Constant advances in technology require companies of all sizes to make efforts to keep up and take maximum advantage of new capabilities before competitors do. That puts companies like EPAM Systems (EPAM -0.71%) in a great position, because the resulting demand for IT services is constant and growing. EPAM did a good job of fulfilling its potential for strong growth in 2017, and the IT services specialist has high hopes that 2018 will bring even more gains.
Coming into Wednesday's first-quarter financial report, EPAM investors fully believed that strong growth would continue. EPAM's results were even better than most expected, and the company now believes that 2018 will be even better than it had initially thought.
Image source: EPAM.
A great start to the year for EPAM
EPAM Systems' first-quarter results built on its momentum from last year. Revenue climbed 31% to $424.1 million, which outpaced the ambitious 27% growth rate that most of those following the stock were hoping to see. Adjusted net income of $52.2 million was up more than a third from year-ago levels, and the resulting adjusted earnings of $0.93 per share was even better than investors' consensus forecast for $0.91.
As we saw last quarter, EPAM got a nice boost from favorable currency moves. The weak U.S. dollar added almost 5 percentage points to the IT company's overall sales gains, indicating the scope of EPAM's geographical reach.
EPAM also continued to build up its network of IT workers. Head count rose about 800 over the past three months to 26,700, with the same gain of 800 in the count of delivery professionals, which came in at 23,700 as of March 31. Operating cash flow fell due to higher variable compensation associated with a successful year in 2017, and some calendar impacts related to the first quarter also led to incrementally higher expenses as well.
CEO Arkadiy Dobkin was quite happy with the start to the year. "We delivered a strong first quarter with growth across all of our verticals," Dobkin said, "based on our ability to meet the demands of our customers, helping them create new business models to stay competitive in an ever-changing market." The CEO pointed to its efforts to gain market share by focusing both on core engineering capabilities and on digital capacity, and investments in new and rising technologies are also helping the company.
Can EPAM keep up the pace?
EPAM is convinced that it's only beginning to see the full potential of its business. Dobkin put it succinctly, noting that "our first quarter results provide a solid foundation and position us well for fiscal 2018."
EPAM made some favorable changes to its guidance for the remainder of the year. For fiscal 2018 as a whole, EPAM said that it now believes that revenue growth will be at least 27%, 3 percentage points higher than its previous prediction, acknowledging an estimated 2 percentage points of growth coming from favorable currency impacts. The company also increased its expectations for adjusted earnings, boosting its previous projection by $0.08 per share to make its new figure $4.11 per share.
For the second quarter, EPAM sees good momentum continuing. Revenue of $445 million would represent year-over-year growth of 28%. Adjusted earnings should come in at $0.98 per share at a minimum, with the potential for further possible gains.
EPAM Systems shareholders were happy with the news, and the stock opened higher by 5% in morning trading following the announcement. As long as IT services demand remains strong, EPAM will be in a position to meet that demand with its strong group of core workers in the field.
