EPAM Epam Systems, Inc. - 10-K

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. Listed below, not necessarily in order of importance or probability of occurrence, are the most significant risk factors applicable to us. Additionally, forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. See “Forward-Looking Statements.”

Risks Related to Geopolitical Events

Instability in geographies where we have significant operations and personnel or where we derive substantial amounts of revenue could have a material adverse effect on our business, clients, service delivery, and financial results.

Volatile, negative, and uncertain global macroeconomic and geopolitical conditions have and could continue to reduce confidence in our business and our delivery model and in the businesses and markets served by our clients. Markets that are important for both our clients and our delivery operations are increasingly interdependent. Uncertainty about changing economic and geopolitical conditions in those markets has caused, and could continue to cause, our clients to reduce or defer their spending on new initiatives, technologies, and on our services, which negatively affects our business.

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

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

The invasion of Ukraine and the resulting war has had and could continue to have a material adverse effect on our personnel, business, and finances.

We have significant operations and personnel in Ukraine and Belarus. Ongoing conflict and disruption in the region following Russia’s invasion of Ukraine in February 2022 has had and could continue to have a material adverse effect on our operations, personnel, business, clients, service delivery, and financial results.

In particular, as of December 31, 2025, approximately 14,100 of our global delivery, administrative and support personnel were based in Ukraine and Belarus, both of which are involved in or affected by Russia’s invasion of Ukraine. While a significant number of our employees from Belarus and from our former operations in Russia have relocated since the Russian invasion, we expect to continue operating in Ukraine, Belarus and in bordering Eastern Europe and Central Asia countries. All of these countries currently are, and in the future may be, adversely impacted by regional instability. Any escalation of the conflict that includes Belarus or its military could jeopardize our personnel, facilities, and operations in Belarus.

In addition to a significant number of personnel and operations in Ukraine, we also own an office building in Kyiv and lease office space in a number of cities in Ukraine, all or some of which may be damaged or destroyed as a result of the continued attacks against Ukraine. The impact of any escalation on Ukraine, as well as responses by countries that provide military aid to Ukraine or institute sanctions against officials, individuals, institutions, companies, and industries in Belarus and in the annexed portions of Ukraine, and counter-responses taken by Russia and its allied countries has had and could continue to have a material adverse effect on our operations.

In order to protect against potential cyberattacks or other information security threats, some of our clients have implemented steps to block internet communications with Ukraine and Belarus, which has had a material adverse effect on our ability to deliver our services from those locations to those clients. Our clients have sought and may continue to seek altered contract terms and delivery locations for the performance of services, delay planned work, seek services from competitors, or suspend, terminate, or reduce existing contracts or services, all of which could have a material adverse effect on our financial condition. The material adverse effects from the conflict and enhanced sanction and counter-sanctions activity have caused us to shift portions of our delivery capabilities to other countries and may continue to disrupt our delivery of services and restrict our ability to engage in certain projects or with certain clients.

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

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Risks Related to Artificial Intelligence

If we are unable to keep pace with the adoption and use of AI technology in our business and effectively implement AI in our workforce planning and deployment, we could become less competitive in our industry.

We have been incorporating AI into our products, services, and business, both due to client demand and because we expect that integrating AI into our services is a competitive requirement in a rapidly evolving market. We have made significant investments to build and support AI capabilities, products, and services to meet clients’ needs and remain competitive in our industry and expect to make additional investments in the future. If we are unable or slow to develop, adopt, and deploy AI technologies in our business, we will not remain competitive in our industry, and the growth we are expecting to realize from AI-related services may not materialize.

AI technologies have changed how we identify, recruit, hire, retain, and efficiently utilize our professionals and are changing how we perform and charge for services. Our clients have asked, and may come to expect, that we use AI along with human delivery personnel to develop software for them at comparatively lower costs than software developed solely by our human delivery personnel. If comparable services can be performed less expensively using AI, clients may seek other service providers or expect price concessions to retain their business, which could adversely affect our financial results. As we plan, develop, and implement changes to our delivery model to balance those services that can only be performed by humans against those that can be performed by leveraging AI, we may have insufficient or excess delivery personnel than required by client demand.

Increased Adoption of AI-Based Software Tools May Reduce Demand for Our Services

Rapidly evolving digital technology innovations, such as AI, machine learning, hyperautomation, low-code/no-code application development, system observability, and predictive insights are creating new forms of competition to our services. These innovations may reduce the need for our services and the services of our clients that develop software and software-as-a-service for their end users. AI, large language model, and machine learning technologies enable clients and potential clients to develop, customize, and maintain software solutions internally and could reduce reliance on third-party service providers such as EPAM and our clients that are software product vendors. Industry-specific plug-ins and agentic features of existing AI software can perform tasks that may replace the need for specialized software to perform common business processes, such as financial analysis, due diligence, and software coding. Our current and prospective clients have and may continue to use AI-powered tools to create or modify software applications themselves, or elect to replace traditional software with agentic AI, rather than purchasing our services or licensing software from our clients.

Increased competition, or the perception of increased competition, from new and non-traditional market participants like AI-based task-specific tools, has negatively impacted the price of our stock. If a significant number of our existing or future clients employ AI-driven tools as a replacement for our services or the software we build, our revenues, anticipated growth and prospects, our financial condition, and our results of operations could be materially adversely affected.

Risks Related to Our Personnel and Growth

We may be unable to effectively manage our growth or achieve anticipated growth, which could place significant strain on our management, systems, resources, and results of operations.

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

• recruiting, training and retaining sufficiently skilled professionals and management personnel while balancing headcount with client requirements;

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

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

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• developing and maintaining close and effective relationships with potential and existing clients in a greater number of industries and locations;

• controlling costs and minimizing cost overruns and project delays in our delivery operations and infrastructure;

• effectively maintaining productivity levels and implementing process improvements across geographies and businesses during periods of uneven client demand; and

• evolving our information security and our internal administrative, operational and financial infrastructure.

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

We must successfully attract, hire, train and retain qualified personnel to service our clients’ projects and we must productively utilize those personnel to remain profitable.

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

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

There may be adverse tax and employment law consequences if the independent contractor status of some of our personnel or the exempt status of our employees is successfully challenged.

In several countries, some of our personnel or the personnel of companies that we acquired are retained as independent contractors. Determining whether an individual is considered an independent contractor or an employee is typically fact sensitive, varies by jurisdiction, and is subject to interpretation. If a government authority changes the applicable laws or a court makes an adverse determination with respect to independent contractors in general or our independent contractors specifically, we could incur significant costs, including for prior periods, related to tax withholding, social security taxes or payments, workers’ compensation and unemployment contributions, and recordkeeping, or we may be required to modify our business model, any of which could materially adversely affect our business, financial condition and results of operations and increase the difficulty of attracting and retaining personnel.

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Our success depends substantially on the continuing efforts of our senior executives and other key personnel, and our business may be severely disrupted if we lose their services and our succession planning efforts are ineffective.

Our success heavily depends upon the continued services of our senior executives and other key employees. If one or more of our senior executives or key employees are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all. If any of our senior executives or key personnel joins a competitor or forms a competing company, they may take clients, suppliers, know-how and our personnel with them despite contractual prohibitions on such activity. Enforcing or attempting to enforce restrictive employment covenants can require significant costs and resources and is not always successful. If we are unable to attract new senior executives or key personnel due to the intense competition for talent in our industry, it could disrupt our business operations and growth. Although we regularly perform succession planning efforts and create contingencies addressing the risks of losing senior executives and other key personnel, those efforts may be ineffective when or if they are deployed.

If we fail to integrate or manage acquired companies efficiently and effectively, or if acquisitions do not perform to our expectations individually or in the aggregate, our overall profitability and growth plans could be materially adversely affected.

Strategic acquisitions involve significant risks but remain a key part of our growth strategy. Acquired companies may not advance our business strategy or achieve a satisfactory return on our investment, we may not be able to successfully integrate acquired employees, businesses, company cultures, client relationships, or operations, and we may not discover significant liabilities in our due diligence or valuation processes. In addition, we may need to implement controls, processes, and policies in our acquired companies so they are consistent and appropriate with the requirements of a multi-national public company especially in areas such as financial reporting, cybersecurity, IT, and privacy, and may rely on transition services from the sellers until we are able to implement those controls, processes, and policies.

Our acquired companies’ contracts with their clients sometimes lack terms and conditions that adequately protect us against the risks associated with the services we provide, and our acquired companies’ legacy business operations and contract terms can expose us to potential liability. Acquisitions also divert significant management attention and financial resources from our ongoing business and from the integration of other recently acquired companies. If not effectively managed, the disruption to our ongoing business increases our expenses, including significant one-time expenses and costs related to unknown liabilities, including tax, litigation, cybersecurity, and commercial risks, and creates difficulty and complexity when integrating acquired operations that can adversely affect our overall growth and profitability.

Risks Related to Our Operations

Increases in wages, equity compensation, and other compensation expenses could limit our competitive advantage, increase our costs, and result in dilution to our stockholders.

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

Our operations in emerging markets subject us to greater economic, financial, and banking risks than we would face in more developed markets.

We have significant operations in emerging market economies in Central and Eastern Europe, Latin and South America, India, Western Asia, and certain other Asian countries, all of which are more vulnerable to market and economic volatility than larger and more developed markets and present risks to our business and operations. A majority of our revenues are generated in North America and Western Europe. However, most of our personnel and delivery centers are located outside of those geographies, including in many emerging markets. This exposes us to foreign exchange risks relating to revenues, compensation, purchases, capital expenditures, receivables and other balance-sheet items. As we continue to leverage and expand our global delivery model into other emerging markets, a larger portion of our revenues and incurred expenses may be in currencies other than U.S. dollars. Currency exchange volatility caused by economic instability or other factors could materially impact our results. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

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We have cash in banks in countries such as Belarus, Ukraine, Kazakhstan, Georgia, Armenia, India, Argentina, and Uzbekistan, where the banking sector generally does not meet the banking standards of more developed markets, bank deposits made by corporate entities are not insured, and the banking system remains subject to instability, sanctions, and changes in regulations that complicate business transactions. Some of the countries where we operate have sanctioned certain of the banks that we use in emerging market economies, which has delayed our intercompany payments and payments to vendors and could delay or prevent receipts from clients. Further elongation or escalation of the military conflict in Ukraine could contribute to a banking crisis in Ukraine, Belarus, or the region. A banking crisis, or the bankruptcy or insolvency of one or more of our banks may result in the loss of our deposits or adversely affect our liquidity and our ability to complete banking transactions in that region. In addition, some countries where we operate and some banks that we use have imposed regulatory or practical restrictions on the movement of cash and the exchange of foreign currencies within their banking systems or to other banking systems, which limits or could eliminate our ability to distribute cash from those countries across our global operations and increases our exposure to currency fluctuations and regional banking instability. Emerging market vulnerability, and especially its impact on currency exchange volatility and banking systems, could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to compete successfully against others in our industry, pricing pressures or loss of market share could have a material adverse effect on our business.

The market for our services is highly competitive and we expect competition to persist and intensify, especially as we and our competitors develop AI capabilities and specialties. We face competition from offshore IT services providers in other outsourcing destinations with low wage costs, as well as competition from large, global consulting and outsourcing firms and in-house IT departments of large corporations. Clients tend to engage multiple IT services providers instead of using an exclusive IT services provider, which limits our revenues and market share and places downward pressure on pricing among competing IT services providers. Clients may prefer service providers that have more locations, more personnel, more experience in a particular country, market, or technology, or that are based in countries that are more cost-competitive or have the perception of being more stable than some of the emerging markets in which we operate.

Some of our competitors have substantially greater financial, marketing or technical resources and we may be unable to retain our clients or successfully attract new clients. Increased competition, our inability to compete successfully, pricing pressures or loss of market share could have a material adverse effect on our business.

Complying with a wide variety of legal requirements in the jurisdictions where we operate can create risks to our operations and financial condition, including liquidation of the subsidiaries that operate some of our major delivery centers.

Our global operations require us to comply with a wide variety of foreign laws and regulations, trade and foreign exchange restrictions, sanctions, inflation, unstable civil, political and military situations, labor issues, and legal systems that make it more difficult to enforce intellectual property, contractual, or corporate rights. Certain legal provisions in Belarus and Ukraine, where our local subsidiaries operate important delivery centers and employ a significant number of billable and support professionals, may allow a court to order liquidation of a locally organized legal entity on the basis of its formal noncompliance with certain requirements during formation, reorganization or during its operations. Belarus has authorized government seizures of property and assets or the takeover of management of commercial organizations owned by or affiliated with specified foreign states if those states or their affiliated companies or actors commit actions deemed unfriendly to Belarus. If we fail to comply with certain requirements, including those relating to minimum net assets, governmental or local authorities can impose fines or seek the involuntary liquidation of our local subsidiaries in court, and creditors will have the right to accelerate their claims, demand early performance of legal obligations, and demand compensation for any damages. Involuntary liquidation of any of our subsidiaries could materially adversely affect our financial condition and results of operations.

The focus on environmental, social and governance topics, including commitments and disclosures we have made and may need to make, may result in additional operational costs and negative reputational impacts.

Expectations from our clients, investors, employees, and regulators regarding our environmental, social, and governance, or ESG, strategy and commitments continue to evolve. As investor policy and sentiment changes, and regulations and legislation related to ESG disclosure and climate change initiatives are adopted or suspended regionally and globally, our compliance obligations may not be aligned with investor, political, or legal support for ESG investments, programs, and disclosure. Failure to invest in and comply with ESG initiatives and regulations could limit our access to certain markets, result in fines, or cause reputational harm, and commitment to ESG policies and programs could similarly harm our business and reputation with investors, clients, and the public and subject us to legal liability. Changes and differences in policy and laws in the various jurisdictions where we operate may require inconsistent disclosures and commitments across those jurisdictions, and regulations, treaties or initiatives related to climate change could result in increased operational costs associated with environmental regulations and increased compliance and energy costs, each of which could harm our business and results of

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operations by increasing our expenses or requiring us to alter our operations. Our processes and controls may not always comply with evolving standards for identifying, measuring, and reporting ESG metrics, including ESG-related disclosures that may be required or expected by regulation or industry norms, and such standards may change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in the future. Additionally, if we are unable to meet our ESG goals and objectives, we could also face scrutiny from certain constituencies related to the scope and nature of those goals or any revisions to those goals, and we may suffer reputational harm with investors, our clients, and current or potential employees.

Our operating results may be negatively impacted by the loss of certain tax benefits provided to companies in our industry by the governments of Belarus, Poland, and other countries.

In Belarus, we are a member of High-Technologies Park which provides a full exemption from Belarus income and value added taxes until 2049 and reduced tax amounts on obligatory social contributions and other taxes. Poland provides a tax incentive for research and development that allows us to take enhanced deductions for specific costs for employees working on research and development projects. If the tax policies in Belarus, Poland, or other countries where we operate are changed, terminated, or not extended or comparable new tax incentives are not introduced, we expect that our operating expenses and/or our effective income tax rate could increase significantly, which could materially adversely affect our financial condition and results of operations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Provision for Income Taxes.”

Risks Related to Regulation and Legislation

Existing policy and substantial changes to fiscal, political, regulatory and other federal policies may adversely affect our business and financial results.

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

The majority of our professionals are offshore. Companies that outsource services to subsidiaries or third parties operating in other countries remain a topic of political discussion in many countries, including the U.S., which is our largest source of revenues. The U.S. administration periodically proposes and enacts rules that restrict offshore outsourcing and discourage employing non-U.S. residents in the U.S., both of which could adversely impact our business. Broadened restrictions on outsourcing by federal and state government agencies, private industry tax disincentives, including excise taxes on payments to foreign subsidiaries and personnel, intellectual property transfer restrictions, and restrictions on the use or availability of certain work visas could have a negative effect on our business.

Some of our projects require our personnel to obtain visas to travel and work at client sites outside of our personnel’s home countries. Our reliance on visas to staff projects with employees who are not citizens of the country where the work is performed makes us vulnerable to changes in the number of visas to be issued in any particular year and other work permit laws and regulations. Obtaining the required visas and work permits for the U.S. has become more lengthy and difficult. Political forces and economic conditions limiting the number of permitted applications and application and enforcement processes may cause additional delays or rejections when trying to obtain visas. Delays in obtaining visas or other work authorizations may delay the ability of our personnel to travel to meet with and provide services to our clients or to continue to provide services on a timely basis. In addition, the availability of a sufficient number of visas without significant additional costs could limit our ability to provide services to our clients on a timely and cost-effective basis or manage our sales and delivery centers as efficiently as we otherwise could. Delays in or the unavailability of visas and work permits could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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We are subject to laws and regulations in the U.S. and other countries in which we operate, including export restrictions, economic sanctions, and anti-bribery and anti-corruption laws. Compliance with these laws requires significant resources and non-compliance may result in civil or criminal penalties and other remedial measures.

We are subject to many laws and regulations that restrict our international operations, including laws that prohibit activities involving restricted countries, organizations, entities and persons that have been identified as unlawful actors or that are subject to U.S. sanctions. The U.S. Office of Foreign Assets Control, or OFAC, and other domestic and international bodies have imposed sanctions that prohibit us from engaging in trade or financial transactions with certain countries, businesses, organizations and individuals. We are also subject to anti-bribery and anti-corruption laws, all of which prohibit companies and their intermediaries from making bribes for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment. We operate in many parts of the world that have experienced government corruption to some degree, and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices, although adherence to local customs and practices is generally not a defense under anti-bribery laws.

Our compliance program contains controls and procedures designed to ensure our compliance with anti-bribery and anti-corruption laws, sanctions, and other laws and regulations. The continuing implementation and ongoing development and monitoring of our compliance program may be time consuming, expensive, and could result in the discovery of compliance issues or violations by us or our employees, independent contractors, subcontractors or agents of which we were previously unaware.

Any violations of these or other laws and regulations by our employees, independent contractors, subcontractors and agents, including third parties with which we associate or companies we acquire, could expose us to administrative, civil or criminal penalties, and fines or business restrictions, each of which could have a material adverse effect on our results of operations and financial condition and would adversely affect our reputation and the market for shares of our common stock and may require certain of our investors to disclose their investment in us under certain state laws.

Risks Related to Our Industry and Clients

We generally do not have long-term commitments from our clients, our clients may terminate contracts before completion or choose not to renew contracts, and we are not guaranteed payment for services. Loss of business or non-payment from significant clients could materially affect our results of operations.

Our ability to maintain continuing relationships with our major clients and successfully obtain payment for our services is essential to the growth and profitability of our business. However, the volume of work performed for any specific client is likely to vary from year to year, especially since we generally are not our clients’ exclusive IT services provider and we generally do not have long-term commitments from clients to purchase our services. We may also fail to assess the creditworthiness of our clients adequately or accurately. Our clients’ ability to terminate engagements with or without cause and our clients’ inability or unwillingness to pay for services we performed makes our future revenues and profitability uncertain. Although a substantial majority of our revenues are generated from clients who also contributed to our revenues during the prior year, our engagements with our clients are typically for projects that are singular in nature. Therefore, we must seek to obtain new engagements when our current engagements end.

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

• financial difficulties, including client insolvency or bankruptcy or increased global inflationary pressures and elevated interest rates;

• corporate restructuring, mergers, and acquisitions;

• our inability to complete our contractual commitments and invoice and collect our contracted revenues;

• change in strategic priorities or economic conditions that eliminate the impetus for the project or reduce technology-related spending;

• change in outsourcing strategy resulting in moving more work to the client’s in-house technology departments or to our competitors; and

• replacement of existing software with packaged software supported by licensors.

Termination, non-renewal, or renegotiation of a client contract or delayed starts to projects cause us to experience a higher-than-expected number of unassigned employees and thus compress our margins until we are able to reallocate our

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headcount to paying client projects. Clients that delay payment, request modified payment arrangements, or fail to meet their payment obligations increase our cash collection time, cause us to incur bad debt expense, and cause us to incur collection expenses. The loss of any of our major clients, a significant decrease in the volume of work they outsource to us or the price they are willing or able to pay us, if not replaced by new service engagements and revenues, could materially adversely affect our revenues and results of operations.

Our revenues are highly dependent on a limited number of industries, and any decrease in demand for outsourced services in these industries could reduce our revenues and adversely affect our results of operations.

A substantial majority of our clients are concentrated in five industry verticals: Financial Services; Software & Hi-Tech; Business Information & Media; Consumer Goods, Retail & Travel; and Life Sciences & Healthcare. Our business growth largely depends on continued demand for our services from clients in these five industry verticals and other industries that we target now or in the future and also depends on trends in these industries to outsource the services we provide.

A downturn in any of our targeted industries, a slowdown or reversal of the trend to outsource IT services in any of these industries or the introduction of regulations that restrict or discourage companies from outsourcing could result in a decrease in the demand for our services and could have a material adverse effect on our business, financial condition and results of operations. Some of our clients have experienced lay-offs, volatile stock prices, higher borrowing costs, and lower consumer spending on products and services which has resulted in reduced spending on our services. Other developments in the industries in which we operate may increase the demand for lower cost or lower quality IT services and decrease the demand for our services or increase the pressure our clients put on us to reduce pricing. We may not be able to successfully anticipate and prepare for any such changes, which could adversely affect our results of operations.

Furthermore, developments in the industries we serve shift client demand to new services, solutions or technology, such as AI-enabled business processes. If our clients demand new services, solutions or technologies, we may be less competitive in these new areas if we do not make significant investments to meet that demand. Additionally, as we expand into serving new industry verticals, our solutions and technology may be used by, or generally affect, a broader base of clients and end users, which may expose us to new business and operational risks.

If our pricing structures are based on inaccurate expectations and assumptions regarding the cost and complexity of performing our work, or if we are not able to maintain favorable pricing for our services, then our contracts could be unprofitable or we may not meet our profitability projections.

We face a number of risks when pricing our contracts with our clients. Our pricing is highly dependent on our internal forecasts, assumptions and predictions about our clients and their projects, the marketplace, global economic conditions (including foreign exchange volatility and inflation) and the coordination of operations and personnel in multiple locations with different skill sets and competencies. Larger and more complex projects that involve multiple engagements or stages heighten those pricing risks because a client may choose not to retain us for additional stages or delay forecasted engagements, which disrupts our planned project resource requirements. If our pricing for a project includes dedicated personnel or facilities and the client slows or stops that project, we may not be able to reallocate resources to other clients. Our pricing and cost estimates may include anticipated long-term cost savings that we expect to achieve and sustain over the life of the contract. Because of such inherent uncertainties, we may underprice our projects or fail to accurately assess the risks associated with potential contracts, such as defined performance goals, service levels, and completion schedules. The risk of underpricing our services or underestimating the costs of performing the work is heightened in fixed-price contracts, product licensing, and in contracts that require our client to receive a productivity benefit as a result of the services performed under the contract. Our industry is adopting, and our clients are expecting, new pricing models, especially as AI tools evolve and are integrated into business processes. If we use unproven pricing models or are unable to successfully convince clients of the value of our AI tools and expertise, we increase the risk that we could underprice a client project and the project could become less profitable than we expected or even unprofitable. If we do not adopt new pricing models, our competitors that are willing to risk trying new models may take market share from us. If we fail to accurately estimate the resources, time or quality levels required to complete such engagements, or if the cost of employees, facilities, or technology unexpectedly increases, we could be exposed to cost overruns. Any increased or unexpected costs, delays or failures to achieve anticipated cost savings, or unexpected risks we encounter in connection with the performance of the services, including those caused by factors outside our control, could make these contracts less profitable or unprofitable.

Our industry is sensitive to the economic environment and the industry tends to decline during general or perceived economic downturns. Given our significant revenues from North America and Europe, if those economies weaken or enter a recession, pricing for our services may be depressed and our clients may reduce or postpone their technology related spending significantly, which in turn lowers the demand for our services and negatively affects our revenues and profitability.

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There is a long selling and implementation cycle for our services that require us to make significant resource commitments prior to realizing revenues for those services.

We have a long selling cycle for our services. Before potential clients commit to use our services, we must expend substantial time and resources educating them on the value of our services and our ability to meet their requirements. Therefore, our selling cycle is subject to many risks and delays over which we have little or no control, including our clients’ decision to select another service provider or use in-house resources to perform the services, the timing of our clients’ budget cycles, and client procurement and approval processes. If our sales cycle unexpectedly lengthens for one or more large projects, it could negatively affect the timing of our revenues and our revenue growth. In certain cases, we begin work and incur costs prior to executing a contract, which may cause fluctuations in recognizing revenues between periods or jeopardize our ability to collect payment from clients.

Implementing our services also involves a significant commitment of resources over an extended period of time from both our clients and us. Our current and future clients may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to close sales with potential clients despite devoting significant time and resources. Any significant failure to generate revenues or delays in recognizing revenues after incurring costs related to our sales or services processes could have a material adverse effect on our business.

If we are unable to adapt to rapidly changing technologies, methodologies and evolving industry standards, we may lose clients and our business could be materially adversely affected.

Rapidly changing technologies, methodologies and evolving industry standards are inherent in the market for our products and services. Our ability to anticipate developments in our industry, enhance our existing services, develop and introduce new services, provide enhancements and new features for our products, and keep pace with changes and developments are critical to meeting changing client needs. Developing solutions for our clients is extremely complex and is expected to become increasingly complex and expensive in the future due to the introduction of AI, new platforms, operating systems, technologies and methodologies. Our ability to keep pace with, anticipate or respond to changes and developments is subject to a number of risks, including that:

• we may not be able to develop new, or update existing services, applications, tools and software quickly or inexpensively enough to meet our clients’ needs;

• we may find it difficult or costly to make existing software and products work effectively and securely over the internet or with new or changed operating systems;

• we may find it challenging to develop new, or update existing software, services, and products to keep pace with evolving industry standards, methodologies, technologies, and regulatory developments in our clients’ industries at a pace and cost that is acceptable to our clients; and

• we may find it difficult to maintain high quality levels with new technologies and methodologies.

We may not be successful in anticipating or responding to these developments in a timely manner, and the services, products, technologies or methodologies we do develop, or implement may not be successful in the marketplace. Services, products, technologies or methodologies that our competitors develop may render our services or products non-competitive or obsolete. Our failure to enhance our existing services and products and to develop and introduce new services and products to promptly address the needs of our clients could have a material adverse effect on our business.

If we cause, or are perceived to have caused, disruptions to our clients’ businesses, provide inadequate service, or breach contractual obligations, our clients may have claims for substantial damages against us and/or our reputation may be damaged. Our insurance coverage may be inadequate to protect us against such claims.

Errors made by our professionals when delivering services or failures to meet our contractual obligations are disruptive to the client’s business and can expose confidential or personally identifiable information to third parties. These events have resulted and could in the future result in a reduction in our revenues, damage to our reputation, and in clients terminating our engagement and making claims for substantial damages against us. Some of our client agreements do not limit our potential liability for occurrences such as breaches of confidentiality and intellectual property infringement, and we cannot generally limit the liability to third parties with which we do not have a contractual relationship. In some cases, breaches of confidentiality obligations, including protecting personally identifiable information, may entitle the aggrieved party to seek equitable remedies, including injunctive relief.

Although we maintain professional liability insurance, product liability insurance, cyber incident insurance, commercial general and property insurance, business interruption insurance, workers’ compensation coverage, and umbrella insurance for

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certain of our operations, our insurance coverage does not insure against all risks in our operations, or all claims we may face. Damage claims brought against us, claims that we initiate due to the disruption of our business, information security systems, litigation, or natural disasters, and claims from reputational damage resulting from inaccurate allegations or reporting may not be covered by our insurance, may exceed the limits of our insurance coverage, and may result in substantial costs and diversion of resources even if insured. Some types of insurance are not available on reasonable terms or at all in some countries in which we operate, and we cannot insure against damage to our reputation. The assertion of one or more large claims against us, even if unsuccessful or insured, could materially adversely affect our reputation, business, financial condition, stock price, and results of operations.

A significant failure in our systems, telecommunications or IT infrastructure could harm our service model, which could result in a reduction of our revenues and otherwise disrupt our business.

Our service model relies on maintaining active and stable utility connections, voice and data communications, online resource management, financial and operational record management, and our client service and data processing systems at client sites, our delivery centers, and our client management locations. Our business activities may be materially disrupted in the event of a partial or complete failure of any of these technologies or systems, which could be due to software malfunction, cybersecurity attacks, conversion errors due to system upgrades, damage from fire, earthquake, power loss, military action, telecommunications failure, unauthorized entry, government shutdowns, demands placed on internet or electrical infrastructure by users, increased bandwidth requirements or other events beyond our control. Our crisis management procedures, business continuity, and disaster recovery plans may not be effective at preventing or mitigating the effects of such disruptions, particularly in the case of multiple or catastrophic events. Loss of all or part of the infrastructure or systems could hinder our performance or our ability to complete client projects on time which, in turn, could reduce our revenues or otherwise materially adversely affect our business and business reputation.

Our ability to generate and retain business could depend on our reputation in the marketplace.

Our services are marketed to clients and prospective clients based on a number of factors, including reputation. Our corporate reputation is a significant factor in our clients’ evaluation of whether to engage our services. Our clients’ perception of our ability to add value through our services is critical to the profitability of our engagements. We believe the EPAM brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and contribute to our efforts to recruit and retain talented employees.

Our corporate reputation is susceptible to damage by actions or statements made by current or former clients and employees, competitors, vendors, adversaries in legal proceedings, government regulators, as well as members of the investment community and the media. There is a risk that negative information about us, even if untrue, could adversely affect our business, could cause damage to our reputation and be challenging to repair, could make potential or existing clients reluctant to select us for new engagements, and could adversely affect our recruitment and retention efforts. Damage to our reputation could also reduce the value and effectiveness of the EPAM brand name and could reduce investor confidence in us.

We may not be able to prevent unauthorized use of our intellectual property, and our intellectual property rights may not be adequate to protect our business and competitive position.

We rely on a combination of copyright, trademark, patent, unfair competition and trade secret laws, as well as intellectual property assignment and confidentiality agreements to protect our intellectual property rights. Protecting intellectual property rights and confidentiality in some countries in which we operate may not be as effective as in other countries with more developed intellectual property protections.

We require our employees and independent contractors to assign to us all intellectual property and work product they create in connection with their employment or engagement. These assignment agreements also obligate our personnel to keep proprietary information confidential. If these agreements are not enforceable or are breached, we cannot ensure that we will solely own the intellectual property they create or that our proprietary information will not be disclosed. Our clients and certain vendors are generally obligated to keep our information confidential, but if these contractual obligations are not entered, or are breached or deemed unenforceable, our trade secrets, know-how or other proprietary information may be subject to unauthorized use, misappropriation or disclosure. Reverse engineering, unauthorized copying or other misappropriation of our and our clients’ proprietary technologies, tools and applications could enable unauthorized parties to benefit from our or our clients’ technologies, tools and applications without payment and may make us liable to our clients for damages and compensation, which could harm our business and competitive position.

We rely on our trademarks, trade names, service marks and brand names to distinguish our services and solutions from the services of our competitors. We have registered or applied to register many of these trademarks. Third parties may oppose our trademark applications, challenge our use of our trademarks, or use our trademarks without permission. If our trademarks

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are successfully challenged, we could be forced to rebrand our services and solutions, which could result in loss of brand recognition, and could require us to devote additional resources to advertising and marketing new brands. Further, when we become aware that third parties are infringing our trademarks, we have to divert resources and management attention to enforce our trademarks, possibly through litigation, which may not be successful and may result in substantial costs.

Intellectual property infringement claims are time-consuming and costly to defend. If we fail to defend ourselves against such claims, we may lose significant intellectual property rights and may be unable to continue providing our existing services.

Our success largely depends on our ability to use and develop our technology, tools, code, methodologies, products, and services without infringing intellectual property rights - including patents, copyrights, trade secrets and trademarks - belonging to third parties. We have been subject to intellectual property infringement claims alleging that we used third-party trademarks or copyrighted materials without permission. If those intellectual property rights were relevant to our service offerings, we would need to license those rights or we would be prevented from using the allegedly infringing intellectual property in our business.

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

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

Any of these actions, regardless of the outcome of licensing negotiations, litigation, or merits of the claim, could damage our reputation and materially adversely affect our business, financial condition and results of operations.

Risks Related to Information Security and Data Protection

Security breaches and other disruptions to our network security that compromise our information expose us to liability and cause our business and reputation to suffer.

In the ordinary course of business, we collect, store, process, transmit, and view sensitive or confidential data, including intellectual property, proprietary business information and personally identifiable information belonging to us, our clients, our respective employees, and other end users. This information is stored in our data centers and networks or in the data centers and networks of third-party providers. Physical security and the secure storage, processing, maintenance and transmission of this information are critical to our operations, business strategy, and reputation. Our internal technology infrastructure or the technology infrastructure of our third-party providers on which our information security depends may be subject to disruptions or may otherwise fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control and that could adversely affect our ability to provide services or keep our information secure. Such events include IT attacks or failures, threats to physical security, electrical or telecommunications outages, damaging weather or other acts of nature, or employee or contractor error or malfeasance.

Our employees, contractors, vendors, software and hardware suppliers, and other third parties in our information security supply chain, as well as sophisticated individual or collective groups of hackers, such as state-sponsored organizations, all pose threats to our information security. These individual, group, and organized actors have a variety of methods at their disposal, including deploying malicious software, exploiting vulnerabilities in hardware, software, or infrastructure, using social engineering or deceptive techniques to obtain information or gain access to our or our clients’ or vendors’ data, exploiting remote working connectivity and security susceptibilities, using AI to enhance, automate, and scale cyberattacks, and executing

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coordinated attacks to compromise our services, disrupt our operations, damage our reputation, or gain access to our communications, networks and data centers.

We have in the past experienced cybersecurity incidents and expect to continue to be the target of malicious attacks. Threats to information security evolve constantly and are increasingly sophisticated and complex, which makes detecting and successfully defending against them more difficult. Undetected vulnerabilities that persist in our network environment over long periods of time could spread within our networks or into the networks and systems of our suppliers and clients. An attack viewed as immaterial or isolated at the time of its occurrence can later become material or part of a larger and coordinated effort. We frequently update and improve our information security environment and assess and adopt new methods, devices, and technologies, but our policies and information security controls may not keep pace or be designed to detect emerging threats and our response to incidents may not be adequate, may fail to accurately assess the severity of an incident, may not be fast enough to prevent or limit harm, or may fail to sufficiently remediate an incident.

Our ability to monitor our third-party suppliers’ information security systems is limited and we are not able to detect vulnerabilities in their systems until we are notified of the existence of those vulnerabilities. There have been and will continue to be attacks on our and third parties’ information security supply chains. We cannot guarantee that our information security supply chain has not been breached and does not contain exploitable defects, bugs, or vulnerabilities that could result in an incident, breach, or other disruption to our system or the systems of our clients or suppliers.

Despite our multiple security measures, any breach of our facilities, network, or information security defenses compromises the information stored in those locations and allows the accessed information to be held for ransom, publicly disclosed, misappropriated, corrupted, lost or stolen. Such a breach, or the perception that we have been breached or are vulnerable to a breach, disrupts our operations and the services we provide to clients, and any actual, alleged, or perceived breach of network or information security that we suffer causes damage to our reputation, a loss of confidence in our products and services, and requires us to expend significant resources, which may not be covered by insurance, to protect against further allegations and breaches and to rectify problems caused by these events. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under applicable laws, regulatory penalties or enforcement actions, and could adversely affect our reputation, business, revenues and competitive position.

Development and deployment of measures to protect our information security or that of our clients may be inadequate and could adversely affect our results of operations.

To defend against information security threats internally, at our third-party providers, and on our clients’ systems, we must continuously engineer or purchase more secure products and services, enhance security and reliability features, improve deployment and compliance with software updates, assess and develop mitigation strategies and technologies to help secure information, hire information security specialists, and maintain a security infrastructure that protects our network, products, and services, and the software we build for our clients. Some of our clients seek additional assurances for the protection of their sensitive information, including personally identifiable information, and attempt to hold us liable, through contractual indemnification clauses or directly, for any losses or damages related to the disclosure of their sensitive information. At times and to achieve commercial objectives, we agree to greater liability exposure to such clients. In addition, government regulators have introduced new cybersecurity regulation frameworks and have sought and may continue to seek to impose fines, penalties, and other civil or criminal consequences for real or suspected security breaches and perceived inadequate information security or disclosures. Our clients, particularly those in the Financial Services and Life Sciences & Healthcare industry verticals, may have enhanced or particular security requirements which we must address in our engineering and development services. Other parties, such as our clients’ customers, have claimed damages against our clients for information security or privacy breaches on an individual or collective basis, and our clients have in the past, and may in the future, request to be indemnified against such claims. We must also educate our employees, contractors, and clients about the need to effectively use security measures.

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

Changes in privacy and data protection regulations could expose us to risks of noncompliance and costs associated with compliance.

EPAM is subject to the GDPR, the substantially similar U.K. GDPR, the privacy laws of California and other U.S. states, India’s Digital Personal Data Protection Act, and the privacy laws of the other countries where we operate, each of which imposes significant restrictions and requirements relating to the processing of personal data and can include significant financial penalties for non-compliance. These and other state, national and international data protection laws require significant

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compliance effort and expense. California’s privacy laws, the U.K. GDPR, GDPR, and India’s Digital Personal Data Protection Act each establish complex legal obligations which organizations must follow with respect to the processing of personal data, including a prohibition on the transfer of personal information to third parties or to other countries, and the imposition of additional notification, security and other control measures. Developments in privacy regulations, including the EU-U.S. Trans-Atlantic Data Privacy Framework, that are designed to secure the transfer of data from the EU to the U.S., have created significant regulatory uncertainty for businesses transferring data globally. This uncertainty results in increased compliance costs and increases the risk of regulatory enforcement actions which can result in significant financial penalties, private lawsuits, reputational damage, blockage of international data transfers, disruption to business, and loss of clients.

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

Undetected software design defects, errors or failures may result in loss of business or in liabilities that could materially adversely affect our business.

Our software development solutions involve a high degree of technological complexity and have unique specifications. Design defects or software errors are difficult to detect or correct, including those resulting from new and emerging technologies, such as AI. Errors or defects in design, execution, or quality inspections result in the loss of current clients, revenues, market share, or client data, make it difficult to attract new clients or achieve market acceptance, and divert development resources and increase support or service costs. We cannot provide assurance that, despite testing by our clients and us, errors will not be found in the software products we develop or the services we perform. Any such errors result in disruptions to the proper functioning of the software we build, cause disruptions in our clients’ business, and allow unauthorized access to our or our clients’ proprietary information, resulting in claims for damages against us, litigation, and reputational harm that could materially adversely affect our business.

General Risk Factors

Our stock price is volatile.

Our common stock has experienced substantial price volatility as a result of variations between our actual and anticipated financial results, announcements by our competitors, third parties, or us, projections or speculation about our business or that of our competitors or industry by the media or investment analysts, geopolitical events or uncertainty about inflation or other current global economic conditions. The stock market, as a whole, has experienced price and volume fluctuations that have affected the market price of many technology companies in ways that may have been unrelated to these companies’ operating performance. Furthermore, to the extent that our stock price reflects future growth and profitability expectations, failure to meet these expectations will cause our stock price to significantly decline.

Expense related to our liability-classified restricted stock units, which are subject to mark-to-market accounting, and the calculation of the weighted average diluted shares outstanding in accordance with the treasury method are both affected by our stock price. Any fluctuations in the price of our stock will affect our future operating results.

We may need additional capital, and a failure to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges.

We believe that our current cash, cash flow from operations and revolving line of credit are sufficient to meet our anticipated cash needs for at least the next twelve months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions that we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain another credit facility, and we cannot be certain that such additional financing would be available on terms acceptable to us or at all. The sale of additional equity securities could result in dilution to our stockholders, and additional indebtedness would result in increased debt service costs and obligations and could impose operating and financial covenants that would further restrict our operations.

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Our hedging program is subject to counterparty default risk.

We enter into foreign currency forward contracts with a number of counterparties. As a result, we are subject to the risk that the counterparty to one or more of these contracts defaults on its performance under the contract. During an economic downturn, the counterparty’s financial condition may deteriorate rapidly and with little notice and we may be unable to take action to protect our exposure. In the event of a counterparty default, we could incur significant losses, which may harm our business and financial condition. In the event that one or more of our counterparties becomes insolvent or files for bankruptcy, our ability to eventually recover any losses suffered as a result of that counterparty’s default may be limited by the liquidity of the counterparty.

War, terrorism, other acts of violence or natural or man-made disasters may affect the markets in which we operate, our clients, and our service delivery.

Our business may be negatively affected by instability, disruption or destruction in the geographic regions where we operate. War, terrorism, riot, civil insurrection or social unrest; man-made and natural disasters, the severity and frequency of which have increased due to climate change, including famine, flood, fire, earthquake, pandemics, storms, and regional or global health crises, may cause clients to delay their decisions on spending for the services we provide and give rise to sudden significant changes in regional and global economic conditions and cycles. Increased severity of extreme weather events also has the potential to disrupt our operations and cause utility outages that could result in service level breaches and customer dissatisfaction. Our crisis management procedures, business continuity, and disaster recovery plans may not be effective at preventing or mitigating the effects of such disasters, particularly in the case of simultaneous or catastrophic events. These events pose significant security risks to our people, the facilities where they work, our operations, electricity and other utilities, communications, travel, and network services, and the disruption of any or all of them could materially adversely affect our financial results. Travel restrictions resulting from natural or man-made disruptions, pandemics or other public health events, and political or social conflict increase the difficulty of obtaining and retaining highly skilled and qualified professionals and could unexpectedly increase our labor costs and expenses, both of which could also adversely affect our ability to serve our clients.

Our effective tax rate could be materially adversely affected by several factors.

We conduct business globally and file income tax returns in multiple jurisdictions. Our effective tax rate could be materially adversely affected by several factors, including changes in the amount of income taxed by or allocated to the various jurisdictions in which we operate and their differing statutory tax rates; changing tax laws, treaties, regulations and interpretations of such rules in one or more jurisdictions, including the implementation of minimum tax rules in many countries; and the resolution of issues arising from tax audits or examinations and any related interest or penalties. The determination of our provision for income taxes and other tax liabilities requires estimation, judgment and calculations where the ultimate tax determination may not be certain. Our determination of tax liability is always subject to review or examination by authorities in various jurisdictions. If a tax authority in any jurisdiction reviews any of our tax returns and proposes an adjustment, including, but not limited to, a determination that the transfer prices and terms we have applied are not appropriate, such an adjustment could have a negative impact on our results of operations, business, and profitability.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this annual 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” and “Part I. Item 1A. Risk Factors.” We assume no obligation to update any of these forward-looking statements.

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.

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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 December 31, 2025, 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 December 31, 2025, we have $10.1 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” included in this Annual Report on Form 10-K.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), which require us to make judgments, estimates and assumptions that affect: (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the end of each reporting period and (iii) the reported amounts of revenues and expenses during each reporting period. We evaluate these estimates and assumptions based on historical experience, knowledge and assessment of current business and other conditions, and expectations regarding the future based on available information and reasonable assumptions, which together form a basis for making judgments about matters not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. When reviewing our audited consolidated financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgment and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. We consider the policies discussed below to be critical to an understanding of our consolidated financial statements as their application places significant demands on the judgment of our management.

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An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We believe that the following critical accounting policies are the most sensitive and require more significant estimates and assumptions used in the preparation of our consolidated financial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our audited consolidated financial statements and other disclosures included elsewhere in this annual report. Additional information on our policies is in Note 1 “Organization and Summary of Significant Accounting Policies” in the notes to our consolidated financial statements in this Annual Report on Form 10-K.

Revenues — We recognize revenues when control of goods or services is passed to a client in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Such control is generally transferred over time based on satisfaction of obligations stipulated by the contract. Consideration expected to be received may consist of both fixed and variable components and is allocated to each separately identifiable performance obligation based on the performance obligation’s relative standalone selling price. Variable consideration usually takes the form of volume-based discounts, service level credits, price concessions or incentives. Determining the estimated amount of such variable consideration involves assumptions and judgment that can have an impact on the amount of revenues reported.

We derive revenues from a variety of service arrangements, which have been evolving to provide more customized and integrated solutions to clients by combining software engineering with customer experience design, business consulting, strategy, and technology innovation services in areas such as cloud platforms, cybersecurity and artificial intelligence. Fees for these contracts may be in the form of time-and-materials or fixed-price arrangements. We generate the majority of our revenues under time-and-materials contracts, which are billed using hourly, daily or monthly rates to determine the amounts to be charged directly to the client. We apply a practical expedient and revenues related to time-and-materials contracts are recognized based on the right to invoice for services performed.

Fixed-price contracts include maintenance and support arrangements, which may exceed one year in duration. Maintenance and support arrangements generally relate to the provision of ongoing services and revenues for such contracts are recognized ratably over the expected service period. Fixed-price contracts also include application development arrangements, where progress towards satisfaction of the performance obligation is measured using input or output methods and input methods are used only when there is a direct correlation between hours incurred and the end product delivered. Assumptions, risks and uncertainties inherent in the estimates used to measure progress could affect the amount of revenues, receivables and deferred revenues at each reporting period.

Revenues from licenses which have significant stand-alone functionality are recognized at a point in time when control of the license is transferred to the client. Revenues from licenses which do not have stand-alone functionality are recognized over time. If there is an uncertainty about the receipt of payment for the services, revenue recognition is deferred until the uncertainty is sufficiently resolved. We apply a practical expedient and do not assess the existence of a significant financing component if the period between transfer of the service to a client and when the client pays for that service is one year or less.

We report gross reimbursable “out-of-pocket” expenses incurred as both revenues and cost of revenues in the consolidated statements of income.

Business Combinations  — We account for business combinations using the acquisition method which requires us to estimate the fair value of identifiable assets acquired and liabilities assumed, including any contingent consideration, to properly allocate purchase price to the individual assets acquired and liabilities assumed. A substantial portion of the purchase price is typically allocated to goodwill and other intangible assets, which typically include customer relationships, software, trade names, non-competition agreements, and assembled workforce. The allocation of the purchase price utilizes significant estimates in determining the fair values of identifiable assets acquired and liabilities assumed, especially with respect to intangible assets. The significant estimates and assumptions used include the timing and amount of forecasted revenues and cash flows, anticipated growth rates, customer attrition rates, the discount rate reflecting the risk inherent in future cash flows, and the useful lives for finite-lived assets. There are different valuation models for each component, the selection of which requires considerable judgment. These determinations will affect the amount of amortization expense recognized in future periods. We base our fair value estimates on assumptions we believe are reasonable but recognize that the assumptions are inherently uncertain.

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We determine the fair value of contingent consideration using either Monte Carlo simulations (which involve a simulation of future revenues and earnings during the earn-out period using management's best estimates) or probability-weighted expected return methods. Changes in financial projections, market risk assumptions, discount rates or probability assumptions related to achieving the various earn-out criteria would result in a change in the fair value of contingent consideration. Such changes, if any, are recorded within Interest and other income, net in the Company’s consolidated statements of income.

If the initial accounting for the business combination has not been completed by the end of the reporting period in which the business combination occurs, provisional amounts are reported to present information about facts and circumstances that existed as of the acquisition date. Once the measurement period ends, which in no case extends beyond one year from the acquisition date, revisions to the accounting for the business combination are recorded in earnings.

Recent Accounting Pronouncements

See Note 1 “Organization and Summary of Significant Accounting Policies” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for information regarding recent accounting pronouncements.

Results of Operations

For discussion of our results of operations for the year ended December 31, 2023, including a year-over-year comparison between 2024 and 2023, refer to “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024.

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

Year Ended December 31,

% of revenues

% of revenues

(in thousands, except percentages and per share data)

Revenues

Operating expenses:

Cost of revenues (exclusive of depreciation and amortization) (1)

Selling, general and administrative expenses (2)

Depreciation and amortization expense

Income from operations

Interest and other income, net

Foreign exchange loss

Income before provision for income taxes

Provision for income taxes

Net income

Effective tax rate

Diluted earnings per share

(1) Includes $86,252 and $80,944 of stock-based compensation expense for the years ended December 31, 2025 and 2024, respectively.

(2) Includes $90,512 and $86,353 of stock-based compensation expense for the years ended December 31, 2025 and 2024, respectively.

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Revenues

We continue to diversify our presence across multiple geographies and verticals, both organically and through strategic acquisitions. During the year ended December 31, 2025, our total revenues increased 15.4% from the previous year to $5.457 billion. Revenues from the first twelve months following each acquisition that was made in the fourth quarter of 2024, increased our revenues by 9.2% and fluctuations in foreign currency increased our revenues by 1.3% during the year ended December 31, 2025 as compared to the previous year. During the year ended December 31, 2025, we experienced a decrease in client concentration in our top client groups as a percentage of total revenues as compared to the previous year.

See Note 3 “Acquisitions” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for more information related to our completed acquisitions of businesses.

We discuss below the breakdown of our revenues by vertical, client location, client concentration, and service offering.

Revenues by Vertical

We assign our clients into one of our five main vertical markets or a group of various industries where we are increasing our presence, which we label as “Emerging Verticals.” Emerging Verticals include clients in multiple industries such as energy, manufacturing and automotive, industrial materials, telecommunications and several others.

The following table presents our revenues by vertical and revenues as a percentage of total revenues by vertical for the periods indicated:

Year Ended December 31,

(in thousands, except percentages)

Financial Services

Consumer Goods, Retail & Travel

Software & Hi-Tech

Business Information & Media

Life Sciences & Healthcare

Emerging Verticals

Revenues

We experienced revenue growth across all verticals in 2025 and Financial Services remained our largest vertical, comprising 24.1% of total revenues. See further discussion of our verticals in the section “Revenues by Business Segment” below.

Revenues by Client Location

Our revenues are sourced from multiple countries, which we assign into three geographic markets identified as Americas, EMEA, and APAC. We present and discuss our revenues by client location based on the location of the specific client site that we serve, irrespective of the location of the headquarters of the client or the location of the delivery center where the work is performed. Revenues by client location differ from revenues by reportable segment in our consolidated financial statements included elsewhere in this annual report. Segments are not based on the geographic location of the clients, but rather they are based on the location of the Company’s management responsible for a particular client.

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The following table sets forth revenues by client location by amount and as a percentage of our revenues for the periods indicated:

Year Ended December 31,

(in thousands, except percentages)

Americas (1)

EMEA (2)

APAC (3)

Revenues

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

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

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

During the year ended December 31, 2025, revenues in the Americas, our largest geography, were $3.201 billion, growing $366.2 million, or 12.9%, from $2.835 billion reported for the year ended December 31, 2024. The increase during the year ended December 31, 2025 compared to 2024, was primarily due to the acquisitions of NEORIS and First Derivative in the fourth quarter of 2024 and increased demand from our existing clients across various industries. Revenues from the Americas accounted for 58.7% of total revenues in 2025, a decrease from 60.0% in the prior year. The United States continued to be our largest client location contributing revenues of $2.834 billion in 2025 compared to $2.680 billion in 2024.

Revenues in our EMEA geography were $2.147 billion, an increase of $354.1 million, or 19.7%, from $1.793 billion in the previous year. The increase during the year ended December 31, 2025 compared to 2024, was primarily due to the acquisitions of NEORIS and First Derivative in the fourth quarter of 2024 and increased demand from our existing clients across various industries. Revenues from EMEA accounted for 39.3% of consolidated revenues in 2025 as compared to 37.9% in the previous year. The top three revenue contributing client location countries in EMEA were the United Kingdom, Switzerland and Germany, generating revenues of $597.3 million, $438.5 million and $233.4 million in 2025, respectively, compared to $523.4 million, $407.8 million and $206.1 million in 2024, respectively.

Revenues from clients in locations in our APAC region increased 8.8% from the prior year and comprised 2.0% of total revenues in 2025.

Revenues by Client Concentration

We have long-standing relationships with many of our clients and we seek to grow revenues from our existing clients by continually expanding the scope and size of our engagements. Revenues derived from these clients may fluctuate as these accounts mature, upon beginning or completion of multi-year projects or due to external economic environment trends. We believe there is a significant potential for future growth as we expand our capabilities and offerings within existing clients. In addition, we remain committed to diversifying our client base and adding more clients to our client mix through organic growth and strategic acquisitions, and over the long-term, we expect revenue concentration from our top clients to decrease.

The following table presents revenues contributed by our clients by amount and as a percentage of our revenues for the periods indicated:

Year Ended December 31,

(in thousands, except percentages)

Top five clients

Top ten clients

Top twenty clients

Clients below top twenty

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The following table shows the number of clients grouped by revenues recognized by the Company for each year presented:

Year Ended December 31,

Over $20 Million

$10 - $20 Million

$5 - $10 Million

$1 - $5 Million

$0.5 - $1 Million

Revenues by Service Offering

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

The following table shows revenues by service offering as an amount and as a percentage of our revenues for the years indicated:

Year Ended December 31,

(in thousands, except percentages)

Professional services

Licensing and other revenues

Revenues

See Note 13 “Revenues” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for more information regarding our contract types and related revenue recognition policies.

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.

We manage the utilization levels of our delivery professionals through strategic hiring practices, dynamic management of staff, and efficient staffing of projects. Our staff utilization also depends on the general economy and its effect on our clients and their business decisions regarding the use of our services.

During the year ended December 31, 2025, cost of revenues (exclusive of depreciation and amortization) was $3.884 billion, representing an increase of 18.5% from $3.277 billion reported last year. The increase during the year ended December 31, 2025 compared to 2024, was primarily due to the acquisitions of NEORIS and First Derivative in the fourth quarter of 2024, an increase in compensation costs, and a $13.6 million decrease in government incentives related to conducting R&D activities in Poland. During the year ended December 31, 2024 we recognized a cumulative catch-up benefit related to Poland R&D tax credits. Changes in foreign currency exchange rates also had a 0.8% unfavorable impact during the year. Additionally, the average number of production professionals grew 9.0% mainly driven by our acquisition of businesses during 2024. The growth in our production professionals increased compensation costs which were also impacted by salary increases and promotions for existing professionals, an increase in variable compensation expense, and a $5.3 million increase in stock-based compensation expense. The increases were partially offset by $11.9 million in increased benefits from our hedging program.

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Expressed as a percentage of revenues, cost of revenues (exclusive of depreciation and amortization) was 71.2% and 69.3% during the years ended December 31, 2025 and 2024, respectively. The year-over-year increase is primarily due to compensation increases which we were not able to fully offset through pricing increases, the acquisitions completed in 2024, higher variable compensation expense, a $13.6 million decrease in government incentives related to conducting R&D activities in Poland and the negative impact from the appreciation of foreign currencies in certain of our delivery locations, partially offset by increased benefits from our hedging program.

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 contain costs of relocating our employees and various one-time and unusual expenses such as impairment charges.

During the year ended December 31, 2025, selling, general and administrative expenses were $928.7 million, representing an increase of 13.8% as compared to $816.3 million reported last year. The increase in selling, general and administrative expenses during 2025 compared to 2024 was primarily driven by the acquisitions of NEORIS and First Derivative completed in the fourth quarter of 2024, an increase in personnel-related costs, including a $4.2 million increase in stock-based compensation expense, an $11.3 million increase in facilities and infrastructure expenses, and a $9.0 million increase in costs for software licenses. Personnel-related costs also increased due to impacts from salary increases and promotions for existing professionals, increases in variable compensation expense and severance, which reflects the impact from cost optimization programs. See Note 12 “Cost Optimization Programs” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for more information regarding the Company’s restructuring programs. These year-over-year increases were partially offset by a $5.6 million decrease in professional fee expenses related to our business acquisition efforts as compared to the prior year.

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

Depreciation and Amortization Expense

Depreciation and amortization expense includes depreciation of physical assets used in the operation of our business such as computer equipment, software, buildings we purchased, leasehold improvements as well as various office furniture and equipment. Depreciation and amortization expense also includes amortization of acquired finite-lived intangible assets.

During the year ended December 31, 2025, depreciation and amortization expense was $124.8 million, representing an increase of $35.3 million from $89.6 million reported in the prior year. The increase in depreciation and amortization expense was primarily the result of increased amortization of acquired finite-lived intangible assets largely resulting from the acquisitions of NEORIS and First Derivative in the fourth quarter of 2024, partially offset by $6.3 million in lower depreciation and amortization on property and equipment. Expressed as a percentage of revenues, depreciation and amortization expense increased to 2.3% during the year ended December 31, 2025, as compared to 1.9% in 2024, primarily due to increased amortization of acquired finite-lived intangible assets largely resulting from the acquisitions of First Derivative and NEORIS in 2024.

Interest and Other Income, Net

Interest and other income, net includes interest earned on cash, cash equivalents and short-term investments, gains and losses from certain financial instruments, interest expense related to our borrowings, certain government grant income, and changes in the fair value of contingent consideration. Interest and other income, net decreased from $46.9 million during the year ended December 31, 2024 to $11.5 million during the year ended December 31, 2025. This decrease was largely driven by a $37.0 million decrease in interest income from our cash, cash equivalents and short-term investments, partially offset by a $2.2 million decrease in loss due to the change in fair value of contingent consideration.

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Provision for Income Taxes

Determining the consolidated provision for income tax expense, deferred income tax assets and liabilities and any potential related valuation allowances involves judgment. We consider factors that may contribute, favorably or unfavorably, to the overall annual effective tax rate in the current year as well as the future. These factors include statutory tax rates and tax law changes in the countries where we operate and excess tax benefits upon vesting or exercise of stock awards as well as consideration of any significant or unusual items.

As a global company, we are required to calculate and provide for income taxes in each of the jurisdictions in which we operate. During 2025 and 2024, we had $361.4 million and $391.4 million, respectively, in income before provision for income taxes attributed to our foreign jurisdictions. Changes in the geographic mix or level of annual pre-tax income can also affect our overall effective income tax rate.

Our provision for income taxes includes the impact of provisions established for uncertain income tax positions, as well as the related net interest and penalty expense. Tax exposures can involve complex issues and may require an extended period to resolve. Although we believe we have adequately reserved for our uncertain tax positions, we cannot provide assurance that the final tax outcome of these matters will not be different from our current estimates. We adjust these reserves after consideration of changes in facts and circumstances, such as the closing of a tax audit, statute of limitation lapse or the refinement of an estimate. To the extent that the final tax outcome of these matters differs from the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.

The provision for income taxes was $127.9 million in 2025 and $129.9 million in 2024. The decrease was primarily driven by a decrease in pre-tax income. The effective tax rate was 25.3% in 2025 compared to 22.2% in 2024. We recorded a tax shortfall upon vesting or exercise of stock awards of $1.9 million in 2025 and an excess tax benefit of $22.4 million in 2024.

On July 4, 2025, the U.S. federal government enacted tax reform legislation, commonly referred to as the One Big Beautiful Bill Act (“the Act”), which includes a broad range of tax reform provisions. The tax law changes included in the Act did not have a material impact on our effective tax rate for the year ended December 31, 2025; however, we expect an acceleration of certain deductions resulting in a $24.5 million reduction in cash tax payments associated with the 2025 tax year.

See Note 16 “Income Taxes” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for more information and detail regarding our provision for income taxes and effective tax rate.

Foreign Exchange Loss

For discussion of the impact of foreign exchange fluctuations see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Foreign Exchange Risk.”

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.

Starting in 2025, we renamed our North America segment to Americas. The new name reflects the evolving geographic footprint and growth of operations within the segment, particularly in Latin America. This constitutes a naming change only and no changes were made to amounts reported.

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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 19 “Segment Information” in the notes to our consolidated financial statements in this Annual Report on Form 10-K 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 years ended December 31, 2025 and 2024:

Year Ended December 31,

(in thousands)

Americas segment revenues

Less:

Cost of revenues (exclusive of depreciation and amortization)

Selling, general and administrative expenses

Depreciation and amortization expense

Americas segment operating profit

During 2025, Americas segment revenues increased $299.8 million, or 10.5%, from the previous year. Revenues from our Americas segment represented 58.0% of total segment revenues, a decrease from 60.6% reported in the corresponding period of 2024. During 2025 as compared to 2024, Americas segment operating profits decreased $19.3 million, or 3.6%, to $522.1 million. Expressed as a percentage of revenue, Americas segment operating profit decreased to 16.5% in 2025 as compared to 18.9% in 2024. This decrease is primarily attributable to the impact of lower profitability from acquisitions completed in 2024, lower government incentives related to conducting R&D activities in Poland, changes in foreign exchange rates, and an increase in variable compensation expense as a percentage of segment revenues during 2025 compared to 2024.

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

Year Ended December 31,

Change

Dollars

Percentage

Industry Vertical

(in thousands, except percentages)

Financial Services

Software & Hi-Tech

Life Sciences & Healthcare

Consumer Goods, Retail & Travel

Business Information & Media

Emerging Verticals

Revenues

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During the year ended December 31, 2025, Financial Services was the largest industry vertical in the Americas segment and grew 16.1% in 2025 compared to the prior year, benefiting from new revenues from clients gained through our 2024 acquisitions and increased demand from insurance and payment processing clients. Software & Hi-Tech grew 6.7% during 2025 compared to the prior year which was a result of the continued focus on engaging with our technology clients. Life Sciences & Healthcare increased 1.7% during 2025 compared to the prior year primarily due to increased demand from pharmaceutical and medical device clients. Consumer Goods, Retail & Travel increased 6.6% during 2025 compared to the prior year primarily due to growth from our retail clients.

During the year ended December 31, 2025, r evenues from the Business Information & Media vertical experienced an increase of 3.5% primarily due to improvement in demand from clients in the publishing and entertainment sectors, as well as growth from a new client in digital media added in the past twelve months. Emerging Verticals experienced 29.3% growth during 2025 compared to the prior year due to revenues from our fourth quarter 2024 acquisitions of NEORIS and First Derivative as well as growth from various clients in industries such as energy, telecommunications and industrial materials.

Europe Segment

The following table summarizes revenues from external clients and operating profit, before unallocated expenses, for the Europe segment for the years ended December 31, 2025 and 2024:

Year Ended December 31,

(in thousands)

Europe segment revenues

Less:

Cost of revenues (exclusive of depreciation and amortization)

Selling, general and administrative expenses

Depreciation and amortization expense

Europe segment operating profit

During 2025, Europe segment revenues were $2.291 billion, reflecting an increase of $429.3 million, or 23.1%, from the previous year. Revenues were positively impacted by changes in foreign currency exchange rates during 2025. Had our Europe segment revenues been expressed in constant currency terms using the exchange rates in effect during 2024, we would have reported revenue growth of 19.7%. Revenues from our Europe segment represent 42.0% and 39.4% of total segment revenues during 2025 and 2024, respectively. During 2025, Europe segment operating profits increased $48.8 million, or 17.2% as compared to last year, to $333.0 million. Europe segment operating profit represented 14.5% of Europe segment revenues as compared to 15.3% in 2024. Europe segment operating profit as a percentage of revenues was negatively impacted by an increase in variable compensation expense and lower government incentives related to conducting R&D activities in Poland, partially offset by changes in foreign exchange rates and results of cost optimization programs during 2025 compared to 2024.

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

Year Ended December 31,

Change

Dollars

Percentage

Industry Vertical

(in thousands, except percentages)

Financial Services

Consumer Goods, Retail & Travel

Software & Hi-Tech

Business Information & Media

Life Sciences & Healthcare

Emerging Verticals

Revenues

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During the year ended December 31, 2025, Financial Services was the largest industry vertical in the Europe segment and grew 41.8% benefiting from new revenues from clients that we gained as part of our 2024 acquisitions and increased demand from commercial banking and insurance clients. Revenues in the Consumer Goods, Retail & Travel vertical experienced growth of 6.1% during the year ended December 31, 2025, as compared to 2024, primarily due to improved demand from clients in the retail and consumer goods industries. Revenue growth in Software & Hi-Tech during the year ended December 31, 2025, as compared to 2024, was largely attributable to the expansion of services provided to one of our top 10 clients as well as the addition of several new clients in the past eighteen months. Revenues in Business Information & Media decreased during 2025 primarily due to decreased demand from two clients who were historically included in our top 10 clients. Revenues in Life Sciences & Healthcare grew 49.5% during 2025 primarily due to the growth experienced from clients in the pharmaceutical sector. Revenues in Emerging Verticals grew 23.6% during 2025, with growth experienced from clients in various industries such as energy, professional services and industrial materials. Emerging Verticals also benefited from clients gained through our 2024 acquisitions.

Effects of Inflation

Economies in many countries where we operate have periodically experienced high rates of inflation, including during 2025. 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.

Liquidity and Capital Resources

Capital Resources

Our cash generated from operations has been our primary source of liquidity to fund operations, investments to support the growth of our business and share repurchases. As of December 31, 2025, our principal sources of liquidity were cash and cash equivalents totaling $1.296 billion, short-term investments totaling $6.1 million as well as $675.0 million of available borrowings under our revolving credit facility. See Note 10 “Debt” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for information regarding the terms of our revolving credit facility and information about debt.

Cash Flows

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

For the Years Ended December 31,

(in thousands)

Consolidated Statements of Cash Flow Data:

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

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. Since the invasion of Ukraine in 2022, our operating activities included using cash on humanitarian efforts for Ukraine.

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Cash provided by operating activities in 2025 was primarily driven by the Company's cash collections from client contracts and was negatively impacted by an increase in days sales outstanding and higher payments for variable compensation as compared to 2024, attributable to a higher level of financial performance for the year ended December 31, 2024. Cash provided by operating activities in 2024 was primarily driven by the Company's cash collections from client contracts, which was partially offset by variable compensation payments, severance payments related to the Cost Optimization Program and other working capital outflows.

Investing Activities

Our primary uses of cash from investing activities consist of purchases of computer hardware, software and office equipment, as well as investments in 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 2025 was primarily attributable to $42.2 million used for capital expenditures and $3.4 million used for the acquisitions of businesses, net of cash acquired compared to $32.1 million used for capital expenditures and $912.2 million used for the acquisitions of businesses, net of cash acquired during 2024. During 2024, the use of cash in investing activities was partially offset by inflows of $61.5 million from matured investments in time deposits with no such inflows during 2025 .

Financing Activities

Cash used in financing activities mainly consists of repurchasing shares of EPAM common stock under our share repurchase programs, 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. Net cash used in financing activities increased from 2024 to 2025 primarily due to $660.6 million of payments to repurchase our common stock during 2025 compared to $398.0 million during 2024. In addition, during 2025 we used cash for the payments of withholding taxes related to net share settlements of equity awards of $26.8 million, compared to $35.2 million paid during 2024. 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 purchases of shares under our ESPP of $54.6 million during 2025, compared to $53.7 million received during 2024.

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 or acquisitions 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 9 “Leases”, Note 10 “Debt”, Note 18 “Commitments and Contingencies” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for information regarding our various contractual obligations and capital expenditure requirements.

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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 18 “Commitments and Contingencies” in the notes to our consolidated financial statements in this Annual Report on Form 10-K. 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.