epam-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2022


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

For the transition period from ________to________

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

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 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	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Title of Each Class						Outstanding as of October 31, 2022
Common Stock, par value $0.001 per share						57,513,488 shares

EPAM SYSTEMS, INC.

TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021			3
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021			4
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021			5
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021			6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021			8
Notes to Condensed Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures About Market Risk			48
Item 4. Controls and Procedures			49
PART II. OTHER INFORMATION			50
Item 1. Legal Proceedings			50
Item 1A. Risk Factors			50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			51
Item 3. Defaults Upon Senior Securities			51
Item 4. Mine Safety Disclosures			51
Item 5. Other Information			51
Item 6. Exhibits			52
SIGNATURES			53

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

EPAM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value)


	As of September 30, 2022		As of December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	1,487,599	$	1,446,625
Trade receivables and contract assets, net of allowance of $18,666 and $5,521, respectively	917,139		768,928
Short-term investments	60,216		—
Prepaid and other current assets	63,032		53,927
Total current assets	2,527,986		2,269,480
Property and equipment, net	209,700		236,214
Operating lease right-of-use assets, net	148,219		184,841
Intangible assets, net	79,220		101,143
Goodwill	505,542		530,723
Deferred tax assets	214,219		143,928
Other noncurrent assets	50,717		56,898
Total assets	$	3,735,603	$	3,523,227

Liabilities
Current liabilities
Accounts payable	$	28,288	$	24,847
Accrued compensation and benefits expenses	456,965		502,997
Accrued expenses and other current liabilities	161,922		142,014
Short-term debt	7,790		16,018
Income taxes payable, current	34,390		27,440
Operating lease liabilities, current	38,602		50,104
Total current liabilities	727,957		763,420
Long-term debt	28,198		30,234
Income taxes payable, noncurrent	57,375		42,454
Operating lease liabilities, noncurrent	122,700		142,802
Other noncurrent liabilities	40,729		48,480
Total liabilities	976,959		1,027,390
Commitments and contingencies (Note 13)
Stockholders’ equity
Common stock, $0.001 par value; 160,000 shares authorized; 57,516 and 56,868 shares issued, 57,502 and 56,849 shares outstanding at September 30, 2022 and December 31, 2021, respectively	57		57
Additional paid-in capital	801,950		711,912
Retained earnings	2,093,909		1,829,532
Treasury stock	(118)		(177)
Accumulated other comprehensive loss	(138,632)		(54,207)
Total EPAM Systems Inc. stockholders’ equity	2,757,166		2,487,117
Noncontrolling interest in consolidated subsidiaries	1,478		8,720
Total stockholders’ equity	2,758,644		2,495,837
Total liabilities and stockholders’ equity	$	3,735,603	$	3,523,227

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

Table of Contents

EPAM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues	$	1,226,920	$	988,539	$	3,593,395	$	2,650,680
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization)	826,796		653,374		2,453,955		1,756,430
Selling, general and administrative expenses	198,021		169,498		667,825		457,797
Depreciation and amortization expense	21,876		21,543		69,126		59,804
Income from operations	180,227		144,124		402,489		376,649
Interest and other income/(loss), net	4,228		(5,325)		5,642		2,629
Foreign exchange gain/(loss)	6,691		(3,441)		(102,035)		(5,835)
Income before provision for income taxes	191,146		135,358		306,096		373,443
Provision for income taxes	35,092		19,702		41,719		34,070
Net income	$	156,054	$	115,656	$	264,377	$	339,373

Net income per share:
Basic	$	2.72	$	2.04	$	4.62	$	6.01
Diluted	$	2.63	$	1.95	$	4.47	$	5.75
Shares used in calculation of net income per share:
Basic	57,420		56,649		57,194		56,429
Diluted	59,357		59,203		59,108		58,999

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

Table of Contents

EPAM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	156,054	$	115,656	$	264,377	$	339,373
Other comprehensive loss:
Change in foreign currency translation adjustments, net of tax	(56,923)		(10,761)		(72,645)		(11,655)
Change in unrealized loss on hedging instruments, net of tax	(5,352)		(2,067)		(11,780)		(4,108)
Defined benefit pension plans - actuarial loss, net of tax	—		—		—		(626)
Other comprehensive loss	(62,275)		(12,828)		(84,425)		(16,389)
Comprehensive income	$	93,779	$	102,828	$	179,952	$	322,984

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

Table of Contents

EPAM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)


	Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive (Loss)/Income		Non-controlling interest in consolidated subsidiaries		Total Stockholders’ Equity
	Shares	Amount						Shares	Amount
Balance, January 1, 2022	56,849	$	57	$	711,912	$	1,829,532	20	$	(177)	$	(54,207)	$	8,720	$	2,495,837
Restricted stock units vested	193	—		—		—		—	—		—		—		—
Equity withheld for employee taxes	(67)	—		(18,376)		—		—	—		—		—		(18,376)
Stock-based compensation expense	—	—		22,702		—		—	—		—		—		22,702
Exercise of stock options	158	—		2,884		—		—	—		—		—		2,884
Other comprehensive loss	—	—		—		—		—	—		(31,943)		—		(31,943)
Purchase of subsidiary shares from noncontrolling interest	—	—		—		—		—	—		—		(7,067)		(7,067)
Net income	—	—		—		89,719		—	—		—		—		89,719
Balance, March 31, 2022	57,133	$	57	$	719,122	$	1,919,251	20	$	(177)	$	(86,150)	$	1,653	$	2,553,756
Restricted stock units vested	24	—		—		—		—	—		—		—		—
Equity withheld for employee taxes	(6)	—		(1,843)		—		—	—		—		—		(1,843)
Stock-based compensation expense	—	—		24,902		—		—	—		—		—		24,902
Exercise of stock options	147	—		6,410		—		—	—		—		—		6,410
Issuance of common stock from employee stock purchase plan	55	—		12,384		—		—	—		—		—		12,384
Other comprehensive income	—	—		—		—		—	—		9,793		—		9,793
Net income	—	—		—		18,604		—	—		—		—		18,604
Balance, June 30, 2022	57,353	$	57	$	760,975	$	1,937,855	20	$	(177)	$	(76,357)	$	1,653	$	2,624,006
Restricted stock units vested	8	—		—		—		—	—		—		—		—
Equity withheld for employee taxes	(2)	—		(837)		—		—	—		—		—		(837)
Stock issued in connection with Other 2021 acquisitions (Note 3)	6	—		1,941		—		(6)	59		—		—		2,000
Stock-based compensation expense	—	—		30,597		—		—	—		—		—		30,597
Exercise of stock options	137	—		9,223		—		—	—		—		—		9,223
Purchase of subsidiary shares from noncontrolling interest	—	—		51		—		—	—		—		(248)		(197)
Contributions from noncontrolling interest	—	—		—		—		—	—		—		73		73
Other comprehensive loss	—	—		—		—		—	—		(62,275)		—		(62,275)
Net income	—	—		—		156,054		—	—		—		—		156,054
Balance, September 30, 2022	57,502	$	57	$	801,950	$	2,093,909	14	$	(118)	$	(138,632)	$	1,478	$	2,758,644

Table of Contents


	Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive (Loss)/Income		Non-controlling interest in consolidated subsidiaries		Total Stockholders’ Equity
	Shares	Amount						Shares	Amount
Balance, January 1, 2021	56,108	$	56	$	660,771	$	1,347,880	20	$	(177)	$	(25,512)	$	—	$	1,983,018
Restricted stock units vested	248	—		—		—		—	—		—		—		—
Equity withheld for employee taxes	(84)	—		(31,935)		—		—	—		—		—		(31,935)
Stock-based compensation expense	—	—		14,624		—		—	—		—		—		14,624
Exercise of stock options	109	—		4,424		—		—	—		—		—		4,424
Other comprehensive loss	—	—		—		—		—	—		(15,238)		—		(15,238)
Net income	—	—		—		109,046		—	—		—		—		109,046
Balance, March 31, 2021	56,381	$	56	$	647,884	$	1,456,926	20	$	(177)	$	(40,750)	$	—	$	2,063,939
Restricted stock units vested	19	—		—		—		—	—		—		—		—
Equity withheld for employee taxes	(6)	—		(2,631)		—		—	—		—		—		(2,631)
Stock-based compensation expense	—	—		13,792		—		—	—		—		—		13,792
Exercise of stock options	219	1		11,219		—		—	—		—		—		11,220
Other comprehensive income	—	—		—		—		—	—		11,677		—		11,677
Net income	—	—		—		114,671		—	—		—		—		114,671
Balance, June 30, 2021	56,613	$	57	$	670,264	$	1,571,597	20	$	(177)	$	(29,073)	$	—	$	2,212,668
Restricted stock units vested	6	—		—		—		—	—		—		—		—
Equity withheld for employee taxes	(2)	—		(1,368)		—		—	—		—		—		(1,368)
Stock-based compensation expense	—	—		20,541		—		—	—		—		—		20,541
Exercise of stock options	91	—		4,450		—		—	—		—		—		4,450
Other comprehensive loss	—	—		—		—		—	—		(12,828)		—		(12,828)
Net income	—	—		—		115,656		—	—		—		—		115,656
Balance, September 30, 2021	56,708	$	57	$	693,887	$	1,687,253	20	$	(177)	$	(41,901)	$	—	$	2,339,119

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

Table of Contents

EPAM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	264,377	$	339,373
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	69,126		59,804
Operating lease right-of-use assets amortization expense	37,336		46,693
Bad debt expense	12,888		2,573
Deferred taxes	(54,851)		(6,948)
Stock-based compensation expense	68,292		77,638
Unrealized loss on derivative	20,469		—
Impairment charges	21,212		—
Other	63,914		4,312
Changes in assets and liabilities:
Trade receivables and contract assets	(196,675)		(232,710)
Prepaid and other assets	(7,787)		(8,768)
Accounts payable	8,769		(6,468)
Accrued expenses and other liabilities	(7,100)		86,822
Operating lease liabilities	(41,395)		(48,158)
Income taxes payable	19,460		(26,450)
Net cash provided by operating activities	278,035		287,713
Cash flows from investing activities:
Purchases of property and equipment	(60,134)		(54,884)
Purchases of short-term investments	(60,000)		—
Proceeds from short-term investments	—		60,000
Acquisition of business, net of cash acquired (Note 3)	(10,530)		(160,964)
Purchases of non-marketable securities	(1,625)		(2,544)
Other investing activities, net	(19,499)		(100)
Net cash used in investing activities	(151,788)		(158,492)
Cash flows from financing activities:
Proceeds from issuance of stock under the employee incentive programs	31,368		20,176
Payments of withholding taxes related to net share settlements of restricted stock units	(22,101)		(34,108)
Proceeds from debt	4,114		—
Repayment of debt	(11,542)		—
Payment of contingent consideration for previously acquired business	(6,626)		(797)
Purchase of noncontrolling interest	(2,254)		—
Other financing activities, net	(3,025)		231
Net cash used in financing activities	(10,066)		(14,498)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(75,876)		(12,691)
Net increase in cash, cash equivalents and restricted cash	40,305		102,032
Cash, cash equivalents and restricted cash, beginning of period	1,449,347		1,323,533
Cash, cash equivalents and restricted cash, end of period	$	1,489,652	$	1,425,565

Table of Contents

EPAM SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

(Continued)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets:


	As of September 30, 2022		As of December 31, 2021
Balance sheet classification
Cash and cash equivalents	$	1,487,599	$	1,446,625
Restricted cash in Prepaid and other current assets	201		495
Restricted cash in Other noncurrent assets	1,852		2,227
Total restricted cash	$	2,053	$	2,722
Total cash, cash equivalents and restricted cash	$	1,489,652	$	1,449,347

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except per share data and as otherwise disclosed)

1.BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES