EPAM Systems, Inc., a leading digital transformation services and product engineering company, announced results for the third quarter ended September 30, 2024
“We are pleased with our strong third-quarter results and the ongoing improvement across our business. We continue to help our clients adapt and modernize their businesses, including deploying world-class solutions enabled by GenAI,” said Arkadiy Dobkin, CEO & President at EPAM. “Our recent acquisition of NEORIS illustrates our strong commitment to diversifying our global delivery platform and our readiness to enter new markets to best serve our enterprise clients.”
Third Quarter 2024 Highlights
- Revenues increased to $1.168 billion, a year-over-year increase of $15.4 million, or 1.3%. On an organic constant currency basis excluding the impact of the exit from Russia, revenues were down 0.3% compared to the third quarter of 2023;
- We recorded a benefit of $52.0 million for research & development government incentives in Poland. Specifically, $22.9 million of the benefit related to activities performed during 2023 and $29.1 million of the benefit related to activities performed during the first nine months of 2024. This benefit was included as a reduction to our Cost of revenues. The incentives are granted under Polish law, which allows businesses to reduce their tax base through bonus deductions for certain costs, including compensation expenses, incurred while performing innovative activities. The impact of this benefit on net income was partially offset as the incentives drove a higher effective tax rate for both GAAP and non-GAAP results. We expect the incentive will be recurring with benefits recognized in the fourth quarter and continuing thereafter.
- GAAP income from operations was $177.0 million, an increase of $63.0 million, or 55.2%, compared to $114.0 million in the third quarter of 2023. GAAP income from operations benefited from the recognition of $52.0 million of incentives related to research and development activities performed in Poland;
- Non-GAAP income from operations was $222.9 million, an increase of $27.3 million, or 14.0%, compared to $195.6 million in the third quarter of 2023. Non-GAAP income from operations benefited from the recognition of $29.1 million of incentives related to research and development activities performed in Poland in 2024;
- Diluted earnings per share (“EPS”) on a GAAP basis was $2.37, an increase of $0.72, or 43.6%, compared to $1.65 in the third quarter of 2023. EPS on a GAAP basis was positively impacted by the recognition of the Polish incentives, which increased income from operations. However, this benefit was partially offset by an increase to the effective tax rate;
- Non-GAAP diluted EPS was $3.12, an increase of $0.39, or 14.3%, compared to $2.73 in the third quarter of 2023. EPS on a non-GAAP basis was positively impacted by the recognition of the Polish incentives for activities performed during the first nine months of 2024, which increased income from operations. However, this benefit was partially offset by an increase to the effective tax rate; and
- On November 1, 2024, EPAM completed its acquisition of NEORIS, a Miami-headquartered global advanced technology consultancy with approximately 4,800 professionals across major talent hubs in Latin America, Spain and the U.S.
Cash Flow and Other Metrics
- Cash provided by operating activities was $428.9 million for the first nine months of 2024, compared to cash provided by operating activities of $391.3 million for the first nine months of 2023;
- Cash, cash equivalents and restricted cash totaled $2.041 billion as of September 30, 2024, a decrease of $2.4 million, or 0.1%, from $2.043 billion as of December 31, 2023; and
- Total headcount was approximately 53,250 as of September 30, 2024. Included in this number were approximately 47,750 delivery professionals, an increase of 1.6% from June 30, 2024
2024 Outlook – Full Year and Fourth Quarter
Full Year
The outlook reflects the impact of closed acquisitions including NEORIS. We have not included the impact of the pending acquisition of First Derivative. EPAM now expects the following for the full year:
- The Company now expects revenues to be $4.685 billion to $4.695 billion for the full year reflecting flat year-over-year growth at the midpoint of the range. Included in the outlook is an inorganic revenue contribution of 2.4% of which 1.2% comes from NEORIS which was acquired on November 1, 2024. The Company now expects revenues on an organic constant currency basis excluding the impact of the exit from Russia will decline 2.3% at the midpoint of the range;
- For the full year, EPAM expects GAAP income from operations to now be in the range of 11.0% to 11.5% of revenues and non-GAAP income from operations to now be in the range of 16.0% to 16.5% of revenues;
- The Company expects its GAAP effective tax rate to now be approximately 23% 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 $7.78 to $7.86 and non-GAAP diluted EPS to now be in the range of $10.73 to $10.81. The Company continues to expect weighted average diluted shares outstanding for the year to be 57.9 million.
Fourth Quarter
The outlook reflects the impact of closed acquisitions including NEORIS. We have not included the impact of the pending acquisition of First Derivative. EPAM expects the following for the fourth quarter:
- The Company expects revenues will be in the range of $1.205 billion to $1.215 billion for the fourth quarter reflecting year-over-year growth of 4.6% at the midpoint of the range. Included in the outlook is an inorganic revenue contribution of 5.7% of which 4.7% comes from NEORIS which was acquired on November 1, 2024. The Company expects that revenues on an organic constant currency basis excluding the impact of the exit from Russia will decline 1.5% at the midpoint of the range;
- For the fourth quarter, EPAM expects GAAP income from operations to be in the range of 10.5% to 11.5% of revenues and non-GAAP income from operations to be in the range of 16.0% to 17.0% of revenues. Included in the outlook for both GAAP and non-GAAP is a $9.0 million benefit from the Poland R&D incentive;
- The Company expects its GAAP effective tax rate to be approximately 26% and its non-GAAP effective tax rate to be approximately 24%; and
- EPAM expects GAAP diluted EPS will be in the range of $1.73 to $1.81 for the quarter, and non-GAAP diluted EPS will be in the range of $2.70 to $2.78 for the quarter. The Company expects weighted average diluted shares outstanding for the quarter to be 57.2 million.
