Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

9.	Derivative Instruments and Hedging Activities

Cash Flow Hedges of Foreign Exchange Risk

The Company is exposed to fluctuations in various foreign currencies against its functional currency, the USD. Specifically, the Company is exposed to, and hedges, third-party expenses denominated in Indian Rupees (INR). These transactions expose the Company to exchange rate fluctuations between USD and INR and the Company uses foreign currency forward agreements to manage its exposure to fluctuations in the

USD-INR

exchange rate. This involves fixing the

USD-INR

exchange rate for delivery of a specified amount of INR on a specified date. The currency forward agreements are cash settled in USD for their fair value at or close to their settlement date.

For derivatives designated and that qualify as cash flow hedges of foreign exchange risk for accounting purposes, the gain or loss on the derivative is recorded in Accumulated other comprehensive income. The earnings recognition of excluded components is presented in the same income statement line item as the earnings effect of the hedged transaction. All contracts have maturities of less than 12 months.

As of September 30, 2021, the Company had the following outstanding foreign currency derivatives that were used to hedge its foreign exchange risks:

Foreign Currency Derivative

Number of Instruments

Notional Sold

Notional Purchased

Currency forward agreements

4.2 million USD

331.0 million INR

Non-designated

Derivatives

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting.

To reduce exposure to variability in expected future cash outflows on variable rate debt attributable to the changes in LIBOR, the Company has entered into interest rate swaps to economically offset a portion of this risk.

Additionally, the Company electively

de-designates

currency forward agreements previously designated as cash flow hedges prior to their maturity due to administrative constraints.

Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.

As of September 30, 2021, the Company had the following outstanding derivative that was not designated as a hedge in qualifying hedging relationships:

Product

Number of
Instruments

Effective Date

Maturity Date

Notional

Interest Rate Swap

June 30, 2021

June 30, 2022

308.0 million USD

All financial derivative instruments are carried at their fair value on the balance sheet. The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the unaudited condensed consolidated balance sheets as of December 31, 2020 and September 30, 2021.

Asset Derivatives

As of December 31, 2020

As of September 30, 2021

(in thousands)

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments:

Foreign exchange contracts

Other current assets

648

Other current assets

229

Total foreign exchange contracts

648

229


	Liability Derivatives
(in thousands)	As of December 31, 2020			As of September 30, 2021
Derivatives not designated as hedging instruments:
Interest rate swaps	Other current liabilities	$	7,302	Other current liabilities	$	6,500
Interest rate swaps	Other liabilities		4,222	Other liabilities		—

Total interest rate swaps		$	11,524		$	6,500

The tables below present the effect of cash flow hedge accounting on

Accumulated Other Comprehensive Income for the three and nine months ended September 30, 2020 and 2021.


	Three Months Ended September 30,					Three Months Ended September 30,
(in thousands)	2020		2021			2020		2021

Derivatives in Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Included Component)				Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Included Component)
					Cost of revenues	$	12	$	35
Foreign exchange contracts	$	423	$	41	Selling general and administrative		14		24

Total	$	423	$	41		$	26	$	59


	Nine Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020		2021				2020		2021

Derivatives in Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Included Component)					Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Included Component)
						Cost of revenues	$	12	$	139
Foreign exchange contracts	$	423	$	(143	)	Selling general and administrative		14		101

Total	$	423	$	(143	)		$	26	$	240


	Three Months Ended September 30,					Three Months Ended September 30,
(in thousands)	2020		2021			2020		2021

Derivatives in Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Excluded Component)				Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Excluded Component)
					Cost of revenues	$	75	$	30
Foreign exchange contracts	$	11	$	69	Selling general and administrative		102		22

Total	$	11	$	69		$	177	$	52


	Nine Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2020		2021			2020		2021

Derivatives in Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Excluded Component)				Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Excluded Component)
					Cost of revenues	$	75	$	120
Foreign exchange contracts	$	11	$	319	Selling general and administrative		102		139

Total	$	11	$	319		$	177	$	259

The tables below present the effect of the Company’s financial derivative instruments on the unaudited condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2021.


	Three Months Ended September 30,
	2020				2021
(in thousands)	Selling General, and Administrative		Cost of Revenues		Selling General, and Administrative		Cost of Revenues
Total amounts of income and expense line items in which the effects of fair value or cash flow hedges are recorded	$	25,391	$	55,112	$	84,983	$	82,638
Gain or (loss) on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income		14		12		24		35
Amount excluded from effectiveness testing recognized in earnings		93		83		22		30


	Nine Months Ended September 30,
	2020				2021
(in thousands)	Selling General, and Administrative		Cost of Revenues		Selling General, and Administrative		Cost of Revenues
Total amounts of income and expense line items in which the effects of fair value or cash flow hedges are recorded	$	86,848	$	153,458	$	153,194	$	225,798
Gain or (loss) on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income		14		12		101		139
Amount excluded from effectiveness testing recognized in earnings		93		83		139		120

The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments in the unaudited condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2021.


		Three Months Ended September 30,
(in thousands)		2020			2021


Derivatives Not Designated as Hedging Instruments	Location of (Gain) or Loss Recognized in Income on Derivative	Amount of (Gain) or Loss Recognized in Income on Derivative
Interest rate swaps	(Gain) loss on interest rate swaps	$	(49	)	$	112
Foreign exchange contracts	Selling general and administrative		(9	)		—
Foreign exchange contracts	Cost of revenues		(8	)		1

Total		$	(66	)	$	113


		Nine Months Ended September 30,
(in thousands)		2020			2021


Derivatives Not Designated as Hedging Instruments	Location of (Gain) or Loss Recognized in Income on Derivative	Amount of (Gain) or Loss Recognized in Income on Derivative
Interest rate swaps	(Gain) loss on interest rate swaps	$	9,604		$	199
Foreign exchange contracts	Selling general and administrative		(9	)		(20	)
Foreign exchange contracts	Cost of revenues		(8	)		(28	)

Total		$	9,587		$	151