EPAM Systems (EPAM - Free Report) third-quarter 2018 non-GAAP earnings per share grew 27.2% year over year to $1.17 per share and beat the Zacks Consensus Estimate of $1.05.
Revenues for the quarter came in at $468.2 million, marking a year-over-year jump of 24% and topping the Zacks Consensus Estimate of $467 million. On a constant currency (cc) basis, revenues were up 25.4%.
The company witnessed growth across geographies and all industry verticals. Digital transformation, focus on customer engagement and product development were key growth drivers.
However, foreign exchange impact was 0.4% more than anticipated.
Top-Line Details
EPAM’s largest vertical Financial Services registered 18.1% growth on a year-over-year basis. Ramp-down of activity at some (mainly Europe-based) clients was a dampener.
Travel and Consumer segment increased 29.1%. Software & Hi-Tech was up nearly 20.1%. Business information and media rose 27.2%. Life Science & Healthcare witnessed solid 40.3% growth on key client wins.
The company’s emerging verticals grew 31.4%, driven primarily by clients from industrial engineering and energy sectors.
Geographically, EPAM Systems generated 60.7% of total revenues from North America, up 30.7% year over year in cc. Revenues from Europe, contributing 32.5% to total revenues, were up 14% in cc. CIS, representing 4%, grew 27.8% in cc. APAC grew 67.6% in cc, accounting for 2.8% of revenues.
The company’s top-20 clients grew nearly 23% year over year in the quarter whereas the rest grew 25% during the same time frame.
Margins
EPAM’s non-GAAP gross margin contracted 60 basis points (bps) to 36.3%, mainly due to increased accrued variable compensation.
The company’s non-GAAP operating income increased 31% year over year to $82 million, while operating margin expanded 90 bps to 17.5%. 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% from 19.8% in the year-ago quarter.
Balance Sheet and Cash Flow
EPAM exited the quarter with cash and cash equivalents of $685.1 million, up from $584.1million at the end of the previous quarter.
The company generated $102.3 million of cash flow from operational activities compared with $59.5 million in the previous quarter. Free cash flow was $94.1 million.
Guidance
EPAM increased its outlook for 2018, factoring the impact of recent acquisition and revenue acceleration.
The company now predicts revenues to reflect year-over-year improvement of 26.5% compared with the earlier prediction of 26%. On a cc basis, the guidance was increased to 26% from 25%.
The company expects inorganic revenues to contribute nearly 2% to full-year revenues.
The company increased its non-GAAP operating margin guidance range to 16.5%-17.5% from 16-17% projected earlier. Similarly, the company anticipates non-GAAP earnings to be $4.32, up from the earlier projection of $4.11 per share.
For the fourth quarter, the company anticipates revenues to be at least $500 million, up 25% year over year. TH_NK acquisition is expected to contribute $2 million. The company anticipates strong demand in financial services.
Non-GAAP earnings per share are anticipated to come in at $1.22. Non-GAAP operating margin is anticipated to be between 17% and 18%.
Zacks Rank and Stocks to Consider
EPAM Systems currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader technology sector are Intel Corp. (INTC - Free Report) , Twitter, Inc. and CACI International (CACI - Free Report) , each 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 Intel, Twitter and CACI International is projected to be 8.4%, 22.1% and 10%, respectively.
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EPAM Systems (EPAM - Free Report) third-quarter 2018 non-GAAP earnings per share grew 27.2% year over year to $1.17 per share and beat the Zacks Consensus Estimate of $1.05.
Revenues for the quarter came in at $468.2 million, marking a year-over-year jump of 24% and topping the Zacks Consensus Estimate of $467 million. On a constant currency (cc) basis, revenues were up 25.4%.
The company witnessed growth across geographies and all industry verticals. Digital transformation, focus on customer engagement and product development were key growth drivers.
However, foreign exchange impact was 0.4% more than anticipated.
Top-Line Details
EPAM’s largest vertical Financial Services registered 18.1% growth on a year-over-year basis. Ramp-down of activity at some (mainly Europe-based) clients was a dampener.
Travel and Consumer segment increased 29.1%. Software & Hi-Tech was up nearly 20.1%. Business information and media rose 27.2%. Life Science & Healthcare witnessed solid 40.3% growth on key client wins.
The company’s emerging verticals grew 31.4%, driven primarily by clients from industrial engineering and energy sectors.
Geographically, EPAM Systems generated 60.7% of total revenues from North America, up 30.7% year over year in cc. Revenues from Europe, contributing 32.5% to total revenues, were up 14% in cc. CIS, representing 4%, grew 27.8% in cc. APAC grew 67.6% in cc, accounting for 2.8% of revenues.
The company’s top-20 clients grew nearly 23% year over year in the quarter whereas the rest grew 25% during the same time frame.
Margins
EPAM’s non-GAAP gross margin contracted 60 basis points (bps) to 36.3%, mainly due to increased accrued variable compensation.
The company’s non-GAAP operating income increased 31% year over year to $82 million, while operating margin expanded 90 bps to 17.5%. 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% from 19.8% in the year-ago quarter.
Balance Sheet and Cash Flow
EPAM exited the quarter with cash and cash equivalents of $685.1 million, up from $584.1million at the end of the previous quarter.
The company generated $102.3 million of cash flow from operational activities compared with $59.5 million in the previous quarter. Free cash flow was $94.1 million.
Guidance
EPAM increased its outlook for 2018, factoring the impact of recent acquisition and revenue acceleration.
The company now predicts revenues to reflect year-over-year improvement of 26.5% compared with the earlier prediction of 26%. On a cc basis, the guidance was increased to 26% from 25%.
The company expects inorganic revenues to contribute nearly 2% to full-year revenues.
The company increased its non-GAAP operating margin guidance range to 16.5%-17.5% from 16-17% projected earlier. Similarly, the company anticipates non-GAAP earnings to be $4.32, up from the earlier projection of $4.11 per share.
For the fourth quarter, the company anticipates revenues to be at least $500 million, up 25% year over year. TH_NK acquisition is expected to contribute $2 million. The company anticipates strong demand in financial services.
Non-GAAP earnings per share are anticipated to come in at $1.22. Non-GAAP operating margin is anticipated to be between 17% and 18%.
Zacks Rank and Stocks to Consider
EPAM Systems currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader technology sector are Intel Corp. (INTC - Free Report) , Twitter, Inc. and CACI International (CACI - Free Report) , each 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 Intel, Twitter and CACI International is projected to be 8.4%, 22.1% and 10%, respectively.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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