UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period ended June 30, 2024

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
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Canon's Court

22 Victoria Street

Hamilton HM 12

Bermuda

(441) 298-3300

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares, par value $0.01 per share	G	New 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of August 2, 2024, there were 178,177,581 common shares, par value $0.01 per share, of the registrant issued and outstanding.

TABLE OF CONTENTS

	Item No.		Page No.
PART I		Financial Information
	1.	Unaudited Consolidated Financial Statements
		Consolidated Balance Sheets as of December 31, 2023 and June 30, 2024	3
		Consolidated Statements of Income for the three and six months ended June 30, 2023 and 2024	4
		Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2024	5
		Consolidated Statements of Equity for the three and six months ended June 30, 2023 and 2024	6
		Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2024	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	70
	4.	Controls and Procedures	70
PART II		Other Information
	1.	Legal Proceedings	71
	1A.	Risk Factors	71
	2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	71
	5.	Other Information	72
	6.	Exhibits	73
SIGNATURES			74

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, 2023		As of June 30, 2024
Assets
Current assets
Cash and cash equivalents		$	583,670	$	914,171
Accounts receivable, net of allowance for credit losses of $18,278 and $16,833 as of December 31, 2023 and June 30, 2024, respectively	3	1,116,273		1,159,787
Prepaid expenses and other current assets	6	191,566		192,123
Total current assets		$	1,891,509	$	2,266,081
Property, plant and equipment, net	8	189,803		199,533
Operating lease right-of-use assets		186,167		194,624
Deferred tax assets	22	298,921		276,981
Intangible assets, net	9	53,028		39,841
Goodwill	9	1,683,782		1,677,866
Contract cost assets	19	202,543		203,402
Other assets, net of allowance for credit losses of $4,096 and $5,512 as of December 31, 2023 and June 30, 2024, respectively		299,960		319,937
Total assets		$	4,805,713	$	5,178,265
Liabilities and equity
Current liabilities
Short-term borrowings	10	$	10,000	$	—
Current portion of long-term debt	11	432,242		425,918
Accounts payable		27,739		28,430
Income taxes payable	22	38,458		43,779
Accrued expenses and other current liabilities	12	759,180		653,676
Operating leases liability		50,313		45,879
Total current liabilities		$	1,317,932	$	1,197,682
Long-term debt, less current portion	11	824,720		1,207,610
Operating leases liability		168,015		175,693
Deferred tax liabilities	22	11,706		10,118
Other liabilities	13	234,948		249,403
Total liabilities		$	2,557,321	$	2,840,506
Shareholders' equity
Preferred shares, $0.01 par value, 250,000,000 authorized, none issued		—		—
Common shares, $0.01 par value, 500,000,000 authorized, 179,494,132 and 178,177,581 issued and outstanding as of December 31, 2023 and June 30, 2024, respectively		1,789		1,776
Additional paid-in capital		1,883,944		1,900,015
Retained earnings		1,085,209		1,176,459
Accumulated other comprehensive income (loss)		(722,550)		(740,491)
Total equity		$	2,248,392	$	2,337,759
Commitments and contingencies	23
Total liabilities and equity		$	4,805,713	$	5,178,265

 See accompanying notes to the Consolidated Financial Statements.

3

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

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

		Three months ended June 30,				Six months ended June 30,
	Notes	2023		2024		2023		2024
Net revenues	19	$	1,105,524	$	1,176,212	$	2,194,843	$	2,307,449
Cost of revenue		715,484		759,834		1,434,562		1,494,593
Gross profit		$	390,040	$	416,378	$	760,281	$	812,856
Operating expenses:
Selling, general and administrative expenses		229,426		239,642		445,911		474,673
Amortization of acquired intangible assets	9	8,257		6,558		16,512		13,485
Other operating (income) expense, net	20	(4,963)		(73)		(4,574)		(5,539)
Income from operations		$	157,320	$	170,251	$	302,432	$	330,237
Foreign exchange gains (losses), net		1,763		2,454		723		3,291
Interest income (expense), net	21	(12,138)		(13,538)		(21,765)		(23,780)
Other income (expense), net		3,425		3,250		7,455		9,037
Income before income tax expense		$	150,370	$	162,417	$	288,845	$	318,785
Income tax expense	22	34,118		40,427		66,492		79,848
Net income		$	116,252	$	121,990	$	222,353	$	238,937
Earnings per common share	17
Basic		$	0.63	$	0.68	$	1.21	$	1.33
Diluted		$	0.63	$	0.67	$	1.19	$	1.32
Weighted average number of common shares used in computing earnings per common share	17
Basic		183,230,252		179,651,702		183,512,828		180,034,120
Diluted		185,825,117		180,912,267		186,705,697		181,424,912

    

See accompanying notes to the Consolidated Financial Statements.    

4

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

 

	Three months ended June 30,				Six months ended June 30,
	2023		2024		2023		2024
Net income	$	116,252	$	121,990	$	222,353	$	238,937
Other comprehensive income:
Currency translation adjustments	(7,886)		(8,485)		9,108		(24,460)
Gain (loss) on cash flow hedging derivatives, net of taxes (Note 5)	8,549		(4,638)		21,640		6,773
Retirement benefits (expense), net of taxes	128		(174)		1,045		(254)
Other comprehensive income (loss)	791		(13,297)		31,793		(17,941)
Comprehensive income	$	117,043	$	108,693	$	254,146	$	220,996

See accompanying notes to the Consolidated Financial Statements.

5

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Equity

For the three months ended June 30, 2023

(Unaudited)

(In thousands, except share count)

 

	Common shares							Accumulated Other Comprehensive Income (Loss)
	No. of Shares	Amount		Additional  Paid-in Capital		Retained Earnings				Total Equity
Balance as of April 1, 2023	183,729,110	$	1,831	$	1,794,779	$	830,846	$	(702,123)	$	1,925,333
Issuance of common shares on exercise of options (Note 15)	645,000	7		12,627		—		—		12,634
Issuance of common shares under the employee stock purchase plan (Note 15)	101,828	1		3,369		—		—		3,370
Net settlement on vesting of restricted share units (Note 15)	38,213	—		(1,144)		—		—		(1,144)
Net settlement on vesting of performance units (Note 15)	1,432	—		(38)		—		—		(38)
Stock repurchased and retired (Note 16)	(3,197,479)	(32)		—		(120,439)		—		(120,471)
Expenses related to stock repurchased, including taxes (Note 16)	—	—		—		(664)		—		(664)
Stock-based compensation expense (Note 15)	—	—		21,832		—		—		21,832
Comprehensive income (loss):
Net income (loss)	—	—		—		116,252		—		116,252
Other comprehensive income (loss)	—	—		—		—		791		791
Dividend ($0.1375 per common share, Note 16)	—	—		—		(25,031)		—		(25,031)
Balance as of June 30, 2023	181,318,104	$	1,807	$	1,831,425	$	800,964	$	(701,332)	$	1,932,864

See accompanying notes to the Consolidated Financial Statements.

6

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Equity

For the six months ended June 30, 2023

(Unaudited)

(In thousands, except share count)

 

	Common shares							Accumulated Other Comprehensive Income (Loss)
	No. of Shares	Amount		Additional  Paid-in Capital		Retained Earnings				Total Equity
Balance as of January 1, 2023	182,924,416	$	1,823	$	1,777,453	$	780,007	$	(733,125)	$	1,826,158
Issuance of common shares on exercise of options (Note 15)	1,287,280	13		25,424		—		—		25,437
Issuance of common shares under the employee stock purchase plan (Note 15)	174,473	2		6,489		—		—		6,491
Net settlement on vesting of restricted share units (Note 15)	347,744	3		(8,430)		—		—		(8,427)
Net settlement on vesting of performance units (Note 15)	412,275	4		(11,047)		—		—		(11,043)
Stock repurchased and retired (Note 16)	(3,828,084)	(38)		—		(150,433)		—		(150,471)
Expenses related to stock repurchased, including taxes (Note 16)	—	—		—		(677)		—		(677)
Stock-based compensation expense (Note 15)	—	—		41,536		—		—		41,536
Comprehensive income (loss):
Net income (loss)	—	—		—		222,353		—		222,353
Other comprehensive income (loss)	—	—		—		—		31,793		31,793
Dividend ($0.275 per common share, Note 16)	—	—		—		(50,286)		—		(50,286)
Balance as of June 30, 2023	181,318,104	$	1,807	$	1,831,425	$	800,964	$	(701,332)	$	1,932,864

See accompanying notes to the Consolidated Financial Statements.

7

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Equity

For the three months ended June 30, 2024

(Unaudited)

(In thousands, except share count)

	Common shares							Accumulated Other Comprehensive Income (Loss)
	No. of Shares	Amount		Additional  Paid-in Capital		Retained Earnings				Total Equity
Balance as of April 1, 2024	179,979,368	$	1,794	$	1,879,099	$	1,144,671	$	(727,194)	$	2,298,370
Issuance of common shares under the employee stock purchase plan (Note 15)	98,229	1		2,922		—		—		2,923
Net settlement on vesting of restricted share units (Note 15)	20,047	—		(375)		—		—		(375)
Stock repurchased and retired (Note 16)	(1,920,063)	(19)		—		(62,626)		—		(62,645)
Expenses related to stock repurchased, including taxes (Note 16)	—	—		—		(239)		—		(239)
Stock-based compensation expense (Note 15)	—	—		18,369		—		—		18,369
Comprehensive income (loss):
Net income (loss)	—	—		—		121,990		—		121,990
Other comprehensive income (loss)	—	—		—				(13,297)		(13,297)
Dividend ($0.1525 per common share, Note 16)	—	—		—		(27,337)				(27,337)
Balance as of June 30, 2024	178,177,581	$	1,776	$	1,900,015	$	1,176,459	$	(740,491)	$	2,337,759

See accompanying notes to the Consolidated Financial Statements.

8

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Equity

For the six months ended June 30, 2024

(Unaudited)

(In thousands, except share count)

	Common shares							Accumulated Other Comprehensive Income (Loss)
	No. of Shares	Amount		Additional  Paid-in Capital		Retained Earnings				Total Equity
Balance as of January 1, 2024	179,494,132	$	1,789	$	1,883,944	$	1,085,209	$	(722,550)	$	2,248,392
Issuance of common shares on exercise of options (Note 15)	135,051	1		3,930		—		—		3,931
Issuance of common shares under the employee stock purchase plan (Note 15)	191,888	2		5,787		—		—		5,789
Net settlement on vesting of restricted share units (Note 15)	271,785	3		(4,283)		—		—		(4,280)
Net settlement on vesting of performance units (Note 15)	869,713	9		(16,913)		—		—		(16,904)
Stock repurchased and retired (Note 16)	(2,784,988)	(28)		—		(92,602)		—		(92,630)
Expenses related to stock repurchased, including taxes (Note 16)	—	—		—		(256)		—		(256)
Stock-based compensation expense (Note 15)	—	—		27,550				—		27,550
Comprehensive income (loss):
Net income (loss)	—	—		—		238,937		—		238,937
Other comprehensive income (loss)	—	—		—				(17,941)		(17,941)
Dividend ($0.305 per common share, Note 16)	—	—		—		(54,829)		—		(54,829)
Balance as of June 30, 2024	178,177,581	$	1,776	$	1,900,015	$	1,176,459	$	(740,491)	$	2,337,759

See accompanying notes to the Consolidated Financial Statements.

9

GENPACT LIMITED AND ITS SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Six months ended June 30,
	2023		2024
Operating activities
Net income	$	222,353	$	238,937
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	36,845		34,542
Amortization of debt issuance costs	978		1,037
Amortization of acquired intangible assets	16,512		13,485
Loss on the sale of the business classified as held for sale (refer to Note 7)	802		—
Allowance for credit losses (refer to Note 3)	6,521		12,638
Unrealized gain on revaluation of foreign currency assets/liabilities	(2,249)		(7,214)
Stock-based compensation expense	41,536		27,550
Deferred tax (benefit) expense	(2,957)		15,873
Others, net	1,147		173
Change in operating assets and liabilities:
Increase in accounts receivable	(26,891)		(54,326)
Increase in prepaid expenses, other current assets, contract cost assets, operating lease right-of-use assets and other assets	(62,006)		(22,823)
Increase in accounts payable	5,742		997
Decrease in accrued expenses, other current liabilities, operating leases liabilities and other liabilities	(150,087)		(82,850)
Increase in income taxes payable	49,136		5,694
Net cash provided by operating activities	$	137,382	$	183,713
Investing activities
Purchase of property, plant and equipment	(24,033)		(43,276)
Payment for internally generated intangible assets (including intangibles under development)	(1,705)		(1,260)
Proceeds from sale of property, plant and equipment	17		116
Payment for business acquisitions, net of cash acquired	(682)		—
Payment for divestiture of business	(19,510)		—
Net cash used for investing activities	$	(45,913)	$	(44,420)
Financing activities
Repayment of finance lease obligations	(6,856)		(5,569)
Payment of debt issuance and refinancing costs	—		(3,305)
Proceeds of long-term debt	—		400,000
Repayment of long-term debt	(13,250)		(19,875)
Proceeds from short-term borrowings	148,000		50,000
Repayment of short-term borrowings	(196,000)		(60,000)
Proceeds from issuance of common shares under stock-based compensation plans	31,928		9,720
Payment for net settlement of stock-based awards	(18,317)		(21,142)
Payment of earn-out consideration	(2,399)		—
Dividend paid	(50,286)		(54,829)
Payment for stock repurchased and retired (including expenses related to stock repurchased)	(150,548)		(92,686)
Net cash (used for) provided by financing activities	$	(257,728)	$	202,314
Net (decrease) increase in cash and cash equivalents	(166,259)		341,607
Effect of exchange rate changes	10,802		(11,106)
Cash and cash equivalents at the beginning of the period	646,765		583,670
Cash and cash equivalents at the end of the period	$	491,308	$	914,171
Supplementary information
Cash paid during the period for interest	$	22,550	$	30,625
Cash paid during the period for income taxes, net of refund	$	66,819	$	45,883

 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)

1. Organization

The Company is a global professional services firm that drives digitally-led innovation and runs digitally-enabled intelligent operations for its clients, guided by its experience running thousands of processes for hundreds of Fortune Global 500 clients. The Company has over 135,200 employees serving clients in key industry verticals from more than 35 countries. 

2. Summary of significant accounting policies

(a) Basis of preparation and principles of consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, they do not include certain information and note disclosures required by generally accepted accounting principles for annual financial reporting and should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The accompanying consolidated financial statements reflect all adjustments that management considers necessary for a fair presentation of the results of operations for these periods.

The accompanying financial statements have been prepared on a consolidated basis and reflect the financial statements of Genpact Limited, a Bermuda company, and all of its subsidiaries that are more than 50% owned and controlled. When the Company does not have a controlling interest in an entity but exerts significant influence over the entity, the Company applies the equity method of accounting. All intercompany transactions and balances are eliminated in consolidation.

(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, intangible assets and goodwill, revenue recognition, allowance for 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. Management believes that the estimates used in the preparation of the consolidated financial statements are reasonable. 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.

(c) Business combinations, goodwill and other intangible assets

The Company accounts for its business combinations using the acquisition method of accounting in accordance with Accounting 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 re-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, general and 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 more likely than not reduce the fair value of a reporting unit below its carrying amount. See Note 9 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	-	8 years
Marketing-related intangible assets	1	-	8 years
Technology-related intangible assets	2	-	10 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 significant accounting policies (Continued)

(d) Financial instruments and concentration of credit risk

Financial instruments that potentially subject the Company to concentration of credit risk are reflected principally in cash and cash equivalents, derivative financial instruments and accounts receivable. The Company places its cash and cash equivalents and derivative financial instruments with corporations and banks with high investment grade ratings, limits the amount of credit exposure with any one corporation or bank and conducts ongoing evaluations of the creditworthiness of the corporations and banks with which it does business. To reduce its credit risk on accounts receivable, the Company conducts ongoing credit evaluations of its customers.

(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 as variable consideration when the amount of revenue to be recognized can be estimated to the extent that it is probable that a significant reversal of any incremental revenue will not occur.

The Company records deferred revenue attributable to certain process transition activities where such activities do not represent separate performance obligations. Revenues relating to such transition activities are classified under contract liabilities and subsequently recognized ratably over the period in which the related services are performed. Costs relating to such transition activities are fulfillment costs which are directly related to the contract and result in the generation or enhancement of resources. Such costs are expected to be recoverable under the contract and are therefore classified as contract cost assets and recognized ratably over the estimated expected period of benefit under cost of revenue.

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)

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 input (cost expended) method has been used to measure progress towards completion as there is a direct relationship between input and the satisfaction of a performance obligation. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the current contract estimates.

The Company enters into multiple-element revenue arrangements in which a customer may purchase a combination of products or services. The Company determines whether each product or service promised to a customer is capable of being distinct, and is distinct in the context of the contract. If not, the promised products or services are combined and accounted for as a single performance obligation. In the event of a multiple-element revenue arrangement, the Company allocates the arrangement consideration to separately identifiable performance obligations based on their relative stand-alone selling prices.

Certain contracts may include offerings such as sale of licenses, which may be perpetual or subscription-based. Revenue from distinct perpetual licenses is recognized upfront at the point in time when the software is made available to the customer. Revenue from distinct, non-cancellable, subscription-based licenses is recognized at the point in time it is transferred to the customer. Revenue from any associated maintenance or ongoing support services is recognized ratably over the term of the contract. For a combined software license/services performance obligation, revenue is recognized over the period that the services are performed.

All incremental and direct costs incurred for acquiring contracts, such as certain sales commissions, are classified as contract cost assets. Such costs are amortized over the expected period of benefit and recorded under selling, general and administrative expenses.

Other upfront fees paid to customers are classified as contract assets. Such fees are amortized over the expected period of benefit and recorded as an adjustment to the transaction price and deducted from revenue.

Timing of revenue recognition may differ from the timing of invoicing. If a payment is received in respect of services prior to the delivery of services, the payment is recognized as an advance from the customer and classified as a contract liability. Contract assets and contract liabilities relating to the same customer contract are offset against each other and presented on a net basis in the consolidated financial statements. 

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 criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of the above criteria.

For all leases at the lease commencement date, a ROU asset and a lease liability are recognized. The lease liability represents the present value of the lease payments under the lease. Lease liabilities are initially measured at the present value of the lease payments not yet paid, discounted using the discount rate for the lease at the lease commencement. The lease liabilities are subsequently measured on an amortized cost basis. The lease liability is adjusted to reflect interest on the liability and the lease payments made during the period. Interest on the lease liability is determined as the amount that results in a constant periodic discount rate on the remaining balance of the liability.

The ROU asset represents the right to use the leased asset for the lease term. The ROU asset for each lease initially includes the amount of the initial measurement of the lease liability adjusted for any lease payments made to the lessor at or before the commencement date, accrued lease liabilities and any lease incentives received or any initial direct costs incurred by the Company.

The ROU asset of finance leases is subsequently measured at cost, less accumulated amortization and any accumulated impairment losses. The ROU asset of operating leases is subsequently measured from the carrying amount of the lease liability at the end of each reporting period, and is equal to the carrying amount of lease liabilities adjusted for (1) unamortized initial direct costs, (2) prepaid/(accrued) lease payments and (3) the unamortized balance of lease incentives received.

The carrying value of ROU assets is reviewed for impairment, similar to long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

The Company has elected to not separate lease and non-lease components for all of its leases and to use the recognition exemptions for lease contracts that, at commencement date, have a lease term of 12 months or less and do not contain a purchase option (“short-term leases”). 

Significant judgements

The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. Under certain of its leases, the Company has a renewal and termination option to lease assets for additional terms between one and ten years. The Company applies judgement in evaluating whether it is reasonably certain to exercise the option to renew or terminate the lease. The Company considers all relevant factors that create an economic incentive for it to exercise the renewal or termination option. After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within the Company’s control and affects its ability to exercise (or not to exercise) the option to renew or terminate.

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)

The Company has applied an incremental borrowing rate for the purpose of computing lease liabilities based on the remaining lease term and the rates prevailing in the jurisdictions where leases were executed.

(h) Cost of revenue

Cost of revenue primarily consists of salaries and benefits (including stock-based compensation), recruitment, training and related costs of employees who are directly responsible for the performance of services for customers, their supervisors and certain support personnel who may be dedicated to a particular client or a set of processes. It also includes operational expenses, which consist of facilities maintenance expenses, travel and living expenses, rent, IT expenses, contract resources with specialized skills who are directly responsible for the performance of services for clients, and other billable costs related to the Company’s clients. It also includes depreciation of property, plant and equipment, and amortization of intangible and ROU assets which are directly related to providing services that generate revenue.

(i) Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses consist of expenses relating to salaries and benefits (including stock-based compensation) as well as costs related to recruitment, training and retention of senior management and other support personnel in enabling functions such as human resources, finance, legal, marketing, sales and sales support, and other support personnel. The operational costs component of SG&A expenses also includes travel and living costs for such personnel. SG&A expenses also include acquisition-related costs, legal and professional fees (which represent the costs of third party legal, tax, accounting and other advisors), investment in research and development, digital technology, advanced automation and robotics, and an allowance for credit losses. It also includes depreciation of property, plant and equipment, and amortization of intangibles and ROU assets other than those included in cost of revenue.

(j) Credit losses

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 characteristics in estimating expected credit losses. Credit losses for accounts receivable are based on the roll-rate method, and the Company recognizes a loss allowance based on lifetime expected credit losses at each reporting date. The Company has established a provision matrix based on historical credit loss experience, adjusted for forward-looking factors and the economic environment. The Company believes the most relevant forward-looking factors are economic environment, gross domestic product, inflation rates and unemployment rates for each of the countries in which the Company or its customers operate, and accordingly the Company adjusts historical loss rates based on expected changes in these factors. At every reporting date, observed historical default rates are updated to reflect changes in the Company’s forward-looking estimates.

Credit losses for other financial assets and deferred billings are based on the discounted cash flow (“DCF”) method. Under the DCF method, the allowance for credit losses reflects the difference between the contractual cash flows due in accordance with the contract and the present value of the cash flows expected to be collected. The expected cash flows are discounted at the effective interest rate of the financial asset. Such allowances are based on the credit losses expected to arise over the life of the asset which includes consideration of prepayments based on the Company’s expectation as of the balance sheet date.

A financial asset is written off when it is deemed uncollectible and there is no reasonable expectation of recovering the contractual cash flows. Expected recoveries of amounts previously written off, not to exceed the aggregate amounts previously written off, are included in determining the allowance at each reporting period.

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 same 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 significant accounting policies (Continued)

(k) 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.

(l) 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.

(m) Recently issued accounting pronouncements

The authoritative bodies release standards and guidance which are assessed by management for impact on the Company’s consolidated financial statements.

The following recently released accounting standard has been adopted by the Company:

In March 2023, the FASB issued ASU No. 2023-01, “Leases (Topic 842).” This ASU requires a lessee in a common-control lease arrangement to amortize leasehold improvements that it owns over the improvements’ useful life to the common control group, regardless of the lease term, if the lessee continues to control the use of the underlying asset through a lease. The ASU is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company adopted this ASU beginning January 1, 2024. The adoption of this ASU has not had a material impact on the Company's consolidated results of operations, cash flows, financial position or disclosures.

17

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)

The following recently released accounting standards have not yet been adopted by the Company:

In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280)." This ASU improves reportable segment disclosure requirements by enhancing disclosures about significant segment expenses. It requires public entities to disclose significant segment expenses, other segment items, and additional measures of segment profit or loss, providing more comprehensive information for investors and stakeholders. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its disclosures.

In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740)." This ASU enhances income tax disclosures by requiring public business entities on an annual basis (1) to disclose specific categories in the rate reconciliation, and (2) to provide additional information for reconciling items that meet a quantitative threshold, i.e., if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate. It also requires entities to disclose the income taxes paid (net of refunds received), broken out between federal (national), state/local and foreign, as well as the amounts paid to an individual jurisdiction when 5% or more of the total income taxes were paid to such jurisdiction. The amendments in this ASU are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its disclosures.

3. 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, 2023		Six months ended June 30, 2024
Opening balance as of January 1	$	20,442	$	18,278
Additions (net), charged to income statement	3,081		8,222
Deductions/effect of exchange rate fluctuations	(5,245)		(9,667)
Closing balance	$	18,278	$	16,833

Accounts receivable were $1,134,551 and $1,176,620, and allowances for credit losses were $18,278 and $16,833, resulting in net accounts receivable balances of $1,116,273 and $1,159,787 as of December 31, 2023 and June 30, 2024, respectively.

In addition, deferred billings were $90,094 and $97,180 and allowances for credit losses on deferred billings were $4,096 and $5,512, resulting in net deferred billings balances of $85,998 and $91,668 as of December 31, 2023 and June 30, 2024, respectively.

During the three months ended June 30, 2023 and 2024, the Company recorded a charge of $147 and $1,338, respectively, and for the six months ended June 30, 2023 and 2024, a charge of $147 and $4,416, respectively, to the income statement on account of credit losses on deferred billings. Deferred billings, net of related allowances for credit losses, are included under “Other assets” in the Company’s consolidated balance sheet as of December 31, 2023 and June 30, 2024.

18

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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

3. Accounts receivable, net of allowance for credit losses (Continued)

The Company has a revolving accounts receivable-based facility of $75,000 as of December 31, 2023 and June 30, 2024, 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, 2023 and June 30, 2024 was $51,367 and $52,031, respectively. The principal amount outstanding against this facility as of December 31, 2023 and June 30, 2024 was $51,344 and $51,977, respectively. The cost of factoring such accounts receivable during the three and six months ended June 30, 2023 and 2024 was $453 and $720, respectively, and $914 and $1,426, respectively. Gains or losses on the sales are recorded at the time of transfer of the accounts receivable and are included under "interest income (expense), net" in the Company’s consolidated statements of income.

The Company also has arrangements with financial institutions that manage the accounts payable program for certain of the Company's large clients. The Company sells certain accounts receivable pertaining to such clients to these financial institutions on a non-recourse basis. There is no cap on the value of accounts receivable that can be sold under these arrangements. The Company used these arrangements to sell accounts receivable amounting to $324,401 during the year ended December 31, 2023, and $129,238 during the six months ended June 30, 2024, which also represents the maximum capacity utilized under these arrangements in each such period. The cost of factoring such accounts receivable     during the three and six months ended June 30, 2023 and 2024 was $2,570 and $1,866, respectively, and $3,970 and $3,041, respectively.

4. 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, 2023 and June 30, 2024: 

	As of December 31, 2023
	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)	$	22,307	$	—	$	22,307	$	—
Deferred compensation plan assets (Note a, d)	51,983		—		—		51,983
Total	$	74,290	$	—	$	22,307	$	51,983
Liabilities
Derivative instruments (Note b, c)	17,363		—		17,363		—
Deferred compensation plan liability (Note b, e)	51,354		—		—		51,354
Total	$	68,717	$	—	$	17,363	$	51,354

19

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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

4. Fair value measurements (Continued)

	As of June 30, 2024
	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)	$	30,348	$	—	$	30,348	$	—
Deferred compensation plan assets (Note a, d)	56,992		—		—		56,992
Total	$	87,340	$	—	$	30,348	$	56,992
Liabilities
Derivative instruments (Note b, c)	19,427		—		19,427		—
Deferred compensation plan liability (Note b, e)	56,311		—		—		56,311
Total	$	75,738	$	—	$	19,427	$	56,311

 

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

(b)Included in “accrued expenses and other current liabilities” and “other liabilities” in the consolidated balance sheets.

(c)The Company values its derivative instruments based on market observable inputs, including both forward and spot prices for the relevant currencies and interest rate indices for relevant interest rates. The quotes are taken from an independent market database.

(d)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.

(e)The fair value of the deferred compensation plan liability is derived based on the fair value of the underlying assets in the insurance policies and is therefore classified within level 3 of the fair value hierarchy.

The following table provides a roll-forward of the fair value of earn-out consideration categorized as level 3 in the fair value hierarchy for the three and six months ended June 30, 2023 and 2024:

 

	Three months ended June 30,				Six months ended June 30,
	2023		2024		2023		2024
Opening balance	$	—	$	—	$	2,517	$	—
Payments made on earn-out consideration	—		—		(2,399)		—
Change in fair value of earn-out consideration (Note a)	—		—		(118)		—
Closing balance	$	—	$	—	$	—	$	—

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

20

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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

4. Fair value measurements (Continued)

The following table provides a roll-forward of the fair value of deferred compensation plan assets categorized as level 3 in the fair value hierarchy for the three and six months ended June 30, 2023 and 2024:

 

	Three months ended June 30,				Six months ended June 30,
	2023		2024		2023		2024
Opening balance	$	44,745	$	55,559	$	40,261	$	51,983
Additions (net of redemption)	1,099		432		3,197		800
Change in fair value of deferred compensation plan assets (Note a)	2,131		1,001		4,517		4,209
Closing balance	$	47,975	$	56,992	$	47,975	$	56,992

(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 six months ended June 30, 2023 and 2024:

	Three months ended June 30,				Six months ended June 30,
	2023		2024		2023		2024
Opening balance	$	44,095	$	54,519	$	39,654	$	51,354
Additions (net of redemption)	1,099		800		3,197		801
Change in fair value of deferred compensation plan liabilities (Note a)	2,119		992		4,462		4,156
Closing balance	$	47,313	$	56,311	$	47,313	$	56,311

(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.

21

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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

5. 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 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 consist 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 54 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, 2023		As of June 30, 2024		As of December 31, 2023		As of June 30, 2024
Foreign exchange forward contracts denominated in:
United States Dollars (sell) Indian Rupees (buy)	$	1,892,800	$	2,344,000	$	5,278	$	15,685
United States Dollars (sell) Mexican Peso (buy)	66,000		67,500		2,129		(3,284)
United States Dollars (sell) Philippines Peso (buy)	118,500		170,900		637		(6,841)
Euro (sell) United States Dollars (buy)	222,363		189,853		(3,499)		3,924
Euro (sell) Romanian Leu (buy)	66,384		32,073		90		352
Japanese Yen (sell) Chinese Renminbi (buy)	52,562		34,224		803		5,011
United States Dollars (sell) Chinese Renminbi (buy)	40,800		22,800		(638)		(874)
Pound Sterling (sell) United States Dollars (buy)	14,915		15,082		(398)		(92)
United States Dollars (sell) Hungarian Font (buy)	32,000		22,500		809		(542)
Australian Dollars (sell) Indian Rupees (buy)	90,077		135,584		(1,914)		115
United States Dollars (sell) Polish Zloty (buy)	51,000		58,500		3,046		383
Japanese Yen (sell) United States Dollars (buy)	7,000		7,000		323		823
Israeli Shekel (buy) United States Dollars (sell)	15,000		15,000		1,175		(208)
South African Rand (sell) United States Dollars (buy)	27,000		27,000		216		(623)
United States Dollars (sell) Brazilian Real (buy)	4,000		4,000		55		(363)
United States Dollars (sell) Costa Rica Colon (buy)	13,000		13,000		555		(16)
United States Dollars (sell) Canadian Dollar (buy)	—		9,000		—		(158)
Pound Sterling (buy) United States Dollar (sell)	22,300		7,431		669		153
United States Dollars (sell) Malaysian Ringgit (buy)	18,000		9,000		161		(199)
Interest rate swaps (floating to fixed)	148,125		240,625		(4,553)		(2,325)
					$	4,944	$	10,921

(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.

22

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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

5. 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 FASB guidance on derivatives and hedging, the Company designates foreign exchange forward contracts, interest rate swaps and treasury rate locks as cash flow hedges. Foreign exchange forward contracts are entered into to cover the effects of future exchange rate variability on forecasted revenues and purchases of services, and interest rate swaps and treasury rate locks are entered into to cover interest rate fluctuation risk. In addition to this program, the Company uses derivative instruments that are not accounted for as hedges under 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.

The fair value of the Company’s derivative instruments and their location in the Company’s financial statements are summarized in the table below: 

	Cash flow hedges				Non-designated
	As of December 31, 2023		As of June 30, 2024		As of December 31, 2023		As of June 30, 2024
Assets
Prepaid expenses and other current assets	$	13,273	$	16,138	$	5,783	$	1,877
Other assets	$	3,251	$	12,333	$	—	$	—
Liabilities
Accrued expenses and other current liabilities	$	6,833	$	6,486	$	1,276	$	2,710
Other liabilities	$	9,254	$	10,231	$	—	$	—

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.

In March 2021, 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 in March 2021 by Genpact Luxembourg S.à r.l. (“Genpact Luxembourg”) and Genpact USA, Inc. (“Genpact USA”), both wholly-owned subsidiaries of the Company, 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. This gain is being amortized to interest expense over the life of the 2021 Senior Notes (as defined below). The remaining gain to be amortized related to the treasury rate lock agreement as of December 31, 2023 and June 30, 2024 was $368 and $288, respectively.

In May 2024, the Company executed treasury rate lock agreements for $400,000 in connection with future interest payments to be made on its senior notes issued in June 2024 by Genpact Luxembourg and Genpact USA, and the treasury rate locks were designated as cash flow hedges. These treasury rate lock agreements were terminated on May 30, 2024 and a deferred loss was recorded in accumulated other comprehensive income. This loss is being amortized to interest expense over the life of the 2024 Senior Notes (as defined below). The remaining loss to be amortized related to the treasury rate lock agreements as of June 30, 2024 was $391.

23

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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

5. Derivative financial instruments (Continued)

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

	Three months ended June 30,
	2023						2024
	Before  tax Amount		Tax  (Expense)  or Benefit		Net of  tax Amount		Before  tax Amount		Tax  (Expense) or Benefit		Net of  tax Amount
Opening balance	$	9,378	$	(1,998)	$	7,379	$	17,132	$	(4,770)	$	12,362
Net gains (losses) reclassified into statement of income on completion of hedged transactions	4,836		(1,214)		3,622		3,585		(1,014)		2,571
Changes in fair value of effective portion of outstanding derivatives, net	16,755		(4,584)		12,171		(1,896)		(171)		(2,067)
Gain (loss) on cash flow hedging derivatives, net	11,919		(3,370)		8,549		(5,481)		843		(4,638)
Closing balance	$	21,297	$	(5,368)	$	15,928	$	11,651	$	(3,927)	$	7,724

	Six months ended June 30,
	2023						2024
	Before  tax Amount		Tax  (Expense)  or Benefit		Net of  tax Amount		Before  tax Amount		Tax  (Expense) or Benefit		Net of  tax Amount
Opening balance	$	(7,255)	$	1,543	$	(5,712)	$	805	$	146	$	951
Net gains (losses) reclassified into statement of income on completion of hedged transactions	7,027		(1,752)		5,275		6,545		(1,772)		4,773
Changes in fair value of effective portion of outstanding derivatives, net	35,579		(8,663)		26,915		17,391		(5,845)		11,546
Gain (loss) on cash flow hedging derivatives, net	28,552		(6,911)		21,640		10,846		(4,073)		6,773
Closing balance	$	21,297	$	(5,368)	$	15,928	$	11,651	$	(3,927)	$	7,724

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

Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) recognized in OCI on Derivatives (Effective Portion)								Location of Gain (Loss) reclassified from OCI into Statement of Income (Effective Portion)	Amount of Gain (Loss) reclassified from OCI into Statement of Income (Effective Portion)
	Three months ended June 30,				Six months ended June 30,					Three months ended June 30,				Six months ended June 30,
	2023		2024		2023		2024			2023		2024		2023		2024
Forward foreign exchange contracts	$	16,510	$	(1,559)	$	33,885	$	14,890	Revenue	$	594	$	521	$	1,229	$	912
Interest rate swaps	$	245	$	60	$	1,694	$	2,898	Cost of revenue	515		2,303		(898)		4,048
Treasury rate lock	$	—	$	(397)	$	—	$	(397)	Selling, general and administrative expenses	78		332		(113)		840
									Interest expense	3,649		429		6,809		745
	$	16,755	$	(1,896)	$	35,579	$	17,391		$	4,836	$	3,585	$	7,027	$	6,545

There were no gains (losses) recognized in the statement of income on the ineffective portion of derivatives and excluded from effectiveness testing for the three and six months ended June 30, 2023 and 2024, respectively.

24

GENPACT LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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

5. Derivative financial instruments (Continued)

Non-designated Hedges

		Amount of Gain (Loss) recognized in Statement of Income on Derivatives
		Three months ended June 30,		Six months ended June 30,
Derivatives not designated as hedging instruments	Location of Gain (Loss)  recognized in Statement of Income on Derivatives	2023	2024	2023