What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-07-29 compared with 2021-04-29 · 392 added, 243 removed, 807 unchanged (44% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Current assets:

38 unchanged sentences

Common stock, $ 0.001 par value;

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

100,000,000 shares authorized, 39,283,853 shares issued and 33,249,709 shares outstanding as of June 30, 2021 and 38,968,052 shares issued and 33,559,434 shares outstanding as of December 31, 2020

Additional paid-in capital 439,051 420,976

2 unchanged sentences

Total including shares held in treasury 1,053,676 987,410

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

6,034,144 shares as of June 30, 2021 and 5,408,618 shares as of December 31, 2020, held in treasury, at cost

( 325,662 ) ( 268,238 )

6 unchanged sentences

(In thousands, except share and per share amounts)

Three months ended March 31,

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

2021 2020 2021 2020

Revenues, net $ 275,064 $ 222,473 $ 536,479 $ 468,463

15 unchanged sentences

Income before earnings from equity affiliates 28,013 8,495 59,980 30,961

Loss from equity-method investment 36 55

Gain / (loss) from equity-method investment 8 ( 66 ) ( 28 ) ( 121 )

Net income attributable to ExlService Holdings, Inc.

13 unchanged sentences

(In thousands)

Three months ended March 31,

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

2021 2020 2021 2020

Net income $ 28,021 $ 8,429 $ 59,952 $ 30,840

1 unchanged sentence

Unrealized gain/(loss) on cash flow hedges ( 871 ) 7,721 ( 303 ) ( 7,125 )

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

Loss on net investment hedges ( 1,134 ) — ( 1,134 ) —

Foreign currency translation gain/(loss) ( 4,775 ) 2,273 ( 6,686 ) ( 19,298 )

Reclassification adjustments

Gain on cash flow hedges (1)

(Gain)/loss on cash flow hedges (1)

( 2,866 ) 1,127 ( 5,695 ) 198

Retirement benefits (2)

176 97 355 198

Income tax effects relating to above (3)

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

1,478 ( 2,388 ) 1,702 6,645

Total other comprehensive income/(loss) $ ( 7,992 ) $ 8,830 $ ( 11,761 ) $ ( 19,382 )

Total comprehensive income/(loss) $ 20,029 $ 17,259 $ 48,191 $ 11,458

8 unchanged sentences

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the three months ended March 31, 2021 and 2020

For the three months ended June 30, 2021 and 2020

(In thousands, except share and per share amounts)

1 unchanged sentence

Shares Amount Shares Amount

Balance as of January 1, 2021 38,968,052 $ 39 $ 420,976 $ 641,379 $ ( 74,984 ) ( 5,408,618 ) $ ( 268,238 ) $ 719,172

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

Stock issued against stock-based compensation plans 9,864 — 99 — — — — 99

3 unchanged sentences

Net income — — — 28,021 — — — 28,021

Balance as of June 30, 2021 39,283,853 $ 39 $ 439,051 $ 701,331 $ ( 86,745 ) ( 6,034,144 ) $ ( 325,662 ) $ 728,014

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

Shares Amount Shares Amount

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

Stock issued against stock-based compensation plans 4,590 — 39 — — — — 39

Stock-based compensation — — 7,726 — — — — 7,726

Other comprehensive income — — — — 8,830 — — 8,830

Net income — — — 8,429 — — — 8,429

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

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the six months ended June 30, 2021 and 2020

(In thousands, except share and per share amounts)

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

6 unchanged sentences

Net income — — — 59,952 — — — 59,952

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

Balance as of June 30, 2021 39,283,853 $ 39 $ 439,051 $ 701,331 $ ( 86,745 ) ( 6,034,144 ) $ ( 325,662 ) $ 728,014

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

Shares Amount Shares Amount

Balance as of January 1, 2020 38,480,654 $ 39 $ 391,240 $ 551,903 $ ( 84,892 ) ( 4,295,413 ) $ ( 188,289 ) $ 670,001

Stock issued against stock-based compensation plans 337,711 — 960 — — — — 960

Stock-based compensation — — 12,504 — — — — 12,504

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

Other comprehensive loss — — — — ( 19,382 ) — — ( 19,382 )

Net income — — — 30,840 — — — 30,840

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

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

(In thousands)

Three months ended March 31,

Six months ended June 30,

Cash flows from operating activities:

Net income $ 59,952 $ 30,840

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

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

Depreciation and amortization expense 24,734 24,806

1 unchanged sentence

Amortization of operating lease right-of-use assets 13,632 13,703

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

Unrealized loss / (gain) on short term investments 6,777 ( 2,842 )

Unrealized foreign exchange gain, net ( 2,634 ) ( 3,378 )

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

Deferred income tax benefit ( 14,737 ) ( 663 )

Allowance for expected credit losses ( 390 ) 389

12 unchanged sentences

Operating lease liabilities ( 13,327 ) ( 12,831 )

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

Net cash provided by operating activities 53,943 58,907

Cash flows from investing activities:

4 unchanged sentences

Proceeds from redemption of investments 64,031 72,844

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

Net cash provided by investing activities 11,668 1,066

Cash flows from financing activities:

4 unchanged sentences

Proceeds from exercise of stock options 174 960

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

Net cash used for financing activities ( 131,357 ) ( 13,369 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 2,237 ) ( 2,873 )

11 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

22 unchanged sentences

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, 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)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

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.

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.

As of June 30, 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.

2 unchanged sentences

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.

25 unchanged sentences

The adoption of this ASU did not have a material impact on the Company’s unaudited 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 expand the scope of Topic 848 to include derivative instruments affected by changes to the interest rates used for discounting, margining or contract price alignment (commonly referred to as the discounting transition).

This ASU extends some of Topic 848’s optional expedients and exceptions for contract modifications and hedge accounting to derivative instruments impacted by discounting transition 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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

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

Segment and Geographical Information

7 unchanged sentences

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 March 31, 2021 and 2020, respectively, for each of the reportable segments, are as follows:

Three months ended March 31, 2021

Revenues and cost of revenues for the three months ended June 30, 2021 and 2020, respectively, for each of the reportable segments, are as follows:

Three months ended June 30, 2021

Insurance Healthcare Emerging Business Analytics Total

7 unchanged sentences

Income tax expense 8,865

Loss from equity-method investment 36

Gain from equity-method investment 8

Net income $ 28,021

(1) Exclusive of depreciation and amortization expense.

Three months ended March 31, 2020

Three months ended June 30, 2020

Insurance Healthcare Emerging Business Analytics Total

9 unchanged sentences

Net income $ 8,429

(1) Exclusive of depreciation and amortization expense.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

(1) Exclusive of depreciation and amortization expense.

Revenues and cost of revenues for the six months ended June 30, 2021 and 2020, respectively, for each of the reportable

segments, are as follows:

Six months ended June 30, 2021

Insurance Healthcare Emerging Business Analytics Total

Revenues, net $ 185,879 $ 58,515 $ 78,358 $ 213,727 $ 536,479

Cost of revenues (1)

115,452 35,076 43,190 135,804 329,522

Gross profit (1)

$ 70,427 $ 23,439 $ 35,168 $ 77,923 $ 206,957

Operating expenses 129,572

Foreign exchange gain, interest expense and other income, net 418

Income tax expense 17,823

Loss from equity-method investment 28

Net income $ 59,952

(1) Exclusive of depreciation and amortization expense.

Six months ended June 30, 2020

Insurance Healthcare Emerging Business Analytics Total

Revenues, net $ 165,020 $ 52,007 $ 77,326 $ 174,110 $ 468,463

Cost of revenues (1)

118,078 39,233 47,898 115,848 321,057

Gross profit (1)

$ 46,942 $ 12,774 $ 29,428 $ 58,262 $ 147,406

Operating expenses 110,053

Foreign exchange gain, interest expense and other income, net 3,535

Income tax expense 9,927

Loss from equity-method investment 121

Net income $ 30,840

(1) Exclusive of depreciation and amortization expense.

Revenues, net by service type, were as follows:

Three months ended March 31,

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

2021 2020 2021 2020

BPM and related services (1)

4 unchanged sentences

Refer to the reportable segment disclosure above.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)

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

Three months ended March 31,

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

2021 2020 2021 2020

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:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Long-lived assets

8 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

(In thousands, except share and per share amounts)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Accounts receivable, net $ 182,111 $ 147,635

3 unchanged sentences

Consideration received for process transition activities $ 1,966 $ 2,774

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

Accounts receivable includes $ 89,237 and $ 63,995 as of June 30, 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.

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

These costs are amortized over the expected period of the benefit and are recorded as an adjustment to transaction price and reduced from revenues.

These costs are amortized over the expected period of the benefit and are recorded as an adjustment to transaction price and

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)

reduced from revenues.

The Company’s assessment did not indicate any impairment losses on its contract assets for the periods presented.

3 unchanged sentences

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

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)

Revenue recognized during the three and six months ended June 30, 2021 and 2020, which was included in the contract liabilities balance at the beginning of the respective periods:

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

2021 2020 2021 2020

Deferred revenue (consideration received in advance) $ 3,332 $ 2,226 $ 26,953 $ 8,194

Consideration received for process transition activities $ 508 $ 287 $ 1,187 $ 561

1 unchanged sentence

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

Contract Acquisition Costs

Three months ended Six months ended Year ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 December 31, 2020

Opening Balance $ 785 $ 1,215 $ 1,027 $ 1,307 $ 1,307

2 unchanged sentences

Closing Balance $ 867 $ 1,270 $ 867 $ 1,270 $ 1,027

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

Contract Fulfillment Costs

Three months ended Six months ended Year ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 December 31, 2020

Opening Balance $ 4,419 $ 6,916 $ 5,631 $ 7,255 $ 7,255

Additions 158 363 164 647 779

Amortization ( 883 ) ( 499 ) ( 2,101 ) ( 1,122 ) ( 2,403 )

Closing Balance $ 3,694 $ 6,780 $ 3,694 $ 6,780 $ 5,631

There was no impairment for contract acquisition and contract fulfillment costs as of June 30, 2021 and December 31, 2020.

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

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

4 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.

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Accounts receivable, including unbilled receivables $ 182,841 $ 148,824

1 unchanged sentence

Accounts receivable, net $ 182,111 $ 147,635

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

The movement in allowance for expected credit loss on customer balances for the three and six months ended June 30, 2021 and 2020 and year ended December 31, 2020 was as follows:

Three months ended Six months ended Year ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 December 31, 2020

Balance at the beginning of the period $ 1,183 $ 1,346 $ 1,189 $ 1,163 $ 1,163

Additions during the period 50 195 300

Additions / (Reductions) during the period ( 445 ) 186 ( 395 ) 381 300

Charged against allowance ( 13 ) ( 100 ) ( 73 ) ( 100 ) ( 269 )

6 unchanged sentences

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

Diluted weighted-average shares outstanding is affected by the treatment of our 3.5 % per annum Convertible Senior Notes due October 1, 2024 (the “Notes”).

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

2 unchanged sentences

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:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

Three months ended March 31,

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

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

2021 2020 2021 2020

Net income $ 28,021 $ 8,429 $ 59,952 $ 30,840

11 unchanged sentences

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

March 31, 2021 March 31, 2020

June 30, 2021 June 30, 2020 December 31, 2020

Cash and cash equivalents $ 150,211 $ 163,619 $ 218,530

4 unchanged sentences

Other income, net consists of the following:

Three months ended March 31,

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

2021 2020 2021 2020

Gain on sale and mark-to-market of mutual funds $ 1,655 $ 3,109 $ 2,758 $ 5,166

4 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

2 unchanged sentences

Estimated useful lives As of

(Years) March 31, 2021 December 31, 2020

(Years) June 30, 2021 December 31, 2020

Owned Assets:

15 unchanged sentences

Right-of-use assets under finance leases:

Network equipment and computers $ 91 $ 93

Leasehold improvements 1,126 817

4 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 months ended March 31, 2021, there were no changes in estimated useful lives of property and equipment.

During the three and six months ended June 30, 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,

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

2021 2020 2021 2020

Depreciation and amortization expense $ 8,913 $ 8,975 $ 17,653 $ 17,271

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

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

2021 2020 2021 2020

Effect of foreign exchange gain/(loss) $ 158 $ ( 71 ) $ 323 $ ( 49 )

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Cost $ 18,827 $ 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 March 31

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

2021 2020 2021 2020

Amortization expense $ 1,055 $ 1,846 $ 2,079 $ 2,677

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;

As of June 30, 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.

6 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.

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

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

Goodwill reallocation (1)

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

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

June 30, 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.

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

Insurance Healthcare Emerging Business Analytics Total

Balance at January 1, 2021 $ 50,499 $ 21,953 $ 49,348 $ 227,288 $ 349,088

Currency translation adjustments 37 — ( 377 ) ( 1 ) ( 341 )

Balance at June 30, 2021 $ 50,536 $ 21,953 $ 48,971 $ 227,287 $ 348,747

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.

As of June 30, 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 continued improvements in current and forecasted economic and market conditions and qualitative factors, such as the Company’s performance in the first and second quarters, business forecasts for the remainder of the year, stock price movements and the Company’s expansion plans.

The Company did not identify any triggers or indications of potential impairment for its reporting units as of June 30, 2021.

There can be no assurances that goodwill will not be impaired in future periods.

8 unchanged sentences

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

As of March 31, 2021

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)

As of June 30, 2021

Carrying Amount Accumulated

8 unchanged sentences

Total intangible assets $ 100,949 $ ( 48,096 ) $ 52,853

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

9 unchanged sentences

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

Three months ended March 31,

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

2021 2020 2021 2020

Amortization expense $ 3,397 $ 3,430 $ 6,758 $ 7,584

3 unchanged sentences

Trade names and trademarks (Finite lived) 3.3

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

Estimated future amortization expense related to finite-lived intangible assets as of June 30, 2021 was as follows:

2021 (July 1 - December 31) $ 6,018

2026 and thereafter 12,862

2 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

1 unchanged sentence

Other current assets consist of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Derivative instruments $ 7,560 $ 9,755

7 unchanged sentences

Other assets consist of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Lease deposits $ 9,721 $ 9,788

6 unchanged sentences

Other assets $ 27,472 $ 32,099

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Accrued expenses $ 42,169 $ 39,951

7 unchanged sentences

Accrued expenses and other current liabilities $ 76,424 $ 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:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Derivative instruments $ 1,052 $ 29

7 unchanged sentences

Accumulated Other Comprehensive Loss

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.

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

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

Accumulated other comprehensive loss (“AOCL”) 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 and net investment hedges in accordance with ASC 815.

Cumulative changes in the fair values of these foreign currency exchange contracts are recognized in AOCL on the Company's unaudited consolidated balance sheets.

Upon settlement of foreign exchange contracts designated as cash flow hedges, fair value changes are reclassified from AOCL to net income, whereas such fair value changes related to net investment hedges are included in net income when a foreign operation is disposed or partially disposed.

The balances as of June 30, 2021 and June 30, 2020 are as follows:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)

Foreign currency translation (loss)/gain Unrealized gain/(loss) 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 )

Losses recognized during the period ( 6,686 ) ( 303 ) — ( 6,989 )

Losses on net investment hedges ( 1,134 ) — — ( 1,134 )

Reclassification to net income (1)

2 unchanged sentences

1,229 595 ( 122 ) 1,702

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

Accumulated other comprehensive loss as of June 30, 2021 $ ( 92,776 ) $ 8,396 $ ( 2,365 ) $ ( 86,745 )

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

4 unchanged sentences

4,291 2,106 248 6,645

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

Accumulated other comprehensive loss as of June 30, 2020 $ ( 102,598 ) $ ( 723 ) $ ( 953 ) $ ( 104,274 )

(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.

(2) 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.

Fair Value Measurements

Assets and Liabilities Measured at Fair Value

The following table sets forth the Company’s assets and liabilities that were accounted for at fair value as of June 30, 2021 and December 31, 2020.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

Fair Value Measurements

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 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

Quoted Prices

Identical Assets Significant

Inputs Significant

As of June 30, 2021 Level 1 Level 2 Level 3 Total

Mutual funds* $ 96,481 $ — $ — $ 96,481

3 unchanged sentences

Total $ — $ 1,733 $ — $ 1,733

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

Quoted Prices

Identical Assets Significant

Inputs Significant

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

12 unchanged sentences

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)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

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.

Convertible Senior Notes:

The total estimated fair value of the convertible senior notes as of June 30, 2021 and December 31, 2020 was $ 156,121 and $ 152,384 , respectively.

The fair value was determined based on the market yields for similar convertible notes as of the June 30, 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.

2 unchanged sentences

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

The Company had outstanding cash flow hedges totaling $ 509,860 as of March 31, 2021 and $ 451,935 as of December 31, 2020.

The Company had outstanding cash flow hedges totaling $ 520,560 as of June 30, 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.

2 unchanged sentences

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

The Company estimates that approximately $ 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 estimates that approximately $ 6,891 of derivative gains, net, excluding tax effects, included in AOCL, 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 June 30, 2021.

At June 30, 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.

3 unchanged sentences

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.

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

Outstanding foreign currency forward contracts amounted to USD 124,195 , GBP 6,928 , EUR 1,425 and COP 8,172,868 as of June 30, 2021 and USD 143,394 , GBP 6,753 , EUR 2,447 and COP 8,287,950 as of December 31, 2020.

The Company uses forward contracts designated as net investment hedges to hedge the foreign currency risks related to our investments in foreign subsidiaries.

Gains and losses on these net investment hedges are recognized in AOCL as part of foreign currency translation adjustments.

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

5 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

Derivatives designated as hedging instruments:

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

Foreign currency exchange contracts June 30, 2021 December 31, 2020

Other current assets $ 7,472 $ 9,740

3 unchanged sentences

Derivatives not designated as hedging instruments:

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

Foreign currency exchange contracts June 30, 2021 December 31, 2020

Other current assets $ 88 $ 15

Accrued expenses and other current liabilities $ 100 $ 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 months ended March 31, 2021 and 2020:

Three months ended March 31,

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

Forward Exchange Contracts:

Unrealized (loss)/gain recognized in AOCI

2021 2020 2021 2020

Unrealized gain/(loss) recognized in AOCL

Derivatives in cash flow hedging relationships $ ( 871 ) $ 7,721 $ ( 303 ) $ ( 7,125 )

Loss recognized in unaudited consolidated statements of income

Gain/(loss) recognized in consolidated statements of income

Derivatives not designated as hedging instruments $ ( 805 ) $ 1,897 $ ( 589 ) $ ( 943 )

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 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 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

Three months ended June 30,

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 was reclassed from AOCI

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

Cost of revenues $ 170,701 $ 2,418 $ 158,401 $ ( 851 )

3 unchanged sentences

Total before tax 2,866 ( 1,127 )

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

Income tax benefit/(expense) relating to above ( 427 ) 124

Net of tax $ 2,439 $ ( 1,003 )

1 unchanged sentence

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

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

Foreign exchange gain/(loss), net $ 1,353 $ ( 805 ) $ 1,359 $ 1,897

$ 1,353 $ ( 805 ) $ 1,359 $ 1,897

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

As of March 31, 2021

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 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

Six months ended June 30,

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 AOCL

Cost of revenues $ 329,522 $ 4,842 $ 321,057 $ ( 39 )

General and administrative expenses $ 67,202 546 $ 57,691 ( 114 )

Selling and marketing expenses $ 37,959 28 $ 27,507 ( 5 )

Depreciation and amortization expense $ 24,411 279 $ 24,855 ( 40 )

Total before tax 5,695 ( 198 )

Income tax benefit/(expense) relating to above ( 816 ) 22

Net of tax $ 4,879 $ ( 176 )

Derivatives not designated as hedging instruments

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

Foreign exchange gain /(loss), net $ 1,787 $ ( 589 ) $ 2,736 $ ( 943 )

$ 1,787 $ ( 589 ) $ 2,736 $ ( 943 )

Effect of net investment hedges on accumulated other comprehensive loss:

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

Amount of loss recognized in AOCL Amount of loss recognized in AOCL

Net investment hedging relationships 2021 2020 2021 2020

Foreign exchange contracts $ 1,134 $ — $ 1,134 $ —

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)

The following tables summarizes the Company’s debt position as of June 30, 2021 and December 31, 2020.

As of June 30, 2021

Revolving Credit Facility Notes Total

4 unchanged sentences

Long-term borrowings

$ — $ 139,432 $ 139,432

Total borrowings $ 15,000 $ 139,432 $ 154,432

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

5 unchanged sentences

Long-term borrowings

$ 64,000 $ 137,961 $ 201,961

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

*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.

*Unamortized debt issuance costs for the Company’s revolving Credit Facility of $ 361 and $ 490 as of June 30, 2021 and December 31, 2020, respectively, is presented under “Other current assets” and “Other assets” in the consolidated balance sheets.

Credit Agreement

1 unchanged sentence

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

Three months ended March 31

Three months ended

June 30, Six months ended

2021 2020 2021 2020

Effective Interest Rate 1.8 % 2.2 % 1.9 % 2.6 %

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.

As of June 30, 2021 and December 31, 2020, the Company was in compliance with all financial and non-financial covenants listed under the Credit Agreement.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)

Convertible Senior Notes

4 unchanged sentences

The Notes carried an effective interest rate as shown below:

Three months ended March 31,

Three months ended

June 30, Six months ended

2021 2020 2021 2020

Effective Interest Rate 3.7 % 3.7 % 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:

During the three and six months ended June 30, 2021 and 2020, the Company recognized interest expense and amortization of debt discount, on the Notes as below:

Three months ended

June 30, Six months ended

2021 2020 2021 2020

Interest expense on the Notes $ 1,312 $ 1,312 $ 2,625 $ 2,625

Amortization of debt discount on the Notes $ 691 $ 654 $ 1,364 $ 1,289

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:

Payments / maturities for all of the Company's borrowings as of June 30, 2021 were as follows:

Notes Revolving Credit Facility Total

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

2022 — 64,000 64,000

2021 (July - December) $ — $ 15,000 $ 15,000

2024 150,000 — 150,000

2 unchanged sentences

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

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.

As of June 30, 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

1 unchanged sentence

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:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)

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

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

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

Three months ended June 30, 2021 — $ — $ —

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

Six months ended June 30, 2021 25,450 $ 2,015 $ 79.18

Six months ended June 30, 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").

3 unchanged sentences

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

Three months ended June 30, 2021 287,044 $ 28,409 $ 98.97

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

Six months ended June 30, 2021 600,076 $ 55,409 $ 92.34

Six months ended June 30, 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.

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)

March 31, 2021

(In thousands, except share and per share amounts)

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

5 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)

June 30, 2021

(In thousands, except share and per share amounts)

Components of net periodic benefit costs, were as follows:

Three months ended March 31,

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

2021 2020 2021 2020

Service cost $ 885 $ 664 $ 1,774 $ 1,342

16 unchanged sentences

Effect of exchange rate changes ( 191 )

Plan assets at March 31, 2021 $ 11,424

Plan assets at June 30, 2021 $ 10,941

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.

1 unchanged sentence

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

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

2021 2020 2021 2020

Contribution to the 401(k) Plans $ 753 $ 29 $ 2,052 $ 255

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 June 30, Six months ended June 30,

2021 2020 2021 2020

Contribution to the defined benefit plans $ 3,418 $ 2,646 $ 6,712 $ 5,624

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

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.

7 unchanged sentences

Supplemental balance sheet information

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Operating Lease

10 unchanged sentences

Total finance lease liabilities $ 449 $ 510

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.

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

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 March 31, 2021 Three months ended March 31, 2020

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

Finance lease:

2021 2020 2021 2020

Amortization of right-of-use assets $ 50 $ 63 $ 102 $ 125

1 unchanged sentence

Operating lease (a)

6,871 6,850 13,632 13,703

Total lease cost $ 6,943 $ 6,933 $ 13,773 $ 13,878

1 unchanged sentence

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

Three months ended March 31,

Six months ended June 30,

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

5 unchanged sentences

Weighted-average remaining lease term (in years)

Finance lease 1.7 years 2.3 years

Operating lease 6.2 years 6.8 years

Finance lease 1.8 2.1

Operating lease 5.8 6.8

Weighted-average discount rate

1 unchanged sentence

Operating lease 7.4 % 7.4 %

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.

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:

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

During the six months ended June 30, 2021 and year ended December 31, 2020, the Company modified certain of its operating leases, resulting in a reduction of its lease liabilities by $ 547 and $ 3,143 respectively, with a corresponding reduction in ROU assets.

As of June 30, 2021, the Company did not have any significant leases that have not yet commenced but that create significant rights and obligations for the Company.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2021

June 30, 2021

(In thousands, except share and per share amounts)

Maturities of lease liabilities as of June 30, 2021 were as follows:

Operating Leases Finance Leases

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

2021 (July 1 - December 31) $ 12,366 $ 146

2022 24,094 179

20 unchanged sentences

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

The Company'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.

The Company's effective tax rate decreased from 32.4 % during the three months ended June 30, 2020 to 24.0 % during the three months ended June 30, 2021.

The Company recorded income tax expense of $ 8,865 and $ 4,072 for the three months ended June 30, 2021 and 2020, respectively.

The increase in income tax expense was primarily as a result of higher profit during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, partially offset by recording of a one-time tax expense of $ 1,320 due to election of a new tax regime, during the three months ended June 30, 2020, for two of the Company's Indian subsidiaries that provides for a lower tax rate on earnings in exchange for foregoing certain tax credits, including minimum alternative tax credits.

The Company's effective tax rate decreased from 24.3 % during the six months ended June 30, 2020 to 22.9 % during the six months ended June 30, 2021.

The Company recorded income tax expense of $ 17,823 and $ 9,927 for the six months ended June 30, 2021 and 2020, respectively.

The increase in the income tax expense was primarily as a result of higher profit during the six months ended June 30, 2021, compared to the six months ended June 30, 2020, which was partially offset by (i) recording of a one-time tax expense of $ 1,320 due to election of a new tax regime, during the six months ended June 30, 2020, for two of the Company's Indian subsidiaries that provides for a lower tax rate on earnings in exchange for foregoing certain tax credits, including minimum alternative tax credits and (ii) recording of higher excess tax benefits related to stock awards of $ 1,822 pursuant to ASU No.

2016-09 during the six months ended June 30, 2020, compared to $ 1,028 during the six months ended June 30, 2021.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)

During the three months ended June 30, 2021, the Company repatriated to the United States $ 49,000 (net of $ 2,586 withholding taxes) from India, $ 42,500 (net of $ 7,494 withholding taxes) from the Philippines and $ 17,000 (net of $ 908 withholding taxes) from India in July 2021.

As of June 30, 2021, the Company accrued withholding taxes of $ 10,988 associated with these distributions and increased the Company’s deferred tax assets.

These distributions do not constitute a change in the Company’s permanent reinvestment assertion.

The Company bases its decision to continue to indefinitely reinvest earnings in India and the Philippines on its estimate of the working capital required to support its operations in these geographies and periodically reviews its capital initiatives to support and expand the Company’s global operations, as well as an economically viable rate of return on its investments made in India and the Philippines as compared to those made in the United States.

Income tax (deferred) recognized in “Other comprehensive income / (loss)” were as follows:

Three months ended March 31,

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

2021 2020 2021 2020

Deferred taxes benefit / (expense) recognized on:

2 unchanged sentences

Reclassification adjustment for retirement benefits ( 71 ) ( 55 ) ( 122 ) ( 64 )

Effect of tax rate changes on retirement benefits — 312 — 312

Foreign currency translation loss 945 57 1,229 4,291

Total Income tax benefit recognized in other comprehensive income / (loss) $ 1,478 $ ( 2,388 ) $ 1,702 $ 6,645

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 March 31,

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

2021 2020 2021 2020

Cost of revenues $ 1,854 $ 1,624 $ 3,390 $ 3,042

2 unchanged sentences

Total $ 10,070 $ 7,726 $ 17,902 $ 12,504

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

As of June 30, 2021, the Company had 1,892,706 shares available for grant under the 2018 Omnibus Incentive Plan.

Stock Options

Stock option activity under the Company’s stock-based compensation plans is shown below:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)

Options Weighted-Average

5 unchanged sentences

Forfeited — — — —

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

Outstanding at June 30, 2021 24,249 $ 25.63 $ 1,955 1.6

Vested and exercisable at June 30, 2021 24,249 $ 25.63 $ 1,955 1.6

Restricted Stock Units

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

Restricted Stock Units

Restricted Stock

Number Weighted Average

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Forfeited ( 31,491 ) 71.32

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)

Outstanding at June 30, 2021* 900,663 $ 75.83

* As of June 30, 2021 and December 31, 2020 restricted stock units vested for which the underlying common stock is yet to be issued was 200,542 and 181,638 respectively.

As of June 30, 2021, unrecognized compensation cost of $ 57,540 is expected to be expensed over a weighted average period of 2.8 years.

Performance Based Stock Awards

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.

During the six months ended June 30, 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:

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Forfeited ( 157 ) 78.34 ( 157 ) 102.10

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.

Outstanding at June 30, 2021 105,735 $ 72.31 226,891 $ 109.57

As of June 30, 2021, unrecognized compensation cost of $ 18,481 is expected to be expensed over a weighted average period of 2.1 years.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)

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 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 had outstanding Notes with a principal amount of $ 150,000 each as of June 30, 2021 and December 31, 2020 and interest accrued of $ 1,312 and $ 1,313 as of June 30, 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 March 31 ,

Interest expense on Notes

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

2021 2020 2021 2020

Interest expense on Notes $ 1,312 $ 1,312 $ 2,625 $ 2,625

Commitments and Contingencies

Capital Commitments

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)

At June 30, 2021, the Company had committed to spend approximately $ 7,100 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 “Capital work in progress” under “Property and equipment, net”.

Other Commitments

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The Company has undertaken to pay custom duties, service taxes, levies, and liquidated damages payable, if any, in respect of imported and indigenous capital goods, stores and spares consumed duty free, in the event that certain terms and conditions are not fulfilled.

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

The Company 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.

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to meet certain performance and investment criteria.

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

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

Contingencies

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

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

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

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

Transfer pricing regulations generally require that any controlled intercompany transactions involving related entities be at an arm’s-length price.

Accordingly, the Company determines the appropriate transfer prices for transactions among its related entities on the basis of a detailed functional and economic analysis involving benchmarking against transactions among entities that are unrelated.

Tax authorities have jurisdiction to review transfer pricing results, and in the event that they determine that the transfer price applied was not appropriate, the Company may incur additional tax, interest and penalties.

The Company is currently involved in transfer pricing disputes with Indian tax authorities regarding transactions with some of its related entities.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2021

(In thousands, except share and per share amounts)

Further, the Company and a U.S.

subsidiary are engaged in tax litigation with the income-tax authorities in India on the issue of permanent establishment.

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 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.

subsidiary are engaged in tax litigation with Indian tax authorities regarding a permanent establishment matter.

For the United States, the Philippines and India, tax year 2016 and subsequent tax years remain open for examination by the tax authorities as of June 30, 2021.

The aggregate amount demanded by Indian tax authorities (net of advance payments, if any) from the Company related to its transfer pricing and other corporate tax issues for tax years 2003 to 2019 and its permanent establishment issues for tax years 2003 to 2006 as of June 30, 2021 and December 31, 2020 is $ 26,180 and $ 16,748 , respectively.

The Company has made payments and/or provided bank guarantees against these demands in the amounts of $ 8,003 and $ 8,120 , respectively.

Amounts paid as deposits in respect of such assessments aggregating to $ 6,221 and $ 6,307 as of June 30, 2021 and December 31, 2020, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to $ 1,782 and $ 1,813 as of June 30, 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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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.

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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.

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

The plaintiffs in those cases seek damages, including, where applicable, compensatory damages, punitive damages and attorney’s fees.

4 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