- Second quarter revenues of $1.170 billion, down 2.1%
year-over-year
- GAAP Income from Operations was 12.3% of revenues and
Non-GAAP Income from Operations was 16.3% of revenues for the
second quarter
- Second quarter GAAP Diluted EPS of $2.03, an increase of $1.71, and Non-GAAP Diluted EPS of $2.64, an increase of $0.26 on a year-over-year basis
- For the full year, EPAM narrows expected revenues to now
be in the range of $4.650 billion to
$4.700 billion, updates expected GAAP
Diluted EPS to now be in the range of $7.00 to $7.20 and
narrows expected Non-GAAP Diluted EPS to now be in the range of
$9.90 to $10.10
- For the third quarter, EPAM expects revenues to be in the
range of $1.140 billion to
$1.150 billion, GAAP Diluted EPS to
be in the range of $1.62 to
$1.70 and Non-GAAP Diluted EPS to be
in the range of $2.52 to $2.60
NEWTOWN,
Pa., Aug. 3, 2023 /PRNewswire/ -- EPAM Systems,
Inc. (NYSE: EPAM), a leading digital transformation services and
product engineering company, today reported results for the second
quarter ended June 30, 2023.
"While the demand environment remains uneven, due in part to a
slowdown in near-term decision making, EPAM continues to position
for the eventual return of growth as customers gain confidence in
their optimization initiatives and shift their focus to investing
for differentiation," said Arkadiy
Dobkin, CEO & President, EPAM. "We remain close to our
clients, driving new business with an increased focus on demand
generation, including go-to-market activities and partnerships, in
addition to progressing ongoing investments in our strategic
priorities."
Second Quarter 2023 Highlights
- Revenues decreased to $1.170
billion, a year-over-year decrease of $24.7 million, or 2.1%. On an organic constant
currency basis excluding the impact of the exit from Russia, revenues were down 1.7% compared to
the second quarter of 2022;
- GAAP income from operations was $144.3
million, an increase of $51.3
million, or 55.2%, compared to $93.0
million in the second quarter of 2022;
- Non-GAAP income from operations was $190.8 million, an increase of $13.3 million, or 7.5%, compared to $177.5 million in the second quarter of
2022;
- Diluted earnings per share ("EPS") on a GAAP basis was
$2.03, an increase of $1.71 compared to $0.32 in the second quarter of 2022 largely
driven by the adverse impact of Russia's invasion of Ukraine on diluted EPS on a GAAP basis in the
prior-year period; and
- Non-GAAP diluted EPS was $2.64,
an increase of $0.26, or 10.9%,
compared to $2.38 in the second
quarter of 2022.
Cash Flow and Other Metrics
- Cash provided by operating activities was $176.4 million for the first six months of 2023,
compared to cash provided by operating activities of $25.7 million for the first six months of
2022;
- Cash, cash equivalents and restricted cash totaled $1.779 billion as of June
30, 2023, an increase of $95.1
million, or 5.7%, from $1.684
billion as of December 31,
2022; and
- Total headcount was approximately 55,600 as of June 30, 2023. Included in this number were
approximately 49,350 delivery professionals, a decrease of 3.4%
from March 31, 2023.
2023 Outlook - Full Year and Third Quarter
Full Year
Due to the continued lower levels of client demand, EPAM now
expects the following for the full year:
- The Company narrows its expected range for revenues to now be
$4.650 billion to $4.700 billion for the full year reflecting a
year-over-year decline of 3% at the midpoint of the range. Revenue
growth on an organic constant currency basis excluding the impact
of the exit from Russia will
decline 3% at the midpoint of the range;
- For the full year, EPAM now expects GAAP income from operations
to be in the range of 10.5% to 11.5% of revenues including an
expected loss on the sale of its Russia operations of $18.4 million and continues to expect non-GAAP
income from operations to be in the range of 15% to 16% of
revenues;
- The Company now expects its GAAP effective tax rate to be
approximately 22% and continues to expect its non-GAAP effective
tax rate to be approximately 23%; and
- EPAM now expects GAAP diluted EPS to be in the range of
$7.00 to $7.20, and narrows its expected range for
non-GAAP diluted EPS to now be $9.90
to $10.10. The Company now expects
weighted average diluted shares outstanding for the year of 59.1
million.
Third Quarter
EPAM expects the following for the third quarter:
- Revenues will be in the range of $1.140
billion to $1.150 billion for
the third quarter reflecting a year-over-year decline of 7% at the
midpoint of the range. Revenue on an organic constant currency
basis excluding the impact of the exit from Russia will decline approximately 9% at the
midpoint of the range;
- For the third quarter, EPAM expects GAAP income from operations
to be in the range of 10% to 11% of revenues including an expected
loss on the sale of its Russia
operations of $18.4 million and
non-GAAP income from operations to be in the range of 15.5% to
16.5% of revenues;
- The Company expects its GAAP effective tax rate to be
approximately 24.0% and its non-GAAP effective tax rate to be
approximately 23.0%; and
- EPAM expects GAAP diluted EPS will be in the range of
$1.62 to $1.70 for the quarter, and non-GAAP diluted EPS
will be in the range of $2.52 to
$2.60 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 the results on
Thursday, August 3, 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 us 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
June
30,
|
|
Six Months
Ended
June
30,
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Revenues
|
$
1,170,206
|
|
$
1,194,861
|
|
$
2,381,147
|
|
$
2,366,475
|
Operating
expenses:
|
|
|
|
|
|
|
|
Cost of revenues
(exclusive of depreciation and amortization)
|
808,715
|
|
846,323
|
|
1,664,616
|
|
1,627,159
|
Selling, general and
administrative expenses
|
194,377
|
|
232,527
|
|
406,264
|
|
469,804
|
Depreciation and
amortization expense
|
22,768
|
|
22,991
|
|
45,550
|
|
47,250
|
Income from
operations
|
144,346
|
|
93,020
|
|
264,717
|
|
222,262
|
Interest and other
income, net
|
11,710
|
|
1,579
|
|
23,231
|
|
1,414
|
Foreign exchange
loss
|
(6,010)
|
|
(85,941)
|
|
(10,618)
|
|
(108,726)
|
Income before
provision for income taxes
|
150,046
|
|
8,658
|
|
277,330
|
|
114,950
|
Provision for/(benefit
from) income taxes
|
30,013
|
|
(9,946)
|
|
55,005
|
|
6,627
|
Net
income
|
$
120,033
|
|
$
18,604
|
|
$ 222,325
|
|
$ 108,323
|
|
|
|
|
|
|
|
|
Net income per
share:
|
|
|
|
|
|
|
|
Basic
|
$
2.07
|
|
$
0.33
|
|
$
3.84
|
|
$
1.90
|
Diluted
|
$
2.03
|
|
$
0.32
|
|
$
3.75
|
|
$
1.84
|
Shares used in
calculation of net income per share:
|
|
|
|
|
|
|
|
Basic
|
57,993
|
|
57,240
|
|
57,848
|
|
57,078
|
Diluted
|
59,181
|
|
59,020
|
|
59,240
|
|
58,981
|
EPAM SYSTEMS,
INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE
SHEETS (Unaudited) (In thousands, except par
value)
|
|
|
As of
June
30,
2023
|
|
As of
December
31,
2022
|
Assets
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
1,776,919
|
|
$
1,681,344
|
Trade receivables and
contract assets, net of allowance of $14,744
and $15,310,
respectively
|
917,536
|
|
932,626
|
Short-term
investments
|
71,376
|
|
60,336
|
Prepaid and other
current assets
|
106,143
|
|
85,319
|
Total current
assets
|
2,871,974
|
|
2,759,625
|
Property and equipment,
net
|
255,772
|
|
273,348
|
Operating lease
right-of-use assets, net
|
145,844
|
|
148,780
|
Intangible assets,
net
|
68,132
|
|
77,652
|
Goodwill
|
534,489
|
|
529,072
|
Deferred tax
assets
|
164,471
|
|
172,797
|
Other noncurrent
assets
|
53,015
|
|
47,877
|
Total
assets
|
$
4,093,697
|
|
$
4,009,151
|
|
|
|
|
Liabilities
|
|
|
|
Current
liabilities
|
|
|
|
Accounts
payable
|
$
27,289
|
|
$
30,852
|
Accrued compensation
and benefits expenses
|
359,299
|
|
475,871
|
Accrued expenses and
other current liabilities
|
127,710
|
|
154,339
|
Income taxes payable,
current
|
30,766
|
|
46,069
|
Operating lease
liabilities, current
|
39,001
|
|
40,352
|
Total current
liabilities
|
584,065
|
|
747,483
|
Long-term
debt
|
25,854
|
|
27,693
|
Operating lease
liabilities, noncurrent
|
115,987
|
|
122,317
|
Other noncurrent
liabilities
|
104,451
|
|
108,648
|
Total
liabilities
|
830,357
|
|
1,006,141
|
Commitments and
contingencies
|
|
|
|
Equity
|
|
|
|
Stockholders'
equity
|
|
|
|
Common stock, $0.001
par value; 160,000 shares authorized; 57,968 and 57,668 shares
issued, 57,955 and 57,655 shares outstanding at June 30, 2023 and
December 31, 2022, respectively
|
58
|
|
58
|
Additional paid-in
capital
|
913,580
|
|
847,965
|
Retained
earnings
|
2,421,326
|
|
2,248,948
|
Treasury
stock
|
(118)
|
|
(118)
|
Accumulated other
comprehensive loss
|
(72,085)
|
|
(95,321)
|
Total EPAM Systems
Inc. stockholders' equity
|
3,262,761
|
|
3,001,532
|
Noncontrolling interest
in consolidated subsidiaries
|
579
|
|
1,478
|
Total
equity
|
3,263,340
|
|
3,003,010
|
Total liabilities
and equity
|
$
4,093,697
|
|
$
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)/growth as reported on a GAAP basis to revenue
(decline)/growth on an organic constant currency basis excluding
the impact of the exit from Russia is presented in the table
below:
|
|
|
Three Months
Ended
June 30,
2023
|
|
Six Months
Ended
June 30,
2023
|
Revenue
(decline)/growth as reported
|
(2.1) %
|
|
0.6 %
|
Foreign exchange rates
impact
|
(0.3) %
|
|
0.5 %
|
Inorganic revenue
growth
|
— %
|
|
(0.1) %
|
Impact of exit from
Russia
|
0.7 %
|
|
1.5 %
|
Revenue
(decline)/growth on an organic constant currency basis excluding
the impact of the exit from Russia(1)
|
(1.7) %
|
|
2.5 %
|
|
|
(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 six months ended June 30, 2023 and 2022:
|
|
|
Three Months
Ended
June 30,
2023
|
|
Six Months
Ended
June 30,
2023
|
|
GAAP
|
|
Adjustments
|
|
Non-GAAP
|
|
GAAP
|
|
Adjustments
|
|
Non-GAAP
|
Cost of revenues
(exclusive of depreciation and
amortization)(2)
|
$
808,715
|
|
$
(20,314)
|
|
$ 788,401
|
|
$
1,664,616
|
|
$
(46,135)
|
|
$ 1,618,481
|
Selling, general and
administrative expenses(3)
|
$
194,377
|
|
$
(20,654)
|
|
$ 173,723
|
|
$
406,264
|
|
$
(47,193)
|
|
$
359,071
|
Income from
operations(4)
|
$
144,346
|
|
$
46,451
|
|
$ 190,797
|
|
$
264,717
|
|
$
104,348
|
|
$
369,065
|
Operating
margin
|
12.3 %
|
|
4.0 %
|
|
16.3 %
|
|
11.1 %
|
|
4.4 %
|
|
15.5 %
|
Net
income(5)
|
$
120,033
|
|
$
36,167
|
|
$ 156,200
|
|
$
222,325
|
|
$
80,468
|
|
$
302,793
|
Diluted earnings per
share
|
$
2.03
|
|
|
|
$ 2.64
|
|
$
3.75
|
|
|
|
$
5.11
|
|
|
Three Months
Ended
June 30,
2022
|
|
Six Months
Ended
June 30,
2022
|
|
GAAP
|
|
Adjustments
|
|
Non-GAAP
|
|
GAAP
|
|
Adjustments
|
|
Non-GAAP
|
Cost of revenues
(exclusive of depreciation and
amortization)(2)
|
$
846,323
|
|
$ (
27,272)
|
|
$ 819,051
|
|
$ 1,627,159
|
|
$
(27,218)
|
|
$ 1,599,941
|
Selling, general and
administrative expenses(3)
|
$
232,527
|
|
$
(51,439)
|
|
$ 181,088
|
|
$
469,804
|
|
$
(105,693)
|
|
$
364,111
|
Income from
operations(4)
|
$
93,020
|
|
$
84,467
|
|
$ 177,487
|
|
$
222,262
|
|
$
143,911
|
|
$
366,173
|
Operating
margin
|
7.8 %
|
|
7.1 %
|
|
14.9 %
|
|
9.4 %
|
|
6.1 %
|
|
15.5 %
|
Net
income(5)
|
$
18,604
|
|
$
121,634
|
|
$ 140,238
|
|
$
108,323
|
|
$
178,958
|
|
$
287,281
|
Diluted earnings per
share
|
$
0.32
|
|
|
|
$ 2.38
|
|
$
1.84
|
|
|
|
$
4.87
|
|
Items (2) through (5)
above are detailed in the table below with the specific
cross-reference noted in the appropriate item.
|
|
Three Months
Ended
June
30,
|
|
Six Months
Ended
June
30,
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Stock-based
compensation expenses
|
$
15,416
|
|
$
14,732
|
|
$ 31,427
|
|
$ 14,308
|
Humanitarian support
in Ukraine (a)
|
2,853
|
|
3,279
|
|
5,293
|
|
22,435
|
Unbilled business
continuity resources (b)
|
2,045
|
|
9,261
|
|
9,415
|
|
11,831
|
Discretionary
compensation (c)
|
—
|
|
—
|
|
—
|
|
(21,356)
|
Total adjustments to
GAAP cost of revenues(2)
|
20,314
|
|
27,272
|
|
46,135
|
|
27,218
|
Stock-based
compensation expenses
|
17,694
|
|
13,161
|
|
40,262
|
|
20,697
|
Other
acquisition-related expenses
|
1,340
|
|
91
|
|
1,581
|
|
670
|
One-time
charges
|
341
|
|
2,513
|
|
242
|
|
3,876
|
Humanitarian support
in Ukraine (a)
|
1,049
|
|
5,088
|
|
4,666
|
|
11,588
|
Geographic
repositioning (d)
|
230
|
|
14,366
|
|
442
|
|
33,072
|
Russia long-lived
asset impairment charges (e)
|
—
|
|
—
|
|
—
|
|
19,570
|
Russia business
restructuring (f)
|
—
|
|
16,220
|
|
—
|
|
16,220
|
Total adjustments to
GAAP selling, general and administrative
expenses(3)
|
20,654
|
|
51,439
|
|
47,193
|
|
105,693
|
Amortization of
acquired intangible assets
|
5,483
|
|
5,756
|
|
11,020
|
|
11,000
|
Total adjustments to
GAAP income from operations(4)
|
46,451
|
|
84,467
|
|
104,348
|
|
143,911
|
Change in fair value
of contingent consideration included in Interest and other income,
net
|
1,218
|
|
2,733
|
|
1,518
|
|
6,106
|
Impairment of
financial assets
|
—
|
|
—
|
|
—
|
|
1,300
|
Foreign exchange
loss
|
6,010
|
|
85,941
|
|
10,618
|
|
108,726
|
Provision for income
taxes:
|
|
|
|
|
|
|
|
Tax effect on non-GAAP
adjustments
|
(10,151)
|
|
(36,930)
|
|
(21,665)
|
|
(53,399)
|
Excess tax benefits
related to stock-based compensation
|
(7,361)
|
|
(7,382)
|
|
(13,383)
|
|
(20,491)
|
Net discrete benefit
from tax planning (g)
|
—
|
|
(7,195)
|
|
(968)
|
|
(7,195)
|
Total adjustments to
GAAP net income(5)
|
$
36,167
|
|
$
121,634
|
|
$ 80,468
|
|
$
178,958
|
|
|
(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 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.
|
|
|
(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)
|
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.
|
|
|
(e)
|
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 six months ended June
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.
|
|
|
(f)
|
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.
|
|
|
(g)
|
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:
|
|
|
Third Quarter
2023
|
|
Full Year
2023
|
Revenue decline (at
midpoint of the range)
|
(7) %
|
|
(3) %
|
Foreign exchange rates
impact
|
(2.5) %
|
|
(1.0) %
|
Inorganic revenue
growth
|
— %
|
|
— %
|
Impact of exit from
Russia
|
0.5 %
|
|
1.0 %
|
Revenue decline on
an organic constant currency basis excluding the impact of the exit
from Russia (at midpoint of the range)
(6)
|
(9) %
|
|
(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:
|
|
|
Third Quarter
2023
|
|
Full Year
2023
|
GAAP income from
operations as a percentage of revenues
|
10% to
11%
|
|
10.5% to
11.5%
|
Stock-based
compensation expenses
|
3.3 %
|
|
3.2 %
|
Included in cost of
revenues (exclusive of depreciation and
amortization)
|
1.5 %
|
|
1.4 %
|
Included in
selling, general and administrative expenses
|
1.8 %
|
|
1.8 %
|
Humanitarian support in
Ukraine (a)
|
0.2 %
|
|
0.3 %
|
Unbilled business
continuity resources (b)
|
— %
|
|
0.1 %
|
Loss on sale of Russia
operations (h)
|
1.6 %
|
|
0.4 %
|
One-time
charges
|
— %
|
|
0.1 %
|
Amortization of
acquired intangible assets
|
0.4 %
|
|
0.4 %
|
Non-GAAP income
from operations as a percentage of revenues
|
15.5% to
16.5%
|
|
15% to
16%
|
|
|
(h)
|
On July 26, 2023, the
Company completed the sale of its remaining operations in
Russia. The Company expects to record a loss on sale of
approximately $18.4 million during the third quarter of 2023,
including the recognition of the accumulated currency translation
loss related to the subsidiary currently included in Accumulated
other comprehensive loss. The Company expects to exclude this loss
from non-GAAP results as it is one-time and unusual in
nature.
|
Reconciliation of
expected GAAP to non-GAAP effective tax rate is presented in the
table below:
|
|
|
Third Quarter
2023
|
|
Full Year
2023
|
GAAP effective tax
rate (approximately)
|
24 %
|
|
22 %
|
Excess tax benefits
related to stock-based compensation
|
2.0 %
|
|
3.3 %
|
Tax effect on non-GAAP
adjustments
|
(3.0) %
|
|
(2.3) %
|
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:
|
|
|
Third Quarter
2023
|
|
Full Year
2023
|
GAAP diluted
earnings per share
|
$1.62 to
$1.70
|
|
$7.00 to
$7.20
|
Stock-based
compensation expenses
|
0.67
|
|
2.52
|
Included in cost of
revenues (exclusive of depreciation and
amortization)
|
0.30
|
|
1.12
|
Included in
selling, general and administrative expenses
|
0.37
|
|
1.40
|
Humanitarian support in
Ukraine (a)
|
0.05
|
|
0.28
|
Unbilled business
continuity resources (b)
|
—
|
|
0.16
|
Loss on sale of Russia
operations (h)
|
0.31
|
|
0.31
|
One-time
charges
|
—
|
|
0.01
|
Other
acquisition-related expenses
|
—
|
|
0.03
|
Amortization of
acquired intangible assets
|
0.09
|
|
0.37
|
Change in fair value of
contingent consideration
|
—
|
|
0.03
|
Foreign exchange
loss
|
0.03
|
|
0.23
|
Provision for income
taxes:
|
|
|
|
Tax effect on non-GAAP
adjustments
|
(0.20)
|
|
(0.72)
|
Excess tax benefits related
to stock-based compensation
|
(0.05)
|
|
(0.30)
|
Net discrete
benefit from tax planning (g)
|
—
|
|
(0.02)
|
Non-GAAP diluted
earnings per share
|
$2.52 to
$2.60
|
|
$9.90 to
$10.10
|
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SOURCE EPAM Systems, Inc.