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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 June 30, 2021

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
https://cdn.kscope.io/db422853800c6fdf674e5df9ca55bca3-epam-20210630_g1.jpg
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 Class
Outstanding as of July 31, 2021
Common Stock, par value $0.001 per share
56,630,464 shares



EPAM SYSTEMS, INC.

TABLE OF CONTENTS
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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 par value)
 As of
June 30,
2021
As of
December 31,
2020
Assets
Current assets
Cash and cash equivalents$1,283,233 $1,322,143 
Short-term investments 60,007 
Trade receivables and contract assets, net of allowance of $7,647 and $4,886, respectively
682,236 501,062 
Prepaid and other current assets72,549 29,570 
Total current assets2,038,018 1,912,782 
Property and equipment, net173,545 169,533 
Operating lease right-of-use assets, net196,572 228,672 
Intangible assets, net65,130 51,975 
Goodwill335,477 211,956 
Deferred tax assets96,115 92,454 
Other noncurrent assets56,758 53,960 
Total assets$2,961,615 $2,721,332 
Liabilities  
Current liabilities  
Accounts payable$9,712 $10,189 
Accrued compensation and benefits expenses309,328 294,709 
Accrued expenses and other current liabilities109,148 79,690 
Short-term debt25,000  
Income taxes payable, current16,939 20,603 
Operating lease liabilities, current52,821 60,759 
Total current liabilities522,948 465,950 
Long-term debt29 25,038 
Income taxes payable, noncurrent41,012 43,448 
Operating lease liabilities, noncurrent151,985 180,604 
Other noncurrent liabilities32,973 23,274 
Total liabilities748,947 738,314 
Commitments and contingencies (Note 12)
Stockholders’ equity  
Common stock, $0.001 par value; 160,000 shares authorized; 56,633 and 56,128 shares issued, 56,613 and 56,108 shares outstanding at June 30, 2021 and December 31, 2020, respectively
57 56 
Additional paid-in capital670,264 660,771 
Retained earnings1,571,597 1,347,880 
Treasury stock(177)(177)
Accumulated other comprehensive loss(29,073)(25,512)
Total stockholders’ equity2,212,668 1,983,018 
Total liabilities and stockholders’ equity$2,961,615 $2,721,332 

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
(Unaudited)
(In thousands, except per share data)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Revenues$881,366 $632,383 $1,662,141 $1,283,742 
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization)
583,728 419,540 1,103,056 843,342 
Selling, general and administrative expenses151,910 114,191 288,299 239,299 
Depreciation and amortization expense20,454 15,226 38,261 30,166 
Income from operations125,274 83,426 232,525 170,935 
Interest and other income, net2,580 1,817 7,954 4,203 
Foreign exchange loss(4,693)(9,167)(2,394)(2,643)
Income before provision for income taxes123,161 76,076 238,085 172,495 
Provision for income taxes8,490 9,452 14,368 20,306 
Net income$114,671 $66,624 $223,717 $152,189 
Net income per share:
Basic$2.03 $1.20 $3.97 $2.74 
Diluted$1.94 $1.14 $3.80 $2.62 
Shares used in calculation of net income per share:
Basic56,463 55,701 56,317 55,494 
Diluted59,011 58,246 58,896 58,194 

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 COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Net income$114,671 $66,624 $223,717 $152,189 
Other comprehensive income/(loss):
Change in foreign currency translation adjustments, net of tax9,637 12,442 (894)(16,077)
Change in unrealized gain/(loss) on hedging instruments, net of tax2,040 6,446 (2,041)(2,922)
Defined benefit pension plans - actuarial loss, net of tax  (626) 
Other comprehensive income/(loss)11,677 18,888 (3,561)(18,999)
Comprehensive income$126,348 $85,512 $220,156 $133,190 

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) 
 Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive (Loss)/IncomeTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance, January 1, 2021
56,108 $56 $660,771 $1,347,880 20 $(177)$(25,512)$1,983,018 
Restricted stock units vested
248 — — — — — — — 
Restricted stock units withheld for employee taxes
(84)— (31,935)— — — — (31,935)
Stock-based compensation expense
 — 14,624 — — — — 14,624 
Proceeds from stock option exercises
109 — 4,424 — — — — 4,424 
Other comprehensive loss— — — — — — (15,238)(15,238)
Net income
— — — 109,046 — — — 109,046 
Balance, March 31, 202156,381 $56 $647,884 $1,456,926 $20 $(177)$(40,750)$2,063,939 
Restricted stock units vested
19 — — — — — — — 
Restricted stock units withheld for employee taxes
(6)— (2,631)— — — — (2,631)
Stock-based compensation expense
— — 13,792 — — — — 13,792 
Proceeds from stock option exercises
219 1 11,219 — — — — 11,220 
Other comprehensive income— — — — — — 11,677 11,677 
Net income
— — — 114,671 — — — 114,671 
Balance, June 30, 202156,613 $57 $670,264 $1,571,597 20 $(177)$(29,073)$2,212,668 

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 Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive (Loss) / IncomeTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance, January 1, 2020
55,188 $55 $607,051 $1,020,590 20 $(177)$(31,374)$1,596,145 
Cumulative effect of adoption of ASU 2016-13— — — 130 — — — 130 
Adjusted Balance, January 1, 2020
55,188 $55 $607,051 $1,020,720 20 $(177)$(31,374)$1,596,275 
Restricted stock units vested
274 — — — — — — — 
Restricted stock units withheld for employee taxes
(90)— (15,822)— — — — (15,822)
Stock-based compensation expense
— — 12,210 — — — — 12,210 
Proceeds from stock option exercises
217 1 7,140 — — — — 7,141 
Other comprehensive loss— — — — — — (37,887)(37,887)
Net income
— — — 85,565 — — — 85,565 
Balance, March 31, 202055,589 $56 $610,579 $1,106,285 20 $(177)$(69,261)$1,647,482 
Restricted stock units vested
19 — — — — — — — 
Restricted stock units withheld for employee taxes
(6)— (1,169)— — — — (1,169)
Stock-based compensation expense
— — 11,153 — — — — 11,153 
Proceeds from stock option exercises
224  10,116 — — — — 10,116 
Other comprehensive income— — — — — — 18,888 18,888 
Net income
— — — 66,624 — — — 66,624 
Balance, June 30, 202055,826 $56 $630,679 $1,172,909 20 $(177)$(50,373)$1,753,094 

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)
                                               Six Months Ended June 30,
 20212020
Cash flows from operating activities:
Net income$223,717 $152,189 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense38,261 30,166 
Operating lease right-of-use assets amortization expense31,496 33,834 
Bad debt expense2,828 3,174 
Deferred taxes1,176 2,971 
Stock-based compensation expense48,451 31,320 
Other(5,190)4,458 
Changes in assets and liabilities:  
Trade receivables and contract assets(168,038)(11,842)
Prepaid and other assets(7,795)1,216 
Accounts payable(3,948)633 
Accrued expenses and other liabilities(6,772)(5,835)
Operating lease liabilities(32,276)(30,857)
Income taxes payable(40,247)(2,016)
Net cash provided by operating activities81,663 209,411 
Cash flows from investing activities:  
Purchases of property and equipment(33,773)(40,524)
Purchases of short-term investments (60,000)
Proceeds from short-term investments60,000  
Acquisition of business, net of cash acquired (Note 2)(121,252)(12,573)
Purchases of non-marketable securities(2,544)(20,500)
Other investing activities, net179 26 
Net cash used in investing activities(97,390)(133,571)
Cash flows from financing activities:  
Proceeds from stock option exercises15,610 17,144 
Payments of withholding taxes related to net share settlements of restricted stock units(33,696)(15,899)
Payment of contingent consideration for previously acquired business(1,047)(7,869)
Other financing activities, net137 (24)
Net cash used in financing activities(18,996)(6,648)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(3,761)(11,999)
Net (decrease)/increase in cash, cash equivalents and restricted cash(38,484)57,193 
Cash, cash equivalents and restricted cash, beginning of period1,323,533 937,688 
Cash, cash equivalents and restricted cash, end of period$1,285,049 $994,881 


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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
June 30,
2021
As of
December 31,
2020
Balance sheet classification
    Cash and cash equivalents$1,283,233 $1,322,143 
Restricted cash in Prepaid and other current assets451 106 
  Restricted cash in Other noncurrent assets1,365 1,284 
    Total restricted cash1,816 1,390 
        Total cash, cash equivalents and restricted cash$1,285,049 $1,323,533 

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 per share data and as otherwise disclosed) 
 
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, 2020 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.
Adoption of New Accounting Standards
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.
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.

2.ACQUISITIONS
PolSource — On April 2, 2021, the Company acquired 100% of PolSource S.A. and its subsidiaries, a Salesforce Platinum Consulting Partner with more than 350 experienced Salesforce specialists for a purchase price of $136.7 million including contingent consideration with an acquisition-date fair value of $25.0 million. The Company could pay up to $45.0 million in contingent consideration and the actual future payout is subject to attainment of certain revenue, earnings and operational targets.
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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition for PolSource:
PolSource
Cash and cash equivalents$2,565 
Trade receivables and contract assets13,653 
Prepaid and other current assets756 
Goodwill113,528 
Intangible assets15,290 
Property and equipment and other noncurrent assets422 
Total assets acquired$146,214 
Accounts payable, accrued expenses and other current liabilities$5,247 
Other noncurrent liabilities4,297 
Total liabilities assumed$9,544 
Net assets acquired$136,670 
For the acquisition of PolSource, the estimated fair values of the assets acquired and liabilities assumed are provisional and based on the information that was available as of the acquisition date. The Company expects to complete the purchase price allocations as soon as practicable but no later than one year from the acquisition date.
As of June 30, 2021, the following table presents the estimated fair values and useful lives of intangible assets acquired from PolSource:
PolSource
Weighted Average Useful Life (in years)Amount
Customer relationships6$14,390 
Trade names3900 
Total$15,290 
The goodwill recognized as a result of the PolSource acquisition is attributable to synergies expected to be achieved by combining the businesses of EPAM and PolSource, expected future contracts, the assembled workforce acquired and other factors. This goodwill is not expected to be deductible for income tax purposes.
Revenues generated by PolSource included in the Company’s consolidated statements of income totaled $16.6 million during the three and six months ended June 30, 2021.
The Company recognized acquisition-related costs associated with the PolSource acquisition during the three and six months ended June 30, 2021 totaling $0.4 million and $1.4 million, respectively. These costs are included in Selling, general and administrative expenses in the accompanying consolidated statements of income.
Pro forma results of operations have not been presented because the effect of the acquisition of PolSource and its subsidiaries on the Company’s condensed consolidated financial statements was not material.
Other 2021 Acquisitions — During the three months ended June 30, 2021, the Company completed two additional acquisitions with an aggregate purchase price of $17.1 million including contingent consideration with an acquisition-date fair value of $3.4 million. The Company could pay up to $10.8 million in contingent consideration and the actual future payout is subject to attainment of specified performance targets during the periods ranging from 12 months to 24 months after the respective acquisition dates. These acquisitions increased EPAM’s e-platform offerings and expanded the Company’s geographical reach, as well as added $5.1 million in intangible assets, consisting mainly of customer relationships. Revenues generated by these Other 2021 acquisitions totaled $2.0 million during the three months ended June 30, 2021. Pro forma results of operations have not been presented because the effect of these acquisitions on the Company’s consolidated financial statements was not material individually or in the aggregate.
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2020 Acquisitions — During the year ended December 31, 2020, the Company completed two acquisitions with an aggregate purchase price of $22.5 million including contingent consideration with an acquisition-date fair value of $5.3 million. The Company committed to making contingent consideration payments with a maximum amount payable of $18.6 million subject to attainment of specified performance targets in the first and second calendar years after the respective acquisition dates. These acquisitions increased EPAM’s software and service capabilities and expanded EPAM’s offerings in financial services as well as added $7.3 million of intangible assets, consisting mainly of customer relationships. Pro forma results of operations have not been presented because the effect of these acquisitions on the Company’s condensed consolidated financial statements was not material individually or in the aggregate.

3.GOODWILL
Goodwill by reportable segment was as follows:
North AmericaEuropeRussiaTotal
Balance as of January 1, 2021
$121,132 $90,106 $718 $211,956 
PolSource acquisition68,117 45,411  113,528 
Other 2021 acquisitions4,609 5,716  10,325 
2020 acquisitions purchase accounting adjustments (24) (24)
Effect of net foreign currency exchange rate changes(146)(166)4 (308)
Balance as of June 30, 2021
$193,712 $141,043 $722 $335,477 
There were no accumulated impairment losses in the North America or Europe reportable segments as of June 30, 2021 or December 31, 2020. The Russia segment had accumulated goodwill impairment losses of $2.2 million as of June 30, 2021 and December 31, 2020.

4.FAIR VALUE MEASUREMENTS
The Company carries certain assets and liabilities at fair value on a recurring basis on its consolidated balance sheets. The following tables present the fair values of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020:
As of June 30, 2021
BalanceLevel 1Level 2Level 3
Foreign exchange derivative assets$3,049 $ $3,049 $ 
Total assets measured at fair value on a recurring basis$3,049 $ $3,049 $ 
Foreign exchange derivative liabilities$975 $ $975 $ 
Contingent consideration29,167   29,167 
Total liabilities measured at fair value on a recurring basis
$30,142 $ $975 $29,167 
As of December 31, 2020
BalanceLevel 1Level 2Level 3
Foreign exchange derivative assets$4,955 $ $4,955 $ 
Total assets measured at fair value on a recurring basis$4,955 $ $4,955 $ 
Foreign exchange derivative liabilities$243 $