UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-35418

EPAM SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware		22-3536104
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
41 University Drive	Suite 202	18940
Newtown	Pennsylvania
(Address of principal executive offices)		(Zip code)

267-759-9000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on which Registered
Common Stock, par value $0.001 per share	EPAM	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.

 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ☒  No ☐ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒     No   ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ☒     No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐	Smaller reporting company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

As of June 30, 2021 the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $27,963,532,231 based on the closing sale price as reported on the New York Stock Exchange. Solely for purposes of the foregoing calculation, “affiliates” are deemed to consist of each officer and director of the registrant, and each person known to the registrant to own 10% or more of the outstanding voting power of the registrant.

As of February 11, 2022, there were 56,878,539 shares of common stock outstanding.

 DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive Proxy Statement for its 2022 annual meeting of stockholders pursuant to Regulation 14A within 120 days of the end of the registrant’s fiscal year ended December 31, 2021. Portions of the registrant’s Proxy Statement are incorporated by reference into Part III of this Annual Report on Form 10-K. With the exception of the portions of the Proxy Statement expressly incorporated by reference, such document shall not be deemed filed with this Annual Report on Form 10-K.

EPAM SYSTEMS, INC.

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2021

TABLE OF CONTENTS

	Page
PART I	2
Item 1. Business	2
Item 1A. Risk Factors	9
Item 1B. Unresolved Staff Comments	23
Item 2. Properties	23
Item 3. Legal Proceedings	23
Item 4. Mine Safety Disclosures	23
PART II	24
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
Item 6. Selected Financial Data	26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	43
Item 8. Financial Statements and Supplementary Data	44
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	44
Item 9A. Controls and Procedures	44
Item 9B. Other Information	45
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	45
PART III	45
Item 10. Directors, Executive Officers and Corporate Governance	45
Item 11. Executive Compensation	45
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	46
Item 13. Certain Relationships and Related Transactions, and Director Independence	46
Item 14. Principal Accountant Fees and Services	46
PART IV	46
Item 15. Exhibits, Financial Statement Schedules	47
Item 16. Form 10-K Summary	49
SIGNATURES	50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1

In this annual report, “EPAM,” “EPAM Systems, Inc.,” the “Company,” “we,” “us” and “our” refer to EPAM Systems, Inc. and its consolidated subsidiaries.

“EPAM” is a trademark of EPAM Systems, Inc. “ISO 9001:2015” and “ISO 27001:2013” are trademarks of the International Organization for Standardization. “ISAE” is a trademark of the International Federation of Accountants. All other trademarks and servicemarks used herein are the property of their respective owners.

Unless otherwise indicated, information contained in this annual report concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from various sources (including industry publications, surveys and forecasts and our internal research), on assumptions that we have made, which we believe are reasonable, based on such data and other similar sources and on our knowledge of the markets for our services. The projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate, are subject to a high degree of uncertainty and risk due to a variety of factors, including those described under “Item 1A. Risk Factors” and elsewhere in this annual report. These and other factors could cause results to differ materially from those expressed in the estimates included in this annual report.

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains estimates and forward-looking statements, principally in “Item 1. Business”, “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. Those future events and trends may relate to, among other things, the anticipated impact of the COVID-19 pandemic and political or civil unrest or military action in the geographies where we conduct business and where our operations are located and the effect that those events may have on our revenues, operations, access to capital, profitability and customer demand. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks, uncertainties and assumptions as to future events that may not prove to be accurate and are made in light of information currently available to us. Important factors, in addition to the factors described in this annual report, may materially and adversely affect our results as indicated in forward-looking statements. You should read this annual report and the documents that we have filed as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect.

The words “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “might,” “would,” “continue” or the negative of these terms or other comparable terminology and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made and, except to the extent required by law, we undertake no obligation to update, to revise or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. As a result of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this annual report might not occur and our future results, level of activity, performance or achievements may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentioned above, and the differences may be material and adverse. Because of these uncertainties, you should not place undue reliance on these forward-looking statements.

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PART I

Item 1. Business

Company Background

EPAM delivers end-to-end value to its customers by leveraging its advanced software engineering heritage with business and experience consulting to become one of the foremost global digital transformation services provider. We focus on building long-term partnerships with our customers in a market that is constantly challenged by the pressures of digitization through our innovative strategy and scalable software solutions, integrated advisory, business consulting and experience design, and a continually evolving mix of advanced capabilities. We support our customers while enabling them to reimagine their businesses through a digital lens.

Our historical core competency, software development and product engineering services, combined with our work with global leaders in enterprise software platforms and emerging technology companies, created our foundation for the evolution of our other offerings, which include advanced technology software solutions, intelligent enterprise services and digital engagement. Our strategic acquisitions have expanded our geographic reach and service capabilities to include digital strategy and design, consulting and test automation and we expect our strategic acquisitions will continue to enable us to offer a broader range of services to our customers from a wide variety of locations.

Business Strategy

Our service offerings continuously evolve to provide more customized and integrated solutions to our customers where we combine best-in-class software engineering with customer experience design, business consulting and technology innovation services. We are continually expanding our service capabilities, moving beyond traditional services into business consulting, design and physical product development and areas such as artificial intelligence, robotics and virtual reality.

EPAM’s key service offerings and solutions include the following practice areas:

Engineering

Our engineering foundation underpins how we architect, build and scale next-generation software solutions and agile delivery teams. Our engineering expertise allows us to build enterprise technologies that improve business processes, offer smarter analytics and result in greater operational excellence through requirements analysis and platform selection, deep and complex customization, cross-platform migration, implementation and integration.

We use our experience, custom tools and specialized knowledge to integrate our customers’ chosen application platforms with their internal systems and processes and to create custom solutions filling the gaps in their platforms’ functionality in order to address the needs of the customers’ users and customers. We address our customers’ increased need for tighter enterprise integration between software development, testing and maintenance with private, public and mobile infrastructures through our infrastructure management services. These solutions cover the full lifecycle of infrastructure management including application, database, network, server, storage and systems operations management, as well as monitoring, incident notification and resolution. We deliver maintenance and support services through our proprietary distributed project management processes and tools, which reduce the time and costs related to maintenance, enhancement and support activities.

We have deep expertise and the ability to offer a comprehensive set of software product development services including product research, customer experience design and prototyping, program management, component design and integration, full lifecycle software testing, product deployment and end-user customization, performance tuning, product support and maintenance, managed services, as well as porting and cross-platform migration. We focus on software products covering a wide range of business applications as well as product development for multiple mobile platforms and embedded software product services.

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Operations

We turn our customers’ operations into intelligent enterprise hubs with our proprietary platforms, integrated engineering practices and smart automation. Developing a digital experience or product from end-to-end requires input and expertise from a variety of professionals with a broad range of skills. Our multi-disciplinary teams and global delivery framework come together to deliver well-rounded technology solutions that bring a competitive advantage to our customers. In addition to utilizing our dedicated delivery centers, which allow us to deploy key delivery talent, we work closely with leading companies in various industries to enable our customers to better leverage technology and address the simultaneous pressures of driving value for their consumer and offering a more engaging experience.

Optimization

We turn process optimization into real transformation by using process automation and cognitive techniques to transform legacy processes and deliver streamlined operations that increase revenues and reduce costs for our customers. We rely on our teams, methodologies and tools to optimize every stage of software delivery for improved quality and better features with each release.

We maintain a dedicated group of testing and quality assurance professionals with experience across a wide range of technology platforms and industry verticals, who perform software application testing, test management, automation and consulting services focused on helping customers improve their existing software testing and quality assurance practices. We employ industry-recognized and proprietary defect tracking tools and frameworks to deliver a comprehensive range of testing services that identify threats and close loopholes to protect our customers’ business systems from information loss.

Consulting

Over the years, as a complement to our core engineering skills, we have added capabilities in business consulting to give us an agile, hybrid approach to the market. Our consulting services drive deeper relationships as we help our customers with larger and more complex challenges. Our integrated consulting teams – across Business, Experience, Technology and Data – apply a systems thinking mindset to get to the core of our clients’ challenges. The functional business expertise of our professionals is supplemented by a thorough understanding of technology platforms and their interactions as well as application of data science and machine learning to deliver our best insights into our customers’ business.

Our technical advisory services help customers stay ahead of current technology changes and innovate, where innovation beyond technology is also delivered through collaborative workshops, challenges and new organizational models.

Design

We apply design thinking to digital and service strategy, user experience and the product lifecycle with a focus on innovative design ideas and product development. Our digital and service design practice provides strategy, design, creative and program management services for customers looking to improve the user experience.

We are continuously looking to strengthen and grow our design and consulting practices as evidenced by our 2018 strategic acquisitions of Continuum Innovation LLC, which enhances our consulting, physical design and product development capabilities, Think Limited, which enhances our global product and design offerings, and our 2021 acquisition of Emakina Group, which enhances our ability to deliver creative solutions, personalized experiences, and next generation digital products.

Industry Expertise

Strong industry-specific knowledge, backed by extensive experience merging technology with the business processes of our customers, allows us to deliver tailored solutions to various industry verticals. Our customers operate in five main industry verticals as well as a number of other emerging verticals in which we are increasing our presence.

Financial Services. We have significant experience working with global investment banks, commercial and retail lending institutions, credit card and payment solution companies, trading platforms, exchanges and brokerages, capital markets, wealth and investment management institutions, insurers and various other providers of financial services and financial technology. We assist these customers with challenges stemming from new regulations, compliance requirements, customer-based needs and risk management. Our financial services domain experts have been recognized with industry awards for engineering and deploying unique applications and business solutions that facilitate growth, competitiveness, regulatory compliance and customer interaction while driving cost efficiency and digital transformation.

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Travel and Consumer. Our capabilities span a range of platforms, applications and solutions that businesses in travel and hospitality use to enhance their customers’ experience, control operating expenses and efficiently manage their business. Some of the world’s leading airlines, global hotel brands and online travel agencies rely on our expertise in creating high-quality tools for becoming more adaptive and addressing market challenges. Within this vertical, we also serve global, regional and local retailers, online retail brands and marketplaces, consumer goods manufacturers, as well as distributors and supply chain organizations. We deliver a wide range of services to these customers from complex system modernizations, brand strategy and space design, digital marketing, payments and loyalty programs to inventory and order management, leading edge innovations in multi-channel sales and distribution. We have transformed organizations to use technology to expand and revolutionize their business models. Our services directly impact strategy, breakthrough products and compelling brand and employee experiences that help retailers outpace competitors.

Software and Hi-Tech. We provide complex software product development services to meet software and technology companies’ constant need for innovation and agility. Some of the most prominent software brands in the world partner with us to build technology consulting, core engineering and full-scale integration capabilities. Through our extensive experience with many industry leaders in Hi-Tech research and development, software engineering and integration, we have developed proprietary internal processes, methodologies and information technology infrastructure, which give us an edge when it comes to serving customers in the Hi-Tech and Software product markets. Our services span the complete software development lifecycle for software product development using our comprehensive development methodologies, testing, performance tuning, deployment, maintenance and support.

Business Information and Media. We help our business information and media customers build products and solutions for all modern platforms including web media streaming, mobile information delivery, print to digital transformations and information discovery and search. Our solutions help customers develop new revenue sources, accelerate content management, delivery and monetization and reach broader audiences. We serve varied customers in this vertical including entertainment media, news and sports broadcasting companies, financial data and legal information providers, content distributors, educational materials publishers, game developers and advertising networks.

Life Sciences and Healthcare. In the Life Sciences category, we partner with global pharmaceutical, medical and scientific technology, biotechnology companies and retail pharmacies to deliver sophisticated scientific informatics and innovative enterprise technology solutions. Our personnel in Life Sciences leverage their vast technology expertise to offer deep scientific and mathematical knowledge to broad-based initiatives. Our Life Sciences solutions enable customers to speed research and accelerate time-to-market while improving collaboration, knowledge management and operational excellence. We help our customers in the Healthcare industry respond to changing regulatory environments and improve the quality of care while managing the cost of care through integrated health solutions for patients and providers and human-centered design. Our professionals deliver an end-to-end experience that includes strategy, architecture, development and managed services to customers ranging from the traditional healthcare providers to innovative startups.

Emerging Verticals. We also serve the diverse technology needs of customers in the energy, telecommunications, real estate, automotive and various manufacturing industries, as well as government customers. For these customers we develop tools such as plant management platforms, energy saving applications, inventory management mechanisms, connected vehicle platforms and undertake various industry specific aspects of intelligent automation and operational efficiency. These customers are included in our Emerging Verticals, which are further discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report on Form 10-K.

Customers

We maintain a geographically diverse client base in multiple industries. Our focus on delivering quality service is reflected in established relationships with many of our customers, with 53.8% and 26.5% of our revenues in 2021 coming from customers that had used our services for at least five and ten years, respectively. Our sustained growth and increased capabilities are furthered by both organic growth and strategic acquisitions. We continually evaluate potential acquisition targets that can expand our vertical-specific domain expertise, geographic footprint, service portfolio, client base and management expertise.

As we remain committed to diversifying our client base and adding more customers to our client mix, we expect revenue concentration from our top customers to continue to decrease over the long-term. During 2020, the COVID-19 pandemic disrupted the economic landscape and influenced business decisions of our existing and potential customers. We were able to capitalize on demand for our services at our larger customers whereas we realized less revenue growth from our small customers. During 2021, we continued to diversify our customer base and decrease our concentration from our top customers. The following table shows revenues from the top five and ten customers in the respective year as a percentage of revenues for that year:

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	% of Revenues for Year Ended December 31,
	2021		2020		2019
Top five customers	18.2	%	22.0	%	19.9	%
Top ten customers	25.7	%	30.9	%	29.1	%

See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report on Form 10-K for additional information related to revenues.

See Note 16 “Segment Information” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for information regarding long-lived assets and customer revenues by geographic location as well as financial information related to our reportable segments.

Global Delivery Model

We believe the development of a robust global delivery model creates a key competitive advantage, enabling us to better understand and meet our customers’ diverse needs and to provide a compelling value proposition. We continuously grow our delivery platform both organically and through strategically acquired locations and personnel with diversified skills that support our strategy. We had 52,617 delivery personnel as of December 31, 2021, which mainly includes our core information technology professionals as well as designers, consultants and scientists.

We serve our customers through on-site, off-site and offshore locations across the world and use strategically located delivery centers to offer a strong, diversified and cost-effective delivery platform. Our largest delivery centers are located in Ukraine, Belarus and Russia and our delivery model has not been materially affected by the political and economic uncertainty in these locations.

As of December 31, 2021, in our largest delivery locations we had 12,389 delivery professionals located in Ukraine, 9,416 delivery professionals located in Belarus and 8,933 delivery professionals located in Russia. These locations are well-positioned to serve as main IT outsourcing destinations given their availability of qualified software engineers, established educational infrastructure, strong industrial base and government support for the technology industry through various long-term tax incentives in select jurisdictions.

Our other significant locations with delivery professionals are India with 4,349, Poland with 3,055, the United States with 2,757, Hungary with 1,991 and Mexico with 1,018 as of December 31, 2021.

Human Capital

Our more than 58,000 employees are a key factor in our ability to grow our revenues and serve our customers. We believe the quality of our employees serves as a key point of differentiation in how we deliver a superior value proposition to our customers and investors. Therefore, it is critical to our success that we are able to identify, attract, hire and retain delivery professionals who are highly skilled in information technology to execute our services, as well as individuals with appropriate skills to fill our executive, finance, legal, human resources and other key management positions. To attract, retain and motivate our employees, we offer a challenging work environment, a culture that values the individual, ongoing skills development initiatives, attractive career advancement with continuous rotation and promotion opportunities while providing an environment and culture that rewards entrepreneurial initiative and performance. As of December 31, 2021, 2020 and 2019, we had a total of 58,824, 41,168, and 36,739 employees, respectively, of which 52,617, 36,737, and 32,561, respectively, were delivery professionals.

Health, Safety, and Wellness: We invest in programs designed to improve the physical, mental, and social well-being of our employees so we can offer a safe, welcoming, and productive workplace. Our health and safety programs are designed to comply with the regulations in the multiple cities and countries where we operate, but also provide working conditions designed to be compatible with the working necessities of our delivery and administrative operations. In response to the continued unpredictability of the COVID-19 pandemic, we adapted our remote and onsite working policies to conform with current public health guidance. A vast majority of our employees continue to work from home, but for those who choose or need to work in an office setting, we have implemented safety measures and developed policies or refined safe working technologies for those employees who work in our or our customers’ facilities.

Recognizing that the lingering uncertainty associated with the COVID-19 pandemic and remote work could continue to significantly disrupt the work-life balance and wellness of our employees, we increased employee awareness of the programs we offer to support and enhance our employees’ mental, financial, and physical well-being and provided parenting and caregiver resources.

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Recruitment, Training and Utilization: As an innovation-driven business in a competitive industry, our success depends on hiring the most talented employees, training and developing that talent, and deploying them to satisfy customer demand. We have dedicated full-time employees who oversee all aspects of our human capital management process including talent acquisition teams to locate and attract qualified and experienced professionals around the world. Our employees are a critical asset, necessary for our continued success and, therefore, we are continuously exploring new geographies, markets, and sources to locate talented personnel and appealing to them with competitive compensation programs and educational opportunities.

We actively monitor how we utilize our delivery professionals and specialists to balance the needs of our customers with the availability, location, and skill sets of our employees and their need for diverse and challenging work. We manage utilization through strategic hiring and efficient staffing of projects for our customers. As of December 31, 2021, 2020 and 2019, the annual utilization rates of our delivery professionals were approximately 78.7%, 79.8%, and 78.0%, respectively.

EPAM invests significant resources in training and developing our employees through our learning and development programs. Our largest learning and development investment has been directed towards developing our engineering talent, including targeted training programs, innovation labs, and significant internal production projects. Our employees consumed over 3.7 million learning hours in 2021 and we were awarded LinkedIn’s Best Culture of Learning Talent Award for 2021. We deliver training and development opportunities and content through our unique learning ecosystem that promotes learning in the daily workflow to improve retention and productivity, and through dedicated events, including our week-long global learning event, which delivered approximately 100 online sessions.

We deliver learning and development content through proprietary platforms that make learning and development content easily available to all of our employees. Our digital learning platform provides our employees with an interface to meet our employees’ learning and training needs and includes a recommendation engine that suggests courses and materials based on employee role, level, location and skills. Our electronic library platform makes books and publications available to all of our employees and we celebrate learning achievements through our recognition portal, where we promote our employees’ learning accomplishments and employees can recognize each other for their teamwork, initiative, and unique, valuable skills.

Diversity and Inclusion: EPAM provides our customers with the skills of our talented personnel, which includes people with varied and diverse backgrounds and characteristics, to drive innovation and thought diversity in delivering our services. We believe that innovation comes from the unique perspectives, knowledge, and experiences of our global employees, so we strive to create inclusivity by offering comprehensive language learning programs, highlighting and sharing our varied cultures, and empowering women and underrepresented groups to celebrate their achievements in the workplace.

Increasing diversity in executive and key operational leadership roles is an organizational priority that starts at the top of our organization. Women currently represent approximately 29% of the independent directors on our Board and we have developed programs to identify, retain, mentor, and supply a pipeline of qualified, diverse candidates at all levels of our company. Our programs include dedicating resources and personnel in our talent acquisition team to identify, recognize, and use diverse and inclusive sources for hiring, including associating with organizations that are focused on promoting underrepresented groups in engineering, IT, and business. Our Emerging Engineers Lab is an internship program for entry-level talent sourced from a variety of diverse technology programs across the U.S., Canada and Mexico. We also supplemented our mandatory annual training with materials geared towards eliminating unconscious bias in our professional interactions and recognizing the value of diversity in organizational success.

Our employees have driven the creation of discussion forums focused on diversity and inclusion topics important to them and organized participation in global and local events, including International Women’s Day, Pride celebrations, and National Hispanic Heritage Month. Recognizing that improving the number of underrepresented people in the software and technology industries starts with access to science, technology, engineering, and mathematics (“STEM”) education, EPAM has created post-secondary STEM education certification programs and is investing in universities that offer degree programs. We also created the EPAM E-KIDS program where our employees volunteer their time to teach elementary school age children of any gender, race, or ethnic identity STEM concepts and introductory software coding skills. As of the end of 2021, we offered the EPAM E-KIDS program in 14 countries.

Employee Engagement and Retention: We are committed to respecting our employees' fundamental human rights at work and accordingly are a participant in the United Nations Global Compact. We believe that retaining skilled talent requires substantially more than meeting basic employment and labor rights, and that employees who are fairly compensated, feel supported in their career development, and are engaged with their employer are more likely to remain with that employer. That is why we strive to provide pay and benefits that demonstrate the value of our employees to us, including a competitive salary, flexible work-life balance, paid time off, health coverage, ongoing training programs, relocation options, and recognition opportunities for open source software contributions.

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Our career development programs create detailed and progressive training plans for our employees and help them choose from internal and external training options, mentoring programs, and hands-on opportunities to experience emerging technology areas. We designed our career development programs to enable our employees to develop their engineering skills, influence our culture, develop thought leadership, and introduce them to leaders in our industry. Our career development programs also give our employees opportunities to earn accreditation and relevant expertise in various technology fields, including software and project management certifications and recognition and credentialing from the industry’s primary software and cloud services providers.

Our focus on our employees’ experience is recognized inside and outside of EPAM. In 2021, EPAM was awarded Great Place to Work certifications in India, Poland, and Singapore, named in the top three Most Attractive Employers in the technology industry category by PwC in Hungary, and named on Newsweek’s list of Top 100 Most Loved Workplaces. We focus on retaining and engaging top talent by hiring people with the skill sets our customers need and who also share our values so we can build long-term employee satisfaction, which is evidenced by our voluntary attrition rate of 13.3%, 10.8%, and 13.3% in 2021, 2020 and 2019, respectively.

We endeavor to recruit for careers, not for short-term projects, and actively foster feedback from our employees so we can improve the EPAM employee experience. Our employees have demonstrated their satisfaction with our approach by giving their highest percentage of positive responses in our 2021 employee survey when asked if their manager demonstrates a commitment to building a trusting work environment (95%), and if they feel that EPAM provides a supportive environment for all employees, regardless of location, level, function, gender, age, race, ethnicity, or disability (94%). Receiving and learning from employee feedback plays a critical role in engaging and retaining our employees because it offers us an opportunity to improve our operations and for our employees to continually enhance their skills.

Sales and Marketing

We market and sell our services through our senior management, sales and business development teams, account managers, and professional staff. Our client service professionals and account managers, who maintain direct customer relationships, play an integral role in engaging with current customers to identify and pursue potential business opportunities. This strategy has been effective in promoting repeat business and growth from within our existing customer base and we believe that our reputation as a reliable provider of software engineering solutions drives additional business from inbound requests and referrals. In addition to effective client management, our sales model also utilizes an integrated sales and marketing approach that leverages a dedicated sales team to identify and acquire new accounts.

We maintain a marketing team, which coordinates corporate-level branding efforts such as participation in and hosting of industry conferences and events as well as sponsorship of programming competitions. We have been recognized by many top global independent research agencies, such as Forrester and Gartner and by publications such as Newsweek, Forbes and Fortune.

Competition

The markets in which we compete are changing rapidly and we face competition from both global technology solutions providers as well as those based primarily in specific geographies with lower cost labor such as Eastern Europe, India and China. We believe that the principal competitive factors in our business include technical expertise and industry knowledge, end-to-end solution offerings, a reputation for and a track record of high-quality and on-time delivery of work, effective employee recruiting, training and retention, responsiveness to customers’ business needs, ability to scale, financial stability and price.

We face competition from various technology services providers such as Accenture, Atos, Capgemini, Cognizant Technology Solutions, Deloitte Digital, DXC Technology, Endava, Genpact, GlobalLogic, Globant, Grid Dynamics, HCL Technologies, Infosys, Tata Consultancy Services, and Wipro, among others. Additionally, we compete with numerous smaller local companies in the various geographic markets in which we operate.

We believe that our focus on complex and innovative software product development solutions, our technical employee base, and our development and continuous improvement in process methodologies, applications and tools position us well to compete effectively in the future.

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Quality Management and Information Security

We are continuously investing in applications, tools and infrastructure to manage all aspects of our global delivery process in order to manage quality and information security risks, while providing control and visibility across all project lifecycle stages both internally and to our customers. We maintain, monitor, and improve processes and infrastructure to protect our, our customers’ and their customers’ confidential and sensitive information and allocate internal and external resources to assess and ensure information security, cybersecurity and data privacy. We have made significant investments in the appropriate people, processes and technology to establish and manage information security, confidentiality requirements, and laws and regulations governing our activities, such as the European Union data protection legal framework referred to as the General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act (“CCPA”), and others.

We focus on establishing stringent security, privacy and quality standards as well as internal controls and meet with ISO 27001:2013, ISO 27701:2019, ISO 9001:2015 and ISO 13485:2016. We are an ISAE 3402 Type 2 certified IT services provider. This certification is issued by an auditor in compliance with the globally recognized assurance standard. The certification, along with others we hold, provide our customers with independent third-party verification of our information security, quality management and general controls practices.

We have developed sophisticated project management techniques facilitated through our proprietary project management tools, a web-based collaborative environment for software development, which we consider critical for visibility into project deliverables, resource management, team messaging and project-related documents. These tools promote collaboration and effective oversight, reduce work time and costs, and increase quality for our IT management and our customers.

Corporate and Social Responsibility and Environmental, Social, and Governance Initiatives

We are committed to integrating positive social, environmental and ethical practices into our business operations, corporate governance, and strategy. This commitment is key to our continual development as a business and drives value for our employees, customers, business partners, the community and other stakeholders. We practice the principles established in our Code of Ethical Conduct by making positive contributions to the communities in which we operate and championing corporate social responsibility efforts.

Through our focused efforts in the areas of Education, Environment, and Community, we are committed to sharing the expertise and attributes of our highly skilled global workforce to effectively support the needs of, and positively add to the world at large and the communities where we work and live. By understanding our impact on local, regional and global communities, we strive to create positive change and opportunities in areas where it is needed most.

We believe responsible stewardship of the environment is critical, and we take this responsibility seriously. We continually strive to improve our environmental performance through implementation of sustainable development and environmental practices including recycling and upcycling electronics and computers, designing and releasing a carbon footprint calculator to our employees and the general public, and building new offices according to the conservation standards of the Leadership in Energy and Environmental Design rating system.

Intellectual Property

Protecting our intellectual property rights is important to our business. We have invested, and will continue to invest, in research and development to enhance our knowledge, create solutions for our customers, and continuously advance our information security. We rely on a combination of intellectual property laws, trade secrets, cybersecurity, and confidentiality obligations to protect our intellectual property. We require our employees, vendors and independent contractors to enter into written agreements upon the commencement of their relationships with us, which assign to us all deliverable intellectual property and work product made, developed or conceived by them in connection with their employment or provision of services and to keep any disclosed information confidential.

We also enter into confidentiality agreements with our customers and suppliers to protect information and maintain information security. Our agreements with our customers cover our use of their software systems and platforms as our customers usually own the intellectual property in the software, products, and solutions we develop for them. Furthermore, we often grant our customers a nonexclusive license to use relevant technologies in our pre-existing intellectual property portfolio, but only to the extent necessary to use the software or systems we develop for them. Our suppliers are generally bound by our supplier code of conduct, which imposes an obligation to protect our and our customers’ intangible assets, including confidential information, personal information, and intellectual property, and to protect the security of those assets.

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Regulations

Due to the industry and geographic diversity of our operations and services, our operations are subject to a variety of rules and regulations. Several foreign and U.S. federal and state agencies regulate various aspects of our business. See “Item 1A. Risk Factors — Risks Related to Regulation and Legislation and Risks Related to Information Security and Data Protection.” We are subject to laws and regulations in the United States and other countries in which we operate, including export restrictions, economic sanctions, the Foreign Corrupt Practices Act (“FCPA”) and similar anti-corruption laws and data privacy regulations. Compliance with these laws requires significant resources and non-compliance may result in civil or criminal penalties and other remedial measures.

Corporate Information

EPAM Systems, Inc. was incorporated in the State of Delaware on December 18, 2002. Our predecessor entity was founded in 1993. Our principal executive offices are located at 41 University Drive, Suite 202, Newtown, Pennsylvania 18940 and our telephone number is 267-759-9000. We maintain a website at https://www.epam.com. Our website and the information accessible through our website are not incorporated into this Annual Report on Form 10-K.

We make certain filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments and exhibits to those reports. These filings are available through the SEC’s website at https://www.sec.gov which contains reports, proxy and information statements, and other information regarding issuers that file electronically through the SEC’s EDGAR System. We also make such filings available free of charge through the Investor Relations section of our website, https://investors.epam.com, as soon as reasonably practicable after they are filed with the SEC.

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Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. Listed below, not necessarily in order of importance or probability of occurrence, are the most significant risk factors applicable to us. Additionally, forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. See “Forward-Looking Statements.”

Risks Related to COVID-19

Our results of operations have been adversely affected and could in the future be materially adversely affected by the COVID-19 pandemic.

The COVID-19 pandemic has contributed to significant volatility in the price of our common stock, created uncertainty in customer demand for, and ability to supply, our services and caused widespread economic disruption. The extent to which the coronavirus pandemic will continue to impact our business, operations and financial results will depend on numerous factors that frequently change or are unknown, and that we may not be able to accurately predict. Those factors include: the duration and scope of the pandemic; governmental, business and individuals’ responses or planned responses to the pandemic, including availability, administration rates, and acceptance of vaccines and therapeutics, and the availability of diagnostic supplies; the impact of the pandemic on economic activity, supply chains, and inflation; any interventions or government measures intended to mitigate economic and supply disruptions; the effect on our customers and customer demand for our products, services, and solutions; our ability to sell and provide our products, services, and solutions, including as a result of travel restrictions and personnel availability; the ability of our customers to pay timely, if at all, for our services and solutions with or without discounts requested by our customers; bankruptcy or other insolvency procedures among our customers or suppliers; and closures of our and our customers’ offices and facilities. Restrictions on access to our customers and their facilities, and broad disruptions in our customers’ markets , has disrupted, and could continue to disrupt the demand for our products, services, and solutions and result in, among other things, termination of customer contracts, delays or interruptions in the performance of contracts, losses of revenues, reduced profitability, and an increase in bad debt expense. Customers have and may continue to slow or halt decision making, delay planned work, or suspend, terminate, fail to renew, or reduce existing contracts or services. Travel and immigration restrictions may delay or prevent our personnel from accessing worksites, and remote working arrangements increase information security, cyber security and connectivity vulnerabilities. In addition, new coronavirus variants and eased COVID-19-related restrictions on businesses and consumers could affect our ability to deliver services to our customers because of an outbreak of illness among our employees, our customers’ employees, or at a facility. Moreover, there may be additional costs that we will have to incur in connection with further changes in response to the COVID-19 pandemic or a return to prior operating conditions. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this section of this Annual Report on Form 10-K for the year ended December 31, 2021, including, but not limited to, those relating to our operations in emerging markets, our ability to execute on our growth strategy through strategic acquisitions, our dependency on third parties for network infrastructure, attracting, hiring, and retaining personnel, the effects on movements in foreign currency exchange rates, and the effects that changes to fiscal, political, regulatory and other federal policies may have on EPAM, each of which could materially adversely affect our business, financial condition, results of operations and/or stock price.

Risks Related to Our Personnel and Growth

We may be unable to effectively manage our rapid growth or achieve anticipated growth, which could place significant strain on our management, systems, resources, and results of operations.

We have grown rapidly and significantly expanded our businesses over the past several years, both organically and through strategic acquisitions and investments. Our growth has resulted in part from managing larger and more complex projects for our customers, but consequently requires that we invest substantial amounts of cash in human capital and the infrastructure to support them, including training, administration, and facilities. Our rapid growth places significant demands on our management and our administrative, operational and financial infrastructure, and creates challenges, including:

•recruiting, training and retaining sufficiently skilled professionals and management personnel;

•planning resource utilization rates on a consistent basis and efficiently using on-site, off-site and offshore staffing;

•maintaining close and effective relationships with a larger number of customers in a greater number of industries and locations;

•controlling costs and minimizing cost overruns and project delays in delivery center and infrastructure expansion;

•effectively maintaining productivity levels and implementing process improvements across geographies and business units; and

•evolving our information security and our internal administrative, operational and financial infrastructure.

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We intend to continue our expansion and pursue available opportunities for the foreseeable future. We have and will continue to invest in new lines of business, such as software development education and expanded consulting services. As we introduce new services, enter into new markets, and take on increasingly large and complex projects, our business may face new risks and challenges. If customers do not choose us for large and complex projects or we do not effectively manage those projects, our reputation may be damaged and our business and financial goals may not be realized. Direct-to-consumer offerings in the highly regulated professional education industry could result in increased liability and compliance costs. We need to generate business and revenues to support new investments and infrastructure projects. If the challenges associated with expansion negatively impact our anticipated growth and margins, our business, prospects, financial condition and results of operations could be materially adversely affected.

We must successfully attract, hire, train and retain qualified personnel to service our customers’ projects and we must productively utilize those personnel to remain profitable.

Identifying, recruiting, hiring and retaining professionals with diverse skill sets across our broad geography of operations is critical to maintaining existing engagements and obtaining new business and has become more challenging in the economic and labor climate caused by the COVID-19 pandemic. If we are unable to recruit skilled professionals and if we do not deploy those professionals and use our physical infrastructure and fixed-cost resources productively, our profitability will be significantly impacted. We must manage the utilization levels of the professionals that we hire and train by planning for future needs effectively and staffing projects appropriately while accurately predicting the general economy and our customers’ need for our services. If we are unable to attract, hire, train, and retain highly skilled personnel and productively deploy them on customer projects, we will jeopardize our ability to meet our customers’ expectations and develop ongoing and future business, which could adversely affect our financial condition and results of operations.

Competition for highly skilled professionals has intensified in the markets where we operate, and we may experience significant employee turnover rates due to such competition. If we are unable to retain professionals with specialized skills, our revenues, operating efficiency and profitability will decrease. Cost reductions, such as reducing headcount, or voluntary departures that result from our failure to retain the professionals we hire, could negatively affect our reputation as an employer and our ability to hire personnel to meet our business requirements. Price increases resulting from increasing compensation to retain personnel could lead to a decline in demand for our services.

There may be adverse tax and employment law consequences if the independent contractor status of some of our personnel or the exempt status of our employees is successfully challenged.

In several countries, certain of our personnel and certain of the personnel of companies that we have acquired are retained as independent contractors. The criteria to determine whether an individual is considered an independent contractor or an employee are typically fact sensitive and vary by jurisdiction, as can the interpretation of the applicable laws. If a government authority changes the applicable laws or a court makes any adverse determination with respect to independent contractors in general or one or more of our independent contractors specifically, we could incur significant costs, including for prior periods, for tax withholding, social security taxes or payments, workers’ compensation and unemployment contributions, and recordkeeping, or we may be required to modify our business model, any of which could materially adversely affect our business, financial condition and results of operations and increase the difficulty in attracting and retaining personnel.

Our success depends substantially on the continuing efforts of our senior executives and other key personnel, and our business may be severely disrupted if we lose their services.

Our future success heavily depends upon the continued services of our senior executives and other key employees. If one or more of our senior executives or key employees are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all. If any of our senior executives or key personnel joins a competitor or forms a competing company, we may lose customers, suppliers, know-how and other key personnel to those competitors. If we are unable to attract new senior executives or key personnel due to the intense competition for talent in our industry, it could disrupt our business operations and growth.

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If we fail to integrate or manage acquired companies efficiently and effectively, or if acquisitions do not perform to our expectations, our overall profitability and growth plans could be materially adversely affected.

Strategic acquisitions are part of our expansion strategy, but these transactions involve significant risks. Acquired companies may not advance our business strategy or achieve a satisfactory return on our investment, we may not be able to successfully integrate acquired employees and business culture, customer relationships, or operations, and acquisitions divert significant management attention and financial resources from our ongoing business. Furthermore, contracts between our acquired companies and their customers may lack terms and conditions that adequately protect us against the risks associated with the services we provide, and our acquired companies' business operations can expose us to potential liability before integration is complete. If not effectively managed, the disruption of our ongoing business, increases in our expenses, including significant one-time expenses and write-offs, and difficulty and complexity of effectively integrating acquired operations may adversely affect our overall growth and profitability.

Risks Related to Our Operations

Instability in geographies where we have significant operations and personnel or where we derive substantial amounts of revenue could have a material adverse effect on our business, customers, service delivery, and financial results.

Economic, civil, military, and political uncertainty exists and may increase in many of the regions where we operate and derive our revenue. Several countries in which we operate are experiencing and may continue to experience military action and civil and political unrest. We have significant operations in the emerging market economies of Eastern Europe and more than half of our global delivery, administrative and support personnel are located in Ukraine, Belarus and Russia.

In late February 2022, Russian military forces launched significant military action against Ukraine, and sustained conflict and disruption in the region is likely. The impact to Ukraine, as well as actions taken by other countries, including new and stricter sanctions by Canada, the United Kingdom, the European Union, the U.S. and other countries and organizations against officials, individuals, regions, and industries in Russia, Ukraine and Belarus, and each country’s potential response to such sanctions, tensions, and military actions could have a material adverse effect on our operations. In order to protect against potential cyberattacks or other information security threats, some of our customers are considering or have implemented steps to block internet communications with Russia, Ukraine, and Belarus, which could have a material adverse effect on our ability to deliver our services from those locations. Any such material adverse effect from the conflict and enhanced sanctions activity may disrupt our delivery of services, cause us to shift all or portions of our work occurring in the region to other countries, and may restrict our ability to engage in certain projects in the region or involving certain customers in the region.

EPAM is actively monitoring and enhancing the security of our people and the stability of our infrastructure, including communications and internet availability. We execute our business continuity plans and adapt to developments as they occur to protect the safety of our personnel and address potential impacts to our delivery infrastructure. To date we have not experienced any material interruptions in our infrastructure, utility supply or internet connectivity needed to support our customers. We have developed and, in some cases, implemented additional contingency plans to relocate work and/or personnel to other geographies within our global footprint and add new locations, as appropriate. Our business continuity plans are designed to address known contingency scenarios to ensure that we have adequate processes and practices in place to protect the safety of our people and to handle potential impacts to our delivery capabilities. Our crisis management procedures, business continuity plans, and disaster recovery capabilities may not be effective at preventing or mitigating the effects of prolonged or multiple crises, such as civil unrest, military conflict, and a pandemic in a concentrated geographic area. The current events in the regions where we operate and where we derive a significant amount of our business may pose security risks to our people, our facilities, our operations, and infrastructure, such as utilities and network services, and the disruption of any or all of them could materially adversely affect our operations, financial results, and cause volatility in the price of our stock. We have no way to predict the progress or outcome of the military action in Ukraine or its impacts in Russia and Belarus as the conflict and government reactions are rapidly developing and beyond our control. Whether in these countries or in others in which we operate, prolonged civil unrest, political instability or uncertainty, military activities, or broad-based sanctions, should they continue for the long term or escalate, could require us to rebalance our geographic concentrations and could have a material adverse effect on our personnel, operations, and business outlook.

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Increases in wages, equity compensation, and other compensation expenses could prevent us from sustaining our competitive advantage, increase our costs, and result in dilution to our stockholders.

Wages for technology professionals in the emerging markets where we have significant operations and delivery centers are lower than comparable wages in more developed countries. However, wages in general, and in the technology industry in these countries in particular, increased at a faster rate than in the past, which may make us less competitive unless we are able to increase the efficiency and productivity of our people. If we increase operations and hiring in more developed economies, our compensation expenses will increase because of the higher wages demanded by technology professionals in those markets. Wage inflation, whether driven by competition for talent or ordinary course pay increases, may also increase our cost of providing services and reduce our profitability if we are not able to pass those costs on to our customers or adjust prices when justified by market demand.

We expect to continue our practice of granting equity-based awards under our stock incentive plans and paying other stock-based compensation. The expenses associated with stock-based compensation may make issuing equity awards under our equity incentive plans less attractive to us, but if we reduce the amount or value of equity award grants, we may not be able to attract and retain key personnel. Conversely, if we grant more or higher value equity awards to attract and retain key personnel, the equity compensation expenses could materially adversely affect our results of operations. New regulations, volatility in our stock, and dilution to our stockholders could diminish our use and the value of our equity-based awards. This could put us at a competitive disadvantage or cause us to reconsider our compensation practices.

Our operations in emerging markets subject us to greater economic, financial, and banking risks than we would face in more developed markets.

Our significant operations in emerging market economies in Eastern Europe, India and certain other Asian countries are vulnerable to market and economic volatility to a greater extent than more developed markets, which presents risks to our business and operations. A majority of our revenues are generated in North America and Western Europe. However, most of our personnel and delivery centers are located in lower cost locations, including emerging markets. This exposes us to foreign exchange risks relating to revenues, compensation, purchases, capital expenditures, receivables and other balance-sheet items. As we continue to leverage and expand our global delivery model into other emerging markets, a larger portion of our revenues and incurred expenses may be in currencies other than U.S. dollars. Currency exchange volatility caused by economic instability or other factors could materially impact our results. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

The economies of certain emerging market countries where we operate have experienced periods of considerable instability and have been subject to abrupt downturns. We have cash in banks in countries such as Belarus, Russia, Ukraine, Kazakhstan, Georgia, Armenia and Uzbekistan, where the banking sector generally does not meet the banking standards of more developed markets, bank deposits made by corporate entities are not insured, and the banking system remains subject to instability. Armed conflict, or the threat of armed conflict, involving Belarus, Russia or Ukraine could contribute to a banking crisis in these countries. A banking crisis, or the bankruptcy or insolvency of banks that receive or hold our funds may result in the loss of our deposits or adversely affect our liquidity and our ability to complete banking transactions in that region. In addition, some countries where we operate may impose regulatory or practical restrictions on the movement of cash and the exchange of foreign currencies within their banking systems, which would limit our ability to use cash across our global operations and increase our exposure to currency fluctuations. Emerging market vulnerability, and especially its impact on currency exchange volatility and banking systems, could have a material adverse effect on our business, financial condition and results of operations.

We face intense and increasing competition for customers and opportunities from onshore and offshore IT services and other consulting companies. If we are unable to compete successfully against competitors, pricing pressures or loss of market share could have a material adverse effect on our business.

The market for our services is highly competitive, and we expect competition to persist and intensify. We face competition from offshore IT services providers in other outsourcing destinations with low wage costs such as India and China, as well as competition from large, global consulting and outsourcing firms and in-house IT departments of large corporations. Customers tend to engage multiple IT services providers instead of using an exclusive IT services provider, which could reduce our revenues or place significant downward pressure on pricing among competing IT services providers. Customers may prefer service providers that have more locations, more personnel, more experience in a particular country or market, or that are based in countries that are more cost-competitive or have the perception of being more stable than some of the emerging markets in which we operate.

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Current or prospective customers may elect to perform certain services themselves or may be discouraged from transferring services from onshore to offshore service providers, which could harm our ability to compete effectively with competitors that provide services from within the countries in which our customers operate.

Some of our present and potential competitors may have substantially greater financial, marketing or technical resources; therefore, we may be unable to retain our customers or successfully attract new customers. Increased competition, our inability to compete successfully, pricing pressures or loss of market share could have a material adverse effect on our business.

Complying with a wide variety of legal requirements in the jurisdictions where we operate can create risks to our operations and financial condition, including liquidation of the subsidiaries that operate our major delivery centers.

Our global operations require us to comply with a wide variety of foreign laws and regulations, trade or foreign exchange restrictions or sanctions, inflation, unstable civil, political and military situations, labor issues, and legal systems that make it more difficult to enforce intellectual property, contractual, or corporate rights. Certain legal provisions in Russia, Belarus, and Ukraine, where our local subsidiaries operate important delivery centers and employ a significant number of billable and support professionals, may allow a court to order liquidation of a locally organized legal entity on the basis of its formal noncompliance with certain requirements during formation, reorganization or during its operations. If we fail to comply with certain requirements, including those relating to minimum net assets, governmental or local authorities can seek the involuntary liquidation of our local subsidiaries in court, and creditors will have the right to accelerate their claims, demand early performance of legal obligations, and demand compensation for any damages. Involuntary liquidation of any of our subsidiaries could materially adversely affect our financial condition and results of operations.

Our operating results may be negatively impacted by the loss of certain tax benefits provided to companies in our industry by the governments of Belarus and other countries.

In Belarus, one local subsidiary is a member, along with other technology companies, of High-Technologies Park. Members have a full exemption from Belarus income tax and value added tax until 2049 and are taxed at reduced amounts on obligatory social contributions and a variety of other taxes. In Russia, our local subsidiary along with other qualified IT companies, benefit from paying obligatory social contributions to the government at a significantly reduced rate as well as an exemption from value added tax in certain circumstances. If these tax benefits are changed, terminated, not extended or comparable new tax incentives are not introduced, we expect that our operating expenses and/or our effective income tax rate could increase significantly, which could materially adversely affect our financial condition and results of operations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Provision for Income Taxes.”

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Risks Related to Regulation and Legislation

Existing policy and substantial changes to fiscal, political, regulatory and other federal policies may adversely affect our business and financial results.

Changes in general economic or political conditions in the United States could adversely affect our business. U.S. policy with respect to a variety of issues, including international trade agreements, conducting business offshore, import and export regulations, tariffs and customs duties, foreign relations, immigration laws and travel restrictions, antitrust controls and enforcement, and corporate governance laws, could have a positive or negative impact on our business.

The majority of our professionals are offshore. Companies that outsource services to organizations operating in other countries remains a topic of political discussion in many countries, including the United States, which is our largest source of revenues. The United States Congress periodically proposes legislation that could impose restrictions on offshore outsourcing and on our ability to deploy employees holding U.S. work visas to customer locations, both of which could adversely impact our business. Such legislative measures could broaden restrictions on outsourcing by federal and state government agencies and contracts and impact private industry with tax disincentives, intellectual property transfer restrictions, and restrictions on the use or availability of certain work visas.

Some of our projects require our personnel to obtain visas to travel and work at customer sites outside of our personnel’s home countries and often in the United States. Our reliance on visas to staff projects with employees who are not citizens of the country where the work is to be performed makes us vulnerable to legislative and administrative changes in the number of visas to be issued in any particular year and other work permit laws and regulations. The process to obtain the required visas and work permits can be lengthy and difficult and variations due to political forces and economic conditions in the number of permitted applications, as well as application and enforcement processes, may cause delays or rejections when trying to obtain visas. Delays in obtaining visas may result in delays in the ability of our personnel to travel to meet with and provide services to our customers or to continue to provide services on a timely basis. In addition, the availability of a sufficient number of visas without significant additional costs could limit our ability to provide services to our customers on a timely and cost-effective basis or manage our sales and delivery centers as efficiently as we otherwise could. Delays in or the unavailability of visas and work permits could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We are subject to laws and regulations in the United States and other countries in which we operate, including export restrictions, economic sanctions, the FCPA, and similar anti-corruption laws. Compliance with these laws requires significant resources and non-compliance may result in civil or criminal penalties and other remedial measures.

We are subject to many laws and regulations that restrict our international operations, including laws that prohibit activities involving restricted countries, organizations, entities and persons that have been identified as unlawful actors or that are subject to U.S. sanctions. The U.S. Office of Foreign Assets Control, or OFAC, and other international bodies have imposed sanctions that prohibit us from engaging in trade or financial transactions with certain countries, businesses, organizations and individuals. We are also subject to the FCPA and anti-bribery and anti-corruption laws in other countries, all of which prohibit companies and their intermediaries from bribing government officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment. We operate in many parts of the world that have experienced government corruption to some degree, and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices, although adherence to local customs and practices is generally not a defense under U.S. and other anti-bribery laws.

Our compliance program contains controls and procedures designed to ensure our compliance with the FCPA, OFAC and other sanctions, and laws and regulations. The continuing implementation and ongoing development and monitoring of our compliance program may be time consuming, expensive, and could result in the discovery of compliance issues or violations by us or our employees, independent contractors, subcontractors or agents of which we were previously unaware.

Any violations of these or other laws, regulations and procedures by our employees, independent contractors, subcontractors and agents, including third parties we associate with or companies we acquire, could expose us to administrative, civil or criminal penalties, fines or business restrictions, which could have a material adverse effect on our results of operations and financial condition and would adversely affect our reputation and the market for shares of our common stock and may require certain of our investors to disclose their investment in us under certain state laws.

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Risks Related to Our Industry and Customers

We generally do not have long-term commitments from our customers, our customers may terminate contracts before completion or choose not to renew contracts, and we are not guaranteed payment for services performed under contract. A loss of business or non-payment from significant customers could materially affect our results of operations.

Our ability to maintain continuing relationships with our major customers and successfully obtain payment for our services is essential to the growth and profitability of our business. However, the volume of work performed for any specific customer is likely to vary from year to year, especially since we generally are not our customers’ exclusive IT services provider and we generally do not have long-term commitments from customers to purchase our services. We may also fail to assess the creditworthiness of our customers adequately or accurately. Our customers’ ability to terminate engagements with or without cause and our customers’ inability or unwillingness to pay for services we performed makes our future revenues and profitability uncertain. Although a substantial majority of our revenues are generated from customers who also contributed to our revenues during the prior year, our engagements with our customers are typically for projects that are singular in nature. Therefore, we must seek to obtain new engagements when our current engagements end.

There are a number of factors relating to our customers that are outside of our control, which might lead them to terminate or not renew a contract or project with us, or be unable to pay us, including:

•financial difficulties;

•corporate restructuring, or mergers and acquisitions activity;

•our inability to complete our contractual commitments and invoice and collect our contracted revenues;

•change in strategic priorities or economic conditions, resulting in elimination of the impetus for the project or a reduced level of technology related spending;

•change in outsourcing strategy resulting in moving more work to the customer’s in-house technology departments or to our competitors; and

•replacement of existing software with packaged software supported by licensors.

Termination or non-renewal of a customer contract could cause us to experience a higher than expected number of unassigned employees and thus compress our margins until we are able to reallocate our headcount. Customers that delay payment, request modifications to their payment arrangements, or fail to meet their payment obligations to us could increase our cash collection time, cause us to incur bad debt expense, or cause us to incur expenses in collections actions. The loss of any of our major customers, a significant decrease in the volume of work they outsource to us or price they are willing or able to pay us, if not replaced by new service engagements and revenues, could materially adversely affect our revenues and results of operations.

Our revenues are highly dependent on a limited number of industries, and any decrease in demand for outsourced services in these industries could reduce our revenues and adversely affect our results of operations.

A substantial portion of our customers are concentrated in five specific industry verticals: Financial Services; Software & Hi-Tech; Business Information & Media; Travel & Consumer; and Life Sciences & Healthcare. Our business growth largely depends on continued demand for our services from customers in these five industry verticals and other industries that we target or may target in the future, and also depends on trends in these industries to outsource the type of services we provide.

A downturn in any of our targeted industries, a slowdown or reversal of the trend to outsource IT services in any of these industries or the introduction of regulations that restrict or discourage companies from outsourcing could result in a decrease in the demand for our services and could have a material adverse effect on our business, financial condition and results of operations. Other developments in the industries in which we operate may increase the demand for lower cost or lower quality IT services and decrease the demand for our services or increase the pressure our customers put on us to reduce pricing. We may not be able to successfully anticipate and prepare for any such changes, which could adversely affect our results of operations.

Furthermore, developments in the industries we serve could shift customer demand to new services, solutions or technology. If our customers demand new services, solutions or technologies, we may be less competitive in these new areas or may need to make significant investments to meet that demand. Additionally, as we expand into serving new industry verticals, our solutions and technology may be used by, or generally affect, a broader base of customers and end users, which may expose us to new business and operational risks.

If our pricing structures are based on inaccurate expectations and assumptions regarding the cost and complexity of performing our work, or if we are not able to maintain favorable pricing for our services, then our contracts could be unprofitable.

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We face a number of risks when pricing our contracts and setting terms with our customers. Our pricing is highly dependent on our internal forecasts, assumptions and predictions about our projects, the marketplace, global economic conditions (including foreign exchange volatility) and the coordination of operations and personnel in multiple locations with different skill sets and competencies. Larger and more complex projects that involve multiple engagements or stages heighten those pricing risks because a customer may choose not to retain us for additional stages or delay forecasted engagements, which disrupts our planned project resource requirements. If our pricing for a project includes dedicated personnel or facilities and the customer were to slow or stop that project, we may not be able to reallocate resources to other customers. Our pricing and cost estimates for the work that we perform may include anticipated long-term cost savings that we expect to achieve and sustain over the life of the contract. Because of such inherent uncertainties, we may underprice our projects, fail to accurately estimate the costs of performing the work or fail to accurately assess the risks associated with potential contracts, such as defined performance goals, service levels, and completion schedules. The risk of underpricing our services or underestimating the costs of performing the work is heightened in fixed-price contracts and in contracts that require our customer to receive a productivity benefit as a result of the services performed under the contract. If we fail to accurately estimate the resources, time or quality levels required to complete such engagements, or if the cost to us of employees, facilities, or technology unexpectedly increases, we could be exposed to cost overruns. Any increased or unexpected costs, delays or failures to achieve anticipated cost savings, or unexpected risks we encounter in connection with the performance of the services, including those caused by factors outside our control, could make these contracts less profitable or unprofitable.

Our industry is sensitive to the economic environment and the industry tends to decline during general economic downturns. Given our significant revenues from North America and Europe, if those economies weaken, pricing for our services may be depressed and our customers may reduce or postpone their technology related spending significantly, which may in turn lower the demand for our services and negatively affect our revenues and profitability.

We face risks associated with having a long selling and implementation cycle for our services that require us to make significant resource commitments prior to realizing revenues for those services.

We have a long selling cycle for our services. Before potential customers commit to use our services, they require us to expend substantial time and resources educating them on the value of our services and our ability to meet their requirements. Therefore, our selling cycle is subject to many risks and delays over which we have little or no control, including our customers’ decision to select another service provider or in-house resources to perform the services, the timing of our customers’ budget cycles, and customer procurement and approval processes. If our sales cycle unexpectedly lengthens for one or more large projects, it could negatively affect the timing of our revenues and our revenue growth. In certain cases, we may begin work and incur costs prior to executing a contract, which may cause fluctuations in recognizing revenues between periods or jeopardize our ability to collect payment from customers.

Implementing our services also involves a significant commitment of resources over an extended period of time from both our customers and us. Our current and future customers may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to close sales with potential customers despite devoting significant time and resources. Any significant failure to generate revenues or delays in recognizing revenues after incurring costs related to our sales or services processes could have a material adverse effect on our business.

If we are unable to adapt to rapidly changing technologies, methodologies and evolving industry standards, we may lose customers and our business could be materially adversely affected.

Rapidly changing technologies, methodologies and evolving industry standards are inherent in the market for our products and services. Our ability to anticipate developments in our industry, enhance our existing services, develop and introduce new services, provide enhancements and new features for our products, and keep pace with changes and developments are critical to meeting changing customer needs. Developing solutions for our customers is extremely complex and is expected to become increasingly complex and expensive in the future due to the introduction of new platforms, operating systems, technologies and methodologies. Our ability to keep pace with, anticipate or respond to changes and developments is subject to a number of risks, including that:

•we may not be able to develop new, or update existing services, applications, tools and software quickly or inexpensively enough to meet our customers’ needs;

•we may find it difficult or costly to make existing software and products work effectively and securely over the internet or with new or changed operating systems;

•we may find it challenging to develop new, or update existing software, services, and products to keep pace with evolving industry standards, methodologies, technologies, and regulatory developments in the industries where our customers operate at a pace and cost that is acceptable to our customers; and

•we may find it difficult to maintain high quality levels with new technologies and methodologies.

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We may not be successful in anticipating or responding to these developments in a timely manner, or if we do respond, the services, products, technologies or methodologies we develop or implement may not be successful in the marketplace. Further, services, products, technologies or methodologies that our competitors develop may render our services or products non-competitive or obsolete. Our failure to enhance our existing services and products and to develop and introduce new services and products to promptly address the needs of our customers could have a material adverse effect on our business.

If we cause disruptions to our customers’ businesses, provide inadequate service, or breach contractual obligations, our customers may have claims for substantial damages against us and our reputation may be damaged. Our insurance coverage may be inadequate to protect us against such claims.

If our professionals make errors in the course of delivering services or we fail to meet contractual obligations to a customer, these errors or failures could disrupt the customer’s business or expose confidential or personally identifiable information. Any of these events could result in a reduction in our revenues, damage to our reputation, and could also result in a customer terminating our engagement and making claims for substantial damages against us. Some of our customer agreements do not limit our potential liability for occurrences such as breaches of confidentiality and intellectual property infringement indemnity, and we cannot generally limit liability to third parties with which we do not have a contractual relationship. In some cases, breaches of confidentiality obligations, including obligations to protect personally identifiable information, may entitle the aggrieved party to equitable remedies, including injunctive relief.

Although we maintain professional liability insurance, product liability insurance, cyber incident insurance, commercial general and property insurance, business interruption insurance, workers’ compensation coverage, and umbrella insurance for certain of our operations, our insurance coverage does not insure against all risks in our operations or all claims we may receive. Damage claims from customers or third parties brought against us or claims that we initiate due to the disruption of our business, information security systems, litigation, or natural disasters, may not be covered by our insurance, may exceed the limits of our insurance coverage, and may result in substantial costs and diversion of resources even if insured. Some types of insurance are not available on reasonable terms or at all in some countries in which we operate, and we cannot insure against damage to our reputation. The assertion of one or more large claims against us, whether or not successful and whether or not insured, could materially adversely affect our reputation, business, financial condition and results of operations.

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A significant failure in our systems, telecommunications or IT infrastructure could harm our service model, which could result in a reduction of our revenues and otherwise disrupt our business.

Our service model relies on maintaining active voice and data communications, online resource management, financial and operational record management, customer service and data processing systems between our customer sites, our delivery centers and our customer management locations. Our business activities may be materially disrupted in the event of a partial or complete failure of any of these technologies, which could be due to software malfunction, computer virus attacks, conversion errors due to system upgrades, damage from fire, earthquake, power loss, telecommunications failure, unauthorized entry, government shutdowns, demands placed on internet infrastructure by growing numbers of users, increased bandwidth requirements or other events beyond our control. Our crisis management procedures, business continuity, and disaster recovery plans may not be effective at preventing or mitigating the effects of such disruptions, particularly in the case of a catastrophic event. Loss of all or part of the infrastructure or systems for a period of time could hinder our performance or our ability to complete customer projects on time which, in turn, could lead to a reduction of our revenues or otherwise materially adversely affect our business and business reputation.

Our ability to generate and retain business could depend on our reputation in the marketplace.

Our services are marketed to customers and prospective customers based on a number of factors, including reputation. Our corporate reputation is a significant factor in our customers’ evaluation of whether to engage our services. Our customers’ perception of our ability to add value through our services is critical to the profitability of our engagements. We believe the EPAM brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and contribute to our efforts to recruit and retain talented employees.

Our corporate reputation is potentially susceptible to damage by actions or statements made by current or former customers and employees, competitors, vendors, adversaries in legal proceedings, government regulators, as well as members of the investment community and the media. There is a risk that negative information about us, even if untrue, could adversely affect our business, could cause damage to our reputation and be challenging to repair, could make potential or existing customers reluctant to select us for new engagements, and could adversely affect our recruitment and retention efforts. Damage to our reputation could also reduce the value and effectiveness of the EPAM brand name and could reduce investor confidence in us.

We may not be able to prevent unauthorized use of our intellectual property, and our intellectual property rights may not be adequate to protect our business and competitive position.

We rely on a combination of copyright, trademark, patent, unfair competition and trade secret laws, as well as intellectual property assignment and confidentiality agreements and other methods to protect our intellectual property rights. Protection of intellectual property rights and confidentiality in some countries in which we operate may not be as effective as in other countries with more developed intellectual property protections.

We require our employees and independent contractors to assign to us all intellectual property and work product they create in connection with their employment or engagement. These assignment agreements also obligate our personnel to keep proprietary information confidential. If these agreements are not enforceable in any of the jurisdictions in which we operate, or are breached, we cannot ensure that we will solely own the intellectual property they create or that our proprietary information will not be disclosed. Our customers and certain vendors are generally obligated to keep our information confidential, but if these contractual obligations are not entered, or are breached or deemed unenforceable, our trade secrets, know-how or other proprietary information may be subject to unauthorized use, misappropriation or disclosure. Reverse engineering, unauthorized copying or other misappropriation of our and our customers’ proprietary technologies, tools and applications could enable unauthorized parties to benefit from our or our customers’ technologies, tools and applications without payment and may make us liable to our customers for damages and compensation, which could harm our business and competitive position.

We rely on our trademarks, trade names, service marks and brand names to distinguish our services and solutions from the services of our competitors. We have registered or applied to register many of these trademarks. Third parties may oppose our trademark applications, or otherwise challenge our use of our trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our services and solutions, which could result in loss of brand recognition, and could require us to devote additional resources to advertising and marketing new brands. Further, we cannot provide assurance that competitors will not infringe our trademarks, or that we will have adequate knowledge of infringement or resources to enforce our trademarks. If we do enforce our trademarks and our other intellectual property rights through litigation, we may not be successful and the litigation may result in substantial costs and diversion of resources and management attention.

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We may face intellectual property infringement claims that could be time-consuming and costly to defend. If we fail to defend ourselves against such claims, we may lose significant intellectual property rights and may be unable to continue providing our existing services.

Our success largely depends on our ability to use and develop our technology, tools, code, methodologies, products, and services without infringing the intellectual property rights of third parties, including patents, copyrights, trade secrets and trademarks. We may be unaware of intellectual property rights relating to our products or services that may give rise to potential infringement claims against us. If those intellectual property rights are potentially relevant to our service offerings, we may need to license those rights in order to continue to use the applicable technology, but the holders of those intellectual property rights may be unwilling to license those rights to us on commercially acceptable terms, if at all. There may also be technologies licensed to and relied on by us that if subject to infringement or misappropriation claims by third parties, may become unavailable to us if such third parties obtain an injunction to prevent us from delivering our services or using technology involving the allegedly infringing intellectual property.

We typically indemnify customers who purchase our products, services and solutions against potential infringement of third-party intellectual property rights, which subjects us to the risk and cost of defending the underlying infringement claims. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers, regardless of the merits of these claims, and our indemnification obligations are often not subject to liability limits or exclusion of consequential, indirect or punitive damages. Intellectual property litigation could also divert our management’s attention from our business and existing or potential customers could defer or limit their purchase or use of our software product development services or solutions until we resolve such litigation. If any of these claims succeed, we may be forced to pay damages on behalf of our customers, redesign or cease offering our allegedly infringing products, services, or solutions, or obtain licenses for the intellectual property that such services or solutions allegedly infringe. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using our services or solutions.

Any of these actions, regardless of the outcome of litigation or merits of the claim, could damage our reputation and materially adversely affect our business, financial condition and results of operations.

Risks Related to Information Security and Data Protection

Security breaches and other disruptions to network security could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of business, we collect, store, process, transmit, and view sensitive or confidential data, including intellectual property, proprietary business information and personally identifiable information belonging to us, our customers, our respective employees, and other end users. This information is stored in our data centers and networks or in the data centers and networks of third-party providers. Physical security and the secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Some of our customers seek additional assurances for the protection of their sensitive information, including personally identifiable information, and attach greater liability in the event that their sensitive information is disclosed. At times, to achieve commercial objectives, we may agree to greater liability exposure to our customers.

Individuals, including employees, contractors and other third parties in our information security supply chain, as well as groups and larger, sophisticated collections of hackers, such as state-sponsored organizations, all pose threats to our information security. These individual, group, and organized actors have a variety of methods at their disposal, including deploying malicious software, exploiting vulnerabilities in hardware, software, or infrastructure, using social engineering or deceptive techniques, and executing coordinated attacks to compromise our services, disrupt our operations or gain access to our networks and data centers.

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Threats to information security evolve constantly and are increasingly sophisticated and complex, which makes detecting and successfully defending against them more difficult. Undetected vulnerabilities may persist in our network environment over long periods of time and could spread to the networks and systems of our suppliers and customers. We frequently update and improve our information security environment and assess and adopt new methods, devices, and technologies, but our policies and information security controls may not keep pace with emerging threats. We have in the past been subject to cyberattacks and expect to continue to be the target of malicious attacks. Despite our multiple security measures, any breach of our facilities, network, or information security defenses compromises the information stored in those locations and allows the accessed information to be held for ransom, publicly disclosed, misappropriated, lost or stolen. Such a breach, misappropriation, or disruption could also disrupt our operations and the services we provide to customers, damage our reputation, and cause a loss of confidence in our products and services, as well as require us to expend significant resources to protect against further breaches and to rectify problems caused by these events. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under applicable laws, and regulatory penalties and could adversely affect our business, revenues and competitive position.

Development and deployment of measures to protect our information security or that of our customers may be inadequate and could adversely affect our results of operations.

To defend against information security threats internally, at our third-party providers, and on our customers’ systems, we must continuously engineer or purchase more secure products and services, enhance security and reliability features, improve deployment and compliance with software updates, assess and develop mitigation strategies and technologies to help secure information, hire information security specialists, and maintain a security infrastructure that protects our network, products, and services, and the software we build for our customers. We must also educate our employees, contractors, and customers about the need to effectively use security measures. Our customers, particularly those in the Financial Services and Life Sciences & Healthcare industry verticals, may have enhanced or particular security requirements which we must address in our engineering and development services.

The cost of information security measures, either to protect our information or the information of our customers, could reduce our profitability. Actual or perceived security vulnerabilities in our software and services, even if those vulnerabilities are the result of hardware or software developed by third parties, could harm our reputation and lead customers to use our competitors, reduce or delay future purchases of our services, or to seek compensation or damages.

Changes in privacy and data protection regulations could expose us to risks of noncompliance and costs associated with compliance.

EPAM is subject to the GDPR, the substantially similar U.K. GDPR, and the CCPA, each of which imposes significant restrictions and requirements relating to the processing of personal data. These and other state, national and international data protection laws that are or will soon be effective are more burdensome than historical privacy standards, especially in the United States. The CCPA , U.K. GDPR, and GDPR each established complex legal obligations that organizations must follow with respect to the processing of personal data, including a prohibition on the transfer of personal information to third parties or to other countries, and the imposition of additional notification, security and other control measures.

Enforcement actions taken by the European Union and U.K. data protection authorities, in the case of GDPR and U.K. GDPR, respectively, or by individuals or the California regulatory authorities, in the case of the CCPA, as well as audits or investigations by one or more individuals, organizations, or foreign government agencies could result in penalties and fines for non-compliance or direct claims against us in the event of any loss or damage as a result of a breach of these regulations. The burden of compliance with additional data protection requirements may result in significant additional costs, complexity and risk in our services and customers may seek to shift the potential risks resulting from the implementation of data privacy legislation to us. We are required to establish processes and change certain operations in relation to the processing of personal data as a result of GDPR, U.K. GDPR, and CCPA, which may involve substantial expense and distraction from other aspects of our business.

Undetected software design defects, errors or failures may result in loss of business or in liabilities that could materially adversely affect our business.

Our software development solutions involve a high degree of technological complexity, have unique specifications and could contain design defects or software errors that are difficult to detect or correct. Errors or defects may result in the loss of current customers, revenues, market share, or customer data, a failure to attract new customers or achieve market acceptance and could divert development resources and increase support or service costs. We cannot provide assurance that, despite testing by our customers and us, errors will not be found in the software products we develop or the services we perform. Any such errors could result in claims for damages against us, litigation, and reputational harm that could materially adversely affect our business.

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General Risk Factors

Our stock price is volatile.

Our common stock has at times experienced substantial price volatility as a result of variations between our actual and anticipated financial results, announcements by our competitors, third parties, or us, projections or speculation about our business or that of our competitors or industry by the media or investment analysts, geopolitical events or uncertainty about inflation or other current global economic conditions. The stock market, as a whole, also has experienced price and volume fluctuations that have affected the market price of many technology companies in ways that may have been unrelated to these companies’ operating performance. Furthermore, we believe our stock price should reflect future growth and profitability expectations and, if we fail to meet these expectations, our stock price may significantly decline.

Expense related to our liability-classified restricted stock units, which are subject to mark-to-market accounting, and the calculation of the weighted-average diluted shares outstanding in accordance with the treasury method are both affected by our stock price. Any fluctuations in the price of our stock will affect our future operating results.

We may need additional capital, and a failure to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges.

We believe that our current cash, cash flow from operations and expanded revolving line of credit are sufficient to meet our anticipated cash needs for at least the next twelve months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions that we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain another credit facility, and we cannot be certain that such additional financing would be available on terms acceptable to us or at all. The sale of additional equity securities could result in dilution to our stockholders, and additional indebtedness would result in increased debt service costs and obligations and could impose operating and financial covenants that would further restrict our operations.

Our hedging program is subject to counterparty default risk.

We enter into foreign currency forward contracts with a number of counterparties. As a result, we are subject to the risk that the counterparty to one or more of these contracts defaults on its performance under the contract. During an economic downturn, the counterparty’s financial condition may deteriorate rapidly and with little notice and we may be unable to take action to protect our exposure. In the event of a counterparty default, we could incur significant losses, which may harm our business and financial condition. In the event that one or more of our counterparties becomes insolvent or files for bankruptcy, our ability to eventually recover any losses suffered as a result of that counterparty’s default may be limited by the liquidity of the counterparty.

War, terrorism, other acts of violence or natural or man-made disasters may affect the markets in which we operate, our customers, and our service delivery.

Our business may be negatively affected by instability, disruption or destruction in the geographic regions where we operate. War, terrorism, riot, civil insurrection or social unrest; man-made and natural disasters, the severity and frequency of which have increased due to climate change, and include famine, flood, fire, earthquake, pandemics and other regional or global health crises, storm or disease, may cause customers to delay their decisions on spending for the services we provide and give rise to sudden significant changes in regional and global economic conditions and cycles. Our crisis management procedures, business continuity, and disaster recovery plans may not be effective at preventing or mitigating the effects of such disasters, particularly in the case of simultaneous or catastrophic events. These events pose significant security risks to our people, the facilities where they work, our operations, electricity and other utilities, communications, travel, and network services, and the disruption of any or all of them could materially adversely affect our financial results. Travel restrictions resulting from natural or man-made disruptions and political or social conflict increase the difficulty of obtaining and retaining highly-skilled and qualified professionals and could unexpectedly increase our labor costs and expenses, both of which could also adversely affect our ability to serve our customers.

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Our effective tax rate could be materially adversely affected by several factors.

We conduct business globally and file income tax returns in multiple jurisdictions. Our effective tax rate could be materially adversely affected by several factors, including changes in the amount of income taxed by or allocated to the various jurisdictions in which we operate that have differing statutory tax rates; changing tax laws, regulations and interpretations of such tax laws in one or more jurisdictions; and the resolution of issues arising from tax audits or examinations and any related interest or penalties. The determination of our provision for income taxes and other tax liabilities requires estimation, judgment and calculations where the ultimate tax determination may not be certain. Our determination of tax liability is always subject to review or examination by authorities in various jurisdictions. If a tax authority in any jurisdiction reviews any of our tax returns and proposes an adjustment, including, but not limited to, a determination that the transfer prices and terms we have applied are not appropriate, such an adjustment could have a negative impact on our results of operations, business, and profitability. In addition, any significant changes enacted by the current U.S. presidential administration to the Tax Cuts and Jobs Act (“U.S. Tax Act”) enacted in 2017, or to regulatory guidance associated with the U.S. Tax Act, could materially adversely affect our effective tax rate.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters are located in Newtown, Pennsylvania. We own and lease office buildings used as delivery centers, client management locations and space for administrative and support functions. These facilities are located in numerous cities worldwide and are strategically positioned in relation to our talent sources and key in-market locations to align with the needs of our operations. We believe that our existing properties are adequate to meet the current requirements of our business, and that suitable additional or substitute space will be available, if necessary. Our facilities are used interchangeably among our segments. See Note 16 “Segment Information” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for information regarding the geographical locations and values of our long-lived assets. See Note 6 “Property and Equipment, Net” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for information regarding our long-lived assets and buildings we own. See Note 8 “Leases” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for information regarding our leased assets.

Item 3. Legal Proceedings

From time to time, we are involved in litigation and claims arising out of our business and operations in the normal course of business. We are not currently a party to any material legal proceeding, nor are we aware of any material legal or governmental proceedings pending or contemplated to be brought against us.

Item 4. Mine Safety Disclosures

None.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “EPAM.”

As of February 11, 2022, we had approximately 13 stockholders of record of our common stock. The number of record holders does not include holders of shares in “street name” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depositories.

Dividend Policy

We have not declared or paid any cash dividends on our common stock and currently do not anticipate paying any cash dividends in the foreseeable future. Instead, we intend to retain all available funds and any future earnings for use in the operation and expansion of our business. In addition, our revolving credit facility restricts our ability to make or pay dividends (other than certain intercompany dividends) unless no potential or actual event of default has occurred or would be triggered thereby. Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on our future earnings, capital requirements, financial condition, future prospects, applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits, and other factors that our Board of Directors deems relevant.

Equity Compensation Plan Information

See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in Part III of this Annual Report on Form 10-K for our equity compensation plan information.

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Performance Graph

The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return on a Peer Group Index (capitalization weighted) and the S&P 500 Index for the period beginning December 31, 2016 and ending December 31, 2021. The stock performance shown on the graph below is not indicative of future price performance. The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

COMPARISON OF CUMULATIVE TOTAL RETURN (1)(2)

Among EPAM, a Peer Group (3) and the S&P 500 Index

Company/Index	Base period 12/31/2016		12/31/2017		12/31/2018		12/31/2019		12/31/2020		12/31/2021
EPAM Systems, Inc.	$	100.00	$	167.05	$	180.39	$	329.90	$	557.22	$	1,039.42
Peer Group Index	$	100.00	$	153.51	$	110.09	$	107.82	$	159.25	$	204.45
S&P 500 Index	$	100.00	$	121.83	$	116.49	$	153.17	$	181.35	$	233.41

(1)	Graph assumes $100 invested on December 31, 2016 in our common stock, a Peer Group and the S&P 500 Index.
(2)	Cumulative total return assumes reinvestment of dividends.
(3)	The Peer Group includes Cognizant Technology Solutions Corp. (NASDAQ:CTSH), DXC Technology Company (NYSE:DXC), Endava plc (NYSE:DAVA), Globant S.A. (NYSE:GLOB), Infosys Ltd. (NYSE:INFY), Perficient, Inc. (NASDAQ:PRFT), and Wipro Limited (NYSE:WIT).

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Unregistered Sales of Equity Securities

There were no unregistered sales of equity securities by the Company during the year ended December 31, 2021.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Under our equity-based compensation plans, the Company withholds a number of shares of vested stock as payment to satisfy tax withholding obligations arising on the date of vesting of stock-based compensation awards. The number of shares of stock to be withheld is calculated based on the closing price of the Company’s common stock on the vesting date. The following table provides information about shares withheld by the Company during the year ended December 31, 2021:

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Program
January 1, 2021 to January 31, 2021	937	$	356.59	—	—
February 1, 2021 to February 28, 2021	1,058	$	372.82	—	—
March 1, 2021 to March 31, 2021	81,919	$	380.95	—	—
April 1, 2021 to April 30, 2021	5,073	$	446.44	—	—
May 1, 2021 to May 31, 2021	313	$	473.77	—	—
June 1, 2021 to June 30, 2021	424	$	513.56	—	—
July 1, 2021 to July 31, 2021	1,024	$	521.73	—	—
August 1, 2021 to August 31, 2021	1,072	$	623.38	—	—
September 1, 2021 to September 30, 2021	285	$	580.48	—	—
October 1, 2021 to October 31, 2021	102	$	673.24	—	—
November 1, 2021 to November 30, 2021	10,387	$	673.39	—	—
December 1, 2021 to December 31, 2021	3,139	$	660.25	—	—
Total	105,733	$	426.26	—	—

Item 6.

Reserved

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this annual report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled “Forward-Looking Statements” and “Part I. Item 1A. Risk Factors.” We assume no obligation to update any of these forward-looking statements.

Executive Summary

We are a leading global provider of digital platform engineering and software development services to many of the world’s leading organizations.

Our customers depend on us to solve their complex technical challenges and rely on our expertise in core engineering, advanced technology, digital design and intelligent enterprise development. We continuously explore opportunities in new industries to expand our core industry client base in software and technology, financial services, business information and media, travel and consumer, and life sciences and healthcare. Our teams of developers, architects, consultants, strategists, engineers, designers, and product experts have the capabilities and skill sets to deliver business results.

Our global delivery model and centralized support functions, combined with the benefits of scale from the shared use of fixed-cost resources, enhance our productivity levels and enable us to better manage the efficiency of our global operations. As a result, we have created a delivery base whereby our applications, tools, methodologies and infrastructure allow us to seamlessly deliver services and solutions from our delivery centers to global customers across all geographies, further strengthening our relationships with them.

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Through increased specialization in focused verticals and a continued emphasis on strategic partnerships, we are leveraging our roots in software engineering to grow as a recognized brand in software development and end-to-end digital transformation services for our customers. In 2021, we have become a member of the S&P 500 and a Forbes Global 2000 company.

Business Update Regarding Military Action in Ukraine

On February 24, 2022, Russian forces launched significant military action against Ukraine, and sustained conflict and disruption in the region is likely. The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions by Canada, the United Kingdom, the European Union, the U.S. and other companies and organizations against officials, individuals, regions, and industries in Russia, Ukraine, and Belarus, and each country’s potential response to such sanctions, tensions, and military actions could have a material adverse effect on our operations. Any such material adverse effect from the conflict and enhanced sanctions activity may disrupt our delivery of services, cause us to shift all or portions of our work occurring in the region to other countries, and may restrict our ability to engage in certain projects in the region or involving certain customers in the region.

The information contained in this section is accurate as of the date hereof, but may become outdated due to changing circumstances beyond our present awareness or control.

Our Response to the Military Action in Ukraine

As noted in “Item 1. Business – Global Delivery Model” in Part I of this Annual Report on Form 10-K, Ukraine is our largest delivery location by number of personnel and Belarus and Russia are our second and third largest delivery locations by number of personnel, respectively. We are actively monitoring the security of our personnel and the stability of our infrastructure, including communications and internet availability. We are also executing our business continuity plan and adapting to developments as they occur to protect the safety of our people and handle potential impacts to our delivery infrastructure, including reallocating work to other geographies within our global footprint. We are actively working with our personnel and with our customers to meet their needs and to mitigate delivery challenges.

Moving Forward

We have no way to predict the progress or outcome of the situation, as the conflict and government reactions are rapidly developing and beyond our control. Prolonged unrest, military activities, or broad-based sanctions, should they be implemented, could have a material adverse effect on our operations and business outlook. We have accelerated hiring in locations outside of the region as part of our business continuity planning and in order to support client demand. In addition, we have implemented plans to move some of our existing personnel to other countries in order to keep them safe and mitigate impacts on our delivery of services to our customers.

For additional information on the various risks posed by the military action in Ukraine and the impact in the region, please read “Part I. Item 1A. Risk Factors” included in this Annual Report on Form 10-K.

Business Update Regarding COVID-19

The COVID-19 pandemic continued its substantial and varying influence on global public health, economies, business operations, and financial markets. Numerous evolving factors prevent us from accurately predicting the extent to which the COVID-19 pandemic will continue to directly and indirectly impact our employees, customers, communities, business, results of operations and financial condition.

To the extent that the remainder of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) refers to a financial or performance metric that has been affected by a trend or activity, that reference is in addition to any impact of the COVID-19 pandemic disclosed in and supplemented by this section. The information contained in this section is accurate as of the date hereof, but may become outdated due to changing circumstances beyond our present awareness or control.

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Our COVID-19 Pandemic Response

Since the beginning of the COVID-19 pandemic, the vast majority of our employees have been able to productively and securely work from a remote location, so we do not expect that COVID-19 will have a material adverse effect on our ability to operate our business or productively deliver services to our customers, nor on our financial reporting systems, internal control over financial reporting, or disclosure controls and procedures. Extended or expanded restrictions on travel and immigration from other countries may continue to impact our operations. However, we do not believe that the current travel and immigration restrictions will have a material adverse effect on our business or financial condition.

Our adaptive global delivery model enables us to deliver our services and solutions to our customers from remote locations, so we continue to effectively provide our customers with the products, services, and solutions they seek. Economic conditions resulting from the pandemic, including supply chain disruptions, persistent inflation for both goods and services, and worker shortages could negatively affect our operations and the operations of our customers and their customers and could adversely impact our revenues and our results of operations.

Moving Forward

We expect continued uncertainty regarding the impacts the pandemic will have on our business, financial condition, and results of operations. We actively monitor our business and the needs of our employees, customers and communities to determine the appropriate actions to take to ensure the safety of our employees and our ongoing operations. Our business continuity plans and adherence to the recommendations of public health authorities are intended to protect the health and safety of approximately 58,000 EPAM professionals and the customers they serve. Economic and demand uncertainty in the current environment may impact our future results. We continue to monitor the demand for our services and our ability to deliver them, while continuing to assess how the economic effects of COVID-19 may impact our human capital allocation, revenues, operating expenses and profitability.

For additional information on the various risks posed by the COVID-19 pandemic, please read “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” and “Part I. Item 1A. Risk Factors” included in this Annual Report on Form 10-K.

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Overview of 2021 and Financial Highlights

The following table presents a summary of our results of operations for the years ended December 31, 2021, 2020 and 2019:

	Year Ended December 31,
	2021					2020					2019
				% of revenues					% of revenues					% of revenues
	(in millions, except percentages and per share data)
Revenues	$	3,758.1		100.0	%	$	2,659.5		100.0	%	$	2,293.8		100.0	%
Income from operations	$	542.3		14.4	%	$	379.3		14.3	%	$	302.9		13.2	%
Net income	$	481.7		12.8	%	$	327.2		12.3	%	$	261.1		11.4	%
Effective tax rate	9.7		%			13.6		%			12.8		%
Diluted earnings per share	$	8.15				$	5.60				$	4.53

The key highlights of our consolidated results for 2021 were as follows:

•We recorded revenues of $3.8 billion, or a 41.3% increase from $2.7 billion in the previous year, positively impacted by $38.8 million or 1.4% due to changes in certain foreign currency exchange rates as compared to the previous year.

•Income from operations grew 43.0% to $542.3 million in 2021 from $379.3 million in 2020. Expressed as a percentage of revenues, income from operations was 14.4% compared to 14.3%. During the year ended December 31, 2021, income from operations as a percentage of revenues was positively impacted by reduced facility-related expenses as a percentage of revenues and negatively impacted by higher levels of accrued variable compensation.

•Our effective tax rate was 9.7% compared to 13.6% in the previous year. The provision for income taxes was impacted primarily by the excess tax benefits recorded upon vesting or exercise of stock-based awards in 2021 and 2020.

•Net income increased 47.2% to $481.7 million compared to $327.2 million in 2020. Expressed as a percentage of revenues, net income increased 0.5% compared to last year, which was largely driven by the improvement in income from operations and a decrease in our effective tax rate.

•Diluted earnings per share increased 45.5% to $8.15 for the year ended December 31, 2021 from $5.60 in 2020.

•Cash provided by operations increased $27.9 million, or 5.1%, to $572.3 million during 2021 as compared to last year. This increase was largely driven by the increase in net income as well as an increase in accrued variable compensation expense in 2021. The increase was partially offset by an increase in accounts receivable during 2021, largely attributable to the 41.3% growth in revenue in 2021 as compared to 2020.

The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

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Critical Accounting Policies

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), which require us to make judgments, estimates and assumptions that affect: (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the end of each reporting period and (iii) the reported amounts of revenues and expenses during each reporting period. We evaluate these estimates and assumptions based on historical experience, knowledge and assessment of current business and other conditions, and expectations regarding the future based on available information and reasonable assumptions, which together form a basis for making judgments about matters not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. When reviewing our audited consolidated financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgment and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. We consider the policies discussed below to be critical to an understanding of our consolidated financial statements as their application places significant demands on the judgment of our management.

An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We believe that the following critical accounting policies are the most sensitive and require more significant estimates and assumptions used in the preparation of our consolidated financial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our audited consolidated financial statements and other disclosures included elsewhere in this annual report. Additional information on our policies is in Note 1 “Business and Summary of Significant Accounting Policies” in the notes to our consolidated financial statements in this Annual Report on Form 10-K.

Revenues — We recognize revenues when control of goods or services is passed to a customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Such control may be transferred over time or at a point in time depending on satisfaction of obligations stipulated by the contract. Consideration expected to be received may consist of both fixed and variable components and is allocated to each separately identifiable performance obligation based on the performance obligation’s relative standalone selling price. Variable consideration usually takes the form of volume-based discounts, service level credits, price concessions or incentives. Determining the estimated amount of such variable consideration involves assumptions and judgment that can have an impact on the amount of revenues reported.

We derive revenues from a variety of service arrangements, which have been evolving to provide more customized and integrated solutions to customers by combining software engineering with customer experience design, business consulting and technology innovation services. Fees for these contracts may be in the form of time-and-materials or fixed-price arrangements. We generate the majority of our revenues under time-and-material contracts, which are billed using hourly, daily or monthly rates to determine the amounts to be charged directly to the customer. We apply a practical expedient and revenues related to time-and-material contracts are recognized based on the right to invoice for services performed.

Fixed-price contracts include maintenance and support arrangements, which may exceed one year in duration. Maintenance and support arrangements generally relate to the provision of ongoing services and revenues for such contracts are recognized ratably over the expected service period. Fixed-price contracts also include application development arrangements, where progress towards satisfaction of the performance obligation is measured using input or output methods and input methods are used only when there is a direct correlation between hours incurred and the end product delivered. Assumptions, risks and uncertainties inherent in the estimates used to measure progress could affect the amount of revenues, receivables and deferred revenues at each reporting period.

Revenues from licenses which have significant stand-alone functionality are recognized at a point in time when control of the license is transferred to the customer. Revenues from licenses which do not have stand-alone functionality are recognized over time. If there is an uncertainty about the receipt of payment for the services, revenue recognition is deferred until the uncertainty is sufficiently resolved. We apply a practical expedient and do not assess the existence of a significant financing component if the period between transfer of the service to a customer and when the customer pays for that service is one year or less.

We report gross reimbursable “out-of-pocket” expenses incurred as both revenues and cost of revenues in the consolidated statements of income.

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Business Combinations — We account for business combinations using the acquisition method which requires us to estimate the fair value of identifiable assets acquired and liabilities assumed, including any contingent consideration, to properly allocate purchase price to the individual assets acquired and liabilities assumed. The allocation of the purchase price utilizes significant estimates in determining the fair values of identifiable assets acquired and liabilities assumed, especially with respect to intangible assets. The significant estimates and assumptions used include the timing and amount of forecasted revenues and cash flows, anticipated growth rates, customer attrition rates, the discount rate reflecting the risk inherent in future cash flows, and the useful lives for finite-lived assets. There are different valuation models for each component, the selection of which requires considerable judgment. These determinations will affect the amount of amortization expense recognized in future periods. We base our fair value estimates on assumptions we believe are reasonable, but recognize that the assumptions are inherently uncertain. The acquired assets typically include customer relationships, software, trade names, non-competition agreements, and assembled workforce and as a result, a substantial portion of the purchase price is typically allocated to goodwill and other intangible assets.

We determine the fair value of the contingent consideration liabilities using Monte Carlo simulations (which involve a simulation of future revenues and earnings during the earn-out period using management's best estimates) or probability-weighted expected return methods. Changes in financial projections, market risk assumptions, discount rates or probability assumptions related to achieving the various earn-out criteria would result in a change in the fair value of contingent consideration. Such changes, if any, are recorded within Interest and other income, net in the Company’s consolidated statements of income.

If the initial accounting for the business combination has not been completed by the end of the reporting period in which the business combination occurs, provisional amounts are reported to present information about facts and circumstances that existed as of the acquisition date. Once the measurement period ends, which in no case extends beyond one year from the acquisition date, revisions to the accounting for the business combination are recorded in earnings.

Recent Accounting Pronouncements

See Note 1 “Business and Summary of Significant Accounting Policies” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for information regarding recent accounting pronouncements.

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Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods indicated. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

	Year Ended December 31,
	2021					2020					2019
				% of revenues					% of revenues					% of revenues
	(in thousands, except percentages and per share data)
Revenues	$	3,758,144		100.0	%	$	2,659,478		100.0	%	$	2,293,798		100.0	%
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization)(1)	2,483,697			66.1		1,732,522			65.1		1,488,198			64.9
Selling, general and administrative expenses(2)	648,736			17.3		484,758			18.2		457,433			19.9
Depreciation and amortization expense	83,395			2.2		62,874			2.4		45,317			2.0
Income from operations	542,316			14.4		379,324			14.3		302,850			13.2
Interest and other (loss)/income, net	(1,727)			—		3,822			0.1		8,725			0.4
Foreign exchange loss	(7,197)			(0.2)		(4,667)			(0.2)		(12,049)			(0.5)
Income before provision for income taxes	533,392			14.2		378,479			14.2		299,526			13.1
Provision for income taxes	51,740			1.4		51,319			1.9		38,469			1.7
Net income	$	481,652		12.8	%	$	327,160		12.3	%	$	261,057		11.4	%
Effective tax rate	9.7		%			13.6		%			12.8		%
Diluted earnings per share	$	8.15				$	5.60				$	4.53

(1) Includes $51,580, $32,785 and $37,580 of stock-based compensation expense for the years ended December 31, 2021, 2020 and 2019, respectively.

(2) Includes $60,075, $42,453 and $34,456 of stock-based compensation expense for the years ended December 31, 2021, 2020 and 2019, respectively.

Revenues

We continue to expand our presence across multiple geographies and verticals, both organically and through strategic acquisitions. During the year ended December 31, 2021, our total revenues grew 41.3% over the previous year to $3.8 billion. This growth resulted from our ability to retain existing customers and increase the level of services we provide to them and our ability to produce revenues from new customer relationships. During the year ended December 31, 2021 we experienced a decrease in customer concentration as compared to the previous year, with revenues from our top five, top ten and top twenty customer groups decreasing as a percentage of total revenues. Revenues have been positively impacted by our acquisitions in 2021, which contributed 4.3% to our revenue growth, and by the fluctuations in foreign currencies, which increased our revenue growth by 1.4% during the year ended December 31, 2021 as compared to the previous year.

We discuss below the breakdown of our revenues by vertical, customer location, service arrangement type, and customer concentration.

Revenues by Vertical

We assign our customers into one of our five main vertical markets or a group of various industries where we are increasing our presence, which we label as “Emerging Verticals”, including energy, utilities, manufacturing, automotive, telecommunications and several others.

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The following table presents our revenues by vertical and revenues as a percentage of total revenues by vertical for the periods indicated:

	Year Ended December 31,
	2021				2020				2019
	(in thousands, except percentages)
Financial Services	$	848,370	22.6	%	$	555,235	20.9	%	$	500,872	21.8	%
Travel & Consumer	741,128		19.7		458,789		17.2		439,358		19.2
Business Information & Media	666,941		17.7		560,680		21.1		420,923		18.4
Software & Hi-Tech	664,597		17.7		496,813		18.7		433,398		18.9
Life Sciences & Healthcare	391,309		10.4		296,313		11.1		248,452		10.8
Emerging Verticals	445,799		11.9		291,648		11.0		250,795		10.9
Revenues	$	3,758,144	100.0	%	$	2,659,478	100.0	%	$	2,293,798	100.0	%

Financial Services became our largest vertical during 2021, growing 52.8% as compared to 2020. Except for Business Information & Media, which grew at a rate of 19.0% in 2021 over the prior year, all of our verticals grew over 30% in 2021 over the prior year.

Revenues by Customer Location

Our revenues are sourced from multiple countries, which we assign into four geographic markets and identify as Americas, EMEA, CEE and APAC. We present and discuss our revenues by customer location based on the location of the specific customer site that we serve, irrespective of the location of the headquarters of the customer or the location of the delivery center where the work is performed. Revenues by customer location is different from revenues by reportable segment in our consolidated financial statements included elsewhere in this annual report. Segments are not based on the geographic location of the customers, but instead they are based on the location of the Company’s management responsible for a particular customer or market.

The following table sets forth revenues by customer location by amount and as a percentage of our revenues for the periods indicated:

	Year Ended December 31,
	2021				2020				2019
	(in thousands, except percentages)
Americas (1)	$	2,226,830	59.3	%	$	1,595,136	60.0	%	$	1,390,015	60.6	%
EMEA (2)	1,259,717		33.4		879,842		33.1		746,866		32.6
CEE (3)	168,038		4.5		114,702		4.3		100,471		4.4
APAC (4)	103,559		2.8		69,798		2.6		56,446		2.4
Revenues	$	3,758,144	100.0	%	$	2,659,478	100.0	%	$	2,293,798	100.0	%

(1)Americas includes revenues from customers in North, Central and South America.

(2)EMEA includes revenues from customers in Western Europe and the Middle East.

(3)CEE includes revenues from customers in Russia, Belarus, Kazakhstan, Ukraine, and Georgia.

(4)APAC, or Asia Pacific, includes revenues from customers in East Asia, Southeast Asia and Australia.

During the year ended December 31, 2021, revenues in the Americas, our largest geography, were $2,226.8 million, growing $631.7 million, or 39.6%, from $1,595.1 million reported for the year ended December 31, 2020. Revenues from this geography accounted for 59.3% of total revenues in 2021, a decrease from 60.0% in the prior year. The United States continued to be our largest customer location contributing revenues of $2,125.3 million in 2021 compared to $1,523.7 million in 2020.

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Revenues in our EMEA geography were $1,259.7 million, an increase of $379.9 million, or 43.2%, over $879.8 million in the previous year. Revenues in this geography accounted for 33.4% of consolidated revenues in 2021 as compared to 33.1% in the previous year. The top three revenue contributing customer location countries in EMEA were the United Kingdom, Switzerland and the Netherlands generating revenues of $474.9 million, $271.2 million and $154.8 million in 2021, respectively, compared to $331.2 million, $203.4 million and $114.7 million in 2020, respectively. Fluctuations in foreign currency exchange rates with the U.S. dollar, particularly the euro and the British pound, during 2021 compared to the same period in the prior year positively impacted revenue growth in the EMEA geography by 3.3%.

During 2021, revenues in our CEE geography increased $53.3 million, or 46.5%, from the previous year. The increase in CEE revenues came primarily from customers in Russia, contributing $50.3 million of revenue growth in 2021 compared to the previous year.

Revenues from customers in locations in our APAC region comprised 2.8% of total revenues in 2021, a level consistent with the prior year.

Discussion of revenues from 2020 as compared to 2019 is included in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020.

Revenues by Customer Concentration

We have long-standing relationships with many of our customers and we seek to grow revenues from our existing customers by continually expanding the scope and size of our engagements. Revenues derived from these customers may fluctuate as these accounts mature or upon beginning or completion of multi-year projects. We believe there is a significant potential for future growth as we expand our capabilities and offerings within existing customers. In addition, we remain committed to diversifying our client base and adding more customers to our client mix through organic growth and strategic acquisitions, and over the long-term, we expect revenue concentration from our top customers to decrease.

The following table presents revenues contributed by our customers by amount and as a percentage of our revenues for the periods indicated:

	Year Ended December 31,
	2021				2020				2019
	(in thousands, except percentages)
Top five customers	$	682,147	18.2	%	$	584,303	22.0	%	$	456,985	19.9	%
Top ten customers	$	966,486	25.7	%	$	822,824	30.9	%	$	666,584	29.1	%
Top twenty customers	$	1,394,546	37.1	%	$	1,124,552	42.3	%	$	933,178	40.7	%
Customers below top twenty	$	2,363,598	62.9	%	$	1,534,926	57.7	%	$	1,360,620	59.3	%

The following table shows the number of customers grouped by revenues recognized by the Company for each year presented:

	Year Ended December 31,
	2021	2020	2019
Over $20 Million	40	28	22
$10 - $20 Million	38	27	27
$5 - $10 Million	63	43	42
$1 - $5 Million	271	225	206
$0.5 - $1 Million	133	107	105

Revenues by Service Offering

Our service arrangements have been evolving to provide more customized and integrated solutions to our customers where we combine software engineering with customer experience design, business consulting and technology innovation services. We are continually expanding our service capabilities, moving beyond traditional services into business consulting, design and physical product development.

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The following table shows revenues by service offering as an amount and as a percentage of our revenues for the years indicated:

	Year Ended December 31,
	2021				2020				2019
	(in thousands, except percentages)
Professional services	$	3,739,143	99.5	%	$	2,643,016	99.4	%	$	2,285,303	99.7	%
Licensing	15,552		0.4		11,139		0.4		5,081		0.2
Other	3,449		0.1		5,323		0.2		3,414		0.1
Revenues	$	3,758,144	100.0	%	$	2,659,478	100.0	%	$	2,293,798	100.0	%

See Note 11 “Revenues” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for more information regarding our contract types and related revenue recognition policies.

Cost of Revenues (Exclusive of Depreciation and Amortization)

The principal components of our cost of revenues (exclusive of depreciation and amortization) are salaries, bonuses, fringe benefits, stock-based compensation, project-related travel costs and fees for subcontractors who are assigned to customer projects. Salaries and other compensation expenses of our delivery professionals are reported as cost of revenues regardless of whether the employees are actually performing customer services during a given period. Our employees are a critical asset, necessary for our continued success and therefore we expect to continue hiring talented employees and providing them with competitive compensation programs.

We manage the utilization levels of our delivery professionals through strategic hiring and efficient staffing of projects. Some of these professionals are hired and trained to work for specific customers or on specific projects and some of our offshore development centers are dedicated to specific customers or projects. Our staff utilization also depends on the general economy and its effect on our customers and their business decisions regarding the use of our services.

During the year ended December 31, 2021, cost of revenues (exclusive of depreciation and amortization) was $2,483.7 million, representing an increase of 43.4% from $1,732.5 million reported last year. The increase was primarily due to an increase in compensation costs as a result of a 28.9% growth in the average number of production headcount for the year and a higher level of accrued variable compensation in 2021 as compared to the previous year.

Expressed as a percentage of revenues, cost of revenues (exclusive of depreciation and amortization) was 66.1% and 65.1% during the years ended December 31, 2021 and 2020, respectively. The year-over-year increase is primarily due to a 1.7% increase in personnel-related costs, including stock-based compensation expense, as a percentage of revenues largely driven by a higher level of accrued variable compensation during 2021 as compared to the same period in 2020, partially offset by decreases in travel and entertainment expenses.

Discussion of cost of revenues (exclusive of depreciation and amortization) from 2020 as compared to 2019 is included in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020.

Selling, General and Administrative Expenses

Selling, general and administrative expenses represent expenses associated with promoting and selling our services and general and administrative functions of our business. These expenses include the costs of salaries, bonuses, fringe benefits, stock-based compensation, severance, bad debt, travel, legal and accounting services, insurance, facilities including operating leases, advertising and other promotional activities.

Our selling, general and administrative expenses have increased due to our continuously expanding operations, strategic business acquisitions, and the hiring of necessary personnel to support our growth. During the year ended December 31, 2021, selling, general and administrative expenses were $648.7 million, representing an increase of 33.8% as compared to $484.8 million reported last year. The increase in selling, general and administrative expenses in 2021 was primarily due to a $136.8 million increase in personnel-related costs, which include stock-based compensation expense, primarily driven by an increase in headcount.

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Expressed as a percentage of revenues, selling, general and administrative expenses decreased 0.9% to 17.3% for the year ended December 31, 2021. The decrease was primarily attributable to a 1.2% decrease in facility-related expenses as a percentage of revenues, partially offset by increases in talent acquisition and development expenses and travel and entertainment expenses as a percentage of revenues.

Discussion of selling, general and administrative expenses from 2020 as compared to 2019 is included in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020.

Depreciation and Amortization Expense

Depreciation and amortization expense includes depreciation of physical assets used in the operation of our business such as computer equipment, software, buildings we purchased, leasehold improvements as well as various office furniture and equipment. Depreciation and amortization expense also includes amortization of acquired finite-lived intangible assets.

During the year ended December 31, 2021, depreciation and amortization expense was $83.4 million, representing an increase of $20.5 million from $62.9 million reported last year. The increase in depreciation and amortization expense was primarily driven by an increase in computer equipment to support headcount growth and amortization of acquired finite-lived intangible assets, which contributed $5.3 million to the year over year increase in depreciation and amortization expense. Expressed as a percentage of revenues, depreciation and amortization expense decreased to 2.2% during the year ended December 31, 2021 as compared to 2.4% in 2020.

Discussion of depreciation and amortization expense from 2020 as compared to 2019 is included in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020.

Interest and Other (Loss)/Income, Net

Interest and other (loss)/income, net includes interest earned on cash and cash equivalents and employee loans, gains and losses from certain financial instruments, interest expense related to our borrowings and changes in the fair value of contingent consideration. Interest and other (loss)/income, net decreased from a gain of $3.8 million during the year ended December 31, 2020 to a loss of $1.7 million during the year ended December 31, 2021, which is primarily attributable to a $7.0 million increase in the charge from the change in fair value of contingent consideration reflecting improved expectations for the performance of certain acquisitions, partially offset by higher government grant income in 2021. There were no material changes in interest and other income, net in 2020 as compared to 2019.

Provision for Income Taxes

Determining the consolidated provision for income tax expense, deferred income tax assets and liabilities and any potential related valuation allowances involves judgment. We consider factors that may contribute, favorably or unfavorably, to the overall annual effective tax rate in the current year as well as the future. These factors include statutory tax rates and tax law changes in the countries where we operate and excess tax benefits upon vesting or exercise of equity awards as well as consideration of any significant or unusual items.

As a global company, we are required to calculate and provide for income taxes in each of the jurisdictions in which we operate. During 2021, 2020 and 2019, we had $404.9 million, $278.1 million and $234.2 million, respectively, in income before provision for income taxes attributed to our foreign jurisdictions. Changes in the geographic mix or level of annual pre-tax income can also affect our overall effective income tax rate.

Our provision for income taxes also includes the impact of provisions established for uncertain income tax positions, as well as the related net interest and penalty expense. Tax exposures can involve complex issues and may require an extended period to resolve. Although we believe we have adequately reserved for our uncertain tax positions, we cannot provide assurance that the final tax outcome of these matters will not be different from our current estimates. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, statute of limitation lapse or the refinement of an estimate. To the extent that the final tax outcome of these matters differs from the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.

The provision for income taxes was $51.7 million in 2021 and $51.3 million in 2020. The increase was primarily driven by the increase in pre-tax income year over year, partially offset by a significant increase in excess tax benefits recorded upon vesting or exercise of stock-based awards which were $71.6 million in 2021 compared to $36.6 million in 2020. The effective tax rate decreased from 13.6% in 2020 to 9.7% in 2021 primarily due to the increase in excess tax benefits recorded upon vesting or exercise of stock-based awards and tax benefits of certain one-time tax credits recorded in 2021.

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Discussion of the provision for income taxes from 2020 as compared to 2019 is included in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020.

Foreign Exchange Gain / Loss

For discussion of the impact of foreign exchange fluctuations see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Foreign Exchange Risk.”

Results by Business Segment

Our operations consist of three reportable segments: North America, Europe, and Russia. The segments represent components of EPAM for which separate financial information is available and used on a regular basis by our chief executive officer, who is also our chief operating decision maker (“CODM”), to determine how to allocate resources and evaluate performance. Our CODM makes business decisions based on segment revenues and segment operating profits. 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, certain taxes included in operating expenses, 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 stock-based compensation, amortization of intangible assets acquired through business combinations, goodwill and other asset impairment charges, 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.

We manage our business primarily based on the managerial responsibility for the 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 our 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 respective management team member’s reportable segment. Our Europe segment includes our business in the APAC region, which is managed by the same management team.

Segment revenues from external customers and segment operating profit, before unallocated expenses, for the North America, Europe and Russia segments for the years ended December 31, 2021, 2020 and 2019 were as follows:

	Year Ended December 31,
	2021		2020		2019
	(in thousands)
Segment revenues:
North America	$	2,242,248	$	1,601,820	$	1,380,944
Europe	1,350,484		947,305		820,717
Russia	165,412		110,353		92,137
Total segment revenues	$	3,758,144	$	2,659,478	$	2,293,798
Segment operating profit:
North America	$	462,798	$	345,196	$	293,757
Europe	233,727		152,902		114,863
Russia	32,547		5,811		17,347
Total segment operating profit	$	729,072	$	503,909	$	425,967

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North America Segment

During 2021, North America segment revenues increased $640.4 million, or 40.0%, over last year. Revenues from our North America segment represented 59.7% of total segment revenues, a decrease from 60.2% reported in the corresponding period of 2020. During 2021 as compared to 2020, North America segment operating profits increased $117.6 million, or 34.1%, to $462.8 million. Expressed as a percentage of revenue, North America segment operating profit decreased to 20.6% in 2021 as compared to 21.6% in 2020. This decrease is primarily attributable to increases in personnel-related costs, largely driven by a higher level of accrued variable compensation.

The following table presents North America segment revenues by industry vertical for the periods indicated:

	Year Ended December 31,				Change
	2021		2020		Dollars		Percentage
Industry Vertical	(in thousands, except percentages)
Software & Hi-Tech	$	559,707	$	419,895	$	139,812	33.3	%
Business Information & Media	389,613		334,063		55,550		16.6	%
Financial Services	361,611		199,594		162,017		81.2	%
Travel & Consumer	359,306		221,977		137,329		61.9	%
Life Sciences & Healthcare	340,706		260,518		80,188		30.8	%
Emerging Verticals	231,305		165,773		65,532		39.5	%
Revenues	$	2,242,248	$	1,601,820	$	640,428	40.0	%

Software & Hi-Tech remained the largest industry vertical in the North America segment during the year ended December 31, 2021, growing 33.3% as compared to the prior year, which was a result of the continued focus on working with our technology customers. During the year ended December 31, 2021, revenues from the Business Information & Media vertical experienced growth of 16.6% and largely benefited from expansion of services to several of our existing top 10 customers. Financial services grew 81.2% in 2021 compared to the prior year primarily due to growth in a wealth management customer that was previously one of our top 200 customers and is now one of our top 30 customers for the year. Emerging Verticals experienced 39.5% growth during 2021 compared to the prior year largely due to an increase in services provided to a customer in the automotive industry.

Europe Segment

During 2021, Europe segment revenues were $1,350.5 million, reflecting an increase of $403.2 million, or 42.6%, from last year. Revenues were positively impacted by changes in foreign currency exchange rates during 2021. Had our Europe segment revenues been expressed in constant currency terms using the exchange rates in effect during 2020, we would have reported revenue growth of 39.3%. Revenues from our Europe segment represent 35.9% and 35.6% of total segment revenues during 2021 and 2020, respectively. During 2021, this segment’s operating profits increased $80.8 million, or 52.9% as compared to last year, to $233.7 million. Europe’s operating profit represented 17.3% of Europe segment revenues as compared to 16.1% in 2020. Europe segment operating profit was positively impacted by changes in foreign currency exchange rates, predominantly the euro and British pound, as well as the recognition of $6.5 million in revenues from performance obligations satisfied in previous periods, partially offset by a higher level of accrued variable compensation. During the year ended December 31, 2020, segment operating profit was negatively impacted by temporary discounts provided to certain customers experiencing challenging economic conditions due to the impact of the COVID-19 pandemic.

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The following table presents Europe segment revenues by industry vertical for the periods indicated:

	Year Ended December 31,				Change
	2021		2020		Dollars		Percentage
Industry Vertical	(in thousands, except percentages)
Financial Services	$	372,394	$	278,355	$	94,039	33.8	%
Travel & Consumer	354,041		220,448		133,593		60.6	%
Business Information & Media	275,502		224,922		50,580		22.5	%
Software & Hi-Tech	102,270		73,288		28,982		39.5	%
Life Sciences & Healthcare	49,900		35,347		14,553		41.2	%
Emerging Verticals	196,377		114,945		81,432		70.8	%
Revenues	$	1,350,484	$	947,305	$	403,179	42.6	%

Financial Services remained the largest industry vertical in the Europe segment during the year ended December 31, 2021. The Europe segment benefited from 60.6% growth in Travel & Consumer during the year ended December 31, 2021 as compared to 2020 primarily due to strong demand from several retail customers and recovery in demand from certain customers in the travel industry. For the year ended December 31, 2021 as compared to 2020, Business Information & Media vertical experienced slower relative growth at several clients where revenues from certain engagements plateaued compared to the prior year. Revenues in Software & Hi-Tech increased during the year ended December 31, 2021 as compared to 2020 primarily due to the expansion of services provided to one of our top 20 customers and revenues from companies acquired during 2021.

Russia Segment

During 2021, revenues from our Russia segment increased $55.1 million relative to 2020 and represent 4.4% of total segment revenues during 2021 compared with 4.2% in 2020. Operating profits of our Russia segment increased $26.7 million as compared to 2020. Expressed as a percentage of Russia segment revenues, the segment’s operating profits were 19.7% and 5.3% in 2021 and 2020, respectively. This increase is attributable to a net benefit in 2021 as compared to the corresponding period of last year from revenues from performance obligations satisfied in previous periods and a benefit from the change in the valuation of the Russian ruble relative to the U.S. dollar.

The following table presents Russia segment revenues by industry vertical for the periods indicated:

	Year Ended December 31,				Change
	2021		2020		Dollars		Percentage
Industry Vertical	(in thousands, except percentages)
Financial Services	$	114,365	$	77,286	$	37,079	48.0	%
Travel & Consumer	27,781		16,364		11,417		69.8	%
Software & Hi-Tech	2,620		3,630		(1,010)		(27.8)	%
Business Information & Media	1,826		1,695		131		7.7	%
Life Sciences & Healthcare	703		448		255		56.9	%
Emerging Verticals	18,117		10,930		7,187		65.8	%
Revenues	$	165,412	$	110,353	$	55,059	49.9	%

Revenues in the Russia segment are generally subject to fluctuations and are impacted by the timing of revenue recognition associated with the execution of contracts and the foreign currency exchange rate of the Russian ruble to the U.S. dollar. Revenues in the Financial Services vertical primarily benefited from increased revenues from customers in the banking and insurance sector during 2021 as compared to 2020. Revenues in the Travel & Consumer vertical benefited in 2021 from increased revenues from a single retailer. There have been no significant changes in the other individual verticals during 2021 as compared to 2020.

Currency fluctuations of the Russian ruble typically impact the results in the Russia segment. Ongoing economic and geopolitical uncertainty in the region and the volatility of the Russian ruble can significantly impact reported revenues and profitability in this segment. We continue to monitor geopolitical forces, economic and trade sanctions, and other issues involving this region.

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Discussion of segment results from 2020 as compared to 2019 is included in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020.

Effects of Inflation

Economies in some countries where we operate have periodically experienced high rates of inflation. Periods of higher inflation may affect various economic sectors in those countries and increase our cost of doing business there. Inflation may increase some of our expenses such as wages. While inflation may impact our results of operations and financial condition and it is difficult to accurately measure the impact of inflation, we believe the effects of inflation on our results of operations and financial condition are not significant.

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Liquidity and Capital Resources

Capital Resources

Our cash generated from operations has been our primary source of liquidity to fund operations and investments to support the growth of our business. As of December 31, 2021, our principal sources of liquidity were cash and cash equivalents totaling $1,446.6 million, as well as $675.0 million of available borrowings under our revolving credit facility. See Note 9 “Debt” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for information regarding the terms of our revolving credit facility and information about debt.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

	For the Years Ended December 31,
	2021		2020		2019
	(in thousands)
Consolidated Statements of Cash Flow Data:
Net cash provided by operating activities	$	572,327	$	544,407	$	287,453
Net cash used in investing activities	(368,924)		(167,154)		(145,369)
Net cash (used in)/provided by financing activities	(59,557)		(765)		20,363
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(18,032)		9,357		3,530
Net increase in cash, cash equivalents and restricted cash	$	125,814	$	385,845	$	165,977
Cash, cash equivalents and restricted cash, beginning of period	1,323,533		937,688		771,711
Cash, cash equivalents and restricted cash, end of period	$	1,449,347	$	1,323,533	$	937,688

Operating Activities

Net cash provided by operating activities during the year ended December 31, 2021 increased $27.9 million, or 5.1%, to $572.3 million, as compared to 2020 primarily driven by the increase in net income as well as an increase in accrued variable compensation expense in 2021. The increase was partially offset by an increase in accounts receivable during 2021, largely attributable to the 41.3% growth in revenue in 2021 as compared to 2020.

Investing Activities

Net cash used in investing activities during the year ended December 31, 2021 was $368.9 million compared to $167.2 million used in the same period in 2020. The cash used in investing activities was primarily attributable to $315.0 million used during 2021 for the acquisitions of businesses, net of cash acquired, compared to $18.9 million used for the acquisitions of businesses, net of cash acquired, during 2020. Cash used for capital expenditures was $111.5 million in 2021 compared to cash used for capital expenditures of $68.8 million during the comparable period in 2020. Additionally, net cash used in investing activities was positively impacted by the maturity of $60.0 million of time deposits during 2021 and negatively impacted by the $60.0 million use of cash to purchase these time deposits during 2020. Furthermore, $2.5 million was used for purchases of non-marketable securities during 2021 compared to $20.5 million used in 2020.

Financing Activities

During the year ended December 31, 2021, net cash used in financing activities was $59.6 million, compared to $0.8 million net cash used in financing activities in 2020. During 2021, we received cash from the exercises of stock options issued under our long-term incentive plans of $26.3 million, compared to $26.4 million received in the corresponding period of 2020. These cash inflows were offset by cash used for the payments of withholding taxes related to net share settlements of restricted stock units of $41.6 million in 2021, compared to $20.1 million paid in 2020. Additionally, the year ended December 31, 2021 included payments of $40.2 million attributable to the acquisition-date fair value of contingent consideration compared to payments of $7.0 million attributable to acquisition-date fair value of contingent consideration during the year ended December 31, 2020.

Discussion of the comparison of the cash flows between 2020 and 2019 is included in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” of our Annual Report on Form 10-K for the year ended December 31, 2020.

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Future Capital Requirements

We believe that our existing cash and cash equivalents combined with our expected cash flow from operations will be sufficient to meet our projected operating and capital expenditure requirements for at least the next twelve months and that we possess the financial flexibility to execute our strategic objectives, including the ability to make acquisitions and strategic investments in the foreseeable future. However, our ability to generate cash is subject to our performance, general economic conditions, industry trends and other factors including the impact of the COVID-19 pandemic as described elsewhere in this MD&A. To the extent that existing cash and cash equivalents and operating cash flow are insufficient to fund our future activities and requirements, we may need to raise additional funds through public or private equity or debt financing. If we issue equity securities in order to raise additional funds, substantial dilution to existing stockholders may occur. If we raise cash through the issuance of additional indebtedness, we may be subject to additional contractual restrictions on our business. There is no assurance that we would be able to raise additional funds on favorable terms or at all.

Borrowings

See Note 8 “Leases” and Note 9 “Debt” in the notes to our consolidated financial statements in this Annual Report on Form 10-K.

Off-Balance Sheet Commitments and Arrangements

We do not have any material obligations under guarantee contracts or other contractual arrangements other than as disclosed in Note 15 “Commitments and Contingencies” in the notes to our consolidated financial statements in this Annual Report on Form 10-K. We have not entered into any transactions with unconsolidated entities where we have financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to us, or engages in leasing, hedging, or research and development services with us.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks in the ordinary course of our business. These risks primarily result from changes in concentration of credit risks, interest rates and foreign currency exchange rates. In addition, our operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions.

Concentration of Credit and Other Credit Risks

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments and trade receivables.

We maintain our cash, cash equivalents and short-term investments with financial institutions. We believe that our credit policies reflect normal industry terms and business risk. We do not anticipate non-performance by the counterparties.

We have cash in countries where the banking sector remains subject to periodic instability, banking and other financial systems generally do not meet the banking standards of more developed markets, and bank deposits made by corporate entities are not insured. As of December 31, 2021, we had $232.6 million of cash and cash equivalents in banks in Russia, Belarus and Ukraine, representing 16.1% our total cash and cash equivalents. We place our cash and cash equivalents with financial institutions considered stable in the region, limit the amount of credit exposure with any one financial institution and conduct ongoing evaluations of the credit worthiness of the financial institutions with which we do business. A banking crisis, bankruptcy or insolvency of banks that process or hold the Company’s funds, or sanctions may result in the loss of our deposits or adversely affect the Company’s ability to complete banking transactions, which could adversely affect our business and financial condition. Cash in these countries is used for the operational needs of the local entities and cash balances change with the expected operating needs of these entities. We regularly monitor cash held in these countries and, to the extent the cash held exceeds amounts required to support our operations in these countries, the Company distributes the excess funds into markets with more developed banking sectors.

Trade receivables are generally dispersed across many customers operating in different industries; therefore, concentration of credit risk is limited and we do not believe significant credit risks existed at December 31, 2021. Though our results of operations depend on our ability to successfully collect payment from our customers for work performed, historically, credit losses and write-offs of trade receivables have not been material to our consolidated financial statements. If any of our customers enter bankruptcy protection or otherwise take steps to alleviate their financial distress, including distress resulting from the COVID-19 pandemic, our credit losses and write-offs of trade receivables could increase, which would negatively impact our results of operations.

Interest Rate Risk

Our exposure to market risk is influenced by the changes in interest rates on our cash and cash equivalent deposits, short-term investments and paid on any outstanding balance on our borrowings, mainly under our 2021 Credit Facility, which is subject to a variety of rates depending on the currency and timing of funds borrowed. We do not believe we are exposed to material direct risks associated