EPAM Systems, Inc.
CEO : Mr. Arkadiy Dobkin
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2022 Q4 | 11.2% YoY | 2.9% | 7.2% | 2023-02-16 |
Jason Peterson says,
Revenue Growth
- EPAM Q4 2022 generated revenues of $1.23 billion which reflects a year-over-year increase of 11.2% on a reported basis and 14.4% in constant currency terms
- The reduction in Russian customer revenues resulting from the decision to exit the Russian market had a 440 basis point negative impact on revenue growth
- Excluding Russia revenues, reported year-over-year revenue growth would have been 15.6% and constant currency growth would have been almost 19%
Industry Verticals
- Travel and consumer grew 16%, driven by strong growth in travel and hospitality with some moderation in retail and consumer goods, as customers exhibited incremental caution in the last few months of 2022
- Financial services grew 2.4% with very strong growth coming from asset management and insurance
- Software and Hi-Tech grew 10.3% in the quarter
- Life sciences and healthcare grew 11.5%, but growth in the quarter was partially impacted by the unexpected ramp-down of a large transformation program at a customer that was previously EPAM’s top 10
- Business Information and Media delivered 10.9% growth in the quarter, and our emerging verticals delivered strong growth of 20.8%, driven by clients in manufacturing and automotive, as well as energy
Geography
- The Americas, EPAM’s largest region, representing 59% of Q4 revenues, grew 14.7% year-over-year or 15.6% in constant currency
- EMEA, representing 37% of Q4 revenues, grew 18% year-over-year, or 25.7% in constant currency
- APAC was flat year-over-year, but actually grew 3.8% in constant currency terms and now represents 2% of EPAM’s revenues
Guidance
- EPAM expects 2023 revenue growth to be at least 9% on both a reported and constant currency basis. Excluding the impact of the exit of the Russian market, reported revenue growth is expected to be approximately 11%
- For Q1 of 2023, EPAM expects revenues to be in the range of $1.200 billion to $1.210 billion, producing a year-over-year growth rate of approximately 3%
- EPAM expects first half revenue growth to be in the single digits, returning to double-digit revenue growth in the second half of the year. In Q4 2023, EPAM expects revenue growth in the high teens
Cash Flow and Balance Sheet
- EPAM ended Q4 with approximately $1.7 billion in cash and cash equivalents
- Cash flow from operations for Q4 was $186 million compared to $285 million in the same quarter of 2021. Free cash flow was $165 million compared to free cash flow of $228 million in the same quarter last year
Headcount and Utilization
- EPAM ended Q4 with more than 52,850 consultants, designers, engineers, trainers and architects. Production headcount growth was relatively flat compared to Q4 2021. Total headcount for the quarter was more than 59,250 employees
- Utilization was 73.6% compared to 76.8% in Q4 of last year and 73.5% in Q3 of 2022
Arkadiy Dobkin says,
Global Delivery Footprint and Diversification
- EPAM has become one of the most geo-diversified IT services companies in the world, operating in more than 50 countries with only 30% of talent in the three largest locations.
- EPAM has a global delivery footprint and urbanization, which has made the company stronger and more capable than ever before.
Revenue Growth Outlook
- EPAM’s revenue growth outlook for the first half of 2023 is relatively low, with growth expected to accelerate in the second half of the year, potentially approaching high-teens in Q4.
- EPAM is investing in customer and partner relationships, working on its strong differentiators, and aiming to create uplift in demand in the second half of 2023.
- EPAM is watching carefully the balance of investments in strategic differentiators and demand.
Client and Partner Relationships
- EPAM has continued investments in strategic differentiators to maintain its strong engineering DNA and focus on bringing new strategy and implementation in the most effective ways.
- The company is working to become a true world orchestrator for its customers and is staying focused on customer needs and demands even while expanding geographically and diversifying its commercial offering.
Financial Results
- In 2022, EPAM generated over $4.8 billion in revenues, reflecting a greater than 28% year-over-year growth.
- Non-GAAP earnings per share were $10.90, a 20% increase over fiscal 2021.
- EPAM generated $382 million of free cash flow.
Uncertainty and Mitigation
- EPAM is utilizing its digital platforms to monitor its business on a daily basis and make real-time calibrations when necessary to protect its best talent as a key priority while still driving towards historic growth and profitability levels.
- EPAM believes that, in today’s technology-dependent world, the real impact of slow demand on the IT services global market should be limited to several quarters.
Q & A sessions,
Client Base and Demand
- EPAM may have lost some work from existing client base, which went to alternative vendors
- Current demand situation in Q1 indicates this trend. However, there is no confirmation for it
- Majority of clients did not switch to other vendors and continue to work with EPAM
- Clients are comfortable to consider EPAM for future work
Cost Changes and Diversification
- EPAM is delivering from various geographies with comparable quality
- Utilization is well balanced across regions
- EPAM is actively working to bring balance to its cost structure due to changes in cost and price mix caused by immediate redistribution of its talent to new locations
- EPAM is well-diversified and has many more tools now to grow as soon as the growth will return
Expectations for Growth and Revenue
- EPAM has a geo-diversified delivery footprint now in more than 50 countries
- EPAM expects to fall closer to 20%-25% concentration by the end of 2023 with accelerated growth outside the three largest locations
- EPAM’s current view for the year shows relatively low growth during the first half of the year, with acceleration in growth in the second half of 2023, potentially approaching the high-teens in Q4
- EPAM has an opportunity to come back to its pre-pandemic 20%-plus organic growth profile right after that
Factors Affecting Revenue Growth Outlook
- Some EPAM clients chose to mitigate their risk associated with its situation in Ukraine in advance and consider alternative vendors for new work streams
- EPAM’s overall cost structure and cost to its customers of services were disrupted due to immediate redistribution of its talent to new locations
- Several key verticals, such as software and hi-tech, were disproportionately impacted with the current slowdown
- EPAM’s attention on bringing in new logos during the last 12 months was de-prioritized as it focused on retaining existing customers and repositioning its global delivery
No bad stock 