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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 March 31, 2023

OR
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
Logo_New.gif
EPAM SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware22-3536104
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
41 University DriveSuite 20218940
NewtownPennsylvania
(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 ClassTrading Symbol Name of Each Exchange on which Registered
Common Stock, par value $0.001 per shareEPAM 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 filerAccelerated filer
Non-accelerated filerSmaller 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.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 April 28, 2023
Common Stock, par value $0.001 per share
57,905,539 shares




EPAM SYSTEMS, INC.

TABLE OF CONTENTS
 Page



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
March 31,
2023
As of
December 31,
2022
Assets
Current assets
Cash and cash equivalents$1,749,422 $1,681,344 
Trade receivables and contract assets, net of allowance of $14,184 and $15,310, respectively
934,236 932,626 
Short-term investments 60,373 60,336 
Prepaid and other current assets86,758 85,319 
Total current assets2,830,789 2,759,625 
Property and equipment, net267,067 273,348 
Operating lease right-of-use assets, net146,815 148,780 
Intangible assets, net73,113 77,652 
Goodwill533,730 529,072 
Deferred tax assets167,654 172,797 
Other noncurrent assets52,177 47,877 
Total assets$4,071,345 $4,009,151 
Liabilities  
Current liabilities  
Accounts payable$28,857 $30,852 
Accrued compensation and benefits expenses444,728 475,871 
Accrued expenses and other current liabilities130,902 154,339 
Income taxes payable, current37,439 46,069 
Operating lease liabilities, current40,932 40,352 
Total current liabilities682,858 747,483 
Long-term debt28,253 27,693 
Operating lease liabilities, noncurrent117,913 122,317 
Other noncurrent liabilities111,879 108,648 
Total liabilities940,903 1,006,141 
Commitments and contingencies (Note 13)
Stockholders’ equity  
Common stock, $0.001 par value; 160,000 shares authorized; 57,862 and 57,668 shares issued, 57,848 and 57,655 shares outstanding at March 31, 2023 and December 31, 2022, respectively
58 58 
Additional paid-in capital864,254 847,965 
Retained earnings2,342,730 2,248,948 
Treasury stock(118)(118)
Accumulated other comprehensive loss(77,960)(95,321)
Total EPAM Systems Inc. stockholders’ equity3,128,964 3,001,532 
Noncontrolling interest in consolidated subsidiaries1,478 1,478 
Total equity3,130,442 3,003,010 
Total liabilities and stockholders’ equity$4,071,345 $4,009,151 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3

Table of Contents
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
 Three Months Ended
March 31,
 20232022
Revenues$1,210,941 $1,171,614 
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization)855,901 780,836 
Selling, general and administrative expenses211,887 237,277 
Depreciation and amortization expense22,782 24,259 
Income from operations120,371 129,242 
Interest and other income/(loss), net11,521 (165)
Foreign exchange loss(4,608)(22,785)
Income before provision for income taxes127,284 106,292 
Provision for income taxes24,992 16,573 
Net income$102,292 $89,719 
Net income per share:
Basic$1.77 $1.58 
Diluted$1.73 $1.52 
Shares used in calculation of net income per share:
Basic57,702 56,915 
Diluted59,298 58,941 

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

4

Table of Contents
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 Three Months Ended
March 31,
 20232022
Net income$102,292 $89,719 
Other comprehensive income/(loss):
Change in foreign currency translation adjustments, net of tax13,227 (30,552)
Change in unrealized gain/(loss) on hedging instruments, net of tax4,134 (1,391)
Other comprehensive income/(loss)17,361 (31,943)
Comprehensive income$119,653 $57,776 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
5

Table of Contents
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands) 
 Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive (Loss)/IncomeNon-controlling interest in consolidated subsidiariesTotal Equity
SharesAmountSharesAmount
Balance, January 1, 2023
57,655 $58 $847,965 $2,248,948 14 $(118)$(95,321)$1,478 $3,003,010 
Restricted stock units vested
224 — — — — — — — — 
Equity withheld for employee taxes(72)— (20,501)— — — — — (20,501)
Stock-based compensation expense
— — 34,265 — — — — — 34,265 
Exercise of stock options71 — 2,525 — — — — — 2,525 
Repurchase of common stock(30)— — (8,510)— — — — (8,510)
Other comprehensive income— — — — — — 17,361 — 17,361 
Net income
— — — 102,292 — — — — 102,292 
Balance, March 31, 2023
57,848 $58 $864,254 $2,342,730 14 $(118)$(77,960)$1,478 $3,130,442 

 Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive LossNon-controlling interest in consolidated subsidiariesTotal Equity
SharesAmountSharesAmount
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 options158 — 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 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
                                               Three Months Ended March 31,
 20232022
Cash flows from operating activities:
Net income$102,292 $89,719 
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization expense22,782 24,259 
Operating lease right-of-use assets amortization expense10,043 14,787 
Bad debt expense182 8,675 
Deferred taxes823 (10,830)
Stock-based compensation expense38,579 7,112 
Unrealized (gain)/loss on derivative (7,904)41,369 
Impairment charges88 20,401 
Other(3,268)3,361 
Changes in assets and liabilities:  
Trade receivables and contract assets(3,573)(144,783)
Prepaid and other assets(105)(9,515)
Accounts payable1,494 (4,633)
Accrued expenses and other liabilities(58,463)(74,929)
Operating lease liabilities(10,672)(14,171)
Income taxes payable(4,964)(2,670)
Net cash provided by/(used in) operating activities87,334 (51,848)
Cash flows from investing activities:  
Purchases of property and equipment(7,913)(23,274)
Acquisition of business, net of cash acquired (Note 3) (8,207)
Purchases of non-marketable securities(1,906) 
Other investing activities, net(7,898)(3,082)
Net cash used in investing activities(17,717)(34,563)
Cash flows from financing activities:  
Proceeds from issuance of stock under the employee incentive programs2,488 3,395 
Payments of withholding taxes related to net share settlements of restricted stock units(3,153)(3,876)
Proceeds from debt172 1,931 
Repayment of debt(1,411)(6,836)
Repurchase of common stock(8,510) 
Payment of contingent consideration for previously acquired business(4,678)(207)
Purchase of noncontrolling interest (2,146)
Other financing activities, net(226)(1,865)
Net cash used in financing activities(15,318)(9,604)
Effect of exchange rate changes on cash, cash equivalents and restricted cash14,070 (45,407)
Net increase/(decrease) in cash, cash equivalents and restricted cash68,369 (141,422)
Cash, cash equivalents and restricted cash, beginning of period1,683,636 1,449,347 
Cash, cash equivalents and restricted cash, end of period$1,752,005 $1,307,925 


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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
March 31,
2023
As of
December 31,
2022
Balance sheet classification
    Cash and cash equivalents$1,749,422 $1,681,344 
Restricted cash in Prepaid and other current assets406 430 
  Restricted cash in Other noncurrent assets2,177 1,862 
    Total restricted cash$2,583 $2,292 
        Total cash, cash equivalents and restricted cash $1,752,005 $1,683,636 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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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    
EPAM Systems, Inc. (the “Company” or “EPAM”) is a leading digital transformation services and product engineering company, providing digital platform engineering and software development services to customers located around the world, primarily in North America, Europe, and Asia. The Company’s industry expertise includes financial services, travel and consumer, software and hi-tech, business information and media, life sciences and healthcare, as well as several other industries. The Company is incorporated in Delaware with headquarters in Newtown, Pennsylvania.
Basis of Presentation — The accompanying unaudited condensed consolidated financial statements of EPAM have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP” or “U.S. GAAP”) and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. The unaudited condensed consolidated financial statements include the financial statements of EPAM Systems, Inc. and its subsidiaries with all intercompany balances and transactions eliminated.
These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022 included in its Annual Report on Form 10-K. The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates, and such differences may be material to the unaudited condensed consolidated financial statements. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire year. In management’s opinion, the accompanying unaudited condensed consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position as of March 31, 2023 and the results of its operations and its cash flows for the periods presented.
Risks and Uncertainties — As a result of its global operations, the Company may be subject to certain inherent risks.
Concentration of Credit — Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents, short-term investments and trade receivables. The Company maintains cash, cash equivalents and short-term investments with financial institutions. The Company believes its credit policies reflect normal industry terms and business risk and there is no expectation of non-performance by the counterparties.
The Company has cash in several countries, including Ukraine, Belarus and Russia, which have been impacted by the invasion of Ukraine (see Note 2 “Impact of the Invasion of Ukraine”) and 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 March 31, 2023, the Company had $68.3 million of cash and cash equivalents in banks in Ukraine, $34.0 million of cash and cash equivalents in banks in Belarus, and $27.1 million of cash and cash equivalents in banks in Russia. Cash in Ukraine and Belarus is used for the operational needs of the local entities and cash balances change with the expected operating needs of these entities. The Company regularly monitors cash held in these countries and, to the extent the cash held exceeds amounts required to support its operations in these countries, the Company distributes the excess funds into markets with more developed banking sectors to the extent it is possible to do so. Due to restrictions imposed by the Russian government, our ability to distribute excess funds from Russia to other countries is limited. On April 7, 2023, we amended and restated the agreement to sell substantially all of our remaining holdings in Russia, including cash and cash equivalents, to a third party. The timing and completion of a sale remains uncertain and any sale would be subject to customary closing conditions, including regulatory approvals by the Russian and U.S. governments. Subsequent to March 31, 2023, the required approvals from the Russian government were received to proceed with the sale. The Company places its cash and cash equivalents with financial institutions considered stable in the region, limits the amount of credit exposure with any one financial institution and conducts ongoing evaluations of the credit worthiness of the financial institutions with which it does business. However, a banking crisis, bankruptcy or insolvency of banks that process or hold the Company’s funds, or sanctions may result in the loss of deposits or adversely affect the Company’s ability to complete banking transactions, which could adversely affect the Company’s business and financial condition.

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Trade receivables are generally dispersed across many customers operating in different industries; therefore, concentration of credit risk is limited. Historically, credit losses and write-offs of trade receivables have not been material to the consolidated financial statements. If any of the Company’s customers enter bankruptcy protection or otherwise take steps to alleviate their financial distress, the Company’s credit losses and write-offs of trade receivables could increase, which would negatively impact its results of operations. See Note 2 “Impact of the Invasion of Ukraine” for further discussion regarding trade receivables and contract assets from customers located in Russia.
Foreign currency risk — The Company’s global operations are conducted predominantly in U.S. dollars. Other than U.S. dollars, the Company generates revenues in various currencies, principally, euros, British pounds, Swiss francs and Canadian dollars and incurs expenditures principally in euros, Polish zlotys, British pounds, Indian rupees, Swiss francs, Hungarian forints, Mexican pesos, Canadian dollars, Colombian pesos and Chinese yuan renminbi. The Company’s international operations expose it to risk of adverse fluctuations in foreign currency exchange rates through the remeasurement of foreign currency denominated assets and liabilities (both third-party and intercompany) and translation of earnings and cash flows into U.S. dollars. The Company has a hedging program whereby it enters into a series of foreign exchange forward contracts with durations of twelve months or less that are designated as cash flow hedges of forecasted Polish zloty, Indian rupee and Hungarian forint transactions. See Note 6, “Derivative Financial Instruments for further discussion regarding the Company’s termination of the hedging program for the Russian ruble.
Interest rate risk — The Company is exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from variable rates related to cash and cash equivalent deposits, short-term investments and the Company’s borrowings, mainly under the 2021 Credit Agreement, which is subject to a variety of rates depending on the type and timing of funds borrowed (See Note 8 “Debt”). The Company does not believe it is exposed to material direct risks associated with changes in interest rates related to these deposits, investments and borrowings.
Adoption of New Accounting Standards
There were no recently adopted accounting standards which had a material impact on the Company’s consolidated financial position, results of operations, changes in stockholders’ equity and cash flows.
Pending Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standards-setting bodies that the Company will adopt according to the various timetables the FASB specifies. The Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position, results of operations and cash flows upon adoption.
2.     IMPACT OF THE INVASION OF UKRAINE
On February 24, 2022, Russian forces attacked Ukraine and its people and EPAM has repeatedly called for an immediate end to this unlawful and unconscionable attack. As of March 31, 2023, the Company had $69.3 million of Property and equipment, net in Ukraine consisting of a building classified as construction-in-progress located in Kyiv with a net book value of $51.5 million, laptops with a net book value of $10.5 million, most of which are in the possession of employees, various office furniture, equipment and supplies with a net book value of $5.6 million, and leasehold improvements located throughout Ukraine with a net book value of $1.7 million. Additionally, as of March 31, 2023, the Company had Operating lease right-of-use assets located throughout Ukraine with a net book value of $11.0 million. Through the issuance date of these interim financial statements, the Company is not aware of any damage to its long-lived assets in Ukraine and the Company expects to continue to use these assets as part of its global delivery model.
On March 4, 2022, the Company announced a $100.0 million humanitarian commitment to support its employees and their families in and displaced from Ukraine. This humanitarian commitment is in addition to donations from EPAM's customers and employees and the work of EPAM volunteers on the ground. During the three months ended March 31, 2023 and 2022, the Company expensed $6.1 million and $25.7 million, respectively, related to this commitment, which included special cash payments to support impacted employees, financial and medical support for impacted families, travel, meals and lodging expenses, and donations to third-party humanitarian organizations. Of the expensed amount for the three months ended March 31, 2023, $2.5 million is classified in Cost of revenues (exclusive of depreciation and amortization) and $3.6 million is classified in Selling, general and administrative expense on the condensed consolidated financial statements. Of this expensed amount for the three months ended March 31, 2022, $19.2 million is classified in Cost of revenues (exclusive of depreciation and amortization) and $6.5 million is classified in Selling, general and administrative expense on the condensed consolidated financial statements. As of March 31, 2023, the Company has $49.1 million remaining to be expensed under this humanitarian commitment.
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The Company executed its business continuity plans following the invasion to assist relocating employees residing in Ukraine and the surrounding region impacted by the war and geopolitical uncertainty to other countries and to assign delivery personnel in locations outside of the region to serve in unbilled standby or backup capacities to ensure the continuity of delivery for its customers who have substantial delivery exposure to Ukraine or other delivery concerns resulting from the invasion and ongoing war. In addition to costs incurred as part of EPAM’s humanitarian commitment to Ukraine, during the three months ended March 31, 2023, the Company incurred expenses of $0.2 million related to its geographic repositioning efforts, classified as Selling, general and administrative expenses and $7.4 million related to these standby resources, classified as Cost of revenues (exclusive of depreciation and amortization). During the three months ended March 31, 2022, the Company incurred expenses of $18.7 million related to its geographic repositioning efforts, classified as Selling, general and administrative expenses and $2.6 million related to these standby resources, classified as Cost of revenues (exclusive of depreciation and amortization). During the three months ended March 31, 2022, the Company also recorded an impairment charge of $1.3 million, classified as Other income/(expense) related to a financial asset in Ukraine which the Company believed to be unrealizable due to the events in Ukraine.
In response to the attacks on Ukraine, EPAM announced on March 4, 2022, it would discontinue services to customers located in Russia. Based on this change in facts and circumstances, the long-term cash flow forecast for the Company’s operations in Russia and its Russia reporting unit were significantly reduced. The reduction in the long-term cash flow forecasts indicated that the carrying amounts of goodwill and long-lived assets associated with the Company’s Russia reporting unit and operations in Russia may not be recoverable, and the carrying value of these assets was tested for impairment. The Company relied on the income approach to estimate the fair values of the Russia reporting unit and long-lived assets and considered multiple scenarios including the continuing operation and exit of operations in Russia. Reflecting the negative long-term cash flow forecasts that each of these scenarios produced for these assets, during the three months ended March 31, 2022, the Company recorded impairments of Property and equipment, net of $15.1 million, Operating lease right-of-use assets, net of $3.8 million, and Goodwill of $0.7 million. These asset impairment charges are included in Selling, general and administrative expenses in the interim condensed consolidated financial statements for the three months ended March 31, 2022.
Additionally, the Company evaluated trade receivables and contract assets for estimated future credit losses from customers located in Russia and recorded a bad debt expense of $8.4 million, reflecting the deterioration of creditworthiness of its customers in Russia during the three months ended March 31, 2022. The Company recorded a benefit to bad debt expense of $0.4 million during the three months ended March 31, 2023, reflecting better than previously expected credit collections from customers located in Russia. Bad debt expense is included in Selling, general and administrative expenses in the condensed consolidated statements of income.
On April 7, 2023, the Company amended and restated the agreement to sell substantially all of its remaining holdings in Russia to a third party. The timing and completion of the sale is subject to customary closing conditions, including regulatory approvals by the Russian and U.S. governments. Subsequent to March 31, 2023 and prior to the issuance of these interim financial statements, the required approvals from the Russian government were received to proceed with the sale. Due to the significant uncertainty of obtaining the necessary regulatory approvals as of March 31, 2023, the Company does not believe a sale was probable to be completed as of March 31, 2023 and has not reported the assets and liabilities to be sold as held for sale in its condensed consolidated balance sheet.
As of March 31, 2023, the Company had the following assets and liabilities in Russia:
Cash and cash equivalents$26,696 
Trade receivables and contract assets, net of allowance of $4,724
4,329 
Prepaid and other current assets242 
Total assets in Russia$31,267 
Accounts payable$65 
Accrued compensation and benefits expenses5,508 
Accrued expenses and other current liabilities1,127 
Operating lease liabilities122 
Other noncurrent liabilities71 
Total liabilities in Russia$6,893 


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As of March 31, 2023, based on the Company’s expected net proceeds from sale and recognition of the accumulated currency translation loss currently included in Accumulated other comprehensive loss, the Company expects to record a loss upon the earlier of classification of the assets and liabilities to be sold as held for sale or closing of a sale. Such loss is not expected to be material based on the information available through the date of issuance of these financial statements.
Fluctuations in foreign currency exchange rates could impact the gain or loss the Company could recognize in the future. If unable to complete a sale, the Company could recognize other charges including restructuring costs.
3.ACQUISITIONS
2022 Acquisitions — During the year ended December 31, 2022, the Company completed two acquisitions with a total purchase price of $13.6 million including contingent consideration with total acquisition-date fair value of $2.6 million. These acquisitions expanded EPAM’s capabilities to deliver end-to-end solutions for designing and building sophisticated commerce platforms, provided opportunities for geographic expansion as well as added $3.4 million of intangible assets, consisting of customer relationships. Pro forma results of operations have not been presented because the effect of these acquisitions on the Company’s condensed consolidated financial statements was not material individually or in the aggregate.

4.GOODWILL
Goodwill by reportable segment was as follows:
North AmericaEuropeTotal
Balance as of January 1, 2023
$216,960 $312,112 $529,072 
2022 Acquisitions purchase accounting adjustments 87 87 
Effect of net foreign currency exchange rate changes128 4,443 4,571 
Balance as of March 31, 2023
$217,088 $316,642 $533,730 
The Russia segment had accumulated goodwill impairment losses of $2.9 million as of March 31, 2023 and December 31, 2022. There were no accumulated impairment losses in the North America or Europe reportable segments as of March 31, 2023 or December 31, 2022.

5.FAIR VALUE MEASUREMENTS
The Company carries certain assets and liabilities at fair value on a recurring basis on its condensed consolidated balance sheets. The following tables present the fair values of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:
As of March 31, 2023
BalanceLevel 1Level 2Level 3
Foreign exchange derivative assets$16,224 $ $16,224 $ 
Rights to acquire noncontrolling interest in consolidated subsidiaries$322 $ $ $322 
Total assets measured at fair value on a recurring basis$16,546 $ $16,224 $322 
Foreign exchange derivative liabilities$131 $ $131 $ 
Contingent consideration19,214   19,214 
Total liabilities measured at fair value on a recurring basis
$19,345 $ $131 $19,214 
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As of December 31, 2022
BalanceLevel 1Level 2Level 3
Foreign exchange derivative assets$12,191 $ $12,191 $ 
Rights to acquire noncontrolling interest in consolidated subsidiaries334   334 
Total assets measured at fair value on a recurring basis$12,525 $ $12,191 $334 
Foreign exchange derivative liabilities$9,350 $ $9,350 $ 
Contingent consideration24,308   24,308 
Total liabilities measured at fair value on a recurring basis
$33,658 $ $9,350 $24,308 
The foreign exchange derivatives are valued using pricing models and discounted cash flow methodologies based on observable foreign exchange data at the measurement date. See Note 6 “Derivative Financial Instruments” in the condensed consolidated interim financial statements for additional information regarding derivative financial instruments.
The fair value of the contingent consideration was determined using a probability-weighted expected return method and is based on the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. Although there is significant judgment involved, the Company believes its estimates and assumptions are reasonable. In determining fair value, the Company considered a variety of factors, including future performance of the acquired businesses using financial projections developed by the Company and market risk assumptions that were derived for revenue growth and earnings before interest and taxes. The Company estimated future payments using the earnout formula and performance targets specified in the purchase agreements and adjusted those estimates to reflect the probability of their achievement. Those weighted-average estimated future payments were then discounted to present value using a rate based on the weighted-average cost of capital of guideline companies. The discount rates used to determine the fair value of contingent consideration both as of March 31, 2023 and December 31, 2022, were at a maximum of 20.0%, if a rate was applied. Changes in financial projections, market risk assumptions, discount rates or probability assumptions related to achieving the various earnout criteria would result in a change in the fair value of the recorded contingent liabilities. Such changes, if any, are recorded within Interest and other income/(loss), net in the Company’s condensed consolidated statement of income.
A reconciliation of the beginning and ending balances of Level 3 contingent consideration using significant unobservable inputs for the three months ended March 31, 2023 is as follows:
Amount
Contingent consideration as of January 1, 2023
$24,308 
Changes in fair value of contingent consideration included in Interest and other income/(loss), net297 
Payment of contingent consideration for previously acquired businesses(5,520)
Effect of foreign currency exchange rate changes, net129 
Contingent consideration as of March 31, 2023
$19,214 
Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
Estimates of fair value of financial instruments not carried at fair value on a recurring basis on the Company’s condensed consolidated balance sheets are generally subjective in nature and are determined as of a specific point in time based on the characteristics of the financial instruments and relevant market information. The generally short maturities of certain assets and liabilities result in a number of assets and liabilities for which fair value equals or closely approximates the amount recorded on the Company’s condensed consolidated balance sheets. The following tables present the estimated fair values of the Company’s financial assets and liabilities not measured at fair value on a recurring basis as of the dates indicated:
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Fair Value Hierarchy
BalanceEstimated Fair ValueLevel 1Level 2Level 3
March 31, 2023
Financial Assets:
Cash equivalents:
Money market funds$143,684 $143,684 $143,684 $ $ 
Time deposits$80,157 $80,157 $80,157 $ $ 
Total cash equivalents$223,841 $223,841 $223,841 $ $ 
Restricted cash$2,583 $2,583 $2,583 $ $ 
Time deposits included in Short-term investments$60,373 $60,373 $ $60,373 $ 
Financial Liabilities:
Borrowings under the 2021 Credit Agreement$25,000 $25,000 $ $25,000 $ 
Deferred consideration for asset acquisition$54,115 $54,115 $ $54,115 $ 
Fair Value Hierarchy
BalanceEstimated Fair ValueLevel 1Level 2Level 3
December 31, 2022
Financial Assets:
Cash equivalents:
Money market funds$312,321 $312,321 $312,321 $ $ 
Total cash equivalents$312,321 $312,321 $312,321 $ $ 
Restricted cash$2,292 $2,292 $2,292 $ $ 
Time deposits included in Short-term investments$60,336 $60,336 $ $60,336 $ 
Financial Liabilities:
Short-term debt$2,861 $2,861 $ $2,861 $ 
Borrowings under the 2021 Credit Agreement$25,000 $25,000 $ $25,000 $ 
Other long-term debt$2,693 $2,693 $ $2,693 $ 
Deferred consideration for asset acquisition$53,636 $53,636 $ $53,636 $ 
During the year ended December 31, 2022, the Company completed an asset acquisition of software licenses for use in the regular course of business for a purchase price of $66.1 million, which included an upfront payment of $13.3 million and fixed deferred consideration, payable in annual installments, with an acquisition-date fair value of $52.8 million. To estimate fair value, the future payments were discounted to present value using a discount rate based on the estimated borrowing rate of the Company. The weighted average discount rate used to determine the acquisition-date fair value was 5.20%. See Note 13 “Commitments and Contingencies” for more information regarding the deferred consideration.
Non-Marketable Securities Without Readily Determinable Fair Values
The Company holds investments in equity securities that do not have readily determinable fair values. These investments are recorded at cost and are remeasured to fair value based on certain observable price changes or impairment events as they occur. The carrying amount of these investments was $30.3 million and $28.4 million as of March 31, 2023 and December 31, 2022, respectively, and is classified as Other noncurrent assets in the Company’s condensed consolidated balance sheets.


6.DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company uses derivative financial instruments to manage the risk of fluctuations in foreign currency exchange rates. The Company has a hedging program whereby it enters into a series of foreign exchange forward contracts with durations of twelve months or less that are designated as cash flow hedges of forecasted Polish zloty, Hungarian forint and Indian rupee transactions.
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During the three months ended March 31, 2022, in response to the invasion of Ukraine, the Company de-designated its Russian ruble foreign exchange forward contracts as hedges and entered into offsetting foreign exchange forward contracts with the same counterparty. The Company determined it was probable the underlying forecasted foreign currency transactions which were hedged would not occur and reclassified the accumulated loss of $43.9 million on the underlying hedges into income which is classified as foreign exchange loss in the condensed consolidated statement of income. As of March 31, 2023, all of the Company’s Russian ruble foreign exchange forwards contracts had settled.
As of March 31, 2023, all of the Company’s foreign exchange forward contracts were designated as hedges and there is no financial collateral (including cash collateral) required to be posted by the Company related to the foreign exchange forward contracts.
The fair value of derivative instruments on the Company’s condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 were as follows:
As of March 31, 2023As of December 31, 2022
Balance Sheet ClassificationAsset DerivativesLiability DerivativesAsset DerivativesLiability Derivatives
Foreign exchange forward contracts -
Designated as hedging instruments
Prepaid expenses and other current assets$16,224 $12,191 
Accrued expenses and other current liabilities$131 $1,445 
Foreign exchange forward contracts -
Not designated as hedging instruments
Accrued expenses and other current liabilities$ $7,905 

7.LEASES
The Company leases office space, corporate apartments, office equipment, and vehicles. Many of the Company’s leases contain variable payments including changes in base rent and charges for common area maintenance or other miscellaneous expenses. Due to this variability, the cash flows associated with these variable payments are not included in the minimum lease payments used in determining the right-of-use assets and associated lease liabilities and are recognized in the period in which the obligation for such payments is incurred. The Company’s leases have remaining lease terms ranging from 0.1 to 8.8 years. Certain lease agreements, mainly for office space, include options to extend or terminate the lease before the expiration date. The Company considers such options when determining the lease term when it is reasonably certain that the Company will exercise that option. The Company leases and subleases a portion of its office space to third parties. Lease income and sublease income were immaterial for the three months ended March 31, 2023 and 2022. See Note 2 “Impact of the Invasion of Ukraine” for discussion of impairment of right-of-use assets in Russia.
During the three months ended March 31, 2023 and 2022, the components of lease expense were as follows:
 Three Months Ended
March 31,
Income Statement Classification20232022
Operating lease costSelling, general and administrative expenses$11,183 $15,884 
Variable lease costSelling, general and administrative expenses3,648 3,187 
Short-term lease costSelling, general and administrative expenses2,656 1,039 
Total lease cost$17,487 $20,110 
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Supplemental cash flow information related to leases for the three months ended March 31, 2023 and 2022 was as follows:
Three Months Ended
March 31,
 20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases$11,719 $14,803 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$3,349 $19,484 
Non-cash net increase/(decrease) due to lease modifications:
Operating lease right-of-use assets$1,383 $(7,428)
Operating lease liabilities$1,114 $(7,434)
Weighted average remaining lease term and discount rate as of March 31, 2023 and 2022 were as follows: