SEGMENTS INFORMATION

6 Months Ended

Jun. 30, 2019

The Company determines its business segments and reports segment information in accordance with how the Company’s chief operating decision maker (“CODM”) organizes the segments to evaluate performance, allocate resources and make business decisions. Segment results are based on the segment’s revenues and operating profit, where segment operating profit is defined as income from operations before unallocated costs. 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 corporate expenses are not allocated to specific segments as these expenses are not controllable at the segment level. Such expenses include certain types of professional fees, non-corporate taxes, compensation to non-employee directors and certain other general and administrative expenses, including compensation of specific groups of non-production employees. In addition, the Company does not allocate amortization of acquisition-related intangible assets, goodwill and other asset impairment charges, stock-based compensation expenses, acquisition-related costs and certain other one-time charges. These unallocated amounts are combined with total segment operating profit to arrive at consolidated income from operations as reported below in the reconciliation of segment operating profit to consolidated income before provision for/(benefit from) income taxes. Additionally, management has determined that it is not practical to allocate identifiable assets by segment since such assets are used interchangeably among the segments.

The Company manages its business primarily based on the managerial responsibility for its client base and market. As managerial responsibility for a particular customer relationship generally correlates with the customer’s geographic location, there is a high degree of similarity between customer locations and the geographic boundaries of the Company’s reportable segments. In some cases, managerial responsibility for a particular customer is assigned to a management team in another region and is usually based on the strength of the relationship between customer executives and particular members of EPAM’s senior management team. In such cases, the customer’s activity would be reported through the management team’s reportable segment.

Revenues from external customers and operating profit, before unallocated expenses, by reportable segments for the three and six months ended June 30, 2019 and 2018, were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Segment revenues:
North America	$	331,039	$	257,103	$	641,728	$	488,299
Europe	197,452		171,495		391,675		344,838
Russia	23,201		17,380		39,781		37,166
Total segment revenues	$	551,692	$	445,978	$	1,073,184	$	870,303
Segment operating profit:
North America	$	69,347	$	51,221	$	133,804	$	95,181
Europe	27,679		26,568		59,464		55,458
Russia	5,652		2,321		6,241		7,668
Total segment operating profit	$	102,678	$	80,110	$	199,509	$	158,307

Intersegment transactions were excluded from the above on the basis that they are neither included in the measure of a segment’s profit and loss results, nor considered by the CODM during the review of segment results.

There were no customers that accounted for more than 10% of total segment revenues during the three and six months ended June 30, 2019 and 2018. Accounts receivable and unbilled revenues are generally dispersed across the Company’s customers in proportion to their revenues. There were no customers individually exceeding 10% of total accounts receivable and unbilled revenues as of June 30, 2019 and December 31, 2018.

Reconciliation of segment revenues to consolidated revenues and segment operating profit to consolidated income before provision for/(benefit from) income taxes is presented below:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Total segment revenues	$	551,692		$	445,978		$	1,073,184		$	870,303
Other income included in segment revenues	(105		)	(331		)	(264		)	(508		)
Revenues	$	551,587		$	445,647		$	1,072,920		$	869,795

Total segment operating profit:	$	102,678		$	80,110		$	199,509		$	158,307
Unallocated amounts:
Other income included in segment revenues	(105		)	(331		)	(264		)	(508		)
Stock-based compensation expense	(15,697		)	(14,810		)	(37,553		)	(31,406		)
Non-corporate taxes	(2,438		)	(2,418		)	(4,166		)	(4,978		)
Professional fees	(555		)	(1,400		)	(2,324		)	(3,316		)
Depreciation and amortization expense	(2,603		)	(1,974		)	(4,743		)	(3,743		)
Bank charges	(686		)	(579		)	(1,292		)	(1,168		)
One-time charges and other acquisition-related expenses	(815		)	(1,241		)	(1,361		)	(1,861		)
Other operating expenses	(6,897		)	(3,120		)	(10,266		)	(8,393		)
Income from operations	72,882			54,237			137,540			102,934
Interest and other income, net	1,190			1,052			4,266			501
Foreign exchange (loss)/gain	(3,562		)	1,830			(7,046		)	1,583
Income before provision for/(benefit from) income taxes	$	70,510		$	57,119		$	134,760		$	105,018

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. Physical locations and values of the Company’s long-lived assets are presented below:



	As of June 30, 2019		As of December 31, 2018
Belarus	$	48,984	$	50,085
United States	13,799		13,101
Russia	12,563		9,902
Ukraine	12,535		8,433
India	6,755		7,019
Hungary	3,345		3,168
China	2,904		2,651
Poland	2,876		2,637
Other	7,414		5,650
Total	$	111,175	$	102,646

The table below presents information about the Company’s revenues by customer location for the three and six months ended June 30, 2019 and 2018.



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
United States	$	318,988	$	246,831	$	618,668	$	470,514
United Kingdom	69,042		50,103		134,781		101,833
Switzerland	35,364		34,268		71,597		69,872
Netherlands	21,039		17,254		41,655		34,903
Germany	19,622		20,111		38,776		39,599
Russia	22,460		16,909		38,352		36,321
Canada	15,785		17,620		32,757		33,383
Other	49,287		42,551		96,334		83,370
Total	$	551,587	$	445,647	$	1,072,920	$	869,795