EPAM Systems‘ stock shot up 8% on Thursday following its release of fourth-quarter 2023 results, which surpassed expectations. The company reported non-GAAP earnings of $2.75 per share, outperforming the Zacks Consensus Estimate of $2.51. Although this figure represented a 6.1% decrease year over year, it exceeded market expectations.
EPAM’s revenues also impressed, coming in at $1.16 billion, exceeding the consensus mark of $1.14 billion. However, the top line experienced a 6% year-over-year decline. Notably, when factoring in EPAM’s withdrawal from the Russian market, the constant-currency basis illustrated a 7.1% decrease year over year.
EPAM Systems, Inc. Price, Consensus, and EPS Surprise
EPAM Systems, Inc. price-consensus-eps-surprise-chart | EPAM Systems, Inc. Quote
EPAM’s revenue generation exhibited geographical variations. The company derived 58.4% of its total revenues from the Americas, signaling a 7.6% year-over-year decline. The EMEA region, contributing 39.2% to total revenues, saw a 0.3% year-over-year decrease. Sales in the Asia Pacific region, accounting for 2.3% of revenues, declined by 10.9% year over year. Central and Eastern Europe, representing 0.1% of revenues, experienced a substantial 91.6% year-over-year plunge.
Quarterly Details
Segment-wise, Business Information & Media declined by 14.8% year over year to $178 million, comprising 15.4% of the company’s revenues. Financial Services decreased by 7.1% year over year to $242.3 million, accounting for 20.9% of revenues. Software & Hi-Tech dropped by 16.8% to $169 million, and Travel & Consumer declined by 4.4% to $258.2 million. Life Science & Healthcare, however, jumped 11.6% year over year to $140 million, comprising 12.1% of revenues. The Emerging Verticals segment improved by 4.2% year over year to $169.7 million and contributed 14.7% to the revenues.
Furthermore, EPAM’s non-GAAP gross profit declined by 9% to $382 million while the gross margin expanded by 110 basis points to 33%. The non-GAAP operating income also witnessed a decrease of 8.7% year over year to $200.4 million. The non-GAAP operating margin contracted by 50 basis points to 17.3%.
Balance Sheet and Cash Flow
As of December 31, 2023, EPAM reported cash, cash equivalents, and restricted cash of $2.04 billion, marking an increase from $1.88 billion as of September 30, 2023. The long-term debt stood at $26.1 million, down from $27.5 million as of September 30, 2023.
In the fourth quarter of 2023, EPAM generated operating and free cash flows of $171.4 million and $161.4 million, respectively. Throughout fiscal 2023, the company generated operating and free cash flows of $562.6 million and $534.2 million, respectively.
Guidance
For the first quarter of 2024, EPAM provided a revenue guidance range of $1.155 billion to $1.165 billion, indicating a year-over-year decline of 4% at the midpoint. Management projects the non-GAAP operating income in the range of 13.5-14.5% of revenues. Non-GAAP earnings are expected to range between $2.26 and $2.34 per share.
Looking ahead to 2024, EPAM forecasts a revenue growth rate in the range of 1-4% and anticipates non-GAAP operating income to range between 14.5-15.5% of revenues. Non-GAAP earnings per share are projected in the range of $10.00-$10.40. The company expects 59.3 million weighted average diluted shares outstanding for 2024, with a non-GAAP tax rate of 24% for both the first quarter and fiscal 2024.
Zacks Rank and Stocks to Consider
As of now, EPAM holds a Zacks Rank #3 (Hold). Over the past year, EPAM’s shares have struggled, declining by 10.9%.
Therefore, in the broader technology sector, investors may consider exploring other options such as BlackLine (BL), Dell Technologies (DELL), and Arista Networks (ANET), each currently holding a Zacks Rank #2 (Buy).
Efforts by the companies are reflected in the performance of their stocks. For instance, BlackLine’s shares have witnessed a 16.2% decline, while Dell’s shares have surged by 94.7% and Arista Networks’ shares have rallied by 92.8% over the past year.
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