Genpact LTD 10-Q for FY2021 Q2
Genpact LTD (G)
10-Q
2021-08-09
For: 2021-06-30
View Original
Added on
April 10, 2026
About this 10-Q
Genpact LTD filed this 10-Q on August 9, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $988.13M
- up 9.8% from $900.09M a year earlier
- Net income
- $102.7M
- up 65.2% from net income of $62.16M a year earlier
- Diluted EPS
- $0.53
- up 65.6% from $0.32 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the Quarterly Period ended June 30, 2021
Or
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the Transition Period from to
Commission file number: 001-33626
(Exact name of registrant as specified in its charter)
| Bermuda | ||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(441 ) 298-3300
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of August 2, 2021, there were 187,737,180 common shares, par value $0.01 per share, of the registrant issued and outstanding.
TABLE OF CONTENTS
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| 1A. | ||||||||||||||||||||
| 2. | ||||||||||||||||||||
| 6. | ||||||||||||||||||||
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share data and share count)
| Notes | As of December 31, 2020 | As of June 30, 2021 | |||||||||||||||
| Assets | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash and cash equivalents | 4 | $ | $ | ||||||||||||||
Accounts receivable, net of allowance for credit losses of $ | 5 | ||||||||||||||||
| Prepaid expenses and other current assets | 8 | ||||||||||||||||
| Total current assets | $ | $ | |||||||||||||||
| Property, plant and equipment, net | 9 | ||||||||||||||||
| Operating lease right-of-use assets | |||||||||||||||||
| Deferred tax assets | 23 | ||||||||||||||||
| Intangible assets, net | 10 | ||||||||||||||||
| Goodwill | 10 | ||||||||||||||||
| Contract cost assets | 20 | ||||||||||||||||
Other assets, net of allowance for credit losses of $ | |||||||||||||||||
| Total assets | $ | $ | |||||||||||||||
| Liabilities and equity | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Short-term borrowings | 11 | $ | $ | ||||||||||||||
| Current portion of long-term debt | 12 | ||||||||||||||||
| Accounts payable | |||||||||||||||||
| Income taxes payable | 23 | ||||||||||||||||
| Accrued expenses and other current liabilities | 13 | ||||||||||||||||
| Operating leases liability | |||||||||||||||||
| Total current liabilities | $ | $ | |||||||||||||||
| Long-term debt, less current portion | 12 | ||||||||||||||||
| Operating leases liability | |||||||||||||||||
| Deferred tax liabilities | 23 | ||||||||||||||||
| Other liabilities | 14 | ||||||||||||||||
| Total liabilities | $ | $ | |||||||||||||||
| Shareholders' equity | |||||||||||||||||
Preferred shares, $ | |||||||||||||||||
Common shares, $ | |||||||||||||||||
| Additional paid-in capital | |||||||||||||||||
| Retained earnings | |||||||||||||||||
| Accumulated other comprehensive income (loss) | ( | ( | |||||||||||||||
| Total equity | $ | $ | |||||||||||||||
| Commitments and contingencies | 25 | ||||||||||||||||
| Total liabilities and equity | $ | $ | |||||||||||||||
See accompanying notes to the Consolidated Financial Statements.
3
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data and share count)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| Notes | 2020 | 2021 | 2020 | 2021 | |||||||||||||||||||||||||
| Net revenues | 20 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | |||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||||||||
| Amortization of acquired intangible assets | 10 | ||||||||||||||||||||||||||||
| Other operating (income) expense, net | 21 | ( | ( | ||||||||||||||||||||||||||
| Income from operations | $ | $ | $ | $ | |||||||||||||||||||||||||
| Foreign exchange gains (losses), net | ( | ||||||||||||||||||||||||||||
| Interest income (expense), net | 22 | ( | ( | ( | ( | ||||||||||||||||||||||||
| Other income (expense), net | 24 | ( | |||||||||||||||||||||||||||
| Income before income tax expense | $ | $ | $ | $ | |||||||||||||||||||||||||
| Income tax expense | 23 | ||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||
| Earnings per common share | 18 | ||||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||||||||
| Weighted average number of common shares used in computing earnings per common share | 18 | ||||||||||||||||||||||||||||
| Basic | |||||||||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||||||||
See accompanying notes to the Consolidated Financial Statements.
4
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Currency translation adjustments | ( | ( | ( | ||||||||||||||||||||
| Net income (loss) on cash flow hedging derivatives, net of taxes (Note 7) | ( | ||||||||||||||||||||||
| Retirement benefits, net of taxes | |||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to the Consolidated Financial Statements.
5
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity
For the three months ended June 30, 2020
(Unaudited)
(In thousands, except share count)
| Common shares | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||||
| No. of Shares | Amount | Additional Paid-in Capital | Retained Earnings | Total Equity | |||||||||||||||||||||||||||||||
| Balance as of April 1, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Issuance of common shares on exercise of options (Note 16) | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common shares under the employee stock purchase plan (Note 16) | — | — | |||||||||||||||||||||||||||||||||
| Net settlement on vesting of restricted share units (Note 16) | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Net settlement on vesting of performance units (Note 16) | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock repurchased and retired (Note 17) | — | — | |||||||||||||||||||||||||||||||||
| Expenses related to stock repurchase (Note 17) | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense (Note 16) | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | |||||||||||||||||||||||||||||||
Dividend ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
See accompanying notes to the Consolidated Financial Statements.
6
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity
For the six months ended June 30, 2020
(Unaudited)
(In thousands, except share count)
| Common shares | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||||
| No. of Shares | Amount | Additional Paid-in Capital | Retained Earnings | Total Equity | |||||||||||||||||||||||||||||||
| Balance as of January 1, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||
| Adjusted balance as of January 1, 2020 | ( | ||||||||||||||||||||||||||||||||||
| Issuance of common shares on exercise of options (Note 16) | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common shares under the employee stock purchase plan (Note 16) | — | — | |||||||||||||||||||||||||||||||||
| Net settlement on vesting of restricted share units (Note 16) | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Net settlement on vesting of performance units (Note 16) | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Stock repurchased and retired (Note 17) | ( | ( | — | ( | — | ( | |||||||||||||||||||||||||||||
| Expenses related to stock purchase (Note 17) | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense (Note 16) | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Dividend ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
See accompanying notes to the Consolidated Financial Statements.
7
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity
For the three months ended June 30, 2021
(Unaudited)
(In thousands, except share count)
| Common shares | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||||
| No. of Shares | Amount | Additional Paid-in Capital | Retained Earnings | Total Equity | |||||||||||||||||||||||||||||||
| Balance as of April 1, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Issuance of common shares on exercise of options (Note 16) | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common shares under the employee stock purchase plan (Note 16) | — | — | |||||||||||||||||||||||||||||||||
| Net settlement on vesting of restricted share units (Note 16) | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Net settlement on vesting of performance units (Note 16) | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Stock repurchased and retired (Note 17) | ( | ( | — | ( | — | ( | |||||||||||||||||||||||||||||
| Expenses related to stock purchase (Note 17) | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense (Note 16) | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Dividend ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
See accompanying notes to the Consolidated Financial Statements.
8
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity
For the six months ended June 30, 2021
(Unaudited)
(In thousands, except share count)
| | Common shares | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||||||||||
| No. of Shares | Amount | Additional Paid-in Capital | Retained Earnings | Total Equity | |||||||||||||||||||||||||||||||
| Balance as of January 1, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Issuance of common shares on exercise of options (Note 16) | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common shares under the employee stock purchase plan (Note 16) | — | — | |||||||||||||||||||||||||||||||||
| Net settlement on vesting of restricted share units (Note 16) | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Net settlement on vesting of performance units (Note 16) | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Stock repurchased and retired (Note 17) | ( | ( | — | ( | — | ( | |||||||||||||||||||||||||||||
| Expense related to stock purchase (Note 17) | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation expense (Note 16) | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Dividend ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
See accompanying notes to the Consolidated Financial Statements.
9
GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
See accompanying notes to the Consolidated Financial Statements.
| Six months ended June 30, | |||||||||||
| 2020 | 2021 | ||||||||||
| Operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Amortization of acquired intangible assets | |||||||||||
| Write-down of intangible assets and property, plant and equipment | |||||||||||
| Allowance for credit losses | |||||||||||
| Unrealized loss (gain) on revaluation of foreign currency asset/liability | ( | ||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred tax benefit | ( | ( | |||||||||
| Write-down of operating lease right-of-use assets and other assets | |||||||||||
| Others, net | ( | ||||||||||
| Change in operating assets and liabilities: | |||||||||||
| (Increase) decrease in accounts receivable | ( | ||||||||||
| (Increase) decrease in prepaid expenses, other current assets, contract cost assets, operating lease right-of-use assets and other assets | ( | ||||||||||
| Increase (decrease) in accounts payable | ( | ||||||||||
| (Decrease) in accrued expenses, other current liabilities, operating lease liabilities and other liabilities | ( | ( | |||||||||
| Increase in income taxes payable | |||||||||||
| Net cash provided by operating activities | $ | $ | |||||||||
| Investing activities | |||||||||||
| Purchase of property, plant and equipment | ( | ( | |||||||||
| Payment for internally generated intangible assets (including intangibles under development) | ( | ( | |||||||||
| Proceeds from sale of property, plant and equipment | |||||||||||
| Payment for business acquisitions, net of cash acquired | ( | ||||||||||
| Net cash (used for) investing activities | $ | ( | $ | ( | |||||||
| Financing activities | |||||||||||
| Repayment of finance lease obligations | ( | ( | |||||||||
| Payment of debt issuance costs | ( | ( | |||||||||
| Proceeds from long-term debt | |||||||||||
| Repayment of long-term debt | ( | ( | |||||||||
| Proceeds from short-term borrowings | |||||||||||
| Repayment of short-term borrowings | ( | ( | |||||||||
| Proceeds from issuance of common shares under stock-based compensation plans | |||||||||||
| Payment for net settlement of stock-based awards | ( | ( | |||||||||
| Payment of earn-out consideration | ( | ||||||||||
| Dividend paid | ( | ( | |||||||||
| Payment for stock repurchased and retired (including expenses related to stock repurchase) | ( | ( | |||||||||
| Net cash provided by (used for) financing activities | $ | $ | ( | ||||||||
| Effect of exchange rate changes | ( | ( | |||||||||
| Net increase in cash and cash equivalents | |||||||||||
| Cash and cash equivalents at the beginning of the period | |||||||||||
| Cash and cash equivalents at the end of the period | $ | $ | |||||||||
| Supplementary information | |||||||||||
| Cash paid during the period for interest | $ | $ | |||||||||
| Cash paid during the period for income taxes, net of refund | $ | $ | |||||||||
10
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
1. Organization
2. Summary of significant accounting policies
(a) Basis of preparation and principles of consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, they do not include certain information and note disclosures required by generally accepted accounting principles for annual financial reporting and should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The accompanying consolidated financial statements reflect all adjustments that management considers necessary for a fair presentation of the results of operations for these periods.
The accompanying financial statements have been prepared on a consolidated basis and reflect the financial statements of Genpact Limited, a Bermuda company, and all of its subsidiaries that are more than 50% owned and controlled. When the Company does not have a controlling interest in an entity but exerts significant influence over the entity, the Company applies the equity method of accounting. All intercompany transactions and balances are eliminated in consolidation.
(c) Business combinations, goodwill and other intangible assets
11
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
Intangible assets acquired individually or with a group of other assets or in a business combination and developed internally are carried at cost less accumulated amortization and accumulated impairment loss based on their estimated useful lives as follows:
| Customer-related intangible assets | - | ||||||||||
| Marketing-related intangible assets | - | ||||||||||
| Technology-related intangible assets | - | ||||||||||
Intangible assets are amortized over their estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized.
In business combinations where the fair value of identifiable tangible and intangible net assets purchased exceeds the cost of the acquired business, the Company recognizes the resulting gain under “Other operating (income) expense, net” in the consolidated statements of income.
The Company also capitalizes certain software and technology-related development costs incurred in connection with developing or obtaining software or technology for sale/lease to customers when the initial design phase is completed and commercial and technological feasibility has been established. Any development cost incurred before technological feasibility is established is expensed as incurred as research and development costs. Technological feasibility is established upon completion of a detailed design program or, in its absence, completion of a working model. Capitalized software and technology costs include only (i) external direct costs of materials and services utilized in developing or obtaining software and technology and (ii) compensation and related benefits for employees who are directly associated with the project.
Costs incurred in connection with developing or obtaining software or technology for sale/lease to customers which are under development and not put to use are disclosed under “intangible assets under development.” Advances paid towards the acquisition of intangible assets outstanding as of each balance sheet date are disclosed under “intangible assets under development.”
Capitalized software and technology costs are included in intangible assets under technology-related intangible assets on the Company’s balance sheet and are amortized on a straight-line basis when placed into service over the estimated useful lives of the software and technology.
The Company evaluates the remaining useful life of intangible assets that are being amortized at each reporting period wherever events and circumstances warrant a revision to the remaining period of amortization, and the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life.
12
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
(d) Financial instruments and concentration of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk are reflected principally in cash and cash equivalents, derivative financial instruments and accounts receivable. The Company places its cash and cash equivalents and derivative financial instruments with corporations and banks with high investment grade ratings, limits the amount of credit exposure with any one corporation or bank and conducts ongoing evaluations of the creditworthiness of the corporations and banks with which it does business. To reduce its credit risk on accounts receivable, the Company conducts ongoing credit evaluations of its customers. The General Electric Company (“GE”) accounted for 16 % and 15 % of the Company’s receivables as of December 31, 2020 and June 30, 2021, respectively. GE accounted for 13 10
(e) Accounts receivable
Accounts receivable are recorded at the invoiced or to be invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for current expected credit losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses which are adjusted to current market conditions and a reasonable and supportable forecast. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.
(f) Revenue Recognition
The Company derives its revenue primarily from business process management services, including analytics, consulting and related digital solutions and information technology services, which are provided primarily on a time-and-material, transaction or fixed-price basis. The Company recognizes revenue upon the transfer of control of promised services to its customers in an amount that reflects the consideration the Company expects to receive in exchange for those services. Revenues from services rendered under time-and-materials and transaction-based contracts are recognized as the services are provided. The Company’s fixed-price contracts include contracts for customization of applications, maintenance and support services. Revenues from these contracts are recognized ratably over the term of the agreement. The Company accrues for revenue and unbilled receivables for services rendered between the last billing date and the balance sheet date.
The Company’s contracts with its customers also include incentive payments received for discrete benefits delivered or promised to be delivered to the customer or service level agreements that could result in credits or refunds to the customer. Revenues relating to such arrangements are accounted for as variable consideration when the amount of revenue to be recognized can be estimated to the extent that it is probable that a significant reversal of any incremental revenue will not occur.
The Company records deferred revenue attributable to certain process transition activities where such activities do not represent separate performance obligations. Revenues relating to such transition activities are classified under contract liabilities and subsequently recognized ratably over the period in which the related services are performed. Costs relating to such transition activities are fulfillment costs which are directly related to the contract and result in the generation or enhancement of resources. Such costs are expected to be recoverable under the contract and are therefore classified as contract cost assets and recognized ratably over the estimated expected period of benefit under cost of revenue.
Revenues are reported net of value-added tax, business tax and applicable discounts and allowances. Reimbursements of out-of-pocket expenses received from customers have been included as part of revenues.
13
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
Revenue for performance obligations that are satisfied over time is recognized in accordance with the methods prescribed for measuring progress. The input (cost expended) method has been used to measure progress towards completion as there is a direct relationship between input and the satisfaction of a performance obligation. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the current contract estimates.
The Company enters into multiple-element revenue arrangements in which a customer may purchase a combination of products or services. The Company determines whether each product or service promised to a customer is capable of being distinct, and is distinct in the context of the contract. If not, the promised products or services are combined and accounted for as a single performance obligation. In the event of a multiple-element revenue arrangement, the Company allocates the arrangement consideration to separately identifiable performance obligations based on their relative stand-alone selling prices.
Certain contracts may include offerings such as sale of licenses, which may be perpetual or subscription-based. Revenue from distinct perpetual licenses is recognized upfront at the point in time when the software is made available to the customer. Revenue from distinct, non-cancellable, subscription-based licenses is recognized at the point in time it is transferred to the customer. Revenue from any associated maintenance or ongoing support services is recognized ratably over the term of the contract. For a combined software license/services performance obligation, revenue is recognized over the period that the services are performed.
All incremental and direct costs incurred for acquiring contracts, such as certain sales commissions, are classified as contract cost assets. Such costs are amortized over the expected period of benefit and recorded under selling, general and administrative expenses.
Other upfront fees paid to customers are classified as contract assets. Such fees are amortized over the expected period of benefit and recorded as an adjustment to the transaction price and deducted from revenue.
Timing of revenue recognition may differ from the timing of invoicing. If a payment is received in respect of services prior to the delivery of services, the payment is recognized as an advance from the customer and classified as a contract liability. Contract assets and contract liabilities relating to the same customer contract are offset against each other and presented on a net basis in the consolidated financial statements.
Significant judgements
The Company often enters into contracts with its customers that include promises to transfer multiple products and services to the customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately rather than together may require significant judgement.
Judgement 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.
Customer contracts sometimes include incentive payments received for discrete benefits delivered to the customer or service level agreements that could result in credits or refunds to the customer. Such amounts are estimated at contract inception and are adjusted at the end of each reporting period as additional information becomes available only to the extent that it is probable that a significant reversal of any incremental revenue will not occur.
(g) Leases
At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on whether: (1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the term of the contract, and (3) the Company has the right to direct the use of the asset. At the inception of a lease, the consideration in the contract is allocated to each lease component based on its relative standalone price to determine the lease payments.
14
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of the above criteria.
For all leases at the lease commencement date, a ROU asset and a lease liability are recognized. The lease liability represents the present value of the lease payments under the lease. Lease liabilities are initially measured at the present value of the lease payments not yet paid, discounted using the discount rate for the lease at the lease commencement. The lease liabilities are subsequently measured on an amortized cost basis. The lease liability is adjusted to reflect interest on the liability and the lease payments made during the period. Interest on the lease liability is determined as the amount that results in a constant periodic discount rate on the remaining balance of the liability.
The ROU asset represents the right to use the leased asset for the lease term. The ROU asset for each lease initially includes the amount of the initial measurement of the lease liability adjusted for any lease payments made to the lessor at or before the commencement date, accrued lease liabilities and any lease incentives received or any initial direct costs incurred by the Company.
The ROU asset of finance leases is subsequently measured at cost, less accumulated amortization and any accumulated impairment losses. The ROU asset of operating leases is subsequently measured from the carrying amount of the lease liability at the end of each reporting period, and is equal to the carrying amount of lease liabilities adjusted for (1) unamortized initial direct costs, (2) prepaid/(accrued) lease payments and (3) the unamortized balance of lease incentives received.
The carrying value of ROU assets is reviewed for impairment, similar to long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
The Company has elected to not separate lease and non-lease components for all of its leases and to use the recognition exemptions for lease contracts that, at commencement date, have a lease term of 12 months or less and do not contain a purchase option (“short-term leases”).
Significant judgements
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
Under certain of its leases, the Company has a renewal and termination option to lease assets for additional terms between and ten years . The Company applies judgement in evaluating whether it is reasonably certain to exercise the option to renew or terminate the lease. The Company considers all relevant factors that create an economic incentive for it to exercise the renewal or termination option. After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within the Company’s control and affects its ability to exercise (or not to exercise) the option to renew or terminate.
The Company has applied an incremental borrowing rate for the purpose of computing lease liabilities based on the remaining lease term and the rates prevailing in the jurisdictions where leases were executed.
(h) Cost of revenue
Cost of revenue primarily consists of salaries and benefits (including stock-based compensation), recruitment, training and related costs of employees who are directly responsible for the performance of services for customers, their supervisors and certain support personnel who may be dedicated to a particular client or a set of processes.
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GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
It also includes operational expenses, which consist of facilities maintenance expenses, travel and living expenses, rent, IT expenses, and consulting and certain other expenses. Consulting charges represent the cost of consultants and contract resources with specialized skills who are directly responsible for the performance of services for clients and travel and other billable costs related to the Company’s clients. It also includes depreciation of property, plant and equipment, and amortization of intangible and ROU assets which are directly related to providing services that generate revenue.
(i) Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses consist of expenses relating to salaries and benefits (including stock-based compensation) as well as costs related to recruitment, training and retention of senior management and other support personnel in enabling functions such as human resources, finance, legal, marketing, sales and sales support, and other support personnel. The operational costs component of SG&A expenses also includes travel and living costs for such personnel. SG&A expenses also include acquisition-related costs, legal and professional fees (which represent the costs of third party legal, tax, accounting and other advisors), investment in research and development, digital technology, advanced automation and robotics, and an allowance for credit losses. It also includes depreciation of property, plant and equipment, and amortization of intangibles and ROU assets other than those included in cost of revenue.
(j) Credit losses
Allowance for credit losses is recognized for all debt instruments other than those held at fair value through profit or loss. The Company pools its accounts receivable (other than deferred billings) based on similar risk characteristics in estimating expected credit losses. Credit losses for accounts receivable are based on the roll-rate method, and the Company recognizes a loss allowance based on lifetime expected credit losses at each reporting date. The Company has established a provision matrix based on historical credit loss experience, adjusted for forward-looking factors and the economic environment. The Company believes the most relevant forward-looking factors are economic environment, gross domestic product, inflation rates and unemployment rates for each of the countries in which the Company or its customers operate, and accordingly the Company adjusts historical loss rates based on expected changes in these factors. At every reporting date, observed historical default rates are updated to reflect changes in the Company’s forward-looking estimates.
Credit losses for other financial assets and deferred billings are based on the discounted cash flow (“DCF”) method. Under the DCF method, the allowance for credit losses reflects the difference between the contractual cash flows due in accordance with the contract and the present value of the cash flows expected to be collected. The expected cash flows are discounted at the effective interest rate of the financial asset. Such allowances are based on the credit losses expected to arise over the life of the asset which includes consideration of prepayments based on the Company’s expectation as of the balance sheet date.
A financial asset is written off when it is deemed uncollectible and there is no reasonable expectation of recovering the contractual cash flows. Expected recoveries of amounts previously written off, not to exceed the aggregate amounts previously written off, are included in determining the allowance at each reporting period.
16
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
(m) Recently issued accounting pronouncements
The authoritative bodies release standards and guidance which are assessed by management for impact on the Company’s consolidated financial statements.
The Company has adopted the following recently released accounting standards:
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of credit losses on financial instruments.” The ASU requires measurement and recognition of expected credit losses for financial assets held by the Company. The ASU requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings. The ASU became effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020.
In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments—Credit Losses (Topic 326).” The ASU provides final guidance that allows entities to make an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets at amortized cost (except held-to-maturity securities) using the fair value option. The ASU is effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020.
In November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses.” This ASU clarifies that the scope of the guidance related to expected recoveries extends to purchased financial assets with credit deterioration. For entities that have not yet adopted ASU 2016-13, the amendments in ASU 2019-11 are effective on the same date as those in ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-11 are effective for fiscal years beginning January 1, 2020 and interim periods therein.
The Company adopted ASU 2016-13, ASU 2019-05 and ASU 2019-11 beginning January 1, 2020, including interim periods in fiscal year 2020.
In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU modifies the disclosure requirements with respect to fair value measurements. The ASU is effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020. The Company assessed the impact of this ASU and concluded that it does not have any material impact on its consolidated results of operations, cash flows, financial position or disclosures.
In August 2018, the FASB issued ASU No. 2018-14, “Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” The ASU modifies the disclosure requirements with respect to defined benefit pension plans. The Company adopted this ASU in its consolidated financial statements for the year ended December 31, 2020. The adoption of this ASU did not have a material impact on the Company’s disclosures.
In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” The ASU modifies the capitalization requirements with respect to implementation costs incurred by the customer in a hosting arrangement that is a service contract. The ASU is effective for the Company beginning January 1, 2020. The Company assessed the impact of this ASU and concluded that it does not have any material impact on its consolidated results of operations, cash flows, financial position or disclosures.
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GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The ASU provides additional guidance on the recognition of credit losses and addresses partial-term fair value hedges, fair value hedge basis adjustments and certain transition requirements, among other things. The ASU also addresses the scope of the guidance on the requirement for re-measurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which foreign currency-denominated equity securities must be re-measured at historical exchange rates. The ASU is effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020. The Company assessed the impact of this ASU and concluded that it does not have any material impact on its consolidated results of operations, cash flows, financial position or disclosures.
In November 2019, the FASB issued ASU No. 2019-08, “Codification Improvements—Share-Based Consideration Payable to a Customer.” The ASU clarifies that share-based consideration payable to a customer is measured in accordance with guidance under AC 718--Share based payments. The ASU is effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020. The Company assessed the impact of this ASU and concluded that it does not have any material impact on its consolidated results of operations, cash flows, financial position or disclosures.
In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes.” This ASU removes certain exceptions for investments, intra-period tax allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. The ASU is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning January 1, 2021. Early adoption is permitted. The Company assessed the impact of this ASU and concluded that it does not have any material impact on its consolidated results of operations, cash flows, financial position or disclosures.
In March 2020, the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments.” This ASU includes amendments that make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications in relation to financial instruments. This guidance was effective immediately upon issuance. The additional elements of the ASU did not have a material impact on the Company's consolidated results of operations, cash flows, financial position or disclosures.
In October 2020, the FASB issued ASU No. 2020-09, “Codification Improvements to Topic 470, Debt— Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762.” The SEC in its Release No. 33-10762 in March 2020 has adopted new rules on financial disclosure requirements for guarantors and issuers of guaranteed securities and affiliates whose securities collateralize issuers’ securities. This ASU revises certain SEC paragraphs of the FASB’s Accounting Standards Codification (ASC) to reflect, as appropriate, the amended financial statement disclosure requirements in SEC Release 33-10762. The amended rules are effective January 4, 2021 but early compliance is permitted. The Company adopted the amended rules issued by the SEC in its Release No. 33-10762 in the first quarter of 2020. Accordingly, the Company has already adopted the amendments under this ASU, and the disclosures related to guarantor financial information have been omitted from the Notes to the Consolidated Financial Statements and included under Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020.
In October 2020, the FASB issued ASU No. 2020-10, “Codification Improvements.” The amendments in this ASU do not change the GAAP requirements, but they improve consistency by amending the codification to include all disclosure guidance in the appropriate disclosure sections and also clarify the application of various provisions in the codification by amending and adding new headings, cross referencing to other guidance, and refining or correcting terminology. The ASU is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning January 1, 2021. Early application is permitted. The Company assessed the impact of this ASU and concluded that it does not have any material impact on its consolidated results of operations, cash flows, financial position or disclosures.
In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848).” This ASU expands the scope of Topic 848 to include derivative instruments impacted by discounting transition. Discounting transition refers to the changing of interest rates used for margining, discounting, or contract price alignment of derivative instruments to transition to alternative rates.
18
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
2. Summary of significant accounting policies (Continued)
ASU 2021-01 extends some of Topic 848’s optional expedients to derivative contracts impacted by the discounting transition, including for derivatives that do not reference LIBOR or other reference rates that are expected to be discontinued. The ASU is effective immediately upon issuance.
However an entity may elect to apply this update on a full retrospective basis as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications made on or after any date within the interim period that includes January 7, 2021. The Company assessed the impact of this ASU and concluded that it does not have any material impact on its consolidated results of operations, cash flows, financial position or disclosures.
The following recently released accounting standards have not yet been adopted by the Company:
In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional expedients and exceptions to the guidance in US GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company has assessed the impact of this ASU, and since a substantial portion of the Company’s LIBOR-linked credit facilities are either hedged or short-term in nature, and the Company’s credit agreements address replacement mechanisms in the event LIBOR is discontinued, the Company concluded that the adoption of this ASU does not have any material impact on its consolidated results of operations, cash flows, financial position or disclosures.
3. Business acquisitions
(a) Enquero Inc
On December 31, 2020, the Company acquired 100 % of the outstanding equity interests in Enquero Inc, a California corporation, and certain affiliated entities in India, the Netherlands and Canada (collectively referred to as “Enquero”) for total purchase consideration of $148,797 . This amount represents cash consideration of $137,166 , net of cash acquired of $11,631 . The total purchase consideration paid by the Company to the sellers on the closing date was $141,938 . No portion of the purchase consideration is outstanding as of June 30, 2021. The Company is evaluating adjustments related to certain income and other taxes, which, when determined, may result in the recognition of additional assets or liabilities as of the acquisition date. The measurement period will not exceed one year from the acquisition date. This acquisition increases the scale and depth of the Company’s data and analytics capabilities and enhances the Company’s ability to accelerate the digital transformation journeys of its clients through cloud technologies and advanced data analytics.
In connection with this acquisition, the Company recorded $49,000 in customer-related intangibles, $9,500 in marketing-related intangibles and $1,400 in technology-related intangibles, which have a weighted average amortization period of four years . Goodwill arising from the acquisition amounting to $86,561 has been allocated using a relative fair value allocation method to each of the Company’s reporting segments as follows: to the Banking, Capital Markets and Insurance (“BCMI”) segment in the amount of $2,556 , to the Consumer Goods, Retail, Life Sciences and Healthcare (“CGRLH”) segment in the amount of $22,211 and to the High Tech, Manufacturing and Services (“HMS”) segment in the amount of $61,794 .
The goodwill arising from this acquisition is not deductible for income tax purposes. The goodwill represents primarily the acquired capabilities and other benefits expected to result from combining the acquired operations with the Company’s existing operations.
Acquisition-related costs of $1,590 have been included in selling, general and administrative expenses as incurred. In connection with the transaction, the Company also acquired certain assets with a value of $32,759 , assumed certain liabilities amounting to $17,113 and recognized a net deferred tax liability of $13,310 .
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GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
3. Business acquisitions (Continued)
The agreement with the sellers provides a full indemnity to the Company for all pre-closing income and non-income tax liabilities up to a maximum of the purchase consideration, including interest and penalties thereon. The Company would not be financially or materially affected by any liabilities that may arise from such exposures.
Accordingly, the Company recognized an indemnification asset of $5,848 based on the information that was available at the date of the acquisition, which is included in the assets taken over by the Company. The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition.
(b) SomethingDigital.Com LLC
On October 5, 2020, the Company acquired 100 % of the outstanding equity/limited liability company interests in SomethingDigital.Com LLC, a New York limited liability company, for total purchase consideration of $57,451 . This amount represents cash consideration of $56,073 , net of cash acquired of $1,378 . The total purchase consideration paid by the Company to the sellers on the closing date was $57,704 , resulting in a recoverable of $253 , which was received in the three months ended March 31, 2021. The Company is evaluating adjustments related to certain income and other taxes, which, when determined, may result in the recognition of additional assets or liabilities as of the acquisition date. The measurement period will not exceed one year from the acquisition date. This acquisition supports the Company’s strategy to integrate experience and process innovation to help clients on their digital transformation journeys and expands on the Company’s existing experience capabilities to support end-to-end digital commerce solutions, both business-to-business and business-to-consumer. Additionally, this acquisition expands the Company’s capabilities into Magento Commerce, which powers Adobe Commerce Cloud, and Shopify Plus, a cloud-based ecommerce platform for high volume merchants.
In connection with this acquisition, the Company recorded $11,900 in customer-related intangibles and $3,500 in marketing-related intangibles which have a weighted average amortization period of four years . Goodwill arising from the acquisition amounting to $36,926 has been allocated using a relative fair value allocation method to two of the Company’s reporting segments as follows: to the CGRLH segment in the amount of $30,373 and to the HMS segment in the amount of $6,553 . Of the total goodwill arising from this acquisition, $35,084 is deductible for income tax purposes.
The goodwill represents primarily the acquired capabilities and other benefits expected to result from combining the acquired operations with those of the Company’s existing operations.
Acquisition-related costs of $1,060 have been included in selling, general and administrative expenses as incurred. In connection with the transaction, the Company also acquired certain assets with a value of $9,538 , assumed certain liabilities amounting to $4,494 and recognized a net deferred tax asset of $81 . The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition.
(c) Rightpoint Consulting, LLC
On November 12, 2019, the Company acquired 100 % of the outstanding equity/limited liability company interests in Rightpoint Consulting, LLC, an Illinois limited liability company, and certain affiliated entities in the United States and India (collectively referred to as “Rightpoint”) for total purchase consideration of $270,669 . This amount includes cash consideration of $268,170 , net of cash acquired of $2,499 . The total purchase consideration paid by the Company to the sellers on the closing date was $248,470 resulting in a payable of $22,199 . $5,166 of the total purchase consideration remains payable as of June 30, 2021. This acquisition has expanded the Company’s capabilities in improving customer experience.
The securities purchase agreement between the Company and the selling equity holders of Rightpoint provided certain of the selling equity holders the option to elect to either (a) receive 100 % consideration in cash at the closing date for their limited liability company interests and vested options or (b) “roll over” and retain 25 % of their Rightpoint limited liability company interests and vested options for a three-year rollover period and receive cash consideration at closing for the remaining 75 % of their Rightpoint limited liability company interests and vested options. Certain selling equity holders elected to receive deferred, variable earn-out consideration with an estimated value of $21,500 over the rollover period of three years .
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GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
3. Business acquisitions (Continued)
The amount of deferred earn-out consideration ultimately payable by the Company to the selling equity holders of Rightpoint will be based on the future revenue multiple of the acquired business. Additionally, under the purchase agreement the selling equity holders are obligated to sell their rollover interests to the Company. Accordingly, the Company has obtained control over 100 % of the outstanding equity/limited liability company interests of Rightpoint as of November 12, 2019. See Note 6, “Fair Value Measurements,” for additional details.
In connection with this acquisition, the Company recorded $46,000 in customer-related intangibles and $29,000 in marketing-related intangibles which have a weighted average amortization period of five years . Goodwill arising from the acquisition amounting to $177,181 has been allocated using a relative fair value allocation method to each of the Company’s reporting segments as follows: to the BCMI segment in the amount of $16,983 , to the CGRLH segment in the amount of $42,993 and to the HMS segment in the amount of $117,205 . Of the total goodwill arising from this acquisition, $91,929 is deductible for income tax purposes. The goodwill represents primarily the acquired capabilities and other benefits expected to result from combining the acquired operations with those of the Company.
Acquisition-related costs of $7,385 have been included in selling, general and administrative expenses as incurred. In connection with the transaction, the Company also acquired certain assets with a value of $39,140 , assumed certain liabilities amounting to $22,295 and recognized a net deferred tax liability of $1,643 . The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition.
4. Cash and cash equivalents
| As of December 31, 2020 | As of June 30, 2021 | ||||||||||
| Cash and other bank balances | |||||||||||
| Total | $ | $ | |||||||||
5. Accounts receivable, net of allowance for credit losses
Accounts receivable were $908,727 and $945,824 , allowance for credit losses were $27,707 and $29,458 , resulting in net accounts receivable balances of $881,020 and $916,366 as of December 31, 2020 and June 30, 2021, respectively.
The following table provides details of the Company’s allowance for credit losses:
| Year ended December 31, 2020 | Six months ended June 30, 2021 | ||||||||||
| Opening balance as of January 1 | $ | $ | |||||||||
| Transition period adjustment on accounts receivables (through retained earnings) pursuant to adoption of ASC 326 | |||||||||||
| Adjusted balance as of January 1 | $ | $ | |||||||||
| Additions due to acquisitions | |||||||||||
| Additions charged/reversal released to cost and expense | |||||||||||
| Deductions/effect of exchange rate fluctuations | ( | ( | |||||||||
| Closing balance | $ | $ | |||||||||
In addition, deferred billings were $28,491 and $13,200 and allowances for credit losses were $3,134 and $2,593 , resulting in net deferred billings balances of $25,357 and $10,607 as of December 31, 2020 and June 30, 2021, respectively.
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GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
5. Accounts receivable, net of allowance for credit losses (Continued)
Total credit losses of $3,134 as of December 31, 2020 includes $734 as a transition date adjustment through retained earnings pursuant to the adoption of ASC 326 and $2,400 as a current period charge for the year ended December 31, 2020. During the six months ended June 30, 2021, the Company recorded a release of $541 to cost and expense on account of credit losses on deferred billings. Deferred billings, net of related allowance for credit losses, are included under “other assets” in the Company's consolidated balance sheet as of December 31, 2020 and June 30, 2021.
6. Fair value measurements
The Company measures certain financial assets and liabilities, including derivative instruments, at fair value on a recurring basis. The fair value measurements of these financial assets and liabilities were determined using the following inputs as of December 31, 2020 and June 30, 2021:
| As of December 31, 2020 | |||||||||||||||||||||||
| Fair Value Measurements at Reporting Date Using | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | |||||||||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Derivative instruments (Note a, c) | $ | $ | $ | $ | |||||||||||||||||||
| Deferred compensation plan assets (Note a, e) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Earn out Consideration (Note b, d) | $ | $ | $ | $ | |||||||||||||||||||
| Derivative instruments (Note b, c) | |||||||||||||||||||||||
| Deferred compensation plan liability (Note b, f) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| As of June 30, 2021 | |||||||||||||||||||||||
| Fair Value Measurements at Reporting Date Using | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Other Unobservable Inputs | |||||||||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Derivative instruments (Note a, c) | $ | $ | $ | $ | |||||||||||||||||||
| Deferred compensation plan assets (Note a, e) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Earn out consideration (Note b, d) | $ | $ | $ | $ | |||||||||||||||||||
| Derivative instruments (Note b, c) | |||||||||||||||||||||||
| Deferred compensation plan liability (Note b, f) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
22
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
6. Fair value measurements (Continued)
(a)Included in “prepaid expenses and other current assets” and “other assets” in the consolidated balance sheets.
(b)Included in “accrued expenses and other current liabilities” and “other liabilities” in the consolidated balance sheets.
(c)The Company values its derivative instruments based on market observable inputs, including both forward and spot prices for the relevant currencies and interest rate indices for relevant interest rates. The quotes are taken from an independent market database.
(d)The fair value of earn-out consideration, calculated as the present value of expected future payments to be made to the sellers of acquired businesses, was derived by estimating the future financial performance of the acquired businesses using the earn-out formula and performance targets specified in each purchase agreement and adjusting the result to reflect the Company’s estimate of the likelihood of achievement of such targets. Given the significance of the unobservable inputs, the valuations are classified in level 3 of the fair value hierarchy.
(e)Deferred compensation plan assets consist of life insurance policies held under a Rabbi Trust. Assets held in the Rabbi Trust are valued based on the cash surrender value of the insurance contract, which is determined based on the fair value of the underlying assets included in the insurance portfolio and are therefore classified within level 3 of the fair value hierarchy.
(f)The fair value of the deferred compensation plan liability is derived based on the fair value of the underlying assets in the insurance policies and is therefore classified within level 3 of the fair value hierarchy.
The following table provides a roll-forward of the fair value of earn-out consideration categorized as level 3 in the fair value hierarchy for the three and six months ended June 30, 2020 and 2021:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||
| Opening balance | $ | $ | $ | $ | |||||||||||||||||||
| Payments made on earn-out consideration (Note a) | ( | ( | |||||||||||||||||||||
| Change in fair value of earn out consideration (Note b) | ( | ( | |||||||||||||||||||||
| Others (Note c) | |||||||||||||||||||||||
| Closing balance | $ | $ | $ | $ | |||||||||||||||||||
(a)Includes an interest payment on earn-out consideration in excess of the acquisition date fair value, which is included in “cash flows from operating activities” amounting to zero
(b)Changes in the fair value of earn-out consideration are reported in “other operating (income) expense, net” in the consolidated statements of income.
(c)“Others” is comprised of interest expense included in “interest income (expense), net” and the impact of changes in foreign exchange reported in “foreign exchange gains (losses), net” in the consolidated statements of income. This also includes a cumulative translation adjustment reported as a component of “other comprehensive income (loss).”
23
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
6. Fair value measurements (Continued)
The following table provides a roll-forward of the fair value of deferred compensation plan assets categorized as level 3 in the fair value hierarchy for the three and six months ended June 30, 2020 and 2021:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||
| Opening balance | $ | $ | $ | $ | |||||||||||||||||||
| Additions (net of redemption) | |||||||||||||||||||||||
| Change in fair value of deferred compensation plan assets (Note a) | |||||||||||||||||||||||
| Closing balance | $ | $ | $ | $ | |||||||||||||||||||
The following table provides a roll-forward of the fair value of deferred compensation liabilities categorized as level 3 in the fair value hierarchy for the three and six months ended June 30, 2020 and 2021:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||
| Opening balance | $ | $ | $ | $ | |||||||||||||||||||
| Additions (net of redemption) | |||||||||||||||||||||||
| Change in fair value of deferred compensation plan liabilities (Note a) | |||||||||||||||||||||||
| Closing balance | $ | $ | $ | $ | |||||||||||||||||||
(a)Changes in the fair value of deferred compensation plan liabilities are reported in “selling, general and administrative expenses” in the consolidated statements of income.
7. Derivative financial instruments
24
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
7. Derivative financial instruments (Continued)
The following table presents the aggregate notional principal amounts of outstanding derivative financial instruments together with the related balance sheet exposure:
| Notional principal amounts (note a) | Balance sheet exposure asset (liability) (note b) | ||||||||||||||||||||||
| As of December 31, 2020 | As of June 30, 2021 | As of December 31, 2020 | As of June 30, 2021 | ||||||||||||||||||||
| Foreign exchange forward contracts denominated in: | |||||||||||||||||||||||
| United States Dollars (sell) Indian Rupees (buy) | $ | $ | $ | $ | |||||||||||||||||||
| United States Dollars (sell) Mexican Peso (buy) | |||||||||||||||||||||||
| United States Dollars (sell) Philippines Peso (buy) | |||||||||||||||||||||||
| Euro (sell) United States Dollars (buy) | ( | ( | |||||||||||||||||||||
| Singapore Dollars (buy) United States Dollars (sell) | ( | ||||||||||||||||||||||
| Euro (sell) Romanian Leu (buy) | ( | ( | |||||||||||||||||||||
| Japanese Yen (sell) Chinese Renminbi (buy) | |||||||||||||||||||||||
| United States Dollars (sell) Hungarian Font (buy) | |||||||||||||||||||||||
| Hungarian Font (Sell) Euro (buy) | ( | ||||||||||||||||||||||
| Australian Dollars (sell) Indian Rupees (buy) | ( | ( | |||||||||||||||||||||
| Interest rate swaps (floating to fixed) | ( | ( | |||||||||||||||||||||
| $ | ( | $ | ( | ||||||||||||||||||||
(a)Notional amounts are key elements of derivative financial instrument agreements but do not represent the amount exchanged by counterparties and do not measure the Company’s exposure to credit, foreign exchange, interest rate or market risks. However, the amounts exchanged are based on the notional amounts and other provisions of the underlying derivative financial instrument agreements. Notional amounts are denominated in U.S. dollars.
(b)Balance sheet exposure is denominated in U.S. dollars and denotes the mark-to-market impact of the derivative financial instruments on the reporting date.
FASB guidance on derivatives and hedging requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. In accordance with the FASB guidance on derivatives and hedging, the Company designates foreign exchange forward contracts, interest rate swaps and treasury rate locks as cash flow hedges. Foreign exchange forward contracts are entered into to cover the effects of future exchange rate variability on forecasted revenues and purchases of services, and interest rate swaps and treasury rate locks are entered into to cover interest rate fluctuation risk. In addition to this program, the Company uses derivative instruments that are not accounted for as hedges under the FASB guidance in order to hedge foreign exchange risks related to balance sheet items, such as receivables and intercompany borrowings, that are denominated in currencies other than the Company’s underlying functional currency.
25
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
7. Derivative financial instruments (Continued)
The fair value of the Company’s derivative instruments and their location in the Company’s financial statements are summarized in the table below:
| Cash flow hedges | Non-designated | |||||||||||||||||||||||||
| As of December 31, 2020 | As of June 30, 2021 | As of December 31, 2020 | As of June 30, 2021 | |||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Prepaid expenses and other current assets | $ | $ | $ | $ | ||||||||||||||||||||||
| Other assets | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Accrued expenses and other current liabilities | $ | $ | $ | $ | ||||||||||||||||||||||
| Other liabilities | $ | $ | $ | $ | ||||||||||||||||||||||
Cash flow hedges
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain (loss) on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction is recognized in the consolidated statements of income. Gains (losses) on the derivatives, representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in earnings as incurred.
The Company executed a treasury lock agreement for $350,000 in connection with future interest payments to be made on its senior notes issued by Genpact Luxembourg S.à r.l. (“Genpact Luxembourg”) and Genpact USA, Inc. (“Genpact USA”), both wholly-owned subsidiaries of the Company, in March 2021 (the “2021 Senior Notes”), and the treasury lock was designated as a cash flow hedge. The treasury lock agreement was terminated on March 23, 2021 and a deferred gain was recorded in accumulated other comprehensive income and is being amortized to interest expense over the life of the 2021 Senior Notes. The remaining gain to be amortized related to the treasury lock agreement as of June 30, 2021 was $774 .
In connection with cash flow hedges, the gains (losses) recorded as a component of other comprehensive income (loss) (“OCI”), and the related tax effects are summarized below:
| Three months ended June 30, | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2021 | |||||||||||||||||||||||||||||||||||||
| Before tax Amount | Tax (Expense) or Benefit* | Net of tax Amount | Before tax Amount | Tax (Expense) or Benefit* | Net of tax Amount | |||||||||||||||||||||||||||||||||
| Opening balance | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||
| Net gains (losses) reclassified into statement of income on completion of hedged transactions | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Changes in fair value of effective portion of outstanding derivatives, net | ( | ( | ||||||||||||||||||||||||||||||||||||
| Gain/(loss) on cash flow hedging derivatives, net | ( | |||||||||||||||||||||||||||||||||||||
| Closing balance | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||
26
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
7. Derivative financial instruments (Continued)
| Six months ended June 30, | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2021 | |||||||||||||||||||||||||||||||||||||
| Before tax Amount | Tax (Expense) or Benefit* | Net of tax Amount | Before tax Amount | Tax (Expense) or Benefit* | Net of tax Amount | |||||||||||||||||||||||||||||||||
| Opening balance | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
| Net gains (losses) reclassified into statement of income on completion of hedged transactions | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Changes in fair value of effective portion of outstanding derivatives, net | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Gain/(loss) on cash flow hedging derivatives, net | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Closing balance | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||
*The tax (expense) benefit includes the effect of novating certain hedging instruments as part of an intercompany transfer.
The gains or losses recognized in other comprehensive income (loss) and their effects on financial performance are summarized below:
| Derivatives in Cash Flow Hedging Relationships | Amount of Gain (Loss) recognized in OCI on Derivatives (Effective Portion) | Location of Gain (Loss) reclassified from OCI into Statement of Income (Effective Portion) | Amount of Gain (Loss) reclassified from OCI into Statement of Income (Effective Portion) | |||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | |||||||||||||||||||||||||||||||||||||||||||
| Forward foreign exchange contracts | $ | $ | $ | ( | $ | Revenue | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | ( | ( | ( | Cost of revenue | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury rate lock | Selling, general and administrative expenses | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
There were no gains (losses) recognized in income on the ineffective portion of derivatives and excluded from effectiveness testing for the three and six months ended June 30, 2020 and 2021, respectively.
Non-designated Hedges
| Amount of Gain (Loss) recognized in Statement of Income on Derivatives | ||||||||||||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments | Location of Gain (Loss) recognized in Statement of Income on Derivatives | 2020 | 2021 | 2020 | 2021 | |||||||||||||||||||||||||||
| Forward foreign exchange contracts (Note a) | Foreign exchange gains (losses), net | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Forward foreign exchange contracts (Note b) | Foreign exchange gains (losses), net | |||||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
27
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
7. Derivative financial instruments (Continued)
(a)These forward foreign exchange contracts were entered into to hedge fluctuations in foreign exchange rates for recognized balance sheet items such as receivables and intercompany borrowings, and were not originally designated as hedges under FASB guidance on derivatives and hedging. Realized gains (losses) and changes in the fair value of these derivatives are recorded in foreign exchange gains (losses), net in the consolidated statements of income.
(b)These forward foreign exchange contracts were initially designated as cash flow hedges under ASC guidance on derivatives and hedging. These contracts were terminated because certain forecasted transactions were no longer expected to occur and therefore hedge accounting was no longer applied. Subsequently the realized gains (losses) are recorded in foreign exchange gains (losses) net in the consolidated statements of income.
In connection with the COVID-19 pandemic, the Company has reevaluated its hedging arrangements. The Company has considered the effect of changes, if any, in both counterparty credit risk and the Company’s own non-performance risk while assessing hedge effectiveness and measuring hedge ineffectiveness. The Company believes that its hedges continue to be effective after taking into account the expected impact of the COVID-19 pandemic on the Company’s hedged transactions.
8. Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
| As of December 31, 2020 | As of June 30, 2021 | ||||||||||
| Advance income and non-income taxes | $ | $ | |||||||||
| Contract asset (Note 20) | |||||||||||
| Prepaid expenses | |||||||||||
| Derivative instruments | |||||||||||
| Employee advances | |||||||||||
| Deposits | |||||||||||
| Advances to suppliers | |||||||||||
| Others | |||||||||||
| $ | $ | ||||||||||
9. Property, plant and equipment, net
The following table provides the gross and net amount of property, plant and equipment:
| As of December 31, 2020 | As of June 30, 2021 | ||||||||||
| Property, plant and equipment, gross | $ | $ | |||||||||
| Less: Accumulated depreciation, amortization and impairment | ( | ( | |||||||||
| Property, plant and equipment, net | $ | $ | |||||||||
Depreciation expense on property, plant and equipment for the six months ended June 30, 2020 and 2021 was $33,606 and $32,174 , respectively, and for the three months ended June 30, 2020 and 2021 was $17,890 and $15,046 , respectively. Computer software amortization for the six months ended June 30, 2020 and 2021 was $5,510 and $3,008 , respectively, and for the three months ended June 30, 2020 and 2021 was $2,503 and $1,548 , respectively.The Company recorded a write-down to certain property, plant and equipment during the three and six months ended June 30, 2020 and 2021, as described in Note 10.
28
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
10. Goodwill and intangible assets
The following table presents the changes in goodwill for the year ended December 31, 2020 and six months ended June 30, 2021:
| For the year ended December 31, 2020 | For the six months ended June 30, 2021 | ||||||||||
| Opening balance | |||||||||||
| Goodwill relating to acquisitions consummated during the period | |||||||||||
| Impact of measurement period adjustments | ( | ( | |||||||||
| Effect of exchange rate fluctuations | ( | ||||||||||
| Closing balance | |||||||||||
The following table presents the changes in goodwill by reporting unit for the year ended December 31, 2020:
| BCMI | CGRLH | HMS | Total | ||||||||||||||||||||
| Opening balance | |||||||||||||||||||||||
| Goodwill relating to acquisitions consummated during the period | |||||||||||||||||||||||
| Impact of measurement period adjustments | ( | ( | ( | ( | |||||||||||||||||||
| Effect of exchange rate fluctuations | |||||||||||||||||||||||
| Closing balance | |||||||||||||||||||||||
The following table presents the changes in goodwill by reporting unit for the six months ended June 30, 2021:
| BCMI | CGRLH | HMS | Total | ||||||||||||||||||||
| Opening balance | |||||||||||||||||||||||
| Goodwill relating to acquisitions consummated during the period | |||||||||||||||||||||||
| Impact of measurement period adjustments | ( | ( | ( | ( | |||||||||||||||||||
| Effect of exchange rate fluctuations | ( | ( | ( | ( | |||||||||||||||||||
| Closing balance | |||||||||||||||||||||||
The total amount of goodwill deductible for tax purposes was $296,046 and $283,601 as of December 31, 2020 and June 30, 2021, respectively.
29
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
10. Goodwill and intangible assets (Continued)
The Company’s intangible assets are as follows:
| As of December 31, 2020 | As of June 30, 2021 | ||||||||||||||||||||||||||||||||||
| Gross carrying amount | Accumulated amortization & Impairment | Net | Gross carrying amount | Accumulated amortization & Impairment | Net | ||||||||||||||||||||||||||||||
| Customer-related intangible assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Marketing-related intangible assets | |||||||||||||||||||||||||||||||||||
| Technology-related intangible assets | |||||||||||||||||||||||||||||||||||
| Intangible assets under development | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
Amortization expenses for intangible assets acquired as a part of business combination and disclosed in the consolidated statements of income under amortization of acquired intangible assets for the six months ended June 30, 2020 and 2021 were $21,438 and $30,726 , respectively, and for the three months ended June 30, 2020 and 2021 were $10,697 and $14,550 , respectively.
Amortization expenses for internally-developed and other intangible assets disclosed in the consolidated statements of income under cost of revenue and selling, general and administrative expenses for the six months ended June 30, 2020 and 2021 were $14,036 and $11,922 , respectively, and for the three months ended June 30, 2020 and 2021 were $7,130 and $5,878 , respectively.
During the three and six months ended June 30, 2020 and 2021, the Company tested for recoverability certain customer-related and technology-related intangible assets, including those under development, and certain property, plant and equipment, as a result of changes in market trends and the Company’s investment strategy, including the Company's decisions to cease certain service offerings. Based on the results of this testing, the Company determined that the carrying values of the assets tested were not recoverable, and the Company recorded complete write-downs of the carrying values of these assets amounting to $9,973 and $915 for the six months ended June 30, 2020 and 2021, respectively, and $9,973 and $78 for the three months ended June 30, 2020 and 2021, respectively. These write-downs have been recorded in “other operating (income) expense, net” in the consolidated statement of income.
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||
| Technology related intangibles | $ | $ | $ | $ | |||||||||||||||||||
| Customer related intangibles | |||||||||||||||||||||||
| Total Intangibles | $ | $ | $ | $ | |||||||||||||||||||
| Property, plant and equipment | $ | $ | $ | $ | |||||||||||||||||||
| Total Property, plant and equipment | $ | $ | $ | $ | |||||||||||||||||||
| Grand Total | $ | $ | $ | $ | |||||||||||||||||||
30
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
11. Short-term borrowings
The Company has the following borrowing facilities:
a.Fund-based and non-fund-based credit facilities with banks, which are available for operational requirements in the form of overdrafts, letters of credit, guarantees and short-term loans. As of December 31, 2020 and June 30, 2021, the limits available were $14,311 and $20,176 , respectively, of which $7,809 and $6,953 , respectively, was utilized, constituting non-funded drawdown.
b.A fund-based and non-fund based revolving credit facility of $500,000 , which the Company obtained through an amendment of its existing credit agreement on August 9, 2018, as described in Note 12. Prior to the amendment, the Company’s revolving credit facility was $350,000 . The amended credit facility expires on August 8, 2023. The funded drawdown amount under the Company’s revolving facilities bore interest at a rate equal to LIBOR plus a margin of 1.375 0.20 252,347 and $2,017 , respectively, was utilized, of which $250,000 and $0 , respectively, constituted funded drawdown and $2,347 and $2,017 , respectively, constituted non-funded drawdown. The Company’s amended credit agreement contains certain customary covenants, including a maximum leverage covenant and a minimum interest coverage ratio. During the period ended December 31, 2020 and June 30, 2021, the Company was in compliance with the financial covenants of the credit agreement.
12. Long-term debt
In August 2018, the Company amended its 2015 credit facility (“the 2015 Facility”), which was comprised of an $800,000 term loan and a $350,000 revolving credit facility. The amended facility is comprised of a $680,000 term loan, which represents the outstanding balance under the 2015 Facility as of the date of amendment, and a $500,000 revolving credit facility. The amended facility expires on August 8, 2023. The amendment did not result in a substantial modification of $550,814 of the outstanding term loan under the 2015 Facility. Further, as a result of the amendment, the Company extinguished the outstanding term loan under the 2015 Facility of $129,186 and obtained additional funding of $129,186 , resulting in no change to the outstanding principal of the term loan under the amended facility. In connection with the amendment, the Company expensed $2,029 , representing partial acceleration of the amortization of the existing unamortized debt issuance costs and an additional fee paid to the Company’s lenders related to the term loan. The overall borrowing capacity under the revolving credit facility increased from $350,000 to $500,000 . The amendment of the revolving credit facility resulted in accelerated amortization of $82 relating to existing unamortized debt issuance cost. The remaining unamortized costs and an additional third-party fee paid in connection with the amendment will be amortized over the term of the amended facility, which will expire on August 8, 2023.
Borrowings under the amended credit facility bear interest at a rate equal to, at the election of the Company, either LIBOR plus an applicable margin equal to 1.375 % per annum, compared to a margin of 1.50 % under the 2015 Facility, or a base rate plus an applicable margin equal to 0.375 % per annum, compared to a margin of 0.50 % under the 2015 Facility, in each case subject to adjustment based on the Company’s debt ratings provided by Standard & Poor’s Rating Services and Moody’s Investors Service, Inc. Based on the Company’s election and current credit rating, the applicable interest rate is equal to LIBOR plus 1.375 % per annum. The amended credit agreement restricts certain payments, including dividend payments, if there is an event of default under the credit agreement or if the Company is not, or after making the payment would not be, in compliance with certain financial covenants contained in the amended credit agreement. These covenants require the Company to maintain a net debt to EBITDA leverage ratio of below 3x and an interest coverage ratio of more than 3x. During the period ended June 30, 2021, the Company was in compliance with the terms of the credit agreement, including all of the financial covenants therein. The Company’s retained earnings are not subject to any restrictions on availability to make dividend payments to shareholders, subject to compliance with the financial covenants described above that are contained in the amended credit agreement.
As of December 31, 2020 and June 30, 2021, the amount outstanding under the term loan, net of debt amortization expense of $1,150 and $917 , was $593,850 and $577,083 , respectively. As of December 31, 2020 and June 30, 2021, the term loan bore interest at a rate equal to LIBOR plus a margin of 1.375 % per annum.
31
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
12. Long-term debt (Continued)
Indebtedness under the amended credit facility is unsecured. The amount outstanding on the term loan as of June 30, 2021 requires quarterly payments of $8,500 , and the balance of the loan is due and payable upon the maturity of the term loan on August 8, 2023.
The maturity profile of the term loan outstanding as of June 30, 2021, net of debt amortization expense, is as follows:
| Year ended | Amount | ||||
| 2021 | $ | ||||
| 2022 | |||||
| 2023 | |||||
| Total | $ | ||||
Genpact Luxembourg S.à r.l., a wholly-owned subsidiary of the Company, issued $350,000 aggregate principal amount of 3.70 % senior notes in March 2017 (the “2017 Senior Notes”), and $400,000 aggregate principal amount of 3.375 % senior notes in November 2019 (the “2019 Senior Notes”). The 2017 Senior Notes and 2019 Senior Notes are fully guaranteed by the Company. The total debt issuance cost of $2,642 and $2,937 incurred in connection with the 2017 Senior Notes and 2019 Senior Notes offerings, respectively, are being amortized over the lives of the respective notes as an additional interest expense. As of December 31, 2020 and June 30, 2021, the amount outstanding under the 2017 Senior Notes, net of debt amortization expense of $658 and $397 , respectively, was $349,342 and $349,603 , respectively, which is payable on April 1, 2022. As of December 31, 2020 and June 30, 2021, the amount outstanding under the 2019 Senior Notes, net of debt amortization expense of $2,284 and $1,995 , was $397,716 and $398,005 , respectively, which is payable on December 1, 2024.
In March 2021, Genpact Luxembourg S.à r.l. and Genpact USA, Inc., both wholly-owned subsidiaries of the Company, co-issued $350,000 aggregate principal amount of 1.750 % senior notes due 2026 (the “2021 Senior Notes,” and together with the 2017 Senior Notes and the 2019 Senior Notes, the “Senior Notes”). The 2021 Senior Notes are fully guaranteed by the Company. The total debt issuance cost of $3,032 incurred in connection with the 2021 Senior Notes is being amortized over the life of the 2021 Senior Notes as additional interest expense. As of June 30, 2021, the amount outstanding under the 2021 Senior Notes, net of debt amortization expense of $2,874 , was $347,126 , which is payable on April 10, 2026.
The Company pays interest on (i) the 2017 Senior Notes semi-annually in arrears on April 1 and October 1 of each year, (ii) the 2019 Senior Notes semi-annually in arrears on June 1 and December 1 of each year, and (iii) the 2021 Senior Notes semi-annually in arrears on April 10 and October 10 of each year, ending on the maturity dates of April 1, 2022, December 1, 2024 and April 10, 2026, respectively. The Company, at its option, may redeem the Senior Notes at any time in whole or in part, at a redemption price equal to (i) 100 % of the principal amount of the notes redeemed, together with accrued and unpaid interest on the redeemed amount, and (ii) if the notes are redeemed prior to, in the case of the 2017 Senior Notes, March 1, 2022, in the case of the 2019 Senior Notes, November 1, 2024, and in the case of the 2021 Senior Notes, March 10, 2026, a specified “make-whole” premium. The Senior Notes are subject to certain customary covenants, including limitations on the ability of the Company and certain of its subsidiaries to incur debt secured by liens, engage in certain sale and leaseback transactions and consolidate, merge, convey or transfer their assets substantially as an entirety. During the period ended June 30, 2021, the Company and its applicable subsidiaries were in compliance with the covenants. Upon certain change of control transactions, the applicable issuer or issuers will be required to make an offer to repurchase the Senior Notes at a price equal to 101 % of the aggregate principal amount of the Senior Notes, plus accrued and unpaid interest. The interest rate payable on the Senior Notes is subject to adjustment if the credit rating of the Senior Notes is downgraded, up to a maximum increase of 2.0 %.
32
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
12. Long-term debt (Continued)
A summary of the company’s long-term debt is as follows:
| As of December 31, 2020 | As of June 30, 2021 | ||||||||||
| Credit facility, net of amortization expenses | $ | $ | |||||||||
| $ | |||||||||||
| Total | $ | $ | |||||||||
| Current portion | |||||||||||
| Non-current portion | |||||||||||
| Total | $ | $ | |||||||||
13. Accrued expenses and other current liabilities
| As of December 31, 2020 | As of June 30, 2021 | ||||||||||
| Accrued expenses | $ | $ | |||||||||
| Accrued employee cost | |||||||||||
| Earn-out consideration | |||||||||||
| Statutory liabilities | |||||||||||
| Retirement benefits | |||||||||||
| Compensated absences | |||||||||||
| Derivative instruments | |||||||||||
| Contract liabilities (Note 20) | |||||||||||
| Other liabilities | |||||||||||
| $ | $ | ||||||||||
33
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
14. Other liabilities
Other liabilities consist of the following:
| As of December 31, 2020 | As of June 30, 2021 | ||||||||||
| Accrued employee cost | $ | $ | |||||||||
| Earn-out consideration | |||||||||||
| Retirement benefits | |||||||||||
| Compensated absences | |||||||||||
| Derivative instruments | |||||||||||
| Contract liabilities (Note 20) | |||||||||||
| Others | |||||||||||
| $ | $ | ||||||||||
15. Employee benefit plans
The Company has employee benefit plans in the form of certain statutory and other programs covering its employees.
Defined benefit plans
In accordance with Indian law, the Company maintains a defined benefit retirement plan covering substantially all of its Indian employees. In accordance with Mexican law, the Company provides termination benefits to all of its Mexican employees. In addition, certain of the Company’s subsidiaries in the Philippines, Israel and Japan sponsor defined benefit retirement programs.
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||
| Service costs | $ | $ | $ | $ | |||||||||||||||||||
| Interest costs | |||||||||||||||||||||||
| Amortization of actuarial loss | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Net defined benefit plan costs | $ | $ | $ | $ | |||||||||||||||||||
34
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
15. Employee benefit plans (Continued)
Defined contribution plans
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||
| India | $ | $ | $ | $ | |||||||||||||||||||
| U.S. | |||||||||||||||||||||||
| U.K. | |||||||||||||||||||||||
| China | |||||||||||||||||||||||
| Other regions | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Deferred compensation plan
On July 1, 2018, Genpact LLC, a wholly-owned subsidiary of the Company, adopted an executive deferred compensation plan (the “Plan”). The Plan provides a select group of U.S.-based members of Company management with the opportunity to defer from 1 % to 80 % of their base salary and from 1 % to 100 % of their qualifying bonus compensation (or such other minimums or maximums as determined by the Plan administrator from time to time) pursuant to the terms of the Plan. Participant deferrals are 100 % vested at all times. The Plan also allows for discretionary supplemental employer contributions by the Company, in its sole discretion, which will be subject to a two-year vesting schedule (50 % vesting on the one-year anniversary of approval of the contribution and 50 % vesting on the second year anniversary of approval of the contribution) or such other vesting schedule as determined by the Company. However, no such contribution has been made by the Company to date.
The Plan also provides an option for participants to elect to receive deferred compensation and earnings thereon on either fixed date(s) no earlier than 2 years following the applicable Plan year (or end of the applicable performance period for performance-based bonus compensation) or following a separation from service, in each case either in a lump sum or in annual installments over a term of up to 15 years. Participants can elect to change or re-defer their rights to receive the deferred compensation until the 10th anniversary following their separation from service, subject to fulfillment of certain conditions. Each Plan participant’s compensation deferrals are credited or debited with notional investment gains and losses equal to the performance of selected hypothetical investment funds offered under the Plan and elected by the participant.
The Company has investments in funds held in Company-owned life insurance policies which are held in a Rabbi Trust that are classified as trading securities. Management determines the appropriate classification of the securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The securities are classified as trading securities because they are held for resale in anticipation of short-term fluctuations in market prices. The trading securities are stated at fair value.
The liability for the deferred compensation plan was $26,390 and $35,034 as of December 31, 2020 and June 30, 2021, respectively, and is included in “accrued expenses and other current liabilities” and “other liabilities” in the consolidated balance sheets.
In connection with the administration of the Plan, the Company has purchased company-owned life insurance policies insuring the lives of certain employees. The cash surrender value of these policies was $26,832 and $35,533 as of December 31, 2020 and June 30, 2021, respectively. The cash surrender value of these insurance policies is included in “other assets” in the consolidated balance sheets.
35
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
16. Stoc k-based compensation
The Company has issued options under the Genpact Limited 2007 Omnibus Incentive Compensation Plan (the “2007 Omnibus Plan”) and the Genpact Limited 2017 Omnibus Incentive Compensation Plan (the “2017 Omnibus Plan”) to eligible persons, including employees, directors and certain other persons associated with the Company.
Under the 2007 Omnibus Plan, shares underlying options forfeited, expired, terminated or cancelled under any of the Company’s predecessor plans were added to the number of shares otherwise available for grant under the 2007 Omnibus Plan. The 2007 Omnibus Plan was amended and restated on April 11, 2012 to increase the number of common shares authorized for issuance by 5,593,200 shares to 15,000,000 shares. Further, during the year ended December 31, 2012, the number of common shares authorized for issuance under the 2007 Omnibus Plan was increased by 8,858,823 shares as a result of a one-time adjustment to outstanding unvested share awards in connection with a special dividend payment.
On May 9, 2017, the Company’s shareholders approved the adoption of the 2017 Omnibus Plan, pursuant to which 15,000,000 Company common shares are available for issuance. The 2017 Omnibus Plan was amended and restated on April 5, 2019 to increase the number of common shares authorized for issuance by 8,000,000 shares to 23,000,000 shares. No grants may be made under the 2007 Omnibus Plan after the date of adoption of the 2017 Omnibus Plan. Grants that were outstanding under the 2007 Omnibus Plan as of the date of Company’s adoption of the 2017 Omnibus Plan remain subject to the terms of the 2007 Omnibus Plan.
Stock-based compensation costs relating to the foregoing plans during the six months ended June 30, 2020 and June 30, 2021 were $35,655 and $36,404 , respectively, and for the three months ended June 30, 2020 and June 30, 2021 were $18,520 and $19,320 , respectively. These costs have been allocated to “cost of revenue” and “selling, general and administrative expenses.”
Stock options
All options granted under the 2007 and 2017 Omnibus Plans are exercisable into common shares of the Company, have a contractual period of ten years and vest over to five years unless specified otherwise in the applicable award agreement. The Company recognizes compensation cost over the vesting period of the option.
Compensation cost is determined at the date of grant by estimating the fair value of an option using the Black-Scholes option-pricing model.
The following table shows the significant assumptions used in determining the fair value of options granted in the six months ended June 30, 2020 and June 30, 2021. The Company granted options covering 431,924 shares in the six months ended June 30, 2020.
| Six months ended June 30,2020 | Six months ended June 30,2021 | ||||||||||||||||
| Dividend yield | % | - | % | ||||||||||||||
| Expected life (in months) | |||||||||||||||||
| Risk-free rate of interest | % | - | % | ||||||||||||||
| Volatility | % | - | % | ||||||||||||||
36
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
16. Stock-based compensation (Continued)
A summary of stock option activity during the six months ended June 30, 2021 is set out below:
| Six Months Ended June 30, 2021 | |||||||||||||||||||||||
| Shares arising out of options | Weighted average exercise price | Weighted average remaining contractual life (years) | Aggregate intrinsic value | ||||||||||||||||||||
| Outstanding as of January 1, 2021 | |||||||||||||||||||||||
| Granted | — | — | |||||||||||||||||||||
| Forfeited | ( | — | — | ||||||||||||||||||||
| Expired | — | — | |||||||||||||||||||||
| Exercised | ( | — | |||||||||||||||||||||
| Outstanding as of June 30, 2021 | |||||||||||||||||||||||
| Vested as of June 30, 2021 and expected to vest thereafter (Note a) | |||||||||||||||||||||||
| Vested and exercisable as of June 30, 2021 | |||||||||||||||||||||||
| Weighted average grant date fair value of grants during the period | |||||||||||||||||||||||
(a)Options expected to vest reflect an estimated forfeiture rate.
As of June 30, 2021, the total remaining unrecognized stock-based compensation cost for options expected to vest amounted to $26,365 , which will be recognized over the weighted average remaining requisite vesting period of 3.4 years.
Restricted share units
The Company has granted restricted share units (“RSUs”) under the 2007 and 2017 Omnibus Plans. Each RSU represents the right to receive one common share. The fair value of each RSU is the market price of one common share of the Company on the date of the grant. The RSUs granted to date have graded vesting schedules of three months to four years . The compensation expense is recognized on a straight-line basis over the vesting term. A summary of RSU activity during the six months ended June 30, 2021 is set out below:
| Six Months Ended June 30, 2021 | |||||||||||
| Number of Restricted Share Units | Weighted Average Grant Date Fair Value | ||||||||||
| Outstanding as of January 1, 2021 | |||||||||||
| Granted | |||||||||||
| Vested (Note a) | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Outstanding as of June 30, 2021 | |||||||||||
| Expected to vest (Note b) | |||||||||||
(a)159,134 RSUs that vested during the period were net settled upon vesting by issuing 96,198 shares (net of minimum statutory tax withholding) during the quarter ended June 30, 2021 and 10,499 shares (net of minimum statutory tax withholding) in July 2021.
(b)The number of RSUs expected to vest reflects the application of an estimated forfeiture rate.
37
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
16. Stock-based compensation (Continued)
As of June 30, 2021, the total remaining unrecognized stock-based compensation cost related to RSUs amounted to $23,633 , which will be recognized over the weighted average remaining requisite vesting period of 2.6 years.
Performance units
The Company also grants stock awards in the form of performance units (“PUs”) and has granted PUs under both the 2007 and 2017 Omnibus Plans.
Each PU represents the right to receive one common share at a future date based on the Company’s performance against specified targets. PUs granted to date have vesting schedules of six months to three years . The fair value of each PU is the market price of one common share of the Company on the date of grant and assumes that performance targets will be achieved. PUs granted under the plans are subject to cliff vesting. The compensation expense for such awards is recognized on a straight-line basis over the vesting terms. During the performance period, the Company’s estimate of the number of shares to be issued is adjusted upward or downward based upon the probability of achievement of the performance targets. The ultimate number of shares issued and the related compensation cost recognized is based on a comparison of the final performance metrics to the specified targets.
A summary of PU activity during the six months ended June 30, 2021 is set out below:
| As of June 30, 2021 | |||||||||||||||||
| Number of Performance Units | Weighted Average Grant Date Fair Value | Maximum Shares Eligible to Receive | |||||||||||||||
| Outstanding as of January 1, 2021 | |||||||||||||||||
| Granted | |||||||||||||||||
| Vested (Note a) | ( | ( | |||||||||||||||
| Forfeited | ( | ( | |||||||||||||||
| Adjustment upon final determination of level of performance goal achievement (Note b) | |||||||||||||||||
| Outstanding as of June 30, 2021 | |||||||||||||||||
| Expected to vest (Note c) | |||||||||||||||||
(a)1,784,140 PSUs that vested during the period were net settled upon vesting by issuing 1,102,440 shares (net of minimum statutory tax withholding).
(b)Represents an adjustment made in March 2021 to the number of shares subject to the PUs granted in 2020 upon certification of the level of achievement of the performance targets underlying such awards.
(c)The number of PUs expected to vest reflects the application of an estimated forfeiture rate.
As of June 30, 2021, the total remaining unrecognized stock-based compensation cost related to PUs amounted to $79,298 , which will be recognized over the weighted average remaining requisite vesting period of 2.0 years.
Employee Stock Purchase Plan (ESPP)
On May 1, 2008, the Company adopted the Genpact Limited U.S. Employee Stock Purchase Plan and the Genpact Limited International Employee Stock Purchase Plan (together, the “ESPP”). In April 2018, these plans were amended and restated, and their terms were extended to August 31, 2028.
38
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
16. Stock-based compensation (Continued)
The ESPP allows eligible employees to purchase the Company’s common shares through payroll deductions at 90 % of the closing price of the Company’s common shares on the last business day of each purchase interval. The dollar amount of common shares purchased under the ESPP may not exceed 15 % of the participating employee’s base salary, subject to a cap of $25 per employee per calendar year. With effect from September 1, 2009, the offering periods commence on the first business day in March, June, September and December of each year and end on the last business day of the subsequent May, August, November and February. 4,200,000 common shares have been reserved for issuance in the aggregate over the term of the ESPP.
During the six months ended June 30, 2020 and 2021, 174,314 and 156,004 common shares, respectively, were issued under the ESPP.
The ESPP is considered compensatory under the FASB guidance on Compensation-Stock Compensation.
17. Capital stock
Share repurchases
The Board of Directors of the Company (the “Board”) has authorized repurchases of up to $1,750,000 under the Company’s existing share repurchase program. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may be purchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
During the six months ended June 30, 2020 and 2021, the Company repurchased 1,042,188 and 3,592,409 of its common shares, respectively, on the open market at a weighted average price of $43.18 and $40.96 per share, respectively, for an aggregate cash amount of $45,000 and $147,152 , respectively. All repurchased shares have been retired.
The Company records repurchases of its common shares on the settlement date of each transaction. Shares purchased and retired are deducted to the extent of their par value from common stock and from retained earnings for the excess over par value. Direct costs incurred to acquire the shares are included in the total cost of the shares purchased. For the six months ended June 30, 2020 and 2021, retained earnings were reduced by the direct costs related to share repurchases of $21 and $72 , respectively.
$489,846 remained available for share repurchases under the Company’s existing share repurchase program as of June 30, 2021. This repurchase program does not obligate the Company to acquire any specific number of shares and does not specify an expiration date.
Dividend
On February 6, 2020, the Company announced that its Board had approved a 15 % increase in its quarterly cash dividend to $0.0975 per share, up from $0.085 per share in 2019, representing an annual dividend of $0.39 per common share, up from $0.34 per share in 2019, payable to holders of the Company’s common shares. On March 18, 2020 and June 26, 2020, the Company paid a dividend of $0.0975 per share, amounting to $18,543 and $18,595 in the aggregate, to shareholders of record as of March 9, 2020 and June 11, 2020, respectively.
39
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
18. Earnings per share
The Company calculates earnings per share in accordance with FASB guidance on earnings per share. Basic and diluted earnings per common share give effect to the change in the number of Company common shares outstanding. The calculation of basic earnings per common share is determined by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the respective periods. The potentially dilutive shares, consisting of outstanding options on common shares, restricted share units, common shares to be issued under the ESPP and performance units, have been included in the computation of diluted net earnings per share and the number of weighted average shares outstanding, except where the result would be anti-dilutive.
The number of shares subject to stock awards outstanding but not included in the computation of diluted earnings per common share because their effect was anti-dilutive is 1,811,576 and 1,769,767 for the six months ended June 30, 2020 and 2021, respectively, and 3,319,081 and 1,964,240 for the three months ended June 30, 2020 and 2021, respectively.
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of common shares used in computing basic earnings per common share | |||||||||||||||||||||||
| Dilutive effect of stock-based awards | |||||||||||||||||||||||
| Weighted average number of common shares used in computing dilutive earnings per common share | |||||||||||||||||||||||
| Earnings per common share | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
19. Segment reporting
The Company manages various types of business process and information technology services in an integrated manner for clients in various industries and geographic locations. The Company's operating segments are significant strategic business units that align its products and services with how it manages its business, approaches key markets and interacts with its clients.
The Company’s reportable segments are as follows: (1) Banking, Capital Markets and Insurance (“BCMI”); (2) Consumer Goods, Retail, Life Sciences and Healthcare (“CGRLH”); and (3) High Tech, Manufacturing and Services (“HMS”).
40
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
19. Segment reporting (Continued)
The Company’s Chief Executive Officer, who has been identified as the Chief Operating Decision Maker ("CODM"), reviews operating segment revenue, which is a GAAP measure, and operating segment adjusted income from operations, which is a non-GAAP measure. The Company does not allocate and therefore the CODM does not evaluate stock based compensation expenses, amortization and impairment of acquired intangible assets, foreign exchange gain/(losses), interest income/(expense), restructuring expenses, acquisition related expenses, other income/(expense), or income taxes by segment.
The Company’s operating assets and liabilities pertain to multiple segments. The Company manages assets and liabilities on a total company basis, not by operating segment, and therefore asset and liabilities information and capital expenditures by operating segment are not presented to the CODM and are not reviewed by the CODM.
Revenues and adjusted income from operations for each of the Company’s segments for the three months ended June 30, 2020 were as follows:
| Reportable segments | |||||||||||||||||||||||||||||||||||
| BCMI | CGRLH | HMS | Total Reportable segment | Others# | Total | ||||||||||||||||||||||||||||||
| Revenues, net | ( | ||||||||||||||||||||||||||||||||||
| Adjusted income from operations | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | ( | ||||||||||||||||||||||||||||||||||
| Amortization and impairment of acquired intangible assets (other than included above) | ( | ||||||||||||||||||||||||||||||||||
| Foreign exchange gains (losses), net | ( | ||||||||||||||||||||||||||||||||||
| Interest income (expense), net | ( | ||||||||||||||||||||||||||||||||||
| Restructuring expenses (refer to note (a) below and note 26) | ( | ||||||||||||||||||||||||||||||||||
| Income tax expense | ( | ||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
(a) We do not allocate these charges to individual segments in internal management reports used by the CODM. Accordingly, such expenses are included in our segment reporting as “unallocated costs.”
#Revenues, net for “Others” primarily represents the impact of foreign exchange fluctuations, which is not allocated to the Company’s segments for management’s internal reporting purposes. Adjusted income from operations for “Others” primarily represents the impact of over-absorption of overhead, unallocated allowance for credit losses and foreign exchange fluctuations, which are not allocated to the Company’s segments for management’s internal reporting purposes.
41
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
19. Segment reporting (Continued)
Revenues and adjusted income from operations for each of the Company’s segments for the three months ended June 30, 2021 were as follows:
| Reportable segments | |||||||||||||||||||||||||||||||||||
| BCMI | CGRLH | HMS | Total Reportable segment | Others* | Total | ||||||||||||||||||||||||||||||
| Revenues, net | |||||||||||||||||||||||||||||||||||
| Adjusted income from operations | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | ( | ||||||||||||||||||||||||||||||||||
| Amortization and impairment of acquired intangible assets (other than included above) | ( | ||||||||||||||||||||||||||||||||||
| Foreign exchange gains (losses), net | |||||||||||||||||||||||||||||||||||
| Interest income (expense), net | ( | ||||||||||||||||||||||||||||||||||
| Income tax expense | ( | ||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
*Revenues, net for “Others” primarily represents the impact of foreign exchange fluctuations, which is not allocated to the Company’s segments for management’s internal reporting purposes. Adjusted income from operations for “Others” primarily represents the impact of over-absorption of overhead and foreign exchange fluctuations, which are not allocated to the Company’s segments for management’s internal reporting purposes.
Revenues and adjusted income from operations for each of the Company’s segments for the six months ended June 30, 2020 were as follows:
| Reportable segments | |||||||||||||||||||||||||||||||||||
| BCMI | CGRLH | HMS | Total Reportable segment | Others## | Total | ||||||||||||||||||||||||||||||
| Revenues, net | ( | ||||||||||||||||||||||||||||||||||
| Adjusted income from operations | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | ( | ||||||||||||||||||||||||||||||||||
| Amortization and impairment of acquired intangible assets (other than included above) | ( | ||||||||||||||||||||||||||||||||||
| Foreign exchange gains (losses), net | |||||||||||||||||||||||||||||||||||
| Interest income (expense), net | ( | ||||||||||||||||||||||||||||||||||
| Restructuring expenses (refer to note (b) below and note 26) | ( | ||||||||||||||||||||||||||||||||||
| Income tax expense | ( | ||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
(b) We do not allocate these charges to individual segments in internal management reports used by the CODM. Accordingly, such expenses are included in our segment reporting as “unallocated costs.”
##Revenues, net for “Others” primarily represents the impact of foreign exchange fluctuations, which is not allocated to the Company’s segments for management’s internal reporting purposes. Adjusted income from operations for “Others” primarily represents the impact of over-absorption of overhead, unallocated allowances for credit losses and foreign exchange fluctuations, which are not allocated to the Company’s segments for management’s internal reporting purposes.
42
GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
19. Segment reporting (Continued)
Revenues and adjusted income from operations for each of the Company’s segments for the six months ended June 30, 2021 were as follows:
| Reportable segments | |||||||||||||||||||||||||||||||||||
| BCMI | CGRLH | HMS | Total Reportable segment | Others** | Total | ||||||||||||||||||||||||||||||
| Revenues, net | |||||||||||||||||||||||||||||||||||
| Adjusted income from 0perations | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | ( | ||||||||||||||||||||||||||||||||||
| Amortization and impairment of acquired intangible assets (other than included above) | ( | ||||||||||||||||||||||||||||||||||
| Foreign exchange gains (losses), net | |||||||||||||||||||||||||||||||||||
| Interest income (expense), net | ( | ||||||||||||||||||||||||||||||||||
| Income tax expense | ( | ||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
20. Net revenues
Disaggregation of revenue
In the following table, the Company’s revenue is disaggregated by customer classification:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||
| GE | $ | $ | $ | $ | |||||||||||||||||||
| Global clients | |||||||||||||||||||||||
| Total net revenues | $ | $ | $ | $ | |||||||||||||||||||
All revenue from GE is included in revenue from the HMS segment, and the remainder of revenue from the HMS segment consists of revenue from Global Clients. All of the segment revenue from both the BCMI and CGRLH segments consists of revenue from Global Clients. Refer to Note 19 for details on net revenues attributable to each of the Company’s segments.
The Company has evaluated the impact of the COVID-19 pandemic on the Company’s net revenues for the three and six months ended June 30, 2020 and 2021, respectively, to ensure that revenue is recognized after considering all impacts to the extent currently known. Impacts observed include constraints on the Company’s ability to render services, whether due to full or partial shutdowns of the Company’s facilities or significant travel restrictions, penalties relating to breaches of service level agreements, and contract terminations or contract performance delays initiated by clients. The Company’s net revenues for the three and six months ended June 30, 2020 were lower than expected before the onset of the pandemic, primarily due to delays in obtaining client approvals to shift to a virtual, work-from-home operating environment, whether as a result of regulatory constraints or due to privacy or security concerns. The COVID-19 pandemic did not have a significant impact on the Company’s net revenues for the three and six months ended June 30, 2021. Due to the nature of the pandemic, the Company will continue to monitor developments to identify significant uncertainties relating to revenue in future periods.
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GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
20. Net revenues (Continued)
Contract balances
Accounts receivable include amounts for services that the Company has performed but for which payment has not been received. The Company typically follows a 30 -day billing cycle and, as such, at any point in time may have accrued up to 30 days of revenues that have not been billed. The Company has determined that in instances where the timing of revenue recognition differs from the timing of invoicing, the related contracts generally do not include a significant financing component. Refer to Note 5 for details on the Company’s accounts receivable and allowance for credit losses.
The following table shows the details of the Company’s contract balances:
| As of December 31, 2020 | As of June 30, 2021 | ||||||||||
| Contract assets (Notes a) | $ | $ | |||||||||
| Contract liabilities (Note b) | |||||||||||
| Deferred transition revenue | $ | $ | |||||||||
| Advance from customers | $ | $ | |||||||||
(a)Included in "prepaid expenses and other current assets" and "other assets" in the consolidated balance sheet.
(b)Included in "accrued expenses and other current liabilities" and "other liabilities" in the consolidated balance sheet.
Contract assets represent the contract acquisition fees or other upfront fees paid to a customer. Such costs are amortized over the expected period of benefit and recorded as an adjustment to the transaction price and deducted from revenue. The Company’s assessment did not indicate any significant impairment losses on its contract assets for the periods presented.
Contract liabilities include that portion of revenue for which payments have been received in advance from customers. The Company also defers revenues attributable to certain process transition activities for which costs have been capitalized by the Company as contract fulfillment costs. Consideration received from customers, if any, relating to such transition activities is also included as part of contract liabilities. The contract liabilities are included within “Accrued expenses and other current liabilities” and “Other liabilities” in the unaudited consolidated balance sheets. The revenues are recognized as (or when) the performance obligation is fulfilled under the contract with the customer.
Changes in the Company’s contract asset and liability balances during the three and six months ended June 30, 2020 and 2021 were a result of normal business activity and not materially impacted by any other factors.
Revenue recognized during the three months ended June 30, 2020 and 2021 that was included in the Company's contract liabilities balance at the beginning of the period was $52,408 and $62,060 , respectively.
Revenue recognized during the six months ended June 30, 2020 and 2021 that was included in the Company's contract liabilities balance at the beginning of the period was $65,891 and $104,942 , respectively.
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GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
20. Net revenues (Continued)
The following table includes estimated revenue expected to be recognized in the future related to remaining performance obligations as of June 30, 2021:
| Particulars | Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | ||||||||||||||||||||||||
| Transaction price allocated to remaining performance obligations | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The following table provides details of the Company’s contract cost assets:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Particulars | Sales incentive programs | Transition activities | Sales incentive programs | Transition activities | Sales incentive programs | Transition activities | Sales incentive programs | Transition activities | |||||||||||||||||||||||||||||||||||||||
| Opening balance | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Closing balance | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortization | |||||||||||||||||||||||||||||||||||||||||||||||
21. Other operating (income) expense, net
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||
| Write-down of intangible assets and property, plant and equipment* | $ | $ | $ | $ | |||||||||||||||||||
| Write-down of operating right-of-use assets and other assets* | |||||||||||||||||||||||
| Other operating (income) expense | ( | ( | ( | ( | |||||||||||||||||||
| Other operating (income) expense, net | $ | $ | ( | $ | $ | ( | |||||||||||||||||
*See note 26 for additional information about other operating (income) expense, net for the three and six months ended June 30, 2021.
22. Interest income (expense), net
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||
| Interest income | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest income (expense), net | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
23. Income taxes
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GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
23. Income taxes (Continued)
The Company’s effective tax rate (“ETR”) was 24.1 % for the six months ended June 30, 2021, up from 22.1 % for the six months ended June 3o, 2020. The increase in the Company’s ETR is primarily due to the expiration of certain tax benefits in 2021 and a decrease in discrete benefits recorded in the first half of 2021 compared to the first half of 2020.
As of December 31, 2020, the Company had unrecognized tax benefits amounting to $34,300 , which, if recognized, would impact the Company’s ETR.
| Six months ended June 30, 2021 | |||||
| Opening balance at January 1 | $ | ||||
| Decrease related to settlements with tax authorities | ( | ||||
| Effect of exchange rate changes | ( | ||||
| Closing balance at June 30 | $ | ||||
The Company’s unrecognized tax benefits as of June 30, 2021 amounted to $27,957 , which, if recognized, would impact the Company’s ETR.
As of December 31, 2020 and June 30, 2021, the Company had accrued approximately $6,369 and $2,799 , respectively, in interest and $900 and $722 , respectively, for penalties relating to unrecognized tax benefits.
24. Other income (expense), net
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||
| Other income (expense) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Other income (expense), net | $ | $ | $ | ( | $ | ||||||||||||||||||
25. Commitments and contingencies
Capital commitments
As of December 31, 2020 and June 30, 2021, the Company has committed to spend $5,128 and $11,582 , respectively, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of these purchases.
Bank guarantees
The Company has outstanding bank guarantees and letters of credit amounting to $10,156 and $8,970 as of December 31, 2020 and June 30, 2021, respectively. Bank guarantees are generally provided to government agencies and excise and customs authorities for the purpose of maintaining a bonded warehouse.
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GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
25. Commitments and contingencies (Continued)
These guarantees may be revoked if the government agencies suffer any losses or damages through the breach of any of the covenants contained in the agreements governing such guarantees.
Other commitments
Certain units of the Company’s Indian subsidiaries are established as Software Technology Parks of India units or Special Economic Zone (“SEZ”) units under the relevant regulations issued by the Government of India. These units are exempt from customs and other duties on imported and indigenous capital goods, stores and spares. SEZ units are also exempt from the Goods and Services Tax (“GST”) that was introduced in India in 2017. The Company has undertaken to pay taxes and duties, if any, in respect of capital goods, stores, spares and services consumed duty-free, in the event that certain terms and conditions are not fulfilled.
Contingency
In February 2019, there was a judicial pronouncement in India with respect to defined contribution benefit payments interpreting certain statutory defined contribution obligations of employees and employers. It is not currently clear whether the interpretation set out in the pronouncement has retrospective application. If applied retrospectively, the interpretation would result in an increase in contributions payable by the Company for past periods for certain of its India-based employees. There are numerous interpretative challenges concerning the retrospective application of the judgment. Due to such challenges and a lack of interpretive guidance, and based on legal advice the Company has obtained on the matter, it is currently impracticable to reliably estimate the timing and amount of any payments the Company may be required to make. Accordingly, the Company plans to obtain further clarity and will evaluate the amount of a potential provision, if any.
The Indian taxing authorities (“ITA”) have initiated proceedings to examine the availability of the tax exemption claimed in respect of exports of services and related refunds under the Indian Goods and Services (“GST”) tax regime and the previous service tax regime. In the second quarter of 2020, the ITA began to challenge or reject the Company’s Indian GST and service tax refunds in certain Indian states. In total, refunds of $18,665 have been denied or challenged by the ITA and additional refunds may be denied. The Company is pursuing appeals of the denied refunds before relevant appellate authorities.
The Company had requested these refunds pursuant to the tax exemption available for exports under the previous service tax regime as well as the current GST regime in respect of services performed by the Company in India for affiliates and clients outside of India. In denying the refunds, the ITA have taken the position that the services provided are local services, which interpretation, if correct, would make the service tax and GST exemption on exports unavailable to the Company in respect of such services. Additional potentially material challenges and assessments may result from ongoing proceedings related to service tax recovery. The Company believes that the denial of the refunds claimed pursuant to the service tax and GST exemption is incorrect and that the risk that the liability will materialize is remote. Accordingly, no reserve has been provided as of June 30, 2021.
An affiliate of the Company in India received an assessment order in 2016 seeking to assess tax amounting to $110,338 (including interest to the date of the order) on certain transactions that occurred in 2013. This amount excludes penalty or interest accrued since the date of the order. The Company filed an appeal against this assessment order with the Commissioner Income Tax (Appeals), the first tax appellant authority in India, which ruled against the Company. Subsequently, the Company filed an appeal with the Income Tax Appellate Tribunal of India (the “Tribunal”). The Tribunal has accepted the legal arguments raised by the Company and the assessment order has been cancelled. The taxes paid under protest amounting to $26,884 are yet to be refunded to the Company. The Indian tax authorities may appeal the order of the Tribunal before higher appellate authorities. Based on its evaluation of the facts underlying the transaction and legal advice received, the Company believes that it is more likely than not that this transaction would not be subject to tax liability in India. Accordingly, no reserve has been provided as of June 30, 2021.
In September 2020, the Indian Parliament approved the Code on Social Security, 2020 (the “Code”), which will impact the Company’s contributions to its defined contribution and defined benefit plans for employees based in India.
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GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)
25. Commitments and contingencies (Continued)
The date the changes will take effect is not yet known and the rules for quantifying the financial impact have not yet been published. The Company will evaluate the impact of the Code on the Company in its financial statements for the period in which the Code becomes effective and the related rules are published.
26. Restructuring
In the second quarter of 2020, due to the impact of the COVID-19 pandemic on the Company’s current and expected future revenues, the Company recorded a $21,658 restructuring charge primarily relating to the abandonment of leased office premises and employee severance charges. In the third quarter of 2020, the Company recorded an additional charge of $4,889 relating to employee severance charges.
Of the total recorded restructuring charges of $26,547 , $11,152 was a non-cash charge (including $908 related to writing down certain property, plant and equipment) recorded as other operating expense, which pertains to the abandonment of various leased office premises as a result of the Company’s consolidation of underutilized office premises due to lower demand or shifting to a work-from-home model. The Company made efforts to sublease certain office premises instead of abandoning them, but due to the COVID-19 pandemic and the related widespread adoption of work-from-home practices by many businesses worldwide, the Company has been unable to sublease such premises to date and the Company believes it is unlikely that it will be able to sublease such premises in the foreseeable future. The Company also recorded a severance charge of $15,395 in personnel expense as a result of a focused reduction in its workforce, which has been subsequently settled. No further restructuring costs were incurred related to this restructuring plan subsequent to third quarter of 2020.
27. Subsequent Events
Dividend
On July 29, 2021, the Company announced that its Board of Directors has declared a dividend for the third quarter of 2021 of $0.1075 per common share, which is payable on September 24, 2021 to shareholders of record as of the close of business on September 10, 2021. The declaration of any future dividends will be at the discretion of the Board of Directors and subject to Bermuda and other applicable laws.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2020 and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020. In addition to historical information, this discussion includes forward-looking statements and information that involves risks, uncertainties and assumptions, including but not limited to those listed below and under “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and in our Annual Report on Form 10-K for the year ended December 31, 2020.
Special Note Regarding Forward-Looking Statements
We have made statements in this Quarterly Report on Form 10-Q (the “Quarterly Report”) in, among other sections, Part I, Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are forward-looking statements. In some cases, you can identify these statements by forward-looking terms such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “could,” “may,” “shall,” “will,” “would” and variations of such words and similar expressions, or the negative of such words or similar expressions. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, which in some cases may be based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks outlined in Part II, Item 1A—“Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and Part I, Item 1A—“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020. For a discussion of risks of which we are aware in relation to the COVID-19 pandemic, see “Our business and results of operations have been adversely impacted and may in the future be adversely impacted by the COVID-19 pandemic" under Part I, Item 1A—"Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 and the supplemental information included under Part II, Item 1A—"Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021. Many of the risks, uncertainties and other factors identified below are, and will be, amplified by the COVID-19 pandemic.
Forward-looking statements we may make include, but are not limited to, statements relating to:
•our ability to retain existing clients and contracts;
•our ability to win new clients and engagements;
•the expected value of the statements of work under our master service agreements;
•our beliefs about future trends in our market;
•political, economic or business conditions in countries where we have operations or where our clients operate, including the uncertainty related to the withdrawal of the United Kingdom from the European Union, commonly known as Brexit, and heightened economic and political uncertainty within and among other European Union member states;
•expected spending on business process outsourcing and information technology services by clients;
•foreign currency exchange rates;
•our ability to convert bookings to revenue;
•our rate of employee attrition;
•our effective tax rate; and
•competition in our industry.
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Factors that may cause actual results to differ from expected results include, among others:
•the impact of the COVID-19 pandemic and related response measures on our business, results of operations and financial condition;
•our ability to develop and successfully execute our business strategies;
•our ability to grow our business and effectively manage growth and international operations while maintaining effective internal controls;
•our ability to comply with data protection laws and regulations and to maintain the security and confidentiality of personal and other sensitive data of our clients, employees or others;
•telecommunications or technology disruptions or breaches, natural or other disasters, or medical epidemics or pandemics, including the COVID-19 pandemic;
•our dependence on favorable policies and tax laws that may be changed or amended in a manner adverse to us or be unavailable to us in the future, including as a result of tax policy changes in India, and our ability to effectively execute our tax planning strategies;
•our dependence on revenues derived from clients in the United States and Europe and clients that operate in certain industries, such as the financial services industry;
•our ability to successfully consummate or integrate strategic acquisitions;
•our ability to maintain pricing and employee utilization rates;
•our ability to maintain pricing and asset utilization rates;
•our ability to hire and retain enough qualified employees to support our operations;
•increases in wages in locations in which we have operations;
•our ability to service our defined contribution and benefit plans payment obligations;
•clarification as to the possible retrospective application of a judicial pronouncement in India regarding our defined contribution and benefit plans payment obligations;
•our relative dependence on the General Electric Company (GE) and our ability to maintain our relationships with divested GE businesses;
•financing terms, including, but not limited to, changes in the London Interbank Offered rate, or LIBOR, including the pending global phase-out of LIBOR, the development of alternative rates, including the Secured Overnight Financing Rate, and changes to our credit ratings;
•our ability to meet our corporate funding needs, pay dividends and service debt, including our ability to comply with the restrictions that apply to our indebtedness that may limit our business activities and investment opportunities;
•restrictions on visas for our employees traveling to North America and Europe;
•fluctuations in currency exchange rates between the currencies in which we transact business;
•our ability to retain senior management;
•the selling cycle for our client relationships;
•our ability to attract and retain clients and our ability to develop and maintain client relationships on attractive terms;
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•legislation in the United States or elsewhere that adversely affects the performance of business process outsourcing and information technology services offshore;
•increasing competition in our industry;
•our ability to protect our intellectual property and the intellectual property of others;
•deterioration in the global economic environment and its impact on our clients, including the bankruptcy of our clients;
•regulatory, legislative and judicial developments, including the withdrawal of governmental fiscal incentives;
•the international nature of our business;
•technological innovation;
•our ability to derive revenues from new service offerings and acquisitions; and
•unionization of any of our employees.
Although we believe the expectations reflected in the forward-looking statements are reasonable at the time they are made, we cannot guarantee future results, level of activity, performance or achievements. Achievement of future results is subject to risks, uncertainties, and potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements. We undertake no obligation to update any of these forward-looking statements after the date of this filing to conform our prior statements to actual results or revised expectations. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-K, Form 10-Q and Form 8-K reports to the Securities and Exchange Commission (the “SEC”).
Continued impact of COVID-19 on our business and results of operations
The COVID-19 pandemic continues to impact the global economy and the markets in which we operate. Actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of the COVID-19 pandemic across the globe, including travel bans, quarantines and “stay-at-home” orders, and similar mandates continue to restrict daily activities and have had an impact on our business, financial condition and results of operations. This section provides a brief overview of how we are responding to known and anticipated impacts of the COVID-19 pandemic on our business, financial condition and results of operations.
The remote work arrangements that we implemented in 2020 remain in place in most locations. Our work-from-home delivery capability steadily improved throughout 2020 and continued to improve during the first half of 2021. For the limited number of employees who have returned to our offices, we have implemented new safety, cleaning and medical screening procedures to help protect them from COVID-19. We have also worked and continue to work with national, state, and local authorities to comply with applicable rules and regulations related to the COVID-19 pandemic.
In the first half of 2021, parts of the world experienced increased availability and administration of COVID-19 vaccines, as well as an easing of restrictions on social activity, workplaces, businesses and travel. In India, where we have substantial operations, as a result of increased administration of COVID-19 vaccines and a decline in the number of COVID-19 cases related to the recent second wave of the virus, many lockdown and associated restrictions have been lifted by the Indian government. Notwithstanding improving conditions during the first half of 2021, the COVID-19 pandemic continues, with temporary shutdowns of our offices requested or mandated by governmental authorities. Due to the associated uncertainties of the COVID-19 pandemic, we continue to evaluate the nature and scope of the impact to our business and may take further strategic actions in order to manage our business operations, costs and liquidity in response to the ongoing impacts and changing market conditions resulting from the pandemic.
In addition to complying with applicable government measures, we have taken a series of actions in response to the COVID-19 pandemic to help our employees through this crisis. In the geographies most affected by the recent COVID-19 variants, these actions included providing healthcare support, such as securing and administering vaccines for our employees, facilitating our employees’ access to medical equipment, providing online medical consultations, extending medical insurance to our employees’ family members and enhancing the dollar value of such coverage. Other actions we
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have taken include disseminating guidance and information to our employees, facilitating remote work arrangements for our employees, providing increased executive-level communications, developing various employee wellness programs and providing enhanced leave for employees affected by COVID-19. We have also taken a number of steps to protect against a perceived increase in certain risks as a result of our increased remote work environment, including educating our employees on information security best practices and adopting updated cyber security and data privacy policies, among others.
Our Global Leadership Council continues to coordinate and oversee our actions in response to the COVID-19 pandemic, including business continuity planning, revenue and profitability, transformation service offerings to address new and developing client needs, as well as human resource policies. We believe this coordinated effort will maximize our flexibility and allow us to quickly implement any necessary protocols for devising solutions to the problems we or our clients are facing or may face in the future in relation to the pandemic.
As the COVID-19 pandemic evolves, we will continue to assess its impact on the Company and respond accordingly, including taking further actions that alter our business operations as may be required by regulatory authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders. The ultimate impact of COVID-19 on our business and the industry in which we operate remains unknown and unpredictable. Our past results may not be indicative of our future performance, and our financial results in future periods, including but not limited to net revenues, income from operations, income from operations margin, net income and earnings per share, may differ materially from historical trends. The extent of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including but not limited to the duration and severity of the pandemic; rates of vaccination; the macroeconomic impact of the spread of the virus; and related government stimulus measures. We are currently unable to predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures and the related macroeconomic impacts. For example, to the extent the pandemic continues to disrupt economic activity globally, we, like other businesses, will not be immune from its effects, and our business, results of operations and financial condition may be adversely affected, possibly materially, by prolonged decreases in spending on the types of services we provide, deterioration of our clients’ credit, or reduced economic activities. In addition, some of our expenses are less variable in nature and do not closely correlate with revenues, which may lead to a decrease in our profitability.
For additional information about the risks we face in relation to the COVID-19 pandemic, see Part I, Item 1A—“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and Part II, Item 1A—“Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.
Overview
We are a global professional services firm that makes business transformation real. We drive digital-led innovation and run digitally-enabled intelligent operations for our clients, guided by our experience running thousands of processes for hundreds of Fortune Global 500 clients. We have over 104,000 employees serving clients in key industry verticals from more than 30 countries. Our registered office is located at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.
In the quarter ended June 30, 2021, we recorded net revenues of $988.1 million, of which $893.4 million, or 90.4%, was from clients other than General Electric (“GE”), which we refer to as Global Clients, with the remaining $94.8 million, or 9.6%, from GE.
Certain Acquisitions
On December 31, 2020, we acquired 100% of the outstanding equity interests in Enquero Inc, a California corporation, and certain affiliated entities in India, the Netherlands and Canada (collectively referred to as “Enquero”) for total purchase consideration of $148.8 million. This amount represents cash consideration of $137.2 million, net of cash acquired of $11.6 million. This acquisition increases the scale and depth of our data and analytics capabilities, enhancing our ability to accelerate the digital transformation journeys of our clients through cloud technologies and advanced data analytics. Goodwill arising from the acquisition amounting to $86.6 million has been allocated among our three reporting units as follows: Banking, Capital Markets and Insurance (“BCMI”) in the amount of $2.6 million, Consumer Goods, Retail, Life Sciences and Healthcare (“CGRLH”) in the amount of $22.2 million and High Tech, Manufacturing and Services (“HMS”) in the amount of $61.8 million, using a relative fair value allocation method. The goodwill arising from this acquisition is not deductible for income tax purposes. The goodwill represents primarily the acquired capabilities and other benefits expected to result from combining the acquired operations with our existing operations.
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On October 5, 2020, we acquired 100% of the outstanding equity/limited liability company interests in SomethingDigital.Com LLC, a New York limited liability company, for total purchase consideration of $57.5 million. This amount represents cash consideration of $56.1 million, net of cash acquired of $1.4 million. This acquisition supports our strategy to integrate experience and process innovation to help clients on their digital transformation journeys and expands on our existing experience capabilities to support end-to-end digital commerce solutions, both business-to-business and business-to-consumer. Additionally, this acquisition expands our capabilities into Magento Commerce, which powers Adobe Commerce Cloud, and Shopify Plus, a cloud-based-ecommerce platform for high-volume merchants. Goodwill arising from the acquisition amounting to $36.9 million has been allocated among two of our reporting units as follows: CGRLH in the amount of $30.4 million and HMS in the amount of $6.5 million, using a relative fair value allocation method. Of the total goodwill arising from this acquisition, $35.1 million is deductible for income tax purposes. The goodwill represents primarily the acquired capabilities and other benefits expected to result from combining the acquired operations with our existing operations.
On November 12, 2019, we acquired the outstanding equity/limited liability company interests in Rightpoint Consulting, LLC, an Illinois limited liability company, and certain affiliated entities in the United States and India (collectively referred to as “Rightpoint”) for total purchase consideration of $270.7 million. This amount includes cash consideration of $268.2 million, net of cash acquired of $2.5 million. This acquisition expands our capabilities in improving customer experience and strengthens our reputation as a thought leader in this space. The securities purchase agreement provided certain of the selling equity holders the option to elect to either (a) receive 100% consideration in cash at the closing date for their limited liability company interests and vested options or (b) “roll over” and retain 25% of their Rightpoint limited liability company interests and vested options and receive consideration in cash at closing for the remaining 75% of their Rightpoint limited liability company interests and vested options. Certain selling equity holders elected to receive deferred, variable earnout consideration with an estimated value of $21.5 million over the three-year rollover period, which is included in the purchase consideration. The amount of deferred consideration ultimately payable to the rollover sellers will be based on the future revenue multiple of the acquired business. Goodwill arising from the acquisition amounting to $177.2 million has been allocated among our three reporting units as follows: BCMI in the amount of $17.0 million, CGRLH in the amount of $43.0 million and HMS in the amount of $117.2 million, using a relative fair value allocation method. Of the total goodwill arising from this acquisition, $91.9 million is deductible for income tax purposes. The goodwill primarily represents the acquired capabilities and other benefits expected to result from combining the acquired operations with our existing operations.
Critical Accounting Policies and Estimates
For a description of our critical accounting policies, see Note 2—“Summary of significant accounting policies” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above, as well as Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and Note 2—“Summary of significant accounting policies” under Part IV, Item 15—“Exhibits and Financial Statement Schedules” in our Annual Report on Form 10-K for the year ended December 31, 2020.
Due to rounding, the numbers presented in the tables included in this “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” may not add up precisely to the totals provided.
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Results of Operations
The following table sets forth certain data from our consolidated statements of income for the three and six months ended June 30, 2020 and 2021.
| Percentage Change Increase/(Decrease) | ||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, | Six months ended June 30, | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||||||
| 2020 | 2021 | 2020 | 2021 | 2021 vs. 2020 | 2021 vs. 2020 | |||||||||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||||||||
| Net revenues—Global Clients | $ 783.3 | $ 893.4 | $ 1,584.9 | $ 1,746.4 | 14.0 | % | 10.2 | % | ||||||||||||||||||||||||||||||
| Net revenues—GE | 116.8 | 94.8 | 238.4 | 187.8 | (18.8) | % | (21.2) | % | ||||||||||||||||||||||||||||||
Total net revenues | 900.1 | 988.1 | 1,823.3 | 1,934.2 | 9.8 | % | 6.1 | % | ||||||||||||||||||||||||||||||
| Cost of revenue | 593.9 | 633.0 | 1,198.7 | 1,233.9 | 6.6 | % | 2.9 | % | ||||||||||||||||||||||||||||||
| Gross profit | 306.2 | 355.1 | 624.6 | 700.3 | 16.0 | % | 12.1 | % | ||||||||||||||||||||||||||||||
| Gross profit margin | 34.0 | % | 35.9 | % | 34.3 | % | 36.2 | % | ||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 186.3 | 204.2 | 383.7 | 404.9 | 9.6 | % | 5.5 | % | ||||||||||||||||||||||||||||||
Amortization of acquired intangible assets | 10.7 | 14.6 | 21.4 | 30.7 | 36.0 | % | 43.3 | % | ||||||||||||||||||||||||||||||
Other operating (income) expense, net | 18.8 | (0.5) | 18.5 | (0.1) | (102.5) | % | (100.7) | % | ||||||||||||||||||||||||||||||
| Income from operations | 90.4 | 136.9 | 201.0 | 264.8 | 51.5 | % | 31.7 | % | ||||||||||||||||||||||||||||||
| Income from operations as a percentage of net revenues | 10.0 | % | 13.9 | % | 11.0 | % | 13.7 | % | ||||||||||||||||||||||||||||||
| Foreign exchange gains (losses), net | (0.5) | 5.5 | 14.0 | 8.8 | NM * | (37.2) | % | |||||||||||||||||||||||||||||||
| Interest income (expense), net | (13.6) | (13.1) | (25.3) | (25.4) | (3.9) | % | 0.5 | % | ||||||||||||||||||||||||||||||
| Other income (expense), net | 2.9 | 6.1 | 0.0 | 7.5 | 108.7 | % | NM * | |||||||||||||||||||||||||||||||
| Income before income tax expense | 79.1 | 135.4 | 189.7 | 255.6 | 71.1 | % | 34.8 | % | ||||||||||||||||||||||||||||||
| Income tax expense | 17.0 | 32.7 | 41.8 | 61.7 | 92.5 | % | 47.3 | % | ||||||||||||||||||||||||||||||
| Net income | $ 62.2 | $ 102.7 | $ 147.9 | $ 194.0 | 65.2 | % | 31.2 | % | ||||||||||||||||||||||||||||||
| Net income as a percentage of net revenues | 6.9 | % | 10.4 | % | 8.1 | % | 10.0 | % | ||||||||||||||||||||||||||||||
*N0t Meaningful
Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020
Net revenues. Our net revenues were $988.1 million in the second quarter of 2021, up $88.0 million, or 9.8%, from $900.1 million in the second quarter of 2020. The growth in our net revenues was from Global Clients and derived from both our transformation services and intelligent operations, primarily in our CGRLH segment, insurance clients within our BCMI segment and high tech and manufacturing clients within our HMS segment. Our net revenues from GE declined in the second quarter of 2021 compared to the second quarter of 2020, largely due to contractual commitments to reduce the number of employees providing services and a reduction in GE’s discretionary expenditures resulting from the macroeconomic environment, as well as GE’s divestitures of certain businesses that as of January 1, 2021 are included in our Global Client portfolio.
Adjusted for foreign exchange, primarily the impact of changes in the value of the Australian dollar, the euro and U.K. pound sterling against the U.S. dollar, our net revenues grew 7.2% in the second quarter of 2021 compared to the second quarter of 2020 on a constant currency1 basis. Revenue growth on a constant currency basis1 is a non-GAAP measure. We provide information about our revenue growth on a constant currency1 basis so that our revenue may be viewed without the impact of foreign currency exchange rate fluctuations, thereby facilitating period-to-period comparisons of our business performance. Total net revenues on a constant currency1 basis are calculated by restating current-period activity using the prior fiscal period’s foreign currency exchange rates and adjusted for hedging gains/losses.
1 Revenue growth on a constant currency basis is a non-GAAP measure and is calculated by restating current-period activity using the prior fiscal period’s foreign currency exchange rates adjusted for hedging gains/losses in such period.
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Our average headcount increased by 5.1% to approximately 102,100 in the second quarter of 2021 from approximately 96,900 in the second quarter of 2020.
Three months ended June 30, | Percentage Change Increase/(Decrease) | |||||||||||||||||||
2020 | 2021 | 2021 vs. 2020 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Net revenues – Global Clients | $ | 783.3 | $ | 893.4 | 14.0 | % | ||||||||||||||
| Net revenues – GE | $ | 116.8 | $ | 94.8 | (18.8) | % | ||||||||||||||
| Total net revenues | $ | 900.1 | $ | 988.1 | 9.8 | % | ||||||||||||||
Net revenues from Global Clients in the second quarter of 2021 were $893.4 million, up $110.0 million, or 14.0%, from $783.3 million in the second quarter of 2020. This increase was primarily driven by growth in our CGRLH segment, high tech and manufacturing clients within our HMS segment and insurance clients within our BCMI segment, all led by transformation services, partially offset by a restructured relationship with one of our banking and capital market clients. As a percentage of total net revenues, net revenues from Global Clients increased from 87.0% in the second quarter of 2020 to 90.4% in the second quarter of 2021.
Net revenues from GE in the second quarter of 2021 declined 18.8% compared to the second quarter of 2020, largely due to contractual commitments to reduce the number of employees providing services and a reduction in GE’s discretionary expenditures resulting from the macroeconomic environment, as well as the inclusion of $10.4 million in revenues from certain GE-divested businesses as Global Client revenue in the second quarter of 2021 following their divestiture by GE.
Revenues by segment were as follows:
Three months ended June 30, | Percentage Change Increase/(Decrease) | |||||||||||||||||||
2020 | 2021 | 2021 vs. 2020 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| BCMI | $ | 253.2 | $ | 249.8 | (1.4) | % | ||||||||||||||
| CGRLH | 306.7 | 373.1 | 21.6 | % | ||||||||||||||||
| HMS | 352.7 | 358.1 | 1.5 | % | ||||||||||||||||
| Others | (12.5) | 7.2 | 157.4 | % | ||||||||||||||||
| Total net revenues | $ | 900.1 | $ | 988.1 | 9.8 | % | ||||||||||||||
Net revenues from our BCMI segment decreased by 1.4% in the second quarter of 2021 compared to the second quarter of 2020, as a result of the impact of restructuring of a contract with a large client in our banking and capital markets vertical during the fourth quarter of 2020, partially offset by higher revenues from clients in our insurance vertical and an increase in transformation services delivered to banking and capital markets clients. Net revenues from our CGRLH segment increased by 21.6% in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by increases in both transformation services and intelligent operations, as well as revenue from our recent acquisitions of Enquero and SomethingDigital.Com LLC in the fourth quarter of 2020. Net revenues from our HMS segment increased by 1.5% in the second quarter of 2021 compared to the second quarter of 2020, primarily driven by an increase in revenues from Global Clients in our high tech and manufacturing verticals within our HMS segment, which also included revenue from our recent acquisition of Enquero in the fourth quarter of 2020, partially offset by lower revenues from GE in our manufacturing and services vertical due to contractual commitments to reduce the number of employees providing services as well as a reduction in GE's discretionary expenditures resulting from the macroeconomic environment. Net revenues from Others primarily represents the impact of foreign exchange fluctuations, which is not allocated to our segments for management’s internal reporting purposes. For additional information, see Note 19—“Segment reporting” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
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Cost of revenue. Cost of revenue was $633.0 million in the second quarter of 2021, up $39.1 million, or 6.6%, from the second quarter of 2020. The increase in our cost of revenue in the second quarter of 2021 compared to the second quarter of 2020 was primarily due to (i) an increase in our operational headcount supporting revenue growth, including in the number of onshore personnel, related to large deals and transformation services delivery as well as from the acquisitions of SomethingDigital.Com LLC and Enquero in the fourth quarter of 2020, (ii) wage inflation, and (iii) higher expenses associated with medical costs related to the impact of COVID-19 on our employees. This increase was partially offset by (i) improved utilization of transformation services resources and (ii) a decrease in depreciation expense in the second quarter of 2021 compared to the second quarter of 2020. We also recorded a non-recurring restructuring charge related to employee severance in the second quarter of 2020 while no corresponding charge was recorded in the second quarter of 2021. For additional information, see Note 26—“Restructuring” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
Gross margin. Our gross margin increased from 34.0% in the second quarter of 2020 to 35.9% in the second quarter of 2021, driven primarily by an increase in transformation services delivered to our clients as well as a higher utilization rate, partially offset by higher expenses associated with medical costs related to the impact of COVID-19 on our employees, in the second quarter of 2021 compared to the second quarter of 2020. We also recorded a non-recurring restructuring charge related to employee severance in the second quarter of 2020, while there was no corresponding expense recorded in the second quarter of 2021.
Selling, general and administrative expenses (SG&A). SG&A expenses as a percentage of total net revenues were flat at 20.7% in the second quarter of 2020 and 2021. SG&A expenses were $204.2 million in the second quarter of 2021, up $17.9 million, or 9.6%, from the second quarter of 2020. This increase in expense was primarily due to higher staffing to support increased revenues, higher medical costs related to the impact of COVID-19 on our employees, higher marketing expenses, and wage inflation in the second quarter of 2021 compared to the second quarter of 2020, partially offset by improved operating leverage.
Amortization of acquired intangibles. Amortization of acquired intangibles were $14.6 million in the second quarter of 2021, up $3.9 million, or 36.0%, from the second quarter of 2020. This increase is primarily due to higher amortization expense related to intangibles pertaining to the acquisitions of Enquero and SomethingDigital.Com LLC in the fourth quarter of 2020.
Other operating (income) expense, net. Other operating income (net of expense) was $0.5 million in the second quarter of 2021 compared to operating expense (net of income) of $18.8 million in the second quarter of 2020. This change was due to a non-recurring charge of $10.2 million related to the abandonment of various office premises as part of our 2020 restructuring and an impairment charge of $10.0 million related to tangible and intangible assets, primarily technology- and customer-related, in the second quarter of 2020, while no such charge was recorded in the second quarter of 2021. For additional information, see Note 26—“Restructuring” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
Income from operations. As a result of the foregoing factors, income from operations as a percentage of total net revenues increased from 10.0% in the second quarter of 2020 to 13.9% in the second quarter of 2021. Income from operations increased by $46.5 million from $90.4 million in the second quarter of 2020 to $136.9 million in the second quarter of 2021, driven by higher revenues and associated operating income margins.
Foreign exchange gains (losses), net. We recorded a net foreign exchange gain of $5.5 million in the second quarter of 2021, compared to a net foreign exchange loss of $0.5 million in the second quarter of 2020. The gain in the second quarter of 2021 was due to the depreciation of the Indian rupee against the U.S. dollar, and the loss in the second quarter of 2020 resulted primarily from the appreciation of the Mexican peso against the U.S. dollar.
Interest income (expense), net. Our interest expense (net of interest income) was $13.1 million in the second quarter of 2021, down $0.5 million, or 3.9%, from the second quarter of 2020, primarily due to a $0.3 million decrease in interest expense and a $0.2 million increase in interest income. The decrease in interest expense was primarily due to lower outstanding total debt in the second quarter of 2021 compared to the second quarter of 2020, including a lower revolving credit facility balance and a lower average London Interbank Offered Rate ("LIBOR")-based rate on our revolving credit facility and term loan, partially offset by higher losses on interest rate swaps in the second quarter of 2021 compared to the second quarter of 2020 as well as by higher interest expense related to our $350.0 million aggregate principal amount of 1.750% senior notes issued in March 2021 (“2021 Senior Notes”), which we discuss in the section titled “Liquidity and Capital Resources—Financial Condition” below. The weighted average rate of interest on our debt, including the net impact of interest rate swaps, increased from 2.8% in the second quarter of 2020 to 2.9% in the second quarter of 2021.
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Other income (expense), net. Our other income (net of expense) was $6.1 million in the second quarter of 2021 compared to $2.9 million in the second quarter of 2020. The increase in other income in the second quarter of 2021 was largely attributable to the settlement of certain pre-GE divestiture related tax liabilities for which we were indemnified by GE.
Income tax expense. Our income tax expense was $32.7 million in the second quarter of 2021, up from $17.0 million in the second quarter of 2020, representing an effective tax rate (“ETR”) of 24.2%, up from 21.5% in the second quarter of 2020. The increase in our ETR is primarily due to a more favorable jurisdictional mix of income in 2020 and the expiration of certain tax benefits in 2021, partially offset by certain discrete benefits recorded in the second quarter of 2021.
Net income. As a result of the foregoing factors, net income as a percentage of total net revenues was 10.4% in the second quarter of 2021, up from 6.9% in the second quarter of 2020. Net income increased from $62.2 million in the second quarter of 2020 to $102.7 million in the second quarter of 2021.
Adjusted income from operations. Adjusted income from operations (“AOI”) increased by $31.5 million from $145.5 million in the second quarter of 2020 to $177.0 million in the second quarter of 2021. Our AOI margin increased from 16.2% in the second quarter of 2020 to 17.9% in the second quarter of 2021 primarily due to higher revenues, gross margins expansion as well as operating leverage.
AOI is a non-GAAP measure and is not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. We believe that presenting AOI together with our reported results can provide useful supplemental information to our investors and management regarding financial and business trends relating to our financial condition and results of operations. A limitation of using AOI versus net income calculated in accordance with GAAP is that AOI excludes certain recurring costs and certain other charges, namely stock-based compensation and amortization of acquired intangibles. We compensate for this limitation by providing specific information on the GAAP amounts excluded from AOI.
We calculate AOI as net income, excluding (i) stock-based compensation, (ii) amortization and impairment of acquired intangible assets, (iii) acquisition-related expenses excluded in the period in which an acquisition is consummated, (iv) foreign exchange (gain)/loss, (v) restructuring expenses, (vi) interest (income) expense, and (vii) income tax expense, as we believe that our results after taking into account these adjustments more accurately reflect our ongoing operations. For additional information, see Note 19—“Segment reporting” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
During the second quarter of 2020, as a result of COVID-19 pandemic, we undertook restructuring measures that amounted to $21.7 million. This restructuring charge was excluded from AOI in the second quarter of 2020, and no such charge was recorded in the second quarter of 2021. For additional information, see Note 26—“Restructuring” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
The following table shows the reconciliation of AOI to net income, the most directly comparable GAAP measure, for the three months ended June 30, 2020 and 2021:
Three months ended June 30, | ||||||||||||||
2020 | 2021 | |||||||||||||
| (dollars in millions) | ||||||||||||||
| Net income | $ | 62.2 | $ | 102.7 | ||||||||||
| Foreign exchange (gains) losses, net | 0.5 | (5.5) | ||||||||||||
| Interest (income) expense, net | 13.6 | 13.1 | ||||||||||||
| Income tax expense | 17.0 | 32.7 | ||||||||||||
| Stock-based compensation | 18.8 | 19.7 | ||||||||||||
| Amortization and impairment of acquired intangible assets | 11.7 | 14.3 | ||||||||||||
| Restructuring expenses | 21.7 | — | ||||||||||||
| Adjusted income from operations | $ | 145.5 | $ | 177.0 | ||||||||||
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The following table sets forth our AOI by segment for the three months ended June 30, 2020 and 2021:
Three months ended June 30, | Percentage Change Increase/(Decrease) | |||||||||||||||||||
2020 | 2021 | 2021 vs. 2020 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| BCMI | $ | 14.5 | $ | 34.1 | 135.2 | % | ||||||||||||||
| CGRLH | 46.2 | 63.1 | 36.8 | % | ||||||||||||||||
| HMS | 62.7 | 68.0 | 8.5 | % | ||||||||||||||||
| Others | 22.1 | 11.7 | (47.0) | % | ||||||||||||||||
AOI of our BCMI segment increased to $34.1 million in the second quarter of 2021 from $14.5 million in the second quarter of 2020, primarily driven by higher utilization of transformation resources and lower discretionary spending in the second quarter of 2021 compared to the second quarter of 2020, lower revenues in the second quarter of 2020 due to delayed approvals from clients in our BCMI segment related to shifting to a virtual operating environment, coupled with charges related to a write-down of certain technology-related assets in the second quarter of 2020, while no such charge was recorded in the second quarter of 2021. AOI of our CGRLH segment increased to $63.1 million in the second quarter of 2021 from $46.2 million in the second quarter of 2020, primarily due to revenue growth, higher utilization of transformation resources and lower discretionary spending. AOI of our HMS segment increased to $68.0 million in the second quarter of 2021 from $62.7 million in the second quarter of 2020, primarily due to higher utilization of transformation resources and lower discretionary spending in the second quarter of 2021 compared to the second quarter of 2020. AOI for “Others” in the table above primarily represents the impact of foreign exchange fluctuations, adjustment of allowances for credit losses and over or under-absorption of overheads, none of which is allocated to any individual segment for management's internal reporting purposes. See Note 19—“Segment reporting” to our consolidated financial statements under Part I, Item 1— “Unaudited Consolidated Financial Statements” above.
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Six months ended June 30,2021 Compared to the Six months ended June 30, 2020
Net revenues. Our net revenues were $1,934.2 million in the first half of 2021, up $110.9 million, or 6.1%, from $1,823.3 million in the first half of 2020. The growth in our net revenues was from Global Clients and derived from both our transformation services and intelligent operations, primarily in our CGRLH segment, insurance clients within our BCMI segment and high tech and manufacturing clients within our HMS segment. Revenue from GE declined in the first half of 2021 compared to the first half of 2020, largely due to contractual commitments to reduce the number of employees providing services and a reduction in GE’s discretionary expenditures resulting from the macroeconomic environment, as well as GE’s divestitures of certain businesses that as of January 1, 2021 are reflected in our Global Client portfolio.
Adjusted for foreign exchange, primarily the impact of changes in the value of the euro, Australian dollar and U.K. pound sterling against the U.S. dollar, our net revenues grew 4.2% in the first half of 2021 compared to the first half of 2020 on a constant currency2 basis. Revenue growth on a constant currency2 basis is a non-GAAP measure. We provide information about our revenue growth on a constant currency2 basis so that our revenue may be viewed without the impact of foreign currency exchange rate fluctuations, thereby facilitating period-to-period comparisons of our business performance. Total net revenues on a constant currency2 basis are calculated by restating current-period activity using the prior fiscal period’s foreign currency exchange rates and adjusted for hedging gains/losses.
Our average headcount increased by 2.5% to approximately 99,600 in the first half of 2021 from approximately 97,100 in the first half of 2020.
Six months ended June 30, | Percentage Change Increase/(Decrease) | |||||||||||||||||||
2020 | 2021 | 2021 vs. 2020 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Net revenues – Global Clients | $ | 1,584.9 | $ | 1,746.4 | 10.2 | % | ||||||||||||||
| Net revenues – GE | $ | 238.4 | $ | 187.8 | (21.2) | % | ||||||||||||||
| Total net revenues | $ | 1,823.3 | $ | 1,934.2 | 6.1 | % | ||||||||||||||
Net revenues from Global Clients in the first half of 2021 were $1,746.4 million, up $161.5 million, or 10.2%, from $1,584.9 million in the first half of 2020. This increase was primarily driven by growth in our CGRLH and HMS segments, led by transformation services. As a percentage of total net revenues, net revenues from Global Clients increased from 86.9% in the first half of 2020 to 90.3% in the first half of 2021.
Net revenues from GE in the first half of 2021 were $187.8 million, down $50.6 million, or 21.2%, from $238.4 million in the first half of 2020. The decrease in revenue from GE in the first half of 2021 was driven by contractual commitments to reduce the number of employees providing services and a reduction in GE’s discretionary expenditures resulting from the macroeconomic environment, as well as the inclusion of $19.6 million in revenue from certain GE-divested businesses as Global Client revenue in 2021 following their divestiture by GE.
2 Revenue growth on a constant currency basis is a non-GAAP measure and is calculated by restating current-period activity using the prior fiscal period’s foreign currency exchange rates adjusted for hedging gains/losses in such period.
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Revenues by segment were as follows:
Six months ended June 30, | Percentage Change Increase/(Decrease) | |||||||||||||||||||
2020 | 2021 | 2021 vs.2020 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| BCMI | $ | 522.0 | $ | 492.1 | (5.7) | % | ||||||||||||||
| CGRLH | 611.9 | 713.1 | 16.5 | % | ||||||||||||||||
| HMS | 706.9 | 715.0 | 1.1 | % | ||||||||||||||||
| Others | (17.5) | 14.0 | 179.8 | % | ||||||||||||||||
| Total net revenues | $ | 1,823.3 | $ | 1,934.2 | 6.1 | % | ||||||||||||||
Net revenues from our BCMI segment decreased 5.7% in the first half of 2021 compared to the first half of 2020, largely as a result of the impact of restructuring of a contract with a large client in our banking and capital markets vertical within our BCMI segment during the fourth quarter of 2020, partially offset by higher revenues in our insurance vertical and an increase in transformation services delivered to banking and capital markets clients. Net revenues from our CGRLH segment increased by 16.5% in the first half of 2021 compared to the first half of 2020, primarily driven by an increase in both our transformation services and intelligent operations, including revenue from our recent acquisitions of Enquero and SomethingDigital.Com LLC in the fourth quarter of 2020. Net revenues from our HMS segment increased by 1.1% in the first half of 2021 compared to the first half of 2020, primarily driven by an increase in transformation services, including revenue from our recent acquisition of Enquero, partially offset by lower revenue from GE, driven by contractual commitments to reduce the number of employees providing services and a reduction in GE's discretionary expenditures resulting from the macroeconomic environment. Net revenues from “Others” primarily represents the impact of foreign exchange fluctuations, which is not allocated to our segments for management’s internal reporting purposes. For additional information, see Note 19—“Segment reporting” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
Cost of revenue. Cost of revenue was $1,233.9 million in the first half of 2021, up $35.2 million, or 2.9%, from the first half of 2020. The increase in our cost of revenue in the first half of 2021 compared to the first half of 2020 was primarily due to (i) an increase in our operational headcount supporting revenue growth, including in the number of onshore personnel, related to large deals and transformation services delivery as well as from the acquisition of SomethingDigital.Com LLC and Enquero in the fourth quarter of 2020, (ii) wage inflation, and (iii) higher expenses associated with medical costs related to the impact of COVID-19 on our employees. This increase was partially offset by (i) improved utilization of transformation services resources and (ii) a decrease in travel costs as a result of the impact of the COVID-19 pandemic in the first half of 2021 compared to the first half of 2020. We also recorded a non-recurring charge related to retirement fund assets in India and a restructuring charge related to employee severance in the first half of 2020 while no corresponding charge was recorded in the first half of 2021. For additional information, see Note 26—“Restructuring” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
Gross margin. Our gross margin increased from 34.3% in the first half of 2020 to 36.2% in the first half of 2021, primarily driven by improved transformation services utilization and higher analytics revenues as well as lower travel costs as a result of the impact of the COVID-19 pandemic in the first half of 2021 compared to the first half of 2020, partially offset by higher expenses associated with medical costs primarily related to the impact of COVID-19 on our employees. We recorded a non-recurring charge related to retirement fund assets in India and a restructuring charge related to employee severance in the first half of 2020 while no such charge was recorded in the first half of 2021.
Selling, general and administrative expenses (SG&A). SG&A expenses as a percentage of total net revenues decreased from 21.0% in the first half of 2020 to 20.9% in the first half of 2021. SG&A expenses were $404.9 million in the first half of 2021, up $21.2 million compared to the first half of 2020. This increase in expense was primarily due to higher staffing to support increased revenues, higher medical costs related to the impact of COVID-19 on our employees, higher marketing expenses, and wage inflation in the first half of 2021 compared to the first half of 2020, partially offset by improved operating leverage.
Amortization of acquired intangibles. Amortization of acquired intangibles was $30.7 million in the first half of 2021, up $9.3 million, or 43.3%, from the first half of 2020. This increase is primarily due to higher amortization expense
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related to intangibles pertaining to the acquisitions of Enquero and SomethingDigitial.Com LLC in the fourth quarter of 2020.
Other operating (income) expense, net. Other operating income (net of expense) was $0.1 million in the first half of 2021 compared to other operating expense (net of income) of 18.5 million in the first half of 2020. The decrease in other operating expense was primarily due to a non-recurring impairment charge of $10.2 million related to the abandonment of various office premises as part of our 2020 restructuring and an impairment charge of $10.0 million related to tangible and intangible assets, primarily technology- and customer-related in the first half of 2020, while no such charge was recorded in the first half of 2021. For additional information, see Note 10—“Goodwill and intangible assets” and Note 26—“Restructuring” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
Income from operations. As a result of the foregoing factors, income from operations as a percentage of total net revenues increased from 11.0% in the first half of 2020 to 13.7% in the first half of 2021. Income from operations increased by $63.8 million to $264.8 million in the first half of 2021 from $201.0 million in the first half of 2020 driven by higher revenues and associated operating income margins.
Foreign exchange gains (losses), net. We recorded a net foreign exchange gain of $8.8 million in the first half of 2021, compared to a net foreign exchange gain of $14.0 million in the first half of 2020. The gain in the first half of 2021 resulted primarily from the depreciation of the Indian rupee against the U.S. dollar, while the gain in the first half of 2020 resulted primarily from the depreciation of the Indian rupee and Australian dollar against the U.S. dollar.
Interest income (expense), net. Our interest expense (net of interest income) was $25.4 million in the first half of 2021, up $0.1 million, or 0.5%, from the first half of 2020. The increase in interest expense (net of interest income) was primarily due to interest expense on our $350.0 million aggregate principal amount of the 2021 Senior Notes. This increase was partially offset by a decrease in interest expense due to lower drawdown of our revolving credit facility, including a lower average LIBOR-based rate on our revolving credit facility and term loan, partially offset by higher losses on interest rate swaps in the first half of 2021 compared to the first half of 2020, which we discuss in the section titled “Liquidity and Capital Resources—Financial Condition” below. Our interest income decreased by $0.9 million in the first half of 2021 compared to the first half of 2020, primarily due to lower interest income in India. The weighted average rate of interest on our debt, including the net impact of interest rate swaps, was 3.0%, unchanged from the first half of 2020 to 2021.
Other income (expense), net. Our other income (net of expense) was $7.5 million in the first half of 2021 compared to other income (net of expense) of $0.0 million in the first half of 2020. The increase in other income in the first half of 2021 was largely attributable to changes in the fair value of assets in our deferred compensation plan, and the settlement of certain pre-GE divestiture related tax liabilities, for which we were indemnified by GE.
Income tax expense. Our income tax expense was $61.7 million in the first half of 2021, up from $41.8 million in the first half of 2020, representing an ETR of 24.1%, up from 22.1% in the first half of 2020. The increase in our ETR is primarily due to the expiration of certain tax benefits in 2021 and higher discrete benefits recorded in the first half of 2020 compared to the first half of 2021.
Net income. As a result of the foregoing factors, net income as a percentage of total net revenues was 10.0% in the first half of 2021, up from 8.1% in the first half of 2020. Net income increased by $46.1 million from $147.9 million in the first half of 2020 to $194.0 million in the first half of 2021.
Adjusted income from operations. Adjusted income from operations (“AOI”) increased by $58.5 million from 281.2 million in the first half of 2020 to 339.7 million in the first half of 2021. Our AOI margin increased from 15.4% in the first half of 2020 to 17.6% in the first half of 2021. This increase was due to higher revenues, gross margin expansion, lower travel costs as a result of the impact of the COVID-19 pandemic, as well as operating leverage in the first half of 2021 compared to the first half of 2020.
AOI is a non-GAAP measure and is not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. We believe that presenting AOI together with our reported results can provide useful supplemental information to our investors and management regarding financial and business trends relating to our financial condition and results of operations. A limitation of using AOI versus net income calculated in accordance with GAAP is that AOI excludes certain recurring costs and certain other charges, namely stock-based compensation and amortization of acquired intangibles. We compensate for this limitation by providing specific information on the GAAP amounts excluded from AOI.
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We calculate AOI as net income, excluding (i) stock-based compensation, (ii) amortization and impairment of acquired intangible assets, (iii) acquisition-related expenses excluded in the period in which an acquisition is consummated, (iv) foreign exchange (gain)/loss, (v) restructuring expenses, (vi) interest (income) expense, and (vii) income tax expense, as we believe that our results after taking into account these adjustments more accurately reflect our ongoing operations. For additional information, see Note 19—“Segment reporting” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
During the first half of 2020, as a result of COVID-19 pandemic, we undertook restructuring measures that amounted to $21.7 million. This restructuring charge was excluded from AOI in the first half of 2020, and no corresponding charge was recorded in the first half of 2021. For additional information, see Note 26—“Restructuring” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
The following table shows the reconciliation of AOI to net income, the most directly comparable GAAP measure for the six months ended June 30, 2020 and 2021:
Six months ended June 30, | ||||||||||||||
2020 | 2021 | |||||||||||||
| (dollars in millions) | ||||||||||||||
| Net income | $ | 147.9 | $ | 194.0 | ||||||||||
| Foreign exchange (gains) losses, net | (14.0) | (8.8) | ||||||||||||
| Interest (income) expense, net | 25.3 | 25.4 | ||||||||||||
| Income tax expense | 41.8 | 61.7 | ||||||||||||
| Stock-based compensation | 36.3 | 37.1 | ||||||||||||
| Amortization and impairment of acquired intangible assets | 22.2 | 30.3 | ||||||||||||
| Restructuring expenses | 21.7 | — | ||||||||||||
| Adjusted income from operations | $ | 281.2 | $ | 339.7 | ||||||||||
The following table sets forth our AOI by segment for the six months ended June 30, 2020 and 2021:
Six months ended June 30, | Percentage Change Increase/(Decrease) | |||||||||||||||||||
2020 | 2021 | 2021 vs.2020 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| BCMI | $ | 50.1 | $ | 66.5 | 32.7 | % | ||||||||||||||
| CGRLH | 86.8 | 121.0 | 39.3 | % | ||||||||||||||||
| HMS | 117.8 | 135.7 | 15.2 | % | ||||||||||||||||
| Others | 26.5 | 16.6 | (37.4) | % | ||||||||||||||||
AOI of our BCMI segment increased to $66.5 million in the first half of 2021 from $50.1 million in the first half of 2020, primarily driven by higher utilization of transformation resources and lower discretionary spending in the first half of 2021 compared to the first half of 2020, as well as lower revenues in the first half of 2020 due to delayed work-from-home approvals from certain clients and charges related to a write-down of certain technology assets in the first half of 2020 while no corresponding charge was recorded in the first half of 2021. AOI of our CGRLH segment increased to $121.0 million in the first half of 2021 from $86.8 million in the first half of 2020, primarily due to revenue growth, higher utilization of transformation resources and lower discretionary spending. AOI of our HMS segment increased to $135.7 million in the first half of 2021 from $117.8 million in the first half of 2020, primarily due to higher utilization of transformation resources and lower discretionary spending. AOI for “Others” in the table above primarily represents the impact of foreign exchange fluctuations, an adjustment to allowances for credit losses and over or under-absorption of overheads, none of which are allocated to any individual segment for management’s internal reporting purposes. See Note 19—“Segment reporting” to our consolidated financial statements under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
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Liquidity and Capital Resources
Overview
Information about our financial position as of December 31, 2020 and June 30, 2021 is presented below:
As of December 31, 2020 | As of June 30, 2021 | Percentage Change Increase/(Decrease) | ||||||||||||||||||
| (dollars in millions) | 2021 vs. 2020 | |||||||||||||||||||
| Cash and cash equivalents | $ | 680.4 | $ | 752.6 | 10.6 | % | ||||||||||||||
| Short-term borrowings | 250.0 | — | (100) | % | ||||||||||||||||
| Long-term debt due within one year | 33.5 | 383.2 | 1,042 | % | ||||||||||||||||
| Long-term debt other than the current portion | 1,307.4 | 1,288.7 | (1.4) | % | ||||||||||||||||
| Genpact Limited total shareholders’ equity | $ | 1,834.2 | $ | 1,839.0 | 0.3 | % | ||||||||||||||
Financial Condition
We have historically financed our operations and our expansion, including acquisitions, with cash from operations and borrowing facilities.
On February 6, 2020, our board of directors approved a 15% increase in our quarterly cash dividend to $0.0975 per share, up from $0.085 per share in 2019, representing an annual dividend of $0.39 per common share, up from $0.34 per common share in 2019, payable to holders of our common shares. On March 18, 2020 and June 26, 2020, we paid dividends of $0.0975 per share, amounting to $18.5 million and $18.6 million in the aggregate, to shareholders of record as of March 9, 2020 and June 11, 2020, respectively.
On February 9, 2021, our board of directors approved a 10% increase in our quarterly cash dividend to $0.1075 per share, up from $0.0975 per share in 2020, representing a planned annual dividend of $0.43 per common share, up from $0.39 per share in 2020, payable to holders of our common shares. On March 19, 2021, and June 23, 2021, we paid dividends of $0.1075 per share, amounting to $20.1 million, and $20.1 million in the aggregate, to shareholders of record as of March 10, 2021 and June 11, 2021, respectively.
As of June 30, 2021, $741.9 million of our $752.6 million in cash and cash equivalents was held by our foreign (non-Bermuda) subsidiaries. $17.6 million of this cash is held by foreign subsidiaries for which we expect to incur and have accrued a deferred tax liability on the repatriation of $1.3 million of retained earnings. $724.3 million of the cash and cash equivalents is held by foreign subsidiaries in jurisdictions where no tax is expected to be imposed upon repatriation of retained earnings or is being indefinitely reinvested.
The total authorization under our existing share repurchase program is $1,750.0 million, of which $489.8 million remained available as of June 30, 2021. Since our share repurchase program was initially authorized in 2015, we have repurchased 44,401,924 of our common shares at an average price of $28.38 per share, for an aggregate purchase price of $1,260.2 million.
During the six months ended June 30, 2021, we repurchased 3,592,409 of our common shares on the open market at a weighted average price of $40.96 per share for an aggregate cash amount of $147.2 million. During the six months ended June 30, 2020, we repurchased 1,042,188 of our common shares on the open market at a weighted average price of $43.18 per share for an aggregate cash amount of $45.0 million. All repurchased shares have been retired. For additional information, see Note 17—“Capital stock” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
We expect that in the future our cash from operations, cash reserves and debt capacity will be sufficient to finance our operations, our growth and expansion plans, dividend payments and additional share repurchases we may make under our share repurchase program. However, there is no assurance that the impacts of the COVID-19 pandemic we have experienced to date, and any future impact we may experience, will not have an adverse effect on our cash flows. In addition, we may raise additional funds through public or private debt or equity financings. Our working capital needs are primarily to finance our payroll and other administrative and information technology expenses in advance of the receipt of accounts receivable. Our primary capital requirements include opening new delivery centers, expanding existing operations to support our growth, financing acquisitions and enhancing capabilities, including building certain digital solutions.
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Cash flows from operating, investing and financing activities, as reflected in our consolidated statements of cash flows, are summarized in the following table:
| Six Months Ended June 30, 2021 | Percentage Change Increase/(Decrease) | |||||||||||||||||||
| 2020 | 2021 | 2021 vs. 2020 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Net cash provided by/ (used for): | ||||||||||||||||||||
| Operating activities | $ | 173.1 | $ | 237.8 | 37.4 | % | ||||||||||||||
| Investing activities | (39.2) | (29.0) | 26.0 | % | ||||||||||||||||
| Financing activities | 304.2 | (130.5) | (142.9) | % | ||||||||||||||||
| Net increase in cash and cash equivalents | $ | 438.0 | $ | 78.3 | (82.1) | % | ||||||||||||||
Cash flows provided by operating activities. Net cash provided by operating activities was $237.8 million in the first half of 2021, up from $173.1 million in the first half of 2020. This increase is primarily due to (i) a $46.1 million increase in net income in the first half of 2021 compared to the first half of 2020 and (ii) a $36.3 million decrease in net operating assets driven by better days sales outstanding (DSO) and lower tax payments in the first half of 2021 compared to the first half of 2020, offset by a $17.7 million decrease in non-cash expenses, primarily due to higher unrealized gains on the revaluation of foreign currency assets/liabilities and lower write-down of operating right-of-use assets and intangible assets in the first half of 2021 compared to the first half of 2020.
Cash flows used for investing activities. Our net cash used for investing activities was $29.0 million in the first half of 2021, compared to $39.2 million in the first half of 2020. The reduction in cash used for investing activities is primarily due to a reduction in payments for acquired/internally generated intangible assets and purchases of property, plant and equipment (net of sales proceeds), which were $16.8 million lower in the first half of 2021 than in the first half of 2020. This was partially offset by payments of $6.6 million in the first half of 2021 related to business acquisitions consummated in the fourth quarter of 2020, while there were no corresponding payments in the first half of 2020.
Cash flows used for financing activities. Our net cash used for financing activities was $130.5 million in the first half of 2021, compared to net cash generated from financing activities of $304.2 million in the first half of 2020. This change was primarily due to proceeds from short-term borrowings (net of repayment) of $425.0 million in the first half of 2020 compared to the repayment of short-term borrowings (net of proceeds) of $250.0 million in the first half of 2021. We raised $350.0 million from the issuance of the 2021 Senior Notes in the first half of 2021. Payments for share repurchases (including expenses related to repurchases) were $147.2 million in the first half of 2021, compared to $45.0 million in the first half of 2020.
Financing Arrangements
As of December 31, 2020 and June 30, 2021, our outstanding term loan, net of debt amortization expense of $1.2 million and $0.9 million, respectively, was $593.9 million and $577.1 million, respectively. We also have fund-based and non-fund based credit facilities with banks, which are available for operational requirements in the form of overdrafts, letters of credit, guarantees and short-term loans. As of December 31, 2020 and June 30, 2021, the limits available under such facilities were $14.3 million and $20.2 million, respectively, of which $7.8 million and $7.0 million, respectively, was utilized, constituting non-funded drawdown. As of December 31, 2020 and June 30, 2021, a total of $252.3 million and $2.0 million, respectively, of our revolving credit facility was utilized, of which $250.0 and Nil, respectively, constituted funded drawdown and $2.3 million and $2.0 million, respectively, constituted non-funded drawdown.
Genpact Luxembourg S.à r.l. (“Genpact Luxembourg”), a wholly-owned subsidiary of the Company, issued $350 million aggregate principal amount of 3.70% senior notes in March 2017 (the “2017 Senior Notes”) and $400 million aggregate principal amount of 3.375% senior notes in November 2019 (the “2019 Senior Notes”). The 2017 Senior Notes and the 2019 Senior Notes are fully guaranteed by the Company and Genpact USA, Inc. The total debt issuance cost of $2.6 million and $2.9 million incurred in connection with the 2017 Senior Notes and 2019 Senior Notes offerings, respectively, are being amortized over the respective lives of the notes as additional interest expense. As of December 31,
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2020 and June 30, 2021, the amount outstanding under the 2017 Senior Notes, net of debt amortization expense of $0.7 million and $0.4 million, respectively, was $349.3 million and $349.6 million, respectively, which is payable on April 1, 2022. As of December 31, 2020 and June 30, 2021, the amount outstanding under the 2019 Senior Notes, net of debt amortization expense of $2.3 million and $2.0 million, was $397.7 million and $398.0 million, respectively, which is payable on December 1, 2024.
In March 2021, Genpact Luxembourg and Genpact USA, Inc., both wholly-owned subsidiaries of the Company, co-issued the 2021 Senior Notes, resulting in cash proceeds of approximately $348.1 million, net of an underwriting commission of $1.4 million and a discount of $0.5 million. Other debt issuance costs incurred in connection with the offering of the 2021 Senior Notes amounted to $1.1 million. The 2021 Senior Notes are fully guaranteed by the Company. The total debt issuance cost of $3.0 million incurred in connection with the 2021 Senior Notes offerings is being amortized over the lives of the notes as additional interest expense. As of June 30, 2021, the amount outstanding under the 2021 Senior Notes, net of debt amortization expense of $2.9 million, was $347.1 million, which is payable on April 10, 2026.
We pay interest on (i) the 2017 Senior Notes semi-annually in arrears on April 1 and October 1 of each year, (ii) the 2019 Senior Notes semiannually in arrears on June 1 and December 1 of each year, and (iii) the 2021 Senior Notes semi-annually in arrears on April 10 and October 10 of each year, ending on the maturity dates of April 1, 2022, December 1, 2024 and April 10, 2026, respectively.
For additional information, see Notes 11 and 12—“Short-term borrowings” and “Long-term debt” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements consist of foreign exchange contracts. For additional information, see Part I, Item 1A—“Risk Factors”—“Currency exchange rate fluctuations in various currencies in which we do business, especially the Indian rupee, the euro and the U.S. dollar, could have a material adverse effect on our business, results of operations and financial condition” in our Annual Report on Form 10-K for the year ended December 31, 2020, and Note 7 in Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
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Supplemental Guarantor Financial Information
As discussed in Note 12, “Long-term debt,” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above, Genpact Luxembourg, a wholly-owned subsidiary of the Company, issued the 2017 Senior Notes and the 2019 Senior Notes, and Genpact Luxembourg and Genpact USA, Inc. (“Genpact USA”), a wholly-owned subsidiary of the Company, co-issued the 2021 Senior Notes. As of June 30, 2021, the outstanding balance for each of the 2017 Senior Notes, the 2019 Senior Notes and the 2021 Senior Notes was $349.6 million, $398.0 million and $347.1 million, respectively. Each series of Senior Notes is fully and unconditionally guaranteed by the Company. The 2017 Senior Notes and the 2019 Senior Notes are also fully and unconditionally guaranteed by Genpact USA. Our other subsidiaries do not guarantee the Senior Notes (such subsidiaries are referred to as the “non-Guarantors”).
The Company (with respect to all series of Senior Notes) and Genpact USA (with respect to the 2017 Senior Notes and the 2019 Senior Notes) have fully and unconditionally guaranteed (i) that the payment of the principal, premium, if any, and interest on the Senior Notes shall be promptly paid in full when due, whether at stated maturity of the Senior Notes, by acceleration, redemption or otherwise, and that the payment of interest on the overdue principal and interest on the Senior Notes, if any, if lawful, and all other obligations of the applicable issuer or issuers of the Senior Notes, respectively, to the holders of the Senior Notes or the trustee under the Senior Notes shall be promptly paid in full or performed, and (ii) in case of any extension of time of payment or renewal of any Senior Notes or any of such other obligations, that the same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. With respect to the 2017 Senior Notes and the 2019 Senior Notes, failing payment by Genpact Luxembourg when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Company and Genpact USA shall be obligated to pay the same immediately. With respect to the 2021 Senior Notes, failing payment by Genpact Luxembourg or Genpact USA when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Company shall be obligated to pay the same immediately. The Company and Genpact USA have agreed that the guarantees described above are guarantees of payment of the Senior Notes and not guarantees of collection.
The following tables present summarized financial information for Genpact Luxembourg, Genpact USA and the Company (collectively, the “Debt Issuers and Guarantors”) on a combined basis after elimination of (i) intercompany transactions and balances among the Debt Issuers and Guarantors and (ii) equity in earnings from and investments in the non-Guarantors.
| Summarized Statements of Income | Year ended December 31, 2020 | Six months ended June 30, 2021 | ||||||||||||
| (dollars in millions) | ||||||||||||||
| Net revenues | $ | 206.5 | $ | 97.1 | ||||||||||
| Gross profit | 206.5 | 97.1 | ||||||||||||
| Net income | 762.7 | 38.1 | ||||||||||||
Below is a summary of transactions with non-Guarantors included in the summarized statement of income above:
| Year ended December 31, 2020 | Six months ended June 30, 2021 | |||||||||||||
| (dollars in millions) | ||||||||||||||
| Royalty income | $ | 69.5 | $ | 2.6 | ||||||||||
| Revenue from services | 137.0 | 94.5 | ||||||||||||
| Interest income (expense), net | 46.7 | 17.5 | ||||||||||||
| Other cost, net | 11.2 | 8.0 | ||||||||||||
| Gain on sale of intellectual property | 650.0 | — | ||||||||||||
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| Summarized Balance Sheets | As of December 31, 2020 | As of June 30, 2021 | ||||||||||||
| (dollars in millions) | ||||||||||||||
| Assets | ||||||||||||||
| Current assets | $ | 2,073.7 | $ | 2,219.4 | ||||||||||
| Non-current assets | 711.7 | 589.6 | ||||||||||||
| Liabilities and equity | ||||||||||||||
| Current liabilities | $ | 3,491.9 | $ | 3,673.8 | ||||||||||
| Non-current liabilities | 1,825.3 | 1,798.5 | ||||||||||||
Below is a summary of the balances with non-Guarantors included in the summarized balance sheets above:
| As of December 31, 2020 | As of June 30, 2021 | |||||||||||||
| (dollars in millions) | ||||||||||||||
| Assets | ||||||||||||||
| Current assets | ||||||||||||||
| Accounts receivable, net | $ | 280.8 | $ | 271.6 | ||||||||||
| Loans receivable | 1,324.5 | 1,458.0 | ||||||||||||
| Others | 396.5 | 377.9 | ||||||||||||
| Non-current assets | ||||||||||||||
| Investment in debentures/bonds | $ | 501.2 | $ | 414.1 | ||||||||||
| Loans receivable | — | — | ||||||||||||
| Others | 64.2 | 33.6 | ||||||||||||
| Liabilities | ||||||||||||||
| Current liabilities | ||||||||||||||
| Loans payable | $ | 2,357.9 | $ | 2,417.3 | ||||||||||
| Others | 823.4 | 847.6 | ||||||||||||
| Non-Current liabilities | ||||||||||||||
| Loans payable | $ | 500.0 | $ | 500.0 | ||||||||||
The Senior Notes and the related guarantees rank pari passu in right of payment with all senior and unsecured debt of the Debt Issuers and Guarantors and rank senior in right of payment to all of the Debt Issuers’ and Guarantors’ future subordinated debt. The Senior Notes are effectively subordinated to all of the Debt Issuers’ and Guarantors’ existing and future secured debt to the extent of the value of the assets securing such debt. The Senior Notes are structurally subordinated to all of the existing and future debt and other liabilities of the non-Guarantors, including the liabilities of certain subsidiaries pursuant to our senior credit facility. The non-Guarantors are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due under the Senior Notes or to make the funds available to pay those amounts, whether by dividend, distribution, loan or other payment. Any right that the Debt Issuers and Guarantors have, to receive any assets of any of the non-Guarantors upon the insolvency, liquidation, reorganization, dissolution or other winding-up of any non-Guarantor, all of that non-Guarantor’s creditors (including trade creditors) would be entitled to payment in full out of that non-Guarantor’s assets before the holders of the Senior Notes would be entitled to any payment. Claims of holders of the Senior Notes are structurally subordinated to the liabilities of certain non-Guarantors pursuant to their liabilities under our senior credit facility.
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Recent Accounting Pronouncements
Recently adopted accounting pronouncements
For a description of recently adopted accounting pronouncements, see Note 2(m)—“Recently issued accounting pronouncements” under Item 1—“Unaudited Consolidated Financial Statements” above and Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations”—“Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2020.
Recently issued accounting pronouncements
For a description of recently issued accounting pronouncements, see Note 2(m)—“Recently issued accounting pronouncements” under Item 1—“Unaudited Consolidated Financial Statements” above and Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations”—“Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2020.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to interest rate risk arising from changes in interest rates on the floating rate indebtedness under our term loan and revolving credit facility and the Senior Notes. Borrowings under our term loan and revolving credit facility bear interest at floating rates based on LIBOR, but in no event less than the floor rate of 0.0% plus an applicable margin. The interest rate on our Senior Notes is subject to adjustment based on the ratings assigned to our debt by Moody’s and Investors Service, Inc. and Standard & Poor’s Rating Services, Inc. from time to time. A decline in such ratings could result in an increase of up to 2% in the rate of interest on the notes. Accordingly, fluctuations in market interest rates or a decline in ratings may increase or decrease our interest expense which would, in turn, increase or decrease our net income and cash flow.
We manage a portion of our interest rate risk related to floating rate indebtedness by entering into interest rate swaps under which we receive floating rate payments based on the greater of LIBOR and the floor rate under our term loan and make payments based on a fixed rate. As of June 30, 2021, we were party to interest rate swaps covering a total notional amount of $474 million. Under these swap agreements, the rate that we pay to banks in exchange for LIBOR ranges between 0.38% and 2.65%.
In March 2021, we executed a treasury lock agreement covering $350 million in connection with future interest payments to be made on our 2021 Senior Notes issued in March 2021, and our entry into this agreement was designated as a cash flow hedge. The treasury lock agreement was terminated on March 23, 2021 and a deferred gain was recorded in accumulated other comprehensive income which is being amortized to interest expense over the life of the 2021 Senior Notes. The remaining gain to be amortized related to the treasury lock agreement as of June 30, 2021 was $0.8 million.
For a discussion of our market risk associated with foreign currency risk, interest rate risk and credit risk, see Part II, Item 7A—“Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2020.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are the Company’s controls and other procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarterly period ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings pending against us that we believe are likely to have a material adverse effect on our business, results of operations and financial condition.
Item 1A. Risk Factors
Except as described in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, there have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K.
We have disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 the risk factors that materially affect our business, financial condition or results of operations. You should carefully consider the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and the other information that appears elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2020 and in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us also may materially adversely affect our business, financial condition and/or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds
None.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
Share repurchase activity during the three months ended June 30, 2021 was as follows:
| Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program ($) | ||||||||||||||||||||||
| April 1 – April 30, 2021 | — | — | — | — | ||||||||||||||||||||||
| May 1-May 31, 2021 | 294,443 | 44.15 | 294,443 | 489,846,383 | ||||||||||||||||||||||
| June 1 - June 30, 2021 | — | — | — | — | ||||||||||||||||||||||
| Total | 294,443 | 44.15 | 294,443 | 489,846,383 | ||||||||||||||||||||||
Since February 2017, our Board of Directors has authorized repurchases of up to $1.75 billion under our existing share repurchase program. This repurchase program does not obligate us to acquire any specific number of shares and does not specify an expiration date. All shares repurchased under the plan have been retired. For additional information, see Note 17—“Capital stock” under Part I, Item 1— “Unaudited Consolidated Financial Statements” above.
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Item 6. Exhibits
Exhibit Number | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
10.1† | ||||||||
10.2† | ||||||||
10.3† | ||||||||
10.4† | ||||||||
10.5†* | ||||||||
| 22.1 | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1* | ||||||||
| 32.2* | ||||||||
| 101.INS* | Inline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
* Filed or furnished with this Quarterly Report on Form 10-Q.
† Indicates a management contract or compensatory plan, contract or arrangement in which any director or executive officer participates.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 9, 2021
GENPACT LIMITED
| By: | /s/ N.V. TYAGARAJAN | |||||||
| N.V. Tyagarajan | ||||||||
| Chief Executive Officer | ||||||||
| By: | /s/ EDWARD J. FITZPATRICK | |||||||
| Edward J. Fitzpatrick | ||||||||
| Chief Financial Officer | ||||||||
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Exhibit 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, N.V. Tyagarajan, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Genpact Limited for the period ended June 30, 2021 , as filed with the Securities and Exchange Commission on the date hereof;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 9, 2021
/s/ N.V. Tyagarajan | ||
| N.V. Tyagarajan | ||
| Chief Executive Officer | ||
Exhibit 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Edward J. Fitzpatrick, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Genpact Limited for the period ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 9, 2021
/s/ Edward J. Fitzpatrick | ||
| Edward J. Fitzpatrick | ||
| Chief Financial Officer | ||
Exhibit 32.1
Certification of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Genpact Limited (the “Company”) on Form 10-Q for the period ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, N.V. Tyagarajan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2021
/s/ N.V. Tyagarajan | ||
| N.V. Tyagarajan | ||
| Chief Executive Officer | ||
Exhibit 32.2
Certification of the Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Genpact Limited (the “Company”) on Form 10-Q for the period ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Fitzpatrick, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2021
/s/ Edward J. Fitzpatrick | ||
| Edward J. Fitzpatrick | ||
| Chief Financial Officer | ||
Exhibit 10.5
GENPACT LIMITED
2017 OMNIBUS INCENTIVE COMPENSATION PLAN
2017 OMNIBUS INCENTIVE COMPENSATION PLAN
RESTRICTED SHARE UNIT ISSUANCE AGREEMENT
THIS RESTRICTED SHARE UNIT ISSUANCE AGREEMENT (the “Agreement”), dated as of ______________ (the “Award Date”), is made by and between Genpact Limited, an exempted limited company organized under the laws of Bermuda (the “Company”) and _______________________ (“Participant”). To the extent not defined herein, all capitalized terms in this Agreement shall have the meanings assigned to them in the Genpact Limited 2017 Omnibus Incentive Compensation Plan (the “Plan”).
RECITALS:
WHEREAS, the Company has adopted the Plan for the purpose of promoting the interests of the Company and its shareholders by attracting and retaining exceptional directors, officers, employees and consultants and enabling such individuals to participate in the long-term growth and financial success of the Company.
WHEREAS, the Committee has determined that it is in the best interests of the Company and its shareholders to grant to Participant restricted share units under the Plan as provided for herein.
NOW, THEREFORE, for and in consideration of the premises and covenants of the parties contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, for themselves, their successors and assigns, hereby agree as follows:
1.Grant of Restricted Share Units. The Company hereby awards to Participant, as of the Award Date, an award (the “Award”) of restricted share units under the Plan. Each restricted share unit that vests hereunder entitles Participant to one Common Share on the designated issuance date of that unit. The number of Common Shares subject to the awarded restricted share units, the applicable vesting schedule for the restricted share units and the underlying shares, the dates on which those vested shares shall be issued to Participant and the remaining terms and conditions governing the Award shall be as set forth in this Agreement.
Number of Shares
Subject to Award: _________ Common Shares (the “Shares”)
Vesting Schedule: Participant shall vest with respect to the Shares upon completion of service as a member of the Board through December 31, ____.
Issuance Date: The Shares in which Participant vests in accordance with the foregoing Vesting Schedule shall be issued in a lump sum on December 31, ____ (the “Issuance Date”). However, in the event of Participant’s death prior to the Issuance Date, the provisions of Paragraph 2 below shall apply.
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2.Limited Transferability.
(a)Prior to actual receipt of the Shares which vest and become issuable hereunder, Participant may not transfer any interest in the Award or the underlying Shares.
(b)Any Shares which vest hereunder but which otherwise remain unissued at the time of Participant’s death may be transferred pursuant to the provisions of Participant’s will or the laws of inheritance or to Participant’s designated beneficiary or beneficiaries of this Award. Such issuance of the Shares shall be effected on the thirtieth (30th) day following the date of Participant’s death or as soon as administratively practicable thereafter, but in no event later than the later of (i) the end of the calendar year in which Participant’s death occurs or (ii) the fifteenth (15th) day of the third (3rd) calendar month following the date of Participant’s death. In no event, however, may Shares be issued later than the Issuance Date.
3.Cessation of Service. Should Participant cease Board service for any reason prior to vesting in the Shares subject to this Award, then the Award shall be immediately canceled. Participant shall thereupon cease to have any right or entitlement to receive any Shares under this Award.
4.Change of Control. Should a Change of Control be effected at a time when this Award is outstanding with respect to the Shares, then all the Shares subject to this Award shall be converted into the right to receive for each such Share the same consideration per Common Share payable to the other holders of such Common Shares in consummation of the Change of Control, and such consideration, to the extent vested at the time of the Change of Control in accordance with the Vesting Schedule of this Agreement and the Plan, shall be subsequently distributed on the Issuance Date or (if applicable) pursuant to the issuance provisions of Paragraph 2 above. This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
5.Issuance of Common Shares.
(a)On the Issuance Date (or the date on which Shares are to be issued under Paragraph 2 following Participant’s death), the Company shall issue to or on behalf of Participant a certificate (which may be in electronic form) for the vested Shares.
(b)In no event will any fractional shares be issued.
(c)The holder of this Award shall not have any shareholder rights, including voting or dividend rights, with respect to the Shares subject to the Award until Participant becomes the record holder of those Shares following their actual issuance.
6.Compliance with Laws and Regulations. The issuance of Shares pursuant to the Award shall be subject to compliance by the Company and Participant with all applicable laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. The Committee, in its sole discretion, may postpone the issuance or delivery of Shares
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as the Committee may consider appropriate and may require Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Shares in order to be in compliance with applicable laws, rules and regulations.
7.Successors and Assigns. Except to the extent otherwise provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and Participant and Participant’s assigns, beneficiaries, executors, administrators, heirs and successors.
8.Notices. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery:
if to the Company:
Genpact Limited
Canon’s Court
22 Victoria Street
Hamilton HM 12
Bermuda
Attn: Secretary
with a copy to:
1155 Avenue of the Americas
Fourth Floor
New York, NY 10036
Attn: Legal Department
if to Participant, at Participant’s last known address on file with the Company;
All such notices, demands and other communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial courier service; five (5) business days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged, if telecopied.
9.Construction.
(a)This Agreement and the Award evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan, including without limitation the provisions of Section 8 of the Plan. All decisions of the Committee with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in the Award.
(b)The terms and provisions of this Agreement shall be construed, interpreted and applied in a manner that complies with the requirements of Section 409A of the Code and
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the Treasury Regulations thereunder. Accordingly, to the extent there is any ambiguity as to whether one or more provisions of this Agreement would otherwise contravene the applicable requirements or limitations of Code Section 409A, then those provisions shall be construed, interpreted and applied in a manner that does not result in a violation of the applicable requirements or limitations of Code Section 409A and the Treasury Regulations thereunder.
(c)The terms and provisions of this Agreement shall be construed, interpreted and applied in a manner that complies with the requirements of Section 457A of the Code and any guidance issued with respect to Code Section 457A, including but not limited to IRS Notice 2009-8. Accordingly, to the extent there is any ambiguity as to whether one or more provisions of this Agreement would otherwise contravene the applicable requirements or limitations of Code Section 457A, then those provisions shall be construed, interpreted and applied in a manner that does not result in income inclusion pursuant to Code Section 457A.
10.Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of New York without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the application of the laws of any jurisdiction other than the State of New York. Each Participant and the Company hereby waive, to the fullest extent permitted by applicable law, any right either of them may have to a trial by jury in respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement or the Plan.
11.No Impairment of Rights. This Agreement shall not in any way be construed or interpreted so as to affect adversely or otherwise impair in any way the rights of the Company or its shareholders to remove Participant from the Board at any time in accordance with applicable law.
12.Electronic Delivery. The Company may deliver any documents related to the Award, the Plan or future awards that may be granted under the Plan by electronic means. Such means of electronic delivery include, but do not necessarily include, the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the documents via e-mail or such other means of electronic delivery specified by the Company. Participant hereby acknowledges that Participant has read this provision and consents to the electronic delivery of the documents. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost to Participant by contacting the Company in writing or by telephone. Participant further acknowledges that Participant will be provided with a paper copy of any documents if the attempted electronic delivery of such documents fails. Similarly, Participant understands that Participant must provide the Company with a paper copy of any documents if the attempted electronic delivery of such documents fails.
13.Additional Terms for Non-U.S. Participants. Notwithstanding anything to the contrary herein, Participants residing and/or providing services outside the United States shall be subject to the Additional Terms and Conditions for Non-U.S. Participants attached hereto as Addendum A and to any Country-Specific Terms and Conditions attached hereto as Addendum
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B. If Participant is a citizen or resident of a country (or is considered as such for local law purposes) other than the one in which Participant is currently residing or providing services or if Participant relocates to one of the countries included in the Country-Specific Terms and Conditions after the grant of the Award, the special terms and conditions for such country will apply to Participant to the extent the Company determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan. The Terms and Conditions for Non-U.S. Participants and the Country-Specific Terms and Conditions constitute part of this Agreement and are incorporated herein by reference.
14.Imposition of Other Requirements. The Company reserves the right to impose other requirements on Participant's participation in the Plan, on the restricted share units and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
15.Participant Acceptance. Participant must accept the terms and conditions of this Agreement electronically through the acceptance procedures established by the Company. In no event shall any Shares be issued (or other securities or property distributed) under this Agreement in the absence of such acceptance.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above.
GENPACT LIMITED
Signature:
Title:
PARTICIPANT
Signature:
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ADDENDUM A TO THE RESTRICTED SHARE UNIT ISSUANCE AGREEMENT
TERMS AND CONDITIONS FOR NON-U.S. PARTICIPANTS
This Addendum includes additional terms and conditions that govern the Restricted Share Unit Award granted to Participant if Participant works or resides outside the United States.
Capitalized terms used but not defined herein are defined in the Plan or the Agreement and have the meanings set forth therein.
1.No Acquired Right. Participant acknowledges and agrees that:
(a)The Plan is established voluntarily by the Company, the grant of awards under the Plan is made at the discretion of the Committee and the Plan may be modified, amended, suspended or terminated by the Company at any time. All decisions with respect to future awards, if any, will be at the sole discretion of the Committee.
(b)This Award (and any similar awards the Company may in the future grant to Participant, even if such awards are made repeatedly or regularly, and regardless of their amount) and Shares acquired under the Plan (A) are wholly discretionary and occasional, and (B) do not create any contractual entitlement to receive future awards or benefits in lieu thereof.
(c)Participant is voluntarily participating in the Plan.
(d)The grant of this Award and any similar awards the Company may grant in the future to Participant will not be interpreted to form an employment contract or relationship with the Company (or any Affiliate).
(e)The future value of the underlying Shares is unknown and cannot be predicted with certainty. Neither the Company nor any Affiliate shall be liable for any foreign exchange rate fluctuation between Participant’s local currency and the United States Dollar that may affect the value of the Award or the Shares.
(f)Participant shall have no rights, claim or entitlement to compensation or damages as a result of Participant’s cessation of services for any reason whatsoever, whether or not later found to be invalid or in breach of contract or local labor law, insofar as these rights, claim or entitlement arise or may arise from Participant’s ceasing to have rights under this Award as a result of such cessation or loss or diminution in value of the Award or any of the Shares issuable under this Award as a result of such cessation, and Participant irrevocably releases, the Company and its Affiliates, as applicable, from any such rights, entitlement or claim that may arise. If, notwithstanding the foregoing, any such right or claim is found by a court of competent jurisdiction to have arisen, then, by signing this Agreement, Participant shall be deemed to have irrevocably waived his or her entitlement to pursue such rights or claim.
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2.Data Protection (for Jurisdictions other than European Union/European Economic Area/United Kingdom).
(a)In order to facilitate Participant’s participation in the Plan and the administration of the Award, it will be necessary for the Company (or its Affiliates or payroll administrators) to collect, hold and process certain personal information and sensitive personal information about Participant (including, without limitation, Participant’s name, home address, telephone number, date of birth, nationality, social insurance or other identification number and job title and details of the Award and other awards granted, cancelled, exercised, vested, unvested or outstanding and Shares or directorships held by Participant). Participant consents explicitly, willingly, and unambiguously to the Company (or its Affiliates or payroll administrators) collecting, holding and processing Participant’s personal data and transferring this data (in electronic or other form) by and among, as applicable, Participant’s employer, the Company and its Affiliates and other third parties (collectively, the “Data Recipients”) insofar as is reasonably necessary to implement, administer and manage the Plan and the Award. Participant authorizes the Data Recipients to receive, possess, use, retain and transfer the data for the purposes of implementing, administering and managing the Plan and the Award. Participant understands that the data will be transferred to E*TRADE, or such other broker or third party as may be selected by the Company in the future which is assisting the Company with the implementation, administration and management of the Plan. Participant understands that the Data Recipients may be located in the United States or elsewhere, and that the recipient’s country may have different data privacy laws and protections than Participant’s country.
(b)The Data Recipients will treat Participant’s personal data as private and confidential and will not disclose such data for purposes other than the management and administration of the Plan and the Award and will take reasonable measures to keep Participant’s personal data private, confidential, accurate and current. Participant understands that the data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan.
(c)Participant understands that Participant may, at any time, view his or her personal data, require any necessary corrections to it or withdraw the consents herein in writing by contacting the Company but acknowledges that without the use of such data it may not be practicable for the Company to administer Participant’s involvement in the Plan in a timely fashion or at all and this may be detrimental to Participant and may result in the possible exclusion of Participant from continued participation with respect to this Award or any future awards under the Plan.
3.Data Protection (European Union/European Economic Area/United Kingdom).
(a)In order to facilitate Participant’s participation in the Plan and the administration of the Award, it will be necessary for contractual, legitimate interest and legal purposes for the Company (or its Affiliates or payroll administrators) to collect, hold and process certain personal data and, where required for legal purposes with the
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Participant’s freely given consent, any special category personal data about Participant. Such personal data includes, without limitation, Participant’s name, home address, telephone number, date of birth, nationality, social insurance or other identification number and job title and details of the Award and other awards granted, cancelled, exercised, vested, unvested or outstanding and Shares held by Participant. Participant hereby acknowledges and agrees to the Company (or its Affiliates or payroll administrators) collecting, holding and processing Participant’s personal data and transferring this data (in electronic or other form) by and among, as applicable, Participant’s employer, the Company and its Affiliates and other third parties (collectively, the “Data Recipients”) insofar as is reasonably necessary to implement, administer and manage the Plan and the Award. Participant understands that the Data Recipients will receive, possess, use, retain and transfer the data for the purposes of implementing, administering and managing the Plan and the Award. Participant understands that the data will be transferred to E*TRADE, or such other broker or third party as may be selected by the Company in the future which is assisting the Company with the implementation, administration and management of the Plan. Participant understands that the Data Recipients may be located in the United States or elsewhere, and that the Data Recipient’s country may have a different or lower standard of data privacy laws and protections than Participant’s country.
(b)The Data Recipients will treat Participant’s personal data as private and confidential and will not disclose such data for purposes other than the management and administration of the Plan and the Award and will take reasonable measures to keep Participant’s personal data private, confidential, accurate and current. Participant understands that the data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan and for legal requirements thereafter. Participant shall notify the Company of any changes to his or her personal data.
(c)Participant understands that Participant may, at any time, exercise the rights granted to Participant by the Data Protection Laws and other applicable data protection laws including the right to make a request to access or be provided with a copy of his or her personal data, request additional information about the storage and processing of the data, request that the personal data is restricted or otherwise object to its processing by the Company, require any necessary corrections to it or withdraw any consents provided by Participant in writing by contacting the Company and that these rights are subject to legal restrictions. Participant acknowledges that without the Company’s use of such data it may not be practicable for the Company to administer Participant’s involvement in the Plan in a timely fashion or at all and this may be detrimental to Participant and may result in the possible exclusion of Participant from continued participation with respect to this Award or any future awards under the Plan. Participant is referred to the privacy notice provided by the employing affiliate for further information about the processing of his or her personal data and rights under applicable data protection laws.
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(d)For the purpose of this Section 3, “Data Protection Laws” means any law, enactment, regulation or order concerning the processing of personal data including the Data Protection Act 2018, the General Data Protection (Regulation (Regulation (EU) 2016/679) (the “GDPR”), the GDPR as it forms part of retained EU law (as defined in the European Union (Withdrawal) Act 2018), the Privacy and Electronic Communications Regulations (EC Directive) Regulations 2003 (“PECR”), and any subordinate legislation or statutory codes of practice implemented in connection with the DPA, GDPR, PECR and any law that is intended to supplement, amend or replace the foregoing together with any other applicable law in any jurisdiction that regulates the collection, protection or processing of personal data as may come into effect from time to time.
4.Responsibility for Taxes. The issuance of Shares will be subject to the collection of all Applicable Taxes required to be withheld, collected or accounted for by the Company. Participant acknowledges that regardless of any action the Company (or any Affiliate) takes with respect to any or all Applicable Taxes, the ultimate liability for all Applicable Taxes legally due by Participant is and remains Participant’s responsibility and that the Company (and its Affiliates) (i) make no representations or undertakings regarding the treatment of any Applicable Taxes in connection with any aspect of the Award, including the grant, vesting or settlement of the Award, and the subsequent sale of any Shares acquired at settlement; and (ii) do not commit to structure the terms of the grant or any aspect of the Award to reduce or eliminate Participant’s liability for Applicable Taxes. Further, if Participant is subject to taxation in more than one jurisdiction between the Award Date and the date of any relevant taxable or tax withholding event, as applicable, Participant acknowledges that the Company may be required to withhold or account for Applicable Taxes in more than one jurisdiction.
A-4
ADDENDUM B TO THE RESTRICTED SHARE UNIT ISSUANCE AGREEMENT
COUNTRY-SPECIFIED TERMS AND CONDITIONS
CANADA
Award Payable Only in Shares. Notwithstanding any discretion in the Plan or anything to the contrary in this Agreement, the grant of the Award does not provide Participant any right to receive a cash payment and the Award may be settled only in Shares.
Prospectus Exemption. For the purposes of compliance with National Instrument 45-106 - Prospectus Exemptions (and in Québec, Regulation 45-106 respecting Prospectus exemptions, collectively, “45-106”), the prospectus requirement does not apply to a distribution by an issuer in a security of its own issue with an employee, executive officer, director or consultant of the issuer or a related entity of the issuer, provided the distribution is voluntary.
Resale Restrictions. Shares acquired under the Plan may be subject to certain restrictions on resale imposed by Canadian provincial securities laws. Notwithstanding any other provision of the Plan to the contrary, any transfer or resale of any Shares acquired by Participant pursuant to the Plan must be in accordance with the resale rules under (a) Ontario Securities Commission Rule 72-503 Distributions Outside Canada if Participant is a resident in the Province of Ontario, or (b) National Instrument 45-102 - Resale of Securities (and in Québec, Regulation 45-102 respecting Resale of securities, collectively “45-102”) if Participant is a resident in the Provinces of British Columbia or Québec.
In Ontario, the prospectus requirement does not apply to the first trade of Shares issued in connection with the Award provided the conditions set forth in section 2.8 of 72-503 are satisfied. In British Columbia and Québec, the prospectus requirement does not apply to the first trade of Shares issued in connection with the Award provided the conditions set forth in section 2.14 of 45-102 are satisfied.
Participant should consult his or her advisor prior to any resale of Shares.
B-1
Exhibit 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, N.V. Tyagarajan, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Genpact Limited for the period ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 9, 2021
/s/ N.V. TYAGARAJAN | ||
| N.V. Tyagarajan | ||
| Chief Executive Officer | ||
Exhibit 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Edward J. Fitzpatrick, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Genpact Limited for the period ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 9, 2021
/s/ EDWARD J. FITZPATRICK | ||
| Edward J. Fitzpatrick | ||
| Chief Financial Officer | ||
Exhibit 32.1
Certification of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Genpact Limited (the “Company”) on Form 10-Q for the period ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, N.V. Tyagarajan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2021
/s/ N.V. TYAGARAJAN | ||
| N.V. Tyagarajan | ||
| Chief Executive Officer | ||
Exhibit 32.2
Certification of the Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Genpact Limited (the “Company”) on Form 10-Q for the period ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, N.V. Tyagarajan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 9, 2021
/s/ EDWARD J. FITZPATRICK | ||
| Edward J. Fitzpatrick | ||
| Chief Financial Officer | ||