Item 2. Management’s Discussion and Analysis
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in connection with our unaudited consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Some of the statements in the following discussion are forward looking statements.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are based on assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. 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. These factors include but are not limited to:
• our ability to maintain and grow client demand for our services and solutions, including anticipating and incorporating the latest technologies, for instance, artificial intelligence (“AI”), including generative AI into our offerings;
• impact on client demand by the selling cycle and terms of our client contracts;
• fluctuations in our earnings;
• 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 costs;
• 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;
• employee wage increases;
• 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;
• our ability to successfully consummate or integrate strategic acquisitions including the impact from the impairment of goodwill and other intangible assets, if any;
• legal liability arising out of customer and third party contracts;
• increasing competition in our industry;
• 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;
• adverse outcome of our disputes with the tax authorities in the geographies where we operate;
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• the introduction of new or unfavorable tax legislation, including legal restrictions on 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 and Israel-Hamas conflicts, rising inflation, high interest rates and economic recessionary trends on currency exchange rates;
• restrictions on immigration;
• regulatory, legislative and judicial developments, including our ability to adhere to regulations or accreditation or licensing standards that govern our business;
• our 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; and
• our ability to meet our sustainability-related goals and targets.
These and other factors are more fully discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. These and other risks could cause actual results to differ materially from those implied by forward-looking statements in this Quarterly Report on Form 10-Q.
The forward-looking statements made by us in this Quarterly Report on Form 10-Q, or elsewhere, speak only as of the date on which they were made. New risks and uncertainties may occur 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 Quarterly Report on Form 10-Q after the date of this Quarterly Report on Form 10-Q, except as required by federal securities laws.
Executive Overview
We are a leading data analytics and digital operations and solutions company. We partner with clients using a data and AI-led approach to reinvent business models, drive better business outcomes and unlock growth with speed. We harness the power of data, analytics, AI, and deep industry knowledge to transform operations for the world’s leading corporations in industries including insurance, healthcare, banking and financial services, media and retail, among others.
We deliver data analytics and digital operations and solutions to our clients, driving enterprise-scale business transformation initiatives that leverage our deep expertise in advanced analytics, AI, generative AI and cloud technology. 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.
Our reportable segments are as follows:
• Insurance,
• Healthcare,
• Analytics, and
• Emerging Business
Our global delivery network, which includes highly trained industry and process specialists across the United States, the United Kingdom, 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 Philippines, South Africa, Colombia, Bulgaria, Romania, the United Kingdom, the Czech Republic, Mexico and the Republic of Ireland.
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Revenues
For the three months ended March 31, 2024, we generated revenues of $436.5 million compared to revenues of $400.6 million for the three months ended March 31, 2023, an increase of $35.9 million, or 9.0%.
We serve clients mainly in the United States and the United Kingdom, with these two regions generating 83.0% and 11.5%, respectively, of our total revenues for the three months ended March 31, 2024 and 84.6% and 10.4%, respectively, of our revenues for the three months ended March 31, 2023.
For the three months ended March 31, 2024 and 2023, our total revenues from our top ten clients accounted for 33.3% and 34.8% 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.
Our Business
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 primarily from the United States, Europe and Australia.
Digital Operations and Solutions: We provide our clients with a range of data and AI-led digital operations and solutions from our Insurance, Healthcare and Emerging Business strategic business units, which are focused on solving complex industry challenges, which include: a) multi-modal data ingestion using AI, and converting unstructured content into curated and usable data, b) real-time and comprehensive data insights including end-to-end data management and building a 360-degree view of our clients’ customers, c) omni-channel and frictionless customer experience including self-service, conversational AI and smart agent assist, d) intelligent and AI-powered redesign and automation of transaction processing and e) automated quality, compliance and audit. Some of our clients’ operations that we have transformed using the above solutions include underwriting operations, claims processing, accounts payables processing, utilization management, member and provider contact center services and collections and accounts receivable. We either manage and digitally transform these operations for our clients by deploying our solutions through a software-as-a-service model via our partners’ cloud network or a client’s on-cloud deployment model, to digitally transform their retained operations. For a portion of our digital operations and solutions, we hire and train employees to work at our operations centers on the relevant business operations, implement a process migration to these operations centers and then provide services either to the client or directly to the client’s customers. Each client contract has different terms based on the scope, deliverables and complexity of the engagement. We also provide consulting services related to 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 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, 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.
We charge for our services using various pricing models like time-and-material pricing, full-time-equivalent pricing, transaction-based pricing, outcome-based pricing, subscription-based pricing and other alternative pricing models. Outcome-based pricing arrangements are examples of non-linear pricing models where clients link revenues from platforms and solutions and the services we provide to usage or savings rather than the efforts deployed to provide these services. We continue to observe a shift in the industry pricing models toward transaction-based pricing, outcome-based pricing and other alternative pricing models. We believe this trend will continue and we use such alternative pricing models with some of our current clients and are seeking to move certain other clients from a full-time-equivalent pricing model to a transaction-based or other alternative pricing model. These alternative pricing models place the focus on operating efficiency in order to maintain or improve our gross margins.
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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. A multi-vendor relationship allows a client to seek more favorable pricing and other contract terms from each vendor, which can result in significantly reduced gross margins from the provision of services to such client for each vendor. 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.
Analytics: Our analytics services aim to drive better business outcomes for our clients by unlocking deep insights from data and creating data and AI-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 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 and third-party AI, generative 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. We actively cross-sell and, where appropriate, integrate our analytics services with other digital operations and solutions as part of a comprehensive offering for our clients. Our project-based analytics services are cyclical and can be significantly affected by variations in business cycles. In addition, our project-based analytics services are documented in contracts with terms generally not exceeding one year and may not produce ongoing or recurring business for us once the project is completed. These contracts also usually contain provisions permitting termination of the contract after a short notice period. The short-term nature and specificity of these projects could lead to fluctuations and uncertainties in the revenues generated from providing analytics services.
We anticipate that revenues from our analytics services will grow as we expand our service offerings and client base, both organically and through acquisitions.
Income Taxes
The Organization for Economic Cooperation and Development, issued a Pillar II model for implementing a 15% global minimum tax effective January 1, 2024. The application of the rules relating to Pillar II continue to evolve, and there are countries that are still in the process of issuing attendant rules and regulations, including available transitional safe harbor rules. The two countries where we operate but do not meet the available safe harbor rules are the Republic of Ireland and the Philippines. The Pillar II impacts for the Republic of Ireland and the Philippines are not significant and have been properly reflected in our financial statements. We will continue to monitor Pillar II developments and assess any future impacts.
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, 2024, 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, 2023.
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Results of Operations
The following table summarizes our results of operations:
(dollars in millions)
Three months ended March 31, 2024 Three months ended March 31, 2023
Percentage of Revenues, net Percentage of Revenues, net Dollar Change Percentage Change
(A) (B) (C=A-B)
Revenues, net $ 436.5 100.0 % $ 400.6 100.0 % $ 35.9 9.0 %
Cost of revenues (1)
273.4 62.6 % 251.5 62.8 % 21.9 8.7 %
Gross profit (1)
163.1 37.4 % 149.1 37.2 % 14.0 9.3 %
Operating expenses:
General and administrative expenses 53.2 12.2 % 46.7 11.7 % 6.5 13.9 %
Selling and marketing expenses 36.0 8.2 % 29.5 7.4 % 6.5 22.0 %
Depreciation and amortization expense 12.4 2.8 % 13.5 3.4 % (1.1) (8.5) %
Total operating expenses 101.6 23.3 % 89.7 22.4 % 11.9 13.2 %
Income from operations 61.5 14.1 % 59.4 14.8 % 2.1 3.5 %
Foreign exchange gain, net 0.4 0.1 % 0.1 — % 0.3 241.9 %
Interest expense (3.3) (0.8) % (3.4) (0.8) % 0.1 (2.8) %
Other income, net 4.0 0.9 % 3.2 0.8 % 0.8 25.3 %
Income before income tax expense and earnings from equity affiliates 62.6 14.3 % 59.3 14.8 % 3.3 5.4 %
Income tax expense 13.8 3.2 % 8.1 2.0 % 5.7 70.7 %
Income before earnings from equity affiliates 48.8 11.2 % 51.2 12.8 % (2.4) (4.8) %
Gain from equity-method investment — — % 0.1 — % (0.1) (142.4) %
Net income attributable to ExlService Holdings, Inc. stockholders $ 48.8 11.2 % $ 51.3 12.8 % $ (2.5) (5.0) %
(1) Exclusive of depreciation and amortization expense.
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.
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Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Revenues.
The following table summarizes our revenues by reportable segments:
Three months ended March 31, Percentage
change Percentage of Total Revenues for the three months ended
2024 2023 Dollar Change 2024 2023
(dollars in millions)
Insurance $ 145.1 $ 125.9 $ 19.2 15.2 % 33.3 % 31.4 %
Healthcare 26.3 26.7 (0.4) (1.7) % 6.0 % 6.7 %
Emerging Business 74.4 66.2 8.2 12.4 % 17.0 % 16.5 %
Analytics 190.7 181.8 8.9 4.9 % 43.7 % 45.4 %
Total revenues, net $ 436.5 $ 400.6 $ 35.9 9.0 % 100.0 % 100.0 %
Revenues for the three months ended March 31, 2024 were up by $35.9 million, or 9.0%, compared to the three months ended March 31, 2023, driven primarily by revenue growth from our new and existing clients in the Insurance, Emerging Business and Analytics reportable segments.
Revenue growth in Insurance of $19.2 million was primarily driven by expansion of business from our new and existing clients of $19.6 million. This was partially offset by a loss of $0.4 million, mainly attributable to the depreciation of the Australian dollar against the U.S. dollar during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
Revenue decline in Healthcare of $0.4 million was primarily driven by the ramp-down in certain existing clients of $1.3 million. This was partially offset by expansion of business from our existing clients of $0.9 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
Revenue growth in Emerging Business of $8.2 million was primarily driven by expansion of business from our new and existing clients of $7.9 million and an increase in revenues of $0.3 million, mainly attributable to the appreciation of the U.K. pound sterling against the U.S. dollar during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
Revenue growth in Analytics of $8.9 million was primarily driven by higher volumes in our annuity and project-based engagements from our new and existing clients of $8.4 million and an increase in revenues of $0.5 million, mainly attributable to the appreciation of the U.K. pound sterling against the U.S. dollar during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
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 March 31, Dollar Change Percentage
change Three months ended March 31, Percentage
change
2024 2023 2024 2023
(dollars in millions)
Insurance $ 92.3 $ 82.3 $ 10.0 12.1 % 36.4 % 34.6 % 1.8 %
Healthcare 17.3 18.8 (1.5) (7.9) % 34.0 % 29.6 % 4.4 %
Emerging Business 41.0 36.0 5.0 13.9 % 44.9 % 45.6 % (0.7) %
Analytics 122.8 114.4 8.4 7.4 % 35.6 % 37.1 % (1.5) %
Total $ 273.4 $ 251.5 $ 21.9 8.7 % 37.4 % 37.2 % 0.2 %
Cost of revenues for the three months ended March 31, 2024 increased by $21.9 million, or 8.7% compared to the three months ended March 31, 2023. The increase in cost of revenues was primarily due to increases in employee-related costs and technology costs, partially offset by foreign exchange gain, net of hedging. Our gross margin for the three months ended March 31, 2024 was 37.4% compared to 37.2% for the three months ended March 31, 2023, an increase of 20 basis points (“bps”)
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primarily driven by higher revenues and operational efficiencies, partially offset by increases in employee-related costs during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
The increase in cost of revenues in Insurance of $10.0 million for the three months ended March 31, 2024 was primarily due to increases in employee-related costs of $8.8 million on account of higher headcount and wage inflation, higher technology costs of $1.3 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model and higher other operating costs of $1.4 million, partially offset by foreign exchange gain, net of hedging of $1.5 million. Gross margin in Insurance increased by 180 bps during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to higher revenues and operational efficiencies during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
The decrease in cost of revenues in Healthcare of $1.5 million for the three months ended March 31, 2024 was primarily due to lower facilities costs of $0.5 million resulting from optimization of office space, lower other operating costs of $0.7 million and foreign exchange gain, net of hedging of $0.3 million. Gross margin in Healthcare increased by 440 bps during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to operational efficiencies during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
The increase in cost of revenues in Emerging Business of $5.0 million for the three months ended March 31, 2024 was primarily due to increases in employee-related costs of $5.1 million on account of higher headcount and wage inflation and higher other operating costs $0.6 million, partially offset by foreign exchange gain, net of hedging of $0.7 million. Gross margin in Emerging Business decreased by 70 bps during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, 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, 2024, compared to the three months ended March 31, 2023.
The increase in cost of revenues in Analytics of $8.4 million for the three months ended March 31, 2024 was primarily due to increases in employee-related costs of $8.6 million on account of higher headcount and wage inflation and higher technology costs of $1.7 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model, partially offset by lower other operating costs of $1.1 million and foreign exchange gain, net of hedging of $0.8 million. Gross margin in Analytics decreased by 150 bps during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to increases in employee-related costs, partially offset by higher revenues during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
Selling, General and Administrative (“SG&A”) Expenses.
Three months ended March 31, Percentage
change
2024 2023 Dollar Change
(dollars in millions)
General and administrative expenses $ 53.2 $ 46.7 $ 6.5 13.9 %
Selling and marketing expenses 36.0 29.5 6.5 22.0 %
Selling, general and administrative expenses $ 89.2 $ 76.2 $ 13.0 17.0 %
The increase in SG&A expenses of $13.0 million was primarily due to increases in employee-related costs of $7.9 million on account of higher headcount and wage inflation, higher investments in digital and generative AI capabilities of $3.9 million, higher sales and marketing spend of $0.5 million and higher other operating costs of $1.1 million. This was partially offset by foreign exchange gain, net of hedging of $0.4 million, during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
Depreciation and Amortization.
Three months ended March 31, Percentage change
2024 2023 Dollar Change
(dollars in millions)
Depreciation expense $ 9.3 $ 9.3 $ — — %
Intangible amortization expense 3.1 4.2 (1.1) (25.8) %
Depreciation and amortization expense $ 12.4 $ 13.5 $ (1.1) (8.5) %
The depreciation expense remained flat at $9.3 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The decrease in intangibles amortization expense of $1.1 million during the three months
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ended March 31, 2024, compared to the three months ended March 31, 2023, was primarily due to end of useful lives for certain intangible assets.
Income from Operations. Income from operations increased by $2.1 million, or 3.5%, from $59.4 million for the three months ended March 31, 2023 to $61.5 million for the three months ended March 31, 2024, primarily due to higher revenues and higher gross margins, partially offset by higher SG&A expenses during the three months ended March 31, 2024.
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 rand during the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The average exchange rate of the U.S. dollar against the Indian rupee increased from 82.25 during the three months ended March 31, 2023 to 83.12 during the three months ended March 31, 2024. The average exchange rate of the U.S. dollar against the Philippine peso increased from 54.78 during the three months ended March 31, 2023 to 56.24 during the three months ended March 31, 2024. The average exchange rate of the U.K. pound sterling against the U.S. dollar increased from 1.23 during the three months ended March 31, 2023 to 1.27 during the three months ended March 31, 2024. The average exchange rate of the U.S. dollar against the South African rand increased from 17.90 during the three months ended March 31, 2023 to 18.96 during the three months ended March 31, 2024.
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 $0.4 million for the three months ended March 31, 2024.
Interest expense . Interest expense decreased from $3.4 million for the three months ended March 31, 2023 to $3.3 million for the three months ended March 31, 2024, primarily due to a lower average outstanding balance under our revolving credit facility during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, partially offset by a higher effective interest rate of 6.7% during the three months ended March 31, 2024, compared to 5.9% during the three months ended March 31, 2023.
Other Income, net.
Three months ended March 31, Percentage
change
2024 2023 Dollar Change
(dollars in millions)
Gain on sale and fair value mark-to-market on investments $ 1.0 $ 1.7 $ (0.7) (38.2) %
Interest and dividend income 2.3 1.7 0.6 32.7 %
Fair value changes of contingent consideration 0.6 — 0.6 100.0 %
Others, net 0.1 (0.2) 0.3 (130.0) %
Other income, net $ 4.0 $ 3.2 $ 0.8 25.3 %
Other income, net increased by $0.8 million, from $3.2 million for the three months ended March 31, 2023 to $4.0 million for the three months ended March 31, 2024. The increase is primarily due to a decrease of $0.6 million in contingent consideration liability related to our June 2022 acquisition of Inbound Media Group, LLC as a result of fair value adjustment and lower other expenses of $0.3 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
Income Tax Expense . The effective tax rate increased from 13.6% during the three months ended March 31, 2023 to 22.0% during the three months ended March 31, 2024. We recorded income tax expense of $13.8 million and $8.1 million for the three months ended March 31, 2024 and 2023, respectively. The increase in income tax expense was primarily as a result of higher profit during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and lower excess tax benefits related to stock-based compensation during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
Net Income . Net income decreased from $51.3 million for the three months ended March 31, 2023 to $48.8 million for the three months ended March 31, 2024, primarily due to higher income tax expense of $5.7 million, partially offset by an increase in income from operations of $2.1 million, higher other income, net of $0.8 million, higher foreign exchange gain, net of $0.3 million and lower interest expense of $0.1 million.
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Liquidity and Capital Resources
Three months ended March 31, Percentage Change
2024 2023 Dollar Change
(dollars in millions)
Opening cash, cash equivalents and restricted cash $ 145.4 $ 125.6 $ 19.8 15.7 %
Net cash (used for)/provided by operating activities (21.9) 16.0 (37.9) (236.5) %
Net cash provided by investing activities 4.7 43.3 (38.6) (89.2) %
Net cash used for financing activities (9.8) (91.3) 81.5 (89.3) %
Effect of exchange rate changes (1.2) 1.4 (2.6) (194.5) %
Closing cash, cash equivalents and restricted cash $ 117.2 $ 95.0 $ 22.2 23.4 %
As of March 31, 2024 and 2023, we had $246.2 million and $203.8 million, respectively, in cash, cash equivalents and short-term investments, of which $213.7 million and $177.5 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, 2024, one of our subsidiaries in India repatriated $18.3 million (net of $1.0 million withholding taxes) to the United States.
Operating Activities: Net cash used for operating activities was $21.9 million during the three months ended March 31, 2024, compared to net cash provided by operating activities of $16.0 million during the three months ended March 31, 2023, reflecting higher working capital needs and lower cash earnings. The major drivers contributing to the decrease of $37.9 million year-over-year included the following:
• Decrease in cash earnings including adjustments for non-cash and other items contributed lower cash flow of $12.2 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023. These adjustments include fair value mark-to-market of investments, unrealized foreign currency exchange (gain)/loss, net, stock-based compensation expense, depreciation and amortization of long-lived assets and intangibles acquired in business combination, among others.
• Changes in accounts receivable, including advance billings, contributed higher cash flow of $6.7 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023. Collections in accounts receivable, including advance billings was driven by revenue growth for the three months ended March 31, 2024. This was partially offset by increase in our days sales outstanding, which was 66 days as of March 31, 2024, compared to 65 days as of March 31, 2023.
• Payment of contingent consideration related to our December 2021 acquisition of Clairvoyant AI, Inc. (“Clairvoyant”) contributed to a higher cash payout of $11.0 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
• Higher income tax payments, net of refunds, contributed higher cash payouts of $4.4 million, partially offset by provision for income tax and changes in deferred tax assets and liabilities of $7.9 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
• Changes in other assets, accounts payables including other liabilities contributed to a higher cash payouts of $24.9 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
Investing Activities: Cash provided by investing activities were $4.7 million for the three months ended March 31, 2024, compared to $43.3 million for the three months ended March 31, 2023. The decrease of $38.6 million was primarily due to lower net redemption of investments of $15.9 million during the three months ended March 31, 2024, compared to $55.3 million during the three months ended March 31, 2023. This was partially offset by lower cash paid for purchase of long-lived assets, including investments in infrastructure, technology assets, software and product developments of $1.2 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.
Financing Activities: Cash used for financing activities were $9.8 million during the three months ended March 31, 2024, compared to $91.3 million during the three months ended March 31, 2023. The decrease of $81.5 million was primarily due to
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net proceeds of our borrowings under our revolving credit facility of $145.0 million during the three months ended March 31, 2024, compared to net repayment of $50.0 million during the three months ended March 31, 2023. This was partially offset by higher purchases of treasury stock of $109.9 million under our share repurchase programs and payment of contingent consideration related to our December 2021 acquisition of Clairvoyant of $4.0 million for the three months ended March 31, 2024, compared to the three months ended March 31, 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, including generative AI and purchase telecommunications equipment and computer hardware and software in connection with managing client operations.
We incurred $11.3 million of capital expenditures during the three months ended March 31, 2024. We expect to incur total capital expenditures of between $50.0 million to $55.0 million in fiscal 2024, 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 the relevant authorities with respect to such assessment orders. See Note 25 - Commitments and Contingencies to our unaudited consolidated financial statements under Part I, Item 1, “Financial Statements” 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. 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 or significant stock repurchases, including any shares purchased under an accelerated stock repurchase program, we may need to obtain additional financing.
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, payments for contingent consideration and uncertain tax positions. 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 under Part I, Item 1, “Financial Statements” 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, 2024 and December 31, 2023, 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. We had no other off-balance sheet arrangements or obligations.
Financing Arrangements (Debt Facility)
The following table summarizes our debt position:
As of March 31, 2024 As of December 31, 2023
(dollars in millions)
Revolving credit facility
Current portion of long-term borrowings $ 65.0 $ 65.0
Long-term borrowings 280.0 135.0
Total borrowings $ 345.0 $ 200.0
As of March 31, 2024 and December 31, 2023, we were in compliance with all financial and non-financial covenants under the 2022 Credit Agreement.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies - Recent Accounting Pronouncements to our unaudited consolidated financial statements under Part I, Item 1, “Financial Statements.”
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.