What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-04-29 compared with 2020-10-29 · 361 added, 554 removed, 689 unchanged (57% of the section changed)

1 unchanged sentence

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share amounts)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Current assets:

38 unchanged sentences

Common stock, $ 0.001 par value;

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

100,000,000 shares authorized, 39,273,989 shares issued and 33,526,889 shares outstanding as of March 31, 2021 and 38,968,052 shares issued and 33,559,434 shares outstanding as of December 31, 2020

Additional paid-in capital 428,882 420,976

2 unchanged sentences

Total including shares held in treasury 1,023,478 987,410

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

5,747,100 shares as of March 31, 2021 and 5,408,618 shares as of December 31, 2020, held in treasury, at cost

( 297,253 ) ( 268,238 )

6 unchanged sentences

(In thousands, except share and per share amounts)

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

2020 2019 2020 2019

Three months ended March 31,

Revenues, net $ 261,415 $ 245,990

7 unchanged sentences

Depreciation and amortization expense 12,101 12,450

Impairment and restructuring charges — 489 — 7,296

Total operating expenses 61,039 55,847

20 unchanged sentences

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

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

(In thousands)

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

2020 2019 2020 2019

Three months ended March 31,

Net income $ 31,931 $ 22,411

1 unchanged sentence

Unrealized gain/(loss) on cash flow hedges 568 ( 14,846 )

Foreign currency translation gain/(loss) 11,327 ( 10,065 ) 524 ( 5,662 )

Foreign currency translation loss ( 1,911 ) ( 21,571 )

Reclassification adjustments

Loss/(gain) on cash flow hedges (1)

Gain on cash flow hedges (1)

( 2,829 ) ( 929 )

Retirement benefits (2)

98 ( 40 ) 296 ( 119 )

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

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

Total other comprehensive income/(loss) $ 19,057 $ ( 11,795 ) $ ( 325 ) $ ( 2,686 )

Total comprehensive income $ 45,475 $ 7,249 $ 56,933 $ 43,617

Income tax effects relating to above (3)

Total other comprehensive loss $ ( 3,769 ) $ ( 28,212 )

Total comprehensive income/(loss) $ 28,162 $ ( 5,801 )

(1) These are reclassified to net income and are included either in cost of revenues or operating expenses, as applicable in the unaudited consolidated statements of income.

2 unchanged sentences

Refer to Note 19 - Employee Benefit Plans to the unaudited consolidated financial statements.

(3) These are income tax (expense)/benefit recognized on cash flow hedges, retirement benefits and foreign currency translation gains/(losses).

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

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

2 unchanged sentences

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

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)/Income Treasury Stock Total Equity

Shares Amount Shares Amount

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

Stock-based compensation — — 8,346 — — — — 8,346

Acquisition of treasury stock — — — — — ( 389,575 ) ( 24,906 ) ( 24,906 )

Other comprehensive income — — — — 19,057 — — 19,057

Net income — — — 26,418 — — — 26,418

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 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 — — — — — — —

Stock-based compensation — — 7,427 — — — — 7,427

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

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

Net income — — — 19,044 — — — 19,044

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 nine months ended September 30, 2020 and 2019

For the three months ended March 31, 2021 and 2020

(In thousands, except share and per share amounts)

7 unchanged sentences

Net income — — — 31,931 — — — 31,931

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

Balance as of March 31, 2021 39,273,989 $ 39 $ 428,882 $ 673,310 $ ( 78,753 ) ( 5,747,100 ) $ ( 297,253 ) $ 726,225

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

Shares Amount Shares Amount

3 unchanged sentences

Acquisition of treasury stock — — — — — ( 202,366 ) ( 13,995 ) ( 13,995 )

Allocation of equity component related to issuance costs on convertible notes — — ( 13 ) — — — — — ( 13 )

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

Other comprehensive loss — — — — ( 28,212 ) — — ( 28,212 )

Net income — — — 22,411 — — — 22,411

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

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

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

(In thousands)

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities:

Net income $ 31,931 $ 22,411

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by / (used for) operating activities:

Depreciation and amortization expense 12,266 12,472

1 unchanged sentence

Amortization of operating lease right-of-use assets 6,761 6,853

Unrealized gain on short term investments ( 4,807 ) ( 7,443 )

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

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

Unrealized (gain) / loss on short term investments ( 1,103 ) 267

Unrealized foreign exchange (gain), net ( 1,139 ) ( 6,490 )

Deferred income tax (benefit)/expense ( 2,695 ) 3,539

Allowance for expected credit losses 48 195

1 unchanged sentence

Amortization of non-cash interest expense related to convertible senior notes 673 635

Impairment charges — 3,167

Others, net 216 ( 26 )

9 unchanged sentences

Operating lease liabilities ( 6,868 ) ( 6,576 )

Net cash provided by operating activities 126,314 105,955

Net cash provided by /(used for) operating activities 15,205 ( 13,555 )

Cash flows from investing activities:

2 unchanged sentences

Investment in equity affiliate — ( 700 )

Purchase of non-controlling interest — ( 241 )

Purchase of investments ( 18,835 ) ( 23,830 )

Proceeds from redemption of investments 5,357 72,844

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

Net cash (used for) /provided by investing activities ( 26,029 ) 36,040

Cash flows from financing activities:

2 unchanged sentences

Repayments of borrowings ( 25,000 ) ( 10,201 )

Payment of debt issuance costs — ( 117 )

Acquisition of treasury stock ( 29,015 ) ( 13,995 )

Proceeds from exercise of stock options 75 921

Net cash used for financing activities ( 48,429 ) ( 77,700 )

Net cash (used for)/provided by financing activities ( 28,997 ) 86,658

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 984 ) ( 2,653 )

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

Net (decrease)/increase in cash, cash equivalents and restricted cash ( 40,805 ) 106,490

Cash, cash equivalents and restricted cash at the beginning of the period 225,519 127,044

Cash, cash equivalents and restricted cash at the end of the period $ 184,714 $ 233,534

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Interest $ 610 $ 775

Income taxes, net of refunds $ 2,415 $ 2,646

Supplemental disclosure of non-cash investing and financing activities:

Assets acquired under finance lease $ 10 $ 28

See accompanying notes to unaudited consolidated financial statements.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

March 31, 2021

(In thousands, except share and per share amounts)

14 unchanged sentences

The standalone financial statements of subsidiaries are fully consolidated on a line-by-line basis.

Intra-group balances and transactions, and gains and losses arising from intra-group transactions, are eliminated while preparing those financial statements.

Intra-group balances and transactions, and gains and losses arising from intra-group transactions, are eliminated while preparing consolidated financial statements.

Accounting policies of the respective individual subsidiary and associate are aligned wherever necessary, so as to ensure consistency with the accounting policies that are adopted by the Company under U.S.

The Company’s investments in equity affiliates are initially recorded at cost and any excess purchase consideration paid over proportionate share of the fair value of the net assets of the investee at the acquisition date is recognized as goodwill.

The proportionate share of net income or loss of the investee is recognized in the unaudited consolidated statements of income.

Effective January 1, 2020, the Company made certain operational and structural changes to more closely integrate the Company’s businesses and to simplify its organizational structure.

Under the new structure, the Company reports its financial performance based on new segments described in Note 3 - Segment and Geographical Information to the unaudited consolidated financial statements.

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

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.

The proportionate share of net income or loss of the investee after its acquisition is recognized in the unaudited consolidated statements of income.

(b) Use of Estimates

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Although these estimates are based on management’s best assessment of the current business environment, actual results may be different from those estimates.

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 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.

Operating leases are recorded in "operating lease right-of-use assets", "current portion of operating lease liabilities" and "operating lease liabilities, less current portion" in the Company's unaudited consolidated balance sheets.

Finance leases are recorded in "property and equipment", and current and non-current portion of finance lease liabilities are presented within “accrued expenses and other current liabilities” and “other non-current liabilities,” respectively in the Company's unaudited consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

For leases in which the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date for determining the present value of lease payments.

Lease terms includes the effects of options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components, which are accounted for separately.

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 a lease-by-lease basis, whether the concession provided by lessor should be accounted for as a lease modification.

The Company accounts for a modification as a separate contract when it grants an additional right of use not included in the original lease and the increase is commensurate with the standalone price for the additional right of use, adjusted for the circumstances of the particular contract.

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.

The significant estimates and assumptions that affect the unaudited consolidated financial statements include, but are not limited to, allowance for expected credit losses, the nature and timing of the satisfaction of performance obligations, the standalone selling price of performance obligations, and variable consideration in a customer contract, expected recoverability from customers with contingent fee arrangements, estimated costs to complete fixed price contracts, 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 amortization of ROU, depreciation and amortization periods, purchase price allocation and recoverability of long-lived assets, goodwill and intangibles.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(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.

Refer to Note 20 - Leases to the unaudited consolidated financial statements for details.

(d) Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No.

2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (("Subtopic 715-20")):

Changes to the Disclosure Requirements for Defined Benefit Plans.

The amendments in this ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2020.

Early adoption is permitted.

The adoption of this ASU is not expected to have any material effect on the Company’s consolidated financial statements.

As of March 31, 2021, 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.

In January 2021, Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) No.

2021-01, Reference Rate Reform (Topic 848):

Scope , to clarify that all derivative instruments affected by changes to the interest rates used for discounting, margining or contract price alignment (commonly referred to as the discounting transition) are within the scope of Accounting Standard Codification (“ASC”) 848.

The amendments in this ASU further clarify that certain optional expedients and exceptions for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of the discontinuation of the use of LIBOR as a benchmark interest rate due to reference rate reform.

This ASU is effective immediately for all entities with the option to be applied retrospectively as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, and prospectively to any new contract modifications made on or after January 7, 2021 through December 31, 2022.

The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

In March 2020, FASB issued ASU No.

1 unchanged sentence

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This ASU provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR.

The ASU provides practical expedients and exceptions for applying U.S.

1 unchanged sentence

The amendments are elective and are effective upon issuance for all entities through December 31, 2022.

The Company is currently evaluating the impact of this ASU.

The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

In August 2020, FASB issued ASU No.

5 unchanged sentences

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

In June 2016, FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326), which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

The new guidance replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates.

These changes will result in earlier recognition of credit losses.

The allowance for credit losses is a valuation account that is to be deducted from the amortized cost of the financial asset(s) so as to present the net carrying value at the amount expected to be collected on the financial asset.

The Company adopted Topic 326 as of January 1, 2020 using a modified retrospective approach through a cumulative-effect adjustment to its retained earnings.

The adoption of the ASU had no impact to equity as of January 1, 2020 with a corresponding offset to accounts receivable.

Further, the impact of adoption of this guidance did not have a material effect on the Company's accounting policies, processes, and systems.

Refer to Note 4 - Revenues, net to the unaudited consolidated financial statements for details.

In August 2018, FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

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

The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements.

( d ) Recently Adopted Accounting Pronouncements

In December 2019, FASB issued ASU No.

2019-12, Income Taxes Simplifying the Accounting for Income Taxes .

This ASU eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The Company adopted this ASU on January 1, 2021.

The adoption of this ASU has a minimal impact on the Company’s unaudited consolidated financial statements.

In October 2020, FASB issued ASU No.

2020-10, Codification Improvements , to provide guidance for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements.

The amendments in this ASU improve the consistency of the ASC by ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements is codified in the disclosure section of the ASC.

The Company adopted this ASU on January 1, 2021.

The adoption of this ASU did not have a material impact on the Company’s unaudited consolidated financial statements.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(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.

An entity was permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements.

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

In August 2018, FASB issued ASU No.

2018-15, Intangibles - Goodwill and Other - Internal-Use Software ("Subtopic 350-40"):

This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

Accordingly, the ASU requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in FASB Accounting Standard Codification Subtopic 350-40 on internal-use software to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense.

The ASU 2018-15 also provides guidance on amortization and impairment of any costs capitalized, along with new presentation and disclosure requirements.

The new guidance is effective for fiscal years beginning after December 15, 2019 and adoption was allowed prospectively.

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

In April 2019, FASB issued ASU No.

2019-04, Codification Improvements to Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Financial Instruments:

Targeted Transition Relief (Topic 825).

The amendments clarify the scope of the credit losses standard and address issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things.

With respect to hedge accounting, the amendments address partial-term fair value hedges, fair value hedge basis adjustments, and certain transition requirements, among other things.

With respect to recognizing and measuring financial instruments, the amendment in the ASU address the scope of the guidance, the requirement for remeasurement under ASC 820 when using the measurement alternative, certain disclosure requirements and which equity securities have to be remeasured at historical exchange rates.

This ASU is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year.

Early adoption was permitted.

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

In May 2019, FASB issued ASU No.

2019-05, Financial Instruments-Credit Losses (Topic 326):

Targeted Transition Relief.

This ASU provides entities with the option to irrevocably elect the fair value option, on an instrument-by-instrument basis in accordance with Subtopic 825-10, for certain financial instruments that are within the scope of Subtopic 326-20, upon adopting Topic 326.

The fair value option election does not apply to held-to-maturity debt securities.

The amendments in this ASU provide entities with targeted transition relief that is intended to increase comparability of financial statement information for some entities that otherwise would have measured similar financial instruments using different measurement methodologies.

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

The Company operates in the BPM industry and is a provider of operations management and analytics services.

Effective January 1, 2020, the Company made certain operational and structural changes to more closely integrate its businesses and to simplify its organizational structure.

The Company now manages and reports financial information through its four strategic business units:

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

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.

Finance & Accounting and Consulting services to clients outside of the Insurance and Healthcare industries will now be part of the Company’s newly formed business unit and reportable segment Emerging Business.

In addition, the Company integrated its former Travel, Transportation and Logistics, Banking and Financial Services, and Utilities operating segments under the Emerging Business unit to further leverage and optimize the operating scale in providing operations management services.

The Company’s new reportable segments effective January 1, 2020 are as follows:

• Healthcare,

• Emerging Business, and

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 Company manages and reports financial information through its four strategic business units:

Insurance, Healthcare, Analytics and Emerging Business.

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

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.

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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 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

Revenues, net $ 87,830 $ 25,112 $ 37,577 $ 90,499 $ 241,018

Cost of revenues (1)

56,831 17,993 20,792 56,471 152,087

Gross profit (1)

$ 30,999 $ 7,119 $ 16,785 $ 34,028 $ 88,931

Operating expenses 54,525

Foreign exchange gain, interest expense and other income, net 573

Income tax expense 8,490

Loss from equity-method investment 71

Net income $ 26,418

(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)

Three months ended September 30, 2019

Insurance Healthcare Emerging Business Analytics Total

Revenues, net $ 91,096 $ 25,631 $ 45,912 $ 88,753 $ 251,392

Cost of revenues (1)

62,233 20,409 27,067 57,833 167,542

Gross profit (1)

$ 28,863 $ 5,222 $ 18,845 $ 30,920 $ 83,850

Operating expenses 61,428

Foreign exchange gain, interest expense and other income, net 2,392

Income tax expense 5,701

Loss from equity-method investment 69

Net income $ 19,044

(1) Exclusive of depreciation and amortization expense.

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

Revenues and cost of revenues for the three months ended March 31, 2021 and 2020, respectively, for each of the reportable segments, are as follows:

Three months ended March 31, 2021

Insurance Healthcare Emerging Business Analytics Total

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(1) Exclusive of depreciation and amortization expense.

Nine months ended September 30, 2019

Three months ended March 31, 2020

Insurance Healthcare Emerging Business Analytics Total

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(In thousands, except share and per share amounts)

Revenues, net by service type, were as follows:

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

2020 2019 2020 2019

Three months ended March 31,

BPM and related services (1)

2 unchanged sentences

Revenues, net $ 261,415 $ 245,990

(1) BPM and related services include revenues of the Company's Insurance, Healthcare and Emerging Business operating segments.

(1) BPM and related services include revenues of the Company's Insurance, Healthcare and Emerging Business reportable segments.

Refer to the reportable segment disclosure above.

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

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

2020 2019 2020 2019

Three months ended March 31,

Revenues, net

6 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:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Long-lived assets

10 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(In thousands, except share and per share amounts)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Accounts receivable, net $ 159,296 $ 147,635

3 unchanged sentences

Consideration received for process transition activities $ 2,280 $ 2,774

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

Accounts receivable includes $ 78,502 and $ 63,995 as of March 31, 2021 and December 31, 2020, 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.

3 unchanged sentences

Contract liabilities represent that portion of deferred revenue for which payments have been received in advance from customers.

This may also include revenues deferred for certain contracts where services have been rendered but other conditions for revenue recognition have not been met for example, where a legally enforceable contract is not executed.

The Company also defers revenues attributable to certain process transition activities for which costs have been capitalized by the Company as contract fulfillment costs.

1 unchanged sentence

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

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,

Revenue recognized during the three months ended March 31, 2021 and 2020, which was included in the contract liabilities balance at the beginning of the respective periods:

Three months ended March 31,

Deferred revenue (consideration received in advance)

$ 23,621 $ 5,968

Revenue recognized $ 1,611 $ 1,086 $ 9,805 $ 5,312

Consideration received for process transition activities

Contract acquisition and fulfillment costs

Contract Acquisition Costs

Three months ended Nine months ended Year ended

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

The following table provides details of the Company’s contract acquisition and fulfillment costs:

Contract Acquisition Costs Contract Fulfillment Costs

Quarter Ended Year Ended Quarter Ended Year Ended

March 31, 2021 March 31, 2020 December 31, 2020 March 31, 2021 March 31, 2020 December 31, 2020

Opening Balance $ 1,027 $ 1,307 $ 1,307 $ 5,631 $ 7,255 $ 7,255

2 unchanged sentences

Closing Balance $ 785 $ 1,215 $ 1,027 $ 4,419 $ 6,916 $ 5,631

There was no impairment for contract acquisition and contract fulfillment costs as of March 31, 2021 and December 31, 2020.

The capitalized costs are amortized over the expected period of benefit of the contract.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(In thousands, except share and per share amounts)

Contract Fulfillment Costs

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

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 September 30, 2020 and December 31, 2019.

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

Allowance for expected credit losses

On January 1, 2020, the Company adopted ASC Topic 326, Financial Instruments-Credit Losses.

Accounts receivable and contract assets are in the scope for which assessment is made.

The Company evaluates the credit risk of its customers based on a combination of various financial and qualitative factors that may affect the ability of each customer to pay.

2 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 .

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

September 30, 2020 January 1, 2020

March 31, 2021 December 31, 2020

Accounts receivable, including unbilled receivables $ 160,479 $ 148,824

Allowance for lifetime expected credit loss ( 1,400 ) ( 1,163 )

Allowance for expected credit loss ( 1,183 ) ( 1,189 )

Accounts receivable, net $ 159,296 $ 147,635

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

The movement in allowance for expected credit loss on customer balances for the three months ended March 31, 2021 and year ended December 31, 2020 was as follows:

Three months ended Year ended

March 31, 2021 March 31, 2020 December 31, 2020

Balance at the beginning of the period $ 1,189 $ 1,163 $ 1,163

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

Additions during the period 50 195 300

Charged against allowance ( 60 ) — ( 269 )

Translation adjustment, if any 2 3 ( 8 ) 4 9

Translation adjustment 4 ( 12 ) ( 5 )

Balance at the end of the period $ 1,183 $ 1,346 $ 1,189

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding, adjusted for outstanding shares that are subject to repurchase during each period.

Diluted earnings per share is computed using the weighted average number of common shares plus the potentially dilutive effect of common stock equivalents (outstanding stock options, restricted stock and restricted stock units) issued and outstanding at the reporting date, using the treasury stock method.

Common stock equivalents that are anti-dilutive are excluded from the computation of weighted average shares outstanding.

Common stock equivalents and the conversion premium of outstanding convertible notes that are anti-dilutive are excluded from the computation of weighted average shares outstanding.

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.

The Company has a choice to settle the Notes in cash, shares or any combination of the two.

The Company presently intends and has the ability to settle the principal balance of the Notes in cash, and as such, the Company has applied the treasury stock method.

The dilution related to the conversion premium, if any, of the Notes is included in the calculation of diluted weighted-average shares outstanding to the extent the issuance is dilutive based on the average stock price during the reporting period being greater than the conversion price of $ 75 .

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

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

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

2020 2019 2020 2019

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

Three months ended March 31,

Net income $ 31,931 $ 22,411

2 unchanged sentences

Dilutive effect of share based awards 342,993 319,038

Dilutive effect of conversion premium on convertible notes 241,207 —

Diluted weighted average common shares outstanding 34,318,318 34,720,603

6 unchanged sentences

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

September 30, 2020 September 30, 2019

March 31, 2021 March 31, 2020

Cash and cash equivalents $ 177,121 $ 224,874

2 unchanged sentences

Cash, cash equivalents and restricted cash $ 184,714 $ 233,534

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 September 30, Nine months ended September 30,

2020 2019 2020 2019

Gain on sale and mark-to-market of mutual funds, net $ 1,965 $ 3,216 $ 7,131 $ 10,060

Interest income 777 489 1,941 1,982

Three months ended March 31,

Gain on sale and mark-to-market of mutual funds $ 1,103 $ 2,056

Interest and dividend income 602 532

Others, net ( 295 ) ( 59 )

Other income, net $ 1,410 $ 2,529

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

Property and Equipment, net

1 unchanged sentence

Estimated useful lives As of

(Years) September 30, 2020 December 31, 2019

(Years) March 31, 2021 December 31, 2020

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

During the three months ended March 31, 2021, 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 March 31,

Depreciation and amortization expense $ 8,740 $ 8,297

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

Three months ended March 31,

Effect of foreign exchange gain $ 165 $ 22

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(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:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Cost $ 18,608 $ 18,371

2 unchanged sentences

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

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

2020 2019 2020 2019

Three months ended March 31

Amortization expense $ 1,024 $ 831

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;

As of March 31, 2021 and December 31, 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

2 unchanged sentences

In addition, the Company completed an assessment of any potential goodwill impairment for all its reporting units immediately prior to the reallocation and determined that no impairment existed.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

The following table sets forth details of changes in goodwill by reportable segment of the Company:

Insurance Healthcare Emerging Business TT&L F&A All Other Analytics Total

Insurance Healthcare Emerging Business Analytics TT&L F&A All Other Total

Balance at January 1, 2020 $ 38,276 $ 19,276 $ — $ 227,289 $ 12,457 $ 46,905 $ 5,326 $ 349,529

Currency translation adjustments 73 — — ( 240 ) ( 288 ) — — ( 455 )

Balance at December 31, 2019 $ 38,276 $ 19,276 $ — $ 12,457 $ 46,905 $ 5,326 $ 227,289 $ 349,529

Goodwill reallocation (1)

12,192 2,693 49,803 — ( 12,457 ) ( 46,905 ) ( 5,326 ) $ —

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

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.

As of March 31, 2020, due to the deteriorating macroeconomic conditions arising from the COVID-19 pandemic, the Company performed a goodwill impairment test for its reporting units.

The Company considered the effects of the COVID-19 pandemic on its significant inputs used in determining the fair value of the Company’s reporting units.

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 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 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.

The recoverability of goodwill is dependent upon the continued growth of cash flows from our business activities.

adjustments 31 ( 16 ) ( 455 ) ( 1 ) — — — ( 441 )

Balance at December 31, 2020 $ 50,499 $ 21,953 $ 49,348 $ 227,288 $ — $ — $ — $ 349,088

adjustments 21 — ( 11 ) — — — — 10

Balance at March 31, 2021 $ 50,520 $ 21,953 $ 49,337 $ 227,288 $ — $ — $ — $ 349,098

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

(1) Represents the reallocation of goodwill resulting from the Company reorganizing its operating segments as described in Note 3 - Segment and Geographical Information to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

During the fourth quarter of 2020, the Company performed its annual impairment test of goodwill for those reporting units that had goodwill recorded.

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

As of March 31, 2021, 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 in the first quarter and business forecasts for the remainder of the year, 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 annual impairment test performed during the fourth quarter of 2020.

The Company did not identify any triggers or indications of potential impairment for its reporting units as of March 31, 2021.

There can be no assurances that goodwill 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 cash flows, long-term debt-free net cash flow growth rate in the terminal year and discount rates are subject to significant judgments and may cause variability in the Company’s assessment of existence of any impairment.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

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.

The recoverability of goodwill is dependent upon the continued growth of cash flows from the Company’s business activities.

This growth is based on business forecasts and improvement in profitability of its reporting units.

The Company continues to maintain its focus on cultivating long-term client relationships as well as attracting new clients.

Intangible Assets

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

As of September 30, 2020

As of March 31, 2021

Carrying Amount Accumulated

8 unchanged sentences

Total intangible assets $ 102,896 $ ( 46,653 ) $ 56,243

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

As of December 31, 2020

8 unchanged sentences

Total intangible assets $ 102,867 $ ( 43,273 ) $ 59,594

The amortization expense for the period is as follows:

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

2020 2019 2020 2019

The amortization expense recognized in the unaudited consolidated statements of income was as follows:

Three months ended March 31,

Amortization expense $ 3,361 $ 4,153

3 unchanged sentences

Trade names and trademarks (Finite lived) 2.29

Estimated future amortization expense related to finite-lived intangible assets as of March 31, 2021 was as follows:

2021 (April 1 - December 31) $ 9,410

2026 and thereafter 12,868

Total $ 55,343

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(In thousands, except share and per share amounts)

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

Total $ 62,041

Other Current Assets

Other current assets consist of the following:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Derivative instruments $ 9,651 $ 9,755

3 unchanged sentences

Deferred contract fulfillment costs 2,344 2,888

Interest accrued on fixed deposits 149 439

Interest accrued on term deposits 210 169

Others 3,514 2,919

1 unchanged sentence

Other assets consist of the following:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Lease deposits $ 9,635 $ 9,788

6 unchanged sentences

Other assets $ 29,669 $ 32,099

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Accrued expenses $ 38,562 $ 39,951

Payable to statutory authorities 17,245 10,594

Accrued capital expenditure 7,413 3,035

Accrued capital expenditures 5,791 7,857

Derivative instruments 290 435

4 unchanged sentences

Accrued expenses and other current liabilities $ 73,241 $ 66,410

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

Other Non-Current Liabilities

Other non-current liabilities consist of the following:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Derivative instruments $ 645 $ 29

2 unchanged sentences

Deferred transition revenue 823 924

Accrued capital expenditure 3,452 —

Accrued capital expenditures — 3,486

Other liabilities 3,314 3,568

2 unchanged sentences

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss (“AOCI”), consists of actuarial gain/(loss) on retirement benefits and changes in the cumulative foreign currency translation adjustments.

Accumulated other comprehensive loss (“AOCI”) consists of actuarial gain/(loss) on retirement benefits and foreign currency translation adjustments.

In addition, the Company enters into foreign currency exchange contracts, which are designated as cash flow hedges in accordance with ASC 815.

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 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 gain on cash flow hedges 10,277 4,604

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

Income tax expense relating to above (1)

( 7,571 ) ( 753 )

Cumulative 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 March 31, 2021 and March 31, 2020 are as follows:

Accumulated Other Comprehensive Loss

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

Foreign currency translation (loss)/gain Unrealized (loss)/gain on cash flow hedges Retirement benefits Total

Balance as of January 1, 2021 $ ( 86,185 ) $ 13,799 $ ( 2,598 ) $ ( 74,984 )

Gains / (losses) recognized during the period ( 1,911 ) 568 — ( 1,343 )

Reclassification to net income (1)

— ( 2,829 ) 179 ( 2,650 )

Income tax effects (2)

284 ( 9 ) ( 51 ) 224

Accumulated other comprehensive loss as of March 31, 2021 $ ( 87,812 ) $ 11,529 $ ( 2,470 ) $ ( 78,753 )

Balance as of January 1, 2020 $ ( 87,591 ) $ 4,098 $ ( 1,399 ) $ ( 84,892 )

Losses recognized during the period ( 21,571 ) ( 14,846 ) — ( 36,417 )

Reclassification to net income (1)

— ( 929 ) 101 ( 828 )

Income tax effects (2)

4,234 4,808 ( 9 ) 9,033

Accumulated other comprehensive loss as of March 31, 2020 $ ( 104,928 ) $ ( 6,869 ) $ ( 1,307 ) $ ( 113,104 )

(1) Refer to Note 16 - Derivatives and Hedge Accounting and Note 19 - Employee Benefit Plans to the unaudited consolidated financial statements for reclassification to net income.

(2) These are income tax effects recognized on changes in the fair values of cash flow hedges, actuarial (loss) / gain on retirement benefits and foreign currency translation (loss) / gain, net of reclassifications related to the period activity.

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

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(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 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

The following table sets forth the Company’s assets and liabilities that were accounted for at fair value as of March 31, 2021 and December 31, 2020.

Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Other Unobservable Inputs

As of March 31, 2021 Level 1 Level 2 Level 3 Total

Mutual funds* $ 161,868 $ — $ — $ 161,868

3 unchanged sentences

Total $ — $ 935 $ — $ 935

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Other Unobservable Inputs

Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Other Unobservable Inputs

As of December 31, 2020 Level 1 Level 2 Level 3 Total

4 unchanged sentences

Total $ — $ 464 $ — $ 464

* 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.

* Represents those short-term investments, which are carried at the fair value option under ASC 825 "Financial Instruments”.

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 expenditures, 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 investments 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.

Convertible Senior Notes:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(In thousands, except share and per share amounts)

Convertible Senior Notes:

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 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 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.

During the year ended December 31, 2019, the Company conducted impairment tests of its long-lived assets and ROU assets related to its Health Integrated business.

The fair value determination for ROU assets was based on third party quotes, which are Level 2 inputs, and for other long-lived assets, it was based on Company’s internal assessment, which are Level 3 inputs.

During the year ended December 31, 2019, the Company recognized impairment charges on long-lived assets and ROU assets to write down the carrying value to their fair values.

The total estimated fair value of the convertible senior notes as of March 31, 2021 and December 31, 2020 was $ 152,636 and $ 152,384 , respectively.

The fair value was determined based on the market yields for similar convertible notes as of the March 31, 2021 and December 31, 2020, respectively.

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

Derivatives and Hedge Accounting

1 unchanged sentence

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 $ 444,570 as of September 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 $ 509,860 as of March 31, 2021 and $ 451,935 as of December 31, 2020.

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.

The resultant foreign exchange gain/(loss) upon settlement of these cash flow hedges is recorded along with the underlying hedged item in the same line of unaudited consolidated statements of income as either a part of “Cost of revenues,” “General and administrative expenses,” “Selling and marketing expenses”, “Depreciation and amortization expense”, as applicable.

The impact of COVID-19 on the economic environment is uncertain and may cause variability in determination of fair value of these cash flow hedges, which could impact the effects of change in fair value that get recorded as a component of accumulated other comprehensive income/(loss) and also resultant exchange gain/(loss) upon settlement of derivative financial instruments.

The Company evaluates hedge effectiveness at the time a contract is entered into as well as on an ongoing basis.

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 $ 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 estimates that approximately $ 8,996 of derivative gains, net, excluding tax effects, included in AOCI, representing changes in the value of cash flow hedges, could be reclassified into earnings within the next twelve months based on exchange rates prevailing as of March 31, 2021.

At March 31, 2021, 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.

These derivatives do not qualify as fair value hedges under ASC 815.

Changes in the fair value of these derivatives are recognized in the unaudited

Changes in the fair value of these derivatives are recognized in the unaudited consolidated statements of income and are included in the foreign exchange gain/(loss) line item.

The Company’s primary exchange rate exposure is with the Indian rupee, the U.K.

pound sterling (GBP) and the Philippine peso.

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

Outstanding foreign currency forward contracts amounted to USD 147,228 , GBP 7,727 , EUR 1,978 and COP 8,172,868 as of March 31, 2021 and USD 143,394 , GBP 6,753 , EUR 2,447 and COP 8,287,950 as of December 31, 2020.

All of the assets and liabilities related to our foreign exchange forward contracts are subject to master netting arrangements with each individual counterparty.

These master netting arrangements generally provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a termination event.

We have presented all of the assets and liabilities related to our foreign exchange forward contracts on a gross basis, with no offsets, in our unaudited consolidated statements of financial position.

There is no financial collateral (including cash collateral) provided or received by us related to our foreign exchange forward contracts.

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(In thousands, except share and per share amounts)

consolidated statements of income and are included in the foreign exchange gain/(loss) line item.

The impact of COVID-19 on the economic environment is uncertain and may cause variability in determination of fair value of these derivatives, which could impact the effects of change in fair value that get recorded in the foreign exchange gain/(loss) line item.

The Company’s primary exchange rate exposure is with the Indian rupee, the U.K.

pound sterling and the Philippine peso.

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 September 30, 2020 December 31, 2019

Foreign currency exchange contracts March 31, 2021 December 31, 2020

Other current assets $ 9,261 $ 9,740

3 unchanged sentences

Derivatives not designated as hedging instruments:

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

Foreign currency exchange contracts March 31, 2021 December 31, 2020

Other current assets $ 390 $ 15

Accrued expenses and other current liabilities $ 25 $ 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 nine months ended September 30, 2020 and 2019:

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

Three months ended March 31,

Forward Exchange Contracts:

2020 2019 2020 2019

Unrealized gain/(loss) recognized in AOCI

Unrealized (loss)/gain recognized in AOCI

Derivatives in cash flow hedging relationships $ 568 $ ( 14,846 )

Gain/(loss) recognized in consolidated statements of income

Loss recognized in unaudited consolidated statements of income

Derivatives not designated as hedging instruments $ ( 394 ) $ ( 4,214 )

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(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 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

Three months ended March 31,

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

Cash flow hedging relationships

Location in unaudited consolidated statements of income where gain/(loss) was reclassed from AOCI

Location in unaudited consolidated statements of income where gain was reclassed from AOCI

Cost of revenues $ 158,821 $ 2,424 $ 162,656 $ 812

General and administrative expenses $ 30,703 252 $ 28,941 73

Selling & marketing expenses $ 15,290 ( 4 ) $ 18,302 19

Depreciation & amortization expense $ 12,425 ( 66 ) $ 13,047 80

$ ( 435 ) $ 1,704

Selling and marketing expenses $ 18,235 13 $ 14,456 4

Depreciation and amortization expense $ 12,101 140 $ 12,450 40

Total before tax 2,829 929

Income tax expense relating to above ( 389 ) ( 102 )

Net of tax $ 2,440 $ 827

Derivatives not designated as hedging instruments

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

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

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

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

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

Location in unaudited consolidated statements of income where gain/(loss) was reclassed from AOCI

Cost of revenues $ 473,144 $ ( 272 ) $ 487,228 $ 2,682

General and administrative expenses $ 84,501 ( 246 ) $ 93,349 359

Selling & marketing expenses $ 42,797 ( 9 ) $ 53,996 38

Depreciation & amortization expense $ 37,280 ( 106 ) $ 39,466 180

$ ( 633 ) $ 3,259

Derivatives not designated as hedging instruments

Location in unaudited consolidated statements of income where gain was recognized

Foreign exchange gain, net $ 434 $ ( 394 ) $ 1,377 $ ( 4,214 )

$ 434 $ ( 394 ) $ 1,377 $ ( 4,214 )

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

The following tables summarizes the Company’s debt position as of March 31, 2021 and December 31, 2020.

As of March 31, 2021

Revolving Credit Facility Notes Total

Current portion of long-term borrowings $ 25,000 $ — $ 25,000

3 unchanged sentences

Long-term borrowings $ 64,000 $ 138,687 $ 202,687

79,000 — 137,235 216,235

Total borrowings $ 89,000 $ 138,687 $ 227,687

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(In thousands, except share and per share amounts)

As of December 31, 2020

Revolver Credit Facility Structured Payables Notes Total

Revolving Credit Facility Notes Total

Current portion of long-term borrowings $ 25,000 $ — $ 25,000

3 unchanged sentences

Long-term borrowings $ 64,000 $ 137,961 $ 201,961

59,000 — 135,131 194,131

Total borrowings $ 89,000 $ 137,961 $ 226,961

*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

*Unamortized debt issuance costs for the Company’s revolving Credit Facility of $ 426 and $ 490 as of March 31, 2021 and December 31, 2020, respectively, is presented under “Other current assets” and “Other assets” in the consolidated balance sheets.

Credit Agreement

The Company’s $ 300,000 revolving credit facility pursuant to its credit agreement (the “Credit Agreement”) with certain lenders and Citibank N.A.

as Administrative Agent (the “Credit Facility”) carried an effective interest rate as shown below.

Three months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

Three months ended March 31

Effective Interest Rate 2.0 % 3.0 %

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.

As of March 31, 2021 and December 31, 2020, the Company was in compliance with all financial and non-financial covenants listed under the Credit Agreement.

Convertible Senior Notes

On October 1, 2018, the Company entered into an investment agreement (the “Investment Agreement”) with Orogen Echo LLC (the “Purchaser”), an affiliate of The Orogen Group LLC, relating to the issuance to the Purchaser of $ 150,000 in an aggregate principal amount of 3.50 % Convertible Senior Notes due October 1, 2024 (the “Notes”).

On October 1, 2018, the Company entered into an investment agreement (the “Investment Agreement”) with Orogen Echo LLC (the “Purchaser”), an affiliate of The Orogen Group LLC, relating to the issuance to the Purchaser of $ 150,000 in an aggregate principal amount of 3.50 % per annum Convertible Senior Notes due October 1, 2024 (the “Notes”).

The transactions contemplated by the Investment Agreement, including the issuance of the Notes, closed on October 4, 2018.

1 unchanged sentence

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)

September 30, 2020

(In thousands, except share and per share amounts)

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:

The Notes carried an effective interest rate as shown below:

Three months ended March 31,

Effective Interest Rate 3.7 % 3.7 %

During the three months ended March 31, 2021 and 2020, the Company recognized interest expense and amortization of debt discount, on the Notes as below:

Three months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

Interest expense on the Notes $ 1,313 $ 1,313

Amortization of debt discount on the Notes $ 673 $ 635

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

2021 — 10,000 — 10,000

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

Payments / maturities for all of the Company's borrowings as of March 31, 2021 were as follows:

Notes Revolving Credit Facility Total

2021 (April - December) $ — $ 25,000 $ 25,000

2022 — 64,000 64,000

3 unchanged sentences

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

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.

As of March 31, 2021 and December 31, 2020, 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.

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 units and performance-based restricted stock units, as below:

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

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

Three months ended March 31, 2021 25,450 $ 2,015 $ 79.18

Three months ended March 31, 2020 26,601 $ 2,012 $ 75.63

On December 16, 2019, the Company’s Board of Directors authorized a $ 200,000 common stock repurchase program beginning January 1, 2020 through December 31, 2022 (the "2019 Repurchase Program").

Under the 2019 Repurchase Program, 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.

Repurchases may be discontinued at any time by the management.

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

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

Three months ended March 31, 2021 313,032 $ 27,000 $ 86.25

Three months ended March 31, 2020 175,765 $ 11,983 $ 68.18

(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.

On February 28, 2017, the Company’s Board of Directors authorized an additional common stock repurchase program (the “2017 Repurchase Program”), under which shares may be purchased by the Company from time to time from the open market and through private transactions during each of the fiscal years 2017 through 2019 up to an aggregate additional amount

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.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(In thousands, except share and per share amounts)

of $ 100,000 .

The approval increased the 2017 authorization from $ 20,000 to $ 40,000 and authorizes stock repurchases of up to $ 40,000 in each of 2018 and 2019.

On December 16, 2019, the Company’s Board of Directors authorized a $ 200,000 common stock repurchase program beginning January 1, 2020 through December 31, 2022 (the “2019 Repurchase Program”).

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.

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 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.

The 2019 Repurchase Program may be suspended or discontinued at any time.

During the quarter ended March 31, 2020, to enhance the Company’s liquidity position in response to COVID-19, the Company elected to temporarily suspend share repurchases under the 2019 Repurchase Program.

The 2019 Repurchase Program remains authorized by the Board of Directors and the Company resumed share repurchases effective July 1, 2020, considering improved market conditions, the Company’s capital and liquidity needs and other factors.

Employee Benefit Plans

4 unchanged sentences

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)

September 30, 2020

(In thousands, except share and per share amounts)

Components of net periodic benefit cost were as follows:

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

2020 2019 2020 2019

Components of net periodic benefit costs, were as follows:

Three months ended March 31,

Service cost $ 889 $ 678

1 unchanged sentence

Expected return on plan assets ( 201 ) ( 161 )

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

Amortization of actuarial loss, gross of tax 179 101

Net gratuity cost $ 1,102 $ 861

Income tax benefit on amortization of actuarial loss ( 51 ) ( 9 )

Amortization of actuarial loss, net of tax $ 128 $ 92

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

3 unchanged sentences

The Company expects to earn a return of approximately 7.0 % per annum on the India Plan for the year ended December 31, 2021.

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.

Change in Plan Assets

4 unchanged sentences

Effect of exchange rate changes ( 6 )

Plan assets at September 30, 2020 $ 11,461

Plan assets at March 31, 2021 $ 11,424

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.

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 September 30, Nine months ended September 30,

2020 2019 2020 2019

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

March 31, 2021

(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, 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

Three months ended March 31,

Contribution to the 401(k) Plan $ 1,299 $ 226

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

Three months ended March 31,

Contributions to the defined benefit plans

$ 3,294 $ 2,977

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

The Company finances its use of certain motor vehicles and other equipment under various lease arrangements provided by financial institutions.

The Company had performed an evaluation of its contracts with suppliers in accordance with Topic 842 and had determined that, except for leases for office facilities, motor vehicles and other equipment as described above, none of the Company’s contracts contain a lease.

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

The Company had performed an evaluation of its contracts with suppliers in accordance with Topic 842, Leases , and had determined that, except for leases for office facilities, motor vehicles and other equipment as described above, none of the Company’s contracts contain a lease.

In assessment of the lease term, the Company considers the extension option as part of its lease term for those lease arrangements where the Company is reasonably certain of availing the extension option.

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 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 nine months ended September 30, 2020.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

As part of the Company’s effort to moderate the impact of COVID-19, the Company continued to evaluate its office facilities to determine where it can exit, consolidate, or otherwise optimize its use of office space.

During the year ended December 31, 2020, the Company changed the lease term for certain of its leases and recognized the resultant amount of the remeasurement of the lease liability as an adjustment to the ROU assets.

The impact of COVID-19 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.

Supplemental balance sheet information

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Operating Lease

10 unchanged sentences

Total finance lease liabilities $ 465 $ 510

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

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 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 $ 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 September 30, Nine months ended September 30,

Lease cost Three months ended March 31, 2021 Three months ended March 31, 2020

Finance lease:

2020 2019 2020 2019

Amortization of right-of-use assets $ 52 $ 62

Interest on lease liabilities 17 30

62 94 237 269

Operating lease (a)

6,781 6,843 20,484 20,544

Sublease income — ( 29 ) — ( 134 )

Total lease cost $ 6,830 $ 6,945

(a) Includes short-term leases, which are immaterial.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

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

Nine months ended September 30,

Three months ended March 31,

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

4 unchanged sentences

Right-of-use assets obtained in exchange for new finance lease liabilities $ 10 $ 28

Weighted-average remaining lease term

Weighted-average remaining lease term (in years)

Finance lease 1.7 years 2.3 years

4 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 September 30, 2020 are as follows:

During the three months ended March 31, 2021 and year ended December 31, 2020, the Company modified certain of its operating leases, resulting in a reduction of its lease liabilities by $ 0 and $ 3,143 respectively, with a corresponding reduction in ROU assets.

Maturities of lease liabilities as of March 31, 2021 were as follows:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

Operating Leases Finance Leases

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

2021 (April 1 - December 31) $ 19,102 $ 212

2022 24,613 169

6 unchanged sentences

Present value of lease liabilities $ 100,424 $ 465

Maturities of minimum lease payments as of December 31, 2019 are as follows:

During the next twelve months ending December 31, Operating Leases Capital Leases

Maturities of lease liabilities as of December 31, 2020 were as follows:

Operating Leases Finance Leases

2021 $ 25,829 $ 262

4 unchanged sentences

2026 and thereafter 34,334 —

Total minimum lease payment $ 130,470 $ 841

Total lease payments $ 133,378 $ 617

Imputed interest 29,610 107

Present value of minimum lease payments $ 98,857 $ 683

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

The Company determines the tax provision for interim periods using an estimate of its annual effective tax rate adjusted for discrete items, if any, that are taken into account in the relevant period.

Present value of lease liabilities $ 103,768 $ 510

The Company determines the tax provision for interim periods using an estimate of its annual effective tax rate.

Each quarter, the Company updates its estimate of annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment.

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'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 (expense)/benefit on:

The Company's effective tax rate increased from 20.7 % during the three months ended March 31, 2020 to 21.9 % during the three months ended March 31, 2021.

The Company recorded income tax expense of $ 8,958 and $ 5,855 for the three months ended March 31, 2021 and 2020, respectively.

The increase in the income tax expense was primarily as a result of higher profit during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

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

Three months ended March 31,

Deferred taxes benefit / (expense) recognized on:

Unrealized gain / (loss) on cash flow hedges $ ( 398 ) $ 4,706

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

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

Reclassification adjustment for cash flow hedges 389 102

Reclassification adjustment for retirement benefits ( 51 ) ( 9 )

Foreign currency translation loss 284 4,234

Total Income tax benefit recognized in other comprehensive income / (loss) $ 224 $ 9,033

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

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 September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Cost of revenues $ 1,536 $ 1,418

2 unchanged sentences

Total $ 7,832 $ 4,778

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

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.

As of March 31, 2021, the Company had 1,887,604 shares available for grant under the 2018 Omnibus Incentive Plan.

Stock Options

7 unchanged sentences

Forfeited — — — —

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

Restricted stock and restricted stock unit activity under the Company’s stock-based compensation plans is shown below:

Restricted Stock Restricted Stock Units

Outstanding at March 31, 2021 28,249 $ 25.50 $ 1,826 1.69

Vested and exercisable at March 31, 2021 28,249 $ 25.50 $ 1,826 1.69

Restricted Stock Units

Restricted stock unit activity under the Company’s stock-based compensation plans is shown below:

Restricted Stock Units

Number Weighted-Average

Fair Value Number Weighted Average

Outstanding at December 31, 2020* 903,666 $ 67.84

2 unchanged sentences

Forfeited ( 13,182 ) 70.05

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.

Outstanding at March 31, 2021* 930,219 $ 74.96

* As of March 31, 2021 and December 31, 2020 restricted stock units vested for which the underlying common stock is yet to be issued was 181,638 each.

As of March 31, 2021, unrecognized compensation cost of $ 64,277 is expected to be expensed over a weighted average period of 3.01 years.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

Performance Based Stock Awards

Performance based restricted stock unit activity under the Company’s stock plans is shown below:

Under the 2018 Plan, the Company grants performance-based restricted stock units (“PRSUs”) to executive officers and other specified employees.

During the three months ended March 31, 2021, the Company granted PRSUs that cliff vest at the end of a three year period based on a market condition that is contingent on the Company's meeting the total shareholder return relative to a group of peer companies specified under the program measured over a three-year performance period.

The award recipient may earn up to two hundred percent ( 200 %) of the PRSUs granted based on the actual achievement of targets.

Unlike the three months ended March 31, 2020, the Company did not grant PRSUs that cliff vest at the end of a three-year period based on an aggregated revenue target for such three year period.

Performance restricted stock unit activity under the Company’s stock plans is shown below:

Revenue Based PRSUs Market Condition Based PRSUs

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Forfeited — — — —

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

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.

Outstanding at March 31, 2021 105,892 $ 72.32 227,047 $ 109.57

As of March 31, 2021, unrecognized compensation cost of $ 20,882 is expected to be expensed over a weighted average period of 2.34 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.

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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 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 had outstanding Notes with a principal amount of $ 150,000 each as of March 31, 2021 and December 31, 2020 and interest accrued of $ 2,625 and $ 1,313 as of March 31, 2021 and December 31, 2020, 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 September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31 ,

Interest expense on Notes

$ 1,313 $ 1,313

Commitments and Contingencies

Capital Commitments

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.

At March 31, 2021, the Company had committed to spend approximately $ 3,300 under agreements to purchase property and equipment.

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

Other Commitments

Certain units of the Company’s Indian subsidiaries were established as 100 % Export-Oriented units or under the Software Technology Parks of India (“STPI”) or Special Economic Zone (“SEZ”) scheme promulgated by the Government of India.

Certain units of the Company’s Indian subsidiaries were established as 100 % Export-Oriented units or under the Software Technology Parks of India or Special Economic Zone scheme promulgated by the Government of India.

These units are exempt from customs, central excise duties, and levies on imported and indigenous capital goods, stores, and spares.

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The Company’s management believes, however, that these units have in the past satisfied and will continue to satisfy the required conditions.

The Company’s operations centers in the Philippines are registered with the Philippine Economic Zone Authority (“PEZA”).

The Company’s operations centers in the Philippines are registered with the Philippine Economic Zone Authority.

The registration provides the Company with certain fiscal incentives on the import of capital goods and local purchase of services and materials and requires ExlService Philippines, Inc.

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2020

(In thousands, except share and per share amounts)

Contingencies

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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 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.

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 March 31, 2021.

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 March 31, 2021 and December 31, 2020 is $ 16,739 and $ 16,748 , respectively, of which the Company has made payments and/or provided bank guarantees to the extent $ 8,116 and $ 8,120 , respectively.

Amounts paid as deposits in respect of such assessments aggregating to $ 6,304 and $ 6,307 as of March 31, 2021 and December 31, 2020, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to $ 1,812 and $ 1,813 as of March 31, 2021 and December 31, 2020, 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.

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Accordingly, even if these disputes are resolved, the Indian tax authorities may still serve additional orders or assessments.

In February 2019, there was a judicial pronouncement in India with respect to defined contribution benefits payments interpreting certain statutory defined contribution obligations of employees and employers.

In February 2019, there was a judicial pronouncement in India with respect to defined social security contribution benefits payments interpreting certain statutory defined contribution obligations of employees and employers.

Currently some of the Company's subsidiaries in India are undergoing assessment with the statutory authorities.

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Due to such challenges and a lack of interpretive guidance, and based on legal advice, the Company believes it is currently impracticable to reliably estimate the timing and amount of any payments the Company may be required to make.

Accordingly, the Company will re-evaluate the amount of a potential provision, if any, upon further developments.

The Company will continue to monitor and evaluate its position based on future events and developments in this matter for the implications on the financial statements, if any.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

In September 2020, the Indian Parliament passed various consolidating labor codes, including the Code on Social Security, 2020 (the “Indian Social Security Code”) which aims to rationalize labor laws.

The Indian Social Security Code has implications on defined social security contribution plans, provision of certain benefits or facilities to employees at employer’s costs and post-retirement benefits.

Most specifically, it broadens the definition of an employee and wages and liberalizes the definition of “continuous period” for the purpose of determining employee benefits, amongst others.

However, the rules for the Indian Social Security Code are yet to be published and the effective date from which these changes are applicable is yet to be notified.

The Company will complete its evaluation once the subject rules are notified and will give appropriate impact in the financial statements in the period in which, the Indian Social Security Code becomes effective and the related rules to determine the financial impact are published.

From time to time, the Company and/or its present officers or directors, on individual basis, may be or have been, named as a defendant in litigation matters, including employment-related claims.

5 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