EPAM Systems (NYSE: EPAM) reported Q1 EPS of $0.93, $0.02 better than the analyst estimate of $0.91. Revenue for the quarter came in at $424.1 million versus the consensus estimate of $414.1 million.

First Quarter 2018 Highlights

• Revenues increased to $424.1 million, a year-over-year increase of $99.5 million, or 30.6%, and on a constant currency basis, revenue was up 26.0% over the corresponding period last year. Revenue growth in the quarter continues to demonstrate strong broad-based demand from both existing and new clients across the industries EPAM serves and the geographies in which it operates;
• GAAP income from operations was $48.7 million, an increase of $17.7 million, or 57.3%, compared to $31.0 million in the first quarter of 2017;
• Non-GAAP income from operations was $67.7 million, an increase of $18.4 million, or 37.4%, compared to $49.3 million in the first quarter of 2017;
• Diluted earnings per share (“EPS”) on a GAAP basis was $1.15, an increase of $0.71, or 161.4%, compared to $0.44 in the first quarter of 2017. GAAP EPS benefited from a net $22.5 million one-time benefit recorded in the first quarter of 2018 related to the implementation of tax planning to disregard certain foreign subsidiaries as separate entities for U.S. income tax purposes partially offset by an incremental provisional charge associated with the one-time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax required under U.S. Tax Reform. Diluted EPS on a GAAP basis excluding the net discrete benefit from tax planning and U.S. tax reform was $0.75; and
• Non-GAAP diluted EPS was $0.93, an increase of $0.21, or 29.2%, compared to $0.72 in the first quarter of 2017 based on a weighted average share count of 56.2 million fully diluted shares outstanding.
• Cash Flow and Other Metrics
• Cash from operations was $7.3 million for the first quarter of 2018, down from $29.1 million for the first three months of 2017. The decrease is primarily due to higher variable compensation payments associated with the 2017 performance year as well as an increase in days sales outstanding during the first quarter of 2018;
• Cash, cash equivalents and restricted cash totaled $537.1 million as of March 31, 2018, a decrease of $45.8 million or 7.9% from $582.9 million as of December 31, 2017. The decrease is primarily attributable to the $50.3 million net cash used in the acquisition of Continuum during the quarter ended March 31, 2018; and
• Total headcount was approximately 26,700 as of March 31, 2018. Included in this number were approximately 23,700 delivery professionals, an increase of 20.4% from March 31, 2017.
• 2018 Outlook - Full Year and Second Quarter

Full Year

• Revenue growth for 2018 will now be at least 27%, including an estimated 2% for currency tailwinds. The Company expects constant currency growth will now be at least 25%;
• The Company expects GAAP income from operations to continue to be in the range of 12% to 13% of revenues and non-GAAP income from operations to continue to be in the range of 16% to 17% of revenues;
• The Company expects its GAAP effective tax rate to now be approximately 4% principally due to the implementation of tax planning to disregard certain foreign subsidiaries as separate entities for U.S. income tax purposes and its non-GAAP effective tax rate to continue to be approximately 22%; and
• The Company expects GAAP diluted EPS will now be at least $3.77 for the full year; and non-GAAP diluted EPS will now be at least $4.11 for the full year based on an updated expected weighted average share count of 56.9 million diluted shares outstanding.

Second Quarter

• Revenues will be at least $445 million for the second quarter, reflecting a year-over-year growth rate of approximately 28% including an estimated 2% for currency tailwinds. The Company expects constant currency growth will be approximately 26%;
• For the second quarter, the Company expects GAAP income from operations to be in the range of 11.5% to 12.5% of revenues and non-GAAP income from operations to be in the range of 15.5% to 16.5% of revenues;
• The Company expects its GAAP effective tax rate to be approximately 10% and its non-GAAP effective tax rate to be approximately 22%; and
• The Company expects GAAP diluted EPS will be at least $0.82 for the quarter, and non-GAAP diluted EPS will be at least $0.98 for the quarter based on an expected weighted average share count of 56.9 million diluted shares outstanding.

GUIDANCE:

EPAM Systems sees FY2018 EPS of $4.11, versus the consensus of $4.10.

EPAM Systems sees Q2 2018 EPS of $0.98, versus the consensus of $0.97.

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