STOCK-BASED COMPENSATION

The following table summarizes the components of stock-based compensation expense recognized in the Company’s condensed consolidated statements of income and comprehensive income for the periods indicated:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Cost of revenues	$	7,054	$	4,189	$	15,343	$	9,539
Selling, general and administrative expenses	7,756		8,738		16,063		19,164
Total	$	14,810	$	12,927	$	31,406	$	28,703

Stock Options

Stock option activity under the Company’s plans is set forth below:



	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term (in years)
Options outstanding at January 1, 2018	4,901,748		$	40.91
Options granted	157,133		$	112.91
Options exercised	(566,799	)	$	39.34
Options forfeited/cancelled	(27,583	)	$	63.63
Options outstanding at June 30, 2018	4,464,499		$	43.50	$	360,830	5.8

Options vested and exercisable at June 30, 2018	3,530,693		$	35.46	$	313,776	5.3
Options expected to vest at June 30, 2018	879,470		$	73.49	$	44,709	7.7

As of June 30, 2018, $19,733 of total remaining unrecognized stock-based compensation cost related to unvested stock options, net of estimated forfeitures, is expected to be recognized over the weighted-average remaining requisite service period of 2.1 years.

As of June 30, 2018, a total of 3,423 shares underlying options exercised through June 30, 2018, were in transfer with the Company’s transfer agent.

Effective January 1, 2018, the Company changed the methodology for estimating volatility used in the Black-Scholes option valuation model. Prior to January 1, 2018, the Company estimated the volatility of its common stock by using historical volatility of peer public companies including the Company’s historical volatility. In the first quarter of 2018, the Company began exclusively using its own historical volatility as it believes this is a more accurate estimate of future volatility of the price of the Company’s common stock. The Company did not change the methodology for estimating any other Black-Scholes option valuation model assumptions as disclosed in Note 13 “Stock-Based Compensation” to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Restricted Stock and Restricted Stock Units

Service-Based Awards

The table below summarizes activity related to the Company’s equity-classified and liability-classified service-based awards for the six months ended June 30, 2018.



	Equity-Classified Restricted Stock			Equity-Classified Equity-Settled Restricted Stock Units				Liability-Classified Cash-Settled Restricted Stock Units
	Number of Shares	Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share
Unvested service-based awards outstanding at January 1, 2018	1,840	$	54.37	688,012		$	71.60	314,829		$	72.50
Awards granted	—	$	—	330,717		$	114.22	85,380		$	112.65
Awards modified	—	$	—	(2,299	)	$	72.80	2,299		$	116.63
Awards vested	—	$	—	(202,569	)	$	69.90	(91,052	)	$	72.42
Awards forfeited/cancelled	—	$	—	(27,460	)	$	77.90	(4,761	)	$	76.50
Unvested service-based awards outstanding at June 30, 2018	1,840	$	54.37	786,401		$	89.74	306,695		$	83.97

As of June 30, 2018, $56 of total remaining unrecognized stock-based compensation cost related to service-based restricted stock is expected to be recognized over the weighted-average remaining requisite service period of 1.1 years.

As of June 30, 2018, $56,843 of total remaining unrecognized stock-based compensation cost related to service-based equity-classified restricted stock units (“RSUs”), net of estimated forfeitures, is expected to be recognized over the weighted-average remaining requisite service period of 3.0 years. As of June 30, 2018, there were 3,894 restricted share units vested for which the holders elected to defer delivery of EPAM Systems, Inc. ordinary shares. During the first quarter of 2018, 44,228 RSUs were granted in connection with the acquisition of Continuum.

As of June 30, 2018, $29,706 of total remaining unrecognized stock-based compensation cost related to service-based liability-classified RSUs, net of estimated forfeitures, is expected to be recognized over the weighted-average remaining requisite service period of 2.7 years.

The liability associated with the service-based liability-classified RSUs as of June 30, 2018 and December 31, 2017, was $4,338 and $5,964, respectively, and was classified as Deferred compensation due to employees in the condensed consolidated balance sheets.

Performance-Based Awards

The table below summarizes activity related to the Company’s equity-classified performance-based awards for the six months ended June 30, 2018.



	Equity-Classified Equity-Settled Restricted Stock Units
	Number of Shares	Weighted Average Grant Date Fair Value Per Share
Unvested performance-based awards outstanding at January 1, 2018	—	$	—
Awards granted	45,375	$	121.75
Awards vested	—	$	—
Awards forfeited/cancelled	—	$	—
Unvested performance-based awards outstanding at June 30, 2018	45,375	$	121.75

As of June 30, 2018, $5,128 of total remaining unrecognized stock-based compensation cost related to performance-based equity-classified restricted stock units is expected to be recognized over the weighted-average remaining requisite service period of 2.2 years.

Performance-based equity-classified RSUs were granted during the period in connection with the acquisition of Continuum and have a variable vesting period, subject to satisfaction of the applicable performance conditions with each vesting portion having its own service inception date. The Company will periodically assess the probability of achievement of the performance criteria and adjust the amount of compensation expense accordingly. Compensation is recognized over the vesting period and adjusted for the probability of achievement of the performance criteria for each vesting portion separately.