Company Quick10K Filing
EPAM Systems
Price180.36 EPS4
Shares58 P/E42
MCap10,433 P/FCF64
Net Debt-829 EBIT293
TEV9,603 TEV/EBIT33
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-03-02
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-02-26
10-Q 2018-09-30 Filed 2018-11-05
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-02-27
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-08
10-Q 2017-03-31 Filed 2017-05-08
10-K 2016-12-31 Filed 2017-03-01
10-Q 2016-09-30 Filed 2016-11-09
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-09
10-K 2015-12-31 Filed 2016-02-23
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-03-02
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-11
10-Q 2014-03-31 Filed 2014-05-07
10-K 2013-12-31 Filed 2014-03-11
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-10
10-K 2012-12-31 Filed 2013-03-11
10-Q 2012-09-30 Filed 2012-11-13
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-09
10-K 2011-12-31 Filed 2012-03-30
8-K 2020-06-09
8-K 2020-05-07
8-K 2020-04-09
8-K 2020-02-20
8-K 2020-02-11
8-K 2019-11-07
8-K 2019-08-08
8-K 2019-07-26
8-K 2019-06-05
8-K 2019-05-09
8-K 2019-02-14
8-K 2018-11-01
8-K 2018-09-22
8-K 2018-08-02
8-K 2018-06-06
8-K 2018-05-09
8-K 2018-03-15
8-K 2018-02-16

EPAM 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 exhibit311q12020.htm
EX-31.2 exhibit312q12020.htm
EX-32.1 exhibit321q12020.htm
EX-32.2 exhibit322q12020.htm

EPAM Systems Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.11.71.30.80.40.02012201420172020
Assets, Equity
0.60.50.30.20.0-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.10.0-0.0-0.12012201420172020
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to________

Commission file number: 001-35418

EPAM SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Delaware
22-3536104
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
 
41 University Drive
Suite 202
18940
Newtown
Pennsylvania
(Address of principal executive offices)
(Zip code)
267-759-9000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on which Registered
Common Stock, par value $0.001 per share
EPAM
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title of Each Class
 
Outstanding as of April 30, 2020
Common Stock, par value $0.001 per share
 
55,639,436 shares

 


EPAM SYSTEMS, INC.

TABLE OF CONTENTS

 
Page




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)

 
As of  
 March 31, 
 2020
 
As of  
 December 31, 
 2019
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
916,253

 
$
936,552

Trade receivables and contract assets, net of allowance of $5,356
and $2,920, respectively
542,698

 
497,716

Prepaid and other current assets
48,786

 
39,943

Total current assets
1,507,737

 
1,474,211

Property and equipment, net
164,671

 
165,259

Operating lease right-of-use assets
243,671

 
238,991

Intangible assets, net
58,676

 
56,258

Goodwill
198,534

 
195,043

Deferred tax assets
79,044

 
75,013

Other noncurrent assets
59,548

 
39,433

Total assets
$
2,311,881

 
$
2,244,208

 
 
 
 
Liabilities
 

 
 

Current liabilities
 

 
 

Accounts payable
$
5,232

 
$
7,831

Accrued compensation and benefits expenses
250,560

 
230,035

Accrued expenses and other current liabilities
66,434

 
82,476

Income taxes payable, current
6,987

 
9,064

Operating lease liabilities, current
60,108

 
57,542

Total current liabilities
389,321

 
386,948

Long-term debt
25,046

 
25,074

Income taxes payable, noncurrent
45,847

 
45,878

Operating lease liabilities, noncurrent
189,312

 
180,848

Other noncurrent liabilities
14,873

 
9,315

Total liabilities
664,399

 
648,063

Commitments and contingencies (Note 12)


 


Stockholders’ equity
 

 
 

Common stock, $0.001 par value; 160,000,000 authorized; 55,608,835
and 55,207,446 shares issued, 55,589,100
and 55,187,711 shares outstanding at March 31, 2020 and December 31, 2019, respectively
56

 
55

Additional paid-in capital
610,579

 
607,051

Retained earnings
1,106,285

 
1,020,590

Treasury stock
(177
)
 
(177
)
Accumulated other comprehensive loss
(69,261
)
 
(31,374
)
Total stockholders’ equity
1,647,482

 
1,596,145

Total liabilities and stockholders’ equity
$
2,311,881

 
$
2,244,208


The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

3


EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except share and per share data)

 
Three Months Ended 
 March 31,
 
2020
 
2019
Revenues
$
651,359

 
$
521,333

Operating expenses:
 
 
 
Cost of revenues (exclusive of depreciation and amortization)
423,802

 
344,689

Selling, general and administrative expenses
125,108

 
101,786

Depreciation and amortization expense
14,940

 
10,200

Income from operations
87,509

 
64,658

Interest and other income, net
2,386

 
3,076

Foreign exchange gain/(loss)
6,524

 
(3,484
)
Income before provision for income taxes
96,419

 
64,250

Provision for income taxes
10,854

 
3,496

Net income
$
85,565

 
$
60,754

Foreign currency translation adjustments, net of tax
(28,519
)
 
2,943

Unrealized (loss)/gain on cash-flow hedging instruments, net of tax
(9,368
)
 
3,100

Comprehensive income
$
47,678

 
$
66,797

 
 
 
 
Net income per share:
 
 
 
Basic
$
1.55

 
$
1.12

Diluted
$
1.47

 
$
1.06

Shares used in calculation of net income per share:
 
 
 
Basic
55,286,747

 
54,245,133

Diluted
58,142,570

 
57,236,427


The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.


4


EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share data) 

 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Balance, January 1, 2020
55,187,711

 
$
55

 
$
607,051

 
$
1,020,590

 
19,735

 
$
(177
)
 
$
(31,374
)
 
$
1,596,145

Restricted stock units vested
273,904

 

 

 

 

 

 

 

Restricted stock units withheld for employee taxes
(89,990
)
 

 
(15,822
)
 

 

 

 

 
(15,822
)
Stock-based compensation expense

 

 
12,210

 

 

 

 

 
12,210

Proceeds from stock option exercises
217,475

 
1

 
7,140

 

 

 

 

 
7,141

Foreign currency translation adjustments, net of tax

 

 

 

 

 

 
(28,519
)
 
(28,519
)
Change in unrealized gains and losses on cash flow hedges, net of tax

 

 

 

 

 

 
(9,368
)
 
(9,368
)
Cumulative effect of adoption of ASU 2016-13


 

 

 
130

 

 

 

 
130

Net income

 

 

 
85,565

 

 

 

 
85,565

Balance, March 31, 2020
55,589,100

 
$
56

 
$
610,579

 
$
1,106,285

 
19,735

 
$
(177
)
 
$
(69,261
)
 
$
1,647,482

 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Balance, January 1, 2019
54,080,192

 
$
54

 
$
544,700

 
$
759,533

 
19,735

 
$
(177
)
 
$
(41,514
)
 
$
1,262,596

Restricted stock units vested
242,414

 

 

 

 

 

 

 

Restricted stock units withheld for employee taxes
(81,562
)
 

 
(13,483
)
 

 

 

 

 
(13,483
)
Stock-based compensation expense

 

 
10,425

 

 

 

 

 
10,425

Proceeds from stock option exercises
323,464

 

 
11,890

 

 

 

 

 
11,890

Foreign currency translation adjustments, net of tax

 

 

 

 

 

 
2,943

 
2,943

Change in unrealized gains and losses on cash flow hedges, net of tax

 

 

 

 

 

 
3,100

 
3,100

Net income

 

 

 
60,754

 

 

 

 
60,754

Balance, March 31, 2019
54,564,508

 
$
54

 
$
553,532

 
$
820,287

 
19,735

 
$
(177
)
 
$
(35,471
)
 
$
1,338,225


The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

5


EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

                                               
Three Months Ended March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net income
$
85,565

 
$
60,754

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
14,940

 
10,200

Operating lease right-of-use assets amortization expense
16,816

 
12,187

Bad debt expense
2,719

 
(133
)
Deferred taxes
8,288

 
846

Stock-based compensation expense
11,881

 
21,856

Other
5,893

 
520

Changes in assets and liabilities:
 

 
 

Trade receivables and contract assets
(51,423
)
 
(48,343
)
Prepaid and other assets
(9,746
)
 
401

Accounts payable
(2,407
)
 
(2,488
)
Accrued expenses and other liabilities
5,437

 
(22,360
)
Operating lease liabilities
(15,646
)
 
(13,175
)
Income taxes payable
(9,062
)
 
(20,467
)
Net cash provided by/(used in) operating activities
63,255

 
(202
)
Cash flows from investing activities:
 

 
 

Purchases of property and equipment
(29,075
)
 
(13,424
)
Acquisition of business, net of cash acquired (Note 2)
(10,339
)
 

Payments for cost method investments
(20,000
)
 
(5,000
)
Other investing activities, net
(71
)
 
(136
)
Net cash used in investing activities
(59,485
)
 
(18,560
)
Cash flows from financing activities:
 

 
 

Proceeds from stock option exercises
6,850

 
11,402

Payments of withholding taxes related to net share settlements of restricted stock units
(1,018
)
 
(1,208
)
Payment of contingent consideration for previously acquired business
(7,869
)
 

Other financing activities, net
(9
)
 
(13
)
Net cash (used in)/provided by financing activities
(2,046
)
 
10,181

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(22,009
)
 
548

Net decrease in cash, cash equivalents and restricted cash
(20,285
)
 
(8,033
)
Cash, cash equivalents and restricted cash, beginning of period
937,688

 
771,711

Cash, cash equivalents and restricted cash, end of period
$
917,403

 
$
763,678




6


EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
(Continued)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets:
                                               
As of  
 March 31, 
 2020
 
As of December 31, 2019
Balance sheet classification
 
 
 
    Cash and cash equivalents
$
916,253

 
$
936,552

   Restricted cash in Other noncurrent assets
1,150

 
1,136

    Total restricted cash
1,150

 
1,136

        Total cash, cash equivalents and restricted cash
$
917,403

 
$
937,688


The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

7


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
 
1.
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES    
EPAM Systems, Inc. (the “Company” or “EPAM”) is a leading global provider of digital platform engineering and software development services to customers located around the world, primarily in North America, Europe, Asia and Australia. The Company’s industry expertise includes financial services, travel and consumer, software and hi-tech, business information and media, life sciences and healthcare, as well as other emerging industries. The Company is incorporated in Delaware with headquarters in Newtown, Pennsylvania.
Basis of Presentation — The accompanying unaudited condensed consolidated financial statements of EPAM have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP” or “U.S. GAAP”) and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. The unaudited condensed consolidated financial statements include the financial statements of EPAM Systems, Inc. and its subsidiaries with all intercompany balances and transactions eliminated.
These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019 included in its Annual Report on Form 10-K. The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates, and such differences may be material to the condensed consolidated financial statements. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire year. In management’s opinion, all adjustments considered necessary for a fair presentation of the accompanying unaudited condensed consolidated financial statements have been included, and all adjustments are of a normal and recurring nature.
As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, certain amounts recorded in the prior-period consolidated statement of cash flows presented have been reclassified to conform to the current-period financial statement presentation. These reclassifications had no effect on previously reported results of operations.
Adoption of New Accounting Standards
Unless otherwise discussed below, the adoption of new accounting standards did not have a material impact on the Company’s consolidated financial position, results of operations, changes in stockholders’ equity and cash flows.
Measurement of Credit Losses on Financial Instruments — In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
The amendments in this update changed how companies measure and recognize credit impairment for many financial assets. The new credit loss model requires companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets (including trade receivables) that are in the scope of the update. The update also made amendments to the current impairment model for held-to-maturity and available-for-sale debt securities and certain guarantees. The Company adopted Topic 326, effective January 1, 2020, using a modified-retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. As a result of the adoption of Topic 326, the Company recorded an immaterial reduction to its allowance for doubtful accounts for trade receivables and contract assets.
Pending Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standards-setting bodies that the Company will adopt according to the various timetables the FASB specifies. Unless otherwise discussed below, the Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position, results of operations and cash flows upon adoption.


8


2.
ACQUISITION
2020 Acquisition — During the three months ended March 31, 2020, the Company completed one acquisition with a purchase price of $14,663 including contingent consideration with a fair value of $4,042. The Company committed to making earnout payments with a maximum amount payable of $16,582 subject to attainment of specified performance targets in the first and second calendar years after the acquisition date. This acquisition increased EPAM’s software and service capabilities in financial services as well as added $6,300 of intangible assets, consisting mainly of customer relationships. Revenues generated by this acquisition totaled $1,043 during the three months ended March 31, 2020. Pro forma results of operations have not been presented because the effect of the acquisition on the Company’s condensed consolidated financial statements was not material.

3.
GOODWILL
Goodwill by reportable segment was as follows:
 
North America
 
Europe
 
Russia
 
Total
Balance as of January 1, 2020
$
113,426

 
$
80,873

 
$
744

 
$
195,043

Other 2019 acquisitions purchase accounting adjustments
210

 
(42
)
 
20

 
188

2020 Acquisition
6,818

 

 

 
6,818

Effect of net foreign currency exchange rate changes
(373
)
 
(3,078
)
 
(64
)
 
(3,515
)
Balance as of March 31, 2020
$
120,081

 
$
77,753

 
$
700

 
$
198,534


There were no accumulated impairment losses in the North America or Europe reportable segments as of March 31, 2020 or December 31, 2019. The Russia segment had accumulated goodwill impairment losses of $2,241 as of March 31, 2020 and December 31, 2019.

4.
FAIR VALUE MEASUREMENTS
The Company carries certain assets and liabilities at fair value on a recurring basis on its consolidated balance sheets. The following tables present the fair values of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:
 
 
As of March 31, 2020
 
 
Balance
 
Level 1
 
Level 2
 
Level 3
Foreign exchange derivative assets
 
$
55

 
$

 
$
55

 
$

Total assets measured at fair value on a recurring basis
 
$
55

 
$

 
$
55

 
$

 
 
 
 
 
 
 
 
 
Foreign exchange derivative liabilities
 
$
10,475

 
$

 
$
10,475

 
$

Contingent consideration
 
5,705

 

 

 
5,705

Total liabilities measured at fair value on a recurring basis
 
$
16,180

 
$

 
$
10,475

 
$
5,705

 
 
As of December 31, 2019
 
 
Balance
 
Level 1
 
Level 2
 
Level 3
Foreign exchange derivative assets
 
$
1,910

 
$

 
$
1,910

 
$

Total assets measured at fair value on a recurring basis
 
$
1,910

 
$

 
$
1,910

 
$

 
 
 
 
 
 
 
 
 
Foreign exchange derivative liabilities
 
$
243

 
$

 
$
243

 
$

Contingent consideration
 
10,495

 

 

 
10,495

Total liabilities measured at fair value on a recurring basis
 
$
10,738

 
$

 
$
243

 
$
10,495



9


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 5 “Derivative Financial Instruments” in the condensed consolidated interim financial statements for additional information regarding derivative financial instruments.
The fair value of the contingent consideration 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 business 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 agreement 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 2020 Acquisition was 17.5%. 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 statement of income and comprehensive income.
A reconciliation of the beginning and ending balances of Level 3 acquisition-related contingent consideration using significant unobservable inputs for the three months ended March 31, 2020 is as follows:
 
 
Amount
Contingent consideration liabilities as of January 1, 2020
 
$
10,495

Payment of contingent consideration for previously acquired business
 
(7,869
)
Acquisition date fair value of contingent consideration — 2020 Acquisition (Note 2)
 
4,042

Changes in fair value of contingent consideration included in Interest and other income, net
 
(438
)
Effect of net foreign currency exchange rate changes
 
(525
)
Contingent consideration liabilities as of March 31, 2020
 
$
5,705


Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
Estimates of fair value of financial instruments not carried at fair value on a recurring basis on the Company’s consolidated balance sheets are generally subjective in nature, and are determined as of a specific point in time based on the characteristics of the financial instruments and relevant market information. The generally short maturities of certain assets and liabilities result in a number of assets and liabilities for which fair value equals or closely approximates the amount recorded on the Company’s consolidated balance sheets. 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
March 31, 2020
 
 
 
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
334,194

 
$
334,194

 
$
334,194

 
$

 
$

Time deposits
 
2

 
2

 

 
2

 

Total cash equivalents
 
$
334,196

 
$
334,196

 
$
334,194

 
$
2

 
$

Restricted cash
 
$
1,150

 
$
1,150

 
$
1,150

 
$

 
$

Employee loans
 
$
2,159

 
$
2,159

 
$

 
$

 
$
2,159

Financial Liabilities:
 
 
 
 
 
 
 
 
 
 
Borrowings under the 2017 Credit Facility
 
$
25,011

 
$
25,011

 
$

 
$
25,011

 
$



10


 
 
 
 
 
 
Fair Value Hierarchy
 
 
Balance
 
Estimated Fair Value
 
Level 1
 
Level 2
 
Level 3
December 31, 2019
 
 
 
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
407,817

 
$
407,817

 
$
407,817

 
$

 
$

Time deposits
 
10,002

 
10,002

 

 
10,002

 

Total cash equivalents
 
$
417,819

 
$
417,819

 
$
407,817

 
$
10,002

 
$

Restricted cash
 
$
1,136

 
$
1,136

 
$
1,136

 
$

 
$

Employee loans
 
$
2,434

 
$
2,434

 
$

 
$

 
$
2,434

Financial Liabilities:
 
 
 
 
 
 
 
 
 
 
Borrowings under the 2017 Credit Facility
 
$
25,017

 
$
25,017

 
$

 
$
25,017

 
$



5.
DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company uses derivative financial instruments to manage the risk of fluctuations in foreign currency exchange rates. The Company has a hedging program whereby it enters into a series of foreign exchange forward contracts with durations of twelve months or less that are designated as cash flow hedges of forecasted Russian ruble, Polish zloty and Indian rupee transactions. As of March 31, 2020, all of the Company’s foreign exchange forward contracts were designated as hedges and there is no financial collateral (including cash collateral) required to be posted by the Company related to the foreign exchange forward contracts.
The fair value of derivative instruments on the Company’s consolidated balance sheets as of March 31, 2020 and December 31, 2019 were as follows:
 
 
 
 
As of March 31, 2020
 
As of December 31, 2019
 
 
Balance Sheet Classification
 
Asset Derivatives
 
Liability Derivatives
 
Asset Derivatives
 
Liability Derivatives
Foreign exchange forward contracts -
Designated as hedging instruments
 
Prepaid expenses and other current assets
 
$
55

 
 
 
$
1,910

 
 
 
 
Accrued expenses and other current liabilities
 
 
 
$
10,475

 
 
 
$
243


The Company records changes in the fair value of its cash flow hedges in accumulated other comprehensive loss in the consolidated balance sheets until the forecasted transaction occurs. When the forecasted transaction occurs, the Company reclassifies the related gain or loss on the cash flow hedge to cost of revenues (exclusive of depreciation and amortization). In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, the Company reclassifies the gain or loss on the related cash flow hedge into income. If the Company does not elect hedge accounting, or the contract does not qualify for hedge accounting treatment, the changes in fair value from period to period are recorded in income.
The changes in the fair value of foreign currency derivative instruments in our unaudited condensed consolidated statements of income and comprehensive income for the three months ended March 31, 2020 and 2019 were as follows: