SEGMENTS INFORMATION

9 Months Ended

Sep. 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 nine months ended September 30, 2019 and 2018, were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Segment revenues:
North America	$	358,987	$	280,838	$	1,000,715	$	769,137
Europe	205,123		171,482		596,798		516,320
Russia	24,164		16,208		63,945		53,374
Total segment revenues	$	588,274	$	468,528	$	1,661,458	$	1,338,831
Segment operating profit:
North America	$	79,310	$	60,763	$	213,114	$	155,944
Europe	27,550		28,871		87,014		84,329
Russia	5,524		543		11,765		8,211
Total segment operating profit	$	112,384	$	90,177	$	311,893	$	248,484

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 nine months ended September 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 September 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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Total segment revenues	$	588,274		$	468,528		$	1,661,458		$	1,338,831
Other income included in segment revenues	(171		)	(342		)	(435		)	(850		)
Revenues	$	588,103		$	468,186		$	1,661,023		$	1,337,981

Total segment operating profit:	$	112,384		$	90,177		$	311,893		$	248,484
Unallocated amounts:
Other income included in segment revenues	(171		)	(342		)	(435		)	(850		)
Stock-based compensation expense	(15,471		)	(15,330		)	(53,024		)	(46,736		)
Non-corporate taxes	(3,960		)	(2,063		)	(8,126		)	(7,041		)
Professional fees	(1,502		)	(1,420		)	(3,826		)	(4,736		)
Depreciation and amortization expense	(2,585		)	(2,011		)	(7,328		)	(5,754		)
Bank charges	(645		)	(782		)	(1,937		)	(1,950		)
One-time charges and other acquisition-related expenses	(1,142		)	(155		)	(2,503		)	(2,016		)
Other operating expenses	(6,343		)	(3,514		)	(16,609		)	(11,907		)
Income from operations	80,565			64,560			218,105			167,494
Interest and other income, net	2,509			1,941			6,775			2,442
Foreign exchange (loss)/gain	(3,105		)	(514		)	(10,151		)	1,069
Income before provision for/(benefit from) income taxes	$	79,969		$	65,987		$	214,729		$	171,005

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 September 30, 2019		As of December 31, 2018
Belarus	$	48,521	$	50,085
Ukraine	16,077		8,433
United States	13,934		13,101
Russia	12,514		9,902
India	6,742		7,019
Hungary	3,329		3,168
China	3,132		2,651
Poland	2,900		2,637
Other	8,172		5,650
Total	$	115,321	$	102,646

The table below presents information about the Company’s revenues by customer location for the three and nine months ended September 30, 2019 and 2018:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
United States	$	340,803	$	266,065	$	959,471	$	736,579
United Kingdom	74,992		50,482		209,773		152,315
Switzerland	38,781		35,524		110,378		105,396
Russia	23,668		15,609		62,020		51,930
Netherlands	22,161		17,031		63,816		51,934
Germany	20,940		20,732		59,716		60,331
Canada	17,582		18,008		50,339		51,391
Other	49,176		44,735		145,510		128,105
Total	$	588,103	$	468,186	$	1,661,023	$	1,337,981