OPERATING SEGMENTS

9 Months Ended

Sep. 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 nine months ended September 30, 2014 and 2013, were as follows:

	Three Months Ended   September 30,					Nine Months Ended   September 30,
	2014			2013		2014			2013
Total segment revenues:
North America	$	99,393		$	73,480	$	267,866		$	205,613
Europe	78,074			51,531		217,247			146,108
Russia	14,762			12,050		38,881			37,901
Other	530			3,078		3,445			7,867
Total segment revenues	$	192,759		$	140,139	$	527,439		$	397,489
Segment operating profit:
North America	$	22,557		$	18,133	$	62,283		$	48,527
Europe	12,200			8,049		36,049			24,538
Russia	3,779			391		4,843			2,710
Other	(1,508		)	1,024		(3,726		)	960
Total segment operating profit	$	37,028		$	27,597	$	99,449		$	76,735

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 nine months ended September 30, 2014, revenues from one customer, UBS AG, were $27,012 and $70,259, respectively, and accounted for more than 10% of total revenues. During the three and nine months ended September 30, 2013, revenues from one customer, Barclays Capital, were $14,489 and $40,070, respectively, and accounted for more than 10% 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.

Trade accounts receivable and unbilled revenues are generally dispersed across our clients in proportion to their revenues. As of September 30, 2014, billed and unbilled trade receivables from one customer, UBS AG, individually exceeded 10% and accounted for 10.0% and 15.5% of our total billed and unbilled trade receivables, respectively, as of that date.

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

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	2014			2013			2014			2013
Total segment revenues	$	192,759		$	140,139		$	527,439		$	397,489
Unallocated revenue	5			11			404			43
Revenues	$	192,764		$	140,150		$	527,843		$	397,532
Total segment operating profit:	$	37,028		$	27,597		$	99,449		$	76,735
Unallocated amounts:
Other revenues	5			11			404			43
Stock-based compensation expense	(7,425		)	(3,365		)	(16,524		)	(9,791		)
Non-corporate taxes	(789		)	(690		)	(1,944		)	(2,190		)
Professional fees	(839		)	(594		)	(3,380		)	(2,668		)
Depreciation and amortization	(2,589		)	(732		)	(5,470		)	(2,162		)
Bank charges	(708		)	(261		)	(1,211		)	(914		)
Asset impairment	—			—			(2,000		)	—
Other corporate expenses	(2,848		)	(1,736		)	(7,156		)	(5,752		)
Income from operations	21,835			20,230			62,168			53,301
Interest and other income, net	1,261			846			3,401			2,245
Foreign exchange loss	(718		)	(720		)	(3,198		)	(2,088		)
Income before provision for income taxes	$	22,378		$	20,356		$	62,371		$	53,458

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:

	September 30, 2014		December 31, 2013
Belarus	$	41,243	$	38,697
Ukraine	4,511		5,525
Russia	2,673		3,414
Hungary	2,703		2,644
United States	1,931		2,217
Other	1,604		818
Total	$	54,665	$	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   September 30,				Nine Months Ended   September 30,
	2014		2013		2014		2013
United States	$	84,276	$	62,871	$	228,504	$	180,067
United Kingdom	35,222		26,637		102,642		81,416
Switzerland	22,508		13,920		63,873		33,934
Russia	14,351		11,534		37,513		36,464
Canada	13,518		9,162		34,973		22,980
Germany	6,459		5,141		18,951		14,211
China	5,058		—		8,268		—
Netherlands	2,174		1,895		6,636		6,665
Sweden	1,734		1,382		6,213		3,986
Kazakhstan	525		2,921		3,141		7,414
Other locations	4,476		2,501		11,027		5,261
Reimbursable expenses and other revenues	2,463		2,186		6,102		5,134
Revenues	$	192,764	$	140,150	$	527,843	$	397,532

Service Offering Information

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

	Three Months Ended   September 30,				Nine Months Ended   September 30,
	2014		2013		2014		2013
Software development	$	134,000	$	93,870	$	364,539	$	267,948
Application testing services	37,155		27,773		103,121		78,473
Application maintenance and support	14,824		11,758		40,715		33,245
Infrastructure services	3,502		3,754		10,740		10,625
Licensing	820		809		2,626		2,107
Reimbursable expenses and other revenues	2,463		2,186		6,102		5,134
Revenues	$	192,764	$	140,150	$	527,843	$	397,532