EPAM Systems, Inc. (EPAM) opened up 14.5% at $13.75 Wednesday morning, after pricing a downsized 6 million share IPO at $12.00, versus filing range of $16-$18 on 7.4 million shares. Only about 1.52 million shares (per the last SEC filing of the 7.4 million shares) are coming from the company, while the remaining shares are offered by selling shareholders. Based on the $12.00 pricing, the company will have a market capitalization of approximately $488 million. Citigroup (C), UBS, Barclays (BCS), and RenCap are leading the offering.
EPAM is a U.S. based (Newtown, PA) IT services provider with delivery locations centered in the Eastern Europe: Belarus, Ukraine, Russia, Hungary, Kazakhstan, and Poland. Its services include: Software Development, Application Testing, Maintenance & Support, and Infrastructure Services. It has significant long standing core IP / flagship product development relationships with leading ISVs [such as SAP, IBM, Google (GOOG) and Oracle (ORCL)].
The company participates in the very competitive $30+ billion outsourced IT services space, with a number of public comps including Infosys (INFY), Cognizant (CTSH), iGate (IGTE), Wipro (WIT), Syntel (SYNT), and Vanceinfo (VIT). Known as the 'Developer's Developer,' EPAM says its focus is on the difficult/challenging work rather than the more commoditized maintenance type work done primarily in India and China. It claims a key to its success has been the clients' migration from a low cost focus to a value focus.
Revenue has grown at a 39.5% CAGR from $70 million in 2006 to $222 million in 2010. For nine months 2011, revenue was up 58.5% year over year to $239 million, adjusted EBITDA margin was 19.2% adjusted net margin was 15.2% and free cash flow was 22.3%. It also has strong visibility with more than 90% of its revenue recurring.
While the IPO market has been a bit temperamental lately, it appears that the uncertainty has been beneficial to investors on this offering as the larger institutional buyers were able to dictate a price well below the anticipated range. On a trailing twelve month EBITDA (based on the adjusted EBITDA numbers) as well as our estimated forward P/E estimates EPAM looks to be priced at an attractive discount to the peer group.