What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-07-28 compared with 2022-04-28 · 463 added, 269 removed, 831 unchanged (47% of the section changed)

3 unchanged sentences

(In thousands, except per share amount and share count)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Current assets:

38 unchanged sentences

Common stock, $ 0.001 par value;

100,000,000 shares authorized, 39,794,154 shares issued and 33,328,744 shares outstanding as of March 31, 2022 and 39,508,340 shares issued and 33,291,482 shares outstanding as of December 31, 2021

100,000,000 shares authorized, 39,795,161 shares issued and 33,124,035 shares outstanding as of June 30, 2022 and 39,508,340 shares issued and 33,291,482 shares outstanding as of December 31, 2021

Additional paid-in capital 420,306 395,742

2 unchanged sentences

Total including shares held in treasury 1,115,133 1,062,445

6,465,410 shares as of March 31, 2022 and 6,216,858 shares as of December 31, 2021, held in treasury, at cost

6,671,126 shares as of June 30, 2022 and 6,216,858 shares as of December 31, 2021, held in treasury, at cost

( 429,480 ) ( 369,289 )

6 unchanged sentences

(In thousands, except per share amount and share count)

Three months ended March 31,

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

2022 2021 2022 2021

Revenues, net $ 346,782 $ 275,064 $ 675,990 $ 536,479

11 unchanged sentences

Interest expense ( 1,502 ) ( 2,520 ) ( 2,378 ) ( 4,994 )

Other income, net 2,411 1,410

Other income/(loss), net ( 174 ) 2,215 2,237 3,625

Income before income tax expense and earnings from equity affiliates 46,828 36,878 94,094 77,803

17 unchanged sentences

(In thousands)

Three months ended March 31,

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

2022 2021 2022 2021

Net income $ 35,846 $ 28,021 $ 72,024 $ 59,952

Other comprehensive income/(loss):

Unrealized gain/(loss) on cash flow hedges ( 517 ) 568

Unrealized loss on cash flow hedges ( 14,632 ) ( 871 ) ( 15,149 ) ( 303 )

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

Foreign currency translation loss ( 22,782 ) ( 4,775 ) ( 30,227 ) ( 6,686 )

3 unchanged sentences

Retirement benefits (2)

149 176 304 355

Income tax effects relating to above (3)

3,656 1,478 4,620 1,702

Total other comprehensive income/(loss) $ ( 35,068 ) $ ( 7,992 ) $ ( 43,900 ) $ ( 11,761 )

2 unchanged sentences

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

(2) These are reclassified to net income and are included in other income, net in the unaudited consolidated statements of income.

(2) These are reclassified to net income and are included in other income/(loss), net in the unaudited consolidated statements of income.

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

4 unchanged sentences

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the three months ended March 31, 2022 and 2021

For the three months ended June 30, 2022 and 2021

(In thousands, except share count)

1 unchanged sentence

Shares Amount Shares Amount

Balance as of January 1, 2022 39,508,340 $ 40 $ 395,742 $ 756,137 $ ( 89,474 ) ( 6,216,858 ) $ ( 369,289 ) $ 693,156

Balance as of March 31, 2022 39,794,154 $ 40 $ 406,966 $ 792,315 $ ( 98,306 ) ( 6,465,410 ) $ ( 400,674 ) $ 700,341

Stock issued against stock-based compensation plans 1,007 — — — — — — —

3 unchanged sentences

Net income — — — 35,846 — — — 35,846

Balance as of June 30, 2022 39,795,161 $ 40 $ 420,306 $ 828,161 $ ( 133,374 ) ( 6,671,126 ) $ ( 429,480 ) $ 685,653

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

Shares Amount Shares Amount

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

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

Stock-based compensation — — 10,070 — — — — 10,070

Acquisition of treasury stock — — — — — ( 287,044 ) ( 28,409 ) ( 28,409 )

Other comprehensive loss — — — — ( 7,992 ) — — ( 7,992 )

Net income — — — 28,021 — — — 28,021

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

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the six months ended June 30, 2022 and 2021

(In thousands, except share count)

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

6 unchanged sentences

Net income — — — 72,024 — — — 72,024

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

Balance as of June 30, 2022 39,795,161 $ 40 $ 420,306 $ 828,161 $ ( 133,374 ) ( 6,671,126 ) $ ( 429,480 ) $ 685,653

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

Shares Amount Shares Amount

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

Stock issued against stock-based compensation plans 315,801 — 173 — — — — 173

Stock-based compensation — — 17,902 — — — — 17,902

Acquisition of treasury stock — — — — — ( 625,526 ) ( 57,424 ) ( 57,424 )

Other comprehensive loss — — — — ( 11,761 ) — — ( 11,761 )

Net income — — — 59,952 — — — 59,952

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

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

(In thousands)

Three months ended March 31,

Six months ended June 30,

Cash flows from operating activities:

Net income $ 72,024 $ 59,952

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

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

Depreciation and amortization expense 27,739 24,734

1 unchanged sentence

Amortization of operating lease right-of-use assets 12,005 13,632

Unrealized gain on short term investments ( 384 ) ( 1,103 )

Unrealized (gain)/loss on short term investments ( 275 ) 6,777

Unrealized foreign currency exchange gain, net ( 10,280 ) ( 2,634 )

Deferred income tax benefit ( 1,462 ) ( 14,737 )

Allowance for expected credit losses 34 48

Allowance / (reversal) of expected credit losses 170 ( 390 )

Fair value changes in contingent consideration 1,000 —

(Gain)/loss from equity-method investment ( 257 ) 28

11 unchanged sentences

Operating lease liabilities ( 11,922 ) ( 13,327 )

Net cash (used for)/provided by operating activities ( 26,870 ) 15,205

Net cash provided by operating activities 53,008 53,943

Cash flows from investing activities:

4 unchanged sentences

Proceeds from redemption of investments 82,567 64,031

Net cash used for investing activities ( 4,694 ) ( 26,029 )

Net cash (used for)/provided by investing activities ( 40,987 ) 11,668

Cash flows from financing activities:

4 unchanged sentences

Proceeds from exercise of stock options — 174

Net cash provided by/(used for) financing activities 3,576 ( 28,997 )

Net cash used for financing activities ( 35,266 ) ( 131,357 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 5,365 ) ( 2,237 )

11 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

22 unchanged sentences

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

(b) Use of Estimates

The preparation of the unaudited consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the unaudited consolidated statements of income during the reporting period.

Although these estimates are based on management’s best assessment of the current

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

business environment, actual results may be different from those estimates.

(b) Investments

The Company’s short-term investments consist of investments in mutual funds and those term deposits with more than three months of original maturity and less than twelve months of remaining maturity as of the reporting date, while long-term investments consist of term deposits with more than twelve months of remaining maturity as of the reporting date.

The Company’s investments in term deposits with financial institutions are measured and recognized at cost and approximate fair value.

Interest earned on such investments is included in interest income.

The Company’s mutual fund investments are in debt funds invested in India.

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

The fair value is represented by original cost on the acquisition date and the net asset value (“NAV”) as quoted, at each reporting period and any changes in fair value are included in other income/(loss), net.

Gain or loss on the disposal of these investments is calculated using the weighted average cost of the investments sold or disposed and is included in other income/(loss), net.

The preparation of the unaudited consolidated financial statements in conformity with U.S.

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

The significant estimates and assumptions that affect the unaudited consolidated financial statements include, but are not limited to, estimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, including revenue projections and discount rate applied within the discounted cash flow model for business acquisitions, 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, and recoverability of long-lived assets, goodwill and intangibles.

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

(d) Recent Accounting Pronouncements

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

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

13 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

Segment and Geographical Information

7 unchanged sentences

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

The December 2021 acquisition of Clairvoyant AI Inc.

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

The December 2021 and June 2022 acquisition of Clairvoyant AI Inc.

(“Clairvoyant”) and Inbound Media Group, LLC (“Inbound”), respectively, are both included in the Analytics reportable segment.

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

Revenues and cost of revenues for the three months ended June 30, 2022 and 2021, respectively, for each of the reportable segments, are as follows:

Three months ended June 30, 2022

Insurance Healthcare Emerging Business Analytics Total

Revenues, net $ 108,557 $ 23,051 $ 53,873 $ 161,301 $ 346,782

Cost of revenues (1)

70,645 17,694 31,214 101,654 221,207

Gross profit (1)

$ 37,912 $ 5,357 $ 22,659 $ 59,647 $ 125,575

Operating expenses 78,494

Foreign exchange gain, interest expense and other loss, net ( 253 )

Income tax expense 11,125

Gain from equity-method investment 143

Net income $ 35,846

(1) Exclusive of depreciation and amortization expense.

Three months ended June 30, 2021

Insurance Healthcare Emerging Business Analytics Total

Revenues, net $ 94,719 $ 28,250 $ 40,690 $ 111,405 $ 275,064

Cost of revenues (1)

59,359 17,685 22,346 71,311 170,701

Gross profit (1)

$ 35,360 $ 10,565 $ 18,344 $ 40,094 $ 104,363

Operating expenses 68,533

Foreign exchange gain, interest expense and other income, net 1,048

Income tax expense 8,865

Gain from equity-method investment 8

Net income $ 28,021

(1) Exclusive of depreciation and amortization expense.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

Revenues and cost of revenues for the three months ended March 31, 2022 and 2021, respectively, for each of the reportable segments, are as follows:

Three months ended March 31, 2022

Revenues and cost of revenues for the six months ended June 30, 2022 and 2021, respectively, for each of the reportable segments, are as follows:

Six months ended June 30, 2022

Insurance Healthcare Emerging Business Analytics Total

10 unchanged sentences

(1) Exclusive of depreciation and amortization expense.

Three months ended March 31, 2021

Six months ended June 30, 2021

Insurance Healthcare Emerging Business Analytics Total

11 unchanged sentences

Revenues, net by service type, were as follows:

Three months ended March 31,

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

2022 2021 2022 2021

Digital operations and solutions (1)

4 unchanged sentences

Refer to the reportable segment disclosure above.

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

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

Three months ended March 31,

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

2022 2021 2022 2021

Revenues, net

6 unchanged sentences

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Long-lived assets

8 unchanged sentences

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Accounts receivable, net $ 237,453 $ 194,232

3 unchanged sentences

Consideration received for process transition activities $ 4,327 $ 2,203

Accounts receivable includes $ 123,123 and $ 93,336 as of March 31, 2022 and December 31, 2021, respectively, representing unbilled receivables.

Accounts receivable includes $ 122,943 and $ 93,336 as of June 30, 2022 and December 31, 2021, respectively, representing unbilled receivables.

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

4 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

3 unchanged sentences

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

Revenue recognized during the three months ended March 31, 2022 and 2021, which was included in the contract liabilities balance at the beginning of the respective periods:

Three months ended March 31,

Deferred revenue (consideration received in advance)

Revenue recognized during the three and six months ended June 30, 2022 and 2021, which was included in the contract liabilities balance at the beginning of the respective periods:

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

2022 2021 2022 2021

Deferred revenue (consideration received in advance) $ 4,306 $ 3,332 $ 13,870 $ 26,953

Consideration received for process transition activities $ 298 $ 508 $ 664 $ 1,187

1 unchanged sentence

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

Contract Acquisition Costs Contract Fulfillment Costs

Quarter Ended Year Ended Quarter Ended Year Ended

March 31, 2022 March 31, 2021 December 31, 2021 March 31, 2022 March 31, 2021 December 31, 2021

Contract Acquisition Costs

Three months ended Six months ended Year ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 December 31, 2021

Opening Balance $ 927 $ 785 $ 511 $ 1,027 $ 1,027

2 unchanged sentences

Closing Balance $ 983 $ 867 $ 983 $ 867 $ 511

There was no impairment for contract acquisition and contract fulfillment costs as of March 31, 2022 and December 31, 2021.

Contract Fulfillment Costs

Three months ended Six months ended Year ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 December 31, 2021

Opening Balance $ 7,435 $ 4,419 $ 5,795 $ 5,631 $ 5,631

Additions 3,308 158 5,485 164 3,742

Amortization ( 576 ) ( 883 ) ( 1,113 ) ( 2,101 ) ( 3,578 )

Closing Balance $ 10,167 $ 3,694 $ 10,167 $ 3,694 $ 5,795

There was no impairment for contract acquisition and contract fulfillment costs as of June 30, 2022 and December 31, 2021.

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

2 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.

March 31, 2022 December 31, 2021

Accounts receivable, including unbilled receivables $ 239,867 $ 194,805

Allowance for expected credit losses ( 588 ) ( 573 )

Accounts receivable, net $ 239,279 $ 194,232

In calculating expected credit loss, the Company also considered past payment trends, credit rating and other related credit information for its

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

significant customers to estimate the probability of default in the future and estimates relating to the possible effects resulting from COVID-19.

June 30, 2022 December 31, 2021

Accounts receivable, including unbilled receivables $ 238,297 $ 194,805

Allowance for expected credit losses ( 844 ) ( 573 )

Accounts receivable, net $ 237,453 $ 194,232

The movement in “Allowance for expected credit losses” on customer balances was as follows:

Three months ended Year ended

March 31, 2022 March 31, 2021 December 31, 2021

Three months ended Six months ended Year ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 December 31, 2021

Balance at the beginning of the period $ 588 $ 1,183 $ 573 $ 1,189 $ 1,189

13 unchanged sentences

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.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

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

Three months ended March 31,

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

2022 2021 2022 2021

Net income $ 35,846 $ 28,021 $ 72,024 $ 59,952

9 unchanged sentences

Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share 0 1,748 541 874

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

(In thousands, except per share amount and share count)

Cash, Cash Equivalents and Restricted Cash

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

March 31, 2022 March 31, 2021 December 31, 2021

June 30, 2022 June 30, 2021 December 31, 2021

Cash and cash equivalents $ 106,304 $ 150,211 $ 135,337

2 unchanged sentences

Cash, cash equivalents and restricted cash $ 115,200 $ 157,536 $ 143,810

Other Income, net

Other income, net consists of the following:

Three months ended March 31,

Other Income/(Loss), net

Other income/(loss), net consists of the following:

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

2022 2021 2022 2021

Gain on sale and mark-to-market of mutual funds and money market funds $ 634 $ 1,655 $ 1,870 $ 2,758

1 unchanged sentence

Others, net ( 1,655 ) ( 129 ) ( 1,850 ) ( 424 )

Other income, net $ 2,411 $ 1,410

Other income/(loss), net $ ( 174 ) $ 2,215 $ 2,237 $ 3,625

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

2 unchanged sentences

Estimated useful lives As of

(Years) March 31, 2022 December 31, 2021

(Years) June 30, 2022 December 31, 2021

Owned Assets:

23 unchanged sentences

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

During the three months ended March 31, 2022, there were no changes in estimated useful lives of property and equipment during the ordinary course of operations.

During the three and six months ended June 30, 2022, 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 unaudited consolidated statements of income was as follows:

Three months ended March 31,

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

2022 2021 2022 2021

Depreciation and amortization expense $ 9,929 $ 8,913 $ 19,045 $ 17,653

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

Three months ended March 31,

Effect of foreign exchange gain $ 67 $ 165

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

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

2022 2021 2022 2021

Effect of foreign exchange gain/(loss) $ ( 5 ) $ 158 $ 62 $ 323

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Cost $ 27,015 $ 19,289

2 unchanged sentences

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

Three months ended March 31

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

2022 2021 2022 2021

Amortization expense $ 1,549 $ 1,055 $ 2,582 $ 2,079

As of March 31, 2022 and December 31, 2021, the Company believes no impairment exists because the long-lived asset's future undiscounted net cash flows expected to be generated exceeds its carrying value;

As of June 30, 2022 and December 31, 2021, 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.

9 unchanged sentences

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 March 31, 2022 and December 31, 2021, of the total purchase consideration, the Company has paid $ 78,198 and $ 76,831 , respectively, 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” and “Accrued expenses and other current liabilities,” as applicable, as of March 31, 2022 and December 31, 2021 in the consolidated balance sheets.

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

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

The aggregate purchase consideration payable was $ 90,325 , including cash and cash equivalents acquired, debt, other post-closing adjustments and contingent consideration.

The base purchase consideration payable at closing of the acquisition (the “Closing”) was $ 80,080 , excluding cash and cash equivalents acquired, debt and estimated other post-closing adjustments.

As of June 30, 2022 and December 31, 2021, of the total purchase consideration, the Company has paid $ 78,234 and $ 76,831 , respectively, net of cash and cash equivalents acquired.

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

The contingent consideration had an estimated fair value of $ 10,000 and $ 9,000 , as of June 30, 2022 and December 31, 2021, respectively, and has been presented as contingent consideration under “Other non-current liabilities” and “Accrued expenses and other current liabilities,” as applicable, in the consolidated balance sheets.

Changes in the fair value of contingent consideration were recognized in the unaudited consolidated statements of income and presented as a part of

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

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.

“Other income/(loss), net.” 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 the 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 accounted for the business combination using the acquisition method of accounting.

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

5 unchanged sentences

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 was as follows:

The tables below presents the fair value of the consideration exchanged and the allocation of purchase consideration to the major classes of assets and liabilities of Clairvoyant as of December 16, 2021:

Cash and cash equivalents

14 unchanged sentences

Total purchase consideration*

* 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 post-closing working capital and debt adjustments and reflect management’s best estimates and assumptions as of the reporting date.

During the three months ended March 31, 2022, the Company recognized measurement period adjustments, which led to increase in goodwill in an amount of $ 1,148 .

The adjustments related to measurement of favorable lease intangibles of $ 160 included under “other assets” and reserves for various tax matters of $ 988 included under “other current liabilities.”

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

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 .

* Includes contingent consideration of $ 9,000 recognized at fair value as of the date of acquisition .

During the three and six months ended June 30, 2022, the Company recognized measurement period adjustments, which led to increase in goodwill in an amount of $ 1,081 and $ 2,229 , respectively.

These adjustments primarily relate to an increase in income tax liabilities of $ 988 included under “other non-current liabilities” and post-closing purchase adjustments.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

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

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.

4 unchanged sentences

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 $ 134 and $ 761 during the three months ended and year ended March 31, 2022 and December 31, 2021, respectively.

The Company recognized acquisition-related costs of $ nil and $ 134 during the three and six months ended June 30, 2022, respectively, and $ 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 supplemental pro forma results.

Inbound Media Group, LLC

On June 10, 2022, the Company, through its wholly owned subsidiary ExlService.com, LLC, entered into an Asset Purchase Agreement to acquire certain assets of Inbound, a Wyoming limited liability company, which is a digital marketing business focused primarily on lead generation in the insurance space, for cash consideration of $ 1,469 and contingent consideration with an estimated fair value of $ 1,439 as of the date of acquisition based on the achievement of certain performance goals by Inbound during the 2022 to 2024 calendar years.

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

Goodwill and intangible assets of $ 1,992 and $ 916 , respectively, were recognized by the Company as a result of this transaction.

The goodwill recognized for this business is deductible for income tax purposes.

The acquisition strengthens the Company’s capabilities in digital direct-to-consumer marketing by adding performance marketing, lead generation and customer engagement capabilities to its suite of end-to-end marketing solutions, proprietary data sets and robust consumer analytics.

The results of operations of the acquired business and the fair value of the net assets acquired 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 following table sets forth details of changes in goodwill by reportable segment of the Company:

1 unchanged sentence

Balance at January 1, 2022 $ 50,428 $ 21,942 $ 49,020 $ 282,512 $ 403,902

Acquisition — — — 1,992 1,992

Measurement period adjustments — — — 2,229 2,229

Currency translation adjustments ( 399 ) ( 39 ) ( 1,109 ) ( 1 ) ( 1,548 )

Balance at March 31, 2022 $ 50,312 $ 21,930 $ 48,659 $ 283,660 $ 404,561

Balance at June 30, 2022 $ 50,029 $ 21,903 $ 47,911 $ 286,732 $ 406,575

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

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

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

As of March 31, 2022, the Company evaluated the continuing effects of COVID-19 and its impact on the global economy on each of the Company’s reporting units to assess whether there was a triggering event during the quarter requiring the Company to perform a goodwill impairment test.

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

As of June 30, 2022, the Company evaluated the continuing effects of COVID-19 and its impact on the global economy, on each of the Company’s reporting units to assess whether there was a triggering event during the quarter requiring the Company to perform a goodwill impairment test.

The Company considered certain improvements in current and forecasted economic and market conditions and qualitative factors, such as the Company’s performance in the first and second quarters, business forecasts for the remainder of the year, stock price movements, generation and availability of cash and expansion plans.

The Company reviewed key assumptions, including revisions of projected future revenues for reporting units against the results of the annual impairment test performed during the fourth quarter of 2021.

The Company did not identify any triggers or indications of potential impairment for its reporting units as of March 31, 2022.

The Company did not identify any triggers or indications of potential impairment for its reporting units as of June 30, 2022.

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

6 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

(In thousands, except per share amount and share count)

Intangible Assets

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

As of March 31, 2022

As of June 30, 2022

Carrying Amount Accumulated

9 unchanged sentences

Total intangible assets $ 126,960 $ ( 53,662 ) $ 73,298

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

As of December 31, 2021

10 unchanged sentences

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

Three months ended March 31,

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

2022 2021 2022 2021

Amortization expense $ 4,146 $ 3,397 $ 8,632 $ 6,758

4 unchanged sentences

Non-compete agreements 3.3

Estimated future amortization expense related to finite-lived intangible assets as of June 30, 2022 was as follows:

2022 (July 1 - December 31) $ 8,445

2027 and thereafter 16,313

Total $ 72,398

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

Estimated future amortization expense related to finite-lived intangible assets as of March 31, 2022 was as follows:

2022 (April 1 - December 31) $ 12,514

2027 and thereafter 16,011

Total $ 75,678

Other Current Assets

Other current assets consist of the following:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Receivables from statutory authorities $ 13,299 $ 18,023

7 unchanged sentences

Other assets consist of the following:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Long-term investments $ 22,997 $ 186

Lease deposits 9,251 9,649

Deposits with statutory authorities 7,277 6,417

Deferred contract fulfillment costs 8,852 4,312

Deposits with statutory authorities 6,516 6,417

Derivative instruments 1,043 6,307

1 unchanged sentence

Receivable from Statutory authorities 225 222

Term deposits 184 186

Others 3,535 2,071

2 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

1 unchanged sentence

Accrued expenses and other current liabilities consist of the following:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Accrued expenses $ 47,611 $ 44,405

Payable to statutory authorities 15,032 13,902

Derivative instruments 6,617 1,852

Client liabilities 6,461 6,097

Contingent consideration 5,280 —

Accrued capital expenditures 2,277 8,630

Derivative instruments 1,774 1,852

Interest payable 282 252

4 unchanged sentences

Other non-current liabilities consist of the following:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Retirement benefits $ 11,029 $ 9,604

Contingent consideration 6,159 9,000

Deferred transition revenue 2,069 995

Derivative instruments 3,978 1,785

Unrecognized tax benefits 2,142 1,068

Deferred transition revenue 2,957 995

Finance lease liabilities 262 229

6 unchanged sentences

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 March 31, 2022 and 2021 are as follows:

The balances as of June 30, 2022 and 2021 are as follows:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

Accumulated Other Comprehensive Income/(Loss)

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

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

Balance as of January 1, 2022 $ ( 95,437 ) $ 8,420 $ ( 2,457 ) $ ( 89,474 )

4 unchanged sentences

979 3,733 ( 92 ) 4,620

Accumulated other comprehensive income/(loss) as of March 31, 2022 $ ( 102,383 ) $ 6,426 $ ( 2,349 ) $ ( 98,306 )

Accumulated other comprehensive income/(loss) as of June 30, 2022 $ ( 124,685 ) $ ( 6,444 ) $ ( 2,245 ) $ ( 133,374 )

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

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

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

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

Reclassification to net income (1)

2 unchanged sentences

1,229 595 ( 122 ) 1,702

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

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

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

1 unchanged sentence

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

(In thousands, except per share amount and share count)

Fair Value Measurements

Assets and Liabilities Measured at Fair Value

The following table sets forth the Company’s assets and liabilities that were accounted for at fair value as of March 31, 2022 and December 31, 2021:

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

As of March 31, 2022 (Level 1) (Level 2) (Level 3) Total

Cash and cash equivalents (money market funds)* $ 137 $ — $ — $ 137

The following table sets forth the Company’s assets and liabilities that were accounted for at fair value as of

June 30, 2022 and December 31, 2021:

Quoted Prices

Identical Assets Significant

Inputs Significant

As of June 30, 2022 (Level 1) (Level 2) (Level 3) Total

Cash equivalents - Money market funds*

$ 332 $ — $ — $ 332

Mutual funds** 107,425 — — 107,425

3 unchanged sentences

Contingent consideration***

— — 11,439 11,439

Total $ — $ 10,595 $ 11,439 $ 22,034

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

Quoted Prices

Identical Assets Significant

Inputs Significant

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

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

Cash equivalents - Money market funds*

$ 5,374 $ — $ — $ 5,374

Mutual funds** 127,551 — — 127,551

3 unchanged sentences

Contingent consideration***

— — 9,000 9,000

Total $ — $ 3,637 $ 9,000 $ 12,637

4 unchanged sentences

The Company’s derivative financial instruments consist of foreign currency forward exchange contracts.

Fair values for derivative financial instruments are based on independent sources including highly rated financial institutions and are classified

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

(In thousands, except per share amount and share count)

Fair values for derivative financial instruments are based on independent sources including highly rated financial institutions and are classified as Level 2.

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

1 unchanged sentence

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.

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

The measurement is calculated using unobservable inputs based on the Company’s own assessment of achievement of certain performance goals by Clairvoyant during the 2022 and 2023 calendar years and Inbound during the 2022 to 2024 calendar years.

The Company estimated the fair value of the contingent consideration to be $ 11,439 and $ 9,000 , as of June 30, 2022 and December 31, 2021, respectively, based on the Monte Carlo simulation model and scenario-based method.

Refer to Note 9 - Business Combination, Goodwill and Intangible Asset s to the unaudited 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 (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.

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, accounts receivable, net, interest accrued on short-term and long-term investments, long-term investments, accrued capital expenditures, accrued expenses, client liabilities and interest payable on borrowings for which fair values approximate their carrying amounts.

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.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

Derivatives and Hedge Accounting

1 unchanged sentence

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

The Company had outstanding cash flow hedges totaling $ 566,940 as of March 31, 2022 and $ 514,580 as of December 31, 2021.

The Company had outstanding cash flow hedges totaling $ 568,300 as of June 30, 2022 and $ 514,580 as of December 31, 2021.

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

2 unchanged sentences

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

The Company estimates that approximately $ 5,443 of derivative gains, net, excluding tax effects, included in AOCI, representing changes in the value of cash flow hedges, could be reclassified into earnings within the next twelve months based on exchange rates prevailing as of March 31, 2022.

At March 31, 2022, the maximum outstanding term of the cash flow hedges was approximately 39 months.

The Company estimates that approximately $ 3,795 of derivative losses, net, excluding tax effects, included in AOCI, representing changes in the value of cash flow hedges based on exchange rates prevailing as of June 30, 2022, could be reclassified into earnings within the next twelve months.

At June 30, 2022, the maximum outstanding term of the cash flow hedges was approximately 42 months.

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

4 unchanged sentences

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 163,442 , GBP 7,948 and EUR 1,630 as of March 31, 2022 and USD 134,612 , GBP 6,763 , EUR 1,343 and COP 2,541,902 as of December 31, 2021.

Outstanding foreign currency forward contracts amounted to USD 156,066 , GBP 8,700 , EUR 1,736 and COP 2,777,668 as of June 30, 2022 and USD 134,612 , GBP 6,763 , EUR 1,343 and COP 2,541,902 as of December 31, 2021.

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.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

(In thousands, except per share amount and share count)

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

3 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

Derivatives designated as hedging instruments:

Foreign currency exchange contracts March 31, 2022 December 31, 2021

Foreign currency exchange contracts June 30, 2022 December 31, 2021

Other current assets $ 2,727 $ 8,669

3 unchanged sentences

Derivatives not designated as hedging instruments:

Foreign currency exchange contracts March 31, 2022 December 31, 2021

Foreign currency exchange contracts June 30, 2022 December 31, 2021

Other current assets $ 138 $ 13

Accrued expenses and other current liabilities $ 95 $ 528

The following tables set forth the effect of foreign currency exchange contracts on accumulated other comprehensive income/(loss) and the unaudited consolidated statements of income for the three months ended March 31, 2022 and 2021:

Three months ended March 31,

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

Forward Exchange Contracts:

Unrealized gain/(loss) recognized in AOCI

2022 2021 2022 2021

Unrealized loss recognized in AOCI

Derivatives in cash flow hedging relationships $ ( 14,632 ) $ ( 871 ) $ ( 15,149 ) $ ( 303 )

Gain/(loss) recognized in unaudited consolidated statements of income

Loss recognized in unaudited consolidated statements of income

Derivatives not designated as hedging instruments $ ( 5,457 ) $ ( 805 ) $ ( 6,356 ) $ ( 589 )

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

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

Three months ended March 31,

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

Three months ended June 30,

As per unaudited consolidated

statements of

on foreign currency exchange contracts As per unaudited consolidated

statements of

income Gain on foreign currency exchange contracts

Cash flow hedging relationships

5 unchanged sentences

Total before tax 1,459 2,866

Income tax expense relating to above ( 515 ) ( 389 )

Income tax effects on above ( 420 ) ( 427 )

Net of tax $ 1,039 $ 2,439

3 unchanged sentences

$ 1,423 $ ( 5,457 ) $ 1,353 $ ( 805 )

The following tables summarizes the Company’s debt position as of March 31, 2022 and December 31, 2021:

As of March 31, 2022

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

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

Six months ended June 30,

As per unaudited consolidated

statements of

income Gain on foreign currency exchange contracts As per unaudited consolidated

statements of

on foreign currency exchange contracts

Cash flow hedging relationships

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

Cost of revenues $ 428,723 $ 2,777 $ 329,522 $ 4,842

General and administrative expenses $ 80,379 475 $ 67,202 546

Selling and marketing expenses $ 48,155 29 $ 37,959 28

Depreciation and amortization expense $ 27,677 167 $ 24,411 279

Total before tax 3,448 5,695

Income tax effects on above ( 935 ) ( 816 )

Net of tax $ 2,513 $ 4,879

Derivatives not designated as hedging instruments

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

Foreign exchange gain/(loss), net $ 3,179 $ ( 6,356 ) $ 1,787 $ ( 589 )

$ 3,179 $ ( 6,356 ) $ 1,787 $ ( 589 )

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

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

Amount of loss recognized in AOCI Amount of loss recognized in AOCI

Net investment hedging relationships 2022 2021 2022 2021

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

The following tables summarizes the Company’s debt position:

As of June 30, 2022

As of December 31, 2021

2 unchanged sentences

Long-term borrowings

250,000 250,000 — —

Total borrowings $ 285,000 $ 285,000 $ 260,016 $ 260,016

Unamortized debt issuance costs for the Company’s revolving Credit Facility of $ 198 and $ 232 as of March 31, 2022 and December 31, 2021, respectively, are presented under “Other current assets” and “Other assets,” as applicable in the consolidated balance sheets.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

Unamortized debt issuance costs for the Company’s revolving Credit Facility of $ 1,314 and $ 232 as of June 30, 2022 and December 31, 2021, respectively, are presented under “Other current assets” and “Other assets,” as applicable in the consolidated balance sheets.

Credit Agreement

2 unchanged sentences

The Credit Facility had a maturity date of November 21, 2022 and was voluntarily pre-payable from time to time without premium or penalty.

On April 18, 2022, the Company entered into an Amendment and Restatement Agreement with Citibank, N.A.

as Administrative Agent and certain lenders (the “2022 Credit Agreement”).

Refer to Note 24 – Subsequent Events to the unaudited consolidated financial statements.

On April 18, 2022, the Company and each of the Company’s wholly owned material domestic subsidiaries entered into an Amendment and Restatement Agreement with Citibank, N.A.

as Administrative Agent and certain lenders (the “2022 Credit Agreement”), pursuant to which the parties thereto amended and restated the Credit Agreement.

Among other things, the 2022 Credit Agreement (a) provides for the issuance of new revolving credit commitments such that the aggregate amount of revolving credit commitments available to the Company is equal to $ 400,000 ;

(b) extends the maturity date of the Credit Facility from November 21, 2022 to April 18, 2027;

and (c) replaces LIBOR with Secured Overnight Financing Rate (“SOFR”) as the reference rate for the U.S.

dollar borrowings.

The 2022 Credit Agreement provides an option to increase the commitments by up to $ 200,000 , subject to certain approvals and conditions.

The 2022 Credit Agreement includes a letter of credit sub facility and is voluntarily pre-payable from time to time without premium or penalty.

Borrowings under the 2022 Credit Agreement can be used for working capital and general corporate purposes, including permitted acquisitions.

Obligations under the 2022 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 2022 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 certain assets or subsidiaries.

The Credit Facility carried an effective interest rate as shown below:

Three months ended March 31

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

2022 2021 2022 2021

Effective Interest Rate 2.0 % 1.8 % 1.7 % 1.9 %

As of March 31, 2022 and December 31, 2021, the Company was in compliance with all financial and non-financial covenants listed under the Credit Agreement.

As of June 30, 2022 and December 31, 2021, the Company was in compliance with all financial and non-financial covenants listed under the Credit Agreement.

Convertible Senior Notes

4 unchanged sentences

On August 27, 2021, the Company entered into a Payoff and Termination Agreement with the Purchaser, pursuant to which the Company prepaid and settled its outstanding obligations under the Notes, by electing a combination of cash and shares of the Company’s common stock.

During the three months ended March 31, 2021, the Company recognized interest expense and amortization of debt discount of $ 1,986 on the Notes.

Expected payments for all of the Company's borrowings as of March 31, 2022 were as follows:

During the three and six months ended June 30, 2021, the Company recognized interest expense and amortization of debt discount of $ 2,003 and $ 3,989 , respectively, on the Notes.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

Expected payments for all of the Company’s borrowings as of June 30, 2022 were as follows:

Revolving Credit Facility Interest Payments*

2022 (April 1 - December 31) $ 35,000 $ 2,723

2022 (July 1 - December 31) $ 25,000 $ 4,273

2023 10,000 7,850

2027 and thereafter 250,000 2,900

Total $ 285,000 $ 38,225

* Interest payments are based on effective interest rate as of June 30, 2022.

Letters of Credit

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

As of March 31, 2022 and December 31, 2021, the Company had outstanding letters of credit of $ 461 , each, that were not recognized in the consolidated balance sheets.

As of June 30, 2022 and December 31, 2021, the Company had outstanding letters of credit of $ 461 , each, that were not recognized in the consolidated balance sheets.

Capital Structure

2 unchanged sentences

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

Three months ended March 31, 2022 27,219 $ 3,191 $ 117.23

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

Three months ended June 30, 2022 — $ — $ —

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

Six months ended June 30, 2022 27,219 $ 3,191 $ 117.23

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

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

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”).

2 unchanged sentences

Repurchases may be discontinued at any time by the management.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

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

Three months ended March 31, 2022 221,333 $ 28,194 $ 127.38

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

(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.

Three months ended June 30, 2022 205,716 $ 28,806 $ 140.03

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

Six months ended June 30, 2022 427,049 $ 57,000 $ 133.47

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

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.

5 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

(In thousands, except per share amount and share count)

Components of net periodic benefit costs, were as follows:

Three months ended March 31,

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

2022 2021 2022 2021

Service cost $ 958 $ 885 $ 1,948 $ 1,774

10 unchanged sentences

The Company expects to earn a return of approximately 7.2 % per annum on the India Plan for the year ended December 31, 2022.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

Change in Plan Assets

4 unchanged sentences

Effect of exchange rate changes ( 785 )

Plan assets at March 31, 2022 $ 13,149

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

Plan assets at June 30, 2022

* Benefits payments were substantially made through the plan assets during the six-months ended June 30, 2022.

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

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

Three months ended March 31,

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

2022 2021 2022 2021

Contribution to the 401(k) Plans $ 1,026 $ 753 $ 3,043 $ 2,052

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

Three months ended March 31,

Contributions to the defined benefit plans

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

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

2022 2021 2022 2021

Contributions to the defined social security contribution plans $ 4,549 $ 3,418 $ 8,762 $ 6,712

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

1 unchanged sentence

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

(In thousands, except per share amount and share count)

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

3 unchanged sentences

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.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

Supplemental balance sheet information

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Operating Lease

12 unchanged sentences

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

Lease cost Three months ended March 31, 2022 Three months ended March 31, 2021

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

Finance lease:

2022 2021 2022 2021

Amortization of right-of-use assets $ 50 $ 50 $ 88 $ 102

Interest on lease liabilities 14 22 28 39

64 72 116 141

Operating lease (a)

5,962 6,871 12,005 13,632

Variable lease costs 1,408 2,053 2,529 3,893

2 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

(In thousands, except per share amount and share count)

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

Three months ended March 31,

Six months ended June 30,

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

4 unchanged sentences

Right-of-use assets obtained in exchange for new finance lease liabilities $ 118 $ 50

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

Weighted-average remaining lease term (in years)

5 unchanged sentences

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.

The Company modified certain of its operating leases, resulting in an increase of its lease liabilities by $ 367 and $ 169 during the three months ended March 31, 2022 and 2021, respectively, with a corresponding adjustment to ROU assets.

As of March 31, 2022 and 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.

Maturities of lease liabilities as of March 31, 2022 were as follows:

The Company modified certain of its operating leases, resulting in an increase of its lease liabilities by $ 263 and a decrease of its lease liabilities by $ 226 during the six months ended June 30, 2022 and 2021, respectively, with a corresponding adjustment to ROU assets.

As of June 30, 2022 and 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.

Maturities of lease liabilities as of June 30, 2022 were as follows:

Operating Leases Finance Leases

2022 (April 1 - December 31) $ 18,480 $ 142

2022 (July 1 - December 31) $ 11,801 $ 94

2023 22,246 175

6 unchanged sentences

Present value of lease liabilities $ 77,772 $ 389

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

(In thousands, except per share amount and share count)

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

9 unchanged sentences

Present value of lease liabilities $ 86,993 $ 370

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

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

1 unchanged sentence

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

The Company's effective tax rate increased from 21.9 % during the three months ended March 31, 2021 to 23.7 % during the three months ended March 31, 2022.

The Company recorded income tax expense of $ 11,202 and $ 8,958 for the three months ended March 31, 2022 and 2021, respectively.

The increase in the income tax expense was primarily as a result of higher profit during the three months ended March 31, 2022 compared to the three months ended March 31, 2021, and an increase in non-deductible expenses, partially offset by higher excess tax benefits during the three months ended March 31, 2022.

The Company’s effective tax rate decreased from 24.0 % during the three months ended June 30, 2021 to 23.8 % during the three months ended June 30, 2022.

The Company recorded income tax expense of $ 11,125 and $ 8,865 for the three months ended June 30, 2022 and 2021, respectively.

The increase in income tax expense was primarily as a result of higher profit during the three months ended June 30, 2022, compared to the three months ended June 30, 2021.

The Company’s effective tax rate increased from 22.9 % during the six months ended June 30, 2021 to 23.7 % during the six months ended June 30, 2022.

The Company recorded income tax expense of $ 22,327 and $ 17,823 for the six months ended June 30, 2022 and 2021, respectively.

The increase in income tax expense was primarily as a result of higher profit during the six months ended June 30, 2022, compared to the six months ended June 30, 2021, and an increase in non-deductible expenses, partially offset by higher excess tax benefits during the six months ended June 30, 2022.

Effective for taxable years beginning after December 31, 2021, Internal Code Section 174, Amortization of Research and Experimental Expenditures , provides that research and experimentation expenses can no longer be currently deducted, and instead are required to be capitalized.

Such capitalized expenses are to be amortized over a period of five and fifteen years for the U.S.

and foreign research, respectively.

Although this change has no impact on the income statement due to offsetting current tax expense with corresponding deferred tax benefit, the change has resulted in an increase of $ 13,929 in the current tax liability and deferred tax asset balances, presented under “Income taxes payable, net” and “Deferred tax assets, net,” respectively, in the unaudited consolidated balance sheets as of June 30, 2022.

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

Three months ended March 31,

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

2022 2021 2022 2021

Deferred taxes benefit / (expense) recognized on:

Unrealized gain/(loss) on cash flow hedges $ ( 3 ) $ ( 398 )

Unrealized loss on cash flow hedges $ 2,801 $ 177 $ 2,798 $ ( 221 )

Reclassification adjustment for cash flow hedges 420 427 935 816

4 unchanged sentences

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

Three months ended March 31,

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

2022 2021 2022 2021

Cost of revenues $ 3,131 $ 1,854 $ 5,772 $ 3,390

5 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

June 30, 2022

(In thousands, except per share amount and share count)

As of March 31, 2022, the Company had 1,256,384 shares available for grant under the 2018 Omnibus Incentive Plan.

As of June 30, 2022, the Company had 1,250,148 shares available for grant under the 2018 Omnibus Incentive Plan.

Stock Options

7 unchanged sentences

Forfeited — — — —

Outstanding at March 31, 2022 3,093 $ 27.62 $ 358 1.8

Vested and exercisable at March 31, 2022 3,093 $ 27.62 $ 358 1.8

Outstanding at June 30, 2022 3,093 $ 27.62 $ 370 1.5

Vested and exercisable at June 30, 2022

3,093 $ 27.62 $ 370 1.5

Share Matching Program

Under the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”), the Company established a share matching program (“SMP”) for executive officers and other specified employees.

Under the SMP, the Company agreed to issue a number of restricted stock units equal to the number of newly acquired shares of the Company's common stock.

For purposes of the match, “newly acquired shares” includes the employee’s open market purchase of the common stock and crediting of equity awards vesting under any existing stock award plan of the Company as having been purchased by such employees, in an amount between $ 100 to $ 500 per such employee.

The matching restricted stock units granted under the SMP will vest in two installments, with one-third to vest on the second anniversary of the grant date and the remaining two-thirds to vest on the third anniversary of the grant date;

the newly acquired shares for which the matching restricted stock units were granted must also be held by the employee until such vesting dates.

The Company’s underlying common stock issued pursuant to the vesting of the matching restricted stock units will not be marketable or transferable for a period of two years following the vesting date.

Certain forfeiture and other conditions apply.

During the six months ended June 30, 2022, the Company granted 52,636 matching restricted stock units under the SMP.

Restricted Stock Units

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

Restricted Stock Units

Restricted Stock Units (Others) Restricted Stock Units (SMP)

Number Weighted-Average

Fair Value Number Weighted-Average

Outstanding at December 31, 2021* 982,187 $ 81.61 — $ —

2 unchanged sentences

Forfeited ( 35,723 ) 95.11 — —

Outstanding at March 31, 2022* 1,055,269 $ 97.07

* As of March 31, 2022 and December 31, 2021 restricted stock units vested for which the underlying common stock is yet to be issued are 163,130 and 162,481 respectively.

As of March 31, 2022, unrecognized compensation cost of $ 92,797 is expected to be expensed over a weighted average period of 2.9 years.

Outstanding at June 30, 2022* 997,382 $ 97.08 52,636 $ 124.76

* As of June 30, 2022 and December 31, 2021 restricted stock units vested for which the underlying common stock is yet to be issued are 174,490 and 162,481 respectively.

As of June 30, 2022, unrecognized compensation cost of $ 85,851 is expected to be expensed over a weighted average period of 2.7 years.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

Performance Based Stock Awards

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

During the three months ended March 31, 2022, the Company granted 40 % of each award recipient’s equity grants in the form of PRSUs that cliff vest at the end of a three-year period based on an aggregated revenue target for a three year period.

During the six months ended June 30, 2022, the Company granted 40 % of each award recipient’s equity grants in the form of PRSUs that cliff vest at the end of a three-year period based on an aggregated revenue target for a three year period.

The remaining 60 % of each award recipient’s equity grants are PRSUs that are based on a market condition that is contingent on the Company’s meeting the total shareholder return relative to a group of peer companies specified under the program measured over a three-year performance period.

1 unchanged sentence

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

(In thousands, except per share amount and share count)

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

6 unchanged sentences

Forfeited ( 352 ) 119.98 ( 528 ) 155.67

Outstanding at March 31, 2022 111,566 $ 97.98 251,043 $ 126.93

As of March 31, 2022, unrecognized compensation cost of $ 33,048 is expected to be expensed over a weighted average period of 2.3 years.

Outstanding at June 30, 2022 111,214 $ 97.91 250,515 $ 126.88

As of June 30, 2022, unrecognized compensation cost of $ 29,712 is expected to be expensed over a weighted average period of 2.2 years.

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

Employee Stock Purchase Plan

On June 21, 2022, at the annual meeting of stockholders of the Company, the Company’s stockholders approved the ExlService Holdings, Inc.

2022 Employee Stock Purchase Plan (the “2022 ESPP”).

The 2022 ESPP was approved, subject to stockholder approval, by the board of directors of the Company on April 13, 2022.

The 2022 ESPP allows eligible employees to purchase the Company’s shares of common stock through payroll deductions at a pre-specified discount to the lower of closing price of the Company’s common shares on the date of offering or the last business day of each purchase interval.

The dollar amount of shares of common stock that can be purchased under the 2022 ESPP must not exceed 15 % of the participating employee’s compensation during the offering period, subject to a cap of $ 25 per employee per calendar year.

The first offering period under the 2022 ESPP is expected to occur in the fourth quarter of 2022.

The Company has registered 800,000 shares of common stock to be reserved for issuance over the term of the 2022 ESPP.

Related Party Disclosures

In April 2022, the Company entered into a service contract for providing analytics services to The Vanguard Group Inc.

which beneficially owns more than 10% of the Company’s common stock as of June 30, 2022.

During the three and six month periods ended June 30, 2022, the Company recognized revenues, net of $ 574 related to this service contract.

The Company had outstanding accounts receivable, net of $ 574 related to this service contract as of June 30, 2022.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

Commitments and Contingencies

Capital Commitments

At March 31, 2022, the Company had committed to spend approximately $ 6,300 under agreements to purchase property and equipment.

At June 30, 2022, the Company had committed to spend approximately $ 5,600 under agreements to purchase property and equipment.

This amount is net of capital advances paid which are recognized in the unaudited consolidated balance sheets as “Capital work in progress” under “Property and equipment, net.”

Other Commitments

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

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

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

3 unchanged sentences

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, investment and certain other criteria.

to meet certain performance investment criteria and certain other criteria, including but not limited to work-from-office norms, etc.

The Company believes that these centers have in the past complied with the requirements.

6 unchanged sentences

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 March 31, 2022 and December 31, 2021 is $ 30,711 and $ 34,276 , respectively.

The Company has made

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

(In thousands, except per share amount and share count)

payments and/or provided bank guarantees against these demands in the amounts of $ 8,760 and $ 7,954 , respectively.

Amounts paid as deposits in respect of such assessments aggregating to $ 7,012 and $ 6,172 as of March 31, 2022 and December 31, 2021, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to $ 1,748 and $ 1,782 as of March 31, 2022 and December 31, 2021, respectively, are included in “Restricted cash” in the non-current assets section of the Company’s unaudited consolidated balance sheets.

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 June 30, 2022 and December 31, 2021 is $ 29,474 and $ 34,276 , respectively.

The Company has made payments and/or provided bank guarantees against these demands in the amounts of $ 7,889 and $ 7,954 , respectively.

Amounts paid as deposits in respect of such assessments aggregating to $ 6,212 and $ 6,172 as of June 30, 2022 and December 31, 2021, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to $ 1,677 and $ 1,782 as of June 30, 2022 and December 31, 2021, respectively, are included in “Restricted cash” in the non-current assets section of the Company’s unaudited consolidated balance sheets.

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

2 unchanged sentences

India’s Value Added Tax (“VAT”) regime ended in June 2017 and was replaced by the current Goods and Service Tax (“GST”) 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 an amount of $ 6,031 and $ 6,387 as of March 31, 2022 and December 31, 2021, respectively.

Beginning in the first quarter of 2020, the GST authorities rejected the Company’s refunds claims in an amount of $ 3,259 and $ 3,322 as of March 31, 2022 and December 31, 2021, respectively.

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 provision was recognized as of March 31, 2022 and 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.

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

As of the reporting date, it is unclear whether the interpretation set out in the pronouncement has retrospective application.

If applied retrospectively, the interpretation may result in a significant increase in contributions payable by the Company for past periods for certain of its India-based employees.

There are numerous interpretative challenges concerning the retrospective application of the judgment.

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

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

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 an amount of $ 5,788 and $ 6,387 as of June 30, 2022 and December 31, 2021, respectively.

Beginning in the first quarter of 2020, the GST authorities rejected the Company’s refunds claims in an amount of $ 3,655 and $ 3,322 as of June 30, 2022 and December 31, 2021, respectively.

The Company has filed appeals against these

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

(In thousands, except per share amount and share count)

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 provision was recognized as of June 30, 2022 and December 31, 2021.

One of the Company’s subsidiaries in India is undergoing an assessment with the statutory authority with respect to defined social security contribution plan.

The Company believes that the amount demanded by such authority is not meaningful indicator of the potential liabilities of the Company, and that the matter is without merit, and the Company intends to vigorously defend against it.

As of the reporting date, based on legal advice, the Company believes it is currently impracticable to reliably estimate the timing and amount of any payments the Company may be required to make in this ongoing matter.

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

The Company’s management does not believe that any ultimate assessment will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

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

9 unchanged sentences

Based on the Company’s assessment, including the availability of insurance recoveries, the Company’s management does not believe that currently pending litigation, individually or in aggregate, will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2022

(In thousands, except per share amount and share count)

Subsequent Events

On April 18, 2022, the Company and each of the Company’s wholly owned material domestic subsidiaries entered into the 2022 Credit Agreement, pursuant to which the parties thereto amended and restated the Credit Agreement.

(b) extends the maturity date of the Credit Facility from November 21, 2022 to April 18, 2027;

and (c) replaces LIBOR with Secured Overnight Financing Rate (“SOFR”) as the reference rate for the U.S.

dollar borrowings.

The 2022 Credit Agreement provides an option to increase the commitments by up to $ 200,000 , subject to certain approvals and conditions.

The 2022 Credit Agreement includes a letter of credit sub facility and is voluntarily pre-payable from time to time without premium or penalty.

Borrowings under the 2022 Credit Agreement can be used for working capital and general corporate purposes, including permitted acquisitions.

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

What changed 10-Q

Item 1. Financial Statements