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EPAM Exits Russia, Accelerates Delivery Diversification


The war in Ukraine has brought EPAM Systems (EPAM) under the spotlight. Although headquartered in Newton, PA, EPAM has a delivery network heavy in Central and Eastern Europe. It was founded in 1993 in New Jersey and specializes in service development, digital platform engineering, digital product design, and custom software. However, with its first offshore development center opening in Minsk, Belarus, in 1995, EPAM then expanded into Russia and Ukraine for delivery. In February 2022, on the eve of the invasion of Ukraine, 58% of the company's headcount remained in these three countries. Ukraine was the largest country with ~14k personnel at the end of 2021.

Reflecting on this situation, EPAM is adjusting its support model, moving people out of the region, and establishing brand new sites. The company acted quickly by deciding to exit Russia last month, but the relocation from the region continues EPAM’s diversification strategy already in play. There have been growing geopolitical and social uncertainties across the region. In 2014, with the Russian annexation of Crimea and the following Donbas invasion, EPAM started diversifying its delivery network to other countries in Central and Eastern Europe, Latin America, and India.

Yet despite the most recent developments in the region, the company announced excellent financial Q1 2022 results. During the quarter, EPAM generated revenues of $1.17bn, a year-over-year increase of 50.1% (40.1% organically). Profitability remained higher: its adjusted operating margin was 16.1%, down 1.4 pts.

Moving employees at scale within and outside Ukraine

The company is helping to relocate most of its employees in Ukraine during Q2 2022 to billable positions. The impact of the relocation effort goes beyond travel and setup costs, with EPAM highlighting that relocated employees are now in more expensive countries and have increased their wages. EPAM is currently renegotiating with clients to adjust rate cards.

Amid the war-torn conditions, the company helped move thousands of people from east to west inside the country and abroad (e.g., Poland, Hungary, Turkey, and Serbia, and across countries). Approximately 2k Ukrainian employees relocated abroad.

Accelerating delivery diversification

With phase 1 of its relocation strategy well in progress, EPAM launched phase 2 in parallel and has accelerated its delivery diversification effort to India, Mexico, and Colombia and across locations in CEE and Asia. By 2022, EPAM expects Ukraine and Belarus to account for just 30% of its capacity.

One of EPAM's challenges is to grow its presence in India. Its Alliance Global Partners acquisition in 2015 brought an estimated 1k personnel to India. The company recognizes it took time to learn about the market and has started developing the Indian talent market, doubling its presence in the country in 2021 to 4.3k personnel. This is the beginning of EPAM's expansion into India. Mexico, with its ~1k employees, will complement India.

Next steps: revenue growth and profitability

EPAM is now turning its attention to revenue growth and profitability, both of which the company has indicated will be under pressure in Q2, with y/y organic growth around 28% and its operating margin in the 3-5% range.

The utilization rate will be down in Q2. EPAM highlights that in Ukraine, despite the challenges, it did not record a drop in utilization as would have been expected. Q1 2022 utilization was 78.4% compared to 76.8% in Q1 2021. However, the company suffered from a "considerably lower utilization" level for employees remaining in Russia. The situation is also complicated in Belarus: EPAM plans to stay in the country, but because "a defined number of clients" are looking for alternate delivery, utilization rates are under pressure.

In the coming months, as EPAM gradually moves from delivery resiliency to revenue growth, it will start business expansion, initially within its current client base. EPAM expects a fast rebound, and is targeting H2 2022. However, it has not provided guidance for the full year. Nevertheless, we think the company is doing very well in mitigating the circumstances of the Russian-Ukraine conflict.


EPAM is more than a financially-sound firm. The company is demonstrating its commitment to Ukraine, pledging $100m in aid to help its employees and relatives with a wide range of requirements. Also, EPAM established the Ukraine Assistance Fund to support humanitarian aid organizations that provide direct assistance to persons in need across Ukraine. This fund exists in addition to and apart from the $100m humanitarian commitment.

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