epam-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to________

Commission file number: 001-35418

EPAM SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


Delaware		22-3536104
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
41 University Drive	Suite 202	18940
Newtown	Pennsylvania
(Address of principal executive offices)		(Zip code)

267-759-9000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on which Registered
Common Stock, par value $0.001 per share	EPAM	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Title of Each Class						Outstanding as of July 31, 2023
Common Stock, par value $0.001 per share						57,960,775 shares

EPAM SYSTEMS, INC.

TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022			3
Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2023 and 2022			4
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022			5
Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2023 and 2022			6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022			8
Notes to Condensed Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			45
PART II. OTHER INFORMATION			46
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 3. Defaults Upon Senior Securities			46
Item 4. Mine Safety Disclosures			46
Item 5. Other Information			46
Item 6. Exhibits			47
SIGNATURES			48


	As of June 30, 2023		As of December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	1,776,919	$	1,681,344
Trade receivables and contract assets, net of allowance of $14,744 and $15,310, respectively	917,536		932,626
Short-term investments	71,376		60,336
Prepaid and other current assets	106,143		85,319
Total current assets	2,871,974		2,759,625
Property and equipment, net	255,772		273,348
Operating lease right-of-use assets, net	145,844		148,780
Intangible assets, net	68,132		77,652
Goodwill	534,489		529,072
Deferred tax assets	164,471		172,797
Other noncurrent assets	53,015		47,877
Total assets	$	4,093,697	$	4,009,151

Liabilities
Current liabilities
Accounts payable	$	27,289	$	30,852
Accrued compensation and benefits expenses	359,299		475,871
Accrued expenses and other current liabilities	127,710		154,339
Income taxes payable, current	30,766		46,069
Operating lease liabilities, current	39,001		40,352
Total current liabilities	584,065		747,483
Long-term debt	25,854		27,693
Operating lease liabilities, noncurrent	115,987		122,317
Other noncurrent liabilities	104,451		108,648
Total liabilities	830,357		1,006,141
Commitments and contingencies (Note 13)
Equity
Stockholders’ equity
Common stock, $0.001 par value; 160,000 shares authorized; 57,968 and 57,668 shares issued, 57,955 and 57,655 shares outstanding at June 30, 2023 and December 31, 2022, respectively	58		58
Additional paid-in capital	913,580		847,965
Retained earnings	2,421,326		2,248,948
Treasury stock	(118)		(118)
Accumulated other comprehensive loss	(72,085)		(95,321)
Total EPAM Systems Inc. stockholders’ equity	3,262,761		3,001,532
Noncontrolling interest in consolidated subsidiaries	579		1,478
Total equity	3,263,340		3,003,010
Total liabilities and equity	$	4,093,697	$	4,009,151


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues	$	1,170,206	$	1,194,861	$	2,381,147	$	2,366,475
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization)	808,715		846,323		1,664,616		1,627,159
Selling, general and administrative expenses	194,377		232,527		406,264		469,804
Depreciation and amortization expense	22,768		22,991		45,550		47,250
Income from operations	144,346		93,020		264,717		222,262
Interest and other income, net	11,710		1,579		23,231		1,414
Foreign exchange loss	(6,010)		(85,941)		(10,618)		(108,726)
Income before provision for income taxes	150,046		8,658		277,330		114,950
Provision for/(benefit from) income taxes	30,013		(9,946)		55,005		6,627
Net income	$	120,033	$	18,604	$	222,325	$	108,323

Net income per share:
Basic	$	2.07	$	0.33	$	3.84	$	1.90
Diluted	$	2.03	$	0.32	$	3.75	$	1.84
Shares used in calculation of net income per share:
Basic	57,993		57,240		57,848		57,078
Diluted	59,181		59,020		59,240		58,981


	Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive (Loss)/Income		Non-controlling interest in consolidated subsidiaries		Total Equity
	Shares	Amount						Shares	Amount
Balance, January 1, 2023	57,655	$	58	$	847,965	$	2,248,948	14	$	(118)	$	(95,321)	$	1,478	$	3,003,010
Restricted stock units vested	224	—		—		—		—	—		—		—		—
Equity withheld for employee taxes	(72)	—		(20,501)		—		—	—		—		—		(20,501)
Stock-based compensation expense	—	—		34,265		—		—	—		—		—		34,265
Exercise of stock options	71	—		2,525		—		—	—		—		—		2,525
Repurchase of common stock	(30)	—		—		(8,510)		—	—		—		—		(8,510)
Other comprehensive income	—	—		—		—		—	—		17,361		—		17,361
Net income	—	—		—		102,292		—	—		—		—		102,292
Balance, March 31, 2023	57,848	$	58	$	864,254	$	2,342,730	14	$	(118)	$	(77,960)	$	1,478	$	3,130,442
Restricted stock units vested	76	—		—		—		—	—		—		—		—
Equity withheld for employee taxes	(21)	—		(6,142)		—		—	—		—		—		(6,142)
Stock-based compensation expense	—	—		32,449		—		—	—		—		—		32,449
Exercise of stock options	170	—		4,601		—		—	—		—		—		4,601
Issuance of common stock from employee stock purchase plan	77	—		18,466		—		—	—		—		—		18,466
Repurchase of common stock	(195)	—		—		(41,437)		—	—		—		—		(41,437)
Purchase of subsidiary shares from noncontrolling interest	—	—		(48)		—		—	—		—		(1,405)		(1,453)
Contributions to consolidated subsidiary from noncontrolling interest	—	—		—		—		—	—		—		506		506
Other comprehensive income	—	—		—		—		—	—		5,875		—		5,875
Net income	—	—		—		120,033		—	—		—		—		120,033
Balance, June 30, 2023	57,955	$	58	$	913,580	$	2,421,326	14	$	(118)	$	(72,085)	$	579	$	3,263,340


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	222,325	$	108,323
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	45,550		47,250
Operating lease right-of-use assets amortization expense	20,628		26,037
Bad debt expense	2,031		11,748
Deferred taxes	4,603		(29,405)
Stock-based compensation expense	71,689		35,005
Unrealized (gain)/loss on derivative instruments	(7,904)		32,013
Impairment charges	659		21,002
Other	(447)		75,433
Changes in assets and liabilities:
Trade receivables and contract assets	11,984		(183,143)
Prepaid and other assets	8,980		(3,350)
Accounts payable	1,784		725
Accrued expenses and other liabilities	(128,498)		(62,153)
Operating lease liabilities	(23,251)		(29,015)
Income taxes payable	(53,747)		(24,803)
Net cash provided by operating activities	176,386		25,667
Cash flows from investing activities:
Purchases of property and equipment	(14,796)		(41,426)
Purchases of short-term investments	(10,865)		(60,000)

Acquisition of business, net of cash acquired (Note 3)	—		(10,621)
Purchases of non-marketable securities	(1,906)		—
Other investing activities, net	(7,943)		(11,041)
Net cash used in investing activities	(35,510)		(123,088)
Cash flows from financing activities:
Proceeds from issuance of stock under the employee incentive programs	25,631		22,165
Payments of withholding taxes related to net share settlements of restricted stock units	(25,691)		(20,796)
Proceeds from debt	173		3,227
Repayment of debt	(1,964)		(10,756)
Repurchase of common stock	(49,947)		—
Payment of contingent consideration for previously acquired business	(8,684)		(207)
Purchase of subsidiary shares from noncontrolling interest	(1,972)		(2,146)
Other financing activities, net	(377)		(2,121)
Net cash used in financing activities	(62,831)		(10,634)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	17,096		(45,661)
Net increase/(decrease) in cash, cash equivalents and restricted cash	95,141		(153,716)
Cash, cash equivalents and restricted cash, beginning of period	1,683,636		1,449,347
Cash, cash equivalents and restricted cash, end of period	$	1,778,777	$	1,295,631


	As of June 30, 2023		As of December 31, 2022
Balance sheet classification
Cash and cash equivalents	$	1,776,919	$	1,681,344
Restricted cash in Prepaid and other current assets	307		430
Restricted cash in Other noncurrent assets	1,551		1,862
Total restricted cash	$	1,858	$	2,292
Total cash, cash equivalents and restricted cash	$	1,778,777	$	1,683,636


Cash and cash equivalents	$	24,451
Trade receivables and contract assets, net of allowance of $4,232	3,986
Prepaid and other current assets	264
Total assets in Russia	$	28,701
Accounts payable	$	88
Accrued compensation and benefits expenses	3,369
Accrued expenses and other current liabilities	1,169
Operating lease liabilities, current	86
Other noncurrent liabilities	51
Total liabilities in Russia	$	4,763


	North America		Europe		Total
Balance as of January 1, 2023	$	216,960	$	312,112	$	529,072
2022 Acquisitions purchase accounting adjustments	—		87		87
Effect of net foreign currency exchange rate changes	287		5,043		5,330
Balance as of June 30, 2023	$	217,247	$	317,242	$	534,489


	As of June 30, 2023
	Balance		Level 1		Level 2		Level 3
Foreign exchange derivative assets	$	14,137	$	—	$	14,137	$	—

Total assets measured at fair value on a recurring basis	$	14,137	$	—	$	14,137	$	—

Foreign exchange derivative liabilities	$	10	$	—	$	10	$	—
Contingent consideration	13,000		—		—		13,000
Total liabilities measured at fair value on a recurring basis	$	13,010	$	—	$	10	$	13,000


	As of December 31, 2022
	Balance		Level 1		Level 2		Level 3
Foreign exchange derivative assets	$	12,191	$	—	$	12,191	$	—
Rights to acquire noncontrolling interest in consolidated subsidiaries	334		—		—		334
Total assets measured at fair value on a recurring basis	$	12,525	$	—	$	12,191	$	334

Foreign exchange derivative liabilities	$	9,350	$	—	$	9,350	$	—
Contingent consideration	24,308		—		—		24,308
Total liabilities measured at fair value on a recurring basis	$	33,658	$	—	$	9,350	$	24,308


	Amount
Contingent consideration as of January 1, 2023	$	24,308
Changes in fair value of contingent consideration included in Interest and other income, net	1,514
Payment of contingent consideration for previously acquired businesses	(12,844)
Effect of foreign currency exchange rate changes, net	22
Contingent consideration as of June 30, 2023	$	13,000


	As of June 30, 2023		As of June 30, 2022
Weighted average remaining lease term, in years:
Operating leases	5.2		5.7
Weighted average discount rate:
Operating leases	3.8	%	2.2	%


Year ending December 31,	Lease Payments
2023 (excluding six months ended June 30, 2023)	$	23,155
2024	39,896
2025	31,827
2026	25,524
2027	16,712
Thereafter	32,410
Total lease payments	169,524
Less: imputed interest	(14,536)
Total	$	154,988


	As of June 30, 2023			As of December 31, 2022
Outstanding debt	$	25,000		$	25,000
Interest rate	6.1		%	5.2		%
Available borrowing capacity	$	675,000		$	675,000
Maximum borrowing capacity	$	700,000		$	700,000


	Three Months Ended June 30, 2023
	Reportable Segments
	North America		Europe		Russia		Consolidated Revenues
Customer Locations
Americas	$	653,601	$	25,150	$	336	$	679,087
EMEA	25,629		433,456		—		459,085
APAC	649		23,570		—		24,219
CEE	192		1,266		6,357		7,815
Revenues	$	680,071	$	483,442	$	6,693	$	1,170,206


					Fair Value Hierarchy
	Balance		Estimated Fair Value		Level 1		Level 2		Level 3
June 30, 2023
Financial Assets:
Cash equivalents:
Money market funds	$	207,273	$	207,273	$	207,273	$	—	$	—
Time deposits	120,950		120,950		—		120,950		—
Total cash equivalents	$	328,223	$	328,223	$	207,273	$	120,950	$	—
Restricted cash	$	1,858	$	1,858	$	1,858	$	—	$	—
Time deposits included in Short-term investments	$	71,376	$	71,376	$	—	$	71,376	$	—
Financial Liabilities:
Borrowings under the 2021 Credit Agreement	$	25,000	$	25,000	$	—	$	25,000	$	—
Deferred consideration for asset acquisition	$	54,807	$	54,807	$	—	$	54,807	$	—


		Three Months Ended June 30,				Six Months Ended June 30,
	Income Statement Classification	2023		2022		2023		2022
Operating lease cost	Selling, general and administrative expenses	$	11,950	$	12,215	$	23,133	$	28,099
Variable lease cost	Selling, general and administrative expenses	3,388		2,341		7,036		5,528
Short-term lease cost	Selling, general and administrative expenses	955		1,427		3,611		2,466
Total lease cost		$	16,293	$	15,983	$	33,780	$	36,093


	Six Months Ended June 30, 2023
	Reportable Segments
	North America		Europe		Russia		Consolidated Revenues
Customer Locations
Americas	$	1,337,154	$	51,104	$	631	$	1,388,889
EMEA	51,001		872,021		—		923,022
APAC	1,375		49,654		—		51,029
CEE	498		3,810		13,899		18,207
Revenues	$	1,390,028	$	976,589	$	14,530	$	2,381,147


	Three Months Ended June 30, 2022
	Reportable Segments
	North America		Europe		Russia		Consolidated Revenues
Customer Locations
Americas	$	697,961	$	22,816	$	835	$	721,612
EMEA	23,190		399,796		—		422,986
APAC	793		29,383		—		30,176
CEE	1,713		(51)		18,425		20,087
Revenues	$	723,657	$	451,944	$	19,260	$	1,194,861


	Six Months Ended June 30, 2022
	Reportable Segments
	North America		Europe		Russia		Consolidated Revenues
Customer Locations
Americas	$	1,357,737	$	48,776	$	1,892	$	1,408,405
EMEA	48,288		796,549		99		844,936
APAC	1,576		58,182		—		59,758
CEE	3,767		407		49,202		53,376
Revenues	$	1,411,368	$	903,914	$	51,193	$	2,366,475


	Less than 1 year		1 Year		2 Years		3 Years		Total
Contract Type
Fixed-price	$	16,427	$	3,189	$	1,757	$	—	$	21,373


	As of June 30, 2023		As of December 31, 2022
Contract assets included in Trade receivables and contract assets, net	$	27,434	$	11,490
Contract liabilities included in Accrued expenses and other current liabilities	$	31,748	$	36,036
Contract liabilities included in Other noncurrent liabilities	$	473	$	42


	Number of Options	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term (in years)
Options outstanding at January 1, 2023	1,923	$	98.92
Options granted	108	$	298.44
Options exercised	(241)	$	29.62
Options forfeited	(1)	$	317.56

Options outstanding at June 30, 2023	1,789	$	120.20	$	218,382	3.7

Options vested and exercisable as of June 30, 2023	1,506	$	87.39	$	216,710	2.7
Options expected to vest as of June 30, 2023	265	$	294.39	$	1,613	8.7


	Equity-Classified Equity-Settled Restricted Stock Units			Liability-Classified Cash-Settled Restricted Stock Units
	Number of Shares	Weighted Average Grant Date Fair Value Per Share		Number of Shares	Weighted Average Grant Date Fair Value Per Share
Unvested service-based awards outstanding at January 1, 2023	916	$	291.19	99	$	257.74
Awards granted	488	$	297.77	36	$	299.00
Awards modified	(15)	$	278.52	15	$	305.59
Awards vested	(298)	$	267.70	(44)	$	238.41
Awards forfeited/cancelled	(41)	$	302.53	(4)	$	239.38
Unvested service-based awards outstanding at June 30, 2023	1,050	$	300.66	102	$	287.88


	As of June 30, 2023		As of December 31, 2022
Ukraine	$	67,721	$	70,183
United States	61,199		68,804
Belarus	53,503		57,311
Poland	14,166		14,685
Hungary	7,907		8,552
India	7,214		8,506
Other	44,062		45,307
Total	$	255,772	$	273,348


	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
	2023		2022		Dollars		Percentage		2023		2022		Dollars		Percentage
Industry Vertical	(in thousands, except percentages)
Software & Hi-Tech	$	135,755	$	161,034	$	(25,279)	(15.7)	%	$	285,553	$	317,316	$	(31,763)	(10.0)	%
Financial Services	135,178		126,879		8,299		6.5	%	279,028		247,214		31,814		12.9	%
Travel & Consumer	120,038		130,932		(10,894)		(8.3)	%	243,697		253,179		(9,482)		(3.7)	%
Business Information & Media	106,357		114,026		(7,669)		(6.7)	%	222,515		224,972		(2,457)		(1.1)	%
Life Sciences & Healthcare	99,966		115,899		(15,933)		(13.7)	%	196,563		227,270		(30,707)		(13.5)	%
Emerging Verticals	82,777		74,887		7,890		10.5	%	162,672		141,417		21,255		15.0	%
Revenues	$	680,071	$	723,657	$	(43,586)	(6.0)	%	$	1,390,028	$	1,411,368	$	(21,340)	(1.5)	%


Period	Total Number of Shares Purchased	Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
	(in thousands, except per share amounts)
April 1 to April 30, 2023	—	$	—	—	$	—
May 1 to May 31, 2023	—	$	—	—	$	—
June 1 to June 30, 2023	195	$	212.77	195	$	450,052
Total	195			195


Exhibit Number						Description

10.1*†						EPAM Systems, Inc. Amended Non-Employee Director Compensation Policy
31.1*						Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
31.2*						Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
32.1*						Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*						Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101)

*						Exhibits filed herewith
†						Indicates management contracts or compensatory plans or arrangements


			EPAM SYSTEMS, INC.

			By:			/s/ Arkadiy Dobkin
						Name: Arkadiy Dobkin
						Title: Chairman, Chief Executive Officer and President (principal executive officer)

			By:			/s/ Jason Peterson
						Name: Jason Peterson
						Title: Senior Vice President, Chief Financial Officer and Treasurer (principal financial officer)