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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-24 · 236 added, 267 removed, 363 unchanged (58% of the section changed)

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

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.

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

Cautionary Note Regarding Forward-Looking Statements

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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 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 and our ability to withstand the loss of a significant client;

• negative public reaction in the U.S.

or elsewhere to offshore outsourcing;

• our ability to maintain and grow client demand for our services and solutions, including anticipating and incorporating the latest technology into our offerings;

• fluctuations in our earnings;

• our ability to attract and retain clients including in a timely manner;

• our ability to successfully consummate or integrate strategic acquisitions;

• our ability to hire and retain enough sufficiently trained employees to support our operations or any changes in the senior management team;

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

• restrictions on immigration;

• our ability to hire and retain enough sufficiently trained employees to support our operations;

• our ability to adjust our pricing terms or effectively manage our asset utilization levels to meet the changing demands of our clients and potential clients;

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

• reliance on third parties to deliver services and infrastructure for client critical services;

• failure to protect our intellectual property;

• 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;

• our ability to grow our business or effectively manage growth and international operations;

• any changes in the senior management team;

• our ability to successfully consummate or integrate strategic acquisitions including the impact from the impairment of goodwill and other intangible assets, if any;

• increasing competition in our industry;

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

• 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;

• telecommunications or technology disruptions or breaches, natural or other disasters, medical epidemics or pandemics, such as COVID-19, or acts of violence or war;

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

• legal liability arising out of customer and third party contracts;

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

• our financial condition could be negatively affected if governments in the countries we operate in introduces new unfavorable tax legislation;

• changes in tax laws or decisions regarding repatriation of funds held abroad;

• exposure to currency exchange rate fluctuations in the various currencies in which we do business including the potential effects of Russian-Ukraine conflict, rising inflation, high interest rates and economic recessionary trends on currency exchange rates;

• restrictions on immigration;

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

Inception of interest rate swaps to hedge interest rate risk;

• negative public reaction in the U.S.

or elsewhere to offshore outsourcing;

• effects of political and economic conditions globally, particularly in the geographies where we operate;

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

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

• legal liability arising out of customer contracts;

• technological innovation;

• 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 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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The forward-looking statements made by us in this Annual Report on Form 10-K, or elsewhere, speak only as of the date on which they were made.

New risks and uncertainties come up from time to time, and it is impossible for us to predict those events or how they may affect us.

New risks and uncertainties may come up from time to time, and it is impossible for us to predict those events or how they may affect us.

We have no obligation to update any forward-looking statements in this Annual Report on Form 10-K after the date of this Annual Report on Form 10-K, except as required by federal securities laws.

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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.

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

Our reportable segments are as follows:

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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 Republic of Ireland, the Philippines, Bulgaria, Colombia, South Africa, Romania and the Czech Republic.

On June 10, 2022, we acquired certain assets of Inbound Media Group, LLC (“Inbound”), a digital marketing business focused primarily on lead generation in the insurance space.

The acquisition expands our digital direct-to-consumer marketing services by adding proven performance marketing, lead generation and customer engagement capabilities to our suite of end-to-end marketing solutions, proprietary data sets and robust consumer analytics.

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

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.

It provides 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.

Impact of COVID-19 on Our Business

During 2022, we continued to recover from the COVID-19 pandemic.

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.

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.

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, which has led to increased demand for digital capabilities.

In 2022, we implemented a new work standard under which employees in many of our locations, where permitted by local laws and regulations, and where the role and client requirements permit, have the opportunity to choose between different work arrangements.

Subject to local rules and regulations, these work arrangements include working in a hybrid arrangement or a fully remote arrangement, with occasional work from the office when warranted.

We have begun to re-open our operation centers and offices globally with a focus on safety and consistency with applicable local regulations.

While many of the COVID-19 related restrictions have been lifted in the geographies in which we operate, there have been periodic resurgences of COVID-19 as a result of new strains and variants, which has led us to monitor our work model and / or implement additional safety procedures.

We believe our actions have been successful and that the pandemic has not significantly affected our business, results of operations, financial position and cash flow during 2022, however the impact of the pandemic for the period beyond 2022 will depend on many evolving and uncertain 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.

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

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

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

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

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

For the year ended December 31, 2022, we generated revenues of $1,412.0 million compared to revenues of $1,122.3 million for the year ended December 31, 2021, an increase of $289.7 million, or 25.8%.

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For the years ended December 31, 2022 and 2021, our total revenues from our top ten clients accounted for 34.9% and 38.1% of our total revenues, respectively.

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

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

Although we continue to develop relationships with new clients to diversify our client base, we believe that the loss of any of our top ten clients could have a material adverse effect on our financial performance.

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.

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

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.

This typically involves 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.

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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.

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

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.

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

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

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

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

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

We have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their digital operations and solutions needs to seek more favorable contract terms and diversification of the risk of concentration on a few vendors.

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

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

Our 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.

Our analytics services aim to drive better business outcomes for our clients by unlocking deep insights from data and creating data-led solutions across all parts of our clients’ business.

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

We also offer integrated solutions to help our clients in cost containment by leveraging technology platforms, customizable and configurable analytics and expertise in healthcare reimbursements to help clients enhance their claim payment accuracy.

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 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.

Our Analytics teams deliver predictive and prescriptive analytics in the areas of customer acquisition and life cycle management, risk underwriting and pricing, operational effectiveness, credit and operational risk monitoring and governance, regulatory reporting 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 AI and ML capabilities and proprietary solutions to create insights, improve decision making for our clients and address a range of complex industry-wide priorities.

Our acquisition of Clairvoyant in December 2021 strengthens our data analytics capabilities with additional expertise in data and product engineering, cloud enablement and managed services, 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.

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A significant increase in the turnover rate among our employees, particularly among the highly skilled workforce needed to execute certain services, would increase our recruiting and training costs and decrease our operating efficiency, productivity and profit margins.

In addition, cost of revenues also includes non-cash amortization of stock compensation expense relating to our issuance of equity awards to employees directly involved in providing services to our clients.

We expect our cost of revenues to continue to increase as we continue to add professionals in our operating centers globally to service additional business and as wages continue to increase globally.

In particular, we expect training costs to continue to increase as we continue to add staff to service new clients and provide existing staff with additional skill sets.

In addition, cost of revenues also includes non-cash amortization of stock-based compensation expense related to the grant of our equity awards to employees directly involved in providing services to our clients.

We expect our cost of revenues to continue to increase as we continue to add professionals in our operations centers globally to service additional business and as wages continue to increase globally.

In particular, we expect recruitment and training costs to continue to increase as we hire additional staff to service new clients and train existing staff to provide them with evolving skill sets.

There is significant competition for professionals with skills necessary to perform the services we offer to our clients.

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 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 also expect that we will continue to incur additional costs to monitor and improve operational efficiency of our hybrid and remote working models, invest in information technology solutions, including adaption to evolving modes of seeking such solutions through cloud-based hosting arrangements 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.” 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.

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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.

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), cost of technology solutions sought through evolving modes of cloud-based hosting arrangements, investment in product development, digital technology, advanced automation and robotics, cloud, AI and MI, bad debt allowance and stock-based compensation expenses related to grant of our 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.

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Depreciation and Amortization Expense

Depreciation and amortization pertains to depreciation of our tangible assets, including network equipment, cabling, computers, office furniture and equipment, motor vehicles and leasehold improvements and amortization of intangible assets.

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.

Depreciation and amortization pertains to depreciation of our property and equipment, including network equipment, cabling, computers, office furniture and equipment, motor vehicles and leasehold improvements and amortization of intangible assets acquired in business combinations.

As part of our ongoing evaluation of our business needs, we continually optimize our

operations centers and expect depreciation to decrease on assets related to operations centers, such as office furniture and equipment and leasehold improvements.

As our business continues to expand we expect additional investments in digital technologies and equipment, including laptops, desktop computers, servers and other infrastructure, and increased reliance on hybrid and remote working models, we expect increases in depreciation on assets-related to such investments.

The property and equipment that are evaluated as being used differently than as originally intended are assessed for revision of their useful life, thereby revising their future depreciation to reflect the actual use of such property and equipment over the remaining shortened life.

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

Foreign Exchange

We report our financial results in the U.S.

Foreign Exchange gain, net

We report our financial results in U.S.

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

pound sterling (8.6% and 8.3%, respectively, for the years ended December 31, 2021 and 2020), while a significant portion of our expenses are incurred and paid in Indian rupees (29.4% and 27.2%, respectively, of our total costs for the years ended December 31, 2021 and 2020) and the Philippine peso (9.5% and 11.5%, of our total costs for the years ended December 31, 2021 and 2020).

pound sterling (8.6% for each of the years ended December 31, 2022 and 2021), while a significant portion of our expenses are incurred and paid in the Indian rupee, the Philippine peso and the U.K.

pound sterling, representing 29.1%, 8.2% and 3.0%, respectively, of our total expenses in the year ended December 31, 2022, compared to 29.4%, 9.5% and 3.4%, respectively, of our total expenses in the year ended December 31, 2021.

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

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pound sterling appreciate or depreciate against the U.S.

See Note 2 - Summary of Significant Accounting Policies and Note 16 - Derivatives and Hedge Accounting to our consolidated financial statements and Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Risk.”

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

Interest Expense

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

Other Income, net

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

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

Our tax expense and cash tax liability in the future could be adversely affected by various factors, including, but not limited to, changes in tax laws, regulations, accounting principles or interpretations and the potential adverse outcome of tax examinations.

Changes in the valuation of deferred tax assets and liabilities, which may result from a decline in our profitability or changes in tax rates or legislation, could have a material adverse effect on our tax expense.

During the year 2018, we made an election to change the tax status of most of our controlled foreign corporations (“CFC”) to disregarded entities for U.S.

income tax purposes.

As a result, we no longer have undistributed earnings in connection with these CFCs.

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 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.

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

Other Income/(Loss), net

Other income/(loss), net primarily consists of gain/(loss) on sale, mark to market, dividend income and interest income on our short-term and long-term investments, cash equivalents, as applicable.

Other income/(loss), net also consists of changes in fair value of contingent consideration related to business combinations, interest on refunds received from income tax authorities in India on completion of tax assessments, profit or loss on disposal of long-lived assets and components of net periodic benefit cost such as interest cost, expected return on plan assets and amortization of actuarial gain or loss.

We are subject to taxes in the countries we operate in.

Our future tax liabilities could be adversely affected by any new unfavorable tax legislative and other changes in such countries.

We continuously monitor such changes to assess and quantify the potential impacts on our consolidated financial statements.

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.

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.

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

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

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

The tax holiday expired for few of our 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 currently benefit from corporate tax holidays in our qualified Philippines Economic Zone Authority operations centers in the Philippines.

Our ability to utilize these tax holidays could be adversely affected by any new unfavorable tax legislative changes.

We continuously monitor such changes to assess and quantify any potential impacts on our consolidated financial statements.

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.

We determine if a valuation allowance is required or not on the basis of an assessment of whether it is more likely than not that a deferred tax asset will be realized.

We determine if a valuation allowance is required on the basis of an assessment of whether it is more likely than not that a deferred tax asset will be realized.

Critical Accounting Policies and Estimates

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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 and borrowings.

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.

These policies include revenue recognition, allowance for expected credit losses, business combinations, goodwill, other intangible assets and long-lived assets, stock-based compensation, employee benefits, derivative financial instruments and hedging, leases and income taxes.

The significant estimates and assumptions that affect the financial statements include, but are not limited to, estimates of the fair value of the derivative financial instruments, stock-based awards, identifiable intangible assets and contingent consideration, assumptions related to credit risk of customers, 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, assets and obligations related to employee benefit plans, determination of incremental borrowing for measuring lease liabilities, deferred tax assets and liabilities, deferred tax valuation allowances, income-tax contingencies, purchase price allocation, revenue projections and discount rate applied within the discounted cash flow model.

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

Future events may not develop exactly as forecasted and estimates routinely require adjustment.

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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.

We recognize revenue when we satisfy a performance obligation by providing services to a customer.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer, are excluded from revenue.

Revenue is measured based on consideration specified in a contract with a customer and excludes value added tax, business tax, any applicable discounts and amounts collected on behalf of third parties.

Reimbursements of out-of-pocket expenses are included as a part of revenue.

Significant judgments

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In instances where the standalone selling price is not directly observable, it is determined using information that may include market conditions and other observable inputs.

The contracts with our clients may be modified to add, remove or change existing performance obligations, which requires judgment to evaluate and determine whether such performance obligations are to be accounted for on a prospective basis as a separate contract or as a termination of an existing contract and creation of a new contract.

Variable Consideration

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

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

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

Incurred cost represents work performed, which corresponds with, and thereby reasonably reflects 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.

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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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.

Based on guidance on “variable consideration” in Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 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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In such contracts, our consideration is contingent upon and collectable only when the actual collections are made by our clients.

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

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.

unbilled receivables) are presented under accounts receivable.

unbilled receivables) are presented under accounts receivable, net.

Deferred Revenue and contract fulfillment costs

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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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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 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.

We account for all business combinations using the acquisition method of accounting as prescribed by 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

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

In addition, assets acquired and liabilities assumed including uncertain tax positions and tax-related valuation allowances in connection with business combinations are initially estimated as of the acquisition date.

We subsequently re-evaluate the assets acquired and liabilities assumed, including additional assets and liabilities identified subsequent to acquisition date, with any adjustments to our preliminary estimates being recorded to goodwill within the measurement period (up to one year from the acquisition date).

Goodwill, Other Intangible Assets and Long-lived Assets

Goodwill represents the cost of the acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased in a business combination.

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We test for goodwill impairment at the reporting unit level.

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.

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

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

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate.

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Actual results may differ from those assumed in our forecasts.

Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units.

The discount rate is mainly based on judgment of the specific risk inherent within each reporting unit.

The discount rate is based on judgment of the specific risk inherent in the future cash flows of the respective reporting units.

The variables within the discount rate, many of which are outside of our control, provide us best estimate of all assumptions applied within the DCF model.

Discount rates used in our reporting unit valuations range from 12.0% to 12.1%.

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

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

The market approach is used to corroborate the results of the income approach.

The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions and other factors.

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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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Stock-based Compensation

Under the fair value recognition provisions of ASC Topic 718, Compensation-Stock Compensation (“ASC No.

718”), cost is measured at the grant date based on the fair value of the award and is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

Under the fair value recognition provisions of ASC Topic 718, Compensation-Stock Compensation , cost is measured at the grant date based on the fair value of the award and is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

Determining the fair value of stock-based awards at the grant date requires significant judgment, including estimating the expected term over which the stock awards will be outstanding before they are exercised and the expected volatility of our stock.

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

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

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

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

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

Generally, we grant PRSUs cliff vest based on an aggregated revenue target (“PUs”) for a three-year period, while grants based on market conditions (“MUs”) are contingent on meeting or exceeding the total shareholder return relative to a group of peer companies specified under the 2018 Plan, and are measured over a three-year performance period.

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

However, the features of our equity incentive compensation program are subject to change by the Compensation and Talent Management Committee of our board of directors.

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

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If actual results differ significantly from our estimates, stock-based compensation expense and our results of operations could be materially affected.

Derivative Instruments and Hedging Activities

In the normal course of business, we actively look to mitigate the exposure of foreign currency market risk associated with forecasted transactions denominated in certain foreign currencies and to minimize earnings and cash flow volatility associated with changes in foreign currency exchange rates by entering into various foreign currency exchange forward contracts, with counterparties that are highly rated financial institutions.

We hedge forecasted transactions that are subject to foreign exchange exposure with foreign currency exchange contracts that qualify as cash flow hedges.

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 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.

Stock-based compensation expense associated with our 2022 Employee Stock Purchase Plan is measured at fair-value using a Black-Scholes option-pricing model at commencement of each offering period and recognized over that offering period.

Derivative Instruments

In the normal course of business, we use derivative instruments to mitigate the exposure from risk of foreign currency and interest rate fluctuations.

We enter into foreign currency forward contracts to hedge cash flow risks from forecasted transactions denominated in certain foreign currencies, and interest rate swaps to hedge cash flow risks from our revolving credit facility having variable interest rate obligations.

These contracts adhere to our treasury operations’ objectives and policies to qualify as cash flow hedges, and are with counterparties that are highly rated financial institutions.

Changes in the fair value of these cash flow hedges are recorded as a component of accumulated other comprehensive income/(loss) (“AOCI”), net of tax.

The resultant foreign exchange gain/(loss) upon settlement of cash flow hedges of a forecast transaction are recorded in the consolidated statements of income 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.

The accumulated changes in the fair value of interest rate swaps recognized in AOCI are reclassified to our consolidated statements of income and are presented as a part of “Interest expense” over the term of the contract.

We evaluate hedge effectiveness of cash flow hedges at the time a contract is entered into as well as on an ongoing basis.

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

We also use derivative instruments consisting of foreign currency forward contracts to hedge intercompany balances and other monetary assets or liabilities denominated in currencies other than the functional currency, against the risk of foreign currency fluctuations associated with remeasurement of such assets and liabilities to functional currency.

These derivatives do not qualify as fair value hedges.

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

Changes in the fair value of these derivatives are recognized in our consolidated statements of income and are included in foreign exchange gain, net.

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

Fair value changes on these forward contracts and gains and losses on settlement of such forward contracts are recognized in AOCI as part of the foreign currency translation adjustments and are reclassified to consolidated statements of income when a foreign operation is disposed or partially disposed.

All of the assets and liabilities related to our forward contracts are subject to master netting arrangements with each individual counterparty.

These master netting arrangements generally provide for net settlement of all outstanding contracts

with the counterparty in the case of an event of default or a termination event.

We present all of the assets and liabilities related to these contracts on a gross basis, with no offsets, in our consolidated statements of financial position.

There is no financial collateral (including cash collateral) provided or received by us related to these contracts.

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

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The quotes are taken primarily from independent sources, including highly rated financial institutions.

We evaluate hedge effectiveness of cash flow hedges at the time a contract is entered into as well as on an ongoing basis.

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

470-20, Debt with Conversion and Other Options.

We separate the convertible notes into liability and equity components.

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

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

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

815-15, Derivatives and Hedging - Embedded Derivatives (“ASC 815-15”), is applied to determine if any of those features must be separately accounted for as a derivative instrument.

The estimated fair value of the liability component at issuance is determined using a discounted cash flow technique, which considers debt issuances with similar features of our convertible notes, excluding the conversion feature.

The excess of the gross proceeds received over the estimated fair value of the liability component is allocated to the BCF, which is credited to additional paid-in-capital with a corresponding offset recognized as a discount to reduce the net carrying value of the convertible notes.

The discount is being amortized to interest expense over the expected term of the convertible notes using the effective interest method.

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.

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.

We release (reclassify) the tax effects from AOCI to the consolidated statements of income at the time of settlement of cash flows hedges and amortization of deferred actuarial gain/(loss) on retirement benefits.

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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Such reserves are based on estimates and, consequently, are subject to changing facts and circumstances, including the progress of ongoing audits, changes in case law and the passage of new legislation.

We believe that we have established adequate reserves to cover any current tax assessments.

During the year 2018, we made an election to change the tax status of most of our controlled foreign corporations (“CFC”) to disregarded entities for U.S.

income tax purposes.

As a result, we no longer have undistributed earnings in connection with these CFCs.

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 which will be recorded in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions.

See Note 21 - Income Taxes to our consolidated financial statements contained herein.

We have established adequate reserves to cover any potential tax contingencies or claims.

We have adopted an accounting policy to treat Global Intangible Low-Taxed Income as a period cost.

Financial Accounting Standards Board Interpretation No.

48, Accounting for Uncertainty in Income Taxes , requires companies to recognize, measure, present and disclose uncertain tax positions.

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

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The second step is to measure the tax benefit as the largest amount of the tax benefit that is more likely than not to be realized upon settlement.

We have established adequate reserves to cover all uncertain tax positions.

We base our decision to continue to indefinitely reinvest earnings from our foreign subsidiaries on our estimate of the working capital required to support operations in these geographies.

In addition, we periodically review our capital initiatives to support and expand our global operations, as well as whether there exists an economically viable rate of return on our investments in these geographies, as compared to those made in the United States.

Employee Benefits

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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 19 - 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/(loss), net.” See Note 20 - Employee Benefit Plans to our consolidated financial statements for details.

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

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

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

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

Lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Operating lease ROU assets are recognized at commencement date in an amount equal to lease liability, adjusted for any lease prepayments, initial direct costs and lease incentives.

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

We determine the incremental borrowing rate by adjusting the benchmark reference rates with appropriate financing spreads applicable to the respective geographies where we entered into leases and lease specific adjustments for the effects of collateral.

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

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

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

Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term.

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

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

We evaluate lease agreements to determine lease and non-lease components, which are accounted for separately.

Lease payments that depend on factors other than an index or rate are considered variable lease payments and are excluded from the operating lease assets and liabilities and are recognized as expense in the period in which the obligation is incurred.

Lease payments include payments for common area maintenance, utilities such as electricity, heating and water, among others, and property taxes, and other similar payments paid to the landlord, which are treated as non-lease component.

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

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

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

We review the ROU assets for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable.

Contingencies

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For a discussion of our results of operations for the year ended December 31, 2020, including a year-to-year comparison between 2021 and 2020, 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, 2021.

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

The following table summarizes our results of operations:

Year ended December 31,

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Depreciation and amortization expense 56.3 49.1 50.5

Impairment and restructuring charges — — 8.7

Total operating expenses 323.3 275.5 224.5

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Income before earnings from equity affiliates 142.6 114.7 89.7

Loss from equity-method investment — (0.2) (0.3)

Gain/(loss) from equity-method investment 0.4 — (0.2)

Net income attributable to ExlService Holdings, Inc.

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

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

The following table summarizes our revenues by reportable segments:

Year ended December 31, Percentage

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Total revenues, net $ 1,412.0 $ 1,122.3 $ 289.7 25.8 %

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.

Revenues for the year ended December 31, 2022 were $1,412.0 million, up $289.7 million, or 25.8%, compared to the year ended December 31, 2021, driven primarily by revenue growth from our new and existing clients in the Analytics, Emerging Business and Insurance reportable segments.

Revenue growth in Insurance of $66.7 million was primarily driven by expansion of business from our new and existing clients of $71.7 million.

This was partially offset by a loss of $5.0 million mainly attributable to the depreciation of the U.K.

pound sterling, the Australian dollar and the Indian rupee against the U.S.

dollar during the year ended December 31, 2022, compared to the year ended December 31, 2021.

Insurance revenues were 31.8% and 34.0% of our total revenues during the years ended December 31, 2022 and 2021, 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.

Revenue decline in Healthcare of $15.0 million was primarily driven by the ramp-down in certain existing clients during the year ended December 31, 2022.

Healthcare revenues were 6.9% and 10.0% of our total revenues during the years ended December 31, 2022 and 2021, 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.

Revenue growth in Emerging Business of $51.4 million was primarily driven by expansion of business from our new clients and existing clients of $58.0 million.

This was partially offset by a loss of $6.6 million mainly attributable to the depreciation of the U.K.

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

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Emerging Business revenues were 15.5% and 14.9% of our total revenues during the years ended December 31, 2022 and 2021, 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.

Revenue growth in Analytics of $186.6 million was primarily driven by higher volumes in our annuity and project based engagements from our new and existing clients of $144.1 million, and an incremental contribution from our acquisition of Clairvoyant in December 2021 of $47.4 million.

This was partially offset by a loss of $4.9 million mainly attributable to the depreciation of the U.K.

pound sterling against the U.S.

dollar during the year ended December 31, 2022, compared to the year ended December 31, 2021.

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For the year ended December 31, 2022, cost of revenues was $896.6 million compared to $690.9 million for the year ended December 31, 2021, an increase of $205.7 million, or 29.8%.

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.

Our gross margin for the year ended December 31, 2022 was 36.5% compared to 38.4% for year ended December 31, 2021, a decrease of 190 basis points (“bps”) primarily driven by lower margins associated with higher costs during ramp-ups in certain new clients and higher employee-related costs during the year ended December 31, 2022, compared to the year ended December 31, 2021.

The increase in cost of revenues in Insurance of $48.2 million for the year ended December 31, 2022 was primarily due to

increases in employee-related costs of $47.3 million on account of higher headcount and wage inflation, higher technology costs of $7.3 million on account of increased leverage of the hybrid and remote working models and higher travel costs of $1.6 million, partially offset by foreign exchange gain, net of hedging of $7.3 million and lower other operating costs of $0.7 million.

Gross margin in Insurance decreased by 140 bps during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to lower margins associated with higher costs during ramp-ups in certain new clients during the year ended December 31, 2022, compared to the year ended December 31, 2021.

The increase in cost of revenues in Healthcare of $1.2 million for the year ended December 31, 2022 was primarily due to

increases in employee-related costs of $3.5 million on account of higher headcount and wage inflation, and higher technology costs of $0.6 million on account of increased leverage of the hybrid and remote working models, partially offset by lower facilities cost of $1.1 million and foreign exchange gain, net of hedging of $1.8 million.

Gross margin in Healthcare decreased by 1,080 bps during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to lower revenues associated with the ramp-down of certain existing clients and higher operating expenses associated with the ramp-down of certain existing clients during the year ended December 31, 2022, compared to the year ended December 31, 2021.

The increase in cost of revenues in Emerging Business of $36.3 million for the year ended December 31, 2022 was primarily due to increases in employee-related costs of $34.5 million on account of higher headcount and wage inflation, higher technology costs of $4.0 million on account of increased leverage of the hybrid and remote working models, higher travel costs of $2.3 million, higher facilities costs of $1.2 million, partially offset by foreign exchange gain, net of hedging of $5.7 million.

Gross margin in Emerging Business decreased by 370 bps during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to lower margins associated with higher costs during ramp-ups in certain new clients, higher employee-related costs and higher operating expenses during the year ended December 31, 2022, compared to the year ended December 31, 2021.

The increase in cost of revenues in Analytics of $120.0 million for the year ended December 31, 2022 was primarily due to increases in employee-related costs of $113.0 million on account of higher headcount and wage inflation, including incremental cost related to our acquisition of Clairvoyant in December 2021.

The remaining increase was attributable to higher travel costs of $4.5 million, higher technology costs of $3.5 million on account of increased leverage of the hybrid and remote working models and higher other operating costs of $9.6 million.

This was partially offset by foreign exchange gain, net of hedging of $10.6 million.

Gross margin in Analytics decreased by 40 bps during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to increases in employee-related costs and higher operating expenses during the year ended December 31, 2022, compared to the year ended December 31, 2021.

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

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As a percentage of revenues 18.9 % 20.2 %

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.

The increase in SG&A expenses of $40.6 million was primarily due to higher employee-related costs of $32.4 million on account of higher headcount and wage inflation, including incremental costs related to our acquisition of Clairvoyant in December 2021, increase in technology costs of $9.3 million on account of continued investments in digital capabilities, higher travel costs of $4.0 million and higher other operating costs of $1.3 million.

This was partially offset by foreign exchange gain, net of hedging of $3.7 million, during the year ended December 31, 2022 and COVID-19 related expenses of $2.7 million during the year ended December 31, 2021.

Depreciation and Amortization.

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As a percentage of revenues 4.0 % 4.4 %

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 $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.

The increase in intangibles amortization expense of $4.3 million was primarily due to amortization of intangibles associated with our acquisitions of Clairvoyant and Inbound in December 2021 and June 2022, respectively, partially offset by decrease in intangibles amortization expense due to end of useful lives for certain intangible assets during the year ended December 31, 2022, compared to the year ended December 31, 2021.

The increase in depreciation expense of $2.9 million was primarily due to depreciation of $4.3 million related to our investments in digital capabilities, computers and networking equipment, partially offset by foreign exchange gain, net of hedging of $1.4 million during the year ended December 31, 2022, compared to the year ended December 31, 2021.

Income from Operations.

Income from operations increased by $36.2 million, or 23.3%, from $155.9 million for the year ended December 31, 2021 to $192.1 million for the year ended December 31, 2022, primarily due to higher revenues, partially offset by higher cost of revenues and higher SG&A expenses during the year ended December 31, 2022.

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 Gains and Losses.

As a percentage of revenues, income from operations decreased from 13.9% for the year ended December 31, 2021 to 13.6% for the year ended December 31, 2022.

Foreign Exchange Gain, net.

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

dollar against the Indian rupee, the U.K.

pound sterling, the Philippine peso and the South African ZAR during the year ended December 31, 2021.

dollar against the Indian rupee, the Philippine peso, the U.K.

pound sterling and the South African ZAR during the year ended December 31, 2022.

The average exchange rate of the U.S.

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.

dollar against the Indian rupee increased from 73.88 during the year ended December 31, 2021 to 78.81 during the year ended December 31, 2022.

The average exchange rate of the U.S.

dollar against the Philippine peso increased from 49.36 during the year ended December 31, 2021 to 54.47 during the year ended December 31, 2022.

The average exchange rate of the U.K.

pound sterling against the U.S.

dollar increased from 1.29 during the year ended December 31, 2020 to 1.38 during the year ended December 31, 2021.

The average exchange rate of the U.S.

dollar against the Philippine peso decreased from 49.49 during the year ended December 31, 2020 to 49.36 during the year ended December 31, 2021.

dollar decreased from 1.38 during the year ended December 31, 2021 to 1.23 during the year ended December 31, 2022.

The average exchange rate of the U.S.

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.

dollar against the South African ZAR increased from 14.92 during the year ended December 31, 2021 to 16.44 during the year ended December 31, 2022.

We recorded a foreign exchange gain, net of $6.2 million for the year ended December 31, 2022 compared to a foreign exchange gain, net of $4.3 million for the year ended December 31, 2021.

Interest expense .

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.

Interest expense increased from $7.6 million for the year ended December 31, 2021 to $8.2 million for the year ended December 31, 2022, primarily due to a higher average outstanding amount under our revolving credit facility, which had a higher effective interest rate of 2.9% during the year ended December 31, 2022, compared to 1.7% during the year ended December 31, 2021, partially offset by a decrease in interest expense on the Notes due to settlement of outstanding obligations under the Notes (as defined below under “Financing Arrangements (Debt Facility and Notes)”) on August 27, 2021.

Other Income/(Loss), net.

Year ended December 31, Percentage

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(dollars in millions)

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

Fair value changes of contingent consideration $ (8.3) $ — $ (8.3) (100.0) %

Gain on sale and mark-to-market on investments 4.9 4.9 — — %

Interest and dividend income 5.2 2.7 2.5 91.8 %

Others, net (1.8) (0.8) (1.0) 124.6 %

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

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.

Other income/(loss), net $ — $ 6.8 $ (6.8) (100.0) %

Other income/(loss), net decreased by $6.8 million, from a net income of $6.8 million for the year ended December 31, 2021 to $nil for the year ended December 31, 2022.

The decrease is primarily due to an increase in the fair value of contingent consideration related to our Clairvoyant acquisition by $8.5 million as a result of strong operational performance.

This was partially offset by higher interest income on our short-term and long-term investments of $1.8 million.

Loss on settlement of Notes.

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Income Tax Expense .

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.

The effective tax rate increased from 21.7% during the year ended December 31, 2021 to 25.0% during the year ended December 31, 2022.

We recorded income tax expense of $47.5 million and $31.9 million for the years ended December 31, 2022 and 2021, 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.

The increase in income tax expense was primarily as a result of higher profit during the year ended December 31, 2022, compared to the year ended December 31, 2021, an increase in state taxes and an increase in non-deductible expenses, partially offset by higher excess tax benefits related to stock-based compensation.

Net income increased from $114.7 million for the year ended December 31, 2021 to $143.0 million for the year ended December 31, 2022, primarily due to increase in income from operations of $36.2 million, loss on settlement of the Notes of $12.8 million during the year ended December 31, 2021 and higher foreign exchange gain, net of $1.9 million, partially offset by higher income tax expense of $15.6 million and lower other income, net of $6.8 million.

As a percentage of revenues, net income decreased from 10.2% during the year ended December 31, 2021 to 10.1% during the year ended December 31, 2022.

Liquidity and Capital Resources

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As of December 31, 2022 and 2021, we had $297.7 million and $314.8 million, respectively, in cash, cash equivalents and short-term investments, of which $260.0 million and $278.3 million, respectively, is located in foreign jurisdictions that upon distribution may be subject to withholding and other taxes.

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.

We periodically evaluate opportunities to distribute cash among our group entities to fund our operations, expand our business and make strategic acquisitions in the United States and other geographies, and as and when we decide to distribute, we may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions.

Operating Activities:

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The major drivers contributing to the decrease of $18.3 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.

• Increase in accounts receivable, including unbilled receivable and deferred revenue, contributed to a lower cash flow of $15.2 million in 2022 compared to 2021.

Increase in accounts receivable was driven by revenue growth in 2022.

Cash flows were also affected by our accounts receivable days sales outstanding, which increased to 61 days as of December 31, 2022 from 56 days as of December 31, 2021.

• Increase in employee-related payments, partially offset by an increase in accrued expenses, accounts payable and operating lease liabilities contributed to a higher cash outflow of $23.9 million in 2022 compared to 2021.

The higher cash outflow was primarily due to higher payments for annual performance incentives and employee compensation aggregating to $40.9 million, partially offset by lower payments for operating expenses of $17.0 million in 2022.

• Increase in cash earnings including adjustments for non-cash and other items contributed higher cash flow of $19.4 million in 2022 compared to 2021.

These adjustments comprise of depreciation and amortization of long-lived assets and intangibles acquired in business combinations, share-based employee compensation, unrealized foreign currency exchange gain/loss, mark-to-market adjustments on investments, among others.

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 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.

Cash used for investing activities were $96.5 million for the year ended December 31, 2022 as compared to cash used for investing activities of $114.3 million for the year ended December 31, 2021.

The decrease of $17.7 million was primarily due to lower cash paid for business acquisitions of $3.9 million during the year ended December 31, 2022 as compared to $76.8 million during the year ended December 31, 2021.

This was partially offset by higher cash paid for net purchase of investments of $48.1 million during the year ended December 31, 2022 as compared to net purchase of investments of $1.5 million during the year ended December 31, 2021, and higher cash paid for purchase of long-lived assets, including investments in infrastructure, technology assets, software and product developments of $8.6 million during the year ended December 31, 2022 compared to the year ended December 31, 2021.

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 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.

Cash used for financing activities were $81.7 million during the year ended December 31, 2022 as compared to cash used for financing activities of $146.9 million during the year ended December 31, 2021.

The decrease of $65.2 million was primarily due to lower purchases of treasury stock by $45.7 million under our share repurchase program and net repayment of $10.0 million under our revolving credit facility during the year ended December 31, 2022 as compared to net repayments of $29.0 million during the year ended December 31, 2021.

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

We incurred $44.8 million of capital expenditures during the year ended December 31, 2022.

We expect to incur total capital expenditures of between $47 million to $52 million in 2023, 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 working capital needs, capital expenditures and smaller acquisitions.

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

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 the relevant authorities with respect to such assessment orders (see Note 25 - Commitments and Contingencies to our consolidated financial statements herein for further details).

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.

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As of December 31, 2022 and 2021, 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.

These are unlikely 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.

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, 2021 As of December 31, 2020

(dollars in millions) (dollars in millions)

Revolving Credit Facility Total Revolving Credit Facility Notes Total

The following table summarizes our debt position:

As of December 31

(dollars in millions)

Revolving credit facility

Current portion of long-term borrowings $ 30.0 $ 260.0

Long-term borrowings 220.0 —

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 $ 250.0 $ 260.0

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Credit Agreement

On November 21, 2017, we and each of our wholly owned material domestic subsidiaries entered into a Credit Agreement with certain lenders, and Citibank, N.A.

as Administrative Agent (the “Credit Agreement”).

The Credit Agreement provides for a $200.0 million revolving credit facility (the “Credit Facility”) with an option to increase the commitments by up to $100.0 million, subject to certain approvals and conditions as set forth in the Credit Agreement.

The Credit Agreement also includes a letter of credit sub facility.

The Credit Facility has a maturity date of November 21, 2022 and is voluntarily pre-payable from time to time without premium or penalty.

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 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.

We held a $300.0 million revolving credit facility pursuant to our credit agreement (the “Credit Agreement”), dated as of November 21, 2017 with certain lenders and Citibank N.A.

as Administrative Agent.

The revolving credit facility originally had a maturity date of November 21, 2022 and was voluntarily pre-payable from time to time without premium or penalty.

On April 18, 2022, we and each of our wholly owned material domestic subsidiaries entered into an Amendment and Restatement Agreement with Citibank, N.A.

as Administrative Agent and certain lenders (the “2022 Credit Agreement”), pursuant to which the parties thereto amended and restated the Credit Agreement.

Among other things, the 2022 Credit Agreement (a) provides for the issuance of new revolving credit commitments such that the aggregate amount of revolving

credit commitments available is equal to $400.0 million;

(b) extends the maturity date of the revolving credit facility from November 21, 2022 to April 18, 2027;

and (c) replaces London Inter-Bank Offered Rate (“LIBOR”) with Secured Overnight Financing Rate (“SOFR”) as the reference rate for the U.S.

dollar borrowings.

The 2022 Credit Agreement provides an option to increase the commitments by up to $200.0 million, subject to certain approvals and conditions.

The 2022 Credit Agreement includes a letter of credit sub facility and is voluntarily pre-payable from time to time without premium or penalty.

Borrowings under the 2022 Credit Agreement can be used for working capital and general corporate purposes, including permitted acquisitions.

Obligations under the 2022 Credit Agreement are guaranteed by our material domestic subsidiaries and are secured by all or substantially all of our and our material domestic subsidiaries’ assets.

The 2022 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 2022 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 3.0 to 1.0 or more than 3.5 to 1.0, respectively.

The 2022 Credit Agreement bears interest at a rate equal to specified prime rate (alternate base rate) or adjusted SOFR, 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 on loans pegged to the specified prime rate, and 0.88% to 1.75% per annum on loans pegged to the adjusted SOFR.

The revolving credit commitments under the 2022 Credit Agreement are subject to a commitment fee which is also tied to our total net leverage ratio, and ranges from 0.13% to 0.28% 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.

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Effective interest rate 2.9 % 1.7 %

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 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.

As of December 31, 2021, we were in compliance with all financial and non-financial covenants listed under the Credit Agreement.

We entered into a second amendment (the “Amendment”) to our Credit Agreement, as amended, among the Company, as borrower, with certain lenders, and Citibank, N.A.

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

As of December 31, 2022 and 2021, we were in compliance with all financial and non-financial covenants listed under the applicable revolving credit facility.

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 3.5% per annum Convertible Senior Notes due October 1, 2024 (the “Notes”).

The Notes were issued on October 4, 2018.

On October 1, 2018, we entered into an 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 (the “Notes”).

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,

Interest expense on the Notes $ 3.4 $ 5.3

Amortization of debt discount on the Notes $ 1.8 $ 2.6

On August 27, 2021, we entered into a 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 in the form of a combination of cash and shares of our common stock.

See Note 18 - Borrowings to our consolidated financial statements herein for further details.

Recent Accounting Pronouncements

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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