What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-10-29 compared with 2020-08-06 · 286 added, 264 removed, 957 unchanged (36% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Current assets:

38 unchanged sentences

Common stock, $ 0.001 par value;

100,000,000 shares authorized, 38,818,365 shares issued and 34,320,586 shares outstanding as of June 30, 2020 and 38,480,654 shares issued and 34,185,241 shares outstanding as of December 31, 2019

100,000,000 shares authorized, 38,840,890 shares issued and 33,953,536 shares outstanding as of September 30, 2020 and 38,480,654 shares issued and 34,185,241 shares outstanding as of December 31, 2019

Additional paid-in capital 413,135 391,240

2 unchanged sentences

Total including shares held in treasury 937,118 858,290

4,497,779 shares as of June 30, 2020 and 4,295,413 shares as of December 31, 2019, held in treasury, at cost

4,887,354 shares as of September 30, 2020 and 4,295,413 shares as of December 31, 2019, held in treasury, at cost

( 227,190 ) ( 188,289 )

6 unchanged sentences

(In thousands, except share and per share amounts)

Three months ended June 30, Six months ended June 30,

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

2020 2019 2020 2019

31 unchanged sentences

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME (UNAUDITED)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)

Three months ended June 30, Six months ended June 30,

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

2020 2019 2020 2019

Net income $ 26,418 $ 19,044 $ 57,258 $ 46,303

Other comprehensive (loss)/income:

Other comprehensive income/(loss):

Unrealized gain/(loss) on cash flow hedges 12,165 ( 3,574 ) 5,040 5,631

5 unchanged sentences

98 ( 40 ) 296 ( 119 )

Income tax expense relating to above (3)

Income tax (expense)/benefit relating to above (3)

( 4,968 ) 3,588 ( 6,818 ) 723

10 unchanged sentences

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the three months ended June 30, 2020 and 2019

For the three months ended September 30, 2020 and 2019

(In thousands, except share and per share amounts)

Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Equity

Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss)/Income Treasury Stock Total Equity

Shares Amount Shares Amount

Balance as of March 31, 2020 38,813,775 $ 39 $ 396,939 $ 574,314 $ ( 113,104 ) ( 4,497,779 ) $ ( 202,284 ) $ 655,904

Balance as of June 30, 2020 38,818,365 $ 39 $ 404,704 $ 582,743 $ ( 104,274 ) ( 4,497,779 ) $ ( 202,284 ) $ 680,928

Stock issued against stock-based compensation plans 22,525 — 85 — — — — 85

3 unchanged sentences

Net income — — — 26,418 — — — 26,418

Balance as of June 30, 2020 38,818,365 $ 39 $ 404,704 $ 582,743 $ ( 104,274 ) ( 4,497,779 ) $ ( 202,284 ) $ 680,928

Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Non - Controlling Interest Total Equity

Balance as of September 30, 2020 38,840,890 $ 39 $ 413,135 $ 609,161 $ ( 85,217 ) ( 4,887,354 ) $ ( 227,190 ) $ 709,928

Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Equity

Shares Amount Shares Amount

Balance as of March 31, 2019 38,256,036 $ 38 $ 371,144 $ 498,939 $ ( 77,212 ) ( 3,890,599 ) $ ( 162,333 ) $ 259 $ 630,835

Balance as of June 30, 2019 38,295,083 $ 38 $ 378,633 $ 511,503 $ ( 74,358 ) ( 4,088,759 ) $ ( 174,463 ) $ 641,353

Stock issued against stock-based compensation plans 27,271 — — — — — — —

1 unchanged sentence

Acquisition of treasury stock — — — — — ( 125,744 ) ( 8,346 ) ( 8,346 )

Non-controlling interest — — 18 — — — — ( 259 ) ( 241 )

Other comprehensive income — — — — 2,854 — — — 2,854

Other comprehensive loss — — — — ( 11,795 ) — — ( 11,795 )

Net income — — — 19,044 — — — 19,044

Balance as of June 30, 2019 38,295,083 $ 38 $ 378,633 $ 511,503 $ ( 74,358 ) ( 4,088,759 ) $ ( 174,463 ) $ — $ 641,353

Balance as of September 30, 2019 38,322,354 $ 38 $ 386,060 $ 530,547 $ ( 86,153 ) ( 4,214,503 ) $ ( 182,809 ) $ 647,683

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the six months ended June 30, 2020 and 2019

For the nine months ended September 30, 2020 and 2019

(In thousands, except share and per share amounts)

7 unchanged sentences

Net income — — — 57,258 — — — 57,258

Balance as of June 30, 2020 38,818,365 $ 39 $ 404,704 $ 582,743 $ ( 104,274 ) ( 4,497,779 ) $ ( 202,284 ) $ 680,928

Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss)/Income Treasury Stock Non - Controlling Interest Total Equity

Balance as of September 30, 2020 38,840,890 $ 39 $ 413,135 $ 609,161 $ ( 85,217 ) ( 4,887,354 ) $ ( 227,190 ) $ 709,928

Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Non - Controlling Interest Total Equity

Shares Amount Shares Amount

5 unchanged sentences

Non-controlling interest — — 18 — — — — ( 250 ) ( 232 )

Other comprehensive income — — — — 9,109 — — — 9,109

Other comprehensive loss — — — — ( 2,686 ) — — — ( 2,686 )

Net income — — — 46,303 — — — — 46,303

Balance as of June 30, 2019 38,295,083 $ 38 $ 378,633 $ 511,503 $ ( 74,358 ) ( 4,088,759 ) $ ( 174,463 ) $ — $ 641,353

Balance as of September 30, 2019 38,322,354 $ 38 $ 386,060 $ 530,547 $ ( 86,153 ) ( 4,214,503 ) $ ( 182,809 ) $ — $ 647,683

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

(In thousands)

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities:

6 unchanged sentences

Unrealized foreign exchange (gain)/loss, net ( 437 ) 19

Deferred income tax expense/(benefit) ( 663 ) ( 2,631 )

Deferred income tax benefit ( 1,572 ) ( 6,859 )

Allowance for expected credit losses 353 433

16 unchanged sentences

Purchases of property and equipment ( 34,614 ) ( 32,462 )

Proceeds from sale of property and equipment 624 154

Investment in equity affiliate ( 700 ) —

2 unchanged sentences

Proceeds from redemption of investments 103,718 129,143

Net cash provided by investing activities 1,066 953

Net cash provided by/(used for) investing activities 11,063 ( 21,340 )

Cash flows from financing activities:

7 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash 20 ( 1,761 )

Net increase/(decrease) in cash, cash equivalents and restricted cash 43,731 ( 12,684 )

Net increase in cash, cash equivalents and restricted cash 88,968 5,154

Cash, cash equivalents and restricted cash at the beginning of the period 127,044 104,131

3 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

21 unchanged sentences

In conjunction with the new reporting structure, the Company has recast certain prior period amounts, wherever applicable, to conform to the way the Company internally manages and monitors segment performance.

This change primarily impacted Note 3 - Segment and Geographical Information and Note 9 - Goodwill and Intangible Assets to the unaudited consolidated financial statements, with no impact on the unaudited consolidated balance sheets, statements of income, comprehensive (loss)/income, equity and cash flows.

This change primarily impacted Note 3 - Segment and Geographical Information and Note 9 - Goodwill and Intangible Assets

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

to the unaudited consolidated financial statements, with no impact on the unaudited consolidated balance sheets, statements of income, comprehensive (loss)/income, equity and cash flows.

(b) Use of Estimates

3 unchanged sentences

The significant estimates and assumptions that affect the unaudited consolidated financial statements include, but are not limited to, allowance for expected credit losses, expected recoverability from customers with contingent fee arrangements, recoverability of dues from statutory authorities, assets and obligations related to employee benefit plans, deferred tax valuation allowances, income-tax uncertainties and other contingencies, valuation of derivative financial instruments, assumptions used to calculate stock-based compensation expense, assumptions used to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, lease term to calculate lease cost, depreciation and amortization periods, purchase price allocation, recoverability of long-lived assets including goodwill and intangibles, and estimated costs to complete fixed price contracts.

As of June 30, 2020, the extent to which the global Coronavirus Disease 2019 pandemic (“COVID-19”) will ultimately impact the Company's business depends on numerous dynamic factors, which the Company still cannot reliably predict.

As of September 30, 2020, the extent to which the global Coronavirus Disease 2019 pandemic (“COVID-19”) will ultimately impact the Company's business depends on numerous dynamic factors, which the Company still cannot reliably predict.

As a result, many of the Company's estimates and assumptions herein required increased judgment and carry a higher degree of variability and volatility.

As events continue to evolve with respect to COVID-19, the Company’s estimates may materially change in future periods.

Any changes in estimates are adjusted prospectively in the Company’s consolidated financial statements.

The Company determines if an arrangement is a lease at inception of the contract.

10 unchanged sentences

Modifications which are not accounted for as a separate contract are reassessed as of the effective date of the modification based on its modified terms and conditions and the facts and circumstances as of that date.

On January 1, 2019, the date of initial application, the Company adopted Topic 842, Leases , using the modified retrospective method.

The modified retrospective method provides a method of recognizing those leases which had not expired as of the date of adoption of January 1, 2019.

The adoption resulted in the recognition of ROU assets of $ 80,328 (net of deferred rent of $ 8,626 ) and lease liabilities of $ 88,954 for operating leases as of January 1, 2019.

The Company's accounting for finance leases remained substantially

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

On January 1, 2019, the date of initial application, the Company adopted Topic 842 , Leases , using the modified retrospective method.

The modified retrospective method provides a method of recognizing those leases which had not expired as of the date of adoption of January 1, 2019.

The adoption resulted in the recognition of ROU assets of $ 80,328 (net of deferred rent of $ 8,626 ) and lease liabilities of $ 88,954 for operating leases as of January 1, 2019.

The Company's accounting for finance leases remained substantially unchanged.

The adoption had no impact on opening balance of retained earnings.

16 unchanged sentences

The Company is currently evaluating the impact of this ASU.

In August 2020, FASB issued ASU No.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity .

This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

The ASU removes separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature and hence most of the instruments will be accounted for as a single model (either debt or equity).

The ASU also states that entities must apply the if-converted method to all convertible instruments for calculation of diluted EPS and the treasury stock method is no longer available.

An entity can use either a full or modified retrospective approach to adopt the ASU’s guidance.

The ASU is effective for fiscal years beginning after December 15, 2021 and may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The Company is currently evaluating the impact of this ASU.

(e) Recently Adopted Accounting Pronouncements

11 unchanged sentences

Changes to the Disclosure Requirements for Fair Value Measurement.

The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, by prescribing new disclosure requirements, and the elimination and modification of disclosure requirements based on the concepts in the Concepts Statement, including the consideration of costs and benefits.

The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, by prescribing new disclosure requirements, and the elimination and modification of disclosure

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

requirements based on the concepts in the Concepts Statement, including the consideration of costs and benefits.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

8 unchanged sentences

The adoption of this ASU effective January 1, 2020 did not have any material effect on the Company’s unaudited consolidated financial statements.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

(In thousands, except share and per share amounts)

In April 2019, FASB issued ASU No.

14 unchanged sentences

The Company adopted Topic 326 as of January 1, 2020, whereby no such fair value election was made, accordingly, the adoption of this ASU did not have any material effect on the Company’s unaudited consolidated financial statements.

(f) Reclassification

Certain reclassifications have been made in the consolidated financial statements of prior periods to conform to the classification used in the current period.

The impact of such reclassifications on the consolidated financial statements is not material.

Segment and Geographical Information

3 unchanged sentences

Insurance, Healthcare, Analytics and Emerging Business, which reflects how management will review financial information and make operating decisions.

These business units will develop client-specific solutions, build capabilities, maintain a unified go-to-market approach and be integrally responsible for service delivery, customer satisfaction, growth and profitability.

These business units will develop client-specific solutions, build

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

capabilities, maintain a unified go-to-market approach and be integrally responsible for service delivery, customer satisfaction, growth and profitability.

In line with the Company’s strategy of vertical integration and focus on domain expertise, the Company has integrated its Finance & Accounting and Consulting operating segments within each of the Insurance and Healthcare operating segments based on the corresponding industry-specific clients to whom those services are provided.

4 unchanged sentences

• Emerging Business, and

In conjunction with the new reporting structure, the Company has recasted its segment disclosures for prior periods presented to conform to the way the Company internally manages and monitors segment performance.

In conjunction with the new reporting structure, the Company has recast its segment disclosures for prior periods presented to conform to the way the Company internally manages and monitors segment performance.

The chief operating decision maker (“CODM”) generally reviews financial information such as revenues, cost of revenues and gross profit, disaggregated by the operating segments to allocate an overall budget among the operating segments.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

(In thousands, except share and per share amounts)

The Company does not allocate and therefore the CODM does not evaluate, certain operating expenses, interest expense or income taxes by segment.

1 unchanged sentence

The Company manages these assets on a total Company basis, not by operating segment, and therefore asset information and capital expenditures by operating segment are not presented.

Revenues and cost of revenues for the three months ended June 30, 2020 and 2019, respectively, for each of the reportable segments, are as follows:

Three months ended June 30, 2020

Revenues and cost of revenues for the three months ended September 30, 2020 and 2019, respectively, for each of the reportable segments, are as follows:

Three months ended September 30, 2020

Insurance Healthcare Emerging Business Analytics Total

10 unchanged sentences

(1) Exclusive of depreciation and amortization expense.

Three months ended June 30, 2019

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

Three months ended September 30, 2019

Insurance Healthcare Emerging Business Analytics Total

10 unchanged sentences

(1) Exclusive of depreciation and amortization expense.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

(In thousands, except share and per share amounts)

Revenues and cost of revenues for the six months ended June 30, 2020 and 2019, respectively, for each of the reportable

segments, are as follows:

Six months ended June 30, 2020

Revenues and cost of revenues for the nine months ended September 30, 2020 and 2019, respectively, for each of the reportable segments, are as follows:

Nine months ended September 30, 2020

Insurance Healthcare Emerging Business Analytics Total

10 unchanged sentences

(1) Exclusive of depreciation and amortization expense.

Six months ended June 30, 2019

Nine months ended September 30, 2019

Insurance Healthcare Emerging Business Analytics Total

10 unchanged sentences

(1) Exclusive of depreciation and amortization expense.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

Revenues, net by service type, were as follows:

Three months ended June 30, Six months ended June 30,

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

2020 2019 2020 2019

5 unchanged sentences

Refer to the reportable segment disclosure above.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

(In thousands, except share and per share amounts)

The Company attributes the revenues to regions based upon the location of its customers.

Three months ended June 30, Six months ended June 30,

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

2020 2019 2020 2019

7 unchanged sentences

Long-lived assets by geographic area, which consist of property and equipment, net and operating lease right-of-use assets were as follows:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Long-lived assets

8 unchanged sentences

The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers:

June 30, 2020 December 31, 2019

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

September 30, 2020 December 31, 2019

Accounts receivable, net $ 154,983 $ 171,864

3 unchanged sentences

Consideration received for process transition activities $ 3,187 $ 3,036

Accounts receivable includes $ 71,489 and $ 73,920 as of June 30, 2020 and December 31, 2019, respectively, representing unbilled receivables.

Accounts receivable includes $ 74,386 and $ 73,920 as of September 30, 2020 and December 31, 2019, respectively, representing unbilled receivables.

The Company has accrued the unbilled receivables for work performed in accordance with the terms of contracts with customers and considers no significant performance risk associated with its unbilled receivables.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

(In thousands, except share and per share amounts)

Contract assets represent upfront payments such as deal signing discounts or deal signing bonuses made to customers.

6 unchanged sentences

The revenues are recognized as (or when) the performance obligation is fulfilled under the contract with customer.

Revenue recognized during the three and six months ended June 30, 2020 and 2019, which was included in the contract liabilities balance at the beginning of the respective periods:

Three months ended June 30, Six months ended June 30,

Revenue recognized during the three and nine months ended September 30, 2020 and 2019, which was included in the contract liabilities balance at the beginning of the respective periods:

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

2020 2019 2020 2019

2 unchanged sentences

Contract Acquisition Costs

Three months ended Six months ended Year ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 December 31, 2019

Three months ended Nine months ended Year ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 December 31, 2019

Opening Balance $ 1,270 $ 469 $ 1,307 $ 713 $ 713

Addition 187 — 187 — 1,222

Additions 63 776 250 776 1,222

Amortization ( 112 ) ( 113 ) ( 336 ) ( 357 ) ( 628 )

Closing Balance $ 1,221 $ 1,132 $ 1,221 $ 1,132 $ 1,307

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

Contract Fulfillment Costs

Three months ended Six months ended Year ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 December 31, 2019

Three months ended Nine months ended Year ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 December 31, 2019

Opening Balance $ 6,780 $ 5,608 $ 7,255 $ 4,051 $ 4,051

Addition 363 1,441 647 2,167 4,652

Additions 116 1,140 763 3,307 4,652

Amortization ( 463 ) ( 411 ) ( 1,585 ) ( 1,021 ) ( 1,448 )

Closing Balance $ 6,433 $ 6,337 $ 6,433 $ 6,337 $ 7,255

There was no impairment for contract acquisition and contract fulfillment costs as of June 30, 2020 and December 31, 2019.

There was no impairment for contract acquisition and contract fulfillment costs as of September 30, 2020 and December 31, 2019.

The capitalized costs are amortized on a straight line basis over the life of the contract.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

(In thousands, except share and per share amounts)

Allowance for expected credit losses

5 unchanged sentences

The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on expected losses is subject to significant judgment, including but not limited to changes in customers’ credit rating, and may cause variability in the Company’s allowance for credit losses in future periods.

As of January 1, 2020 the Company’s provision for doubtful receivables was $ 1,163 , which was based on previous U.S.

GAAP standards.

There was no material impact on provision when calculated by applying the Topic 326 guidance.

June 30, 2020 January 1, 2020

As of January 1, 2020 the Company’s provision for doubtful receivables was $ 1,163 .

There was no material impact on the provision when calculated by applying the Topic 326 guidance.

September 30, 2020 January 1, 2020

Accounts receivable, including unbilled receivables $ 156,383 $ 173,027

1 unchanged sentence

Accounts receivable, net $ 154,983 $ 171,864

The movement in allowance for current expected credit loss on customer balances for the three and six months ended June 30, 2020 and 2019 and year ended December 31, 2019 was as follows:

Three months ended Six months ended Year ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 December 31, 2019

The movement in allowance for current expected credit loss on customer balances for the three and nine months ended September 30, 2020 and 2019 and year ended December 31, 2019 was as follows:

Three months ended Nine months ended Year ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 December 31, 2019

Balance at the beginning of the period $ 1,434 $ 1,168 $ 1,163 $ 956 $ 956

Additions during the period, net 186 ( 33 ) 381 265 354

Addition (reversal) during the period, net ( 36 ) ( 57 ) 345 208 354

Charged against allowance — ( 1 ) ( 100 ) ( 55 ) ( 156 )

1 unchanged sentence

Balance at the end of the period $ 1,400 $ 1,113 $ 1,400 $ 1,113 $ 1,163

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

Earnings Per Share

3 unchanged sentences

The Company includes performance stock unit awards in dilutive potential common shares when they become contingently issuable and have a dilutive impact per authoritative guidance and excludes such awards when they are not contingently issuable.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

(In thousands, except share and per share amounts)

The following table sets forth the computation of basic and diluted earnings per share:

Three months ended June 30, Six months ended June 30,

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

2020 2019 2020 2019

11 unchanged sentences

For the purpose of unaudited statements of cash flows, cash, cash equivalents and restricted cash comprise of the following:

June 30, 2020 June 30, 2019

September 30, 2020 September 30, 2019

Cash and cash equivalents $ 206,423 $ 101,432

2 unchanged sentences

Cash, cash equivalents and restricted cash $ 216,012 $ 109,285

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

Other Income, net

Other income, net consists of the following:

Three months ended June 30, Six months ended June 30,

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

2020 2019 2020 2019

3 unchanged sentences

Other income, net $ 2,485 $ 4,563 $ 9,239 $ 13,088

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

(In thousands, except share and per share amounts)

Property and Equipment, net

1 unchanged sentence

Estimated useful lives As of

(Years) June 30, 2020 December 31, 2019

(Years) September 30, 2020 December 31, 2019

Owned Assets:

21 unchanged sentences

Capital work in progress represents advances paid towards acquisition of property and equipment and costs incurred on internally developed software not yet ready to be placed in service.

During the three and six months ended June 30, 2020, there were no changes in estimated useful lives of property and equipment.

During the three and nine months ended September 30, 2020, there were no changes in estimated useful lives of property and equipment.

The depreciation and amortization expense, excluding amortization of acquisition-related intangibles, recognized in the unaudited consolidated statements of income was as follows:

Three months ended June 30, Six months ended June 30,

2020 2019 2020 2019

Depreciation and amortization expense $ 8,975 $ 7,198 $ 17,271 $ 15,337

The effect of foreign exchange (loss)/gain upon settlement of cash flow hedges recorded under depreciation and amortization, was as follows:

Three months ended June 30, Six months ended June 30,

2020 2019 2020 2019

Effect of foreign exchange (loss)/gain $ ( 71 ) $ 56 $ ( 49 ) $ 113

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

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

2020 2019 2020 2019

Depreciation and amortization expense $ 9,012 $ 7,545 $ 26,283 $ 22,882

The effect of foreign exchange gain/(loss) upon settlement of cash flow hedges recorded under depreciation and amortization, was as follows:

Three months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

Effect of foreign exchange gain/(loss) $ 18 $ 54 $ ( 31 ) $ 167

Internally developed software costs, included under Software, was as follows:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Cost $ 17,936 $ 15,784

2 unchanged sentences

The amortization expense on internally developed software recognized in the unaudited consolidated statements of income was as follows:

Three months ended June 30, Six months ended June 30,

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

2020 2019 2020 2019

Amortization expense $ 1,215 $ 746 $ 3,892 $ 1,952

During the three and six months ended June 30, 2019, the Company performed an impairment test of its long-lived assets related to its Health Integrated business.

Based on the results, the long-lived assets carrying value exceeded its fair value.

The primary factor contributing to a reduction in the fair value is the wind-down of the Health Integrated business, due to reduction to the Company's estimated future cash flows.

As a result of this analysis, the Company recognized impairment charges of $ 951 and $ 2,178 during the three and six months ended June 30, 2019, respectively, to write down the carrying value of property and equipment to its fair value.

This impairment charge was recorded in the unaudited consolidated statements of income under "Impairment and restructuring charges".

As of June 30, 2020, the Company believes no impairment exists because the long-lived asset's future undiscounted net cash flows expected to be generated exceeds its carrying value;

As of September 30, 2020, the Company believes no impairment exists because the long-lived asset's future undiscounted net cash flows expected to be generated exceeds its carrying value;

however, there can be no assurances that long-lived assets will not be impaired in future periods.

2 unchanged sentences

The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on undiscounted cash flows is subject to significant judgment and may cause variability in the Company’s assessment of the existence of any impairment.

During the three and nine months ended September 30, 2019, the Company performed an impairment test of its long-lived assets related to its Health Integrated business.

Based on the results, the long-lived assets carrying value exceeded its fair value.

The primary factor contributing to a reduction in the fair value is the wind-down of the Health Integrated business, due to reduction to the Company's estimated future cash flows.

As a result of this analysis, the Company recognized impairment charges of $ 0 and $ 2,178 during the three and nine months ended September 30, 2019, respectively, to write down the carrying value of property and equipment to its fair value.

This impairment charge was recorded in the unaudited consolidated statements of income under "Impairment and restructuring charges".

Goodwill and Intangible Assets

4 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

7 unchanged sentences

Currency translation adjustments ( 144 ) ( 22 ) ( 638 ) — — — ( 2 ) ( 806 )

Balance at June 30, 2020 $ 50,165 $ 21,931 $ 48,727 $ — $ — $ — $ 227,287 $ 348,110

Balance at September 30, 2020 $ 50,324 $ 21,947 $ 49,165 $ — $ — $ — $ 227,287 $ 348,723

(1) Represents the reallocation of goodwill as a result of the Company reorganizing its operating segments as described in Note 3 - Segment and Geographical Information to the unaudited consolidated financial statements.

2 unchanged sentences

Based on the results, the fair value of each of the Company’s reporting units exceeded their carrying value and the Company’s goodwill was not impaired.

During the second quarter of 2020, the Company evaluated the continuing effects of COVID-19 and its impact on the global economy on each of the Company’s reporting units to assess whether there was a triggering event during the quarter requiring the Company to perform a goodwill impairment test.

During the third quarter of 2020, the Company evaluated the continuing effects of COVID-19 and its impact on the global economy on each of the Company’s reporting units to assess whether there was a triggering event during the quarter requiring the Company to perform a goodwill impairment test.

The Company considered certain improvements in current and forecasted economic and market conditions and qualitative factors, such as the Company’s performance and business forecasts, stock price movements and expansion plans.

The Company reviewed key assumptions, including revisions of projected future revenues for reporting units against the results of the interim impairment quantitative test performed during the first quarter of 2020.

The Company did not identify any triggers or indications of potential impairment for its reporting units as of June 30, 2020.

The Company did not identify any triggers or indications of potential impairment for its reporting units as of September 30, 2020.

The Company will continue to monitor the impacts of COVID-19 on the Company and significant changes in key assumptions that could result in future period impairment charges.

6 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

1 unchanged sentence

Information regarding the Company’s intangible assets is set forth below:

As of June 30, 2020

As of September 30, 2020

Carrying Amount Accumulated

19 unchanged sentences

The amortization expense for the period is as follows:

Three months ended June 30, Six months ended June 30,

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

2020 2019 2020 2019

6 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

Estimated future amortization expense related to intangible assets as of June 30, 2020 is as follows:

2020 (July 1 - December 31) $ 6,822

Estimated future amortization expense related to intangible assets as of September 30, 2020 is as follows:

2020 (October 1 - December 31) $ 3,417

2025 and thereafter 18,807

2 unchanged sentences

Other current assets consist of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Derivative instruments $ 7,514 $ 4,076

7 unchanged sentences

Other assets consist of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Lease deposits $ 10,106 $ 9,983

8 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

1 unchanged sentence

Accrued expenses and other current liabilities consist of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Accrued expenses $ 41,776 $ 50,097

9 unchanged sentences

Other non-current liabilities consist of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Derivative instruments $ 544 $ 1,250

3 unchanged sentences

Accrued capital expenditure 3,452 —

Others 2,904 987

Other liabilities 4,867 987

Finance lease liabilities 321 430

4 unchanged sentences

Changes in the fair values of these foreign currency exchange contracts are recognized in AOCI on the Company's unaudited consolidated balance sheets until the settlement of those contracts.

The balances as of June 30, 2020 and December 31, 2019 are as follows:

June 30, 2020 December 31, 2019

The balances as of September 30, 2020 and December 31, 2019 are as follows:

September 30, 2020 December 31, 2019

Cumulative foreign currency translation loss $ ( 86,439 ) $ ( 86,963 )

Unrealized (loss)/gain on cash flow hedges ( 2,323 ) 4,604

Unrealized gain on cash flow hedges 10,277 4,604

Retirement benefits ( 1,484 ) ( 1,780 )

2 unchanged sentences

Accumulated other comprehensive loss $ ( 85,217 ) $ ( 84,892 )

(1) These are income tax (expenses)/benefits recognized on cash flow hedges, retirement benefits and foreign currency translation losses.

(1) These are income tax expenses recognized on cash flow hedges, retirement benefits and foreign currency translation losses.

Refer to Note 21 - Income Taxes to the unaudited consolidated financial statements.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

1 unchanged sentence

Assets and Liabilities Measured at Fair Value

The following table sets forth the Company’s assets and liabilities that were accounted for at fair value as of June 30, 2020 and December 31, 2019.

As of June 30, 2020 Level 1 Level 2 Level 3 Total

The following table sets forth the Company’s assets and liabilities that were accounted for at fair value as of September 30, 2020 and December 31, 2019.

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Other Unobservable Inputs

As of September 30, 2020 (Level 1) (Level 2) (Level 3) Total

Mutual funds* $ 125,077 $ — $ — $ 125,077

3 unchanged sentences

Total $ — $ 1,751 $ — $ 1,751

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Other Unobservable Inputs

As of December 31, 2019 (Level 1) (Level 2) (Level 3) Total

4 unchanged sentences

Total $ — $ 3,033 $ — $ 3,033

* Represents those short-term investments, which are carried at the fair value option under ASC 825 "Financial Instruments” as of June 30, 2020 and December 31, 2019.

* Represents those short-term investments, which are carried at the fair value option under ASC 825 "Financial Instruments” as of September 30, 2020 and December 31, 2019.

Derivative Financial Instruments:

3 unchanged sentences

Financial instruments not carried at fair value :

The Company’s other financial instruments not carried at fair value consist primarily of cash and cash equivalents, short-term investments (except investment in mutual funds, as disclosed above), restricted cash, accrued interest on term deposits, accrued capital expenditure, accrued expenses and interest payable on borrowings for which fair values approximate their carrying amounts due to their short-term nature.

The Company’s other financial instruments not carried at fair value consist primarily of cash and cash equivalents, short-term investments (except investment in mutual funds, as disclosed above), restricted cash, accrued interest on term deposits, accrued capital expenditures, accrued expenses and interest payable on borrowings for which fair values approximate their carrying amounts due to their short-term nature.

The carrying value of the Company’s outstanding revolving credit facility approximates its fair value because the Company’s interest rate yield is near current market rates for comparable debt instruments.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

Convertible Senior Notes:

The total estimated fair value of the convertible senior notes as of June 30, 2020 and December 31, 2019 was $ 141,023 and $ 149,934 , respectively.

The fair value was determined based on the market yields for similar Notes as of the June 30, 2020 and December 31, 2019, respectively.

The total estimated fair value of the convertible senior notes as of September 30, 2020 and December 31, 2019 was $ 146,149 and $ 149,934 , respectively.

The fair value was determined based on the market yields for similar Notes as of the September 30, 2020 and December 31, 2019, respectively.

The Company considers the fair value of the Notes to be a Level 2 measurement due to the limited inputs available for its fair valuation.

Nonrecurring fair value measurements of assets:

Nonrecurring fair value measurements include impairment tests conducted by the Company during the six months ended June 30, 2020 of its goodwill related to its Healthcare Analytics and Healthcare BPM reporting units.

Nonrecurring fair value measurements include impairment tests conducted by the Company during the nine months ended September 30, 2020 and year ended December 31, 2019 of its goodwill.

The fair value determination for goodwill was based on Company’s internal assessment, which are Level 3 inputs.

During the six months ended June 30, 2020, the Company did no t recognize any impairment charges on goodwill as the fair values exceeded their carrying value.

During the nine months ended September 30, 2020 and year ended December 31, 2019, the Company did no t recognize any impairment charges on goodwill as the fair values exceeded their carrying value.

Refer to Note 9 - Goodwill and Intangible Assets to the unaudited consolidated financial statements for further details.

5 unchanged sentences

The Company’s derivative financial instruments are largely forward foreign exchange contracts that are designated as effective hedges and that qualify as cash flow hedges under ASC 815.

The Company had outstanding cash flow hedges totaling $ 421,630 (including $ 750 of range forward contracts) as of June 30, 2020 and $ 410,390 (including $ 4,300 of range forward contracts) as of December 31, 2019.

The Company had outstanding cash flow hedges totaling $ 444,570 as of September 30, 2020 and $ 410,390 (including $ 4,300 of range forward contracts) as of December 31, 2019.

Changes in the fair value of these cash flow hedges are recorded as a component of accumulated other comprehensive income/(loss), net of tax, until the hedged transactions occurs.

3 unchanged sentences

For hedging positions that are discontinued because the forecasted transaction is not expected to occur by the end of the originally specified period, any related amounts recorded in equity are reclassified to earnings.

The Company estimates that approximately $ 561 of net derivative losses, excluding tax effects, included in AOCI, representing changes in the fair value of cash flow hedges, could be reclassified into earnings within the next twelve months based on exchange rates prevailing as of June 30, 2020.

At June 30, 2020, the maximum outstanding term of the cash flow hedges was 45 months.

The Company estimates that approximately $ 6,383 of net derivative gains, excluding tax effects, included in AOCI, representing changes in the fair value of cash flow hedges, could be reclassified into earnings within the next twelve months based on exchange rates prevailing as of September 30, 2020.

At September 30, 2020, the maximum outstanding term of the cash flow hedges was 45 months.

The Company also enters into foreign currency forward contracts to economically hedge its intercompany balances and other monetary assets and liabilities denominated in currencies other than functional currencies, against the risk of foreign currency fluctuations associated with remeasurement of such assets and liabilities to functional currency.

3 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

3 unchanged sentences

pound sterling and the Philippine peso.

The Company also has exposure to Colombian pesos, Czech Koruna, the Euro, South African ZAR and other local currencies in which it operates.

Outstanding foreign currency forward contracts amounted to $ 106,988 , GBP 9,487 and EUR 1,453 as of June 30, 2020 and $ 124,045 , GBP 10,843 and EUR 1,289 as of December 31, 2019.

The Company also has exposure to Colombian pesos (COP), Czech koruna, the Euro, South African ZAR and other local currencies in which it operates.

Outstanding foreign currency forward contracts amounted to USD 138,517 , GBP 7,230 , EUR 1,342 and COP 8,287,950 as of September 30, 2020 and USD 124,045 , GBP 10,843 and EUR 1,289 as of December 31, 2019.

The following tables set forth the fair value of the foreign currency exchange contracts and their location on the unaudited consolidated financial statements:

Derivatives designated as hedging instruments:

Foreign currency exchange contracts June 30, 2020 December 31, 2019

Foreign currency exchange contracts September 30, 2020 December 31, 2019

Other current assets $ 7,427 $ 3,945

3 unchanged sentences

Derivatives not designated as hedging instruments:

Foreign currency exchange contracts June 30, 2020 December 31, 2019

Foreign currency exchange contracts September 30, 2020 December 31, 2019

Other current assets $ 87 $ 131

Accrued expenses and other current liabilities $ 163 $ 259

The following tables set forth the effect of foreign currency exchange contracts on the unaudited consolidated statements of income and accumulated other comprehensive loss for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30, Six months ended June 30,

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

Forward Exchange Contracts:

6 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

Location and amount of gain/(loss) recognized in unaudited consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instruments

Three months ended June 30,

As per unaudited consolidated statements of income (Loss)/Gain on foreign currency exchange contracts As per unaudited consolidated statements of income Gain on foreign currency exchange contracts

Three months ended September 30,

As per unaudited consolidated statements of income (Loss)/gain on foreign currency exchange contracts As per unaudited consolidated statements of income Gain/(loss) on foreign currency exchange contracts

Cash flow hedging relationships

7 unchanged sentences

Location in unaudited consolidated statements of income where gain/(loss) was recognized

Foreign exchange gain, net $ 1,359 $ 3,204 $ 1,202 $ 2,923

Foreign exchange gain/(loss), net $ 716 $ 3,388 $ 1,009 $ ( 794 )

$ 716 $ 3,388 $ 1,009 $ ( 794 )

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

Location and amount of gain/(loss) recognized in unaudited consolidated statements of income for cash flow hedging relationships and derivatives not designated as hedging instruments

Six months ended June 30,

As per unaudited consolidated statements of income Loss on foreign currency exchange contracts As per unaudited consolidated statements of income Gain on foreign currency exchange contracts

Nine months ended September 30,

As per unaudited consolidated statements of income (Loss)/gain on foreign currency exchange contracts As per unaudited consolidated statements of income Gain on foreign currency exchange contracts

Cash flow hedging relationships

6 unchanged sentences

Derivatives not designated as hedging instruments

Location in unaudited consolidated statements of income where gain/(loss) was recognized

Foreign exchange gain/(loss), net $ 2,736 $ ( 1,011 ) $ 2,462 $ 4,319

Location in unaudited consolidated statements of income where gain was recognized

Foreign exchange gain, net $ 3,452 $ 2,377 $ 3,471 $ 3,525

$ 3,452 $ 2,377 $ 3,471 $ 3,525

The following tables summarizes the Company’s debt position as of June 30, 2020 and December 31, 2019.

As of June 30, 2020

The following tables summarizes the Company’s debt position as of September 30, 2020 and December 31, 2019.

As of September 30, 2020

Revolver Credit Facility Structured Payables Notes Total

8 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

8 unchanged sentences

Total borrowings $ 99,000 $ 867 $ 135,131 $ 234,998

*Unamortized debt issuance costs for the Company’s revolver Credit Facility of $ 619 and $ 748 as of June 30, 2020 and December 31, 2019, respectively, is presented under “Other current assets” and “Other assets” in the consolidated balance sheets.

*Unamortized debt issuance costs for the Company’s revolver Credit Facility of $ 555 and $ 748 as of September 30, 2020 and December 31, 2019, respectively, is presented under “Other current assets” and “Other assets” in the consolidated balance sheets.

Revolver Credit Agreement

2 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

Effective interest rate 1.9 % 4.1 % 2.4 % 4.1 %

As of June 30, 2020 and December 31, 2019, the Company was in compliance with all financial and non-financial covenants listed under the Credit Agreement.

As of September 30, 2020 and December 31, 2019, the Company was in compliance with all financial and non-financial covenants listed under the Credit Agreement.

Convertible Senior Notes

2 unchanged sentences

The Notes bear interest at a rate of 3.50 % per annum, payable semi-annually in arrears in cash on April 1 and October 1 of each year.

Until October 4, 2020, under the Investment Agreement, the Purchaser was restricted from transferring the Notes or any shares of common stock issuable upon conversion of the Notes, or entering into any transaction that transfers such interests to a third party.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

During the three and six months ended June 30, 2020 and 2019, the Company recognized interest expense and amortization of debt discount, on the Notes as below:

During the three and nine months ended September 30, 2020 and 2019, the Company recognized interest expense and amortization of debt discount, on the Notes as below:

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

Interest expense on Notes $ 1,313 $ 1,269 $ 2,625 $ 2,581

Amortization of debt discount on Notes $ 654 $ 618 $ 1,289 $ 1,218

Future principal payments/maturities for all of the Company's borrowings as of June 30, 2020 were as follows:

Interest expense on the Notes $ 1,313 $ 1,313 $ 3,938 $ 3,894

Amortization of debt discount on the Notes $ 654 $ 618 $ 1,943 $ 1,836

Future principal payments/maturities for all of the Company's borrowings as of September 30, 2020 were as follows:

Notes Revolver Credit Facility Structured Payables Total

2020 (July - December) $ — $ 20,000 $ 657 $ 20,657

2020 (October - December) $ — $ — $ 474 $ 474

2021 — 10,000 — 10,000

4 unchanged sentences

In the ordinary course of business, the Company provides standby letters of credit to third parties primarily for facility leases.

As of June 30, 2020 and December 31, 2019, the Company had outstanding letters of credit of $ 461 each, that were not recognized in the consolidated balance sheets.

As of September 30, 2020 and December 31, 2019, the Company had outstanding letters of credit of $ 461 each, that were not recognized in the consolidated balance sheets.

Capital Structure

The Company has one class of common stock outstanding.

During the three and six months ended June 30, 2020 and 2019, the Company purchased shares of common stock from employees in connection with withholding tax payments related to the vesting of restricted stock, as below:

The Company purchased shares of common stock from employees in connection with withholding tax payments related to the vesting of restricted stock, as below:

Shares repurchased Total consideration Weighted average purchase price per share (1)

Three months ended June 30, 2020 — $ — $ —

Three months ended June 30, 2019 — $ — $ —

Six months ended June 30, 2020 26,601 $ 2,012 $ 75.63

Six months ended June 30, 2019 22,666 $ 1,408 $ 62.11

Three months ended September 30, 2020 — $ — $ —

Three months ended September 30, 2019 — $ — $ —

Nine months ended September 30, 2020 26,601 $ 2,012 $ 75.63

Nine months ended September 30, 2019 22,666 $ 1,408 $ 62.11

(1) The weighted average purchase price per share was the closing price of the Company's share of common stock on the Nasdaq Global Select Market on the trading day prior to the vesting date of the shares of restricted stock.

2 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

3 unchanged sentences

The shares may be purchased by the Company from time to time from the open market and through private transactions, or otherwise, as determined by the Company’s management as market conditions warrant.

During the three and six months ended June 30, 2020 and 2019, the Company purchased shares of its common stock, including commissions, under the 2019 Repurchase Program and the 2017 Repurchase Program, respectively, as below:

The Company purchased shares of its common stock, including commissions, under the 2019 Repurchase Program and the 2017 Repurchase Program, as applicable, as below:

Shares repurchased Total consideration Weighted average purchase price per share

Three months ended June 30, 2020 — $ — $ —

Three months ended June 30, 2019 198,160 $ 12,130 $ 61.21

Six months ended June 30, 2020 175,765 $ 11,983 $ 68.18

Six months ended June 30, 2019 438,025 $ 26,130 $ 59.65

Three months ended September 30, 2020 389,575 $ 24,906 $ 63.93

Three months ended September 30, 2019 125,744 $ 8,346 $ 66.38

Nine months ended September 30, 2020 565,340 $ 36,889 $ 65.25

Nine months ended September 30, 2019 563,769 $ 34,476 $ 61.15

Repurchased shares have been recorded as treasury shares and will be held until the Company’s Board of Directors designates that these shares be retired or used for other purposes.

3 unchanged sentences

Employee Benefit Plans

The Company’s Gratuity Plans in India ("Gratuity Plan") provide for lump sum payment to vested employees on retirement or upon termination of employment in an amount based on the respective employee’s salary and years of employment with the Company.

Liabilities with regard to the Gratuity Plans are determined by actuarial valuation using the projected unit credit method.

Current service costs for the Gratuity Plan are accrued in the year to which they relate.

Actuarial gains or losses or prior service costs, if any, resulting from amendments to the plans are recognized and amortized over the remaining period of service of the employees.

The Company’s Gratuity Plan in India (the "India Plan") provides for a lump sum payment to vested employees on retirement or upon termination of employment in an amount based on the respective employee’s salary and years of employment with the Company.

In addition, the Company’s subsidiary operating in the Philippines conforms to the minimum regulatory benefit, which provide for lump sum payment to vested employees on retirement from employment in an amount based on the respective employee’s salary and years of employment with the Company (the "Philippines Plan").

The benefit costs of the Philippines Plan for the year are calculated on an actuarial basis.

Liabilities with regard to the India Plan and the Philippines Plan are determined by actuarial valuation using the projected unit credit method.

Current service costs for these Plans are accrued in the year to which they relate.

Actuarial gains or losses or prior service costs, if any, resulting from amendments to the plans are recognized and amortized over the remaining period of service of the employees.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

Components of net periodic benefit cost were as follows:

Three months ended June 30, Six months ended June 30,

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

2020 2019 2020 2019

2 unchanged sentences

Expected return on plan assets ( 159 ) ( 142 ) ( 477 ) ( 428 )

Amortization of actuarial (gain)/loss 97 ( 40 ) 198 ( 79 )

Amortization of actuarial loss/(gain) 98 ( 40 ) 296 ( 119 )

Net gratuity cost $ 860 $ 525 $ 2,562 $ 1,580

The Gratuity Plan in India is partially funded whereas the Philippines plan is unfunded.

The Company makes annual contributions to the employees' gratuity fund of the Gratuity Plan established with Life Insurance Corporation of India and HDFC Standard Life Insurance Company.

Fund managers manage these funds and calculate the annual contribution required to be made by the Company and manage the Gratuity Plans, including any required payouts.

The India Plan is partially funded whereas the Philippines plan is unfunded.

The Company makes annual contributions to the employees' gratuity fund of the India Plan established with Life Insurance Corporation of India and HDFC Standard Life Insurance Company.

Fund managers manage these funds and calculate the annual contribution required to be made by the Company and manage the India Plan, including any required payouts.

These funds are managed on a cash accumulation basis and interest is declared retrospectively on March 31 of each year.

The Company expects to earn a return of approximately 7.0 % per annum on these Gratuity Plans for the year ended December 31, 2020.

The Company expects to earn a return of approximately 7.0 % per annum on the India Plan for the year ended December 31, 2020.

The duration and severity of COVID-19 and continued market volatility is highly uncertain and, as such, the impact on assets and obligations related to employee benefit plans is subject to significant judgment and may cause variability in the Company’s net periodic benefit cost in future periods.

5 unchanged sentences

Effect of exchange rate changes ( 267 )

Plan assets at June 30, 2020 $ 8,161

* Benefits payments were substantially made through the plan assets during the six months ended June 30, 2020.

Plan assets at September 30, 2020 $ 11,461

The Company maintains several 401(k) plans (the “401(k) Plans”) under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”), covering all eligible employees, as defined in the Code as a defined contribution plan.

The Company may make discretionary contributions of up to a maximum of 4.0 % of employee compensation within certain limits.

During the three months ended March 31, 2020 and six months ended June 30, 2020, to enhance the Company’s liquidity position in response to COVID-19, the Company elected to temporarily suspend making any discretionary contributions to the 401(k) Plans.

To enhance the Company’s liquidity position in response to COVID-19, the Company elected to temporarily suspend making any discretionary contributions to the 401(k) Plans from January 2020 until July 2020.

The Company resumed the contributions retrospectively from August 2020.

The Company's accrual for contributions to the 401(k) Plans were as follows:

Three months ended June 30, Six months ended June 30,

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

2020 2019 2020 2019

Contribution to the 401(k) Plan $ 29 $ 909 $ 255 $ 2,122

Contributions to the 401(k) Plans $ 2,661 $ 779 $ 2,916 $ 2,901

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

The Company's contribution for various defined benefit plans on behalf of employees in India, the Philippines, Bulgaria, Romania, the Czech Republic, South Africa, Colombia, Australia and Singapore were as follows:

Three months ended June 30, Six months ended June 30,

The Company's contribution for various defined benefit plans on behalf of employees in India, the Philippines, Romania, the Czech Republic, South Africa, Colombia, Australia and Singapore were as follows:

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

2020 2019 2020 2019

Contribution to the defined benefit plans $ 2,646 $ 2,762 $ 5,624 $ 4,816

Contributions to the defined benefit plans $ 2,758 $ 2,849 $ 8,382 $ 7,665

The Company conducts its operations using facilities leased under operating lease agreements that expire at various dates.

3 unchanged sentences

The lease agreements do not contain any covenant to impose any restrictions except for market-standard practice for similar lease arrangements.

The impact of the COVID-19 pandemic on the economic environment is uncertain and has caused variability in the determination of the incremental borrowing rate, which has impacted the measurement of lease liabilities and ROU assets.

The impact of the COVID-19 pandemic on the economic environment is uncertain and has caused variability in the determination of the incremental borrowing rate and extension option, which have an impact on measurement of lease liabilities and ROU assets.

The Company accounts for lease-related concessions to mitigate the economic effects of COVID-19 on lessees in accordance with guidance in Topic 842, Leases , to determine on lease-by-lease basis, whether the concession provided by a lessor should be accounted for as a lease modification.

Such concessions had an insignificant impact on our unaudited consolidated financial statements during the three and six months ended June 30, 2020.

Such concessions had an insignificant impact on our unaudited consolidated financial statements during the nine months ended September 30, 2020.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

Supplemental balance sheet information

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Operating Lease

11 unchanged sentences

Finance lease liabilities are presented as a part of “accrued expenses and other current liabilities” and “other non-current liabilities,” as applicable, in the Company’s consolidated balance sheets.

During the three months ended June 30, 2019, the Company performed an impairment test of its long-lived assets of its Health Integrated business.

During the three and nine months ended September 30, 2019, the Company performed an impairment test of its long-lived assets of its Health Integrated business.

Based on the results, the operating lease ROU assets carrying value exceeded their fair value.

As a result of this analysis, the Company recognized impairment on ROU assets of $ 989 during the three and six months ended June 30, 2019, in the unaudited consolidated statements of income under "impairment and restructuring charges".

As a result of this analysis, the Company recognized impairment on ROU assets of $ 0 and $ 989 during the three and nine months ended September 30, 2019, in the unaudited consolidated statements of income under "impairment and restructuring charges".

The components of lease cost, which are included in the Company's unaudited consolidated statements of income, are as follows:

Lease cost Three months ended June 30, Six months ended June 30,

Lease cost Three months ended September 30, Nine months ended September 30,

Finance lease:

11 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

Supplemental cash flow and other information related to leases are as follows:

Six months ended June 30,

Nine months ended September 30,

Cash payments for amounts included in the measurement of lease liabilities :

11 unchanged sentences

The Company determines the incremental borrowing rate by adjusting the benchmark reference rates, applicable to the respective geographies where the leases were entered, with appropriate financing spreads and lease specific adjustments for the effects of collateral.

Maturities of lease liabilities as of June 30, 2020 are as follows:

Maturities of lease liabilities as of September 30, 2020 are as follows:

Operating Leases Finance Leases

2020 (July 1 - December 31) $ 12,989 $ 183

2020 (October 1 - December 31) $ 6,837 $ 105

2021 25,974 273

19 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

2 unchanged sentences

The impact of COVID-19 on the economic environment is uncertain and may change the annual effective tax rate, which could impact tax expense.

The Company recorded income tax expense of $ 4,072 and $ 2,670 for the three months ended June 30, 2020 and 2019, respectively.

The Company's effective tax rate increased from 17.5 % during the three months ended June 30, 2019 to 32.4 % during the three months ended June 30, 2020, primarily as a result of recording a one-time tax expense of $ 1,320 due to electing a new tax regime for two of the Company’s Indian subsidiaries which provides for a lower tax rate on earnings in exchange for foregoing certain tax credits, including minimum alternative tax credits.

Accordingly, the Company recorded one-time tax expense of $ 573 on re-measurement of the Company’s Indian subsidiaries’ deferred taxes to a lower corporate tax rate and one-time tax expense of $ 747 resulting from foregoing the minimum alternative tax credits.

The Company recorded income tax expense of $ 9,927 and $ 6,870 for the six months ended June 30, 2020 and 2019, respectively.

The Company's effective tax rate increased from 20.1 % during the six months ended June 30, 2019 to 24.3 % during the six months ended June 30, 2020, primarily as a result of (i) recording a one-time tax expense of $ 1,320 due to electing a new tax regime for two of the Company’s Indian subsidiaries which provides for a lower tax rate on earnings in exchange for foregoing certain tax credits, including minimum alternative tax credits during the six months ended June 30, 2020, compared to a benefit of $ 1,471 recorded during the six months ended June 30, 2019 and (ii) recording of excess tax benefits related to stock awards of $ 1,822 pursuant to ASU No.

2016-09 during the six months ended June 30, 2020 compared to $ 1,072 during the six months ended June 30, 2019.

Income tax (deferred) recognized in other comprehensive income are as follows:

Three months ended June 30, Six months ended June 30,

The Company's effective tax rate increased from 23.0 % during the three months ended September 30, 2019 to 24.3 % during the three months ended September 30, 2020.

The Company recorded income tax expense of $ 8,490 and $ 5,701 for the three months ended September 30, 2020 and 2019, respectively.

The increase in the income tax expense was primarily as a result of (i) higher profit during the three months ended September 30, 2020 and (ii) recording a discrete benefit of $ 495 during the three months ended September 30, 2019 relating to job related incentives in India for prior years.

The Company's effective tax rate increased from 21.3 % during the nine months ended September 30, 2019 to 24.3 % during the nine months ended September 30, 2020.

The Company recorded income tax expense of $ 18,416 and $ 12,571 for the nine months ended September 30, 2020 and 2019, respectively.

The increase in income tax expense was primarily as a result of (i) recording a one-time tax expense of $ 1,320 due to electing a new tax regime for two of the Company’s Indian subsidiaries which provides for a lower tax rate on earnings in exchange for foregoing certain tax credits, including minimum alternative tax credits during the nine months ended September 30, 2020, compared to a benefit of $ 2,520 recorded during the nine months ended September 30, 2019, (ii) higher profit during the nine months ended September 30, 2020, partially offset by (iii) recording of excess tax benefits related to stock awards of $ 1,874 pursuant to ASU No.

2016-09 during the nine months ended September 30, 2020 compared to $ 1,094 during the nine months ended September 30, 2019.

Income tax (deferred) recognized in other comprehensive income / (loss) are as follows:

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

2020 2019 2020 2019

Income tax benefit/(expense) on:

Income tax (expense)/benefit on:

Unrealized gain/(loss) on cash flow hedges $ ( 2,775 ) $ 1,636 $ ( 669 ) $ ( 20 )

Retirement benefits ( 32 ) ( 9 ) 216 ( 99 )

Currency translation adjustments ( 4,204 ) ( 413 ) ( 4,204 ) ( 1,119 )

Total income tax expense recognized in other comprehensive income $ ( 6,649 ) $ ( 507 ) $ ( 1,850 ) $ ( 2,865 )

Foreign currency translation gain/(loss) ( 2,161 ) 1,961 ( 6,365 ) 842

Total income tax (expense)/benefit recognized in other comprehensive income /(loss) $ ( 4,968 ) $ 3,588 $ ( 6,818 ) $ 723

Stock-Based Compensation

The following costs related to the Company’s stock-based compensation plan are included in the unaudited consolidated statements of income:

Three months ended June 30, Six months ended June 30,

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

2020 2019 2020 2019

3 unchanged sentences

Total $ 8,346 $ 7,427 $ 20,850 $ 21,538

As of June 30, 2020, the Company had 2,305,155 shares available for grant under the 2018 Omnibus Incentive Plan.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

As of September 30, 2020, the Company had 2,327,133 shares available for grant under the 2018 Omnibus Incentive Plan.

Stock Options

7 unchanged sentences

Forfeited — — — —

Outstanding at June 30, 2020 56,739 $ 23.54 $ 2,261 1.54

Vested and exercisable at June 30, 2020 56,739 $ 23.54 $ 2,261 1.54

The unrecognized compensation cost for unvested options as of June 30, 2020 was $ nil .

Outstanding at September 30, 2020 52,419 $ 23.86 $ 2,207 1.37

Vested and exercisable at September 30, 2020 52,419 $ 23.86 $ 2,207 1.37

Restricted Stock and Restricted Stock Units

7 unchanged sentences

Forfeited — — ( 63,951 ) 65.37

Outstanding at June 30, 2020* 27,384 $ 48.72 951,406 $ 67.58

* As of June 30, 2020 and December 31, 2019 restricted stock units vested for which the underlying common stock is yet to be issued were 181,638 and 167,270 , respectively.

As of June 30, 2020, unrecognized compensation cost of $ 55,720 is expected to be expensed over a weighted average period of 2.85 years.

Outstanding at September 30, 2020* 22,382 $ 47.90 917,570 $ 67.70

* As of September 30, 2020 and December 31, 2019 restricted stock units vested for which the underlying common stock is yet to be issued were 181,638 and 167,270 respectively.

As of September 30, 2020, unrecognized compensation cost of $ 48,346 is expected to be expensed over a weighted average period of 2.68 years.

Performance Based Stock Awards

7 unchanged sentences

Forfeited ( 2,736 ) 66.20 ( 2,734 ) 85.68

Outstanding at June 30, 2020 146,990 $ 69.12 146,960 $ 90.47

As of June 30, 2020, unrecognized compensation cost of $ 8,959 is expected to be expensed over a weighted average period of 2.01 years.

Outstanding at September 30, 2020 146,317 $ 69.08 146,288 $ 90.42

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

As of September 30, 2020, unrecognized compensation cost of $ 9,635 is expected to be expensed over a weighted average period of 1.90 years.

The impact of COVID-19 on the economic environment is uncertain and has caused variability in the estimation of number of performance based restricted stock units that will eventually vest and the related compensation cost to be recognized in the unaudited consolidated statements of income.

3 unchanged sentences

Pandit, Chairman and CEO of The Orogen Group LLC (an affiliate of the Purchaser), was appointed to Company’s Board of Directors.

The Company had outstanding Notes with a principal amount of $ 150,000 each as of June 30, 2020 and December 31, 2019 and interest accrued of $ 1,313 each as of June 30, 2020 and December 31, 2019, related to the Investment Agreement.

The Company recognized interest expense on the Notes related to the Investment Agreement s as below.

The Company had outstanding Notes with a principal amount of $ 150,000 each as of September 30, 2020 and December 31, 2019 and interest accrued of $ 2,625 and $ 1,313 as of September 30, 2020 and December 31, 2019, respectively, related to the Investment Agreement.

The Company recognized interest expense on the Notes related to the Investment Agreements as below.

Refer to Note 17 – Borrowings to the unaudited consolidated financial statements for details.

Three months ended June 30, Six months ended June 30,

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

2020 2019 2020 2019

2 unchanged sentences

Capital Commitments

At June 30, 2020, the Company had committed to spend approximately $ 9,900 under agreements to purchase property and equipment.

This amount is net of capital advances paid as of June 30, 2020 which are recognized in the unaudited consolidated balance sheets as property and equipment.

At September 30, 2020, the Company had committed to spend approximately $ 2,700 under agreements to purchase property and equipment.

This amount is net of capital advances paid as of September 30, 2020 which are recognized in the unaudited consolidated balance sheets as property and equipment.

Other Commitments

7 unchanged sentences

The Company’s management believes that these centers have in the past satisfied and will continue to satisfy the required criteria.

Contingencies

and Indian transfer pricing regulations require that any international transaction involving associated enterprises be at an arm’s-length price.

Accordingly, the Company determines the appropriate pricing for the international transactions among its associated enterprises on the basis of a detailed functional and economic analysis involving benchmarking against transactions among entities that are not under common control.

The tax authorities have jurisdiction to review this arrangement

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2020

September 30, 2020

(In thousands, except share and per share amounts)

and in the event that they determine that the transfer price applied was not appropriate, the Company may incur increased tax liability, including accrued interest and penalties.

Contingencies

and Indian transfer pricing regulations require that any international transaction involving associated enterprises be at an arm’s-length price.

The tax authorities have jurisdiction to review this arrangement and in the event that they determine that the transfer price applied was not appropriate, the Company may incur increased tax liability, including accrued interest and penalties.

The Company is currently involved in disputes with the Indian tax authorities over the application of some of its transfer pricing policies for some of its subsidiaries.

2 unchanged sentences

The Company is subject to taxation in the United States and various states and foreign jurisdictions.

For the U.S., the Philippines and India, tax year 2016 and subsequent tax years remain open for examination by the tax authorities as of June 30, 2020.

The aggregate amount demanded by income tax authorities (net of advance payments, if any) from the Company related to its transfer pricing issues for tax years 2003 to 2015 and its permanent establishment issues for tax years 2003 to 2007 as of June 30, 2020 and December 31, 2019 is $ 16,152 and $ 16,220 , respectively, of which the Company has made payments and/or provided bank guarantees to the extent $ 7,856 and $ 8,108 , respectively.

Amounts paid as deposits in respect of such assessments aggregating to $ 6,102 and $ 6,252 as of June 30, 2020 and December 31, 2019, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to $ 1,754 and $ 1,856 as of June 30, 2020 and December 31, 2019, respectively, are included in “Restricted cash” in the non-current assets section of the Company’s unaudited consolidated balance sheets.

For the U.S., the Philippines and India, tax year 2016 and subsequent tax years remain open for examination by the tax authorities as of September 30, 2020.

The aggregate amount demanded by income tax authorities (net of advance payments, if any) from the Company related to its transfer pricing issues for tax years 2003 to 2016 and its permanent establishment issues for tax years 2003 to 2007 as of September 30, 2020 and December 31, 2019 is $ 16,588 and $ 16,220 , respectively, of which the Company has made payments and/or provided bank guarantees to the extent $ 8,041 and $ 8,108 , respectively.

Amounts paid as deposits in respect of such assessments aggregating to $ 6,245 and $ 6,252 as of September 30, 2020 and December 31, 2019, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to $ 1,796 and $ 1,856 as of September 30, 2020 and December 31, 2019, respectively, are included in “Restricted cash” in the non-current assets section of the Company’s unaudited consolidated balance sheets.

Based on the facts underlying the Company’s position and its experience with these types of assessments, the Company believes that its position will more likely than not be sustained upon final examination by the tax authorities based on its technical merits as of the reporting date and accordingly has not accrued any amount with respect to these matters in its unaudited consolidated financial statements.

16 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements