EPAM Systems’ EPAM shares gained 8% on Thursday after the company reported better-than-expected fourth-quarter 2023 results. The company’s fourth-quarter non-GAAP earnings of $2.75 per share beat the Zacks Consensus Estimate of $2.51. However, the figure decreased 6.1% year over year.
Revenues were $1.16 billion, which surpassed the consensus mark of $1.14 billion. However, the top line declined 6% year over year. On a constant-currency basis, excluding the effect of EPAM’s withdrawal from Russia, the top line decreased 7.1% year over year.
The year-over-year decline in revenues reflects the negative impacts of a slowdown in IT spending in the ongoing uncertain macroeconomic environment. The company’s decision to move out of the Russian market affected its top line.
EPAM Systems, Inc. Price, Consensus and EPS Surprise
EPAM Systems, Inc. price-consensus-eps-surprise-chart | EPAM Systems, Inc. Quote
Geography-wise, EPAM generated 58.4% of the total revenues from the Americas, down 7.6% year over year. Revenues from the EMEA, contributing 39.2% to total revenues, decreased 0.3% year over year.
Sales in the Asia Pacific region declined 10.9% year over year and accounted for 2.3% of revenues. Central and Eastern Europe, representing 0.1% of revenues, plunged 91.6% year over year.
Quarterly Details
Segment-wise, Business Information & Media declined 14.8% year over year to $178 million and accounted for 15.4% of the company’s revenues.
Financial Services decreased 7.1% on a year-over-year basis to $242.3 million and accounted for 20.9% of revenues.
Software & Hi-Tech was down 16.8% to $169 million and Travel & Consumer declined 4.4% to $258.2 million. Software & Hi-Tech and Travel & Consumer accounted for 14.6% and 22.3% of revenues, respectively.
Life Science & Healthcare jumped 11.6% year over year to $140 million and accounted for 12.1% of revenues. The Emerging Verticals segment improved 4.2% year over year to $169.7 million and contributed 14.7% to revenues.
EPAM’s non-GAAP gross profit declined 9% to $382 million, while the gross margin expanded 110 basis points (bps) to 33%. The non-GAAP operating income decreased 8.7% year over year to $200.4 million. The non-GAAP operating margin contracted 50 bps to 17.3%.
Balance Sheet and Cash Flow
As of Dec 31, 2023, EPAM had cash, cash equivalents and restricted cash of $2.04 billion, up from $1.88 billion as of Sep 30, 2023.
As of Dec 31, 2023, the long-term debt was $26.1 million, down from $27.5 million as of Sep 30, 2023.
In the fourth quarter, EPAM generated operating and free cash flows of $171.4 million and $161.4 million, respectively. In fiscal 2023, the company generated operating and free cash flows of $562.6 million and $534.2 million, respectively.
Guidance
EPAM provided guidance for the first quarter of 2024. The company estimates reporting revenues between $1.155 billion and $1.165 billion, suggesting a year-over-year decline of 4% at the midpoint of the guidance range.
Management projects the non-GAAP operating income in the range of 13.5-14.5% of revenues. Non-GAAP earnings are expected in the range of $2.26-$2.34 per share.
For 2024, the company projects year-over-year revenue growth rate in the range of 1-4%. The company expects its non-GAAP operating income in the range of 14.5-15.5% of revenues. EPAM forecasts non-GAAP earnings per share in the range of $10.00-$10.40 per share.
EPAM expects 59.3 million weighted average diluted shares outstanding for 2024. It expects a non-GAAP tax rate for both the first quarter and fiscal 2024 to be 24%.
Zacks Rank and Stocks to Consider
Currently, EPAM carries a Zacks Rank #3 (Hold). Shares of EPAM have declined 10.9% in the past year.
Some better-ranked stocks from the broader technology sector are BlackLine BL, Dell Technologies DELL and Arista Networks ANET, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for BlackLine’s first-quarter 2024 earnings has remained unchanged at 47 cents per share in the past 90 days. Shares of BL have lost 16.2% in the past year.
The Zacks Consensus Estimate for Dell’s fourth-quarter 2024 earnings per share has been revised northward by a penny to $1.73 in the past 30 days. Shares of DELL have surged 94.7% in the past year.
The Zacks Consensus Estimate for Arista’s first-quarter 2024 earnings has been revised by 4 cents northward to $1.71 per share. Shares of ANET have rallied 92.8% in the past year.
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