What changed in this filing

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Item 1. Financial Statements

2022-10-27 compared with 2022-07-28 · 403 added, 375 removed, 919 unchanged (46% of the section changed)

3 unchanged sentences

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Current assets:

3 unchanged sentences

Accounts receivable, net 256,911 194,232

Prepaid expenses 15,621 14,655

Advance income tax, net 12,712 15,199

Other current assets 54,509 62,971

6 unchanged sentences

Goodwill 405,781 403,902

Long-term investments 34,724 3,190

Other assets 29,838 30,183

Investment in equity affiliate 3,261 3,004

Total assets $ 1,318,728 $ 1,282,904

11 unchanged sentences

Operating lease liabilities, less current portion 54,174 68,506

Income taxes payable 1,790 1,790

Deferred tax liabilities, net 759 965

2 unchanged sentences

Commitments and contingencies (Refer to Note 25)

Preferred stock, $ 0.001 par value;

15,000,000 shares authorized, none issued

ExlService Holdings, Inc.

Stockholders’ equity:

Preferred stock, $ 0.001 par value;

15,000,000 shares authorized, none issued

Common stock, $ 0.001 par value;

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

100,000,000 shares authorized, 39,798,956 shares issued and 33,051,021 shares outstanding as of September 30, 2022 and 39,508,340 shares issued and 33,291,482 shares outstanding as of December 31, 2021

Additional paid-in capital 432,492 395,742

Retained earnings 867,256 756,137

Accumulated other comprehensive income/(loss) ( 133,374 ) ( 89,474 )

Accumulated other comprehensive loss ( 154,203 ) ( 89,474 )

Total including shares held in treasury 1,145,585 1,062,445

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

6,747,935 shares as of September 30, 2022 and 6,216,858 shares as of December 31, 2021, held in treasury, at cost

( 441,001 ) ( 369,289 )

Stockholders’ equity 685,653 693,156

Total equity 685,653 693,156

Total stockholders’ equity 704,584 693,156

Total liabilities and stockholders’ equity $ 1,318,728 $ 1,282,904

3 unchanged sentences

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

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

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

2022 2021 2022 2021

12 unchanged sentences

Interest expense ( 2,442 ) ( 1,810 ) ( 4,820 ) ( 6,804 )

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

Other income, net 2,261 1,721 4,498 5,346

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

Income before income tax expense and earnings from equity affiliates 51,434 30,675 145,528 108,478

1 unchanged sentence

Income before earnings from equity affiliates 38,987 26,479 110,754 86,459

Gain/(loss) from equity-method investment 143 8 257 ( 28 )

Gain from equity-method investment 108 28 365 —

Net income attributable to ExlService Holdings, Inc.

13 unchanged sentences

(In thousands)

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

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

2022 2021 2022 2021

1 unchanged sentence

Other comprehensive income/(loss):

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

Unrealized gain/(loss) on cash flow hedges ( 13,489 ) 261 ( 28,638 ) ( 42 )

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

1 unchanged sentence

Reclassification adjustments

Gain on cash flow hedges (1)

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

1,567 ( 2,150 ) ( 1,881 ) ( 7,845 )

3 unchanged sentences

10,090 ( 12 ) 14,710 1,690

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

Total other comprehensive loss ( 20,829 ) ( 5,512 ) ( 64,729 ) ( 17,273 )

Total comprehensive income $ 18,266 $ 20,995 $ 46,390 $ 69,186

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

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

Refer to Note 17 - Derivatives and Hedge Accounting to the unaudited consolidated financial statements.

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

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

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

(3) These are income tax effects 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 loss.

Refer to Note 22 - Income Taxes to the unaudited consolidated financial statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the three months ended June 30, 2022 and 2021

For the three months ended September 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

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

Shares Amount Shares Amount

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

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

Stock issued against stock-based compensation plans 3,795 — — — — — — —

3 unchanged sentences

Net income — — — 39,095 — — — 39,095

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

Balance as of September 30, 2022 39,798,956 $ 40 $ 432,492 $ 867,256 $ ( 154,203 ) ( 6,747,935 ) $ ( 441,001 ) $ 704,584

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

Shares Amount Shares Amount

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

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

Stock issued against stock-based compensation plans 28,372 — 536 — — — — 536

1 unchanged sentence

Acquisition of treasury stock — — — — — ( 244,580 ) ( 28,196 ) ( 28,196 )

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

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

Other comprehensive loss — — — — ( 5,512 ) — — ( 5,512 )

Net income — — — 26,507 — — — 26,507

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

Balance as of September 30, 2021 39,312,225 $ 39 $ 385,917 $ 727,838 $ ( 92,257 ) ( 5,968,330 ) $ ( 336,552 ) $ 684,985

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the six months ended June 30, 2022 and 2021

For the nine months ended September 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

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

Shares Amount Shares Amount

5 unchanged sentences

Net income — — — 111,119 — — — 111,119

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

Balance as of September 30, 2022 39,798,956 $ 40 $ 432,492 $ 867,256 $ ( 154,203 ) ( 6,747,935 ) $ ( 441,001 ) $ 704,584

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

Shares Amount Shares Amount

3 unchanged sentences

Acquisition of treasury stock — — — — — ( 870,106 ) ( 85,620 ) ( 85,620 )

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

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

Other comprehensive loss — — — — ( 17,273 ) — — ( 17,273 )

Net income — — — 86,459 — — — 86,459

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

Balance as of September 30, 2021 39,312,225 $ 39 $ 385,917 $ 727,838 $ ( 92,257 ) ( 5,968,330 ) $ ( 336,552 ) $ 684,985

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

(In thousands)

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities:

4 unchanged sentences

Amortization of operating lease right-of-use assets 17,365 20,012

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

Unrealized (gain)/loss on investments ( 475 ) 5,987

Unrealized foreign currency exchange gain, net ( 16,813 ) ( 3,799 )

2 unchanged sentences

Fair value changes in contingent consideration 1,000 —

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

Loss on settlement of convertible notes — 12,845

Amortization of non-cash interest expense related to convertible senior notes — 1,795

2 unchanged sentences

Accounts receivable ( 68,066 ) ( 44,871 )

Prepaid expenses and other current assets 2,861 189

Advance income tax, net 8,684 39

Other current assets 2,553 3,033

Income taxes payable, net 4,043 ( 5,685 )

Other assets ( 8,428 ) 2,485

11 unchanged sentences

Proceeds from redemption of investments 124,355 83,183

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

Net cash used for investing activities ( 75,182 ) ( 21,518 )

Cash flows from financing activities:

14 unchanged sentences

Supplemental disclosure of non-cash investing and financing activities:

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

Assets acquired under finance lease $ 218 $ 79

2 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2022

September 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.

For purposes of comparability, certain prior period amounts have been reclassified to conform to the current year presentation in accordance with U.S.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 30, 2022

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

(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.

(b) Use of Estimates

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

2 unchanged sentences

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.

(d) Recent Accounting Pronouncements

In March 2020, 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 London Inter-Bank Offered Rate (“LIBOR”).

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

GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

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

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

In October 2021, FASB issued ASU No.

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

Interest earned on such investments is included in other income, net.

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

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

(d) Derivative Financial Instruments

In the normal course of business, the Company uses derivative instruments to mitigate the exposure from risk of foreign currency and interest rate fluctuations.

The Company enters into foreign currency forward contracts to hedge cash flow risks from forecasted transactions denominated in certain foreign currencies, and interest rate swaps to hedge cash flow risks from its revolving credit facility having variable interest rate obligations.

These contracts adhere to the Company’s treasury operations’ objectives and policies to qualify as cash flow hedges, and are with counterparties that are highly rated financial institutions.

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.

The resultant foreign exchange gain/(loss) upon settlement of cash flow hedges of a forecast transaction are recorded in the unaudited 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 accumulated changes in the fair value of interest rate swaps recognized in AOCI are reclassed to the unaudited consolidated statements of income and are presented as a part of “Interest expense” over the term of the contract.

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 AOCI are reclassified to earnings.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

The Company also uses derivatives instruments consisting of foreign currency forward 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.

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

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

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

Gains and losses on these forward contracts are recognized in AOCI as part of the foreign currency translation adjustment.

All of the assets and liabilities related to the Company’s 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.

The Company has presented all of the assets and liabilities related to these contracts on a gross basis, with no offsets, in its consolidated statements of financial position.

There is no financial collateral (including cash collateral) provided or received by the Company related to these contracts.

(e) Recent Accounting Pronouncements

In October 2021, FASB issued Accounting Standard Update (“ASU”) No.

2021-08, Business Combinations (Topic 805):

5 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)

(f) Recently adopted Accounting Pronouncements

In March 2020, FASB issued ASU No.

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

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

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

GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

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

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

Segment and Geographical Information

7 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

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

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

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

Three months ended September 30, 2022

Insurance Healthcare Emerging Business Analytics Total

5 unchanged sentences

Operating expenses 80,778

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

Foreign exchange gain, interest expense and other income, net 1,323

Income tax expense 12,447

2 unchanged sentences

(1) Exclusive of depreciation and amortization expense.

Three months ended June 30, 2021

Three months ended September 30, 2021

Insurance Healthcare Emerging Business Analytics Total

5 unchanged sentences

Operating expenses 70,144

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

Loss on settlement of convertible notes, foreign exchange gain, interest expense and other income, net ( 11,763 )

Income tax expense 4,196

2 unchanged sentences

(1) Exclusive of depreciation and amortization expense.

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 30, 2022

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

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

Nine months ended September 30, 2022

Insurance Healthcare Emerging Business Analytics Total

10 unchanged sentences

(1) Exclusive of depreciation and amortization expense.

Six months ended June 30, 2021

Nine months ended September 30, 2021

Insurance Healthcare Emerging Business Analytics Total

5 unchanged sentences

Operating expenses 199,716

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

Loss on settlement of convertible notes, foreign exchange gain, interest expense and other income, net ( 11,345 )

Income tax expense 22,019

Loss from equity-method investment 28

Net income $ 86,459

1 unchanged sentence

Revenues, net by service type, were as follows:

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

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

2022 2021 2022 2021

8 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 30, 2022

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

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

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

2022 2021 2022 2021

7 unchanged sentences

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

June 30, 2022 December 31, 2021

September 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:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Accounts receivable, net $ 256,911 $ 194,232

3 unchanged sentences

Consideration received for process transition activities $ 4,515 $ 2,203

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

Accounts receivable includes $ 134,334 and $ 93,336 as of September 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)

June 30, 2022

September 30, 2022

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

1 unchanged sentence

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

Consideration received from customers, if any, relating to such transition activities are classified under contract liabilities and are included within “Deferred revenues” and “Other non-current liabilities” in the unaudited consolidated balance sheets.

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

Revenue recognized during the three and six months ended June 30, 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,

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

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

2022 2021 2022 2021

4 unchanged sentences

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

Three months ended Nine months ended Year ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 December 31, 2021

Opening Balance $ 983 $ 867 $ 511 $ 1,027 $ 1,027

Additions 180 374 727 374 277

Additions / (reductions) 78 ( 97 ) 805 277 277

Amortization ( 73 ) ( 158 ) ( 328 ) ( 692 ) ( 793 )

1 unchanged sentence

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

Three months ended Nine months ended Year ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 December 31, 2021

Opening Balance $ 10,167 $ 3,694 $ 5,795 $ 5,631 $ 5,631

2 unchanged sentences

Closing Balance $ 11,961 $ 3,280 $ 11,961 $ 3,280 $ 5,795

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

There was no impairment for contract acquisition and contract fulfillment costs as of September 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

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.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 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

September 30, 2022 December 31, 2021

Accounts receivable, including unbilled receivables $ 257,766 $ 194,805

2 unchanged sentences

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

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

Additions / (reductions) during the period 571 ( 445 ) 743 ( 395 ) ( 496 )

Three months ended Nine months ended Year ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 December 31, 2021

Opening Balance $ 844 $ 730 $ 573 $ 1,189 $ 1,189

Additions / (reductions) 9 ( 19 ) 752 ( 414 ) ( 496 )

Reductions due to write-off of Accounts Receivables — ( 41 ) ( 472 ) ( 114 ) ( 129 )

Translation adjustment 2 1 2 10 9

Balance at the end of the period $ 844 $ 730 $ 844 $ 730 $ 573

Closing Balance $ 855 $ 671 $ 855 $ 671 $ 573

Earnings Per Share

10 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 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 June 30, Six months ended June 30,

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

2022 2021 2022 2021

12 unchanged sentences

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

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

September 30, 2022 September 30, 2021 December 31, 2021

Cash and cash equivalents $ 89,262 $ 114,581 $ 135,337

2 unchanged sentences

Cash, cash equivalents and restricted cash $ 98,271 $ 123,693 $ 143,810

Other Income/(Loss), net

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

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

Investments consist of the following:

September 30, 2022 December 31, 2021

Short-term investments

Mutual funds $ 99,435 $ 127,551

Term deposits 73,454 51,879

Total Short-term investments $ 172,889 $ 179,430

Long-term investments

Term deposits $ 31,355 $ 186

Investment in equity affiliate 3,369 3,004

Total Long-term investments $ 34,724 $ 3,190

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

Other Income, net

Other income, net consists of the following:

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

2022 2021 2022 2021

2 unchanged sentences

Others, net ( 667 ) ( 273 ) ( 2,517 ) ( 697 )

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

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

Other income, net $ 2,261 $ 1,721 $ 4,498 $ 5,346

Property and Equipment, net

1 unchanged sentence

Estimated useful lives As of

(Years) June 30, 2022 December 31, 2021

(Years) September 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 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.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

During the three and nine months ended September 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 June 30, Six months ended June 30,

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

2022 2021 2022 2021

1 unchanged sentence

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)

June 30, 2022

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

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

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

2022 2021 2022 2021

1 unchanged sentence

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Cost $ 29,015 $ 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 June 30, Six months ended June 30,

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

2022 2021 2022 2021

Amortization expense $ 1,832 $ 1,086 $ 4,414 $ 3,165

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.

Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any.

As of September 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 assurance that long-lived assets will not be impaired in future periods.

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 undiscounted cash flows is subject to significant judgment and may cause variability in the Company’s assessment of the existence of any impairment.

Business Combination, Goodwill and Intangible Assets

Business Combinations, Goodwill and Intangible Assets

Clairvoyant AI Inc.

4 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 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)

June 30, 2022

September 30, 2022

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

“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.

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

As of September 30, 2022 and December 31, 2021, of the total purchase consideration, the Company has paid $ 78,984 and $ 76,831 , respectively, net of cash and cash equivalents acquired.

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

23 unchanged sentences

Total liabilities

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

Net assets acquired

1 unchanged sentence

* 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.

During the three and nine months ended September 30, 2022, the Company recognized measurement period adjustments, which led to increase in goodwill in an amount of $ nil 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)

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.

5 unchanged sentences

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 $ nil and $ 134 during the three and six months ended June 30, 2022, respectively, and $ 761 during the year ended December 31, 2021.

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

The Company recognized acquisition-related costs of $ nil and $ 134 during the three and nine months ended September 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.

8 unchanged sentences

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.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

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

Insurance Healthcare Emerging Business Analytics Total

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

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

Acquisition — — — 1,992 1,992

1 unchanged sentence

Currency translation adjustments ( 654 ) ( 57 ) ( 1,630 ) ( 1 ) ( 2,342 )

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 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.

Balance as of September 30, 2022 $ 49,774 $ 21,885 $ 47,390 $ 286,732 $ 405,781

As of September 30, 2022, the Company performed an assessment to determine whether events or circumstances exist that may lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

The Company considered current and forecasted economic and market conditions and qualitative factors, such as the Company’s performance during nine months of the current fiscal year, 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 June 30, 2022.

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

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 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.

The duration of 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 significant changes in key assumptions that could result in future period impairment charges.

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

3 unchanged sentences

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

As of June 30, 2022

As of September 30, 2022

Carrying Amount Accumulated

11 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 30, 2022

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

11 unchanged sentences

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

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

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

2022 2021 2022 2021

5 unchanged sentences

Non-compete agreements 3.0

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

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

2022 (October 1 - December 31) $ 4,228

2027 and thereafter 16,080

2 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 30, 2022

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

1 unchanged sentence

Other current assets consist of the following:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Advance income tax, net $ 19,040 $ 15,199

Receivables from statutory authorities 13,929 18,023

Derivative instruments 2,865 8,682

Prepaid expenses 13,723 14,655

Advances to suppliers 1,834 1,464

Deferred contract fulfillment costs 1,793 1,483

Derivative instruments 1,362 8,682

Contract assets 564 1,319

Interest accrued on term deposits 645 892

Others 2,264 2,146

1 unchanged sentence

Other assets consist of the following:

June 30, 2022 December 31, 2021

Long-term investments $ 22,997 $ 186

Lease deposits 9,251 9,649

September 30, 2022 December 31, 2021

Deferred contract fulfillment costs $ 10,168 $ 4,312

Lease deposits 8,592 9,649

Deposits with statutory authorities 6,362 6,417

Derivative instruments 1,043 6,307

Contract assets 616 1,205

Receivable from statutory authorities 226 222

Derivative instruments 219 6,307

Others 3,655 2,071

2 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 30, 2022

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

1 unchanged sentence

Accrued expenses and other current liabilities consist of the following:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Accrued expenses $ 47,351 $ 44,405

10 unchanged sentences

Other non-current liabilities consist of the following:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Retirement benefits $ 14,506 $ 9,604

Contingent consideration 6,159 9,000

Derivative instruments 8,114 1,785

Unrecognized tax benefits 2,142 1,068

Contingent consideration 6,159 9,000

Deferred transition revenue 3,272 995

Unrecognized tax benefits 2,186 1,068

Income taxes payable 1,790 1,790

Finance lease liabilities 300 229

3 unchanged sentences

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 unaudited 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 June 30, 2022 and 2021 are as follows:

In addition, the Company enters into foreign currency forward contracts and interest rate swaps, which are designated as cash flow hedges and net investment hedges, as applicable, in accordance with ASC 815.

Cumulative changes in the fair values of cash flow hedges are recognized in AOCI on the Company’s consolidated balance sheets.

The fair value changes are reclassified from AOCI to unaudited consolidated statements of income upon settlement of foreign currency forward contracts designated as cash flow hedges of a forecast transaction, whereas such changes are for interest rate swaps are reclassified over the term of the contract.

Fair value changes related to net investment hedges are included in AOCI and are reclassified to unaudited consolidated statements of income when a foreign operation is disposed or partially disposed.

The following table sets forth the changes in AOCI for the nine months ended September 30, 2022 and 2021:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 30, 2022

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

7 unchanged sentences

8,898 5,948 ( 136 ) 14,710

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

Accumulated other comprehensive income/(loss) as of September 30, 2022 $ ( 135,910 ) $ ( 16,151 ) $ ( 2,142 ) $ ( 154,203 )

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

5 unchanged sentences

1,859 ( 15 ) ( 154 ) 1,690

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

Accumulated other comprehensive income/(loss) as of September 30, 2021 $ ( 95,935 ) $ 5,897 $ ( 2,219 ) $ ( 92,257 )

(1) Refer to Note 17 - Derivatives and Hedge Accounting and Note 20 - Employee Benefit Plans to the unaudited consolidated financial statements for reclassification to net income.

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

(2) These are income tax effects recognized on cash flow hedges, retirement benefits and foreign currency translation loss.

Refer to Note 22 - Income Taxes to the unaudited consolidated financial statements.

1 unchanged sentence

Assets and Liabilities Measured at Fair Value

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

June 30, 2022 and December 31, 2021:

The following table sets forth the Company’s assets and liabilities that were recognized at fair value:

Quoted Prices

1 unchanged sentence

Inputs Significant

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

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

Cash equivalents - Money market funds*

9 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 30, 2022

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

12 unchanged sentences

Total $ — $ 3,637 $ 9,000 $ 12,637

* 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”.

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

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

*** Contingent consideration is presented under “Accrued Expenses and Other Current Liabilities” and “Other Non-Current Liabilities,” as applicable, in the consolidated balance sheets.

Derivative Financial Instruments:

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

The Company’s derivative financial instruments consist of foreign currency forward contracts and interest rate swaps.

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

4 unchanged sentences

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, 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.

The Company estimated the fair value of the contingent consideration based on the Monte Carlo simulation model and scenario-based method.

Refer to Note 10 - Business Combinations, Goodwill and Intangible Asset s to the unaudited consolidated financial statements for further details.

The following table summarizes the changes in the fair value of contingent consideration:

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

2022 2021 2022 2021

Opening balance $ 11,439 $ — $ 9,000 $ —

Acquisitions — — 1,439 —

Fair value changes — — 1,000 —

Closing balance

$ 11,439 $ — $ 11,439 $ —

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 30, 2022

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

During the three months and nine months ended September 30, 2022 and 2021 there were no transfers among Level 1, Level 2 and Level 3.

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

Derivatives and Hedge Accounting

The Company uses derivative instruments and hedging transactions to mitigate exposure to foreign currency fluctuation risks associated with forecasted transactions denominated in certain foreign currencies so as to minimize earnings and cash flow volatility associated with changes in foreign currency exchange rates.

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 $ 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.

The resultant foreign exchange gain/(loss) upon settlement of these cash flow hedges is recorded along with the underlying hedged item in the same line of unaudited consolidated statements of income as 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 $ 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.

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

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

The Company uses derivative instruments to mitigate cash flow volatility from risk of fluctuations in foreign currency exchange rates and interest rates.

These contracts qualify as cash flow hedges under ASC Topic 815 and are with counterparties that are highly rated financial institutions.

As of September 30, 2022 and December 31, 2021, the Company had outstanding foreign currency forward contracts totaling $ 604,560 and $ 514,580 , respectively and interest rate swaps totaling $ 75,000 and $ nil , respectively.

The Company estimates that approximately $ 10,757 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 September 30, 2022, could be reclassified into earnings within the next twelve months.

As of September 30, 2022, the maximum outstanding term of the cash flow hedges was approximately 45 months.

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

These foreign currency forward contracts do not qualify as fair value hedges under ASC Topic 815.

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

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

1 unchanged sentence

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 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.

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

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

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

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

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

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

Derivatives designated as hedging instruments:

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

Outstanding foreign currency forward contracts amounted to USD 162,473 , GBP 9,254 , EUR 1,906 and COP 3,619,127 as of September 30, 2022 and USD 134,612 , GBP 6,763 , EUR 1,343 and COP 2,541,902 as of December 31, 2021.

The following table sets forth the fair value of the foreign currency forward contracts and interest rate swaps and their location on the consolidated balance sheets:

Derivatives in cash flow hedging relationships Derivatives not designated as hedging instruments

Derivative financial instruments September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021

Other current assets $ 995 $ 8,669 $ 367 $ 13

2 unchanged sentences

Other non-current liabilities $ 8,114 $ 1,785 $ — $ —

Derivatives not designated as hedging instruments:

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 and six months ended June 30, 2022 and 2021:

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

Forward Exchange Contracts:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

The following tables set forth the effect of foreign currency forward contracts and interest rate swaps on AOCI and the unaudited consolidated statements of income:

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

Derivative financial instruments:

2022 2021 2022 2021

Unrealized loss recognized in AOCI

Unrealized gain/(loss) recognized in AOCI

Derivatives in cash flow hedging relationships $ ( 13,489 ) $ 261 $ ( 28,638 ) $ ( 42 )

1 unchanged sentence

Derivatives not designated as hedging instruments $ ( 4,889 ) $ ( 464 ) $ ( 11,245 ) $ ( 1,054 )

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

Three months ended June 30,

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

Three months ended September 30,

As per unaudited consolidated

statements of

on foreign currency exchange contracts As per unaudited consolidated

income Loss on derivative financial instruments As per unaudited consolidated

statements of

income Gain on foreign currency exchange contracts

income Gain/(loss) on derivative financial instruments

Cash flow hedging relationships

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

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

Cost of revenues $ 230,462 $ ( 1,381 ) $ 177,743 $ 1,801

2 unchanged sentences

Depreciation and amortization expense $ 14,380 ( 71 ) $ 12,305 115

Interest expense $ 2,442 — $ 1,810 —

Total before tax ( 1,567 ) 2,150

3 unchanged sentences

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

Foreign exchange gain/(loss), net $ 1,423 $ ( 5,457 ) $ 1,353 $ ( 805 )

Foreign exchange gain, net $ 1,504 $ ( 4,889 ) $ 1,171 $ ( 464 )

$ 1,504 $ ( 4,889 ) $ 1,171 $ ( 464 )

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 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,

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

Nine months ended September 30,

As per unaudited consolidated

statements of

income Gain on foreign currency exchange contracts As per unaudited consolidated

income Gain/(loss) on derivative financial instruments

As per unaudited consolidated

statements of

on foreign currency exchange contracts

income Gain/(loss) on derivative financial instruments

Cash flow hedging relationships

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

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

Cost of revenues $ 659,185 $ 1,396 $ 507,265 $ 6,643

2 unchanged sentences

Depreciation and amortization expense $ 42,057 96 $ 36,716 394

Interest expense $ 4,820 — $ 6,804 —

Total before tax 1,881 7,845

3 unchanged sentences

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

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

Foreign exchange gain, net $ 4,683 $ ( 11,245 ) $ 2,958 $ ( 1,054 )

$ 4,683 $ ( 11,245 ) $ 2,958 $ ( 1,054 )

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

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

Three months ended September 30, Nine months ended September 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

Foreign currency forward contracts $ — $ — $ — $ 1,134

The following tables summarizes the Company’s debt position:

As of June 30, 2022

As of September 30, 2022

As of December 31, 2021

Revolving Credit Facility Total Revolving Credit Facility Total

Credit Facility

Current portion of long-term borrowings $ 35,000 $ 260,016

Long-term borrowings

250,000 250,000 — —

Total borrowings $ 270,000 $ 260,016

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 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.

Unamortized debt issuance costs for the Company’s revolving Credit Facility of $ 1,245 and $ 232 as of September 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

14 unchanged sentences

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

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

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

2022 2021 2022 2021

Effective Interest Rate 3.4 % 2.3 % 2.3 % 2.0 %

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.

As of September 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

3 unchanged sentences

The Company had the option to redeem the principal amount of the Notes, at its option, 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).

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 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

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

shares of the Company’s common stock.

During the three and nine months ended September 30, 2021, the Company recognized interest expense and amortization of debt discount of $ 1,248 and $ 5,237 , respectively, on the Notes.

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

Credit Facility Interest Payments*

2022 (October 1 - December 31) $ 20,000 $ 2,809

2023 15,000 10,505

2024 — 10,154

2025 — 10,154

2026 — 10,154

2027 and thereafter 235,000 3,808

Total $ 270,000 $ 47,584

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

* Interest payments are based on effective interest rate as of September 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 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.

As of September 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

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

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

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

Three months ended 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

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

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

Nine months ended September 30, 2022 27,219 $ 3,191 $ 117.23

Nine months ended September 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.

1 unchanged sentence

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.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 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:

Repurchases may be discontinued at any time by the management.

The Company purchased shares of its common stock, for a total consideration including commissions, under repurchase programs, as below:

Shares repurchased Total consideration Weighted average purchase price per share

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

Three months ended September 30, 2022 76,809 $ 11,521 $ 150.00

Three months ended September 30, 2021 244,580 $ 28,196 $ 115.28

Nine months ended September 30, 2022 503,858 $ 68,521 $ 135.99

Nine months ended September 30, 2021 844,656 $ 83,605 $ 98.98

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.

Components of net periodic benefit costs, were as follows:

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

Components of net periodic benefit costs and actuarial loss reclassified from AOCI, were as follows:

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

2022 2021 2022 2021

4 unchanged sentences

Net gratuity cost $ 1,155 $ 1,084 $ 3,594 $ 3,281

Amortization of actuarial loss, gross of tax $ 147 $ 178 $ 451 $ 533

Income tax effects on amortization of actuarial loss ( 44 ) ( 32 ) ( 136 ) ( 154 )

1 unchanged sentence

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

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

The Company makes annual contributions to the employees’ gratuity fund of the India Plan established with leading insurance companies.

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

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

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

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 30, 2022

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

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

Change in Plan Assets

Plan assets at January 1, 2022 $ 13,605

Plan assets as of January 1, 2022 $ 13,605

Actual return 656

2 unchanged sentences

Effect of exchange rate changes ( 1,206 )

Plan assets at June 30, 2022

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

Plan assets as of September 30, 2022

* Benefits payments were substantially made through the plan assets during the nine months ended September 30, 2022 .

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 social security contribution plan.

1 unchanged sentence

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

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

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

2022 2021 2022 2021

1 unchanged sentence

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,

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

2022 2021 2022 2021

4 unchanged sentences

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

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

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.

The Company recognizes changes to the lease term by remeasuring lease liabilities as of the date of such modification with the resultant adjustment to the ROU assets.

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

As part of the Company’s efforts to optimize its existing network of operations centers, the Company continued to evaluate its office facilities to determine where it can exit or consolidate its use of office space.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

September 30, 2022

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

Supplemental balance sheet information

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Operating Lease

10 unchanged sentences

Total finance lease liabilities $ 440 $ 370

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

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

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

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

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

Finance lease:

6 unchanged sentences

Variable lease costs 1,298 1,779 3,827 5,672

$ 7,370 $ 8,924 $ 14,534 $ 17,525

Total lease cost $ 6,700 $ 8,216 $ 21,350 $ 25,882

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

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

Six months ended June 30,

Nine months ended September 30,

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

4 unchanged sentences

Right-of-use assets obtained in exchange for new finance lease liabilities $ 218 $ 79

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)

4 unchanged sentences

Operating lease 7.0 % 7.3 %

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 $ 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:

The Company modified certain of its operating leases, resulting in an increase of its lease liabilities by $ 209 and a decrease of its lease liabilities by $ 1,022 during the nine months ended September 30, 2022 and 2021, respectively, with a corresponding adjustment to ROU assets.

As of September 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 September 30, 2022 were as follows:

Operating Leases Finance Leases

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

2022 (October 1 - December 31) $ 5,347 $ 46

2023 20,723 197

7 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

Operating Leases Finance Leases

8 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.

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

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

The Company’s effective tax rate 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.

The continued 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 13.7 % during the three months ended September 30, 2021 to 24.2 % during the three months ended September 30, 2022.

The Company recorded income tax expense of $ 12,447 and $ 4,196 for the three months ended September 30, 2022 and 2021, respectively.

The increase in income tax expense was primarily as a result of higher profit during the three months ended September 30, 2022, compared to the three months ended September 30, 2021, the recording of a one-time deferred tax benefit of $ 2,400 on settlement of the Notes during the three months ended September 30, 2021, and higher excess tax benefits during the three months ended September 30, 2021.

The Company’s effective tax rate increased from 20.3 % during the nine months ended September 30, 2021 to 23.9 % during the nine months ended September 30, 2022.

The Company recorded income tax expense of $ 34,774 and $ 22,019 for the nine months ended September 30, 2022 and 2021, respectively.

The increase in income tax expense was primarily as a result of higher profit during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, the recording of a one-time deferred tax benefit of $ 2,400 on settlement of the Notes during the nine months ended September 30, 2021, and an increase in non-deductible expenses, partially offset by higher excess tax benefits during the nine months ended September 30, 2022.

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

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 aggregate increase of $ 17,640 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 September 30, 2022.

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

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

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

2022 2021 2022 2021

Deferred taxes benefit / (expense) recognized on:

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

Unrealized gain/(loss) on cash flow hedges $ 2,348 $ ( 980 ) $ 5,146 $ ( 1,201 )

Reclassification adjustment for cash flow hedges ( 133 ) 370 802 1,186

1 unchanged sentence

Foreign currency translation loss 7,919 630 8,898 1,859

Total income tax benefit recognized in AOCI $ 3,656 $ 1,478 $ 4,620 $ 1,702

Total income tax benefit / (expense) recognized in AOCI $ 10,090 $ ( 12 ) $ 14,710 $ 1,690

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

Stock-Based Compensation

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

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

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

2022 2021 2022 2021

4 unchanged sentences

Income tax benefit related to share-based compensation, including excess tax benefits $ 2,833 $ 2,697 $ 8,855 $ 7,129

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2022

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

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

As of September 30, 2022, the Company had 1,308,384 shares available for grant under the 2018 Omnibus Incentive Plan.

Stock Options

3 unchanged sentences

Value Weighted-Average

Outstanding at December 31, 2021 3,093 $ 27.62 $ 362 2.0

Outstanding as of December 31, 2021 3,093 $ 27.62 $ 362 2.0

Granted — — — —

1 unchanged sentence

Forfeited — — — —

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

Vested and exercisable at June 30, 2022

Outstanding as of September 30, 2022 3,093 $ 27.62 $ 370 1.3

Vested and exercisable as of September 30, 2022

3,093 $ 27.62 $ 370 1.3

2 unchanged sentences

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.

For purposes of the match, “newly acquired shares” includes the employee’s first quarter 2022 open market purchase of the common stock, and

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

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;

2 unchanged sentences

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.

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

Restricted Stock Units

3 unchanged sentences

Fair Value Number Weighted-Average

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

Outstanding as of December 31, 2021* 982,187 $ 81.61 — $ —

Granted 356,983 121.15 52,636 124.76

1 unchanged sentence

Forfeited ( 77,894 ) 94.48 ( 4,177 ) 124.76

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)

Outstanding as of September 30, 2022* 958,651 $ 97.74 48,459 $ 124.76

* As of September 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 September 30, 2022, unrecognized compensation cost of $ 73,569 is expected to be expensed over a weighted average period of 2.5 years.

Performance Based Stock Awards

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

During the 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.

During the nine months ended September 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.

2 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

Revenue Based PRSUs Market Condition Based PRSUs

1 unchanged sentence

Fair Value Number Weighted Average

Outstanding at December 31, 2021 58,864 $ 78.29 172,042 $ 113.74

Outstanding as of December 31, 2021 58,864 $ 78.29 172,042 $ 113.74

Granted 53,122 119.98 79,631 155.67

1 unchanged sentence

Forfeited ( 6,113 ) 97.62 ( 14,940 ) 126.10

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.

Outstanding as of September 30, 2022 105,873 $ 98.09 236,733 $ 127.07

As of September 30, 2022, unrecognized compensation cost of $ 24,273 is expected to be expensed over a weighted average period of 2.0 years.

Employee Stock Purchase Plan

1 unchanged sentence

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 first offering period under the 2022 ESPP commenced on October 1, 2022 with a term of three months.

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)

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 September 30, 2022.

During the three and nine months ended September 30, 2022, the Company recognized revenues, net of $ 814 and $ 1,388 , respectively related to this service contract.

The Company had outstanding accounts receivable, net of $ 804 related to this service contract as of September 30, 2022.

Commitments and Contingencies

Capital Commitments

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

As of September 30, 2022, the Company had committed to spend approximately $ 6,200 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.”

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

to meet certain performance investment criteria and certain other

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

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

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 September 30, 2022 and December 31, 2021 is $ 37,717 and $ 34,276 , respectively.

The Company has made payments and/or provided bank guarantees against these demands in the amounts of $ 7,659 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.

Amounts paid as deposits in respect of such assessments aggregating to $ 6,030 and $ 6,172 as of September 30, 2022 and December 31, 2021, respectively, are included in “Other assets” and amounts deposited for bank guarantees aggregating to $ 1,629 and $ 1,782 as of September 30, 2022 and December 31, 2021, 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.

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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 $ 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.

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 $ 5,619 and $ 6,387 as of September 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 $ 3,548 and $ 3,322 as of September 30, 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 September 30, 2022 and December 31, 2021.

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

Except for some components of the assessment for which the Company has recognized a provision in the financial statements, the Company believes that the amount demanded by such authority is not a meaningful indicator of the potential liabilities of the Company, and that the matter is without merit.

The Company is defending against the assessment order and has accordingly instituted an appeal against the order before the relevant tribunal while also making a payment under protest of the amount demanded, being a prerequisite for the appeal to be admitted.

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

The Company will continue to monitor and evaluate its position based on future events and developments in this matter.

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

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

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

The Company will complete its evaluation once the subject rules are notified and will give appropriate impact in the

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

September 30, 2022

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

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.

5 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements