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
NEWTOWN,
Pa., Feb. 15, 2024 /PRNewswire/ -- EPAM
Systems, Inc. (NYSE: EPAM), a leading digital transformation
services and product engineering company, today announced results
for its fourth quarter and full year ended December 31,
2023.
"EPAM's performance in 2023 reflects our ability to successfully
navigate a volatile demand and macro-economic environment," said
Arkadiy Dobkin, CEO & President,
EPAM. "After rebalancing the majority of our delivery platforms
across Europe, India, Asia
and Latin America, and refining
our growth strategy, we are now focused on harmonizing our delivery
quality, optimizing cost-effectiveness, and proactively leveraging
our extensive data, engineering and consulting experience to
capitalize on Generative AI opportunities."
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 from Russia, 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 from Russia, 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 in Russia 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
ended December 31, 2023, the Company
repurchased 686 thousand shares of its common stock for
$164.9 million under its share
repurchase program. As of December 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 of December 31, 2023, an increase of $359.5 million, or 21.4%, from $1.684 billion as of December 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%
from December 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 Thursday,
February 15, 2024 at 8:00 a.m.
EST. 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 used its
software engineering expertise to become a leading global provider
of digital engineering, cloud and AI-enabled transformation
services, as well as a leading business and experience consulting
partner for global enterprises and ambitious startups. We address
our clients' transformation challenges by fusing EPAM Continuum's
integrated strategy, experience and technology consulting with our
30+ years of engineering execution to speed our clients' time to
market and drive greater value from their innovations and digital
investments.
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
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 incurred in
connection with a restructuring program including the Company's
exit from 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" and an "organic constant currency
basis," which are also non-GAAP financial measures. These measures
exclude the effect of acquisitions by removing revenues from an
acquired company in the twelve months after completing an
acquisition and 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.
In addition, revenues on an "organic constant currency basis
excluding the impact of the exit from Russia" reflect 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 customer demand and
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
|
CONSOLIDATED
STATEMENTS OF INCOME
|
(Unaudited)
|
(In thousands, except per share
data)
|
|
|
Three Months
Ended
December 31,
|
|
Year Ended
December 31,
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Revenues
|
$
1,157,257
|
|
$
1,231,303
|
|
$
4,690,540
|
|
$
4,824,698
|
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
|
EPAM SYSTEMS, INC.
AND SUBSIDIARIES
|
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 $11,864 and $15,310,
respectively
|
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
|
Goodwill
|
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, $0.001
par value; 160,000 authorized; 57,787 and 57,668 shares
issued, 57,787 and 57,655 shares outstanding at December 31, 2023
and December
31, 2022, respectively
|
58
|
|
58
|
Additional paid-in
capital
|
1,008,766
|
|
847,965
|
Retained
earnings
|
2,501,107
|
|
2,248,948
|
Treasury
stock
|
—
|
|
(118)
|
Accumulated other
comprehensive loss
|
(39,040)
|
|
(95,321)
|
Total EPAM Systems
Inc. stockholders' equity
|
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
|
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 an
organic constant currency basis excluding the impact of the exit
from Russia is presented in the table below:
|
|
|
Three Months
Ended
December 31, 2023
|
|
Year Ended
December 31, 2023
|
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
Russia
|
0.7 %
|
|
1.0 %
|
Revenue
growth on an organic constant currency basis excluding the impact
of the exit from Russia
|
(7.1) %
|
|
(2.6) %
|
Reconciliation of
various income statement amounts from GAAP to non-GAAP for the
three months and years ended December 31, 2023 and 2022:
|
|
|
Three Months Ended
December 31, 2023
|
|
Year Ended December
31, 2023
|
|
GAAP
|
|
Adjustments
|
|
Non-GAAP
|
|
GAAP
|
|
Adjustments
|
|
Non-GAAP
|
Cost of revenues
(exclusive of depreciation and
amortization)(1)
|
$
797,633
|
|
$
(22,183)
|
|
$
775,450
|
|
$ 3,256,514
|
|
$
(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
December 31, 2022
|
|
Year Ended December
31, 2022
|
|
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 Ukraine (a)
|
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 Ukraine (a)
|
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
|
Russia long-lived
asset impairment charges (f)
|
—
|
|
—
|
|
—
|
|
19,570
|
Russia business
restructuring (g)
|
—
|
|
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 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 professionals 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) 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 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 twelve months ended
December 31, 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 the
process of completing 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 year ended December 31, 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 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 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
Ukraine (a)
|
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
|
$1.79 to
$1.87
|
|
$7.20 to
$7.60
|
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
Ukraine (a)
|
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
|
$2.26 to
$2.34
|
|
$10.00 to
$10.40
|
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SOURCE EPAM Systems, Inc.