SEGMENTS INFORMATION

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

SEGMENT INFORMATION

SEGMENT INFORMATION

The Company determines its business segments and reports segment information in accordance with how the Company’s chief operating decision maker (“CODM”) organizes the segments to evaluate performance, allocate resources and make business decisions. Segment results are based on the segment’s revenues and operating profit, where segment operating profit is defined as income from operations before unallocated costs. Expenses included in segment operating profit consist principally of direct selling and delivery costs as well as an allocation of certain shared services expenses. Certain corporate expenses are not allocated to specific segments as these expenses are not controllable at the segment level. Such expenses include certain types of professional fees, non-corporate taxes, compensation to non-employee directors and certain other general and administrative expenses, including compensation of specific groups of non-production employees. In addition, the Company does not allocate amortization of intangible assets acquired through business combinations, goodwill and other asset impairment charges, stock-based compensation expenses, acquisition-related costs and certain other one-time charges. These unallocated amounts are combined with total segment operating profit to arrive at consolidated income from operations as reported below in the reconciliation of segment operating profit to consolidated income before provision for income taxes. Additionally, management has determined that it is not practical to allocate identifiable assets by segment since such assets are used interchangeably among the segments.

The Company manages its business primarily based on the managerial responsibility for its client base and market. As managerial responsibility for a particular customer relationship generally correlates with the customer’s geographic location, there is a high degree of similarity between customer locations and the geographic boundaries of the Company’s reportable segments. In some cases, managerial responsibility for a particular customer is assigned to a management team in another region and is usually based on the strength of the relationship between customer executives and particular members of EPAM’s senior management team. In such cases, the customer’s activity would be reported through the management team’s reportable segment.

During the fourth quarter of 2019, the Company changed its management reporting of segment revenue to exclude other income. Prior year amounts presented below have been changed to conform to the new presentation.

Revenues from external customers and operating profit/(loss), before unallocated expenses, by reportable segment for the three and nine months ended September 30, 2020 and 2019, were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Segment revenues:
North America	$	391,605	$	358,987	$	1,167,536	$	1,000,701
Europe	231,418		204,952		695,056		596,378
Russia	29,220		24,164		73,393		63,944
Total segment revenues	$	652,243	$	588,103	$	1,935,985	$	1,661,023
Segment operating profit/(loss):
North America	$	87,272	$	79,310	$	248,951	$	213,114
Europe	43,018		27,550		109,223		87,014
Russia	2,958		5,524		(2,168)		11,765
Total segment operating profit	$	133,248	$	112,384	$	356,006	$	311,893

Intersegment transactions were excluded from the above on the basis that they are neither included in the measure of a segment’s profit and loss results, nor considered by the CODM during the review of segment results.

There were no customers that accounted for more than 10% of total segment revenues during the three and nine months ended September 30, 2020 and 2019.

Reconciliation of segment operating profit to consolidated income before provision for income taxes is presented below:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Total segment operating profit:	$	133,248	$	112,384	$	356,006	$	311,893
Unallocated amounts:
Stock-based compensation expense	(23,474)		(15,471)		(54,794)		(53,024)
Amortization of intangibles assets	(3,086)		(2,554)		(9,215)		(7,293)
Other acquisition-related expenses	(243)		(1,144)		(859)		(2,505)
Other unallocated expenses	(10,049)		(12,650)		(23,807)		(30,966)
Income from operations	96,396		80,565		267,331		218,105
Interest and other income, net	1,672		2,509		5,875		6,775
Foreign exchange gain/(loss)	5,896		(3,105)		3,253		(10,151)
Income before provision for income taxes	$	103,964	$	79,969	$	276,459	$	214,729

Geographic Area Information

Long-lived assets include property and equipment, net of accumulated depreciation and amortization, and management has determined that it is not practical to allocate these assets by segment since such assets are used interchangeably among the segments. Physical locations and values of the Company’s long-lived assets are presented below:

	As of September 30, 2020		As of December 31, 2019
Belarus	$	72,507	$	75,984
Ukraine	30,142		24,652
United States	16,329		15,637
Russia	13,686		17,980
India	6,349		7,443
Poland	5,032		5,029
Hungary	4,820		5,201
Spain	2,685		1,106
China	2,556		3,036
Mexico	2,431		2,353
Other	7,152		6,838
Total	$	163,689	$	165,259

The table below presents information about the Company’s revenues by customer location for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
United States	$	371,366	$	340,803	$	1,106,459	$	959,471
United Kingdom	77,519		74,992		251,928		209,773
Switzerland	50,399		38,781		144,158		110,378
Netherlands	28,827		22,161		81,973		63,816
Russia	27,963		23,668		69,372		62,020
Germany	22,172		20,940		62,163		59,716
Canada	18,219		17,582		52,724		50,339
Other locations	55,778		49,176		167,208		145,510
Total	$	652,243	$	588,103	$	1,935,985	$	1,661,023