Image: EPAM Systems.
When most people think about using professionals in different countries to serve businesses in the U.S. and elsewhere in the developed world, they tend to think about locations like India. But for EPAM Systems (EPAM 0.35%), Eastern Europe is a great source of software engineering labor, and the company has done a good job of finding ways to meet global demand for software solutions. Coming into Wednesday afternoon's first-quarter financial report, EPAM investors hoped that the company would continue to post solid growth, and EPAM's latest results surpassed some of the highest expectations those investors had for the company. Let's look more closely at how EPAM Systems did to start out 2015 and what's driving its future forward.
EPAM defies the strong dollar
EPAM Systems continued to grow strongly in the first quarter. Sales climbed to $200 million, with gains of nearly 25% topping consensus calls for 23% revenue growth. Those numbers are even more impressive when you consider that the strong dollar cost EPAM nine full percentage points of sales growth in the quarter. On the bottom line, adjusted operating income jumped 27% to $33.4 million, and that sent adjusted earnings upward to $0.61, 30% higher than last year's first-quarter results and $0.07 per share higher than those following the stock had expected to see.
Looking more closely at the numbers, EPAM Systems did a reasonably good job at handling challenges to find greater profit growth. Overhead expenses climbed 34% on an adjusted basis, but EPAM still managed to grow operating margins by about a third of a percentage point. Concerns about the amount of stock-based compensation might reasonably affect some investors' projections for the company going forward, especially given the impact on its GAAP numbers, but those who trust adjusted figures tend to discount the impact of stock-based compensation to EPAM's long-term results.
Image: EPAM Systems.
CEO Arkadiy Dobkin had positive comments about the company's results. "Our revenue growth is on target with our projections," Dobkin said, "and we continue to see broad-based gains across multiple dimensions of our business." Dobkin also believes that the company is working at offering a broader-based set of service offerings in order to become even more attractive to customers.
What's next for EPAM Systems?
For the most part, EPAM Systems remains confident in its near-term future. The company didn't make any major changes to its guidance for the remainder of 2015, with expectations for revenue growth of between 21% and 23% and net income growth of 20% to 22% on an adjusted basis. For the second quarter in particular, EPAM Systems believes that it will post sales of between $213 million and $215 million, which compares favorably to the $212.6 million that most investors expect from the company in the current quarter. Adjusted earnings of $0.62 to $0.64 per share represents a range at the bottom end of the current consensus figure, and once again, GAAP earnings at roughly half the amount of adjusted earnings points to the importance of non-GAAP accounting in order to demonstrate maximum growth.
The biggest question for EPAM systems going forward is whether the company can build up its client base and take away business from some of its better-known competitors. EPAM isn't big enough to offer a one-size-fits-all type of service offering, but it's nimble enough to focus on high-value areas like social media, mobile systems, data analytics, and cloud computing. As a result, it can discard areas that larger companies have to retain as their legacy businesses, instead taking steps to maximize profit growth potential.
EPAM Systems enjoyed modest gains in after-hours trading, rising 2% in the first few hours following the announcement and approaching all-time high levels. With so much demand for technology-related expertise, EPAM Systems has everything it needs in order to succeed over the long haul. As long as it doesn't squander its opportunity, EPAM Systems could see even larger gains in the future.
