What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-02 · 194 added, 83 removed, 212 unchanged (57% of the section changed)

59 unchanged sentences

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.

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.

For the three months ended June 30, 2024, we generated revenues of $448.4 million compared to revenues of $405.0 million for the three months ended June 30, 2023, an increase of $43.4 million, or 10.7%.

For the six months ended June 30, 2024, we generated revenues of $884.9 million compared to revenues of $805.6 million for the six months ended June 30, 2023, an increase of $79.3 million, or 9.8%.

We serve cli ents mainly in the United States and the United Kingdom, with these two regions generating 82.7% and 11.8%, respectively, of our total revenues for the three months ended June 30, 2024, and 84.1% and 10.8%, respectively, of our total revenues for the three months ended June 30, 2023.

For the six months ended June 30, 2024, these two regions generated 82.8% and 11.7%, respectively, of our total revenues and 84.4% and 10.6%, respectively, of our total revenues for the six months ended June 30, 2023.

For the three months ended June 30, 2024 and 2023, our total revenues from our top ten clients accounted for 33.0% and 33.8% of our total revenues, respectively.

For the six months ended June 30, 2024 and 2023, our total revenues from our top ten clients accounted for 32.9% and 34.3% 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.

41 unchanged sentences

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.

There have been no significant changes in our critical accounting policies and estimates during the three and six months ended June 30, 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.

Results of Operations

The following table summarizes our results of operations:

The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023:

(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

Three months ended June 30, 2024 Percentage of Revenues, net Three months ended June 30, 2023 Percentage of Revenues, net Dollar Change Percentage Change

(A) (B) (C=A-B)

21 unchanged sentences

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, 2024 Compared to Three Months Ended March 31, 2023

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

The following table summarizes our revenues by reportable segments:

Three months ended March 31, Percentage

Three months ended June 30, Percentage

change Percentage of Total Revenues for the three months ended

6 unchanged sentences

Total revenues, net $ 448.4 $ 405.0 $ 43.4 10.7 % 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.

Revenues for the three months ended June 30, 2024 were up by $43.4 million, or 10.7%, compared to the three months ended June 30, 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 $20.8 million was primarily driven by expansion of business from our new and existing clients of $20.8 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Revenue growth in Healthcare of $0.9 million was primarily driven by expansion of business from our existing clients of $1.6 million, partially offset by lower revenues associated with the ramp-down of certain existing clients of $0.7 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Revenue growth in Emerging Business of $10.1 million was primarily driven by expansion of business from our new and existing clients of $10.1 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Revenue growth in Analytics of $11.6 million was primarily driven by higher volumes in our annuity and project-based engagements from our new and existing clients of $11.6 million during the three months ended June 30, 2024, compared to the three months ended June 30, 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 June 30, Dollar

Change Percentage

change Three months ended June 30, Percentage

2024 2023 2024 2023

(dollars in millions)

Insurance $ 95.5 $ 84.3 $ 11.2 13.3 % 36.0 % 34.4 % 1.6 %

Healthcare 18.8 17.6 1.2 7.2 % 33.1 % 35.4 % (2.3) %

Emerging Business 45.1 37.8 7.3 19.1 % 41.6 % 43.7 % (2.1) %

Analytics 122.7 113.5 9.2 8.1 % 36.7 % 37.7 % (1.0) %

Total $ 282.1 $ 253.2 $ 28.9 11.4 % 37.1 % 37.5 % (0.4) %

Cost of revenues for the three months ended June 30, 2024 increased by $28.9 million, or 11.4% compared to the three months ended June 30, 2023.

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

Our gross margin for the three months ended June 30, 2024 was 37.1%, compared to 37.5% for the three months ended June 30, 2023, a decrease

of 40 basis points (“bps”) primarily driven by the impact of restructuring costs of 70 bps, partially offset by higher revenues during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

The increase in cost of revenues in Insurance of $11.2 million for the three months ended June 30, 2024 was primarily due to increases in employee-related costs of $10.7 million on account of higher headcount, restructuring costs and wage inflation, higher technology costs of $1.2 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model and higher other operating costs of $1.1 million, partially offset by foreign exchange gain, net of hedging of $1.8 million.

Gross margin in Insurance increased by 160 bps during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to higher revenues and operational efficiencies during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

The increase in cost of revenues in Healthcare of $1.2 million for the three months ended June 30, 2024 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 230 bps during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to lower revenues associated with the ramp-down of certain existing clients and higher operating expenses during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

The increase in cost of revenues in Emerging Business of $7.3 million for the three months ended June 30, 2024 was primarily due to increases in employee-related costs of $7.6 million on account of higher headcount, restructuring costs and wage inflation and higher technology costs of $0.8 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model, partially offset by foreign exchange gain, net of hedging of $1.1 million.

Gross margin in Emerging Business decreased by 210 bps during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to investment in ramp-ups in certain new and existing clients during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

The increase in cost of revenues in Analytics of $9.2 million for the three months ended June 30, 2024 was primarily due to increases in employee-related costs of $7.6 million on account of higher headcount, restructuring costs and wage inflation and higher technology costs of $2.0 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 $0.4 million.

Gross margin in Analytics decreased by 100 bps during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to the impact of restructuring costs of 120 bps, partially offset by higher revenues during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

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

Three months ended June 30, Dollar Change Percentage

(dollars in millions)

General and administrative expenses $ 56.5 $ 45.6 $ 10.9 23.8 %

Selling and marketing expenses 35.4 28.2 7.2 25.5 %

Selling, general and administrative expenses $ 91.9 $ 73.8 $ 18.1 24.5 %

The increase in SG&A expenses of $18.1 million was primarily due to increases in employee-related costs of $8.5 million on account of higher headcount and wage inflation, higher investments in digital and generative AI capabilities of $4.4 million, higher sales and marketing spend of $1.4 million, restructuring costs, litigation settlement costs and associated legal fees of $3.1 million and higher other operating costs of $1.2 million.

This was partially offset by foreign exchange gain, net of hedging of $0.5 million, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Depreciation and Amortization.

Three months ended June 30, Dollar Change Percentage

(dollars in millions)

Depreciation expense $ 9.8 $ 8.9 $ 0.9 10.3 %

Intangible amortization expense 3.1 4.2 (1.1) (26.8) %

Depreciation and amortization expense $ 12.9 $ 13.1 $ (0.2) (1.6) %

The increase in depreciation expense of $0.9 million was primarily due to investments in digital capabilities, computers and networking equipment during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

The decrease in intangibles amortization expense of $1.1 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023 was primarily due to end of useful lives for certain intangible assets.

Income from Operations.

Income from operations decreased by $3.4 million, or 5.2%, from $64.9 million for the three months ended June 30, 2023 to $61.5 million for the three months ended June 30, 2024, primarily due to higher SG&A expenses, partially offset by higher revenues during the three months ended June 30, 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 June 30, 2024, compared to the three months ended June 30, 2023.

The average exchange rate of the U.S.

dollar against the Indian rupee increased from 82.20 during the three months ended June 30, 2023 to 83.42 during the three months ended June 30, 2024.

The average exchange rate of the U.S.

dollar against the Philippine peso increased from 55.58 during the three months ended June 30, 2023 to 58.29 during the three months ended June 30, 2024.

The average exchange rate of the U.K.

pound sterling against the U.S.

dollar increased from 1.25 during the three months ended June 30, 2023 to 1.26 during the three months ended June 30, 2024.

The average exchange rate of the U.S.

dollar against the South African rand decreased from 19.02 during the three months ended June 30, 2023 to 18.53 during the three months ended June 30, 2024.

We recorded a foreign exchange gain, net of $0.3 million for the three months ended June 30, 2023 compared to a foreign exchange gain, net of $nil for the three months ended June 30, 2024.

Interest expens e.

Interest expense increased from $3.2 million for the three months ended June 30, 2023 to $5.3 million for the three months ended June 30, 2024, primarily due to a higher average outstanding balance under our revolving credit facility and a higher effective interest rate of 6.5% during the three months ended June 30, 2024, compared to 6.2% during the three months ended June 30, 2023.

Other Income, net.

Three months ended June 30, Change Percentage

(dollars in millions)

Gain on sale and mark-to-market on investments $ 1.2 $ 1.1 $ 0.1 6.1 %

Interest and dividend income 2.4 1.7 0.7 43.7 %

Other, net (0.1) (0.2) 0.1 (114.9) %

Other income, net $ 3.5 $ 2.6 $ 0.9 33.4 %

Other income, net increased by $0.9 million, from $2.6 million for the three months ended June 30, 2023 to $3.5 million for the three months ended June 30, 2024.

The increase is primarily due to higher yield on our investments of $0.8 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Income Tax Expense.

The effective tax rate decreased from 24.1% during the three months ended June 30, 2023 to 23.2% during the three months ended June 30, 2024.

We recorded income tax expense of $13.9 million and $15.6 million for the three months ended June 30, 2024 and 2023, respectively.

The decrease in income tax expense was primarily as a result of lower profit during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, partially offset by higher credits during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Net income decreased from $49.1 million for the three months ended June 30, 2023 to $45.8 million for the three months ended June 30, 2024, primarily due to a decrease in income from operations of $3.4 million, higher interest expense of $2.1 million and lower foreign exchange gain, net of $0.3 million, partially offset by a lower income tax expense of $1.6 million and higher other income, net of $0.9 million.

Results of Operations

The following table summarizes our results of operations for the six months ended June 30, 2024 and 2023:

(dollars in millions)

Six months ended June 30, 2024 Percentage of Revenues, net Six months ended June 30, 2023 Percentage of Revenues, net Dollar Change Percentage Change

(A) (B) (C=A-B)

Revenues, net $ 884.9 100.0 % $ 805.6 100.0 % $ 79.3 9.8 %

Cost of revenues (1)

555.5 62.8 % 504.7 62.6 % 50.8 10.1 %

Gross profit (1)

329.4 37.2 % 300.9 37.4 % 28.5 9.4 %

Operating expenses:

General and administrative expenses 109.7 12.4 % 92.3 11.5 % 17.4 18.8 %

Selling and marketing expenses 71.4 8.1 % 57.7 7.2 % 13.7 23.7 %

Depreciation and amortization expense 25.3 2.9 % 26.6 3.3 % (1.3) (5.1) %

Total operating expenses 206.4 23.3 % 176.6 21.9 % 29.8 16.8 %

Income from operations 123.0 13.9 % 124.3 15.4 % (1.3) (1.0) %

Foreign exchange gain, net 0.4 — % 0.4 0.1 % — (7.8) %

Interest expense (8.6) (1.0) % (6.6) (0.8) % (2.0) 30.1 %

Other income, net 7.4 0.8 % 5.8 0.7 % 1.6 29.0 %

Income before income tax expense and earnings from equity affiliates 122.2 13.8 % 123.9 15.4 % (1.7) (1.3) %

Income tax expense 27.6 3.1 % 23.6 2.9 % 4.0 17.0 %

Income before earnings from equity affiliates 94.6 10.7 % 100.3 12.4 % (5.7) (5.6) %

Gain from equity-method investment — — % 0.1 — % (0.1) (128.0) %

Net income attributable to ExlService Holdings, Inc.

stockholders $ 94.6 10.7 % $ 100.4 12.5 % $ (5.8) (5.8) %

(1) Exclusive of depreciation and amortization expense.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

The following table summarizes our revenues by reportable segments:

Six months ended June 30, Percentage

change Percentage of Total Revenues for the six months ended

2024 2023 Dollar Change 2024 2023

(dollars in millions)

Insurance $ 294.4 $ 254.4 $ 40.0 15.7 % 33.3 % 31.6 %

Healthcare 54.4 53.9 0.5 0.9 % 6.1 % 6.7 %

Emerging Business 151.6 133.3 18.3 13.7 % 17.1 % 16.6 %

Analytics 384.5 364.0 20.5 5.6 % 43.5 % 45.1 %

Total revenues, net $ 884.9 $ 805.6 $ 79.3 9.8 % 100.0 % 100.0 %

Revenues for the six months ended June 30, 2024 were up by $79.3 million, or 9.8%, compared to the six months ended June 30, 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 $40.0 million was primarily driven by expansion of business from our new and existing clients of $40.5 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.

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

dollar during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Revenue growth in Healthcare of $0.5 million was primarily driven by expansion of business from our existing clients of $2.5 million, partially offset by lower revenues associated with the ramp-down of certain existing clients of $2.0 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Revenue growth in Emerging Business of $18.3 million was primarily driven by expansion of business from our new and existing clients of $18.0 million and an increase in revenues of $0.3 million that was 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.

dollar during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Revenue growth in Analytics of $20.5 million was primarily driven by higher volumes in our annuity and project-based engagements from our new and existing clients of $20.1 million and an increase in revenues of $0.4 million that was 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.

dollar during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Cost of Revenues and Gross Margin :

1 unchanged sentence

Cost of Revenues Gross Margin

Three months ended March 31, Dollar Change Percentage

change Three months ended March 31, Percentage

Six months ended June 30, Dollar

Change Percentage change Six months ended June 30, Percentage change

2024 2023 2024 2023

5 unchanged sentences

Total $ 555.5 $ 504.7 $ 50.8 10.1 % 37.2 % 37.4 % (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”)

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.

Cost of revenues for the six months ended June 30, 2024 increased by $50.8 million, or 10.1%, compared to the six months ended June 30, 2023.

Our gross margin for the six months ended June 30, 2024 was 37.2% compared to 37.4% for the six months ended June 30, 2023, a decrease of 20 bps primarily driven by the impact of restructuring costs of 30 bps, partially offset by higher revenues and operational efficiencies during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

The increase in cost of revenues in Insurance of $21.2 million for the six months ended June 30, 2024 was primarily due to increases in employee-related costs of $19.5 million on account of higher headcount, restructuring costs and wage inflation, higher technology costs of $2.5 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model and higher other operating costs of $2.6 million, partially offset by foreign exchange gain, net of hedging of $3.4 million.

Gross margin in Insurance increased by 170 bps during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to higher revenues and operational efficiencies during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

The decrease in cost of revenues in Healthcare of $0.3 million for the six months ended June 30, 2024 was primarily due to foreign exchange gain, net of hedging of $0.8 million, lower facilities costs of $0.6 million resulting from optimization of office space and lower other operating costs of $0.3 million, partially offset by increases in employee-related costs of $1.4 million on account of higher headcount and wage inflation.

Gross margin in Healthcare increased by 100 bps during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to higher revenues and operational efficiencies during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

The increase in cost of revenues in Emerging Business of $12.3 million for the six months ended June 30, 2024 was primarily due to increases in employee-related costs of $12.7 million on account of higher headcount, restructuring costs and wage inflation, higher technology costs of $1.1 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model and higher other operating costs of $0.5 million, partially offset by foreign exchange gain, net of hedging of $2.0 million.

Gross margin in Emerging Business decreased by 140 bps during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to investment in ramp-ups in certain new and existing clients during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

The increase in cost of revenues in Analytics of $17.6 million for the six months ended June 30, 2024 was primarily due to increases in employee-related costs of $16.2 million on account of higher headcount, restructuring costs and wage inflation and higher technology costs of $3.7 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 $1.6 million and foreign exchange gain, net of hedging of $0.7 million.

Gross margin in Analytics decreased by 130 bps during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to the impact of restructuring costs of 60 bps and increases in employee-related costs, partially offset by higher revenues and operational efficiencies during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

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

Three months ended March 31, Percentage

Six months ended June 30, Percentage change

2024 2023 Dollar Change

3 unchanged sentences

Selling, general and administrative expenses $ 181.1 $ 150.0 $ 31.1 20.7 %

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.

The increase in SG&A expenses of $31.1 million was primarily due to higher employee-related costs of $16.6 million on account of higher headcount and wage inflation, higher investments in digital and generative AI capabilities of $8.3 million, higher sales and marketing spend of $1.9 million, restructuring costs, litigation settlement costs and associated legal fees of $3.1 million and higher other operating costs of $2.1 million.

This was partially offset by foreign exchange gain, net of hedging of $0.9 million, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Depreciation and Amortization.

Three months ended March 31, Percentage change

Six months ended June 30, Percentage change

2024 2023 Dollar Change

3 unchanged sentences

Depreciation and amortization expense $ 25.3 $ 26.6 $ (1.3) (5.1) %

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

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.

The increase in depreciation expense of $0.8 million was primarily due to investments in digital capabilities, computers and networking equipment during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

The decrease in intangibles amortization expense of $2.1 million during the six months ended June 30, 2024, compared to the six months ended June 30, 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.

Income from operations decreased by $1.3 million, or 1.0%, from $124.3 million for the six months ended June 30, 2023 to $123.0 million for the six months ended June 30, 2024, primarily due to higher SG&A expenses, partially offset by higher revenues during the six months ended June 30, 2024.

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 rand during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

pound sterling and the South African rand during the six months ended June 30, 2024, compared to the six months ended June 30, 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.

dollar against the Indian rupee increased from 82.22 during the six months ended June 30, 2023 to 83.27 during the six months ended June 30, 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.

dollar against the Philippine peso increased from 55.18 during the six months ended June 30, 2023 to 57.27 during the six months ended June 30, 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.

dollar increased from 1.24 during the six months ended June 30, 2023 to 1.26 during the six months ended June 30, 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.

dollar against the South African rand increased from 18.46 during the six months ended June 30, 2023 to 18.74 during the six months ended June 30, 2024.

We recorded a foreign exchange gain, net of $0.4 million, each, for the six months ended June 30, 2023 and 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.

Interest expense increased from $6.6 million for the six months ended June 30, 2023 to $8.6 million for the six months ended June 30, 2024, primarily due to a higher average outstanding balance under our revolving credit facility and a higher effective interest rate of 6.6% during the six months ended June 30, 2024, compared to 6.1% during the six months ended June 30, 2023.

Other Income, net.

Three months ended March 31, Percentage

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) %

Six months ended June 30, Percentage change

2024 2023 Change

Gain on sale and mark-to-market on investments $ 2.2 $ 2.7 $ (0.5) (20.5) %

Interest and dividend income 4.7 3.4 1.3 38.1 %

Fair value changes of contingent consideration 0.6 — 0.6 100.0 %

Others, net 0.1 (0.2) 0.3 (130.0) %

Other, net (0.1) (0.3) 0.2 (125.6) %

Other income, net $ 7.4 $ 5.8 $ 1.6 29.0 %

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.

Other income, net increased by $1.6 million, from $5.8 million for the six months ended June 30, 2023 to $7.4 million for the six months ended June 30, 2024.

The increase is primarily due to higher yield on our investments of $0.8 million, 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 $0.2 million during the six months ended June 30, 2024, compared to the six months ended June 30, 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 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.

The effective tax rate increased from 19.1% during the six months ended June 30, 2023 to 22.6% during the six months ended June 30, 2024.

We recorded income tax expense of $27.6 million and $23.6 million for the six months ended June 30, 2024 and 2023, respectively.

The increase in income tax expense was primarily as a result of lower excess tax benefits related to stock-based compensation during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, and an increase in non-deductible expenses, partially offset by lower profit during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Net income decreased from $100.4 million for the six months ended June 30, 2023 to $94.6 million for the six months ended June 30, 2024, primarily due to higher income tax expense of $4.0 million, higher interest expense of $2.0 million and a decrease in income from operations of $1.3 million, partially offset by higher other income, net of $1.6 million.

Liquidity and Capital Resources

Three months ended March 31, Percentage Change

2024 2023 Dollar Change

Six months ended June 30, Dollar Change Percentage Change

(dollars in millions)

Opening cash, cash equivalents and restricted cash $ 141.0 $ 125.6 $ 15.4 14.1 %

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 provided by operating activities 53.0 63.6 (10.6) (16.6) %

Net cash (used for)/provided by investing activities (43.2) 11.8 (55.0) (467.0) %

Net cash used for financing activities (27.3) (101.8) 74.5 (73.2) %

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Closing cash, cash equivalents and restricted cash $ 121.7 $ 100.7 $ 21.0 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.

As of June 30, 2024 and 2023, we had $276.1 million and $250.0 million, respectively, in cash, cash equivalents and short-term investments, of which $241.3 million and $224.0 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, 2024, one of our subsidiaries in India repatriated $18.3 million (net of $1.0 million withholding taxes) to the United States.

During the six months ended June 30, 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.

Cash provided by operating activities were $53.0 million during the six months ended June 30, 2024, compared to $63.6 million during six months ended June 30, 2023, reflecting lower cash earnings and higher working capital needs.

The major drivers contributing to the decrease of $10.6 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.

• Decrease in cash earnings including adjustments for non-cash and other items contributed lower cash flow of $9.3 million during the six months ended June 30, 2024 compared to the six months ended June 30, 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.

• Changes in accounts receivable, including advance billings, contributed higher cash flow of $6.1 million in the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Collections in accounts receivable, including advance billings, was driven by revenue growth during the six months ended June 30, 2024.

Our days sales outstanding remained flat at 63 days as of June 30, 2024 and 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.

(“Clairvoyant”) contributed to a higher cash payout of $11.0 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

• Lower income tax payments, net of refunds, contributed lower cash payouts of $3.7 million.

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.

Cash used for investing activities were $43.2 million for the six months ended June 30, 2024, compared to cash provided by investing activities of $11.8 million for the six months ended June 30, 2023.

The decrease of $55.0 million was primarily due to net purchase of investments $20.0 million during six months ended June 30, 2024, compared to net redemption of investments $37.4 million during the six months ended June 30, 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 $2.8 million during the six months ended June 30, 2024, compared to the six months ended June 30, 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

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.

Cash used for financing activities were $27.3 million during the six months ended June 30, 2024, compared to $101.8 million during the six months ended June 30, 2023.

The decrease of $74.5 million was primarily due to net proceeds from borrowings under our revolving credit facility of $135.0 million during the six months ended June 30, 2024, compared to net repayment of our borrowings of $30.0 million during the six months ended June 30, 2023.

This was partially offset by higher purchases of treasury stock of $90.0 million under our share repurchase programs for the six months ended June 30, 2024, compared to 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, 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 incurred $23.3 million of capital expenditures during the six months ended June 30, 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.

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

As of 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.

As of June 30, 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.

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The following table summarizes our debt position:

As of March 31, 2024 As of December 31, 2023

As of June 30,2024 As of December 31, 2023

(dollars in millions)

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Total borrowings $ 335.0 $ 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.

As of June 30, 2024 and December 31, 2023, we were in compliance with all financial and non-financial covenants under the 2022 Credit Agreement.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis