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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, 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/e1e262bcb283739215a01495688c6aae-epam-20210930_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 October 29, 2021
Common Stock, par value $0.001 per share
56,719,559 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 par value)
 As of
September 30,
2021
As of
December 31,
2020
Assets
Current assets
Cash and cash equivalents$1,266,614 $1,322,143 
Short-term investments 60,007 
Trade receivables and contract assets, net of allowance of $6,207 and $4,886, respectively
755,588 501,062 
Prepaid and other current assets69,992 29,570 
Total current assets2,092,194 1,912,782 
Restricted cash, noncurrent (Note 4)158,454 1,284 
Property and equipment, net176,881 169,533 
Operating lease right-of-use assets, net192,628 228,672 
Intangible assets, net74,576 51,975 
Goodwill386,508 211,956 
Deferred tax assets104,057 92,454 
Other noncurrent assets56,935 52,676 
Total assets$3,242,233 $2,721,332 
Liabilities  
Current liabilities  
Accounts payable$8,086 $10,189 
Accrued compensation and benefits expenses412,061 294,709 
Accrued expenses and other current liabilities140,298 79,690 
Income taxes payable, current20,928 20,603 
Operating lease liabilities, current51,174 60,759 
Total current liabilities632,547 465,950 
Long-term debt25,024 25,038 
Income taxes payable, noncurrent42,193 43,448 
Operating lease liabilities, noncurrent149,556 180,604 
Other noncurrent liabilities53,794 23,274 
Total liabilities903,114 738,314 
Commitments and contingencies (Note 12)
Stockholders’ equity  
Common stock, $0.001 par value; 160,000 shares authorized; 56,728 and 56,128 shares issued, 56,708 and 56,108 shares outstanding at September 30, 2021 and December 31, 2020, respectively
57 56 
Additional paid-in capital693,887 660,771 
Retained earnings1,687,253 1,347,880 
Treasury stock(177)(177)
Accumulated other comprehensive loss(41,901)(25,512)
Total stockholders’ equity2,339,119 1,983,018 
Total liabilities and stockholders’ equity$3,242,233 $2,721,332 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3

Table of Contents
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Revenues$988,539 $652,243 $2,650,680 $1,935,985 
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization)
653,374 423,388 1,756,430 1,266,730 
Selling, general and administrative expenses169,498 116,530 457,797 355,829 
Depreciation and amortization expense21,543 15,929 59,804 46,095 
Income from operations144,124 96,396 376,649 267,331 
Interest and other (loss)/income, net(5,325)1,672 2,629 5,875 
Foreign exchange (loss)/gain(3,441)5,896 (5,835)3,253 
Income before provision for income taxes135,358 103,964 373,443 276,459 
Provision for income taxes19,702 14,532 34,070 34,838 
Net income$115,656 $89,432 $339,373 $241,621 
Net income per share:
Basic$2.04 $1.60 $6.01 $4.34 
Diluted$1.95 $1.53 $5.75 $4.14 
Shares used in calculation of net income per share:
Basic56,649 55,884 56,429 55,625 
Diluted59,203 58,616 58,999 58,341 

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

4

Table of Contents
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Net income$115,656 $89,432 $339,373 $241,621 
Other comprehensive loss:
Change in foreign currency translation adjustments, net of tax(10,761)199 (11,655)(15,878)
Change in unrealized loss on hedging instruments, net of tax(2,067)(498)(4,108)(3,420)
Defined benefit pension plans - actuarial loss, net of tax  (626) 
Other comprehensive loss(12,828)(299)(16,389)(19,298)
Comprehensive income$102,828 $89,133 $322,984 $222,323 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
5

Table of Contents
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 
Restricted stock units vested
6 — — — — — — — 
Restricted stock units withheld for employee taxes
(2)— (1,368)— — — — (1,368)
Stock-based compensation expense
 — 20,541 — — — — 20,541 
Proceeds from stock option exercises
91 — 4,450 — — — — 4,450 
Other comprehensive loss— — — — — — (12,828)(12,828)
Net income
— — — 115,656 — — — 115,656 
Balance, September 30, 2021
56,708 $57 $693,887 $1,687,253 20 $(177)$(41,901)$2,339,119 








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EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)
(Continued)
 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 
Restricted stock units vested
5 — — — — — — — 
Restricted stock units withheld for employee taxes
(1)— (294)— — — — (294)
Stock-based compensation expense
— — 12,566 — — — — 12,566 
Proceeds from stock option exercises
152 — 5,735 — — — — 5,735 
Other comprehensive loss— — — — — — (299)(299)
Net income
— — — 89,432 — — — 89,432 
Balance, September 30, 2020
55,982 $56 $648,686 $1,262,341 20 $(177)$(50,672)$1,860,234 


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,
 20212020
Cash flows from operating activities:
Net income$339,373 $241,621 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense59,804 46,095 
Operating lease right-of-use assets amortization expense46,693 50,467 
Bad debt expense2,573 2,794 
Deferred taxes(6,948)(4,546)
Stock-based compensation expense77,638 54,794 
Other4,312 3,225 
Changes in assets and liabilities:  
Trade receivables and contract assets(232,710)3,477 
Prepaid and other assets(8,768)4,261 
Accounts payable(6,468)1,836 
Accrued expenses and other liabilities86,822 30,787 
Operating lease liabilities(48,158)(47,023)
Income taxes payable(26,450)(2,813)
Net cash provided by operating activities287,713 384,975 
Cash flows from investing activities:  
Purchases of property and equipment(54,884)(50,311)
Purchases of short-term investments (60,000)
Proceeds from short-term investments60,000  
Acquisition of business, net of cash acquired (Note 2)(160,964)(18,888)
Purchases of non-marketable securities(2,544)(20,500)
Other investing activities, net(100)452 
Net cash used in investing activities(158,492)(149,247)
Cash flows from financing activities:  
Proceeds from stock option exercises20,176 23,027 
Payments of withholding taxes related to net share settlements of restricted stock units(34,108)(16,213)
Payment of contingent consideration for previously acquired business(797)(7,869)
Other financing activities, net231 (28)
Net cash used in financing activities(14,498)(1,083)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(12,691)(10,110)
Net increase in cash, cash equivalents and restricted cash102,032 224,535 
Cash, cash equivalents and restricted cash, beginning of period1,323,533 937,688 
Cash, cash equivalents and restricted cash, end of period$1,425,565 $1,162,223 


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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,
2021
As of
December 31,
2020
Balance sheet classification
    Cash and cash equivalents$1,266,614 $1,322,143 
Restricted cash in Prepaid and other current assets497 106 
  Restricted cash, noncurrent158,454 1,284 
    Total restricted cash158,951 1,390 
        Total cash, cash equivalents and restricted cash$1,425,565 $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, and Asia. 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.
Reclassifications — Restricted cash, noncurrent presented on the condensed consolidated balance sheet has been reclassified from Other noncurrent assets as of December 31, 2020 to conform to the current-period financial statement presentation.
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 $148.2 million including contingent consideration with an acquisition-date fair value of $35.4 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 and updated for any changes as of September 30, 2021:
PolSource
Cash and cash equivalents$2,565 
Trade receivables and contract assets13,016 
Prepaid and other current assets789 
Goodwill125,359 
Intangible assets15,790 
Property and equipment and other noncurrent assets461 
Total assets acquired$157,980 
Accounts payable, accrued expenses and other current liabilities$5,607 
Other noncurrent liabilities4,201 
Total liabilities assumed$9,808 
Net assets acquired$148,172 
During the three months ended September 30, 2021, the Company updated the valuation of the acquired assets and liabilities resulting in a corresponding increase in the value of acquired goodwill of $11.8 million, primarily attributable to a $10.4 million increase in the fair value of contingent consideration. The effect of adjustments recorded during the three months ended September 30, 2021 that would have been recognized in a prior period if the adjustment to the preliminary amounts had been recognized as of the acquisition date of PolSource was not material. For the acquisition of PolSource, the estimated fair values of the assets acquired and liabilitie