EPAM Systems, Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - February 25, 2015

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Exhibit 99.1

EPAM Reports Results for Fourth Quarter and Full Year 2014

Fourth Quarter revenue increased 28.3% year-over-year and 4.9% sequentially
Annual revenues of $730.0 million, up 31.5% year-over-year
Non-GAAP net income grew more than 32.7% for the fourth quarter year-over-year and 38.0% for the full year
Newtown, PA - February 25, 2015 - EPAM Systems, Inc. (NYSE: EPAM), a leading global provider of complex software engineering solutions and a leader in delivery capacity distributed across Central and Eastern Europe, today announced results for its fourth quarter and year ended December 31, 2014.
Fourth Quarter 2014 Highlights
•
Revenues increased to a record $202.2 million, up 28.3% year-over-year, and 4.9% sequentially;
•
In constant currency, revenue was up 36.7% year over year and 9% sequentially;
•
GAAP income from operations was $24.0 million, an increase of 3.5% compared to $23.2 million in the fourth quarter of 2013;
•
Non-GAAP income from operations was $36.2 million, an increase of $8.8 million, or 32.2%, from $27.4 million in the fourth quarter of 2013;
•
Quarterly diluted earnings per share (EPS) on a GAAP basis was $0.37, down from $0.38 in the year-ago quarter;
•
Non-GAAP quarterly diluted EPS was $0.62, up 29.2% from $0.48 in the year-ago quarter.

EPAM generated cash from operations of $48.7 million in the fourth quarter of 2014, an increase of $2.3 million generated over the fourth quarter of 2013.
Reconciliations of non-GAAP financial measures to GAAP operating results and diluted EPS are included at the end of this press release.
“2014 was another successful year of transforming EPAM from being a pure software engineering outsourcing firm into a solution provider with well-balanced capabilities ranging from digital strategy to managed services, and doing that while maintaining our traditionally strong focus on the engineering quality of our deliverables. We are glad to have achieved this transformation despite a number of challenges we faced in 2014 - some expected as we transition into a more mature company and some very much outside of our control,” said Arkadiy Dobkin, CEO and President of EPAM. “We are confident that we are on the correct path, as demonstrated by our over 30% revenue growth and by EPAM reaching the $200 million quarterly revenue mark for the first time in our history.”
Full Year 2014 Highlights
•
Revenues increased 31.5% to a record $730.0 million, up from $555.1 million in 2013;
•
In constant currency, revenue was up 34.2% year over year;
•
GAAP income from operations for 2014 was $86.2 million, an increase of 12.7% over 2013;
•
Non-GAAP income from operations was $123.1 million, an increase of 34.1% compared to $91.8 million in 2013;
•
Diluted EPS on a GAAP basis was $1.40, compared to $1.28 in the previous year;
•
Non-GAAP diluted EPS was $2.22, compared to $1.66 in 2013.
For the full year 2014, EPAM generated operating cash flow of $104.9 million. As of December 31, 2014 EPAM had cash and cash equivalents of $220.5 million.
Corporate Highlights
•
EPAM ranked #3 on Forbes' 2014 List of America's Best Small Companies, scores #1 Among Technology Companies




•
EPAM won Best Agile Category at the 2014 European Software Testing Awards
•
EPAM won Most Transformative Branch Experience Award in the Citi Mobile Challenge

“As we turn our attention to 2015, we face another year of challenges, and feel that EPAM is very well positioned to continue its transformation to support its growth and expansion,” continued Mr. Dobkin.

Full Year and First Quarter 2015 Outlook
Based on current conditions, EPAM expects year-over-year revenue growth to be 21%-23%. Non-GAAP net income growth for 2015 is expected to be in the range of 20% to 22% year-over-year, with an effective tax rate of approximately 20%. The full year weighted average share count is expected to be just approximately 51 million diluted shares outstanding.
For the first quarter of 2015, EPAM expects revenues between $196 million and $198 million, representing a growth rate of 22% to 23% over first quarter 2014 revenues. First quarter 2015 non-GAAP diluted EPS is expected to be in the range of $0.54 to $0.55 based on an estimated first quarter 2015 weighted average of 50.7 million diluted shares. GAAP diluted EPS is expected to be in the range of $0.34 to $0.35.

Conference Call Information
EPAM will host a conference call to discuss results on Thursday, February 26, 2015 at 8:00 a.m. Eastern Time. The live conference call can be accessed by dialing 1-877-407-0784 (international) or 1-201-689-8560 (domestic). A telephonic replay will also be available approximately one hour after the call and can be accessed by dialing 1-877-870-5176 (international) or 1-858-384-5517 (domestic). The passcode for the replay is 13600522. The telephonic replay will be available until March 12, 2015. Interested investors and other parties may also listen to a webcast of the conference call by logging onto the Investor Relations section of the Company’s website at http://investors.epam.com.
About EPAM Systems
Established in 1993, EPAM Systems, Inc. (NYSE: EPAM) is recognized as a leader in software product development by independent research agencies. Headquartered in the United States, EPAM serves clients worldwide utilizing its award-winning global delivery platform and its locations in 19 countries across North America, Europe, Asia and Australia. EPAM was ranked #6 in 2013 America's 25 Fastest-Growing Tech Companies, and #3 in 2014 America's Best Small Companies lists by Forbes Magazine.
For more information, please visit http://www.epam.com.
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, communicated 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 expense, write-off and recovery, amortization of purchased intangible assets, goodwill impairment, legal settlement, foreign exchange gains and losses, and acquisition-related costs. Because EPAM’s reported non-GAAP financial measures are not calculated according to 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 according to GAAP.
Forward-Looking Statements
This press release includes 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. Factors that could cause actual results to differ materially from those expressed or implied include general economic conditions and the factors discussed in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. 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.




Contact:
EPAM Systems, Inc.
Anthony J. Conte, Chief Financial Officer
Phone: +1-267-759-9000 x64588
Fax: +1-267-759-8989
investor_relations@epam.com





EPAM SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(US Dollars in thousands, except share and per share data)

 
Three Months Ended
December 31,
 
Year Ended
 December 31,
 
2014
 
2013
 
2014
 
2013
Revenues
$
202,184

 
$
157,585

 
$
730,027

 
$
555,117

Operating expenses:
 
 
 
 
 
 
 
Cost of revenues (exclusive of depreciation and amortization)
121,465

 
97,627

 
456,530

 
347,650

Selling, general and administrative expenses
49,761

 
32,980

 
163,666

 
116,497

Depreciation and amortization expense
2,833

 
3,743

 
17,483

 
15,120

Goodwill impairment loss
2,241

 
—

 
2,241

 
—

Other operating expenses/(income), net
1,869

 
43

 
3,924

 
(643
)
Income from operations
24,015

 
23,192

 
86,183

 
76,493

Interest and other income, net
1,368

 
832

 
4,769

 
3,077

Change in fair value of contingent consideration
(1,924
)
 
—

 
(1,924
)
 
—

Foreign exchange income/(loss)
1,123

 
(712
)
 
(2,075
)
 
(2,800
)
Income before provision for income taxes
24,582

 
23,312

 
86,953

 
76,770

Provision for income taxes
6,159

 
4,553

 
17,312

 
14,776

Net income
$
18,423

 
$
18,759

 
$
69,641

 
$
61,994

Foreign currency translation adjustments
(11,308
)
 
(398
)
 
(20,251
)
 
(811
)
Comprehensive income
$
7,115

 
$
18,361

 
$
49,390

 
$
61,183

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.39

 
$
0.40

 
$
1.48

 
$
1.35

Diluted
$
0.37

 
$
0.38

 
$
1.40

 
$
1.28

Shares used in calculation of net income per share:
 
 
 
 
 
 
 
Basic
47,620

 
46,532

 
47,189

 
45,754

Diluted
50,339

 
49,066

 
49,723

 
48,358





























EPAM SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US Dollars in thousands, except share and per share data)

 
As of December 31, 2014
 
As of December 31, 2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
220,534

 
$
169,207

Accounts receivable, net of allowance of $2,181 and $1,800, respectively

124,483

 
95,431

Unbilled revenues
55,851

 
43,108

Prepaid and other current assets
9,289

 
14,355

Employee loans, net of allowance of $0 and $0, respectively, current
2,434

 
1,989

Time deposits
—

 
1,188

Restricted cash, current
—

 
298

Deferred tax assets, current
2,496

 
5,392

Total current assets
415,087

 
330,968

Property and equipment, net
55,134

 
53,315

Restricted cash, long-term
156

 
225

Employee loans, net of allowance of $0 and $0, respectively, long-term
4,081

 
4,401

Intangible assets, net
47,689

 
13,734

Goodwill
57,417

 
22,268

Deferred tax assets, long-term
11,094

 
4,557

Other long-term assets
3,368

 
3,409

Total assets
$
594,026

 
$
432,877

 
 
 
 
Liabilities
 
 
 
Current liabilities
 
 
 
Accounts payable
$
4,641

 
$
2,835

Accrued expenses and other liabilities
32,203

 
20,175

Deferred revenue, current
3,220

 
4,543

Due to employees
24,518

 
12,665

Taxes payable
24,704

 
14,171

Contingent consideration, current
35,524

 
—

Deferred tax liabilities, current
603

 
275

Total current liabilities
125,413

 
54,664

Deferred revenue, long-term
—

 
533

Taxes payable, long-term
—

 
1,228

Deferred tax liabilities, long-term
4,563

 
351

Total liabilities
129,976

 
56,776

Commitments and contingencies
 
 
 
Stockholders’ equity
 
 
 
Common stock, $0.001 par value; 160,000,000 authorized; 48,748,298 and 47,569,463 shares issued, 48,303,811 and 46,614,916 shares outstanding at December 31, 2014 and December 31, 2013, respectively
48

 
46

Additional paid-in capital
229,501

 
195,585

Retained earnings
260,598

 
190,986

Treasury stock
(4,043
)
 
(8,684
)
Accumulated other comprehensive loss
(22,054
)
 
(1,832
)
Total stockholders’ equity
464,050

 
376,101

Total liabilities and stockholders’ equity
$
594,026

 
$
432,877

EPAM SYSTEMS, INC. AND SUBSIDIARIES




Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures
(in thousands, except percent and per share amounts)
(Unaudited)

 
Three months ended December 31, 2014
 
Year ended December 31, 2014
 
GAAP
 
Adjustments
 
Non-GAAP
 
GAAP
 
Adjustments
 
Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1)
$
121,465

 
$
(2,257
)
 
$
119,208

 
$
456,530

 
$
(8,648
)
 
$
447,882

Selling, general and administrative expenses(2)
$
49,761

 
$
(5,863
)
 
$
43,898

 
$
163,666

 
$
(16,876
)
 
$
146,790

Income from operations(3)
$
24,015

 
$
12,175

 
$
36,190

 
$
86,183

 
$
36,959

 
$
123,142

Operating margin
11.9
%
 
6.0
%
 
17.9
%
 
11.8
%
 
5.1
%
 
16.9
%
Net income(4)
$
18,423

 
$
12,976

 
$
31,399

 
$
69,641

 
$
40,958

 
$
110,599

Diluted earnings per share(5)
$
0.37

 


 
$
0.62

 
$
1.40

 


 
$
2.22



 
Three months ended December 31, 2013
 
Year ended December 31, 2013
 
GAAP
 
Adjustments
 
Non-GAAP
 
GAAP
 
Adjustments
 
Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1)
$
97,627

 
$
(1,467
)
 
$
96,160

 
$
347,650

 
$
(4,823
)
 
$
342,827

Selling, general and administrative expenses(2)
$
32,980

 
$
(2,062
)
 
$
30,918

 
$
116,497

 
$
(8,545
)
 
$
107,952

Income from operations(3)
$
23,192

 
$
4,188

 
$
27,380

 
$
76,493

 
$
15,346

 
$
91,839

Operating margin
14.7
%
 
2.7
%
 
17.4
%
 
13.8
%
 
2.7
%
 
16.5
%
Net income(4)
$
18,759

 
$
4,900

 
$
23,659

 
$
61,994

 
$
18,146

 
$
80,140

Diluted earnings per share (5)
$
0.38

 


 
$
0.48

 
$
1.28

 


 
$
1.66


Notes:
(1)
Adjustments to GAAP cost of revenues (exclusive of depreciation and amortization) were comprised of stock-based compensation expense recorded in the periods presented.
(2)
Adjustments to GAAP selling general and administrative expenses:
 
Three Months Ended
December 31,
 
Year Ended
 December 31,
 
2014
 
2013
 
2014
 
2013
Stock-based compensation expense
$
5,839

 
$
1,892

 
$
15,972

 
$
8,327

Acquisition-related costs
24

 
170

 
904

 
218

Total adjustments to GAAP selling, general and administrative expenses
$
5,863

 
$
2,062

 
$
16,876

 
$
8,545





(3)
Adjustments to GAAP income from operations:
 
Three Months Ended
 December 31,
 
Year Ended
December 31,
 
2014
 
2013
 
2014
 
2013
Stock-based compensation expense
$
8,096

 
$
3,359

 
$
24,620

 
$
13,150

reported within cost of revenues
2,257

 
1,467

 
8,648

 
4,823

reported within selling, general and administrative expenses
5,839

 
1,892

 
15,972

 
8,327

Acquisition-related costs
24

 
170

 
904

 
218

Amortization of purchased intangible assets
(31
)
 
659

 
5,349

 
2,785

Goodwill impairment loss
2,241

 
—

 
2,241

 
—

One-time charges
1,845

 
—

 
3,845

 
(807
)
Total adjustments to GAAP income from operations
$
12,175

 
$
4,188

 
$
36,959

 
$
15,346


(4)
Adjustments to GAAP net income:
 
Three Months Ended
 December 31,
 
Year Ended
December 31,
 
2014
 
2013
 
2014
 
2013
Stock-based compensation expense
$
8,096

 
$
3,359

 
$
24,620

 
$
13,150

reported within cost of revenues
2,257

 
1,467

 
8,648

 
4,823

reported within selling, general and administrative expenses
5,839

 
1,892

 
15,972

 
8,327

Acquisition-related costs
24

 
170

 
904

 
218

Amortization of purchased intangible assets
(31
)
 
659

 
5,349

 
2,785

Goodwill impairment loss
2,241

 
—

 
2,241

 
—

Change in fair value of contingent consideration
1,924

 
—

 
1,924

 
—

One-time charges
1,845

 
—

 
3,845

 
(807
)
Foreign exchange loss/ (gain)
(1,123
)
 
712

 
2,075

 
2,800

Total adjustments to GAAP net income
$
12,976

 
$
4,900

 
$
40,958

 
$
18,146

(5)
There were no adjustments to GAAP average diluted common shares outstanding during the three and year ended December 31, 2014 and 2013.



EPAM Systems, Inc. Reports