Derivative Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

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 has historically hedged and plans to do so in the future, third-party expenses denominated in Indian Rupees (INR). These transactions expose the Company to exchange rate fluctuations between USD and INR and the Company has used 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 (“OCI”). 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 historically had maturities of less than 12 months.

As of March 31, 2022, the Company did not have any outstanding foreign currency derivatives to hedge its foreign exchange risks.

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 March 31, 2022, 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	1	June 30, 2021	June 30, 2022	$306.1 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, 2021 and March 31, 2022.

	Liability Derivatives
(in thousands)	As of December 31, 2021			As of March 31, 2022
Derivatives not designated as hedging instruments:
Interest rate swaps	Other current liabilities	$	4,102	Other current liabilities	$	1,639
Total interest rate swaps		$	4,102		$	1,639

The tables below present the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income for the three months ended March 31, 2021 and 2022:

	Three Months Ended March 31,					Three Months Ended March 31,
(in thousands)	2021		2022			2021		2022
Derivatives in Hedging Relationships	Amount of Loss Recognized in OCI on Derivative (Included Component)				Location of Gain Reclassified from Accumulated OCI into Income	Amount of Gain Reclassified from Accumulated OCI into Income (Included Component)
					Cost of revenues	$	32	$	—
Foreign exchange contracts	$	(32)	$	—	Selling general and administrative	57		—
Total	$	(32)	$	—		$	89	$	—

	Three Months Ended March 31,					Three Months Ended March 31,
(in thousands)	2021		2022			2021		2022
Derivatives in Hedging Relationships	Amount of Gain Recognized in OCI on Derivative (Excluded Component)				Location of Gain Reclassified from Accumulated OCI into Income	Amount of Gain Reclassified from Accumulated OCI into Income (Excluded Component)
					Cost of revenues	$	44	$	—
Foreign exchange contracts	$	108	$	—	Selling general and administrative	77		—
Total	$	108	$	—		$	121	$	—

The tables below present the effect of the Company’s financial derivative instruments on the unaudited condensed consolidated statements of income and comprehensive income for the three months ended March 31, 2021 and 2022:

	Three Months Ended March 31,
(in thousands)	2021				2022
	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	$	29,606	$	67,579	$	42,333	$	100,956
Gain on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain reclassified from accumulated other comprehensive income into income	57		32		—		—
Amount excluded from effectiveness testing recognized in earnings	77		44		—		—

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 income and comprehensive income for the three months ended March 31, 2021 and 2022:

		Three Months Ended March 31,
(in thousands)		2021		2022
Derivatives Not Designated as Hedging Instruments
Interest rate swaps	Gain on interest rate swaps	$	(46)	$	(328)
Foreign exchange contracts	Selling general and administrative	41		—
Foreign exchange contracts	Cost of revenues	23		—
Total		$	18	$	(328)