GENPACT LIMITED 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 endedDecember 31, 2020 and with the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . In addition to historical information, this discussion includes forward-looking statements and information that involves risks, uncertainties and assumptions, including but not limited to those listed below and under "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2021 , and in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Special Note Regarding Forward-Looking Statements We have made statements in this Quarterly Report on Form 10-Q (the "Quarterly Report") in, among other sections, Part I, Item 2-"Management's Discussion and Analysis of Financial Condition and Results of Operations" that are forward-looking statements. In some cases, you can identify these statements by forward-looking terms such as "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," "could," "may," "shall," "will," "would" and variations of such words and similar expressions, or the negative of such words or similar expressions. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, which in some cases may be based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks outlined in Part II, Item 1A-"Risk Factors" in our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2021 , and Part I, Item 1A-"Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . For a discussion of risks of which we are aware in relation to the COVID-19 pandemic, see "Our business and results of operations have been adversely impacted and may in the future be adversely impacted by the COVID-19 pandemic" under Part I, Item 1A-"Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 and the supplemental information included under Part II, Item 1A-"Risk Factors" in our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2021 . Many of the risks, uncertainties and other factors identified below are, and will be, amplified by the COVID-19 pandemic. Forward-looking statements we may make include, but are not limited to, statements relating to: •our ability to retain existing clients and contracts; •our ability to win new clients and engagements; •the expected value of the statements of work under our master service agreements; •our beliefs about future trends in our market; •political, economic or business conditions in countries where we have operations or where our clients operate, including the uncertainty related to the withdrawal of theUnited Kingdom from theEuropean Union , commonly known as Brexit, and heightened economic and political uncertainty within and among otherEuropean Union member states; •expected spending on business process outsourcing and information technology services by clients; •foreign currency exchange rates; •our ability to convert bookings to revenue; •our rate of employee attrition; •our effective tax rate; and •competition in our industry. 49 -------------------------------------------------------------------------------- Factors that may cause actual results to differ from expected results include, among others: •the impact of the COVID-19 pandemic and related response measures on our business, results of operations and financial condition; •our ability to develop and successfully execute our business strategies; •our ability to grow our business and effectively manage growth and international operations while maintaining effective internal controls; •our ability to comply with data protection laws and regulations and to maintain the security and confidentiality of personal and other sensitive data of our clients, employees or others; •telecommunications or technology disruptions or breaches, natural or other disasters, or medical epidemics or pandemics, including the COVID-19 pandemic; •our dependence on favorable policies and tax laws that may be changed or amended in a manner adverse to us or be unavailable to us in the future, including as a result of tax policy changes inIndia , and our ability to effectively execute our tax planning strategies; •our dependence on revenues derived from clients inthe United States andEurope and clients that operate in certain industries, such as the financial services industry; •our ability to successfully consummate or integrate strategic acquisitions; •our ability to maintain pricing and employee utilization rates; •our ability to maintain pricing and asset utilization rates; •our ability to hire and retain enough qualified employees to support our operations; •increases in wages in locations in which we have operations; •our ability to service our defined contribution and benefit plans payment obligations; •clarification as to the possible retrospective application of a judicial pronouncement inIndia regarding our defined contribution and benefit plans payment obligations; •our relative dependence on the General Electric Company (GE) and our ability to maintain our relationships with divestedGE businesses; •financing terms, including, but not limited to, changes in the London Interbank Offered rate, or LIBOR, including the pending global phase-out of LIBOR, the development of alternative rates, including the Secured Overnight Financing Rate, and changes to our credit ratings; •our ability to meet our corporate funding needs, pay dividends and service debt, including our ability to comply with the restrictions that apply to our indebtedness that may limit our business activities and investment opportunities; •restrictions on visas for our employees traveling toNorth America andEurope ; •fluctuations in currency exchange rates between the currencies in which we transact business; •our ability to retain senior management; •the selling cycle for our client relationships; •our ability to attract and retain clients and our ability to develop and maintain client relationships on attractive terms; 50 -------------------------------------------------------------------------------- •legislation inthe United States or elsewhere that adversely affects the performance of business process outsourcing and information technology services offshore; •increasing competition in our industry; •our ability to protect our intellectual property and the intellectual property of others; •deterioration in the global economic environment and its impact on our clients, including the bankruptcy of our clients; •regulatory, legislative and judicial developments, including the withdrawal of governmental fiscal incentives; •the international nature of our business; •technological innovation; •our ability to derive revenues from new service offerings and acquisitions; and •unionization of any of our employees. Although we believe the expectations reflected in the forward-looking statements are reasonable at the time they are made, we cannot guarantee future results, level of activity, performance or achievements. Achievement of future results is subject to risks, uncertainties, and potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements. We undertake no obligation to update any of these forward-looking statements after the date of this filing to conform our prior statements to actual results or revised expectations. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-K, Form 10-Q and Form 8-K reports to theSecurities and Exchange Commission (the "SEC").
Continued impact of COVID-19 on our business and results of operations
The COVID-19 pandemic continues to impact the global economy and the markets in which we operate. Actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of the COVID-19 pandemic across the globe, including travel bans, quarantines and "stay-at-home" orders, and similar mandates continue to restrict daily activities and have had an impact on our business, financial condition and results of operations. This section provides a brief overview of how we are responding to known and anticipated impacts of the COVID-19 pandemic on our business, financial condition and results of operations. The remote work arrangements that we implemented in 2020 remain in place in most locations. Our work-from-home delivery capability steadily improved throughout 2020 and continued to improve during the first half of 2021. For the limited number of employees who have returned to our offices, we have implemented new safety, cleaning and medical screening procedures to help protect them from COVID-19. We have also worked and continue to work with national, state, and local authorities to comply with applicable rules and regulations related to the COVID-19 pandemic. In the first half of 2021, parts of the world experienced increased availability and administration of COVID-19 vaccines, as well as an easing of restrictions on social activity, workplaces, businesses and travel. InIndia , where we have substantial operations, as a result of increased administration of COVID-19 vaccines and a decline in the number of COVID-19 cases related to the recent second wave of the virus, many lockdown and associated restrictions have been lifted by the Indian government. Notwithstanding improving conditions during the first half of 2021, the COVID-19 pandemic continues, with temporary shutdowns of our offices requested or mandated by governmental authorities. Due to the associated uncertainties of the COVID-19 pandemic, we continue to evaluate the nature and scope of the impact to our business and may take further strategic actions in order to manage our business operations, costs and liquidity in response to the ongoing impacts and changing market conditions resulting from the pandemic. In addition to complying with applicable government measures, we have taken a series of actions in response to the COVID-19 pandemic to help our employees through this crisis. In the geographies most affected by the recent COVID-19 variants, these actions included providing healthcare support, such as securing and administering vaccines for our employees, facilitating our employees' access to medical equipment, providing online medical consultations, extending medical insurance to our employees' family members and enhancing the dollar value of such coverage. Other actions we 51 -------------------------------------------------------------------------------- have taken include disseminating guidance and information to our employees, facilitating remote work arrangements for our employees, providing increased executive-level communications, developing various employee wellness programs and providing enhanced leave for employees affected by COVID-19. We have also taken a number of steps to protect against a perceived increase in certain risks as a result of our increased remote work environment, including educating our employees on information security best practices and adopting updated cyber security and data privacy policies, among others. OurGlobal Leadership Council continues to coordinate and oversee our actions in response to the COVID-19 pandemic, including business continuity planning, revenue and profitability, transformation service offerings to address new and developing client needs, as well as human resource policies. We believe this coordinated effort will maximize our flexibility and allow us to quickly implement any necessary protocols for devising solutions to the problems we or our clients are facing or may face in the future in relation to the pandemic. As the COVID-19 pandemic evolves, we will continue to assess its impact on the Company and respond accordingly, including taking further actions that alter our business operations as may be required by regulatory authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders. The ultimate impact of COVID-19 on our business and the industry in which we operate remains unknown and unpredictable. Our past results may not be indicative of our future performance, and our financial results in future periods, including but not limited to net revenues, income from operations, income from operations margin, net income and earnings per share, may differ materially from historical trends. The extent of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including but not limited to the duration and severity of the pandemic; rates of vaccination; the macroeconomic impact of the spread of the virus; and related government stimulus measures. We are currently unable to predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures and the related macroeconomic impacts. For example, to the extent the pandemic continues to disrupt economic activity globally, we, like other businesses, will not be immune from its effects, and our business, results of operations and financial condition may be adversely affected, possibly materially, by prolonged decreases in spending on the types of services we provide, deterioration of our clients' credit, or reduced economic activities. In addition, some of our expenses are less variable in nature and do not closely correlate with revenues, which may lead to a decrease in our profitability. For additional information about the risks we face in relation to the COVID-19 pandemic, see Part I, Item 1A-"Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 and Part II, Item 1A-"Risk Factors" in our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2021 . Overview We are a global professional services firm that makes business transformation real. We drive digital-led innovation and run digitally-enabled intelligent operations for our clients, guided by our experience running thousands of processes for hundreds of Fortune Global 500 clients. We have over 104,000 employees serving clients in key industry verticals from more than 30 countries. Our registered office is located atCanon's Court,22 Victoria Street , Hamilton HM 12,Bermuda . In the quarter endedJune 30, 2021 , we recorded net revenues of$988.1 million , of which$893.4 million , or 90.4%, was from clients other than General Electric ("GE"), which we refer to as Global Clients, with the remaining$94.8 million , or 9.6%, fromGE . Certain Acquisitions OnDecember 31, 2020 , we acquired 100% of the outstanding equity interests inEnquero Inc , aCalifornia corporation, and certain affiliated entities inIndia ,the Netherlands andCanada (collectively referred to as "Enquero") for total purchase consideration of$148.8 million . This amount represents cash consideration of$137.2 million , net of cash acquired of$11.6 million . This acquisition increases the scale and depth of our data and analytics capabilities, enhancing our ability to accelerate the digital transformation journeys of our clients through cloud technologies and advanced data analytics.Goodwill arising from the acquisition amounting to$86.6 million has been allocated among our three reporting units as follows: Banking, Capital Markets and Insurance ("BCMI") in the amount of$2.6 million , Consumer Goods, Retail, Life Sciences and Healthcare ("CGRLH") in the amount of$22.2 million and High Tech, Manufacturing and Services ("HMS") in the amount of$61.8 million , using a relative fair value allocation method. The goodwill arising from this acquisition is not deductible for income tax purposes. The goodwill represents primarily the acquired capabilities and other benefits expected to result from combining the acquired operations with our existing operations. 52 -------------------------------------------------------------------------------- OnOctober 5, 2020 , we acquired 100% of the outstanding equity/limited liability company interests in SomethingDigital.Com LLC, aNew York limited liability company, for total purchase consideration of$57.5 million . This amount represents cash consideration of$56.1 million , net of cash acquired of$1.4 million . This acquisition supports our strategy to integrate experience and process innovation to help clients on their digital transformation journeys and expands on our existing experience capabilities to support end-to-end digital commerce solutions, both business-to-business and business-to-consumer. Additionally, this acquisition expands our capabilities intoMagento Commerce , which powers Adobe Commerce Cloud, and Shopify Plus, a cloud-based-ecommerce platform for high-volume merchants.Goodwill arising from the acquisition amounting to$36.9 million has been allocated among two of our reporting units as follows: CGRLH in the amount of$30.4 million and HMS in the amount of$6.5 million , using a relative fair value allocation method. Of the total goodwill arising from this acquisition,$35.1 million is deductible for income tax purposes. The goodwill represents primarily the acquired capabilities and other benefits expected to result from combining the acquired operations with our existing operations. OnNovember 12, 2019 , we acquired the outstanding equity/limited liability company interests inRightpoint Consulting, LLC , anIllinois limited liability company, and certain affiliated entities inthe United States andIndia (collectively referred to as "Rightpoint") for total purchase consideration of$270.7 million . This amount includes cash consideration of$268.2 million , net of cash acquired of$2.5 million . This acquisition expands our capabilities in improving customer experience and strengthens our reputation as a thought leader in this space. The securities purchase agreement provided certain of the selling equity holders the option to elect to either (a) receive 100% consideration in cash at the closing date for their limited liability company interests and vested options or (b) "roll over" and retain 25% of their Rightpoint limited liability company interests and vested options and receive consideration in cash at closing for the remaining 75% of their Rightpoint limited liability company interests and vested options. Certain selling equity holders elected to receive deferred, variable earnout consideration with an estimated value of$21.5 million over the three-year rollover period, which is included in the purchase consideration. The amount of deferred consideration ultimately payable to the rollover sellers will be based on the future revenue multiple of the acquired business.Goodwill arising from the acquisition amounting to$177.2 million has been allocated among our three reporting units as follows: BCMI in the amount of$17.0 million , CGRLH in the amount of$43.0 million and HMS in the amount of$117.2 million , using a relative fair value allocation method. Of the total goodwill arising from this acquisition,$91.9 million is deductible for income tax purposes. The goodwill primarily represents the acquired capabilities and other benefits expected to result from combining the acquired operations with our existing operations. Critical Accounting Policies and Estimates For a description of our critical accounting policies, see Note 2-"Summary of significant accounting policies" under Part I, Item 1-"Unaudited Consolidated Financial Statements" above, as well as Part II, Item 7-"Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" and Note 2-"Summary of significant accounting policies" under Part IV, Item 15-"Exhibits and Financial Statement Schedules" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Due to rounding, the numbers presented in the tables included in this "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations" may not add up precisely to the totals provided. 53 -------------------------------------------------------------------------------- Results of Operations The following table sets forth certain data from our consolidated statements of income for the three and six months endedJune 30, 2020 and 2021. Percentage Change Increase/(Decrease) Three months ended Six months ended Three months ended June Six months ended June 30, June 30, 30, June 30, 2021 vs. 2021 vs. 2020 2021 2020 2021 2020 2020 (dollars in millions)
Net revenues-Global Clients$ 783.3 $ 893.4 $ 1,584.9 $ 1,746.4 14.0 % 10.2 % Net revenues-GE 116.8 94.8 238.4 187.8 (18.8) % (21.2) % Total net revenues 900.1 988.1 1,823.3 1,934.2 9.8 % 6.1 % Cost of revenue 593.9 633.0 1,198.7 1,233.9 6.6 % 2.9 % Gross profit 306.2 355.1 624.6 700.3 16.0 % 12.1 % Gross profit margin 34.0 % 35.9 % 34.3 % 36.2 % Operating expenses Selling, general and administrative expenses 186.3 204.2 383.7 404.9 9.6 % 5.5 % Amortization of acquired intangible assets 10.7 14.6 21.4 30.7 36.0 % 43.3 % Other operating (income) expense, net 18.8 (0.5) 18.5 (0.1) (102.5) % (100.7) % Income from operations 90.4 136.9 201.0 264.8 51.5 % 31.7 % Income from operations as a percentage of net revenues 10.0 % 13.9 % 11.0 % 13.7 % Foreign exchange gains (losses), net (0.5) 5.5 14.0 8.8 NM * (37.2) % Interest income (expense), net (13.6) (13.1) (25.3) (25.4) (3.9) % 0.5 % Other income (expense), net 2.9 6.1 0.0 7.5 108.7 % NM * Income before income tax expense 79.1 135.4 189.7 255.6 71.1 % 34.8 % Income tax expense 17.0 32.7 41.8 61.7 92.5 % 47.3 % Net income$ 62.2 $ 102.7 $ 147.9 $ 194.0 65.2 % 31.2 % Net income as a percentage of net revenues 6.9 % 10.4 % 8.1 % 10.0 % *N0t Meaningful Three Months EndedJune 30, 2021 Compared to the Three Months EndedJune 30, 2020 Net revenues. Our net revenues were$988.1 million in the second quarter of 2021, up$88.0 million , or 9.8%, from$900.1 million in the second quarter of 2020. The growth in our net revenues was from Global Clients and derived from both our transformation services and intelligent operations, primarily in our CGRLH segment, insurance clients within our BCMI segment and high tech and manufacturing clients within our HMS segment. Our net revenues fromGE declined in the second quarter of 2021 compared to the second quarter of 2020, largely due to contractual commitments to reduce the number of employees providing services and a reduction inGE's discretionary expenditures resulting from the macroeconomic environment, as well asGE's divestitures of certain businesses that as ofJanuary 1, 2021 are included in our Global Client portfolio. Adjusted for foreign exchange, primarily the impact of changes in the value of the Australian dollar, the euro andU.K. pound sterling against theU.S. dollar, our net revenues grew 7.2% in the second quarter of 2021 compared to the second quarter of 2020 on a constant currency1 basis. Revenue growth on a constant currency basis1 is a non-GAAP measure. We provide information about our revenue growth on a constant currency1 basis so that our revenue may be viewed without the impact of foreign currency exchange rate fluctuations, thereby facilitating period-to-period comparisons of our business performance. Total net revenues on a constant currency1 basis are calculated by restating current-period activity using the prior fiscal period's foreign currency exchange rates and adjusted for hedging gains/losses. 1 Revenue growth on a constant currency basis is a non-GAAP measure and is calculated by restating current-period activity using the prior fiscal period's foreign currency exchange rates adjusted for hedging gains/losses in such period. 54 --------------------------------------------------------------------------------
Our average headcount increased by 5.1% to approximately 102,100 in the second quarter of 2021 from approximately 96,900 in the second quarter of 2020.
Three months ended Percentage Change
June 30, Increase/(Decrease)
2020 2021 2021 vs. 2020
(dollars in millions)
Net revenues - Global Clients $ 783.3 $ 893.4 14.0 %
Net revenues - GE $ 116.8 $ 94.8 (18.8) %
Total net revenues $ 900.1 $ 988.1 9.8 %
Net revenues from Global Clients in the second quarter of 2021 were $893.4
million , up $110.0 million , or 14.0%, from $783.3 million in the second quarter
of 2020. This increase was primarily driven by growth in our CGRLH segment, high
tech and manufacturing clients within our HMS segment and insurance clients
within our BCMI segment, all led by transformation services, partially offset by
a restructured relationship with one of our banking and capital market clients.
As a percentage of total net revenues, net revenues from Global Clients
increased from 87.0% in the second quarter of 2020 to 90.4% in the second
quarter of 2021.
Net revenues from GE in the second quarter of 2021 declined 18.8% compared to
the second quarter of 2020, largely due to contractual commitments to reduce the
number of employees providing services and a reduction in GE's discretionary
expenditures resulting from the macroeconomic environment, as well as the
inclusion of $10.4 million in revenues from certain GE -divested businesses as
Global Client revenue in the second quarter of 2021 following their divestiture
by GE .
Revenues by segment were as follows:
Three months ended
June 30, Percentage Change Increase/(Decrease)
2020 2021 2021 vs. 2020
(dollars in millions)
BCMI $ 253.2 $ 249.8 (1.4) %
CGRLH 306.7 373.1 21.6 %
HMS 352.7 358.1 1.5 %
Others (12.5) 7.2 157.4 %
Total net revenues $ 900.1 $ 988.1 9.8 %
Net revenues from our BCMI segment decreased by 1.4% in the second quarter of
2021 compared to the second quarter of 2020, as a result of the impact of
restructuring of a contract with a large client in our banking and capital
markets vertical during the fourth quarter of 2020, partially offset by higher
revenues from clients in our insurance vertical and an increase in
transformation services delivered to banking and capital markets clients. Net
revenues from our CGRLH segment increased by 21.6% in the second quarter of 2021
compared to the second quarter of 2020, primarily driven by increases in both
transformation services and intelligent operations, as well as revenue from our
recent acquisitions of Enquero and SomethingDigital.Com LLC in the fourth
quarter of 2020. Net revenues from our HMS segment increased by 1.5% in the
second quarter of 2021 compared to the second quarter of 2020, primarily driven
by an increase in revenues from Global Clients in our high tech and
manufacturing verticals within our HMS segment, which also included revenue from
our recent acquisition of Enquero in the fourth quarter of 2020, partially
offset by lower revenues from GE in our manufacturing and services vertical due
to contractual commitments to reduce the number of employees providing services
as well as a reduction in GE's discretionary expenditures resulting from the
macroeconomic environment. Net revenues from Others primarily represents the
impact of foreign exchange fluctuations, which is not allocated to our segments
for management's internal reporting purposes. For additional information, see
Note 19-"Segment reporting" under Part I, Item 1-"Unaudited Consolidated
Financial Statements" above.
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Cost of revenue. Cost of revenue was $633.0 million in the second quarter of
2021, up $39.1 million , or 6.6%, from the second quarter of 2020. The increase
in our cost of revenue in the second quarter of 2021 compared to the second
quarter of 2020 was primarily due to (i) an increase in our operational
headcount supporting revenue growth, including in the number of onshore
personnel, related to large deals and transformation services delivery as well
as from the acquisitions of SomethingDigital.Com LLC and Enquero in the fourth
quarter of 2020, (ii) wage inflation, and (iii) higher expenses associated with
medical costs related to the impact of COVID-19 on our employees. This increase
was partially offset by (i) improved utilization of transformation services
resources and (ii) a decrease in depreciation expense in the second quarter of
2021 compared to the second quarter of 2020. We also recorded a non-recurring
restructuring charge related to employee severance in the second quarter of 2020
while no corresponding charge was recorded in the second quarter of 2021. For
additional information, see Note 26-"Restructuring" under Part I,
Item 1-"Unaudited Consolidated Financial Statements" above.
Gross margin. Our gross margin increased from 34.0% in the second quarter of
2020 to 35.9% in the second quarter of 2021, driven primarily by an increase in
transformation services delivered to our clients as well as a higher utilization
rate, partially offset by higher expenses associated with medical costs related
to the impact of COVID-19 on our employees, in the second quarter of 2021
compared to the second quarter of 2020. We also recorded a non-recurring
restructuring charge related to employee severance in the second quarter of
2020, while there was no corresponding expense recorded in the second quarter of
2021.
Selling, general and administrative expenses (SG&A). SG&A expenses as a
percentage of total net revenues were flat at 20.7% in the second quarter of
2020 and 2021. SG&A expenses were $204.2 million in the second quarter of 2021,
up $17.9 million , or 9.6%, from the second quarter of 2020. This increase in
expense was primarily due to higher staffing to support increased revenues,
higher medical costs related to the impact of COVID-19 on our employees, higher
marketing expenses, and wage inflation in the second quarter of 2021 compared to
the second quarter of 2020, partially offset by improved operating leverage.
Amortization of acquired intangibles. Amortization of acquired intangibles were
$14.6 million in the second quarter of 2021, up $3.9 million , or 36.0%, from the
second quarter of 2020. This increase is primarily due to higher amortization
expense related to intangibles pertaining to the acquisitions of Enquero and
SomethingDigital.Com LLC in the fourth quarter of 2020.
Other operating (income) expense, net. Other operating income (net of expense)
was $0.5 million in the second quarter of 2021 compared to operating expense
(net of income) of $18.8 million in the second quarter of 2020. This change was
due to a non-recurring charge of $10.2 million related to the abandonment of
various office premises as part of our 2020 restructuring and an impairment
charge of $10.0 million related to tangible and intangible assets, primarily
technology- and customer-related, in the second quarter of 2020, while no such
charge was recorded in the second quarter of 2021. For additional information,
see Note 26-"Restructuring" under Part I, Item 1-"Unaudited Consolidated
Financial Statements" above.
Income from operations. As a result of the foregoing factors, income from
operations as a percentage of total net revenues increased from 10.0% in the
second quarter of 2020 to 13.9% in the second quarter of 2021. Income from
operations increased by $46.5 million from $90.4 million in the second quarter
of 2020 to $136.9 million in the second quarter of 2021, driven by higher
revenues and associated operating income margins.
Foreign exchange gains (losses), net. We recorded a net foreign exchange gain of
$5.5 million in the second quarter of 2021, compared to a net foreign exchange
loss of $0.5 million in the second quarter of 2020. The gain in the second
quarter of 2021 was due to the depreciation of the Indian rupee against the U.S.
dollar, and the loss in the second quarter of 2020 resulted primarily from the
appreciation of the Mexican peso against the U.S. dollar.
Interest income (expense), net. Our interest expense (net of interest income)
was $13.1 million in the second quarter of 2021, down $0.5 million , or 3.9%,
from the second quarter of 2020, primarily due to a $0.3 million decrease in
interest expense and a $0.2 million increase in interest income. The decrease in
interest expense was primarily due to lower outstanding total debt in the second
quarter of 2021 compared to the second quarter of 2020, including a lower
revolving credit facility balance and a lower average London Interbank Offered
Rate ("LIBOR")-based rate on our revolving credit facility and term loan,
partially offset by higher losses on interest rate swaps in the second quarter
of 2021 compared to the second quarter of 2020 as well as by higher interest
expense related to our $350.0 million aggregate principal amount of 1.750%
senior notes issued in March 2021 ("2021 Senior Notes"), which we discuss in the
section titled "Liquidity and Capital Resources-Financial Condition" below. The
weighted average rate of interest on our debt, including the net impact of
interest rate swaps, increased from 2.8% in the second quarter of 2020 to 2.9%
in the second quarter of 2021.
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Other income (expense), net. Our other income (net of expense) was $6.1 million
in the second quarter of 2021 compared to $2.9 million in the second quarter of
2020. The increase in other income in the second quarter of 2021 was largely
attributable to the settlement of certain pre-GE divestiture related tax
liabilities for which we were indemnified by GE .
Income tax expense. Our income tax expense was $32.7 million in the second
quarter of 2021, up from $17.0 million in the second quarter of 2020,
representing an effective tax rate ("ETR") of 24.2%, up from 21.5% in the second
quarter of 2020. The increase in our ETR is primarily due to a more favorable
jurisdictional mix of income in 2020 and the expiration of certain tax benefits
in 2021, partially offset by certain discrete benefits recorded in the second
quarter of 2021.
Net income. As a result of the foregoing factors, net income as a percentage of
total net revenues was 10.4% in the second quarter of 2021, up from 6.9% in the
second quarter of 2020. Net income increased from $62.2 million in the second
quarter of 2020 to $102.7 million in the second quarter of 2021.
Adjusted income from operations. Adjusted income from operations ("AOI")
increased by $31.5 million from $145.5 million in the second quarter of 2020 to
$177.0 million in the second quarter of 2021. Our AOI margin increased from
16.2% in the second quarter of 2020 to 17.9% in the second quarter of 2021
primarily due to higher revenues, gross margins expansion as well as operating
leverage.
AOI is a non-GAAP measure and is not based on any comprehensive set of
accounting rules or principles and should not be considered a substitute for, or
superior to, financial measures calculated in accordance with GAAP, and may be
different from non-GAAP financial measures used by other companies. We believe
that presenting AOI together with our reported results can provide useful
supplemental information to our investors and management regarding financial and
business trends relating to our financial condition and results of operations. A
limitation of using AOI versus net income calculated in accordance with GAAP is
that AOI excludes certain recurring costs and certain other charges, namely
stock-based compensation and amortization of acquired intangibles. We compensate
for this limitation by providing specific information on the GAAP amounts
excluded from AOI.
We calculate AOI as net income, excluding (i) stock-based compensation, (ii)
amortization and impairment of acquired intangible assets, (iii)
acquisition-related expenses excluded in the period in which an acquisition is
consummated, (iv) foreign exchange (gain)/loss, (v) restructuring expenses, (vi)
interest (income) expense, and (vii) income tax expense, as we believe that our
results after taking into account these adjustments more accurately reflect our
ongoing operations. For additional information, see Note 19-"Segment reporting"
under Part I, Item 1-"Unaudited Consolidated Financial Statements" above.
During the second quarter of 2020, as a result of COVID-19 pandemic, we
undertook restructuring measures that amounted to $21.7 million . This
restructuring charge was excluded from AOI in the second quarter of 2020, and no
such charge was recorded in the second quarter of 2021. For additional
information, see Note 26-"Restructuring" under Part I, Item 1-"Unaudited
Consolidated Financial Statements" above.
The following table shows the reconciliation of AOI to net income, the most
directly comparable GAAP measure, for the three months ended June 30, 2020 and
2021:
Three months ended
June 30,
2020 2021
(dollars in millions)
Net income $ 62.2 $ 102.7
Foreign exchange (gains) losses, net 0.5 (5.5)
Interest (income) expense, net 13.6 13.1 Income tax expense 17.0 32.7 Stock-based compensation 18.8 19.7 Amortization and impairment of acquired intangible assets 11.7 14.3 Restructuring expenses 21.7 - Adjusted income from operations$ 145.5 $ 177.0 57
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The following table sets forth our AOI by segment for the three months ended
Three months ended
June 30 , Percentage Change Increase/(Decrease)
2020 2021 2021 vs. 2020
(dollars in millions)
BCMI $ 14.5 $ 34.1 135.2 %
CGRLH 46.2 63.1 36.8 %
HMS 62.7 68.0 8.5 %
Others 22.1 11.7 (47.0) %
AOI of our BCMI segment increased to $34.1 million in the second quarter of 2021
from $14.5 million in the second quarter of 2020, primarily driven by higher
utilization of transformation resources and lower discretionary spending in the
second quarter of 2021 compared to the second quarter of 2020, lower revenues in
the second quarter of 2020 due to delayed approvals from clients in our BCMI
segment related to shifting to a virtual operating environment, coupled with
charges related to a write-down of certain technology-related assets in the
second quarter of 2020, while no such charge was recorded in the second quarter
of 2021. AOI of our CGRLH segment increased to $63.1 million in the second
quarter of 2021 from $46.2 million in the second quarter of 2020, primarily due
to revenue growth, higher utilization of transformation resources and lower
discretionary spending. AOI of our HMS segment increased to $68.0 million in the
second quarter of 2021 from $62.7 million in the second quarter of 2020,
primarily due to higher utilization of transformation resources and lower
discretionary spending in the second quarter of 2021 compared to the second
quarter of 2020. AOI for "Others" in the table above primarily represents the
impact of foreign exchange fluctuations, adjustment of allowances for credit
losses and over or under-absorption of overheads, none of which is allocated to
any individual segment for management's internal reporting purposes. See Note
19-"Segment reporting" to our consolidated financial statements under Part I,
Item 1- "Unaudited Consolidated Financial Statements" above.
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Six months ended June 30,2021 Compared to the Six months ended June 30, 2020
Net revenues. Our net revenues were $1,934.2 million in the first half of 2021,
up $110.9 million , or 6.1%, from $1,823.3 million in the first half of 2020. The
growth in our net revenues was from Global Clients and derived from both our
transformation services and intelligent operations, primarily in our CGRLH
segment, insurance clients within our BCMI segment and high tech and
manufacturing clients within our HMS segment. Revenue from GE declined in the
first half of 2021 compared to the first half of 2020, largely due to
contractual commitments to reduce the number of employees providing services and
a reduction in GE's discretionary expenditures resulting from the macroeconomic
environment, as well as GE's divestitures of certain businesses that as of
January 1, 2021 are reflected in our Global Client portfolio.
Adjusted for foreign exchange, primarily the impact of changes in the value of
the euro, Australian dollar and U.K. pound sterling against the U.S. dollar, our
net revenues grew 4.2% in the first half of 2021 compared to the first half of
2020 on a constant currency2 basis. Revenue growth on a constant currency2 basis
is a non-GAAP measure. We provide information about our revenue growth on a
constant currency2 basis so that our revenue may be viewed without the impact of
foreign currency exchange rate fluctuations, thereby facilitating
period-to-period comparisons of our business performance. Total net revenues on
a constant currency2 basis are calculated by restating current-period activity
using the prior fiscal period's foreign currency exchange rates and adjusted for
hedging gains/losses.
Our average headcount increased by 2.5% to approximately 99,600 in the first
half of 2021 from approximately 97,100 in the first half of 2020.
Percentage Change
Six months ended June 30, Increase/(Decrease)
2020 2021 2021 vs. 2020
(dollars in millions)
Net revenues - Global Clients $ 1,584.9 $ 1,746.4 10.2 %
Net revenues - GE $ 238.4 $ 187.8 (21.2) %
Total net revenues $ 1,823.3 $ 1,934.2 6.1 %
Net revenues from Global Clients in the first half of 2021 were $1,746.4
million , up $161.5 million , or 10.2%, from $1,584.9 million in the first half of
2020. This increase was primarily driven by growth in our CGRLH and HMS
segments, led by transformation services. As a percentage of total net revenues,
net revenues from Global Clients increased from 86.9% in the first half of 2020
to 90.3% in the first half of 2021.
Net revenues from GE in the first half of 2021 were $187.8 million , down $50.6
million , or 21.2%, from $238.4 million in the first half of 2020. The decrease
in revenue from GE in the first half of 2021 was driven by contractual
commitments to reduce the number of employees providing services and a reduction
in GE's discretionary expenditures resulting from the macroeconomic environment,
as well as the inclusion of $19.6 million in revenue from certain GE -divested
businesses as Global Client revenue in 2021 following their divestiture by GE .
2 Revenue growth on a constant currency basis is a non-GAAP measure and is
calculated by restating current-period activity using the prior fiscal period's
foreign currency exchange rates adjusted for hedging gains/losses in such
period.
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--------------------------------------------------------------------------------Revenues by segment were as follows:
Percentage Change
Six months ended June 30, Increase/(Decrease)
2020 2021 2021 vs.2020
(dollars in millions)
BCMI $ 522.0 $ 492.1 (5.7) %
CGRLH 611.9 713.1 16.5 %
HMS 706.9 715.0 1.1 %
Others (17.5) 14.0 179.8 %
Total net revenues $ 1,823.3 $ 1,934.2 6.1 %
Net revenues from our BCMI segment decreased 5.7% in the first half of 2021
compared to the first half of 2020, largely as a result of the impact of
restructuring of a contract with a large client in our banking and capital
markets vertical within our BCMI segment during the fourth quarter of 2020,
partially offset by higher revenues in our insurance vertical and an increase in
transformation services delivered to banking and capital markets clients. Net
revenues from our CGRLH segment increased by 16.5% in the first half of 2021
compared to the first half of 2020, primarily driven by an increase in both our
transformation services and intelligent operations, including revenue from our
recent acquisitions of Enquero and SomethingDigital.Com LLC in the fourth
quarter of 2020. Net revenues from our HMS segment increased by 1.1% in the
first half of 2021 compared to the first half of 2020, primarily driven by an
increase in transformation services, including revenue from our recent
acquisition of Enquero, partially offset by lower revenue from GE , driven by
contractual commitments to reduce the number of employees providing services and
a reduction in GE's discretionary expenditures resulting from the macroeconomic
environment. Net revenues from "Others" primarily represents the impact of
foreign exchange fluctuations, which is not allocated to our segments for
management's internal reporting purposes. For additional information, see Note
19-"Segment reporting" under Part I, Item 1-"Unaudited Consolidated Financial
Statements" above.
Cost of revenue. Cost of revenue was $1,233.9 million in the first half of 2021,
up $35.2 million , or 2.9%, from the first half of 2020. The increase in our cost
of revenue in the first half of 2021 compared to the first half of 2020 was
primarily due to (i) an increase in our operational headcount supporting revenue
growth, including in the number of onshore personnel, related to large deals and
transformation services delivery as well as from the acquisition of
SomethingDigital.Com LLC and Enquero in the fourth quarter of 2020, (ii) wage
inflation, and (iii) higher expenses associated with medical costs related to
the impact of COVID-19 on our employees. This increase was partially offset by
(i) improved utilization of transformation services resources and (ii) a
decrease in travel costs as a result of the impact of the COVID-19 pandemic in
the first half of 2021 compared to the first half of 2020. We also recorded a
non-recurring charge related to retirement fund assets in India and a
restructuring charge related to employee severance in the first half of 2020
while no corresponding charge was recorded in the first half of 2021. For
additional information, see Note 26-"Restructuring" under Part I,
Item 1-"Unaudited Consolidated Financial Statements" above.
Gross margin. Our gross margin increased from 34.3% in the first half of 2020 to
36.2% in the first half of 2021, primarily driven by improved transformation
services utilization and higher analytics revenues as well as lower travel costs
as a result of the impact of the COVID-19 pandemic in the first half of 2021
compared to the first half of 2020, partially offset by higher expenses
associated with medical costs primarily related to the impact of COVID-19 on our
employees. We recorded a non-recurring charge related to retirement fund assets
in India and a restructuring charge related to employee severance in the first
half of 2020 while no such charge was recorded in the first half of 2021.
Selling, general and administrative expenses (SG&A). SG&A expenses as a
percentage of total net revenues decreased from 21.0% in the first half of 2020
to 20.9% in the first half of 2021. SG&A expenses were $404.9 million in the
first half of 2021, up $21.2 million compared to the first half of 2020. This
increase in expense was primarily due to higher staffing to support increased
revenues, higher medical costs related to the impact of COVID-19 on our
employees, higher marketing expenses, and wage inflation in the first half of
2021 compared to the first half of 2020, partially offset by improved operating
leverage.
Amortization of acquired intangibles. Amortization of acquired intangibles was
$30.7 million in the first half of 2021, up $9.3 million , or 43.3%, from the
first half of 2020. This increase is primarily due to higher amortization
expense
60
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related to intangibles pertaining to the acquisitions of Enquero and
SomethingDigitial.Com LLC in the fourth quarter of 2020.
Other operating (income) expense, net. Other operating income (net of expense)
was $0.1 million in the first half of 2021 compared to other operating expense
(net of income) of 18.5 million in the first half of 2020. The decrease in other
operating expense was primarily due to a non-recurring impairment charge of
$10.2 million related to the abandonment of various office premises as part of
our 2020 restructuring and an impairment charge of $10.0 million related to
tangible and intangible assets, primarily technology- and customer-related in
the first half of 2020, while no such charge was recorded in the first half of
2021. For additional information, see Note 10-"Goodwill and intangible assets"
and Note 26-"Restructuring" under Part I, Item 1-"Unaudited Consolidated
Financial Statements" above.
Income from operations. As a result of the foregoing factors, income from
operations as a percentage of total net revenues increased from 11.0% in the
first half of 2020 to 13.7% in the first half of 2021. Income from operations
increased by $63.8 million to $264.8 million in the first half of 2021 from
$201.0 million in the first half of 2020 driven by higher revenues and
associated operating income margins.
Foreign exchange gains (losses), net. We recorded a net foreign exchange gain of
$8.8 million in the first half of 2021, compared to a net foreign exchange gain
of $14.0 million in the first half of 2020. The gain in the first half of 2021
resulted primarily from the depreciation of the Indian rupee against the U.S.
dollar, while the gain in the first half of 2020 resulted primarily from the
depreciation of the Indian rupee and Australian dollar against the U.S. dollar.
Interest income (expense), net. Our interest expense (net of interest income)
was $25.4 million in the first half of 2021, up $0.1 million , or 0.5%, from the
first half of 2020. The increase in interest expense (net of interest income)
was primarily due to interest expense on our $350.0 million aggregate principal
amount of the 2021 Senior Notes. This increase was partially offset by a
decrease in interest expense due to lower drawdown of our revolving credit
facility, including a lower average LIBOR-based rate on our revolving credit
facility and term loan, partially offset by higher losses on interest rate swaps
in the first half of 2021 compared to the first half of 2020, which we discuss
in the section titled "Liquidity and Capital Resources-Financial Condition"
below. Our interest income decreased by $0.9 million in the first half of 2021
compared to the first half of 2020, primarily due to lower interest income in
India . The weighted average rate of interest on our debt, including the net
impact of interest rate swaps, was 3.0%, unchanged from the first half of 2020
to 2021.
Other income (expense), net. Our other income (net of expense) was $7.5 million
in the first half of 2021 compared to other income (net of expense) of $0.0
million in the first half of 2020. The increase in other income in the first
half of 2021 was largely attributable to changes in the fair value of assets in
our deferred compensation plan, and the settlement of certain pre-GE divestiture
related tax liabilities, for which we were indemnified by GE .
Income tax expense. Our income tax expense was $61.7 million in the first half
of 2021, up from $41.8 million in the first half of 2020, representing an ETR of
24.1%, up from 22.1% in the first half of 2020. The increase in our ETR is
primarily due to the expiration of certain tax benefits in 2021 and higher
discrete benefits recorded in the first half of 2020 compared to the first half
of 2021.
Net income. As a result of the foregoing factors, net income as a percentage of
total net revenues was 10.0% in the first half of 2021, up from 8.1% in the
first half of 2020. Net income increased by $46.1 million from $147.9 million in
the first half of 2020 to $194.0 million in the first half of 2021.
Adjusted income from operations. Adjusted income from operations ("AOI")
increased by $58.5 million from 281.2 million in the first half of 2020 to 339.7
million in the first half of 2021. Our AOI margin increased from 15.4% in the
first half of 2020 to 17.6% in the first half of 2021. This increase was due to
higher revenues, gross margin expansion, lower travel costs as a result of the
impact of the COVID-19 pandemic, as well as operating leverage in the first half
of 2021 compared to the first half of 2020.
AOI is a non-GAAP measure and is not based on any comprehensive set of
accounting rules or principles and should not be considered a substitute for, or
superior to, financial measures calculated in accordance with GAAP, and may be
different from non-GAAP financial measures used by other companies. We believe
that presenting AOI together with our reported results can provide useful
supplemental information to our investors and management regarding financial and
business trends relating to our financial condition and results of operations. A
limitation of using AOI versus net income calculated in accordance with GAAP is
that AOI excludes certain recurring costs and certain other charges, namely
stock-based compensation and amortization of acquired intangibles. We compensate
for this limitation by providing specific information on the GAAP amounts
excluded from AOI.
61
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We calculate AOI as net income, excluding (i) stock-based compensation, (ii)
amortization and impairment of acquired intangible assets, (iii)
acquisition-related expenses excluded in the period in which an acquisition is
consummated, (iv) foreign exchange (gain)/loss, (v) restructuring expenses, (vi)
interest (income) expense, and (vii) income tax expense, as we believe that our
results after taking into account these adjustments more accurately reflect our
ongoing operations. For additional information, see Note 19-"Segment reporting"
under Part I, Item 1-"Unaudited Consolidated Financial Statements" above.
During the first half of 2020, as a result of COVID-19 pandemic, we undertook
restructuring measures that amounted to $21.7 million . This restructuring charge
was excluded from AOI in the first half of 2020, and no corresponding charge was
recorded in the first half of 2021. For additional information, see Note
26-"Restructuring" under Part I, Item 1-"Unaudited Consolidated Financial
Statements" above.
The following table shows the reconciliation of AOI to net income, the most
directly comparable GAAP measure for the six months ended June 30, 2020 and
2021:
Six months ended June 30,
2020 2021
(dollars in millions)
Net income $ 147.9 $ 194.0
Foreign exchange (gains) losses, net (14.0) (8.8)
Interest (income) expense, net 25.3 25.4
Income tax expense 41.8 61.7
Stock-based compensation 36.3 37.1
Amortization and impairment of acquired intangible assets 22.2 30.3
Restructuring expenses 21.7 -
Adjusted income from operations $
281.2
The following table sets forth our AOI by segment for the six months endedJune 30, 2020 and 2021: Percentage Change Six months ended June 30, Increase/(Decrease) 2020 2021 2021 vs.2020 (dollars in millions) BCMI $ 50.1$ 66.5 32.7 % CGRLH 86.8 121.0 39.3 % HMS 117.8 135.7 15.2 % Others 26.5 16.6 (37.4) % AOI of our BCMI segment increased to$66.5 million in the first half of 2021 from$50.1 million in the first half of 2020, primarily driven by higher utilization of transformation resources and lower discretionary spending in the first half of 2021 compared to the first half of 2020, as well as lower revenues in the first half of 2020 due to delayed work-from-home approvals from certain clients and charges related to a write-down of certain technology assets in the first half of 2020 while no corresponding charge was recorded in the first half of 2021. AOI of our CGRLH segment increased to$121.0 million in the first half of 2021 from$86.8 million in the first half of 2020, primarily due to revenue growth, higher utilization of transformation resources and lower discretionary spending. AOI of our HMS segment increased to$135.7 million in the first half of 2021 from$117.8 million in the first half of 2020, primarily due to higher utilization of transformation resources and lower discretionary spending. AOI for "Others" in the table above primarily represents the impact of foreign exchange fluctuations, an adjustment to allowances for credit losses and over or under-absorption of overheads, none of which are allocated to any individual segment for management's internal reporting purposes. See Note 19-"Segment reporting" to our consolidated financial statements under Part I, Item 1-"Unaudited Consolidated Financial Statements" above. 62 -------------------------------------------------------------------------------- Liquidity and Capital Resources Overview Information about our financial position as ofDecember 31, 2020 andJune 30, 2021 is presented below: Percentage Change As of December 31, 2020 As of June 30, 2021 Increase/(Decrease) (dollars in millions) 2021 vs. 2020 Cash and cash equivalents $ 680.4 $ 752.6 10.6 % Short-term borrowings 250.0 - (100) % Long-term debt due within one year 33.5 383.2 1,042 % Long-term debt other than the current portion 1,307.4 1,288.7 (1.4) %Genpact Limited total shareholders' equity $ 1,834.2 $ 1,839.0 0.3 % Financial Condition We have historically financed our operations and our expansion, including acquisitions, with cash from operations and borrowing facilities. OnFebruary 6, 2020 , our board of directors approved a 15% increase in our quarterly cash dividend to$0.0975 per share, up from$0.085 per share in 2019, representing an annual dividend of$0.39 per common share, up from$0.34 per common share in 2019, payable to holders of our common shares. OnMarch 18, 2020 andJune 26, 2020 , we paid dividends of$0.0975 per share, amounting to$18.5 million and$18.6 million in the aggregate, to shareholders of record as ofMarch 9, 2020 andJune 11, 2020 , respectively. OnFebruary 9, 2021 , our board of directors approved a 10% increase in our quarterly cash dividend to$0.1075 per share, up from$0.0975 per share in 2020, representing a planned annual dividend of$0.43 per common share, up from$0.39 per share in 2020, payable to holders of our common shares. OnMarch 19, 2021 , andJune 23, 2021 , we paid dividends of$0.1075 per share, amounting to$20.1 million , and$20.1 million in the aggregate, to shareholders of record as ofMarch 10, 2021 andJune 11, 2021 , respectively. As ofJune 30, 2021 ,$741.9 million of our$752.6 million in cash and cash equivalents was held by our foreign (non-Bermuda ) subsidiaries.$17.6 million of this cash is held by foreign subsidiaries for which we expect to incur and have accrued a deferred tax liability on the repatriation of$1.3 million of retained earnings.$724.3 million of the cash and cash equivalents is held by foreign subsidiaries in jurisdictions where no tax is expected to be imposed upon repatriation of retained earnings or is being indefinitely reinvested. The total authorization under our existing share repurchase program is$1,750.0 million , of which$489.8 million remained available as ofJune 30, 2021 . Since our share repurchase program was initially authorized in 2015, we have repurchased 44,401,924 of our common shares at an average price of$28.38 per share, for an aggregate purchase price of$1,260.2 million . During the six months endedJune 30, 2021 , we repurchased 3,592,409 of our common shares on the open market at a weighted average price of$40.96 per share for an aggregate cash amount of$147.2 million . During the six months endedJune 30, 2020 , we repurchased 1,042,188 of our common shares on the open market at a weighted average price of$43.18 per share for an aggregate cash amount of$45.0 million . All repurchased shares have been retired. For additional information, see Note 17-"Capital stock" under Part I, Item 1-"Unaudited Consolidated Financial Statements" above. We expect that in the future our cash from operations, cash reserves and debt capacity will be sufficient to finance our operations, our growth and expansion plans, dividend payments and additional share repurchases we may make under our share repurchase program. However, there is no assurance that the impacts of the COVID-19 pandemic we have experienced to date, and any future impact we may experience, will not have an adverse effect on our cash flows. In addition, we may raise additional funds through public or private debt or equity financings. Our working capital needs are primarily to finance our payroll and other administrative and information technology expenses in advance of the receipt of accounts receivable. Our primary capital requirements include opening new delivery centers, expanding existing operations to support our growth, financing acquisitions and enhancing capabilities, including building certain digital solutions. 63 -------------------------------------------------------------------------------- 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 Six Months Ended June 30, 2021 Increase/(Decrease) 2020 2021 2021 vs. 2020 (dollars in millions) Net cash provided by/ (used for): Operating activities $ 173.1$ 237.8 37.4 % Investing activities (39.2) (29.0) 26.0 % Financing activities 304.2 (130.5) (142.9) % Net increase in cash and cash equivalents $ 438.0$ 78.3 (82.1) % Cash flows provided by operating activities. Net cash provided by operating activities was$237.8 million in the first half of 2021, up from$173.1 million in the first half of 2020. This increase is primarily due to (i) a$46.1 million increase in net income in the first half of 2021 compared to the first half of 2020 and (ii) a$36.3 million decrease in net operating assets driven by better days sales outstanding (DSO) and lower tax payments in the first half of 2021 compared to the first half of 2020, offset by a$17.7 million decrease in non-cash expenses, primarily due to higher unrealized gains on the revaluation of foreign currency assets/liabilities and lower write-down of operating right-of-use assets and intangible assets in the first half of 2021 compared to the first half of 2020. Cash flows used for investing activities. Our net cash used for investing activities was$29.0 million in the first half of 2021, compared to$39.2 million in the first half of 2020. The reduction in cash used for investing activities is primarily due to a reduction in payments for acquired/internally generated intangible assets and purchases of property, plant and equipment (net of sales proceeds), which were$16.8 million lower in the first half of 2021 than in the first half of 2020. This was partially offset by payments of$6.6 million in the first half of 2021 related to business acquisitions consummated in the fourth quarter of 2020, while there were no corresponding payments in the first half of 2020. Cash flows used for financing activities. Our net cash used for financing activities was$130.5 million in the first half of 2021, compared to net cash generated from financing activities of$304.2 million in the first half of 2020. This change was primarily due to proceeds from short-term borrowings (net of repayment) of$425.0 million in the first half of 2020 compared to the repayment of short-term borrowings (net of proceeds) of$250.0 million in the first half of 2021. We raised$350.0 million from the issuance of the 2021 Senior Notes in the first half of 2021. Payments for share repurchases (including expenses related to repurchases) were$147.2 million in the first half of 2021, compared to$45.0 million in the first half of 2020. Financing Arrangements As ofDecember 31, 2020 andJune 30, 2021 , our outstanding term loan, net of debt amortization expense of$1.2 million and$0.9 million , respectively, was$593.9 million and$577.1 million , respectively. We also have fund-based and non-fund based credit facilities with banks, which are available for operational requirements in the form of overdrafts, letters of credit, guarantees and short-term loans. As ofDecember 31, 2020 andJune 30, 2021 , the limits available under such facilities were$14.3 million and$20.2 million , respectively, of which$7.8 million and$7.0 million , respectively, was utilized, constituting non-funded drawdown. As ofDecember 31, 2020 andJune 30, 2021 , a total of$252.3 million and$2.0 million , respectively, of our revolving credit facility was utilized, of which$250.0 and Nil, respectively, constituted funded drawdown and$2.3 million and$2.0 million , respectively, constituted non-funded drawdown. Genpact Luxembourg S.à r.l. ("Genpact Luxembourg"), a wholly-owned subsidiary of the Company, issued$350 million aggregate principal amount of 3.70% senior notes inMarch 2017 (the "2017 Senior Notes") and$400 million aggregate principal amount of 3.375% senior notes inNovember 2019 (the "2019 Senior Notes"). The 2017 Senior Notes and the 2019 Senior Notes are fully guaranteed by the Company andGenpact USA, Inc. The total debt issuance cost of$2.6 million and$2.9 million incurred in connection with the 2017 Senior Notes and 2019 Senior Notes offerings, respectively, are being amortized over the respective lives of the notes as additional interest expense. As ofDecember 31 , 64 -------------------------------------------------------------------------------- 2020 andJune 30, 2021 , the amount outstanding under the 2017 Senior Notes, net of debt amortization expense of$0.7 million and$0.4 million , respectively, was$349.3 million and$349.6 million , respectively, which is payable onApril 1, 2022 . As ofDecember 31, 2020 andJune 30, 2021 , the amount outstanding under the 2019 Senior Notes, net of debt amortization expense of$2.3 million and$2.0 million , was$397.7 million and$398.0 million , respectively, which is payable onDecember 1, 2024 . InMarch 2021 ,Genpact Luxembourg and Genpact USA, Inc. , both wholly-owned subsidiaries of the Company, co-issued the 2021 Senior Notes, resulting in cash proceeds of approximately$348.1 million , net of an underwriting commission of$1.4 million and a discount of$0.5 million . Other debt issuance costs incurred in connection with the offering of the 2021 Senior Notes amounted to$1.1 million . The 2021 Senior Notes are fully guaranteed by the Company. The total debt issuance cost of$3.0 million incurred in connection with the 2021 Senior Notes offerings is being amortized over the lives of the notes as additional interest expense. As ofJune 30, 2021 , the amount outstanding under the 2021 Senior Notes, net of debt amortization expense of$2.9 million , was$347.1 million , which is payable onApril 10, 2026 . We pay interest on (i) the 2017 Senior Notes semi-annually in arrears onApril 1 andOctober 1 of each year, (ii) the 2019 Senior Notes semiannually in arrears onJune 1 andDecember 1 of each year, and (iii) the 2021 Senior Notes semi-annually in arrears onApril 10 andOctober 10 of each year, ending on the maturity dates ofApril 1, 2022 ,December 1, 2024 andApril 10, 2026 , respectively. For additional information, see Notes 11 and 12-"Short-term borrowings" and "Long-term debt" under Part I, Item 1-"Unaudited Consolidated Financial Statements" above. Off-Balance Sheet Arrangements Our off-balance sheet arrangements consist of foreign exchange contracts. For additional information, see Part I, Item 1A-"Risk Factors"-"Currency exchange rate fluctuations in various currencies in which we do business, especially the Indian rupee, the euro and theU.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 endedDecember 31, 2020 , and Note 7 in Part I, Item 1-"Unaudited Consolidated Financial Statements" above. 65 --------------------------------------------------------------------------------
Supplemental Guarantor Financial Information
As discussed in Note 12, "Long-term debt," under Part I, Item 1-"Unaudited Consolidated Financial Statements" above, Genpact Luxembourg, a wholly-owned subsidiary of the Company, issued the 2017 Senior Notes and the 2019 Senior Notes, andGenpact Luxembourg and Genpact USA, Inc. ("Genpact USA "), a wholly-owned subsidiary of the Company, co-issued the 2021 Senior Notes. As ofJune 30, 2021 , the outstanding balance for each of the 2017 Senior Notes, the 2019 Senior Notes and the 2021 Senior Notes was$349.6 million ,$398.0 million and$347.1 million , respectively. Each series of Senior Notes is fully and unconditionally guaranteed by the Company. The 2017 Senior Notes and the 2019 Senior Notes are also fully and unconditionally guaranteed byGenpact USA . Our other subsidiaries do not guarantee the Senior Notes (such subsidiaries are referred to as the "non-Guarantors"). The Company (with respect to all series of Senior Notes) andGenpact USA (with respect to the 2017 Senior Notes and the 2019 Senior Notes) have fully and unconditionally guaranteed (i) that the payment of the principal, premium, if any, and interest on the Senior Notes shall be promptly paid in full when due, whether at stated maturity of the Senior Notes, by acceleration, redemption or otherwise, and that the payment of interest on the overdue principal and interest on the Senior Notes, if any, if lawful, and all other obligations of the applicable issuer or issuers of the Senior Notes, respectively, to the holders of the Senior Notes or the trustee under the Senior Notes shall be promptly paid in full or performed, and (ii) in case of any extension of time of payment or renewal of any Senior Notes or any of such other obligations, that the same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. With respect to the 2017 Senior Notes and the 2019 Senior Notes, failing payment by Genpact Luxembourg when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Company andGenpact USA shall be obligated to pay the same immediately. With respect to the 2021 Senior Notes, failing payment by Genpact Luxembourg orGenpact 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 andGenpact 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 forGenpact 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.
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