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 September 30, 2017

2022

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

GENPACT LIMITED

(Exact name of registrant as specified in its charter)

Bermuda

98-0533350

Bermuda98-0533350
(State or other jurisdiction of


incorporation or organization)

(I.R.S. Employer


Identification No.)

Canon’s

Canon's Court

22 Victoria Street

Hamilton HM 12

Bermuda

(441) 295-2244

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 classTrading Symbol(s)Name of each exchange on which registered
Common shares, par value $0.01 per shareGNew York Stock Exchange
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 definitionthe definitions of “accelerated filer”, “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

(Do not check if a smaller reporting company)

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 l3(a)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 ☒

The number

As of the registrant’sNovember 3, 2022, there were 183,258,135 common shares, par value $0.01 per share, outstanding as of October 27, 2017 was 193,042,398.

the registrant issued and outstanding.



TABLE OF CONTENTS

 

 

Item No.

 

 

 

Page No.

 

 

 

 

 

PART I

 

 

 

Financial Statements

 

 

 

 

1.

 

Unaudited Consolidated Financial Statements

 

 

 

 

 

 

Consolidated Balance Sheets as of December 31, 2016 and September 30, 2017

 

1

 

 

 

 

Consolidated Statements of Income for the three months and nine months ended September 30, 2016 and 2017

 

2

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three months and nine months ended September 30, 2016 and 2017

 

3

 

 

 

 

Consolidated Statements of Equity and Redeemable Non-controlling Interest for the nine months ended September 30, 2016 and 2017

 

5

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2017

 

6

 

 

 

 

Notes to the Consolidated Financial Statements

 

7

 

 

2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

35

 

 

3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

52

 

 

4.

 

Controls and Procedures

 

52

 

 

 

 

 

 

 

PART II

 

 

 

Other Information

 

 

 

 

1.

 

Legal Proceedings

 

53

 

 

1A.

 

Risk Factors

 

53

 

 

2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

53

 

 

3.

 

Defaults upon Senior Securities

 

53

 

 

5.

 

Other Information

 

53

 

 

6.

 

Exhibits

 

53

 

 

 

 

 

 

 

SIGNATURES

 

55

Item No.Page No.
Financial Information
1.
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2021 and September 30, 2022
3
Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2022
4
Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2022
5
Consolidated Statements of Equity for the three and nine months ended September 30, 2021 and 2022
6
Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2022
10
Notes to the Consolidated Financial Statements
11
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
50
3.
Quantitative and Qualitative Disclosures About Market Risk
71
4.
Controls and Procedures
72
1.
73
1A.
73
2.
73
6.
74
75


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,

2016

 

 

As of September 30,

2017

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

4

 

$

422,623

 

 

$

440,055

 

Accounts receivable, net

 

5

 

 

615,265

 

 

 

670,692

 

Prepaid expenses and other current assets

 

8

 

 

189,149

 

 

 

243,867

 

Total current assets

 

 

 

$

1,227,037

 

 

$

1,354,614

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

9

 

 

193,218

 

 

 

205,623

 

Deferred tax assets

 

23

 

 

70,143

 

 

 

75,273

 

Investment in equity affiliates

 

24

 

 

4,800

 

 

 

833

 

Intangible assets, net

 

10

 

 

78,946

 

 

 

138,215

 

Goodwill

 

10

 

 

1,069,408

 

 

 

1,315,312

 

Other assets

 

 

 

 

242,328

 

 

 

260,021

 

Total assets

 

 

 

$

2,885,880

 

 

$

3,349,891

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

11

 

$

160,000

 

 

$

160,000

 

Current portion of long-term debt

 

12

 

 

39,181

 

 

 

39,224

 

Accounts payable

 

 

 

 

9,768

 

 

 

16,858

 

Income taxes payable

 

23

 

 

24,159

 

 

 

66,328

 

Accrued expenses and other current liabilities

 

13

 

 

498,247

 

 

 

540,743

 

Total current liabilities

 

 

 

$

731,355

 

 

$

823,153

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

12

 

 

698,152

 

 

 

1,016,371

 

Deferred tax liabilities

 

23

 

 

2,415

 

 

 

7,210

 

Other liabilities

 

14

 

 

162,790

 

 

 

184,965

 

Total liabilities

 

 

 

$

1,594,712

 

 

$

2,031,699

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable non-controlling interest

 

 

 

 

4,520

 

 

 

3,839

 

Shareholders' equity

 

 

 

 

 

 

 

 

 

 

Preferred shares, $0.01 par value, 250,000,000 authorized, none issued

 

 

 

 

—

 

 

 

—

 

Common shares, $0.01 par value, 500,000,000 authorized, 198,794,052

   and  193,033,898 issued and outstanding as of December 31, 2016

   and September 30, 2017, respectively

 

 

 

 

1,984

 

 

 

1,926

 

Additional paid-in capital

 

 

 

 

1,384,468

 

 

 

1,369,392

 

Retained earnings

 

 

 

 

358,121

 

 

 

338,349

 

Accumulated other comprehensive income (loss)

 

 

 

 

(457,925

)

 

 

(395,314

)

Total equity

 

 

 

$

1,286,648

 

 

$

1,314,353

 

Commitments and contingencies

 

25

 

 

 

 

 

 

 

 

Total liabilities, redeemable non-controlling interest and equity

 

 

 

$

2,885,880

 

 

$

3,349,891

 


NotesAs of December 31, 2021As of September 30, 2022
Assets
Current assets
Cash and cash equivalents$899,458 $518,680 
Accounts receivable, net of allowance for credit losses of $24,329 and $20,437 as of December 31, 2021 and September 30, 2022, respectively4887,742 994,250 
Prepaid expenses and other current assets7134,441 229,825 
Assets of business held for sale8$— $15,621 
Total current assets$1,921,641 $1,758,376 
Property, plant and equipment, net9215,089 180,379 
Operating lease right-of-use assets270,603 191,371 
Deferred tax assets23106,322 111,932 
Intangible assets, net10169,635 101,226 
Goodwill101,731,027 1,680,932 
Contract cost assets20238,794 218,137 
Other assets, net of allowance for credit losses of $3,711 and $3,198 as of December 31, 2021 and September 30, 2022, respectively322,158 294,319 
Total assets$4,975,269 $4,536,672 
Liabilities and equity
Current liabilities
Short-term borrowings11$— $200,000 
Current portion of long-term debt12383,433 535,142 
Accounts payable24,984 27,925 
Income taxes payable2347,353 107,172 
Accrued expenses and other current liabilities13791,440 700,484 
Operating leases liability61,591 53,976 
Liabilities of business held for sale8$— $8,410 
Total current liabilities$1,308,801 $1,633,109 
Long-term debt, less current portion121,272,476 746,613 
Operating leases liability247,707 186,057 
Deferred tax liabilities233,942 3,634 
Other liabilities14245,210 235,413 
Total liabilities$3,078,136 $2,804,826 
Shareholders' equity
Preferred shares, $0.01 par value, 250,000,000 authorized, none issued— — 
Common shares, $0.01 par value, 500,000,000 authorized, $185,336,357 and 183,008,135 issued and outstanding as of December 31, 2021 and September 30, 2022, respectively1,847 1,825 
Additional paid-in capital1,717,165 1,740,271 
Retained earnings732,474 745,172 
Accumulated other comprehensive income (loss)(554,353)(755,422)
Total equity$1,897,133 $1,731,846 
Commitments and contingencies24
Total liabilities and equity$4,975,269 $4,536,672 


See accompanying notes to the Consolidated Financial Statements.

1

3


GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data and share count)

 

 

Three months ended September 30,

 

 

 

 

Nine months ended September 30,

 

 

Notes

2016 (1)

 

 

2017

 

 

 

 

2016 (1)

 

 

2017

 

Net revenues

 

$

648,783

 

 

$

708,824

 

 

 

 

$

1,889,009

 

 

$

2,002,516

 

Cost of revenue

19, 24

 

392,432

 

 

 

429,191

 

 

 

 

 

1,149,035

 

 

 

1,227,821

 

Gross profit

 

$

256,351

 

 

$

279,633

 

 

 

 

$

739,974

 

 

$

774,695

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

20, 24

 

156,969

 

 

 

172,095

 

 

 

 

 

482,315

 

 

 

500,854

 

Amortization of  acquired intangible assets

10

 

7,126

 

 

 

10,151

 

 

 

 

 

19,764

 

 

 

25,780

 

Other operating (income) expense, net

21

 

5,132

 

 

 

(64

)

 

 

 

 

(4,791

)

 

 

(8,517

)

Income from operations

 

$

87,124

 

 

$

97,451

 

 

 

 

$

242,686

 

 

$

256,578

 

Foreign exchange gains (losses), net

 

 

(654

)

 

 

5,045

 

 

 

 

 

3,156

 

 

 

2,045

 

Interest income (expense), net

22

 

(4,901

)

 

 

(8,724

)

 

 

 

 

(11,172

)

 

 

(24,067

)

Other income (expense), net

 

 

5,791

 

 

 

(4,030

)

 

 

 

 

7,172

 

 

 

9,011

 

Income before equity-method investment activity, net and income tax expense

 

$

87,360

 

 

$

89,742

 

 

 

 

$

241,842

 

 

$

243,567

 

Equity-method investment activity, net

 

 

(2,117

)

 

 

—

 

 

 

 

 

(6,336

)

 

 

(4,567

)

Income before income tax expense

 

$

85,243

 

 

$

89,742

 

 

 

 

$

235,506

 

 

$

239,000

 

Income tax expense

23

 

17,055

 

 

 

16,581

 

 

 

 

 

44,026

 

 

 

44,297

 

Net income

 

$

68,188

 

 

$

73,161

 

 

 

 

$

191,480

 

 

$

194,703

 

Net loss attributable to redeemable non-controlling interest

 

 

734

 

 

 

584

 

 

 

 

 

1,905

 

 

 

1,326

 

Net income attributable to Genpact Limited shareholders

 

$

68,922

 

 

$

73,745

 

 

 

 

$

193,385

 

 

$

196,029

 

Net income available to Genpact Limited common shareholders

18

$

68,922

 

 

$

73,745

 

 

 

 

$

193,385

 

 

$

196,029

 

Earnings per common share attributable to Genpact Limited common shareholders

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

 

$

0.38

 

 

 

 

$

0.93

 

 

$

1.01

 

Diluted

 

$

0.33

 

 

$

0.38

 

 

 

 

$

0.91

 

 

$

0.99

 

Weighted average number of common shares used  in computing earnings per common share attributable to Genpact Limited common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

206,146,007

 

 

 

192,124,366

 

 

 

 

 

209,034,741

 

 

 

194,221,162

 

Diluted

 

 

209,376,683

 

 

 

194,947,699

 

 

 

 

 

212,357,594

 

 

 

197,112,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Income taxes, net income and basic and diluted net income per common share for the three and nine months ended September 30, 2016 have been restated due to the adoption of ASU No. 2016-09 in 2016 with effect from January 1, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,Nine months ended September 30,
Notes2021202220212022
Net revenues20$1,015,737 $1,111,037 $2,949,934 $3,268,627 
Cost of revenue653,686 717,219 1,887,596 2,117,437 
Gross profit$362,051 $393,818 $1,062,338 $1,151,190 
Operating expenses:
Selling, general and administrative expenses215,957 231,436 620,857 701,828 
Amortization of acquired intangible assets1013,898 10,604 44,624 32,805 
Other operating (income) expense, net21(93)20,937 (217)42,157 
Income from operations$132,289 $130,841 $397,074 $374,400 
Foreign exchange gains (losses), net2,733 3,867 11,529 9,312 
Interest income (expense), net22(12,765)(13,399)(38,198)(36,691)
Other income (expense), net1,480 (235)8,966 (4,902)
Income before income tax expense$123,737 $121,074 $379,371 $342,119 
Income tax expense2321,351 25,231 83,008 78,427 
Net income$102,386 $95,843 $296,363 $263,692 
Earnings per common share18
Basic$0.55 $0.52 $1.58 $1.43 
Diluted$0.53 $0.51 $1.54 $1.40 
Weighted average number of common shares used in computing earnings per common share18
Basic187,856,026 183,312,013 187,945,234 184,456,047 
Diluted193,159,929 187,399,204 192,885,252 188,274,420 
See accompanying notes to the Consolidated Financial Statements.

2

4


GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

Three months ended September 30,Nine months ended September 30,
2021202220212022
Net income (loss)$102,386 $95,843 $296,363 $263,692 
Other comprehensive income:
Currency translation adjustments(9,043)(71,092)(36,721)(179,933)
Net income (loss) on cash flow hedging derivatives, net of taxes (Note 6)7,789 (14,198)10,321 (23,056)
Retirement benefits, net of taxes497 374 2,128 1,920 
Other comprehensive income (loss)(757)(84,916)(24,272)(201,069)
Comprehensive income (loss)$101,629 $10,927 $272,091 $62,623 
See accompanying notes to the Consolidated Financial Statements.
5

GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity
For the three months ended September 30, 2021
(Unaudited)
(In thousands, except share count)
Common sharesAccumulated Other
Comprehensive
Income (Loss)
No. of
Shares		AmountAdditional 
Paid-in Capital		Retained
Earnings		Total
Equity
Balance as of July 1, 2021187,350,298 $1,869 $1,657,756 $748,199 $(568,855)$1,838,969 
Issuance of common shares on exercise of options (Note 16)511,813 5 11,732 — — 11,737 
Issuance of common shares under the employee stock purchase plan (Note 16)60,374 1 2,818 — — 2,819 
Net settlement on vesting of restricted share units (Note 16)134,086 1 (3,535)— — (3,534)
Stock-based compensation expense (Note 16)— — 21,485 — — 21,485 
Others— — (6)— — (6)
Comprehensive income (loss):
Net income (loss)— — — 102,386 — 102,386 
Other comprehensive income (loss)— — — — (757)(757)
Dividend ($0.1075 per common share, Note 17)— — — (20,213)— (20,213)
Balance as of September 30, 2021188,056,571 $1,876 $1,690,250 $830,372 $(569,612)$1,952,886 
See accompanying notes to the Consolidated Financial Statements.
6

GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity
For the nine months ended September 30, 2021
(Unaudited)
(In thousands, except share count)

Common sharesAccumulated Other
Comprehensive
Income (Loss)
No. of
Shares		AmountAdditional 
Paid-in Capital		Retained
Earnings		Total
Equity
Balance as of January 1, 2021189,045,661 $1,885 $1,636,026 $741,658 $(545,340)$1,834,229 
Issuance of common shares on exercise of options (Note 16)1,020,125 11 20,902 — — 20,913 
Issuance of common shares under the employee stock purchase plan (Note 16)216,378 2 8,871 — — 8,873 
Net settlement on vesting of restricted share units (Note 16)264,376 3 (5,845)— — (5,842)
Net settlement on vesting of performance units (Note 16)1,102,440 11 (28,302)— — (28,291)
Stock repurchased and retired (Note 17)(3,592,409)(36)— (147,116)— (147,152)
Expenses related to stock purchase (Note 17)— — — (72)— (72)
Stock-based compensation expense (Note 16)— — 58,604 — — 58,604 
Others— — (6)— — (6)
Comprehensive income (loss):
Net income (loss)— — — 296,363 — 296,363 
Other comprehensive income (loss)— — — — (24,272)(24,272)
Dividend ($0.3225 per common share, Note 17)— — — (60,461)— (60,461)
Balance as of September 30, 2021188,056,571 $1,876 $1,690,250 $830,372 $(569,612)$1,952,886 

7

GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity
For the three months ended September 30, 2022
(Unaudited)
(In thousands, except share count)
Common sharesAccumulated Other
Comprehensive
Income (Loss)
No. of
Shares		AmountAdditional 
Paid-in Capital		Retained
Earnings		Total
Equity
Balance as of July 1, 2022183,483,736 $1,830 $1,716,895 $702,219 $(670,506)$1,750,438 
Issuance of common shares on exercise of options (Note 16)60,000 — 1,573 — — 1,573 
Issuance of common shares under the employee stock purchase plan (Note 16)71,499 1 3,022 — — 3,023 
Net settlement on vesting of restricted share units (Note 16)19,992 — (421)— — (421)
Stock repurchased and retired (Note 17)(627,092)(6)— (30,005)— (30,011)
Expenses related to stock purchase (Note 17)— — — (12)— (12)
Stock-based compensation expense (Note 16)— — 19,202 — — 19,202 
Comprehensive income (loss):
Net income (loss)— — — 95,843 — 95,843 
Other comprehensive income (loss)— — — — (84,916)(84,916)
Dividend ($0.1250 per common share, Note 17)— — — (22,873)— (22,873)
Balance as of September 30, 2022183,008,135 $1,825 $1,740,271 $745,172 $(755,422)$1,731,846 
See accompanying notes to the Consolidated Financial Statements.
8

GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Equity
For the nine months ended September 30, 2022
(Unaudited)
(In thousands, except share count)
Common sharesAccumulated Other
Comprehensive
Income (Loss)
No. of
Shares		AmountAdditional 
Paid-in Capital		Retained
Earnings		Total
Equity
Balance as of January 1, 2022185,336,357 $1,847 $1,717,165 $732,474 $(554,353)$1,897,133 
Issuance of common shares on exercise of options (Note 16)110,000 1 2,955 — — 2,956 
Issuance of common shares under the employee stock purchase plan (Note 16)253,377 3 10,083 — — 10,086 
Net settlement on vesting of restricted share units (Note 16)74,934 1 (422)— — (421)
Net settlement on vesting of performance units (Note 16)1,300,511 13 (44,404)— — (44,391)
Stock repurchased and retired (Note 17)(4,067,044)(40)— (181,971)— (182,011)
Expenses related to stock purchase (Note 17)— — — (81)— (81)
Stock-based compensation expense (Note 16)— — 54,894 — — 54,894 
Comprehensive income (loss):
Net income (loss)— — — 263,692 — 263,692 
Other comprehensive income (loss)— — — — (201,069)(201,069)
Dividend ($0.3750 per common share, Note 17)— — — (68,942)— (68,942)
Balance as of September 30, 2022183,008,135 $1,825 $1,740,271 $745,172 $(755,422)$1,731,846 
See accompanying notes to the Consolidated Financial Statements.






9

GENPACT LIMITED AND ITS SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine months ended September 30,
20212022
Operating activities
Net income$296,363 $263,692 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization82,344 68,169 
Amortization of debt issuance costs1,969 1,825 
Amortization of acquired intangible assets44,624 32,805 
Write-down of intangible assets and property, plant and equipment915 1,377 
Impairment charge on intangible assets and goodwill held-for-sale— 21,426 
Allowance for credit losses2,412 1,045 
Unrealized (gain)/ loss on revaluation of foreign currency asset/liability(4,252)2,150 
Stock-based compensation expense58,604 54,894 
Deferred tax benefit(6,236)(7,655)
Write-down of operating right-of-use assets and other assets— 20,307 
Others, net806 323 
Change in operating assets and liabilities:
Increase in accounts receivable(78,626)(121,038)
(Increase) decrease in prepaid expenses, other current assets, contract cost assets, operating lease right-of-use assets and other assets43,071 (57,940)
Increase in accounts payable11,138 6,755 
Decrease in accrued expenses, other current liabilities, operating leases liabilities and other liabilities(74,085)(132,524)
Increase in income taxes payable68,430 58,431 
Net cash provided by operating activities$447,477 $214,042 
Investing activities
Purchase of property, plant and equipment(31,385)(35,312)
Payment for internally generated intangible assets (including intangibles under development)(3,907)(2,972)
Proceeds from sale of property, plant and equipment4,511 58 
(Payment)/ refund for business acquisitions, net of cash acquired(6,613)973 
Proceed from sale of investment142 — 
Net cash used for investing activities$(37,252)$(37,253)
Financing activities
Repayment of finance lease obligations(8,659)(10,305)
Payment of debt issuance costs(3,018)— 
Proceeds from long-term debt350,000 — 
Repayment of long-term debt(25,500)(375,500)
Proceeds from short-term borrowings— 250,000 
Repayment of short-term borrowings(250,000)(50,000)
Proceeds from issuance of common shares under stock-based compensation plans29,786 13,042 
Payment for net settlement of stock-based awards(33,467)(44,942)
Payment of earn-out consideration(2,556)(2,437)
Dividend paid(60,461)(68,942)
Payment for stock repurchased and retired (including expenses related to stock repurchase)(147,224)(182,092)
Others(6)— 
Net cash used for financing activities$(151,105)$(471,176)
Effect of exchange rate changes(17,085)(86,391)
Net increase/(decrease) in cash and cash equivalents259,120 (294,387)
Cash and cash equivalents at the beginning of the period680,440 899,458 
Cash and cash equivalents at the end of the period$922,475 $518,680 
Supplementary information
Cash paid during the period for interest$25,715 $30,430 
Cash paid during the period for income taxes, net of refund$38,040 $114,343 
See accompanying notes to the Consolidated Financial Statements.
10

GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

2016 (1)

 

 

2017

 

 

2016 (1)

 

 

2017

 

 

Genpact Limited Shareholders

 

 

Redeemable Non-controlling interest

 

 

Genpact Limited Shareholders

 

 

Redeemable Non-controlling interest

 

 

Genpact

Limited

Shareholders

 

 

Redeemable

Non-

controlling

interest

 

 

Genpact

Limited

Shareholders

 

 

Redeemable

Non-

controlling

interest

 

Net Income (loss)

$

68,922

 

 

$

(734

)

 

$

73,745

 

 

$

(584

)

 

$

193,385

 

 

$

(1,905

)

 

$

196,029

 

 

$

(1,326

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation  adjustments

 

11,224

 

 

 

14

 

 

 

(4,185

)

 

 

(256

)

 

 

(8,614

)

 

 

53

 

 

 

67,527

 

 

 

(334

)

Net income (loss) on cash flow hedging derivatives, net of taxes

(Note 7)

 

19,772

 

 

 

—

 

 

 

(14,874

)

 

 

—

 

 

 

18,187

 

 

 

—

 

 

 

(5,627

)

 

 

—

 

Retirement benefits, net of taxes

 

561

 

 

 

—

 

 

 

369

 

 

 

—

 

 

 

701

 

 

 

—

 

 

 

711

 

 

 

—

 

Other comprehensive income (loss)

$

31,557

 

 

$

14

 

 

$

(18,690

)

 

$

(256

)

 

$

10,274

 

 

$

53

 

 

$

62,611

 

 

$

(334

)

Comprehensive income (loss)

$

100,479

 

 

$

(720

)

 

$

55,055

 

 

$

(840

)

 

$

203,659

 

 

$

(1,852

)

 

$

258,640

 

 

$

(1,660

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Net income for the three months and nine months ended September 30, 2016 have been restated due to the adoption of ASU No. 2016-09 in 2016 with effect from January 1, 2016.

 


See accompanying notes to the Consolidated Financial Statements.

3

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Equity and Redeemable Non-controlling Interest

(Unaudited)

(In thousands, except share count)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 

Additional Paid-

 

 

Retained

 

 

Other

Comprehensive

 

 

Total

 

 

Redeemable

non-controlling

 

 

 

No. of Shares

 

 

Amount

 

 

in Capital (1)

 

 

Earnings (1)

 

 

Income (Loss)

 

 

Equity

 

 

interest

 

Balance as of January 1, 2016

 

 

211,472,312

 

 

$

2,111

 

 

$

1,342,022

 

 

$

411,508

 

 

$

(451,285

)

 

$

1,304,356

 

 

$

—

 

Issuance of common shares on

   exercise of options (Note 16)

 

 

655,717

 

 

 

7

 

 

 

10,348

 

 

 

—

 

 

 

—

 

 

 

10,355

 

 

 

—

 

Issuance of common shares under the

   employee stock purchase plan

   (Note 16)

 

 

105,856

 

 

 

1

 

 

 

2,452

 

 

 

—

 

 

 

—

 

 

 

2,453

 

 

 

—

 

Net settlement on vesting of

   restricted share units (Note 16)

 

 

120,307

 

 

 

1

 

 

 

(462

)

 

 

—

 

 

 

—

 

 

 

(461

)

 

 

—

 

Net settlement on vesting of performance units (Note 16)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Stock repurchased and retired

   (Note 17)

 

 

(9,615,323

)

 

 

(96

)

 

 

—

 

 

 

(242,456

)

 

 

—

 

 

 

(242,552

)

 

 

—

 

Deferred tax assets recognized on early adoption of ASU

2016-09

 

 

—

 

 

 

—

 

 

 

—

 

 

 

24,912

 

 

 

—

 

 

 

24,912

 

 

 

—

 

Expenses related to stock purchase

   (Note 17)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(192

)

 

 

—

 

 

 

(192

)

 

 

—

 

Stock-based compensation expense

   (Note 16)

 

 

—

 

 

 

—

 

 

 

18,344

 

 

 

—

 

 

 

—

 

 

 

18,344

 

 

 

—

 

Acquisition of redeemable non

   controlling interest

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

-

 

 

 

3,910

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

193,385

 

 

 

—

 

 

 

193,385

 

 

 

(1,905

)

      Other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

10,274

 

 

 

10,274

 

 

 

53

 

Balance as of  September 30, 2016

 

 

202,738,869

 

 

$

2,024

 

 

$

1,372,704

 

 

$

387,157

 

 

$

(441,011

)

 

$

1,320,874

 

 

$

2,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Net income, additional paid-in capital and retained earnings for the three and nine months ended September 30, 2016 have been restated due to the adoption of ASU No. 2016-09 in 2016 with effect from January 1, 2016.

 

See accompanying notes to the Consolidated Financial Statements.

4

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Equity and Redeemable Non-controlling Interest

(Unaudited)

(In thousands, except share count)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

 

Additional Paid-

 

 

Retained

 

 

Other

Comprehensive

 

 

Total

 

 

Redeemable

non-controlling

 

 

 

No. of Shares

 

 

Amount

 

 

in Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

 

interest

 

Balance as of January 1, 2017

 

 

198,794,052

 

 

$

1,984

 

 

$

1,384,468

 

 

$

358,121

 

 

$

(457,925

)

 

$

1,286,648

 

 

$

4,520

 

Issuance of common shares on

   exercise of options (Note 16)

 

 

641,900

 

 

 

6

 

 

 

9,237

 

 

 

—

 

 

 

—

 

 

 

9,243

 

 

 

—

 

Issuance of common shares under the

   employee stock purchase plan

   (Note 16)

 

 

150,265

 

 

 

2

 

 

 

3,589

 

 

 

—

 

 

 

—

 

 

 

3,591

 

 

 

—

 

Net settlement on vesting of

   restricted share units (Note 16)

 

 

103,220

 

 

 

1

 

 

 

(358

)

 

 

—

 

 

 

—

 

 

 

(357

)

 

 

—

 

Net settlement on vesting of

   performance units (Note 16)

 

 

731,701

 

 

 

7

 

 

 

(9,946

)

 

 

—

 

 

 

—

 

 

 

(9,939

)

 

 

—

 

Stock repurchased and retired (Note17)

 

 

(7,387,240

)

 

 

(74

)

 

 

(40,000

)

 

 

(179,710

)

 

 

—

 

 

 

(219,784

)

 

 

—

 

Expenses related to stock purchase

   (Note 17)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(16

)

 

 

—

 

 

 

(16

)

 

 

—

 

Stock-based compensation expense

   (Note 16)

 

 

—

 

 

 

—

 

 

 

22,402

 

 

 

—

 

 

 

—

 

 

 

22,402

 

 

 

—

 

Change in fair value of redeemable non-controlling interest

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(979

)

 

 

—

 

 

 

(979

)

 

 

979

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

196,029

 

 

 

—

 

 

 

196,029

 

 

 

(1,326

)

Other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

62,611

 

 

 

62,611

 

 

 

(334

)

Dividend (Note 17)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(35,096

)

 

 

—

 

 

 

(35,096

)

 

 

-

 

Balance as of September 30, 2017

 

 

193,033,898

 

 

$

1,926

 

 

$

1,369,392

 

 

$

338,349

 

 

$

(395,314

)

 

$

1,314,353

 

 

$

3,839

 

See accompanying notes to the Consolidated Financial Statements.

5

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

Nine months ended September 30,

 

 

 

2016 (1)

 

 

 

2017

 

Operating activities

 

 

 

 

 

 

 

 

Net income attributable to Genpact Limited shareholders

 

$

193,385

 

 

$

196,029

 

Net loss attributable to redeemable non-controlling interest

 

 

(1,905

)

 

 

(1,326

)

Net income

 

$

191,480

 

 

$

194,703

 

Adjustments to reconcile net income to net cash provided by  (used for) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

40,366

 

 

 

42,271

 

Amortization of debt issuance costs

 

 

1,150

 

 

 

1,382

 

Amortization of acquired intangible assets

 

 

19,764

 

 

 

25,780

 

Intangible assets write-down

 

 

11,195

 

 

 

—

 

Reserve  for doubtful receivables

 

 

7,307

 

 

 

4,871

 

Unrealized loss (gain) on revaluation of foreign currency asset/liability

 

 

1,304

 

 

 

(9,296

)

Equity-method investment activity, net

 

 

6,336

 

 

 

4,567

 

Stock-based compensation expense

 

 

18,344

 

 

 

22,402

 

Deferred income taxes

 

 

20,729

 

 

 

(4,589

)

Gain on divestiture

 

 

(5,214

)

 

 

—

 

Provision for expected loss on divestiture

 

 

—

 

 

 

5,195

 

Others, net

 

 

29

 

 

 

(5,261

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

         Increase in accounts receivable

 

 

(33,760

)

 

 

(30,687

)

  Increase in prepaid expenses, other current assets and other assets

 

 

(64,252

)

 

 

(56,230

)

        Decrease in accounts payable

 

 

(397

)

 

 

(462

)

  Increase/(decrease) in accrued expenses, other current liabilities and other liabilities

 

 

(14,797

)

 

 

27,723

 

        Increase in income taxes payable

 

 

36,420

 

 

 

41,324

 

Net cash provided by operating activities

 

$

236,004

 

 

$

263,693

 

Investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment & intangibles

 

 

(64,441

)

 

 

(56,460

)

Proceeds from sale of property, plant and equipment

 

 

334

 

 

 

1,648

 

Investment in equity affiliates

 

 

(7,519

)

 

 

(496

)

Payment for business acquisitions, net of cash acquired

 

 

(41,558

)

 

 

(277,549

)

Proceeds from divestiture of business, net of cash divested

 

 

17,582

 

 

 

—

 

Net cash used for investing activities

 

$

(95,602

)

 

$

(332,857

)

Financing activities

 

 

 

 

 

 

 

 

Repayment of capital lease obligations

 

 

(1,344

)

 

 

(2,199

)

Payment of debt issuance costs

 

 

—

 

 

 

(1,481

)

Proceeds from long-term debt

 

 

—

 

 

 

350,000

 

Repayment of long-term debt

 

 

(30,000

)

 

 

(30,000

)

Proceeds from short-term borrowings

 

 

155,000

 

 

 

275,000

 

Repayment of short-term borrowings

 

 

(61,500

)

 

 

(275,000

)

Proceeds from issuance of  common shares under stock-based compensation plans

 

 

12,808

 

 

 

12,834

 

Payment for net settlement of stock-based awards

 

 

(461

)

 

 

(10,296

)

Payment of earn-out/deferred consideration

 

 

(1,406

)

 

 

(6,219

)

Dividend paid

 

 

—

 

 

 

(35,096

)

Payment for stock purchased and retired

 

 

(242,552

)

 

 

(219,784

)

Payment for expenses related to stock purchase

 

 

(192

)

 

 

(16

)

Net cash provided by (used for) financing activities

 

$

(169,647

)

 

$

57,743

 

Effect of exchange rate changes

 

 

(2,570

)

 

 

28,853

 

Net increase (decrease) in cash and cash equivalents

 

 

(29,245

)

 

 

(11,421

)

Cash and cash equivalents at the beginning of the period

 

 

450,907

 

 

 

422,623

 

Cash and cash equivalents at the end of the period

 

$

419,092

 

 

$

440,055

 

Supplementary information

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

13,267

 

 

$

23,414

 

Cash paid during the period for income taxes

 

$

40,294

 

 

$

46,935

 

Property, plant and equipment acquired under capital lease obligations

 

$

1,667

 

 

$

1,944

 

 

 

 

 

 

 

 

 

 

(1) Income taxes, net income and cash flows for the nine months ended September 30, 2016 have been restated due to the adoption of ASU No. 2016-09 in 2016 with effect from January 1, 2016.

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the Consolidated Financial Statements.

6

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(In thousands, except per share data and share count)

1. Organization


The Company is a global professional services firm focused on driving digital-ledthat drives digitally-led innovation and runningruns digitally-enabled intelligent operations for its clients. Guidedclients, guided by its experience running thousands of processes for hundreds of Fortune Global 500 clients since its founding, the Company strives to help its clients achieve their operational goals by applying its industry expertise, proprietary digital technology and analytics.clients. The Company employshas over 77,000 people117,700 employees serving clients in key industry verticals from more than 2030 countries. 

 Prior to December 30, 2004, the business of the Company was conducted through various entities and divisions of GE. On December 30, 2004, GE transferred such operations to the Company. In August 2007, the Company completed an initial public offering of its common shares. On October 25, 2012, Glory Investments A Limited (“Glory Investments”), formerly known as South Asia Private Investments, an affiliate of Bain Capital Investors, LLC, became the Company’s largest shareholder when, together with its affiliated assignees and two additional co-investors, it purchased 67,750,678 common shares of the Company from the Company’s initial investors.  On August 18, 2017, Glory Investments and its affiliated assignees, together with one of its co-investors, sold 10,000,000 common shares of the Company in an underwritten public offering. The Company did not receive any proceeds from the offering.


2. Summary of significant accounting policies

(a) Basis of preparation and principles of consolidation


The unaudited interimaccompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information("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, 2016.

2021. The unaudited interimaccompanying consolidated financial statements reflect all adjustments that management considers necessary for a fair presentation of the results of operations for these periods. The results of operations for interim periods are not necessarily indicative of results for the full year.

The accompanying unaudited interim consolidated 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 onover the entity, the Company applies the equity method of accounting. All intercompany transactions and balances are eliminated in consolidation.

Non-controlling interest in subsidiaries that is redeemable outside of the Company’s control for cash or other assets is reflected in the mezzanine section between liabilities and equity in the consolidated balance sheets at the redeemable value, which approximates fair value. Redeemable non-controlling interest is adjusted to its fair value at each balance sheet date. Any resulting increases or decreases in the estimated redemption amount are affected by corresponding changes to retained earnings. The share of non-controlling interest in subsidiary earnings is reflected in net loss (income) attributable to redeemable non-controlling interest in the consolidated statements of income.

(b) Use of estimates


The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, intangiblesintangible assets and goodwill, revenue recognition, reservesallowance for doubtful receivables,credit losses, valuation allowances for deferred tax assets, the valuation of derivative financial instruments, the measurement of lease liabilities and right-of-use (“ROU”) assets, measurements of stock-based compensation, assets and obligations related to employee benefits, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, variable consideration, other obligations for revenue recognition, income tax uncertainties and other contingencies.contingencies. Management believes that the estimates used in the preparation of the consolidated financial statements are reasonable. reasonable, and management has made assumptions about the possible effects of the ongoing COVID-19 pandemic on critical and significant accounting estimates.Although these estimates and assumptions are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. Any changes in estimates are adjusted prospectively in the Company’s consolidated financial statements.

7

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)


(c) Business combinations, goodwill and other intangible assets


The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASCAccounting Standard Codification (“ASC”) Topic 805, Business Combinations, by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the acquired business, measured at their acquisition date fair values. Contingent consideration is included within the acquisition cost and is recognized at its fair value on the acquisition date. A liability resulting from contingent consideration is remeasuredre-measured to fair value as of each reporting date until the contingency is resolved. Changes in fair value are recognized in earnings. All assets and liabilities of the acquired businesses, including goodwill, are assigned to reporting units. Acquisition-related costs are expensed as incurred under Selling, Generalselling, general and Administrative Expenses.

administrative expenses.


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)

Goodwill represents the cost of acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased. Goodwill is not amortized but is tested for impairment at least on an annual basis on December 31, based on a number of factors, including operating results, business plans and future cash flows. The Company performs an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Based on the assessment of events or circumstances, the Company performs a quantitative assessment of goodwill impairment if it determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, based on the quantitative impairment analysis, the carrying value of the goodwill of a reporting unit exceeds the fair value of such goodwill, an impairment loss is recognized in an amount equal to the excess. In addition, the Company performs a qualitative assessment of goodwill impairment between annual tests if an event occurs or circumstances change that would moremore likely than not reduce the fair value of a reporting unit below its carrying amount. See Note 10 for information and related disclosures.

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

1

1-14-

9 years

Marketing-related intangible assets

1

1-10-

8 years

Technology-related intangible assets

2

2-8-

10 years

Other intangible assets

2-9 years

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 Income.

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 clients. GEcustomers.

(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 uses revolving accounts receivable-based facilities in the normal course of business as part of managing its cash flows. The Company accounts for receivables sold under these facilities as a sale of financial assets pursuant to ASC 860 “Transfers and Servicing” and de-recognizes these receivables, as well as the related allowances, from its balance sheets. Generally, the fair value of accounts receivable sold approximates their book value due to their short-term nature, and any gains or losses on the sale of these receivables are recorded at the time of transfer and included under "interest income (expense), net" in the Company’s consolidated statements of income.
(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 15%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 11%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 receivablesresources. 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 December 31, 2016 and September 30, 2017, respectively. GE accounted for 15% and 10%benefit under cost of total revenue for the nine months ended September 30, 2016 and 2017, respectively, and 17% and 10% of total revenue for the three months ended September 30, 2016 and 2017, respectively.

8

revenue.
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)

(e) Recently issued accounting pronouncements

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.

Revenue for performance obligations that are satisfied over time is recognized in accordance with the methods prescribed for measuring progress. The authoritative bodies release standardsinput (cost expended) method has been used to measure progress towards completion as there is a direct relationship between input and guidance whichthe satisfaction of a performance obligation. Provisions for estimated losses, if any, on uncompleted contracts are assessed by management for impact on the Company’s consolidated financial statements.

The Company has adopted the following recently released accounting standard:

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting. The new standard contains several amendments that will simplify the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The changesrecorded in the new standard eliminate the requirement for excess tax benefits to be recognized in additional paid-in capital and tax deficiencies recognized either in income tax expense or in additional paid-in capital. In the quarter ended December 31, 2016, the Company elected to early adopt ASU 2016-09 effective January 1, 2016 and will continue to apply ASU 2016-09 using a modified retrospective approach. The treatment of forfeitures has not changed as the Company is electing to continue its current process of estimating the number of forfeitures. With the early adoption of ASU 2016-09, the Company has elected to present the cash flow statement on a prospective transition method and no prior periods have been adjusted. As a result, the Company’s income taxes, net income, cash flows, retained earnings, additional paid-in capital, and basic and diluted net income per common share for corresponding periods in 2016 have been restated due to the adoption of ASU No. 2016-09.

In addition, the Company has adopted the following recently released accounting standards. Adoption of these standards did not have a material impact on the Company’s consolidated results of operations, cash flows, financial position or disclosures:

Effective January 1, 2016, the Company adopted FASB ASU 2015-01 (Topic 225), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). Such items are defined as transactions or events that are both unusual in nature and infrequent in occurrence, and, currently, are required to be presented separately in the income statement, net of income tax, after income from continuing operations. The changes eliminate the concept of an extraordinary item and, therefore, the presentation of such items will no longer be required. Notwithstanding this change, the Company will still be required to present and disclose a transaction or event that is both unusual in nature and infrequent in occurrence in the notes to the financial statements.

Effective January 1, 2016, the Company adopted FASB ASU 2015-05 (Topic 350), Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”), which provides explicit guidance to evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting for other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract.

Effective January 1, 2016, the Company adopted FASB ASU 2015-16 (Topic 805), Business Combinations (“ASU 2015-16”), which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. The guidance requires that the acquirer shall recognize adjustments to provisional amounts that are identified during the measurement period in the reporting 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 determined.

Effective January 1, 2016,estimated at contract inception and are adjusted at the Company adopted FASB ASU 2015-02. In February 2015, the FASB issued ASU No. 2015-02, Amendmentend of each reporting period as additional information becomes available only to the Consolidation Analysis, which specifies changes to the analysisextent that an entity must perform to determine whether it should consolidate certain types of legal entities. These changes (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, (ii) eliminate the presumptionis probable that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysissignificant reversal of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.

Effective January 1, 2017, the Company adopted FASB ASU 2016-06, Derivatives and Hedging (Topic 815). The amendments in this update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this update is required to assess the embedded call (put) options solely in accordance with a four-step decision sequence.

9

any incremental revenue will not occur.
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)


(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.

Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following recently released accounting standards havecriteria 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 been adoptedpaid, 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:

In May 2014,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 FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which will replace most existing revenue recognition guidance in U.S. GAAP. The core principlecarrying amount of the ASUlease liability at the end of each reporting period, and is that an entity should recognize revenue for the transfer of goods or services equal to the carrying amount that it expectsof 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 be entitled to receive for those goodslong-lived assets, whenever events or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. Subsequently,circumstances indicate that the FASB issued ASU No. 2017-13, in September 2017, ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Gross versus Net),” in March 2016, ASU No. 2016-10, “Identifying performance obligations and licensing,” in April 2016, and ASU 2016-20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” in December 2016, which amend and clarify ASU 2014-09. These ASUs willcarrying amounts may not be effective for the Company beginning January 1, 2018, including interim periods in the fiscal year 2018, and allow for both retrospective and prospective adoption. recoverable.
The Company has performed an initial assessmentelected 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 impactlease, 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 the ASU and developed a transition plan, including necessary changes to policies, processes, and internal controls as well as system enhancements to generate the information necessary for the new disclosures. The implementation plan is on schedule for adoption on January 1, 2018 andits leases, the Company will apply the cumulative effect method as its transition approach.has a renewal and termination option to lease assets for additional terms between one and ten years. The Company expects revenue recognition acrossapplies judgement in evaluating whether it is reasonably certain to exercise the portfolio of servicesoption to remain largely unchanged, however there would berenew or terminate the lease. The Company considers all relevant factors that create an impact oneconomic incentive for it to exercise the timing of recognition of certain contract costs, which would now be amortized overrenewal or termination option. After the contract period as against being previously expensed off. Based on the analysis completed tocommencement date, the Company doesreassesses 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 currently expect thatto exercise) the ASU will have a material impact on consolidated revenue in its Consolidated Financial Statements. Company’s preliminary assessments are subjectoption to change.

In February 2016, the FASB issued ASU No. 2016-02, “Leases.” The core principle of the ASU is that a lessee should recognize the assets and liabilities that arise from its leases other than those that meet the definition of a short-term lease. The ASU requires extensive qualitative and quantitative disclosures, including with respect to significant judgments made by management. Subsequently, the FASB issued ASU No. 2017-13, in September 2017, which amends and clarifies ASU 2016-02. The ASU will be effective for the Company beginning January 1, 2019, including interim periods in the fiscal year 2019. Early adoption is permitted. The Company is in the process of determining the method of adoption and assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.

In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory.” The new guidance eliminates the exception for deferment of tax recognition until the transferred asset is sold to a third partyrenew or otherwise recovered through use for all intra-entity sales of assets other than inventory. The ASU is effective for the Company beginning January 1, 2018, including interim periods in the fiscal year 2018. Early adoption is permitted. The Company does not expect the adoption of this update to have a material impact on its consolidated results of operations, cash flows, financial position or disclosures.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The new guidance revises the definition of a business. The definition of a business affects many areas of accounting (e.g., acquisitions, disposals, goodwill impairment, consolidation). The ASU is effective for the Company beginning January 1, 2018, including interim periods in the fiscal year 2018. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.

In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The ASU requires entities to (1) disaggregate the current-service-cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employees in the income statement and (2) present the other components elsewhere in the income statement and outside of income from operations if that subtotal is presented. In addition, the ASU requires entities to disclose the income statement lines that contain the other components if they are not presented on appropriately described separate lines. The ASU is effective for the Company beginning January 1, 2018, including interim periods in the fiscal year 2018. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.

10

terminate.
15


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 August 2017,


The Company has applied an incremental borrowing rate for the FASB issued ASU 2017-12, “Derivativespurpose of computing lease liabilities based on the remaining lease term and Hedging.”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. 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 amendment expandsoperational 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 entity’s ability to hedge accounting to non-financialallowance for credit losses. It also includes depreciation of property, plant and financialequipment, and amortization of intangibles and ROU assets other than those included in cost of revenue.
(j) Credit losses

An 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 componentscharacteristics in estimating expected credit losses. Credit losses for accounts receivable are based on the roll-rate method, and requiresthe 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 fairthese 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 hedging instrumentsthe cash flows expected to be presented incollected. The expected cash flows are discounted at the same income statement line aseffective interest rate of the hedged item. The ASU also amendsfinancial asset. Such allowances are based on the presentation and disclosure requirements forcredit losses expected to arise over the effectlife of hedge accounting. The ASU must be adopted using a modified retrospective approach with a cumulative effect adjustment recorded to the opening balanceasset which includes consideration of retained earningsprepayments based on the Company’s expectation as of the initial applicationbalance sheet date. The ASU

A financial asset is effective forwritten off when it is deemed uncollectible and there is no reasonable expectation of recovering the Company beginning January 1, 2019, including interim periodscontractual cash flows. Expected recoveries of amounts previously written off, not to exceed the aggregate amounts previously written off, are included in determining the fiscal year 2019. Early adoption is permitted. The Company is inallowance at each reporting period.

Credit losses are presented as a credit loss expense within “Selling, general and administrative expenses.” Subsequent recoveries of amounts previously written off are credited against the processsame line item.

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 assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.

(f)significant accounting policies (Continued)


(k) Reclassification


Certain reclassifications have been made in the consolidated financial statements of prior periods to conform to the classification used in the current period. The impact of such reclassifications on the consolidated financial statements is not material.


(l) Impairment of long-lived assets

Long-lived assets, including certain intangible assets, to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Such assets are required to be tested for impairment if the carrying amount of the assets is higher than the future undiscounted net cash flows expected to be generated by the assets. The impairment amount to be recognized is measured as the amount by which the carrying value of the assets exceeds their fair value. The Company determines fair value by using a discounted cash flow approach.

(m) Assets held for sale

A long-lived asset (or a disposal group for a long-lived asset comprising a group of assets and related liabilities) is classified as held for sale if it is highly probable that the asset will be recovered through sale rather than continuing use.

The Company records assets held for sale at the lower of its carrying value or fair value less costs to sell. The following criteria are used to determine if a business is held for sale: (i) management, having the authority to approve a sale, commits to a plan to sell; (ii) the business is available for immediate sale in its present condition; (iii) an active program to locate a buyer and a plan to sell the business have been initiated; (iv) the sale of the business is probable within one year; (v) the business is being actively marketed for sale at a reasonable price relative to its fair value; and (vi) it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.

In determining the fair value of the assets less costs to sell, the Company considers factors including current sales prices for comparable assets, discounted cash flow projections, third party valuation and any indicative offers. The Company’s assumptions about fair value require significant judgment because the current market is highly sensitive to changes in economic conditions. The Company estimates the fair values of assets held for sale based on current market conditions and assumptions made by management, which may differ from actual results and may result in impairments if market conditions deteriorate.

Any impairment loss on the initial classification and subsequent measurement is recognized as an expense. Any subsequent increase in fair value less costs to sell (not exceeding the accumulated impairment loss that has been previously recognized) is recognized in the income statement.

When assets are classified as held for sale, the Company does not record any depreciation and amortization for the respective property, plant and equipment and intangibles.

(n) 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 following recently released accounting standard has not yet been adopted by the Company:

In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance.” This ASU improves financial reporting by requiring disclosures that increase the transparency of transactions with governments. The ASU is effective for the Company for annual periods, beginning December 15, 2021. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.
17

GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

3. Business acquisitions

Certain acquisitions


(a) TandemSeven, Inc.

Hoodoo Digital, LLC


On September 5, 2017,December 31, 2021, the Company acquired 100% of the outstanding equity interestequity/limited liability company interests in TandemSeven, Inc. (“TandemSeven”),Hoodoo Digital, LLC, a Massachusetts corporation,Utah limited liability company, for estimated total purchase consideration of $35,720, subject to adjustment for closing date working capital and indebtedness.$66,722. This amount includesrepresents cash considerationconsideration of $31,866,$64,439, net of cash acquired of $3,854,$2,283. The total purchase consideration paid by the Company to the sellers was $67,695, resulting in a recoverable of $973 on the closing date, which was subsequently recovered. The Company has made measurement period adjustments of $1,688 related to taxes, and a preliminary adjustment for working capital and indebtedness. In addition, the this amount was outstanding as of September 30, 2022. The Company is evaluating adjustments related to certain tax positions,income and other taxes, which, when determined, may result in the recognition of additional assets andor liabilities as of the acquisition date. The measurement period will not exceed one year from the acquisition date. As of September 30, 2017,This acquisition furthers the total consideration paid byCompany's strategy to fuse experience and process innovation to help clients drive end-to-end digital transformation. Hoodoo Digital’s expertise with Adobe Experience Manager and other Adobe applications expands the Company to the sellers was $34,806, resulting in a payable of $914. TandemSeven’s focus on improving the design of customer experiences complements the Company’sCompany's existing capabilities aimed at transforming clients’ processes end-to-end.

to provide clients with an end-to-end solution that integrates digital content, e-commerce, data analytics, and marketing operations.


In connection with thethis acquisition, of TandemSeven, the Company recorded $2,000$16,200 in customer-related intangibles $1,700and $2,400 in marketing-related intangibles and $800 in technology-related intangible assets, which have a weighted average amortization period of twofive years. Goodwill arising from the acquisition amountedamounting to $25,298, which$46,033 has been allocated using a relative fair value allocation method to each of the Company’s reporting segments as follows: to the Company’s India reporting unitFinancial Services segment in the amount of $4,338, to the Consumer and Healthcare segment in the amount of $7,321 and to the High Tech and Manufacturing segment in the amount of $34,374.

Goodwill arising from this acquisition is deductible for income tax purposes. The goodwill represents primarily the acquired design expertise, operating synergiescapabilities and other benefits expected to result from combining the acquired operations with those of the Company.

Company’s existing operations.


Acquisition-related costs of $932$1,177 have been included in selling, general and administrative expenses as incurred. In connection with the transaction,acquisition, the Company also acquired certain assets with a value of $7,388$5,629 and assumed certain liabilities amounting to $1,206.$1,852. 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 alsowould not be financially or materially affected by any liabilities that may arise from such exposures.

Accordingly, the Company recognized a net deferred tax liabilityan indemnification asset of $260.$278 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) OnSource, LLC

Enquero Inc


On July 18, 2017,December 31, 2020, the Company acquired 100% of the outstanding equity interestinterests in OnSource, LLC (“OnSource”),Enquero Inc, a Massachusetts limited liability company,California corporation, and certain affiliated entities in India, the Netherlands and Canada (collectively referred to as “Enquero”) for estimated total purchase consideration of $22,996, subject to adjustment for closing date working capital, indebtedness and certain transaction expenses incurred by OnSource in connection with closing.$148,797. This amount includesrepresents cash consideration of $22,959,$137,166, net of cash acquired of $37, and a preliminary adjustment for working capital and net debt.$11,631. The total purchase consideration paid by the Company to the sellers is $23,043, resulting in a receivableon the closing date was $141,938. No portion of $47, whichthe purchase consideration is outstanding as of September 30, 2017.2022. This acquisition brings digital capabilities toincreased the scale and depth of the Company’s insurance service offerings. 

11

data and analytics capabilities and enhanced the Company’s ability to accelerate the digital transformation journeys of its clients through cloud technologies and advanced data analytics.


18


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)


In connection with thethis acquisition, of OnSource, the Company recorded $794$49,000 in customer-related intangibles, $936$9,500 in marketing-related intangibles and $1,150$1,400 in technology-related intangibles, which have a weighted average amortization period of four years. Goodwill arising from the acquisition amountedamounting to $19,729, which$87,874 has been allocated using a relative fair value allocation method to each of the Company’s reporting segments as follows: to the Company’s India reporting unitFinancial Services segment in the amount of $2,594, to the Consumer and Healthcare segment in the amount of $22,548 and to the High Tech and Manufacturing segment in the amount of $62,732. The goodwill arising from this acquisition is not deductible for income tax purposes. The goodwill represents primarily the acquired capabilities operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.

Company’s existing operations.


Acquisition-related costs of $1,334$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 $1,180 and$32,879, assumed certain liabilities amounting to $793.$17,232 and recognized a net deferred tax liability of $14,343. 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 $5,968 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.


(c) IT business of Birlasoft

SomethingDigital.Com LLC


On July 18, 2017,October 5, 2020, the Company acquired from Birlasoft (India) Limited,100% of the outstanding equity/limited liability company interests in SomethingDigital.Com LLC, a New York limited liability company, incorporated under the Indian Companies Act, 1956, Birlasoft Inc., a Delaware corporation, and Birlasoft (UK) Limited, a company incorporated in England and Wales (collectively referred to as “Birlasoft”) certain assets comprising a portionfor total purchase consideration of Birlasoft’s IT business.$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 Birlasoftthe sellers on the closing date was $57,704, resulting in a recoverable of $253. No portion of the purchase consideration is $16,309. outstanding as of September 30, 2022.

This acquisition expandssupported the Company’s strategy to integrate experience and process innovation to help clients on their digital transformation journeys and expanded 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 expanded the Company’s capabilities into Magento Commerce, which powers Adobe Commerce Cloud, and Shopify Plus, a cloud-based e-commerce platform for its clients in the healthcare and aviation industries.

high volume merchants.


In connection with the transaction,this acquisition, the Company recorded $8,600$11,900 in customer-related intangibles and $3,500 in marketing-related intangibles which have a weighted average amortization period of threefour years. Goodwill arising from the acquisition amountedamounting to $9,671, which$36,926 has been allocated using a relative fair value allocation method to two of the Company’s reporting segments as follows: to the Company’s IT services reporting unitConsumer and Healthcare segment in the amount of $30,373 and to the High Tech and Manufacturing 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 operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.

Company’s existing operations.


Acquisition-related costs of $97$1,060 have been included in selling, general and administrative expenses as incurred. Through thisIn connection with the transaction, the Company hasalso acquired certain assets with a value of $1,381 and$9,538, assumed certain liabilities amounting to $3,343.$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.



19

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)

(d) Image processing business of Fiserv Solutions of Australia Pty Ltd.

Rightpoint Consulting, LLC


On May 11, 2017,November 12, 2019, the Company acquired 100% of the image processing business of Fiserv Solutions of Australia Pty Limitedoutstanding 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 estimated total purchase consideration of $18,990, subject to adjustment for closing date working capital, value transfer and net debt.$270,669. This amount includes a preliminary adjustment for closing date working capital, value transfer andcash consideration of $268,170, net debt. As of September 30, 2017, thecash acquired of $2,499. The total purchase consideration paid by the Company to the sellers is $21,301,on the closing date was $248,470, resulting in a receivablepayable of $2,311.$22,199. $2,517 of the total purchase consideration remains payable as of September 30, 2022. This acquisition strengthensexpanded the Company’s financial services portfoliocapabilities in improving customer experience.

The securities purchase agreement between the Company and expands its Australia footprint.

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.


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 5, “Fair value measurements,” for additional details.

In connection with the transaction,this acquisition, the Company recorded $17,400$46,000 in customer-related intangibles $1,806and $29,000 in technology-related intangibles and $100 in othermarketing-related intangibles which have a weighted average amortization period of sixfive years. Goodwill arising from the acquisition amountedamounting to $5,416, which$177,181 has been allocated using a relative fair value allocation method to each of the Company’s reporting segments as follows: to the Company’s India reporting unitFinancial Services segment in the amount of $16,983, to the Consumer and Healthcare segment in the amount of $42,993 and to the High Tech and Manufacturing segment in the amount of $117,205. Of the total goodwill arising from this acquisition, $91,929 is not deductible for income tax purposes. The goodwill represents primarily the acquired capabilities operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.


Acquisition-related costs of $385$7,385 have been included in selling, general and administrative expenses as incurred. Through thisIn connection with the transaction, the Company hasalso acquired certain assets with a value of $5,144,$39,140, assumed certain liabilities amounting to $5,625,$22,295 and recognized a net deferred tax liability of $5,250.$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.

12


4. Accounts receivable, net of allowance for credit losses

The following table provides details of the Company’s allowance for credit losses on accounts receivable:
Year ended December 31, 2021Nine months ended September 30, 2022
Opening balance as of January 1$27,707 $24,329 
Additions charged/reversal released to cost and expense910 1,558 
Deductions/effect of exchange rate fluctuations(4,288)(5,450)
Closing balance$24,329 $20,437 

20


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)

(e) BrightClaim LLC and associated companies

On May 3, 2017, the Company acquired 100% of the outstanding equity interest in each of BrightClaim LLC, a Delaware limited liability company, BrightServe LLC, a Georgia limited liability company, National Vendor LLC, a Delaware limited liability company, and BrightClaim Blocker, Inc., a Delaware corporation (collectively referred to as “BrightClaim”) for total purchase consideration of $56,461, subject to adjustment for closing date working capital, indebtedness and certain transaction expenses incurred by BrightClaim in connection with closing. This amount includes cash consideration of $52,395, net of cash acquired of $4,002, and an adjustment for working capital and net debt. The total consideration paid by the Company to the sellers is $56,496. This acquisition enhances the Company’s breadth and depth of service offerings for clients in the insurance industry. During the quarter ended September 30, 2017, the Company recorded measurement period adjustments that resulted in a $64 increase in the purchase consideration as a result of an adjustment to closing date working capital and net debt. The adjustments included an increase of $156 in assets acquired, an increase of $156 in liabilities assumed and a corresponding impact on goodwill of $64. This resulted in a receivable of $35, which is outstanding as of September 30, 2017.  These measurement period adjustments did not have a significant impact on the Company’s consolidated statements of income, balance sheets or cash flows.

In connection with the acquisition of BrightClaim, the Company recorded $8,000 in customer-related intangibles, $3,200 in marketing-related intangibles, $2,200 in technology-related intangibles and $200 in other intangibles, which have a weighted average amortization period of four years. Goodwill arising from the acquisition amounted to $42,638, which has been allocated to the Company’s India reporting unit and is partially deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.

Acquisition-related costs of $1,563 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 $10,367, assumed certain liabilities amounting to $7,415, and recognized a net deferred tax liability of $2,728. 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.

(f) RAGE Frameworks, Inc.

On April 13, 2017, the Company acquired 100% of the outstanding equity interest in RAGE Frameworks, Inc. (“RAGE”), a Delaware corporation, for estimated total consideration of $125,089, subject to adjustment for closing date working capital and indebtedness. This amount includes cash consideration of $124,149, net of cash acquired of $1,605, and a preliminary adjustment for working capital and indebtedness. In addition, the Company is evaluating certain tax positions which, when determined, may result in the recognition of additional assets and liabilities as of the acquisition date. The measurement period will not exceed one year from the acquisition date. As of September 30, 2017, the total consideration paid by the Company to the sellers was $125,754, resulting in a receivable of $548. This acquisition enhances the Company’s digital and artificial intelligence capabilities by adding knowledge-based automation technology and services.

In connection with the acquisition of RAGE, the Company recorded $1,600 in customer-related intangibles, $600 in marketing-related intangibles, $12,400 in technology-related intangible assets and $100 in other intangible assets, which have a weighted average amortization period of seven years. Goodwill arising from the acquisition amounted to $105,114, which has been allocated to the Company’s India reporting unit and is not deductible for tax purposes. The goodwill represents primarily the acquired digital and artificial intelligence capabilities, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.

Acquisition-related costs of $881 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 $13,836 and assumed certain liabilities amounting to $9,654. The Company also recognized a net deferred tax asset of $1,094. 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.

13

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)

(g) LeaseDimensions, Inc.

           On February 15, 2017, the Company acquired 100% of the outstanding equity interest in LeaseDimensions, Inc. (“LeaseDimensions”), an Oregon corporation, for estimated total consideration of $11,626, subject to adjustment for closing date working capital and net debt. This amount includes the estimated fair value of contingent earn-out consideration, cash consideration of $9,089, net of cash acquired of $217, and a preliminary adjustment for working capital and net debt. The total consideration paid by the Company to the sellers was $9,454, resulting in a receivable of $148, which is outstanding as of September 30, 2017. The purchase agreement also provides for contingent earn-out consideration ranging from $0 to $3,000, payable by the Company to the sellers based on the future performance of the business relative to the thresholds specified in the earn-out calculation. This acquisition enhances the Company’s capabilities in commercial lending and leasing.

In connection with the transaction, the Company recorded $2,400 in customer-related intangibles and $1,000 in marketing-related intangibles, which have a weighted average amortization period of three years. Goodwill arising from the acquisition amounted to $8,307, which has been allocated to the Company’s Americas reporting unit and is not deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company.

Acquisition-related costs of $422 have been included in selling, general and administrative expenses as incurred. Through this transaction, the Company acquired assets with a value of $2,277, assumed liabilities amounting to $1,038, and recognized a net deferred tax liability of $1,320. 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.

(h) Endeavour Software Technologies Private Limited

On April 13, 2016, the Company acquired 100% of the outstanding equity interest in Endeavour Software Technologies Private Limited (“Endeavour”), an Indian private limited company, for total consideration of $14,788. This amount includes the estimated fair value of the contingent earn-out consideration, cash consideration of $10,345, net of cash acquired of $2,373, and an adjustment for working capital and net debt. Of this amount, $101 was paid by the Company to one of the sellers during the quarter ended September 30, 2017. During the quarter ended March 31, 2017, the Company recorded a measurement period adjustment that resulted in a $346 increase in the purchase consideration as a result of an adjustment to closing date working capital and net debt. The adjustments included an increase of $161 in assets acquired, a decrease of $118 in liabilities assumed and a corresponding impact on goodwill of $67. These measurement period adjustments did not have a significant impact on the Company’s consolidated statements of income, balance sheets or cash flows. This acquisition enhances the Company’s digital capabilities by adding critical end-to-end mobility services.

In connection with the transaction, the Company recorded $800 in customer-related intangibles, $900 in marketing-related intangibles and $950 in other intangible assets, which have a weighted average amortization period of three years. Goodwill arising from the acquisition amounted to $8,936, which has been allocated to the Company’s India reporting unit and is not deductible for tax purposes. The goodwill represents primarily the capabilities in end-to-end mobility services, operating synergies and other benefits expected to result from combining the acquired operations with those of the Company. In connection with the transaction, the Company also acquired certain assets with a value of $5,854 and assumed certain liabilities amounting to $1,735.

(i) Strategic Sourcing Excellence Limited

On January 8, 2016, the Company acquired 51% of the outstanding equity interest in Strategic Sourcing Excellence LLC (“SSE”), a Delaware limited liability company. The total consideration paid by the Company to the selling equity holders for the acquired interest in SSE was $14,541. This amount includes the fair value of earn-out consideration, cash consideration of $2,550, and an adjustment for working capital, transaction expenses and indebtedness. During the quarter ended December 31, 2016, the Company recorded a measurement period adjustment that resulted in a $51 increase in the purchase consideration through the recognition of $69 in current assets and $16 in non-current assets, with a corresponding impact on goodwill of $34. These measurement period adjustments did not have a significant impact on the Company’s consolidated statements of income, balance sheets or cash flows in any period. The equity purchase agreement between the Company and the selling equity holders of SSE also provides for contingent earn-out consideration of up to $20,000, payable by the Company to the selling equity holders based on the future performance of the acquired business relative to the thresholds specified in the earn-out calculation. Up to $9,800 of the total potential earn-out consideration, representing the selling equity holders’ 49% interest in SSE, is payable only if either the put or call option, each as described below, is exercised.

14

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 equity purchase agreement grants the Company a call option to purchase the remaining 49% equity interest in SSE, which option the Company has the right to exercise between January 1, 2018 and January 31, 2018. If the Company does not exercise its call option during such period, the selling equity holders have the right to exercise a put option between March 1, 2018 and April 30, 2018 to require the Company to purchase their 49% interest in SSE at a price ranging from $2,450 to $2,950. This acquisition enhances the Company’s sourcing and procurement consulting domain expertise.

Acquisition-related costs of $164 have been included in selling, general and administrative expenses as incurred. Through this transaction, the Company acquired assets with a value of $412 and assumed liabilities amounting to $617. The results of operations of the acquired business, the fair value of the acquired assets and assumed liabilities, and redeemable non-controlling interest are included in the Company’s Consolidated Financial Statements with effect from the date of the acquisition.

In connection with the transaction, the Company recorded $300 in customer-related intangible assets with an amortization period of five years. Goodwill arising from the acquisition amounted to $14,445, which has been allocated to the Company’s India reporting unit and is deductible for tax purposes. The goodwill represents future economic benefits the Company expects to derive from its expanded presence in the sourcing and procurement consulting domains, operating synergies and other anticipated benefits of combining the acquired operations with those of the Company.

15

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(In thousands, except per share data and share count)


4. Cash and cash equivalents

Cash and cash equivalents as of December 31, 2016 and September 30, 2017 are set out in the table below:

 

 

As of December 31,

 

 

As of September 30,

 

 

 

2016

 

 

2017

 

Cash and other bank balances

 

 

422,623

 

 

 

440,055

 

Total

 

$

422,623

 

 

$

440,055

 

5. Accounts receivable, net of reserveallowance for doubtful receivables

The following table provides details of the Company’s reserve for doubtful receivables:

credit losses (Continued)

 

 

Year ended

 

 

Nine months ended

 

 

 

December 31, 2016

 

 

September 30, 2017

 

Opening balance as of January 1

 

$

11,530

 

 

$

15,519

 

Additions due to acquisitions

 

 

-

 

 

 

235

 

Additions charged to cost and expense

 

 

7,282

 

 

 

4,871

 

Deductions/effect of exchange rate fluctuations

 

 

(3,293

)

 

 

(49

)

Closing balance

 

$

15,519

 

 

$

20,576

 


Accounts receivable were $630,784$912,071 and $691,268,$1,014,687, and the reservesallowances for doubtful receivablescredit losses were $15,519$24,329 and $20,576,$20,437, resulting in net accounts receivable balances of $615,265$887,742 and $670,692, $994,250as of December 31, 20162021 and September 30, 2017,2022, respectively. As of September 30, 2022, the Company reclassified accounts receivable amounting to $4,653 as assets held for sale. See Note 8 for additional information.

In addition, accounts receivable due after one yeardeferred billings were $48,071 and $59,103 and allowances for credit losses on deferred billings were $3,711 and $3,198, resulting in net deferred billings balances of $3,272$44,360 and $1,880$55,905 as of December 31, 20162021 and September 30, 2017,2022, respectively.

During the nine months ended September 30, 2021 and 2022, the Company recorded a release of $541 and $513, respectively, to cost and expense on account of credit losses on deferred billings. Deferred billings, net of related allowances for credit losses, are included under other assets“other assets” in the Consolidated Balance Sheets.

Accounts receivable from related parties were $2,490 and $42Company's consolidated balance sheet as of December 31, 20162021 and September 30, 2017,2022.


The Company has a revolving accounts receivable-based facility of $100,000 permitting it to sell accounts receivable to banks on a non-recourse basis in the ordinary course of business. The aggregate maximum capacity utilized by the Company at any time during the period ended December 31, 2021 and September 30, 2022 was $7,053 and $67,439, respectively. ThereThe principal amount outstanding against this facility as of December 31, 2021 and September 30, 2022 was $0 and $27,302, respectively. The cost of factoring such accounts receivable during the three and nine months ended September 30, 2021 and 2022 was $29 and $146, respectively, and $40 and $304, respectively. Gains or losses on the sales are no reserves for doubtful receivablesrecorded at the time of transfer of the accounts receivable and are included under "interest income (expense), net" in respectthe Company's consolidated statements of amounts due from related parties.

6.income.


5. 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, 20162021 and September 30, 2017:

2022: 

 

 

As of December 31, 2016

 

 

 

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)

 

$

55,386

 

 

$

—

 

 

$

55,386

 

 

$

—

 

Total

 

$

55,386

 

 

$

—

 

 

$

55,386

 

 

$

—

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earn-out consideration (Note b, d)

 

$

22,435

 

 

$

—

 

 

$

—

 

 

$

22,435

 

Derivative instruments (Note b, c)

 

$

17,353

 

 

$

—

 

 

$

17,353

 

 

$

—

 

Total

 

$

39,788

 

 

$

—

 

 

$

17,353

 

 

$

22,435

 

Redeemable non-controlling interest (Note e)

 

$

4,520

 

 

$

—

 

 

$

—

 

 

$

4,520

 


16

As of December 31, 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)$34,070 $— $34,070 $— 
Deferred compensation plan assets (Note a, e)38,584 — — 38,584 
Total$72,654 $— $34,070 $38,584 
Liabilities
Earn-out consideration (Note b, d)$5,406 $— $— $5,406 
Derivative instruments (Note b, c)15,254 — 15,254 — 
Deferred compensation plan liability (Note b, f)38,007 — — 38,007 
Total$58,667 $— $15,254 $43,413 

21


GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(In thousands, except per share data and share count)

6.


5. Fair value measurements (Continued)

 

 

As of September 30, 2017

 

 

 

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)

 

$

55,080

 

 

$

—

 

 

$

55,080

 

 

$

—

 

Total

 

$

55,080

 

 

$

—

 

 

$

55,080

 

 

$

—

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earn-out consideration (Note b, d)

 

$

17,999

 

 

$

—

 

 

 

—

 

 

$

17,999

 

Derivative instruments (Note b, c)

 

$

27,763

 

 

$

—

 

 

$

27,763

 

 

$

—

 

Total

 

$

45,762

 

 

$

—

 

 

$

27,763

 

 

$

17,999

 

Redeemable non-controlling interest (Note e)

 

$

3,839

 

 

$

—

 

 

$

—

 

 

$

3,839

 

(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.

As of September 30, 2022
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)$35,625 $— $35,625 $— 
Deferred compensation plan assets (Note a, e)37,183 — — 37,183 
Total$72,808 $— $35,625 $37,183 
Liabilities
Earn-out consideration (Note b, d)$2,517 $— $— $2,517 
Derivative instruments (Note b, c)59,199 — 59,199 — 
Deferred compensation plan liability (Note b, f)36,583 — — 36,583 
Total$98,299 $— $59,199 $39,100 

(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.

(a)Derivative assets are included in “prepaid expenses and other current assets” and “other assets.” Deferred compensation plan assets are included in “other assets” in the consolidated balance sheets.

(e)

The Company’s estimate of the fair value of redeemable non-controlling interest is based on unobservable inputs considering the assumptions that market participants would make in pricing the obligation. Given the significance of the unobservable inputs, the valuation is classified in level 3 of the fair value hierarchy. See Note 3—Business Acquisitions.


(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.


22

GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

5. Fair value measurements (Continued)

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 nine months ended September 30, 20162021 and 2017:

2022:

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

Opening balance

 

$

18,438

 

 

$

23,274

 

 

$

22,820

 

 

$

22,435

 

Earn-out consideration payable in connection with acquisitions

 

 

4,360

 

 

 

-

 

 

 

14,550

 

 

 

2,320

 

Payments of earn-out consideration

 

 

(357

)

 

 

(5,756

)

 

 

(1,509

)

 

 

(7,239

)

Changes in fair value of earn-out consideration (note a)

 

 

-

 

 

 

11

 

 

 

(14,997

)

 

 

(1,414

)

Others (note b)

 

 

545

 

 

 

470

 

 

 

2,122

 

 

 

1,897

 

Ending balance

 

$

22,986

 

 

$

17,999

 

 

$

22,986

 

 

$

17,999

 

Three months ended September 30,Nine months ended September 30,
2021202220212022
Opening balance$5,716 $5,406 $8,272 $5,406 
Payments made on earn-out consideration (Note a)—(2,437)(2,556)(2,437)
Change in fair value of earn-out consideration (Note b)$— $(452)$— $(452)
Others (Note c)440 $— 440 $— 
Closing balance$6,156 $2,517 $6,156 $2,517 


(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 $440 for the three and nine months ended September 30, 2021 and $0 for the three and nine months ended September 30, 2022.

(b)Changes in the fair value of earn-out consideration are reported in other“other operating (income) expense, netnet” in the consolidated statements of income.

(b) Interest


(c)“Others” is comprised of interest expense is included in interest“interest income (expense), netnet” and the impact of changes in foreign exchange is reported in foreign“foreign exchange gains (losses), netnet” in the consolidated statements of income. TheThis also includes a cumulative translation adjustment is reported as a component of other“other comprehensive income (loss).

17

”

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 nine months ended September 30, 2021 and 2022:
Three months ended September 30,Nine months ended September 30,
2021202220212022
Opening balance$35,533 $38,422 $26,832 $38,584 
Additions (net of redemption)857 725 6,8168,610 
Change in fair value of deferred compensation plan assets (Note a)(84)(1,964)2,658(10,011)
Closing balance$36,306 $37,183 $36,306 $37,183 

(a)Changes in the fair value of plan assets are reported in “other income (expense), net” in the consolidated statements of income.

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 nine months ended September 30, 2021 and 2022:

Three months ended September 30,Nine months ended September 30,
2021202220212022
Opening balance$35,034 $37,833 $26,390 $38,007 
Additions (net of redemption)840 727 6,799 8,611 
Change in fair value of deferred compensation plan liabilities (Note a)(159)(1,977)2,526 (10,035)
Closing balance$35,715 $36,583 $35,715 $36,583 

23


GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(In thousands, except per share data and share count)

7.


5. Fair value measurements (Continued)

(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.

6. Derivative financial instruments


The Company is exposed to the risk of rate fluctuations on its foreign currency assets and liabilities and on foreign currency denominated forecasted cash flows.flows and interest rates. The Company has established risk management policies, including the use of derivative financial instruments to hedge foreign currency assets and liabilities, foreign currency denominated forecasted cash flows and interest rate risk. These derivative financial instruments are largelyconsist of deliverable and non-deliverable forward foreign exchange contracts, treasury rate locks and interest rate swaps. The Company enters into these contracts with counterparties that are banks or other financial institutions, and the Company considers the risk of non-performance by such counterparties not to be material. The forward foreign exchange contracts and interest rate swaps mature during a period of up to 51 months and the forecasted transactions are expected to occur during the same period.


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,

2016

 

 

As of September 30,

2017

 

 

As of December 31,

2016

 

 

As of September 30,

2017

 

Foreign exchange forward contracts denominated in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States dollars (sell) Indian rupees (buy)

 

$

1,108,400

 

 

$

1,274,026

 

 

$

6,669

 

 

$

30,464

 

United States dollars (sell) Mexican peso (buy)

 

 

9,120

 

 

 

2,280

 

 

 

(187

)

 

 

362

 

United States dollars (sell) Philippines peso (buy)

 

 

70,050

 

 

 

66,800

 

 

 

(1,036

)

 

 

(1,635

)

Euro (sell) United States dollars (buy)

 

 

138,613

 

 

 

161,783

 

 

 

9,180

 

 

 

(1,760

)

Pound sterling (buy) United States dollars (sell)

 

 

-

 

 

 

16,077

 

 

 

-

 

 

 

40

 

Euro (sell) Romanian leu (buy)

 

 

29,805

 

 

 

36,662

 

 

 

(152

)

 

 

(481

)

Japanese yen (sell) Chinese renminbi (buy)

 

 

77,267

 

 

 

71,832

 

 

 

(742

)

 

 

306

 

Pound sterling (sell) United States dollars (buy)

 

 

104,142

 

 

 

94,728

 

 

 

14,228

 

 

 

(605

)

Australian dollars (sell) United States dollars (buy)

 

 

114,412

 

 

 

145,679

 

 

 

2,328

 

 

 

(5,934

)

Interest rate swaps (floating to fixed)

 

 

456,810

 

 

 

438,290

 

 

 

7,746

 

 

 

6,560

 

 

 

 

 

 

 

 

 

 

 

 

38,034

 

 

 

27,317

 

(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 or market risks. However, the amounts exchanged are based on the notional amounts and other provisions of the underlying derivative financial instrument agreements.

(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.

Notional principal amounts (Note a)Balance sheet exposure asset (liability) (Note b)
As of December 31, 2021As of September 30, 2022As of December 31, 2021As of September 30, 2022
Foreign exchange forward contracts denominated in:
United States Dollars (sell) Indian Rupees (buy)$1,348,600 $1,617,900 $26,247 $(42,942)
United States Dollars (sell) Mexican Peso (buy)23,750 31,000 140 484 
United States Dollars (sell) Philippines Peso (buy)75,600 78,600 (2,215)(6,548)
Euro (sell) United States Dollars (buy)120,994 104,785 2,634 12,786 
Singapore Dollars (buy) United States Dollars (sell)3,655 48,736 65 (1,140)
Euro (sell) Romanian Leu (buy)47,506 42,726 (233)380 
Japanese Yen (sell) Chinese Renminbi (buy)10,440 3,124 202 394 
United States Dollars (sell) Chinese Renminbi (buy)45,000 11,250 120 (872)
Pound Sterling (sell) United States Dollars (buy)49,031 29,917 545 4,291 
United States Dollars (sell) Hungarian Font (buy)39,000 22,500 (2,174)(3,238)
Hungarian Font (Sell) Euro (buy)2,828 — (17)— 
Australian Dollars (sell) Indian Rupees (buy)97,053 74,719 1,234 4,699 
USD (Sell) Polish Zloty (buy)— 24,000 — (2,515)
Japanese Yen (sell) US Dollar (buy)— 10,000 — 808 
Israel Shekel (sell) US Dollar (buy)— 3,000 — 107 
South African Rand (sell) US Dollar (buy)— 15,000 — 764 
Interest rate swaps (floating to fixed)460,135 439,220 (7,732)8,968 
$18,816 $(23,574)


(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.
24

GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

6. Derivative financial instruments (Continued)

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, and 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.

18

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

 

Cash flow hedgesNon-designated

 

As of December 31,

2016

 

 

As of September 30,

2017

 

 

As of December 31,

2016

 

 

As of September 30,

2017

 

As of December 31, 2021As of September 30, 2022As of December 31, 2021As of September 30, 2022

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

Prepaid expenses and other current assets

 

$

33,921

 

 

$

33,345

 

 

$

809

 

 

$

883

 

Prepaid expenses and other current assets$16,064 $27,363 $3,130 $2,727 

Other assets

 

$

20,657

 

 

$

20,852

 

 

$

—

 

 

$

—

 

Other assets$14,876 $5,524 $— $11 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

Accrued expenses and other current liabilities

 

$

4,540

 

 

$

12,005

 

 

$

237

 

 

$

2,522

 

Accrued expenses and other current liabilities$11,408 $32,150 $1,090 $16,971 

Other liabilities

 

$

12,576

 

 

$

13,236

 

 

$

—

 

 

$

—

 

Other liabilities$2,756 $10,078 $— $— 

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 rate 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 rate lock was designated as a cash flow hedge. The treasury rate 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 rate lock agreement as of September 30, 2022 was $571.
25

GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

6. Derivative financial instruments (Continued)

In connection with cash flow hedges, the gains (losses) recorded as a component of other comprehensive income (loss) (“OCI”), or OCI, and the related tax effects are summarized below:

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

2016

 

2017

 

2016

 

2017

 

 

Before-tax amount

 

Tax

(expense) or

benefit

 

Net of tax amount

 

Before-tax amount

 

Tax

(expense) or

benefit

 

Net of tax amount

 

Before-tax

amount

 

Tax

(expense) or

benefit

 

Net of tax

amount

 

Before-tax

amount

 

Tax

(expense) or

benefit

 

Net of tax amount

 

Opening balance

$

(30,790

)

$

8,945

 

$

(21,845

)

$

52,167

 

$

(19,438

)

$

32,729

 

$

(30,090

)

$

9,830

 

$

(20,260

)

$

37,461

 

$

(13,979

)

$

23,482

 

Net gains (losses) reclassified into statement of income on completion of hedged transactions

 

(1,584

)

 

11

 

 

(1,573

)

 

15,451

 

 

(5,716

)

 

9,735

 

 

(7,071

)

 

1,300

 

 

(5,771

)

 

40,251

 

 

(14,815

)

 

25,436

 

Changes in fair value of effective portion of outstanding derivatives, net

 

29,005

 

 

(10,806

)

 

18,199

 

 

(7,760

)

 

2,621

 

 

(5,139

)

 

22,818

 

 

(10,402

)

 

12,416

 

 

31,746

 

 

(11,937

)

 

19,809

 

Gain (loss) on cash flow hedging derivatives, net

 

30,589

 

 

(10,817

)

 

19,772

 

 

(23,211

)

 

8,337

 

 

(14,874

)

 

29,889

 

 

(11,702

)

 

18,187

 

 

(8,505

)

 

2,878

 

 

(5,627

)

Closing balance

$

(201

)

$

(1,872

)

$

(2,073

)

$

28,956

 

$

(11,101

)

$

17,855

 

$

(201

)

$

(1,872

)

$

(2,073

)

$

28,956

 

$

(11,101

)

$

17,855

 


19

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)

Three months ended September 30,
20212022
Before 
tax
Amount		Tax 
(Expense)
 or Benefit		Net of 
tax
Amount		Before 
tax
Amount		Tax 
(Expense)
or Benefit		Net of 
tax
Amount
Opening balance$(7,883)$1,355 $(6,528)$8,284 $(3,078)$5,206 
Net gains (losses) reclassified into statement of
income on completion of hedged transactions		2,443 (526)1,917 (2,274)(153)(2,427)
Changes in fair value of effective portion of
outstanding derivatives, net		11,984 (2,278)9,706 (19,328)2,703 (16,625)
Gain (loss) on cash flow hedging derivatives, net9,541 (1,752)7,789 (17,054)2,856 (14,198)
Closing balance$1,658 $(397)$1,261 $(8,770)$(222)$(8,992)

Nine months ended September 30,
20212022
Before 
tax
Amount		Tax 
(Expense)
 or Benefit		Net of 
tax
Amount		Before 
tax
Amount		Tax 
(Expense)
or Benefit		Net of 
tax
Amount
Opening balance$(10,921)$1,861 $(9,060)$17,468 $(3,404)$14,064 
Net gains (losses) reclassified into statement of
income on completion of hedged transactions		6,361 (1,463)4,898 (2,551)(423)(2,974)
Changes in fair value of effective portion of
outstanding derivatives, net		18,940 (3,721)15,219 (28,789)2,759 (26,030)
Gain (loss) on cash flow hedging derivatives, net12,579 (2,258)10,321 (26,238)3,182 (23,056)
Closing balance$1,658 $(397)$1,261 $(8,770)$(222)$(8,992)

The gains or losses recognized in other comprehensive income (loss) and their effects on financial performance are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of gain (loss)

 

 

 

 

Amount of gain (loss)

 

 

 

recognized in OCI on

 

 

 

 

reclassified from OCI into

 

 

Derivatives in

derivatives

(effective portion)

 

 

Location of gain (loss)

reclassified

 

statement of income

(effective portion)

 

 

Cash Flow

Three months ended

 

 

Nine months ended

 

 

from OCI into

 

Three months ended

 

 

Nine months ended

 

 

Hedging

September 30,

 

 

September 30,

 

 

statement of income

 

September 30,

 

 

September 30,

 

 

Relationships

2016

 

 

2017

 

 

2016

 

 

2017

 

 

(effective portion)

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

Forward foreign exchange contracts

$

28,287

 

 

$

(7,779

)

 

$

26,612

 

 

$

33,132

 

 

Revenue

 

$

2,599

 

 

$

403

 

 

$

8,596

 

 

$

6,429

 

 

Interest rate swaps

 

718

 

 

 

19

 

 

 

(3,794

)

 

 

(1,386

)

 

Cost of revenue

 

 

(2,823

)

 

 

11,666

 

 

 

(11,540

)

 

 

26,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and

administrative expenses

 

 

(693

)

 

 

3,213

 

 

 

(3,073

)

 

 

7,368

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(667

)

 

 

169

 

 

 

(1,054

)

 

 

(201

)

 

 

$

29,005

 

 

$

(7,760

)

 

$

22,818

 

 

$

31,746

 

 

 

 

$

(1,584

)

 

$

15,451

 

 

$

(7,071

)

 

$

40,251

 

 

Derivatives in Cash Flow Hedging RelationshipsAmount 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 September 30,Nine months ended September 30,Three months ended September 30,Nine months ended September 30,
20212022202120222021202220212022
Forward foreign
exchange contracts		$12,175 $(22,264)$17,457 $(42,948)Revenue$416 $1,089 $515 $2,269 
Interest rate swaps$(191)$2,936 $667 $14,159 Cost of revenue3,160 (3,334)9,288 (2,284)
Treasury rate lock$— $— $816 $— Selling, general and
administrative expenses		849 (566)2,513 (116)
Interest expense(1,982)537 (5,955)(2,420)
$11,984 $(19,328)$18,940 $(28,789)$2,443 $(2,274)$6,361 $(2,551)

Gain (loss)



26

GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

6. Derivative financial instruments (Continued)
There were no gains (losses) recognized in the statement of income on the ineffective portion of derivatives and the amount excluded from effectiveness testing is $0 for the three and nine months ended September 30, 20162021 and 2017,2022, respectively.



Non-designated Hedges

 

 

 

 

Amount of gain (loss)

 

 

 

 

 

recognized in statement of

 

 

 

 

 

income on derivatives

 

Derivatives not

designated as hedging

 

Location of gain (loss)

recognized in statement of

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

instruments

 

income on derivatives

 

2016

 

 

2017

 

 

2016

 

 

2017

 

Forward foreign exchange

   contracts (Note a)

 

Foreign exchange gains

   (losses), net

 

$

2,599

 

 

$

(1,350

)

 

$

2,838

 

 

$

8,763

 

 

 

 

 

$

2,599

 

 

$

(1,350

)

 

$

2,838

 

 

$

8,763

 

Amount of Gain (Loss) recognized in Statement of Income on Derivatives
Three months ended September 30,Nine months ended September 30,
Derivatives not designated as hedging instrumentsLocation of Gain (Loss)  recognized in Statement of Income on Derivatives2021202220212022
Forward foreign exchange contracts (Note a)Foreign exchange gains (losses), net$3,938 $(12,705)$8,775 $(29,649)
$3,938 $(12,705)$8,775 $(29,649)

(a)


(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.

20

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes 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 Consolidated Financial Statements

(Unaudited)

(fair value of these derivatives are recorded in foreign exchange gains (losses), net in the consolidated statements of income.


In thousands, except per share dataconnection 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 share count)

8.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.

7. Prepaid expenses and other current assets


Prepaid expenses and other current assets consist of the following:

 

 

As of December 31,

 

 

As of September 30,

 

 

 

2016

 

 

2017

 

Advance income and non-income taxes

 

$

50,676

 

 

$

96,175

 

Deferred transition costs

 

 

45,252

 

 

 

50,561

 

Derivative instruments

 

 

34,730

 

 

 

34,229

 

Prepaid expenses

 

 

22,222

 

 

 

21,290

 

Customer acquisition cost

 

 

11,126

 

 

 

15,707

 

Employee advances

 

 

6,880

 

 

 

5,069

 

Deposits

 

 

2,688

 

 

 

2,855

 

Advances to suppliers

 

 

10,059

 

 

 

2,569

 

Others

 

 

5,516

 

 

 

15,412

 

 

 

$

189,149

 

 

$

243,867

 

As of December 31, 2021As of September 30, 2022
Advance income and non-income taxes$28,075 $110,908 
Contract asset (Note 20)8,50614,506
Prepaid expenses38,52844,341
Derivative instruments19,19430,090
Employee advances2,7973,199
Deposits5,8394,970
Advances to suppliers804797
Others30,69821,014
$134,441 $229,825 


As of September 30, 2022, the Company reclassified certain prepaid expenses and other current assets amounting to $1,200 to assets held for sale. See Note 8 for additional information.

27

GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

8. Assets and liabilities held for sale

The Company is taking actions to realign its portfolio to focus on emerging solutions where it sees the greatest opportunities for growth, and deprioritizing assets that no longer fit with its long-term strategy. Pursuant to a plan approved by management in the second quarter of 2022, the Company is in the process of divesting a business that comprises part of the Company's Consumer and Healthcare segment.

It is the Company’s intention to complete the sale of this business within the twelve months following the end of the second quarter of 2022. Accordingly, the Company classified this business as held for sale during the second quarter of 2022.

As a result, the Company classified $37,047 of assets (before recording an impairment charge of $21,426) and $8,410 of liabilities as held for sale as of September 30, 2022.

During the three and nine months ended September 30, 2022, the Company recorded a non-cash impairment charge of $21,426 to adjust the carrying amount of assets to their fair value. Of the total impairment charge of $21,426, $19,801 pertains to intangible assets and $1,625 pertains to goodwill. The impairment loss has been recorded in "other operating (income) expense, net" in the consolidated statement of income. See Note10 for additional information.

The components of assets and liabilities of the business classified as held for sale (after recording an impairment charge) in the consolidated balance sheet consist of the following:
As of September 30, 2022
Accounts receivable$4,653 
Prepaid expense and other current assets1,200
Property, plant and equipment, net18
Intangible assets, net6,370
Contract cost assets1,417 
Other assets1,963 
Assets of business held for sale$15,621
Accounts payable$410 
Accrued expenses and other current liabilities7,141
Other liabilities859 
Liabilities of business held for sale$8,410

9. Property, plant and equipment, net

Property,

The following table provides the gross and net amount of property, plant and equipment, net consist of the following:

equipment:

 

 

As of December 31,

 

 

As of September 30,

 

 

 

2016

 

 

2017

 

Property, plant and equipment, gross

 

$

600,554

 

 

$

653,523

 

Less: Accumulated depreciation and amortization

 

 

(407,336

)

 

 

(447,900

)

Property, plant and equipment, net

 

$

193,218

 

 

$

205,623

 

As of December 31, 2021As of September 30, 2022
Property, plant and equipment, gross$818,452 $754,762 
Less: Accumulated depreciation and amortization(603,363)(574,383)
Property, plant and equipment, net$215,089 $180,379 

Depreciation expense on property, plant and equipment for the nine months ended September 30, 20162021 and 20172022 was $33,990$46,305 and $32,692,$42,102, respectively, and for the three months ended September 30, 20162021 and 20172022 was $11,334$14,131 and $11,479,$13,442, respectively. Computer software amortization for the nine months ended September 30, 20162021 and 2017 amounted to $6,9902022 was $4,469 and $8,368,$3,874, respectively, and for the three months ended September 30, 20162021 and 20172022 was $2,182$1,461 and $2,963,$1,192, respectively.

The depreciationCompany recorded a write-down to certain property, plant and amortization expenses set forth above includeequipment during the effect of the reclassification of foreign exchange (gains) losses related to the effective portion of foreign currency derivative contracts, amounting to $614three and $(1,211) for the nine months ended September 30, 20162021 and 2017, respectively,2022, 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 $147share count)

9. Property, plant and $(517) for the three months endedequipment, net (Continued)

As of September 30, 20162022, the Company reclassified certain property, plant and 2017, respectively.

equipment with a gross carrying value and accumulated depreciation of $368 and $350, respectively, to assets held for sale. See Note 8 for additional information.


10. Goodwill and intangible assets

The following table presents the changes in goodwill for the year ended December 31, 20162021 and nine months ended September 30, 2017:

2022:

 

 

As of December 31,

 

 

As of September 30,

 

 

 

2016

 

 

2017

 

Opening balance

 

$

1,038,346

 

 

$

1,069,408

 

Goodwill relating to acquisitions consummated during the

Period

 

 

51,535

 

 

 

216,108

 

Goodwill relating to divestitures consummated during

the period

 

 

(2,226

)

 

 

-

 

Impact of measurement period adjustments

 

 

(59

)

 

 

131

 

Effect of exchange rate fluctuations

 

 

(18,188

)

 

 

29,665

 

Closing balance

 

$

1,069,408

 

 

$

1,315,312

 

For the year ended December 31, 2021For the nine months ended September 30, 2022
Opening balance1,695,6881,731,027
Goodwill relating to acquisitions consummated during the period44,216— 
Impact of measurement period adjustments1,2051,817 
Reclassified as held for sale—(1,625)
Effect of exchange rate fluctuations(10,082)(50,287)
Closing balance1,731,0271,680,932 

21

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes

The following table presents the changes in goodwill by reporting unit for the year ended December 31, 2021:

Financial ServicesConsumer and HealthcareHigh Tech and ManufacturingTotal
Opening balance420,172607,574667,9421,695,688
Goodwill relating to acquisitions consummated during the period4,1677,03233,01744,216
Impact of measurement period adjustments35 309 861 1,205 
Effect of exchange rate fluctuations(3,117)(3,795)(3,170)(10,082)
Closing balance421,257611,120698,6501,731,027

The following table presents the changes in goodwill by reporting unit for the nine months ended September 30, 2022:
Financial ServicesConsumer and HealthcareHigh Tech and ManufacturingTotal
Opening balance421,257611,120698,6501,731,027
Impact of measurement period adjustments171 289 1,357 1,817 
Reclassified as held for sale— (1,625)— (1,625)
Effect of exchange rate fluctuations(13,796)(18,143)(18,348)(50,287)
Closing balance407,632 591,641 681,659 1,680,932 

As of September 30, 2022, the Company reclassified goodwill (before impairment) amounting to $1,625 attributable to the Consolidated Financial Statements

(Unaudited)

(In thousands, except per share dataits Consumer and share count)

10. Goodwill and intangibleHealthcare segment as assets (Continued)

held for sale. See Note 8 for additional information.


The total amount of goodwill deductible for tax purposes was $39,032$326,795 and $109,268$305,244 (including goodwill reclassified as held for sale) as of December 31, 20162021 and September 30, 2017,2022, 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, 2016

 

 

As of September 30, 2017

 

 

 

Gross carrying amount

 

 

Accumulated amortization & impairment

 

 

Net

 

 

Gross carrying amount

 

 

Accumulated amortization & impairment

 

 

Net

 

Customer-related intangible assets

 

$

312,041

 

 

$

260,018

 

 

$

52,023

 

 

$

362,496

 

 

$

283,459

 

 

$

79,037

 

Marketing-related intangible assets

 

 

45,098

 

 

 

30,571

 

 

 

14,527

 

 

 

52,275

 

 

 

36,355

 

 

 

15,920

 

Technology-related intangible assets

 

 

26,116

 

 

 

21,026

 

 

 

5,090

 

 

 

51,487

 

 

 

26,438

 

 

 

25,049

 

Other intangible assets

 

 

2,875

 

 

 

2,466

 

 

 

409

 

 

 

3,062

 

 

 

1,956

 

 

 

1,106

 

Intangible assets under development

 

 

6,897

 

 

 

-

 

 

 

6,897

 

 

 

17,103

 

 

 

-

 

 

 

17,103

 

 

 

$

393,027

 

 

$

314,081

 

 

$

78,946

 

 

$

486,423

 

 

$

348,208

 

 

$

138,215

 

As of December 31, 2021As of September 30, 2022
Gross 
carrying amount		Accumulated amortization 
& Impairment		NetGross 
carrying amount		Accumulated amortization 
& Impairment		Net
Customer-related intangible assets$489,974 $394,688 $95,286 $471,875 $402,357 $69,518 
Marketing-related intangible assets98,87076,66322,20797,71081,21516,495
Technology-related intangible assets171,772119,63052,142125,497110,28415,213
$760,616 $590,981 $169,635 $695,082 $593,856 $101,226 
As of September 30, 2022, the Company reclassified certain intangible assets (before impairment) with a gross carrying value and accumulated amortization of $50,432 and $24,261, respectively, to assets held for sale. See Note 8 for additional information.
Amortization expenses for intangible assets acquired as part of a business combination anddisclosed in the consolidated statements of income under amortization of acquired intangible assets for the nine months ended September 30, 2021 and 2022 were $44,624 and $32,805, respectively, and for the three months ended September 30, 2021 and 2022 were $13,898 and $10,604, respectively.

Amortization expenses for internally-developed and other intangible assets disclosed in the consolidated statements of income under amortizationcost of intangible assetsrevenue and selling, general and administrative expenses for the nine months ended September 30, 20162021 and 20172022 were $19,764$18,841 and $25,780,$12,264, respectively, and for the three months ended September 30, 20162021 and 20172022 were $7,126$6,919 and $10,151,$2,595, respectively.

During the three and nine months ended September 30, 2016,2021 and 2022, the Company tested anfor recoverability certain customer-related and technology-related intangible software asset for recoverabilityassets, including those under development, and certain property, plant and equipment, as a result of a downward revisionchanges in market trends and the Company’s investment strategy, including the Company's decisions to the forecasted cash flows to be generated by the intangible asset. The Company previously recorded a charge to this asset in the third quarter of 2015.cease certain service offerings. Based on the results of itsthis testing, the Company determined that the carrying valuevalues of the intangible asset exceededassets tested were not recoverable, and the estimated undiscounted cash flows by $10,324 andCompany recorded an additional charge to further reducecomplete write-downs of the carrying value by this amount. Of this charge, $5,381 was recorded duringvalues of these assets amounting to $915 and $1,377 for the nine months ended September 30, 2021 and 2022, respectively, and zero for the three months ended September 30, 2016. The Company used a combination of the income2021 and cost approaches to determine the fair value of the intangible asset for the purpose of calculating the charge. This charge has2022, respectively. These write-downs have been recorded in other“other operating (income) expenses, netexpense, net” in the consolidated statement of income. During the nine months ended September 30, 2016, the Company also tested a customer-related intangible asset for recoverability as a result of the termination of a client contract. Based on results of such testing, the Company recorded a charge in the amount of the asset’s total carrying value of $871.

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, 2016 and September 30, 2017, the limits available were $15,382 and $14,698, respectively, of which $10,980 and $7,395 was utilized, constituting non-funded drawdown.

income.

(b)

A fund-based and non-fund based revolving credit facility of $350,000, which the Company obtained in June 2015 as described in note 12. This facility replaced the Company’s $250,000 facility initially entered into in August 2012 and subsequently amended in June 2013. As of both December 31, 2016 and September 30, 2017, a total of $160,978 was utilized, of which $160,000 constituted funded drawdown and $978 constituted non-funded drawdown. The revolving facility expires in June 2020. The funded drawdown amount bore interest at a rate equal to LIBOR plus a margin of 1.50% per annum as of December 31, 2016 and September 30, 2017. The unutilized amount on the revolving facility bore a commitment fee of 0.25% as of December 31, 2016 and September 30, 2017. The credit agreement contains certain customary covenants, including a maximum leverage covenant and a minimum interest coverage ratio. During the nine months ended September 30, 2017, the Company was in compliance with the financial covenants.      


22


30


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 summary below presents the impairment charges (on intangibles and goodwill) and write-downs (on property, plant and equipment) recorded for various categories of assets during the three and nine months ended September 30, 2021 and September 30, 2022:  
Three months ended September 30,Nine months ended September 30,
2021202220212022
Technology related intangibles$— $19,116 $205 $19,116 
Customer related intangibles— 685 — 685 
Goodwill— 1,625 — 1,625 
Total intangibles and goodwill$— $21,426 $205 $21,426 
Property, plant and equipment$— $— $710 $1,377 
Total property, plant and equipment$— $— $710 $1,377 
Total impairment and write-down$— $21,426 $915 $22,803 

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, 2021 and September 30, 2022, the limits available were $24,727 and $22,869, respectively, of which $5,848 and $5,025, 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. The amended credit facility expires on August 8, 2023. The Company is in the process of refinancing its credit facility, and is currently in negotiation with various financial institutions, and the refinancing is expected to close in the fourth quarter of 2022. The funded drawdown amount under the Company’s revolving facilities bore interest at a rate equal to LIBOR plus a margin of1.375% as of December 31, 2021 and September 30, 2022. The unutilized amount on the revolving facilities bore a commitment fee of 0.20%as of December 31, 2021 and September 30, 2022. As of December 31, 2021 and September 30, 2022, a total of $2,017 and $202,658, respectively, was utilized, of which $0 and $200,000, respectively, constituted funded drawdown and $2,017 and $2,658, 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, 2021 and September 30, 2022, the Company was in compliance with the financial covenants of the credit agreement.

12. Long-term debt

In June 2015, the Company refinanced its 2012 credit facility through a new credit facility comprised of an $800,000 term loan and a $350,000 revolving credit facility.

Borrowings under the newCompany's credit facility, which was amended in August 2018, bear interest at a rate equal to, at the election of the Company, either LIBOR plus an applicable margin equal to 1.50%1.375% per annum or a base rate plus an applicable margin equal to 0.50%0.375% per annum, 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 1.50%1.375% per annum. As a resultThe amended credit agreement restricts certain payments, including dividend payments, if there is an event of the June 2015 refinancing, the gross outstanding term loandefault under the previous facility, which amounted to $663,188 as of June 30, 2015, was extinguished, andamended credit agreement or if the Company expensed $10,050, representing accelerated amortization ofis not, or after making the existing unamortized debt issuance costs related to the prior facility. Additionally, the refinancing of the revolving facility resultedpayment would not be, in compliance with certain financial covenants contained in the accelerated amortizationamended credit agreement. These covenants require the Company to maintain a net debt to EBITDA leverage ratio of $65 relating to the existing unamortized debt issuance cost. The remaining unamortized costs for the revolving facility, together with the fees paid to the Company’s lendersbelow 3x and third parties in connection with the new term loan and revolving facility, will be amortized over the terman interest coverage ratio of the refinanced facility, which ends on June 30, 2020.more than 3x. During the nine monthsperiod ended September 30, 2017,2022, the Company was in compliance with the financial covenantsterms of the credit agreement, including all of the financial covenants therein.
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)

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, 20162021 and September 30, 2017,2022, the amount outstanding under the term loan under the amended credit agreement, net of debt amortization expense of $2,667$687 and $2,051,$358, was $737,333$560,313 and $707,967,$535,142, respectively. As of December 31, 20162021 and September 30, 2017,2022, the term loan bore interest at a rate equal to LIBOR plus a margin of 1.50%1.375% per annum based on the Company’s election and current credit rating. annum.

Indebtedness under the refinancedamended credit facility is unsecured. The amount outstanding on the term loan as of September 30, 2017 will be repaid through2022 requires quarterly payments of $10,000,$8,500, and the balance will be repaidof the loan is due and payable upon the maturity of the term loan on June 30, 2020.

August 8, 2023. The Company is in the process of refinancing its credit facility, and is currently in negotiation with various financial institutions, and the refinancing is expected to close in the fourth quarter of 2022. 


The maturity profile of the term loan outstanding as of September 30, 2022, net of debt amortization expense, is as follows:

Year ended

 

Amount

 

2017

 

$

9,815

 

2018

 

 

39,226

 

2019

 

 

39,272

 

2020

 

 

619,654

 

Total

 

$

707,967

 

In March 2017,

Year endedAmount
20228,393
2023526,749
Total$535,142 

Genpact Luxembourg S.à r.l., a wholly-owned subsidiary of the Company, issued $350,000$400,000 aggregate principal amount of 3.70%3.375% senior notes in a private offering, resulting in cash proceeds of approximately $348,519, net of an underwriting fee of $1,481. In connection withNovember 2019 (the “2019 Senior Notes”). The 2019 Senior Notes are fully guaranteed by the offering, the Company incurred other debt issuance costs of $1,161.Company. The total debt issuance cost of $2,642$2,937 incurred in connection with the 2019 Senior Notes offering is being amortized over the life of the 2019 Senior Notes as an additional interest expense. As of December 31, 2021 and September 30, 2022, the amount outstanding under the 2019 Senior Notes, net of debt amortization expense of $1,702 and $1,266, was $398,298 and $398,734, 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 (the “2021 Senior Notes,” and together with 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 December 31, 2021 and September 30, 2017,2022, the amount outstanding under the notes,2021 Senior Notes, net of debt amortization expense of $2,372,$2,571 and $2,121, respectively, was $347,628,$347,429 and $347,879, respectively, which is payable on April 1, 2022. 10, 2026.

The Company will paypays interest on (i) the notes2019 Senior Notes semi-annually in arrears on June 1 and December 1 of each year, and (ii) the 2021 Senior Notes semi-annually in arrears on April 110 and October 110 of each year, ending on the maturity datedates of December 1, 2024 and April 1, 2022.10, 2026, respectively. The Company, at its option, may redeem the notesSenior 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 2019 Senior Notes, November 1, 2024, and in the case of the 2021 Senior Notes, March 1, 2022,10, 2026, a specified “make-whole” premium. The notesSenior 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.assets substantially as an entirety. During the period ended September 30, 2022, the Company and its applicable subsidiaries were in compliance with the covenants. Upon certain change of control transactions, the Companyapplicable issuer or issuers will be required to make an offer to repurchase the notesSenior Notes at a price equal to 101% of the aggregate principal amount of such notes,the Senior Notes, plus accrued and unpaid interest. The interest rate payable on the notesSenior Notes is subject to adjustment if the credit rating of the notesSenior Notes is downgraded, up to a maximum increase of 2.0%. The Company is required to offer to exchange the notes for registered notes or have one or more shelf registration statements declared effective within 455 days after the issue date of the notes and, if such exchange offer fails to be consummated or such registration statement fails to be effective by June 25, 2018, then the interest payable on the notes will increase by 0.25% per annum during the 90-day period immediately following such date and will further increase by 0.25% per annum at the end of each subsequent 90-day period up to a maximum increase of 0.50%. The notes are senior unsecured obligations of the Company and will rank equally with all other senior unsecured indebtedness of the Company outstanding from time to time.

23


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, 2021As of September 30, 2022
 Credit facility, net of amortization expenses$560,313 $535,142 
 3.70% 2017 Senior Notes, net of debt amortization expenses349,869—
 3.375% 2019 Senior Notes, net of debt amortization expenses398,298398,734
 1.750% 2021 Senior Notes, net of debt amortization expenses347,429347,879
Total$1,655,909 $1,281,755 
 Current portion383,433535,142
 Non-current portion1,272,476746,613
Total$1,655,909 $1,281,755 

13. Accrued expenses and other current liabilities


Accrued expenses and other current liabilities consist of the following:

 

As of December 31,

 

 

As of September 30,

 

 

2016

 

 

2017

 

As of December 31, 2021As of September 30, 2022

Accrued expenses

 

$

163,400

 

 

$

183,261

 

Accrued expenses$162,054 $129,877 

Accrued employee cost

 

 

179,360

 

 

 

182,211

 

Accrued employee cost307,777230,013

Deferred transition revenue

 

 

50,552

 

 

 

47,317

 

Earn-out considerationEarn-out consideration2,5012,517

Statutory liabilities

 

 

36,878

 

 

 

44,125

 

Statutory liabilities67,94869,857

Retirement benefits

 

 

17,616

 

 

 

19,810

 

Retirement benefits1,7461,657
Compensated absencesCompensated absences26,59624,505

Derivative instruments

 

 

4,777

 

 

 

14,527

 

Derivative instruments12,49849,121

Advance from customers

 

 

21,969

 

 

 

27,678

 

Earn-out consideration

 

 

6,885

 

 

 

6,687

 

Contract liabilities (Note 20)Contract liabilities (Note 20)160,602144,441
Finance leases liabilityFinance leases liability18,54913,321

Other liabilities

 

 

15,461

 

 

 

13,607

 

Other liabilities31,16935,175

Capital lease obligations

 

 

1,349

 

 

 

1,520

 

 

$

498,247

 

 

$

540,743

 

$791,440 $700,484 

14. Other liabilities

Other

As September 30, 2022, the Company reclassified certain accrued expenses and other current liabilities consist of the following:

amounting to $7,141 to liabilities held for sale. See Note 8 for additional information.

 

 

As of December 31,

 

 

As of September 30,

 

 

 

2016

 

 

2017

 

Accrued employee cost

 

$

3,976

 

 

$

16,234

 

Deferred transition revenue

 

 

72,560

 

 

 

74,860

 

Retirement benefits

 

 

39,020

 

 

 

45,243

 

Derivative instruments

 

 

12,576

 

 

 

13,236

 

Amount received from GE under indemnification

   arrangement, pending adjustment

 

 

3,159

 

 

 

3,294

 

Advance from customers

 

 

2,371

 

 

 

232

 

Earn-out consideration

 

 

15,550

 

 

 

11,312

 

Others

 

 

11,078

 

 

 

17,803

 

Capital lease obligations

 

 

2,500

 

 

 

2,751

 

 

 

$

162,790

 

 

$

184,965

 

33

24


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, 2021As of September 30, 2022
Accrued employee cost$15,790 $20,647 
Earn-out consideration2,905—
Retirement benefits11,99311,987
Compensated absences52,02346,293
Derivative instruments2,75610,078
Contract liabilities (Note 20)80,22263,868
Finance leases liability16,29711,897
Others63,22470,643
$245,210 $235,413 

As September 30, 2022, the Company reclassified certain other liabilities amounting to $859 to liabilities held for sale. See Note 8 for additional information.

15. Employee benefit plans

The Company has employee benefit plans in the form of certain statutory and other schemesprograms 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.


Net defined benefit plan costs for the three and nine months ended September 30, 20162021 and 20172022 include the following components:

Three months ended September 30,

 

 

Nine months ended September 30,

 

Three months ended September 30,Nine months ended September 30,

2016

 

 

2017

 

 

2016

 

 

 

2017

 

2021202220212022

Service costs

$

1,207

 

 

$

1,814

 

 

$

4,040

 

 

 

$

5,391

 

Service costs$3,454 $3,505 $10,528 $10,804 

Interest costs

 

559

 

 

 

776

 

 

 

1,870

 

 

 

 

2,303

 

Interest costs1,3631,424 4,135 4,394 

Amortization of actuarial loss

 

34

 

 

 

221

 

 

 

15

 

 

 

 

653

 

Amortization of actuarial loss558178 1,704 550 

Expected return on plan assets

 

(469

)

 

 

(529

)

 

 

(1,449

)

 

 

 

(1,560

)

Expected return on plan assets(1,534)(1,457)(4,605)(4,502)

Net defined benefit plan costs

$

1,331

 

 

$

2,282

 

 

$

4,476

 

 

 

$

6,787

 

Net defined benefit plan costs$3,841 $3,650 $11,762 $11,246 



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

During the three and nine months ended September 30, 20162021 and 2017,2022, the Company contributed the following amounts to defined contribution plans in various jurisdictions:

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

India

 

$

4,843

 

 

$

5,731

 

 

$

13,877

 

 

$

16,514

 

U.S.

 

 

2,216

 

 

 

2,228

 

 

 

7,951

 

 

 

9,148

 

U.K.

 

 

1,596

 

 

 

1,887

 

 

 

5,177

 

 

 

5,961

 

China

 

 

4,158

 

 

 

4,132

 

 

 

11,555

 

 

 

11,700

 

Other regions

 

 

1,158

 

 

 

1,006

 

 

 

3,507

 

 

 

3,083

 

Total

 

$

13,971

 

 

$

14,984

 

 

$

42,067

 

 

$

46,405

 

Three months ended September 30,Nine months ended September 30,
2021202220212022
India$9,637 $11,015 $27,445 $32,629 
U.S.5,0205,060 15,508 16,968 
U.K.4,3014,676 12,074 16,398 
China6,3626,772 18,433 20,003 
Other regions3,9134,351 11,155 13,728 
Total$29,233 $31,874 $84,615 $99,726 

25

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 $38,007 and $36,583 as of December 31, 2021 and September 30, 2022, 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 $38,584 and $37,183 as of December 31, 2021 and September 30, 2022, 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)


15. Employee benefit plans (Continued)

During the nine months ended September 30, 2021 and 2022, the change in the fair value of Plan assets was $2,658 and $(10,011), respectively, and for the three months ended September 30, 2021 and 2022, the change in the fair value of Plan assets was $(84) and $(1,964), respectively, which is included in “other income (expense), net,” in the consolidated statements of income. During the nine months ended September 30, 2021 and 2022, the change in the fair value of deferred compensation liabilities was $2,526 and $(10,035), respectively, and for the the three months ended September 30, 2021 and 2022, the change in the fair value of deferred compensation liabilities was $(159) and $(1,977), respectively, which is included in “selling, general and administrative expenses.”

16. Stock-basedStock-based compensation

The Company has issued options under the Genpact Global Holdings 2005 Plan (the “2005 Plan”), the Genpact Global Holdings 2006 Plan (the “2006 Plan”), the Genpact Global Holdings 2007 Plan (the “2007 Plan”) and 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, who areincluding employees, directors and certain other persons associated with the Company.

With respect to options granted under the 2005, 2006 and 2007 Plans before the date of adoption of the 2007 Omnibus Plan, if an award granted under any such plan was forfeited or otherwise expired, terminated, or cancelled without the delivery of shares, then the shares covered by the forfeited, expired, terminated, or cancelled award were added to the number of shares otherwise available for grant under the respective plans.

Under the 2007 Omnibus Plan, share-based awardsshares 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 Genpact Limited 2017 Omnibus Incentive Compensation Plan, (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 and April 5, 2022 to increase the number of common shares authorized for issuance by 8,000,000 shares to 23,000,000 shares and by 3,500,000 shares to 26,500,000 shares, respectively. No further 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 nine months ended September 30, 20162021 and 2017September 30, 2022 were $18,046$57,554 and $21,985,$53,712, respectively, and for the three months ended September 30, 20162021 and 2017September 30, 2022 were $4,718$21,150 and $9,907,$18,873, respectively. These costs have been allocated to cost“cost of revenuerevenue” and selling,“selling, general and administrative expenses.

”

Stock options

Options granted are subject to a vesting requirement. Options

 All options granted under the plans to date2007 and 2017 Omnibus Plans are exercisable into common shares of the Company, have a contractual period of ten years and vest over fourthree to five years unless specified otherwise in the applicable award agreement. The Company recognizes the compensation cost over the vesting period of the option.

Compensation cost is determined as ofat 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 connection with the determination ofdetermining the fair value of options granted in the nine months ended September 30, 20162021 and September 30, 2017.  

2022. The Company granted options covering 1,831,180 common shares in the nine months ended September 30, 2021.

Nine months ended

September 30, 2016

 

 

Nine months ended

September 30, 2017

 

Nine months ended September 30, 2021Nine months ended September 30, 2022

Dividend yield

—

 

 

 

 

0.97%

 

Dividend yield0.84 %—1.08%0.96 %

Expected life (in months)

84

 

 

 

 

84

 

Expected life (in months)8484

Risk-free rate of interest

1.42%-1.56%

 

 

 

2.25%

 

Risk-free rate of interest1.12 %—1.37%1.71 %

Volatility

25.60%-27.22%

 

 

 

24.28%

 

Volatility26.05 %—26.18%26.29 %

26

36


GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(In thousands, except per share data and share count)


16. Stock-basedStock-based compensation (Continued)


A summary of stock option activity during the nine months ended September 30, 20172022 is set out below:

 

 

Nine months ended September 30, 2017

 

 

 

Shares arising

out of options

 

 

Weighted average

exercise price

 

 

Weighted average

remaining

contractual life

(years)

 

 

Aggregate

intrinsic

value

 

Outstanding as of January 1, 2017

 

 

5,707,690

 

 

$

18.65

 

 

 

5.8

 

 

$

—

 

Granted

 

 

250,000

 

 

 

24.74

 

 

 

—

 

 

 

—

 

Forfeited

 

 

(80,000

)

 

 

20.63

 

 

 

—

 

 

 

—

 

Expired

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Exercised

 

 

(641,900

)

 

 

14.40

 

 

 

—

 

 

 

8,707

 

Outstanding as of September 30, 2017

 

 

5,235,790

 

 

$

19.44

 

 

 

5.8

 

 

$

48,770

 

Vested as of September 30, 2017 and expected to vest

   thereafter (Note a)

 

 

5,036,756

 

 

$

19.22

 

 

 

5.8

 

 

$

47,981

 

Vested and exercisable as of September 30, 2017

 

 

2,304,291

 

 

$

16.12

 

 

 

4.3

 

 

$

29,095

 

Weighted average grant date fair value of grants

   during the period

 

$

6.62

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Options expected to vest reflect an estimated forfeiture rate.

Nine Months Ended September 30, 2022
Shares
 arising
out of options		Weighted
 average
exercise price
Weighted average
remaining
contractual life (years)
Aggregate
intrinsic
value
Outstanding as of January 1, 20228,008,29631.30 6.1— 
Granted475,69552.12 — — 
Forfeited(70,841)41.46 — — 
Expired— — — — 
Exercised(110,000)26.87 — 1,789
Outstanding as of September 30, 20228,303,15032.46 5.5100,968
Vested as of September 30, 2022 and expected to vest thereafter (Note a)7,783,19531.70 5.599,577
Vested and exercisable as of September 30, 20223,766,73524.73 3.371,706
Weighted average grant date fair value of grants during the period14.19

(a)Options expected to vest reflect an estimated forfeiture rate.
As of September 30, 2017,2022, the total remaining unrecognized stock-based compensation cost for options expected to vest amounted to $8,182,$21,073, which will be recognized over the weighted average remaining requisite vesting period of 2.73.0 years.


Restricted share units


The Company has granted restricted share units or RSUs,(“RSUs”) under the 2007 and 2017 Omnibus Plans. Each RSU represents the right to receive one Company common share at a future date.share. The fair value of each RSU is typically the closing market price of a Companyone 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 RSUs grantedRSU activity during the nine months ended September 30, 20172022 is set out below:

 

 

Nine months ended September 30, 2017

 

 

 

Number of Restricted Share Units

 

 

Weighted Average Grant Date Fair Value

 

Outstanding as of January 1, 2017

 

 

117,905

 

 

$

20.65

 

Granted

 

 

1,518,565

 

 

 

26.30

 

Vested (Note a)

 

 

(45,248

)

 

 

18.31

 

Forfeited

 

 

  (1,242)

 

 

 

25.53

 

Outstanding as of September 30, 2017

 

 

1,589,980

 

 

$

26.11

 

Expected to vest (Note b)

 

 

1,324,508

 

 

 

 

 

(a)

RSUs that vested during the period were net settled upon vesting by issuing 32,395 shares (net of minimum statutory tax withholding).

(b)

The number of RSUs expected to vest reflects an estimated forfeiture rate.

Nine Months Ended September 30, 2022
Number of Restricted Share UnitsWeighted Average Grant Date Fair Value
Outstanding as of January 1, 2022759,50742.29
Granted206,28045.66
Vested (Note a)(28,866)47.63 
Forfeited(54,200)42.49
Outstanding as of September 30, 2022882,72142.89
Expected to vest (Note b)803,557

53,546

(a)28,866 RSUs vested during the nine months ended September 30, 2022 in respect of which 19,992 shares (net of minimum statutory tax withholding) were issued during the nine months ended September 30, 2022.
(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)

49,513 RSUs vested in the year ended December 31, 2015,2020, in respect of which 53,02349,446 shares were issued during the nine months ended September 30, 20172022 after withholding shares to the extent ofrequired to satisfy minimum statutory withholding taxes.

34,035obligations.


7,863 RSUs vested in the year ended December 31, 2016,2021, in respect of which 17,8025,496 shares were issued during the nine months ended September 30, 20172022 after withholding shares to the extent ofrequired to satisfy minimum statutory withholding taxes.

27

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)

obligations.

As of September 30, 2017,2022, the total remaining unrecognized stock-based compensation cost related to RSUs amounted to $29,339,$15,478, which will be recognized over the weighted average remaining requisite vesting period of 3.12.0 years.


Performance units

The Company also grants stock awards in the form of performance units or PUs,(“PUs”) and has granted PUs under both the 2007 and 2017 Omnibus Plans.

Each PU represents the right to receive one Company 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 closing 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 Company’s plans to date are subject to cliff vesting. The compensation expense for such awards is recognized on a straight-line basis over the vesting terms. OverDuring the performance period, the Company’s estimate of the number of shares to be issued is adjusted upward or downward depending onbased 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 nine months ended September 30, 20172022 is set out below:

 

 

Nine months ended September 30, 2017

 

 

 

Number of

Performance Units

 

 

Weighted

Average Grant

Date Fair Value

 

 

Maximum Shares

Eligible to Receive

 

Outstanding as of January 1, 2017

 

 

3,772,128

 

 

$

23.04

 

 

 

5,524,114

 

Granted

 

 

1,811,292

 

 

 

25.22

 

 

 

3,622,584

 

Vested (Note a)

 

 

(1,136,047)

 

 

 

16.78

 

 

 

(1,136,047)

 

Forfeited (Note b)

 

 

(1,557,067

)

 

 

27.62

 

 

 

(1,580,267

)

Adjustment upon final determination of level of

   performance goal achievement (Note c)

 

 

 

 

 

 

 

 

 

 

(1,747,586)

 

Outstanding as of September 30, 2017

 

 

2,890,306

 

 

$

24.40

 

 

 

4,682,798

 

Expected to vest (Note d)

 

 

2,248,990

 

 

 

 

 

 

 

 

 

(a)

PUs that vested during the period were net settled upon vesting by issuing 731,701 shares (net of minimum statutory tax withholding).

(b)

Includes 1,443,624 target shares underlying PUs granted in 2016 which were forfeited for failure to achieve all of the threshold performance targets under such awards as certified by the compensation committee based on the Company’s audited financial statements for the year ended December 31, 2016.

(c)

Represents the difference between the maximum number of shares achievable under the PUs granted in 2016 and the number of target shares underlying the PUs granted in 2016, which were forfeited for failure to achieve all of the threshold performance targets under such awards as certified by the compensation committee based on the Company’s audited financial statements for the year ended December 31, 2016.

Nine Months Ended September 30, 2022
Number of Performance UnitsWeighted Average Grant Date Fair ValueMaximum Shares Eligible to Receive
Outstanding as of January 1, 20224,583,155 39.404,583,155
Granted1,590,794 44.503,181,588
Vested (Note a)(2,161,789)34.61(2,161,789)
Forfeited(445,773)43.46(577,995)
Adjustment upon final determination of level of performance goal achievement (Note b)28,325 44.0128,325
Outstanding as of September 30, 20223,594,712 44.075,053,284
Expected to vest (Note c)3,063,863 

(d)

The number of PUs expected to vest is based on the probable achievement of the performance targets after considering an estimated forfeiture rate.

(a)2,161,789 PUs that vested during the period were net settled upon vesting by issuing 1,300,511 shares (net of minimum statutory tax withholding).
(b)Represents an adjustment made in March 2022 to the number of shares subject to the PUs granted in 2021 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 September 30, 2017,2022, the total remaining unrecognized stock-based compensation cost related to PUs amounted to $27,746,$72,523, which will be recognized over the weighted average remaining requisite vesting period of 2.11.8 years.

28

38


GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(In thousands, except per share data and share count)


16. Stock-basedStock-based compensation (Continued)


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.  


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 mustmay 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 nine months ended September 30, 20162021 and 2017, 105,8562022, 216,378 and 150,265253,377 common shares, respectively, were issued under the ESPP.

The ESPP is considered compensatory under the FASB guidance on Compensation-Stock Compensation.


The compensation expense for the ESPP is recognized in accordance with the FASB guidance on Compensation-Stock Compensation. The compensation expense for the ESPP during the nine months ended September 30, 20162021 and 20172022 was $298$1,050 and $417,$1,182, respectively, and for the three months ended September 30, 20162021 and 20172022 was $110$335 and $144,$329, respectively, and has been allocated to cost of revenue and selling, general and administrative expenses.

29

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(In thousands, except per share data and share count)

expense.


17. Capital stock

Share repurchases

As

 The Board of December 31, 2016,Directors of the Company’s board of directorsCompany (the “Board”) hadhas authorized the Company to repurchaserepurchases of up to $750,000 in value of the Company’s common shares under its share repurchase program first announced in February 2015. On February 10, 2017 the Board approved up to an additional $500,000 in share repurchases, bringing the total authorization$1,750,000 under the Company’s existing program to $1,250,000. The Company’s share repurchase program does not obligate it to acquire any specific number of shares.program. 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.

On March 29, 2017, the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC (the “Dealer”) to repurchase Company common shares for an aggregate purchase price of $200,000. The Company paid the aggregate purchase price to the Dealer and received an initial delivery of 6,578,947 common shares at a price of $24.32 per share. The purchase price was recorded as a reduction in shareholders’ equity through a $160,000 decrease in retained earnings and a $40,000 decrease in additional paid-in capital.

The final settlement of the transaction under the ASR agreement, which was initially expected to be completed by the end of the fourth quarter of 2017, is now expected to be completed in January 2018 pursuant to an amendment to the ASR agreement. The final number of common shares to be repurchased by the Company under the ASR agreement will be based on the volume-weighted average share price of the Company’s common shares during the term of the applicable transaction, less a discount and subject to adjustments pursuant to the terms of the ASR agreement. At settlement, under certain circumstances, the Company may be entitled to receive additional common shares from the Dealer or may be required either to deliver its common shares or to make a cash payment to the Dealer.

The ASR agreement contains customary provisions, including, among other things, with respect to mechanisms to determine the number of shares or the amount of cash that will be delivered at settlement, the required timing of delivery upon settlement, specific circumstances under which adjustments may be made to the repurchase transaction, and specific circumstances under which the repurchase transaction may be canceled prior to the scheduled maturity.

During the nine months ended September 30, 2016,2021 and 2022, the Company purchased 9,615,323repurchased 3,592,409 and 4,067,044 of its common shares, respectively, on the open market at a weighted average price of $25.23$40.96 and $44.75 per share, respectively, for an aggregate cash amount of $242,552. During the nine months ended September 30, 2017, the Company made payments in an aggregate cash amount of $219,784 toward share repurchases. Of this amount, the Company paid (i) $19,784 to repurchase 808,293 of its common shares on the open market at a weighted average price of $24.48 per share, (ii) $160,000 to the Dealer for the initial delivery of 6,578,947 of its common shares under the ASR agreement at a weighted average price of $24.32 per share,$147,152 and (iii) $40,000 to the Dealer for shares to be delivered at the final settlement of the transaction under the ASR agreement as described above.$182,012, 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 nine months ended September 30, 20162021 and September 30, 2017, $192 and $16, respectively, was deducted from2022, retained earnings inwere reduced by the direct costs related to share repurchases.

Dividend

In February 2017,repurchases of $72 and $81, respectively.

$156,899 remained available for share repurchases under the Company’s boardexisting share repurchase program as of directorsSeptember 30, 2022. This repurchase program does not obligate the Company to acquire any specific number of shares and does not specify an expiration date. 
39

GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

17. Capital stock (Continued)

Dividend
On February 9, 2021, the Company announced that its Board had approved a dividend program under which the Company intends to pay a regular10% increase in its quarterly cash dividend of $0.06to $0.1075 per share, up from $0.0975 per share in 2020, representing an annual dividend of $0.43 per common share, up from $0.39 per share in 2020, payable to holders of itsthe Company’s common shares, representing a planned annual dividend of $0.24 per share.shares. On March 28, 2017,19, 2021, June 28, 201723, 2021 and September 21, 2017,24, 2021, the Company paid dividendsa dividend of $0.06$0.1075 per share, amounting to $11,957, $11,558$20,115, $20,133 and $11,581$20,213 in the aggregate, to shareholders of record as of March 10, 2017,2021, June 12, 201711, 2021 and September 8, 201710, 2021, respectively.

30

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes

On February 10, 2022, the Company announced that its Board had approved a 16% increase in its quarterly cash dividend to the Consolidated Financial Statements

(Unaudited)

(In thousands, except$0.125 per share, dataup from $0.1075 per share in 2021, representing a planned annual dividend of $0.50 per common share, up from $0.43 per share in 2021, payable to holders of the Company’s common shares. On March 23, 2022, June 24, 2022 and September 23, 2022, the Company paid a dividend of $0.125 per share, count)

amounting to $23,134, $22,935 and $22,873 in the aggregate, to shareholders of record as of March 10, 2022, June 10, 2022 and September 9, 2022, respectively.

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. PotentiallyThe potentially dilutive shares, consisting of outstanding options on common shares, restricted share units, performance units and common shares to be issued under the employee stock purchase plan,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 698,2861,698,735 and 1,122,5592,757,114 for the nine months ended September 30, 20162021 and 2017,2022, respectively, and 947,7781,556,671 and 1,113,3072,667,958 for the three months ended September 30, 20162021 and 2017,2022, respectively.

 

 

Three months ended September 30,

 

 

 

Nine months ended September 30,

 

 

 

2016

 

 

2017

 

 

 

2016

 

 

2017

 

Net income available to Genpact Limited common shareholders

 

$

68,922

 

 

$

73,745

 

 

 

$

193,385

 

 

$

196,029

 

Weighted average number of common shares used in computing basic earnings per common share

 

 

206,146,007

 

 

 

192,124,366

 

 

 

 

209,034,741

 

 

 

194,221,162

 

Dilutive effect of stock-based awards

 

 

3,230,676

 

 

 

2,823,333

 

 

 

 

3,322,853

 

 

 

2,890,852

 

Weighted average number of common shares used in computing dilutive earnings per common share

 

 

209,376,683

 

 

 

194,947,699

 

 

 

 

212,357,594

 

 

 

197,112,014

 

Earnings per common share attributable to Genpact Limited common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

 

$

0.38

 

 

 

$

0.93

 

 

$

1.01

 

Diluted

 

$

0.33

 

 

$

0.38

 

 

 

$

0.91

 

 

$

0.99

 


19. Cost of revenue

Cost of revenue consists of the following:

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

Personnel expenses

$

269,771

 

 

$

293,253

 

 

$

788,768

 

 

$

847,784

 

Operational expenses

 

111,443

 

 

 

123,995

 

 

 

325,938

 

 

 

346,300

 

Depreciation and amortization

 

11,218

 

 

 

11,943

 

 

 

34,329

 

 

 

33,737

 

 

$

392,432

 

 

$

429,191

 

 

$

1,149,035

 

 

$

1,227,821

 

Three months ended September 30,Nine months ended September 30,
2021202220212022
Net income$102,386 $95,843 $296,363 $263,692 
Weighted average number of common shares used in computing basic earnings per common share187,856,026 183,312,013 187,945,234 184,456,047 
Dilutive effect of stock-based awards5,303,9034,087,1914,940,0183,818,373 
Weighted average number of common shares used in computing dilutive earnings per common share193,159,929187,399,204192,885,252188,274,420 
Earnings per common share
Basic$0.55 $0.52 $1.58 $1.43 
Diluted$0.53 $0.51 $1.54 $1.40 

20. Selling, general and administrative expenses

Selling, general and administrative expenses consist of the following:

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

Personnel expenses

$

117,022

 

 

$

126,612

 

 

$

343,279

 

 

$

371,867

 

Operational expenses

 

37,649

 

 

 

42,984

 

 

 

132,385

 

 

 

121,664

 

Depreciation and amortization

 

2,298

 

 

 

2,499

 

 

 

6,651

 

 

 

7,323

 

 

$

156,969

 

 

$

172,095

 

 

$

482,315

 

 

$

500,854

 

31


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
The Company manages various types of business process and transformation 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.
During the second quarter of 2022, the Company renamed its three reportable segments. Beginning in the second quarter of 2022, the Company's: (1) Banking, Capital Markets and Insurance segment has been renamed the Financial Services segment; (2) Consumer Goods, Retail, Life Sciences and Healthcare segment has been renamed the Consumer and Healthcare segment; and (3) High Tech, Manufacturing and Services segment has been renamed the High Tech and Manufacturing segment.
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 ("AOI"), 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, any losses or gains from businesses held for sale, including impairment charges, 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.
The CODM continues to review the operating segment revenue, which is a GAAP measure, and operating segment adjusted income from operations, which is a non-GAAP measure.
Revenues and adjusted income from operations for each of the Company’s segments for the three months ended September 30, 2021 were as follows:

Net revenues
Data-Tech-AIDigital operationsTotalAOI
Financial Services107,683 150,838 258,521 32,514 
Consumer and Healthcare168,801 219,268 388,069 63,681 
High Tech and Manufacturing151,770 214,971 366,741 68,263 
Total reportable segment428,254 585,077 1,013,331 164,458 
Others#554 1,852 2,406 4,484 
Total428,808 586,929 1,015,737 168,942 
Stock-based compensation(21,485)
Amortization and impairment of acquired intangible assets (other than included above)(13,688)
Foreign exchange gains (losses), net2,733 
Interest income (expense), net(12,765)
Income tax expense(21,351)
Net income102,386 

#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.


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 September 30, 2022 were as follows:
Net revenues
Data-Tech-AIDigital operationsTotalAOI
Financial Services137,629 166,216 303,845 41,008 
Consumer and Healthcare194,154 218,695 412,849 49,598 
High Tech and Manufacturing188,455 236,837 425,292 69,553 
Total reportable segment520,238 621,748 1,141,986 160,159 
Others*(10,508)(20,441)(30,949)21,591 
Total509,730 601,307 1,111,037 181,750 
Business held for sale (refer to Note (a) below and Note 8)(3,932)7,069 
Total (excluding business held for sale - refer to Note (a) below and Note 8)1,107,105 188,819 
Stock-based compensation(19,202)
Amortization and impairment of acquired intangible assets (other than included above)(10,516)
Foreign exchange gains (losses), net3,867 
Interest income (expense), net(13,399)
Business held for sale (refer to Note (a) below and Note 8)(7,069)
Impairment charge on assets classified as held for sale (refer to Note (a) below and Note 8)(21,426)
Income tax expense(25,231)
Net income95,843 

(a) During the second quarter of 2022, the Company's management approved a plan to divest a business that comprises part of the Company's Consumer and Healthcare segment. The revenues and associated losses, including an impairment charge recorded in the third quarter of 2022, attributable to this business have been excluded from the computation of adjusted operating income margin with effect from April 1, 2022, as management believes that excluding these items provides useful information about the Company's financial performance and underlying business trends.

*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 under-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.

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 nine months ended September 30, 2021 were as follows:

Net revenues
Data-Tech-AIDigital operationsTotalAOI
Financial Services293,207 457,383 750,590 98,972 
Consumer and Healthcare476,822 624,361 1,101,183 184,647 
High Tech and Manufacturing434,143 647,623 1,081,766 203,915 
Total reportable segment1,204,172 1,729,367 2,933,539 487,534 
Others##4,340 12,055 16,395 21,087 
Total1,208,512 1,741,422 2,949,934 508,621 
Stock-based compensation(58,604)
Amortization and impairment of acquired intangible assets (other than included above)(43,977)
Foreign exchange gains (losses), net11,529 
Interest income (expense), net(38,198)
Income tax expense(83,008)
Net income296,363 

##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.


43

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 nine months ended September 30, 2022 were as follows:
Net revenues
Data-Tech-AIDigital operationsTotalAOI
Financial Services391,485 481,116 872,601 102,747 
Consumer and Healthcare560,561 662,721 1,223,282 158,290 
High Tech and Manufacturing530,975 694,725 1,225,700 207,850 
Total reportable segment1,483,021 1,838,562 3,321,583 468,887 
Others**(18,002)(34,954)(52,956)48,455 
Total1,465,019 1,803,608 3,268,627 517,342 
Business held for sale (refer to Note (b) below and Note 8)(8,843)14,291 
Total (excluding business held for sale - refer to Note (b) below and Note 8)3,259,784 531,633 
Stock-based compensation(54,894)
Amortization and impairment of acquired intangible assets (other than included above)(32,709)
Foreign exchange gains (losses), net9,312 
Interest income (expense), net(36,691)
Business held for sale (refer to Note (b) below and Note 8)(14,291)
Impairment charge on assets classified as held for sale (refer to Note (b) below and Note 8)(21,426)
Restructuring expenses (refer to Note (c) below and Note 25)(38,815)
Income tax expense(78,427)
Net income263,692 

(b) During the second quarter of 2022, the Company's management approved a plan to divest a business that comprises part of the Company's Consumer and Healthcare segment. The revenues and associated losses, including an impairment charge recorded in the third quarter of 2022, attributable to this business have been excluded from the computation of adjusted operating income margin with effect from April 1, 2022, as management believes that excluding these items provides useful information about the Company's financial performance and underlying business trends.

(c) The Company does not allocate these charges to individual segments in internal management reports used by the CODM. Accordingly, such expenses are included in the Company's 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 under-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.


44

GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

20. Net revenues
Disaggregation of revenue
In the following table, the Company’s revenue is disaggregated by the nature of services provided:
Three months ended September 30,Nine months ended September 30,
2021202220212022
Data-Tech-AI$428,808 $509,730 $1,208,512 $1,465,019 
Digital Operations586,929601,3071,741,4221,803,608
Total net revenues$1,015,737 $1,111,037 $2,949,934 $3,268,627 

All three of the Company's segments include revenue from both Data-Tech-AI and Digital Operations. See Note 19 for additional information.
During the second quarter of 2022, the Company's management modified the manner in which it disaggregates revenue for reporting and internal tracking purposes, and the Company now reports revenue disaggregated by the nature of services provided to the client, namely either Data-Tech-AI or Digital Operations. Prior to the second quarter of 2022, the Company disaggregated its revenue as revenue from the General Electric Company (GE) or revenue from Global Clients (other than GE).
The Company has evaluated the impact of the COVID-19 pandemic on the Company’s net revenues for the three and nine months ended September 30, 2021 and 2022, 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 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 nine months ended September 30, 2021 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 nine months ended September 30, 2022.
Due to the nature of the pandemic, the Company will continue to monitor developments to identify significant uncertainties relating to revenue in future periods.
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 4 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, 2021As of September 30, 2022
Contract assets (Note a)$13,741 $18,646 
Contract liabilities (Note b)
Deferred transition revenue$155,077 $136,845 
Advance from customers$85,747 $71,464 

(a)Included in "prepaid expenses and other current assets" and "other assets" in the consolidated balance sheet.

45

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)

(b)Included in "accrued expenses and other current liabilities" and "other liabilities" in the consolidated balance sheet.

As of September 30, 2022, the Company reclassified certain contract assets and contract liabilities of $2,270 and $2,038, respectively, to assets and liabilities held for sale. See Note 8 for additional information.

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 nine months ended September 30, 2021 and 2022 were a result of normal business activity and not materially impacted by any other factors.

Revenue recognized during the three months ended September 30, 2021 and 2022 that was included in the Company's contract liabilities balance at the beginning of the period was $60,756 and $63,762, respectively.

Revenue recognized during the nine months ended September 30, 2021 and 2022 that was included in the Company's contract liabilities balance at the beginning of the period was $128,628 and $129,046, respectively.

The following table includes estimated revenue expected to be recognized in the future related to remaining performance obligations as of September 30, 2022:

ParticularsTotalLess than 1 year1-3 years3-5 yearsAfter 5 years
Transaction price allocated to remaining performance obligations$208,309 $144,441 $52,277 $10,494 $1,097 
Transaction price allocated to remaining performance obligations relating to business held for sale$2,038 $2,038 $— $— $— 

The following table provides details of the Company’s contract cost assets:
Three months ended September 30,Nine months ended September 30,
2021202220212022
ParticularsSales incentive programsTransition activitiesSales incentive programsTransition activitiesSales incentive programsTransition activitiesSales incentive programsTransition activities
Opening balance$31,559 $210,747 $29,186 $198,401 $33,390 $192,507 $32,296 $206,498 
Closing balance31,058209,32028,718189,41931,058209,32028,718189,419
Amortization5,04123,0286,63223,76714,57658,64419,22066,180

As of September 30, 2022, the Company reclassified certain contract assets amounting to $1,417 to assets and liabilities held for sale. See Note 8 for additional information.
46

GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

21. Other operating (income) expense, net

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

Other operating (income) expense

$

(249

)

 

$

(75

)

 

$

(990

)

 

$

(7,103

)

Provision for impairment of intangible assets

 

5,381

 

 

 

-

 

 

 

11,195

 

 

 

-

 

Change in fair value of earn-out consideration and deferred

consideration (relating to business acquisitions)

 

-

 

 

 

11

 

 

 

(14,996

)

 

 

(1,414

)

Other operating (income) expense, net

$

5,132

 

 

$

(64

)

 

$

(4,791

)

 

$

(8,517

)

Three months ended September 30,Nine months ended September 30,
2021202220212022
Write-down of intangible assets and property, plant and equipment$— $— $915 $1,377 
Write-down of operating right-of-use assets and other assets*— — — 20,307 
Impairment charge on intangible assets and goodwill held-for-sale— 21,426 — 21,426 
Other operating income(93)(489)(1,132)(953)
Other operating (income) expense, net$(93)$20,937 $(217)$42,157 


*See Notes 10 and 25 for additional information about other operating (income) expense, net for the three and nine months ended September 30, 2022.
22. Interest income (expense), net

Three months ended September 30,

 

 

Nine months ended September 30,

 

Three months ended September 30,Nine months ended September 30,

2016

 

 

2017

 

 

2016

 

 

2017

 

2021202220212022

Interest income

$

1,041

 

 

$

2,549

 

 

$

5,565

 

 

$

4,543

 

Interest income$2,068 $1,440 $4,544 $4,042 

Interest expense

 

(5,942

)

 

 

(11,273

)

 

 

(16,737

)

 

 

(28,610

)

Interest expense(14,833)(14,839)(42,742)(40,733)

Interest income (expense), net

$

(4,901

)

 

$

(8,724

)

 

$

(11,172

)

 

$

(24,067

)

Interest income (expense), net$(12,765)$(13,399)$(38,198)$(36,691)


23. Income taxes


The Company determines its tax provision for interim periods using an estimate of its annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment.

As of December 31, 2016, the Company had unrecognized tax benefits amounting to $23,467, including an amount of $22,469, which, if recognized, would impact the


The Company’s effective tax rate.

rate (“ETR”) was 20.8% for the three months ended September 30, 2022, up from 17.3% for the three months ended September 30, 2021. The increase in the Company’s ETR in the three months ended September 30, 2022 is primarily due to a lower mix of benefits recorded in the three months ended September 30, 2022 compared to the three months ended September 30, 2021.


The following table summarizes activities related to the Company’s unrecognized tax benefits for uncertain tax positions from January 1, 2017 tofor the nine months ended September 30, 2017:

2022:     
Nine months ended September 30, 2022
Opening balance at January 1$25,651 
Increase related to prior year tax positions, including recorded in acquisition accounting16 
Decrease related to prior year tax positions(1,678)
Decrease related to prior year tax positions due to lapse of applicable statute of limitation(84)
Effect of exchange rate changes(1,232)
Closing balance at September 30$22,673

 

 

2017

 

Opening balance at January 1

 

$

23,467

 

Increase related to prior year tax positions, including recorded in acquisition accounting

 

 

515

 

Decrease related to prior year tax positions

 

 

(1,203

)

Decrease related to prior year tax positions due to lapse of applicable statute of limitation

 

 

(663

)

Effect of exchange rate changes

 

 

853

 

Closing balance at September 30

 

$

22,969

 

The Company’s

As of December 31, 2021 and September 30, 2022, the Company had unrecognized tax benefits as of September 30, 2017 include an amount of $21,964,amounting to 25,651 and $22,673, respectively, which, if recognized, would impact the Company’s effective tax rate.

As of December 31, 20162021 and September 30, 2017,2022, the Company had accrued approximately $3,856$2,842 and $4,266,$2,904, respectively, in interest and $628 and $528, respectively, for interestpenalties relating to unrecognized tax benefits. During the year ended December 31, 2016 and the nine months ended September 30, 2017, the company recognized approximately $(206) and 248, respectively, excluding the impact of exchange rate differences, in interest on unrecognized tax benefits. As of December 31, 2016 and September 30, 2017, the Company had accrued approximately $977 and $912, respectively, for penalties.

32

47


GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(In thousands, except per share data and share count)

24. Related party transactions

The Company has entered into related party transactions with its non-consolidating affiliates. The Company has also entered into related party transactions with a significant shareholder


23. Income taxes (Continued)

During the year ended December 31, 2021 and its affiliates.

The Company’s related party transactions can be categorized as follows:

Revenue from services

During the nine months ended September 30, 2016 and 2017,2022, the Company recognized net revenues of $257approximately $(13,851) and $299,$(664), respectively, and during the three months ended September 30, 2016 and September 30, 2017, the Company recognized net revenues of $89 and $112, respectively, from a client that is a significant shareholder of the Company.

During the nine months ended September 30, 2016 and 2017, the Company recognized net revenues of $5,109 and $5,400, respectively, and during the three months ended September 30, 2016, the Company recognized net revenues of $1,625, from a client that was a non-consolidating affiliate of the Company.  

Cost of revenue from services

The Company purchases certain services from its non-consolidating affiliates, mainly relating to training and recruitment, which are included in cost of revenue. For the nine months ended September 30, 2016 and 2017, cost of revenue includes an amount of $1,675 and $1,245, respectively, and for the three months ended September 30, 2016 and 2017, cost of revenue includes an amount of $722 and $336, respectively, attributable to the cost of services provided by the Company’s non-consolidating affiliates.

Selling, general and administrative expenses

The Company purchases certain services from its non-consolidating affiliates, mainly relating to training and recruitment, the costs of which are included in selling, general and administrative expenses. For the nine months ended September 30, 2016 and 2017, selling, general and administrative expenses include an amount of $234 and $199, respectively, and for the three months ended September 30, 2016 and 2017, selling, general and administrative expenses include an amount of $107 and $51, respectively, attributable to the cost of services provided by the Company’s non-consolidating affiliates.

During the three and nine months ended September 30, 2016 and 2017, the Company engaged a significant shareholder to provide certain services to the Company, the costs of which are included in selling, general and administrative expenses. For the nine months ended September 30, 2016 and 2017, selling, general and administrative expenses include an amount of $58 and $51, respectively, and for the three months ended September 30, 2016 and 2017, selling, general and administrative expenses include an amount of $43 and $6, respectively, attributable to the cost of this engagement.

 Investment in equity affiliates

During the nine months ended September 30, 2017, the Company invested $496 in its non-consolidating affiliates.   

During the nine months ended September 30, 2017, the Company recorded a charge of $2,849interest related to an investment in one of its non-consolidating affiliates. This charge has been included in equity-method investment activity, net in the Company’s consolidated statement of income.

income taxes.


24. Commitments and contingencies

Capital commitments
As of December 31, 20162021 and September 30, 2017, the Company’s investments in its non-consolidating affiliates amounted to $4,800 and $833, respectively.

Others

During the nine months ended September 30, 2016 and 2017, the Company also entered into transactions with one of its non-consolidating affiliates for certain cost reimbursements amounting to $918 and $477, respectively. During the three months ended September 30, 2016, such cost reimbursements amounted to $244.

33

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(In thousands, except per share data and share count)

24. Related party transactions (Continued)

During the nine months ended September 30, 2017, the Company made payments of $3,847 to one of its non-consolidating affiliates under a tax-sharing arrangement in the U.K. This amount represents a portion of the non-consolidated affiliate’s net operating losses surrendered to the Company under the tax sharing arrangement for the years 2015 and 2016. On June 30, 2017, this non-consolidating affiliate ceased to be a related party.

25. Commitments and contingencies

Capital commitments

As of December 31, 2016 and September 30, 2017,2022, the Company has committed to spend $5,185$13,317 and $6,181,$22,403, 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 $11,958$7,865 and $8,373$7,683 as of December 31, 20162021 and September 30, 2017,2022, respectively. Bank guarantees are generally provided to government agencies and excise and customs authorities for the purpose of maintaining a bonded warehouse. 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

The


Certain units of the Company’s business process delivery centers in IndiaIndian subsidiaries are 100% export oriented units orestablished as Software Technology Parks of India units or Special Economic Zone (“STPI”SEZ”) units under the STPI guidelinesrelevant regulations issued by the Government of India. These units are exempt from customs central exciseand other duties and levies 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 customtaxes and duties, service taxes, levies and liquidated damages payable, if any, in respect of imported and indigenous capital goods, stores, spares and sparesservices consumed duty-free, in the event that certain terms and conditions are not fulfilled.


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations


Contingency
(a) 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.

(b) The Indian taxing authorities (“ITA”) have initiated proceedings to examine the availability of a tax exemption claimed by the Company 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 $28,535 have been denied or challenged by the ITA. 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. The Government of India has issued an administrative circular which supports the Company’s position, and the Company believes that the appellate authorities will reverse the previous orders denying refunds owed to the Company. Accordingly, no reserve has been provided as of September 30, 2022.
48

GENPACT LIMITED AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(In thousands, except per share data and share count)

24. Commitments and contingencies (Continued)

(c) The ITA have also issued assessment orders to certain subsidiaries of the Company seeking to assess income tax on certain transactions that occurred in 2013 and 2015. The Company has received demands for potential tax claims related to these orders in an aggregate amount of $209,042, including interest through the date of the orders. This amount excludes penalties or interest accrued since the date of the orders. The Company is pursuing appeals before the relevant appellate authorities in respect of these orders. The Income Tax Appellate Tribunal of India (the “Tribunal”) has accepted the legal arguments made by the Company and ruled in favor of the Company in relation to demands of $100,589, and the corresponding assessment order has been cancelled. The ITA may appeal the Tribunal's ruling before a higher court. Based on its evaluation of the facts underlying the transactions and legal advice received on the matter, the Company believes that it is more likely than not that the Company’s position will ultimately prevail in respect of these transactions. Accordingly, no reserve has been provided as of September 30, 2022.

(d) 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. 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.

25. Restructuring

The Company has implemented a flexible, hybrid global delivery model in line with the Company's long-term strategy that incorporates a mix of offshore, onshore, near shore, and remote working. As a result, the Company determined that certain leases and employee roles were no longer needed.

Accordingly, in the second quarter of 2022, the Company recorded a $38,815 restructuring charge relating to the abandonment of leased office premises and an employee severance charge. Of the total charge of $38,815, $21,684 was a non-cash charge (including $1,377 related to writing down of certain property, plant and equipment) recorded as other operating expense, which pertains to the abandonment of various leased office premises. The Company also recorded a severance charge of $17,131 in personnel expenses. The Company has sought out one or more third parties to sublease certain office premises from the Company, wherever applicable, instead of abandoning them. However, the Company has not been successful in such attempts, and the Company believes it is unlikely that it will be able to sublease such premises in the foreseeable future. No restructuring costs were incurred related to this restructuring plan in the third quarter of 2022.

26. Subsequent events
Dividend
On October 13, 2022, the Company announced that its Board of Directors has declared a dividend for the fourth quarter of 2022 of $0.125 per common share, which is payable on December 23, 2022 to shareholders of record as of the close of business on December 9, 2022. The declaration of any future dividends will be at the discretion of the Board of Directors and subject to Bermuda and other applicable laws.
49

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is meant to provide material information relevant to an assessment of the financial condition and results of operations of our Company, including an evaluation of the amounts and uncertainties of cash flows from operations and from outside sources, so as to allow investors to better view our Company from management’s perspective. 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, 20162021 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, 2016.2021. 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, 2017 and in our Annual Report on Form 10-K for the year ended December 31, 2016.

2021.

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, 2017 and in Part I, Item 1A—“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.

These forward-looking2021. 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, 2021. Many of the risks, uncertainties and other factors identified below have been, and may continue to 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;

•our rate of employee attrition;

•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;

operate, including the withdrawal of the United Kingdom, or the U.K., from the European Union, or the EU, commonly known as Brexit, and uncertainty about the future relationship between the U.K. and the EU, and heightened economic and political uncertainty within and among other EU member states;

•expected spending on business process outsourcing, and information technology and digital transformation services by clients;

•foreign currency exchange rates;

•the impact of inflation on our and our clients' business operations;

•our ability to convert bookings to revenue;

our rate of employee attrition;

•our effective tax rate; and

50

•competition in our industry.

Factors that may cause actual results to differ from expected results include, among others:

•the invasion of Ukraine by Russia and the related sanctions and other measures being implemented or imposed in response thereto, or any potential expansion or escalation of the conflict or its economic disruption beyond its current scope;

•general inflationary pressures and our ability to growshare increased costs with our clients;

•wage increases in countries where we have operations;
•our ability to hire and retain enough qualified employees to support our operations;
•our ability to effectively price our services and maintain pricing and employee utilization rates;
•the impact of the COVID-19 pandemic on our business, results of operations and financial condition;
•our ability to develop and successfully execute our business strategies;
•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 manage growth and international operations while maintaining effective internal controls;

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 dependence on favorable tax legislation and tax policies that may be amended in a manner adverse to us or be unavailable to us in the future;

•our ability to successfully consummate or integrate strategic acquisitions;

acquisitions or execute divestitures;
•our ability to attract and retain clients and to develop and maintain client relationships on attractive terms;

•our ability to service our defined contribution and benefit plan payment obligations;

•the possible retrospective application of a judicial pronouncement in India regarding our defined contribution and benefit plan payment obligations;
•our relationship with the General Electric Company, or GE, and our ability to maintain pricing and asset utilization rates;

relationships with former GE businesses;

our ability to hire and retain enough qualified employees to support our operations;

increases in wages in locations in which we have operations;


•

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,Rate, or LIBOR, including the pending global phase-out of LIBOR, the development of alternative rates, including the Secured Overnight Financing Rate, and changes into our credit ratings;

•our ability to meet our corporate funding needs, pay dividends, renegotiate our term loan 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;

•our ability to grow our business and effectively manage growth and international operations while maintaining effective internal controls;

•restrictions on visas for our employees traveling to North America and Europe;

•fluctuations in currency exchange rates between the U.S. dollar, the euro, U.K. pound sterling, Chinese renminbi, Hungarian forint, Japanese yen, Indian rupee, Australian dollar, Philippines peso, Norwegian krone, Mexican peso, Polish zloty, Romanian leu, South African rand, Hong Kong dollar, Singapore dollar, Arab Emirates dirham, Brazilian real, Swiss franc, Swedish krona, Danish krone, Kenyan shilling, Czech koruna, Israeli new shekel, Colombian peso, Guatemalan quetzal, Malaysian ringgit, Moroccan dirham and Canadian dollar;

currencies in which we transact business;
51

•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;

•legislation in the United States or elsewhere that adversely affects the performance ofdemand for business process outsourcing, and information technology and digital transformation services offshore;

•increasing competition in our industry;

telecommunications or technology disruptions or breaches, or natural or other disasters;

•our ability to protect our intellectual property and the intellectual property of others;

our ability to maintain the security and confidentiality of personal and other sensitive data of our clients, employees or 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;offerings and

acquisitions; and

•unionization of any of our employees.

Although we believe the expectations reflected in anythe 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 FormsForm 10-K, FormsForm 10-Q and Form 8-K reports to the SEC.

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. In the nine months ended September 30, 2022, the pandemic had an insignificant impact on our results. Our Global Leadership Council continues to coordinate and oversee our actions in response to the COVID-19 pandemic.
We will continue to assess the impact of the COVID-19 pandemic on the Company and respond accordingly. 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; future variants or subvariants of the COVID-19 virus and the severity of such variants or subvariants; rates of vaccination and the availability and effectiveness of vaccines, including booster shots, and treatments for COVID-19 globally; the macroeconomic impact of the spread of the virus, including the possibility of prolonged decreases in spending on the types of services we provide, deterioration of our clients’ credit, or reduced economic activity; and related government stimulus measures. We are currently unable to predict the full impact that the COVID-19 pandemic will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including with respect to the factors listed above. 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.

Impact of Russia’s Military Action in Ukraine on our Business
In February 2022, Russian forces launched significant military action against Ukraine, which has resulted in conflict and disruptions in the region. In response to this action taken by Russia, the United States, the United Kingdom and the
52

European Union governments, among others, have imposed various sanctions and export-control measures, including comprehensive financial sanctions, targeted at Russia or designated individuals and entities with business interests and/or government connections to Russia or those involved in Russian military activities. Governments have also enhanced export controls and trade sanctions targeting Russia’s import of goods. In the event these geopolitical tensions fail to improve or deteriorate, additional governmental sanctions and measures may be enacted.
It is not possible to predict the broader consequences of the conflict, including related geopolitical tensions. The invasion and retaliatory actions taken by the United States and other countries in respect thereof, as well as any counter measures or retaliatory actions by Russia in response, have in certain cases caused and are likely to continue to cause supply chain disruption and inflation, regional instability, geopolitical shifts and could materially adversely affect global trade, currency exchange rates, regional economies and the global economy. While we do not have any operations in Russia or Ukraine, it is difficult to anticipate the impact of any of the foregoing on our business or our clients' businesses, and the conflict and actions taken in response to the conflict could increase our costs, disrupt our supply chain, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition and results of operations. To date, we do not believe Russia’s military action in Ukraine and governmental actions in response thereto have had a material impact on our business, financial position or operations. We continue to monitor the situation closely.
For additional information about the risks we face in relation to the COVID-19 pandemic and Russia's invasion of Ukraine, see Part I, Item 1A—“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Overview

We are a global professional services firm focused on drivingthat makes business transformation real. We drive digital-led innovation and runningrun digitally-enabled intelligent operations for our clients. Guidedclients, guided by our experience running thousands of processes for hundreds of Fortune Global 500 clients. We have over 117,700 employees serving clients since our founding, we strive to help our clients achieve their operational goals by applying ourin key industry expertise, proprietary digital technology and analytics. We employ over 77,000 people inverticals from more than 2030 countries. Our registered office is located at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.

In the quarter ended September 30, 2017,2022, we hadrecorded net revenues of $708.8$1,111.0 million, of which $636.6$509.7 million, or 89.8%45.9%, was from clients other than GE, which we refer to as Global Clients,Data-Tech-AI services, with the remaining $72.2601.3 million, or 10.2%54.1%, coming from GE.

Digital Operations services.

Certain Acquisitions

Acquisitions

On September 5, 2017,December 31, 2021, we acquired 100% of the outstanding equity interestequity/limited liability company interests in TandemSeven, Inc. (“TandemSeven”),Hoodoo Digital, LLC, a Massachusetts corporation,Utah limited liability company, for estimated total purchase consideration of $35.7 million, subject to adjustment for closing date working capital and indebtedness.$66.7 million. This amount includesrepresents cash consideration of $31.9$64.4 million, net of cash acquired of $3.9 million,$2.3 million. This acquisition furthers our strategy to fuse experience and a preliminary adjustment for working capitalprocess innovation to help clients drive end-to-end digital transformation. Hoodoo’s expertise with Adobe Experience Manager and indebtedness. As of September 30, 2017, we have paid the sellers total consideration of $34.8 million, resulting in a payable of $0.9 million. TandemSeven’s focus on improving the design of customer experiencesother Adobe applications complements our existing capabilities aimed at transforming clients’ processes end-to-end.end-to-end client solution that seamlessly integrates digital content, e-commerce, data analytics, and marketing operations. Goodwill arising from the acquisition amountedamounting to $25.3$46.0 million which has been allocated toamong our Indiathree reporting unitunits as follows: Financial Services in the amount of $4.3 million, Consumer and Healthcare in the amount of $7.3 million and High Tech and Manufacturing in the amount of $34.4 million, using a relative fair value allocation method. Goodwill arising from this acquisition is deductibledeductible for income tax purposes. The goodwillpurposes and represents primarily the acquired expertise, operating synergiescapabilities and other benefits expected to result from combining the acquired operations with our existing operations.


On July 18, 2017,December 31, 2020, we acquired 100% of the outstanding equity interestinterests in OnSource LLC,Enquero Inc, a Massachusetts limited liability company,California corporation, and certain affiliated entities in India, the Netherlands and Canada (collectively referred to as “Enquero”) for estimated total purchase consideration of $23.0 million, subject to adjustment for closing date working capital, indebtedness and certain transaction expenses incurred by OnSource in connection with closing.$148.8 million. This amount includesrepresents cash consideration of $23.0$137.2 million, and a preliminary adjustment for working capital and net debt. As of September 30, 2017, we have paid the sellers total considerationcash acquired of $23.0$11.6 million. This acquisition bringsincreased the scale and depth of our data and analytics capabilities, enhancing our ability to accelerate the digital capabilities totransformation journeys of our insurance service offerings.clients through cloud technologies and advanced data analytics. Goodwill arising from the acquisition amountedamounting to $19.7$87.9 million which has been allocated among our three reporting units as follows: Financial Services in the amount of $2.6 million, Consumer and Healthcare in the amount of $22.5 million and High Tech and Manufacturing in the amount of $62.7 million, using a relative fair value allocation method. Goodwill arising from this acquisition is not deductible for income tax purposes and represents primarily the acquired capabilities and other benefits expected to result from combining the acquired operations with our Indiaexisting operations.

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 supported our strategy to integrate experience and process innovation to help clients on their digital transformation journeys and
53

expanded on our existing experience capabilities to support end-to-end digital commerce solutions, both business-to-business and business-to-consumer. Additionally, this acquisition expanded 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 unitunits as follows: Consumer and Healthcare in the amount of $30.4 million and High Tech and Manufacturing in the amount of $6.6 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 operating synergies and other benefits expected to result from combining the acquired operations with our existing operations.


On July 18, 2017,November 12, 2019, we acquired from Birlasoft (India) Limited, a100% of the outstanding equity/limited liability company incorporated underinterests in Rightpoint Consulting, LLC, an Illinois limited liability company, and certain affiliated entities in the Indian Companies Act, 1956, Birlasoft Inc., a Delaware corporation,United States and Birlasoft (UK) Limited, a company incorporated in England and WalesIndia (collectively referred to as “Birlasoft”“Rightpoint”) certain assets comprising a portion of Birlasoft’s IT business for total purchase consideration of $16.3$270.7 million. This amount includes cash consideration of $268.2 million, net of cash acquired of $2.5 million. This acquisition expandsexpanded our end-to-end 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 our clientstheir 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 healthcare and aviation industries.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 amountedamounting to $9.7$177.2 million which has been allocated toamong our IT servicesthree reporting unitunits as follows: Financial Services in the amount of $17.0 million, Consumer and Healthcare in the amount of $43.0 million and High Tech and Manufacturing 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 primarily the acquired capabilities operating synergies and other benefits expected to result from combining the acquired operations with our existing operations.

On May 11, 2017, we acquired the instrument processing business of Fiserv Solutions of Australia Pty Limited for estimated total purchase consideration of $19.0 million, subject to adjustment for closing date working capital, value transfer and net debt. This amount includes a preliminary adjustment for closing date working capital, value transfer and net debt. As of September 30, 2017, we have paid the sellers total consideration of $21.3 million, resulting in a receivable of $2.3 million. This acquisition strengthens our financial services portfolio and expands our Australia footprint. Goodwill arising from the acquisition amounted to $5.4 million, which has been allocated to our India reporting unit and is not deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to be derived from combining the acquired operations with our existing operations.

On May 3, 2017, we acquired 100% of the outstanding equity interest in each of BrightClaim LLC, a Delaware limited liability company, BrightServe LLC, a Georgia limited liability company, National Vendor LLC, a Delaware limited liability company, and BrightClaim Blocker, Inc., a Delaware corporation (collectively referred to as “BrightClaim”). The estimated total purchase consideration for the acquisition of BrightClaim is $56.5 million, subject to adjustment for closing date working capital, indebtedness and certain transaction expenses incurred by BrightClaim in connection with closing. This amount includes cash consideration of $52.4 million, net of cash acquired of $4.0 million, and a preliminary adjustment for working capital and net debt. This acquisition enhances our breadth and depth of service offerings for clients in the insurance industry. Goodwill arising from the acquisition amounted to $42.6 million, which has been allocated to our India reporting unit and is partially deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to be derived from combining the acquired operations with our existing operations.

On April 13, 2017, we acquired 100% of the outstanding equity interest in RAGE Frameworks, Inc. (“RAGE”), a Delaware corporation for estimated total purchase consideration of $125.1 million, subject to adjustment for closing date working capital and indebtedness. This amount includes cash consideration of $124.1 million, net of cash acquired of $1.6 million, and a preliminary adjustment for working capital and indebtedness. As of September 30, 2017, we have paid the sellers total consideration of $125.8 million, resulting in a receivable of $0.5 million. This acquisition enhances our digital and artificial intelligence capabilities by adding knowledge-based automation technology and services. Goodwill arising from the acquisition amounted to $105.1 million, which has been allocated to our India reporting unit and is not deductible for tax purposes. The goodwill represents primarily the acquired digital and artificial intelligence capabilities, operating synergies and other benefits expected to be derived from combining the acquired operations with our existing operations.


On February 15, 2017, we acquired 100% of the outstanding equity interest in LeaseDimensions, Inc. (“LeaseDimensions”), an Oregon corporation, for estimated total purchase consideration of $11.6 million, subject to adjustment for closing date working capital and net debt. This amount includes the estimated fair value of the contingent earn-out consideration and cash consideration of $9.1 million, net of cash acquired of $0.2 million, and a preliminary adjustment for working capital and net debt. As of September 30, 2017, we have paid the sellers total consideration of $9.5 million, resulting in a receivable of $0.1 million. The purchase agreement between us and the sellers also provides for contingent earn-out consideration ranging from $0 to $3.0 million, payable by us to the sellers based on the future performance of LeaseDimensions relative to the thresholds specified in the earn-out calculation. This acquisition enhances our capabilities in commercial lending and leasing. Goodwill arising from the acquisition amounted to $8.3 million, which has been allocated to our Americas reporting unit and is not deductible for tax purposes. The goodwill represents primarily the capabilities, operating synergies and other benefits expected to be derived from combining the acquired operations with our existing operations.

On April 13, 2016, we acquired 100% of the outstanding equity interest in Endeavour Software Technologies Private Limited (“Endeavour”), an Indian private limited company. The total consideration we paid the sellers to acquire Endeavour was $14.8 million. This amount includes the estimated fair value of contingent earn-out consideration, cash consideration of $10.3 million, net of cash acquired of $2.4 million, and an adjustment for working capital and net debt. This acquisition enhances our digital capabilities by adding end-to-end mobility services. Goodwill arising from the acquisition amounted to $8.9 million, which has been allocated to our India reporting unit and is not deductible for tax purposes. The goodwill represents primarily the capabilities in end-to-end mobility services, operating synergies and other benefits expected to result from combining the acquired operations with our existing operations.

On January 8, 2016, we acquired 51% of the outstanding equity interest in Strategic Sourcing Excellence LLC (“SSE”), a Delaware limited liability company, for initial cash consideration of $2.6 million, subject to adjustment for working capital, transaction expenses and indebtedness. This acquisition strengthens our procurement consulting, transformation and strategic sourcing capabilities. The equity purchase agreement between us and the selling equity holders provides for contingent earn-out consideration of up to $20.0 million, payable by us to the selling equity holders based on the future performance of SSE relative to the thresholds specified in the earn-out calculation. Up to $9.8 million of the total potential earn-out consideration, representing the selling equity holders’ 49% interest in SSE, is payable by us to the selling equity holders only if either the put or call option, each as described below, is exercised. Goodwill arising from the acquisition amounted to $14.4 million, which has been allocated to our India reporting unit and is deductible for tax purposes. The equity purchase agreement grants us a call option to purchase the remaining 49% equity interest in SSE, which option we have the right to exercise between January 1, 2018 and January 31, 2018. If we do not exercise our call option during such period, the selling equity holders have the right to exercise a put option between March 1, 2018 and April 30, 2018 to require us to purchase their 49% interest in SSE at a price ranging from $2.5 million to $3.0 million. The goodwill represents future economic benefits we expect to derive from our expanded presence in the sourcing and procurement consulting domains, operating synergies and other anticipated benefits of combining the acquired operations with our existing operations.

Secondary Offering

On August 18, 2017, we completed a secondary offering of our common shares, pursuant to which certain of our shareholders affiliated with Bain Capital Investors, LLC, namely Glory Investments A Limited and its affiliated assignees, together with their co-investor, GIC Private Limited (the “Selling Shareholders”), sold 10.0 million common shares at a price of $28.72 per share in an underwritten public offering.  All of the common shares were sold by the Selling Shareholders and, as a result, we did not receive any of the proceeds from the offering.

Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, 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,”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, 2016.

2021. These have been no material changes to our critical accounting policies and estimates during the nine months ended September 30,2022 from those described in our Annual Report on Form 10-K for the year ended December 31, 2021.

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.

54


Results of Operations

The following table sets forth certain data from our consolidated statements of income for the three and nine months ended September 30, 20162021 and 2017.

2022.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase/(Decrease)

 

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

Three months

ended September 30,

 

 

 

Nine months

ended 

September 30,

 

 

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

 

2017 vs. 2016

 

 

 

2017 vs. 2016

 

 

 

 

(dollars in millions)

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues—GE*

 

$

85.4

 

 

$

72.2

 

 

$

276.6

 

 

$

204.7

 

 

 

 

(15.4

)

%

 

 

(26.0

)

%

Net revenues—Global Clients*

 

563.4

 

 

636.6

 

 

1,612.4

 

 

1,797.8

 

 

 

 

13.0

 

%

 

 

11.5

 

%

Total net revenues

 

648.8

 

 

708.8

 

 

1,889.0

 

 

2,002.5

 

 

 

 

9.3

 

%

 

 

6.0

 

%

Cost of revenue

 

392.4

 

 

429.2

 

 

1,149.0

 

 

1,227.8

 

 

 

 

9.4

 

%

 

 

6.9

 

%

Gross profit

 

256.4

 

 

279.6

 

 

740.0

 

 

774.7

 

 

 

 

9.1

 

%

 

 

4.7

 

%

Gross profit margin

 

 

39.5

 

%

 

39.5

 

%

 

39.2

 

%

 

38.7

 

%

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

157.0

 

 

172.1

 

 

482.3

 

 

500.9

 

 

 

 

9.6

 

%

 

 

3.8

 

%

Amortization of acquired intangible assets

 

7.1

 

 

10.2

 

 

19.8

 

 

25.8

 

 

 

 

42.5

 

%

 

 

30.4

 

%

Other operating (income) expense, net

 

5.1

 

 

(0.1)

 

 

(4.8)

 

 

(8.5)

 

 

 

 

(101.2

)

%

 

 

77.8

 

%

Income from operations

 

87.1

 

 

97.5

 

 

242.7

 

 

256.6

 

 

 

 

11.9

 

%

 

 

5.7

 

%

Income from operations as a percentage of

   net revenues

 

 

13.4

 

%

 

13.7

 

%

 

12.8

 

%

 

12.8

 

%

 

 

 

 

 

 

 

 

 

 

Foreign exchange gains (losses), net

 

(0.7)

 

 

5.0

 

 

3.2

 

 

2.0

 

 

 

 

(871.4

)

%

 

 

(35.2

)

%

Interest income (expense), net

 

(4.9)

 

 

 

(8.7

)

 

 

(11.2

)

 

 

(24.1

)

 

 

 

78.0

 

%

 

 

115.4

 

%

Other income (expense), net

 

5.8

 

 

(4.0)

 

 

7.2

 

 

9.0

 

 

 

 

(169.6

)

%

 

 

25.6

 

%

Income before equity-method investment activity, net and income tax expense

 

87.4

 

 

89.7

 

 

241.8

 

 

243.6

 

 

 

 

2.7

 

%

 

 

0.7

 

%

Equity-method investment activity, net

 

(2.1)

 

 

—

 

 

(6.3)

 

 

(4.6)

 

 

 

 

(100.0

)

%

 

 

(27.9

)

%

Income before income tax expense

 

85.2

 

 

89.7

 

 

235.5

 

 

239.0

 

 

 

 

5.3

 

%

 

 

1.5

 

%

Income tax expense

 

17.1

 

 

16.6

 

 

44.0

 

 

44.3

 

 

 

 

(2.8

)

%

 

 

0.6

 

%

Net income

 

68.2

 

 

73.2

 

 

191.5

 

 

194.7

 

 

 

 

7.3

 

%

 

 

1.7

 

%

Net loss attributable to redeemable non-controlling interest

 

0.7

 

 

0.6

 

 

1.9

 

 

1.3

 

 

 

 

(20.4

)

%

 

 

(30.4

)

%

Net income attributable to Genpact Limited

   common shareholders

 

$

68.9

 

 

$

73.7

 

 

$

193.4

 

 

$

196.0

 

 

 

 

7.0

 

%

 

 

1.4

 

%

Net income attributable to Genpact Limited

   common shareholders as a percentage of net

   revenues

 

 

10.6

 

%

 

10.4

 

%

 

10.2

 

%

 

9.8

 

%

 

 

 

 

 

 

 

 

 

 

Percentage Change
Increase/(Decrease)
Three months ended
September 30,		Nine months ended
September 30,		Three months ended September 30,Nine months ended September 30,
20212022202120222022 vs.
2021		2022 vs.
2021
(dollars in millions)
Data-Tech-AI$428.8$509.7$1,208.5$1,465.018.9 %21.2 %
Digital Operations586.9601.31,741.41,803.62.4 %3.6 %
Total net revenues$1,015.7$1,111.0$2,949.9$3,268.69.4 %10.8 %
Cost of revenue653.7717.21,887.62,117.49.7 %12.2 %
Gross profit362.1393.81,062.31,151.28.8 %8.4 %
Gross profit margin35.6 %35.4 %36.0 %35.2 %
Operating expenses
Selling, general and administrative expenses216.0231.4620.9701.87.2 %13.0 %
Amortization of acquired intangible assets13.910.644.632.8(23.7)%(26.5)%
Other operating (income) expense, net(0.1)20.9(0.2)42.2NM*NM*
Income from operations132.3130.8397.1374.4(1.1)%(5.7)%
Income from operations as a percentage of net revenues13.0 %11.8 %13.5 %11.5 %
Foreign exchange gains (losses), net2.73.911.59.341.5 %(19.2)%
Interest income (expense), net(12.8)(13.4)(38.2)(36.7)5.0 %(3.9)%
Other income (expense), net1.5(0.2)9.0(4.9)(115.9)%(154.7)%
Income before income tax expense123.7121.1379.4342.1(2.2)%(9.8)%
Income tax expense21.425.283.078.418.2 %(5.5)%
Net income$102.4$95.8$296.4$263.7(6.4)%(11.0)%
Net income as a percentage of net revenues10.1 %8.6 %10.0 %8.1 %

* At the end of each fiscal year, we reclassify revenue from certain divested GE businesses as Global Client revenue as of the dates of divestiture. Such reclassifications are reflected in the revenue results and growth rates presented in the table above.

Not Meaningful

55


Three Months Ended September 30, 20172022 Compared to the Three Months Ended September 30, 2016

2021


Net revenues. Our net revenues were $708.8$1,111.0 million in the third quarter of 2017,2022, up $60.0$95.3 million, or 9.3%9.4%, from $648.8$1,015.7 million in the third quarter of 2016.2021. The growth in our net revenues was primarily driven primarily by an increasestrong demand for our Data-Tech-AI services, as well as continued steady performance in business process outsourcing, or BPO, services, including our transformation services, delivered to our clients and incremental revenue from acquisitions. Digital Operations services.
Adjusted for foreign exchange, primarily the impact of changes in the valuesvalue of the Japanese yen, Australian dollar, euro and U.K. pound sterling euro and Australian dollar against the U.S. dollar, our net revenues grew 10%12.3% in the third quarter of 2022 compared to the third quarter of 20162021 on a constant currency1 basis. Revenue growth on a constant currency basis 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.
Our average headcount increased by 3.2%10.5% to approximately 75,600116,400 in the third quarter of 20172022 from approximately 73,200105,300 in the third quarter of 2016.

2021.

 

 

 

 

 

 

 

 

 

 

Percentage Change

 

 

 

 

Three months ended September 30,

Increase/(Decrease)

 

 

 

 

2016

 

 

2017

 

 

2017 vs. 2016

 

 

 

 

(dollars in millions)

 

 

 

 

Global Clients:

 

 

 

 

 

 

 

 

 

 

 

 

 

BPO services

 

$

469.5

 

 

$

540.6

 

 

 

15.1

 

%

IT services

 

 

93.9

 

 

 

96.0

 

 

 

2.3

 

 

Total net revenues from Global Clients

 

$

563.4

 

 

$

636.6

 

 

 

13.0

 

%

GE:

 

 

 

 

 

 

 

 

 

 

 

BPO services

 

 

61.0

 

 

 

42.7

 

 

 

(30.0

)

%

IT services

 

 

24.4

 

 

 

29.5

 

 

 

21.2

 

 

Total net revenues from GE

 

$

85.4

 

 

$

72.2

 

 

 

(15.4

)

%

Total net revenues from BPO services

 

 

530.5

 

 

 

583.3

 

 

 

9.9

 

 

Total net revenues from IT services

 

 

118.3

 

 

 

125.6

 

 

 

6.2

 

 

Total net revenues

 

$

648.8

 

 

$

708.8

 

 

 

9.3

 

%

Three months ended 
September 30,
Percentage Change Increase/(Decrease)
202120222022 vs. 2021
        (dollars in millions)
Data-Tech-AI$428.8$509.718.9 %
Digital Operations586.9601.32.4 %
Total net revenues$1,015.7 $1,111.0 9.4 %

At the end of each fiscal year, we reclassify revenue from certain divested GE businesses as Global Client revenue as of the dates of divestiture. Additionally, at the end of 2016, we reclassified revenue from our acquisitions of Endeavour and PNMSoft Limited from IT services to BPO revenue effective as of the date of each acquisition. Such reclassifications are reflected in the revenue results and growth rates presented below and in the table above. In addition, to provide a consistent view of the trends underlying our business, we are presenting below revenue results and growth rates adjusted to assume that all 2016 GE revenue reclassifications occurred on January 1, 2016.

Net revenues from Global ClientsData-Tech-AI services in the third quarter of 2022 were $636.6$509.7 million, up $80.9 million, or 18.9%, from $428.8 million in the third quarter of 2017,2021. This increase was largely driven by continued growth in our cloud-based data solutions and analytics solutions across our focus areas of supply chain management, sales and commercial, and risk management in the third quarter of 2022 compared to the third quarter of 2021.

Net revenues from Digital Operations services in the third quarter of 2022 were $601.3 million, up $73.2$14.4 million, or 13.0%2.4%, from $563.4$586.9 million in the third quarter of 2016. This increase was2021, primarily drivendue to deal ramp-ups from existing contracts and recent wins.
Revenues by segment were as follows:
Three months ended 
September 30,
Percentage Change Increase/(Decrease)
202120222022 vs. 2021
(dollars in millions)
Financial Services$258.5 $303.8 17.5 %
Consumer and Healthcare388.1 412.8 6.4 %
High Tech and Manufacturing366.7 425.3 16.0 %
Total reportable segment1,013.3 1,142.0 12.7 %
Others2.4 (30.9)NM*
Net revenues1,015.7 1,111.0 9.4 %
Business held for sale— (3.9)(100.0)%
Net revenues (excluding business held for sale)$1,015.7 $1,107.1 9.0 %
*Not Meaningful

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 our targeted verticals, including consumer product goods, banking and financial services, insurance, life sciences, manufacturing and high tech. As a percentage of total net revenues, netsuch period.
56

Net revenues from Global Clientsour Financial Services segment increased from 86.8%by 17.5% in the third quarter of 20162022 compared to 89.8%the third quarter of 2021, largely due to continued strong demand for our risk management services from both traditional banks and other financial services clients, leveraging data and analytics. Net revenues from our Consumer and Healthcare segment increased by 6.4% in the third quarter of 2017. If all 2016 revenue reclassifications had occurred on January 1, 2016, revenue2022 compared to the third quarter of 2021, largely driven by Data-Tech-AI services, sales and commercial services and supply chain management engagements, as well as revenues from Global Clients would have increased 12% year over year.

Hoodoo Digital, LLC, which we acquired in the fourth quarter of 2021. Net revenues from GE were $72.2our High Tech and Manufacturing segment increased by 16.0% in the third quarter of 2022 compared to the third quarter of 2021, largely driven by sales and commercial services, supply chain management services and finance and accounting engagements with both new and existing clients, as well as revenues from Hoodoo Digital, LLC, which we acquired in the fourth quarter of 2021. Net revenues from "Others" in the table above primarily represents the impact of foreign exchange fluctuations, which is not allocated to our segments for management’s internal reporting purposes. Net revenues from "Business held for sale" in the table above represents revenues from a business classified as held for sale with effect from April 1, 2022 as part of a series of actions we are taking to focus our business on emerging solutions where we see the greatest opportunities for growth and to deprioritize assets that no longer fit with our long-term strategy. For additional information, see Note 8—“Assets and liabilities held for sale” and Note 19—“Segment reporting” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.


Cost of revenue. Cost of revenue was $717.2 million in the third quarter of 2017, down $13.12022, up $63.5 million, or 15.4%9.7%, from the third quarter of 2016. The decline in net revenues from GE was largely in line with expected decreases in services delivered to GE in the third quarter of 2017, primarily due to GE’s dispositions of GE Capital businesses in 2016. Net revenues from GE declined as a percentage of our total net revenues from 13.2% in the third quarter of 2016 to 10.2% in the third quarter of 2017. If all 2016 revenue reclassifications had occurred on January 1, 2016, revenue from GE would have decreased 12% year over year.

Net revenues from BPO services were $583.3 million, up $52.7 million, or 9.9%, from $530.5$653.7 million in the third quarter of 2016. This increase was primarily attributable to an2021. The increase in services delivered to our Global Clients, particularly core industry vertical operations services and finance and accounting services. Net revenues from IT services were $125.6 millioncost of revenue in the third quarter of 2017, up $7.3 million, or 6.2%, from $118.3 million in the third quarter of 2016 due to an increase in revenues from GE and Global Clients.

Net revenues from BPO services as a percentage of total net revenues increased to 82.3% in the third quarter of 2017 from 81.8% in the third quarter of 2016 with a corresponding decline in the percentage of total net revenues attributable to IT services.


Cost of revenue and gross margin. The following table sets forth the components of our cost of revenue and the resulting gross margin:

  

 

Three months ended September 30,

 

 

As a Percentage of Total Net Revenues

 

 

 

 

2016

 

 

2017

 

 

2016

 

 

 

2017

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

Personnel expenses

 

$

269.8

 

 

$

293.3

 

 

 

41.6

 

%

 

 

41.4

 

%

Operational expenses

 

 

111.4

 

 

 

124.0

 

 

 

17.2

 

 

 

 

17.5

 

 

Depreciation and amortization

 

11.2

 

 

 

11.9

 

 

 

1.7

 

 

 

 

1.7

 

 

Cost of revenue

 

$

392.4

 

 

$

429.2

 

 

 

60.5

 

%

 

 

60.5

 

%

Gross margin

 

 

39.5

%

 

 

39.5

%

 

 

 

 

 

 

 

 

 

 

Cost of revenue was $429.2 million in the third quarter of 2017, up $36.8 million, or 9.4%, from the third quarter of 2016. Wage inflation, increases in our operational headcount, incremental expenses from acquisitions and stock-based compensation expense in the third quarter of 20172022 compared to the third quarter of 2016 contributed2021 was primarily due to the(i) an increase in cost of revenue. Theour operational headcount to support revenue growth, (ii) higher talent replacement costs as well as wage inflation and (iii) higher travel related expenses. This increase in cost of revenue was partially offset by improved operational efficiencies, lower travel expensesa decrease in depreciation and favorable foreign exchange, primarily the impact of changes in the values of the Indian rupee and U.K. pound sterling against the U.S. dollar. Foreign exchange fluctuations cause gains and losses on our foreign currency hedges and have a translation impact when we convert our non-U.S. dollar income statement items to the U.S. dollar, our reporting currency.

Our gross margin in the third quarter of 2017 was 39.5%, unchanged from the third quarter of 2016 due to the factors described above.

Personnel expenses. Personnel expenses as a percentage of total net revenues decreased from 41.6% in the third quarter of 2016 to 41.4% in the third quarter of 2017. Personnelamortization expenses in the third quarter of 2017 were $293.3 million, up $23.5 million, or 8.7%, from $269.8 million in the third quarter of 2016. Personnel expenses increased primarily due to wage inflation, higher stock-based compensation expense, incremental expenses from acquisitions and an approximately 2,500-person, or 3.9%, increase in our operational headcount in the third quarter of 20172022 compared to the third quarter of 2016. These increases were partially offset by the favorable impact of foreign exchange.

Operational expenses. Operational expenses as a percentage of total net revenues increased2021.


Gross margin. Our gross margin decreased from 17.2%35.6% in the third quarter of 20162021 to 17.5%35.4% in the third quarter of 2017. Operational2022. The decrease in gross margin was primarily due to higher personnel expenses, higher talent replacement costs, higher wage inflation and higher travel related expenses, partially offset by a decrease in depreciation and amortization expenses and increased productivity due to improved utilization of our Data-Tech-AI resources in the third quarter of 2017 were $124.0 million, up $12.6 million, or 11.3%, from the third quarter of 2016 primarily due to incremental expenses from acquisitions. The increase in operational expenses was partially offset by lower travel expenses and improved operational efficiencies in the third quarter of 20172022 compared to the third quarter of 2016, and the favorable impact of foreign exchange.

Depreciation and amortization expenses. Depreciation and amortization expenses as a percentage of total net revenues were 1.7%, unchanged from the third quarter of 2016. Depreciation and amortization expenses as a component of cost of revenue were $11.9 million, up $0.7 million, or 6.5%, from the third quarter of 2016. This increase was primarily due to the expansion of certain existing facilities in India, partially offset by the favorable impact of foreign exchange.

2021.

Selling, general and administrative expenses. The following table sets forth the components of our selling, general and administrative, or SG&A, expenses:

  

 

Three months ended September 30,

 

 

As a Percentage of Total Net Revenues

 

 

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

Personnel expenses

 

$

117.0

 

 

$

126.6

 

 

 

18.0

 

%

 

17.9

 

%

Operational expenses

 

 

37.6

 

 

 

43.0

 

 

 

5.8

 

 

 

6.1

 

 

Depreciation and amortization

 

 

2.3

 

 

 

2.5

 

 

 

0.4

 

 

 

0.4

 

 

Selling, general and administrative expenses

 

$

157.0

 

 

$

172.1

 

 

 

24.2

 

%

 

24.3

 

%


expenses (SG&A).SG&A expenses as a percentage of total net revenues marginally increaseddecreased from 24.2%21.3% in the third quarter of 20162021 to 24.3%20.8% in the third quarter of 2017.2022. SG&A expenses were $172.1$231.4 million in the third quarter of 2022, up $15.1$15.5 million, or 9.6%7.2%, from the third quarter of 2016. Wage inflation,2021. The increase in SG&A expenses was primarily due to higher infrastructuresales and marketing expenses, higher stock-based compensation expense, higher fees for professional services, incremental expenses from acquisitions and an increase in marketing expendituresresearch and development costs related to a branding update all contributedcloud-based offerings and other prioritized service lines, increased travel related expenses and increased staffing as well as wage inflation in the third quarter of 2022 compared to higher SG&A expensesthe third quarter of 2021, partially offset by operating leverage.


Amortization of acquired intangibles. Amortization of acquired intangibles was $10.6 million in the third quarter of 2017 compared to the third quarter of 2016. This increase was partially offset by lower travel expenses and the favorable impact of foreign exchange, primarily changes in the values of the Indian rupee and U.K. pound sterling against the U.S. dollar in the third quarter of 2017 compared to the third quarter of 2016. Our sales and marketing expenses as a percentage of net revenues were 6.5% in the third quarter of 2017, unchanged from the third quarter of 2016.

Personnel expenses. As a percentage of total net revenues, personnel expenses marginally decreased from 18.0% in the third quarter of 2016 to 17.9% in the third quarter of 2017. Personnel expenses as a component of SG&A expenses were $126.6 million, up $9.62022, down $3.3 million, or 8.2%23.7%, from the third quarter of 2016.2021. This increase is primarily due to wage inflation, incremental expenses from acquisitions and higher stock-based compensation expense in the third quarter of 2017 compared to the third quarter of 2016, partially offset by a 2.4% decrease in our sales-team personnel expenses and the favorable impact of foreign exchange.

Operational expenses. As a percentage of total net revenues, operational expenses increased from 5.8% in the third quarter of 2016 to 6.1% in the third quarter of 2017. Operational expenses as a component of SG&A expenses were $43.0 million, up $5.3 million, or 14.2%, from the third quarter of 2016. This increase is primarily due to higher infrastructure expenses, higher fees for professional services, incremental expenses from acquisitions and an increase in marketing expenditures related to a branding update in the third quarter of 2017 compared to the third quarter of 2016, partially offset by reduced travel expenses and the favorable impact of foreign exchange.

Depreciation and amortization. Depreciation and amortization expenses as a percentage of total net revenues were 0.4% in the third quarter of 2017, unchanged from the third quarter of 2016. Depreciation and amortization expenses as a component of SG&A expenses were $2.5 million, up $0.2 million, or 8.7%, from the third quarter of 2016. This increase was primarily due to the expansioncompletion of certain existing facilitiesuseful lives of intangibles acquired in India,prior periods, partially offset by amortization expense related to Hoodoo Digital, LLC, which we acquired in the favorable impactfourth quarter of foreign exchange.

Amortization2021.

Other operating (income) expense, net. Other operating expense (net of acquired intangibles. Non-cash charges on account of amortization of acquired intangibles were $10.2income) was $20.9 million in the third quarter of 2017, up $3.0 million, or 42.5%, from the third quarter of 2016. This increase was primarily due2022, compared to the amortization of intangibles acquired after the third quarter of 2016.

Other operating (income) expense, net. The following table sets forth the components of other operating (income) expense, net:

  

 

 

 

 

 

 

 

 

 

Percentage Change

 

 

 

 

Three months ended September 30,

 

 

Increase/(Decrease)

 

 

 

 

2016

 

 

2017

 

 

2017 vs. 2016

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

Other operating (income) expense

 

$

(0.2

)

 

$

(0.1

)

 

 

(69.8

)

%

Provision for impairment of intangible assets

 

 

5.4

 

 

 

—

 

 

 

(100.0

)

 

Change in the fair value of earn-out consideration,

   deferred consideration (relating to business

   acquisitions)

 

 

—

 

 

 

—

 

 

 

—

 

 

Other operating (income) expense, net

 

$

5.1

 

 

$

(0.1

)

 

 

(101.2

)

%

Other operating (income) expense, net as a

   percentage of total net revenues

 

 

0.8

 

%

 

(0.0

)

%

 

 

 

 

Other operating income net(net of expense, wasexpense) of $0.1 million in the third quarter of 2017, compared to $5.1 million of net2021. The change in other operating income/expense was primarily due to an impairment charge of $21.4 million in the third quarter of 2016. This decrease was primarily due2022 related to a $5.4 million non-recurring charge in the third quarter of 2016 relating to an intangible asset, which charge we discuss in Note 10—“Goodwill and intangible assets” under Part I, Item 1—“Financial Statements” above. No suchassets classified as held for sale, while no corresponding charge was recorded in the third quarter of 2017.

2021. For additional information, see Note 8—“Assets and liabilities held for sale” 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 increaseddecreased from 13.4%13.0% in the third quarter of 20162021 to 13.7%11.8% in the third quarter of 2017.2022. Income from operations increaseddecreased by $10.3$1.4 million to $97.5from $132.3 million in the third quarter of 2017 from $87.12021 to $130.8 million in the third quarter of 2016.

2022, primarily due to higher SG&A expenses and an impairment charge on assets classified as held for sale, as discussed above, partially offset by lower amortization of acquired intangible assets in the third quarter of 2022 compared to the third quarter of 2021. For additional information, see Note 8—“Assets and liabilities held for sale” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.

Foreign exchange gains (losses), net. Foreign exchange gains (losses), net represents the impact of the re-measurement of our non-functional currency assets and liabilities and related foreign exchange contracts. We recorded a net foreign exchange gain of $5.0$3.9 million in the third quarter of 2017,2022 compared to a $0.7$2.7 million loss in the third quarter of 2016.2021. The gain in the third quarter of 2017 was2022 resulted primarily a result offrom the depreciation of the Indian rupee against the U.S. dollar during that quarter.dollar. The lossgain in the third quarter of


2016 was 2021 resulted primarily a result offrom

57

gains on fair value hedges, partially offset by losses on remeasurement resulting from the appreciation of the Indian rupee and the depreciation of the U.K. pound sterling against the U.S. dollar during that quarter.

the third quarter of 2021.

Interest income (expense), net.  The following table sets forth the componentsOur interest expense (net of interest income (expense), net:

  

 

 

 

 

 

 

 

 

 

Percentage Change

 

 

 

 

Three months ended September 30,

 

 

Increase/(Decrease)

 

 

 

 

2016

 

 

2017

 

 

2017 vs. 2016

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

Interest income

 

$

1.0

 

 

$

2.5

 

 

 

144.9

 

%

Interest expense

 

(5.9)

 

 

(11.3)

 

 

 

89.7

 

 

Interest income (expense), net

 

$

(4.9

)

 

$

(8.7

)

 

 

78.0

 

%

Interest income (expense), net as a percentage of

   total net revenues

 

 

(0.8

)

%

 

(1.2

)

%

 

 

 

 

Our net interest expense increased by $3.8income) was $13.4 million in the third quarter of 2017 compared to the third quarter of 2016, primarily due to a $5.32022, up $0.6 million increase in interest expense, partially offset by an increase in interest income. The increase in interest expense is primarily due to (i) $3.2 million in interest on the senior notes we issued in March 2017, (ii) an increase in LIBOR, resulting in higher interest expense on the term loan under our LIBOR-linked credit facility, partially offset by gains on interest rate swaps in the third quarter of 2017 compared to losses in the third quarter of 2016, which we discuss in the section titled “Liquidity and Capital Resources—Financial Condition” below, and (iii) higher drawdown on our revolving credit facility in the third quarter of 2017 compared to the third quarter of 2016. Our interest income increased by $1.5from $12.8 million in the third quarter of 2017 compared to2021. Our interest expense was flat at $14.8 million in the third quarters of both 2022 and 2021. Our interest income decreased from $2.1 million in the third quarter of 20162021 to $1.4 million in the third quarter of 2022. This decrease was primarily due to higher account balanceslower interest income in India, where we earn higher interest rates on our deposits than in other jurisdictions where we have deposits.India. The weighted average rate of interest on our debt, including the net impact of interest rate swaps, increased from 2.3% in the third quarter of 2016 to 2.9% in the third quarter of 2017.

2021 to 3.0% in the third quarter of 2022.

Other income (expense), net. Our net other expense (net of income) was $4.0$0.2 million in the third quarter of 2017,2022 compared to net other income (net of $5.8expense) of $1.5 million in the third quarter of 2016. The expense2021. This change was primarily due to losses on changes in the fair value of assets in our deferred compensation plan in the third quarter of 2017 is primarily due to a $5.2 million provision for an expected loss on the divestiture of a non-strategic portion of our legacy IT support business in Europe2022 compared to a $5.2 million gaingains on changes in the divestiturefair value of assets in our cloud-hosted technology platform for the Indian rural banking sector indeferred compensation plan the third quarter of 2016.

Equity-method investment activity, net. Equity-method investment activity, net primarily represents our share of loss in the third quarter of 2016 in one of our non-consolidated affiliates that is no longer a non-consolidating affiliate since June 30, 2017.

Income2021.

Income tax expense. Our income tax expense was $16.6$25.2 million in the third quarter of 2017, down $0.5 million2022, up from $17.1$21.4 million in the third quarter of 2016 (as restated due to the adoption of ASU No. 2016-09 in 2016 with effect from January 1, 2016),2021, representing an effective tax rate (“ETR”) of 18.4%, compared to 19.8%20.8% in the third quarter of 2016.2022, up from 17.3% in the third quarter of 2021. The decreaseincrease in effective tax rate isour ETR was primarily due to certain discrete itemsa lower mix of benefits recorded in the third quartersquarter of 2016 and 2017.

Net income attributable to redeemable non-controlling interest. Non-controlling interest primarily refers2022 compared to the profit or loss associated with the redeemable non-controlling interest in the operations of SSE, which we acquired in the firstthird quarter of 2016. See Note 3—“Business acquisitions” under Part I, Item 1—“Financial Statements” above.

2021.

Net income attributable to Genpact Limited common shareholders. As a result of the foregoing factors, net income attributable to our common shareholders as a percentage of total net revenues was 10.4%8.6% in the third quarter of 2017,2022, down from 10.6%10.1% in the third quarter of 2016.2021. Net income attributable to our common shareholders increased by $4.8 milliondecreased from $68.9$102.4 million in the third quarter of 20162021 to $73.7$95.8 million in the third quarter of 2017.

2022, primarily due to an impairment charge on assets classified as held for sale, as discussed above. For additional information, see Note 8—“Assets and liabilities held for sale” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.

Adjusted income from operations. Adjusted income from operations (“AOI”) increased by $19.9 million from $168.9 million in the third quarter of 2021 to $188.8 million in the third quarter of 2022. Our AOI margin increased from 16.6% in the third quarter of 2021 to 17.1% in the third quarter of 2022, largely due to growth-related operating leverage and the impact of our recent cost containment initiatives, partially offset by higher sales and marketing expenses and travel related expenses in the third quarter of 2022 compared to the third quarter of 2021. In calculating our AOI margin for the third quarter of 2022, we adjusted total net revenues to exclude revenues of $3.9 million from the business designated as held for sale.

Nine Months Ended

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 (gains)/losses, (v) any loss or gain from businesses held for sale, including impairment charges, (vi) restructuring expenses, (vii) interest (income) expense, and (viii) 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 2022, management approved a plan to divest a business within our Consumer and Healthcare segment. It is our intention to complete the sale of this business by June 2023. As a result, we have classified the assets and liabilities of this business as held for sale and have recorded net revenues and a loss of $3.9 million and $7.1 million, respectively, for the third quarter of 2022. We also recorded an impairment charge of $21.4 million in the third quarter of 2022 on assets classified as held for sale. The loss and impairment charge were excluded from AOI in the third quarter of 2022. There was no corresponding loss or impairment charge in the third quarter of 2021, as this business was not designated as held for sale during such period. For additional information, see Note 8— "Assets and liabilities held for sale" and Note 19—“Segment reporting” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
58

The following table shows the reconciliation of AOI to net income, the most directly comparable GAAP measure, for the three months ended September 30, 20172021 and 2022:
Three months ended
September 30,
20212022
(dollars in millions)
Net income$102.4 $95.8 
Foreign exchange (gains) losses, net(2.7)(3.9)
Interest (income) expense, net12.813.4 
Income tax expense21.425.2 
Stock-based compensation21.519.2 
Amortization and impairment of acquired intangible assets13.710.5 
Loss relating to business held for sale— 7.1 
Impairment charge on assets classified as held for sale— 21.4 
Adjusted income from operations$168.9 $188.8 
The following table sets forth our AOI by segment for the three months ended September 30, 2021 and 2022:
Three months ended
September 30,
Percentage Change Increase/(Decrease)
202120222022 vs. 2021
(dollars in millions)
Financial Services$32.5 $41.0 26.1 %
Consumer and Healthcare63.749.6 (22.1)%
High Tech and Manufacturing68.369.61.9 %
Total reportable segment164.5160.2(2.6)%
Others4.5 21.6 NM*
Total168.9181.87.6 %
Loss relating to business held for sale— 7.1100.0 %
Adjusted income from operations$168.9 $188.8 11.8 %
*Not Meaningful

AOI of our Financial Services segment increased to $41.0 million in the third quarter of 2022 from $32.5 million in the third quarter of 2021, primarily due to higher revenues and improved efficiency, partially offset by higher talent replacement costs as well as wage inflation. AOI of our Consumer and Healthcare segment decreased to $49.6 million in the third quarter of 2022 from $63.7 million in the third quarter of 2021, largely due to higher sales costs, higher talent replacement costs and the impact of wage inflation, partially offset by higher revenues. AOI of our High Tech and Manufacturing segment increased to $69.6 million in the third quarter of 2022 from $68.3 million in the third quarter of 2021, primarily driven by higher revenues, partially offset by higher talent replacement costs as well as wage inflation. 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. AOI for "Business held for sale" in the table above primarily represents the loss attributable to a business classified as held for sale. See Note 19—“Segment reporting” and Note 8—"Assets and liabilities held for sale" under Part I, Item 1— “Unaudited Consolidated Financial Statements” above.


59

Nine months ended September 30, 2022 Compared to the Nine Months Endedmonths ended September 30, 2016

2021

Net revenues. Our net revenues were $2,002.5$3,268.6 million in the nine months ended September 30, 2017,2022, up $113.5$318.7 million, or 6.0%10.8%, from $1,889.0$2,949.9 million in the nine months ended September 30, 2016.2021. The growth in our net revenues was primarily driven by an increase in BPO services, including our transformation services, delivered to our clientsfrom both Data-Tech-AI and incremental revenue from acquisitions. Digital Operations services.
Adjusted for foreign exchange, primarily the impact of changes in the valuesvalue of the euro, theJapanese yen, Australian dollar, euro and U.K. pound sterling against the U.S. dollar, our net revenues grew 7%12.9% in the nine months ended September 30, 2022 compared to the nine months ended September 30, 20162021 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 13.1% to approximately 114,800 in the nine months ended September 30, 2022 from approximately 101,500 in the nine months ended September 30, 2021.
Nine months ended September 30,Percentage Change
Increase/(Decrease)
202120222022 vs. 2021
(dollars in millions)
Data-Tech-AI$1,208.5$1,465.021.2 %
Digital Operations1,741.41,803.63.6 %
Total net revenues$2,949.9 $3,268.6 10.8 %
Net revenues from Data-Tech-AI services in the nine months ended September 30, 2022 were $1,465.0 million, up $256.5 million, or 21.2%, from $1,208.5 million in the nine months ended September 30, 2021. This increase was largely driven by continued growth in our cloud-based data solutions across our focus areas of supply chain management, sales and commercial, and risk management in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Net revenues from Digital Operations services in the nine months ended September 30, 2022 were $1,803.6 million, up $62.2 million, or 3.6%, from $1,741.4 million in the nine months ended September 30, 2021, primarily due to increased deal ramp-ups from existing contracts and new wins.

2Revenue growth on a constant currency basis is a non-GAAP measure. Our average headcountmeasure 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.
60

Revenues by segment were as follows:
Nine months ended September 30,Percentage Change
Increase/(Decrease)
202120222022 vs. 2021
(dollars in millions)
Financial Services$750.6 $872.6 16.3 %
Consumer and Healthcare1,101.21,223.311.1 %
High Tech and Manufacturing1,081.81,225.713.3 %
Total reportable segment2,933.5 3,321.6 13.2 %
Others16.4 (53.0)NM*
Net revenues2,949.9 3,268.6 10.8 %
Business held for sale— (8.8)(100.0)%
Net revenues (excluding business held for sale)$2,949.9 $3,259.8 10.5 %
*Not Meaningful

Net revenues from our Financial Services segment increased by 4.9% to approximately 75,30016.3% in the nine months ended September 30, 20172022 compared to the nine months ended September 30, 2021, largely due to continued strong demand for our risk management services from approximately 71,800both traditional banks and other financial services clients, leveraging data and analytics. Net revenues from our Consumer and Healthcare segment increased by 11.1% in the nine months ended September 30, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage Change

 

 

 

 

Nine months ended September 30,

 

 

 

Increase/(Decrease)

 

 

 

 

2016

 

 

2017

 

 

 

2017 vs. 2016

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

Global Clients:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BPO services

 

$

 

1,327.4

 

 

$

 

1,513.8

 

 

 

 

14.0

 

%

IT services

 

 

 

285.0

 

 

 

 

284.1

 

 

 

 

(0.3

)

 

Total net revenues from Global Clients

 

$

 

1,612.4

 

 

$

 

1,797.8

 

 

 

 

11.5

 

%

GE:

 

 

 

 

 

 

 

 

 

 

 

 

BPO services

 

 

 

202.7

 

 

 

 

137.0

 

 

 

 

(32.4

)

%

IT services

 

 

 

73.9

 

 

 

 

67.7

 

 

 

 

(8.4

)

 

Total net revenues from GE

 

$

 

276.6

 

 

$

 

204.7

 

 

 

 

(26.0

)

%

Total net revenues from BPO services

 

 

 

1,530.1

 

 

 

 

1,650.8

 

 

 

 

7.9

 

 

Total net revenues from IT services

 

 

 

358.9

 

 

 

 

351.7

 

 

 

 

(2.0

)

 

Total net revenues

 

$

 

1,889.0

 

 

$

 

2,002.5

 

 

 

 

6.0

 

%

At2022 compared to the endnine months ended September 30, 2021, largely driven by sales and commercial services and supply chain management engagements as well as revenues from Hoodoo Digital, LLC, which we acquired in the fourth quarter of each fiscal year, we reclassify revenue from certain divested GE businesses as Global Client revenue as of the dates of divestiture. Additionally, at the end of 2016, we reclassified revenue2021. Net revenues from our acquisitions of EndeavourHigh Tech and PNMSoft Limited from IT services to BPO revenue effective as of the date of each acquisition. Such reclassifications are reflectedManufacturing segment increased by 13.3% in the revenue resultsnine months ended September 30, 2022 compared to the nine months ended September 30, 2021, largely driven by supply chain management and growth rates presented belowfinance and accounting engagements with both new and existing clients, as well as revenues from Hoodoo Digital, LLC, which we acquired in the fourth quarter of 2021. 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. Net revenues from "Business held for sale" in the table above. In addition,above represents revenues from a business classified as held for sale with effect from April 1, 2022 as part of a series of actions we are taking to provide a consistent view of the trends underlyingfocus our business on emerging solutions where we are presenting below see the greatest opportunities for growth and to deprioritize assets that no longer fit with our long-term strategy. For additional information, see Note 8—“Assets and liabilities held for sale” and Note 19—“Segment reporting” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.

Cost of revenue. Cost of revenue results and growth rates adjusted to assume that all 2016 revenue reclassifications occurred on January 1, 2016.

Net revenues from Global Clients were $1,797.8was $2,117.4 million in the nine months ended September 30, 2017,2022, up $185.4$229.8 million, or 11.5%12.2%, from $1,612.4$1,887.6 million in the nine months ended September 30, 2016. This increase was primarily driven by growth in our targeted verticals, including banking and financial services, consumer product goods, life sciences, manufacturing, insurance and high tech. As a percentage of total net revenues, net revenues from Global Clients increased from 85.4% in the nine months ended September 30, 2016 to 89.8% in the nine months ended September 30, 2017. If all 2016 revenue reclassifications had occurred on January 1, 2016, revenue from Global Clients would have increased 10% year over year.

Net revenues from GE were $204.7 million in the nine months ended September 30, 2017, down $71.9 million, or 26.0%, from the nine months ended September 30, 2016.2021. The decline in net revenues from GE was largely due to GE’s dispositions of GE Capital businesses in 2016. Net revenues from GE declined as a percentage of our total net revenues from 14.6% in the nine months ended September 30, 2016 to 10.2% in the nine months ended September 30, 2017. If all 2016 revenue reclassifications had occurred on January 1, 2016, revenue from GE would have decreased 18% year over year.

Net revenues from BPO services were $1,650.8 million, up $120.7 million, or 7.9%, from $1,530.1 million in the nine months ended September 30, 2016. This increase was primarily attributable to an increase in services delivered to our Global Clients, particularly core industry vertical operations services and finance and accounting services. Net revenues from IT services were $351.7 million in the nine months ended September 30, 2017, down $7.2 million, or 2.0%, from $358.9 million in the nine months ended September 30, 2016, primarily due to a decrease in revenues from GE.

Net revenues from BPO services as a percentage of total net revenues increased to 82.4% in the nine months ended September 30, 2017 from 81.0% in the nine months ended September 30, 2016, with a corresponding decline in the percentage of total net revenues attributable to IT services.


Cost of revenue and gross margin. The following table sets forth the components of our cost of revenue and the resulting gross margin:

  

 

Nine months ended September 30,

 

 

As a Percentage of Total Net Revenues

 

 

 

 

 

2016

 

 

2017

 

 

2016

 

 

 

2017

 

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

Personnel expenses

 

$

788.8

 

 

$

847.8

 

 

 

41.8

 

%

 

 

42.3

 

%

 

Operational expenses

 

 

325.9

 

 

 

346.3

 

 

 

17.3

 

 

 

 

17.3

 

 

 

Depreciation and amortization

 

34.3

 

 

 

33.7

 

 

 

1.8

 

 

 

 

1.7

 

 

 

Cost of revenue

 

$

1,149.0

 

 

$

1,227.8

 

 

 

60.8

 

%

 

 

61.3

 

%

 

Gross margin

 

 

39.2

%

 

 

38.7

%

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue was $1,227.8 million in the nine months ended September 30, 2017, up $78.8 million, or 6.9%, from the nine months ended September 30, 2016. Wage inflation, an increase in our operational headcount, incremental expenses from acquisitions and an increase in infrastructure expenses contributed to the higher cost of revenue in the nine months ended September 30, 20172022 compared to the nine months ended September 30, 2016. These increases were2021 was primarily due to (i) an increase in our operational headcount to support revenue growth, (ii) higher talent replacement cost as well as wage inflation, and (iii) higher travel related expenses. This increase was partially offset by improved operational efficiencies,(i) lower traveldepreciation and amortization expense, (ii) lower facilities maintenance expenses and the favorable impact of foreign exchange, primarily changes in the values(iii) lower communication expenses. We also recorded an employee severance charge as part of the Indian rupee and U.K. pound sterling against the U.S. dollar.

Our gross margin decreased from 39.2%restructuring we undertook in the nine months ended September 30, 2016 to 38.7%2022, while no corresponding charge was recorded in the nine months ended September 30, 20172021. For additional information, see Note 25—“Restructuring” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.


Gross margin. Our gross margin decreased from 36.0% in the nine months ended September 30, 2021 to 35.2% in the nine months ended September 30, 2022. Excluding the impact of an employee severance charge of $8.4 million, gross margin was 35.5% in the nine months ended September 30, 2022. The decrease in gross margin, excluding the impact of an employee severance charge, was primarily due to higher personnel expenses, higher talent replacement costs and wage inflation, and higher travel related expenses in the factors described above.

Personnel expenses. Personnelnine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Selling, general and administrative expenses (SG&A). SG&A expenses as a percentage of total net revenues increased from 41.8%21.0% in the nine months ended September 30, 20162021 to 42.3%21.5% in the nine months ended September 30, 2017. Personnel expenses were $847.8 million in2022. Excluding the nine months ended September 30, 2017, up $59.0 million, or 7.5%, from $788.8 million in the nine months ended September 30, 2016. The impact of wage inflation, an approximately 2,700-person, or 4.4%, increase in our operational headcount, incremental expenses from acquisitions and higher stock-based compensation expense in the nine months ended September 30, 2017 compared to the same period in 2016 contributed to higher personnel expenses. These increases were partially offset by improved operational efficiencies and the favorable impactemployee severance charge of foreign exchange.

Operational expenses. Operational$8.7 million, SG&A expenses as a percentage of total net revenues were approximately 17.3%21.2% in the nine months ended September 30, 2017, unchanged from the nine months ended September 30, 2016. Operational2022. SG&A expenses were $346.3$701.8 million in the nine months ended September 30, 2017,2022, up $20.4$81.0 million from $620.9 million in the nine months ended September 30, 2021.

61

The increase in SG&A expenses, excluding the impact of an employee severance charge, was primarily due to higher sales and marketing expenses, increased investments to support increased revenues, an increase in research and development costs related to cloud-based offerings and other prioritized service lines, travel related expenses and increased staffing, as well as wage inflation in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, partially offset by operational leverage.

Amortization of acquired intangibles. Amortization of acquired intangibles was $32.8 million in the nine months ended September 30, 2022, down $11.8 million, or 6.2%26.5%, from the nine months ended September 30, 2016.  Higher infrastructure expenses and incremental expenses from acquisitionscontributed2021. This decrease was primarily due to the increasecompletion of the useful lives of intangibles acquired in operational expenses in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The increase in operational expenses wasprior periods, partially offset by improved operational efficiencies, lower travel expenses and the favorable impact of foreign exchange.

Depreciation and amortization expenses. Depreciation and amortization expenses as a percentage of total net revenues marginally decreased from 1.8%expense related to Hoodoo Digital, LLC, which we acquired in the nine months ended September 30, 2016 to 1.7% in the nine months ended September 30, 2017. Depreciation and amortization expenses were $33.7fourth quarter of 2021.

Other operating (income) expense, net. Other operating expense (net of income) was $42.2 million in the nine months ended September 30, 2017, down $0.6 million, or 1.7%, from the nine months ended September 30, 2016. This marginal decrease was primarily due2022 compared to an increase in fully depreciated assets since the nine months ended September 30, 2016 and the favorable impactother operating income (net of foreign exchange.

Selling, general and administrative expenses. The following table sets forth the componentsexpense) of our SG&A expenses:

 

 

Nine months ended September 30,

 

 

As a Percentage of Total Net Revenues

 

 

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

Personnel expenses

 

$

343.3

 

 

$

371.9

 

 

 

18.2

 

%

 

18.6

 

%

Operational expenses

 

 

132.4

 

 

 

121.7

 

 

 

7.0

 

 

 

6.1

 

 

Depreciation and amortization

 

 

6.7

 

 

 

7.3

 

 

 

0.4

 

 

 

0.4

 

 

Selling, general and administrative expenses

 

$

482.3

 

 

$

500.9

 

 

 

25.5

 

%

 

25.0

 

%

SG&A expenses as a percentage of total net revenues decreased from 25.5% in the nine months ended September 30, 2016 to 25.0% in the nine months ended September 30, 2017. SG&A expenses were $500.9$0.2 million in the nine months ended September 30, 2017, up $18.52021. The change in other operating expense/income was due to a $20.3 million or 3.8%, from the nine months ended September 30, 2016. Higher personnel expenses, higher infrastructure


expenses, incremental expenses from acquisitions, investments in domain expertise and digital and analytics capabilities and an increase in marketing expenditureswrite-down related to the abandonment of various office premises and a branding update contributed$1.4 million write-down related to higher SG&A expensestangible assets, both of which were taken as part of a restructuring in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. These increases were partially offset by lower travel expenses, a lower reserve for doubtful receivables and the favorable impact2022. We also recorded an impairment charge of foreign exchange, primarily changes in the values of the Indian rupee and U.K. pound sterling against the U.S. dollar. Our sales and marketing expenses as a percentage of total net revenues decreased from approximately 7.0% in the nine months ended September 30, 2016 to approximately 6.6% in the nine months ended September 30, 2017.

Personnel expenses. Personnel expenses as a percentage of total net revenues increased from 18.2% in the nine months ended September 30, 2016 to 18.6% in the nine months ended September 30, 2017. Personnel expenses as a component of SG&A expenses were $371.9$21.4 million in the nine months ended September 30, 2017, up $28.6 million, or 8.3%, from the nine months ended September 30, 2016. Wage inflation, investments in domain expertise and digital and analytics capabilities, incremental expenses from acquisitions and higher stock-based compensation expense resulted in higher personnel costs as a component of SG&A expenses in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. These increases were partially offset by the favorable impact of foreign exchange.

Operational expenses. Operational expenses as a percentage of total net revenues decreased from 7.0% in the nine months ended September 30, 2016 to 6.1% in the nine months ended September 30, 2017. Operational expenses as a component of SG&A expenses were $121.7 million in the nine months ended September 30, 2017, down $10.7 million, or 8.1%, from the nine months ended September 30, 2016. This decrease is primarily due to decreased travel expenses, a lower reserve for doubtful receivables and the favorable impact of foreign exchange in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. This decrease was partially offset by higher infrastructure expenses, incremental expenses from acquisitions and an increase in marketing expenditures2022 related to a branding update.

Depreciation and amortization. Depreciation and amortization expensesassets classified as a percentage of total net revenuesheld for sale, while no corresponding charges were 0.4%, unchanged from the nine months ended September 30, 2016. Depreciation and amortization expenses were $7.3 million in the nine months ended September 30, 2017, up $0.7 million, or 10.1%, from the nine months ended September 30, 2016. This marginal increase was primarily due to the expansion of certain existing facilities in India, partially offset by the favorable impact of foreign exchange.

Amortization of acquired intangibles. Non-cash charges on account of the amortization of acquired intangibles were $25.8 million in the nine months ended September 30, 2017, up $6.0 million, or 30.4%, from the nine months ended September 30, 2016. This increase is primarily due to the amortization of intangibles acquired after the nine months ended September 30, 2016.

Other operating (income) expense, net. The following table sets forth the components of other operating (income) expense, net:

 

 

 

 

 

 

 

 

 

 

Percentage Change

 

 

 

 

Nine months ended September 30,

 

 

Increase/(Decrease)

 

 

 

 

2016

 

 

2017

 

 

2017 vs. 2016

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

Other operating (income) expense

 

$

(1.0

)

 

$

(7.1

)

 

 

617.5

 

%

Provision for impairment of intangible assets

 

 

11.2

 

 

 

—

 

 

 

(100.0

)

 

Change in the fair value of earn-out consideration,

   deferred consideration (relating to business

   acquisitions)

 

 

(15.0

)

 

 

(1.4

)

 

 

(90.6

)

 

Other operating (income) expense, net

 

$

(4.8

)

 

$

(8.5

)

 

 

77.8

 

%

Other operating (income) expense, net as a

   percentage of total net revenues

 

 

(0.3

)

%

 

(0.4

)

%

 

 

 

 

Other operating income, net of expenses, was $8.5 million in the nine months ended September 30, 2017, up $3.7 million from $4.8 million in the nine months ended September 30, 2016, primarily due to a $1.4 million gain in the nine months ended September 30, 2017 compared to a $15.0 million gain in the nine months ended September 30, 2016 as a result of changes in the fair value of earn-out consideration payable in connection with certain acquisitions. We also recorded $7.1 million in other operating income in the nine months ended September 30, 2017, primarily due to a gain on the sale of rights to certain real property and as a result of the reversal of certain liabilities, compared to $1.0 million in other operating income in the nine months ended September 30, 2016. Additionally, we recorded an $11.2 million non-recurring charge in the nine months ended September 30, 2016 relating to intangible


assets, which charge we discuss in Note 10—“Goodwill and intangible assets” under Part I, Item 1—“Financial Statements” above. No such charge was recorded in the nine months ended September 30, 2017.

2021. For additional information, see Note 8—“Assets and liabilities held for sale” and Note 25—“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 was 12.8%decreased from 13.5% in the nine months ended September 30, 2017, unchanged from2021 to 11.5% in the nine months ended September 30, 2016.2022. Income from operations was $256.6decreased by $22.7 million from $397.1 million in the nine months ended September 30, 2017, up $13.9 million from $242.72021 to $374.4 million in the nine months ended September 30, 2016.

2022, primarily due to an impairment charge on assets classified as held for sale and the restructuring discussed above. For additional information, see Note 8—“Assets and liabilities held for sale” and Note 25—“Restructuring” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.

Foreign exchange (gains) losses,gains (losses), net. We recorded a net foreign exchange gain of $2.0$9.3 million in the nine months ended September 30, 2017, down from $3.22022, compared to $11.5 million in the nine months ended September 30, 2016,2021. The gain in each of the nine month periods ended September 30, 2022 and 2021 resulted primarily due to the re-measurement of non-functional currency assets and liabilities and related foreign exchange contracts, mainly resulting from the appreciationdepreciation of the Indian rupee against the U.S. dollar in the nine months ended September 30, 2017 compared to the depreciation of the Indian rupee and U.K. pound sterling against the U.S. dollar in the nine months ended September 30, 2016.

dollar.

Interest income (expense), net. The following table sets forth the componentsnet. Our interest expense (net of interest income (expense), net:

 

 

 

 

 

 

 

 

 

 

Percentage Change

 

 

 

 

 

Nine months ended September 30,

 

 

Increase/(Decrease)

 

 

 

 

 

2016

 

 

2017

 

 

2017 vs. 2016

 

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

Interest income

 

$

5.6

 

 

$

4.5

 

 

 

(18.4

)

%

 

Interest expense

 

(16.7)

 

 

(28.6)

 

 

 

70.9

 

 

 

Interest income (expense), net

 

$

(11.2

)

 

$

(24.1

)

 

 

115.4

 

%

 

Interest income (expense), net as a percentage of

   total net revenues

 

 

(0.6

)

%

 

(1.2

)

%

 

 

 

 

 

Our net interest expenseincome) was $24.1$36.7 million in the nine months ended September 30, 2017, up $12.92022, down $1.5 million from $11.2$38.2 million in the nine months ended September 30, 2016,2021, primarily due to an $11.9a $2.0 million increasedecrease in interest expense, offset by a $0.5 million decrease in interest income. The decrease in interest expense was largely due to the repayment of our $350 million aggregate principal amount of 3.70% senior notes issued in March 2017, partially offset by a higher outstanding balance and higher average London Interbank Offered Rate ("LIBOR")-based rate on our revolving credit facility in the nine months ended September 30, 20172022 compared to the nine months ended September 30, 2016. The $11.9 million increase in interest expense is primarily due to (i) $6.6 million in interest on the senior notes we issued in March 2017, (ii) an increase in LIBOR, resulting in higher interest expense on the term loan under our LIBOR-linked credit facility,2021, which we discuss in the section titled “Liquidity and Capital Resources—Financial Condition” below, and (iii) higher drawdown on our revolving credit facility in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Our interest income decreased by $1.0 million in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to lower average account balances in India, where we earn higher interest rates on our deposits than in other jurisdictions where we have deposits.below. The weighted average rate of interest on our debt, increased from 2.1%including the net impact of interest rate swaps, was 2.9% in each of the nine months ended September 30, 2022 and 2021.

Other income (expense), net. Our other expense (net of income) was $4.9 million in the nine months ended September 30, 20162022 compared to 2.8% in the nine months ended September 30, 2017.

Other income (expense), net. Our net other income was(net of expense) of $9.0 million in the nine months ended September 30, 2017, up $1.8 million from $7.22021. This change was largely attributable to losses on changes in the fair value of assets in our deferred compensation plan in the nine months ended September 30, 2022 compared to gains on changes in the fair value of assets in our deferred compensation plan in the nine months ended September 30, 2021 and the settlement of certain pre-GE divestiture related tax liabilities in the nine months ended September 30, 2021, for which we were indemnified by GE.

Income tax expense. Our income tax expense was $78.4 million in the nine months ended September 30, 2016. This increase is primarily due to a subsidy received by one of our Indian subsidiaries in the nine months ended September 30, 2017, partially offset by a $5.2 million provision for an expected loss on the divestiture of a non-strategic portion of our legacy IT support business in Europe in the nine months ended September 30, 2017 and a $5.2 million gain on the divestiture of our cloud-hosted technology platform for the Indian rural banking sector in the nine months ended September 30, 2016.

Equity-method investment activity, net. Equity-method investment activity, net primarily represents our share of loss in one of our non-consolidated affiliates that ceased to be a non-consolidating affiliate since June 30, 2017.

Income tax expense. Our income tax expense was $44.32022, down from $83.0 million in the nine months ended September 30, 2017, up $0.3 million from $44.0 million2021, due to lower pre-tax income, representing an ETR of 22.9% in the nine months ended September 30, 2016 (as restated due to the adoption of ASU No. 2016-09 in 2016 with effect2022, up from January 1, 2016), representing an effective tax rate of 18.4%21.9% in the nine months ended September 30, 2017, marginally down from 18.5%2021. The increase in our ETR was primarily due to a lower mix of benefits recorded in the nine months ended September 30, 2016.

Net income attributable2022 compared to redeemable non-controlling interest. Non-controlling interest primarily refers to the profit or loss associated with the redeemable non-controlling interest in the operations of SSE in the nine months ended September 30, 2016, which we discuss in Note 3—“Business acquisitions” under Part I, Item 1—“Financial Statements” above.

2021.

Net income attributable to Genpact Limited common shareholders.. As a result of the foregoing factors, net income attributable to our common shareholders as a percentage of total net revenues decreased from 10.2%was 8.1% in the nine months ended September 30, 2016 to 9.8%2022, down from 10.0% in the nine months ended September 30, 2017.2021. Net income attributable to our common shareholders was $196.0decreased by $32.7 million from $296.4 million in the nine months ended September 30, 2017, up $2.6 million from $193.42021 to $263.7 million in the nine months ended September 30, 2016.

2022, primarily due to lower gross margins, an impairment charge on assets classified

62

as held for sale and the restructuring discussed above. For additional information, see note 8—“Assets and liabilities held for sale” and Note 25—“Restructuring” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
Adjusted income from operations. Adjusted income from operations (“AOI”) increased by $23.0 million from $508.6 million in the nine months ended September 30, 2021 to $531.6 million in the nine months ended September 30, 2022. Our AOI margin decreased to 16.3% in the nine months ended September 30, 2022 from 17.2% in the nine months ended September 30, 2021. The decrease in AOI margin was due to lower gross margins, higher sales and marketing expenses, an increase in investments in research and development related to cloud-based offerings and other prioritized service lines and increased travel related expenses in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. In calculating our AOI margin for the nine months ended September 30, 2022, we adjusted total net revenues to exclude revenues of $8.8 million from the business designated as held for sale.
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) any loss or gain on businesses held for sale, including impairment charges, (vii) interest (income) expense, and (viii) 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 nine months ended September 30, 2022, we carried out certain restructuring activities in line with our long-term strategy to implement a flexible, hybrid global delivery model that incorporates a mix of offshore, onshore, near shore, and remote working. As a result, we determined that certain leases and employee roles were unnecessary. Accordingly, we took a restructuring charge of $38.8 million, which was excluded from AOI in the nine months ended September 30, 2022. No corresponding charge was recorded in the nine months ended September 30, 2021. For additional information, see Note 25—“Restructuring” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
During the nine months ended September 30, 2022, management approved a plan to divest a business within our Consumer and Healthcare segment. It is our intention to complete the sale of this business by June 2023. As a result, we have classified the assets and liabilities of this business as held for sale and have recorded net revenues and loss of $8.8 million and $14.3 million, respectively, for the nine months ended September 30, 2022. We also recorded an impairment charge of $21.4 million on assets classified as held for sale for the nine months ended September 30, 2022. The loss and impairment charge were excluded from AOI in the nine months ended September 30, 2022, and there were no corresponding loss and impairment charge to exclude in the nine months ended September 30, 2021, as this business was not designated as held for sale during such period. For additional information, see Note 8—"Assets and liabilities held for sale" and Note 19—“Segment reporting” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.
63

The following table shows the reconciliation of AOI to net income, the most directly comparable GAAP measure for the nine months ended September 30, 2021 and 2022:
Nine months ended September 30,
20212022
(dollars in millions)
Net income$296.4 $263.7 
Foreign exchange (gains) losses, net(11.5)(9.3)
Interest (income) expense, net38.2 36.7 
Income tax expense83.0 78.4 
Stock-based compensation58.6 54.9 
Amortization and impairment of acquired intangible assets44.0 32.7 
Restructuring expense— 38.8 
Loss relating to business held for sale— 14.3 
Impairment charge on assets classified as held for sale— 21.4 
Adjusted income from operations$508.6 $531.6 

The following table sets forth our AOI by segment for the nine months ended September 30, 2021 and 2022:
Nine months ended September 30,Percentage Change
Increase/(Decrease)
202120222022 vs. 2021
(dollars in millions)
Financial Services$99.0 $102.7 3.8 %
Consumer and Healthcare184.6 158.3 (14.3)%
High Tech and Manufacturing203.9 207.9 1.9 %
Total reportable segment487.5 468.9 (3.8)%
Others21.1 48.5 129.8 %
Total508.6 517.3 1.7 %
Loss relating to business held for sale— 14.3 100.0 %
Adjusted income from operations$508.6 $531.6 4.5 %

AOI of our Financial Services segment increased to $102.7 million in the nine months ended September 30, 2022 from $99.0 million in the nine months ended September 30, 2021, primarily due to higher revenues and improved efficiency, partially offset by higher talent replacement costs as well as wage inflation in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. AOI of our Consumer and Healthcare segment decreased from $184.6 million in the nine months ended September 30, 2021 to $158.3 million in the nine months ended September 30, 2022, largely due to higher sales costs, higher talent replacement costs and the impact of wage inflation, partially offset by higher revenues in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. AOI of our High Tech and Manufacturing segment increased to $207.9 million in the nine months ended September 30, 2022 from $203.9 million in the nine months ended September 30, 2021 due to higher revenues, partially offset by higher talent replacement costs as well as wage inflation. 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. AOI for "Business held for sale" in the table above primarily represents the loss attributable to a business classified as held for sale. See Note 8—"Assets and liabilities held for sale" and Note 19—“Segment reporting” under Part I, Item 1— “Unaudited Consolidated Financial Statements” above.
64

Liquidity and Capital Resources

Overview

Information about our financial position as of December 31, 20162021 and September 30, 20172022 is presented below:

 

 

As of December 31,

2016

 

 

As of September 30,

2017

 

 

Percentage Change

Increase/(Decrease)

 

 

 

 

(dollars in millions)

 

 

2017 vs. 2016

 

 

Cash and cash equivalents

 

$

422.6

 

 

$

440.1

 

 

 

4.1

 

%

Short-term borrowings

 

 

160.0

 

 

 

160.0

 

 

 

—

 

 

Long-term debt due within one year

 

39.2

 

 

 

39.2

 

 

 

0.1

 

 

Long-term debt other than the current portion

 

 

698.2

 

 

 

1,016.4

 

 

 

45.6

 

 

Genpact Limited total shareholders’ equity

 

$

1,286.6

 

 

$

1,314.4

 

 

 

2.2

 

%

As of December 31, 2021As of September 30, 2022Percentage Change
Increase/(Decrease)
(dollars in millions)2022 vs. 2021
Cash and cash equivalents$899.5 $518.7 (42.3)%
Short-term borrowings— 200.0NM*
Long-term debt due within one year383.4535.139.6 %
Long-term debt other than the current portion1,272.5746.6(41.3)%
Genpact Limited total shareholders’ equity$1,897.1 $1,731.8 (8.7)%
 *Not Meaningful

Financial Condition


We have historically financed our operations and our expansion, including acquisitions, with cash from operations and borrowing facilities. In March 2017, we issued $350.0 million aggregate principal amount of 3.70% senior notes in a private offering. As of September 30, 2017, the amount outstanding under the notes, net of debt amortization expense of $2.4 million, was $347.6 million, which is payable on April 1, 2022. We will pay interest on the notes semi-annually in arrears on April 1 and October 1 of each year, ending on the maturity date of April 1, 2022. For additional information, see Note 12—“Long-term debt” under Part I, Item 1—“Financial Statements” above.

In


On February 2017,9, 2021, our board of directors approved a dividend program under which we intend to pay a regular10% increase in our quarterly cash dividend of $0.06to $0.1075 per share, up from $0.0975 per share in 2020, representing an annual dividend of $0.43 per common share, up from $0.39 per share in 2020, payable to holders of our common shares, representingshares. On March 19, 2021, June 23, 2021 and September 24, 2021, we paid a planned annual dividend of $0.24 per share. On March 28, 2017, June 28, 2017 and September 21, 2017, we paid dividends of $0.06$0.1075 per share, amounting to $12.0$20.1 million, $11.6$20.1 million and $11.6$20.2 million in the aggregate, to shareholders of record as of March 10, 2017,2021, June 12, 201711, 2021 and September 8, 2017,10, 2021, respectively.


On February 10, 2022, our board of directors approved a 16% increase in our quarterly cash dividend to $0.125 per share, up from $0.1075 per share in 2021, representing a planned annual dividend of $0.50 per common share, up from $0.43 per share in 2021, payable to holders of our common shares. On March 23, 2022, June 24, 2022 and September 23, 2022, we paid a dividend of $0.125 per share, amounting to $23.1 million, $22.9 million and $22.9 million in the aggregate, to shareholders of record as of March 10, 2022, June 10, 2022 and September 9, 2022, respectively.

As of September 30, 2017, $434.42022, $514.5 million of our $440.1$518.7 million in cash and cash equivalents was held by our foreign (non-Bermuda) subsidiaries. $15.2$3.3 million of this cash was held by a foreign subsidiarysubsidiaries for which we expect to incur a tax liability and have accordingly accrued a deferred tax liability on the repatriation of $10.9$9.6 million of retained earnings. $84.3$511.2 million of the cash and cash equivalents is held by our foreign subsidiaries is held in jurisdictions where no tax is expected to be imposed upon repatriation. We currently intend to permanently reinvest the remaining $334.9 million in cash and cash equivalents held by certainrepatriation of our foreign subsidiaries.

As of December 31, 2016, our board of directors had authorized repurchases of up to $750.0 million in value of our common shares under our share repurchase program first announced in February 2015. On February 10, 2017, our board of directors approved up to an additional $500.0 million in share repurchases, bringing theretained earnings or is being indefinitely reinvested.

The total authorization under our existing program to $1,250.0 million. On March 29, 2017, we entered into an accelerated share repurchase or ASR, agreement with Morgan Stanley & Co. LLC toprogram is $1,750.0 million, of which $156.9 million remained available as of September 30, 2022. Since our share repurchase an aggregate of $200.0 millionprogram was initially authorized in 2015, we have repurchased 51,454,121 of our common shares. For additional information, see Note 17—“Capital Stock” under Part I, Item 1—“Financial Statements” above.

shares at an average price of $30.96 per share, for an aggregate purchase price of $1,593.1 million.


During the nine months ended September 30, 2016,2022, we purchased 9,615,323repurchased 4,067,044 of our common shares on the open market at a weighted average price of $25.23$44.75 per share for an aggregate cash amount of $242.6$182.0 million. During the nine months ended September 30, 2017,2021, we made payments in an aggregate cash amount of $219.8 million toward share repurchases. Of this amount, we paid (i) $19.8 million to repurchase 808,293repurchased 3,592,409 of our common shares on the open market at a weighted average price of $24.48$40.96 per share (ii) $160.0 million for the initial deliveryan aggregate cash amount of 6,578,947 of our common shares under the ASR agreement at a weighted average price of $24.32 per share, and (iii) $40.0 million for shares to be delivered to us at the final settlement of the transaction under the ASR agreement as described above.$147.2 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 infor the next twelve months and for the foreseeable 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
65

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.financing. 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 relatedexisting operations to support our growth, financing acquisitions and financing acquisitions.

enhancing capabilities, including building certain digital solutions.

Cash flows from operating, investing and financing activities, as reflected in our consolidated statements of cash flows, are summarized in the following table:

 

 

 

 

 

 

 

 

 

 

Percentage Change

 

 

 

 

Nine months ended September 30,

 

 

Increase/(Decrease)

 

 

 

 

2016

 

 

2017

 

 

2017 vs. 2016

 

 

 

 

(dollars in millions)

 

 

 

 

 

 

Net cash provided by (used for)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

236.0

 

 

$

263.7

 

 

 

11.7

 

%

Investing activities

 

 

(95.6

)

 

 

(332.9

)

 

 

248.2

 

 

Financing activities

 

(169.6)

 

 

57.7

 

 

 

(134.0

)

 

Net increase (decrease) in cash and cash

   equivalents

 

$

(29.2

)

 

$

(11.4

)

 

 

(60.9

)

%

Nine months ended September 30,Percentage 
Change
Increase/(Decrease)
202120222022 vs. 2021
(dollars in millions)
Net cash provided by/ (used for):
Operating activities$447.5 $214.0 (52.2)%
Investing activities(37.3)(37.3)— %
Financing activities(151.1)(471.2)211.8 %
Net increase/(decrease) in cash and cash equivalents$259.1 $(294.4)(213.6)%

Cash flows fromprovided by operating activities.  Net cash generated fromprovided by operating activities was $263.7$214.0 million in the nine months ended September 30, 20172022 compared to $236.0$447.5 million in the nine months ended September 30, 2016. This increase is2021. The decrease in cash provided by operating activities was primarily due to higher net income and improvements(i) a $216.2 million decrease in net operating assets and liabilities driven by increased investment in accounts receivable, higher tax payments (net of tax refunds), and higher employee and vendor related payments in the nine months ended September 30, 20172022 compared to the nine months ended September 30, 2016, mainly driven2021 and (ii) a $32.7 million decrease in net income in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The decrease was offset by delaysa $16.0 million increase in invoicingnon-cash expense, primarily due to (i) a $20.3 million write-down of operating lease right-of-use assets and other assets as part of our restructuring and (ii) a $21.4 million impairment charge on assets classified as held for sale, partially offset by vendors, higher accrualsa $26.1 million reduction in depreciation and lower tax payments.

amortization expense in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.


Cash flows fromused for investing activities. Our net cash used for investing activities was $332.9flat at $37.3 million in both the nine months ended September 30, 2017, up $237.3 million from $95.6 million in2022 and 2021. Cash used for payments (net of sales proceeds) for the nine months ended September 30, 2016. This increase was primarily due to a $236.0 million increase in payments related to acquisitions consummated in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. For additional information, see Note 3—“Business Acquisitions” under Part I, Item 1—“Financial Statements” above. This increase was partially offset by a $9.3 million reduction in payments for purchasespurchase of property, plant and equipment (net of sales proceeds) in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Additionally, investments we made in a non-consolidated affiliate, which ceased to be a non-consolidating affiliate as of June 30, 2017, were $7.0 million lower in the nine months ended September 30, 2017 than in the nine months ended September 30, 2016.

Cash flows from financing activities. Our net cashand acquired/internally generated from financing activitiesintangible assets was $57.7 million in the nine months ended September 30, 2017, compared to net cash used for financing activities of $169.6 million in the nine months ended September 30, 2016. In March 2017, we issued $350.0 million aggregate principal amount of 3.70% senior notes in a private offering. We also repaid $30.0 million in long-term debt payments in the nine months ended September 30, 2017 and 2016. We had proceeds from short-term borrowings of $275.0 million and $155.0 million in the nine months ended September 30, 2017 and 2016, respectively, of which $275.0 million and $61.5 million was repaid during the nine months ended September 30, 2017 and 2016, respectively. For additional information, see Notes 11 and 12—“Short-term borrowings” and “Long-term debt” under Part I, Item 1—“Financial Statements” above. Additionally, proceeds in connection with the issuance of common shares under stock-based compensation plans (net of payments) were $2.5 million in the nine months ended September 30, 2017 compared to $12.3 million in the nine months ended September 30, 2016. Payments related to earn-out or deferred consideration were $4.8$7.5 million higher in the nine months ended September 30, 20172022 than in the nine months ended September 30, 2016. In the nine months ended September 30, 2017, we paid cash dividends in an aggregate amount of $35.1 million. No dividends were paid in the nine months ended September 30, 2016. Payments2021. Cash used for share repurchases were $219.8business combinations was $6.6 million in the nine months ended September 30, 20172021, compared to $242.6a refund of $0.1 million in the nine months September 30, 2022.

Cash flows used for financing activities. Our net cash used for financing activities was $471.2 million in the nine months ended September 30, 2016.

2022 compared to $151.1 million in the nine months ended September 30, 2021. This change was primarily due to (i) the repayment of borrowings (net of proceeds) of $175.5 million in the nine months ended September 30, 2022 compared to proceeds from borrowings (net of repayment) of $74.5 million in the nine months ended September 30, 2021, (ii) an increase in payments for the net settlement of stock-based awards, amounting to $44.9 million in the nine months ended September 30, 2022 compared to $33.5 million in the nine months ended September 30, 2021, (iii) a decrease in proceeds from the issuance of common shares under our stock-based compensation plans, amounting to $13.0 million in the nine months ended September 30, 2022 compared to $29.8 million in the nine months ended September 30, 2021, (iv) higher dividend payments, amounting to $68.9 million in the nine months ended September 30, 2022 compared to $60.5 million in the nine months ended September 30, 2021, and (v) higher payments for stock purchased and retired (including payments of expenses related to stock repurchase activity), amounting to $182.1 million in the nine months ended September 30, 2022 compared to $147.2 million in the nine months ended September 30, 2021.



66

Financing Arrangements

In June 2015, we refinanced our 2012 credit facility through a new credit facility comprised of a term loan of $800 million and a revolving credit facility of $350 million.

As of December 31, 20162021 and September 30, 2017,2022, our outstanding term loan, debt, net of debt amortization expense of $2.7$0.7 million and $2.1$0.4 million, respectively, was $737.3$560.3 million and $708.0$535.1 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, 20162021 and September 30, 2017,2022, the limits available under such facilities were $15.4$24.7 million and $14.7$22.9 million, respectively, of which $11.0$5.8 million and $7.4$5.0 million, respectively, was utilized, constituting non-funded drawdown. As of both December 31, 20162021 and September 30, 2017,2022, a total of $161.0$2.0 million and $202.7 million, respectively, of our revolving credit facility was utilized, of which $160.0$0 million and $200.0 million, respectively, constituted funded drawdown and $1.0$2.0 million and $2.7 million, respectively, constituted non-funded drawdowndrawdown. Our outstanding term loan and revolving credit facility expire on August 8, 2023. We are in both periods.

the process of refinancing our term loan and revolving credit facility, and are currently in negotiation with various financial institutions and expect to close the refinancing in the fourth quarter of 2022.

In March 2017, weGenpact Luxembourg S.à r.l. (“Genpact Luxembourg”), a wholly-owned subsidiary of the Company, issued $350.0$350 million aggregate principal amount of 3.70% senior notes in a private offering, resulting in cash proceeds of approximately $348.5 millionMarch 2017 (the “2017 Senior Notes”). The 2017 Senior Notes were fully guaranteed by the Company and an underwriting fee of approximately $1.5 million. In addition, there were other debt issuance related costs of $1.2 million.Genpact USA, Inc. The total debt issuance cost of $2.6 million incurred in connection with the 2017 Senior Notes offering was amortized over the life of the notes as additional interest expense. As of December 31, 2021 and September 30, 2022, the amount outstanding under the 2017 Senior Notes, net of debt amortization expense of $0.1 million and $0 million, respectively, was $349.9 million and $0 million, respectively. On April 1, 2022, the maturity date of 2017 Senior Notes, the 2017 Senior Notes were fully repaid.

Genpact Luxembourg issued $400 million aggregate principal amount of 3.375% senior notes in November 2019 (the “2019 Senior Notes”). The 2019 Senior Notes are fully guaranteed by the Company and Genpact USA, Inc. The total debt issuance cost of $2.9 million incurred in connection with the 2019 Senior Notes offering is being amortized over the life of the notes as additional interest expense. As of December 31, 2021 and September 30, 2017,2022, the amount outstanding under the notes,2019 Senior Notes, net of debt amortization expense of $2.4$1.7 million and $1.3 million, was $347.6$398.3 million and $398.7 million, respectively, which is payable on December 1, 2024.
Genpact Luxembourg and Genpact USA, Inc. ("Genpact USA"), both wholly-owned subsidiaries of the Company, co-issued $350 million aggregate principal amount of 1.750% senior notes in March 2021 (the "2021 Senior Notes"). 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 offering is being amortized over the life of the notes as additional interest expense. As of December 31, 2021 and September 30, 2022, the amount outstanding under the 2021 Senior Notes, net of debt amortization expense of $2.6 million and $2.1 million, respectively, was $347.4 million and $347.9 million, respectively, which is payable on April 10, 2026.
We pay interest on (i) the 2019 Senior Notes semi-annually in arrears on June 1 2022 whenand December 1 of each year, and (ii) the notes mature. 2021 Senior Notes semi-annually in arrears on April 10 and October 10 of each year, ending on the maturity dates of 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.

We use a revolving accounts receivable-based facility for managing our cash flows. As part of this arrangement, accounts receivable sold under this facility are de-recognized upon sale along with the related allowances, if any. As of December 31, 2021 and September 30, 2022, we have a revolving accounts receivable-based facility of $100.0 million permitting us to sell accounts receivable to banks on a non-recourse basis in the ordinary course of business. The aggregate maximum capacity utilized at any time during the period ended December 31, 2021 and September 30, 2022 was $7.1 million and $67.4 million, respectively. The principal amount outstanding against this facility as of December 31, 2021 and September 30, 2022 was $0 million and $27.3 million, respectively. The cost of factoring accounts receivable sold under this facility during the three and nine months ended September 30, 2021 and 2022 was $0 million and $0.1 million, respectively, and $0 million and $0.3 million, respectively.
Off-Balance Sheet Arrangements

Our off-balance sheetsheet arrangements consist of foreign exchange contracts and certain operating leases.contracts. For additional information, see Part I, Item 1A—“Risk Factors—Factors”—“Currency exchange rate fluctuations in various currencies in which we do business, especially the Indian rupee, the U.S. dollareuro and the euro,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, 2016, the section titled “Contractual Obligations” below,2021, and Note 7 in6— "Derivative financial instruments" under Part I, Item 1—“Unaudited Consolidated Financial Statements” above.

Contractual Obligations

The following table sets forth


67


Other Liquidity and Capital Resources Information

As of December 31, 2021 and September 30, 2022, we have purchase commitments, net of capital advances, of $13.3 million and $22.4 million, respectively, to be paid in respect of such purchases over the next year. For additional information, see Note 24—“Commitments and contingencies” under Part I, Item 1—“Unaudited Consolidated Financial Statements” above and Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations”—“Other Liquidity and Capital Resources Information” in our total future contractual obligations asAnnual Report on Form 10-K for the year ended December 31, 2021.

As of December 31, 2021 and September 30, 2022, we have operating and finance lease commitments of $420.6 million and $329.6 million, respectively, to be paid over the lease terms. For additional information, see Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations”—“Other Liquidity and Capital Resources Information” in our Annual Report on Form 10-K for the year ended December 31, 2021.


68

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 2019 Senior Notes, and Genpact Luxembourg and Genpact USA co-issued the 2021 Senior Notes. As of September 30, 2017:

 

 

Total

 

 

Less than

1 year

 

 

1-3 years

 

 

3-5 years

 

 

After 5 years

 

 

 

(dollars in millions)

 

Long-term debt

 

$

1,164.9

 

 

$

71.6

 

 

$

726.0

 

 

$

367.3

 

 

$             —

 

— Principal payments

 

 

1,055.5

 

 

 

39.2

 

 

 

668.7

 

 

 

347.6

 

 

—

 

— Interest payments*

 

 

109.4

 

 

 

32.4

 

 

 

57.3

 

 

 

19.7

 

 

—

 

Short-term borrowings

 

 

161.1

 

 

 

161.1

 

 

—

 

 

—

 

 

—

 

— Principal payments

 

 

160.0

 

 

 

160.0

 

 

—

 

 

—

 

 

—

 

— Interest payments**

 

 

1.1

 

 

 

1.1

 

 

—

 

 

—

 

 

—

 

Capital leases

 

 

5.3

 

 

 

2.1

 

 

 

2.5

 

 

 

0.7

 

 

—

 

— Principal payments

 

 

4.3

 

 

 

1.5

 

 

 

2.2

 

 

 

0.6

 

 

—

 

— Interest payments

 

 

1.0

 

 

 

0.6

 

 

 

0.3

 

 

 

0.1

 

 

—

 

Operating leases

 

 

203.3

 

 

 

38.3

 

 

 

63.3

 

 

 

46.4

 

 

 

55.3

 

Purchase obligations

 

 

42.1

 

 

 

26.0

 

 

 

16.0

 

 

 

0.1

 

 

—

 

Capital commitments net of advances

 

 

6.2

 

 

 

6.2

 

 

—

 

 

—

 

 

—

 

Earn-out consideration

 

 

20.1

 

 

 

7.2

 

 

 

10.0

 

 

 

2.9

 

 

—

 

— Reporting date fair value

 

 

17.9

 

 

 

6.6

 

 

 

8.7

 

 

 

2.6

 

 

—

 

— Interest

 

 

2.2

 

 

 

0.6

 

 

 

1.3

 

 

 

0.3

 

 

—

 

Other liabilities

 

 

45.1

 

 

 

29.8

 

 

 

13.6

 

 

 

1.7

 

 

—

 

Total contractual obligations

 

$

1,648.1

 

 

$

342.3

 

 

$

831.4

 

 

$

419.1

 

 

$

55.3

 

*

Our interest payments on long-term debt are calculated based on our current debt rating at a rate equal to LIBOR plus a margin of 1.50% per annum as of September 30, 2017, which excludes the impact of interest rate swaps. Interest payments on long-term debt include interest on our senior notes due in 2022 at a rate of 3.70% per annum, which is not based on LIBOR.

2022, the outstanding balance for the 2019 Senior Notes and the 2021 Senior Notes (collectively, the "Senior Notes") was $398.7 million and $347.9 million, respectively. Each series of Senior Notes is fully and unconditionally guaranteed by the Company. The 2019 Senior Notes are 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”).

**

Our interest payments on short-term debt are calculated based on our current debt rating at a rate equal to LIBOR plus a margin of 1.50% per annum as of September 30, 2017 and our expectation for the repayment of such debt.

The Company (with respect to all series of Senior Notes) and Genpact USA (with respect to 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 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 IncomeYear ended
December 31, 2021		Nine months ended
September 30, 2022
(dollars in millions)
Net revenues$214.2 $109.5 
Gross profit214.2109.5
Net income102.752.7
Below is a summary of transactions with non-Guarantors included in the summarized statement of income above:
Year ended
December 31, 2021		Nine months ended
September 30, 2022
(dollars in millions)
Royalty income$4.4 $— 
Revenue from services209.8109.5
Interest income (expense), net33.015.9
Other cost, net17.7(1.6)





69

Summarized Balance SheetsAs of
December 31, 2021		As of
September 30, 2022
(dollars in millions)
Assets
Current assets$2,257.8 $2,154.9 
Non-current assets457.5172.2
Liabilities
Current liabilities$3,758.5 $4,104.9 
Non-current liabilities1,777.61,246.8

Below is a summary of the balances with non-Guarantors included in the summarized balance sheets above:

As of
December 31, 2021		As of
September 30, 2022
(dollars in millions)
Assets
Current assets
Accounts receivable, net$211.3 $42.8 
Loans receivable1,535.5 1,460.5 
Investment in debentures/bonds—196.1
Others410.1395.8
Non-current assets
Investment in debentures/bonds$296.1 $— 
Others31.570.4
Liabilities
Current liabilities
Loans payable$2,431.2 $2,767.6 
Others914.0582.3
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.

70


Recent Accounting Pronouncements

Recently adopted accounting pronouncements

For a description of recently adoptedrecent accounting pronouncements, see Note 2—2(n)—“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, 2016.

2021.


Recently issued accounting pronouncements

For a description of recently issued accounting pronouncements, see Note 2—“Recently issued accounting pronouncements” under

Item 1—“Financial Statements” above3. Quantitative 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, 2016.


Qualitative Disclosures About Market Risk

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.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 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 Senior Notes. Accordingly, fluctuations in market interest rates or a decline in ratings may increase or decrease our interest expense which will,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 September 30, 2017,2022, we were party to interest rate swaps covering a total notional amount of $438.3$439 million. Under these swap agreements, the rate that we pay to banks in exchange for LIBOR ranges between 0.88%0.38% and 1.20%2.65%.

We executed a treasury rate lock agreement covering $350 million in connection with future interest payments to be made on our 2021 Senior Notes, and the treasury rate lock agreement was designated as a cash flow hedge. The treasury rate 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 rate lock agreement as of September 30, 2022 was $0.6 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, 2016.

2021.

Item 4.

Controls and Procedures

71


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 (“Exchange(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 the 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 September 30, 20172022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In making its assessment of the changes in internal controls over financial reporting during the quarterly period ended September 30, 2017, management excluded an evaluation of the internal controls over financial reporting in respect of any acquisition made in the nine months ended September 30, 2017. See Note 3 to the Unaudited Consolidated Financial Statements for a discussion of acquisitions consummated during such period.


72

PART


PART II

– OTHER INFORMATION

Item 1.

Legal Proceedings

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


Item 1A. Risk Factors
We have disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20162021 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, 2016 and in our Quarterly Report on Form 10-Q for the period ended March 31, 20172021 and the other information that appears elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2016, in our Quarterly Report on Form 10-Q for the period ended March 31, 20172021 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 may also may materially adversely affect our business, financial condition and/or results of operations.

Item 2.

Unregistered Sale of Equity Securities and Use of Proceeds


Item 2. Unregistered Sales of Equity Securities

None.

and Use of Proceeds

Unregistered Sales of Equity Securities
None.

Use of Proceeds
None.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers

None.

Share repurchase activity during the three months ended September 30, 2022 was as follows:
PeriodTotal Number of Shares
Purchased		Weighted Average Price Paid per
Share ($)		Total Number of Shares
Purchased as
 Part of Publicly
Announced Plan or Program		Approximate Dollar Value of Shares that May Yet Be
Purchased Under the 
Plan or Program ($)
July 1-July 31, 2022— — — 186,910,219 
August 1-August 31, 2022627,09247.86 627,092156,899,039
September 1-September 30, 2022— — — 156,899,039
Total627,092 47.86627,092 

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

Item 3.

Defaults Upon Senior Securities

None.

Item 5.

Other Information

None.

Item 6.

Exhibits

 Exhibit

Number

Description

Exhibit
Number

Description

    3.1

3.1

    3.3

3.2

  31.1

22.1

31.1*
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

  31.2

31.2*

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

  32.1

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.*


  32.2

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.*

101.INS

101.INS*

Inline XBRL Instance Document (1)

— the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

101.SCH*

Inline XBRL Taxonomy Extension Schema Document (1)

101.CAL

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document (1)

101.DEF

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document (1)

101.LAB

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document (1)

101.PRE

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document (1)

*

Filed with this Quarterly Report on Form 10-Q.

104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(1)

Filed as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2016 and September 30, 2017, (ii) Consolidated Statements of Income for the three months and nine months ended September 30, 2016 and September 30, 2017, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three months and nine months ended September 30, 2016 and September 30, 2017, (iv) Consolidated Statements of Equity and Redeemable Non-controlling Interest for the nine months ended September 30, 2016 and September 30, 2017, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and September 30, 2017, and (vi) Notes to the Consolidated Financial Statements.


*    Filed or furnished with this Quarterly Report on Form 10-Q.

SIGNATURES

†    Indicates a management contract or compensatory plan, contract or arrangement in which any director or executive officer participates.
74

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: November 9, 2017

2022

GENPACT LIMITED

By:

By:/s/ N.V. TYAGARAJAN

Tyagarajan

N.V. Tyagarajan

Chief Executive Officer

By:

/s/ EDWARD J. FITZPATRICK

Michael Weiner

Edward J. Fitzpatrick

Michael Weiner

Chief Financial Officer

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