What changed in this filing

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Item 1A. Risk Factors

2023-02-22 compared with 2022-02-23 · 129 added, 142 removed, 221 unchanged (55% of the section changed)

Business and Operational Risks

Business, Economic, Market and Operational Risks

Our government contracts are subject to appropriation of funds, termination rights, audits and investigations, which, if exercised, could negatively impact our reputation and reduce our ability to compete for new contracts.

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Our business may be adversely affected by geopolitical events and increasing geopolitical tensions, macroeconomic conditions, natural disasters and other factors that could directly impact certain of our employees, customers and vendors in countries or regions effected by such events and factors.

We have a global workforce and global customers.

Our employees and customers in a particular country or region in the world may be impacted as a result of a variety of diversions, including:

geopolitical events and increasing geopolitical tensions, such as war, the threat of war, or terrorist activity;

macroeconomic conditions;

natural disasters or the effects of climate change (such as drought, flooding, wildfires, increased storm severity, and sea level rise);

power shortages or outages, major public health issues, including pandemics (such as the coronavirus);

and significant local, national or global events capturing the attention of a large part of the population.

As an example of a geopolitical event, in February 2022, Russian forces launched significant military action against Ukraine, which has resulted in conflict and disruptions in the region.

To date, while we do not believe Russia’s military action in Ukraine and governmental actions in response thereto have had a material impact on our business, financial position or operations, we continue to monitor the situation closely.

If any of these, or any other factors, disrupt a country or region where we have a significant workforce (such as the U.S., India or the Philippines) or customers (such as the U.S.

or Europe), or vendors, our business could be materially adversely affected.

Our results of operations and financial condition may be materially adversely affected by conditions abroad, including local economics, political environments, fluctuating foreign currencies and shifting regulatory schemes.

Approximately 10.0% of our 2022 revenues was generated from operations outside the United States.

In addition, we maintain significant operations outside the United States.

Our results of operations and financial condition could be materially adversely affected by changes in foreign currency exchange rates, as well as by several of other factors, including, without limitation, changes in economic conditions from country to country, changes in a country’s political conditions, trade controls and protection measures, financial sanctions, licensing requirements, local tax issues, capitalization and other related legal matters.

We generally hedge foreign currency denominated assets, liabilities and anticipated transactions primarily through the use of currency derivative contracts.

The use of derivative contracts is intended to mitigate or reduce transactional level volatility in the results of foreign operations but does not eliminate volatility.

We do not hedge the translation effect of international revenues and expenses, which are denominated in currencies other than our U.S.

parent functional currency, within our Consolidated Financial Statements.

If we are unable to effectively hedge these risks, our results of operations and financial condition could be materially adversely affected.

We rely to a significant extent on third-party providers, such as subcontractors, a relatively small number of primary software vendors, utility providers and network providers;

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Our results of operations and financial condition have been and in the future may be materially adversely affected and we might incur significant additional liabilities if any of our third-party providers (i) do not meet their service level obligations, (ii) do not meet our or our clients’ expectations, (iii) terminate or refuse to renew their relationships with us, or (iv) offer their products to us with less advantageous prices and other terms than previously offered.

Failure to deliver on our contractual obligations properly and on time could materially adversely affect our

results of operations and financial condition.

Failure to deliver on our contractual obligations properly and on time could materially adversely affect our results of operations and financial condition.

Our business model depends in large part on our ability to retain existing and attract new work from our base of existing clients, as well as on relationships we develop with our clients so that we can understand our clients’ needs and deliver solutions and services that are tailored to meet those needs.

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If a client is not satisfied with the quality of work performed by us or a subcontractor, or with the type of services or solutions delivered, or if we or our subcontractors fail to perform in accordance with contract requirements, then we could incur additional costs to address the situation, the profitability of that work might be impaired and the client’s dissatisfaction with our services could damage our ability to obtain additional work from that client or obtain new work from other potential clients.

Many of our contracts with non-government clients may be terminated by the client, without cause, upon specified advance notice.

Many of our contracts with non-government clients may be terminated by the client, without cause, upon specified advance

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Accordingly, clients who are not satisfied might seek to terminate existing contracts prior to their scheduled expiration date, which may result in our inability to fully recover our up-front investments.

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Additionally, there can be no assurance that our cross-selling efforts will cause clients to purchase additional services from us or adopt a single-source outsourcing approach.

Our business may be adversely affected by geopolitical events, natural disasters and other factors that could directly impact certain of our employees, customers and vendors in countries or regions effected by such events and factors.

We have a global workforce and global customers.

Our employees and customers in a particular country or region in the world may be impacted as a result of a variety of diversions, including:

geopolitical events, such as war, the threat of war, or terrorist activity;

natural disasters or the effects of climate change (such as drought, flooding, wildfires, increased storm severity, and sea level rise);

power shortages or outages, major public health issues,

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including pandemics (such as the coronavirus);

and significant local, national or global events capturing the attention of a large part of the population.

If any of these, or any other factors, disrupt a country or region where we have a significant workforce (such as the U.S., India or the Philippines) or customers (such as the U.S.

or Europe), or vendors, our business could be materially adversely affected.

We may be subject to claims of infringement of third-party intellectual property rights which could adversely affect our results of operation and financial condition.

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Many of these systems involve detailed and complex computer source code which must be created and integrated into a working system that meets contract specifications.

The accounting for these contracts requires judgment relative to assessing risks, estimating contract revenues and costs and making assumptions for schedule and technical issues.

The accounting for these contracts requires judgment relative to assessing risks, estimating costs to fulfill the contract and making assumptions for schedule and technical issues.

To varying degrees, each contract type involves some risk that we could underestimate the costs and resources necessary to fulfill the contract.

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These contracts carry potential financial penalties or could result in financial damages or exposures if we fail to properly perform those obligations and have in the past resulted in and in the future could result in our results of operations and financial condition being materially adversely affected.

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The loss of key senior management or the failure to attract and retain necessary technical personnel and qualified subcontractors could materially adversely affect our results of operations and financial condition.

Our success depends, in part, upon key managerial and technical personnel, including our ability to attract and retain additional qualified personnel, as well as qualified subcontractors.

The loss of certain key personnel, such as our Chief Executive Officer (CEO), could materially adversely affect our results of operations and financial condition.

The loss of certain key personnel, such as our Chief Executive Officer (CEO), members of our executive team and other highly skilled employees, could materially adversely affect our results of operations and financial condition.

There is no assurance that we can retain our key managerial personnel, or that we can attract similar employees, in the future.

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Additionally, we have increased and expect to continue to increase our hiring in geographic areas outside of the United States, which could subject us to increased geopolitical and exchange rate risk.

The loss of any key technical employee, the loss of a key subcontractor

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relationship or our inability to renegotiate or obtain required service levels from legacy and other third-party providers, could materially adversely affect our results of operations and financial condition.

The loss of any key technical employee, the loss of a key subcontractor relationship or our inability to renegotiate or obtain required service levels from legacy and other third-party providers, could materially adversely affect our results of operations and financial condition.

If we fail to successfully develop new service offerings, including new technology components, and protect our intellectual property rights, we may be unable to retain current customers and gain new customers and our revenues would decline.

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We have experienced certain disruptions in our operations and service delivery performance issues because of some of our information technology infrastructure that is outdated and that needs to be enhanced and updated, which disruptions have adversely impacted client and delivery performance.

As a result, we are investing in modernizing a significant portion of our information technology infrastructure with new systems and processes and consolidating our data centers.

This also includes investments in our data centers and networks, enhancement, modernization and consolidation of our IT infrastructure and customer-facing technologies, enhanced cybersecurity and movement to cloud-based technology.

We expect that these changes will provide greater strategic and operational flexibility and efficiency and better control of our systems and processes.

There is a risk, however, that our modernization efforts and data center consolidations could materially and adversely disrupt our operations and our service delivery to customers, could result in contractual penalties or damage claims from customers, could occur over a period longer than planned, and could require greater than expected investment and other internal and external resources.

As a result, we embarked on a long-term project to modernize a significant portion of our information technology infrastructure with new systems and processes and to consolidate our data centers.

This project also includes investments in our data centers and networks, enhancement, modernization and consolidation of our IT infrastructure and customer-facing technologies, enhanced cybersecurity and movement to cloud-based technology.

This project is ongoing and we expect that these changes will provide greater strategic and operational flexibility and efficiency and better control of our systems and processes.

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expected investment and other internal and external resources.

It may also take longer to realize the intended favorable benefits from an enhanced technology infrastructure than we expected, or that disruptions may continue to occur while we enhance this infrastructure.

The process of consolidating our data center involves inherent risks and may cause disruptions to our operations.

In October 2018, we suffered a significant outage because of a data center migration, which resulted in unplanned system unavailability and disruption for our customers.

We plan to undertake several data center migrations in the future and, during these data migrations, could potentially experience significant service outages.

We are in the process of undertaking several data center migrations now and in the future and, during these data migrations, could potentially experience significant service outages.

Future service disruptions could hinder our ability to attract new customers, cause us to incur legal liability, contractual penalties or issue service credits to our customers and cause us to lose current customers, each of which could have a material adverse effect on our business, results of operations and financial condition.

A portion of our revenues is generated from operations outside the United States.

In addition, we maintain significant operations outside the United States.

Our results of operations and financial condition could be materially adversely affected by changes in foreign currency exchange rates, as well as by several of other factors, including,

Our business has been and will continue to be negatively impacted by the ongoing coronavirus pandemic.

As a result of the COVID-19 pandemic, we have experienced and can be expected to continue to experience disruptions to our business, our operations, the delivery of our services and customer demand for our services and business offerings, including:

• Work-from-home concerns:

The COVID-19 pandemic has led to the shifting of substantial services being performed by us for our customers to work-from-home alternatives, which have created added burdens, risks and costs, including but not limited to:

the added cost and uncertainty created by a significant change in our delivery model;

delays and disruptions resulting from organizing and implementing work-from-home solutions;

customer protocols not allowing, without express customer waiver or permission, work-from-home alternatives, due to sensitivity of customer data, inclusion of personally identifiable information, cybersecurity and data security concerns, and other factors;

delays and disruptions in providing customer services which may adversely affect our reputation and may in the future result in failure to satisfy customer contract requirements and other noncompliance issues;

challenges in and cost of equipping work-from-home solutions with appropriate technology equipment and software, with suitable security protections;

potential for increased cybersecurity and other data security issues;

compliance with legal, regulatory, industry and customer standards and specifications;

and increased logistical issues resulting from unexpected shift in service delivery model.

As a result of these and other factors related to work-from-home solutions, we have experienced and can be expected to continue to experience delays and disruptions and an adverse impact on our business, operations, costs, satisfaction of customer requirements and operating results and financial condition.

• Customer performance and demand:

The COVID-19 pandemic has impacted and may be expected to continue to adversely impact customer demand for our services and business offerings.

Many of our customers have experienced and will continue to experience substantial disruption in their own operations and the COVID-19 pandemic has also resulted in greater customer uncertainty in their short-term and longer-term needs.

In addition, under certain contracts we earn revenues based on the number of transactions processed, such as, for example, certain transportation and credit card processing arrangements where the number of transactions has decreased due to the COVID-19 pandemic.

These and other pandemic-related factors have and will continue to adversely impact revenues, sales, new business opportunities, pricing and our sales pipeline.

• If we fail to satisfy a customer’s requirements or specifications, we could incur additional costs to address such dissatisfaction or on account of such deficiency as well as receive notice of termination.

The COVID-19 pandemic has had and can be expected to continue to have an impact on compliance and non-interruption of service under certain customer contractual requirements, and certain customer relationships can be expected to be adversely impacted, in addition to our incurring added costs in response to any deficiency.

• We rely on third parties to provide technology, other services and products we need to operate our business.

Delays or interruption in the operations of third parties on which we rely may result in disruptions in our own operations and fulfillment of our customers’ requirements.

We continue to monitor the latest developments regarding the pandemic.

We are unable to predict the extent of any continued impact of the pandemic on our business, operations, and financial condition due to the uncertainty of future developments.

Any future impacts will depend on, among other things, the further spread and duration of COVID-19, including the impact of variants and resurgences, the requirements to take action to help limit the spread of the illness, the availability, widespread distribution, and acceptance of vaccines and treatments for COVID-19 and the economic impacts of the pandemic, including recession and inflationary pressures.

Even in those regions where

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without limitation, changes in economic conditions from country to country, changes in a country’s political conditions, trade controls and protection measures, financial sanctions, licensing requirements, local tax issues, capitalization and other related legal matters.

The withdrawal of the United Kingdom from the European Union, and the resulting impact on cross-border transactions and operations between the United Kingdom and the European Union member states, could materially and adversely affect our operations and financial condition.

We generally hedge foreign currency denominated assets, liabilities and anticipated transactions primarily through the use of currency derivative contracts.

The use of derivative contracts is intended to mitigate or reduce transactional level volatility in the results of foreign operations but does not eliminate volatility.

We do not hedge the translation effect of international revenues and expenses, which are denominated in currencies other than our U.S.

parent functional currency, within our Consolidated Financial Statements.

If we are unable to effectively hedge these risks, our results of operations and financial condition could be materially adversely affected.

we have experienced business recovery, should those regions fail to fully contain COVID-19 or suffer a COVID-19 relapse, those markets may not recover as quickly or at all, which could have a material adverse effect on our business and results of operations.

The impact of COVID-19 has also exacerbated and may continue to exacerbate other risks discussed herein, any of which could have a material effect on us.

We do not yet know and cannot predict the full extent of potential impacts on our business, our services and business offerings or our operating results and financial condition.

Expectations relating to environmental, social and governance considerations expose the Company to potential liabilities, increased costs, reputational harm, and other adverse effects on the Company’s business.

Many governments, regulators, investors, associates, clients and other stakeholders are increasingly focused on environmental, social and governance considerations relating to businesses, including climate change and greenhouse gas emissions, human rights, and diversity, equity and inclusion.

In addition, the Company makes statements about its environmental, social and governance goals and initiatives through its corporate social responsibility report, its other non-financial reports, information provided on its website, press releases and other communications.

Responding to these environmental, social and governance considerations and implementation of these goals and initiatives involves risks and uncertainties, requires capital and operating investments, and depends in part on third-party performance, or data and changing regulatory schemes that are outside the Company’s control.

The Company cannot guarantee that it will achieve its announced environmental, social and governance goals and initiatives.

In addition, some stakeholders may disagree with the Company’s goals and initiatives.

Any failure, or perceived failure, by the Company to achieve its goals, further its initiatives, adhere to its public statements, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against the Company and could materially adversely affect the Company’s business, ability to recruit and retain associates, reputation, results of operations, financial condition and stock price.

Legal, Compliance and Data Security Risks

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Changes to existing laws, the introduction of new laws in this area or our failure to comply with existing laws that are applicable to us may subject us to, among other things, additional costs or changes to our business practices, liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability to obtain and process information and allegations by our customers and clients that we have not performed our contractual obligations, any of which could materially adversely affect our results of operations and financial condition.

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We are subject to laws of the United States and foreign jurisdictions relating to processing certain financial transactions, including payment card transactions and debit or credit card transactions, and failure to comply with those laws, whether or not inadvertent, could subject us to legal actions and materially adversely affect our results of operations and financial condition.

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These laws are subject to frequent changes, and new statutes and regulations in this area may be enacted at any time.

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liability for monetary damages, fines and civil and/or criminal prosecution, unfavorable publicity, restrictions on our ability to process and support financial transactions and allegations by our customers, partners and clients that we have not performed our contractual obligations.

Changes to existing laws, the introduction of new laws in this area or our failure to comply with existing laws that are applicable to us may subject us to, among other things, additional costs or changes to our business practices, liability for monetary damages, fines and civil and/or criminal prosecution, unfavorable publicity, restrictions on our ability to process and support financial transactions and allegations by our customers, partners and clients that we have not performed our contractual obligations.

Any of these could materially adversely affect our results of operations and financial condition.

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We also use third-party providers such as subcontractors, software vendors, utility providers and network providers, upon whom we rely for our business processing services, to deliver uninterrupted, secure service.

As part of our business processing services, we also develop system software platforms necessary to support our customers’ needs, with significant ongoing investment in developing and operating customer-appropriate operating systems, data bases and system software solutions.

We also receive, process, transmit and store substantial volumes of information relating to identifiable individuals, both in our role as a service provider and as an employer, and we are subject to numerous laws, rules and regulations in the United States (both federal and state) and foreign jurisdictions designed to protect both individually identifiable information as well as personal health information.

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Operational or business delays may also result from the disruption of network or information systems and subsequent remediation activities.

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Because the techniques used to obtain unauthorized access are constantly changing and becoming increasingly more sophisticated and often are not recognized until launched against a target, we or our third-party service providers may be unable to anticipate these techniques or implement sufficient preventative measures.

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Moreover, employee error or malfeasance, faulty password management or other irregularities may result in a defeat of our or our third-party service providers’ security measures and a breach of our or our third-party service providers’ information systems (whether digital, cloud-based or otherwise).

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In addition, the increased use of employee-owned devices for communications as well as work-from-home arrangements, present additional operational risks to our information technology systems, including, but not limited to, increased risks of cyber-attacks.

If unauthorized parties gain physical access to one of our or one of our third-party service providers’ facilities or gain electronic access to our or one of our third-party service providers’ information systems, such access could result in, among other things, unfavorable publicity and significant damage to our brand, governmental inquiry, oversight and possible regulatory action, difficulty in marketing our services, loss of existing and potential customers, allegations by our customers that we have not performed our contractual obligations, litigation by affected parties and possible financial obligations for substantial damages related to the theft or misuse of such information, any of which could materially adversely affect our results of operations and financial condition.

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To the extent any such disruptions were to occur, our business, operating results and financial condition could be materially adversely affected.

In addition, our liability insurance, which includes cyber insurance, might not be sufficient in type or amount to cover us against claims related to security incidents, cyberattacks and other related incidents.

If we fail to meet industry data security standards, our ability to meet contractual obligations may be impaired and result in contractual damage or contract breach claims.

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Another industry standard is the Health Information Trust Alliance (HITRUST) which applies to aspects of the healthcare industry in addition to other industries.

While we are taking steps to achieve future compliance and/or certification for our systems, and in the future we may not be able to maintain compliance with PCI DSS, HITRUST and other applicable industry standards.

We are taking steps to achieve compliance and/or certification for our systems, but we cannot assure that these efforts will be successful in the time required or at all.

Any failure to comply fully or materially with PCI DSS, HITRUST and other applicable industry standards now or at any point in the future may provide customers the right to terminate contracts with us or to enforce provisions obligating us to reimburse them for any penalties or costs incurred by them as a result of our non-compliance, or subject us to other fines, penalties, damages or civil liability, each of which could have a material adverse effect on our business, financial condition and results of operations.

In addition, failure to meet PCI DSS standards could result in the loss of our ability to accept credit card payments and the failure to meet HITRUST standards could impact our ability to service customers in the healthcare and other industries, both of which could have a material adverse impact on our business, results of operations and financial condition.

We take steps to achieve compliance and/or certification for our systems.

In the future we may not be able to maintain compliance with PCI DSS, HITRUST and other applicable industry standards.

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them as a result of our non-compliance, or subject us to other fines, penalties, damages or civil liability, each of which could have a material adverse effect on our business, financial condition and results of operations.

Our results of operations and financial condition could be materially adversely affected by legal and regulatory matters.

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the Employee Retirement Income Security Act of 1974 (ERISA);

and other laws, regulations and contractual undertakings, as discussed under Note 16 – Contingencies and Litigation to our Consolidated Financial Statements.

If developments in any of these matters cause a change in our determination as to an unfavorable outcome and result in the need to recognize a material accrual or materially increase an existing accrual, or if any of these matters result in an adverse judgment or are settled for significant amounts above any existing accruals, it could materially adversely affect our results of

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operations and financial condition in the period or periods in which such change in determination, judgment or settlement occurs.

and other laws, regulations and contractual undertakings, as discussed under Note 16 – Contingencies and Litigation to the Consolidated Financial Statements.

There can be no assurances as to the favorable outcome of any claim, lawsuit, investigation or proceeding.

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Additionally, the terms of dismissal, settlement, release or other resolution may permit certain claims to be reopened under certain conditions.

Claims, lawsuits investigations and proceedings involving the Company could also result in reputational harm, criminal sanctions, consent decrees or orders preventing us from offering certain services, requiring a change in our business practices in costly ways or requiring development of non-infringing or otherwise altered products or technologies.

In addition, it can be very costly to defend litigation and these costs could materially adversely affect our results of operations and financial condition.

Refer to Note 16 – Contingencies and Litigation to our Consolidated Financial Statements.

Refer to Note 16 – Contingencies and Litigation to the Consolidated Financial Statements.

While we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as caps on amounts recoverable.

Even if we believe a claim is covered by insurance, insurers may dispute our entitlement to recovery for a variety of potential reasons, which may affect the timing and, if they prevail, the amount of our recovery.

Financial Risks

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Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets and/or goodwill may not be recoverable include a decline in stock price and market capitalization, slower growth rates in our industry or our own operations, and/or other materially adverse events that have implications on the profitability of our business or business segments.

We may be required to record additional charges to earnings during the period in which any impairment of our goodwill or other intangible assets is determined which could adversely impact our results of operations.

As of December 31, 2021, our goodwill balance was $1.3 billion, which represented 33.2% of total consolidated assets.

After completing the annual impairment test, the Commercial reporting unit experienced lower than expected new customer contract signings (all subsequent to November 1, 2022), and an unexpected softening of the future business pipeline for certain solutions.

Management believed these were driven by macroeconomic conditions present in the fourth quarter of 2022.

The combination of these factors led management, in December 2022, to review the Commercial reporting unit and further evaluate the portfolio.

These factors triggered the need for management to perform a goodwill impairment assessment for this reporting unit as of December 31, 2022, which resulted in a pre-tax impairment charge of $358 million.

Refer to Note 8 – Goodwill and Intangible Assets, Net to our Consolidated Financial Statements for additional information about our 2022 goodwill impairment.

While no additional impairments were identified in 2022, we may be required to record additional charges to earnings during the period in which any impairment of our goodwill or other intangible assets is determined which could adversely impact our results of operations.

As of December 31, 2022, our goodwill balance was $955 million, which represented 26.7% of total consolidated assets.

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Our significant indebtedness could materially adversely affect our results of operations and financial condition.

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These may restrict our and our subsidiaries’ ability to take some or all of the following actions:

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• incur or guarantee additional indebtedness or sell disqualified or preferred stock;

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Furthermore, under this indebtedness we have pledged our assets as collateral as security for our repayment obligations.

If we were unable to repay any amount of this indebtedness when due and payable, the lenders could proceed against the collateral that secures this indebtedness.

If we were unable to repay any amount of this indebtedness when due and payable, the lenders could proceed against the collateral that secures this

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indebtedness.

In the event our creditors accelerate the repayment of our borrowings, we may not have sufficient assets to repay such indebtedness, which could materially adversely affect our results of operations and financial condition.

In addition, our credit facility bears interest at a rate that varies depending on LIBOR.

On July 27, 2017, the UK's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021.

The announcement indicates that LIBOR will not continue to exist on the current basis.

More recently, on March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative.

Specifically, this occurred immediately after December 31, 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings;

and will occur immediately after June 30, 2023, in the case of the remaining U.S.

dollar settings.

Our borrowings are based on these remaining U.S.

dollar settings.

Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

financial institutions, announced a recommendation to replace U.S.

dollar LIBOR with a new index calculated based on overnight transactions under short-term repurchase agreements, backed by U.S.

Treasury securities called the Secured Overnight Financing Rate (SOFR).

However, there is currently no definitive successor reference rate to LIBOR and various industry organizations are still working to develop workable transition mechanisms and whether SOFR attains market traction as a LIBOR replacement tool remains in question at this time.

LIBOR related changes may negatively impact costs of borrowings under our credit facilities, which could have an adverse effect on our results of operations.

In addition, the Term Loan A, the Term Loan B, the Revolving Credit Facility and other borrowings under the Credit Agreement (as defined below) bear interest at a rate that varies depending on LIBOR.

On March 5, 2021, the Financial Conduct Authority of the U.K., which regulates LIBOR, announced (the "FCA Announcement") that all LIBOR tenors will cease to be published or will no longer be representative after June 30, 2023.

The FCA Announcement coincides with the March 5, 2021 announcement of LIBOR’s administrator, the ICE Benchmark Administration Limited (the "IBA"), indicating that, as a result of not having access to input data necessary to calculate LIBOR tenors on a representative basis after June 30, 2023, the IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023.

The United States Federal Reserve has also advised banks to cease entering into new contracts that use USD LIBOR as a reference rate.

The Federal Reserve, in conjunction with the Alternative Reference Rate Committee (the "ARRC"), a committee convened by the Federal Reserve that includes major market participants, has identified the Secured Overnight Financing Rate (“SOFR”), a new index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR.

On July 29, 2021, the ARRC formally recommended SOFR as its preferred alternative replacement rate for LIBOR.

On July 29, 2021, the ARRC also recommended a forward-looking term rate based on SOFR published by CME Group.

Although SOFR appears to be the preferred replacement rate for U.S.

dollar LIBOR, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere.

Alternative reference rates that may replace LIBOR, including SOFR for USD transactions, may not yield the same or similar economic results as LIBOR over the lives of such transactions.

There can be no guarantee that SOFR will become the dominant alternative to USD LIBOR or that SOFR will be widely used and other alternatives may or may not be developed and adopted with additional consequences.

There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate.

Pursuant to the terms of the Credit Agreement, on June 30, 2023, we expect that the LIBOR interest rate applicable to Term Loan A, Term Loan B, the Revolving Credit Facility and other borrowings thereunder will be replaced by a new interest rate benchmark equal to the sum of (i) Term SOFR (the ARRC-recommended, SOFR-based forward-looking term rate for any period that is approximately as long as the related interest period) plus (ii) for each tenor of LIBOR being replaced, the fixed spread adjustment recommended by the ARRC.

There is no assurance that such a successor reference rate will be similar to, or produce the same value or economic equivalence of, LIBOR and the new rates may not be as favorable to us as those in effect prior to any LIBOR phase-out.

LIBOR related changes, including unforeseen effects, may negatively impact costs of borrowings under our credit facilities or future financing efforts, which could have an adverse effect on our results of operations, cash flow and liquidity.

The failure to obtain or maintain a satisfactory credit rating and financial performance could adversely affect our liquidity, capital position, borrowing costs, access to capital markets and our need or ability to post surety or performance bonds to support clients’ contracts.

Any future downgrades to our credit rating or perceived or actual weakness in our financial performance could negatively impact our ability to renew contracts with our existing clients and vendors, limit our ability to compete for new clients, result in increased premiums for surety or performance bonds and letters of credit to support our clients’ contracts, reduce our ability to obtain surety bonds, performance bonds and letters of credit and/or result in a requirement that we provide collateral to secure our surety or performance bonds and letters of credit.

Further, certain of our commercial outsourcing contracts provide that, in the event our credit ratings are downgraded to specified levels, the client may elect to terminate its contract with us and either pay a reduced termination fee or, in some limited instances, no termination fee.

Such a credit rating downgrade or perceived or actual weakness in our financial performance could adversely affect these client relationships.

There can be no assurance that we will be able to maintain our credit ratings or financial performance.

Any additional actual or anticipated downgrades of our credit ratings, including any announcement that our ratings are under review for a downgrade, or perceived or actual weak financial performance may have a negative impact on our liquidity, capital position, access to capital markets and ability to obtain surety bonds, performance bonds and letters of credit sufficient to support our existing and future business needs.

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Our profitability is dependent upon our ability to obtain adequate pricing for our services and to improve our cost structure.

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This makes the bidding process for new contracts much more difficult and requires us to adequately consider these requirements in the pricing of our services.

To meet the service requirements of our customers, which often includes 24/7 service, and to optimize our employee cost base, including our back-office support, we often locate our delivery service and back-office support

CNDT 2021 Annual Report

centers in lower-cost locations, including several developing countries.

Concentrating our centers in these locations presents several operational risks, many of which are beyond our control, including the risks of political instability, natural disasters, safety and security risks, labor disruptions, excessive employee turnover and rising labor rates.

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These risks could impair our ability to effectively provide services to our customers and keep our costs aligned to our associated revenues and market requirements.

Our ability to sustain and improve profit margins is dependent on a number of factors, including our ability to continue to improve the cost efficiency of our operations through such programs as RPA, to absorb the level of pricing pressures on our services through cost improvements, our ability to hire and retain employees in the current global labor markets and to successfully complete information technology initiatives.

Our ability to sustain and improve profit margins is dependent on a number of factors, including our ability to continue to improve the cost efficiency of our operations through such programs as robotic process automation, to absorb the level of pricing pressures on our services through cost improvements, our ability to hire and retain employees in the current global labor markets and to successfully complete information technology initiatives.

If any of these factors adversely materialize or if we are unable to achieve and maintain productivity improvements through restructuring actions or information technology initiatives, our ability to offset labor cost inflation and competitive price pressures would be impaired, each of which could materially adversely affect our results of operations and financial condition.

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Economic and political conditions could affect our clients’ businesses and the markets they serve.

CNDT 2022 Annual Report

Competition from other service providers and bringing these services in-house could also be expected to adversely impact our revenues.

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There is less predictability and certainty in the timing and amount of revenues generated by our non-recurring services and, accordingly, our results of operations and financial condition could be materially adversely affected by the timing and amount of revenues generated from our non-recurring services.

CNDT 2021 Annual Report

The failure to obtain or maintain a satisfactory credit rating could adversely affect our liquidity, capital position, borrowing costs, access to capital markets and ability to post surety or performance bonds to support clients’ contracts.

Any future downgrades to our credit rating could negatively impact our ability to renew contracts with our existing clients, limit our ability to compete for new clients, result in increased premiums for surety or performance bonds to support our clients’ contracts and/or result in a requirement that we provide collateral to secure our surety or performance bonds.

Such a credit rating downgrade could adversely affect these client relationships.

There can be no assurance that we will be able to maintain our credit ratings.

Any additional actual or anticipated downgrades of our credit ratings, including any announcement that our ratings are under review for a downgrade, may have a negative impact on our liquidity, capital position and access to capital markets.

Increases in the cost of telephone and data services or significant interruptions in such services could materially adversely affect our results of operations and financial condition.

Our business is significantly dependent on telephone and data services provided by various local and long distance telephone and data service providers around the world.

Increases in the cost of voice and data services or significant interruptions in such services could materially adversely affect our results of operations and financial condition.

Our business is significantly dependent on voice and data services provided by various communication and data service providers around the world.

Accordingly, any disruption of these services could materially adversely affect our results of operations and financial condition.

We have taken steps to mitigate our exposure to service disruptions by investing in redundant circuits, although there is no assurance that the redundant circuits would not also suffer disruption.

Any inability to obtain telephone or data services at favorable rates could materially adversely affect our results of operations and financial condition.

Any inability to obtain voice or data services at favorable rates could materially adversely affect our results of operations and financial condition.

Where possible, we have entered into long-term contracts with various providers to mitigate short-term rate increases and fluctuations.

There is no obligation, however, for the vendors to renew their contracts with us, or to offer the same or lower rates in the future, and such contracts are subject to termination or modification for various reasons outside of our control.

A significant increase in the cost of telephone or data services that is not recoverable through an increase in the price of our services could materially adversely affect our results of operations and financial condition.

A significant increase in the cost of voice or data services that is not recoverable through an increase in the price of our services could materially adversely affect our results of operations and financial condition.

In addition, a number of our facilities are located in jurisdictions outside of the United States where the provision of utility services, including electricity and water, may not be consistently reliable, and while there are backup systems in many of our operating facilities, an extended outage of utility or network services could materially adversely affect our results of operations and financial condition.

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Our principal assets are the shares of capital stock and indebtedness of our subsidiaries.

We rely on dividends, interest and other payments from these subsidiaries to meet our obligations for paying principal and interest on outstanding debt obligations, paying corporate expenses and, if determined by our Board, paying dividends to shareholders and repurchasing common shares.

We rely on dividends, interest and other payments from these subsidiaries to meet our obligations for paying principal and interest on outstanding debt obligations, paying corporate expenses and, if determined by our Board of Directors, paying dividends to shareholders and repurchasing common shares.

Certain of our subsidiaries are subject to regulatory requirements of the jurisdictions in which they operate or other restrictions that may limit the amounts that these subsidiaries can pay in dividends or other payments to us.

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In addition, due to differences in tax rates, repatriation of funds from certain countries into the United States could have unfavorable tax ramifications for us.

COVID-19 Pandemic Related Risks

Our business has been and will continue to be negatively impacted by the ongoing coronavirus pandemic.

Beginning in late 2019, the outbreak of a novel strain of virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes coronavirus disease 2019, or COVID-19, has evolved into a global pandemic and has spread to most regions of the world.

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• Social distancing, shelter-in-place and stay-at-home requirements and guidance of national, regional, state and local governments have required that substantial services being performed by us for our customers be shifted to work-from-home alternatives, which have created added burdens, risks and costs, including but not limited to:

the added cost and uncertainty created by a significant change in our delivery model;

delays and disruptions resulting from organizing and implementing work-from-home solutions, particularly in our lower cost geographies, such as India and the Philippines, which have not in the past generally permitted or accommodated work-from-home alternatives;

challenges in and cost of equipping work-from-home solutions with appropriate technology equipment and software, with suitable security protections;

potential for increased cybersecurity and other data security issues;

compliance with legal, regulatory, industry and customer standards and specifications;

and increased logistical issues resulting from unexpected shift in service delivery model.

• The COVID-19 pandemic has impacted and may be expected to continue to adversely impact customer demand for our services and business offerings.

Many of our customers have experienced and will continue to experience substantial disruption in their own operations.

In addition, many of our governmental and non-governmental customers have been allocating resources and management attention away from the ordinary conduct of their business and toward responding to COVID-19 related emergent events.

Our sales and marketing personnel are also largely required to perform their services via virtual or other telecommunication alternatives, rather than in-person interactions.

The COVID-19 pandemic has also resulted in greater customer uncertainty in their short-term and longer-term needs.

These and other pandemic-related factors have and will continue to adversely impact revenues, sales, new business opportunities, pricing and our sales pipeline.

• Further, our management has been focused on mitigating the impact of the COVID-19 pandemic, which has required and will continue to require a substantial investment of time and resources across our enterprise.

This has resulted and can be expected to continue to result in a diversion of management attention, resources and previously planned investments away from strategic, operational and technological initiatives which had been intended to improve customer demand, new business opportunities, business retention, service delivery, potential divestitures or acquisitions, and the overall profitability of our business and we cannot predict how long this may continue.

• Our government contracts are often subject to a government entity’s right to change the scope of work or to terminate their project for funding reasons or at their convenience.

Due to the COVID-19 pandemic and its current and future impact on governments, budgets and resources, we may experience government contracts’ reductions or terminations.

• We are a leading provider of business processing services concentrated on transaction-intensive processing including financial transactions.

If we fail to satisfy a customer’s requirements or specifications, we could incur additional costs to address such dissatisfaction or on account of such deficiency as well as receive notice of termination.

CNDT 2021 Annual Report

• The COVID-19 pandemic may have had and may continue to have an adverse impact on the operations, financial results and finances of many of our customers, which could impact customer payment cycles and payments due from customers.

• We rely on third parties to provide technology, other services and products we need to operate our business.

Delays or interruption in the operations of third parties on which we rely may result in disruptions in our own operations and fulfillment of our customers’ requirements.

• The economic downturn could also result in the carrying value of our goodwill or other intangible assets exceeding their fair value, which could require us to recognize further asset impairment.

• We also cannot predict the impact of remote working arrangements on our internal systems and normal administrative services.

• To the extent we draw under our credit facility, our debt would increase.

Such increase in our level of debt could adversely affect our financial results or ability to incur additional debt and could negatively impact our credit ratings.

In addition, because of the risks described above, we may be required to raise additional debt or equity financing, and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects, our credit ratings, and the outlook for our industry as a whole.

If, as a result of COVID-19, credit agencies downgrade our credit ratings, or general market conditions were to ascribe higher risk to our credit rating levels, our access to capital and cost of debt financing may be negatively impacted and certain of our existing commercial agreements may require us to post collateral;

the continuing impact of the COVID-19 pandemic could also negatively impact our compliance with our financial covenants under our credit facilities.

In addition, the terms of future debt agreements could include more restrictive covenants.

• The trading prices for our common shares and the securities of other companies in our industry have been highly volatile because of the COVID-19 pandemic and a recession, depression or other sustained adverse market event resulting from the COVID-19 pandemic could materially and adversely affect the financial markets, the value of our common shares and our ability to obtain equity or debt financing on favorable or acceptable terms.

The COVID-19 pandemic continues to rapidly evolve, and additional material impacts and disruptions are likely to occur.

These and other factors, which may worsen, can be expected to have a material adverse impact on our business, operations, financial results and capital resources.

The ultimate impact of the COVID-19 pandemic on us is highly uncertain and subject to change and will depend on future developments, which cannot be accurately predicted, including:

the duration of the pandemic;

the impact of COVID-19 on countries in which our employees are based, including India, which has recently suffered a severe outbreak;

continued emergence of new strains of COVID-19, such as the Delta and Omicron variants;

the availability of an effective vaccine and the speed with which it is administered to the public;

additional or modified government actions;

new information that will emerge concerning the severity and impact of COVID-19;

and the actions taken to contain COVID-19 or address its impact in the short and long-term, among others.

Furthermore, additional waves of COVID-19 infections or the spread of additional variants (as well as the outbreak of other infectious diseases in the future), such as the Delta and Omicron variants, could have the same or more serious adverse effects on our business.

The impact of COVID-19 has also exacerbated and may continue to exacerbate other risks discussed herein, any of which could have a material effect on us.

We do not yet know and cannot predict the full extent of potential impacts on our business, our services and business offerings or our operating results and financial condition.

CNDT 2021 Annual Report

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors