EPAM 10-K & 10-Q changes, risk factors and insider trading

Volatile, negative, and uncertain global macroeconomic and geopolitical conditions have and could continue to reduce confidence in our business and our delivery model and in the businesses and markets served by our clients. TheMarkets that are important markets for both our clients and our delivery operations are increasingly interdependentinterdependent. and uncertaintyUncertainty about the outcome of changing economic and geopolitical conditions in those markets has caused, and could continue to causecause, our clients to reduce or defer their spending on new initiatives andinitiatives, technologies, resulting in clients reducing, delaying or eliminating spendingand on our servicesservices, which negatively affects our business.

Civil, military, energypolitical, supplyenergy, and politicalmacroeconomic uncertainty exists and may increase in many of the global regions where we operate and where we derive our revenues and macroeconomic forces largely have global effects with varying intensity across the different regions where we and our clients operate.revenues. Our ability to counter or attenuate the negative impacts of such global macroeconomic forces on our business is limited. With respect to geopolitical instability, we have developed business continuity plans that are designed to ensure that we have adequate processes and practices in place to protect the safety of our people and to handlerespond to foreseeable impacts on our delivery capabilities, but our crisis management procedures, business continuity plans, and disaster recovery capabilities may not be effective at preventing or mitigating the effects of prolonged, unanticipated, or multiple crises, such as civil unrest, energy instability and a pandemic in multiple geographies whereat wethe orsame our clients operate.time. Increased operations, service delivery, and hiring in existing or new geographies to counter geopolitical instability in or near our delivery operations, including in more developed economies, has and is likely to continue to increase our expenses, especially compensation expenses for technology professionals in those geographies, which could reduce the profitability of our business.

Disruptions in the regions where we operate have and could continue to pose security risks to our people, our facilities, our operations, and the infrastructure we use. Further disruption could materially adversely affect our operations and financial results, cause additional volatility in the price of our stock, and reduce our profitability. In any of the countries in which we operate,If prolonged civil unrest, political instability or uncertainty, military activities, or broad-based sanctions or counter-sanctions, should theycounter-sanctions continue for the long-term or escalate,escalate couldin requireany usof the countries in which we operate, we would need to further rebalance our geographic concentrationsconcentrations, andwhich could have a material adverse effect on our personnel, operations, financial results and business outlook.

We have no way to predict the progress or outcome of the war in UkraineUkraine, any cease fire or itsother end to active fighting, or their impacts in Belarus or the region because the conflict and government reactions are rapidly changing and beyond our control. If the military conflict, sanctions, and counter-sanctions in Ukraine, Belarus, and the surrounding region continue for the long-term or escalate, we could be required to further rebalance our geographic concentrations and it could have a material adverse effect on our personnel, operations, financial results and business outlook.

We have experienced uneven growth,growth and decline, expansion, and geographic shifts, and periods of declineshifts in our business over the past several years. Our growth and expansion have been both organic and through strategic acquisitions and investments and has resulted in part from managing larger and more complex projects for our clients.clients and clients seeking to incorporate new technologies, such as AI, into their businesses. Consequently, we have and may continue to invest substantial amounts of cash in human capitalcapital, technology, and the infrastructure to support these projects, including training, administration, and opening facilities in existing and new geographies. Our growth has significantly slowed at times, particularly during 2023 and the first half of 2024, due to reduced client demand resulting primarily from uncertain macroeconomic conditions. Rapid growth followed by decreased demand placed significant strain on our management and our administrative, operational and financial infrastructure, and created and may continue to create challenges, including:

•balancing an increase in the number of experienced personnel that have correspondingly higher billing rates due to promotions against hiring, training, and deploying less experienced personnel at the lower rates sought by clients;

•planning and maintaining resource utilization rates consistently and efficiently using on-site, off-site, near shore, and offshore staffing across our geographic mix of resources;

If clients do not choose us for large and complex projects or we do not effectively manage those projects, our reputation may be damaged and we will not realize our business and financial goals that support new investments and infrastructure projects. We have and will continue to invest in new lines of business, such as software development education, AI and generative AI, expanded consulting services, and in new geographies. As we introduce new services, enter into new markets and new client relationships, and take on increasingly large and complex projects, our business will face new risks and challenges. Expansion into direct-to-consumer offerings in the highly regulated education industry and joint venture relationships with our clients could result in increased liability, start-up, and compliance costs. If the challenges associated with expansion and new investments negatively impact our anticipated growth and margins, our business, prospects, financial condition and results of operations could be materially adversely affected.

Identifying, recruiting, hiring and retaining professionals with skill sets that meet our existing and anticipated demand across our business is critical to maintaining existing engagements and obtaining new business but has become more challenging in changing economic and labor climates. If we are unable to recruit professionals with the skills required by our business and if we do not productively deploy our professionals, infrastructure, and fixed-cost resources productively, our profitability will be significantly impacted. Additionally, if we are unable to effectively train existing personnel to develop new skills and adequately maintain existing skills, our ability to win new work and successfullyimplement completenew existingtechnologies in client projects may be impaired. We must manage the utilization levels of our professionals by effectively planning for future needs and staffing projects appropriately while accurately predicting the general economy, the geographies and locations where our personnel arewill be needed, and our clients’ need for our services. If we are unable to attract, hire, train, and retain highly skilled personnel and productively deploy them on client projects, we will jeopardize our ability to meet our clients’ expectations and develop current and future business, which could adversely affect our financial condition and results of operations.

Competition for highly skilled professionals and wage expectations is intense in the markets where we operate or plan to operate, and we may experience significant employee turnover rates or recruiting challenges due to such competition. If we are unable to retain professionals with specialized skills,skills and deploy those professionals at profitable rates that our clients are willing to pay, our revenues, operating efficiency and profitability will decrease, as will our ability to meet emerging technological challenges.developments. Cost reductions, such as reducing headcount or voluntary departures that result from our failure to retain the professionals we hire, negatively affect our reputation as an employer and our ability to hire personnel to meet our business requirements. We may be unable to obtainincrease pricethe increasesprices in-linethat our clients are willing to pay at a rate that is commensurate with the increasing compensation levels we need to pay to retain our existing personnel and hire new personnel, which may also have an adverse impact on our profitability.

In several countries, some of our personnel or the personnel of companies that we acquired are retained as independent contractors. Determining whether an individual is considered an independent contractor or an employee is typically fact sensitive, varies by jurisdiction, and is subject to change and interpretation. If a government authority changes the applicable laws or a court makes an adverse determination with respect to independent contractors in general or our independent contractors specifically, we could incur significant costs, including for prior periods, related to 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 of attracting and retaining personnel.

Our 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, they may take clients, suppliers, know-how and our personnel with them.them despite contractual prohibitions on such activity. Enforcing or attempting to enforce restrictive employment covenants can require significant costs and resources and is not always successful. 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. Although we regularly perform succession planning efforts and create contingencies addressing the risks of losing senior executives and other key personnel, those efforts may be ineffective when or if they are deployed.

Strategic acquisitions involve significant risks but remain a key part of our growth strategy. 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, businesses, company cultures, client relationships, or operations, and we may not discover significant liabilities in our due diligence or valuation processes. In addition, we may need to implement controls, processes, and policies in our acquired companies so they are consistent and appropriate with the requirements of a multi-national public company especially in areas such as financial reporting, cybersecurity, IT, and privacyprivacy, and may rely on transition services from the sellers until we are able to implement those controls, processes, and policies. Furthermore, our acquired companies’ contracts with their clients sometimes lack terms and conditions that adequately protect us against the risks associated with the services we provide, and our acquired companies’ legacy business operations can expose us to potential liability. Acquisitions also divert significant management attention and financial resources from our ongoing business. If not effectively managed, the disruption to our ongoing business increases our expenses, including significant one-time expenses and costs related to unknown liabilities, including tax, litigation, cybersecurity, and commercial risks, and creates difficulty and complexity when integrating acquired operations that can adversely affect our overall growth and profitability.

Wages for technology professionals in the emerging markets where we have significant operations and delivery centers are typically lower than comparable wages in more developed countries. However, wages in general, and in the technology industry in emerging markets in particular, have increased and will make us less competitive if we are not able to increase the efficiency and productivity of our people. Wage inflation, whether driven by competition for talent, ordinary course pay increases, prevailing wages in a specific geography, or broader market forces, all increase our cost of providing services and reduce our profitability when we are not able to pass those costs on to our clients or adjust prices when justified by market demand. In addition, there are significant expenses associated with issuing equity under our stock-based compensation,compensation programs, and changes to our equity compensation practices and programs can affect our ability to attract and retain talent.

We have significant operations in emerging market economies in Central and Eastern Europe, Latin and South America, India, Western Asia, and certain other Asian countries, all of which are more vulnerable to market and economic volatility than larger and more developed markets and present 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 outside of those geographies, including in many 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.”

We have cash in banks in countries such as Belarus, Ukraine, Kazakhstan, Georgia, Armenia, India, Argentina, 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, sanctions, and changes in regulations that complicate business transactions. Some of the countries where we operate have sanctioned certain of the banks that we use in the emerging market economies where we also have operations,economies, which has delayed our intercompany payments and payments to vendors and could delay or prevent receipts from clients. Further elongation or escalation of the military conflict in Ukraine could contribute to a banking crisis in Ukraine, Belarus, or the region. A banking crisis, or the bankruptcy or insolvency of one or more of our banks 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 and some banks that we use have imposed regulatory or practical restrictions on the movement of cash and the exchange of foreign currencies within their banking systems or to other banking systems, which limits or could eliminate our ability to distribute cash from those countries across our global operations and increases our exposure to currency fluctuations and regional banking instability. 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.

If we are unable to compete successfully against competitors,others in our industry, 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, especially as we and our competitors develop generative AI capabilities and specialties. We face competition from offshore IT services providers in other outsourcing destinations with low wage costs, as well as competition from large, global consulting and outsourcing firms and in-house IT departments of large corporations. Clients tend to engage multiple IT services providers instead of using an exclusive IT services provider, which reduceslimits our revenues and market share and places downward pressure on pricing among competing IT services providers. Clients may prefer service providers that have more locations, more personnel, more experience in a particular countrycountry, market, or market,technology, 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.

Expectations from our clients, investors, employees, and regulators regarding our environmental, social, and governance, or ESG, strategy and commitments continue to evolve. As investor policy and sentiment changes, and regulations and legislation related to ESG disclosure and climate change initiatives are adopted or suspended regionally and globally, our compliance obligations may not be aligned with investor, political, or legal support for ESG investments, programs, and disclosure. Failure to invest in and comply with ESG initiatives and regulations could limit our access to certain markets, result in fines, or cause reputational harm, and commitment to ESG policies and programs could similarly harm our business and reputation with investors, clients, and the public.public and subject us to legal liability. Changes and differences in policy and laws in the various jurisdictions where we operate may require inconsistent disclosures and commitments thatacross wethose are not able to meet,jurisdictions, and regulations, treaties or initiatives related to climate change could result in increased operational costs associated with environmental regulations and increased compliance and energy costs, each of which could harm our business and results of operations by increasing our expenses or requiring us to alter our operations. Our processes and controls may not always comply with evolving standards for identifying, measuring, and reporting ESG metrics, including ESG-related disclosures that may be required or expected by regulation or industry norms, and such standards may change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in the future. Additionally, if we are unable to meet our ESG goals and objectives, we could also face scrutiny from certain constituencies related to the scope and nature of those goals or any revisions to those goals, and we may suffer reputational harm with investors, our clients, and current or potential employees.

In Belarus, we are a member of High-Technologies Park which provides for a full exemption from Belarus income and value added taxes until 2049 and reduced tax amounts on obligatory social contributions and other taxes. Poland provides a tax incentive for research and development that allows us to take enhanced deductions for specific costs for employees working on research and development projects. If the tax policies in Belarus, Poland, or other countries where we operate are changed, terminated, or 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.”

Changes in generalGeneral economic or political conditions in the U. S.U.S. could adversely affect our business. U.S. policy with respect to a variety of issues, including AI, international trade agreements, conducting business offshore, inflation mitigation, interest rates, climate change, import and export regulations, tariffs and customs duties, foreign relations, immigration laws andlaws, travel restrictions, antitrust controls and enforcement, financial reporting, and corporate governance laws, could have a positive or negative impact on our business. The U.S. administration has announced plans to levylevied tariffs, imposed economic sanctions, and created other restrictions on trade with the countries where we employ professionals and conduct significant operations and may also levyinstitute restrictionsadditional impediments to global trade with little or no warning.

The majority of our professionals are offshore. Companies that outsource services to organizationssubsidiaries or third parties operating in other countries remain a topic of political discussion in many countries, including the U. S.,U.S., which is our largest source of revenues. The U.S. administration periodically proposes and enacts rules that could impose restrictions onrestrict offshore outsourcing and ondiscourage ouremploying abilitynon-U.S. toresidents deployin employeesthe holding U.S. work visas to client locations,U.S., both of which could adversely impact our business. Such measures could broadenBroadened restrictions on outsourcing by federal and state government agencies and contracts and impactagencies, private industry with tax disincentives, including excise taxes on payments to foreign subsidiaries and personnel, intellectual property transfer restrictions, and restrictions on the use or availability of certain work visas.visas could have a negative effect on our business.

Some of our projects require our personnel to obtain visas to travel and work at client sites outside of our personnel’s home countries and often in the U.S.countries. Our reliance on visas to staff projects with employees who are not citizens of the country where the work is performed makes us vulnerable to changes in the number of visas to be issued in any particular year and other work permit laws and regulations. Obtaining the required visas and work permits canfor bethe U.S. has become more lengthy and difficultdifficult. due to politicalPolitical forces and economic conditions limiting the number of permitted applications and application and enforcement processes may cause additional delays or rejections when trying to obtain visas. Delays in obtaining visas or other work authorizations may delay the ability of our personnel to travel to meet with and provide services to our clients 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 clients 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 U. S.U.S. and other countries in which we operate, including export restrictions, economic sanctions, and anti-bribery and 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 domestic and 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 anti-bribery and anti-corruption laws, all of which prohibit companies and their intermediaries from making bribes 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.

Any violations of these or other laws and regulations by our employees, independent contractors, subcontractors and agents, including third parties with which we associate or companies we acquire, could expose us to administrative, civil or criminal penalties, and fines or business restrictions, each of 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.

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

Termination, non-renewal, or renegotiation of a client contract or delayed starts to projects 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.headcount to paying client projects. Clients that delay payment, request modified payment arrangements, or fail to meet their payment obligations increase our cash collection time, cause us to incur bad debt expense, and cause us to incur collection expenses. The loss of any of our major clients, a significant decrease in the volume of work they outsource to us or the 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.

A substantial portionmajority of our clients are concentrated in five industry verticals: Financial Services; Software & Hi-Tech; Business Information & Media; Consumer Goods, Retail & Travel; and Life Sciences & Healthcare. Our business growth largely depends on continued demand for our services from clients in these five industry verticals and other industries that we target now or in the future and also depends on trends in these industries to outsource the 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. Some of our clients have experienced lay-offs, volatile stock prices, higher borrowing costs, and lower consumer spending on products and services which has resulted in reduced spending on our and other outsourced services. 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 clients 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 shift client demand to new services, solutions or technology, such as generativeAI-enabled AI.business processes. If our clients demand new services, solutions or technologies, we may be less competitive in these new areas if we do not 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 clients 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.unprofitable or we may not meet our profitability projections.

We face a number of risks when pricing our contracts with our clients. Our pricing is highly dependent on our internal forecasts, assumptions and predictions about our clients and their projects, the marketplace, global economic conditions (including foreign exchange volatility and inflation) 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 client 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 client slows or stops that project, we may not be able to reallocate resources to other clients. Our pricing and cost estimates 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 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 contractscontracts, product licensing, and in contracts that require our client to receive a productivity benefit as a result of the services performed under the contract. Our industry is adopting, and our clients are expecting, new pricing models, especially as AI tools evolve and are integrated into business processes. If we use unproven pricing models or are unable to successfully convince clients of the value of our AI tools and expertise, we increase the risk that we could underprice a client project and the project could become less profitable than we expected or even unprofitable. If we do not adopt new pricing models, our competitors that are willing to risk trying new models may take market share from us. If we fail to accurately estimate the resources, time or quality levels required to complete such engagements, or if the cost 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.

We have a long selling cycle for our services. Before potential clients commit to use our services, we must 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 clients’ decision to select another service provider or use in-house resources to perform the services, the timing of our clients’ budget cycles, and client 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 clients.

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 client needs. Developing solutions for our clients is extremely complex and is expected to become increasingly complex and expensive in the future due to the introduction of AI, 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:

Errors made by our professionals when delivering services or failures to meet our contractual obligations are disruptive to the client’s business and can expose confidential or personally identifiable information to third parties. These events have resulted and could in the future result in a reduction in our revenues, damage to our reputation, and in clients terminating our engagement and making claims for substantial damages against us. Some of our client agreements do not limit our potential liability for occurrences such as breaches of confidentiality and intellectual property infringement, and we cannot generally limit the liability to third parties with which we do not have a contractual relationship. In some cases, breaches of confidentiality obligations, including obligations to protectprotecting personally identifiable information, may entitle the aggrieved party to seek 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.face. Damage claims brought against us, claims that we initiate due to the disruption of our business, information security systems, litigation, or natural disasters, and claims from reputational damage resulting from inaccurate allegations or reporting 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, even if unsuccessful or insured, could materially adversely affect our reputation, business, financial condition, stock price, and results of operations.

Our service model relies on maintaining active and stable utility connections, voice and data communications, online resource management, financial and operational record management, and our client service and data processing systems between ourat client sites, our delivery centerscenters, and our client management locations. Our business activities may be materially disrupted in the event of a partial or complete failure of any of these technologies or systems, which could be due to software malfunction, cybersecurity attacks, conversion errors due to system upgrades, damage from fire, earthquake, power loss, military action, telecommunications failure, unauthorized entry, government shutdowns, demands placed on internet or electrical infrastructure by 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 multiple or catastrophic events. Loss of all or part of the infrastructure or systems could hinder our performance or our ability to complete client projects on time which, in turn, could reduce our revenues or otherwise materially adversely affect our business and business reputation.

We may face intellectualIntellectual property infringement claims that could beare 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,rights - including patents, copyrights, trade secrets and trademarks,trademarks of- belonging to third parties. We have been subject to intellectual property infringement claims alleging that we used third partythird-party trademarks or copyrighted materials without permission. If those intellectual property rights were relevant to our service offerings, we would need to license those rights or we would be prevented from using the allegedly infringing intellectual property in our business.

We typically indemnify clients who purchase our products, services and solutions against potential infringement of third-party intellectual property rights,infringement claims, which subjects us to the risk and cost of defending the underlying infringement claims.litigation. These claims require us to initiate or defend litigationlegal action on behalf of our clients, regardless of the merits of these claims, and our indemnification obligations are sometimes not subject to liability limits or exclusion of consequential, indirect or punitive damages. Intellectual property litigation diverts our management’s attention from our business and existing or potential clients 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 clients, redesign or cease offering our allegedly infringing products, services, or solutions, or obtain licenses for the allegedly infringing intellectual property. If we cannot obtain licenses on commercially reasonable terms, our clients may be forced to stop using our services or solutions.

InThe addition,existence, the existenceownership, and ownershipuse of intellectual property rights created by generativeusing AI technologies is currently subject to judicial and legislative review, and many jurisdictions do not recognize the existence of any protectable intellectual property rights in materials created by generativeAI. AI.In addition, a number of traditional media and artistic organizations have sued AI software developers, alleging that the AI training processes and models infringe the copyright of the underlying training materials. If we are unable to meet our clients’ expectations relating toregarding the ownership of the intellectual property underlying software deliverables, or those deliverables are subject to third-party infringement claims or licensing fees, we may face legal liability.liability and increased costs. We believe AI software developers occasionally indemnify their licensees against intellectual property claims, but we think it is unlikely such indemnification obligations would cover our potential damages, if any.

Our employees, contractors, vendors, software and hardware suppliers, and other third parties in our information security supply chain, as well as sophisticated individual or collective groups 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 to obtain information or gain access to our or our clients’ or vendors’ data, exploiting remote working connectivity and security susceptibilities, using AI to enhance, automate, and scale cyberattacks, and executing coordinated attacks to compromise our services, disrupt our operations, damage our reputation, or gain access to our communications, networks and data centers.

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, corrupted, lost or stolen. Such a breach, misappropriation, or disruption, or the perception that we have been breached or are vulnerable to a breach, disrupts our operations and the services we provide to clients, and any actual, alleged, or perceived breach of network or information security that we suffer damagescauses damage to our reputation, causes a loss of confidence in our products and services, and requires us to expend significant resources, which may not be covered by insurance, to protect against further allegations and 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, regulatory penalties or enforcement actions, and could adversely affect our reputation, business, revenues and competitive position.

To defend against information security threats internally, at our third-party providers, and on our clients’ 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 clients. Some of our clients seek additional assurances for the protection of their sensitive information, including personally identifiable information, and attempt to hold us liable, through contractual indemnification clauses or directly, for any losses or damages related to the disclosure of their sensitive information. At times and to achieve commercial objectives, we agree to greater liability exposure to such clients. In addition, government regulators have introduced new cybersecurity regulation frameworks and have sought and may continue to seek to impose fines, penalties, and other civil or criminal consequences for real or suspected security breaches and perceived inadequate information security or disclosures. Our clients, 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. Other parties, such as our clients’ customers, who have a private right of action, will seekclaimed damages against our clients for any information security or privacy breachbreaches on an individual or collective basis, and our clients have in the past, and may in the future, request to be indemnified against such claims. We must also educate our employees, contractors, and clients about the need to effectively use security measures.

The cost of information security measures, either to protect our information or the information of our clients, and the cost of complying with privacy and information security disclosure regulations, reduces our profitability. Actual or perceived security vulnerabilities in our software and services, even if those vulnerabilities are the result of hardwarethird-party hardware, software, or softwaresecurity developed by third parties,lapses, harm our reputation and lead clients to use our competitors, reduce or delay future purchases of our services, or seek compensation or damages.

EPAM is subject to the GDPR, the substantially similar U.K. GDPR, the privacy laws of California and other U.S. states, India’s Digital Personal Data Protection Act, and the privacy laws of the other countries where we operate, each of which imposes significant restrictions and requirements relating to the processing of personal data and can include significant financial penalties for non-compliance. These and other state, national and international data protection laws arerequire moresignificant burdensomecompliance thaneffort historicaland privacy standards, especially in the U.S.expense. California’s privacy laws, the U.K. GDPR, GDPR, and GDPRIndia’s Digital Personal Data Protection Act each establishedestablish complex legal obligations which 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. Recent developmentsDevelopments in privacy regulations, including the EU-U.S. Trans-Atlantic Data Privacy Framework, that are designed to secure the transfer of data from the EU to the U.S., have created significant regulatory uncertainty for businesses transferring data globally. This uncertainty results in increased compliance costs and increases the risk of regulatory enforcement actions which can result in significant financial penalties, private lawsuits, reputational damage, blockage of international data transfers, disruption to business, and loss of clients.

Enforcement actions taken by data protection authorities, as well as audits, investigations, or lawsuits by one or more individuals, organizations, or foreign government agencies have resulted in penalties and fines for non-compliance or claims against us seeking damages as a result of a breach of these regulations. The burden of complying with additional data protection requirements results in significant additional costs and complexity and risk in our services as clients attempt to shift the risks of data privacy legislationlaws to us. We are required to establish processes and change certain operations in relation to the processing of personal data as a result of privacy laws, which involves substantial expense and distraction from other aspects of our business.

We continue to monitor and respond to the difficult conditions in Ukraine while maintaining a focus on our clients and long-term growth. We execute on our business continuity plans and our global delivery centers have sufficient resources, including infrastructure and capital, to support ongoing operations while continuing to focus on the safety and security of our employees and their families in Ukraine as well as in the broader region. The implementation and execution of our business continuity plans, relocation costs, our humanitarian commitment to our people in Ukraine, and other costs related to the cost of our phased exit from Russiawar resulted in materially increased expenses. Some of these expenses continued during this year and we expect some of these expenses will continue to occur in subsequent quarters for some time in the future. The information contained in this section is accurate as of the date hereof but may become outdated due to changing circumstances beyond our control or present awareness.

For additional information on the various risks posed by the attack against Ukraine and the impact in the region as well as other disruptorsrisks to our business, please read “Part I. Item 1A. Risk Factors” included in this Annual Report on Form 10-K.

Revenues — We recognize revenues when control of goods or services is passed to a client in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Such control mayis begenerally transferred over time or at a point in time dependingbased 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 clients by combining software engineering with customer experience design, business consultingconsulting, strategy, and technology innovation services.services in areas such as cloud platforms, cybersecurity and artificial intelligence. 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-materialtime-and-materials contracts, which are billed using hourly, daily or monthly rates to determine the amounts to be charged directly to the client. We apply a practical expedient and revenues related to time-and-materialtime-and-materials contracts are recognized based on the right to invoice for services performed.

(21) Includes $86,353, $78,933$86,252 and $52,439$80,944 of stock-based compensation expense for the years ended December 31, 2024, 20232025 and 2022,2024, respectively.

We continue to diversify our presence across multiple geographies and verticals, both organically and through strategic acquisitions. During the year ended December 31, 2024,2025, our total revenues increased 0.8%15.4% from the previous year to $4.728$5.457 billion. Revenues havefrom beenthe positivelyfirst impactedtwelve months following each acquisition that was made in the fourth quarter of 2024, increased our revenues by stabilizing demand for our services9.2% and fluctuations in foreign currency exchange rates which increased our revenue growthrevenues by 0.1%1.3% during the year ended December 31, 20242025 as compared to the previous year, partially offset by the sale of our remaining holdings in Russia in the third quarter of 2023. Revenues have also been positively impacted by our acquisitions of NEORIS and First Derivative, which in aggregate contributed $65.9 million to our revenues in 2024.year. During the year ended December 31, 2024,2025, we experienced a decrease in client concentration in our top client groups as a percentage of total revenues as compared to the previous year.

We discuss below the breakdown of our revenues by vertical, client location, serviceclient arrangement type,concentration, and clientservice concentration.offering.

We assign our clients 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.” Emerging Verticals include clients in multiple industries such as energy, utilities,manufacturing manufacturing,and automotive, industrial materials, automotive, telecommunications and several others.

Our revenues are sourced from multiple countries, which we assign into fourthree geographic markets identified as Americas, EMEA, APAC, and CEE. As a result of the Company’s exit from Russia and sale of the Company’s remaining holdings in Russia to a third-party on July 26, 2023, revenues from the CEE region became no longer material. Starting in 2024, revenues from the CEE region are included in the EMEA region.APAC. We present and discuss our revenues by client location based on the location of the specific client site that we serve, irrespective of the location of the headquarters of the client or the location of the delivery center where the work is performed. Revenues by client location differ 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 clients, but rather they are based on the location of the Company’s management responsible for a particular client.

During the year ended December 31, 2024,2025, revenues in the Americas, our largest geography, were $2.835$3.201 billion, growing $92.0$366.2 million, or 3.4%,12.9%, from $2.743$2.835 billion reported for the year ended December 31, 2023.2024. RevenuesThe increase during the year ended December 31, 2025 compared to 2024, was primarily due to the acquisitions of NEORIS and First Derivative in thisthe geographyfourth benefitedquarter of 2024 and increased demand from acquisitionsour whichexisting contributedclients $95.9across millionvarious to revenue growth in 2024.industries. Revenues from the Americas accounted for 60.0%58.7% of total revenues in 2024,2025, ana increasedecrease from 58.4%60.0% in the prior year. The United States continued to be our largest client location contributing revenues of $2.834 billion in 2025 compared to $2.680 billion in 2024 compared to $2.634 billion in 2023.2024.

Revenues in our EMEA geography were $1.793$2.147 billion, aan decreaseincrease of $29.6$354.1 million, or 1.6%,19.7%, from $1.823$1.793 billion in the previous year. RevenuesThe increase during the year ended December 31, 2025 compared to 2024, was primarily due to the acquisitions of NEORIS and First Derivative in thisthe geographyfourth benefitedquarter of 2024 and increased demand from acquisitionsour whichexisting contributedclients $28.3across millionvarious to revenue growth in 2024.industries. Revenues from EMEA accounted for 37.9%39.3% of consolidated revenues in 20242025 as compared to 38.9%37.9% in the previous year. The top three revenue contributing client location countries in EMEA were the United Kingdom, Switzerland and GermanyGermany, generating revenues of $597.3 million, $438.5 million and $233.4 million in 2025, respectively, compared to $523.4 million, $407.8 million and $206.1 million in 2024, respectively, compared to $585.2 million, $367.1 million and $178.5 million in 2023, respectively.

Revenues from clients in locations in our APAC region increased 8.8% from the prior year and comprised 2.1%2.0% of total revenues in 2024, a decrease from 2.2% in the prior year.2025.

Our service arrangements have been evolving to provide more customized and integrated solutions to our clients where we combine software engineering with customer experience design, business consulting and technology innovation services in areas such as cloud platforms, cybersecurity and artificial intelligence. We are continually expanding our service capabilities, moving beyond traditional services into businessstrategy consulting, design and physical product development.

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 client projects. Salaries and other compensation expenses of our delivery professionals are reported as cost of revenues regardless of whether the employees are actually performing services for clients during a given period. Additionally, government incentives and assistance related to services performed by delivery professionals assigned to client projects are reported in cost of revenues. 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. Additionally, government incentives and assistance related to services performed by delivery professionals and contractors assigned to client projects are reported in cost of revenues.

During the year ended December 31, 2024,2025, cost of revenues (exclusive of depreciation and amortization) was $3.277$3.884 billion, representing an increase of 0.6%18.5% from $3.257$3.277 billion reported last year. The increase during the year ended December 31, 20242025 compared to 2023,2024, was primarily due to the acquisitions of NEORIS and First Derivative in the fourth quarter of 2024, an increase in compensation costs, including a $12.1 million increase in stock-based compensation expense, as well as $19.4 million in reduced benefits from our hedging program and a 0.2%$13.6 unfavorablemillion impactdecrease fromin changesgovernment incentives related to conducting R&D activities in Poland. During the year ended December 31, 2024 we recognized a cumulative catch-up benefit related to Poland R&D tax credits. Changes in foreign currency exchange rates.rates Compensationalso had a 0.8% unfavorable impact during the year. Additionally, the average number of production professionals grew 9.0% mainly driven by our acquisition of businesses during 2024. The growth in our production professionals increased compensation costs which were also increasedimpacted due to impacts fromby salary increases and promotions for existing professionals, an increase in variable compensation expense, the relocation of employees to higher cost geographies as well asand a 2.2%$5.3 growthmillion increase in thestock-based averagecompensation number of production professionals contributed in part by our acquisition of businesses during 2024.expense. The increases were significantlypartially offset by benefits totaling $68.8$11.9 million recognized in theincreased secondbenefits half of 2024 for government incentives related to conducting R&D activities in Poland and a decline in costs associated withfrom our humanitarianhedging efforts for Ukraine of $8.9 million and our unbilled business continuity resources of $9.4 million year-over-year.program.

Expressed as a percentage of revenues, cost of revenues (exclusive of depreciation and amortization) was 69.3%71.2% and 69.4%69.3% during the years ended December 31, 20242025 and 2023,2024, respectively. The year-over-year decreaseincrease is primarily due to benefitscompensation totalingincreases $68.8which we were not able to fully offset through pricing increases, the acquisitions completed in 2024, higher variable compensation expense, a $13.6 million recognizeddecrease in the second half of 2024 for government incentives related to conducting R&D activities in Poland and improved utilization, largely offset by a $12.1 million increase in stock-based compensation expense, increases in compensation costs including variable compensation, reduced benefits from our hedging program and the negative impact from the appreciation of foreign currencies in certain of our delivery locations.locations, partially offset by increased benefits from our hedging program.

During the year ended December 31, 2024,2025, selling, general and administrative expenses were $816.3$928.7 million, representing an increase of 0.2%13.8% as compared to $815.1$816.3 million reported last year. The increase in selling, general and administrative expenses during 20242025 compared to 20232024 was primarily driven by athe $14.1acquisitions millionof NEORIS and First Derivative completed in the fourth quarter of 2024, an increase in personnel-related costs, including a $7.4$4.2 million increase in stock-based compensation expense, aan $10.3$11.3 million increase in professionalfacilities feeand expensesinfrastructure related to our business acquisition effortsexpenses, and a $4.7$9.0 million increase in expenses associated with our humanitarian effortscosts for Ukraine.software licenses. Personnel-related costs also increased due to impacts from salary increases and promotions for existing professionals, increases in variable compensation expense and severance, which reflects the impact from thecost Costoptimization Optimization Programs initiated in the second quarter of 2024 and the third quarter of 2023.programs. See Note 12 “Cost Optimization Programs” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for more information regarding the Company’s restructuring programs. These year-over-year increases were partially offset by ana $8.4$5.6 million decrease in badprofessional debt expense, a $5.6 million reduction in facility exit costs and a $3.9 million reduction in facilities and infrastructurefee expenses related to our business acquisition efforts as compared to the prior year.

Expressed as a percentage of revenues, selling, general and administrative expenses decreased 0.1%0.3% to 17.3%17.0% for the year ended December 31, 2024,2025, as compared to the prior year primarily driven by reductionsa decrease in facilitypersonnel-related exitcosts costs,as bada debtpercentage expenseof andrevenue, including stock-based compensation expense, facilities and infrastructure expenses and professional fee expenses related to our business acquisition efforts, partially offset by additional costs for software licenses as a percentage of revenues.

During the year ended December 31, 2024,2025, depreciation and amortization expense was $89.6$124.8 million, representing aan decreaseincrease of $2.2$35.3 million from $91.8$89.6 million reported in the prior year. The decreaseincrease in depreciation and amortization expense was primarily the result of lowerincreased depreciationamortization onof furniture,acquired fixtures,finite-lived otherintangible equipmentassets largely resulting from the acquisitions of NEORIS and computerFirst hardware,Derivative in the fourth quarter of 2024, partially offset by increased$6.3 million in lower depreciation and amortization ofon software licensesproperty and acquired finite-lived intangible assets.equipment. Expressed as a percentage of revenues, depreciation and amortization expense remainedincreased theto same at 1.9%2.3% during the year ended December 31, 2024,2025, as compared to 2023.1.9% in 2024, primarily due to increased amortization of acquired finite-lived intangible assets largely resulting from the acquisitions of First Derivative and NEORIS in 2024.

Interest and other income, net includes interest earned on cash, cash equivalents and short-term investments, gains and losses from certain financial instruments, interest expense related to our borrowings, certain government grant income, and changes in the fair value of contingent consideration. Interest and other income, net decreased from $51.1 million during the year ended December 31, 2023 to $46.9 million during the year ended December 31, 2024.2024 to $11.5 million during the year ended December 31, 2025. This decrease was largely driven by a $4.2$37.0 million decrease in government grantinterest income from our cash, cash equivalents and short-term investments, partially offset by a $2.9$2.2 million increasedecrease in loss due to the change in fair value of contingent consideration, partially offset by a $1.1 million increase in other income.consideration.

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 equitystock 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 2024, 20232025 and 2022,2024, we had $391.4 million, $325.7$361.4 million and $428.7$391.4 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.

The provision for income taxes was $127.9 million in 2025 and $129.9 million in 2024 and $119.5 million in 2023.2024. The increasedecrease was primarily driven by ana increasedecrease in pre-tax income. The effective tax rate decreasedwas slightly from 22.3%25.3% in 20232025 compared to 22.2% in 20242024. primarilyWe duerecorded to the increase in excessa tax benefits recordedshortfall upon vesting or exercise of stock-basedstock awards,awards whichof were$1.9 million in 2025 and an excess tax benefit of $22.4 million in 2024 compared to $19.8 million in 2023.2024.

TheWe determine our business segments representand componentsreport of EPAM for which separate financialsegment information isin availableaccordance andwith usedhow onthe a regular basis by our chief executive officer, who is also ourCompany’s chief operating decision maker (“CODM”), organizes the segments to evaluate performance, allocate resources and make business decisions. Our CODM is the chief executive officer. We manage our business primarily based on the managerial responsibility for our client base and market. As managerial responsibility for a particular client relationship generally correlates with the client’s geographic location, there is a high degree of similarity between client locations and the geographic boundaries of our reportable segments. In some cases, managerial responsibility for a particular client is assigned to a management team in another region and is usually based on the strength of the relationship between client executives and particular members of EPAM’s senior management team. In such cases, the client’s activity would be reported through the management team’s reportable segment.

North AmericaAmericas Segment

The following table summarizes revenues from external clients and operating profit, before unallocated expenses, for the North AmericaAmericas segment for the years ended December 31, 2024, 20232025 and 20222024:

During 2024,2025, North AmericaAmericas segment revenues increased $101.3$299.8 million, or 3.7%,10.5%, from the previous year. Revenues from our North AmericaAmericas segment represented 60.6%58.0% of total segment revenues, ana increasedecrease from 58.9%60.6% reported in the corresponding period of 2023. Acquisitions contributed $95.7 million to North America segment revenues during 2024. During 20242025 as compared to 2023,2024, North AmericaAmericas segment operating profits increaseddecreased $30.4$19.3 million, or 5.9%,3.6%, to $541.4$522.1 million. Expressed as a percentage of revenue, North AmericaAmericas segment operating profit increaseddecreased to 16.5% in 2025 as compared to 18.9% in 2024 as compared to 18.5% in 2023.2024. This increasedecrease is primarily attributable to higherthe utilization and recognitionimpact of lower profitability from acquisitions completed in 2024, lower government incentives related to conducting R&D activities in Poland, partiallychanges offsetin byforeign exchange rates, and an increase in variable compensation expense as a percentage of segment revenues during 20242025 compared to 2023.2024.

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

Russia’s attack on Ukraine has had, and could continue to have, a material adverse effect on our operations. As of MarchJune 31,30, 2026, Ukraine continues to be a significant delivery location with a large number of delivery professionals operating from safe locations at levels of productivity consistent with those achieved prior to the attack. We have maintained our $100 million humanitarian aid commitment to our people in Ukraine, and as of MarchJune 31,30, 2026, we have $7.1$4.6 million remaining to be expensed under this humanitarian commitment.

For the first threesix months of 2026, our revenues were $1.400$2.815 billion, an increase of 7.6%6.0% from $1.302$2.655 billion reported for the same period of 2025. Revenues have been positively impacted by improving demand for our services and foreign exchange fluctuations. Income from operations as a percentage of revenues increased to 8.3%9.6% for the threesix months ended MarchJune 31,30, 2026 as compared to 7.6%8.5% for the threesix months ended MarchJune 31,30, 2025, largely driven by a decrease in cost of revenues (exclusive of depreciation and amortization) as a percentage of revenues. Diluted earnings per share increased to $1.52$3.49 for the threesix months ended MarchJune 31,30, 2026 from $1.28$2.84 for the threesix months ended MarchJune 31,30, 2025, principally resulting from an increase in income from operations as well as reduced common shares outstanding resulting from share repurchases, including repurchases made under the Accelerated Share Repurchase Agreement (“ASR”) in connection with the 2025 Repurchase Program. See Note 10 “Stockholders’ Equity” of our condensed consolidated financial statements in “Part I. Item 1. Financial Statements (Unaudited)” for information regarding the ASR.

During the three and six months ended MarchJune 31,30, 2026, there have been no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2025.

(1)Includes $22,853$22,833 and $23,923$18,161 of stock-based compensation expense for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and $45,686 and $42,084 of stock-based compensation expense for the six months ended June 30, 2026 and 2025, respectively.

(2)Includes $27,066$23,568 and $24,533$20,397 of stock-based compensation expense for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and $50,634 and $44,930 of stock-based compensation expense for the six months ended June 30, 2026 and 2025, respectively.

During the three months ended MarchJune 31,30, 2026, our total revenues increased by 7.6%4.5% to $1.400$1.415 billion compared to the corresponding period in 2025. During the three months ended MarchJune 31,30, 2026 as compared to the same period last year, revenues have been positively impacted by improving demand for our services and fluctuations in foreign currency exchange rates which contributed 3.9%1.1% to revenue growth.

Revenues by client location for the three and six months ended MarchJune 31,30, 2026 and 2025 were as follows:

During the three and six months ended MarchJune 31,30, 2026, the United States continued to be our largest client location. During the three months ended MarchJune 31,30, 2026, revenues in the United States increased 3.4%0.7% to $711.8$715.0 million from $688.5$710.0 million in the firstsecond quarter of 2025,2025. During the six months ended June 30, 2026, revenues in the United States increased 2.0% to $1.427 billion as compared to $1.398 billion in the same period of the prior year, largely due to increased spending at certain large accounts in the region.accounts.

During the three months ended MarchJune 31,30, 2026, the top three revenue contributing countries by client location in EMEA were the United Kingdom, Switzerland, and the Netherlands, generating $158.5$159.6 million, $114.3$112.3 million and $63.2 million in revenues, respectively, compared to $149.6 million, $110.1 million, and $57.1 million, respectively, in the corresponding period last year. During the six months ended June 30, 2026, the United Kingdom, Switzerland and the Netherlands performed as EMEA’s top revenue generating locations and contributed $318.1 million, $226.5 million, and $126.4 million, respectively compared to $144.6$294.2 million, $104.9$214.9 million, and $47.0$104.0 million, respectively, in the corresponding period last year. Revenues in the EMEA region were positively impacted by increased spending at certain large accounts and changes in foreign currency exchange rates during the three and six months ended MarchJune 31,30, 2026 as compared to the same period in the previous year.

During the three months ended MarchJune 31,30, 2026, revenues from clients in the APAC region increaseddecreased by $0.3$0.1 million or 1.2%0.3%, and increased by $0.2 million or 0.4% during the six months ended June 30, 2026, compared to the corresponding periodperiods of 2025.

During the three months ended MarchJune 31,30, 2026, cost of revenues (exclusive of depreciation and amortization) was $1,012.1$985.2 million representing an increase of 6.3%2.2% from $952.0$964.0 million in the corresponding period of 2025. The increase primarily resulted from increased compensation expense due to salary increases and promotions implemented during the prior year annual compensation cycle, a 2.2%1.6% increase in the average number of production professionals in the firstsecond quarter of 2026 compared to the firstsecond quarter of 2025, and foreign exchange fluctuations.fluctuations, and increased stock-based compensation expense. Expressed as a percentage of revenues, cost of revenues (exclusive of depreciation and amortization) was 72.3%69.6% and 73.1%71.2% in the firstsecond quarter of 2026 and 2025, respectively. This year-over-year decrease is primarily due to a decrease in compensation expense, including stock-based compensation expense,expense as a percentage of revenues, partially offset by the negative impact from foreign currency fluctuations.

Selling, general and administrative expenses represent expenditures 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. Additionally, selling, general and administrative expenses include costs of relocating our employees and various one-time and unusual expenses such as impairment charges.

During the three months ended MarchJune 31,30, 2026, selling, general and administrative expenses were $239.7$245.2 million representing a 9.5%5.9% increase as compared to $218.9$231.7 million in the corresponding period of 2025. The increase was mainly driven by increased personnel-related costs,costs which included impacts from salary increases and promotions implemented during the prior year annual compensation cycle, increases inincluding stock-based compensation expense, and severance, which reflects the impact from cost optimization programs,expense and foreign exchange fluctuations. See Note 7 “Cost Optimization Programs” for more information regarding the Company’s restructuring programs. Expressed as a percentage of revenues, selling, general and administrative expenses increased by 0.3%0.2% to 17.1%17.3% for the three months ended MarchJune 31,30, 2026 as compared to the same period from the prior year,year. The year-over-year increase is primarily drivendue byto anhigher increasestock-based incompensation personnel-related costsexpense as a percentage of revenues.

During the three and six months ended MarchJune 31,30, 2026, depreciation and amortization expense was $31.5$32.1 million and $63.6 million, respectively, as compared to $31.4$31.3 million and $62.7 million, respectively, in the corresponding periodperiods last year. The composition of depreciable and amortizable assets has not changed significantly since the first quarterbeginning of 2025.the prior year.

Interest and Other Income,Income (Loss), Net

Interest and other income,income (loss), net includes interest earned on cash and cash equivalents and short-term investments, 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 income,income (loss), net was $1.6a loss of $1.8 million and $0.2 million during the three and six months ended MarchJune 31,30, 2026, respectively, compared to $5.8income of $3.5 million and $9.3 million during the three and six months ended MarchJune 31,30, 2025.2025, respectively. The decrease in Interest and other income,income (loss), net during the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025 was largely driven by a $2.7$1.7 million difference in the change in fair value of contingent considerationconsideration, a $1.2 million increase in interest expense, mainly related to our line of credit, and a $0.8$0.9 million decrease in interest income from our cash, cash equivalents and short-term investments. The decrease in Interest and other income (loss), net during the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 was largely driven by a $4.4 million difference in the change in fair value of contingent consideration, a $1.8 million decrease in interest income from our cash, cash equivalents and short-term investments, and a $1.3 million increase in interest expense, mainly related to our line of credit.

Foreign Exchange Gain (Loss)

During the three and six months ended MarchJune 31,30, 2026, foreign exchange gainloss was $2.3$9.9 million and $7.6 million, respectively, compared to a loss of $10.7$6.2 million and $17.0 million, respectively, reported in the corresponding periodperiods last year. Exchange rate movements impact the reported value of our assets and liabilities denominated in currencies other than the U.S. dollar or where the currency of such items is different than the functional currency of the entity where these items were recorded.

Our effective tax rate was 31.6%26.7% and 29.0% for the three and six months ended MarchJune 31,30, 2026, respectively, and 22.2%28.9% and 26.0% for the three and six months ended MarchJune 31,30, 2025.2025, Therespectively. increaseWe inrecorded a tax shortfall upon vesting or exercise of stock awards of $1.7 million and $11.6 million during the effectivethree taxand ratesix ismonths largelyended attributableJune 30, 2026, respectively, as compared to a tax shortfall upon vesting or exercise of stock awards of $9.8$1.1 million and $0.6 million during the three and six months ended MarchJune 31,30, 20262025, as compared to excess tax benefits of $0.5 million during the corresponding period of the prior year.respectively.

The following table summarizes revenues from external clients and operating profit, before unallocated expenses, for the Americas segment for the three and six months ended MarchJune 31,30, 2026, and 2025:

During the three months ended MarchJune 31,30, 2026, revenues for the Americas segment increased $18.2$4.9 million, or 2.3%,0.6%, compared to the same period last year and segment operating profit increased $17.0$19.6 million, or 14.8%,15.1%, compared to the same period last year. During the three months ended MarchJune 31,30, 2026, revenues from our Americas segment were 56.8%56.0% of total revenues, a decrease from 59.7%58.2% reported in the corresponding period of 2025. As a percentage of Americas segment revenues, the Americas segment’s operating profit increased to 16.6%18.8% during the firstsecond quarter of 2026 from 14.8%16.4% in the firstsecond quarter of 2025. This increase is primarily attributable to improved profitability as a result of our cost optimization initiatives, partially offset by the impact of changes in foreign currency exchange rates.

During the three and six months ended MarchJune 31,30, 2026, Financial Services was the largest industry vertical in the Americas segment and grew 10.8%15.3% and 13.0%, respectively, compared to the corresponding periodperiods of 2025, primarily due to increased spend at a large wealth management client and growth in fintech,insurance, insurance,asset management, and payment processing clients. Software & Hi-Tech declined 2.1%10.8% and 6.6% during the three and six months ended MarchJune 31,30, 2026, respectively, which was a result of lower spend from our technology clients. Life Sciences & Healthcare declined 0.8%1.3% and 1.0% during the three and six months ended MarchJune 31,30, 2026.2026, respectively. Consumer Goods, Retail & Travel grew 6.6%1.0% and 3.7% during the three and six months ended MarchJune 31,30, 2026, respectively, primarily due to growth from our consumer goods and distribution clients. Business Information & Media grewdeclined 2.4% and 0.1% during the three and six months ended MarchJune 31,30, 2026, respectively, primarily due to improvement inlower demand from information services clients. Emerging Verticals declinedgrew 3.1%0.8% during the three months ended MarchJune 31,30, 2026 and declined 1.2% during the six months ended June 30, 2026, primarilyrespectively, duewith togrowth coming from clients in the energy sector and lower revenues experienced from clients in industrial materials, telecommunications, and real estate, which were partially offset by increased revenues from clientsestate in theboth energy sector.periods.

The following table summarizes revenues from external clients and operating profit, before unallocated expenses, for the Europe segment for the three and six months ended MarchJune 31,30, 2026, and 2025:

During the three months ended MarchJune 31,30, 2026, Europe’s segment revenues were $604.7$622.5 million, representing an increase of $80.1$56.5 million, or 15.3%,10.0%, from the same period last year. Revenues were positively impacted by changes in foreign currency exchange rates during the firstsecond quarter of 2026 and had our Europe segment revenues been expressed in constant currency terms using the exchange rates in effect during the firstsecond quarter of 2025, we would have reported revenue growth of 7.8%.8.5%. Europe’s segment revenues accounted for 43.2%44.0% and 40.3%41.8% of total segment revenues during the three months ended MarchJune 31,30, 2026 and 2025, respectively. During the firstsecond quarter of 2026, the segment’s operating profit increased 15.4%24.4% to $82.3$100.5 million compared to the firstsecond quarter of 2025. Expressed as a percentage of revenues, Europe’s segment operating profit remainedincreased consistentto at 13.6%16.1% compared to 14.3% in the same period of the prior year. This increase is primarily attributable to improved profitability as a result of our cost optimization initiatives.

During the three and six months ended MarchJune 31,30, 2026, Financial Services was the largest industry vertical in the Europe segment and grew 12.2%8.4% and 10.2%, respectively, compared to the corresponding periodperiods of 2025, primarily due to improved demand from clients in asset management and insurance. During the three and six months ended MarchJune 31,30, 2026, revenues in Consumer Goods, Retail & Travel grew 7.7%3.4% and 5.5%, respectively, primarily due to improved demand from clients in the retail and consumer goods industries. During the three and six months ended MarchJune 31,30, 2026, revenues in Software & Hi-Tech grew 43.2%21.5% and 31.8%, respectively, primarily due to increased demand at a large hardware client and several technology services clients. During the three and six months ended MarchJune 31,30, 2026, revenues in Business Information & Media declined 7.2%1.6% and 4.4%, respectively, primarily due to decreased demand from information services clients. Revenues in Life Sciences & Healthcare grew 34.9%45.1% and 40.2%, respectively, during the three and six months ended MarchJune 31,30, 2026, primarily due to the growth experienced from new and existing clients in the pharmaceutical sector. Revenues in Emerging Verticals grew 23.5%10.6% and 16.6%, respectively, during the three and six months ended MarchJune 31,30, 2026, due to the growth from various clients in the energy and government sectors.sector.

Our cash generated from operations has been our primary source of liquidity to fund operations, to repurchase shares and make investments to support the growth of our business. As of MarchJune 31,30, 2026, our principal sources of liquidity were cash and cash equivalents totaling $1.037$789.4 billion,million, short-term investments totaling $4.3$4.8 million, and $535.0$675.0 million of available borrowings under our revolving credit facility. During the quarter ended March 31, 2026, we drew an additional $140 million on this facility to partially fund our $300 million ASR. As of MarchJune 31,30, 2026, $165.0$25.0 million was outstanding under this facility and we were in compliance with all covenants contained in the facility. See Note 6 “Debt” of our condensed consolidated financial statements in “Part I. Item 1. Financial Statements (Unaudited)” for information regarding drawdowns on our revolving credit facility.

Our largest source of cash provided by operating activities is cash generated from our professional services that we provide to our clients. Our primary uses of cash from operating activities include compensation to our employees and related costs, payments for leased facilities, various general corporate expenditures and income tax payments. The first threesix months of 2026 were negatively impacted by a higher paymentslevel forof variable compensation aspayments made based on 2025 performance and a larger increase in days sales outstanding compared to the first threesix months of 2025, attributable to a higher level of financial performance for the year ended December 31, 2025.

Our primary uses of cash in investing activities consist of purchases of computer hardware, software and office equipment, as well as investments into office buildings and new businesses. We also use cash for short-term investments and time deposits and receive cash upon maturity of these deposits. Most of our investments are typically short-term and cash equivalent in nature but we may invest in longer term deposits if the terms are favorable. The cash used in investing activities during the threesix months ended MarchJune 31,30, 2026 was primarily attributable to $17.9$33.1 million used for capital expenditures compared to $9.3$19.2 million used for capital expenditures in the corresponding period of 2025.

Cash used in financing activities mainly consists of repurchases of shares of EPAM common stock under our share repurchase programs, payments of withholding taxes related to net share settlements of restrictedequity stock units,awards, repayments of debt, and settlements of the acquisition-date fair value of contingent consideration related to acquisitions of businesses. Cash provided by financing activities mainly consists of the proceeds from the purchasesissuance of shares under our ESPP and exercises of stock options issued under our long-term incentive plans as well as proceeds from debt. We typically do not rely on debt to supplement our cash flows. During the first threesix months of 2026, our main use of cash in financing activities consisted of $324.0$409.0 million of payments to repurchase our common stock, including $300 million related to the accelerated share repurchase, compared to $160.0$356.5 million in the corresponding period of 2025. The cash outflows during the first three months of 2026 were partially offset by $140.0 million of proceeds from a drawdown on our revolving credit facility.