What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-24 compared with 2021-02-25 · 623 added, 634 removed, 1523 unchanged (45% of the section changed)

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See Deloitte & Touche LLP’s accompanying report on their audit of our internal controls over financial reporting.

We acquired Clairvoyant AI Inc.

(“Clairvoyant”) on December 16, 2021, as discussed in Note 9 to our consolidated financial statements.

As permitted by the SEC staff’s Frequently Asked Question 3 on Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports (revised September 24, 2007), our management excluded Clairvoyant from its assessment of internal control over financial reporting, which was acquired on December 16, 2021, and whose financial statements constitute 7.4% of total assets and 0.1% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2021.

We will include Clairvoyant in our assessment of the effectiveness of internal control over financial reporting starting fiscal 2022.

Changes in Internal Control over Financial Reporting

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Other Information

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Directors, Executive Officers and Corporate Governance

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Executive Compensation

We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the headings “Executive Compensation — Compensation Discussion and Analysis”, “— Compensation Committee Report”, “— Summary Compensation Table for Fiscal Year 2020”, “— Grants of Plan-Based Awards Table for Fiscal Year 2020”, “Outstanding Equity Awards at Fiscal 2020 Year-End”, “Option Exercises and Stock Vested During Fiscal Year 2020”, “— Pension Benefits for Fiscal Year 2020”, “— Potential Payments upon Termination or Change in Control at Fiscal 2020 Year-End”, “— Director Compensation for Fiscal Year 2020”, “— Risk and Compensation Policies” and “Corporate Governance —Compensation Committee Interlocks and Insider Participation”.

We incorporate by reference the information responsive to this Item appearing in our Proxy Statement, including under the headings “Executive Compensation — Compensation Discussion and Analysis,” “— Compensation Committee Report,” “— Summary Compensation Table for Fiscal Year 2021,” “— Grants of Plan-Based Awards Table for Fiscal Year 2021,” “Outstanding Equity Awards at Fiscal 2021 Year-End,” “Option Exercises and Stock Vested During Fiscal Year 2021,” “— Pension Benefits for Fiscal Year 2021,” “— Potential Payments upon Termination or Change in Control at Fiscal 2021 Year-

End,” “— Director Compensation for Fiscal Year 2021,” “— Risk and Compensation Policies” and “Corporate Governance —Compensation Committee Interlocks and Insider Participation.”

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

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Maurizio Nicolelli

/ S / G AREN K.

/ S / V IKRAM S.

Chairman of the Board February 24, 2022

/ S / D AVID B.

Director February 25, 2021

/S/ D EBORAH K ERR

/ S / G AREN K.

Director February 24, 2022

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Director February 24, 2022

/ S / V IKRAM S.

Director February 25, 2021

/ S / K RISTY P IPES

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The following exhibits are being filed as part of this report or incorporated by reference as indicated therein:

2.1* Agreement of Merger, dated April 28, 2018, by and among ExlService.com, LLC, ExlService Cayman Merger Sub, and SCIOInspire Holdings Inc.

(incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K (File No.

1-33089) filed on May 1, 2018).

3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No.

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1-33089) filed on February 27, 2020).

10.1+ Amended and Restated Employment and Non-Competition Agreement, dated as of September 19, 2017 between ExlService Holdings, Inc.

and Rohit Kapoor, dated as of September 19, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No.

1-33089) filed on October 26, 2017).

10.1+ Second Amended and Restated Employment and Non-Competition Agreement, dated August 3, 2020, between the Company and Rohit Kapoor (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No.

1-33089) filed on October 29, 2020).

10.3+ Employment Agreement, dated July 31, 2002, between ExlService Holdings, Inc.

and Pavan Bagai (incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form S-1 (Registration No.

333-121001) filed on December 6, 2004).

10.2+ Employment Agreement, effective as of February 3, 2020, between ExlService Holdings, Inc.

and Maurizio Nicolelli.

and Maurizio Nicolelli (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K (File No.

1-33089) filed on February 25, 2021).

10.3+ Employment Agreement, dated as of September 15, 2014, between ExlService Holdings, Inc.

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10.4+ Employment Agreement, dated April 28, 2001, between ExlService Holdings, Inc.

and Vikas Bhalla.

and Vikas Bhalla (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K (File No.

1-33089) filed on February 25, 2021).

10.5+ Employment Agreement, effective November 5, 2018, between ExlService Holdings, Inc.

and Samuel Meckey.

and Samuel Meckey (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K (File No.

10.6+ ExlService Holdings, Inc.

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1-33089) filed on June 20, 2018).

10.20+ Form of Restricted Stock Unit Agreement (U.S.

Executive Officers Combined) under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No.

1-33089) filed on June 20, 2018).

10.21+ Form of Restricted Stock Unit Agreement (International Executive Officers) under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No.

1-33089) filed on June 20, 2018).

10.22+ Form of Restricted Stock Unit Agreement (Directors) under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No.

1-33089) filed on June 20, 2018).

10.18+ Form of Restricted Stock Unit Agreement (applicable to U.S.

Executive Officers) under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No.

1-33089) filed on April 29, 2021).

10.19+ Form of Restricted Stock Unit Agreement (applicable to International Executive Officers) under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No.

1-33089) filed on April 29, 2021).

10.20+ Form of Restricted Stock Unit Agreement (Directors) under the 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No.

1-33089) filed on April 29, 2021).

10.21 Credit Agreement, dated as of November 21, 2017, among ExlService Holdings, Inc., the other loan parties thereto, the lenders party thereto, and Citibank, N.A., as administrative agent, Citibank, N.A.

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1-33089) filed on October 4, 2018).

10.26 Investment Agreement, dated as of October 1, 2018, by and between the Company and Orogen Echo LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No.

1-33089) filed on October 4, 2018).

10.24 Third Amendment to Credit Agreement, dated as of April 16, 2021, by and among the Company and the other loan parties thereto, the lenders party thereto, and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No.

1-33089) filed on April 19, 2021).

10.25 Payoff and Termination Agreement between ExlService Holdings, Inc.

and Orogen Echo, LLC, dated August 27, 2021 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No.

1-33089) filed on August 27, 2021).

21.1 Subsidiaries of the Company .

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104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*Pursuant to Item 601(b)(2) of Regulation S-K promulgated by the SEC, certain schedules to this agreement have been omitted.

The Company hereby agrees to furnish supplementally to the SEC, upon its request, any or all of such omitted schedules.

*This exhibit will not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of December 31, 202 1 and 20 20

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, effective January 1, 2019, the Company adopted FASB ASC Topic 842, Leases , using the modified retrospective approach.

Basis for Opinion

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill - Refer to Notes 2 and 10 to the financial statements

Business Combination - Refer to Note 9 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

The Company determines the fair value of its reporting units using the discounted cash flow model and the market approach, as applicable.

The determination of fair value using the discounted cash flow model requires management to make significant judgments and estimates, which include assumptions related to long-term future growth rates and estimated future cash flows, discounted at an appropriate risk-adjusted rate.

The determination of fair value using the market approach requires management to make significant assumptions related to market multiples of revenues and earnings derived from comparable publicly-traded companies with characteristics similar to the reporting unit.

Based on the results of the Company’s 2019 annual goodwill impairment quantitative test, the fair value of the SCIOinspire Holdings, Inc.

(SCIO) reporting unit was not substantially in excess of its carrying value.

Effective January 1, 2020, the SCIO reporting unit has been integrated within the Healthcare Analytics reporting unit.

The Company performed interim and annual goodwill impairment quantitative tests of its reporting units during the first and fourth quarters of 2020, respectively, and did not identify an impairment.

As of December 31, 2020, the total goodwill balance was approximately $349 million, of which approximately $181 million has been allocated to the Healthcare Analytics reporting unit.

Significant estimates and assumptions are used by management to determine fair value and, thus, sensitivity in fair value may result from changes in these estimates.

This requires a high degree of auditor judgment and an increased extent of efforts, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions.

On December 16, 2021, ExlService.com, LLC (the “Purchaser”), a wholly owned subsidiary of the Company, entered into a purchase agreement (the “Purchase Agreement”) with Clairvoyant AI Inc.

(“Clairvoyant”) to purchase all of the issued and outstanding equity securities of Clairvoyant.

The initial purchase consideration was $80,080, excluding cash and cash equivalents acquired, debt and other estimated post-closing adjustments.

The Purchase Agreement allows sellers the ability to earn up to $20,000 in earn-out payments, based on the achievement of certain performance goals by Clairvoyant during the 2022 and 2023 calendar years.

This contingent consideration has an estimated fair value of $9,000.

The purchase consideration remains subject to certain post-closing adjustments, as required under the Purchase Agreement.

The Company accounted for this business combination using the acquisition method of accounting.

The aggregate purchase consideration for Clairvoyant was allocated to identifiable net tangible and intangible assets based upon their preliminary fair values.

The guidance specifies criteria as to intangible assets acquired in a business combination that must be recognized and reported separately from goodwill.

Contingent consideration is recognized at its fair value on the acquisition date.

The liability resulting from contingent consideration is re-measured to fair value as of each reporting date until the

contingency is resolved, whereby such changes in fair value are recognized in earnings.

These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market.

Under ASC 350, Intangibles - Goodwill and Other, all assets and liabilities of the acquired businesses, including goodwill, are assigned to reporting units.

Acquisition related costs are expensed as incurred under general and administrative expenses.

The determination of the fair value of the net assets of Clairvoyant, specifically the estimates of the fair value of the identifiable intangible assets and contingent consideration, requires judgment, and is subjective based on assumptions, the most significant being the related revenue projections within future cash flows, and the discount rate applied within the discounted cash flow model of Clairvoyant.

We identified the valuation of the net assets of Clairvoyant, specifically the estimates of the fair value of the identifiable intangible assets and contingent consideration, as a critical audit matter because of the significant estimates and management assumptions utilized in projecting revenue within future cash flows, and selecting an appropriate discount rate.

This required a high degree of auditor judgment and an increased audit effort, including the need to involve our fair value specialists when performing auditor procedures to evaluate the reasonableness of management’s valuation methodology and the selection of inputs to the valuation.

______________________________________________________________________________________________________

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the assumptions for long-term future growth rates and estimated future cash flows, and the selection of discount rates for the Healthcare Analytics reporting unit, used in both the Company’s interim and annual goodwill impairment tests performed during the first and fourth quarters of 2020, respectively, included the following, among others:

• We tested the effectiveness of controls over the Company’s goodwill impairment evaluation, including those over the determination of fair value of the Healthcare Analytics reporting unit, such as controls related to management’s forecasts and selection of discount rates.

• We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts, reviewing internal communications between management and the Board of Directors, and reviewing forecasted information included in Company press releases, and analyst and industry reports of the Company and companies in its peer group.

• With the assistance of our fair value specialists, we evaluated the growth rates and discount rates, including testing the underlying source information and the mathematical accuracy of the calculations.

• With the assistance of our fair value specialists, we evaluated revenue and earnings multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline companies.

• We also evaluated all of the significant assumptions in the aggregate to determine if there is any indication of management bias.

Our audit procedures related to the fair value of the net assets of Clairvoyant, specifically the estimates of the fair value of the identifiable intangible assets and contingent consideration, including projections of revenue within future cash flows and the selection of the discount rate included the following, among others:

• We evaluated the business rationale for the acquisition;

• We tested the operating effectiveness of internal controls over the valuation of the net assets of Clairvoyant, including management’s internal controls over the selection and review of key assumptions used in projected financial information;

• We assessed the reasonableness of management's revenue projections by comparing the projections to historical results and market data;

• With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and key valuation inputs utilized in the analysis including the selected discount rate by:

• Developing a range of independent estimates of the discount rate and comparing those to the rates selected by management;

• Testing the reasonableness of the valuation inputs against observable market data and generally accepted valuation methodologies;

• Testing the mathematical accuracy of the calculations.

/s/ Deloitte & Touche LLP

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report February 25, 2021, expressed an unqualified opinion on those financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 24, 2022, expressed an unqualified opinion on those financial statements.

As described in Management’s Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Clairvoyant AI Inc., which was acquired on December 16, 2021, and whose financial statements constitute 7.4% of total assets and 0.1% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2021.

Accordingly, our audit did not include the internal control over financial reporting at Clairvoyant AI Inc.

Basis for Opinion

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Retained earnings 756,137 641,379

Accumulated other comprehensive loss ( 74,984 ) ( 84,892 )

Accumulated other comprehensive income/(loss) ( 89,474 ) ( 74,984 )

Total including shares held in treasury 1,062,445 987,410

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Other income, net 6,773 12,065 16,507

Loss on settlement of convertible notes ( 12,845 ) — —

Income before income tax expense and earnings from equity affiliates 146,561 115,329 83,100

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Income before earnings from equity affiliates 114,711 89,703 67,928

Loss from equity-method investment 227 269 247

Gain/(loss) from equity-method investment 47 ( 227 ) ( 269 )

Net income attributable to ExlService Holdings, Inc.

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Other comprehensive income/(loss):

Unrealized gain/(loss) on cash flow hedges 12,665 8,773 ( 13,724 )

Unrealized gain on cash flow hedges 4,663 12,665 8,773

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

Foreign currency translation loss ( 11,134 ) ( 540 ) ( 2,842 )

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709 394 ( 159 )

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

Income tax effects relating to above (3)

2,228 591 ( 707 )

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Total comprehensive income $ 100,268 $ 99,384 $ 66,234

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

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

Refer to Note 16 - Derivatives and Hedge Accounting to the consolidated financial statements.

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

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(In thousands, except share and per share amounts)

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

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

Shares Amount Shares Amount

Balance as of December 31, 2017 36,790,751 $ 37 $ 322,246 $ 427,064 $ ( 45,710 ) ( 2,902,018 ) $ ( 103,816 ) $ 224 $ 600,045

Impact of adoption of Topic 606 — — 454 — — — — 454

Balance as of January 1, 2019 37,850,544 $ 38 $ 364,179 $ 484,244 $ ( 83,467 ) ( 3,628,068 ) $ ( 146,925 ) $ 250 $ 618,319

Stock issued against stock-based compensation plans 630,110 1 986 — — — — — 987

Stock issued, business acquisition 69,459 — 4,080 — — — — — 4,080

Stock-based compensation — — 26,070 — — — — — 26,070

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

Non-controlling interest — — — — — — — 26 26

Purchase of non-controlling interest — — 18 — — — — ( 250 ) ( 232 )

Other comprehensive loss — — — — ( 1,425 ) — — — ( 1,425 )

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Acquisition of treasury stock — — — — — ( 1,113,205 ) ( 79,949 ) — ( 79,949 )

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

Purchase of non-controlling interest — — 18 — — — — ( 250 ) ( 232 )

Other comprehensive loss — — — — ( 1,425 ) — — — ( 1,425 )

Other comprehensive income — — — — 9,908 — — — 9,908

Net income — — — 89,476 — — — — 89,476

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Acquisition of treasury stock — — — — — ( 1,118,634 ) ( 118,357 ) — ( 118,357 )

Other comprehensive income — — — — 9,908 — — — 9,908

Issuance of treasury stock — — 19,436 — — 310,394 17,306 — 36,742

Settlement of convertible notes — — ( 84,000 ) — — — — — ( 84,000 )

Other comprehensive loss — — — — ( 14,490 ) — — — ( 14,490 )

Net income — — — 114,758 — — — — 114,758

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Amortization of operating lease right-of-use assets 26,326 27,146 27,335

Unrealized gain on short term investments ( 7,174 ) ( 10,116 ) ( 7,696 )

Unrealized foreign exchange (gain)/loss, net 402 ( 321 ) ( 8,620 )

Unrealized loss/(gain) on short term investments 5,139 ( 7,174 ) ( 10,116 )

Unrealized foreign currency exchange (gain)/loss, net ( 3,821 ) 402 ( 206 )

Deferred income tax (benefit)/expense ( 20,327 ) 2,697 ( 12,345 )

Allowance for expected credit losses 297 614 ( 573 )

Loss from equity-method investment 227 269 247

Reversal/(allowance) for expected credit losses ( 464 ) 297 614

Loss on settlement of convertible notes 12,845 — —

(Gain)/loss from equity-method investment ( 47 ) 227 269

Amortization of non-cash interest expense related to convertible senior notes 1,795 2,616 2,472

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Cash flows from investing activities:

Purchases of property and equipment ( 42,224 ) ( 40,545 ) ( 40,789 )

Purchase of property and equipment ( 37,248 ) ( 42,224 ) ( 40,545 )

Proceeds from sale of property and equipment 1,300 916 407

Business acquisition (net of cash and cash equivalents acquired) ( 76,831 ) — —

Purchases of investments ( 96,011 ) ( 102,462 ) ( 187,974 )

Proceeds from redemptions of investments 94,520 126,154 176,968

Investment in equity affiliate — ( 700 ) —

Purchase of non-controlling interest — — ( 241 )

Business acquisition (net of cash acquired) — — ( 231,829 )

Purchase of investments ( 102,462 ) ( 187,974 ) ( 133,434 )

Proceeds from redemption of investments 126,154 176,968 128,208

Net cash used for investing activities ( 114,270 ) ( 18,316 ) ( 51,385 )

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Repayments of borrowings ( 329,031 ) ( 120,867 ) ( 98,247 )

Proceeds from convertible notes — — 149,000

Payment of debt issuance costs — — ( 117 )

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Proceeds from exercise of stock options 710 1,501 986

Net cash (used for)/provided by financing activities ( 89,564 ) ( 93,078 ) 197,779

Net cash used for financing activities ( 146,879 ) ( 89,564 ) ( 93,078 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 4,947 ) 3,382 ( 1,045 )

Net increase/(decrease) in cash, cash equivalents and restricted cash 98,475 22,913 9,854

Cash, cash equivalents and restricted cash at the beginning of the period 127,044 104,131 94,277

Cash, cash equivalents and restricted cash at the end of the period $ 225,519 $ 127,044 $ 104,131

Net (decrease)/increase in cash, cash equivalents and restricted cash ( 81,709 ) 98,475 22,913

Cash, cash equivalents and restricted cash at the beginning of the year 225,519 127,044 104,131

Cash, cash equivalents and restricted cash at the end of the year $ 143,810 $ 225,519 $ 127,044

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Cash paid during the year for:

Interest $ 6,589 $ 7,626 $ 10,649

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Supplemental disclosure of non-cash investing and financing activities:

Restricted common stock issued for business acquisition $ — $ — $ 4,080

Settlement of portion of convertible notes through issuance of treasury stock $ 36,742 $ — $ —

Assets acquired under finance lease $ 71 $ 45 $ 506

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(“ExlService Holdings”) is organized as a corporation under the laws of the state of Delaware.

ExlService Holdings, together with its subsidiaries and affiliates (collectively, the “Company”), operates in the Business Process Management (“BPM”) industry providing operations management services and analytics services that helps its clients build and grow sustainable businesses.

By orchestrating its domain expertise, data, analytics and digital technology, the Company looks deeper to design and manage agile, customer-centric operating models to improve global operations, drive profitability, enhance customer satisfaction, increase data-driven insights, and manage risk and compliance.

ExlService Holdings, together with its subsidiaries and affiliates (collectively, the “Company”), is a leading data analytics and digital operations and solutions company that partners with clients to improve business outcomes and unlock growth.

By bringing together deep domain expertise with robust data, powerful analytics, cloud, artificial intelligence and machine learnings, the Company creates agile, scalable solutions and executes complex operations for the world’s leading corporations in industries including insurance, healthcare, banking and financial services, media, and retail, among others.

The Company’s clients are located principally in the United States of America (“U.S.”) and the United Kingdom (“U.K.”).

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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 10 - Goodwill and Intangible Assets to the consolidated financial statements, with no impact on the consolidated balance sheets, statements of income, comprehensive income, equity and cash flows.

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

(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 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

The significant estimates and assumptions that affect the consolidated financial statements include, but are not limited to, estimates of the fair value of the identifiable intangible assets and contingent

EXLSERVICE HOLDINGS, INC.

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(In thousands, except share and per share amounts)

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.

consideration, purchase price allocation, 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, revenue projections and discount rate applied within the discounted cash flow model for business acquisitions, and recoverability of long-lived assets, goodwill and intangibles.

As of December 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.

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Share capital and other equity items are translated at exchange rates that prevailed on the date of inception of the transaction.

Resulting translation adjustments are included in “Accumulated other comprehensive loss” in the consolidated balance sheets.

Resulting translation adjustments are included in “Accumulated other comprehensive income/(loss)” in the consolidated balance sheets.

(d) Revenue Recognition

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Nature of Services

The Company derives its revenues from operations management and analytics services.

The Company operates in the business process management (“BPM”) industry providing operations management and analytics services helping businesses enhance revenue growth and improve profitability.

The Company derives its revenues from digital operations and solutions and analytics services.

The Company provides digital operations and solutions and analytics services helping businesses enhance revenue growth and improve profitability.

Type of Contracts

a) Revenues under time-and-material, transaction and outcome-based contracts are recognized as the services are performed.

When the terms of the client contract specify service level parameters that must be met (such as turnaround time or accuracy), the Company monitors such service level parameters to determine if any service credits or penalties have been incurred.

Revenues are recognized net of any penalties or service credits that are due to a client.

b) Revenues from arrangements involving subcontracting, either in part or whole of the assigned work, are recognized after the Company’s assessment of “Principal versus agent considerations”.

The Company evaluates

EXLSERVICE HOLDINGS, INC.

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(In thousands, except share and per share amounts)

whether it is in control of the services before the same are transferred to the customer to assess whether it is principal or agent in the arrangement.

or penalties have been incurred.

Revenues are recognized net of any penalties or service credits that are due to a client.

b) Revenues from arrangements involving subcontracting, either in part or whole of the assigned work, are recognized after the Company’s assessment of “Principal versus agent considerations.” The Company evaluates whether it is in control of the services before the same are transferred to the customer to assess whether it is principal or agent in the arrangement.

Revenues are recognized on a gross basis if the Company is in the capacity of principal and on a net basis if it falls in the capacity of an agent.

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Variable Consideration

Variability in the transaction price arises primarily due to service level agreements and volume discounts.

The Company considers its experience with similar transactions and expectations regarding the contract in estimating the amount of variable consideration that should be recognized during a period.

The Company believes that the expected value method is most appropriate for determining the variable consideration since the Company has large number of contracts with similar nature of transactions/services.

EXLSERVICE HOLDINGS, INC.

2 unchanged sentences

(In thousands, except share and per share amounts)

Variability in the transaction price arises primarily due to service level agreements and volume discounts.

The Company considers its experience with similar transactions and expectations regarding the contract in estimating the amount of variable consideration that should be recognized during a period.

Allocation of Transaction Price to Performance Obligations

22 unchanged sentences

Out-of-Pocket Expenses

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

Reimbursements of out-of-pocket expenses received from clients are included as part of revenues.

3 unchanged sentences

The Company does not have any extended payment terms clauses in existing contracts.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

Remaining Performance Obligations

15 unchanged sentences

Investments with maturities greater than twelve months from the balance sheet date are classified as long-term investments.

The Company's mutual fund investments are in debt and money market funds which invest in instruments of various maturities in India.

The Company's mutual fund investments are in debt funds invested in India and money market funds which invest in instruments of various maturities in the United States.

These investments are accounted for in accordance with the fair value option under Financial Accounting Standard Board Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments , (“Topic 825”).

5 unchanged sentences

The Company considered current and anticipated future economic conditions relating to the industries of the Company’s customers and the countries where it operates.

In calculating expected credit loss, the Company also considered past payment trends, credit rating and other related credit information for its significant customers to estimate the probability of default in the future and estimates relating to the possible effects resulting from COVID-19.

As of December 31, 2020 and 2019, the Company had $ 1,189 and $ 1,163 , respectively, of allowances for expected credit losses.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

future and estimates relating to the possible effects resulting from COVID-19.

Accounts receivable balances are written-off against the allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.

Accounts receivable include unbilled accounts receivable which represent revenues on contracts to be billed, in subsequent periods, as per the terms of the related contracts.

As of December 31, 2020 and 2019, the Company had $ 63,995 and $ 73,920 , respectively, of unbilled accounts receivable.

(h) Property and equipment

2 unchanged sentences

Expenditures for replacements and improvements are capitalized, if they enhance the production capacity and future benefits whereas the costs of maintenance and repairs are charged to earnings as incurred.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

Advances paid towards acquisition of property and equipment and the cost of property and equipment not yet placed in service before the end of the reporting period are classified as capital work in progress.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

Depreciation on equipment held under finance leases and leasehold improvements are computed using the straight-line method over the shorter of the asset's estimated useful lives or the lease term.

The property and equipment which are abandoned and disposed other than by sale, are assessed for revision of their useful life, thereby revising the future depreciation to reflect the use of property and equipment over the remaining shortened life.

Property and equipment which are abandoned and disposed other than by sale, are assessed for revision of their useful life, thereby revising the future depreciation to reflect the use of property and equipment over the remaining shortened life.

The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.

Network equipment and computers 3 - 5

Software 3 - 5

Leasehold improvements 3 - 8

Office furniture and equipment 3 - 8

Motor vehicles 2 - 5

The estimated useful life have been disclosed in Note 8 - Property and Equipment, net to the consolidated financial statements.

(i) Software Development Costs

3 unchanged sentences

The Company exercises judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized.

Implementation costs in cloud computing arrangements (“CCA”), such as software as a service and other hosting arrangements are evaluated in a similar manner as capitalized software development costs.

If CCA do not provide a contractual right upon the Company to take possession of the software at any time during the hosting period without significant penalty, and it is not feasible to either run the software on the Company’s own hardware, then implementation costs incurred are accounted for as a service contract.

In case of the existence of such a contractual right to take possession of the software and the Company is able to run the software on its own hardware, then such implementation costs are recognized as capitalized software development costs.

Annual amortization of internally developed software products meant for sale, lease or otherwise marketing is the greater of the amount computed using the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or the straight-line method over the remaining estimated economic life of the software product, generally estimated to be up to 5 years from the date the product became available for use.

Annual amortization of internally developed software products meant for internal use is based on the straight-line method over the estimated useful lives of the internally developed software products.

The Company amortizes capitalized implementation costs in a CCA over the life of the service contract.

(j) Business Combinations, Goodwill and Other Intangible Assets

2 unchanged sentences

Contingent consideration is recognized at its fair value on the acquisition date.

A liability resulting from contingent consideration is re-measured to fair value as of each reporting date until the contingency is resolved, whereby such changes in fair value are recognized in earnings.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

liability resulting from contingent consideration is re-measured to fair value as of each reporting date until the contingency is resolved, whereby such changes in fair value are recognized in earnings.

These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market.

3 unchanged sentences

Goodwill is not amortized but is tested for impairment at least on an annual basis, relying on a number of factors including operating results, business plans and estimated future cash flows of the reporting units to which it is assigned.

The Company undertakes studies to determine the fair values of assets and liabilities acquired and

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

allocate purchase consideration to assets and liabilities, including property and equipment, goodwill and other identifiable intangibles.

The Company undertakes studies to determine the fair values of assets and liabilities acquired and allocate purchase consideration to assets and liabilities, including property and equipment, goodwill and other identifiable intangibles.

The Company examines the carrying value of the goodwill annually in the fourth quarter, or more frequently, as circumstances warrant, to determine whether there are any impairment losses.

1 unchanged sentence

The Company also assesses any potential goodwill impairment for all its reporting units immediately prior to any segment changes and reallocates goodwill to its new reporting units using a relative fair value approach.

Refer to Note 10 - Goodwill and Intangible Assets to the consolidated financial statements for discussion of the Company's goodwill impairment testing.

Refer to Note 9 - Business Combinations, Goodwill and Intangible Assets to the consolidated financial statements for discussion of the Company's goodwill impairment testing.

The Company adopted ASU No.

20 unchanged sentences

If the fair value of the intangible assets is less than the carrying amount of the asset, the asset is considered impaired and an impairment expense is recognized equal to any shortfall in the current period.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

The Company’s definite lived intangible assets are amortized over their estimated useful lives as listed below using a straight-line method:

1 unchanged sentence

Developed technology 3 - 10

Non-compete agreements

Trade names and trademarks 2 - 10

1 unchanged sentence

Investments in equity affiliate 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

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

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

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

The Company periodically reviews the carrying value of its investment to determine if there has been any other than temporary decline in carrying value.

13 unchanged sentences

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

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

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

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

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

The Company uses derivatives instruments consisting of foreign currency exchange contracts to economically hedge intercompany balances and other monetary assets or liabilities denominated in currencies other than the functional currency, against the risk of foreign currency fluctuations associated with remeasurement of such assets and liabilities to functional currency.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

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

6 unchanged sentences

The Company records a BCF related to the issuance of a convertible note when issued.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

If a convertible note is within the scope of the Cash Conversion Subsections and contains embedded features other than the embedded conversion option, the guidance in ASC 815-15, Derivatives and Hedging - Embedded Derivatives (ASC 815-15), is applied to determine if any of those features must be separately accounted for as a derivative instrument.

2 unchanged sentences

The discount is amortized to interest expense over the expected term of the convertible notes using the effective interest method.

Pursuant to ASC Subtopic 470-20, total consideration paid for the settlement of an existing convertible note is separated into liability and equity components.

The fair value of the liability component is estimated using a discounted cash flow technique, which considers debt issuances with terms similar to that of the Company’s debt, however without the conversion feature.

The excess of consideration over the fair value of the liability component is assigned to the equity component.

The effective interest rate used to estimate the fair value of the liability component is based on the income and market based approaches, adjusted for the remaining tenor of the extinguished debt.

The difference between the fair value and the carrying value of the extinguished debt, net of the unamortized debt discount and unamortized debt issuance costs, is recorded as a gain or loss on settlement in the consolidated statements of income.

(o) Employee Benefits

8 unchanged sentences

The Company includes the service cost component of the net periodic benefit cost in the same line item or items as other compensation costs arising from services rendered by the respective employees during the period.

The interest cost, expected return on plan assets and amortization of actuarial gains/loss, are included in - “Other income, net”.

Refer to Note 20 - Employee Benefit Plans to the consolidated financial statements for details.

The interest cost, expected

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

return on plan assets and amortization of actuarial gains/loss, are included in “Other income, net.” Refer to Note 19 - Employee Benefit Plans to the consolidated financial statements for details.

The Company recognizes its liabilities for compensated absences depending on whether the obligation is attributable to employee services already rendered, rights to compensated absences vest or accumulate and payment is probable and estimable.

1 unchanged sentence

The Company recognizes stock-based compensation expense in the consolidated statements of income for awards of equity instruments to employees and non-employee directors based on the grant-date fair value of those awards.

The Company recognizes these compensation costs over the requisite service period of the award.

The Company recognizes these compensation costs on straight-line basis over the requisite service period of the award, or to the date on which retirement eligibility is achieved, if shorter.

Forfeitures are accounted when the actual forfeitures occur.

5 unchanged sentences

The fair value of each PU is determined based on the market price of one common share of the Company on the day prior to the date of grant, and the associated compensation expense is calculated on the basis that performance targets at 100 % are probable of being achieved.

The compensation expense for the PUs is recognized on a straight-line basis over the service

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

period, which is through the end of the third year.

The compensation expense for the PUs is recognized on a straight-line basis over the service period, which is through the end of the third year.

Over this period, the number of shares that will be issued is adjusted upward or downward based upon the probability of achievement of the performance targets.

9 unchanged sentences

The effect on deferred tax assets and liabilities of a change in tax rates or tax status is recognized in the statements of income in the period in which the change is identified.

The Company releases the tax effects from AOCI at the time of reclassification of cash flows hedges gains/ (losses) from AOCI to the consolidated statements of income.

Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

1 unchanged sentence

(r) Financial Instruments and Concentration of Credit Risk

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

Financial Instruments .

9 unchanged sentences

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

The Company’s assessment is based on whether:

(1) the contract involves the use of a distinct identified asset, (2) the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the term of the contract, and (3) the Company has the right to direct the use of the asset.

A lease is classified as a finance lease if any one of the following criteria are met:

(1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset.

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 consolidated balance sheets.

2 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

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.

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.

6 unchanged sentences

However, if the carrying amount of the ROU assets is reduced to zero as a result of modification, any remaining amount of the remeasurement is recognized as an expense in consolidated statements of income.

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 prior period consolidated financial statements have not been retrospectively adjusted and continues to be reported under Topic 840.

The Company elected the practical expedient permitted under the transition guidance under Topic 842, which amongst other matters, allowed the Company (i) not to apply the recognition requirements to short-term leases (leases with a lease term of 12 months or less), (ii) not to reassess whether any expired or existing contracts are or contain leases, (iii) not to reassess the lease classification for any expired or existing leases, and (iv) not to reassess initial direct costs for any existing leases.

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 the opening balance of retained earnings.

Refer to Note 21 - Leases to the consolidated financial statements for details.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

The Company reviews ROU assets for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable.

11 unchanged sentences

Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period.

For the purposes of calculating diluted earnings per share, the treasury stock method is used for stock-based awards and outstanding convertible

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

notes except where the results would be anti-dilutive.

For the purposes of calculating diluted earnings per share, the treasury stock method is used for stock-based awards and outstanding convertible notes except where the results would be anti-dilutive.

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.

5 unchanged sentences

(w) Recent Accounting Pronouncements

In March 2020, FASB issued ASU No.

In March 2020, Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) No.

2020-04, Reference Rate Reform (Topic 848) :

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.

2 unchanged sentences

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

In August 2020, FASB issued ASU No.

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

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

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

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

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

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

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

In October 2021, FASB issued ASU No.

2020-10, Codification Improvements.

This ASU provides 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 improves the consistency of the Codification 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 Codification.

The amendments are varied in nature and may affect the application of the guidance in cases in which the original guidance may have been unclear.

An entity has to apply the amendments retrospectively.

The ASU is effective for fiscal years beginning after December 15, 2020.

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

(x) 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.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

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 5 - Revenues, net to the 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 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 consolidated financial statements.

In August 2018, FASB issued 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 was permitted.

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

2021-08, Business Combinations (Topic 805) :

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers .

This ASU provides guidance in Topic 805 to require the acquirer entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers , as if it had originated the contracts.

Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were

EXLSERVICE HOLDINGS, INC.

2 unchanged sentences

(In thousands, except share and per share amounts)

recognized and measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance with U.S.

The ASU is effective for fiscal years beginning after December 15, 2022.

An entity may early adopt the ASU including adoption in an interim period, with retrospective application to all business combinations within the fiscal year that includes such interim period.

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

(x) 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 did not have a material impact on the Company’s 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 consolidated financial statements.

In January 2021, FASB issued 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 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 consolidated financial statements.

Segment and Geographical Information

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

The Company is a provider of data analytics and digital operations and solutions.

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

The Company since then manages and reports financial information through its four reportable segments:

Insurance, Healthcare, Analytics and Emerging Business, which reflects how management reviews financial information and makes operating decisions.

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

These business units 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.

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.

Finance & Accounting and Consulting services to clients outside of the Insurance and Healthcare industries are part of the Company’s “Emerging Business” segment.

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

Finance & Accounting and Consulting services to clients outside of the Insurance and Healthcare industries are part of the Company’s “Emerging Business” operating segment.

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

1 unchanged sentence

• Emerging Business, and

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

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.

3 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 each of the years ended December 31, 2020, 2019 and 2018, respectively, for each of the reportable segments, are as follows:

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

The December 2021 acquisition of Clairvoyant AI Inc.

(“Clairvoyant”) is included in the Analytics reportable segment.

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

Revenues and cost of revenues for the years ended December 31, 2021, 2020 and 2019, respectively, for each of the reportable segments, are as follows:

Year ended December 31, 2021

6 unchanged sentences

Operating expenses 275,478

Foreign exchange gain, interest expense and other income, net 5,307

Loss on settlement of convertible notes, foreign exchange gain, interest expense and other income, net ( 9,320 )

Income tax expense 31,850

Loss from equity-method investment 227

Gain from equity-method investment 47

Net income $ 114,758

13 unchanged sentences

(1) Exclusive of depreciation and amortization expense.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

Year ended December 31, 2019

12 unchanged sentences

Revenues, net by service type, were as follows:

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

Year ended December 31,

2021 2020 2019

BPM and related services (1)

Digital operations and solutions (1)

$ 661,621 $ 595,755 $ 634,017

1 unchanged sentence

Revenues, net $ 1,122,293 $ 958,434 $ 991,346

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

(1) Digital operations and solutions include revenues of the Company's Insurance, Healthcare and Emerging Business reportable segments.

Refer to the reportable segment disclosure above.

10 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:

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

December 31, 2021 December 31, 2020

5 unchanged sentences

Long-lived assets $ 162,700 $ 184,793

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

Quarterly Financial Data

Summarized quarterly results for the years ended December 31, 2020 and 2019 are as follows:

Three months ended 2020 (Unaudited) Year ended (Audited)

March 31 June 30 September 30 December 31 December 31, 2020

Revenues, net

Gross profit (1)

$ 83,334 $ 64,072 $ 88,931 $ 98,161 $ 334,498

Income before equity method investment activity, net and income tax expense $ 28,321 $ 12,567 $ 34,979 $ 39,462 $ 115,329

Net income $ 22,411 $ 8,429 $ 26,418 $ 32,218 $ 89,476

Earnings per share:

$ 0.65 $ 0.24 $ 0.77 $ 0.95 $ 2.61

$ 0.65 $ 0.24 $ 0.76 $ 0.94 $ 2.59

Weighted-average number of shares used in computing earnings per share:

34,401,565 34,486,202 34,327,477 33,882,013 34,273,388

34,720,603 34,597,688 34,536,049 34,370,023 34,555,164

Stock compensation expense $ 4,778 $ 7,726 $ 8,346 $ 7,385 $ 28,235

Amortization of intangibles $ 4,154 $ 3,430 $ 3,413 $ 3,415 $ 14,412

Three months ended 2019 (Unaudited) Year ended (Audited)

March 31 June 30 September 30 December 31 December 31, 2019

Revenues, net $ 239,573 $ 243,509 $ 251,392 $ 256,872 $ 991,346

Gross profit (1)

$ 82,333 $ 81,063 $ 83,850 $ 88,610 $ 335,856

Income before equity method investment activity, net and income tax expense $ 18,962 $ 15,296 $ 24,814 $ 24,028 $ 83,100

Net income $ 14,695 $ 12,564 $ 19,044 $ 21,356 $ 67,659

Earnings per share:

$ 0.43 $ 0.36 $ 0.55 $ 0.62 $ 1.97

$ 0.42 $ 0.36 $ 0.55 $ 0.62 $ 1.95

Weighted-average number of shares used in computing earnings per share:

34,374,815 34,451,671 34,322,449 34,253,308 34,350,150

34,833,435 34,702,547 34,699,497 34,696,896 34,732,683

Stock compensation expense $ 6,956 $ 7,155 $ 7,427 $ 4,532 $ 26,070

Amortization of intangibles $ 5,528 $ 5,554 $ 5,502 $ 4,974 $ 21,558

(1) Exclusive of depreciation and amortization expense.

(2) Total of quarterly basic and diluted earnings per share and weighted average number of shares used in computing earnings per share will not be equal to year end basic and diluted earnings per share and weighted average number of shares used in computing earnings per share, respectively.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

Revenues, net

Refer to Note 3 - Segment and Geographical Information to the consolidated financial statements for revenues disaggregated by reportable segments and geography.

16 unchanged sentences

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

Revenue recognized during the year ended December 31, 2020 and 2019, which was included in the contract liabilities balance at the beginning of the respective periods:

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

Year ended December 31,

24 unchanged sentences

There was not a material impact on the provision for credit losses upon adoption of the Topic 326 guidance.

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 credit losses was $ 1,163 .

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

December 31, 2020 January 1, 2020

December 31, 2021 December 31, 2020

Accounts receivable, including unbilled receivables $ 194,805 $ 148,824

Allowance for lifetime expected credit loss ( 1,189 ) ( 1,163 )

Allowance for expected credit loss ( 573 ) ( 1,189 )

Accounts receivable, net $ 194,232 $ 147,635

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

The movement in “Allowance for expected credit losses” on customer balances for the years ended December 31, 2021 and 2020 was as follows:

Year ended December 31,

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

Additions during the period 300 354

Charged against allowance ( 269 ) ( 156 )

Additions / (reductions) during the period ( 496 ) 300

Reductions due to write-off of Accounts Receivables ( 129 ) ( 269 )

Translation adjustment 9 ( 5 )

8 unchanged sentences

2021 2020 2019

Gain on sale and mark-to-market of mutual funds $ 9,521 $ 12,965 $ 9,970

Gain on sale and mark-to-market of mutual funds and money market funds $ 4,891 $ 9,615 $ 13,180

Interest and dividend income 2,726 2,501 2,184

3 unchanged sentences

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, and assumed conversion premium of outstanding convertible notes, using the treasury stock method.

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.

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, and an assumed conversion premium of outstanding convertible notes, using the treasury stock method (as discussed further in the subsequent paragraph).

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

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 .

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

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

The Company intended and had the ability to settle the principal balance of the Notes in cash, and as such, the Company 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 for the portion of the period until actual settlement and 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 .

During the third quarter of 2021, the Company settled the Notes by electing a combination of cash and shares of the Company’s common stock and as such included the count of shares issued on settlement in the calculation of basic earnings per share for the portion of the period outstanding.

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

10 unchanged sentences

Dilutive effect of share based awards 408,693 254,717 382,533

Dilutive effect of conversion premium on convertible notes 27,059 — —

Dilutive effect of conversion premium on the Notes 286,510 27,059 —

Diluted weighted average common shares outstanding 34,244,478 34,555,164 34,732,683

11 unchanged sentences

Cash, cash equivalents and restricted cash $ 143,810 $ 225,519 $ 127,044

Effective January 1, 2018, the Company adopted ASU 2016-18, Statements of Cash Flows (Topic 230), Restricted Cash .

Accordingly, restricted cash and restricted cash equivalents is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the consolidated statements of cash flows.

EXLSERVICE HOLDINGS, INC.

21 unchanged sentences

Right-of-use assets under finance leases:*

Network equipment and computers 91 93

Leasehold improvements 1,229 817

3 unchanged sentences

Property and equipment, net $ 86,008 $ 92,875

*Depreciation on assets held under finance leases are computed using the straight-line method over the shorter of the asset's estimated useful lives or the lease term.

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 year ended December 31, 2020, and 2019 there were no changes in estimated useful lives of property and equipment.

During the years ended December 31, 2021 and 2020 there were no changes in estimated useful lives of property and equipment during the ordinary course of operations.

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

2 unchanged sentences

Depreciation and amortization expense $ 36,354 $ 36,050 $ 30,423

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

Year ended December 31,

2020 2019 2018

Effect of foreign exchange gain/(loss) $ 51 $ 212 $ 153

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

EXLSERVICE HOLDINGS, INC.

2 unchanged sentences

(In thousands, except share and per share amounts)

Year ended December 31,

2021 2020 2019

Effect of foreign exchange gains $ 524 $ 51 $ 212

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

7 unchanged sentences

Amortization expense $ 4,253 $ 4,894 $ 2,745

As of 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 December 31, 2021 and 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.

7 unchanged sentences

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

Refer to Note 24 - Impairment and Restructuring Charges to the consolidated financial statements for further details.

Goodwill and Intangible Assets

Business Combinations, Goodwill and Intangible Assets

Clairvoyant AI Inc.

On December 16, 2021, the Company, through its wholly owned subsidiary ExlService.com, LLC (“Buyer”), completed the acquisition of Clairvoyant, a Delaware corporation, pursuant to an equity securities purchase agreement dated December 16, 2021 (the "Purchase Agreement").

The Company purchased 100 % of the issued and outstanding equity securities in Clairvoyant.

Clairvoyant is a global technology consulting and services company that helps organizations in their business transformation by maximizing the value of data through actionable insights.

It provides data engineering, analytics, machine learning, product engineering, and cloud-based solutions.

The acquisition strengthens the Company’s capabilities by adding additional expertise in data engineering and cloud enablement, further supporting its clients in insurance, healthcare, banking and financial services, and retail.

The base purchase consideration payable at Closing was $ 80,080 , excluding cash and cash equivalents acquired, debt and other estimated post-closing adjustments.

As of December 31, 2021, of the total purchase consideration, the Company has paid

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

$ 76,831 , net of cash and cash equivalents acquired.

The Purchase Agreement also allows sellers the ability to earn up to $ 20,000 in earn-out payments, based on the achievement of certain performance goals by Clairvoyant during 2022 and 2023 calendar years.

The earn-out has an estimated fair value of $ 9,000 and has been presented as contingent consideration under “Other non-current liabilities.” A portion of the purchase consideration otherwise payable was placed into escrow as security for the post-closing working capital adjustments and the indemnification obligations under the Purchase Agreement.

To finance the acquisition at Closing, the Company utilized its revolving Credit Facility in the amount of $ 75,000 and paid the balance with available cash on hand.

The Company is in the process of finalizing the adjustments related to debt, working capital position and other post- closing adjustments, which, when determined, may result in the recognition of additional assets or liabilities as of the acquisition date, and shall accordingly lead to finalization of the purchase consideration.

The Company accounted for the business combination using the acquisition method of accounting.

The measurement period will not exceed one year from the acquisition date.

Pursuant to the Company’s business combinations accounting policy, the aggregate purchase consideration for Clairvoyant was allocated to identifiable net tangible and intangible assets based upon their preliminary fair values.

The excess of the estimated purchase consideration over fair value of identifiable net tangible and intangible assets was recorded as goodwill.

In order to allocate the consideration transferred for Clairvoyant, the fair values of all identifiable assets and liabilities must be established.

For accounting and financial reporting purposes, fair value is defined under ASC No.

820, Fair Value Measurement and Disclosure , as the price that would be received upon sale of an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability.

Additionally, fair value measurements for an asset assume the highest and best use of that asset by market participants.

Use of different estimates and judgments could yield different results.

The Company’s preliminary purchase price allocation to net tangible and intangible assets of Clairvoyant as of December 16, 2021 is as follows:

Cash and cash equivalents $ 5,606

Accounts receivable, net 9,042

Other current assets 352

Property and equipment, net 399

Intangible assets, net

Customer relationships 31,600

Developed technology 2,070

Trade names and trademarks 300

Non-compete agreements 300

Other assets 376

Total assets $ 50,045

Accounts payable ( 1,241 )

Accrued expenses and other current liabilities

Deferred tax liabilities ( 9,383 )

Other non-current liabilities ( 238 )

Total liabilities ( 15,695 )

Net assets acquired 34,350

Goodwill 55,225

Total purchase consideration* $ 89,575

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

* Includes contingent consideration of $ 9,000 recognized at fair value.

The fair value of assets acquired and liabilities assumed from the acquisition of Clairvoyant is based on a preliminary valuation and, as such, the Company's estimates and assumptions are subject to change within the measurement period.

The primary areas of the purchase price allocation that are not yet finalized are related to direct and indirect taxes and reflect management’s best estimates and assumptions as of the reporting date.

The fair values of customer relationships were determined by using an “income approach,” specifically the Multi-Period Excess Earnings Method ("MPEEM").

The MPEEM is a specific application of the discounted cash flow method.

The principle behind the MPEEM is that the value of an intangible asset is equal to the present value of the incremental after-tax cash flows attributable only to the subject intangible asset after deducting Contributory Asset Charges ("CAC").

The principle behind a CAC is that an intangible asset ‘rents’ or ‘leases’ from a hypothetical third party all the assets it requires to produce the cash flows resulting from its development, that each project rents only those assets it needs (including elements of goodwill) and not the ones that it does not need, and that each project pays the owner of the assets a fair return on (and of, when appropriate) the value of the rented assets.

The customer relationship assets are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 7 years.

The fair values of the developed technology intangible assets were determined by using the "cost approach," specifically the replacement cost method.

In the replacement cost approach, the fair value of an asset is based on the cost of a market participant to reconstruct a substitute asset of comparable utility, adjusted for any obsolescence.

The fair value of the asset would include the seller’s expected profit margin in the market and any opportunity costs lost over the period to reconstruct the substitute asset.

The technology assets are being amortized on a straight-line basis (which approximates the economic pattern of benefits) over the estimated economic life of 3 years.

The goodwill recognized represents the acquired capabilities, operating synergies and other benefits expected to result from combining the acquired operations with the Company’s existing operations.

The amount of goodwill recognized from Clairvoyant’s acquisition is not deductible for tax purposes.

The goodwill has been assigned to the Company’s Analytics reportable segment based upon the Company’s assessment of nature of services rendered by Clairvoyant.

Acquisition-related costs are being expensed as incurred and are included in general and administrative expenses in the consolidated statements of income.

The Company recognized acquisition-related costs of $ 761 during the year ended December 31, 2021.

The results of operations of the acquired business and the fair value of the acquired assets and assumed liabilities are included in the Company’s consolidated financial statements with effect from the date of the acquisition.

The acquisition did not materially impact the Company's financial position, results of operations or cash flows, and therefore, the Company has not provided unaudited supplemental pro forma results.

The Company transitioned to new segment reporting structure effective January 1, 2020, which resulted in certain changes to its operating segments and reporting units.

8 unchanged sentences

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 $ — $ 227,289 $ 12,457 $ 46,905 $ 5,326 $ 349,529

Goodwill reallocation (1)

2 unchanged sentences

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

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

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

The Company considered the effects of COVID-19 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 second and third quarters 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 these quarters 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 quantitative impairment test performed during the first quarter of 2020.

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

Acquisition — — — 55,225 — — — 55,225

Currency translation adjustments ( 71 ) ( 11 ) ( 328 ) ( 1 ) — — — ( 411 )

Balance at December 31, 2021 $ 50,428 $ 21,942 $ 49,020 $ 282,512 $ — $ — $ — $ 403,902

(1) Includes effects of reallocation of goodwill because of the Company reorganizing its operating segments as described in Note 3 - Segment and Geographical Information to the consolidated financial statements.

During the fourth quarter of 2021, the Company performed its annual goodwill quantitative impairment test for those reporting units that had goodwill recorded.

1 unchanged sentence

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 fourth quarter of 2020, the Company performed its annual goodwill impairment test, as it has done this year, and also concluded goodwill was not impaired.

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 the respective reporting units.

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.

1 unchanged sentence

• Increasing the depth and breadth of the services the Company provides across its clients’ value chains and geographies;

• Offering the full suite of the Company's services that includes operations management and data and analytics;

• Offering the full suite of the Company's services that includes digital operations and solutions and data and analytics;

• Supporting the Company's clients’ geographic expansion leveraging its global footprint.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

The Company also considers selective strategic relationships with industry leaders that add new long-term client relationships, enhance the depth and breadth of its services and solutions, and complement its business strategy.

Through its Connected Intelligence Partnership programs, the Company expands its technology and innovation ecosystem with select partnerships, alliances or investments that the Company expects will enhance go-to-market opportunities and expand the scope and effectiveness of the Company’s services and solutions by adding digital assets and intellectual property, which will help the Company to win new clients or allowing it to enter new industry verticals and geographic markets.

Through its various Partnership programs, the Company expands its technology and innovation ecosystem with select partnerships, alliances or investments that the Company expects will enhance go-to-market opportunities and expand the scope and effectiveness of the Company’s services and solutions by adding digital assets and intellectual property, which will help the Company to win new clients or allowing it to enter new industry verticals and geographic markets.

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

1 unchanged sentence

These estimates and judgements may not be within the control of the Company and accordingly it is reasonably possible that the judgments and estimates described above could change in future periods.

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.

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.

During the fourth quarter of 2019, the Company performed its annual goodwill quantitative impairment test for all of its reporting units.

These reporting units were based on the segment reporting structure that existed prior to the Company's transition to its new segment reporting structure effective January 1, 2020, which resulted in the former SCIO reporting unit being reflected as an integrated business within the Healthcare Analytics operating segment and reporting unit.

Based on the results of the 2019 annual goodwill quantitative impairment test, the fair values of each of the Company’s reporting units exceeded their carrying values and the Company’s goodwill was not impaired.

However, for the former SCIO reporting unit within the Analytics reportable segment, the fair value was not substantially in excess of its carrying value.

The former SCIO reporting unit was formed as a result of the SCIO acquisition in July 2018 and its fair value was set at the time of acquisition.

As of December 31, 2019, the goodwill associated with the former SCIO reporting unit was $ 163,751 , representing approximately 47.0 % of the Company’s total goodwill, and the percentage by which the fair value of the former SCIO reporting unit exceeded the carrying value as of the date of the annual impairment test was approximately 10.0 %.

The duration and severity of COVID-19 and

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

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.

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

Intangible Assets

7 unchanged sentences

Trade names and trademarks 1,700 ( 1,006 ) 694

Non-compete agreements 300 — 300

$ 130,056 $ ( 49,874 ) $ 80,182

2 unchanged sentences

Total intangible assets $ 130,956 $ ( 49,874 ) $ 81,082

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

As of December 31, 2020

15 unchanged sentences

Customer relationships 6.5

Developed technology 2.71

Developed technologies 2.1

Trade names and trademarks (Finite lived) 2.4

Estimated future amortization expense related to finite-lived intangible assets as of December 31, 2020 was as follows:

2021 $ 12,765

2026 and thereafter 12,868

Total $ 58,694

Non-compete agreements 4.0

EXLSERVICE HOLDINGS, INC.

2 unchanged sentences

(In thousands, except share and per share amounts)

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

2022 $ 17,004

2027 and thereafter 16,010

Total $ 80,182

Other Current Assets

1 unchanged sentence

December 31, 2021 December 31, 2020

Receivables from statutory authorities $ 18,023 $ 15,658

Derivative instruments 8,682 9,755

Advances to suppliers 1,464 3,906

Receivables from statutory authorities 15,658 12,608

Contract assets 1,814 1,414

Deferred contract fulfillment costs 1,483 2,888

Contract assets 1,319 1,814

Interest accrued on term deposits 892 169

4 unchanged sentences

Lease deposits $ 9,649 $ 9,788

Derivative instruments 6,933 3,433

Deposits with statutory authorities 6,417 6,341

Term deposits 216 1,983

Contract assets 2,623 3,977

Derivative instruments 6,307 6,933

Deferred contract fulfillment costs 4,312 2,743

Contract assets 1,205 2,623

Receivable from Statutory authorities 222 754

Term deposits 186 216

Others 2,071 2,701

10 unchanged sentences

Accrued capital expenditures 7,404 7,857

Derivative instruments 435 1,783

Client liabilities 6,097 4,740

Derivative instruments 1,852 435

Interest payable 252 1,399

Other current liabilities 1,205 1,732

Finance lease liabilities 141 229

Other current liabilities 1,071 1,205

Accrued expenses and other current liabilities $ 75,124 $ 66,410

2 unchanged sentences

December 31, 2021 December 31, 2020

Derivative instruments $ 29 $ 1,250

Unrecognized tax benefits 907 1,047

Retirement benefits $ 9,604 $ 8,940

Contingent consideration 9,000 —

Derivative instruments 1,785 29

Deferred transition revenue 995 924

Accrued capital expenditure 3,486 —

Other liabilities 3,568 987

Unrecognized tax benefits 1,068 907

Finance lease liabilities 229 281

Accrued capital expenditures — 3,486

Others 120 3,568

Other non-current liabilities $ 22,801 $ 18,135

Accumulated Other Comprehensive Income/(Loss)

Accumulated other comprehensive income/(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 and net investment 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 consolidated balance sheets.

Upon settlement of foreign exchange contracts designated as cash flow hedges, fair value changes are reclassified from AOCI 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 December 31, 2021 and 2020 are as follows:

EXLSERVICE HOLDINGS, INC.

2 unchanged sentences

(In thousands, except share and per share amounts)

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 consolidated balance sheets until the settlement of those contracts.

The balances as of December 31, 2020 and 2019 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 Income/(Loss)

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

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

2 unchanged sentences

— ( 801 ) 394 ( 407 )

Income tax benefit / (expense) (2)

Income tax effects (2)

1,946 ( 2,163 ) 808 591

Accumulated other comprehensive loss as of December 31, 2019 $ ( 87,591 ) $ 4,098 $ ( 1,399 ) $ ( 84,892 )

Accumulated other comprehensive income/(loss) as of December 31, 2020 $ ( 86,185 ) $ 13,799 $ ( 2,598 ) $ ( 74,984 )

Gains / (losses) recognized during the year ( 11,134 ) 4,663 ( 558 ) ( 7,029 )

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

Reclassification to net income (1)

— ( 9,264 ) 709 ( 8,555 )

Income tax benefit / (expense) (2)

Income tax effects (2)

3,016 ( 778 ) ( 10 ) 2,228

Accumulated other comprehensive loss as of December 31, 2020 $ ( 86,185 ) $ 13,799 $ ( 2,598 ) $ ( 74,984 )

Accumulated other comprehensive income/(loss) as of December 31, 2021 $ ( 95,437 ) $ 8,420 $ ( 2,457 ) $ ( 89,474 )

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

These are income tax benefit / (expense) 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.

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 consolidated financial statements.

11 unchanged sentences

As of December 31, 2021 (Level 1) (Level 2) (Level 3) Total

Cash and cash equivalents (money market funds)* $ 5,374 $ — $ — $ 5,374

Mutual funds** $ 127,551 $ — $ — $ 127,551

2 unchanged sentences

Derivative financial instruments $ — $ 3,637 $ — $ 3,637

Contingent consideration $ — $ — $ 9,000 $ 9,000

Total $ — $ 3,637 $ 9,000 $ 12,637

1 unchanged sentence

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

Cash and cash equivalents (money market funds)* $ 13,463 $ — $ — $ 13,463

Mutual funds** $ 160,441 $ — $ — $ 160,441

3 unchanged sentences

Total $ — $ 464 $ — $ 464

* Represents money market funds which are carried at the fair value option under ASC 825 "Financial Instruments".

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

3 unchanged sentences

Refer to Note 16 - Derivatives and Hedge Accounting to the consolidated financial statements for further details.

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 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:

The total estimated fair value of the convertible senior notes as of December 31, 2020 and 2019 was $ 152,384 and $ 149,934 , respectively.

The fair value was determined based on the market yields for similar convertible notes as of December 31, 2020 and 2019, 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.

Fair value of Contingent Consideration :

The fair value measurement of contingent consideration is determined using Level 3 inputs.

The Company’s contingent consideration represents a component of the total purchase consideration for its acquisition of Clairvoyant.

The measurement is calculated using unobservable inputs based on the Company’s own assessment of achievement of certain performance goals by Clairvoyant during 2022 and 2023 calendar years.

The Company estimated the fair value of the contingent consideration to be $ 9,000 , based on Monte Carlo simulation model and scenario-based method.

EXLSERVICE HOLDINGS, INC.

2 unchanged sentences

(In thousands, except share and per share amounts)

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 (except investments in money market funds, as disclosed above), 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.

Convertible Senior Notes:

The Company settled the Notes during the year ended December 31, 2021.

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

The total estimated fair value of the Notes as of December 31, 2020 was $ 152,384 .

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

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 of goodwill conducted by the Company during the year ended December 31, 2020 and 2019.

Nonrecurring fair value measurements include impairment tests of goodwill conducted by the Company during the years ended December 31, 2021 and 2020.

The fair value determination of the Company's reporting units was based on a combination of the income approach, using DCF model, which are Level 3 inputs, and also the market approach, as applicable, using market multiples for reporting units, which are Level 2 inputs.

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

Refer to Note 10 - Goodwill and Intangible Assets to the consolidated financial statements for further details.

During the years ended December 31, 2021 and 2020, the Company did no t recognize any impairment charges on goodwill as the fair values of the reporting units exceeded their carrying value.

Refer to Note 9 - Business Combinations, Goodwill and Intangible Assets to the 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.

5 unchanged sentences

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

The Company had outstanding cash flow hedges totaling $ 451,935 as of December 31, 2020 and $ 410,390 (including $ 4,300 of range forward contracts) as of December 31, 2019.

The Company had outstanding cash flow hedges totaling $ 514,580 as of December 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 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 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 consolidated statements of income as a part of “Cost of revenues,” “General and administrative expenses,” “Selling and marketing expenses,” and “Depreciation and amortization expense,” as applicable.

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 $ 9,564 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 December 31, 2020.

The Company estimates that approximately $ 7,345 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

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

on exchange rates prevailing as of December 31, 2021.

At December 31, 2021, the maximum outstanding term of the cash flow hedges was 42 months.

3 unchanged sentences

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 143,394 , GBP 6,753 , EUR 2,447 and COP 8,287,950 as of December 31, 2020 and USD 124,045 , GBP 10,843 and EUR 1,289 as of December 31, 2019.

All 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

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

contracts with the counterparty in the case of an event of default or a termination event.

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

pound sterling (GBP) and the Philippine peso.

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 134,612 , GBP 6,763 , EUR 1,343 and COP 2,541,902 as of December 31, 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 AOCI 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.

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 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.

10 unchanged sentences

Accrued expenses and other current liabilities $ 528 $ 259

The following tables set forth the effect of foreign currency exchange contracts on the consolidated statements of income and accumulated other comprehensive loss for the years ended December 31, 2020, 2019 and 2018:

The following tables set forth the effect of foreign currency exchange contracts on the consolidated statements of income and accumulated other comprehensive income/(loss) for the years ended December 31, 2021, 2020 and 2019.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

Year ended December 31,

1 unchanged sentence

2021 2020 2019

Unrealized gain/(loss) recognized in AOCI

Unrealized gain recognized in AOCI

Derivatives in cash flow hedging relationships $ 4,663 $ 12,665 $ 8,773

Gain/(loss) recognized in consolidated statements of income

Gain recognized in consolidated statements of income

Derivatives not designated as hedging instruments $ 196 $ 3,686 $ 3,208

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

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

1 unchanged sentence

2021 2020 2019

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

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

Cash flow hedging relationships

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

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

Cost of revenues $ 690,934 $ 7,785 $ 623,936 $ 1,008 $ 655,490 $ 3,269

2 unchanged sentences

Depreciation and amortization expense $ 49,132 $ 478 $ 50,462 $ ( 41 ) $ 51,981 $ 212

$ 801 $ 3,951 $ 3,149

Total before tax $ 9,264 $ 801 $ 3,951

Income tax benefit/(expense) relating to above $ ( 1,530 ) $ 500 $ ( 1,173 )

Net of tax $ 7,734 $ 1,301 $ 2,778

Derivatives not designated as hedging instruments

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

Foreign exchange gain/(loss), net $ 4,432 $ 3,802 $ 3,752 $ 3,306 $ 4,787 $ ( 3,224 )

Location in consolidated statements of income where gain was recognized

Foreign exchange gain, net $ 4,313 $ 196 $ 4,432 $ 3,686 $ 3,752 $ 3,208

$ 4,313 $ 196 $ 4,432 $ 3,686 $ 3,752 $ 3,208

Effect of net investment hedges on accumulated other comprehensive income/(loss):

Year ended December 31,

Amount of loss recognized in AOCI

Net investment hedging relationships

2021 2020 2019

Foreign exchange contracts

$ 1,134 $ — $ —

EXLSERVICE HOLDINGS, INC.

3 unchanged sentences

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

As of December 31, 2020

Revolving Credit Facility Notes Total

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

Long-term borrowings $ 64,000 $ 150,000 $ 214,000

Unamortized debt discount — ( 11,235 ) ( 11,235 )

Unamortized debt issuance costs* — ( 804 ) ( 804 )

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

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

As of December 31, 2019

Revolving Credit Facility Structured Payables Notes Total

As of December 31, 2021 As of December 31, 2020

Revolving Credit Facility Total Revolving Credit Facility Notes Total

Current portion of long-term borrowings $ 260,016 $ 260,016 $ 25,000 $ — $ 25,000

4 unchanged sentences

Total borrowings $ 260,016 $ 260,016 $ 89,000 $ 137,961 $ 226,961

*Unamortized debt issuance costs for the Company’s revolving Credit Facility of $ 490 and $ 748 as of December 31, 2020 and 2019, 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 $ 232 and $ 490 as of December 31, 2021 and 2020, respectively, are presented under “Other current assets” and “Other assets,” as applicable in the consolidated balance sheets.

Credit Agreement

5 unchanged sentences

Borrowings under the Credit Agreement may be used for working capital and general corporate purposes, including permitted acquisitions.

On July 2, 2018, the Company exercised its option under the Credit Agreement to increase the commitments by $ 100,000 thereby utilizing the entire revolver under the Credit Facility of $ 300,000 to fund our July 2018 acquisition of SCIO.

Depending on the type of borrowing, loans under the Credit Agreement bear interest at a rate equal to the specified prime rate (alternate base rate) or adjusted LIBO rate, plus, in each case, an applicable margin.

1 unchanged sentence

The revolving credit commitments under the Credit Agreement are subject to a commitment fee which is also tied to the Company’s total net leverage ratio, and ranges from 0.15 % to 0.30 % per annum on the average daily amount by which the aggregate revolving commitments exceed the sum of outstanding revolving loans and letter of credit obligations.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

The revolving Credit Facility carried an effective interest rate as shown below.

2 unchanged sentences

Effective Interest Rate 1.7 % 2.3 % 4.0 %

Obligations under the Credit Agreement are guaranteed by the Company’s material domestic subsidiaries and are secured by all or substantially all of the assets of the Company and our material domestic subsidiaries.

The Credit Agreement contains customary affirmative and negative covenants, including, but not limited to, restrictions on the ability to incur indebtedness, create liens, make certain investments, make certain dividends and related distributions, enter into, or undertake, certain liquidations, mergers, consolidations or acquisitions and dispose of assets or subsidiaries.

In addition, the Credit Agreement contains a covenant to not permit the interest coverage ratio (the ratio of EBITDA to cash interest expense) or the total net leverage ratio (total funded indebtedness, less unrestricted domestic cash and cash equivalents not to exceed $ 50,000 to EBITDA) for the four consecutive quarter period ending on the last day of each fiscal quarter, to be less than 3.5 to 1.0 or more than 3.0 to 1.0, respectively.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

than 3.0 to 1.0, respectively.

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

The Company entered into a second amendment (the “Amendment”) to its Credit Agreement, as amended, among the Company, as borrower, with certain lenders, and Citibank, N.A.

as Administrative Agent to, among other things, permit the issuance by the Company of the convertible notes, and settlement upon maturity or conversion thereof, in accordance with the Investment Agreement, the indenture dated as of October 4, 2018 and the other documents entered into in connection therewith.

The Company entered into a second amendment and a third amendment (the “Amendments”) to its Credit Agreement, as amended, among the Company, as borrower, with certain lenders, and Citibank, N.A.

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 % 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.

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

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

The Notes are convertible at an initial conversion rate of 13.3333 shares of the common stock per one thousand dollar principal amount of the Notes (which represents an initial conversion price of approximately $ 75 per share).

With certain exceptions, upon a fundamental change, as defined in the Indenture, the holders of the Notes may require that the Company to repurchase all or part of the principal amount of the Notes at a purchase price equal to the principal amount plus accrued and unpaid interest.

The Company may redeem the principal amount of the Notes, at its option, in whole but not in part, at a purchase price equal to the principal amount plus accrued and unpaid interest on or after October 1, 2021, if the closing sale price of the common stock exceeds 150 % of the then-current conversion price for 20 or more trading days in the 30 consecutive trading day period preceding the Company’s exercise of this redemption right (including the trading day immediately prior to the date of the notice of redemption).The Company may elect to settle conversions of the Notes by paying or delivering, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock.

The Company presently intends and has the ability to settle the principal amount of the Notes in cash.

In 2018, the Company used the proceeds from the issuance of the Notes to repay $ 150,000 of its outstanding borrowings under the Credit Facility.

The net proceeds from the issuance of the Notes were approximately $ 149,000 , after deducting debt issuance costs of $ 1,000 and offering expenses of approximately $ 442 paid by the Company.

These transaction and debt issuance costs were allocated between the liability and equity components based on their relative values.

The transaction costs and debt issuance costs allocated to the liability and equity components were $ 1,279 and $ 163 , respectively.

The debt issuance costs allocated to the liability component are deferred and amortized as an adjustment to interest expense over the term of the Notes.

The Company accounted for the liability and equity components of the Notes separately to reflect its non-convertible debt borrowing rate.

The estimated fair value of the liability component at issuance of $ 133,077 was determined using a discounted cash flow technique, which considered debt issuances with similar features of the Company’s debt, excluding the conversion

The Notes carried interest at a rate of 3.5 % per annum, payable semi-annually in arrears in cash on April 1 and October 1 of each year.

The Notes were convertible at an initial conversion rate of 13.3333 shares of the common stock per one thousand dollar principal amount of the Notes (which represented an initial conversion price of approximately $ 75 per share).

The Company had the option to redeem the principal amount of the Notes, at its option, in whole but not in part, at a purchase price equal to the principal amount plus accrued and unpaid interest on or after October 1, 2021, if the closing sale price of the common stock exceeded 150 % of the then-current conversion price for 20 or more trading days in the 30 consecutive trading day period preceding the Company’s exercise of this redemption right (including the trading day immediately prior to the date of the notice of redemption).

The Company had the option to elect to settle conversions of the Notes by paying or delivering, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock.

The Notes carried an effective interest rate as shown below:

Year ended December 31,

2021 2020 2019

Effective Interest Rate 3.6 % 3.6 % 3.6 %

On August 27, 2021, the Company entered into a Payoff and Termination Agreement (the “Payoff and Termination Agreement”) with the Purchaser, pursuant to which the Company prepaid and settled its outstanding obligations under the Notes for an aggregate consideration of $ 236,742 , excluding accrued and unpaid interest under the Notes calculated through, and including, August 26, 2021, in the form of a combination of cash and shares of the Company’s common stock.

As a result, the Company made a cash payment of $ 200,000 to the Purchaser and satisfied the remainder of the obligation under the Notes by issuing to the Purchaser 310,394 shares of the Company’s common stock calculated at $ 118.37 per share based on a 20 -day volume weighted average price ending on, and including, August 26, 2021.

The Company satisfied the cash payment obligation under the Payoff and Termination Agreement by drawing $ 200,000 from its existing revolving Credit Facility, and the Company’s common stock was issued from its existing treasury shares.

Refer to Note 18 - Capital Structure to the consolidated financial statements for further details.

The aggregate consideration of $ 236,742 was allocated between the debt and equity components in an amount of $ 152,742 and $ 84,000 , respectively.

The consideration was first allocated to the fair value of debt component and the remaining was allocated to the equity component.

The fair value of the debt component was calculated using a discounted cash flow technique, which considered debt issuances with similar features of the Company’s debt, without the conversion feature.

The resulting effective interest rate for the Notes was 2.9 % per annum at the time of settlement.

The portion allocated to the equity component was recorded as additional paid-in capital.

Immediately prior to the settlement of the Notes, the carrying amount of the debt component of the Notes, net of unamortized debt discount and issuance costs, was $ 139,897 .

During the year ended December 31, 2021, the Company recognized a loss on settlement of the Notes of $ 12,845 , representing the difference between the fair value of the consideration allocated to the debt component and the carrying value of the debt component immediately before settlement, and is presented as “Loss on settlement of convertible notes,” in the Company’s consolidated statements of income.

During the years ended December 31, 2021, 2020 and 2019, the Company recognized interest expense and amortization of debt discount on the Notes as below:

EXLSERVICE HOLDINGS, INC.

2 unchanged sentences

(In thousands, except share and per share amounts)

The resulting effective interest rate for the Notes was 5.75 % per annum.

The excess of the gross proceeds received over the estimated fair value of the liability component totaling $ 16,923 was allocated to the conversion feature (equity component, recorded as additional paid-in capital) with a corresponding offset recognized as a discount to reduce the net carrying value of the Notes.

The discount is being amortized to interest expense over a six-year period ending October 1, 2024 (the expected life of the liability component) using the effective interest method.

During the year ended December 31, 2020, 2019 and 2018 the Company recognized interest expense and amortization of debt discount, on the Notes as below:

Year ended December 31,

2 unchanged sentences

Amortization of debt discount on the Notes $ 1,795 $ 2,616 $ 2,472

Payments/maturities for all of the Company's borrowings as of December 31, 2020 were as follows:

Notes Revolving Credit Total

2021 $ — $ 25,000 $ 25,000

2022 — 64,000 64,000

Expected payments for all of the Company's borrowings as of December 31, 2021 were as follows:

Revolving Credit Facility Interest payments

2022 $ 260,016 $ 2,510

Total $ 150,000 $ 89,000 $ 239,000

Letters of Credit

3 unchanged sentences

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)

Year ended December 31, 2020 28,052 $ 2,131 $ 75.96

Year ended December 31, 2019 23,859 $ 1,490 $ 62.47

Year ended December 31, 2018 51,446 $ 3,122 $ 60.68

(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.

Twelve months ended December 31, 2021 31,309 $ 2,752 $ 87.90

Twelve months ended December 31, 2020 28,052 $ 2,131 $ 75.96

Twelve months ended December 31, 2019 23,859 $ 1,490 $ 62.47

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”).

On October 5, 2021, the Company’s Board of Directors authorized a $ 300,000 common stock repurchase program beginning January 1, 2022 (the “2022 Repurchase Program”), and terminated the 2019 Repurchase Program on December 31, 2021.

Under the 2022 Repurchase Program and 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 repurchase programs, as below:

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

Twelve months ended December 31, 2021 1,087,325 $ 115,605 $ 106.32

Twelve months ended December 31, 2020 1,085,153 $ 77,818 $ 71.71

Twelve months ended December 31, 2019 643,486 $ 39,874 $ 61.96

EXLSERVICE HOLDINGS, INC.

2 unchanged sentences

(In thousands, except share and per share amounts)

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 of $ 100,000 .

The approval authorized 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" and together with the 2017 Repurchase Program, the “Repurchase Programs”).

Under the Repurchase Programs, 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 and the 2017 Repurchase Program, as applicable, as below:

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

Year ended December 31, 2020 1,085,153 $ 77,818 $ 71.71

Year ended December 31, 2019 643,486 $ 39,874 $ 61.96

Year ended December 31, 2018 674,604 $ 39,987 $ 59.27

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.

In connection with the settlement of the Notes, the Company issued to the Purchaser 310,394 shares of the Company's common stock.

This common stock was issued from the Company’s existing treasury shares.

The excess of issuance price of the Company’s treasury stock over its weighted average cost was recognized in additional paid-in-capital.

The Company has not paid or declared any cash dividends on its common stock during the years ended December 31, 2021, 2020 and 2019.

The Company’s line of credit with a bank could restrict, or its terms of the Notes could impair, the Company’s ability to declare or make any dividends or similar distributions.

The Company’s line of credit with a bank could restrict, the Company’s ability to declare or make any dividends or similar distributions.

Employee Benefit Plans

6 unchanged sentences

The following table sets forth the activity and the funded status of the Gratuity Plans and the amounts recognized in the Company’s consolidated financial statements at the end of the relevant periods:

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

Change in projected benefit obligation, was as follows:

3 unchanged sentences

Benefits paid ( 1,844 ) ( 878 )

Acquisition adjustments 209 —

Actuarial loss* 539 2,425

6 unchanged sentences

Accumulated benefit obligation in excess of plan assets $ 1,189 $ 978

*During the year ended December 31, 2021, actuarial loss was driven by experience adjustments on present value of benefit obligations offset by changes in actuarial assumptions.

During the year ended December 31, 2020, actuarial loss was driven by changes in actuarial assumptions, offset by experience adjustments on present value of benefit obligations.

During the year ended December 31, 2019, actuarial loss was driven by experience adjustments on present value of benefit obligations.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

Components of net periodic benefit costs, were as follows:

4 unchanged sentences

Expected return on plan assets ( 796 ) ( 636 ) ( 568 )

Amortization of actuarial loss/(gain) 394 ( 159 ) ( 153 )

Net periodic benefit cost $ 3,428 $ 2,101 $ 1,782

The components of actuarial (loss) / gain on retirement benefits included in accumulated other comprehensive (loss)/gain, excluding tax effects, were as follows:

Amortization of actuarial (gain)/loss, gross of tax 709 394 ( 159 )

Net gratuity cost $ 4,354 $ 3,428 $ 2,101

Income tax effects on amortization of actuarial (gain)/loss ( 204 ) ( 127 ) 16

Amortization of actuarial (gain)/loss, net of tax $ 505 $ 267 $ ( 143 )

The components of actuarial gain/(loss) on retirement benefits included in accumulated other comprehensive income/(loss), excluding tax effects, were as follows:

As of December 31,

2021 2020 2019

Net actuarial (loss)/gain $ ( 3,772 ) $ ( 1,762 ) $ 940

Net actuarial loss $ ( 3,624 ) $ ( 3,772 ) $ ( 1,762 )

Net prior service cost ( 12 ) ( 15 ) ( 18 )

Accumulated other comprehensive (loss)/gain, excluding tax effects $ ( 3,787 ) $ ( 1,780 ) $ 918

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

Accumulated other comprehensive income/(loss), excluding tax effects $ ( 3,636 ) $ ( 3,787 ) $ ( 1,780 )

The weighted average actuarial assumptions used to determine benefit obligations and net gratuity cost were:

10 unchanged sentences

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

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

These funds are managed on a cash accumulation basis

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

and interest is declared retrospectively on March 31 of each year.

The Company earned a return of approximately 6.7 % 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 plan assets and projected benefit 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

14 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

Year ended December 31,

1 unchanged sentence

Contribution to the 401(k) Plans $ 3,693 $ 3,577 $ 3,617

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:

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

Year ended December 31,

6 unchanged sentences

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.

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

The Company accounted for lease-related concessions to mitigate the economic effects of COVID-19 on lessees in accordance with guidance in Topic 842, Leases , whereby the Company assessed on a 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 the Company’s consolidated financial statements during the year ended December 31, 2020.

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.

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 years ended December 31, 2021 and 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.

EXLSERVICE HOLDINGS, INC.

2 unchanged sentences

(In thousands, except share and per share amounts)

Supplemental balance sheet information

3 unchanged sentences

Operating lease liabilities – Current

$ 18,487 $ 18,894

Operating lease liabilities – Non-current

68,506 84,874

Total operating lease liabilities $ 86,993 $ 103,768

14 unchanged sentences

26,326 27,146

Variable lease costs 7,621 8,496

$ 33,947 $ 35,642

Sublease income — ( 146 )

Total lease cost $ 34,198 $ 35,958

5 unchanged sentences

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

December 31, 2020 Year ended

December 31, 2019

Year ended December 31, 2021 Year ended December 31, 2020

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

5 unchanged sentences

Weighted-average remaining lease term (in years)

Finance lease 1.8 2.3

Operating lease 6.3 6.0

Finance lease 2.1 years 1.8 years

Operating lease 5.8 years 6.3 years

Weighted-average discount rate

1 unchanged sentence

Operating lease 7.2 % 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 year ended December 31, 2020 and 2019, the Company modified certain of its operating leases resulting in a reduction of its lease liabilities by $ 3,143 and $ 0 respectively, with a corresponding reduction in ROU assets.

During the year ended December 31, 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.

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

As a result of this analysis, the Company recognized impairment on ROU assets of $ 1,449 during year ended December 31, 2019, to write down the carrying value of operating lease right-of-use assets to its fair value.

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 years ended December 31, 2021 and 2020, the Company modified certain of its operating leases resulting in a reduction of its lease liabilities by $ 2,917 and $ 3,143 respectively, with a corresponding reduction in ROU assets.

As of December 31, 2021, the Company did not have any significant leases that have not yet commenced but that create significant rights and obligations for the Company.

During the years ended December 31, 2021 and 2020, the Company recognized nil impairment on ROU assets.

During the year ended December 31, 2019, the Company recognized an impairment charge on ROU assets related to its Health Integrated business of $ 1,449 , to write down the carrying value of operating lease right-of-use assets to its fair value.

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

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

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

Operating Leases Finance Leases

12 unchanged sentences

(In thousands, except share and per share amounts)

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

Operating Leases Finance Leases

2021 $ 25,829 $ 262

2022 24,316 194

2023 22,066 114

2024 17,084 36

2025 9,749 11

2026 and thereafter 34,334 —

Total lease payments $ 133,378 $ 617

Imputed interest 29,610 107

Present value of lease liabilities $ 103,768 $ 510

The components of income/(loss) before income taxes consist of the following:

7 unchanged sentences

2021 2020 2019

Current provision/(benefit):

Current provision:

Domestic $ 18,532 $ 7,946 $ 10,823

6 unchanged sentences

Income tax expense $ 31,850 $ 25,626 $ 15,172

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

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

Income taxes (deferred) recognized in AOCI were as follows:

Year ended December 31,

2021 2020 2019

Deferred tax (expense)/benefit recognized on:

Unrealized gain/(loss) on cash flow hedges $ ( 2,251 ) $ ( 683 ) $ 3,888

Deferred taxes benefit / (expense) recognized on:

Unrealized gain on cash flow hedges $ ( 2,308 ) $ ( 1,663 ) $ ( 1,564 )

Reclassification adjustment for cash flow hedges 1,530 ( 500 ) 1,173

Retirement benefits 897 312 ( 44 )

Retirement benefits (incl.

effects of tax rate changes) 194 935 312

Reclassification adjustment for retirement benefits ( 204 ) ( 127 ) 16

Foreign currency translation loss 1,953 ( 629 ) 5,903

Total income tax (expense)/benefit recognized in other comprehensive income/(loss) $ 598 $ ( 692 ) $ 10,685

Foreign currency translation gain/(loss) 3,016 1,946 ( 644 )

Total income tax benefit / (expense) recognized in AOCI $ 2,228 $ 591 $ ( 707 )

The effective income tax rate differs from the amount computed by applying the U.S.

federal statutory income tax rate to income before income taxes approximately as follows:

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

Year ended December 31,

3 unchanged sentences

Foreign tax rate differential 1,127 ( 1,991 ) 1,660

Deferred tax provision/(benefit) 2,888 3,026 ( 3,915 )

Deferred tax provision 350 2,888 3,026

Unrecognized tax benefits and interest 161 6 174

1 unchanged sentence

Non-deductible expenses 3,165 1,467 1,329

US Tax Reform Act impact — — 176

Excess tax benefit on stock-based compensation ( 3,651 ) ( 2,378 ) ( 2,306 )

1 unchanged sentence

Prior period items ( 931 ) ( 182 ) ( 143 )

Benefit on settlement of convertible notes ( 2,411 ) — —

Others 22 30 ( 586 )

Tax expense $ 31,850 $ 25,626 $ 15,172

The effective tax rate increased from 18.3 % during the year ended December 31, 2019 to 22.2 % during the year ended December 31, 2020.

The Company recorded income tax expense of $ 25,626 and $ 15,172 for the year ended December 31, 2020 and 2019, respectively.

The increase in income tax expense was primarily as a result of:

(i) higher profit during the year ended December 31, 2020 and (ii) recording of 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 during the year ended December 31, 2020, compared to a benefit of $ 1,449 recorded during the year ended December 31, 2019.

The effective tax rate decreased from 22.2 % during the year ended December 31, 2020 to 21.7 % during the year ended December 31, 2021.

The Company recorded income tax expense of $ 31,850 and $ 25,626 for the years ended December 31, 2021 and 2020, respectively.

The increase in income tax expense was primarily as a result of higher profit during the year ended December 31, 2021, compared to the year ended December 31, 2020, increase in state taxes and increase in non-deductible expense during the year ended December 31, 2021, partially offset by (i) the recording of higher excess tax benefits related to stock awards of $ 3,651 pursuant to ASU No.

2016-09 during the year ended December 31, 2021, compared to $ 2,378 during the year ended December 31, 2020, and (ii) the recording of a one-time deferred tax benefit of $ 2,411 on settlement of the Notes during the year ended December 31, 2021.

During the year 2018, the Company made an election to change the tax status of most of its controlled foreign corporations (“CFC”) to disregarded entities for U.S.

2 unchanged sentences

The Transition Tax resulted in previously taxed income (“PTI”) which may be subject to withholding taxes and currency gains or losses upon repatriation.

The Company periodically evaluate opportunities to repatriate PTI held by its foreign subsidiaries to fund its operations in the United States and other geographies, and as and when it decides to repatriate such PTI, it may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions.

The Company periodically evaluates opportunities to repatriate PTI held by its foreign subsidiaries to fund its operations in the United States and other geographies, and as and when it decides to repatriate such PTI, it may have to accrue additional taxes in accordance with local tax laws, rules and regulations in the relevant foreign jurisdictions.

The Company has adopted an accounting policy to treat Global Intangible Low-Taxed Income (“GILTI”) as a period cost.

Certain operations centers in India, which were established in SEZs, are eligible for tax incentives until 2025.

These operations centers are eligible for a 100 % income tax exemption for first 5 years of operations and 50 % exemption for a period of 5 years thereafter.

In 2019, the Government of India introduced a new tax regime for certain Indian companies by enacting the Taxation Laws (Amendment) Act, 2019.

The new tax regime is optional and provides for a lower tax rate for Indian companies, subject to certain conditions which among other things includes not availing of specified exemptions or incentives.

In 2019 and 2020, the Company elected this new tax regime for its Indian subsidiaries to obtain the benefit of a lower tax rate.

The Company has also benefitted from a corporate tax holiday in the Philippines for our operations centers established there over the last several years.

The tax holiday expired for few of the Company’s operations centers in the last few years and will expire for other operations centers by year 2022, which may lead to an increase in the Company’s overall tax rate.

Following the expiry of the tax exemption, income generated from operations centers in the Philippines will be taxed at the prevailing annual tax rate, which is currently 5.0 % on gross income.

The diluted earnings per share effect of the tax holiday is $ 0.02 , $ 0.17 and $ 0.16 for the years ended December 31, 2020, 2019 and 2018, respectively.

EXLSERVICE HOLDINGS, INC.

2 unchanged sentences

(In thousands, except share and per share amounts)

During the year ended December 31, 2021, the Company repatriated to the United States $ 66,000 (net of $ 3,494 withholding taxes) from India and $ 42,500 (net of $ 7,494 withholding taxes) from the Philippines.

As of December 31, 2021, the Company’s deferred tax assets includes $ 10,988 of withholding taxes associated with these distributions.

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 whether there exists an economically viable rate of return on its investments made in India and the Philippines as compared to those made in the United States.

The Company has benefitted from a corporate tax holiday in the Philippines for our operations centers established there over the last several years.

Following the expiry of the tax exemption, income generated from operations centers in the Philippines will be taxed at the prevailing annual tax rate, which is currently 5.0 % on gross income.

The diluted earnings per share effect of the tax holiday is nil , $ 0.02 and $ 0.17 for the years ended December 31, 2021, 2020 and 2019, respectively.

The components of the deferred tax balances as of December 31, 2021 and 2020 are as follows:

1 unchanged sentence

Deferred tax assets:

Tax credit carryforward $ 16,236 $ —

Depreciation and amortization expense 10,722 9,710

1 unchanged sentence

Accrued employee costs and other expenses 13,264 12,208

Net operating loss carry forward 2,042 2,896

Net operating loss carryforwards 2,057 2,042

Unrealized exchange loss 408 391

7 unchanged sentences

Intangible assets 28,119 19,720

Unamortized discount on convertible senior notes 2,753 3,395

Unamortized discount on convertible notes — 2,753

Others 3,957 6,566

2 unchanged sentences

Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying values of assets and liabilities and their respective tax bases and operating loss carry forwards.

At December 31, 2020 and 2019, the Company performed an analysis of the deferred tax asset valuation allowance for net operating loss carry forward for its domestic and foreign entities.

Based on this analysis, the Company continues to carry a valuation allowance on the deferred tax assets on certain net operating loss carry forwards.

Accordingly, the Company had recorded a valuation allowance of $ 188 and $ 202 as of December 31, 2020 and 2019, respectively.

As of December 31, 2021 and 2020, the Company performed an analysis of the deferred tax asset valuation allowance for its net operating loss carryforwards for its domestic and foreign entities.

Based on this analysis, the Company continues to carry a valuation allowance of $ 188 on the deferred tax assets on certain net operating loss carryforwards, as of December 31, 2021 and 2020.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

The Company’s income tax expense also includes the impact of provisions established for uncertain income tax positions determined in accordance with ASC 740.

6 unchanged sentences

Balance as of January 1 $ 907 $ 1,047 $ 804

Increases related to prior year tax positions — 69 —

Decreases/(increases) related to prior year tax positions ( 12 ) — 69

Decreases related to prior year tax positions — ( 324 ) ( 156 )

2 unchanged sentences

The unrecognized tax benefits as of December 31, 2021 of $ 1,068 , if recognized, would impact the effective tax rate.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

The Company has no t recognized any interest in each of the years ended December 31, 2020, 2019 and 2018.

As of December 31, 2021 and 2020, the Company has no t accrued interest and penalties relating to unrecognized tax benefits.

Stock Based Compensation

On June 15, 2018, at the Company’s 2018 Annual Meeting of Stockholders, the Company's stockholders approved the 2018 Plan, which among other things, reserves 3,175,000 shares of the Company’s common stock for grants of awards under the 2018 Plan.

As of December 31, 2020, the Company had 2,333,557 shares available for grant under the 2018 Plan (includes 76,145 shares against vested performance-based restricted stock units for which the underlying common stock was issued subsequent to December 31, 2020).

Under the 2018 Plan, the Compensation Committee (the “Committee”) may grant awards of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, performance based compensation awards (including cash bonus awards and market condition based awards) or any combination of the foregoing.

On June 15, 2018, at the Company’s 2018 Annual Meeting of Stockholders, the Company's stockholders approved the 2018 Omnibus Incentive Plan, which among other things, reserves 3,175,000 shares of the Company’s common stock for grants of awards under the 2018 Omnibus Incentive Plan.

As of December 31, 2021, the Company had 1,777,687 shares available for grant under the 2018 Omnibus Incentive Plan (includes 120,440 shares against vested performance-based restricted stock units for which the underlying common stock was issued subsequent to December 31, 2021).

Under the 2018 Omnibus Incentive Plan, the Compensation Committee (the “Committee”) may grant awards of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, performance based compensation awards (including cash bonus awards and market condition based awards) or any combination of the foregoing.

The Committee determines which employees are eligible to receive the equity awards, the number of equity awards to be granted, the exercise price, the vesting period and the exercise period.

5 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

Year ended December 31,

4 unchanged sentences

Total $ 38,621 $ 28,235 $ 26,070

Income tax benefit related to share-based compensation, including excess tax benefits $ 9,424 $ 8,330 $ 7,986

Stock Options

3 unchanged sentences

The Company accounts for the forfeitures as and when the actual forfeitures occur.

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

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

18 unchanged sentences

Cash received from options exercised during the year $ 710 $ 1,501 $ 986

Restricted Stock Units

EXLSERVICE HOLDINGS, INC.

2 unchanged sentences

(In thousands, except share and per share amounts)

Restricted Stock and Restricted Stock Units

An award of restricted stock is a grant of shares subject to conditions and restrictions set by the Committee.

The grant or the vesting of an award of restricted stock may be conditioned upon service to the Company or its affiliates or upon the attainment of performance goals or other factors, as determined in the discretion of the Committee.

The Committee may also, in its discretion, provide for the lapse of restrictions imposed upon an award of restricted stock.

Holders of an award of restricted stock may have, with respect to the restricted stock granted, all of the rights of a stockholder, including the right to vote and to receive dividends.

The Committee is authorized to award restricted stock units to participants.

1 unchanged sentence

The terms and conditions of each restricted stock award will be reflected in a restricted stock unit agreement.

Any cash or in-kind dividends paid with respect to unvested shares of restricted stock and restricted stock units are withheld by the Company and paid to the holder of such shares of restricted stock, without interest, only if and when such shares of restricted stock and restricted stock units vest.

Any unvested shares of restricted stock and restricted stock units are immediately forfeited without consideration upon the termination of holder’s employment with the Company or its affiliates.

Accordingly, the Company’s unvested restricted stock and restricted stock units do not include non-forfeitable rights to dividends or dividend equivalents and are therefore not considered as participating securities for purposes of earnings per share calculations pursuant to the two-class method.

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

Restricted Stock Restricted Stock Units

Any cash or in-kind dividends paid with respect to unvested shares of restricted stock units are withheld by the Company and paid to the holder of such shares of restricted stock, without interest, only if and when such shares of restricted stock units vest.

Any unvested shares of restricted stock units are immediately forfeited without consideration upon the termination of holder’s employment with the Company or its affiliates.

Accordingly, the Company’s unvested restricted stock units do not include non-forfeitable rights to dividends or dividend equivalents and are therefore not considered as participating securities for purposes of earnings per share calculations pursuant to the two-class method.

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

Restricted Stock Units

Number Weighted-

Fair Value Number Weighted-

Outstanding at December 31, 2020 **

7 unchanged sentences

** As of December 31, 2021 and 2020, restricted stock units vested for which the underlying common stock is yet to be issued are 162,481 and 181,638 , respectively.

The fair value of restricted stock and restricted stock units is generally the market price of the Company’s shares on the date of grant.

The fair value of restricted stock units is generally the market price of the Company’s shares on the date of grant.

As of December 31, 2021, unrecognized compensation cost of $ 57,897 is expected to be expensed over a weighted average period of 2.5 years.

3 unchanged sentences

Weighted-average fair value $ 91.23 $ 76.99 $ 64.29

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

The total grant date fair value of restricted stock and restricted stock units vested was as follows:

The total grant date fair value of restricted stock units vested was as follows:

Year ended December 31,

2 unchanged sentences

Performance Based Stock Awards

Under the 2018 Plan, the Company grants PRSUs to executive officers and other specified employees.

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

Generally the grants provide that 50 % of the PRSUs cliff vest at the end of a three-year period based on an aggregated revenue target for a three year period (“PUs”).

The remaining 50 % is based on a market condition (“MUs”) that is contingent on the Company's meeting the total shareholder return (“TSR”) 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 200 % of the PRSUs granted based on the actual achievement of targets.

The remaining 50 % is 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

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

program measured over a three-year performance period.

During the year ended December 31, 2021, the Company granted PRSUs that cliff vest at the end of a three year period based only on a market condition stated above.

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

However, the features of the equity incentive compensation program are subject to change by the Compensation Committee of our Board of Directors.

13 unchanged sentences

The fair value of each MU granted to employees is estimated on the date of grant using the following weighted average assumptions:

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

Year ended December 31,

4 unchanged sentences

Volatility for expected life 65.24 % 34.30 % 20.52 %

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

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

14 unchanged sentences

The Healthcare reportable segment was based on segment reporting structure that existed prior to the Company's transition to new segment reporting structure effective January 1, 2020, which resulted in certain changes to its reportable segments.

In connection with the wind down process, the Company recorded pre-tax costs in the consolidated statements of income under “Impairment and restructuring charges”.

The following table summarizes the activity related to the restructuring costs incurred and paid for the wind down during the year ended December 31, 2020 and 2019:

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

Contract Termination Costs Employee-Related Costs Other Associated Costs Total

Balance as of January 1, 2019

$ — $ — $ — $ —

Costs incurred during the year

2,597 1,375 1,072 5,044

Payments during the year

( 1,000 ) ( 269 ) ( 701 ) ( 1,970 )

Balance as of December 31, 2019

$ 1,597 $ 1,106 $ 371 $ 3,074

Change in estimated costs during the year

( 556 ) — — ( 556 )

Payments during the year ( 1,041 ) ( 1,106 ) ( 371 ) ( 2,518 )

Balance as of December 31, 2020 $ — $ — $ — $ —

Additionally, the Company recognized impairment of ROU assets and long-lived assets of $ 0 and $ 3,627 during the years ended December 31, 2020 and 2019, respectively, in the consolidated statements of income under “Impairment and restructuring charges".

During the year ended December 31, 2019, in connection with the wind down process, the Company recorded pre-tax costs in the consolidated statements of income under “Impairment and restructuring charges,” and paid for the wind down during the years ended December 31, 2020 and 2019.

Related Party Disclosures

2 unchanged sentences

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

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

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

Refer to Note 18 – Borrowings to the consolidated financial statements for details.

The Company settled the Notes on August 27, 2021.

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

The principal amount outstanding for the Notes was $ 150,000 as of December 31, 2020, and interest accrued of $ 1,313 as of December 31, 2020, related to the Investment Agreement.

The following transactions with the Purchaser were recognized by the Company in connection with the Notes:

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

Year ended December 31

2021 2020 2019

Interest expense on Notes $ 5,250 $ 5,206 $ 1,313

Repayment of Notes in cash $ 200,000 $ — $ —

Issuance of shares of the Company's common stock $ 36,742 $ — $ —

Interest expense on the Notes $ 3,442 $ 5,250 $ 5,206

Commitments and Contingencies

Capital Commitments

At December 31, 2020 and 2019, the Company had committed to spend approximately $ 6,100 and $ 6,500 , respectively under agreements to purchase property and equipment.

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

At December 31, 2021 and 2020, the Company had committed to spend approximately $ 8,100 and $ 6,100 under agreements to purchase property and equipment.

This amount is net of capital advances paid which are recognized in consolidated balance sheets as “Capital work in progress” under “Property and equipment, net.”

Other Commitments

1 unchanged sentence

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

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

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

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

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 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.

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.

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.

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 December 31, 2020.

The aggregate amount demanded by income tax authorities (net of advance payments, if any) from the Company related to its transfer pricing issues for tax years 2003 to 2015 and its permanent establishment issues for tax years 2003 to 2007 as of December 31, 2020 and 2019 is $ 16,748 and $ 16,220 , respectively, of which the Company has made payments and/or provided bank guarantees to the extent $ 8,120 and $ 8,108 , respectively.

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 unrelated entities.

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.

In addition, the Company and a U.S.

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

The aggregate amount demanded by Indian tax authorities (net of advance payments) 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 December 31, 2021 and 2020 is $ 34,276 and $ 16,748 , respectively.

The Company has made payments and/or provided bank guarantees against these demands in the amounts of $ 7,954 and $ 8,120 , respectively.

Amounts paid as deposits in respect of such assessments aggregating to $ 6,172 and $ 6,307 as of December 31, 2021 and 2020, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to $ 1,782 and $ 1,813 as of December 31, 2021 and 2020, respectively, are included in “Restricted cash” in the non-current assets section of the Company’s 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 consolidated financial statements.

The Company does not expect any impact from these assessments on its future income tax expense.

It is possible that the Company might receive similar orders or assessments from tax authorities for subsequent years.

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

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2021

(In thousands, except share and per share amounts)

India’s Value Added Tax ("VAT") regime ended in June 2017 and was replaced by the current Goods and Service Tax regime.

Pursuant to reviewing the Company’s annual VAT filings, the Indian tax authorities raised aggregate VAT tax demands for tax years 2015 and 2017 in the amount $ 6,387 .

Beginning in the first quarter of 2020, the GST authorities began to reject the Company’s GST refunds in the amount of $ 3,322 , and additional refunds may be denied.

The Company has filed appeals against these matters and believes that it is more likely than not that upon final examination its position will be sustained based on its technical merits.

Accordingly, no reserve has been provided as of December 31, 2021.

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.

9 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

December 31, 2020

(In thousands, except share and per share amounts)

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.

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, 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-K

Item 9A. Controls and Procedures