EPAM Systems, Inc.: Form 10-Q for the period ended Jun 30, 2026

You should read the following discussion and analysis of our financial condition and results of operations together with our Annual Report on Form 10-K for the year ended December 31, 2025 and the unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled “Forward-Looking Statements” in this item and in “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025. We assume no obligation to update any of these forward-looking statements.

In this quarterly report, “EPAM,” “EPAM Systems, Inc.,” the “Company,” “we,” “us” and “our” refer to EPAM Systems, Inc. and its consolidated subsidiaries.

“EPAM®” is a trademark of EPAM Systems, Inc. All other trademarks and service marks used herein are the property of their respective owners.

Executive Summary

We have used our software engineering expertise to become a leading global provider of digital engineering, cloud and AI-enabled transformation services, as well as a leading business and experience consulting partner for global enterprises and ambitious startups. We address our clients’ transformation challenges by fusing EPAM Continuum’s integrated strategy, experience and technology consulting with our 30+ years of engineering execution to speed our clients’ time to market and drive greater value from their digital investments.

We leverage AI to deliver transformative solutions that accelerate our clients' digital innovation and enhance their competitive edge. Through platforms like EPAM AI/RUN™ and initiatives like DIALX Lab™, we integrate advanced AI technologies into tailored business strategies, driving significant industry impact and fostering continuous innovation.

Through increased specialization in focused verticals and a continued emphasis on strategic partnerships, we are able to deliver technology transformation from start to finish, leveraging agile methodologies, proven client collaboration frameworks, engineering excellence tools, hybrid teams and our award-winning proprietary global delivery platform.

Our clients depend on us to solve their complex technical challenges and rely on our expertise in core engineering, advanced technologies, digital design and intelligent enterprise development. We combine our software engineering heritage with strategic business and innovation consulting, design thinking, and physical-digital capabilities to deliver end-to-end digital transformation services for our clients. We focus on building long-term partnerships with our clients in a market that is constantly challenged by the pressures of digitization through our innovative strategy and scalable software solutions, integrated advisory, business consulting and experience design, and a continually evolving mix of advanced capabilities.

Our global delivery model and centralized support functions, combined with the benefits of scale from the shared use of fixed-cost resources, enhance our productivity levels and enable us to better manage the efficiency of our global operations. As a result, we have created a delivery base whereby our applications, tools, methodologies and infrastructure allow us to seamlessly deliver services and solutions from our global delivery centers to our clients across the world. Our teams of consultants, designers, architects, engineers and trainers have the capabilities and skill sets to deliver business results.

Business Update Regarding the War in Ukraine

Russia’s attack on Ukraine has had, and could continue to have, a material adverse effect on our operations. As of June 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 June 30, 2026, we have $4.6 million remaining to be expensed under this humanitarian commitment.

Our Board of Directors and its committees continue their oversight of our strategic, geopolitical, and cybersecurity risks and the risks related to our geographic locations and expansion. Our Board has received updates from management during both regular and special meetings, while also providing oversight of the risks associated with Russia’s invasion of Ukraine and other strategic areas of importance related to the war.

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, our humanitarian commitment to our people in Ukraine, and other costs related to the war 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 risks to our business, please read “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025 and “Part II. Item 1A. Risk Factors” in this quarterly report.

Year-to-Date 2026 Developments and Trends

For the first six months of 2026, our revenues were $2.815 billion, an increase of 6.0% from $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 9.6% for the six months ended June 30, 2026 as compared to 8.5% for the six months ended June 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 $3.49 for the six months ended June 30, 2026 from $2.84 for the six months ended June 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.

Critical Accounting Policies

The discussion and analysis of our financial position and results of operations is based on our unaudited condensed consolidated financial statements which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a recurring basis, we evaluate our estimates and judgments, including those related to revenue recognition and related allowances, impairments of long-lived assets including intangible assets, goodwill and right-of-use assets, income taxes including the valuation allowance for deferred tax assets, and stock-based compensation. Actual results may differ materially from these estimates under different assumptions and conditions. In addition, our reported financial condition and results of operations could vary due to a change in the application of a particular accounting standard.

During the three and six months ended June 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.

Results of Operations

The following table presents a summary of our consolidated results of operations for the periods indicated. This information should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this quarterly report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

(in thousands, except percentages and per share data)

(1) Includes $22,833 and $18,161 of stock-based compensation expense for the three months ended June 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 $23,568 and $20,397 of stock-based compensation expense for the three months ended June 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.

Consolidated Results Review

Revenues

During the three months ended June 30, 2026, our total revenues increased by 4.5% to $1.415 billion compared to the corresponding period in 2025. During the three months ended June 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 1.1% to revenue growth.

During the six months ended June 30, 2026, our total revenues increased by 6.0% to $2.815 billion compared to the corresponding period in 2025. During the six months ended June 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 2.5% to revenue growth.

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

(in thousands, except percentages)

(in thousands, except percentages)

(1) Americas includes revenues from clients in North, Central and South America.

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

(3) APAC includes revenues from clients in East Asia, Southeast Asia and Australia.

During the three and six months ended June 30, 2026, the United States continued to be our largest client location. During the three months ended June 30, 2026, revenues in the United States increased 0.7% to $715.0 million from $710.0 million in the second quarter of 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.

During the three months ended June 30, 2026, the top three revenue contributing countries by client location in EMEA were the United Kingdom, Switzerland, and the Netherlands, generating $159.6 million, $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 $294.2 million, $214.9 million, and $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 June 30, 2026 as compared to the same period in the previous year.

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

Cost of Revenues (Exclusive of Depreciation and Amortization)

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.

During the three months ended June 30, 2026, cost of revenues (exclusive of depreciation and amortization) was $985.2 million representing an increase of 2.2% from $964.0 million in the corresponding period of 2025. The increase primarily resulted from a 1.6% increase in the average number of production professionals in the second quarter of 2026 compared to the second quarter of 2025, foreign exchange fluctuations, and increased stock-based compensation expense. Expressed as a percentage of revenues, cost of revenues (exclusive of depreciation and amortization) was 69.6% and 71.2% in the second quarter of 2026 and 2025, respectively. This year-over-year decrease is primarily due to a decrease in compensation expense as a percentage of revenues, partially offset by the negative impact from foreign currency fluctuations.

During the six months ended June 30, 2026, cost of revenues (exclusive of depreciation and amortization) was $1.997 billion representing an increase of 4.2% from $1.916 billion in the corresponding period of 2025. The increase primarily resulted from a 2.1% increase in the average number of production professionals in the first six months of 2026 compared to the first six months of 2025, foreign exchange fluctuations, and increased stock-based compensation expense. Expressed as a percentage of revenues, cost of revenues (exclusive of depreciation and amortization) was 71.0% and 72.2% for the six months ended June 30, 2026 and 2025, respectively. The year-over-year decrease is primarily due to a decrease in compensation expense as a percentage of revenues, partially offset by the negative impact from foreign currency fluctuations.

Selling, General and Administrative Expenses

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 various one-time and unusual expenses such as impairment charges.

During the three months ended June 30, 2026, selling, general and administrative expenses were $245.2 million representing a 5.9% increase as compared to $231.7 million in the corresponding period of 2025. The increase was mainly driven by increased personnel-related costs including stock-based compensation expense and foreign exchange fluctuations. Expressed as a percentage of revenues, selling, general and administrative expenses increased by 0.2% to 17.3% for the three months ended June 30, 2026 as compared to the same period from the prior year. The year-over-year increase is primarily due to higher stock-based compensation expense as a percentage of revenues.

During the six months ended June 30, 2026, selling, general and administrative expenses were $484.9 million representing a 7.6% increase as compared to $450.6 million in the corresponding period of 2025. The increase in selling, general and administrative expenses was mainly driven by increased personnel-related costs including stock-based compensation expense, and foreign exchange fluctuations. Expressed as a percentage of revenues, selling, general and administrative expenses increased by 0.2% to 17.1% for the six months ended June 30, 2026 as compared to the same period from the prior year. The year-over-year increase is primarily due to higher severance expenses incurred in the current year as part of the 2025 Cost Optimization Program.

Depreciation and Amortization Expense

During the three and six months ended June 30, 2026, depreciation and amortization expense was $32.1 million and $63.6 million, respectively, as compared to $31.3 million and $62.7 million, respectively, in the corresponding periods last year. The composition of depreciable and amortizable assets has not changed significantly since the beginning of the prior year.

Interest and Other Income (Loss), Net

Interest and other 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 (loss), net was a loss of $1.8 million and $0.2 million during the three and six months ended June 30, 2026, respectively, compared to income of $3.5 million and $9.3 million during the three and six months ended June 30, 2025, respectively. The decrease in Interest and other income (loss), net during the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 was largely driven by a $1.7 million difference in the change in fair value of contingent consideration, a $1.2 million increase in interest expense, mainly related to our line of credit, and a $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 Loss

During the three and six months ended June 30, 2026, foreign exchange loss was $9.9 million and $7.6 million, respectively, compared to a loss of $6.2 million and $17.0 million, respectively, reported in the corresponding periods 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.

Provision for Income Taxes

In determining our interim provision for income taxes, we use an estimated annual effective tax rate, which is based on expected annual profit before tax, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

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 or shortfalls upon vesting or exercise of stock awards as well as consideration of any significant or unusual items.

Our effective tax rate was 26.7% and 29.0% for the three and six months ended June 30, 2026, respectively, and 28.9% and 26.0% for the three and six months ended June 30, 2025, respectively. We recorded a tax shortfall upon vesting or exercise of stock awards of $1.7 million and $11.6 million during the three and six months ended June 30, 2026, respectively, as compared to a tax shortfall upon vesting or exercise of stock awards of $1.1 million and $0.6 million during the three and six months ended June 30, 2025, respectively.

Results by Business Segment

We determine our business segments and report 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. 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.

Segment results are based on the segment’s revenues and operating profit, where segment operating profit is defined as segment 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. Intersegment transactions are excluded from the segment’s revenues and operating profit 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. 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, certain taxes included in operating expenses, compensation to non-employee directors and certain other general and administrative expenses, including compensation of specific groups of non-production employees. In addition, we do 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 and benefits. These unallocated amounts are combined with total segment operating profit to arrive at consolidated income from operations.

Our CODM considers the operating results of each segment on a quarterly basis and uses segment operating profit predominantly to assess the performance of each segment by comparing the results of each segment with one another and to historical performance. When combined with certain other financial information, this enables the CODM to make decisions about the reporting structure, allocation of operating and capital resources, and compensation of certain employees.

See Note 14 “Segment Information” in the notes to our condensed consolidated interim financial statements in this Form 10-Q for more information related to our reportable segments.

Americas Segment

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 June 30, 2026, and 2025:

During the three months ended June 30, 2026, revenues for the Americas segment increased $4.9 million, or 0.6%, compared to the same period last year and segment operating profit increased $19.6 million, or 15.1%, compared to the same period last year. During the three months ended June 30, 2026, revenues from our Americas segment were 56.0% of total revenues, a decrease from 58.2% reported in the corresponding period of 2025. As a percentage of Americas segment revenues, the Americas segment’s operating profit increased to 18.8% during the second quarter of 2026 from 16.4% in the second 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 six months ended June 30, 2026, revenues for the Americas segment increased $23.1 million, or 1.5%, compared to the same period last year and segment operating profit increased $36.6 million, or 15.0%, compared to the same period last year. During the six months ended June 30, 2026, revenues from our Americas segment were 56.4% of total revenues, a decrease from 58.9% reported in the corresponding period of 2025. As a percentage of Americas segment revenues, the Americas segment’s operating profit increased to 17.7% during the six months ended June 30, 2026 from 15.6% in the six months ended June 30, 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.

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

(in thousands, except percentages)

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

Europe Segment

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 June 30, 2026, and 2025:

36

During the three months ended June 30, 2026, Europe’s segment revenues were $622.5 million, representing an increase of $56.5 million, or 10.0%, from the same period last year. Revenues were positively impacted by changes in foreign currency exchange rates during the second quarter of 2026 and had our Europe segment revenues been expressed in constant currency terms using the exchange rates in effect during the second quarter of 2025, we would have reported revenue growth of 8.5%. Europe’s segment revenues accounted for 44.0% and 41.8% of total segment revenues during the three months ended June 30, 2026 and 2025, respectively. During the second quarter of 2026, the segment’s operating profit increased 24.4% to $100.5 million compared to the second quarter of 2025. Expressed as a percentage of revenues, Europe’s segment operating profit increased to 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 six months ended June 30, 2026, Europe’s segment revenues were $1.227 billion, representing an increase of $136.6 million, or 12.5%, from the same period last year. Revenues were positively impacted by changes in foreign currency exchange rates during the six months ended June 30, 2026 and had our Europe segment revenues been expressed in constant currency terms using the exchange rates in effect during the first half of 2025, we would have reported revenue growth of 8.0%. Europe’s segment revenues accounted for 43.6% and 41.1% of total segment revenues during the six months ended June 30, 2026 and 2025, respectively. During the six months ended June 30, 2026, the segment’s operating profit increased 20.2% to $182.8 million compared to the corresponding period of 2025. Expressed as a percentage of revenues, Europe’s segment operating profit increased to 14.9% compared to 13.9% in the same period of the prior year. This increase is primarily attributable to improved profitability as a result of our cost optimization initiatives.

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

(in thousands, except percentages)

During the three and six months ended June 30, 2026, Financial Services was the largest industry vertical in the Europe segment and grew 8.4% and 10.2%, respectively, compared to the corresponding periods of 2025, primarily due to improved demand from clients in asset management and insurance. During the three and six months ended June 30, 2026, revenues in Consumer Goods, Retail & Travel grew 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 June 30, 2026, revenues in Software & Hi-Tech grew 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 June 30, 2026, revenues in Business Information & Media declined 1.6% and 4.4%, respectively, primarily due to decreased demand from information services clients. Revenues in Life Sciences & Healthcare grew 45.1% and 40.2%, respectively, during the three and six months ended June 30, 2026, primarily due to the growth experienced from new and existing clients in the pharmaceutical sector. Revenues in Emerging Verticals grew 10.6% and 16.6%, respectively, during the three and six months ended June 30, 2026, due to the growth from various clients in the energy sector.

Effects of Inflation

Economies in many countries where we operate have periodically experienced high rates of inflation. Periods of higher inflation may affect various economic sectors in those countries and increase our cost of doing business there. We do not believe that inflation has had a material impact on our business, results of operations or financial condition to date. We continue to track the impact of inflation, particularly on wages, while attempting to minimize its effects through pricing and cost management strategies. A higher-than-normal rate of inflation in the future could adversely affect our operations and financial condition. For a discussion of our potential risks and uncertainties, including those related to inflation, see “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025.

Liquidity and Capital Resources

Capital Resources

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, 2026, our principal sources of liquidity were cash and cash equivalents totaling $789.4 million, short-term investments totaling $4.8 million, and $675.0 million of available borrowings under our revolving credit facility. As of June 30, 2026, $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.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

(in thousands)

Operating Activities

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 six months of 2026 were negatively impacted by a higher level of variable compensation payments made based on 2025 performance and a larger increase in days sales outstanding compared to the first six months of 2025.

Investing Activities

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 six months ended June 30, 2026 was primarily attributable to $33.1 million used for capital expenditures compared to $19.2 million used for capital expenditures in the corresponding period of 2025.

Financing Activities

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 equity 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 issuance 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 2026, our main use of cash in financing activities consisted of $409.0 million of payments to repurchase our common stock, including $300 million related to the accelerated share repurchase, compared to $356.5 million in the corresponding period of 2025.

Future Capital Requirements

We believe that our existing cash, cash equivalents and short-term investments, combined with our expected cash flow from operations will be sufficient to meet our projected operating and capital expenditure requirements for at least the next twelve months and that we possess the financial flexibility to execute our strategic objectives, including the ability to make acquisitions and strategic investments in the foreseeable future. However, the invasion of Ukraine, other various geopolitical events, and the related measures implemented to contain their impact, have caused and may continue to cause material disruptions in financial markets and economies. These disruptions may increase our costs of capital, decrease returns on investment, and otherwise adversely affect our business, results of operations, financial condition and liquidity.

Our ability to generate cash is subject to our performance, general economic conditions, industry trends and other factors including the impact of the invasion of Ukraine, as described elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. We may require additional cash resources due to changed business conditions or other future developments, including any investments, acquisitions, or share repurchases we may decide to pursue. To the extent that existing cash, cash equivalents, short-term investments, and operating cash flows are insufficient to fund our future activities and requirements, we may need to raise additional funds through public or private equity or debt financing. If we issue equity securities in order to raise additional funds, substantial dilution to existing stockholders may occur. If we raise cash through the issuance of additional indebtedness, we may be subject to additional contractual restrictions on our business and there is no assurance that we would be able to raise additional funds on favorable terms or at all. Our ability to expand and grow our business in accordance with current plans and to meet our long-term capital requirements will depend on many factors, including the rate at which our cash flows increase or decrease and the availability of public and private debt and equity financing.

See Note 13 “Commitments and Contingencies” of our condensed consolidated financial statements in “Part I. Item 1. Financial Statements (Unaudited)” of this Quarterly Report and “Part II. Item 7. Future Capital Requirements” of our Annual Report on Form 10-K for the year ended December 31, 2025 for information regarding contractual obligations.

Off-Balance Sheet Commitments and Arrangements

We do not have any material obligations under guarantee contracts or other contractual arrangements other than as disclosed in Note 13 “Commitments and Contingencies” of our condensed consolidated financial statements in “Part I. Item 1. Financial Statements (Unaudited).” We have not entered into any transactions with unconsolidated entities where we have financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to us, or engages in leasing, hedging, or research and development services with us.

Recent Accounting Pronouncements

See Note 1 “Organization and Summary of Significant Accounting Policies” to our unaudited condensed consolidated financial statements in “Part I. Item 1. Financial Statements (Unaudited)” for additional information.

Forward-Looking Statements

This quarterly report on Form 10-Q contains estimates and forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, principally in “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II. Item 1A. Risk Factors.” Our Annual Report on Form 10-K for the year ended December 31, 2025 also contains estimates and forward-looking statements, principally in “Part I. Item 1A. Risk Factors” and “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our estimates and forward-looking statements are based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. Those future events and trends may relate to, among other things, developments relating to the war in Ukraine and escalation of the war in the surrounding region, political and civil unrest or military action in the geographies where we conduct business and operate, difficult conditions in global capital markets, foreign exchange markets, global trade and the broader economy, the adoption and implementation of artificial intelligence technologies by EPAM and its clients and prospective clients, and the effect that these events may have on client demand, our revenues, operations, access to capital and profitability. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks, uncertainties and assumptions as to future events that may not prove to be accurate and are made in light of information currently available to us. Important factors, in addition to the factors described in this quarterly report and in our Annual Report, may materially and adversely affect our results. You should read this quarterly report, our Annual Report and the documents that we have filed as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect.

The words “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “might,” “would,” “continue” or the negative of these terms or other comparable terminology and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made and, except to the extent required by law, we undertake no obligation to update, to correct, to revise or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. As a result of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this quarterly report and our Annual Report on Form 10-K for the year ended December 31, 2025 might not occur and our future results, level of activity, performance or achievements may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentioned above, and the differences may be material and adverse. Because of these uncertainties, you should not place undue reliance on these forward-looking statements.

We are exposed to certain market risks in the ordinary course of our business. These risks primarily result from changes in concentration of credit risks, foreign currency exchange rates and interest rates. In addition, our global operations are subject to risks related to differing economic conditions, global trade, civil unrest, political instability or uncertainty, military activities, broad-based sanctions, differing tax structures, and other changing regulations and restrictions.

Concentration of Credit and Other Credit Risks

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, short-term investments and trade receivables.

We maintain our cash, cash equivalents and short-term investments with financial institutions. We believe that our credit policies reflect normal industry terms and business risk. We do not anticipate non-performance by the counterparties.

We have cash in several countries, including Ukraine and Belarus, where the banking sector remains subject to periodic instability; banking and other financial systems in these countries generally do not meet the banking standards of more developed markets, and bank deposits made by corporate entities are not insured. As of June 30, 2026, we had $37.5 million of cash and cash equivalents in banks in Belarus and $34.1 million of cash and cash equivalents in banks in Ukraine. We regularly monitor cash held in these countries and, to the extent the cash held exceeds amounts required to support our operations in these countries, we distribute the excess funds into markets with more developed banking sectors to the extent it is possible to do so. In April 2024, Belarus instituted restrictions on distributing dividends from Belarus to shareholders in certain countries, including the U.S. The restrictions are scheduled to remain in place until the end of 2026 and may prevent EPAM from distributing excess funds, if any, out of Belarus. We do not expect these restrictions to have a material impact on our ability to meet our worldwide cash obligations during this period. We place our cash and cash equivalents with financial institutions considered stable, limit the amount of credit exposure with any one financial institution and conduct ongoing evaluations of the credit worthiness of the financial institutions with which we do business. However, a banking crisis, bankruptcy or insolvency of banks that process or hold our funds, or sanctions may result in the loss of our deposits or adversely affect our ability to complete banking transactions, which could adversely affect our business and financial condition.

Trade receivables are generally dispersed across many clients operating in different industries and geographies; therefore, concentration of credit risk is limited and we do not believe significant credit risk existed as of June 30, 2026. Though our results of operations depend on our ability to successfully collect payment from our clients for work performed, historically, credit losses and write-offs of trade receivables have not been material to our condensed consolidated financial statements. If our clients enter bankruptcy protection or otherwise take steps to alleviate their financial distress, our credit losses and write-offs of trade receivables could increase, which would negatively impact our results of operations.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from variable rates related to cash and cash equivalent deposits, short-term investments, and our borrowings, mainly under our 2025 Credit Agreement, which is subject to a variety of rates depending on the currency and timing of funds borrowed. We do not believe we are exposed to material direct risks associated with changes in interest rates related to these deposits, investments and borrowings.

Foreign Exchange Risk

Our global operations are conducted predominantly in U.S. dollars. Other than U.S. dollars, we generate revenues principally in euros, British pounds, and Swiss francs. During the three months ended June 30, 2026, approximately 40.1% of consolidated revenues were denominated in currencies other than the U.S. dollar. We incur the majority of our expenditures in currencies other than the U.S. dollar, principally in euros, Polish zlotys, Indian rupees, British pounds, and Mexican pesos. Exchange rate fluctuations in any of these currencies relative to the U.S. dollar could negatively impact our results of operations.

To manage the risk of fluctuations in foreign currency exchange rates and hedge a portion of our forecasted foreign currency denominated operating expenses incurred in the normal course of business, we implemented a hedging program through which we enter into a series of foreign exchange forward contracts with durations of twelve months or less that are designated as cash flow hedges of forecasted Polish zloty, Indian rupee, Hungarian forint, Colombian peso, and Mexican peso transactions. As of June 30, 2026, all of EPAM’s foreign exchange forward contracts were designated as hedges and there is no financial collateral (including cash collateral) required to be posted related to the foreign exchange forward contracts.

Management supplements results reported in accordance with United States generally accepted accounting principles, referred to as GAAP, with non-GAAP financial measures. Management believes these measures help illustrate underlying trends in our business and uses the measures to establish budgets and operational goals, communicated internally and externally, for managing our business and evaluating our performance. When important to management’s analysis, operating results are compared on the basis of “constant currency,” which is a non-GAAP financial measure. This measure excludes the effect of foreign currency exchange rate fluctuations by translating the current period revenues and expenses into U.S. dollars at the weighted average exchange rates of the prior period of comparison.

During the second quarter of 2026, we reported revenue growth of 4.5% compared to the second quarter of 2025. Had our consolidated revenues been expressed in constant currency terms using the exchange rates in effect during the second quarter of 2025, we would have reported revenue growth of 3.4%. Our revenues denominated in euros and Mexican pesos experienced the most impact from the movements in foreign currencies. During the second quarter of 2026, we reported an increase in income from operations of 20.4% compared to the second quarter of 2025. Had our consolidated results been expressed in constant currency terms using the exchange rates in effect during the second quarter of 2025, we would have reported an increase in income from operations of 28.1%. Income from operations was most significantly impacted by the movements of the Indian rupee, Hungarian forint, Colombian peso, and Polish zloty exchange rates during the second quarter of 2026 compared to the same period in the prior year.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Based on management’s evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report, these officers have concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended June 30, 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

For a discussion of our potential risks and uncertainties, including the role of AI technologies in our business and workforce and as competition to the services that we sell, and our significant operations in Belarus and Ukraine and the material adverse effect the invasion of Ukraine by Russia has had and may have on our operations, business, and financial results, see the risk factors disclosed under the heading “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025.

The risks and uncertainties that we face are not limited to those set forth in our Annual Report on Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our common stock.