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Item 2. Management’s Discussion and Analysis

2023-07-27 compared with 2023-04-27 · 194 added, 89 removed, 202 unchanged (58% of the section changed)

60 unchanged sentences

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.

For the three months ended March 31, 2023, we generated revenues of $400.6 million compared to revenues of $329.2 million for the three months ended March 31, 2022, an increase of $71.4 million, or 21.7%.

We serve clients mainly in the United States and the United Kingdom, with these two regions generating 84.6% and 10.4%, respectively, of our total revenues for the three months ended March 31, 2023 and 85.8% and 10.0%, respectively, of our revenues for the three months ended March 31, 2022.

For the three months ended March 31, 2023 and 2022, our total revenues from our top ten clients accounted for 34.8% and 36.2% of our total revenues, respectively.

For the three months ended June 30, 2023, we generated revenues of $405.0 million compared to revenues of $346.8 million for the three months ended June 30, 2022, an increase of $58.2 million, or 16.8%.

For the six months ended June 30, 2023, we generated revenues of $805.6 million compared to revenues of $676.0 million for the six months ended June 30, 2022, an increase of $129.6 million, or 19.2%.

We serve cli ents mainly in the United States and the United Kingdom, with these two regions generating 84.1% and 10.8%, respectively, of our total revenues for the three months ended June 30, 2023, and 86.1% and 9.3%, respectively, of our total revenues for the three months ended June 30, 2022.

For the six months ended June 30, 2023, these two regions generated 84.4% and 10.6%, respectively, of our total revenues and 85.9% and 9.6%, respectively, of our total revenues for the six months ended June 30, 2022.

For the three months ended June 30, 2023 and 2022, our total revenues from our top ten clients accounted for 33.8% and 36.2% of our total revenues, respectively.

For the six months ended June 30, 2023 and 2022, our total revenues from our top ten clients accounted for 34.3% and 36.2% of our total revenues, respectively.

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.

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

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

alternative pricing model.

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

9 unchanged sentences

Our acquisition of Clairvoyant AI, Inc.

in December 2021 strengthened 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.

(“Clairvoyant”) in December 2021 strengthened 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.

4 unchanged sentences

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

2023 Stock Split

On June 20, 2023, subsequent to the approval and recommendation of our board of directors, our stockholders approved an amendment to our Amended and Restated Certificate of Incorporation, which upon filing with the State of Delaware, and effectiveness thereof, will effect a 5-for-1 forward stock split of our common stock and an increase in the number of authorized shares of our common stock from 100,000,000 shares to 400,000,000 shares (see Note 26 – Subsequent Events to our unaudited consolidated financial statements herein for further details.)

Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2023, as compared to the critical accounting policies and estimates referred in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Critical Accounting Policies and Estimates” and Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

There have been no significant changes in our critical accounting policies and estimates during the three and six months ended June 30, 2023, as compared to the critical accounting policies and estimates referred in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Critical Accounting Policies and Estimates” and Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Results of Operations

The following table summarizes our results of operations:

Three months ended March 31,

(dollars in millions)

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

(dollars in millions) (dollars in millions)

Revenues, net $ 405.0 $ 346.8 $ 805.6 $ 676.0

Cost of revenues (1)

253.2 221.2 504.7 428.7

Gross profit (1)

151.8 125.6 300.9 247.3

Operating expenses:

6 unchanged sentences

Interest expense (3.2) (1.5) (6.6) (2.4)

Other income, net 3.2 2.4

Other income/(loss), net 2.6 (0.2) 5.8 2.2

Income before income tax expense and earnings from equity affiliates 64.6 46.7 123.9 94.0

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Due to rounding, the numbers presented in the tables included in this Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” may not add up precisely to the totals provided.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

The following table summarizes our revenues by reportable segments:

Three months ended March 31, Percentage

Three months ended June 30, Percentage

2023 2022 Change

5 unchanged sentences

Total revenues, net $ 405.0 $ 346.8 $ 58.2 16.8 %

Revenues for the three months ended March 31, 2023 were $400.6 million, up $71.4 million, or 21.7%, compared to the three months ended March 31, 2022, driven primarily by revenue growth from our new and existing clients in the Analytics, Emerging Business and Insurance reportable segments.

Revenues for the three months ended June 30, 2023 were $405.0 million, up $58.2 million, or 16.8%, compared to the three months ended June 30, 2022, driven primarily by revenue growth from our new and existing clients in all of our reportable segments.

Revenue growth in Insurance of $20.0 million was primarily driven by expansion of business from our new and existing clients of $20.9 million.

This was partially offset by a loss of $1.4 million mainly attributable to the depreciation of the Australian dollar, the Indian rupee and the U.K.

This was partially offset by a loss of $0.9 million, mainly attributable to the depreciation of the Australian dollar, the South African ZAR and the Indian rupee against the U.S.

dollar during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

Insurance revenues were 31.7% and 31.3% of our total revenues during the three months ended June 30, 2023 and June 30, 2022, respectively.

Revenue growth in Healthcare of $4.1 million was primarily driven by expansion of business from our new and existing clients during the three months ended June 30, 2023.

Healthcare revenues were 6.7% of our total revenues for each of the three months ended June 30, 2023 and June 30, 2022.

Revenue growth in Emerging Business of $13.2 million was primarily driven by expansion of business from our new and existing clients of $13.7 million.

This was partially offset by a loss of $0.5 million, mainly attributable to the depreciation of the Indian rupee against the U.S.

dollar during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

Emerging Business revenues were 16.6% and 15.5% of our total revenues during the three months ended June 30, 2023 and June 30, 2022, respectively.

Revenue growth in Analytics of $20.9 million was primarily driven by higher volumes in our annuity and project based engagements from our new and existing clients.

Analytics revenues were 45.0% and 46.5% of our total revenues during the three months ended June 30, 2023 and June 30, 2022, respectively.

Cost of Revenues and Gross Margin :

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

Cost of Revenues Gross Margin

Three months ended June 30, Change Percentage

change Three months ended June 30, Change

2023 2022 2023 2022

(dollars in millions)

Insurance $ 84.3 $ 70.6 $ 13.7 19.4 % 34.4 % 34.9 % (0.5) %

Healthcare 17.6 17.7 (0.1) (0.9) % 35.4 % 23.2 % 12.2 %

Emerging Business 37.8 31.2 6.6 21.2 % 43.7 % 42.1 % 1.6 %

Analytics 113.5 101.7 11.8 11.7 % 37.7 % 37.0 % 0.7 %

Total $ 253.2 $ 221.2 $ 32.0 14.5 % 37.5 % 36.2 % 1.3 %

For the three months ended June 30, 2023, cost of revenues was $253.2 million compared to $221.2 million for the three months ended June 30, 2022, an increase of $32.0 million, or 14.5%.

The increase in cost of revenues was primarily due to increases in employee-related costs, partially offset by foreign exchange gain, net of hedging.

Our gross margin for the three months ended June 30, 2023 was 37.5%, compared to 36.2% for the three months ended June 30, 2022, an increase of 130 basis points (“bps”) primarily driven by higher revenues, operational efficiencies and foreign exchange gain, net of hedging during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

The increase in cost of revenues in Insurance of $13.7 million for the three months ended June 30, 2023 was primarily due to increases in employee-related costs of $13.8 million on account of higher headcount and wage inflation and higher technology costs of $2.0 million on account of increased use of the hybrid and remote working models, partially offset by foreign exchange gain, net of hedging of $2.1 million.

Gross margin in Insurance decreased by 50 bps during the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily due to lower margins associated with higher costs during ramp-ups in certain existing and new clients and higher employee costs during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

The decrease in cost of revenues in Healthcare of $0.1 million for the three months ended June 30, 2023 was primarily due to lower other operating costs of $0.6 million and foreign exchange gain, net of hedging of $0.5 million, partially offset by increases in employee-related costs of $1.0 million on account of higher headcount and wage inflation.

Gross margin in Healthcare increased by 1,220 bps during the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily due to higher revenues, operational efficiencies and foreign exchange gain, net of hedging during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

The increase in cost of revenues in Emerging Business of $6.6 million for the three months ended June 30, 2023 was primarily due to increases in employee-related costs of $6.1 million on account of higher headcount and wage inflation, higher technology costs of $1.0 million on account of increased use of the hybrid and remote working models and higher other operating costs of $0.6 million, partially offset by foreign exchange gain, net of hedging of $1.1 million.

Gross margin in Emerging Business increased by 160 bps during the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily due to higher revenues and operational efficiencies during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

The increase in cost of revenues in Analytics of $11.8 million for the three months ended June 30, 2023 was primarily due to increases in employee-related costs of $15.6 million on account of higher headcount and wage inflation, partially offset by lower other operating costs of $1.9 million and foreign exchange gain, net of hedging of $1.9 million.

Gross margin in Analytics increased by 70 bps during the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily due to higher revenues and foreign exchange gain, net of hedging during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

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

Three months ended June 30, Change Percentage

(dollars in millions)

General and administrative expenses $ 45.6 $ 40.5 $ 5.1 12.8 %

Selling and marketing expenses 28.2 24.0 4.2 17.7 %

Selling, general and administrative expenses $ 73.8 $ 64.5 $ 9.3 14.6 %

As a percentage of revenues 18.2 % 18.6 %

The increase in SG&A expenses of $9.3 million was primarily due to higher employee-related costs of $5.9 million on account of higher headcount and wage inflation, higher technology costs of $1.2 million on account of increased use of the hybrid and remote working models, increase in travel costs of $0.8 million and higher other operating costs of $2.2 million.

This was partially offset by foreign exchange gain, net of hedging of $0.8 million, during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

Depreciation and Amortization.

Three months ended June 30, Change Percentage

(dollars in millions)

Depreciation expense $ 8.9 $ 10.0 $ (1.1) (10.2) %

Intangible amortization expense 4.2 4.1 0.1 1.4 %

Depreciation and amortization expense $ 13.1 $ 14.1 $ (1.0) (6.8) %

As a percentage of revenues 3.2 % 4.1 %

The decrease in depreciation expense of $1.1 million was primarily due to lower depreciation of $0.8 million on assets related to operations centers closed as a result of optimization of office space and increased use of the hybrid and remote working models and foreign exchange gain, net of hedging of $0.3 million during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

The increase in intangibles amortization expense of $0.1 million during the three months ended June 30, 2023, compared to the three months ended June 30, 2022 was primarily due to amortization of intangibles associated with our acquisition of Inbound Media Group, LLC in June 2022.

Income from Operations.

Income from operations increased by $17.9 million, or 37.7%, from $47.0 million for the three months ended June 30, 2022 to $64.9 million for the three months ended June 30, 2023, primarily due to higher revenues, partially offset by higher cost of revenues and higher SG&A expenses during the three months ended June 30, 2023.

As a percentage of revenues, income from operations increased from 13.6% for the three months ended June 30, 2022 to 16.0% for the three months ended June 30, 2023.

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 Philippine peso, the U.K.

pound sterling and the South African ZAR during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

The average exchange rate of the U.S.

dollar against the Indian rupee increased from 77.68 during the three months ended June 30, 2022 to 82.20 during the three months ended June 30, 2023.

The average exchange rate of the U.S.

dollar against the Philippine peso increased from 53.18 during the three months ended June 30, 2022 to 55.58 during the three months ended June 30, 2023.

The average exchange rate of the U.K.

pound sterling against the U.S.

dollar during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

Insurance revenues were 31.4% of our total revenues during each of the three months ended March 31, 2023 and 2022.

Revenue growth in Healthcare of $0.5 million was primarily driven by expansion of business from our existing clients, partially offset by the ramp-downs during the three months ended March 31, 2023.

Healthcare revenues were 6.7% and 7.9% of our total revenues during the three months ended March 31, 2023 and 2022, respectively.

Revenue growth in Emerging Business of $15.5 million was primarily driven by expansion of business from our new clients and existing clients of $17.3 million.

This was partially offset by a loss of $1.8 million mainly attributable to the depreciation of the U.K.

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

dollar during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

Emerging Business revenues were 16.5% and 15.4% of our total revenues during the three months ended March 31, 2023 and 2022, respectively.

dollar increased from 1.24 during the three months ended June 30, 2022 to 1.25 during the three months ended June 30, 2023.

The average exchange rate of the U.S.

dollar against the South African ZAR increased from 15.94 during the three months ended June 30, 2022 to 19.02 during the three months ended June 30, 2023.

We recorded a foreign exchange gain, net of $1.4 million for the three months ended June 30, 2022 compared to a foreign exchange gain, net of $0.3 million for the three months ended June 30, 2023.

Interest expens e.

Interest expense increased from $1.5 million for the three months ended June 30, 2022 to $3.2 million for the three months ended June 30, 2023, primarily due to a higher effective interest rate of 6.2% during the three months ended June 30, 2023, compared to 2.0% during the three months ended June 30, 2022, partially offset by a lower average outstanding balance under our revolving credit facility during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

Other Income/(Loss), net.

Three months ended June 30, Change Percentage

(dollars in millions)

Gain on sale and mark-to-market on investments $ 1.1 $ 0.7 $ 0.4 72.7 %

Interest and dividend income 1.7 0.8 0.9 95.2 %

Other, net (0.2) (1.7) 1.5 (94.7) %

Other income/(loss), net $ 2.6 $ (0.2) $ 2.8 (1,629.3) %

Other income/(loss), net increased by $2.8 million, from Other loss, net of $0.2 million for the three months ended June 30, 2022 to Other income, net of $2.6 million for the three months ended June 30, 2023.

The increase is primarily due to higher return on mutual fund investments of $0.4 million, higher interest income on our short-term and long-term investments of $0.6 million during the three months ended June 30, 2023, compared to the three months ended June 30, 2022, and an increase of $1.0 million due to change in fair value of contingent consideration liability related to our Clairvoyant acquisition during the three months ended June 30, 2022.

Income Tax Expense.

The effective tax rate increased from 23.8% during the three months ended June 30, 2022 to 24.1% during the three months ended June 30, 2023.

We recorded income tax expense of $15.5 million and $11.1 million for the three months ended June 30, 2023 and June 30, 2022, respectively.

The increase in income tax expense was primarily as a result of higher profit during the three months ended June 30, 2023, compared to the three months ended June 30, 2022, and an increase in non-deductible expenses during the three months ended June 30, 2023, partially offset by higher excess tax benefits related to stock-based compensation during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

Net income increased from $35.8 million for the three months ended June 30, 2022 to $49.1 million for the three months ended June 30, 2023, primarily due to increase in income from operations of $17.9 million and higher other income, net of $2.6 million partially offset by higher income tax expense of $4.4 million, higher interest expense of $1.7 million and lower foreign exchange gain, net of $1.1 million.

As a percentage of revenues, net income increased from 10.3% for the three months ended June 30, 2022 to 12.1% for the three months ended June 30, 2023.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

The following table summarizes our revenues by reportable segments:

Six months ended June 30, Percentage

2023 2022 Change

(dollars in millions)

Insurance $ 254.4 $ 211.8 $ 42.6 20.1 %

Healthcare 53.9 49.3 4.6 9.5 %

Emerging Business 133.3 104.6 28.7 27.5 %

Analytics 364.0 310.3 53.7 17.3 %

Total revenues, net $ 805.6 $ 676.0 $ 129.6 19.2 %

Revenues for the six months ended June 30, 2023 were $805.6 million, up $129.6 million, or 19.2%, compared to the six months ended June 30, 2022, driven primarily by revenue growth from our new and existing clients in all of our reportable segments.

Revenue growth in Insurance of $42.6 million was primarily driven by expansion of business from our new and existing clients of $44.9 million.

This was partially offset by a loss of $2.3 million, mainly attributable to the depreciation of the Australian dollar, the Indian rupee and the South African ZAR against the U.S.

dollar during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Insurance revenues were 31.6% and 31.3% of our total revenues during the six months ended June 30, 2023 and June 30, 2022, respectively.

Revenue growth in Healthcare of $4.6 million was primarily driven by expansion of business from our new and existing clients during the six months ended June 30, 2023.

Healthcare revenues were 6.7% and 7.3% of our total revenues during the six months ended June 30, 2023 and June 30, 2022, respectively.

Revenue growth in Emerging Business of $28.7 million was primarily driven by expansion of business from our new and existing clients of $31.0 million.

This was partially offset by a loss of $2.3 million, mainly attributable to the depreciation of the Indian rupee and the U.K.

pound sterling against the U.S.

dollar during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Emerging Business revenues were 16.6% and 15.5% of our total revenues during the six months ended June 30, 2023 and June 30, 2022, respectively.

Revenue growth in Analytics of $53.7 million was primarily driven by higher volumes in our annuity and project based engagements from our new and existing clients of $54.5 million.

1 unchanged sentence

pound sterling against the U.S.

dollar during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

Analytics revenues were 45.4% and 45.3% of our total revenues during the three months ended March 31, 2023 and 2022, respectively.

dollar during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Analytics revenues were 45.1% and 45.9% of our total revenues during the six months ended June 30, 2023 and June 30, 2022, respectively.

Cost of Revenues and Gross Margin :

1 unchanged sentence

Cost of Revenues Gross Margin

Three months ended March 31, Percentage

change Three months ended March 31,

2023 2022 Change 2023 2022 Change

Six months ended June 30, Percentage change Six months ended June 30, Change

2023 2022 Change 2023 2022

(dollars in millions)

4 unchanged sentences

Total $ 504.7 $ 428.7 $ 76.0 17.7 % 37.4 % 36.6 % 0.8 %

For the three months ended March 31, 2023, cost of revenues was $251.5 million compared to $207.5 million for the three months ended March 31, 2022, an increase of $44.0 million, or 21.2%.

Our gross margin for the three months ended March 31, 2023 was 37.2% compared to 37.0% for the three months ended March 31, 2022, an increase of 20 basis points (“bps”) primarily driven by higher revenues and expansion in margin in certain existing clients during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The increase in cost of revenues in Insurance of $17.2 million for the three months ended March 31, 2023 was primarily due to increases in employee-related costs of $16.9 million on account of higher headcount and wage inflation, and higher technology costs of $2.9 million on account of increased use of the hybrid and remote working models, partially offset by foreign exchange gain, net of hedging of $2.6 million.

Gross margin in Insurance decreased by 240 bps during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to lower margins associated with higher costs during ramp-ups in certain existing and new clients during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The increase in cost of revenues in Healthcare of $1.2 million for the three months ended March 31, 2023 was primarily due to increases in employee-related costs of $1.8 million on account of higher headcount and wage inflation, partially offset by foreign exchange gain, net of hedging of $0.6 million.

Gross margin in Healthcare decreased by 290 bps during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to lower revenues associated with the ramp-down of certain existing clients and higher other operating costs, partially offset by foreign exchange gain, net of hedging during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The increase in cost of revenues in Emerging Business of $6.8 million for the three months ended March 31, 2023 was primarily due to increases in employee-related costs of $7.2 million on account of higher headcount and wage inflation, higher technology costs of $0.8 million on account of increased use of the hybrid and remote working models and higher other operating costs of $0.5 million, partially offset by foreign exchange gain, net of hedging of $1.7 million.

Gross margin in Emerging Business increased by 320 bps during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to higher revenues and operational efficiencies during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The increase in cost of revenues in Analytics of $18.8 million for the three months ended March 31, 2023 was primarily due to increases in employee-related costs of $20.9 million on account of higher headcount and wage inflation and higher other operating costs of $0.9 million, partially offset by foreign exchange gain, net of hedging of $3.0 million.

Gross margin in Analytics increased by 120 bps during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to higher revenues during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

For the six months ended June 30, 2023, cost of revenues was $504.7 million compared to $428.7 million for the six months ended June 30, 2022, an increase of $76.0 million, or 17.7%.

The increase in cost of revenues was primarily due to increases in employee-related costs, partially offset by foreign exchange gain, net of hedging.

Our gross margin for the six months ended June 30, 2023 was 37.4% compared to 36.6% for the six months ended June 30, 2022, an increase of 80 basis points (“bps”) primarily driven by higher revenues, operational efficiencies and foreign exchange gain, net of hedging during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

The increase in cost of revenues in Insurance of $30.9 million for the six months ended June 30, 2023 was primarily due to increases in employee-related costs of $30.8 million on account of higher headcount and wage inflation, higher technology costs of $4.9 million on account of increased use of the hybrid and remote working models and higher other operating cost of $2.0 million, partially offset by foreign exchange gain, net of hedging of $5.1 million, lower facilities cost of $0.9 million and lower travel cost of $0.8 million.

Gross margin in Insurance decreased by 140 bps during the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily due to lower margins associated with higher costs during ramp-ups in certain existing and new clients during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

The increase in cost of revenues in Healthcare of $1.1 million for the six months ended June 30, 2023 was primarily due to increases in employee-related costs of $2.8 million on account of higher headcount and wage inflation, partially offset by lower other operating costs of $0.4 million and foreign exchange gain, net of hedging of $1.3 million.

Gross margin in Healthcare increased by 430 bps during the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily due to higher revenues and foreign exchange gain, net of hedging during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

The increase in cost of revenues in Emerging Business of $13.4 million for the six months ended June 30, 2023 was primarily due to increases in employee-related costs of $13.2 million on account of higher headcount and wage inflation, higher technology costs of $1.8 million on account of increased use of the hybrid and remote working models and higher other operating costs of $1.2 million, partially offset by foreign exchange gain, net of hedging of $2.8 million.

Gross margin in Emerging Business increased by 240 bps during the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily due to higher revenues and operational efficiencies during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

The increase in cost of revenues in Analytics of $30.6 million for the six months ended June 30, 2023 was primarily due to increases in employee-related costs of $36.4 million on account of higher headcount and wage inflation, partially offset by lower other operating costs of $1.0 million and foreign exchange gain, net of hedging of $4.8 million.

Gross margin in Analytics increased by 90 bps during the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily due to higher revenues and foreign exchange gain, net of hedging during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

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

Three months ended March 31, Percentage

Six months ended June 30, Percentage change

2023 2022 Change

4 unchanged sentences

As a percentage of revenues 18.6 % 19.0 %

The increase in SG&A expenses of $12.1 million was primarily due to higher employee-related costs of $11.1 million on account of higher headcount and wage inflation, increase in travel costs of $1.2 million and higher other operating costs of $1.2 million.

This was partially offset by foreign exchange gain, net of hedging of $1.4 million, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The increase in SG&A expenses of $21.4 million was primarily due to higher employee-related costs of $17.0 million on account of higher headcount and wage inflation, increase in travel costs of $2.0 million, higher technology costs of $1.1 million on account of increased use of the hybrid and remote working models and higher other operating costs of $3.5 million.

This was partially offset by foreign exchange gain, net of hedging of $2.2 million, during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Depreciation and Amortization.

Three months ended March 31, Percentage change

Six months ended June 30, Percentage change

2023 2022 Change

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As a percentage of revenues 3.3 % 4.1 %

The increase in depreciation expense of $0.2 million was primarily due to depreciation of $0.6 million related to our investments in digital capabilities, computers and networking equipment, partially offset by foreign exchange gain, net of hedging of $0.4 million during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The decrease in intangibles amortization expense of $0.3 million during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was primarily due to end of useful lives for certain intangible assets.

The decrease in depreciation expense of $0.8 million was primarily due to foreign exchange gain, net of hedging during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

The decrease in intangibles amortization expense of $0.3 million during the six months ended June 30, 2023, compared to the six months ended June 30, 2022 was primarily due to end of useful lives for certain intangible assets.

Income from Operations.

Income from operations increased by $15.4 million, or 35.2%, from $44.0 million for the three months ended March 31, 2022 to $59.4 million for the three months ended March 31, 2023, primarily due to higher revenues, partially offset by higher cost of revenues and higher SG&A expenses during the three months ended March 31, 2023.

As a percentage of revenues, income from operations increased from 13.4% for the three months ended March 31, 2022 to 14.8% for the three months ended March 31, 2023.

Income from operations increased by $33.3 million, or 36.5%, from $91.0 million for the six months ended June 30, 2022 to $124.3 million for the six months ended June 30, 2023, primarily due to higher revenues, partially offset by higher cost of revenues and higher SG&A expenses during the six months ended June 30, 2023.

As a percentage of revenues, income from operations increased from 13.5% for the six months ended June 30, 2022 to 15.4% for the six months ended June 30, 2023.

Foreign Exchange Gain, net.

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

pound sterling and the South African ZAR during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

pound sterling and the South African ZAR during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

The average exchange rate of the U.S.

dollar against the Indian rupee increased from 75.25 during the three months ended March 31, 2022 to 82.25 during the three months ended March 31, 2023.

dollar against the Indian rupee increased from 76.46 during the six months ended June 30, 2022 to 82.22 during the six months ended June 30, 2023.

The average exchange rate of the U.S.

dollar against the Philippine peso increased from 51.32 during the three months ended March 31, 2022 to 54.78 during the three months ended March 31, 2023.

dollar against the Philippine peso increased from 52.25 during the six months ended June 30, 2022 to 55.18 during the six months ended June 30, 2023.

The average exchange rate of the U.K.

pound sterling against the U.S.

dollar decreased from 1.33 during the three months ended March 31, 2022 to 1.23 during the three months ended March 31, 2023.

dollar decreased from 1.29 during the six months ended June 30, 2022 to 1.24 during the six months ended June 30, 2023.

The average exchange rate of the U.S.

dollar against the South African ZAR increased from 15.15 during the three months ended March 31, 2022 to 17.90 during the three months ended March 31, 2023.

We recorded a foreign exchange gain, net of $0.1 million for the three months ended March 31, 2023 compared to a foreign exchange gain, net of $1.8 million for the three months ended March 31, 2022.

dollar against the South African ZAR increased from 15.54 during the six months ended June 30, 2022 to 18.46 during the six months ended June 30, 2023.

We recorded a net foreign exchange gain, net of $3.2 million for the six months ended June 30, 2022, compared to the net foreign exchange gain, net of $0.4 million for the six months ended June 30, 2023.

Interest expense.

Interest expense increased from $0.9 million for the three months ended March 31, 2022 to $3.4 million for the three months ended March 31, 2023, primarily due to a higher effective interest rate of 5.9% during the three months ended March 31, 2023, compared to 1.3% during the three months ended March 31, 2022, partially offset by a lower average outstanding balance under our revolving credit facility during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

Other Income, net.

Three months ended March 31, Percentage

Interest expense increased from $2.4 million for the six months ended June 30, 2022 to $6.6 million for the six months ended June 30, 2023, primarily due to a higher effective interest rate of 6.1% during the six months ended June 30, 2023, compared to 1.7% during the six months ended June 30, 2022, partially offset by a lower average outstanding

balance under our revolving credit facility during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Other Income/(Loss), net.

Six months ended June 30, Percentage change

2023 2022 Change

(dollars in millions)

Gain on sale and mark-to-market on investments $ 2.7 $ 1.9 $ 0.8 46.5 %

Interest and dividend income 3.4 2.2 1.2 52.2 %

Others, net (0.2) (0.2) — — %

Other, net (0.3) (1.9) 1.6 (83.9) %

Other income, net $ 5.8 $ 2.2 $ 3.6 160.0 %

Other income, net increased by $0.8 million, from $2.4 million for the three months ended March 31, 2022 to $3.2 million for the three months ended March 31, 2023.

The increase is primarily due to higher return on mutual fund investments of $0.5 million and higher interest income on our short-term and long-term investments of $0.9 million during the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

This was partially offset by interest on income tax refunds of $0.7 million received during the three months ended March 31, 2022.

Other income, net increased by $3.6 million, from $2.2 million for the six months ended June 30, 2022 to $5.8 million for the six months ended June 30, 2023.

The increase is primarily due to higher return on mutual fund investments of $0.8 million, higher interest income on our short-term and long-term investments of $1.5 million, higher dividend income on our investments in money market funds of $0.3 million during the six months ended June 30, 2023, partially offset by interest on income tax refunds of $0.7 million received during the six months ended June 30, 2022.

There was also an increase of $0.4 million due to higher amortization of actuarial losses related to our employee benefit plans and an increase of $1.0 million due to change in fair value of contingent consideration liability related to our Clairvoyant acquisition during the six months ended June 30, 2022.

Income Tax Expense.

The effective tax rate decreased from 23.7% during the three months ended March 31, 2022 to 13.6% during the three months ended March 31, 2023.

We recorded income tax expense of $8.1 million and $11.2 million for the three months ended March 31, 2023 and 2022, respectively.

The decrease in income tax expense was primarily as a result of higher excess tax benefits related to stock-based compensation during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, partially offset by an increase in income tax expense on higher profit and an increase in non-deductible expense during the three months ended March 31, 2023.

Net income increased from $36.2 million for the three months ended March 31, 2022 to $51.3 million for the three months ended March 31, 2023, primarily due to an increase in income from operations of $15.4 million, lower income tax expense of $3.1 million and higher other income, net of $0.8 million, partially offset by higher interest expense of $2.5 million and lower foreign exchange gain, net of $1.7 million.

As a percentage of revenues, net income increased from 11.0% during the three months ended March 31, 2022 to 12.8% during the three months ended March 31, 2023.

The effective tax rate decreased from 23.7% during the six months ended June 30, 2022 to 19.1% during the six months ended June 30, 2023.

We recorded income tax expense of $23.6 million and $22.3 million for the six months ended June 30, 2023 and 2022, respectively.

The increase in income tax expense was primarily as a result of higher profit during the six months ended June 30, 2023, compared to the six months ended June 30, 2022, and an increase in non-deductible expenses, partially offset by higher excess tax benefits related to stock-based compensation during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Net income increased from $72.0 million for the six months ended June 30, 2022 to $100.4 million for the six months ended June 30, 2023, primarily due to increase in income from operations of $33.3 million and higher other income, net of $3.4 million, partially offset by higher interest expense of $4.2 million, lower foreign exchange gain, net of $2.8 million and higher income tax expense of $1.3 million.

As a percentage of revenues, net income increased from 10.7% for the six months ended June 30, 2022 to 12.5% for the six months ended June 30, 2023.

Liquidity and Capital Resources

Three months ended March 31,

Six months ended June 30,

(dollars in millions)

Opening cash, cash equivalents and restricted cash $ 125.6 $ 143.8

Net cash provided by/(used for) operating activities 16.0 (26.9)

Net cash provided by operating activities 63.6 53.1

Net cash provided by/(used for) investing activities 11.8 (41.0)

Net cash (used for)/provided by financing activities (91.3) 3.6

Net cash used for financing activities (101.8) (35.3)

Effect of exchange rate changes 1.5 (5.4)

Closing cash, cash equivalents and restricted cash $ 100.7 $ 115.2

As of March 31, 2023 and 2022, we had $203.8 million and $269.9 million, respectively, in cash, cash equivalents and short-term investments, of which $177.5 million and $233.3 million, respectively, is located in foreign jurisdictions that upon distribution may be subject to withholding and other taxes.

As of June 30, 2023 and 2022, we had $250.0 million and $266.0 million, respectively, in cash, cash equivalents and short-term investments, of which $224.0 million and $242.0 million, respectively, is located in foreign jurisdictions that upon distribution may be subject to withholding and other taxes.

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.

During the three months ended March 31, 2023, our subsidiaries in India, U.K.

and Australia repatriated $76.0 million (net of $4.0 million withholding taxes), $15.6 million and $9.1 million, respectively, to the United States.

During the six months ended June 30, 2023, our subsidiaries in India, the United Kingdom and Australia repatriated $76.0 million (net of $4.0 million withholding taxes), $15.6 million and $9.1 million, respectively, to the United States.

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

Operating Activities:

Net cash provided by operating activities was $16.0 million during the three months ended March 31, 2023 compared to net cash used for operating activities of $26.9 million during the three months ended March 31, 2022, reflecting higher cash earnings and efficiencies in management of working capital.

Net cash provided by operating activities was $63.6 million for the six months ended June 30, 2023 as compared to net cash provided by operating activities of $53.1 million for the six months ended June 30, 2022, reflecting our cash earnings and effective management of working capital needs.

The major drivers contributing to the increase of $10.5 million year-over-year included the following:

• Increase in cash earnings including adjustments for non-cash and other items contributed higher cash flow of $22.8 million during the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

• Increase in cash earnings including adjustments for non-cash and other items contributed higher cash flow of $29.0 million during the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

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

• Changes in accounts receivable, including unbilled receivable and deferred revenue, contributed to a higher cash flow of $13.5 million during the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Changes in accounts receivable was driven by revenue growth.

Days sales outstanding was 65 days as of March 31, 2023 compared to 64 days as of March 31, 2022.

• Decrease in employee-related and other payments, partially offset by increase in other current assets contributed to a higher cash flow of $6.4 million during the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

• Changes in accounts receivable, including advance billings, contributed higher cash flow of $19.1 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Collections in accounts receivable, including advance billings, was driven by revenue growth during the six months ended June 30, 2023.

This was partially offset by increase in our days sales outstanding which was 63 days as of June 30, 2023 as compared to 60 days as of June 30, 2022.

• Higher income tax payments, net of refunds, contributed higher cash payouts of $39.0 million, partially offset by provision for income tax and changes in deferred tax assets and liabilities of $19.7 million during the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

• Changes in other assets, accounts payables including other liabilities contributed higher cash payouts of $18.3 million during the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Investing Activities:

Cash provided by investing activities were $43.3 million for the three months ended March 31, 2023 as compared to cash used for investing activities of $4.7 million for the three months ended March 31, 2022.

The increase of $48.0 million was primarily due to higher net redemption of investments of $55.3 million during the three months ended March 31, 2023 as compared to net redemption of investments of $12.7 million during the three months ended March 31, 2022, lower cash paid for purchase of long-lived assets, including investments in infrastructure, technology assets, software and product developments of $4.1 million during the three months ended March 31, 2023 compared to the three months ended March 31, 2022, and payment of a portion of purchase consideration for our business acquisition of $1.4 million, during the three months ended March 31, 2022.

Cash provided by investing activities were $11.8 million for the six months ended June 30, 2023 as compared to cash used for investing activities of $41.0 million for the six months ended June 30, 2022.

The increase in cash provided by investing activities of $52.8 million year-over-year is mainly due to higher net redemption of investments of $37.4 million during six months ended June 30, 2023 as compared to net purchase of investments of $13.5 million during the six months ended June 30, 2022.

The increase was also due to acquisition-related payouts of $2.6 million during the six months ended June 30, 2022 with no corresponding payouts during the six months ended June 30, 2023.

Financing Activities:

Cash used for financing activities were $91.3 million during the three months ended March 31, 2023 as compared to cash provided by financing activities of $3.6 million during the three months ended March 31, 2022.

The decrease of $94.9 million was primarily due to net repayment of $50.0 million under our revolving credit facility during the three months ended March 31, 2023 as compared to net proceeds of $35.0 million during the three months ended March 31, 2022 and higher purchases of treasury stock of $11.0 million under our share repurchase program during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Cash used for financing activities were $101.8 million during the six months ended June 30, 2023 as compared to cash used for financing activities of $35.3 million during the six months ended June 30, 2022.

The increase in cash used of $66.5 million year-over-year was primarily due to net repayment of our borrowings under our revolving credit facility of $30.0 million during the six months ended June 30, 2023 as compared to net proceeds of our borrowings of $25.0 million during the six months ended June 30, 2022.

The increase was also due to higher purchases of treasury stock by $10.4 million under our share repurchase program, payment of contingent consideration related to our Clairvoyant acquisition of $5.0 million during the six months ended June 30, 2023, partially offset by employees’ contributions under the employee stock purchase plan of $3.8 million during the six months ended June 30, 2023.

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 $12.5 million of capital expenditures during the three months ended March 31, 2023.

We incurred $26.1 million of capital expenditures during the six months ended June 30, 2023.

We expect to incur total capital expenditures of between $47.0 million to $52.0 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.

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

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

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

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

We maintain deposits in federally insured financial institutions in excess of federally insured limits, however these deposits are diversified with no significant concentration with a particular financial institution.

While we have not experienced any losses while operating with such financial institutions, the recent failure of Silicon Valley Bank and Signature Bank may expose us in general to credit risk in the event of any potential default by the financial institutions holding our cash and cash equivalents to the extent recorded in the unaudited consolidated balance sheets.

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

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

See Note 18- Borrowings, Note 21- Leases and Note 25- Commitments and Contingencies to our unaudited consolidated financial statements herein for further information on material cash requirements from known contractual and other obligations.

See Note 16 - Fair Value Measurements - Fair Value of Contingent Consideration, Note 18 - Borrowings, Note 21 - Leases and Note 25 - Commitments and Contingencies to our unaudited consolidated financial statements herein for further information on material cash requirements from known contractual and other obligations.

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

As of March 31, 2023 and December 31, 2022, we had outstanding letters of credit of $0.5 million, each, that were not recognized in our consolidated balance sheets.

As of June 30, 2023 and December 31, 2022, we had outstanding letters of credit of $0.5 million, each, that were not recognized in our consolidated balance sheets.

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.

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The following table summarizes our debt position:

As of March 31, 2023 As of December 31, 2022

As of June 30,2023 As of December 31, 2022

(dollars in millions)

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Total borrowings $ 220.0 $ 250.0

Unamortized debt issuance costs for our revolving credit facility of $1.1 million and $1.2 million as of March 31, 2023 and December 31, 2022, respectively, are presented under “Other current assets” and “Other assets,” as applicable in our consolidated balance sheets.

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

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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-Q

Item 2. Management’s Discussion and Analysis