OPERATING SEGMENTS

9 Months Ended

Sep. 30, 2015

Segment Reporting [Abstract]

OPERATING SEGMENTS

OPERATING SEGMENTS

The Company determines its operating segments and reports segment information in accordance with the management approach, which designates internal reporting used by management to make operating decisions and assess performance as the source of the Company’s reportable segments.

The Company manages its business primarily based on the geographic managerial responsibility for its client base. As 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 cases, managerial responsibility for a particular client is assigned to a management team in another region and is usually based on the strength of the relationship between client executives and particular members of EPAM’s senior management team. In such a case, 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 performance and allocates resources based on the segment's 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 because these expenses are either not directly attributable to any specific segment or controllable at the segment level and consequently are not allocated to individual segments in internal management reports used by the CODM. Such 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, 2015 and 2014, were as follows:

	Three Months Ended   September 30,					Nine Months Ended   September 30,
	2015		2014			2015			2014
Total segment revenues:
North America	$	121,746	$	99,393		$	330,228		$	267,866
Europe	103,514		78,074			292,826			217,247
Russia	9,707		14,762			27,432			38,881
Other	1,207		530			3,951			3,445
Total segment revenues	$	236,174	$	192,759		$	654,437		$	527,439
Segment operating profit:
North America	$	28,906	$	22,557		$	78,720		$	62,283
Europe	17,021		12,200			49,031			36,049
Russia	1,626		3,779			3,095			4,843
Other	168		(1,508		)	(12		)	(3,726		)
Total segment operating profit	$	47,721	$	37,028		$	130,834		$	99,449

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, 2015, revenues from one customer, UBS AG, were $32,960 and $95,826, respectively, and accounted for more than 10% of total revenues. 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. Revenues from this customer 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, 2015, unbilled trade receivables from one customer, UBS AG, individually exceeded 10% and accounted for 16.5% of our total unbilled trade receivables. There were no customers individually exceeding 10% of our billed trade receivables as of September 30, 2015.

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, 2015
	2015			2014			2015			2014
Total segment revenues	$	236,174		$	192,759		$	654,437		$	527,439
Unallocated revenues/ (discounts)	(125		)	5			(562		)	404
Revenues	$	236,049		$	192,764		$	653,875		$	527,843
Total segment operating profit:	$	47,721		$	37,028		$	130,834		$	99,449
Unallocated amounts:
Other unallocated revenues/ (discounts)	(125		)	5			(562		)	404
Stock-based compensation expense	(11,963		)	(7,425		)	(33,350		)	(16,524		)
Non-corporate taxes	(1,120		)	(789		)	(2,858		)	(1,944		)
Professional fees	(1,572		)	(839		)	(5,423		)	(3,380		)
Depreciation and amortization	(1,312		)	(2,589		)	(3,919		)	(5,470		)
Bank charges	(340		)	(708		)	(1,021		)	(1,211		)
One-time charges	—			—			—			(2,000		)
Other corporate expenses	(3,513		)	(2,848		)	(9,499		)	(7,156		)
Income from operations	27,776			21,835			74,202			62,168
Interest and other income, net	865			1,261			3,322			3,401
Foreign exchange gain/(loss)	32			(718		)	(6,187		)	(3,198		)
Income before provision for income taxes	$	28,673		$	22,378		$	71,337		$	62,371

Geographic Area Information

Long-lived assets include property and equipment, net of accumulated depreciation and amortization, and management has determined that it is not practical to allocate these 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, 2015		December 31, 2014
Belarus	$	46,844	$	41,652
Ukraine	4,482		4,392
Hungary	2,406		2,773
United States	2,072		2,001
Russia	2,043		2,196
Other	2,705		2,120
Total	$	60,552	$	55,134

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

	Three Months Ended   September 30,				Nine Months Ended   September 30, 2015
	2015		2014		2015		2014
United States	$	110,191	$	84,276	$	299,606	$	228,504
United Kingdom	41,324		35,222		121,312		102,642
Switzerland	28,370		22,508		81,654		63,873
Canada	14,695		13,518		40,394		34,973
Russia	9,469		14,351		26,526		37,513
Germany	10,378		6,459		26,216		18,951
Hong Kong	5,758		5,058		17,030		8,268
Netherlands	2,630		2,174		6,984		6,636
Sweden	3,020		1,734		7,479		6,213
Belgium	2,154		1,079		5,307		2,619
Kazakhstan	1,208		525		3,951		3,141
Ireland	1,554		1,448		4,374		2,430
Other locations	2,421		1,949		6,066		5,978
Reimbursable expenses and other revenues	2,877		2,463		6,976		6,102
Revenues	$	236,049	$	192,764	$	653,875	$	527,843

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, 2015
	2015		2014		2015		2014
Software development	$	165,438	$	134,000	$	457,216	$	364,539
Application testing services	46,275		37,155		125,615		103,121
Application maintenance and support	17,976		14,824		53,078		40,715
Infrastructure services	2,689		3,502		8,609		10,740
Licensing	794		820		2,381		2,626
Reimbursable expenses and other revenues	2,877		2,463		6,976		6,102
Revenues	$	236,049	$	192,764	$	653,875	$	527,843