# ExlService Holdings, Inc. (EXLS) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ExlService Holdings, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1297989/000129798925000002/exls-20241231.htm
Accession: 0001297989-25-000002
Filing date: 2025-02-25
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/EXLS/
All MD&A years: /company/EXLS/mda/
Previous year: /company/EXLS/mda/fy2023/ (FY 2023)
Next year: /company/EXLS/mda/fy2025/ (FY 2025)

ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in connection with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Some of the statements in the following discussion are forward looking statements.

All references to years, unless otherwise noted, refer to our fiscal year, which ends on December 31. For example, a reference to “2024” or “fiscal 2024” means the 12-month period that ended on December 31, 2024. All references to quarters, unless otherwise noted, refer to the quarters of our fiscal year.

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K 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 Annual Report on Form 10-K, 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;

•use of AI technology presents competitive, reputational and legal risks, and our use of AI technology may not be successful;

•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, and on third party data use rights for certain of our offerings;

•employee wage increases;

•failure to protect our intellectual property;

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

•our ability to manage rapid infrastructure and personnel growth across countries;

•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;

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•telecommunications or technology disruptions or breaches, natural or other disasters, medical epidemics or pandemics, or acts of violence or war;

•challenges by applicable tax authorities to transfer pricing determinations or 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 rising inflation, high interest rates and economic recessionary trends on currency exchange rates;

•restrictions on immigration and work permits;

•difficulty of enforcing judgments against our foreign subsidiaries or officers;

•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 competitive terms, or exposure to interest rate fluctuations that are not fully hedged through interest rate swaps.

•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 initiatives.

In particular, you should consider the numerous risks outlined in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. These and other risks could cause actual results to differ materially from those implied by forward-looking statements in this Annual Report on Form 10-K.

The forward-looking statements made by us in this Annual Report on Form 10-K, or elsewhere, speak only as of the date on which they were made. New risks and uncertainties 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 Annual Report on Form 10-K after the date of this Annual Report on Form 10-K, except as required by federal securities laws.

Executive Overview

We are a global data and artificial intelligence (“AI”) company that offers services and solutions to reinvent our client business models, drive better outcomes and unlock growth with speed. We harness the power of data, AI, and deep industry knowledge to transform businesses, including the world’s leading corporations in industries including insurance, healthcare, banking and capital markets, retail, communications and media, and energy and infrastructure, among others.

We deliver advanced analytics and AI-powered digital operations and solutions to our clients, driving enterprise-scale business transformation initiatives that leverage our deep domain expertise in generative AI and cloud technology. Through the end of 2024, we managed and reported financial information through our four strategic business units: Insurance, Healthcare, Analytics and Emerging Business, which reflected how management reviewed financial information and made operating decisions.

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.

Acquisition during the year 2024

On August 1, 2024, we completed the acquisition of Incandescent Technologies, Inc. (“ITI Data”), a data management solutions firm that works with the global banks, financial services and healthcare companies. It delivers enterprise business solutions for clients processing significant data volumes with complex data management requirements. The acquisition strengthens our ability to deliver reliable, data-driven insights to our clients and ultimately drive greater value and innovation across their operations.

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2025 Operating Model

In the first quarter of 2025, we began to implement operational and structural changes to accelerate the execution of our data and AI strategy, capture a greater share of the growing AI market and drive our long-term growth. The new operating model is comprised of Industry Market Units (“IMUs”) to focus on delivering higher value to clients leveraging our full suite of capabilities; and Strategic Growth Units to focus on rapidly advancing our capabilities specific to various industries and client needs. This will enable us to further embed analytics throughout each of our IMUs, enhance our client relationships, deepen investments in data and AI capabilities, develop industry-specific AI solutions, form partnerships, access new client buying centers, enable expansion of our addressable markets across industries and geographies, and provide more professional development opportunities for our employees.

Our IMUs, Insurance, Healthcare and Life Sciences, Banking, Capital Markets and Diversified Industries, and International Growth Markets, reflect how management will review financial information and make operating decisions beginning in the first quarter of 2025. These IMUs will focus on managing customer relationships and delivering the “One EXL” value proposition to clients, maintain a unified go-to-market approach and be integrally responsible for growth, profitability and client satisfaction.

Our new reportable segments, aligned to our IMUs, effective for the first quarter of 2025 will be as follows:

•Insurance,

•Healthcare and Life Sciences,

•Banking, Capital Markets and Diversified Industries,

•International Growth Markets

The primary changes in our new reportable segments reflect 1) the integration of our former Analytics reportable segment as a core capability within each of our IMUs, ensuring alignment with the specialized needs of our clients across IMUs, 2) the reorganization of our former Emerging Business reportable segment into a Banking, Capital Markets and Diversified Industries reportable segment, excluding Life Sciences, which is now a part of former Healthcare reportable segment, and including data and analytics services, and 3) the formation of International Growth Markets as a separate business unit to represent all our service and solutions offerings to clients in the United Kingdom, Europe, Middle East and Asia-Pacific geographies across all industry verticals. The International Growth Markets business unit will help strategically expand our footprint in markets outside of Americas and drive focus on offerings and expansion in those markets in new and existing clients.

This change in segment presentation will not have any effect on our consolidated statements of income, balance sheets or statements of cash flows. The revised presentation will be reflected in our periodic and annual reports beginning in the first quarter of 2025.

Our Business

We provide data analytics and digital operations and solutions to our clients. We market and sell our services to existing and prospective clients through our sales and client management teams, which are aligned by our clients’ industry verticals and our capabilities such as digital operations and solutions and analytics. Our sales and client management teams operate primarily from the United States, India, the United Kingdom, Ireland and Australia.

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Digital Operations and Solutions: We provide our clients with a range of data and AI-driven digital operations and solutions include: a) multi-modal data ingestion using AI, and converting unstructured content into curated and usable data, b) real-time and comprehensive data insights with end-to-end data management and 360-degree customer views for our clients, c) omni-channel and frictionless customer experience including self-service, conversational AI and smart agent assist, d) AI-powered automation of transaction processing and e) automated quality, compliance and audits. We have transformed various client operations using the above solutions such as underwriting operations, claims processing, accounts payables processing, utilization management, member and provider contact center services and collections and accounts receivable. We 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.

We have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their digital operations and solutions needs, in order to achieve 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, particularly if we are required to modify the terms of our relationships with such clients to meet competition.

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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 aspects of our clients’ business. We provide care optimization and payment integrity 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 offerings, client base and go-to-market strategy, both organically and through acquisitions.

Revenues

For fiscal 2024, we generated revenues of $1,838.4 million compared to revenues of $1,630.7 million for fiscal 2023, an increase of $207.7 million, or 12.7%.

We serve clients mainly in the United States and the United Kingdom, with these two regions generating 82.6% and 11.7%, respectively, of our total revenues for fiscal 2024 and 84.1% and 10.9%, respectively, of our total revenues for fiscal 2023.

For fiscal 2024 and 2023, our total revenues from our top ten clients accounted for 33.2% and 34.0% 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.

Cost of Revenues

Our cost of revenues primarily consists of:

•employee costs, which include salary, bonus and other compensation expenses; retirement benefits, recruitment and training costs; employee health and life insurance; transport; rewards and recognition for certain employees; and non-cash stock-based compensation expense; outsourced/subcontractors costs;

•costs relating to our facilities and communications network, which include telecommunication and IT costs; facilities and customer management support; operational expenses for our operations centers; lease cost; and

•other costs which primarily include travel and costs relating to our direct mail operations.

The most significant components of our cost of revenues are salaries and benefits (including stock-based compensation), retirement benefits, recruitment, training, transport, meals, rewards and recognition and employee health and life insurance. Salary levels, employee turnover rates and our ability to efficiently manage and utilize our employees significantly affect our cost of revenues. We make every effort to manage employee and capacity utilization and continuously monitor service levels and staffing requirements. Although we generally have been able to reallocate our employees as client demand has fluctuated, a contract termination or significant reduction in work assigned to us by a major client could cause us to experience a higher-than-expected number of unassigned employees, which would increase our cost of revenues as a percentage of revenues until we are able to reduce or reallocate our headcount. A significant increase in the turnover rate among our employees, particularly among the highly skilled workforce needed to execute certain services, would increase our recruiting and training costs and decrease our operating efficiency, productivity and profit margins. In addition, cost of revenues also includes non-cash amortization of stock-based compensation expense related to the grant of our equity awards to employees directly involved in providing services to our clients.

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

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training costs to continue to increase as we hire additional staff to service new clients and train existing staff to provide them with evolving skill sets. There is significant competition for professionals with skills necessary to perform the services we offer to our clients. As our existing competitors continue to grow, and as new competitors enter the market, we expect competition for skilled professionals in each of these areas to continue to increase, with corresponding increases in our cost of revenues to reflect increased compensation levels for such professionals. We also expect that we will continue to incur additional costs to monitor and improve operational efficiency of our hybrid working model, invest in information technology solutions, including adaption to evolving modes of seeking such solutions through cloud-based hosting arrangements and security measures to safeguard against information security risks. See Part I, Item 1A, “Risk Factors” under “Risks Related to Our Business––Employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin.” However, a significant portion of our client contracts include inflation-based adjustments to our billing rates year over year which partially offset such increase in cost of revenues.

We generally experience a higher cost of revenues as a percentage of revenues during the initial 12 to 18 months in a long-term digital operations and solutions contract due to upfront investments in infrastructure, resource hiring and training during migration. The cost of revenues as a percentage of revenues improves as we scale up, achieve operational efficiencies and complete the migration.

Operating Expenses

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

Our General and Administrative expenses (“G&A”) comprise of expenses relating to salaries and benefits (including stock-based compensation), retirement benefits as well as costs related to recruitment, training and retention of senior management and other support personnel in enabling functions, telecommunications, utilities, travel and other miscellaneous administrative costs. G&A expenses also include acquisition-related costs, legal and professional fees (which represent the costs of third party legal, tax, accounting, immigration and other advisors), litigation claims, cost of technology solutions sought through evolving modes of cloud-based hosting arrangements, investment in product development, AI and other digital technologies, bad debt allowance and stock-based compensation expenses related to grant of our equity awards to members of our board of directors. We expect our G&A costs to increase as we continue to strengthen our support and enabling functions and invest in leadership development, performance management and training programs.

Selling and marketing expenses primarily consist of salaries and benefits (including stock-based compensation), retirement benefits and other compensation expenses of sales and marketing and client management personnel, sales commission, travel and brand building, client events and conferences. We expect that sales and marketing expenses will continue to increase as we invest in our sales and client management functions to better serve our clients and in our branding.

Depreciation and Amortization Expense

Depreciation and amortization expense pertains to depreciation of our property and equipment, including network equipment, cabling, computers, office furniture and equipment, motor vehicles and leasehold improvements and amortization of intangible assets acquired in business combinations. As part of our ongoing evaluation of our business needs, we continually optimize our operations centers and expect depreciation to decrease on assets related to operations centers, such as office furniture and equipment and leasehold improvements. As our business continues to expand, we expect additional investments in digital technologies and equipment, including laptops, desktop computers, servers and other infrastructure, and increased reliance on hybrid working model, we expect increases in depreciation on assets-related to such investments. Property and equipment, if evaluated as being used differently than as originally intended are assessed for revision of their useful life, thereby revising their future depreciation to reflect the actual use of such property and equipment over the remaining shortened life. We expect amortization of intangible assets to increase further as we pursue strategic relationships and acquisitions.

Foreign Exchange Gain, Net

We report our financial results in U.S. dollars.

Our revenues are primarily denominated in the U.S. dollar, however, a portion of our revenues are earned in the U.K. pound sterling representing 10.7% and 10.1% of our total revenues in fiscal 2024 and 2023, respectively. We also incur a significant portion of our expenses in the Indian rupee, the Philippine peso, the South African rand and the U.K. pound sterling, representing 29.7%, 8.2%, 3.5% and 2.8%, respectively, of our total expenses in fiscal 2024, compared to 28.5%, 8.2%, 2.0% and 3.1%, respectively, of our total expenses in fiscal 2023. The exchange rates among these currencies and the U.S. dollar have changed over the years and may fluctuate substantially in the future as well. The results of our operations could be substantially impacted as these currencies appreciate or depreciate against the U.S. dollar. See Part I, Item 1A, “Risk Factors” under “Risks Related to the International Nature of Our Business––Currency exchange rate fluctuations in the various

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currencies in which we do business, or the failure of our hedging strategies to mitigate such fluctuations, could have a material adverse effect on our results of operations,” as well as Note 2 - Summary of Significant Accounting Policies and Note 17 - Derivatives and Hedge Accounting to our consolidated financial statements under Part II, Item 8, “Financial Statements and Supplementary Data” and Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk-Components of Market Risk-Foreign Currency Risk.”

Interest Expense

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

Other Income/(Expense), Net

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

Income Taxes

We are subject to taxes in the countries we operate in. Our future tax liabilities could be adversely affected by any new unfavorable tax legislative and other changes in such countries. We continuously monitor such changes to assess and quantify the potential impacts on our consolidated financial statements.

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

We recognize deferred tax assets and liabilities for temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards. We determine if a valuation allowance is required on the basis of an assessment of whether it is more likely than not that a deferred tax asset will be realized.

We currently benefit from corporate tax holidays in our qualified Philippines Economic Zone Authority operations centers in the Philippines. Our ability to utilize these tax holidays could be adversely affected by any new unfavorable tax legislative changes. We continuously monitor such changes to assess and quantify any potential impacts on our consolidated financial statements.

In October 2021, the Organization for Economic Co-operation and Development (“OECD”) introduced Pillar Two Framework imposing a global minimum tax rate of 15%. We have determined that the impact of the Pillar Two Framework did not have material impact on our consolidated financial statements.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements included in this Annual Report on Form 10-K, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). A summary of our significant accounting policies is included in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements under Part II, Item 8, “Financial Statements and Supplementary Data.”

We consider the policies discussed below to be critical to an understanding of our consolidated financial statements, as their application places the most significant demands on management’s judgment regarding matters that are inherently uncertain at the time an estimate is made.

These policies include revenue recognition, allowance for expected credit losses, business combinations and goodwill, stock-based compensation, income taxes, employee benefits, and contingencies.

These accounting policies, estimates and the associated risks are set out below. Future events may not develop exactly as forecasted and estimates routinely require adjustment.

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Revenue Recognition

Revenue is recognized when services are provided to our customers, in an amount that reflects the consideration which we expect to be entitled to in exchange for the services provided. We recognize revenue when we satisfy a performance obligation by providing services to a customer.

Revenue is measured based on consideration specified in a contract with a customer and excludes value added tax, business tax, any applicable discounts and amounts collected on behalf of third parties. Reimbursements of out-of-pocket expenses are included as a part of revenue.

Significant judgments

Arrangements with Multiple Performance Obligations

We sometimes enter into contracts with our customers which include promises to transfer multiple products and services to the customer. Determining whether products and services are considered as distinct performance obligations that should be accounted for separately rather than as one performance obligation may require significant judgment. The transaction price is allocated to performance obligations on relative standalone selling price basis.

Judgment is also required to determine the standalone selling price for each distinct performance obligation. In instances where the standalone selling price is not directly observable, it is determined using information that may include market conditions and other observable inputs.

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

Variable Consideration

Variability in the transaction price arises primarily due to service level agreements, volume discounts entailing variability in revenue earned, and contracts under our payment integrity services whereby variability in revenue is attributable to the amount we enable our customers to recover.

We consider our historical experience, including trends with similar transactions and expectations regarding the contract in estimating the amount of variable consideration that should be recognized during a period.

We believe that the expected value method is most appropriate for determining the variable consideration since we have a large number of contracts with similar nature of transactions/services.

Type of Contracts Requiring Judgment

Revenues from payment integrity services having contingent fee arrangements are recognized by us at the point in time when a performance obligation is satisfied, which is when we identify an overpayment claim. In such contracts, our consideration is contingent upon the actual collections made by our customers and net of any subsequent retraction claims. Based on guidance on “variable consideration” in Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), we use our historical experience and projections to determine the expected recoveries from our customers and recognize revenue based upon such expected recoveries. Any adjustment required due to change in estimates are recorded in the period in which such change is identified. The estimated amount of revenue to be collected from our customers are presented as contract assets within “Other Current Assets”.

Allowance for Expected Credit Losses

We record accounts receivable net of allowances for expected credit losses. Allowances for credit losses are established through the evaluation of aging of accounts receivables, prior collection experience, current market conditions, forecasts about future economic conditions, customers’ financial condition and the amount of accounts receivable in dispute to estimate the collectability of these accounts receivable. Accounts receivable balances are written-off against the allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.

Business Combinations and Goodwill

We account for all business combinations using the acquisition method of accounting as prescribed by ASC Topic 805, Business Combinations. The guidance requires the use of significant estimates and assumptions in determining the fair value of identifiable assets acquired and liabilities assumed, including intangible assets and contingent consideration, and allocation of

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purchase price over such assets and liabilities on the acquisition date. The significant estimates and assumptions include, but are not limited to, the timing and amount of future revenue and cash flows based on, among other things, discount rate reflecting the risk inherent in future cash flows, customer attrition rates and the long-term growth rate applied within the discounted cash flow model. This requires a high degree of our judgment and the need to involve fair value specialists to evaluate the reasonableness of our valuation methodology and the selection of inputs to the valuation.

In addition, assets acquired and liabilities assumed including uncertain tax positions and tax-related valuation allowances in connection with business combinations are initially estimated as of the acquisition date. We subsequently re-evaluate the assets acquired and liabilities assumed, including additional assets and liabilities identified subsequent to acquisition date, with any adjustments to our preliminary estimates being recorded to goodwill within the measurement period (up to one year from the acquisition date).

We also perform a quantitative assessment of goodwill impairment, if based on the qualitative factors, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The significant estimates and assumptions include, the timing and amount of future revenue and cash flows, discount rate reflecting the risk inherent in future cash flows and the long-term growth rate applied within the discounted cash flow model. If based on the quantitative impairment analysis, the carrying value of the goodwill of a reporting unit exceeds the fair value of such goodwill, an impairment loss is recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to that reporting unit.

Stock-Based Compensation

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

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

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

The fair value of each PU is determined based on the market price of one share of our common stock on the day prior to the date of grant. The grant date fair value for the MUs is determined using a Monte Carlo simulation model. The Monte Carlo simulation model simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. The Monte Carlo simulation model also involves the use of additional key assumptions, including dividend yield and risk-free interest rate. We periodically assess the reasonableness of our assumptions and update our estimates as required. If actual results differ significantly from our estimates, stock-based compensation expense and our results of operations could be materially affected.

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

Income Taxes

We account for income tax using the asset and liability method. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized in respect of future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases and operating losses carried forward, if any. Deferred tax assets and liabilities are measured using the anticipated tax rates for the years in which such temporary differences are expected to be recovered or settled. We recognize the effect of a change in tax rates on deferred tax assets and liabilities during the period in which the new tax rate was enacted or the change in tax status was filed or approved. Deferred tax assets are recognized in full, subject to a valuation allowance that reduces the amount recognized to that which is more likely than not to be realized. In assessing the likelihood of realization, we consider all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. With respect to any entity that benefits from a corporate tax holiday, deferred tax assets or liabilities for existing temporary differences are recorded only to the extent such temporary differences are expected to reverse following the expiration of the tax holiday.

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We also evaluate potential exposures related to tax contingencies or claims made by the tax authorities in various jurisdictions in order to determine whether a reserve may be required. A reserve is recorded if we believe that a loss is more likely than not, and if the amount of such loss can be reasonably estimated. Such reserves are based on estimates and, consequently, are subject to changing facts and circumstances, including the progress of ongoing audits, changes in case law and the passage of new legislation. We have established adequate reserves to cover any potential tax contingencies or claims.

ASC Topic 740, Income Taxes, requires companies to recognize, measure, present and disclose uncertain tax positions. We employ a two-step process for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining, based on the technical merits, that the position will, more likely than not, be sustained upon examination. The second step is to measure the tax benefit as the largest amount of the tax benefit that is more likely than not to be realized upon settlement. We have established adequate reserves to cover all uncertain tax positions.

Employee Benefits

We record contributions to defined contribution plans in our consolidated statements of income in the period in which services are rendered by the covered employees. Current service costs for defined benefit plans are recognized in the period to which they relate. The liability in respect of defined benefit plans is calculated annually by using the projected unit credit method and various actuarial assumptions including discount rates, mortality, expected return on assets, expected increase in the compensation rates and attrition rates. We evaluate these critical assumptions at least annually. If actual results differ significantly from our estimates, current service costs for defined benefit plans and our results of operations could be materially impacted.

Contingencies

Loss contingencies are recorded as liabilities when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Significant judgment is required in the determination of both probability and whether an exposure is reasonably estimable. Our judgments are subjective and based on the information available from the status of the legal or regulatory proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. As additional information becomes available, we reassess any potential liability related to any pending litigation and may revise our estimates. Such revisions in estimates of any potential liabilities could have a material impact on our results of operations, financial position and cash flows.

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Results of Operations

For a discussion of our results of operations for fiscal 2022, including a year-to-year comparison between fiscal 2023 and 2022, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for fiscal 2023, filed with the SEC on February 29, 2024.

The following table summarizes our results of operations:

[[GREPCENT_TABLE]]
[["","","","","","","","","","(dollars in millions)"],["","Fiscal 2024","","Percentage of Revenues, net","","Fiscal 2023","","Percentage of Revenues, net","","Dollar Change","","Percentage Change"],["","(A)","","","(B)","","","(C=A-B)"],["Revenues, net","$","1,838.4","","","100.0","%","","$","1,630.7","","","100.0","%","","$","207.7","","","12.7","%"],["Cost of revenues (1)","1,147.4","","","62.4","%","","1,022.9","","","62.7","%","","124.5","","12.2","%"],["Gross profit (1)","691.0","","","37.6","%","","607.8","","","37.3","%","","83.2","","13.7","%"],["Operating expenses:"],["General and administrative expenses","225.7","","","12.3","%","","198.3","","","12.2","%","","27.4","","13.8","%"],["Selling and marketing expenses","146.5","","","8.0","%","","120.2","","","7.3","%","","26.3","","21.9","%"],["Depreciation and amortization expense","55.2","","","3.0","%","","50.5","","","3.1","%","","4.7","","9.3","%"],["Total operating expenses","427.4","","","23.2","%","","369.0","","","22.6","%","","58.4","","15.8","%"],["Income from operations","263.6","","","14.3","%","","238.8","","","14.6","%","","24.8","","10.4","%"],["Foreign exchange gain, net","0.9","","","\u2014","%","","1.5","","","0.1","%","","(0.6)","","(40.0)","%"],["Interest expense","(19.3)","","","(1.0)","%","","(13.2)","","","(0.8)","%","","(6.1)","","46.2","%"],["Other income, net","16.1","","","0.9","%","","10.8","","","0.7","%","","5.3","","49.1","%"],["Income before income tax expense and earnings from equity affiliates","261.3","","","14.2","%","","237.9","","","14.6","%","","23.4","","9.8","%"],["Income tax expense","62.9","","","3.4","%","","53.5","","","3.3","%","","9.4","","17.6","%"],["Income before earnings from equity affiliates","198.4","","","10.8","%","","184.4","","","11.3","%","","14.0","","7.6","%"],["Gain/(loss) from equity-method investment","(0.1)","","","\u2014","%","","0.2","","","\u2014","%","","(0.3)","","(150.0)","%"],["Net income","$","198.3","","","10.8","%","","$","184.6","","","11.3","%","","$","13.7","","","7.4","%"]]
[[/GREPCENT_TABLE]]

(1) Exclusive of depreciation and amortization expense.

Due to rounding, the numbers presented in the tables included in this Part II, Item 7, “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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Fiscal 2024 Compared to Fiscal 2023

Revenues.

The following table summarizes our revenues by reportable segments:

[[GREPCENT_TABLE]]
[["","Fiscal","","Dollar Change","","Percentage change","","Percentage of Total Revenues for Fiscal"],["","2024","","2023","","","","2024","","2023"],["","(dollars in millions)"],["Insurance","$","614.0","","","$","529.9","","","$","84.1","","","15.9","%","","33.4","%","","32.5","%"],["Healthcare","116.4","","","106.0","","","10.4","","","9.8","%","","6.3","%","","6.5","%"],["Emerging Business","311.7","","","265.7","","","46.0","","","17.3","%","","17.0","%","","16.3","%"],["Analytics","796.3","","","729.1","","","67.2","","","9.2","%","","43.3","%","","44.7","%"],["Total revenues, net","$","1,838.4","","","$","1,630.7","","","$","207.7","","","12.7","%","","100.0","%","","100.0","%"]]
[[/GREPCENT_TABLE]]

Revenues for fiscal 2024 were up by $207.7 million, or 12.7%, compared to fiscal 2023, driven primarily by revenue growth from our new and existing clients in all of our reportable segments.

Revenue growth in Insurance of $84.1 million from fiscal 2023, was primarily driven by expansion of business from our new and existing clients during fiscal 2024.

Revenue growth in Healthcare of $10.4 million from fiscal 2023, was primarily driven by expansion of business from our existing clients during fiscal 2024.

Revenue growth in Emerging Business of $46.0 million from fiscal 2023 was primarily driven by expansion of business from our new and existing clients of $45.4 million and an increase in revenues of $0.6 million that was mainly attributable to the appreciation of the U.K. pound sterling against the U.S. dollar during fiscal 2024.

Revenue growth in Analytics of $67.2 million from fiscal 2023 was primarily driven by higher volumes in our annuity and project-based engagements from our new and existing clients of $66.5 million, including incremental revenue from our August 2024 acquisition of ITI Data and an increase in revenues of $0.7 million that was mainly attributable to the appreciation of the U.K. pound sterling against the U.S. dollar during fiscal 2024.

Cost of Revenues and Gross Margin: The following table sets forth cost of revenues and gross margin of our reportable segments:

[[GREPCENT_TABLE]]
[["","Cost of Revenues","","Gross Margin"],["","Fiscal","","Dollar Change","","Percentage change","","Fiscal","","Percentage change"],["","2024","","2023","","","","2024","","2023"],["","(dollars in millions)"],["Insurance","$","390.4","","","$","341.8","","","$","48.6","","","14.2","%","","36.4","%","","35.5","%","","0.9","%"],["Healthcare","77.9","","","69.3","","","8.6","","","12.5","%","","33.0","%","","34.6","%","","(1.6)","%"],["Emerging Business","181.4","","","150.9","","","30.5","","","20.2","%","","41.8","%","","43.2","%","","(1.4)","%"],["Analytics","497.7","","","460.9","","","36.8","","","8.0","%","","37.5","%","","36.8","%","","0.7","%"],["Total","$","1,147.4","","","$","1,022.9","","","$","124.5","","","12.2","%","","37.6","%","","37.3","%","","0.3","%"]]
[[/GREPCENT_TABLE]]

Cost of revenues for fiscal 2024 increased by $124.5 million, or 12.2% compared to fiscal 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. See Note 26 – Restructuring Costs to our consolidated financial statements under Part II, Item 8, “Financial Statements and Supplementary Data.” Our gross margin for fiscal 2024 was 37.6% compared to 37.3% for fiscal 2023, an increase of 30 basis points ("bps").

The increase in cost of revenues in Insurance of $48.6 million from fiscal 2023 was primarily due to increases in employee-related costs of $42.3 million on account of higher headcount, restructuring costs and wage inflation, higher technology costs of $4.8 million on account of increased subscription to cloud-based software licenses and our continued investments in our hybrid working model, higher facilities costs of $3.9 million and higher other operating costs of

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$3.1 million, partially offset by foreign exchange gain, net of hedging of $5.5 million. Gross margin in Insurance increased by 90 bps from fiscal 2023, primarily due to operational efficiencies during fiscal 2024.

The increase in cost of revenues in Healthcare of $8.6 million from fiscal 2023 was primarily due to increases in employee-related costs of $9.0 million on account of higher headcount and wage inflation, and higher technology costs of $1.3 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 $1.7 million. Gross margin in Healthcare decreased by 160 bps from fiscal 2023, primarily due to ramp-ups for certain existing clients during fiscal 2024.

The increase in cost of revenues in Emerging Business of $30.5 million from fiscal 2023 was primarily due to increases in employee-related costs of $28.6 million on account of higher headcount, restructuring costs and wage inflation, higher technology costs of $3.0 million on account of increased subscription to cloud-based software licenses and use of the hybrid working model and higher other operating costs $2.0 million, partially offset by foreign exchange gain, net of hedging of $3.1 million. Gross margin in Emerging Business decreased by 140 bps from fiscal 2023, primarily due to ramp-ups for certain existing clients during fiscal 2024.

The increase in cost of revenues in Analytics of $36.8 million from fiscal 2023 was primarily due to increases in employee-related costs of $34.8 million on account of higher headcount, restructuring costs and wage inflation, including incremental cost related to our August 2024 acquisition of ITI Data and higher technology costs of $8.6 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 $4.2 million and foreign exchange gain, net of hedging of $2.4 million. Gross margin in Analytics increased by 70 bps from fiscal 2023, primarily due to higher revenues and operational efficiencies, partially offset by impact of restructuring costs of 40 bps during fiscal 2024.

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

[[GREPCENT_TABLE]]
[["","Fiscal","","Dollar Change","","Percentage change"],["","2024","","2023"],["","(dollars in millions)"],["General and administrative expenses","$","225.7","","","$","198.3","","","$","27.4","","","13.8","%"],["Selling and marketing expenses","146.5","","","120.2","","","26.3","","","21.9","%"],["Selling, general and administrative expenses","$","372.2","","","$","318.5","","","$","53.7","","","16.8","%"]]
[[/GREPCENT_TABLE]]

The increase in SG&A expenses of $53.7 million from fiscal 2023 was primarily due to higher employee-related costs of $34.2 million on account of higher headcount and wage inflation, including incremental costs related to our August 2024 acquisition of ITI Data, higher investments in digital and generative AI capabilities of $13.2 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 $2.7 million. This increase in SG&A expenses was partially offset by foreign exchange gain, net of hedging of $1.4 million during fiscal 2024, compared to fiscal 2023.

Depreciation and Amortization.

[[GREPCENT_TABLE]]
[["","Fiscal","","Dollar Change","","Percentage change"],["","2024","","2023"],["","(dollars in millions)"],["Depreciation expense","$","41.6","","","$","35.8","","","$","5.8","","","16.1","%"],["Intangible amortization expense","13.6","","","14.7","","","(1.1)","","","(7.1)","%"],["Depreciation and amortization expense","$","55.2","","","$","50.5","","","$","4.7","","","9.4","%"]]
[[/GREPCENT_TABLE]]

The increase in depreciation expense of $5.8 million from fiscal 2023 was primarily due to investments in digital capabilities, computers and networking equipment during fiscal 2024. The decrease in intangibles amortization expense of $1.1 million was primarily due to end of useful lives for certain intangible assets, partially offset by amortization of intangibles associated with our acquisition of ITI Data in August 2024 during fiscal 2024, compared to fiscal 2023.

Income from Operations. Income from operations increased by $24.8 million, or 10.4%, from $238.8 million for fiscal 2023 to $263.6 million for fiscal 2024, primarily due to higher revenues and higher gross margins, partially offset by higher SG&A expenses during fiscal 2024.

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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 fiscal 2024, compared to fiscal 2023. The average exchange rate of the U.S. dollar against the Indian rupee increased from 82.60 during fiscal 2023 to 83.76 during fiscal 2024. The average exchange rate of the U.S. dollar against the Philippine peso increased from 55.56 during fiscal 2023 to 57.39 during fiscal 2024. The average exchange rate of the U.K. pound sterling against the U.S. dollar increased from 1.25 during fiscal 2023 to 1.28 during fiscal 2024. The average exchange rate of the U.S. dollar against the South African rand decreased from 18.51 during fiscal 2023 to 18.35 during fiscal 2024.

We recorded a foreign exchange gain, net of $1.5 million for fiscal 2023 compared to a foreign exchange gain, net of $0.9 million for fiscal 2024.

Interest expense. Interest expense increased from $13.2 million for fiscal 2023 to $19.3 million for fiscal 2024, primarily due to higher average borrowings during fiscal 2024, compared to fiscal 2023.

Other Income, net.

[[GREPCENT_TABLE]]
[["","Fiscal","","Dollar Change","","Percentage change"],["","2024","","2023"],["","(dollars in millions)"],["Gain on sale and mark-to-market on investments","$","5.7","","","$","5.0","","","$","0.7","","","12.9","%"],["Interest and dividend income","9.9","","","8.0","","","1.9","","","23.6","%"],["Fair value changes of contingent consideration","0.6","","","(1.9)","","","2.5","","","(131.0)","%"],["Others, net","(0.1)","","","(0.3)","","","0.2","","","(73.9)","%"],["Other income, net","$","16.1","","","$","10.8","","","$","5.3","","","(100.0)","%"]]
[[/GREPCENT_TABLE]]

Other income, net increased by $5.3 million, from $10.8 million for fiscal 2023 to $16.1 million for fiscal 2024. The increase is primarily due to higher yield on our investments of $2.6 million and net impact of $2.5 million from changes in fair value of contingent consideration related to our June 2022 acquisition of Inbound Media Group, LLC and December 2021 acquisition of Clairvoyant during fiscal 2024, compared to fiscal 2023.

Income Tax Expense. The effective tax rate increased from 22.5% for fiscal 2023 to 24.1% for fiscal 2024. We recorded income tax expense of $62.9 million and $53.5 million for fiscal 2024 and 2023, respectively. The increase in income tax expense was primarily as a result of higher profit, increase in non-deductible expenses and lower excess tax benefits related to stock-based compensation, partially offset by decrease in foreign tax rate differential during fiscal 2024, compared to fiscal 2023.

Net Income. Net income increased from $184.6 million for fiscal 2023 to $198.3 million for fiscal 2024, primarily due to increase in income from operations of $24.8 million and higher other income, net of $5.3 million, partially offset by higher interest expense of $6.1 million, lower foreign exchange gain, net of $0.6 million and higher income tax expense of $9.4 million.

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Liquidity and Capital Resources

[[GREPCENT_TABLE]]
[["","Fiscal","","Dollar Change"],["","2024","","2023","","","Percentage Change"],["","(dollars in millions)"],["Opening cash, cash equivalents and restricted cash","$","145.4","","","$","125.6","","","$","19.8","","","15.7","%"],["Net cash provided by operating activities","268.5","","","211.2","","","57.3","","","27.1","%"],["Net cash used for investing activities","(119.1)","","","(12.0)","","","(107.1)","","","892.7","%"],["Net cash used for financing activities","(119.1)","","","(181.4)","","","62.3","","","(34.4)","%"],["Effect of exchange rate changes","(4.3)","","","2.0","","","(6.3)","","","(313.3)","%"],["Closing cash, cash equivalents and restricted cash","$","171.4","","","$","145.4","","","$","26.0","","","17.9","%"]]
[[/GREPCENT_TABLE]]

As of December 31, 2024 and 2023, we had $340.6 million and $290.8 million, respectively, in cash, cash equivalents and short-term investments, of which $296.0 million and $237.7 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 2024, some of our foreign subsidiaries repatriated $38.2 million (net of $2.6 million withholding taxes) to the United States.

Operating Activities:

Net cash provided by operating activities was $268.5 million for fiscal 2024, compared to $211.2 million for fiscal 2023, reflecting higher cash earnings, partially offset by higher working capital needs. The major drivers contributing to the increase of $57.3 million year-over-year included the following:

•Increase in cash earnings, including adjustments for non-cash and other items contributed higher cash flow of $18.0 million for fiscal 2024, compared to fiscal 2023. These adjustments include fair value changes in investments, unrealized foreign currency exchange gain, deferred tax effects, stock-based employee compensation, fair value changes in contingent consideration, depreciation and amortization of long-lived assets and intangibles acquired in business combinations, among others.

•Changes in accounts receivable, including advance billings, contributed higher cash flow of $61.8 million for fiscal 2024, compared to fiscal 2023. Collections in accounts receivable, including advance billings was driven by revenue growth for fiscal 2024. Our days sales outstanding were 62 days as of December 31, 2024, compared to 64 days as of December 31, 2023.

•Payment of contingent consideration related to our December 2021 acquisition of Clairvoyant contributed to a higher cash payout of $11.0 million for fiscal 2024, compared to fiscal 2023.

•Changes in other assets, accounts payables including other liabilities contributed higher cash payout of $11.5 million for fiscal 2024, compared to fiscal 2023.

Investing Activities: Cash used for investing activities were $119.1 million for fiscal 2024, compared to $12.0 million for fiscal 2023. The increase in cash used for investing activities of $107.1 million year-over-year is primarily due to higher net purchase of investments of $88.8 million and net cash used for business acquisition of $24.3 million for fiscal 2024, compared to fiscal 2023. This was partially offset by lower capital expenditures in infrastructure, technology assets, software and product developments of $6.5 million for fiscal 2024, compared to fiscal 2023.

Financing Activities: Cash used for financing activities were $119.1 million for fiscal 2024, compared to $181.4 million for fiscal 2023. The decrease in cash used for financing activities of $62.3 million year-over-year was primarily due to net proceeds from borrowings under our revolving credit facility and new term loan facility of $88.8 million for fiscal 2024, compared to net repayment of our borrowings of $50.0 million for fiscal 2023. The increase was also due to higher purchases of treasury stock of $76.1 million under our share repurchase program for fiscal 2024, compared to fiscal 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 AI, infrastructure and purchase telecommunications equipment and computer hardware and software in connection with managing client operations.

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We incurred $46.3 million of capital expenditures during fiscal 2024. We expect to incur total capital expenditures of between $50 million to $55 million in fiscal 2025, primarily to meet our growth requirements, including additions to our facilities and infrastructure, as well as investments in technology applications, product development and other, digital technologies.

In connection with any tax assessment orders that have been issued, or may be issued against us or our subsidiaries, we may be required to deposit additional amounts with the relevant authorities with respect to such assessment orders. See Note 25 - Commitments and Contingencies to our consolidated financial statements under Part II, Item 8, “Financial Statements and Supplementary Data” 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 short-term cash requirements. Our future cash requirements will depend on many factors, including our rate of revenue growth, our investments in strategic initiatives like acquisition of complementary businesses, capital expenditures and 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.

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 20 - Employee Benefit Plans, Note 21 - Leases, Note 22 - Income Taxes and Note 25 - Commitments and Contingencies to our consolidated financial statements under Part II, Item 8, “Financial Statements and Supplementary Data” for further information on material cash requirements from known contractual and other obligations.

In the ordinary course of business, we provide standby letters of credit to third parties primarily for facility leases. As of December 31, 2024 and 2023, we had outstanding letters of credit of $0.8 million and $0.5 million, respectively, 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

The following table summarizes our debt position:

[[GREPCENT_TABLE]]
[["","As of"],["","December 31, 2024","","December 31, 2023"],["","Revolving credit facility","","Term loan facility","","Total","","Revolving credit facility","","Term loan facility","","Total"],["Current portion of long-term borrowings","$","\u2014","","","$","5.0","","","$","5.0","","","$","65.0","","","$","\u2014","","","$","65.0"],["Unamortized debt issuance costs","\u2014","","","(0.1)","","","(0.1)","","","\u2014","","","\u2014","","","\u2014"],["Total current portion of long-term borrowings","\u2014","","","4.9","","","4.9","","","65.0","","","\u2014","","","65.0"],["Long-term borrowings","190.0","","","93.8","","","283.8","","","135.0","","","\u2014","","","135.0"],["Unamortized debt issuance costs","\u2014","","","(0.2)","","","(0.2)","","","\u2014","","","\u2014","","","\u2014"],["Total long-term borrowings","190.0","","","93.6","","","283.6","","","135.0","","","\u2014","","","135.0"],["Total borrowings","$","190.0","","","$","98.5","","","$","288.5","","","$","200.0","","","$","\u2014","","","$","200.0"]]
[[/GREPCENT_TABLE]]

Credit Agreement

We held a $300.0 million revolving credit facility pursuant to our credit agreement (the “Credit Agreement”), dated as of November 21, 2017, with certain lenders and Citibank N.A. as Administrative Agent, which was amended and restated on April 18, 2022 (the “2022 Credit Agreement”). Among other things, the 2022 Credit Agreement (a) provides for the issuance of new revolving credit commitments such that the aggregate amount of revolving credit commitments available as of April 18, 2022 is equal to $400.0 million; and (b) extends the maturity date of the revolving credit facility from November 21, 2022 to April 18, 2027.

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On August 9, 2024, we and each of our wholly owned material domestic subsidiaries entered into a First Amendment to Amended and Restated Credit Agreement with Citibank, N.A., as Administrative Agent, and certain lenders (the “2024 Credit Agreement”), pursuant to which the parties thereto amended and restated the 2022 Credit Agreement. Among other things, the 2024 Credit Agreement (a) provides for a $100.0 million increase to the revolving credit commitments such that the aggregate amount of revolving credit commitments available as of August 9, 2024 is equal to $500.0 million; and (b) provides for the issuance of a new term loan facility in the aggregate amount of $100.0 million with an annual prepayment amount of 5%. The increased revolving credit facility and the new term loan facility both mature on April 18, 2027.

The 2024 Credit Agreement includes a letter of credit sub facility and is voluntarily pre-payable from time to time without premium or penalty. Borrowings under the revolving credit facility can be used for working capital and general corporate purposes, including permitted acquisitions. Borrowings of $100.0 million under the term loan facility (which was drawn based on adjusted SOFR) were used to repay the borrowings outstanding under the revolving credit facility on August 9, 2024.

Obligations under the 2024 Credit Agreement are guaranteed by our wholly-owned material domestic subsidiaries and are secured by all or substantially all of our and our material domestic subsidiaries’ assets. The 2024 Credit Agreement contains customary affirmative and negative covenants, including, but not limited to, restrictions on the ability to incur indebtedness, create liens, make certain investments, make certain dividends and distributions, enter into, or undertake, certain liquidations, mergers, consolidations or acquisitions and dispose of certain assets or subsidiaries. In addition, the 2024 Credit Agreement contains a covenant to not permit the interest coverage ratio or the total net leverage ratio for the four consecutive quarter period ending on the last day of each fiscal quarter, to be less than 3.0 to 1.0 or more than 3.5 to 1.0, respectively.

The 2024 Credit Agreement bears interest at a rate equal to specified prime rate (alternate base rate) or adjusted SOFR, plus, in each case, an applicable margin. The applicable margin on the revolving credit facility is tied to our total net leverage ratio and ranges from 0% to 0.75% per annum on loans pegged to the specified prime rate, and 0.875% to 1.75% per annum on loans pegged to the adjusted SOFR. The applicable margin on the term loan facility is also tied to our total net leverage ratio and ranges from 0.125% to 1.00% per annum on loans pegged to the specified prime rate, and 1.125% to 2.00% per annum on loans pegged to the adjusted SOFR. The revolving credit commitments under the 2024 Credit Agreement are subject to a commitment fee which is also tied to our total net leverage ratio, and ranges from 0.125% to 0.275% per annum on the average daily amount by which the aggregate revolving commitments exceed the sum of outstanding revolving loans and letter of credit obligations.

The effective interest rates of the revolving credit facility and the term loan facility are as follows:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2024","","2023"],["Revolving credit facility","6.3","%","","6.3","%"],["Term loan facility","6.5","%","","\u2014"]]
[[/GREPCENT_TABLE]]

As of December 31, 2024 and 2023, we were in compliance with the financial covenants under the 2024 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 consolidated financial statements under Part II, Item 8, “Financial Statements and Supplementary Data.”

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