Demand for digital business services is stronger than ever, with countless corporate entities looking to take advantage of cloud computing and data analytics to make greater use of their information technology infrastructure. EPAM Systems (EPAM -1.13%) has put its international workforce to work in order to offer digital design, consulting, and engineering to its growing client base.
Coming into Thursday's second-quarter financial report, EPAM investors wanted the company to keep posting solid growth in earnings and revenue. Top-line growth was stellar, and even though earnings gains were a bit smaller than hoped, the company sees plenty of potential for future improvement. Let's look more closely at EPAM Systems and what its latest numbers say about its prospects looking ahead.
Image source: EPAM Systems.
EPAM posts mixed results
EPAM Systems' second-quarter results continued the growth trajectory the company has followed for a while now. Revenue climbed 23% to $349 million, outpacing the 20% gains that most of those following the stock were looking to see. Adjusted net income was higher by 15% to $43.8 million, and that worked out to adjusted earnings of $0.80 per share, just $0.01 less than the consensus forecast among investors.
Taking a closer look at EPAM's numbers, foreign exchange headwinds have almost disappeared as a negative influence on the company's results. Revenue gains would have come in nearly 24% absent currency considerations, but the impact was less than a full percentage point, continuing a trend toward smaller disparities in the foreign exchange markets year over year.
EPAM took steps to renew growth in its internal workforce. Headcount totals weighed in at 23,200, up 12% from a year ago and higher by more than 800 since March. The total number of delivery professionals grew by a similar percentage of 12% over the past 12 months, showing a continued commitment from EPAM toward serving its clients well.
Margin improvement also helped to push EPAM forward. Gross margin figures improved by about two-thirds of a percentage point, and operating margin climbed by about a third of a percent. Overhead expenses actually picked up slightly as a percentage of total sales, but smaller increases in direct costs of providing services helped keep margins in line.
CEO Arkadiy Dobkin was happy about EPAM's performance. "Our Q2 results underscore the strong demand we continue to see for our high-value digital business solutions," Dobkin said. "The combination of our core engineering, digital design expertise, and our expanding consultative capabilities reinforces our leadership position, making us an ideal partner for clients facing disruption."
What's ahead for EPAM?
Looking ahead, EPAM should have plenty of room to push higher. The company has aimed itself at high-tech applications throughout multiple industries, including the use of artificial intelligence in wealth management, the evolution of application programming interfaces, and best uses of social media activation technology.
EPAM was optimistic enough about its future prospects to boost its sales guidance. The company now expects revenue to grow 23% for the full year, up from previous guidance for 21% growth. On the bottom line, EPAM cut its guidance to $3.29 per share in adjusted earnings, reflecting greater stock option exercises that will boost share counts and payroll tax liability. Yet that negative influence reflects the strength in the share price rather than any fundamental problem with EPAM's business, and so investors should generally be happy about it.
EPAM Systems shareholders chose instead to focus on the $0.01-per-share earnings miss, sending the stock down 2% at midday following the announcement. Given how strong the market for information technology services continues to be, EPAM shouldn't have much trouble finding ways to get clients to take greater advantage of its capabilities to improve their IT experience and bolster EPAM's financial performance as a consequence.
