revenue decline on a GAAP basis to expected revenue decline on an organic constant currency basis |
|||
|
Third Quarter 2024 |
|
Full Year 2024 |
Revenue decline (at midpoint of the range) |
(0.2) % |
|
(1.8) % |
Foreign exchange rates impact |
0.2 % |
|
(0.1) % |
Inorganic revenue growth |
(1.5) % |
|
(1.3) % |
Impact of exit from |
0.1 % |
|
0.3 % |
Revenue decline on an organic constant currency basis excluding the |
(1.4) % |
|
(2.9) % |
Reconciliation of expected GAAP to non-GAAP income from operations as a percentage of revenues is presented in the table below: |
|||
|
|||
|
Third Quarter 2024 |
|
Full Year 2024 |
GAAP income from operations as a percentage of revenues |
10.0% to 11.0% |
|
10.5% to 11.0% |
Stock-based compensation expenses |
4.1 % |
|
3.6 % |
Included in cost of revenues (exclusive of depreciation and amortization) |
2.0 % |
|
1.8 % |
Included in selling, general and administrative expenses |
2.1 % |
|
1.8 % |
Humanitarian support in |
0.3 % |
|
0.2 % |
Cost Optimization charges (c) |
1.0 % |
|
0.7 % |
One-time charges and Other acquisition-related expenses (f) |
— % |
|
— % |
Amortization of acquired intangible assets |
0.6 % |
|
0.5 % |
Non-GAAP income from operations as a percentage of revenues |
16.0% to 17.0% |
|
15.5% to 16.0% |
|
(f) EPAM has not included the impact of potential future One-time charges including asset impairments, unusual gains and losses, expenses incurred in connection with future cost optimization actions, and Other acquisition-related expenses, if any, because the Company is unable to predict these amounts with reasonable certainty. |
Reconciliation of expected GAAP to non-GAAP effective tax rate is presented in the table below: |
|||
|
|||
|
Third Quarter 2024 |
|
Full Year 2024 |
GAAP effective tax rate (approximately) |
24 % |
|
21 % |
Tax effect on non-GAAP adjustments |
(0.8) % |
|
(1.2) % |
Excess tax benefits related to stock-based compensation |
0.8 % |
|
4.2 % |
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: |
|||
|
|||
|
Third Quarter 2024 |
|
Full Year 2024 |
GAAP diluted earnings per share |
|
|
|
Stock-based compensation expenses |
0.79 |
|
2.95 |
Included in cost of revenues (exclusive of depreciation and amortization) |
0.39 |
|
1.46 |
Included in selling, general and administrative expenses |
0.40 |
|
1.49 |
Humanitarian support in |
0.05 |
|
0.22 |
Cost Optimization charges (c) |
0.19 |
|
0.63 |
One-time charges and Other acquisition-related expenses (f) |
— |
|
0.03 |
Amortization of acquired intangible assets |
0.10 |
|
0.41 |
Change in fair value of contingent consideration |
— |
|
0.04 |
Foreign exchange loss |
0.02 |
|
0.05 |
Provision for income taxes: |
|
|
|
Tax effect on non-GAAP adjustments |
(0.23) |
|
(0.89) |
Excess tax benefits related to stock-based compensation |
(0.02) |
|
(0.39) |
Net discrete benefit from tax planning (e) |
— |
|
(0.03) |
Non-GAAP diluted earnings per share |
|
|
|
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