8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934

Date of report (Date of earliest event reported):  February 25, 2015
EPAM SYSTEMS, INC.
(Exact name of registrantas specified in its charter)
Delaware	1-35418	223536104
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)
41 University Drive, Suite 202 Newtown, Pennsylvania		18940
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code:  267-759-9000
Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On February 25, 2015, EPAM Systems, Inc. issued a press release discussing results of operations for the fourth quarter and year ended December 31, 2014. A copy of the press release is attached as Exhibit 99.1 to this report and is incorporated by reference into this Item 2.02.

The information in this report, including Exhibit 99.1 attached hereto, is being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise be subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Exchange Act or the Securities Act of 1933, except as expressly stated by specific reference in such a filing. 

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

99.1    Press release dated February 25, 2015, announcing results of operations of EPAM Systems, Inc. for the fourth quarter and year ended December 31, 2014.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: February 25, 2015

By:	/s/ Anthony J. Conte
Name:	Anthony J. Conte
Title:	Vice President, Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)

INDEX TO EXHIBITS

99.1    Press release dated February 25, 2015, announcing results of operations of EPAM Systems, Inc. for the fourth quarter and year ended December 31, 2014.

EX-99.1

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 inthousands, 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.