What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-07-27 compared with 2023-04-27 · 445 added, 241 removed, 791 unchanged (46% of the section changed)

3 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current assets:

35 unchanged sentences

Common stock, $ 0.001 par value;

100,000,000 shares authorized, 40,334,368 shares issued and 33,321,455 shares outstanding as of March 31, 2023 and 39,987,976 shares issued and 33,234,444 shares outstanding as of December 31, 2022

100,000,000 shares authorized, 40,349,727 shares issued and 33,152,670 shares outstanding as of June 30, 2023 and 39,987,976 shares issued and 33,234,444 shares outstanding as of December 31, 2022

Additional paid-in capital 472,124 445,108

2 unchanged sentences

Total including shares held in treasury 1,347,521 1,200,110

7,012,913 shares as of March 31, 2023 and 6,753,532 shares as of December 31, 2022, held in treasury, at cost

7,197,057 shares as of June 30, 2023 and 6,753,532 shares as of December 31, 2022, held in treasury, at cost

( 513,307 ) ( 441,931 )

5 unchanged sentences

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

Three months ended March 31,

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

2023 2022 2023 2022

Revenues, net $ 404,996 $ 346,782 $ 805,639 $ 675,990

11 unchanged sentences

Interest expense ( 3,240 ) ( 1,502 ) ( 6,625 ) ( 2,378 )

Other income, net 3,155 2,411

Other income/(loss), net 2,661 ( 174 ) 5,816 2,237

Income before income tax expense and earnings from equity affiliates 64,556 46,828 123,879 94,094

17 unchanged sentences

(In thousands)

Three months ended March 31,

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

2023 2022 2023 2022

Net income $ 49,068 $ 35,846 $ 100,399 $ 72,024

6 unchanged sentences

Retirement benefits (2)

( 23 ) 149 ( 48 ) 304

Income tax effects relating to above (3)

4 unchanged sentences

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, net in the unaudited consolidated statements of income.

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

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

4 unchanged sentences

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

For the three months ended March 31, 2023 and 2022

For the three months ended June 30, 2023 and 2022

(In thousands, except share count)

1 unchanged sentence

Shares Amount Shares Amount

Balance as of January 1, 2023 39,987,976 $ 40 $ 445,108 $ 899,105 $ ( 144,143 ) ( 6,753,532 ) $ ( 441,931 ) $ 758,179

Balance as of March 31, 2023 40,334,368 $ 40 $ 460,527 $ 950,436 $ ( 131,487 ) ( 7,012,913 ) $ ( 484,294 ) $ 795,222

Stock issued against stock-based compensation plans 15,359 — 86 — — — — 86

3 unchanged sentences

Net income — — — 49,068 — — — 49,068

Balance as of June 30, 2023 40,349,727 $ 40 $ 472,124 $ 999,504 $ ( 124,147 ) ( 7,197,057 ) $ ( 513,307 ) $ 834,214

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

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

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

Stock-based compensation — — 13,340 — — — — 13,340

Acquisition of treasury stock — — — — — ( 205,716 ) ( 28,806 ) ( 28,806 )

Other comprehensive loss — — — — ( 35,068 ) — — ( 35,068 )

Net income — — — 35,846 — — — 35,846

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

EXLSERVICE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

For the six months ended June 30, 2023 and 2022

(In thousands, except share count)

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

Shares Amount Shares Amount

January 1, 2023 39,987,976 $ 40 $ 445,108 $ 899,105 $ ( 144,143 ) ( 6,753,532 ) $ ( 441,931 ) $ 758,179

Stock issued against stock-based compensation plans 361,751 — 1,098 — — — — 1,098

Stock-based compensation — — 25,918 — — — — 25,918

Acquisition of treasury stock — — — — — ( 443,525 ) ( 71,376 ) ( 71,376 )

Other comprehensive income — — — — 19,996 — — 19,996

Net income — — — 100,399 — — — 100,399

Balance as of June 30, 2023 40,349,727 $ 40 $ 472,124 $ 999,504 $ ( 124,147 ) ( 7,197,057 ) $ ( 513,307 ) $ 834,214

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

Shares Amount Shares Amount

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

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

Stock issued against stock-based compensation plans 286,821 — — — — — — —

3 unchanged sentences

Net income — — — 72,024 — — — 72,024

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

See accompanying notes to unaudited consolidated financial statements.

2 unchanged sentences

(In thousands)

Three months ended March 31,

Six months ended June 30,

Cash flows from operating activities:

Net income $ 100,399 $ 72,024

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

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

Depreciation and amortization expense 26,464 27,739

1 unchanged sentence

Amortization of operating lease right-of-use assets 10,332 12,005

Unrealized loss/(gain) on investments 8,186 ( 384 )

Unrealized foreign currency exchange loss/(gain), net 2,814 ( 3,165 )

Unrealized (gain)/loss on investments 7,222 ( 275 )

Unrealized foreign currency exchange (gain)/loss, net 1,288 ( 10,280 )

Deferred income tax benefit ( 18,283 ) ( 1,462 )

Allowance for expected credit losses 479 170

Fair value changes in contingent consideration — 1,000

Others, net 1,202 526

9 unchanged sentences

Operating lease liabilities ( 10,829 ) ( 11,922 )

Net cash provided by/(used for) operating activities 16,025 ( 26,870 )

Net cash provided by operating activities 63,559 53,008

Cash flows from investing activities:

10 unchanged sentences

Acquisition of treasury stock ( 70,638 ) ( 60,191 )

Payment of contingent consideration ( 5,000 ) —

Proceeds from ESPP contribution 3,800 —

Net cash (used for)/provided by financing activities ( 91,304 ) 3,576

Proceeds from exercise of stock options 85 —

Net cash used for financing activities ( 101,833 ) ( 35,266 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,524 ( 5,365 )

11 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

June 30, 2023

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

20 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

(b) Use of Estimates

1 unchanged sentence

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

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

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

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

The significant estimates and assumptions that affect the unaudited consolidated financial statements include, but are not limited to, estimates of the fair value of the identifiable intangible assets and contingent consideration, purchase price allocation, including revenue projections and the discount rate applied within the discounted cash flow model for business acquisitions, credit risk of customers, 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, stock-based awards, and debt 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.

23 unchanged sentences

The chief operating decision maker (“CODM”) generally reviews financial information such as revenues, cost of revenues and gross profit, disaggregated by the operating segments to allocate an overall budget among the operating segments.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

The Company does not allocate, and therefore the CODM does not evaluate, certain operating expenses, interest expense or income taxes by segment.

1 unchanged sentence

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

Revenues and cost of revenues for the three months ended March 31, 2023 and 2022, respectively, for each of the reportable segments, are as follows:

Three months ended March 31, 2023

Revenues and cost of revenues for the three months ended June 30, 2023 and 2022, respectively, for each of the reportable segments, are as follows:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

Three months ended June 30, 2023

Insurance Healthcare Emerging Business Analytics Total

10 unchanged sentences

(1) Exclusive of depreciation and amortization expense.

Three months ended March 31, 2022

Three months ended June 30, 2022

Insurance Healthcare Emerging Business Analytics Total

5 unchanged sentences

Operating expenses 78,494

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

Income tax expense 11,125

Gain from equity-method investment 143

Net income $ 35,846

(1) Exclusive of depreciation and amortization expense.

Revenues and cost of revenues for the six months ended June 30, 2023 and 2022, respectively, for each of the reportable segments, are as follows:

Six months ended June 30, 2023

Insurance Healthcare Emerging Business Analytics Total

Revenues, net $ 254,393 $ 53,859 $ 133,361 $ 364,026 $ 805,639

Cost of revenues (1)

166,646 36,349 73,815 227,879 504,689

Gross profit (1)

$ 87,747 $ 17,510 $ 59,546 $ 136,147 $ 300,950

Operating expenses 176,691

Foreign exchange gain, net, interest expense and other income, net ( 380 )

3 unchanged sentences

(1) Exclusive of depreciation and amortization expense.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

Six months ended June 30, 2022

Insurance Healthcare Emerging Business Analytics Total

Revenues, net $ 211,823 $ 49,207 $ 104,620 $ 310,340 $ 675,990

Cost of revenues (1)

135,727 35,345 60,427 197,224 428,723

Gross profit (1)

$ 76,096 $ 13,862 $ 44,193 $ 113,116 $ 247,267

Operating expenses 156,211

Foreign exchange gain, net, interest expense and other income, net 3,038

Income tax expense 22,327

Gain from equity-method investment 257

Net income $ 72,024

(1) Exclusive of depreciation and amortization expense.

Revenues, net by service type, were as follows:

Three months ended March 31,

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

2023 2022 2023 2022

Digital operations and solutions (1)

5 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

Three months ended March 31,

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

2023 2022 2023 2022

Revenues, net

6 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Long-lived assets

4 unchanged sentences

Long-lived assets $ 152,111 $ 138,175

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

Revenues, net

2 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Accounts receivable, net $ 288,305 $ 259,222

3 unchanged sentences

Consideration received for process transition activities $ 9,122 $ 5,423

Accounts receivable includes $ 155,992 and $ 126,027 as of March 31, 2023 and December 31, 2022, respectively, representing unbilled receivables.

Accounts receivable includes $ 148,370 and $ 126,027 as of June 30, 2023 and December 31, 2022, respectively, representing unbilled receivables.

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

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

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

reduced from revenues.

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

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

3 unchanged sentences

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

Revenue recognized during the three months ended March 31, 2023 and 2022, which was included in the contract liabilities balance at the beginning of the respective periods:

Three months ended March 31,

Deferred revenue (consideration received in advance)

Revenue recognized during the three and six months ended June 30, 2023 and 2022, 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,

2023 2022 2023 2022

Deferred revenue (consideration received in advance) $ 2,990 $ 4,306 $ 15,992 $ 13,870

Consideration received for process transition activities $ 305 $ 298 $ 1,008 $ 664

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

Contract acquisition and fulfillment costs

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

Contract Acquisition Costs Contract Fulfillment Costs

Three months ended Year ended Three months ended Year ended

March 31, 2023 March 31, 2022 December 31, 2022 March 31, 2023 March 31, 2022 December 31, 2022

Contract Acquisition Costs

Three months ended Six months ended Year ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 December 31, 2022

Opening Balance $ 1,994 $ 927 $ 1,095 $ 511 $ 511

2 unchanged sentences

Closing Balance $ 2,183 $ 983 $ 2,183 $ 983 $ 1,095

There was no impairment for contract acquisition and contract fulfillment costs as of March 31, 2023 and December 31, 2022.

Contract Fulfillment Costs

Three months ended Six months ended Year ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 December 31, 2022

Opening Balance $ 17,873 $ 7,435 $ 13,871 $ 5,795 $ 5,795

Additions 4,225 3,308 8,843 5,485 15,509

Amortization ( 653 ) ( 576 ) ( 1,269 ) ( 1,113 ) ( 7,433 )

Closing Balance $ 21,445 $ 10,167 $ 21,445 $ 10,167 $ 13,871

There was no impairment for contract acquisition and contract fulfillment costs as of June 30, 2023 and December 31, 2022.

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

3 unchanged sentences

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.

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Accounts receivable, including unbilled receivables $ 290,105 $ 260,554

1 unchanged sentence

Accounts receivable, net $ 288,305 $ 259,222

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

June 30, 2023

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

Three months ended March 31, Year ended

2023 2022 December 31, 2022

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

Three months ended Six months ended Year ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 December 31, 2022

Opening Balance $ 1,671 $ 588 $ 1,332 $ 573 $ 573

5 unchanged sentences

To reduce credit risk, the Company conducts ongoing credit evaluations of its customers.

No customer accounted for more than 10% of accounts receivable, net, as of March 31, 2023 and December 31, 2022.

No customer accounted for more than 10% of accounts receivable, net, as of June 30, 2023 and December 31, 2022.

Earnings Per Share

3 unchanged sentences

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

Three months ended March 31,

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

2023 2022 2023 2022

Net income $ 49,068 $ 35,846 $ 100,399 $ 72,024

8 unchanged sentences

Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share 249,831 — 179,550 541

Other Income, net

Other income, net consists of the following:

Three months ended March 31,

Gain on sale and mark-to-market on investments $ 1,644 $ 1,236

Interest and dividend income 1,721 1,370

Others, net ( 210 ) ( 195 )

Other income, net $ 3,155 $ 2,411

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

June 30, 2023

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

Other Income/(Loss), net

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

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

2023 2022 2023 2022

Gain on sale and mark-to-market on investments $ 1,095 $ 634 $ 2,739 $ 1,870

Interest and dividend income 1,653 847 3,374 2,217

Others, net ( 87 ) ( 1,655 ) ( 297 ) ( 1,850 )

Other income/(loss), net $ 2,661 $ ( 174 ) $ 5,816 $ 2,237

Cash, Cash Equivalents and Restricted Cash

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

March 31, 2023 March 31, 2022 December 31, 2022

June 30, 2023 June 30, 2022 December 31, 2022

Cash and cash equivalents $ 93,960 $ 106,304 $ 118,669

6 unchanged sentences

Investments consist of the following:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Short-term investments

9 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

June 30, 2023

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

1 unchanged sentence

Property and equipment, net consists of the following:

Estimated useful lives (Years) March 31, 2023 December 31, 2022

Estimated useful lives (Years) June 30, 2023 December 31, 2022

Owned Assets:

8 unchanged sentences

Motor vehicles 2 - 5

Buildings 30 970 961

Land — 634 629

12 unchanged sentences

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

During the three months ended March 31, 2023, there were no changes in estimated useful lives of property and equipment during the ordinary course of operations.

During the three and six months ended June 30, 2023, there were no material changes in estimated useful lives of property and equipment during the ordinary course of operations.

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

Three months ended March 31,

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

2023 2022 2023 2022

Depreciation and amortization expense $ 8,918 $ 9,929 $ 18,256 $ 19,045

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

June 30, 2023

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

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

Three months ended March 31,

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

2023 2022 2023 2022

Effect of foreign exchange gain/(loss) $ ( 66 ) $ ( 5 ) $ ( 145 ) $ 62

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Cost $ 42,478 $ 31,544

2 unchanged sentences

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

Three months ended March 31,

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

2023 2022 2023 2022

Amortization expense $ 2,425 $ 1,549 $ 4,400 $ 2,582

As of March 31, 2023 and December 31, 2022, the Company believes no impairment exists because the long-lived asset's future undiscounted net cash flows expected to be generated exceeds its carrying value;

As of June 30, 2023 and December 31, 2022, 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.

1 unchanged sentence

It is reasonably possible that the judgments and estimates described above could change in future periods.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

Goodwill and Other Intangible Assets

3 unchanged sentences

Currency translation adjustments 119 5 142 — 266

Balance as of March 31, 2023 $ 49,997 $ 21,879 $ 47,216 $ 286,732 $ 405,824

As of March 31, 2023, 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 the first quarter of the current fiscal year, business forecasts for the remainder of the year, stock price movements, generation and availability of cash and expansion plans.

Balance as of June 30, 2023 $ 50,048 $ 21,880 $ 47,243 $ 286,732 $ 405,903

As of June 30, 2023, 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 the first half 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 2022.

The Company did not identify any triggers or indications of potential impairment for its reporting units as of March 31, 2023.

The Company did not identify any triggers or indications of potential impairment for its reporting units as of June 30, 2023.

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

1 unchanged sentence

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

Other Intangible Assets

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

As of March 31, 2023

As of June 30, 2023

Carrying Amount Accumulated

9 unchanged sentences

Total intangible assets $ 105,624 $ ( 49,137 ) $ 56,487

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

As of December 31, 2022

Carrying Amount Accumulated

Amortization Net Carrying

Gross Carrying Amount Accumulated Amortization Net Carrying

Finite-lived intangible assets:

8 unchanged sentences

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

Three months ended March 31,

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

2023 2022 2023 2022

Amortization expense $ 4,204 $ 4,146 $ 8,353 $ 8,632

4 unchanged sentences

Non-compete agreements 2.3

Estimated future amortization expense related to finite-lived intangible assets as of March 31, 2023 was as follows:

2023 (April 1 - December 31) $ 10,503

2028 and thereafter 6,711

Total $ 59,781

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

June 30, 2023

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

Estimated future amortization expense related to finite-lived intangible assets as of June 30, 2023 was as follows:

2023 (July 1 - December 31) $ 6,315

2028 and thereafter 6,697

Total $ 55,587

Other Current Assets

Other current assets consist of the following:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Prepaid expenses $ 19,811 $ 18,132

Receivables from statutory authorities 15,609 15,724

Advance income tax, net 17,787 5,716

Receivables from statutory authorities 16,338 15,724

Derivative instruments 5,062 1,526

5 unchanged sentences

Other assets consist of the following:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Deferred contract fulfillment costs $ 19,333 $ 12,693

5 unchanged sentences

Other assets $ 48,255 $ 32,069

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Accrued expenses $ 50,714 $ 47,854

1 unchanged sentence

Contingent consideration 13,100 5,000

Accrued capital expenditures 7,021 4,032

Client liabilities 5,179 5,110

Derivative instruments 3,295 10,059

Accrued capital expenditures 4,619 4,032

Other current liabilities 7,205 2,867

Accrued expenses and other current liabilities $ 104,480 $ 95,352

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

Other Non-Current Liabilities

Other non-current liabilities consist of the following:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Retirement benefits $ 15,265 $ 12,982

Deferred transition revenue 7,981 4,408

Derivative instruments 3,209 6,218

Unrecognized tax benefits 2,329 2,329

Derivative instruments 613 6,218

Contingent consideration 589 13,689

7 unchanged sentences

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 during the three months ended March 31, 2023 and 2022:

The following table sets forth the changes in AOCI during the six months ended June 30, 2023 and 2022:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

Accumulated Other Comprehensive Income/(Loss)

3 unchanged sentences

Reclassification to net income (1)

— 4,229 ( 48 ) 4,181

Income tax effects (2)

( 1,136 ) ( 4,334 ) ( 37 ) ( 5,507 )

Accumulated other comprehensive income/(loss) as of March 31, 2023 $ ( 128,964 ) $ ( 2,778 ) $ 255 $ ( 131,487 )

Accumulated other comprehensive income/(loss) as of June 30, 2023 $ ( 129,098 ) $ 4,737 $ 214 $ ( 124,147 )

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

4 unchanged sentences

979 3,733 ( 92 ) 4,620

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

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

(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.

1 unchanged sentence

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

Fair Value Measurements

1 unchanged sentence

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

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

As of March 31, 2023 (Level 1) (Level 2) (Level 3) Total

Quoted Prices in

Active Markets for

Identical Assets Significant Other

Inputs Significant Other

As of June 30, 2023 (Level 1) (Level 2) (Level 3) Total

Cash equivalents - Money market funds*

$ 17,972 $ — $ — $ 17,972

Mutual funds** 68,891 — — 68,891

3 unchanged sentences

Contingent consideration***

— — 13,689 13,689

Total $ — $ 3,908 $ 13,689 $ 17,597

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

Quoted Prices in

Active Markets for

Identical Assets Significant Other

Inputs Significant Other

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

Cash equivalents - Money market funds*

$ 1,137 $ — $ — $ 1,137

Mutual funds** 110,964 — — 110,964

3 unchanged sentences

Contingent consideration***

— — 18,689 18,689

Total $ — $ 16,277 $ 18,689 $ 34,966

3 unchanged sentences

Derivative Financial Instruments:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

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

7 unchanged sentences

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

Three months ended March 31,

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

2023 2022 2023 2022

Opening balance $ 18,689 $ 9,000 $ 18,689 $ 9,000

1 unchanged sentence

Fair value changes — 1,000 — 1,000

Payments ( 5,000 ) — ( 5,000 ) —

Closing balance $ 13,689 $ 11,439 $ 13,689 $ 11,439

During the three months ended March 31, 2023 and 2022, there were no transfers among Level 1, Level 2 and Level 3.

During the three and six months ended June 30, 2023 and 2022, there were no transfers among Level 1, Level 2 and Level 3.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

Financial Instruments Not Carried at Fair Value :

5 unchanged sentences

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

For derivatives in cash flow hedging relationships as of March 31, 2023 and December 31, 2022, the Company had outstanding foreign currency forward contracts totaling $ 877,820 and $ 841,620 , respectively and interest rate swaps totaling $ 75,000 , each.

The Company estimates that approximately $ 2,086 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 March 31, 2023, could be reclassified into earnings within the next twelve months.

As of March 31, 2023, the maximum outstanding term of the cash flow hedges was approximately 42 months.

For derivatives in cash flow hedging relationships as of June 30, 2023 and December 31, 2022, the Company had outstanding foreign currency forward contracts totaling $ 831,250 and $ 841,620 , respectively and interest rate swaps totaling $ 75,000 , each.

The Company estimates that approximately $ 1,578 of derivative gains, 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, 2023, could be reclassified into earnings within the next twelve months.

As of June 30, 2023, the maximum outstanding term of the cash flow hedges was approximately 39 months.

The Company also enters into foreign currency forward contracts to 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.

1 unchanged sentence

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

Philippine peso and the U.K.

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

pound sterling (GBP).

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

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

The following table sets forth the aggregate notional principal amounts of outstanding foreign currency forward contracts for derivatives not designated as hedging instruments:

Foreign currency forward contracts denominated in:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

dollar (USD) 165,793 163,990

4 unchanged sentences

Colombian peso (COP) 2,449,676 —

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

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

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

Derivatives in cash flow hedging

relationships Derivatives not designated as hedging

June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

Other current assets $ 4,775 $ 1,271 $ 287 $ 255

Other assets $ 5,238 $ 820 $ — $ —

Accrued expenses and other current liabilities $ 4,952 $ 10,044 $ 188 $ 15

Accrued expenses and other

current liabilities $ 3,197 $ 10,044 $ 98 $ 15

Other non-current liabilities $ 613 $ 6,218 $ — $ —

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 March 31,

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

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

Derivative financial instruments:

2023 2022 2023 2022

Unrealized gain/(loss) recognized in AOCI

2 unchanged sentences

Derivatives not designated as hedging instruments $ ( 370 ) $ ( 5,457 ) $ 2,158 $ ( 6,356 )

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:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

June 30, 2023

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

Three months ended March 31,

As per unaudited consolidated statements of income Gain/(loss) on derivative financial instruments As per unaudited consolidated statements of income Gain/(loss) on derivative financial instruments

Cash flow hedging relationships

The following table sets forth the 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 June 30,

As per unaudited consolidated

statements of

income Gain/(loss) on derivative financial instruments As per unaudited consolidated

statements of

income Gain/(loss) on derivative financial instruments

Derivatives in cash flow hedging relationships

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

11 unchanged sentences

$ 324 $ ( 370 ) $ 1,423 $ ( 5,457 )

The following tables summarizes the Company’s debt position:

March 31, 2023 December 31, 2022

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

Six months ended June 30,

As per unaudited consolidated

statements of

income Gain/(loss) on derivative financial instruments As per unaudited consolidated

statements of

income Gain/(loss) on derivative financial instruments

Derivatives in cash flow hedging relationships

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

Cost of revenues $ 504,689 $ ( 3,896 ) $ 428,723 $ 2,777

General and administrative expenses $ 92,351 ( 375 ) $ 80,379 475

Selling and marketing expenses $ 57,731 ( 32 ) $ 48,155 29

Depreciation and amortization expense $ 26,609 ( 166 ) $ 27,677 167

Interest expense $ 6,625 240 $ 2,378 —

Total before tax ( 4,229 ) 3,448

Income tax effects on above 765 ( 935 )

Net of tax $ ( 3,464 ) $ 2,513

Derivatives not designated as hedging instruments

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

Foreign exchange gain/(loss), net $ 429 $ 2,158 $ 3,179 $ ( 6,356 )

$ 429 $ 2,158 $ 3,179 $ ( 6,356 )

The following table summarizes the Company’s debt position:

June 30, 2023 December 31, 2022

Revolving credit facility

1 unchanged sentence

Long-term borrowings

190,000 220,000

Total borrowings $ 220,000 $ 250,000

Unamortized debt issuance costs for the Company’s revolving credit facility of $ 1,109 and $ 1,177 as of March 31, 2023 and December 31, 2022, 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 $ 1,040 and $ 1,177 as of June 30, 2023 and December 31, 2022, respectively, are presented under “Other current assets” and “Other assets,” as applicable in the consolidated balance sheets.

Credit Agreement

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

June 30, 2023

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

Credit Agreement

The Company held a $ 300,000 revolving credit facility pursuant to its credit agreement (the “Credit Agreement”), dated as of November 21, 2017 with certain lenders and Citibank N.A.

13 unchanged sentences

The revolving credit facility carried an effective interest rate as shown below:

Three months ended March 31,

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

2023 2022 2023 2022

Effective Interest Rate 6.2 % 2.0 % 6.1 % 1.7 %

As of March 31, 2023 and December 31, 2022, the Company was in compliance with all financial and non-financial covenants listed under the revolving credit facility.

Expected payments for all of the Company’s borrowings as of March 31, 2023 were as follows:

As of June 30, 2023 and December 31, 2022, the Company was in compliance with all financial and non-financial covenants listed under the revolving credit facility.

Expected payments for all of the Company’s borrowings as of June 30, 2023 were as follows:

Revolving credit facility

Principal Payments Interest Payments*

2023 (April 1 - December 31) $ 40,000 $ 8,048

Payments Interest

2023 (July 1 - December 31) $ 30,000 $ 6,216

2024 — 11,522

2025 — 11,522

2026 — 11,522

2027 190,000 4,321

Total $ 220,000 $ 45,103

* Interest payments are based on effective interest rate as of March 31, 2023.

* Interest payments are based on interest rate prevailing as of June 30, 2023.

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 each of March 31, 2023 and December 31, 2022, the Company had outstanding letters of credit of $ 461 , that were not recognized in the consolidated balance sheets.

As of each of June 30, 2023 and December 31, 2022, the Company had outstanding letters of credit of $ 461 , that were not recognized in the consolidated balance sheets.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

June 30, 2023

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

3 unchanged sentences

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

Three months ended March 31, 2023 38,356 $ 6,529 $ 170.22

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

Three months ended June 30, 2023 — $ — $ —

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

Six months ended June 30, 2023 38,356 $ 6,529 $ 170.22

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

(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.

4 unchanged sentences

Shares repurchased Total consideration Weighted average purchase price per share

Three months ended March 31, 2023 221,025 $ 35,834 $ 162.13

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

Three months ended June 30, 2023 184,144 $ 29,013 $ 157.56

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

Six months ended June 30, 2023 405,169 $ 64,847 $ 160.05

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

Repurchased shares have been recorded as treasury shares and will be held until the Company’s board of directors designates that these shares be retired or used for other purposes.

5 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

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

3 unchanged sentences

The Company expects to earn a return of approximately 7.0 % per annum on the India Plan for the year ending on December 31, 2023.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

Change in Plan Assets

4 unchanged sentences

Effect of exchange rate changes 121

Plan assets as of March 31, 2023 $ 14,502

Plan assets as of June 30, 2023

* Benefits payments were substantially made through the plan assets during the six months ended June 30, 2023.

Components of net periodic benefit costs recognized in unaudited consolidated statements of income and actuarial (gain)/loss reclassified from AOCI, were as follows:

Three months ended March 31,

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

2023 2022 2023 2022

Service cost $ 953 $ 958 $ 1,909 $ 1,948

8 unchanged sentences

The Company may make discretionary contributions of up to a maximum of 3.0 % of employee compensation within certain limits.

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

Three months ended March 31,

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

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

2023 2022 2023 2022

Contribution to the 401(k) Plans $ 1,178 $ 1,026 $ 3,564 $ 3,043

The Company’s contribution for various defined social security contribution plans on behalf of employees in foreign subsidiaries of the Company were as follows:

Three months ended March 31,

The Company’s contribution for various defined social security contribution plans on behalf of employees in foreign subsidiaries of the Company was as follows:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

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

2023 2022 2023 2022

Contributions to the defined social security contribution plans $ 5,604 $ 4,549 $ 10,996 $ 8,762

2 unchanged sentences

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

The Company had performed an evaluation of its contracts with suppliers in accordance with ASC 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.

1 unchanged sentence

Supplemental balance sheet information

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Operating Lease

1 unchanged sentence

Operating lease liabilities - Current $ 14,482 $ 14,978

$ 14,095 $ 14,978

Operating lease liabilities - Non-current 50,575 48,155

45,655 48,155

Total operating lease liabilities $ 65,057 $ 63,133

7 unchanged sentences

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.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

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

Three months ended March 31,

Lease cost 2023 2022

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

Finance lease:

2023 2022 2023 2022

Amortization of right-of-use assets $ 39 $ 50 $ 77 $ 88

Interest on lease liabilities 18 14 38 28

57 64 115 116

Operating lease (a)

5,449 5,962 10,332 12,005

Variable lease costs 1,157 1,408 2,164 2,529

1 unchanged sentence

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

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

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

Three months ended March 31,

Six months ended June 30,

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

10 unchanged sentences

Operating lease 7.3 % 7.0 %

The Company modified certain of its operating leases, resulting in a decrease of its lease liabilities by $ 3,094 and an increase of its lease liabilities by $ 367 , during the three months ended March 31, 2023 and 2022, respectively, with a corresponding adjustment to ROU assets.

As of March 31, 2023 and December 31, 2022, the Company did not have any significant leases that have not yet commenced but that create significant rights and obligations for the Company.

Maturities of lease liabilities as of March 31, 2023 were as follows:

The Company modified certain of its operating leases, resulting in a decrease of its lease liabilities by $ 2,466 and an increase of its lease liabilities by $ 263 , during the six months ended June 30, 2023 and June 30, 2022, respectively, with a corresponding adjustment to ROU assets.

As of June 30, 2023 and December 31, 2022, 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, 2023 were as follows:

Operating Leases Finance Leases

2023 (April 1 - December 31) $ 13,501 $ 190

2023 (July 1 - December 31) $ 9,445 $ 133

2024 17,314 187

8 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

June 30, 2023

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

12 unchanged sentences

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 effective tax rate decreased from 23.7 % during the three months ended March 31, 2022 to 13.6 % during the three months ended March 31, 2023.

The Company recorded income tax expense of $ 8,058 and $ 11,202 for the three months ended March 31, 2023 and 2022, respectively.

The decrease in income tax expense was primarily as a result of higher excess tax benefits related to stock-based compensation during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, partially offset by an increase in income tax expense on higher profit and an increase in non-deductible expenses during the three months ended March 31, 2023.

During the three months ended March 31, 2023, the Company’s subsidiaries in India, U.K.

and Australia repatriated $ 76,000 (net of $ 4,015 withholding taxes), $ 15,598 and $ 9,081 , respectively, to the United States.

The effective tax rate increased from 23.8 % during the three months ended June 30, 2022 to 24.1 % during the three months ended June 30, 2023.

The Company recorded income tax expense of $ 15,554 and $ 11,125 for the three months ended June 30, 2023 and 2022, respectively.

The increase in income tax expense was primarily as a result of higher profit during the three months ended June 30, 2023, compared to the three months ended June 30, 2022, and an increase in non-deductible expenses during the three months ended June 30, 2023, partially offset by higher excess tax benefits related to stock-based compensation during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

The effective tax rate decreased from 23.7 % during the six months ended June 30, 2022 to 19.1 % during the six months ended June 30, 2023.

The Company recorded income tax expense of $ 23,612 and $ 22,327 for the six months ended June 30, 2023 and June 30, 2022, respectively.

The increase in income tax expense was primarily as a result of higher profit during the six months ended June 30, 2023, compared to the six months ended June 30, 2022, and an increase in non-deductible expenses, partially offset by higher excess tax benefits related to stock-based compensation during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

During the six months ended June 30, 2023, the Company’s subsidiaries in India, the United Kingdom and Australia repatriated $ 76,000 (net of $ 4,015 withholding taxes), $ 15,598 and $ 9,081 , respectively, to the United States.

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

Deferred income taxes recognized in AOCI were as follows:

Three months ended March 31,

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

2023 2022 2023 2022

Deferred taxes benefit / (expense) recognized on:

2 unchanged sentences

Reclassification adjustment for retirement benefits ( 18 ) ( 45 ) ( 37 ) ( 92 )

Foreign currency translation gain/(loss) ( 1,138 ) 499

Foreign currency translation adjustments 2 480 ( 1,136 ) 979

Total $ ( 2,516 ) $ 3,656 $ ( 5,507 ) $ 4,620

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

June 30, 2023

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

1 unchanged sentence

Stock-based compensation expense by nature of function, as below, are included in the unaudited consolidated statements of income:

Three months ended March 31,

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

2023 2022 2023 2022

Cost of revenues $ 3,341 $ 3,131 $ 6,907 $ 5,772

4 unchanged sentences

$ 2,789 $ 3,216 $ 12,619 $ 6,022

(1) Includes $ 12,520 and $ 3,610 during the three months ended March 31, 2023 and 2022 respectively, related to discrete benefits recognized in income tax expense in accordance with ASU No.

(1) Includes $ 190 and $ 14 during the three months ended June 30, 2023 and 2022, respectively, and $ 12,710 and $ 3,624 during the six months ended June 30, 2023 and 2022, respectively, related to discrete benefits recognized in income tax expense in accordance with ASU No.

2016-09, Compensation - Stock Compensation.

As of March 31, 2023 and December 31, 2022, the Company had 952,074 and 1,324,755 shares, respectively, available for grant under the 2018 Omnibus Incentive Plan.

As of June 30, 2023 and December 31, 2022, the Company had 678,615 and 1,324,755 shares, respectively, available for grant under the 2018 Omnibus Incentive Plan.

Stock Options

During the three months ended March 31, 2023 and 2022, there was no stock option activity under the Company’s stock-based compensation plans.

The number of stock options that were vested and exercisable as of each of March 31, 2023 and December 31, 2022 were 3,093 units.

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

Number of Stock

Options Weighted Average

Price Aggregate

Value Weighted Average

Outstanding as of December 31, 2022 3,093 $ 27.62 $ 362 1.0

Granted 331,336 150.75 — 10.0

Exercised ( 3,093 ) 27.62 384 —

Forfeited — — — —

Outstanding as of June 30, 2023 331,336 $ 150.75 $ 103 10.0

Vested and exercisable as of June 30, 2023

Weighted average grant date fair value of Stock options granted during the period $ 60.13

Stock options granted under the 2018 Omnibus Incentive Plan during the three and six months ended June 30, 2023, have a contractual period of ten years and vest ratably over four years .

The fair value of each stock option granted to employees is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Three and Six months ended June 30, 2023

Dividend yield —

Expected life (years) 6.25

Risk free interest rate for expected life 3.8 %

Volatility for expected life 32.4 %

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model.

As of June 30, 2023, unrecognized compensation cost of $ 19,801 is expected to be expensed over a weighted average period of 4.0 years.

The total grant date fair value of stock options exercised during the three and six months ended June 30, 2023 and 2022, was $ 30 and $ nil , respectively.

Share Matching Program

1 unchanged sentence

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.

During the three months ended March 31, 2023 and 2022, nil and 52,636 , respectively, restricted stock units were issued under the Company’s SMP.

As of each of March 31, 2023 and December 31, 2022, the number of unvested restricted stock units was 47,623 units.

Restricted stock unit activity under the SMP is shown below:

Restricted Stock Units (SMP)

Number Weighted Average

Outstanding as of December 31, 2022 47,623 $ 124.76

Forfeited ( 4,177 ) 124.76

Outstanding as of June 30, 2023 43,446 $ 124.76

As of June 30, 2023, unrecognized compensation cost of $ 3,165 is expected to be expensed over a weighted average period of 1.8 years.

Restricted Stock Units

6 unchanged sentences

Forfeited ( 61,323 ) 104.53

Outstanding as of March 31, 2023* 847,633 $ 121.44

* As of March 31, 2023 and December 31, 2022 restricted stock units vested for which the underlying common stock is yet to be issued are 119,908 and 174,490 respectively.

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

As of March 31, 2023, unrecognized compensation cost of $ 86,957 is expected to be expensed over a weighted average period of 2.9 years.

Outstanding as of June 30, 2023* 793,174 $ 123.29

* As of June 30, 2023 and December 31, 2022 restricted stock units vested for which the underlying common stock is yet to be issued are 130,528 and 174,490 respectively.

As of June 30, 2023, unrecognized compensation cost of $ 77,100 is expected to be expensed over a weighted average period of 2.7 years.

Performance Based Stock Awards

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

During the three months ended March 31, 2023, 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 (“PU”).

During the six months ended June 30, 2023, 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 (“PU”).

The remaining 60 % of each award recipient’s equity grants are PRSUs that are based on market conditions, contingent on the Company’s meeting a total shareholder return relative to a group of peer companies specified under the 2018 Plan, and are measured over a three-year performance period (“MU”).

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

PRSU activity under the Company’s stock plans is shown below:

6 unchanged sentences

Forfeited ( 5,399 ) 127.56 ( 17,252 ) 141.19

Outstanding as of March 31, 2023 93,329 $ 144.82 244,247 $ 158.62

As of March 31, 2023, unrecognized compensation cost of $ 43,169 is expected to be expensed over a weighted average period of 2.3 years.

Outstanding as of June 30, 2023 88,140 $ 145.86 227,309 $ 159.98

As of June 30, 2023, unrecognized compensation cost of $ 35,048 is expected to be expensed over a weighted average period of 2.1 years.

Employee Stock Purchase Plan

3 unchanged sentences

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

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

The second offering period under the 2022 ESPP commenced on January 1, 2023 with a term of six months .

During the three months ended March 31, 2023, 7,636 common shares were issued under the 2022 ESPP for purchases of common stock made during the first offering period that completed on December 31, 2022.

As of March 31, 2023 and December 31, 2022, 792,364 and 800,000 shares, respectively, remain available for future issuance under 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 March 31, 2023.

During the three months ended March 31, 2023, the Company recognized revenues, net of $ 951 related to this service contract.

The Company had outstanding accounts receivable of $ 1,217 and $ 856 , related to this service contract as of March 31, 2023 and December 31, 2022, respectively.

Activity under the Company’s 2022 ESPP is shown below:

Number of Shares Total Proceeds Received

Shares available for issuance as of December 31, 2022 800,000

Issuance of common stock related to the first offering period ( 7,636 ) $ 1,060

Shares available for issuance as of June 30, 2023 792,364

Issuance of common stock related to the second offering period made subsequent to June 30, 2023 26,099 $ 3,800

The ESPP is compensatory and results in compensation expense.

The fair value of common stock to be issued under the ESPP was determined using the Black-Scholes option pricing model with the following assumptions:

Six months ended June 30, 2023

Dividend yield —

Expected life (years) 0.5

Risk free interest rate for expected life 4.7 %

Volatility for expected life 38.9 %

Discount for illiquidity 10.3 %

The weighted average fair value of employee stock purchase rights granted pursuant to the ESPP during the six months ended June 30, 2023 was $ 25.86 .

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

June 30, 2023

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

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, 2023.

During the three months ended June 30, 2023 and 2022, the Company recognized revenues, net of $ 379 and $ 574 , respectively, related to this service contract.

During the six months ended June 30, 2023 and 2022, the Company recognized revenues, net of $ 1,330 and $ 574 , respectively, related to this service contract.

The Company had outstanding accounts receivable, net of $ 383 and $ 856 , related to this service contract as of June 30, 2023 and December 31, 2022, respectively.

Commitments and Contingencies

Capital Commitments

As of March 31, 2023, the Company had committed to spend approximately $ 7,500 under agreements to purchase property and equipment.

As of June 30, 2023, the Company had committed to spend approximately $ 6,600 under agreements to purchase property and equipment.

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

On June 15, 2023, the Company, along with other limited partners, entered into a limited partnership agreement with the general partner, PNP Financial Services Fund GP I, LLC and initial limited partner and outgoing partner, to form a partnership with the name Plug and Play Financial Services Fund I, L.P.

(the “Partnership”) for the primary purpose of making investments in growth-stage technology companies.

The Company is committed under the Partnership to make investments up to an amount of $ 4,000 .

Other Commitments

12 unchanged sentences

The Company is currently involved in transfer pricing and related income tax disputes with Indian tax authorities.

The aggregate amount demanded by Indian tax authorities (net of advance payments) as of March 31, 2023 and December 31, 2022 is $ 37,072 and $ 37,088 , respectively.

The Company has made payments and/or provided bank guarantees against these demands in the amounts of $ 7,316 and $ 7,532 , as of March 31, 2023 and December 31, 2022, respectively.

The aggregate amount demanded by Indian tax authorities (net of advance payments) as of June 30, 2023 and December 31, 2022 is $ 37,130 and $ 37,088 , respectively.

The Company has made payments and/or provided bank guarantees against these demands in the amounts of $ 7,328 and $ 7,532 , as of June 30, 2023 and December 31, 2022, respectively.

The Company believes that its positions will more likely than not be sustained upon final examination by the tax authorities, and accordingly has not accrued any liabilities with respect to these matters in its consolidated financial statements.

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 the amounts of $ 5,563 and $ 5,526 , as of March 31, 2023 and December 31, 2022, respectively.

The GST authorities rejected the Company’s refunds claims in the amounts of $ 3,892 and $ 3,866 as of March 31, 2023 and December 31, 2022, respectively.

Pursuant to reviewing the Company’s annual VAT filings, the Indian tax authorities raised aggregate VAT demands for tax years 2015 and 2017, in the amounts of $ 5,572 and $ 5,526 , as of June 30, 2023 and December 31, 2022, respectively.

The GST authorities rejected the Company’s refunds claims in the amounts of $$ 4,305 and $ 3,866 as of June 30,

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

2023 and December 31, 2022, respectively.

The Company has filed appeals against these matters and believes that it is more likely than not that upon final examination its position will be sustained based on its technical merits.

Accordingly, no provision was recognized as of March 31, 2023 and December 31, 2022, respectively.

Accordingly, no provision was recognized as of June 30, 2023 and December 31, 2022, respectively.

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 August 2019 and September 2020, the Indian Parliament passed various consolidating labor codes, including the Code on Social Security, 2020 (the “Indian Social Security Code”) which aims to rationalize labor laws.

The Indian Social Security

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

March 31, 2023

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

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

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

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

8 unchanged sentences

The Company will continuously monitor these matters to assess potential impacts to the financial statements.

Subsequent Events

On June 20, 2023, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation, which upon filing with the State of Delaware, and effectiveness thereof, will effect a 5 -for-1 forward stock split of the Company’s common stock (the “2023 Stock Split”) and an increase in the number of authorized shares of the Company’s common stock from 100,000,000 shares to 400,000,000 shares.

The par value of each share of common stock, $ 0.001 , shall remain unchanged.

The 2023 Stock Split was considered to not have been consummated as the common shares were not trading on Nasdaq Global Select Market on a post-split basis as of the date of issuance of the consolidated financial statements.

Pursuant to the 2023 Stock Split, each stockholder of record on July 25, 2023 holding shares of the Company’s common stock will receive four additional shares of the Company’s common stock for every one share held.

The additional shares are to be distributed after the close of business on August 1, 2023.

All share count and per share amounts in these consolidated financial statements are presented on a pre-split basis.

Below are the pro forma weighted average common stock outstanding and earnings per share (basic and diluted) as if 2023 Stock Split had been effective for all years presented:

EXLSERVICE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

June 30, 2023

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

Pro Forma (Unaudited)

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

2023 2022 2023 2022

Net income $ 49,068 $ 35,846 $ 100,399 $ 72,024

Basic weighted average common shares outstanding 166,776,770 167,017,055 166,986,130 167,113,090

Dilutive effect of share based awards 1,665,475 2,135,640 2,061,645 2,199,895

Diluted weighted average common shares outstanding 168,442,245 169,152,695 169,047,775 169,312,985

Earnings per share attributable to ExlService Holdings, Inc.

stockholders:

Basic $ 0.29 $ 0.21 $ 0.60 $ 0.43

Diluted $ 0.29 $ 0.21 $ 0.59 $ 0.43

Weighted average potentially dilutive shares considered anti-dilutive and not included in computing diluted earnings per share 1,249,155 — 897,750 2,705

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