EPAM Systems, Inc.EPAM
EPAM Systems, Inc. Fair Value Disclosure
FAIR VALUE MEASUREMENTS
The Company carries certain assets and liabilities at fair value on a recurring basis on its consolidated balance sheets.
The following table shows the fair values of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2025:
| As of December 31, 2025 | ||||||||||||||||||||||||||
| Balance | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Foreign exchange derivative assets | $ | 1,981 | $ | — | $ | 1,981 | $ | — | ||||||||||||||||||
| Total assets measured at fair value on a recurring basis | $ | 1,981 | $ | — | $ | 1,981 | $ | — | ||||||||||||||||||
| Foreign exchange derivative liabilities | $ | 4,602 | $ | — | $ | 4,602 | $ | — | ||||||||||||||||||
| Contingent consideration | 22,835 | — | — | 22,835 | ||||||||||||||||||||||
Total liabilities measured at fair value on a recurring basis | $ | 27,437 | $ | — | $ | 4,602 | $ | 22,835 | ||||||||||||||||||
The following table shows the fair values of the Company’s financial liabilities measured at fair value on a recurring basis as of December 31, 2024. The Company had no material financial assets measured at fair value on a recurring basis as of December 31, 2024.
| As of December 31, 2024 | ||||||||||||||||||||||||||
| Balance | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Foreign exchange derivative liabilities | $ | 14,650 | $ | — | $ | 14,650 | $ | — | ||||||||||||||||||
| Contingent consideration | 32,978 | — | — | 32,978 | ||||||||||||||||||||||
Total liabilities measured at fair value on a recurring basis | $ | 47,628 | $ | — | $ | 14,650 | $ | 32,978 | ||||||||||||||||||
The foreign exchange derivatives are valued using pricing models and discounted cash flow methodologies based on observable foreign exchange data at the measurement date. See Note 6 “Derivative Financial Instruments” for additional information regarding derivative financial instruments.
The fair value of the contingent consideration liabilities was determined using a probability-weighted expected return method and is based on the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. Although there is significant judgment involved, the Company believes its estimates and assumptions are reasonable. In determining fair value, the Company considered a variety of factors, including future performance of the acquired businesses using financial projections developed by the Company and market risk assumptions that were derived for revenue growth and earnings before interest and taxes. The Company estimated future payments using the earnout formula and performance targets specified in the purchase agreements and adjusted those estimates to reflect the probability of their achievement. Those weighted average estimated future payments were then discounted to present value using a rate based on the weighted average cost of capital of guideline companies. The discount rate used to determine the fair value of contingent consideration for the 2025 Acquisition was 15%. The discount rate used to determine the fair value of assumed contingent consideration for the NEORIS acquisition was 18%. The discount rates used to determine the fair value of contingent consideration for the Other 2024 Acquisitions ranged from a minimum of 12% to a maximum of 20%. The discount rate used to determine the fair value of contingent consideration for the 2023 Acquisitions was 16.0%. Changes in financial projections, market risk assumptions, discount rates or probability assumptions related to achieving the various earnout criteria would result in a change in the fair value of the recorded contingent liabilities. Such changes, if any, are recorded within Interest and other income, net in the Company’s consolidated statements of income.
A reconciliation of the beginning and ending balances of Level 3 contingent consideration liabilities using significant unobservable inputs is as follows:
| Amount | ||||||||
| Contingent consideration liabilities as of January 1, 2023 | $ | 24,308 | ||||||
| Acquisition date fair value of contingent consideration — 2023 Acquisitions | 14,850 | |||||||
| Changes in fair value of contingent consideration included in Interest and other income, net | 2,814 | |||||||
| Payment of contingent consideration for previously acquired businesses | (18,844) | |||||||
| Effect of net foreign currency exchange rate changes | 22 | |||||||
| Contingent consideration liabilities as of December 31, 2023 | $ | 23,150 | ||||||
| Acquisition date fair value of assumed contingent consideration — NEORIS | 4,654 | |||||||
| Acquisition date fair value of contingent consideration — Other 2024 Acquisitions | 9,755 | |||||||
| Changes in fair value of contingent consideration included in Interest and other income, net | 5,699 | |||||||
| Payment of contingent consideration for previously acquired businesses | (10,125) | |||||||
| Effect of net foreign currency exchange rate changes | (155) | |||||||
| Contingent consideration liabilities as of December 31, 2024 | $ | 32,978 | ||||||
| Acquisition date fair value of contingent consideration - 2025 Acquisition | 935 | |||||||
| NEORIS purchase accounting adjustment | (1,529) | |||||||
| Changes in fair value of contingent consideration included in Interest and other income, net | 3,466 | |||||||
| Payment of contingent consideration for previously acquired businesses | (13,266) | |||||||
| Effect of net foreign currency exchange rate changes | 251 | |||||||
| Contingent consideration liabilities as of December 31, 2025 | $ | 22,835 | ||||||
Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
The following tables present the estimated fair values of the Company’s financial assets and liabilities not measured at fair value on a recurring basis as of the dates indicated:
| Fair Value Hierarchy | ||||||||||||||||||||||||||||||||
| Balance | Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||
| Financial Assets: | ||||||||||||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||||||||
| Money market funds | $ | 5,402 | $ | 5,402 | $ | 5,402 | $ | — | $ | — | ||||||||||||||||||||||
| Time deposits | 37,441 | 37,441 | — | 37,441 | — | |||||||||||||||||||||||||||
| Total cash equivalents | $ | 42,843 | $ | 42,843 | $ | 5,402 | $ | 37,441 | $ | — | ||||||||||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||||||||||||||
| Borrowings under 2025 Credit Agreement | $ | 25,000 | $ | 25,000 | $ | — | $ | 25,000 | $ | — | ||||||||||||||||||||||
Deferred consideration for asset acquisitions | $ | 29,532 | $ | 29,532 | $ | — | $ | 29,532 | $ | — | ||||||||||||||||||||||
| Fair Value Hierarchy | ||||||||||||||||||||||||||||||||
| Balance | Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||
| Financial Assets: | ||||||||||||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||||||||
| Money market funds | $ | 5,200 | $ | 5,200 | $ | 5,200 | $ | — | $ | — | ||||||||||||||||||||||
| Time deposits | 16,907 | 16,907 | — | 16,907 | — | |||||||||||||||||||||||||||
| Total cash equivalents | $ | 22,107 | $ | 22,107 | $ | 5,200 | $ | 16,907 | $ | — | ||||||||||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||||||||||||||
| Borrowings under 2021 Credit Agreement | $ | 25,000 | $ | 25,000 | $ | — | $ | 25,000 | $ | — | ||||||||||||||||||||||
Deferred consideration for asset acquisitions | $ | 33,187 | $ | 33,187 | $ | — | $ | 33,187 | $ | — | ||||||||||||||||||||||
Non-Marketable Securities Without Readily Determinable Fair Values
The Company holds investments in equity securities that do not have readily determinable fair values. These investments are recorded at cost and are remeasured to fair value based on certain observable price changes or impairment events as they occur. The carrying amount of these investments was $36.7 million and $38.5 million as of December 31, 2025 and 2024, respectively, and is classified as Other noncurrent assets in the Company’s consolidated balance sheets.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Feb 26, 2019 | |
| 2017 | Feb 27, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 23, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.