EPAM Systems (EPAM) Q2 Earnings Top Estimates, Revenues Miss

EPAM SystemsEPAM second-quarter 2018 non-GAAP earnings per share grew 26.3% year over year to $1.01 per share and beat the Zacks Consensus Estimate of 99 cents

Revenues for the quarter came in at $445.6 million, marking a year-over-year jump of 27.7%, but missed the Zacks Consensus Estimate of $447 million. On a constant currency (cc) basis, revenues were up 27.1%.

Top-Line Details

EPAM's largest vertical Financial Services registered 30% growth on a year-over-year basis driven by digital transformation and expertise in wealth management. Travel and Consumer segment increased 30%. Software & Hi-Tech was up nearly 22%. Business information and media rose 23%. Life Science & Healthcare witnessed solid 33% growth on key client wins.

The company's emerging verticals grew 32%, driven primarily by clients from industrial engineering, energy and automotive sectors.

Geographically, EPAM Systems generated 59.3% of total revenues from North America, up 28% year over year in cc. Revenues from Europe, contributing 33.6% to total revenues, were up 21.3% in cc. CIS, representing 4.4%, grew 42.5% in cc. APAC grew 66.5% in cc, accounting for 2.7% of revenues.


EPAM's non-GAAP gross margin contracted 140 basis points (bps) to 36.7%, mainly due to lower utilization and increased accrued variable compensation.

The company's non-GAAP operating income increased 29.6% year over year to $72.3 million, while operating margin expanded 20 bps to 16.2%. The impact of reduced non-GAAP gross margin was more than offset by lower SG&A expenses as a percentage of revenues. SG&A expenses as a percentage of revenues decreased to 18.8% from 20.4% in the year-ago quarter.

Balance Sheet and Cash Flow

EPAM exited the quarter with cash and cash equivalents of $584.1 million, up from $535.9 million at the end of previous quarter.

The company generated $59.5 million of cash flow from operational activities. However, free cash flow was $50.9 million.


EPAM lowered its revenues outlook for 2018, factoring the impact of currency fluctuations.

The company now predicts revenues to be $1.828 billion, down from the earlier projection of $1.842 billion. This reflects year-over-year improvement of 26% instead of the earlier prediction of 27%. On a cc basis, the guidance remained unchanged at 25%.

However, the company kept its non-GAAP operating margin guidance range of 16-17% unchanged. Similarly, non-GAAP earnings guidance was intact at $4.11 per share.

This apart, EPAM issued its outlook for the third quarter. For the quarter, the company anticipates revenues to be $466 million, up 23% year over year.

Non-GAAP earnings per share are anticipated to come in at $1.04. Non-GAAP operating margin is anticipated to lie between 16% and 17%.

EPAM Systems, Inc. Price, Consensus and EPS Surprise

EPAM Systems, Inc. Price, Consensus and EPS Surprise | EPAM Systems, Inc. Quote

Zacks Rank & Key Picks

EPAM Systems currently has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector are YY Inc. YY , Science Applications SAIC and Verint Systems VRNT , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Long-term earnings growth for YY, Science Applications and Verint is projected to be 26.4%, 5% and 10%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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