EPAM Systems, Inc. Net Income jumped on 230% and Revenue surged on 27.1%
02/14/2019 • About EPAM Systems, Inc. (
$EPAM) • By InTwits
EPAM Systems, Inc. reported 2018 financial results today. Here are the key drivers of the company's long term financial model:
- EPAM Systems, Inc. is a fast growth stock: 2018 revenue growth was 27.1%, 5 year revenue CAGR was 27.1% at 2018 ROIC 21.2%
- EBITDA Margin is relatively stable: 15.3% in 2018 vs. 13.9% in 2017 vs. 14.2% in 2014
- EPAM Systems, Inc. motivates its personel by high Stock Based Compensation (SBC): average SBC/Revenue for 2014-2018 was 3.5% while average EBITDA Margin was 14.2% for the sames years
- EPAM Systems, Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.2%. At the same time it's in pair with industry average of 3.6%
- CAPEX is quite volatile: $38m in 2018, $30m in 2017, $29m in 2016, $18m in 2015, $16m in 2014
- The company has highly profitable business model: ROIC is 21.2%
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue jumped on 27.1%. Revenue growth showed small slowdown in 18Q4 - it was 26.5% YoY. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased on 5.7 pp from 30.8% to 25.1% in FY2018. During 2014-2018 EBITDA Margin bottomed in 2015 at 13.5% and was growing since that time.
Gross Margin decreased slightly on 0.88 pp from 36.5% to 35.6% in 2018. Gross Margin stuck to a declining trend at -0.52 pp per annum in the last 5 years. SG&A as a % of Revenue decreased on 2.1 pp from 22.4% to 20.3% in 2018. During 2014-2018 SG&A as a % of Revenue topped in 2015 at 24.4% and was declining since that time. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in 2018. During 2014-2018 SBC as a % of Revenue topped in 2015 at 4.1% and was declining since that time.
Net Income margin increased on 8.0 pp from 5.0% to 13.0% in 2018. During 2014-2018 Net Income margin bottomed in 2017 at 5.0%. The efficient tax rate was 3.8% in 2018 while the average for the last five years was 23.8%.
Investments (CAPEX, working capital and M&A)
EPAM Systems, Inc.'s CAPEX/Revenue was 2.0% in 2018. EPAM Systems, Inc.'s CAPEX/Revenue showed almost no change from 2015 to 2018. Average CAPEX/Revenue for the last three years was 2.2%.
Accounts receivable as a % of Revenue decreased on 2.2 pp from 18.3% to 16.2% in 2018. Accounts payable as a % of Revenue showed almost no change in 2018.
EPAM Systems, Inc. has spent
$74m on M&A in 2018 which accounts for 4.0% of revenue.
Return on investment
The company operates at high and attractive ROIC (21.2%) and ROE (21.5%). ROIC increased on 2.3 pp from 18.9% to 21.2% in 2018. ROE surged on 13.2 pp from 8.3% to 21.5% in 2018. During the last 5 years ROIC bottomed in 2016 at 18.2% and was growing since that time. During the last 5 years ROE bottomed in 2017 at 8.3%.
Leverage (Debt)
Company's Net Debt / EBITDA is -2.6x and Debt / EBITDA is 0.1x. Debt showed almost no change in 2018 while cash jumped on 32.3%.
The company has no short term refinancing risk: short term debt is zero.
Valuation and dividends
The company's trades at EV/EBITDA 27.2x and P/E 35.1x.
Management team
Arkadiy Dobkin is a the company's CEO. Arkadiy Dobkin is a founder and has spent 16 years with the company. CEO total compensation was
$3,786,788 in 2018 which included
$537,500 salary. EPAM Systems, Inc.'s CFO Jason Peterson has spent 2 years with the company.
3.8% of the company is owned by insiders. Insider ownership didn't change in 2018.
The company has 30,200 employees. The number of employees jumped on 16.3%. Average revenue per employee in 2018 was
$61,024 and it increased on 9.2%.
Financial and operational results
FY ended 12/31/2018
EPAM Systems, Inc. ($EPAM) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 730 | 914 | 1,160 | 1,450 | 1,843 | 27.1% |
| Gross Profit | 273 | 347 | 423 | 529 | 656 | 24.0% |
| SG&A | 164 | 223 | 265 | 325 | 374 | 15.0% |
| EBITDA | 104 | 123 | 157 | 202 | 282 | 40.1% |
| EBIT | 86 | 106 | 134 | 173 | 246 | 42.1% |
| Tax | 17 | 22 | 27 | 102 | 10 | -90.6% |
| Net Income | 70 | 84 | 99 | 73 | 240 | 230.2% |
| Stock Based Compensation | 21 | 37 | 44 | 52 | 59 | 12.9% |
Balance Sheet
|
|---|
| Cash | 221 | 199 | 362 | 583 | 771 | 32.3% |
| Accounts Receivable | 124 | 175 | 200 | 266 | 298 | 12.1% |
| Accounts Payable | 5 | 3 | 3 | 6 | 7 | 33.5% |
| Short Term Debt | 0 | 0 | 0 | 0 | 0 | |
| Long Term Debt | 0 | 35 | 25 | 25 | 25 | -0.0% |
Cash flow
|
|---|
| Capex | 16 | 18 | 29 | 30 | 38 | 26.1% |
| Acquisitions | 37 | 77 | 6 | 7 | 74 | 990.6% |
Ratios
|
|---|
| Revenue growth | 31.5% | 25.2% | 26.9% | 25.0% | 27.1% | |
| EBITDA growth | 13.2% | 19.0% | 27.3% | 28.3% | 40.1% | |
|
|---|
| Gross Margin | 37.5% | 38.0% | 36.5% | 36.5% | 35.6% | -0.9% |
| EBITDA Margin | 14.2% | 13.5% | 13.5% | 13.9% | 15.3% | 1.4% |
| EBIT Margin | 11.8% | 11.6% | 11.5% | 11.9% | 13.3% | 1.4% |
| SG&A, % of revenue | 22.4% | 24.4% | 22.8% | 22.4% | 20.3% | -2.1% |
| SBC, % of revenue | 2.9% | 4.1% | 3.8% | 3.6% | 3.2% | -0.4% |
| Net Income Margin | 9.5% | 9.2% | 8.6% | 5.0% | 13.0% | 8.0% |
| CAPEX, % of revenue | 2.2% | 2.0% | 2.5% | 2.1% | 2.0% | -0.0% |
|
|---|
| ROIC | 19.7% | 18.4% | 18.2% | 18.9% | 21.2% | 2.3% |
| ROE | 16.6% | 15.7% | 14.2% | 8.3% | 21.5% | 13.2% |
| Net Debt/EBITDA | -2.1x | -1.3x | -2.1x | -2.8x | -2.6x | 0.1x |
People
|
|---|
| Insider ownership | 3.8% | 3.8% | 3.8% | 3.8% | 3.8% | 0.0% |
| Employees | 14,109 | 18,354 | 22,383 | 25,962 | 30,200 | 16.3% |
| Revenue/Employee, th. $ | 52 | 50 | 52 | 56 | 61 | 9.2% |
EPAM Systems, Inc. ($EPAM) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 424 | 446 | 468 | 505 | | 30.6% | 27.7% | 24.0% | 26.5% |
| EBITDA | 57 | 63 | 74 | 88 | | 51.1% | 32.5% | 30.9% | 48.0% |
| Net Income | 64 | 50 | 66 | 60 | | 172.5% | 34.5% | 53.9% | |
Balance Sheet
|
|---|
| Cash | 536 | 584 | 685 | 771 | | 34.5% | 31.7% | 33.7% | 32.3% |
| Short Term Debt | 0 | 0 | 0 | 0 | | | | | |
| Long Term Debt | 25 | 25 | 25 | 25 | | -0.1% | -0.1% | -0.1% | -0.0% |
Ratios
|
|---|
| Gross Margin | 34.5% | 35.1% | 35.7% | 36.8% | | -1.5% | -1.8% | -0.9% | 0.5% |
| EBITDA Margin | 13.4% | 14.2% | 15.8% | 17.5% | | 1.8% | 0.5% | 0.8% | 2.6% |
| Net Income Margin | 15.2% | 11.3% | 14.0% | 11.9% | | 7.9% | 0.6% | 2.7% | 19.6% |
Peers in IT Consulting & Other Services
Below we provide EPAM Systems, Inc. benchmarking against other companies in IT Consulting & Other Services industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Gopher Protocol Inc ($GOPH) | | -25.0% | 83.3% | 5,471.1% | 461.0% |
| CLPS Incorporation ($CLPS) | | | | 8.1% | 56.0% |
| Gartner, Inc. ($IT) | | 7.0% | 13.0% | 35.5% | 20.1% |
| Computer Task Group, Incorporated ($CTG) | | -6.0% | -12.1% | -7.3% | 19.1% |
| Virtusa Corporation ($VRTU) | | 20.7% | 25.3% | 43.0% | 18.9% |
| |
|---|
| Median (35 companies) | | 3.3% | 7.7% | 3.8% | 3.4% |
|---|
| EPAM Systems, Inc. ($EPAM) | | 25.2% | 26.9% | 25.0% | 27.1% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Inpixon ($INPX) | 29.8% | 28.9% | 28.1% | 68.7% | 71.4% |
| Gartner, Inc. ($IT) | 60.5% | 61.2% | 61.3% | 60.1% | 63.1% |
| InterXion Holding N.V. ($INXN) | 59.2% | 60.8% | 61.5% | 61.1% | 60.9% |
| LiveRamp Holdings, Inc. ($RAMP) | 25.1% | 38.6% | 42.5% | 45.7% | 56.2% |
| Booz Allen Hamilton Holding Corporation ($BAH) | 50.4% | 50.8% | 52.3% | 53.6% | 53.5% |
| |
|---|
| Median (37 companies) | 25.8% | 30.9% | 28.1% | 27.7% | 28.9% |
|---|
| EPAM Systems, Inc. ($EPAM) | 37.5% | 38.0% | 36.5% | 36.5% | 35.6% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InterXion Holding N.V. ($INXN) | 41.3% | 44.9% | 43.3% | 42.2% | 42.8% |
| Switch, Inc. ($SWCH) | | 50.7% | 37.0% | 28.5% | 39.8% |
| Cognizant Technology Solutions Corporation ($CTSH) | 20.4% | 19.9% | 19.8% | 19.7% | 20.5% |
| Taoping Inc. ($TAOP) | -54.0% | -237.5% | -117.7% | 13.2% | 18.7% |
| DXC Technology Company ($DXC) | | | | 8.0% | 16.3% |
| |
|---|
| Median (36 companies) | 4.8% | 3.3% | 6.7% | 6.3% | 7.2% |
|---|
| EPAM Systems, Inc. ($EPAM) | 14.2% | 13.5% | 13.5% | 13.9% | 15.3% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InterXion Holding N.V. ($INXN) | 62.5% | 48.1% | 57.4% | 50.5% | 78.3% |
| Switch, Inc. ($SWCH) | | 71.5% | 90.2% | 106.4% | 67.9% |
| Taoping Inc. ($TAOP) | 1.4% | 29.2% | 34.0% | 20.8% | 8.7% |
| Teradata Corporation ($TDC) | 2.0% | 2.1% | 2.3% | 3.6% | 7.1% |
| ServiceSource International, Inc. ($SREV) | 3.4% | 4.7% | 10.4% | 7.2% | 6.5% |
| |
|---|
| Median (35 companies) | 0.9% | 0.8% | 1.1% | 1.2% | 1.5% |
|---|
| EPAM Systems, Inc. ($EPAM) | 2.2% | 2.0% | 2.5% | 2.1% | 2.0% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Accenture plc ($ACN) | 80.5% | 81.0% | 81.3% | 61.7% | 66.1% |
| The Hackett Group, Inc. ($HCKT) | 11.2% | 19.5% | 31.7% | 23.8% | 24.6% |
| Cognizant Technology Solutions Corporation ($CTSH) | 24.7% | 22.0% | 21.3% | 21.9% | 23.8% |
| Booz Allen Hamilton Holding Corporation ($BAH) | 25.3% | 26.5% | 23.1% | 22.6% | 22.5% |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION ($SAIC) | 24.4% | 27.4% | 19.6% | 18.3% | 18.4% |
| |
|---|
| Median (44 companies) | 6.2% | 4.7% | 7.3% | 4.7% | 6.9% |
|---|
| EPAM Systems, Inc. ($EPAM) | 19.7% | 18.4% | 18.2% | 18.9% | 21.2% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Infinite Group Inc ($IMCI) | | | 169.6x | | 10.5x |
| InterXion Holding N.V. ($INXN) | 3.3x | 2.9x | 3.4x | 3.8x | 4.6x |
| Gartner, Inc. ($IT) | 0.1x | 1.3x | 0.6x | 11.7x | 4.1x |
| Switch, Inc. ($SWCH) | | 2.2x | 4.0x | 3.2x | 3.3x |
| Presidio, Inc. ($PSDO) | 0.0x | | 5.6x | 3.6x | 3.1x |
| |
|---|
| Median (28 companies) | -0.2x | -0.2x | 0.4x | 0.8x | 1.0x |
|---|
| EPAM Systems, Inc. ($EPAM) | -2.1x | -1.3x | -2.1x | -2.8x | -2.6x |
