EPAM Systems, Inc. EPAM reported better-than-expected second-quarter 2024 results. Its second-quarter non-GAAP earnings of $2.45 per share beat the Zacks Consensus Estimate of $2.26. However, the figure came 7.2% lower than the year-ago quarter’s earnings of $2.64 per share, primarily due to lower revenues and higher taxes, partially offset by its cost-saving initiatives, which include workforce rebalancing efforts.
Second-quarter revenues of $1.147 billion were slightly above the Zacks Consensus Estimate of $1.14 billion. However, the top line declined 2% year over year. On a constant-currency basis, the top line decreased 1.7% year over year. The year-over-year decline in revenues reflects the negative impacts of a slowdown in IT spending in the ongoing uncertain macroeconomic environment.
Geography-wise, EPAM generated 60.3% of the total revenues from the Americas, up 1.8% year over year. Revenues from the EMEA (now includes CCE region), contributing 37.6% to total revenues, decreased 6% year over year. Sales in the Asia Pacific region declined 0.6% year over year and accounted for 2.1% of revenues.
EPAM Systems, Inc. Price, Consensus and EPS Surprise 
EPAM Systems, Inc. price-consensus-eps-surprise-chart | EPAM Systems, Inc. Quote
End-Market Performance
Coming to business vertical performance, EPAM Systems registered a sales decline across the majority of its end markets except for Life Sciences & Healthcare and Emerging. To reflect a more diverse end market, the company has renamed its Travel and Consumer vertical to Consumer Goods, Retail and Travel.
EPAM Systems’ Life Science & Healthcare segment jumped 22.4% year over year to $140.1 million and accounted for 12.2% of revenues. The Emerging Verticals segment improved 10.6% year over year to $175.2 million and contributed 15.3% to revenues, driven by clients in energy and telecom. Our model estimates for Life Science & Healthcare and Emerging verticals were pegged at $129.9 million and $170.2 million, respectively.
Revenues from the Business Information & Media end market declined 12.6% year over year to $165.8 million and accounted for 14.5% of the company’s revenues. Our model estimate for the Business Information & Media end market was pegged at $167.3 million.
Sales in the Financial Services vertical decreased 5.6% year over year to $244.4 million and accounted for 5.6% of revenues. Our model estimate for the Financial Services vertical was pegged at $242.2 million.
Software & Hi-Tech was down 3.7% to $168.8 million and contributed 14.7% to total revenues. Our model estimate for the Software & Hi-Tech end market was pegged at $172.2 million.
EPAM Systems’ Consumer Goods, Retail and Travel revenues declined 7.7% to $252.3 million and accounted for 22% of total revenues. Our model estimate for the Consumer Goods, Retail and Travel vertical was pegged at $257.8 million.
Operating Details
EPAM Systems’ non-GAAP gross profit declined 7.5% to $353.2 million, while the gross margin contracted 180 basis points (bps) to 30.8%.
EPAM Systems’ non-GAAP selling, general & administrative (SG&A) expenses declined 5.9% year over year to $163.4 million. SG&A expenses as a percentage of total revenues contracted 50 bps to 14.3%.
The non-GAAP operating income decreased to $174.5 million from $190.8 million in the year-ago quarter. The non-GAAP operating margin contracted 110 bps to 14.3%, mainly due to a lower gross margin.
Balance Sheet and Cash Flow
As of Jun 30, 2024, EPAM had cash, cash equivalents and restricted cash of $1.79 billion, down from $1.98 billion as of Mar 31, 2024.
As of Jun 30, 2024, the long-term debt was $25.5 million, down from $25.8 million as of Mar 31, 2024.
In the second quarter, EPAM generated operating and free cash flows of $57 million and $52.3 million, respectively. In the first half of 2024, it generated operating cash flow and free cash flow of $186.9 million and $175.5 million, respectively.
Guidance
EPAM Systems updated its guidance for full-year 2024. The company now projects 2024 revenues between $4.59 billion and $4.625 billion, which implies a year-over-year decline of 1.8% at the midpoint. Earlier, the company projected a decline of 1.4% at the midpoint. The Zacks Consensus Estimate for 2024 revenues currently stands at $4.79 billion.
EPAM Systems now forecasts full-year non-GAAP earnings in the $10.20-$10.40 per share range instead of the previously provided guidance range of $10-$10.30 per share. The company raised its non-GAAP operating margin projection to 15.5-16% from the 15-15.5% range. The consensus mark for 2024 EPS is pegged at $10.18.
Additionally, EPAM Systems initiated guidance for the third quarter. The company estimates reporting revenues between $1.145 billion and $1.155 billion, which suggests a year-over-year decline of 0.2% at the midpoint of the guidance range. The Zacks Consensus Estimate for third-quarter revenues currently stands at $1.18 billion.
Management projects the non-GAAP operating margin in the range of 16-17% of revenues. Non-GAAP earnings are expected in the range of $2.65-$2.73 per share. The consensus mark for third-quarter EPS is pegged at $2.42.
EPAM expects 57.4 million weighted average diluted shares outstanding for the third quarter and 57.9 million for full-year 2024. The non-GAAP effective tax rate for both periods is projected at approximately 24%.
Zacks Rank & Stocks to Consider
Currently, EPAM Systems carries a Zacks Rank #3 (Hold). Shares of EPAM have plunged 29.9% year to date (YTD).
Some better-ranked stocks in the broader technology sector are Twilio TWLO, Arista Networks ANET and Datadog DDOG, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.
The consensus mark for Twilio’s 2024 earnings has been revised upward by 2 cents to $3.12 per share over the past 30 days, which indicates a 27.4% increase from 2023. It has a long-term earnings growth expectation of 32.7%. The stock has plunged 22.2% YTD.
The Zacks Consensus Estimate for ANET’s 2024 earnings has been revised upward by 4% to $8.24 per share in the past 30 days, which suggests year-over-year growth of 18.7%. The long-term estimated earnings growth rate for the stock is 17.2%. The stock has rallied 34.8% YTD.
The Zacks Consensus Estimate for Datadog’s 2024 earnings has remained unchanged at $1.54 in the past 60 days, which calls for an increase of 16.7% on a year-over-year basis. Shares of DDOG have plunged 10.9% YTD. The long-term estimated earnings growth rate for the stock is 9.6%.
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