EPAM Systems Inc

Previous wording

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. EPAM’s highest priority is the safety and security of its employees and their families in Ukraine as well as in the broader region, and we have continued to support relocating our employees to lower risk locations, both in Ukraine and to other countries where we operate. The vast majority of our Ukraine employees are in safe locations and operating at levels of productivity consistent with those achieved prior to the attack. As of June 30, 2024, Ukraine continues to be our largest delivery location with the most delivery professionals. Furthermore, we have maintained our $100 million humanitarian aid commitment to our people in Ukraine in addition to our other donations and volunteer efforts.

Current wording

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. EPAM’s highest priority is the safety and security of its employees and their families in Ukraine as well as in the broader region, and we have continued to support relocating our employees to lower risk locations, both within Ukraine and to other countries where we operate. The vast majority of our Ukraine employees are in safe locations and operating at levels of productivity consistent with those achieved prior to the attack. As of September 30, 2024, Ukraine continues to be a significant delivery location with a large number of delivery professionals. Furthermore, we have maintained our $100 million humanitarian aid commitment to our people in Ukraine in addition to our other donations and volunteer efforts.

Previous wording

During the three and six months ended June 30, 2024, 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, 2023.

Current wording

During the three and nine months ended September 30, 2024, 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, 2023.

Previous wording

(1)Includes $16,937 and $15,416 of stock-based compensation expense for the three months ended June 30, 2024 and 2023. respectively, and $39,294 and $31,427 of stock-based compensation expense for the six months ended June 30, 2024 and 2023, respectively.

Current wording

(1)Includes $19,576 and $18,142 of stock-based compensation expense for the three months ended September 30, 2024 and 2023. respectively, and $58,870 and $49,569 of stock-based compensation expense for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

(2)Includes $18,747 and $17,694 of stock-based compensation expense for the three months ended June 30, 2024 and 2023, respectively, and $41,181 and $40,262 of stock-based compensation expense for the six months ended June 30, 2024 and 2023, respectively.

Current wording

(2)Includes $22,548 and $19,705 of stock-based compensation expense for the three months ended September 30, 2024 and 2023, respectively, and $63,729 and $59,967 of stock-based compensation expense for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

During the three months ended June 30, 2024, our total revenues decreased by 2.0% to $1.147 billion compared to the corresponding period in 2023. Revenues have been negatively impacted by uneven demand for our services, the sale of our remaining holdings in Russia in the third quarter of 2023, and fluctuations in foreign currency exchange rates which decreased our revenue growth by 0.3% during the three months ended June 30, 2024 as compared to the same period last year.

Current wording

During the three months ended September 30, 2024, our total revenues increased by 1.3% to $1.168 billion compared to the corresponding period in 2023. During the three months ended September 30, 2024 as compared to the same period last year, revenues have been positively impacted by stabilizing demand for our services and fluctuations in foreign currency exchange rates which increased our revenue growth by 0.4%, partially offset by the sale of our remaining holdings in Russia in the third quarter of 2023.

Previous wording

Revenues by client location for the three and six months ended June 30, 2024 and 2023 were as follows:

Current wording

Revenues by client location for the three and nine months ended September 30, 2024 and 2023 were as follows:

Previous wording

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

Current wording

(2)EMEA includes revenues from clients in Western Europe and the Middle East. Beginning in 2024, EMEA also includes revenues from Central and Eastern Europe.

Previous wording

During the three and six months ended June 30, 2024, the United States continued to be our largest client location. During the three months ended June 30, 2024, revenues in the United States increased 2.0% to $662.6 million from $649.6 million in the second quarter of 2023, largely due to increased spending at certain large accounts in the region. During the six months ended June 30, 2024, revenues in the United States remained consistent at $1.330 billion as compared to $1.329 billion in the same period of the prior year.

Current wording

During the three and nine months ended September 30, 2024, the United States continued to be our largest client location. During the three months ended September 30, 2024, revenues in the United States increased 2.2% to $666.9 million from $652.8 million in the third quarter of 2023, largely due to increased spending at certain large accounts in the region. During the nine months ended September 30, 2024, revenues in the United States increased to $1.997 billion as compared to $1.982 billion in the same period of the prior year.

Previous wording

The top three revenue contributing countries by client location in EMEA were the United Kingdom, Switzerland and Germany, generating $127.8 million, $101.3 million and $49.6 million in revenues, respectively, during the three months ended June 30, 2024. Revenues from clients in these three countries were $152.5 million, $89.5 million, and $45.0 million, respectively, in the corresponding period last year. During the six months ended June 30, 2024, the United Kingdom, Switzerland and Germany performed as EMEA’s top revenue generating locations and contributed $263.7 million, $199.8 million, and $100.0 million, respectively, compared to $307.8 million, $179.4 million, and $87.8 million, respectively, in the corresponding period last year. Revenues in the EMEA region were negatively impacted by reduced spending at certain large accounts during the three and six months ended June 30, 2024 as compared to the same period in the previous year.

Current wording

The top three revenue contributing countries by client location in EMEA were the United Kingdom, Switzerland and Germany, generating $126.0 million, $104.3 million and $53.6 million in revenues, respectively, during the three months ended September 30, 2024. Revenues from clients in these three countries were $140.7 million, $91.5 million, and $44.8 million, respectively, in the corresponding period last year. During the nine months ended September 30, 2024, the United Kingdom, Switzerland and Germany performed as EMEA’s top revenue generating locations and contributed $389.7 million, $304.0 million, and $153.6 million, respectively, compared to $448.5 million, $270.9 million, and $132.6 million, respectively, in the corresponding period last year. Revenues in the EMEA region were negatively impacted by reduced spending at certain large accounts during the three and nine months ended September 30, 2024 as compared to the same period in the previous year.

Previous wording

During the three and six months ended June 30, 2024, revenues from clients in the APAC region decreased by $0.1 million or 0.6% and $3.7 million or 7.2% compared to the corresponding periods of 2023, mainly due to a decline in the Financial Services vertical.

Current wording

During the three and nine months ended September 30, 2024, revenues from clients in the APAC region increased by $0.4 million or 1.8% mainly due to growth in the Life Sciences & Healthcare vertical and decreased by $3.2 million or 4.2% mainly due to a decline in the Financial Services vertical, compared to the corresponding periods of 2023.

Previous wording

During the three months ended June 30, 2024, cost of revenues (exclusive of depreciation and amortization) was $810.9 million representing an increase of 0.3% from $808.7 million in the corresponding period of 2023. The increase was primarily due to negative impact from the appreciation of foreign currencies in certain of our delivery locations, reduced benefits from our hedging program, and a $1.5 million increase in stock-based compensation expense. These increases were partially offset by a decrease in costs associated with our humanitarian efforts for Ukraine of $2.3 million, our unbilled business continuity resources of $2.0 million and compensation costs, other than stock-based compensation expense, largely attributable to the 6.4% decrease in the average number of production professionals which reflects the impact from the Cost Optimization Programs initiated in the second quarter of 2024 and the third quarter of 2023, partially offset by the impacts from salary increases and promotions for existing professionals. See Note 9 “Cost Optimization Programs” for more information regarding the Company’s restructuring programs. Expressed as a percentage of revenues, cost of revenues (exclusive of depreciation and amortization) was 70.7% and 69.1% in the second quarter of 2024 and 2023, respectively. The year-over-year increase in the second quarter of 2024 as compared to the corresponding period of the prior year is primarily due to an increase in personnel related costs as a percentage of revenues.

Current wording

During the three months ended September 30, 2024, cost of revenues (exclusive of depreciation and amortization) was $764.0 million representing a decrease of 3.8% from $794.3 million in the corresponding period of 2023. The decrease was primarily due to the $52.0 million benefit recognized in the third quarter of 2024 for government incentives received related to conducting R&D activities in Poland partially offset by higher personnel costs including stock-based compensation expense and $4.6 million in reduced benefits from our hedging program. Expressed as a percentage of revenues, cost of revenues (exclusive of depreciation and amortization) was 65.4% and 68.9% in the third quarter of 2024 and 2023, respectively. The year-over-year decrease in the third quarter of 2024 as compared to the corresponding period of the prior year is primarily due to the benefit recognized for government incentives received related to conducting R&D activities in Poland and improved utilization, partially offset by an increase in compensation costs including stock-based compensation expense, as a percentage of revenues.

Previous wording

During the six months ended June 30, 2024, cost of revenues (exclusive of depreciation and amortization) was $1.645 billion representing a decrease of 1.2% from $1.665 billion in the corresponding period of 2023. The decrease was primarily due to a decrease in compensation costs other than stock-based compensation expense largely attributable to the 7.7% decrease in the average number of production professionals which reflects the impact from the Cost Optimization Programs initiated in the second quarter of 2024 and the third quarter of 2023, partially offset by the impacts from salary increases and promotions for existing professionals. See Note 9 “Cost Optimization Programs” for more information regarding the Company’s restructuring programs. Other drivers that contributed to the year-over-year decrease were a decline in costs associated with our humanitarian efforts for Ukraine of $4.1 million and our unbilled business continuity resources of $9.4 million. The decreases were partially offset by higher expenses due to a $7.9 million increase in stock-based compensation expense, the negative impact from the appreciation of foreign currencies in certain of our delivery locations and reduced benefits from our hedging program. Expressed as a percentage of revenues, cost of revenues (exclusive of depreciation and amortization) was 71.2% and 69.9% for the six months ended June 30, 2024 and 2023, respectively. The year-over-year increase is primarily due to a $7.9 million increase in stock-based compensation expense and the negative impact from the appreciation of foreign currencies in certain of our delivery locations.

Current wording

During the nine months ended September 30, 2024, cost of revenues (exclusive of depreciation and amortization) was $2.409 billion representing a decrease of 2.0% from $2.459 billion in the corresponding period of 2023. The decrease was primarily due to the $52.0 million benefit recognized in the third quarter of 2024 for the government incentives received related to conducting R&D activities in Poland and a decrease in compensation costs other than stock-based compensation expense largely attributable to the 6.1% decrease in the average number of production professionals which reflects the impact from the Cost Optimization Programs initiated in the second quarter of 2024 and the third quarter of 2023, partially offset by the impacts from salary increases and promotions for existing professionals. See Note 9 “Cost Optimization Programs” for more information regarding the Company’s restructuring programs. The decreases were partially offset by a $9.3 million increase in stock-based compensation expense, the negative impact from the appreciation of foreign currencies in certain of our delivery locations and reduced benefits from our hedging program. Expressed as a percentage of revenues, cost of revenues (exclusive of depreciation and amortization) was 69.3% and 69.6% for the nine months ended September 30, 2024 and 2023, respectively. The year-over-year decrease is primarily due to the $52.0 million benefit recognized in the third quarter of 2024 for government incentives received related to conducting R&D activities in Poland and improved utilization, partially offset by a $9.3 million increase in stock-based compensation expense, reduced benefits from our hedging program and the negative impact from the appreciation of foreign currencies in certain of our delivery locations.

Previous wording

During the three months ended June 30, 2024, selling, general and administrative expenses were $194.1 million representing a 0.2% decrease as compared to $194.4 million in the corresponding period of 2023. Selling, general and administrative expenses during the quarter benefited primarily from a $1.2 million reduction in facilities and infrastructure expenses and a $2.8 million decrease in bad debt expense as compared to the corresponding period of the prior year. The decrease in selling, general and administrative expenses was partially offset by the $9.2 million of employee separation costs resulting from the Cost Optimization Programs initiated in the second quarter of 2024 and the third quarter of 2023, partially offset by the impacts from salary increases and promotions for existing professionals. See Note 9 “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 0.2% to 16.9% for the three months ended June 30, 2024 as compared to the same period from the prior year, primarily driven by the increase in personnel-related costs as a percentage of revenues.

Current wording

During the three months ended September 30, 2024, selling, general and administrative expenses were $206.8 million representing a 6.2% increase as compared to $194.8 million in the corresponding period of 2023. The increase in selling, general and administrative expenses was mainly driven by a $6.1 million increase in professional fee expenses related to our business acquisition efforts, an increase in compensation costs impacted by salary increases and promotions for existing professionals, a $2.8 million increase in stock-based compensation expense and a $1.9 million increase in employee separation costs resulting from the Cost Optimization Programs initiated in the second quarter of 2024 and the third quarter of 2023, compared to the corresponding period of the prior year. See Note 9 “Cost Optimization Programs” for more information regarding the Company’s restructuring programs. The increase in the selling, general and administrative expenses during the quarter was partially offset by a $1.4 million decrease in bad debt expense as compared to the corresponding period of the prior year. Expressed as a percentage of revenues, selling, general and administrative expenses increased by 0.8% to 17.7% for the three months ended September 30, 2024 as compared to the same period from the prior year, primarily driven by the increase in professional fee expenses related to our business acquisition efforts and personnel-related costs as a percentage of revenues.

Previous wording

During the six months ended June 30, 2024, selling, general and administrative expenses were $392.5 million representing a 3.4% decrease as compared to $406.3 million in the corresponding period of 2023. The decrease in selling, general and administrative expenses was primarily driven by a $3.7 million reduction in facilities and infrastructure expenses and a $4.4 million decrease in bad debt expense as compared to the corresponding period of the prior year. Additionally, during the six months ended June 30, 2024, selling, general and administrative expenses benefited from the $4.6 million decrease in personnel-related costs resulting from a decrease in headcount which reflects the impact from the Cost Optimization Programs initiated in the second quarter of 2024 and the third quarter of 2023, partially offset by the impacts from salary increases and promotions for existing professionals. See Note 9 “Cost Optimization Programs” for more information regarding the Company’s restructuring programs. Expressed as a percentage of revenues, selling, general and administrative expenses decreased by 0.2% to 16.9% for the six months ended June 30, 2024 as compared to the same period from the prior year, primarily driven by the reduction in facilities and infrastructure expenses as a percentage of revenues.

Current wording

During the nine months ended September 30, 2024, selling, general and administrative expenses were $599.3 million representing a 0.3% decrease as compared to $601.1 million in the corresponding period of 2023. The decrease in selling, general and administrative expenses during the nine months ended September 30, 2024 compared to the same period from the prior year was primarily driven by a $5.8 million decrease in bad debt expense and a $4.0 million reduction in facilities and infrastructure expenses as compared to the corresponding period of the prior year. The decrease in selling, general and administrative expenses was partially offset by a $3.5 million increase in personnel-related costs including severance, which reflects the impact from the Cost Optimization Programs initiated in the second quarter of 2024 and the third quarter of 2023 and the impacts from salary increases and promotions for existing professionals as well as a $6.0 million increase in professional fee expenses related to our business acquisition efforts. See Note 9 “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 0.2% to 17.2% for the nine months ended September 30, 2024 as compared to the same period from the prior year, primarily driven by the increase in professional fee expenses related to our business acquisition efforts and personnel-related costs as a percentage of revenues.

Previous wording

During the three and six months ended June 30, 2024, depreciation and amortization expense was $21.1 million and $43.3 million, respectively, as compared to $22.8 million and $45.6 million, respectively, in the corresponding period last year. The decrease in depreciation and amortization expense during the three and six months ended June 30, 2024 was primarily the result of lower depreciation on furniture, fixtures, other equipment and computer hardware, partially offset by increased amortization of acquired finite-lived intangible assets. Expressed as a percentage of revenues, depreciation and amortization expense remained consistent at 1.9% during the three and six months ended June 30, 2024, as well as in both corresponding periods of 2023.

Current wording

During the three and nine months ended September 30, 2024, depreciation and amortization expense was $19.7 million and $63.0 million, respectively, as compared to $23.1 million and $68.6 million, respectively, in the corresponding period last year. The decrease in depreciation and amortization expense during the three and nine months ended September 30, 2024 was primarily the result of lower depreciation on furniture, fixtures, other equipment and computer hardware, partially offset by increased amortization of acquired finite-lived intangible assets. Expressed as a percentage of revenues, depreciation and amortization expense decreased to 1.7% and 1.8% during the three and nine months ended September 30, 2024, respectively, as compared to 2.0% in both corresponding periods of 2023.

Previous wording

Interest and other income, 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, net increased from $11.7 million and $23.2 million during the three and six months ended June 30, 2023, respectively, to $12.0 million and $27.1 million during the three and six months ended June 30, 2024, respectively. This increase in Interest and other income, net during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was largely driven by a $2.5 million increase in interest income from our cash, cash equivalents and short-term investments driven by improved interest rates, partially offset by a $1.4 million decrease in government grant income. The increase in Interest and other income, net during the six months June 30, 2024 as compared to the six months ended June 30, 2023 was largely driven by a $9.6 million increase in interest income from our cash, cash equivalents and short-term investments, partially offset by a $4.2 million decrease in government grant income and a $1.0 million increase in loss due to the change in fair value of contingent consideration.

Current wording

The decrease in Interest and other income, net during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was largely driven by a $1.0 million decrease in interest income from our cash, cash equivalents and short-term investments and a $1.2 million increase in loss due to the change in fair value of contingent consideration. The increase in Interest and other income, net during the nine months September 30, 2024 as compared to the nine months ended September 30, 2023 was largely driven by an $8.6 million increase in interest income from our cash, cash equivalents and short-term investments, partially offset by a $3.7 million decrease in government grant income and a $2.2 million increase in loss due to the change in fair value of contingent consideration.

Previous wording

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 effective tax rate in the current year as well as the future. These factors include statutory tax rates and tax law changes in the countries where we operate and excess tax benefits upon vesting or exercise of equity awards as well as consideration of any significant or unusual items.

Current wording

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 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/tax shortfalls upon vesting or exercise of equity awards as well as consideration of any significant or unusual items.

Previous wording

Revenues from external clients and operating profit/(loss), before unallocated expenses, by reportable segment for the three and six months ended June 30, 2024 and 2023 were as follows:

Current wording

Revenues from external clients and operating profit/(loss), before unallocated expenses, by reportable segment for the three and nine months ended September 30, 2024 and 2023 were as follows:

Previous wording

During the three months ended June 30, 2024, revenues for the North America segment increased $18.6 million, or 2.7%, compared to the same period last year and segment operating profit decreased $8.8 million, or 6.7%, compared to the same period last year. During the three months ended June 30, 2024, revenues from our North America segment were 60.9% of total segment revenues, an increase from 58.1% reported in the corresponding period of 2023. As a percentage of North America segment revenues, the North America segment’s operating profit decreased to 17.6% during the second quarter of 2024 from 19.4% in the second quarter of 2023. This decrease is primarily attributable to an increase in variable compensation expense and negative impact of foreign exchange rates, partially offset by higher utilization.

Current wording

During the three months ended September 30, 2024, revenues for the North America segment increased $19.8 million, or 2.9%, compared to the same period last year and segment operating profit increased $23.1 million, or 17.5%, compared to the same period last year. During the three months ended September 30, 2024, revenues from our North America segment were 60.4% of total segment revenues, an increase from 59.4% reported in the corresponding period of 2023. As a percentage of North America segment revenues, the North America segment’s operating profit increased to 22.1% during the third quarter of 2024 from 19.3% in the third quarter of 2023. This increase is primarily attributable to higher utilization and government incentives received related to conducting R&D activities in Poland, partially offset by an increase in variable compensation expense as a percentage of segment revenues during the third quarter of 2024 compared to the third quarter of 2023.

Previous wording

During the six months ended June 30, 2024, revenues for the North America segment increased $13.3 million, or 1.0%, compared to the same period last year and segment operating profit decreased $11.0 million, or 4.3%, compared to the same period last year. During the six months ended June 30, 2024, revenues from our North America segment were 60.7% of total segment revenues, an increase from 58.4% reported in the corresponding period of 2023. As a percentage of North America segment revenues, the North America segment’s operating profit decreased to 17.4% during the six months ended June 30, 2024 from 18.3% in the corresponding period of 2023. This decrease is primarily attributable to an increase in variable compensation expense and negative impact of foreign exchange rates, partially offset by higher utilization.

Current wording

During the nine months ended September 30, 2024, revenues for the North America segment increased $33.2 million, or 1.6%, compared to the same period last year and segment operating profit increased $12.1 million, or 3.1%, compared to the same period last year. During the nine months ended September 30, 2024, revenues from our North America segment were 60.6% of total segment revenues, an increase from 58.7% reported in the corresponding period of 2023. As a percentage of North America segment revenues, the North America segment’s operating profit increased to 18.9% during the nine months ended September 30, 2024 from 18.6% in the corresponding period of 2023. This increase is primarily attributable to higher utilization and government incentives received related to conducting R&D activities in Poland, partially offset by an increase in variable compensation expense as a percentage of segment revenues during the first nine months of 2024 compared to the first nine months of 2023.

Previous wording

During the three and six months ended June 30, 2024 compared to the same period in the prior year, Software & Hi-Tech remained the largest industry vertical in the North America segment, which was a result of the continued focus on engaging with our technology clients. However, a reduction in revenues from a former top 20 client and overall declines in the technology sector in the U.S. during 2023 impacted the revenues in this vertical. Financial Services declined 8.7% and 11.2% during the three and six months ended June 30, 2024, respectively, largely impacted by decline in demand from a group of wealth management and insurance clients. Life Sciences & Healthcare grew 20.6% and 23.3% during the three and six months ended June 30, 2024, respectively, primarily due to increased demand from pharmaceutical and medical device companies. Consumer Goods, Retail & Travel declined 5.0% and 4.9% during the three and six months ended June 30, 2024, respectively, primarily due to declines from clients in the retail industry, partially offset by growth from our travel clients. Business Information & Media grew 4.2% and declined 2.3% during the three and six months ended June 30, 2024, respectively, primarily due to the fluctuations in demand from clients in the information services and credit reporting sectors. Emerging Verticals grew 22.7% and 24.6% during the three and six months ended June 30, 2024, respectively, due to growth from various clients in industries such as energy, professional services, telecommunications, industrial materials and educational platforms.

Current wording

During the three and nine months ended September 30, 2024 compared to the same period in the prior year, Software & Hi-Tech remained the largest industry vertical in the North America segment, which was a result of the continued focus on engaging with our technology clients. However, a reduction in revenues from a former top 20 client and overall declines in the technology sector in the U.S. during 2023 impacted the revenues in this vertical. Financial Services declined 1.6% and 8.2% during the three and nine months ended September 30, 2024, respectively, largely impacted by decline in demand from a group of wealth management and insurance clients. Life Sciences & Healthcare grew 10.6% and 18.7% during the three and nine months ended September 30, 2024, respectively, primarily due to increased demand from pharmaceutical and medical device companies. Consumer Goods, Retail & Travel declined 6.8% and 5.5% during the three and nine months ended September 30, 2024, respectively, primarily due to declines from clients in the retail industry, partially offset by growth from our travel clients. Business Information & Media grew 9.8% and 1.6% during the three and nine months ended September 30, 2024, respectively, primarily due to improvement in demand from clients in the information services and entertainment sectors. Emerging Verticals grew 15.5% and 21.5% during the three and nine months ended September 30, 2024, respectively, due to growth from various clients in industries such as energy, professional services, industrial materials and educational platforms.

Previous wording

During the three months ended June 30, 2024, Europe’s segment revenues were $448.0 million, representing a decrease of $35.5 million, or 7.3%, from the same period last year. Revenues were negatively impacted by changes in foreign currency exchange rates during the second quarter of 2024 and had our Europe segment revenues been expressed in constant currency terms using the exchange rates in effect during the second quarter of 2023, we would have reported a revenue decline of 6.9%. Europe’s segment revenues accounted for 39.1% and 41.3% of total segment revenues during the three months ended June 30, 2024 and 2023, respectively. During the second quarter of 2024, the segment’s operating profit decreased 15.8% to $54.5 million compared to the second quarter of 2023. Expressed as a percentage of revenues, Europe’s segment operating profit decreased to 12.2% compared to 13.4% in the same period of the prior year. Segment operating profit was negatively impacted by an increase in variable compensation expense and foreign exchange rates, partially offset by higher utilization.

Current wording

During the three months ended September 30, 2024, Europe’s segment revenues were $462.9 million, representing a decrease of $2.9 million, or 0.6%, from the same period last year. Revenues were positively impacted by changes in foreign currency exchange rates during the third quarter of 2024 and had our Europe segment revenues been expressed in constant currency terms using the exchange rates in effect during the third quarter of 2023, we would have reported a revenue decline of 1.6%. Europe’s segment revenues accounted for 39.6% and 40.4% of total segment revenues during the three months ended September 30, 2024 and 2023, respectively. During the third quarter of 2024, the segment’s operating profit increased 48.1% to $94.9 million compared to the third quarter of 2023. Expressed as a percentage of revenues, Europe’s segment operating profit increased to 20.5% compared to 13.8% in the same period of the prior year. Segment operating profit as a percentage of revenues was positively impacted by higher utilization and government incentives received related to conducting R&D activities in Poland, partially offset by an increase in variable compensation expense and foreign exchange rates.

Previous wording

During the six months ended June 30, 2024, Europe’s segment revenues were $908.7 million, representing a decrease of $67.9 million, or 7.0%, from the same period last year. Europe’s segment revenues accounted for 39.3% and 41.0% of total segment revenues during the six months ended June 30, 2024 and 2023, respectively. During the six months ended June 30, 2024, the segment’s operating profit decreased 7.7% to $115.1 million compared to the corresponding period of 2023. Expressed as a percentage of revenues, Europe’s segment operating profit decreased to 12.7% compared to 12.8% in the same period of the prior year. Segment operating profit was negatively impacted by an increase in variable compensation expense and foreign exchange rates, partially offset by higher utilization.

Current wording

During the nine months ended September 30, 2024, Europe’s segment revenues were $1,371.6 million, representing a decrease of $70.8 million, or 4.9%, from the same period last year. Europe’s segment revenues accounted for 39.4% and 40.8% of total segment revenues during the nine months ended September 30, 2024 and 2023, respectively. During the nine months ended September 30, 2024, the segment’s operating profit increased 11.2% to $209.9 million compared to the corresponding period of 2023. Expressed as a percentage of revenues, Europe’s segment operating profit increased to 15.3% compared to 13.1% in the same period of the prior year. Segment operating profit was positively impacted by higher utilization and government incentives received related to conducting R&D activities in Poland, partially offset by an increase in variable compensation expense and foreign exchange rates.

Previous wording

During the three and six months ended June 30, 2024, compared to the same period in the prior year, Consumer Goods, Retail & Travel remained the largest industry vertical in the Europe segment. However, revenues in this vertical declined 8.8% and 8.2%, during the three and six months ended June 30, 2024, respectively, as compared to the corresponding periods in 2023 primarily due to decreased demand from clients in the retail and consumer goods industries. During the three and six months ended June 30, 2024, revenues in Financial Services grew 0.5% and declined 1.9%, respectively, primarily due to the fluctuations in demand from commercial banking, investment banking, payment processing and insurance clients. During the three and six months ended June 30, 2024, revenues in Business Information & Media declined 34.0% and 30.0%, respectively, primarily due to decreased demand from two clients who were historically included in our top 10 clients. During the three and six months ended June 30, 2024, revenues in Software & Hi-Tech grew 4.2% and 4.1%, respectively, primarily due to the expansion of services provided to one of our top 10 clients. Revenues in Life Sciences & Healthcare grew 34.8% and 31.0% during the three and six months ended June 30, 2024, respectively, primarily due to the growth experienced from clients in the pharmaceutical and healthcare sectors. Revenues in Emerging Verticals declined 1.6% and grew 0.1% during the three and six months ended June 30, 2024, respectively, with declines experienced from clients in the professional services and telecommunications industries, and growth experienced from clients in the energy industry as well as a client that was previously reported under the Russia segment.

Current wording

During the three and nine months ended September 30, 2024, compared to the same period in the prior year, Consumer Goods, Retail & Travel remained the largest industry vertical in the Europe segment. However, revenues in this vertical declined 2.4% and 6.3%, during the three and nine months ended September 30, 2024, respectively, as compared to the corresponding periods in 2023 primarily due to decreased demand from clients in the retail and consumer goods industries, partially offset by growth from our travel clients. During the three and nine months ended September 30, 2024, revenues in Financial Services grew 9.8% and 1.9%, respectively, primarily due to the improvement in demand from insurance and wealth management clients as well as from commercial banking clients in the third quarter of 2024. During the three and nine months ended September 30, 2024, revenues in Business Information & Media declined 33.8% and 31.2%, respectively, primarily due to decreased demand from two clients who were historically included in our top-10 clients. During the three and nine months ended September 30, 2024, revenues in Software & Hi-Tech grew 25.0% and 10.9%, respectively, primarily due to the expansion of services provided to one of our top 10 clients. Revenues in Life Sciences & Healthcare grew 43.1% and 35.2% during the three and nine months ended September 30, 2024, respectively, primarily due to the growth experienced from clients in the pharmaceutical and healthcare sectors. Revenues in Emerging Verticals increased 0.4% and 0.2% during the three and nine months ended September 30, 2024, respectively, with growth experienced from clients in the energy industry as well as a client that was previously reported under the Russia segment.

Previous wording

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 June 30, 2024, our principal sources of liquidity were cash and cash equivalents totaling $1.787 billion, short-term investments totaling $61.5 million as well as $675.0 million of available borrowings under our revolving credit facility. See Note 8 “Debt” of our condensed consolidated financial statements in “Part I. Item 1. Financial Statements (Unaudited)” for information regarding our debt.

Current wording

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 September 30, 2024, our principal sources of liquidity were cash and cash equivalents totaling $2.036 billion, short-term investments totaling $22.3 million as well as $675.0 million of available borrowings under our revolving credit facility. See Note 8 “Debt” of our condensed consolidated financial statements in “Part I. Item 1. Financial Statements (Unaudited)” for information regarding our debt.

Previous wording

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. Since the invasion of Ukraine in 2022, our operating activities included using cash on humanitarian efforts for Ukraine and geographic repositioning of our workforce. The first six months of 2024 were positively impacted by lower payments for variable compensation as compared to the first six months of 2023 attributable to a lower level of financial performance for the year ended December 31, 2023 and were negatively impacted by a larger increase in days sales outstanding compared to the first six months of 2023.

Current wording

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. Since the invasion of Ukraine in 2022, our operating activities included using cash on humanitarian efforts for Ukraine and geographic repositioning of our workforce. The first nine months of 2024 were positively impacted by lower payments for variable compensation as compared to the first nine months of 2023, attributable to a lower level of financial performance for the year ended December 31, 2023.

Previous wording

Our primary uses of cash from 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 six months ended June 30, 2024 was primarily attributable to $11.5 million used for capital expenditures and $56.7 million used for the acquisitions of businesses, net of cash acquired. The cash used in investing activities during the same period in 2023 was primarily attributable to $14.8 million used for capital expenditures and an investment of $10.9 million into time deposits.

Current wording

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 nine months ended September 30, 2024 was primarily attributable to $57.1 million used for the acquisitions of businesses, net of cash acquired, and $16.4 million used for capital expenditures compared to $14.0 million used for the acquisitions of businesses, net of cash acquired, $18.4 million used for capital expenditures and an investment of $10.9 million in time deposits during the same period in 2023. Additionally, during the nine months ended September 30, 2024 we received $41.5 million from matured investments in time deposits, compared to $10.9 million received during the same period in 2023.

Previous wording

Cash used in financing activities mainly consists of repurchasing shares of EPAM common stock under the 2023 Repurchase Program, payments of withholding taxes related to net share settlements of restricted stock units, 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 purchases 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 six months of 2024, our main use of cash from financing activities consisted of $335.1 million of payments to repurchase our common stock, compared to $49.9 million in the corresponding period of 2023. These cash outflows were partially offset by cash received from the exercises of stock options issued under our long-term incentive plans and proceeds from the purchase of shares under our ESPP of $32.5 million in the first six months of 2024, compared to $25.6 million received in the corresponding period of 2023.

Current wording

Cash used in financing activities mainly consists of repurchasing shares of EPAM common stock under the 2023 Repurchase Program and 2024 Repurchase Program, payments of withholding taxes related to net share settlements of restricted stock units, 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 purchases 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 nine months of 2024, our main use of cash in financing activities consisted of $385.0 million of payments to repurchase our common stock, compared to $128.4 million in the corresponding period of 2023. In addition, we used cash for the payments of withholding taxes related to net share settlements of restricted stock units of $32.5 million in the first nine months of 2024, compared to $28.2 million paid in the corresponding period of 2023. These cash outflows were partially offset by cash received from the exercises of stock options issued under our long-term incentive plans and proceeds from the purchase of shares under our ESPP of $33.8 million in the first nine months of 2024, compared to $28.6 million received in the corresponding period of 2023.