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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-25 · 196 added, 392 removed, 434 unchanged (58% of the section changed)

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Some of the statements in the following discussion are forward looking statements.

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, 2021.

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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.

Many of the following risks, uncertainties and other factors identified below have been, 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;

• worldwide political, economic or business conditions;

• our dependence on a limited number of clients in a limited number of industries and our ability to withstand the loss of a significant client;

• negative public reaction in the U.S.

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• our ability to successfully consummate or integrate strategic acquisitions;

• our ability to accurately estimate and/or manage the costs and/or timing of winding down businesses;

• our ability to accurately estimate and/or manage the costs;

• restrictions on immigration;

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• 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;

• failure to protect our intellectual property;

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

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• ability to service debt or obtain additional financing on favorable terms;

• credit risk fluctuations in the market values of our investment and derivatives portfolios;

• legal liability arising out of customer contracts;

• technological innovation;

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

• our ability to meet our environmental, social and governance-related goals and targets;

• effects of political and economic conditions globally, particularly in the geographies where 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.

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

• adverse outcome of our disputes with the tax authorities, in the geographies where we operate.

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

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Executive Overview

We are a leading operations management and analytics company that helps our clients build and grow sustainable businesses.

By orchestrating our domain expertise, data, analytics and digital technology, we look deeper to design and manage agile, customer-centric operating models to improve global operations, drive profitability, enhance customer satisfaction, increase data-driven insights, and manage risk and compliance.

We serve customers in multiple industries, including insurance, healthcare, banking and financial services, utilities, travel, transportation and logistics, media and retail, among others.

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

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

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 reportable segments effective January 1, 2020 are as follows:

We are a leading data analytics and digital operations and solutions company that partners with clients to improve business outcomes and unlock growth.

By bringing together deep domain expertise with robust data, powerful analytics, cloud, AI and ML, we create agile, scalable solutions and execute complex operations for the world’s leading corporations in industries including insurance, healthcare, banking and financial services, media, and retail, among others.

We deliver data analytics and digital operations and solutions to our clients, driving enterprise-scale business transformation initiatives that leverage our deep expertise in advanced analytics, AI, ML and cloud.

We manage and report 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, and is in line with certain operational and structural changes we made effective January 1, 2020 to more closely integrate our businesses and to simplify our organizational structure.

Our reportable segments are as follows:

• Healthcare,

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• Emerging Business

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

We have operations centers in India, the United States, the United Kingdom, the Philippines, Bulgaria, Colombia, South Africa, Romania and the Czech Republic.

On December 16, 2021, we completed the acquisition of Clairvoyant, a global data, AI, ML, and cloud services firm that helps organizations in their business transformation by maximizing the value of data through actionable insights.

data engineering, analytics, AI, ML, product engineering, and cloud-based solutions.

The acquisition strengthens our Analytics capabilities by adding additional expertise in data engineering and cloud enablement, further supporting our clients in the insurance, healthcare, banking and financial services, and retail industries.

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.

Over the course of 2020, and continuing into 2021, our clients, contractors, suppliers, and other partners adapted in order to conduct business activities in a COVID-19 environment.

As the global economy continued to adapt to the impact of COVID-19, our clients are focused on receiving personalized customer experiences, optimizing costs and supporting resilient operating models.

We remain committed to helping our clients adapt and thrive through the ongoing uncertainties caused by COVID-19 and, going forward, to the shifting business environment.

Our remote working delivery capability steadily improved throughout 2021.

We estimate that we are able to deliver a significant portion of our clients’ current requirements in a remote work 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.

We continue to incur additional costs in order to ensure the continuity of our operations and support our remote work 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 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 remote work 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.

Certain impacts of COVID-19 on our business, results of operations, financial position and cash flow during 2021 have been described above and below, however the full extent of the impact for the period beyond 2021 is currently uncertain and will depend on many factors that are not within our control.

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

During the fourth quarter of 2021, we performed our annual goodwill quantitative impairment test for any potential impairment.

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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%.

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

For the year ended December 31, 2021, we generated revenues of $1,122.3 million compared to revenues of $958.4 million for the year ended December 31, 2020, an increase of $163.9 million, or 17.1%.

We serve clients mainly in the United States and the United Kingdom, with these two regions generating 85.9% and 9.4%, respectively, of our total revenues for the year ended December 31, 2021 and 85.0% and 9.3%, respectively, of our revenues for the year ended December 31, 2020.

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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 provide data analytics and digital operations and solutions to our clients.

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 United States, Europe and Australia.

Operations Management Services:

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.

Digital Operations and Solutions:

We provide our clients with a range of digital operations and solutions from our Insurance, Healthcare and Emerging Business strategic business units, which are focused on solving complex industry problems such as the insurance claims lifecycle and financial transactions processing, and typically involve the use of agile delivery models to implement digital technologies and interventions like hyper-automation, customer experience transformation, advanced automation, robotics, enterprise architecture, end-to-end business function management and transformations.

We either administer and manage these functions on an ongoing basis via longer-term arrangements or project work.

For a portion of our digital operations and solutions, 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 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 also provide consulting services related to digital operations and solutions that include industry-specific digital transformational services as well as cross-industry finance and accounting services as part of the Emerging Business strategic business unit.

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.

These contracts provide us with a relatively predictable revenue base for a substantial portion of our digital operations and solutions 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.

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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.

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.

Our analytics services focus on driving improved business outcomes for our clients by unlocking deep insights from data and create data driven solutions across all parts of our clients’ 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 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 enhance, modernize and enrich structured and unstructured data and use a spectrum of advanced analytical tools and techniques, including our in-house ML and AI capabilities to create insights and improve decision making for our clients.

Our Clairvoyant acquisition in December 2021 strengthens our analytics capabilities by adding additional expertise in data engineering and cloud enablement, further supporting our clients in the insurance, healthcare, banking and financial services, and retail industries.

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

Our projects-based analytics services are cyclical and can be significantly affected by variations in business cycles.

In addition, our projects-based analytics services are documented in contracts with terms generally not exceeding one year and may not produce ongoing or recurring business for us once the project is completed.

These contracts also usually contain provisions permitting termination of the contract after a short notice period.

The short-term nature and specificity of these projects could lead to fluctuations and uncertainties in the revenues generated from providing analytics services.

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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• employee costs, which include salary, bonus and other compensation expenses;

recruitment and training costs;

employee insurance;

retirement benefits, recruitment and training costs;

employee health and life insurance;

rewards and recognition for certain employees;

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rent expenses;

• Outsourced/subcontractors and professional services costs;

• travel and other billable costs to our clients;

• costs relating to our direct mail operations and other digital solutions.

The most significant components of our cost of revenues are salaries and benefits (including stock-based compensation), recruitment, training, transport, meals, rewards and recognition and employee insurance.

• costs relating to our direct mail operations and other digital operations and solutions.

The most significant components of our cost of revenues are salaries and benefits (including stock-based compensation), retirement benefits, recruitment, training, transport, meals, rewards and recognition and employee health and life insurance.

Salary levels, employee turnover rates and our ability to efficiently manage and utilize our employees significantly affect our cost of revenues.

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

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.

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.

We also expect that we will continue to incur additional costs to monitor and improve operational efficiency of our remote work 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-We are subject to labor and employment laws across jurisdictions and 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 digital operations and solutions contract due to upfront investments in infrastructure, resource hiring and training during migration.

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

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

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.

Our General and Administrative expenses (“G&A”) comprise of expenses relating to salaries and benefits (including stock based compensation), retirement benefits 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.

G&A expenses also include acquisition-related costs, legal and professional fees (which represent the costs of third party legal, tax, accounting, immigration and other advisors), investment in product development, digital technology, advanced automation and robotics, cloud, AI and MI, bad debt allowance and stock compensation expenses related to our issuance of

equity awards to members of our board of directors.

We expect our G&A costs to increase as we continue to strengthen our support and enabling functions and invest in leadership development, performance management and training programs.

Selling and marketing expenses primarily consist of salaries and benefits (including stock based compensation) and other compensation expenses of sales and marketing and client management personnel, sales commission, travel and brand building, client events and conferences.

Selling and marketing expenses primarily consist of salaries and benefits (including stock based compensation), retirement benefits and other compensation expenses of sales and marketing and client management personnel, sales commission, travel and brand building, client events and conferences.

We expect that sales and marketing expenses will continue to increase as we invest in our sales and client management functions to better serve our clients and in our branding.

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As we add new facilities and expand our existing operations centers, we expect that depreciation expense will increase, reflecting additional investments in equipment such as desktop computers, servers and other infrastructure.

The property and equipment which are abandoned, are assessed for revision of their useful life, thereby revising the future depreciation to reflect the use of property and equipment over the remaining shortened life.

We expect lower depreciation on assets related to operating centers closed as a result of optimization of office space and increased reliance on remote work model, due to the impact of COVID-19.

We expect amortization of intangible assets to increase further as we pursue strategic relationships and acquisitions.

Impairment Charges

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.

Based on the results, if the carrying values of our reporting units exceeds their fair values, we record impairment charges to the extent that carrying value exceeds estimated fair value.

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

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 such assets exceeds their fair value.

Foreign Exchange

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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 classified under “Cash and cash equivalents”, “Short-term investments” and “Other assets”, as applicable on our consolidated balance sheets.

Other income, net primarily consists of gain/(loss) on sale, mark to market and dividend income on our investments in mutual funds and money market 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.

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, amortization of actuarial gain or loss and profit or loss on disposal of long-lived assets.

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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 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.

We periodically evaluate opportunities to distribute PTI among our group entities 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.

These distributions do not constitute a change in our permanent reinvestment assertion.

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

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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 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.

The tax holiday expired for few of our operations centers in last few years and will expire for other operations 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 operations centers in the Philippines will be taxed at the prevailing annual tax rate, which as of December 31, 2021 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 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.

The significant estimates and assumptions that affect the financial statements include, but are not limited to, estimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, allowance for expected credit losses, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and variable consideration in a customer contract, expected recoverability from customers with contingent fee arrangements, estimated costs to complete fixed price contracts, recoverability of dues from statutory authorities, assets and obligations related to employee benefit plans, deferred tax valuation allowances, income-tax uncertainties and other contingencies, valuation of derivative financial instruments, assumptions related to lease liabilities, ROU assets, lease cost, income taxes and assets, obligations related to employee benefit plans, revenue projections and discount rate applied within the discounted cash flow model for business acquisitions.

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

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Revenue Recognition

Revenue is recognized when services are provided to our customers, in an amount that reflects the consideration which we expect to be entitled to in exchange for the services provided.

Revenue is recognized when services are provided to our clients, in an amount that reflects the consideration which we expect to be entitled to in exchange for the services provided.

Revenue is measured based on consideration specified in a contract with a customer and excludes discounts and amounts collected on behalf of third parties.

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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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Revenues from reimbursement optimization services having contingent fee arrangements are recognized by us at the point in time when a performance obligation is satisfied, which is when we identify an overpayment claim.

In such contracts, our consideration is contingent upon the actual collections made by our customers and net of any subsequent retraction claims.

Based on guidance on “variable consideration” in Topic 606, we use our historical experience and projections to determine the expected recoveries from our customers and recognize revenue based upon such expected recoveries.

In such contracts, our consideration is contingent upon the actual collections made by our clients and net of any subsequent retraction claims.

Based on guidance on “variable consideration” in Topic 606, we use our historical experience and projections to determine the expected recoveries from our clients and recognize revenue based upon such expected recoveries.

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

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Unbilled receivables also include revenues recognized from reimbursement optimization services where we identify an overpayment claim.

In such contracts, our consideration is contingent upon and collectable only when the actual collections are made by our customers.

In such contracts, our consideration is contingent upon and collectable only when the actual collections are made by our clients.

Accordingly, the amounts for which services have been performed and for which invoices have not been issued to customers on the balance sheet date, (i.e.

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Deferred revenue also includes the amount for which services have been rendered but other conditions of revenue recognition are not met, for example where we do not have an enforceable contract.

Further, we also defer revenues attributable to certain process transition activities, with respect to our customers where such activities do not represent separate performance obligations.

Further, we also defer revenues attributable to certain process transition activities, with respect to our clients where such activities do not represent separate performance obligations.

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.

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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.

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

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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.

Accounts receivable balances are written-off against the allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.

Business Combinations

We account for all business combinations using the acquisition method of accounting as prescribed by Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations”.

The guidance requires the use of significant estimates and assumptions in allocation of the purchase price in determining the fair value of identifiable assets acquired and liabilities assumed, including intangible assets and contingent consideration and allocation of purchase price over such assets and liabilities on the acquisition date.

The significant estimates and assumptions include, but are not limited to, the timing and amount of future revenue and cash flows based on, among other things, anticipated growth rates and customer attrition rates and the discount rate reflecting the risk inherent in future cash flows.

We account for all business combinations using the acquisition method of accounting as prescribed by Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations.” The guidance requires the use of significant estimates and assumptions in determining the fair value of identifiable assets acquired and liabilities assumed, including intangible assets and contingent consideration, and allocation of purchase price over such assets and liabilities on the acquisition date.

The significant estimates and assumptions include, but are not limited to, the timing and amount of future revenue and cash flows based on, among other things, discount rate reflecting the risk inherent in future cash flows, customer attrition rates and the long-term growth rate applied within the discounted cash flow model.

This requires a high degree of the Company’s judgment and the need to involve fair value specialists to evaluate the reasonableness of the Company’s valuation methodology and the selection of inputs to the valuation.

Goodwill, Intangible Assets and Long-lived Assets

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We test for goodwill impairment at the reporting unit level.

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.

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

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

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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.

These estimates and judgements may not be within our control and accordingly it is reasonably possible that the estimates and judgments described above could change in future periods.

These estimates and judgements may not be within our control and

accordingly it is reasonably possible that the estimates and judgments described above could change in future periods.

There can be no assurance that operations will achieve the future cash flows reflected in the projections.

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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.

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.

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 a part of “Cost of revenues,” “General and administrative expenses,” “Selling and marketing expenses,” and “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.

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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.

Pursuant to ASC Subtopic 470-20, total consideration for the settlement of an existing debt obligation is separated into liability and equity components.

The fair value of the existing liability is estimated using a discounted cash flow technique, which considers debt issuances with terms similar to that of our debt, however without the conversion feature.

The excess of consideration over the fair value of liability component is assigned to the equity component.

The effective interest rate used to estimate the fair value of the liability component is based on the income and market based approaches, adjusted for the remaining tenor of the extinguished debt.

The difference between the fair value and the carrying value of the extinguished debt, net of the unamortized debt discount and unamortized debt issuance costs, is recorded as a gain or loss on settlement in the consolidated statements of income.

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

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We recognize the effect of a change in tax rates on deferred tax assets and liabilities during the period in which the new tax rate was enacted or the change in tax status was filed or approved.

We release the tax effects from accumulated other comprehensive income/(loss) (“AOCI”) at the time of reclassification of cash flows hedges gains/ (losses) from AOCI to the consolidated statements of income.

Deferred tax assets are recognized in full, subject to a valuation allowance that reduces the amount recognized to that which is more likely than not to be realized.

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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.

The interest cost, expected return on plan assets and amortization of actuarial gains/loss, are included in “Other income, net.” See Note 19 - 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.

Our assessment is based on whether:

(1) the contract involves the use of a distinct identified asset, (2) we obtain the right to substantially all the economic benefits from the use of the asset throughout the term of the contract, and (3) we have the right to direct the use of the asset.

A lease is classified as a finance lease if any one of the following criteria are met:

(1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset.

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.

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Results of Operations

For a discussion of our results of operations for the year ended December 31, 2019, including a year-to-year comparison between 2020 and 2019, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020.

The following table summarizes our results of operations for the years ended December 31, 2021, 2020 and 2019:

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Other income, net 6.8 12.1 16.5

Loss on settlement of convertible notes (12.8) — —

Income before income tax expense and earnings from equity affiliates 146.6 115.3 83.1

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

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

The following table summarizes our revenues by reportable segments for the years ended December 31, 2021 and 2020:

Year ended December 31, Percentage

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Total revenues, net $ 1,122.3 $ 958.4 $ 163.9 17.1 %

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.

Revenues for the year ended December 31, 2021 were $1,122.3 million, up $163.9 million, or 17.1%, compared to the year ended December 31, 2020.

Revenue growth in Insurance of $40.2 million was primarily driven by expansion of business from our new and existing clients of $37.7 million and an increase in revenues of $2.5 million that was mainly attributable to the appreciation of the Australian dollar, the U.K.

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

dollar during the year ended December 31, 2021, compared to the year ended December 31, 2020.

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.

Insurance revenues were 34.0% and 35.7% of our total revenues during the years ended December 31, 2021 and 2020, respectively.

Revenue growth in Healthcare of $11.2 million was primarily driven by expansion of business from our new and existing clients of $11.2 million during the year ended December 31, 2021.

Healthcare revenues were 10.0% and 10.6% of our total revenues during the years ended December 31, 2021 and 2020, respectively.

Revenue growth in Emerging Business of $14.5 million was primarily driven by expansion of business from our new clients and existing clients of $13.9 million and an increase in revenues of $0.6 million that was mainly attributable to the appreciation of the U.K.

pound sterling and the Indian rupee against the U.S.

dollar during the year ended December 31, 2021, compared to the year ended December 31, 2020.

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.

Emerging Business revenues were 14.9% and 15.9% of our total revenues during the years ended December 31, 2021 and 2020, respectively.

Revenue growth in Analytics of $98.0 million was attributable to the higher volumes in our annuity and project based engagements from our new and existing clients of $95.8 million, including contribution from our acquisition of Clairvoyant in December 2021 and an increase in revenues of $2.2 million mainly attributable to the appreciation of the U.K.

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

dollar during the year ended December 31, 2021, compared to the year ended December 31, 2020.

Analytics revenues were 41.0% and 37.8% of our total revenues during the years ended December 31, 2021 and 2020, respectively.

Cost of Revenues and Gross Margin:

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Total $ 690.9 $ 623.9 $ 67.0 10.7 % 38.4 % 34.9 % 3.5 %

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.

For the year ended December 31, 2021, cost of revenues was $690.9 million compared to $623.9 million for the year ended December 31, 2020, an increase of $67.0 million, or 10.7%.

Our gross margin for the year ended December 31, 2021 was 38.4% compared to 34.9% for year ended December 31, 2020, an increase of 350 ("bps") primarily driven by higher revenues, operational efficiencies and lower COVID-19 related expenses during the year ended December 31, 2021, compared to the year ended December 31, 2020.

The increase in cost of revenues in Insurance of $7.6 million for the year ended December 31, 2021 was primarily due to increases in employee-related costs of $14.2 million on account of higher headcount and wage inflation, higher annual performance incentives and higher technology costs of $0.7 million on account of increased leverage of remote work model, partially offset by lower travel costs of $6.1 million, lower other operating costs of $0.3 million and foreign exchange gain, net of hedging of $0.9 million.

Gross margin in Insurance increased by 510 bps during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher revenues, expansion in margin in certain existing clients, operational efficiencies and lower COVID-19 related expenses during the year ended December 31, 2021, compared to the year ended December 31, 2020.

The decrease in cost of revenues in Healthcare of $3.3 million for the year ended December 31, 2021 was primarily due to improved employee utilization in existing clients, resulting in lower employee-related costs of $2.9 million, and lower travel costs of $0.8 million, partially offset by higher facility costs of $0.4 million.

Gross margin in Healthcare increased by 1,010 bps during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher revenues, expansion in margin in certain existing clients, operational efficiencies and lower COVID-19 related expenses during the year ended December 31, 2021, compared to the year ended December 31, 2020.

The increase in cost of revenues in Emerging Business of $2.2 million for the year ended December 31, 2021 was primarily due to increases in employee-related costs of $2.8 million on account of higher headcount and wage inflation, higher annual performance incentives, higher technology costs of $1.1 million on account of increased leverage of remote work model, partially offset by lower travel costs of $0.3 million, lower facility costs of $0.3 million, lower other operating costs of $0.3 million and foreign exchange gain, net of hedging $0.8 million.

Gross margin in Emerging Business increased by 370 bps during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher revenues, operational efficiencies and lower COVID-19 related expenses during the year ended December 31, 2021, compared to the year ended December 31, 2020.

The increase in cost of revenues in Analytics of $60.5 million for the year ended December 31, 2021 was primarily due to increases in employee-related costs of $50.4 million on account of higher headcount and wage inflation, higher annual performance incentives including incremental cost related to our acquisition of Clairvoyant in December 2021.

The remaining increase was attributable to higher other operating costs of $13.8 million.

This was partially offset by lower travel costs of $1.4 million, lower facility costs of $1.0 million on account of remote work model and foreign exchange gain, net of hedging of $1.3 million.

Gross margin in Analytics increased by 40 bps during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher revenues and operational efficiencies compared to the year ended December 31, 2020.

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

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As a percentage of revenues 20.2 % 18.2 %

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.

The increase in SG&A expenses of $52.4 million was primarily due to higher employee-related costs of $44.8 million on account of higher headcount and wage inflation, higher annual performance incentives, higher other operating costs of $6.0 million, COVID-19 related expenses of $3.1 million primarily related to financial support to family members of deceased employees, increase in technology cost of $2.4 million on account of continued investments, product development, digital technology, advanced automation, robotics, cloud, artificial intelligence, machine learning and acquisition-related cost of $0.8 million on account of our acquisition of Clairvoyant in December 2021, partially offset by lower facilities costs of $4.7 million due to optimization of office space.

Depreciation and Amortization.

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The decrease in intangibles amortization expense of $1.6 million was primarily due to end of useful lives for certain intangible assets during the year ended December 31, 2021, compared to the year ended December 31, 2020.

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, Percentage change

2020 2019 Change

(dollars in millions)

Impairment and restructuring charges $ — $ 8.7 $ (8.7) (100.0) %

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 our Health Integrated business.

The increase in depreciation expense of $0.2 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 certain operating centers due to the impact of COVID-19 aggregating to $0.7 million, partially offset by foreign exchange gain, net of hedging $0.5 million, during the year ended December 31, 2021, compared to the year ended December 31, 2020.

Income from Operations.

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.

Income from operations increased by $45.9 million, or 41.7%, from $110.0 million for the year ended December 31, 2020 to $155.9 million for the year ended December 31, 2021, primarily due to higher revenues, partially offset by higher cost of revenues and higher SG&A expenses during the year ended December 31, 2021.

As a percentage of revenues, income from operations increased from 11.5% for the year ended December 31, 2020 to 13.9% for the year ended December 31, 2021.

Foreign Exchange Gain/(Loss).

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

Foreign Exchange Gains and Losses.

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

dollar against the Indian rupee, the U.K.

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The average exchange rate of the U.S.

dollar against the Indian rupee increased from 70.36 during the year ended December 31, 2019 to 74.07 during the year ended December 31, 2020.

dollar against the Indian rupee decreased from 74.07 during the year ended December 31, 2020 to 73.88 during the year ended December 31, 2021.

The average exchange rate of the U.K.

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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.

dollar against the South African ZAR decreased from 16.51 during the year ended December 31, 2020 to 14.92 during the year ended December 31, 2021.

We recorded a net foreign exchange gain of $4.3 million for the year ended December 31, 2021 compared to a net foreign exchange gain of $4.4 million for the year ended December 31, 2020.

Interest expense .

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.

Interest expense decreased from $11.2 million for the year ended December 31, 2020 to $7.6 million for the year ended December 31, 2021 primarily due to settlement of outstanding obligations under the Notes (as defined below under “Financing Arrangements (Debt Facility and Notes)-Convertible Senior Notes”) on August 27, 2021, and lower effective interest rates of 1.7% under our Credit Facility during the year ended December 31, 2021, compared to 2.3% during the year ended December 31, 2020.

Other Income, net.

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(dollars in millions)

Gain on sale and mark-to-market of mutual funds $ 9.5 $ 13.0 $ (3.5) 8.2 %

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 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 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.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

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

Year ended December 31, Percentage change

2019 2018 Change

(dollars in millions)

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 $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 $7.7 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.

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.

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 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, 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 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 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, Percentage change

2019 2018 Change

(dollars in millions)

General and administrative expenses $ 126.9 $ 116.2 $ 10.7 9.2 %

Selling and marketing expenses 71.8 63.6 8.2 12.9 %

Selling, general and administrative expenses $ 198.7 $ 179.8 $ 18.9 10.5 %

As a percentage of revenues 20.0 % 20.4 %

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 foreign exchange gain, net of hedging of $1.6 million.

Depreciation and Amortization.

Percentage change

Year ended December 31, Change

(dollars in millions)

Depreciation expense $ 30.4 $ 28.2 $ 2.2 7.9 %

Intangible amortization expense 21.6 20.4 1.2 5.8 %

Depreciation and amortization expense $ 52.0 $ 48.6 $ 3.4 7.0 %

As a percentage of revenues 5.2 % 5.5 %

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

As a percentage of revenues 0.9 % 2.3 %

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

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.

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).

Net foreign exchange gains and losses are primarily attributable to 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.

The average exchange rate of the U.S.

dollar against the Indian rupee increased from 68.48 during the year ended December 31, 2018 to 70.36 during the year ended December 31, 2019.

The average exchange rate of the U.K.

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.

The average exchange rate of the U.S.

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 $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.

Other Income, net

Percentage change

Year ended December 31, Change

(dollars in millions)

Gain on sale and mark-to-market of mutual funds $ 13.0 $ 10.0 $ 3.0 30.0 %

Gain on sale and mark-to-market of mutual funds and money market funds $ 4.9 $ 9.6 $ (4.7) (49.1) %

Interest and dividend income 2.7 2.5 0.2 9.0 %

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Other income, net $ 6.8 $ 12.1 $ (5.3) (43.9) %

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 a higher return on mutual fund investments of $3.0 million and an increase in interest and dividend income of $0.5 million.

Other income, net decreased by $5.3 million, from $12.1 million for the year ended December 31, 2020 to $6.8 million for the year ended December 31, 2021, primarily due to lower amount invested in mutual funds and lower returns on such investments of $4.7 million during the year ended December 31, 2021, compared to the year ended December 31, 2020.

Loss on settlement of Notes.

On August 27, 2021, we settled our outstanding obligations under the Notes and recognized a loss of $12.8 million during the year ended December 31, 2021.

See Note 17 - Borrowings to our consolidated financial statements.

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 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.

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 effective tax rate decreased from 22.2% during the year ended December 31, 2020 to 21.7% during the year ended December 31, 2021.

We recorded income tax expense of $31.9 million and $25.6 million for the years ended December 31, 2021 and 2020, respectively.

The increase in the income tax expense was primarily a result of higher profit during the year ended December 31, 2021, compared to the year ended December 31, 2020, increase in state taxes and increase in non-deductible expenses during the year ended December 31, 2021, partially offset by (i) the recording of higher excess tax benefits related to stock awards of $3.7 million pursuant to ASU No.

2016-09 during the year ended December 31, 2021, compared to $2.4 million during the year ended December 31, 2020, and (ii) the recording of a one-time deferred tax benefit of $2.4 million on settlement of the Notes during the during the year ended December 31, 2021.

Net income increased from $89.5 million for the year ended December 31, 2020 to $114.7 million for the year ended December 31, 2021, primarily due to increase in income from operations of $45.9 million, lower interest expense of $3.6 million, partially offset by loss on settlement of the Notes of $12.8 million, lower other income, net of $5.2 million and higher income tax expense of $6.3 million.

As a percentage of revenues, net income increased from 9.3% during the year ended December 31, 2020 to 10.2% during the year ended December 31, 2021.

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Net cash used for investing activities (114.3) (18.3) (51.4)

Net cash (used for)/provided by financing activities (89.6) (93.1) 197.8

Net cash used for financing activities (146.9) (89.6) (93.1)

Effect of exchange rate changes (4.9) 3.4 (1.0)

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As of December 31, 2021 and 2020, we had $313.9 million and $402.8 million, respectively, in cash, cash equivalents and short-term investments, of which $277.4 million and $335.1 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.

We periodically evaluate opportunities to distribute cash among our group entities 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.

During the year ended December 31, 2021, we repatriated to the United States $66.0 million (net of $3.5 million withholding taxes) from India and $42.5 million (net of $7.5 million withholding taxes) from the Philippines.

These distributions do not constitute a change in our permanent reinvestment assertion.

We base our decision to continue to indefinitely reinvest earnings in India and the Philippines on our estimate of the working capital required to support our operations in these geographies and periodically review our capital initiatives to support and expand our global operations, as well as whether there exits an economically viable rate of return on our investments made in India and the Philippines as compared to those made in the United States.

Operating Activities:

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.

Net cash provided by operating activities was $184.4 million for the year ended December 31, 2021, compared to $203.0 million for the year ended December 31, 2020, reflecting higher working capital needs, offset by higher cash earnings.

The major drivers contributing to the decrease of $18.6 million year-over-year included the following:

• Changes in accounts receivable, including unbilled receivable and advance billings, contributed to a lower cash flow of $91.2 million in 2021 compared to 2020.

The decrease was a result of the higher accounts receivable resulting from revenue growth.

Lower cash flows were also affected by our accounts receivable days sales outstanding, which increased to 56 days as of December 31, 2021 from 53 days as of December 31, 2020.

• Increase in net income of $25.2 million in 2021 compared to 2020, primarily due to an increase in income from operations of $45.9 million driven by higher revenues, lower interest expense of $3.6 million, partially offset by loss on settlement of the Notes of $12.8 million, lower other income, net of $5.2 million, and higher income tax expense of $6.3 million.

• Increase in accrued employee costs, accrued expenses and other liabilities contributed to a higher cash flow of $76.7 million in 2021 compared to 2020.

The increase was primarily due to higher annual performance incentives and other employee costs accruals of $54.3 million and higher accrued expenses due to an increase in our cost base to support revenue growth of $22.4 million.

• Other drivers decreasing cash flows in 2021 compared to 2020 included:

income tax payments, net of refunds, of $29.3 million, primarily due to higher advance income tax payments on higher net income.

Investing Activities:

Cash flows used for investing activities were $114.3 million for the year ended December 31, 2021 as compared to cash flows used for investing activities of $18.3 million for the year ended December 31, 2020.

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.

The increase of $96.0 million was primarily due to an increase in cash used for a business acquisition of $76.8 million, net of cash and cash equivalents acquired, during the year ended December 31, 2021, net purchase of investments of $1.5 million during the year ended December 31, 2021 as compared to net redemption of investments of $23.7 million during the year ended December 31, 2020.

This was partially offset by lower capital expenditures for purchase of long-lived assets, including investments in infrastructure, technology assets, software and product developments of $5.3 million during the year ended December 31, 2021 compared to the year ended December 31, 2020, and acquisition of an additional stake in our equity affiliate of $0.7 million during the year ended December 31, 2020.

Financing Activities:

Cash flows used for financing activities were $146.9 million during the year ended December 31, 2021 as compared to cash flows used for financing activities of $89.6 million during the year ended December 31, 2020.

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 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.

The increase in cash flows used for financing activities was primarily due to net repayment of $29.0 million under our revolving Credit Facility and the Notes during the year ended December 31, 2021 as compared to net repayments of $10.9 million during the year ended December 31, 2020, higher purchases of treasury stock by $38.4 million under our share repurchase program and lower proceeds from the exercise of stock options by $0.8 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

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 incurred $37.2 million of capital expenditures during the year ended December 31, 2021.

We expect to incur total capital expenditures of between $40 million to $45 million in 2022, 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 25 - 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.

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

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

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.

We believe that our existing cash, cash equivalents and short-term investments and sources of liquidity will be sufficient to satisfy our cash requirements over the next 12 months.

Our future cash requirements will depend on many factors, including our rate of revenue growth, our investments in strategic initiatives, applications or technologies, operation centers and acquisition of complementary businesses, continued purchases under our board-authorized stock repurchase program, which may require the use of significant cash resources and/or additional financing.

We anticipate that we will continue to rely upon cash from operating activities to finance most of our above mentioned requirements, while if we have significant growth through acquisitions, we may need to obtain additional financing.

In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future.

These obligations include borrowings, including interest obligations, purchase commitments, operating and finance lease commitments, employee benefit payments under Gratuity plans and uncertain tax positions.

See Note 17- Borrowings, Note 19- Employee Benefit Plans, Note 20- Leases, Note 21- Income Taxes and Note 25- Commitments and Contingencies to our consolidated financial statements herein for further information on material cash requirements from known contractual and other obligations.

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

As of December 31, 2021 and 2020, 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.

We had no other off-balance sheet arrangements or obligations.

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.

The deferred amount is payable as follows:

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

As of December 31, 2021 and 2020, we deferred our contributions, net of payments to FICA of $3.1 million and $6.3 million, respectively, under the CARES Act.

The deferred amount as of December 31, 2021 will be paid on or before December 31, 2022.

Financing Arrangements (Debt Facility and Notes)

The following tables summarizes our Debt balances as of December 31, 2021 and 2020.

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

As of December 31, 2021 As of December 31, 2020

(dollars in millions) (dollars in millions)

Revolving Credit Facility Total Revolving Credit Facility Notes Total

Current portion of long-term borrowings $ 260.0 $ 260.0 $ 25.0 $ — $ 25.0

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Total borrowings $ 260.0 $ 260.0 $ 89.0 $ 138.0 $ 227.0

*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.

*Unamortized debt issuance costs for our revolving Credit Facility of $0.2 million and $0.5 million as of December 31, 2021 and December 31, 2020, respectively, are presented under “Other current assets” and “Other assets,” as applicable in our 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 our July 2018 acquisition of SCIO.

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 our July 2018 acquisition of SCIOinspire Holdings, Inc.

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.

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:-

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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.

The Credit Agreement contains affirmative and negative covenants, including, but not limited to, restrictions on the ability to incur indebtedness, create liens, make certain investments, make certain dividends and related distributions, enter into, or undertake, certain liquidations, mergers, consolidations or acquisitions and dispose of assets or subsidiaries.

The Credit Agreement contains customary affirmative and negative covenants, including, but not limited to, restrictions on the ability to incur indebtedness, create liens, make certain investments, make certain dividends and related distributions, enter into, or undertake, certain liquidations, mergers, consolidations or acquisitions and dispose of assets or subsidiaries.

In addition, the Credit Agreement contains a covenant to not permit the interest coverage ratio or the total net leverage ratio, both as defined for the four consecutive quarter period ending on the last day of each fiscal quarter, to be less than 3.5 to 1.0 or more than 3.0 to 1.0, respectively.

3 unchanged sentences

Convertible Senior 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”).

principal amount of 3.5% 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.

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 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.

The estimated fair value of the liability component at issuance of $133.1 million was determined using a discounted cash flow technique, which considered debt issuances with similar features of our debt, excluding the conversion feature.

The resulting effective interest rate for the Notes was 5.75% per annum.

The excess of the gross proceeds received over the estimated fair value of the liability component totaling $16.9 million, was allocated to the conversion feature (equity component, recorded as additional paid-in capital) with a corresponding offset recognized as a discount to reduce the net carrying value of the Notes.

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, 2020 and 2019, we recognized interest expense and amortization of debt discount, on the Notes as below:

The Notes carried interest at a rate of 3.5% per annum, payable semi-annually in arrears in cash on April 1 and October 1 of each year.

The Notes were 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).

We had the option to 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 our common stock exceeded 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 had the option 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.

On August 27, 2021, we entered into a Payoff and Termination Agreement (the “Payoff and Termination Agreement”) with the Purchaser, pursuant to which we prepaid and settled our outstanding obligations under the Notes for an aggregate consideration of $236.7 million, excluding accrued and unpaid interest under the Notes calculated through and including, August 26, 2021, in the form of a combination of cash and shares of our common stock.

As a result, we made a cash payment of $200.0 million to the Purchaser and satisfied the remainder of the obligation under the Notes by issuing to the Purchaser 310,394 shares of our common stock calculated at $118.37 per share based on a 20-day volume weighted average price ending on, and including, August 26, 2021.

We satisfied the cash payment obligation under the Payoff and Termination Agreement by drawing $200.0 million from our existing revolving Credit Facility, and our common stock was issued from our existing treasury shares.

In addition, except as set forth in the Payoff and Termination Agreement, the Investment Agreement was also terminated.

See Note 17 - Borrowings and Note 18 - Capital Structure to our consolidated financial statements herein for further details.

During the years ended December 31, 2021 and 2020, we recognized interest expense and amortization of debt discount, on the Notes as below:

Year ended December 31,

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Amortization of debt discount on the Notes $ 1.8 $ 2.6

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.

We do not anticipate paying any cash dividends in the foreseeable future.

Off-Balance Sheet Arrangements

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

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.

We had no other off-balance sheet arrangements or obligations.

Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2020:

Payment Due by Period

Less than 1-3 4-5 After

1 year years years 5 years Total

(dollars in millions)

Finance leases $ 0.3 $ 0.3 $ — $ — $ 0.6

Operating leases (a)

25.8 46.4 26.8 34.4 133.4

Purchase obligations 6.1 — — — 6.1

Other obligations (b)

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.

These units are exempt from customs, central excise duties, and levies on imported and indigenous capital goods, stores, and spares.

We have undertaken to pay custom duties, service taxes, levies, and liquidated damages payable, if any, in respect of imported and indigenous capital goods, stores, and spares consumed duty free, in the event that certain terms and conditions are not fulfilled.

We believe, however, that these units have in the past satisfied and will continue to satisfy the required conditions.

Our operations centers in the Philippines are registered with the Philippine Economic Zone Authority (“PEZA”).

The registration provides us with certain fiscal incentives on the import of capital goods and local purchase of services and materials and requires that ExlService Philippines, Inc.

to meet certain performance and investment criteria.

We believe that these centers have in the past satisfied and will continue to satisfy the required criteria.

Recent Accounting Pronouncements

1 unchanged sentence

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