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EPAM Jumps 11% as Q1 Earnings and Revenues Beat Estimates

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EPAM Systems (EPAM - Free Report) shares jumped 10.7% on Thursday after the company reported stronger-than-expected first-quarter 2022 results. The company reported first-quarter non-GAAP earnings of $2.49 per share, beating the Zacks Consensus Estimate of $1.89. The figure also improved by 37.6% year over year.

Revenues were $1.17 billion, reflecting a year-over-year increase of 50.1%. The top line surpassed the consensus mark of $1.03 billion. On a constant currency (cc) basis, revenues were up 53%. Acquisitions completed in the last 12 months contributed 9.9% to the first-quarter top line.

The company continued to benefit from growth across all geographies and multiple industry verticals. Digital transformation, a focus on customer engagement and product developments remained key catalysts.

Moreover, EPAM’s first-quarter performance reflects its resiliency amid massive business disruptions caused by the Russia-Ukraine war. In late February 2022, the company announced the discontinuation of its services in Russia in support of Ukraine.

EPAM has significant exposure in the region, with the majority of its delivery centers in Central and Eastern Europe (“CEE”). The company’s largest delivery centers are in Belarus, Russia and Ukraine. It has approximately 9,000 and 14,000 employees in Russia and Ukraine, respectively.

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

EPAM Systems, Inc. price-consensus-eps-surprise-chart | EPAM Systems, Inc. Quote

Quarterly Details

Segment-wise, Business Information & Media climbed 31.5% year over year to $194.3 million and accounted for 16.6% of the company’s revenues.

Financial Services jumped 54% on a year-over-year basis to $260.1 million and accounted for 22.2% of revenues.

While Software & Hi-Tech was up 28.8% to $189.5 million, Travel & Consumer grew 90.9% to $265.3 million. Software & Hi-Tech and Travel & Consumer accounted for 16.2% and 22.6% of revenues, respectively.

Life Science & Healthcare climbed 35.9% year over year to $123.8 million and accounted for 10.6% of revenues. The Emerging segment improved by 59.4% year over year to $138.6 million and contributed 11.8% to revenues.

Geography-wise, EPAM generated 58.7% of the total revenues from Americas, up 46% year over year. Revenues from the EMEA, contributing 36% to total revenues, jumped 62.7% year over year.

CEE, representing 2.8% of revenues, surged 10.5% year over year. Asia Pacific was up 41.2% and accounted for 2.5% of revenues.

In the fourth quarter of 2021, EPAM renamed three out of four of its revenue geographies to account for the addition and growth of customers from the new locations. It renamed North America as Americas, Europe as EMEA (Europe, Middle East and Africa) and CIS (Commonwealth of Independent States) as CEE (Central and Eastern Europe).

The total headcount was approximately 61,600 as of Mar 31, 2022.

EPAM’s non-GAAP operating income increased 37.8% year over year to $188.7 million. The non-GAAP operating margin contracted by 140 basis points (bps) to 16.1%.

Balance Sheet and Cash Flow

As of Mar 31, 2022, EPAM had cash, cash equivalents and restricted cash of $1.28 billion, down from $1.45 billion as of Dec 31, 2021.

As of Mar 31, 2022, the long-term debt was $30.6 million, up from $30.2 million as of Dec 31, 2021.

In the first quarter, EPAM used $51.8 million of cash for operational activities and generated a negative free cash flow of $75.1 million.

Guidance

EPAM provided guidance for the second quarter of 2022. For the second quarter, the company estimates reporting GAAP revenues of at least $1.14 billion, suggesting year-over-year growth of at least 29%.

It expects foreign-currency translation to have a negative impact of 5%. On a cc basis, it projects revenue growth of at least 34%, while acquisitions to contribute approximately 6% to second-quarter reported revenues.

Management projects the non-GAAP operating margin in the 10-12% range. Non-GAAP earnings are expected to be at least $1.70 per share.

Citing uncertainties and the regional impacts of military actions in Ukraine, the company withdrew its 2022 financial guidance in late February. Earlier, it had projected revenues of at least $5.150 billion for 2022, suggesting growth of at least 37% on a reported basis.

This includes a 1% unfavorable impact of foreign currency translation on revenues. EPAM was expecting acquisitions to contribute approximately 6% to top-line growth.

EPAM set the non-GAAP earnings guidance range to the $11.36-$11.69 per share range. The company forecast its non-GAAP operating margin guidance between 16.5% and 17.5%.

Zacks Rank & Stocks to Consider

EPAM currently carries a Zacks Rank #4 (Sell). Shares of EPAM have fallen 24.8% in the past year.

Some better-ranked stocks from the broader technology sector are Semtech (SMTC - Free Report) , Gogo (GOGO - Free Report) and Analog Devices (ADI - Free Report) . Semtech sports a Zacks Rank #1 (Strong Buy), while Gogo and Analog Devices each carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Semtech's first-quarter fiscal 2023 earnings has been revised to 76 cents per share from 70 cents over the past 60 days. For fiscal 2023, earnings estimates have moved north by 8% to $3.38 per share in the past 60 days.

Semtech's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 2.8%. Shares of SMTC have declined 3.7% in the past year.

The Zacks Consensus Estimate for Gogo's second-quarter 2022 earnings has been revised upward by three cents to 15 cents per share over the past 90 days. For 2022, Gogo's earnings estimates have moved south by two cents to 63 cents per share in the past seven days.

Gogo's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 65%. Shares of GOGO have soared 62.2% in the past year.

The Zacks Consensus Estimate for Analog Devices' second-quarter fiscal 2022 earnings has been revised upward by 4 cents to $2.12 per share over the past 30 days. For fiscal 2022, earnings estimates have moved north by 11 cents to $8.43 per share in the past 30 days.

Analog Devices' earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 6%. Shares of ADI have decreased 0.6% in the past year.

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