OPERATING SEGMENTS

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

OPERATING SEGMENTS

OPERATING SEGMENTS

The Company reports segment information based on the managerial responsibility for its client base. Because managerial responsibility for a particular client relationship generally correlates with the client’s geographic location, there is a high degree of similarity between client locations and the geographic boundaries of the Company’s reportable segments. In some specific cases, however, managerial responsibility for a particular client is assigned to a management team in another region, usually based on the strength of the relationship between client executives and particular members of EPAM’s senior management team. In a case like this, the client’s activity would be reported through the management team’s reportable segment.

The Company’s reportable segments are North America, Europe, Russia and Other. The Company’s Chief Operating Decision Maker (“CODM”) evaluates its performance and allocates resources based on segment revenues and operating profit. Segment operating profit is defined as income from operations before unallocated costs. Generally, operating expenses for each operating segment have similar characteristics and are subject to similar factors, pressures and challenges. Expenses included in segment operating profit consist principally of direct selling and delivery costs as well as an allocation of certain shared services expenses. Certain expenses are not allocated to specific segments, as management does not believe it is practical to allocate such costs to individual segments because they are not directly attributable to any specific segment. Further, stock-based compensation expense is not allocated to individual segments in internal management reports used by the CODM. Accordingly, these expenses are separately disclosed as “unallocated” and adjusted only against the Company’s total income from operations.

Revenues from external customers and segment operating profit, before unallocated expenses, for the North America, Europe, Russia and Other reportable segments for the three and six months ended June 30, 2014 and 2013, were as follows:

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Total segment revenues:
North America	$	88,275		$	69,076		$	168,473		$	132,133
Europe	71,514			48,424			139,173			94,577
Russia	13,371			13,498			24,119			25,851
Other	1,523			2,176			2,915			4,789
Total segment revenues	$	174,683		$	133,174		$	334,680		$	257,350
Segment operating profit:
North America	$	21,529		$	16,213		$	39,726		$	30,394
Europe	9,714			8,118			23,849			16,489
Russia	2,199			1,687			1,064			2,319
Other	(900		)	(148		)	(2,218		)	(64		)
Total segment operating profit	$	32,542		$	25,870		$	62,421		$	49,138

Intersegment transactions were excluded from the above on the basis that they are neither included into the measure of a segment’s profit and loss by the CODM, nor provided to the CODM on a regular basis.

During the three and six months ended June 30, 2014, revenues from one customer, UBS AG, were $23,224 and $43,247 respectively, and accounted for more than 10% of total revenues. Revenues from one customer, Barclays Capital, were $13,474 and $25,581 during the three and six months ended June 30, 2013, respectively, and accounted for 10.3% and 9.9% of our total revenues in the corresponding periods. Revenues from these customers included reimbursable expenses and were included in the Company’s Europe segment in the periods indicated.

Reconciliation of segment revenues and operating profit to consolidated income before provision for income taxes is presented below:

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Total segment revenues	$	174,683		$	133,174		$	334,680		$	257,350
Unallocated revenue	12			10			399			32
Revenues	$	174,695		$	133,184		$	335,079		$	257,382
Total segment operating profit:	$	32,542		$	25,870		$	62,421		$	49,138
Unallocated amounts:
Other revenues	12			10			399			32
Stock-based compensation expense	(5,891		)	(3,850		)	(9,099		)	(6,426		)
Non-corporate taxes	(609		)	(680		)	(1,155		)	(1,500		)
Professional fees	(1,227		)	(724		)	(2,541		)	(2,074		)
Depreciation and amortization	(2,226		)	(715		)	(2,881		)	(1,430		)
Bank charges	(256		)	(321		)	(503		)	(653		)
One-time charges	(2,000		)	—			(2,000		)	—
Other corporate expenses	(1,869		)	(2,055		)	(4,308		)	(4,016		)
Income from operations	18,476			17,535			40,333			33,071
Interest and other income, net	1,164			769			2,140			1,399
Foreign exchange loss	(1,239		)	(869		)	(2,480		)	(1,368		)
Income before provision for income taxes	$	18,401		$	17,435		$	39,993		$	33,102

Geographic Area Information

Management has determined that it is not practical to allocate identifiable assets by segment since such assets are used interchangeably among the segments. Geographical information about the Company’s long-lived assets based on physical location of the assets was as follows:

	June 30, 2014		December 31, 2013
Belarus	$	40,319	$	38,697
Ukraine	4,848		5,525
Russia	3,112		3,414
Hungary	2,802		2,644
United States	2,192		2,217
Other	1,250		818
Total	$	54,523	$	53,315

Long-lived assets include property and equipment, net of accumulated depreciation and amortization.

Information about the Company’s revenues by client location is as follows:

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2014		2013		2014		2013
United States	$	75,092	$	59,746	$	144,228	$	117,196
United Kingdom	33,176		27,711		67,420		54,779
Switzerland	20,833		10,734		41,365		20,014
Russia	12,772		13,192		23,162		24,930
Canada	11,474		8,393		21,455		13,818
Germany	6,360		4,537		12,492		9,070
China	3,210		—		3,210		—
Netherlands	2,344		2,384		4,462		4,770
Sweden	2,167		1,349		4,479		2,604
Kazakhstan	1,374		2,028		2,616		4,493
Other locations	4,221		1,600		6,551		2,760
Reimbursable expenses and other revenues	1,672		1,510		3,639		2,948
Revenues	$	174,695	$	133,184	$	335,079	$	257,382

Service Offering Information

Information about the Company’s revenues by service offering is as follows:

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2014		2013		2014		2013
Software development	$	119,852	$	90,298	$	230,539	$	174,078
Application testing services	34,196		26,547		65,966		50,700
Application maintenance and support	14,513		10,648		25,891		21,487
Infrastructure services	3,484		3,461		7,238		6,871
Licensing	978		720		1,806		1,298
Reimbursable expenses and other revenues	1,672		1,510		3,639		2,948
Revenues	$	174,695	$	133,184	$	335,079	$	257,382