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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-02-27 · 382 added, 302 removed, 444 unchanged (61% of the section changed)

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Dollar amounts within Item 7 are presented as actual, rounded, dollar amounts.

We have described in this Annual Report on Form 10-K, the impact of the global Coronavirus Disease 2019 pandemic (“COVID-19”) on our financial results for the year ended December 31, 2020.

See "Cautionary Note Regarding Forward-Looking Statements" below and in Part I, Item 1A, “Risk Factors” included elsewhere in this Annual Report on Form 10-K for further information regarding risks and uncertainties relating to COVID-19.

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995.

You should not place undue reliance on these statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control.

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Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.

Many of the following risks, uncertainties and other factors identified below are, and will be, amplified by COVID-19.

These factors include but are not limited to:

• the impact of COVID-19 and related response measures on our business, results of operations and financial condition, including the impact of governmental lockdowns and other restrictions on our operations and processes and those of our clients and suppliers;

• our dependence on a limited number of clients in a limited number of industries;

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• increasing competition in our industry;

telecommunications or technology disruptions;

• telecommunications or technology disruptions or breaches, natural or other disasters, or medical epidemics or pandemics;

• our ability to withstand the loss of a significant customer;

• our ability to realize the entire book value of goodwill and other intangible assets from acquisitions;

• our ability to make accurate estimates and assumptions in connection with the preparation of our consolidated financial statements;

• regulatory, legislative and judicial developments, including changes to or the withdrawal of governmental fiscal incentives;

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• political or economic instability in the geographies in which we operate;

• operational and information security failures arising as a result of remote work solutions adopted due to COVID-19;

• cyber security incidents, data breaches, or other unauthorized disclosure of sensitive or confidential client and customer data;

• adverse outcome of our disputes with the Indian tax authorities.

These and other factors are more fully discussed elsewhere in this Annual Report on Form 10-K.

In particular, you should consider the numerous risks outlined in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.

These and other risks could cause actual results to differ materially from those implied by forward-looking statements in this Annual Report on Form 10-K.

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We operate in the business process management (“BPM”) industry and we provide operations management and analytics services.

As described below, effective January 1, 2020, we realigned our operating and reportable segments, but the presentation in this Annual Report, including the discussion in the next two paragraphs, refers to the structure in place prior to such realignment.

Our eight operating segments are strategic business units that align our products and services with how we manage our business, approach our key markets and interact with our clients.

Five of those operating segments provide BPM or “operations management” services, which we organize into industry-focused operating segments (Insurance, Healthcare, Travel, Transportation and Logistics, Banking and Financial Services, and Utilities) and one of the operating segments is a “capability” segment (Finance and Accounting) that provides services to clients in our industry-focused segments as well as clients across other industries.

In each of these six operating segments we provide operations management services, which typically involve transfer to the Company of business operations of a client, after which we administer and manage those operations for our client on an ongoing basis.

Our remaining two operating segments are Consulting, which provides industry-specific digital transformational services related to operations management services, and our Analytics operating segment, which provides services that focus on driving improved business outcomes for clients by generating data-driven insights across all parts of their business.

We present information for the following reportable segments:

Travel, Transportation and Logistics,

Finance and Accounting,

Analytics, and

All Other (consisting of our remaining operating segments, including our Banking and Financial Services, Utilities and Consulting operating segments).

Effective January 1, 2020, we made certain operational and structural changes to more closely integrate our businesses and to simplify our organizational structure.

We now manage and report financial information through our four strategic business units:

Insurance, Healthcare, Analytics and Emerging Business which reflects how management will review financial information and make operating decisions.

These business units will develop client specific solutions, build capabilities, maintain a unified go-to-market approach and be integrally responsible for service delivery, customer satisfaction, growth and profitability.

In line with our strategy of vertical integration and focus on domain expertise we have integrated our Finance & Accounting and Consulting operating segments within each of the Insurance and Healthcare operating segments based on the respective industry-specific clients.

Finance & Accounting and Consulting Services to clients outside of those industries, will now be part of our newly formed business unit and reportable segment ‘Emerging Business’.

Since then, we have managed and reported financial information through our four strategic business units:

Insurance, Healthcare, Analytics and Emerging Business, which reflects how management reviews financial information and makes operating decisions.

In line with our strategy of vertical integration and focus on domain expertise, we integrated our Finance & Accounting and Consulting operating segments within each of the Insurance and Healthcare operating segments based on the respective industry-specific clients.

Finance & Accounting and Consulting services provided to clients outside of those industries, are part of our “Emerging Business” segment.

In addition, we integrated our former Travel, Transportation and Logistics, Banking and Financial Services, and Utilities operating segments under “Emerging Business” to further leverage and optimize the operating scale in providing operations management services.

Our new reportable segments effective January 1, 2020 are as follows:

Our reportable segments effective January 1, 2020 are as follows:

• Healthcare,

• Analytics, and

• Emerging Business

This change in segment presentation will not have any effect on our consolidated statements of income, balance sheets or statements of cash flows.

The revised presentation will be reflected in our subsequent periodic and annual reports.

For further information on our operating segments, see “Item 1.

In conjunction with the new reporting structure, we recast our segment and goodwill disclosures for all prior periods presented to conform to the way we internally manage and monitor segment performance.

Our global delivery network, which includes highly trained industry and process specialists across the United States, Latin America, South Africa, Europe and Asia (primarily India and the Philippines), is a key asset.

We have operations centers in India, the U.S., the Philippines, Bulgaria, Colombia, South Africa, Romania and the Czech Republic.

On July 1, 2018, we completed the acquisition of SCIO pursuant to the Merger Agreement.

The acquisition of SCIO is included in the Analytics reportable segment.

SCIO is a health analytics solution and services company serving healthcare organizations including providers, health plans, pharmacy benefit managers, employers, health services and global life sciences companies.

On December 31, 2019, we completed substantially the previously announced wind down of the operations of the Health Integrated business, which is reported within the Healthcare reportable segment.

For the year ended December 31, 2019 , we had revenues of $991.3 million compared to revenues of $883.1 million for the year ended December 31, 2018 , an increase of $108.2 million , or 12.3% .

We serve clients mainly in the U.S.

and the U.K., with these two regions generating 82.5% and 11.4% , respectively, of our total revenues for the year ended December 31, 2019 and 83.0% and 13.0% , respectively, of our revenues for the year ended December 31, 2018 .

We have operations centers in

India, the United States, the United Kingdom, the Philippines, Bulgaria, Colombia, South Africa, Romania and the Czech Republic.

Continued Impact of COVID-19 on Our Business

The global COVID-19 pandemic continues to materially impact worldwide economic activity and levels of business confidence and has had widespread, rapidly-evolving and unpredictable impacts on global societies, economies, financial markets and business practices.

During the first fiscal quarter ended March 31, 2020, COVID-19 did not have a significant impact on our business, however, in subsequent quarters, COVID-19 materially impacted us.

Our customers, contractors, suppliers, and other partners were prevented from conducting business activities as usual, including due to the health and safety measures in response to COVID-19, such as shutdowns, which were requested or mandated by governmental authorities.

The disruption adversely affected our ability to provide our services and solutions and resulted in, among other things, significant loss of revenue, increased costs and the possibility of enhanced credit risk on our accounts receivable, which is reflected in our financial operating results.

The continued spread of COVID-19 and the measures taken by the governments of countries affected has disrupted the continuity of our provision of services to our customers and adversely impacted our business, financial condition or results of operations.

We have a business continuity plan in place and have adapted delivery to a work from home model, while actively working to understand our clients’ changing requirements, continuing to ensure data security, prioritizing critical processes, adjusting service levels and managing discretionary costs (such as travel costs) and fixed costs (such as non-critical personnel costs).

While travel restrictions had a short-term impact on our ability to deliver our services in 2020, we have been working to reduce our reliance on travel by incorporating into our business model the ability to conduct business using virtual conferencing and collaboration tools.

Our work from home delivery capability steadily improved throughout the year.

We estimate that we are able to deliver over 95% of our clients’ current requirements in a work from home model given the current lockdown restrictions in the locations in which we operate and certain clients not authorizing us to perform the remaining process work remotely due to its sensitive nature.

In addition, we have also worked, and continue to work with national, state, and local authorities to comply with applicable rules and regulations related to COVID-19.

There continues to be volatility and economic and geopolitical uncertainty in many markets around the world.

Despite the efforts described above, there is a risk that if jurisdictions in which we operate reinstate prior restrictions, stagnate in their reopening processes, or implement new restrictions in response to new outbreaks or continued spread, our operations and business could be materially impacted.

We also took actions in response to the pandemic that focused on helping our employees.

These actions included disseminating guidance and information to our employees, facilitating work from home, implementing best practices for employees while working from home, periodic CEO messaging, various programs aimed at employee wellness, including a global wellness program, enhanced leave for employees affected by COVID-19, enhanced awareness towards information security, and updated cyber security and data privacy policies, among others.

We have implemented broad travel restrictions and largely moved to virtual-only events for the safety of our employees and our customers.

We also implemented pandemic-specific protocols for our essential employees whose jobs require them to be on-site or with our customers by implementing additional safety measures at all of our facilities, including increased frequency in cleaning and disinfecting, and enhanced hygiene and social distancing practices.

We incurred additional costs in order to ensure the continuity of our operations and shift towards a work from home model.

Such costs include purchase of desktops and laptops for our employees, software and internet connectivity devices, technology tools for productivity enhancement, accommodation, meal, overtime, transportation and regular sanitization and cleaning costs of our offices and facilities.

We also expect that we will continue to incur additional costs to monitor and improve operational efficiency of our work from home model, implement new information technology solutions and security measures to safeguard against information security risks and protect the health and safety of our employees as they gradually return to the office.

We believe that these short-to-medium-term costs may benefit us in the long-term, as these steps have broadened our “remote working” capabilities, which we expect to become a permanent feature in our future delivery model, as well as our business continuity plans.

In response to certain anticipated impacts from COVID-19, we also implemented a series of temporary cost reduction measures to further preserve financial flexibility.

These actions included the postponement of certain discretionary spending including travel and marketing expenses, reevaluating the pace of our capital expenditures, rationalizing certain of our real estate and facilities, deferring scheduled increases in base salaries, deferring non-critical hiring, temporarily reducing the base salaries of our executive officers and certain other groups of employees among others.

Some of these actions have been reversed as of December 31, 2020.

We also took certain precautionary measures to maintain financial flexibility during this time, including drawing $100.0 million from our line of credit under our Credit Agreement on March 12, 2020, the proceeds of which were available for

working capital, general corporate or other purposes as needed, and which was repaid in full on April 20, 2020.

During the quarter ended March 31, 2020, to enhance our liquidity position in response to COVID-19, management elected to temporarily suspend share repurchases under the 2019 Repurchase Program.

We resumed share repurchases effective July 1, 2020, considering improved market conditions, our capital and liquidity needs and other factors.

The impact of COVID-19 on our business, results of operations, financial position and cash flow in fiscal year 2020 has been explained in the discussion below, however the full extent of the impact for the period beyond the fiscal year 2020 is currently uncertain and will depend on many factors that are not within our control, including, but not limited to:

the duration and scope of the pandemic;

the effectiveness of actions taken to contain or mitigate the pandemic and prevent or limit any reoccurrence;

governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic;

general economic uncertainty in key global markets and financial market volatility;

global economic conditions and levels of economic growth;

and the pace of recovery when COVID-19 subsides.

Due to the above circumstances and as described generally in this Annual Report on Form 10-K, our financial results, including but not limited to net revenues, income from operations, net income, cash flow and earnings per share, in future periods may differ materially from historical trends.

We continue to monitor the implications of COVID-19 on our business, as well as our customers’ and suppliers’ businesses.

During the fourth quarter of 2020, we performed our annual goodwill quantitative impairment test for any potential impairment.

We considered the effects of COVID-19 on our significant inputs used in determining the fair value of our reporting units.

Based on the results, the fair value of each of our reporting units exceeded their carrying value and the goodwill was not impaired.

However, there can be no assurances that goodwill will not be impaired in future periods.

Estimating the fair value of goodwill requires the use of estimates and significant judgments that are based on a number of factors including actual operating results.

These estimates and judgments may not be within the control of us and accordingly it is reasonably possible that the judgments and estimates could change in future periods.

For additional information and risks related to COVID-19, see Part I, Item 1A, “Risk Factors.”

For the year ended December 31, 2020, we generated revenues of $958.4 million compared to revenues of $991.3 million for the year ended December 31, 2019, a decrease of $32.9 million, or 3.3%.

We serve clients mainly in the United States and the United Kingdom, with these two regions generating 85.0% and 9.3%, respectively, of our total revenues for the year ended December 31, 2020 and 82.5% and 11.4%, respectively, of our revenues for the year ended December 31, 2019.

For the years ended December 31, 2020 and 2019, our total revenues from our top ten clients accounted for 37.4% and 36.1% of our total revenues, respectively.

Our revenue concentration with our top clients remains largely consistent year-over-year and we continue to develop relationships with new clients to diversify our client base.

We believe that the loss of any of our ten largest clients could have a material adverse effect on our financial performance.

We believe that the loss of any of our top ten clients could have a material adverse effect on our financial performance.

We provide operations management and analytics services.

We market our services to our existing and prospective clients through our sales and client management teams, which are aligned by key industry verticals and cross-industry domains such as finance and accounting.

Our sales and client management teams operate from the U.S., Europe and Australia.

Our sales and client management teams operate from the United States, Europe and Australia.

Operations Management Services:

We provide our clients with a range of operations management services principally in the insurance, healthcare, travel, transportation and logistics, banking and financial services and utilities sectors, among others, as well as cross-industry operations management services, such as finance and accounting services.

We also provide services related to operations management, through our Consulting services that provides industry - specific digital transformational services.

Our operations management solutions typically involve the transfer to the Company business operations of a client such as claims processing, clinical operations, or financial transaction processing, after which we administer and manage the operations for our client on an ongoing basis.

We provide our clients with a range of operations management services from our Insurance, Healthcare and Emerging Business operating segments, which typically involve the transfer by our clients to EXL of certain of their business operations, such as claims processing, clinical operations, or financial transaction processing, after which we administer and manage those operations on an ongoing basis.

As part of this transfer, we hire and train employees to work at our operations centers on the relevant business operations, implement a process migration to these operations centers and then provide services either to the client or directly to the client’s customers.

Each client contract has different terms based on the scope, deliverables and complexity of the engagement.

We continue to observe a shift in industry pricing models toward transaction-based pricing, outcome-based pricing and other pricing models.

We believe this trend will continue and we use such alternative pricing models with some of our current clients and are seeking to move certain other clients from a billing rate model to a transaction-based or other pricing model.

These pricing models place the focus on operating efficiency in order to maintain our gross margins.

In addition, we have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs.

We also provide consulting services related to operations management that include industry-specific digital transformational services as well as cross-industry finance and accounting services as part of the Emerging Business operating segment.

We provide our services under contracts with our clients, which typically have terms of three or more years, with some being rolling contracts with no end dates.

Typically, our clients can terminate these contracts with or without cause and with short notice periods.

These contracts provide us with a relatively predictable revenue base for a substantial portion of our operations management business.

However, we have a long selling cycle for our services and the budget and approval processes of prospective clients make it difficult to predict the timing of entering into definitive agreements with new clients.

Similarly, new license sales and implementation projects for our technology service platforms and other software-based services have a long selling cycle, however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base.

We charge for our services using various pricing models like time-and-material pricing, full-time-equivalent pricing, transaction-based pricing, outcome-based pricing, subscription-based pricing and other alternative pricing models.

Outcome-based pricing arrangements are examples of non-linear pricing models where clients link revenues from platforms and solutions and the services we provide to usage or savings rather than the efforts deployed to provide these services.

We continue to observe a shift in the industry pricing models toward transaction-based pricing, outcome-based pricing and other alternative pricing models.

We believe this trend will continue and we use such alternative pricing models with some of our current clients and are seeking to move certain other clients from a full-time-equivalent pricing model to a transaction-based or other alternative pricing model.

These alternative pricing models place the focus on operating efficiency in order to maintain or improve our gross margins.

We have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs.

We believe that the trend toward multi-vendor relationships will continue.

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To the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors, our gross margins and revenues may be reduced with regard to such clients if we are required to modify the terms of our relationships with such clients to meet competition.

Our existing agreements with original terms of three or more years provide us with a relatively predictable revenue base for a substantial portion of our operations management business, however, we have a long selling cycle for our services and the budget and approval processes of prospective clients make it difficult to predict the timing of entering into definitive agreements with new clients.

Similarly, new license sales and implementation projects for our technology service platforms and other software-

based services have a long selling cycle, however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base.

Our Analytics services focus on driving improved business outcomes for our customers by generating data-driven insights across all parts of our customers’ business.

We help our clients unlock deep insights from data and create data driven solutions.

Our analytics services focus on driving improved business outcomes for our customers by unlocking deep insights from data and create data driven solutions across all parts of our customers’ business.

We also provide care optimization and reimbursement optimization services, for our clients through our healthcare analytics solutions and services.

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Our teams deliver predictive and prescriptive analytics in the areas of customer acquisition and lifecycle management, risk underwriting and pricing, operational effectiveness, credit and operational risk monitoring and governance, regulatory reporting, payment integrity and care management and data management.

We actively cross-sell and, where appropriate, integrate our Analytics services with other operations management services as part of a comprehensive offering set for our clients.

We enhance, modernize and enrich structured and unstructured data and use a spectrum of advanced analytical tools and techniques, including our in-house Machine Learning (“ML”) and Artificial Intelligence (“AI”) capabilities to create insights and improve decision making for our clients.

We actively cross-sell and, where appropriate, integrate our Analytics services with other operations management services as part of a comprehensive offering for our clients.

We anticipate that revenues from our analytics services will grow as we expand our service offerings and client base, both organically and through acquisitions.

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Salary increases for most of our operations personnel are generally awarded each year effective April 1.

Accordingly, employee costs are generally lower in the first quarter of each year compared to the rest of the year.

However, during 2020, in response to certain anticipated impacts from COVID-19, we implemented a series of temporary cost reduction measures including deferring the scheduled increases in base salaries of all eligible employees and temporarily reducing the base salaries of our executive officers and certain other groups of employees.

Some of these actions have been reversed as of December 31, 2020.

We make every effort to manage employee and capacity utilization and continuously monitor service levels and staffing requirements.

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As our existing competitors continue to grow, and as new competitors enter the market, we expect competition for skilled professionals in each of these areas to continue to increase, with corresponding increases in our cost of revenues to reflect increased compensation levels for such professionals.

However, a significant portion of our client contracts include inflation-based adjustments to our billing rates year over year which partially offset such increase in cost of revenues.

See Item 1A-“Risk Factors-Employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin.”

We generally experience a higher cost of revenues as a percentage of revenues during the initial 12 months to 18 months in a long-term BPM contract due to upfront investments in infrastructure, resource hiring and training during migration.

We also expect that we will continue to incur additional costs to monitor and improve operational efficiency of our work from home model, invest in information technology solutions and security measures to safeguard against information security risks and costs to protect the health and safety of our employees as they gradually return to the office.

See Part I, Item 1A, “Risk Factors” under “Risks Related to Our Business-Employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin” and under “Risks Related to the International Nature of Our Business-If more stringent labor laws become applicable to us or if our employees unionize, our profitability may be adversely affected.” However, a significant portion of our client contracts include inflation-based adjustments to our billing rates year over year which partially offset such increase in cost of revenues.

We generally experience a higher cost of revenues as a percentage of revenues during the initial 12 to 18 months in a long-term BPM contract due to upfront investments in infrastructure, resource hiring and training during migration.

The cost of revenues as a percentage of revenues improve as we scale up, achieve operational efficiencies and complete the migration.

Selling, General and Administrative Expenses ("SG&A")

in enabling functions, telecommunications, utilities, travel and other miscellaneous administrative costs.

Our general and administrative expenses are comprised of expenses relating to salaries and benefits (including stock based compensation) as well as costs related to recruitment, training and retention of senior management and other support personnel in enabling functions, telecommunications, utilities, travel and other miscellaneous administrative costs.

General and administrative (“G&A”) expenses also include acquisition-related costs, legal and professional fees (which represent the costs of third party legal, tax, accounting and other advisors), investment in product development, digital technology, advanced automation and robotics, bad debt allowance and non-cash amortization of stock compensation expenses related to our issuance of equity awards to members of our board of directors.

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Impairment Charges

Impairment charges pertain to write down of carrying values to fair values of goodwill and intangible assets acquired in a business combination.

Impairment charges pertain to the write down of carrying values to fair values of goodwill and intangible assets acquired in a business combination.

We perform our annual impairment test annually during the fourth quarter, or more frequently, as circumstances warrant, for all our reporting units and intangible assets.

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Such assets are required to be tested for impairment if the carrying amount of the assets is higher than the future undiscounted net cash flows expected to be generated from the assets.

The impairment amount to be recognized is measured as the amount by which the carrying value of the assets exceeds their fair value.

During the fourth quarter of 2019, we performed our annual impairment test for all of our reporting units.

Based on the results, the fair values of each of our reporting units exceeded their carrying values.

In addition, during the year 2019 we performed impairment testing of long-lived assets which was triggered as a result of the wind down of the Health Integrated business and we recognized long-lived assets impairment charge for the assets of our Health Integrated business to write down their carrying value to its fair value.

However, there can be no assurances that additional long-lived assets, goodwill and intangible assets will not be impaired in future periods (see Note 24 to our consolidated financial statements for further details).

During the fourth quarter of 2018, we performed our annual impairment test of goodwill for all of our reporting units.

Based on the results, the fair values of each of our reporting units exceeded its carrying values, except for the Health Integrated reporting unit, within the Healthcare operating segment.

The carrying value of our intangible assets acquired as a part of our Health Integrated acquisition also exceeded its fair value.

As a result of this analysis, we recognized goodwill and intangible assets impairment charges during the fourth quarter.

The impairment amount to be recognized is measured as the amount by which the carrying value of such assets exceeds their fair value.

Foreign Exchange

We report our financial results in U.S.

However, a significant portion of our total revenues are earned in U.K.

pounds sterling (10.2% and 12.7%, respectively, for the years ended December 31, 2019 and 2018), while a significant portion of our expenses are incurred and paid in Indian rupees (25.6% and 25.0%, respectively, of our total costs for the years ended December 31, 2019 and 2018) and the Philippine peso (7.9% and 7.1%, of our total costs for the years ended December 31, 2019 and 2018).

We report our financial results in the U.S.

However, a significant portion of our total revenues are earned in the U.K.

pound sterling (8.3% and 10.2%, respectively, for the years ended December 31, 2020 and 2019), while a significant portion of our expenses are incurred and paid in Indian rupees (27.2% and 25.6%, respectively, of our total costs for the years ended December 31, 2020 and 2019) and the Philippine peso (11.5% and 7.9%, of our total costs for the years ended December 31, 2020 and 2019).

The exchange rates among the Indian rupee, the Philippine peso, the U.K.

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pound sterling appreciate or depreciate against the U.S.

See Note 2 and 17 to our consolidated financial statements and Item 7A -“Quantitative and Qualitative Disclosures about Market Risk-Foreign Currency Risk.”

See Note 2 - Summary of Significant Accounting Policies and Note 17 - Derivatives and Hedge Accounting to our consolidated financial statements and Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Risk.”

Interest Expense

Interest expense primarily consist of interest on our borrowings under the credit facility and convertible senior notes, capital lease obligation and notional interest implicit in the purchase of property and equipment.

Interest expense primarily consist of interest on our borrowings under our credit facility and convertible senior notes, finance lease liabilities and notional interest implicit in the purchase of property and equipment.

Other Income, net

Other income, net primarily consists of gain/(loss) on sale, mark to market and dividend income on our investments in mutual funds, and interest on time deposits included in cash and cash equivalents and short-term investments on our consolidated balance sheets.

Other income, net also consists of changes in fair value of earn-out consideration, interest on refunds received from income tax authorities in India on completion of tax assessments and components of net periodic benefit cost such as interest cost, expected return on plan assets and amortization of actuarial gain/loss.

Other income, net primarily consists of gain/(loss) on sale, mark to market and dividend income on our investments in mutual funds, and interest on time deposits classified under “Cash and cash equivalents”, “Short-term investments” and “Other assets”, as applicable on our consolidated balance sheets.

We are subject to income taxes in the United States and other foreign jurisdictions.

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The Transition Tax resulted in previously taxed income (“PTI”) which may be subject to withholding taxes and currency gains or losses upon repatriation.

We presently do not intend to distribute PTI of our foreign subsidiaries and have not recorded any deferred taxes related to our investment in foreign subsidiaries.

If, in the future, we change our present intention regarding the repatriation of PTI, additional taxes may be required and will be recorded in the period the intention changes.

We periodically evaluate opportunities to repatriate PTI held by our foreign subsidiaries to fund our operations in the United States and other geographies, and as and when we decide to repatriate such PTI, we may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions.

In 2019, the Government of India introduced a new tax regime for certain Indian companies by enacting the Taxation Laws (Amendment) Act, 2019.

The new tax regime is optional and provides for a lower tax rate for Indian companies, subject to certain conditions, which among other things includes not availing of specified exemptions or incentives.

Some of our Indian subsidiaries have opted for the new tax regime to obtain the benefit of a lower tax rate.

Certain operations centers in India, which were established in Special Economic Zones (“SEZs”), are eligible for tax incentives until 2025.

These operations centers are eligible for a 100% income tax exemption for the first 5 years of operations and 50% exemption for a period of 5 years thereafter.

During 2019, tax holiday exemption for one of the unit reduced from 50% to nil, which led to the SEZ unit being taxed at the prevailing annual tax rate, which as of December 31, 2019 was 34.95%.

We anticipate establishing additional operations centers in SEZs or other tax advantaged locations in the future.

During the year 2019 and 2020, we elected this new tax regime for our Indian subsidiaries to obtain the benefit of a lower tax rate.

We also benefited from a corporate tax holiday in the Philippines for our operations centers established there over the last several years.

The tax holiday expired for few of our centers in 2014, 2016, 2018 and in 2019 and will expire for other centers by year 2022, which may lead to an increase in our overall tax rate.

Following the expiry of the tax exemption, income generated from centers in the Philippines will be taxed at the prevailing annual tax rate, which as of December 31, 2019 was 5% of the gross income.

The tax holiday expired for few of our centers in last few years and will expire for other centers by year 2022,

which may lead to an increase in our overall tax rate.

Following the expiry of the tax exemption, income generated from centers in the Philippines will be taxed at the prevailing annual tax rate, which as of December 31, 2020 was 5.0% on gross income.

We recognize deferred tax assets and liabilities for temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards.

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We consider the policies discussed below to be critical to an understanding of our consolidated financial statements, as their application places the most significant demands on management’s judgment regarding matters that are inherently uncertain at the time an estimate is made.

These policies include revenue recognition, allowance for doubtful receivables, business combinations, goodwill, intangibles and long-lived assets, stock-based compensation, derivative instruments and hedging activity, borrowings, assumptions related to lease liabilities, ROU assets, lease cost, income taxes and assets and obligations related to employee benefit plans.

These policies include revenue recognition, allowance for expected credit losses, business combinations, goodwill, intangibles and long-lived assets, stock-based compensation, derivative instruments and hedging activity, borrowings, assumptions related to lease liabilities, ROU assets, lease cost, income taxes and assets and obligations related to employee benefit plans.

These accounting policies and the associated risks are set out below.

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Variable Consideration

Variability in the transaction price arises primarily due to service level agreements, pre-payment and volume discounts.

Variability in the transaction price arises primarily due to service level agreements and volume discounts.

We consider our experience with similar transactions and expectations regarding the contract in estimating the amount of variable consideration that should be recognized during a period.

We believe that the expected value method is most appropriate for determining the variable consideration since we have a large number of contracts with similar nature of transactions/services.

Type of Contracts requires judgments

Type of Contracts Requiring Judgment

Revenues for our fixed-price contracts are recognized using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations.

Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the client.

The use of this method requires significant judgment to estimate the cost required to complete the contracted scope of work, including assumptions and estimates relative to the length of time to complete the project and the nature and complexity of the work to be performed and resources engaged.

The use of this method requires significant judgment to estimate the cost required to complete the contracted scope of work, including

assumptions and estimates relative to the length of time to complete the project and the nature and complexity of the work to be performed and resources engaged.

We regularly monitor these estimates throughout the execution of the project and record changes in the period in which a change in an estimate is determined.

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Any adjustment required due to change in estimates are recorded in the period in which such change is identified.

For additional information, see Note 5 (Revenues) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

For additional information, see Note 5 - Revenues, net to our consolidated financial statements under Part II, Item 8, “Financial Statements and Supplementary Data.”

Unbilled Receivables

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Revenues related to such transition activities are classified under “Deferred revenue” and “Other non-current liabilities” in our consolidated balance sheets and are recognized ratably over the period during which the related services are performed.

Costs related to such transition activities are contract fulfillment costs, and thereby classified under “Other Current Assets” and “Other Assets” in the consolidated balance sheets, and are recognized over the estimated expected period of benefit, under Cost of Revenues in the consolidated statements of income.

Costs related to such transition activities are contract fulfillment costs, and thereby classified under “Other current assets” and “Other assets” in the consolidated balance sheets, and are recognized over the expected duration of the relationship with customers, under “Cost of revenues” in our consolidated statements of income.

Contract Acquisition Costs

Direct and incremental costs incurred for acquiring contracts, such as sales commissions are contract acquisition costs and thereby classified under “Other Current Assets” and “Other Assets” in the consolidated balance sheets.

Such costs are amortized over the expected period of benefit and recorded under Selling and marketing expenses in the consolidated statements of income.

Direct and incremental costs incurred for acquiring contracts, such as sales commissions are contract acquisition costs and thereby classified under “Other current assets” and “Other assets” in our consolidated balance sheets.

Such costs are amortized over the expected duration of the relationship with customers and recorded under Selling and marketing expenses in our consolidated statements of income.

Upfront Payment Made to Customers

Upfront payments in nature of deal signing discount or deal signing bonuses made to customers are contract assets and classified under “Other Current Assets and Other Assets” in the consolidated balance sheets.

Upfront payments in nature of deal signing discount or deal signing bonuses made to customers are contract assets and classified under “Other current assets” and “Other assets” in our consolidated balance sheets.

Such costs are amortized over the expected period of benefit and are recorded as an adjustment to transaction price and reduced from revenues.

Allowance for doubtful receivables

We record accounts receivable net of allowances for doubtful accounts.

Allowances for doubtful accounts are established through the evaluation of aging of accounts receivables, prior collection experience, current market conditions, clients’ financial condition and the amount of accounts receivable in dispute to estimate the collectability of these accounts receivable.

Allowance for Expected Credit Losses

We record accounts receivable net of allowances for expected credit losses.

Allowances for credit losses are established through the evaluation of aging of accounts receivables, prior collection experience, current market conditions, forecasts about future economic conditions, clients’ financial condition and the amount of accounts receivable in dispute to estimate the collectability of these accounts receivable.

Business Combinations

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We test for goodwill impairment at the reporting unit level.

The quantitative goodwill impairment test involves a comparison of the fair value of a reporting unit with its carrying amount.

We also assesses any potential goodwill impairment for our reporting units immediately prior to any segment changes and reallocate goodwill basis the new reporting units.

The goodwill quantitative impairment test involves a comparison of the fair value of a reporting unit with its carrying amount.

We estimate the fair value of a reporting unit using a combination of the income approach, using discounted cash flow analysis (“DCF model”), and also the market approach, using market multiples for reporting units whereby the fair value is not substantially in excess of carrying value.

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Discount rates used in our reporting unit valuations range from 10.4% to 12.0%.

We use the “Market approach” to corroborate the results of the income approach.

We also use the “Market approach” to corroborate the results of the income approach for some of our reporting units.

Under the market approach, we estimate fair value based on market multiples of revenues and earnings derived from comparable publicly-traded companies with characteristics similar to the reporting unit and comparable market transactions.

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Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit.

During the fourth quarter of 2019, we performed our annual impairment test of goodwill for all our reporting units that had goodwill recorded.

Key assumptions used in determining the fair value of our reporting units was a long-term revenue growth rate in the terminal year of 3.0% and discount rates ranging from 9.0% to 11.0%.

Based on the results, the fair value of each of our reporting units exceeded their carrying value and our goodwill was not impaired.

However, for the SCIO reporting unit within the Analytics reportable segment, the fair value was not substantially in excess of its carrying value.

The SCIO reporting unit was formed as a result of our SCIO acquisition in July 2018 and the fair value was set at the time of acquisition.

As of December 31, 2019, the goodwill associated with the SCIO reporting unit was $163.8 million, representing approximately 47.0% of our total goodwill, and the percentage by which the fair value of the SCIO reporting unit exceeded the carrying value as of the date of the most recent annual impairment test was approximately 10.0%.

While the goodwill of this reporting unit is not currently impaired, there could be an impairment in the future as a result of changes in certain assumptions.

For example, the fair value could be adversely affected and may result in an impairment of goodwill if this reporting unit is not able to expand its existing customer relationships, win new clients, improve profitability, the estimated cash flows are discounted at a higher risk-adjusted rate, or the market multiples decreases.

We also believe that it is possible that our actual revenue growth rates could be higher than the long-term revenue growth rates used in the impairment test due to a number of factors, including (i) continued demand for our reimbursement and care optimization services to help clients identify overpayments and enhance their claims payment accuracy, and (ii) our ability to offer integrated solutions by leveraging technology platforms, digital, customizable and configurable analytics to deliver better business outcomes for our clients.

We believe that the discount rate utilized is appropriate to use for our future cash flow assumptions considering current market conditions.

However, keeping all other variables constant, a further 50 basis points increase in discount rate will decrease the percentage by which the fair value exceeds the carrying value of our SCIO reporting unit to 6.0% .

We continue to monitor the cash flows of the SCIO reporting unit for changes in the business environment that could impact recoverability.

Determining fair value requires the use of estimates and exercise of significant judgment, including assumptions about appropriate discount rates, perpetual growth rates, amount and timing of expected future cash flows, market multiples of revenues and earnings and comparable market transactions.

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We also grant performance-based restricted stock units (“PRSUs”) to executive officers and other specified employees.

50% of the PRSUs cliff vest at the end of a three-year period based on an aggregated revenue target (“PUs”) for a three year period.

Generally the grants provide that 50% of the PRSUs cliff vest at the end of a three-year period based on an aggregated revenue target (“PUs”) for a three-year period.

The remaining 50% vest based on a market condition (“MUs”) that is contingent on EXL meeting or exceeding the total shareholder return relative to a group of peer companies specified under the program, measured over a three-year performance period.

The award recipient may earn up to two hundred percent (200%) of the PRSUs granted based on the actual achievements of both targets.

The award recipient may earn up to 200% of the PRSUs granted based on the actual achievements of both targets.

However, the features of our equity incentive compensation program are subject to change by the Compensation Committee of our Board of Directors.

The fair value of each PU is determined based on the market price of one share of our common stock on the day prior to the date of grant.

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Changes in the fair value of these cash flow hedges are recorded as a component of accumulated other comprehensive income/(loss), net of tax, until the hedged transactions occurs.

Effective January 1, 2017, the resultant foreign exchange gain/(loss) upon settlement of cash flow hedges are recorded along with the underlying hedged item in the same line in the consolidated statements of income as either part of “Cost of revenues”, “General and administrative expenses”, “Selling and marketing expenses”, or "Depreciation and amortization expense”, as applicable.

The resultant foreign exchange gain/(loss) upon settlement of these cash flow hedges is recorded along with the underlying hedged item in the same line in our consolidated statements of income as either part of “Cost of revenues”, “General and administrative expenses”, “Selling and marketing expenses”, or “Depreciation and amortization expense”, as applicable.

We also use derivative instruments consisting of foreign currency exchange contracts to economically hedge intercompany balances and other monetary assets or liabilities denominated in currencies other than the functional currency.

These derivatives do not qualify as fair value hedges.

Changes in the fair value of these derivatives are recognized in the consolidated statements of income and are included in foreign exchange gain/(loss).

Changes in the fair value of these derivatives are recognized in our consolidated statements of income and are included in foreign exchange gain/(loss).

We determine the fair value of our derivatives based on market observable inputs including both forward and spot prices for currencies.

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For hedge relationships that are discontinued because the forecasted transaction is not expected to occur by the end of the originally specified period, any related derivative amounts recorded in equity are reclassified to earnings.

We use forward contracts designated as net investment hedges to hedge the foreign currency risks related to our investment in foreign subsidiaries.

Gains and losses on these forward contracts are recognized in AOCI as part of the foreign currency translation adjustment.

We account for convertible notes in accordance with the guidelines established by the ASC No.

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The Beneficial Conversion Feature ("BCF") of a convertible note, which is the equity component and recorded as additional paid-in capital, is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued.

We record a BCF related to the issuance of a convertible notes when issued.

We record a BCF related to any issuance of convertible notes.

If a convertible note is within the scope of the Cash Conversion Subsections contains embedded features other than the embedded conversion option, the guidance in ASC No.

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Direct, incremental finance costs related to the convertible notes are amortized over the term instrument through charges to interest expense using the effective interest method.

We may elect to settle conversions of the Notes by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares.

We presently intend and have the ability to settle the principal amount of the Notes in cash.

We account for income tax using the asset and liability method.

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The Transition Tax resulted in previously taxed income (“PTI”) which may be subject to withholding taxes and currency gains or losses upon repatriation.

We presently do not intend to distribute PTI of our foreign subsidiaries and have not recorded any deferred taxes related to our investment in foreign subsidiaries.

If, in the future, we change our present intention regarding the repatriation of PTI, additional taxes may be required and will be recorded in the period the intention changes.

See Note 22 to our consolidated financial statements contained herein.

We periodically evaluate opportunities to repatriate PTI held by our foreign subsidiaries to fund our operations in the United States and other geographies, and as and when we decide to repatriate such PTI, we may have to accrue additional taxes which will be recorded in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions.

See Note 22 - Income Taxes to our consolidated financial statements contained herein.

We employ a two-step process for recognizing and measuring uncertain tax positions.

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Employee Benefits

We record contributions to defined contribution plans to the consolidated statements of income in the period in which services are rendered by the covered employees.

Current service costs for defined benefit plans are accrued in the period to which they relate.

We record contributions to defined contribution plans in our consolidated statements of income in the period in which services are rendered by the covered employees.

Current service costs for defined benefit plans are recognized in the period to which they relate.

The liability in respect of defined benefit plans is calculated annually by using the projected unit credit method and various actuarial assumptions including discount rates, mortality, expected return on assets, expected increase in the compensation rates and attrition rates.

We evaluate these critical assumptions at least annually.

If actual results differ significantly from our estimates, current service costs for defined benefit plans and our results of operations could be materially impacted.

If actual results differ

significantly from our estimates, current service costs for defined benefit plans and our results of operations could be materially impacted.

We include the service cost component of the net periodic benefit cost in the same line item or items as other compensation costs arising from services rendered by the respective employees during the period.

The interest cost, expected return on plan assets and amortization of actuarial gains/loss, are included in -“Other income, net”.

See Note 20 - Employee Benefit Plans to our consolidated financial statements for details.

We recognize the liabilities for compensated absences dependent on whether the obligation is attributable to employee services already rendered, relates to rights that vest or accumulate and payment is probable and estimable.

We account for a lease at the inception of the contract.

ROU assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Operating leases are recorded in “Operating lease right-of-use assets”, “Current portion of operating lease liabilities” and “Operating lease liabilities, less current portion” in our consolidated balance sheets.

Finance leases are recorded in “Property and equipment, net”, and the current and non-current portion of finance lease liabilities are presented within “Accrued expenses and other current liabilities” and “Other non-current liabilities,” respectively in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease arrangement.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

For leases in which the rate implicit in the lease is not readily determinable, we use our incremental borrowing rate at commencement date by adjusting the benchmark reference rates, applicable to the respective geographies where the leases are entered, with appropriate financing spreads and lease specific adjustments for the effects of collateral.

Lease term includes our assessment for the effects of options to extend or terminate the lease.

Lease terms includes our assessment for the effects of options to extend or terminate the lease.

We consider the extension option as part of our lease term for those lease arrangements where we are reasonably certain that we will exercise that option.

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We have lease agreements with lease and non-lease components, which are accounted for separately.

We account for lease-related concessions to mitigate the economic effects of COVID-19 on lessees in accordance with guidance in Topic 842, Leases , to determine, on a lease-by-lease basis, whether the concession provided by lessor should be accounted for as a lease modification.

We account for a modification as a separate contract when it grants an additional right of use not included in the original lease and the increase is commensurate with the standalone price for the additional right of use, adjusted for the circumstances of the particular contract.

Modifications which are not accounted for as a separate contract are reassessed as of the effective date of the modification based on its modified terms and conditions and the facts and circumstances as of that date.

The lease liability is remeasured to reflect changes to the remaining lease payments and discount rates and we recognize the amount of the remeasurement of the lease liability as an adjustment to the ROU assets.

However, if the carrying amount of the ROU assets is reduced to zero as a result of modification, any remaining amount of the remeasurement is recognized as an expense in our consolidated statements of income.

Contingencies

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When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made.

Significant judgment is required in the determination of both probability and whether an exposure is reasonably estimable.

Significant judgment is required in the determination of probability and whether an exposure is reasonably estimable, both.

Our judgments are subjective and based on the information available from the status of the legal or regulatory proceedings, the merits of our defenses and consultation with in-house and outside legal counsel.

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Year ended December 31,

2020 2019 2018

(dollars in millions)

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Cost of revenues (1)

623.9 655.5 584.8

Gross profit (1)

334.5 335.8 298.3

Operating expenses:

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Net income attributable to ExlService Holdings, Inc.

stockholders $ 89.5 $ 67.6 $ 56.7

(1) Exclusive of depreciation and amortization expense.

Due to rounding, the numbers presented in the tables included in this Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” may not add up precisely to the totals provided.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

The following table summarizes our revenues by reportable segments for the year ended December 31, 2020 and 2019:

Year ended December 31,

Year ended December 31, Percentage

2020 2019 Change

(dollars in millions)

Travel, Transportation and Logistics

Finance and Accounting

Insurance $ 341.8 $ 346.4 $ (4.6) (1.3) %

Healthcare 101.2 97.5 3.7 4.0 %

Emerging Business 152.7 190.1 (37.4) (19.7) %

Analytics 362.7 357.3 5.4 1.5 %

Total revenues, net $ 958.4 $ 991.3 $ (32.9) (3.3) %

Revenues for the year ended December 31, 2019 were $991.3 million , up $108.2 million , or 12.3% , compared to the year ended December 31, 2018.

Revenue growth in Insurance of $36.1 million was primarily driven by expansion of business from our existing clients and new wins aggregating to $38.6 million.

This was partially offset by $2.5 million mainly attributable to the depreciation of the Australian dollar, Indian rupee, U.K.

pound sterling and South African ZAR against the U.S.

dollar during the year ended December 31, 2019 compared to the year ended December 31, 2018.

Insurance revenues were 29.7% and 29.2% of our total revenues in 2019 and 2018, respectively.

Revenue growth in Healthcare of $6.2 million was primarily driven by expansion of business from our existing clients and new wins aggregating to $11.4 million, partially offset by lower revenues from our Health Integrated business of $5.2 million.

Healthcare revenues were 9.1% and 9.6% of our total revenues during the year ended December 31, 2019 compared to the year ended December 31, 2018, respectively.

Revenue decline in Travel, Transportation and Logistics ("TT&L") of $2.2 million was primarily driven by $1.9 million attributable to lower revenues from our existing clients and $0.3 million attributable to the depreciation of the Indian rupee and the Euro against the U.S.

dollar during the year ended December 31, 2019 compared to the year ended December 31, 2018.

TT&L revenues were 6.9% and 8.0% of our total revenues during the year ended December 31, 2019 compared to the year ended December 31, 2018, respectively.

Revenue growth in Finance and Accounting ("F&A") of $8.7 million was driven by expansion of business from our existing clients and new wins aggregating to $9.7 million.

This was partially offset by $1.0 million mainly attributable to the depreciation of the Indian rupee, U.K.

pound sterling, the Euro and Australian dollar against the U.S.

dollar during the year ended December 31, 2019 compared to the year ended December 31, 2018.

F&A revenues were 10.8% and 11.1% of our total revenues during the year ended December 31, 2019 compared to the year ended December 31, 2018, respectively.

Revenue decline in All Other of $12.6 million was primarily driven by lower revenues from project based engagements and lower revenues from existing clients.

Further decline of $1.6 million was due to the depreciation of the Indian rupee and U.K.

pound sterling against the U.S.

Revenues for the year ended December 31, 2020 were $958.4 million, down $32.9 million, or 3.3%, compared to the year ended December 31, 2019.

The revenue decline was primarily driven by lower volumes due to the impact of COVID-19, which was primarily related to clients adapting to the shift in our delivery capabilities from a physical to a virtual, work-from-home operating environment as well as economic uncertainty leading to lower volumes from some existing clients and causing delays in the execution and implementation of new client contracts, which impacted growth.

Revenue decline in Insurance of $4.6 million was primarily driven by lower volumes due to the impact of COVID-19, partially offset by expansion of business from certain existing clients aggregating to $3.4 million and a decline in revenues of $1.3 million attributable to the depreciation of the Indian rupee and South African ZAR against the U.S.

dollar during the year ended December 31, 2020, compared to the year ended December 31, 2019.

All Other revenues were 7.5% and 9.9% of our total revenues during the year ended December 31, 2019 compared to the year ended December 31, 2018, respectively.

Revenue growth in Analytics of $72.0 million was primarily driven by our acquisition of SCIO in July 2018 and increase in revenues from our recurring and project-based engagements from our new and existing clients.

This was partially offset by $1.0 million attributable to the depreciation of the U.K.

pound sterling and Indian rupee against the U.S.

Insurance revenues were 35.7% and 34.9% of our total revenues during the year ended December 31, 2020 and 2019, respectively.

Revenue growth in Healthcare of $3.7 million was primarily driven by expansion of business from our existing clients and new wins aggregating to $16.2 million, partially offset by our December 2019 wind-down of Health Integrated business revenues of $12.5 million during the year ended December 31, 2020.

Healthcare revenues were 10.6% and 9.8% of our total revenues during the year ended December 31, 2020 and 2019, respectively.

Revenue decline in Emerging Business of $37.4 million was primarily driven by lower volumes due to the impact of COVID-19 and ramp-down of certain client contracts aggregating to $35.6 million, and a decline of $1.8 million attributable to the depreciation of the Indian rupee against the U.S.

dollar during the year ended December 31, 2020, compared to the year ended December 31, 2019.

Analytics revenues were 36.0% and 32.3% of our total revenues during the year ended December 31, 2019 compared to the year ended December 31, 2018, respectively.

Emerging Business revenues were 15.9% and 19.2% of our total revenues during the year ended December 31, 2020 and 2019, respectively.

Revenue growth in Analytics of $5.4 million was attributable to our recurring and project-based engagements from our new and existing clients, partially offset by lower volumes due to the impact of COVID-19 aggregating to $5.4 million during the year ended December 31, 2020, compared to the year ended December 31, 2019.

Analytics revenues were 37.8% and 36.0% of our total revenues during the year ended December 31, 2020 and 2019, respectively.

Cost of Revenues and Gross Margin:

The following table sets forth cost of revenues and gross margin of our reportable segments.

Cost of Revenues

Year ended December 31,

Cost of Revenues Gross Margin

Year ended December 31, Percentage

change Year ended December 31,

2020 2019 Change 2020 2019 Change

(dollars in millions)

For the year ended December 31, 2019, cost of revenues was $655.5 million compared to $584.8 million for the year ended December 31, 2018, an increase of $70.7 million , or 12.1% .

Our gross margin for the year ended December 31, 2019 was 33.9% compared to 33.8% for year ended December 31, 2018.

The increase in cost of revenues in Insurance of $24.8 million was primarily due to an increase in employee-related costs of $23.6 million on account of higher headcount and wage inflation, increase in technology cost of $2.4 million and increase in infrastructure and travel cost of $2.4 million.

This was partially offset by lower other operating costs of $1.4 million and currency movements, net of hedging of $2.2 million.

Gross margin in Insurance decreased by 10 bps during the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to higher operating expenses.

The increase in cost of revenues in Healthcare of $6.9 million was primarily due to an increase in employee-related costs of $7.4 million and higher other operating costs of $0.5 million, partially offset by currency movements, net of hedging of $1.0 million.

Gross margin in Healthcare decreased by 220 bps during the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to higher operating expenses associated with the initiation of services for new and existing clients.

The decrease in cost of revenues in TT&L of $2.4 million was primarily due to lower infrastructure costs of $0.8 million, lower employee-related costs of $0.5 million and other operating costs of $0.3 million.

The remaining decrease of $0.8 million was due to currency movements, net of hedging.

Gross margin in TT&L increased by 150 bps during the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to lower operating expenses.

The increase in cost of revenues in F&A of $4.1 million was primarily due to an increase in employee-related costs of $4.4 million on account of higher headcount and wage inflation and higher other operating costs of $0.1 million.

This was partially offset by currency movements, net of hedging of $0.4 million.

Gross margin in F&A increased by 100 bps during the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to expansion in margin in existing clients.

The decrease in cost of revenues in All Other of $9.3 million was primarily due to a decrease in employee-related costs of $7.5 million, lower travel costs of $1.2 million, lower infrastructure costs of $1.0 million and currency movements, net of hedging of $0.9 million.

This was partially offset by higher technology costs of $0.8 million and other operating costs of $0.5 million.

Gross margin in All Other increased by 160 bps during the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to margin improvement across clients in operations management services.

The increase in cost of revenues in Analytics of $46.6 million was primarily due to an increase in employee-related costs of $42.7 million on account of higher headcount and wage inflation, including incremental cost related to our acquisition of SCIO in July 2018.

The remaining increase was attributable to other operating costs of $5.8 million, partially offset by currency movements, net of hedging of $1.9 million.

Gross margin in Analytics during 2019 as compared to 2018 was flat.

Insurance $ 231.9 $ 238.6 $ (6.7) (2.8) % 32.2 % 31.1 % 1.1 %

Healthcare 73.1 77.1 (4.0) (5.1) % 27.8 % 20.9 % 6.9 %

Emerging Business 89.5 108.6 (19.1) (17.6) % 41.4 % 42.9 % (1.5) %

Analytics 229.4 231.2 (1.8) (0.8) % 36.7 % 35.3 % 1.4 %

Total $ 623.9 $ 655.5 $ (31.6) (4.8) % 34.9 % 33.9 % 1.0 %

For the year ended December 31, 2020, cost of revenues was $623.9 million compared to $655.5 million for the year ended December 31, 2019, a decrease of $31.6 million, or 4.8%.

Our gross margin for the year ended December 31, 2020 was 34.9% compared to 33.9% for year ended December 31, 2019, an increase of 100 basis points ("bps").

The decrease in cost of revenues in Insurance of $6.7 million was primarily due to decreases in employee-related costs of $4.0 million, lower travel costs of $4.4 million and foreign exchange gain, net of hedging of $2.2 million.

This was partially offset by higher infrastructure and technology costs of $3.3 million, primarily related to the work from home enablement and other operating costs of $0.6 million.

Gross margin in Insurance increased by 110 bps during the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to expansion in margin in certain existing clients, partially offset by COVID-19 related incremental expenses during the year ended December 31, 2020.

The decrease in cost of revenues in Healthcare of $4.0 million was primarily due to decreases in employee-related costs of $3.1 million, lower travel costs of $0.5 million and foreign exchange gain, net of hedging of $0.4 million.

Gross margin in Healthcare increased by 690 bps during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to lower margin in the Heath Integrated business during the year ended December 31, 2019, partially offset by COVID-19 related incremental expenses during the year ended December 31, 2020.

The decrease in cost of revenues in Emerging Business of $19.1 million was primarily due to decreases in employee-related costs of $14.2 million, lower infrastructure and technology costs of $2.5 million, lower travel costs of $1.9 million and foreign exchange gain, net of hedging of $1.3 million, partially offset by higher other operating costs of $0.8 million.

Gross margin in Emerging Business decreased by 150 bps during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to lower revenues and COVID-19 related incremental expenses.

The decrease in cost of revenues in Analytics of $1.8 million was primarily due to lower other operating costs of $6.7 million, lower travel costs of $4.6 million, foreign exchange gain, net of hedging of $2.2 million and lower infrastructure costs of $1.1 million.

This was partially offset by an increase in employee-related costs of $10.5 million and technology costs of $2.3 million.

Gross margin in Analytics increased by 140 bps during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to higher revenues and expansion in margin in certain existing clients.

Selling, General and Administrative (“SG&A”) Expenses.

Year ended December 31,

Year ended December 31, Percentage

2020 2019 Change

(dollars in millions)

3 unchanged sentences

As a percentage of revenues 18.2 % 20.0 %

The increase in SG&A expenses of $18.9 million was primarily due to an increase in employee-related costs of $19.5 million, including incremental costs related to our SCIO acquisition in July 2018 and net increase in other operating costs of $1.0 million.

This was partially offset by currency movements, net of hedging of $1.6 million.

Depreciation and Amortization Expense.

Year ended December 31,

The decrease in SG&A expenses of $24.7 million was primarily due to COVID-19 cost reduction measures, including the temporary reduction of the base salaries of our executive officers and certain other groups of employees.

The decrease was driven by lower employee-related costs of $14.7 million, lower travel costs of $6.5 million, lower other operating costs of $2.2 million and foreign exchange gain, net of hedging of $1.3 million.

Depreciation and Amortization.

Year ended December 31, Percentage change

2020 2019 Change

(dollars in millions)

3 unchanged sentences

As a percentage of revenues 5.3 % 5.2 %

The increase in depreciation expense of $2.2 million was due to depreciation related to our new operating centers to support our business growth and depreciation associated with our SCIO acquisition of $2.8 million.

This was partially offset by currency movements, net of hedging of $0.6 million.

The increase in intangibles amortization expense of $1.2 million was primarily due to amortization of intangibles associated with our SCIO acquisition in July 2018, partially offset by the impact of amortization of intangibles related to Health Integrated acquisition which were impaired during the fourth quarter of 2018.

The decrease in intangibles amortization expense of $7.2 million was primarily due to end of useful lives for certain intangible assets during the year ended December 31, 2020 compared to the year ended December 31, 2019.

The increase in depreciation expense of $5.7 million was primarily due to depreciation related to our investments in new operating centers, internally developed software and accelerated depreciation resulting from a reduction in useful lives related to several operating centers, due to the impact of COVID-19.

Impairment and Restructuring Charges

Year ended December 31,

Year ended December 31, Percentage change

2020 2019 Change

(dollars in millions)

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As a percentage of revenues — % 0.9 %

During the year ended December 31, 2019, we recorded restructuring charges of $5.1 million and impairment charges of $3.6 million in connection with the wind down of Health Integrated business within our Healthcare operating segment.

During the year ended December 31, 2018, we recognized an impairment charge of $20.1 million to write down the carrying value of goodwill of $14.2 million and intangible assets of $5.9 million to their fair values related to our Health Integrated business.

See Note 10 and Note 24 to our consolidated financial statements for details.

During the year ended December 31, 2019, we recorded restructuring charges of $5.1 million and impairment charges of $3.6 million in connection with the wind-down of our Health Integrated business.

Income from Operations.

Income from operations increased by $26.6 million, or 53.5% , from $49.8 million for the year ended December 31, 2018 to $76.4 million for the year ended December 31, 2019.

Income from operations increased by $33.6 million, or 43.9%, from $76.4 million for the year ended December 31, 2019 to $110.0 million for the year ended December 31, 2020, primarily due to lower SG&A expenses of $24.7 million and impairment and restructuring charges of $8.7 million incurred in 2019.

As a percentage of revenues, income from operations increased from 7.7% for the year ended December 31, 2019 to 11.5% for the year ended December 31, 2020.

Foreign Exchange Gain/(Loss).

Net foreign exchange gains and losses are primarily attributable to movement of the U.S.

Net foreign exchange gains and losses are primarily attributable to the movement of the U.S.

dollar against the Indian rupee, the U.K.

pound sterling and the Philippine peso during the year ended December 31, 2019.

pound sterling, the Philippine peso, and the South African ZAR during the year ended December 31, 2020.

The average exchange rate of the U.S.

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pound sterling against the U.S.

dollar decreased from 1.33 during the year ended December 31, 2018 to 1.28 during the year ended December 31, 2019.

dollar increased from 1.28 during the year ended December 31, 2019 to 1.29 during the year ended December 31, 2020.

The average exchange rate of the U.S.

dollar against the Philippine peso decreased from 51.57 during the year ended December 31, 2019 to 49.49 during the year ended December 31, 2020.

We recorded a net foreign exchange gain of $3.8 million for the year ended December 31, 2019 compared to the net foreign exchange gain of $4.8 million for the year ended December 31, 2018.

The average exchange rate of the U.S.

dollar against the South African ZAR increased from 14.43 during the year ended December 31, 2019 to 16.51 during the year ended December 31, 2020.

We recorded a net foreign exchange gain of $4.4 million for the year ended December 31, 2020 compared to a net foreign exchange gain of $3.8 million for the year ended December 31, 2019.

Interest expense .

Interest expense increased from $7.2 million for the year ended December 31, 2018 to $13.6 million for the year ended December 31, 2019 primarily due to increase in average borrowings on account of issuance of convertible notes during the fourth quarter of 2018 and higher effective interest rates under our Credit Facility.

Interest expense decreased from $13.6 million for the year ended December 31, 2019 to $11.2 million for the year ended December 31, 2020 primarily due to repayments of borrowings leading to lower outstanding borrowings and lower effective interest rates of 2.3% under our Credit Facility during the year ended December 31, 2020, compared to 4.0% during the year ended December 31, 2019.

Other Income, net..

Year ended December 31,

Year ended December 31, Percentage

2020 2019 Change

(dollars in millions)

1 unchanged sentence

Interest and dividend income 2.6 2.4 0.2 (26.6) %

Others, net — 1.1 (1.1) (100.0) %

Other income, net $ 12.1 $ 16.5 $ (4.4) (26.9) %

Other income, net increased by $3.5 million , from $13.0 million for the year ended December 31, 2018 to $16.5 million for the year ended December 31, 2019 primarily due to higher return on mutual fund investments of $3.0 million and increase in interest and dividend income of $0.5 million.

Other income, net decreased by $4.4 million, from $16.5 million for the year ended December 31, 2019 to $12.1 million for the year ended December 31, 2020 primarily due to lower return on mutual fund investments of $3.5 million during the year ended December 31, 2020 compared to the year ended December 31, 2019 and recognition of other income of $0.8 million related to our Health Integrated business during the year ended December 31, 2019.

Income Tax Expense .

The effective tax rate increased from 18.3% during the year ended December 31, 2019 to 22.2% during the year ended December 31, 2020.

We recorded income tax expense of $25.6 million and $15.2 million for the year ended December 31, 2020 and 2019, respectively.

The effective tax rate increased from 5.6% during the year ended December 31, 2018 to 18.3% during the year ended December 31, 2019 primarily as a result of (i) recording of a one-time tax benefit of $6.3 million with respect to unused 2018 foreign branch income tax credits under regulations under the Internal Revenue Code of 1986, as amended, during the year ended December 31, 2018, (ii) recording of higher excess tax benefits related to stock awards of $7.2 million pursuant to ASU No.

2016-09 during the year ended December 31, 2018 compared to $2.3 million during the year ended December 31, 2019, (iii) lower tax expense of $3.1 million on account of impairment and restructuring charges recorded during the year December 31, 2018 compared to $0.9 million during the year ended December 31, 2019, partially offset by (iv) higher tax exemptions/incentives and a lower tax rate for qualifying Indian subsidiaries due to a change in legislation during the year ended December 31, 2019.

Net income increased from $56.7 million for the year ended December 31, 2018 to $67.6 million for the year ended December 31, 2019, primarily due to increase in income from operations of $26.6 million and increase in other income, net of $3.5 million, partially offset by higher income tax expense of $11.8 million, higher interest expense of $6.4 million and lower foreign exchange gain, net of $1.0 million.

The increase in income tax expense was primarily as a result of (i) higher profit during the year ended December 31, 2020 and (ii) recording of a one-time tax expense of $1.3 million due to electing a new tax regime for two of our Indian subsidiaries which provides for a lower tax rate on earnings in exchange for foregoing certain tax credits during the year ended December 31, 2020, compared to a benefit of $1.5 million recorded during the year ended December 31, 2019.

Net income increased from $67.7 million for the year ended December 31, 2019 to $89.5 million for the year ended December 31, 2020, primarily due to increase in income from operations of $33.6 million, lower interest expense of $2.4 million and higher foreign exchange gain, net of $0.6 million, partially offset by higher income tax expense of $10.4 million and decrease in other income, net of $4.4 million.

As a percentage of revenues, net income increased from 6.8% during the year ended December 31, 2019 to 9.3% during the year ended December 31, 2020.

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The following table summarizes our revenues by reportable segments for the year ended December 31, 2019 and 2018:

Year ended December 31,

Year ended December 31, Percentage change

2019 2018 Change

(dollars in millions)

Travel, Transportation and Logistics

Finance and Accounting

Insurance $ 346.4 $ 311.2 $ 35.2 11.3 %

Healthcare 97.5 89.8 7.7 8.5 %

Emerging Business 190.1 196.8 (6.7) (3.4) %

Analytics 357.3 285.3 72.0 25.3 %

Total revenues, net $ 991.3 $ 883.1 $ 108.2 12.3 %

Revenues for the year ended December 31, 2019 were $991.3 million, up $108.2 million, or 12.3%, compared to the year ended December 31, 2018.

Revenue growth in Insurance of $23.3 million was primarily driven by expansion of business from our new and existing clients of $24.3 million, partially offset by net impact of foreign exchange loss of $1.0 million mainly due to depreciation of the Indian rupee against the U.S.

Revenue growth in Insurance of $35.2 million was primarily driven by expansion of business from our existing clients and new wins aggregating to $38.6 million.

This was partially offset by $3.4 million mainly attributable to the depreciation of the Australian dollar, Indian rupee, U.K.

pound sterling and South African ZAR against the U.S.

dollar during the year ended December 31, 2019 compared to the year ended December 31, 2018.

Insurance revenues were 34.9% and 35.2% of our total revenues in 2019 and 2018, respectively.

Revenue growth in Healthcare of $7.4 million was primarily driven by our acquisition of Health Integrated in 2017, contributing $17.0 million.

This was partially offset by lower revenues of $9.6 million due to the termination of certain client contracts.

Healthcare revenues were 9.6% and 10.1% of our total revenues in 2018 and 2017, respectively

Revenue decline in Travel, Transportation and Logistics ("TT&L") of $0.8 million was mainly due to net impact of foreign exchange loss of $0.8 million primarily due to the depreciation of the Indian rupee and the Philippine peso against the U.S.

Revenue growth in Healthcare of $7.7 million was primarily driven by expansion of business from our existing clients and new wins aggregating to $12.9 million, partially offset by lower revenues from our Health Integrated business of $5.2 million.

Healthcare revenues were 9.8% and 10.2% of our total revenues during the year ended December 31, 2019 compared to the year ended December 31, 2018, respectively.

Revenue decline in Emerging Business of $6.7 million was primarily driven by lower revenues from project based engagements and lower revenues from existing clients of $4.7 million.

Further decline of $2.0 million was mainly due to the depreciation of the Indian rupee and U.K.

pound sterling against the U.S.

dollar during the year ended December 31, 2019 compared to the year ended December 31, 2018.

TT&L revenues were 8.0% and 9.3% of our total revenues in 2018 and 2017, respectively.

Revenue growth in Finance and Accounting ("F&A") of $11.4 million was driven by net volume increases from our new and existing clients.

F&A revenues were 11.1% and 11.4% of our total revenues in 2018 and 2017, respectively.

Revenue growth in All Other of $4.1 million was primarily driven by higher revenues of $9.6 million in the Consulting operating segment, partially offset by lower revenues in our Banking and Financial Services operating segment of $2.4 million and Utilities operating segment of $1.8 million and a net impact of foreign exchange loss of $1.3 million primarily due to the depreciation of the Indian rupee against the U.S.

Emerging Business revenues were 19.2% and 22.3% of our total revenues during the year ended December 31, 2019 compared to the year ended December 31, 2018, respectively.

Revenue growth in Analytics of $72.0 million was primarily driven by our acquisition of SCIOinspire Holdings Inc.

(“SCIO”), a health analytics solution and services company, in July 2018 and increase in revenues from our recurring and project-based engagements from our new and existing clients.

This was partially offset by $1.0 million attributable to the depreciation of the U.K.

pound sterling and Indian rupee against the U.S.

dollar during the year ended December 31, 2019 compared to the year ended December 31, 2018.

All Other revenues were 9.9% and 10.9% of our total revenues in 2018 and 2017, respectively.

Revenue growth in Analytics of $75.4 million was driven by our acquisition of SCIO in July 2018, contributing $40.0 million.

The remaining increase of $35.4 million was attributable by our recurring and project-based engagements from our new and existing clients.

Analytics revenues were 32.3% and 27.5% of our total revenues in 2018 and 2017, respectively.

Analytics revenues were 36.0% and 32.3% of our total revenues during the year ended December 31, 2019 compared to the year ended December 31, 2018, respectively.

Cost of Revenues and Gross Margin:

The following table sets forth cost of revenues and gross margin of our reportable segments.

Cost of Revenues

Year ended December 31,

Cost of Revenues Gross Margin

Year ended December 31, Year ended December 31,

2019 2018 Change Percentage change 2019 2018 Change

(dollars in millions)

Insurance $ 238.6 $ 211.8 $ 26.8 12.6 % 31.1 % 31.9 % (0.8) %

Healthcare 77.1 70.4 6.7 9.4 % 20.9 % 21.6 % (0.7) %

Emerging Business 108.6 118.0 (9.4) (7.9) % 42.9 % 40.1 % 2.8 %

Analytics 231.2 184.6 46.6 25.3 % 35.3 % 35.3 % — %

Total $ 655.5 $ 584.8 $ 70.7 12.1 % 33.9 % 33.8 % 0.1 %

For the year ended December 31, 2019, cost of revenues was $655.5 million compared to $584.8 million for the year ended December 31, 2018, an increase of $70.7 million, or 12.1%.

Our gross margin for the year ended December 31, 2018 was 33.8% compared to 35.0% for year ended December 31, 2017, a decrease of 120 basis points (“bps”).

The increase in cost of revenues in Insurance of $15.5 million was primarily due to an increase in employee-related costs of $15.9 million on account of higher headcount and wage inflation, technology and infrastructure costs of $1.7 million, travel and other operating costs of $1.1 million, partially offset by lower professional fees of $2.0 million and currency movements net of hedging of $1.2 million.

Gross margin in Insurance increased by 10 bps during the year ended December 31, 2018 compared to the year ended December 31, 2017, primarily due to higher revenues and margin expansion in existing clients.

The increase in cost of revenues in Healthcare of $17.4 million was primarily due to an increase in employee-related costs of $15.2 million, technology and infrastructure costs of $3.8 million and other operating cost of $0.5 million, on account of our acquisition of Health Integrated in 2017, partially offset by decrease in other operating costs of $1.5 million and currency movements net of hedging of $0.6 million.

Gross margin in Healthcare decreased by 14.9% during the year ended December 31, 2018 compared to the year ended December 31, 2017, primarily due to the impact of our Health Integrated business, lower revenue from existing clients and the termination of certain client contracts.

The decrease in cost of revenues in TT&L of $0.2 million was primarily due to currency movements net of hedging of $0.7 million, partially offset by an increase in employee-related costs of $0.5 million.

Gross margin in TT&L decreased by 20 bps due to margin contraction in existing clients during the year ended December 31, 2018 compared to the year ended December 31, 2017.

The increase in cost of revenues in F&A of $7.8 million was primarily due to an increase in employee-related costs of $6.4 million on account of higher headcount and wage inflation, higher technology and infrastructure costs of $1.2 million, and travel costs of $1.1 million, partially offset by other operating costs of $0.3 million and currency movements net of hedging of $0.6 million.

Gross margin in F&A decreased by 100 bps during the year ended December 31, 2018 compared to the year ended December 31, 2017, primarily due to higher operating expenses associated with the initiation of services for new clients.

The increase in cost of revenues in All Other of $1.6 million was primarily due to an increase in employee-related costs of $2.9 million on account of higher headcount and wage inflation, partially offset by other operating costs of $0.3 million and currency movements net of hedging of $0.8 million.

Gross margin in All Other increased by 120 bps during the year ended December 31, 2018 compared to the year ended December 31, 2017, primarily due to higher revenues in our Consulting operating segment.

The increase in cost of revenues in Analytics of $47.6 million was primarily due to an increase in employee-related costs of $36.8 million on account of higher headcount and wage inflation, including incremental cost related to our acquisition of SCIO in July 2018 of $19.9 million.

The remaining increase was attributable to other operating costs of $11.8 million, partially offset by currency movements net of hedging of $1.0 million.

Gross margin in Analytics increased by 50 bps during the year ended December 31, 2018 compared to the year ended December 31, 2017, primarily as a result of increased gross margin from our SCIO acquisition.

Our gross margin for the year ended December 31, 2019 was 33.9% compared to 33.8% for year ended December 31, 2018, an increase of 10 bps.

The increase in cost of revenues in Insurance of $26.8 million was primarily due to an increase in employee-related costs of $24.3 million on account of higher headcount and wage inflation, increase in technology cost of $3.4 million and increase in infrastructure and travel cost of $2.9 million.

This was partially offset by lower other operating costs of $1.1 million and foreign exchange gain, net of hedging of $2.7 million.

Gross margin in Insurance decreased by 80 bps during the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to higher operating expenses.

The increase in cost of revenues in Healthcare of $6.7 million was primarily due to an increase in employee-related costs of $7.3 million and higher other operating costs of $0.4 million, partially offset by foreign exchange gain, net of hedging of $1.0 million.

Gross margin in Healthcare decreased by 70 bps during the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to higher operating expenses associated with the initiation of services for new and existing clients.

The decrease in cost of revenues in Emerging Business of $9.4 million was primarily due to decrease in employee-related costs of $4.2 million, lower infrastructure and travel cost of $3.2 million, lower other operating costs of $0.4 million, and foreign exchange gain, net of hedging of $1.6 million.

Gross margin in Emerging Business increased by 280 bps during the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to expansion in margin in certain new and existing clients.

The remaining increase was attributable to other operating costs of $5.8 million, partially offset by foreign exchange gain, net of hedging of $1.9 million.

Gross margin in Analytics during 2019 as compared to 2018 was flat.

Selling, General and Administrative (“SG&A”) Expenses.

Year ended December 31,

Year ended December 31, Percentage change

2019 2018 Change

(dollars in millions)

3 unchanged sentences

As a percentage of revenues 20.0 % 20.4 %

The increase in SG&A expenses of $23.8 million was primarily due to an increase in employee-related costs of $18.9 million, including incremental costs related to our SCIO acquisition in July 2018 and Health Integrated acquisition in December 2017 of $12.8 million.

Ther e was a further increase in infrastructure and other operating costs of $4.4 million related to the above described acquisitions.

The remaining increase of $1.6 mi llion due to continued investments in strategic initiatives, product development, digital technology, advance automation and robotics, partially offset by currency movements net of hedging of $1.1 million.

Depreciation and Amortization Expense.

Year ended December 31,

This was partially offset by foreign exchange gain, net of hedging of $1.6 million.

Depreciation and Amortization.

Percentage change

Year ended December 31, Change

(dollars in millions)

3 unchanged sentences

As a percentage of revenues 5.2 % 5.5 %

The increase in intangibles amortization expense of $6.4 million was primarily due to amortization of intangibles associated with our SCIO acquisition in July 2018 and Health Integrated acquisition in December 2017.

The increase in depreciation expense of $3.7 million was due to depreciation related to our new operating centers commenced during 2017 to support our business growth and depreciation associated with our acquisitions.

Impairment Charges

Year ended December 31,

This was partially offset by currency movements, net of hedging of $0.6 million.

The increase in intangibles amortization expense of $1.2 million was primarily due to amortization of intangibles associated with our SCIO acquisition in July 2018, partially offset by the impact of amortization of intangibles related to our Health Integrated acquisition, which were impaired during the fourth quarter of 2018.

Impairment and Restructuring Charges

Percentage change

Year ended December 31, Change

(dollars in millions)

Impairment charges

Impairment and restructuring charges $ 8.7 $ 20.1 $ (11.4) (56.8) %

As a percentage of revenues 0.9 % 2.3 %

During the fourth quarter of 2018, we recognized an impairment charge of $20.1 million to write down the carrying value of goodwill of $14.2 million and intangible assets of $5.9 million to their fair values related to our Health Integrated reporting unit within our Healthcare operating segment.

The primary factors contributing to an impairment charge were (i) revenues and profitability for the Health Integrated business in 2018 were significantly lower than our budget and (ii) significant changes to the Company's estimated future cash flows and long-term growth assumptions driven by loss of customer contracts, cost pressures and the Company’s most recent views of the long-term outlook for the Health Integrated business.

See Note 10 to our consolidated financial statements.

See Note 10 - Goodwill and Intangible Assets and Note 24 - Impairment and Restructuring Charges to our consolidated financial statements for details.

Income from Operations .

Income from operations decreased by $22.9 million, or 31.5%, from $72.7 million for the year ended December 31, 2017 to $49.8 million for the year ended December 31, 2018 primarily due to impairment charges of $20.1 million.

As a percentage of revenues, income from operations decreased from 9.5% for the year ended December 31, 2017 to 5.6% for the year ended December 31, 2018.

Income from operations increased by $26.6 million, or 53.5%, from $49.8 million for the year ended December 31, 2018 to $76.4 million for the year ended December 31, 2019.

As a percentage of revenues, income from operations increased from 5.6% for the year ended December 31, 2018 to 7.7% for the year ended December 31, 2019.

Foreign Exchange Gain/(Loss).

6 unchanged sentences

pound sterling against the U.S.

dollar increased from 1.30 during the year ended December 31, 2017 to 1.33 during the year ended December 31, 2018.

dollar decreased from 1.33 during the year ended December 31, 2018 to 1.28 during the year ended December 31, 2019.

The average exchange rate of the U.S.

dollar against the Philippine peso increased from 50.38 during the year ended December 31, 2017 to 52.69 during the year ended December 31, 2018.

dollar against the Philippine peso decreased from 52.69 during the year ended December 31, 2018 to 51.57 during the year ended December 31, 2019.

We recorded a net foreign exchange gain of $3.8 million for the year ended December 31, 2019 compared to the net foreign exchange gain of $4.8 million for the year ended December 31, 2018.

Interest expense .

Interest expense increased from $1.9 million for the year ended December 31, 2017 to $7.2 million for the year ended December 31, 2018 primarily due to increase in borrowings under our new credit facility, issuance of convertible notes and higher effective interest rates.

Other Income, net

Year ended December 31,

Percentage change

Year ended December 31, Change

(dollars in millions)

1 unchanged sentence

Interest and dividend income 2.4 1.9 0.5 28.1 %

Others, net 1.1 1.1 — (0.3) %

Other income, net $ 16.5 $ 13.0 $ 3.5 27.1 %

Other income, net increased by $1.6 million, from $11.4 million for the year ended December 31, 2017 to $13.0 million for the year ended December 31, 2018 primarily due to higher return on mutual fund investments of $1.2 million and interest and dividend income of $0.3 million.

Other income, net increased by $3.5 million, from $13.0 million for the year ended December 31, 2018 to $16.5 million for the year ended December 31, 2019 primarily due to a higher return on mutual fund investments of $3.0 million and an increase in interest and dividend income of $0.5 million.

Income Tax Expense.

The effective tax rate increased from 5.6% during the year ended December 31, 2018 to 18.3% during the year ended December 31, 2019.

We recorded income tax expense of $15.2 million and $3.4 million for the year ended December 31, 2019 and 2018, respectively.

The effective tax rate decreased from 42.5% during the year ended December 31, 2017 to 5.6% during the year ended December 31, 2018 primarily as a result of:

(i) a reduction in federal statutory tax rate and (ii) the impact of one-time transition tax of $27.2 million on the mandatory deemed repatriation of accumulated earnings and profits (“E&P”) of foreign subsidiaries and deferred tax re-measurement of $1.9 million under the Tax Reform Act, during the year ended December 31, 2017 compared to $0.2 million during the year ended December 31, 2018 .

See Note 22 to our consolidated financial statements.

Net income increased from $48.9 million for the year ended December 31, 2017 to $56.7 million for the year ended December 31, 2018, primarily due to decrease in income tax expense of $32.7 million, increase in foreign exchange gains of $2.0 million and other income of $1.6 million, partially offset by lower income from operation of $22.9 million, higher interest expense of $5.3 million and loss from equity-method investment of $0.3 million.

As a percentage of revenues, net income was 6.4% in each of the years ended December 31, 2018 and 2017.

The increase in income tax expense was primarily as a result of (i) recording of a one-time tax benefit of $6.3 million with respect to unused 2018 foreign branch income tax credits under regulations under the Internal Revenue Code of 1986, as amended, during the year ended December 31, 2018, (ii) recording of higher excess tax benefits related to stock awards of $7.2 million pursuant to ASU No.

As a percentage of revenues, net income increased from 6.4% during the year ended December 31, 2018 to 6.8% during the year ended December 31, 2019.

Liquidity and Capital Resources

Year ended December 31,

2020 2019 2018

(dollars in millions)

5 unchanged sentences

Closing cash, cash equivalents and restricted cash $ 225.5 $ 127.0 $ 104.1

As of December 31, 2019 and 2018, we had $321.4 million and $280.4 million, respectively, in cash, cash equivalents and short-term investments, of which $250.4 million and $234.1 million, respectively, is located in foreign jurisdictions that upon distribution may be subject to withholding and other taxes and we do not currently intend to distribute such amounts.

If, in the future, we change our intention regarding distributions, additional taxes may be required and would be recorded in the period the intention changes.

As of December 31, 2020 and 2019, we had $402.8 million and $321.4 million, respectively, in cash, cash equivalents and short-term investments, of which $335.3 million and $250.4 million, respectively, is located in foreign jurisdictions that upon distribution may be subject to withholding and other taxes.

We periodically evaluate opportunities regarding distribution to fund our operations in the United States and other geographies, and as and when we decide to distribute, we may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions.

Operating Activities:

Cash flows provided by operating activities were $168.4 million for the year ended December 31, 2019 as compared to cash flows provided by operating activities of $92.4 million during the year ended December 31, 2018.

Generally, factors that affect our earnings, for instance, pricing, volume of services, costs and productivity, affect our cash flows used or provided from operations in a similar manner.

However, while management of working capital, including timing of collections and payments affects operating results only indirectly, the impact on the working capital requirements and cash flows provided by operating activities can be significant.

Cash flows provided by operating activities for the year ended December 31, 2019 was $168.4 million .

This comprised of net income plus the net effect of non-cash items, such as depreciation and amortization expense, stock-based compensation expense, amortization of operating lease right-of-use assets, unrealized gains on short-term investment, deferred income taxes, impairment charges and others aggregating to $156.2 million.

The primary working capital use of cash of $34.1 million during the year ended December 31, 2019 was driven by decrease in operating lease liabilities and increase in accounts receivables, and other assets.

The primary working capital sources of cash of $46.3 million was driven by an increase in accrued employee costs, accrued expenses and other liabilities, deferred revenue, accounts payable and decrease in advance income tax, prepaid expenses and other current assets.

Cash flows provided by operating activities for the year ended December 31, 2018 was $92.4 million .This comprised of net income plus the net effect of non-cash items, such as depreciation and amortization expense, stock-based compensation expense, deferred income taxes, impairment charges and others aggregating to $133.0 million.

The primary working capital use of cash of $41.9 million during the year ended December 31, 2018 was driven by an increase in accounts receivables, advance income tax, prepaid expenses and other assets.

The primary working capital sources of cash of $1.3 million was driven by higher accrued employee costs.

Cash flows provided by operating activities for the year ended December 31, 2017 was $113.2 million .

This comprised of net income plus the net effect of non-cash items, such as depreciation and amortization expense, stock-based compensation expense, allowance for doubtful accounts receivables and others aggregating to $116.2 million.

The primary working capital use of cash of $29.3 million was driven by an increase in accounts receivables, other assets and decrease in deferred revenue.

The primary working capital sources of cash of $26.3 million was driven by decrease in net advance tax and higher accrued expenses and other liabilities, accrued employee costs and accounts payable.

Net cash provided by operating activities was $203.0 million for the year ended December 31, 2020, compared to $168.4 million for the year ended December 31, 2019, reflecting higher cash earnings along with lower working capital needs.

The major drivers contributing to the increase of $34.6 million year-over-year included the following:

• Increase in net income of $21.8 million in 2020 compared to 2019, primarily due to an increase in income from operations of $33.6 million driven by lower operating expenses, offset by higher income tax expense of $10.4 million and lower other income, net of interest expense of $1.4 million.

• Changes in accounts receivable, including advance billings, contributed additional cash flow of $43.3 million in 2020 compared to 2019.

The increase was a result of the higher collections of our accounts receivables and advance collections from certain customers.

Our accounts receivable days sales outstanding improved to 53 days as of December 31, 2020 from 59 days as of December 31, 2019.

• Decrease in accrued employee costs, accrued expenses and other liabilities contributed reduced cash flow of $40.5 million in 2020 compared to 2019.

The decrease was primarily because of additional cash flow of $30.9 million due to higher annual performance incentives and accrued expenses in 2019 compared to reduced cash flow of $9.4 million from lower accrued expenses in 2020.

• Other drivers increasing cash flows in 2020 compared to 2019 included:

income tax expense, net of advances and deferred taxes, of $8.6 million, primarily due to higher income tax provisions and timing of payments;

and changes in various current assets and other assets aggregating to $1.4 million, primarily due to lower upfront payment to customers.

Net cash provided by operating activities was $168.4 million for the year ended December 31, 2019, compared to $92.4 million for the year ended December 31, 2018, reflecting higher cash earnings along with lower working capital needs.

The major drivers contributing to the increase of $76.0 million year-over-year included the following:

• Increase in net income of $10.9 million in 2019 compared to 2018, primarily due to an increase in income from operations of $26.6 million driven by growth in revenues, partially offset by higher income tax expense of $11.8 million and lower interest and other income of $3.9 million.

• Changes in accounts receivable, including advance billings, contributed additional cash flow of $14.6 million in 2019 compared to 2018.

The increase was a result of the growth in our revenues (including revenues from our SCIO acquisition in July 2018) and higher collections of our accounts receivable.

As a result, our accounts receivable days sales outstanding improved to 59 days in 2019 from 62 days in 2018.

• Increases in accrued employee costs, accrued expenses and other liabilities contributed additional cash flow of $30.9 million in 2019 compared to 2018, primarily resulting from higher annual performance incentives and other employee costs accruals of $15.6 million, higher accrued expenses of $8.2 million due to an increase in our cost base to support

revenue growth, and lower cash outflows in client liabilities of $4.3 million due to lower funds held on behalf of our clients.

• Other drivers increasing operating cash flows in 2019 compared to 2018 included:

income tax expense, net of advances and deferred taxes, of $9.6 million, primarily due to higher income tax provisions and timing of payments;

and changes in various current assets and other assets aggregating to $10.3 million, primarily due to higher recovery of our receivables from statutory authorities in 2019 compared to 2018.

Investing Activities:

Cash flows used for investing activities were $18.3 million for the year ended December 31, 2020 as compared to cash flows used for investing activities of $51.4 million for the year ended December 31, 2019.

The decrease is mainly due to net redemption of investments of $23.7 million during the year ended December 31, 2020 as compared to net purchase of investments of $11.0 million during the year ended December 31, 2019.

This was partially offset by higher capital expenditures for purchase of long-lived assets, including investments in infrastructure, technology assets, software and product developments of $0.9 million and acquisition of additional stake in our equity affiliate of $0.7 million during the year ended December 31, 2020 compared to the year ended December 31, 2019.

Cash flows used for investing activities were $51.4 million for the year ended December 31, 2019 as compared to cash flows used for investing activities of $277.5 million for the year ended December 31, 2018.

The decrease is mainly due to higher cash used for the SCIO acquisition of $231.8 million during the year ended December 31, 2018.

This was partially offset by net higher purchase of investments of $11.0 million during the year ended December 31, 2019 as compared to net purchase of investments of $5.2 million during the year ended December 31, 2018.

Cash flows used for investing activities were $277.5 million for the year ended December 31, 2018 as compared to cash flows used for investing activities of $222.7 million for the year ended December 31, 2017.

The increase of $54.8 million was primarily due to an increase in net cash used for business acquisitions of $208.5 million during the year ended December 31, 2018.

This was partially offset by net purchase of investments of $5.2 million during the year ended December 31, 2018 as

compared to net purchase of investments of $161.3 million during the year ended December 31, 2017.

See Note 10 to our consolidated financial statements herein for further detail of our business acquisitions.

Financing Activities:

Cash flows used for financing activities were $89.6 million during the year ended December 31, 2020 as compared to cash flows used for financing activities of $93.1 million during the year ended December 31, 2019.

The decrease in cash flows used for financing activities was primarily due to net repayment of $10.9 million (net of proceeds) under our revolving Credit Facility (as described below in “Financing Arrangements (Debt Facility and Notes)-Credit Agreement”) during the year ended December 31, 2020 as compared to net repayments of $52.2 million during the year ended December 31, 2019, higher proceeds received from exercise of stock options by $0.5 million, partially offset by higher purchases of treasury stock by $38.6 million under our share Repurchase Programs during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

Cash flows used for financing activities were $93.1 million during the year ended December 31, 2019 as compared to cash flows provided by financing activities of $197.8 million during the year ended December 31, 2018.

The decrease in cash flows provided from financing activities was primarily due to higher net borrowings of $240.4 million (net of repayment) under our Credit Facility and Convertible Notes (as described below in “Financing Arrangements”) during the year ended December 31, 2018 as compared to net repayments (net of proceeds) of $52.2 million during the year ended December 31, 2019.

This was partially offset by lower purchases of treasury stock by $1.7 million under our share repurchase program during the year ended December 31, 2019 as compared to the year ended December 31, 2018.

Cash flows provided by financing activities were $197.8 million during the year ended December 31, 2018 as compared to cash flows used for financing activities of $20.5 million during the year ended December 31, 2017.

The increase in cash flows provided by financing activities was primarily due to higher proceeds from borrowings of $225.0 million (net of repayments) under our Credit Facility and Convertible Notes (as described below in “Financing Arrangements”) during the year ended December 31, 2018, partially offset by lower proceeds from exercise of stock options of $7.2 million during the year ended December 31, 2018.

We expect to use cash from operating activities to maintain and expand our business by making investments, primarily related to new facilities and capital expenditures associated with leasehold improvements to build our facilities, and purchase telecommunications equipment and computer hardware and software in connection with managing client operations.

The decrease in cash flows provided from financing activities was primarily due to higher net borrowings of $240.4 million (net of repayment) under our revolving Credit Facility and Convertible Notes (as described below in “Financing Arrangements (Debt Facility and Notes)-Credit Agreement and Convertible Senior Notes”) during the year ended December 31, 2018 as compared to net repayments (net of proceeds) of $52.2 million during the year ended December 31, 2019.

This was partially offset by lower purchases of treasury stock by $1.7 million under our share Repurchase Programs during the year ended December 31, 2019 as compared to the year ended December 31, 2018.

We expect to use cash from operating activities to maintain and expand our business by making investments, primarily related to new facilities and capital expenditures associated with leasehold improvements to build our facilities, digital capabilities and purchase telecommunications equipment and computer hardware and software in connection with managing client operations.

We incurred $42.2 million of capital expenditures in the year ended December 31, 2020.

We expect to incur capital expenditures of between $40.0 million to $48.0 million in 2020, primarily to meet our growth requirements, including additions to our facilities as well as investments in technology applications, product development, digital technology, advanced automation, robotics and infrastructure.

In connection with any tax assessment orders that have been issued or may be issued against us or our subsidiaries, we may be required to deposit additional amounts with respect to such assessment orders (see Note 26 to our consolidated financial statements herein for further details).

We expect to incur total capital expenditures of between $35.0 million to $40.0 million in 2021, primarily to meet our growth requirements, including additions to our facilities as well as investments in technology applications, product development, digital technology, advanced automation, robotics and infrastructure.

In connection with any tax assessment orders that have been issued or may be issued against us or our subsidiaries, we may be required to deposit additional amounts with respect to such assessment orders (see Note 26 - Commitments and Contingencies to our consolidated financial statements herein for further details).

We anticipate that we will continue to rely upon cash from operating activities to finance our smaller acquisitions, capital expenditures and working capital needs.

If we have significant growth through acquisitions, we may need to obtain additional financing.

Financing Arrangements (Debt Facility)

During the year ended December 31, 2020, to enhance our liquidity position in response to COVID-19, management has taken certain precautionary measures, including:

drawing $100.0 million from our line of credit under our Credit Agreement on March 12, 2020, the proceeds of which were available for working capital, general corporate or other purposes as needed, and which was repaid in full on April 20, 2020;

and electing to temporarily suspend share repurchases under our 2019 Repurchase Program, and other cost reduction measures related to employee and vendor expenses and capital expenditure plans.

Repurchase Program remains authorized by the Board of Directors and the management using its discretion has resumed share repurchases effective July 1, 2020, considering improved market conditions, our capital needs and other factors.

However, there is no assurance that the impacts we have experienced to date, and any future impact we may experience, from COVID-19 will not have an adverse effect on our cash flows.

The Coronavirus Aid, Relief, and Economic Security Act, (the “CARES Act”) allows employers to defer the payment of the employer share of Federal Insurance Contributions Act (“FICA”) taxes for the period from April 1, 2020 and ending December 31, 2020.

As of December 31, 2020, we deferred our contributions to FICA of $6.3 million under the CARES Act.

The deferred amount will be payable as follows:

(1) 50% of the deferred amount will be paid on December 31, 2021 and (2) the remaining 50% of the deferred amount will be paid on December 31, 2022.

Financing Arrangements (Debt Facility and Notes)

The following tables summarizes our debt balances as of December 31, 2020 and 2019.

As of December 31, 2020

( dollars in millions)

Revolving Credit Facility Notes Total

Current portion of long-term borrowings $ 25.0 $ — $ 25.0

Long-term borrowings $ 64.0 $ 150.0 $ 214.0

Unamortized debt discount — (11.2) (11.2)

Unamortized debt issuance costs* — (0.8) (0.8)

Long-term borrowings $ 64.0 $ 138.0 $ 202.0

Total borrowings $ 89.0 $ 138.0 $ 227.0

As of December 31, 2019

( dollars in millions)

Revolving Credit Facility Structured Payables Notes Total

Current portion of long-term borrowings $ 40.0 $ 0.9 $ — $ 40.9

Long-term borrowings $ 59.0 $ — $ 150.0 $ 209.0

Unamortized debt discount — — (13.9) (13.9)

Unamortized debt issuance costs* — — (1.0) (1.0)

Long-term borrowings $ 59.0 $ — $ 135.1 $ 194.1

Total borrowings $ 99.0 $ 0.9 $ 135.1 $ 235.0

*Unamortized debt issuance costs for our revolving Credit Facility of $0.5 million and $0.7 million as of December 31, 2020 and December 31, 2019, respectively, is presented under “Other current assets” and “Other assets” in the consolidated balance sheets.

Credit Agreement

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Borrowings under the Credit Agreement may be used for working capital and general corporate purposes, including permitted acquisitions.

On July 2, 2018, we exercised our option under the Credit Agreement to increase the commitments by $100.0 million thereby utilizing the entire revolver under the Credit Facility of $300.0 million, to fund the SCIO acquisition.

The incremental commitments were made pursuant to (and constitute part of) the existing commitments and shall be subject to the terms and conditions applicable to the existing commitments as set forth in the Credit Agreement.

Depending on the type of borrowing, loans under the Credit Agreement bear interest at a rate equal to the specified prime rate (alternate base rate) or adjusted LIBO rate, plus, in each case, an applicable margin.

The applicable margin is tied to our total net leverage ratio and ranges from 0% to 0.75% per annum with respect to loans pegged to the specified prime rate, and 1.00% to 1.75% per annum on loans pegged to the adjusted LIBO rate.

The applicable margin is tied to our total net leverage ratio and ranges from 0% to 0.75% per annum with respect to loans pegged to the specified prime rate, and

1.00% to 1.75% per annum on loans pegged to the adjusted LIBO rate.

The revolving credit commitments under the Credit Agreement are subject to a commitment fee which is also tied to our total net leverage ratio, and ranges from 0.15% to 0.30% per annum on the average daily amount by which the aggregate revolving commitments exceed the sum of outstanding revolving loans and letter of credit obligations.

The Credit Facility carried an effective interest rate of 4.0% and 3.4% per annum, respectively, during the year ended December 31, 2019 and 2018.

See Item 1A-“Risk Factors- We may be required to transition from the use of the LIBOR interest rate index in the future.

See Part I, Item 1A, “Risk Factors” under “Risks Related to Our Indebtedness - We may be required to transition from the use of the LIBOR interest rate index in the future.

We could be unable to refinance our outstanding indebtedness on reasonable terms or at all.”

The revolving Credit Facility carried an effective interest rate as shown below:-

Year ended December 31,

Effective interest rate 2.3 % 4.0 %

Obligations under the Credit Agreement are guaranteed by our material domestic subsidiaries and are secured by all or substantially all of our assets and that of our material domestic subsidiaries.

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as Administrative Agent to, among other things, permit the issuance by the Company of the Notes, and settlement upon maturity or conversion thereof, in accordance with the Investment Agreement, the indenture dated as of October 4, 2018 and the other documents entered into in connection therewith.

As of December 31, 2019, we had outstanding indebtedness under the credit facility of $99.0 million of which $40.0 million is expected to be repaid within the next twelve months and is included under “current portion of long-term borrowings” and of which $59.0 million is included under “long-term borrowings, less current portion” in the consolidated balance sheets.

As of December 31, 2018, we had outstanding indebtedness under the credit facility of $150.0 million, of which $20.0 million was included under “current portion of long-term borrowings,” and the balance of $130.0 million was included under “long-term borrowings, net of current portion” in the consolidated balance sheets.

Convertible Senior Notes

On October 1, 2018, we entered into an investment agreement (the “Investment Agreement”) with Orogen Echo LLC, an affiliate of The Orogen Group LLC, relating to the issuance to the Purchaser of $150.0 million in an aggregate principal amount of 3.50% Convertible Senior Notes due October 1, 2024 (the "Notes").

On October 1, 2018, we entered into an investment agreement (the “Investment Agreement”) with Orogen Echo LLC (the “Purchaser”), an affiliate of The Orogen Group LLC, relating to the issuance to the Purchaser of $150.0 million in an aggregate principal amount of 3.50% per annum Convertible Senior Notes due October 1, 2024 (the “Notes”).

The Notes were issued on October 4, 2018.

The Notes bear interest at a rate of 3.50% per annum, payable semi-annually in arrears in cash on April 1 and October 1 of each year.

During the year ended December 31, 2019 and 2018, we recognized interest expense of $5.2 million and $1.3 million , respectively, on the Notes.

The Notes are convertible at an initial conversion rate of 13.3333 shares of the common stock per one thousand dollar principal amount of the Notes (which represents an initial conversion price of approximately $75 per share).

With certain exceptions, upon a fundamental change, as defined in the Indenture, the holders of the Notes may require us to repurchase all or part of the principal amount of the Notes at a purchase price equal to the principal amount plus accrued and unpaid interest.

We may redeem the principal amount of the Notes, at our option, in whole but not in part, at a purchase price equal to the principal amount plus accrued and unpaid interest on or after October 1, 2021, if the closing sale price of the common stock exceeds 150% of the then-current conversion price for 20 or more trading days in the 30 consecutive trading day period preceding our exercise of this redemption right (including the trading day immediately prior to the date of the notice of redemption).

We may elect to settle conversions of the Notes by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock.

We used the proceeds from the issuance of Notes to repay $150.0 million of our outstanding borrowings under the Credit Facility.

We may redeem the principal amount of the Notes, at its option, in whole but not in part, at a purchase price equal to the principal amount plus accrued and unpaid interest on or after October 1, 2021, if the closing sale price of the common stock exceeds 150% of the then-current conversion price for 20 or more trading days in the 30 consecutive trading day period preceding our exercise of this redemption right (including the trading day immediately prior to the date of the notice of redemption).We may elect to settle conversions of the Notes by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock.

We presently intend and have the ability to settle the principal amount of the Notes in cash.

In 2018, we used the proceeds from the issuance of the Notes to repay $150.0 million of our outstanding borrowings under the Credit Facility.

We accounted for the liability and equity components of the Notes separately to reflect its non-convertible debt borrowing rate.

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The discount is being amortized to interest expense over a six-year period ending October 1, 2024 (the expected life of the liability component) using the effective interest method.

During the year ended December 31, 2019 and 2018, we amortized $2.5 million and $0.6 million , respectively of the discount to interest expense on the Notes.

The unamortized debt discount on the Notes as of December 31, 2019 and 2018 was $13.8 million and $16.3 million , respectively.

During the year ended December 31, 2020 and 2019, we recognized interest expense and amortization of debt discount, on the Notes as below:

Year ended December 31,

Interest expense on the Notes $ 5.3 $ 5.2

Amortization of debt discount on the Notes $ 2.6 $ 2.5

Under the terms of the Notes, we are not prohibited from paying cash dividends unless payment would trigger an event of default or if one currently exists.

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In the ordinary course of business, we provide standby letters of credit to third parties primarily for facility leases.

As of December 31, 2019 and 2018, we had outstanding letters of credit of $0.5 million and $nil, respectively, that were not recognized

in our consolidated balance sheets.

As of December 31, 2020 and 2019, we had outstanding letters of credit of $0.5 million, each, that were not recognized in our consolidated balance sheets.

These are not reasonably likely to have, a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Payment Due by Period

Less than 1-3 4-5 After

1 year years years 5 years Total

(dollars in millions)

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Operating leases (a)

25.8 46.4 26.8 34.4 133.4

Purchase obligations 6.1 — — — 6.1

Other obligations (b)

Principal payments

Interest payments (c)

Total contractual cash obligations (d)

(a) Represents lease liabilities payable for the expected lease term.

(b) Represents estimated payments under the Gratuity Plan.

(c) Interest on borrowings is calculated based on the interest rate on the outstanding borrowings as of December 31, 2019.

Excludes $1.0 million related to uncertain tax positions, since the extent of the amount and timing of payment is currently not reliably estimable or determinable.

2.8 5.0 3.9 7.0 18.7

Principal payments (c)

25.0 64.0 150.0 — 239.0

Interest payments (d)

6.0 11.1 5.3 — 22.4

Total contractual cash obligations (e)

$ 66.0 $ 126.8 $ 186.0 $ 41.4 $ 420.2

(a) Represents undiscounted operating lease liabilities payable over the lease term.

(b) Represents estimated employee benefit payments under the Gratuity Plan.

(c) Represents our intent and ability to settle the principal amount of our Notes of $150 million in cash and does not reflect any assumptions about our ability or intent to settle the Notes before their maturity.

(d) Interest on borrowings is calculated based on the interest rate on the outstanding borrowings as of December 31, 2020.

(e) Excludes $0.9 million related to uncertain tax positions, since the extent of the amount and timing of payment is currently not reliably estimable or determinable.

Certain units of our Indian subsidiaries were established as 100% Export-Oriented units under the Software Technology Parks of India (“STPI”) or Special Economic Zone ("SEZ") scheme promulgated by the Government of India.

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Recent Accounting Pronouncements

For a description of recent accounting pronouncements, see Note 2-“Recent Accounting Pronouncements” to the consolidated financial statements contained herein.

For a description of recent accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies - Recent Accounting Pronouncements to our consolidated financial statements contained herein.

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 7. Management’s Discussion and Analysis