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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 September 30, 2020

OR
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)
Delaware22-3536104
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
41 University DriveSuite 20218940
NewtownPennsylvania
(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 ClassTrading Symbol Name of Each Exchange on which Registered
Common Stock, par value $0.001 per shareEPAM 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 filerAccelerated filer
Non-accelerated filerSmaller 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.
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 ClassOutstanding as of October 31, 2020
Common Stock, par value $0.001 per share
55,988,929 shares


EPAM SYSTEMS, INC.

TABLE OF CONTENTS
 Page



Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
 As of
September 30,
2020
As of
December 31,
2019
Assets
Current assets
Cash and cash equivalents$1,161,065 $936,552 
Short-term investments60,089 9 
Trade receivables and contract assets, net of allowance of $5,371
 and $2,920, respectively
493,225 497,716 
Prepaid and other current assets37,843 39,934 
Total current assets1,752,222 1,474,211 
Property and equipment, net163,689 165,259 
Operating lease right-of-use assets, net232,780 238,991 
Intangible assets, net54,321 56,258 
Goodwill207,764 195,043 
Deferred tax assets90,071 75,013 
Other noncurrent assets54,578 39,433 
Total assets$2,555,425 $2,244,208 
Liabilities  
Current liabilities  
Accounts payable$10,785 $7,831 
Accrued compensation and benefits expenses263,918 230,035 
Accrued expenses and other current liabilities65,242 82,476 
Income taxes payable, current13,779 9,064 
Operating lease liabilities, current61,107 57,542 
Total current liabilities414,831 386,948 
Long-term debt25,039 25,074 
Income taxes payable, noncurrent43,259 45,878 
Operating lease liabilities, noncurrent183,935 180,848 
Other noncurrent liabilities28,127 9,315 
Total liabilities695,191 648,063 
Commitments and contingencies (Note 12)
Stockholders’ equity  
Common stock, $0.001 par value; 160,000,000 authorized; 56,001,270 and 55,207,446 shares issued, 55,981,535 and 55,187,711 shares outstanding at September 30, 2020 and December 31, 2019, respectively
56 55 
Additional paid-in capital648,686 607,051 
Retained earnings1,262,341 1,020,590 
Treasury stock(177)(177)
Accumulated other comprehensive loss(50,672)(31,374)
Total stockholders’ equity1,860,234 1,596,145 
Total liabilities and stockholders’ equity$2,555,425 $2,244,208 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except share and per share data)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Revenues$652,243 $588,103 $1,935,985 $1,661,023 
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization)
423,388 377,525 1,266,730 1,078,129 
Selling, general and administrative expenses116,530 118,886 355,829 332,434 
Depreciation and amortization expense15,929 11,127 46,095 32,355 
Income from operations96,396 80,565 267,331 218,105 
Interest and other income, net1,672 2,509 5,875 6,775 
Foreign exchange gain/(loss)5,896 (3,105)3,253 (10,151)
Income before provision for income taxes103,964 79,969 276,459 214,729 
Provision for income taxes14,532 12,967 34,838 28,196 
Net income$89,432 $67,002 $241,621 $186,533 
Foreign currency translation adjustments, net of tax199 (10,114)(15,878)(4,551)
Unrealized (loss)/gain on cash-flow hedging instruments, net of tax(498)(2,163)(3,420)2,474 
Comprehensive income$89,133 $54,725 $222,323 $184,456 
Net income per share:
Basic$1.60 $1.22 $4.34 $3.42 
Diluted$1.53 $1.16 $4.14 $3.24 
Shares used in calculation of net income per share:
Basic55,883,879 54,877,666 55,624,727 54,603,903 
Diluted58,616,106 57,844,355 58,341,178 57,567,339 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share data) 
 Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive LossTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance, January 1, 2020
55,187,711 $55 $607,051 $1,020,590 19,735 $(177)$(31,374)$1,596,145 
Cumulative effect of adoption of ASU 2016-13— — — 130 — — — 130 
Adjusted Balance, January 1, 2020
55,187,711 $55 $607,051 $1,020,720 19,735 $(177)$(31,374)$1,596,275 
Restricted stock units vested
273,904 — — — — — — — 
Restricted stock units withheld for employee taxes
(89,990)— (15,822)— — — — (15,822)
Stock-based compensation expense
— — 12,210 — — — — 12,210 
Proceeds from stock option exercises
217,475 1 7,140 — — — — 7,141 
Foreign currency translation adjustments, net of tax
— — — — — — (28,519)(28,519)
Change in unrealized gains and losses on cash-flow hedging instruments, net of tax— — — — — — (9,368)(9,368)
Net income
— — — 85,565 — — — 85,565 
Balance, March 31, 202055,589,100 $56 $610,579 $1,106,285 19,735 $(177)$(69,261)$1,647,482 
Restricted stock units vested
18,649 — — — — — — — 
Restricted stock units withheld for employee taxes
(5,522)— (1,169)— — — — (1,169)
Stock-based compensation expense
— — 11,153 — — — — 11,153 
Proceeds from stock option exercises
223,724 — 10,116 — — — — 10,116 
Foreign currency translation adjustments, net of tax
— — — — — — 12,442 12,442 
Change in unrealized gains and losses on cash-flow hedging instruments, net of tax— — — — — — 6,446 6,446 
Net income
— — — 66,624 — — — 66,624 
Balance, June 30, 202055,825,951 $56 $630,679 $1,172,909 19,735 $(177)$(50,373)$1,753,094 


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 Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive LossTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance, June 30, 2020
55,825,951 $56 $630,679 $1,172,909 19,735 $(177)$(50,373)$1,753,094 
Restricted stock units vested
4,696 — — — — — — — 
Restricted stock units withheld for employee taxes
(1,015)— (294)— — — — (294)
Stock-based compensation expense
— — 12,566 — — — — 12,566 
Proceeds from stock option exercises
151,903 — 5,735 — — — — 5,735 
Foreign currency translation adjustments, net of tax
— — — — — — 199 199 
Change in unrealized gains and losses on cash-flow hedging instruments, net of tax— — — — — — (498)(498)
Net income
— — — 89,432 — — — 89,432 
Balance, September 30, 2020
55,981,535 $56 $648,686 $1,262,341 19,735 $(177)$(50,672)$1,860,234 
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EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share data)
(Continued)
 Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive LossTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance, January 1, 2019
54,080,192 $54 $544,700 $759,533 19,735 $(177)$(41,514)$1,262,596 
Restricted stock units vested
242,414 — — — — — — — 
Restricted stock units withheld for employee taxes
(81,562)— (13,483)— — — — (13,483)
Stock-based compensation expense
— — 10,425 — — — — 10,425 
Proceeds from stock option exercises
323,464 — 11,890 — — — — 11,890 
Foreign currency translation adjustments, net of tax
— — — — — — 2,943 2,943 
Change in unrealized gains and losses on cash-flow hedging instruments, net of tax— — — — — — 3,100 3,100 
Net income
— — — 60,754 — — — 60,754 
Balance, March 31, 2019
54,564,508 $54 $553,532 $820,287 19,735 $(177)$(35,471)$1,338,225 
Restricted stock units vested
11,757 — — — — — — — 
Restricted stock units withheld for employee taxes
(2,084)— (363)— — — — (363)
Stock-based compensation expense
— — 10,867 — — — — 10,867 
Proceeds from stock option exercises
205,108 1 10,583 — — — — 10,584 
Foreign currency translation adjustments, net of tax
— — — — — — 2,620 2,620 
Change in unrealized gains and losses on cash-flow hedging instruments, net of tax— — — — — — 1,537 1,537 
Net income
— — — 58,777 — — — 58,777 
Balance, June 30, 2019
54,779,289 $55 $574,619 $879,064 19,735 $(177)$(31,314)$1,422,247 


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 Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive LossTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance, June 30, 201954,779,289 $55 $574,619 $879,064 19,735 $(177)$(31,314)$1,422,247 
Restricted stock issued in connection with acquisitions18,787 — — — — — — — 
Restricted stock units vested
17,216 — — — — — — — 
Restricted stock units withheld for employee taxes
(5,961)— (1,090)— — — — (1,090)
Stock-based compensation expense
— — 9,909 — — — — 9,909 
Proceeds from stock option exercises
139,767 — 6,326 — — — — 6,326 
Foreign currency translation adjustments, net of tax
— — — — — — (10,114)(10,114)
Change in unrealized gains and losses on cash-flow hedging instruments, net of tax— — — — — — (2,163)(2,163)
Net income
— — — 67,002 — — — 67,002 
Balance, September 30, 201954,949,098 $55 $589,764 $946,066 19,735 $(177)$(43,591)$1,492,117 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
                                               Nine Months Ended September 30,
 20202019
Cash flows from operating activities:
Net income$241,621 $186,533 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense46,095 32,355 
Operating lease right-of-use assets amortization expense50,467 40,203 
Bad debt expense2,794 133 
Deferred taxes(4,546)(3,105)
Stock-based compensation expense54,794 53,024 
Other3,225 7,522 
Changes in assets and liabilities:  
Trade receivables and contract assets3,477 (77,833)
Prepaid and other assets4,261 237 
Accounts payable1,836 (1,844)
Accrued expenses and other liabilities30,787 (11,230)
Operating lease liabilities(47,023)(39,230)
Income taxes payable(2,813)(23,899)
Net cash provided by operating activities384,975 162,866 
Cash flows from investing activities:  
Purchases of property and equipment(50,311)(52,295)
Purchases of short-term investments(60,000) 
Acquisition of business, net of cash acquired (Note 2)(18,888)(28,655)
Purchases of non-marketable securities(20,500)(5,000)
Other investing activities, net452 (1,632)
Net cash used in investing activities(149,247)(87,582)
Cash flows from financing activities:  
Proceeds from stock option exercises23,027 28,798 
Payments of withholding taxes related to net share settlements of restricted stock units(16,213)(14,521)
Payment of contingent consideration for previously acquired business(7,869)(1,104)
Other financing activities, net(28)(26)
Net cash (used in)/provided by financing activities(1,083)13,147 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(10,110)(5,753)
Net increase in cash, cash equivalents and restricted cash224,535 82,678 
Cash, cash equivalents and restricted cash, beginning of period937,688 771,711 
Cash, cash equivalents and restricted cash, end of period$1,162,223 $854,389 


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EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
(Continued)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets:
                                               As of
September 30,
2020
As of
December 31,
2019
Balance sheet classification
    Cash and cash equivalents$1,161,065 $936,552 
   Restricted cash in Other noncurrent assets1,158 1,136 
    Total restricted cash1,158 1,136 
        Total cash, cash equivalents and restricted cash$1,162,223 $937,688 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
 
1.BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES    
EPAM Systems, Inc. (the “Company” or “EPAM”) is a leading global provider of digital platform engineering and software development services to customers located around the world, primarily in North America, Europe, Asia and Australia. The Company’s industry expertise includes financial services, travel and consumer, software and hi-tech, business information and media, life sciences and healthcare, as well as other emerging industries. The Company is incorporated in Delaware with headquarters in Newtown, Pennsylvania.
Basis of Presentation — The accompanying unaudited condensed consolidated financial statements of EPAM have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP” or “U.S. GAAP”) and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. The unaudited condensed consolidated financial statements include the financial statements of EPAM Systems, Inc. and its subsidiaries with all intercompany balances and transactions eliminated.
These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019 included in its Annual Report on Form 10-K. The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates, and such differences may be material to the condensed consolidated financial statements. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire year. In management’s opinion, all adjustments considered necessary for a fair presentation of the accompanying unaudited condensed consolidated financial statements have been included, and all adjustments are of a normal and recurring nature.
As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, certain amounts recorded in the prior-period consolidated statement of cash flows presented have been reclassified to conform to the current-period financial statement presentation. These reclassifications had no effect on previously reported results of operations.
Adoption of New Accounting Standards
Unless otherwise discussed below, the adoption of new accounting standards did not have a material impact on the Company’s consolidated financial position, results of operations, changes in stockholders’ equity and cash flows.
Measurement of Credit Losses on Financial Instruments — In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
The amendments in this update changed how companies measure and recognize credit impairment for many financial assets. The new credit loss model requires companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets (including trade receivables) that are in the scope of the update. The update also made amendments to the current impairment model for held-to-maturity and available-for-sale debt securities and certain guarantees. The Company adopted Topic 326, effective January 1, 2020, using a modified-retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. As a result of the adoption of Topic 326, the Company recorded an immaterial reduction to its allowance for doubtful accounts for trade receivables and contract assets.
Pending Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standards-setting bodies that the Company will adopt according to the various timetables the FASB specifies. The Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position, results of operations and cash flows upon adoption.

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2.ACQUISITIONS
2020 Acquisitions — During the nine months ended September 30, 2020, the Company completed two acquisitions with an aggregate purchase price of $22,526 including contingent consideration with an acquisition-date fair value of $5,292